2017 QCCQ 2818, 2017 QCCQ 2818

Humanit (Human Information Technologies) Inc. c. Thevenot 2017 QCCQ 2818 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No: 500-22-198149-125 DATE: March 31, 2017 ______________________________________________________________________ BY THE HONOURABLE JEFFREY EDWARDS, J.C.Q. ______________________________________________________________________ HUMANIT (HUMAN INFORMATION TECHNOLOGIES) INC. Plaintiff v.

ARLETTE THEVENOT -and- 8122504 CANADA INC. -and- 8115427 CANADA INC. -and- ABDALLAH (ALEX) FAOUAL -and- 4440200 CANADA INC. -and- ATC FINANCIAL SERVICES LLC -and- MARINE CONTAINER SERVICES INC. -and- 7085893 CANADA INC. -and- 4444744 CANADA INC. -and- 7085869 CANADA INC.

Defendants and FAOUD (FRANÇOIS) SALIB Mis en cause ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] HumanIT (Human Information Technologies) Inc. ( HumanIT ) sold computer equipment and computer services to 7085893 Canada Inc. ( MCS Containers ) for which HumanIT is claiming an alleged unpaid amount of $44,524.22. [ 2 ] HumanIT also sues all of the Defendants solidarily for having acted together to create and implement a corporate scheme to defraud it and to illegally transfer HumanIT’s merchandise to third parties.

HumanIT submits that the Defendants have engaged their liability by committing various extra-contractual faults under

Article 1457 of the Civil Code of Quebec ( C.C.Q. ). [ 3 ] HumanIT also argues the circumstances justify that the Court lift the corporate veil with respect to certain corporate Defendants and condemn their shareholder Defendant Abdallah (Alex) Faoual. Questions in Issue

1) What is the amount owing to HumanIT for merchandise sold and services rendered? 2) Which Defendant initially purchased and became owner of the merchandise sold by HumanIT and to whom were services rendered by HumanIT? 3) Which of the Defendants, if any, is liable for the amount owed to HumanIT, either on a contractual, extra-contractual or other basis in law? Context [ 4 ] From January 15, 2010 to July 30, 2010, HumanIT sold various computer equipment and services to “MCS” and “MCS Containers”.

The total of HumanIT’s nine (9) invoices comes to $51,321.16 [1] . [ 5 ] Some partial payments were made, including a cheque of $11,343.94 [2] . [ 6 ] The terms of all the invoices stipulate that payment is to be made upon receipt of merchandise (“payable sur reception”). [ 7 ] The invoices also include a reference to interest as follows: “Des frais d’intérêt de 1.5% par mois (soit 19.8% par anné

e) seront applicables sur toutes factures ou comptes échus”. [ 8 ] On November 3, 2010, HumanIT wrote to MCS Containers claiming an outstanding amount of $35,552.18 [3] . [ 9 ] On December 6, 2010, 7085893 Canada Inc., on the letterhead of MCS Containers, wrote to HumanIT and confirmed liability for an amount of $37,197.22 [4] . Attached to this letter, MCS Containers included a cheque dated December 13, 2010 [5] for that amount.

The cheque was drawn on the bank account of 7085893 Canada Inc. [ 10 ] All the HumanIT’s invoices also include the following clause regarding a reserve of right of ownership until full payment: “HumanIT demeure propriétaire de toutes les marchandises vendues jusqu’à parfait paiement.” [ 11 ] This reserve of ownership was brought to the specific attention of MCS Containers in HumanIT’s letter of November 3, 2010 [6] which reads in part as follows: “Comme mentionné sur toutes nos factures, HumanIT demeure propriétaire de toutes les marchandises vendues jusqu’à parfait paiement.” [ 12 ] In its letter of November 3, 2010, HumanIT threatened to proceed to the seizure of its merchandise (“saisie de nos dits équipements”), unless the amount owed was paid promptly.

[ 13 ] Even though MCS Containers issued the payment cheque of $37,197.22, the accompanying letter of December 6, 2010 confirmed that it was agreed the cheque was postdated and subject to an agreement with HumanIT that the latter would not present it for payment until MCS Containers had confirmed to HumanIT that the required funds had been deposited into its bank account. [ 14 ] MCS Containers’ December 6, 2010 letter also declared that MCS Containers had been approved in principle for conditional additional financing by TD Canada Trust.

Receipt of the funding was however subject to further negotiations with the Canada Export Development Agency [7] . The signatory of this letter, attorney Karine Pinto, wrote that she expected to receive funds in the coming days. [ 15 ] As the evidence at trial showed, the December 6, 2010 letter did not reveal the complete story of the financial predicament of MCS Containers at the time.

Seizure of Marine Container Services’ Bank Account by Revenue Quebec [ 16 ] Impleaded Party Faoud (François) Salib, the principal of 7085893 Canada Inc., testified that since July 2010, Revenue Quebec had seized the bank account of another of his companies, namely 70858 69 Canada Inc. (Marine Container Services) (not to be confused with 70858 93 Canada Inc. (MCS Containers)) for failure to pay deductions at source for certain employees. [ 17 ] For the purpose of brevity, the undersigned will also refer to Mr.

Salib’s overall business, operated through various companies, as MCS (as opposed to MCS Containers, which is the registered business name of 70858 93 Canada Inc.). [ 18 ] Mr. Salib assigned blame for this omission to one of his former employees involved in the accounting department of his business. Mr. Salib was of the opinion that this employee had carried out some sort of wrongdoing with respect to the internal accounting of the company. [ 19 ] Ever since the Revenue Quebec seizure, Mr. Salib had been desperately trying to raise new funds.

He had sought out potential new investors, banks, government subsidies, including government research and development credits. Moving of Location of Business [ 20 ] In July 2011, with no additional funding secured, diminished revenues and increasing expenses, Mr.

Salib was trying to keep his business afloat. [ 21 ] One way to keep his business afloat was to decrease expenses. [ 22 ] He moved the location of his business from Montreal to Beauharnois. [ 23 ] In order to promote and develop its new industrial park, the City of Beauharnois was offering a “tax holiday” for companies wishing to relocate to this area. [ 24 ] According to Mr. Salib, the move appears to have occurred in chaotic circumstances. Only a part of the business was moved.

Certain inventory, the repair shop and much of the heavy machinery were too expensive to move, and these were simply left and abandoned at the Montreal location. [ 25 ] Mr. Salib laid off almost all of the business’ employees. [ 26 ] The business activities were drastically scaled down from those carried on at the previous location. [ 27 ] The remaining business activities included the collection of rents under rental contracts of containers. [ 28 ] Mr.

Salib and his family, including his wife at the time, Arlette Thevenot, and their three children, also moved to an apartment in Valleyfield and therefore closer to the new location of the business. Efforts to Obtain Financing and Involvement of Arlette Thevenot [ 29 ] As Mr. Salib and his companies could no longer afford to hire and pay employees, he asked Ms. Thevenot to carry out certain receptionist and administrative duties, including answering the phone and sending e-mails. The business was run principally from Mr. Salib and Ms. Thevenot’s apartment in Valleyfield, Quebec.

The business computer was located in this apartment. [ 30 ] Mr. Salib still hoped to save his business. [ 31 ] From July 2011 to February 2012, his activities appear to have been limited to collecting rents on rental contracts for containers, attempting to find new financing for the business, keeping creditors at bay, and trying to negotiate a deal with Revenue Quebec for its claims of outstanding deductions at source, which included penalties and interest. [ 32 ] In mid-December 2011, Revenue Quebec refused to reduce its claim [8] . [ 33 ] Mr.

Salib, always somehow optimistic, continued to negotiate with Revenue Quebec until mid-January 2012 [9] . [ 34 ] During this time period, in particular from November 2011 to April 2012, Ms. Thevenot sent out HumanIT various e-mails [10] regarding its repeated requests for payments and for regular updates about payment of its outstanding invoices. [ 35 ] Ms. Thevenot sent out the e-mails from the business computer in their apartment. Ms. Thevenot testified that the e-mails were sent pursuant to the instructions and at the request of Mr.

Salib and she merely acted as a subordinate and go-between for this purpose. [ 36 ] Ms. Thevenot also testified that she was not an official employee of MCS Containers or other MCS companies, that she received no salary and did not obtain a “T4 slip” or “Relevé 1” for income tax purposes from these companies. [ 37 ] The financial difficulties of MCS caused emotional stress on Mr. Salib, Ms. Thevenot and their personal relationship. [ 38 ] On December 23, 2011, Ms. Thevenot left Mr. Salib.

[ 39 ] Ms. Thevenot testified that she felt guilty about leaving him at this moment of need when the business was failing. But she stated that, emotionally, she felt obliged to do so. [ 40 ] However, she did agree to continue to send e-mails for Mr. Salib on behalf of MCS Containers. She continued to do so until April 18, 2012 [11] . [ 41 ] In January 2012, Revenue Quebec confirmed its position that it would not reduce its assessment [12] . [ 42 ] On February 2, 2012, Mr. Salib met with two last possible potential investors [13] .

They told him that they would not invest in the business in light of Revenue Quebec’s outstanding assessment. [ 43 ] According to Mr. Salib, he thought he could keep the business going if Revenue Quebec reduced its assessment to the capital amount only. But it was impossible to do so if the penalty and interest claims of Revenue Quebec also had to be paid. [ 44 ] From that point, on February 2, 2012, Mr.

Salib had given up trying to save his business. [ 45 ] He then went to see his lenders, including Defendant ATC Financial Services LLC ( ATC ) and told them that he could no longer operate the business and they could proceed to exercise their security, including the repossession of the business and its assets. Abdallah (Alex) Faoual [ 46 ] Abdallah (Alex) Faoual is an old friend of Mr. Salib. They know each other since 1999. They had initially met in the Canadian Armed Forces, although they were assigned to different regiments. They remained in contact on and off over the years. [ 47 ] In 2009, Mr.

Salib showed Mr. Faoual the premises of MCS and Mr. Faoual was very impressed. [ 48 ] After leaving the Canadian Armed Forces, Mr. Faoual started various businesses and set up several companies, including Defendant 4440200 Canada Inc. in 2007. [ 49 ] Mr. Faoual was an expert in computer technology and systems. [ 50 ] Since Mr. Faoual kept in touch with Mr. Salib, he learned that MCS was failing. He asked Mr. Salib if there was a business opportunity despite the failure. Mr. Salib told him that the container rental part of the business was steady and profitable.

Continuation of the Container Rental Part of the MCS Business [ 51 ] MCS had approximately twenty regular clients who rented containers and who continued to pay rent. These clients included large and well established companies. According to Mr. Salib, the revenue from the container rental business was approximately $20,000 per month. [ 52 ] Mr. Faoual understood that this part of the business was easy to run and profitable. Rental payments were simply collected from existing rental contracts.

[ 53 ] Mr. Faoual concluded that the container rental business could be operated separately and essentially without overhead. [ 54 ] He proposed to “hire” Ms. Thevenot, who was familiar with these clients and how the container rental business worked. Ms. Thevenot would send out the invoices to the clients renting the containers. Mr. Faoual would receive the rental payment cheques. [ 55 ] According to Ms. Thevenot, her work would only take a few hours a week. [ 56 ] Mr. Faoual proposed that she would not be an official employee and she would not receive a salary.

Instead, as compensation for her time, he would pay her monthly car payments of approximately $400. [ 57 ] Ms. Thevenot accepted that arrangement. [ 58 ] Ms. Thevenot testified that she needed the money and felt that this was something that she could do. She had confidence in Mr. Faoual since he had several other successful businesses at the time. [ 59 ] Mr. Faoual also proposed that Ms. Thevenot become the corporate secretary and treasurer of the new corporation that would be operating the container rental business [14] . She accepted. [ 60 ] After Mr. Salib and Ms. Thevenot had separated in December 2011, Ms.

Thevenot and Mr. Faoual started a relationship. According to Mr. Salib, he was not aware of that fact at the time. [ 61 ] According to Mr. Faoual’s analysis, after payment of any financing obligations to acquire the container rental business, he could obtain an additional steady revenue stream. Mr. Faoual did not plan on taking over the entire business of MCS, which included many other commercial activities in the container industry. He only wanted to continue the rental container business and he wanted to do so under a new corporate structure. Meeting of February 23, 2012 between HumanIT, Mr. Salib and Mr.

Faoual [ 62 ] During the same time period that these discussions between Mr. Salib and Mr. Faoual took place, a meeting was set up by Mr. Salib with HumanIT, who continued to press for payment of its outstanding invoices. [ 63 ] The principal of HumanIT, Stephan Pinheiro, along with another HumanIT employee, Marc Sergerie, were present. [ 64 ] Mr. Salib was accompanied by Mr. Faoual, whom he introduced as his new “business partner”. [ 65 ] As Mr. Faoual is a computer technology specialist, he is very well aware of the specific type of products sold by HumanIT to MCS Containers.

[ 66 ] At the meeting, the whole story of HumanIT’s outstanding invoices and outstanding payments was gone over again in detail: MCS Containers’ commitment to pay; HumanIT’s letter of November 3, 2010; HumanIT’s reserve of ownership; the acknowledgement of debt by MCS Containers; the still uncashed postdated cheque of MCS Containers to pay the debt; MCS Containers’ repeated commitments to pay HumanIT; and the “ongoing” efforts of MCS Containers to obtain additional financing. [ 67 ] At the meeting, Mr. Salib stated that efforts to obtain additional financing for MCS Containers were continuing.

He reassured HumanIT that its invoices would be paid and that just a little more time was needed. Mr. Salib even personally guaranteed that HumanIT’s invoices would be paid. [ 68 ] According to Mr. Pinheiro, Mr. Faoual agreed with what Mr. Salib was stating. In addition, according to Mr. Pinheiro, Mr. Faoual also guaranteed personally that HumanIT’s invoices would be paid. That is denied by Mr. Faoual. [ 69 ] One can only be struck by the level of ingenuousness demonstrated by Mr. Salib and Mr. Faoual at the meeting. [ 70 ] Since February 2, 2012, Mr. Salib had given up trying to save his business.

He had already seen his lending creditors and told them that the financial situation of his business in general, including that of MCS Containers, was hopeless and doomed to complete collapse. [ 71 ] He had invited ATC to exercise its security and repossess the business. As Mr. Salib admitted in his testimony before the Court, he had every intention at the time of eventually filing for personal bankruptcy [15] . [ 72 ] Prior to the meeting of February 23, 2012, Mr. Salib and Mr. Faoual had a joint plan to transfer to another entity, namely a company to be owned and operated by Mr.

Faoual, the only remaining profitable activity of the business, which would have resulted in MCS Containers being in an even more difficult financial position. [ 73 ] Mr. Salib also raised with Mr. Pinheiro the possibility that HumanIT reissue its invoices to a different company. Mr. Pinheiro responded that he could not and that it would be illegal for him to do so. But he said that he had no objection to receiving payment for the outstanding invoices from any other company or third party.

Financing by Faoual of the Container Rental Part of the Business and the Previous Financing of Salib’s Business by ATC [ 74 ] In order to continue the container rental business, Mr. Faoual would have to become owner of the rented containers. These containers were owned by 7085869 Canada Inc. (Marine Container Services) and were subject to one or more movable hypothecs granted in favour of lenders of the business, including ATC. [ 75 ] ATC is a small lending business owned by Dimitrios Markakis. It is operated by him in conjunction with his son Maître Tom Markakis. [ 76 ] In 2008, ATC was introduced to Mr.

Salib by attorney Me Anthony Giammaria. In that year, ATC financed the acquisition by 7085869 Canada Inc. (Marine Container Services) (a company owned by Mr. Salib), of assets from the bankruptcy of a third party company which had carried the container business in the same premises, known as Marine Container Services Inc. [16] [ 77 ] The ATC loan was for $97,240 and paid directly to the trustee in bankruptcy [17] .

This loan was secured by a hypothec on the universality of all present and future property of 7085869 Canada Inc. (Marine Container Services) [18] published at the Registry Office of Personal and Movable Real Rights ( RDPRM ) [19] . [ 78 ] In April 2009, ATC made a second loan to 7085869 Canada Inc. in the amount of $100,000 [20] .

[ 79 ] In July 2009, ATC made a third loan to 7085869 Canada Inc. in the amount of $25,000 [21] . This loan was also guaranteed by a hypothec on the universality of present and future property of 7085869 Canada Inc., and duly registered at the RDPRM [22] . [ 80 ] Another loan was made to 7085869 Canada Inc. by a different lender, Riverway Investment Inc., for $160,000. That loan was also secured by a movable hypothec on the present and future property of 7085869 Canada Inc. [23] [ 81 ] Me Tom Markakis testified that in early February 2012, Mr.

Salib came to inform him that he was giving up on his business as the financial situation was hopeless. [ 82 ] This is described by Me Markakis as a voluntary surrender. However, there is no proof that a legal voluntary surrender actually occurred.

There was no document to that effect filed into Court. [ 83 ] In the Court’s opinion, based upon the evidence, no document of voluntary surrender was ever signed in favour of ATC. [ 84 ] ATC did not publish at the RDPRM a prior notice of exercise of hypothecary rights under either of its registered movable hypothecs. [ 85 ] In his testimony, Me Markakis explained that, at that point, 7085869 Canada Inc. was chronically behind in its payments on the ATC loans. [ 86 ] In the following days of February 2012, Mr.

Salib called Me Markakis to explain that a new person, a friend who was formerly in the military with him, namely Alex Faoual, was interested in acquiring the container rental business and would be contacting Me Markakis in that regard. [ 87 ] In fact, Mr. Faoual did subsequently contact Me Markakis. They agreed on the terms of: 1) a sale to a new company owned by Mr.

Faoual of the property that was subject to the movable hypothecs granted by 7085869 Canada Inc. in favour of ATC; 2) a loan by ATC for the purchase of such property by the new company; 3) a movable hypothec to be granted by the new company on the property purchased in order to guarantee the ATC acquisition loan. “Re-Sale” by ATC of Property Owned by 7085869 Canada Inc. (Marine Container Services), Loan to 4440200 Canada Inc. and Security to ATC [ 88 ] ATC alleges that it acquired the ownership of the assets of 7085869 Canada Inc. and, on March 8, 2012, resold them to Mr.

Faoual’s company, 8115427 Canada Inc. [24] A Deed of Sale to that effect is filed into evidence [25] .

[ 89 ] In the Deed of Sale, the property sold is erroneously described as “meubles (équipement) de restauration”. However, a list of the property sold is attached as Annex 1 [26] of the Deed of Sale. [ 90 ] Although the Deed of Sale is not signed by the representative of 8115427 Canada Inc., Mr.

Faoual confirmed in his testimony that his understanding was that his company had acquired the said property. [ 91 ] The property listed in Annex 1 includes the bulk of HumanIT’s merchandise sold to MCS Containers, namely 70858 93 Canada Inc., which is a different company from 70858 69 Canada Inc. (Marine Container Services). [ 92 ] In the Deed of Sale, ATC’s seller representations and declarations to 8115427 Canada Inc. are as follows: “ DÉCLARATIONS DU VENDEUR Le vendeur fait les déclarations suivantes et s’en porte garant: 1. Il est le seul propriétaire des biens meubles; 2. Les meubles et l’équipement faisant

partie de la présente vente lui appartiennent et sont libres de toute priorité, de toute hypothèque et autres charges, et ne sont pas l’objet d’une vente à tempérament.” [ 93 ] On or around the same date, ATC and one of Mr. Faoual’s other companies, 4440200 Canada Inc., entered into a Loan Agreement [27] . [ 94 ] 8115427 Canada Inc., which purported to purchase the assets, acted as guarantor of the loan. [ 95 ] Mr. Faoual also acted as a personal guarantor. [ 96 ] The loan by ATC to 4440200 Canada Inc. was for the amount of $190,000.

The loan was secured by movable hypothec on the universality of property owned by 4440200 Canada Inc. [ 97 ] In his testimony, Me Markakis stated that, at the time of the signing of the sale and loan documentation in favour of Mr. Faoual’s companies, he may have checked the RDPRM listings under 7085869 Canada Inc. and 8115427 Canada Inc. [ 98 ] With respect, his testimony on this point was less than convincing. [ 99 ] In fact, it was inconsistent with Me Markakis’ overall testimony and the evidence regarding the circumstances surrounding the conclusion of these transactions, namely: (

a) the Deed of Sale was unsigned; (

b) the Deed of Sale referred to the sale of restaurant equipment;

(

c) the corporate resolutions of ATC to authorize those transactions were never prepared; (

d) the reference to the resolutions in the Deed of Sale is erroneous in that they indicate a date two (2) months after the alleged transaction. (

e) The list of assets declared as owned by 4440200 Canada Inc. under the Loan Agreement is appended thereto as

Schedule B. Strangely, it is the same list of assets purportedly previously sold by ATC to 8115427 Canada Inc. under “Annex 1”, including the merchandise sold by HumanIT. [ 100 ] The reason given by ATC for these errors and omissions was that everything was prepared on a rush basis [28] . [ 101 ] In his testimony, Me Markakis stated that Mr.

Faoual was a difficult person to track down and that his collaboration was sorely lacking. [ 102 ] In these circumstances, the Court concludes that there was no verification of the RDPRM registry regarding 7085869 Canada Inc. or 8115427 Canada Inc. prior to the execution of the Deeds of Sale and the Loan Agreement of March 8, 2012. [ 103 ] Mr. Faoual, in his testimony, when questioned on HumanIT’s items [29] on the list, acknowledged that he recognized the equipment as being the same as that sold by HumanIT, as specified in its invoices [30] .

Since he is a specialist in the computer field, he was able to quickly make that connection. [ 104 ] On April 13, 2012, Mr. Salib signed a personal guarantee or undertaking that he was also solidarily liable for the obligations set out in the Loan Agreement between ATC and 4440200 Canada Inc. (Mr. Faoual’s company). Operation of “The Container Group / Le Groupe Conteneur” (TCG) (8122504 Canada Inc.) [ 105 ] On April 11, 2012, Mr. Faoual registered “The Container Group” and “Le Groupe Conteneur” ( TCG ) as business names for his company, namely 8122504 Canada Inc.

He testified that he also intended to use those business names for the two other companies in which he was the sole shareholder, namely 4440200 Canada Inc. and 8122004 Canada Inc. [ 106 ] A notice was sent to the list of clients who rented containers previously from Mr. Salib’s companies. The notice reads as follows [31] : “À qui de droit, La présente est pour vous informer qu’en date du 8 mars 2012 Le Groupe Conteneur a acquis la flotte de location de MCS Conteneurs. Veuillez trouver ci-joint la facture pour les services de location, du mois de mars au mois d’août, inclusivement.

Un représentant vous contactera sous peu afin de fixer une date pour une inspection visuelle des conteneurs en location. Si vous avez des questions, n’hésitez pas à nous contacter au 438-885-0858. Veuillez agréer, Madame, Monsieur, nos sentiments les meilleurs. _______________________________ A. Faoual, pour Le Groupe Conteneur

To whom it may concern, This letter is to inform you that as of March 8th 2012, The Container Group acquired the fleet of rental containers from MCS Containers. Please find the statement of your account attached to this letter, which includes all charges from March until August. A representative will be contacting you shortly in order to arrange a time and a date for a visual inspection of the containers. If you should have any questions, please do not hesitate to contact us at 438-885-0858. Thank you for your kind consideration of this matter. _______________________________ A.

Faoual, for The Container Group” [ 107 ] This notice was drafted by Ms. Thevenot and signed by Mr. Faoual. It was sent to at least thirty (30) clients of Mr. Salib’s companies [32] . [ 108 ] On August 23, 2012, Mr. Salib filed for personal bankruptcy [33] . [ 109 ] Me Markakis testified that on the $190,000 loan amount owed under the Loan Agreement with 4440200 Canada Inc., ATC only received $11,664.

From September 2012 and until November 24, 2013, the loan repayment cheques were as follows [34] : September 10, 2012 $3,194 January 18, 2013 $3,388 May 27, 2013 $1,694 September 16, 2013 $1,694 November 24, 2013 $1,694 Total: $11,664 [ 110 ] Mr. Faoual testified that he felt misled by Mr. Salib about the revenue generated by the container rental business. According to Mr. Faoual, the revenue represented to him was inflated. In actual fact, the revenue was only in the range of $5,000 per month. [ 111 ] After payment of the monthly loan amount to ATC and the car payment for Ms.

Thevenot, there was very little net revenue left for 4440200 Canada Inc. [ 112 ] Ms. Thevenot testified that the container rental business was more complicated than Mr. Faoual had anticipated. Mr.

Faoual’s companies were not in a position to handle any changes under the contracts, since they had no employees or heavy equipment to move the containers. [ 113 ] When a rental contract ended, TCG could not even arrange to pick up the rented container. [ 114 ] If a client wanted to move the container to another location, TCG was not in a position to render the service. [ 115 ] Eventually, all the container rental clients were lost and there were no more rental payments. [ 116 ] Mr. Faoual testified that the acquisition of this division was a bad business decision on his part.

At the trial, he stated that the TCG companies were no longer operating and were insolvent. He said that they would have been closed long ago from a corporate point of view, except for the present litigation. Seizure and Sale of the Assets Sold to Mr. Faoual’s Companies

[ 117 ] In October 2012, Mr. Salib received a notice of seizure from a creditor seeking to satisfy a judgment rendered on July 18, 2012 in the amount of $45,038.76 allegedly owed by Marine Container Services Inc. This is the company which had filed for bankruptcy in 2008 [35] and whose inventory had been purchased by Mr. Salib from the trustee in bankruptcy in order to open his business. [ 118 ] Under the notice of seizure, the bailiffs seized all available assets on site, including some heavy equipment, vehicles and many containers full of unspecified goods.

In all probability, these containers contained part of HumanIT’s unpaid merchandise. [ 119 ] Mr. Salib delivered the notice of seizure to Me Markakis of ATC and suggested that ATC contest the seizure on the ground that the property seized belonged now to Mr. Faoual’s companies and was subject to security granted in favour of ATC. [ 120 ] It is surprising that Mr. Salib would be advised at all as he was supposedly no longer involved in the business and no longer had any interest in these assets. [ 121 ] It is also surprising that Mr. Salib would inform Me Markakis and not Mr.

Faoual who did have the ownership interest. [ 122 ] Mr. Faoual told the Court that he was only informed of the seizure much later and well after the sale of the assets by the bailiff. [ 123 ] Me Markakis testified that he reviewed the seizure and concluded that it would be cost prohibitive to contest it on the basis of ATC’s security. Instead, he agreed with the seizing creditor to an equal split of the sale proceeds resulting from the judicial sale of the seized property in order to pay down amounts owed by 4440200 Canada Inc. to ATC under the Loan Agreement. [ 124 ] There was no discussion with Mr.

Faoual in that regard. [ 125 ] Unfortunately, the sale proceeds were equivalent or less than the bailiff costs to dispose of the seized property and there was therefore nothing left to remit to ATC to pay down the amount owed by 4440200 Canada Inc. under the Loan Agreement. Legal Proceedings [ 126 ] On November 28, 2012, HumanIT instituted the present legal proceedings against the following Defendants: • 7085893 Canada Inc.; • 4444744 Canada Inc.; • Faoud (François) Salib; • Arlette Thevenot; • 8122504 Canada Inc.; • 8115427 Canada Inc.; and • Abdallah (Alex) Faoual. [ 127 ] On February 19, 2013, Mr.

Salib’s trustee in bankruptcy filed a notice of suspension of proceedings as they related to him.

[ 128 ] On July 7, 2014, in separate legal proceedings [36] relating to the default of payment of Mr.

Faoual’s companies under the Loan Agreement [37] dated March 8, 2012, ATC sued: • 4440200 Canada Inc.; • 8115427 Canada Inc.; • Abdallah (Alex Faoual); and • Faoud (François) Salib. [ 129 ] On November 28, 2014, in the present proceedings, further to examinations on discovery and receipt of undertakings, HumanIT amended its proceedings and added the following Defendants: • Marine Container Services Inc.; • 7085869 Canada Inc.; • 4440200 Canada Inc.; and • ATC Financial Services Inc. [ 130 ] At the same time, as a result of Mr.

Salib’s personal bankruptcy, HumanIT withdrew legal proceedings against him as a Defendant and impleaded him as a “mis en cause”.

Analysis and Decision 1) What is the Amount Owing to HumanIT for Merchandise Sold and Services Rendered? [ 131 ] This was an issue upon which the parties could not agree. [ 132 ] In its Amended Judicial Demand, HumanIT claims the amount of $49,866 for merchandise sold and services rendered, including interest up to the time of institution of the judicial proceedings. [ 133 ] However, partial payment of the merchandise was made, namely $11,343.94, which would leave a balance of $38,522.06. [ 134 ] HumanIT did not provide a statement of account reconciling amounts invoiced and amounts paid. [ 135 ] At trial, HumanIT filed documents reconstituting the amounts owed, which supported various amounts between $35,552.18 and $41,272.18 [38] . [ 136 ] HumanIT alleges that MCS Containers admitted in an e-mail that the amount due was $44,524.33 [39] , but that is not at all clear. [ 137 ] The best proof of the actual amount owed is what the parties agreed was due at a time contemporaneous to receipt of the HumanIT invoices.

[ 138 ] On November 12, 2010, HumanIT stated that the amount due was $37,197.22 [40] . On December 6, 2012, MCS Containers agreed and issued a cheque for that amount [41] . [ 139 ] That amount included an interest charge [42] , but Mr. Salib testified that he was aware of the applicable interest charge, agreed with it and recognized that it was owed.

Therefore, the Court concludes that $37,197.22 is the amount owed to HumanIT. 2) Which Defendant Initially Purchased and Became Owner of the Merchandise Sold by HumanIT and to Whom Were Services Rendered by HumanIT? [ 140 ] HumanIT has always alleged that it sold the merchandise and rendered services to 7085893 Canada Inc., carrying on business under the registered trade name of “MCS Containers”. [ 141 ] There was no allegation in the defence of any Defendant that HumanIT did otherwise. [ 142 ] This issue was brought up by the attorneys of the Defendants at trial. [ 143 ] During his testimony, Mr.

Salib filed a cheque of pre-payment of merchandise to be sold by HumanIT and the cheque was drawn on the bank account of another of his companies, namely 7085869 Canada Inc. [ 144 ] The Court’s view is that the overwhelming evidence supports the position that the buyer of the merchandise and the client of HumanIT was 7085893 Canada Inc. (MCS Containers): 1) The company that held itself out as the customer of HumanIT used the name “MCS Containers”. All of HumanIT’s invoices are invoiced to “MCS Containers”.

According to the Quebec Corporate Registry, one of the registered business or trade names of 7085893 Canada Inc. is “MCS Containers” (English) (and in French “MCS Conteneurs”) [43] . 7085893 Canada Inc. (MCS Containers) is therefore a perfect match for HumanIT’s invoices in this matter. 2) With respect to 7085869 Canada Inc., the Quebec Corporate Registry indicates that its business name is instead “Marine Container Services” (English) and “Services Conteneur Maritime” (French). As such, 7085869 Canada Inc. uses a different business name than the one appearing on the HumanIT invoices.

In particular, 7085869 Canada Inc.’s business name does not include the acronym “MCS”. Furthermore, its business name includes the word “Services”, which was not included by HumanIT’s invoices to designate its customer. 3) The buyer of the HumanIT’s products from Mr. Salib’s company used the name “MCS Containers”, as appears from correspondence pertaining to those invoices.

That again is a perfect match for 7085893 Canada Inc. 4) With regard to the written exchanges on its invoices, HumanIT wrote specifically to “7085893 Canada Inc. (MCS Containers)” [44] . 5) “MCS Containers” wrote back and specifically identified itself as “7085893 Canada Inc.”. The letter is signed on behalf of 7085893 Canada Inc. by “Karine Pinto, Avocate” [45] 6) “MCS Containers” delivered a postdated payment cheque for future payment of the invoices and therefore for the purchase of the

HumanIT products and services. The cheque is drawn on the bank account of 7085893 Canada Inc. [46] . [ 145 ] Considering all the above, the Court concludes that the buyer of the HumanIT products and the client for its services was 7085893 Canada Inc. (MCS Containers). 3) Which of the Defendants, if any, is Liable for the Amount Owed to HumanIT, either on a Contractual, Extra-contractual or Other Basis in Law? [ 146 ] The Court will deal with each Defendant in the order appearing in the Plaintiff’s Amended Judicial Demand.

Marine Container Services Inc. [ 147 ] This is the company that went into bankruptcy in 2008 and whose assets were purchased from its trustee in bankruptcy by Mr. Salib’s companies [47] . There is no connection with HumanIT or its claims, and none was argued by counsel for the parties. The claim against this company will be dismissed. 7085893 Canada Inc. (MCS Containers) [ 148 ] This is the company that purchased the merchandise and received the services from HumanIT in accordance with and subject to the terms and conditions stated in the invoices and acknowledged as applicable by the company’s representative Mr.

Salib. [ 149 ] There has been no defence filed on behalf of 7085893 Canada Inc. and it did not appear through counsel. This company would have been condemned to pay the amount of $37,197.22, plus interest at 19.81% per year from the date of HumanIT’s demand letter dated November 3, 2010 [48] . [ 150 ] However, according to the evidence, this company is dissolved as of December 16, 2012 for non-compliance and failure to deposit annual corporate filings with Corporations Canada [49] .

Since the company no longer exists, the Court will not issue an order against it. 4444744 Canada Inc. (Kadima Transport Inc.) [ 151 ] This company did not file a defence and did not appear through counsel. This was one of the companies owned by Mr. Salib. There was no proof that HumanIT has any claim against this company. HumanIT’s claim against it will be dismissed. Arlette Thevenot [ 152 ] During the trial, the evidence raised some disturbing aspects regarding the conduct of Ms. Thevenot: (

a) She was sending reassuring e-mails to HumanIT regarding eventual payment up to April 18, 2012 when she knew that MCS Containers no longer had any hope of continuing its operations. (

b) She was involved in the new corporations of Mr. Faoual and in the actual administration of his container rental business since at least

February 23, 2012, when she agreed to become the corporate secretary and treasurer of 8115427 Canada Inc. [50] , a company owned by Alex Faoual. (

c) She sent many e-mails from November 2011 to April 2012 to HumanIT that indicated falsely that MCS was still located at the Montreal location on Sherbrooke Street when it had in fact moved in July 2011 and she was writing those e-mails from the living room of her apartment in Valleyfield. [ 153 ] HumanIT alleges that Ms. Thevenot was a participant in a conspiracy with Mr. Salib, Mr.

Faoual and their web of companies to defraud HumanIT of payment of its invoices, and to move and divert assets from HumanIT’s debtor, 7085893 Canada Inc., so as to render impossible the collection and payment of HumanIT’s claim when she was fully aware that the Montreal location had closed. [ 154 ] However, it should also be noted that Ms. Thevenot never had an ownership interest in the new companies of Mr. Faoual. [ 155 ] Nor did she even have a substantial financial benefit by way of salary.

Her car payments of $400 per month were paid for approximately one year ($4,800) in exchange for real administrative work done by her. [ 156 ] Regarding the e-mails, she testified that she merely conveyed information that Mr. Salib requested her to transmit to HumanIT. [ 157 ] She testified that she truly believed for the longest time what her former husband was telling her, namely that he was going to find new financing to save his business. [ 158 ] She was even transparent enough to inform HumanIT in April 2012 that Mr.

Salib was involved in setting up a new company. [ 159 ] In light of the evidence and the presumption of good faith in our law [51] , the Court concludes that she was merely an instrument of Mr. Salib and Mr. Faoual. [ 160 ] She was not controlling or directing their actions. [ 161 ] Although her conduct is not irreproachable, with respect to the contrary submissions made by HumanIT and its counsel, the Court does not find that she has committed fraud, willful blindness or negligence that would constitute a fault under

Article 1457 C.C.Q. [ 162 ] Accordingly, the Court will dismiss HumanIT’s claim against Ms. Thevenot, but without costs. 7085869 Canada Inc. (Marine Container Services) [ 163 ] This company was incorporated and owned by Mr. Salib and was involved in the operation of his container business. [ 164 ] There was no defence filed on its behalf and it did not appear through counsel. [ 165 ] According to the evidence, this company was dissolved on December 16, 2012 as a result of non-compliance to deposit annual corporate filings with Corporations Canada [52] . [ 166 ] As this company no longer exists, the Court will not issue an order against it.

8122504 Canada Inc. (TCG), 8115427 Canada Inc., 4440200 Canada Inc. and Alex Faoual [ 167 ] 8122504 Canada Inc. (TCG) and 8115427 Canada Inc. are companies incorporated by Mr. Faoual for the purpose of acquiring and operating the container rental division of Mr. Salib’s business. 4440200 Canada Inc. was already incorporated and repurposed in that regard [53] . [ 168 ] Mr. Faoual is the incorporator, sole shareholder and president of all three companies. [ 169 ] HumanIT alleges that: 1) Mr. Faoual and Mr. Salib conspired to defraud HumanIT of payment by stripping the assets from the patrimony of Mr.

Salib’s companies, including the container rental division, and making them insolvent; 2) HumanIT was fraudulently strung along to stall and prevent it from taking back and seizing its unpaid merchandise. This was effected by continuous promises of Mr. Salib and in the end by Mr. Faoual that HumanIT would be paid if it would waited a little longer. HumanIT alleges that the real purpose was to transfer the assets to companies of Mr. Faoual and prevent HumanIT from being paid or being able to take back its merchandise. [ 170 ] With regard to the first submission, it must be noted that Mr.

Faoual’s companies (TCG) did not acquire HumanIT’s merchandise and the other assets without financial consideration. Mr. Faoual’s companies did acquire the container rental business, but they also acquired most or all of the outstanding debt ($190,000) securing those and other assets of Mr. Salib’s business. [ 171 ] That in fact was the cause of the eventual collapse of TCG.

The profits of the container rental business were insufficient to cover the debt payments. [ 172 ] Accordingly, the Court does not retain that submission. [ 173 ] However, the preponderance of the evidence supports the second submission. [ 174 ] After waiting some eleven (11) months since delivery, HumanIT threatened to take back its merchandise [54] if it was not paid immediately. [ 175 ] Mr.

Salib fully acknowledged the validity of the reserve of ownership clause of HumanIT’s invoices and that that was part of the agreement of sale. [ 176 ] HumanIT was told that MCS Containers was on the verge of obtaining additional financing and that a seizure of the computer equipment sold would shut down the enterprise. [ 177 ] HumanIT’s owner, Mr. Pinheiro, testified that, as a small business owner himself, he was sympathetic and understood growing business pains. Relying on the veracity and sincerity of Mr.

Salib’s representations, he agreed to hold off on a seizure and not take back the merchandise. [ 178 ] For the same reason, Mr. Pinheiro agreed to take Mr. Salib’s postdated cheque for the amount owing to HumanIT.

[ 179 ] This corroborates the long string of continuous reassurances by e-mail from MCS Containers to HumanIT that progress was being made for additional financing and that receipt of the funding was imminent [55] , for payment to HumanIT. [ 180 ] Up to a certain point in time, the project of additional financing was within the realm of the reasonable. However, over time, it went from the possible, to a faint hope and ultimately to being non-existent. [ 181 ] On February 27, 2012, at the time of the meeting between Mr. Salib, Mr.

Faoual and HumanIT’s representatives, the prospect of re-financing was non-existent. [ 182 ] Mr. Salib had already given up any hope of continuing MCS Containers or other MCS business activities and advised his lenders of that fact. [ 183 ] Mr. Faoual was perfectly aware of that. He had already organized and put in place his plans to acquire and operate the container rental division of Mr. Salib’s business. In fact, four days earlier (February 23, 2012), he had already incorporated 8115427 Canada Inc., including making Ms.

Thevenot the corporate secretary and treasurer. [ 184 ] Three days later (March 1, 2012), Mr. Faoual would add Ms. Thevenot as the corporate secretary of 4440200 Canada Inc. The next day (March 2, 2012), he would incorporate 8122504 Canada Inc. [56] and appoint Ms. Thevenot as corporate secretary and treasurer. [ 185 ] Mr. Faoual was aware of the dynamics of the relationship with HumanIT. [ 186 ] He was a specialist in computers. He knew that Ms.

Thevenot needed the computers to have access to the computer files saved in electronic storage to be able to operate the container rental business. [ 187 ] The testimony of Ms. Thevenot confirmed that she used part of the computer merchandise sold by HumanIT to run the container rental business. [ 188 ] At the meeting of February 27, 2012, Mr. Salib presented the same story of hope and future funding, but he knew now that it was false. [ 189 ] Mr. Faoual supported Mr. Salib in presenting that hopeful vision of business continuity when he knew that it was false.

He did so for the purpose of convincing HumanIT to continue to hold off on repossession of its computer merchandise until he could have that merchandise transferred to his own companies. [ 190 ] The Court agrees that that conduct and the follow up conduct of subsequent incorporation and purported sale of the HumanIT merchandise to Mr. Faoual’s companies, as well as the subsequent use by those companies of HumanIT’s merchandise for that purpose, was fraudulent with regard to HumanIT. Mr. Faoual’s companies, under his direction, were used and instrumental in the commission of that fraud.

That civil fraud constitutes an extra-contractual fault under

Article 1457 C.C.Q. [ 191 ] With regard to the liability of a director, officer and majority shareholder of a company, the Court of Appeal held in Lanoue v. La Brasserie Labatt Limitée as follows: “La responsabilité personnelle d’un individu qui est actionnaire majoritaire et administrateur d’une compagnie peut être retenue dans les circonstances suivantes :

… - Il a lui-même commis une faute entraînant sa responsabilité extracontractuelle, par exemple en faisant de fausses représentations ou en remettant des documents falsifiés; - Il a activement participé à une faute extracontractuelle de la compagnie (ce qui se présume s’il est administrateur unique);” [57] [ 192 ] On the same topic, in his book

La société par actions au Québec [58] , Me Paul Martel writes: (1-268) À cette liste (de principes généraux en matière de droit civil), il faut ajouter l’

article 1457 du Code civil du Québec , qui est la seule véritable source potentielle de responsabilité civile des administrateurs de sociétés, et qui ne requiert pas de « soulèvement du voile » pour s’appliquer. (24-298) La responsabilité personnelle des administrateurs peut par ailleurs, dans certaines circonstances, être engagée en cas de faute extracontractuelle de la société. … Pour établir la responsabilité de l’administrateur, il suffit de prouver deux choses : 1) la fraude de la société, à laquelle l’administrateur poursuivi a participé, et 2) la perte ou le dommage subi par le poursuivant, résultant de cette fraude. (24-299) Pour que les administrateurs encourent une responsabilité, il faut qu’ils aient commis, personnellement, généralement dans un but intéressé, une faute qui ait contribué au délit de la société. [ 193 ] Mr.

Faoual was not only the sole shareholder of those companies [59] , he was also a director and the president of all of them. [ 194 ] The commission of a fraud in the circumstances by such a director and corporate officer constitutes an extra-contractual fault under

Article 1457 C.C.Q. [ 195 ] Accordingly, the Court will condemn solidarily Mr. Faoual personally, 8122504 Canada Inc. (TCG), 8115427 Canada Inc. and 4440200 Canada Inc. to pay HumanIT the damages suffered as a result of their faulty conduct. [ 196 ] In light of the foregoing conclusion, there is no reason to also decide whether the Court should lift the corporate veil of these companies. ATC Financial Services [ 197 ] HumanIT alleges that ATC: (

a) was part of a conspiracy involving Mr. Salib and Mr. Faoual to deprive HumanIT of its goods and payment for the sale thereof. In that regard, HumanIT submits that ATC acted as the financial enabler to allow Mr. Salib and Mr. Faoual to carry out their scheme; and (

b) acted illegally, erroneously and negligently in not respecting the rule of law, in selling without right the property of HumanIT, namely its merchandise, and as such, caused damages to HumanIT. [ 198 ] With regard to submission (a), the Court concludes that, despite extensive pre-trial examinations and undertakings, HumanIT has not discharged its burden of proof to establish that ATC knowingly participated in a conspiracy with the other Defendants to deprive HumanIT of its ownership rights or to frustrate HumanIT’s claim for payment.

[ 199 ] With regard to submission (b), the Court does conclude that HumanIT has established that ATC acted negligently in illegally and wrongfully disposing of and selling HumanIT’s property and therefore depriving HumanIT of its property. [ 200 ] That conclusion is based upon the following grounds. [ 201 ] HumanIT sold its merchandise to 7085893 Canada Inc. (MCS Containers).

The sale included a reserve of ownership clause until complete payment of the purchase price. 7085893 Canada Inc. never paid the full purchase price. 7085893 Canada Inc.’s representative fully acknowledged the existence and validity of that reserve of ownership and acknowledged therefore that HumanIT remained the owner of the merchandise. [ 202 ] The rule of Nemo Dat Quod Non Habet applies in Quebec law [60] : He who hath not cannot give.

Personne ne peut pas transmettre plus de droit qu’il n’en a lui-même . [ 203 ] Professor Michel Pourcelet in La vente expressed the rule this way: “Pour vendre son bien il faut en être propriétaire, c’est pourquoi il semble évident que la vente d’une chose dont on n’a pas la propriété soit entachée de nullité.

D’autre part, le transfert de propriété étant l’un des effets essentiels de la vente, il faut être propriétaire effectif pour pouvoir vendre car nemo plus juris in alium transfere potest quam ipse habet (Personne ne peut transmettre à autrui plus de droit qu’il n’en a lui-même).” [61] [ 204 ] Accordingly, 7085893 Canada Inc. (MCS Containers) had no right to sell or to otherwise alienate or dispose of the merchandise owned by HumanIT. [ 205 ] As already stated, the Court has concluded that there never was

an act of surrender in favour of ATC signed by Faoud Salib of property owned by 70858 69 Canada Inc. However, even if such

an act of surrender did exist, it could only have been given in the name of 70858 69 Canada Inc., which was the sole borrower and constituent or grantor of security to ATC under the loan agreements of December 11, 2008 [62] , April 14, 2009 [63] and July 7, 2009 [64] . [ 206 ] ATC had no security over assets of 70858 93 Canada Inc. and therefore could not even have purported to become owner of HumanIT’s merchandise by exercising its hypothecary rights and recourses, whether or not such

an act of surrender existed, was executed or was otherwise valid. [ 207 ] The sale by ATC of HumanIT’s merchandise was therefore illegal and subject to nullity pursuant to

Article 1713 C.C.Q. which reads as follows: 1713. La vente d’un bien par une personne qui n’en est pas propriétaire ou qui n’est pas chargée ni autorisée à le vendre, peut être frappée de nullité . 1713. The sale of property by a person other than the owner or other than a person charged with its sale or authorized to sell it may be declared null . [Emphasis added] [ 208 ] The sale of property not owned by the seller may be a fault and the basis of an extra-contractual claim for damages. [ 209 ] Professor P.-G. Jobin, in La vente writes as follows [65] :

« Le vendeur doit indemniser le propriétaire du préjudice subi à cause de sa faute, selon les règles générales de la responsabilité extracontractuelle. La faute du vendeur, en l’espèce, consiste à avoir vendu un bien dont il savait, ou devait savoir, qu’il n’appartenait pas à son propre auteur (par exemple son vendeur) ; c’est en somme d’avoir sciemment vendu le bien d’autrui.

Pour les tribunaux, il s’agit en cette matière de faire respecter certaines normes minimales de conduite dans les affaires – le mot « affaires » n’étant pas restreint aux opérations commerciales ou d’entreprise . » [Emphasis added] [ 210 ] ATC prepared the sale documents which included HumanIT’s merchandise.

ATC did not publish a prior notice of exercise of rights of its security. [ 211 ] Even had there been a voluntary surrender (which would not have applied to HumanIT’s merchandise in any event) under ATC’s security, it would had to have complied with the relevant Civil Code of Quebec articles pertaining to the exercise of such security, including Articles 2757 , 2758 and 2764 C.C.Q. [ 212 ] These articles read as follows: 2757.

Le créancier qui entend exercer un droit hypothécaire doit produire au bureau de la publicité des droits un préavis , accompagné de la preuve de la signification au débiteur et, le cas échéant, au constituant, ainsi qu’à toute autre personne contre laquelle il entend exercer son droit. L’inscription de ce préavis est dénoncée conformément au livre De la publicité des droits. 2757.

A creditor intending to exercise a hypothecary right must file a prior notice at the registry office , together with evidence that it has been served on the debtor and, where applicable, on the grantor and on any other person against whom he intends to exercise his right. The registration of the notice must be notified in accordance with the Book on Publication of Rights. 2758. Le préavis d’exercice d’un droit hypothécaire doit dénoncer tout défaut par le débiteur d’exécuter ses obligations et rappeler le droit, le cas échéant, du débiteur ou d’un tiers, de remédier à ce défaut.

Il doit aussi indiquer le montant de la créance en capital et intérêts, s’il en existe, et la nature du droit hypothécaire que le créancier entend exercer, fournir une description du bien grevé et sommer celui contre qui le droit hypothécaire est exercé de délaisser le bien, avant l’expiration du délai imparti.

Ce délai est de 20 jours à compter de l’inscription du préavis s’il s’agit d’un bien meuble, de 60 jours s’il s’agit d’un bien immeuble, ou de 10 jours lorsque l’intention du créancier est de prendre possession du bien; il est toutefois de 30 jours pour tout préavis relatif à un bien meuble grevé d’une hypothèque dont l’acte constitutif est accessoire à un contrat de consommation. 2758.

A prior notice of the exercise of a hypothecary right must disclose any failure by the debtor to perform his obligations, and contain a reminder, where applicable, that the debtor or a third person has the right to remedy the default. It must also disclose the amount of the claim in capital, and in interest, if any, and the nature of the hypothecary right which the creditor intends to exercise, furnish a description of the charged property, and demand from the person against whom the hypothecary right is to be exercised that he surrender the property before the expiry of the period specified in the notice.

That period is 20 days after registration of the notice in the case of movable property, 60 days in the case of immovable property, or 10 days if the creditor intends to take possession of the property; however, the period is 30 days in the case of a notice relating to movable property charged with a hypothec constituted by

an act accessory to a consumer contract.

2764. Le délaissement est volontaire lorsque, avant l’expiration du délai indiqué dans le préavis , celui contre qui le droit hypothécaire est exercé abandonne le bien au créancier afin qu’il en prenne possession ou consent, par écrit, à le remettre au créancier au moment convenu. 2764.

Surrender is voluntary where, before the period indicated in the prior notice expires , the person against whom the hypothecary right is exercised abandons the property to the creditor in order that the creditor may take possession of it or consents in writing to turn it over to the creditor at an agreed time. [Emphasis added] [ 213 ] These articles are of public order [66] . Therefore, ATC’s purported exercise of its hypothecary rights was not valid since:

a) ATC did not publish a prior notice of the exercise of such rights;

b) A voluntary surrender could only have been valid if it had been effected after the publication of the notice and before the expiry of the notice period of 20 days stipulated in the notice.

c) The other secured creditor of these assets, Riverway Investment Inc., was entitled to be advised of such an exercise of ATC’s hypothecary rights and to respond to protect its own rights. It was not given an opportunity to do so. [ 214 ] The sale documentation prepared by ATC is unclear and erroneous as to the identity of the company that in fact was the buyer of the goods to be sold. [ 215 ] According to the Deed of Sale, the buyer is 8115427 Canada Inc. [67] . [ 216 ] According to the Agreement of Loan, the buyer is 4440200 Canada Inc. [ 217 ] Under the Deed of Sale [68] , ATC warranted to Mr.

Faoual’s company 8115427 Canada Inc. that ATC was the legal owner of the goods sold, including HumanIT’s property. [ 218 ] That was clearly false. [ 219 ] Also, as stated above, no verification was made at the RDPRM as to the existence of any rights registered against any of Mr. Salib’s companies before the execution of the Deed of Sale and Loan Agreement with Mr. Faoual’s companies. [ 220 ] ATC also guaranteed that the goods sold, including HumanIT’s merchandise, were not the subject of a conditional sale agreement, including a reserve of ownership (“vente à temperament”).

That also was false. [ 221 ] The breach of a contractual obligation may be an extra-contractual fault in respect of a third party when the party in breach should have reasonably expected that such breach would cause harm to such a third party [69] . [ 222 ] That is clearly the case here. ATC should have anticipated that a false declaration or representation of this type, without taking the normal and necessary precautions to ensure its accuracy, would cause damages and deprive the true owner of the property illegally sold.

[ 223 ] That is especially the case given that the ATC representative at trial testified that he was aware that Mr. Salib used several companies for the operation of the MCS businesses and that he was also aware that Mr. Salib was unorganized and unreliable. [ 224 ] Had the ATC representative inquired with Mr. Salib and the person taking care of MCS’ basic internal accounting at that point (Ms. Thevenot) as to whether any property to be sold or taken back remained unpaid or subject to a reserve of ownership, they would have been obliged to declare as unpaid HumanIT’s merchandise. [ 225 ] At that point, as Mr.

Salib had given up hope of saving his business, he would have nothing to lose in stating so. As the Court has concluded that Ms. Thevenot was not in bad faith, she would have likely stated so. The follow up documentation would have included the invoices containing a reserve of ownership clause, HumanIT’s letter confirming such reservation [70] and MCS Containers’ letter of reply, including the postdated cheque [71] .

All these documents manifestly show that the sale contract for HumanIT’s merchandise is with 70858 93 Canada Inc., and not with the borrower and secured debtor 70858 69 Canada Inc. [ 226 ] This in turn would have led to the exclusion of HumanIT’s property from the purported voluntary surrender and subsequent sale.

This is additional support that ATC’s failure to act prudently and diligently led to HumanIT’s loss of its property. [ 227 ] There are other signs that the proper and usual measures of verification were not undertaken by ATC before HumanIT’s merchandise was unlawfully resold. [ 228 ] The Deed of Sale refers to the movables to be sold as restaurant equipment, which was clearly not the case. [ 229 ] The corporate resolutions of ATC authorizing the sale were indicated as being subsequent to the Deed of Sale and in fact were never prepared [72] . [ 230 ] The reason given by Me Markakis was that the sale had to occur quickly. [ 231 ] At trial, the reason behind that urgency was not explained by Me Markakis. [ 232 ] HumanIT argued that the real reason was that ATC wanted to frustrate HumanIT’s rights, and to favour Mr.

Salib and Mr. Faoual’s companies. [ 233 ] As stated, the Court is of the view that the evidence does not support that fraudulent intent on the part of ATC.

However, HumanIT has established negligence on the part of ATC in illegally selling and disposing of HumanIT’s property and thereby causing damages to HumanIT. [ 234 ] ATC had a last chance to respect HumanIT’s property rights in its merchandise. [ 235 ] When the property was illegally seized in October 2012, ATC could have made an opposition. [ 236 ] Had ATC done a proper verification in accordance with its seller declaration, it would have known that the remaining computer equipment was still owned by HumanIT.

Had HumanIT been advised, it could still have made an opposition to the seizure on the basis of its ownership of the merchandise. Instead, ATC consented to the judicial sale by bailiff with the hope of obtaining partial payment of the amount owed to it under the Loan Agreement with 4440200 Canada Inc. [ 237 ] For all the above reasons, the court concludes that ATC was negligent in selling HumanIT’s property, which ATC did not own. ATC committed multiple faults giving rise to its liability under

Article 1457 C.C.Q. with respect to HumanIT.

Damages Caused by the Faults of Mr. Faoual, his Companies and by ATC [ 238 ] The Court must now determine the measure of damages caused to HumanIT by the faults of: (

a) Mr. Faoual and his companies, and (

b) ATC. [ 239 ] Based upon the evidence, HumanIT cannot claim the full amount owed of $37,197.22 under its invoices against Mr. Faoual, his companies or ATC. [ 240 ] HumanIT claims that amount against 7085893 Canada Inc., which is now dissolved. [ 241 ] The claims against Mr. Faoual, his companies and ATC are based upon independent faults, the distinct effects of which prevented HumanIT from reclaiming possession of its sold merchandise.

Therefore, the Court must determine the value of such property at the relevant time, namely in March 2012. [ 242 ] At that time, the merchandise was approximately two (2) years old. [ 243 ] The representative of HumanIT, Mr. Pinheiro, testified that the products sold were genuine and new Apple equipment and software. As such, they were of very high quality with a low depreciation factor. [ 244 ] ATC argued that the interest amount claimed ($4,160) on invoice 1303371 of Exhibit P-1 should not be included.

The Court agrees that that is not part of the value of the equipment. [ 245 ] ATC also argued that the various software sold and installed on the equipment should not be included. The Court does not agree with that submission.

This software increased the value of the hardware and should be included. [ 246 ] ATC argued that not all of the equipment sold by HumanIT had been resold by ATC. [ 247 ] However, the comparison table prepared by counsel for ATC [73] between the inventory of products sold by ATC as shown in the attachment of the Deed of Sale of ATC [74] and HumanIT’s invoices, as verified during the trial by HumanIT’s representative, confirm that all, or practically all, of HumanIT’s merchandise was sold by ATC. [ 248 ] Finally, ATC argued that HumanIT should not be able to claim the GST and PST on its invoices.

The Court does not agree with that submission. These taxes form part of the price and value of the lost merchandise. [ 249 ] Based upon the evidence, the Court arbitrates that the merchandise lost 20% of its value over the two (2) years between delivery and its illegal resale. [ 250 ] The damages suffered by HumanIT, as a result of the faults of Mr. Faoual, his companies and ATC, are therefore $26,429.78 ($33,037.22 ($37,197.22 - $4,160) x 80%).

Solidary Liability and Apportionment of Liability Between Defendants Held Liable [ 251 ] Both Mr. Faoual and his companies (8122504 Canada Inc., 8115427 Canada Inc. and 4440200 Canada Inc.), on one hand, and ATC on the other hand, although acting independently, committed separate faults that caused the same damages to HumanIT. They are therefore solidarily liable towards HumanIT for $26,429.78. [ 252 ]

Article 1480 C.C.Q. reads as follows: 1480. Lorsque plusieurs personnes ont participé à un fait collectif fautif qui entraîne un préjudice ou qu’elles ont commis des fautes distinctes dont chacune est susceptible d’avoir causé le préjudice, sans qu’il soit possible, dans l’un ou l’autre cas, de déterminer laquelle l’a effectivement causé, elles sont tenues solidairement à la réparation du préjudice. 1480.

Where several persons have jointly participated in a wrongful act or omission which has resulted in injury or have committed separate faults each of which may have caused the injury, and where it is impossible to determine, in either case, which of them actually caused the injury, they are solidarily bound to make reparation therefor. [ 253 ] In accordance with

Article 1478 C.C.Q. and

Article 328 of the Code of Civil Procedure , the Court can apportion as between themselves only, the respective liability of the Defendants who have committed separate faults. This apportionment is based on the respective seriousness of the faults of each. [ 254 ]

Article 1478 C.C.Q. reads as follows: 1478. Lorsque le préjudice est causé par plusieurs personnes, la responsabilité se partage entre elles en proportion de la gravité de leur faute respective. La faute de la victime, commune dans ses effets avec celle de l’auteur, entraîne également un tel partage. 1478. Where an injury has been caused by several persons, liability is shared between them in proportion to the seriousness of the fault of each. The victim is included in the apportionment when the injury is partly the effect of his own fault. [ 255 ]

Article 328 C.C.P. reads as follows: 328. Le jugement qui porte condamnation doit être susceptible d’exécution. Ainsi, la condamnation à des dommages-intérêts en contient la liquidation et la condamnation solidaire contre les auteurs d’un préjudice détermine, pour valoir entre eux seulement, la part de chacun dans la condamnation si la preuve permet de l’établir. 328. A judgment rendered against a party must be capable of being executed.

A judgment awarding damages must liquidate the damages; a judgment finding persons solidarily liable for injury must, if the evidence permits, determine the share of each of those persons in the award as between them only. [ 256 ] In the circumstances, and based upon the evidence, the Court apportions their respective liability at 50% each as between (

a) Mr. Faoual and his companies (8122504 Canada Inc., 8115427 Canada Inc. and 4440200 Canada Inc.) collectively and solidarily, and (

b) ATC. Cross-Application of ATC [ 257 ] ATC has made a Cross-Application against HumanIT on the basis that HumanIT’s claim against it is frivolous. [ 258 ] Although the Court has agreed that there was insufficient proof to conclude that ATC participated intentionally to commit fraud against HumanIT, there was sufficient proof to conclude as to ATC’s negligence and its unlawful involvement in the wrongful and illegal sale and disposal of HumanIT’s merchandise. [ 259 ] In any event, there was no proof of abuse of proceedings on the part of HumanIT.

In accordance with the principle enunciated in Viel [75] , there are no grounds for condemnation for legal fees in the circumstances. FOR THESE REASONS, THE COURT: GRANTS in part HumanIT’s Amended Judicial Demand; CONDEMNS solidarily Abdallah (Alex) Faoual, 8122504 Canada Inc., 8115427 Canada Inc., 4440200 Canada Inc. and ATC Financial Services LLC to pay HumanIT (Human Information Technologies) Inc. the sum of $26,429.78 with legal interest of 5% per year, plus the additional indemnity provided at

Article 1619 of the Civil Code of Quebec , from the date of HumanIT’s Amended Judicial Demand dated November 28, 2014; WITH LEGAL COSTS against those Defendants solidarily; With respect to the above solidary condemnation of the aforementioned Defendants for $26,429.78 with legal interest and the additional indemnity, and the condemnation for legal costs, DECLARES and APPORTIONS , between themselves only, the respective liability of these Defendants as follows: a) 50%: Abdallah (Alex) Faoual, 8122504 Canada Inc., 8115427 Canada Inc., 4440200 Canada Inc. (collectively and solidarily as between them); and b) 50%: ATC Financial Services LLC.

DISMISSES the Amended Judicial Demand against Arlette Thevenot, Marine Container Services Inc. and 4444744 Canada Inc. (Kadima Transport Inc.); WITHOUT legal costs. __________________________________ Jeffrey Edwards, J.C.Q.

Me David Durand Attorney for Plaintiff HumanIT (Human Information Technologies) Inc. Me Julien Labbée Lacas Karavoulias Avocats Attorneys for Defendants Arlette Thevenot, 8122504 Canada Inc., 8115427 Canada Inc., Abdallah (Alex) Faoual and 4440200 Canada Inc. Me Tom Markakis Me Sara Korhani De Louya Markakis Attorneys for Defendant ATC Financial Services LLC Dates of hearing: November 21, 22, 23, 24 and 25, 2016