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  • Bill 78 and the notion of ultimate beneficiary

    Bill 78 was introduced in December 2020 by Minister Jean Boulet and given assent on June 8, 2021. It amends the Act respecting the legal publicity of enterprises (the “Act”) and its regulation, the Regulation respecting the application of the Act respecting the legal publicity of enterprises (the “Regulation”). This legislative amendment is part of a process to prevent and fight tax evasion, money laundering and corruption, and will now require registrants to disclose more of their information. Disclosure of information relating to ultimate beneficiaries The amendments set out new requirements for corporate transparency and now require registrants to disclose information about the natural persons who are their ultimate beneficiaries, including their names, domiciles and dates of birth, in order to prevent the use of nominees for tax evasion, among other things. It should be noted that the obligation to disclose the ultimate beneficiary’s domicile can be circumvented by disclosing a professional address instead. New section 35.2 of the Bill provides that “a registrant who must declare the domicile of a natural person under a provision of this Bill may also declare a professional address for the natural person.” If such an address is declared, the information relating to the domicile of that person may not be consulted. Under the Bill, a “registrant” means a person or group of persons registered voluntarily or any person, trust or partnership required to be registered. The Bill specifies that “ultimate beneficiary” means a natural person who meets any of the following conditions in respect of a registrant1: Is the holder, even indirectly, or beneficiary of a number of shares or units of the registrant, conferring on the person the power to exercise 25% or more of the voting rights attached to the shares or units; Is the holder, even indirectly, or beneficiary of a number of shares or units the value of which corresponds to 25% or more of the fair market value of all the shares or units issued by the registrant; Exercises control in fact of the registrant; or Is a general partner of a limited partnership. The Bill also provides that where natural persons holding shares or units of the registrant have agreed to jointly exercise the voting rights attached to the shares or units and the agreement confers on them, together, the power to exercise 25% or more of those voting rights, each of those natural persons is considered to be an ultimate beneficiary of the registrant. Lastly, it provides that a natural person operating a sole proprietorship is presumed to be the only ultimate beneficiary of the sole proprietorship, unless he or she declares otherwise. Notwithstanding this definition of ultimate beneficiary, it is important to note that the government may make regulations determining other conditions according to which a natural person is considered to be an ultimate beneficiary. Search by name of an ultimate beneficiary The Bill provides that a natural person’s name may be part of a compilation of information or serve as the basis for a compilation, and may be used as a search term for the purposes of a search in the enterprise register. This will allow the public to identify all corporations with which a natural person is associated, where such a person has been named the ultimate beneficiary of a registrant. However, information that may not be consulted may not be part of such a compilation or serve as the basis for one. It should be noted that the Bill also allows the government to make regulations determining the information contained in the enterprise register that may not be consulted. Conclusion This legislative amendment, particularly with the addition of the notion of ultimate beneficiary, will considerably increase disclosure requirements for corporations that are already required to communicate certain types of information to the Registraire des entreprises du Québec. We can only hope that at the end of this legislative process, the government will implement a clear and effective information disclosure system, making it easier for registrants and their advisors to manage the information that they disclose. The new section 0.3 will now be part of the new Chapter 0.1 “Purposes and definitions.”

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  • How subcontractors or materials supplier can use the surety bond contract

    That is what material suppliers want to know when general contractors with which they have contracted default on payment, particularly in bankruptcy cases. It is common practice for clients to require that the general contractor provide a surety bond to cover a significant breach of this nature. Generally speaking, the purpose of a surety bond contract to cover payment for labour and materials is to guarantee that the workers, suppliers and subcontractors used by the general contractor are paid.1 In order to benefit from the protection provided by the surety bond, a claimant must disclose its contract to the surety, usually within 60 days from the date on which the claimant commences work or on which the materials are delivered. When a claimant has not been paid or anticipates not being paid, it must send the surety a notice of claim within the time specified in the contract, which is generally 120 days from the date on which the services were completed or the materials were delivered. THE DECISION IN PANFAB On June 26, 2018, the Court of Appeal again examined the principle that requires disclosure to the surety in order to obtain payment for labour and materials, in Industries Panfab inc. v. Axa Assurances inc., 2018 QCCA 1066. In 2010, the Local Housing Bureau (the “Bureau”) retained Groupe Geyser inc. (“Geyser”) to construct three buildings in Longueuil with a total of 180 units. As stipulated in the construction contract, Geyser obtained a surety bond from Axa Insurance (“Axa”) to guarantee payment for labour and materials. Geyser subcontracted with Les Revêtements RMDL (“RMDL”) for the exterior cladding of the three buildings it was constructing. RMDL then signed a $330,000 contract with Industries Panfab inc. (“Panfab”) for it to supply metal sheathing boards. A few days before making its first delivery, Panfab informed Geyser, Axa and the Bureau of its contract to supply RMDL. A few months after the first delivery, RMDL ordered additional sheathing boards that were not part of RMDL’s initial order from Panfab. Panfab made an additional disclosure to the surety and upped the total cost of its contract. Panfab made two additional disclosures, in each of which it stated the new, higher total cost of its contract. Panfab’s total invoice for all of the materials came to $446,328.24, but it received only $321,121.84. Its claim was therefore for $125,206.40. RMDL declared bankruptcy in 2012 and, given the situation, Panfab sought to claim under the surety bond for payment for its materials. Decision at trial At trial, the Court found that Axa’s surety bond contract contained a stipulation for the benefit of third parties, based on which Panfab could characterize itself as a creditor under the contract and thus benefit from the guarantee provided by the surety bond. However, the Court concluded that there was only one contract between the parties and that the increase in the value of the contract had been disclosed more than 60 days after the first delivery of materials. In fact, it characterized the amount claimed as an overpayment and limited the amount that it ordered Geyser and Axa to pay to $54,830.66, since the effect of a judgment for the overpayment would have been to alter the terms of the surety bond contract and add to the respondents’ contractual obligations.2 Appeal In this specific case, the Court of Appeal found that the obligation of Geyser and Axa to jointly and severally pay the amount claimed for the materials to be used in the construction arose at the point when Panfab characterized itself as a creditor by making its first disclosure. The Court of Appeal held that the surety bond contract did not require that the value of the contract for the supply of materials be disclosed. The mandatory information to be provided was the type of work, the nature of the contract, and the name of the subcontractor. Panfab disclosed its contract with RMDL, the subcontractor, within the 60 days allowed and thus complied with the time requirements. The obligation to pay Panfab arose at that point. Given that the surety bond contract did not require that the value of the contract be stated in the notice of disclosure, the Court was of the opinion that Panfab had demonstrated good faith and transparency in informing Geyser and Axa of the changes to the value of its contract with RMDL, by providing amended notices of disclosure. The claim could therefore not be limited on the ground that Panfab had stated the value of its contract in its notice of disclosure, when there was nothing that required it to do so. The Court of Appeal therefore reiterated the principle that there is only one contract and thus only one notice of disclosure, notwithstanding the fact that Panfab sent the surety amended notices.3 An order for reimbursement for the full amount to be paid does not alter the terms of the surety bond contract. The Court therefore concluded that the trial judge had erred by holding that the amended notices of disclosure sent by Panfab were time-barred and were necessary in order for the total claim to be allowed. The Court of Appeal took the opportunity to reiterate the scope of the duty to inform on the part of a materials supplier or subcontractor. Geyser submitted that Panfab had breached its duty to inform and that its breach was the reason for the shortfall in the amounts withheld for paying all of the subcontractors and suppliers. The Court did not accept that argument; it relied on Banque canadienne nationale v. Soucisse (1981),4 which set out the foundation for a creditor’s duty to inform, and on article 2345 C.C.Q., reiterating that a creditor is required to provide any useful information to the surety at the request of the surety. In this case, Geyser and Axa had never asked Panfab for additional information under that article. To summarize, Panfab clarifies the already settled law regarding notices of disclosure to sureties, as stated in Fireman’s Fund (1989)5 and Tapis Ouellet inc. (1991), in particular: when a contract for the supply of materials is shown to exist between the parties and the materials have been incorporated into a construction project, the subcontractor may claim the amounts owed under the surety bond contract after sending a notice of disclosure that meets the requirements set out in that contract. It must be kept in mind that any surety bond contract may contain specific clauses and that reference must be made to those clauses. That is why the Court in Panfab concluded that the information relating to the value of the contract was not mandatory in the notice to the surety, since, in that case, the surety bond contract did not require that the value of the contract be included in the notice of disclosure. Vigilance is therefore the order of the day when it comes to the terms of surety bond contracts.   MONDOUX, Hélène, François BEAUCHAMP, “Les cautionnements de contrats de construction” in Collection de droits 2017-2018, École du Barreau du Québec, vol. 7, Contrats, sûretés, publicité des droits et droit international privé, Cowansville, Éditions Yvon Blais, 2017, p. 59. Industries Panfab inc. v. Axa Assurances inc., 2018 QCCA 1066, para. 14. Ibid. para. 22. National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339. Fireman’s Fund du Canada, cie d’assurances v. Frenette et frères Itée, 1989 CanLII 815 (QC CA).

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  • The judicial review of a decision rendered by the Court of Québec in civil matters: an unusual remedy, although possible in some circumstances

    The superintending and reforming power of the Superior Court of Québec over the decisions of the Court of Québec is indisputable. It is furthermore confirmed by article 34 of the Code of Civil Procedure1, which grants to the Superior Court powers to judicially review decisions made by the Québec courts, with the exception of the Court of Appeal. However, an appeal to the Court of Appeal is the means generally used to challenge a decision of the Court of Québec. There is an exception to this principle in administrative matters, whereby the Court of Québec sits on appeal of decisions made by an administrative body or tribunal. In such circumstances, the decisions rendered by the Court of Québec are often final and cannot be appealed, thereby excluding the jurisdiction of the Court of Appeal. The only possible remedy then is to apply to the Superior Court for judicial review. The situation is different with regard to decisions rendered by the Court of Québec in civil matters. Indeed, in view of the right specifically provided for in the Code of Civil Procedure to appeal judgments of the Court of Québec that put an end to a proceeding, an appeal before the Court of Appeal is the appropriate remedy. However, practical considerations may militate against the appeal in specific matters. For example, where the financial stakes are of a lesser nature, the costs and time involved in an appeal may be disproportionate to the objective being sought. Does that mean that no remedy remains available? Not necessarily, as shown by the decision issued recently by the Superior Court in the case of Côté c. Cour du Québec2. In this decision, the honourable Justice Bernard Godbout concluded that the trial judge exceeded his jurisdiction who, while recognizing the existence of a transaction settling the claim before him, nevertheless allowed the plaintiff’s claim without explaining or giving reasons for his decision. Noting that the decision did not fall within a range of possible, acceptable outcomes which could be justified when taking into consideration the facts and law, Justice Godbout allowed the application for judicial review of a decision of the Court of Québec rendered in a civil matter and reviewed the decision despite the existence of a right to appeal upon leave to the Québec Court of Appeal. The facts of the Côté c. Cour du Québec case were rather unusual: there were obvious inconsistencies between the reasons and the operative part of the judgment at first instance. Although the Court of Appeal would certainly have had the necessary jurisdiction to correct the situation, however subject to granting leave to appeal, Justice Godbout concluded that the situation constituted an exception to the principle whereby a party must exhaust his or her remedies as stipulated in article 529 of the Code of Civil Procedure: [translation] [33] That a transaction has, between the parties, the authority of res judicata is not something which has to be recognized or declared by the court. The law, more specifically article 2633 C.C.Q., provides for it. This is a rule of law. [34] Article 529 (2) C.C.P. specifies that “[e]xcept in the case of lack or excess of jurisdiction, judicial review is available only if the judgment or the decision cannot be appealed or contested.” [emphasis added] [35] Taking into account article 2633 C.C.Q., it would be difficult for one to conclude that the decision ordering the plaintiffs, including Mr. Côté, to pay to Ms. Plourde an amount of money for services rendered does falls “within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.” In so doing, the court exceeds its jurisdiction, thus allowing the Superior Court to intervene in the context of an application for judicial review despite the existence of a right to appeal upon leave to the Court of Appeal, this, without distorting the judicial review process. Justice Bernard Godbout exercised his discretion and allowed the application. He set aside the conclusion of the judgment which was criticized by the applicant, noting that the review of lawfulness of decisions in pursuit of the rule of law is an important component of the principle of access to justice. Moreover, as the Québec Court of Appeal had previously indicated, judicial review where there is a right to appeal on leave is only possible in exceptional circumstances. Indeed, case law clearly shows that judicial review must not be used as a de plano appeal, thereby superseding the leave required by the legislator in article 30 of the Code of Civil Procedure. Only the absence of jurisdiction, the violation of the rules of natural justice or a decision contrary to reason may justify such remedy3. As noted by the Court of Appeal, [translation] the demonstration of such an illegality, committed by a professional judge, will be rather rare4. Judicial review of a decision of the Court of Québec in civil matters is therefore possible, albeit in very exceptional cases. Code de procédure civile, CQLR, c. C-25.01. Côté c. Cour du Québec, 2016 QCCS 5539. Trudel c. Re/Max 2001 MFL inc., 2013 QCCA 1396, para 6, 7, 13 to 15; Mondesir c. Asprakis, 2010 QCCA 1780, para 13 and 14. Trudel c. Re/Max 2001 MFL inc., 2013 QCCA 1396, para 15; Mondesir c. Asprakis, 2010 QCCA 1780, para 13.

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