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. 

For a related decision involving a successful application to quash a seizure executed by the other arbitral parties to enforce payment of the 50% arbitration costs, see the Arbitration Matters note “Québec – claimants lack juridical interest to execute on provisional measure ordering respondent to advance arbitration costs – #457” regarding Mehmedov v. Balabanian, 2021 QCCS 733.

The applications before Edwards J. brought together twenty-two (22) co-owners as Plaintiffs, one (1) co-owner Defendant and seven (7) Mis en cause (‘third party impleaded’) including six (6) of the remaining co-owners and the arbitrator. Edwards J. noted that all the parties, except the arbitrator, were co-owners in a 120-unit residential building (“Building”). Plaintiffs’ ownership represented 15% of the units. Defendant’s ownership represented 80%.  The co-owners named as mis en cause represented the remaining 5%.

Edwards J. described the underlying dispute between the parties but refrained from commenting on the merits other than to observe that Defendant had drafted the key agreement governing co-ownership (“Declaration”) and had generated a non-standard version which favoured Defendant in an important way.  Edwards J. observed that the unusual terms of the Declaration were a part of the dispute between the parties.  At paras 6-9, Edwards J. singled out provisions in the Declaration which appointed Defendant as sole administrator for an unlimited term, authorizing him to act without quorum.

Procedural history – At paras 11-25, Edwards J. set out the procedural history to the parties’ arbitration.  The arbitration commenced with an October 11, 2018 notice of arbitration (“Notice”) from Plaintiffs.  Failing agreement on the nomination of a sole arbitrator, the court appointed an arbitrator on April 15, 2019 and Defendant unsuccessfully tried to appeal that decision. 

Plaintiffs issued a September 26, 2019 revised Notice (“Revised Notice”).  The arbitrator held two (2) hearings on October 3, 2019 and November 27, 2019 and, during the latter, scheduled a third hearing on January 16, 2020. 

Prior to the third hearing, Plaintiffs served a December 27, 2019 application in the arbitration for provisional measures and Defendant followed with a January 2, 2020 application to stop the arbitration for lack of jurisdiction and request for referral (“Stop Application”). Plaintiffs modified their application for interim measures on January 13, 2020.

The January 16, 2020 hearing proceeded and the arbitrator issued two (2) decisions: a January 20, 2020 decision on Defendant’s Stop Application and a January 22, 2020 decision on Plaintiff’s interim measures (“Decision”) issued pursuant to article 638 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).

Article 638 C.C.P. The arbitrator may, on a party’s request, take any provisional measure or any measure to safeguard the parties’ rights for the time and subject to the conditions the arbitrator determines and, if necessary, require that a suretyship be provided to cover costs and the reparation of any prejudice that may result from such a measure. Such a decision is binding on the parties but one of them may, if necessary, ask the court to homologate the decision to give it the same force and effect as a judgment of the court”.

On January 27, 2020 Plaintiffs applied under articles 645 and 646 C.C.P. to homologate (recognize and enforce) the arbitrator’s Decision ordering interim provisional measures.  Defendant applied to annul it and to obtain the recusal of the arbitrator.  Edwards J. granted Plaintiffs’ application and dismissed Defendant’s application.

At para. 26 of his reasons, Edwards J. included extensive excerpts from the Decision and highlighted those passages most relevant to his decisions on the competing applications made by the parties. Edwards J. noted that the arbitrator had recorded a series of elements which lead to the arbitrator’s own Decision.

The arbitrator noted that Defendant had retained two (2) law firms in the arbitration and had dismissed each, representing himself at the arbitration hearing on January 16, 2020. The arbitrator recorded the departure of Defendant from the hearing once Defendant had pleaded on his own application and, despite an e-mail by Plaintiffs’ counsel to advise Defendant that the hearing would continue later that day at 14:00, Defendant did not return.

The arbitrator determined that the record disclosed a troubling situation at the Building which included non-payment of municipal and school taxes, uncertainty of insurance coverage, unsigned inhouse financial statements and incomplete notices for payment.  The arbitrator observed that Defendant held 80% of the units but complained to the remaining co-owners about the lack of funds to meet the outstanding financial obligations related to the Building.  The arbitrator noted that, despite having agreed twice before the arbitrator through the prior counsel to retain an accounting firm to verify the Building’s finances, Defendant did not collaborate on the follow up.  The arbitrator observed that the facts disclosed serious problems in the Building which Defendant himself confirmed to the other co-owners in certain exchanges. Based on the record before him, the arbitrator held that it was necessary to issue provisional measures which would safeguard Plaintiffs’ rights and benefit the entirety of the co-owners including Defendant as majority owner of the units.  

The arbitrator concluded that Defendant had failed to provide any ground to contest the provisional measures which appeared well-founded and necessary.  The arbitrator issued a series of detailed provisional measures which included orders that Defendant pay his share of the taxes, financial audit and arbitration costs.  The arbitrator apportioned the payment of taxes and audit fees by percentage of co-ownership in the Building, ordering Defendant to pay his share equal to 80%, and apportioned the arbitration costs 50-50 between Plaintiffs and Defendants. 

In his Decision, the arbitrator identified the accounting firm retained to conduct the audit and stipulated the amounts each owed to pay for its services.  Defendant was also ordered to advance $5,000.00 for his share of the arbitration fees and do so by issuing a certified cheque in that amount made payable in trust to the law firm at which the arbitrator practiced.

Analysis – Edwards J. noted the limited scope granted by articles 645 and 646 C.C.P. for arbitral parties to challenge an arbitral award.  Though those articles focus on “awards”, article 646 C.C.P. does include mention of “provisional or safeguard measure” in its opening lines and article 638 C.C.P. mentions that an interim decision for provisional measures “is binding on the parties but one of them may, if necessary, ask the court to homologate the decision to give it the same force and effect as a judgment of the court”.

Despite Defendant’s objections to each of the three (3) main categories of measures ordered, Edwards J. pointed out that each was a provisional order and could be revisited after having heard the parties on the merits.  The orders were not permanent or determinative of the parties’ rights and each were free to produce further argument in the arbitration.  Edwards J. pointed to the reserve of right made by the arbitrator in his order regarding payment of the accounting firm’s fees for the audit.

Edwards J. also recorded Defendant’s objection to having the arbitration protocol imposed on him, including terms that obliged him to pay his 50% share of the arbitration costs.  Edwards J. referred to the terms of the protocol submitted by the arbitrator which allowed the parties to revisit the payment of those fees once the merits had been determined.  He referred also to the arbitrator’s authority to determine the procedure.

Edwards J. referred to article 637 C.C.P. which expressly provided that, absent agreement of the parties or decision of the arbitrator otherwise, the parties “are equally liable for the arbitrator’s professional fee and expenses”.  Edwards J. referred to this approach as ‘normal’ and reiterated that the arbitrator retained jurisdiction to make a definitive decision on the parties’ respective obligations for payment when deciding on the merits.

Edwards J. specifically dismissed Defendant’s reliance on a term of the Declaration which obliged a co-owner to pay the arbitration fees in their entirety if the co-owner challenged the administration of the Building.  Edwards J. observed that Plaintiffs’ arbitration targeted the validity of that provision, among others, and did not entirely apply to their claims made against Defendant personally.  He noted that the validity of the Declaration and its various provisions were within the arbitrator’s jurisdiction and he would decide if the Declaration was an adhesion contract and abusive under article 1437 of the Civil Code of Québec, CQLR c CCQ-1991.

Regarding Defendant’s additional argument that he had been unable to present his grounds, Edwards J. at paras 63-66 dismissed them with reference to article 635 C.C.P. and the record before him.  Though Defendant argued that the arbitrator had refused to listen to him, Edwards J. determined that the record demonstrated that the arbitrator had done so, despite Defendant’s non-payment of the fees, and had issued a reasoned decision on Defendant’s Stay Application.  Edwards J. considered that Defendant’s objection was that the arbitrator did not agree with Defendant and Edwards J. pointed out that this objection was not a ground to challenge homologation.

Recusal – Article 627 C.C.P. sets out the procedure for demanding an arbitrator’s recusal and Edwards J. noted that Defendant had not engaged the procedure.  Defendant had not presented the arbitrator with the alleged reasons requiring recusal and raised them only before the court and, having presented similar demands to the arbitrator on two (2) earlier occasions, had not challenged them within the thirty (30) days set out in the C.C.P.  Independent of those reasons, Edwards J. considered that Defendant had no valid ground to demand the arbitrator’s recusal and that there had been no conduct by the arbitrator which could qualify as derogatory.

Edwards J. concluded with reference to the Minister of Justice’s comments for article 646 C.C.P. that the burden of proof rests on the party alleging grounds to resist homologation.

urbiral notes – First, in a prior, related decision involving Plaintiffs and Defendant, Madam Chief Justice Manon Savard of the Court of Appeal dismissed Defendant’s application for leave to appeal the decision appointing the arbitrator. In Balabanian v. Mehmedov, 2019 QCCA 1558, Savard C.J.A. observed that there is known principle that there no appeal exists without legislation permitting it, referring to Elitis Pharma inc. v. RX Job Inc, 2012 QCCA 1348, leave to appeal to Supreme Court denied Élitis Pharma inc. et autre v. RX Job inc., 2013 CanLII 6702 (SCC), R.K. v. Ackman (Succession d’), 2008 QCCA 2530 and Moise v. Agence du revenu du Québec, 2013 QCCA 1768.  Savard J.C.A. also pointed to the rule in article 630 C.C.P. which stated that “[d]ecisions of the court on appointment, recusation or revocation cannot be appealed”.

Second, in a subsequent, related decision involving Plaintiffs and Defendant, see the Arbitration Matters note “Québec – claimants lack juridical interest to execute on provisional measure ordering respondent to advance arbitration costs – #457” regarding Mehmedov v. Balabanian, 2021 QCCS 733. In that decision, 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 arbitrator’s interim order had been homologated by the Superior Court, the seizing 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.