Supreme Court of Canada | Cour Suprême Du Canada

File no. 37566 SUPREME COURT OF CANADA

(On appeal from a judgment of the Court of Appeal of Quebec)

BETWEEN:

YVES BRUNETTE, ès qualités trustee of Fiducie Maynard 2004 APPLICANT (appellant /appellant in continuance of suit)

and

JEAN M. MAYNARD, ès qualités trustee of Fiducie Maynard 2004 APPLICANT (appellant in continuance of suit)

- and -

LEGAULT JOLY THIFFAULT, s.e.n.c.r.l. LJT FISCALITÉ INC. LJT CORPORATIF INC. LJT CONSEIL INC. LJT LITIGE INC. LJT IMMOBILIER INC. LEHOUX BOIVIN COMPTABLES AGRÉÉS, s.e.n.c. MARCEL CHAPUT FISCALISTE M.C. INC. RESPONDENTS (respondents)

RESPONSE of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. (Rule 27 of the Rules of the Supreme Court of Canada)

Me Caroline Biron Guy Régimbald Me Neil Peden GOWLING WLG (Canada) LLP WOODS LLP Suite 2600 Suite 1700 160 Elgin Street 2000 McGill College Avenue Ottawa, Ontario, K1P 1C3 Montreal, Québec, H3A 3H3 Tel: 613-786-0197 Tel : 514 982-6628 (Me Biron) Fax: 613-563-9869 Tel : 514 982-4560 (Me Peden) [email protected] Fax : 514 284-2046 [email protected] [email protected] Ottawa Agent for Attorneys for the Attorneys for Respondent Respondent Lehoux Boivin, Comptables Lehoux Boivin, Comptables agréés, s.e.n.c. agréés, s.e.n.c.

Me Doug Mitchell Me Frédérick Langlois Me Jean-Michel Boudreau DEVEAU, GAGNE, LEFEBVRE, Me François Goyer TREMBLAY & ASSOCIES IRVING MITCHELL KALICHMAN LLP Suite 8 Suite 1400, Place Alexis Nihon, Tower 2 867 Saint-Réné Boulevard West 3500 De Maisonneuve Boulevard West Gatineau, Québec J8T 7X6 Montreal, Québec H3Z 3C1 Tel : 819 243-2616 Tel : 514 935-4460 Fax : 819 243-2641 Fax : 514 935-2999 [email protected] [email protected] [email protected] [email protected]

Attorneys for Applicants Correspondents for Applicants

Me François Beauchamp DE GRANDPRÉ CHAIT LLP Suite 2900 100 de la Gauchetière West Montreal, Québec, H3B 4W5

Tel : 514 878-3280 Fax : 514 878-5780 [email protected]

Counsel for Respondent Lehoux Boivin, Comptables agréés, s.e.n.c.

Me Jean-Pierre Sheppard Guy Régimbald Me Katherine Delage GOWLING WLG (Canada) LLP ROBINSON SHEPPARD SHAPIRO LLP Suite 2600 Tour de la Bourse 160 Elgin Street Suite 4600 Ottawa, Ontario, K1P 1C3 800 Square-Victoria Street Montreal, Québec, H4Z 1H6 Tel: 613-786-0197 Fax: 613-563-9869 Tel : 514 393-4013 (Me Sheppard) [email protected] Tel : 514 393-7476 (Me Delage) Fax : 514 878-1865 [email protected] [email protected] Ottawa Agent for Attorneys for the Respondents Attorneys for Respondents Legault Joly Thiffault, s.e.n.c.r.l. Legault Joly Thiffault, s.e.n.c.r.l. LJT Fiscalité Inc. LJT Fiscalité Inc. LJT Corporatif Inc. LJT Corporatif Inc. LJT Conseil Inc. LJT Conseil Inc. LJT Litige Inc. LJT Litige Inc. LJT Immobilier Inc. LJT Immobilier Inc.

Me Pierre Bélanger Me Gabriel R. Massicotte BÉLANGER LONGTIN AVOCATS Suite 2125 1, Place Ville-Marie Montreal, Québec, H3B 2C6

Tel : 514 390-3200 (Me Bélanger) Tel : 514 390-3209 (Me Massicotte) Fax : 514 866-7294 [email protected] [email protected]

Attorneys for Respondent Marcel Chaput et Fiscaliste M.C. inc.

TABLE OF CONTENTS Page

PART I – Concise Statement of Facts and Respondent’s Position with Respect to Alleged Issues of Public Importance ...... 1 Concise statement of facts ...... 2 Respondent’s position concerning alleged issues of public importance ...... 6 Direct damages in Quebec ...... 6 Contractual vs. extra-contractual faults ...... 7 Holding professionals to account ...... 8 Dismissing lawsuits before trial ...... 8 PART II – Questions in Issue ...... 9 PART III – Statement of Argument ...... 10 Articles 55 and 165(3) of the Code of Civil Procedure ...... 10 Direct damages are an essential requirement ...... 11 PART IV – Costs ...... 19 PART V – Orders Sought ...... 19 PART VI – Authorities ...... 20 PART V – Statutes ...... 21

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PART I – CONCISE STATEMENT OF FACTS AND THE RESPONDENT’S POSITION WITH RESPECT TO ALLEGED ISSUES OF PUBLIC IMPORTANCE

1. The application for leave to appeal does not raise a real issue of public importance of the nature that merits the intervention of this court.

2. The matter is inherently of a private nature, fact-specific, and concerns the exercise of the discretion of the civil courts to superintend their caseload. At a time when dockets are choked with proceedings, it is manifestly not in the public interest to restrict the ability of civil courts to dismiss proceedings before trial where appropriate, as in this case.

3. It is very telling that in their attempt to make out an issue of public importance, the applicants mischaracterize the facts and resort to straw man arguments, going so far as to frame the issue as follows:

Effectivement, alors qu’un nombre croissant d’individus et de sociétés dépensent des sommes colossales pour obtenir l’avis de professionnels ultraspécialisés dans le but d’organiser leurs affaires selon des structures corporatives souvent complexes qui visent à gérer leur fardeau fiscal, les clients se retrouvent-ils sans recours lorsque les professionnels chargés d’élaborer de telles structures faillissent lamentablement à la tâche? 1

4. Leaving aside for the moment that it is entirely unproven and categorically denied by the respondents that they failed (lamentably or otherwise) at their tasks, and without commenting on whether the amounts charged by the respondents were “colossal” (particularly in light of the amount of work that was performed by them), the foregoing characterisation by the applicants utterly misrepresents the real issues in the present lawsuit—and indeed the

1 Para 6. of the memorandum of argument in the appellants’ application for leave to appeal (the “Application”), p. 31

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Concise statement of facts

5. The facts necessary to understand the basis on which the case was properly dismissed, in first instance and on appeal, are as follows.

6. The present suit was commenced on or about May 20, 2011 by the applicant Jean M. Maynard, both in his personal capacity and as trustee of Fiducie Maynard 2004 (the “Trust”). The motion to institute proceedings was amended and particularized on or about November 30, 2011, re-amended on or about December 6, 2011, and amended yet again on or about January 27, 2012 (the “MIP”).2

7. With respect to the allegations of fact in the MIP and the exhibits, the respondent Lehoux Boivin agrees that:

 The Trust’s only assets are the shares of 9143-1304 Quebec Inc., which in turn holds, directly or indirectly, shares in 57 corporations referred to collectively as Groupe Melior.3

 The corporations of Groupe Melior were involved in the construction, marketing and management of retirement homes, with each project being undertaken by a distinct legal entity.4

 Mr. Maynard was a director of all of the corporations of Groupe Melior and was their directing mind.5

2 Found in the Application at p. 99 et seq. 3 MIP, paras. 25-26 (Application, p. 104) and Exhibit P-1 4 MIP, paras. 21 and 64(a) (Application, p. 104, 111) 5 MIP, paras. 50 and 56 (Application, p. 109-10)

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 The beneficiaries of the Trust are Mr. Maynard and his daughter.6

 The current trustee of the Trust is the applicant, Mr. Yves Brunette, but at all relevant times, the trustees were Mr. Maynard and Mr. Robert Ruel.7  The respondents are lawyers and accountants who at relevant times provided various professional services to various corporations forming part of Groupe Melior, as well as to 9143-1304 Quebec Inc., to the Trust, and to Mr. Maynard.

 In 2010, most of the corporations of Groupe Melior became bankrupt.8

 In 2009, various corporations of Groupe Melior had received substantial sales tax assessments,9 and in 2008, it was discovered that an employee had defrauded 20 corporations of Groupe Melior of more than $1.7 million.10

 The applicants allege that the respondents committed various faults in connection with the management of the sales tax issue, and that the respondent Lehoux Boivin should have discovered the fraud.

8. In the MIP, the Trust claims an amount of $55,000,000 for the loss of its “valeur patrimoniale”, which according to the applicants is:

“composée principalement de la juste valeur marchande nette stabilisée des résidences pour ainés complétées à l’été 2008, tenant compte de financements hypothécaires et de type mezzanine et des parts de ses partenaires et excluant les projets dans lesquels Chartwell était le partenaire du Groupe Melior et qui ont fait l’objet de la Transaction Chartwell 2008, mais sans tenir compte des montants requis aux fins d’acquitter, sous

6 MIP, paras. 25-26 (Application, p. 104) 7 MIP, para. 22 (Application, p. 104). It should be noted that, after mentioning that Mr. Ruel was the other trustee of the Trust, the MIP contains not a single direct or indirect reference to Mr. Ruel. 8 MIP, para. 49 (Application, p. 109) 9 MIP, paras. 169-170 (Application, p. 127) 10 MIP, para. 131 (Application, p. 121) and Exhibit P-12

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protêt, les taxes à la consommation supplémentaires réclamées par les autorités fiscales et contestées par le Groupe Melior,” the purported “Melior Equity Value” for each residence being detailed in exhibit P-8 (although exhibit P-8 actually indicates a “Melior Equity Value” of just under $57 million).

9. In June 2011, the applicants mandated Mr. Richard Wise to prepare a report to quantify the damages claimed by the Trust. The report has not yet been completed. However, the letter of mandate does not make any reference to a valuation of the shares of 9143-1304 Quebec Inc., despite the fact that said shares are the Trust’s only assets.11 In fact, the letter of mandate does not refer to 9143-1304 Quebec at all; the first assets listed in the letter of mandate are “la participation du demandeur dans les 13 résidences pour aînés complétées dont il était propriétaire” (bearing in mind that each residence was in fact owned by a separate subsidiary of 9143-1304 Québec Inc., identified in the letter of mandate). Mr. Wise stated in his affidavit that, in light of budgetary constraints, Mr. Maynard later asked him “de préparer un rapport d’expertise portant seulement sur un calcul de la valeur des participations des demandeurs attribuable à treize résidences pour ainés qui étaient en opération au 31 août 2008.”12 Mr. Maynard confirmed this under oath, testifying during an examination that these assets represent “95 percent” of the value of the applicants’ claim.13

10. On June 15 and 16, 2015, the Quebec Superior Court heard a motion by the respondents to dismiss the MIP:14

 At the hearing, both the applicants and the respondents adduced additional evidence: the applicants filed three guarantees whereby the professional fees

11 Exhibit RW-2 to Mr. Wise’s affidavit dated July 25, 2014 (the “Wise Affidavit”) 12 Wise Affidavit, paras. 20-21 13 Examination of Jean M. Maynard held on August 29, 2014 (the “Maynard Examination”), p. 16, line 2 to p. 18, line 11, and p. 34, line 17 to p. 35, line 4 14 Application, p. 162 et seq.

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payable to respondent Legault Joly Thiffaut s.e.n.c.r.l. had been guaranteed by the Trust and various entities of Groupe Melior.15  The applicants did not dispute that all of the relevant corporations are bankrupt and have unpaid creditors, each of them having declared assets insufficient to meet its liabilities, and that the aggregate amount by which the liabilities of those corporations exceeds their assets is in excess of $93 million.  Respondent Lehoux Boivin did not deny that if it was proved to be at fault in respect of damages allegedly suffered by corporations of Groupe Melior, it would be liable to those corporations (or their bankruptcy trustees, or their creditors if said trustees were unwilling or unable to exercise the recourse). However, none of these corporations is a plaintiff in the present lawsuit, nor are their trustees in bankruptcy, nor are their creditors.  After the hearing, the parties were afforded the opportunity to make additional written submissions in order to ensure that all of the arguments had been fully canvassed.

11. On July 22, 2015, the Superior Court dismissed the MIP pursuant to article 165(3) of the Code of Civil Procedure16 on the grounds that the applicants clearly have no interest in the suit. More specifically, the court of first instance found as a matter of law that the applicants can have no interest in the lawsuit unless they establish both (i) that the damages claimed by the Trust are distinct from the damages allegedly suffered by corporations of which the Trust is an indirect shareholder, and (ii) that those damages are the result of a fault committed by the respondents in respect of an obligation owed to the Trust, distinct from any obligations in respect of corporations of which the Trust is an indirect shareholder.17 The applicants have admitted that this is a correct statement of the law.18 The court then assessed the allegations

15 Judgment at first instance (the “Superior Court Judgment”), para. 34 (Application, p. 12) 16 All references to the Code of Civil Procedure are to the former version: CQLR c. C-25 (“C.C.P.”) 17 Superior Court Judgment, paras. 42-43, 51 (Application, p. 13, 16) 18 Appellant’s inscription in appeal of the Superior Court Judgment, para. 20 and factum, paras. 1 and 16

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12. On March 8, 2017, the Court of Appeal upheld the judgment at first instance, whence the applicants make their request for leave to appeal to this court.

13. In the MIP, the Trust also claims $405,000 for extra-judicial legal fees, and Mr. Maynard claims $100,000 of moral damages, although he has undertaken to abandon his recourse in the event that the dismissal of the Trust’s claim is upheld on appeal.19

Respondent’s position concerning the alleged issues of public importance

14. In essence, the applicants complain that their lawsuit was dismissed at a preliminary stage based upon the application of the rule in Foss v. Harbottle,20 which they say was inappropriately imported from the common law and which is inconsistent with the civil law conception of causality. The applicants also complain that the lower courts considered the issue of causality rather than referring it entirely to the trial judge.

15. The applicants assert that the present case presents an opportunity for this court to opine on the application of Foss v. Harbottle in Quebec civil law, and also on the ability of a shareholder to be indemnified for the loss of share value further to a contractual (as opposed to an extra-contractual) professional fault. More generally, the applicants also allege a need to hold professionals to account for their negligence.

Direct damages in Quebec

16. The respondent’s position is that the principle in Foss v. Harbottle is firmly enshrined in, and is entirely consistent with the principles of, Quebec civil law; both the common law and the civil law recognize the distinction between direct and indirect damages, without which the

19 Maynard c. Legault Joly Thiffault, s.e.n.c.r.l., 2015 QCCS 6088 (CanLII) 20 (1843) 2 Hare 461, 67 E.R. 189

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17. Moreover, the requirement of direct damages, as in Foss v. Harbottle, is explicitly set out in article 1607 of the Civil Code of Quebec.21 There is no public interest in this court overruling the Court of Appeal on the basis that the principle established in Foss v. Harbottle should not apply in the province of Quebec. To the contrary, the law in Quebec is clear and settled on this point and the public interest is that it should be undisturbed.

Contractual vs. extra-contractual fault

18. The applicants’ emphasis in their application on a supposed contractual fault (i.e. the violation by the respondents of some contractual obligation owed to the Trust) represents an attempt to get around the fact that the Trust, as indirect shareholder of various corporations of Groupe Melior, suffered no damages distinct from those suffered by the corporations themselves. The applicants assert that the services that were provided by the respondent professionals specifically to the Trust somehow have a bearing on the loss of value of the Trust’s shares.

19. However, the trial judge found that the contractual obligations had no relation to the damages sought. The Court of Appeal did not feel it necessary to revisit this issue, deciding that it was moot because the trial judge had correctly held that the lawsuit also failed to disclose damages suffered by the Trust which were distinct in nature from those suffered by the various subsidiaries, which was sufficient in itself to require that the lawsuit be dismissed. There is no basis for this court to disturb the findings of the lower courts on this point, which are not in error and which are certainly not an issue of public interest.

21 CQLR c. CQ-1191.

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20. Moreover, the applicants’ argument utterly misrepresent both the principle in Foss v. Harbottle and the basis of the rulings of the lower courts, which did not assert that any rule prevents a shareholder from being indemnified for a loss of share value if there was a direct contractual obligation in that respect. To the contrary, the Court of Appeal stated very clearly:

[23] Il est vrai qu’en certaines circonstances un actionnaire peut subir des dommages découlant de l’acte fautif d’un contractant de la société, qui, à son égard, pourra constituer une faute extracontractuelle. Il est vrai également qu’un contractant de la société peut avoir aussi, et simultanément, des obligations contractuelles envers l’actionnaire. Cet actionnaire, dans l’un et l’autre de ces cas de figure, n’aura toutefois un recours contre lui que si le préjudice qu’il subit est direct, indépendant et distinct de celui causé à la société et que la conduite reprochée constitue une faute à son égard [citing Foss v. Harbottle].

21. It is not a matter of public interest for this court to reiterate what has been explicitly recognized by the Court of Appeal—which was merely statement of the law as it presently stands in the province of Quebec with respect to the requirement for direct damages.

Holding professionals to account

22. In their attempt to justify the intervention of this court, the applicants claim that to maintain the judgment of the Court of Appeal would limit “de façon troublante” the liability of professionals for having provided negligent advice, blatantly disregarding the fact that the lawsuit was dismissed for having been taken by the wrong party.

23. To the contrary, it is the notion that the liability of professionals should extend beyond their client to their client’s shareholders (and to their shareholders, et al.) that is greatly troubling, not to mention utterly unworkable in practice and ill-founded in law.

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Appropriateness of dismissing lawsuits before trial

24. As for the applicants’ claim that it was inappropriate for the court to have dismissed the lawsuit rather than leave the issues to the trial judge, the Court of Appeal stated very clearly that under the circumstances it would have been inappropriate not to dismiss:

[34] Quoiqu’il soit juste de dire qu’il est souvent préférable de laisser le juge du fond décider de telles questions, la Cour est d’avis qu’il n’est pas opportun de le faire lorsque, comme ici, la conclusion est claire. Permettre à l’action de se poursuivre ne servirait aucune fin utile.

25. Ironically, it is the applicants who now ask this court to impose an inflexible rule that would make it effectively impossible for courts to weed out manifestly unfounded proceedings before trial. At a time when court dockets are full to bursting, there is a definite public interest in scrupulously maintaining the courts’ ability to dismiss lawsuits before trial where appropriate to do so.

PART II – QUESTIONS IN ISSUE

26. As already mentioned, the supposed questions in issue have been framed by the applicants to suggest the existence of a public interest, when in fact there is none. The applicants’ first question (“existe-t-il en droit civil québécois une règle catégorique selon laquelle un actionnaire ne peut poursuivre une partie pour la perte de valeur de ses actions, suite à un manquement contractuel de cette partie envers elle?”) is irrelevant, because the lower courts have not asserted the existence of any such rule.

27. Moreover, the applicants’ first question presupposes that it was the violation of a contractual obligation owed to the Trust which gave rise to the damages claimed by the applicants, but the court at first instance specifically held that the damages claimed did not relate to any such obligation, and the Court of Appeal considered the entire issue to be moot in light of the fact that the damages claimed were not direct. The applicants’ first question therefore has no bearing whatsoever on this case, and this court should not consider it.

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28. The applicants’ second question (“un recours peut-il être rejeté, au stade des moyens préliminaires et sans procéder à une analyse de la causalité sur le fond, pour l’unique raison que le préjudice subi serait jugé indirect prima facie?”) is misleading in that it suggests that the court dismissed the lawsuit because it found merely that it was not evident that the damages were direct, when in fact both lower courts specifically found that it was clear that they were not.

29. The respondent submits that the applicants’ second question is therefore inapposite. It would be more appropriate to ask whether a lawsuit can be dismissed before trial if the court determines that the damages claimed are indirect. That question must be answered in the affirmative: in fact, if the damages claimed are indirect the lawsuit not only can be dismissed, the lawsuit must be dismissed.

30. The real question in issue is whether this court should intervene, as requested by the applicants, to restrict the ability of courts in Quebec to superintend their caseload, by imposing upon Quebec courts a rule that would prevent them from reviewing questions of standing at the pre-trial stage, and from dismissing lawsuits at that stage where appropriate. The respondent respectfully submits that the answer to that question is no.

PART III – STATEMENT OF ARGUMENT

Articles 55 and 165(3) of the Code of Civil Procedure

31. It must be remembered that standing is a threshold issue, and it is up to the applicants to establish it.22 It should also be noted that the lawsuit was dismissed pursuant to paragraph 165(3) C.C.P., rather than paragraph 165(4) C.C.P.:

165. The defendant may ask for the dismissal of the action if: (1) There is lis pendens or res judicata; (2) One of the parties is incapable or has not the necessary capacity;

22 Article 55 C.C.P.; see paras. 29 and 30 of the Superior Court Judgment (Application, p. 12).

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(3) The plaintiff has clearly no interest in the suit; (4) The suit is unfounded in law, even if the facts alleged are true.

32. While the facts alleged are deemed to be true for the purposes of paragraph 165(4) C.C.P., this is not the case with respect to paragraph 165(3) C.C.P., and the parties are afforded the opportunity to produce additional evidence.23 At first instance, the respondents filed transcripts of the examination of Mr. Maynard (as well as a document that merely cross- referenced information drawn from several of the applicants’ exhibits). The applicants chose to file three guarantees whereby the professional fees payable to respondent Legault Joly Thiffaut s.e.n.c.r.l. had been guaranteed by the Trust and various entities of Groupe Melior (in an attempt to bolster the argument that the downfall of Groupe Melior was somehow related to services that the professionals had provided directly to the Trust).24

33. The court considered all of the exhibits, and the allegations. It should also be noted that the applicants were at liberty to amend their proceedings yet again, if they had anything additional to allege concerning the issue of standing. The applicants have made repeated references to the Houle case,25 but if there are any facts in the case at bar that would have brought the applicants within the exceptional circumstances described in Houle, they were not alleged by the applicants.

Direct damages are an essential requirement

34. It was following this review that the trial judge considered that, in addition to having failed to adequately delineate an alleged fault in respect of the Trust that could serve as the basis for liability, the applicants had also failed to make out a claim for direct damages. Either one of those deficiencies requires that the lawsuit be dismissed.

35. With respect to the requirement for direct damages in the corporate context, it would be difficult to provide a more cogent overview of Quebec civil law than is found in the recent

23 Superior Court Judgment, para. 33 (Application, p. 12). 24 Ibid., para. 34 (Application, p. 12) 25 Houle c. Banque Nationale du Canada, 1990 CanLII 58 (CSC), [1990] 3 S.C.R. 122

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Biosyntech case (rendered after the judgment in first instance in these proceedings but before the judgment appealed from).26

36. The Honourable Mark Schrager, J.A., speaking for the court, succinctly explains the principle of indirect damages suffered by shareholders (references omitted, and emphasis added):27

[23] Indirect damage is not that caused by the act of the wrongdoer, but rather is caused by the damage which the wrongdoer caused. In this case, the damages claimed for the loss of share value were not caused directly by the directors alleged breach of their duty of care by not obtaining, for example, adequate financing for BioSyntech. That alleged fault might (arguably) have caused (in whole or in part) the insolvency and inability of BioSyntech to pursue its business. It is the insolvency which caused the shares to lose their value so that such damage would be caused indirectly to the shareholders by the directors.

[24] Such distinction, at least in the corporate context, is hardly exclusive to Quebec civil law. The principle is known in Common Law jurisdictions as the rule in Foss v. Harbottle...

37. After proceeding to discuss Foss v. Harbottle, Schrager J.A. notes that the civil law requirement that damages be direct is found in article 1607 of the Civil Code of Quebec. He then deals with the fact that it is nonetheless possible for shareholders to suffer direct damages under very particular circumstances, as in Houle. Once again, it would be hard to improve upon the exposition by Schrager J.A. (references omitted, and emphasis added):

[30] Appellants submit that Foss v. Harbottle establishes no more than a prima facie rule. Whatever be the consequence of this statement, if true, does not alter the principle of Article 1607 C.C.Q. that damage be direct. It is not denied that shareholders can potentially suffer injury directly, independent from that suffered by the company. In Houle v. Banque Canadienne Nationale, the shareholders successfully sued the company’s banker for damage caused by the bank which abruptly and negligently called for repayment of the company’s borrowings and realized under its security on the tangible assets. The Supreme Court pointed out that the

26 Groupe d'action d'investisseurs dans Biosyntech c. Tsang, 2016 QCCA 1923 (CanLII), paras. 22-32 27 Ibid., paras. 23-24

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bank was aware when it called the loan that the shareholders were in the midst of negotiations to sell their shares. In addition to its contractual obligations owed to the company, the bank owed a distinct legal obligation to the shareholders to act reasonably and more specifically not to prejudice the imminent sale of shares by exercising its contractual rights (i.e. demanding payment of the loan) in a negligent manner. The shareholders completed their sale but received far less for the shares than the price tabled at the time the bank demanded repayment of its loans. The bank was held liable for the difference as damages. Of interest for present purposes is that Madam Justice L’Heureux-Dubé was particularly careful in qualifying liability and damage:

It is important to note that the respondents are not claiming damages as "ricochet" victims since no delictual liability arises out of the contract between the appellant bank and the company, but only a contractual one. It would offend both logic and law to sustain that, as victims, the respondents suffered here by the "ricochet" of a delictual fault.

Moreover, she stated clearly that a shareholder has no action against a person who caused harm to the company. The Supreme Court has since confirmed in Infineon that a victim by ricochet has a recourse as long as the damage claimed is not by ricochet, i.e. it is direct. Appellants (or other shareholders of the class) have admitted, in the proceedings before the Superior Court sitting in bankruptcy and insolvency, that the damages claimed are by ricochet.

[31] Another example of direct damage suffered by a shareholder resulting from the acts of a director was described by the judge as the hypothetical case of the shareholder who purchases his shares based on the negligent or fraudulent misrepresentation of directors. Such a scenario causes the shareholder to have parted with his money to buy worthless shares and thus, suffers harm independent from the company giving rise to a good cause of action against directors for damages directly suffered by the shareholder.

[32] The four faults alleged by Appellant and referred to above gave rise, according to Appellants’ allegations, to the demise of BioSyntech’s business, followed by its bankruptcy and the sale of its assets. Such damage was caused to BioSyntech and this damage, in turn, caused the loss of share value claimed by the Appellants. The damage claimed is indirect and so cannot be claimed by shareholders. Appellants’ legal syllogism underpinning the proposed class action is incorrect and the judge rightly refused authorization.

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38. The unanimous decision of the Court of Appeal in Biosyntech is a correct and very recent statement of the law in Quebec that—although rendered in the context of a class action—is directly applicable to the case at bar, and concerns the same factual basis as in the present case. It is respectfully submitted that the law on this point is settled and this court should not intervene.

39. The Biosyntech decision also illustrates that, unlike the cases they seek to rely upon, the applicants’ claim does not fall into any of the situations in which shareholders might exceptionally have suffered direct damages.

40. Mostly surprisingly, the applicants allege that the lower courts have failed to follow Houle.28 To the contrary, the lower courts faithfully applied Houle, which stands for the principle that very specific circumstances are required for shareholders to suffer direct damages, and which turned on a very specific set of facts: the defendant knew that the shareholders were in the process of selling their shares, and knew that by taking unnecessarily drastic enforcement action against the company it would jeopardize that transaction; the sale occurred but at a much lower price, and the defendant was liable to the shareholders for the difference. No facts of that nature were even alleged in this case. There was no imminent sale of shares, and no losses suffered by the shareholders distinct from any damage suffered by the various subsidiaries of Groupe Melior.

41. The applicants then cite the decision of this court in Norsk Pacific29 for the proposition that “the control mechanism against unlimited loss in the civil law lies not in the type of loss but in the factual determination of whether the loss is a direct, certain and immediate result of the negligence.”30 However, the applicants cite Norsk Pacific entirely out of context because the issue in that case was whether there is recovery in tort for pure economic loss as opposed to physical loss—the “types of loss” that the court was referring to. In examining how pure economic loss is dealt with in other jurisdictions, the court in Norsk Pacific correctly notes that

28 Application, p. 30 29 Cie des chemins de fer nationaux du Canada v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021 30 Application, p. 40

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Quebec civil law does not draw any distinction between types of loss in that sense but rather examines “whether the loss is a direct, certain and immediate result of the negligence.” This obiter dictum statement of principle—that there is no rule in Quebec that turns on whether or not a given loss is “economic” in nature—has nothing to do with whether or not loss of share value is direct or indirect as concerns the shareholder (as analyzed by the Court of Appeal in Biosyntech). Indeed, the comment in Norsk Pacific that the civil law system appears “to have worked well in avoiding frivolous claims and the threat of unlimited liability” would be at risk if this court was to depart from the reasoning in Biosyntech.

42. The applicants cite the Widdrington decision31 as standing for the principle that the civil law approach toward extra-contractual liability is less restrictive than in common law—not in itself a controversial proposition—and that judges have historically been reluctant to adopt common law principles into the civil law. However, as noted by the Court of Appeal in Biosyntech, the requirement for direct damages in Quebec civil law does not arise from Foss v. Harbottle, it is set out explicitly in 1607 C.C.Q. Courts in Quebec were obviously not bound to follow Foss v. Harbottle, but it was certainly open to the court to hold that the civil law reaches the same result in light of the fact that the general requirement that damages be direct exists in both systems (so as to avoid a multiplicity of actions and the risk of indeterminate liability).

43. The applicants also emphasize that Widdrington distinguishes the application of the Hercules Managements case in Quebec;32 presumably they do so because Hercules Managements makes reference to Foss v. Harbottle. However, this is misleading because Widdrington (correctly) distinguishes Hercules Managements on the basis that the liability of auditors in Quebec should be assessed with respect to the civil law requirements of fault, causation and damages rather than common law principles. Widdrington has nothing whatsoever to do with the rule in Foss v. Harbottle and neither the judgment in first instance or in appeal makes any reference to the decision.

31 Wightman v. Widdrington (Estate of), 2013 QCCA 1187, cited in the Application at p. 41 32 Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R., cited in the Application at pp. 39-41

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44. In fact, the Widdrington case is entirely unhelpful to the applicants. The applicants in Widdrington were not the shareholders of the corporation, they were investors and lenders who, but for the negligence of the auditors, would not have lent or invested the amounts claimed. As noted in Biosyntech, where an investor purchases shares whose value was negligently misrepresented, the shareholder has suffered direct damages in the form of the amount overpaid for the shares. This in no way resembles the allegations in the present proceedings, and the issue was thoroughly canvassed in first instance and on appeal.

45. Similarly, the applicants also cite Agri-Capital Drummond out of context.33 The plaintiff in Agri-Capital Drummond was a minority shareholder who had purchased the shares of the majority shareholder in the hope of realizing tax losses which turned out to have been negligently overstated by the auditors (emphasis added):

[6] L'appelante était une actionnaire minoritaire d'une société dont les états financiers indiquaient d'importantes pertes fiscales accumulées. Confiante que sous sa direction la société pourrait récupérer ces pertes en économie d'impôts, l'appelante s'est portée acquéreur des actions détenues par l'actionnaire majoritaire à la suite de l'exercice par ce dernier d'une clause de préemption. Peu après, les auteurs des états financiers, membres de la société intimée, reconnaissent avoir commis une erreur dans le calcul des pertes accumulées, ce qui les a gonflées de près de la moitié. L'appelante les a poursuivis sans succès, d'où son appel.

[7] Ce pourvoi nous invite à traiter de la responsabilité des comptables externes d'une société à l'égard d'un actionnaire qui s'est fié au contenu des états financiers préparés par eux et, s'il y a lieu, de la quantification du préjudice subi.

46. Because the minority shareholder purchased the remaining shares specifically with a view to benefitting from the tax losses, the (illusory) value of the inexistent tax losses misstated by the auditors—the benefit of which the purchaser would have enjoyed had they existed— was held to be a “reasonable” measure of the damages suffered by the purchaser. Contrary to the present case, these damages suffered by the purchaser could not possibly have been

33 Agri-capital Drummond inc. c. Mallette, s.e.n.c.r.l., 2009 QCCA 1589, cited in the Application, p. 42

- 17 - Response of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. Statement of Argument suffered by the corporation itself because the tax losses in question never existed! Understood properly, Agri-Capital Drummond is effectively the opposite of the case at bar.

47. Finally, the applicants cite the recent decision of the Court of Appeal in the Montoni case,34 arguing that it is inconsistent with the decision of the Court of Appeal in the present case. However, as with the other cases cited by the applicants, this assertion does not stand up to analysis.

48. First, Montoni concerned a motion pursuant to article 165(4) C.C.P., such that all allegations were held as true. This is a key distinction, as appears from the following passage from the decision of Superior Court decision in Bruneau,35 quoted by the Court of Appeal in Montoni (emphasis by the Court of Appeal): 36

[12] Le fondement du recours entrepris par les demandeurs est de nature extracontractuelle. Pour réussir dans leurs actions, ces derniers devront prouver une faute, un dommage et un lien de causalité entre cette faute et le dommage. Comme le Tribunal saisi d’une requête en vertu de l’article 165 (4) doit tenir les faits pour avérés, il usurperait sans contredit le rôle du juge chargé d’entendre l’affaire à son mérite s’il devait, dès ce stade-ci, déterminer si les dommages allégués par les demandeurs sont indirects.

49. As already discussed, allegations are not held to be true in a hearing under 165(3) C.C.P., in addition to which the parties are permitted to adduce additional evidence. The law relating to this issue was fully canvassed by the court at first instance.37

50. Second, in both Montoni and Bruneau, the courts recognized the application of Houle, and in Montoni the Court of Appeal cites at length another passage from Bruneau on this point (references omitted, emphasis in the original):38

34 3952851 Canada inc. c. Groupe Montoni (1995) division construction inc., 2017 QCCA 620, cited in the Application, pp. 42-43 35 Bruneau c. Gespro Technologies inc., 2001 CanLII 20199 (C.S) 36 Montoni, para. 47 37 Superior Court Judgment, paras. 31-36 (Application, pp. 12-13) 38 Montoni, para. 48

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[15] La question du défaut de qualité des demandeurs pose un problème plus délicat. Il découle en effet de la volumineuse jurisprudence citée par le procureur des défendeurs que les tribunaux se montrent extrêmement réticents à accueillir l’action intentée par un actionnaire lorsque c’est la compagnie qui subit le dommage.

[16] La Cour suprême du Canada, dans l’arrêt Houle c. Banque Canadienne Nationale, 1990 CanLII 58 (CSC), [1990] 3 R.C.S. 122, a cependant ouvert une porte lorsque le recours de l’actionnaire trouve assise sur le terrain extracontractuel. […]

[19] Il découle de cette décision de la Cour suprême que la perte de valeur des actions d’une compagnie peut être considérée comme un dommage qui est propre à l’actionnaire si ce dernier parvient à démontrer, compte tenu des circonstances, que le tiers fautif avait l’obligation légale distincte d’agir raisonnablement à son endroit.

[20] En l’espèce, le Tribunal ne peut écarter la possibilité que les faits allégués dans les déclarations des demandeurs, bien que différents de ceux présents dans l’arrêt Houle, amènent le juge chargé d’entendre l’affaire à son mérite à examiner si les défendeurs, en raison des relations particulières qu’ils avaient avec les demandeurs et des transactions commerciales alléguées, devaient agir raisonnablement envers eux et ce, indépendamment des obligations contractuelles des défendeurs envers 9008 et SIT.

51. However, in both Montoni and Bruneau, the court comes to the conclusion that (taking the allegations as true as required by 165(4) C.C.P.) the allegations in the proceedings are such that the applicants might eventually succeed at trial in establishing that they meet the exceptional requirements of Houle. In the case at bar, both lower courts likewise acknowledged Houle as an exception to the general rule that a shareholder may not recover for the loss of value of shares; after correctly instructing themselves on the law they proceeded to examine the record, and in both cases they came to the conclusion that the applicants’ allegations were not such that would give rise to the exception in Houle.

52. Both lower courts in this case were also well aware of the need for circumspection when dismissing a lawsuit before trial, but both courts held that the record was sufficiently clear to warrant dismissal. Moreover, both lower courts noted the importance of dismissing lawsuits before plea where appropriate to do so. This is appropriate both from the perspective of economizing scarce judicial resources, and preventing the prejudice that would result to defendants embroiled in lengthy and costly legal proceedings which are without merit.

20 Response of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. Table of authorities

PART VI – TABLE OF AUTHORITIES Paragraph(s)

3952851 Canada inc. c. Groupe Montoni (1995) division construction inc., 2017 QCCA 620 ...... 48, 49, 51, 52 Agri-capital Drummond inc. c. Mallette, s.e.n.c.r.l., 2009 QCCA 1589 ...... 46, 47 Bruneau c. Gespro Technologies inc., 2001 CanLII 20199 (C.S)...... 49, 51, 52 Cie des chemins de fer nationaux du Canada v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021 ...... 42 Foss v. Harbottle (1843) 2 Hare 461, 67 E.R. 189 ...... 14, 15, 16, 17, 18, 20, 38, 43, 44 Groupe d'action d'investisseurs dans Biosyntech c. Tsang, 2016 QCCA 1923 (CanLII) ...... 36, 37, 38, 39, 40, 42, 43, 45 Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R...... 44 Houle c. Banque Nationale du Canada, 1990 CanLII 58 (CSC), [1990] 3 S.C.R. 122 ...... 38, 41, 52 Maynard c. Legault Joly Thiffault, s.e.n.c.r.l., 2015 QCCS 6088 (CanLII) ...... 13 Wightman v. Widdrington (Estate of), 2013 QCCA 1187 ...... 43, 44, 45

21 Response of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. Statutes

PART VII – STATUTES

Code of Civil Procedure, CQLR c. C-25, art. 55

TITLE III RULES APPLICABLE TO ALL ACTIONS CHAPTER I ACTIONS, PARTIES TO ACTIONS AND ATTORNEYS 55. Whoever brings an action at law, whether for the enforcement of a right which is not recognized or is jeopardized or denied, or otherwise to obtain a pronouncement upon the existence of a legal situation, must have a sufficient interest therein. 1965 (1st sess.), c. 80, a. 55.

TITRE III RÈGLES APPLICABLES À TOUTES LES DEMANDES EN JUSTICE CHAPITRE I DE L’ACTION, DES PARTIES, DES PROCUREURS 55. Celui qui forme une demande en justice, soit pour obtenir la sanction d’un droit méconnu, menacé ou dénié, soit pour faire autrement prononcer sur l’existence d’une situation juridique, doit y avoir un intérêt suffisant. 1965 (1re sess.), c. 80, a. 55.

22 Response of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. Statutes

Code of Civil Procedure, CQLR c. C-25, art. 165

TITLE II CONTESTATION OF THE ACTION CHAPTER III PRELIMINARY EXCEPTIONS DIVISION III EXCEPTION TO DISMISS ACTION 165. The defendant may ask for the dismissal of the action if: (1) There is lis pendens or res judicata; (2) One of the parties is incapable or has not the necessary capacity; (3) The plaintiff has clearly no interest in the suit; (4) The suit is unfounded in law, even if the facts alleged are true. 1965 (1st sess.), c. 80, a. 165.

TITRE II CONTESTATION DE L’ACTION CHAPITRE III DES MOYENS PRÉLIMINAIRES SECTION III MOYENS DE NON-RECEVABILITÉ 165. Le défendeur peut opposer l’irrecevabilité de la demande et conclure à son rejet: 1. S’il y a litispendance ou chose jugée; 2. Si l’une ou l’autre des parties est incapable ou n’a pas qualité; 3. Si le demandeur n’a manifestement pas d’intérêt; 4. Si la demande n’est pas fondée en droit, supposé même que les faits allégués soient vrais. 1965 (1re sess.), c. 80, a. 165.

23 Response of LEHOUX BOIVIN COMPTABLES AGRÉÉS, S.E.N.C. Statutes

Civil Code of Quebec, CQLR c. CCQ-1991, art. 1607

1607. The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor’s default. 1991, c. 64, a. 1607.

1607. Le créancier a droit à des dommages-intérêts en réparation du préjudice, qu’il soit corporel, moral ou matériel, que lui cause le défaut du débiteur et qui en est une suite immédiate et directe. 1991, c. 64, a. 1607.

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