Commercial Litigation

Introduction On February 1, 2023, Minister of Justice Simon Jolin-Barrette introduced and tabled in the National Assembly Bill 8 entitled An Act to improve justice efficiency and accessibility, in particular by promoting mediation and arbitration and by simplifying civil procedure in the Court of Québec1 (hereinafter the “Bill”). The Bill makes amendments to several laws, including the Courts of Justice Act2 and the Professional Code3. We are particularly interested in those relating to the Code of Civil Procedure (“C.C.P.”),4 and more specifically to proceedings pending before the Court of Québec of which practitioners and persons subject to trial will want to take note. Proposed Amendments to the Code of Civil Procedure Most of the amendments to the C.C.P. will come into effect on June 30, 20235. We note the following, in particular: Jurisdiction of the Court  Exclusive jurisdiction granted to the Court of Québec to hear applications in which the amount claimed or the value of the subject matter of the dispute is less than $75,000,6 instead of $85,000, which is the limit in effect on the date of this bulletin. However, the Court of Québec will continue to hear applications under the $85,000 limit that were filed prior to June 30, 2023, and these will remain governed by the provisions of the C.C.P., as they read before June 30, 2023;7 Concurrent jurisdiction with that of the Superior Court granted to the Court of Québec where the amount claimed or the value of the subject matter of the dispute is equal to or exceeds $75,000 but is less than $100,000.8 Case management The Bill also introduces a special procedure for applications in civil matters brought before the Court of Québec in which the amount claimed or the value of the subject matter of the dispute is less than $100,000:9 The preparation of a case protocol will no longer be necessary, as set time limits will now apply to all recourses;10 Originating applications must not exceed five pages in length;11 Preliminary exceptions must be disclosed within 45 days of filing an application;12 A defendant’s arguments must be disclosed within 95 days of filing an application;13 Settlement conferences will be held automatically after trial readiness is achieved (settlement conferences may also be replaced by pre-trial conferences);14 Cases will be set down for trial and judgment by a court clerk.15 Requests for particulars as to allegations made or to strike immaterial allegations The Court of Québec will only authorize such requests by way of exception and if warranted on serious grounds.16 Examinations The limit below which holding an oral examination on discovery is not permitted will be increased to $50,000.17 Currently, the limit is $30,000; Each party will be entitled to only a single oral examination on discovery, unless the Court decides otherwise;18 Written examinations must not exceed three pages in length.19 Expert opinion Parties must seek a joint expert opinion in cases where the amount claimed or the value of the property claimed is equal to or less than $50,000, unless the Court decides otherwise.20 Small claims With the parties’ consent, the Court may render judgment on the face of the record when the matter concerns the recovery of a claim of $15,000 or less.21 Adjustments Each of the monetary limits for the Court of Québec’s jurisdiction will be adjusted annually.22 Conclusion The proposed measures will significantly impact how lawyers will now handle and manage disputes in which the amount claimed is less than $100,000. The concurrent jurisdiction of the Court of Québec with that of the Superior Court for cases with a value equal to or exceeding $75,000 but less than $100,000 is interesting: Although the procedure for conducting proceedings in the Court of Québec has been simplified for such cases, it is likely that many cases will nonetheless be instituted in the Superior Court, as its procedural process is a little less intrusive, particularly with respect to joint expert opinions, mandatory settlement conferences and the number of examinations. The Minister of Justice is hopeful that the amendments to the Act will improve access to justice for persons subject to trial, thanks to faster and less costly justice services, among other things. While these amendments will allow for more out-of-court settlements and prevent costly trials, we believe that there is still some uncertainty as to how accessible the expedited process will be, given the current staffing shortages in courthouses. 1. An Act to improve justice efficiency and accessibility, in particular by promoting mediation and arbitration and by simplifying civil procedure in the Court of Québec, Bill 8 (Introduced — February 1, 2023), 43rd Legislature, 1st Session (Qc) (“B.”). 2. Courts of Justice Act, CQLR c. T-16. 3. Professional Code, CQLR, c. C-26. 4. Code of Civil Procedure, CQLR c. C-25.01. 5. Transitional provision: claims of $85,000 initiated in the Court of Quebec before June 30, 2023 will continue under the provisions in effect prior to the coming into force of the PL amendments (PL, s 44). 6. B., s. 3; C.C.P., art. 35. 7. B., s. 44. 8. B., s. 3; C.C.P., art. 35. 9. B., s. 8; C.C.P., art. 535.1. 10. B., s. 8; C.C.P., art. 535.2. 11. B., s. 8; C.C.P., art. 535.3. 12. B., s. 8; C.C.P., art. 535.5. 13. B., s. 8; C.C.P., art. 535.6. 14. B., s. 8; C.C.P., art. 535.12. 15. B., s. 8; C.C.P., art. 535.13. 16. B., s. 8; C.C.P., art. 535.11. 17. B., s. 7; C.C.P., art. 229. 18. B., s. 8; C.C.P., art. 535.9, para. 2. 19. B., s. 8; C.C.P., art. 535.9. 20. B., s. 8; C.C.P., art. 535.15. 21. B., s. 15; C.C.P., art. 561.1. 22. B., s. 3; C.C.P., art. 35.

On January 30, 2023, the Court of Appeal of Quebec rendered a decision in Commission scolaire De La Jonquière c. Intact Compagnie d’assurance.1 The key issues in this case are the potential for conflicts arising from liability insurance policies and the obligation to disclose documents where insurers’ duty to defend conflicts with their duty to indemnify insureds. The facts This case is part of a class action in which all Quebec school boards—now referred to as school service centres (SSCs)—were accused of violating the right to free elementary and secondary education. As part of this class action, the SSCs brought an action in warranty against their insurers, seeking compensation for any amount they may be required to pay. The insurers acknowledged their obligation to defend the appellants in the main proceedings; however, they argued that the claim was not covered by the insurance contract. Following negotiations, the parties to the class action reached a settlement. The action in warranty against the insurers is still pending. At the examination for discovery stage of the action in warranty, the insurers asked to obtain a copy of all communications exchanged between the appellants and their counsel since the beginning of the main proceedings. The SSCs objected to this request on the basis of professional secrecy and litigation privilege. The Court therefore had to rule on the merits of the objection. The trial Drawing on the decision in Domtar2, the Superior Court dismissed the SSCs’ objection, holding that they had waived their right to assert solicitor-client privilege regarding anything relating to the reasonableness of the settlement. It appears that the Court inferred this waiver from certain allegations made and from the disclosure of certain documents as part of the action in warranty. The Court concluded that the appellants had to provide the insurers with the documents, risk analyses, letters, exchanges with the appellants and expert opinions having related to the reasonableness of the settlement since the beginning of the main proceedings. However, according to the Court of Appeal, the Court failed to provide a framework for such disclosure of information and to grant the SSCs the right to raise new objections in relation to said documents. The appeal The Court of Appeal considered the conflicts that may arise from the dual responsibility of insurers: their duty to defend insureds and their duty to indemnify them. In this regard, it described liability insurers and their role as follows: [20] The liability insurer is effectively a two-headed hydra: A type of two-headed creature with a single corporate identity, but where one head handles the insured’s defence and the other protects the insurer’s financial interests by ensuring that it only pays out for covered losses.[21] Each head must base its decisions on the interest it is defending and the information available to it. The two heads must remain separate in order to give effect to the insurance contract. […] The risk of a conflict of interest is therefore very real, which is why the insurer must put measures in place to ensure that it complies with the coverage provided by the policy, while also ensuring the full and complete defence of the insured.] As for the ethical obligations of the lawyer mandated by the insurer to represent the insured, the Court stated that the lawyer becomes the insured’s counsel in all respects and owes the insured absolute loyalty. As such, the right to professional secrecy in the insured’s relationship with the lawyer can be set up against the insurer. That being said, the lawyer must report on the progress of the case to the head of the hydra handling the insured’s defence. The Court then stated that it was essential in this context that the information thus obtained be accessible only to that head, and that the insurer put in place the necessary measures to keep the two heads separate. The Court of Appeal found that the trial judge did not err in concluding that the SSCs were required to provide the evidence necessary to examine the reasonableness of the settlement reached with the insurers. However, in order to do so, an exemption mechanism could be implemented, giving the SSCs the possibility to object to the disclosure of certain information. The Court also confirmed that there was no basis for concluding that the appellants had waived solicitor-client or litigation privilege with respect to all of their exchanges with their counsel. This information must remain protected by professional secrecy and therefore cannot be disclosed to the person at the insurer’s office in charge of the compensation file. The same goes for the accounts for fees, reports, opinions and other documents sent to the person at the insurer’s office handling the defence, unless the insured waives this right. Conclusion This case highlights the conflicts that can arise from the duality of insurers’ responsibilities and the distinction between insurers’ obligation to defend insureds and their obligation to indemnify them. Although the Court ruled that evidence aimed at verifying the reasonableness of a settlement from a qualitative and quantitative standpoint should be disclosed, it concluded that certain information and documents that are strictly relevant to insureds’ defence need not be disclosed. In so doing, it reiterated insurers’ dual responsibility and the importance of keeping the two heads separate when an insurer agrees to take on an insured’s defence, but maintained its refusal to indemnify the insured. Commission scolaire De La Jonquière c. Intact Compagnie d’assurance, 2023 QCCA 124. Chubb Insurance company of Canada c. Domtar, 2017 QCCA 1004.

In the decision in 9058-4004 Québec inc. c. 9337-9907 Québec inc.1 rendered on October 21, 2022, the court granted compensation to a subcontractor for its extrajudicial fees further to a general contractor’s unfounded contestation of its claim as part of a hypothecary action. The facts In May 2019, Portes de garage Citadelle Ltée (“Citadelle”) and general contractor 9337-9907 Québec inc. (“AllConstructions”) concluded a contract for the provision of services and materials needed to install unloading docks in a building under construction. On May 16, 2019, notice of the contract was given to the building owner, 9058-4004 Québec inc. (“Transport Pouliot”). The first two phases of Citadelle’s work were completed between June and August 2019. In late September 2019, AllConstructions allegedly vacated the worksite after a dispute with Transport Pouliot. The third phase of Citadelle’s work was completed in October 2019. On November 25, 2019, Citadelle sent a statement of account to AllConstructions and registered a legal hypothec on the building two days later. On December 23, 2019, after registering a prior notice of the exercise of a hypothecary right, AllConstructions brought a hypothecary action against Transport Pouliot in the Superior Court, claiming the sums it was owed. For its part, Citadelle brought a hypothecary action against the owner, Transport Pouliot, and instituted legal proceedings against AllConstructions in April 2020. It is important to note that during the proceedings, AllConstructions admitted that it had received payment from Transport Pouliot for the sums invoiced by Citadelle. To justify its refusal to pay its subcontractor Citadelle, AllConstructions argued summarily that the services and materials provided were inadequate and did not meet standards. Despite its weak position and the lack of compelling evidence, AllConstructions maintained its argument. Citadelle had no choice but to pursue its legal proceedings and apply to have AllConstructions’ action declared abusive in order to recover its extrajudicial fees. AllConstructions’ abuse of procedure Citadelle claimed that AllConstructions’ defence was unfounded, frivolous and intended to delay. AllConstructions only had testimonial evidence to support its allegations, and it failed to file any expert opinions or exhibits. The contract did not contain a “pay when paid” clause, and AllConstructions admitted in the proceedings that it had received payment from Transport Pouliot for the sums invoiced by Citadelle. AllConstructions claimed that it had serious arguments to make in response to the application to have its action declared abusive. It stated that the work performed by Citadelle was inadequate and that the materials and services provided were not up to standards. It maintained its position, despite the fact that it had vacated the worksite a month before Citadelle’s work was completed and, therefore, could not have verified the actual quality of the work performed. In March 2022, AllConstructions ultimately abandoned its contestation of Citadelle’s claim a few days before the trial and nearly a year and a half after the proceedings began. The judge allowed Citadelle’s application to have AllConstructions’ action declared abusive. AllConstructions’ defence was unfounded, frivolous and intended to delay. It had no solid factual or legal basis. The allegation that Citadelle failed to comply with standards in the performance of its contract is mere speculation, as AllConstructions left the worksite in September 2019. Citadelle incurred unnecessary extrajudicial fees as a result of AllConstructions’ unfounded contestation of its claim. The judge awarded Citadelle a sum of $9,000.00 as compensation for the legal fees that it had paid. What it means A general contractor that cannot justify a deduction from its subcontractor’s claims after the work is completed but does so anyway risks having its contestation declared abusive. Jurisprudence has established that abuse of procedure may consist of légèreté blâmable [blameworthy conduct]2 or témérité [recklessness] resulting from allegations that do not stand up to careful analysis or are exaggerated beyond the scope of the dispute between the parties.3 A manifestly unfounded action is a civil fault that may be subject to legal proceedings and sanctions in accordance with article 51 of the Code of Civil Procedure.4 A party that considers itself the victim of abusive proceedings may, in addition to applying to have the proceedings declared abusive, claim the reimbursement of reasonable legal fees it has paid.5 This is precisely what Citadelle did and what it obtained. AllConstructions irresponsibly managed its dispute with its subcontractor. It made arguments based only on unverified assumptions, even though the evidence set out in the application was relatively solid and complete. As a victim of abuse of procedure, Citadelle was granted a reimbursement of its legal fees in addition to the sums that it was owed by AllConstructions. Court file No. 760-22-011912-204 Royal Lepage commercial inc. c. 109650 Canada ltd., 2007 QCCA 915 El-Hachem c. Décary, 2012 QCCA 2071 2741-8854 Québec inc. c. Restaurant King Ouest, 2018 QCCA 1807 (CanLII) Only extrajudicial fees deemed reasonable are reimbursed in full. The factors considered in establishing a total reasonable amount are summarized in paragraph 32 of the case at hand and are cited from Groupe Van Houtte inc. c. Développements industriels et commerciaux de Montréal inc., 2010 QCCA 1970, and Iris Le Groupe visuel (1990) inc. c. 9105-1862 Québec inc., 2021 QCCA 1208

On July 15, 2022, Justice François Lebel of the Court of Québec rendered a decision1 confirming that, in the case of the sale of immovable property, a clear and unambiguous exclusion clause, whereby the warranty is waived at the buyer’s risk, results in a break in the chain of title preventing the buyer from taking any legal action under such warranty against the seller and previous sellers. Justice Lebel thus declared the originating application against the defendants Marshall and Bergeron inadmissible and dismissed the call in warranty. This decision is consistent with the recent decision of the Court of Appeal of Quebec in Blais,2 rendered in May 2022, which clarified the state of the law on the consequence of waiving a legal warranty where successive sales are involved. The facts In March 2009, the defendant Bergeron sold an income property (hereinafter the “Property”) to the defendants, the Marshalls, with a legal warranty of quality. In May 2012, the Marshalls in turn sold the Property to the defendants Hamel and Drouin, still with a legal warranty of quality. In December 2016, the defendants Hamel and Drouin resold the Property to the plaintiff, but this time [translation] “without legal warranty of quality, at the buyer’s risk, but with warranty of ownership”. In the fall of 2020, the plaintiff had work done to repair the drain tile system. It was at that point that it discovered the presence of petroleum hydrocarbons in the soil under the Property’s foundation, rendering the soil unsuitable for residential use. According to an expert report, the alleged contamination stemmed from a heating oil tank once located in a shed behind the Property. The tank was apparently removed before the sale in December 2016. The plaintiff was seeking a reduction in the sale price and to have the defendants Hamel and Drouin, as well as the two previous sellers, the defendants Marshall and Bergeron, held solidarily liable. The plaintiff referred to the warranty of quality provided for in articles 1726 and following of the Civil Code of Québec (C.C.Q.) and the warranty against public law restrictions provided for in article 1725 C.C.Q. The plaintiff also claimed to be the victim of fraud on the part of the defendants Hamel and Drouin. After being called in warranty by the defendants Hamel and Drouin, the Marshalls moved to dismiss the substantive claim and the action in warranty. They claimed that the sale of the Property between the defendants Drouin and Hamel and the plaintiff was made at the buyer’s risk and that such a clause in a subsequent deed of sale irrevocably breaks the chain of title, thereby preventing the plaintiff from taking any legal action against the seller and previous sellers. The law and the importance of a clear clause According to article 1442 C.C.Q., which codifies the principles arising from the decision in Kravitz,3 buyers may seek to have the sellers previous to their own seller held liable. However, for such an action to be deemed valid, it must be established that: The defect existed at the time that the previous sellers owned the immovable; and The right to the legal warranty was transferred to the plaintiff through subsequent sales. Indeed, the buyer of an immovable may take legal action directly against a previous seller in accordance with article 1442 C.C.Q. However, this article presupposes that the right to the legal warranty was passed on from one owner to the next, right down to the current buyer seeking to file a claim for latent defects. In other words, the legal warranty must have been transferred to each owner through the chain of title. In Blais, the Court of Appeal confirmed that an unambiguous warranty exclusion clause results in a break in the chain of title. Such a clause prevents the buyer of an immovable from taking legal action directly against the former owners who sold the immovable with a legal warranty. Given the decision in Blais, it is now clear that such a clause waiving the legal warranty closes the door to any direct recourse against a seller’s predecessors, even if such predecessors sold the immovable with a legal warranty.4 In these circumstances, a buyer who acquires an immovable at their own risk will be deprived of their right to take legal action directly against the previous sellers, insofar as the warranty exclusion clause in the deed of sale is clear and unambiguous. In this case, Justice Lebel considered that the wording of the warranty exclusion clause in the deed of sale, which was binding on the plaintiff, was clear and unambiguous, and that a sale at the buyer’s “risk” excludes both the warranty of quality and the warranty of ownership, which covers the public law restrictions of article 1725 C.C.Q. Justice Lebel indicated that there was a break in the chain of title resulting from the sale at the buyer’s risk and that the plaintiff could not claim that it was still entitled to take legal action directly against any sellers other than the defendants Hamel and Drouin. He therefore ruled in favour of the defendants Marshall and Bergeron and declared the originating application against them inadmissible. Key takeaways A warranty exclusion clause in a deed of sale will only be deemed valid if it is clear and unambiguous. The mention that a sale is made “at the buyer’s risk” completely eliminates the warranty of quality provided for in article 1726 C.C.Q. and the warranty of ownership provided for in article 1725 C.C.Q. A deed of sale containing a valid warranty exclusion clause AND a mention that the sale is made “at the buyer’s risk” precludes any recourse by the buyer against the seller, but also against previous sellers. With the current state of the Quebec real estate market, the decision in Hamel, which ties in with the Court of Appeal’s teachings in Blais, certainly clarifies how case law established in recent years should be applied, in particular as concerns the effect of a warranty exclusion clause on successive sales. The members of our Litigation and Dispute Resolution group are available to advise you and answer your questions. 9348-4376 Québec inc. c. Hamel, 2022 QCCQ 5217 Blais c. Laforce, 2022 QCCA 858. General Motors Products of Canada Ltd v. Kravitz, [1979] 1 S.C.R. 790 Supra note 1, paras. 6 and 8.