Québec – Arbitral award did not “apply” to court proceeding – #657

In Nour v Estephan, 2022 QCCS 2996, Justice Wery dismissed an action brought by the Plaintiff for damages for breach of an agreement with the Defendants, which set out the terms of his departure from their business acting as financial advisors. Confession: this is not an arbitration case, but don’t stop reading because there is an interesting little section on the precedential value in the Québec Superior Court of an arbitral award issued by a retired former justice of the Québec Court of Appeal, acting as arbitrator, in unrelated litigation brought in the courts.

The Defendants were licensed to operate as financial advisors and owned and operated a business in Québec. In 2005, they hired and trained the Plaintiff, who obtained his financial advisor licence by June, 2006. Over time, he became very successful and, in the summer of 2013, the Plaintiff left his employment, advising the Defendants that he intended to open his own office to provide financial advice to his clients in Ontario.

On January 27, 2014, the parties signed a Departure Agreement, which covered the terms of the Plaintiff’s departure. It provided that the Plaintiff was required to pay a departure fee of $1.9 million, which allowed him to take his clients to his new business.

Almost three years later, the Plaintiff sued the Defendants alleging, among other things, that the Departure Agreement was illegal because the Defendants’ management company was paid the departure fee, even though it was not licensed to deal in securities. The Plaintiff also argued that the Departure Agreement was null and void on the basis that he signed it under duress, that at the time of his departure the Defendants had defamed him to some of his clients, causing him to lose clients, and that he had not been fully paid commissions to which he was entitled before he left. The Defendants counterclaimed on the basis that the claim was an abuse of process.

On the issue of the legality of the Departure Agreement, the Plaintiff relied upon an arbitral award issued by “a retired and respected justice of the Quebec Court of Appeal, in which he had declared a contract similar to the Departure Agreement illegal and consequently null and void.”

Justice Wery found that the “arbitral decision and its underlying reasoning cannot apply…” because – see para. 80, in particular:

“[74]      Essentially, [the arbitrator’s] reasoning was that [the management company] which was not licensed to deal in securities and thus, could not deliver on its undertakings under the contact… In that case, [the Defendants] were not parties to that contract…

[75]      Here, Plaintiff goes on and on exposing the same argumentation about [the management company’s] legal incapacity to deliver under the Departure Agreement.

[76]      But there is a fundamental problem with the applicability of this argument in the context of our case. [The arbitrator’s] decision cannot help Plaintiff because, in our case, the Departure Agreement involves not only [the management company], but [the Defendants] as well, who are indeed licensed to deal in securities and who are in a position to deliver their [performance] under the agreement.

[77]      In other words, what [the management company] could not do in the case before [the arbitrator], the Defendants…can indeed do and cause the branch’s advisors to do in our case.

[78]      It is obvious that before [the arbitrator], there was a big problem with a contract where a company which was not licensed to deal in securities was paid among other things to refrain from soliciting and competing which it could not do under the law. But that is not our case.

[79]      The Defendants…can legally bind themselves and the other branch’s advisors not to solicit or compete because they are legally licensed to deal in their respective fields. They can also bind themselves to the transfer of the clients’ personal data, files and records to Plaintiff, contrary to [the management company] who could not in the case before the arbitrator…. 

[80]      That is why this arbitral decision and its underlying reasoning cannot apply to our case.

[81]      From the whole, the Court concludes that the object of the Departure Agreement was a possible and legal one. Thus, the Departure Agreement may not be annulled for this reason.”

Justice Wery rejected all the other arguments raised by the Plaintiff, noting that he was represented by counsel throughout, and also concluded that his claims were limitation barred. He granted the Defendants’ counterclaim.

Editor’s Note:

Of course, the issue I have flagged in this Case Note is not really about stare decisis (despite Justice Wery, having considered whether the arbitral award itself “can apply”), but is about the extent to which the reasoning in that award was persuasive on one of the issues raised in the court proceeding before him. Here, it was not because the facts were distinguishable. But it is interesting to contemplate the possibility that the reasoning of an award (or perhaps the reasoner) could influence an outcome in litigation rather than the other way around.