In Hydro-Québec v. Terrassement St-Louis inc., 2025 QCCA 900, the Court dismissed the demand of Appellant Hydro-Québec’s (“Hydro-Québec”) to refer the file to arbitration. Although the parties were bound by a valid arbitration agreement, the Court confirmed the first instance judge’s conclusion that the arbitration agreement was included in a contract of adhesion and that the arbitration agreement itself was abusive; because of the small amount in dispute, the three-arbitrator panel prescribed by the arbitration agreement resulted in a denial of justice for the Respondent. Therefore, the arbitration agreement was declared null under section 1437 C.C.Q. According to the Court’s reasoning, the arbitration agreement should have been flexible to take into consideration smaller amount disputes by having the option of a sole arbitrator and/or expedited arbitration rules.
The dispute – The parties had a contract according to which Terrassement St-Louis inc.(“Terrassement”) was to perform some work for the environmental rehabilitation of land owned by Hydro-Québec. Terrassement claimed an amount of $ 253,128 from Hydro-Québec for breach of contract. The contract contained an arbitration agreement, which provided for a three-arbitrator panel decision, unless both parties agreed otherwise, and a provision which specifically indicated that the contract was agreed upon in Montréal to fix the Court’s territorial jurisdiction.
The Superior Court decision – Terrassement filed its claim before the Superior Court of the district of Chicoutimi, where it had its domicile. Hydro-Québec replied with a declinatory exception seeking to refer the file to arbitration or subsidiarily, to refer the file to the Superior Court located in the district of Montréal.
First, the Superior Court judge ruled that the contract was one of adhesion because Terrassement had no possibility whatsoever to negotiate its terms and provisions.
Second, the judge concluded that the arbitration agreement was abusive and therefore null according to section 1437 CCQ, which provides the following:
“1437. An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced.
An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore contrary to the requirements of good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.”
The arbitration agreement forced the parties to proceed before a three-arbitrator panel, unless they agreed otherwise. Considering the circumstances of the case, the first instance judge found that the arbitration agreement was abusive because the amount in dispute was relatively small. Forcing Terrassement to proceed by way of arbitration, considering the costs of hiring three arbitrators, would deny Terrassement’s right to justice because it would be too expensive compared to the amount in dispute.
The first instance judge also dismissed Hydro-Québec’s demand to refer the file to the district of Montreal, finding the place of the agreement clause to be abusive. She based the decision on the fact that Hydro-Québec has several places of business all over Québec and that there was no reason to impose the district of Montréal for all claims brought against it.
The judgment in Appeal – TheCourt confirmed the first instance judge’s ruling concerning the arbitration agreement but overturned it on the issue of the declinatory exception to refer the file to the district of Montréal.
First, the Court agreed that the contract governing the parties was one of adhesion. Terrassement had no real opportunity to negotiate its terms and provisions. This finding was not contested in appeal.
Second, the Court found that the abusive nature of a clause included in a contract of adhesion was a subjective assessment, based on the circumstances of each case. Therefore, the same agreement can be considered abusive in some cases and not abusive in others.
Analysing the circumstances in the instant case, the Court confirmed that the parties’ arbitration agreement resulted in a denial of justice for Terrassement because of the small amount in dispute compared to the significant costs of proceeding before a three-arbitrator panel. Since the only way to proceed before a single arbitrator was upon the agreement of the other party, the Court concluded that the late agreement of Hydro-Québec to proceed before a sole arbitrator was too little too late and did not change the nature of the agreement.
The Court also gave several examples of alternatives that would have resulted in a finding that the arbitration agreement was valid. In particular, the Court suggested that the arbitration agreement could have been tailored according to the amount in dispute, by providing the possibility to proceed before one arbitrator when the amount in dispute was small or by providing for expedited arbitration rules.
As for the declinatory exception to refer the case to the district of Montréal, the Court referred to the previous decision of Hydro-Québec v. Canmec Industriel inc., 2014 QCCA 919, that found that this kind of language in a contract of adhesion was not abusive.
Contributor’s Notes:
This judgment is interesting because the Court of Appeal rarely takes the opportunity to give advice to arbitration practitioners. In this case, the Court strongly suggested to parties to an arbitration agreement to tailor their agreement in a way that takes into account the amount in dispute, either by reducing the number of arbitrators and/or by including efficient procedural rules. In this way, the Court is addressing access to justice concerns in a similar way that the Supreme Court of Canada did in Uber Technologies Inc. v. Heller, 2020 SCC 16, but with Québec’s provisions.
Also, this ruling is consistent with section 622 al. 3 CCP, which prescribes to parties to an arbitration agreement to act in conformity with the principle of proportionality:
622. […] The parties cannot, through their agreement, depart from the provisions of this Title that determine the jurisdiction of the court or from those relating to the application of the adversarial principle or the principle of proportionality, to the right to receive notification of a document or to the homologation or the annulment of an arbitration award.
If these principles can be beneficial in practice, we will see how this ruling can balance with the important principle of party autonomy in arbitration enshrined in the Supreme Court of Canada’s judgments in Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 and in GreCon Dimter inc. v. J.R. Normand inc., 2005 SCC 46 and the largely favorable interpretation given to arbitration agreements by Courts during the last decade.