In Hypertech Real Estate Inc. v. Equinix Canada Ltd, 2022 QCCS 3368, Justice Corriveau dismissed an application to annul an arbitral award on the basis that a property appraisal process was “contrary to public order” pursuant to Article 646 of the Québec Code of Civil Procedure (“the CCP”). Under the terms of an option to purchase property (the “Property”), Hypertech Real Estate Inc. (“Hypertech”) and Equinix Canada Ltd. (“Equinix”) submitted appraisal valuations. Purchaser Equinix’s appraisal was some $60,000,000 lower than seller Hypertec’s. In arbitration, Hypertec maintained that Equinix’s appraisal was so flawed it should be excluded from consideration. The arbitral tribunal reviewed the appraisal in “Phase I” of the arbitration and rendered an award finding that the appraisal contained no fundamental flaws. Hypertec unsuccessfully argued before Justice Corriveau that the arbitral tribunal erred in two respects: (1) in its interpretation and application of rules of public order; and (2) that the award reasons were insufficient, which was contrary to public order.
Background: Hypertec and Equinix were parties to a 2010 Lease of Property in suburban Montréal (the “Lease”). The Lease included an option for Equinix to purchase the Property for fair market value, to be determined by an appraisal process. In 2021, Equinix exercised the option to purchase. There was a substantial discrepancy between the parties’ appraisers’ fair market valuations: Hypertec’s appraisal―$142,300,000; and Equinix’s appraisal―$80,700,000. Hypertec initiated arbitration under the terms of the Lease of Property, seeking an order that Equinix’s appraisal be excluded because it was so flawed, leaving only Hypertec’s appraisal to establish the purchase price.
The Lease of Property contained a further process for resolving appraisal disputes. In the event that the difference between the parties’ appraisals was more than 15% of the lower appraisal (which was the case here), a final and binding third appraisal report would be obtained. Pursuant to this process, Equinix submitted a list of five appraisers. Under protest, Hypertec selected an appraiser. According to the third appraisal, the property value was $114,500,000.
The arbitration: The arbitral tribunal considered Hypertec’s request to exclude the Equinix appraisal in a Phase I hearing, reserving additional disputes for a subsequent “Phase II hearing”.
In the Phase I Award, the tribunal rejected Hypertec’s claim that the Equinix appraisal contained fundamental flaws. The tribunal also rejected Hypertech’s contentions that the Equinix appraiser breached professional standards, failed to act independently, or failed to act in good faith. The tribunal ruled that the parties must follow and complete the appraisal process provided under the Lease of Property.
Hypertec applied to the Québec Superior Court to annul the Phase I Award and stay the Phase II hearing.
Québec Superior Court decision: Justice Corriveau declined to annul the Phase I Award or issue a stay. She rejected Hypertec’s arguments that: (1) the tribunal erred in its interpretation and application of rules of public order; and (2) that the Award contained insufficient reasons.
On the first issue, Justice Corriveau set out the applicable provisions of the CCP concerning annulment of arbitral awards:
“[42] Articles 645 and 646 CCP – through this article 648 CCP – specify that:
645. (…)The court seized of an application for the (… annulment) of the award cannot review the merits of the dispute.
(…)
The court cannot (… annul) the arbitration award on its own initiative unless it notes that the subject matter of the dispute is not one that may be settled by arbitration in Québec or that the award or measure is contrary to public order.”
Justice Corriveau reviewed cases explaining review and annulment of an arbitral award on the basis of public order in Québec, including the primary authority, Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17. In Desputeaux, the Supreme Court of Canada denied that a copyright dispute was matter of public order incapable of submission to arbitration. The Court explained that review of an arbitral award to determine whether it should be annulled as violation of public order was limited to a determination of whether the overall outcome of the arbitration was in conflict with the relevant fundamental principles of public order Applying the principles of Desputeaux, Justice Corriveau reiterated that challenges to arbitral awards on the basis of public order review are very narrow:
“[51] …even if an arbitral award rests on an erroneous interpretation and application of rules of public order does not imply that its disposition of the dispute is contrary to public order.”
Justice Corriveau then set out factual findings from the Phase I Award concerning the appraisal evidence and ruled:
“[66] These reasons and underlying conclusions cannot be reviewed or questioned by the Court as it could not look further past them without going into the merits of the case, which it cannot do.”
With respect to the second ground of annulment relating to the sufficiency of the reasons in the Phase I Award, Justice Corriveau observed:
“[52] …failure to provide any reasons in support of an arbitration award could be held as contrary to public order. However, when it comes to the ‘sufficiency of reasons’ the requirements are not as severe.”
…
[70] The Arbitration tribunal’s reasons are clear and intelligible within the applicable legal standards, and contrary to Hypertec’s contention, there is no question that they allow the Parties to understand the reasoning which led the Tribunal to dispose of the matter as it did.
[71] Even if the Arbitration tribunal did not refer to every piece of evidence or argument, but it was not required to do so, its dismissal of some aspects of the evidence and of the arguments may be validly subsumed within its reasons.”
She dismissed Hypertech’s application to annul the Phase I Award and refused to stay the arbitral proceeding.
Contributor’s Note:
A Phase II hearing in the arbitration has been scheduled for mid-October 2022, fifteen months after Equinix exercised the option. Considering tens of millions of dollars are in issue, and a pit stop at the Québec Superior Court was required, the dispute has moved forward relatively expeditiously. The additional disputes to be heard in Phase II are not set out in Justice Corriveau’s reasons, but presumably the tribunal will consider the third appraisal and rule on the Property value.
Unsurprisingly, when parties lose arbitrations, they consider recourse to the courts. They sometimes seek to step behind the award and to argue against findings of fact. Justice Corriveau found that Hypertec’s essential challenge was to primary evidence―Equinix’s appraisal report―as understood and interpreted in the Award. The recourse options against arbitral awards in Québec are very limited and there is no appeal provision in the CCP, which perhaps explains the annulment application.
Even if there had been an appeal provision, the Supreme Court of Canada’s landmark decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 has to be recalled. The Court unanimously confirmed that British Columbia’s appeal provision was “absolute” in the context of commercial arbitration and “forbids review of an arbitrator’s factual findings” (para. 104). The arbitration act appeal provisions in other Canadian common law jurisdictions are substantially similar. Despite these airtight directives, some courts view reassessment of the factual findings and, indeed, the arbitration record itself as permissible. See Escape 101 Ventures Inc. v. March of Dimes Canada, 2022 BCCA 294, and the discussion in a recent Arbitration Matters Case Note: Material misapprehension of evidence is an extricable error of law – #662.