Québec – Interests of justice require closely linked disputes to be arbitrated – #664

In Tessier v 2428-8516 Québec inc., 2002 QCCS 3159, Justice Dufresne granted an application for a declinatory exception in respect of  an originating application, and referred two disputes involving ownership of two closely connected companies to arbitration where the shareholders of only one of the two companies involved in the disputes were subject to an arbitration agreement. Justice Dufresne found that the disputes were linked. He relied upon the interests of justice and the principle of proportionality and  found that [informal translation]“rather than depriving the shareholders of the first [company] of the effects of the arbitration clause, the shareholders of the second [company] should be ordered to be subject to it.”

There are few facts provided in this decision. The Applicants brought an originating application to determine ownership of two numbered companies, 2428-8516 Québec inc. (“2428”) and 9217-5272 Québec inc (“9217”), asserting they were the only shareholders of both entities. The Respondents, to the contrary, asserted they were the only shareholders of both 2428 and 9217. While 2428 and 9217 were separate companies, and carried on business under different names, Justice Dufresne found that both worked [informal translation]“together in the execution of construction contracts” and had the same registered office address.

Only the shareholders of 2428, not 9217, had a unanimous shareholders agreement that contained the following arbitration clause [informal translation]:

“26. The shareholders undertake that the outcome of any disagreement or dispute relating to or arising from the interpretation or application of this agreement or relating to their respective rights and obligations in the company, will be settled exclusively by arbitration, excluding the courts, in accordance with the provisions of the Code of Civil Procedure of Quebec and taking into account the following:


d) …


ii) any arbitration award will be final and without appeal and will be binding on the parties who must comply with it;

(iii) the arbitrator(s) shall have the powers of amiables compositeurs in addition to those of arbitrators, as well as all the powers of a court under the authority of the Business Corporations Act;


e) Right to injunction. Notwithstanding the provisions hereof, the shareholders reserve the right to apply to the courts for the purpose of seeking provisional or interlocutory injunctions until the date of the decision of the arbitration committee.”

In bringing their originating application, the Applicants argued that the disputes could not proceed to arbitration because the shareholders of 9217 (regardless of whether they were the Applicants or Respondents) had not entered into an arbitration agreement. Justice Dufresne noted that neither the Applicants nor the Respondents were arguing to split the disputes (with part proceeding to arbitration and the other part in the courts) and found that it would be inappropriate to do so. He began his analysis by reviewing Article 1(2) of the Code of Civil Procedure, CQLR c C-25.0 (C.C.P.) which states, in relevant part, “Parties must consider private prevention and resolution processes before referring their dispute to the courts.”

Justice Dufresne held that in [informal translation] “the interests of justice, including the principle of proportionality” require that both disputes must proceed by way of arbitration. This was because the disputes were “intimately linked”, and it would be “inappropriate” to deprive 2428’s shareholders (whoever they were) of the arbitration clause in the unanimous shareholders agreement simply because 9217’s shareholders had not similarly consented to arbitration. Justice Dufresne found support for the connectedness of the disputes in the fact that the Applicants had initiated a single court proceeding to resolve the ownership disputes of both companies, in the “factual framework” presented by the Applicants, and in the fact that an arbitrator had all powers necessary to hear the matter.

In sum, Justice Dufresne found that because the disputes were linked, [informal translation] “rather than depriving the shareholders of the first [company] of the effects of the arbitration clause, the shareholders of the second [company] should be ordered to be subject to it.” The Respondents’ application to dismiss the originating application and refer the entire dispute to arbitration was granted.

Contributor’s Notes:

First, Justice Dufresne did not address in the decision whether the dispute involved non-parties to the 2428 agreement to arbitrate. The decision focused on the question of where the disputes should be determined. Justice Dufresne seems to have been presented with an all or nothing argument. Both parties apparently agreed that both disputes should be heard together, either in the courts or by way of arbitration, and took different views on which was appropriate.

Second, there is no elaboration on the authority guiding Justice Dufresne’s view on the interaction of article 1 of the C.C.P (which provides, among other things, that parties must consider resorting to private means of resolving their dispute before going to court) and proportionality, on the one hand, and the scope of the arbitration agreement, which covered “any disagreement or dispute relating to or arising from the interpretation or application of this agreement or relating to their respective rights and obligations in the company”. As discussed in Québec – Light touch to determining arbitration clause application (except to the non-signatory, maybe!) – #638, under the principle of competence-competence arbitrators are competent to rule on their own jurisdiction and (para. 10) “when proceedings are instituted before the Superior Court and a declinatory exception is raised seeking to have the matter referred to arbitration, the court must, pursuant to art. 622 of the Code of Civil Procedure (“C.C.P.”), limit itself to a prima facie assessment of whether or not the dispute comes under the arbitration agreement.” It is notable that previous case law from Québec requires a clear agreement to arbitration to oust recourse to the courts in a domestic arbitration context, see Québec – narrow definition of ‘dispute’ in agreement to arbitrate justifies refusal to nominate arbitrator – #303. See also a recent decision on arbitrability and the potential for multiple proceedings with respect to an international arbitration, see Québec – Parallel proceedings insufficient to justify disregard of arbitration agreement – #651, where Justice Davignon declined jurisdiction over only part of a dispute despite the fact that doing so would result in the dispute proceeding in two different forums.