In BE Franchise inc. v. 9415-1511 Québec inc., 2024 QCCA 1498, the Court of Appeal dismissed the Appellant’s appeal. It confirmed the Superior Court’s ruling that the court’s territorial jurisdiction was the Respondent’s domicile, unless the parties agree otherwise, according to the general territorial jurisdiction’s rules of the Code of Civil Procedure (sec. 41 to 48 C.C.P.) The Court also confirmed that the general territorial jurisdiction rules apply to arbitrations because of the absence of a district designation by the Parties and of the absence an agreement between the Parties or an arbitration rule that would give the arbitrator the jurisdiction to fix the place of arbitration and therefore the Court competent district. The Court also ruled that in Québec, the place where the arbitration award is made cannot be deemed to be the place of arbitration because of the language used in article 642 C.C.P., which is different from the language used in article 31(3) of the Model Law. Therefore, on this issue, Quebec law is different from the Model Law. In the present case, the Court of Appeal ruled that no facts showed that the place of arbitration was the same as the place where the award was rendered.
The Arbitration – The dispute between the parties arose from the termination of a franchise agreement, which included an arbitration agreement. An arbitrator was appointed. The Claimant requested that the arbitrator rule on the alleged violation of the franchise agreement by the Respondent. In the arbitration protocol, it was agreed that the arbitration would proceed in two steps: firstly, it would proceed with Claimant’s claim and secondly, on a potential counterclaim by the Respondent. The arbitrator rendered a final award dismissing Claimant’s claim after the first step of the arbitration process. Afterwards, the Respondent filed its counterclaim before the arbitrator. The Claimant argued that the Respondent’s counterclaim was late and, accordingly, the arbitrator had no jurisdiction to hear it. The arbitrator dismissed the Claimant’s argument and decided he had the jurisdiction to proceed with the Respondent’s counterclaim.
The Superior Court – The Claimant contested the arbitrator’s ruling on his jurisdiction before the Superior Court, according to section 632 C.C.P, which allows the court to rule on the matter of the arbitrator’s decision that he had jurisdiction. The Claimant also requested the annulment of the award on the merits rendered in the first step of the arbitration proceedings. The Respondent raised a declinatory exception against both applications based on the territorial jurisdiction of the Superior Court located in Montréal. The Respondent requested the Court to refer the contestation of the arbitrator’s jurisdiction and the annulment application to the Rimouski district based on the fact that the Respondent’s domicile is located in Rimouski according to section 41 C.C.P. It provides that the court having territorial jurisdiction to hear applications is the court of the domicile of the Respondent/Defendant.
According to the first instance judgment, the fact that the arbitral tribunal had its offices in Montréal, that the arbitrator’s award and ruling were rendered in Montréal and that the dispute had no connection with the Rimouski district were not relevant. The first instance Judge ruled that the usual territorial jurisdiction rules applied. She found no reason to deviate from the rule according to which the Respondent’s domicile matched the district of the competent tribunal. Therefore, the first instance Judge referred Claimant’s applications to the Rimouski district.
The Court of Appeal – The Claimant appealed from the Superior Court’s judgment. The Court dismissed Appellant’s (Claimant in first instance) appeal and confirmed the first instance ruling.
The Appellant raised three main arguments to contest the first instance judgment.
First, the Appellant argued that the general territorial jurisdiction rules (sec. 41 to 48 C.C.P.), according to which Court’s applications are usually brought in the defendant’s domicile district do not apply to arbitration matters. The Appellant argued that arbitration matters, when brought before the Court, are matters equivalent to matters of execution of judgments governed by section 656 and following C.C.P. because the Court’s intervention is for the purpose of implementing the parties’ intention to resolve their dispute by way of private arbitration. According to section 659 C.C.P., the district entitled to hear a matter related to execution of judgment is the one where the decision has been rendered – in this case, Montréal. The Appellant supported its argument by raising a practical potential problem arising from the “Defendant’s domicile rule”: it could lead to a situation where Court proceedings arising from a unique arbitration process could be taken in multiple districts because each party to the arbitration may request the Court to intervene at some point in the arbitration process which could lead to different defendants domiciled in different districts for the same matter.
The Court of Appeal agreed that the efficiency of arbitration would be favoured by the designation of a single competent court district. However, the Court disagreed with the Appellant that section 656 and following C.C.P. (sections governing execution of judgment matters) apply to arbitration matters. The Court emphasized that section 656 and following C.C.P. refer to judgments of the Court, administrative tribunals or decisions from other public bodies. They do not apply to private arbitration. Also, the C.C.P. contains specific provisions concerning arbitration matters (sec. 620 and following C.C.P.). These provisions do not have the exclusive purpose to give effect to the parties’ intention to resolve their dispute by way of private arbitration, but also govern the court’s jurisdiction to review the legality of an arbitrator’s rulings. Therefore, the court will apply the specific rules relating to arbitration, rather than the general rules. The, Appellant’s argument that the Court was acting in matters relating to the execution of judgments when intervening in arbitration cases was not accurate.
Second, the Appellant argued that, according to section 41 C.C.P., the Court should favour the district chosen by consent of the parties over the district of the Defendant’s domicile. In this case, there was no specific agreement between the parties concerning the place of arbitration. Therefore, the Appellant argued that the parties must be considered to have mandated the arbitrator to make that choice for them by ruling on the place of arbitration. The arbitrator having signed his ruling and award indicating Montréal, Montréal should be considered implicitly to be his decision about the place of the arbitration.
The Court of Appeal confirmed that the parties’ choice of the territorial jurisdiction must be followed when such a choice is made. It also confirmed that, had the Parties mandated explicitly the arbitrator to determine the arbitration place, the Parties’ choice must be followed. However, in the present case, no such choice or mandate appears from the facts, either explicitly or implicitly. Therefore, the competent district was to be determined with the general rule (Respondent’s domicile) because there was no agreement between the parties and because the arbitrator had no jurisdiction to determine the place of arbitration.
Third, the Appellant argued that the place where the arbitrator’s ruling or award is rendered shall always be considered to be the place of arbitration in conformity with the UNCITRAL Model Law. The Model Law, like many other arbitration rules, provides that the award shall state the place of arbitration. The Court of Appeal dismissed the Appellant’s argument and distinguished the “place of arbitration” (sec. 31 (3) Model Law) and the “place where it [the award] was made” (sec. 642 C.C.P.). The Court considered that the arbitrator identified the place where the arbitration award was made in signing the award in Montréal, but did not state the place of arbitration. In Québec law, the place of arbitration and the place where the award is made are not necessarily the same. The Court of Appeal ruled that no fact, in the present matter, showed that the place of arbitration was the same as the place where the award was rendered.
Therefore, the Court of Appeal confirmed that the competent district was Rimouski.
Contributor’s Notes:
This judgment raised unprecedented issues of territorial jurisdiction of the Court in arbitration matters.
It is well-known that the seat of arbitration must be explicitly determined in international arbitration. In domestic arbitration, it is considered less important in practice because the applicable law is usually undisputed.
First, this decision is important because it underscores the necessity to designate a competent court district in domestic arbitration. There are a few places where the district can be designated by the parties: in the arbitration agreement, in the arbitration protocol or in the first procedural order.
Second, the Court of Appeal also emphasized an important distinction between the language of section 642 C.C.P. and the language of section 31 (3) of the Model Law:
“642. The arbitration award is binding on the parties. It must be made in writing and be signed by the arbitrator or arbitrators, and include reasons. It must state the date and the place where it was made. The award is deemed to have been made on that date and at that place.
31. […] The award shall state its date and the place of arbitration as determined in accordance with article 20(1). The award shall be deemed to have been made at that place.”
In the Model Law, the place of arbitration and the place the award was made are deemed to be the same. That is not the language chosen by the Quebec law. Article 642 C.C.P. does not provide indication about the place of arbitration. This distinction certainly creates uncertainties in arbitration in Quebec.
Last, this judgment is also important because it establishes the sequencing of the analysis required to designate the competent district in arbitration matters.
First, the Court of Appeal confirmed the parties’ authority to designate, on consent, the competent court district to support the arbitration process, in accordance with the fundamental principle of the autonomy of the parties in arbitration. See GreCon Dimter inc. v. J.R. Normand inc., 2005 SCC 46.
Second, if the parties do not jointly designate the competent district, the Court of Appeal raised the importance of giving jurisdiction to the arbitrator to fix the place of arbitration when it is not provided by the applicable arbitration rules.
Third, the Court of Appeal ruled that the general territorial jurisdiction rules apply to arbitration matters when parties do not agree otherwise. (sec. 41 to 48 C.C.P.)
Arbitration practitioners and arbitrators must pay attention to that issue to prevent disputes within disputes!