Canada: Quebec Court Of Appeal Refines The Principles Applicable To The Characterization Of Contracts

On February 15, 2018, the Supreme Court of Canada (SCC) dismissed leave to appeal in Station Mont Tremblant v. Banville-Joncas. In its decision, the Quebec Court of Appeal (Court) reaffirmed and elaborated on the principles applicable to the characterization of contracts as expressed in Montréal, Maine & Atlantique Canada Cie/Montreal, Maine & Atlantic Canada Co. (M.M.A.) (Arrangement relatif à).

BACKGROUND

The dispute involved Station Mont Tremblant (SMT) and the owners of condominium units in the Ermitage du Lac development (respondents), situated in Tremblant. The respondents made a long-term investment in a resort hotel. According to the documents provided to the respondents, the units were placed in a rental program to be part of a resort hotel. Furthermore, the sale contract included a perpetual real servitude stipulating that the property could not be used for any purpose other than as a resort hotel unit participating in the rental program operated by SMT. In order to place the units in the rental pool, each buyer signed a 20-year lease with SMT (Lease) simultaneously with the signature of the sale contract. By virtue of the Lease, SMT enjoyed all the attributes of the right of ownership, with the goal of ensuring the units be sublet in a resort hotel project, a project developed and partly owned by SMT. In consideration of the rental of their unit, the respondents receive a percentage of the global revenue generated by the rental of the units in the Ermitage du Lac development, constituting the rent under the Lease.

At first instance, the respondents sought to obtain a declaratory judgment to the effect that the Lease constitutes a contract of service under the Civil Code of Québec (CCQ). The trial judge granted the application, ruling that the essential prestation of the agreement was not the Lease itself, but SMT's designation as manager of the resort hotel.

The characterization of the Lease as a contract of service was essential for the parties, given that contracts of service are subject to the right of unilateral resiliation under article 2125 of the CCQ.

COURT OF APPEAL

The Court referred to M.M.A. for the appropriate analytical approach in the characterization of an agreement involving leasing and a contract of service. Quoting Justice J. Dutil:

The judge (at first instance) is of the opinion that the characterization of a contract is a question of law. In certain cases, he is correct. But it can also be a question of mixed fact and law when testimonial evidence must be examined in order to determine the purpose of the contract. Generally, this characterization presents few difficulties. The analysis is however, more complex when many obligations coexist in the contract, as in this case.

...

When many obligations are found in the same contract, it is very important for its characterization to determine which is the essential prestation and which prestations are accessory. This can be done by looking at the contract, but also by looking for the purpose that may be evident from the intention of the parties during the negotiation process. (translation)

Based on the principles expressed in M.M.A, the Court refused to limit itself to examining only the Lease itself. In this case, the Court chose to deepen its examination into the characterization of the contract in order to identify both the cause of the Lease and the object of its obligation, in light of the entirety of the testimonial evidence and the documentary evidence of all the agreements that led to the conclusion of the Lease, in order to ultimately identify the Lease's goal and the commercial relationship of the parties.

With respect to the cause, the Court was of the opinion that the testimonial evidence made explicit the fact that SMT and the respondents were pursuing the same goal, that is, investing in the operation of a resort hotel. With respect to the object, the Court believed that the written evidence clearly demonstrated that the legal mechanism envisioned by the parties was to include their unit in a rental pool.

In attempting to identify the essential prestation of the Lease without having considered essential elements of proof, the trial judge committed a palpable and overriding error, thereby allowing the decision to be challenged despite the fact that a more stringent standard of review was required by the analysis of a question of mixed law and fact.

The Court thus concluded:

The essential prestation at the heart of the agreement, the contract, is therefore the leasing by the respondents of their condominium units to the appellant SMT for the purpose of including the units in a rental pool, the lease.

...

The Convention regulating the rental pool that results from the lease is therefore accessory to the lease. (translation)

The Court therefore allowed the appeal and overturned the declaratory judgment rendered at first instance.

CONCLUSION

The principles applicable to the characterization of contracts as expressed in M.M.A. have once again been applied by the Court. In this case, however, the Court pushed the reasoning behind these principles further. According to the Court, characterization is equally applicable to the determination of the essential elements of the contract, namely its cause and its object.

Where a contract contains a number of obligations, legal characterization can become complex. A simple reading of the contract itself is insufficient. The exercise of characterization requires a more exhaustive assessment of the evidence, including testimonial evidence and the other documents linked to the agreement, in order to determine the essential prestation of the contract.

Blakes acted for Station Mont Tremblant in this matter.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions