In Perreault v. Groupe Jonathan Benoît, 2021 QCCS 1350, Mr. Justice Peter Kalichman dismissed an application to annul an award based on alleged breaches of public order. Kalichman J. held that [informal translation] ‘[t]o annul an award or to oppose its homologation on the ground that it is contrary to fundamental principles of public order, a party must do more than simply demonstrate that the arbitrator committed a mistake in the application of the rules of public order. It must demonstrate that the result itself is incompatible with public order’. Kalichman J. relied on Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178 to underline that (i) the courts’ consideration of an alleged breach of public order focused on the outcome of the award and (ii) an error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order.
Plaintiff and Defendants disputed interpretation of a pair of unanimous shareholder agreements (“Agreements”) which Kalichman J. described as practically identical and which provided for arbitration to resolved disputes over interpretation of the Agreements.
Plaintiff initiated arbitration seeking the purchase of his shares (“Shares”) and reimbursement of a loan (“Loan”). In his January 14, 2021 arbitration award (“Award”), the arbitrator granted Plaintiff’s claims in part, ordering the purchase of his shares.
Plaintiff applied to homologate (recognize and enforce) the Award under article 645 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”). Defendants contested homologation of the Award and applied to have the Award annulled under article 648 C.C.P. on three (3) grounds, namely that the arbitrator:
(i) violated rules of public order set out in the Code of ethics of pharmacists, CQLR c P-10, r 7 (“Pharmacists’ Code of Ethics”) when he allowed a non-pharmacist arbitral party to share in the proceeds of the sale of prescription medication;
(ii) failed to respect the arbitration procedure by accepting expert evidence on the value of the Shares based on inadmissible evidence; and,
(iii) included conclusions in the Award which incorporated the Loan in the calculation of Shares valuation, a component which the parties had not expressly submitted to arbitration.
Applicable principles – Before engaging in the merits of the parties’ applications, Kalichman J. paused to set out the applicable principles and identified relevant provisions of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).
“Article 645 C.C.P. A party may apply to the court for the homologation of an arbitration award. As soon as it is homologated, the award acquires the force and effect of a judgment of the court.
The court seized of an application for the homologation of an arbitration award cannot review the merits of the dispute. It may stay its decision if the arbitrator has been asked to correct, supplement or interpret the award. In such a case, if the applicant so requires, the court may order a party to provide a suretyship”.
Noting article 645 C.C.P.’s prohibition against a review of the merits, Kalichman J. commented on the reason behind it.
[informal translation] ‘The reason for this provision is simple: the parties have chosen to submit their dispute to arbitration to the exclusion of the courts. The courts lack jurisdiction to decide on the merits of the dispute and must avoid redoing the hearing in the context of a homologation application’.
(i) alleged breach of public order – Kalichman J. acknowledged Defendants’ reference to the Pharmacists’ Code of Ethics but underlined that the provision did allow allocations within corporate entities and other legal entities.
“Section 49 Pharmacists may share the profits from the sale of medications or from their fees only with another pharmacist and to the extent that such sharing is consistent with the division of their respective services and responsibilities.
They may, however, allocate their income to the partnership or joint-stock company of pharmacists within which they practise”.
Kalichman J. added that the only grounds on which a court could refuse to homologate an award were those set out in article 646 C.C.P., underlining subsections 3 and 5 and the closing lines. He noted that the same rules essentially apply for the court’s intervention when asked to set aside or annul an award under article 648 C.C.P.
“Article 646 C.C.P. 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”.
Defendants referred Kalichman J. to factual elements which they submitted demonstrated that the Award violated public order. They pointed to the separate legal status of two (2) of the corporations between the allocation had been made and a pair of disciplinary decisions which they argued confirmed that the individual plaintiff was not a pharmacist. Defendants argued that the Award ordered an allocation which violated article 49 of the Pharmacists’ Code of Ethics.
Kalichman J. disagreed. He readily acknowledged certain factual elements raised by Defendants regarding the distinct legal personality of the corporations and the existence of the disciplinary decisions. Having done so, Kalichman J. then addressed his limited role when second guessing the determinations made on those facts.
[informal translation] ‘[22] Defendants’ arguments attack the arbitrator’s interpretation of a law of public order, namely the Pharmacists’ Code of Ethics. They submit that, because of his interpretation of the Pharmacists’ Code of Ethics and application to the facts, the arbitrator arrived at a result which breaches public order and, as a consequence, cannot be homologated.
[23] If Defendants were right in their argument, this would mean that each time an arbitrator was required to apply a rule of public order to decide a dispute, the award could be annulled as being contrary to public order if one succeeded in establishing that those rules had not been correctly applied. The court cannot adhere to that approach.
[24] First of all, parties can agree to submit a dispute to arbitration even if the applicable rules to decide the litigation are of public order. [footnote reference to article 2639 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”)] In fact, the legislature has expressly wanted that such questions not be excluded from arbitration. [footnote reference to Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178] It would be illogical to leave such questions to an arbitrator to the exclusion of the courts and then afterwards permit that their decisions may be annulled by those same courts on the basis of a simple appeal of their merits.
[25] Furthermore, in order to agree with Defendants that the arbitrator committed an error in his application of the Pharmacists’ Code of Ethics, the court would be required to engage in an examination of the merits of the award, something which is strictly forbidden.
[26] In any event, the same arguments were made to the arbitrator and were dismissed. In particular, the arbitrator determined that, despite the [disciplinary decisions], [individual plaintiff] had the necessary status to claim payment under the contracts and that the contracts did not contravene public order.
[27] To annul an award or to oppose its homologation on the ground that it is contrary to fundamental principles of public order, a party must do more than simply demonstrate that the arbitrator committed a mistake in the application of the rules of public order. It must demonstrate that the result itself is incompatible with public order. [see the footnoted reference to Desputeaux v. Éditions Chouette (1987) inc. para. 54 below in urbitral notes] However, in this case, the Award orders that the shares of one party be bought by the other party. There is nothing in that result which breaches the fundamental principles of public order’.
Kalichman J. concluded that Defendants had failed to demonstrate that the Award breached rules of public order and dismissed this ground.
(ii) alleged breach of procedural rules – Defendants’ argument involved an alleged error stemming from the arbitrator’s admission of an expert’s report which included calculations involving amounts which could not be included due to section 49 of the Pharmacists’ Code of Ethics. Kalichman J. noted that the ground rested on the same reasoning dismissed in the first ground and he dismissed this ground too. Kalichman J. noted that the objection had been made to the arbitrator also and that he too had already dismissed it.
Kalichman J. added that the objection stemmed from Defendants’ disagreement with the arbitrator’s decision on the objection to the admissibility of the evidence. [informal translation] ‘Nothing more. It is certainly not a ground to permit contestation of the homologation of an award’.
(iii) Award exceeds agreement to arbitrate – Defendants argued that reimbursement of Plaintiff’s Loan had not been submitted to arbitration and the arbitrator’s decision to include in it the calculation of the Shares valuation exceeded the scope of the agreement to arbitrate. In addition, they argued that the Loan was extinguished by a release and could not be claimed.
Defendants submitted that, because the arbitrator lacked jurisdiction to determine whether the Loan was due and payable, he also lacked jurisdiction to include the amount of the Loan in the calculation of the Shares valuation.
Kalichman J. disagreed. He observed that, even if they were right, the Award contained no conclusion to that effect. The scope of the dispute submitted to the arbitrator involved interpretation of the agreements and that allowed the arbitrator to consider different elements impacting the capital amounts.
urbitral notes – First, as part of his footnoted references to para. 24, Kalichman J. referred to article 2638 C.C.Q.
“Article 2639 C.C.Q. Disputes over the status and capacity of persons, family matters or other matters of public order may not be submitted to arbitration.
An arbitration agreement may not be opposed on the ground that the rules applicable to settlement of the dispute are in the nature of rules of public order”.
Second, at para. 27 of his reasons, Kalichman J. referred to para. 54 of Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178 to underline that (i) the courts’ consideration of an alleged breach of public order focused on the outcome of the award and (ii) an error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order.
“[54] Public order arises primarily when the validity of an arbitration award must be determined. The limits of that concept’s role must be defined correctly, however. First, as we have seen, arbitrators are frequently required to consider questions and statutory provisions that relate to public order in order to resolve the dispute that is before them. Mere consideration of those matters does not mean that the decision may be annulled. Rather, art. 946.5 C.C.P. requires that the award as a whole be examined, to determine the nature of the result. The court must determine whether the decision itself, in its disposition of the case, violates statutory provisions or principles that are matters of public order. In this case, the Code of Civil Procedure is more concerned with whether the disposition of a case, or the solution it applies, meets the relevant criteria than with whether the specific reasons offered for the decision do so. An error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order. That approach, which is consistent with the language used in art. 946.5 C.C.P., corresponds to the approach taken in the law of a number of states where arbitration is governed by legal rules analogous to those now found in Quebec law. The courts in those countries have limited the consideration of substantive public order to reviewing the outcome of the award as it relates to public order. (See: E. Gaillard and J. Savage, eds., Fouchard, Gaillard, Goldman on International Commercial Arbitration (1999), at pp. 955‑56, No. 1649; J.‑B. Racine, L’arbitrage commercial international et l’ordre public, vol. 309 (1999), at pp. 538‑55, in particular at pp. 539 and 543; Société Seagram France Distribution v. Société GE Massenez, Cass. civ. 2e, May 3, 2001, Rev. arb. 2001.4.805, note Yves Derains.) And lastly, in considering the validity of the award, the clear rule stated in art. 946.2 C.C.P., which prohibits a court from inquiring into the merits of the dispute, must be followed. In applying a concept as flexible and changeable as public order, these fundamental principles must be adhered to in determining the validity of an arbitration award”.