In Investissements Immobiliers MB inc. v. SMP Direct inc., 2023 QCCS 4526, the Superior Court dismissed the application of Investissements Immobiliers MB inc (“Plaintiff”) to partially revoke a judgment homologating an arbitration award. In her decision, the Judge ruled that the Plaintiff had delayed acting without justifying the delay and that the application for revocation of the homologating judgment had no reasonable chance of success. The background is complicated. The application followed multiple proceedings between the court and the Arbitrator. The Plaintiff (Claimant in the Arbitration) applied to the court to annul the arbitration award on the basis that the Arbitrator had exceeded his jurisdiction. Then, before that application was decided, the Plaintiff returned to the Arbitrator for revocation of the award based on the fact that there was subsequent information that he had not considered that would affect the result. The Arbitrator refused to hear Plaintiff’s demand before the Court ruled on the Plaintiff’s annulment application. The Court homologated the award. Plaintiff’s application for leave to appeal was dismissed. The Arbitrator then dismissed the application for revocation. He found that the Court must revoke the homologating judgment first, which made the issues ruled in the arbitration award revocation issue because the homologating judgment give the award the force of res judicata. The Plaintiff’s later return to the court to revoke the homologating judgment was too late – five months later. The lesson? An arbitrator has no jurisdiction to revoke an award that has been homologated in a court judgment.
The Arbitration – This parties were involved in a shareholder dispute. In a Notice for Arbitration, the Claimant Investissements Immobiliers MB inc.’s (Plaintiff in the Court proceeding) and Respondent SMP Direct inc (Defendant in the court proceeding) each held 50% of the shares in Investisements AQM (the Company, an impleaded party). Claimant sought an order requiring the redemption of all the Respondent’s shares in the Company. Claimant alleged fraud and misappropriation of the Company’s funds by the Respondent, which was a remedy permitted in their shareholders’ agreement. The parties gave the Arbitrator the powers of an amiable compositeur. The Arbitrator dismissed the Claimant’s claims and ordered it to irrevocably offer its shares in the Company to the Respondent and fixed the value of the shares as $1,380,200.
A few days before the award was rendered, a fire destroyed one of the Company’s buildings. The Arbitrator was not informed of this fact before he rendered the award.
The Court application for annulment of the award – Claimant filed a court application for annulment of the award, arguing that the Arbitrator had no jurisdiction or exceeded his jurisdiction by ordering the sale of its shares in the Company to the Respondent. Respondent opposed the application and sought homologation of the award.
Application before Arbitrator for revocation of award – While waiting for these applications to be adjudicated by the Court, Claimant informed the Arbitrator of the fire. It sought a partial revocation of the award on the basis that the share value agreed upon by the parties during the arbitration was no longer valid now that the building was destroyed. Claimant asked the Arbitrator for a new hearing on this specific question in conformity with section 345 (4) C.C.P.. This section allows revocation of a judgment/award on application by a party when evidence has been subsequently discovered that would probably have led to a different decision.
The Respondent opposed this demand asking the Arbitrator to wait for the Court decision on the Arbitrator’s jurisdiction. The Arbitrator agreed with Respondent’s position.
Amended Court application – Therefore, Claimant amended its application to the Court, asking the Court to return the matter to the Arbitrator to determine the value of the shares in the event that the Court ruled that the Arbitrator had the jurisdiction to rule as he did. Claimant argued that it had been prevented from arguing its case on this issue.
The Court’s judgment on the application for annulment – Following the hearing on the application for annulment/homologation of the arbitration award, the Court dismissed Claimant’s application for annulment and homologated the arbitration award.
The appeal – Plaintiff sought permission to appeal from the Court’s homologation judgment. The Court of Appeal dismissed its application.
The application to Arbitrator for revocation of the arbitration award – Following the Court of Appeal’s decision, Claimant re-filed its application for partial revocation of the arbitration award before the Arbitrator, based on section 345 (4) C.C.P.:
“345. A judgment may, on a party’s application, be revoked by the court that rendered it if letting the judgment stand would tend to bring the administration of justice into disrepute. The judgment may be revoked, for instance, if fraud was committed by another party, if the judgment was based on false exhibits or if the production of decisive exhibits was prevented by superior force or by the act or omission of another party.
As well, a judgment may be revoked if
[…]
(4) evidence was subsequently discovered that would probably have led to a different judgment if the party concerned or its lawyer had become aware of that evidence in sufficient time, although they acted with due diligence.“
The Claimant pleaded that the insurer’s valuation with respect to the destroyed building qualified as “subsequently discovered evidence” that would have led the Arbitrator to determine a lowerhigher value for the purchase of Claimant’s shares by the Respondent. Therefore, the Claimant asked the Arbitrator to revoke this portion of the award and reconsider the evaluation of the shares’ value.
The Arbitrator dismissed Claimant’s application based on the Court of Appeal’s decision in Ungava mineral Exploration Inc. v. Mullan, 2008 QCCA 1354. In this judgment, the Court of Appeal ruled that the revocation of a homologated arbitration award requires the prior revocation of the court order homologating the award because the judgment is a final Court’s decision with the force of res judicata.
The application for revocation of the homologating judgment – In reaction of the Arbitrator’s ruling, Claimant finally applied to the Court for revocation of the homologating judgment, more than five months after the judgment was rendered.
Claimant argued that the first instance Judge failed to rule on the subsidiary conclusion added by Claimant by way of amendment. The Court homologated the arbitration award but did not rule on Claimant’s demand to return the matter to the Arbitrator for the re-evaluation of the shares’ value. Claimant argued also that the delays resulted from a misunderstanding of the proceedings by its attorneys, who learned from the Arbitrator’s second decision that the revocation of the judgment was required as a first step.
The Court dismissed Claimant’s application because it had not given a satisfactory explanation for the delays but also because it had no reasonable chance of success on the merit of the application.
Contributor’s Notes:
Although complicated by the multiple parallel arbitration and court proceedings taking place, this case reaffirmed the rules applicable to the revocation of a homologated arbitration award. The impact of the homologation of the award is important: the homologated award acquires the force of res judicata. The Arbitrator is functus officio and cannot act without the prior revocation of the homologation decision as the Court of Appeal ruled in Ungava mineral Exploration Inc. v. Mullan, 2008 QCCA 1354.
Res judicata is applicable to arbitration awards as an integral part of the judicial system. This is important because it ensures stability and avoids the multiplicity of Courts and arbitration proceedings on the same matters.
For example, in Papadakis c. 10069841 Canada inc., 2020 QCCS 32 the Court dismissed a court action and granted damages as a result of the abuse of rights by a Plaintiff who tried to re-litigate issues already decided in an arbitration award on the basis that they were res judicata. (See case note Québec – court litigation deemed abusive attempt to evade res judicata of homologated award – #292).