2021 QCCA 1296, 2021 QCCA 1296

Official English Translation of the Judgment of the Court Khader c. SNC-Lavalin inc. 2021 QCCA 1296 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-027830-181 (500-17-074040-125) DATE: August 26, 2021 CORAM: THE HONOURABLE MARIE-FRANCE BICH, J.A. MARTIN VAUCLAIR, J.A. PATRICK HEALY, J.A. YAHYA KHADER IBRAHIM L. KHADER GEORGE DAHER APPELLANTS – Plaintiffs v. SNC-LAVALIN INC.

RESPONDENT – Defendant JUDGMENT [ 1 ] The appellants appeal from the judgment of the Superior Court, District of Montreal (the Honourable Madam Justice Silvana Conte), dated August 22, 2018, which dismissed their action against the respondent and declared such action abusive. [ 2 ] For the reasons of Bich, J.A., with which Vauclair and Healy, JJ.A. agree, THE COURT: [ 3 ] GRANTS the Application of the appellants to adduce indispensable new evidence , without legal costs; [ 4 ] DISMISSES the appeal, with legal costs. MARIE-FRANCE BICH, J.A. MARTIN VAUCLAIR, J.A. PATRICK HEALY, J.A.

Mtre Douglas Mitchell Mtre François Goyer IMK For the Appellants Mtre Olivier Kott Mtre Dominique Noël NORTON ROSE FULBRIGHT CANADA For the Respondent Date of hearing: December 7, 2020

REASONS OF BICH, J.A. [ 5 ] The obligation to refrain from causing, fomenting, urging, inducing, supporting or encouraging a breach of contract generally does not require third parties to interfere or meddle in a contractual dispute in which they are neither the instigator nor the accomplice, nor does it require them to endeavour to remedy or resolve the dispute on behalf of one of the contracting parties. The case at bar is an illustration of this. I. Background A.

Facts [ 6 ] The trial before the Superior Court lasted eight days, of which seven were spent adducing testimonial and documentary evidence bursting with details, which I will attempt to describe only where essential, so as to provide an overall picture of the situation. [ 7 ] The appellants, who were employees of Zuhair Fayez Partnership (“ZFP”), a Saudi company, established and developed ZFP’s industrial division (“ZFP Industrial”), which they headed and which apparently grew tremendously under their stewardship.

In light of this success, they and their employer agreed on various compensation arrangements with a view to sharing the profits generated by this division or its value, [1] including in the event it were to be transferred in whole or in part to a third party. [ 8 ] In the summer of 2009, appellant Yahya Khader (“Y. Khader”), acting on behalf of and in his capacity as representative of ZFP, approached the respondent in order to explore the possibility of a joint venture that would, among other things, allow the future partners to do business with Saudi Aramco. At that time, Y.

Khader disclosed (or so he claims) to the respondent’s representatives (who deny it) his financial interest, and that of the two other appellants, in ZFP’s affairs.

Be that as it may, ZFP and the respondent came to an understanding and their agreement was confirmed in a letter of intent (“LOI” [2] ) as well as in a memorandum of understanding (“MOU” [3] ) dated January 23, 2010. [4] In those documents, the contracting parties undertook to pool their resources and establish a company (“Newco”) of which they would be the shareholders, which company would participate “among other things, in the bid for the GES+ Services Contracts to Saudi Aramco”. [5] Completion of this transaction, which was subject to various prerequisites, including a due diligence review by the respondent, did not take place until June 2012, after a number of ups and downs. [ 9 ] It is helpful to reproduce some of the LOI’s provisions, including Annex A, which defines some of the terms used in the LOI.

These

definitions are important in that they delimit the scope of the clauses that will be discussed hereinbelow: “Completion” means the completion of the Transaction contemplated by this LOI in accordance with clause 13.1; “Completion Date” means the date on which the last requirement to Completion (as set forth in clause 13.1) occurs; “SLI Contracts” means all ongoing oil and gas and petrochemicals engineering services contracts being carried out by SLI or any of its Affiliates in the KSA [Kingdom of Saudi Arabia]; “SLI Employees” means the employees of SLI or any of its Affiliates who will be seconded to the Company pursuant to clause 3.2; “Technical Employees” means employees who have engineering qualifications; “ZFP Contracts” means all ongoing oil and gas and petrochemicals engineering services contracts being carried out by ZFP Industrial or any of its Affiliates in the KSA; “ZFP Employees” means the employees of ZFP who will be seconded by ZFP to the Company pursuant to clause 3.2; [ 10 ] Clause 3.2 of the LOI deals with the “Technical Employees” of ZFP and of the respondent assigned to the performance of the “ZFP Contracts” and the “SLI Contracts”, as well as with the “non-Technical Employees, including legal, finance, accounting and administrative staff”.

The clause provides that these employees are to be transferred to the future Newco (designated as “the Company” in the LOI) : 3.2 Transfer of Employees and Training (

a) At or prior to Completion, each of ZFP and SLI (and/or any applicable Affiliate) shall enter into secondment agreements with the Company pursuant to which ZFP and SLI (or any of its applicable Affiliates) shall second to the Company: (

i) all required Technical Employees performing services under ZFP Contracts and SLI Contracts respectively. The number of ZFP Technical Employees is expected to be five hundred forty (540) and the number of SLI Technical Employees is expected to be eighty (80); and (ii) to the extent required by the Company, non-Technical Employees, including legal, finance, accounting and administrative staff to the Company on a basis to be agreed. (

b) Upon release of the sponsorship of ZFP Employees and SLI Employees to the Company by the relevant governmental authorities, ZFP and SLI (or any of its applicable Affiliates) shall transfer ZFP Employees and SLI Employees to the Company respectively.

(

c) SLI (or any of its applicable Affiliates) shall enter into a services agreement with the Company to provide ongoing training to the employees of the Company covering areas to be agreed by the Board and SLI. [ 11 ] The LOI also includes a provision, clause 7, which expressly addresses the management of Newco: 7. SENIOR MANAGEMENT (

a) An integrated team will manage the Company. The CEO and COO will be nominated by ZFP and the CFO, VP Projects and VP Engineering and Process Director will be nominated by SLI. The other open positions (department heads and project managers) will be sourced from both Parties on a “best candidate for the job” basis. (

b) The nominating Party will retain the right to appoint the candidates mentioned above for a period of two years from the Completion Date. Following this period, the nomination and compensation committee of the Board will assume responsibility for selecting and appointing any member of the management team (whether a secondee or full-time employee of the Company). (

c) During these first two years, the compensation (salaries and other benefits) for these candidates will be set and paid by the seconding Party and invoiced to the Company and will be submitted for prior approval by both Parties prior to Completion. In addition, during the first two years, bonuses will be set and paid by the seconding Party, at no cost for the Company.

Following this period, the compensation will be set by the nomination and compensation committee of the Board. [ 12 ] It should immediately be noted that, read together, clauses 3.2 and 7 show that the first clause does not apply to the “Senior Management” referred to in the second.

Clause 3.2 applies solely to the group of “Technical Employees” within the meaning of Annex A (that is, employees with engineering qualifications), who will be transferred from ZFP or the respondent to the future Newco, as well as to certain well-identified non-technical employees (“legal, finance, accounting and administrative staff”).

This cannot include members of senior management (comprised of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, the VP Projects, the VP Engineering and the Process Director), who will not be transferred or seconded to the new company like the employees contemplated in clause 3.2, but rather, will be selected and appointed by one or the other of the parties to the LOI. [ 13 ] Lastly, the LOI contains the following provisions: 9. REPRESENTATIONS AND WARRANTIES 9.1 Each of the Parties represents and warrants to each other that: […] (

c) the entry, delivery and the performance by it of this LOI and the MOU will not result in any breach of any provision of its memorandum and articles of association or result in any claim by a third party against it. […] 9.3 ZFP represents and warrants to SLI that the ZFP Contracts and all rights and interests there under or deriving therefrom are in full force and effect, ZFP is not in breach of its obligations there under in any material respect, and the ZFP Contracts may be assigned to the Company without any cost. […] 9.6 ZFP represents and warrants to SLI that it is the sole and legal employer of ZFP Employees, the employment contracts with ZFP Employees are free from any third party rights and are in full force and effect, and ZFP is not in breach of any of its obligations thereunder. […] 9.10 The representations, warranties and undertakings given by the Parties above shall be deemed to be repeated immediately prior to Completion.

The Parties acknowledge and agree that the definitive agreements relating to the Transaction may include additional representations and warranties that may be required following the completion of due diligence referred to in clause 10. […] 12. CONDITIONS PRECEDENT TO THE TRANSACTION The Transaction is subject to the following conditions (the “ Conditions ”) which the Parties consider to be essential elements: […] (

b) Each of the Parties’ representations and warranties contained in clause 9 shall have been accurate in all material respects as of the date of this LOI and as of the Completion Date as if then made; […] 13. COMPLETION 13.1 By the Completion Date:

(

a) the Conditions set forth in clause 12 will have been fulfilled or waived; (

b) ZFP, SLI (and any of its applicable Affiliates) shall have: (

i) entered into the Shareholders’ Agreement; (ii) contributed to the Company the amounts contemplated in clause 3.6; (iii) assigned the ZFP Contracts and SLI Contracts, respectively, to the Company; and (iv) entered into secondment agreements providing for the secondment of ZFP Employees and SLI Employees to the Company, respectively, as contemplated by clause 3.2 and obtained the consent of the relevant employees to such secondment; (

c) SLI (or any of its applicable Affiliates) and the Company shall have entered into a services agreements as contemplated by clause 3.2; and (

d) ZFP shall have transferred the ZFP Office Assets to the Company and entered into the sublease agreement with the Company as contemplated in clause 3.3. [ 14 ] With a few exceptions, [6] the MOU reproduces the provisions of the LOI, albeit sometimes under a different number. [7] It also includes the annex, which defines the same terms in an identical manner. [ 15 ] In the wake of this twofold agreement between ZFP and the respondent, ZFP entered into a new compensation agreement with the appellants on April 18, 2010. Since this agreement, entitled “Management Compensation Agreement” (“MCA”), is at the heart of the dispute, I will cite it here in full: [8] WHEREAS: (

A) ZFP has entered into a letter of intent (the “LOI” ) with SNC Lavalin Inc. (“SLI”) on January 23, 2010 with respect of the creation of a joint venture company ( “NewCo” ). (

B) Further to recent discussions between ZFP and the Management Team, the parties hereby wish to confirm their respective agreement with respect to any and all compensation, bonuses, profit sharing, equity entitlements or other related matter ( “Compensation” ) to which the Management Team or any of its members is entitled to receive from ZFP, its shareholders and its affiliates, as set forth below in this Agreement. (

C) The agreements below reflect the deep appreciation ZFP has for the Management Team and what it has accomplished in terms of creating value for the business as well as the unique context of the recent transaction with SLI that provides a partial exit from the business for ZFP and a chance for the Management Team to realize its share of the value that has been created. NOW THEREFORE, the parties agree as follows: 1. TRANSACTION PAYMENT 1.1 The Management Team shall receive US$20.0 million (the “Transaction Payment” ), representing approximately 20% of the agreed reference valuation of the Industrial Division. The receipt of the Transaction Payment shall be subject to: (

a) Completion of the SLI transaction (as such Completion is defined in the LOI); and (

b) entry by the Management Team into binding non-compete and non-solicitation agreements with NewCo and the Management Team remaining employees of ZFP (or NewCo) during the period of two years following Completion. 1.2 The Transaction Payment shall be payable in three installments, as follows: (

a) US$8.0 million payable within 15 days following Completion and actual receipt by ZFP of all funds due on Completion pursuant to the LOI (or any successor definitive agreement), provided that if less than all such funds have been received by ZFP at the specified time, any payment due under this

Section 1 (Transaction Payment) shall be pro rated accordingly; (

b) US$6.0 million payable on the first anniversary of Completion; and (

c) US$6.0 million on the second anniversary of Completion. 2. PROFIT SHARE 2.1 During the First Two Years Following Completion : Solely for the first two years following Completion: (

a) ZFP shall pay the Management Team’s base salary and benefits package compensation, which shall be solely as set forth in the Annex to this Agreement. (

b) In lieu of any bonus or any other Compensation entitlement (other than (

a) above) from ZFP, its shareholders and its affiliates, the Management Team shall receive from ZFP, within 60 days of approval by the Board of NewCo of its annual audited financial report, an amount equal to 13.0% (equal to 20% x ZFP’s profit share of 65%) of NewCo’s net profit ( “Net Profit” ), which shall be calculated by deducting the following amounts from NewCo’s aggregate revenues for the relevant year covered by the report (the “Reporting Year” ), as such amounts are set forth in the annual audited financial report:

(

i) all operating and capital expenses for the Reporting Year; (ii) all interest and depreciation expenses for the Reporting Year; (iii) all taxes and Zakat for the Reporting Year; and (iv) an administrative charge of 1.5% of NewCo’s aggregate revenues (equal to 50% of the current 3% charge). 2.2 During the Third.

Fourth and Fifth Year following Completion : Solely for the third, fourth and fifth years following Completion, and in lieu of any bonus or any other Compensation entitlement from ZFP, its shareholders and its affiliates, the Management Team shall receive from ZFP, within 60 days of approval by the Board of NewCo of its annual audited financial report, an amount equal to 6.5% (equal to 10% x ZFP’s profit share of 65%) of NewCo’s Net Profit. 3. MISCELLANEOUS 3.1 Any amounts due to the Management Team under this Agreement shall be distributed in the following percentages: 50% to Mr. Yahya Khader, 35% to Mr.

Ibrahim Khader and 15% to Mr.

George Daher. 3.2 This Agreement constitutes ZFP’s entire agreement with the Management Team regarding its Compensation and supersedes and cancels any and all other agreements or understandings (whether written, oral or otherwise) entered into among any person regarding the Management Team’s Compensation and all and any such prior agreements or understandings are hereby confirmed to be null and void. 3.3 The Management Team hereby acknowledges and agrees that it has voluntarily entered into this Agreement and waives any legal or other claims against ZFP, its shareholders and affiliates with respect to any and all Compensation other than pursuant to this Agreement.

Notwithstanding the foregoing, this Agreement shall not apply to any end of service payments to which the Management Team may be entitled pursuant to relevant Saudi laws and regulations in respect of their employment with ZFP prior to their transfer or secondment to NewCo. 3.4 This Agreement shall be governed by the laws of the Kingdom of Saudi Arabia. 3.5 This Agreement may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document. [ 16 ] It should be noted that, at the time the MCA was entered into, it was not provided to the respondent, who not only had no knowledge of its terms, but did not even know it existed, just as it had no knowledge of the content of the prior compensation agreements between the appellants and their employer. [ 17 ] Admittedly, on a few occasions during the due diligence review that the respondent subsequently carried out, appellant Y.

Khader mentioned the appellants’ financial interests in ZFP, but no document whatsoever and no specific information was provided to the respondent. Terry Lefebvre, the auditor retained by the respondent, seems to have understood that 20% of ZFP’s profits from its interest in Newco would be paid to the appellants [9] (just as they had previously been receiving a portion of the profits of ZFP’s industrial division), but he does not seem to have been aware of the $20 million “Transaction Payment” also provided for in the MCA. In any event, Mr.

Lefebvre considered that this was a matter pertaining to ZFP’s internal affairs and was not binding on the respondent or the future Newco. In fact, both ZFP and the respondent made this point to the appellants. [ 18 ] But let us now return to the discussions between the respondent and ZFP for purposes of implementing the LOI and the MOU. Since the due diligence report revealed that the value of ZFP’s industrial division might not be the value that ZFP held it out it to be, the respondent attempted to revise the terms of the LOI and the MOU downwards. ZFP categorically refused.

The respondent conceded and decided not to withdraw from the project, but rather to move forward with its completion, as agreed (which completion was slowed down by certain events that occurred on the Saudi Aramco side). [ 19 ] As for Zuhair Fayez, the head of ZFP, in the fall of 2011, he approached the appellants with a view to renegotiating the MCA and reducing the obligations contained therein. The appellants refused, but nevertheless allegedly proposed mediation.

It should be noted that the respondent was aware of the existence of the problem, at least its broad strokes, a problem it hoped would be resolved and which, in its opinion, was a matter pertaining to ZFP’s internal affairs. [10] [ 20 ] On November 13 or 14, 2011, ZFP dismissed the appellants, invoking various grounds, and unilaterally terminated “all our Contracts and contractual relationship with immediate effect” [11] or “your employment and all contractual relations with our company”, [12] which included the MCA.

It even sued them before the Saudi courts, claiming the reimbursement of sums they allegedly misappropriated and seeking confirmation of the MCA’s cancellation. The appellants counter-attacked by suing ZFP and demanding, among other things, payment of the amounts provided for in the MCA. They were partially successful in first instance, except as regards the MCA, but the ruling was appealed. At the time the Superior Court rendered its judgment, all of these proceedings were pending before the Saudi courts, although apparently at a standstill.

We will see further below what came of this (see below, paras. [92] ff.). [ 21 ] It turns out that concomitantly with the appellants’ dismissal, the respondent, acting in accordance with clause 7 of the LOI, was about to confirm the appointment of appellant Y. Khader to the position of Chief Executive Officer of the future Newco and appellant Ibrahim L. Khader (“I. L. Khader”) to the position of Vice-President Business Development. [13] This obviously did not happen, and when Mr.

Fayez informed the respondent about the dismissal, which took it by surprise, it promptly suggested another person (Alan Cary, whom it already had in mind for other purposes) to hold the position of CEO, the appellants viewing such promptness with suspicion, even though it was a temporary appointment [14] intended to mitigate the effects of an unexpected dismissal. [15] [ 22 ] ZFP and the respondent subsequently finalized their agreement and, on June 21, 2012, they signed a “Shareholders’ Agreement” to that end, providing for the creation of Newco. [16] The shareholders in question were the two partners of ZFP (Messrs.

Fayez and Saadi) and the respondent. The first two together held 50% of the shares of Newco and the second 50% (clause 2.2), but the profits were

to be split as follows: 61.1% to Mr. Fayez, 3.9% to Mr. Saadi and 35% to the respondent, until 2022. Thereafter, pursuant to clause 4.1(a) (ii) of this agreement, the percentage of the profits attributed to each shareholder was to be equal to the shareholder’s share ownership. Lastly, clause 14.1 provided as follows: 14.1 Representations and Warranties of the Zuhair Shareholders Each Zuhair Shareholder represents and warrants with regard to himself to the SLI Shareholder as follows: […] (

d) the entry, delivery and the performance by him of this Agreement will not result in any breach of any provision of any contract to which he is a party or, with the exception of claims brought or threatened by certain former executives of ZFP which has been disclosed to SLI, result in any claim by a Third Party against him ; and (

e) there is no action, judgment or claim outstanding, or suit, litigation, proceeding, or arbitration pending or, to the best of his knowledge, threatened, before any court, Governmental Authority or arbitrator relating to it that could be reasonably expected to have a material adverse effect on his ability to perform his obligations under this Agreement. [Emphasis added] [ 23 ] The appellants, having been deprived of the sums that would have been paid to them by ZFP under the MCA and of their employment with Newco, instituted proceedings against the respondent before the courts of Quebec. B.

Proceedings [ 24 ] The appellants initiated their proceedings against the respondent in October 2012. There were no less than nine versions of the motion to institute proceedings (“MIP”) over the years, which warrants some attention. [ 25 ] The first MIP (dated September 27, 2012 and filed with the office of the Superior Court on October 4, 2012) was supported by the affidavit of appellant Y. Khader solemnly declaring the veracity of all the facts alleged therein.

It invoked the unjust enrichment of the respondent, who allegedly did not satisfy “its commitments to honour the net profit share of 20% despite the constitution of the joint venture between ZFP and SLI” (para. 61) and allegedly disregarded the appellants’ rights, thereby violating the rules of good faith. It should be noted that the MIP was filed on behalf of “Industrial Management Group (IMG) consisting of Yahya l. Khader, Ibrahim L. Khader and George Y.

Daher”, which thereby claimed $100 million from the respondent, that is, a percentage of the estimated value of ZFP Industrial (para. 77). [ 26 ] The second MIP (November 28, 2012) was filed, this time, on behalf of each of the three appellants and still invoked the respondent’s alleged personal undertaking to pay them 20% of Newco’s profits. It claimed $99 million from the respondent, an amount that included both the “Transaction Payment” provided for in the MCA, which was evaluated at 20% of the value of ZFP Industrial (approximately US$53 million, paras. 63 to 65), as well as the following amount: 66.

In addition to paying the above valuation, defendant has agreed to pay to ZFP the profits payable with respect to 15% of the shares of the NEWCO for 10 years in addition to the percentage of the profits highlighted in the signed management compensation agreement dated April 18th, 2010 for plaintiffs for 5 years. Accordingly, plaintiffs are entitled to claim from defendant an additional amount of $47,000,000 USD; [17] [ 27 ] It should be noted that this claim does not exactly match the payments provided for in the MCA.

The MCA initially provides for a “Transaction Payment” of $20 million. [18] Under the heading “Profit Share”, [19] it also provides, for the first two years of the appellants’ employment with Newco, the annual payment of the salary provided for in the annex to the MCA plus a bonus equal to 13% of the profits of Newco (namely, 20% of ZFP’s share of the profits, which share is established at 65% [20] ).

For the subsequent three years, the bonus will be 6.5% of Newco’s profits (that is, 10% of the profits attributable to ZFP, namely, 65% [21] ). [ 28 ] The third MIP (filed in January 2013 following a motion for particulars) was still based on the contractual liability of the respondent (which “has not respected its commitments to honour the net profit share of 20% despite the constitution of the joint venture between ZFP and SLI” [22] ), but limited itself to the previous claim of $53 million, namely, 20% of the $265 million value attributed to ZFP Industrial (paras. 63-65), while abandoning the claim for US$47 million. [ 29 ] Thus, up to this point, the appellants alleged that the respondent had contractually undertaken to pay them these sums and they claimed these sums from it. [ 30 ] The fourth MIP (dated April 5, 2013) only claimed $42 million (or almost), but presented a new theory of the case, which was now based on the extracontractual fault of a third party who incites, encourages or facilitates a person’s breach of that person’s own contractual obligations or participates in that breach.

The appellants’ theory, as set out in that MIP, was now as follows: the respondent, frustrated by the fact that the appellants (and in particular Y. Khader) had opposed the payment of illegal agent fees to a third party (an event described in the three prior MIPs), forced ZFP to dismiss them. They alleged that the respondent was fully aware of the harm this dismissal would cause them and of the financial impact it would have on them by depriving them of the sums provided for in the MCA and further depriving them of profit-making opportunities that might arise from future projects.

According to them, this conduct constituted a fault giving rise to the respondent’s extracontractual liability under art. 1457 C.C.Q. The amount claimed ($42 million) is the amount they alleged was due as Newco’s “profit sharing” and for the “loss of income”, to which they added punitive damages. [23] [ 31 ] The fifth MIP, dated June 7, 2013, was further to a new motion for particulars, given the change in the theory of the case, which henceforth was based on extracontractual liability.

It stayed that course, while providing additional details. [ 32 ] The sixth MIP (March 10, 2014) adopted the same approach, bolstered by new details, but claimed only $16 million. [24]

[ 33 ] In September 2015, counsel for the parties signed a joint declaration that the record was complete and described their respective positions, which were then firmly entrenched, as follows: [ translation ] PLAINTIFF / APPLICANT [ original english ] The plaintiffs commenced an action for damages against SNC-Lavalin inc. (SNC) based on the extra-contractual liability of the latter for “inciting” their Saudi employer, having an agreement with SNC to join in a Joint Venture, to terminate all its relationships with Plaintiffs .

Thus, causing considerable damages to the plaintiffs, and this, following the refusal of plaintiffs to perform an illegal act being the payment of illegal “agent fee” without any justification in this regard, the whole at the request of SNC. [ translation ] DEFENDANT / RESPONDENT [ original english ] Defendant has no obligation towards the Plaintiffs, contractual or otherwise. Defendant did not prevail upon ZFP to sever its contractual relationship with Plaintiffs. To the extent that Plaintiffs have suffered any damages, these result solely from ZFP’s actions and decisions .

ZFP’s decision to terminate Plaintiffs’ employment was entirely its own, which decision appears to have been driven by a host of grievances that were totally unrelated to Defendant, including the poor performance of the Industrial Division of ZFP, Plaintiffs’ decision to refuse a renegotiated compensation amount with ZFP and the adverse consequences of an investigation conducted by ZFP’s client Saudi Aramco. Plaintiffs are seeking double recovery. In two distinct Saudi proceedings, Plaintiffs seek compensation from ZFP for the same future profit-sharing which they claim in the present proceedings.

Plaintiffs are therefore seeking to recover the same alleged profit-sharing rights in three different forums from two different sources. The quantification of Plaintiffs’ damages for profit-sharing is unfounded and grossly exaggerated. Plaintiffs’ claim for punitive damages has no basis in fact or in law. [Emphasis added] * * [ 34 ] The trial began in September 2017 before Justice Silvana Conte, but it was abruptly interrupted when the appellants, who were dissatisfied with certain aspects of the judicial contract evidenced in the joint declaration, disavowed their lawyer.

It is interesting to read their application for disavowal, which explains the substance of this disagreement: it resulted from the fact that the lawyer had waived the right to obtain an unredacted version of the agreement in which the respondent had undertaken to pay the illegal agent fee that the appellants had allegedly opposed. Paragraphs 27 to 29 of the application for disavowal point out the following: 27.

At paragraphs 52 and following of their Particularized Re-Re-Re-Amended Motion to Institute Proceeding , dated March 10, 2014 (the “ Motion to Institute Proceedings ”), the Plaintiffs allege that their relationship with the Defendant deteriorated when they objected to an agent fee budgeted to secure the Royal Commission project. 28. The Agent Fee Agreement covers this budgeted agent fee. 29.

The Plaintiffs allege that the Defendant pressured ZFP into illegally terminating its contractual relationships with them, or at the very least assisted the latter in implementing those illegal terminations. [ 35 ] On October 23, 2017, the trial judge granted the application for disavowal. [ 36 ] Appellants’ new counsel subsequently filed a seventh MIP (February 14, 2018, claiming an amount of approximately $38 million) and then an eighth one (April 16, 2018, claiming nearly $40 million), both based on the theory of extracontractual liability put forward as of the fourth MIP. [ 37 ] The trial resumed on April 30, 2018 and both parties had finished presenting their evidence by Thursday, May 3, 2018, with the closing arguments set to take place on Monday, May 7, 2018.

As is often the case, in order to adjust the claim in light of the evidence presented at trial, appellants’ counsel filed a ninth MIP, dated May 4, 2018, confirming their theory of the case (which was substantially the same as that in MIPs 4 to 8) and henceforth claiming about $33 million. [25] It is worthwhile to cite certain portions of this last MIP: PLAINTIFFS’ CLAIM 86. Defendant acted in bad faith by requesting Plaintiffs to participate in an illegal and unethical business operation in regard to the transaction made between Defendant and ZFP; 87.

Defendant intended to make Plaintiffs commit an illegal operation, prohibited by laws; 88. Defendant forced ZFP to dismiss Plaintiffs following Plaintiffs’ refusal to honour an illegal request to pay unjustified Agent Fees by delaying and re-evaluating the opportunity of the whole partnership with ZFP ; 89. Defendant was fully aware that, by dismissing Plaintiffs, Plaintiffs would suffer financial repercussions ; 90. Thereby, Defendant, willingly and intentionally, caused damages to Plaintiffs ; 91.

At the time of their dismissal, Plaintiffs, ZFP and Defendant were finalizing two contracts, one with Saudi Aramco and one with

the Royal Commission for Jubail and Yanbu for the benefit of the NEWCO and the JV; 92. Moreover, Plaintiffs were deprived from compensation for all future projects they could have contracted for the NEWCO, due to Defendant’s malicious actions; 93. Damages suffered by Plaintiffs are the direct cause of: a. Defendant’s request from Plaintiffs’ to partake in an illegal and unethical act to honour 5% Agents Fees without justification, and Plaintiffs’ refusal in that regard; and b. Defendant’s action on ZFP to dismiss and terminate the agreements with Plaintiffs ; 94.

As a result of Plaintiffs’ refusal to participate in unethical operations, which seems to be a way of doing business for Defendant, Defendant acted in bad faith and manoeuvred in such a way that important damages were caused to Plaintiffs; 95. Furthermore, having full knowledge of the agreements between Plaintiffs and ZFP, Defendant ensured that Plaintiffs do not benefit from ZFP’s commitments to pay the 20% net profit share to Plaintiffs ; 96.

Defendant actions leading to the dismissal of Plaintiffs caused the revocation of their working Visa and, as a consequence, Ibrahim and George are forced to stay in Saudi Arabia without being able to work, causing Plaintiffs further damages; 97. As a consequence of the Defendant’s actions, Plaintiffs have suffered the following damages [...]: a. Yahya Khader: $16,333,977.38 CAN; b. Ibrahim L. Khader: $10,979,237.98 CAN; c.

George Daher: $4,881,746.86 CAN; as appears from the Re-amended Excel Spreadsheet detailing the amounts due under the Management Compensation Agreement (P-15), communicated in support hereof as Exhibit P-135; 98. Defendant also unlawfully and intentionally interfered with Plaintiffs’ fundamental right to the peaceful enjoyment and free disposition of their property; 99. Plaintiffs therefore seek the following punitive damages: a. Yahya Khader: $333,333.00 CAN; b. Ibrahim L. Khader: $333,333.00 CAN; c. George Daher: $333,333.00 CAN; 100.

This motion to institute proceedings is well-founded in facts and in law; FOR THESE REASONS, MAY IT PLEASE THE COURT TO: GRANT the present motion to institute proceedings; CONDEMN SNC-Lavalin inc. to pay the sum of $16,667,310.38 [...] to Yahya Khader, along with the interest and additional indemnity as of November 13, 2011; CONDEMN SNC-Lavalin inc. to pay the sum of $11,312,570.98 [...] to Ibrahim L.

Khader, along with the interest and additional indemnity as of November 13, 2011; CONDEMN SNC-Lavalin inc. to pay the sum of $5,215,079.86 [...] to George Daher, along with the interest and additional indemnity as of November 13, 2011; THE WHOLE , with legal fees. [26] [ Emphasis added ] [ 38 ] In other words, in retaliation for the appellants’ refusal to participate in the payment of an illegal agent fee, the respondent used various means (including calling the joint venture into question) to encourage and incite, and even force, ZFP to dismiss them, which dismissal, among other things, deprived them of the benefits provided for in the MCA. [ 39 ] Given the timing of the filing of this last MIP, one might have thought that this would continue to be the appellants’ theory of the case.

Surprisingly, however, this is not what happened on May 7, 2018, when the hearing resumed, at which point appellants’ counsel once again modified his submissions regarding the nature of the respondent’s alleged fault. [ 40 ] The fault no longer consisted in having forced ZFP to dismiss the appellants or even pressuring it to do so.

Rather, as far as can be understood (because the arguments are not particularly clear), counsel argued that the LOI (just like the MOU) contained guarantees protecting the appellants, guarantees that the respondent did not insist on, despite the fact it had the right to require the other contracting party, ZFP, to comply with those guarantees, and such failure on the part of the respondent allowed ZFP to infringe its own contractual obligations towards the appellants with impunity. Indeed, through the LOI and the MOU, ZFP undertook in favour of the respondent to

abide by all its contracts, which included the appellants’ employment contracts and the MCA. [27] Rather than insist on the fulfilment of that undertaking, the respondent did nothing and simply signed the Shareholders’ Agreement dated June 21, 2012, thereby paving the way for the breach of the MCA. The respondent’s motive was allegedly still tied to the illegal agent fee (which allegation, however, became secondary [28] ), but also to its desire to take effective control of Newco.

In short, the respondent allegedly chose to disregard the appellants’ interests (of which it was fully aware given that it had received a copy of the MCA in January 2012) and prioritize its own interests, while ensuring that ZFP would indemnify it in the event of legal proceedings against it. [29] [ 41 ] Unsurprisingly, counsel for the respondent decried this new version of the appellants’ theory: Thank you, Justice Conte. I’ve handed up our outline of argument along with the authorities we refer to.

The title of my presentation is “Reinventing the past.” What we see throughout the proceedings of the plaintiffs is this constant reinvention; reinvention of their view of the case, reinvention of the cause of action and reinvention of the past in terms of the factual elements that have been now established in the record. […] Item 4-C. They say: “SNC failed to take... failed to take any action to ensure the plaintiffs were not deprived of their share in the transaction after its president and the entire board of directors were informed of the facts in January 2012.” Now, this is a new theory.

Before it was, pressure was applied. Now, it’s... well, SNC should have done something more. ZFP did what it did. Okay. So, ZFP did what it did. So now, is that an acknowledgement that ZFP has its reasons for doing what it did and that SNC should have somehow stopped it or at least, tried to stop it? And if we had made that evidence, then, would that have been enough? I submit to you no, it wouldn’t have been. Then, the theory would have changed then. Then, the theory would have been, “Ah!

SNC tried to stop ZFP from doing what it did or tried to get it to reverse course and that shows an ongoing commitment.” That’s how the theory would have adjusted. It never ends. We’re on the tenth version. [30] [ 42 ] He did not, however, formally oppose the presentation of this umpteenth scenario or request its immediate dismissal, but rather argued the case on the merits. C. Trial judgment [ 43 ] The trial judge rendered judgment on August 22, 2018 [31] .

She began by acknowledging the following: [67] Quebec civil law has long recognized that a party who knowingly and, in bad faith, participates in or induces a breach of a contract to which he is not a party, engages his liability for the damages resulting from this extra-contractual fault [reference omitted]. The third party and the breaching contracting party are liable in solidum for these damages [reference omitted]. [ 44 ] She found, however, that the conditions for such a recourse had not been met and dismissed the action, which she even declared to be abusive. [ 45 ] Relying on Rouge Resto-bar inc. v.

Zoom Média inc. , [32] the judge first found that she was not in a position to rule on whether or not ZFP had committed a contractual fault by failing to abide by the MCA or its obligations as the appellants’ employer.

Indeed, ZFP was not a party to the proceedings nor had it been impleaded, and its alleged breach (which, in fact, was being disputed before the Saudi courts) was not flagrant: the principle of audi alteram partem therefore prevented a determination on this point. [ 46 ] The judge added, however, that even if ZFP were found to have breached its contractual obligations, in her view the appellants had not shown how the respondent had committed an extracontractual fault in that regard.

First, after assessing the highly contradictory evidence and the credibility of the witnesses, the judge rejected the theory of the case the appellants were still asserting in their ninth MIP, stating the following: [83] In any event, the Court finds that Plaintiffs have not proven, on the balance of probabilities, that SNC induced or pressured ZFP to terminate either their contracts of employment or the Management Compensation Agreement. […] [88] The initial theory of the Plaintiffs’ case was that SNC wanted to exclude Plaintiffs from Newco because Mr.

Yahya Khader objected to the payment of agent fees at the January 2011 meeting and that, thereafter, his relationship with SNC representative Mr. Hadi Al-Ajmi deteriorated. [89] The evidence regarding the nature and purpose of the Representation Agreement remain obscure, however, Plaintiffs have not established that the agent fees provided therein were illegal nor have they established that SNC’s attitude towards Plaintiffs and, more particularly, that of their representative, Mr. Al-Ajmi, changed thereafter. Plaintiffs continued to be copied on all internal memorandum as previously and Mr.

Yahya Khader never complained about not receiving internal reports [reference omitted]. He was corresponding with both Mr. Al-Ajmi and Mr. Mackintosh regularly after the January meeting. [90] More importantly, in the November 2, 2011 notes prepared for Mr. Andy Mackintosh prior to the November 9, 2011 meeting with Mr. Zuhair Fayez in London, Mr. Al-Ajmi recommended Mr. Yahya Khader in the position of CEO and Mr. Ibrahim Khader, VP Business Development [reference omitted]. [91] The Court found Mr. Al-Ajmi to be a very credible witness.

He testified that he was honoured to work with Plaintiffs and wanted to see them succeed in Newco. He considered Mr. Yahya Khader to be an excellent candidate and fully expected him to rise to higher

management positions within SNC-Lavalin International. [92] This evidence directly contradicts Plaintiff initial theory of the case as well as, the new theory of Plaintiffs’ case presented at trial to the effect that SNC pressured ZFP to terminate Plaintiffs because SNC wanted to take control over the management of Newco with Mr. Alan Carey as CEO. [93] The evidence established that Mr. Carey’s appointment as CEO was temporary and resulted from the decision made by ZFP to terminate Mr. Yahya Khader as CEO.

The LOI already provided for the management positions to be held at the Newco and ZFP had key roles in the leadership. [94] In addition, Plaintiffs’ own evidence contradicts both theories of their case. [95] In Mr. Yahya Khader’s letter to SNC dated January 20, 2012, and his email to Saudi Aramco dated February 4, 2012, Mr. Khader asserted that ZFP’s termination resulted from Plaintiffs’ refusal to accept Mr. Fayez’s offer to reduce compensation payable under the Management Compensation Agreement and not SNC pressure [reference omitted].

Similarly, in the legal proceedings filed in Saudi Arabia, Plaintiffs do not make any reference to SNC but state that their termination was caused by their refusal to accept Mr.

Fayez’s offer to reduce the said compensation [reference omitted]. [ 47 ] Second, the judge addressed the new theory presented by the appellants during the oral arguments, stating the following: [96] Finally, Plaintiffs argued that SNC is liable for “facilitating” the breach of contract by carving out Plaintiffs’ rights in return for an indemnity clause at the closing of the Newco. [97] This argument is ill founded for the following reasons. [98] First, Plaintiffs had no contractual rights in the LOI and, thus, it cannot be said that their rights were “carved out” at closing.

As stated by ZFP’s attorney in response to Mr. Yahya Khader’s email of January 2010 and reiterated by ZFP’s controller in the due diligence minutes of October 2010, Plaintiffs’ financial interest in ZFP was an internal matter and neither the Newco nor SNC was responsible for same. [99] Second, the representations and warranties in the shareholder agreement necessarily differ from those in the LOI as a result of the change of circumstances.

Given the existing litigation between ZFP and Plaintiffs, ZFP could not attest that it would not be in breach of any other contract [reference omitted]. [100] Third, this modification did not facilitate the alleged breach by ZFP. The Newco closing occurred more than six months after the alleged breach of the Agreement by ZFP.

As stated previously, ZFP advised Plaintiffs that it would not respect the terms of the Management Compensation Agreement as early as October 27, 2011 and sought the nullity of that Agreement in November 2011. [101] Finally, the indemnity clause inserted by SNC in the agreement is a commercially acceptable practice given the potential or threatened litigation resulting from Plaintiffs’ letters of demand. [ 48 ] Lastly, the judge found the action to be “manifestly unfounded and abusive”. [33] However, she did not award the respondent the damages sought on the basis of that abuse, namely, its lawyers’ fees (amounting to $150,000), because evidence of this expense had not been adduced.

D. Appeal and grounds of appeal [ 49 ] The appellants were granted leave to appeal the trial judgment pursuant to art. 30, para. 2

(3) C.C.P. [34] [ 50 ] The appellants first argue that the judge erred by deciding not to rule on whether or not ZFP had breached its contractual obligations towards them. They then argue that she also erred by finding that the respondent was not liable. According to them, the respondent caused them serious harm through its conduct towards them, which constituted two faults, something the trial judge disregarded. More specifically: - contrary to the principle recognized in Houle v.

Canadian National Bank , [35] the respondent knowingly conducted itself (in this case through its failure to act) so as to hinder or prevent the imminent MCA transaction, whose only condition was the completion of the Shareholders’ Agreement between itself and ZFP; [36] - moreover, even though it was aware of ZFP’s obligations towards the appellants under the MCA, it violated the principles set out in Trudel v. Clairol Inc. of Canada [37] and Veisto-Rakenne Rautio Ky v.

Skeena Equipment Sales & Leasing Ltd. [38] by acting unreasonably “by carving out their rights under the Management Compensation Agreement in the execution of the Shareholders’ Agreement, after assuring them, ‘that the LOI includes a statement of completion that obligates ZFP to honor all their signed agreements’”. [39] The argument is not that the appellants had contractual rights in the LOI or the MOU (“they did not” [40] ), but rather that, under the circumstances, the respondent, who, pursuant to the LOI and the MOU, had the power to ensure that ZFP complied with the MCA, had the duty to act reasonably by ensuring such compliance.

Instead, by refusing to intervene and by completing the transaction provided for in the LOI and the MOU, it disregarded the appellants’ rights, facilitating and enabling ZFP’s contractual fault, in exchange for an indemnification agreement in the event it were sued. [41] [ 51 ] The brief also revisits the motives of the respondent, who allegedly treated the appellants with disdain because they had annoyed it by refusing to pay the previously mentioned illegal agent fee, but also because their dismissal would very opportunely allow it to gain control of Newco’s management. [ 52 ] It should be noted that both grounds of appeal overlap to a fair extent and that some of the arguments raised under the first ground are also elaborated on in connection with the second.

[ 53 ] The respondent strongly contests the appeal. Not only does it disagree with the appellants on the merits, but it even considers that a fin de non-recevoir should be opposed to this theory of the case invoked for the first time at the end of the trial and reiterated on appeal. II. Analysis A.

Fin de non-recevoir [ 54 ] In my view, the fin de-recevoir the respondent seeks to raise against the appellants should not be allowed, notwithstanding the appellants’ questionable procedural conduct in constantly amending their allegations and redefining their theory of the case three times (if not four), including on the day of the oral arguments, which, in principle, is not permitted. [42] [ 55 ] Certainly, the amendment of pleadings is the rule, rather than the exception, and the right to amend is granted liberally, “[a]t any time before judgment/ avant le jugement ” (arts. 206 and 208 C.C.P. ), [43] just as adjustments to the theory of the case are accepted.

But this procedural benevolence has a limit: that which contravenes the interests of justice will not be authorized. [44] Thus, an amendment that results in an entirely new application having no connection to the original one or that delays the proceeding will be refused, because it is contrary to such interests, which underlie the express legislative prohibition against such amendments. [45] In all other cases, the interests in question will be assessed in light of the rules of proportionality and sound case management and in order to maintain a balance and fairness between the parties. [46] Thus, a party cannot reinvent its theory of the case repeatedly or at the last minute, because the opposing party has the right to know what it is dealing with, that is, to know, in a timely manner, what is alleged against it, so it can defend itself adequately, both in fact and in law. [ 56 ] In short, the “judicial contract” formed between the parties as a result of their pre-trial exchanges, a contract which this Court has previously stated is not a straitjacket, [47] can undoubtedly be fine-tuned, completed or even revised, but not if doing so upsets the balance between the parties. [ 57 ] The parties, as art. 20 C.C.P. points out, must foster a fair debate.

In this regard, the appellants’ attitude was regrettable: it was not appropriate for them to redefine the basis for their case during the oral arguments at trial, even more so since they did not give any prior notice thereof. Indeed, on May 4, 2018, counsel for the appellants had provided the court and the respondent with one last MIP which did not set out or foreshadow the arguments presented three days later.

There is a significant difference between the allegation made against the respondent in that pleading (as in the five previous versions) and the allegation made at the time of the oral arguments before the Superior Court.

In both instances, of course, the respondent is alleged to be liable because it facilitated ZFP’s breach of its contractual obligations towards the appellants, but the fault alleged is not the same, nor is the perspective: the respondent was initially blamed for contractual interference (fault of commission), but subsequently found itself being blamed for the very contrary, that is, for not having involved itself in the dispute between the appellants and ZFP and not having done anything to ensure that ZFP would abide by its contractual obligations towards them (fault of omission or failure to act); more specifically, while it was first accused of having urged ZFP to dismiss the appellants, it was now being accused of not having implemented the mechanisms provided for in the LOI and the MOU that would have enabled it to put pressure on ZFP to respect the obligations imposed on it by the MCA.

The difference is significant. [ 58 ] That being said, when one party purports to transform its case at the oral argument stage, the opposing party must indicate its disagreement However, as the stenographer’s notes of the trial show, while counsel for the respondent deplored the appellants’ final change of direction, he did not oppose it or argue a fin de non-recevoir , nor did he indicate that his client would not be able to defend itself adequately or would have to present additional evidence in light of his confrère’s new arguments, choosing, instead, to respond to those arguments (in particular, by asserting that nothing in the evidence supported this new theory of the case).

He certainly cannot be faulted for having adapted in this way to the appellants’ allegations, but this prevents his client from now raising a fin de non-recevoir before this Court. [ 59 ] Be that as it may, it is not necessary to elaborate further on this issue. Indeed, as Hamilton, J.A. explained in Syndicat de la copropriété de l’Île Bellevue Phase I v. Propriétés Belcourt inc. : [48] [ translation ] [49] The appellants contend that there is nothing reprehensible about a party amending its pleadings [reference omitted]. They are right.

However, when the party seems to be having trouble identifying the basis for its recourse and changes its mind more than once, this may indicate a desperate attempt to find such a legal basis instead of facing the fact that it has no rights .

The judge concluded that the matter before him was such a case: the appellants submitted at least four different arguments, some of which were abandoned and others dismissed, either at the interlocutory stage or the final stage, but none of which was well founded. [Emphasis added] [ 60 ] This is also the case in the present matter, as the trial judge correctly noted, the appellants’ most recent theory of the case being just as ill-founded as the previous one (which, in fact, they no longer assert before this Court). Let us examine this. B.

Contractual disruption or interference and the respondent’s liability [ 61 ] Before determining whether the judge erred by ruling that the respondent did not commit the fault the appellants alleged in the latest version of their judicial application, it would be useful to review the rules that generally apply to the liability of third parties who disrupt a contract to which they are not a party. It would also be appropriate to review the rules governing the burden of proof of the party alleging such harm. 1.

Some general rules [ 62 ] Generally speaking, of course, and as set out in art. 1457 C.C.Q. , “[e]very person has a duty to abide by the rules of conduct

incumbent on him, according to the circumstances, usage or law, so as not to cause injury to another/ [t]oute personne a le devoir de respecter les règles de conduite qui, suivant les circonstances, les usages ou la loi, s’imposent à elle, de manière à ne pas causer de préjudice à autrui ”.

A person who fails in this duty will be required to make reparation for the resulting injury (except in situations of superior force, art. 1470 C.C.Q. ). [ 63 ] Based on this provision, whose application is the province of judge-made law, the courts have recognized, among other things, that a person may be extracontractually liable towards another by intentionally or through gross negligence harming that other person’s contractual rights or interests, thereby committing a fault that one might refer to as a “contractual disruption”.

The case law has identified a number of possible scenarios, two of which are of particular interest here [49] . [ 64 ] The first stems from a well-established principle enunciated by Pratte, J.A. in Boucher v.

Drouin [50] , where he explained the following: [ translation ] The rule according to which contracts have effect only between the contracting parties must be understood to mean that no one may be required to perform an obligation resulting from a contract to which they are not a party, and a third party cannot claim to be the creditor of an obligation not assumed in its favour; but it is no impediment to a third party, who is relying on the failure to perform a contract purely as a fact which has caused it damage, bringing a delictual action against the defaulting party, if the fact complained of is not simply a failure to perform a contractual obligation, but is in itself a fault [reference omitted].

In that case, the third party is not seeking to appropriate to itself the benefit of an obligation which is not stipulated in its favour, but is seeking compensation for the damage caused to it by the delictual act of the contracting party; the third party is asserting a right based not on the contract, but on the fault for which the contract simply provided the occasion. [51] [Emphasis added] [ 65 ] As authors Lluelles and Moore write: [ translation ] 2445.

The failure of a contracting party to perform an obligation under the contract or the incorrect performance thereof certainly gives rise to the contractual liability of the contractual debtor towards the co-contractor (arts. 1458 and 1590), and towards that person only (art. 1440). The scope of

article 1440, however, is not unlimited: it cannot have “as its purpose to grant immunity to the parties vis-à-vis third parties”. This is why the breach of contract can also result in the extracontractual liability of that contracting party towards a third party who has suffered the consequences of the contractual fault . Indeed, there is a risk the breach will cause harm to the third party. If the injury results from wrongful conduct within the meaning of

article 1457, the breach of contract , which is the mediate source of the injury, can, in fact, coincide with an extracontractual fault vis-à-vis the injured third party . This coincidence is the basis for a claim by the absolute third party. The third party’s claim, however, is not based directly on the breach of contract.

Its source is the deviant behaviour, the extracontractual fault: “the third party […] is asserting a right based not on the contract, but on the fault for which the contract simply provided the occasion ”. [52] [All references omitted; emphasis added] [ 66 ] In such circumstances, a contractual breach (which includes the abusive exercise of contractual rights) is a fault not only vis-à-vis the co-contractor, but also vis-à-vis third parties and, when it causes a third party to suffer an injury, it gives rise to the extracontractual liability of the person at fault. [ 67 ] The rule is equally valid if the injury consists of harm to the third party’s contractual interests or rights.

Indeed, by failing to perform its own contractual obligations, a person can harm the contractual rights or interests of a third party with whom it does not have a contractual relationship, thereby giving rise to its extracontractual liability insofar as its contractual fault concurrently violates the duty to act reasonably towards the third party. [ 68 ] Houle v.

Canadian National Bank [53] (which is usually cited for formally recognizing the notion of abuse of contractual rights) provides a good illustration of the extracontractual liability a person can incur when the faulty exercise of its contractual rights harms the contractual interests or rights of a third party.

A review of this judgment is also useful for better defining the boundaries of that extracontractual liability. [ 69 ] In Houle , the bank was faulted for having caused harm to third parties through the abusive exercise of its contractual rights: by hastily liquidating the assets securing a loan called in without prior notice, which, here, constituted a contractual fault vis-à-vis the debtor, the bank concurrently committed an extracontractual fault vis-à-vis the debtor’s shareholders, who were about to sell their shares, which they had to do at a discount, thereby sustaining a loss for which the bank was condemned to indemnify them. [ 70 ] This third party liability, however, is not automatic: breaching one’s contractual obligations, including by abusing one’s rights, does not ipso facto constitute an extracontractual fault towards a third party, and this stands out clearly from Houle . [54] Vis-à-vis the co- contractor, any failure to perform one’s contractual obligations (including the contractual abuse proscribed by arts. 6 and 7 C.C.Q. ) is indeed a fault within the meaning of art. 1458 C.C.Q. , which fault, insofar as it causes injury, generates liability. [55] However, vis-à-vis third parties, the same contractual breach will constitute a fault, for purposes of art. 1457 C.C.Q. , only if it concurrently violates the general duty to conduct oneself like a reasonable person so as not to cause injury to another within the meaning of art. 1457 C.C.Q. or, to put it another way, if one violates “a distinct legal obligation to act reasonably towards [the third party] independently of [one’s] contractual obligation […]”. [56] This was, in fact, the case in Houle , where the Supreme Court found that calling the debtor’s loan, taking possession of its assets and liquidating them immediately and without reasonable prior notice [57] constituted not only contractual abuse vis-à-vis the debtor, but also, in that particular case , an extracontractual fault vis-à-vis the shareholders, given that the bank knew perfectly well that they were about to sell their shares and also knew that liquidating the debtor’s assets would necessarily reduce the value of the shares and therefore their selling price.

Undoubtedly, the bank’s knowledge of the nature and imminence of the contract of

sale between the shareholders and the purchaser of their shares was at the root of its fault towards them: “Here, given the bank’s knowledge of the imminent sale, it had a duty to act in a prudent and diligent manner, as any individual, in order to avoid prejudice to the shareholders […] [unless it] could not have granted a reasonable delay before taking possession of the assets and liquidating them”, [58] which, L’Heureux-Dubé, J. wrote, was not the case.

The bank thereby committed an extracontractual fault, engaging its liability towards the shareholders, whose contractual interests it knowingly harmed. [ 71 ] In Bank of Montreal v. Bail Ltée , [59] however, the Supreme Court, in a judgment written by Gonthier, J., went even further. Right after citing the aforementioned passage from Boucher v. Drouin , [60] it stated the following: I would even go further than Pratte J.A.

If we put ourselves in the position of the third party, in fact, it is entirely possible that the performance of a contract may be the basis for an action in delictual liability against a contracting party, even in the absence of contractual fault and without regard to the obligations set out in the contract in question, if that party failed in its general duty to act reasonably. […] [ 72 ] The person who, in performing its contractual obligations without committing a fault , causes injury to a third party could therefore also be extracontractually liable towards that third party if, in performing its contractual obligations, it were to fail “in its general duty to act in good faith and in a reasonable manner, by causing damage to a third party when a reasonable person would have avoided such consequences”, [61] which will specifically (although not exclusively) be the case where “the obligations set out in the contract entail definite benefits for third parties, be they express or implied”. [62] Gonthier, J. nevertheless added that “[t]he task of a third party who wishes to take action against a contracting party may be greatly facilitated if there is also a failure to meet a contractual obligation”. [63] [ 73 ] In short, it appears from all of the foregoing that one can, in exercising one’s contractual rights, act in such a manner that not only constitutes a fault vis-à-vis the co-contractor, but also vis-à-vis the third party, whose contractual interests or rights one has harmed, thereby giving rise to extracontractual liability.

This is the first type of scenario that is relevant for our purposes. [ 74 ] A second type of scenario, illustrated by a recent decision of the Court, is also of interest here. In Costco Wholesale Canada Ltd. v. Simms Sigal & Co. Ltd. , [64] the Court, in reasons written by Fournier, J.A., followed the principles enunciated by the Supreme Court in Trudel v.

Clairol Inc. of Canada [65] and stated the following after a review of the case law and doctrine: [ translation ] [47] Although, in principle, a contract has effect only between the contracting parties pursuant to art. 1440 C.C.Q. , contractual interference occurs when a third party incites, helps, or participates in the breach of a contract, in which case there is an extracontractual fault under art. 1457 C.C.Q.

Authors Jobin and Vézina describe this type of fault as follows [reference omitted]: 4 87 – Complicity in breach of contract – That a third party sometimes becomes liable with respect to a contracting party because it has participated in the breach of a contractual obligation by the co-contractor appears paradoxical and even illogical when the relative effect of contracts is considered. In principle, third parties are bound by real rights, opposable to all, but not by personal rights.

This liability is economically and socially necessary, however, because clearly reprehensible behaviour would otherwise be tolerated and would actually weaken the binding force of contracts. Therefore, French case law has always accepted this liability for complicity in breach of contract. Quebec case law, although less extensive and more recent, also recognizes it. Because it is opposable to third parties, every contract is a juridical fact that they must respect.

It may even be claimed that it is fundamentally because of its binding force that the undertaking applies to third parties who will be legally sanctioned if they knowingly contribute to its breach. French authors have proposed various juridical bases, but the soundest basis – and the simplest – for the extracontractual liability of third parties remains the acquilian fault, here as in France.

Knowingly inciting someone, even implicitly, to breach their contractual obligation towards another is undeniably a violation of the “rules of conduct incumbent on him, according to the circumstances [and] usage”, to quote the felicitous wording of art. 1457 of the Civil Code of Québec . […] […] Grants of exclusivity in other areas, for example through commercial distribution contracts, are equally fertile ground for this liability.

The scope of application of third-party liability is vaster that it appears to be at first glance. [References omitted] [48] These same principles were applied by the Supreme Court in Trudel v.

Clairol Inc. of Canada , an authoritative judgment on the issue [reference omitted]: […] As this, however, would not give respondent what it is mainly seeking, namely the discontinuation of such sales for personal use, we must examine the validity of the other ground accepted by the Superior Court judge in his discussion of the law, the substance of which is in the following passages: [TRANSLATION [in original]] … It is clear that if defendant becomes party to a breach of the contract between plaintiff and each of its agents, he commits a delict for which he is liable (H. et L.

Mazeaud et Tunc, Traité de la responsabilité civile, 6th ed. 1965, Vol. I, no. 144, page 175); for it is

an act of dishonesty to be associated knowingly with a breach of contract (Lalou et Azard, Traité de la responsabilité civile, 6th ed. 1962, no. 716, page 449) Defendant is aware of plaintiff’s policy and instructions concerning the sale of its products. The contractual prohibition against retail resale is mentioned in the action herein; it was already stated in the notice printed on the packages of the product as early as 1966 ...

Defendant has an obligation not to prejudice plaintiff by favouring even indirectly a breach of the undertaking previously quoted; for this undertaking not to resell the product at retail is justified both by a significant interest on the part of plaintiff and, to a certain degree, by

the public interest. Everyone has a moral obligation not to contribute to the breach of a validly assumed undertaking; contravention of this moral obligation is subject to sanction under the civil law (G. Ripert, La règle morale dans les obligations civiles, 3rd ed. Paris 1935, no. 170, page 336). [Emphasis added] [49] In Dostie v. Sabourin , the Court set out the circumstances in which the liability of a third party to a contract may be incurred [reference omitted]: [36] In principle, agreements – a non-competition clause in this instance – have effect only between the contracting parties.

Nevertheless, barring exceptions, authors and the jurisprudence agree that this rule does not preclude imposing, on third persons, respect for the relationship between the parties established by the agreement. In short, the rule of privity of contracts does not mean that third persons have every freedom to interfere with the contractual rights of others.

Thus, a person who knowingly helps another person to breach the latter’s contractual obligations, such as the obligation not to compete with the buyer of its business, commits an extracontractual fault vis-à-vis the victim of the act . [Emphasis added] [50] The following constituent elements of third party fault may be drawn from the case law and the doctrine: ➢ the third party’s knowledge of the contractual rights; ➢ incitement to or participation in the breach of the contractual obligations; and ➢ bad faith or disregard for the interests of others. [51] Of course, the precondition to considering such a fault is the existence of a contract and valid contractual obligations that the third party allegedly contravened. [ 75 ] It is therefore incumbent on everyone to refrain from disrupting the contractual relationships of others by instigating, facilitating or being complicit in, whether through bad faith or disregard for the rights of others, the violation of such relationships, regardless of how: [ translation ] “for it is

an act of dishonesty to be associated knowingly with a breach of contract”, wrote Lalou and Azard [66] (who were favourably cited by Pigeon, J. in Trudel v. Clairol Inc. of Canada [67] ), which is a fault within the meaning of art. 1457 C.C.Q.

The victim of such a fault can obtain redress not only from its defaulting co-contractor (pursuant to art. 1458 C.C.Q. ), but also from the third party who knowingly participated in this breach of contract [68] (pursuant to art. 1457 C.C.Q. ). [69] Where applicable, the defaulting contracting party and its accomplice will be held liable in solidum for the injury they have caused. [ 76 ] In short, a person who, through its contractual or extracontractual conduct, orchestrates encourages, allows or causes the breach of a contract to which it is not a party, associates itself with such breach or harms the contractual interests or rights of another person, thereby causing injury to that third party, engages its extracontractual liability vis-à-vis the third party.

This may be the case when, in exercising or performing (with or without fault [70] ) its own contractual rights or obligations, it contravenes art. 1457 C.C.Q. and causes injury to a third party by harming the third party’s contractual rights or interests. This may also be the case if it becomes the accomplice, regardless of how, of the person who breaches its own contractual obligations, as occurred in Clairol , [71] Dostie [72] or Costco , [73] to name but a few. [ 77 ] In a way, the present matter stands at the crossroads of these two possible scenarios.

The respondent is faulted for having intentionally ignored the appellants’ rights while executing the LOI and the MOU, when the obligations set out in those agreements would have, to paraphrase Gonthier, J. in Bail Ltée , entailed benefits for the appellants, be they express or implied. [74] Thus, in performing these agreements, and more specifically by refraining from exercising to the appellants’ benefit certain rights set out therein, the respondent, as in Costco , allegedly enabled and supported the breach of the MCA by its co-contractor ZFP.

Can this type of situation give rise to the respondent’s extracontractual liability towards the appellants? [ 78 ] Of course, it is not suggested that the array of circumstances in which a person can, wrongfully, disrupt a contract to which it is not a party or harm the contractual rights or interests of another person is limited to the possible scenarios identified above.

However, since we are dealing with an exception to the rule of privity of contracts, the common element in these other potential variations, just as in the foregoing scenarios, is the requirement that the faults be characterized by knowledge of the other person’s rights or interests, and by bad faith and disregard for these rights or interests or even wilful blindness or recklessness with respect thereto (in addition, needless to say, to the existence of an actual injury and direct causation).

Indeed, as authors Lluelles and Moore note: [ translation ] 2446. […] The duty to behave properly is highly dependent on the circumstances. In certain cases, the contracting party’s extracontractual liability will not arise: if the contracting party is unaware of the third party’s existence and cannot reasonably suspect its presence in the matter, the defaulting contracting party will only engage its liability – contractually – vis-à-vis its co-contractor. [75] [ 79 ] The application of these principles to the parties’ situation will be discussed below. 2.

Burden of proof [ 80 ] As art. 2803 C.C.Q. requires, a person who goes before the courts to assert a right must, of course, establish, on a balance of probabilities (art. 2804 C.C.Q. ), the facts underlying that right. For a recourse instituted under art. 1457 C.C.Q. , it will therefore have to prove the fault (that is, the facts constituting the alleged fault and the violation of a rule of conduct incumbent on the wrongdoer), the injury sustained (nature and quantum), and the causal link between the fault and the injury, all of which are cumulative and essential conditions for extracontractual liability.

[ 81 ] Consequently, a person who institutes proceedings against the person it claims is extracontractually liable for the injury resulting from a breach by its own co-contractor (which is the case here) must, as regards fault, prove the following facts (that is to say, must persuade the court on a balance of probabilities): i. The existence of the contractual breach alleged against its own co-contractor, which breach the person being sued allegedly instigated or participated in or which it gave rise to through its own conduct.

Needless to say, if the co-contractor in question did not breach its obligations, the person being sued evidently incurs no liability. ii. The wrongful conduct of the person being sued, who, wilfully and knowingly, including in the exercise or performance of its own contractual rights or obligations, caused, generated or permitted the breach in question, thereby acting unreasonably, with disregard for the plaintiff’s rights. [ 82 ] The appellants do not entirely agree with the above statement, particularly the first point. In that regard, their brief states the following:

Article 2803 of the Civil Code provides that “a person seeking to assert a right shall prove the facts on which his claim is based.” In the case of a breach of a contractual obligation of result, a plaintiff must simply prove that an obligation existed and that it was not paid . 48. SNC-Lavalin admits that the Management Compensation Agreement exists and that ZFP did not pay its absolute obligations under this agreement. SNC-Lavalin, however, argues that the obligations were not due because ZFP’s consent to the contract was vitiated by the Appellants’ fraud. 49. The second paragraph of

article 2803 of the Civil Code applies to this defense: “A person who claims that a right is null, has been modified or is extinguished shall prove the facts on which he bases his claim.” SNC-Lavalin had the burden to prove the facts supporting its allegation that the rights under the Management Compensation were null because the Appellants defrauded ZFP . This burden falls even more squarely on SNC-Lavalin given that the rules of evidence provide that good faith is always presumed. 50. SNC-Lavalin decided not to adduce any evidence in support of its allegations on this point.

SNC-Lavalin had announced half a dozen witnesses to support its allegations. On the first day of trial, it declared it would not call any of those witnesses. As a result, no witness testified at trial to support SNC-Lavalin’s allegations on the nullity of the Management Compensation Agreement. SNC-Lavalin cannot point to any evidence supporting its allegations that the Appellants’ rights are null. […] 55.

In this regard, the undisputed evidence shows that the Management Compensation Agreement was breached. [All references omitted; emphasis added, except in para. 50] [ 83 ] The appellants are wrong and are confusing, on the one hand, the burden of proof they would have had to meet if they had sued their co-contractor, ZFP, in Quebec (assuming that would have been possible) with, on the other hand, their actual burden of proof, which requires them to prove the respondent’s fault in connection with the contractual disruption they allege against it. [ 84 ] In the first case, let us imagine that ZFP is a firm domiciled in Quebec and that the appellants are suing it there before the courts of Quebec, alleging an unjust dismissal and a similarly unjustified resiliation of the MCA; their burden of proof (that is, their burden of persuasion) would be the one described in the above-cited passage from their brief.

Pursuant to art. 2803 , para. 1 C.C.Q. , they would only have needed to prove the following: (1) the existence of the contract of employment and of the MCA and (2) the existence of the dismissal and the resiliation of the MCA, that is, the failure to perform the contract, an apparent contractual breach. They would not have had the burden to prove the absence of valid grounds for dismissal or for the resiliation of the MCA.

In accordance with art. 2803 , para. 2 C.C.Q. , it is ZFP that would have had to prove the existence of such grounds: since it is ZFP that dismissed the appellants and cancelled the MCA, if it felt it had the right to do so, it would have been up to it to provide an explanation, to establish the reasons for its conduct and to justify it. The legal framework applicable to contacts requires it, and this is just as true in the context of labour relations. A priori , the failure to perform a contract is a fault (art. 1458 C.C.Q. ), and the apparent defaulting party must explain it if it wishes to defend itself.

This is also inferred from art. 1590, para. 2, C.C.Q. , which sets out the sanctions applicable to a person who fails to perform its obligations “without justification/ sans justification ”. As between the parties to a contract, it cannot be otherwise. [ 85 ] But

[…]