Québec – Annulment: no review of the merits, even if award wrong – #603

In Balabanian v. Paradis, 2022 QCCS 959, Justice Harvie reaffirmed clearly that courts have no jurisdiction to revisit the merits of an arbitral award or the arbitrator’s reasons and assessment of the evidence when a party is seeking homologation or annulment of an arbitral award. This judgment is one of many in a saga involving opposing co-owners regarding the management and maintenance of their property. The co-ownership contract included an arbitration agreement. A group of co-owners alleged a lack of transparency and equity by Balabanian in the management and maintenance of the property. The dispute against Balabanian resulted in two arbitrations and court proceedings, taking place in parallel. Justice Harvie’s decision concerned the second arbitration process. The group of co-owners sought the homologation of the second arbitral award, while Balabanian asked for its annulment. Balabanian contested the award for numerous reasons, including: the arbitrator’s appointment because of his lack of independence and neutrality, the lack of jurisdiction of the arbitrator, the award going beyond the scope of the arbitration agreement, the violation of the fundamental right to be heard and, more generally, the merits of the award itself. Justice Harvie dismissed every argument made by Balabanian against the award, reaffirming the strict scope of analysis of homologation/annulment grounds according to sections 645 and 646 CCP.

Justice Harvie reaffirmed the well-known principles which apply to the analysis of a request to annul the arbitral award. 

First, the annulment grounds listed in section 646 CCP are the only grounds which can justify the annulment of an arbitration award. Section 646 CCP reads as follows:

“646. The court cannot refuse to homologate an arbitration award or a provisional or safeguard measure unless it is proved that

(1)  one of the parties did not have the capacity to enter into the arbitration agreement;

(2)  the arbitration agreement is invalid under the law chosen by the parties or, failing any indication in that regard, under Québec law;

(3)  the procedure for the appointment of an arbitrator or the applicable arbitration procedure was not observed;

(4)  the party against which the award or measure is invoked was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings, or it was for another reason impossible for that party to present its case; or

(5)  the award pertains to a dispute not referred to in or covered by the arbitration agreement, or contains a conclusion on matters beyond the scope of the agreement, in which case only the irregular provision is not homologated if it can be dissociated from the rest.

The court cannot refuse to homologate the arbitration award on its own initiative unless it notes that the subject matter of the dispute is not one that may be settled by arbitration in Québec or that the award or measure is contrary to public order.”

Second, Courts have no jurisdiction to review the evidence, the merits of the dispute or the reasons for the award (645 CCP).

Third, concerning Balabanian’s complaints about the appointment of the arbitrator and his lack of independence and neutrality, Justice Harvie noted that he had challenged the arbitrator’s appointment previously in the Superior Court. Following the Superior Court’s decision, the Court of Appeal dismissed his application for leave to appeal. Justice Harvie also noted that Balabanian had previously challenged the arbitrator’s independence and neutrality on two occasions before the arbitrator himself and once before the Superior Court, without success. These decisions were final, and no additional contestation of these decisions was possible.

Justice Harvie found that it was chose jugée/res judicata and dismissed this argument.

Fourth, concerning the allegation of a lack of jurisdiction of the arbitrator and the scope of the award, Justice Harvie closely examined the arbitration agreement and the questions raised in the notice of arbitration and settled by the award. While concluding that the arbitrator acted within the scope of his jurisdiction according to the arbitration agreement, she reiterated that arbitration agreements are to be interpreted in a broad and liberal manner. She also forcefully reaffirmed that the court cannot review the assessment of the evidence or the merits of the award. Furthermore, she concluded that the court cannot refuse to homologate an award even if it was contrary to the applicable case law.

Lastly, concerning the alleged violation of Balabanian’s fundamental right to be heard, Justice Harvie noted that Balabanian was duly represented by a lawyer, testified during the hearing and was given full opportunity to make his case. However, she underlined the lack of cooperation and transparency of Balabanian during the arbitration process. He refused to provide any evidence regarding his own management. Hence, she concluded that Balabanian could not refuse to cooperate to provide evidence and, at the same time, complain about the evidence on which the arbitrator relied in his award.

Justice Harvie finally concluded that Balabanian had acted in bad faith and had failed to satisfy the test required for the annulment of the arbitration award.

Contributor’s note:

Justice Harvie’s decision is broadly supported by consistent previous case law relating to annulment applications. She referred to many previous decisions, such as Government of the Dominican Republic v. Geci Espanola, 2017 QCCS 2619, Conseil d’arbitrage de comptes des avocats du Barreau du Québec v. De Grandpré Chait, 2016 QCCA 363, Desputeaux v. Éditions Chouette (1987) inc., 2003 CSC 17, Endorecherche inc. v. Euroceutics inc., 2015 QCCA 1347 and Laurentienne-vie, Cie d’assurances inc. v. Empire, Cie assurance-vie, 2000 CanLII 9001 (QC CA) to support the principles on which she based her analysis.

Justice Harvie’s decision confirms the modern trend of Québec courts, which are favourable to arbitration. Moreover, she strongly defended arbitration as a valuable and equivalent justice system in respect of which courts’ intervention should be very limited. Justice Harvie concluded that Balabanian’s application was an abuse of process because he was multiplying contestation grounds and proceedings to avoid justice.

In a similar matter, in 2017, Justice Pinsonneault also defended the arbitral process against a Defendant which sought to avoid the arbitrator’s jurisdiction by bringing an application for an annulment of the award, which was really an appeal (Greenkey Ltd. v. Trovac Industries Ltd., 2017 QCCS 3270). See also the earlier Case Note concerning Justice Pinsonneault’s decision in Greenkey for more comments. Also see Case Note: Québec – court decision illustrates strength of arbitration in Québec – #001.