Québec – Arbitration clause cannot be avoided by bringing a class action – #531

In Centre de santé dentaire Gendron Delisle inc. c. La Personnelle, Assurances générales inc., 2021 QCCS 3463, Justice Davis reaffirmed that a valid arbitration clause will be enforced and cannot be avoided by the Plaintiff bringing a class action. In this matter, the Plaintiff sought authorization to bring a class action against various insurance companies under various insurance policies and to be appointed as representative Plaintiff on behalf of dental clinics which claimed business interruption losses caused by the COVID-19 pandemic. Justice Davis dismissed the request for authorization on the basis that it did not meet the requirements of Article 575(2) of the Code of Civil Procedure. However, he said that had he granted authorization, those insured dental clinics covered by an insurance contract containing a valid arbitration clause would have been excluded from the group covered by the class action and referred to arbitration.

The COVID-19 pandemic caused important losses to some workers and businesses, including dental clinics. Dental services were closed for several months, except for emergencies, following governmental decree number 223-2020 adopted on March 24, 2020. Hence, dental clinics’ incomes were drastically reduced.

The Plaintiff filed an insurance claim asking for compensation as a result of the business interruption. However, the insurer denied coverage on the basis that the Plaintiff failed to prove any material damages resulting from a covered event (loss). Accordingly, the Plaintiff applied to the Québec Superior Court for authorization to bring a class action for compensation due to business interruption losses.

All insurance policies of the proposed defendants had similar coverage language. However, the Royal Sun Alliance policy included a dispute resolution clause, which provided for arbitration in case of a dispute between the insurer and the insured concerning either the coverage or the quantum afforded by the policy:

Dispute Resolution

In the event that the Insurer and the Insured(s) cannot agree concerning either the coverage or the quantum afforded by this policy, it is agreed that the dispute shall be resolved in accordance with the dispute resolution process hereinafter described:

a) Mediation with a Mediator mutually agreed to by the parties to the dispute. If the parties fail to concur on the choice of the Mediator, a Court shall appoint a Mediator on a Motion by one of the parties.

b) If settlement at Mediation is not possible, the dispute will be referred to Arbitration in accordance with the applicable Arbitration legislation/regulations in the jurisdiction in which the Policy is issued. The decision of the Arbitrator will be binding on all parties to the dispute with no right of appeal.

c) Each party shall bear its own costs and expenses in connection with the dispute resolution process. The costs and expenses of Mediation and Arbitration shall be shared equally by the parties to the dispute.

By agreement in writing, the Insurer and the Insured(s) may waive compliance with this section or any part thereof for purposes of a specified dispute.”

Therefore, RSA argued that the Court lacked jurisdiction over this matter.

Ultimately, Justice Davis denied the application for authorization to bring a class action on the basis that it did not meet the requirements of Article 575(2) of the Code of Civil Procedure because the proposed class action had no chance of success. His conclusion resulted from an analysis of the policies’ coverage sections and was based on the lack of alleged material loss which was needed to trigger any coverage according to the applicable policies.

Notwithstanding this conclusion, Justice Davis addressed RSA’s jurisdiction argument. He reviewed the Québec Superior Court’s 2016 decision in 9369-1426 Québec inc. (Restaurant Bâton Rouge) v. Allianz Global Risks US Insurance Company, 2021 QCCS 47, in which Justice Morrison declined jurisdiction in a similar matter.

Quoting Justice Morrison:

[43] The class action provisions contained in the Code of Civil Procedure are merely of a procedural nature. They do not modify substantive law. Nor do they create competence for the Superior Court over certain disputes where the parties have lawfully decided to exclude it.

[44] Both the Quebec Court of Appeal and the Supreme Court of Canada have determined that an arbitration clause does not violate public order even in cases where an applicant seeks authorization to bring a class action.”

Justice Davis concluded that RSA would have been justified in seeking a declinatory exception, which the Court would have granted because of the dispute resolution clause included in its policy. He also added that if the authorization sought by Plaintiff had been granted generally and a class action allowed to proceed, all RSA’s insureds would have been excluded from the class action group because of the application of the arbitration clause.

Contributor’s Notes:

First, Justice Davis’s decision is faithful to the Supreme Court of Canada’s decision in the Quebec case Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, which stated:

[105] … The class action is a procedure, and its purpose is not to create a new right. …

[107] …From this perspective, the class action is clearly of public interest. However, the first introductory provision of Book IX of the Code of Civil Procedure — Class Action — reminds us that, as important as it may be, the class action is only a legal procedure:

999. …(d) “class action” means the procedure which enables one member to sue without a mandate on behalf of all the members. …

[108] In the case at bar, the parties agreed to submit their disputes to binding arbitration. The effect of an arbitration agreement is recognized in Quebec law: art. 2638 C.C.Q. Obviously, if Mr. Dumoulin had brought the same action solely as an individual, the Union’s argument based on the class action being of public order could not have been advanced to prevent the court hearing the action from referring the parties to arbitration. Does the mere fact that Mr. Dumoulin instead decided to bring the matter before the courts by instituting a class action affect the admissibility of his action? In light of the reasons of LeBel J., writing for the majority in Bisaillon, at para. 17, the answer is no: “[the class action] cannot serve as a basis for legal proceedings if the various claims it covers, taken individually, would not do so”.”

Second, it is important to note that, following the Dell Computer Corp. decision, section 11.1 of the Consumer Protection Act (“CPA”) was adopted in Québec. It precludes stipulations which restrict consumer rights to bring a class action before a court, including an arbitration clause agreed upon before the dispute has arisen. The Legislator’s intent was to protect more vulnerable people, like consumers. In the Centre Gendron Delisle case, section 11.1 of the CPA does not apply since dental clinics are not consumers according to the Consumer Protection Act.

Third, compare this with the 2019 decision of the Supreme Court of Canada, Telus Communications inc. v. Wellman, 2019 SCC 19 (an Ontario case), in which the majority reaffirmed the concept of party autonomy which is in conformity with the modern approach to arbitration. This matter implicated both consumers and business consumers, who ended being treated differently as a result of the application of the Ontario Consumer Protection Act. The business consumers are were bound by the arbitration clause they agreed upon.

Fourth, Justice Davis’s conclusion regarding the composition of the class action group is also in accordance with Justice Lussier’s decision in Société AGIL OBNL v. Bell Canada, 2021 QCCS 365. Justice Lussier granted the authorization to bring the class action, but excluded the businesses bounded by an arbitration agreement from the class action group, based on the cases mentioned hereinabove. See previous Case Note: Québec – ‘best to leave it to the Supreme Court to reverse or distinguish its own majority decisions’ – #431 for more comments.