RECOURSE BY PURCHASER AGAINST PROMOTER/GENERAL CONTRACTOR AND SUBCONTRACTOR FOR CONSTRUCTION DEFECT

The applicable legal principles are nicely illustrated in the recent Quebec Court of Appeal decision Desjardins Assurances Générales Inc. et al. -vs- Les Immeubles Devler Inc. et al., 2025 QCCA 586. In September 2017, Andreo purchased a new condominium from a seller who had acquired it from Les Immeubles Devler Inc. ("Devler"), the promoter/general contractor. In September 2018, Andreo became aware of water infiltration in the basement and hired a contractor and plumber to determine the cause. He also notified his insurer, Desjardins, and the condo syndicate. It was determined that the water infiltration was the result of the faulty installation of the air conditioning unit. In September 2018, Desjardins notified Devler who in turn notified its plumbing subcontractor ("LD"). Desjardins covered the cost of repairs up to $32,000 and the condo syndicate paid the insurance deductible in the amount of $5000. In September 2021 Desjardins, subrogated in the rights of Andreo and the condo syndicate, filed suit against Devler and LD for damages allegedly resulting from the faulty installation of an air conditioning wall unit. The contractor and subcontractor are solidarily liable for " ...the loss of the work..." occurring within five years from the completion of the work due to faulty construction (Article 2118 Civil Code of Quebec). According to case law, "loss of work" requires the existence of substantial damage to the construction. In the case at bar, plaintiff only relied upon this specific legal foundation for the claim. The trial judge dismissed the claim since although he found that the evidence established the existence of a construction defect, the damages were not substantial enough to amount to the "loss of the work". Desjardins and the condo syndicate successfully appealed the decision to the Court of Appeal. In addition to the legal basis of the claim hereinabove mentioned, the law also provides that the seller has a legal obligation to guaranty that the property sold is free from hidden defects. Furthermore, although the subcontractor LD had no contract with the Andreo, LD like any other third party, had a legal obligation to indemnify for damages resulting from its fault or negligence. At trial, Desjardins and the condo syndicate omitted to argue the additional legal grounds of liability of Devler and LD. The Court of Appeal noted that by law, the Trial Judge was required to give the parties an opportunity to make submissions with respect to a rule of law that was not debated before it (Article 323 Code of Civil Procedure). Since the Trial Judge did not do so and no additional evidence was necessary, the Court of Appeal considered and applied the overlooked legal foundations in support of the claim. Regarding the seller's warranty against hidden defects, the evidence clearly established that the air conditioner wall unit was improperly installed. The promoter was a professional seller and consequently, presumed to know of the existence of the hidden defect at the time of the sale. Although Andreo did not purchase the condo from the promoter, he purchased it from the person who purchased it from the promoter and her rights against the promoter were legally transferred to Andreo in vertu of the contract of sale as an accessory to the condo (Article 1442 Civil Code of Quebec). On this legal foundation, the Court of Appeal found that the claim against Devler was well founded. With respect to LD, it was at fault by improperly installing the air conditioner wall unit and therefore was delictually (as opposed to contractually) liable for the damages caused by its fault. Since Devler was contractually liable and LD's liability was delictual i.e. resulting from the general rules of civil responsibility, they could not be held jointly and severally liable to pay the claim but they could and were condemned "in solidum" meaning that they were each individually liable to pay the entire claim.

CANCELLATION OF A PROMISE TO PURCHASE FOR NOT RESPECTING DELAYS

Promises to purchase real estate usually include delays for the prospective purchaser to satisfy certain conditions such as inspection of the property or providing proof of financing amongst others. Can the vendor cancel the accepted promise to purchase if the prospective purchaser does not respect a delay? This issue was dealt with by the Quebec Court of Appeal in Azimut Promoteur Immobilier Inc. -vs- Raymond Gauthier et al. 2022 QCCA 1299. On November 26, 2019, the parties signed a promise to purchase an immovable property by no later than March 1, 2020 for the price of $1,225,000. The purchaser remitted a non-refundable deposit of $100,000 to be applied to the purchase price. On February 19, 2020 the parties signed a second agreement which provided inter alia that Purchaser would pay the additional sum of $100,000 as second non-refundable deposit by no later than March 31, 2020 and that the parties would consummate the sale no later than 30 days following the issuance of the certificate of authorization by the Minister of the Environment or at the option of the purchaser, the sale could be consummated prior to the issuance of the environmental certificate. The purchaser failed to pay the deposit that was due on March 31, 2020, which it claimed was due to inadvertence caused by the pandemic. Six months later in a letter dated September 15, 2020, the vendor informed the purchaser that it considered the accepted promise of purchase to be null and void as a result of the purchaser's default to remit the second deposit by March 31, 2020. The next day, purchaser remitted to vendor two cheques totaling $100,000 which the latter returned to the purchaser. After giving vendor prior notice to proceed with the sale, purchaser filed suit to order vendor to consummate the sale of the property failing which, the court would order the sale consummated without the vendor's consent. The vendor made a preliminary motion to dismiss the proceedings on the ground that the promise to purchase was null and void as a result of the purchaser's default to pay the deposit within the stipulated delay. The court in first instance granted the motion and dismissed the proceedings considering that the stipulated delay was mandatory and there was no allegation of bad faith on the part of the vendor nor any allegation that would question the strict character of the delay. In appeal, the decision of court of first instance was reversed on the basis of the legal principles hereinafter reviewed. In order to dismiss a case on a preliminary motion prior to a trial on the merits, the grounds for dismissal must be very clear and not leave any doubt. In the presence of any ambiguity, it is best not to dismiss a case prematurely but instead allow the parties the opportunity to be heard on the merits at a trial. For a delay to be considered strict and mandatory giving rise to the cancellation of the contract in the event of contravention, it must be clearly stated as such in the promise to purchase which was not so in the present case. In the face of ambiguity regarding the express terms of the promise to purchase, the court may look at the conduct of the parties to infer how they interpreted the strictness of the delay. In the present case which was decided on the basis of a preliminary motion there was nothing available to the court to provide it with insight in this regard. Moreover, the silence of the vendor during a period of almost 6 months following the expiry of the delay to pay the second deposit is arguably inconsistent with such delay being strict and mandatory. According to the Court of Appeal the case law was clear and consistent with respect to the foregoing. In the circumstances where there may be ambiguity regarding the strictness of a delay that is breached, the other party may give final written notice to the party in default to satisfy the condition within a certain additional delay failing which, the promise to purchase will be deemed to be cancelled and annulled for all legal purposes.

THE LEGAL OBLIGATION OF GOOD FAITH

In a recent judgment of the Quebec Superior Court, a tenant was authorized to annul a commercial lease with Développement Olymbec Inc. ("Olymbec") as a result of the latter's bad faith while negotiating the lease. (Canal Médical Inc. -vs- Développement Olymbec Inc., 2024 QCCS 2236). Canal Médical Inc. ("Canal") entered into a commercial lease with Olymbec to lease space to be used for the production of respiratory face masks. After signing the lease, Canal noticed the absence of mechanical ventilation in the premises. At the time of the intial visit to the premises, Olymbec confirmed that it would be feasible to install air conditioning in order to recycle warm air generated by Canal's production equipement at the latter's cost. Olymbec admits that it did not inform Canal that the premises had no ventilation system. Canal requested a second visit but Olymbec refused due to ongoing work being conducted there. After taking possession of the premises, Canal noticed that the ventilation grills were blocked. When Olymbec was asked whether it would be possible to unblock the grills in order to install air conditioning, Olymbec replied in the negative due to the structure of the building and that the blocked vents were not connected to the building's ventilation network. Thereafter, Canal was informed by CNESST that the absence of proper ventilation in the premises may contravene labour standards and it could be obliged to suspend its activities. Consent to a contract must be freely given. Article 1401 of the Quebec Civil Code provides that error provoked by deceit ("dol") vitiates consent if otherwise, the victim of deceit would not have agreed to the terms and conditions of the contract. Such deceit can result from the silence or reticence of the other party. Deceit consists of dishonest conduct resulting from false or misleading representations, silence, or reticence that leads or encourages the other contracting party to believe in the existence or inexistence of a fact that is a significant factor in the decision to agree to contractual terms or conditions. Furthermore, the law further provides that all rights must be exercised in good faith. No right may be exercised in a manner to hurt another or that is excessive or unreasonable. (Articles 6, 7 and 1375 Quebec Civil Code). In the course of negotiating a contract, the requirements of good faith include the obligation to provide the other party with information that he knows or is presumed to know is of a significant nature and that the other contracting party has no access to or is entitled to duly rely upon and trust the other party. The Court concluded that the omission by Olymbec to disclose the absence of ventilation in the premises was deceitful and provoked a material error on the part of Canal thereby justifying the annulment of the lease as well as a condemnation in damages. Olymbec argued that it had no legal obligation to inform Canal that the premises had no ventilation. The Court disagreed for the following reasons. Olymbec knew that the premises were deprived of proper ventilation and that the information was significant considering the intended use of the premises which was expressly confirmed in the lease. Olymbec argued further that the terms of the lease exculpated itself from the legal obligation to provide information. In particular, the lease included the usual clauses to the effect that the tenant accepts the premises in their current state and condition and that the tenant confirms that no representation was made that is not included in the lease. The Court found that Olymbec induced Canal to sign the lease in bad faith and could not rely on the terms of the lease to change the fact that Canal's consent was vitiated thereby giving rise to its annulment. The Court granted the annulment of the lease and damages including reimbursement of rent and certain compensatory damages. This case is an illustration of the crucial importance that good faith plays in contractual relations including the pre-contractual phase while the parties are negotiating terms and conditions as well as while performing their contractual obligations.

ESTOPPEL IN COMMERCIAL LEASES

Estoppel (fin de non-recevoir), is a legal principle that allows a court to declare a claim or defense that is otherwise legally well founded to be declared "not receivable" (irrecevable) due to the presence of reprehensible or non-cooperative conduct of a party including a failure to act in good faith. Such conduct need not amount to fault or negligence. The evaluation of the conduct is based on the principles of equity and good faith. The courts, which have substantial room to appreciate a party's conduct, are trending more frequently to invoke estoppel, which adds a further layer of uncertainty to predicting the probable outcome of litigation. While all persons including judges are created equal, their appreciation of a parties conduct, which is should be objectively considered, may nevertheless differ as a result of a judge's individual perspective. This is not a criticism but merely a practical observation since a party's reprehensible conduct or bad faith should never be allowed to be rewarded. An interesting illustration of estoppel in a commercial lease setting can be found in the Quebec Court of Appeal decision 9378-1417 Québec Inc. -vs- Groupe Ilqueay Inc., 2023 QCCA 351. The parties entered into a commercial lease for five years terminating on 2020-07-31. In mid-March 2019, the tenant verbally informed the landlord of its intention to vacate the premises prior to the end of the term namely in June 2019. The tenant reiterated its intention in mid-April by email to which the landlord replied that it expected the lease be respected although it was prepared to discuss terms and conditions for an early termination. In its reply, the landlord also undertook to communicate with the tenant to arrange a meeting. In May, the tenant, not having heard from the landlord, reached out to inquire regarding the landlord's intentions. The landlord did not reply. The tenant eventually vacated the premises in September 2019, ten months prior to the end of the term. Landlord filed suit claiming unpaid rent for ten months plus legal fees. The landlord's suit was dismissed by judgment in first instance which judgement was affirmed in appeal. The court concluded that the landlord's lack of cooperation since April 2019 amounted to bad faith on its part and its failure to minimize its damages (it made no effort to find a new tenant after retaking possession of the premises but instead, occupied the premises itself) justified the dismissal of landlord's claim on the grounds of estoppel.