Québec – courts assert consequences of not undertaking/participating in mandatory legislated arbitration – #084

Three recent Québec cases – Raymond Chabot Administrateur provisoire inc. (Garantie Abritat inc.) v. A à Z Construction-rénovation inc., 2018 QCCS 2061, Garantie Habitation du Québec inc. v. Groupe Faguy inc., 2018 QCCQ 2763 and Garantie habitation du Québec inc. v. Quirion, 2018 QCCQ 1549 – reflect the courts’ straightforward enforcement of arbitration as the exclusive legislated way in Québec to resolve disputes over guarantee plans for new residential constructions.  Parties must either resolve their disputes by arbitration or forever accept that no dispute exists and that certain facts are either uncontested or uncontestable. The decisions remind parties that a failure or refusal to engage in arbitration has consequences on any subsequent flexibility to defend litigation.

Each case had to consider the impact of mandatory arbitration imposed by statute, namely the Regulation respecting the guarantee plan for new residential buildings, CQLR c B-1.1, r 8 (“Regulation”) adopted under Québec’s comprehensive Building Act, CQLR c B-1.1.

The Regulation applies to plans which serve to guarantee the performance of a contractor’s legal and contractual obligations provided for in the Regulations and resulting from a contract entered into with a beneficiary for the sale or construction of new buildings intended mainly for residential purposes meeting certain criteria (“guarantee plans”).  Such buildings include, for example, detached, semi-detached or row-type single-family dwellings and multifamily buildings such as duplexes, triplexes and quintuplexes held in undivided co-ownership.

The Québec Court of Appeal in Garantie des bâtiments résidentiels neufs de l’APCHQ v. Desindes, 2004 CanLII 47872 at para. 11 has confirmed that the Regulation is of public order.  Any guarantee plan to which the Regulation applies must meet the standards and the criteria set out in the Regulation.  Any provision irreconcilable with the Regulation is invalid.

Each guarantee plan can be “managed” only those persons expressly authorized the Régie du bâtiment du Québec (the “Board”) to manage an approved plan (“Manager”).  The only persons eligible for authorization are those having the status of non-profit legal person whose sole purpose is to manage financial guarantees within the meaning of the Building Act.

Sections 17, 17.1 and 18 set out the procedure applicable to making claims based on the guarantee set out in sections 9 and 10 of the Regulation.  Section 9 and 10 each deal with payments stemming from a contractor’s failure to perform its legal or contractual obligations.  Section 9 covers those before acceptance of the building and Section 10 covers those after acceptance.   Section 9 expenses are likely to be smaller amounts and address expenses occasioned by a thwarted or delayed sale or occupation.  Section 10 address completion of corrective work and ought to be more significant.  The expenses cover:

(1) completion of the work related to the building;

(2) repairs to apparent defects or poor workmanship, as identified in article 2111 of Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”);

(3) repairs to non-apparent poor workmanship existing at the time of acceptance or discovered within 1 year after acceptance as provided for in articles 2113 and 2120 C.C.Q.;

(4) repairs to latent defects within the meaning of article 1726 or 2103 C.C.Q. which are discovered within 3 years following acceptance of the building;

(5) repairs to faulty design, construction or production of the work, or the unfavourable nature of the ground within the meaning of article 2118 C.C.Q., which appears within 5 years following the end of the work;

(6) the relocation, moving and storage of the beneficiary’s property, where, during corrective work, the building is no longer inhabitable; and,

(7) the restoration of the building and repairs to material damage caused by the corrective work.

Each head of expense is subject to specific timelines in which written notice must be given to the contractor and the Manager.  The Regulation provides exclusions to the guarantee and caps on the amounts eligible for recovery.

Section 18, paragraphs (2) to (6) set out a procedure for beneficiaries to give notice of claims under section 10.  The same procedure is made applicable to claims under section 9 by section 17 in fine.  In its essence, the beneficiary and the contractor each have an opportunity to comment on claims and, in case of ongoing disagreement, the Manager issues a written report and decide the claim.  The Manager either accepts or rejects the claim, in whole or in part.  Failure by the contractor to undertake the work entitles the Manager to do so at the contractor’s expenses.  The role of arbitration arises at section 19.

19. A beneficiary or contractor who is dissatisfied with a decision of the manager shall, in order for the guarantee to apply, submit the dispute to arbitration within 30 days following receipt by registered mail of the manager’s decision, unless the beneficiary and contractor agree to submit the dispute, within the same period, to a mediator chosen from a list established by the Minister of Labour in order to try and reach an agreement. In that case, the deadline to submit the dispute to arbitration is 30 days following receipt by registered mail of the mediator’s advice concluding to the partial or total failure of the mediation.

Sections 20-23 set out that the beneficiary, the contractor and the Manager are bound by the arbitration decision as soon as it is rendered by the arbitrator, the arbitrator’s decision is final and not subject to appeal, expenses for the arbitration are borne by each of the three and a Manager who compensates a beneficiary is subrogated in the beneficiary’s rights to the extent of the compensation made.  The resulting award cannot be put into forced execution unless it has been homologated in accordance with the procedure set out in articles 645 to 647 of Québec’s Code of Civil Procedure, CQLR c C-25.01.

The three decisions considered the role arbitration plays in litigation commenced to recover sums paid.  In particular, the judges had to decide what was the consequence of not undertaking or participating in the mandatory legislated arbitration process.

(1) Raymond Chabot Administrateur provisoire inc. (Garantie Abritat inc.) v. A à Z Construction-rénovation inc.

Mr. Justice Sylvain Provencher dealt with an action filed by a Manager to recover sums paid to a beneficiary pursuant to the guarantee plan it administered.  The Manager filed a claim consolidating various amounts calculated under different heads of damages.  Provencher J. dealt with each head of damages one by one.

In doing so, Provencher J. applied the Regulation and prevented the contractor from challenging particular facts.  At para. 39, Provencher J. denied the contractor the opportunity to make proof of certain alleged deficiencies and to have the court apply its own analysis of the situation.  Provencher J. held that if the contractor wanted to challenge the Manager’s conclusions, it had to have done so by arbitration, which it had not done.  The contractor could not now raise the lack of relevance or utility of the work ordered by the Manager.

(2) In Habitation du Québec inc. v. Groupe Faguy inc., Mr. Justice Jacques Paquet also dealt with an action by the Manager to recover sums paid under the guarantee plan it managed.  The Manager had filed an action against the contractor and an individual who had signed a personal guarantee under the Regulation.  Despite a detailed 21 page list of challenges to the work covered by the Manager’s litigation, Paquet J. denied the contractor and the individual from making any evidence to support the challenges.  Paquet J. at paras 13-16 agreed with the Manager, holding that Defendants did not use the arbitration process set out in the Regulation and were now foreclosed from challenging the specific payments made.

(3) In Garantie habitation du Québec inc. v. Quirion, like the two othe decisions, the decision stemmed from an action by a Manager to recover monies paid to a beneficiary under the guarantee plan it administered.  In this case, Mr. Justice Jeffrey Edwards dealt with an interim application filed by the Manager as plaintiff to strike out various grounds of defence which the contractor and an individual intended to make.  As in the preceding case, the individual had signed a personal guarantee for the contractor’s obligations.

Relying on the fact that the contractor and the individual had failed to engage arbitration to contest various decisions made by the Manager, at paras 52-53, 61-62 Edwards J. held that those decisions were now final and struck the related allegations in the defenses.  Edwards J. at para. 66 did allow the individual to continue to plead against a limited number of payments made by the Manager on the ground that the individual argued that he had not received written notice of the Manager’s decisions.

Further notes – For those interested, below are further notes on the mandatory arbitration provisions under Québec’s Building Act and the Regulation.

The Court of Appeal decision in Garantie des bâtiments résidentiels neufs de l’APCHQ v. Desindes sets out the applicable standards for any judicial review of an arbitration decision and provides a summary of the legislation’s scope and the arbitration provisions it imposes.

Section 83.1 of the Building Act sets out the criteria which an arbitral institution must meet in order to qualify to conduct arbitrations arising out of the guarantee plans.  Note: the Building Act mentions “guaranty plan” whereas the Regulation mentions “guarantee plan”.

83.1. Only a body that meets the following criteria may be authorized by the Board to conduct the arbitration of disputes arising out of guaranty plans:

(1)   it is devoted to dispute arbitration;

(2)   it has established a panel of arbitrators whose integrity has been established and who satisfy the conditions determined by regulation of the Board;

(3)   it applies an arbitration procedure that includes the arbitration rules prescribed by regulation of the Board;

(4)   it has established a tariff of arbitration costs that has been approved by the Board and that pertains to arbitration expenses, including expenses incurred by such body and the cost of its services, arbitrators’ fees and provisions for expenses;

(5)   it satisfies any other condition prescribed by regulation of the Board.

The body must maintain a website that allows the public to access the full text of any decision made by its arbitrators within 30 days.

The Canadian Commercial Arbitration Centre qualifies to administer such arbitrations and has extensive experience in doing so.

The Regulation addresses many aspects of the arbitral process at sections 106-131.