The arbitration mechanism created by the Regulation respecting the Guarantee Plan for new residential buildings, CQLR c B-1.1, r 8 (“Regulation”) is an administrative proceeding as it does not allow the parties renounce to it once the dispute arises. In Consortium MR Canada ltée c. Morissette, 2021 QCCS 2847, Mr. Justice Philippe Bélanger conducts the judicial review over the arbitral award from the arbitration proceeding organized according to the Regulation based on the reasonableness standard as indicated in the judgment rendered by the Supreme Court of Canada on Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65. Mr. Justice Bélanger held that the Arbitrator did not commit an unreasonable error in concluding that Consortium MR Canada Ltd. (“MR”) breached its obligation of result to the buyers of the newly-built condominiums/the Beneficiaries of the Guarantee Plan.
Factual Background
MR is the general contractor responsible for the construction of three residential buildings, the “592 Morin”, the “598 Morin” and the “604 Morin”. In order to guarantee the execution of its obligations related to the construction of the residential buildings, MR adheres to a guarantee plan offered by Abritat. According to the Regulation, the Guarantee plan aims to protect the Beneficiaries/buyers of the condominiums from damages caused by the construction defects and poor workmanship.
At the end of 2010, the Beneficiaries of the Guarantee Plan discovered some water infiltration problems in the building.
In March 2011, the Beneficiaries denounce these problems to MR and Abritat for remedies.
In September, October 2012 and January 2013, Abritat denies or limits the coverage offered under the Guarantee Plan.
In 2013, MR filed an application for arbitration on the three above-mentioned decisions from Abritat.
In April 2014, MR, Abritat and the Beneficiaries reached a transaction agreement (“Transaction”). The Transaction requires MR to carry out various tests to discover the source of the water infiltration problems and to carry out reparations in order to remedy the construction defects declared by the Beneficiaries before the summer 2014.
In December 2014, Régie du Bâtiment designates Raymond Chabot l’Administrateur Provisoire Inc. (“Provisional Manager”) to replace Abritat to manage the Guarantee Plan.
In Autumn 2015, even if MR has executed the reparations, the Beneficiaries made complaints about the water infiltration problems again.
In February 2016, MR is required to make further reparations to remedy the construction defects before May 31, 2016.
However, MR did not manage to complete the reparations before May 31, 2016. As a consequence, the Provisional Manager mandated another contractor, Léonard, to complete the reparations and a new expert to seek the source of the problems declared by the Beneficiaries.
In February 2018, the Beneficiaries made complaints again even if Léonard has executed the reparations in Spring 2017.
In Summer 2018, the Provisional Manager concluded that the recent water infiltrations problems were not caused by the construction defects declared by the Beneficiaries in 2011.
On July 16, 2018, the Provisional Manager formally advised the Beneficiaries that the recent water infiltration problem was not covered by the Abritat Guarantee Plan because it is not caused by the construction defects declared by the Beneficiaries in 2011 and it is not declared by the Beneficiaries within the period of 5 years according to the Guarantee Plan.
The Beneficiaries filed an application for arbitration to challenge the decision from the Provisional Manager.
On February 2020, the arbitrator, Me Jean Morissette rendered a decision on this matter. The Decision orders MR and Provisional Manager to execute reparations to solve the water infiltration problems before June 30, 2020 as they have obligations of result according to the Guarantee Plan.
Main Issue to Analyse
1. Did the Arbitrator render unreasonable decision in concluding that MR breached its obligations of result despite the Transaction between MR, the Beneficiaries and Abritat?
2. Did the Arbitrator render unreasonable decision in refusing to deal with the responsibility of Leonard in the recent water infiltration problem?
Court’s Analysis
1. The Court held that the Arbitrator did not render unreasonable decision in concluding that MR breached its obligations of result despite the existence of Transaction between MR, the beneficiaires and Abritat.
1.1 The Arbitrator has carefully considered the scope of the Transaction in his assessment of the obligations of MR and the Provisional Manager, which could be proven by his arbitral award.
1.2 The Arbitrator noted in his arbitral award that the Transaction has not fully executed since the experts did not carry out the required tests.
1.3 The Arbitrator also addressed the impact of Transaction on the obligations of result incumbent on both MR and the Provisional Manager according to the Regulation. The Arbitrator noted that the obligations of MR and the Provisional Manager cannot be diminished by the Transaction. The Transaction requires MR to carry out some tests in order to discover the source of water infiltration problem. However, MR did not do so.
” [40] Il aborde par la suite de manière directe l’impact de la Transaction sur l’obligation de résultat qui incombe tant à MR qu’à l’Administrateur provisoire en vertu du Règlement.
[41] Selon l’Arbitre, cette obligation ne peut être atténuée par la Transaction puisqu’elle impose l’obligation de procéder à des tests d’eau qui n’ont pas été effectués[16] :
[96] L’obligation de résultat de l’Entrepreneur n’est sûrement pas diminuée par une transaction qui l’oblige à faire des tests d’eau afin de découvrir la source d’infiltration d’eau et n’y procède pas;
[…]
[125] Je ne m’explique pas que l’Administrateur s’engage à émettre un document attestant que les travaux sont faits en conformité des spécifications des experts qu’il ne la fasse pas et plaide que tous les travaux prévus à la transaction pour solutionner les divers problèmes révélés depuis la livraison des unités sont exécutés, pièce B-5 art. 4 et 5 (i.e. la Transaction);“
2. The Court held that the Arbitrator did not render unreasonable decision in refusing to deal with the responsibility of Leonard, the replacement contractor, in the recent water infiltration problem.
2.1 The Arbitrator was requested by the Beneficiaries to rule on the decision of the Provisional Manager which concluded that there is no connection between the construction defects denounced by the Beneficiaries in 2011 and the recent water infiltration problem. The Arbitrator was not requested to rule on the legitimacy for the decision of the Provisional Manager which mandated Léonard to replace MR to execute the reparations.
2.2 It is worth to note that the Regulation imposes an obligation of result both on the manager of the guarantee plan and the contractor. This is the very essence and fundamental objective of the guarantee plan according to the Regulation.
2.3 The Arbitrator noted that the arbitration mechanism created by the Regulation aims to ensure the expedited settlement of disputes related to construction defects affecting the newly built residential buildings. The debates on the division of responsibility among MR, the Provisional Manager and Léonard could be longer and more complex, which may hinder the efficiency of the arbitration proceeding. Thus, the Arbitrator noted that the issue of the division of responsibility should be submitted to the Court for adjudication. In 2020, this dispute was indeed brought before the Court by the Provisional Manager.
Furthermore, the Court held that the Arbitrator’s decision echoes the Quebec Court of Appeal’s decision on Consortium MR Canada ltée c. Montréal (Office municipal d’habitation de), 2013 QCCA 1211, in which the Quebec Court of Appeal reminds us that the beneficiaries of the guarantee plan should not be required to pay for a marathon legal proceedings in order to force the execution of reparations.
Reflection
1. It is worth to emphasize that the way for the parties to challenge the arbitral awards in front of a judicial tribunal depends on the type of the arbitration proceeding: a consensual arbitration or an arbitration in the administrative proceeding. A consensual arbitration under Art. 2638 C.c.Q. is subject to annulment proceedings on limited grounds stipulated in Art. 648 and 646 C.c.p. An arbitration in the administrative proceeding is, however, subject to judicial review (Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65);
2. The Queebc Court of Appeal in paras. 16 to 26 of Conseil d’arbitrage des comptes des avocats du Barreau du Québec v. Marquis, 2011 QCCA 133 reminds us how we could identify if an arbitration created by a statute would be a consensual arbitration under article 2638 C.c.Q. or an administrative proceeding.
3. In the present case, the arbitration between the owners of the residential units and the contractor on the issues regarding construction defects is created by the Regulation respecting the Guarantee Plan for new residential buildings, CQLR c B-1.1, r 8. The arbitration under this Regulation is an administrative proceeding because this Regulation does not allow a party to renounce to it once the dispute arises.
Art. 106 of the Regulation stipulates “Any dispute pertaining to the manager’s decision concerning a claim or the refusal or cancellation of the contractor’s membership shall be dealt with exclusively by the arbitrator appointed under this Division...” Art. 107 of the Regulation stipulates “An application for arbitration shall be sent to an arbitration body authorized by the Board within 30 days following receipt by registered mail of the manager’s decision or, where applicable, the advice of the mediator concluding to partial or total failure of the mediation. The body shall appoint an arbitrator from a list of persons drawn up by it beforehand and sent to the Board.”
4. An arbitration created by statute may sometimes be consensual if it allows a party to renounce to it once the dispute arises. For example, Art. 37 of Act respecting the professional status of artists in the visual arts, arts and crafts and literature, and their contracts with promoters, CQLR c S-32.01stipulates “In the absence of an express renunciation, every dispute arising from the interpretation of the contract shall be submitted to an arbitrator at the request of one of the parties.” Art. 7 of Regulation respecting the conciliation and arbitration procedure for the accounts of advocates, CQLR c B-1, r 17 stipulates “After having applied for conciliation according to the procedure determined by the syndic under section 5, a client or a person whose application for conciliation was not successful may apply for arbitration.” For the Court, the opportunity to renounce to the arbitration imposed by statute qualified the arbitration as consensual arbitration (See also Boisvert c. Selvaggi, 2019 QCCS 1673).
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)