Clyde & Co Case Commentary: The Superior Court dismisses an action taken against EDC and IQ by the surety of a bankrupt company

The Superior Court of Quebec rules in favor of Export Development Canada (“EDC”) and enforces a "[unequivocal]" Waiver against the surety who signed it in the context of a loan guarantee granted to the RBC.

Relevant Facts

In the recent decision Banque Royale du Canada c. D'Orsa, 2024 QCCS 101^₁, the Superior Court of Quebec granted Export Development Canada ("EDC") and Investissement Québec ("IQ")’s applications for dismissal against the motion in forced intervention and recourse in warranty made by defendant/claimant in warranty Mr. Francesco D’Orsa ("D’Orsa").

In this matter, following the bankruptcy of Techno-Tec Inc. ("Techno") and pursuant its loan agreement with the Royal Bank of Canada ("RBC"), RBC sued D’Orsa as surety of Techno's debts up to the amount of $1,000,000. Moreover, subordinated to the loan agreement was a loan guarantee granted by IQ and accepted by Techno, which covered up to 50% of RBC’s potential net losses (i.e. the residual amount once other guarantees held by RBC were realized, including D’Orsa's suretyship).

As for EDC, it also provided a loan guarantee to RBC, but contingent to D’Orsa personally signing a ”Waiver” which provides that D’Orsa "expressly waives the benefit of all privileges and rights based on law, equity, statute or contract, which now or may hereafter be available to it against EDC as co-guarantor or co-surety including, without limitation, any right it may have as surety to obtain contribution from EDC as a co-guarantor or a co-surety, or (ii) if located in Québec, expressly waives the benefit of all privileges and rights it may have against EDC as co-guarantor or as solidary or joint surety, including, without limitation, any action in subrogation or the personal right of action that the undersigned may have against EDC under articles 1651, 1656, 1659 and 2380 of the Civil Code of Québec.”²

D’Orsa's Allegations

D’Orsa alleged that RBC, through one of its representatives, made certain misrepresentations which led him to be confused on the extent of his personal responsibility to repay Techno's debts. D’Orsa contended that, had he known the true scope of his liability with regard to Techno’s debts, he would not have solely undertaken his suretyship for such a high amount without other guarantees and co-sureties. D’Orsa further asserted that EDC and IQ should bear their fair share of the repayment to RBC, even going as so far to argue that IQ actually provided a suretyship which created solidarity between IQ and himself.³

Qualification of the Contracts in an Application for Dismissal pursuant to Section 168 of the Code of Civil Procedure⁴

In his ruling, Justice Martin Castonguay of the Superior Court of Quebec emphasized that the characterization of the facts that D’Orsa was attempting to establish in his claims against IQ and EDC were unfounded in law, even if there facts that were asserted were correct.⁵ The Court recalled that the underlying objective of IQ's guarantees is to facilitate the financing of small and medium-sized businesses in Quebec.⁶ He reminded the parties that a suretyship shall not be presumed⁷ and pointed out that Techno paid a "guarantee fee" on the guarantee that IQ grants to RBC.⁸ The Court therefore found that IQ’s contract was a loan guarantee and not a suretyship. EDC’s contract was also qualified as such.⁹

The "Unequivocal" Nature of EDC's "Waiver"

Moreover, the Court concluded that there is an "absolute absence of rights against EDC"¹⁰ arising from the unequivocal text of the “Waiver” signed personally by D’Orsa. The Court goes so far as to note that it would not have hesitated to declare D’Orsa's recourse abusive if such a request had been made, considering he tried to argue the complete opposite of what he agreed to.¹¹

Conclusions

In light of this decision, we can appreciate that the Honorable Castonguay did not hesitate to reject unfounded attempts to distort the true nature of the guarantees offered by IQ and EDC. By recognizing the commercial reality in which these financial institutions operate and highlighting the lack of ambiguity in the text of the contracts, especially EDC's "Waiver", the Court provided useful insights into how such contracts should be interpreted and executed.
 

¹ [Banque Royale du Canada].
² CQLR c CCQ-1991, [“CCQ”].
³ Banque Royale du Canada, para. 14.
⁴ CQLR c C-25.01.
⁵ Banque Royale du Canada, para. 17.
⁶ Id., para. 18.
⁷ Section 2335 of the CCQ.
⁸ Banque Royale du Canada, para. 19.
⁹ Id., para. 25.
¹⁰ Id., para. 28.
¹¹ Id., para. 27 and 29.