Canada – Sequential Arbitrations without Exclusion of Courts Renders Clause Invalid in Real Rights Litigation

Jan 2021

This article first appeared on Urbas Arbitral, here.

Distinguishing between actions involving personal and real rights, Mr. Justice Martin Castonguay in Specter Aviation v. Laprade, 2020 QCCS 4392 held that article 3148 para. 2 of the Civil Code of Québec, CQLR c CCQ-1991 did not apply to deny the court’s jurisdiction when a party invoked an agreement to arbitrate.  Rather, article 622 of Code of Civil Procedure, CQLR c C-25.01 governed when the dispute involved ownership of an aircraft and it required him to consider whether the parties had negotiated a binding, mandatory agreement to arbitrate.  Castonguay J. determined that the parties’ agreement to arbitrate was ambiguous and invalid, including a mention of two (2) sequential arbitrations and lacking an express exclusion of the courts if the parties did undertake arbitration.

As co-plaintiffs, Specter Aviation Limited (“Specter”) and TVPX Aircraft Solutions Inc. (“TVPX”) each claimed a form of ownership interest in a Beechcraft Super King Air 300 (“Aircraft”).  Specter asserted ownership rights stemming from an April 17, 2018 purchase agreement with SDT Leasing LLC while TVPX asserted the status as ‘owner trustee’ under a 2018 trust agreement between it and Specter.

On October 10, 2019, Specter and TVPX instituted their action in Québec Superior Court against four (4) individual defendants.  United Mining Supply (“UMS”) as mise en cause (‘third party impleaded’) and World Aircraft Leasing Inc. (“WAL”) as intervenor were also parties to the action. Plaintiffs also initiated litigation on November 18, 2019 before the courts of Guinea.

The parties had been involved in an earlier application to quash a seizure before judgment.  See Castonguay J.’s initial decision in Specter Aviation v. Laprade, 2020 QCCS 1060.

Following a November 19, 2019 amendment to their procedures, Specter and TVPX and UMS sought the following remedies from the court: (i) acknowledge that TVPX is the registered owner of the Aircraft in its capacity as owner trustee for the sole beneficial owner of the Aircraft, Specter; (ii) acknowledge Plaintiffs’ right to take immediate possession of the Aircraft and return same to UMS in its capacity as official operator of the Aircraft; and, (iii) order Defendants to pay Specter and TVPX $100,000.00.

At para. 35, Castonguay J. noted that the latter amount related to fees incurred in seizing the Aircraft and were not ‘accessory’ to the contracts between the parties.

On June 15, 2020, defendant (“JL”) and intervenor WAL filed a defense, cross-demand and action in warranty which, from among a number of conclusions, sought a declaration that the Aircraft belonged to WAL.

Specter and TVPX responded July 7, 2020 with an application to dismiss the defense and cross-demand on the basis of article 167 Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) and article 3137 Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”).

They invoked a forum selection clause (‘clause d’élection de for’) in the parties’ joint venture agreement (“Joint Venture”).  In his reasons, Castonguay J. used the term ‘clause compromissoire’ or ‘undertaking to arbitrate’ to refer to this ground. As a subsidiary argument, Specter and TVPX sought a suspension of proceedings based on lis pendens.

JL and WAL contested the application to dismiss.  The argued that Specter and TVPX had recognized the jurisdiction of the Québec courts and only raised the agreement to arbitrate nine (9) months later.  (Note: five (5) of those months involved a suspension imposed on civil procedures due to COVID-19 measures).

Castonguay J. identified the relevant provisions of the Joint Venture which covered dispute resolution and jurisdiction. Article 7 stipulated that [informal translation] ‘Any dispute will be settled amicably.  Failing an amicable settlement, the audit firm PWC will be designated as arbitrator.  Failing resolution of the dispute by the arbitrator, the dispute will be brought before the arbitral tribunal of Paris’.

An April 9, 2019 amendment to the Joint Venture stipulated the following:

[informal translation] ‘Any dispute arising from the present amendment and its consequences will be the object of a preliminary mediation procedure conducted under the auspices of PriceWaterhouseCoopers.  In the event of the mediation’s failures, the dispute will be resolved under the auspices of the Chambre Arbitrale Internationale de Paris in accordance with its regulation which the parties declare knowledge of and accept without identifying the mediator’.

See the Chambre Arbitrale Internationale de Paris (or International Arbitration Chamber of Paris) (“CAIP”).

Castonguay J. referred to articles 3139, 3148 and 3152 C.C.Q. as well as article 622 C.C.P.

In GreCon Dimter Inc. v. J. R. Normand Inc., 2005 SCC 46 (CanLII), [2005] 2 SCR 401, the Supreme Court examined the interplay of articles 3148 para. 2 C.C.Q. and 3139 C.C.Q.

[45] As a result of the requirement that art. 3148, para. 2 C.C.Q. be interpreted in a manner consistent with Quebec’s international commitments, arbitration clauses are binding despite the existence of procedural provisions such as art. 3139 C.C.Q.  Although this explanation applies to arbitration clauses, it should be kept in mind that art. 3148, para. 2 C.C.Q. also refers to choice of forum clauses.  For the sake of consistency, the same position should be adopted in respect of both types of clauses.  Indeed, it would be difficult to justify different interpretations for clauses that have the same function, namely to oust an authority’s jurisdiction, and that share the same purpose, namely to ensure that the intention of the parties is respected in order to achieve legal certainty.  Thus, it would seem incongruous, in the context of an action in warranty, to give art. 3139 C.C.Q. precedence over art. 3148, para. 2 C.C.Q. with regard to a choice of forum clause and to take the opposite approach with regard to an arbitration clause—in other words, to respect the intention of the parties in one case but to thwart it in the other.

[46] In light of the preceding discussion, it appears that art. 3148, para. 2 C.C.Q. must take precedence over art. 3139 C.C.Q. in the context of an action in warranty where a choice of forum clause indicating a clear intention to oust the jurisdiction of the Quebec authority applies to the legal relationship between the parties to the proceeding.  In such circumstances, the Quebec authority must decline jurisdiction, subject to the exceptions noted earlier”.

Castonguay J. identified three (3) limitations on party autonomy to ‘oust jurisdiction’ of the courts of Québec, tracking those limitations to paras 25, 26 and 27 of GreCon Dimter Inc. v. J. R. Normand Inc.

First, legislation may confer exclusive jurisdiction on the courts.  For example, articles 3149 and 3151 C.C.Q.  Second, a defendant may have attorned to the jurisdiction of the courts of Québec despite the intention expressed in its contract.  Third, the wording of a particular agreement to arbitrate will determine jurisdiction.  At para. 27, the Supreme Court elaborated, requiring that “[t]he clause must be mandatory and must clearly and precisely confer exclusive jurisdiction on the foreign authority” and “[t]here must also be a meeting of minds between the parties; otherwise the clause is invalid”.

(i) Legislation conferring exclusive jurisdiction – Castonguay J. acknowledged that GreCon Dimter Inc. v. J. R. Normand Inc. concerned a forum selection clause but, referring to para. 45, added that the Supreme Court held that its reasoning applied to agreements to arbitrate.

The scope of article 3148 C.C.Q. is prefaced by its placement in Division II, entitled “Personal Actions of a Patrimonial Nature” and the introductory words that “[i]n personal actions of a patrimonial nature”.  Article 3148 C.C.Q. stipulates that Québec courts have jurisdiction in the cases listed therein but closes with a proviso.

Article 3148 C.C.Q. In personal actions of a patrimonial nature, Québec authorities have jurisdiction in the following cases:

(1)   the defendant has his domicile or his residence in Québec;

(2)   the defendant is a legal person, is not domiciled in Québec but has an establishment in Québec, and the dispute relates to its activities in Québec;

(3)   a fault was committed in Québec, injury was suffered in Québec, an injurious act or omission occurred in Québec or one of the obligations arising from a contract was to be performed in Québec;

(4)   the parties have by agreement submitted to them the present or future disputes between themselves arising out of a specific legal relationship;

(5)   the defendant has submitted to their jurisdiction.

However, Québec authorities have no jurisdiction where the parties have chosen by agreement to submit the present or future disputes between themselves relating to a specific legal relationship to a foreign authority or to an arbitrator, unless the defendant submits to the jurisdiction of the Québec authorities”.

Following the reasoning in Investissements Nolinor Inc. v. Air Inuit Ltd., 2017 QCCS 3396 which had dealt with conclusions similar to those sought by Specter and TPVX, Castonguay J. concluded that the action was not a personal one but a real one.  Because Specter and TPVX sought an ownership interest, their claim qualified as a real action not a personal action.  Castonguay J. therefore concluded that article 3148 C.C.Q. did not apply and the Québec Superior Court had jurisdiction over the dispute.

Because certain other of Specter’s and TPVX’ conclusions qualified as personal actions, Castonguay J. considered he should the other limitations on the agreement to arbitrate.

(ii) Regarding waiver or attornment, in light of the steps taken by Specter and TPVX and their silence/delay to bring their motion, Castonguay J. determined that they had recognized the Québec courts’ jurisdiction.  See paras. 46-50.

(iii) Clear, mandatory undertaking – Castonguay J. noted that in principle it was true that an undertaking to arbitrate is presumed valid and it is up to the arbitrator to determine if it is null due to vitiated consent, referring to General Motors du Canada ltée v. 178018 Canada inc. (Laurier Pontiac Buick GMC Cadillac Hummer ltée), 2011 QCCA 1461 and TCA Global Credit Master Fund v. 8894132 Canada inc., 2018 QCCA 1132.  That said, he pointed out that Specter and TPVX in their proceedings alleged error and fraud and contested the entirety of the amendment to the Joint Venture but now pleaded reliance on it. [informal translation] ‘They cannot plead one thing and its opposite’.

Castonguay J. pointed to the interpretative approach set out in STMicroelectronics Inc. v. Matrox Graphics Inc., 2007 QCCA 1784 paras 102-103 and 105 which favoured a contextual approach and not just a literal one in order to determine the parties’ intention. If the clause omits expressing in ‘absolutely crystal clear terms’ the chosen venue’s exclusive jurisdiction, the court will look to the context.

Summing up, Castonguay J. held that if the undertaking to arbitrate is clear, then there is no need to interpret it.  If ambiguity exists, the court must consider the parties’ intention at the moment they contracted.

Following that approach, Castonguay J. determined that the undertaking to arbitrate fell short for two (2) reasons. The undertaking mentioned arbitration twice, once by PWC and another by CAIP.  This double mention required him to explore the context in which the Joint Venture was negotiated.

Second, the undertaking did not mention the exclusivity of the arbitration to be administered by the CAIP.  Despite a generous approach to interpreting such clauses, the text must disclose an imperative character to the choice of venue which Castonguay J. did not find in the wording in issue.

The omission of an imperative character, coupled with Specter’s and TVPX’ involvement before the Québec Superior Court lead Castonguay J. to conclude that that the undertaking to arbitrate was insufficient to remove jurisdiction from the Superior Court.

Castonguay J. relied on CGAO v. Groupe Anderson Inc., 2017 QCCA 923 and Nord Iron Mines Inc. v. Specogna, 2013 QCCS 230 which held that a forum selection clause could not apply to remove the court’s jurisdiction in a real action.

urbitral notes – First, see Uber Technologies Inc. v. Heller, 2020 SCC 16 paras 271-274 for Madam Justice Suzanne Côté’s recent discussion of forum selection clauses and the distinction between the place or seat of an arbitration and the location of the hearings.

Second, see Zodiak International v. Polish People’s Republic, 1983 CanLII 24 (SCC), [1983] 1 SCR 529 for its use of “undertaking to arbitrate” or ‘clause compromissoire’. 

Third, GreCon Dimter Inc. v. J. R. Normand Inc. distinguishes between forum selection clauses and undertakings to arbitrate.  In addition to para. 45 excerpted by Castonguay J. in his reasons, see paras 22, 24, 27 and 55.

Fourth, for limitations imposed by legislation, the Supreme Court in flagged the following in particular.

[25] Nonetheless, it must be noted that certain limits are imposed on the expression of the autonomy of the parties.  First, art. 3151 C.C.Q., enacted by the legislature as a mandatory provision, confers exclusive jurisdiction on a Quebec authority over actions founded on civil liability for damage suffered as a result of exposure to or the use of raw materials originating in Quebec.  In such cases, a choice of forum clause cannot oust the jurisdiction of the Quebec authority.  Second, art. 3149 C.C.Q. confers jurisdiction on a Quebec authority in cases involving consumer contracts or contracts of employment, and the waiver of such jurisdiction by the consumer or worker may not be set up against him or her.  In both cases, the language used by the legislature indicates a clear intention to disregard the autonomy of the parties, or to limit it, and this suggests that when the legislature’s intention is to limit the ability to oust the jurisdiction of the Quebec authority by agreement, it says so expressly”.

author

Daniel Urbas

Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers…

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