On December 3, 2014, Minister of Justice Stéphanie Vallée introduced Bill 26, An Act to ensure mainly the recovery of amounts obtained as a result of fraud or fraudulent tactics in connection with public contracts (hereinafter the "Bill") to the National Assembly.
Through this Bill, which will become public policy, the Québec Government seeks to recover overpayments made in all public contracts, including those awarded in the construction industry, as a result of fraud or fraudulent tactics committed by certain enterprises or their officers.
The Bill offers delinquent enterprises the option to voluntarily report their actions in the context of a reimbursement program (hereinafter the "Reimbursement Program" or "Program"), without any formal charges being laid. Enterprises that exercise this option will have to detail their fraud or fraudulent activities, and then submit a proposal under the Reimbursement Program. It bears noting that nothing that is either stated or written in the context of the Program will be admissible as evidence in a court of law. The goal of the Program, which will be led by an impartial and independent director, is to allow the parties to agree on the amount of "overpayment" received from a public body that the enterprise will reimburse. The program director may not be compelled to disclose anything that he has learned or that has been revealed to him throughout this process. The Program is therefore similar to the legal mediation provided for in the Code of Civil Procedure, with the exception that the names of the parties, the amount agreed upon and the period concerned must be made public.
Pursuant to this Program, the government will avoid the delays inherent in the legal system and avoid major legal costs. We believe that by voluntarily participating in the Reimbursement Program and thus demonstrating that they are acting in earnest and making efforts to rehabilitate themselves, delinquent enterprises may hope to solicit public contracts once again. Indeed, the legislation seems to focus on rehabilitating enterprises, seeing as a guilty verdict will not automatically result in the Autorité des marchés financiers refusing an application for authorization.
What is more, if a case that is already underway lends itself to the Reimbursement Program, it may be stayed on a party's application, provided that the party undertakes to participate in the Program.
Specific Rules Applicable to Legal Actions
Enterprises that choose to remain silent about their fraud or fraudulent tactics should be aware that the Bill also facilitates civil actions against them.
The moment a public body demonstrates that an enterprise has committed fraud or has engaged in fraudulent tactics in the course of tendering, or the awarding or management of a public contract, it will be presumed to have caused injury to the public body concerned, without the latter being required to demonstrate the extent thereof. The burden of proof is therefore reversed: it is up to the enterprise to demonstrate the absence of injury. An additional presumption applies regarding the liability of the enterprise's officers at the time of the impugned actions. These officers may, however, be released from this liability if they can demonstrate that they acted with the care, diligence and skill that a prudent person would have exercised in similar circumstances. The same applies for the enterprise's directors, but in their case the burden of proof is on the public body, which must establish that they knew or ought to have known about the fraud or fraudulent tactics of which they may be accused. Note that once an enterprise and/or its officers and/or directors have been found liable, they are all solidarily liable.
The prescription period provided for in the Bill derogates from the general prescription period provided for under the Civil Code of Québec ("C.C.Q."), which prescribes three years in the context of actions asserting a personal right or an immovable real right. In fact, an action to repair injury caused to a public body by fraud or fraudulent tactics in the course of tendering, or the awarding or management of a public contract in the 20 years preceding the coming into force of the legislation cannot be dismissed on the grounds that it is prescribed if it existed when the legislation came into force or was instituted within five years after that date.
As for the amount that corresponds to the injury that may be claimed before the courts, the Bill grants public bodies a rebuttable presumption whereby the monetary value of the injury will represent 15% of the total amount payable in the context of the awarding of that contract. For example, if a public contract valued at $1 million was awarded and paid to an enterprise, and the public body assessed its injury at 15%, that injury would be calculated as follows: $1 million x 15% = $150,000. In addition to the 15% injury, which constitutes a presumption of damages, the public body may claim any surplus amount, provided it can prove it to the court.
Another point of interest is that the amount claimed as injury will bear interest at the rate of 6% (under section 28 of the Tax Administration Act [ch. A-6.002], which is capitalized daily) as of the final payment made by the public body for the contract concerned.
To guarantee the claim, the Bill also grants public bodies the right to a legal hypothec on the property of the enterprise, of its officers and of its directors, pursuant to the rules set forth in article 2724 of the C.C.Q. This legal hypothec contemplates all damages caused to public bodies, namely the presumed injury of up to 15% of the amount they disbursed, as well as any amount in addition to this percentage established by that public body. However, in order to register a legal hypothec, an additional condition is provided for: an authorization must be obtained from a judge in chambers, and will only be granted if the public body's claim appears to be well-founded and if there is reason to fear that recovery of the claim may be jeopardized without such authorization. However, this hypothec will be subordinated to the prior claims set forth in article 2651 of the C.C.Q., which rank prior to other claims, even hypothecary claims. This measure therefore does not guarantee that amounts will be available for the public body and/or the Québec State in the event of a potential conviction.
Finally, if a court were to allow an action to be brought against an enterprise, a lump sum equal to 20% of the amount granted for injury would have to be added. We suspect that this 20%, which is intended to cover expenses incurred for the purposes of the legislation, therefore applies both to the amount of presumed injury (up to 15%) as well as to any additional amount established and obtained by the public body. However, the text is somewhat unclear as to what amount is contemplated by this 20%. This section will undoubtedly be questioned at the parliamentary committee.