Québec – partial award may determine scope of arbitration agreement for final award – #563

In Maïo v Lambert, 2021 QCCS 3884, Justice Castonguay denied an application to annul in part and modify a final award. He found that the arbitrator did not exceed the scope of his mandate, including in how he ruled on matters that had been circumscribed in a prior partial award, and that the applicant was essentially seeking an improper review of the merits of the dispute.

In the arbitration, applicant Maïo alleged that he was in partnership with the respondents Lambert and ISL Technologie inc., who were of the view that Maïo was a mere employee of ISL until he was dismissed on February 13, 2015. On November 23, 2016, a first arbitrator split the proceedings in two: in the first stage, the matter would proceed on determining Maïo’s status, and in a second stage, on attributing a value to Maïo’s claim. On December 5, 2017, a partial award was rendered, concluding that: 1) the parties were in a sui generis partnership; 2) Maïo was entitled to acquire a 50% interest in that partnership in consideration for paying half its fair market value as at the inception of the parties’ association on June 12, 2012; and 3) that he was entitled to be paid 50% of the fair market value of the partnership at the time of his dismissal. The second stage of the proceedings would therefore pertain to determining the fair market value of the partnership in 2012 and 2015 to determine the amounts owed to Maio and to rule on the costs of the arbitration.

The respondents challenged the partial award on the basis that it exceeded the scope of the arbitration agreement. Their application was dismissed by Justice Riordan on February 18, 2019, despite noting that the arbitration agreement might be lacking in some respect. Due to the first arbitrator’s declining health, the second stage proceeded before another arbitrator from September 2019 to September 2020, punctuated by a plethora of interlocutory requests by Maïo, resulting in twelve procedural orders being rendered, some of which he unsuccessfully challenged before the Québec Superior Court. On November 20, 2020, the second arbitrator rendered a final award ruling, among other things, on 1) the value of Maïo’s interest as at February 15, 2015; 2) that the respondents’ conduct in the arbitration fell below the standard of good faith expected; and 3) that the arbitration costs were to be born equally by the parties.

Maïo applied to the Québec Superior Court for an annulment in part of the final award as to the equal allocation of the arbitration costs and for a modification of the final award with respect to the profits generated by the partnership, in addition to damages to indemnify him for the respondents’ conduct in the arbitration.

Justice Castonguay noted that article 648 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) provides for an application for annulment as the only way to challenge an arbitration award. In such a contest, the Court “cannot review the merits of the dispute” (article 645 C.C.P.) and is limited to determining whether one of the five situations set out at article 646 C.C.P. presents itself. In the case at hand, Maïo specifically invoked subparagraph 1(5) of article 646 C.C.P., alleging that the award contained a conclusion on matters beyond the scope of the arbitration agreement.

The Court’s role in deciding an application for annulment – Justice Castonguay referred to the Minister of Justice’s comments on article 648 C.C.P., which came into force into 2016, to confirm that the provision did not change settled law on the matter, such that the Supreme Court of Canada’s teachings in Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 remain applicable. In short, the judicial review or appeal of the merits of awards cannot be allowed if the autonomy of arbitration is to be respected. More recently, the Québec Court of Appeal reiterated in Endorecherche inc. v. Endoceutics inc., 2015 QCCA 1347 that the Court is not authorized to assess the reasonability of an award. The Court’s intervention is unwarranted if [informal translation] “a connectedness exists between the arbitration agreement and the result to which the arbitrator arrived”.

The relation between the partial and final awards – Maïo disagreed with being awarded an interest in the partnership solely for the period 2012 to 2015. For Justice Castonguay, the fact that the partial award ruled on that question and was not annulled by the Riordan judgment meant that the first arbitrator did not exceed his jurisdiction. Therefore, the second arbitrator had to proceed based on that factual determination to decide the remaining questions and was limited to attributing a value to that interest (par. 33, 37).

Justice Castonguay also noted that while the arbitration agreement might have been incomplete in some respects, the partial award did remedy that situation in delineating the second arbitrator’s jurisdiction, specifically with respect to awarding costs for both stages of the proceedings (par. 43). The Court was therefore not authorized to revisit that question, which fell well within the second arbitrator’s jurisdiction.

Contributor’s Notes:

First, the case illustrates the impact that a partial award may have on a party’s ability to challenge a partial award based on an excess of jurisdiction. Indeed, the Court found that a partial award – especially if unsuccessfully challenged – may serve to determine what is covered by the arbitration agreement. While it is questionable whether a partial award can legitimately and retroactively extend the scope of an arbitration agreement, it is difficult to assess whether this was the case in this matter, for the judgment does not cite the applicable arbitration agreement.

Second, for a more complete treatment of the Court’s power to intervene at the stage of an application for annulment of an award, the Québec Court of Appeal ruling in Endorecherche inc. v. Endoceutics inc., 2015 QCCA 1347 must be read in conjunction with the related ruling in Endoceutics inc. c. Philippon, 2015 QCCA 1346, which more specifically addresses the applicant’s burden of proof. The ruling was discussed in Arbitration Matters Case Note Québec – court holds parties to their bargain to refuse challenge to arbitral award – #036.