Executive Summary: Key Legal and Evidentiary Issues

• Control and transferability of the SCHL mortgage insurance certificate between SCHL, the lender (Peoples) and the borrower (Côté inc.).
• Characterization of the mortgage broker’s obligation as an obligation of means and the absence of expert evidence to prove a professional standard of care.
• Proof of causation for alleged excess interest and duplicate SCHL and environmental costs after Côté inc. chose to abandon the Peoples/SCHL financing.
• Legal necessity of the environmental site assessment under SCHL and Peoples’ written conditions, despite Desjardins not using it.
• The borrower’s duty to mitigate damages, including timely seeking new SCHL coverage for Desjardins rather than waiting until the original certificate’s expiry.
• Evidentiary weight of letters of intent, the broker’s mandate, SCHL certificates and emails in reconstructing the parties’ true contractual obligations.

Facts and background

Les Immeubles A. Côté inc. (Côté inc.), a residential real estate developer, built a first rental building in 2021 that suffered an aqueduct break, leading to an outstanding insurance claim. While that claim was unresolved, Côté inc. began a second 12-unit project in 2022. To finance construction, Desjardins granted a 2,200,000-dollar bridge loan at 6.7% interest for 18 months, maturing on 24 August 2023.

Seeking longer-term financing of about 3,000,000 dollars, Côté inc. approached Financière First National (First). A March 2022 letter of intent contemplated a SCHL-insured loan of approximately 3,040,000 dollars or 95% of project cost, with a five-year term and a target rate of 3.24%. First invoiced Côté inc. 1,800 dollars to obtain a SCHL mortgage loan insurance certificate. In June 2022, SCHL issued a certificate reflecting an actual underwriting decision: a loan of 2,579,500 dollars at 4.25% for five years, expiring on 10 December 2022. First later refused to advance the loan.

Côté inc. then retained Bernard Legault inc. (Legault inc.), a mortgage brokerage firm, to find replacement financing on broadly similar terms through another lender. Legault targeted Peoples Trust Group (Peoples) with a SCHL-insured structure. An environmental site assessment became central: an older Phase I report prepared for another landowner (Maska) could not simply be reused because of copyright and reliance issues, so an updated report was commissioned from Ortam Groupe and transmitted to Peoples and SCHL in August 2022.

On 28 July 2022, First wrote to SCHL renouncing its attestations so that SCHL could re-issue insurance in favour of another lender. Following exchanges between Legault and a SCHL representative, SCHL issued a new mortgage loan insurance certificate to Peoples on 29 September 2022 on terms similar to the earlier First certificate, and a copy was sent to Côté inc. Meanwhile, Desjardins indicated renewed interest and sought information about the SCHL application.

On 26 October 2022, Peoples issued a commitment letter to lend 2,579,500 dollars to Côté inc., with a maximum interest rate of 4.25% and standard pre-funding conditions, including SCHL compliance and a satisfactory environmental report. That same day, however, Côté inc. informed Legault that it was ending their relationship and would proceed instead with Desjardins, while asking that the SCHL certificate in favour of Peoples be transferred to Desjardins. The court found that by then Legault’s work was nearly complete and that the Peoples offer essentially matched the conditions Côté inc. had willingly accepted with First.

On 9 December 2022, one day before the SCHL certificate’s expiry, Côté inc. sent a formal demand alleging that Legault refused to transfer the SCHL certificate to another lender and that this caused it to continue paying higher interest to Desjardins. On 30 March 2023, Côté inc. sued Legault inc. in small claims, reducing its claim to 15,000 dollars composed of 1,800 dollars for a second SCHL certificate, 1,782.11 dollars for an allegedly useless environmental report, and 11,417.89 dollars in extra interest.

Nature of the SCHL certificate and policy terms

The court first clarified the legal nature of the SCHL mortgage insurance certificate. SCHL is a mortgage insurer that protects the lender, not the borrower. It is the lender that applies for coverage, and the certificate is a contractual instrument between SCHL and the lender (First, then Peoples), not a freely transferable asset controlled by the borrower or broker. Once SCHL issues the certificate, coverage is considered engaged, SCHL sets the conditions and fees, and it retains the exclusive power to issue, control, transfer, modify or refuse changes. Neither Côté inc., nor Peoples, nor Legault inc. can unilaterally transfer or alter the certificate.

The decision also details environmental-risk clauses. Under the SCHL certificate, the approved lender must ensure the property complies with SCHL environmental policies. Before the first advance, the lender must provide SCHL with a letter confirming that it has obtained and reviewed an Environmental Site Assessment (ESA) report that conforms to SCHL policies and can be relied upon by both the lender and SCHL. Peoples’ commitment letter mirrored this, listing as conditions precedent both compliance with the SCHL certificate and a satisfactory environmental report from a specialized firm with specified professional liability insurance, confirming compliance with CSA Phase I standards. A dedicated section on “Vérification environnementale” required the borrower (and any covenantors/guarantors) to supply such a report and to indemnify the lender and SCHL for environmental liabilities, with the consultant’s insurance and standards again specified.

These provisions led the court to treat the Ortam report as necessary for the Peoples/SCHL financing, irrespective of whether Desjardins later chose to use it. The fact Peoples ultimately advanced the loan after reviewing the report confirmed its relevance and necessity under the contractual framework.

Alleged fault of the mortgage broker and evidentiary issues

Côté inc. claimed that Legault committed professional fault by failing to secure a transfer of the SCHL certificate from Peoples to Desjardins, by not acting earlier regarding the First certificate, and by causing unnecessary costs and interest. The court recalled that a mortgage broker is bound by an obligation of means: the broker must act diligently and competently, but is not a guarantor of a specific financing result. To prove fault, the plaintiff had to demonstrate the applicable standard of care and then show that the broker’s conduct fell below it.

Here, Côté inc. filed no expert evidence and called no other broker to describe the normal practice in comparable circumstances. The court, as a non-specialist in mortgage brokerage, refused to invent a professional norm without evidence and concluded that the evidentiary burden under articles 2803 and 2804 C.c.Q. was not met. Independently, the factual record showed that Legault obtained for Côté inc. a SCHL-insured commitment from Peoples on terms essentially equivalent to the conditions Côté inc. had already accepted with First.

Once Côté inc. terminated the mandate on 26 October 2022, Legault no longer had a contractual obligation to pursue further steps for Côté inc., including any efforts to transfer the SCHL certificate to Desjardins. In any case, only SCHL could approve such a transfer. The court noted that Legault had in fact tried, without obligation, to request a transfer and an extension of the certificate for Desjardins, but SCHL refused.

The timing and content of Côté inc.’s conduct also undermined its theory of fault. It willingly rejected the Peoples solution—despite its better rate—apparently to avoid a prepayment penalty to Desjardins and to avoid paying brokerage fees. It then waited from 26 October until the evening of 9 December to send a demand, even though the certificate expired on 10 December and it claimed interest damages over a longer period. Côté inc. admitted that neither it nor Desjardins undertook meaningful steps in that interval. The court found that if there were any potential losses, Côté inc. had a duty to mitigate them by promptly applying for a new SCHL certificate in favour of Desjardins, which it failed to do.

Assessment of the damages claims and outcome

Each head of damages failed on causation or necessity. The claimed 1,800 dollars for a “second” SCHL certificate was not linked to any proven fault by Legault and could have been avoided by earlier action directly with SCHL and Desjardins. The 11,417.89 dollars of alleged extra interest reflected Côté inc.’s own decision to remain with Desjardins at a higher rate instead of accepting the lower-rate Peoples financing; that choice broke the causal chain. The 1,782.11-dollar cost of the Ortam environmental report was incurred to satisfy explicit SCHL and Peoples conditions and was accepted as satisfactory in the completed loan; its necessity within that framework made it non-recoverable as a loss.

In the result, the Court of Québec dismissed Côté inc.’s claim in full, holding that it had not proved professional fault, causation or compensable loss on a balance of probabilities. Bernard Legault inc. was the successful party, and the only monetary amount ordered in its favour was 346 dollars in court costs, with no damages or further sums awarded to the plaintiff.