Québec – claimants lack juridical interest to execute on provisional measure ordering respondent to advance arbitration costs – #457

In Mehmedov v. Balabanian, 2021 QCCS 733, Madam Justice Guylène Beaugé quashed a seizure in execution made by arbitral parties purporting to enforce an arbitrator’s interim measures order requiring the other arbitral party to advance funds for his share of arbitration fees.  Beaugé J. held that the seizure as irregular and premature.  Though the Superior Court had homologated the arbitrator’s interim measures, the arbitral parties lacked a juridical interest as judgment creditor sufficient to justify a seizure executing on that court decision. Beaugé J. acknowledged the seizing parties’ economic interest in having the arbitrator’s fees advanced but determined that their interest did not qualify as a juridical interest.  The arbitral parties were not judgment creditors and, having omitted to advance those fees on behalf of the other defaulting arbitral party, were not subrogated for the arbitrator. 

The background to the parties’ dispute and procedural history in their arbitration, including defined terms, appears in more detail in the preceding Arbitration Matters note “Québec – court homologates arbitrator’s provisional measures ordering respondent to pay share of arbitration costs – #456”. 

In Mehmedov v. Balababian, 2020 QCCS 3254, Mr. Justice Jeffrey Edwards homologated three (3) provisional measures ordered by an arbitrator requiring an arbitral party to pay that party’s (i) 80% proportionate share of school and municipal taxes, (ii) 80% of financial audit related to the disputed administration of the building held in co-ownership by the parties and (iii) 50% share of the arbitration costs.  Based on the record presented to him, the arbitrator had determined that such measures were necessary in order to safeguard rights in issue and reserved the parties right to revisit them once the merits had been determined. 

Despite the October 14, 2020 decision by Edwards J., Defendant did not pay the $5,000.00. Plaintiffs had obtained a seizure in execution of that order involving two (2) bank accounts: one registered in the name of the co-ownership in the Building in which Plaintiffs and Defendant owned units and another registered in the name of Defendant personally.

Defendant applied to Beaugé J. quash a seizure executed on Plaintiffs’ behalf in regard to one of the interim provisional measures homologated by Edwards J. in his October 14, 2020 decision.

Articles 711-718 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) governed Plaintiffs’ seizure against the bank, effectively making the bank a garnishee who serves as custodian of the property seized.  Defendant opposed the seizure, following the procedure set out at article 735 C.C.P. and following.

By the time the parties appeared before Beaugé J., Plaintiffs had instructed bailiffs to ignore the notice of execution on Defendant’s personal account, leaving only the seizure of the co-ownership bank account in dispute.  With reference to the provisions of article 656 C.C.P., Beaugé J. observed that judgments “are executed voluntarily by the payment of money, the surrender of property or the performance of what is ordered, either before the expiry of the time limits prescribed by law or within the time limit set out in the judgment or agreed between the parties”. 

In contrast, if a debtor fails or refuses to voluntary execute the judgment, forced execution under article 679 C.C.P. can be undertaken but only by the judgment creditor.  Beaugé J. recognized that Plaintiffs had an ‘economic interest’ in having Defendant advance the $5,000.00 so that the arbitration proceed but added that only the arbitrator was the creditor of Edwards J.’s decision and Defendant the debtor.

Acknowledging that executing on Edwards J.’s order would certainly place the arbitrator in an awkward position, Beaugé J. observed that the arbitration protocol provided the solution: the payment of the fees by one party subject to its right to claim reimbursement.  Beaugé J. characterized that solution as subrogation under article 1656(3) of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”).

Article 1656 C.C.Q. Subrogation takes place by the sole operation of law

(1) in favour of a creditor who pays another creditor whose claim is preferred to his because of a prior claim or a hypothec;

(2) in favour of the acquirer of property who pays a creditor whose claim is secured by a hypothec on the property;

(3) in favour of a person who pays a debt to which he is bound with others or for others and which he has an interest in paying;

(4) in favour of an heir who pays with his own funds a debt of the succession for which he was not bound;

(5) in any other case provided by law”.

Beaugé J. acknowledged Plaintiffs’ interest in paying Defendant’s share of the arbitrator’s fees, subject Plaintiffs’ right to claim reimbursement by Defendant, given that the arbitrator would conduct the arbitration, but that interest was not enough to qualify as a juridical interest within article 85 C.C.P. to apply for the seizure.

Article 85 C.C.P. To bring a judicial application, a person must have a sufficient interest.

The interest of a plaintiff who intends to raise a public interest issue is assessed on the basis of whether the interest is genuine, whether the issue is a serious one that can be validly resolved by the court and whether there is no other effective way to bring the issue before the court”.

Beaugé J. concluded that the seizure was both irregular and premature as Plaintiffs had not paid the sums owing by Defendant and were not subrogated in regard to the arbitrator’s rights.  Lacking that subrogation, Plaintiffs could not undertake measures to execute a debt in his name or for his benefit.

Though Defendant sought an order against Plaintiffs for $5,000.00 for abuse in the seizure, Beaugé J. dismissed his request.  Defendant had filed no declaration or other evidence supporting his request and did not plead on it during the hearing before her.

urbitral notes – First, see the earlier Arbitration Mattes notes:

(i) “Québec – costs of arbitration incurred post-notice of intention not a claim provable in bankruptcy – #116”. In Proposition de 2295822 Canada Inc., 2018 QCCS 3862, Madam Justice Chantal Corriveau treated the costs of arbitration the same as court costs and applied the case law issuing in different Canadian jurisdictions to exclude the costs of arbitration from qualifying as a claim provable under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”). Though the parties’ agreement to arbitrate, entered into prior to the debtor filing a notice of intention, mentioned the recovery of the costs of the arbitration, the agreement did not quantify them or impose them without condition on the losing party. Rather, the agreement merely gave the arbitrator jurisdiction to award them should she so decide and to do so in an amount subject to her determination.

(ii) “Ontario – unpaid expert and arbitrator denied status as creditors of court order omitting their mention as beneficiaries – #182”.   In Miracle v. Maracle, 2019 ONCA 238, the Ontario Court of Appeal upheld the unreported September 10, 2018 decision by Mr. Justice Patrick Hurley denying an unpaid expert and unpaid arbitrator leave to be added as parties to post-arbitration litigation.  In doing so, Hurley J. left open the possibility that the result could have been different had an earlier court order, recognizing and enforcing the arbitration award, mentioned personally the expert and arbitrator as beneficiaries of the orders for payment of arbitration costs incurred by the prevailing arbitral party. Hurley J.’s comments also serve to guide arbitration counsel in drafting dispositive sections for recognition and enforcement applications.

(iii) “Québec – successful arbitral party seizes assets in hands of third party pending homologation of award – #160”.  In Instrubel N.V. v. Republic of Iraq, 2019 QCCA 78, Québec’s Court of Appeal upheld a successful arbitral claimant’s attempt to garnish funds owed by a third party to respondent pending an application to recognize and enforce its award. The Court determined that, independent of the location of the bank in which the funds were deposited, garnishee was domiciled within the jurisdiction of the courts of Québec and could be the subject of a garnishment when it is a debtor of a personal right owed to respondent. In reversing Instrubel, N.V. v. Ministry of Industry of The Republic of Iraq, 2016 QCCS 1184, the reasons provide meaningful, informed guidance for arbitration practitioners striving to preserve assets in anticipation of executing on successful arbitration awards.