2018 QCCA 1758, 2018 QCCA 1758

Halperin c. Brouillette 2018 QCCA 1758 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026569-178 (500-17-073471-123) DATE: October 19, 2018 CORAM: THE HONOURABLE FRANCE THIBAULT, J.A. MARK SCHRAGER, J.A. MARIE-JOSÉE HOGUE, J.A. IAN HALPERIN APPELLANT – Plaintiff v.

ROBERT BROUILLETTE RESPONDENT – Defendant JUDGMENT [ 1 ] On appeal from the judgment rendered on December 16, 2016 by the Superior Court, District of Montreal (the Honourable Justice France Dulude), dismissing Appellant’s motion introductory of suit. [ 2 ] For the reasons of Justice Schrager with which Justices Thibault and Hogue agree, THE COURT : [ 3 ] GRANTS the appeal, in part; [ 4 ] REVERSES the judgment of the Superior Court, in part; [ 5 ] CONDEMNS Respondent to pay Appellant the sum of $58,962.69 together with interest and the special indemnity foreseen by the Civil Code of Quebec calculated from the date of the institution of proceedings in first instance, the whole with legal costs in first instance and in appeal.

FRANCE THIBAULT, J.A. MARK SCHRAGER, J.A. MARIE-JOSÉE HOGUE, J.A. Mtre Nicolas Moran Lévesque DE LOUYA MARKAKIS For Appellant Mtre Magali Fournier BROUILLETTE LÉGAL INC. For Respondent Date of hearing: September 27, 2018 REASONS OF SCHRAGER, J.A.

[ 6 ] Appellant’s action in damages against Respondent was dismissed by the Superior Court, District of Montreal (the Honourable Justice France Dulude), on December 16, 2016. I - THE CONTEXT [ 7 ] Appellant is a journalist and author who contracted with Transit Éditeur Inc. (“Transit”) in February 2009 to write a biography on Guy Laliberté, the founder and the then owner of Cirque du Soleil. [ 8 ] Respondent is an attorney, the founder, senior, and indeed, sole partner of Brouillette et Associés. The firm represented a certain Pierre Turgeon in the incorporation of Transit.

Respondent was also at one point a co-director and shareholder with Turgeon in Transit as well as its cheque signing officer. [ 9 ] In 2009, Appellant entered into a total of three publishing contracts with Transit for the Guy Laliberté book as well as two others; all of the aforementioned contracts were drafted by Respondent. Appellant was not represented by independent counsel.

These contracts provide, inter alia , for the assignment of copyright in consideration of the payment of royalties and the resolution of any dispute by arbitration. [ 10 ] The publication of the biography of Guy Laliberté gave rise to litigation wherein Appellant and Transit were both represented by Brouillette et Associés. [ 11 ] Between March 2009 and June 2010, Respondent and his firm invested in Transit such that Respondent became a shareholder as well as a director and the attorney of the company. [ 12 ] Given Transit’s liquidity problems, Respondent informed Turgeon at the beginning of 2010 that he wished to have his shares repurchased by a new investor. [ 13 ] In May 2010, Respondent wrote to Appellant’s agent on behalf of Transit to assure him “that all amounts payable to you and/or your clients (…) will be paid by Transit as soon as we receive the cash to do so”. [ 14 ] Negotiations with a new investor were not successful and no payment was made.

Respondent was owed funds personally as well as the amounts due to his firm for fees. To secure such indebtedness, Respondent obtained signature on two movable hypothecs exceeding in the aggregate $440,000. [ 15 ] At the beginning of July 2010, Appellant, still not having received payment of royalties due to him under the contracts with Transit, indicated his intention to institute proceedings by way of arbitration in accordance with the royalty contracts.

This was followed by a formal notice to arbitrate on August 12, 2010. [ 16 ] Brouillette et Associés represented Transit in the arbitration proceedings but after Appellant raised the conflict of interest and sought disqualification, Brouillette et Associés resigned as the attorneys of record in the arbitration in November of 2010 and they also formally resigned as Appellant’s attorneys in other matters although they were of record in another file until December 2010. [ 17 ] The movable hypothecs were published on August 23, 2010.

The delay was explained by Respondent during his testimony as to allow a new investor or lender the opportunity to publish first ranking security. [ 18 ] In May 2011, the arbitrator condemned Transit to pay Appellant $290,344. Transit contested the homologation proceedings before the Superior Court and the Court of Appeal until the appeal proceedings were discontinued by it in May 2012. The judgment remains unsatisfied. [ 19 ] In parallel proceedings, Brouillette et Associés sued Appellant in the Court of Quebec for unpaid fees.

By the judgment of June 25, 2014, Handman, J.C.Q., [1] remarked on the conflict of interest of Respondent and that his conduct, particularly, with the publication of the hypothecs, put his and his firm’s interests above that of his client, Mr. Halperin. Specifically, Judge Handman said : [97] Me. Brouillette failed to advise Mr. Halperin, who was a client of his law firm, that he had registered the conventional hypothecs and did not warn Mr. Halperin of the futility of the arbitration proceedings given that nothing would be recovered as a result of the registered hypothecs against Transit's assets. Me.

Brouillette put himself in the privileged position to take the assets first.

The factual assertion is not denied by Respondent and was found as fact by the trial judge herein. [ 20 ] Judge Handman added that Transit had no assets. [ 21 ] Because of the conflict of interest, Judge Handman reduced Brouillette et Associés’ fees to approximately $15,000, the amount awarded to Halperin in his cross-demand such that after effecting compensation, no amounts were payable by either party. [ 22 ] Appellant sought to use the Court of Quebec judgment as a springboard to Respondent’s liability by claiming that the factual findings of Handman, J.C.Q., expressed in her reasons, constituted res judicata .

The judge, however, correctly decided that the reasons for such judgment did not constitute proof before her. Equally, Respondent cannot invoke res judicata pursuant to

Article 2848 C.C.Q. to argue that the Handman judgment evacuated the issues before us since the liability invoked in this case was not the object of that proceeding. Handman, J.C.Q., was seized with an action for legal fees met with a defence and cross-demand invoking a fault committed by Respondent in the administration of a trust account. II - THE JUDGMENT OF FIRST INSTANCE

[ 23 ] In the Court below, Appellant sought a condemnation of Respondent in the amount of $490,344 comprised of the $290,344 in unpaid royalties awarded by the arbitrator, $100,000 for legal fees incurred in conjunction with the arbitration as well as $50,000 for punitive damages and $50,000 for moral damages. [ 24 ] The judge refused to lift the corporate veil to find Respondent personally liable for the indebtedness of Transit to Appellant. Her findings that Respondent did not use Transit to shield his fraud as contemplated in

Article 317 C.C.Q . is not affected by any reviewable error. [ 25 ] Nor is her refusal to find liability of Respondent based strictly on his duties as a director of Transit by application of

Article 1457 C.C.Q. and Section 122(1) (

b) of the

Canada Business Corporations Act . [2] Whatever duty of care was owed by Respondent to Appellant, it did not cause the non-payment of the royalties. Even the execution of the hypothecs did not, per se , cause the debt for the royalties to arise or for it to remain unpaid, this based on the scant evidence reproduced in the appeal record.

According to Respondent’s testimony, apparently accepted by the judge, neither he nor his firm were paid despite the security of the hypothecs. [ 26 ] The judge also decided that Respondent had no duty to inform Appellant of the precarious state of Transit’s finances in August 2010 nor that he had obtained first ranking security for the indebtedness due to him and to his firm. She added that Respondent had no duty to inform Appellant that any effort by him to collect the monies due to him might well be fruitless and the cost of doing so, wasteful.

Respectfully, this constitutes in the context of this case, reviewable error for the reasons which follow. III - DISCUSSION [ 27 ] It should be remembered that Respondent was not only a director and shareholder of Transit but had also acted as its attorney as well as Appellant’s attorney.

As a director involved in a reasonable good faith effort by a company to put its financial house in order, it was open to the judge to conclude that he had no duty to disclose the state of Transit’s finances or that it was in the “vicinity of insolvency”. [3] Equally, a party to litigation should not, as a general rule, be considered as obliged to inform the other party of the state of its patrimony, even if precarious.

This is not the same as a director who induces a third party to contract with an insolvent company knowing that the latter would be unable to honour its obligations. [4] [ 28 ] However, this is not sufficient to end the debate. In Bank of Montreal v. Bail Ltée , [5] the Supreme Court of Canada recognized a general theory of the obligation to inform in the civil law of Quebec quoting the author Ghestin: (….) I believe that it is possible to outline a general theory of the obligation to inform, based on the duty of good faith in the realm of contracts , which was mentioned above (see Y.

Picod, Le devoir de loyauté dans l'exécution du contrat (1989), at pp. 112 - 16). J. Ghestin, Trait é de droit civil , vol. II, Les obligations -- Le contrat: formation (2nd ed. 1988), concludes a lengthy study of the obligation to inform by proposing the following definition, at p. 566: […] Je crois qu'il est possible d'esquisser une théorie globale de l'obligation de renseignement, qui reposerait sur l'obligation de bonne foi dans le domaine contractuel , mentionnée plus haut (voir Y. Picod, Le devoir de loyauté dans l'exécution du contrat (1989), aux pp. 112 à 116). J. Ghestin, Traité de droit civil , t.

II, Les obligations — Le contrat: formation (2e éd. 1988), conclut une longue étude de l'obligation de renseignement en proposant la définition suivante à la p. 566: [TRANSLATION] Finally, the party who knows or ought to know, especially by reason of his or her professional qualifications , a fact he or she knows to be of decisive importance to the other party is bound to inform that party of the fact from the moment when it becomes impossible for that party to obtain information on his or her own, or when he or she might legitimately have relied on the co - contracting party , by reason of the nature of the contract, the capacity of the parties, or inaccurate information which had been supplied by that party.

Finalement, celle des parties qui connaissait, ou qui devait connaître, en raison spécialement de sa qualification professionnelle , un fait, dont elle savait l'importance déterminante pour l'autre contractant, est tenue d'en informer celui-ci, dès l'instant qu'il était dans l'impossibilité de se renseigner lui-même, ou qu'il pouvait légitimement faire confiance à son cocontractant , en raison de la nature du contrat, de la qualité des parties, ou des informations inexactes que ce dernier lui avait fournies.

Without necessarily adopting that statement, I am of the opinion that Ghestin has correctly stated the nature and parameters of the obligation to inform. He describes the main elements of the obligation as follows: Sans nécessairement en adopter l'énoncé, je suis d'avis que Ghestin expose correctement la nature et les paramètres de l'obligation de renseignement. Il en fait ressortir les éléments principaux, soit: - - knowledge of the information, whether actual or presumed, by the party which owes the obligation to inform; —la connaissance, réelle ou présumée, de l'information par la

partie débitrice de l'obligation de renseignement;

- - the fact that the information in question is of decisive importance; —la nature déterminante de l'information en question; - -the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation. —l'impossibilité du créancier de l'obligation de se renseigner soi-même, ou la confiance légitime du créancier envers le débiteur. In my opinion, these elements are found in all cases where there is an obligation to inform.

For example, a manufacturer knows or is presumed to know the risks and dangers created by its product, as well as any manufacturing defects from which it may suffer. This information will have a definite influence on the consumer's decisions as to whether to purchase and use such products. Most often, the consumer relies on the manufacturer for this, or finds it impossible to obtain this information. The same is true for other examples of the obligation to inform. À mon avis, ces éléments se retrouvent dans toutes les instances de l'obligation de renseignement.

Le fabricant, par exemple, connaît ou est présumé connaître les risques et dangers créés par son produit, ainsi que les défauts de fabrication dont il peut souffrir. Ces informations exercent une influence certaine dans les décisions du consommateur relativement à l'achat et à l'usage de ces produits. Le plus souvent, le consommateur fait confiance au fabricant à cet égard ou se trouve dans l'impossibilité de connaître ces informations. Il en va de même pour les autres manifestations de l'obligation de renseignement.

The advent of the obligation to inform is related to a certain shift that has been taking place in the civil law. While previously it was acceptable to leave it to the individual to obtain information before acting, the civil law is now more attentive to inequalities in terms of information, and imposes a positive obligation to provide information in cases where one party is in a vulnerable position as regards information, from which damages may result. The obligation to inform and the duty not to give false information may be seen as two sides of the same coin. As I noted in Laferrière v.

Lawson , supra , both acts and omissions may amount to fault, and the civil law does not make a distinction between them. Like P. Le Tourneau, "De l'allégement de l'obligation de renseignements ou de conseil", D. 1987. Chron., p. 101, however, I would add that the obligation to inform must not be defined so broadly as to obviate the fundamental obligation which rests on everyone to obtain information and to take care in conducting his or her affairs. L'apparition de l'obligation de renseignement est reliée à un certain rééquilibrage au sein du droit civil.

Alors qu'auparavant il était de mise de laisser le soin à chacun de se renseigner et de s'informer avant d'agir, le droit civil est maintenant plus attentif aux inégalités informationnelles, et il impose une obligation positive de renseignement dans les cas où une

partie se retrouve dans une position informationnelle vulnérable, d'où des dommages pourraient s'ensuivre. L'obligation de renseignement et le devoir de ne pas donner de fausses informations peuvent être conçus comme les deux facettes d'une même médaille. Comme je l'ai mentionné dans Laferrière c. Lawson , précité, les actes et les omissions peuvent tout autant l'un que l'autre constituer une faute, et le droit civil ne les distingue pas à cet égard. À l'instar de P. Le Tourneau, "De l'allégement de l'obligation de renseignements ou de conseil", D. 1987.

Chron., p. 101, cependant, j'ajouterais qu'il ne faut pas donner à l'obligation de renseignement une portée telle qu'elle écarterait l'obligation fondamentale qui est faite à chacun de se renseigner et de veiller prudemment à la conduite de ses affaires. (Emphasis added) (Soulignements ajoutés) [ 29 ] The duty to inform thus arises when the information: (

i) is relevant to a decision to be taken (in this case, by Appellant); (ii) is known to the debtor of the obligation (Respondent); and (iii) the creditor is unaware nor in a position to obtain the information on his own or enjoys a level of confidence in the debtor so that it is reasonable to expect disclosure. [6] None of the foregoing releases the creditor of the obligation to bring to his or its own affairs a reasonable level of prudence and diligence so as to inform itself of important matters. [7] [ 30 ] Clearly, Appellant was vulnerable and unaware of the details of Transit’s finances when the arbitration proceedings were instituted given that Respondent remained silent and the hypothecs were not even registered.

Respondent was Appellant’s attorney and it would not be unreasonable to expect that a salient fact regarding the recovery of the royalties owed would have been disclosed by him to Appellant. The judge found that it was incumbent on Appellant to search the Registry of personal and movable real rights to disclose the hypothecs which were registered on August 23. Firstly, she errs in that the arbitration proceedings were commenced prior to registration. Secondly, it was not incumbent on Appellant to conduct ongoing searches of the register while the arbitration proceedings were pending.

There is no proof of such a practice or professional norm. This was not a matter of securing obligations of competing secured creditors, which would require such searches. Moreover, such research would not have informed Appellant or his professionals of the precarious state of Transit’s finances but only that Respondent had registered security for the debt due to him. In other words, Appellant would have required the information on the existence of the hypothecs and the precarious state of Transit’s finances, which Respondent possessed.

Good faith gave rise to the duty to inform requiring him to share such information. [ 31 ] The judge recognizes that the information could have saved Appellant the expense of the arbitration which was all for naught:

[142] ln the present case, it is very unfortunate that Brouillette did not tell Halperin because it would have avoided a lot of wasted expenses. Indeed, one can wonder why he did not tell Halperin. Nevertheless, the specific circumstances of this case do not trigger Brouillette's liability for the following reasons. (…) [146] lt is clear that Brouillette put himself in a very delicate situation.

While he couId have saved Halperin the costs of a pointless arbitration, the Court does not believe it is appropriate, even in the specific circumstances of this case, to impose an obligation on a former director or shareholder in the process of selling his shares to disclose to a creditor the insolvency of the company. [147] Consequently, here, even though Brouillette failed to maintain his professional independence as mentioned by Justice Handman, the evidence does not allow the Court to conclude that he also committed an extracontractual fault that would lead to his personal liability. [ 32 ] The judge’s inquiry ends at Respondent’s duty as a shareholder and director to disclose the information.

She mentions but does not pursue the application of the duty to inform as a general duty outside the scope of any contractual relationship or Respondent’s position as a company director. Nor does the judge pursue the inquiry of the existence in context of a duty to inform arising from the parties’ lawyer/client relationship. All of this in my view, constitutes reviewable error. [ 33 ] Unlike counsel for Respondent, I do not read in the trial transcript any renunciation by Appellant’s lawyer to seek Respondent’s liability as an attorney but rather not “specifically” as an attorney.

The written pleadings throughout (in first instance and in appeal) invoke such liability and the judge notes the argument based on professional ethics at paragraph 116 of the judgment. [ 34 ] The duty to inform can exist independent of any contractual obligation [8] so that the fact that Transit was the contracting party with Appellant in the royalty agreements is not an impediment to the existence of the duty of information incumbent on Respondent. In any event and despite the foregoing, Respondent was contractually bound to Appellant.

He had acted as Appellant’s attorney and this, until at least July 2010 if not November or December 2010. As such, he owed professional duties to Appellant as recognized in the Code of ethics of advocates particularly the duty to subordinate his personal interest to that of his client. [9] [ 35 ] It is also a crucial consideration in this case that Respondent, acting as a director of Transit or as its attorney, had represented to Appellant’s agent that Appellant would be paid when funds became available. Respondent thus inferred that the company’s inability to pay was temporary.

However, because of the conflict of interest between the monies owed to him and the royalties owed to Appellant, Respondent lost any semblance of professional independence and did not inform Appellant at any time that pursuing the arbitration would in all likelihood be fruitless given Transit’s insolvency and that the first $440,000 of assets were secured in his favour. With such information, Appellant could have made an informed decision whether to pursue the arbitration proceedings or not and incur the related costs.

IV - CONCLUSION [ 36 ] As a result of the error described above, I would intervene to award as damages the cost incurred by Appellant to pursue the arbitration plus interest and the special indemnity.

Though he claimed $100,000, he proved $48,962.69 which the judge establishes stating that she would have granted such sum had she come to the conclusion that Respondent was obliged to inform Appellant of the aforementioned facts. [ 37 ] The judge also states that she would have awarded moral damages of $20,000 to Appellant because of the anxiety suffered by him due to the non-payment of the royalties and the protracted and costly arbitration.

Given my conclusion that Respondent’s liability arises in respect of the arbitration but not Transit’s failure to pay royalties, I would award half the amount determined by the judge, or $10,000. MARK SCHRAGER, J.A.