In her article dated June 14, 2024, Me Karine Bouchard outlined the three possible avenues through which a party in a civil dispute may seek reimbursement for attorney fees incurred to pursue the action to its conclusion or, as the case may be, to ensure their defense.
Beyond cases of abuse of process or significant procedural shortcomings, the reimbursement of attorney fees may be contractually stipulated, offering an additional path for recovering incurred legal costs. This practice is often integrated into commercial contracts, leases, and other legal agreements to specify how litigation costs will be handled. This text explores the legal principles related to this practice and illustrates its application through recent jurisprudence.
Guiding Principles
The possibility of including a clause in a contract, whereby the attorney fees incurred by one party to enforce the terms of said contract will be borne by the other contracting party, stems from the cornerstone principle in Quebec law: contractual freedom and consensualism. As a contract represents an exchange of wills between two or more persons, Quebec contract law is based on the premise that signatories must have the necessary latitude to define their contractual relationship according to their needs.
However, this principle naturally has its limits. Firstly, although such clauses are valid in principle, to be accepted by the courts, they must be drafted clearly and in compliance with the requirements of Articles 1373 and 1374 of the Civil Code of Québec[1]. Indeed, for a clause regarding the award of attorney fees to be valid, it must be sufficiently clear and precise to be deemed determinable by the Court. That being said, a clause does not need to specify a precise amount or a detailed method of calculation to be valid. However, it must use sufficiently clear terms so that the parties can foresee the costs that may be claimed under it.
For example, in the decision Laferrière v. Entretiens Servi-Pro inc.[2], the Court deemed the expression “frais et loyaux coûts” (fair and reasonable costs) used in the reimbursement clause to be imprecise and equivocal. Indeed, the Court was of the opinion that the “costs and expenses” referred to by the clause were rather obscure, and the expression as drafted did not allow for an exact understanding of what it referred to.
However, in Vanhoutte, the Court found the clause allowing the lessor to recover “all costs, expenses, and legal fees that the latter will incur (sic) or pay for the execution or enforcement of the provisions, conditions, and obligations of this lease” to be sufficiently clear and determinable.
Furthermore, to be valid:
- The contract containing the clause must be validly formed, and the consent of the parties validly given[3];
- The clause must not be contrary to public order or prohibited by law[4];
- Finally, in an adhesion contract, a clause may be deemed abusive[5].
These specific situations, however, require a case-by-case evaluation, as the facts of each matter must be analyzed.
Moreover, the courts reserve the right to analyze the reasonableness of extrajudicial costs claimed by a party and may intervene to moderate claims thus validly made.
Recent Jurisprudence
Jurisprudence has clarified the application of attorney fee reimbursement clauses by specifying the conditions under which these clauses are applied.
In the case of Banque de Nouvelle-Écosse v. Davidovit, 2021 QCCA 551, the Quebec Court of Appeal examined the principle of contractual reimbursement of attorney fees. The Bank of Nova Scotia claimed reimbursement for attorney fees incurred in the lawsuit against Mr. Davidovit, invoking a contractual clause that provided for such reimbursement.
The Court confirmed that, under Quebec law, a clause providing for the reimbursement of attorney fees is valid and enforceable, provided it is drafted clearly and unambiguously. It specified that the principle of contractual freedom allows parties to agree to such clauses, but they must be interpreted strictly and applied in accordance with the requirements of good faith and proportionality. The Court also emphasized that the amount of fees claimed must be reasonable and justified in relation to the services rendered.
More recently, the same Court[6] confirmed these same principles, emphasizing the reasonableness of the costs claimed in the instance.
Thus, apart from the exceptions discussed above, attorney fee reimbursement clauses are generally valid as long as they are clearly drafted and accepted by all parties. They must be specific regarding the conditions that trigger reimbursement, such as losing the case or non-compliance with contract terms.
Courts interpret reimbursement clauses based on their wording and the circumstances surrounding their inclusion. They seek to give effect to the parties’ intention while respecting the principles of good faith and equity. Although parties may contractually agree on the allocation of costs, courts exercise some control to ensure that reimbursement clauses are not abusive or excessively onerous. In such cases, a Tribunal could reduce the amount of the claim.
Conclusion
Contractually stipulated attorney fee reimbursement clauses play a crucial role in litigation management by offering financial security to the parties involved. The fundamental legal principles of validity, interpretation, and judicial discretion guide the application of these clauses. Courts ensure that these clauses are applied fairly and in accordance with the intentions of the contracting parties. To avoid future disputes, it is essential that reimbursement clauses are drafted with precision and clarity, accurately reflecting the parties’ agreements.
Our lawyers are available to assist you in drafting such clauses or to advise you on the application of an attorney fee reimbursement clause in a contract to which you are a party.
References
[1] Groupe Van Houtte inc. (A.L. Van Houtte ltée) v. Développements industriels et commerciaux de Montréal inc., 2010 QCCA 1970, para. 119;
[2] 2005 QCCA 1218;
[3] Articles 1385 C.c.Q. et seq.
[4] Article 1411 C.c.Q.
[5] 1437 C.c.Q.
[6] Services financiers Caterpillar limitée v. Gilbert, 2024 QCCA 11
