2022 QCCA 141, 2022 QCCA 141

Leisure Holdings inc. c. 2781875 Canada inc. 2022 QCCA 141 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-028735-199 (500-17-066506-117) DATE: February 1 st , 2022 CORAM: THE HONOURABLE GENEVIÈVE MARCOTTE, J.A. STEPHEN W. HAMILTON, J.A. MICHEL BEAUPRÉ, J.A. LEISURE HOLDINGS INC. APPELLANT – Plaintiff v. 2781875 CANADA INC. 9180-6596 QUÉBEC INC. DAVID PEMBERTON-SMITH WSP CANADA INC., being the successor of GENIVAR SEC, GENIVAR GP, GENIVAR INC.

RESPONDENTS – Defendants JUDGMENT [ 1 ] The Appellant appeals from a judgment rendered on November 13, 2019, by the Superior Court, district of Montreal (the Honourable Dominique Poulin), which condemned the Respondents to pay the Appellant $153,500, with interest and the additional indemnity from May 24, 2019. [1] The judgment also condemned certain of the Respondents to pay the Appellant $38,375 in professional fees; however, this conclusion is not challenged by either party on appeal. [ 2 ] The Appellant purchased the Far Hills Inn from the Respondents 2781875 Canada Inc., 9180-6596 Québec Inc., and David Pemberton-Smith (the “Vendors”) in 2007 for $2.1 million.

The Respondent WSP Canada Inc. (hereinafter “Genivar”, its name at the time) performed the pre-purchase inspection. The Appellant discovered problems in 2008 that had not been disclosed by the Vendors nor identified by Genivar. [ 3 ] The Appellant sued the Respondents in 2011, alleging a series of problems and claiming over $6 million in damages, which included “all the costs, expenses and losses that Leisure would have avoided had it not acquired the property, less the property’s residual value”.

It amended its action on May 24, 2019, during the trial and as a result of comments made by the judge, to reduce its claim to $5.2 million and to add the notion that “Plaintiff’s damages can also be calculated in consideration of the repair costs set out in [various expert reports]”. [ 4 ] The trial lasted 12 days and the judge rendered a very detailed 260 paragraph judgment. [ 5 ] First, she found that only one of the alleged problems was a latent defect.

With respect to that latent defect, she found that the Appellant, having chosen to keep the property, could only ask for a reduction of the purchase price and damages. She found that the cost of repairing that latent defect in 2008 was $254,487 (after excluding any added value that the repairs would give the property). None of that is contested in the appeal. [ 6 ] Then, using the allocations contained in the Asset Purchase Agreement and the deed of sale, the judge found that the parties had valued the purchased buildings at $850,000.

She then considered a valuation report prepared by the Vendors’ expert and seemingly accepted by the Appellant’s to find that the Main Lodge, the building affected by the latent defect, represented 36.12% of the depreciated replacement cost of all of the buildings, such that the portion of the purchase price attributable to the Main Lodge was 36.12 % of $850,000, or $307,000. [ 7 ] She then applied the notion that the price reduction must be reasonable and proportional to the purchase price of the property at issue and concluded that a reduction of 83 % ($254,487 / $307,000) was “excessive et déraisonnable”.

In her view, if the defect had been disclosed at the time of the purchase, the parties would have negotiated a price reduction of 50% on the Main Lodge, or $153,500, and she awarded the Appellant that amount. [ 8 ] She also considered the question of damages. She noted that the Appellant was entitled to damages, (1) under

Article 1728 C.C.Q. , because the Vendors knew of the latent defect and (2) because they breached their obligation to disclose under the Asset

Purchase Agreement. She concluded that the damages were limited to those that flowed from those breaches, such as loss of profit for the period the hotel would be closed for repairs. She dismissed the $5.2 million claim because it was based on the assumption that the Appellant would not have acquired the property.

She found that the only additional damages suffered by the Appellant were legal fees, because the hotel was closed for other reasons. [ 9 ] For Genivar, she followed the same reasoning, and concluded that its failure to identify the latent defect deprived the Appellant of the ability to negotiate the price reduction.

It was ordered to pay the same $153,500. [ 10 ] Finally, the judge only awarded interest and the additional indemnity from May 24, 2019, the date of the amendment to add the claim for repair costs. [ 11 ] The Appellant raises essentially three issues: • Whether the award should have been reduced from $254,487 to $153,500 • Whether the award against Genivar should be similarly limited • Whether it was appropriate to award interest and the additional indemnity only from May 24, 2019. [ 12 ] With respect to the price reduction, the judge followed the well-established jurisprudence of the Court in comparing the repair costs to the purchase price for the Main Lodge. [2] The Appellant is right that the parties did not specifically allocate a portion of the price to the Main Lodge, but they did allocate $850,000 to the buildings and the judge was entitled to divide that price among the different buildings. [3] The fact that the parties had earlier negotiated a $400,000 price reduction based on the estimated cost of other repairs is not conclusive as to what the parties would have agreed to this time.

Her conclusion that the parties would have agreed to a 50 % price reduction is speculative, but the jurisprudence requires her to speculate. Her conclusion of 50 % is clearly not the only possible conclusion, but it is not unreasonable.

Given the high standard of review of an award of damages, the Court will not intervene. [ 13 ] The further question is whether the Appellant can recover the balance of its repair costs ( i.e. , the difference between the repair costs and the price reduction) as damages. [ 14 ] The Appellant argues that it can recover the full amount of its loss under the Asset Purchase Agreement on the basis that, under its terms, the representations and warranties go beyond the legal warranty against latent defects and indemnification is not limited to a price reduction but includes all “Loss”, which is very broadly defined.

However, the only contractual breach here is a failure to disclose, [4] and indemnification is limited to “any Loss suffered or incurred, directly or indirectly, by the Purchaser as a result of, arising out of or relating to” the breach. If there had been no breach and timely disclosure had been made, the judge found that it would have led to a negotiation and a price reduction of $153,500. She was right to limit the contractual damages to the same $153,500. The outcome might have been different if, for example, the Asset Purchase Agreement had guaranteed that the Appellant would have a defect-free property.

In that case, there might be an argument that the damages should be the full cost of the repairs, without regard to the purchase price. [5] However, that is not our case. [ 15 ] The Appellant is also entitled to damages under

Article 1728 C.C.Q. because the Vendors knew of the latent defect at the time of the sale and failed to disclose it. Because this recourse is also founded on the Vendors’ failure to disclose, the damage analysis should be the same as above and should not extend to the balance of the repair costs. The damages under

Article 1728 C.C.Q. include matters such as the lost profits for the period that the hotel was closed to carry out the repairs, which is not relevant in the present matter because the hotel was closed for other reasons. The Appellant does not submit any authority in support of its position that it can recover the balance of its repair costs as damages under

Article 1728 C.C.Q. [ 16 ] With respect to the claim against Genivar, the judge’s reasoning that if Genivar had identified the latent defect in its report, the result would have been a price reduction of $153,500, with the result that the damages should be limited to that sum is unassailable. [ 17 ] Finally, on the starting point for the calculation of interest and the additional indemnity, the judge has discretion under Articles 1618 and 1619 C.C.Q. to depart from the general rule that interest and the additional indemnity run from the date of the default.

The Court will only intervene if the judge exercised her discretion unreasonably: […] le tribunal de première instance jouit d’un large pouvoir discrétionnaire au moment de déterminer la date de départ du calcul des intérêts aux termes de l’

article 1618 C.c.Q . […] Par conséquent, notre Cour n’interviendra pour modifier la décision du tribunal de première instance que s’il est démontré que celle-ci résulte d’un exercice discrétionnaire déraisonnable. [6] [ 18 ] In the present matter, there are reasons that could justify starting the interest and the additional indemnity on May 24, 2019, the date of the amendment.

In particular, the claim was initially presented in 2011 on the wrong legal basis and for an excessive amount, which was only partially fixed by the amendment after numerous interventions by the judge inviting the Appellant to clarify the basis of its claim. Further, the amounts claimed were never significantly reduced and remained excessive. In the circumstances, there is no basis for the Court to intervene. FOR THESE REASONS, THE COURT : [ 19 ] DISMISSES the appeal, with legal costs. GENEVIÈVE MARCOTTE, J.A.

STEPHEN W. HAMILTON, J.A. MICHEL BEAUPRÉ, J.A. Mtre Jason Dolman FISHMAN FLANZ MELAND PAQUIN For Leisure holdings inc. Mtre Kurt A. Johnson IMK For 2781875 Canada inc., 9180-6596 Québec inc., David Pemberton-Smith Mtre Olivier Archambault-Lafond WOODS For WSP Canada inc., being the successor of Genivar SEC, Genivar GP, Genivar inc. Date of hearing: January 20, 2022