CITATION: Lee v. Chen, 2020 ONSC 5615

DIVISIONAL COURT FILE NO.: CV-18-136412-0000 DATE: 20200918

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

Ping Lee Appellant/Defendant

– and –

Rui Zhen Chen Respondent/Plaintiff

Self-represented Andrew Paul Ostrom, Counsel for Respondent/Plaintiff

HEARD at Toronto: by videoconference on September 16, 2020

Backhouse J.

Overview

[1] The appellant, Mr. Lee, appeals the May 21st, 2018 decision of Deputy Judge Di Gregorio of the Small Claims Court rendered after a trial heard over a five-day period in 2016 and 2017. Mr. Lee asks that the decision be set aside, and a new trial ordered.

[2] The respondent, Ms. Chen, sued Mr. Lee in the Richmond Hill Small Claims Court for misappropriation of $31,000. The claim was reduced to $25,000, the monetary jurisdiction of the small claims court at the time. Mr. Lee who was a paralegal at the time, represented Ms. Chen at the time of the claimed misappropriation. Mr. Chen and the law firm with which he was associated at the time, Canada Law Centre (“CLC”), counterclaimed for services claimed in four invoices totalling $24,686.89. At trial, damages in the amount of $25,000 plus costs and disbursements totalling $13,886.82 were awarded in Ms. Chen’s favour. Mr. Lee was found to have breached his fiduciary duty to Ms. Chen and to have misappropriated client trust funds. The counterclaim was determined to be “frivolous and untenable” and was dismissed.

Factual Background

[3] Around December 21, 2014, Ms. Chen and Mr. Lee met in the presence of Ms. Chen’s daughter and friend, Ms. McLaughlin, to discuss the retainer of CLC and Mr. Lee. Ms. Chen advanced $5000 to Mr. Lee on December 22, 2014 and received a receipt for this amount which bears the notation: “Re: small claims court files trial to end.” The trial judge accepted the evidence of Ms. Chen, her daughter and Ms. McLaughlin and found that the retainer was on a flat-fee basis and that it was to encompass:

(a) representation in a small claims matter which had not yet reached trial;

(b) representation on a continuation of trial in another small claims matter;

(c) enforcement of a judgment previously obtained in a small claims action; and

(d) to request and review accounts rendered by Ms. Chen’s former counsel, Mr. Eng.

A written retainer agreement was prepared by CLC but was not executed by either party.

[4] Mr. Lee subsequently represented Ms. Chen at trial in the two small claims court actions. Mr. Lee testified that he made some unsuccessful efforts to obtain access to the court file for the enforcement matter. Mr. Lee negotiated with Mr. Eng and obtained a $1000 refund in exchange for a full and final release. The $1000 refund was made payable by Mr. Eng to Mr. Lee who then was found by the trial judge to have misappropriated the funds.

[5] Ms. Chen’s evidence at trial was that in or around January 2015, she asked Mr. Lee to make payments on her behalf to six creditors totalling $30,000 and to obtain releases from the creditors in exchange and that Mr. Lee agreed to perform this work on a pro bono basis. Mr. Lee’s evidence was that he hoped to negotiate settlements with the creditors whereby they would accept less than the full amount owing to them in the cumulative amount of $30,000 and he would retain the difference. He acknowledged that he never disclosed this intention to Ms. Chen.

[6] Ms. Chen provided a bank draft in the amount of $30,000 to Mr. Lee. The funds were deposited into the sole bank account operated by CLC (which functioned as both a trust and a general account, contrary to the Law Society requirements). The funds were then used to pay a variety of CLC’s operating expenses and $12,000 was transferred by Mr. Lee to his personal account. Around June 5, 2015, Mr. Lee issued a personal cheque in the amount of $24,200 to a representative of four of the creditors. This cheque was returned marked non-sufficient funds. To date, none of the creditors have been paid and no portion of the funds has been returned to Ms. Chen.

[7] Ms. Chen retained new counsel around August 2015 and filed a complaint respecting Mr. Lee with the Law Society of Ontario. Mr. Lee’s license was suspended on an interim basis on March 8, 2016 and on a permanent basis on October 30, 2017. Mr. Lee appealed his suspension through the Law Society of Ontario’s internal appeal process which was not successful. A further appeal is pending before the Divisional Court.

[8] After Ms. Chen retained new counsel, Mr. Lee issued the four invoices to Ms. Chen totalling $24,686.89 which were the subject of his unsuccessful counterclaim and from which he appeals.

Issues

[9] In Mr. Lee’s factum the only issue raised was whether the trial judge erred in failing to apply the correct approach to assessing his accounts to Ms. Chen on a quantum meruit basis. In his oral submissions, Mr. Lee expanded his argument to include:

1. whether the trial judge erred in finding that the $30,000 Ms. Chen paid to Mr. Lee was to distribute funds to her creditors and obtain releases rather than for Mr. Lee to negotiate a settlement with the creditors;

2. that he did not receive a fair hearing because the trial judge unfairly restricted his right of cross-examination;

3. that he did not receive a fair hearing because the trial judge refused to assess his accounts, having prejudged the matter by accepting the Law Society of Ontario’s finding that he had misappropriated Ms. Chen’s funds which finding remains under appeal.

[10] Counsel for Ms. Chen did not object to Mr. Lee expanding the grounds of his appeal. Because he is self-represented, I will consider each of these arguments in turn, dealing with the quantum meruit issue when I consider the third issue.

Jurisdiction

[11] An appeal lies to this court from a final order of the small claims court exceeding $2500 (increased to $3500 effective January 1, 2020) pursuant to s.31 of the Courts of Justice Act, R.S.O.1990, C.43.

Standard of Review

[12] Housen v. Nikolaisen sets out the applicable standard of review in this appeal.[^1] The court is to apply the standard of correctness to questions of law and the standard of palpable and overriding error to questions of fact.[^2] To questions of mixed fact and law, the court is to apply the palpable and overriding error standard unless the question involves an extricable question of law, which is to be determined on the correctness standard.[^3]

Analysis

The $30,000 payment

[13] Mr. Lee submitted that the trial judge erred in accepting Ms. Chen’s version of the purpose for which she gave Mr. Lee $30,000-to pay the six creditors and obtain releases. He submitted that if she had already made an agreement to settle with the six creditors for a total of $30,000, she would have had no need to seek his services. Ms. Chen testified that she considered it important to have evidence of her payment to the creditors because she had lost in another court action where she had no proof of what she had paid. The trial judge accepted Ms. Chen’s evidence in this regard which he was entitled to do.

[14] Mr. Lee submitted that Ms. Chen had a simple agreement with him, a skilled negotiator, to negotiate a settlement with the six creditors. I find no error in the trial judge’s finding to the contrary. In view of Mr. Lee’s evidence that he was to keep any amount by which he was able to reduce the $30,000, there is no benefit to Ms. Chen in engaging Mr. Lee’s claimed superior negotiating skills.

[15] In support of his “debt settlement” version of the purpose for which he was paid the $30,000, Mr. Lee points to the words he added to Ms. Chen’s $30,000 bank draft (in Mandarin and translated by the court interpreter) which he said he added at her request: “Received $30,000 for the purpose of handling all (6 persons) and membership matter”. He testified at trial that the word “handling” allowed him to try to negotiate a lower settlement with the creditors and keep the differential. He submitted that this supported his version because there was nothing stated about repayment of the $30,000 to the creditors. He submitted that Ms. Chen then went behind his back and advised the creditors they were to receive $30,000. The trial judge noted that Mr. Lee viewed this as a breach of contract entitling him to receive damages in the amount of $15,000 as reflected in his Claim for lost profits in negotiating a potential 50% reduction to the $30,000.

[16] The trial judge rejected this evidence which he was entitled to do. At paras.25 and 26 of the decision, the trial judge finds:

[25] I do not accept Lee’s position that he was retained on this matter not as a paralegal but as a debt settlement person. I query what was left to settle? Chen had agreed to repay the 6 creditors $30,000. Lee stated in his testimony that any reduction to the creditors in the payment of the $30,000 would be kept by him and that Chen was not aware of this plan. Where is the benefit to Chen? This buttresses Chen’s testimony that Lee had agreed to distribute the funds and obtain Releases from the creditors free of charge to Chen. McLaughlin testified that when she asked Chen as to why Chen did not ask McLaughlin to prepare the releases which she considered a simple matter Chen told her that Lee said he would do it for free. Lee would have profited from the reductions if any were achieved. The monies were deposited into the trust account of CLC. I accept and find as a fact that Chen had tasked Lee to distribute the funds in his capacity as her paralegal and not as a person under the Collection and Debt Settlement Services Act, R.S.O 1990, C.14. She testified that she wanted to be able to tell the courts in the ongoing proceedings of these payments and Lee was her representative at these proceedings.

[26] As Chen’s legal representative he owed her a fiduciary duty of full disclosure. By not disclosing his planned intentions of negotiating with the creditors and keeping any savings achieved he breached that duty to her. Lee’s contention that Chen breached her agreement with him not to approach the creditors thereby negating any possibility of obtaining a reduction is nonsensical. There was no agreement between them that he could negotiate a debt reduction with the creditors nor that he could retain the savings. No such evidence documentary or otherwise was led at trial. I find that Lee was merely to distribute the funds to the creditors and obtain releases. His failure to follow her direct and explicit instructions, issuing a cheque from his personal account for $24,200 for the creditors and then stopping payment thereon, his refusal to return the $30,000 when demand was made, his payment of CLC expenses and his taking $12,000 from said amount I find constitutes misappropriation of client trust funds and unjustly enriched both Lee and CLC at the expense of Chen and a breach of Chen’s agreement with him.

[17] These were findings open to the trial judge to make on the evidence. There is no palpable and overriding error. There is no basis for Mr. Lee’s complaint that he was deprived of a fair hearing because the trial judge was prejudiced against him as a result of the Law Society’s findings against him which are still under appeal. The trial judge made factual findings on the evidence before him which more than amply supported his findings about misappropriation.

Unfair Restriction of Cross-examination

[18] Mr. Lee submitted that he was prevented from cross-examining on how Ms. Chen came to owe the $30,000 which would have provided the context to support that he was paid $30,000 to negotiate debt settlement and that he was accordingly deprived of a fair trial.

[19] The trial judge has broad discretion in the interests of trial efficiency to limit questions to what is relevant. What was relevant was the $30,000 taken by Mr. Lee, not how Ms. Chen came to owe the money to the creditors. It is hard to conceive what difference questioning on this would have made. Mr. Lee admitted he received the $30,000 from Ms. Chen. He did not pay the creditors. He did not repay Ms. Chen.

No assessment of Invoices

[20] Mr. Lee submitted that he was entitled to an assessment of his invoices which the trial judge refused to do.

[21] The trial judge made clear findings about what the $5000 flat fee retainer paid by Ms. Chen was to cover. There was nothing in Mr. Lee’s notice of appeal, factum or submissions about this being an error. There is no basis to claim quantum meruit for services covered by the flat fee. The remaining items claimed in Mr. Lee’s invoices which did not fall within the flat fee total $4995. The amount of $2785 was claimed on the “debt settlement” issue. The trial judge accepted Ms. Chen’s evidence, which he was entitled to do, that there was an agreement that this would be pro bono. I agree with Ms. Chen that it is ludicrous for Mr. Lee to charge Ms. Chen for attempting to reduce the settlement amount against her specific instructions and to expect, without her knowledge, to keep any reduction.

[22] The trial judge accepted Ms. Chen’s evidence that the two remaining items not covered by the $5000 agreement or the bro bono creditor agreement[^4] were non-chargeable meetings in the nature of consultations and exploration to determine if she was to proceed with them. There was no written retainer agreement. In accepting that in the absence of a retainer the word of the client is to be preferred to the word of the solicitor, the trial judge, as he was entitled to do, relied upon John Doe v. Andrew McDonald and The Barristers Group 2015 ONSC 4850 quoting and adopting the reasoning of Lord Denning in Griffiths v. Evans [1953] 1424 (C.A.). I find no error.

[23] There is no merit to Mr. Lee’s submission that he was denied a fair hearing because he was entitled to an assessment of his invoices which the trial judge refused to do. The trial judge made findings regarding the matters claimed in the invoices and found that they were either covered in the flat fee or that there was an agreement that the services would be pro bono. Moreover, the trial judge went further at paragraph 31 of his Reasons to find that the invoices were not accurate, fabricated in part, inflated and prepared in a manner as to be self-serving for which he provides several examples. Even had the trial judge found that Mr. Lee was entitled to a quantum meruit claim for the two remaining items, Ms. Chen’s recovery was limited to $25,000, the monetary jurisdiction of the small claims court at the time. This meant that Mr. Lee retained $6000 of the amount he was found to have misappropriated which would have greatly exceeded the claim for the two remaining items.

Conclusion

[24] The appeal is dismissed. Pursuant to the parties’ agreement that the successful party be entitled to costs of $4000, Ms. Chen is entitled to costs of the appeal in that amount.

__________________________ Backhouse J.

Released: September 18, 2020

CITATION: Lee v. Chen, 2020 ONSC 5615

DIVISIONAL COURT FILE NO.: CV-18-136412-0000 DATE: 20200918

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

BETWEEN:

Ping Lee Appellant/Defendant

– and –

Rui Zhen Chen Respondent/Plaintiff

REASONS FOR JUDGMENT

Backhouse J.

Released: September 18, 2020

[^1]: Housen v. Nikolaisen, 2002 SCC 33 at paras. 8, 10, 36. [^2]: Ibid. [^3]: Ibid. [^4]: Viewing a sink hole and speaking to a city inspector regarding its safety; meeting with Chen and visiting a noodle factory in connection with a proposed claim by Chen and discussing a matter in China.