Québec – defendants must pay mediation fees when they refuse to participate in mediation court ordered at their request – #495

In Zen & Sens Inc. v. Entreprises Érick Boucher Inc., 2021 QCCQ 4224, Mr. Justice Pierre Cliche ordered Defendants to pay their and Plaintiff’s costs for a mediation in which Cliche J., upon application by Defendants, ordered the parties to engage but in which Defendants then refused to participate.  Though nominal, the mediator’s fees had been paid by Plaintiff due to Defendants’ refusal to participate and Plaintiff added those fees to its claims in its initial action which Cliche J. had suspended pending the mediation. Cliche J. did not homologate a costs award which had issued in an arbitration but ordered repayment as a distinct head of recovery in the litigation which he had suspended.

Zen & Sens Inc. (‘ZS Inc.”) and Les Entreprises Érick Boucher Inc. (“EB Inc.”) signed a May 25, 2015 contract for the sale of EB Inc.’s assets.  After the sale, a dispute arose regarding sums allegedly owing and claimed by the Commission des normes, de l’équité, de la santé et de la sécurité du travail (“CNESST”) under the Act respecting labour standards, CQLR c N-1.1 (“LSA”). 

ZS Inc. paid the sums, despite EB Inc.’s position that it should not pay the sums, and then claimed payment of those sums from EB Inc. as owing due to breach of representations in the sale that no such sums were owing under the LSA.

ZS Inc. instituted an action in Court of Québec, Small Claims Division, against EB Inc and its president, director and shareholder (“Defendants”), to claim payment of the sums.

Cliche J. heard a motion by Defendants to suspend the action and order the parties to engage in mediation.  Cliche J. granted that motion by decision dated November 6, 2020 (“Decision”).

The reasons do not disclose the source of the parties’ obligation to engage in mediation.  There is no mention of an obligation in the contract of sale to engage in mediation as a precondition to instituting litigation and Cliche J. makes no mention of any court rules which would authorize him to order the parties to engage in private mediation at their own costs.

In his Decision, Cliche J. issued the following dispositive orders:

[informal translation] ‘[35] SUSPEND the present action for an undetermined period;

[36] ORDER the parties to submit their dispute, stemming from the claim filed by plaintiff in the present action, to the mediation service of the Canadian Commercial Arbitration Centre at the latest fifteen (15) days from the present decision;

[37] ORDER the parties to inform the Court by e-mail as soon as the Canadian Commercial Arbitration Centre has accepted to receive their request and submit it to the mediation process, including the date at which the parties will be convened to the first mediation session and to the following e-mail address (omitted);

[38] ORDER the parties to advise the Court in the same manner as soon as the mediation process is terminated, including the result obtained;

[39] DECLARE that, in the absence of an agreement between the parties further to the mediation process, the Court will see to lifting the suspension of the proceeding and issue its judgment in writing on plaintiff’s claim in the delay set out in the Code of Civil Procedure calculated from the date on which the suspension will terminate;

[40] DECLARE that the Court might, before judgment, convene the parties to one or several conferences for the sole purpose of case management and do so by telephone;

[41] The whole WITH JUDICIAL COSTS TO FOLLOW

Cliche J. recorded that, following his Decision, the CCAC invited the parties to participate in a mediation session conducted under its oversight in accordance with article 4(1) of the CCAC’s Conciliation and Mediation Rules.

Cliche J. also recorded that Defendants, who had applied for the order referring the parties to mediation, did not attend the mediation.  On January 25, 2021, the CCAC informed the parties of Defendants’ decision to withdraw from the process and issued a confirmation that the mediation failed. 

The CCAC issued an invoice for $250.00 taxes included, for the mediator’s services and which were to be paid in equal portions by the parties.  As Defendants failed to pay any sum owing, ZS Inc. paid the entire amount. 

On March 1, 2021, by agreement of the parties, the Court lifted the suspension and took the matter under advisement as of that date.

By ZS Inc.’s attorney, ZS Inc. demanded the Court to order Defendants to pay ZS Inc. the $250.00 paid to the mediator or, at the minimum, half of that sum.

At paras 29-41, Cliche J. analyzed the claims made, the facts and applicable law and issued a decision in favour of ZS Inc.  In addition, Cliche J. at para. 42 determined that Defendants were responsible for 100% of the fees due to the mediator given that the individual president of EB Inc. had himself requested the mediation but did not participate in it.

Cliche J. ordered that the payment be made with legal interest and the additional indemnity under article 1619 of the Civil Code of Québec, CQLR c CCQ-1991 calculated from the date of the CCAC’s January 25, 2021 invoice.

Article 1619 C.C.Q. An indemnity may be added to the amount of damages awarded for any reason, which is fixed by applying to the amount of the damages, from either of the dates used in computing the interest on them, a percentage equal to the excess of the rate of interest fixed for claims of the State under section 28 of the Tax Administration Act (chapter A-6.002) over the rate of interest agreed by the parties or, in the absence of agreement, over the legal rate”.

urbitral notes – First, for decisions addressing referral to mediation, see the following earlier Arbitration Matters notes:

(i) “Ontario – pre-litigation costs for mediation imposed by legislation recoverable because non-discretionary – #441” regarding Gelman v. 1529439 Ontario, 2021 ONSC 424. Madam Justice Bernadette Dietrich denied a successful litigant’s claim for pre-litigation costs, following the rule set out in Greenlight Capital, Inc. v. Stronach (2008), 2008 CanLII 34359 (ON SCDC), 91 O.R. (3d) 241 (Div. Ct.).  In doing so, Dietrich J. resurfaced 90 George Street Ltd. v. Ottawa-Carleton Standard, 2015 ONSC 336 in which pre-litigation costs for mediation were awarded in an arbitration and upheld on a post-award challenge.  Those costs related to mediation imposed by the Condominium Act, 1998, SO 1998, c 19 which requires parties to mediate budget disagreements before undertaking arbitration and, as such, did not represent an exercise of discretion by the parties prior to commencing arbitration.

(ii) “Ontario – court finds no obligation to mediate but also holds parties must have a dispute to require mediation – #118” regarding Mera Software v. Intelligent Mechatronic Systems, 2018 ONSC 5208, Mr. Justice Donald J. Gordon determined that the parties’ mention of mediation in their agreement did not impose mediation as a condition precedent but, if it did, he found no dispute. Gordon J. granted summary judgment in favour of plaintiff under Rule 20.04 of Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 because no “dispute” existed and there was no need to mediate a non-existent dispute.  The parties’ contract contained no binding agreement to mediate and their litigation had no disagreement requiring mediation.

(iii)  “Québec – no legal principle to support applying competence-competence for mediation – #415” regarding 9369-1426 Québec inc. (Restaurant Bâton Rouge) v. Allianz Global Risks US Insurance Company, 2021 QCCS 47.  In a proposed class action involving claims under an insurance policy for indemnification for business interruption due to COVID-19 measures, Mr. Justice Gary D.D. Morrison referred the parties to mediation and arbitration and dismissed the application for authorization.  While Québec law did not state that parties to an insurance contract can submit their disputes to arbitration, it also does not stipulate that they cannot.  The Code of Civil Procedure, CQLR c C-25.01’s class action provisions are procedural and do not modify substantive law or create jurisdiction for the courts over disputes which parties have lawfully excluded. Having relied in part on proportionality to refer the parties, Morrison J. declined to comment on whether his order would “require each individual insured to proceed by way of the lengthy and costly dispute resolution process, which may discourage many from exercising their rights”.  Morrison J. also held that competence-competence does not arise in referral to mediation “as there exists no legal principle in support of such an approach”.

(iv) “B.C. – court’s own “alternate and free” dispute resolution procedures co-exist with private mediation-arbitration – #374” regarding Otte v. Otte, 2020 BCSC 1408. Mr. John J. Steeves refused to eliminate the court’s own judicial case conference (“JCC”) in favour of enforcing the parties’ contractual agreement to mediate-arbitrate.  Observing that the court’s own JCC served as an “alternate and free procedure”, Steeves J. refused to relieve the parties from participating in that procedure, reasoning that parties can “use both, either or neither of arbitration-mediation or a JCC”.

(v) “Ontario – court declines jurisdiction to determine pending court costs once parties settle through mediation/arbitration – #079” regarding Patterson v. Sarafian, 2018 ONSC 274,  Mr. Justice David Jarvis had to resolve the court’s jurisdiction to deal with costs of motions reserved, but not decided, when the parties later agreed to mediation/arbitration and settled their disputes.  Though the court litigation involved a family law dispute, the result and reasoning can apply to commercial disputes in which court litigants agree to become arbitral parties and subsequently resolve their disputes.  The resulting settlements can have the effect, intended or not, of resolving issues left pending from the court litigation.

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