In Newtech Waste Solutions inc. c. Asselin, 2022 QCCS 3537, Justice Bellavance dismissed an application challenging an arbitral tribunal’s jurisdictional decision to join a non-signatory corporation to an arbitration. Justice Bellavance validated the tribunal’s application of jurisprudence on joinder of non-signatories to arbitrations seated in Québec. Although the non-signatory was a stranger to the arbitration agreement, the arbitral tribunal found, and Justice Bellavance agreed, that it was appropriate to join it based on a prima facie showing that the corporation was one of the parties’ alter ego.
Background – The underlying dispute arose from a share purchase agreement. The late Nicolas Bélanger sold his shares in Groupe Machinex Inc. (“Machinex”) to a purchaser. The share purchase agreement (“SPA”) contained an arbitration agreement. Bélanger brought arbitration proceedings to recover allegedly unpaid sums due in exchange for his shares. Machinex counterclaimed for breach of a non-compete clause also contained in the SPA.
The Arbitration – Machinex asked the arbitral tribunal to join Waste Robotics Inc. (“Robotics”) as a “mise en cause” (equivalent to a necessary party). It argued Robotics, a non-signatory to the SPA (and the arbitration agreement), was an alter ego through which Bélanger competed with Machinex, in breach of the SPA. According to the tribunal’s reasons, in objecting to its inclusion in the arbitration, Robotics implicitly acknowledged the risk of inconsistent judgments should Machinex be required to pursue Robotics in parallel court proceedings. However, for the tribunal, this alone was insufficient to determine whether it should take jurisdiction over Robotics.
The tribunal ultimately opted to join Robotics. It relied on the Québec Court of Appeal’s decision in Société de cogénération de St-Félicien, société en commandite / St-Felicien Cogeneration Limited Partnership c. Industries Falmec Inc., 2005 QCCA 441 [Falmec], in which the Court of Appeal held that arbitration clauses are “not necessarily inapplicable” to third parties. Among the considerations the Court identified were: 1) risk of inconsistent judgments arising from related court proceedings; 2) the nature of the remedies; 3) the overlap or identity of the questions that would be at issue in the parallel proceedings; and 4) the participation of the third party in the arbitration (in a non-party capacity, such as a witness).
The arbitral tribunal found it would be difficult to disentangle the facts going to liability as they related to Bélanger and Robotics. It concluded that the risk of inconsistent judgments was live. The tribunal also rejected Robotics’s position that the dispute between Bélanger and Machinex did not concern it. On the contrary, the allegations in Machinex’s counterclaim were that Bélanger used Robotics as a vehicle to breach his non-compete obligations, and that Robotics was intimately involved in the matter. In that regard, the tribunal stated that, in reaching its decision, it had to take the pleaded facts as true, but that the evidence could cause it to revisit its decision as to jurisdiction over Robotics at a later time. Robotics did not challenge the tribunal’s decision.
Eventually, Machinex sought to amend its pleading to join yet another non-signatory, the Applicant Newtech Waste Solutions Inc. (“Newtech”). It based its request on essentially the same grounds as those supporting its request to join Robotics—that Newtech was a corporate vehicle Bélanger used to compete with Machinex in breach of the SPA. Newtech objected. It argued that it was a stranger to the arbitration agreement, and joining it at this late stage would be prejudicial and “disproportionate”. Newtech also submitted that the arbitral tribunal should not take Machinex’s allegations as true for the purpose of the motion.
The arbitral tribunal rejected these arguments and joined Newtech for largely the same reasons it joined Robotics. For the purpose of joinder, it was persuaded that Newtech, together with Bélanger and Robotics, collaborated in the impugned unfair competition and Bélanger’s breach of the SPA. It noted that, in reaching its decision, it considered the evidence put forward by Machinex and Robotics. Of note, Newtech did not file any evidence on the jurisdictional motion or directly contest Machinex’s pleading.
Superior Court – Newtech challenged the arbitral tribunal’s joinder decision before the Superior Court of Québec. It advanced the same arguments as before the arbitral tribunal—that it was not a party to the arbitration agreement, and Machinex did not discharge its burden of showing exceptional circumstances meriting Newtech’s joinder. Specifically, Newtech said Machinex did not lead sufficient evidence to demonstrate it was Bélanger’s alter ego. The fact that he was Newtech’s president and one of its shareholders was insufficient to establish prima facie that Newtech’s extracontractual (equivalent to tort) liability was engaged. It also accused the arbitral tribunal of taking Machinex’s allegations as proven rather than requiring evidence on a prima facie standard.
Justice Bellavance began by recognizing that his task was not to “review” the arbitral tribunal’s decision, but to decide for him self whether the tribunal had jurisdiction to join Newtech. Accordingly, no standard of review applied. He then considered the jurisprudence in Québec pursuant to which a non-signatory may be joined to an arbitration. He referenced the Court of Appeal’s decision in Société Asbestos Itée c. Lacroix, 2004 CanLII 76694 (C.A.). That case stands for the proposition that, where the situation warrants, the arbitral tribunal may properly join a stranger to the arbitration agreement to the proceedings. Recognizing that privity of contract demands this power be exercised cautiously, the Court of Appeal stated that each case will turn on its own facts.
Considering the facts, in light of the factors set out in the Court of Appeal’s decision in Falmec, Justice Bellavance found that the arbitral tribunal could take jurisdiction over Newtech:
“[25] En effet, la nature similaire des recours en cause, celui déjà entrepris devant le Tribunal d’arbitrage et celui qui serait éventuellement mené devant la Cour supérieure, l’identité des questions en jeu ainsi que les parties impliquées, mais également les faits et gestes de Bélanger à titre d’actionnaire et de dirigeant de Newtech, impose cette conclusion. Comme le Tribunal d’arbitrage, la Cour conclut que Bélanger est le centre de toute cette affaire et s’il est pertinent de voir s’il a utilisé Robotics pour contrevenir à sa clause de non-concurrence, il l’est tout autant de vérifier s’il n’aurait pas agi de la même manière en utilisant Newtech.”
[Contributor’s translation: “Indeed, the similar nature of the proceedings in question, the one already underway before the Arbitration Tribunal and the one that would eventually be brought before the Superior Court, the identity of the issues, as well as the parties involved and the acts and gestures of Bélanger as shareholder and officer of Newtech, requires this conclusion. Like the arbitral tribunal, the Court concludes that Bélanger is at the center of this whole affair, and if it is relevant to assess whether he used Robotics to breach his non-competition clause, it is just as relevant to undertake the same assessment in his use of Newtech.”]
Although having acknowledged that the Court’s task was not to review the arbitral tribunal’s decision, Justice Bellavance nonetheless noted that he found no error in the tribunal’s reasoning. He summarized his conclusions as follows:
- The arbitral tribunal committed no error in concluding that it was necessary to determine whether Bélanger used Newtech as a vehicle to breach his non-compete obligation under the SPA.
- The arbitral tribunal did not prejudge the merits of the case in relying on the allegations in the parties pleadings.
- Conflicting judgments could result should the arbitral tribunal be precluded from examining the acts of Bélanger “via Newtech” that might be actionable before the Superior Court.
- It is inappropriate to split the litigation, which would multiply proceedings and slow or add complexity to the adjudication process.
Justice Bellavance dismissed Newtech’s application and referred the parties to arbitration.
Contributor’s Notes:
First, Justice Bellavance’s approach to assessing the arbitral tribunal’s preliminary jurisdiction determination follows that prevailing in other Canadian jurisdictions, and what the Ontario Superior Court describes as “[t]he international consensus”, namely that such proceedings are “a hearing de novo and not a review of the tribunal’s decision” [The Russian Federation v. Luxtona Limited, 2021 ONSC 4604, para 10]. Based on the reasons, it is unclear whether the applicant led any fresh evidence that was not before the arbitral tribunal.
Second, although the Justice Bellavance concluded the arbitral tribunal did not err in relying on the parties’ pleadings, the tribunal’s reasons reveal that it in fact considered evidence the parties filed. Justice Bellavance excerpted part of the arbitral tribunal’s decision, which contained the following:
“À la lumière des éléments de preuve dont dispose déjà le Tribunal, notamment, des pièces produites par Machinex et celles produites par Robotics et la Succession, sans se prononcer sur le fond du litige ni tenir pour avérés les faits soulevés, le Tribunal en vient à la conclusion que, prima fade (sic), ces allégations et les éléments de preuve ci-avant énoncés, notamment ceux auxquels réfère le paragraphe 23 des présentes sont suffisants pour justifier la poursuite contre Newtech.”
[Contributor’s translation: “In light of the evidence already available to the tribunal, specifically exhibits produced by Machinex, Robotics and [the estate of Bélanger], and without prejudging the merits or taking the alleged facts as proven, the tribunal concludes that the above-referenced allegations and evidence, specifically, those cited in paragraph 23 [of Machinex’s submission] are sufficient to justify the claim against Newtech.”]