Québec – one party’s omission to respond fully to other’s claim does not limit scope of arbitration – #157

In Garantie de construction résidentielle (GCR) v. Ewart, 2019 QCCS 40, Madam Justice Danielle Mayrand held that one party’s omission to deal with all components of the other’s claims did not deny the arbitrator jurisdiction to deal with all issues raised in the dispute.  Despite the label used by one party to characterize its claim, Mayrand J. held that the arbitrator had correctly dealt with the true nature of the claims in the hearing administered by the Canadian Commercial Arbitration Centre (“CCAC”).

The litigation involved a motion by La Garantie de construction résidentielle (“GCR”) for judicial review of an award issued against it under Québec’s Regulation respecting the guarantee plan for new residential buildings, CQLR c B-1.1, r 8 (“Regulation”) adopted under Québec’s Building Act, CQLR c B-1.1.

The Regulation applies to plans which serve to guarantee the performance of a contractor’s legal and contractual obligations provided for in the Regulations and regarding the sale or construction of new buildings intended mainly for residential purposes meeting certain criteria (“guarantee plans”).

GCR is authorized by the Régie du bâtiment du Québec (the “Board”) to manage an approved guarantee plan (“Manager”). The only persons eligible for authorization are those having the status of non-profit legal person whose sole purpose is to manage financial guarantees within the meaning of the Building Act.

The Regulation, at section 18, paragraphs (2) to (6), sets out a procedure for beneficiaries to give notice of a claim under section 10. The beneficiary and the contractor each have an opportunity to comment on the claim and, in case of ongoing disagreement, the Manager responsible for the guarantee plan issues a written report and decides the claim. The Manager either accepts or rejects the claim, in whole or in part. Failure by the contractor to undertake the work entitles the Manager to do so at the contractor’s expenses. The role of arbitration arises at section 19.

See earlier ArbitrationMatters notes on arbitration under the Regulation: “Québec – industry association’s arbitration bylaw binds only members, allows litigation against non-members”, “Québec Court of Appeal endorses arbitration and litigation as independent recourses for different claims related to new residential home disputes” and “Québec courts assert consequences of not undertaking/participating in mandatory legislated arbitration”.

The dispute between GRC and its beneficiary centred on section 9 of the Regulation which gave the beneficiary an option: seek reimbursement of “partial payments” (advances) or completion of the work. The beneficiary had filed a November 16, 2015 claim in which it clearly opted for completion of the work. After the contractor suspended the work and left the work site 69% completed, the beneficiary sent a second request dated January 6, 2016.

By February 3, 2016 decision, GCR granted the beneficiary’s claim. The contractor submitted the decision to arbitration conducted under the CCAC’s arbitration rules.  In the interim, the beneficiary sent a claim for reimbursement of the partial payments. On April 27, 2016, the arbitrator rendered an award on interim measures and a final award on July 11, 2017.

In his July 11, 2017 award, the arbitrator granted the beneficiary’s February 27, 2016 claim for reimbursement. In doing so, the arbitrator dismissed GCR’s objections on jurisdiction. GCR had claimed that the arbitrator lacked jurisdiction to deal with a matter which the GCR itself as manager had not dealt with in the GCR’s own February 3, 2016 decision and by ordering reimbursement of partial payments when the claim was for completion of the work.

In its judicial review application, GCR raised the jurisdiction of the arbitrator and argued that Mayrand J. apply the standard of correctness. Mayrand J. disagreed. She held that the arbitrator had decided matters within his jurisdiction and that the standard of review was reasonableness.

The arbitrator held that GCR cannot deny jurisdiction to the arbitrator by omitting in its February 3, 2016 decision to deal with the entirety of the beneficiary’s claim. The fact that GCR omitted to decide that aspect of the claim did not shield it from the arbitrator’s later consideration. The arbitrator did recognize that the remedies of reimbursement or completion of the work were alternatives and were at GCR’s discretion. In the circumstances, despite the wording used by the beneficiary, the arbitrator determined that the essence of the beneficiary’s claim was for completion of the work and the sums reimbursed dealt with work undertaken by third parties to complete the work. The February 23, 2016 claim for monies was simply the calculation made for the completion of the work.

The failure of GCR to deal with the issues did not prevent the beneficiary from arbitrating its claim. Using the term “partial payment” did not, by that fact, change the character of the beneficiary’s claim. The arbitrator held that, on the facts, the claim for the monies was part of the completion work.

The Court of Appeal in Garantie des bâtiments résidentiels neufs de l’APCHQ c. Desindes, 2004 CanLII 47872 (QC CA) had confirmed an arbitrator’s jurisdiction to order completion of the work despite a formal demand identifying the claim as one for reimbursement. The Court had determined that, despite the label applied to the claim, it was its nature that counted.

Mayrand J.’s reasoning reinforces that (a) the scope of jurisdiction and the issues in dispute in such cases cannot be limited by one party dealing only partially with another party’s claim and (b) the label applied to a claim made should yield to the real nature of the claim.