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mercredi 22 octobre 2014

When Arguing that an Oral Defence is Required, Make Sure to Ascertain the True Nature of the Subject Matter of the Claim

By Sarah D. Pinsonnault

Unless otherwise prescribed by the Code of Civil Procedure, a defence is typically filed in writing (article 175.1 C.C.P.). That being said, defendants may be ordered to provide an oral defence if the subject matter of the action or application filed against them falls under one of the categories enumerated in article 175.2 C.C.P. In Atlantic Industries Ltd. c. Intact Insurance Company, 2014 QCCS 4656, the Court had to first determine the true nature of the Plaintiff’s claim, that being based on a construction payment bond, in order to then conclude whether or not an oral defence was required.


Context

The Plaintiff declares to have contracted with Benoit Vigneault Ltd. to manufacture and supply materials for a construction project it was involved in. The latter apparently never paid for the materials delivered by the Plaintiff because it filed a Notice of intention to make a proposal pursuant to the Bankruptcy and Insolvency Act.

Accordingly, the Plaintiff filed a Motion to Institute Proceedings by which it claimed, based on a construction payment bond issued by Intact Insurance Company (“Intact”), the unpaid sale price of $236,591.13, jointly and severally from Intact and the project contractor, Couillard Construction Ltd.

The Plaintiff asserted that an oral defence was required given the alleged nature of what it was asking for, namely a claim relating to the sale price of movable property (art. 175.2(4)(a) C.C.P.) and a matter relating to a surety (art. 175.2(4)(d) C.C.P.).

Intact, however, contested this allegation and argued that the Plaintiff’s motion was not an action on account but rather an action based on the execution of a construction bond.

The parties were unable to identify any jurisprudence that establishes whether a claim based on a construction payment bond falls within the scope of article 175.2 C.C.P. Consequently, the Court had to determine the “real nature” of the “subject matter” of the Plaintiff’s claim in order to rule on this question.

Decision

The Plaintiff backed-up its argument by submitting jurisprudence that pertained to bank loan securities, whereby the surety in question stemmed from a promissory note, which requires, pursuant to article 175.2(4)(g) C.C.P, an oral defence.

To assist the Court in its analysis, it referred to the definition of a “promissory note” found in the Bills of Exchange Act:

176. (1) A promissory note is an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.” (emphasis added)
In light of this, and of the features of Intact’s construction payment bond, the Court came to the conclusion that the latter did not constitute a promissory note. In fact, the construction payment bond stipulated conditions that had to be met before the beneficiary could commence the recovery proceedings. As a result, it was not “unconditional” and did not meet the definition of a promissory note.

Furthermore, the Court noted the following discrepancy:

“[28] Secondly, the said bond does not indicate a “sum certain in money”.  No sum is indicated.  In fact, the specific sum claimed will not be known by Intact until it has been identified by the beneficiary in its 120-day notice.”
The Court then went on to conclude as follows:

“[29] For this reason as well, Intact’s bond does not constitute a promissory note for the purposes of requiring an oral defence.
[30]        Accordingly, Article 175.2 (4) (g) does not apply to the present case.  Since no other provisions of Article 175.2 apply, there is no requirement for Intact to proceed by way of oral defence."

Commentary

This decision serves as a reminder of the importance of looking past the words used in legislation to find their true meaning and application. While an article in question may contain words that relate to your action, it does not mean that that alone renders it applicable to your case.

As such, when the Plaintiff contended that the construction payment bond was “of the nature of a surety” and that it therefore fell within one of the categories of article 175.2 C.C.P. that contain the word “surety”, the Honourable Gary D. D. Morrison, J.S.C. had the following remarks to make :

“[15] Such references to “surety” do not have the effect of rendering all matters dealing with sureties subject to the requirement of an oral defence.  Had that been the intention of the Legislators, wording to that effect would have been used.
[16] The only matters specifically mentioned in the said Articles as regards “surety” pertain solely to the remuneration of a surety and the sufficiency of the latter’s assets or of the surety being offered.  In the present instance, the subject matter of Plaintiff’s claim relates to none of these issues.
[…]
[19] In cases where the surety flows from a promissory note, it is understandable that a Court may conclude that Article 175.2 (4) (g) C.C.P. applies and that an oral defence is required.
[20] However, that does not mean that in every case where the subject matter relates to a surety, there exists the necessity of proceeding by oral defence.  That is not what Article 175.2 (4) C.C.P. stipulates.” (emphasis added)

To read this decision in its entirety, click here

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