Antoine Ponce v. Daniel Riopel, 2023 SCC 25

SUPREME COURT OF CANADA Citation: Ponce v. Société d’investissements Rhéaume ltée, 2023 SCC 25 Appeal Heard: January 12, 2023 Judgment Rendered: October 27, 2023 Docket: 39931 Between: Antoine Ponce and Daniel Riopel Appellants and Société d’investissements Rhéaume ltée, Michel Rhéaume investissement ltée, Agence André Beaulne ltée and 9098-3289 Québec inc. Respondents Official English Translation Coram: Wagner C.J. and Karakatsanis, Brown, * Rowe, Kasirer, Jamal and O’Bonsawin JJ.

Reasons for Judgment : (paras. 1 to 119) Kasirer J. (Wagner C.J. and Karakatsanis, Rowe, Jamal and O’Bonsawin JJ. concurring) Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports . * Brown J. did not participate in the final disposition of the judgment.

Antoine Ponce and Daniel Riopel Appellants v. Société d’investissements Rhéaume ltée, Michel Rhéaume investissement ltée, Agence André Beaulne ltée and 9098-3289 Québec inc. Respondents Indexed as: Ponce v. Société d’investissements Rhéaume ltée 2023 SCC 25 File No.: 39931. 2023: January 12; 2023: October 27.

Present: Wagner C.J. and Karakatsanis, Brown,* Rowe, Kasirer, Jamal and O’Bonsawin JJ. on appeal from the court of appeal for quebec Civil liability — Obligation of loyalty — Implied contractual obligations — Duty to inform — Obligation to act in good faith— Remedy — Company informing presidents of group of companies that it was interested in acquiring group — Presidents not disclosinginformation to group’s majority shareholders — Presidents purchasing shareholders’ interests in group and reselling them to companyfor profit — Whether presidents’ non-disclosure of interest expressed by company in acquiring group constitutes civil fault —Appropriate remedy if fault established — Civil Code of Québec, arts. 1375, 1434.

Two presidents of a group of three companies in the insurance industry learned that a major company was interested inacquiring the group. Rather than revealing this to the group’s majority shareholders, the presidents decided to buy the whole of theshareholders’ interests themselves in order to resell them to the company for a substantial profit. Before the resale, the presidents and thepurchaser company entered into an undertaking of confidentiality, which prevented the company from dealing directly with the group’smajority shareholders.

Upon learning of the resale, the shareholders filed a motion to institute proceedings for damages in the Superior Court,claiming approximately $24 million as compensation for the gain they would have made through that transaction of which they weredeprived. They alleged that the presidents had breached their contractual and legal obligations and their fiduciary obligations, and inparticular their obligations to act in good faith, with loyalty and transparency, by failing to inform them of the interest expressed by thepurchaser company in acquiring the group.

The shareholders argued that, because of the presidents’ unlawful actions, they were entitledto claim the equivalent of the excess profits made by the presidents. The Superior Court ruled in the shareholders’ favour and ordered the presidents solidarily to pay them $11,884,743, anamount equal to the profits earned by the presidents on the resale. The court found that, under both the Civil Code of Québec and theCanada Business Corporations Act, the presidents, in their capacity as directors, owed duties of honesty, loyalty, prudence and diligenceto the group.

The trial judge found that these same duties could be extended to the shareholders because of an incentive pay agreemententered into by the shareholders and the presidents (“Presidents’ Agreement”) that governed the parties’ relationship and entailedimplied obligations for the presidents. The Court of Appeal affirmed the trial judgment and upheld the remedy awarded by the trialjudge. However, it was of the view that the trial judge erred in finding that the duties of honesty and loyalty provided for in the CivilCode of Québec and the

Canada Business Corporations Act could be extended to the shareholders. The court held that the presidents’conduct fell within the three criteria set out in Bank of Montreal v. Bail Ltée, (SCC), [1992] 2 S.C.R. 554, and that thepresidents breached the obligation of contractual good faith and the obligation to inform they owed to the shareholders. Held: The appeal should be dismissed. The presidents’ failure to inform the majority shareholders of the purchaser company’s interest in acquiring the group was abreach of the requirements of good faith.

They breached the obligation of contractual loyalty linked to good faith, which was an impliedobligation under the contract through the combined effect of arts. 1434 and 1375 C.C.Q. The Presidents’ Agreement involved an impliedobligation to inform that required the presidents to provide the shareholders with all information relevant to making an informed decisionabout the sale of their shares. This implied obligation flowed from the nature of that agreement, which reflected the presumed intentionof the parties, in accordance with art. 1434 C.C.Q.

The presidents were also required to perform the Agreement in accordance with therequirements of good faith, which was included in the contract through imperative law under art. 1375 C.C.Q. With regard to the remedy,the purpose of damages is to compensate for the gain lost as a result of fault, and the quantum must be assessed so as to place theshareholders in the position they would have been in but for the presidents’ fault.

Disgorgement of profits is not available where therehas simply been a breach of the obligation of good faith; in principle, it is available only where a person is charged with exercisingpowers in the interest of another. However, where a breach of the requirements of good faith prevents the aggrieved party from provingthe injury sustained, it should be presumed that the injury is equivalent to the profits made by the party at fault. The presidents haveshown no palpable and overriding error in the trial judge’s conclusion that the shareholders’ lost gain is equivalent to the profits made bythe presidents.

There is therefore no reason to interfere with the assessment of the quantum of damages.

With regard to the possible legal bases for the presidents’ obligation to inform the shareholders of the interest expressed bythe purchaser company in acquiring the group, the obligation of maximalist loyalty arising from the exercise of powers in the interest ofanother, like the one resting on an administrator of the property of others or a mandatary, is not at issue in this case.

The presidents areneither the shareholders’ mandataries nor administrators of the property of others, which means that they cannot be held to an obligationof loyalty like the one provided for in arts. 1309 para. 2 and 2138 para. 2 C.C.Q. In addition, the extracontractual obligation to informrelated to good faith in the formation of contracts is of only theoretical importance in this case given the contractual relationship that theparties chose to establish with one another.

The shareholders do not allege that there was a breach of the requirements of good faith at thepre-contractual stage, nor do they ask that the contracts for the sale of their interests in the group to the presidents be annulled. Rather,their focus is on the good faith performance of the Presidents’ Agreement, which was fully applicable at the relevant time. The first legal basis for the duty to inform incumbent on the presidents is therefore the implied contractual obligation toinform the shareholders under the Presidents’ Agreement.

Pursuant to art. 1434 C.C.Q., a contract binds the parties not only as to whatthey have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law. In thiscase, the nature of the Presidents’ Agreement leads to the conclusion that an implied obligation to inform was incident to it. ThePresidents’ Agreement was the cornerstone of the business relationship between the presidents and the shareholders. The role of eachparty in this relationship was clear.

The Presidents’ Agreement was a long-term agreement formalizing a mutually beneficial businessrelationship between the presidents and the shareholders, and it required reciprocal contractual loyalty. It reinforced the high level oftrust that the shareholders placed in the presidents, and it expressly set out incentive pay terms and conditions for the presidents’ benefitwithout spelling out reciprocal obligations for them.

In light of the very nature of the Presidents’ Agreement, the presidents had animplied obligation to inform the shareholders of any fact that might enable them to assess the companies’ profits and value and decidewhether to sell their shares and, if so, at what price. The non-disclosure of the purchaser company’s interest was a direct breach of thisimplied obligation. The second legal basis is the obligation to perform the Presidents’ Agreement in accordance with the requirements of goodfaith under art. 1375 C.C.Q. Good faith in Quebec civil law is now an enacted standard of public order.

Unlike maximalist loyalty arisingfrom the exercise of legal powers, contractual loyalty is reciprocal because of the mutual nature of good faith. It requires a contractingparty to act with loyalty by taking into account, within the limits of reasonable conduct, the interests of the other contracting party.Nevertheless, the obligation of loyalty rooted in contractual good faith in the performance of a contract does not require a contractingparty to subordinate their interests to those of the other party.

In this case, contractual loyalty tied to good faith did not prevent thepresidents from performing the contract to further their self-interest, but it did require them to consider the interests of the othercontracting parties. For this reason, it could impose on them a duty to inform. While they did not have to subordinate their interests tothose of the shareholders, the presidents could not conceal the purchaser company’s interest in the group without incurring contractualliability to the shareholders. By concealing that interest, they breached their obligation of good faith.

The interest expressed by the purchaser company satisfies, in the context of the Presidents’ Agreement, each of the threecriteria set out in Bail, which serve to determine whether particular information falls within the duty to inform: (1) knowledge of theinformation, whether actual or presumed, by the party owing the obligation to inform; (2) the fact that the information in question is ofdecisive importance; (3) the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditoris legitimately relying on the debtor of the obligation.

With regard to the first criterion, the presidents knew of the purchaser company’sinterest and were fully aware of the financial value of that information. The second criterion is also satisfied because the purchasercompany’s interest would have had a major impact on the decision and on the determination of the value of the shareholder’s shares andthe sale price. The last criterion is doubly satisfied given the atmosphere of trust that existed between the parties and the fact that it wasimpossible for the shareholders to inform themselves of the purchaser company’s interest.

As a result, the requirements of good faith inthe performance of the Presidents’ Agreement imposed a duty on the presidents to inform the shareholders of the interest expressed bythe purchaser company. Determining the appropriate remedy in this case helps to clarify the boundary between restitution and compensation in thecivil law. Compensation for the injury caused by a breach of contractual loyalty is distinct from disgorgement of profits arising fromnon-performance of the obligation of maximalist loyalty in the exercise of powers.

Disgorgement of profits without regard to injury is notan appropriate remedy in this case, because it is not in keeping with the compensatory function of civil liability. It is available onlywhere a person is charged with exercising powers in the interest of another, and it is meant to ensure compliance with the obligation ofmaximalist loyalty owed by a person on whom a power is conferred.

An award of damages, on the other hand, serves to compensate thevictim of a fault for the injury sustained, reflecting a compensatory logic related to contractual loyalty under art. 1375 C.C.Q., and itspurpose is to compensate for the gain lost as a result of fault. To justify an award of damages, the party wronged by a breach ofcontractual loyalty bears the burden of establishing compensable injury, in accordance with the fundamental principle of restitutio inintegrum (or full reparation) that is central to the law of civil liability in Quebec.

In this case, the gain lost by the shareholders is compensable under the rule for assessing damages set out in art. 1611C.C.Q. Although the law of civil liability does not, as a general rule, excuse a plaintiff from proving the injury sustained, it is thepresidents’ disloyal conduct that prevents the shareholders from making such proof. The presidents’ non-disclosure of information to theshareholders was accompanied by efforts to conceal the purchaser company’s interest in the group.

The presidents cannot be allowed toprofit from their breach of the requirements of good faith by arguing that the shareholders failed to prove their injury. In accordance withBiotech Electronics Ltd. v. Baxter, (QC CA), [1998] R.J.Q. 430 (C.A.), the presidents’ wrongdoing gives rise to arebuttable presumption that the shareholders’ lost advantage is equivalent to the profits unjustly realized by the presidents. Thepresumption established in Baxter serves as the basis for a method of calculating damages to compensate the aggrieved party for theinjury sustained.

It is based on a compensatory objective that is distinct from disgorgement of profits where disgorgement is awarded fora restitutionary purpose in the absence of any injury. The presidents have not rebutted this presumption, and the damages owed to theshareholders are equivalent to the difference between the sale price received by the presidents on their resale of the shares to thecompany and the price received by the shareholders on the initial sale of the shares to the presidents. Cases Cited Applied: Biotech Electronics Ltd. v. Baxter, (QC CA), [1998] R.J.Q. 430; Bank of Montreal v. Bail

Ltée, (SCC), [1992] 2 S.C.R. 554; distinguished: Bank of Montreal v. Kuet Leong Ng, (SCC), [1989] 2S.C.R. 429; considered: Uni-Sélect inc. v. Acktion Corp., (QC CA), [2002] R.J.Q. 3005; referred to: Resolute FPCanada Inc. v. Hydro-Québec, 2020 SCC 43; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7;Gravino v. Enerchem Transport inc., 2008 QCCA 1820, [2008] R.J.Q. 2178; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494;Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, [2018] 3 S.C.R. 101; Provigo Distribution Inc. v. SupermarchéA.R.G. Inc., ; Cabiakman v.

Industrial Alliance Life Insurance Co., 2004 SCC 55, [2004] 3 S.C.R. 195; Housen v.Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; National Bank of Canada v. Soucisse, (SCC), [1981] 2 S.C.R. 339;Houle v. Canadian National Bank, (SCC), [1990] 3 S.C.R. 122; Tardif v. Succession de Dubé, 2018 QCCA 1639, 51C.C.L.T. (4th) 54; Dunkin’ Brands Canada Ltd. v. Bertico Inc., 2015 QCCA 624, 41 B.L.R. (5th) 1; C.M. Callow Inc. v. Zollinger, 2020SCC 45; Desjardins Financial Services Firm Inc. v. Asselin, 2020 SCC 30, [2020] 3 S.C.R. 298; Abbas-Turqui v. Labelle Marquis Inc.,; Rainbow Industrial Caterers Ltd. v.

Canadian National Railway Co., (SCC), [1991] 3 S.C.R. 3;Lamb v. Kincaid (1907), (SCC), 38 S.C.R. 516; National Bank of Canada v. Corbeil, (SCC), [1991] 1S.C.R. 117; Provincial Bank of Canada v. Gagnon, (SCC), [1981] 2 S.C.R. 98; Andrews v. Grand & Toy Alberta Ltd., (SCC), [1978] 2 S.C.R. 229; Grenier v. Grenier, 2011 QCCA 964; M.H. v. Axa Assurances inc., 2009 QCCA 2358,[2010] R.R.A. 15. Statutes and Regulations Cited

Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 122(1)(a). Civil Code of Québec, arts. 322, 431, 432, 1309 para. 2, 1365, 1366 para. 1, 1375, 1434, 1611 et seq., 2088, 2098, 2100 para. 1, 2138para. 2, 2139, 2146 para. 2, 2184. Code civil (France), arts. 1112, 1112-1. Authors Cited Baudouin, Jean-Louis. “Justice et équilibre: la nouvelle moralité contractuelle du droit civil québécois”, dans Gilles Goubeaux et autres, dir., Études offertes à Jacques Ghestin: Le contrat au début du XXIe siècle. Paris: LGDJ, 2001, 29. Baudouin, Jean-Louis, et Pierre-Gabriel Jobin.

Les obligations, 7e éd. par Pierre-Gabriel Jobin et Nathalie Vézina. Cowansville, Que.:Yvon Blais, 2013. Bénabent, Alain. Droit des obligations, 19e éd. Paris: LGDJ, 2021. Cantin Cumyn, Madeleine. “L’obligation de loyauté dans les services de placement” (2012), 3:1 B.D.E. 19. Cantin Cumyn, Madeleine. “Le pouvoir juridique” (2007), 52 McGill L.J. 215. Cantin Cumyn, Madeleine, et Michelle Cumyn. L’administration du bien d’autrui, 2e éd. Cowansville, Que.: Yvon Blais, 2014. Cornu, Gérard, ed. Dictionary of the Civil Code. Paris: LexisNexis, 2014, “loyauté”.

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Cowansville, Que.: Yvon Blais, 2003. Grégoire, Marie Annik. Liberté, responsabilité et utilité: la bonne foi comme instrument de justice. Cowansville, Que.: Yvon Blais,2010. Lefebvre, Brigitte. “La bonne foi”, dans Benoît Moore, dir., Les grandes notions. Montréal: Thémis, 2015, 75. Lefebvre, Brigitte. “La négociation d’un contrat: source potentielle de responsabilité extracontractuelle”, dans Pierre-Claude Lafond,dir., Mélanges Claude Masse: En quête de justice et d’équité. Cowansville, Que.: Yvon Blais, 2003, 571. Lluelles, Didier, et Benoît Moore. Droit des obligations, 3e éd. Montréal: Thémis, 2018.

Malaurie, Philippe, Laurent Aynès et Philippe Stoffel-Munck. Droit des obligations, 12e éd. Paris: LGDJ, 2022. Picod, Yves. Le devoir de loyauté dans l’exécution du contrat. Paris: Librairie générale de droit et de jurisprudence, 1989. Pineau, Jean, et autres. Théorie des obligations, 5e éd. par Catherine Valcke. Montréal: Thémis, 2023. Private Law Dictionary and Bilingual Lexicons: Obligations. Cowansville, Que.: Yvon Blais, 2003, “concealment”. Smith, Lionel. “Loyalty” (2020), 66 McGill L.J. 121.

Smith, Lionel, and Jeff Berryman. “Disgorgement of Profits in Canada”, in Ewoud Hondius and André Janssen, eds., Disgorgement of Profits: Gain-Based Remedies throughout the World . New York: Springer, 2015, 281. Stoffel-Munck, Philippe. L’abus dans le contrat: Essai d’une théorie . Paris: LGDJ, 2000. Viney, Geneviève. “La condamnation de l’auteur d’une faute lucrative à restituer le profit illicite qu’il a retiré de cette faute”, dans Benoît Moore, dir., Mélanges Jean-Louis Baudouin . Cowansville, Que.: Yvon Blais, 2012, 949.

APPEAL from a judgment of the Quebec Court of Appeal (Mainville, Rancourt and Fournier JJ.A.), 2021 QCCA 1363 , [2021] AZ-51794090, [2021] J.Q. n o 10987 (QL), 2021 CarswellQue 14386 (WL), affirming a decision of Déziel J., 2018 QCCS 3538 , [2018] AZ-51519694, [2018] J.Q. n o 7285 (QL), 2018 CarswellQue 7079 (WL). Appeal dismissed. Audrey Boctor , Étienne Morin-Lévesque and Laurence Boudreau , for the appellants. Jean-Rémi Thibault , Louis P. Bélanger and Samuel Nadeau , for the respondents. English version of the judgment of the Court delivered by Kasirer J. — I.

Overview [ 1 ] Antoine Ponce and Daniel Riopel, presidents of a group of three thriving companies in the insurance industry, learned that a major company was interested in acquiring the group of companies that they ran. Rather than revealing this to the group’s majority shareholders, Michel Rhéaume and André Beaulne and their investment companies (“the shareholders”), the two presidents decided to buy the companies themselves and then resell them at a substantial profit.

The shareholders felt betrayed; not only had they trusted the presidents, but they had entered into an incentive pay agreement that gave the presidents significant benefits, including a right of first refusal in the event that the shareholders decided to divest themselves of their interests in the group. [ 2 ] Considering this conduct to be disloyal, the majority shareholders blamed the presidents for not disclosing to them the interest expressed by a prospective purchaser in acquiring the companies, arguing that this was a breach of the presidents’ duty to inform that justified disgorgement of the profits they had made by unlawfully appropriating that business opportunity.

The presidents answered that, during the negotiations leading to their purchase of the companies, they had been under no legal obligation to subordinate their interests to those of the shareholders in such a manner. [ 3 ] The Superior Court ruled in the shareholders’ favour and ordered the presidents solidarily to pay them an amount equal to the profits earned on the resale of the shares.

The Court of Appeal confirmed the trial judge’s conclusions, while specifying the nature of the obligations breached by the presidents in relation to the shareholders, and upheld the remedy awarded at trial. [ 4 ] This appeal requires the Court to consider the basis for and parameters of the obligation of loyalty in order to determine whether a duty to inform was incumbent on the presidents. The Court must also clarify the conditions under which a court may award disgorgement of profits as a remedy, in particular for a contracting party’s disloyal conduct.

Specifically, it must trace the boundaries of the moral precept that “no one should profit from their own wrongdoing”, on which the shareholders rely, as a justification for the remedy of disgorgement of profits made in bad faith. [ 5 ] A first observation flows from the debate between the parties: the obligation of loyalty arising from the exercise of powers in the interest of another — like the one resting on an administrator of the property of others or a mandatary — is not at issue here.

An obligation of that kind would have required the presidents to subordinate their interests to those of the shareholders by requiring them to disclose the prospective purchaser’s interest in acquiring the group. But as Professor Madeleine Cantin Cumyn has written, the [ translation ] “basis for this loyalty . . . differs substantially from the one dictating contractual loyalty, which applies to a person who performs a prestation or exercises a right under a contract and who is bound to act in good faith” (“L’obligation de loyauté dans les services de placement” (2012), 3:1 B.D.E. 19, at p. 21).

Unlike loyalty tied to legal powers that must be exercised in the interest of another or to achieve a particular purpose, the obligation of contractual loyalty rooted in good faith in the performance of a contract under art. 1375 of the Civil Code of Québec (“ C.C.Q. ”) does not require a contracting party to subordinate their interests to those of the other party.

In this case, the presidents are neither the shareholders’ mandataries nor administrators of the property of others, which means that they cannot be held to an obligation of loyalty like the one provided for in arts. 1309 para. 2 and 2138 para. 2 C.C.Q. [ 6 ] A second observation is in order: despite the absence of an obligation of loyalty arising from the exercise of powers in the interest of another, the presidents’ conduct is nonetheless wrongful.

Although contractual loyalty tied to good faith did not prevent the presidents from performing the contract to further their self-interest, it did require them to consider the interests of the other contracting parties and, for this reason, it could impose on them a duty to inform. Accordingly, while the presidents did not have to subordinate their interests to those of the shareholders, the fact remains that, in pursuing their own interests, they could not conceal the prospective purchaser’s interest in the companies without incurring contractual liability to the shareholders.

By doing so, they breached contractual loyalty linked to good faith, which was an implied obligation under the contract through the combined effect of arts. 1434 and 1375 C.C.Q. Moreover, the trial judge was correct to conclude that the incentive pay agreement involved an implied obligation to inform that required the presidents to provide the shareholders with all information relevant to making an informed decision about the sale of their shares.

This implied obligation flowed from the nature of the contract, reflecting the presumed intention of the parties, in accordance with art. 1434 C.C.Q. [ 7 ] The wrongful nature of the presidents’ conduct raises a second issue: Could the non-disclosure of the prospective purchaser’s interest justify, as a remedy, disgorgement of profits to the shareholders, who lost a business opportunity as a result of that wrongful conduct? An obligation of loyalty like the one resting on an administrator of the property of others or a mandatary in the

exercise of their powers may justify disgorgement of profits for a restitutionary purpose, but generally not for a compensatory one.However, the presidents are correct to say that they had no such obligation of loyalty. [8] Determining the appropriate remedy in this case therefore presents an opportunity for the Court to clarify whatProfessor Pascal Fréchette calls [translation] “the boundary between restitution and compensation” in the civil law (La restitution desprestations (2018), at p. 9).

Compensation for the injury caused by a breach of contractual loyalty is distinct from disgorgement ofprofits arising from non-performance of the obligation of loyalty in the exercise of powers. To justify an award of damages, the partywronged by a breach of contractual loyalty bears the burden of establishing compensable injury, in accordance with the fundamentalprinciple of restitutio in integrum (or full reparation) that is central to the law of civil liability. [9] Relying on decisions of this Court in which good faith was in issue, particularly Bank of Montreal v.

Kuet LeongNg, (SCC), [1989] 2 S.C.R. 429, the shareholders seek disgorgement of profits as a remedy for the presidents’ breach ofthe requirements of good faith. In my respectful view, the shareholders are misreading Kuet, which relates to the exercise of a powersimilar to that of a mandatary. Absent proof of injury, Kuet cannot justify disgorgement of profits based solely on the breach of thepresidents’ obligation of contractual loyalty.

That said, this misreading of Kuet does not preclude an award of damages to theshareholders for an amount equivalent to what would have been disgorged to them to compensate for the advantage they lost due to thepresidents’ fault. [10] In this case, the harm resulting from the presidents’ contractual fault must therefore be proved in accordance with thetypical rules of civil liability. The shareholders seek compensation for lost profits under the rule for assessing damages set out inart. 1611 C.C.Q.

Although the law of civil liability does not, as a general rule, excuse a plaintiff from proving the injury sustained, it isthe defendant’s disloyal conduct that prevents the plaintiff from making such proof here.

This is because, in this case, the presidents’non-disclosure of information to the shareholders was accompanied by efforts to conceal the prospective purchaser’s interest in thecompanies and, according to a determination that is ultimately left to the trier of fact, by lies told to the shareholders to shut them out ofthe proposed deal. [11] The presidents cannot be allowed to profit from their breach of the requirements of good faith by arguing that theshareholders failed to prove their injury.

In a case such as this one, the presidents’ wrongdoing gives rise to a rebuttable presumption thatthe shareholders’ lost advantage is equivalent to the profits unjustly realized by the presidents (see Biotech Electronics Ltd. v. Baxter, (QC CA), [1998] R.J.Q. 430 (C.A.)). The presidents could rebut this presumption by establishing the actual quantumof the lost gain on a balance of probabilities. They did not do so.

Since the presidents have shown no palpable and overriding error in thetrial judge’s conclusion that the shareholders’ lost gain is equivalent to the profits made by the presidents, I am of the view that there isno reason to interfere with the assessment of the quantum of damages. [12] I would dismiss the appeal with costs. II. Background [13] Groupe Excellence was comprised of three companies operating in the insurance industry: two brokerage firms,Michel Rhéaume & Associés inc. and Beaulne & Rhéaume Assurance ltée, as well as The Excellence Life Insurance Company.

At thetime of the events in dispute, Michel Rhéaume and André Beaulne, through the respondent investment companies, owned all the sharesof the two brokerage firms and 93.1 percent of the shares of The Excellence. Mr. Rhéaume and Mr. Beaulne, who were in their latesixties at the relevant time, describe themselves as having little formal education.

However, they were very successful in the insurancefield over the years, having founded the companies making up Groupe Excellence in the late 1970s. [14] In February 2002, the appellants, Antoine Ponce and Daniel Riopel, were appointed presidents of the GroupeExcellence companies. An actuary since 1978, Mr. Ponce became the president of The Excellence Life Insurance Company, a positionthat Mr. Rhéaume had offered him several times before. Mr. Riopel, who became a lawyer in 1986, is Mr. Beaulne’s nephew.

He workedwith both of the brokerage firms for more than 20 years before becoming their president. [15] On March 15, 2002, Mr. Ponce and Mr. Riopel, designated in their capacity as [translation] “presidents” of the GroupeExcellence companies, and the investment companies of Mr. Rhéaume and Mr. Beaulne, as “majority shareholders”, entered into acontract described in its

preamble as an “incentive pay agreement” (“Presidents’ Agreement” or “Agreement”) (A.R., vol. X, at p. 3652).The Agreement governed the parties’ relationship during the entire period relevant to this litigation, including during the negotiationsand then the sale by Mr. Rhéaume’s and Mr. Beaulne’s investment companies of their shares in Groupe Excellence to Mr. Ponce andMr. Riopel.

The Agreement, which had an initial term of five years, was to be renewed automatically for additional two-year periodsunless written notice to the contrary was given. [16] The Presidents’ Agreement formalized a business relationship between the parties that was based on theircommitment to work toward the common goal of ensuring the success of Groupe Excellence as an ongoing business, even with a view toa potential sale. To this end, the Agreement provided for various forms of incentive pay for the presidents in addition to what theyreceived as directors of the companies.

The Agreement had only eight clauses and, aside from requiring the subsequent negotiation of anon-competition clause in favour of the shareholders, imposed no express obligation on the presidents. [17] It was in this context, and while the Agreement was still applicable, that the actions alleged took place. [18] In April 2005, Industrial Alliance Insurance and Financial Services Inc. (“IA”) informed the presidents, Mr. Ponceand Mr. Riopel, of its interest in acquiring Groupe Excellence. A series of discussions and exchanges of documents between thepresidents and IA took place over several months.

In July 2005, during that process, the presidents and IA entered into an [translation]“Undertaking of Confidentiality” concerning “a potential partnership agreement and/or any other form of transaction that may be enteredinto by the [p]arties” (A.R., vol. IV, at p. 1110, cl. 2). In the Undertaking, the presidents and IA agreed to the mutual disclosure ofconfidential information relative to their circumstances. At the presidents’ request, an exclusivity clause in their favour was also includedwith respect to any transaction involving IA and Groupe Excellence.

The purpose of that clause — according to the presidentsthemselves — was to prevent IA from dealing directly with Mr. Rhéaume and Mr. Beaulne as well as with their holding companies.

[19] The presidents never informed the shareholders of these exchanges with IA or of IA’s interest in acquiring GroupeExcellence, nor were the shareholders told of the existence of the Undertaking of Confidentiality. [20] In 2006, when the shareholders had been contemplating the possibility of selling their interests in Groupe Excellencefor some time, Mr. Beaulne asked Mr. Ponce whether IA would be interested in buying the shares. Despite the prior exchanges betweenIA and the presidents, Mr. Ponce answered that he had already checked and that IA was not interested.

The parties disagree as to theexact date of that interaction. The appellants say that the conversation took place before IA’s interest led to a preliminary valuation inMay 2006 and an acquisition proposal in August 2006. The respondents say instead that the conversation took place following theseevents. Thus, according to the respondents, Mr. Ponce deliberately lied to Mr. Beaulne. [21] In any event, the respondents did not know about the interest expressed by IA in acquiring Groupe Excellence at thetime they agreed to sell the whole of their interests to the presidents. Mr.

Rhéaume did so in the fall of 2006, and Mr. Beaulne followedsuit in the spring of 2007. As consideration for that sale, Mr. Rhéaume received approximately $23,500,000 together with a full releasefor his debts under the Agreement. Mr. Beaulne received $10,371,210 together with a release similar to Mr. Rhéaume’s.

In the monthsfollowing those transactions, the presidents in turn resold to IA, for a total of $74,280,000, the interests they had acquired from theshareholders. [22] In December 2007, IA issued a press release announcing its acquisition of Groupe Excellence from the presidents.The respondents learned of the sale at that time.

In response, they filed a motion to institute proceedings for damages in the SuperiorCourt, claiming approximately $24 million as compensation for the gain they would have made through that transaction of which theywere deprived. [23] In their motion, the respondents alleged that the presidents’ failure to inform them of IA’s interest had caused them a[translation] “serious loss” (motion to institute proceedings, at para. 57, reproduced in A.R., vol. II, at p. 674).

They stated that they hadbeen deprived of the difference between the price they received when they sold their shares to the presidents and the higher price thepresidents obtained on the resale to IA. They alleged that the presidents had breached [translation] “their contractual and legalobligations, their fiduciary obligations and their obligations to act in good faith, with loyalty and transparency” by “intentionally” failingto inform the shareholders of the interest expressed by IA in acquiring Groupe Excellence (para. 41). The respondents stated that,because of the [translation] “unlawful actions” of Mr.

Ponce and Mr. Riopel, they were entitled to claim “the equivalent” of the excessprofits made by them (paras. 57-57.1). [24] In defence, the appellants argued that the respondents were conflating the obligations the appellants owed to thecompanies and the obligations they owed to the shareholders. Here, they said, the appellants [translation] “are under no obligationwhatsoever to the former shareholders, Beaulne and Rhéaume” (A.R., vol. II, at p. 689, para. 93).

The appellants also argued that theyhad complied with their obligations under the Presidents’ Agreement and, more broadly, that they had committed [translation] “no fault”against the respondents (para. 240). In addition, according to the appellants, Mr. Rhéaume and Mr. Beaulne had been aware of theprospective purchaser’s interest in acquiring Groupe Excellence, so the appellants could not be accused of hiding or concealing relevantinformation about the transactions that led to the resale of the shares to IA.

Finally, the appellants disputed the calculation of thedamages arising from the harm allegedly suffered by the respondents, saying that they were in no way [translation] “indebted” to therespondents (para. 241). III. Judicial History A. Quebec Superior Court, 2018 QCCS 3538 (Déziel J.) [25] The trial judge granted the respondents’ motion in part. He stated that, under both the Civil Code of Québec and theCanada Business Corporations Act, R.S.C. 1985, c. C-44, the appellants, in their capacity as directors, owed duties of honesty, loyalty,prudence and diligence to Groupe Excellence.

The trial judge found that these same duties can be extended to shareholders [translation]“where there is an independent relationship between the directors . . . and the shareholders” (para. 427 ).

In his view, this kind ofindependent relationship existed here, particularly because of the Presidents’ Agreement, which [translation] “is key in illustrating theobligations assumed by the [appellants]” (para. 430). [26] In the trial judge’s opinion, the Agreement entailed three implied obligations for the appellants: (1) to maximize, inthe performance of their mandate and for the shareholders’ benefit, the profits and value of Groupe Excellence; (2) to report to theshareholders, in a full and transparent manner, all information that might enable them to assess the value of Groupe Excellence or make adecision to sell their shares and, in such a case, to determine a sale price; and (3) not to use information for their personal benefit withoutobtaining the shareholders’ consent. [27] The judge then found that the appellants had secretly negotiated the resale of Groupe Excellence with IA.

He notedthat the appellants had signed an Undertaking of Confidentiality with IA to ensure that IA did not deal directly with the shareholders. Bydoing so, the appellants had intentionally concealed from the shareholders the interest expressed by IA in acquiring Groupe Excellence,knowing that if the shareholders had been told of it, they [translation] “would have sought to maximize the sale price for their shares andit would then have been more costly for the [appellants] to exercise their right of first refusal under the Presidents’ Agreement”(para. 487; see also paras. 436-37, 445-46 and 486).

Considering the appellants’ conduct in light of the obligational content of theAgreement, the trial judge held that they had breached their duties of good faith and loyalty as well as their duty to inform owed toshareholders Rhéaume and Beaulne. [28] The trial judge then assessed the injury resulting from the appellants’ fault, applying the principle of full reparation(restitutio in integrum).

For that purpose, he essentially used the method of assessing injury proposed by the respondents’ expert, whichwas based on the following key assumption: [translation] “. . . had it not been for the acts alleged against the [appellants], the[respondents] would have received consideration equivalent to what IA paid to acquire the [appellants’] interests in Groupe Excellencerather than the amount they obtained from the [appellants] . . .” (A.R., vol. VII, at p. 2295, quoted with approval by the trial judge atpara. 598; see also paras. 615 and 638-39).

[29] Accepting the hypothesis put forward by the respondents’ expert, the trial judge held that the injury corresponded tothe gains lost on the business opportunity unlawfully appropriated by the appellants. The gains lost were therefore equivalent to theprofits made by the appellants when they resold the shares to IA, which the judge assessed at $11,884,743. He ordered the appellantssolidarily to pay that amount and, taking note of the agreement reached by Mr. Rhéaume and Mr. Beaulne concerning the distribution oftheir respective interests in Groupe Excellence, he allocated $7,368,540.60 to Mr.

Rhéaume’s investment companies and $4,516,202.40to Mr. Beaulne’s investment companies. B. Quebec Court of Appeal, 2021 QCCA 1363 (Rancourt J.A., Mainville and Fournier JJ.A. concurring) [30] The Court of Appeal, per Rancourt J.A., unanimously dismissed the appeal and affirmed the trial judgment. However,the court noted that the trial judge erred in finding that the duties of honesty and loyalty provided for in art. 322 C.C.Q. and s. 122(1)(a)of the

Canada Business Corporations Act, which the appellants had owed to Groupe Excellence in their capacity as directors, could beextended to the shareholders. But the court found that this error was not an overriding one given the other bases for the appellants’liability, which were correctly identified by the trial judge.

His analysis of the obligational content of the Presidents’ Agreementsupported his conclusions regarding the appellants’ fault, namely that they had breached their contractual obligation of good faith andduty to inform (see paras. 84, 94 and 110-11 ). [31] Discussing the duty to inform in greater detail, the Court of Appeal held that the appellants’ conduct fell within thethree criteria set out in Bank of Montreal v. Bail Ltée, (SCC), [1992] 2 S.C.R. 554.

The Court of Appeal focusedspecifically on the fact that it had been impossible for the shareholders to inform themselves of the interest expressed by IA in acquiringGroupe Excellence as well as on the atmosphere of trust that had existed between the appellants and the shareholders (see paras. 90-91).The court therefore concluded that the appellants breached the obligation of contractual good faith and the obligation to inform theyowed to the shareholders, including by keeping them out of the negotiations with IA and secretly signing the Undertaking ofConfidentiality with IA (see paras. 93-94; see also paras. 110-11). [32] With respect to the remedy, the Court of Appeal noted that it was not the role of an appellate court to substitute itselffor the trial judge in assessing contradictory expert evidence or in fixing the quantum of damages (para. 119).

The total award of$11,884,743 in damages was upheld. IV. Parties’ Arguments and Issues [33] Broadly speaking, two lines of argument are made by the parties before this Court. First, the debate turns on whetherthe appellants’ failure to inform the shareholders of the interest expressed by IA in acquiring Groupe Excellence was a breach of anobligation, be it contractual or legal. In this regard, the appellants argue that their failure cannot constitute a civil fault because there wasno legal basis requiring them to share that information in this case.

As for the respondents, they take the view that the appellants areminimizing the scope and impact of the Presidents’ Agreement, which was applicable during the entire period in issue. In their opinion,the requirements of good faith in the performance of that agreement made it obligatory for the appellants to disclose to the respondentsthe interest expressed by IA in acquiring Groupe Excellence. [34] Second, the parties disagree as to the appropriate remedy in the event that fault is established.

The appellants submitthat there were no grounds upon which the trial judge could award disgorgement of profits or even compensatory damages to therespondents by way of remedy. There are two possibilities: either the trial judge ordered disgorgement of profits without having anylegal basis for doing so, or he awarded damages without having sufficient evidence of harm (A.F., at para. 92).

Noting that the profitsflowed from the appellants’ wrongdoing, the respondents counter that the appellants must hand over to them the profits made on theresale of Groupe Excellence to IA, in accordance with the general principle of full compensation that is at the heart of the law of civilliability. [35] In light of the parties’ arguments, two main questions shape the debate before this Court: A. Did the appellants’ non-disclosure of the interest expressed by IA in acquiring Groupe Excellence constitute a breach of acontractual or legal obligation to inform owed to the respondents and therefore a civil fault?

B) If this fault is established, did the courts below err in awarding the respondents a sum representing the profits made by theappellants, either through the disgorgement of profits mechanism or as damages to compensate for the gain of which the respondentswere deprived? [36] These questions will be analyzed in turn. V. Analysis A. Did the Appellants’ Non-Disclosure of the Interest Expressed by IA Constitute a Civil Fault? [37] The trial judge found that the appellants had failed to disclose to the respondents the interest expressed by IA inacquiring Groupe Excellence (paras. 485-90).

He also found that, in 2005, the appellants had entered into an Undertaking ofConfidentiality with IA that was intended to prevent IA from dealing directly with the shareholders (para. 441). These events occurredwhile the appellants were the presidents of the Groupe Excellence companies and while the Presidents’ Agreement signed in 2002 wasfully applicable. [38] The issue in this case is therefore whether the appellants did have a duty to inform the shareholders of the interestexpressed by IA in acquiring Groupe Excellence that was breached.

In this Court, the parties discussed four possible legal bases for suchan obligation: (1) an obligation of loyalty arising from a legal power conferred on the presidents that they had to exercise in theshareholders’ interest, like the obligation resting on a mandatary or an administrator of the property of others; (2) an extracontractualobligation to inform related to good faith in the formation of the contracts for the sale of the respondents’ interests to the appellants in2006 and 2007; (3) an implied contractual obligation to inform the shareholders under the Presidents’ Agreement; or (4) an obligation to

perform the Agreement in accordance with the requirements of good faith. The appellants take the view that none of these four bases imposed an obligation on them to inform the respondents of IA’s interest in acquiring Groupe Excellence. This being the case, I propose to consider each of these four possibilities in order to determine whether the appellants were required to inform the shareholders of the interest expressed by IA.

(1) First Possible Basis: Obligation of Loyalty Arising From the Exercise of Powers in the Interest of Another [ 39 ] The appellants correctly argue that their duty to inform cannot be based on a “fiduciary-type” obligation of loyalty that would be “similar to the fiduciary duties of the common law . . . requir[ing] the debtor to put the interests of the beneficiary first” (A.F., at para. 53).

In this regard, the Court of Appeal properly stated that, as directors of the Groupe Excellence companies, the presidents did not have such an obligation to act with loyalty toward the majority shareholders, although they did owe such an obligation to the legal persons of the group (see, e.g., art. 322 para. 2 C.C.Q. ). The appellants had no duty to inform anchored in this type of loyalty, which would have imposed on them “a duty to act selflessly” (A.F., at para. 54).

The respondents themselves recognize that [ translation ] “[t]here was never any question of requiring the [a]ppellants to subordinate their interests to [theirs]” (R.F., at para. 76). [ 40 ] In my view, the parties are correct on this point: the appellants did not have, as Professor Lionel Smith puts it, an obligation of “maximalist” loyalty grounded in the loyal use of power by a fiduciary, that is, “not just power over another person, but power held for that other person” (“Loyalty” (2020), 66 McGill L.J. 121, at p. 122 (emphasis in original)).

In Quebec civil law, the obligation of maximalist loyalty referred to by the appellants exists mainly where a person exercises a [ translation ] “power” in the interest of another or for the fulfilment of a purpose (such as where a trustee exercises a prerogative over a patrimony by appropriation in favour of the beneficiary), not where the holder of a “legal right” exercises it in their own interest (such as a borrower’s prerogative under a contract for the simple loan of property) (see M. Cantin Cumyn and M. Cumyn, L’administration du bien d’autrui (2nd ed. 2014), at para. 91).

This is because, [ translation ] “[u]nlike the holder of a right, a person on whom powers are conferred is legally bound to act in the interest of another or for the achievement of the purpose for which the powers were granted” (M. Cantin Cumyn, “Le pouvoir juridique” (2007), 52 McGill L.J. 215, at p. 223; see Resolute FP Canada Inc. v. Hydro-Québec , 2020 SCC 43 , at para. 69 ). [ 41 ] Two types of loyalty must be carefully distinguished. On the one hand, contractual loyalty arising from good faith requires a contracting party to [ translation ] “take the other party’s interests into account”.

On the other hand, loyalty in the exercise of a power, because of the purpose of that power, must be exercised [ translation ] “only in the beneficiary’s interest or to achieve the goal that led [it] to be conferred” (Cantin Cumyn (2012), at p. 22). [ 42 ] A comparison can be drawn between the obligation of maximalist loyalty in the civil law and the obligation of loyalty in the English legal tradition that is anchored in the exercise of a fiduciary obligation.

In both legal traditions, the person subject to an obligation of maximalist loyalty must subordinate their own interests to those of another (see, e.g., Resolute , at para. 63; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 , at para. 110 ). However, the prerogatives of a trustee in English law are based on the legal title held by the trustee.

In contrast, in Quebec law, an administrator of the property of others has no legal right in the property being administered but only powers that must be exercised over a patrimony by appropriation in the interests of another (see Cantin Cumyn and Cumyn, at para. 4; Smith, at p. 122). [ 43 ] The obligation of loyalty of an administrator or mandatary in the civil law tradition therefore relates to the exercise of powers defined on the basis of a purpose — the interest of another or the achievement of a goal — rather than on the basis of the exercise of legal title, as in English law.

As Professor Michele Graziadei notes, “many fiduciary relationships in civilian countries are framed so to leave title to property subject to fiduciary administration in the name of the beneficiary. Hence, if the property produces profits, those profits automatically belong to the owner” (“Virtue and Utility: Fiduciary Law in Civil Law and Common Law Jurisdictions”, in A. S. Gold and P. B. Miller, eds., Philosophical Foundations of Fiduciary Law (2014), 287, at p. 297).

Since the mechanics of the civil law differ from those of English law, the expression “fiduciary-type loyalty” may seem inaccurate in the civil law tradition (see Gravino v. Enerchem Transport inc. , 2008 QCCA 1820 , [2008] R.J.Q. 2178, at para. 39 ). Finally, I note that, in both traditions, the duties associated with the general principle of good faith in the performance of contracts “ha[ve] strong conceptual differences from the much higher obligations of a fiduciary” ( Bhasin v.

Hrynew , 2014 SCC 71 , [2014] 3 S.C.R. 494, at para. 65 ; see also Resolute , at para. 63). [ 44 ] In this case, the appellants were not required, by the Presidents’ Agreement or otherwise, to exercise powers for the benefit of the shareholders. They were therefore not bound, on that basis, by an obligation of maximalist loyalty.

In particular, the Presidents’ Agreement did not impose on the appellants an obligation of loyalty similar to that of a mandatary, with the attendant obligation to inform (arts. 2138 para. 2 and 2139 C.C.Q. ), because they did not have the power to represent the respondents in the sale of Groupe Excellence’s shares to IA.

Moreover, given that they were also not administrators of the shareholders’ property, the appellants are correct to say that they did not have a duty of loyalty under art. 1309 para. 2 C.C.Q. that required them to subordinate their own interests to those of the shareholders or their holding companies (A.F., at para. 53). Accordingly, the duty to inform owed by the appellants to the shareholders could not originate in any obligation of loyalty in the exercise of powers.

This means that the non-disclosure of IA’s interest did not breach an obligation of maximalist loyalty. [ 45 ] I note, however, that in Quebec civil law, the concept of loyalty does not refer solely to the maximalist loyalty contemplated by the appellants. The respondents point out that good faith imposes on the parties a duty of loyalty with a nature and basis that are entirely different, both at the stage of formation of the contract and at the stage of its performance and extinction.

While contractual loyalty arising from good faith does not require a party to put the interests of another first, it does affect the way in which the holder of a legal right may exercise it (Cantin Cumyn (2012), at p. 21). [ 46 ] Given the absence in this case of an obligation of loyalty arising from the exercise of powers in the interest of another, the appellants’ alleged obligation to inform, if it exists, must have a different legal basis.

I turn now to the other three bases raised by the parties, starting with the appellants’ possible extracontractual liability for breaching the obligation of good faith in the formation of the contracts for the sale of the respondents’ interests in 2006 and 2007.

(2) Second Possible Basis: Extracontractual Obligation to Inform in the Negotiation and Formation of a Contract

[ 47 ] The appellants ask this Court to examine their conduct from the standpoint of extracontractual liability. They say that the allegations made against them by the respondents relate to the stage of formation of the contracts by which the respondents sold their interests in 2006 and 2007 (A.F., at para. 46). They submit that the Agreement did not apply in this case because it “does not govern the buy-out negotiations” (outline of argument, at para. 2.5, in condensed book, at p. 2).

As a result, they say, any fault alleged at the stage of the negotiations that led to the making of those contracts of sale can only be extracontractual. [ 48 ] The appellants acknowledge that, at the stage of contract formation, the requirements of good faith give rise to a duty to inform (A.F., at para. 48). That said, they submit that the scope of this duty did not extend so far as to require them to disclose IA’s interest to the respondents.

At the pre-contractual stage, nothing prevented them from acting in their own interests by not disclosing that information. [ 49 ] The appellants are correct that the requirements of good faith must be met during the formation of a contract (art. 1375 C.C.Q. ; see also B. Lefebvre, “La négociation d’un contrat: source potentielle de responsabilité extracontractuelle”, in P.-C. Lafond, ed., Mélanges Claude Masse: En quête de justice et d’équité (2003), 571, at pp. 573 and 586-87).

Some authors properly connect the legal obligation to act in good faith during negotiations with an obligation to act [ translation ] “with loyalty and fair play” (J. Pineau et al., Théorie des obligations (5th ed. 2023), by C. Valcke, at No. 87). While it is not necessarily disloyal to pursue parallel negotiations at the pre-contractual stage, good faith entails a duty to inform, which varies with the context and is intended in part to [ translation ] “make up for a lack of information that might lead to a form of exploitation” (B. Lefebvre, “La bonne foi”, in B.

Moore, ed., Les grandes notions (2015), 75, at p. 108). Baudouin, Jobin and Vézina suggest that the criteria from Bail determine the scope of this duty to inform, even at the pre-contractual stage (J.-L. Baudouin and P.-G. Jobin, Les obligations (7th ed. 2013), by P.-G. Jobin and N. Vézina, at No. 313). [ 50 ] Good faith during the pre-contractual phase — and, by extension, the duty to inform arising from it — must be assessed in light of the parties’ relationship, which in this case includes the atmosphere of trust that existed between them as well as the Presidents’ Agreement they had entered into (see J.-L.

Baudouin, “Justice et équilibre: la nouvelle moralité contractuelle du droit civil québécois”, in G. Goubeaux et al., eds., Études offertes à Jacques Ghestin: Le contrat au début du XXI e siècle (2001), 29, at p. 33). In Quebec, this pre-contractual duty to inform does not require a party to disregard their own interests or subordinate them to those of another. I would note that in France , a recent reform to the law of obligations appears to be consistent, to a large degree, with this understanding of the state of Quebec law (see arts. 1112 and 1112-1 of the French Code civil ).

As Malaurie, Aynès and Stoffel-Munck explain, the duty of good faith in the formation of a contract in French law now formally recognizes that each party must refrain from any conduct that is likely to mislead the other about their true intentions, a duty that [ translation ] “essentially involves obligations to say and not to say” (P. Malaurie, L. Aynès and P.

Stoffel-Munck, Droit des obligations (12th ed. 2022), at No. 277). [ 51 ] There would have been a meaningful debate in this case about the scope of the extracontractual duty to inform owed to the respondents on the basis of good faith, but it is not a debate that needs to be settled here. The respondents do not allege either in their motion to institute proceedings or before this Court that there was a breach of the requirements of good faith at the pre-contractual stage, nor do they ask that the contracts of sale they entered into with the appellants in 2006 and 2007 be annulled.

Rather, their focus in this Court is on the good faith performance of the Presidents’ Agreement, which was fully applicable at the relevant time. I note that the Agreement anticipated the possibility of the sale of shares by Mr. Rhéaume and Mr. Beaulne in various ways, including by granting the appellants a right of first refusal. In this context, both the respondents and the courts below are right to have approached the issue of the appellants’ liability from a contractual standpoint.

In short, the cause of action defended against by the appellants relates not to the formation of the 2006 and 2007 contracts but rather to the performance of the Presidents’ Agreement entered into in 2002. [ 52 ] In sum, arguments based on extracontractual liability are of only theoretical import here given the contractual relationship that the parties chose to establish with one another.

That being so, I will now examine the obligational content of the Presidents’ Agreement to determine whether the appellants were contractually bound to inform the respondents of the interest expressed by IA in acquiring Groupe Excellence.

(3) Third Possible Basis: Implied Contractual Obligation to Inform [ 53 ] The appellants submit that the trial judge erred in finding that the Presidents’ Agreement contained an implied obligation to inform, making their non-disclosure of IA’s interest a contractual fault. Characterizing the Agreement instead as simply a “remuneration agreement”, they argue that it could not include such an obligation (outline of argument, at para. 2.5). [ 54 ] The appellants are mistaken.

Before the scope of an obligation of contractual good faith is even considered, the nature of the Presidents’ Agreement leads to the conclusion that an implied obligation to inform was incident to it. The Presidents’ Agreement was the cornerstone of the business relationship between the appellants and the shareholders. The role of each party in this relationship was clear. The shareholders provided the capital needed for the common enterprise while retaining ownership of the shares and the right to dispose of them, while the appellants agreed to contribute their expertise.

This was how the parties chose to join forces contractually to pursue a common goal, the success of Groupe Excellence. As noted above, the wording of the Presidents’ Agreement created obligations only for the appellants’ benefit, as the parties did not expressly provide for any correlative obligation for the shareholders’ benefit (aside from requiring the subsequent negotiation of a non-competition clause).

In this regard, art. 1434 C.C.Q. provides that a contract binds the parties not only as to what they have expressed in it but also “as to what is incident to it according to its nature and in conformity with usage, equity or law”. Implied obligations result in what Professor Crépeau, in an

article discussing art. 1024 of the Civil Code of Lower Canada , called the [ translation ] “widening of the contractual circle” (P.-A. Crépeau, “Le contenu obligationnel d’un contrat” (1965), 43 Can. Bar Rev. 1, at p. 7). [ 55 ] In this case, the appellants’ implied obligations arose primarily from the very nature of the Presidents’ Agreement. As this Court has noted, the nature of a contract will be the source of an implied duty if “the contract’s coherency seems to require such a duty and if the duty is consistent with the general scheme of the contract” ( Churchill Falls (Labrador) Corp. v.

Hydro-Québec , 2018 SCC 46 , [2018] 3 S.C.R. 101, at para. 74 ). In other words, an implied obligation arising from the nature of a contract must not have the effect of adding new obligations to the contract but must instead fill the gaps in its express content (D. Lluelles and B. Moore, Droit des obligations (3rd ed. 2018), at No. 1542). According to Professor Crépeau, the justification for the inclusion of implied obligations arising

from the nature of a contract rests first and foremost on the presumed intention of the parties (pp. 7-8).

In this sense, implied obligationshave the same basis as express obligations, thereby linking autonomy of the will to the “[b]inding force and content of contracts”, as thesubheading preceding art. 1434 C.C.Q. now states (see Churchill Falls, at para. 74, per Gascon J., and para. 170, per Rowe J., dissenting,but not on this point). [56] Here, by its very nature, the Presidents’ Agreement was a long-term agreement that formalized a business relationshipbetween the appellants and the majority shareholders, parties who each had different roles to play to maximize the value of GroupeExcellence.

Regardless of whether the Agreement is characterized as a relational contract, it required reciprocal contractual loyalty(Churchill Falls, at paras. 122-23, quoting Provigo Distribution Inc. v. Supermarché A.R.G. Inc., (Que. C.A.), atp. 25). The Agreement was certainly not a contract of employment — the element of subordination was absent — under which anobligation of contractual loyalty specific to that nominate contract would have arisen pursuant to art. 2088 C.C.Q. (Cabiakman v.Industrial Alliance Life Insurance Co., 2004 SCC 55, [2004] 3 S.C.R. 195, at paras. 27-28).

As mentioned above, the Agreement wasalso not analogous to a contract of mandate that involves an obligation of maximalist loyalty. However, the Agreement was similar insome respects to a contract for services (art. 2098 C.C.Q.), since the appellants undertook, in exchange for compensation and with norelationship of subordination, to perform physical and intellectual acts for the respondents’ benefit. From this standpoint, and by analogywith art. 2100 para. 1 C.C.Q., the appellants were bound to act “in the best interests” of Mr. Rhéaume and Mr.

Beaulne, but withoutsubordinating their interests to those of the shareholders (Cantin Cumyn (2012), at pp. 20-21; see also Smith, at p. 121). [57] According to clause 1 of the Agreement, [translation] “[t]he SHAREHOLDERS agree to share with thePRESIDENTS part of the excess profits and part of the increase in corporate value of [Groupe Excellence]” (A.R., vol. X, at p. 3652). Inaddition, clauses 2 and 3 of the Agreement suggested the possibility of a future sale by the shareholders of their interests in GroupeExcellence and stipulated the benefits that the appellants could derive from such a sale.

Specifically, clause 2 gave the appellants anoption to purchase 40 percent of the majority shareholders’ capital stock in the event of a full or partial transaction, and clause 3 gave theappellants a right of first refusal in such a scenario.

Clauses 4 to 8 were miscellaneous clauses that, among other things, provided forspecial compensation owed to the appellants in certain circumstances if there was a sale or merger of Groupe Excellence (clause 4) andstipulated the term of the Agreement — five years, renewable automatically for two-year periods (clause 6). [58] An analysis of the general scheme of the Presidents’ Agreement shows that it was intended to formalize a mutuallybeneficial business relationship between the appellants and the shareholders.

In this sense, the Agreement reflected and reinforced thehigh level of trust on which a common enterprise of this kind rests, including, above all, the trust that the shareholders placed in theappellants, as the trial judge found based on the evidence (see, in particular, Sup. Ct. reasons, at para. 36). The sharing of GroupeExcellence’s profits and increase in value was the centrepiece of the Agreement, because this mechanism encouraged the appellants tostep up their efforts to ensure its success, which would ultimately benefit each of the parties.

Furthermore, the Agreement was such thatit provided the appellants with significant benefits, even if the shareholders sold their shares. It expressly set out these incentive payterms and conditions for the appellants’ benefit without spelling out any reciprocal obligations for them. [59] Having regard to the very nature of the Presidents’ Agreement, the trial judge found that the appellants had an impliedobligation to maximize the value of Groupe Excellence, including with a view to a sale. That

interpretation of the contract — based onthe evidence — is consistent with the way the parties’ relationship was structured: the appellants took care of the management of thecompanies and left it to the shareholders to decide Groupe Excellence’s ultimate destiny. Moreover, I agree with the trial judge that theappellants also had an implied obligation to inform the shareholders of any fact [translation] “that might enable the Shareholders toassess the companies’ profits and value and decide whether to sell their shares and, if so, at what price” (para. 432).

These impliedobligations served to ensure the Agreement’s internal coherence. Grounded in the presumed intention of the parties, they could havebeen configured differently, through an express clause. They were the logical counterpart of the significant benefits conferred on theappellants and of the high level of trust existing in such a business relationship. This is all the more reason why the trial judge’sinterpretation of the contract is entitled to deference, as the Court of Appeal noted, and the appellants have failed to raise any reviewableerror in this regard (Housen v.

Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 32). [60] According to the appellants, the scope of this implied obligation to inform was not so wide as to impose on them aduty to tell the shareholders of the interest expressed by IA in acquiring Groupe Excellence (A.F., at para. 78). They submit that IA’sinterest in Groupe Excellence was no more than an indication of its market value, which is information that a buyer cannot be obligatedto provide to a prospective seller (A.F., at para. 73). [61] This argument advanced by the appellants is without merit.

In my view, the scope of the implied obligation to informrecognized by the trial judge supports his conclusion regarding the wrongful nature of the appellants’ omission. I reiterate that, inkeeping with that obligation, the appellants had to provide the shareholders with [translation] “all information they have that mightenable the Shareholders to assess the companies’ profits and value and decide whether to sell their shares and, if so, at what price” (Sup.Ct. reasons, at para. 432).

According to the trial judge’s findings of fact, which are not directly contested in this Court, knowledge of theinterest expressed by IA in acquiring Groupe Excellence would have had a major impact on the shareholders’ decision to sell to theappellants and on the price of that sale (paras. 446, 487, 492 and 499). IA’s interest in acquiring Groupe Excellence was thereforeinformation that might have helped the shareholders make a decision to sell their interests and determine a price.

Accordingly, thenon-disclosure of IA’s interest was a direct breach of the implied obligation found by the trial judge. [62] But there is more. [63] Not only did the appellants breach their implied obligation to inform arising from the nature of the Presidents’Agreement, but they may also have breached their duty to perform the Agreement in a manner consistent with the requirements of goodfaith (art. 1375 C.C.Q.).

Indeed, it is from this latter perspective that the respondents invite us to assess the appellants’ fault, alleging thatthey failed to meet these requirements in performing the Presidents’ Agreement (R.F., at paras. 46-48). As we will see, regardless of theexistence of an implied obligation to inform under the Presidents’ Agreement, it can be concluded that in this case the requirements ofgood faith, on their own, imposed a duty on the appellants to inform the shareholders of IA’s interest, as an obligation of public order(see S. Grammond, A.-F. Debruche and Y.

Campagnolo, Quebec Contract Law (3rd ed. 2020), at para. 327).

[64] Although they sometimes overlap, there is a fundamental difference between non-performance of a contractualobligation and performance of the obligation in a manner contrary to the requirements of good faith. The former relates toimplementation of the content of the contractual obligation, whereas the latter relates instead to the manner in which the obligation isperformed.

For example, if the appellants worked to maximize the value of Groupe Excellence but secretly took action to prevent theshareholders from reaping the resulting benefits in the event of a sale, the appellants would indeed have performed their contractualobligation to maximize Groupe Excellence’s value, but they would have done so in a manner contrary to the requirements of good faith.Of course, the content of an implied contractual obligation to inform — arising from the presumed intention of the parties — may differfrom the content of the duty to inform arising from good faith, which is imposed on the parties by imperative law. [65] I note that it is not always easy, helpful or necessary to draw a distinction between non-performance of a contractualobligation, on the one hand, and performance of such an obligation in a manner contrary to the requirements of good faith, on the other.That said, it may be relevant in certain respects to recognize that a party has not only failed to perform a contractual obligation but hasalso breached the requirements of good faith.

As I note below, even once non-performance of a contract is established, evidence of anadditional breach of the requirements of good faith can have a significant impact at the remedy stage. In this context, and in light of therespondents’ arguments, it is therefore appropriate to continue our analysis in order to determine whether the appellants performed theobligational content of the Presidents’ Agreement in a manner consistent with the requirements of good faith.

(4) Fourth Possible Basis: Obligation to Perform the Presidents’ Agreement in Accordance With the Requirements of Good Faith [66] The appellants submit that their non-disclosure of the interest expressed by IA in acquiring Groupe Excellence wasnot contrary to the requirements of good faith. In their opinion, the trial judge erred in concluding that they [translation] “clearlybreached their duties of good faith and loyalty and their duty to inform” (para. 544).

They say that the Court of Appeal also erred inupholding that conclusion (para. 110). [67] Specifically, according to the appellants, the trial judge erred at para. 546 of his reasons when he faulted them forbreaching their duty to [translation] “put the interests of [the respondents] ahead of their own”. In so doing, they argue, hemisapprehended the scope of the obligation to perform a contract in good faith.

They argue that unlike the “fiduciary-type” obligation ofloyalty, contractual loyalty flowing from art. 1375 C.C.Q. does not require a contracting party to subordinate their interests to those of theother party. [68] In keeping with what they consider to be the proper scope of the obligation of good faith under art. 1375 C.C.Q., theappellants submit that they were not bound to disclose IA’s interest to the respondents because that information does not meet the criterialaid down in Bail relating to the duty to inform arising from good faith.

The appellants thus argue that, in reality, IA’s interest wassimply an indication of market value, or “information that Rhéaume and Beaulne could, and should, [have] obtain[ed] for themselves”(outline of argument, at para. 2.8). [69] The appellants are mistaken. It is true that the trial judge misspoke in stating that the appellants had to put therespondents’ interests “ahead” of their own (para. 546).

Nonetheless, in finding that the appellants had breached the obligation toperform the Presidents’ Agreement in good faith, the trial judge correctly assessed the scope of contractual loyalty and did not require theappellants to subordinate their interests to those of the respondents. His findings concerning the appellants’ concealment of IA’s interestin acquiring Groupe Excellence — as the Court of Appeal affirmed (at para. 93) — are not tainted by a reviewable error.

In short, theSuperior Court and the Court of Appeal were right in finding two breaches — which were also interrelated — of contractual loyalty,which attached to the Presidents’ Agreement through art. 1375 C.C.Q.: failing to properly inform the shareholders at the time theirinterests in Groupe Excellence were purchased and thereby lacking the elementary probity required by contractual public order. [70] Good faith in Quebec civil law, which has been fully recognized since National Bank of Canada v. Soucisse, (SCC), [1981] 2 S.C.R. 339, Houle v.

Canadian National Bank, (SCC), [1990] 3 S.C.R. 122, and Bail, is nowan enacted standard of public order; it infuses every contract as if a clause provided for it (Lluelles and Moore, at No. 1977). Through thecombined effect of arts. 1375 and 1434 C.C.Q., good faith performance is an implied obligation that by law must be included in acontract (Tardif v. Succession de Dubé, 2018 QCCA 1639, 51 C.C.L.T. (4th) 54, at para. 75; Provigo, at pp. 20-22; Baudouin, Jobin andVézina, at No. 307; Lluelles and Moore, at No. 2017).

To this end, art. 1434 C.C.Q. [translation] “sets out a mechanism of impliedprestations” and art. 1375 establishes one of those prestations by requiring reciprocally from the contracting parties “a general attitude— even ‘a state of being’ — in the course of their contractual relationship” (Lluelles and Moore, at No. 1977 (emphasis in original;footnote omitted)). [71] Even before art. 1375 C.C.Q. was enacted, Professor Crépeau explained that an implied obligation may arise fromlegislation, under either a suppletive or an imperative provision (pp. 27-29).

The inclusion of an implied obligation through a legislativeprovision supplementing contractual intention is, of course, justified by the statutory presumption that this was what the parties intended;the parties may exclude the obligation through an express clause (see, e.g., with respect to marriage contracts, arts. 431 and 432 C.C.Q.).The justification for the inclusion of an implied obligation based on an imperative statutory provision rests upon another conception ofcontractual fairness grounded not in autonomy of the will but in public order.

This is the foundation of the duty to perform thePresidents’ Agreement in good faith, an imperative obligation under art. 1375 C.C.Q. In this sense, good faith differs from the impliedprestations that arise, in part, from the nature of the contract. The imperative standard of good faith applies to all contracts; itsimplementation varies with the circumstances. Discussing French law, Professor Bénabent explains that good faith, which is [translation]“flexible in its content”, involves a range of requirements tailored to the specific circumstances of each case (A.

Bénabent, Droit desobligations (19th ed. 2021), at No. 303 (emphasis deleted)). Here, the Presidents’ Agreement — a long-term contract formalizing abusiness relationship — was entered into in the context of the atmosphere of trust found by the trial judge and had to be performedaccordingly. The Agreement did not, however, require the appellants to exercise powers for the respondents’ benefit. [72] The appellants are therefore right to say that, in this case, they did not have an obligation of loyalty in the exercise ofpowers in the interest of another.

But like any contracting party in Quebec, they had to comply with an obligation of contractual loyaltytoward the respondents, which arose from the duty of good faith set out in art. 1375 C.C.Q. Through its so-called completive function,good faith requires a contracting party [translation] “to act with loyalty, that is, taking into account, within the limits of reasonable

conduct, the interests of [the] other [contracting] party” (M. A. Grégoire, Liberté, responsabilité et utilité: la bonne foi comme instrument de justice (2010), at p. 209; see also Dunkin’ Brands Canada Ltd. v. Bertico Inc. , 2015 QCCA 624 , 41 B.L.R. (5th) 1, at paras. 66-70 ). This obligation of loyalty [ translation ] “applies to a person who performs a prestation or exercises a right under a contract and who is bound to act in good faith” (Cantin Cumyn (2012), at p. 21). Unlike maximalist loyalty, contractual loyalty is reciprocal because of the mutual nature of good faith.

It does not require contracting parties to act in the sole interest of their counterparty, but it does require them to consider the other party’s interests when performing the contract (Lluelles and Moore, at No. 1987). [ 73 ] I pause here to note that the French term “ loyauté ” is sometimes used to describe different concepts, which no doubt reflects the [ translation ] “great terminological variety” characteristic of this field: “. . . reference is made both to good faith and to an obligatio

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