Québec – choice of law does not determine choice of forum – #355

In Corner Brook Pulp and Paper Limited v. Valmet Ltd., 2020 QCCS 2136, Mr. Justice Gregory Moore dismissed a defendant’s argument that choice of Ontario law in its contracts with another entity required application of Ontario’s Arbitration Act, 1991, SO 1991, c 17.  Moore J. held that choice of governing law did not determine choice of forum and that Québec’s Civil Code of Québec, CQLR c CCQ-1991 provides that the law of the court seized of the matter governs procedure.  Defendant’s procedural decision to force intervention of its contracting party as defendant-in-warranty to the principal claim yielded to the choice of forum clause indicating a clear intention to remove jurisdiction.

Corner Brook Pulp and Paper Limited (“Corner Brook”) and its insurer, Factory Mutual Insurance Company (“Factory Mutual”), sued Voith Canada Inc. (“Voith”) following a paper plant shutdown. Plaintiffs attributed the shutdown to equipment Voith had been hired to service but which Voith subcontracted to SGS Canada Inc. (“SGS”).

Voith filed a declaration of intervention against SGS and, in doing so, called SGS into the litigation as defendant in warranty against Corner Brook’s and Factory Mutual’s litigation. (For more on interventions, see the urbitral notes below). SGS applied to dismiss the declaration of intervention.

The contractual relationship between Voith and SGS included two (2) key documents. First, SGS’ contract with Voith included a choice of law clause and an agreement to arbitrate.  Disputes would be governed by the law of Ontario and settled by arbitration administered by the International Chamber of Commerce.

[…] all disputes arising out or in connection with Contractual Relationship(s) hereunder shall be governed by the substantive laws of the Province of Ontario, exclusive of any rules with respect to conflicts of laws and be finally settled under the Rules of Arbitration of the International Chamber of Commerce”.

Second, Voith’s purchase orders also identified the law of Ontario as the law which governed “all matters hereunder” and referred all disputes to the ICC Rules of Arbitration. Voith argued that those purchase orders governed the parties’ contractual relationship. 

Governing Law. This order and all matters arising hereunder shall be governed by the laws of the Province of Ontario, without regard to conflict of laws provisions.

Dispute Resolution. Any dispute arising under or relating to this Agreement that cannot be resolved within a reasonable amount of time by good faith negotiations shall be finally resolved by binding arbitration.  Such arbitration shall be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce”.

Voith argued:

(i) Ontario law governed both the contractual relationship and arbitration to resolve their disputes. Voith argued that section 7 of Ontario’s Arbitration Act, 1991, SO 1991, c 17 provides that the court may refuse to stay proceedings when not all of the parties have agreed to arbitration and to avoid multiple proceedings;

(ii) Corner Brook and Factory Mutual is not a party to either agreement to arbitrate and it would be inefficient to argue their case in court and arbitrate the action in warranty.  The action in warranty could only be arbitrated if/once Voith was found liable to Corner Brook and Factory Mutual; and,

(iii) risk of contradictory judgments.

Valmet Ltd., as Co-Defendant with Voith, argued that SGS’ presence was required to arrive at a complete solution in the litigation.

In brief reasons, Moore J. dismissed Voith’s arguments.  He held that a choice of governing law did not determine choice of forum.  He referred first to article 3132 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”) which provides that the law of the court seized of the matter governs procedure. Referring next to Title III of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”), entitled “Jurisdiction of Courts”, articles 29-74 C.C.P., Moore J. added that “[j]urisdiction is a matter of procedure”.  Moore J. concluded that the jurisdiction of the Superior Court of Québec in the case before him was determined by the law of Québec.

The Supreme Court of Canada in GreCon Dimter Inc. v. J. R. Normand Inc., 2005 SCC 46 (CanLII), [2005] 2 SCR 401 para. 46 had recognized the choice made in Québec procedure to decline jurisdiction where a choice of forum clause indicated a clear intention to remove jurisdiction from the Québec courts including actions in warranty under article 3148 C.C.Q.

Moore J. declined deciding which of the terms and conditions governed but held that “both choice of forum clauses are clearly drafted in mandatory terms (“shall”) that refer any disputes to arbitration”.  As a result of the application of Québec law governing procedure and jurisdiction, Moore J. declined jurisdiction over the action in warranty governed by either of the agreements to arbitrate and dismissed Voith’s declaration of intervention against SGS.

urbitral note – First, for three (3) other Arbitration Matters notes on decisions referring to/applying GreCon Dimter Inc. v. J. R. Normand Inc., 2005 SCC 46 (CanLII), [2005] 2 SCR 401 in the context of arbitration, see:

(i) Québec – forum selection clause does not eliminate courts’ jurisdiction to issue provisional measures

In Associated Foreign Exchange Inc. v. 9189-0921 Québec Inc. (MBM Trading), 2020 QCCS 1823, Mr. Justice Michel A. Pinsonnault determined that the courts of Québec had jurisdiction to issue a Mareva injunction over assets located in Québec despite the parties’ prior, uncontested agreement that the courts of Ontario had exclusive jurisdiction over the merits of their dispute.  Pinsonnault J. found support for that determination based on the clearer result, set out expressly in Québec’s substantive and procedural codes, confirming the Québec courts’ jurisdiction to issue provisional measures despite a final and binding agreement to arbitrate binding the parties and excluding the courts.

(ii) Québec – arbitration agreement prevents defendant from adding third party as defendant-in-warranty

In Svensson v. Groupe Ovo inc., 2019 QCCS 1278,  Mr. Justice Yves Poirier refused a defendant’s motion to implead a third party as its defendant-in-warranty because the civil procedure allowing defendant to do so must yield to the parties’ arbitration agreement. The court’s procedural solution allowing a defendant to join its proposed action-in-warranty to an existing litigation is suppletive and gives no jurisdiction to the court to grant the motion or override the primacy of arbitration procedure.

(iii) Québec court offers reminder that arbitration agreements only bind parties

The Quebec Court of Appeal in Metso Minerals Canada Inc. v. BBA inc. 2017 QCCA 1544 firmly resolved irreconcilable procedural demands created when only some of the parties to a dispute had agreed to submit to arbitration. Weighing the competing inconveniences to the parties, the Appeal Court upheld a Quebec Superior Court decision and subordinated one party’s access to arbitration to another party’s reliance on court rules.

The decision is a reminder that agreements to arbitrate bind only those parties to it. If sophisticated parties in complex projects wish to consolidate their disputes either in court or in arbitration, the choice is theirs to negotiate beforehand – not the court’s to invent afterwards.

Second, article 3133 C.C.Q., along with article 3132 C.C.Q. cited by Moore J. are the sum total provisions in Chapter IV of Title Two “Conflict of Laws”. Chapter IV is entitled “Status of Procedure”.  Article 3133 C.C.Q. reads as follows:

Article 3133 C.C.Q. Arbitration proceedings are governed by the law of the State where the arbitration takes place unless the parties have designated either the law of another State or an institutional or special arbitration procedure”.

Third, for more information on how an intervention, voluntary or forced, works in Québec procedure, see article 184 C.C.P. and following.

Article 184 C.C.P. Intervention is either voluntary or forced.

Intervention is voluntary when a person who has an interest in a proceeding but is not a party or whose participation in a proceeding is necessary in order to authorize, assist or represent an incapable party intervenes in the proceeding as a party. It is also voluntary when a person wishes to intervene for the sole purpose of participating in argument during the trial.

Intervention is forced when a party impleads a third person so that the dispute may be fully resolved or so that the judgment may be set up against that third person. It is also forced when a party intends to exercise a recourse in warranty against the third person”.