Québec – attorney’s lack of knowledge of arbitration clause justifies late request for referral to arbitration

In 9107-7719 Québec Inc. v. Constructions Hub Inc., 2020 QCCQ 1706, Madam Justice Johanne Gagnon readily extended defendant’s delay to apply for referral to arbitration.  The 45 day delay was not a strict one and extending it was justified by explanations given by defendant’s attorney, including attempts to settle, an intervening holiday break and being unaware that the contract contained an agreement to arbitrate.  Gagnon J. accepted defendant’s application filed 77 days after service of the action and, having considered it, granted it but declined to declare plaintiff’s action abusive.

Les Constructions Hub Inc. (“Hub”) as contractor and 9107-7719- Québec Inc. (“9107”) as sub-contractor entered into an April 16, 2018 sub-contract (“Contract”).   in regard to which 9107 claimed Hub owed a balance. Hub disputes the amount claimed, acknowledging owing less than 50%.

Though the Contract contained an agreement to arbitrate, 9107 elected to institute an action in Court of Québec against Hub on November 14, 2019.  Hub served a response on November 15, 2019 advising of its intention to contest the claim and requiring 9107 to negotiate a case protocol to govern the conduct of the action. Article 148 of sets out the aspects which a case protocol is expected to address:

(1)   preliminary exceptions and safeguard measures;

(2)   the advisability of holding a settlement conference;

(3)   pre-trial written or oral examinations, their necessity and, if any are to be conducted, their anticipated number and length;

(4)   the advisability of seeking one or more expert opinions, the nature of the opinion or opinions to be sought and the reasons why the parties do not intend to jointly seek expert opinion, if that is the case;

(5)   the defence, whether it will be oral or written and, if written, the time limit for filing it;

(6)   the procedure and time limit for pre-trial discovery and disclosure;

(7)   foreseeable incidental applications;

(8)   the extension of the time limit for trial readiness, if an extension proves necessary; and,

(9)   the methods of notification the parties intend to use.

Signed by each of the counsel for the parties, the case protocol was filed December 20, 2019 and made no mention of Hub’s intention to request that the court refer the parties to arbitration.

On January 30, 2020, 77 days after service of the action, Hub served a declinatory motion seeking referral to arbitration.  Hub also applied for an order declaring 9107’s action abusive plus payment to Hub of a sum for legal costs Hub incurred in the action it asserts as being abusive. 

9107 contested both applications.  It argued that Hub’s application was out of time, being served well past the 45 days set by article 622 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”):

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”.

9107 acknowledged that the 45 day delay was not a strict time limit but urged that the principle of proportionality of proceedings justified dismissal of Hub’s declinatory exception.

Referring to the text of article 622 C.C.P. and article 84 C.C.P. along with Fondacaro v. Syndicat des copropriétaires Prince Consort, 2018 QCCQ 4050, Gagnon J. observed that, because the delay was not a strict one, she had discretion to extend it

Article 84 C.C.P. – A time limit described by this Code as a strict time limit cannot be extended unless the court is convinced that it was impossible in fact for the party concerned to act sooner. If the court considers it necessary, any other time limit may be extended or, in an urgent situation, shortened by the court. When the court extends a time limit, it may relieve a party from the consequences of failing to comply with the original time limit”.

Gagnon J. also referred readers to the oft-cited passage by Mr. Justice Pierre J. Dalphond in Luc Chamberland, Jean-François Roberge, Sébastien Rochette, et al., Le grand collectif: Code de procédure civile: commentaires et annotations, volume 2, Cowansville, Éditions Yvon Blais, 2015, at p. 2466. 

[informal translation] Meanwhile, because this delay is not made to be a strict one, it can be extended if the court considers it necessary (article 84).  It is difficult to see how such an extension could be refused where there is a plausible explanation for the failure to have demanded the referral within the applicable delay, such as the defendant lawyer’s lack of knowledge, up until then, of the agreement to arbitrate (for example, contained in a document distinct from the contract to which the action is related).  In effect, the court cannot use the failure to raise the agreement to arbitrate in the short delay as pretext to avoid the parties’ will to proceed by arbitration, especially when such a recourse is favoured by the legislature (article 1).  However, requesting referral once the file is ready and would be heard soon would prove contrary to the principle of proportionality and lead easily to a conclusion of implicit waiver of arbitration”.

Gagnon J. listed and accepted as sufficient Hub’s attorney’s explanations to justify failure to request referral within the 45 day delay:

(i) to date, the costs incurred by the parties are not considerable given that only the case protocol had been agreed upon;

(ii) the court file is not ready to proceed to the hearing on the merits which included an eventual cross-claim by Hub;

(iii) since the action was instituted, Hub’s attorney had instructions to resolve the dispute.  It was only when preparing the cross-claim, after the holiday break, that the attorney learned of the agreement to arbitrate; and,

(iv) Hub never renounced to the agreement to arbitrate.

Pointing to article 1 C.C.P., Gagnon J. also highlighted that parties to a dispute “must consider private prevention and resolution processes before referring their dispute to the courts”.

Referring to, but without citing from, the agreement to arbitrate set out at article 15 of the Contract, Gagnon J. further noted that 9107 and Hub had ‘clearly manifested’ their intention to arbitrate their disputes, to the exclusion of the courts and that she considered that she should favour this private mode of dispute resolution.

Because the arbitration would proceed before a sole arbitrator, she observed that engaging in arbitration would not add costs in excess of those associated with those in the action.

Gagnon J. summarily dismissed Hub’s request to declare 9107’s action abusive, determining not only that Hub failed to establish any abuse on 9107’s part by instituting the action but also that Hub did not submit exhibits in support of the amount claimed.

urbitral note – First, the facts of the case before Gagnon J. dovetail with the illustration offered by Dalphond J. in his authoritative comments, inter alia, on the delay in which to apply for referral. The knowledge of the party’s attorneys was determinative, though aided by the fact that no other steps had been taken in the action to advance it.

The illustration offered by Dalphond J. and the facts in the case before Gagnon J. do not suggest that lack of knowledge could ever stem from attorneys wilfully ignoring key documents until later in the case.  In the present case, unlike the illustration given by Dalphond J., the agreement to arbitrate was in the Contract and not in a distinct document.  Gagnon J. accepted that a party’s attorney can be pre-occupied by respecting his or her client’s other obligations set out in the C.C.P. such as attempting to resolve the dispute by negotiation.

Second, it is not per se abusive for a party to institute an action even though bound by an agreement to arbitrate contained in the very contract on which that party’s action is based.  Something more than filing the action must be established before the court will consider whether doing so is abusive.