Québec – arbitrator appointment process gives rise to reasonable apprehension of bias – #108

Madam Justice Geneviève Marcotte in AEC Symmaf Inc. v. Poirier, 2018 QCCA 916 held that parties to an arbitration agreement must be explicit when choosing to arbitrate their oppression remedy and that a stay will still be refused if other claims before the court remain intertwined with and cannot be reasonably separated from the oppression remedy.  Marcotte J.A. also agreed with the applications judge, Mr. Justice David R. Collier in Poirier v. AEC Symmaf Inc., 2018 QCCS 2946, that the arbitrator’s appointment for an oppression remedy could not be given exclusively to the Board of Directors of the corporation which is the object of the oppression remedy. Doing so submits the dispute to an arbitrator chosen by only one party to the dispute.

The parties’ dispute combined an unjust dismissal claim and an oppression remedy.  (Note: Collier J.’s reasons at para. 3 mention section 248 of Ontario’s Business Corporations Act, RSO 1990, c B.16  while Marcotte J.A.’s reasons at para. 9 mention section 241 of the Federal Canada Business Corporations Act, RSC 1985, c C-44.)  The executive, domiciled in Québec, also held shares in the employer corporation. He alleged that his dismissal was part of a pattern of oppressive conduct and filed a clam for both in the Québec Superior Court. Certain defendants applied for a declinatory exception, arguing that the oppression remedy be sent to arbitration.

The Québec Superior Court has jurisdiction over the unjust dismissal claim under article 3149 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”).

3149. Québec authorities also have jurisdiction to hear an action based on a consumer contract or a contract of employment if the consumer or worker has his domicile or residence in Québec; the waiver of such jurisdiction by the consumer or worker may not be set up against him.

The arbitration agreement is contained in article 14.1 of the parties’ unanimous shareholder agreement (“USHA”):

14.1 Dispute Resolution

All disputes and questions whatsoever which shall arise between any of the parties in connection with this Agreement, or the construction or application thereof or any Section or thing contained in this Agreement or as to any act, deed or omission of any party or as to any other matter in any way relating to this Agreement, shall be resolved by arbitration. Such arbitration shall be conducted by a single arbitrator. The arbitrator shall be appointed by Board Approval. The choice of arbitrator is final and binding on the Parties hereto and is not capable of being arbitrated or heard by or appealed to any Court or any other administrative, judicial, quasi-judicial or other decision making body. Unless otherwise agreed to by the parties, the arbitration shall be held in the City of Toronto. The procedure to be followed shall be agreed to by the parties or, in default of such agreement, determined by the arbitrator. The arbitration shall proceed in accordance with the provisions of the Ontario Arbitration Act, 1991. The arbitrator shall have the power to proceed with the arbitration and to deliver his or her award notwithstanding the default by any party in respect of any procedural order made by the arbitrator. The decision arrived at by the arbitrator shall be final and binding and no appeal shall lie therefrom. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The reasonable fees and expenses of the arbitrator shall be borne equally by the parties to the issue, unless the arbitrator makes an award to the contrary.

In first instance, Collier J. dismissed Applicants’ declinatory exception made under articles 167 and 622 of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).

167. If an application is brought before a court other than the court of competent jurisdiction, a party may ask that it be referred to the competent court or, failing that, that it be dismissed.

Lack of subject-matter jurisdiction may be raised at any stage of the proceeding, and may even be declared by the court on its own initiative, in which case the court adjudicates as to legal costs according to the circumstances.

622. Unless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court even though it would have jurisdiction to decide the subject matter of the dispute.

A court seized of a dispute on such an issue is required, on a party’s application, to refer the parties back to arbitration, unless the court finds the arbitration agreement to be null. The application for referral to arbitration must be made within 45 days after the originating application or within 90 days when the dispute involves a foreign element. Arbitration proceedings may be commenced or continued and an award made for so long as the court has not made its ruling.

The parties cannot, through their agreement, depart from the provisions of this Title that determine the jurisdiction of the court or from those relating to the application of the adversarial principle or the principle of proportionality, to the right to receive notification of a document or to the homologation or the annulment of an arbitration award.

An appeal of a decision dismissing a declinatory exception is subject to leave from the Court of Appeal under article 31 C.C.P. Marcotte J.A. noted that leave required that Applicants demonstrate more than that the Superior Court decision’s effect could not be remedied by a final judgment. In addition, Applicants must demonstrate that granting leave is in the interest of justice and meets the guiding principles set out in articles 9 and 18 C.C.P.

Marcotte J.A.’s reasons dealt with three (3) key issues.

First, Marcotte J.A. determined that the wording in the parties’ arbitration agreement did not explicitly mention an intention to waive access to statute-based oppression remedy. She agreed that parties could waive their access to the courts for their oppression remedy and submit to arbitration but flagged instances in which the Court of Appeal had required that the waiver be explicit: Camirand v. Rossi, 2003 QCCA 74899 paras 26, 30-31; Acier Leroux Inc. v. Tremblay, 2004 QCCA 28564 paras 30, 35, 39-42; and, Ferreira v. Tavares, 2015 QCCA 844 para. 29. Those cases provide the Court of Appeal’s guidance on the scope of public order in arbitration and the manner in which parties can waive remedies that are not of public order. See also Heeg v. Hitech Piping (HTP) Ltd., 2009 QCCS 4043 cited by Collier J.

In contrast, see also Johnson v. Kensington Capital Partners Ltd., 2009 QCCS 1861 paras 19-21 in which the Superior Court did find that the arbitration agreement contained adequate wording to justify dissociating an unjust dismissal claim from a dispute over the employee’s shareholding.

Marcotte J.A. observed that the arbitration agreement, though detailed, failed to demonstrate an intention to waive the right to have oppression remedy decided by an impartial tribunal. Rather, she agreed with Collier J. that wording fell short of expressing the intention. The reasoning was developed more in Collier J.’s judgment but Marcotte J.A. clearly endorsed it by juxtaposing ‘an impartial tribunal’ against the ‘arbitrator chosen by one of the parties to the dispute’.

Collier J. had found that the wording provided no express intention to refer oppression remedy questions to arbitration but he was prepared to accept an implicit intention to do so. Despite his openness to such an option, he found no implicit intention.

[22] In this case no circumstances point to such an implicit intention, and the terms of the arbitration clause lead to the opposite conclusion that the parties did not intend to submit their statutory oppression remedies to arbitration.

Second, endorsing Collier J.’s analysis, Marcotte J.A. agreed that, in the circumstances, the wrongful dismissal claim governed by article 3149 C.C.Q. was intertwined with and could not be reasonably separated from the oppression remedy. Referring to Québec case law and then Ontario case law, respectively in support of paragraphs 17 and 18 of his reasons, Collier J. wrote:

[16] Québec law recognizes that wrongful dismissal may serve as a basis for a finding of oppression, a conclusion which recognizes that the two issues may be intimately related.

[17] There is ample authority in this province for the proposition that where the legal and factual issues underlying claims for wrongful dismissal and oppression are intertwined and cannot reasonably be treated separately, the Court may simultaneously consider both causes of action.

[18] A similar situation appears to apply in Ontario, where the courts have invoked the principle of judicial economy to refuse separate trials in cases involving related issues of employment law and shareholder rights.

For Québec cases at paragraph 17, see: Garage Technology Ventures Canada, s.e.c. (Capital St-Laurent, s.e.c.) v. Léger, 2012 QCCA 1901 para. 91; Laviolette v. Prud’homme, 2008 QCCS 5108 paras 100-101; and, Sychterz v. Bouchard, 2015 QCCS 1215 paras 36-40.

For an Ontario case at paragraph 18, see: 2082825 Ontario Inc. v. Platinum Wood Finishing Inc., 2009 CanLII 14394 para 42.

Third, Marcotte J.A. focused on the wording of the arbitration agreement and identified a key flaw in the process for appointing the arbitrator. Her concerns, like Collier J.’s, apply in general to drafting arbitration agreements, independent of whether the disputes raise either of the other two issues above.

Though Collier J.’s reasons excerpted the arbitration agreement only in part, Marcotte J.A.’s reasons contained the full text of article 14.1. The full text provided that the arbitrator shall be appointed by Board Approval and could not be challenged:

The choice of arbitrator is final and binding on the Parties hereto and is not capable of being arbitrated or heard by or appealed to any Court or any other administrative, judicial, quasi-judicial or other decision making body.

Marcotte J.A.’s mention of this ground at paragraph 10 of her reasons is combined with her conclusion that a waiver of court access for an oppression remedy must be explicit. Collier J.’s decision, approved by Marcotte J.A., developed the third ground in more detail.

[23] The arbitration clause provides that the arbitration shall be conducted by a single arbitrator appointed by AEC Property’s board of directors, with no possibility to contest the board’s nomination. The jurisconsult, Mr Newbould, describes this provision in the USA as “somewhat unusual”, but is nevertheless of the view that it would not invalidate the arbitration clause because an Ontario court could intervene if the board’s appointment gave rise to a reasonable apprehension of bias.

[24] Notwithstanding this, it is not reasonable to infer that the respondents intended to refer matters of oppression to an arbitrator appointed by AEC Property’s board of directors – the very persons, it should be emphasized, who stand accused of abusive and oppressive conduct in the present case. Since questions of oppression go to the very heart of the relationship between a corporation’s shareholders and directors, it is reasonable to conclude that the parties to the USA did not intend to refer such sensitive and divisive questions to an arbitrator who would be unilaterally appointed by one of the likely parties to the dispute.

The reasoning applies to other appointment processes which parties might insert into their agreements to arbitrate. Parties must take care that they do not choose an appointing body which, by its status or relation to the dispute in issue, may actually undermine a reasonable appearance of impartiality if and when a dispute arises in the future. It is conceivable that Applicants could have prevailed on the first of the two grounds but still succumbed on the third.