Executive Summary: Key Legal and Evidentiary Issues

• The appeal turned on whether section 53.16 of the Expropriation Act should be interpreted broadly to prevent a lender from claiming a termination payment as compensation for an advance repayment triggered by expropriation.
   
• Courts had to determine whether the Credit Agreement and the Swap Agreement were separate, independent contracts, as the trial judge found, or interrelated instruments designed to secure the lender's economic benefit.
   
• Evidentiary issues included whether the termination payment, calculated under the Market Quotation method in the ISDA Master Agreement, amounted to a pre-estimate of loss and therefore constituted compensation under article 1611 of the Civil Code of Québec.
   
• Legislative history, including 1983 parliamentary debates, was examined to clarify the legislature's intent in allocating expropriation-related losses among expropriated parties, expropriating authorities, and creditors.
   
• Whether the trial judge committed a palpable and overriding error in concluding that the termination payment was unconnected to the advance repayment of the Term Loan was also central to the appeal.
   
• Ultimately, the Court had to decide whether the appellant was entitled to recover the sum it paid under protest to secure release of the Deed of Hypothec.
   

Facts of the case

Boulevard Shopping Centre (Montreal) Limited Partnership (the "LP") owned Le Boulevard, a shopping centre in Montreal. The property was financed by the Bank of Montreal under a Credit Agreement entered into with the LP, its general partner, and Boulevard Acquisition Corp. (collectively the "Borrowers"), and the loan was secured by a Deed of Hypothec registered against the property's title. To fix the interest rate on the Term Loan, the parties also entered into a Swap Agreement, composed of an ISDA Master Agreement, its Schedule, and a Confirmation. The Ministère des transports du Québec expropriated the property, and an amount of $115,000,000 was ultimately agreed as the expropriation indemnity. Disbursement of that indemnity required the property to be free of encumbrances, including the Deed of Hypothec. When the appellant sought a payout statement to release the hypothec, the Bank took the position that it was also entitled to a termination payment under the Swap Agreement, which it calculated at $2,434,150 following a notice designating December 29, 2020 as an Early Termination Date. The appellant accepted a payout letter and paid this amount under protest to obtain the release, then sued to recover it, arguing that section 53.16 of the Expropriation Act barred the Bank from claiming the payment as compensation for an advance repayment. The trial judge dismissed the appellant's application, and the appellant appealed.

Policy and legislative provisions at issue

The dispute centred on section 53.16 of the now-repealed Expropriation Act, which provided that a payment made under the Act to a creditor of the expropriated party does not constitute an advance repayment for which the creditor may claim compensation; this wording was carried forward largely unchanged in section 138 of the Act respecting expropriation. Section 58 of the Expropriation Act, which entitled an expropriated party to an indemnity based on the value of the property and the damage directly caused by expropriation, was also considered. On the contractual side, sections 21.5.1 and 21.7.1 of the Credit Agreement stated that the Swap Agreement was a separate agreement whose terms were not superseded by the Credit Agreement, while sections 4.3.1, 4.5.1, 2.2.2, and 5.1.1 tied repayment of the Term Loan to the obligation to pay any termination amount owing under the Swap Agreement and provided a Swap Facility to secure that obligation. Under the ISDA Master Agreement, section 6(b)(i) required notice of a Termination Event, section 6(c) addressed the effect of designating an Early Termination Date, and section 6(e)(iv) described the Market Quotation measure as a reasonable pre-estimate of loss rather than a penalty. Article 1611 of the Civil Code of Québec, which defines damages as compensation for loss sustained and profit lost, and article 1619, concerning the additional indemnity, were also applied.

Reasoning and analysis

Writing for the Court, Immer J.A. found that the trial judge committed reviewable errors on each ground of appeal. On the first ground, the trial judge never resolved whether section 53.16 should be given a broad and liberal interpretation; drawing on the remedial purpose of the Expropriation Act and the 1983 parliamentary debates preceding the provision's enactment, the Court concluded that the legislature deliberately chose to leave lenders uncompensated for lost future interest revenue when expropriation triggered an advance repayment, so the provision must be read broadly in favour of the expropriated party. On the second ground, the Court held that the trial judge disregarded the clear and unambiguous terms of the Credit Agreement and the Swap Agreement, which operated in tandem: the Swap Agreement defined an Additional Termination Event as arising when the Bank lost the benefit of the Credit Support Documents, and the Credit Agreement secured payment of any resulting termination amount through the Swap Facility, itself backed by the Deed of Hypothec. On the third ground, the Court found that the termination payment, calculated using the Market Quotation method and expressly described in the ISDA Master Agreement as a pre-estimate of loss, constituted compensation within the meaning of article 1611 of the Civil Code of Québec, contrary to the trial judge's conclusion. Because section 4.5.1 of the Credit Agreement made payment of the termination amount a condition attached to prepayment of the Term Loan, the Court concluded that the termination payment was compensation for an advance repayment, which section 53.16 was intended to preclude.

Ruling and overall outcome

The Court of Appeal allowed the appeal, set aside the Superior Court judgment, and granted the appellant Boulevard Acquisition Corp.'s originating application for recovery of the sum paid under protest. The Bank of Montreal was condemned to pay the appellant $2,434,150, plus interest at the legal rate and the additional indemnity under article 1619 of the Civil Code of Québec, calculated as of December 29, 2020, with legal costs, including expert costs, awarded to the appellant both at trial and on appeal.