The legislator has protected the rights of the main players in the construction industry by granting them the right to publish a notice of legal hypothec against the immovable on which they've carried out work. This legal hypothec ranks ahead of any other hypothec because of the value added to the immovable and can be a powerful negotiating tool.
This right is subject to certain preconditions, including:
- Being the holder of a valid RBQ licence;
- In the absence of a contract signed directly with the owner, having served notice of the work prior to its execution;
- Having a claim in relation to the work carried out and that added value to the building;
- Having published the notice of legal hypothec within 30 days of completion of the work;
- Not having waived the right to publish such notice prior to its publication;
- That this right doesn't encumber a public utility property.
However, some players use the legal hypothec as a weapon against homeowners to obtain payment of sums that aren't legally guaranteed. Recent case law teaches us that such use may be considered abusive.
In the case of Vinet v. 9118-1693 Québec Inc. (Entreprises RCC), the Court concluded that false statements in the notice of hypothec to the effect that the contractor held a valid RBQ licence constituted an abuse of right that should be sanctioned. The exercise of such a privilege must not be intended as a pressure tactic or blackmail.
In its decision in D. & A. Imprimerie v. 3181588 Canada Inc., the Court concluded that registration made without right, with full knowledge of the facts, constituted a form of intimidation. In fact, the defendant had acted in bad faith by registering a legal hypothec for claims predating the declaration of contract (notice to owner).
Although, as a general rule, the owner is not entitled to damages resulting from the registration of a legal hypothec, in this case the Court ordered the defendant to pay damages, since the contractor who had registered the hypothec had acted in bad faith in refusing, without reason, to release it. The cancellation of the legal hypothec was also ordered.
In Tremis v. Vertzayias, the Court of Appeal ruled that the contractor's actions were malicious and in bad faith. In fact, the legal hypothec was published more than 30 days after the work was completed in November 2003. The absence of any real contest and the absence of any prior notice or formal demand sent to the defendants to claim payment prior to publication were also held against the contractor, who was ordered to pay damages and reimburse the defendants' attorney fees.
Finally, in the cases of 2440-9427 Québec Inc. v. 10144983 Canada Ltd. and Ferme Mijolait Inc. v. 9257-6198 Québec Inc. (LeRoy constructeur), the Court found that the publication of legal hypothecs made without foundation and with malicious intent, and upholding a recourse that had no basis constituted an abuse of right sanctionable by the Court.
In the first case, the contractor had maintained an unfounded allegation, resulting in an unnecessary trial—a behaviour that was abusive in itself, given the absence of any actual work performed on the encumbered property and hence the non-existence of a legitimate claim. In the second case, the defendant had refused to enter into any discussion with the plaintiffs, preferring instead to carry out the threat of a legal hypothec in order to intimidate the plaintiffs by falsely claiming that the work performed had added significantly more value than it actually did. The fact that the plaintiffs had never formally refused to pay the balance of the contract was held against the contractor.
In conclusion, the notice of legal hypothec is a right that can be exercised—but only if all other rules have been followed.
