2011 QCCA 1178, 2011 QCCA 1178

Unofficial English Translation Altitude 505 inc. c. Investissements MLC inc. 2011 QCCA 1178 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL NO: 500-09-019987-098 / 500-09-019993-096 (500-05-073919-027) DATE: June 22, 2011 CORAM: THE HONOURABLE MARC BEAUREGARD, J.A. ANDRÉ ROCHON, J.A. NICOLE DUVAL HESLER, J.A. No.: 500-09-019987-098 ALTITUDE 505 INC. and HERNANI VIDAL APPELLANTS – Defendants v. LES INVESTISSEMENTS M.L.C. INC. RESPONDENT – Plaintiff No.: 500-09-019993-096 DENIS C. CHARRON APPELLANT – Defendant v. LES INVESTISSEMENTS M.L.C. INC. RESPONDENT – Plaintiff and ALTITUDE 505 INC.

IMPLEADED PARTY – Defendant and HERNANI VIDAL and INVESTISSEMENTS ROYAL MONTRÉAL INC.

IMPLEADED PARTIES – Solidary defendants JUDGMENT [ 1 ] THE COURT: On appeal from a judgment of the Superior Court, District of Montreal (the Honourable Marie-Christine Laberge), rendered on August 4, 2009, that condemned the appellants to reimburse to the respondent the sums disbursed by the latter to develop a restaurant; [ 2 ] Having examined the file, heard the parties, and on the whole deliberated; [ 3 ] For the reasons of Rochon, J.A., with which Beauregard and Duval Hesler, JJ.A. agree; [ 4 ] DISMISSES without costs the respondent’s motion to dismiss the appeal by the appellant Denis C.

Charron for no cause; [ 5 ] DISMISSES with costs the appeals of Altitude 505 inc. and Denis C. Charron; [ 6 ] ALLOWS the appeal by Hernani Vidal with costs; [ 7 ] DISMISSES with costs the action by Les investissements M.L.C. inc. against Hernani Vidal.

MARC BEAUREGARD, J.A. ANDRÉ ROCHON, J.A. NICOLE DUVAL HESLER, J.A. Mtre Stéphane Rivard Clément Davignon For Altitude 505 inc. and Hernani Vidal Denis C. Charron Personally Mtre Jean-Rémi Thibault Arnault Thibault Cléroux For Investissements M.L.C. Inc. Date of hearing: May 3, 2011 REASONS OF ROCHON, J.A. [ 8 ] The appellants were condemned to reimburse to the respondent sums the latter disbursed to develop a restaurant located in a building in downtown Montreal. They are appealing. [ 9 ] Since the trial judgment, Denis Charron has filed for bankruptcy. He appeared in the record personally.

The trustee indicated that he would not be involved in the proceeding and acknowledged that Denis Charron had a personal interest pursuant to sections 173 , 178 and 198 of the Bankruptcy and Insolvency Act to make submissions before the Court. During the hearing, with the consent of the other parties to the appeal, Denis Charron was authorized to plead his case. [ 10 ] This case involved a particularly bitter family dispute. This time, the family dispute caused collateral damage. The Superior Court judge set out the facts in minute detail.

The following facts are essential for the purposes of the appeal. [ 11 ] The father, Claude Charron, founded the Groupe Charron (the “Groupe”). The Groupe is composed of several companies primarily active in the real estate sector. Until the middle of 2000, the Groupe’s business was managed by Claude Charron, his son Denis (one of the appellants), and his daughter Nicole. [ 12 ] The respondent, Les Investissements M.L.C. inc. (MLC), is one of the Groupe companies.

Claude Charron owns 85% of the shares in MLC. [1] The Charron children, including Denis, own 15% of the shares. [ 13 ] MLC co-owns an income property at 505 de Maisonneuve Boulevard West in Montreal. MLC owns 55% of this building. The other co-owners (45%) are the Association des hôpitaux du Québec and a Groupe company. [ 14 ] In 1998, Denis Charron was one of the MLC directors. He was also president of the syndicate of co-owners. At the time, there was a small, unprofitable “fast food” restaurant in the lobby of the building. Denis Charron wanted to replace it with a larger restaurant of higher quality.

To do this, he approached three people with experience in the restaurant sector, including the appellant Vidal. [ 15 ] At the time, the facilities were insufficient to operate the planned restaurant and significant renovations were needed. [ 16 ] The four individuals formed a company, Altitude 505 inc. (“Altitude”) to run the Bellagio restaurant. Investissements Steval ( alter ego of lawyer Jacques Matte) joined them.

The Altitude shareholders were thus composed of: Denis Charron (25%), Investissements Steval (25%) and three other individuals (16.67% each). [ 17 ] On November 9, 1998, the co-owners of 505 de Maisonneuve West and Altitude signed an offer to lease. In particular, they agreed that Altitude would carry out the leasehold improvements at its own expense. [ 18 ] The work began. MLC and Gestion Chabli, another Groupe company, managed the project. [ 19 ] It should be noted that Denis Charron, in addition to being president of Altitude, was also an MLC director.

In this latter capacity he signed several cheques from MLC to pay for the work. In fact, MLC paid the entire cost of the work, that is, $443,831.83. [ 20 ] In mid-1999, Nicole, also an MLC director, asked her brother Denis several times to reimburse the cost of the work. He avoided the subject and prevaricated. [ 21 ] In the spring of 2000, Denis Charron left the Groupe. Relations between the members of the Charron family rapidly deteriorated. There are still several major proceedings pending between them. At the time, Altitude still had not paid anything for the

leasehold improvements for which it was responsible. [ 22 ] At the beginning of 2001, MLC sent Altitude a letter demanding to be paid the sum of $443,831.83 for the Bellagio work. [ 23 ] Vidal then signed a letter written by Denis Charron or Jacques Matte, in which he wrote that there never was any contract between Altitude and MLC for the Bellagio work. Rather, the work was granted to [ translation ] “an entity represented by Denis Charron.” [ 24 ] Discussions then took place between Nicole Charron and Vidal. In April 2001, Vidal signed a voluntary statement as a shareholder and director of Altitude.

He stated that he remitted sums to Denis Charron, believing the latter to be the representative of MLC. [ 25 ] In this statement, Vidal affirmed that Altitude intended to respect its obligations (without, however, specifying what they were). He authorized MLC to adduce his statement in Court if necessary. Vidal later said he signed the document prepared by MLC hastily. [ 26 ] Despite everything, MLC remained unpaid by Altitude.

Even though Denis Charron and his company, Investissements Royal Montréal inc. (Royal), had not paid anything for the work, they received the following payments from Altitude: Date Amount To 31-07-00 $20,000.00 Denis Charron 20-12-00 $25,000.00 Denis Charron 22-12-00 $5,000.00 Denis Charron and Royal Montréal 07-02-01 $25,000.00 Denis Charron 22-06-01 $40,000.00 Denis Charron 01-03-2002 $200,000.00 Royal Montréal 13-05-02 $75,000.00 Royal Montréal 20-08-02 $86,978.75 Royal Montréal __________ Total : $476,978.75 [ 27 ] Sued by MLC, Altitude denied in its pleadings that it owed MLC any amount.

THE TRIAL JUDGMENT [ 28 ] For the purposes of her analysis, the Superior Court judge held two things as duly proved:

(1) Altitude was satisfied with the work carried out and

(2) MLC paid all the invoices by cheque, many of which were signed by Denis Charron. [ 29 ] The trial judge first found that there was a contract between MLC and Altitude. All the evidence indicated the business was run in a family manner, without written agreements, as was the custom for Groupe activities. [ 30 ] Then, she examined the cost of the work. In her opinion, Denis Charron could not complain about this. He signed cheques for MLC.

He himself invoiced Altitude for amounts higher than those claimed by MLC. [ 31 ] She added that Denis Charron and Royal illegally and fraudulently collected the debt rightfully owed to MLC. Denis Charron’s liability is both personal and as a director of Royal, which the judge considered to be his alter ego . [ 32 ] The Superior Court judge found that Vidal participated in the same fault as Denis Charron since he knew, as of April 2001, that MLC was claiming the cost of the work. In these circumstances, he should have paid the amounts to the Court instead of continuing to pay Denis Charron and Royal.

ANALYSIS [ 33 ] The grounds of appeal of Altitude and Denis Charron must fail.

[ 34 ] To begin with, it should be noted that, while the work was being carried out, Denis Charron was a director of both MLC and Altitude and had an interest in Gestion Chabli, a company through which he managed projects. Finally, the work was entirely paid for by MLC, the only one with the financial resources to pay for it. [ 35 ] Altitude undertook to pay for the Bellagio leasehold improvements under the terms of the offer to lease.

Altitude did not question this contractual undertaking. [ 36 ] According to the Superior Court judge, Denis Charron’s explanations justifying the payments received from Altitude had no merit. The judge’s conclusion was based not only on Denis Charron’s lack of credibility, but also on the implausibility of his arguments. [ 37 ] I share this analysis wholeheartedly. [ 38 ] Denis Charron and Royal received more than $476,000 from Altitude without doing any work or making any payment (aside from Denis Charron’s work as a director of Altitude and MLC).

According to Denis Charron, these payments were justified as eventual compensation to be agreed upon by the different Groupe companies after Gestion Chabli invoiced Royal, which was never done. [ 39 ] This is a theory concocted by Denis Charron and has no legal basis. The Superior Court judge correctly rejected this explanation. [ 40 ] Only Vidal’s appeal warrants further consideration. [ 41 ] Vidal was held personally liable because, as a director of Altitude, he caused the latter to pay Denis Charron and Royal the amounts that should have been paid to MLC. [ 42 ] The Superior Court judge understood him well.

Vidal, who has no business knowledge, unwillingly found himself in the midst of a family conflict. He was unable to resist the pressure and, to quote the trial judge, went as the wind blew. [ 43 ] He acknowledges that, under pressure from Claude and Nicole Charron (MLC), MLC paid for the work. He agreed to help MLC recover the sums owing. [ 44 ] Meanwhile, Denis Charron assured him that the sums should be paid to him and to Royal.

Out of loyalty to the person who helped him realize his dream of being a restaurateur and who, up to that point, had always respected his promises, Vidal had Altitude make the payments. [ 45 ] Vidal’s liability flows from his actions as a director of Altitude. He would have been personally liable had he authorized payment to the wrong creditor. [ 46 ] The rules governing the personal liability of directors are known. I will briefly review them. A director is the mandatary of a legal person (321 CCQ ).

The mandatary is not liable to a third person with whom he contracts provided he acts within the limits of his mandate (2157 and 2158 CCQ ). [ 47 ] Care must be taken not to equate the director’s fault with the company’s contractual fault. In Corporation d'hébergement du Québec v. Pouliot , [2] the Court states the rule as follows: [ translation ] In order for the respondent to be extracontractually liable under

article 1457 CCQ, the appellant had to demonstrate that the respondent’s fault was not due solely to the breach of a contractual obligation owed by the company, but to a breach of a legal obligation he owed independently of the contractual relationship in question. [ 48 ] With the greatest respect for the trial judge, while Vidal made a business decision that proved disastrous for Altitude, I am of the opinion that he did not commit an extracontractual fault toward MLC giving rise to his liability. [ 49 ] The amount of the leasehold improvements was claimed from Altitude.

It knew it was the debtor for the cost of the work. But whom should it pay? Claude and Nicole Charron demanded payment, as directors of MLC. Denis Charron did likewise, on behalf of Royal. [ 50 ] MLC instituted an action against Altitude and Denis Charron, both of whom filed a defence and a counterclaim. [ 51 ] A Superior Court judge overturned the seizure before judgment by MLC over Altitude’s property for insufficient cause.

MLC did not appeal this decision. [ 52 ] After a five-day trial, the Superior Court determined that MLC had a valid claim against Altitude. [ 53 ] Vidal’s actions were based on representations made by his associate Denis Charron (chartered accountant), in the presence of his other associate Jacques Matte, then a lawyer. Reassured by his associates’ expertise, he signed the cheques, believing that he was extinguishing Altitude’s debt. He then obtained a release signed by Royal. [ 54 ] Unlike in the case of Denis Charron, there is no evidence that Vidal profited personally in any way in this matter.

Admittedly, it would have been more prudent for Vidal to have deposited the amount claimed with the Court, given the uncertainty about the actual creditor’s identity, but he did not commit a fault in failing to do so. [ 55 ] Vidal did not exceed his mandate as a director. He acted erroneously, but with the intent to extinguish Altitude’s debt. In this context, he acted in the interest of the legal person for which he was the mandatary. I cannot conclude that he committed an extracontractual fault in this case.

[ 56 ] Contrary to what the Superior Court judge affirmed, [3] Altitude’s undertaking to pay the leasehold improvements was to the syndicate-lessor, not to MLC. This undertaking, although acknowledged by everyone, left open the question as to whether Vidal could believe Altitude had assigned the work to Denis Charron rather than MLC. [ 57 ] For these reasons, I would dismiss the appeals of Altitude and Denis Charron, with costs, allow the appeal by Vidal, with costs, and dismiss the action by MLC against Vidal, with costs. ANDRÉ ROCHON, J.A.