Quebec Superior Court upholds arbitrator's jurisdiction to authorize derivative claims.
Facts
This case arose from an arbitration between Tidan and Trria. Together, they owned iQuartier, a Quebec numbered company. All three companies signed a unanimous shareholder agreement, which contained an arbitration clause that provided, in part, that:
… any dispute which might arise as to the interpretation or the application of this agreement must be referred to arbitration in front of a sole arbitrator … to the exclusion of the courts. …
In 2022, Trria commenced arbitration against Tidan, claiming oppression. Tidan challenged seven of Trria's ten claims before the Arbitrator on the basis that they sought relief for damages allegedly suffered by iQuartier, not by Trria itself, and were thus derivative claims. Like other Canadian jurisdictions, Quebec's Business Corporations Act requires a party wishing to bring a derivative action to first seek leave of the "court." The statute defines the "court" as the Superior Court of Quebec. On this basis, Tidan argued that the seven derivative claims were not arbitrable.
The Arbitrator disagreed. He found that he had jurisdiction to consider the issue and determined that the seven derivative claims should proceed in the arbitration. Tidan challenged the Arbitrator's decision.
Decision
The Superior Court upheld the Arbitrator's decision. In doing so, it deferred to the principle – as stated in Article 622 of the Quebec Code of Civil Procedure (CCP) – that courts will generally not intervene on issues that are captured by the parties' arbitration agreement.
Relying on the "competence-competence" principle – that an arbitral tribunal has the jurisdiction, in the first instance, to determine its own jurisdiction – the Court found that the Arbitrator had correctly taken on the challenge presented by Tidan. Nevertheless, it re-assessed the question of jurisdiction and agreed that the Arbitrator had correctly found he had jurisdiction to authorize the claims.
In this assessment, the Court drew an analogy to oppression claims generally, which are also described in Quebec law by reference to a "court." It is well established that non-derivative claims for oppression remedies are arbitrable, despite the fact that arbitrators are not "courts." Thus, it follows that the word "court" should receive an equally broad interpretation in the context of derivative claims. This is particularly true in cases where, as here, the parties have agreed to a broadly worded arbitration clause.
On this basis, the Court declined to limit the authorization power for derivative actions to only the Superior Court, finding that nothing in the parties' agreement would permit the Court to limit the scope of the arbitration or to intervene on certain claims or remedies.
Analysis
In 2004, the Quebec Court of Appeal held that an arbitrator could not authorize a derivative action, because it involved a determination of legal capacity and the rights of third parties (see Acier Leroux Inc c Tremblay, [2004] QJ 2206). This approach has since been watered down, though the 2004 case can also be distinguished by the narrow arbitration agreement at issue in that case.
Tidan marks the most recent step in recognizing that arbitrators have the power to authorize derivative actions. The Court repeatedly raised the question, and notably refused to answer outright, whether such a power existed. However, by refusing to overrule the Arbitrator's jurisdictional analysis, the Court in Tidan tacitly approved the authorization of derivative actions by an arbitrator – at least where a broadly worded arbitration agreement exists to reflect the parties' preference of arbitration over the courts.
Although the Court's reasoning is a positive for parties looking to maximize the scope of their arbitration agreements, it does give rise to some questions. For one, the Court's jurisdiction is a question of law – in this case, a question of statutory interpretation. The Quebec Business Corporations Act's definition of "court" is arguably exhaustive; it reads, "'court' means the Superior Court of Quebec." At first blush, it is difficult to see why the scope of the parties' arbitration agreement should have any bearing on the meaning that the legislature meant to attribute to a statutory provision.
On the other hand, the Supreme Court of Canada has directed courts to read legislation in a manner that favours broader arbitrability. In Desputeaux v Éditions Chouette (1987) Inc, 2003 SCC 17, the Court held that a provision in the Copyright Act granting concurrent jurisdiction to the provincial Superior Courts and the Federal Court did not exclude arbitral tribunals. The jurisdiction-conferring provision in Desputeaux was different than the one before the Court in this case, but the Supreme Court's reasoning arguably translates to the present context.
It will be interesting to see whether future decisions follow the ruling in Tidan, or whether Quebec's Court of Appeal decides to weigh in, again.
Tidan Inc c Trria Design Inc, 2023 QCCS 1746