Canada – ‘State of the Current Case Law’ Justifies Leave to Appeal Raising Autonomy of Agreement to Arbitrate

Mar 2021

This article first appeared on Urbas Arbitral, here.

Referring to the ‘state of the current case law’, Mr. Justice Frédéric Bachand in Specter Aviation v. Laprade, 2021 QCCA 183 determined that the proposed appeal questions involving aspects of arbitral law merited the Court of Appeal’s attention. The questions included whether: (i) the judge disregarded the principle of the autonomy of the agreement to arbitrate when concluding that Applicants could not invoke both the agreement to arbitrate and the nullity of the liquidation contract containing it; (ii) Applicants had waived the agreements to arbitrate despite having reiterated their consent to arbitrate; and, (iii) the judge incorrectly assessed the impact of article 3152 of the Civil Code of Québec, CQLR c CCQ-1991 in a contract having extraneous elements.  Though he did order the suspension of the Superior Court proceedings, Bachand J.A. declined to order the suspension of the arbitration undertaken before the Chambre Arbitrale Internationale de Paris. He determined that doing so would breach the autonomy of international arbitration and violate the limitations imposed on courts by article 622 of the Code of Civil Procedure, CQLR c C-25.01.

For more on the context of the dispute, procedural history and arguments made in first instance, see the earlier Arbitration Matters note on Specter Aviation v. Laprade, 2020 QCCS 4392, “Québec – sequential arbitrations without exclusion of courts renders clause invalid in real rights litigation – #413”. In first instance, Mr. Justice Martin Castonguay distinguished between actions involving personal and real rights, holding that article 3148 para. 2 of the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”) did not apply to deny the court’s jurisdiction when a party invoked an agreement to arbitrate.  Rather, article 622 of Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) governed when the dispute involved ownership of an aircraft and it required him to consider whether the parties had negotiated a binding, mandatory agreement to arbitrate.  Castonguay J. determined that the parties’ agreement to arbitrate was ambiguous and invalid, including a mention of two (2) sequential arbitrations and lacking an express exclusion of the courts if the parties did undertake arbitration.

Applicants sought leave to appeal under article 31 al. 2 C.C.P. which conditions a grant of leave on satisfying the judge hearing the application that the decision determines part of the dispute or causes irremediable injury to a party.   The article also requires that the applicant seek leave to appeal “without delay” and observes that the appeal, if granted, does not stay the proceeding unless a judge of the Court of Appeal so orders.

At paras 20 and 21 respectively, Bachand J.A. summarized Applicants’ and Respondents’ arguments regarding leave to appeal and the grounds raised.

Applicants raised several grounds, arguing that the judge: (i) disregarded the principle of the autonomy of the agreement to arbitrate when he concluded that Applicants could not invoke the agreement to arbitrate and argue the nullity of the liquidation contract containing it; (ii) concluded that Applicants had waived the agreements to arbitrate despite having reiterated their consent to arbitrate earlier; (iii) erred in his assessment of the impact of article 3152 C.C.Q. and lis pendens; and, (iv) reproached Applicants’ procedural approach as forum shopping.

Respondents argued that: (i) ownership of the disputed aircraft could not be determined without analysis of the scope of liquidation contract; (ii) Applicants had waived the agreements to arbitrate by undertaking litigation in Guinea, Québec and Oklahoma; and, (iii) Applicants’ conduct qualified as forum shopping as well as an abuse of procedure.

Bachand J.A. referred to Francoeur v. Francoeur, 2020 QCCA 1748 para. 8 as recent statement of the criteria applicable to granting/denying leave as well Procureure générale du Québec v. Léveillé, 2019 QCCA 1868 which held that a decision dismissing a declinatory motion raising jurisdiction is eligible for appeal. 

[informal translation] ‘The challenged decision must have issued during a hearing and decide in part the dispute or also cause irreparable prejudice to the applicant.  In addition, the matter must merit the attention of the Court of Appeal, which is measured in light of the principle of proportionality, the higher interest of justice, the nature and importance of the questions raised as well as the chances of success of the proposed appeal’.

Bachand J.A.  then listed the questions raised in the appeal which included: conditions to demonstrate tacit waiver of an agreement to arbitrate, the principle of the autonomy (separability) of an agreement to arbitrate, the conditions for effectiveness of agreements to arbitrate and the impact of article 3152 C.C.Q. on an agreement to arbitrate contained in a contract raising extraneous elements.  Bachand J.A. determined that, ‘in light of the state of the current case law’, the questions merited consideration by the Court of Appeal.  He also issued a stay of proceedings in the Québec Superior Court.

Bachand J.A. then considered requests made by Respondents for security for costs and orders suspending the litigation in Oklahoma and the arbitral proceedings before the Chambre Arbitrale Internationale de Paris (or International Arbitration Chamber of Paris) (“CAIP”).

Regarding security for costs, Bachand J.A. agreed to issue an order but not for the amount and not for all the reasons raised by Respondents.  Instead of $50,000.00, Bachand J.A. ordered security in the amount of $4,000.00.  In so ordering, he responded to Respondents’ evidence that Applicants were out-of-province litigants and had no assets in the province against which Respondents, if successful, could execute an eventual order for costs.  Bachand J.A. dismissed reliance on Respondents’ claims that Applicants’ conduct qualified as an abuse of procedure.

Bachand J.A. refused to issue a stay of the litigation or the CAIP arbitral proceedings. Setting aside whether he could do so as a sole judge on the application, Bachand J.A. observed that the record before him did not permit him to conclude that a stay of the Oklahoma proceedings would serve to prevent a serious or irreparable harm between the date of his involvement on the application for leave to appeal and the decision on the merits of the appeal by the Court of Appeal. 

With regard to the CAIP arbitral proceedings, Bachand J.A. refused, qualifying such an order as an unjustified breach of the autonomy of international arbitration as well as violating article 622 al. 2 C.C.P.

urbitral notes – First, for a recent overview of arbitration in Québec, see Arbitration and Mediation of IT and IP Disputes – Daniel Urbas – September 29, 2020.

Second, article 622 C.C.P. reads as follows:

Article 622 C.C.P. Unless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court even though it would have jurisdiction to decide the subject matter of the dispute.

A court seized of a dispute on such an issue is required, on a party’s application, to refer the parties back to arbitration, unless the court finds the arbitration agreement to be null. The application for referral to arbitration must be made within 45 days after the originating application or within 90 days when the dispute involves a foreign element. Arbitration proceedings may be commenced or continued and an award made for so long as the court has not made its ruling.

The parties cannot, through their agreement, depart from the provisions of this Title that determine the jurisdiction of the court or from those relating to the application of the adversarial principle or the principle of proportionality, to the right to receive notification of a document or to the homologation or the annulment of an arbitration award”.

author

Daniel Urbas

Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers…

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