Québec – court’s obiter attempts to pre-empt procedural disagreements – #045

Aware that arbitration was only a precondition to eventual litigation between the parties on related issues, Mr. Justice Jean-Jude Chabot of the Québec Superior Court in Julien et Assurances Jones inc., 2018 QCCS 35 still referred the parties to arbitration but in obiter offered some observations.  If heeded, his observations would simplify the progress of the parties’ dispute resolution process.  In doing so, Chabot J. demonstrated the judiciary’s flexibility and ongoing willingness to enable the parties’ choice of arbitration.

The underlying dispute stemmed from a fire which damaged a residential home soon after the insureds had purchased it.  Over a period of months, the insureds and their insurers hired experts, traded estimates for repair work and disputed the reasons for and the amount of the indemnification.  During repair work undertaken to restore the home to its initial status, the builders identified construction techniques which either did not meet industry standards or qualified as latent defects. The parties disputed whether those techniques caused the fire as well as whether the insurer would pay to rectify them as part of its indemnification.

The insurance contract binding the parties provided for arbitration.  The agreement limited the arbitrator’s jurisdiction to disputes involving the nature, extent and amount of damages or the sufficiency of the replacement or repairs.  By implication, the wording excluded litigation involving the right to the indemnity.  The insurer resisted arbitration of the latter issues but at one point agreed to have all disputes clustered into a single arbitration.  It later withdrew its agreement when insureds refused to name an arbitrator who was a lawyer specialized in insurance matters.

The agreement provided each party the right to name an expert who would then appoint an impartial arbitrator to determine the quantum.  The parties were unable to resolve their disagreements on the identity of the members of the arbitral tribunal.  The insureds applied to the Superior Court to name an arbitrator.  The insurer responded by instituting proceedings before the Superior Court seeking a declaration that any work designed to correct for deficiencies or latent defects was not covered by the indemnification.

Chabot J. reviewed the parties’ agreement and concluded that their arbitration was limited to the narrow issue of indemnification but was a precondition to litigation before the courts.  Arbitration, he noted, would determine only quantity and leave intact all the insurer’s rights to contest the insureds’ entitlement to indemnification.

He relied on prior case law from the Québec Court of Appeal drawing exactly the same distinction between an arbitration to determine the quantum and the court litigation to determine entitlement.  He agreed that the divided jurisdiction created no overlap and the prior determination of quantum would actually assist the court.

Chabot J. held that the insurer had agreed to arbitration after the damage had occurred.  It is not clear if he refers to a post-dispute submission agreement or merely a post-dispute acknowledgement of being bound by the earlier agreement.  In either event, he held that the insureds had applied for referral to arbitration within the 45 day delay of having been served with the insurer’s originating application, as set out in article 622 of the Code of Civil Procedure, CQLR c C-25.01.

Chabot J. was clearly alert to the fact that referring the parties to arbitration put the parties onto a two-step process involving first arbitration over quantum and then court litigation over the entitlement to that indemnification.   The two-step process was implicit in their arbitration agreement which he enforced.

Recognizing that there were some points of lingering disagreement, Chabot J. elected to close his reasons for judgment with some helpful obiter.  His remarks show that he anticipated ongoing disagreements over two key issues: choice of experts and the qualifications of the arbitrator.  His brief remarks nudged both parties to consider the validity of the other party’s position on both issues.

The following is an informal translation of the comments:

[40]  On that subject, the Court notes that the clause provides that each party names its own expert who together appoint an impartial arbitrator.  Incidentally, the choice of expert belongs to each party and this choice cannot be contested by the other party.  In the circumstances, there is disagreement between the parties over the choice of the arbitrator.  As the parties’ representations did not specifically address this question, the Court considers that if the disagreement persists regarding the choice of arbitrator, the parties will have the opportunity of placing the insureds’ Judicial Demand back on the role in order to appoint an arbitrator according to article 625 C.C.P.

  [41]   This said, the Court suggests to the parties that is would no doubt be wise to consider an arbitrator who would be able to appreciate the real value of each party’s claims as much factual as legal.  This would permit the arbitrator to properly situate the argument and the amounts in issue stemming from the direct consequence of the fire and those related to bringing up to code and would therefore assist the Court, if the dispute persists, to determine the right to indemnification and finalise the matter.