In B Smart Technology inc. v. American Arbitration Association, 2022 QCCS 1526, Justice Mark Phillips granted the Defendants’ Application for dismissal of the Plaintiff’s Request for Provisional Interlocutory Injunction and Order to Safeguard the Rights of Plaintiff. The Defendants were the American Arbitration Association (“AAA”) and the arbitrator it had appointed. In its Request, Plaintiff sought orders: (1) to recuse and replace the arbitrator; (2) to review the arbitration proceedings, including the costs of the proceedings, the reimbursement for arbitrator’s fees paid to date; and (3) alternatively, the annulment of the arbitration clause and referral of the dispute to the Superior Court. Justice Phillips’s judgment was mainly based on the application of two well-known principles in arbitration law: arbitrator protection against prosecution/immunity (sec. 621 CCP); and the exclusion of court review except as provided by law (sec. 622 CCP). Justice Phillips reaffirmed that the arbitrator’s protection against prosecution is broad and applies both to the arbitrator’s liability and to any challenges against the conduct of the arbitration process itself. He found that the institute offering arbitration services is covered by the protection as well. Justice Phillips also confirmed the exclusion of court review principle, which prevents courts from interfering in an arbitration process other than within the strict and limited occasions provided by law. In this case, the law did not provide for court intervention. Finally, the issue was moot because the arbitrator terminated the arbitration for the Plaintiffs’ failure to pay his costs, as he was entitled to do under the AAA Rules.
The Plaintiff, B Smart, was a Montreal-based company, which entered into a contract with InnerWireless, a Texas based company, in 2007. The contract between them included an arbitration clause, which referred the parties to arbitration under the AAA Rules and Texas’ laws in case of a dispute.
In 2018, the Plaintiff triggered the arbitration clause and began an arbitration proceeding. The AAA first appointed an arbitrator, who unfortunately died following his first two procedural orders AAA then appointed the Defendant arbitrator, according to the AAA Rules.
For an eight-month period, the parties continued with the arbitration proceedings until the Plaintiff applied to the AAA for the recusal of the arbitrator. Plaintiff alleged arbitrator bias in his conduct of the proceedings for reasons that are not set out in the Judgment. AAA dismissed Plaintiff’s request in early 2020. A few months later, the Plaintiff asked the arbitrator to recuse himself for the same reasons, which demand was once again dismissed.
Thereafter, when the Plaintiff failed to pay the arbitration costs, the arbitrator ordered it to pay the unpaid costs in the amount of $45,484.00 within one month, failing which the file would be closed according to the AAA Rules. Instead of complying with the arbitrator’s order, Plaintiff applied to the Superior Court with its Request for Provisional Interlocutory Injunction and Order to Safeguard the Rights of Plaintiff, seeking an interim emergency order to avoid the closure of the arbitration file by way of provisional injunction, pending the hearing of its injunction request. This request for interim relief was dismissed by Justice Mayrand. Meanwhile, the AAA closed Plaintiff’s arbitration file in conformity with the arbitrator’s decision.
The Plaintiff was seeking the following findings on the merits: (1) to recuse and replace the arbitrator; (2) to review the arbitration proceedings, including the costs of the proceedings, the reimbursement for arbitrator’s fees paid to date; and (3) alternatively, the annulment of the arbitration clause and referral of the dispute to the Superior Court.
The Defendants sought a dismissal on the grounds of: (1) the protection of arbitrators against prosecution; (2) the exclusion of court review in arbitration proceedings; and (3) the mootness of Plaintiff’s demand because of the closure of the arbitration’s file by the AAA. The dismissal Application was heard by Justice Phillips.
First, Justice Phillips concluded from the review of the evidence that Plaintiff’s allegations against the arbitrator appeared to be prima facie unfounded and exaggerated. He concluded that the Plaintiff mostly disagreed with the arbitrator’s findings, which led it to formulate its theory alleging the arbitrator’s bias. Justice Phillips stated that even if the Court needs to be cautious before dismissing a Plaintiff demand, it also needs to act to dismiss proceedings which bear no chance of success whatsoever, all of which is consistent with the Court’s role to foster sound management of judicial resources. He also reaffirmed that the arbitrator’s immunity and protection against prosecution extends to the arbitrator’s potentialcontractual and delictual liability, as well as to any demand that would challenge the arbitrator’s conduct of the arbitration proceedings. Justice Phillips added that the protection of the arbitrator against prosecution extends to the institution providing arbitration services and which appointed him as well. Therefore, Justice Phillips concluded that the Plaintiff’s allegations against the Defendants were insufficient to justify the Court’s intervention, following the arbitrator immunity principle.
Second, Justice Phillips reaffirmed that Court intervention in an arbitral process is strictly limited to the situations explicitly provided for by law. In Québec, arbitral tribunals are not subject to the Superior Court’s general power of judicial review (sec. 34 CCP). Justice Phillips concluded that remedies sought by the Plaintiff were not within the scope in which the Superior Court is allowed to act in an arbitral process. Justice Phillips also added that Plaintiff’s request, if granted, would constitute a major interference of the Court in the arbitral tribunal’s jurisdiction.
Notwithstanding Justice Phillips findings concerning the exclusion of Court review, he reviewed the legal provisions which were the basis of Plaintiff’s Request. Not only did Justice Phillips conclude that none of the alleged provisions were applicable in Plaintiff’s case, but he also found that the Plaintiff had acted too late when it demanded the arbitrator’s recusal.
Third, Justice Phillips agreed with Defendants’ argument that Plaintiff’s demand was moot following the closure of the arbitration file by the AAA. Justice Phillips added that the Court had no power whatsoever to compel the arbitrator to continue to act without being paid for his work.
Therefore, Justice Phillips dismissed Plaintiff’s Request, with costs to the Defendants.
Contributor’s Notes:
First, there are only a few judgments in Québec concerning the principle of protection of an arbitrator against prosecution (see Promutuel Dorchester, société mutuelle d’assurances générales v. Ferland, 2000 CanLII 17747 (QC CS) and Maçonnerie Demers inc. v. Lanthier, 2002 CanLII 24364 (QC CS)). This principle was first introduced by the Québec Court of Appeal in Zittrer v. Sport Maska Inc., 1985 CanLII 2962 (QC CA). Since 2016, this principle has been codified in section 621 CCP. However, no case law has reviewed this principle since 2016. Justice Phillips relied on the Alberta decision of Flock v. Beatties 2010 ABQB 193 and on the British Columbia decision of Freshway Specialty Foods v. Map Produce LLC, 2005 BCSC 1485 to describe the broad application of the principle in Québec.
Second, see also an earlier Case Note on judicial immunity: Québec – Judicial immunity precludes compelled evidence on bias challenge; application to arbitrators? – #554.
Third, Justice Phillips’s judgment also exemplifies the tendency of the courts to avoid any kind of judicial intervention in arbitration proceedings, except where provided for by law. This tendency is in conformity with Supreme Court of Canada’s decisions in Desputeaux v. Editions Chouette (1987) inc., 2003 SCC 17 and in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34.
See also earlier Case Note concerning judicial intervention in arbitration: Québec – court’s intervention on challenge to award on jurisdiction is not judicial review – #296.
Limited interventions of Courts are also consistent with the strict prohibition for Judges to review arbitral awards on the merits according to section 645 CCP. This fundamental principle of arbitration law in Québec has been reaffirmed on numerous occasions. See on that subject the following earlier Case Notes: Québec – Annulment: no review of the merits, even if award wrong – #603, Québec – breach of public order involves outcome of award, not mistake in application of rules of public order – #466, Québec – court decision illustrates strength of arbitration in Québec – #001.