Québec – Parallel proceedings insufficient to justify disregard of arbitration agreement – #651

In Travelers Insurance Company of Canada v Greyhound Canada Transportation, 2022 QCCQ 4746, Justice Davignon declined jurisdiction over part of a dispute – the Plaintiffs sued the Defendants for recovery of damages as a result of an explosion on their property; in a separate action, one Defendant sued the other to recover any damages it might be required to pay to the Plaintiffs, relying upon a warranty provision in the Defendants’ agreement (to which the Plaintiffs were not parties). That agreement contained both a forum selection and arbitration clause. Justice Davignon declined jurisdiction over the warranty claim. He was unmoved by the fact that this would result in the dispute being debated in two different forums – the court, in respect of the principal action, and arbitration, as to the warranty claim – and gave full effect to the arbitration clause in the agreement between the Defendants.

The dispute -The Plaintiff numbered company operated the Montreal Bus Central Station and sublet storage space to the Defendant Greyhound Canada Transportation ULC (“Greyhound”). Greyhound had retained the services of the Defendant Groupe de sécurité Garda LLP (“Garda”), pursuant to an agreement dated November 2, 2010 (the “Agreement”), to provide security services such as inspection of clients’ baggage. On August 6, 2018, a propane cylinder exploded in the space sublet by Greyhound, triggering the activation of the sprinkler system and causing damage to the Plaintiff’s building. The propane cylinder had been confiscated from a passenger by Garda the previous day.

The litigation – On July 29, 2021, the Plaintiff (and its insurer Travelers) filed suit for damages of just over $56,000 against Greyhound and Garda, alleging that the latter had improperly stored the propane cylinder. On February 17, 2022, the Plaintiffs added Chubb Life Insurance Company of Canada (“Chubb”), Greyhound’s insurer, as Defendant.

On February 22, 2022, Greyhound and Chubb delivered their defence in which they denied all liability and claimed that Garda bore responsibility for any damage to the building. They instituted a separate claim against Garda to recover under the warranty found in the Agreement and its resulting obligations to ensure the security of the space sublet, including the handling, storage, and disposition of prohibited items contained in baggage stored in the space.

Garda responded by bringing an application asking the Court to decline jurisdiction and refer Greyhound, Chubb, and Garda to arbitration to resolve the warranty claim, relying on article 3148(2) of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”), which provides that “[…] Québec authorities have no jurisdiction where the parties have chosen by agreement to submit the present or future disputes between themselves relating to a specific legal relationship to a foreign authority or to an arbitrator, unless the defendant submits to the jurisdiction of the Québec authorities.

The arbitration agreement found at clause 26 of the Agreement read:

“26. All disputes arising out of or relating to this Agreement, regardless of legal theory or factual origin, including without limitation any claim by FGA for temporary, preliminary or permanent injunctive relief shall be decided in the State and federal Courts located in Ohio or the province of Ontario, Canada, as applicable, and the parties consent and agree to exclusive jurisdiction and venue in those Courts. // However, if either party claims or seeks monetary damages of less than $300,000 (US) for a matter arising out of or relating to this Agreement, such claim will be exclusively decided by a binding arbitration administered by JAMS or any national arbitration provider, or its legal successor, under its then existing expedited commercial arbitration rules. The arbitrator in such a dispute shall not have the jurisdiction or authority to award injunctive relief or damages in excess of $300,000 in any such proceeding. Notwithstanding any other provision of this Agreement, enforcement of this arbitration clause and any resulting award shall be governed by the Federal Arbitration Act.

Greyhound and Chubb argued that the wording of clause 26 did not clearly oust the Court’s jurisdiction and that the parties’ intention had to be ascertained by interpreting the arbitration agreement. Justice Davignon disagreed for the following reasons.

Party autonomy to oust court jurisdiction – Justice Davignon relied on the “clear” and “authoritative” “teachings” of the Supreme Court of Canada in GreCon Dimter inc. v J.R. Normand inc., 2005 CSC 46 on arbitration agreements and choice of forum clauses. In GreCon, Justice Lebel commented on article 3148(2) CCQ and the “considerable importance” it attaches to the “principle of the autonomy of the parties” (par. 21) in granting them the right to oust the Québec courts’ jurisdiction by agreement. This autonomy should be respected to foster certainty and foreseeability in international commercial relations. Justice Davignon noted that this principle of international law finds expression in article II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), to which Québec is a party by virtue of Canada’s adhesion, and was integrated into Québec law at article 622 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”). It provides that “the issues on which the parties have an arbitration agreement cannot be brought before a court” and that 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.”

In this case, Justice Davignon noted that it was clear from the Agreement that the parties wished to harmonize their contractual relations and dispute resolution mechanisms for the entire North American territory (part. 23). First, they chose the Ohio courts as the venue for the resolution of all disputes pertaining to services rendered in the United States and the Ontario courts for services rendered in Canada. Second, they agreed to submit to arbitration all disputes for less then $300,000 in North America. Justice Davignon found that clause 26 of the Agreement constituted a valid arbitration agreement, even though it allowed for litigation because it clearly excluded the courts’ jurisdiction for disputes for less than the stipulated amount.

Multiplicity of proceedings – Greyhound and Chubb also argued that the multiplicity of parallel proceedings (i.e. the principal application continuing its course before the Cour du Québec and the recourse in warranty, in arbitration) which would result from referring the action for recourse in warranty to arbitration should also militate against this solution. Justice Davignon acknowledged that this consequence might seem unappealing due to the risk of contradictory decisions, in addition to being contrary to the principle of proportionality considering the amount in dispute (less than $60,000) (par. 25).

Justice Davignon nevertheless considered himself bound to follow the path set out by the Supreme Court of Canada in the GreCon case and decided that the inconvenience related to multiple proceedings should not take precedence over the clear expression of the parties’ intent in the arbitration agreement. He noted that the Québec Court of Appeal has followed this approach, notably in Société québécoise des infrastructures v WSP Canada inc., 2016 QCCA 1756.

Therefore, he gave full effect to the arbitration agreement in referring Greyhound, Chubb and Garda to arbitration regarding the action for recourse in warranty while the main proceeding continued in the courts.

Contributor’s Notes:

First, Justice Davignon did not explicitly address the cases cited by Greyhound and Garda, STMicroelectronics inc. v Matrox Graphics inc., 2007 QCCA 1784 and PIRS, s.a. v Compagnie d’arrimage de Québec ltée, 2013 QCCA 31, but those can easily be reconciled with the decision, as they stand for the proposition that the Court must ascertain the parties’ intention without being unduly formalistic. In STMicroelectronics, the Québec Court of Appeal found that the terms of the purported choice of forum clause were insufficiently clear because they did not contain the word “exclusive”, which was found in clause 26 of the Agreement in the present matter. As to the PIRS case, the Québec Court of Appeal found that the choice of forum clause was sufficiently clear even though it did not include the word “exclusive”, because it specifically provided that “all disputes” would be submitted to a French court.

Second, Justice Davignon cited a passage from Société québécoise des infrastructures v WSP Canada inc., 2016 QCCA 1756 which refers to a useful drafting tip expressed by Justice Dalphond in Achilles (USA) v Les Plastics Dura Plastics (1977) ltée/Ltd regarding the inconvenience of parallel proceedings resulting from the application of an arbitration clause to only part of a dispute: “the parties to an arbitration agreement would have interest in providing that, in the event of a dispute related to another one properly instituted before the Québec courts, the latter may also dispose of a recourse in warranty despite the arbitration agreement in order to rule on all aspects of the dispute”. Here, the difficulty was that the Plaintiffs were not parties to the Agreement between the Defendants containing the arbitration clause and apparently were not prepared to consent to arbitration to avoid the multiplicity of proceedings issue.

Third, it would have been interesting to read a more fulsome discussion of the application of the principle of proportionality in light of the multiple proceedings arising from action for the recourse in warranty being subject to an arbitration agreement. Indeed, since 2016, the CCP has provided that the principle also applies to recourse to arbitration, specifically, the parties cannot exclude in their arbitration agreement the application of the principle of proportionality (see articles 2, 622(3), and 632 CCP).