Canada: Quebec Superior Court: Tenant Cannot Rely On A Lease To Avoid Liability For Gross Negligence

Contracts such as leases or insurance contracts are generally governed by the will of the contracting parties. The Quebec Superior Court recently affirmed, however, that parties to a contract cannot purport to do indirectly through a contract that which the law prohibits them from doing directly.¹

Pursuant to Article 1474 of the Civil Code of Québec (the CCQ), a contracting party may not exclude or limit its liability resulting from gross negligence or an intentional wrongful act. In this recent case, the court rejected a tenant's motion to dismiss an action instituted by its landlord and the landlord's insurer in subrogation, as granting this motion would risk contravening Article 1474 CCQ.

Facts

The plaintiffs in this case were Corporation Immobilière Timex as landlord, and Royal & Sun Alliance of Canada (RSA), as Timex's insurer. Timex and RSA were suing the tenant Services Professionels Brio Inc. for damages caused by a fire that took place at the property owned by Timex and leased to Brio. RSA, as Timex's insurer, was subrogated in its insured's rights after having indemnified Timex for its loss following the fire, while Timex was claiming from Brio the uninsured portion of its loss.

In support of its motion to dismiss, Brio relied in part on the terms of the lease it had signed with Timex and what the parties had agreed that Brio would pay in additional rent in part to cover "building insurance." Relying on a trilogy of cases rendered by the Supreme Court of Canada² years ago and subsequently applied by Quebec courts³, Brio argued that since it had paid a portion of the insurance premiums to Timex through the cost of the lease, neither RSA nor Timex could take action against Brio.

The plaintiffs in turn contended that the lease terms were ambiguous and did not specifically provide for Brio paying the insurance premiums. In any event, the plaintiffs argued that the interpretation of the lease should be left to the judgment on the merits (as opposed to being decided at a preliminary stage, i.e., the hearing of Brio's motion to dismiss). Furthermore, the plaintiffs argued that Article 1474 CCQ, which is of public order, prevented Brio from relying on the lease to exclude its liability for its gross negligence in relation to the fire.

Decision by the Superior Court of Quebec

The court considered the submissions by the parties in two parts. First, the court dealt with Brio's argument that the plaintiffs were not entitled to pursue Brio given Brio's contributions towards the insurance premiums. The court cited with approval a Quebec Court of Appeal decision which held that, when a landlord undertakes to insure the leased premises against the risk of fire, this undertaking prevents the landlord from subsequently pursuing the tenant who may be responsible for same.⁴ Furthermore, the Court of Appeal in another decision considered that such an undertaking need not be explicit to be recognized, and may even be implicit in the terms of the lease (when, for example, a portion of the rent goes towards paying the building's insurance policy).⁵

In considering the lease between Timex and Brio, the court concluded that Timex had implicitly undertaken to procure insurance coverage for the premises leased by Brio and Brio had agreed to pay insurance premiums in this regard. As a result, the court determined the insurance policy was for the benefit of both Timex and Brio, notwithstanding the fact that only Timex was listed as an insured under the policy. The court therefore held that this first consideration militated in favour of granting Brio's motion to dismiss not only against Timex's action but against RSA's as well.

The court then considered the plaintiffs' submissions with respect to Article 1474 CCQ, which provides that a party may not exclude its liability in a contract for injury caused to another through gross negligence or an intentional wrongful act. Shortly after the hearing on Brio's motion to dismiss, the plaintiffs amended their proceedings to allege that Brio had been grossly negligent and this negligence caused the fire.

Given that this determination was an issue to be decided by the court on the merits (since no evidence had yet been presented in support of this new allegation), the court held that granting Brio's motion to dismiss would risk contravening Article 1474 CCQ. In other words, if Brio did in fact commit gross negligence, dismissing the action at this stage of the proceedings would serve to exclude Brio's liability that resulted from this gross negligence. The court therefore rejected Brio's motion to dismiss the plaintiff's action and the case is now moving forward.

This judgment is noteworthy in that it demonstrates the cautious approach taken by the court with regard to motions to dismiss. Although the court cited with approval case law in favour of restricting the rights of landlords and their insurers in pursuing tenants who contributed to paying insurance premiums, the court was unwilling to grant the motion to dismiss for risk of contravening a rule of public order. Moreover, the late amendment by plaintiffs (one day after the hearing of the motion to dismiss) was sufficient to bring Article 1474 CCQ into play and require the parties to proceed to trial on the merits.

Footnotes

1. Royal & Sun Alliance du Canada, société d'assurances v. Services professionnels Brio inc., 2015 QCCS 4215.

2. Agnew-Surpass Shoe Stores v. Cummer-Yonge Investments, [1976] 2 S.C.R. 221; Ross Southward Tire v. Pyrotech Products, [1976] 2 S.C.R. 35; T. Eaton v. Smith, [1978] 2 S.C.R. 749.

3. La St-Maurice, Compagnie d'assurances v. Les Importations Sava internationales, EYB 1989 – 63181 (Que. C.A.); Lewis Shoes Store v. S.B.I. Holding Inc., J.E. 84-616 (Que. C.A.); Axa Assurances inc. v. Club de golf Summerlea inc., 2013 QCCA 708 (Que. C.A.).

4. Axa Assurances inc. v. Club de golf Summerlea inc., 2013 QCCA 708 (Que. C.A.).

5. Lewis Shoes Store v. S.B.I. Holding Inc., J.E. 84-616 (Que. C.A.).

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