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Em-Yo Properties Inc. c. Lessard

2011 QCCS 3179

JF 0697

 
 SUPERIOR COURT

 

CANADA

PROVINCE OF QUEBEC

DISTRICT OF

MONTREAL

 

No:

500-17-029077-065

 

 

 

DATE:

JUNE 29, 2011

______________________________________________________________________

 

IN THE PRESENCE  OF

THE HONOURABLE

WILLIAM FRAIBERG, J.S.C.

______________________________________________________________________

 

 

EM-YO PROPERTIES INC.

Plaintiff

v.

MR. CLAUDE LESSARD

-and-

LES SERVICES DE COURTAGE LESSARD

-and-

MR. HAROLD SPRING

Defendants

 

-and-

AXA ASSURANCES INC.

Intervener

 

 

______________________________________________________________________

 

JUDGMENT

______________________________________________________________________

 

INTRODUCTION

 

[1]   This case deals with a claim in damages arising from the unauthorized acceptance of an offer to purchase real estate. 

[2]           The Plaintiff registered owner asks that the Defendants, respectively the unauthorized signatory and the real estate broker involved, pay its costs of contesting the action the buyer brought for the transfer of title, as well as the share of proceeds from its subsequent sale of the property that it paid the buyer to abandon the action. 

[3]           The Plaintiff also asks for exemplary damages on the ground that the Defendants intentionally interfered with its Quebec Charter right to freely dispose of the property. 

[4]           A preliminary question is whether the Plaintiff has standing to sue in the place of those on whose behalf it held registered title to the property.

FACTS

[5]           The case is part of a larger conflict for higher stakes playing out before the Ontario courts between Larry Krauss, the president, sole director and sole shareholder of the Plaintiff, Em-Yo Properties Inc. ("Em-Yo"), and the Defendant Harold Spring, a former employee of a related company, Syndicat Management Inc. ("Syndicat").

[6]           Mr. Krauss, a lawyer, has since the 1980's specialized in the acquisition, syndication, management and disposition of real estate investments in Ontario, and more recently, Quebec.  Syndicat, all of whose issued shares are held by his wife's holding company, manages the investments.  Its president and sole director is Mr. Krauss. 

[7]           Mr. Spring, a former lawyer, had experience in property management before being hired by Syndicat in 1995.  He was given increasing responsibilities, rising to become chief operating officer by the time of his dismissal in February 2005. 

[8]           Em-Yo bought an apartment complex located at 4450-52 Des Sources in Montreal (the “Property”) on February 15, 1999.

[9]           While Em-Yo held registered and “legal” title to the property, under a co-tenancy agreement dated February 15, 1999 (the “Co-Tenancy Agreement,” D-1 and P-6), it did so as Trustee on behalf of a number of beneficial owners (the "Owners"), including undisclosed companies owned or controlled by members of Larry Krauss’s family holding 28.8% and which he represented in trust. 

[10]        Em-Yo’s sole function was to hold the Property for the Owners and not dispose of it except in accordance with their directions expressed by Special Resolution requiring adoption by 66 2/3 % in interest at a meeting called for the purpose.

[11]        Syndicat was designated the manager of the Property in the Co-Tenancy Agreement for a fee of 6% of gross revenue, plus an override fee of 35% of all profits after the Owners had recovered their capital, plus 8%, from distributions, refinancing or sale.    

[12]        Its function was limited to the day to day administration of the Property.  It specifically could not sell it.

[13]        Around the same time, Mr. Krauss organized and syndicated the acquisition of another apartment complex on Laurentien Boulevard in Montreal (“Domaine Laurentien”), likewise held for beneficial owners by a different single-purpose company acting as trustee under a similar co-tenancy agreement.

[14]        Both properties were “found” by Gerald Tabak, a cousin by marriage of Mr. Krauss, who also recruited some of the investors.  Mr. Tabak is a Montreal lawyer who has spent most of his career as a real estate owner, promoter and intermediary.  

[15]        The listing agent for the properties both at the time of their acquisition and at the time of the events that gave rise to the present action was the Defendant Claude Lessard, through his company, the Defendant Les Services de Courtage Lessard (“LSCL”).

[16]        On April 25, 2005, 9051-8929 Quebec Inc., also known as Saga Realties Ltd. (“Saga”) sued Em-Yo for conveyance of title on the basis of a promise to purchase (the “Offer”), accepted by Mr. Spring on behalf of Em-Yo on December 9, 2004, (Exhibit P-2).  The Court will refer to the suit as the “Saga action”.

[17]        On October 26, 2006, Em-Yo settled the Saga action as well as the present action against the former Defendants Sami Hajjar, Saga’s president, and Sam Chowieri, a co-purchaser, in a Transaction and Release of that date (the “Settlement”, P-41).

[18]        By the present action, Em-Yo sues Mr. Spring, claiming he had no authority to accept the Offer and knowingly violated section 16 of the Co-Tenancy Agreement, which made any offer that 66 2/3% in interest of the Owners wished to accept subject to a right of first refusal in favour of any Owner prepared to match it.

[19]        The Owners were never informed of the Offer and never authorized its acceptance, although slightly more than 50% of them had signed blanket authorizations solicited by Mr. Spring giving him and Mr. Tabak the authority to sell Domaine Laurentien and the Property on whatever terms they considered reasonable. 

[20]        Em-Yo also sues Mr. Lessard and LSCL for failing to verify Mr. Spring's authority before submitting the Offer and for continuing to facilitate Saga’s attempt to buy the Property after being advised on January 24, 2005, that he had no authority to accept it.  

[21]        The Intervener Axa Assurances Inc., their liability insurer, intervenes to take up their defense.

 

 

The alleged wrongful attempt by Mr. Spring to obtain authorizations to sell the Property

[22]        In August or September 2004, Mr. Spring and Mr. Tabak decided to solicit offers for the purchase of the Property as part of a package with Domaine Laurentien.  They did not tell Mr. Krauss that both properties would be involved.

[23]        Mr. Tabak had complained about the performance of the Domaine Laurentien investment only.  There was a high vacancy rate and the rents were low because the buildings needed new windows and an upgrading of kitchens and bathrooms.

[24]        He also feared a downward turn in the Montreal area real estate market, given what appeared to be an over-supply of new condo units.  Finally, he believed, wrongly, that there had been no distributions from the investment to the owners for a year and a half.  

[25]        At trial, he sought to justify his concern on the ground that he was the agent who had found both properties and brought in some of the investors, including his son.  He claimed he wanted to protect his reputation.

[26]        Mr. Spring had his own dissatisfactions.  After almost ten years working for Mr. Krauss’s group he believed his contribution as an administrator and investor recruiter justified that he be treated as a partner, particularly on the lucrative “back end” of existing and future deals.

[27]        This was the additional share of 35%, already referred to, of any residual gain on any investment arising from further revenues, disposition or reinvestment that went to Syndicat once all investors, including Krauss family members, had recovered their capital investment, plus 8%.

[28]        In the case of the Property, the Krauss family therefore had an ultimate potential participation in profits exceeding 50% for an investment of 29%.

[29]        Mr. Krauss expressed his desire to wait until Domaine Laurentien was upgraded before selling it but insists he never discussed a sale of the Property with either Tabak or Spring.  

[30]        He claims he told them that they could solicit offers for Domaine Laurentien after getting an appraisal and that any acceptance would have to be subject to the investors’ approval by Special Resolution.

[31]        Mr. Spring then contacted a number of real estate brokers.

[32]        During the summer of 2004, he communicated his interest to Mr. Germain Villeneuve (real estate broker at the firm C.B. Richard Ellis) in selling both the Property and Domaine Laurentien.

[33]        They visited both properties together.

[34]        Mr. Spring also informed Mr. Villeneuve that the gross annual revenue of the Property was $1,000,000 and the expenses were 44%, which would leave net revenue of $660,000.  Mr. Villeneuve then determined that the capitalization rate should be 7½% or 8%, which made him conclude that the Property was worth $8,250,000.   

[35]        Mr. Villeneuve testified at trial that he advised Mr. Spring that the Property should therefore be listed at $8,950,000.

[36]        Mr. Spring, on the other hand, testified that he proposed a listing of only $7,500,000 with the objective of selling the Property for approximately $7,000,000.

[37]        Mr. Villeneuve also indicated that his firm was prepared to accept a commission of 2% and a listing mandate of three months for selling both properties.   

[38]        After thus offering his services, he never heard back from Mr. Spring though he tried to contact him frequently.

[39]        On November 3, 2004, Mr. Spring sent a letter (P-83) to practically all the investors soliciting their signature of an enclosed form (D-2) authorizing Gerald Tabak and him to sell both the Property and Domaine Laurentien on whatever terms they considered reasonable.  Because the former was the better investment, they believed that their chances of getting Domaine Laurentien sold would improve if both were offered together.

[40]        At the same time, Mr. Spring sought confirmation (P-55) from the Owners that they did not want Em-Yo to implement a trial program proposed by the on-site manager to furnish a few units of the Property in order to lease them to corporate tenants at higher rents.

[41]        Mr. Spring admitted at trial that he did not send this letter and the forms to Mr. Krauss nor inform him about this process of obtaining the investors’ authorizations because he and Mr. Tabak knew that he was against the sales.     

[42]        Mr. Tabak testified that they felt they had a moral obligation to Mr. Lessard to offer the properties through him since he had brought them in to begin with and because he had a buyer already interested, namely Saga. 

[43]        On November 15, 2004, Mr. Lessard (Saga’s agent) sent an evaluation (D-6) of the Property to Mr. Tabak at the latter’s request which concluded that it was worth $6,775,000, Saga’s ultimate offer price.

 

[44]        On November 25, 2004, Saga made offers to purchase Domaine Laurentien (P-61) and the Property (P-62).  Mr. Spring did not discuss these offers with Mr. Krauss or any other Owner, but did not accept them in any case because he felt the prices offered were too low.

[45]        On December 8, 2004, Saga’s president, Sami Hajjar, signed and submitted the Offer for the Property, at first for a price of $6,700,000.  Mr. Spring did not inform Mr. Krauss.

[46]        On the same date, Saga signed an offer to purchase Domaine Laurentien (P-19) for the price of $6,900,000.

[47]        On December 9, 2004, Mr. Spring signed counter-offers, for the Property at $6,775,000, and for Domaine Laurentien at $6,975,000.

[48]        He did not include a provision indicating that his acceptance was conditional upon the investors’ approval in either case.

[49]        Saga accepted both counter-offers on December 10, 2004.

[50]        Mr. Krauss first learned of the existence of both offers on December 13, 2004 when Gerald Tabak called him to ask what he thought of them.

[51]        Mr. Tabak denied (after first failing to recall) that such a phone call took place saying it would not be “in his character”, given his professed distance from the details of the offers, counter-offers and acceptances.

[52]        However, on the same day, he negotiated his own finder’s fee agreement (P-101) with Mr. Lessard, who testified that the final negotiations in this regard took place after the acceptance of Saga’s offers on December 10.

[53]        Mr. Spring later provided Mr. Tabak with a letter dated December 20, 2004 (P-10) in which he purported to confirm that the investors had authorized Mr. Tabak to negotiate a commission with LSCL for the sale of both properties in the amount of approximately  $300,000 and that the letter was Tabak's "good and sufficient authority to do so."

[54]        When Mr. Krauss learned of the offers from Mr. Tabak on December 13, 2004, he was shocked.

[55]        After getting off the phone, he immediately went to see Mr. Spring, who assured him that he would obtain an assessment of the Property and that the acceptance would be conditional upon approval by the Owners as provided in the Co-Tenancy Agreement.

 

[56]        On December 14, 2004, Mr. Krauss’s assistant sent an email (P-78A) on his behalf to Mr. Spring in which Mr. Krauss sought the following:

Please confirm that any agreements of Purchase and Sale related to Domaine and Em Yo will include a condition in them that makes them subject to the written approval of the Owners within a 15 day period. Also please obtain a separate report from CB Richard Ellis confirming what a reasonable sale price would be for Em Yo prior to entering into any binding agreement to Purchase and Sale.

[57]        Mr. Spring gave Mr. Krauss a copy of the Offer sometime between December 13 and December 22, 2004.

[58]        Mr. Krauss immediately thought that the purchase price was too low, but it did not register on him that Mr. Spring had already unconditionally accepted the Offer.

[59]        On December 22, he sent another email (P-11) to Mr. Spring in which he confirmed the content of their previous discussion where Mr. Spring promised that the Offer would be conditional upon Owners’ approval and asked him to call a meeting of Owners:

3. Montreal. I would ask that you immediately call a meeting of the investors and therefore send out a notice for the meeting of the Owners of Em Yo and Domaine to be held in the week of my return so that we can discuss the possibility of selling the property and whether it is in the best interest of the Owners to do so. I am confirming that you have advised me that the transaction you are entertaining is subject to Owner’s (sic) approval and I’m insisting that such ownership approval be discussed in the forum of a meeting of the respective Co-Tenancies and not by way of separate discussions between yourself and each Owners (sic) separately. I find it offensive that no discussion was ever held with me to discuss the matter. As well, I am confirming that you advised me that prior to entertaining the offer on Domaine, you’ve obtained an evaluation from I believe it was CB, in the amount of $7.1 to $7.2 million but no such valuation was received for Em Yo. It is important this be addressed in the most professional way possible in order to ensure that a sale only occurs in the form of an open and frank discussion between the parties with all of those who wish to be present and the information regarding the properties be made fully available to the investors.

(underlining added)

[60]        On December 29, 2004, Mr. Krauss sent another email (P-82) to Mr. Spring, while he was away on vacation.  He reiterated the need for a meeting of the Owners and also announced his intention to exercise his right of first refusal.  At the time, given the discussions he had with Mr. Spring, he still believed the Offer was conditional upon Owners’ approval:

[…] Accordingly I trust you will advise me if I am under any misconception so that I can properly exercise my right as it wld be my intention to do so, as an Owner to purchase Des Sources from the balance of the Owners, unless of course a majority choose not to sell the property when the Offer is presented to all of the Owners for ratification at the meeting that needs to be called for the second week of Jan. (sic)

(underlining added)

[61]        On December 31, 2004, Mr. Spring responded to Mr. Krauss's previous email of December 29.  In his email, he acknowledged that the offers needed to be conditional upon investors’ approval.

[62]        He also falsely indicated that he had received all of the Owners’ authorizations to sell the Property.

[63]        In a further email of January 13, 2005, Mr. Krauss expressed his incomprehension as to why Mr. Spring had never sought his approval for the Em-Yo sale.

[64]        He asked Mr. Spring to provide him with the letter he sent to the investors seeking their authorizations to sell the properties as he had received neither.

[65]        On January 14, 2005, as no meeting of Owners had been called by Mr. Spring to consider the Offer, Mr. Krauss himself called a meeting for January 24, 2005 (P-93).  At the same time, he called a meeting to consider the sale of Domaine Laurentien.

[66]        On January 17, 2005, Mr. Krauss received an appraisal of the Property (P-60) made by Mr. George Boufounos, a chartered appraiser, confirming that its market value was $8,500,000, contrasting with the price of $6,775,000 in the Offer.

[67]        Mr. Krauss believed that the Property should be sold for an amount even higher than the market value indicated in this appraisal.  This encouraged him to exercise his right of first refusal and to contest Saga’s attempts to close the transaction.  

[68]        On January 19, 2005, Mr. Spring informed Mr. Krauss that he did not believe that any meeting of the Owners was required.  Furthermore, Mr. Spring told other Owners that there was no purpose to attend the meeting called by Mr. Krauss for January 24, 2005. As a result, there was no quorum at the meeting called to consider the Offer.

[69]        Mr. Spring’s testimony is evasive as to what he told the other Owners although on discovery he admitted having taken the position that no meeting was necessary and that, if asked, he probably told them there was no purpose to attending one.

[70]        On January 19, 2005, Mr. Spring provided Mr. Krauss with copies of the purported authorizations (D-2) relating to the sale of the Property.

[71]        The testimony of Mr. Spring at trial on this specific issue was contradictory.  He first mentioned that he had provided Mr. Krauss with the authorizations “well before January” and perhaps at their first discussion regarding the accepted offers (on December 13).

[72]        He then nuanced his answer and indicated that it “could have been at the end of December.”  This testimony also contradicted his testimony during an examination at trial on May 3, 2007, where he admitted that the authorizations were “probably” given to Mr. Krauss in January of 2005.     

[73]        Mr. Spring’s testimony at trial is also inconsistent with his December 31, 2004 email to Mr. Krauss (P-11), which makes no mention of giving copies of the authorizations although it mentions giving copies of the offers.

[74]        On January 20, 2005, Mr. Krauss realized that Mr. Spring was attempting to circumvent the approval process envisaged in the Co-Tenancy Agreement and that Saga intended to insist the Offer was binding on Em-Yo. 

[75]        He immediately notified the other Owners that he was exercising his option to purchase their interests on the same terms and conditions as provided in the Offer.

[76]        Two meetings had been called for January 24, 2005 (one for Domaine Laurentien and one for the Property).  Nobody showed up for the Em-Yo meeting and only one investor attended the Domaine Laurentien meeting.

[77]        On February 17, 2005, when it was clear that the overwhelming majority of the investors in Domaine Laurentien favoured selling it to Saga, Mr. Krauss, who was not interested in acquiring it by exercising the right of first refusal, drafted a Special Resolution (P-56) authorizing the sale which was unanimously adopted by all of them.

[78]        Saga's nominee bought Domaine Laurentien on April 17, 2005.

[79]        The rest of this narrative concerns only the Property.

[80]        On January 26, 2005, Mr. Krauss sent a letter to all the Owners.  He reiterated his intention to purchase the Property on terms matching the Offer. 

[81]        He also invited any Owners who were interested to participate with him in purchasing the interests of those who were prepared to accept the Offer.

[82]        He explained to them that anyone who stayed in the deal had to understand that Em-Yo could face a lawsuit by Saga, but Em-Yo would save them harmless.

[83]        After exercising the right of first refusal, Mr. Krauss purchased the interests of certain Owners in April and May 2005, then in May and July 2006.  Those who decided to stay did so on the understanding that Em-Yo’s mandate was to sell the Property at a higher price than Saga’s Offer price. 

[84]        Before the purchase of these interests, the Krauss family owned 28.8% of the Property.  After all of the purchases (P-51 en liasse), it owned approximately 76.2% (P-51A).

Em-Yo puts Saga and Mr. Lessard on notice that Mr. Spring lacked authority

[85]        On January 24, 2005, Em-Yo’s attorneys served Saga and Sami Hajjar with a demand letter (the "notice of default," P-13) advising that Mr. Spring was never authorized to accept the Offer and that it was null and void. 

[86]        Mr. Hajjar provided Mr. Lessard with a copy of the notice of default on the same day.

[87]        The notice of default also clearly stated that in the event that any sale of the Property could be considered to have been authorized by the Owners, Mr. Krauss had already exercised the option to purchase provided in section 16.03 of the Co-Tenancy Agreement.

[88]        Mr. Lessard replied to the notice of default on January 25, 2005 (P-14) proposing a 30-day postponement of the period provided in the Offer to allow Saga to obtain financing.

[89]        Em-Yo refused and reiterated that Mr. Spring never had the authority to represent it in the sale of the Property.  It also demanded that no further steps be taken without first notifying its counsel and obtaining proper authorization from Em-Yo.[1]

[90]        When he received a copy of the notice of default, Mr. Lessard contacted Mr. Spring and accepted his assertion in an email of January 26, 2005 (I-2) that he had been authorized by the Owners and that Mr. Krauss’s exercise of the right of first refusal was too late to be valid.

[91]        Mr. Lessard did not, however, request copies of either the authorizations mentioned in the I-2 email or of the Co-Tenancy Agreement.

[92]        He did not perform a CIDREQ search (as suggested in the notice of default) or ask to see the Em-Yo by-laws.  He also did not request a corporate resolution from Em-Yo permitting Mr. Spring to sign the Offer or subsequent amendments.

[93]        After the notice of default, Messrs. Spring and Lessard continued to help Saga try to purchase the Property on the basis of the Offer until it became evident that Em-Yo would not attend a closing.

[94]        Mr. Lessard initiated and drafted several amendments to the Offer[2] after the notice of default that were intended to keep it in force in anticipation or following the expiry of peremptory delays set forth in it.

The Saga action

[95]        After the notary had asked him repeatedly to provide an Em-Yo resolution authorizing him to sign the deed of sale, Mr. Spring advised Saga’s counsel that Mr. Krauss had prohibited him from doing anything further, and that legal action should be taken against the latter if he did not comply.

[96]        On April 6, 2005, Saga put Em-Yo in default to transfer title, which it refused to do.

[97]        On April 25, 2005, Em-Yo was served with the Saga action (P-3).

[98]        On the same date, Saga registered advance notices (P-37) of the action against the Property. 

[99]        Because of the registration, Em-Yo was unable to accept any offers for the Property.  It therefore had to defend itself against the Saga action and to cross-demand for the removal of the registrations.  

[100]     On May 12, 2005, Mr. Villeneuve (on behalf of Em-Yo) received an offer to purchase (P-38) the Property from Mr. Michael Fischer for a price of $8,250,000.

[101]     Mr. Fischer presented a revised offer (P-87) on May 31, 2005, in which he added a clause acknowledging Saga's claim and reserving the right to void the offer in the event of proceedings.  The purchase price remained at $8,250,000.

[102]     Because of the advance registration against the Property, this offer to purchase the Property became moot.

Settlement with Saga and Messrs. Hajjar and Chowieri

[103]     Following examination on discovery of Mr. Hajjar, Em-Yo brought a motion to dismiss the Saga action.

[104]     The motion was dismissed by judgment dated October 25, 2005 (P-40). 

[105]     Em-Yo thus faced the prospect of being blocked from selling the Property until the litigation had run its course.

[106]     Therefore following completion of the examinations on discovery and inscription of the Saga action, Em-Yo settled it with Saga and at the same time settled the present action against Messrs. Hajjar and Chowieri.

[107]     Mr. Krauss claims he contacted all the remaining Owners and obtained their consent to the Settlement.  The Owners wanted to free up the Property and avoid being caught in a down cycle of the real estate market.  

[108]     Em-Yo, Saga, Messrs. Hajjar, Chowieri and Krauss signed the Settlement (P-41) on October 26, 2006.

[109]     The Settlement provided that the Property was to be sold by Em-Yo and that the proceeds of sale were to be shared by Em-Yo, Saga and Mr. Chowieri, such that Em-Yo would receive an amount equal to the Offer price ($6,775,000), less commission, plus 70% of any proceeds over and above that amount, while the remaining 30% would go to Saga (10%) and Mr. Chowieri (20%).

[110]     The parties agreed that Em-Yo would list the Property with Mr. Villeneuve at a price of $8,950,000 within 30 days of signature of the Settlement and that if it could not be sold at a price in excess of $6,775,000 within the following 18 months, Em-Yo would sell it to Saga at that price.

[111]     Em-Yo claims that the Settlement allowed it to mitigate its damages in a fragile real estate market.

[112]     On March 14, 2007, Em-Yo sold the Property to Timbercreek des Sources Inc. (“Timbercreek”) for a price of $8,775,000 (P-42).  While no Special Resolution authorized the sale, Mr. Krauss claims he consulted each of the other Owners, who waived their right of first refusal. 

[113]     While he produced no written proof of any such waiver, the proof establishes that Em-Yo sold the Property and distributed the proceeds in accordance with the Settlement without any protest or complaint from the few remaining Owners.

[114]     Em-Yo thus sold the Property on March 14, 2007 for $2,000,000 more than the price Mr. Spring had accepted in the Offer.

[115]     In accordance with the Settlement, Em-Yo paid $149,952.88 to Saga, $349,905.77 to Mr. Chowieri and $500 to register the declaration of settlement out of court of the Saga action at the Land Registry Office (P-43), or $500,358.65 in all.

 

CLAIMS

Em-Yo

[116]     Firstly, Em-Yo claims that it has the required legal interest to bring and defend actions concerning the administration of the Property in its own name in spite of the claim to the contrary of the Defendants 

[117]     Secondly, Mr. Spring, Mr. Lessard and LSCL are responsible for the damages suffered by Em-Yo:

(i) Mr. Spring, by clandestinely accepting the Offer without Em-Yo's authorization and thereafter purporting to keep it in force by signing a couple of crucial amendments and otherwise collaborating to advance it, even after Em-Yo's attorneys sent the notice of default;

(ii) Mr. Lessard and LSCL, by not pro-actively verifying Mr. Spring's signing authority both before and after the Notice of Default and by continuing to facilitate the deal by drafting amendments, providing advice and acting as an intermediary between Saga and Mr. Spring after the notice of default.

[118]     These damages consist of (i) the legal fees Em-Yo incurred in defending itself against Saga from the notice of default until the Settlement (January 24, 2005 to October 26, 2006) inclusive of fees yet to be billed by Larry Krauss in his capacity as an attorney, (ii) the share of profits it gave up pursuant to the Settlement, (iii) exemplary damages pursuant to sections 6 and 49 of the Quebec Charter because of the Defendants' intentional interference with its right to dispose of the Property and (iv) expert's fees.

[119]     The breakdown is as follows:

Legal fees to Woods & Partners

$146,283.91

Expenses, time & effort of  Larry Krauss

    75,000.00

Profits given up & cost of registering Settlement

  500,358.65

Exemplary damages

  100,000.00

Expert's fees

    16,483.83

TOTAL

$838,126.39

 

[120]     Em-Yo claims it is entitled to recover the profits it gave up because it had to do so in order to fulfill its obligation to mitigate its damages.

 

[121]     It also argues that it is entitled to its expert's fees even if the Court should dismiss its action, since it always took the position that the presence of expert witnesses was unnecessary.  However, Mr. Spring’s attorneys insisted upon retaining an expert witness and even presented a motion after the certificate of readiness was issued seeking permission to file an expert's report, which was granted.  Em-Yo claims it therefore had no choice but to file a counter-expertise. 

Mr. Spring

[122]     Mr. Spring claims, first of all, that since Em-Yo is not the beneficial owner of the Property but a mere prête-nom, it lacks the legal interest to sue him.  He claims the Owners should have done so instead.

[123]     Furthermore, he insists he did nothing wrong because he acted with a view to protecting the Owners and was authorized by more than the required majority to sell the Property even if he did not receive it in the form of a Special Resolution, which Em-Yo and Krauss cannot complain about because they habitually did not resort to them when required under the Co-Tenancy Agreement.

[124]     By the same token, since all actions relating to the co-tenancy other than its day to day management required the consent of the Owners, the present proceedings are invalid because Mr. Krauss did not procure their consent before he caused Em-Yo to bring them.  Moreover, since the Co-Tenancy Agreement provided for two directors, of which he (Spring) was to be one, Mr. Krauss could not authorize them as sole director.   

[125]     He submits that Em-Yo suffered no loss of profit, since even after giving up 30% of the amount by which the price to Timbercreek exceeded the Offer price, it was still left with at least $8,250,000, the amount it had claimed as the measure of its loss of potential profit before settling the Saga action and amending the present proceedings. 

[126]     Exemplary damages do not lie because his actions were motivated by a desire to serve the needs of the Owners and preserve their goodwill for the benefit of Em-Yo, not interfere with its right of disposition of the Property. 

[127]     He contends that Em-Yo's alleged loss of profit does not constitute damages attributable to the Defendants' fault, if any, but results exclusively from the Settlement, an intervening act it freely entered into.

[128]     Finally, he claims that in all events Em-Yo should reduce the damages it claims by the portions thereof attributable pro rata to the other solidary debtors it held responsible, namely Saga and Messrs. Hajjar and Chowieri, since Em-Yo released them from all liability in the Settlement.  

 

Mr. Lessard and LSCL

[129]     Mr. Lessard advances the same arguments as Mr. Spring, adding that since the latter had apparent authority and there were no grounds for him to suspect otherwise, he was under no obligation to pro-actively confirm it.

[130]     He further argues that he cannot be held responsible for continuing to act as a mere facilitator and intermediary for his client Saga after Em-Yo had denounced the lack of authority.  The actions that prevented Em-Yo from disposing of the Property were Spring's and Saga's, not his.

ISSUES

[131]     The Court must decide the following questions:

1.    Does Em-Yo as a registered owner lacking beneficial interest have the legal interest to bring the action in its own name or must the Owners have brought it instead?

2.    Is Mr. Spring at fault for accepting the Offer and thereafter helping to advance it in the absence of a Special Resolution of the Owners?

3.    Are the present proceedings valid in the absence of a duly adopted resolution of the Owners or of two directors of Em-Yo?

4.    Are Mr. Lessard and LSCL solidarily liable to Em-Yo with Mr. Spring for not independently verifying his authority to accept the Offer before he did so and for not doing so thereafter but continuing to facilitate the transaction in the face of Em-Yo’s protest that he had no such authority?

5.    What is the allocation of responsibility among the Defendants?

6.    Are the Defendants liable for the legal fees Em-Yo incurred from January 24, 2005, the date it denounced Mr. Spring’s lack of authority, until October 26, 2006, the date it settled the Saga action?

7.    Are the Defendants liable for $75,000 of fees for legal or other services allegedly rendered by Em-Yo’s president, Larry Krauss?

8.    Are the Defendants liable for 30% of the profits on the sale of the Property that Em-Yo paid Saga and Messrs. Hajjar and Chowieri pursuant to the Settlement? 

9.    Are the Defendants liable for exemplary damages under sections 6 and 49 of the Quebec Charter and if so, in what amount? 

10. Seeing that by the Settlement Em-Yo released Saga, Mr. Hajjar and Mr. Chowieri, whom it had sued solidarily for the same damages, what is the Defendants’ residual liability?  

DISCUSSION

Does Em-Yo as a registered owner lacking beneficial interest have the legal interest to bring the action in its own name or must the Owners have brought it instead?

The law

[132]     Art. 55 C.C.P. reads as follows:

Whoever brings an action at law, whether for the enforcement of a right which is not recognized or is jeopardized or denied, or otherwise to obtain a pronouncement upon the existence of a legal situation, must have a sufficient interest therein.

[133]     At civil law, ownership necessarily vests sufficient legal interest in the owner to be party to an action to exercise the rights attaching to the ownership where the owner is otherwise capable.[3]

[134]     By contract falling short of a transfer of title, an owner might agree to hold property for the ultimate and complete benefit of others, inclusive of the right to direct its sale or encumbrance.  Yet, in Quebec, despite this contractually mandated flow-through of benefits to others, the apparent owner retains the right to bring and defend actions concerning the property against third parties, even those who may be aware of the arrangement. 

[135]     The Superior Court case of Mackenzie House Apartments Inc. v. Schéré[4] confirms the sufficient interest under section 55 C.C.P. of a registered owner to sue for monetary claims arising from its administration of an immovable property held for the ultimate benefit of investors, who are uninvolved in the administration while entitled to steady investment returns:

The declaration of trust designates Plaintiff as a “trustee”, quite obviously a term borrowed from the common law. While under Quebec law a beneficial ownership and legal title are invariably vested in the same person, the common law recognizes that each may vest separately as here; beneficial ownership is vested in Canada ltd., while legal title is vested in Mackenzie House. […]

 

Thus we see that the agent [Plaintiff] is not simply the mandatary under our civil law. It enjoys an existence “beaucoup plus autonome” and its judicial status is such as to permit it to sue on behalf of the beneficial owner as it has. […] On this ground too, I would conclude that the Plaintiff has the necessary interest to institute these proceedings.

(underlining added)

[136]     That case, which involved the administration of a co-operative apartment building on behalf of the owners, followed the Court of Appeal case of Zoltom Investments Inc. v. Rodger[5] in which Lamer J. held that a trustee for the debenture holders under a trust deed of hypothec, mortgage and pledge could sue in its own name on their behalf.  

[137]     As an administrator of the property of others, art. 1316 C.C.Q. would allow Em-Yo to sue in respect of anything related to its administration.  To defend title and to obtain compensation for any damages it thereby incurs is inherent to its administration.

[138]     As the late Justice Maurice Laramée observed in the case of Théoret v. Robert,[6] in Quebec there is no difference between legal ownership and beneficial ownership.  There is only ownership. 

[139]     Even if an owner obliges himself to impart some or even all of the benefits of ownership to others, he remains the owner and thus has the legal interest to bring an action that derives from the ownership or its consequences.

[140]     Indeed, he is the only one who may do so.  In relation to the world at large, it is he who bears the burdens and reaps the benefits of ownership.   

[141]     The fact that Em-Yo will have to distribute any damages awarded by the Court to the Owners because of the Co-Tenancy Agreement does not deprive it of standing to sue for them in its own name.

[142]     Even if considered a prête-nom to the Owners in personam, it has legal standing to sue in its own right and name under art. 55 C.C.P. by virtue of a jurisprudence that is now well-established in Quebec and which was cogently summarized by Journet J. in Saulnier-Millette v. Obambi:[7]

[85]       L'article 59 du Code de procédure civile prévoit que nul ne peut plaider sous le nom d'autrui.

[86]       Cependant, ce même article au dernier paragraphe prévoit que l'administrateur du bien d'autrui plaide en son nom pour tout ce qui touche l'administration du bien.

[87]       Déjà en 1952, la Cour supérieure sous la plume du juge Eugène Marquis (Pelletier c. Fournier, (1952) R.L. 243) avait décidé que:

Considérant que le droit d'instituer des procédures en qualité de prête-nom a été admis à diverses reprises sous l'autorité de la Loi des lettres de change et en matière contractuelle lorsque le mandataire a engagé personnellement sa responsabilité vis-à-vis d'un tiers :

Le prête-nom n'a la qualité de mandataire que pour son mandant.  Vis-à-vis les tiers, il est principal intéressé et recevable à exercer les recours qui naissent des contrats qu'il fait en son nom.

Suivant la doctrine et la jurisprudence, le mandataire, prête-nom, porteur d'un billet, a un intérêt suffisant pour intenter une action et obtenir jugement; et le porteur d'un billet, qu'il ait donné valeur ou non qui est le cessionnaire d'un porteur régulier, a lui-même tous les droits de ce dernier.

[88]       Depuis ce temps, la Cour d'appel (Mongrain c. Auger, [1967] B.R. 332 ) appelée à interpréter l'article 59 du Code de procédure civile, en venait à la conclusion que l'interdit de plaider au nom d'autrui n'était pas d'ordre public et qu'il ne fallait pas interpréter rigoureusement la règle voulant que nul ne peut plaider au nom d'autrui.

[89]       Par la suite, la Cour supérieure dans le dossier Placements Euromart c. Régie de l'assurance maladie du Québec ((1980) C.S. 819) décidait que :

Le mandataire doit mentionner sa qualité dans les procédures et le non de son mandant doit figurer à côté du sien :  "Nul ne plaide par procureur signifie seulement que nul ne peut se faire représenter par un mandataire qui figurerait seul dans l'instance et que le mandant doit toujours être en son nom dans les actes de procédure et dans la rédaction du jugement.''

La règle interdit donc au mandant de se faire représenter par un mandataire qui figurerait seul dans les procédures.  Mais elle n'interdit pas au mandataire de plaider en son nom, en s'obligeant lui-même.  Elle ne s'oppose pas au titulaire apparent du droit litigieux d'agir en justice, comme prête-nom, c'est-à-dire de soutenir le procès en son nom et non comme mandataire.  "La règle vise le titulaire d'un droit qui se dissimule derrière un mandataire sans être nommé, non le titulaire d'un droit caché derrière un titulaire apparent, seul investi, à l'égard des tiers, du droit et de l'action." (Le soulignement est du soussigné)

[90]       Depuis ce temps, le Code civil du Québec prévoit à son article 2135.2 que le prête-nom peut faire des actes de simple administration, ce qui inclut le droit d'ester en justice (article 1316 C.c.Q.).

[91]       Ce principe de droit a été repris plus récemment par le juge Pierre Côté (2334-1423 Québec inc. c. Martel, [1995] R.D.I. 216 ) comme suit :

Le moyen fondé sur l'absence d'intérêt de la demanderesse ne saurait être retenu car, depuis l'amendement apporté à l'article 59 C.P. en 1992 par l'article 192, du chapitre 57(1) (1), l'administrateur du bien d'autrui peut ester en justice pour tout ce qui a trait à son administration.  Ce pouvoir est énoncé de nouveau à l'article 1316 du C.C.Q.(2) (2) :

Art. 1316. L'administrateur peut ester en justice pour tout ce qui touche son administration; il peut aussi intervenir dans toute action concernant les biens administrés.

Commentaires (2) :  Cet article constitue une exception à la règle de l'article 59 C.P.C., qui édicte que nul ne peut plaider au non d'autrui. »

 

(citations partly omitted)

[143]     The rule expressed in art. 59 C.C.P. that a person cannot use the name of another to plead applies where a mandatary having no interest in the object of a suit takes or participates in it on behalf of a mandator, whether or not the latter is identified.

[144]     It does not apply when someone who himself is an apparent owner carries litigation in his own name and at his own risk and cost, even if he is beholden to third parties who are not apparent owners.       

[145]     The objective of the rule is obviously not to mislead a litigant as to who his true adversary is.

[146]     In the present case, the Owners, including the entities Mr. Krauss represents, have not used the name of Em-Yo to plead.  Rather, it is Em-Yo that pleads on its own behalf as the only true and apparent owner of the Property.

[147]     The case of Victuni Aktiengeselischaft v. Québec (ministre du Revenu)[8] cited by Mr. Spring’s attorneys does not apply to the problem before the Court since it is a tax case.

[148]     The Supreme Court held that a company that bought land on behalf of two other companies to hold as registered owner on their behalf, issuing debentures to the vendor in payment of the purchase price, was not to be considered a debtor for purposes of assessing a tax on paid up capital.  The debtors were instead the two companies on whose behalf it acted. 

[149]     As Pigeon J. held:

It can thus be seen that the question that must be asked is not whether Victuni was the owner of the subject property, but whether it had an “indebtedness” in an amount equal to the value of this asset. It was conclusively proved that Victuni, although it bought the land in its own name, did so only as mandatary of two other companies, which are the real owners and for which it holds the land. This fact was not disclosed by the deed filed in the registry office, but it was known to the Department of Revenue when it made the assessment. In response to a request for information, Victuni had provided copies of the deeds executed between it and the two other companies.

In Quebec law, as in French law, an agreement to act as nominee (prête-nom) is a lawful form of the contract of mandate. In the Civil Code of Quebec, this appears from art. 1716, which provides:

Art. 1716. A mandatary who acts in his own name is liable to the third party with whom he contracts without prejudice to the rights of the latter against the mandator also.

(…)

Under the general principles of the law of mandate, it is clear that the obligation of a mandatary towards the mandator is not a debt.  The person who has bought property on behalf of a third party who wishes to remain unknown is no more indebted for the price paid than he is the owner of the property. The true owner is the mandator, and the obligation of the mandatary nominee is to render an account to the mandator and deliver over what he has received on his behalf (C.C., art. 1713).

[150]     This interpretation of mandate found in Victuni can co-exist with Quebec decisions holding that a registered prête-nom has the required legal interest to plead, to the exclusion of undisclosed beneficial owners who are its mandators, as such decisions deal with a different order of consideration.  

[151]     Thus, the tax authorities could look behind the apparent ownership of Victuni to assess the companies on whose behalf it acted once they were known.  However, since it was the apparent owner, only Victuni would have been able to sue third parties just as the latter could have sued Victuni, without prejudice to their right to sue its mandators (art. 2157 C.C.Q.).   

 

 

Is Mr. Spring at fault for accepting the Offer and thereafter helping to advance it in the absence of a Special Resolution of the Owners?

Mr. Spring’s intentional falsification of the P-6A / D-1 Co-Tenancy Agreement

[152]     Mr. Krauss and his attorneys spent a lot of time trying to persuade the Court that Mr. Spring began to undermine Mr. Krauss's authority and to purport to represent investors as early as Em-Yo's acquisition of the Property in 1999, his objective being to redirect their goodwill to himself in preparation for his eventual break with Mr. Krauss.  The following is an outline of their claim.

[153]     On February 15, 1999, once Em-Yo acquired the Property, Mr. Krauss instructed Mr. Spring to set up the agreement to govern the contractual relationships between Em-Yo, Syndicat and the Owners in consultation with Aaron Grubner, a commercial lawyer.

[154]     When Mr. Krauss instructed Mr. Spring to set up the Co-Tenancy Agreement, he requested that he be designated as the Owners’ nominee on Em-Yo's board in section 4.01(a) and that Mr. Spring be designated as the Manager’s nominee.

[155]     Mr. Spring then suggested that another nominee be designated to represent the Owners, although designating a nominee of the owners other than Mr. Krauss had never been done in previous investment deals.

[156]     Mr. Krauss agreed but indicated that the only other Owners' nominee he agreed to was Mr. Grubner and that if Mr. Grubner accepted, he (Krauss) would then be the Manager’s nominee.

[157]     Mr. Grubner declined.

[158]     Contrary to the instructions received from Mr. Krauss, Mr. Spring then indicated to Mr. Grubner that Mr. Krauss had decided to be the Manager’s representative and that he had been designated as the Owners’ representative. 

[159]     Mr. Grubner assumed that Mr. Spring had received his instructions from Mr. Krauss. He therefore made him the Owners’ nominee and Mr. Krauss the Manager’s nominee in the D-1 version of the Co-Tenancy Agreement.

[160]     Later, in February 1999, Mr. Spring asked David Lehberg, an employee of Syndicat, to sign the Co-Tenancy Agreement on behalf of Syndicat.

[161]     Mr. Lehberg wanted to obtain the authorization of Mr. Krauss before signing this document so he went to see him, accompanied by Mr. Spring. They presented Mr. Krauss with the P-6A version of the Co-Tenancy Agreement. Given that he was designated as the Owners’ nominee in it and Mr. Spring the manager's representative, Mr. Krauss approved this version and authorized Mr. Lehberg to sign on Syndicat’s behalf.

[162]     At the time, Mr. Spring had the responsibility of obtaining the Owners' signatures of the Co-Tenancy Agreement.  He sent out the P-6A version to most of them, who had been brought into the Em-Yo deal by Mr. Krauss and who would presumably have found it strange that he was not their representative.

[163]     He sent the unauthorized D-1 version of the Co-Tenancy Agreement only to the small minority of Owners who did not have a close relationship with Mr. Krauss and Mr. Spring obtained their signatures on this unauthorized version.

[164]     Mr. Grubner then went on to prepare several variants of the D-1 version for subsequent syndications that Mr. Krauss organized, since he assumed that it represented how he wanted the trustee companies to be organized, i.e. Mr. Spring was systematically named as the owners' representative and Mr. Krauss as the manager's representative.

[165]     Mr. Krauss only reversed this pattern (of Mr. Spring being the owners’ nominee) once he discovered it in September 2004.  Apparently, he had not checked the various co-tenancy agreements before.

[166]     For all the time and effort expended on the point, the Court does not regard it as crucial, in light of the questions before it, to decide whether Mr. Spring's insubordination, dishonesty or disloyalty, if any, began before the events immediately preceding the present litigation. 

[167]     It is only interested in whether he committed a fault by accepting the Offer without first providing a copy to every Owner and receiving authorization to accept it by Special Resolution in accordance with the provisions of the Co-Tenancy Agreement that follow:  

9.04   Notice of all meetings of the Owners shall state the date, time, place and the general terms and nature of all business to be transacted thereat.  The notice shall be given by the manager to each of the Owners at the address shown in this Agreement or as otherwise might be specified by any Owner to the Manager in writing and which notice shall be delivered at least 7 days and not more than 30 days before any such meeting.  No other business other than that which is stated in the notice shall be considered at such meeting.  Any notice of a meeting of the Owners may be waived by an Owner by a waiver signed in writing either before or after the date specified for the meeting.

 

16.01    If a bona fide offer to purchase the Real Property (the “Original Offer”) shall be received from any person, firm or corporation dealing at arms length (as that term is defined in the Income Tax Act of Canada, it being understood and agreed that only bona fide offers from an arms length third party may be entertained) with each of the Owners, a notice to such effect shall be sent to each owner by overnight courier service together with a copy of the Original Offer, such notification to be sent not later than 1 business day from the time the Original Offer has been received, and a meeting of the Owners shall be called as soon as possible, but in any event, not more than 3 business days after the receipt of the Original Offer.  The acceptance of the original offer shall require the passing of a Special Resolution.  If the Owners by Special Resolution decide to accept the Original Offer, then the parties hereto shall each do all things necessary and shall execute such documents as may be required to ensure the acceptance of the Original offer and each of the Owners and the parties hereto shall be bound by such Special Resolution.

 

16.02 If the Original offer is not accepted by the Owners as provided for the Section 16.01 hereof, the Owners may outline to the prospective purchaser the terms and conditions upon which an amended offer may be accepted, or the Owners may by Special Resolution direct the Manager to prepare, execute and deliver a counter-offer to such prospective purchaser.

 

16.03 Notwithstanding that the Original Offer is accepted by Special Resolution, if one or more of the Owners desire to purchase the Real Property upon the same terms and conditions as contained in the Original offer, then such owner or Owners may within one business day after the closing of the meeting of the Owners, submit an offer offering to purchase the Real Property on the same terms and conditions as those contained in the original Offer (which Offer is herein referred to as the “Substituted Offer) save and except that the purchase price shall be equal to the purchase price stipulated in the Original Offer less any real estate commission if same is payable pursuant to the terms of the Original Offer.  Upon submission of the Substituted Offer, the other Owners shall, if the Substituted Offer conforms with the requirements provided for in this Section 16.03, each do all things necessary and shall execute such documents as may be required to ensure the acceptance of the Substituted Offer and thereupon shall be bound to sell the Real Property upon the subject to the terms and conditions of the Substituted Offer.

[168]     Even if at the time he had obtained individual written authorizations to sell at his sole discretion from two-thirds of the Owners (which he did not), Mr. Spring knowingly violated these mandatory procedures applicable to the sale of the Property following receipt of an offer to purchase.

[169]     It is evident that he and Mr. Tabak wanted to end-run Mr. Krauss's opposition by simply acting as if the Co-Tenancy Agreement did not exist, even though both were lawyers by training and had been involved in the deal from inception. 

[170]     Mr. Tabak stood to enable his son to cash in his investment and to receive a kickback commission from Mr. Lessard, as well as 50% of the fees that would be charged by a lawyer relative of his whom he recruited to do the documentation of any sale.

[171]     Whatever his own motives were, Mr. Spring had decided to burn his bridges and evidently did not care what Mr. Krauss wanted.   

[172]     His liability is engaged whether he acted selfishly and dishonestly, or merely negligently.  On the evidence, the Court believes that his fault was intentional, and if it was negligent, it was grossly negligent (art. 1613 C.C.Q.).  However, even simple negligence would suffice to render him liable for the damages Em-Yo suffered as a direct and immediate result.

[173]     He himself admitted that he did not follow the requirements of the Co-Tenancy Agreement and the most he could say on his behalf is that he believed he was doing what the majority of the Owners desired and that it didn't matter anyway because Mr. Krauss himself did not procure Special Resolutions, as for example on the occasion of the eventual sale of the Property to Timbercreek. 

[174]     Even what the Owners appeared to want, however, was strongly recommended to them by Messrs. Tabak and Spring rather than a matter of their spontaneous expression. 

[175]     Mr. Spring had been a practicing lawyer, had participated in the drafting and implementation of the Co-Tenancy Agreement and was therefore well aware of the requirement that any offer to purchase the Property had to be approved at a meeting by a Special Resolution of Owners. 

[176]     The at-large authorizations that he solicited giving him and Mr. Tabak complete discretion to sell the Property on any terms they considered reasonable did not qualify as a Special Resolution, not only in form and substance, but also because he managed to get them from Owners of only slightly more than 50% of the Property.

[177]     Mr. Spring contends that he knew that other investors (for example Mr. Tabak’s son and Yaffa Adler), who wanted to accept the Offer without having signed authorizations brought the majority to more than 66 2/3 %, and looking at the roster of Owners who decided to sell to Mr. Krauss pursuant to his exercise of the right of first refusal, he appears right.  

[178]     However, even if the special majority of 66 2/3 % had been attained through the use of the at-large authorizations, the procedure that was followed remained fatally flawed because the Co-Tenancy Agreement required approval of a specific offer at a meeting after all Owners had received a copy of it. 

[179]     Clearly, the signatories of the agreement intended that there should be discussion and debate in an open forum prior to the acceptance of any offer. 

[180]     Moreover, no offer could be accepted unless it was expressly subject to the right of any Owner to buy the Property on the same price, terms and conditions, less the commission that would have been paid on a sale to the offeror.

 

[181]     None of these formalities was respected by design, for Messrs. Spring and Tabak were well aware that Mr. Krauss, representing 28.8% of the Owners, was opposed to the sale of the Property at that time and would try to persuade the others not to accept the Offer or exercise the right of first refusal if he could not.

[182]     They therefore did not send him a prior authorization for signature lest he warn off the other Owners or otherwise try to block their initiative, nor did they inform him of Mr. Spring’s acceptance of the Offer until it was a fait accompli

[183]     Even then, Mr. Spring continued to lie and obfuscate.  He assured Mr. Krauss that he would not accept any offer without it being made subject to acceptance by the Owners, when that is what he had already done by the time of their meeting. 

[184]     Mr. Krauss was left with the impression that the condition of acceptance by the Owners was contained in a separate document that Mr. Spring had not shown him. 

[185]     At trial, Mr. Spring tried to suggest in vague answers that his solicitation of the authorizations occurred only after Mr. Krauss had warned him to make his acceptance of any offer subject to Owners’ approval.

[186]     In fact, he sent out the solicitation letter to all the investors except Mr. Krauss on November 3, 2004 and he received the last of the resulting authorizations in the first week of December.

[187]     He then unconditionally accepted Saga’s offer on December 9, 2004 and spoke to Mr. Krauss about the Offer on December 13, 2004, and then only after Mr. Krauss, shocked to learn of the Offer that day from Mr. Tabak, asked him what was going on.        

[188]     There is no question that without Mr. Spring’s deception and unauthorized acceptance of the Offer, Saga would not have been in a position to take its action for passage of title and tie up the Property with pre-inscription of the action until the latter was settled, thereby causing Em-Yo to incur substantial legal expense and a potential loss of profit from missed opportunities to sell it. 

[189]     Furthermore, Mr. Spring compounded his unauthorized acceptance by signing various confirmations and amendments in the name of Em-Yo that permitted the Offer to remain in force and purportedly justify the Saga action. 

[190]     Had he refused to do so, the Offer would probably have lapsed because Saga did not respect peremptory delays.  He simply waived them when requested even though by then Mr. Krauss’s, and therefore Em-Yo’s, opposition to the Offer was explicit.      

 

 

[191]     Thus, he signed the following additional documents:

·        On January 12, 2005 he sent a letter (I-9) to Saga agreeing that the peremptory 30-day due diligence delay in paragraph 9.1 requiring written confirmation of satisfaction failing which the Offer would lapse had commenced on December 31, 2004, although it otherwise had already expired by January 9, 2005.

 

·        On January 24, 2005, he accepted the amendment P-23 confirming that the due diligence period would expire on January 31, 2005.

 

·        On February 9, 2005, after he was dismissed and after Em-Yo’s attorneys had denounced his lack of authority, he accepted the amendment P-27, extending the time limit for Saga to obtain the new mortgage until March 1, 2005, on the condition that Saga show proof it made the application and paid the application fees by February 15, 2005; this even though Saga had failed to furnish Em-Yo with a copy of a hypothecary financing commitment not later than 60 days after acceptance of the Offer, i.e. by February 8, 2005, as required by paragraph 5.2, and paragraph 5.3 provides that, in such event the seller may cancel the Offer.

 

·         In the same amendment P-27 he agreed that Saga could potentially buy the Property as a nominee, thereby allowing the former Defendant Sam Chowieri to come in with financing as its co-purchaser. 

 

·        Finally, on February 24, 2005, he sent a letter (P-31) to Associés Spectrum at the request of Messrs. Lessard and Tabak to authorize them to have access to information for an environmental assessment.

[192]     He cannot claim that Em-Yo or Krauss did not themselves obtain Special Resolutions when they were called for, as for example on the sale to Timbercreek.

[193]     While the proof shows that not all of the remaining Owners were consulted prior to that sale and that none gave any specific prior approval of it, none opposed it.  It seems all were content to receive considerably more than they would have had they sold to Saga.

[194]     However, as far as the Court is concerned, Mr. Spring’s argument is unpersuasive regardless for two reasons.

[195]     Firstly, trite to say, but two wrongs don’t make a right.  If Mr. Krauss, Em-Yo’s President, sole director and representative of 29%, then 76 % in interest of the Owners lacked formal authority to take some of his actions, it did not give Mr. Spring license to accept and pursue the Offer.

[196]     Secondly, he has no standing to invoke the indoor management rule in reverse since he personally was not a party to the Co-Tenancy Agreement and is not affected by a failure to adhere to its terms as are the Owners, Em-Yo and Syndicat.  Only they have the interest to complain of or to tolerate any such breach (art. 1440 C.C.Q.).  

[197]     When he signed the Co-Tenancy Agreement, he did so at the direction of Syndicat.  Whether he was the latter’s employee or, as he believes, a consultant, he held office at pleasure and still owed it, and by extension Em-Yo and the Owners, a contractual duty not to exceed his authority. 

[198]     They and he could only act within the limits of the Co-Tenancy Agreement.  Even if he was not a party to it, he knew that it defined what he could or could not do in relation to the Property.

[199]     He therefore could no more agree to sell it without the proper authorization of the Owners than could an individual Owner, Em-Yo or Syndicat.  He could not have done so, moreover, as the designated Owners’ nominee on Em-Yo’s board to be found in the counterparts of the Co-Tenancy Agreement he had signed by three Owners.

[200]     In fact, even if he had been so designated by all of the Owners, he would not have had the authority to act as he did.     

[201]     Finally, Mr. Spring derives no shelter from liability by applying the principle of novus actus interveniens, even though Saga decided to press on after being informed of his lack of authority on January 24, 2005. 

[202]     True, it was ultimately Saga’s actions that tied up the Property and necessitated the expenditure of legal costs and the eventual Settlement.  His fault and Saga’s were, however, interdependent and the chain of causality was uninterrupted. 

[203]     Saga’s fault was equal to Mr. Spring’s but not far enough removed from it in time to constitute a new and independent cause of the damage Em-Yo suffered.[9] 

[204]     In the view of the Court, both faults contributed equally.  The prejudice complained of was manifestly the direct and immediate result of their forming a continuum, not of the later one of the two. 

[205]     While in March 2005 Mr. Spring decided to abstain from further participation after accepting the Offer and twice amending it, it was not in order to repudiate it but to protect himself from litigation.  By then, he was too late to exculpate himself, however, for Saga’s fault flowed directly from his.

[206]     Saga could not have claimed, moreover, that Em-Yo held out or “allowed it to be believed” (art. 2163 C.C.Q.) that Mr. Spring had authority.  Em-Yo was unaware of his usurpation and there was nothing it could have done to prevent it.  The point is moot, however, since Em-Yo released Saga in the Settlement. 

Are the present proceedings valid in the absence of a duly adopted resolution of the Owners or of two directors of Em-Yo?

[207]     Once more, Mr. Spring tries inappropriately to invoke the indoor management principle. The latter protects a third party dealing in good faith with a corporation’s agents who possess apparent authority to bind the corporation even though they lack it under its internal rules.  The corporation may not invoke the lack of authority against the third party.

[208]     It appears ironic for an agent who, as here, has himself flouted the indoor management rules of a corporation to complain that the legal proceedings it brings against him as a result have not been authorized under such rules.

[209]     However, the real reasons why the indoor management principle does not apply to the present proceedings are threefold.

[210]     Firstly, Mr. Spring’s sole concern should be whether Em-Yo has sufficient legal interest to bring them; but as already noted it does.  It was the registered owner of the Property and the immediate victim of the faults it complains of.  It suffered the damages in the form of legal costs and lost profits, if any, and can sue to recover them even if they will be ultimately distributed to the Owners after expenses are covered. 

[211]     Secondly, insofar as they were brought without following the requirements of the Co-Tenancy Agreement,[10] it is not Mr. Spring but only the parties to that agreement who have standing to complain of the omission, to decide to drop the proceedings and to disavow the actions of Em-Yo's attorneys on the ground that the mandate to sue had not been properly authorized. 

[212]     Thirdly, in the absence of the Co-Tenancy Agreement, as President, Mr. Krauss had the authority to instruct counsel to sue Mr. Spring.  The latter cannot complain that he did so as a sole director when two were called for, one of whom was to be himself.  The directors could be replaced by the Owners or the Manager at any time and he had left Syndicat months before. 

Are Mr. Lessard and LSCL solidarily liable to Em-Yo with Mr. Spring for not independently verifying his authority to accept the Offer before he did so and for not doing so thereafter but continuing to facilitate the transaction in the face of Em-Yo’s protest that he had no such authority?

[213]     A distinction must be made between Mr. Lessard and Mr. Spring here.

[214]     The former could advise and facilitate but such continued participation was arguably not essential to advance the Offer to closing, while Mr. Spring’s was since as Em-Yo’s purported representative, only he could sign any amendment required to keep the Offer alive. 

[215]     He had the power to scuttle the Offer by simply not signing the amendment P-27 of February 9, 2005 by which the delay to obtain financing was extended by 30 days.

[216]     All Mr. Lessard did, on the other hand, was draft amendments that Saga wanted, possibly give advice and serve as a go-between.  He aided and abetted without enabling or implementing.  To aid and abet is not to be a direct and immediate cause for purposes of civil liability.  To blame him is to blame the messenger.

[217]     Em-Yo may then perhaps argue that Mr. Lessard should no longer have participated or assisted in any way, on the ground that had he not the deal would probably have foundered.  It seems to the Court, however, that this is mere speculation.  Saga had the sophistication and the means to continue on its own.

[218]     Furthermore, professional advisors and intermediaries do not as a rule incur liability to third parties for the substantive mistakes of their clients, whatever may be their responsibility to the latter for giving wrong advice.  It would take active participation in fraudulent activity with clients (including frauds of omission) for them to be liable to third parties, who cannot sue them just because they have advised or assisted in a course of conduct that turns out to be unfounded.  Mr. Lessard and LSCL are no more liable for the Saga action then are the lawyers who pre-registered and brought it on its behalf.

[219]     It must also be remembered that the regulations that Em-Yo invokes[11] to make its argument oblige the broker to verify the capacity of the parties and to impart information that may be relevant to the transaction.  In this case there is no doubt about the capacity of the parties. 

[220]     Authority to bind a party is not the same as its capacity to contract.  Em-Yo always had capacity even if Mr. Spring lacked authority and the regulations should not be interpreted so as to confuse the two.

[221]     That he lacked it was undoubtedly crucial information to communicate to both parties (if known) but does not imply that a real estate broker must verify the authority of every corporate signatory at the offer stage.  Such a duty exists only in circumstances that should put the broker on his guard.  All the authorities cited by Em-Yo state nothing to the contrary.[12]  Those circumstances were not present at any time before Mr. Spring accepted the Offer. 

[222]     They arose only after he had accepted it and Em-Yo had denounced his lack of authority, but from that time Saga, a sophisticated real estate investor, and its attorneys, a national firm, were just as aware of the problem and as capable as Mr. Lessard of confirming his authority and acting accordingly. 

[223]     It then also became Saga’s choice alone whether or not to proceed on the basis that the Offer was valid and to eventually pre-register and bring an action for specific performance against Em-Yo. 

[224]     Mr. Lessard does not get ensnared in its liability just because it chose to do so and he helped it keep the Offer alive before it sued.

[225]     Saga was his mandator, not Em-Yo, and apart from duties of honesty and cooperation, he had no obligation of loyalty to the latter.    

[226]     The prejudice Em-Yo suffered stemmed from Mr. Spring’s lack of authority when he signed the Offer, not from Mr. Lessard’s breach of a duty to discover it before he did or to disclose it afterwards. 

[227]     The first duty was not required by law in the absence of suspicious circumstances, and there were none, while the second was made redundant by Em-Yo’s denunciation.

[228]     Furthermore, if he had conducted a CIDREQ search before the Offer was accepted and found that Mr. Spring was neither director nor officer nor shareholder of Em-Yo, it would probably have made no difference. 

[229]     Mr. Spring may still perceptibly have been authorized to enter into such transactions, given the nature of his relationship with Em-Yo.  He worked for the Property manager, Syndicat, a company controlled by Mr. Krauss’s family, his office was in the same suite as Mr. Krauss’s and Em-Yo’s, he had signed the deed of acquisition for the Property on behalf of Em-Yo five years before and was referred to in its authorizing resolution as a signing officer, he had solicited the offer, at least for Domaine Laurentien, with Mr. Krauss’s authorization and he was at all times the person who responded to Mr. Lessard’s request for relevant data about both properties in relation to the offers for each.  

[230]     It is understandable that in such circumstances Mr. Lessard would believe that Mr. Spring was authorized to sign offers for Em-Yo.

[231]     According to the standard of care that Em-Yo advances, Mr. Lessard should have done his own analysis of the Co-Tenancy Agreement, viewed it the same way as it did and thereafter withdrawn from the file.  Had he done so, however, it would probably have made no difference. 

[232]     Saga could have acted as it did regardless and it is not possible to say that it probably would not have but for Mr. Lessard.  His involvement was accessory, not instrumental.  Saga’s actions, enabled by Mr. Spring, not his, tied up the Property and occasioned expense to Em-Yo.

[233]     Em-Yo cites various regulatory provisions governing the practice of the profession of real estate broker in Quebec to support its claim that Mr. Lessard should have been pro-active in verifying Mr. Spring’s authority and ceased any further participation in the file after it learned that he had none.

[234]     The Court will deal with them in turn.

[235]      Regulations respecting brokerage requirements, professional conduct of brokers and advertising, R.Q. c. C-73.2, r.1

DIVISION V

VERIFICATION OF IDENTITY AND LEGAL CAPACITY

 

29.  A licence holder must verify and ascertain the identity of the party represented as well as the identity of the other parties to the transaction if the latter parties are not represented by a licence holder.

 

30.  A licence holder must verify and ascertain the legal capacity of the party represented for the proposed transaction as well as the legal capacity of the other parties to the transaction if the latter parties are not represented by a licence holder.

[236]     There is no problem with the identity of the parties presented in this case, nor is there one of legal capacity.  Mr. Spring’s lack of authority to accept an offer is not a matter of capacity.  He, Em-Yo and Saga were all possessed of legal capacity to act.     

[237]     Rules of Professional Ethics of the Association des Courtiers et Agents Immobiliers du Québec, R.Q. c. C-73.1, r.5

DIVISION I

GENERAL DUTIES AND OBLIGATIONS TOWARDS THE PUBLIC

 

1.     A member of the Association des courtiers et agents immobiliers du Québec shall practice his profession with prudence, diligence and competence, and he shall demonstrate integrity, courtesy and a spirit of cooperation. He shall not commit acts that are derogatory to the honour and dignity of the profession.

 

[238]     The first half of the first sentence - a duty to act with prudence, diligence and competence - is nothing more than a re-statement of a legal rule that can be found in the Civil Code, namely the general duty of care.  Such a duty is necessarily contextual as is evident from the wording of art. 1457 C.C.Q:

Every person has a duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage or law, so as not to cause injury to another.

[239]     It is therefore restated specifically to govern the case of a mandatary in art. 2138 C.C.Q.:

A mandatary is bound to fulfill the mandate he has accepted, and he shall act with prudence and diligence in performing it.

 

He shall also act honestly and faithfully in the best interests of the mandator, and avoid placing himself in a position that puts his own interest in conflict with that of his mandator.

[240]     Thus, independently of any regulatory obligation of due diligence, the broker like any other mandatary, must act prudently in the circumstances that present themselves. 

[241]     The second part of the article - to demonstrate integrity, courtesy and a spirit of cooperation and not to commit acts derogatory to the honour and dignity of the profession - is essentially deontological, giving rise to disciplinary sanction but not necessarily responsibility in damages.

[242]      11.   A member shall verify, in accordance with generally accepted practice, the information that he provides to the public or to another member. He shall be in a position to prove the accuracy of that information at all times.

[243]     No question is raised that Mr. Lessard misinformed the public (Saga or Em-Yo) or another broker.  He did not inform Saga that Mr. Spring was authorized.  It was Mr. Spring who represented himself thus.  Mr. Lessard did not therefore have to verify his authority as a matter of proving the accuracy of information provided, but as a matter of reasonable prudence if the circumstances appeared suspicious. 

[244]     As for his response to the request of Mr. Tabak for an estimate of the Property which happened to coincide with the amount that Saga was willing to pay for it, while the one he gave was ostensibly too low, considering a contemporaneous valuation by Mr. Villeneuve of $8,250,000, it was an expression of opinion rather than a provision of information.  Messrs Spring and Tabak, both experienced real estate operatives, were in a position to verify it if they wanted to and also in a position to perceive any conflict of interest since they knew Mr. Lessard was acting for Saga. 

[245]     DIVISION II
DUTIES AND OBLIGATIONS TOWARDS CLIENTS AND PARTIES TO A TRANSACTION REFERRED TO IN SECTION 1 OF THE ACT

26.   A member shall act with objectivity whenever he is advising or informing his client and all parties to a transaction referred to in section 1 of the Act. Such obligation shall pertain to all the facts surrounding the transaction, and to the object thereof, and shall be fulfilled without exaggeration, concealment or misrepresentation.

[246]      No problem presents itself with regard to information that Mr. Lessard provided to the parties.  Em-Yo did not need to be informed of Mr. Spring’s lack of authority.  Saga had to, but it was and decided to proceed anyway.  Mr. Lessard cannot be blamed on that account.

[247]      27.   A member shall take steps to discover, in accordance with generally accepted practice, the factors that could unfavourably affect his client or the parties to a transaction referred to in section 1 of the Act or the very object of that transaction.

 

28.   A member shall inform his client and all parties to a transaction referred to in section 1 of the Act of any factor of which he has knowledge that could unfavourably affect the parties or the very object of the transaction.”

[248]     Em-Yo seems to set the greatest store on these provisions, but they do not apply to the facts of this case.

[249]     Section 27 expresses an obligation of due diligence.  Given the reference to “generally accepted practice” the scope of the investigation is not intended to be limitless in the sense of being a duty to take steps to discover all potential risk factors. 

[250]     The duty appears to cover commercial or material risk factors, such as taxes, vacancy rates, environmental contraventions or zoning contraventions, to give examples that come immediately to mind.

[251]     The provision does not expressly mandate a systematic check of the authority of a signatory to an offer who is already known to the broker in a context that is related to the transaction at hand.  The factors to be “discovered” would be those that are inherent to the transaction or its object, not factors that are matters of formality and would apply to any transaction.

[252]     If pro-actively checking the signing authority of a signatory to an offer in all circumstances is a matter of generally accepted real estate brokerage practice, it is incumbent upon Em-Yo to prove that it is, but it has not done so here.  Certainly, the text of the provision itself, largely and liberally interpreted, does not establish such an obligation.  

[253]     Finally, section 28 imposes an obligation on the broker toward his client and all parties to the transaction to inform them of any factor of which he has knowledge that could unfavourably affect the parties or the object of the transaction. 

[254]     This section must, however, be read subject to section 27.  It imposes a duty to disclose what is known, whether or not it results from a due diligence mandated by the latter provision.  It does not, however, impose a positive obligation to discover what is not known that goes beyond such a due diligence. 

[255]     Thus, if a broker knows that a signatory lacks authority before an offer is signed, he must either not submit the offer for signature or he must denounce the lack of authority as soon as he learns of it; but in the absence of suspicious circumstances that entail a general obligation of prudence, he is not obliged to find out if the signatory has authority to begin with unless generally accepted brokerage practice requires that he do so.

What is the allocation of responsibility among the Defendants?

[256]     The question is now moot since Mr. Lessard and LSCL are not liable.  Only Mr. Spring is.

Is Mr. Spring liable to Em-Yo for $146,283.91 in legal fees incurred by Em-Yo between January 24, 2005, the date it denounced Mr. Spring’s lack of authority, and October 26, 2006, the date it settled the Saga action?

[257]     Where the commission of a fault immediately and directly leads to litigation against the victim, the latter can recover the extra-judicial fees paid to defend the suit even if a settlement is reached before judgment.  In that situation, the fees incurred until the date of the settlement are recoverable.[13]

[258]     In the present case, Em-Yo was compelled to spend legal fees to defend the Saga action, which would have had no ground at all but for Mr. Spring’s usurpation of authority.  Therefore, Em-Yo is entitled to recover them until the date of the Settlement in the amount of $146,283.91 (P-44A).

[259]     In this respect Em-Yo has proved its claim.  All relevant time charges and backup time sheets for the period covered have been produced and the billing is reasonable considering the nature, duration and monetary value of the conflict.  Even though the legal bills were issued by Em-Yo’s Quebec counsel to Mr. Krauss’s law firm, the Court is satisfied on the evidence that it was Em-Yo that paid them in full.

[260]     While the Court recognizes that in Quebec, save for the case of an abuse of procedure a winning party’s extra-judicial fees should not be paid, in the present case, what Em-Yo seeks and is entitled to is recovery of the costs it spent as a direct and immediate result of Mr. Spring’s misappropriation of an authority he did not have, not an abuse of procedure on his part. 

[261]     Had it not been for his unauthorized acceptance of the Offer and his continued advancement of it, even after Mr. Krauss had warned him not to and formally put Saga in default, the latter would not have been able to tie up the Property for almost two years and forced Em-Yo to engage in expensive litigation. 

Is Mr. Spring liable to Em-Yo for $75,000 of fees for legal or other services allegedly rendered by Em-Yo’s president, Larry Krauss?

[262]     Mr. Krauss undoubtedly has spent a lot of time involved in litigation with Mr. Spring but he has hired lawyers to carry it.  In this case, he has been the client or the client’s representative, not an advocate.  He and his family have an overwhelming financial interest in Em-Yo which justifies devoting his time and attention to the file, but he should not expect to be paid for it as a lawyer.  He is already compensated in other ways and his time should not be compensated any more than that of any other businessman involved in litigation.

[263]     Besides, he has produced no time records or bills to Em-Yo.  He says he intends to bill it the $75,000 he claims, but that is not proof.  In any case, even if he did present such proof, the Court would not recognize Em-Yo’s claim.   

Are the Defendants liable to Em-Yo for 30% of the profits on the sale of the Property that Em-Yo paid Mr. Chowieri and Saga pursuant to the settlement of the Saga action? 

[264]     The settlement of the Saga action on October 26, 2006 constituted novus actus interveniensIt was not the action that caused Em-Yo to agree to give up 30% of the amount by which Timbercreek’s price exceeded Saga’s Offer price of $6,775,000 but the Settlement.

[265]     The latter was merely occasioned by the litigation.  It was not a direct and immediate consequence of the faults that caused the litigation itself (art. 1607 C.C.Q.).[14]

[266]     It is not as if Em-Yo was compelled to settle a meritorious lawsuit resulting from Mr. Spring’s fault alone.  It could have gone on defending the Saga action and in the view of the Court, it probably would have ultimately prevailed. 

[267]     The reason it settled was not to mitigate its damages or because it was forced to do so, but to take advantage of a rising real estate market that it felt would likely result in a price significantly higher than the Offer price.  It also wanted to avoid the cost and distraction of further litigation as well as the credit risk of collecting any ultimate award in damages. 

[268]     It owed no duty of mitigation to Saga in the circumstances.  Had it not settled, Saga certainly could not later have complained, having tied up the Property with its action, that Em-Yo should have mitigated its damages by selling at a higher price in a rising market when it was not free to do so.

[269]     Furthermore, it cannot seriously be contended that the Settlement represented performance of Em-Yo’s duty of mitigation owed to Mr. Spring.  How then can it result in his being expected to pay more than if it had not been performed at all?

[270]     The injustice of condemning Mr. Spring to pay any portion of the profits that Em-Yo conceded is manifest.  It would mean that the advantage Em-Yo bestowed on Saga for ceasing its illicit behaviour would be the measure of the damages it claims from Mr. Spring.  One would be rewarded for its misconduct, and the other punished for it.

[271]     Em-Yo’s act, entering the Settlement, is an intervening cause that breaks the chain of causality and is no more the direct and immediate result of Mr. Spring’s fault than it is of Saga’s.    

[272]     Moreover, by abandoning its claim for the profits it lost by not being able to accept the Fischer offer in May 2005 and by agreeing to share any future profits with Saga, whose action it must be remembered had been the ongoing reason it could not sell the Property, Em-Yo likewise bargained away any claim for loss of future profits against Mr. Spring.

[273]     Without ongoing litigation to block a sale, it would thenceforth be the market and the Settlement that determined any gain or loss.  Properly viewed, the 30% of the profits given up was not a loss caused either by Mr. Spring’s fault or Saga’s but a freely negotiated concession of Em-Yo.

[274]     Moreover, to claim as does Em-Yo that it is entitled to the profits it gave up in fulfillment of an obligation to mitigate damages perverts such an obligation. 

[275]     A creditor can hardly be said to mitigate its damages if it ends up claiming more damages from the debtor than if it had not mitigated them.  The purpose of the obligation to mitigate is to relieve the debtor of liability for damages the creditor could have avoided, not to create damages where none otherwise existed or to compound damages already claimed.  

 

[276]     Em-Yo’s claim against Mr. Spring must therefore be limited to damages it suffered before the Settlement.  Thus, it originally claimed for the loss of opportunity to gain $1,525,000 of extra profit if the Offer and ensuing Saga action had not prevented it from accepting Michael Fischer’s offer in May 2005.

[277]     After entering the Settlement, it still could have claimed that lost profit had the rising market not made the claim moot. 

[278]     The price at which it sold to Timbercreek, two years after the Offer, was $2,000,000 higher than the Offer price and $525,000 higher than Mr. Fischer had offered ($8,250,000).

[279]     If the price had been lower than $8,250,000, Em-Yo could have claimed at least part of the difference from Mr. Spring since it did not release him as it did Saga, Haggar and Chowieri. 

[280]     However, if the selling price to Timbercreek had been $8,250,000 or more but by reason of the 30% of profits it gave up in the Settlement, the net gain had been less for Em-Yo than it would have realized had it been able to sell to Fischer, Em-Yo would not have been able to claim the difference from Mr. Spring. 

[281]     Its concession of a portion of any gain was an intervening cause of loss rather than the direct and immediate consequence of Mr. Spring’s fault.

Is Mr. Spring liable to Em-Yo for exemplary damages under sections 6 and 49 of the Quebec Charter and if so, in what amount? 

[282]     Em-Yo contends Messrs. Spring and Lessard attempted to deprive and defraud it of the Property in favour of Saga.

[283]     The provisions of the Quebec Charter that it invokes read as follows:

6. Every person has a right to the peaceful enjoyment and free disposition of his property, except to the extent provided by law.

 

49. Any unlawful interference with any right or freedom recognized by this Charter entitles the victim to obtain the cessation of such interference and compensation for the moral or material prejudice resulting therefrom.

 

In case of unlawful and intentional interference, the tribunal may, in addition, condemn the person guilty of it to punitive damages.

[284]     There is no case to be made that the Defendants in any way interfered with Em-Yo’s peaceful enjoyment of the Property.  Therefore any complaint under section 6 has to be based on an unlawful interference with its free disposition of it, and the interference would have to have been intentional for a claim in punitive damages to succeed under section 49.

[285]     In the Court’s opinion, the claim here fails on both counts.

[286]     Not every conflict over the right to acquire property pursuant to a contract is an unlawful interference with the possessor’s free disposition of it even if the claimant happens to be wrong in his understanding of the contract. 

[287]     It seems that for the claimant to be in breach of section 6 of the Charter, he would have to intentionally interfere with the possessor’s right of disposition without any colour of right whatsoever. 

[288]     Unless the claimant has no contractual or legal provision to back him up or his interpretation of either is nonsensical to the point of bad faith, his claim may be unfounded, but it does not amount to a Charter breach.

[289]     Such are the conclusions the Court derives from the two following cases cited by Mr. Spring’s counsel:

Québec (Curateur public) v. Syndicat national des employés de l’hôpital St-Ferdinand, [1996] 3 R.C.S. 211 , [1996] A.C.S. no 90 at para. 121:

 

121. En conséquence, il y aura atteinte illicite et intentionnelle au sens du second alinéa de l'art. 49 de la Charte lorsque l'auteur de l'atteinte illicite a un état

d'esprit qui dénote un désir, une volonté de causer les conséquences de sa conduite fautive ou encore s'il agit en toute connaissance des conséquences, immédiates et naturelles ou au moins extrêmement probables, que cette conduite engendrera. Ce critère est moins strict que l'intention particulière, mais dépasse, toutefois, la simple négligence. Ainsi, l'insouciance dont fait preuve un individu quant aux conséquences de ses actes fautifs, si déréglée et téméraire soit-elle, ne satisfera pas, à elle seule, à ce critère.

(underlining added)

 

Jean Fortin & Associés Syndics inc. v. Dufresne, [2001] R.R.A. 338 , AZ-50085934 at paras. 89 and 102:

 

89. En droit, nos tribunaux ont déjà décidé que de tels dommages ne peuvent être accordés que dans le cas de délit intentionnel tenant ou découlant d'une mauvaise foi évidente et caractérisée.  Le droit à de tels dommages s'appuie sur l'article 49 de la Charte des droits et libertés de la personne. 

(…)

102. Que l'on dise que les appelants n'ont pas correctement respecté leurs obligations de fiduciaires, d'accord.  Qu'ils n'ont pas exercé la prudence requise en faisant une confiance aveugle à la famille Gagnon, ce qui constitue une négligence sérieuse, d'accord!  Qu'ils aient manqué de transparence en n'informant pas correctement les intimés des exigences précises de la «BFD», favorisant ainsi la famille Gagnon à l'étape de la deuxième soumission, force est également de le reconnaître!  Mais de là à qualifier le tout d'une atteinte intentionnelle à l'article 6 de la Charte et d'une volonté de causer aux intimés «les conséquences» de leur conduite fautive ne me paraît pas démontré par la preuve. 

 

(underling added)

 

[290]     If a right of disposition is interfered with as a consequence of advancing a contractual or legal claim in good faith, it does not follow that the interference is intentional.  The object of the claim is to advance one’s own legitimate interests even if as a consequence the defendant may have to give up something he would rather keep. 

[291]     That is quite different from conduct that simply seeks to interfere with the right of disposition for the sake of the interference itself; or conduct calculated to result in the interference for an objective that is either unlawful or that does not unavoidably justify the interference.

[292]     In the present case, however mistaken Mr. Spring’s actions and however dishonest he was in trying to hide them from Mr. Krauss, his intention was to deliver what a majority of the Owners wanted and that he considered to be in Em-Yo’s best interests - not to interfere with its free disposition of the Property. 

[293]     It must be remembered that most of the Owners were content to sell the Property for $6,775,000, the price Saga was willing and able to pay, and that was far from confiscatory, if low in hindsight.

[294]     Even if Mr. Spring acted without authorization in accordance with the requirements of the Co-Tenancy Agreement and Saga was unjustified in pursuing its action for passage of title against Em-Yo, neither wanted to interfere with its right of disposition except insofar as the Offer required. 

[295]     To mistakenly pursue an ordinary commercial objective, in this case an offer that if valid eventually results in an obligatory disposition of property, does not amount to an unlawful interference within the meaning of section 6 of the Charter; and much less is it an intentional unlawful interference within the meaning of section 49.

[296]     The relief sought by Saga stemmed from what was at least plausibly a voluntary act of Em-Yo.  Litigation unjustifiably undertaken to compel someone to comply with a contractual obligation, may justify compensatory damages - and does so here - but does not possess the quality of malicious intent to justify an award of punitive damages. 

[297]     It would be a misuse of the Charter to inject it into routine litigious disputes, many of which affect the ability of the parties to deal with their property.

 

Seeing that by the Settlement Em-Yo released Saga, Mr. Hajjar and Mr. Chowieri, whom it had sued solidarily for the same damages, what is Mr. Spring’s residual liability?

[298]     The separate obligations of reparation of Mr. Spring on the one hand and of Saga and Messrs. Hajjar and Chowieri on the other were solidary.

[299]     Art. 1480 C.C.Q. applies:

1480. Where several persons have jointly taken part in a wrongful act which has resulted in injury or have committed separate faults each of which may have caused the injury, and where it is impossible to determine, in either case, which of them actually caused it, they are solidarily liable for reparation thereof.

[300]     As do arts. 1478 C.C.Q. and 1537 C.C.Q.:

1478. Where an injury has been caused by several persons, liability is shared by them in proportion to the seriousness of the fault of each.

 

1537. Contribution to the payment of a solidary obligation is made by equal shares among the solidary debtors, unless their interests in the debt, including their shares of the obligation to make reparation for injury caused to another, are unequal, in which case their contributions are proportional to the interest of each in the debt.

[301]     In the present case, the liability among the present and former Defendants would be shared equally, both as a consequence of the default rule of art. 1537 C.C.Q. and the Court’s own determination of a just allocation. 

[302]     Since the Defendants’ liability (before the Settlement) was solidary, if any one of them had paid Em-Yo’s damages, it would be legally subrogated in its rights against the others, as provided in art. 1656 C.C.Q.:  

1656. Subrogation takes place by operation of law

(…)

(3) in favour of a person who pays a debt to which he is bound with others or for others and which he has an interest in paying;

[303]     As a result of the Settlement, however, Mr. Spring has been deprived of the right to recover what he pays Em-Yo from the others by subrogation.  Art. 1531 C.C.Q. therefore applies:

1531. Where, through the act of the creditor, a solidary debtor is deprived of a security or of a right which he could have set up by subrogation, he is released to the extent of the value of the security or right of which he is deprived.

[304]     As does art. 1690 C.C.Q.:

1690. Express release granted to one of the solidary debtors releases the other co-debtors for only the share of the person discharged; if one or several of the other co-debtors become insolvent, the shares of the insolvents are apportioned rateably between all the other co-debtors, except the co-debtor to whom the release was granted, whose share is borne by the creditor.

[305]     The Court interprets the Settlement to release only the debtors therein mentioned, not the debt in its entirety.[15]

[306]     Therefore, since three other solidary debtors each bore an equal share of the liability with Mr. Spring before they were discharged, Mr. Spring is released from the debt to the extent of 75%. 

[307]     Absent the Settlement, he would have been legally subrogated in Em-Yo’s right of recovery to the extent of 25% against each of the other former Defendants.  The Settlement therefore has the effect of releasing him commensurately.

[308]     He must now pay 25% of the $146,283.91 in legal fees that Em-Yo incurred to contest the Saga action, or $36,570.98.  However, he will have to pay the expert’s fees of $16,483.83 it incurred in the present action in their entirety.     

WHEREFORE FOR ALL THE FOREGOING REASONS THE COURT:

[309]     MAINTAINS Plaintiff Em-Yo Properties Inc.’s Amended Motion to Introduce Proceedings in part;

[310]     ORDERS Defendant Harold Spring to pay Plaintiff damages of $36,570.98, with interest and the additional indemnity under art. 1619 C.C.Q. calculated from the date of service of the action and costs, including expert’s fees of $16,483.83;

[311]     DISMISSES Plaintiff’s Amended Motion to Introduce Proceedings against Defendants Claude Lessard and Les Services de Courtage Claude Lessard, with costs limited to a single bill as their defense was common;

[312]     MAINTAINS Intervener Axa Assurances Inc.’s Re-amended Intervention, with costs.

 

 

__________________________________

WILLIAM FRAIBERG, J.S.C.

 

Me Christopher L. Richter and Me Pierre Alexandre Viau

WOODS & ASSOCIÉS

Attorneys for Plaintiff

 

Me GILLES DUCHESNE

Attorney for Defendants Mr. Claude Lessard and Les services de courtage Lessard

 

 

Me Céline Tessier and Me Panora Ang

McMILLAN S.E.N.C.R.L. s.r.l.

Attorneys for Defendant Mr. Harold Spring

 

 

Me Yves Tourangeau

GILBERT SIMARD TREMBLAY

Attorneys for Intervenant

 

Dates of hearing:

January 17, 18, 19, 20 ,21, 24, 25, 26, 27, 28, 31, 2011

and February 1 and 2, 2011

 



[1] Letter from Woods & Partners to Claude Lessard, dated January 26, 2005, P-15.

[2]  Amendment AM-20016, P-23.

Amendment AM-22015, P-39.

Amendment AM-56336, P-27.

Amendment AM-09035, P-28.

Amendment AM-10305, P-29.

Amendment AM-20016, P-39.

[3] Art. 4 C.C.Q.: Every person is fully able to exercise his civil rights. In certain cases, the law provides for representation or assistance.

Art. 947 C.C.Q.: Ownership is the right to use, enjoy and dispose of property fully and freely, subject to the limits and conditions for doing so determined by law. Ownership may be in various modes and dismemberments.

[4] J.E. 96-1692 (S.C.), Halperin J. at pp. 9-10.

[5] [1979] C.A. 534 , J.E. 79-779 , pp. 3-4.

[6] Théoret v. Robert, J.E. 2000-1220 (S.C.), pp. 11, 13.

[7] J.E. 2003-210 (S.C.), [2002] J.Q. no 6384, paras. 92, 96, appeal dismissed (C.A. 2003-04-28) 500-09-012941-027).  See also Bellingham Trading Ltd v. Metropolitan Fund Management Ltd., J.E. 2006-146 (S.C.), paras. 266, 272-275, Jean-Baptiste c. Xceed Mortgage Corporation, (C.S., 2009-05-01), 2009 QCCS 1911 , SOQUIJ  AZ-50553409 , confirmed on appeal (C.A., 2010-04-15) AZ-50627395 ,  2010 QCCA 718 , 2010EXP-1468 , J.E. 2010-807 .  In the last mentioned case, the beneficial owner of a property was not allowed to intervene in an action for forced surrender brought against the prête-nom registered owner by a hypothecary creditor on the ground that she lacked the legal interest to sue.

[8] [1980] 1 S.C. R.  580 , pp. 583-584.

[9] See Compagnie d'assurances Standard Life c. McMaster Meighen, 2005 CanLII 25720 (QC CS), confirmed on appeal 2007 QCCA 1273 (CanLII), at paras. 175-180 for an analysis of these considerations in determining if there is novus actus interveniens.

[10]4.01(f) Notwithstanding anything herein contained to the contrary, all acts, decisions, execution of documents and any other steps or proceedings taken by or on behalf of the Trustee shall only be undertaken with the prior approval of either the Owners or the Manager, as the case may be; as permitted and authorized by this Agreement.”

When the present action was brought, Mr. Krauss, besides being president and sole director of Em-Yo, represented 76% of the ownership and was the sole director of Syndicat.

[11] Regulations respecting brokerage requirements, professional conduct of brokers and advertising, R.Q. c. C-73.2, r.1.

[12]  Giffard v. Bisaillon, B.E. 2004BE-271 (C.Q.), paras. 9-13; Marion v. Landry, 2007 QCCQ 910 , paras. 44-45, 50, 52; Association des courtiers et agents immobiliers du Québec v. Desfossés, Comité de discipline de l’A.C.A.I.Q., no. 33-95-0025, September 25, 1995, p. 2-3 ; Chabot v. Lévesque, Beaubien, Geoffrion inc., J.E. 2006-78 (S.C.), pp. 10-11; Irwin v. Thorne Riddel, J.E. 91-459 (S.C.), p. 25; Irwin v. Thorne Riddel, J.E. 91-459 (S.C.), p. 25; St-Patrick’s Academy Old Boy’s Association Inc. v. Grenier, J.E. 2005-1470 (S.C.), aff’d on appeal: 2006 QCCA 1276 , pp. 21-22 ; Constuctions Miroka ltée v. Racicot, J.E. 81-712 (S.C.), pp. 22-23, 27 ; Richard Gaudreau, Les compagnies et les tiers contractants : étude des doctrines de la « constructive notice » et de l’« indoor management », p. 500; E.W. Sutton & Co. v. Geoffrion Leclerc inc., J.E. 86-232 (C.S.), p.43.

 

[13] Courville v. Lanoue, 2010 QCCA 1810 , paras. 50-51.

[14] 1607. The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor's default.

[15] See Syndicat de Beaucours c. Leahy, AZ-50544192 , 2009 QCCA 454 , J.E. 2009-568 , [2009] R.J.Q. 648 , [2009] R.D.I. 264 at paras 28-30.

AVIS :
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