Sport Maska Inc. v. Zittrer

Sport Maska Inc. v. Zittrer
Collection
Supreme Court Judgments
Date
1988-03-24
Report
[1988] 1 SCR 564
Case number
19660
Judges
Beetz, Jean; Lamer, Antonio; Wilson, Bertha; Le Dain, Gerald Eric; L'Heureux-Dubé, Claire
On appeal from
Quebec
Subjects
Arbitration
Notes
SCC Case Information: 19660
Decision Content
sport maska inc. v. zittrer, [1988] 1 S.C.R. 564
Sport Maska Inc. Appellant
v.
Jack E. Zittrer, Herbert E. Siblin, Samuel S. Stein, Marvin B. Goldsmith, David B. Stein, Steven A. Yaphe, Morton S. Spector, Stanley Wener, Jeffrey L. Payne, Brahm D. Levine, Morrie L. Fogelbaum, Allan M. Liverman, Robert H. Zittrer Respondents
indexed as: sport maska inc. v. zittrer
File No.: 19660.
1987: October 22; 1988: March 24.
Present: Beetz, Lamer, Wilson, Le Dain and L'Heureux‑Dubé JJ.
on appeal from the court of appeal for quebec
Arbitration ‑‑ Criteria ‑‑ Distinction between arbitration and expert opinion ‑‑ Undertaking to arbitrate ‑‑ Mediation ‑‑ Code of Civil Procedure, R.S.Q. 1977, c. C‑25, ss. 940 to 951.
The receiver of a bankrupt company sold a large part of its assets to a company which on the same day resold the assets to appellant. Clause 2.01 of the agreement with regard to this latter sale provided that the valuation of the inventory would be reviewed by the bankrupt's auditors, the respondents, who were to take into consideration the representations of appellant. Respondents had then to deliver a written opinion to all the parties to the effect that such inventory count and valuation was fairly presented, the whole at the cost of the bankrupt. Upon delivery of such opinion, the inventory count and valuation was to be deemed to be "definitively determined". In a letter sent to appellant (Exhibit DP‑1), the bankrupt agreed that appellant attend the valuation of the inventory and make any representations, adding that respondents' valuation of the inventory would be "final and binding". Respondents confirmed the bankrupt's valuation of the inventory and appellant paid the amount so established. A year later, appellant brought an action for damages in the Superior Court against respondents in the amount representing the difference between the price it had paid and the price it would have paid if respondents had not been negligent in performing their task. Respondents made a declinatory exception alleging that they were acting in this matter as arbitrators and that, as such, they were covered by immunity. The Superior Court dismissed their motion. The Court of Appeal set aside that judgment. In its opinion, respondents were acting as arbitrators and that, in the absence of fraud or bad faith, they enjoyed the immunity from civil liability. This appeal is to determine whether the parties had agreed to submit a dispute to arbitration by a third party. This appeal must be disposed of according to the provisions then applicable, namely arts. 940 to 951 of the 1965 Code of Civil Procedure in force prior to the 1986 amendments.
Held: The appeal should be allowed.
Per curiam: For a third party to be classified as an arbitrator, it is essential for the agreement of the parties to contain the components of a submission, whether or not this submission is the result of an undertaking to arbitrate. A submission requires the existence of a dispute and an undertaking by the parties to submit that dispute to a third party. If the parties simply intended to avoid a possible dispute, the situation is not one of submission. However, they may have agreed to submit to the arbitration of a third party once a dispute has arisen, pursuant to an undertaking to arbitrate, the prerequisite to a submission. The search for the components of a submission presents no difficulty when the parties have clearly indicated their intent to have the dispute between them arbitrated, and have clearly identified that dispute. But in the absence of a clear intention, it is crucial to identify the precise function the parties intended to entrust to this third party under their agreement and in the circumstances of each case. The language used by the parties, the similarity between arbitration and the judicial process, the role assigned to the third party, the third party's independence and the compliance by the parties with the mandatory provisions of the Code of Civil Procedure are means of determining that function and the parties' intent. However, these criteria are neither exhaustive nor mutually exclusive.
In the case at bar, an arbitration agreement (submission or undertaking to arbitrate) could not be found since there was no present or potential dispute either when the agreement was concluded between the parties or when respondents revised the valuation made by the bankrupt. Disagreement as to the value of the inventory only arose once the transaction had been completed, that is after the valuation has been checked by respondents. The parties did not intend to submit a dispute to arbitration by respondents, but simply agreed to rely on their opinion, as the essential components of the contract, namely the value of the assets sold, which essentially represented the selling price of those assets.
The parties' intent confirmed this finding. Although they agreed to be bound by respondents' opinion and provided for representations to be made by appellant, the language used in the agreement and the other documents giving effect to it, the process contemplated by the parties under the rules applicable to arbitration under the Code of Civil Procedure, and the fact that they deliberately deleted a paragraph providing for a possible arbitration, clearly indicated that the parties agreed to obtain an expert opinion from an accountant and did not intend to submit the matter to arbitration by respondents in the accepted understanding of the structure and legal consequences of that process.
Clause 2.01 of the agreement and letter DP‑1 did not constitute an undertaking to arbitrate since they did not refer to an undertaking by the parties to conclude a submission to arbitrate should a dispute arise between them.
Finally, respondents were not acting as mediators. Mediation is not, as such, a legal concept distinct from that of the arbitration. Rather, the mediator is an arbitrator who is exempted from compliance with the rules of law. Since mediation is a departure from the law of arbitration, it must be expressly provided for or result from a clear and unambiguous intent of the parties. In fact, clause 2.01 and letter DP‑1 made no mention of respondents' being exempted from compliance with the rules of law, acting on the basis of equity or their conscience, or, more simply, being mediators. Moreover, since the mediator is an arbitrator, the criteria for distinguishing between arbitration and expert opinions apply to him mutatis mutandis. Since respondents were not acting as arbitrators, it was therefore impossible to speak of mediators.
Per Beetz J.: Considering the origin of the provisions of the Codcessary to rule on the possible similarity between common law and Quebec law in this respect. Such similarity, if any, cannot have any relevance in positive law.
Cases Cited
By L'Heureux‑Dubé J.
Referred to: Corporation municipale du Village de St‑Bernard c. Trottoirs et chaînes Pilotte Inc., [1983] R.D.J. 583; Corporation de la Ville de Beauharnois v. Liverpool & London & Globe Ins. Co. (1906), 15 K.B. 235; Home Insurance Co. de New York v. Capuano (1926), 41 K.B. 85; Ouellette v. Cie d'assurance mutuelle de commerce contre l'incendie, [1949] R.L. 163; Beaudoin v. Rodrigue, [1952] Q.B. 83; St‑Raymond Paper Ltd. c. Campeau Corp., Mtl. C.A., No. 500‑09‑000639‑765, November 17, 1976; Rindress c. Cie de Charlevoix Ltée, [1983] C.S. 897; Church v. Racicot (1912), 21 K.B. 471; Zodiak International Productions Inc. v. Polish People's Republic, [1983] 1 S.C.R. 529; Collins v. Collins (1858), 26 Beav. 306, 53 E.R. 916; Scott v. Corporation of Liverpool (1858), 3 De G. & J. 334, 44 E.R. 1297; Bos v. Helsham (1866), L.R. 2 Ex. 72; Re Hopper (1867), L.R. 2 Q.B. 367; Re Carus‑Wilson and Greene (1886), 18 Q.B.D. 7; Sutcliffe v. Thackrah, [1974] 1 All E.R. 859; Arenson v. Casson Beckman Rutley & Co., [1975] 3 All E.R. 901; Chambers v. Goldthorpe, [1901] 1 Q.B. 624; Pappa v. Rose (1871), L.R. 7 C.P. 32; Tharsis Sulphur and Copper Co. v. Loftus (1872), L.R. 8 C.P. 1; Stevenson v. Watson (1879), 4 C.P.D. 148; Finnegan v. Allen, [1943] 1 K.B. 425; Re Krofchick and Provincial Insurance Co. (1978), 21 O.R. (2d) 805; Pfeil v. Simcoe & Erie General Insurance Co. (1986), 19 C.C.L.I. 91; Preload Co. of Canada Ltd. v. Regina (City of) (1953), 10 W.W.R. (N.S.) 241; Campbellford, Lake Ontario and Western Railway Co. v. Massie (1914), 50 S.C.R. 409; Re Premier Trust Co. and Hoyt and Jackman (1969), 3 D.L.R. (3d) 417; Hartford Fire Insurcham, 156 P.2d 757 (1945); Preferred Insurance Co. v. Richard Parks Trucking Co., 158 So.2d 817 (1963); In re Delmar Box Co., 127 N.E.2d 808 (1955); Cass. civ. 2e Ch., November 7, 1974, Rev. arb., 1975.302 (Di Trento c. Pinatel); Cass. civ., June 9, 1961, Rev. arb., 1961.186 (Soc. Distilleries réunies de Bretagne et de Normandie c. Sofridex); Cass. com., May 8, 1961, Bull. civ., III, no 192, p. 169 (Société Idéal Coiffeur c. Société Raimon); Paris, 1re Ch. supp., February 5, 1976, Rev. arb., 1976.255 (S.C.I. Résidence Les Tilleuls c. S.A. Promeric); Trib. civ. Seine, 1re Ch., February 8, 1956, Rev. arb., 1957.25 (Distilleries de Bretagne et de Normandie c. Société privée d'exploitation immobilière); Cass. civ. 2e Ch., May 25, 1962, Rev. arb., 1962.103 (Société Romand c. de Montmort); Cass. civ. 1re Ch., October 26, 1976, Rev. arb., 1977.336 (Cayrol c. Cayrol); Cass. civ. 2e Ch., June 7 and November 30, 1978, Rev. arb., 1979.343 (Pentecost c. Pantaloni; Société Creaciones Reval c. Société Cerruti 1881); Paris, 1re Ch. C, January 12, 1979, Rev. arb., 1980.83 (Belon c. Maurey); Nancy, 1re Ch., December 12, 1985, Rev. arb., 1986.255 (Langlais c. Bruneau); Cass. civ. 3e Ch., October 9, 1984, Rev. arb., 1986.263 (Société S.E.C.A.R. c. Société Shopping Décor); C.(G.) v. V.‑F.(T.), [1987] 2 S.C.R. 244; Ville de Granby v. Désourdy Construction Ltée, [1973] C.A. 971; Concrete Column Clamps Ltd. v. Cie de Construction de Québec Ltée (1939), 67 K.B. 536, aff'd [1940] S.C.R. 522; Corporation du Village de Tadoussac v. Brisson, [1959] Q.B. 644; McKay v. Mackedie (1897), 11 C.S. 513; Chamberland v. Corporation du Village de Mont‑Joli (1936), 74 C.S. 529.
Statutes and Regulations CitedAct respecting the Code of Civil Procedure of Lower Canada, S. Prov. C. 1866, 29 & 30 Vict., c. 25.
Act respecting the Code of Civil Procedure of the Province of Quebec, S.Q. 1897, c. 48.
Act to amend the Civil Code and the Code of Civil Procedure in respect of arbitration, S.Q. 1986, c. 73, ss. 1, 2.
Civil Code of Lower Canada, arts. 1926.1 to 1926.6 [ad. 1986, c. 73, s. 1].
Code civil (France), art. 1592.
Code de procédure civile (France), arts. 1003 to 1028.
Code of Civil Procedure, R.S.Q., c. C‑25, arts. 940 to 951.2 [ad. 1986, c. 73, s. 2].
Code of Civil Procedure, R.S.Q. 1977, c. C‑25 [formerly S.Q. 1965, c. 80], arts. 165.4, 940 to 951.
Code of Civil Procedure of Lower Canada, arts. 1341 to 1354.
Code of Civil Procedure of the Province of Quebec, arts. 1431 to 1444.
Nouveau Code de procédure civile (France), art. 1451.
Authors Cited
Anctil, Jacques J. Commentaires sur le Code de procédure civile avec tableaux synoptiques et formules, t. 2. Sherbrooke: Revue de droit de l'Université de Sherbrooke, 1983.
Antaki, Nabil N. "L'Amiable composition". Dans Nabil N. Antaki et Alain Prujiner (éd.), Actes du 1er Colloque sur l'arbitrage commercial international. Montréal: Wilson & Lafleur, 1986.
Beullac, Pierre. Code de procédure civile de la province de Québec annoté. Montréal: Lovell & Son, 1908.
Boisséson, Matthieu de. Le droit français de l'arbitrage. Paris: Gide, Loyrette, Nouel, 1983.
Bredin, Jean‑Denis. "L'amiable composition et le contrat", Rev. arb., 1984.259.
Brierley, John E. C. "La convention d'arbitrage en droit québécois interne", [1987] C.P. du N. 507.
Brierley, John E. C. "Une loi nouvelle pour le Québec en matière d'arbitrage" (1987), 47 R. du B. 259.
Canadian Institute of Chartered Accountants. CICA Handbook, vol. II. Toronto: Canadian Institute of Chartered Accountants, [1983].
Colas, Emile. "Clause compromissoire, compromis et arbitrage en droit nouveau" (1968), 28 R. du B. 129.
Doutre, Gonzalve. Les lois de la procédure civile. Montréal: Eusèbe Sénécal, 1867.
Ferland, Philippe. L'arbitrage conventionnel. Montréal: Thélème, 1983.
Gérin‑Lajoie, Henri. Code de procédure civile de la province de Québec annoté. Montréal: Wilson & Lafleur, 1920.
Hogg, Quintin McGarel. The Law of Arbitration. London: Butterworths, 1936.
Johnson, Walter Seely. The Clause Compromissoire: Its Validity in Quebec. Montreal: W. S. Johnson, 1945.
Langelier, François. Cours de droit civil, t. 1 à 6. Montréal: Wilson & Lafleur, 1905 à 1911.
Loquin, Eric. L'amiable composition en droit comparé et international. Paris: Librairies Techniques, 1980.
Martineau, Paul G. et Romuald Delfausse. Code de procédure civile de la province de Québec annoté. Montréal: Théoret, 1899.
Mayer, Pierre. Note, Rev. arb., 1986.267.
McLaren, Richard H. and Earl Edward Palmer. The Law and Practice of Commercial Arbitration. Toronto: Carswells, 1982.
Mignault, Pierre Basil. Code de procédure civile du Bas‑Canada annoté. Montréal: Valois, 1891.
Mignault, Pierre Basil. Le droit civil canadien, t. 1 à 9. Montréal: Whiteford & Théoret/Théoret/Wilson & Lafleur, 1895 à 1916.
Motulsky, Henri. Écrits: études et notes sur l'arbitrage. Paris: Dalloz, 1974.
Pothier, Robert. Oeuvres de Pothier, t. 9. Paris: Bechet Ainé, 1824.
Pourcelet, Michel. La vente, 5e éd. Montréal: Thémis, 1987.
Ravon, Henri. Traité de l'arbitrage et de l'expertise. Paris: Librairie d'architecture, 1905.
Reid, Henri. Code de procédure civile du Québec, complément jurisprudence et doctrine, 3e éd. Montréal: Wilson & Lafleur, 1987.
Reid, Hubert et Denis Ferland. Code de procédure civile annoté du Québec, vol. 2. Montréal: Wilson & Lafleur, 1981.
Robert, Jean. L'arbitrage: droit interne, droit international privé, 5e éd. Paris: Dalloz, 1983.
Rocher, Paul. De l'arbitrage en matière civile. Paris, Librairie de la Société du Recueil J. B. Sirey et du Journal du Palais, 1907.
Roland‑Levy, Pierre. Note, Rev. arb., 1979.345.
Rousseau‑Houle, Thérèse. Précis du droit de la vente et du louage, 2e éd. Québec: Presses de l'Université Laval, 1986.
Rubellin‑Devichi, Jacqueline. Note, Rev. arb., 1980.87.
Traité de Droit civil du Québec, t. 1 à 15. Montréal: Wilson & Lafleur, 1942 à 1958.
Tyan, Emile. Le droit de l'arbitrage. Beyrouth: Librairies Antoine, 1972.
Walton Anthony. Russell on the Law of Arbitration, 19th ed. London: Stevens & Sons, 1979.
APPEAL from a judgment of the Quebec Court of Appeal, [1985] C.A. 386, [1985] R.D.J. 520, reversing a judgment of the Superior Court*1, dismissing a declinatory exception. Appeal allowed.
1 Mtl. Sup. Ct., No. 500‑05‑002102‑844, April 13, 1984.
Gilles Poulin and Richard Levy, for the appellant.
John Nicholl, for the respondents.
English version of the reasons delivered by
1. Beetz J.‑‑I would allow the appeal for the reasons given by Justice L'Heureux‑Dubé. Considering the origin of the provisions of the Code of Civil Procedure with regard to arbitration, I do not consider it necessary to rule on the possible similarity between common law and Quebec law in this respect. Such similarity, if any, cannot have any relevance in positive law.
English version of the judgment of Lamer, Wilson, Le Dain and L'Heureux‑Dubé JJ. delivered by
2. L'Heureux‑Dubé J.‑‑Did the parties to an agreement for the sale of assets agree to submit a dispute to arbitration by a third party? If so, do such arbitrators enjoy immunity from prosecution? These are the issues raised by this appeal.
3. The Quebec Superior Court, district of Mont­réal (Yves Forest J., judgment of April 13, 1984), answered the first question in the negative, thus making it unnecessary to answer the second.
4. The Quebec Court of Appeal, district of Mont­réal (McCarthy and LeBel JJ.A., and Chevalier J. (ad hoc), [1985] C.A. 386), reversed this judgment and answered both questions in the affirmative.
5. By leave of this Court, appellant is asking it to restore the Superior Court judgment.
I‑‑Facts
6. The parties related the facts differently in their respective factums; respondents argued that appellant went beyond the facts alleged.
7. For the purposes of the discussion, it will only be necessary to reproduce the facts as stated by Chevalier J. at pp. 387‑88:
[TRANSLATION] On December 8, 1982, a receiver chosen by the secured creditors of the insolvent company CCM Inc. accepted an offer from R.A.D. Inc. to buy a large part of CCM's assets, including in particular a stock of goods identified as the "Winter Goods Division".
The agreement in question contained the following clause (P‑2):
2.01 Vendor and Purchaser hereby agree that the inventory described in Section 1.01(a) above will be counted or verified by representatives of the Vendor in the presence of representatives of the Purchaser and shall be valued by the Vendor on a going concern basis at the lower of cost and net realizable value on a basis consistent with prior years, such count and valuation of the inventory described in Section 1.01(a) to be reviewed by Vendor's auditors, Messrs. Zittrer, Siblin, Stein & Levine, Chartered Accountants, who will deliver a written opinion to the Vendor and Purchaser to the effect that such inventory count and valuation is fairly presented, the whole at Vendor's sole cost. Upon delivery of such opinion, the inventory count and valuation shall be deemed to be definitively determined for all purposes in connection with this offer.
The physical counting on the inventory shall commence at 5:01 p.m. on December 17, 1982 (the "Date of Possession") and the valuation of the inventory described in Section 1.01(a) shall be completed prior to January 21, 1983 (the "Closing Date").
On December 17, 1982, R.A.D. Inc. in turn resold the aforesaid winter stock to respondent Sport Maska Inc. This second agreement contained the following wording (P‑1):
2.01 Vendor and Purchaser hereby agree that the inventory described in Section 1.01(a) above will be counted or verified by representatives of CCM Inc. the Vendor and the Purchaser and shall be valued by CCM Inc., the Vendor and the Purchaser on a going concern basis at the lower of cost or net realizable value and on a basis consistent with prior years, such count and valuation of the inventory described in Section 1.01(a) to be reviewed by CCM Inc.'s auditors, Messrs. Zittrer, Siblin, Stein & Levine, Chartered Accountants, who shall take into consideration the representations of Sport Maska Inc. as to the valuation of the inventory, and the said accountants shall deliver a written opinion to CCM Inc., to the Vendor and the Purchaser to the effect that such inventory count and valuation is fairly presented (marginal notation unclear), the whole at the cost of CCM Inc. Upon delivery of such opinion, the inventory count and valuation shall be deemed to be definitively determined for all purposes in connection with this Offer.
The physical counting on the inventory shall commence at 5:01 p.m. on December 17, 1982 (the "Date of Possession") and the valuation of the inventory described in Section 1.01(a) shall be completed prior to January 21, 1983.
Also on December 17, 1982, CCM sent R.A.D. and Sport Maska a letter reading as follows (DP‑1):
We understand that Gestion R.A.D. Inc. has today entered into an agreement to sell the winter goods division of CCM Inc. to Sport Maska Inc. CCM Inc. hereby agrees that Sport Maska Inc. shall be entitled to attend the valuation of the winter goods inventory as contemplated in the accepted Offer of Purchase between Gestion R.A.D. Inc. and CCM Inc. and shall further be entitled to make any representations to CCM Inc. and Messrs. Zittrer, Siblin, Stein & Levine in connection with the valuation of the said winter goods inventory. However, in determining the final valuation of the winter goods inventory between CCM Inc. and Gestion R.A.D. Inc., the opinion of Messrs. Zittrer, Siblin, Stein & Levine shall be final and binding.
...
According to the allegations of the statement of claim, the inventory was taken and the inventoried stock valued by CCM, which on January 20, 1983 sent appellants the following letter (P‑4):
Gentlemen:
Pursuant to Paragraph 2.01 of the Offer by Gestion R.A.D. Inc. to purchase certain assets of CCM Inc. (dated December 6, 1982; accepted December 8, 1982), we hereby inform you that we have counted the inventory described in Section 1.01(a) of the said Offer and valued the same at $3,798,000.00 as at December 17, 1982. Such inventory has been valued by us on a going concern basis at the lower of cost and net realizable value on a basis consistent with prior years.
On the same day appellants sent R.A.D. and CCM a letter reading as follows (P‑3):
Pursuant to Section 2.01 of an Offer by Gestion R.A.D. Inc. to CCM Inc. signed on December 6th, 1982 (the "Offer"), we have reviewed the count and valuation by CCM Inc. of the inventory of CCM Inc. described in Section 1.01(a) of the Offer. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests and other procedures as we considered necessary in the circumstances.
In our opinion the count by CCM Inc. of such inventory as at December 17th 1982 and the valuation thereof by CCM Inc. in the amount of $3,798,000 present fairly such inventory as at such date on a going concern basis at the lower of cost and net realizable value on a basis consistent with prior years.
The following day, January 21, 1983, the date on which both transactions were to be completed, respondent paid R.A.D. the amount determined by CCM and confirmed by appellants.
Finally, on February 22, 1984, it brought against them an action the conclusions of which claimed damages in the amount of $1,306,263, representing the difference between the price it had paid for the stock purchased and the price which, it maintained, it would have had to pay if appellants had performed their obligation as they ought to have done.
II‑‑Judgments
8. The Superior Court judge stated his reasons as follows:
[TRANSLATION] WHEREAS it appears from the record that this is not a "judicial case", or a case involving an arbitrator or arbitration presented pursuant to arts. 940 et seq. of the Code of Civil Procedure;
WHEREAS an arbitral award is not in question and the authorities cited do not apply either in the case at bar;
WHEREAS it appears from reading the said relevant paragraph that an opinion was requested from accountants, and when that opinion is delivered there is a presumption that it is finally determined;
WHEREAS the Court has before it an action for damages against defendants for the reasons alleged in the declaration;
WHEREAS the Court considers that the arguments of the motion presented pursuant to arts. 163 and 165 C.C.P. appear to be ill‑founded; and
WHEREAS the Court considers that the motion for a declinatory exception is ill‑founded, it is dismissed with costs.
9. Reversing this judgment, two judges of the Court of Appeal, LeBel J.A. and Chevalier J. (ad hoc), filed joint reasons in which McCarthy J.A. concurred.
10. At the outset the Court of Appeal eliminated the remedy based on fraud and bad faith on the part of respondents, and allowed only the action for damages which was based on respondents' professional status, given the allegations of the action as brought.
11. Chevalier J. stated the following in this regard, at p. 389:
[TRANSLATION] The action brought is for damages. Nowhere in the declaration is there any allegation of fraud, corruption or any kind of delict affecting the personal integrity of appellants. All the allegations made against them by respondent have to do with the negligent and unprofessional manner in which they allegedly performed the task entrusted to them.
...
I therefore rule out any possibility that this is an action for damages based on a delict which has no connection with the professional status of appellants, in the precise meaning of that adjective. I consider that this first point needs to be clarified forthwith for, had appellants committed a delict of a personal nature, I would have expressed myself differently from what follows.
12. LeBel J.A. added at p. 394:
[TRANSLATION] In order to rule the action admissible, something would have to be found suggesting more than negligence or professional misconduct. Even in paragraph 15 of the declaration, referred to above, and notwithstanding its ambiguous wording, I find no allegation to support a conclusion that appellants are personally liable.
13. On the nature of respondents' function under the terms of the foregoing agreements, Chevalier J. said the following at p. 389:
[TRANSLATION] Having said that, I am satisfied after examining the wording of clause 2.01 of the agreement of December 17, 1982, together with the wording of the letter from CCM to R.A.D. and to Maska dated that same day, that the parties intended to submit the valuation of the goods to arbitration pursuant to arts. 940 et seq. of the Code of Civil Procedure.
14. Chevalier J. drew the criteria pointing to arbitration from the wording of the agreements in question and concluded at p. 391:
[TRANSLATION] In my view, it is impossible to give the last part of clause 2.01 or the wording of the letter from CCM to Maska and R.A.D. any meaning other than that of an intention to submit to the arbitration of a third party, in this case appellants, any issue that might arise between on the one hand, the direct seller R.A.D. and the original seller CCM, which were both interested in setting as high a price as possible, and Maska on the other hand, which undoubtedly wanted to get the lowest possible price.
15. LeBel J.A. said the following on this point at pp. 392‑93:
[TRANSLATION] The wording of the contracts and the documents alleged in support of the proceedings contain obscurities which make it difficult to categorize appellants' function in legal terms. However, Chevalier J.'s analysis indicates that this was not a mandate given to an expert to provide a simple valuation.
...
There was the possibility of a dispute. A procedure for avoiding litigation was agreed on and it was binding on the parties. The contracts‑‑in particular Exhibit P‑1, the contract concluded between Sport Maska Inc. and Gestion R.A.D. Inc.‑‑do not support the contention that appellants were simply asked for a technical opinion on the methods of valuing inventories. According to the argument put forward by respondent, in the event that appellants disagreed with the valuation this would not be fixed but would result in another negotiation between the parties. However, I conclude from the handwritten notes attached to clause 2.01 and incorporated in it that Zittrer could either confirm the valuation or suggest an alteration or adjustment. In that case, when the opinion was issued the value of the inventory was regarded as having been finally determined for all practical purposes, either in the amount paid by CCM Inc. or in the amount resulting from the adjustments determined by Zittrer. Moreover, the pleadings of respondent confirm the way in which it regarded the functions of appellants. This view can be found in paragraph 15 of the declaration, where respondent charged that appellants had broken certain obligations although they had "agreed to be arbitrators". See A.F., p. 36.
Appellants resolved the issue before them and the record contains the essential components of a valid undertaking to arbitrate, an undertaking which does not have to be formulated or stated in ritual language*6. Though privately appointed, appellants as arbitrators were still judges and not simply mandataries of the parties*7.
‑‑‑‑‑‑
6 Zodiac International Productions Inc. c. Polish People's Republic, [1983] R.D.J. 277, at p. 287, Chouinard J., Supreme Court of Canada.
7 Henri Vizioz and Pierre Raynaud. "Jurisprudence française en matière de procédure civile", (1947) 45 Rev. trim. dr. civ. 220 and E. Glasson, Albert Tissier and René Morel, Traité théorique et pratique d'organisation judiciaire de compétence et de procédure civile, 3e éd., Tome 5, Paris, Librairie du Recueil Sirey, 1936, pp. 352‑54, No. 1821.
16.
17. Finally, as the Court found that respondents were acting as arbitrators, the question of their immunity was raised and was developed further by LeBel J.A. at p. 393:
[TRANSLATION] As such an arbitrator, who is called on to settle or prevent a dispute, is given certain immunities. These are governed by the rules of public and not private law because of the similarity of arbitration to the judicial function, even when the conclusion of a submission to arbitration is contained in a private contract, when the law does not require recourse to this method of settling disputes. In the absence of fraud or bad faith, an arbitrator enjoys the immunity from civil liability suggested for him by counsel. A majority of the House of Lords again recently came to this conclusion in Arenson, cited above. Lord Morris of Borth‑y‑Gest had stated the same opinion some years earlier in Sutcliffe v. Thackrah, [1974] A.C. 727, at p. 744:
I think it must now be accepted that an action will not lie against an arbitrator for want of skill or negligence in making his award.
Discussing the liability of a lower court, the Supreme Court made the same distinction between the jurisdiction and the immunity of the members of a disciplinary board. It held that the members of a disciplinary board could arrive at an unlawful decision which was incorrect in law, without it giving rise in itself to an action for damages against the Alberta Bar or its directors.
III‑‑Procedure
18. It is important to note that the Superior Court judge was dealing here with a declinatory exception brought by respondents against the appellant's action. As LeBel J.A. pointed out, this motion [TRANSLATION] "is equally an exception to dismiss" covered by art. 165(4) C.C.P.:
165. The defendant may ask for the dismissal of the action if:
...
4. The suit is unfounded in law, even if the facts alleged are true.
19. At this stage in limine litis, the facts alleged must be taken as proven.
20. As appears from the motion, this exception is based solely on respondents' argument that they were acting in this matter as arbitrators and, as such, in view of the nature of the action brought by appellant, they were covered by immunity while in the course of their duties. Accordingly, the decision as to the nature of respondents' function must, I think, be dealt with at the outset. If respondents were not acting as arbitrators, they cannot enjoy any immunity and a decision as to the nature of the action brought by appellant would at this stage become moot.
IV‑‑Arbitration
1‑‑Applicable Legislation
21. The agreements underlying this matter are dated December 17, 1982 and respondents' "valuation letter" January 20, 1983. At that time Book VII of the 1965 Code of Civil Procedure, R.S.Q. 1977, c. C‑25 (formerly S.Q. 1965, c. 80), contained provisions on arbitration (arts. 940 to 951). These provisions have since then been extensively revised: An Act to amend the Civil Code and the Code of Civil Procedure in respect of arbitration, S.Q. 1986, c. 73, arts. 1 and 2. Provisions on arbitration have been inserted in the Civil Code on arbitration (arts. 1926.1 to 1926.6 C.C.L.C.) and the Code of Civil Procedure has been substantially amended in this regard (arts. 940 to 951.2 C.C.P.) For an analysis of these amendments see Brierley, "Une loi nouvelle pour le Québec en matière d'arbitrage" (1987), 47 R. du B. 259.
22. Before these amendments and at the time in question, Book VII of the Code of Civil Procedure, entitled "Arbitration", provided that anyone could submit to an arbitration "respecting any rights of which he has the free exercise" (art. 940 C.C.P.) The submission had to be in writing, contain the names and capacities of the parties, appoint one or three arbitrators and state the objects in dispute (art. 941 C.C.P.) The arbitrators could require the parties to provide them with a statement of their arguments but nevertheless were required to hear the parties and receive their evidence in accordance with the procedure determined by themselves. Witnesses were summoned pursuant to arts. 280 to 284 and sworn (art. 943 C.C.P.) The rules for withdrawal applicable to arbitrators were the same as those applicable to judges (art. 946 C.C.P.) Arbitrators arrived at their decisions according to the rules of law, unless exempted from so doing in the submission to arbitration or unless empowered to act as mediators; the award had to be made by a majority, had to give the reasons for the decision in all cases and had to be signed by all the arbitrators (art. 948 C.C.P.) Every award could be homologated by the court with the reservation that the court could not enquire into the merits of the contestation (art. 950 C.C.P.) Article 951 dealt with the undertaking to arbitrate: the only requirements mentioned in this case were that the arbitration had to be in writing and that the parties had to execute a submission once the dispute had arisen.
2‑‑Sources
23. The first Code of Civil Procedure of Quebec was adopted on June 28, 1867 (An Act respecting the Code of Civil Procedure of Lower Canada, S. Prov. C. 1866, 29 & 30 Vict., c. 25), and Title Eight dealt with arbitration (arts. 1341 to 1354). When the Code was first revised in 1897 (An Act respecting the Code of Civil Procedure of the Province of Quebec, S.Q. 1897, c. 48), these provisions were simply renumbered (arts. 1431 to 1444) without any other amendment than a clarification in art. 1436 regarding mediators.
24. The chapter on arbitration in the 1965 revision of the Code of Civil Procedure (Book VII) which I have just noted, adopts essentially the same provisions. The only changes of importance are the omission of art. 1431, dealing with submissions, which was replaced by art. 940, and the insertion of an article dealing with the undertaking to arbitrate (art. 951).
25. The codifiers of 1867 were sparing in their comments: they said, regarding arbitration:
The articles concerning arbitrations reproduce the rules of our existing law, and only the last one requires to be noticed.
26. The codifiers are here referring to art. 1354, which permitted an appeal from an arbitral award only where a penalty was stipulated in the submission.
27. However, the draft Code of Civil Procedure and the version reproduced in Doutre, Les lois de la procédure civile (1867), refer to the sources relied on by the codifiers, who referred to them under each article. Articles 1341 to 1354 of the 1867 Code refer to French sources, namely Pothier, Couchot, Bonnin, Bonnier and in particular the French Code de procédure civile of 1806. The substance of arts. 1003 to 1028 of the 1806 Code was reproduced in our 1867 Code, some articles even being reproduced word for word. The 1806 French Code is itself derived from old French law. In his Traité de la procédure civile (Oeuvres de Pothier, vol. 9, 1824), at pp. 122‑23, Pothier refers to the Edict of August 1560 and the Ordinance of 1667.
28. Brierley writes that [TRANSLATION] "...from a historical standpoint, the source of arbitration law in Quebec is old French law as adopted in Quebec before the codification of the laws relating to civil procedure in 1867 . . . ." (Brierley, loc. cit., at p. 263; see also: Ferland, L'arbitrage conventionnel (1983), at p. 28; Johnson, The Clause Compromissoire: Its Validity in Quebec (1945), at p. 82).
29. The Quebec Court of Appeal approved this opinion when it referred to old French law in interpreting art. 950 of the 1965 Code in a question involving the homologation of an arbitration award, in Corporation municipale du Village de St‑Bernard c. Trottoirs et chaînes Pilotte Inc., [1983] R.D.J. 583, at pp. 590‑92.
3‑‑Definitions
30. Neither in French law, in the 1806 Code de procédure civile or earlier, nor in the 1867 Quebec Code of Civil Procedure or in its subsequent revisions, is there a definition of the word "arbitration", except for the 1986 amendments made to the Civil Code of Lower Canada. However, the 1867 Quebec Code of Civil Procedure, which differs in this respect from the French Code de procédure civile of 1806, contains a definition of submission:
1341. Submission is an act by which persons, in order to prevent or put an end to a lawsuit, agree to abide by the decision of one or more arbitrators whom they agree upon.
1341. Le compromis est un acte par lequel les parties pour éviter un litige ou y mettre fin, promettent de s'en rapporter à la décision d'un ou de plusieurs arbitres dont elles conviennent.
31. This article, renumbered 1431, was reproduced without any change in the 1897 revision. The commissioners explained why this definition was omitted in the subsequent 1965 revision:
The definition of the submission given by article 1431 of the present Code is useless; moreover, if it were considered necessary, it should be found in the Civil Code. It is, however, necessary to set out in the Code of Civil Procedure the case where the submission is possible as it is there a question of means of resolving a dispute without having recourse to the Courts. Article 940 is, in this sense, new law.
32. This comment is self‑explanatory and also explains the absence of a definition of the various procedures for settling disputes in the Civil Code or the Code of Civil Procedure. In our civil law system, the parties' agreement is law provided they have the capacity to contract and are not acting contrary to good morals and public order. In solving a difficulty, difference or dispute the parties have a choice of means: an expert opinion, an appraisal, conciliation, mediation, transaction, arbitration or any other form of intervention designed to resolve or to try to resolve the problem confronting them. In each case the parties have probably tried to find a final solution. The legislator has recognized this contractual freedom, subject to the reservation that as is true throughout our law the parties in either case remain free to seek or not to seek a final settlement of the matter in the courts. Our system of law has only very reluctantly allowed the parties to agree to rule out such recourse to the courts. The decision of this Court in Zodiak International Productions Inc. v. Polish People's Rebublic, [1983] 1 S.C.R. 529, was necessary to give this status to the "complete" undertaking to arbitrate. It is in this context that provisions on arbitration must be seen. As the legislator had no reason to define the various procedures for settling disputes between litigants, he also had no clear interest in regulating the process for resolving such conflicts, and this gave the system chosen great flexibility. The legislator left these various procedures for settling disputes to be resolved freely by litigants when recourse to the courts was still possible. If judicial intervention was ruled out, however, the legislator had to ensure that the process would guarantee litigants the same measure of justice as that provided by the courts, and for this reason, rules of procedure were developed to ensure that the arbitrator is impartial and that the rules of fundamental justicre observed. The arbitrator will make an award which becomes executory by homologation. This indicates the similarity between the arbitrator's real function and that of a judge who has to decide a case. This judge, freely chosen by the parties, is subject to procedural constraints that cannot be applied to other fo