2013 QCCA 923, 2013 QCCA 923

Schnob (Entreprises J. Schnob) c. Parent 2013 QCCA 923 COUR D’APPEL CANADA PROVINCE DE QUÉBEC GREFFE DE MONTRÉAL N° : 500-09-021592-118 (550-17-005680-119) DATE : 23 MAI 2013 CORAM : LES HONORABLES YVES-MARIE MORISSETTE, J.C.A. ALLAN R. HILTON, J.C.A. MARIE ST-PIERRE, J.C.A. JAMES SCHNOB, faisant affaires sous la raison sociale LES ENTREPRISES J. SCHNOB APPELANT – intimé c.

RACHEL PARENT et ROBIN CASEY INTIMÉS – requérants et L'OFFICIER DE LA PUBLICITÉ DES DROITS DE LA CIRCONSCRIPTION FONCIÈRE DE GATINEAU MIS EN CAUSE – mis en cause ARRÊT [ 1 ] L'appelant se pourvoit contre un jugement rendu le 1 er mars 2011 par la Cour supérieure, district de Hull (l'honorable Martin Bédard), qui a accueilli avec dépens la requête des intimés et a ordonné la radiation de l'inscription d'une hypothèque légale et l'inscription d'un préavis de l'exercice publié contre l'immeuble appartenant aux intimés au Bureau de la publicité des droits de la circonscription foncière de Gatineau. [ 2 ] Pour les motifs du juge Hilton, auxquels souscrivent les juges Morissette et St-Pierre : LA COUR : [ 3 ] ACCUEILLE l'appel avec dépens; [ 4 ] INFIRME le jugement de la Cour supérieure visé par l'appel; [ 5 ] REJETTE la requête introductive des intimés, avec dépens.

YVES-MARIE MORISSETTE, J.C.A. ALLAN R. HILTON, J.C.A. MARIE ST-PIERRE, J.C.A. Me Richard Leblanc LeBLANC DONALDSON Pour l'appelant Me Nério De Candido Pour les intimés

Date d’audience : le 10 janvier 2013 REASONS OF HILTON, J.A. [ 6 ] The right of a creditor to encumber the immovable property of its debtor unilaterally is exceptional.

This appeal considers whether that exceptional right can be exercised when a building contractor does not hold a proper licence issued pursuant to the Building Act [1] during the entirety of the performance of the contract with the owner of the property. [ 7 ] The matter arises in the context of a judgment of the Superior Court granting the respondents Rachel Parent and Robin Casey's motion based on articles 3063 C.C.Q and 804 C.C.P . to cancel the appellant James Schnob's registration of a legal hypothec against their property.

It will become apparent later in these reasons that the procedural mechanism by which the case came to the Superior Court has a bearing on the final determination of the respective rights of the parties. [ 8 ] The resolution of the appeal principally involves consideration of

section 50 of the Act and the second paragraph of

article 2724 C.C.Q ., the provisions of which are to the following effect: 50. La personne qui n'est pas elle-même un entrepreneur qui a conclu un contrat pour l'exécution de travaux de construction avec un entrepreneur qui n'est pas titulaire de la licence appropriée peut en demander l'annulation. 50. A person not being a contractor who has entered into a contract for construction work with a contractor not holding the proper licence may apply for cancellation of the contract.

Le propriétaire d'un immeuble grevé d'une hypothèque légale, visée au paragraphe 2° de l'article 2724 du Code civil et inscrite à la réquisition d'un entrepreneur qui n'est pas titulaire de la licence appropriée, peut demander la radiation de l'inscription de cette hypothèque, de même que celle de toute autre inscription s'y rapportant qu'aurait pu requérir l'entrepreneur. The owner of an immovable charged with a legal hypothec referred to in paragraph 2 of

article 2724 of the Civil Code and registered on the application of a contractor who does not hold the proper licence may apply for the cancellation of the registration of the hypothec and for the cancellation of any related registration which the contractor may have applied for.

Une demande d'annulation ou de radiation ne peut être reçue s'il est établi que le demandeur savait que l'entrepreneur n'était pas titulaire de la licence appropriée [Soulignage ajouté.] No application for the cancellation of a contract or privilege will be granted where it is established that the applicant was aware that the contractor did not hold the proper licence. [Emphasis added.] 2724. Les seules créances qui peuvent donner lieu à une hypothèque légale sont les suivantes: […] 2° Les créances des personnes qui ont participé à la construction ou à la rénovation d'un immeuble; […] 2724.

Only the following claims may give rise to a legal hypothec: […] (2) claims of persons having taken

part in the construction or renovation of an immovable; […] [ 9 ] The facts are relatively straightforward and for the most part are not in dispute. [ 10 ] At the relevant time, the respondents were owners of a parcel of land in Wakefield on which they proposed to build their residence. To that end, they engaged in discussions with Mr. Schnob, who carries on business under the name of Les Entreprises J.

Schnob. [ 11 ] On November 23, 2009, Mr. Schnob agreed to build the structure of the residence for a fixed price of $173,053.69, plus a garage for $23,902.38. As for the rest of the residence, Mr. Casey intended to hire contractors in other specialties such as plumbing, heating, and electricity to complete the project. Mr. Schnob's work began on February 16, 2010. At some point in June, Mr. Casey also asked him to look after other features of the residence, such as a septic tank and a balcony, which he accepted, and Mr.

Schnob's work continued through to the autumn that year. [ 12 ] Soon thereafter, however, the relations between the parties began to sour. The respondents were unsatisfied with the quality of Mr. Schnob's work, and refused to pay him the balance of some $100,000 he claimed. By this time, the respondents had already paid Mr. Schnob approximately $235,000. [ 13 ] On November 22, 2010 Mr. Schnob registered a legal hypothec against the respondents' property for $106,760.52, which represented the unpaid balance of the work he had performed, plus interest and costs.

This was followed by the registration on December 15, 2010 of the prior notice to institute proceedings contemplated by

article 2757 C.C.Q ., which then led to the respondents' cancellation proceedings in the Superior Court that the trial judge granted. [ 14 ] The respondents' motion first alleged that the registration of the legal hypothec was effected more than 30 days after the end of the work. The judgment of the Superior Court, however, was based solely on their other allegation that Mr. Schnob did not have the proper licence issued under the Act during the entire time he performed the work. [ 15 ] Indeed, the accurancy of that allegation is not in dispute. Mr.

Schnob's licence had already been suspended when the contract was agreed upon, but he recovered it during the latter stage of the performance of the work, and still held it when he registered the legal hypothec that the judgment of the Superior Court cancelled. [ 16 ] The relevant sequence of events, integrating the dates of Mr.

Schnob's acquisition, loss and reacquisition of the licence with the formation of the building contract and the execution of the work is as follows: • May 22, 2008 Licence 8348-9500-57 issued to James Schnob • May 1, 2009 Prior notice of suspension of licence to James Schnob if proof of required security not furnished by May 21, 2009 [2] • May 21, 2009 Mr.

Schnob fails to provide proof of security • June 18, 2009 Decision of the Régie du bâtiment du Québec suspending the licence of James Schnob until such time as he supplies proof of security • November 23, 2009 Formation of contract between the parties • February 16, 2010 Commencement of construction work • April 13, 2010 Recovery of James Schnob's construction licence • Autumn 2010 End of work • November 22, 2010 Registration of legal hypothec • December 15, 2010 Registration of prior notice [ 17 ] It will be seen from the foregoing that Mr.

Schnob's licence was suspended for close to 10 months, during which time he entered into his contact with the respondents and performed a major portion of the work on their property, for which he was paid a significant sum of money. [ 18 ] After the registration of Mr.

Schnob's legal hypothec, the respondents learned that he had not held the required licence when the contract was formed and much of the work performed; hence their motion to cancel its registration. [ 19 ] In his concise judgment granting the respondents' motion, the trial judge adopted the approach of Carrière, J. in Commission scolaire des Cascades-L'Achigan v. 2797097 Canada inc . [3] and held that in order to benefit from a legal hypothec, a contractor had to be the holder of a valid licence "tout au long du processus". [4] He further took comfort in a comment of Beauregard, J.A. in Dolomex v.

Dercon Construction Canada inc . to the effect that an

interpretation of

section 50 of the Act with which he disagreed in that particular appeal would "contourner le désir du législateur de sanctionner très sévèrement les entrepreneurs qui ne détiennent pas de licence […]." [5] [ 20 ] The trial judge also acknowledged a judgment of the Court of Quebec that took a different approach to the issue, but noted that it had not since been followed. [6] [ 21 ] Mr.

Schnob not having satisfied the jurisprudential criteria for a validly registered legal hypothec, the trial judge accordingly ordered the cancellation of the registration of the legal hypothec and the prior notice. [ 22 ] In this Court, the parties limited their submissions to the issue of the regularity of the legal hypothec and prior notice in light of Mr. Schnob not having held the required licence from the start to the finish of the process.

To that end, the respondents' additional allegation in their pleadings in the Superior Court that the legal hypothec was registered beyond the prescribed time limit to do so, a subject on which the trial judge did not make any findings, was not argued in appeal.

[ 23 ] Mr. Schnob urges the Court to adopt the approach illustrated by the judgment of the Court of Quebec in Boesch. [7] In his view, that judgment offers a degree of flexibility when, as he contends is the situation in which he finds himself, the loss or suspension of the licence is accidental and not for a reason attributable to his lacking any of the qualifications necessary to hold the licence.

He further argues that he acted at all times in good faith, that he was in fact unaware that his licence had been suspended, that all the subcontractors he hired had the appropriate building licences, and that his employees were all paid in accordance with the collective labour agreement applicable to workers in the construction industry. [ 24 ] Finally, he contends that the amount of the legal hypothec represents the value of work performed after his licence was re- issued in April of 2010. [ 25 ] The respondents contest or consider irrelevant a number of Mr.

Schnob's factual assertions, including: • the contention that the amount of the legal hypothec represents work performed after his licence was recovered, all the more so since the contract between the parties was for a fixed price; • Mr. Schnob's claim that he was unaware of his licence having been suspended; or that his sub-contractors all held the appropriate licences under the Act . [ 26 ] They also advised the Court that they are not only contesting the amount of the legal hypothec Mr.

Schnob registered, but have constituted themselves cross-plaintiffs in the action he has taken against them in the Superior Court to enforce his legal hypothec. [8] [ 27 ] With respect to the law, they urge the Court to adopt the same strict approach taken by the trial judge and the other judgments on which he relied as to the proper

interpretation of

section 50 the Act . In particular they dispute Mr. Schnob's contention that the legislative purpose of the provision was to combat contractors accumulating undeclared income from the receipt of under-the-table payments ("travail au noir"). To the extent Mr. Schnob relies on the holding in Boesch , [9] in which a contractor had lost his licence for about six weeks during the performance of a construction contract due to an oversight on his part that he attributed to conjugal difficulties, the respondents note that Mr.

Schnob was carrying on business for almost 10 months without a licence, and that in any event Boesch was wrongly decided. [ 28 ] Let me say at once that I agree with the respondents that Mr. Schnob's explanation why his licence was suspended is not persuasive. He contended that his accountant and the Association de la construction du Québec , of which he was a member, had assured him that the required security had been furnished, and thus that he was unaware of his default. [ 29 ] The evidence Mr. Schnob led in support of his argument in this respect did not have a great deal of probative value.

Much of it emanates from him alone and not from any of the third parties to which it refers, such as a representative of the Association de la construction du Québec . His accountant, Yvon Lévesque, did testify, but only to confirm that monthly reports were filed with the Commission de la construction du Québec along with the required payments to it during the time Mr. Schnob's licence was suspended. Mr. Lévesque acknowledged seeing the notice of suspension from the Régie du bâtiment du Québec in his file, but had no explanation why the required security had not been furnished to it.

His testimony was of such little impact that counsel for the respondents correctly judged that it was unnecessary to cross-examine him. [ 30 ] In principle, a contractor holds a licence the Act requires or it does not. In the absence of exceptional circumstances that are not present here, Mr. Schnob's alleged lack of knowledge of the suspension of his licence is irrelevant to the determination of whether he had the right to encumber the property of the respondents. In this case, there does not appear to be any plausible explanation, other than Mr.

Schnob's sloppiness or negligence. [ 31 ] As a result, it is unnecessary to determine whether the judgment of the Court of Quebec in Boesch was wrongly decided, as the respondents contend. Moreover, the following observations of Beauregard, J.A. on behalf of the Court in Dolomex do not assist Mr.

Schnob's thesis that a court can look behind the suspension to assess whether there are exculpatory reasons to explain its occurrence: [14] Il y a des éléments au dossier qui suggèrent que le fait que l'intimée n'avait pas de permis à l'époque qui nous intéresse a résulté d'une simple inattention de la part d'un des préposés de l'intimée.

Il n'est pas du tout acquis qu'un tel fait peut être invoqué à l'encontre de la disposition précise de la loi et, en tout état de cause, il n'y a pas lieu de tenir cela en considération puisque les éléments de preuve concernant le fait que l'intimée aurait désiré ou pu obtenir la licence ne sont pas assez élaborés ou précis. [10] [ 32 ] I turn now to the alleged illegality of the registration of the legal hypothec and the prior notice.

Article 3063 C.C.Q. provides, insofar as relevant, that: "The court may order the cancellation of a registration effected without right or irregularly ", and in French, that "La radiation d'une inscription peut être ordonnée par le tribunal lorsque l'inscription a été faite sans droit ou irrégulièrement " [Emphasis added]. [ 33 ] The second paragraph of

section 50 of the Act contemplates an irregularity to which

article 3063 C.C.Q. refers, and in this respect, it is not disputed that the exception in the third paragraph of that

section (the owner's awareness that the contractor does not have a licence) is not available to Mr. Schnob. [ 34 ] In addition to

section 50 of the Act that I have reproduced in paragraph [8], the following provisions of the Act that were in force at the relevant time [11] also warrant mention:

1. La présente loi a pour objets: 1° d' assurer la qualité des travaux de construction d'un bâtiment et, dans certains cas, d'un équipement destiné à l'usage du public, d'une installation non rattachée à un bâtiment ou d'une installation d'équipement pétrolier; 2° d' assurer la sécurité du public qui accède à un bâtiment ou à un équipement destiné à l'usage du public ou qui utilise une installation non rattachée à un bâtiment ou une installation d'équipement pétrolier.

Dans la poursuite de ces objets, la présente loi voit notamment à la qualification professionnelle des entrepreneurs et des constructeurs- propriétaires. 1. The purposes of this Act are: (1) to ensure proper quality of the construction work of buildings , and in certain cases, facilities intended for use by the public, installations independent of a building or petroleum equipment installations; and, (2) to ensure the safety of the public who have access to a building or facilities intended for use by the public or who use installations independent of a building or petroleum equipment installations.

In the pursuit of those purposes, the Act provides in particular for the professional qualification of contractors and owner-builders. 46. Nul ne peut exercer les fonctions d'entrepreneur de construction, en prendre le titre, ni donner lieu de croire qu'il est entrepreneur de construction, s'il n'est titulaire d'une licence en vigueur à cette fin. Aucun entrepreneur ne peut utiliser, pour l'exécution de travaux de construction, les services d'un autre entrepreneur qui n'est pas titulaire d'une licence à cette fin. 46.

No person may act as a building contractor, hold himself out to be such or give cause to believe that he is a building contractor, unless he holds a current licence for that purpose. No contractor may use, for the carrying out of construction work, the services of another contractor who does not hold a licence for that purpose. 197.

Quiconque contrevient au premier alinéa de l'article 35.2, au premier alinéa de l'article 37.1, à l'un des articles 46 , 48 ou 64, au premier alinéa de l'article 65.2, à l'article 65.3 ou au paragraphe 5° de l'article 194, est passible d'une amende de 700 $ à 1 400 $ dans le cas d'un individu et de 1 400 $ à 2 800 $ dans le cas d'une personne morale. [Soulignage ajouté.] 197. Any person who contravenes the first paragraph of

section 35.2, the first paragraph of

section 37.1, any of sections 46 , 48 and 64, the first paragraph of

section 65.2,

section 65.3 or paragraph 5 of

section 194 is liable to a fine of between $700 to $1 400 in the case of an individual and between $1 400 and $2 800 in the case of a legal person. [Emphasis added.] [ 35 ] It will thus be seen that in addition to the private law consequence contemplated by the second paragraph of

section 50 of the Act , the combined effect of sections 46 and 197 is to create a penal sanction for a contractor who performs work without a contractor's licence. This is surely a measure of the seriousness with which the legislature views the necessity for a contractor to hold an appropriate licence. [ 36 ] As the judgment under appeal notes, the Superior Court has had the occasion to apply

section 50 of the Act on a number of occasions. That has been much less so in this Court, and in many instances, the precise issue under review here has not been examined. [12] [ 37 ] As I mentioned earlier, the trial judge's approach and that of other Superior Court judges has largely adopted the reasoning of Carrière, J. in Cascades-L'Achigan , [13] a case in which he rejected a literal

interpretation of the second paragraph of

section 50 of the Act that, from his perspective, would limit its application to the time when the legal hypothec was registered. Here is what he said: Vu les objectifs de cette loi, le Tribunal est d'avis que le législateur a voulu, par le biais du deuxième alinéa de l'art. 50, inciter l'entrepreneur à respecter son obligation de détenir la licence appropriée en tout temps, c'est-à-dire durant l'exécution des travaux de construction et lors de la demande de grever l'immeuble d'une hypothèque légale. Il s'agit du véritable sens que l'on doit lui donner. Il y a donc lieu de conclure que le véritable sens du deuxième alinéa de l'article 50, tout en rejoignant le sens naturel, le dépasse. [14]

[ 38 ] That case, however, and others that have followed it, had a different factual presentation than that of Mr. Schnob. The contractor in Cascades-L'Achigan did not hold the required licence when the legal hypothec was registered. Mr. Schnob did have his licence when he registered his legal hypothec and prior notice. The application of the "start to finish" approach propounded by Carrière, J. can also be said to have led to occasionally harsh results. In one such case, a contractor who held a licence completed the work for which he was retained.

He then retired from his business operations after their completion, but gave up his licence before registering a legal hypothec. In brief reasons, the Superior Court held that he had lost the benefit of the security, despite the fact he held the licence when the contract was formed and all of the work was carried out. [15] [ 39 ] The second paragraph of

section 50 of the Act gives the owner of immovable property the right to apply for the cancellation of the registration of a legal hypothec when the contractor does not hold the proper licence. In my view, the obverse of that stipulation should also be considered in a case such as this one. In other words, when a building contractor holds the proper licence, the right to register a legal hypothec and seek its enforcement for work performed while the licence was validly in force should be protected. [ 40 ] Such a possibility was evoked by Lesage, J. in the judgment of Commission scolaire des Navigateurs v.

Muridal Inc. [16] In that case, a contractor holding an appropriate licence, Boutique du Châssis inc., obtained a sub-contract in July of 2003 to perform work at a school owned by the plaintiff school board. The following month, Boutique du Châssis went bankrupt without informing the general contractor or the plaintiff/owner. The defendant Muridal Inc. then acquired the contract of the now bankrupt sub-contractor by assignment. Between August 8 to September 1, it performed the work that had been previously carried out by Boutique du Châssis.

Muridal, however, only obtained its licence under the Act on September 2, that is, after it had performed its work. Muridal gave notice to the owner of the assignment of the sub-contract to it from the bankrupt on September 16. On October 14, Muridal registered a legal hypothec against the owner's property.

This led to the owner bringing a motion to cancel the registration of the legal hypothec. [ 41 ] In the course of his judgment, Lesage, J. observed the following: [19] Dans un cas comme celui en l'espèce, la condition préalable à l'inscription d'une hypothèque judiciaire est la dénonciation écrite du contrat au propriétaire qui n'a pas conclu le contrat avec l'entrepreneur. L'hypothèque légale ne vaut alors que pour les travaux, matériaux et services qui suivent la dénonciation. [20] Cette dénonciation fait obligatoirement référence au contrat de construction obtenu. Or l'article 46 de la

Loi sur le bâtiment stipule que « nul ne peut exercer les fonctions d'entrepreneur de construction, en prendre le titre, ni donner lieu de croire qu'il est entrepreneur de construction, s'il n'est titulaire d'une licence en vigueur à cette fin ». [21] En transmettant un avis de dénonciation de son contrat, l'entrepreneur doit donc être détenteur d'une licence en vigueur sinon il laisse à tout le moins croire au propriétaire qu'il exerce légalement les fonctions d'entrepreneur de construction, ce qui ne serait pas le cas.

Une telle dénonciation est invalide sauf si le propriétaire savait que l'entrepreneur ne détenait pas sa licence de la Régie du bâtiment. [22] L'entrepreneur doit donc détenir une licence en vigueur au moment de la dénonciation, lors des travaux et lors de l'inscription de l'hypothèque légale.

Il apparaît que, s'il ne la détient pas à l'une de ces périodes, il ne peut être considéré comme un entrepreneur de construction pouvant être protégé par la garantie qui est l'hypothèque légale. [23] La seule situation pouvant possiblement porter à questionnement est le cas de l'entrepreneur de construction qui détient une licence en vigueur au moment de la dénonciation, laquelle devient échue durant une

partie des travaux mais qui est remise en vigueur au cours des travaux et qui est toujours en vigueur lors de l'inscription de l'hypothèque légale. [24] Le Tribunal est d'avis qu'il y aurait peut-être lieu de revisiter la jurisprudence dans une telle situation en fonction des objectifs de la

Loi sur le bâtiment mais ce n'est pas le cas soumis en l'espèce . [Emphasis added] [ 42 ] Lesage, J. thus felt constrained to grant the motion and accordingly ordered the cancellation of the registration of the legal hypothec: [37] En l'espèce, la défenderesse est consciente de cette exigence qu'est la dénonciation de son contrat en vertu duquel elle a exécuté des travaux sur l'immeuble de la demanderesse. Malheureusement, elle a transmis cette dénonciation après l'exécution de ses travaux.

Et telle dénonciation n'aurait été valable que pour les travaux qu'elle aurait pu exécuter elle-même par la suite, ce dont elle n'a pas eu la chance, étant évincée du chantier auparavant . [Emphasis added] [ 43 ] An appeal was taken to this Court, where a different result obtained. [17] It was held that while Muridal could not register a legal hypothec for the work it performed without a proper licence, it could, however, do so for the work performed by Boutique du Châssis, which at all relevant times did have the required licence.

The effect would be to allow the school board to claim a reduction of the value of the legal hypothec registered on its property, which included the work both Boutique du Châssis and Muridal performed, when Muridal's claim to enforce it in separate proceedings was tried. In the course of his reasons on behalf of the Court, Morin, J.A. said this, after citing

article 2952 C.C.Q .: [53] J'en viens donc à la conclusion que l'appelante a validement inscrit une hypothèque légale à l'égard des créances résultant des travaux exécutés par Boutique du Châssis inc . [54] À ce stade-ci, il importe peu qu'il y ait divergence de vues entre les parties quant à la valeur de ces créances; l'admission de l'existence de ces créances suffit pour justifier l'inscription de l'hypothèque légale. [55] En conséquence, je suis d'avis qu'il y a lieu d'accueillir l'appel avec dépens, d'infirmer le jugement de première instance et de rejeter, avec dépens, la requête introductive d'instance de l'intimée en radiation d'une inscription d'une hypothèque légale sur le registre

foncier. [Emphasis added] [ 44 ] Although the analogy is not perfect, the reasoning in Muridal can be applied to the circumstances of this appeal. [ 45 ] Mr. Schnob's legal hypothec is not irregular to the extent it represents the value of work performed as of the date his licence was re-acquired, that is, April 13, 2010. The legal hypothec Mr. Schnob registered does not specify the period of time covered by the claim.

Rather, it states that he furnished the respondents with work and materials that were incorporated into the subject immovable property, and that the unpaid balance in principal and interest, subject to adjustment, is $106,760.52. [ 46 ] The proper forum to determine the starting point of the value of the work for which Mr. Schnob claims he is entitled to the security of a legal hypothec is therefore the Superior Court file in which he seeks its enforcement and a monetary condemnation against the respondents. [18] It follows that Mr.

Schnob's legal hypothec cannot extend to any part of the amount claimed that preceded the date on which he recovered his licence, thus leaving unsecured any excess amount that he might be awarded at trial for work performed and materials supplied prior to such date. [ 47 ] The fact that he is entitled to the security of a legal hypothec for work performed after he recovered his licence, however, would not shield him from penal proceedings under

section 197 of the Act for a possible violation of

section 46 between the date of the formation of the contract on November 23, 2009 and the date prior to his having recovered his licence, that is, April 12, 2010. [ 48 ] I would accordingly allow the appeal with costs, reverse the judgment of the Superior Court and dismiss the respondents' motion to cancel the registration of the appellant's legal hypothec and prior notice, also with costs. ALLAN R. HILTON, J.A.