The present decision stresses the importance of setting out clearly the procedure to be followed by the arbitrators and what rules they must follow. It is possible to refer to the procedural rules of the legislation governing the contract. For example, if the contract is governed by Quebec law, it should be stated that the arbitration procedure shall be governed by the rules set out in the Quebec Code of Civil Procedure. It is also frequent that an accredited commercial arbitration tribunal is appointed, in which case it should be stated that the procedure rules of such tribunal will apply.
In the scope of a contestation of a motion to homologate an arbitration award, the Quebec Court of Appeal analysed the extent of arbitrators’ deliberative secrecy and what effects a breach thereof would have on enforcing the award. Although this decision deals with arbitrators appointed by the parties in the province of Quebec, we are of the view that the Court of Appeal’s reasoning with respect to the deliberative secrecy imposed on arbitrators would equally apply to arbitrators appointed outside of Quebec.(1)
At the appeal level, only the deliberative secrecy and other confidentiality obligations were in dispute. We have, however, also highlighted some of the other rulings in first instance by the Superior Court(2), as the principles are of importance and would also apply to both agency and distribution agreements.
Legislative Provisions.
Subject to mandatory provisions of the law, parties are free to determine the terms of their arbitration agreement. If no agreement is made, the arbitration will be governed by the Code of Civil Procedure (‘CCP’)(3). The CCP allows the arbitrators to decide on the matter of their own competence.(4)
There are few defences available to the losing party in a motion to homologate an arbitration award. A court may refuse homologation only in one of the following cases: (5)
- one of the parties was not qualified to enter into the arbitration agreement;
- the arbitration agreement is invalid under the law elected by the parties or, failing any indication in that regard, under the laws of Québec (or, where the sentence was rendered outside of Quebec, the laws of the place where the arbitration indication under award was made);
- the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
- the award deals with a dispute not contemplated by or not falling within the terms of the arbitration agreement, or it contains decisions on matters beyond the scope of the agreement;
(In the immediately above case, if only one or more provisions of the sentence that can be dissociated from the rest of the sentence fall into one of these situations, the remaining provisions will be still be homologated and only the irregular provisions will be denied.)
- the mode of appointment of arbitrators or the applicable arbitration procedure was not observed (or, where the sentence was rendered outside Quebec, the procedure did not conform to the agreement of the parties or, if there was no agreement, with the laws of the place where the arbitration took place);
- where the sentence was rendered outside Quebec, the arbitration award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the place or pursuant to the laws of the place in which the arbitration award was made.
The obligation of deliberative secrecy of arbitrators is codified in CCP as follows:
945. The arbitrators are bound to keep the advisement secret. Each of them may nevertheless, in the award, state his conclusions and the reasons on which they are based.
Superior Court decision
The grounds invoked in first instance included:
- the method of appointment the arbitrators set out under the CCP had not been respected;
- one of the arbitrators had violated the obligation of deliberative secrecy;
- the arbitrators had ruled ultra petita.
1) appointment of arbitrators
The parties in this case had jointly decided on three arbitrators. Under the provisions of the CCP, each party appoints one arbitrator and the two appointed arbitrators jointly appoint a third arbitrator.(6) However, the judge pointed out that this particular provision is not of public order and applies only where another method of nomination has not been agreed upon. Therefore, the parties could, by mutual agreement, derogate from this provision.(7)
2) violation of deliberative secrecy
Two of the arbitrators were directors of Excellence, which was known to all parties. During a meeting of the board of directors, one director and arbitrator, Vautour mentioned some aspects of the arbitration, including that the debate concerned the amount of adjustments between the parties and that amount at stake was about 2 million dollars. When asked whether a unanimous decision was required, he replied that a two-thirds majority was required, but that at their meeting earlier that day the arbitrators had come to a unanimous decision.
The judge was of the view that the deliberative secrecy protected the intellectual process in arriving at the decision, how and why the decider reached his conclusions. Furthermore, the facts alleged in support of violation of the deliberative secrecy had to be serious and meet the objective criteria of the theory of reasonable apprehension of bias.(8) Vautour, in stating that the debate concerned the adjustments and that the arbitrators’ decision would be unanimous, had not revealed how or why the arbitrators had reached their conclusions.(9) Therefore, in the view of the judge, the deliberative secrecy had not been violated.
3) ruling ultra petita
In their award, the arbitrators ruled that compensation of the adjustments and the purchase price could be offset. The judge recalled the principle that the arbitration agreement defined the arbitrator’s authority, referring in a footnote to the decision Desputeaux v. Éditions Chouette (1987) inc.(10) We reproduce the pertinent passage:
22 The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding. As we shall later see, that agreement comprises the arbitrator’s terms of reference and delineates the task he or she is to perform, subject to the applicable statutory provisions. The primary source of an arbitrator’s competence is the content of the arbitration agreement (art. 2643 C.C.Q.). If the arbitrator steps outside that agreement, a court may refuse to homologate, or may annul, the arbitration award (arts. 946.4, para. 4 and 947.2 C.C.P.). In this case, the arbitrator’s terms of reference were not defined by a single document. His task was delineated, and its content determined, by a judgment of the Superior Court, and by a lengthy exchange of correspondence and pleadings between the parties and Mr. Rémillard.
The judge recalled the provisions in the Civil Code of Quebec (‘CCQ’) on compensation(11) and the three sources of compensation (these sources are: (i) by operation of law; (ii) by order of a court and (iii) by agreement of the parties) and analysed the conditions required for legal compensation by operation of law as set out in the first paragraph of Article 1673 CCQ, which reads:
1673. Compensation is effected by operation of law upon the coexistence of debts that are certain, liquid and exigible and the object of both of which is a sum of money or a certain quantity of fungible property identical in kind.
The arbitrators had permitted that the conditions for legal compensation be combined by the effect of the arbitration sentence. Compensation therefore took place by the simple effect of the law without the parties having to consent thereto; the parties could have renounced it, but did not in this case.(12) The Court was therefore of the view that, all the elements for legal compensation being present, it was within the arbitrators’ jurisdiction to offset compensation even though not expressly stated.
The court also recalled the principle that an arbitration agreement should not be interpreted strictly, again referring to Desputeaux.(13) We reproduce the pertinent passage:
35 … 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 mandate also includes everything that is closely connected with that agreement, or, in other words, questions that have [TRANSLATION] ‘a connection with the question to be disposed of by the arbitrators with the dispute submitted to them’. … Since the 1986 arbitration reforms, the scope of arbitration agreements has been interpreted liberally…
(Underline added. References omitted.)
The motion for the annulment of the arbitration award was consequently denied.
Court of Appeal
In writing the unanimous decision of the Court of Appeal, A.R. Hilton, J.A. noted that case law on the subject of deliberative secrecy has usually been in a context of immunity of the decision-makers rather than the substance of their obligations. Although case law and doctrine has established that the ‘how and why’ of a decision can never be the subject of a decision-maker’s testimony, the judge disagreed with the Superior Court judge in having limited the purview of deliberative secrecy protection to the ‘how and why’.(14) In the judge’s view:
[25] … the affirmative duty imposed on arbitrators pursuant to article 945 C.C.P. requires them to abstain from communicating with third parties about the matter to be decided once it has been taken under advisement. The ultimate purpose is to ensure that the arbitral award reflects the opinion of the arbitrators alone and not those of anyone else, whether such third parties have an interest in the outcome or not.
The Court of Appeal concluded that Vautour had indeed breached the obligation of deliberative secrecy. Although the arbitrators had agreed on the award they would issue, nothing had been put in writing yet and no information had been disclosed to any of the parties. Therefore, at the time of the meeting, although they believed otherwise, the arbitration matter was still under advisement,(15) this in accordance with article 945.2 CCP, which reads:
945.2. The arbitration award must be made in writing by a majority of voices. It must state the reasons on which it is based and be signed by all the arbitrators; if one of them refuses to sign or is unable to sign, the others must record that fact and the award has the same effect as if it were signed by all of them.
Furthermore, the simple fact of indicating at the meeting that a unanimous decision had been made did not prevent an arbitrator from coming to a different conclusion from the one ultimately issued. To this effect, the judge adds:
[40] … Announcing publicly to the parties, and to third parties who may be affected by the outcome, that the arbitrators have agreed unanimously on the result, may well have a chilling effect on an arbitrator who might otherwise be inclined to file a dissenting opinion despite the agreement reached earlier. Such a dissenting opinion in theory could disclose a significant irregularity, such as a breach of the audi alteram partem rule, which in turn could have a bearing on the homologation of the award.
The judge recalled the limited situations in which homologations of arbitration agreements can be contested and concluded that the irregularity created by Vautour’s disclosure of the decision did not prevent the homologation of the award or render it null.(16) To do so:
[63] … would be an exaggerated response to what is essentially a benign indiscretion on the part of Mtre. Valour, which Mr. Rhéaume did not succeed in showing had the slightest bearing on the outcome of the arbitration. In such circumstances, it must be recognized that courts have a residual discretion to homologate an arbitral award or to refuse to nullify one when the breach of the applicable procedure does not affect the integrity of the process as a whole.
The defendants also asked the Court of Appeal to annul the award and to render the award they asserted should have been rendered be substituted in its place. In this regard, the judge added that, even if he had been prepared to invalidate the arbitration award, he would not have substituted it with another ruling, as the award was not necessarily wrong on its merits, into which a court cannot enquire when homologating an award.(17)
Andrè Begin , IDI agency and distribution expert for Canada.
Notes:
(1) The Quebec Code of Civil Procedure contains provisions on the recognition and execution of arbitration awards made outside Quebec (Arts. 948 – 951.2 CCP). An arbitration award made outside Quebec shall be recognized and executed if the matter in dispute is one that may be settled by arbitration in Quebec and if its recognition and execution are not contrary to public order. These provisions apply whether or not the awards have been ratified by a competent authority. The CCP also stipulates that the interpretation of these provisions shall take into account, where applicable, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards as adopted by the United Nations Conference on International Commercial Arbitration at New York on June 10, 1958. Canada became a party to the Convention in 1986.
(2) 2008-07-08, Superior Court, 500-17-034270-069
(3) Art. 2643 Civil Code of Quebec
(4) Art. 943 CCP
(5) Art. 946.4, 950 CCP
(6) Art. 941 CCP
(7) Art. 940 CCP
(8) pars. 96-97
(9) pars. 99-100
(10) [2003] 1 S.C.R. 178
(11) Arts. 1672 to 1682 CCQ
(12) par. 120-121
(13) infra, note 10
(14) Court of Appeal decision, par. 22
(15) par. 34
(16) par. 63
(17) par. 64
