ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-397873
DATE: 20121123
BETWEEN:
Gary Sugar Plaintiff – and – Kim Orr Barristers Professional Corporation Defendant
Gary Sugar, in person
James C. Orr, for the Defendant
HEARD: November 13, 2012
E.M. Morgan, J.
[ 1 ] Can a lawyer in discussion with a potential employer expect to get paid for work done during the recruitment process as a demonstration of his skill?
I. Factual Background
[ 2 ] The Plaintiff is a securities lawyer and the Defendant is a litigation firm whose practice focuses on class actions and complex commercial cases.
[ 3 ] In March 2009, the Plaintiff, in his capacity as an officer and in-house counsel of Precious Metal Capital Corp. (“Precious Metal”), approached the Defendant with a view to retaining it to act for Precious Metal in then ongoing litigation. The parties met on March 24, 2009. Present at the meeting were the Plaintiff and two lawyers from the Defendant firm: Victoria Paris and Wan Kim. The Plaintiff and Mr. Kim had spoken by telephone prior to the meeting, while Ms. Paris met (and spoke with) the Plaintiff for the first time at the March 24 th meeting.
[ 4 ] Ms. Paris testified that the purpose of the meeting was for the Plaintiff to consider retaining the Defendant, and not for the Defendant to consider hiring the Plaintiff. The Plaintiff testified that the purpose of his initial call to Mr. Kim was indeed to discuss retaining the Defendant firm on behalf of Precious Metals, but that the conversation quickly evolved into a discussion of whether the Plaintiff might be a valuable addition to the Defendant firm.
[ 5 ] Ms. Paris was the Defendant’s only witness at trial. She testified about the drafting work that the Plaintiff did on two statements of claim that she worked on for the Defendant. Although he did not testify at trial, Mr. Kim was examined for discovery and the Plaintiff read portions of his discovery transcript into the trial record regarding the larger relationship between the parties.
[ 6 ] The Plaintiff testified on his own behalf, as did his former spouse Joanne Thomsen. The Plaintiff testified that he was enthusiastic about the prospect of joining the Defendant firm and that he thought that the parties were mutually working toward that goal. Ms. Thomsen corroborated that understanding, and testified that she had met Mr. Kim socially on three different occasions over a matter of several months and that the Defendant was by all appearances “wooing” the Plaintiff through these social and family meetings.
[ 7 ] The Plaintiff worked for the Defendant on three different statements of claim. The first two, being claims against Timminco Limited (“Timminco”) and Western Canadian Coal Corporation (“WCC”), respectively, were sent to the Plaintiff in draft form by Ms. Paris shortly after the March 24 th meeting. The Plaintiff edited those drafts and his suggested revisions were incorporated into the final version Defendant’s pleadings. There is some dispute as to how significant those revisions may have been – the Plaintiff states that they were substantive while Ms. Paris testified that they were more editorial and cosmetic in nature – but there is no doubt that the Plaintiff contributed to these cases.
[ 8 ] The third case on which the Plaintiff worked was a potential claim against Manulife Financial Corporation (“Manulife”). The Plaintiff himself thought up this claim through his study of the market in Manulife shares, and he sent an outline of the claim to Mr. Kim on April 6, 2009. The Plaintiff then drafted a full statement of claim against Manulife pursuant to Mr. Kim’s request to do so on June 19, 2009. Ultimately, the Defendant decided not to issue the claim as Manulife’s shares recovered their value and the Defendant determined that it was not worth pursuing on a class action basis.
[ 9 ] The invoice submitted by the Plaintiff to the Defendant dated November 2, 2009 is for a total of $31,294.46 in fees, and covers work done on all three claims. The Plaintiff also claims a 50% premium on the invoiced fees as a reflection of the large fees he expects the Defendant to earn on the Timminco and the WCC claims.
[ 10 ] In his Statement of Claim, the Plaintiff contends that the Defendant entered into a retainer agreement with him at the March 24, 2009 meeting when the discussion turned to the possibility of the Plaintiff joining the Defendant firm. There is no written retainer agreement, and the invoice rendered by the Plaintiff makes no reference to any documented retainer. However, the Plaintiff claims that he reviewed the draft pleadings against Timminco and WCC pursuant to the verbal retainer entered into by the parties on March 24 th.
[ 11 ] In his testimony at trial, the Plaintiff conceded that the March 24 th meeting did not contain the usual discussion that would accompany a retainer agreement. When cross-examined about whether his hourly rate or other payment terms were discussed at that meeting, the Plaintiff and counsel for the Defendant had the following exchange:
A: We didn’t discuss payment. It was understood. They took my work and asked me to do more work.”
Q: But would you agree with me that there was no discussion of you being paid?
A: I agree. We didn’t discuss it.
[ 12 ] Plaintiff’s invoice is based on an hourly rate of $500, which is not unusual for a lawyer called to the bar in 1987 and with the Plaintiff’s experience in the securities industry. The Defendant does not take issue with the billing rate or with the number of hours the Plaintiff claims to have worked; rather, its position is that the Plaintiff volunteered to do the work without pay in hopes of landing a full-time position at the Defendant law firm. On December 17, 2009, the Defendant put this position in an email to the Plaintiff, stating that, “We do not have any intention of paying the invoice you have rendered. We did not hire you to work on the file.”
[ 13 ] In taking this position, the Defendant relies on case law that has placed the onus on a solicitor to prove the retainer if there is controversy over its existence. Rye and Partners v. 1041977 Ontario Inc., [2004] OJ No 2480 (Ont CA). Given, however, that the present dispute does not involve a client but rather is a dispute between a law firm and another solicitor, the client protection rationale for the traditional counsel of prudence and full documentation by solicitors does not apply. See Elliott v. McLennan, 1916 CarswellOnt 349 (Ont CA).
[ 14 ] The Defendant also stresses those cases that have indicated that no payment is necessary where services are rendered in expectation or hope that a contract might eventually be concluded between the parties. Canadian Microtunnelling Ltd. v. Toronto (City), [2002] OJ No 1399 (SCJ). This position, however, turns on there being a genuine job prospect for the Plaintiff. Without that, the Plaintiff’s work cannot be written off as a form of ‘loss leader’ for future profit.
[ 15 ] As it turns out, full employment of the Plaintiff by the Defendant may have been the Plaintiff’s ultimate desire, and, as both the Plaintiff and Ms. Thomsen testified, the Defendant acted in a way which may have encouraged this ambition. However, it does not seem to have been a realistic possibility from the Defendant’s point of view. Mr. Kim stated emphatically at discovery that during the course of their dealings, there was “no reasonable expectation by either party that there would be any kind of association.”
[ 16 ] The Plaintiff argues that the Defendant cannot have it two ways – i.e. it cannot contend that the Plaintiff worked for free in order to win a job, and also assert that there was no real prospect of a job. Otherwise, one would have to conclude that the Defendant deceived the Plaintiff into doing work without pay.
[ 17 ] I agree with the Plaintiff that some form of remuneration is expected where goods or services are provided by one party to another, even in the absence of a specific discussion about payment. Either they had an agreement or equity will intervene to ensure that some payment for services rendered is made. As the maxim goes: “Equity assumes bargains, not gifts.” Riordan v. Mellon, 2000 5739 at para. 3 (Ont CA), citing Donovan W.M. Waters, “The Doctrine of Resulting Trusts in Common Law Canada” (1970), 16 McGill L.J. 187 at 199.
[ 18 ] On the other hand, I do not think the Defendant deceived the Plaintiff into working for no pay. Rather, it appears to me that both parties knew the terms on which plaintiffs’ class counsel typically work and had a mutual understanding despite never having articulated it.
[ 19 ] The Defendant understood that no one works for free, especially given Mr. Kim’s view that there was no reasonable expectation that the Plaintiff would actually be joining the firm. The Plaintiff understood that class counsel do not get paid unless they are ultimately successful in winning or settling the case so that their fees can be deducted from the proceeds paid to their clients. He had himself negotiated a contingency fee retainer agreement with the Defendant for the Precious Metal case, and he was certainly aware of the basis on which the Defendant would be paid, if at all, for the Timminco, WCC, and Manulife claims.
[ 20 ] Again, one exchange between the Plaintiff and counsel for the Defendant is instructive:
Q: Did you understand that plaintiff lawyers don’t get paid in the action until the action is successful and the fee is approved by the court?
A: Yes, but I understood that they have agents and others to pay.
[ 21 ] Needless to say, the Plaintiff was not an agent like the Defendant’s process server, and was not in the same position as a contractor such as the Defendant’s office cleaner – with whom the Plaintiff specifically compared himself in argument. Those types of service providers must be paid in a timely fashion by class counsel just like any other contractor, and their payment does not turn on the profitability of the underlying venture to the payer.
[ 22 ] The Plaintiff, however, was not a service provider of that kind. He was a lawyer who had contributed professional time and legal expertise to the drafting of several statements of claim. He wants to be treated like a lawyer who worked on the file (even going so far as to attach a 50% premium for success on the amount claimed in his invoice, which neither an agent nor an office cleaner would do). But he must take the frailties of that position together with its strengths. Plaintiffs’ counsel get paid generously in class actions, if successful. Otherwise, they are typically paid nothing at all.
[ 23 ] The agreement between the parties was known to both sides, but neither seems to want to acknowledge it. The Plaintiff did not agree to work for free, and it is not reasonable for the Defendant to have expected him to do so; at the same time, the Plaintiff agreed to do work for a firm that operates on a contingency fee basis, and it is not reasonable for him to have expected to be paid unless and until the Defendant as class counsel in these cases is paid.
[ 24 ] The Court of Appeal has made it clear in Smith Estate v. National Money Mart Co., 2011 ONCA 233, [2011] OJ No 1321, that lawyers who contribute work to plaintiffs’ claims, but who are not themselves counsel of record, must be paid as a disbursement by class counsel once their fees are approved. This is precisely the position the Plaintiff is in here.
[ 25 ] Since the Manulife claim did not proceed, the Defendant will never be paid for any work that it might have done on that case, and neither will the Plaintiff. As for the Timminco and WCC claims, if and when the plaintiffs in those actions are successful and the Defendant here, along with the other class counsel in those cases, has fees approved by the court, the Plaintiff’s invoice will be paid as a disbursement.
[ 26 ] As indicated above, the Plaintiff’s invoice on an hourly basis is well within expectations for an experienced lawyer. His addition of a 50% premium, however, is beyond the contemplation of the parties. There is no evidence that this was ever discussed, nor any indication that it is a realistic reflection of what the Defendant might earn on the Timminco and WCC cases. In fact, although the Defendant had some success at an early stage of the Timminco litigation, Defendant’s counsel now advises that the prospects for the plaintiff class and their lawyers recovering anything in either of those two cases are slim.
[ 27 ] In any case, it is logical that if the court approves class counsel fees in either of those two cases, and that approval contains a multiplier for class counsel, then the Plaintiff’s fees should also be subject to that same multiplier. However, if no multiplier is approved, then there will be no premium to attach to the Plaintiff’s hourly invoice.
[ 28 ] The Plaintiff also claims payment of his invoice on a quantum meruit basis. In his Statement of Claim he poses this as an alternative footing in case it is found that there is no retainer agreement, while at trial he put this ground forward as the primary footing for his claim.
[ 29 ] Given my finding with respect to the terms of the agreement between the parties there is no reason to consider payment on any other footing. The parties agreed – albeit tacitly rather than explicitly – to work on the claims together and to get paid together if successful. For the Defendant to have to pay of the Plaintiff on a quantum meruit basis before the Defendant itself gets paid would be directly contrary to that mutual understanding.
[ 30 ] It is, of course, essential to both a quantum meruit and an unjust enrichment claim that the Plaintiff be found to have contributed value to the Defendant. Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2007 ONCA 324 at para 99 (Ont CA); Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 SCR 629 at para. 30. The value of the Plaintiff’s service – the enrichment which would be unjust for the Defendant to keep without paying for – arises only when the Defendant itself is paid. In this respect, the Plaintiff’s claim is premature.
[ 31 ] This precise question has been answered persuasively by the British Columbia Court of Appeal in McQuarrie, Hunter v. Lord Estate (1983), 1982 489 (BC CA), 41 BCLR 123, where the question arose whether a law firm that had been retained on a contingency fee could recover on a quantum meruit basis when the firm was discharged by the client prior to disposition of the action. On behalf of a unanimous court, Nemetz, C.J.B.C. held (at para. 14):
While an obligation to pay arises on discharge, the client and solicitor await the completion of the lawsuit, and the result obtained becomes a factor in determining the value of the services of the original solicitor. On this approach, no money is due until the value of the services has been determined.
[ 32 ] Strictly speaking, the Plaintiff’s claim is premature. However, scholars have noted that in Canadian law there is no fully developed doctrine of ripeness, and that generally speaking “courts have defined their discretion in wide and flexible terms”. Lorne Sossin, Boundaries of Judicial Review: The Law of Justiciability in Canada (Scarborough, ON: Carswell, 2000), p. 28. While this applies more generally to public law, the same may be said of private law. Even where a lack of ripeness is partially established, a court may determine a threshold issue and leave quantification or other matters to a later stage. See, e.g., Re Sino-Forest Corporation, 2012 ONSC 4377, at para. 75.
[ 33 ] Accordingly, the Plaintiff has a right to be paid for his invoiced hours on the Timminco and WCC claims (plus any approved multiplier), but only when and if the Defendant is paid on those claims. The Plaintiff shall have a declaration to this effect. If the claims are not successfully tried or settled and the Defendant is never paid, then the Plaintiff will likewise never be paid. On the other hand, if it transpires that the Defendant eventually gets paid for its work on those claims, the Plaintiff may move to quantify his entitlement and to convert the declaration into a monetary judgment at that time.
[ 34 ] As the parties were each right and wrong in their approach to this dispute, there will be no costs for or against either party.
Morgan J.
Released: November 23, 2012
COURT FILE NO.: CV-10-397873
DATE: 20121123
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Gary Sugar Plaintiff – and – Kim Orr Barristers Professional Corporation Defendant
REASONS FOR JUDGMENT
E. Morgan J.
Released: November 23, 2012