September 2013

Civil penalties for abusive claims

By Neda Esmailzadeh

In the recent case Jean-Paul Beaudry ltée v. 4013964 Canada inc. (2013 QCCA 792), the Court of Appeal pointed out that it is possible to bring an action for abuse of process against a party in a separate file subjected to abuse by means of res judicata if the abuse was recorded in the ruling.

In this particular case, the dispute arose from a supply contract awarded by 4013964 Canada inc. (hereinafter "4013964'') to Jean-Paul Beaudry ltée (hereinafter "Beaudry") that was validly terminated by 4013964 before it sold its business to a third party. Unhappy with the situation, Beaudry registered a mortgage on all of 4013964's property in the Personal and Movable Real Rights Registry Office (hereinafter "PMRRR").

Beaudry then took legal action (hereinafter "first action"), seeking the recognition of a claim stemming from the supply contract. In the first ruling, noting Beaudry's abuse of process, Justice Bédard concluded:

"[80] The action must therefore be dismissed as unfounded both in fact and law. [81] This action will be dismissed with costs. [82] Let me say, in my humble opinion, this lawsuit was quite abusive, without any foundation, quite contrary to the principle that should be followed?that of good faith on either side. [83] This is a clear example of bad faith and the plaintiff is fortunate that it was not asked to pay the defendants' legal fees as damages for abuse of process, which I would have granted without hesitation."

Following the decision, in another instance, 4013964 brought an action (hereinafter "second action") for abuse of process based solely on Justice Bédard's ruling, claiming extrajudicial fees, damages for stress and inconvenience and the extrajudicial legal fees for its business' buyer.

Writing on behalf of the Court of Appeal, under whose jurisdiction this second action had fallen, Justice Marie-France Bich decided that Justice Bédard's statements in the first ruling were binding upon the judge in the second action. She therefore concluded that no evidence of abuse was required.

She also granted the extrajudicial fees sought by 4013964 in the first action as well as those incurred by the respondent.

This case reiterates the principle that parties should demonstrate diligence and good faith when exercising their rights. Otherwise, they risk penalities by the court for abusive behaviour.