Executive Summary: Key Legal and Evidentiary Issues

• Central to the dispute was whether the Canada Mortgage and Housing Corporation (CMHC) committed a fault in refusing to approve two mortgage loan insurance applications for an affordable housing project.
• Conflicting testimony between the developer, Mr. Sylvain Raiche, and CMHC representative Ms. Rahma Abaynarh concerned whether she gave reassurances about net worth flexibilities during a June 21, 2018 meeting.
• Discretionary language in CMHC's Reference Guide ("at least" 25% net worth; flexibilities "may be possible") and in section 8(1) of the National Housing Act was decisive to the fault analysis.
• Credibility of Mr. Raiche was undermined by his own prior out-of-court examination, in which he admitted his broker strongly advised against filing the first application.
• Causation was independently broken because the City of Mascouche refused to authorize the project, meaning the expenses would have been useless regardless of CMHC's decisions.
• Evidence established the plaintiff itself incurred expenses totalling $293,413, but the Court declined to rule on quantum given the absence of fault and causation.

Facts of the case

The plaintiff, 9380-0845 Québec inc., a company created in 2018 by general contractor and real estate developer Sylvain Raiche, sued the Canada Mortgage and Housing Corporation (CMHC) in the Superior Court of Québec, District of Joliette, claiming damages arising from CMHC's refusal to authorize two mortgage loan insurance applications. The applications related to "Le Rafaëlle," a project to build 102 housing units, including 21 affordable units, on two lots at the entrance of the City of Mascouche, and were made under a CMHC loan insurance program designated "Flex" aimed at affordable housing construction. After consulting CMHC's Reference Guide in spring 2018, Mr. Raiche met CMHC representative Rahma Abaynarh on June 21, 2018. He claimed she enthusiastically reassured him that flexibilities on the borrower net worth requirement were possible, though he acknowledged she never suggested approval was guaranteed; she denied that net worth was ever discussed. Mr. Raiche purchased the two lots in October and November 2018. A first insurance application, covering a proposed loan of $31,600,000 from MCAP Financial Corporation and including a request for flexibility on net worth and debt service, was filed on November 6, 2020 through broker Denis Nadeau. Underwriter Jerry Wang raised significant concerns about the plaintiff's financial capacity and lack of experience, and the application was withdrawn in April 2021, with CMHC retaining 20% of the underwriting fees ($4,020), as is usual. A second application was filed on August 17, 2021 through broker Jean-Sébastien Moreau of MFCI Capital, identifying as borrower SEC Le Rafaëlle, a company to be created and held 50% by an entity to be formed by the Fonds immobilier de solidarité FTQ and 50% by the plaintiff. Underwriter Louis-Philippe Mercier identified major risks, including the absence of a sufficiently strong guarantee, and the application was withdrawn in January 2022, with 30% of the fees retained.

Policy terms and contractual clauses at issue

At the heart of the dispute was a passage in CMHC's Reference Guide for multi-unit residential mortgage loan insurance, which provided in the affordable housing section that the borrower's net worth must be at least 25% of the loan, without being less than $100,000, and that flexibilities to CMHC's usual net worth requirements "may be possible." The plaintiff's net worth-to-loan ratio fell below the 25% threshold, and both applications sought flexibilities on this point. Also relevant was section 8(1) of the National Housing Act, which provides that CMHC "may" insure risks related to housing loans. Mr. Mercier testified that the words "at least" mean CMHC has the discretion to require a higher ratio depending on the circumstances, and that flexibilities are not automatic but are allocated according to global risk as analyzed by CMHC. The criteria used to analyze applications, including affordability and eligibility, appear in the CMHC Approved Lenders Manual, Part 2, to which CMHC's master loan insurance policy refers.

The court's reasoning and analysis

Justice Sophie Picard examined the conduct of each CMHC representative and found no fault. Ms. Abaynarh, a member of the Client Solutions team with no decision-making role, merely summarized CMHC's various programs and sent standard informational documentation; nothing in the email exchanges suggested that net worth or flexibilities were ever discussed, and Mr. Raiche himself acknowledged that no guarantee was ever given. Ms. Lisa Ingraham, another Client Solutions representative, had never seen the first application and was not involved in its analysis, so her surprise at learning of a supposed refusal did not show the application should have been accepted. Underwriters Wang and Mercier were found to have exercised their discretion reasonably, methodically and conscientiously, raising legitimate questions about the project's complexity, the plaintiff's inexperience with projects of this scale, and the unsatisfied net worth criterion. The Court noted that Mr. Raiche's own credibility was seriously undermined: at trial he suggested his broker believed in the first application's chances, but in a November 17, 2022 out-of-court examination he had admitted the broker strongly advised against filing it, considering it doomed to fail. Citing the case law on judicial deference, including Maple Lodge Farms Ltd. v. Canada, the Court held that courts should not interfere with a statutory discretion exercised in good faith on appropriate considerations, and the plaintiff conceded CMHC's good faith was not in issue. The duty-to-inform argument, based on Bank of Montreal v. Bail Ltée, also failed because the plaintiff knew from the outset that approval could never be guaranteed, did not sufficiently inform itself, and ignored its broker's advice. Although unnecessary given the absence of fault, the Court added that causation was not established: the plaintiff's own recklessness was the true cause of its losses, and the City of Mascouche had in any event refused the project's PPCMOI applications on December 7, 2020 and again on January 31, 2022, so the development expenses would have been useless regardless of CMHC's decisions.

Ruling and overall outcome

The Court dismissed the plaintiff's claim in its entirety, making CMHC the successful party, with legal costs awarded in its favour against 9380-0845 Québec inc. The judgment does not specify the dollar amount of those legal costs, so no exact figure can be determined from the decision. While the plaintiff proved that it had itself incurred project expenses totalling $293,413, the Court declined to rule on quantum because neither fault nor causation had been established, and no damages were awarded to the plaintiff.