Québec – arbitration agreement prevents defendant from adding third party as defendant-in-warranty – #189

In Svensson v. Groupe Ovo inc., 2019 QCCS 1278,  Mr. Justice Yves Poirier refused a defendant’s motion to implead a third party as its defendant-in-warranty because the civil procedure allowing defendant to do so must yield to the parties’ arbitration agreement. The court’s procedural solution allowing a defendant to join its proposed action-in-warranty to an existing litigation is suppletive and gives no jurisdiction to the court to grant the motion or override the primacy of arbitration procedure.

On November 8, 2016, Mr. S (“Plaintiff”) sued Ms. Z and Groupe OVO Inc. (“OVO”) for damages alleging the unauthorized use of his sperm and resulting birth of his daughter.  The damages claimed correspond, among other things, to the alimentary support payments for his daughter.  Plaintiff alleged that he did not authorize the use of his sperm which lead to her birth.

OVO had possession of the sperm.  As defendant to Plaintiff, OVO as proposed Plaintiff-in-warranty applied to the Superior Court under article 188 of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) to force the intervention of Elite IVF (“Elite”) and Genesis IVF Clinic (“Genesis”) in Plaintiff’s court litigation initiated against OVO. 

Article 188 C.C.P. A third person is impleaded by service of a declaration of intervention setting out the grounds justifying the forced intervention of that third person as a party, together with the judicial application. The declaration of intervention must also propose an intervention procedure, with due regard for the case protocol.

The declaration of intervention is also notified to the other parties and they and the third person have 10 days to notify their opposition.

Elite is a corporation based in Geneva, Switzerland which offers services to other companies specialized in in-vitro fertilization including referrals to such clinics in various countries.  Through Elite, Ms. Z retained the services of Cyprus-based Genesis.  Having retained Genesis’ services, Ms. Z gave birth to her daughter.

OVO’s application to implead Elite and Genesis implicated two (2) contracts:

(i) OVO and Elite’s contract (“Contract 1”).  It contained an arbitration clause.

The parties hereby agree and covenant that insofar as any disputes arise between them in the future regarding this Contract, they will turn to arbitration only, and only if the parties will have agreed to an arbitrator who is acceptable to both of them, will they apply to him.  Should the parties fail to amicably select the arbitrator, the parties agree that the arbitrator will be the person to be appointed by the Bar Association of the State of New York, U.S.A.

(ii) Elite’s contract with Plaintiff and Ms. Z (“Contract 2”).  It also contained an arbitration clause.

The parties hereby agree, that should any dispute arise between them in the future they will be resolved by arbitration.  An arbitrator acceptable to both parties shall be appointed by the Bar Association of the State of New York, USA. This agreement shall be governed by USA law only.

Elite resisted OVO’s motion.  It argued that the arbitration clauses deprived the Superior Court of jurisdiction.

Genesis also resisted.  It claimed that it benefited from Contract 2 because Contract 2 contained a ‘stipulation for another’, a source of right recognized by Québec’s Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”), and thereby also the arbitration agreement contained in Contract 2.

Article 1444 C.C.Q. A person may, in a contract, stipulate for the benefit of a third person.

The stipulation gives the third person beneficiary the right to exact performance of the promised obligation directly from the promisor.

OVO raised a series of grounds to deflect the application of the arbitration agreements. It argued that neither of the arbitration agreements was complete.  For Contract 1, OVO argued that the agreement did not cover the dispute and that, having been annulled, the arbitration agreement no longer bound the parties.  For Contract 2, OVO argued that it was not a party to Contract 2 and, disputing the authenticity of Plaintiff’s signature on that document, that Plaintiff was also not a party to it.  Regarding Genesis, OVO argued that Genesis was not a party to either contract.

Poirier J. introduced his analysis by referring to article 3148 C.C.Q.  and article 622 Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”), noting that Québec’s substantive (C.C.Q.) and civil procedure (C.C.P.) legislation gave priority to parties’ autonomy to choose another mode of private dispute resolution.

Article 3148 C.C.Q. provides that Québec courts (“authorities”) “have no jurisdiction where the parties have chosen by agreement to submit the present or future disputes between themselves relating to a specific legal relationship to a foreign authority or to an arbitrator, unless the defendant submits to the jurisdiction of the Québec authorities.

Article 622 C.C.P. stipulates that “[u]nless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court even though it would have jurisdiction to decide the subject matter of the dispute.” In addition to other terms, the article adds 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.

Poirier J. then included an extensive excerpt of paras 20-31 from GreCon Dimter inc. v. J. R. Normand inc., [2005] 2 SCR 401, 2005 SCC 46.  The latter held that the parties’ autonomy prevailed over the suppletive civil procedural rules in the C.C.P. that allowed actions-in-warranty to follow the main action.

Having set the broad lines of Québec’s approach to arbitration agreements, Poirier J. then examined each of the arbitration agreements in Contract 1 and Contract 2.

Contract 1 – Poirier J. referred to Desputeaux v. Éditions Chouette (1987) inc., [2003] 1 SCR 178, 2003 CSC 17, Viandes du Breton inc. v. Notre-Dame-du-Lac (Ville de), 2007 QCCA 651 para. 3, Acier Leroux Inc. v. Tremblay, 2004 CanLII 28564 (QC CA) para. 30, and Laurentienne-vie, Cie d’assurances inc. v. Empire , Cie d’assurance-vie, 2000 CanLII 9001 (QC CA) para. 23, noting that arbitration agreements must be interpreted in a broad and generous manner.  Once the court determines that a clause appears valid and applies to the litigation, the matter must be referred to arbitration as the court has no discretion in that regard.

He found that the wording used in Contract 1 was imperative. There was no provision to revoke the arbitration notice in favour of another forum.  Though the choice of the arbitrator was to be made jointly, any disagreement would be resolved by the New York State Bar.  Poirier J. considered that the omission to state an applicable law did not present any difficulty, noting the solution provided by article 3133 C.C.Q.:

Article 3133 C.C.Q. Arbitration proceedings are governed by the law of the State where the arbitration takes place unless the parties have designated either the law of another State or an institutional or special arbitration procedure.

The wording of the agreement did not expressly state that the award would be final and executory, as required by Zodiak International v. Polish People’s Republic, [1983] 1 SCR 529, 1983 CanLII 24 and Elliott v. Forecam Golf Ltd., 2011 QCCA 1029, but other cases, such as Investissement Charlevoix inc. v. Gestion Pierre Gingras inc., 2010 QCCA 1229, had applied a less-rigid analysis to meet that standard.  The latter decision, at para. 42, held that such agreements need not contain the express mention of ‘final and binding’ to be ‘final and binding’.  Referring to , Poirier J. determined that the agreement was sufficient and complete.  Relying on Dell Computer Corp. v. Union des consommateurs, [2007] 2 SCR 801, 2007 SCC 34, Poirier J. stated that jurisdiction is the arbitrator’s to decide and that, after a summary consideration, Contract 1’s arbitration agreement applies to the proposed action-in-warranty.

In addition, because the award could be homologated and enforced as a judgment of the court under article 622 C.C.P., Poirier J. also considered that this possibility was an indicia that the parties’ agreement was final and binding.

The termination of Contract 1 did not have the effect of terminating the dispute resolution process to resolve disputes which arose during the term of Contract 1. On the facts the dispute arose during the period prior to its termination.

As a result, Poirier J. concluded that Contract 1 prevented OVO from obtaining the forced intervention of Elite in the court litigation.   The action-in-warranty had to yield to the arbitration agreement contained in Contract 1.

Contract 2 – Poirier J.’s analysis of the second contract wass more summary, especially in light of his preceding analysis on Contract 1.  He readily determined that the analysis of Contract 2 lead him to the same conclusion as Contract 1.  The arbitration agreement, though worded differently, has an imperative character and the provisions of article 645 C.C.P. authorize the homologation of the award which gives it its final and binding characteristic.

He also noted that it is up to the arbitrator to confirm whether or not jurisdiction exists and to interpret Contract 2 in order to see if Genesis is also covered by it due to the stipulation for another. The arbitrator would also have to determine if Plaintiff had signed Contract 2 or not. Independent of the arbitration agreements, Poirier J. also dismissed OVO’s application against Genesis.  He considered that their dispute would be best settled at the domicile of Genesis and applying Cyprus law.  Genesis having no domicile in Québec, Poirier J. concluded that there is not appropriate to include their dispute in the present litigation.