In McLaren Automotive Incorporated v. 9727272 Canada inc., 2024 QCCS 389, the Superior Court dismissed the application of McLaren Automotive Incorporated (“Applicant”) to stay the arbitration until the Superior Court had ruled on the merits of its applications: (1) to homologate the Arbitrator’s award concluding that he had no jurisdiction to act; and (2) to annul the arbitration appeal panel’s decision to overturn the arbitrator’s award on its own jurisdiction. The Judge reviewed the applicable criteria for a stay of the arbitration He concluded that exceptional circumstances are required to obtain a stay because of the respect that Courts must show toward arbitration agreements and the principle of limited interventions that the Court must follow in arbitrations. The Judge ruled that no such exceptional circumstances were demonstrated by the Applicant in the present case. But the case is worth watching. The institutional rules under which the arbitration proceeded allowed for an appeal to a panel of arbitrators. The issue will be whether the appeal is permitted in Québec where, pursuant to section 648 CCP “an arbitration award may only be challenged by way of an application for annulment”. There is no appeal right.
The relationship between the parties – The Applicant was the distributor of McLaren cars and spare parts in Canada. The Respondent was a McLaren dealership in Laval. The dealership opened in 2017 following the conclusion of a Conditional Agreement between the parties. Afterward, the official Dealer Sales and Service Agreement (“DSSA”), which was contemplated, was never signed. An arbitration agreement was included in both the Conditional Agreement and the DSSA. However, the first agreement required the parties to resolve their disputes pursuant to the Rules of the American Arbitration Association (“AAA”) and the second pursuant to the Rules of the National Automobile Dealer Arbitration Program (“NADAP”) administered by ADR Chambers.
The Arbitration – A dispute arose between the parties following the Applicant’s decision to open a new McLaren dealership in Quebec City. The Respondent filed an arbitration notice under the NADAP Rules to resolve the dispute. The Applicant contested the Arbitrator’s jurisdiction because the DSSA was never signed by the parties. The Arbitrator agreed with the Applicant and declined jurisdiction. The Respondent appealed this decision to an arbitration appeal panel as provided for in the NADAP’s Rules. The arbitration appeal panel overturned the decision and ruled that the arbitrator appointed under the NADAP Rules had jurisdiction to arbitrate the dispute between the parties.
The Court application for homologation and annulment – Before the Arbitrator had ruled on the merits of the dispute, the Applicant filed for the homologation of the Arbitrator’s award declining jurisdiction and for the annulment of the appeal panel’s decision overturning the Arbitrator’s jurisdiction award. The Court described the relief sought as follows:
“[16] More specifically, what McLaren is now seeking before the Superior Court is the homologation of the arbitration award of the first arbitrator and the annulment of the decision of the appeal panel, notably on the following grounds :
a. the NADAP rules pertaining to appeal right to an appeal panel are invalid under Québec law since an arbitration award may only be challenged by way of an application for its annulment under articles 632 and 648 of Code of civil procedure, as the case may be;
b. the NADAP appeal procedures are contrary to public order;
c. the NADAP appeal decision pertains to a dispute beyond the scope of its rules, in that the rules do not allow for the determination of whether an agreement exists or whether the parties are bound by the DSSA which they never signed;
d. The procedure for the appointment of the arbitrators of the panel appeal was not observed.”
The hearing on the merits of the homologation/annulment application was scheduled to take place at the end of March, 2024.
The application for a stay of the arbitration – The Applicant sought a stay of the arbitration until the Court ruled on the merits of the homologation and annulment applications.
The Judge reviewed the applicable criteria to obtain a stay of the arbitration.
The Applicant argued for the criteria outlined in Manioli Investments v. Investissements MLC, 2008 QCCS 3637, which concerned an application for a stay of proceedings before the Superior Court pending an appeal to the Court of Appeal. They take into account the connection between the proceedings sought to be stayed and the pending appeal, the principle of proportionality, the risk of contradictory rulings and multiplicity of proceedings, and the resulting costs for the parties. However, a court will refuse a stay where it does not appear that a judgment rendered on the appeal will resolve in whole or in part the other proceeding or where the link between the issues before the two courts is not clearly apparent. The Judge disagreed with the Applicant and ruled that the Manioli decision did not apply because arbitration is a different forum than a court.
In the alternative, the Applicant argued that the applicable criteria should be those for issuing injunctions, as in Manitoba v. Metropolitan Stores¸ [1987] 1 R.C.S. 110, which concerned the suspension of proceedings before an administrative tribunal by the Superior Court.
On the contrary, the Respondent argued that the principles set out in Hypertec Real Estate v. Equinix Canada, 2023 QCCS 2098, were applicable:
“[44] Without necessarily disagreeing with the above decision, I am of the view that given the importance that both the provincial and federal legislatures in Canada and the highest court in this country have given to such parallel-to-the-courts dispute resolution mechanisms, something more stringent than special circumstances is required for granting a stay under article 632(4) C.C.P.
[45] To be more precise, in my view, the granting of a discretionary stay in the context of consensual arbitrations taking place in Quebec requires “exceptional circumstances”, which must be carefully considered by a competent court on a case-by-case basis.”
Without ruling immediately on the applicable criteria, the Judge decided to examine the Applicant’s demand in the light of the injunction criteria, which were the most favorable to Applicant’s position.
First, the Judge recognised that the validity of an arbitral appeal panel’s decision in Québec raises interesting questions of law. However, he ruled that it was not sufficient to justify an appearance of right for the Applicant. The Judge ruled that the Applicant failed to demonstrate that its position had a serious chance of success on the merits.
Second, the Judge ruled that the Applicant failed to demonstrate the existence of an irreparable or serious prejudice if it was required to continue the arbitral process it had itself required in the contract governing the parties’ relationship.
Third, the Judge found that the Respondent would suffer more harm if the stay was granted than the Applicant because the Respondent was currently waiting for a decision from the Arbitrator on interlocutory relief it sought in the arbitration process. However, the issue was not detailed in the judgment.
None of the criteria for obtaining an injunction justified the Applicant’s demand for a stay of the arbitral proceedings.
Furthermore, the Judge concluded that no exceptional circumstances could justify the stay.
The Judge ruled that the Court should act with great caution when intervening in a consensual arbitration process. In respect of the Legislator’s intent to favour arbitration, the Court was required to limit its intervention in arbitration matters and leave the management of the case to the arbitrator:
“[63] The Superior Court may, as a last resort, order such a suspension, but this should be rare, or even limited to exceptional situations.
[…]
[65] The very purpose of arbitration is to enable the parties to settle any dispute expeditiously and in a simplified procedural environment. Suspending arbitration would jeopardize this objective.”
Therefore, Applicant’s request for a stay of the arbitral proceedings was dismissed.
Contributor’s Notes:
First, this decision is interesting because of the position taken by the Court toward arbitration. The Judge took the position that the Court shall respect the parties’ decision to resolve their dispute by the provisions they deem appropriate, in the present matter by way of arbitration. Here, the party that had drafted the contract to include arbitration wanted relief from it. The Judge reaffirmed the principle of limited court intervention in arbitration matters and the primary jurisdiction of the arbitrator over the management of the process. Therefore, only exceptional circumstances justify the Court to stay an arbitration process – and only as a last resort.
The Judge’s reasons rely upon a long list of precedent and contribute to the strong culture of arbitration in Québec. The Judge mentioned Dell Computer Corp. v. Union des consommateurs, 2007 CSC 34; Telus Communications inc. v. Wellman, 2019 CSC 19 (see previous case note: Supreme Court – cumbersome task of sorting of consumer/non-consumer claimants does not authorize courts to recast arbitral legislation – #185); Fraternité des policiers et policières de Montréal v. Ville de Montréal, 2018 QCCA 857; and Hypertec Real Estate Inc. v. Equinix Canada Ltd., 2023 QCCS 2098 (see previous case note : Québec – Property Appraisal Process not Contrary to Public Order – #668). But we are also reminded of: Desputeaux v. Éditions Chouette (1987) inc., 2003 CSC 17; Groupe Dimension Multi Vétérinaire inc. v. Vaillancourt, 2020 QCCS 1134 (see previous case note: Québec – default is all disputes subject to broadly-worded arbitration agreement un less expressly excluded – #309); and 10053686 Canada inc. v. Tang, 2021 QCCS 3467 (see previous case note: Québec – Court favors arbitration even for related, but non-signatory, parties – #541) to name just a few.
Second, this case is worth following. The question of the validity of an arbitration appeal panel in Québec will be of great interest because of the drafting of article 648 CCP:
“648. Application for annulment – An arbitration award may only be challenged by way of an application for its annulment. […]”
To be followed!