LITIGATION & DISPUTE RESOLUTION: An Introduction to Québec

Commercial litigation Quebec: current situation and forecast

By: Bernard Amyot Ad. E., Marc-André Landry, Sebastien C. Caron Ad. E., Patrick Ferland and Julien Archambault, partners at LCM Attorneys Inc.

Commercial litigation in Québec is strongly influenced both by civil law and common law. While private law in Québec (e.g. contracts, civil liability) is firmly rooted in the civil law tradition, federal statutes applicable in the province are generally inspired by the common law tradition, and the functioning of the Québec court system itself, including rules of procedure, are not fundamentally different from those of common law jurisdictions. As for the rules of evidence, they take their inspiration from both traditions.

1. General Overview 

As elsewhere, the global pandemic has considerably impacted the practice of litigation and will continue to do so going forward. Most noteworthy is the fact that governmental decrees have suspended statutory prescription (time-limitation) periods and other procedural delays for a duration of approximately six months. Hence, prescription periods applicable in civil and commercial disputes (generally three years, although exceptions exist, e.g. in libel cases, where it is one year) have been extended for all claims where prescription was running when the pandemic hit, or that arose during the pandemic. This suspension ended on September 1st, 2020 but will need to be taken into account in computing prescription periods for several years.

Like their counterparts the world over, Québec attorneys and courts had to swiftly adapt to the pandemic; depositions and court hearings were essentially conducted via videoconference, and affidavits began being signed remotely. In general, litigants benefited from this update in the logistical organisation of the judicial process, which will likely continue post-pandemic.

While many expected the economic downturn caused by the pandemic to rapidly lead to increased court disputes, financial aids from the governments have allowed many businesses to weather the storm without having to seek protection from their creditors, and reduced the need to litigate contentious matters. In fact, except for landlord-tenant disputes, courts seem not to have been called to deal with many of the consequences of the pandemic.

Nonetheless, property owners have often had to resort to the courts to deal with defaulting tenants. In many cases, lease terms were renegotiated – certainly in large part due to the fact that Canadian bankruptcy laws allow tenants filing for bankruptcy to request the termination of all leases. Commercial landlords have thus to tread carefully when dealing with tenants, especially in the retail sector, severely impacted by the pandemic.

With the end of government support measures, more contractual disputes will certainly arise as a result of financial struggles. It is to be expected that the next few years will see a sharp increase in restructuring and insolvency matters, as well as purely commercial disputes.

Besides the impact of the pandemic, a few recent developments merit mention. First, recent case law shows that employers have become increasingly aggressive when employees are approached by competitors, and the last few years have seen a dramatic increase of injunctive-type remedies aimed at preventing competitors from raiding employees or putting their hands on commercially sensitive information. This trend is likely to continue as many sectors face growing shortages of employees and increased competition.

A recent Supreme Court of Canada decision that validated litigation financing could also impact the number and scale of disputes before Québec courts. Litigants who would not have otherwise been able to bring their cases forward see this as a way to balance the scale against more well-financed opponents, and it will certainly lead to more active litigations in several key areas such as class actions and shareholder claims, to name but a few.

Finally, with the judicial system increasingly seen as ill-suited to provide swift services to commercial litigants, private arbitration has become more widespread. Indeed, Québec is one of Canada’s most welcoming jurisdictions for arbitration. Except for a few areas (such as consumer and labour contracts), courts in Québec will completely defer to parties’ wishes to have their dispute arbitrated. Contrary to courts elsewhere in Canada, they have no residual discretion to brush aside arbitration clauses (the same is true with forum selection clauses). This same high respect for the arbitral process can also be seen in the generous welcome given to arbitral awards; there is no appeal against such awards, including on pure questions of law, and courts are prevented from any review of the merits of the award.

2. Class Action Scene 

Québec has long been a North American class action haven, and should remain so. The law of class action is now well established in the province, the bar for certification remains low by comparison to many jurisdictions, and courts have often intervened to ensure that the process remains as streamlined as possible, both in terms of procedure and evidence, to maximise access to the courts.

3. Securities Litigation 

Québec courts and specialised authorities have developed  substantial expertise in dealing with complex securities disputes. They have contributed to the development of now well-established principles and their influence continues to shape the development of securities law, notably in the ever-growing field of securities class actions.

The majority of such class actions in Québec are based on claims of misrepresentations in issuers’ public disclosures, failures to make timely disclosure of material changes in the secondary market, or false or misleading representations in the primary market. While statutory rights of action under the Québec Securities Act are similar to those of other jurisdictions (such as Ontario, for instance), plaintiffs in Québec may also seek to bring misrepresentation claims under the Civil Code of Québec. The interaction between these two types of claims continues to generate rich debates before the Québec courts.

4. Shareholder disputes 

Shareholder litigants are generally very active in Québec, and our courts have a long history of dealing with important shareholder disputes, both under the Canada Business Corporation Act and under the Québec Business Corporations Act, which was revamped ten years ago, further facilitating oppression remedies. Our commercial chamber now has a long-standing jurisprudence and our judges are becoming more creative in finding solutions to protect corporations’ best interests and those of their stakeholders.

5. Bankruptcy and Insolvency 

As mentioned above, the pandemic’s true impact on the economy is likely to be felt more strongly in the months to come, as government support measures come to an end. It is hard to predict what will happen next, but drawing from the experience of the 2008-2009 crisis, one could expect that insolvency and restructuring cases will not suddenly increase dramatically. Certain factors are expected to influence lenders’ willingness to force their borrowers towards court-controlled restructuring, including market stability, a resolution of supply chain and workforce issues and a return of businesses’ appetite for assets and growth, allowing for the sale or liquidation of businesses at interesting prices.

Adding further complexity, the retail apocalypse which some have prophesied for years seems to have come and passed in 2020 and 2021. Are we simply in the eye of the storm and is there more to come? How this will affect the commercial real estate world in 2022 remains unclear.

Despite this, certain things seem certain in the otherwise unpredictable world of insolvency and restructuring: there is a finite amount of free-flowing cash in the Canadian economy, and forbearance agreements will not last forever. The main question remaining that will certainly dictate what’s to come in insolvency and restructuring for 2022, is whether the growth (or hardship) seen in certain parts of the market is merely transitory – a consequence of governmental spending, remote work, temporary changes in customer habits, etc. – or whether it reflects deeper and perennial modifications to the economy.