Québec – Court of Appeal upholds quashing arbitral party’s seizure of assets before award’s recognition/enforcement, award may also raise issue of public order – #114

In deciding whether to grant leave to appeal an applications judge’s order, Mr. Justice Robert M. Mainville in Heft Family Law Inc. v. Alkhalafawi, 2018 QCCA 1262 set out the limits of a procedure available to arbitral parties in Québec looking to ensure recovery of their awards and the statutory framework for arbitrating fee disputes which exist in many self-governing professional orders in Québec. The reasons also anticipate a decision, to issue on the merits in the future, regarding Defendant’s argument that an arbitration award granting a contingency fee in family law matters is unenforceable as contrary to public order under article 646 of Québec’s Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”).

The decision identifies ways in which an arbitral party in Québec can, pending recognition and enforcement of its arbitration award, apply for seizure before judgment to ensure payment of the award provided that it has sufficient, true evidence of an objective fear that it will not be paid the award amount.

The particular facts involve an application by Heft Family Law Inc. (“HFL”), a law firm, to seize a former client’s immovable property to ensure payment of a May 3, 2018 $491,870.97 arbitration award (“Award”) which issued following an arbitration procedure established under article 88 of the Professional Code, CQLR c C-26. The application, called a ‘seizure before judgment’ under article 518 C.C.Q., was made parallel to other, pending court proceedings by the law firm to recognize and enforce (“homologate”) the Award.

Article 88 of the Professional Code requires self-governing professional orders like the Barreau du Québec to create, by regulation, an arbitration procedure for use by persons to whom the members of the order charge fees. Issued as a regulation under Québec’s Act respecting the Barreau du Québec, CQLR c B-1, section 4, the Barreau’s Regulation respecting the conciliation and arbitration procedure for the accounts of advocates, CQLR c B-1, r 17 (“Regulation”) creates an arbitration process for clients disputing fees charged by attorneys.

Article 7 of the Regulation provides that the arbitration process is available to the client but is not obligatory. Once the client does initiate the process, article 8 of the Regulation stipulates that the client’s application for arbitration can be withdrawn only in writing and with the attorney’s consent.

At articles 12-29, the Regulation sets out broad guidelines for the procedure applicable to the arbitration. For example, the final award must issue within forty-five (45) days of the end of the hearing and the arbitration expenses are capped at fifteen (15%) of the amount in dispute. Article 30 authorizes the tribunal, called a “council of arbitration”, to either uphold or reduce the account. The award is final and binding on the parties and is executory in accordance to articles 645-648 C.C.P.

Once HFL obtained its Award, it then applied to the court to have it homologated. The $491,870.97 amount awarded was calculated as a contingency fee under an fee agreement HFL had with Respondent. HFL applied to have the award homologated by the court but Respondent challenged it. Respondent argued that contingency fee agreements in family law matters are unenforceable as contrary to public order. The merits of HFL’s application and Respondent’s arguments have yet to be decided. The argument based on public order triggers consideration of article 646 C.C.Q. which authorizes a court to refuse to homologate an award if the award is contrary to public order.

Parallel to that process, HFL also applied to the court under articles 516- 523 C.C.P. Those articles permit a creditor to apply for an order, before judgment at trial on the merits, placing its debtor’s asset in a third party’s hands, such as a bailiff, while a proceeding is pending. The measure can be effective to preserve an arbitral party’s rights but only if certain conditions are proven.

Article 518 C.C.P. authorizes the creditor to do seize before judgment only if the creditor demonstrates reason to fear that recovery of its claim might be jeopardized without the seizure. Article 520 C.C.Q. stipulates that the creditor’s request for the order for seizure before judgment must be accompanied by affidavit material in which the creditor affirms the existence of its claim and the facts justifying the seizure, specifying, if applicable, the source of the information on which the creditor relies.

The debtor is not without rights. It can challenge the seizure but must move quickly once the seizure occurs. Article 522 C.C.P. provides the debtor five (5) days after the seizure to apply to the court to quash the seizure. The debtor can invoke either or both of two (2) grounds to quash the seizure. It may argue that the allegations in the creditor’s affidavit material are (a) insufficient, (b) false or both. The court can either accept the debtor’s proof as true and quash the seizure or, failing the proof, confirm the seizure.

On May 25, 2018, an applications judge quashed a seizure before judgment HFL had obtained. Judgments confirming or quashing seizures before judgment required leave to appeal and HFL appeared before Mainville JA seeking leave to appeal under article 30 C.C.P.

The criteria for granting leave is whether the matter in issue should be submitted to the Court of Appeal because, for example, it involves a question of principle, a new issue or an issue of law which has produced conflicting decisions. Mainville JA referred also to Cankul v. Lavoie, 2018 QCCA 726, para. 2 which added to that list cases in which the matter raised a blatant injustice.

Mainville JA referred to Banque Royale du Canada v. Bideri, 2013 QCCA 1172, para. 5, which issued under the provisions of the former, but similar, Code of Civil Procedure, CQLR c C-25, now repealed (“former C.C.P.”). In that decision, Madam Justice Marie-France Bich, Court of Appeal, declined to grant leave to appeal a decision under article 738 of the former C.C.P. quashing a seizure before judgment obtained under article 733 of the former C.C.P. Bich JA wrote that a creditor’s fear must be an objective one, based on precise facts which must be detailed in the affidavit.

On the facts, Mainville JA held that the applications judge had determined that the facts alleged by HFL – involving Respondent’s closure of a bank account – were insufficient. Leave was denied.

The decision discloses options for an arbitral party who has credible, sufficient evidence giving it reason to base an objective fear that, pending the outcome of its homologation proceedings, recovery of its claim might be jeopardized without the seizure.

It is also worth noting that article 88 of the Professional Code applies to all orders subject to the Professional Code and that the statutory arbitration procedure identified above exists in similar format in many other areas of activity covered by other self-governing professional orders.

The eventual decision on the merits of whether to homologate the award will necessarily address Respondent’s public order argument and may provide new insights into the limits, if any, of contingency agreements approved by a council of arbitration.