Even experienced lawyers, it seems, can run into problems when accepting funds from a third party regarding a client matter.
That’s one of the key lessons from a recent Divisional Court of Justice decision involving one of Canada’s most prominent criminal lawyers, Clayton Ruby of Ruby & Shiller in Toronto.
“Lawyers just can’t be too careful that people who are providing funds clearly understand the circumstances under which they might be entitled to get refunds,” says an expert in legal ethics who spoke on condition of anonymity.
Ruby’s conundrum arose after the court committed Trevor Edwards to trial on serious offences including kidnapping and human trafficking. Edwards, who had another lawyer at the preliminary hearing, hired Ruby after the committal.
On Aug. 31, 2011, Gerald Chan, Ruby’s partner, attended the first day of a bail hearing for Edwards with the matter scheduled to resume on Sept. 29, 2011.
Kimberly Wake was a friend and initially a co-accused of Edwards. The court had discharged her at the preliminary inquiry.
But after the first day of Edwards’ bail hearing, Wake asked Ruby to attend personally at the resumption of it. She agreed to pay $20,000 for Ruby’s personal services at the hearing, which both parties anticipated would involve at least another two days of proceedings.
Wake paid $10,000 on Sept. 15, 2011. The receipt from Ruby’s firm noted the money was “for the purposes of Clayton Ruby attending court on September 29, 2011.”
Before the hearing, Wake made two more payments totalling $10,000. In each case, the receipt indicated that the funds were for the second day of the bail hearings. The final receipt for $4,000 noted the money was for Edwards’ trust account.
Ruby attended the bail hearing on Sept. 29. It concluded that day, and the judge reserved overnight. Ruby didn’t attend for the decision, instead sending Chan. The judge denied bail.
Edwards fired Ruby and never paid some $19,715.13 in legal fees that the law firm wrote off.
In November 2012, Wake asked Ruby to refund $10,000 of the $20,000 she had paid. When he refused, she sued in the Small Claims Court for the recovery of the $10,000.
The deputy judge found in Wake’s favour. Ruby appealed, but Justice Paul Perell upheld the decision in the Divisional Court’s ruling on Aug. 5.
Perell dismissed arguments by Ruby’s counsel, Nader Hasan of Stockwoods LLP in Toronto, that there was no contract because there was no “meeting of the minds;” that there was no breach of contract because Ruby had attended the substantive part of the bail hearing; that Wake had suffered no damages because Ruby’s non-attendance on the second day couldn’t have affected the outcome of the bail hearing; and that Wake had not come to court with “clean hands” because she had accepted $2,000 from Edwards. Perell also awarded $1,500 in costs to Wake, who represented herself on the appeal.
At the original trial in August 2014, Ruby filed the Law Society of Upper Canada’s practice management guideline regarding third-party retainer funds. Among other things, the guideline recommends certain best practices. They include obtaining the 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.”
The deputy judge ruled that a misunderstanding had occurred. Ruby believed Wake was acting as an agent for Edwards and that the arrangement was part of the retainer between Edwards and his law firm. Ruby didn’t produce the agreement with Edwards at trial on confidentiality grounds.
The deputy judge found the arrangement was a separate contract between Wake and Ruby. As evidenced by the receipts, Wake had paid the second $10,000 amount for Ruby’s attendance at the bail hearing that he didn’t attend. The fact that the firm had put the money into Edwards’ trust account didn’t alter Ruby’s personal obligation to do what he had contracted to do. In the result, the deputy judge found Wake should get $10,000.
“I regret the result, because I have a great consideration for Mr. Ruby,” the deputy judge wrote. “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.”
Ruby was gracious in accepting Perell’s decision.
“Respect for the judicial system sometimes requires that a litigant accept that their view of things just does not prevail,” he said in a statement. “This is such a case.”