2016 QCCQ 15567, 2016 QCCQ 15567

9170-1649 Québec inc. c. 3652904 Canada inc. 2016 QCCQ 15567 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF montreal Civil Division No: 500-22-219053-157 DATE: December 19, 2016 ______________________________________________________________________ BY THE HONOURABLE VINCENZO PIAZZA, J.C.Q. ______________________________________________________________________ 9170-1649 quebec inc.

Plaintiff v. 3652904 canada inc and Hyung Woo Paik Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] 9170-1649 Quebec inc. (Quebec Inc.) claims $25,168.32 from 3652904 Canada inc. (Canada Inc.) and Hyung Woo Paik, representing the outstanding balance of their proportionate share of the real estate taxes for 2014 and 2015, as apportioned by Quebec Inc. to the premises leased to Mr. Paik and Canada Inc. in Quebec Inc.’s property. [ 2 ] Mr.

Paik and Canada Inc. assert that they owe nothing and that in fact it is Quebec Inc. who is indebted to them, for the reimbursement of taxes that they have overpaid in the past, by error, and in violation of the provisions of their lease [1] . [ 3 ] They also seek a solidary condemnation of Quebec Inc. and its attorney for procedural abuse, in connection with a motion de bene esse to be relieved of their default to appear, which had to be drafted and presented to a judge of this Court. Mr.

Paik and Canada Inc. plead that in the circumstances described below, Quebec Inc. and its attorney’s refusal that they file an appearance without the Court’s permission was unreasonable and abusive. CONTEXT [ 4 ] Canada Inc. and Mr. Paik operate a fruit and vegetable store at the corner of Décarie Boulevard and Queen Mary Road, in Montreal. [ 5 ] This store was initially operated pursuant to a lease entered into on February 25, 2002, between Philip Avrith Investments Inc., then the property owner, and Fruiterie Chhan Inc. as tenant [2] . [ 6 ] This lease contains the following clause: CONDITIONS SPÉCIALES 1.

Le Locataire devra payer lui-même les taxes d’eau, d’affaires, de vidanges et toutes autres taxes de nature locative . Cependant, le Locataire consent à rembourser à demande au Locateur tous les montants, les taxes d’eau, d’affaires, de vidanges et toutes autres taxes de nature locative , si le Locateur était tenu de les payer lui-même à la municipalité. 2. Le Locataire paiera les frais de chauffage et d’électricité pour les lieux loués. 3.

Le Locataire devra acquitter seul les frais d’électricité et services du même genre et le Locateur ne sera pas responsable des coûts de toutes installations électriques spécialement requises par le Locataire dans le cours de son commerce. 4. Le Locateur ne fournira aucun service de conciergerie ou d’enlèvement de rebus. Cependant, le Locateur procédera au déneigement de la ruelle. (…) [Emphasis added by the Court.] [ 7 ] The agreement textually reproduced below was later executed [3] :

June 23, 2004 FRUITERIE CHHAN & Ty CHHAN – SUB LESSORS AND 3652904 Canada Inc. & Hyung Woo [4] – SUB LESSEES The following lease dated February 25, 2002, is hereby subletted which is agreed to by the Lessor under the following Terms and Conditions. 1. All Terms and Conditions of the Lease attached hereto remain the same except for: a. Rent from July 1, 2004 will be $3800.00 plus TPS & TVQ. b.

At expirey the rent for the period December 1, 2006 to November 30, 2011, the rent will be $4,370.00 per month plus TPS & TVQ and for the period from December 1, 2011 to November 30, 2016 the rent will be $4,807.00 plus TPS & TVQ. c. Condition 7 of the said Lease is reduced to $50,000.00 d. The Sub-Lessors together with the Sub-Lessees are jointly and severally responsible for the rent without the benefit of discussion or division. e. Mr. Ty Chhan will remain responsible for the 1 st 5 years period f. There are no options after December 31, 2016. g.

The Sub-Lessees and Sub-Lessors agree to sign a new Lease reflecting these conditions within 30 days. h. The Lessor agrees to the sublet and agrees to sign a new Lease providing they sign within a period of (30) days, reflecting the above conditions and the credit report of the Sub-Lessees are favourable. AND WE HAVE SIGNED: FRUITERIE CHHAN AND Ty Chhan SUB-LESSORS (

s) Ty Chhan (

s) Ty Chhan 3652904 Canada Inc. & Hyung Woo SUB-LESSEES (

s) Hyung Woo (

s) Hyung Woo PHILIP AVRITH INVESTMENTS INC. PER: (

s) Philip Avrith Mr. Philip Avrith [ 8 ] In 2006, Quebec Inc. became the owner of the building where the store is located. [ 9 ] In 2011, Mr. Paik sold his business to a certain Mr. Nasari.

On October 13, 2011, an agreement entitled “Assignment of Lease” was executed by David Hyung Woo [5] and Canada Inc. as “Assignors”, Tadj Mohammad Nasari and 9245-6078 Quebec Inc. as “Assignees” and Quebec Inc. as landlord. [6] . [ 10 ] On April 30, 2013, another agreement, again entitled “Assignment of Lease”, was executed by Tadj Mohammad Nasari and 9245-6078 Quebec Inc. as “the First Assignors”, David Hyung Woo and Canada Inc. as “the Assignor”, Bilal Ballout as “the Assignee” and Quebec Inc. as landlord [7] . [ 11 ] None of these agreements modified the clause “CONDITIONS SPÉCIALES” of the lease of February 2002. [ 12 ] On November 13, 2014, Quebec Inc.’s attorney sent a demand letter to Messrs.

Paik, Nasari and Ballout, claiming unspecified “arrears” in the amount of $10,874.43 [8] . [ 13 ] On January 29, 2015, another demand letter was sent, this time only to Canada Inc. and Mr. Paik, claiming $8,831.14 “ representing [their] proportionate share of real estate taxes due. ” [9]

[ 14 ] Quebec Inc. filed its proceedings on February 4, 2015. It is only after being served with these proceedings that Mr. Paik was informed by his attorney that while the lease of February 2002 only provided for payment by the tenant of rental taxes, such as the former business and water taxes, he had been paying real estate taxes since he took the store back in 2013. [ 15 ] Mr. Paik testified that he had never read the original lease, nor the subsequent agreements, as his understanding of the French and English languages is limited and he is too busy working at his store.

More importantly, he never sought exterior advice, as he trusted the initial landlord’s representative, Mr. Avrith, who had told him in 2004 that all he was paying for were the business and water taxes. ANALYSIS Municipal taxes [ 16 ] In paragraphs 11 and 11B of its Re-amended Motion to Institute Proceedings dated October 1 st , 2015, Quebec Inc. writes that its claim is indeed for the defendants’ proportionate share of real estate taxes. [ 17 ] Mr.

Paik and Canada Inc. plead that the lease of February 2002 does not allow Quebec Inc. to charge them any portion of the real estate taxes levied against Quebec Inc.’s property, except the water tax [10] .

This water tax, however, represents a very small fraction of the global tax invoices and it is considerably less than what has already been paid to Quebec Inc. for the 2014 and 2015 municipal taxes [11] . [ 18 ] The evidence and the allegations of Quebec Inc.’s proceedings establish that its claim is for a portion of the municipal taxes levied by the City of Montreal against Quebec Inc.’s property, strictly on the basis of this property’s real estate evaluation [12] .

These taxes are not based on the rental value of the space occupied by the fruit store, nor are they a function of the business carried out therein. [ 19 ]

Section 232 of the Act respecting municipal taxation [13] provides this definition of the business tax: Every local municipality may, by by-law, impose a business tax on any person entered on its roll of rental values carrying on, for pecuniary gain or not, an economic or administrative activity in matters of finance, trade, industry or services, a calling, an art, a profession or any other activity constituting a means of profit, gain or livelihood, except an employment or charge.

The tax shall be imposed, according to the roll, on the occupant of each business establishment on the basis of its rental value, at the rate fixed in the by-law. [ 20 ] Except for the water tax, which is admitted by the defendants, Quebec Inc.’s claim does not fall within the ambit of the enumeration “ taxes d’eau, d’affaires, de vidanges et toutes autres taxes de nature locative”. [ 21 ] In fact, the bulk of Quebec Inc.’s claim pertains to the general property tax, although the rate of this tax varies between property categories [14] . [ 22 ] In the judgment he delivered for the Supreme Court of Canada in Montréal (City) v.

Montreal Port Authority [15] , Mr. Justice Louis LeBel made the following observations: E. Development of the City of Montréal’s Tax System (…) [26] Before 2003, as I have noted, the City imposed property taxes and a business occupancy tax . However, the new City as of that time included several municipalities that had not previously imposed a business occupancy tax. In fact, that tax was collected in only 10 of the City’s 28 sectors. Where the tax was in effect, it was imposed on occupants of non-residential immovables who engaged in commercial or professional activities .

Moreover, the property tax itself had certain distinctive features. The City first imposed a general property tax on all taxable immovables and then added a surtax on non-residential immovables. [27] In light of these disparities, the City concluded that it had to thoroughly review its taxation structure to harmonize the differing tax systems within its territory and improve efficiency.

In 2000, the Quebec National Assembly had changed the legislative framework for municipal taxation by enacting legislation that authorized municipalities to adopt between two and five different property tax rates based on the categories to which immovables belonged ( Act respecting municipal taxation , R.S.Q., c. F-2.1, s. 244.29 (added by S.Q. 2000, c. 54, s. 82 )). The amendments did not change the legal nature of the tax, which remained a property tax on immovables located within municipalities .

However, Quebec municipalities could from that time on adjust the tax rate by applying different rates to the various categories of immovables established by the legislation: non-residential immovables, immovables consisting of six or more dwellings, serviced vacant land, industrial immovables, and immovables that were unclassified and therefore part of the “residual” category (s. 244.30). [28] The City exercised those regulatory powers. For 2003 and the following fiscal years, it abolished its business occupancy tax and changed its property tax structure .

It established a variable-rate property tax that would enable it, inter alia , to recover the income it would lose after abolishing the business occupancy tax. [Emphasis added.] [ 23 ] The Supreme Court of Canada ruled that it was unreasonable for the Montreal Port Authority (“MPA”) to deduct the equivalent of the former business occupancy tax (for which no grant in lieu of taxes was ever payable by the MPA) from the real estate tax rate that it used to calculate its payments in lieu of municipal taxes. [ 24 ] Quebec Inc. pleads that despite the language of the lease of February 2002, it is authorized by law to charge Mr.

Paik and Canada Inc. their share of the real estate taxes levied against its property. Quebec Inc. argues that when the City of Montreal abolished

the business tax, as of January 1 st , 2003, a specific provision was added to the City’s Charter [16] to allow for this: 151.6.2. Where a unit of assessment situated in a sector that belongs to the group described in

section 244.31 of the Act respecting municipal taxation (chapter F-2.1 ) is the subject of a lease that is in force on the first day following the fiscal year of reference , within the meaning of the second paragraph, and that does not allow the owner to increase the rent stipulated to take into account new taxes for which the owner becomes the debtor, or to have the lessee otherwise assume payment of such a tax, the owner may nonetheless, in accordance with the rules set out in this section, increase the rent stipulated to take into account all or part of the additional amount payable by the owner for a fiscal year in relation to the fiscal year of reference by reason of the imposition of a mode of property taxation specific to the non-residential sector.

The fiscal year of reference is the last fiscal year for which the city imposes the rental tax in respect of the sector concerned, either separately or within the whole territory of the city. “Rental tax” means the business tax or the tax provided for in

section 101 of

Schedule C where its rate is based on the rental value. Where one of those taxes ceases to be imposed in respect of the sector while the other continues to be imposed, the fiscal year of reference is determined on the basis of the first tax. (…) [Emphasis added.] [ 25 ] Quebec Inc. can only avail itself of this

section of the Charter if the lease with Mr. Paik and Canada Inc. was in force on January 1 st , 2003 [17] . [ 26 ] It is not the case. [ 27 ] Although it imports some provisions of the lease of February 2002, including the “CONDITIONS SPÉCIALES” clause, the agreement of June 2004 is, in many material respects, a completely different one. It truly constitutes a new lease: I. COMPARAISON ENTRE LA CESSION DE BAIL ET LA SOUS-LOCATION A. Différences entre sous-location et cession de bail 1383 .

Mignault compare ainsi la sous-location et la cession de bail: « Sous-louer, c’est louer, en tout ou en partie, un bien dont on est soi-même locataire. La sous-location est un contrat distinct de la location principale. Celui qui sous-loue n’est pas un sous-locateur, mais un locateur à part entière, et c’est en cette qualité qu’il s’engage envers son cocontractant. La désignation de sous-locataire n’est utilisée que pour refléter le rapport qui s’établit pour certaines fins entre le bailleur principal et celui à qui le locataire principal sous-loue l’immeuble.

La sous-location n’opère pas novation, à moins que le locateur n’intervienne pour libérer le locataire principal. Céder son bail, c’est vendre, céder, en tout ou en partie, les droits qu’on a comme locataire, avec les charges dont ces droits sont grevés. » (…) 1384 . D’après cette définition et cette comparaison, la sous-location est une nouvelle location d’une

partie ou de la totalité du bien loué , alors que la cession est le transfert du même bail à un tiers qui deviendra locataire à la place du locataire initial. Les clauses du contrat de sous-location peuvent différer du bail principal. Le locataire, par exemple peut sous louer à un prix moindre, pour une période différente, et même, limiter l’accès à certains services. Lors d’une cession de bail, le cessionnaire reçoit les mêmes droits que le cédant, ni plus ni moins. (…) 1389 .

En cas de doute sur la nature du contrat, il faut examiner « la forme du contrat, les circonstances dans lesquelles il a été passé, et la manière dont les parties l’ont exécuté ». Si le doute persiste, les parties seront présumées avoir conclu une sous-location plutôt qu’une cession de bail. (…) [18] [ 28 ] In support of its

interpretation, Quebec Inc. also points to sections of the 2004, 2011 and 2013 agreements, which qualify the rent payable by the tenant as “Net rent”. [ 29 ] The Court considers that this expression, without any context or explanation as to its scope, is not sufficient to supersede the very clear language of the “CONDITIONS SPÉCIALES” clause in the lease of February 2002.

While the business tax no longer existed since 2003, this clause was imported “as is” in the agreements of 2004, 2011 and 2013, without ever being modified to include real estate taxes, although these agreements were otherwise used as occasions to provide for term extensions, rent increases and the addition of personal guarantors, inter alia . [ 30 ] A review of the jurisprudence and authors in real estate law reveals that there is no clear consensus on the exact meaning of the expression “net lease” [19] .

In this case, the proof does not establish which property charges – if any – were meant to be included in the “Net rent” payable to Quebec Inc. On this, the Court notes that Quebec Inc. never seems to have claimed payment from its non- residential tenants of any share of the school tax, which is yet a real estate charge levied indistinctly against residential and non- residential properties. Also, Quebec Inc. assumes a substantial portion of the municipal realty taxes assessed against its property. Thus, the rent payable to Quebec Inc. by Canada Inc. and Mr. Paik is obviously not completely net. [ 31 ] As Mr.

Justice Paul Mayer wrote, “A commercial lease is not an open bar and a bottomless buffet for a landlord. To ensure enforceability, the obligation of a tenant to pay his proportionate share of real estate taxes should be well drafted in as precise and clear a manner as possible . It should have fixed and definite limits.” [20] [ 32 ] Mr. Paik testified that until his lawyer advised otherwise, he believed he was only paying the business tax, in accordance with what Mr. Avrith, whom he trusted, had told him in 2004. This testimony was not contested, and the Court considers that Mr.

Paik’s error, in the specific context of this case, was not inexcusable [21] .

[ 33 ] Quebec Inc. has not demonstrated that the common intention of the parties [22] was not faithfully reflected by the wording of the “CONDITIONS SPÉCIALES” clause of the lease of February 2002. [ 34 ] Save for the water tax, Quebec Inc. has not discharged its burden to prove that Mr. Paik and Canada Inc. were liable for any real estate taxes. Abuse of procedure [ 35 ] In support of his clients’ petition seeking a solidary condemnation of Canada Inc. and its attorney, Mtre Ghavitian, for abuse of procedure, defendants’ lawyer, Mtre Azancot, testified to the following facts: 35.1. Mr.

Paik consulted with Mtre Azancot on March 9, 2015. Part of his mandate was to contest Quebec Inc.’s opposition to the transfer of the file to the small claims division of the Court, which had been ordered by the Court clerk on February 12, 2015. 35.2. Until the file was transferred back to the regular division, it was impossible for Mtre Azancot to appear for the defendants, as attorneys cannot act in small claims matters. 35.3. Quebec Inc.’s opposition was presentable on March 13, 2015. Mtre Azancot omitted to note this date in his calendar.

Quebec Inc.’s opposition was maintained and the file was transferred back to the regular division of the Court. 35.4. On March 17, 2015, Mtre Azancot received a call from Quebec Inc.’s representative, who wanted to discuss this case. Mtre Azancot immediately terminated this conversation, as Quebec Inc. was represented by counsel, and communicated with Mtre Ghavitian. Since Quebec Inc.’s representative wanted to speak to Mtre Azancot directly, a conference call was held with both lawyers and said representative. 35.5.

Quebec Inc.’s representative mentioned during this telephone conversation that he was glad a lawyer was entering the file, as Mr. Paik would now start to incur legal fees. 35.6. The conversation quickly became heated and was abruptly terminated, as Mtre Ghavitian took offense, and responded vehemently, to his colleague’s comment, made in the presence of his client, that he was behaving foolishly. An exchange of emails ensued [23] . 35.7. Before sending him the exhibits in support of his client’s claim, Mtre Ghavitian insisted that Mtre Azancot present a motion to be relieved of the default to file an appearance.

Mtre Azancot qualified this as “overly procedural”. In the same email, Mtre Azancot indicated that he was taking his colleague at his word that an inscription had indeed been filed into the Court record, although none appeared in the court docket. He also mentioned that he would not entertain settlement discussions while an inscription for judgment by default remained pending, as a sword of Damocles, against his clients. 35.8.

On March 23, 2015, in the course of the lawyers’ representations before the Honourable Daniel Dortélus on this motion to be relieved, Mtre Ghavitian recognized in open Court that he had filed the inscription after the conversation of March 17. [ 36 ] This motion to be relieved of default was eventually declared unnecessary and struck from the roll by Judge Dortélus, as the 10- day delay to file an appearance, from the date the file was transferred back from the small claims division, had not yet elapsed [24] .

The conclusions of the motion regarding the abuse of procedure were deferred to the undersigned. [ 37 ] No inscription for judgment by default ever made its way into the Court record. However, an affidavit for judgment by default signed by Quebec Inc.’s representative was indeed produced, by Mtre Ghavitian personally [25] , and the stamp from the office of the Court indicates that it was received on March 17, 2015, at 1:53 PM. The first email following the conversation between the lawyers and plaintiff’s representative was sent at 10:43 AM. [ 38 ] The above is amply sufficient to discharge the burden of

summary proof required by

article 54.2 CCP, thus transferring the onus on the plaintiff to demonstrate that the filing of the inscription for judgment by default and the subsequent refusal to relieve Mr.

Paik and Canada Inc. of said “default” was not excessive or unreasonable, but rather justified in law. [ 39 ] Mtre Ghavitian attempted to justify Quebec Inc.’s stance as regards the defendants’ so-called default to appear by the fact that his client was understandably exasperated by their refusal to pay their share of the “business tax”, the legal costs that it had to incur and the delays generated by the defendants’ contestation of what the plaintiff considered to be a simple mathematical question relating to the method of calculation of defendants’ share of these taxes.

In this context, Quebec Inc. perceived Mtre Azancot’s intervention in the file as being purely dilatory. [ 40 ] Considering that the delay to file an appearance, as Judge Dortélus later determined, was not even expired, and in light of the Court’s conclusion on the merits of Quebec Inc.’s claim, this position clearly was untenable. [ 41 ] The Court also indicated to Mtre Ghavitian that it would listen to the recording of the hearing of March 23 and asked Mtre Ghavitian repeatedly, if this recording showed that he had indeed admitted to the above-noted chronology of events, to give his explanations.

Mtre Ghavitian had none to offer, other than to say that if he told his colleague that an inscription had been produced, it must have been true. [ 42 ] The recording of the March 23 hearing reveals otherwise and leaves no room for ambiguity.

Mtre Ghavitian clearly and assertively recognized, in response to a direct question, that the inscription by default had been filed after his conversation with Mtre Azancot on the morning of March 17, 2015 [26] , however prior to service of the defendants’ de bene esse motion to be relieved of their “default” to appear [27] . [ 43 ] This entails that when Mtre Azancot and Mtre Ghavitian first spoke, the defendants needed no permission whatsoever to file an

appearance. This was made necessary by the subsequent filing, by Mtre Ghavitian, of an inscription for judgment by default. [ 44 ] On the part of an officer of the Court, this behaviour is completely unacceptable [28] . Without even touching on the question of bad faith, the Court has no hesitation in concluding that it constitutes an abuse within the meaning of articles 54.1 et ss . CCP [29] . [ 45 ] As a direct result of this abuse, Mtre Azancot had to draft a motion and present it to the Court, for which he charged his clients fees which far exceed the condemnation, in the amount of $1,121.00, that they seek as compensation [30] . The conditions set out in

article 54.4 CCP, to allow that damages in this amount be granted to the defendants in reparation of the prejudice that they suffered as a result of this abuse, are satisfied. [ 46 ] The only remaining question is the possibility to condemn Mtre Ghavitian personally. On this issue, the honourable David L.

Cameron recently reviewed the pertinent jurisprudence and came to the conclusion that the personal condemnation of an attorney for abuse is possible, although it does not flow from the Code of Civil Procedure , new or old, but rather from the inherent power of the Court to sanction abuse, by an attorney or any other protagonist of the judicial system, not only by way of contempt, but also to compensate the victims of abuse [31] . [ 47 ] The plaintiff’s representative is not a legal professional. His comment regarding the fact that Mr.

Paik would now have to incur legal fees was certainly questionable, but it was up to his lawyer to tell him that it was.

Likewise, unless Mtre Ghavitian told him so, there was no way for him to know whether or not it was improper to run to the courthouse, after the conversation of March 17, 2015, to file an inscription for judgment by default. [ 48 ] Only Mtre Ghavitian knew, or should have known, that this was completely incompatible with the fundamental principles of collaboration, loyalty, reduction of costs and delays, efficiency and proportionality, to name but a few, which must now guide the actors of the judicial system in general [32] , and the members of the Bar in particular [33] , in all their actions.

FOR THESE REASONS, THE COURT: DISMISSES the plaintiff’s re-amended motion to institute proceedings; MAINTAINS , in part, the defendants’ motion for abuse of procedure; CONDEMNS Mtre David Ghavitian to pay the sum of $1,121.00 to the defendants, with interest at the legal rate since April 1 st , 2015; WITH COSTS. __________________________________ VINCENZO PIAZZA, j.c.q. Mtre David Ghavitian Attorney for the Plaintiff Mtre Gregory Azancot AZANCOT & ASSOCIÉS Attorney for the Defendants Dates of hearing: October 8, 2015, January 20 and June 22, 2016