Québec – Delay in raising arbitration provision fatal to application to amend class – #595

In 9238-0831 Québec inc. v Télébec and Vidéotron senc, 2022 QCCS 183 Justice Lussier dismissed defendant Vidéotron’s request to modify the definition of the plaintiff group in a class action to exclude customers who had signed a contract containing an arbitration clause. Vidéotron changed the relevant contracts to add the arbitration clause after the plaintiff’s application to authorize institution of the class action but before that application was decided. However, its application to modify the plaintiff group was brought outside of 45 days from the originating application in the litigation, as required by article 622 of the Code of Civil Procedure, CQLR c C-25.01. Vidéotron had participated in the judicial process for years before bringing its application and offered no explanation for its delay.

This matter involved a long-running class action initiated by the plaintiff’s numbered company, carrying on business as Caféier-Boustifo (“Boustifo”), with respect to automatic renewal provisions and termination fees charged in fixed-term contracts for telephone and internet services. The underlying facts to the dispute are fairly straightforward.

Boustifo signed a fixed-term contract for services with telecommunications company Télébec that included an automatic renewal clause and charges in the event of unilateral termination by the customer. In March 2016, Télébec informed Boustifo the contract would be expiring and that if Boustifo did not provide it with written notice that Boustifo was not renewing the contract, the contract would renew on the same terms and conditions. Boustifo did not provide any notice to Télébec, but later terminated the landline portion of its contract. In response, Télébec issued an invoice for termination fees. Boustifo refused to pay. Instead, on April 20, 2018, it applied for authorization to bring a class action for damages against Télébec, Vidéotron and two other telecommunications companies as a result of the automatic renewal provisions and termination fees in their fixed-term contracts. On October 3, 2018, Vidéotron modified its contracts to include a mandatory arbitration clause. The two other telecommunications companies sought and obtained a declinatory exception order in November 2018, on consent, because their service agreements contained mandatory arbitration clauses. Therefore, the action was stayed as against them.

In September 2019, the Québec Superior Court authorized institution of the class action against Télébec, but dismissed the application as against Vidéotron. In doing so, the class was defined, in relevant part, as: “[a]ll companies domiciled or having been domiciled in Québec and having been imposed or invoiced since April 20, 2015 by Télébec for contract termination fees.” [rough translation] One of the issues before Justice Lussier was whether that definition should be changed to “close the class”, meaning to put an end date on the class so class members could be easily identified. Justice Lussier determined that class members would be those who met the definition from the period April 20, 2015, to the date of publication of the notices to class members.

However, this Case Note focuses on the Vidéotron application to exclude from the class those members who signed a contract with an arbitration clause after the plaintiff’s application for authorization was brought but before it was decided. The arbitration clause stated:

“Applicable laws – This agreement is interpreted according to the laws in force in the province of Québec The parties agree that any disagreement or dispute relating to this Agreement or arising from its interpretation or its application will be settled definitively by way of arbitration and excluding the courts. Unless the parties decide otherwise in an arbitration agreement, the arbitration will take place under the chairmanship of a sole arbitrator and will be conducted in accordance with the rules of law and the provisions of the Code of Civil Procedure of Québec, in force at the time of this dispute. The arbitration award will be final, enforceable and without appeal and will bind the parties.”

Even though Vidéotron added this term to its contracts in October 2018, it did not seek a declinatory exception at the same time as the other two telecommunications companies did, which resulted in a stay of the action as against them in November 2018. Nor did it argue then that the class should be restricted to customers whose contracts contained no arbitration clause. In September 2019, the Québec Superior Court dismissed the application for authorization to institute the class action as against Vidéotron. In December 2020, Boustifo’s appeal was allowed and the Québec Court of Appeal authorized the class action against Vidéotron.

On January 28, 2021, Boustifo served its originating application in the class action. Months later, on December 8, 2021, Vidéotron filed an application to amend the class. It wanted to exclude as potential class members any entity that had signed a contract with Vidéotron containing the arbitration clause.

Vidéotron thus argued that, based on competence-competence, as reflected in article 632(2) of the Code of Civil Procedure, CQLR c C-25.01, disputes as to the validity and application of an arbitration agreement – such as that in its service agreements – must be referred to the arbitrator and the defined class had to be narrowed accordingly. Article 632(2) states “[a]rbitrators 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.

Boustifo opposed Vidéotron’s application to narrow the class on the basis that claims for termination fees were individually too small to warrant separate arbitrations (Boustifo’s disputed fees totalled $1,474.37 plus tax), especially when the arbitration clause did not provide for the fees of the arbitration. Therefore, it argued that as a result of the Supreme Court of Canada’s decision in Uber Technologies Inc. v Heller, 2020 SCC 16, the arbitration clause was a nullity and the issue should be referred to the trial judge.

Justice Lussier noted that while Vidéotron cited article 632(2) of the Code of Civil Procedure, CQLR c C-25.01, it was actually article 622 of the Code of Civil Procedure, CQLR c C-25.01 that governed the application. This section provides for a stay of litigation and referral to arbitration where there is an arbitration agreement and imposes a 45-day deadline for the party seeking referral to arbitration:

“622. Unless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court even though it would have jurisdiction to decide the subject matter of the dispute.

A court seized of a dispute on such an issue is required, on a party’s application, to refer the parties back to arbitration, unless the court finds the arbitration agreement to be null. The application for referral to arbitration must be made within 45 days after the originating application or within 90 days when the dispute involves a foreign element. Arbitration proceedings may be commenced or continued and an award made for so long as the court has not made its ruling”.

In light of article 622, a threshold issue for Justice Lussier was whether the application for referral to arbitration had been raised within 45 days of the originating application. Vidéotron admitted its application was brought more than 45 days after service of the originating application. It offered no explanation for why it waited approximately three years after modifying its service agreements to invoke the arbitration provision therein. Justice Lussier ultimately found that because of the many steps that had occurred in the litigation since Vidéotron adopted the arbitration clause and its failure to raise the arbitration clause at any point in the last three years, combined with no explanation to justify that failure, its request to modify the class as a result of the new arbitration provision in the service agreement was out of time. Vidéotron’s application to amend the class to exclude its customers whose agreements contained an arbitration provision was denied.  

Contributor’s Notes:

First, this case underscores the importance for parties looking to rely upon an arbitration clause to seek a stay of the action and to apply promptly and raise their objections to litigation without delay. Justice Lussier denied the application as a result of the delay and acquiescence to the process over three years in light of the applicable sections of the Code of Civil Procedure, CQLR c C-25.01, which set out a timeline within which a party is required to raise this issue. He did not comment upon the legislative decision in article 622 of the Code of Civil Procedure, CQLR c C-25.01 to impose this deadline in light of principles such as competence-competence.

Second, Justice Lussier also did not address the arguments raised by Boustifo, that the arbitration clause was a nullity because of the low dollar-value claims of members of the class or the Supreme Court of Canada’s decision in Uber Technologies Inc. v Heller, 2020 SCC 16. A previous Case Note on this decision case can be found at Supreme Court – courts should not refer jurisdiction challenge to arbitrator if real prospect that challenge might never be resolved – #344.

Third, Justice Lussier’s reasons also do not address whether a defendant in a proposed class action based upon a contract claim may amend its contract with customers after the claim has been initiated to add an arbitration clause and avoid litigation.