Executive Summary: Key Legal and Evidentiary Issues

• Credibility assessment between conflicting testimonies of Ms. Busque and Mr. Rose as to who poured water and orchestrated the misrepresentation to the insurer
• Determination that the contractor’s representative, Mr. Rose of Injection SF inc., poured water on a third wall and took photos to support a false insurance claim
• Characterization of the arrangement between Gestion Christiane Busque inc. and Injection SF inc. as a contract with an illegal, fraudulent purpose contrary to public order, leading to its absolute nullity
• Inability of Gestion Christiane Busque inc. and Ms. Busque to obtain damages because they participated in a fraudulent scheme aimed at deceiving the insurer
• Application of restitution of prestations after nullity: scope, method (by equivalent rather than in kind), and adjustment given that the owner retains the benefit of the works
• Allocation of responsibility for costs and monetary consequences in a context where both sides participated in wrongdoing but the contractor initiated the fraudulent scheme

Facts and procedural background

Gestion Christiane Busque inc. is the owner of an immovable in which water infiltration occurred at the foundation, affecting two walls of the building. Ms. Christiane Busque is a shareholder and administrator of this company. In response to the infiltration, Gestion Christiane Busque inc. submitted a claim to its insurer and retained Injection SF inc., a company specializing in foundation and French drain work, to investigate and perform corrective work. The mandate included a camera test of the French drain, replacement of the French drain and installation of a membrane. During the camera test on 13 July, water was poured on a third wall which initially had not been identified as having active infiltration. Photographs of that wall, showing apparent water infiltration, were later transmitted to the insurer. These images were meant to support coverage of additional work on that third wall. The insurer eventually discovered that water had been deliberately poured to simulate an active infiltration. Considering this a misrepresentation within the meaning of article 2472 of the Civil Code of Québec, the insurer declared a forfeiture of the right to indemnity, refused to cover the entirety of Gestion Christiane Busque inc.’s claim and cancelled several insurance policies held by the insured. As a result of the loss of insurance coverage and associated consequences, Gestion Christiane Busque inc. and Ms. Busque instituted a small claims action before the Cour du Québec, Division des petites créances, Civil Chamber, District of Longueuil, against Injection SF inc. They sought compensatory damages and reimbursement of the price paid for Injection SF inc.’s services. Injection SF inc. disputed liability, denying that its representative had poured the water or orchestrated any misrepresentation, and argued that Ms. Busque herself poured the water and made the false statement to the insurer.

Evidence and disputed version of events

The key evidentiary issue was who actually poured the water on the third wall, for what purpose, and in what circumstances. Certain core facts were uncontested: Gestion Christiane Busque inc. had hired Injection SF inc. to deal with the infiltration and carry out the camera test, French drain replacement and membrane installation; the water was poured on 13 July, the day of the camera test; both Ms. Busque and Mr. Steve Rose (representing Injection SF inc.) were present when the water was poured; and Ms. Busque transmitted the photographs of the wet wall to the insurer. The parties diverged sharply on what happened around that event. Ms. Busque testified that, shortly after completing the camera test and after speaking by phone with the insurer’s adjuster, Mr. Rose boasted of his experience with French drains and insurance claims, told her the adjuster needed photos of the third wall, and, without asking permission, fetched a glass, filled it with water and poured it onto the wall. According to her, he then took photographs of the wall and assured her that this would convince the adjuster, that the insurer would pay for all the work including that wall, and that he would “arrange a good price” but increase Injection SF inc.’s price accordingly. Because Gestion Christiane Busque inc. was the insurer’s client, he insisted that she personally transmit the photos to the insurer, which she did shortly after receiving them from him by text message. Mr. Rose, in contrast, denied pouring the water. He testified that the camera test was limited by a completely blocked French drain and that, while he was speaking with the adjuster, he understood the insurer was hesitating about paying for work on the third wall and was requesting photographs. He placed himself in a mostly empty room with a white coffee maker and claimed that Ms. Busque took the coffee maker and poured the water herself. During his testimony he initially stated, spontaneously, that photos needed to be “sent to the adjuster” and that he took photographs of the spread of water with his phone, noting that before the water was poured there were no traces of active infiltration on that wall. Later in his evidence, however, he categorically denied having taken any photographs at all. The judge found this internal contradiction—within a relatively short testimony—significant and damaging to his credibility. This inconsistency was reinforced by documentary evidence: text messages sent by Mr. Rose to Ms. Busque on 13 July showed files dated that same day with sizes consistent with image files, and the invoice issued by Injection SF inc. on 13 July bore the handwritten reference “infiltration d’eau voir photo,” indicating that photos existed and were associated with the work.

Credibility findings and factual conclusions

Weighing the contradictory testimonies, the court preferred the evidence of Ms. Busque, finding her testimony clear and convincing. The court concluded that, on a balance of probabilities, it was Mr. Rose who initiated the scheme, poured the water on the wall, took the photographs and then instructed or encouraged Ms. Busque to send these misleading images to the insurer. The judge acknowledged that everything happened quickly and that Ms. Busque expressed, with evident sincerity, shame and discomfort at having allowed herself to be “drawn into” what she recognized as a dishonest act. Nonetheless, the court underscored that she knowingly transmitted photos she understood to be misleading, and in doing so she accepted the proposal put forward by Injection SF inc. The factual picture retained by the court was that Mr. Rose and Injection SF inc. sought to obtain an additional profit by adjusting their price upward if the insurer agreed to cover work on the third wall, while Ms. Busque and Gestion Christiane Busque inc. sought to have the insurer cover work that was not actually justified by an active infiltration, using staged photographs as evidence.

Legal characterization of the contractual relationship

On these facts, the court analyzed the contractual relationship through the lens of Québec civil law on obligations, illegality and public order. As an entrepreneur, Injection SF inc. had a statutory duty to act in the interest of its client, Gestion Christiane Busque inc., under article 2100 C.c.Q. Instead, the company’s representative proposed a scheme aimed at misleading a third party—the insurer—by simulating damage and producing false visual evidence. This meant that, beyond the original, legitimate elements of the service contract (diagnosis and repair of real water infiltration), the parties concluded an additional agreement or understanding: Injection SF inc. would inflate its price and seek to have the insurer pay for the third wall, and the insured would gain broader coverage based on falsified proof. The court characterized this as a contract whose object or purpose was to defraud a third party, namely the insurer. Under articles 1413 and 1416 C.c.Q., a contract must have a lawful object and purpose; when a contract aims at an illegal or illicit purpose, such as perpetrating a fraud, it is contrary to public order. The judgment referenced the definition of “fraud” in section 380(1) of the Criminal Code, emphasizing that the scheme involved deception and misrepresentation to obtain monetary advantage from the insurer. In accordance with article 1417 C.c.Q., the nullity of a contract is absolute when the condition it sanctions protects the general interest. The court held that preventing parties from concluding contracts with a fraudulent purpose directed at a third party is a matter of public order and general interest, so the contract (or that part of the contractual relationship) was absolutely null. Under article 1418 C.c.Q., such nullity need not be pleaded by the parties; the court must raise and apply it ex officio when it recognizes the illegal nature of the agreement. The consequence of absolute nullity is that the contract is deemed never to have existed (article 1422 C.c.Q.), and a null contract can generate no advantage, not even for a party that has suffered loss. From that premise, the court reasoned that it could not grant damages based on a breach of obligations under a contract whose very purpose was to commit a fraud: doing so would effectively give effect to a contract contrary to public order.

Insurance context and policy implications

The case unfolded in the context of insurance coverage for property damage, and while the judgment did not reproduce specific clauses of the policy, it applied the statutory rule in article 2472 C.c.Q. relating to misrepresentation and forfeiture of the right to indemnity. Once the insurer discovered that the water on the third wall had been intentionally poured to simulate an active infiltration, it considered this a false declaration or misrepresentation concerning the loss. The insurer responded by denying coverage for the entire claim submitted by Gestion Christiane Busque inc. and cancelling several policies. The court accepted that a “declaration mensongère” to an insurer results in forfeiture of the right to indemnification pursuant to article 2472, a principle that mirrors typical policy wording under which intentional misrepresentation or fraud in relation to a claim voids coverage. The judge therefore treated the insurer’s refusal to indemnify and cancellation of various policies as the legal consequence of the fraudulent scheme. Although Gestion Christiane Busque inc. and Ms. Busque argued they had suffered significant harm from these measures and attempted to shift responsibility onto Injection SF inc. on the basis that it had initiated the misconduct, the court stressed that both sides had participated in the misrepresentation. Even if the contractor initiated the idea and took the operative steps of pouring the water and photographing the scene, the insured’s knowing participation—by sending the misleading photos—barred them from asking the court to grant damages based on that illegal bargain.

Rejection of damages and focus on restitution of prestations

Because the contract was null for illegality, the court found the plaintiffs’ claim for damages not receivable. Gestion Christiane Busque inc. and Ms. Busque could not invoke the liability of Injection SF inc. for damages grounded in a contract whose purpose was to defraud a third party. The court noted prior authority that a null contract produces no rights, even for a party who may have been “frustrated” or disadvantaged, and cited jurisprudence confirming that courts must refuse to give effect to such arrangements. However, nullity also triggers a distinct legal consequence: restitution of prestations. Under articles 1422 and 1699–1700 C.c.Q., when a contract is annulled, each party must, in principle, restore what it has received, either in kind or by equivalent, unless restitution would confer an undue advantage on one side. In this case, the prestations were the work performed by Injection SF inc. (camera test, drain replacement, membrane installation and related services) and the price paid by Gestion Christiane Busque inc. (977.29 dollars for the initial services and camera test on 13 July and 9,198 dollars for the subsequent works). The court emphasized that restitution relates to these prestations alone and does not encompass any other alleged heads of damage claimed by the plaintiffs, such as the broader financial impact of lost insurance coverage. Restitution in kind was deemed seriously inconvenient: Gestion Christiane Busque inc. could not realistically return the installed French drain and membrane. Accordingly, the court opted for restitution by equivalent and exercised its discretion to adjust the extent of restitution, taking into account that the property owner would retain the benefit of the works and that Injection SF inc. had initiated the fraudulent scheme and operated in a “very lucrative” field, as Mr. Rose candidly acknowledged during his testimony.

Outcome and allocation of responsibility

Balancing these considerations, the court ordered partial restitution of the price. It concluded that Injection SF inc. should not retain the full amount it had received under a contract whose purpose was, in part, fraudulent, but also recognized that Gestion Christiane Busque inc. had received and would continue to benefit from genuine repair work on its property. Exercising its discretion, the court ordered Injection SF inc. to repay 5,000 dollars to Gestion Christiane Busque inc. as restitution of part of the price. This amount bears interest at the legal rate together with the additional indemnity provided by article 1619 C.c.Q., calculated from 25 September 2022, the date on which Injection SF inc. was put in default by formal demand. The court did not quantify the total amount of interest and the additional indemnity, which depend on the duration of non-payment and thus cannot be precisely determined in the judgment. Ms. Busque’s personal claim for damages was entirely rejected. While the court accepted that she felt shame and that she considered herself misled by Mr. Rose, it held that she knowingly transmitted photographs she knew to be misleading and therefore actively participated in the fraud. Consequently, she had no right to damages; nor could she benefit personally from the restitution ordered, which was tied to the corporate contract between Gestion Christiane Busque inc. and Injection SF inc. With respect to costs, the court applied the general rule that the party who substantially succeeds is entitled to costs and found no reason to depart from that principle. Gestion Christiane Busque inc. was therefore awarded its judicial costs, including 325 dollars in court filing fees (“droits de greffe”), payable by Injection SF inc. In practical terms, the successful party was Gestion Christiane Busque inc., which obtained a partial recovery consisting of 5,000 dollars in restitution plus 325 dollars in specified court fees (a total principal of 5,325 dollars), together with legal interest and the statutory additional indemnity from 25 September 2022, while Injection SF inc. remained liable for those sums and Ms. Busque’s individual claim was dismissed with no monetary award in her favor and the total amount of interest and indemnity could not be determined on the face of the judgment.