Québec – plaintiff’s choice to pursue small claims despite arbitration delays dispute resolution

The Court of Québec in CMAT Marketing inc. v. Gars de Saucisses inc., 2019 QCCQ 7976 granted Defendant’s application to dismiss based on the parties’ agreement to arbitrate, a full year after CMAT Marketing inc. v. Gars de Saucisse inc., 2018 QCCQ 7514 referred the application to a hearing on the merits.  Despite the Court of Québec vigilant defence of access to justice initiatives in small claims division and despite the Court of Québec’s support of arbitration, their combined efforts resulted in delays uncommon in Court of Québec but occasioned by Plaintiff’s own decision to initiate court litigation and then resist referral to arbitration.

Plaintiff and Defendant, both corporate entities, met up in Court of Québec, small claims division, dispute (a) the consequences of Defendant’s resiliation of their contract and (b) the mandatory nature of their agreement to arbitrate.   

Plaintiff had issued May 4 and June 28, 2016 demand letters claiming payment of $78,000.00, failing which arbitration would be initiated. Over two (2) years later, on August 9, 2018, without initiating arbitration, Plaintiff reduced its claim to $15,000.00 and filed a claim in Court of Québec, small claims division.  The Court of Québec has exclusive jurisdiction to hear and determine applications in which the value of the subject matter of the dispute or the amount claimed is less than $85,000, exclusive of interest.  Its small claims jurisdiction hears cases in which the dispute is $15,000.00 or less.

Defendant responded with the application to dismiss. The ensuing procedural dispute required the Court of Québec to consider, in two (2) separate decisions, the procedure in Court of Québec, small claims division set out by articles 547 and 622 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) and the jurisdictional rules for claims subject to arbitration set out in article 622 C.C.P.

First decision:  CMAT Marketing inc. v. Gars de Saucisse inc., 2018 QCCQ 7514 – Madam Justice Sophie Lapierre considered Defendant’s two (2) applications (a) to refer the parties to arbitration and (b) to dismiss the case due to the jurisdiction of the arbitral tribunal.  Plaintiff resisted, declaring that it had waived the arbitration clause.

(a) Referral to arbitration under article 547 C.C.P. – A defendant, intending to defend a claim against it, may, in addition to requesting a referral to mediation, request that the claim be (i) dismissed or (ii) referred to another judicial district, “court” or competent administrative tribunal.  In doing so, defendant must specify the reasons for the request.

Lapierre J. referred to Fédération des producteurs acéricoles du Québec v. St-Pierre, 2005 QCCA 839 in which the Court of Appeal held that the term “court” meant only courts defined as such in the in now-repealed Code of Civil Procedure, CQLR c C-25 (“Former C.C.P.”).  The Court of Appeal relied on the former equivalent of article 547 C.C.P. referred to by Lapierre J. and limited courts to include those defined in the now-repealed articles 4(j) and 22 of the Former C.C.P.   See also Jan-Pro Canada Est inc. v. Bourgeois, 2017 QCCS 2151.

Lapierre J. therefore dismissed the request to refer the litigants to arbitration as an arbitral tribunal did not qualify as a court under the then-applicable provision relied on by Defendant.

(b) Dismissal due to arbitration agreement under article 622 C.C.P. – Lapierre J. turned to Defendant’s request that the court dismiss the claim based on article 622 C.C.P. That article applies to all actions and not only to Court of Québec or its small claims division.

Article 622 C.C.P. 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.

Lapierre J. decided that the court could not decide the matter without hearing the parties, referring to an earlier decision in Messier v. Gauthier, 2016 QCCQ 2448.  Though based on an application to dismiss unrelated to an arbitration agreement, Messier v. Gauthier held that a dismissal is not the type of application which can be heard in the absence of the parties.  Even if Plaintiff claimed to have waived the arbitration agreement, Lapierre J. held that it could not avoid a hearing before the court on that issue.  Lapierre J. therefore referred the second application to the judge hearing the claim on the merit.

Second decision: CMAT Marketing inc. v. Gars de Saucisses inc., 2019 QCCQ 7976 – The hearing ordered by Lapierre J. proceeded October 28, 2019 before Mr. Justice Patrick Théroux J.  In his October 30, 2019 reasons, he identified a single issue: whether the arbitration clause bound the parties and whether the dispute must be decided by an arbitrator instead of the court.

Theroux J. did not hesitate to determine that the arbitration clause in question was binding on the parties. The clause, reproduced at para. 5 of Théroux J.’s reasons, submitted all disputes regarding interpretation and application of the parties’ contract to arbitration administered by the Canadian Commercial Arbitration Centre (“CCAC”) (formerly the “Centre d’Arbitrage Commercial National et International du Québec”) to the exclusion of the courts.

Referring back to Zodiak International v. Polish People’s Republic, 1983 CanLII 24 (CSC), [1983] 1 SCR 529, Théroux J. considered that the clause was binding and mandatory. He further held that the agreement’s omission to mention that the award would be ‘final and binding’ did not affect it having a mandatory effect, citing Investissement Charlevoix inc. v. Gestion Pierre Gingras inc., 2010 QCCA 1229.  Théroux J. focused on determining the parties’ intention, as illustrated by Bridgepoint International (Canada) Inc. v. Ericsson Canada Inc., 2001 CanLII 24728 (QC CS).

Based on the wording of the clause and independent of Plaintiff’s own allegation that it had waived the benefit of the agreement, Théroux J. held that the Court of Québec, small claims division, had no jurisdiction over the dispute and referred the parties to arbitration.

urbitral note – First, Lapierre J. commented that such applications could not be decided on a mere reading of the file.  It is unclear from her reasons whether the application made to the court had been presented to her in person or provided to her by the registry for a decision in chambers on how to deal with the applications.  Lapierre J.’s ruling to defer was likely motivated by (i) the absence of both Plaintiff and Defendant being present when tasked with applying article 622 C.C.P. on the basis of the forms only filed by the parties or, if present, (ii) the parties not having been summoned/prepared that date to plead the dismissal of the case.

In any event, her comments likely do not the same scope given to the procedure for referrals to arbitration asserted in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801.

[84] First of all, I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator.  A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law.  This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court.  It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate.  In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause.

[85] If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts.  Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.

Second, Lapierre J.’s decision issued October 17, 2018.  Théroux J.’s decision issued October 30, 2019.  The process imposed on the Court of Québec runs contrary to the manner in which parties in Superior Court can obtain a similar hearing in a much more condensed time frame.  In Superior Court, a delay between the filing of a similar application and its hearing on the merits would not take over a year.

Third, small claims division is designed and known to favour access to justice, simplified procedure and quicker resolutions. Arbitration makes its own promises of speed and efficiency.  The combined effect of Court of Québec’s small claim division procedure on such applications and the disputed agreement to arbitrate generated a much longer wait for justice, uncommon in small claims division.  Following the second decision, the parties could now undertake arbitration and follow up on Plaintiff’s May and June 2016 demand letters.

Fourth, with its $85,000.00 cap and its small claims division for claims valued at less than $15,000.00, the Court of Québec had jurisdiction for both the full $78,000.00 set out in Plaintiff’s May 4 and June 28, 2016 demand letters and the reduced claim.  A key procedural difference is that the small claims divisions restricts lawyers appearing on behalf of litigants.  

Subject to specific terms and highwater exceptions, article 542 C.C.P. stipulates that (i) individuals must self-represent and (ii) corporations, partnerships and associations can only be represented by an officer or employee in their sole service who is not a lawyer.  Both sets of litigants may still consult a lawyer, including for the purpose of preparing the presentation of their case.  This difference may have motivated Plaintiff’s choice to reduce the claim from $78,000.00 to $15,000.00 but not the resistance to arbitration.

See Respecs inc. v. Marchés Pépin inc., 2020 QCCQ 148 for a recent demonstration of the Court of Québec’s vigilance against litigants attempting to retain lawyers to represent them. That prohibition, among others, ensures access to a simplified, easily accessible, more expedited and less costly administration of justice without eliminating rules of natural justice. In that case, Mr. Justice Luc Hervé Thibaudeau reaffirmed a line of earlier Court of Québec decisions adhering to guidance in Lavigne v. 6040993 Canada inc., 2016 QCCA 1755.  In that case, the Court of Appeal required courts to take an innovative approach focused on efficacy, speed and simplification of the proceeding where possible.