Québec – parties renounce referral to arbitration but court later confirms issues not public order, still arbitrable – #347

In Gestion George Kyritsis Inc. v. Balabanian, 2020 QCCS 1806, Madam Justice Claude Dallaire asserted public order limits to the arbitrability of certain disputes but, on the facts, held that the dispute did not pass those limits.  Dallaire J. held that where a declaration of improbation (annulment) is required to annul an authentic act received before a notary and registered in the land registry office, only a Superior Court could issue that declaration.  Challenge to the validity of a notarial act alleging a notary’s non-compliance with the mission given by legislation is a matter involving public order.  In the circumstances, because the nullity of the act could issue on grounds which did not require improbation, an arbitrator could have decided the matter.

The dispute involved Plaintiff, two (2) groups of impleaded third parties (“mis en cause”) (“MEC”) and Defendant regarding modifications Defendant unilaterally made to key documents governing the parties’ condominium co-ownership.

The parties’ application before Dallaire J. engaged the less-than-common article 209 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) which, by itself, comprises an entire division of the C.C.P. entitled “Determination of Issue of Law”:

Article 209 C.C.P. – The parties to a proceeding may jointly submit to the court a controversy between them on an issue of law raised by the dispute. The court determines the issue in the course of the proceeding if it considers that doing so is useful for the orderly progress of the proceeding; otherwise, it defers its determination of the issue until the judgment on the merits of the case”.

All parties sought to have a declaration issue on whether the determination of an issue in their dispute had to be made as an independent originating application or by way of an incidental application in the course of their existing action.

The parties had already made an uncommon procedural detour up to the Court of Appeal in Association des copropriétaires du 10355 Ave Bois-de-Boulogne v. Balabanian, 2019 QCCA 2165.  In that case, based on Defendant’s acquiescence, the Court of Appeal agreed to quash the decision in first instance which referred the parties to arbitration. The Court flagged, without deciding, whether a particular aspect of the claims sought could be granted in arbitration and summarily agreed to annul that earlier decision. No argument was made that the decision suffered any flaws.  See the earlier Arbitration Matters note “Appeal court quashes otherwise valid stay order due to defendants’ subsequent acquiescence

On the application before Dallaire J., apart from identifying whether the parties’ issue qualified under article 209 C.C.P., Dallaire J. questioned the utility of their application in light of the C.C.Q.’s principles of proportionality governing procedures taken by the parties or authorized by a court.

Article 18 C.C.P. – The parties to a proceeding must observe the principle of proportionality and ensure that their actions, their pleadings, including their choice of an oral or a written defence, and the means of proof they use are proportionate, in terms of the cost and time involved, to the nature and complexity of the matter and the purpose of the application.

Judges must likewise observe the principle of proportionality in managing the proceedings they are assigned, regardless of the stage at which they intervene. They must ensure that the measures and acts they order or authorize are in keeping with the same principle, while having regard to the proper administration of justice”.

In their dispute, subject to the now-waived arbitration agreement, Plaintiff/MEC alleged Defendant made unauthorized changes to the act (document) constituting the co-ownership of the condominiums.  That act has an important status.  The law grants its special features by (i) affecting the rights and obligations of all owners in the condominium development and (ii) providing notice of same to third parties. In particular, articles 1059 and 1060 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”) provide that the act constituting the co-ownership must be in the form of a notarial act en minute, be filed at the registry office and registered in the land register under the registration numbers of the common portions and the private portions of the immovable in question.  Under the applicable provisions, a notary has the status of a public officer for the mission assigned to him or her for a particular type of act.

Plaintiffs/MEC alleged that Defendant had met with a notary, armed with a power of attorney dated March 9, 2016 following a meeting of the co-owners held December 12, 2015, as well as a December 9, 2015 power of attorney signed by Plaintiff.  All those documents allowed the notary to believe that Defendant possessed the necessary authorizations to sign the act modifying the act constituting the co-ownership, as much in his own name as on behalf of Plaintiff/MEC.

All parties agreed that the notary made the necessary verification of the elements required by articles 2988 and 2991 C.C.Q. and the Notaries Act, CQLR c N-3 and that their litigation in no way questioned the notary’s work.  Plaintiff/MEC disputed the veracity of the powers of attorney.

The application made to Dallaire J. required her to decide, in advance of the hearing on the merits, whether the dispute had to follow a specific procedural format, called improbation, applicable to declaring such the act as ‘forgery’.

(i) authentic act – “Article 2813 C.C.Q. – An authentic act is one that has been received or attested by a competent public officer in accordance with the laws of Québec or of Canada, with the formalities required by law.

An act whose material appearance satisfies such requirements is presumed to be authentic”.

Article 2814(6) C.C.Q. deems that notarial acts are authentic documents if they conform to the requirements of the law.

Article 2818 C.C.Q. – The recital, in an authentic act, of the facts which the public officer had the task of observing or recording makes proof against all persons”.

An authentic document has a particular effect.  Not only does it bind the parties to it but article 2818 C.C.Q. stipulates that the recital in the authentic act of facts which a public officer had the task of observing or recording “makes proof against all persons”. Article 2821 C.C.Q therefore provides that improbation is necessary to contradict the recital in an authentic act of the facts which the public officer had the task of observing.

(ii) contesting an authentic act – Because of the particular effect accorded to authentic acts, article 258 C.C.P. et seq. sets out a specific way to challenge an authentic act.

Article 258 C.C.P. –  In the course of a proceeding, a party may ask that an authentic act intended to be used at trial by that party or another party or already filed in the record be declared a forgery.

Such an application may be made at any time before judgment, but after evidence is closed, it may be granted only if it is shown that the party had no earlier knowledge of the forgery”.

The party alleging forgery must provide an affidavit setting out the grounds in support of the allegation of forgery.

Article 2821 C.C.Q. gives a specific, formal title to the procedure of declaring such authentic documents to be forgeries.  The term is “improbation” (French: “inscription en faux”).

On the facts before her, Dallaire J. determined that the facts alleged did not attack the mission given by law to the notary and which justified qualifying the act as an authentic act.  Aside from dating and identifying the location at which the act is signed, the notary must attach an attestation to the act confirming that the notary personally verified the identity, quality and capacity of the parties and that the document represents the will expressed by the parties.

Since the facts disputed demonstrate that the notary had done that confirmation, the dispute therefore was not an improbation.  Rather, Plaintiff/MEC challenged the veracity of the documents presented by Defendant to the notary.  That challenge did not attack his mission and an improbation was therefore not applicable.

Dallaire J. closed her decision by underlining the procedural impact of the distinction she drew.

[informal translation] [95] That said, it seems relevant to underline that, in the event where a declaration of improbation had been required, to annul the act received before the [Notary], only a Superior Court could have issued that declaration, as the validity of a notarial act, in such a context, is a matter involving public order, given the nature of the act, which is authentic, and the identify and title of the public officer, of the person who prepared it”.

In her concluding line, Dalllaire J. did add that, if the nullity of the act could issue on grounds which did not deal with improbation (material or intellectual), an arbitrator could have decided the matter.

urbitral note – First, in her reasons, Dallaire J. pointed to H.A. Grétry Inc. v. 9065-3627 Québec Inc., 2009 QCCA 2468 in which the Court of Appeal reminded parties to arbitration agreements that, whatever the terms used to craft their agreement, it must comply with article 2639 C.C.Q.

 “Article 2639 C.C.Q. – Disputes over the status and capacity of persons, family matters or other matters of public order may not be submitted to arbitration.

An arbitration agreement may not be opposed on the ground that the rules applicable to settlement of the dispute are in the nature of rules of public order”.

The Court of Appeal held, at para. 4, that article 2639 C.C.Q. obliged an arbitrator, on his or her own initiative, to set aside evidence which tends to contradict the mission given to a notary.  

The Court noted, at para. 6, that the inadmissibility of such evidence is one of the rare rules of admissibility approved of on grounds of public order.  As the document affects the rights of parties beyond those in the litigation, special rules apply and place evidence and issues beyond the arbitrator’s jurisdiction. In that case, the arbitrator purported to annul a lease which had been notarized and registered in the land register and the Superior Court refused to homologate it because the arbitrator had exceeded the ‘implicit terms’ of the arbitration.  See the decision in first instance: 9065-3627 Quebec Inc. v. H.A. Gretry Inc., 2008 QCCS 6037.

Second, the reasons remind parties and arbitrators of the limits to using arbitration to affect rights and obligations of those not party to the agreement to arbitrate.  In the present case, legislation required that certain rights and obligations in dispute be published in the land register after specific verifications by a public officer and, having done so, have a broader effect.  Given that effect, a decision annulling such a document must issue from the courts. Once the rights and obligations involved require a court to make a determination binding on all or others, the parties and the arbitrator must consider whether all components raised in the dispute can be resolved in a private, confidential arbitration.

Despite this limitation of public order, the actual dispute did not raise facts applicable to that reserve of jurisdiction, did not attack facts related to the mission given to a public officer and could have gone through arbitration for a binding final decision.  Dallaire J. confirmed that the dispute could have remained in arbitration despite the detour up to the Court of Appeal.