Executive Summary: Key Legal and Evidentiary Issues

• A share purchase agreement's "dollar for dollar" price-adjustment mechanism took precedence over a purchaser's later attempt to revalue the shares using a liquidation-value methodology.
   
• Buyers who received a pre-purchase inspection report flagging specific building defects but chose not to follow up on the recommended further inspections could not later characterize those same defects as undisclosed false representations.
   
• The Court of Appeal emphasized that an appellant bears a heavy burden to produce a complete appeal record, and several missing exhibits and solemn declarations proved fatal to multiple grounds of appeal.
   
• Findings on whether a party made false representations were treated as essentially factual determinations owed deference, reviewable only for palpable and overriding error.
   
• Quantifying a damages claim tied to undisclosed employee hours required actual evidence of loss and causation, not simply a mathematical extrapolation of hourly wage differentials.
   
• An indemnification clause covering extrajudicial fees was found to apply regardless of the claimant's overall success at trial, leading the Court of Appeal to award a proportionate share of those fees on appeal.
   

Facts of the case

Doris Joly inherited most of the shares of Gosselin et Boilard inc., a Quebec door and moulding manufacturer, from her late husband, with the remaining shares held by Gestion Raynald Boilard inc. In 2019, Joly decided to sell the business. A confidential information memorandum set a minimum price of $650,000, but prospective purchasers François Caron and Geneviève Hébert were advised by their own accountants that the shares were worth between $1,000,000 and $1,100,000. Caron and Hébert submitted a letter of intent proposing $1,100,000, subject to a due diligence review whose results had to be to their entire satisfaction.

During due diligence, inspector Stéphane Millaire produced a report identifying numerous issues with the building, including negative ground slopes directing water toward the foundation, exterior cladding installed below ground level, deteriorated windows, and a recurring roof infiltration problem at the junction between two sections of the building. Millaire recommended immediate corrective work on several items and further specialist inspection of the roof and structure. Caron and Hébert did not act on these recommendations, apart from asking Joly to repair a ceiling stain in a storage area, which she agreed to do.

The parties closed the transaction effective October 1, 2019, for $1,100,000. More than a year later, the purchaser (by then operating as Gosselin et Boilard inc.) sent notices alleging false representations concerning employee salaries, vehicle condition, and building defects, including mould, wall rot, and septic system deficiencies. The purchaser ultimately sued for a reduction in the sale price, non-pecuniary damages, and reimbursement of extrajudicial legal fees, seeking a total exceeding $500,000.

Policy and contractual provisions at issue

The share purchase agreement contained representations and warranties under which the sellers warranted that the building was free of defects, that all property was in good working and maintenance condition subject to normal wear and tear, and that no material fact had been omitted that would have affected the purchaser's decision to proceed. The agreement specified that any investigation conducted by the purchaser would not affect its right to rely on these representations. A price-adjustment clause (4.6) provided that indemnification amounts would be treated as a dollar-for-dollar adjustment of the purchase price, rather than requiring a full share revaluation. A separate indemnification clause (4.1, including sub-clauses 4.1.3 and 4.1.4) obliged the sellers to indemnify the purchaser for losses, including extrajudicial legal fees, arising from inaccurate representations or breaches of the agreement.

Reasoning and analysis

The trial judge partially granted the claim, awarding $33,363.02 for specific items — ceiling repairs, column stabilization, and an undisclosed salary adjustment — reduced by a $5,000 deductible to $28,363.02. He dismissed the balance of the claim, including damages for trouble and inconvenience and the claim for extrajudicial fees, reasoning that the purchaser had largely lost its case and could not be reimbursed for litigation it initiated without substantial success.

On appeal, the Court of Appeal upheld most of the trial judge's findings, applying the deferential palpable-and-overriding-error standard to questions of fact. On the building-condition issues, the Court found that where a purchaser's own inspector flags a potential defect and recommends further investigation, the purchaser's failure to pursue that investigation undermines any later claim that the same defect was concealed or falsely represented. The Court also noted that the incomplete appeal record — missing solemn declarations, expert reports, and maintenance invoices — prevented meaningful review of several grounds, including those concerning the roof, septic system, heating system, and vehicles.

On the disclosure of an employee's actual weekly hours, the Court agreed that the trial judge erred in law by treating the employer's non-disclosure obligation as limited to paid hours, since the relevant contractual schedule was factually inaccurate. However, the Court found the purchaser had not proven any causal link between that inaccurate disclosure and a quantifiable loss, noting inconsistencies between the purchaser's damages theory at trial (lost profit) and on appeal (a mathematical wage-gap calculation), and dismissed this ground.

On extrajudicial fees, the Court found the trial judge erred by treating entitlement as contingent on overall litigation success. The indemnification clause, previously upheld by the Court of Appeal in other cases, made the sellers liable for fees reasonably incurred in connection with the inaccuracy of their representations, regardless of the ultimate outcome of the litigation. Since the respondents had not contested the quantum of fees claimed, the Court applied the same proportion of success used for the underlying claim (approximately 7.8%) to the fee claim.

Ruling and overall outcome

The Court of Appeal partially allowed the appeal, without costs given the mixed result. It added a further condemnation against the respondents, Gestion Raynald Boilard inc. and Doris Joly, ordering them to solidarily pay the appellant, Gosselin et Boilard inc., $9,577.50 in extrajudicial fees, with interest at the contractual rate from December 12, 2024. All other grounds of appeal were dismissed, leaving the trial judgment's monetary award of $81,636.98 (payable by the appellant to the respondents, after set-off) otherwise unchanged.