Québec – court offers reminder that arbitration agreements only bind parties – #029

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.
The dispute stemmed from the design and manufacture of grinding equipment sold to ArcelorMittal Exploitation Minière Canada et al. for use in one of Arcelor’s iron ore concentrate production lines. Disputes arose over the equipment’s capacity, leading Arcelor to initiate Superior Court litigation against BBA Inc. and another defendant claiming $204.3 million in damages.

Despite Metso Minerals Canada inc.’s involvement in the facts, Arcelor omitted Metso as a defendant and made no allegations against the company. Instead, Arcelor initiated arbitration against Metso for the same damages amount given a valid arbitration clause binding them.

As defendant to Arcelor’s lawsuit, BBA applied to force the intervention of Metso as a co-defendant. Intervention is “forced” when a party applies to implead a third party to fully resolve the dispute, to set up the judgment against that third party or when the party intends to exercise a warranty action. The ensemble of facts alleged in Arcelor’s litigation, and added to by BBA’s motion, suggested that BBA and Metso contributed to Arcelor’s alleged problems, both alert to Arcelor’s capacity requirements.

BBA had initially sought to force the intervention of Metso as co-defendant to Arcelor’s litigation and defendant to BBA’s recursory action, which is similar in spirit to a warranty action. Both seek contribution and indemnification for compensation that a defendant might have to pay to a plaintiff. A recursory action is usually initiated once the principal litigation terminates. A warranty action is initiated while the principal litigation is ongoing. The difference between “recursory” and “warranty” can be seen as different ways of timing a similar result. The principal litigation and the warranty action are distinct court files, but tried together and decided by a single judgment.

Forcing Metso to intervene as a co-defendant to Arcelor’s litigation effectively created direct litigation between Arcelor and Metso, breaching their agreement to arbitrate. As a result, BBA voluntarily discontinued its attempt to add Metso as Arcelor’s co-defendant and sought only to involve Metso as defendant to BBA’s warranty action.

Metso resisted being called as a party and applied to strike many allegations in BBA’s motion. Metso asserted that it had no liability, contractual or extracontractual, and that its arbitration clause with Arcelor prevented its inclusion in Arcelor’s court file.

Given the robust reasoning in first instance, the Court of Appeal’s decision in Metso Minerals Canada Inc. v. BBA inc.  2017 QCCA 1544 is best understood by referring to Mr.  Justice Jean-François Michaud’s lower court ruling in ArcelorMittal Exploitation minière Canada v. SNC-Lavalin inc. 2017 QCCS 574.

Michaud J. agreed and disagreed with BBA and Metso. He agreed with Metso that BBA’s allegations targeting Metso’s extracontractual solidarity disclosed no fault on the part of Metso, and he struck those allegations. But he also agreed with BBA that it was entitled to include Metso as a defendant in its warranty action.

He also accepted that it was “conceivable” for BBA and Metso to be solidarily liable to Arcelor, given that the facts involving their respective actions met the requirements of the Civil Code of Quebec. Article 1480 states that where several persons have jointly participated in a wrongful act or omission that resulted in injury or committed separate faults each of which may have caused the injury — and where it is impossible to determine, in either case, which of them actually caused the injury — they are solidarily bound to make reparation therefor.

Michaud J. determined that BBA’s allegations were sufficient to establish solidarity between BBA and Metso toward Arcelor and met the two criteria for joining BBA’s warranty action with Arcelor’s principal litigation: a juridical link between BBA and Metso; and, a connection between BBA’s warranty action and Arcelor’s principal litigation.

He considered the inconvenience Metso would experience having to litigate substantially the same facts in court and in arbitration. Michaud J. weighed it against the inconvenience to BBA not having Metso present in Arcelor’s principal litigation and having a separate, later litigation before a different judge. Alert to the risk of contradictory decisions in either scenario, he still opted to allow Metso to suffer the inconvenience because it had bargained for that very possibility.

Michaud J. noted that the choice to bind itself to arbitration was Metso’s and it could have anticipated this result. He resolved to have a single hearing, and to avoid having two judges conduct two trials, remarking that the courts did not have the resources to do the same work twice by delaying BBA’s action.

Michaud J. dismissed Metso’s attempt to enforce its arbitration clause. The clause had effect only between the parties to it and could not apply to BBA. He also dismissed Metso’s reliance on GreCon Dimter inc. v. J.R. Norman Inc.,[2005] 2 SCR 401, 2005 SCC 46 saying that situation was different because it involved two parties to the same contract.

Metso then sought leave to appeal. A single Court of Appeal judge referred the motion to a bench of three judges, which delivered relatively brief reasons. The Court of Appeal agreed with the lower court’s analysis on solidarity. It also agreed that BBA was not a party to the arbitration clause and did not accept being bound by it.

The Court wrote that Arcelor and Metso could have agreed to impose arbitration on others in the delivery of the project but chose not to do so, and it decided that Metso would have to bear the inconveniences of its decision to arbitrate and must accept the consequences of litigating over similar facts in separate venues. It dismissed the appeal.

Note: This article originally appeared on The Lawyer’s Daily website published by LexisNexis Canada Inc.