International jurisdiction of Quebec courts in matters of contractual interpretation: the Court of Appeal rules
The Court of Appeal recently ruled on the international jurisdiction of Quebec courts to hear a dispute in light of article 3148, para. 3 of the Civil Code of Quebec (“C.C.Q.”), in the context of a dispute over the interpretation of a contract providing for the exercise of a party’s recapture rights over reinsured insurance portfolios.1
Summary of facts giving rise to the litigation
The parties, two insurance companies, had concluded several retrocession agreements (collectively, the “Agreement“). The Appellant is a foreign company based in the Bahamas, with no operations in Canada, while the Respondent is based in Montréal, with operations in Montréal.
The Agreement provided that the Appellant would share a portion of the risk reinsured by the Respondent, in return for a portion of the premiums paid by the insured in relation to two of the Respondent’s portfolios. The Agreement also contained a non-competition clause prohibiting the Appellant from entering directly into the Canadian reinsurance market without notifying the Respondent at least 12 months prior to such entry. Within the terms of the Agreement, the Appellant relied on the clause that allowed it to give notice to the Respondent in order to enter the Canadian market as a reinsurer.
Following the entry of the Appellant into the Canadian market, the parties negotiated an Amendment to the General Agreement (the “Amendment“), which included a waiver of the non-competition clause with conditions.
This Amendment also provided that the Respondent could exercise recapture rights over all or part of the transferred portfolios in accordance with certain terms and conditions set out in an appendix to the Amendment, including the selection of assumptions for calculating the recapture value of the transferred portfolios. In the event that the parties failed to agree on a value, the Amendment provided for the submission of the calculation to an independent actuary.
Neither the Amendment nor the Agreement contained a forum selection clause, but they did allow for the application of Quebec law.
The Respondent provided the Appellant with notices of exercise of its recapture rights. The parties did not agree on the legality of the exercise notices or the value of the recapture rights. They therefore submitted the calculation of the recapture value to an independent actuary.
The Respondent also filed an application for a declaratory judgment, asking the Superior Court to declare that it had validly exercised its recapture rights over the two portfolios, in accordance with the Amendment and its appendix. In response, the Appellant then argued the lack of jurisdiction of Quebec courts.
The Superior Court decision
The Superior Court rejected the argument that the Quebec courts lacked jurisdiction. The trial judge ruled that article 3148, para. 3 applies in this case and establishes the jurisdiction of the Superior Court:
3148. In personal actions of a patrimonial nature, Québec authorities have jurisdiction in the following cases:
(3) a fault was committed in Québec, injury was suffered in Québec, an injurious act or omission occurred in Québec or one of the obligations arising from a contract was to be performed in Québec;2
In his analysis of the factual allegations in originating application, the judge recognized that the Respondent has its head office in Montréal, that the insurance portfolios covered by the Amendment relate to life insurance contracts on Quebec residents, that the Amendment was concluded at the Respondent’s head office in Montréal, and that the latter is suffering injury in Quebec due to the fact that the Appellant refuses to pay its share of the disbursements incurred. In the judge’s view, these factors are sufficient to establish the jurisdiction of the Quebec courts.
The judge also rejected the other reasons invoked by the Appellant to justify the lack of jurisdiction of the Quebec courts. He concluded that contrary to the Appellant’s contention, the Amendment and the Agreement are one and the same contract, and as the obligations under this contract must be performed in Quebec, this factor is also sufficient to establish the jurisdiction of the Quebec courts.
In addition to concluding that the contractual obligations are sufficient to establish the jurisdiction of the Quebec courts, the trial judge also considered the issue of economic injury. Citing the Supreme Court case of Infineon Technologies AG v. Option Consommateurs,3 he concluded that purely economic injury is not excluded from the application of article 3148(3) C.C.Q. if it was essentially suffered in Quebec.
Therefore, the trial judge found in favour of the Respondent and the Superior Court assumed jurisdiction over the dispute. The Appellant sought permission to appeal to the Court of Appeal.
The Court of Appeal decision
The Court of Appeal concluded that the trial judge did not err and dismissed the appeal on the grounds that the Appellant’s contractual obligations were, in fact, to be performed in Quebec and that the Respondent suffered an economic loss in Quebec, thereby triggering the application of article 3148(3) C.C.Q.
On the one hand, responding to the Appellant’s argument that the non-competition obligation was extinguished by the Amendment and that its execution could not justify the jurisdiction of the Quebec authorities, the Court recalled that the waiver of the non-competition clause in the Amendment was conditional on the Appellant acting in good faith and with diligence and on it making the necessary efforts to allow the Respondent to exercise its recapture rights.
According to the Court of Appeal, it is precisely a breach of this duty of good faith and diligence that is being alleged against the Appellant.4 The Amendment also provides for the nullity of the waiver if the Appellant does not comply with this duty. Consequently, the non-competition obligation was not extinguished and thus had to be performed in Quebec, as argued by the Respondent and confirmed by the trial judge.
On the other hand, the Court of Appeal confirmed the reasoning of the trial judge, who had concluded that the location of the performance of the duty to inform and the sending of notices of recapture was the Respondent’s head office. Based on the analysis of the Supreme Court in Air Canada v. Mcdonnell Douglas,5 the Court indicated that the Appellant’s duty to inform, in the absence of relevant stipulations in the Amendment, had to be carried out in Quebec, since the Respondent’s head office is located there.
On the issue of economic injury, the Court of Appeal relied on Spar Aerospace Ltd. v. American Mobile Satellite Corp.6 and Infineon of the Supreme Court and the subsequent jurisprudence of the Court of Appeal to adopt a broad interpretation of article 3148(3). Indeed, in this case, while the mere concluding of the contract in Quebec does not necessarily establish the jurisdiction of the Quebec courts, the occurrence of a purely economic injury in Quebec is sufficient.
The Court rejected the Appellant’s contention that the injury was suffered outside Quebec and was only accounted for in Quebec. On the contrary, and as the trial judge concluded, the injury claimed by the Respondent included not only the fact of being deprived of the payment of the recapture value but also the difficulty in managing its portfolios following the Appellant’s refusal to pay the amounts due. It also included the cost of hiring an actuary.
The Court thus dismissed the appeal and confirmed the jurisdiction of the Quebec courts to hear the Respondent’s application for a judicial declaration.
Impact of the Court of Appeal decision
The decision of the Court of Appeal is of interest because it confirms the broad interpretation given to article 3148, para. 3 C.C.Q., which serves as the basis for the international jurisdiction of Quebec courts.
Indeed, since the Court of Appeal’s Regenair decision,7 which preceded the Supreme Court’s Spar decision, the courts have oscillated between a restrictive and a broad interpretation of the jurisdiction of Quebec courts under article 3148 (3) C.C.Q. In this case, the Court of Appeal adopted a broad and generous interpretation of two of the three criteria in paragraph 3, namely, the place of performance of the obligation and the sufficiency of a purely economic injury as injury within the meaning of that paragraph.
It should be noted, however, that the parties may, to some extent, exclude this generous interpretation of article 3148 (3) C.C.Q. by adopting express provisions in their contract, in particular regarding the place of performance of the obligations set out therein. This decision also demonstrates the importance of including a forum selection clause in a contract, especially where the contract already provides for the applicable law.
1 Optimum Réassurance Inc. v. Partner Reinsurance Company Ltd., 2019 QCCS 3184 [Judgment].
2 Article 3148, para. 3 C.C.Q.
3 Infineon Technologies AG v. Option consommateurs, 2013 SCC 59,  3 S.C.R. 600 [Infineon].
4 Judgment, para. 53.
5 Air Canada v. Mcdonnell Douglas Corp.,  1 S.C.R. 1554 [Air Canada].
6 Spar Aerospace Ltd. v. American Mobile Satellite Corp. 2002 SCC 78,  4 S.C.R. 205 [Spar].
7 Quebecor Printing Memphis Inc. v. Regenair Inc.,  R.J.Q. 966, J.E. 2001-958 (C.A.) [Regenair].