While the contractual interpretation generally constitutes mixed questions of fact and law, the interpretation of a standard-form contract would be considered as a question of law when there is no meaningful factual matrix that is specific to the parties in dispute to assist the interpretation process and the interpretation would have presidential value (para. 24 of Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37). This article aims to summarize the Quebec Court of Appeal’s decision on a declamatory exception claim based on the ambiguous dispute resolution clauses in a standard-form insurance policy (9369-1426 Québec inc. (Restaurant Bâton Rouge) c. Allianz Global Risks US Insurance Company, 2021 QCCA 1594). Having studied the insurance policy in dispute and numerous Supreme Court of Canada and Quebec Court of Appeal decisions as well as doctrines on arbitration and contractual interpretation, the Quebec Court of Appeal confirms that the trial judge is right to refer the matter to arbitration and that the arbitration clause should be interpreted in a large and liberal manner (para. 13 of the Decision)
The Plaintiff, Bâton Rouge purchased property insurance policies from the Defendant, Allianz Insurance through its franchisor, MTY Food Group Inc.
Insureds who benefit from policies acquired through franchisor MTY Good Group Inc. are located in various Canadian provinces.
In the first chapter of the Insurance Policy in dispute, we can find a section entitled General Policy Terms, Conditions, Exclusions and Definitions. This section comprises four sub-sections: (i) General Terms and Conditions; (ii) General Exclusions; (iii) General Definitions; and (iv) Provincial General and Statutory Conditions. The fourth section contains three parts: (a) Provincial General Conditions Applicable to all Common Law Provinces and Territories except Alberta, British Columbia and Manitoba only; (b) Provincial Statutory Conditions Applicable to Alberta, British Columbia and Manitoba only; and (c) Provincial Statutory Conditions Applicable to the Province of Quebec only.
The General Terms and Conditions of the Insurance Policy in dispute provides that the courts of the place in which the insured is located shall have exclusive jurisdiction in case of a coverage dispute.
2. Policy Jurisdiction
This policy shall be deemed to have been made under and shall be governed by the laws and decisions of the province or territory shown in the mailing address of the Named Insured, as it is shown in the “Policy Declarations”. The Courts in the Court District in which the Named Insured is located shall have exclusive jurisdiction in case of a coverage dispute.
The dispute resolution clause in the section entitled Provincial Statutory Conditions Applicable to the Province of Quebec only of the Insurance Policy in dispute provides that the coverage dispute will be referred to arbitration if the settlement at mediation is not possible.
5. Dispute Resolution
In the event that the Insurer and the Insured(s) cannot agree concerning either the coverage or the quantum afforded by this Policy, it is agreed that the dispute shall be resolved in accordance with the dispute resolution process hereinafter described: a. Mediation with a Mediator mutually agreed by the parties to the dispute. If the parties fail to concur on the choice of the Mediator, a Court shall appoint a Mediator on a Motion by one of the parties. b. If settlement at Mediation is not possible, the dispute will be referred to Arbitration in accordance with the applicable Arbitration legislation/regulations in the jurisdiction in which the Policy is issued. The decision of the Arbitrator will be binding on all parties to the dispute with no right of appeal. c. Each party shall bear its own costs and expenses in connection with the dispute resolution process. The costs and expenses of Mediation and Arbitration shall be shared equally by the parties to the dispute. By agreement in writing, the Insurer and the Insured(s) may waive compliance with this section or any part thereof for purposes of a specified dispute.
The Plaintiff, Bâton Rouge, a steakhouse and bar located in Laval, Québec seeks to institute a class action in order to obtain indemnification from the Defendant, Allianz for business interruption losses resulting from the COVID-19 pandemic.
The Defendant Allianz asks the Court to decline jurisdiction, to send the parties to mediation and arbitration according to the dispute resolution clause applicable to the Province of Quebec only and, accordingly, to dismiss the Application for Authorization to Institute a Class Action.
The Plaintiff opposed the Defendant/Respondent’s declinatory exception application on the ground that the parties never clearly agreed to resolve coverage disputes through binding arbitration. The Plaintiff/Appellant argued that the two dispute resolution clauses were contradictory. As a consequence, the declinatory exception application from the Defendant/Respondent should be dismissed.
On January 14, 2021, the trial judge rejects the Plaintiff’s arguments and refers the parties to a mediator or arbitrator appointed in accordance with the Clause No. 5. He found that the Clause No.2 had nothing to do with subject-matter jurisdiction, but, rather, that it related to territorial jurisdiction (9369-1426 Québec inc. (Restaurant Bâton Rouge) c. Allianz Global Risks US Insurance Company, 2021 QCCS 47)
The Plaintiff/Appellant appealed the above-mentioned decision.
On October 26, 2021, the Quebec Court of Appeal confirms that the trial judge is right to refer the matter to arbitration because the arbitration clause intended to apply in Québec prevails, the arbitration clause should be interpreted in a large and liberal manner and the contra proferentem rule does not apply in the present case.
Main Issue to Analyse
Was the trial judge correct in concluding that the dispute had to be referred to mediation and arbitration on the basis of the med-arb clause found in the Provincial Statutory Conditions Applicable to the Province of Quebec only?
Firstly, the Quebec Court of Appeal states that the applicable standard of appellate review is correctness (para. 11 of the Decision). The applications based on Art. 622 C.C.P. should be decided in accordance with the competence-competence principle set out by the Supreme Court in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, summarized by the Supreme Court in Rogers Wireless Inc. v. Muroff, 2007 SCC 35 :
“[W]hen an arbitration clause exists, any challenges to the jurisdiction of the arbitrator must first be referred to the arbitrator. Courts should derogate from this general rule and decide the question first only where the challenge to the arbitrator’s jurisdiction concerns a question of law alone. Where a question concerning jurisdiction of an arbitrator requires the admission and examination of factual proof, normally courts must refer such questions to arbitration. For questions of mixed law and fact, courts must also favour referral to arbitration, and the only exception occurs where answering questions of fact entails a superficial examination of the documentary proof in the record and where the court is convinced that the challenge is not a delaying tactic or will not prejudice the recourse to arbitration.”
The Supreme Court further clarifies what is meant by a “superficial” examination in its recent decision in Uber Technologies Inc. v. Heller, 2020 SCC 16 :
“Neither Dell nor Seidel fully defined what is meant by a “superficial” review. The essential question, in our view, is whether the necessary legal conclusions can be drawn from facts that are either evident on the face of the record or undisputed by the parties (see Trainor v. Fundstream Inc., 2019 ABQB 800, at para. 23 (CanLII); see also Alberta Medical Association v. Alberta, 2012 ABQB 113, 537 A.R. 75, at para. 26).”
As the issues in dispute raise questions of contractual interpretation and the interpretation of a standard-form insurance policy raises questions of law (para. 24 of Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37), the applicable standard of appellant review is correctness.
Secondly, the Quebec Court of Appeal recalls the legitimacy and virtues of commercial arbitration: A. The arbitration clauses “must always be considered as legally distinct from the contracts in which they are embedded (Art. 2642 C.c.Q.) – are to be interpreted in a large and liberal manner (para. 13 of the Decision); B. Any ambiguity as to an arbitration clause’s scope is to be resolved by resorting to the usual rules of contractual interpretation (Para. 7 of the Elliott c. Forecam Golf Ltd., 2011 QCCA 1029). Further, the Quebec Court of Appeal reminds us that the rules of contractual interpretation were summarized by the Supreme Court as a two-step analytical process: Step 1. Whether the relevant contractual terms are clear or ambiguous in light of the other clauses in the contract in dispute as well as the circumstances in which it was concluded; Step 2. If the terms are ambiguous, the analysis proceeds to the second step guided by the cardinal principle according to which “[t]he common intention of the parties rather than adherence to the literal meaning of the words shall be sough/on doit rechercher quelle a été la commune intention des parties plutôt que de s’arrêter au sens littéral des termes utilisés” (Art. 1425 C.C.Q.).” (paras. 34 to 37 of Uniprix inc. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43).
Thirdly, the Quebec Court of Appeal, by applying this legal framework to the present case, states that the relevant terms of the Insurance Policy in dispute are indeed ambiguous. Upon reading the relevant provisions in the Insurance Policy in dispute, one would have the impression that coverage disputes involving Quebec insureds fall within the ambit of both a forum selection clause and a med-arb clause, which contain equivocal language. However, the Quebec Court of Appeal states that this ambiguity can be easily resolved at the second step of the analysis. It is clear from the structure of the Insurance Policy in dispute that the Clause No. 2 in the General Terms and Conditions is supplemented by the Clause No. 5 in the section, by terms that vary depending on the province or territory where the insured is located. As the specific language generally prevails over general language (pages 91 to 92 of the François Gendron, L’interprétation des contrats, 2nd ed., Montreal, Wilson & Lafleur, 2016), the Quebec Court of Appeal states that the forum selection clause was intended to apply only in common law provinces and territories, while the mediation and arbitration clause was intended to apply in Quebec. Furthermore, the Quebec Court of Appeal states that interpreting the terms in that manner avoids any conflict while ensuring that they can both be given some effect (Art. 1428 C.c.Q).
Lastly, the Quebec Court of Appeal reminds us that the contra proferentem rule is only applicable when an ambiguity remains unresolved after other rules of interpretation have been applied (para. 84 of Ferme Vi‑Ber inc. v. Financière agricole du Québec, 2016 SCC 34). In the present case, the ambiguity is resolved by applying other rules of interpretation. As a consequence, the Quebec Court of Appeal confirms that the trial judge is right to grant the Respondent’s declinatory exception application and to refer the matter to mediation and arbitration.
In conclusion, the appeal is dismissed with legal costs.
仲裁协议的独立性原则是指合同中的仲裁条款与合同应被看作是两个不同的独立协议，即仲裁条款独立于合同的其它条款而存在，不因合同其它条款的无效而失效，也不因合同本身的存在与否收到任何影响。这通常称作仲裁协议的可分割性或自主性理论。该理论的目的在于确定仲裁协议的有效性，存在性和可适用性 (para. 61 of the Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb,  UKSC 38)。
(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.)