Introduction
In May, the Court of Appeal of Quebec, in Troll Gestionnaire inc. v. Landry (2024 QCCA 569), commented on the assessment of the loss of future profits in a professional liability suit brought against the officiating notary in the act of sale of a commercial immovable.
It confirmed that the damage did not necessarily crystallize at the time the fault was committed, and that it was preferable for the Court to base itself on facts that could arise during the trial rather than on projections, even those made in an expert accounting report.
Facts
In 2012, Troll Gestionnaire inc. (the "Appellant"), a corporation owned by the pharmacist Gagnon, acquired an immovable (the "Immovable") for the purpose of opening a pharmacy. In order to do so, however, it first had to terminate the leases of the existing tenants. However, shortly before Troll Gestionnaire inc. acquired the Immovable, a five (5)-year lease renewal had been signed with the bar La Drafterie ("Drafterie"). Although the Appellant wished to cancel this lease, then unregistered, in accordance with section 1887 of the Civil Code of Québec, the notary added a subrogation clause to the act of sale, reading as follows:
[Translation] "The seller declares having remitted to the buyer, concurrently with the signature of the offer to purchase, a complete copy of all leases and related ancillary documents. The buyer is subrogated to all rights of the seller under the said leases from the date hereof."
(Our emphasis)
Citing the benefit of this subrogation clause in a contract to which it was nevertheless not a party, Drafterie filed, in 2013, an Application to seek a declaratory judgment seeking recognition of its right to remain in the leased premises. The Superior Court found in Drafterie's favour, concluding that this clause had the effect of transferring to the buyer of the Immovable the rights and obligations of the seller, thereby binding the Appellant to the leases then in force.
Given these circumstances, in 2014, the Appellant opened its pharmacy in a smaller location that did not have the same visibility as that occupied by Drafterie.
In 2016, the Appellant sold half its interests in this pharmacy to the pharmacist Lessard, to raise the cash needed for future renovations of the desired location.
In 2017, the pharmacy was finally able to move into the former Drafterie premises, but the partnership between the pharmacists deteriorated such that, in 2018, the Appellant sold its remaining interests in the pharmacy and in the Immovable to the pharmacist Lessard.
At trial, the Appellant claimed damages for the fault committed by the officiating notary of the sale of the Immoveable. In particular, it claimed that the notary had committed a fault in drafting the subrogation clause, because the clause had prevented it, for several years, from opening a pharmacy in the premises occupied by Drafterie, which, according to its reasoning, had been an essential condition of acquiring the Immovable. Among other things, the Appellant claimed a loss of profits related to the operation of the pharmacy for the period from 2014 to 2021, given that, in its opinion, it did not have the opportunity during that period to operate the pharmacy at its full potential.
The court awarded partial damages for that claim, having considered that the Appellant had sold half its interests in the pharmacy in 2016, only to divest itself of its remaining interests in the pharmacy, as well as its interests in the Immovable, in 2018. The court found that the evidence did not support the conclusion that the successive sales of the Appellant's interests resulted from the fault of the notary or that these sales were made at a loss.
On appeal, the Appellant argued that the judge had erred in considering the facts that occurred after the date of the alleged crystallization of the loss, which it claimed was the judgment upholding Drafterie's right to remain in the leased premises. The Appellant argued that the trial judge acted as though it were a continuing fault, which was not the case.
Analysis
The Court of Appeal upheld the trial judgment, finding that the judge did not err by reducing the Appellant's loss of profits between 2016 and 2018 by half and by refusing to compensate the Appellant for the period after August 2018, because of the sale of its interests in the pharmacy. By selling its shares for reasons unrelated to the notary's fault, the appellant deprived itself of future profits for which it cannot claim compensation.
The Court also stated that the events subsequent to the fault needed to be considered in assessing the loss of future profits, as these events "transform projections underlying the claim for damages into certainties, but sometimes dismantle them, allowing in either case a more accurate assessment of the actual harm suffered." Indeed, there is no better evidence than the actual loss.
Finally, the Court stated that assumptions must sometimes give way to facts; the loss of future profits must be measured at the date of the trial, based on facts, when available, rather than on projections, even those made in expert accounting reports, since these projections can ultimately become obsolete with the passage of time. In fact, [Translation] "it is easier—and more accurate—to evaluate the future once it has already become the past, thus avoiding one party being awarded compensation that exceeds the value of its actual loss."
Authors' Comments
First, this dispute highlights the importance for commercial tenants of registering their lease to ensure it is de facto enforceable against the subsequent owner of the immovable, and thus avoid having their right to maintain the lease become subject to the inclusion or non-inclusion of a subrogation clause in a possible act of sale, in which the tenants are generally not involved or even consulted. For its part, the potential buyer of an immovable should exercise caution before agreeing to the inclusion of a subrogation clause in the act of sale, on the understanding that the latter could compromise its right to cancel unregistered leases, and sometimes even jeopardize its entire business venture.
Second, this decision reaffirms the civil law principle of full compensation, which holds that the victim must be fully compensated for the harm it suffered, without being enriched by said compensation. The damages awarded to the victim are intended to restore it to the situation it would have been in had it not been for the harm suffered.
This decision does not question the relevance of the expert accounting report in assessing the loss of future profits, but states that, faced with assumptions about a party's future profits and facts that have arisen since the fault and during the trial, the Court will give more weight to those facts, or at least consider them in assessing the quantum of damages.
These principles are also relevant for experts hired to quantify future lost profits, underlining that the matter is not crystallized with the occurrence of the alleged fault nor with the production of their expert report. This implies that they need to be informed of any new facts that arise at trial that could confirm or refute the assumptions made earlier in the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.