Abuse of right in the interpretation of a contract for the sale of shares
The interpretation of a contract for the sale of shares that does not respect the obligations of good faith can by synonymous with abuse of rights. The Court of Appeal, in a decision issued in November 20211, puts an end to the legal saga regarding Les placements Péladeau inc. (hereafter “PPI“), a business corporation, and Anne-Marie Péladeau (hereafter “Anne-Marie“).
Facts
In 1997, Pierre Péladeau, founder of Quebecor, died and left his children with an important inheritance including shares of Quebecor. After Anne-Marie initiated legal proceedings against her brothers, Pierre-Karl and Erik Péladeau regarding the succession, the parties finally agreed in 2000 that Anne-Marie, who held 28% of the shares of Quebecor, divest them to PPI, in return for an amount of $55,000,000.00. The agreement provides that this sum will be paid by PPI through annual payments representing 20% of the dividends that Quebecor will pay to PPI. A clause in the agreement provides that, for a given year, if the dividends paid are less than $4,200,000.00, PPI will not have to make a payment to Anne-Marie for that year. Article 5 of the agreement providing it reads as follows:
” … no payment will be made for a given year if the dividends paid to PPI by Quebecor Inc. during such a year are less than four million two hundred thousand dollars ($4,200,000.00) and all subject to compliance with the corporate laws and policies in force ” (translation).
For the first two years following the agreement, Anne-Marie receives payments from PPI totaling more than $8,200,000.00. However, for the following years, until 2015, Quebecor pays less than $4,200,000.00 to PPI in dividends and as a result, no payment is made to Anne-Marie. Faced with this situation, Anne-Marie undertakes a new legal action, this time to force the renegotiation of the agreement.
The new negotiations ended in failure and Anne-Marie again brought an action in 2016 in order to either obtain equivalent enforcement from PPI or have the Court set a date for the execution of the payment. The Superior Court rendered judgement in the case in 20202 and declared that the payment was due on August 10, 2013. This judgement is appealed by PPI before the Quebec Court of Appeal.
Claims of the parties
In the first instance, Anne-Marie alleges that the payment of the sale price of the shares agreed in 2000 is subject to a suspensive term and that it has expired since August 9, 2013. She also argues that article 5 of the agreement reflects a method of payment and not a condition.
Her claim is based on article 1510 of the Civil Code of Quebec3 (hereafter “CCQ”) according to which when an event is taken for certain, and it does not occur, the obligation becomes due on the day when the event should have happened. According to her, it was assumed that the payment would be made in full in 2013, and therefore, the payment became due at that time.
PPI argues that article 1510 CCQ would be inapplicable, because any implicit term of the agreement would necessarily be indeterminate and that the payment is instead subject to a suspensive condition, that it is conditional on the minimum payment of $4,200,000.00 by Quebecor as a dividend to PPI for a given year, so that a payment to Anne-Marie is due. For PPI, it would not be a method of payment of the sale price, but rather a “mechanism” which could go so far as to influence the amount of the sale price. PPI claims that article 5 of the agreement is clear and that the Court cannot therefore interpret it, but only apply it.
Superior Court Analysis
The Superior Court will rule in favor of Anne-Marie. Following its analysis, the Court considers that it was a sales contract and that subsequently, Anne-Marie’s obligation to sell and deliver the goods sold is firm, as is PPI’s obligation to buy them and pay the price. This sale was confirmed by delivery of the goods sold. However, the sale was made according to the terms and conditions of the agreement.
The Superior Court came to interpret article 5 of the agreement cited above. It concludes that this article is a method of payment of the sale price and that it includes a term and not a suspensive condition, as claimed by PPI. In other words, the Court confirms that only liability is suspended. Anne-Marie would never have accepted the agreement if it had been clear that she could never receive payment of the sale price.
The Court therefore concluded that through article 1510 and 1512 CCQ, it was able to determine that the agreement was accompanied by a suspensive term and not a suspensive condition and that it had the power to set the term at the expiry of a reasonable period, which it sets at August 9, 2013. It adds that interest will also have to be paid by PPI from the date of the filing of the motion to institute proceedings, on June 29, 2016.
Court of Appeal Analysis
The Court of Appeal essentially adheres to the conclusions of the Superior Court, but takes a different legal path. It mentions that it does not fully subscribe to the analysis made by the Superior Court based on articles 1510 and 1512 CCQ. Rather, it bases its decision on the theory of abuse of rights4.
The Court emphasized that the obligation of good faith codified in articles 6, 7 and 1375 CCQ requires the contracting party to have a benevolent and proactive attitude that allows everyone to benefit from the contract5. It imposes on the parties duties of loyalty and cooperation both at the time the obligation is created and at the time it is performed or extinguished. In this context, excessive or unreasonable conduct constitutes an abuse of rights, even without proof of bad faith or malicious intent.
The facts of this case lead the Court to conclude that PPI interpreted the agreement and exercised its rights without taking Anne-Marie’s interests into account. It adds that it was certainly not the intention of the parties to allow payment of the purchase price for the shares to be deferred indefinitely. PPI, by interpreting the agreement in this way when it knows that such was not the common intention of the parties and when it is itself benefiting from the shares whose value has multiplied by 20 since the transaction has committed an abuse of rights.
PPI could not simply let the years pass without paying by invoking the agreement. It had to seek a solution that respected the balance between her interests in benefiting from a suspended payment for a “given year” and Anne-Marie’s right to be paid. To this end, not only did PPI do nothing, but it also challenged Anne-Marie’s requests to force a renegotiation. The Court of Appeal therefore upheld the decision rendered by the Superior Court on these grounds.
1 Placements Péladeau inc. c. Péladeau, 2021 QCCA 1702.
2 Péladeau c. Placements Péladeau inc., 2020 QCCS 1373.
3 Code civil du Québec, RLRQ, c. CCQ-1991, art. 1510.
4 Placements Péladeau inc. c. Péladeau, note 1, par. 28.
5 Banque Toronto-Dominion c. Brunelle, 2014 QCCA 1584, par. 94.