ESTATES: The Court of Appeal refuses to apply the doctrine of abuse of rights

In G.B. v. Si. B. (2015 QCCA 1223), the Court of Appeal addressed the question of whether the doctrine of abuse of rights applied to the right to dispose of one’s property by will.

The Deceased disinherited his two daughters and one son. The two daughters claimed that he sexually assaulted them and his son took a neutral position with respect to the allegations. The children sued the estate, alleging that by disinheriting them, their father had exercised his rights abusively and in contravention of Articles 6 and 7 of the Civil Code of Quebec.

The Superior Court dismissed their claim, holding that their father had a right to choose to whom he left his estate, the source of which was a trust that had been established by his grand-father in the 1920s and which gave the beneficiaries the right to choose to whom they left their shares. On the issue of abuse of rights, the trial judge held that even if the evidence showed there may have been sexual abuse, the Deceased’s choice to disinherit 3 of his children did not violate the law or public order. He made the decision several years after the accusations were made and well after the relationship with the 3 children in question had deteriorated. Accordingly, the trial judge found that they were disinherited at least in part because of their poor relationship with their father in the years before his death rather than strictly out of vengeance. The Deceased was therefore not in bad faith.

The Court of Appeal agreed. The Court of Appeal confirmed that the freedom to dispose of one’s property by will is almost unlimited, with few exceptions other than the prohibition against illegal clauses or public order. To derogate from the principle of the freedom to will, which includes the right to revoke previous testamentary dispositions, one would have to find that a law had been violated which was not the case here.

The Court stated :

[47] En d’autres mots, on peut comprendre la conduite des appelants si l’on tient compte du témoignage des deux sœurs. Par contre, cela ne change en rien la liberté qu’avait R... B... de tester comme il le voulait, sans avoir à se justifier. L’état des relations ne devenait qu’une explication, sans devoir être une justification. En d’autres mots, tout comme l’on ne peut forcer quelqu’un à donner à quiconque, on ne peut davantage le forcer à tester (autrement dit à procéder à une donation à cause de mort) en faveur de qui que ce soit.

On the power to appoint (“la faculté d’élire”), the constituting act (the Deceased’s grandfather’s trust) clearly gave the deceased the power to exclude some of his descendants. Since there was nothing in the constituting act or in the Deceased’s will that violated public order or was illegal, he had exercised his discretion appropriately in disinheriting his children.

The Court of Appeal then turned to the question of whether the Deceased had abused his rights. 

The appellants argued that the trial judge erred in finding that their conduct justified their being disinherited because, having been abused, it was impossible for them to have had a good relationship with their father. They also argued that since the trial judge concluded that they had been abused, the only reason that could have motivated their father to disinherit them was vengeance, which was necessarily an abusive and bad faith exercise of his rights.

The Court of Appeal dismissed this argument since the Deceased had no obligation to justify his decision to disinherit them. The Deceased could have, at any time after disinheriting them and prior to his death, put them back in his will but he did not because of the poor relationship. This demonstrated that there was no bad faith.

Even on the standard of the unreasonable exercise of a right, the trial judge’s conclusions of fact (i.e. that the accusations of sexual assault were not the only reason the Deceased disinherited the appellants) meant that the Deceased acted reasonably.

The Court of Appeal nonetheless went on to decide whether the theory of abuse of rights could even apply to the freedom to will and the power to appoint.

The Court cited professor Paul-André Crépeau in Houle c. Banque Canadienne Nationale :

[80]    (…)

Il s'agit essentiellement de reconnaître qu'un droit, quelle qu'en soit la source, ne saurait être absolu. Tout droit a une finalité propre; il est concédé en vue de la satisfaction d'impératifs sociaux ou de besoins économiques et non pas pour l'assouvissement des instincts de vengeance ou de méchanceté. C'est dans cette perspective que l'on doit envisager l'exercice des droits contractuels. Un ordre juridique, pâle reflet de l'ordre moral, doit certes souffrir l'égoïsme; il ne saurait en tout cas tolérer la malice.

The Court of Appeal noted that there was no contractual right in question in the case at bar and that the freedom to will and power to appoint were discretionary in nature. The Houle decision cautioned against applying the doctrine of abuse of rights to discretionary powers.

Baudouin, Deslauriers and Moore stated:

[86] […] [U]ne nuance doit également être apportée pour l’exercice, de plus en plus rare de nos jours, d’un droit purement discrétionnaire. A priori ces droits n’étant soumis à aucun contrôle devraient être à l’abri de l’abus de droit. On peut ainsi penser à la liberté illimitée de tester, au droit de demander le partage, de renoncer ou d’accepter une succession ou les bénéfices d’un régime matrimonial. […]

Ainsi défini, le domaine de l’abus des droits est plus restreint qu’il n’apparaît à première vue. Il n’existe donc, à notre avis, que dans l’hypothèse où le détenteur d’un droit subjectif, dont l’exercice n’est pas purement discrétionnaire, cause un préjudice à autrui, en exerçant ce droit sans, pour autant, en dépasser les limites législatives.

The Court concludes :

[91] En somme, la théorie de l’abus de droit impose d’agir de bonne foi et de ne pas utiliser son droit de manière à nuire à autrui. Or, en ce qui a trait à la liberté de tester, comment peut-on agir de manière à nuire à un tiers lorsque ce dernier n’a pas de droit à faire valoir? La notion de préjudice peut difficilement se concevoir lorsque ce préjudice consiste à être privé d’une succession à laquelle on n’a aucun droit, même si l’espoir est présent. Il y aurait « préjudice » dès lors qu’un successible serait exclu de la succession de son parent. Or, il ne peut en être ainsi étant donné la liberté de tester.

[92] Par ailleurs, en ce qui concerne la faculté d’élire, on pourrait peut-être dire que, étant donné la substitution, il y aurait ici plus qu’un simple espoir, vu ce que l’on pourrait appeler un « droit éventuel aux biens substitués » (art. 1235 C.c.Q.). Par contre, en l’espèce, le droit éventuel des appelants ne suffirait pas pour contrecarrer la décision prise par leur père. Sa faculté d’élire et la liberté de choix dont elle est assortie fragilisent d’autant la capacité des appelants d’intervenir dans ce choix, de sorte que leur situation se rapproche bien davantage du simple espoir que d’un droit véritable.

[93] Il ne peut y avoir préjudice dès qu’une personne est exclue. Comment le législateur aurait-il alors pu autoriser, par l’article 1283 C.c.Q., l’exercice d’un tel droit discrétionnaire (« comme il l’entend / as he sees fit ») s’il pouvait toujours être qualifié de « préjudiciable »?

CONTRACTS: The consequences of failed negotiations

A recent decision of the Quebec Court of Appeal (Singh v. Kholi, 2015 QCCA 1135) deals with three interesting legal issues arising out of a failed negotiation with a view to arriving at an investment in a mining company.

In this case, the investors propose to invest an amount of $675,000 in in a company called Kripa, of which the Defendant Singh the president. However, under the shareholders agreement, it was clear that he did not have authority issue the new shares that would be required without the consent to the other shareholders. Nonetheless he represented to Mr. Kohli that he did have such power.

A Memorandum of Understanding regarding the investment, which was clearly indicated as being a draft and not a contract, was entered into. When the parties could not agree on the definite terms, a meeting was held at a lawyer’s office to attempt to conclude an agreement. 

The trial judge concluded that an agreement had been reached at this meeting, and awarded the plaintiff damages based on the anticipated loss of profit of the investment.

The appeal raised numerous issues including:

a)   the nature of the Memorandum of Understanding and whether a contract was concluded,
b)   the issue of an apparent mandate, andc)   the issue of what damages are available against Singh personally in the event that a contract is not concluded and that he had negotiated in bad faith.

The Court of Appeal concluded that the Memorandum of Understanding did not constitute a contract, the criteria of apparent mandate were not met, and no damages could be claimed, in particular damages for loss of profit.

The particular issue of interest was whether a) by withdrawing at the last minute, Singh had acted in bad faith and b) what were the damages that could be awarded.

On this issue, the Court posed the question as follows:

[65] Therefore, the only remaining question is the following: under the general rules of the Civil Code of Québec, can the appellant be personally liable for the prejudice, if any, caused by his conduct during the negotiations with the respondents, including his refusal to enter and have Kripa enter into the contract that his counterparts were hoping to conclude?

Ultimately the Court dismissed the claim.

The Court notes that:

a)    freedom of contract entails the freedom not to enter into a contract,

b)    failure to negotiate in good faith and collaborate loyally (which must not be confused with failure to enter into a contract or failure to give effect to a contract) may however be sanctioned as a violation of articles 6, 7 and 1375 of the Civil Code of Quebec, and

c)    the fact that negotiations are generally undertaken with the anticipation that a contract will ensue does not mean that one party cannot change his or her mind along the way, even at the last minute.

The Court expressed it as follows:

[71] Good faith, in that sense, is not meant to limit freedom to contract or not to contract but to ensure that parties act honestly and loyally during the negotiations…

[74] In summary, entering into negotiations always raises hopes of a contractual happy ending, and both parties may be confident that a contract will be concluded. Parties who enter negotiations must act in good faith and collaborate with one another towards that objective. They may be sanctioned if they do not. Disagreement, as such, and failure to reach an agreement, however, cannot, and cannot either, in and of themselves, be taken as a sign of lack of collaboration, bad faith or abuse from one party or the other. A finding of bad faith or abuse requires more than that, freedom to contract or not to contract being the ultimate discretionary right.

The Court then goes on to consider that, even if there had been a fault, whether there were any damages caused by the fault. The principal question that the Court considers is whether the claim for the loss of profits for lost opportunity can be granted. On this issue the Court concludes:

[106] The French solution is applicable under the Civil Code of Québec in all respects. Quebec law may recognize, in general, that the loss of an advantage that could reasonably be anticipated may be compensated,[89] but the rupturing of negotiations does not lead to the loss of such an advantage and, certainly, does not allow for compensation of the profits that the “négociateur déçu” was hoping for, had the contract been concluded, or the loss of the chance to make such profits.

[107] I hasten to say that, of course, I am not asserting that loss of the profits expected from an unsigned contract can never lead to a condemnation for damages. It may, for instance where a public body, contrary to the terms of a public call for tenders (or the law), does not award the contract to the lowest conforming bidder,[90] or tries to circumvent the bidding process altogether.[91] It may also, in a situation such as Billards Dooly's inc. v. Entreprises Prébour ltée,[92] where there was more than an “accord de principe”, but an actual contract, flowing from a meeting of the minds, which one of the parties refused to formalize. But those are entirely different contexts, in which arose, at one point, an obligation to contract which did not exist in the present case.

DUTY TO INFORM: Bail-er beware!

On June 30^th, 2015, the Superior Court issued a handy reminder to pleaders regarding the scope and limits of the duty to inform set out in Bank of Montreal v. Bail Ltée.

In the context of an action for conveyance of title, a defaulting promisor/vendor sought to invoke error induced by fraud (Article 1401 CCQ) as grounds to vitiate its consent and to annul an otherwise valid offer to purchase. In Concupisco Inc. v. Société en commandite 407 McGill, 2015 QCCS 2961 [1], Justice Micheline Perrault considered the seminal teachings of the Supreme Court of Canada regarding the obligation of good faith in general, and the duty to inform in particular, in the case of Bank of Montreal v. Bail Ltée.

While quick to endorse the importance of the duty to inform, Justice Perrault reminded pleaders that this duty is still a relative one, given the corollary obligation to inform oneself that is equally present in the general obligation of good faith set out at Article 1375 C.C.Q.

Justice Perrault expressed her views on this relativity in the following terms:

[57] Un des corolaires de la bonne foi à l'étape de la formation du contrat, et, partant, de la validité du consentement est l'obligation de renseignement. À ce sujet, la Cour suprême, dans l'arrêt Banque de Montréal c. Bail Ltée, reprenant les grandes lignes de l'analyse de Ghestin circonscrit les modalités de l'obligation de renseignement comme suit :

« 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 :

-           la connaissance, réelle ou présumée, de l'information par la partie débitrice de l'obligation de renseignement;

-           la nature déterminante de l'information en question;

-           l'impossibilité du créancier de l'obligation de se renseigner soi-même, ou la confiance légitime du créancier envers le débiteur.»

[58] Selon la Cour suprême le droit civil est attentif aux inégalités informationnelles, et dès lors, 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'en suivre. Cependant, la Cour suprême limite l'ampleur de l'obligation de renseignement en apportant une importante précision, à savoir:

«( ... ), 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.»

[59] Ce passage a permis à la Cour d'appel, quelques années plus tard, de conclure que le devoir de renseignement n'avait, en fait, qu'une portée relative car l'obligation de se renseigner prend elle-même appui sur l'obligation de bonne foi consacrée par l'article 1375 C.c.Q13

[60] Ainsi, celui qui s'apprête à passer un contrat doit prendre les mesures raisonnables pour en bien connaître les enjeux importants et les faits susceptibles d'influencer sa décision. Ce devoir est apprécié de façon subjective : on tient compte de la formation de la personne concernée et de son expérience. Bref, le droit vise à protéger le contractant contre une inégalité situationnelle et non contre sa propre négligence. [references in text ommitted]

Moreover, in Justice Perrault’s view, sophisticated and otherwise well-informed litigants might think twice before waving the flag of Bail and seeking refuge from otherwise valid contracts on the basis of error and the general duty to inform. On the facts of this case, the Court found as follows:

[61] Les Défenderesses n'ont pas convaincu le Tribunal que les Demanderesses ont délibérément omis de révéler aux Défenderesses qu'elles n'avaient pas l'intention de collaborer avec elles et d'harmoniser leurs projets respectifs, et ce, dans le but de provoquer volontairement une erreur dans leur esprit. Tel qu'énoncé ci-dessus, le Tribunal a conclu que les Défenderesses n'ont pas démontré que cette «considération essentielle» existait et était connue des Demanderesses au moment de la signature de l'Offre d'achat.

[62] De plus, les Défenderesses avaient l'obligation de veiller prudemment à la conduite de leurs affaires. Est-il nécessaire de rappeler que nous sommes ici en présence de gens d'affaires aguerris et expérimentés en matière de développement immobilier?

[63] Les difficultés que peuvent maintenant rencontrées les Défenderesses sont le résultat de leur négligence et non la conséquence de fausses représentations ou d'un comportement dolosif de la part des Demanderesses.

In other words, if you’re set on invoking the duty to inform, depending on the circumstances of your case, don’t forget the adage of Bail-er beware!
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[1] The author of this post, Kurt Johnson, acted for one of the parties in this case.