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SUPREME COURT of CANADA (On Appeal from a Judgment of the Court of Appeal of Quebec)

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SUPREME COURT of CANADA (On Appeal from a Judgment of the Court of Appeal of Quebec) File no. 37566 SUPREME COURT OF CANADA (On appeal from a judgment of the Court of Appeal of Quebec) BETWEEN: YVES BRUNETTE, es qualites trustee of Fiducie Maynard 2004 APPLICANT (appellant /appellant in continuance of suit) - and - JEAN M. MAYNARD, es qualites trustee of Fiducie Maynard 2004 APPLICANT (appellant in continuance of suit) - and - LEGAULT JOLY THIFFAULT, s.e.n.c.r.1., LYE FISCALITE INC., LH CORPORATIF INC., LH CONSEIL INC., LH LITIGE INC., LH IMMOBILIER INC., LEHOUX BOIVIN COMPTABLES AGREES, s.e.n.c., MARCEL CHAPUT FISCALISTE M.C. INC. RESPONDENTS (respondents) RESPONSE of LEGAULT JOLY THIFFAULT, S.E.N.C.R.L. AND LH ET AL. (Rule 27 of the Rules of the Supreme Court of Canada) Me Nick Krnjevic Me Guy Regimbald W Katherine Delage GOWLING WLG (CANADA) LLP MC Jean-Pierre Sheppard 160 Elgin Street, Suite 2600 ROBINSON SHEPPARD SHAPIRO LLP Ottawa, ON KIP 1C3 Tour de la Bourse Tel : 613 786-0197 800 Square-Victoria Street, Suite 4600 Fax : 613 563-9869 Montreal, QC H4Z 1H6 Email: [email protected] Tel : 514 393-4027 (MC Krnjevic) Fax : 514 878-1865 Email : [email protected] Counsel for Respondents, Legault Joly Ottawa Agents for Respondents, Legault Thiffault, s.e.n.c.r.1., LH Fiscalite Inc., Joly Thiffault, s.e.n.c.r.1., LJT Fiscalite Inc., LJT Corporatif Inc., LH Conseil Inc., LH Corporatif Inc., LH Conseil Inc., LYE LH Litige Inc., LH Immobilier Inc. Litige Inc., LH Immobilier Inc. Me Doug Mitchell Mc Frederick Langlois W Jean-Michel Boudreau DEVEAU, GAGNE, LEFEBVRE, TREMBLAY & Mc Francois Goyer ASSOCIES IRVING MITCHELL ICALICHMAN LLP Suite 8 Suite 1400, Place Alexis Nihon, Tower 2 867 Saint-Rene Boulevard West 3500 De Maisonneuve Boulevard West Gatineau, Quebec J8T 7X6 Montreal, Quebec H3Z 3C1 Tel : 819 243-2616 Tel : 514 935-4460 Fax : 819 243-2641 Fax : 514 935-2999 [email protected] dmitchellajmk.ca imboudreauimk.ca [email protected] Counsel for Applicants Agent for Applicants W Caroline Biron Mc Guy Regimbald Mc Neil Peden COWLING WLG (CANADA) LLP WOODS LLP 160 Elgin Street, Suite 2600 Suite 1700 Ottawa, ON KIP 1C3 2000 McGill College Avenue Montreal, Quebec, H3A 3113 Tel : 613 786-0197 Fax : 613 563-9869 Tel : 514 982-6628 (MC Biron) Email: [email protected] Tel : 514 982-4560 (MC Peden) Fax : 514 284-2046 [email protected] [email protected] Counsel for the Respondent, Ottawa Agent for Respondent, Lehoux Boivin, Comptables agrees, Lehoux Boivin, Comptables agrees, s.e.n.c. s.e.n.c. Mc Gabriel R. Massicotte Belanger Longtin Avocats, S.E.N.C.RL. 1, Place Ville Marie Bureau 1950 Montreal, QC H3B 2C3 Tel : 514-390-3209 Fax : 514-866-7294 Email : [email protected] Counsel for the Respondent, Marcel Chaput, Fiscaliste M.C. Inc. INDEX INDEX Page Part I — Concise Statement of Argument and Facts 1 Overview 1 Concise Statement of Facts 2 Concise Statement of Argument 2 The Superior Court Judgment 5 The Appeal Court Judgment 5 Part II — Statement of Questions in Issue 5 Part III — Statement of Arguments 6 Part IV — Submissions on Costs 20 Part V — Orders Sought 20 Part VI — Table of Authorities 21 Part VII — Statutory Provisions 23 1 PART I — CONCISE STATEMENT OF ARGUMENT AND FACTS Overview 1. The Application for Leave to Appeal (the "Application") arises from the Applicants' attempt to personally claim the financial loss that Respondents allegedly caused directly to the now-bankrupt Melior Group of companies (the "Group"), and thereby avoid the indirect financial loss Applicants have suffered as a consequence of the collapse of the value of their indirect shareholdings in the Group. 2. In particular, Applicants are seeking to personally recover $55M in damages from Respondents for financial injury the latter's tax-planning allegedly caused the Group to suffer directly. Respondents, who emphatically deny Applicants' entirely unproven allegations, submit that, in substance, Applicants are circumventing the corporate structure from which they previously benefited, and are appropriating claims belonging to the Group, to the detriment of corporate creditors who are owed more than $93M. 3. Respondents submit that short-shrift should be given to Applicants' assertion that this Appeal involves a novel comparative law conflict that is of sufficient public importance to warrant this Court's intervention. 4. On the contrary, the Lower Court rulings that granted Respondents' Motion to Dismiss Applicants' claims were based on the following well-established principle of Quebec Private Law that is generically applicable to civil litigation: a claimant only has standing to seek recovery of its direct and immediate personal loss. 5. In sum, Applicants' attempt to pierce their own corporate veil, which would enable them to "jump the queue" of creditors, and personally claim a loss in share value that is entirely derivative of the Group's loss, is clearly not a matter of public importance. 2 Concise Statement of Facts 6. Respondents adopt both the summary of facts set out at paragraphs 1-26 of the Superior Court Judgment (Superior Court Judgment; Application for Leave to Appeal — hereafter ALA - vol. 1; p.6-11), and that set out at paragraphs 2-9 of the Appeal Court Judgment. (Appeal Court Judgment; ALA - vol. 1; p.24-25). Concise Statement of Argument The Application Does Not Raise Any Issues of Public Importance 7. This Appeal raises no issues of public importance that warrant this Court's intervention. 8. It is settled law in the Province of Quebec that a shareholder of a company only has standing to recover the direct, personal damage it has suffered that is distinct from, and independent of, the damage directly suffered by the company. 9. The judgment appealed from is consistent with both the ruling rendered by this Court in Houle v. Banque Canadienne Nationale,' and relevant Quebec appellate authority, and does not conflict with common-law jurisprudence. This Appeal will thus neither clarify a still unclear area of law, nor settle conflicting decisions rendered by lower courts. 10. Notwithstanding Applicants' strenuous assertions to the contrary, the Appeal Court did not ignore the standard adopted by this Court in Houle, nor did it undermine civil law rules of causation by purportedly importing into Quebec law a common-law 'rule' predicated upon Foss v. Harbottle 2 that Applicants erroneously characterize as precluding a shareholder from ever claiming for a diminution in the value of their shares. Houle v. Banque Canadienne Nationale, [1990] 3 SCR 122 [Houle]. 2 Foss v. Harbottle, (1843) 67 ER 189, (1843) 2 Hare 461. 3 11.Instead, the Appeal Court expressly acknowledged that a shareholder may have such a cause of action if an independent fault has caused it to suffer direct, personal loss that is distinct from that suffered by the company. The Appeal Court correctly held, however, that Applicants had not even alleged - far less established - that they had a cause of action for such loss, and properly granted Respondents' Motion to Dismiss their claim. 12.The Appeal Court agreed with the Motions Judge that Applicants' claim for the loss in value of their shareholdings was entirely derivative of the damage suffered by the Group. Accordingly, the Appeal Court properly concluded that Applicants' loss represented precisely the type of indirect, 'ricochet' damage that has been held to be unrecoverable under general civil law rules of liability by both this Court in Houle, and a myriad of Quebec Court of Appeal judgments, including, in particular, the recent appellate decision rendered in Groupe d 'action d'investisseurs dans Biosyntech c. Tsang;, which is on all fours with the instant matter. 13.Respondents further submit that the position advocated by Applicants is singularly undesirable from a policy perspective because the uncertainties that would be caused with regard to company assets would undermine the advantages of corporate personality by impairing, inter alia, a company's ability to serve as a single contracting party, to make credible commitments, and to efficiently leverage its assets to obtain credit. 14.Respondents thus submit that the Appeal Court's refusal to allow Applicants to pursue a claim for their indirect, 'ricochet' loss is not only consistent with long-standing principles of civil law liability but is also sound as a matter of policy since it achieves a fair balance between the interests of the relevant parties, including, in particular, the shareholders, the company, the wrongdoer, and the creditors. 15. Respondents further submit that the position advocated by Applicants is singularly undesirable because it directly undermines policy considerations relating to consistency, Groupe d 'action d'investisseurs dans Biosyntech c. Tsang, 2016 QCCA 1923 [ Biosyntech]. 4 predictability, avoidance of double recovery, and judicial economy that are promoted by precluding shareholder claims for indirect, 'ricochet' loss. 16. Respondents further submit that this Appeal does not involve any questions of a pressing and practical nature that affect the rights of similarly situated shareholders. Said shareholders' indirect, 'ricochet' loss would be subsumed in the claim the company (or its bankruptcy trustee) would exercise against the party responsible for its direct loss. And if the company or the trustee wrongfully fails to bring such a claim, similarly situated shareholders can fully preserve their rights by instituting a derivative action. As such, similarly situated shareholders certainly do not require the intervention of this Court in order to obtain indemnification for their indirect, 'ricochet' loss. 17. Respondents further submit that the inherently fact-specific issues that underlie this Appeal would give rise to a ruling of narrow application that would be of limited practical import. The Lower Courts resolved these issues on the basis of their analysis of Applicants' sixty-three (63) page, three hundred and sixteen (316) paragraph Motion which the Motions Judge aptly described as "parfois incomprehensible, redondante et truffee de faits strangers, non pertinents au litige" (Superior Court Judgment; ALA vol.
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