Québec – challenge rejected to court’s authority to issue injunctive relief before arbitrator appointed – #449

In Bouchard v. Gouin, 2021 QCCS 781, Mr. Justice Jocelyn Pilote dismissed a defendant’s jurisdictional challenge to the Superior Court’s authority to issue injunctive relief in light of a valid agreement to arbitrate.  Acknowledging that neither party challenged the validity of the agreement to arbitrate and mindful of the deference owed by courts to the jurisdiction given to an arbitrator by parties, Pilote J. held that defendant’s interpretation of article 623 Code of Civil Procedure, CQLR c C-25.01, which confirmed a court’s authority to issue provisional measures before or during arbitration, would remove all substance from that article.  In the dispute before him, the parties had not yet named an arbitrator and respondent’s delay in which to propose an arbitrator had not yet expired.

CB and KG signed a January 6, 2017 shareholders agreement (“Agreement”) to govern their 50-50 shareholding in a denture clinic.  In recent months their business relationship deteriorated, leading to an exchange of demand letters and replies.

KG issued a February 5, 2021 notice regarding an alleged event (“Notice”) which qualified to trigger a forced buyout of CB’s shares under the Agreement.  KG’s Notice gave CB three (3) days to comply with certain demands set out in the Notice, failing which KG would engage the buyout provision in the Agreement.

By February 12, 2021 reply (“Reply”), CB contested KG’s Notice and advised KG of the status of CB’s health which occasioned a medical leave from work between February 9 to March 12, 2021. In CB’s Reply, she demanded that her remuneration be paid and that conservatory measures be set up, namely the appointment of an independent manager to see to the management of the clinic, hiring a temporary staff to serve the clientele normally served by CB and to reschedule the mediation and arbitration process under the Agreement to a time after CB’s medical leave.

KG answered February 22, 2021 (“Answer”), advising CB that KG invoked the dispute resolution procedures in the Agreement and required that their dispute be referred to arbitration and proposed the name of an arbitrator as sole arbitrator.

CB did not reply to KG’s Answer and, two (2) days after the Answer, filed an application for a safeguard order under the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).  See articles 49 and 509-511 C.C.P.  In response to CB’s application for injunctive relief, KG argued that the Superior Court lacked jurisdiction under article 622 C.C.P. given the binding agreement to mediate and arbitrate contained in the Agreement.

As defendant, KG argued that neither party challenged the validity of the agreement to arbitrate and therefore the court had no choice but to refer the parties to arbitration under article 622 C.C.P. and that the arbitrator had authority under article 638 C.C.P. to order provisional measures.  KG added that inclusion of the agreement to arbitrate reflected the parties’ intention to rapidly resolve disputes between them and described article 638 C.C.P. as a ‘safety valve’ (“soupape de sûreté”).

Article 623 C.C.P., included in the Title II of Book VII “Private Dispute Prevention and Resolution Processes”, confirms as one of arbitration’s “General Provisions” that “[t]he court, on an application, may grant provisional measures or safeguard orders before or during arbitration proceedings”. Articles 638-641 C.C.P. address those situations in which the arbitrator, once named, can issue “provisional measures”.

Article 638 C.C.P. The arbitrator may, on a party’s request, take any provisional measure or any measure to safeguard the parties’ rights for the time and subject to the conditions the arbitrator determines and, if necessary, require that a suretyship be provided to cover costs and the reparation of any prejudice that may result from such a measure. Such a decision is binding on the parties but one of them may, if necessary, ask the court to homologate the decision to give it the same force and effect as a judgment of the court”.

CB objected, referring first to CB’s fragile state of health and that her condition prevented her from mandating her counsel regarding the choice of an arbitrator or developing her grounds of defense. CB also argued that the procedure in the Agreement had not been followed and that KG could not initiate arbitration without having first completed the mediation.

CB also argued that, on the merits of the declinatory exception, the agreement to arbitrate could not prevent an application to the Superior Court for safeguard measures because the arbitration tribunal had not been constituted and the fifteen (15) day delay, set out in the Agreement, in which CB could propose her own arbitrator had not yet expired. CB added that the Superior Court could consider the application for safeguard measures even if the merits of the dispute were to still go to arbitration.

Pilote J. began by first acknowledging that the parties’ Agreement contained a stepped dispute resolution clause, beginning with mediation and, if need be, arbitration.  Despite the mandatory wording of the parties’ undertaking to engage firs in mediation, Pilote J. held that its obligatory nature was ‘considerably lessened’ by the wording agreed to by the parties in the provision for arbitration.  That wording confirmed that the parties’ access to arbitration depended only on either (i) an unsuccessful mediation or (ii) an apparent lack of will of either shareholder to engage in mediation.

Despite endorsing efforts to mediate disputes, Pilote J. dismissed the reliance on mediation as a condition precedent to arbitration, observing KG’s lack of will to engage in mediation.

Pilote J. focused on the distinction between the court’s powers to issue injunctive relief and provisional measures available from arbitrators.  At para. 38 he excerpted several passages from an oft-cited doctrinal work by the former Mr. Justice Pierre J. Dalphond in Le Grand Collectif- Code de procédure civile : Commentaires et annotations, Volume 2 (Articles 391 to 836), 5th edition, L. Chamberland (dir.), 2020.

Pilote J. rejected KG’s interpretation of article 623 C.C.P. regarding an arbitrator’s authority to issue provisional measures.  He considered that KG’s interpretation would remove all the substance from the article.

Mindful that the courts must not short-circuit the arbitrator’s role in deciding disputes and to show deference, Pilote J. also stated that the courts must come in aid of the arbitral process and issue orders sought by CB without impinging on the arbitrator’s field of jurisdiction.

Pilote J. dismissed KG’s declinatory exception in regard to his jurisdiction to issue injunctive relief.

urbitral notes – First, for a discussion of an arbitrator’s authority to issue injunctive relief or specific performance, see Nearctic Nickel Mines Inc. v. Canadian Royalties Inc., 2012 QCCA 385.

Second, for more on the interplay of injunctive relief from the courts and arbitration, see Joli-Coeur v. Joli-Coeur Lacasse Avocats, s.e.n.c.r.l., 2011 QCCA 219.