Background

Following the closure of non-essential businesses in Quebec due to the COVID-19 pandemic, Bâton Rouge (“BR”) sought to institute and certify a class action proceeding to be indemnified by Allianz Global Risks US Insurance Company (“Allianz”) for business interruption losses resulting from the forced shutdown of its restaurants. Allianz took the position that the insurance policy did not cover such losses and moreover asked that the Quebec Superior Court decline jurisdiction in favour of the terms set out in the insurance contract which provided for mediation and arbitration proceedings. The motions judge granted Allianz’s request, declined to hear the matter, and concluded that the dispute should be referred to arbitration.

Pursuant to Code of Civil Procedure of Quebec, in cases in which the parties are bound by an arbitration clause, courts are required to refer a dispute to arbitration unless the arbitration agreement is null.[2] Finding that the terms of the dispute resolution clause contained in the insurance policy constituted a “mandatory, clear, unambiguous, final and binding arbitration clause”,[3] the Court held that BR was therefore barred from bringing its action before the courts, despite its arguments that the dispute resolution clause was in conflict with a forum selection clause in another section of the insurance policy entitled “Policy Jurisdiction”. The Court added that although the dispute was largely about coverage, a question of contractual interpretation, the claim advanced by BR was fully within the arbitrator’s jurisdiction. On the key issue before it, the Superior Court found that the “Policy Jurisdiction” clause related to territorial jurisdiction (i.e., the court’s jurisdiction over cases arising within that province, or over persons connected to that province) and did not conflict with the dispute resolution clause, which itself related to subject matter jurisdiction (i.e., the court’s jurisdiction over the subject-matter of the dispute). While the “competence-competence” principle[4] recognizes the power of an arbitral tribunal to first determine questions relating to its own jurisdiction, in the circumstances, the Superior Court also held that it was within the Court’s jurisdiction to immediately rule on this question seeing as it was one of mixed fact and law.[5]

Decision

The Quebec Court of Appeal denied the appeal brought by BR and enforced the dispute resolution clause set out in the insurance contract. In doing so, the Court comprehensively addressed the legal issues raised at first instance, offering a nuanced and important analysis of topics such as: “competence-competence”, the rule of general referral to arbitration, contractual interpretation, and the contra proferentem rule.

The Court began its analysis by examining the interplay between the “competence-competence” principle and Article 622 C.C.P., which sets out a general rule requiring courts to refer parties bound by an arbitration agreement back to arbitration if an application is made before the court. Citing the trilogy of Supreme Court Canada cases dealing with this issue (Dell,[6] Rogers Wireless,[7] and Uber[8]), the Court noted that courts should only derogate from the rule of general referral to arbitration on jurisdictional issues which concern questions of law alone.[9] While the judgment at first instance classified the issue in dispute as one of contractual interpretation involving questions of mixed fact and law, the Court  of Appeal held that the interpretation of standard-form contracts only raises questions of law in situations when “the interpretation at issue is of precedential value” and “there is no meaningful factual matrix that is specific to the parties to assist the interpretation process”.[10] Finding that these criteria were met, the Court concluded that the motions judge “was right to analyze fully, rather than on a mere prima facie basis, the objection to arbitral jurisdiction raised by BR”.[11] In a final observation on this point, the Court also concluded that the applicable appellate standard of review is correctness, rather than palpable and overriding error. 

The Court continued its analysis by emphasizing that arbitration clauses must always be considered as legally distinct from the contract in which they are embedded in accordance with 2642 C.c.Q. and are to be interpreted in a “large and liberal manner”.[12] Accordingly, any ambiguities in such clauses are to be resolved in accordance with the general principles of contractual interpretation as articulated by the Supreme Court of Canada in Uniprix,[13] rather than through any antiquated tie-breaking rules predicated on the purported superiority of courts over arbitral tribunals.

Briefly, Uniprix clarified the analytical framework applicable to the interpretation of contracts and set out a two-step process to guide contractual interpretation. The first step is to determine whether the words of a contract are clear or ambiguous. Ambiguity may arise on a reading of the words themselves or if seemingly clear terms appear to be inconsistent with the scheme of the contract or the true intention of the parties. If there is no ambiguity, the court’s role is limited to applying the words of the contract to the facts before it. Conversely, if there is ambiguity, the court must proceed to the second analytical step – determining and giving effect to the common intention of the parties in a manner where the clauses at issue can each be given a meaningful effect.

Applying the two-step analytical process set out in Uniprix, the Court first considered whether the relevant contractual terms were clear or ambiguous. In its analysis, the Court disagreed with the motion judge’s reasoning and accepted BR’s argument that the dispute resolution clause conflicted with the “Policy Jurisdiction” clause. Seeing as the relevant terms of the contract were ambiguous, the Court turned to the second step of the analytical process wherein the cardinal principle of 1425 C.c.Q.[14] finds its applicability – it is at this stage that the “common intention of the parties” must be sought and applied. After considering a variety of contextual factors, the Court concluded that “[…] the forum selection clause was intended to apply only in common law provinces and territories, while the arbitration clause was intended to apply in Quebec.”[15] Noting that this interpretation accords with the principles found in Article 1428 C.c.Q.[16] in that it avoids any conflict between the clauses while ensuring that they can both be given some effect, the Court concluded that the parties intended that the dispute resolution clause apply in Quebec.

Finally, the Court considered the contra proferentem rule, which is itself codified in Article 1432 C.c.Q.[17] and which provides, inter alia, that ambiguities in contracts of adhesion ought to be resolved in favour of the adhering party. However, the Court refused to apply contra proferentem on the basis that it is only applicable when there are unresolved ambiguities following the application of the other rules of interpretation. In the circumstances, the finding that the parties intended for the dispute resolution clause to apply in Quebec resolved the ambiguity and obviated the need to pursue a further analysis on this point.

Takeaways

Who has jurisdiction to rule on questions of jurisdiction?

Despite the “competence-competence” principle, courts have the jurisdiction to rule on the application of dispute resolution clauses in situations involving the interpretation of standard-form contracts. This approach is aligned with case law from the Supreme Court of Canada which emphasizes that courts should only derogate from the rule of general referral to arbitration on jurisdictional issues which concern questions of law alone. In such cases, the court has jurisdiction to go beyond a prima facie review and conduct a comprehensive analysis on the question of law in dispute. The applicable appellate standard of review in these circumstances is “correctness” rather than “palpable and overriding error”.

Contractual interpretation of dispute resolution clauses

Despite being treated as legally distinct from the contracts in which they are embedded, dispute resolutions clauses are nonetheless to be interpreted in a “large and liberal” manner in accordance with the general rules of interpretation as set out in Uniprix.[18] It follows that dispute resolution clauses are not subject to any special rules of interpretation and ought to be drafted in clear and unambiguous terms. If the clause is ambiguous, the Court will seek to determine the common intention of the parties by examining contextual factors.

Contra proferentem as a ‘last resort’

Contra proferentum is a doctrine of contractual interpretation which operates to resolve contractual ambiguities against the party that stipulated the disputed obligation, and in favour of the party that contracted it. In consumer contracts, or contracts of adhesion (i.e., a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable)[19] disputed clauses are always interpreted in favour of the adhering party or the consumer. While contra proferentum is invoked in many contract disputes, Bâton Rouge reminds us that it can in fact only be successfully invoked in limited circumstances: All other rules of interpretation must be exhausted and the ambiguity must remain unresolved for contra proferentem to apply. Accordingly, parties engaged in contract disputes should not place undue reliance on contra proferentum, which is a rule of last resort.

Conclusion

Multi-tiered dispute resolution clauses are gaining in popularity and offer parties an opportunity to implement bespoke resolution mechanisms designed to deescalate disputes by compelling parties to engage in non-binding consent-based processes before resort is had to adjudicative means such as arbitration. While the goal of inserting such clauses is often to avoid a more formal litigious process, the courts are nonetheless frequently called on to determine questions of jurisdiction and the applicability of arbitral clauses. Bâton Rouge serves as an example of one such instance. While the court’s approach to dispute resolution clauses is often deferential, on jurisdictional questions involving pure questions of law or standard-form contracts, there has been a tendency to intervene, despite the “competence-competence” principle. As such, the most efficient way to give effect to dispute resolution clauses is to ensure that they are drafted in a manner which clearly reflects the will of the parties without ambiguity.

References

[1] 9369-1426 Québec inc. (Restaurant Bâton Rouge) c. Allianz Global Risks US Insurance Company, 2021 QCCA 1594.

[2] 622 C.p.c.

[3] 9369-1426 Québec inc. (Restaurant Bâton Rouge) c. Allianz Global Risks US Insurance Company, 2021 QCCS 47 at para 27.

[4] As interpreted by the Supreme Court of Canada in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), [2007] 2 SCR 801.

[5] Bâton Rouge, supra note 3 at para 63.

[6] Dell, supra note 4.

[7] Rogers Wireless Inc. v. Muroff, 2007 SCC 35 (CanLII), [2007] 2 SCR 921.

[8] Uber Technologies Inc. v. Heller, 2020 SCC 16.

[9] Courts ought to favour referral to arbitration for questions of mixed law and fact, however, an 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.” See Rogers Wireless at para 11.

[10] Bâton Rouge, supra note 1 at para 10.

[11] Ibid.

[12] Ibid., at para 13.

[13] Uniprix inc. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43.

[14] 1425 C.c.Q.: “The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.”

[15] Bâton Rouge, supra note 1 at para 20.

[16] 1428 C.c.Q.: “A clause is given a meaning that gives it some effect rather than one that gives it no effect.”

[17] 1432 C.c.Q.: “In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.”

[18] Uniprix, supra note 13.

[19] 1379 C.c.Q.