Québec – non-respect of delays in arbitration agreement insufficient to annul award – #168

In Carpenter v. Soudure Plastique Québec inc., 2019 QCCS 321, Madam Justice Silvana Conte refused to annul an award merely because delays in the arbitration agreement had been exceeded or that the arbitrator had reserved jurisdiction on certain issues.  She held that the delays had not only been waived but were insufficient to undermine the award and that arbitrators had jurisdiction to reserve issues for later determination.   Despite an initial willingness to pay, Defendant successfully argued that certain payment orders were vague, leading Conte J. to homologate the award only in part. Because the monetary value of the disputed orders fell below her jurisdiction, she referred the parties to the Court of Québec to determine whether they had a binding, post-award settlement agreement regarding payment.

In March 2017, the parties agreed to arbitrate their dispute stemming from a franchise agreement.  An arbitrator was named in May 2017 but the parties did not prosecute the matter with sufficient diligence, leading the arbitrator in January 2018 to impose a timetable to prepare the case and to set a May 2018 hearing on the merits.  At the request of Defendant, the hearing was rescheduled to July 2018.  The lasted nine (9) days and resulted in an October 1, 2018 award (“Award”) with a detailed 15 paragraph, dispositive section.

Immediately after the Award issued, the parties’ attorneys exchanged numerous letters regarding voluntary execution of the Award.  Through its attorneys, Defendant confirmed in writing its intention to respect the Award and its willingness to make the payments ordered without further notice or delay.  Further exchanges between the parties’ attorneys clearly stated the amounts to be paid following the Award.

Defendant then changed attorneys and soon after refused to make the payments.  Plaintiffs applied to the Superior Court to homologate the Award.  Defendant contested the application and applied to annul it in its entirety.  At the hearing of the applications, Defendant narrowed its application to annulling only the final two (2) orders of the Award.

Plaintiffs argued that they and Defendant had negotiated a binding, post-Award transaction concerning execution of the Award.  Québec’s Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”) identifies a special form of settlement agreement which is deemed to have the effect of res judicata between the parties regarding the dispute the transaction agrees to settle.

Article 2631 C.C.Q. Transaction is a contract by which the parties prevent a future contestation, put an end to a lawsuit or settle difficulties arising in the execution of a judgment, by way of mutual concessions or reservations.

A transaction is indivisible as to its subject.

Article 2633 C.C.Q. A transaction has, between the parties, the authority of res judicata.

A transaction is not subject to forced execution until it is homologated.

The transaction can be given the effect of a court judgment if homologated by the court as provided by Article 528 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”):

Article 528 C.C.P. Homologation is approval by a court of a juridical act in the nature of a decision or of an agreement. It gives the homologated act the same force and effect as a judgment of the court.

The homologating court only examines the legality of the act; it cannot rule on its advisability or merits unless a specific provision empowers it to do so.

This provision omits mention of the accepted practice in which consent awards can be issued by an arbitral tribunal which use the arbitration parties’ agreement as the basis for an award.

Defendant objected to homologation of the transaction.  It first sought to have the issue of homologating the transaction separated from the application to recognize and enforce the Award.  At the hearing, Defendant argued subsidiarily that the transaction be homologated by the arbitrator.

Conte J. refused to refer the homologation of the transaction to the arbitrator for two (2) reasons.  First, the arbitrator has no jurisdiction to do so under Québec law. By the express, combined terms of Article 2633 C.C.Q. and Article 528 C.C.P., only a court can “homologate” an article 2631 C.C.Q. transaction.  Even if the transaction stemmed from a dispute related to the Award, the arbitrator lacks jurisdiction to deal with the dispute.  Conte J. referred to Bédard v. Centre d’accueil relais jeune Est inc., 1995 CanLII 5109 (QC CA), para. 12 and 9056-1457 Québec inc. (Construction Beauchamp Ouellet inc.) v. Descoteaux, 2008 QCCA 1164.

Second, the amounts covered by the alleged transaction were less than $85,000.00. Article 35 C.C.P. stipulates that the Court of Québec has jurisdiction to hear and determine disputes in which the value of the subject matter is less that $85,000.00, exclusive of interest.  Because the amount was below the jurisdiction granted to the Superior Court, Conte J. referred the homologation of the transaction to the Court of Québec for determination.  Conte J. also referred to the Court of Québec Plaintiffs’ claim for abuse of procedure as the claim was related to the transaction and the monetary amount sought also fell within the Court of Québec’s jurisdiction.

Defendant claimed that the Award should be annulled because it had issued well after the delays set out in the parties’ arbitration agreement. The agreement required the parties to present their cases to the arbitrator within thirty (30) days of nominating the arbitrator and the arbitrator had to issue an award within twenty (20) days of the close of the hearing.

Conte J. dismissed Defendant’s argument.  Article 646(3) C.C.P. provides that a court cannot refuse to homologate an award unless it is proved, inter alia, that “the applicable arbitration procedure was not observed”.  She held that the expression “applicable arbitration procedure” referred to the entire process and not just the wording of the arbitration agreement, and referred to Desputeaux v. Éditions Chouette (1987) inc., [2003] 1 SCR 178, 2003 SCC 17 para. 35:

[35] Despite the unfortunate uncertainties that remain as to the procedure followed in defining the terms of reference for the arbitration, they necessarily included the problem referred to as “co‑authorship” in the context of this case.  In order to understand the scope of the arbitrator’s mandate, a purely textual analysis of the communications between the parties is not sufficient.  The arbitrator’s mandate must not be interpreted restrictively by limiting it to what is expressly set out in the arbitration agreement.

The evidence before Conte J. demonstrated that the parties had, from the start of the arbitration, expressly renounced to the delays provided in the arbitration agreement.  Their renunciation appeared in the minutes for the first case management meeting.  In addition, they each had recognized that the delays were ‘unrealistic’ and had to be ‘set aside’.  Defendant’s own conduct supported these findings, including its own request to postpone the merits hearing and its initial willingness to respect the Award despite it having issued after the 20 day delay.

Independent of the above, Conte J. held that the delays were not de rigueur.  Referring to Marquis v. Patel, 2014 QCCA 97, para. 4, Société en commandite Tafisa Canada v. 157498 Canada Inc., 2004 CanLII 8689 (QC CS) and Bissonnette v. Comité d’arbitrage des comptes des avocats du Barreau du Québec, 2009 QCCS 3198, Conte J. held that, for some time, even in the absence of agreement, such delays were not valid grounds for depriving an arbitrator of jurisdiction or for contesting homologation.

Conte J. considered Defendant’s claim that the certain payment orders of the Award should be annulled because they were not liquidated, failing to state the actual amounts to be paid.  The facts set out Conte J.’s reasons confirmed though that the parties to the arbitration clearly understood the terms of the dispositive section of the award.  Counsel for Defendant had acknowledged in writing Defendant’s willingness to abide by the terms of the Award.  Only after having changed counsel did Defendant then resist complying with the undertaking which Plaintiffs asserted had been made. 

Conte J. viewed the issue in the context of homologating the Award and making it an order of the court. Doing so raised a conflict between what had been clear in the arbitration and what might be unclear if the court homologated an award. In homologating the Award, a court has to consider if the dispositive would also meet the court’s own criteria.  Though aware that Defendant knew the scope of the payment obligations, Conte J. was bound by the provisions of the court’s rules.

Article 328 C.C.P.  A judgment rendered against a party must be capable of being executed. A judgment awarding damages must liquidate the damages; a judgment finding persons solidarily liable for injury must, if the evidence permits, determine the share of each of those persons in the award as between them only.

Conte J. referred to Québec (Régie de l’assurance maladie) v. Fédération des médecins spécialistes du Québec, 1987 CanLII 901 (QC CA), para. 18 which refused to homologate an award because, in that case, the award omitted to state exactly what had to be done.  She noted that this approach had been applied in the past: Coopérative des techniciens ambulanciers de l’Outaouais v. Régie régionale de la santé et des services sociaux de l’Outaouais, 2002 CanLII 63143 (QC CS); Association des abattoirs avicoles du Québec inc. v. Québec (Régie des marchés agricoles et alimentaires), 2000 CanLII 19214 (QC CS), para. 13; Grunbaum v. Grunbaum, 2002 CanLII 27914 (QC CS), para. 14 ; and, Coop services et recherches santé 3ième millénaire (S3M) inc. v. Confection médicale D.R. inc., 2005 CanLII 45380 (QC CS), para. 13.

Conte J. also dismissed Defendant’s argument that the payment orders constituted a refusal by the arbitrator to deal with the dispute.  She noted that the courts had readily recognized an arbitrator’s authority to reserve jurisdiction and that doing so was not a refusal.  Referring to Société en commandite Tafisa Canada v. 157498 Canada Inc., 2004 CanLII 8689 (QC CS), paras 20-23 and Gentec inc. v. Turmel, 1997 CanLII 10596 (QC CA), she held that the Award could be homologated despite the reserve made by the arbitrator.

Despite the evidence that the parties knew how to perform those two contested orders, Conte J. granted Defendant’s objection in part, limiting it to those the payment orders.  Despite having referred the parties to the Court of Québec to determine if the post-award agreement on payments was valid or not, she ‘invited’ the parties to return before the arbitrator to have that dispute settled.