Executive Summary: Key Legal and Evidentiary Issues

• Characterization of shareholder cash injections as either repayable loans (prêts) or non-refundable capital contributions (mise de fonds) to the corporation.
• Allocation of the burden of proof on the shareholder claiming repayment to establish, on a balance of probabilities, the existence of a binding loan agreement.
• Evidentiary weight of corporate financial statements showing “advances from shareholders” as liabilities, versus oral testimony and the overall circumstances of the parties’ relationship.
• Impact of the absence of any written agreement, fixed interest, term, or repayment conditions on the court’s ability to find a true contract of loan.
• Assessment of contradictory testimonies regarding alleged verbal promises of repayment, including the significance of their omission from pre-litigation demand letters.
• Inference from the parties’ conduct over time (notably years of silence and late demand after exclusion from the company) that the advances were capital investments and not debts of the corporation.

Facts and relationship between the parties

Chaabane Ibn Chaabane operated a taxi business when, in 2016, he met Mansour Benbrahim. The two men decided to go into business together in the grocery sector. In 2017, they incorporated Épicerie des Continents Inc. (“l’Épicerie”) and named themselves equal shareholders and administrators of the corporation. From the outset, their roles were divided: Mr. Chaabane’s contribution was primarily financial, while Mr. Benbrahim assumed responsibility for day-to-day management and administration of the grocery business. Between February 2017 and February 2018, Mr. Chaabane injected most of the capital required to launch and operate the store, including funds for inventory and equipment. For his part, Mr. Benbrahim also advanced sums to help start up and run the business, but his main role remained operational.

Corporate structure changes and emerging conflict

In 2020, Mr. Benbrahim caused Mr. Chaabane’s name to be removed from the list of shareholders and directors recorded with the Québec enterprise registrar. According to the evidence, this change was made so the company could qualify for government financial assistance during the Covid-19 pandemic. After this alteration in the corporate records, the relationship deteriorated. From December 2020 to summer 2021, counsel for both sides exchanged formal demand letters and responses. Through his lawyers, Mr. Chaabane demanded that Épicerie des Continents Inc. buy back his shares and reimburse the amounts he had advanced to the company. He also accused Mr. Benbrahim of trying to oust him from the business. In reply, Mr. Benbrahim, speaking for the company, denied owing any amount to Mr. Chaabane and accused his former partner of failing to respect his own commitments to the corporation.

The claim before the small claims division

On 29 November 2021, Mr. Chaabane filed a claim in the Small Claims Division of the Court of Québec. He alleged that the total of his advances to the grocery business amounted to $36,864.90, but he voluntarily reduced his judicial claim to $15,000, as required by the small claims jurisdictional ceiling at the time. He maintained that verbal agreements had been reached with Mr. Benbrahim at the start of the enterprise, and again in 2018 and 2019, under which Épicerie des Continents Inc. undertook to reimburse his advances in full. The defendant corporation, represented in court by Mr. Benbrahim as its sole shareholder since 2020, did not dispute that the sums advanced by Mr. Chaabane exceeded $15,000. However, it firmly denied any obligation to repay those amounts. The company’s position was that these contributions were capital investments, exposed to the risk of the business, and not loans requiring reimbursement. Mr. Benbrahim also pointed out that Épicerie des Continents Inc. had never been in a financial position to reimburse advances from either shareholder. The business recorded only modest profit in its second year and suffered losses in the following years. By 2023, all business operations had ceased.

Key legal characterization: loan versus capital contribution

The core legal question for the court was how to characterize the funds advanced by Mr. Chaabane: were they loans to the corporation, or were they equity-type contributions forming part of the capital at risk in the venture? In corporate and commercial law, this distinction is critical. A loan creates a debtor–creditor relationship, entitling the lender to repayment of principal (and usually interest) at an agreed term. A capital contribution, by contrast, is a “mise de fonds” that the shareholder invests in the hope of profits from the success of the enterprise, but without a guaranteed right of reimbursement if the business fails. The court referred to doctrinal commentary emphasizing that the true nature of such advances must be determined by examining substance over form. Rather than relying only on the labels used in documents, the judge considered all surrounding circumstances, including the parties’ conduct after the alleged agreement, the way the advances appeared in the financial records, and the chronology of demands for payment.

Evidence concerning the parties’ intentions

No written agreement governed the advances made by Mr. Chaabane, and no unanimous shareholders’ agreement was put in place at the start of the business or later. This lack of documentation made the task of determining the parties’ true intentions more difficult, especially in a context where their oral testimonies directly contradicted each other. The financial statements of Épicerie des Continents Inc. listed “advances from shareholders” as liabilities alongside the company’s debts. This accounting treatment could support the argument that the sums were loans to be repaid. Moreover, in his testimony, Mr. Benbrahim admitted having himself “invested” amounts for the benefit of the company without ever seeking repayment. He also stated that in 2020 he had proposed to “repartir de zéro” (start from scratch), effectively wiping out all debts owed by the corporation to both partners. The court treated this combination of the financial statements and Mr. Benbrahim’s admission as a beginning of written proof that shareholder advances might be debts. That threshold allowed the alleged loan contract to be proven by oral testimony even though the amount in dispute exceeded the usual limit for purely testimonial proof. However, the existence of some evidentiary basis for a loan was only the starting point. The judge still had to decide, on the balance of probabilities, whether a true agreement of loan had been concluded and whether the company had in fact undertaken to repay the sums advanced by Mr. Chaabane.

Assessment of credibility and conduct over time

When weighing the conflicting evidence, the court was not bound by the classification of shareholder advances as “liabilities” in the financial statements. Even in the presence of accounting entries, a judge must still assess the real nature of the transaction. The court attached importance to the absence of basic loan terms: according to the record, the parties never fixed an interest rate, repayment deadline, or any other concrete repayment conditions. This absence is consistent with a capital investment rather than a structured loan. The judge also scrutinized the timeline and the content of the pre-litigation correspondence. Mr. Chaabane testified that on several occasions in 2018 and 2019, Mr. Benbrahim, acting for the company, had committed to reimbursing his advances. Yet these supposedly crucial promises were not mentioned at all in the demand letters sent by Mr. Chaabane’s lawyers to the company’s lawyers. For the court, this omission significantly undermined the credibility of his assertion that such commitments had been made. Another factor was delay. Although the parties had been operating the grocery for several years, and although the advances had been made as early as 2017–2018, Mr. Chaabane waited until 29 December 2020—three years after the major injections of funds and only after being removed from the company—to send a formal demand for repayment. That pattern of conduct suggested to the court that the advances were seen, at least at the time, as capital invested in the business rather than as a debt immediately or even eventually due.

The court’s conclusion on the nature of the advances

In light of the contradictory testimonies and the fragmentary documentary record, the court found itself unable to determine which of the two divergent accounts was more convincing. On one side, there were financial statements and some admissions pointing toward the idea of “advances.” On the other, there was the absence of any written loan agreement, the lack of conventional loan terms, the omission of alleged promises of repayment from formal demand letters, and the lengthy delay before any claim for reimbursement was made. The judge emphasized that the absence of a written instrument significantly complicated the search for the parties’ true intentions. Faced with such uncertainty, and applying the civil law rules on burden of proof, the court held that it was up to Mr. Chaabane, as plaintiff, to prove the existence of a contractual undertaking by the corporation to reimburse his funds. The judge considered Mr. Chaabane to be an experienced businessman who had every incentive to record any genuine loan agreement in writing. By relying solely on alleged oral commitments, he exposed himself to exactly the kind of evidentiary difficulty that arose in this case. Because he did not discharge his burden on the balance of probabilities, the court inferred that the funds were more likely non-refundable capital contributions or necessary start-up and survival injections into the company, rather than repayable loans.

Ruling, successful party, and monetary outcome

Ultimately, the Court of Québec dismissed the action brought by Mr. Chaabane. His claim for repayment of $15,000 (reduced from the larger amount he alleged to have advanced) was rejected in full. The court found that he had not proven the existence of an enforceable loan contract or any clear promise by Épicerie des Continents Inc. to reimburse his advances. As a result, the advances were treated in effect as unrecoverable capital injections, and no damages or repayment were ordered in his favor. The successful party in this proceeding is the defendant, Épicerie des Continents Inc. The judgment expressly rejects the claim and awards costs of the contestation (“frais de justice de la contestation”) in favor of the defendant, but it does not specify any exact monetary amount for those costs; they are determined by applicable tariffs or court rules. Accordingly, there is no quantified damages or reimbursement award, and the total monetary amount granted in favor of the successful party cannot be determined from the decision itself.