Quebec Trying to Recover Misappropriated Funds From the Construction Industry

On November 13, 2013, Quebec’s Minister of Justice, Bertrand St-Arnaud, tabled Bill 61, An Act mainly to recover amounts paid unjustly by public bodies in relation to certain contracts in the construction industry in the national assembly. If enacted, Bill 61 would allow the minister of justice to seek compensation from businesses that defrauded public bodies or used fraudulent tactics or practices in the course of the tendering, awarding or management of public construction contracts, on behalf of all public bodies or government agencies.

This measure will avoid a multiplicity of proceedings in several judicial districts in relation to the same company and fraudulent practices, and hopefully use government resources more efficiently and lower costs. However, with the minister’s approval, public bodies affected by the fraudulent practices will also be able to bring separate legal action against such businesses.

The Bill also proposes amendments to extend the limitation period for claims against those businesses involved. It would permit the government to claim damages for a period of 15 years preceding the adoption of the Bill and five years after the Bill has come into force. On proof that a business has engaged in fraudulent practices, it would be presumed to have caused damage to the affected public body. Damages would be calculated as a percentage of the price paid under the contract by the affected public body, while at the same time allowing the minister to claim a greater amount.

Thus, it would be up to the accused business to show that it did not commit the alleged fraud, or if it did, to show the exact amount of damage, otherwise it would have to pay the amount claimed by the government.

Both directors/executives and representatives would be held jointly and severally liable with the concerned business, unless they prove that they acted with the care, diligence and skill that a prudent person would have exercised in similar circumstances.

Another component of the Bill is a voluntary reimbursement program to enable the government to quickly recover misappropriated funds. This program will be administered by a neutral and independent party for a limited period of time and will allow businesses to avoid a civil claim by reimbursing the amounts owed, after which legal proceedings may begin. The terms and conditions of this program will be published in the Quebec Gazette. It is important to note that participation in the voluntary reimbursement program will not result in an amnesty for people or businesses that have committed fraudulent practices that may lead to criminal prosecution.

The amounts recovered will be distributed to the public bodies in proportion to their loss, after deduction of expenses related to the implementation of the Bill. The minister would also have the power, before judgment, and with the authorization of a judge, to register a legal hypothec (mortgage) on the concerned business’s property if the recovery of the minister’s claim may be in jeopardy.

Should this Bill pass, the ministry of justice would be responsible for the administration and enforcement of the new law.

Given the ongoing discoveries of the Charbonneau commission, these aggressive measures seem to be warranted. However, while they should streamline the process of recovery, I question whether the process will be more efficient or make better use of resources. One way or another, with so many parties to the fraud among the construction industry, unions and government, it will be years before the litigation is complete.