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July 13, 2005



In the presence of :     the HONORABLE BRIAN RIORDAN, J.S.C.




compagnie d'assurance standard Life


compagnie trust royal





Mcmaster meighen


daniel ayotte et al.







I.       introduction

[1]             It has been said that a man cannot serve two masters.  Although the inherent wisdom of this adage seems, at first glance at least, to be indisputable, the Quebec legislator and current business practice have chosen not to embrace it as far as the law of mandate is concerned.  The now-replaced Civil Code of Lower Canada ("CCLC"), as interpreted by the Courts, permitted what is called the "double mandate" to exist, subject to certain conditions.  Going one step further, the "new" Civil Code of Quebec ("CCQ") has specifically codified its existence, along with the conditions governing its application.[1]

[2]             It has also been said that a man who acts as his own lawyer has a fool for a client.  Can the same be said about a lender who acts as his own real estate evaluator?

[3]             Both of these concepts have their role in the present case.

[4]             Plaintiffs ("Standard Life" or "Standard") claim from the Defendant law firm and its partners (collectively: the "Law Firm") an amount of $3,373,386.00 representing losses sustained as the result of a real-estate-financing transaction gone wrong.[2]  Standard Life alleges that the Law Firm was negligent in not advising it of information in the Law Firm's possession that had a direct bearing on Standard's decision to enter that transaction.  Standard Life also alleges that the Law Firm should have acted on its knowledge of that information to warn Standard that certain key conditions of the transaction could not be met.

[6]              The Law Firm pleads that the action should be dismissed outright in light of Standard Life's decision to use the giving in payment clause of the hypothec to become owner of the building on which the hypothec was registered.  It also argues that it had a limited mandate that did not touch on the problems divulged by that information and that, in any event, the information in question was generally known, being the subject of a public law suit and relating to construction defects that were apparent.  Finally, it pleads that Standard is the source of its own losses in light of the negligent manner in which it handled the transaction in question.

II.      findings of FACT

A.                The law firm's ACTIONS

[7]             In the summer of 1990, the Law Firm was acting for Uvesco Development Corporation ("Uvesco"), the developer of a new office complex called the "Atrium", situated in Gatineau, Quebec.  As least part of its work for Uvesco dealt with construction-related litigation matters.

[8]              By August 1990, more than a half-dozen privileges had been registered against the Atrium property, some of which had already been radiated.  The privilege registered by the general contractor for the project, 136848 Canada Inc., doing business under the name of Mirage Construction ("Mirage"), was radiated by a judgment in May 1990.  Nevertheless, Mirage's action against Uvesco for some $660,000 (the "Mirage Action") was still going forward in spite of the radiation of the privilege. 

[9]              By its June 15, 1990 Amended Defence and Cross Demand to the Mirage Action (the "Cross Demand"), Uvesco counter-claimed an amount of $1,858,764.  Part of that counter-claim was for an estimated amount of $675,000 relating to defects in the building.  The specific language of the Cross Demand on this point is important, since much of Standard's action before us stems from the Law Firm's alleged failure to warn Standard of the existence of the Cross Demand:

19.   Les travaux de la défenderesse reconventionnelle souffrent de nombreuses déficiences que la demanderesse reconventionnelle se verra obliger de corriger et qu'elle estime à 675 000,00 $, tel qu'il appert d'un estimé de la compagnie Planitec produit au soutien des présentes sous la cote D-3, la demanderesse reconventionnelle se réservant le droit d'amender ladite somme. (The underlining is shown as it appears in the Cross Demand.)

[10]         The estimate of Les Constructions Planitec Inc. mentioned in the citation (the "Planitec Report") consisted of a one-page preliminary report dated May 31, 1990.  It was addressed to the lawyer of the Law Firm in charge of Uvesco's construction litigation files (the "Construction Lawyer"). 

[11]         The Planitec Report indicates that there were major defects in the exterior brick walls of the building, and that they would have to be demolished and rebuilt, at an estimated cost of $675,000.  It indicates that there were also problems with the other type of exterior walls, i.e., the glass curtain walls, and that an estimate of the cost to repair those would be done later.

[12]         In addition to the Planitec report, during the month of June, but after the date of the Cross Demand, the Construction Lawyer received two much more substantial experts' reports concerning the defects in the construction of the Atrium, one from a firm of architects (the "Letuvé Report") and the other from a firm of engineers (the "Plante Report").  These reports substantiated the findings of the Planitec report with respect to the exterior walls, while identifying numerous other problems with the building.  Neither of these two reports indicates a cost estimate to repair any of the defects identified in them (the "Defects").

[13]         In early August 1990, the Construction Lawyer learned that Uvesco was seeking to refinance the Atrium project through a hypothecary loan (the "Loan") from Standard Life.  The principles of cross-marketing obviously not being unfamiliar to him, he approached Uvesco's president, Richard Racette, to see if the latter would assist him in obtaining for the Law Firm the mandate for the legal work with respect to the Loan.

[14]         Racette agreed and, in a letter dated August 24, 1990, he recommended to Standard Life that the legal work be done by the Law Firm.  Standard ultimately agreed both to the granting of the Loan[3] and to the engagement of the Law Firm.

[15]         Mr. Patrice Brin, an "Inspector" at Standard Life, provided the Law Firm a copy of the commitment letter between the parties as an annex to his letter of October 2, 1990.  That letter set out the Law Firm's two-pronged mandate with respect to the Loan (the "Mandate").  The limitations placed on the Mandate in this letter form part of the Law Firm's defence in this case:

Would you please prepare all legal documentation required for the mortgage loan in English, in the name of Standard Life with the usual intervention by the Royal Trust Company.

As usual the monthly instalments will be payable on the 1st day of each month.  We would appreciate receiving a written opinion that we shall have a valid first mortgage, prior to your request of disbursement of the funds.

[16]         The Construction Lawyer recommended that one of the attorneys in the Law Firm's banking law group, a lawyer with four years' experience at the time (the "Banking Lawyer"), be put in charge of the Loan file, which is ultimately what happened.  The Banking Lawyer went immediately to work on the file, transmitting a preliminary list of closing documents to Standard Life on October 1, 1990.

[17]         Mr. Brin testified that, during the time that the Loan was being negotiated and documented, he was aware that the Law Firm did business with Uvesco, but did not know the nature of that business.  He confirmed that he did not know that the Law Firm was representing Uvesco with respect to the Atrium project.

[18]         In the second half of October 1990, the Construction Lawyer became concerned that Standard Life might not be fully aware of the Law Firm's implication in the Mirage Action.  With the objective of being completely forthcoming with this new client, he approached the head of his department, who was also on the Law Firm's Conflicts Committee.  He explained his concern, describing the proceedings in the Mirage Action, with particular reference to the nature of the Cross Demand.

[19]         The department head took the matter before the full Conflicts Committee.  The committee decided that the Law Firm should advise Standard Life of its role in the Mirage Action, and that it should "formally advise" Standard Life of the existence of the Cross Demand.  This decision was communicated to the Construction Lawyer, who immediately convened a meeting with the Banking Lawyer and the head of the banking law department of the Law Firm to determine how all this should be done. 

[20]         It is clear that only generalities were discussed at both of these two meetings, which occurred within a period of a day or two at the end of October 1990.  No copies of proceedings or experts' reports were reviewed or provided at either meeting.  The participants did not deal with the Defects in any detail, and only those problems mentioned in the Cross Demand, which only the Construction Lawyer had seen at that point, were even considered.  No one other than the Construction Lawyer was aware of the existence of the Planitec, Letuvé and Plante Reports, and he did not raise them.

[21]         At the second meeting, the head of the banking department, the Banking Lawyer and the Construction Lawyer decided that, in order to carry out the directives of the Conflicts Committee, the Banking Lawyer should provide a copy of the Cross Demand to Standard Life.  The Construction Lawyer left a copy of the Cross Demand on the Banking Lawyer's desk during lunch the same day, with a note to call him before communicating it to Standard.  He was to call Racette first to advise him of what they intended to do.

[22]         It was then that the Banking Lawyer saw, and read, the Cross Demand for the first time.  He neither had a copy of nor did he read any other document relating to the Mirage Action, e.g., the other proceedings, the Planitec Report, the Letuvé Report or the Plante Report. 

[23]         The Construction Lawyer eventually informed him that Racette had no objection to advising Standard Life of the existence of the Cross Demand.  Accordingly, the Banking Lawyer called Mr. Brin and explained to him the general contents of both the Mirage Action and the Cross Demand.  He testified that he immediately sent a copy of the Cross Demand to Mr. Brin by regular mail.  Mr. Brin denies ever having such a conversation or receiving such document.

[24]         Despite all his efforts to find some documentary proof of the transmission of this critical document to Mr. Brin, the Banking Lawyer can find no writing of any nature to substantiate that he, in fact, sent the Cross Demand to Standard Life.  Nevertheless, we find no reason to doubt the Banking Lawyer's word on this point, and take it that the Cross Demand was mailed exactly as the Banking Lawyer says.  For reasons that will be explained below, however, it makes very little difference to the present case whether it was actually mailed to Standard Life or not. 

[25]         We conclude that neither the members of the Conflicts Committee, nor the Banking Lawyer, nor the head of the banking law department had any detailed knowledge of any of the Defects.  They knew only what was told to them about the Cross Demand, which, itself, said only that the building suffered numerous defects, having an estimated repair cost of $675,000.  As well, the Construction Lawyer was not asked to, nor did he, in fact, have any communications of any nature with a representative of Standard Life to explain the Defects.

[26]         Between the date he sent the Cross Demand to Mr. Brin in late October and the date of the signature of the Deed of Loan and Hypothec on November 22, 1990, the Banking Lawyer completed the preparation of the documents required to conclude the Loan.  As foreseen in the commitment letter, he used Standard Life's usual form for the Deed of Loan and Hypothec. 

[27]         Under cover of a letter dated November 23, 1990, the day after the signature of the Deed of Loan and Hypothec, Standard Life forwarded to the attention of the Banking Lawyer a cheque to the order of the Law Firm in the amount of $4,515,000, "representing the first advance on the above increase (sic) loan". 

[28]         The first advance was to be an amount of $4,400,000, and the balance of the cheque represented a partial refund of Uvesco's commitment fee deposited with Standard Life, minus the processing fee of $15,000.  The letter foresaw disbursement on November 26, 1990, subject to three conditions, one of which being a "holdback of 150% of the total amount of liens on the property", as stipulated in the Deed of Loan and Hypothec.

[29]         When he disbursed the first instalment of the Loan to Uvesco, the Banking Lawyer made no inquiry of any sort as to the status of the defects alleged in the Cross Demand, or as to the presence or absence of an End of Work Certificate on the Atrium.  In fact, after putting a copy of the Cross Demand into the mail over three weeks earlier, he never raised the issue of the Mirage Action or the Defects with anyone from Standard Life.  He assumed that Standard had investigated the matters raised in the Cross Demand and had taken whatever arrangements in that regard which it felt appropriate.

[30]         The same applies to his disbursement of the second and final instalment of the Loan in February of 2001.  That disbursement of $1,000,000 brought the total amount advanced to $5,400,000.  At the same time, Standard released a letter of credit in its favour from the Canadian Imperial Bank of Commerce in the amount of $1,000,000. 


[31]         For the purposes of negotiating the Loan and evaluating the security offered under the hypothec, Standard Life chose to do as much as possible "in house".  Although it appears to be quite normal that Standard Life's real estate department do the financial analysis surrounding the granting of the Loan and the conditions to apply, at least two of the experts who testified indicated that Standard Life's use of an in-house employee to prepare the real estate evaluation of the subject property would be the exception rather than the rule, although not unheard of. 

[32]         Mr. Brin prepared the appraisal of the Atrium for Standard Life in August 1990.  At that time he was an employee of Standard Life, holding the title of "inspecteur", but he was not a certified evaluator, an "évaluateur agrée".  He obtained this rank some four years later, in 1994. 

[33]         As "inspecteur", his main function was to analyse properties on which Standard Life wished to place collateral hypothecs to secure loans.  His job was to determine the "lending value" of such properties.

[34]         The Atrium had been ready to accept tenants since November of 1989.  Ten months later, at the time Mr. Brin was analysing the file, it was still 90% unoccupied.[4]  Nevertheless, Mr. Brin prepared his report based on the assumption that the occupancy of the building was "stabilized", i.e., that the building was fully occupied, less a 5% vacancy/bad-debt factor.


[35]         He doesn't explain why this assumption was appropriate for Standard Life's purposes.  It certainly was criticized by Defendants' experts.  However, the Court notes that Mr. Brin indicated his mandate as being that of determining the "lending value" of the building, not its market value.  Mr. Brin's immediate superior at the time of the Loan, Mr. Jacques Normand, stated that the purpose of Mr. Brin's appraisal was to show "the potential value of the property if the building was rented."

[36]         Mr. Brin also mentioned that Standard Life imposed certain conditions to be met before funds would be released.  In that light, the Court takes it that Mr. Brin's work was not to assess the building as it then was, but rather as it eventually would be.  It was up to someone else to determine if and when it made good business sense to release some or all of the funds.

[37]         Given the hypothetical nature of a stabilized long-term occupancy of 95% in August 1990, Mr. Brin was also obliged to make an assumption as to the rental rate that the hypothetical tenants would be willing to pay for the space.  He chose $17 a square foot, based on the leases in force at two nearby buildings on which Standard Life held hypothecs, Les Promenades de l'Outaouais and Place Brigil.

[38]         Mr. Brin first visited the Atrium in the latter half of August 1990, accompanied by Mr. Normand.  It is somewhat surprising that neither person can specify the exact date of that visit.  Mr. Normand stated that he believed it was between August 15th and 20th, the latter being the date of Uvesco's somewhat presumptuous letter confirming the Loan.

[39]         The date of the Standard Life visit to the Atrium, the only one undertaken by it, is relevant because major exploratory work relating to the Defects had taken place on the building by May 30, 1990.  Large holes were made both in the outside brick walls and in the interior gyprock at a number of places, as seen from photographs taken on that date by Robert Boudreault, a representative of the architect's professional liability insurer. 

[40]         Messrs. Brin and Normand testified that in August they saw no such holes, and that the building was in fine order.  There were no visible holes and the interior walls were painted with a white primer. 

[41]         The Law Firm attempted to cast doubt on this testimony, alleging that those gaping holes in the interior and exterior walls were still there at the time of the Standard Life visit.  One of the architects of the project, Mr. L'Heureux, testified that he saw many such holes on August 30,1990, and he also noted that the interior walls had not been painted with a primer at that time.

[42]         Mr. L'Heurueux stated that Mr. Boudreault accompanied him on the August 30th visit.  Mr. Boudreault had copies with him of the Letuvé Report and the Plante Report of June 1990.  Both L'Heureux and Boudreault based themselves at least partially on those reports in drafting Mr. Boudreault's "Liste des travaux incomplets ou défectueux", dated September 4, 1990, and Mr. L'Heureux's "Rapport de visite", dated September 18, 1990. 

[43]         If those holes were, in fact, still visible in August, it seems surprising that one finds no reference to them, or to the need for their repair, in either of Mr. Boudreault's or Mr. L'Heureux's September documents.  Mr. L'Heureux's firm had received a lawyer's letter accusing it of professional negligence by that time, and he and the insurer's expert were visiting the site in order to investigate the claim and prepare the defence.  One would expect, therefore, that the reports of these two persons in such a context would have been as complete as possible.  It seems obvious that they would have called for the repair of the walls, had they seen walls that needed repair at that point in time.

[44]         Accordingly, the Court prefers Mr. Brin's version to Mr. L'Heureux's on this issue.  Notwithstanding Standard Life's surprising and negligent behaviour on other aspects in this file, as explained below, it is simply not plausible that it would have gone ahead in the manner it did in the face of such obvious signs of problems.  We should point out, as well, that Mr. Boudreault was not able to corroborate Mr. L'Heureux's testimony on this point, not being able to remember those details.

[45]         As for his knowledge of the Cross Demand, Mr. Brin is categorical that he was never informed by the Banking Lawyer of the existence of it, and that he never received a copy of the Cross Demand or any other proceeding with respect to the Mirage Action.  It is not clear how specific the Banking Lawyer was in the telephone conversation on this subject with Mr. Brin, but it is clear that he and Mr. Brin had many conversations around that time concerning the Loan file.  It is possible that this conversation simply did not stick out in Mr. Brin's memory. 

[46]         In any event, the Court sees no reason not to accept the Banking Lawyer's word on the question of the telephone call.  For reasons that will be explained below, however, on this point also it makes very little difference to the present case whether the Banking Lawyer made that call or not. 

[47]         Finally with respect to Mr. Brin, for reasons which remained unexplained at trial, on November 2, 1990 he was provided with a "Certificat de fin des travaux" dated November 15, 1989, signed by the Atrium's architect, Valère Langlois, since deceased.  This certificate was sent to him under cover of a letter on Uvesco's letterhead, signed "for Jacqueline Asselin, Legal Counsel" by a Jeannine Beaubien.  Below the signature appear the words "Dictated but not read". 

[48]         This certificate is a fraud.  It appears that a Certificate of Substantial Completion of Work ("Certificat d'achèvement substantial de l'ouvrage") issued by the architects and dated November 15, 1989 had been tampered with to look like an End of Work Certificate.  This fraudulent document (the "False Certificate") indicated that there was no further work to be done on the project, which was clearly not the case.  Mr. Brin accepted the False Certificate on its face, as did Mr. Normand.

[49]         Questioned by Standard Life's attorney on what his reaction to the Loan would have been had he seen that there remained a list of work to be completed, as opposed to the False Certificate, Mr. Brin did not say that he would have recommended that the Loan be refused.  He stated that it would depend on what was on the list of work.  He would ask the architect to evaluate the cost of performing that work and would require a reasonable holdback to cover that cost.  When pressed further by Standard's lawyer, he stated that, if the work was "major", that could put the loan in question.  He did not specify what he would consider to be "major" work.

[50]         Turning to Mr. Normand, who was Standard Life's Regional Manager for Eastern Canada, it was his responsibility to approve the Loan, including the ultimate amount thereof, as well as the conditions and timing of the two disbursements.  It was he who signed the commitment letter on Standard's behalf.

[51]         By August 20th, Mr. Normand had concluded that the lending value of the Atrium was $5.4 million, the ultimate amount of the Loan.  He filed into proof some rough, handwritten calculations showing how he arrived at this amount, indicating that he had done them even before his visit to the Atrium, and before seeing Mr. Brin's appraisal report.

[52]         The Court notes that the lending value he arrives at in his handwritten calculations is essentially identical to the value arrived at by Mr. Brin some eleven days later in his formal appraisal.[5]  In any event, the Loan was approved for a total amount of $5.4 million, subject to certain conditions concerning disbursement, set out in the commitment letter.

[53]         This was the first time that Standard Life was dong business with Uvesco and Racette.  Mr. Normand undertook due diligence on the new client and, to that end, obtained the following information:

·                    Forecasted Statement of Income From Operations for Richard Racette and Affiliated Companies for the year ended December 31, 1990 (unaudited and unsigned by Racette);

·                    Financial Statements of Uvesco Development Corporation as at August 31, 1988 (unaudited and unsigned by a director);

·                    Personal Balance Sheet of Richard Racette as at July 31, 1990 (unaudited and unsigned by Racette);

·                    The Declaration of Co-ownership for the building;

·                    The leases of the two then-current tenants, and

·                    A credit report from Equifax concerning Richard Racette.

[54]         The first two documents contain the customary Notice to Reader found with Review Engagement Reports, indicating that the information therein was not the subject of an audit by the accountants.  The Notice to Reader attached to the third document is somewhat different, and contains a flag of a shade of red that one would have thought would inspire extreme caution in an experienced lender; it reads:

We have compiled the personal balance sheet of Mr. Richard Racette as at 31 July 1990 from information provided by Mr. Racette.  We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information or to determine whether these statements contain departures from generally accepted accounting principles.  Accordingly, readers are cautioned that these statements may not be appropriate for their purposes.

[55]         For its part, the Equifax report is based in large part on information provided by Racette or one of his employees.  Other than certain banking information obtained from the banks, it contains no independent verification of that information.

[56]         These documents, along with some publicity-type information on the building, are all that Mr. Normand knew about his new client(s), Uvesco and Richard Racette, when he approved the Loan.  He did not communicate with Uvesco's banker, the CIBC, to make inquiries about Uvesco or Racette.

[57]         The two instalments of the Loan were set at $4.4 million and $1.0 million.  Mr. Normand could not remember why the first figure was chosen, though he mentioned in that context that the Canadian Imperial Bank of Commerce was owed $3.5 million and had consented to a letter of credit in Standard Life's favour in the amount of 1.0 million.  Mr. Brin also mentioned a connection between the amount of the first instalment and the amount owed to the CIBC.

[58]         Standard Life's attorney questioned Mr. Normand on what his reaction would have been had he known that there was outstanding litigation for "serious deficiencies" in the building.  He replied simply: "I wouldn't have made the loan."  To a similar question later, he replied: "I wouldn't have disbursed the money."  None of the practical business acumen and nuance found in Mr. Brin's answer to a similar question was present in Mr. Normand's responses.

[59]         Mr. Normand also confirmed that Racette had advised him that the Law Firm was "doing business" with Uvesco, but that he had no details of the nature of that business.  He stated that he was aware of the privileges registered on the property, but had no knowledge of the Mirage Action.  That action was not mentioned in the Law Firm's title opinion to Standard, since it was not a "charge on the immoveable", in the words of one of the members of the Law Firm.

[60]         As mentioned above, Standard Life approved the disbursement of the first instalment by its letter to the Law Firm of November 23, 1990.  The conditions stipulated in that letter included a holdback of 150% of the total amount of liens (sic) on the property and reception of the letter of credit of $1.0 million. 

[61]         Mr. Normand and Mr. Brin both stated that Standard Life imposed financial conditions on any disbursement of funds.  In the present case, the condition they applied was that there must be a debt-service ratio of 1.2, i.e., that the rental revenue of the building must at all times be equal to 120% of the blended monthly Loan payments to Standard.  Both testified that this type of ratio was essential to all loans in order to ensure that the building would generate enough income to make the loan payments.

[62]         In light of that, it is most surprising that none of the contract documents impose this ratio, or any other for that matter, as a condition of the first instalment of the Loan.  The debt-service ratio of 1.2 is mentioned in one of Mr. Brin's internal documents, and Racette of Uvesco mentions it in his August 20th letter to Standard Life, but it is found neither in the commitment letter nor in the Deed of Loan and Hypothec. 

[63]         In addition, Standard Life clearly did not apply it when it approved the first instalment, since the building was still 90% unoccupied at the time and the cash flow from the rents was well below the amount of the monthly payments owed to Standard.  Whatever the case, the Law Firm played no role regarding this question.

[64]         The commitment letter did, however, contain an applicable ratio as a condition to the disbursements of further advances, i.e., after the first instalment of $4.4 million.  That condition was that "the total advances at any time will not exceed 6.31 times the net income from approved and signed leases."  This is a somewhat different concept from the debt service ratio discussed above, but it still relates to the borrower's ability to meet its payments on the Loan.

[65]         It is also relevant to note that the commitment letter contained a condition for the release of the letter of credit of $1 million from the CIBC.  It stated that the letter of credit would be released when Uvesco achieved a 77½% leasing occupancy, representing $704,000 of net annual rental income.  Here again, one sees that Standard is focusing on the borrower's ability to meet its Loan payments.

[66]         The next relevant event is the signature by Uvesco, on January 8, 1991, of a lease for essentially the entire balance of the leasable area of the Atrium with a group calling itself the "Ottawa Lobbying Key Club" (the "Key Club").  Represented by Mr. Michel Leclerc, the Key Club was comprised of a company to be formed, a federal numbered company, and four individuals.  The lease shows a per-square-foot rental of $16.50.

[67]         Standard Life approved this lease, which satisfied the condition for the releasing of the CIBC letter of credit of $1 million.  Accordingly, in February of the same year, it disbursed the second instalment of the loan for $1 million, and released the CIBC letter of credit. 

[68]         Mr. Normand testified that, before releasing $2 million of Standard Life's assets based on this lease, he did due diligence on the Key Club and its members.  The financial information that Mr. Normand reviewed is itemized in Appendix A to this judgment.[6]  Those documents, being neither audited nor signed, are no more solid or credible than what he used in his due diligence on Racette and Uvesco.  He also asked Racette if he had done due diligence on the group, to which Racette answered in the affirmative. 

[69]         Although the financial stability of the Key Club does not appear to play a relevant role in this file, Standard Life's laxness in its due diligence of this group is relevant in our view.  It is consistent with Standard's behaviour in the Uvesco and Racette due diligence, and confirms Standard's lackadaisical attitude pervading this whole file.  The Law Firm's experts were justly harsh in their criticisms on this point.

[70]         In the fall of 1991, Racette returned to see Mr. Normand to request that Standard increase the amount of the Loan in order to allow Uvesco to repair the Defects.  At that time, Racette finally provided Standard a copy of the Letuvé Report and the Plante Report.  Mr. Normand refused the request, however, stating that this was not Standard Life's problem. 

[71]         A short time later, Uvesco proposed to sell the building to a group headed by Mr. Leclerc of the Key Club.  Standard Life approved the sale, as was required under the Deed of Loan and Hypothec.  The financing did not materialise, according to Mr. Normand, and the sale fell through.  Nevertheless, it appears that Mr. Leclerc, and perhaps others, purchased the shares of Uvesco from Racette in late 1991, changing the company's name to 2639700 Canada Inc. 

[72]         This company went bankrupt in March of 1992.  Notwithstanding his partial personal guarantee of the Loan, which for some reason had been reduced to a maximum of $165,000 at the time of the sale of the shares, Racette seems to disappear from the picture after that sale.  The proof does not divulge what, if anything, he paid back to Standard.

[73]         Since there was a default under the hypothec, Standard Life foreclosed by way of exercising the giving in payment provision of the Deed of Loan and Hypothec.  Through its trustee, the Royal Trust Company[7], it became owner of the Atrium by way of a judgment dated June 11, 1992.  The proof does not show what happened to the tenancy of the Key Club over this period.

[74]         After becoming owner of the building, Standard Life undertook the repairs of the Defects, as well as a certain number of other items.  It filed invoices (Exhibit P-17) showing total construction expenses in the amount of $1,554,484.28, under some 37 headings.  Mr. Maurice Kennedy, who acted as project manager for the repair work, testified with respect to those invoices.

[75]         According to Mr. Kennedy, certain of the expenses included in Exhibit P-17 do not relate to repairing the Defects.  Based on this, the Court has calculated the Cost of correcting the Defects to be $1,434,845.13.  This calculation is set out in Appendix B to this judgment.

[76]         This amount is more than double the amount of $675,000 claimed in the Cross Demand.  However, it is stipulated in paragraph 19 of the Cross Demand that that amount is an estimate.  Moreover, the Planitec report, which is referred to there, indicates that the cost of repairing the glass curtain walls is not included in that amount and would be estimated at a later time.  In that light, the amount calculated above does not seem excessive.


[77]         The main documents setting out the agreement between Uvesco and Standard Life are the Deed of Loan and Hypothec and the commitment letter.  The relevant portions of each are set out in Appendix C to this judgment. 

[78]         Much of the Deed reflects the terms of the letter, as would be expected.  In addition, the terms and conditions of the letter are deemed to form part of the Deed.  The text of section 42 of the Deed, requiring Uvesco to provide architects' and engineers' certificates to Standard Life, is found verbatim in section 25 of the letter. 

[79]         The Deed does not foresee the conditions for disbursement of the Loan amount or for the release of the letter of credit.  That is done at sections 6 and 7 of the commitment letter.  The letter also specifies that the Law Firm will be doing the legal work and that it must be satisfied with the form and content of all documents.


[80]         Standard Life argues that the Law Firm negligently failed to disclose material information that enabled Uvesco to perpetrate a fraud on it.  It asserts that it would never have made the Loan had the Law Firm respected its duty to it in that regard.  It also contends that it would not have made the Loan had the Law Firm advised it that it was impossible for Uvesco to meet two of the essential conditions of the contract: that the building be in good condition at all time and that there be an architect's certificate that the work had been completed in accordance with the plans and specifications.  Further, Standard alleges that its representatives at all times acted reasonably and professionally in this matter and no fault should be attributed to them, whether it be with respect to the appraisal of Mr. Brin, the acceptance of the Loan by Mr. Normand, the decision to disburse the two instalments, or otherwise.

[81]         Even though the terms of the Mandate did not cover such issues, Standard Life maintains that the Law Firm still had a duty, arising from the very nature of the lawyer-client relationship and the various ethical duties imposed on lawyers, to counsel Standard and to inform it of all that it knew about the file.  It also contends that such duty extended to a requirement that the Law Firm be "loyal" to it, in the sense of being totally dedicated to its interests. 

[82]         According to Standard, if the Law Firm was not comfortable in meeting those standards, because of the conflict of interests between Uvesco and Standard Life, the Law Firm should simply have refused the mandate, or withdrawn from it once the conflict became untenable.  Standard's position was that the attorney who acts for two clients with opposing interests in a given matter commits a fault when he better represents one of the two, to the detriment of the other.

[83]         For its part, the Law Firm first argues that Standard Life's claim is not admissible in law, since by exercising its right to the giving in payment under the Deed of Loan and Hypothec, Standard caused any claim it might have had against the Law Firm to be extinguished. 

[84]         It further argues that the cost of repairing the Defects was a factor in evaluating the value of the security that Standard Life took in payment, in full knowledge of all the related problems.  Standard was also fully aware of the real estate crash of the early 1990's by the time it made its decision to become owner of the Atrium.  It is unfair, therefore, to ask the Law Firm to pay for the capital loss portion of the claim, since that loss represents damages that Standard brought upon itself.

[85]         The Law Firm also argues that, since (1) Standard Life is a sophisticated lender who was, itself, looking after much of the detail related to the Loan and to the decision to disburse or not and (2) the Mandate was limited and did not include matters dealing with litigation or construction issues and (3) the Mirage Action was of public notice and (4) the Banking Lawyer had sent a copy of the Cross Demand to Mr. Brin, the lawyers of the Law Firm were justified in believing that Standard Life had taken measures satisfactory to it with respect to the Defects. 

[86]         Finally, it asserts that Standard's negligence in the matter of the Loan, coupled with Uvesco's fault in providing the False Certificate, exculpates the Law Firm from any liability it might otherwise have had.

V.      Admissibility of Plaintiff's Recourse

[87]         The Law Firm's argument on the inadmissibility of Standard's action is of the nature of a preliminary objection.  As such, if that argument is well founded, the case must be dismissed, and there is no need to analyse fault or causality, or to assess damages.  Consequently, we shall deal with this argument first.

[88]         On this point, the Law Firm cites two Court of Appeal cases which were both decided after the CCQ came into force: Fonds d'assurance responsabilité de la Chambre des Notaires du Québec c. Banque Nationale du Canada[8] and MFQ Vie c. Dussault[9].  Both cases deal with the new Article 2782 C.C.Q., which reads as follows:


   Art. 2782.  Taking in payment extinguishes the obligation.

   A creditor who has taken property in payment may not claim what he pays to a prior or hypothecary creditor whose claim is preferred to his.  In such a case, he is not entitled to subrogation against his former debtor.

[89]         This is a new article in our civil code that codifies the principle of the extinction of the debt where the creditor exercises his rights to a giving in payment.  This principle is well established in our law[10].  In any event, the Law Firm does not base its argument directly on this article.  It bases itself partly on the earlier principle and partly on the rule of in solidum obligations, which would appear to be something of a parallel principle.

[90]         The rule concerning in solidum obligations is well stated in the Supreme Court's decision in the Prévost-Masson case[11] cited by Standard Life:

Obligation (sic) "in solidum", as has been recognized by the courts, reiterates the fundamental elements of the institution of joint and several liability.  When two debts relate to the same object, it allows the creditor to look to any one of the debtors for payment.  The debtor who has paid is then subrogated in the rights of the creditor against its co-debtor.

[91]         Accordingly, where the in solidum principle applies, the debtors, each of whose debt arises from a separate and distinct obligation, although for the same object, are solidarily liability to the creditor.  If one of them satisfies the obligation, the other debtor is liberated with respect to the creditor, subject to the recursory rights of the paying debtor. 

[92]         The Law Firm maintains that Uvesco's obligation and the Law Firm's obligation are in solidum in the present matter.  As such, the giving in payment by Uvesco, which resulted in its debt towards Standard Life being extinguished, also resulted in the Law Firm being liberated from any type of liability with respect to the Loan.  In order for that to be the case, however, it is necessary that the object of the obligations of both Uvesco and the Law Firm be the same.

[93]         The Law Firm asserts that Uvesco's obligation was to provide valid and valuable security for the Loan.  The object is the value or the quality of the security.  The Law Firm's obligation was to prepare the Loan documentation and title opinion to ensure that the security was safely in place.  Again, the object is the value or the quality of the security. 

[94]         Moreover, they submit, even if the Court should hold that the Law Firm had an obligation to advise Standard Life of the Cross Demand, the object of that obligation would still be, in essence, to protect the value or the quality of the security. 

[95]         Given this identity of object, in the Law Firm's submission, the two obligations are in solidum.  Accordingly, the giving in payment extinguished any possible debt of the Law Firm towards Standard Life in relation to the Loan, even one based on its professional negligence.

[96]         Standard Life, on the other hand, maintains that the object of the two obligations is fundamentally different.  Uvesco's obligation and the object thereof centred on the ranking of creditors, whereas the object of the Law Firm's obligation was centred on the lawyer-client mandate.  Having different objects, they cannot be in solidum, and the extinction of the debt relating to the Loan does not extinguish the debt relating to the duty to represent a client properly.

[97]         The Court agrees with Standard's view of the respective objects of Uvesco and the Law Firm.  The Mandate's purpose was first and foremost to establish a lawyer-client relationship.  It was the basis of a contract for legal services to which all the rules of ethics and professional conduct applied.  Its object was professional services by lawyers to their client, and it is fundamentally different from the object of a borrower's obligation to his lender.  In light of this difference in objects, the in solidum principle cannot apply. 

[98]         Dealing now with the rule codified in article 2782, C.C.Q., this Court does not interpret the cases cited by the Law Firm to justify the position that the extinction of a creditor's claim pursuant to a giving in payment (or a "taking in payment" under the CCQ, for that matter) extends beyond the limits of the hypothec and related creditor-ranking issues to wipe out any and all other possible claims, including those against third parties whose fault happened to have occurred in the factual context of the hypothec or the loan at its base. 

[99]         Article 2782 C.C.Q. does not, in our view, support such a proposition.  On its face, its application is limited to ruling out reimbursement and subrogation with respect to amounts paid to prior-ranking creditors.  In the MFQ Vie case[12], Fish, J.C.A., as he then was, expressed a strong reserve on the point at paragraph 43, noting that "nothing in the text of article 2782 C.C.Q. suggests that the personal obligations of a third party, even if liable in solidum with the debtor" are extinguished.  In the end, he begrudgingly accepted to follow the Chambre des Notaires[13] decision because "the appellant failed to distinguish that judgment so as to render it inapplicable" (paragraph 44).

[100]     Contrary to the situation in MFQ Vie[14], however, Standard Life has succeeded in distinguishing the present case so as to render not only Chambre des Notaires[15] inapplicable, but also MFQ Vie[16] - as well as the case of Trust Général v. Tétrault[17], for that matter. 

[101]     As Standard Life points out, those three cases deal with a professional error that affects the position of the creditor with respect to prior-ranking creditors: a notary's failure to pay property taxes due on a building; a notary's failure to radiate construction privileges; a notary's failure to ensure that the creditor's hypothec was first-ranking.  The professional error that we find in the present case has no relation to or effect on the ranking of creditors.  It is more akin to the fact pattern in the case of Caisse Populaire Desjardins Terebonne c. Sylvie Parent et al. [18]

[102]     There, a notary committed a professional fault in failing to divulge certain relevant information to the lender, thus inducing it to over-lend on the security available.  The information held back related to the actual sales price of the building in question, and had no relation to the ranking of secured creditors.  The notary's faulty actions resulted in a loss on the loan after the lender exercised its right of giving in payment on the hypothecated immoveable.  It is of note, but not decisive, in our view, that this case was subject to the CCLC, as is the present one. 

[103]     Madam Justice Mailhot's reasoning there seems to us to be fatal to the Law Firm's position in the case before us:

[33]  Ainsi, la faillite de Beaumont n'empêche pas la Caisse d'exercer un recours contre l'intimée en réclamation de dommages-intérêts, équivalents à sa perte ici évaluée suivant le reliquat de la dette, car ce recours n'a pas le même fondement juridique.  Le recours hypothécaire ou en dation en paiement contre Beaumont découle des garanties valables obtenues par la Caisse à l'occasion du prêt, alors que le dommage découle d'un prêt trop élevé en raison du fait fautif de la notaire … ce qui a induit la Caisse en erreur.

[37]  Certes, comme déjà dit, la créance fondée sur le prêt hypothécaire est éteinte à l'égard de Beaumont, mais la Caisse n'est nullement forclose de réclamer des dommages-intérêts équivalents à sa perte (s'il en reste une après l'exercice de ses recours contre Beaumont) contre un tiers qui a commis une faute civile ayant un lien de causalité avec cette perte.

[104]     Parent[19] does not mention the in solidum principle directly, although the Court of Appeal deals with it indirectly when it points out that "ce recours n'a pas le même fondement".  This case was decided before Prévost-Masson[20], but, in our view, that later decision in no way diminishes the value of Parent as a guidepost in cases similar to the present one.

[105]     The present case is distinguishable on the facts from the cases cited by the Law Firm.  On this basis, the Court finds that the decisions cited by the Law Firm on this issue do not apply here.  The reasoning applied in Parent[21] should apply, given the nature of the Law Firm's fault, as discussed below.  Standard Life's action is, therefore, admissible, and the first ground of defence is rejected.


A.      the law firm's Fault

[106]     What were the Law Firm obligations towards its client, Standard Life, with respect to the Defects?  Standard Life asserts that they were two-fold:

·                    to advise Standard Life fully and clearly of the existence and nature of the Cross Demand and the Defects;

·                    to voice a concern about the state of the building and about the likely absence of a valid architect's certificate at the time of the signature of the Loan, prior to the disbursement of the first instalment, and prior to the disbursement of the second instalment.

[107]     In point of fact, had the Law Firm done no more than properly put into action the decision of its Conflicts Committee to advise Standard Life of its role in the Mirage Action, and "formally advise" Standard Life of the existence of the Cross Demand, it would probably have met its obligations towards its client.  Unfortunately, its actions in this regard were far below any reasonable standard for such circumstances.

[108]     There is no doubt that the context of the decision to inform was important, arising, as it did, from a potential conflict of interests within a double mandate.  The Law Firm was well aware of the possible conflict; it had voluntarily created it when it sought to obtain the mandate for the Loan.  And, after all, it was to the Conflicts Committee that the lawyers turned when the Construction Lawyer first raised the issue.

[109]     In the case of a double mandate such as this one, lawyers and other mandataries put themselves in a very demanding position.  Not only do they have the usual obligations imposed by the law of mandate, but they also must take all necessary steps to ensure that their objectivity and neutrality are maintained with respect to both clients.  This flows from the first paragraph of Article 2143 C.C.Q., which reads as follows:

   2143.  A mandatary who agrees to represent, in the same act, persons whose interests conflict or could conflict shall so inform each of the mandators, unless he is exempted by usage or the fact that each of the mandators is aware of the double mandate; he shall act impartially towards each of them.


[110]     The general duties of a mandatary to his mandator are found in Article 2138 C.C.Q.:

   2138.  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.

[111]     It follows that, where a mandatary finds himself in a situation where the interests of one client in the double mandate conflict with those of the other, he must ensure that each client is adequately protected on that issue - if possible.  Where it is not possible, the mandatary should generally remove himself entirely from both mandates.

[112]     The basic fact remains, however, that, by agreeing to the double mandate, the clients do not agree to half representation.  The lawyer must at all times act in the client's best interests - each client's best interests.

[113]     In the present case, the Banking Lawyer had only a surface knowledge of the details of the Mirage Action and the Defects, and he did not inquire further.  The Law Firm pleads that it was not part of its mandate. 

[114]     Standard Life submits that, where such a problem had been brought to the Law Firm's attention, particularly in the context of a double mandate, it became part of its mandate, and in any event it had a duty, to ensure that its client was fully aware of all relevant details of the problem and fully advised on how to deal with it. 

[115]     Given the situation here, however, the issues of conflict of interest and double mandate are essentially red herrings.  The Law Firm's other client had given its approval to inform Standard Life of the Cross Demand.  This removed those issues from consideration and, in the process, spared the Law Firm from having to deal with the exceedingly thorny dilemma that would have arisen had Uvesco not given its approval.[22]

[116]     As a result, the way was clear for the Law Firm to inform Standard Life fully, and in a competent and effective manner, of everything Standard reasonably needed to know about the litigation and the Defects.  Unfortunately, viewed even from the perspective of a total absence of conflict of interest, the manner in which the Law Firm purported to do that does not meet that standard.  We are not dealing here with a complicated issue or a specialized area of practice.  Whether one categorises it as part of the "devoir de conseil" or simply as common sense, the Law Firm should have done a great deal more to protect its client's interests.

[117]     One telephone conversation giving the general contents of the Cross Demand, coupled with the transmission of that single legal proceeding by regular mail, seemingly without any cover letter or explanatory document, does not constitute an acceptable manner of informing a client of a critical fact which was central to a major financial transaction it was about to finalise. 

[118]     The Law Firm essentially left it all on the shoulders of the Banking Lawyer, a young lawyer with only four years' experience.  He appears to have been acting alone with respect to the manner of communicating this critical information to the client.  No partner or senior lawyer provided him the least bit of support or guidance in fulfilling the directive from on high to "formally advise" the client of the Cross Demand.  This is all the more unacceptable in that the decision to do so came from the firm's Conflicts Committee, after several senior partners and department heads had concurred that a serious issue was at hand.

[119]     In spite of that, no more senior lawyer oversaw the transmission of the document or the necessary follow-up.  As a result, it was sent by regular mail, with no proof of transmission, no explanation of its contents and no follow-up to ascertain that it had been received.  It would appear that no one even asked him if he had sent it.

[120]     With great respect for a fine and vital national institution, it is certainly within the limits of judicial notice that Canada Post has for some time now become the vehicle of at least second choice for the transmission of critical, time-sensitive documents in the business world.  The Law Firm and Standard Life were both situated in downtown Montreal.  The exhibits show that they used messenger services and the telecopier to transmit documents between themselves. 

[121]     To send a document as critical as the Cross Demand, which was only seven pages long, by regular mail makes no sense either with respect to the certainty or to the timeliness of delivery.  If they insisted on using Canada Post, they should have at least used registered or certified mail in order to obtain proof of delivery.  As it is, their file is devoid of proof not only of delivery, but also of transmission.

[122]     Given this startling gap in the documentation, the Court must conclude that no cover letter or other explanatory document was attached to the mailing.  This belies a level of insouciance that is not appropriate to any proper business communication, much less one where such important information was being transmitted.

[123]     And even assuming that it fulfilled its obligation properly with respect to the transmission, whatever method it chose, the Law Firm could not just sit back and wait to see its client's reaction, especially when no reaction was forthcoming in the days following the transmission.  The lawyers had an obligation to be proactive in such circumstances, for two reasons.


[124]     First, they should have taken the initiative to ascertain that Standard Life had received the document.  They were Standard's lawyers.  Lawyers are supposed to worry about their clients' interests and to follow up on points that put those interests in jeopardy.  If that general duty were not enough, their client's total silence about the issue in the following days should have been a loud signal to the Law Firm that something was wrong.  Yet they never again raised the question with Standard.

[125]     Second, the lawyers should have taken steps to ensure that Standard understood the contents and implications of the Cross Demand.  Great effort and several levels of communication went into obtaining the mandate for the Loan.  They should have used some of that same zeal to ensure that their client was fully briefed on the document that they, themselves, had identified as being so important.  To fail to provide this follow-up in such circumstances is to fail to provide proper representation to a client.

[126]     In the same vein, it is unacceptable that no one at the Law Firm provided Standard Life with all the relevant documents it needed in order to understand and assess the situation fully.  Any experienced lawyer, upon reading the Cross Demand, would instinctively ask for the supporting documents, i.e., the Planitec report mentioned explicitly in the Cross Demand, and the Letuvé Report and the Plante Report, which flowed from it.  The real story is found in these reports. 

[127]     The Law Firm took the decision to formally advise its client of the existence of a document.  It should have taken the decision to advise it of the full story.  That was the only way that Standard could have grasped the true magnitude of the problem.

[128]     The Law Firm attempts to defend itself by asserting that it had only a limited mandate, which did not include responsibility for the status of Uvesco's compliance with the other conditions of the Loan agreement.  Here is what Dussault J. of the Court of Appeal had to say about that line of defence:

…le devoir de conseil existe en tout temps, peu importe la spécificité du mandat confié.  Comme le souligne l'auteur précité, les tribunaux n'hésitent pas à « condamner l'attitude d'u procureur qui s'est contenté d'exécuter son mandat sans avertir son client des problèmes reliés à ses affaires ou qui a omis d'examiner une facette du dossier pouvant être une source du problème pour son client »[23]

[129]     The fact that the Law Firm's work did not stop at what was stipulated in the Mandate, but spilled over into other areas of the transaction, such as the disbursement of both instalments of the Loan, is essentially irrelevant in assessing the fault of the Law Firm in this matter.  Even had its work been restricted to the minimum necessary to comply with the terms of the Mandate, the Law Firm still had an obligation to act diligently and in the best interests of its client.  When it learned of a situation that threatened its client's interests, it could not put its head in the sand and say that it was not part of its job.  It had to react in a reasonable and competent manner, which it completely failed to do in this matter.

B.      standard life's fault

[130]     Although the question was asked by the Law Firm, it was never adequately explained why Standard Life agreed to disburse $4.4 million (less the $1.0 million letter of credit) to a client whose building was 90% unoccupied nearly a year after it was ready for tenants[24]

[131]     Mr. Brin admitted that the debt-service ratio of 1.2 was not respected at the time of the first instalment, but stated that he did not know why Standard Life disbursed in spite of that.  He hypothesized that it had something to do with the outstanding amount of $3.5 million owed to the CIBC, who held the first-ranking hypothec at that time, but went on to add that the decision on this point was not his to make.

[132]     Standard Life produced Mr. Robert Roy as an expert on real estate financings, including, in particular, hypothecary loans.  On the question of the wisdom of disbursing the first instalment of the Loan in spite of the fact that the building "had poor cash flow", his opinion was, given that it was a new construction for which an End of Work Certificate had been provided, "the security was adequate" to justify disbursing $3.4 million (net).  The CIBC letter of credit remained in place for the time being.

[133]     The question was posed to him in a hypothetical manner, as is permitted with experts, but, as a result, it side-stepped the realities of the present case.  He was not asked to consider that the lender had little proper financial information on the borrower or the guarantor, nor that the building had been essentially ready for occupation for some ten months but had only succeeded in renting 10% of its space.

[134]     As well, to state "the security was adequate" only half answers the question.  It is clear from the testimony of Mr. Normand and Mr. Brin that Standard Life's principal objective was not to have adequate security, although that was certainly required.  It did not embark on the Loan with the objective of becoming the owner of the Atrium, or having it sold by judicial sale.  Its overriding objective was to be paid the principal and interest owing on the Loan.  That is the whole purpose for analysing revenue flows and ensuring that proper leases are in place.

[135]     On this question, the Court prefers the opinion of Mr. Raymond Babeux, who testified for the Law Firm in the capacity of an expert on the evaluation and analysis of requests for financing in commercial matter ("la pratique d'évaluaton et d'analyse de demandes de financement en matière commerciale").  He cited three key criteria that a professional lender considers when evaluating a request for a loan guaranteed by a hypothec, especially when it is a new client for the lender:  (1) the integrity, experience and the financial capacity of the borrower,  (2) economic conditions and  (3) the value of the building.

[136]     Concerning the first criterion, he stated that an experienced lender should insist upon receiving audited, current financial statements for both the borrower and the guarantor(s), as well as a business plan, budget, and financial projections for the company operating the building.  He pointed out that Standard Life based its decision to make the Loan essentially on informal information ("renseignements maison") that was not supported by proper, verifiable documentation. 

[137]     Mr. Babeux noted as well that Standard Life was lacking the construction plans and specifications, the main construction contract, the documentation around the existing CIBC loan of $3.5 million, as well as audited, current financial statements, etc.  He pointed out that no board member had signed Uvesco's balance sheet dated August 31, 1988, and that this balance sheet was unaudited.

[138]     He cautioned that a lender confronted with a completed building having only 10% occupancy ought to be extremely prudent in its analysis.  Real estate promoters normally do not embark on construction projects of this type without having pre-leased a large percentage of the space in the building.  That was certainly not the case with the Atrium. 

[139]     He noted that the percentage of pre-leased space to total space in the building will vary, but the key element is that the rental revenues must be able to meet the hypothecary payments.  On that basis, he concluded that the construction of the Atrium was a speculative venture.

[140]     Mr. Babeux also underlined the importance of cash flow to the decision to grant a loan.  He qualified the debt-service ratio as being capital to the analysis of the application.

[141]     For all these reasons, he concludes that it was premature to grant the Loan.  He also notes that Uvesco did not provide Standard Life with an explanation of what it intended to do with the funds.  He opined that this is information that a professional lender always requires before agreeing to lend.

[142]     The Court agrees fully with Mr. Babeux's analysis.  His characterization of the documents used by Mr. Normand in his due diligence of Uvesco and Racette as "renseignements maison" is completely accurate, as explained in the Court's earlier review of Standard Life's actions.  It is inexcusable for a sophisticated lender such as Standard Life to embark upon a transaction putting millions of dollars at risk based upon the flimsy, unaudited and unsupported documentation provided to it in this file. 

[143]     As well, his opinion on the importance of the borrower's cash flow not only stands to reason, but is also echoed by Messrs. Normand and Brin.  To disburse the full amount of the Loan at a time when cash flow represented only a fraction of the required monthly payments was, to be diplomatic, surprisingly imprudent. 

[144]     Finally, the proof indicates that Standard Life had absolutely no idea as to the proposed use of the nearly two million dollars that the Loan represented over the building's then-current hypothec with the CIBC.  The construction was completed and the building was ready for occupancy.  Why did Uvesco need the additional funds and, in hindsight, where did they go?

[145]     Standard Life's negligence in its overall decision-making process both for the granting of the Loan and for the disbursing of the instalments is obvious.  This finding does not take into account the real estate evaluation process used by Standard Life in this matter, which will now be analysed.

[146]     The Law Firm produced Mr. Robert Sanche as an expert on real estate evaluation.  Without actually doing a proper evaluation of the Atrium, he paralleled the process used by Mr. Brin, correcting what he considered to be his errors.  He concluded that Mr. Brin should have arrived at a lending value of $3.6 million, instead of $7.2 million.

[147]     Mr. Sanche identified numerous points where he considered that Mr. Brin erred in his analysis:  using a rental of $17/sq.ft. for unfinished space, instead of a figure around $12;  equating gross space with rentable space;  failing to build in a time factor to rent out the remaining space, and more.

[148]     He underlines the fact that the exercise performed by Mr. Brin was not in any sense a professional evaluation of the building.  Its purpose was to provide summary information on the property and a calculation of the lending value based on the personal opinion of the author.

[149]     The Court has already noted that Mr. Brin was not a certified evaluator in August 1990.  Accordingly, even had he undertaken the steps normally required to complete a professional evaluation at that time, he was not, strictly speaking, competent or authorized to prepare such a study on his own. 

[150]     It follows that, whatever the merits or defects of Mr. Brin's appraisal of the building in 1990, Standard Life did not obtain a professional evaluation of the Atrium before lending $5.4 million with that building as collateral security.  In our view, in circumstances such as those that existed with respect to the Atrium at the time of the Loan, this also constitutes a fault, for the reasons noted below.

[151]     Mr. Babeux, on behalf of the Law Firm, underlined the importance of having the hypothecated property evaluated by a certified evaluator, preferably from a respected firm.  For him, the lender should insist on having a professional evaluation done.  Mr. Sanche supported this view, although he admitted having seen institutional lenders that used the same type of form used by Mr. Brin here.

[152]     Mr. Roy, the expert for the Plaintiff, was asked to opine on the following question: "Was the inspection of the building made by representatives of Standard Life adequate for a prudent lender in 1990 in respect of a contemplated loan of about $5.5 million?" (Underlining added by the Court)

[153]     The specific wording of his reply, set out in his written report, is crucial to understanding the focus of his opinion.  He states that, at the time of the Loan:

The general rule was for a third-party inspection by an engineer or architect for any loan over a threshold amount … In newer buildings such as 85 Bellehumeur (the Atrium) at time of approval, some lenders would set the threshold higher and rely on the various approval mechanisms or regulatory authorities for construction of new buildings … The disputed deficiencies at 85 Bellehumeur in 1990 appeared to be hidden defects (vices cachés) and there is no reasonable expectation that even a third party inspection would have detected the problem. "

[154]     It is clear from this that Mr. Roy was opining in the context of an inspection for the purpose of discovering apparent defects and not an evaluation to determine to the lending value of the building.  As such, although the Court accepts Mr. Roy's opinion on the point he analysed, it in no way contradicts those of Mr. Babeux and Mr. Sanche on the separate point of the necessity for obtaining a professional real estate evaluation in circumstances such as those in the present case.  Standard Life chose not to obtain such an evaluation.  In our view, this constitutes part of its overall fault in this file.

[155]     All this considered, however, it appears from the proof that Standard Life at the time had the practice of assuming that the buildings on which it took security were fully occupied (95%), whatever the reality of the situation.  In 1992, for example, it mandated Royal Lepage to prepare an evaluation of the Atrium which included a value both for the building's actual occupancy status (10%), with a three-year rent-out period in order to arrive at full occupancy, and for the theoretical case of 95% long-term occupancy, as Mr. Brin had done earlier. 

[156]     As such, even had it obtained a professional evaluation in this case, it appears that Standard Life would have preferred to focus only on the lending value if and when the building was fully rented.  This willingness to ignore the very important issue of the cash flow of the hypothecated building has already been found to constitute a fault.

[157]     The other expert to testify for the Law Firm, the architect Michel Lemaire, analysed photographs of the Atrium showing the gaping holes discussed above.  Since the Court finds that such holes could not have been present at the time of the Standard Life visit, his testimony is not relevant.

[158]     Finally, the Law Firm's argued that it was not engaged to do the due diligence on Uvesco and Racette.  The Mirage Action was public and easily discoverable by Standard Life in its due diligence of the borrowers.  Accordingly, Standard's ignorance of that action is attributable to its own negligence.

[159]     The Court agrees with this position.  Standard's due diligence in this file was essentially non-existent and inexcusably shoddy.  It should have discovered the Mirage Action on its own.  That being said, however, this does not exculpate the Law Firm entirely, as will be discussed further on.

c.      uvesco's fault

[160]     Standard Life made much of the fact that the Law Firm should have known that a proper End of Work Certificate ("Certificat de fin des travaux") could not have issued by the time of the first instalment of the Loan.  It also asserts that, when authorizing that disbursement, as well as when authorizing the second one, it was blameless for relying on the False Certificate that Uvesco provided to it, even though it was a counterfeit. 

[161]     That might well be, but there remains the fact that Uvesco's fraud constituted an independent fault that had the potential to cause damage to Standard Life every bit as much as did the faults of each of the parties to this case. 

[162]     It is indisputable that the furnishing of the False Certificate had a determinative impact on Standard Life's actions in this matter.  Had the proper certificate been provided, Standard Life would have known that there was still much work to be done on the building.  It could have, and undoubtedly would have, taken measures to protect itself.

[163]     The Court concludes that, had it known the truth, Standard Life would have gone ahead with the Loan anyway, but that it would have adopted Mr. Brin's approach to such matters and required a holdback to cover the cost of the necessary work.  That holdback would likely have been in a multiple of 1.5, the ratio that Standard Life applied with respect to the privileges registered against the building.  Mr. Roy, expert for the Defence, indicated that such multiples are generally between 1.25 and 1.75, so Standard Life's practice was in accordance with industry standards.


[164]     Since we find that three parties committed faults in this file: the Law Firm, Standard Life and Uvesco, the Plaintiff must prove that the Law Firm's fault was the "cause" of its damages, the causa causans

[165]     In analysing the question of cause, one is struck by how theoretical and nuanced this concept appears to be - and by how difficult a challenge it has proven for the Courts and the authors to capture its meaning in easily comprehensible language.  Even Baudouin and Deslauriers appear to hesitate to tackle the issue head on:

Nous ne prétendons pas construire une théorie de la causalité en droit québécois, mais seulement indiquer les grandes lignes de celle-ci, telles qu'elles nous sont apparues à l'analyse de la jurisprudence.[25]

[166]     That it has been an elusive task to translate this concept into words is not surprising.  Instinctively, it is difficult to accept the principle of the civil law that the author of a faulty act which, in fact, has the physical effect of inflicting damages on a third party, might not necessarily be liable in law for those damages.  In St-Jean v. Mercier[26], Gonthier J. of the Supreme Court of Canada, in analysing whether the causal link is a question of fact or a mixed question of fact and law, observed: "La confusion qui entoure cette question découle peut-être d'une difficulté à distinguer la causalité au sens purement physique et la causalité susceptible d'être reconnue en droit". 

[167]     The situation where an act which "caused" damages to a person is not necessarily the legal "cause" of those damages occurs often, but not exclusively, where other faulty acts are present.  As noted, that is the case in the present file. 

[168]     To make a Defendant liable in law for damages, a Plaintiff must prove on the balance of probabilities that its damages are the logical, direct and immediate result of Defendant's faulty act.  The fault must be the causa causans of the damages: the primal cause, the true source, "le fait générateur".  In light of that, and of the fact that the Court has identified three different faults in the present case, the principles of contributory negligence and of the intervening act, or novus actus interveniens, must be considered.

[169]     It is widely recognized in Quebec law that the same damages can have as their cause (in the legal sense) more than one fault.  For that to occur, each of those faults must be a causa causans of the damages, and not merely a causa sine qua non, i.e., one of the surrounding circumstances.  This is true even where such circumstance constitutes fault or negligence by a third party - or by the victim. 

[170]     Where such contributory negligence exists, the Court must attempt to apportion the liability among the persons responsible, far from an exact science, as Professor Karim points out in his book, Les Obligations:

La recherche de la cause directe ou du lien de causalité n'a pas pour effet d'empêcher de retenir plus d'une faute pour expliquer la réalisation du préjudice.  Ainsi, un préjudice peut être dû aux fautes combinées du défendeur, de la victime ou d'un tiers.  Il est donc possible alors de réduire la responsabilité du défendeur, en fonction de la gravité de sa propre faute, en opérant un partage de la responsabilité.  Ce partage s'effectue selon la gravité respective des fautes de chacun des participants au préjudice. Il va de soi que ce genre de partage est, dans la plupart des cas, le résultat d'une évaluation arbitraire car la gravité d'une faute ne peut se mesurer que de façon approximative.[27]

[171]     In addition, it is possible for a Defendant whose fault could have been the causa causans of Plaintiff's damages to avoid liability completely.  This would arise where a later fault occurs, of at least equal severity to Defendant's, and such later fault, in itself, constitutes a logical, direct and immediate cause of the damages.  This is the principle of the novus actus interveniens.[28]

[172]     Such novus actus replaces the original faulty act as the cause of the damages, provided it is equally or more severe, and that it occurs after the other fault.  Where this fault is less severe than the defendant's fault, or is not materially later in time, the Court must treat the situation as one of shared liability, and apportion the award for Plaintiff's damages between the two faults "en fonction de la gravité de sa propre faute, en opérant un partage de la responsabilité"[29], as noted above.

[173]     Accordingly, the Court here must assess the relationship and interplay of each of the three faults identified to Plaintiff's damages, and decide the following issues.

·                    Are any or all of the three identified faults legal causes of such damages?

·                    Can the fault of Uvesco with respect to the False Certificate be considered a novus actus interveniens so as to deflect liability away from the other faults, as argued by the Law Firm?

·                    How should liability be shared among the causal faults?

[174]     Concerning the first issue, the Court is satisfied that each of the three faults must be considered a legal cause of the damages suffered by Standard Life.  As seen from the analysis of the faults done above, it is clear to us that such damages are a logical, direct and immediate result of each of the faulty acts.  Accordingly, their respective authors should all share in the liability for compensating the victim of such damages, unless some other legal principle dictates otherwise.

[175]     Concerning the second issue, as stated above, the novus actus must, in fact, be that: a new act.  By this is meant that it must come after the original faulty act, failing which the two acts must be viewed in the light of contributory negligence.[30]  It must also be of at least equal severity.[31] 

[176]     Concerning the relative severity of the three faults, in spite of the aspect of fraud which colours Uvesco's actions, the Court is not willing to hold that its fault is more severe than the other faults found in this case.  The conduct of the Law Firm in this file was far below the standards expected of it, as was that of Standard Life.  On the other hand, Uvesco's fault cannot be said to be less severe.  On the whole, the Court would assess the severity of each of the three as being substantially equal.

[177]     As such, one of the two criteria for a novus actus interveniens is met.  Uvesco's fault is at least as severe as the fault of the Law Firm.  The criterion with respect to timing, however, is not met. 

[178]     Uvesco transmitted the False Certificate on November 2, 1990.  The first instalment of the Loan was disbursed around the twenty-sixth day of the same month.  Although the disbursement of the first instalment of the Loan was the culmination of the series of events, it is fair to say that the faults of the Law Firm and of Standard Life are not limited to one specific act that occurred on November 26, 1990.  Each of them is a type of on-going fault, committed over a period of time that could be seen to extend from as far back as August for Standard Life, or the end of October for the Law Firm, to the date of disbursement of the first instalment of the Loan.

[179]     Given the date of the transmission of the False Certificate, Uvesco's fault is essentially contemporary to those of the parties to this case.  For this reason, the Court concludes that the fault of Uvesco does not constitute a novus actus interveniens, as argued by the Law Firm. 

[180]     There remains the question of whether either of the Law Firm's fault or Standard Life's fault could be considered a novus actus interveniens with respect to the other, or to Uvesco's fault.  The answer is already provided in the above analysis.  The contemporary nature of the three faults rules out the possibility that any of them could be a novus actus interveniens with respect to any of the others.

[181]     The authors of the three faults are, therefore, each responsible for the damages suffered by Standard Life.

[182]     We now turn to the third issue mentioned above, that of how to share the liability among the causal faults.  As noted in the citation from the doctrine, it is generally not possible to apportion the share of liability between two faults, much less three, with any degree of precision.  Fine-tuning is impossible.  A Court confronted with such a task must attempt to arrive at a fair and equitable apportionment, basing itself on its assessment of the relative gravity of each fault.  In the end, it must often rely on instinct and common sense, particularly where there is a triumvirate of faults. 

[183]     In the present case, we conclude that we can do no better than to hold that all three faults should share the liability equally.[32]  All the faults are serious and all are determinative to similar extents.  Consequently, the Court finds that the Law Firm is responsible for one third of the damages suffered by Standard Life in this file.


[184]     Standard Life's claim in the total amount of $3,373,386.00 is made up of two components: the cost of repairs to the Atrium and Standard's "capital loss" after the giving in payment.  Earlier, we calculated the cost of repairing the Defects at $1,434,842.  Standard calculates its capital loss at $1,873,386.  This latter point merits analysis.

[185]     According to Standard Life, the capital loss represents the difference between the amount of the Loan and the decreased market value of the Atrium when Standard took ownership in June 1992, assuming that the Defects had been repaired.  The decrease is alleged to have occurred as a result of the economic recession of the early 1990's.  Standard filed an evaluation from Royal Lepage indicating that the 1992 market value was $3.5 million.  This evaluation assumed that the Defects had been repaired, and it took into account a three-year period to move from 10% occupancy to full occupancy.

[186]     The basis for Standard's calculation of its alleged capital loss is the amount of the Loan.  Standard arrived at that amount by taking 75% of the market value that it estimated for the Atrium, i.e., Mr. Brin's August 1990 figure of $7.2 million.  If the amount of the Loan turned out to be too high because of Standard's decision to use an in-house assessment of potential value, rather than a professional evaluation of the actual market value, should the Law Firm bear the burden of that?

[187]     We have already noted that Mr. Brin's appraisal was not a professional evaluation of the Atrium's market value in August 1990, nor was that its purpose.  Standard Life did not do any such evaluation.  Nevertheless, there is an indication of the Atrium's 1990 market value in the file: Mr. Sanche's reworking of Mr. Brin's calculations. 

[188]     Mr. Sanche's work points to a market value of $3.6 million, versus the figure of $7.2 million used by Standard.  This is essentially identical to Royal Lepage's figure of $3.5 million in June 1992.  Mr. Sanche was careful to caution the Court that he had not done a professional evaluation in his analysis, but had merely corrected the work of Mr. Brin, using what he considered to be more realistic assumptions for several of the components in the calculation.  For example, he also applied a three-year period to move from 10% occupancy to full occupancy.

[189]     Fully recognising the limitations of Mr. Sanche's work, the Court still feels that his result is significantly closer to the true market value of the Atrium in August 1990 than that which Standard Life chose to use. 

[190]     This analysis leads the Court to two conclusions.  The first is that Standard has not proven that it suffered a capital loss in this file.  The second is that, even if it had, the amount of the Loan was too high to be adequately collateralized by the Atrium as it was in August 1990.  Standard's own business methods would have been the cause of that loss, and not anything done, or not done by the Law Firm. 

[191]     Moreover, Standard Life decided to take the building as owner.  This occurred in June 1992, when the general economic recession had already begun, as Standard itself has pointed out.  Given the magnitude of the Defects and the poor real estate market at the time, Standard's decision to become owner and to effect the necessary repairs might well have been the only business-wise option available to it.  That being said, Standard is a sophisticated lender, and it is fair to assume that it was fully aware of the reality of fluctuations in the real estate market.  Standard knew full well what it was getting into when it decided to become owner of the Atrium: both the possible down side and the possible up side.

[192]     Furthermore, there is no indication of any kind in the record that Standard Life sold or even attempted to sell the Atrium at any time since becoming owner.  As such, although the value of the building might have taken a temporary downward turn in the early 1990's, it is common knowledge that real estate values have skyrocketed in the past five to ten years.[33]  It is not unreasonable to conclude, therefore, that Standard could have sold the Atrium with a profit far beyond even the cost of the repairs it performed, or that it is still holding a property that has multiplied in value since it became owner of it.

[193]     The Court sees an analogy with the case of Les enterprises CANABEC inc. c. Raymond Laframboise[34].  There the Court of Appeal dealt with damages arising from a refusal to respect an offer to purchase.  The Court wrote:

… La situation est cependant tout autre en ce qui concerne la perte de valeur des immeubles.  Comme l'a mentionné l'expert Boivin, celle-ce est due à la récession économique qui sévit au pays depuis 1990.  Les intimés n'ont jamais prétendu qu'ils entendaient tirer profit de la revente des terrains concernés et aucun n'a remis son terrain en vente.

         De plus, les intimés qui avaient réussi dans leur demande en passation de titre ont bénéficié de la valeur accrue des immeubles qui a plus que doublé de 1986 à 1992 et ils n'ont pas fait la preuve qu'ils auraient vraisemblablement perdu un marché qu'ils auraient voulu et pu réaliser après les délais d'appel pour éviter les effets de la chute du marché immobilier.  Ils n'ont donc pas fait la preuve de cette partie des dommages qu'ils réclament et, dans les circonstances, l'on ne pourrait, sans faire de conjecture, conclure à une perte probable.

[194]     Using similar logic, this Court sees no justification for granting any damages based on a hypothetical capital loss.  For all these reasons, then, the Court rejects Standard's claim for a capital loss.

[195]     Accordingly, the damages suffered by Standard Life in this case are comprised of the cost of repairing the Defects: $1,434,845.13, and the Law Firm bears the responsibility for one-third of that amount: $478,281.71, for which it will be condemned to pay by this judgment. 

[196]     There is an argument to say that, since we have found that Standard would have applied a holdback of 150% of the repair cost had it known of the Defects, its damages should be seen as the amount of the hypothetical holdback: $2,152,267.70.  This logic is not appropriate in the present circumstances.  The 150% figure is hypothetical and reflects Standard's practices.  It does not relate to damages suffered, but rather to analysing the parties' behaviour.  For these reasons, the Court maintains its decision that the damages suffered are equal to the cost of repairing the Defects.

[197]     Standard Life shall have its full costs, including the cost of experts, as proven at trial.  Although it was partially responsible for its losses, Standard was obliged to institute the present proceedings in order to obtain compensation for the damages caused by the Law Firm's fault.  In these circumstances, the Court sees no reason to exercise its discretion to order otherwise.

[198]     Finally, given that the CCLC was in force at the time that the Law Firm committed its fault[35], interest shall run from the date of the institution of the action, as shall the additional indemnity provided for in the Civil Code of Québec.

for these reasons, the court:

GrantsPlaintiffs' action in part;

condemns Defendants to pay to Plaintiffs, solidarily, the sum of four hundred seventy-eight thousand, two hundred eighty-one dollars and seventy-one cents ($478,281.71), with interest from the date of the institution of the action and the additional indemnity provided for in the Civil Code of Quebec.

the whole with costs.






Mtre. Max R. Bernard

Heenan Blaikie

Attorneys for Plaintiffs


Mtre. Vincent J. O'Donnell

Mtre. Louis Charette

Lavery, de Billy




Mtre. François Beauchamp

De Grandré Chait


Attorneys for Defendants



Hearing Dates:  January 17- 21, 24-26, 2005

appendix A

due diligence documents on the key club

Besides obtaining Racette's assurance that he had done due diligence, Mr. Normand obtained and reviewed the following documents:

·                    a publicity brochure published by the Key Club,

·                    a one-page balance sheet for the company "Bergeron Holdings", prepared on the letterhead of Gaston Fournier, c.e.a.[36];

·                    a one-page balance sheet for Mr. Alan Horic, prepared on the letterhead of Gaston Fournier, c.e.a.;

·                    a one-page balance sheet for Dr. Claude Doyon, prepared on the letterhead of Gaston Fournier, c.e.a.;

·                    provisional financial statements for the company 172589 Canada Inc., prepared by Gaston Fournier, c.e.a., indicating Alan Horic as the president.

As was the case with the documents reviewed with respect to Uvesco and Racette, none of these documents were either audited or even signed. 

appendix B

calculation of the cost of correcting the defects

Of the 37 headings of repairs totalling $1,554,484.28, Mr. Kennedy's testimony indicates that 10 of them (the "Refused Expenses") do not relate to repairing the Defects, i.e.:

2.  Lanternau                                                                  $20,465.55

3.  Charpente                                                                   54,704.82

11. Portes                                                                          4,133.63

15. Arpentage                                                                       750.00

16. Essais                                                                          2,484.24

24. Vérification capacité du sol                                                852.00

26. Modification système d'alarme                                           885.00

28. Honoraires professionnels modification climatisation         1,779.50

29. Honoraires professionnels structure marquise                  2,685.00

34. Insonorisaton                                                               3,440.00

TOTAL                                                                          $92,179.74

In addition, items 9, 13, 14, 17, 21 and 22 of Exhibit P-17, relating to overall supervisory or general types of work ("General Expenses"), which total $356,615.72, should be reduced in accordance with the ratio of the Refused Expenses to the total expenses less the General Expenses.  This ratio is 7.7%, i.e., 92,179.74 divided by $1,197,868.56. 

Accordingly, only 92.3% of the General Expenses of $356,615.72 relate to the Defects: $329,156.31 ("Admissible General Expenses").  As such, the portion of the expenses set out in Exhibit P-17 which relate to repairing the Defects is calculated as follows:

Total Expenses, excluding General Expenses            $1,197,868.56

Admissible General Expenses                                   + 329,156.31

Refused Expenses                                                      - 92,179.74

Cost of correcting the Defects                                 $1,434,845.13


appendix c

the contract documents

Extracts of the deed of loan and hypothec

6.       During the currency of this loan the Borrower covenants and agrees as follows:

(a)      it shall keep the aforesaid buildings and their dependencies and appurtenances in good condition and repair and representatives of the Lender shall have the right to inspect them from time to time.

(b)     …

23.     … should the Borrower be in default … or should any statement, certificate or representation given by or on behalf of the Borrower prove at any time to be incorrect in any material way … the Lender, upon giving written notice to the Borrower … that the Lender elects to become the absolute owner of the property under the provisions of this section 23, shall thereupon be and become ipso facto the absolute owner thereof with effect retroactive to the date of these presents, free and clear of all rights, hypothecs, privileges and charges (if any) subsisting in favour of any third person, all of which shall be without effect so far as the Lender is concerned.

          Should the Lender exercise this right of election this deed shall be deemed to have constituted a giving in payment to the Lender of the property in satisfaction of the aggregate of all sums then outstanding under this deed in principal, interest and accessories without the Lender being obliged to compensate or indemnify the Borrower or any other person for any cause whatsoever …

26.     The Borrower declares and represents:

(h)              That there is no litigation pending or threatened by means of a written demand relating to the property or to the other security for the loan as contemplated by this deed or to the Borrower's title to the property or such other security, or to the Borrower generally, which, if successful, would materially impair the solvency of the Borrower.

41.     Notwithstanding any other term, clause or condition of these presents, the Lender shall not be obliged to advance to or on behalf of the Borrower any sum until such time as the present deed has been executed and duly registered and indexed, and then only on the terms and conditions hereinafter set forth, which must be met to the entire satisfaction of the Lender, namely:

(a)              all the terms and conditions contained in the Commitment Letter shall have been met to the entire satisfaction of the Lender; and

(e)      the Lender has been supplied with financial statements and current credit information for the Borrower and the Guarantor herein, the whole to the entire satisfaction of the Lender and at the Borrower's expense.


42.     … Prior to the first advance, the Lender will be provided with certificates from acceptable architects and engineers confirming that construction of the building is in accordance with the approved plans, specifications and soil test report recommendations and that it conforms with all requirements of all regulatory authorities.

43.     The Lender shall have the right during the construction to obtain from the Borrower the certificate of an architect or engineer, which certificate must certify that construction to date is satisfactory and has been carried out in accordance with the approved plans, the whole at Borrower's expense.

extracts of the commitment letter

6.  FUNDING:              Subject that (sic) the mortgage proceeds will be advanced at Standard's discretion in the following manner and subject to all the requirements and conditions of the letter of commitment, Standard's solicitors and subsequent mortgage document.

1)     $4,400,000 shall be advanced:

a)  upon completion of all legal documentation to the satisfaction of both Standard and their solicitors.

b)  upon receipt of a Demand Letter of Credit in the amount of $1,000,000. … drawn payable "on demand".  …

2)     Further advances up to the total loan of $5,400,000 will be made on the basis that the total advances at any time will not exceed 6.31 times[37] the net income from approved and signed leases, (emphasis added)

These advances are subject to the:

1)     specific assignment of the approved leases;

2)     occupancy of the premises by the approved tenants;

3)     approved tenants paying rent;

4)     estoppel certificates from approved tenants.

7.  LETTER OF CREDIT:        The above-mentioned letter of credit will be released when the borrower has achieved a 77½% leasing occupancy, which represents $704,000 net annual income from tenants approved by Standard Life.

The Letter of Credit will be released proportionately as lease up is achieved using the referenced formula.  …

12.  DOCUMENTATION:       All documents including the condominium declaration agreement will be in a form and content satisfactory to Standard's solicitors with the Deed of Loan to be drawn on Standard's usual form.  Standard's solicitors must provide a satisfactory opinion as to the validity of the restriction in the under-mentioned clause 26.

13.  SOLICITORS         The legal work will be done by:

                                      McMaster, Meighen



Final plans and specifications … will be made available to Standard upon written request and as available.  …  Prior to the first advance Standard will be provided with certificates from acceptable architects and engineers confirming that construction of the building is in accordance with the approved plans, specifications and soil test report recommendations and that it conforms with all requirements of all regulatory authorities.



[1]  Under the CCLC, see, for example, article 1735 CCLC.  Under the CCQ, see article 2143.

[2]The transaction in question dates back to 1990, before the introduction of the CCQ in January 1994.  As a result, the CCLC applies to this case.

[3]Racette personally guaranteed all of Uvesco's obligations under the Deed of Loan and Hypothec.  Surprisingly, the limit of his guarantee was later reduced to $165,000, at a point in time when Standard was aware of the magnitude of the Defects.  No explanation for this was provided.

[4] The building was initially destined to be a condominium and Uvesco had previously sold about 15% of the total space in divided co-ownership to a law firm.  Unless specified otherwise, the present judgment will discuss only the portion of the total building owned by Uvesco, i.e., about 85% of the overall structure.

[5] In his appraisal, Mr. Brin comes to a total value of $7,225,500.  Standard Life's policy at the time was to lend up to 75% of that value, i.e., $5,419,125.

[6] To the extent necessary, all the appendices to this judgment form part of it, as if recited at length in the body of the judgment.

[7] The Royal Trust acted as trustee for Standard Life with respect to the Hypothec and the Giving in Payment.  As such, it was the Royal Trust Company which was named owner of the building in June 1992, but always es qualité its capacity as trustee for Standard Life.  For the purposes of the present judgment, we mention only Standard Life, but recognise the presence of the trustee.

[8] J.E. 2003-770 (C.A.).

[9] [2003] R.R.A. 776 (C.A.).

[10] Trust Général du Canada c. Tétrault [1987] A.Q. no 819 (C.A.), No 500-05-002819-801 (C.S.M.); Caisse Populaire Ste-Madeleine Sophie c. Noel Paquette (1979) C.S. 228 .

[11] Thérèse Prévost-Masson c. General Trust of Canada et al [2001] 3 S.C.R. 882 , at page 898.

[12] Op. cit., Note 9.

[13] Op. cit., Note 8.

[14] Op. cit., Note 9.

[15] Op. cit., Note 8.

[16] Op. cit., Note 9.

[17] Op. cit., Note 10.

[18] [2000] R.J.Q. 1048 .

[19] Ibid.

[20] Op. cit., Note 11.

[21] Op. cit., Note 18.

[22] The mere fact that the Law Firm felt it had to obtain Uvesco's approval to divulge the existence of the Cross Demand to Standard Life raises questions about the Law Firm's ability to represent both clients properly.  At most, it should have advised Uvesco that it had provided the information to Standard Life, with no opening for objections or conditions.

[23] Labrie c. Tremblay [2000] R.R.A. 5 (CA), at page 10.

[24] In fact, as seen in the Royal Lepage report (Exhibit D-23), at page 17 et seq., nearly two years later, in June 1992 there were still only the same two tenants as in August 1990.

[25] Baudouin et Deslauriers, La Responsabilité civile, 6e édition (2003), Éditions Yvon Blais, Para. 584, p. 460.

[26] [2002] 1 SCR 491, para. 103, p. 527.

[27] Karim, Vincent, Les Obligations, Volume 1, 2e édition (2002), Wilson & Lafleur Ltée, p. 540.

[28] Op. cit., Note 25, Para. 593, page 467.

[29] Op. cit., Note 27, p. 540.

[30] Op. cit., Note 25, Para. 593, page 467.

[31] Ibid., Para. 596, page 468.

[32] See Caisse Populaire Desjardins Terrebonne c. Sylvie Parent, op. cit., Note 18, where the Court of Appeal held that, in a situation similar to the present case, albeit with only two contributory parties, the notary and the lender should share equally in the responsibility.

[33] The Court was urged to take judicial notice of the economic recession of the early 1990's, which it did.  In the same way, it has no hesitation in taking judicial notice of the real estate boom of the past ten years.  What is sauce for the goose is sauce for the gander.

[34] J.E. 97-1087 , AZ-97011496 (C.A.)

[35] Art. 1078.1 CCLC, plus Art. 85 of An Act Respecting the Implementation of the Reform of the Civil Code, Bill 38.

[36] Comptable exécutif agréé

[37] In correspondence between Uvesco and Standard Life (Exhibits D-3 and D-4), as well as in Mr. Normand's handwritten calculations (Exhibit D-2), it appears that Standard Life intended to apply a debt-service ratio of 1.2 to the loan.  Although that ratio appears in Standard Life's Mortgage Loan Proposal Summary (Exhibit  P-1, at page 008 of the record), it does not appear to have been incorporated into the contract documents.

Le lecteur doit s'assurer que les décisions consultées sont finales et sans appel; la consultation du plumitif s'avère une précaution utile.

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