A recent decision of the Quebec Court of Appeal (QCA) in Terrassement St-Louis inc. c. Hydro-Québec (available in French only) highlights tensions between, on one hand, the principles of freedom of contract and party autonomy and, on the other, procedural justice. In recognizing the abusive nature of a rigid and onerous arbitration clause, the QCA reiterated that procedural efficiency cannot override a party’s fundamental right to assert its claims in an accessible and fair proceeding. This decision raises important considerations for the drafting of “standard form contracts” (contracts of adhesion), particularly in the context of public procurement, including the necessity of adapting dispute resolution mechanisms to counterparties’ economic realities.
In this case, Terrassement St-Louis Inc. claimed C$253,128 from the appellant, a state-owned enterprise, pursuant to a contract for environmental work awarded through a public tendering process.
The QCA’s Decision
The QCA emphasized that, in a public tender, the essential contractual terms, including arbitration and choice of forum clauses, are imposed unilaterally by the contracting party, without any real possibility of negotiation by the tenderer. According to the QCA, it is this lack of flexibility that defines the contract between the parties as a contract of adhesion within the meaning of article 1379 of the Civil Code of Québec.
The arbitration clause at issue in this case reads as follows:
[TRANSLATION]
18.7.1 Arbitration Clause
The parties agree that any disagreement, dispute or claim arising out of or related to this Contract or arising directly or indirectly out of its interpretation or execution, shall be settled definitively and exclusively by arbitration, and to the exclusion of the courts, in accordance with the laws of Quebec. Unless the parties decide otherwise in an arbitration agreement, the arbitration shall be conducted by three arbitrators, shall be confidential and shall be conducted in French in Montréal, in accordance with the rules of law and the provisions of the Code of Civil Procedure of Québec in force at the time of the dispute. The arbitral award shall be final, binding and without appeal, and shall be binding on the parties.
In doing so, the QCA held that the arbitration clause unreasonably benefited the appellant, Hydro-Québec, and deprived the respondent of its right to have its claim adjudicated.
Furthermore, the QCA noted the absence of a mechanism to adjust the number of arbitrators based on the amount of the claim. Similarly, it noted that the arbitration clause did not provide for an expedited or simplified arbitration procedure that could be applied based on the amount claimed, which contributed to the abusive nature of the arbitration clause.
In its decision in Terrassement St-Louis inc. c. Hydro-Québec, the QCA reiterates the importance of drafting arbitration clauses that are sufficiently flexible to allow for arbitration to be adjusted according to the specific circumstances of each dispute, including the amount involved and the parties’ means. An arbitration clause may be considered abusive if it has the practical effect of restricting a counterparty’s access to justice.
Flexibility and Proportionality: A Reminder of Key Principles
The QCA’s decision reminds us that, in analyzing whether a contractual clause is abusive, it is imperative to consider the applicable context, including the contracting party’s situation and the practical consequences of applying the clause.
The QCA highlights that, when drafting contracts that may qualify as contracts of adhesion, arbitration clauses should be flexible and proportionate so as not to restrict access to justice, and to allow, for example:
- a reduction in the number of arbitrators according to a claim’s value
- the use of simplified or expedited procedures
- the adaptation of the arbitration process to the parties’ actual means
For more information, please contact the authors or any member of our Litigation & Dispute Resolution group.
