In reaction, Job Inc. sued Simon for breach of loyalty and "theft of clientele".

Here is article 2088 of the Quebec civil code:

"The employee is bound not only to carry on his work with prudence and diligence, but also to act faithfully and honestly and not to use any confidential information he may obtain in carrying on or in the course of his work. 

These obligations continue for a reasonable time after cessation of the contract, and permanently where the information concerns the reputation and private life of another person."

In the course of the legal proceedings, Job Inc.'s lawyers submitted a motion to the court asking it to issue an injunction against Simon and his new company and ordering them to remit to Job Inc. all information and floppy disks relating to Job Inc.'s accounts receivable and all other information of whatever nature belonging to Job Inc. in their possession.

The next day, with the injunction in hand, Job Inc.'s bailiff presented himself at Simon's office and requested that he remit whatever information belonging to Job Inc. that he had in his possession. Simon then stated that he had no such information.

However, Job Inc.'s lawyers had hired a private investigator to follow Simon and see what he would be doing during the injunction proceedings. The investigator established that Simon had then stayed at his new office one full night.

Job Inc.'s lawyers then obtained permission from the court to search Simon's new office with the assistance of experts who were capable of retrieving information on computers with the help of a special program which allows to circumvent deletion of documents, to retrieve information as to deletions from a hard drive and to obtain the content of what was deleted. It was then discovered that a great number of files, letters and other documents on Simon's computers and relating to Job Inc.'s clients had been deleted during his long nightly vigil.

In addition to its pending legal action, Job Inc. then requested a judgment against Simon and his company for contempt of court, for their voluntarily disregard for a court order and their failure to respect it.

Here are the pertinent articles of the Quebec Code of civil procedure:

49 The courts or judges may condemn any person who is guilty of contempt of court.

 

50 Anyone is guilty of contempt of court who disobeys any process or order of the court or of a judge thereof, or who acts in such a way as to interfere with the orderly administration of justice, or to impair the authority or dignity of the court. 

 

51 Except where otherwise provided, anyone who is guilty of contempt of court is liable to a fine not exceeding five thousand dollars or to imprisonment for a period not exceeding one year.

Imprisonment for refusal to obey any process or order may be repeatedly inflicted until the person condemned obeys.

 

52 Anyone who is guilty of contempt of court in the presence of the judge in the exercise of his functions may be condemned at once, provided that he has been called upon to justify his behavior. 

 

53.1 The proof submitted to establish contempt of court must leave no possibility of reasonable doubt. 

The respondent may not be compelled to testify. 

 

761 Any person named or described in an order of injunction, who infringes or refuses to obey it, and any person not described therein who knowingly contravenes it, is guilty of contempt of court and may be condemned to a fine not exceeding fifty thousand dollars, with or without imprisonment for a period up to one year, and without prejudice to the right to recover damages. Such penalties may be repeatedly inflicted until the contravening party obeys the injunction.

According to jurisprudence, contempt of court must be considered as a quasi-criminal offence. This means that the proof submitted to establish contempt must leave no reasonable doubt, that the "accused" cannot be compelled to testify (if he or she chooses to do so, however, he or she may be cross-examined as any other witness) and in order to find a person guilty of contempt, evidence must be to the effect that he or she voluntarily disregarded a court order which had been served.

Furthermore, companies can be found guilty of contempt when their guiding minds voluntarily contravene a court order.

In view of the facts, the court here concluded that there was no doubt that Simon and his company had clearly contravened the court's injunction by voluntarily refusing to obey it, and condemned them to a fine of 5 000$.

This judgment has been appealed from. We shall keep you posted.

[Posting date in the "Articles" section: 20/02/01. Court file number: 500-05-058740-000 . Judgment date: 25/10/00]

Brought to you by Beaulieu Normandeau, Quebec City law firm.

A company we will call Own Inc. had granted a contract to another we will call Build Inc. for the renovation of a building. So that Own Inc. retain its acquired rights, not more that 50% of the building could be demolished, that of which Build Inc. and its sole director and shareholder Fern had been advised.

However, Build Inc. demolished more that 50% of the building. As soon as it was notified of this, Own Inc. had the work stopped and terminated Build Inc.'s contract, then sued Build Inc. and Fern for some 240 000$ for damages sustained.

The Quebec Superior court granted the action against Build Inc. and Fern for approximately 87 000$, on the basis that they had acted unilaterally and were therefore at fault, causing Own Inc. to lose its acquired rights.

This judgment was reversed by the Quebec Court of appeals, in that the damages were reduced to some 49 000$ and, more importantly, in that Fern's personal liability was set aside.

According to the Court of appeals, even if Fred had committed a fault, he had committed it while acting as Build Inc.'s director and in the course of the execution of the contract which had been granted to it, so that consequently no personal liability could be imposed on him and nothing justified the lifting of the corporate veil since Build Inc. had not been used to dissemble fraud, abuse of right or contravention of a rule of public order (see our article number 04 in the "Articles" section concerning the notion of corporate veil).

The Court of appeals also underlined the fact that Own Inc. knew that it was dealing with a company, had not required any personal security from Fred in his capacity as the company's sole director and therefore had no course of action against Fred personally.

This means that a businessperson has greater protection if his or her business is incorporated, the "Ltd." which we sometimes see in corporate names meaning "limited responsibility" (the "Inc." mention has the same effect).

[Posting date in the "Articles" section: 13/02/01. Court file number: 500-09-005237-979. Judgment date: 09/11/00]

Brought to you by Beaulieu Normandeau, legal services in Canada.

However, according to applying law, a company incorporated before January 1, 1994 maintains its existence even if it has been the subject of dissolution, if legal proceedings have been taken against it, so such proceedings may be continued.

As mentioned in our article number 10, in certain circumstances the law provides for the personal liability of company directors for unpaid salaries, so the court ordered ABC Inc.'s director to pay the 5 000$ claimed by the Commission for the ex-employee, while mentioning that the company's dissolution did not prevent the application of the legal provisions providing for its director's liability inasmuch as unpaid salaries were concerned.

[Posting date in the "Articles" section: 06/02/01. Court file number: 200-22-010758-993. Judgment date: 12/11/00]

Brought to you by Beaulieu Normandeau, legal services in Quebec City.

In the case at hand, an engineer was suing a company for illegal dismissal. In the course of the company's contest of this claim, its corporate affaires director had signed an affidavit (written declaration under oath) to the effect that the engineer had retained possession of a laptop computer which belonged to the company, which the company wished to recuperate.

In reaction, the engineer sued the director for slander, by alleging that the affidavit was false and malicious.

Examined out of court (procedure provided for by the Quebec Code of civil procedure and allowing a person being sued to ask questions to the opponent before trial), the engineer asserted:

a) that the director very often acted maliciously and that her affidavit's allegations were false; and

 

b) that although the director was responsible for drafting contracts implicating the company, she would not do so and referred such work to the engineer; and

 

c) that the director had acted with the engineer with great contempt and vulgarity, and in a cavalier manner.

These allegations brought by the engineer were not generally known, in that the people who were advised of them were the company's directors and another of its ex-employees, to whom the engineer had spoken.

Subsequently, according to the court testimony of the representative of a shelter taking care of women in difficulty and for whom the director did charitable work, the engineer called her to tell her that the director was a manipulative go-getter who detested women and who did everything to please her boss. The engineer also wondered aloud about what would happen if this was brought to the media's attention and about what the shelter's directorship would do if it found out about the fact that such a woman "was hiding in their midst".

Not only did the engineer not deny this testimony, she admitted in court that she may have talked to the shelter's representative "about a corrosive woman" in referring to the company's director. As to the shelter's representative, she did not mention this conversation to anybody, although she told the company director about it.

The director in turn sued the engineer for slander, and at the trial concerning this aspect of the case, the engineer not only refused to retract her words, she maintained them, although:

a) the circumstances of the case demonstrated that the company director's affirmations in her affidavit were pertinent, justified and made without malice, regarding which the judge noted that the accusation brought by the engineer as to the falsehood of the director's assertions under oath was serious and could not be treated lightly; and

 

b) nothing demonstrated that the director had not assumed her functions within the company correctly, while the engineer did not even know what these functions were; and

 

c) beside submitting insinuations and a few imprecise and insignificant examples, the engineer could not justify her words.

Here is what the judge stated in her judgment in referring to the engineer's testimony:

"A witness has the right and the obligation to answer the questions which are asked to him or her but does not have total immunity [...]. The witness' privilege does not protect him or her against legal actions brought for slander or false or impertinent declarations. Jurisprudence recognizes that one can voluntarily adopt malicious discourse to harm the reputation of another and seek to humiliate or cause injury. Even in the absence of bad faith, a person may be at fault by harming the reputation of another by rashness, negligence and impertinence."

Then, in referring to this jurisprudence, the judge cited the following passage of a Quebec Court of Appeals judgment:

"Slander in a legal proceeding gives cause to legal action in damages only if it is established that the allegations are false and that they were not pertinent to the case, that they were brought maliciously or, at least, that they were brought with such rashness that they amount to malice and that there was no reasonable or probable cause to entertain them."

As to the company's director, in her testimony before the court she denied having acted in bad faith and explained that her very functions within the company required that she take certain steps that did not render her very popular, while adding that she still worked there in the same capacity. She also mentioned that she had been hurt, humiliated and worried by the engineer's words about her, and insisted on the importance for her to maintain a good reputation.

In light of all this, after having noted that one could understand, without approving it, that a fired person may comment with a certain belligerence about a former employer's operations, the judge mentioned that this did not authorize such a person to settle a dispute by insulting and reviling another without being in a position to justify the pertinence or veracity of the words used.

In concluding that the engineer had attacked the director in a rash and unacceptable manner, the court condemned her to pay 3 000$ to the director in view of the parameters usually applied in such matters (slander's circulation, spreading and gravity; intention of the slanderer, condition of the implicated parties, consequences on the victim, duration of such consequences, permanence of ephemeral aspect of such consequences, etc.).

So think about it before ...

[Posting date in the "Articles" section: 30/01/01. Court file number: 500-05-047802-994. Judgment date: 15/08/00]

Brought to you by Beaulieu Normandeau, Quebec attorneys.

In November 2000, the Quebec tribunal for human rights (Tribunal des droits de la personne du Québec) condemned a company and its only director to pay some 13 000$ to an ex-employee for sexual harassment.

The facts

According to evidence submitted to the tribunal, the victim, a 17 year-old student, had been hired by the only director of a company for the summer, to work as a waitress in its restaurant.

According to the student, the first harassment episode took place when her employer hugged her and kissed her on the cheek in the kitchen, and then tried to kiss her on the mouth, to which she reacted by pushing him back, being uncomfortable and not knowing how to react. Subsequently, she told her boss that she wanted unambiguous employer-employee relationship with him, to which he responded by saying that he loved her and thought she also loved him since she would smile to him. She told him that such was not the case, and reiterated that she wanted a normal employer-employee relationship, which he accepted.

Then as they were both buying glasses for the restaurant, the employer told her: "You must be happy that there are many people here. You must feel safe here on Sainte-Catherine [Montreal commercial street] since I cannot rape you" and, the following day: "You will have to tie my hands up so I won't touch you".

Subsequently, in his office the employer asked her to be his mistress and told her he wanted to have sex with her, to which she reacted by reiterating what she had previously stated as to a normal employer-employee relationship. After that, he became more demanding of her as to her work, criticized her and constantly humiliated her in front of everybody, telling her she was stupid. Several times a week, he would also make comments such as "Can you tell I am not wearing any underwear?", or "When you whip cream, I get an erection".

The student then decided to asked for a week off to reflect on the situation, by telling him that there was someone sick in her family. Then, fearing that she would not be able to find another job, she went back to work at the restaurant.

Upon her return to work, the situation did not improve. The employer told her that they could just be friends, but that he wished to sleep with her, regarding which she reiterated her previous statements.

The next day, the employer asked her if she was mad at him, to which, exasperated, she responded: "Yes, because you are an ass hole", to which he reacted by firing her. She then contacted the Groupe d'aide et d'information sur le harcèlement sexuel to get help and complain of the situation, after which legal action was undertaken.

In court, another of the company's previous employees testified to the effect that its director often made sexually explicit comments about his female employees by using terms such as "she has a nice bum"; that the student had, in the course of her employment, confided to her on a few occasions that the employer had asked her for sex and that she had heard him call the student a "little bitch" .

In defense, the employer denied all these facts and alleged that the only sexual discussion he had had with the student concerned a warning he had given her against the AIDS risk implied if she did not protect herself adequately.

As to his firing her, he invoked that she abused of phone calls at work, regarding which he had warned her on several occasions that she had to stop, that she thereafter continued without conforming to his warnings and that finally, when he gave her a final warning, she had reacted by calling him an "ass hole", and that he therefore decided ton fire her immediately in view of this.

The tribunal granted no credibility whatsoever to the employer's version of facts and believed that of the student to be true.

The law

In its decision, the tribunal first referred to the following articles of the Quebec Charter on human rights and freedoms:

4. Every person has a right to the safeguard of his dignity, honor and reputation.

 

10. Every person has a right to full and equal recognition and exercise of his human rights and freedoms, without distinction, exclusion or preference based on race, color, sex, pregnancy, sexual orientation, civil status, age except as provided by law, religion, political convictions, language, ethnic or national origin, social condition, a handicap or the use of any means to palliate a handicap.

 

Discrimination exists where such a distinction, exclusion or preference has the effect of nullifying or impairing such right.

 

10.1 No one may harass a person on the basis of any ground mentioned in section 10.

 

16. No one may practise discrimination in respect of the hiring, apprenticeship, duration of the probationary period, vocational training, promotion, transfer, displacement, laying-off, suspension, dismissal or conditions of employment of a person or in the establishment of categories or classes of employment.

 

49. Any unlawful interference with any right or freedom recognized by this Charter entitles the victim to obtain the cessation of such interference and compensation for the moral or material prejudice resulting therefrom.

 

In case of unlawful and intentional interference, the tribunal may, in addition, condemn the person guilty of it to punitive damages.

Then, the tribunal summarized applying jurisprudence in such matters, including that of the Supreme Court of Canada, to the effect that sexual harassment in the workplace:

a) may generally be defined as being unsolicited conduct of a sexual nature which has an unfavorable effect on the workplace or which has harmful consequences for the victim as far as employment is concerned;

 

b) constitutes sexual and economic abuse, a degrading practice that is a grave affront to a person's dignity and sense of self-respect.

As to the diverse forms of sexual harassment, which are sometimes subtle, sometimes flagrant, the tribunal enumerated the following:

a) verbal manifestations (words, advances, propositions or requests for favors, remarks that may unfavorably affect the workplace as to psychological or emotional concerns);

 

b) physical manifestations (concupiscent looks, touching, hugging, pinching, and unsolicited acts going up to and including aggression);

 

c) psychological manifestations (insinuations, subtle invitations, explicit requests, importune attentions or affection known to be such, clear or implied threats).

Jurisprudence has retained two essential elements to conclude to sexual harassment:

a) the undesired aspect of the acts or behavior comprising a sexual connotation, where the expression of refusal may vary from case to case and may include implicit refusal to subtle harassment;

 

b) the fact that the behavior constitutes harassment, although one sole occurrence may constitute harassment if it is grave and produces future effects, such as the firing of the victim.

According to the tribunal, the facts testified to by the student clearly constituted sexual harassment.

Damages

Since the student had been unable to find another summer job and could not then psychologically face another employer, the tribunal condemned the company and its director to pay her 2 500$, i.e. that which she would have gained as salary until returning to her studies;

Since the student was stressed and had little confidence in her ability to find work, the tribunal condemned the company and its director to pay her and additional 7 500$ for moral damages;

Finally, since the employer had acted intentionally and without regard to the student's rights, the tribunal granted 3 000$ more to the student as punitive damages.

Sexual harassment policy

It is important to note that in certain circumstances, an employer may be held responsible for sexual harassment in the workplace whoever is the guilty party, i.e. even if the employer has not acted wrongly, which may be the case, for example, if the employer does not take the required steps to counter sexual harassment on the part of an employee against another employee. It is important for employers to adopt a clear written policy against sexual harassment in the workplace, that all employees be notified of this policy and that the employer act rapidly to counter all manifestation of such harassment. Such a policy should notably include a definition of sexual harassment, specify the right of all employees to a workplace free of sexual harassment, provide for disciplinary action and of the means by which the employer may be advised of sexual harassment, contain the affirmation of a victim's right to undertake legal action against the person at fault, etc.

[Posting date in the "Articles" section: 21/01/01. Court file number: 500-53-000127-991. Judgment date: 09/11/00]

Brought to you by Beaulieu Normandeau, Quebec City attorneys.

2727. A legal hypothec [mortgage] in favour of persons having taken part in the construction or renovation of an immovable subsists, even if it has not been published, for thirty days after the work has been completed.

 

It subsists if, before the thirty-day period expires, a notice describing the charged immovable and indicating the amount of the claim is registered [i.e. lien]. The notice shall be served on the owner of the immovable.

 

It is extinguished six months after the work is completed, unless, to preserve the hypothec, the creditor publishes an action against the owner of the immovable or registers a prior notice of the exercise of a hypothecary right.

 

2728. The hypothec secures the increase in value added to the immovable by the work, materials or services supplied or prepared for the work. However, where those in favour of whom it exists did not themselves enter into a contract with the owner, the hypothec is limited to the work, materials or services supplied after written declaration of the contract [denunciation] to the owner. A workman is not bound to declare his contract.

In a case decided by the Cour du Québec, a man we will call Bob had decided to have a general contractor build a new home for him, by indicating that he wished that a particular company we will call Wood Inc. deliver and install the wood floors which were to be part of the home, for a price of 5,35$ per square foot, plus applying taxes.

The general contractor then communicated with Wood Inc. and they agreed that Wood Inc. would grant the general contractor a discount of 0.17 per square foot, of which Bob was not advised.

Things then proceeded as follows, in chronological order:

a) Wood Inc. delivered the wood and billed some 10 000$ to the general contractor;

 

b) being unpaid, less than 30 days after the work had been completed, Wood Inc. registered a lien against Bob's home;

 

c) the general contractor filed for bankruptcy;

 

d) Wood Inc. filed its claim within the bankruptcy, then communicated with Bob to obtain payment;

 

e) Bob then mentioned that he had never received denunciation from Wood Inc. concerning the wood floors and he refused to pay a second time for this item, which he had already paid to the general contractor (succinctly, Bob alleged that he had never received a bill from Wood Inc. for the floors, that nobody had previously asked him to pay for them since it was clear that the general contractor was the one who had contracted with Wood Inc. and who had to pay it, and finally that he was not aware of the discount);

 

f) Wood Inc. served a prior notice of the exercise of a hypothecary right to Bob, and thereafter undertook legal action against Bob and his home to obtain payment.

In court, Bob alleged that Bob's lien was null and void since it had been published more than 30 days after the work had been completed, and also that he had not been notified in writing as required y law.

End of work

As to the end of work, the court referred to article 2110 of the Civil code, to the effect that "work is completed when the work has been produced and is ready to be used for its intended purpose", and to jurisprudence to the following effect:

a) there exists only one "end of work" for the whole of a construction or renovation project;

 

b) work ends when the immovable property is ready with all that which comprises the complete execution of the construction contract;

 

c) the non execution even of a minor works delays the "end of work" if such works are specified in the construction contract;

 

d) the date at which the owner has accepted the building, or the dates of billing pertaining to the work are not necessarily useful in determining the end of work; other circumstances must be taken into account;

 

e) work which is only destined to correct deficiencies does not delay the "end of work".

In view of prevailing circumstances and without us going into the details, the court concluded that Wood Inc. had registered its lien less than 30 days after the end of work and therefore rejected Bob's arguments in this matter.

Absence of written notice

As to the absence of a written notice, the court accepted Bob's argument to the effect that he had received no written notice of the contract which had intervened between Wood Inc. and the general contractor, even if Bob had chosen Wood Inc. for this while specifying the quality and quantity of the required wood.

In this regard, the court underlined:

a) that Wood Inc. had contracted with the general contractor and not with Bob, who knew nothing of their discount agreement even if he had chosen Wood Inc. as sub-contractor while indicating the quality, quantity and nature of the work to be done;

 

b) that Wood Inc. had sent its bills to the general contractor, not to Bob;

 

c) that Wood Inc. had never advised Bob in writing of its contract.

By referring to the written notice required by article 2728, the court then mentioned that the object of the written notice is to allow the sub-contractor to guarantee the payment of his work by a lien for work accomplished or materials delivered to the owner after the notice, which has two goals: that the owner know the sub-contractor's identity and that he intends to eventually hold him responsible  for the payment of amounts due should the general contractor not pay him, so that the owner may protect himself accordingly.

The court therefore rejected Wood's Inc. requests by concluding that even if Bob had chosen several of the parameters concerning the floors, since he had never been advised of the discount granted by Wood Inc. to the general contractor, nor of the true price of Wood Inc.'s contract, Bob did not possess the required details and documents amounting to written notice within the meaning of article 2728 CCQ, the term "notice" implying a positive undertaking by the sub-contractor as to his intention to claim from the building's owner.

It is therefore important, in construction matters, to remember that the sub-contractor and supplier must correctly notify the building's owner in writing of their contracts (price, identity of the general contractor, etc.) before undertaking any work or delivery.

[Posting date in the "Articles" section: 17/01/01. Court file number: 200-02-023616-008. Judgment date: 03/08/00]

Brought to you by Beaulieu Normandeau, Quebec City lawyers.

The Quebec court of Appeal recently intervened in a case where a company had offered to buy a businessman's land for 82 000$, which he refused by countering with 175 000$, which the company accepted. It was then agreed that the deed of sale would be signed a few weeks later, at a determined date.

Subsequently the company asked the businessman to set the closing date back a few days, which he refused to do unless the company agreed to certain conditions set out in a letter he wrote to it, regarding which we won't go into details.

Having no response from the company and following the passage of the closing date originally agreed upon, the businessman put his land up for sale once more but only received one offer, for 45 000$, which he refused. Subsequently, he advertised for sale, to no avail.

Then, although he wished to sell his land, the businessman decided to sue the company in damages, rather than to require that it sign the deed in accordance with the terms of the counter-offer. His legal action was granted by the Quebec Superior court, which was confirmed by the Quebec court of Appeal.

According to the courts, since the company had accepted the businessman's counter-offer, he had no obligation to grant additional delay for the signing of the deed, and the company therefore had to indemnify him for damages caused to him.

As to the amount to be granted, the Court of Appeal established them at 16 200$, representing the difference between the market value of the land (158 800$, as determined by an expert evaluator following an analysis of similar sales in the same sector) and the amount of 175 000$ agreed to by the parties, plus 1 980$ representing the lawyer fees the businessman had incurred in suing the company.

[Posting date in the "Articles" section: 10/01/01. Court file number: 500-09-000350-959. Judgment date: 29/11/00]

Brought to you by Beaulieu Normandeau, Quebec City legal counsel.

At the company's set-up, Paul and Roger signed a shareholder agreement comprising a clause entitled "Forced acquisition and sale of shares (Boomerang)" in accordance with which, notably:

- if one wished to buy the other's shares, he had to indicate in writing that he was invoking the Boomerang clause, as well as the amount and modalities of the foreseen transaction;

 

- if the other accepted, he had to transfer all of his shares to his partner for the price mentioned in the tender and in accordance with the indicated modalities, and if he refused he had to buy all of his partner's shares for the same price and modalities as those set out in the tender.

At a certain point, things got unpleasant and Paul sent Roger a letter by which he informed him of the fact that he was invoking the boomerang clause and that he was offering to buy Roger's shares for 900 000$ payable upon remittal of his share certificates and following other modalities.

In response, Roger wrote Paul to inform him that he declined his offer, and that he would therefore buy Paul's shares at the same price and following the same modalities.

In reaction, Paul moved his personal belongings out of the company's office, he asked Roger to structure the transaction in such a way as to advantage Paul fiscally and notified certain suppliers of the fact that his shares were about to be sold.

Then, Paul's attorney notified Roger's that Paul would sign the required transaction documents at an agreed upon date. However, for different reasons Paul changed ideas in the course of events: no longer wishing to quit the company, he did not go to the closing meeting agreed upon and did not comply with Roger's repeated requests that he sign the required documents.

Roger therefore took legal action against Paul to have the court order him to sell his shares to Roger for the 900 000$ agreed upon, following the established modalities.

First, the court pondered the question as to the existence of a legal distinction between a "boomerang" clause and a "shotgun" clause in contracts of sale and acquisition of shares in the capital stock of a company between co-shareholders and concluded there was none, since these expressions are interchangeable. The shotgun clause is thus called, said the court, because it refers to the culture of the American Far-West:

"The shareholder who prevails himself of this mechanism, one could say, points a gun to his partners temple and tells him in no uncertain terms: 'Buy or sell, but decide, and fast!'"

Sometimes, added the court, this type of clause is also called "baseball", or "Russian roulette".

In defense, Paul alleged that Roger had not respected the shareholder agreement since the modalities he proposed to acquire Paul's shares were not the same as those indicated in Paul's original letter to buy Roger's shares, regarding which we avoid details. In support of his contention, Paul invoked previous judgments to the effect that it is essential to the proper operation of such clauses that the offers and counter-offers be made following the same conditions.

In considering that Roger's counter-offer respected this requirement, the court rejected Paul's argument.

Paul then indicated that Roger had not deposited the amount of 900 000$ and submitted that this omission constituted sufficient reason to refuse his request. In response, Roger submitted a check in that amount from a well established financial institution, while its director testified to the effect that the amount had been available for the acquisition of Paul's shares since the very beginning of the matter.

The court was satisfied with Paul's additional argument and declared that Roger's counter-offer was valid and that the parties were bound by it inasmuch as Roger paid or consigned the amount of 900 000$ within 30 days of the judgment to intervene, without interest.

Consequently, the court, among other things:

- authorized Roger to deposit the 900 000$ within 30 days of the judgment;

 

- declared that Roger had the right to acquire Paul's shares in the company in consideration of the payment of the 900 000$;

 

- ordered Paul, upon reception of the 900 000$, to sign the contract of sale pertaining to the shares and other documents pertaining to his leaving the company (resignation as director, officer and employee, etc.);

 

- authorized Roger, upon payment of the 900 000$, to pass the required company resolutions to approve the transfer of Paul's shares in his favor;

 

- ordered that should Paul not respect the court's injunctions, that the judgment amount to the transfer of his shares in Roger's favor.

This means that before offering to buy your partner's shares in accordance with a shotgun clause, be sure of the price you submit, since this may be the price for which you will be compelled to sell you own shares...

Please note that "Articles" will be back at Christmas...

[Posting date in the "Articles" section:  08/12/00. Court file number: 500-05-046658-983 . Judgment date: 31/05/00]

Brought to you by Beaulieu Normandeau, Quebec City legal services.

The owners of a commercial building had a security system installed by a company we will call Whole Inc., who had manufactured it, which system comprised movement detectors installed at different locations in the building.

As to one of their lessees, who operated a fur coat store, he had his store protected by an additional system, manufactured by a company we will call Specific Inc.

One night, the fur coats were robbed without either of the alarm systems signaling the presence of anyone, and the robbers left the premises without encountering any problems.

After the robbery, the lessee and his insurance company sued the building owners and Whole Inc. for some 350 000$ in damages, alleging that they had been negligent.

According to the lessee, the owners had promised to improve Whose Inc.'s alarm system, which had not been done, while Whole Inc. had not rendered adequate security services. In defense, the owners and Whole Inc. denied these allegations.

At the trial, evidence submitted was to the effect that although Whose Inc.'s system was more sophisticated, it operated in the same way as that of Specific Inc. and both had similar components (movement detectors, control panels with keyboard and code numbers, dedicated phone lines to a supervision central recording all operations in a database, etc.).

Furthermore, one of the robbers had been arrested and was known by police as being a member of a group of criminals proficient in electronic devices. Following their investigation, the police estimated that about one hour had passed between the robbers' entry and exit from the premises, and concluded that they had bypassed the systems' electronic devices (in a manner we will not mention here) in such a way that the alarms had not been triggered and neither central had not receive any abnormal signals.

According to experts heard by the court, "no alarm system resists to criminals specialized in bypassing."

As to the building owners' liability, the court mentioned that the applying lease did not contain any specific clause to the effect that they had to install a specific alarm system in the building, although it did contain the following one:

"The Lessor shall not be liable for any damage, loss, theft or destruction of any property or the death or injury of any person in the Premises or the Building which may result at any time from any cause whatsoever. Notwithstanding the foregoing, the Lessor shall not be relieved of its responsibility for the negligence of the Lessor, its servants or agents or negligence with respect to things under its or their care."

The court mentioned that despite this clause, the building owners could still be held liable for their lessee's losses if he demonstrated a "gross carelessness or gross negligence" on their part, following article 1474 of the Quebec civil code:

"A person may not exclude or limit his liability for material injury caused to another through an intentional or gross fault; a gross fault is a fault which shows gross recklessness, gross carelessness or gross negligence.

He may not in any way exclude or limit his liability for bodily or moral injury caused to another."

As to the building owners promise to improve the alarm system, the court mentioned that evidence was contradictory (the lessee affirming that such was the case, while the owners denied it) while noting the fact that the owners had installed their alarm system and had it improved over the course of several years without the applying lease obliging them to do so. Here is what the court then said:

"The court agrees that a lessor must protect his lessees against to easy an access to the rented premises [...] However, this obligation does not constitute a guarantee against all intrusion by third parties."

In concluding that the owners had acted correctly, that they had honored more than their obligations and that they had committed no gross carelessness or negligence, the court dismissed the action against them.

As to Whole Inc.'s liability, the court concluded the same way in mentioning that its services had been retained by the owners and not by the lessee, that it could not bear a heavier burden that the owners themselves and that it had not been demonstrated that the robbery had been an immediate and direct consequence of the alleged deficiency in Whole Inc.'s security system rather than that of Specific Inc., as required by 1607 of the Quebec civil code:

"The creditor [here, the lessee victimized by the robbery] is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor's [Whole Inc.'s] default."

The court therefore dismissed the action against Whole Inc. on the basis that the lessee had not established that there was a direct relation between any fault on its part and the burglary.

For those of you who understand French, please note that a new service is offered to those who are interested by jurisprudence. Set up by the "Société québécoise d'information juridique", this service will apparently allow you to have free access to the motivated judgments of the Quebec Court of appeal rendered since January 1, 2000.

Two years later, Maurice married Emily and organized things so she became a 50-50 shareholder with him without paying a cent.

Then, by the intermediary of two contracts, Sale Inc. hired Maurice as president and CEO, while Emily was hired as "Executive vice president", although she was not part of the company directorship per se. According to her contract, Emily assumed all tasks required to assure the good running of the company's business, as defined from time to time by its sole director, Maurice.

Several years later, things soured: Emily filed for divorce against Maurice and also filed a motion for the liquidation of the company. Then, she informed the company's bank of these proceedings, in reaction to which the bank's attorneys advised Maurice of the imminent cancellation of the company's 100 000$ credit margin.

Then, Emily went to Europe to visit the company's main supplier, after which he required that it immediately pay all merchandise shipped to it, while advising Maurice of the fact that from thereon, Sale Inc. would have to pay its orders in advance.

Article 24 of the Quebec company liquidation Act specifies that upon a shareholder's request, the Superior court may order the liquidation of a company when the court considers that, for reasons other than bankruptcy or insolvency, it is just and equitable that the company be liquidated.

At the hearing in liquidation, Emily testified to the following effect:

"I lived 14 years with someone that threatened me almost every day. I lived 14 years hearing that I was a dunce, stupid, an idiot, so I was to be beaten, and this repeatedly. And my son [...] does not want to see his father alone because his father tells him he's a dunce, stupid, an idiot."

According to the judge, Emily's rights as a shareholder had to be distinguished from her rights as a spouse asking for divorce. In underlining that a liquidation motion constitutes an extreme and very serious remedy and that the courts do not grant it lightly, the judge mentioned that the case had to be considered by taking the shareholders' rights per se into account, rather than their rights as employees or company executives. Consequently, only Emily's rights as a shareholder were pertinent to her motion in liquidation.

According to jurisprudence, there are four "just and equitable" reasons to liquidate a company: deadlock, loss of the company's purpose for being (substratum), loss of confidence in the company's administration or another legitimate cause ("partnership analogy").

Deadlock, said the judge, requires that voting rights be equally divided amongst the directors, as well as amongst the shareholders and that consequently, the company's business is completely paralyzed. In the present case, there was no deadlock since Maurice was Sale Inc.'s sole director and was its president, so the company's activities and business were not paralyzed, all the more since evidence was to the effect that Sale Inc. was managed efficiently and was doing well despite the circumstances. It was also clear that the company had not lost its purpose for being.

As to loss of confidence in the company's administration, the court underlined that this was a question of fact and that the evidence had to show that fraudulent acts had been committed by a director, or that a director had not acted with probity. According to the judge, Emily had evidently lost confidence in Maurice as his spouse and employee, but to constitute sufficient reason for liquidation she had to prove that her loss of confidence was not only subjective, but that it resulted from reprehensible administrative acts, attitudes or decisions which were harmful to her interests as a shareholder. The court mentioned that Emily's discontent as to Maurice's administration of the company only concerned her interests as an employee or executive, and that she had never questioned his administration of the company before filing for divorce against him.

Finally, as to the existence of another legitimate cause to order liquidation, the court found none, while noting that Sale Inc.'s debts were guaranteed by Maurice only and that if the company was having minor liquidity or inventory problems, this was due to Emily's transmission of a copy of her liquidation motion to the company's bank and main supplier to inform them of the litigation opposing her to Maurice. "Liquidation should not be ordered upon the request of a shareholder who does not show clean hands", said the court.

As additional reason for declining the motion, the court mentioned that it had found no just or equitable reason to do so and that it would have been contrary to the interest of Sale Inc. and of its shareholders, employees and creditors.