Québec – Arbitration clauses bind parties only, even if parallel proceedings – #780

In Clinique Ovo inc. v. Elite IVF, 2023 QCCA 1097, the Court determined that an arbitration clause barred some, but not all third-party claims. The factual matrix underlying this decision is convoluted: two agreements; similar but not identical arbitration clauses; and multiple actors. The background facts are sensational: an alleged fraudulent in vitro impregnation involving parties in Geneva and Cyprus; a birth in Monaco; disputed support payments required from a bewildered father; and, inevitably, litigation with third-party claims raising issues of arbitration clause interface with the court proceedings. Against this backdrop, the Court of Appeal decision is grounded in a key and decisive first principle: arbitration clauses bind parties to the agreement, not strangers. 

Background – Svensson (“Husband”) and Ziabi (“Wife”) retained Québec-based Clinique OVO (“OVO”) for in vitro fertilization. In 2012, Husband provided semen samples to OVO. In August 2014, the marital relationship ruptured.

In September 2014, Wife was assisted by Geneva-based Elite IVF (“Elite”) to attend a fertility clinic (“Genesis”) in Cyprus, where Husband’s semen sample from OVO was implanted. Husband denied knowledge or consent. In May 2015, Wife gave birth in Monaco. Husband was registered as the child’s father and was required to pay support.

The litigation – In November 2016, Husband sued Wife and OVO in Québec Superior Court for damages in negligence and fraud. OVO denied responsibility and applied to bring third-party claims against Elite and Genesis. 

Elite and Genesis opposed OVO’s third-party application on the basis of arbitration clauses in two agreements: one between Elite and OVO (“E/O Agreement”) and the other between Elite, Husband, and Wife (“E/S/Z Agreement”). Husband, for his part, maintained his signature to the E/S/Z Agreement was forged.

The arbitration clauses are similar.

E/O Agreement 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.”

E/S/Z Agreement Arbitration Clause – “The parties hereby agree, that should any dispute arise between them in the future they 9sic) 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 was a signatory to the E/O Agreement and the E/S/Z Agreement. Genesis was not a signatory to either agreement, but maintained it was a third-party beneficiary of the E/S/Z Agreement and was entitled to have disputes resolved by arbitration.

Québec Superior Court decision – In Svensson v. Groupe Ovo inc., 2019 QCCS 1278, the Court denied OVO’s application to bring third-party claims against Elite and Genesis. 

The judge noted that arbitration clauses should be given a large and liberal construction. He ruled that the arbitration clause in the E/O Agreement prevented OVO from bringing a third-party claim in court against Elite. Any such claim had to be arbitrated.

The application judge also dismissed OVO’s third-party claim against Genesis. First, the Court  found the arbitrator would have to confirm whether jurisdiction existed to determine if Genesis was also covered by the E/S/Z Agreement as a third-party beneficiary. Second, he stated it would be more practical to settle disputes at the domicile of Genesis through the application of Cypriot law.

Court of Appeal decision – The Court of Appeal reviewed both agreements, the arbitration clauses, provisions of the Québec Civil Code, and case law to determine whether the arbitration clauses prevented OVO’s third-party proceedings. 

The Court first considered the E/S/Z Agreement and arbitration clause. 

The Court of Appeal summarily dismissed OVO’s argument that the arbitration clause was deficient. Nevertheless, the Court accepted that the clause was unenforceable against OVO:

[22] The cardinal rule set out in article 1440 C.C.Q. limits the effect of contracts to the contracting parties only. This Court in Metso recalls that an arbitration clause cannot be enforceable against a third party who has ‘never agreed to be bound by any agreement whatsoever’.”

OVO was not a party to the E/S/Z Agreement; accordingly, the arbitration clause did not bar OVO’s third-party claims against Elite and Genesis.

The Court of Appeal then overturned the lower court finding that Genesis was a third-party beneficiary to the E/S/Z Agreement: 

“[29] I do not find in this agreement any stipulation for others. I recall that the intention to stipulate a right in favour of third parties must be clear, which is not the case here”.

The Court also considered that the application judge had made “terse” and “unclear” findings in concluding there was insufficient connection between Husband’s main action against OVO and Wife and OVO’s third-party claim against Genesis. The Court substituted its own finding:

“[42]…I consider that the two legal actions are sufficiently related to be heard before the same court. In this regard, [Husband] maintains in his action against OVO that OVO is liable for the damages claimed, in particular for failing to verify its consent to the transfer of his samples to Genesis.”

The Court then considered the E/O Agreement and found no reviewable error in the application judge’s interpretation of this arbitration clause. The clause was mandatory and OVO and Elite deliberately excluded the jurisdiction of the Québec courts. Arguments concerning the application of the E/O Agreement could be resolved in arbitration:

“[57] It is true that the E/O Agreement ended on July 26, 2013. Although OVO alleges that the IVF treatments occurred in 2014, Elite’s alleged fault lies in its failure to obtain [Husband’s] valid consent in advance or failing to verify its existence. However, the transfer of [Husband’s] samples took place in 2012, well before July 26, 2013.

[58] The fact that the child was conceived in 2014 does not alter the nature of the alleged fault against Elite or the substance of the debate surrounding [Husband’s] consent.

[59] In any event, the question of whether the E/O Agreement was in force at the time of the events giving rise to the dispute is one that falls within the arbitrator’s jurisdiction and can always be debated before the arbitral body in due course.”

Contributor’s Notes: 

The Superior Court decision was the subject of a previous Case Note, see – Québec – Arbitration agreement prevents defendant from adding third party as defendant-in-warranty – #189.

This Case Note utilizes terms familiar to most English-speaking common-law readers e.g., “third-party claim” rather than “forced intervention” (intervention forcée in French) found in this decision.

Although this was not a stay of court proceedings application, a similar threshold question arises:  is there an applicable arbitration clause that ousts the jurisdiction of the court? The Court of Appeal answered “yes” for third-party claims against Elite but “no” for third-party claims against Genesis. 

Both Québec courts acknowledged the arbitration clauses were broad in scope. The Court of Appeal however was more rigorous in applying each arbitration clause to the various parties to determine whether the court’s jurisdiction was ousted. 

Complicating factors in this case were the number of parties and two different agreements. Considered closely however, the E/S/Z Agreement is a red herring; it had no impact on the third-party claim.

To summarize, the outcome of the Court of Appeal’s decision is as follows: 

1. OVO, the third-party claimant, was not bound by the arbitration clause in the E/S/Z Agreement. OVO was not a party to that contract. Accordingly, the court’s jurisdiction to hear third-party claims by OVO was not ousted by the E/S/Z Agreement arbitration clause.

2. OVO’s third party claim against Elite must be arbitrated: OVO was bound by the arbitration clause in the E/O Agreement. OVO was a party to that contact. Accordingly, OVO could not bring a third-party claim against Elite in court. OVO and Elite agreed that claims would be brought in arbitration. The arbitrator had the jurisdiction to decide if the E/O Agreement was in force.

3. OVO’s claim against Genesis must proceed in court as a third-party proceeding related to Husband’s claim against Wife and OVO. Genesis was not a party to the E/S/Z Agreement. That agreement made no mention of Genesis and contained no third-party beneficiary / “stipulation for others”. As such, OVO’s third-party claim against Genesis was not barred.

The result is there will be parallel court and arbitral proceedings on related matters.