Québec – No clean hands, no security despite stay of homologation application – #677

In Specter Aviation v United Mining Supply, 2022 QCCS 3643, Justice Castonguay granted a stay of an application by the successful party in a foreign arbitration to homologate the award, but denied the applicants’ alternative request for security, pending the unsuccessful party’s annulment application to the Paris Court of Appeal. Despite recognizing that a court should be reluctant to interfere with a successful party’s enforcement efforts, Justice Castonguay found that the annulment application was, “neither futile nor frivolous” and that the successful party did not have clean hands and had resorted to a self-help remedy. He also ordered costs against the successful party.

This case has been the subject of several Case Notes in Arbitration Matters. For a detailed recitation of the facts and procedural history, see:

Québec – sequential arbitrations without exclusion of courts renders clause invalid in real rights litigation – #413;

Québec – ‘state of the current case law’ justifies leave to appeal raising autonomy of agreement to arbitrate – #428; and

Québec – Arbitration 101: parallel proceedings, multiple arbitration clauses, competence-competence, arbitrability, separability, waiver – #577.

Here is a brief overview of the facts, some of which Justice Castonguay recited in his reasons.

Background to the dispute -The dispute arose out of a 2012 joint venture agreement between Laprade and United Mining Supply to develop air transportation services in Africa. The joint venture did not succeed. Plaintiff Specter, Defendant Laprade, Third Party United Mining Supply (as official operator of the aircraft at issue in these proceedings), intervenor World Aircraft Leasing Inc., and other related parties signed a “liquidation agreement” in early 2019. The parties later disputed the ownership of the aircraft and the allocation of assets following the breakdown of the joint venture. There was a clause in each agreement that provided, in different language, that any unresolved disputes would be referred to arbitration, after mediation, under the aegis of the International Arbitration Chamber in Paris (“CAIP”).

This gave rise to proceedings in various courts and before an arbitral tribunal.

The Quebec action – In 2019, Specter sued in the Québec Superior Court pursuant Art. 141 of the Civil Code of Procedure. It sought and obtained an interim order from the Court seizing the aircraft, before judgment. In March 2020, the Court rejected a request by Laprade to annul the seizure order and found that Specter and United Mining Supply (a related corporation) had established a prima face ownership right.

In June 2020, Laprade and World Aircraft Leasing filed a counterclaim, in which they argued that there was a “clerical error” in the liquidation agreement that went to the ownership issue and sought an order that Laprade owned the aircraft. They also sought damages for Specter’s alleged breach of the liquidation agreement.

In July, 2020, Specter and United Mining Supply moved to stay the counterclaim and requested referral of the ownership dispute to arbitration because of the arbitration clauses in both the liquidation agreement and the joint venture agreement – even though they took the position that the liquidation agreement was not relevant to the question of ownership and that the courts maintained jurisdiction over their originating seizure application. The stay motion was dismissed, but in December, 2021, the Québec Court of Appeal reversed that decision and stayed the counterclaim pending determination of the parties’ dispute by arbitration. It accepted Specter’s position that it had to apply to the court for an order to seize the aircraft, but that the Québec proceeding did not go to the merits of the parties’ dispute, which was to be decided by way of arbitration.

The arbitration – In October, 2020, before the ruling on the stay motion, Specter and United Mining Supply commenced an arbitration before the CAIP, in which they sought a determination of the so-called clerical error in the liquidation agreement. In May, 2021, the CAIP issued a partial award in which it decided that it had jurisdiction to decide the dispute between the parties relating to the liquidation agreement and rejected a request that the arbitration be stayed in favour of the Québec courts. In December, 2021, the CAIP issued an award on the merits. It ordered the return of the aircraft to Specter as its owner.

Annulment application in Paris – In March, 2022, Laprade and World Aircraft Leasing filed an application to annul the partial and final awards before the Paris Court of Appeal. Laprade argued that the CAIP had jurisdiction over all the issues in dispute, including the liquidation and distribution of the assets of the joint venture, but dealt only with the clerical error issue, which determined the dispute relating to the ownership of the aircraft only. They also argued that the CAIP had erred in its interpretation of the liquidation agreement in its dealing with the so-called clerical error.

Homologation application in Québec – In late 2022, Specter applied for homologation of the award in its favour. Laprade sought a stay of the application, pending determination of his annulment application to the Court of Appeal in Paris.

Justice Castonguay, of the Québec Superior Court, noted that Laprade was not opposing homologation, but was simply seeking a stay pursuant to Art. 654 of the Code of Civil procedure, which provides that, “[t]he court may stay its decision on the recognition and enforcement of an arbitral award if an application for annulment or suspension of this award has already been brought before the competent authority of the place in which or according to the law of which it was rendered”.

Justice Castonguay found that the arguments Laprade raised before the Paris Court of Appeal were “neither futile nor frivolous”. He granted the stay, although he recognized that courts should be cautious about ordering a stay to delay enforcement of an award. Relying upon Gary B. Born, he stated:

“It is particularly important to be circumspect in suspending recognition proceedings given the underlying purposes of the arbitral process – being to resolve disputes efficiently, without the jurisdictional and other complexities attending the international litigation process. Delaying recognition and enforcement of an award directly frustrates this objective. Moreover, as one lower court also correctly reasoned, a stay of recognition “should not be lightly granted lest it encourages abusive tactics by the party that lost in arbitration. That is particularly problematic when the reason for the delay is merely the possibility that a national court will invoke local public policies, nonarbitrability exceptions, or idiosyncratic procedural rules to reverse the result of the parties” contractually agreed dispute resolution mechanism. Equally, delays in recognition and enforcement may increase the risk that the award-debtor will, either through commercial misfortune or deliberate actions by its shareholders, become insolvent or otherwise unable to satisfy the award against it.” [Emphasis added by Court]

However, Justice Castonguay also denied Specter’s request for security because he was critical of Specter’s conduct. A representative of United Mining Supply (a related corporation) admitted that that company held property owned by Laprade worth about US$900 million, which it had promised but failed to return to him:

“[26] It should also be noted that the undersigned has been the managing judge of this case since almost the very beginning of the proceedings and has been able to note certain exceptional facts, such as the numerous actions taken by the plaintiffs in various jurisdictions either in Guinea or in the States while they still had only one purpose, to recover the plane, while expropriating without compensation the important assets of Laprade in Guinea, currently under the control of UMS.

[27] The Court even asked [the representative of United Mining Supply] specific questions on this subject, and only received evasive answers.

[28] Moreover, here is one of the findings of the undersigned in a judgment of March 30, 2020, in this case:… ‘the evidence reveals that UMS has already dismantled the three helicopters and the BN2 aircraft into spare parts and that they were in containers, still in Guinea, ready to be shipped…’

[29] The Court considers that there are exceptional circumstances justifying granting the stay, while the Paris Court of Appeal rules on Laprade’s arguments.

[30] The same exceptional reasons justifying the stay are also valid for refusing the granting of security. The clean hands theory should apply.

[31] Since 2015, UMS and the plaintiffs have held property that they acknowledge having contributed to the defendant Laprade in the “Joint Venture” without returning it to him. These aerodynes have a minimum value of 900,000 USD.

[32 ] It would be unfair to grant bail to the plaintiffs while they are trying to take the law into their own hands.

Therefore, Justice Castonguay granted the stay, denied Specter’s request for security, and awarded costs in favour of Laprade.

Editor’s notes:

This case does not set a model of a fast, efficient, finite dispute resolution process. The parties had two agreements with different arbitration clauses. Proceedings were brought by way of arbitration and in the courts of Québec, Oklahoma, Guinea, and France. Justice Castonguay described this decision (which may not be the last in a Québec court), at paras. 1 and 2, as: “a new episode in a legal saga that dates back to the seizure before judgment of a Beechcraft Super King Air 300 aircraft (the “Airplane”) while it was in the Québec” and referred to the arbitral award as having followed, “a long and tortuous legal process”.