Québec – No referral to arbitration; arbitration clauses intended to “subvert” litigation process – #547

In Sigounis c. Sigounis, 2021 QCCS 4185, as part of his ruling addressing several interim applications, Justice Pinsonnault refused to refer the parties to arbitration in a drawn-out family dispute. The underlying oppression remedy action was commenced by the Plaintiff Jimmy Sigounis against his father, Defendant Nicolas Sigounis, and sister, Defendant Argyro Sigounis (“Argyro”), regarding the family’s interests in various private corporations (the “Chenoy Corporations”). While the action was ongoing, the father sold his interests in the Chenoy Corporations to co-Defendant Argyro (the “Transaction”). Thereafter, the father passed away and his widow (the Plaintiff’s, mother Eleni Sigounis), who had previously not been involved in the action, took over as “Defendant in Continuance of Suit” in her capacity as the estate’s liquidator and universal legatee. The Plaintiff and his mother then learned of the Transaction, which they both viewed as prejudicial to their interests; including that the Transaction potentially left the estate insolvent. Accordingly, the mother made several filings with the Court, including a Cross-Application and a Declaration of Intervention against Argyro (the “Filings”), seeking the cancellation of the Transaction. In response, Argyro brought the subject interim applications, including an application to refer all matters raised in the Filings to arbitration pursuant to the identical arbitration clauses in the Transaction agreements. In rejecting Argyro’s application, Justice Pinsonnault found that the dispute, as a whole, fell within one of the exceptions in the arbitration clauses as “a severe dispute over family matters” thus rendering the dispute outside the scope of the arbitration clauses in the Transaction agreements. In addition, Justice Pinsonnault took issue with the timing of the Transaction, which took place over two years after the action was commenced, and the Defendants’ intentions of subverting the litigation process by including the arbitration clauses in the event that the Transaction was contested.

The Plaintiff commenced an oppression remedy action in 2017 against his father and sister seeking the liquidation of the Chenoy Corporations. As Justice Pinsonnault noted, the case “[7] … has been bogged down with disputes that generated countless motions on both sides that have prevented this case from progressing as quickly as it should have.” In January 2020 the trial on the merits was scheduled for October 13-26, 2021. The Defendant father passed away in August 2020 and his widow filed an uncontested Notice of Continuance of Suit on January 7, 2021 pursuant to which the mother became a party in her capacity as the estate’s liquidator and universal legatee. Shortly thereafter, Argyro’s then counsel disclosed that the father had sold his interests in the Chenoy Corporations to Argyro on December 8, 2019.

The Plaintiff son and mother (as Defendant in Continuance of Suit) took issue with the sale of the father’s interests in the Chenoy Corporations (including their valuation), questioned whether Argyro actually paid the consideration, and asserted that some of the transferred shares were being held for the benefit of the Plaintiff son, which constituted another act of oppression. Moreover, in investigating the affairs of the Estate, the mother discovered several lawsuits involving the father that exposed the Estate to significant potential liabilities that could not be covered without the liquidation proceeds of the Chenoy Corporations. The mother then made the above noted Filings primarily seeking the cancellation of the Transaction. By way of the subject interim applications, Argyro contested the Filings, and sought a referral to arbitration in accordance with the arbitration clauses in the agreements relating to the Transaction, which read:

6.01 Mandatory Arbitration: The Parties undertake to submit to arbitration all present or future disputes concerning the interpretation, application, accomplishment, coming into force, validity and effects of this contract, to the exclusion of the courts. However, disputes over the status and capacity of any one of the Parties, family matters or other matters of public order may not be submitted to arbitration.

In assessing the arbitration clauses, Justice Pinsonnault noted that “[95] … it is relevant to consider the nature and scope of the present oppression remedy proceedings that were initiated in February 2017 some 33 months before the execution of the [Transaction].” He found it arguable that the transfer of the shares under the Transaction could amount to further acts of oppression falling squarely within the scope of the action, which had been previously acknowledged by the Defendants as “in part a family matter.”

As a result, Justice Pinsonnault concluded that the arbitration clauses “[105] … are not binding on this Court for the purposes of hearing and disposing of the present oppressive remedy proceedings which clearly constitute, inter alia, a severe dispute over family matters, being one of the exceptions found in the two arbitration clauses in question.” Justice Pinsonnault dismissed Argyro’s applications and ordered the provisional execution of his judgment notwithstanding the filing of an appeal so that the trial could be heard as scheduled the following week.

Contributor’s Notes:

It is interesting to note that the language of the arbitration clauses mirrors Article 2639 of the Civil Code of Québec, CQLR c CCQ-1991, which states, in relevant part:

“Disputes over the status and capacity of persons, family matters or other matters of public order may not be submitted to arbitration.”

Typically, the “family matters” contemplated under this article relate to family disputes such as divorce, child custody, or support payments. It is noteworthy that Justice Pinsonnault did not refer to Article 2639, which perhaps gave him greater latitude to characterize the oppression remedy proceedings as a “family matter” falling under the exceptions in the arbitration clauses.

Additionally, it is evident that Justice Pinsonnault was concerned with the intent and timing of the Transaction, and their potential to further derail the oppression remedy proceedings:

“[107] This protracted and bitter family matter has now grown way out of proportion and must be addressed and dealt with in a single forum as soon as possible.

[108] The upcoming trial constitutes the only appropriate forum.

[109] It must also be pointed out that the jurisprudence submitted on the issue of the disqualifying effect of a perfect arbitration clause involves agreements entered into before any litigation had started. Such clauses are normally entered into in anticipation of future disputes, not more than two years after the dispute has been submitted to the Court.

[110] In other words, the present situation is quite different.

[121] Parties to ongoing oppression remedy litigation that, moreover, became a protracted bitterly contested family matters dispute, cannot legitimately enter into “secret” contracts that will have a definite bearing on the ongoing litigation and purposely incorporate arbitration clauses aimed at preventing the other family members from exercising their rights and voicing their objections and contestation before the very forum that has already been accepted and used by all since 2017, especially when the trial on the merits has already been set.

[125] It would be totally unreasonable to suspend determination of the appropriate remedies and relief to be awarded to the parties herein pending the outcome of an arbitration process that has not even been initiated because Argyro purposely chose to bypass the ongoing judicial process should her transaction with her late father be contested by her mother and brother.

[126] The trial that is about to begin on October 13, 2021, is the appropriate forum for the members of the Sigounis Gamily Group to adduce their evidence and deal once and for all with the various issues that sadly, have been consuming their lives and their relationships for years.”