When a standardized clause stands in the way of justice

Arbitration clauses are often used in commercial contracts to provide a quick and confidential means for resolving disputes. But what happens when such a clause, although validly drafted, becomes an unreasonable obstacle for one of the parties to access justice?

This issue was recently adressed by the Quebec Court of Appeal in Hydro-Québec c. Terrassement St-Louis inc., 2025 QCCA 900.

In this matter, the Court’s decision provides businesses with practical guidance, particularly on how arbitration clauses in contracts of adhesion (standard-form contracts) should be written and applied.

Summary of the dispute: Arbitration clauses and access to justice

Terrassement St-Louis inc. (“TSL”), a regional SME, entered into a contract with Hydro-Québec to carry out environmental remediation at a contaminated site. When a dispute arose, TSL filed a claim for $253,128 with the Superior Court in the District of Chicoutimi. Hydro-Québec then invoked an arbitration clause and asked that the Court refer the case to arbitration or, alternatively, send it to the Judicial District of Montreal.

The Trial Judge dismissed Hydro-Québec’s request, to defer the issue to arbitration, finding that the arbitration clause, imposed in a contract of adhesion that wasn’t negotiated, was abusive and constituted for TSL an unreasonable obstacle to justice. In other words, the Trial Judge analyzed the proportionality of the clause and the economic realities of the parties. The Judge also determined that the clause invoked by Hydro-Quebec on the place of contract formation was unfair, particularly since it imposed an undue concentration of litigation in Montreal, even though Hydro-Québec has numerous places of business elsewhere in Quebec.

On appeal, the Court of Appeal partially overturned this ruling: it confirmed that the arbitration clause was unfair, but nevertheless referred the case to the Superior Court of the District of Montreal, ruling that the clause specifying the place of contract formation was nevertheless valid. In the Court of Appeal’s opinion, the issue of whether or not litigation was concentrated in Montreal was not important enough to find that the clause was unfair.[1]

In reviewing the arbitration clause in this case, the Court of Appeal provided several relevant lessons on how such clauses should be written.

Takeaway No. 1: Arbitration must not be an economic barrier

Arbitration is often seen as a beneficial mechanism to dispute resolution, due to the flexibility, speed and confidentiality it affords, as well as the expertise that arbitrators can provide and the finality of their decision. But it can also be costly, particularly when three arbitrators are required, as in this case.

Both the Trial Court and the Court of Appeal decided that the arbitration clause in dispute was validly written. It was nevertheless deemed abusive given the relatively small claim made by TSL. The benefits of arbitration would have been more than offset by the cost of arbitration in Montreal before three arbitrators, plus TSL’s legal fees. In the Court’s view, the clause was unreasonable on the grounds of proportionality.

In practice: When arbitration is being considered as a means for resolving disputes, it is best to ensure that the clause offers flexibility or provides for an expedited or simplified arbitration procedure for smaller claims. A court could decide that an arbitration clause is unfair if it is too rigid or if it allows the arbitrators to determine the procedure to be applied. 

Takeaway No. 2: A contract of adhesion imposes specific responsibilities

The Trial Court Judge and the Court of Appeal noted that a contract of adhesion (i.e., a contract in which key terms are imposed by one party without any negotiation) is subject to stricter judicial review.

In this case, the key terms of the contract, including the arbitration and jurisdiction clauses, were imposed on TSL by Hydro-Québec. The Court of Appeal confirmed that this meets the definition of a contract of adhesion under article 1379 of the Civil code of Quebec.

In practice: When a contract is not negotiated and is imposed by one of the parties, it is important to pay attention to whether its clauses are reasonable and fair, and to provide for adjustment mechanisms.

Key takeaways

  • An arbitration clause, even if it is validly written, may be declared abusive if it imposes excessive costs on a vulnerable party to a contract of adhesion.
  • Contracts of adhesion are subject to stricter controls of the clauses limiting access to justice.
  • Arbitration clauses should be flexible, allowing for a single arbitrator or an expedited procedure if the context warrants it.
  • Businesses may need to adjust their contract templates if they want to avoid unnecessarily costly disputes or clauses that can be invalidated.

Best practices

Here are some practical suggestions when considering arbitration clauses:

  • Provide for hybrid options by setting the number of arbitrators according to the amount in dispute (e.g., a single arbitrator for disputes under $500,000).
  • Include a simplified or expedited procedure (e.g., a limited timeline, fixed deadlines, remote arbitration by videoconference, written documentation only).
  • Provide for alternative arbitration locations based on where the parties’ head offices are located or where the project unfolded.
  • Document the discussions and negotiations: Keep a written record, no matter how big or small, of the negotiation or discussion prior entering into a contract or an agreement in principle, as such a written record may be used to raise doubts about the nature of the contract of adhesion.

In conclusion: Greater vigilance is required in your standard clauses

Hydro-Québec c. Terrassement St-Louis is a clear reminder that a standardized arbitration clause may still be subject to judicial review, especially if it creates a contractual imbalance between the parties.

Miller Thomson’s Commercial Litigation team assists businesses not only during arbitration proceedings but also beforehand, while they negotiate, draft and strategically review their contracts. Contact us to improve your contractual practices, avoid legal pitfalls and protect your rights from the moment your agreements take shape.

[1] In reaching this conclusion, the Court of Appeal relied mostly on one of its previous decisions, rendered in 2014, that specifically addressed the issue of place of contract formation in Hydro-Québec contracts. See: Hydro-Québec c. Canmec Industriel inc. (2014 QCCA 919).