Québec – addition of potential claim to existing court action deemed abusive when arbitration of claim not completed – #501

In Raymond Chabot Administrateur provisoire Inc. du plan le garantie La Garantie Abritat Inc. v. 7053428 Canada Inc., 2021 QCCS 1039, Madam Justice Dominique Poulin qualified as abusive an attempt by Plaintiff to add a second claim to its existing court proceeding despite that claim still being subject to a pending arbitration. Plaintiff argued that its approach favoured efficiency by merely adding a second claim which it argued was related to a first claim already confirmed by prior arbitration and the object of the existing court proceeding.  Poulin J. held that Plaintiff could not add a claim which remained uncertain and indeterminate and which Plaintiff had not yet paid, thereby lacking legal standing.  Poulin J. reminded Plaintiff that the notice of arbitration served to interrupt prescription (limitation).  Despite Defendants’ claim for damages for the abuse of procedure, Poulin J. ordered no damages, observing that Plaintiff’s approach stemmed from either a misunderstanding of its rights or a motivation to facilitate the process and not to abuse it.

Plaintiff served as provisional manager of a guarantee plan applicable to qualifying constructions of new residential buildings under the Regulation respecting the guarantee plan for new residential buildings, CQLR c B-1.1, r 8 (“Regulation”) which issued under the Building Act, CQLR c B-1.1.

Plaintiff had instituted a subrogated recourse claiming amounts ordered against Defendants and in favour of a beneficiary regarding corrective work which Plaintiff imposed following a complaint filed in 2015 (“First Complaint”).  A second complaint had been filed in 2019 (“Second Complaint”) and, following an October 21, 2019 order to undertake corrective work, was subject to pending arbitration set out in the Regulation and administered by the Canadian Commercial Arbitration Center. See section 35 et seq. of the Regulation.

Plaintiff sought to add the amounts claimed in the Second Complaint to its court action even though the arbitration was still underway, no amounts had been determined it Plaintiff’s favour and no payment had been made by Plaintiff to the beneficiary of the guarantee it administered. 

Defendants resisted Plaintiff’s addition of the Second Complaint.  Defendants applied for (a) the dismissal in part and (b) the referral of the remaining balance to Court of Québec.  Defendants argued in regard to :

(i) the First Complaint – the amount of the First Complaint was within the jurisdiction of the Court of Québec; and,

(ii) the Second Complaint – (a) Plaintiff had no standing to claim the amounts sought in the Second Complaint because it had not yet paid those amounts and was not yet subrogated in the claim; and, (b) the amount was hypothetical as the arbitration which would determine that amount had not yet been completed.

Plaintiff argued that it adopted its approach in order to favour an effective administration of its action.  Rather than institute an action and later amend it, Plaintiff argued it was more efficient to claim the amount now the amount it anticipated from the final determination in arbitration.  Plaintiff submitted that it need only increase or decrease the amount of its claim once the arbitration concluded, relaying on the final costs as determined.  Plaintiff also argued that doing so interrupted prescription (limitation period).

Poulin J. granted Defendants’ application, agreeing that Plaintiff’s action qualified as an abuse of procedure under article 51 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).  To introduce her analysis, at para. 9 she listed the principles applicable to qualifying a procedure as abusive which she drew from Municipalité de Rivière-Beaudette v. 6617085 Canada Inc., 2019 QCCS 21 paras 23-24.

Article 51 C.C.P. reads as follows:

Article 51 C.C.P. The courts may, at any time, on an application and even on their own initiative, declare that a judicial application or a pleading is abusive.

Regardless of intent, the abuse of procedure may consist in a judicial application or pleading that is clearly unfounded, frivolous or intended to delay or in conduct that is vexatious or quarrelsome. It may also consist in a use of procedure that is excessive or unreasonable or that causes prejudice to another person, or attempts to defeat the ends of justice, particularly if it operates to restrict another person’s freedom of expression in public debate”.

In dismissing Plaintiff’s argument that it sought to interrupt prescription, Poulin J. referred to Société canadienne des postes v. Rippeur, 2013 QCCA 1893 paras 30, 31 and 39 and Dubois v. Fondations André Lemaire Inc. (Habitations André Lemaire), 2011 QCCS 2339 para. 11 which held that case law had determined that service of a notice of arbitration interrupted prescription under article 2892 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”). 

Article 2892 C.C.Q. The filing of a judicial application before the expiry of the prescriptive period constitutes a civil interruption, provided the demand is served on the person to be prevented from prescribing not later than 60 days following the expiry of the prescriptive period.

Cross demands, interventions, seizures and oppositions are considered to be judicial applications. The notice expressing the intention by one party to submit a dispute to arbitration is also considered to be a judicial application, provided it describes the subject matter of the dispute to be submitted and is notified in accordance with the rules and time limits applicable to judicial applications”.

Poulin J. referred to the text of the Regulation in effect at the relevant times and concluded that Plaintiff had yet no personal standing to claim on the Second Complaint.  The Second Complaint was still subject to a pending arbitration and only at its conclusion would Plaintiff know whether it had or had no obligation to indemnify the beneficiary of the guarantee.  In that case, Plaintiff would be able to subrogate itself up to the extent of any disbursement made to the beneficiary and then possess a legal interest to file a claim in regard to that disbursement. Poulin J. concluded that, at the present time, Plaintiff’s Second Complaint was unfounded and destined to fail give Plaintiff’s lack of an actual legal interest. 

Poulin J. determined that Plaintiff’s proceeding was abusive.  Plaintiff’s approach risked drawing Defendants into a process susceptible of occasioning months of delay.  Poulin J. added that the indemnification owing under the Regulation was suspended during arbitration and that Plaintiff had already notified Defendants that it sought a year long extension of the arbitration in order to ready the arbitration file and obtain an award.  During that period, Defendants would face a claim of $274,939.13 despite arbitration having not yet terminated and corrective work having not yet been determined.  Plaintiff’s claim for the Second Complaint was uncertain and indeterminate and did not justify delaying the First Complaint.

Poulin J. dismissed Plaintiff’s concern regarding prescription.  She noted that the beneficiary’s own claim was itself suspended during arbitration and, in any event, only payment of a sum would entail subrogation and legal standing for Plaintiff.

Defendants sought compensatory damages as a result of the abuse of proceeding but Poulin J. rejected any claim for compensation.  She noted that Plaintiff’s approach stemmed from either a misunderstanding of its rights in the particular context or a motivation to facilitate the process and not to abuse it.

Poulin J. also granted Defendants’ application to refer the First Complaint to Court of Québec given that the amount fell within its jurisdiction and not that of the Superior Court.

urbitral notes – First, for other decisions addressing claims of alleged abuse of procedure related to arbitration, see the earlier Arbitration Matters notes:

(i) “Québec – no abuse of procedure if losing arbitral party obliges non-parties to litigate their liability for similar claims – #440”. In litigation instituted by A against S/B, with M forced to intervene by B, Mr. Justice Jean-François Michaud in ArcelorMittal Exploitation minière Canada v. SNC-Lavalin Inc., 2021 QCCS 202 refused to grant S/B’s and M’s applications to dismiss which invoked abuse of procedure based on a prior arbitral award between A and M.  A chose not to involve M in the litigation but B had forced M’s intervention as part of B’s defense against A. Michaud J. held that (i) S/B were not parties in the arbitration and the arbitration did not address their liability and (ii) M could not object to the expense of defending in a second, separate instance in which B had forced M’s intervention. Recognizing that M had spent millions to successfully contest similar claims by A in the arbitration, Michaud J. concluded that M’s additional expense stemmed from the arbitration clause it had accepted.  Despite a successful result for M in the arbitration with A, Michaud J. observed that the trial judge might draw conclusions similar to or different from the arbitration and eliminating the risks of contradictory judgments was impossible. 

(ii) “Québec – alleged abuse of procedure in court prior to referral to arbitration is subject to court sanction not arbitration – #438”. Despite the brevity of her decision, Madam Justice Carole Therrien in Dupont v. Langlois, 2021 QCCS 136 underscored a key distinction between the court’s oversight triggered by parties litigating before the court despite a binding agreements to arbitrate.  Though Plaintiff voluntarily discontinued his action following Defendant’s application to decline jurisdiction, Therrien J. held that Defendant’s claim for abuse of procedure pursuant to articles 51-56 C.C.P. was made before Plaintiff’s discontinuance and in the context of management of the litigation.  Acknowledging that the action stemmed from a dispute involving the contract, Therrien J. determined that the alleged procedural abuse by Plaintiff took place in the context of a judicial procedure before the Superior Court and it is the court which had the authority to sanction abuse, if need be.

Second, see the earlier Arbitration Matters note “Québec – application for referral to arbitration has no autonomous status once plaintiff discontinues action – #483” regarding Gagné v. Gagné, 2021 QCCA 823. Québec’s Court of Appeal agreed that defendants’ application for referral to arbitration did not qualify as a cross-demand and the court was not seized of that application as an independent claim. Plaintiff had discontinued his action after the parties had pleaded defendants’ application for referral and during advisement. The Court held that defendants could not require the court to issue a decision after plaintiff filed the discontinuance. The court faced a juridical void given that there was no dispute to refer to arbitration and had no basis to conclude that defendants had acquired rights to have a decision on a referral to arbitration of a matter which had already terminated. The Court qualified an application for referral as limited to contestation of plaintiff’s action and, without that action, had no distinct or autonomous status in regard to a right invoked by defendants.