Divisional Court File No.: 500-14 Small Claims Court File No.: SC-13-26867
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
KIMBERLY WAKE
Kimberly Wake, self-represented Plaintiff/Respondent
Plaintiff/Respondent
- and -
CLAYTON RUBY
Defendant/Appellant
Nader R. Hasan for the Defendant/Appellant
HEARD at Toronto: August 4, 2015
PERELL J.
REASONS FOR DECISION
A. INTRODUCTION
1The Appellant Clayton Ruby appeals the judgment of Deputy Judge B.C. Tait dated August 13, 2014 in which the Deputy Judge awarded the Respondent Kimberly Wake $10,000 and costs of $175, all with interest from July 25, 2013 pursuant to the Courts of Justice Act.
2For the reasons set out below, I dismiss the appeal.
B. FACTUAL AND PROCEDURAL BACKGROUND
3In August 2011, the law firm of Mr. Ruby, one of Canada’s preeminent criminal law lawyers, was retained by Trevor Edwards, who was accused of having committed very serious offences, including extortion, kidnapping, hostage taking, forcible confinement, and human trafficking.
4After a preliminary inquiry, Mr. Edwards, who had been represented by another lawyer, was committed to trial, and on August 31, 2011, Gerald Chan, Mr. Ruby’s partner, represented Mr. Edwards at the first day of a bail hearing. The bail hearing, however, was not completed and was to be resumed on September 29, 2011.
5Criminal proceedings against Ms. Wake, a co-accused with Mr. Edwards, had ended with the preliminary inquiry, and Ms. Wake, who was not a client of Mr. Ruby, out of friendship or loyalty to Mr. Edwards, wished to ensure that Mr. Ruby, and not just one of his partners, was present at the resumption of Mr. Edwards’ bail hearing, and in September 2011, she met with Mr. Ruby.
6Mr. Ruby and Ms. Wake came to an arrangement, in which Ms. Wake agreed to pay Mr. Ruby $20,000 for his legal services for the resumption of Mr. Edwards’ bail hearing, which they anticipated would involve court attendances for at least two days. On a much contested point, Mr. Ruby says that Ms. Wake was acting as agent for Mr. Edwards and that the arrangement was a retainer contract between Mr. Edwards and Mr. Ruby’s law firm. Ms. Wake says that the arrangement was a separate contract between her and Mr. Ruby.
7In advance of the resumption of the bail hearing, Ms. Wake paid the $20,000, which to her knowledge was to be deposited in the firm’s trust account for Mr. Edwards’ retainer.
8More precisely, Ms. Wake paid $20,000 in advance, as follows:
- $10,000 on September 15, 2011 and received a receipt from a staff member of the firm that noted:
Received from Kimberly Wake on behalf of Trevor Edwards the sum of ten thousand dollars cash Canadian funds. These funds are for the purpose of Clayton Ruby attending court on September 29, 2011 for a bail hearing.
- $6,000 on September 21, 2011 and once again a staff member gave her a receipt that noted:
Funds to be used toward Day 2 of bail hearings scheduled for September 29 & 30, 2011.
- $4,000 on September 26, 2011 and this time the receipt from the staff member stated:
Received from Kimberly Wake the sum of Four Thousand dollars Canadian cash for the trust account of Trevor Edwards. Funds to be used for second day of bail hearing on Friday September 30, 2011.
9On September 29, 2011, Mr. Ruby attended the first day of the resumed bail hearing, which ended with the judge reserving judgment overnight.
10The next day, September 30, 2011, on Mr. Edwards’ instructions, Mr. Ruby did not attend the hearing, and instead, Mr. Ruby sent his partner and co-counsel, Mr. Chan, to hear the judge’s determination, which was to deny bail.
11Mr. Edwards subsequently discharged Mr. Ruby, and did not pay $19,715.13 in legal fees, which Mr. Ruby’s firm wrote off.
12Some time passed, and then communications and attempted communications resumed between Ms. Wake and Mr. Ruby until on November 19, 2012, Ms. Wake went to Mr. Ruby’s office. She requested him to refund $10,000 of the $20,000 that she had paid for the bail hearing. When Mr. Ruby refused, on July 25, 2013, she sued him in Small Claims Court for the recovery of $10,000.
13The Small Claims Court trial was heard on August 13, 2014. Ms. Wake, Mr. Ruby, and Mr. Chan testified. In the court record, there was also an affidavit from Angela Chaisson, an associate of Mr. Ruby’s law firm. Ms. Chaisson’s affidavit attached a copy of the Law Society of Upper Canada’s Practice Management Guideline regarding third party retainer funds. The Guideline states, with my emphasis added:
Fee Payment by Third Party
Because you are not required to accept a third party payment on your client's behalf, you may suggest that the funds be provided directly to your client so that you may avoid dealing with the third party completely.
If you choose to accept payment from a third party on your client's behalf, prior to doing so, it is best practice to ensure that
- your client and the third party understand that the third party is not also your client
- your client and the third party understand that your client's matter is confidential and that no information will be released to the third party unless your client consents to the disclosure
- your client and the third party understand that your obligations are to your client if a dispute arises between your client and the third party
- you obtain your client's advance instructions regarding the refund of any unused portion of any retainer fee paid by the third party, if that was the nature of the payment
- you document the retainer fee payment and refund arrangement in a retainer agreement with or an engagement letter sent to your client, if that was the nature of the payment
- you obtain your client's consent to document the arrangement in a letter to the third party
…. it is prudent for you to provide the third party payor with a receipt for the payment you received.
In the event that you did not obtain advance instructions from your client about the refund of any unused portion of a retainer fee paid by a third party and a dispute arises where you cannot determine who should receive the refund, you must apply to a tribunal of competent jurisdiction for direction [rule 3.5-7 of the lawyers' Rules or subrule 3.07(6) of the Paralegal Rules].
14Mr. Ruby now appeals the Deputy Judge’s decision granting Ms. Wake judgment for $10,000.00.
15Mr. Ruby submits that the Deputy Judge made four significant errors, each of which would justify appellate review and a decision dismissing Ms. Wake’s action.
C. THE REASONS FOR DECISION
16To understand the Deputy Judge’s Reasons for Decision, it is necessary to note what Mr. Ruby pleaded in his Amended Statement of Defence about the arrangement with Ms. Wake. Paragraphs 4 to 9 of the Amended Statement of Defence state:
The Firm was retained to act on a bail hearing on behalf of Mr. Edwards.
The plaintiff provided $10,000 on September 15, 2011 for use on the first day of the bail hearing. She takes no issue with that payment. Then plaintiff then provided $6,000 on September 21, 2011 and $4,000 on September 26, 2011 in relation to the second day of the bail hearing. The plaintiff did in fact provide the sum of $10,000 for the second day of the bail hearing on the basis that it was to be used in relation to the bail hearing and Mr. Ruby’s attendance at the bail hearing.
The plaintiff wanted assurances that Mr. Ruby would attend the bail hearing. This is because she wanted senior counsel to handle all of the necessary evidence and legal work regarding the preparation for and attendance to argue the matter. Mr. Ruby fulfilled his end of the agreement with her.
At the time that the plaintiff provided the funds, it was believed that the merits of the bail hearing would take two days. In fact all evidence and argument took one day but there was a required attendance on the second day to hear the decision of the court. On the instruction of Mr. Edwards, Mr. Ruby did not attend the second day of the bail hearing but Gerald Chan, another lawyer, attended.
Mr. Ruby pleads that he fulfilled the terms of his agreement with the plaintiff as the $20,000 went entirely towards preparation for and attendance
at the first day of thehearing. In particular, the cost of preparation for the attendance for the hearing of argument totalled $19,285 plus HST.No funds can be returned to Ms. Wake because all funds deposited into a lawyer’s trust account (including those deposited by a third party) become property of the client – in this case, Mr. Edwards. If funds are owing, which is expressly denied, those funds can only be returned to Mr. Edwards. They cannot be given to Ms. Wake.
17The Deputy Judge’s Reasons for Decision were as follows:
I am in the unfortunate position of realizing that two seeming quite intelligent people looked at the same events and because of their different backgrounds, understood them in different ways. The point has been made, and made carefully, by Counsel for Mr. Ruby that law firms cannot just simply accept cash, and they have to put it somewhere and keep it in trust. And that is their way of thinking, and you [Ms. Wake] were told something about it apparently, but as far as I can tell, that would be meaningless to the plaintiff, because she was paying specific amounts of money to achieve specific results.
I consider that contract, which was entirely oral, to be separate from the contract that Mr. Ruby may have had with his client, and which he would not allow to be produced as a matter of confidentiality. But it weakens his position, in my view, and explains to me why whatever explanation you [Ms. Wake] did receive ma’am you did not understand.
You thought that you were buying two days of attendance. You wrote that you were buying two days of attendance, and the amended defence, in paragraph 5 says that the plaintiff did, in fact, provide the sum of $10,000 for the second day of the bail hearing, on the basis it was to be used in relation to the bail hearing and Mr. Ruby’s attendance at the bail hearing.
With respect, Mr. Ruby is Mr. Ruby, and is what Ms. Wake contracted for. It may be that within the Ruby firm he has become generalized as ‘the firm’ but that is not apparent from the pleadings, and the pleadings, as far as I am concerned completely support the evidence that was given by the plaintiff. She paid $10,000 for a specific result, and she did not get it.
And with respect, the fact that the law firm, for its own perfectly proper reasons, put that money in a trust account, does not alter Mr. Ruby’s personal obligation to do what he had contracted for.
I regret the result, because I have a great consideration for Mr. Ruby. I have no doubt that he did the utmost for the client, and it has been pointed out that even with the $10,000, he is substantially underwater in terms of recovery of fees from Mr. Edwards. That is every lawyer’s problem. But when they make a separate agreement, as in this case, I believe they did, then it is to be honoured. And accordingly, I am going to give judgment for the plaintiff for $10,000.
D. DISCUSSION AND ANALYSIS
1. Standard of Appellate Review
18The standard of appellate review for errors of law is correctness: Housen v. Nikolaisen, 2002 SCC 33.
19The standard of review for findings of fact is that factual findings ought not to be reversed unless it is established that the trial judge made a palpable and overriding error: Housen v. Nikolaisen, supra.
20The palpable and overriding error test is met if the findings are clearly wrong or can properly be characterized as unreasonable and unsupported by the evidence: H.L. v. Canada (A.G.), 2005 SCC 25 at paras. 55-56. A "palpable" error is one that is obvious, plain to see or clear: Housen v. Nikolaisen, supra, at paras. 5-6. An "overriding" error is an error that goes to the root of the finding of fact such that the fact cannot safely stand in the face of that error: Schwartz v. Canada, [1996] 1 S.C.R. 254, at para. 35.
21The standard of review for findings of mixed fact and law is on a spectrum between correctness and palpable and overriding error: Housen v. Nikolaisen, supra.
22As a matter of appellate review, contractual interpretation is an issue of mixed fact and law subject to deference, unless there is an extractible legal error such as: the application of an incorrect principle of interpretation; failure to construe the contract as a whole; failure to consider a required element of a legal test; or failure to consider a relevant factor: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 50, 53, 64; 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802 at paras. 3-4.
2. The No Contract Argument
23Mr. Ruby submits that the Deputy Judge erred in concluding that a contract existed because on the Deputy Judge’s findings of fact, there was no “meeting of the minds” between Mr. Ruby and Ms. Wake.
24There is no merit to this submission for four reasons.
25First, the submission misreads the Deputy Judge’s Reasons for Decision to say that he concluded that there was no meeting of the minds. While perhaps not eloquently stated, the Deputy Judge found that there was a contract; i.e., an intention to contract and a meeting of the minds, but that the parties to the contract (typically enough when litigation follows) differed about the terms of their contract and about the interpretation or performance of those terms.
26I agree with Mr. Ruby that a basic tenant of contract law is that the contracting parties must have come to a meeting of the minds. As Prof. John McCamus writes in his leading treatise, The Law of Contracts (Toronto: Irwin Law, 2005) at p. 31:
The basic idea running through the law of offer and acceptance is that the parties will be held to have reached an agreement when they have formed a mutual intention to enter into a bargain with each other and, further, are in agreement as to the terms of that bargain. It is only then that the parties have reached a true “consensus ad idem” or “meeting of the minds,” which, the theory at least, is an indispensable requirement for the formation of an agreement.
27However, I disagree with Mr. Ruby’s submission that the Deputy Judge erred in concluding that a contract was formed between Mr. Ruby and Ms. Wake. There was ample evidence for the Deputy Judge to conclude that there was a meeting of the minds and a binding oral contract.
28Second, in my opinion, the Deputy Judge made no error in his conclusion that there was a separate agreement between the parties as articulated by Ms. Wake. This contract was separate from the retainer contract between the law firm and Mr. Edwards, which had already been negotiated. What the Deputy Judge did was to consider the factual nexus or circumstances of the contracting and the communications between the parties, and he came to an objective determination of what the parties would have understood were the terms of that separate agreement, which terms were largely corroborated by the written receipts.
29Mr. Ruby submits, however, that a reasonable person standing in the shoes of the parties would have concluded in the totality of the circumstances that there was no separate contract between Ms. Wake and Mr. Ruby but rather that Ms. Wake was contracting on behalf of Mr. Edwards. I disagree, the evidence rather establishes that Mr. Ruby was contracting directly with Ms. Wake and that Mr. Edwards was a third party beneficiary to that contract.
30Mr. Ruby submits that objectively he could not have intended to enter into a contract as found by the Deputy Judge because such a contract would breach the Law Society’s Guideline, which it may be noted is a practice advisory not a rule of professional conduct.
31Mr. Ruby, however, did not do anything unprofessional by entering into a separate contract with Ms. Wake. Ms. Wake was not giving instructions for Mr. Edwards, who remained the client. She did not become privy to confidential lawyer and client communications. She simply wanted Mr. Ruby to be at the bail hearing, for which she was prepared to pay him. She never agreed that the money she was providing was to be used for anything other than legal services for the bail hearing; i.e. she did not agree that it was to be a contribution to Mr. Edwards’ retainer account. Further, the Law Society Guideline does not preclude refunding any unused portion of any retainer fee paid by a third party, but recommends, as a best practice, that the lawyer obtain the client's advance instructions regarding any refund. In the case at bar, there was ample time to obtain those instructions from Mr. Edwards, and those instructions should have been obtained before the firm accepted any money from Ms. Wake.
32It is also to be noted that where the lawyer does not obtain advance instructions from the client about the refund of any unused portion of a retainer fee paid by a third party and a dispute arises where the lawyer cannot determine who should receive the refund, the lawyer should apply to a tribunal of competent jurisdiction, which, practically speaking, is what occurred in the case at bar, where the Deputy Judge decided that the refund should go to Ms. Wake.
33Third, although on the appeal there now appears to be a dispute about who were the contracting parties, based on the pleadings, there is no merit to the submission that there was no meeting of the minds. In his Amended Statement of Defence, Mr. Ruby admits that there was an agreement, the terms of which he pleads he fulfilled. In his pleading, Mr. Ruby admits that Ms. Wake paid for legal services for the bail hearing, but he says that no funds could be refunded to Ms. Wake because they had been deposited into Mr. Edwards’ trust account. Thus, just based on Mr. Ruby’s pleadings, there is a contract, but, once again, a disagreement about the interpretation and application of the terms of that contract. That disagreement about the terms of the contract was resolved, correctly in my opinion, by the Deputy Judge in favour of Ms. Wake.
34Fourth, if the Deputy Judge erred, which in my opinion is not the case, his error was an error of fact finding but not a palpable and overriding one subject to appellate review.
3. The No Breach of Contract Argument
35Mr. Ruby submits that if there was a contract, it was not breached by him. Mr. Ruby submits that he attended the substantive portion of the bail hearing and his non-attendance on the second day was a trivial deviation from the contract. Further, he submits that sending just Mr. Chan was authorized by Mr. Edwards, the client who was the subject of the the bail hearing.
36I disagree with this submission, and rather I agree with the Deputy Judge that Mr. Ruby breached the agreement that he was to personally attend the bail hearing.
37It was a fundamental term of the agreement that Mr. Ruby attend the second day of the resumed bail hearing to earn the $10,000. As reflected in the receipts given to Ms. Wake, the $10,000 was received to be used for Mr. Ruby’s attendance at the second day of the bail hearing on Friday September 30, 2011. That was the bargain he made with Ms. Wake. That Ms. Wake would enjoy nothing substantive from Mr. Ruby’s attendance the second day misses the point that she bargained for Mr. Ruby’s attendance and she did not get what she bargained for. Conversely, all Mr. Ruby had to do to earn $10,000 and not breach the contract was to show up for the second day of the resumed hearing.
4. The No Damages Argument
38Mr. Ruby submits that Ms. Wake did not suffer any damages because his non-attendance and Mr. Chan’s attendance for the reading of the judgment did not affect and could not have affected the outcome of the decision.
39I agree that Mr. Ruby’s attendance on the second day of the resumed hearing would have made no difference to the outcome of the bail hearing, but, once again, this misses the point that Ms. Wake paid $10,000 for something she did not receive. Ms. Wake agreed to pay $10,000 for Mr. Ruby to show up for the second day of the resumed paid hearing; he did not show up, and so she got nothing of what she paid for.
40Ms. Wake did not bargain for a successful bail outcome for Mr. Edwards. She did not bargain about how Mr. Ruby should perform his services. It might have been a bad bargain for her to pay $10,000 just for Mr. Ruby to show up and listen to the outcome of the bail hearing, but it was her bad bargain to make and, once again, all Mr. Ruby had to do to earn his fee was to show up, which he did not do.
41Had Mr. Ruby attended the second day of hearing, he would have performed his side of what for him and for her would have been a fair bargain - in the aggregate - because otherwise Ms. Wake would have not paid enough for the work actually performed for the first day of the resumed hearing. In other words, had Mr. Ruby attended the second day of the bail hearing and not sent Mr. Chan, the firm would have earned approximately $20,000 for approximately $20,000 of legal services and Ms. Wake would have had no cause for complaint or any basis for asking for a refund. It is just irony to suggest that Mr. Edwards’ instructions for Mr. Ruby not to attend provided the better use of the funds earmarked for Mr. Edwards’ retainer because those moneys had already been expended, and it is not as if, had Mr. Ruby attended there would be money left over to apply to other services for Mr. Edwards. While it would have been a waste for two lawyers to attend, the one who should have attended was Mr. Ruby.
42In any event, it is not the case that Ms. Wake did not suffer damages from Mr. Ruby’s breach of the contract. Her side of the bargain for the contract was that she pay $10,000, which she did pay, and Mr. Ruby’s side of the contract was to attend the second day of the resumed bail hearing, which he did not do. As a matter of the contract - that the parties made - she lost $10,000 because Mr. Ruby did not perform his side of the bargain. In a sense, Ms. Wake’s payment in advance of $10,000 was a deposit for goods and services to be rendered. It is true that Ms. Wake did not suffer any additional damages from the non-performance of the bargain, but there was no performance, and she is entitled to have her advance payment paid back.
5. The Clean Hands Doctrine Argument
43Finally, Mr. Ruby submits that the Deputy Judge awarded Ms. Wake restitution, which is an equitable remedy, but the equitable doctrine of “clean hands” should have precluded any recovery because money, around $2,000, was paid to Ms. Wake by Mr. Edwards. Mr. Ruby submits that by seeking additional recovery, Ms. Wake is attempting to “double dip”.
44There is no merit to this argument for two reasons.
45First, the Deputy Judge awarded relief in contract not in restitution and thus the equitable doctrine does not apply.
46Second, although the Deputy Judge could have made an award in restitution, because it is arguable that there was a total failure in consideration because of Mr. Ruby’s failure attend the second day of the resumed bail hearing, Ms. Wake has clean hands.
47Mr. Edwards was a third party beneficiary of Ms. Wake’s contract with Mr. Ruby and had no legal obligation to repay Ms. Wake. But, more to the point, there would be no so-called double dipping until Ms. Wake received more than $20,000 which there is no evidence to support.
E. CONCLUSION
48For the above reasons, I dismiss the appeal with costs to Ms. Wake of $1,500, all inclusive.
Perell, J.
Released: August 5, 2015
CITATION: Wake v. Ruby, 2015 ONSC 4945
Divisional Court File No.: 500-14 Small Claims Court File No.: SC-13-26867
DATE: 20150805
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
KIMBERLY WAKE
Plaintiff (Respondent)
‑ and ‑
CLAYTON RUBY
Defendant (Appellant)
REASONS FOR DECISION
Perell, J.
Released: August 5, 2015