Québec – Court of Appeal upholds stay of multi-party court litigation pending arbitration by two parties – #071

Québec’s Court of Appeal in Lavoie v. Maltais, 2018 QCCA 777 upheld a Superior Court case management decision staying court litigation involving five parties in favour of arbitration between two of the litigants. The arbitration would serve to first resolve a specific list of disputes tied to the contract containing the arbitration clause, followed by the revival of the court litigation to involve all five parties on the remainder of the issues.

Two shareholders, Appellant, Mr. Robert Lavoie (“Lavoie”) and Respondent, Mr. Gilles Maltais (“Maltais”), entered into a unanimous shareholders agreement containing a broadly worded, mandatory arbitration clause.  The undertaking to arbitrate submitted resolution of the shareholders’ disputes to binding arbitration under articles 940 – 951.2 of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).  Disputes included any “difficulty” regarding the interpretation, execution, application and nullity of their shareholders agreement.

The dispute between the shareholders escalated, as set out in extracts of the Superior Court decision, and in May 2017 Lavoie and another plaintiff, Ms. Lucie Vaillancourt (“Vaillancourt”) instituted court litigation against Maltais and two others, alleging oppression.

The decision for an earlier Superior Court decision, district of Chicoutimi, was not yet posted online at the time of this note.  That decision dealt with Respondents’ application to refer the parties to arbitration and Appellants’ application for safeguard orders.

The Superior Court judge referred the two shareholders to arbitration and ordered a stay of the court litigation involving all five parties pending the conclusion of the shareholder arbitration proceedings.

The court proceedings include at least three parties who were not party to the shareholders agreement.  One of the plaintiffs, Vaillancourt, was therefore affected by the stay of her court litigation in preference to the arbitration proceedings which involved neither her nor two of the three defendants she had named in her Superior Court proceedings.

The Superior Court judge, Madam Justice Nicole Tremblay, held that the dispute involved the interpretation of situations covered by either a settlement/by-law or the shareholders agreement.  Tremblay J. determined that many of the points in issue could be resolved in arbitration and others, such as a dispute over land and other conclusions made in the court litigation, could be ‘returned’ later to the Superior Court.  In referring the shareholders to arbitration, she itemized a list of points which related specifically to the shareholders agreement and were to be dealt with by that process.

Leave to appeal was sought and both plaintiffs are identified as Appellants.  The Court of Appeal’s reasons though only refer to the Appellant, in the singular, when dealing with the matters raised on appeal.

The Court of Appeal reasons do not identify a specific ground of appeal by Appellant against the referral to arbitration.  Rather, the Court simply included an excerpt of Tremblay J.’s statement of the underlying facts and her concluding reasons, stating that her decision was well-founded.  Given that the referral to arbitration was, by itself, uncontroversial, Appellant appears not have to attempted to seek leave to appeal that decision.

The leave to appeal did raise three other aspects of the decision in first instance: the grant of a stay; the denial of safeguard measures; and, the refusal to order provision of costs.

Regarding Appellant’s specific request for leave to appeal the stay application, Appellant argued that the stay was unjustified, especially given that the other plaintiff, Vaillancourt, was not a party to the shareholder agreement containing the undertaking to arbitrate.

In the circumstances, the Court of Appeal characterized Tremblay J.’s decision to grant the stay application as a case management decision.  The characterization presumably rested on the fact that the stay addressed that only portion of the court litigation not covered by the arbitration clause and was subject to the court’s own rules of procedure.  The Court did not have to point to either the rules of court or a separate arbitration statute as a source of the Superior Court judge’s authority, given that in Québec both are blended into the same legislation, namely the C.C.P.

Case management decisions are not subject to appeal under article 32 C.C.P. save for certain rare and exceptional cases in which the decision is unreasonable with regard to the guiding principles.  The Court relied on prior statements and applications of this approach: Lavigne v. 6040993 Canada inc., 2016 QCCA 1755 paras 33, 43-45, Google Canada Corporation v. Elkoby, 2016 QCCA 1171 para. 11 and Desrosiers v. Dumas, 2017 QCCA 1054 para. 6.

The Court of Appeal referred to article 19 C.C.P. for the guiding principles in civil litigation:

19. Subject to the duty of the courts to ensure proper case management and the orderly conduct of proceedings, the parties control the course of their case insofar as they comply with the principles, objectives and rules of procedure and the prescribed time limits.

 They must be careful to confine the case to what is necessary to resolve the dispute, and must refrain from acting with the intent to cause prejudice to another person or behaving in an excessive or unreasonable manner, contrary to the requirements of good faith.

They may, at any stage of the proceeding, without necessarily stopping its progress, agree to settle their dispute through a private dispute prevention and resolution process or judicial conciliation; they may also otherwise terminate the proceeding at any time.

The Court held that the judge’s decision to grant a stay was a reasonable one, in line with article 19 C.C.P.’s guiding principles for the proper administration of proceedings and did not impose a serious prejudice on Lavoie.  Despite this finding, the Court granted leave but then dismissed the appeal.

Appellant also sought leave to appeal the judge’s decision not to grant safeguard measures.  Again, the Court held that the decision to refuse did not meet the criteria established by the case law for leave to appeal safeguard measures.  The criteria differed from those applicable to case management decisions. In general, cases such as Hétu v. Notre-Dame de Lourdes (Municipalité de), 2005 QCCA 199 para. 27 and 9022-8818 Québec inc. (Magil Construction inc.) (Syndic de), 2005 QCCA 275  paras 27-31 limited granting to leave for decisions reflecting a prima facie weakness and an urgency to avoid an important prejudice.  Given the discretionary character of such decisions, the Court limits its intervention to verifying that the discretion was exercised judicially, without manifest or determinant error.

The Court held that the judge’s decision met neither of the two conditions stipulated.  Again, though the decision did not meet the test, the Court granted leave but then dismissed the appeal.

Appellant also sought to appeal the Superior Court judge’s decision to deny him an order for provision of interim costs.  The decision to grant or deny such costs is provided by section 443 of Québec’s Business Corporations Act, CQLR c S-31.1 (“QBCA”) and is subject to the discretion of the judge considering the application.

The Court of Appeal agreed that Appellant’s finances were critical but noted that his claim was “fragile”.  The Court decided that the circumstances of the case were unexceptional and that the judge’s decision was not unreasonable.

That said, the Court of Appeal added that the provision for interim costs was in reality a request to help finance Appellant’s defense in the Superior Court.  The Court commented that the real venue for the resolution of the shareholders’ dispute was before the arbitrator and any incidental applications should be made before the arbitrator.

The referral to arbitration is not a full answer on the application for a provisions of interim costs though.

Section 443. In an application made under subdivision 2, 3, 5 or 7, the court may, at any time, order a corporation or any of its subsidiaries to pay to the applicant interim costs, including professional fees, to the extent that they are reasonable. The applicant may be held accountable for such interim costs at the time of the final decision.

The court grants interim costs, on the terms determined by the court, if it considers that

(1)   the financial situation of the corporation or its subsidiary enables payment of such costs;

(2)   the application appears reasonably founded; and

(3)   the financial situation of the applicant would not allow the application to be made or maintained without payment of such interim costs.

In its assessment of the financial situation of the applicant, the court need not consider whether or not the situation results from the conduct of the corporation or its subsidiary.

Section 443 of the QBCA provides though the grant of costs be made by the “court” which, according to section 2 of the QBCA is defined exclusively as the “Superior Court of Québec”.  This provision of interim costs cannot, under section 443, be granted by an arbitration tribunal.