Québec – Court of Appeal agrees to confine litigants to one forum to resolve longstanding shareholders dispute – #080

The Québec Court of Appeal in Jack v. Jack, 2018 QCCA 788 refused leave to appeal a Superior Court decision dismissing an application for a stay in favour of arbitration.  The Court determined that not only was the multi-faceted litigation not covered by the agreement to arbitrate but that judicial efficacity and proportionality urged against having the parties litigate in two forums.

The litigation involved a long running shareholders dispute over a family business.  Two brothers, James (“J.”) and Gordon (“G.”), and their sister, Audrey (“A.”), signed a shareholders agreement in 1990 regarding the family business, Ferme de reproduction Inc. (“Ferme Inc.”), a farming operation (“Shareholders Agreement”).  Following a dispute between J. G. and A., an arbitrator ordered J. and G. to buy A.’s shares in Ferme Inc.  The arbitrator’s award was recognized and enforced by the Superior Court.

To formalize the brothers’ purchase of the sister’s shares, J. and G. entered into a transaction concerning Ferme Inc. as well as a numbered company and two properties.  The transaction was never completed.

G. filed a Superior Court litigation in 2017 alleging the need for corrective measures designed to address alleged abuse of power by J., inequities and the liquidation of both Ferme Inc. and the numbered company. Alleging oppression by J. in addition to J.’s abuse of power, G. in his court litigation sought the nomination of a liquidator, the judicial liquidation of Ferme Inc. and the numbered company and the division of monies collected by the liquidator.

J. responded by filing a motion to refer the parties to arbitration, invoking article 18 of the 1990 Shareholders Agreement. The Superior Court on March 16, 2018 dismissed the motion.

Appellant sought leave to appeal under article 31, paragraph 2, of the Code of Civil Procedure, CQLR c C-25.01.

Article 31. A judgment of the Superior Court or the Court of Québec rendered in the course of a proceeding, including during a trial, is appealable as of right if it disallows an objection to evidence based on the duty of discretion of public servants or on professional secrecy.

 Such a judgment may be appealed with leave of a judge of the Court of Appeal if the judge considers that it determines part of the dispute or causes irremediable injury to a party, including if it allows an objection to evidence.

 The judgment must be appealed without delay. The appeal does not stay the proceeding unless a judge of the Court of Appeal so orders. If the judgment was rendered in the course of the trial, the appeal does not stay the trial; however, judgment on the merits cannot be rendered nor, if applicable, the evidence concerned heard until the decision on the appeal is rendered.

 Any other judgment rendered in the course of a trial, except one that allows an objection to evidence, may only be challenged on an appeal against the judgment on the merits.

Mr. Justice Simon Ruel heard the motion for leave.  He dismissed the motion, determining that justice would not be served by allowing the parties to undertake an appeal.  The Superior Court reasons are not (yet) published.  Ruel J.A.’s reasons note that the Superior Court held that G.’s litigation did not involve the valuation of the shares in Ferme Inc. but was a multi-faceted recourse seeking a variety of measures designed to reset and liquidate Ferme Inc.  Since those remedies were not covered by the Shareholders Agreement, the Superior Court held that it retained jurisdiction.

Ruel J.A. agreed with the judge in first instance that G.’s recourse did not trigger the application of the Shareholders Agreement.  The recourse was much broader, targeting J.’s management of Ferme Inc. as well as the numbered company not covered by the 1990 Shareholders Agreement.

Despite the apparent solution provided by the above, Ruel J.A. provided additional reasons.  Those reasons suggest that further grounds would have justified denying leave if part of G.’s litigation was covered by the 1990 Shareholders Agreement and its undertaking to arbitrate.

In addition to the stated grounds, Ruel J.A. was also in agreement with the first judge’s characterization of the litigation between G. and J. as ‘disastrous’.   Both courts perceived that the value of A.’s shares were ‘engulfed’ by the legal costs and that allowing the current dispute to proceed in two different forums should not be permitted.  To allow two forums would place the litigants ‘one more time’ as ‘hostages’ in a conflict which the court considered ‘excessive and out of proportion’ to what is at stake and which neither litigant ‘could support’.

Invoking judicial efficacity and proportionality, Ruel J.A. dismissed the motion for leave to appeal, obliging G. and J. to continue in Superior Court noting that neither would suffer irremediable injury in so doing.