Ponce v. Société d’investissements Rhéaume ltée

Ponce v. Société d’investissements Rhéaume ltée
Collection
Supreme Court Judgments
Date
2023-10-27
Neutral citation
2023 SCC 25
Case number
39931
Judges
Wagner, Richard; Karakatsanis, Andromache; Brown, Russell; Rowe, Malcolm; Kasirer, Nicholas; Jamal, Mahmud; O’Bonsawin, Michelle
On appeal from
Quebec
Subjects
Torts
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Ponce v. Société d’investissements Rhéaume ltée, 2023 SCC 25
Appeal Heard: January 12, 2023 Judgment Rendered: October 27, 2023 Docket: 39931
Between:
Antoine Ponce and Daniel Riopel Appellants
and
Société d’investissements Rhéaume ltée, Michel Rhéaume investissement ltée, Agence André Beaulne ltée and 9098-3289 Québec inc. Respondents
Official English Translation
Coram: Wagner C.J. and Karakatsanis, Brown,* Rowe, Kasirer, Jamal and O’Bonsawin JJ.
Reasons for Judgment: (paras. 1 to 119)
Kasirer J. (Wagner C.J. and Karakatsanis, Rowe, Jamal and O’Bonsawin JJ. concurring)
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
* Brown J. did not participate in the final disposition of the judgment.
Antoine Ponce and
Daniel Riopel Appellants
v.
Société d’investissements Rhéaume ltée,
Michel Rhéaume investissement ltée,
Agence André Beaulne ltée and
9098‑3289 Québec inc. Respondents
Indexed as: Ponce v. Société d’investissements Rhéaume ltée
2023 SCC 25
File No.: 39931.
2023: January 12; 2023: October 27.
Present: Wagner C.J. and Karakatsanis, Brown,* Rowe, Kasirer, Jamal and O’Bonsawin JJ.
on appeal from the court of appeal for quebec
Civil liability — Obligation of loyalty — Implied contractual obligations — Duty to inform — Obligation to act in good faith — Remedy — Company informing presidents of group of companies that it was interested in acquiring group — Presidents not disclosing information to group’s majority shareholders — Presidents purchasing shareholders’ interests in group and reselling them to company for profit — Whether presidents’ non‑disclosure of interest expressed by company in acquiring group constitutes civil fault — Appropriate remedy if fault established — Civil Code of Québec, arts. 1375, 1434.
Two presidents of a group of three companies in the insurance industry learned that a major company was interested in acquiring the group. Rather than revealing this to the group’s majority shareholders, the presidents decided to buy the whole of the shareholders’ interests themselves in order to resell them to the company for a substantial profit. Before the resale, the presidents and the purchaser company entered into an undertaking of confidentiality, which prevented the company from dealing directly with the group’s majority shareholders.
Upon learning of the resale, the shareholders filed a motion to institute proceedings for damages in the Superior Court, claiming approximately $24 million as compensation for the gain they would have made through that transaction of which they were deprived. They alleged that the presidents had breached their contractual and legal obligations and their fiduciary obligations, and in particular their obligations to act in good faith, with loyalty and transparency, by failing to inform them of the interest expressed by the purchaser company in acquiring the group. The shareholders argued that, because of the presidents’ unlawful actions, they were entitled to claim the equivalent of the excess profits made by the presidents.
The Superior Court ruled in the shareholders’ favour and ordered the presidents solidarily to pay them $11,884,743, an amount equal to the profits earned by the presidents on the resale. The court found that, under both the Civil Code of Québec and the Canada Business Corporations Act , the presidents, in their capacity as directors, owed duties of honesty, loyalty, prudence and diligence to the group. The trial judge found that these same duties could be extended to the shareholders because of an incentive pay agreement entered into by the shareholders and the presidents (“Presidents’ Agreement”) that governed the parties’ relationship and entailed implied obligations for the presidents. The Court of Appeal affirmed the trial judgment and upheld the remedy awarded by the trial judge. However, it was of the view that the trial judge erred in finding that the duties of honesty and loyalty provided for in the Civil Code of Québec and the Canada Business Corporations Act could be extended to the shareholders. The court held that the presidents’ conduct fell within the three criteria set out in Bank of Montreal v. Bail Ltée, [1992] 2 S.C.R. 554, and that the presidents breached the obligation of contractual good faith and the obligation to inform they owed to the shareholders.
Held: The appeal should be dismissed.
The presidents’ failure to inform the majority shareholders of the purchaser company’s interest in acquiring the group was a breach of the requirements of good faith. They breached the obligation of contractual loyalty linked to good faith, which was an implied obligation under the contract through the combined effect of arts. 1434 and 1375 C.C.Q. The Presidents’ Agreement involved an implied obligation to inform that required the presidents to provide the shareholders with all information relevant to making an informed decision about the sale of their shares. This implied obligation flowed from the nature of that agreement, which reflected the presumed intention of the parties, in accordance with art. 1434 C.C.Q. The presidents were also required to perform the Agreement in accordance with the requirements of good faith, which was included in the contract through imperative law under art. 1375 C.C.Q. With regard to the remedy, the purpose of damages is to compensate for the gain lost as a result of fault, and the quantum must be assessed so as to place the shareholders in the position they would have been in but for the presidents’ fault. Disgorgement of profits is not available where there has simply been a breach of the obligation of good faith; in principle, it is available only where a person is charged with exercising powers in the interest of another. However, where a breach of the requirements of good faith prevents the aggrieved party from proving the injury sustained, it should be presumed that the injury is equivalent to the profits made by the party at fault. The presidents have shown no palpable and overriding error in the trial judge’s conclusion that the shareholders’ lost gain is equivalent to the profits made by the presidents. There is therefore no reason to interfere with the assessment of the quantum of damages.
With regard to the possible legal bases for the presidents’ obligation to inform the shareholders of the interest expressed by the purchaser company in acquiring the group, the obligation of maximalist loyalty arising from the exercise of powers in the interest of another, like the one resting on an administrator of the property of others or a mandatary, is not at issue in this case. The presidents are neither the shareholders’ mandataries nor administrators of the property of others, which means that they cannot be held to an obligation of loyalty like the one provided for in arts. 1309 para. 2 and 2138 para. 2 C.C.Q. In addition, the extracontractual obligation to inform related to good faith in the formation of contracts is of only theoretical importance in this case given the contractual relationship that the parties chose to establish with one another. The shareholders do not allege that there was a breach of the requirements of good faith at the pre‑contractual stage, nor do they ask that the contracts for the sale of their interests in the group to the presidents be annulled. Rather, their focus is on the good faith performance of the Presidents’ Agreement, which was fully applicable at the relevant time.
The first legal basis for the duty to inform incumbent on the presidents is therefore the implied contractual obligation to inform the shareholders under the Presidents’ Agreement. Pursuant to art. 1434 C.C.Q., a contract binds the parties not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law. In this case, the nature of the Presidents’ Agreement leads to the conclusion that an implied obligation to inform was incident to it. The Presidents’ Agreement was the cornerstone of the business relationship between the presidents and the shareholders. The role of each party in this relationship was clear. The Presidents’ Agreement was a long‑term agreement formalizing a mutually beneficial business relationship between the presidents and the shareholders, and it required reciprocal contractual loyalty. It reinforced the high level of trust that the shareholders placed in the presidents, and it expressly set out incentive pay terms and conditions for the presidents’ benefit without spelling out reciprocal obligations for them. In light of the very nature of the Presidents’ Agreement, the presidents had an implied obligation to inform the shareholders of any fact that might enable them to assess the companies’ profits and value and decide whether to sell their shares and, if so, at what price. The non‑disclosure of the purchaser company’s interest was a direct breach of this implied obligation.
The second legal basis is the obligation to perform the Presidents’ Agreement in accordance with the requirements of good faith under art. 1375 C.C.Q. Good faith in Quebec civil law is now an enacted standard of public order. Unlike maximalist loyalty arising from the exercise of legal powers, contractual loyalty is reciprocal because of the mutual nature of good faith. It requires a contracting party to act with loyalty by taking into account, within the limits of reasonable conduct, the interests of the other contracting party. Nevertheless, the obligation of loyalty rooted in contractual good faith in the performance of a contract does not require a contracting party to subordinate their interests to those of the other party. In this case, contractual loyalty tied to good faith did not prevent the presidents from performing the contract to further their self‑interest, but it did require them to consider the interests of the other contracting parties. For this reason, it could impose on them a duty to inform. While they did not have to subordinate their interests to those of the shareholders, the presidents could not conceal the purchaser company’s interest in the group without incurring contractual liability to the shareholders. By concealing that interest, they breached their obligation of good faith.
The interest expressed by the purchaser company satisfies, in the context of the Presidents’ Agreement, each of the three criteria set out in Bail, which serve to determine whether particular information falls within the duty to inform: (1) knowledge of the information, whether actual or presumed, by the party owing the obligation to inform; (2) the fact that the information in question is of decisive importance; (3) the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation. With regard to the first criterion, the presidents knew of the purchaser company’s interest and were fully aware of the financial value of that information. The second criterion is also satisfied because the purchaser company’s interest would have had a major impact on the decision and on the determination of the value of the shareholder’s shares and the sale price. The last criterion is doubly satisfied given the atmosphere of trust that existed between the parties and the fact that it was impossible for the shareholders to inform themselves of the purchaser company’s interest. As a result, the requirements of good faith in the performance of the Presidents’ Agreement imposed a duty on the presidents to inform the shareholders of the interest expressed by the purchaser company.
Determining the appropriate remedy in this case helps to clarify the boundary between restitution and compensation in the civil law. Compensation for the injury caused by a breach of contractual loyalty is distinct from disgorgement of profits arising from non‑performance of the obligation of maximalist loyalty in the exercise of powers. Disgorgement of profits without regard to injury is not an appropriate remedy in this case, because it is not in keeping with the compensatory function of civil liability. It is available only where a person is charged with exercising powers in the interest of another, and it is meant to ensure compliance with the obligation of maximalist loyalty owed by a person on whom a power is conferred. An award of damages, on the other hand, serves to compensate the victim of a fault for the injury sustained, reflecting a compensatory logic related to contractual loyalty under art. 1375 C.C.Q., and its purpose is to compensate for the gain lost as a result of fault. To justify an award of damages, the party wronged by a breach of contractual loyalty bears the burden of establishing compensable injury, in accordance with the fundamental principle of restitutio in integrum (or full reparation) that is central to the law of civil liability in Quebec.
In this case, the gain lost by the shareholders is compensable under the rule for assessing damages set out in art. 1611 C.C.Q. Although the law of civil liability does not, as a general rule, excuse a plaintiff from proving the injury sustained, it is the presidents’ disloyal conduct that prevents the shareholders from making such proof. The presidents’ non‑disclosure of information to the shareholders was accompanied by efforts to conceal the purchaser company’s interest in the group. The presidents cannot be allowed to profit from their breach of the requirements of good faith by arguing that the shareholders failed to prove their injury. In accordance with Biotech Electronics Ltd. v. Baxter, [1998] R.J.Q. 430 (C.A.), the presidents’ wrongdoing gives rise to a rebuttable presumption that the shareholders’ lost advantage is equivalent to the profits unjustly realized by the presidents. The presumption established in Baxter serves as the basis for a method of calculating damages to compensate the aggrieved party for the injury sustained. It is based on a compensatory objective that is distinct from disgorgement of profits where disgorgement is awarded for a restitutionary purpose in the absence of any injury. The presidents have not rebutted this presumption, and the damages owed to the shareholders are equivalent to the difference between the sale price received by the presidents on their resale of the shares to the company and the price received by the shareholders on the initial sale of the shares to the presidents.
Cases Cited
Applied: Biotech Electronics Ltd. v. Baxter, [1998] R.J.Q. 430; Bank of Montreal v. Bail Ltée, [1992] 2 S.C.R. 554; distinguished: Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429; considered: Uni‑Sélect inc. v. Acktion Corp., [2002] R.J.Q. 3005; referred to: Resolute FP Canada Inc. v. Hydro‑Québec, 2020 SCC 43; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7; Gravino v. Enerchem Transport inc., 2008 QCCA 1820, [2008] R.J.Q. 2178; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Churchill Falls (Labrador) Corp. v. Hydro‑Québec, 2018 SCC 46, [2018] 3 S.C.R. 101; Provigo Distribution Inc. v. Supermarché A.R.G. Inc., 1997 CanLII 10209; Cabiakman v. Industrial Alliance Life Insurance Co., 2004 SCC 55, [2004] 3 S.C.R. 195; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; Tardif v. Succession de Dubé, 2018 QCCA 1639, 51 C.C.L.T. (4th) 54; Dunkin’ Brands Canada Ltd. v. Bertico Inc., 2015 QCCA 624, 41 B.L.R. (5th) 1; C.M. Callow Inc. v. Zollinger, 2020 SCC 45; Desjardins Financial Services Firm Inc. v. Asselin, 2020 SCC 30, [2020] 3 S.C.R. 298; Abbas‑Turqui v. Labelle Marquis Inc., 2004 CanLII 26082; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3; Lamb v. Kincaid (1907), 38 S.C.R. 516; National Bank of Canada v. Corbeil, [1991] 1 S.C.R. 117; Provincial Bank of Canada v. Gagnon, [1981] 2 S.C.R. 98; Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229; Grenier v. Grenier, 2011 QCCA 964; M.H. v. Axa Assurances inc., 2009 QCCA 2358, [2010] R.R.A. 15.
Statutes and Regulations Cited
Canada Business Corporations Act , R.S.C. 1985, c. C‑44, s. 122(1) (a).
Civil Code of Québec, arts. 322, 431, 432, 1309 para. 2, 1365, 1366 para. 1, 1375, 1434, 1611 et seq., 2088, 2098, 2100 para. 1, 2138 para. 2, 2139, 2146 para. 2, 2184.
Code civil (France), arts. 1112, 1112‑1.
Authors Cited
Baudouin, Jean‑Louis. “Justice et équilibre: la nouvelle moralité contractuelle du droit civil québécois”, dans Gilles Goubeaux et autres, dir., Études offertes à Jacques Ghestin: Le contrat au début du XXIe siècle. Paris: LGDJ, 2001, 29.
Baudouin, Jean‑Louis, et Pierre‑Gabriel Jobin. Les obligations, 7e éd. par Pierre‑Gabriel Jobin et Nathalie Vézina. Cowansville, Que.: Yvon Blais, 2013.
Bénabent, Alain. Droit des obligations, 19e éd. Paris: LGDJ, 2021.
Cantin Cumyn, Madeleine. “L’obligation de loyauté dans les services de placement” (2012), 3:1 B.D.E. 19.
Cantin Cumyn, Madeleine. “Le pouvoir juridique” (2007), 52 McGill L.J. 215.
Cantin Cumyn, Madeleine, et Michelle Cumyn. L’administration du bien d’autrui, 2e éd. Cowansville, Que.: Yvon Blais, 2014.
Cornu, Gérard, ed. Dictionary of the Civil Code. Paris: LexisNexis, 2014, “loyauté”.
Crépeau, Paul‑André. “Le contenu obligationnel d’un contrat” (1965), 43 Can. Bar Rev. 1.
Fréchette, Pascal. La restitution des prestations. Montréal: Yvon Blais, 2018.
Grammond, Sébastien, Anne‑Françoise Debruche and Yan Campagnolo. Quebec Contract Law, 3rd ed. Montréal: Wilson & Lafleur, 2020.
Graziadei, Michele. “Virtue and Utility: Fiduciary Law in Civil Law and Common Law Jurisdictions”, in Andrew S. Gold and Paul B. Miller, eds., Philosophical Foundations of Fiduciary Law. New York: Oxford University Press, 2014, 287.
Grégoire, Marie Annik. Le rôle de la bonne foi dans la formation et l’élaboration du contrat. Cowansville, Que.: Yvon Blais, 2003.
Grégoire, Marie Annik. Liberté, responsabilité et utilité: la bonne foi comme instrument de justice. Cowansville, Que.: Yvon Blais, 2010.
Lefebvre, Brigitte. “La bonne foi”, dans Benoît Moore, dir., Les grandes notions. Montréal: Thémis, 2015, 75.
Lefebvre, Brigitte. “La négociation d’un contrat: source potentielle de responsabilité extracontractuelle”, dans Pierre‑Claude Lafond, dir., Mélanges Claude Masse: En quête de justice et d’équité. Cowansville, Que.: Yvon Blais, 2003, 571.
Lluelles, Didier, et Benoît Moore. Droit des obligations, 3e éd. Montréal: Thémis, 2018.
Malaurie, Philippe, Laurent Aynès et Philippe Stoffel‑Munck. Droit des obligations, 12e éd. Paris: LGDJ, 2022.
Picod, Yves. Le devoir de loyauté dans l’exécution du contrat. Paris: Librairie générale de droit et de jurisprudence, 1989.
Pineau, Jean, et autres. Théorie des obligations, 5e éd. par Catherine Valcke. Montréal: Thémis, 2023.
Private Law Dictionary and Bilingual Lexicons: Obligations. Cowansville, Que.: Yvon Blais, 2003, “concealment”.
Smith, Lionel. “Loyalty” (2020), 66 McGill L.J. 121.
Smith, Lionel, and Jeff Berryman. “Disgorgement of Profits in Canada”, in Ewoud Hondius and André Janssen, eds., Disgorgement of Profits: Gain‑Based Remedies throughout the World. New York: Springer, 2015, 281.
Stoffel‑Munck, Philippe. L’abus dans le contrat: Essai d’une théorie. Paris: LGDJ, 2000.
Viney, Geneviève. “La condamnation de l’auteur d’une faute lucrative à restituer le profit illicite qu’il a retiré de cette faute”, dans Benoît Moore, dir., Mélanges Jean‑Louis Baudouin. Cowansville, Que.: Yvon Blais, 2012, 949.
APPEAL from a judgment of the Quebec Court of Appeal (Mainville, Rancourt and Fournier JJ.A.), 2021 QCCA 1363, [2021] AZ‑51794090, [2021] J.Q. no 10987 (QL), 2021 CarswellQue 14386 (WL), affirming a decision of Déziel J., 2018 QCCS 3538, [2018] AZ‑51519694, [2018] J.Q. no 7285 (QL), 2018 CarswellQue 7079 (WL). Appeal dismissed.
Audrey Boctor, Étienne Morin‑Lévesque and Laurence Boudreau, for the appellants.
Jean‑Rémi Thibault, Louis P. Bélanger and Samuel Nadeau, for the respondents.
English version of the judgment of the Court delivered by
Kasirer J. —
I. Overview
[1] Antoine Ponce and Daniel Riopel, presidents of a group of three thriving companies in the insurance industry, learned that a major company was interested in acquiring the group of companies that they ran. Rather than revealing this to the group’s majority shareholders, Michel Rhéaume and André Beaulne and their investment companies (“the shareholders”), the two presidents decided to buy the companies themselves and then resell them at a substantial profit. The shareholders felt betrayed; not only had they trusted the presidents, but they had entered into an incentive pay agreement that gave the presidents significant benefits, including a right of first refusal in the event that the shareholders decided to divest themselves of their interests in the group.
[2] Considering this conduct to be disloyal, the majority shareholders blamed the presidents for not disclosing to them the interest expressed by a prospective purchaser in acquiring the companies, arguing that this was a breach of the presidents’ duty to inform that justified disgorgement of the profits they had made by unlawfully appropriating that business opportunity. The presidents answered that, during the negotiations leading to their purchase of the companies, they had been under no legal obligation to subordinate their interests to those of the shareholders in such a manner.
[3] The Superior Court ruled in the shareholders’ favour and ordered the presidents solidarily to pay them an amount equal to the profits earned on the resale of the shares. The Court of Appeal confirmed the trial judge’s conclusions, while specifying the nature of the obligations breached by the presidents in relation to the shareholders, and upheld the remedy awarded at trial.
[4] This appeal requires the Court to consider the basis for and parameters of the obligation of loyalty in order to determine whether a duty to inform was incumbent on the presidents. The Court must also clarify the conditions under which a court may award disgorgement of profits as a remedy, in particular for a contracting party’s disloyal conduct. Specifically, it must trace the boundaries of the moral precept that “no one should profit from their own wrongdoing”, on which the shareholders rely, as a justification for the remedy of disgorgement of profits made in bad faith.
[5] A first observation flows from the debate between the parties: the obligation of loyalty arising from the exercise of powers in the interest of another — like the one resting on an administrator of the property of others or a mandatary — is not at issue here. An obligation of that kind would have required the presidents to subordinate their interests to those of the shareholders by requiring them to disclose the prospective purchaser’s interest in acquiring the group. But as Professor Madeleine Cantin Cumyn has written, the [translation] “basis for this loyalty . . . differs substantially from the one dictating contractual loyalty, which applies to a person who performs a prestation or exercises a right under a contract and who is bound to act in good faith” (“L’obligation de loyauté dans les services de placement” (2012), 3:1 B.D.E. 19, at p. 21). Unlike loyalty tied to legal powers that must be exercised in the interest of another or to achieve a particular purpose, the obligation of contractual loyalty rooted in good faith in the performance of a contract under art. 1375 of the Civil Code of Québec (“C.C.Q.”) does not require a contracting party to subordinate their interests to those of the other party. In this case, the presidents are neither the shareholders’ mandataries nor administrators of the property of others, which means that they cannot be held to an obligation of loyalty like the one provided for in arts. 1309 para. 2 and 2138 para. 2 C.C.Q.
[6] A second observation is in order: despite the absence of an obligation of loyalty arising from the exercise of powers in the interest of another, the presidents’ conduct is nonetheless wrongful. Although contractual loyalty tied to good faith did not prevent the presidents from performing the contract to further their self‑interest, it did require them to consider the interests of the other contracting parties and, for this reason, it could impose on them a duty to inform. Accordingly, while the presidents did not have to subordinate their interests to those of the shareholders, the fact remains that, in pursuing their own interests, they could not conceal the prospective purchaser’s interest in the companies without incurring contractual liability to the shareholders. By doing so, they breached contractual loyalty linked to good faith, which was an implied obligation under the contract through the combined effect of arts. 1434 and 1375 C.C.Q. Moreover, the trial judge was correct to conclude that the incentive pay agreement involved an implied obligation to inform that required the presidents to provide the shareholders with all information relevant to making an informed decision about the sale of their shares. This implied obligation flowed from the nature of the contract, reflecting the presumed intention of the parties, in accordance with art. 1434 C.C.Q.
[7] The wrongful nature of the presidents’ conduct raises a second issue: Could the non‑disclosure of the prospective purchaser’s interest justify, as a remedy, disgorgement of profits to the shareholders, who lost a business opportunity as a result of that wrongful conduct? An obligation of loyalty like the one resting on an administrator of the property of others or a mandatary in the exercise of their powers may justify disgorgement of profits for a restitutionary purpose, but generally not for a compensatory one. However, the presidents are correct to say that they had no such obligation of loyalty.
[8] Determining the appropriate remedy in this case therefore presents an opportunity for the Court to clarify what Professor Pascal Fréchette calls [translation] “the boundary between restitution and compensation” in the civil law (La restitution des prestations (2018), at p. 9). Compensation for the injury caused by a breach of contractual loyalty is distinct from disgorgement of profits arising from non‑performance of the obligation of loyalty in the exercise of powers. To justify an award of damages, the party wronged by a breach of contractual loyalty bears the burden of establishing compensable injury, in accordance with the fundamental principle of restitutio in integrum (or full reparation) that is central to the law of civil liability.
[9] Relying on decisions of this Court in which good faith was in issue, particularly Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429, the shareholders seek disgorgement of profits as a remedy for the presidents’ breach of the requirements of good faith. In my respectful view, the shareholders are misreading Kuet, which relates to the exercise of a power similar to that of a mandatary. Absent proof of injury, Kuet cannot justify disgorgement of profits based solely on the breach of the presidents’ obligation of contractual loyalty. That said, this misreading of Kuet does not preclude an award of damages to the shareholders for an amount equivalent to what would have been disgorged to them to compensate for the advantage they lost due to the presidents’ fault.
[10] In this case, the harm resulting from the presidents’ contractual fault must therefore be proved in accordance with the typical rules of civil liability. The shareholders seek compensation for lost profits under the rule for assessing damages set out in art. 1611 C.C.Q. Although the law of civil liability does not, as a general rule, excuse a plaintiff from proving the injury sustained, it is the defendant’s disloyal conduct that prevents the plaintiff from making such proof here. This is because, in this case, the presidents’ non‑disclosure of information to the shareholders was accompanied by efforts to conceal the prospective purchaser’s interest in the companies and, according to a determination that is ultimately left to the trier of fact, by lies told to the shareholders to shut them out of the proposed deal.
[11] The presidents cannot be allowed to profit from their breach of the requirements of good faith by arguing that the shareholders failed to prove their injury. In a case such as this one, the presidents’ wrongdoing gives rise to a rebuttable presumption that the shareholders’ lost advantage is equivalent to the profits unjustly realized by the presidents (see Biotech Electronics Ltd. v. Baxter, [1998] R.J.Q. 430 (C.A.)). The presidents could rebut this presumption by establishing the actual quantum of the lost gain on a balance of probabilities. They did not do so. Since the presidents have shown no palpable and overriding error in the trial judge’s conclusion that the shareholders’ lost gain is equivalent to the profits made by the presidents, I am of the view that there is no reason to interfere with the assessment of the quantum of damages.
[12] I would dismiss the appeal with costs.
II. Background
[13] Groupe Excellence was comprised of three companies operating in the insurance industry: two brokerage firms, Michel Rhéaume & Associés inc. and Beaulne & Rhéaume Assurance ltée, as well as The Excellence Life Insurance Company. At the time of the events in dispute, Michel Rhéaume and André Beaulne, through the respondent investment companies, owned all the shares of the two brokerage firms and 93.1 percent of the shares of The Excellence. Mr. Rhéaume and Mr. Beaulne, who were in their late sixties at the relevant time, describe themselves as having little formal education. However, they were very successful in the insurance field over the years, having founded the companies making up Groupe Excellence in the late 1970s.
[14] In February 2002, the appellants, Antoine Ponce and Daniel Riopel, were appointed presidents of the Groupe Excellence companies. An actuary since 1978, Mr. Ponce became the president of The Excellence Life Insurance Company, a position that Mr. Rhéaume had offered him several times before. Mr. Riopel, who became a lawyer in 1986, is Mr. Beaulne’s nephew. He worked with both of the brokerage firms for more than 20 years before becoming their president.
[15] On March 15, 2002, Mr. Ponce and Mr. Riopel, designated in their capacity as [translation] “presidents” of the Groupe Excellence companies, and the investment companies of Mr. Rhéaume and Mr. Beaulne, as “majority shareholders”, entered into a contract described in its preamble as an “incentive pay agreement” (“Presidents’ Agreement” or “Agreement”) (A.R., vol. X, at p. 3652). The Agreement governed the parties’ relationship during the entire period relevant to this litigation, including during the negotiations and then the sale by Mr. Rhéaume’s and Mr. Beaulne’s investment companies of their shares in Groupe Excellence to Mr. Ponce and Mr. Riopel. The Agreement, which had an initial term of five years, was to be renewed automatically for additional two‑year periods unless written notice to the contrary was given.
[16] The Presidents’ Agreement formalized a business relationship between the parties that was based on their commitment to work toward the common goal of ensuring the success of Groupe Excellence as an ongoing business, even with a view to a potential sale. To this end, the Agreement provided for various forms of incentive pay for the presidents in addition to what they received as directors of the companies. The Agreement had only eight clauses and, aside from requiring the subsequent negotiation of a non‑competition clause in favour of the shareholders, imposed no express obligation on the presidents.
[17] It was in this context, and while the Agreement was still applicable, that the actions alleged took place.
[18] In April 2005, Industrial Alliance Insurance and Financial Services Inc. (“IA”) informed the presidents, Mr. Ponce and Mr. Riopel, of its interest in acquiring Groupe Excellence. A series of discussions and exchanges of documents between the presidents and IA took place over several months. In July 2005, during that process, the presidents and IA entered into an [translation] “Undertaking of Confidentiality” concerning “a potential partnership agreement and/or any other form of transaction that may be entered into by the [p]arties” (A.R., vol. IV, at p. 1110, cl. 2). In the Undertaking, the presidents and IA agreed to the mutual disclosure of confidential information relative to their circumstances. At the presidents’ request, an exclusivity clause in their favour was also included with respect to any transaction involving IA and Groupe Excellence. The purpose of that clause — according to the presidents themselves — was to prevent IA from dealing directly with Mr. Rhéaume and Mr. Beaulne as well as with their holding companies.
[19] The presidents never informed the shareholders of these exchanges with IA or of IA’s interest in acquiring Groupe Excellence, nor were the shareholders told of the existence of the Undertaking of Confidentiality.
[20] In 2006, when the shareholders had been contemplating the possibility of selling their interests in Groupe Excellence for some time, Mr. Beaulne asked Mr. Ponce whether IA would be interested in buying the shares. Despite the prior exchanges between IA and the presidents, Mr. Ponce answered that he had already checked and that IA was not interested. The parties disagree as to the exact date of that interaction. The appellants say that the conversation took place before IA’s interest led to a preliminary valuation in May 2006 and an acquisition proposal in August 2006. The respondents say instead that the conversation took place following these events. Thus, according to the respondents, Mr. Ponce deliberately lied to Mr. Beaulne.
[21] In any event, the respondents did not know about the interest expressed by IA in acquiring Groupe Excellence at the time they agreed to sell the whole of their interests to the presidents. Mr. Rhéaume did so in the fall of 2006, and Mr. Beaulne followed suit in the spring of 2007. As consideration for that sale, Mr. Rhéaume received approximately $23,500,000 together with a full release for his debts under the Agreement. Mr. Beaulne received $10,371,210 together with a release similar to Mr. Rhéaume’s. In the months following those transactions, the presidents in turn resold to IA, for a total of $74,280,000, the interests they had acquired from the shareholders.
[22] In December 2007, IA issued a press release announcing its acquisition of Groupe Excellence from the presidents. The respondents learned of the sale at that time. In response, they filed a motion to institute proceedings for damages in the Superior Court, claiming approximately $24 million as compensation for the gain they would have made through that transaction of which they were deprived.
[23] In their motion, the respondents alleged that the presidents’ failure to inform them of IA’s interest had caused them a [translation] “serious loss” (motion to institute proceedings, at para. 57, reproduced in A.R., vol. II, at p. 674). They stated that they had been deprived of the difference between the price they received when they sold their shares to the presidents and the higher price the presidents obtained on the resale to IA. They alleged that the presidents had breached [translation] “their contractual and legal obligations, their fiduciary obligations and their obligations to act in good faith, with loyalty and transparency” by “intentionally” failing to inform the shareholders of the interest expressed by IA in acquiring Groupe Excellence (para. 41). The respondents stated that, because of the [translation] “unlawful actions” of Mr. Ponce and Mr. Riopel, they were entitled to claim “the equivalent” of the excess profits made by them (paras. 57‑57.1).
[24] In defence, the appellants argued that the respondents were conflating the obligations the appellants owed to the companies and the obligations they owed to the shareholders. Here, they said, the appellants [translation] “are under no obligation whatsoever to the former shareholders, Beaulne and Rhéaume” (A.R., vol. II, at p. 689, para. 93). The appellants also argued that they had complied with their obligations under the Presidents’ Agreement and, more broadly, that they had committed [translation] “no fault” against the respondents (para. 240). In addition, according to the appellants, Mr. Rhéaume and Mr. Beaulne had been aware of the prospective purchaser’s interest in acquiring Groupe Excellence, so the appellants could not be accused of hiding or concealing relevant information about the transactions that led to the resale of the shares to IA. Finally, the appellants disputed the calculation of the damages arising from the harm allegedly suffered by the respondents, saying that they were in no way [translation] “indebted” to the respondents (para. 241).
III. Judicial History
A. Quebec Superior Court, 2018 QCCS 3538 (Déziel J.)
[25] The trial judge granted the respondents’ motion in part. He stated that, under both the Civil Code of Québec and the Canada Business Corporations Act , R.S.C. 1985, c. C‑44 , the appellants, in their capacity as directors, owed duties of honesty, loyalty, prudence and diligence to Groupe Excellence. The trial judge found that these same duties can be extended to shareholders [translation] “where there is an independent relationship between the directors . . . and the shareholders” (para. 427 (CanLII)). In his view, this kind of independent relationship existed here, particularly because of the Presidents’ Agreement, which [translation] “is key in illustrating the obligations assumed by the [appellants]” (para. 430).
[26] In the trial judge’s opinion, the Agreement entailed three implied obligations for the appellants: (1) to maximize, in the performance of their mandate and for the shareholders’ benefit, the profits and value of Groupe Excellence; (2) to report to the shareholders, in a full and transparent manner, all information that might enable them to assess the value of Groupe Excellence or make a decision to sell their shares and, in such a case, to determine a sale price; and (3) not to use information for their personal benefit without obtaining the shareholders’ consent.
[27] The judge then found that the appellants had secretly negotiated the resale of Groupe Excellence with IA. He noted that the appellants had signed an Undertaking of Confidentiality with IA to ensure that IA did not deal directly with the shareholders. By doing so, the appellants had intentionally concealed from the shareholders the interest expressed by IA in acquiring Groupe Excellence, knowing that if the shareholders had been told of it, they [translation] “would have sought to maximize the sale price for their shares and it would then have been more costly for the [appellants] to exercise their right of first refusal under the Presidents’ Agreement” (para. 487; see also paras. 436‑37, 445‑46 and 486). Considering the appellants’ conduct in light of the obligational content of the Agreement, the trial judge held that they had breached their duties of good faith and loyalty as well as their duty to inform