Québec – stay application refused despite court’s and contract’s flexibility to identify agreement to arbitrate – #199

In Constructions 3P Inc. v. Construction Demathieu & Bard (CDB) Inc., 2019 QCCS 2070, Mr. Justice Thomas M. Davis refused to stay litigation in favour of arbitration despite his willingness to consider evidence pre- and post-contract of an agreement to arbitrate.  Despite claims that the parties had agreed to arbitrate and attempts to demonstrate that agreement, Davis J. determined that (i) the existing agreement to arbitrate had not been followed and (ii) no new agreement post-dispute had been made despite contractual undertakings to explore dispute resolution options.

The disputes stemmed from the construction of a performance hall in St. Jérome, just north of Montréal.  Constructions 3P Inc. (“Constructions 3P”), subcontractor, instituted an action against Construction Demathieu & Bard (CDB) Inc. (“CDB”), general contractor, and Intact Insurance Company (“Intact”) seeking a solidary condemnation against them for $662,404.45 in damages.  In the same litigation file, Constructions 3P also sued Diffusion en scène Rivière-du-Nord Inc. (“Diffusion”) as owner of the hall, seeking the transfer and subsequent judicial sale of the hall.

CDB applied for a stay, alleging that the parties were bound by an agreement to submit their disputes to arbitration. CDB’s application involved two (2) contracts to which it was a party: one between CDB and Diffusion (“CDB/Diffusion Contract”) and a second between CDB and Constructions 3P (“CDB/3P Contract”).

CDB/Diffusion Contract – The first contract contained a dispute resolution clause which included an agreement to arbitrate disputes.  The dispute resolution clause involved a stepped escalation of measures, culminating in a provision by which the parties were nonetheless free to institute litigation if a notice of arbitration was not given within a specific ten (10) period.  After the expiry of that period, the dispute resolution clause further provided that, in addition to the courts, the parties could undertake any other type of dispute resolution, including arbitration, if they so agreed to do so.  In essence, the parties had agreed that, once the arbitration agreement lapsed, they could still agree to arbitrate but doing so was subject to a new, post-dispute agreement the terms of which were not set out in advance. 

CDB/3P Contract – The second contract contained a similar escalation of dispute resolution measures but had been heavily modified with extensive strikeout, leading to the addition of an annex (“Annex A”).  The dispute resolution clause also included a similar ten (10) day period beyond which either party could institute litigation if a notice of arbitration had not been sent.  The clause also provided for how the parties would arbitrate their dispute if that dispute also involved, in whole or in part, a dispute between CDB and another entity (“maître de l’ouvrage”).  In such a case, CDB and 3P purported to agree that their dispute would be resolved by the arbitral tribunal and process followed for disputes between the other entity and CDB.

All parties acknowledged that no notice had been given in the ten (10) day period set by the CDB/Diffusion Contract. 

Nonetheless, CDB alleged in court that it and Diffusion had an agreement that provided to refer the litigation to arbitration because their dispute arose from the claims made by Constructions 3P against CDB.

CDB’s representative filed a declaration under oath to adduce the facts in support of that allegation.  He was cross-examined on that declaration.  He answered undertakings to confirm the date of the alleged agreement and to communicate documents (e-mail or contract) which reflect the alleged agreement between CDB and Diffusion to refer the dispute with Constructions 3P to arbitration.

The answers to undertakings included e-mails exchanged between lawyers at the time they drafted the CDB/Diffusion Contract.  Additional e-mails adduced before Davis J. disclosed subsequent discussions between attorneys about the possibility of a three-party arbitration. Davis J. determined the e-mails reflected no agreement on the arbitration protocol.  All acknowledged that none of the parties had sent a notice to arbitrate.

Davis J. examined the nature of the claims made in court and the wording of the contracts.  He determined that the litigation instituted by Constructions 3P did involve a dispute within the meaning of the CDB/3P Contract.  As such, that dispute was subject to the dispute resolution clause in that contract.

That said, Davis J. also determined that neither the litigation nor CDB’s stay application allowed him to conclude that the stipulations in the CDB/3P Contract had been followed.  Despite the agreement to do so, no mediation had been undertaken and no notice of arbitration had been sent.  The evidence demonstrated that the parties had not completed the steps set out in their agreement to arbitrate or within the time frame agreed to in the CDB/3P Contract.

Davis J. also doubted that Construction 3P’s litigation involved a genuine dispute between CDB and Diffusion.  Even if one existed, CDB and Diffusion had not followed the dispute resolution process set out in the CDB/Diffusion Contract.  As with the CDB/3P Contract, Davis J. determined that no mediation had been conducted and neither party had sent a notice of arbitration within the time period stipulated.

Davis J. referred to Acier Leroux Inc. v. Tremblay 2004 CanLII 28564 (QCCA), stating that where parties to an arbitration agreement do not follow the process they agreed to, they cannot exclude the courts’ jurisdiction with regard to third parties.

[40] Although Acier Leroux is right to note the important distinctions between the arbitration clause that was examined in [Camirand v. Rossi, 2003 CanLII 10224 (QC CA), [2003] R.J.Q. 1081 (C.A.)., leave to appeal refused October 9, 2003, case number 29810] and the one in issue here, it is nevertheless constant that the content of an agreement to arbitrate is, to use the words of LeBel, J., the “primary source” of an arbitrator’s jurisdiction. An arbitration award that steps outside its terms of reference may not be homologated, or it may be annulled. Similarly, before a decision is made to invoke an arbitration clause, the jurisdiction to do so must be found within the terms of the clause itself.

Davis J. noted that the evidence adduced before him demonstrated that the parties had discussed but failed to agree to an arbitration protocol after the one set out in the CDB/Diffusion contract had lapsed.  The parties were free to agree to another form of dispute resolution, including arbitration, but had only discussed it.

Davis J. also observed that Constructions 3P had only agreed to explore a three-party arbitration, subject to the negotiation of an arbitration protocol.  On the facts, Constructions 3P had ultimately not agreed to it after discussion with CDB and Diffusion and no protocol had been signed. Davis J. concluded that Constructions 3P had not renounced to its rights to litigate before the courts. Referencing Lahaye-Abenhaïm v. Association des copropriétaires du Lowney 1, 2018 QCCS 3215 para. 16, Davis J. reiterated the basic premise that an agreement to arbitrate was necessary before a court could refer parties to arbitration.

He referred to article 622 of Québec’s Code of Civil Procedure, CQLR c C-25.01 and observed that the stay application had been presented well beyond the 45 day period.  The litigation had been served April 13, 2018.  The stay application had been served July 25, 2018, outside the May 28, 2018 limit, and no element had been provided to explain the delay.

Article 622 – Unless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court even though it would have jurisdiction to decide the subject matter of the dispute.

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. The application for referral to arbitration must be made within 45 days after the originating application or within 90 days when the dispute involves a foreign element. Arbitration proceedings may be commenced or continued and an award made for so long as the court has not made its ruling.

The parties cannot, through their agreement, depart from the provisions of this Title that determine the jurisdiction of the court or from those relating to the application of the adversarial principle or the principle of proportionality, to the right to receive notification of a document or to the homologation or the annulment of an arbitration award.

urbitral note – By evaluating the exchanges between attorneys at the time of drafting the contracts and afterwards, Davis J. demonstrated the court’s willingness to consider evidence alleged to demonstrate an agreement to arbitrate.  Davis J.’s analysis confirms that the burden to demonstrate the agreement is not unusual or high but nonetheless must include sufficient evidence to support the allegation that an agreement had been entered into.  Davis J. also held the parties to their bargain, including the obligation to mediate and send a notice of arbitration within a set time period.  While he did not state that any one of the elements was determinative or a mandatory condition precedent, the cumulative effect of failing to meet any of the elements and waiting unduly long to apply for a stay lead to the dismissal of the stay application.  Davis J. was therefore not tasked with considering whether missing any one of the elements in the proven dispute resolution clause would have lead to the same result.