Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether an indemnity clause in a share purchase agreement allows the purchasers of shares to personally claim reimbursement for undisclosed corporate tax debts assessed after closing.
• Question of legal interest (locus standi): whether the shareholders, rather than the corporation itself, have the juridical interest to sue under a clause that protects the company from undisclosed debts.
• Characterization of Canada Revenue Agency corporate tax assessments and wage subsidy adjustments as potential “dettes ou réclamations non divulguées” (undisclosed debts or claims) under the indemnity clause.
• Interpretation of contractual language in article 6 of the sale agreement, especially the scope of the vendors’ obligation “d’assumer toutes dettes ou réclamations non divulguées aux cessionnaires dans les 14 jours de leur demande.”
• Evidentiary significance of the corporation, not the individuals, having paid the assessed amounts to the tax authority and entered into a payment agreement.
• Allocation of costs following dismissal of the action, with court costs ordered against the purchasers due to lack of legal interest rather than a determination on the merits of the tax indemnity issue.

Facts of the case
Hamza Daoud El Idrissi et Mounia Zakat (the purchasers, or Cessionnaires) acquired all the shares held by Salah Chekirou and Chadia Harbi (the vendors, or Cédants) in a Québec corporation, 9240-0381 Québec inc. (the Corporation), under a private share purchase agreement (the “Convention”) drafted by notary Francis Langlois. The Convention provided that the transaction would be effective as of 1 September 2023, with the usual closing adjustments as of that date. After the sale, the Canada Revenue Agency (CRA/ARC) issued two sets of assessments (Cotisations) to the Corporation. The first assessment, dated 11 January 2024, claimed $1,394.78 in corporate income tax for the fiscal year ending 31 August 2023. The second related to a retroactive adjustment of amounts previously paid to the Corporation under the Canada Emergency Wage Subsidy between December 2020 and June 2021, resulting in additional assessments totaling $16,973.60. Following these assessments, the Corporation itself paid the first amount in full and, for the second, entered into a payment arrangement with the CRA. By the time of trial, the Corporation had paid a total of $18,788.65 in capital and interest under this arrangement.

Key contractual provisions and indemnity clause
At the heart of the dispute is the indemnity language in article 6 of the Convention, entitled “Obligation du cédant.” Beyond the mechanics of transferring and endorsing the share certificates and signing the share transfer register, the clause contains a specific indemnity promise. The vendors “s’engagent également à assumer toutes dettes ou réclamations non divulguées aux cessionnaires dans les 14 jours de leur demande.” In plain terms, the vendors commit to assume and pay any debts or claims of the Corporation that were not disclosed to the purchasers at the time of the transaction, once requested to do so within 14 days. The clause is drafted broadly, without expressly limiting the nature of the debts or the creditor (for example, tax authorities versus other claimants), and without specifying whether the right of enforcement belongs to the Corporation or to the purchasers personally. This lack of precision became central to the legal interest issue.

Positions of the purchasers (plaintiffs)
The purchasers argued that the CRA assessments, both the corporate tax reassessment and the CEWS adjustment, qualify as “dettes ou réclamations non divulguées” within the meaning of the indemnity clause. From their perspective, the vendors had an obligation, once demanded, to assume and pay those undisclosed debts. Because the Corporation had actually paid (or was paying) these sums to the CRA, the purchasers claimed that the vendors were in default of their indemnity obligation. On that basis, they brought proceedings before the Cour du Québec, Civil Chamber, seeking a judgment ordering the vendors to reimburse, in the purchasers’ personal favour, an amount equivalent to what the Corporation was paying to the CRA on the assessments. In addition, they claimed $5,000 in damages for trouble and inconvenience, alleging that the vendors’ refusal to honour the indemnity clause caused them personal prejudice and stress in managing the Corporation’s tax liabilities and payment plan.

Positions of the vendors (defendants)
The vendors raised two main defences. First, they argued that the purchasers lacked the necessary juridical interest to bring the claim in their personal capacity. The indemnity clause, properly interpreted, was said to benefit the Corporation, which is the debtor vis-à-vis the CRA and the party actually paying the assessed amounts. Accordingly, only the Corporation, not the individual shareholders, would have standing to sue to enforce reimbursement of undisclosed corporate debts. Second, in the alternative, the vendors disputed that the CRA assessments fell within the scope of “dettes ou réclamations non divulguées” under the clause, suggesting that the nature or timing of the assessments might place them outside the contractual indemnity. The Court ultimately did not need to decide this second point because of its conclusion on legal interest.

Court’s analysis on legal interest and standing
The Court focused on the preliminary and determinative question of whether the plaintiffs had the required “intérêt juridique” to sue on the indemnity clause. It examined the structure of the Convention and noted that the indemnity provision is framed in terms of the vendors’ undertaking to assume the Corporation’s undisclosed debts. The Court reasoned that this undertaking benefits the Corporation: if the Corporation is later required to pay undisclosed debts, the clause allows it to compel the vendors, via legal action, to reimburse those amounts. The Court emphasized that it was the Corporation, not the individual purchasers, that received and paid the CRA assessments and that entered into the payment agreement with the tax authority. On that basis, even without definitively characterizing the CRA assessments as covered or not covered by the indemnity clause, the Court held that the proper claimant under the clause is the Corporation itself. The purchasers, as shareholders, do not automatically acquire a personal right to sue for reimbursement of corporate debts merely because those debts affect the value of their investment. As a result, the Court concluded that the plaintiffs did not have the necessary legal interest to pursue this recourse in their own names.

Outcome and financial consequences
Given this finding, the Court dismissed the action brought by Hamza Daoud El Idrissi and Mounia Zakat against Salah Chekirou and Chadia Harbi, without deciding whether the CRA assessments were in fact undisclosed debts within the meaning of the indemnity clause. The judgment orders that the lawsuit be rejected and that court costs (frais de justice) be borne by the plaintiffs. The successful parties in the case are therefore the vendors/defendants, Salah Chekirou and Chadia Harbi, and they obtain an order in their favour for recovery of court costs only. The judgment does not specify any exact dollar amount for these costs, and no damages, indemnity payments, or other monetary awards are granted beyond unspecified court costs, so the total monetary amount ordered in favour of the successful party cannot be precisely determined from the decision.