Québec – crossclaim triggers arbitration though agreement to arbitrate silent in that regard – #327

Relying on the contracts and the parties’ respective claims, Mr. Justice Éric Dufour in Kolinar Real Estate Inc. v. Cadieux, 2019 QCCQ 7183 determined that Defendants’ crossclaim triggered the parties’ particular agreement to arbitrate unless the claim fell within the $15,000.00 level for Small Claims division’s jurisdiction.  Defendants’ crossclaim exceeded that level and Dufour J. held it was not dilatory.  Without express mention of Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801, Dufour J. effectively determined jurisdiction first by “only superficial consideration of the documentary evidence in the record” and applied the approach, familiar in many court rules, which allows a crossclaim to impact jurisdiction set by amount of claim.

Plaintiff and Defendants entered into a July 8, 2014 contract for the sale of a building (“Contract of Sale”) and, on the same date, an ‘Occupancy Agreement Further to Contract of Lease-Sale’.  Each contract included a valid, binding agreement to arbitrate pursuant to the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).  Each agreement provided that all disputes stemming from the said contract and its interpretation would be arbitrated unless the amount of the ‘dispute’ was within the jurisdiction of the Small Claims division of the Court of Québec or if the party claiming reduced its ‘claim’ to within that jurisdiction.

The Contract of Sale terminated in June 2017 at which point Plaintiff and Defendants entered into a June 25, 2017 occupancy agreement (“Occupancy Contract”).  The latter did not contain the agreement to arbitrate but Dufour J. held that it had no impact on the issues as Plaintiff did not form its claim under the Occupancy Contract but under the two (2) July 8, 2014 contracts.

Plaintiff limited its claims to $15,000.00, within the Small Claims division’s jurisdiction. Defendants countered with a claim estimated at $45,000.00, well above the jurisdiction and subject to the Court of Québec’s general jurisdiction and procedural rules.  Defendants alleged that they had remitted the $45,000.00 to Plaintiff at the date of the contract and sought its reimbursement given that the contract had come to term.  In making the crossclaim, Defendants raised the dispute/claim beyond the $15,000.00 level of the Small Claims division and subject to final and binding determination by way of arbitration.

Defendants applied to dismiss Plaintiff’s claim on two (2) grounds.  First, the dispute was subject to the agreement to arbitrate.  Second, the dispute involved a residential lease dispute and the Régie de logement, an administrative tribunal equivalent to a rental board, had exclusive jurisdiction.

(1) Agreement to arbitrate – Dufour J. held that the agreement to arbitrate complied with the criteria set in the case law.  Referring to a recent illustration in Pages jaunes Solutions numériques et médias limitée v. Gestion PMOD inc., 2017 QCCQ 4071, he adopted the same test which required that such agreements, to be binding, must be ‘written, have an imperative effect and confer exclusive jurisdiction to an arbitrator in a clear and precise manner’.

He excerpted a key passage from Zodiak International v. Polish People’s Republic, 1983 CanLII 24 (SCC), [1983] 1 SCR 529 at p. 533 which spoke to the validity of a ‘complete undertaking’ to arbitrate under Québec law.

A complete undertaking to arbitrate, described variously as true, real or formal, is that by which the parties undertake in advance to submit to arbitration any disputes which may arise regarding their contract, and which specifies that the award made will be final and binding on the parties”.

Dufour J. resisted Plaintiff’s invitation to view Defendants’ jurisdictional challenge as a pure dilatory maneuver. He determined that the contractual mechanics used by the parties was complex and each monetary claim required a more in-depth explanation based on a fuller evidentiary record.  The proper forum to do this was by way of hearing before an arbitrator as agreed to by the parties.  On that basis, Dufour J. granted Defendants’ application to dismiss.

(2) Rental board exclusive jurisdiction – Dufour J. only considered this ground as a subsidiary one, having already granted Defendants’ application based on the agreement to arbitrate and because the parties had fully pleaded the second ground.

He dismissed Defendants’ submissions that the dispute involved a residential lease.  He analyzed the two (2) June 2104 contracts and determined that they did not involve a lease for residence but were, given their particular clauses, a loan.  Plaintiff had permitted Defendants to occupy their former residence, after its sale, with a buy-back clause higher than the initial sale to Plaintiff.  Adopting the same reasoning applied in a similar situation in Bédard v. Drolet, 2006 QCCS 3484 paras 19-24, Dufour J. readily concluded that the parties’ contractual agreement exceeded a mere residential lease and dismissed Defendants’ argument that the Régie de logement had jurisdiction.

urbitral note – First, Dufour J. examined the wording of the contracts submitted to him and, applying a summary review of the record with the parties’ respective allegations, made his determinations.  In doing so, he appeared to apply, without citing, the exception mentioned in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801.  That exception permits the court and not the arbitrator to make the first determination of the arbitrator’s jurisdiction. By making the determination first, he effectively pre-empted the parties from re-arguing jurisdiction before the arbitrator.  The nuance, unstated, is that Dufour J. made a first and final determination whereas the arbitrator only makes a first, but not final, determination.

[84] First of all, I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.  A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law.  This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court.  It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate.  In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause.

[85] If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts.  Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record”.

Second, the agreement to arbitrate alternated between ‘dispute’ and ‘claim’, confirming the parties’ agreement that all disputes stemming from the said contract and its interpretation would be arbitrated unless the amount of the ‘dispute’ was within the jurisdiction of the Small Claims division of the Court of Québec or if the party claiming reduced its ‘claim’ to within that jurisdiction.  

Dufour J. considered that Defendants’ crossclaim qualified as part of the dispute’/’claim even though the terms of the agreement provided that a party could reduce its claim to qualify for Small Claims division.  The approach therefore accepts, as does the C.C.P., that the object of the ‘dispute’/’claim’, for the purpose of jurisdiction, includes a crossclaim even if the agreement to arbitrate is otherwise silent in that regard.