In Gifran inc. c. 9225-2071 Québec inc., 2023 QCCA 311, the Québec Court of Appeal (the “Court”) recalled the principles governing an exception to the compétence-compétence principle and ordered a stay in favor of arbitration, overturning the Superior Court Judge’s decision. The Court commented on the scope of the exception relating to questions of mixed fact and law that require only superficial consideration of the evidence in the record, in the context of a shareholder dispute. It noted that the Superior Court Judge had not provided reasons as to why the exception applied in this case and found that the exception did not in fact apply, because an in-depth analysis of the respective scopes of two separate shareholder agreements (one with an arbitration clause and one without) was required. The Court also held that the mere presence of related third parties in the dispute was not sufficient to deny the stay application.
The dispute – The dispute was between two shareholders, 9225-2071 Québec inc. (“9225”) and Gaucham inc. (“Gaucham”), which each held 50 % of the voting shares of GCG inc., a company operating a spa and restaurant, as well as other related parties.
9225 and Gaucham were bound by a shareholder agreement (“SA”) which contained an arbitration clause. They were also bound by a unanimous shareholder agreement (“USA”) signed on the same day, but which did not have an arbitration clause.
A dispute arose between the two shareholders. 9225 and its sole shareholder (René Giguère) instituted proceedings against Gaucham and its representative (Gilles Champagne) before the Québec Superior Court in December 2021. The Plaintiffs asked the Superior Court to end their shareholding relationship and to order Gaucham to sell to it its shares.
A few days later, Gaucham and Gilles Champagne applied to stay the proceedings in favour of arbitration pursuant to article 622 of the Code of Civil Procedure of Québec (“C.C.P.”), based on the arbitration clause in the SA. A few weeks later, 9225 and René Giguère amended their court proceedings to add related third parties and modify their claims.
The Superior Court Decision – The Superior Court Judge, Justice Blanchard, referred to the compétence-compétence principle but found that an exception applied, namely, the exception relating to questions of mixed law and fact that require only superficial consideration of the evidence in the record, as per Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (“Dell”), and Uber Technologies Inc. v. Heller, 2020 SCC 16 (“Heller”). Justice Blanchard concluded that some of the claims did not fall within the scope of the arbitration clause in the SA. He also noted the presence of third parties who were not parties to the arbitration agreement. He dismissed the application for stay to arbitration and found that the Superior Court had jurisdiction to hear the dispute.
The Court of Appeal Decision – The Court recalled the principle of compétence-compétence which is set out in articles 622 and 632 of the C.C.P., as well at its exceptions, which were considered in Dell and Heller.
First, the Court found that Justice Blanchard’s lack of reasons as to whether the analysis required in this case could be said to be “superficial” justified in itself the intervention of the Court. On the merits, the Court concluded that the Justice Blanchard’s analysis of the agreements at stake went beyond a superficial consideration, such that he in effect exercised the competence that should have been exercised by the arbitrator.
Second, the Court found that more evidence was required as to the purpose of both agreements, the common intention of the parties, the circumstances in which they were simultaneously concluded, and also as to the links between 9225’s allegations and the two agreements (para. 30).
Third, 9225 raised various other arguments which were dismissed by the Court:
- The dispute did not involve the SA, but merely the USA. Here, the Court noted that, prior to the amendment of the proceedings made after the stay application, 9225 itself invoked both the SA and the USA (paras. 33-25). Having made this observation, the Court concluded that it would be up to the arbitrator to rule on this aspect of the dispute.
- The equitable remedy sought by 9225 (rectification of abuse) was a bar to arbitration. The Court referred to prior case law establishing that arbitrators can rule on oppression remedies and that they need not be decided by a court. The Court further observed that the arbitration clause in the SA was drafted in a broad manner, such that the Plaintiff’s allegations in this case could not prevent the arbitrator from ruling on his own competence (paras. 36-37).
- The presence of third parties. Here again, the Court noted as an important element of context that the Plaintiffs add the third parties to the proceeding via the amendment made by 9225 after the application for stay in favour of arbitration was made. Moreover, it noted that the additional parties were closely related to 9225 and Gaucham. The Court further concluded that more than a superficial analysis was required to establish the nature of the links between the various parties, such that it must fall to the arbitrator, upon a full analysis of the evidence, to make this determination (paras. 38-39).
- Insufficient financial means to participate in the arbitral process. Finally, the Court dismissed 9225’s argument based on its limited financial means by observing that Heller involved a multinational company opposed to an Uber driver, which is a scenario far removed from this dispute, noting that René Giguère, the sole shareholder of 9225, owned several real estate assets.
There are a number of interesting issues that arise in this case.
First, the Court recalled the principles governing a well-known exception to the compétence-compétence principle, citing to the Supreme Court decisions in Dell and Heller. The Court could also have cited a more recent case, Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, on this point (paras. 42-43).
Those principles were stated correctly by Justice Blanchard, but the Court held that there was an error in their application to the facts of the case. By ruling that an analysis of which agreement applied to the dispute involved more than a superficial review, the Court limited the parameters of the application of the “superficial consideration of the evidence in the record” exception in cases where more than one agreement is involved.
Similar results occurred in a recent decision from the Ontario Superior Court, also in a case involving a shareholder dispute, where two of the three relevant agreements had arbitration clauses (see Case note #690: Ontario – Shareholders dispute stayed where 2 of 3 agreements had arbitration clauses, as well as in a 2021 decision from the Québec Superior Court (See Case note #517: Québec – case referred to arbitration despite some parties and some claims possibly not covered by the arbitration agreement).
Second, the Court’s comments on the need to provide reasons explaining why an exception to the compétence-compétence principle applies (i.e. why a “superficial” review allows the court to rule on competence) should lead to improved reasoning in future such cases.
Third, as an additional note, this case is in line with the trend raised by Marie-Claude Martel in her 2022 round-up (See recent article in 2022: The year in Review) pertaining to non-signatories/third parties in Québec. The Court confirmed that the mere presence of third parties in the broader dispute was not sufficient to deny an application for stay to arbitration.