Source: https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/17404/index.do?iframe=true
Timestamp: 2019-10-15 04:33:26+00:00
Document Index: 112244860

Matched Legal Cases: ['art. 55', 'art. 298', 'art. 298', 'art. 302', 'art. 301', 'art. 303', 'art. 55', 'art. 85', 'art. 170']

Citation: Brunette v. Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55
Civil procedure — Exception to dismiss — Lack of sufficient interest — Civil liability — Group that owned and operated seniors’ residences composed of corporations controlled by holding company — Corporations declaring bankruptcy as a result of unexpected tax assessment — Bankruptcy of corporations resulting in bankruptcy of holding company and in total loss of value of patrimony of sole shareholder of holding company — Shareholder commencing action for breach of duty to advise against professionals who set up tax structure of group — Whether shareholder has sufficient interest to bring claim — Code of Civil Procedure, CQLR, c. C‑25, art. 55, 165(3).
Commercial law — Corporations — Legal personality — Shareholders — Right of action — Group that owned and operated seniors’ residences composed of corporations controlled by holding company — Corporations declaring bankruptcy as a result of unexpected tax assessment — Bankruptcy of corporations resulting in bankruptcy of holding company and in total loss of value of patrimony of sole shareholder of holding company — Shareholder commencing action for breach of duty to advise against professionals who set up tax structure of group — Whether shareholder possesses right of action in relation to faults committed against corporation in which it holds shares — Civil Code of Québec, art. 298.
Applied: Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; referred to: Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189; Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165; Jeunes Canadiens pour une civilisation chrétienne v. Fondation du Théâtre du Nouveau‑Monde, [1979] C.A. 491; Noël v. Société d’énergie de la Baie James, 2001 SCC 39, [2001] 2 S.C.R. 207; Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9, [2011] 1 S.C.R. 214; Kingsway, compagnie d’assurances générales v. Bombardier Produits récréatifs inc., 2010 QCCA 1518, [2010] R.J.Q. 1894; Société d’habitation du Québec v. Leduc, 2008 QCCA 2065; Paradis v. Association des propriétaires VDA, 2007 QCCA 1736; Canada (Attorney General) v. Confédération des syndicats nationaux, 2014 SCC 49, [2014] 2 S.C.R. 477; Dominion Cotton Mills Company Limited v. Amyot, [1912] 2 A.C. 546; Groupe d’action d’investisseurs dans Biosyntech v. Tsang, 2016 QCCA 1923; Backman v. Canadian Imperial Bank of Commerce, [2004] R.R.A. 776; Abattoirs Laurentides (1987) Inc. v. Olymel, 2003 CanLII 8729; Tardif v. Huot, [2001] AZ-50082813; Harpin v. Lessard, 2000 CanLII 18991; Cartier v. Tessier, 1999 CanLII 11919; Moulin v. Aconvenbec Ltée, [1990] R.R.A. 577; Crevier v. Paquin, [1975] C.S. 260; Silverman v. Heaps, [1967] C.S. 536; Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2; Haaretz.com v. Goldhar, 2018 SCC 28; Lax Kw’alaams Indian Band v. Canada (Attorney General), 2011 SCC 56, [2011] 3 S.C.R. 535; Michaud v. Groupe Vidéotron Ltée, [2003] R.J.Q. 3087; St‑Paul Fire & Marine Insurance Co. v. Parson & Misiruak Construction Ltd., [1996] R.J.Q. 2925; Pellin v. Bedco, division de Gérodon Inc., 2002 CanLII 20301; 3952851 Canada inc. v. Groupe Montoni (1995) division construction inc., 2017 QCCA 620; Groupe d’action d’investisseurs dans Bruneau v. Gespro technologies Inc., 2001 CanLII 20199; Montréal (Ville de) v. Montréal‑Ouest (Ville de), 2009 QCCA 2172, [2009] R.J.Q. 2729; Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45.
Canada (Attorney General) v. Confédération des syndicats nationaux, 2014 SCC 49, [2014] 2 S.C.R. 477; Jeunes Canadiens pour une civilisation chrétienne v. Fondation du Théâtre du Nouveau‑Monde, [1979] C.A. 491; Consoltex inc. v. 155891 Canada inc., 2006 QCCA 1347; Kingsway, compagnie d’assurances générales v. Bombardier Produits récréatifs inc., 2010 QCCA 1518, [2010] R.J.Q. 1894; Noël v. Société d’énergie de la Baie James, 2001 SCC 39, [2001] 2 S.C.R. 207; Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9, [2011] 1 S.C.R. 214; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; 3952851 Canada inc. v. Groupe Montoni (1995) division construction inc., 2017 QCCA 620; Acadia Subaru v. Michaud, 2011 QCCA 1037, [2011] R.J.Q. 1185; Société d’habitation du Québec v. Leduc, 2008 QCCA 2065; Spar Aerospace Ltée v. American Mobile Satellite Corp., 2002 SCC 78, [2002] 4 S.C.R. 205; St-Eustache (Ville de) v. Régie intermunicipale Argenteuil Deux-Montagnes, 2011 QCCA 227; Bohémier v. Barreau du Québec, 2012 QCCA 308; Entrepôt International Québec, s.e.c. v. Protection incendie de la Capitale inc., 2014 QCCA 617; Racine v. Langelier, 2013 QCCS 5657; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; Bruneau v. Gespro technologies Inc., 2001 CanLII 20199; Agri-capital Drummond inc. v. Mallette, s.e.n.c.r.l., 2009 QCCA 1589, [2009] R.R.A. 935; 9227-1899 Québec inc. v. Gosselin, 2013 QCCS 5036; Conporec inc. v. Sorel-Tracy (Ville de), 2013 QCCS 2789; Industries Portes Mackie inc. v. Garaga inc., 2007 QCCS 3304; Desrochers v. EDC-Exportation et développement Canada, 2007 QCCS 3032; Besner v. Friedman & Friedman, 2004 CanLII 14237; Benhaim v. St-Germain, 2016 SCC 48, [2016] 2 S.C.R. 352; Montréal (Ville) v. Lonardi, 2018 SCC 29; Fanous v. Gauthier, 2018 QCCA 293; Weinberg v. Ernst & Young LLP, 2003 CanLII 33911; Weinberg v. Ernst & Young LLP, [2003] J.Q. no 14375 (QL); Côté v. Rancourt, 2004 SCC 58, [2004] 3 S.C.R. 248; Infineon Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600.
Baudouin, Jean‑Louis, Patrice Deslauriers et Benoît Moore. La responsabilité civile, Principes généraux, vol. 1, 8e éd. Montréal: Yvon Blais, 2014.
Belleau, Charles. Collection de droit 2017-2018, Preuve et procédure, vol. 2, Cowansville, Que.: Yvon Blais, 2017.
Chamberland, Luc, dir. Le grand collectif: Code de procédure civile — Commentaires et annotations, vol. 1, 3e éd. Cowansville, Que.: Yvon Blais, 2018.
Karim, Vincent. Les obligations, vol. 2, 4e éd. Montréal: Wilson & Lafleur Ltée, 2015.
Lluelles, Didier et Benoît Moore. Droit des obligations, 2e éd. Montréal: Les Éditions Thémis, 2012.
Martel, Paul. La société par actions au Québec, vol. 1, Ottawa: Wilson & Lafleur, Martel Ltée, 2011 (loose leaf updated January 2018).
Pérodeau, Frédéric. “Le sort réservé à la réclamation d’un actionnaire pour la perte de la valeur de ses actions : une revue de la jurisprudence Québécoise”, dans Les dommages en matière civile et commerciale, vol. 255, Cowansville, Que.: Yvon Blais, 2006.
Piché, Catherine. Droit judiciaire privé, 2e éd. Montréal: Les Éditions Thémis, 2014.
Reid, Hubert. Dictionnaire de droit québécois et canadien, 5e éd. Montréal: Wilson & Lafleur Ltée, 2015.
[4] The appellants instituted proceedings to recover the lost value of Fiducie’s patrimony from the respondents, a group of lawyers and accountants comprised of Legault Joly Thiffault, s.e.n.c.r.l.; LJT Fiscalité Inc.; LJT Corporatif Inc.; LJT Conseil Inc.; LJT Litige Inc.; LJT Immobilier Inc.; Lehoux Boivin Comptables Agréés, s.e.n.c.; Marcel Chaput and Fiscaliste M.C. Inc. The appellants claimed that the respondents committed a number of professional faults in setting up the tax structure of Groupe Melior and, in doing so, breached their duty to advise Fiducie. The appellants alleged, inter alia, that the tax structure set up by the respondents was not compliant with legislation and that it exposed the corporations to unexpected tax liability. According to the appellants, these faults led to the bankruptcy of most of the Groupe Melior corporations, the bankruptcy of 9143-1304 Québec inc., and the total loss of value of Fiducie’s patrimony. The appellants sought damages totalling $55,000,000 — calculated in essence based on the net value of seniors’ residences owned by Groupe Melior by the end of summer 2008 — and a reimbursement of extrajudicial fees worth $405,000. Mr. Maynard who was the director of several corporations of Groupe Melior as well as the trustee and beneficiary of Fiducie also claimed $100,000 in damages for moral injury from the respondents.
[6] Justice Mayrand of the Superior Court agreed with the respondents. She dismissed the action on the basis that the appellants did not have a sufficient interest to claim damages from the respondents based on the lost value of real estate assets belonging to the Groupe Melior corporations. In her view, Fiducie could not claim damages for faults committed against the Groupe Melior corporations. Citing Foss v. Harbottle (1843), 2 Hare 460, 67 E.R. 189 (H.L.); Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; and Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, she explained that shareholders do not have a cause of action in relation to faults committed against the corporation by third-party defendants: para. 42. Rather, shareholders only have a sufficient interest to bring a claim if the third-party defendant breached a distinct legal obligation owed to the shareholders and if the shareholders suffered an injury distinct from those suffered by the corporation: para. 43.
[24] I note that the appellants placed significant emphasis on the specificity of the civil law. They urged the Court against the wholesale adoption of the common law rule set out in Foss v. Harbottle, which categorically bars shareholder recovery for faults committed against a corporation. Despite the fact that the principles established in that decision have been recognized to be applicable in Quebec since Dominion Cotton Mills Company Limited v. Amyot, [1912] A.C. 546 (P.C.), at p. 552, the appellants submitted that the rule set in Foss v. Harbottle is incompatible with basic principles of the C.C.Q.: A.F., at paras. 34-40 and 50-59. With respect, this argument misses the mark. The decisions of the Superior Court and the Court of Appeal dismissing the claim for lack of interest are firmly grounded in civil law principles. In certain cases, the civil law produces a conclusion similar to that which would arise under the common law. This is one such case. As this Court has noted, there is often “a striking similarity between the civil law and the common law approaches”: Bou Malhab, at para. 38. This similarity, where it is premised on principles proper to each legal system, in no way detracts from the coherence and integrity of either.
[25] The C.C.Q. recognizes that legal persons such as corporations have a distinct legal personality (art. 298) and a distinct patrimony (art. 302). As with all legal persons, corporations “have full enjoyment of civil rights” (art. 301) and the “capacity to exercise all their rights” (art. 303). Read together, these provisions lead to the conclusion that the right of action of a corporation belongs to the corporation itself. Like other claimants with the capacity to act, the corporation itself must exercise its rights of action in its own name. The corollary is that shareholders may not personally exercise a right of action that belongs to the corporation: P. Martel, La société par actions au Québec (loose leaf ed.), vol. 1, at para. 1-28.
[26] Courts in Quebec have applied these principles consistently. As a consequence, the jurisprudence has barred shareholders from personally instituting proceedings against third parties based on rights of action belonging to the corporation in which they hold shares: see e.g. Houle, at p. 182; Groupe d’action d’investisseurs dans Biosyntech v. Tsang, 2016 QCCA 1923, at paras. 23-27 (CanLII); Backman v. Canadian Imperial Bank of Commerce, [2004] R.R.A. 776 (C.A.), at pp. 797-98; Abattoirs Laurentides (1987) inc. v. Olymel, 2003 CanLII 8729 (Que. Sup. Ct.), at paras. 129-34; Tardif v. Huot, [2001] AZ-50082813 (Que. Sup. Ct.); Harpin v. Lessard, 2000 CanLII 18991 (Que. Sup. Ct.); Cartier v. Tessier, 1999 CanLII 11919 (Que. Sup. Ct.); Moulin v. Aconvenbec Ltée, [1990] R.R.A. 577 (Que. Sup. Ct.), at p. 580; Crevier v. Paquin, [1975] C.S. 260 (Que.), at p. 264; Silverman v. Heaps, [1967] C.S. 536 (Que.), at p. 539.
[27] The benefits of incorporation come with a corresponding limit on the rights of shareholders: Houle, at p. 178. It would be incoherent — and indeed, unjust — for shareholders to benefit from limited liability while at the same time gaining a right of action in relation to faults committed against the corporation in which they hold shares: Martel, at para. 1-28; see also Silverman v. Heaps, at p. 539. The corporate veil is impermeable on both sides; just as shareholders cannot be liable for faults committed by the corporation, so too are they barred from seeking damages for faults committed against it: Houle, at pp. 177-80; see also F. Pérodeau, “Le sort réservé à la réclamation d’un actionnaire pour la perte de valeur de ses actions : une revue de la jurisprudence québécoise” in Barreau du Québec, vol. 255, Les dommages en matière civile et commerciale (2006), at pp. 5-6.
[35] The alleged facts that relate to this first requirement of Houle refer primarily to legal obligations owed to the Groupe Melior corporations and not to Fiducie. They do not suffice to give Fiducie an independent right of action against the respondents as they do not disclose the breach of an independent legal obligation owed to Fiducie. I add that, even where the Motion to Institute Proceedings alleges distinct legal obligations owed by the respondents to the Fiducie, it fails to allege how these obligations relate to the injury at issue in this appeal.
As will be shown below, the defendants, who are all lawyers, accountants and/or auditors, behaved in a clearly unreasonable manner in the performance of mandates relating to management of the affairs of the Groupe Melior (as defined below) and in their dealings with Mr. Maynard, both in his personal capacity and in his capacity as trustee of the Fiducie, and repeatedly acted with gross negligence and breached their duties to be competent and to provide advice in their role as advisors of the Groupe Melior, Mr. Maynard and the Fiducie, thereby causing significant injury to the Fiducie and Mr. Maynard;
Since the defendants were acting as professionals on behalf of the Groupe Melior, the Fiducie and Mr. Maynard, they were, at all times relevant to these proceedings, fully aware, or they could not reasonably have been unaware, that their actions would cause injury to the Fiducie and Mr. Maynard; [Emphasis added.]
[37] It is clear from the foregoing that the appellants confuse the obligations owed by the respondents to the Groupe Melior corporations with those allegedly owed to Fiducie and to Mr. Maynard. Despite the promise of further specificity, this confusion of obligations continues throughout the statement of facts: see e.g., at paras. 35, 46 and 256. The problem is that an obligation owed by the respondents to Groupe Melior does not necessarily give rise to an independent obligation owed to Fiducie.
[38] For example, while the appellants claim that the respondents acted negligently in establishing the tax structure of Groupe Melior, they allege only facts that relate to obligations owed to Groupe Melior itself: see e.g. Motion to Institute Proceedings, at paras. 181, 198 and 273. In other words, they fail to show how the respondents owed an independent obligation to inform and advise Fiducie itself on the tax structure. Similarly, the fact that information about this tax structure might have been communicated to Mr. Maynard in his capacity as director of several corporations of Groupe Melior does not mean that the respondents had a distinct obligation to inform Fiducie in its capacity as the ultimate shareholder of the corporations.
[39] It is, of course, true that injury to the corporations in Groupe Melior may have consequences for those holding their shares. Fiducie is the sole shareholder of 9143-1304 Québec inc.; this corporation controlled in whole or in part, the corporations of Groupe Melior. For this reason, any breach of an obligation owed to Groupe Melior would tend to have an indirect impact on the interests of both 9143-1304 Québec inc. and Fiducie. Mr. Maynard, acting as a trustee and the primary beneficiary of Fiducie, could also be affected by faults committed against Groupe Melior and the resulting injuries. But having chosen to structure his business by means of various incorporations, he cannot now seek to avoid the consequences of those choices. As Justice Wilson put it in Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2, “[h]aving chosen to receive the benefits of incorporation, he should not be allowed to escape its burdens. He should not be permitted to ‘blow hot and cold’ at the same time”: p. 11.
[40] Fiducie is, of course, content to avoid the debts owed by the corporations of Groupe Melior. This limited liability, however, comes at a cost: as shareholder, Fiducie has no right of action in relation to faults committed by the respondents against Groupe Melior. Given the exceptional nature of Fiducie’s claim, it was incumbent upon the appellants to allege sufficient facts to show how the respondents breached a legal obligation owed to Fiducie distinct from those owed to the Groupe Melior. Their failure to do so is fatal to Fiducie’s claim.
[43] This Court has often affirmed that the statement of claim (called and originating application in Quebec (in the new C.P.C.)) defines the issues and informs the opposing parties of the case they have to meet: Haaretz.com v. Goldhar, 2018 SCC 28, at para. 21; see also Lax Kw’alaams Indian Band v. Canada (Attorney General), 2011 SCC 56, [2011] 3 S.C.R. 535, at para. 41. For this reason, neither the parties nor the courts may redefine a cause of action on appeal nor read into a statement of claim what is not there. As the alleged injury in this case was suffered by the Groupe Melior corporations, the facts pleaded by the appellants point only to an indirect injury suffered by Fiducie.
(J.-L. Baudouin, P. Deslauriers and B. Moore, La responsabilité civile, Principes généraux (8th ed. 2014), vol. 1, at No. 1-684)
[45] Several decisions in Quebec have affirmed this principle and held that a direct injury suffered by a corporation amounts to an indirect injury suffered by the shareholder: Houle, at p. 186; Biosyntech, at para. 23; Silverman, at p. 539; Michaud v. Groupe Vidéotron Ltée, [2003] R.J.Q. 3087 (C.A.), at para. 66; St-Paul Fire & Marine Insurance Co. v. Parson & Misiruak Construction Ltd., [1996] R.J.Q. 2925 (Que. Sup. Ct.) at pp. 2971-72; Pellin v. Bedco, division de Gérodon Inc., 2002 CanLII 20301 (Que. Sup. Ct.), at para. 44. This case is no exception.
[50] Having failed to show a direct injury suffered by Fiducie from the one suffered by the Groupe Melior corporations, Fiducie falls short of the requirement sets out in Houle. Consequently, it cannot establish a sufficient interest in seeking damages against the respondents.
[55] There is nothing trivial about dismissing an action before the plaintiff has even had an opportunity to be heard on the merits. As this Court noted in Canada (Attorney General) v. Confédération des syndicats nationaux, 2014 SCC 49, [2014] 2 S.C.R. 477, at para. 1, “[a]lthough the proper administration of justice requires that the courts’ resources not be expended on actions that are bound to fail, the cardinal principle of access to justice requires that the power be used sparingly, where it is clear that an action has no reasonable chance of success”. Caution must be exercised, particularly where the basis for the exception to dismiss is that the plaintiff has no interest. Whether an interest exists is often dependent on the facts, and can rarely be assessed fully before trial.
[60] The sufficient interest required by art. 55 of the Code of Civil Procedure, CQLR, c. C‑25 (“former C.C.P.”) — now art. 85 of the Code of Civil Procedure, CQLR, c. C‑25.01 (“new C.C.P.”) — is the monetary or moral benefit the plaintiff will derive if the action is well‑founded (Jeunes Canadiens pour une civilisation chrétienne v. Fondation du théâtre du Nouveau‑Monde, [1979] C.A. 491, at pp. 493‑94; Consoltex inc. v. 155891 Canada inc., 2006 QCCA 1347, at para. 28 (CanLII); Kingsway, compagnie d’assurances générales v. Bombardier Produits récréatifs inc., 2010 QCCA 1518, [2010] R.J.Q. 1894, at para. 21). This interest must be legal in nature, such that it depends on the existence of a substantive right that is enforceable by the courts (Noël v. Société d’énergie de la Baie James, 2001 SCC 39, [2001] 2 S.C.R. 207, at paras. 37‑38). It must also be direct and personal in the sense that a right specific to the plaintiff must have been infringed (Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9, [2011] 1 S.C.R. 214, at paras. 44 and 47).
[62] Having an interest is also an essential criterion for the admissibility of any action (Jeunes Canadiens pour une civilisation chrétienne, at p. 493; C. Belleau, Collection de droit 2017‑2018, Preuve et procédure, vol. 2, at pp. 59‑60). An action may be dismissed at the preliminary stage, but only if it is clear that the plaintiff has no interest. This rule is expressly set out in the Code of Civil Procedure:
[65] To establish an interest at the admissibility stage, the plaintiff must allege the necessary elements of the substantive right being claimed, but he or she is not required to prove these elements before trial. As a result, the interest must be inferred simply by reading the originating application (Ferland and Emery, at para. 1‑1221; L. Chamberland, Le grand collectif: Code de procédure civile — Commentaires et annotations (3rd ed. 2018), at p. 588). This was confirmed in Jeunes Canadiens pour une civilisation chrétienne:
. . . [W]here a creditor sues a debtor for payment of what he or she is owed, it is clear simply from reading the allegations in the originating application to the effect that the claim exists and is exigible, as well as the conclusion in the application asking the court to order the defendant to pay the creditor the amount claimed in that regard, that the creditor has the interest required to sue because his or her patrimony would otherwise suffer a loss of income. If that is the case, the defendant will not be able to raise an exception to dismiss in respect of the application. But as for the issue of whether the claim actually exists and is exigible, it goes to the “merits” of the application. A defendant wishing to argue this point will then have to proceed with his or her defence (art. 170), and the case might continue to trial and to a judgment on the merits by the court. [Emphasis added; italics in original deleted.]
[86] The question whether damage is direct cannot be considered separately from the causal connection between the fault and the damage (J.‑L. Baudouin, P. Deslauriers and B. Moore, La responsabilité civile, Principes généraux (8th ed. 2014), vol. 1, at No. 1‑333). Because causation, “without a doubt, is a question of fact” (Benhaim v. St‑Germain, 2016 SCC 48, [2016] 2 S.C.R. 352, at paras. 36 and 92; Montréal (Ville) v. Lonardi, 2018 SCC 29, at para. 41), the same holds true for the directness of the damage (Bruneau, at paras. 11‑13).
(Weinberg, at paras. 8‑9; motion to dismiss appeal granted in Weinberg v. Ernst & Young LLP, [2003] Q.J. No. 14375 (QL) (C.A.))
[104] I also disagree with my colleague’s suggestion that Fiducie’s action is barred by the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3 . Fiducie is not purporting to act as a creditor of the corporations, nor is it seeking a balance due from them; rather, it is arguing that it has a direct right of action against the respondents for breaches of contract they committed against it. Once again, this theoretically gives rise to a risk of double recovery, but there is no such risk in this case.