Sport Maska Inc. v. Zittrer

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

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.

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.

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.

By leave of this Court, appellant is asking it to restore the Superior Court judgment.

I‑‑Facts

The parties related the facts differently in their respective factums; respondents argued that appellant went beyond the facts alleged.

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

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.

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.

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.

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.

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.

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.

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.

LeBel J.A. said the following on this point at pp. 392‑93: