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Without a Written Conventional Subrogation, Your Recourse May Be Dismissed

On March 28, 2023, the Superior Court of Quebec partially granted a motion to dismiss the case, dealing with the notions of legal subrogation, conventional subrogation and prejudice.

This judgment, Gouvernement de la Nation Crie / Cree Nation Government c. 9327-1781 Québec inc., 2023, reminds us that it is essential for a non-insurer to agree in writing to a conventional subrogation at the time it makes a payment to compensate for damages suffered by a third party. Otherwise, it may not be able to recover from the parties potentially responsible for the damages, the amounts it has paid.

Overview of the proceedings

In this action, the plaintiffs Cree Nation Government (“Cree Nation“) and The Cree Construction and Development Company (“CCDC“) sued the defendants in extra-contractual civil liability for damages to a building belonging to CCDC in the amount of $483,283.37, which were allegedly caused by work performed on a neighbouring lot.

The Cree Nation alleged that it had indemnified CCDC by paying it $458,283.37 under an “insurance program” in the same manner as an insurer. By this payment, the Cree Nation claimed to benefit from a legal subrogation allowing it to institute the recourse in question. As for CCDC, it claimed the balance of $25,000, constituting the amount of its “deductible”.

The defendants filed a motion for dismissal of the action, alleging that the Cree Nation had no interest in suing them, as it had no legal or contractual subrogation. As for CCDC, the defendants alleged that it had not suffered any prejudice, and that consequently, its action in extra-contractual civil liability did not meet one of the three essential elements: fault, damage and causal link.

The Court accepted the defendants’ first argument, thereby rejecting the Cree Nation’s action. However, the Court did not accept the second argument, thus maintaining CCDC’s action.

Cree Nation’s Subrogation

First, the Court had to consider the nature of the subrogation alleged by the Cree Nation. After ruling out legal subrogation under articles 1656(5) and 2474 of the Civil Code of Québec (“C.C.Q.“), the Court analyzed legal subrogation under article 1656(3) C.C.Q., i.e., subrogation for the benefit of a “person who pays a debt to which he is bound with or for others and which he has an interest in paying”.

While reiterating that this provision must be given a broad and liberal interpretation, the Court stated that regardless of the nature of the alleged program, the plaintiffs were not bound with or for the defendants for their potential debt. It added that even if the program alleged by the plaintiffs could have created a conventional obligation between the Cree Nation and CCDC, it was not binding on the defendants and was distinct from the extra-contractual liability and claim asserted against them. The Court therefore concluded that the Cree Nation did not benefit from legal subrogation under article 1656(3) C.C.Q.

The Court then examined the possibility that the Cree Nation could benefit from conventional subrogation. In analyzing articles 1653 and 1654 C.C.Q., the Court noted that conventional subrogation must be express, evidenced in writing and concomitant with the payment. It adds that the notion of concomitance must be interpreted broadly and liberally, since the parties’ intention to subrogate at the time of payment may be noted subsequently in a writing.

Following this analysis, the Court found that none of the conditions prescribed by the legislator to establish the prima facie existence of a contractual subrogation are met. Indeed, it was admitted that there was no written agreement between the Cree Nation and CCDC. Moreover, conventional subrogation and the related intent are not alleged in the proceedings, the basis of the Cree Nation’s claim being legal subrogation.

Accordingly, the Court concludes that the Cree Nation cannot have been subrogated to CCDC’s rights by virtue of a conventional subrogation. Considering the foregoing, the Court concludes that the Cree Nation has no interest in claiming the sum of $458,283.37 from the defendants, as it does not benefit from any legal or conventional subrogation. The action must therefore be dismissed, being manifestly unfounded.

Prejudice to CCDC

The Court then turned to CCDC’s claim. The defendants argued that CCDC had not suffered any prejudice because the building in question had been demolished before the repairs claimed were made.

In order to decide this question, the Court examined the concept of full reparation in article 1611 C.C.Q., as well as the distinction between the concepts of prejudice and damage. The defendants argued that damage was an infringement of a right and an interest, while prejudice was an effect of that damage on its patrimony. Even though damage may have been caused, it was not clear that it resulted in prejudice.

The Court also had to consider whether facts subsequent to the date of the damage could be taken into account in the assessment of the damage. In this regard, it stated that these repairs cannot be confused with future damage and that, consequently, it is not appropriate to take into account the facts that occurred subsequently, in this case the voluntary demolition of the building, in order to establish the intrinsic value of the loss sustained by the building. However, it adds that, in the event that the evidence confirms that the building was destined for demolition even before the loss occurred, this intention prior to the loss could be considered and have consequences on the analysis of the quantum of damages, on the determination of the appropriate method to compensate for the loss suffered or possibly lead to the conclusion of “damage without loss”, depending on the evidence administered in this respect.

Since the evidence at this stage of the proceedings was fragmentary, the Court concluded that evidence on the merits was necessary and upheld CCDC’s claim for $25,000.

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