Québec – application for referral to arbitration has no autonomous status once plaintiff discontinues action – #483

In 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.

The parties disputed the sale price of a particular immovable governed by one (1) of a series of transactions in 2013, 2014 and 2016 which included an agreement to arbitrate disputes between the parties.  Respondent had initiated litigation before the Québec Superior Court seeking homologation of a transaction (settlement) under article 2631 of the Civil Code of Québec, CQLR c CCQ-1991, a declaration as to the value of the immovable and a declaration that the Superior Court had jurisdiction to do so to the exclusion of the arbitrator.  The parties had also engaged in arbitration and Appellants had filed a cross-demand in that arbitration.

Appellants responded to the action by applying for dismissal of Respondent’s action and for referral to arbitration (“Application”).  They added that the dispute had already been submitted to arbitration, the request to homologate were both premature and unfounded and the arbitral award had yet to issue.

After pleading the Application before Madam Justice Alicia Soldevilla and while under advisement, Respondent filed a notice of discontinuance of its action. Appellants then filed a second application to contest and annul the notice of discontinuance, arguing that Respondent caused them prejudice and short-cut the debate undertaken for their Application. Appellants asked that the judge still issue a decision on their Application for dismissal and referral to arbitration, invoking the proportionality provisions in the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).  See articles 2, 18 and 158 C.C.P.

In first instance, Soldevilla J. identified a single issue for her to determine: did Appellants’ Application to dismiss and referral to arbitration qualify as a cross-demand (cross-application or cross-claim) or as analogous to a cross-demand in regard to which the court remained seized as an independent claim notwithstanding the discontinuance.

In Gagné v. Gagné, 2019 QCCS 3395, Soldevilla J. concluded that Appellants’ Application was not a cross-demand as the grounds raised did not formulate a claim of a right in their favour against Respondent within the meaning of article 172 C.C.P.

Article 172 C.C.P. In the defence, the defendant may make a cross-application against the plaintiff to assert a claim arising from the same source as the principal application or from a related source. The court remains seized of the cross-application despite discontinuance of the principal application.

A cross-application is made in writing but defended orally, unless the court, on its own initiative, requires that it be defended in writing”.

Instead, Soldevilla J. determined that Appellants’ Application was limited to a contestation of Respondent’s action and, without that action, had no distinct or autonomous status in regard to a right invoked by Appellants.  Soldevilla J. also noted the contradiction raised by Appellants’ second application, observing that Appellants had insisted in their first Application that the arbitrator determine first the question of jurisdiction.  Soldevilla J. also dismissed Appellants’ argument that they had any acquired rights in their Application which required a decision given that Respondent acknowledged that the arbitrator remained seized of Appellants’ earlier cross-demand made in the arbitration.

On appeal, the Court of Appeal summarized the parties’ respective arguments at paras 16-18 regarding the alleged error in not characterizing the Application as a cross-demand.  The Court next referred to article 622 C.C.P. which require, in part, that a court seized of a dispute on such an issue is required, on a party’s application, to refer the parties back to arbitration, unless the court finds the arbitration agreement to be null.

The Court referred to earlier statements regarding the court’s role in disputes over an arbitrator’s jurisdiction, namely Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801 paras 84-87, Dens Tech-Dens, k.g. v. Netdent-Technologies inc., 2008 QCCA 1245 para. 26 (leave to appeal denied Dens Tech – Dens KG v. Netdent-Technologies Inc. and Netdent Inc. – and – Canadian Commercial Arbitration Centre, 2009 CanLII 4203 (SCC)) and Aéroports de Montréal v. Société en commandite Adamax immobilier, 2010 QCCS 4606 para. 22 (appeal dismissed Aéroports de Montréal v. Société en commandite Adamax Immobilier, 2012 QCCA 293).

The Court noted that the parties agreed that arbitration had now commenced before a designated arbitrator and that Appellants had presented a cross-demand, albeit ‘dormant’, in the arbitration. The Court further noted that the cross-demand preceded the Application.  Given the provisions of article 622 C.C.P. and the case law, the Court held that Appellants were correct that, once an arbitration had commenced and so long as the arbitrator had not decided jurisdiction, it remained to the arbitrator to decide it.  The Court concluded that, in the circumstances, this meant that, due to the discontinuance, the Superior Court had no other choice but to refer the parties to arbitration.

[informal translation] ‘That being the case, it must be admitted that once the discontinuance is filed, before the Superior Court decided the grounds raised, the judge was faced with a juridical void given that there was no dispute to refer to arbitration.  In such circumstances, the judge had no basis to conclude that Appellants had acquired rights to have decided the referral to arbitration of a matter which had already terminated’.

The Court concluded that the decision contained no reviewable error and dismissed the appeal.

urbitral notes – First, for a discussion of the nature of a discontinuance, see the earlier Arbitration Matters note “Saskatchewan – availability and final nature of partial discontinuance of claims in arbitration considered – #342” regarding Poffenroth Agri Ltd. v Brown, 2020 SKCA 68. Saskatchewan’s Court of Appeal held that a notice of discontinuance filed in a civil action was interlocutory, not final, in nature and required leave to appeal.  Observing the limited number of precedents, the Court referred to but distinguished the reasoning and result in Ontario First Nations (2008) Limited Partnership v. Aboriginal Affairs (Ontario), 2013 ONSC 7141 which considered whether an arbitral panel’s decision to accept a claimant’s partial withdrawal of its notice of arbitration was final or not and, if subject to appeal, permitted under Ontario’s Arbitration Act, 1991, SO 1991, c 17.

Second, for a decision discussing the impact of a discontinuance on a claim for abuse of process, see the earlier Arbitration Matters note “Québec – alleged abuse of procedure in court prior to referral to arbitration is subject to court sanction not arbitration – #438” regarding Dupont v. Langlois, 2021 QCCS 136. Despite the brevity of her decision, Madam Justice Carole Therrien 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 of the Code of Civil Procedure, CQLR c C-25.0 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.

Third, for a decision setting out the requirements of a dispute before referral to arbitration, see the earlier Arbitration Matters note “Manitoba – litigants lack a dispute to justify one arbitration and an agreement to justify another arbitration – #039” regarding I.XL Properties Ltd. v. Springs of Living Water Centre Inc. et al, 2017 MBQB 30. Manitoba’s Court of Queen’s Bench demonstrated two (2) limits of a court’s intervention in consensual arbitration when handling two (2) separate disagreements involving three parties.  For the first disagreement, involving two (2) litigants bound by an arbitration agreement, Mr. Justice Robert A. Dewar declined to order them to arbitration because they had not yet reached a dispute.  For the second disagreement, involving another pair of litigants who did have a dispute but no arbitration agreement,  Dewar J. sent them to trial but offered to order them to arbitration if only they would consent.