Québec – default is all disputes subject to broadly-worded arbitration agreement unless expressly excluded – #309

In Groupe Dimension Multi Vétérinaire Inc. v. Vaillancourt, 2020 QCCS 1134, Mr. Justice Frédéric Bachand dismissed attempts to limit an arbitral tribunal’s jurisdiction by way of presumption that statutory recourses were excluded unless expressly included.  He held that the reverse approach was supported by a liberal interpretation which must be given to such agreements to arbitrate and legislative policy favouring development of consensual arbitration.  Bachand J. concluded that an arbitral tribunal’s jurisdiction extends to all disputes relating directly or indirectly to the contract in which the agreement to arbitrate is inserted unless the terms of that agreement or relevant contextual elements indicate a real intention of the parties to limit its scope. 

update – Leave to appeal refused, Groupe dimension multi vétérinaire inc. v. Jean-Philippe Ewart, et al., 2020 CanLII 76221 (SCC).

Disputes between Plaintiff and Defendant regarding a September 1993 shareholders’ agreement (“SA”) lead Plaintiff to initiate arbitration in November 2017.  Modified in July 2018, the Notice to Arbitrate (“Notice”) alleged Defendant’s non-compliance with the SA when executing certain share transfers in 2012.  Plaintiff sought various orders from the arbitral tribunal to confirm non-compliance and sanction Defendant’s alleged breaches.

In his October 2018 response to the Notice (“Response”), Defendant sought orders from the arbitral tribunal regarding Plaintiff targeting its allegedly abusive conduct towards Defendant.  All agreed that Plaintiff’s recourses were contractual and that several of Defendant’s claims were based on the oppression recourse set out in section 450 of Québec’s Business Corporations Act, CQLR c S-31.1 (“BCA”).

Section 450 – An applicant may obtain an order from the court to rectify a situation if the court is satisfied that

(1)   any act or omission of the corporation or any of its affiliates effects or threatens to effect a result,

(2)   the business or affairs of the corporation or any of its affiliates have been, are or are threatened to be conducted in a manner, or

(3)   the powers the board of directors of the corporation or any of its affiliates have been, are or are threatened to be exercised in a manner

that is or could be oppressive or unfairly prejudicial to any security holder, director or officer of the corporation”.

The SA was subject to Québec law including Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”). Before the arbitral tribunal, Plaintiff submitted that the statutory recourses included in Defendant’s Response did not fall within the terms of the arbitration agreement.  During the hearing, the arbitral tribunal held that it did have jurisdiction regarding the entire dispute.  It later issued a May 13, 2019 written decision (“Decision”) though transmitted weeks later during July 2019.

Plaintiff applied for judicial review of that Decision, relying on the provisions of article 529 of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).

Bachand J. promptly corrected the procedural base on which he would consider Plaintiff’s challenge.  He promptly pointed out that judicial review was not available in the circumstances.  Judicial review drew on the inherent oversight and control exercised by the Superior Court and it was clear that a consensual (in French “conventionnel” translated directly as ‘contractual’ in English) arbitration was not subject to such oversight and control.  He referred to Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178 paras 68-69, and Morrissette v. St-Hyacinthe (Ville de), 2016 QCCA 1216 para. 36,  the recent Khalilian v. Murphy, 2020 QCCS 831 paras 21-23.  See the Arbitration Matters note on that recent Superior Court decision “Court’s intervention on challenge to award on jurisdiction is not judicial review”.

Instead, article 632 C.C.P. applied to provide courts limited intervention of an arbitral tribunal’s decision on jurisdiction.

Article 632 C.C.P. – Arbitrators conduct the arbitration according to the procedure they determine; they are required, however, to see that the adversarial principle and the principle of proportionality are observed.

Arbitrators have all the necessary powers to exercise their jurisdiction, including the power to administer oaths, the power to appoint an expert and the power to rule on their own jurisdiction.

If an arbitrator rules on the arbitrator’s own jurisdiction, a party, within 30 days after being advised of the decision, may ask the court to rule on the matter. A decision of the court recognizing the jurisdiction of the arbitrator cannot be appealed.

For so long as the court has not made its ruling, the arbitrator may continue the arbitration proceedings and make an award”.

In addition, Bachand J. clearly stated the nature of the court’s intervention.  The court was to “rule on the matter” of the arbitrator’s jurisdiction and not on the arbitrator’s decision itself.  As such, there was no need to enquire about the applicable standard of review given that article 632 C.C.P. confirmed that the court was to make that determination itself.  Article 632 C.C.P. did not require deference for the arbitrator’s analysis or conclusions.  At footnote 13, he did observe that nothing prevented the court from considering that analysis.

In footnote 12, Bachand J. alerted that the court’s role might be otherwise limited had the parties in their agreement to arbitrate stipulated that the arbitrator’s decision on the scope of the arbitration agreement was final.  He cited Gary B. Born, International Commercial Arbitration, 2nd ed., vol. 1, Alphen aan den Rijn, Kluwer Law International, 2014, p. 1219-1221.

No objection was made regarding Plaintiff’s procedural choice to initiate judicial review rather than article 632 C.C.P. as the parties had adjusted for the hearing and were not prevented from making their proof and argument.  Bachand J. did note, at footnote 14, that permission to file additional evidence was not obvious, referring to The Russia Federation v. Luxtona Limited, 2019 ONSC 7558.  For the Arbitration Matters note on that decision, see “Court revisits/reverses prior decision which allowed new evidence on post-award jurisdictional challenge” and the earlier, related decision “Ontario court holds that arbitral tribunal’s evidentiary record on jurisdiction challenge is not ignored but also does not confine court”.

Plaintiff raised two (2) objections against application of the agreement to arbitrate. Both were unsuccessful.

First, Plaintiff argued that the 1993 SA and its agreement to arbitrate came into effect before the introduction, a few months later, of the current C.C.Q. and that the parties had not agreed in 1993 to submit such disputes to arbitration. Bachand J. held that the agreement to arbitrate did not limit the arbitral tribunal’s jurisdiction.  At footnote 17, in addition to others, he provided the following authorities to justify application of updates to the applicable law developed after signature of a contract:

Halsbury’s Laws of Canada: Conflict of Laws, 2016 Reissue (contributed by Janet Walker), Toronto, LexisNexis, 2016, para. HCF-126 (« [t]he governing law is normally that in force in the place in question from time to time, and effect will be given to any changes in that law before performance of the contract falls due »); Stephen G.A. Pitel et Nicholas S. Rafferty, Conflict of Laws, 2e éd., Toronto, Irwin Law, 2016, p. 288 (« When parties choose an applicable law, they generally are understood to intend to have that law apply as it stood at the time a dispute arises. So if a contract, made in 2000, chooses the law of New York and a dispute arises in 2008, the contract’s governing law will include any changes to New York’s law of contract between 2000 and 2008. New York Law is not somehow frozen as of the time the contract is made”.

Bachand J. held that he was provided with no reason why the parties would have wanted to complicate the resolution of any disputes by limiting their agreement to arbitrate in the manner proposed by Plaintiff.  He held that not only should such agreements be given a liberal interpretation but the interpretation should promote the effectiveness of the arbitral process.

Bachand J. held that the agreement to arbitrate was broad enough to encompass application of the C.C.Q. introduced after the SA was signed and that it was ‘unthinkable’ that parties in 1993 to a commercial agreement would have wished that their contractual relations would be governed only by the then-active and now-repealed Civil Code of Lower Canada.

Second, Plaintiff argued that the case law had established a rebuttable presumption that an agreement to arbitrate did not apply to oppression remedies unless the parties had expressly intended that it apply.  It cited: Camirand v. Rossi, 2003 CanLII 74899 (QC CA); Acier Leroux inc. v. Tremblay, 2004 CanLII 28564 (QC CA); Acier Leroux inc. v. Tremblay, 2004 CanLII 76436 (QC CA); Ferreira v. Tavares, 2015 QCCA 844; Plourde v. Faltour inc., 2016 QCCS 1410; AEC Symmaf inc. v. Poirier, 2018 QCCA 916; and, Jack v. Jack, 2018 QCCS 3230.

Bachand J. analysed each of the decisions.  He noted that one had not been required to rule on the issue, that the wording in others specifically limited the jurisdiction of the arbitral tribunal and agreed that the decision in Jack v. Jack appeared to support Plaintiff’s argument in some regard given its reliance on the prior reasoning in Heeg v. Hitech Piping (HTP) Ltd., 2009 QCCS 4043.  Having reviewed the precedents, Bachand J. concluded that there was no fixed precedent established in the case law confirming the approach submitted as a rule by Plaintiff.

Bachand J. noted that the absence of such a consensus was a good thing because such a rule would be had to reconcile with the general principles governing consensual arbitration. He made the following observations.

[31] Le plus important de ces principes est celui consacrant l’autonomie de la volonté, un principe fondamental qui, sans être absolu, constitue la pierre d’assise de tout le droit moderne de l’arbitrage conventionnel. Ce principe implique notamment qu’il importe de respecter et de donner pleinement effet à la volonté que les parties ont exprimée en choisissant de recourir à ce mode de résolution de leurs différends. Si, ce faisant, les parties ont réellement eu l’intention de limiter la compétence du tribunal arbitral à certains types de différends, leur volonté devra être respectée, et ce, même s’il s’avérait ultérieurement que ce choix n’avait pas été des plus opportuns. Toutefois, le principe de l’autonomie de la volonté sera mis à mal lorsque l’on conclura à l’existence de limites à la compétence du tribunal arbitral que les parties n’avaient pas réellement souhaité établir. Or, c’est précisément à une telle conclusion qu’est susceptible d’aboutir une analyse fondée sur une présomption comme celle qu’invoque la partie demanderesse dans la présente affaire”.

[informal translation] ‘The most important of these principles is that devoted to the autonomy of will, a fundamental principle which, without being absolute, constitutes the keystone of modern consensual arbitration law. This principle implies in particular that it is necessary to respect and give full effect to the will the parties have expressed by choosing recourse to this form of resolution of their disputes.  If, in doing so, the parties have really had the intention of limiting the arbitral tribunal’s jurisdiction to certain types of disputes, their wish must be respected, even if the choice is eventually revealed to have not been the most appropriate. Nevertheless, the principle of the autonomy of will will be undermined if one determines limits on the arbitral tribunal which the parties had not really wished to establish. However, that is exactly the type of conclusion which may result from an analysis based on a presumption such as the one invoked by Plaintiff in the present matter’.

Given the liberal interpretation which must be given to such agreements to arbitrate as well as the legislative policy favouring the development of consensual arbitration, the presumption which should guide the analysis of an arbitral tribunal’s jurisdiction is one by which the parties had wanted to confer on the arbitral tribunal the power to deal with all the disputes flowing directly and indirectly from their contractual relationship in order to avoid a multiplicity of venues and the risk of contradictory decisions.

Having set out the above, he followed it with an extensive excerpt from Gary B. Born, International Commercial Arbitration, 2nd ed., vol. 1, Alphen aan den Rijn, Kluwer Law International, 2014, p. 1343-1344 at para. 32 of his reasons.

Bachand J. concluded that the jurisdiction of an arbitral tribunal extends to all disputes relating directly or indirectly to the contract in which the agreement to arbitrate is inserted unless the terms of that agreement or relevant contextual elements indicate a real intention of the parties to limit its scope.  See also footnote 38 and the reference to further authority to similar effect.

Bachand J. held that the wording of the agreement to arbitrate contained in the parties’ SA was drafted in a broad manner and contained no stipulation limiting the scope of the arbitral tribunal’s jurisdiction.  As well, no element in the record revealed any intention of the parties to the 1993 SA to limit the scope of the disputes or recourses.  Defendant’s claims under section 450 BCA were ‘unquestionably’ within the terms of the agreement to arbitrate entered into in 1993.  Bachand J. dismissed Plaintiff’s challenge under art. 632 C.C.P. to the arbitral tribunal’s jurisdiction.

urbitral note – First, Bachand J. clearly asserted that judicial review had no application in challenges to consensual arbitration decision making.

Second, Bachand J. held that the court, when tasked with determining jurisdiction once the arbitral tribunal has issued its own decision, does not sit in review of the analysis undertaken by the arbitral tribunal.  The analysis can be considered but does not bind the court as it is authorized to “rule on the matter”.  He did say that the court was not limited by the decision of the arbitral tribunal but it is clear that, under article 632 C.C.P. the court required that the arbitral tribunal have at least issued a decision in order to trigger that provision’s application and the intervention of the court.

Third, Bachand J. did not provide insights into the role of additional evidence on such applications to the court, other than to flag that issue is that obvious, referring to recent case law from Ontario.

Fourth, Bachand J. referred to two (2) key paras of Desputeaux v. Éditions Chouette (1987) inc. which have fresh relevance following the recent December 2019 Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.  The passages anticipate and pre-empt attempts to apply judicial review to consensual arbitrations:

[68] Despite the specificity of these provisions of the Code of Civil Procedure and the clarity of the legislative intention apparent in them, there have been conflicting lines of authority in the Quebec case law regarding the limits of judicial intervention in cases involving applications for homologation or annulment of arbitration awards governed by the Code of Civil Procedure.  Some judgments have taken a broad view of that power, or sometimes tended to confuse it with the power of judicial review provided for in arts. 33 and 846 C.C.P.  (On this point, see the commentary by F. Bachand, “Arbitrage commercial:  Assujettissement d’un tribunal arbitral conventionnel au pouvoir de surveillance et de contrôle de la Cour supérieure et contrôle judiciaire d’ordonnances de procédure rendues par les arbitres” (2001), 35 R.J.T. 465.)  The judgment in issue here illustrates this tendency when it adopts a standard of review based on simple review of any error of law made in considering a matter of public order.  That approach extends judicial intervention at the point of homologation or an application for annulment of the arbitration award well beyond the cases intended by the legislature.  It ignores the fact that the legislature has voluntarily placed limits on such review, to preserve the autonomy of the arbitration system.  Public order will of course always be relevant, but solely in terms of the determination of the overall outcome of the arbitration proceeding, as we have seen.

[69] This latter approach has been adopted by a significant line of authority.  It recognizes that the remedies that may be sought against arbitration awards are limited to the cases set out in arts. 946 et seq. C.C.P. and that judicial review may not be used to challenge an arbitration decision or, most importantly, to review its merits (Compagnie nationale Air France, supra, at pp. 72425; International Civil Aviation Organization v. Tripal Systems Pty. Ltd., [1994] R.J.Q. 2560 (Sup. Ct.), at p. 2564; Régie intermunicipale de l’eau Tracy, StJoseph, StRoch v. Constructions Méridien inc., [1996] R.J.Q. 1236 (Sup. Ct.), at p. 1238; Régie de l’assurance‑maladie du Québec v. Fédération des médecins spécialistes du Québec, 1987 CanLII 901 (QC CA), [1987] R.D.J. 555 (C.A.), at p. 559, per Vallerand J.A.; Tuyaux Atlas, une division de Atlas Turner Inc. v. Savard, 1985 CanLII 2959 (QC CA), [1985] R.D.J. 556 (C.A.)).  Review of the correctness of arbitration decisions jeopardizes the autonomy intended by the legislature, which cannot accommodate judicial review of a type that is equivalent in practice to a virtually full appeal on the law.  Thibault J.A. identified this problem when she said:

[translation]  In my view, the argument that an interpretation of the regulation that is different from, and in fact contrary to, the interpretation adopted by the ordinary courts means that the arbitration award exceeds the terms of the arbitration agreement stems from a profound misunderstanding of the system of consensual arbitration.  The argument makes that separate system of justice subject to review of the correctness of its decisions, and thereby substantially reduces the latitude that the legislature and the parties intended to grant to the arbitration board.  ([Laurentienne-vie, Cie d’assurances inc. c. Empire , Cie d’assurance-vie, 2000 CanLII 9001 (QC CA)], supra, at para. 43)”.