Québec –Waiver of arbitration after court proceedings, despite letter proposing arbitration– #786

The Superior Court of Québec in 13647846 Canada inc. c. Phase III Wellington Griffintown inc., 2023 QCCS 3589 dismissed an application for a stay of proceedings in favor of arbitration on the grounds that: (i) it was made too late without justification, and (ii) the plaintiffs had waived their recourse to arbitration by submitting their dispute to the Superior Court first. Here, the plaintiffs brought legal proceedings with respect to a matter that was subject to an arbitration agreement. They then proposed arbitration by letter, which the defendants rejected. When the plaintiffs sought a stay of part of their own proceedings in favour of arbitration pursuant to Article 622 of the Québec Code of Civil Procedure (“CCP”), the Court found that they were out of time. The 45-day time period for the stay motion started when the court proceedings were commenced, and the stay application was not made within this period. It was irrelevant that their letter was sent within the 45-day period. The Court also found that plaintiffs had waived their right to arbitrate.

The dispute – The plaintiffs were a group of 35 individual condo owners of a condo-hotel in the Griffintown area of Montréal (the “condo owners”). They contested the increase in parking and maintenance fees and other recent changes. On 12 June 2023, they initiated proceedings in the Superior Court against the promoter, tenant, hotel manager, and owners of the entrance hall and parking, seeking injunctive and declaratory relief with respect to the recent changes.

One month later, on 14 July, counsel for the condo owners wrote to counsel for the defendants to suggest referring part of the dispute to arbitration, pursuant to the arbitration agreement in the declaration of co-ownership. Defendants wrote back on 11 August to reject the suggested arbitral proceedings, arguing that the condo owners had waived their recourse to arbitration by initiating court proceedings. On 22 August, 69 days after they had initiated their court proceedings the condo owners made an application to stay their own court proceedings in favor of arbitration.

The defendants argued that the condo owners were late in bringing their application, as Article 622 CCP provides that such applications must be made within 45 days of the originating application (90 days for disputes involving a foreign element). In addition, they argued that the condo owners had waived their recourse to arbitration by filing an originating application in court.

The condo owners responded that they had first requested arbitration in their letter of 14 July, within the 45-day period prescribed by Article 622. They further relied on the one-month period taken by the defendants to get back to them. As to the waiver, the condo owners argued that they had only submitted part of the dispute to the Superior Court and therefore had not waived their recourse to arbitration as to the rest. 

The Court’s analysis – The Court began its analysis by recalling, based on established case law, that the 45-day period to seek a stay in favor of arbitration was not a strict time limit, such that courts can extend it if necessary and relieve a party from its failure to comply with the time limit.

In this case, the condo owners relied on the fact that they had requested arbitration in their 14 July letter to opposing counsel, which they claimed was enough to meet the requirement. The Court rejected this argument, relying in part on the English version of Article 622, which provides: “the application for referral to arbitration must be made within 45 days after the originating application” (in French: “la demande de renvoi doit être soulevée dans les 45 jours de la demande introductive d’instance”). The Court concluded based on the two versions that the application must be made to the Tribunal within the 45-day deadline, and that the letter to the defendants was not enough.

The Court then considered whether it should use its discretion to relieve the condo owners from their failure to comply with the time limit. It cited a 2022 Québec Superior Court decision which recently considered the 45-day limit: 9238-0831 Québec inc. c. Télébec, 2022 QCCS 183 (“Télébec”), covered in Arbitration Matters Note # 595: Québec – Delay in raising arbitration provision fatal to application to amend class.

The Court held that, as in Télébec, the condo owners had provided no justification for missing the deadline. Rather than seeking an extension of time, they merely argued that their 14 July letter was enough. In the absence of sufficient justification, the Court rejected the application. It also took into consideration the fact that the application for a stay was made by the condo owners themselves, i.e the parties which had applied to the Court sought a stay of their own proceedings in the first place.

Given its decision on the time limit, the Court did not need to rule on the waiver argument, but it nevertheless did so. The condo owners argued that their originating application merely sought injunctive relief in parallel to arbitration such that it was not asking the Court to rule on the merits, and thus did not waive their recourse to arbitration. 

The Court rejected this argument. While it recognized that Article 623 of the CCP provides for the possibility that a party may seek injunctive relief from the Court without conferring upon it jurisdiction over the entire dispute, the Court relied on the condo owners’ pleadings, which sought conclusions on the merits, and made no reference whatsoever to the arbitration agreement.

Contributor’s Notes:

Unusually, the Court was presented with an application for a stay in favor of arbitration by the parties who had initiated the court proceedings themselves. This fact, although not determinative of the Court’s decision on time limit and waiver, was a key element of background.

With respect to the 45-day limit, this case is consistent with the 2022 Télébec case mentioned above in rejecting an application for a stay in favor of arbitration for being late, although this case was much closer to the time limit (69 days vs. two and a half years). The ruling that the stay application must be made to the Court rather than merely in correspondence to the other party is straightforward.

Both in relation to the time limit and to the waiver, this case underscores the importance of developing early on a case strategy recognizing and dealing with the presence of an arbitration agreement in the underlying contract. Mid-proceeding changes in position as to the desired forum are likely to be difficult to justify before Courts.