Santé Montréal Collectif CJV c. Veolia Health Services Montreal 2023 QCCS 3817 concerned a dispute relating to the construction of a hospital complex. The Respondent, Veolia Health Services Montreal sec (“Veolia”), alleged it was due money for repair work as part of its contractual obligation to perform maintenance after construction of the hospital complex was complete. It filed a notice of arbitration and at the same time a hypothec, or lien, against the subject property (the “Mortgage Notice”) with the court. The Applicant, Sante Montreal CJV Collective sec (“CJV”) built the hospital complex. It, had separate obligations to ensure the property was clear of encumbrances and applied to strike the Mortgage Notice (the “Request to Strike”). Even though only the Court had authority to discharge the Mortgage Notice, it nonetheless suspended CJV’s application, pending the determination of the arbitration, and ruled that the Veolia’s entitlement to relief pursuant to the Mortgage Notice was an issue for an arbitrator to decide.
Background to dispute – The case arose from a series of contracts entered into for the purpose of constructing a hospital. Collectif sante Montreal sec (“Project Co.”) and the Centre University of Montreal Hospital entered into a partnership agreement whereby the hospital entrusted Project Co. with the design, construction and maintenance of the Montreal Hospital Complex (the “Hospital Complex”).
Project Co., in turn, subcontracted the design, construction and maintenance of the Hospital Complex to two subcontractors:
1) CJV, which contracted with Project Co. to build the Hospital Complex (the “Phase 1 Contract”); and
2) Veolia, which entered into a Facility Maintenance Agreement (“FMA”) with Project Co. to manage the facilities and perform preventative and corrective maintenance of the Hospital Complex once CJV had completed its construction (“Phase 2 Contract”).
CJV, Veolia and Project Co. together also entered into an Interface Agreement (the “ARIA”), which clarified the parties’ responsibilities regarding the construction and maintenance of the Hospital Complex. The ARIA contained an arbitration clause, which provided:
“6.2 Dispute Resolution
(a) All Disputes which affect the interpretation or the execution of the rights and obligations of Project Co or [the hospital] under the Project Agreement (a “PA Dispute”) shall be determined pursuant to the dispute resolution procedure set forth in the Project Agreement.
…
(c) The Contractors [CJV and Veolia] will submit to the dispute resolution procedure under Schedule D attached hereto (the “Interface Dispute Resolution Procedure”), any and all Disputes, excluding PA Disputes […]
(d) Except as contemplated by the Interface Dispute Resolution Procedure, no Party shall have the right to refer any Dispute for resolution by any other dispute resolution process, subject to Section 6.2(a) with respect to PA Dispute, including any dispute resolution procedure or process specified by the relevant Construction Contract (in the case of a Constructor) or the Facility Maintenance Agreement (in the case of the Service Provider), as the case may be.”
Pursuant to the ARIA, CJV had to remedy any defects to work it performed under the Phase 1 Contract. Veolia, however, was obligated to carry out corrective work if CJV refused to repair defects and seek reimbursement for the work from directly from CJV.
In July 2022, Veolia advised CJV of a defective part within the Hospital Complex ventilation system, which CJV had installed and Veolia’s subcontractor, SemCo LLC (“SemCo”) maintained. CJV refused to repair the defect and took the position that any defects resulted from a lack of maintenance by Veolia or SemCo.
Veolia informed CJV that SemCo would replace the part and it invoiced CJV $679,883.21 for the corrective work. In January 2023, when CJV refused to pay the invoice, Veolia registered the Mortgage Notice against the Hospital Complex and delivered a Notice of Dispute and Intention to Submit the same to Arbitration (the “Dispute Notice”).
Subsequently, CJV brought a Request to Strike as it had committed in the Phase 1 Contract to ensure no charges were registered against the Hospital Complex.
As described below, there were two issues before the Court.
Issue 1: Whether the Request to Strike raised matters that were covered by the ARIA arbitration clause
In seeking to stay CJV’s Request to Strike, Veolia argued that its entitlement to the Mortgage Notice fell within the scope of the arbitration clause and the Request to Strike should therefore be referred to the private dispute resolution process. Against this, CJV argued that this issue was outside the scope of the ARIA.
The Court summarized the principles that apply when a party requests a referral to arbitration. When parties have entered into an arbitration agreement to settle their disputes, that dispute cannot be brought before a court. Unless a court finds that the agreement is null and void, it must grant a referral request. Finally, an arbitrator is competent to determine their own jurisdiction to hear a dispute.
No parties contested the validity of the ARIA. Likewise, all parties accepted that only the Court could discharge the Mortgage Notice. The issue was whether the dispute regarding CJV’s obligation to pay for the corrective work done by Veolia was within the scope of the arbitration agreement. The Court found that it was and ordered the court proceeding suspended pending completion of the arbitration under the ARIA. Among other reasons, the Court noted that absent the ARIA, which governed the responsibility of perform and pay for repair work, there would be no dispute over the registration of the Mortgage Notice. Moreover, the Court highlighted that arguments CJV advanced in support of cancelling the Mortgage Notice hinged on determining issues under the ARIA, including whether the repair work resulted from defects in construction as opposed to maintenance.
Issue 2: Alternatively, whether the Court should stay proceedings given the judgment in a related action
The Court also considered Veolia’s argument that the Request to Strike ought to be stayed as the issue had already been decided in a previous judgement made by another judge of the same court. That case involved the same parties and also considered whether to suspend an application to discharge a hypothec in relation to a different dispute. The other judge suspended the discharge application and referred the parties to arbitration.
In considering whether to stay proceedings, a court will, among other things, consider whether: there was an undeniable link between two proceedings; the ultimate remedy depended to a large extent on the fate of the remedy in another jurisdiction; suspension of the court proceeding would ensure the rule of proportionality; and there are risks of conflicting judgements and multiple procedures, remedies or costs.
Applying these principles, the Court found that it was in the interests of justice to stay the court proceedings relating the application to strike the Mortgage Notice, pending the outcome of the dispute resolution procedure invoked by Veolia with the FMA and ARIA arbitration clauses. Absent a stay, there would be significant risk of contradictory judgements. Overall, these proceedings were found to be linked, as the fate of the Request to Strike depended in large part on the outcome of the process brought under the FMA’s and the ARIA’s arbitration clauses.
Contributor’s Notes:
This case presents an interesting paradox. The parties to the various agreements each contracted for private dispute resolution. These arbitration clauses, however, did not exclude other remedies, such as the registration of liens in the courts. This left the Court in the position of being the only body with the authority to cancel the Mortgage Notice, but without the jurisdiction to do so until the underlying issues were resolved by an arbitrator.
Similar issues will arise in circumstances where one party to an arbitration agreement seeks an interim injunction in court. In those cases, the courts will consider whether the request for interim relief is permitted under an arbitration clause. In this regard, the following Case Note may interest to Arbitration Matters readers: Alberta – Restrictive interpretation of exceptions to stay applications – #754
The author wishes to thank Sarina Trasolini for her assistance in writing this Case Note.