A recent decision by the Quebec Court of Appeal (Court of Appeal) in Avalin Group FZE c. Lauzon — Planchers de bois exclusifs inc. (available in French only) reiterates the broad and liberal interpretation that Quebec courts must adopt when interpreting arbitration agreements.
This decision is consistent with Quebec case law favourable to arbitration and further underscores the importance of promoting the predictability of dispute resolution mechanisms in international matters. It also reaffirms Quebec courts’ willingness to draw on international commercial arbitration principles and practices when interpreting arbitration agreements.
The judgment serves as a reminder of the importance of clear and precise drafting. Stating explicitly and unambiguously whether arbitration is mandatory (or optional) remains the best way to avoid costly and uncertain preliminary disputes. Nevertheless, in international commercial arbitration, the parties’ intent generally prevails over a strict textual interpretation of the contract. This shows that the use of broad terms is not necessarily incompatible with a complete undertaking to arbitrate.
Optional Arbitration
The respondent, Lauzon – Planchers de bois exclusifs Inc. (Lauzon), a Quebec-based company, filed a lawsuit for damages against the appellant Avalin Group FZE (Avalin), a company based in the United Arab Emirates. Lauzon claimed C$1,459,923.10 for hardwood flooring products deemed non-compliant, supplied under a framework agreement entered into in 2021 (Framework Agreement).
Avalin raised an objection to the jurisdiction based on Clause 15 of the Framework Agreement. It argued that the parties were bound by a complete undertaking to arbitrate providing as follows: “If Mediation is not successful, any party may request arbitration at the same Commission where one arbitrator shall, through the most simplified procedure available, issue a binding and final award based on the Convention for the International Sale of Goods.”
At the trial level, the Superior Court of Quebec (Superior Court) dismissed Avalin’s motion to decline jurisdiction and motion to refer the matter to arbitration (decision available in French only). In the trial judge’s view, Clause 15 was entirely unambiguous: the use of the term “may” made arbitration strictly optional, thus the clause was not binding on the parties. As there was no complete undertaking to arbitrate, the Superior Court ruled that it had jurisdiction to hear the case.
Avalin was granted leave to appeal the Superior Court’s judgment (decision available in French only). Before the Court of Appeal, Avalin argued, among other things, that Clause 15 was a complete undertaking to arbitrate.
Court of Appeal Decision: Arbitration Clause is Binding
In a unanimous decision (available in French only), the Court of Appeal allowed Avalin’s appeal, overturned the Superior Court’s decision and referred the parties to arbitration.
The Court of Appeal started its analysis by pointing out that, by categorizing arbitration agreements as nominate contracts under the Civil Code of Québec, the legislator meant not only to recognize the validity of such agreements, but also to promote their use. Arbitration agreements, the essence of which is to avoid the intervention of the courts, should indeed be recognized as an integral part of general law and interpreted broadly and liberally. Where ambiguity nevertheless persists, the courts should avoid any approach that would unduly favour traditional legal proceedings over arbitration.
The Court of Appeal stressed that arbitration clauses are intended to ensure legal certainty and predictability, as international arbitration is not tied to any particular state legal system, but is instead rooted in the principle of primacy of the autonomy of the parties. Referring to the Supreme Court of Canada’s remarks in Dell, the Court of Appeal emphasized that, in matters of international arbitration, Quebec courts must be open to international thinking as a “formal source of Quebec positive law.”
Applying these principles, the Court of Appeal found that the trial judge made an error of law by failing to give Clause 15 the broad and liberal interpretation it called for, particularly in light of its international context. By limiting his analysis to the use of the term “may” to conclude that there was no ambiguity and that arbitration was purely optional, the judge failed to take into account the applicable principles of interpretation. In doing so, he made a palpable and overriding error that justified the Court of Appeal’s intervention.
The Court of Appeal held that the clause was "undoubtedly ambiguous," such that it was up to the judge to resolve that ambiguity by determining the common intention of the parties. To that end, the judge had to take into account the nature of the arbitration agreement, the circumstances under which it was entered into and the usual practices in international commercial arbitration, which call for an interpretation that frees the parties from the legal particularism of courts. In this context, the Court of Appeal emphasizes that the clause contains two elements typical of a valid undertaking to arbitrate: first, it provides that the arbitral award will be final and binding on the parties; second, it establishes a penalty mechanism by requiring the party that refused to submit to mediation to bear the full costs of the arbitration, regardless of the outcome of the dispute.
In light of these factors, the Court of Appeal concluded that the only sensible interpretation of Clause 15 was to recognize that either party has the right to initiate arbitration, without this in any way detracting from the binding nature of the arbitration mechanism.
For more information, please contact the authors or any other member of our Litigation & Dispute Resolution group.
