This post aims to summarize the reasoning of the Honorable Mark Phillips, j.c.s. on B Smart Technology Inc. c. American Arbitration Association, 2022 QCCS 1526.
Plaintiff, B Smart, is a Québec company domiciled in Montreal which signed a Sales Agent Agreement with the Mise-en-cause Norstan, an American company domiciled in the State of Texas on October 3, 2007.
The Sales Agent Agreement contains an arbitration clause which provides that all disputes and claims arising out of or relating to this Agreement that are not settled by agreement of the parties shall be arbitrated according to the Commercial Arbitration Rules of the American Arbitration Association (hereinafter “AAA”).
On May 30, 2018, Plaintiff instituted arbitration proceeding against Mise-en-cause under the auspices of the AAA for unpaid commissions as well as damages in a total amount of approximately $500,000 USD.
In December 2018, AAA informed the parties that the Arbitrator Carlos J. Bianchi was appointed as the arbitrator of the case;
In January 2019, Arbitrator Bianchi rendered two procedural orders.
On March 1, 2019, the parties were informed that Arbitrator Bianchi had passed away;
In March 2019, Defendant Mr. Frederick R. Fucci, a lawyer in New York was appointed as the arbitrator of this case after completing all the appointment procedures required by Defendant AAA, such as completing a questionnaire to ensure the impartiality and swearing to conduct the arbitration in compliance with the applicable ethical rules.
On December 18, 2019, Plaintiff raised an objection as to Arbitrator Fucci’s service as the arbitrator of this case and requested that a new arbitrator be appointed.
After Mise-en-cause’s objection to Plaintiff’s replacement motion, the AAA’s ICDR Administrative Review Council denied the challenge from Plaintiff and reaffirmed Arbitrator Fucci as the Arbitrator of this case.
On August 4, 2020, Plaintiff asked the arbitrator to recuse himself. This request was rejected on September 17, 2020.
On October 16, 2020, as Plaintiff failed to pay for Arbitrator Fucci’s arbitrator compensation, Arbitrator Fucci suspended the arbitration proceeding and ordered Plaintiff to pay $45,484 USD on November 16, 2020 at the latest.
On November 16, 2020, Plaintiff filed its ex parte Request for Provisional Interlocutory Injunction, and Order to Safeguard the Rights of Plaintiff before the Superior Court of Québec notably to prevent the arbitration from being terminated and to obtain the annulment of Arbitrator’s Fucci’s appointment or his recusal.
On November 19, 2020, this request was dismissed by the Honorable Danielle Mayrand j.c.s., who found that Plaintiff had failed to establish that the criteria for the issuance of a provisional injunction were met, notably in respect of the criteria of urgency and irreparable harm.
On February 18, 2021, Plaintiff filed a request for inscription to set the case down for default judgment against Defendants.
On June 2, 2021, Defendant AAA filed an application to cancel the inscription given that Plaintiff had failed to serve the Request according to Art. 494 C.c.p. and subsidiarily, to be relieved of its default to appear, and on August 18, 2021 Defendant Fucci filed an application joining in AAA’s request.
On September 1, 2021, Arbitrator Fucci terminated the arbitration according to Rule R-57 of the AAA Rules after Plaintiff failed to pay the arbitrator compensation as well as deposits to cover future arbitrator compensation, despite the arbitrator’s having granted multiple requests of Plaintiff to extend the payment deadline.
On November 8, 2021, the Honorable Marc St-Pierre j.c.s. relieved Defendants of their default to appear. Defendants filed an Answer to Summons into the court record, under reserve of their respective rights to raise all grounds of defence and legal objections, including the right to contest the court’s jurisdiction.
Main Issue to Analyse
Should Plaintiff’s Request be dismissed?
1. Plaintiff’s Request is Unfounded in Law, Even If the Facts Alleged in Their Application are Taken As True
The Honorable Mark Phillips, j.c.s. starts his analysis by reiterating the legal principles that the Court should apply when the Court is seized to determine the dismissal application (para. 22 of the Decision). Among others, the Court reminds us that the principle of prudence/precautionary principle applies in matters of inadmissibility, and that in uncertainty, the Court should avoid terminate a proceeding prematurely (para. 66 of Bohémier c. Barreau du Québec, 2012 QCCA 308). In this context, the judge is required to determine whether the allegations of the facts set out in the Request for Provisional Interlocutory Injunction, and Order to Safeguard the Rights of Plaintiff are such as to give rise to the conclusions sought by the Plaintiff, even if the “facts” are taken as true (para. 7 of Immeubles des Moulins inc. c. Ville de Terrebonne, 2019 QCCA 509).
Then, the Honorable Mark Phillips, j.c.s. noted that being prudent and cautious is not synonymous with simply waiting. A judge has discretion to dismiss an application doomed to fail at the preliminary stage (para. 23 of Decision; para. 9 of Beaulieu c. Laflamme, 2011 QCCA 1909). The Supreme Court of Canada repetitively reminds us that Art. 168 (2) C.c.p. promotes sound and effective management of judicial resources and is an important measure to rule out frivolous lawsuits (para. 16 of Canada (Attorney General) v. Confédération des syndicats nationaux, 2014 SCC 49).
Furthermore, the Honorable Mark Phillips, j.c.s. pointed out that the principle of arbitral immunity stated by the Court in Sport Maska and codified as Art. 621 C.p.c. actually goes beyond contractual or extra-contractual liability, it applies to any action challenging the conduct of arbitration as well as services provided by arbitration institutions (para. 24 of Decision).
In the present file, the Honorable Mark Phillips, j.c.s. concluded that even if the Plaintiff’s allegations of the facts about Defendants’ conducts in the arbitration proceeding are taken as true, it is clear that Plaintiff’s claims are barred by R-52 (b) and (d) of the AAA’s Commercial Arbitration Rules and none of the exceptions to the application of arbitral immunity apply in the present file.
2. The Quebec Authorities do not Have Jurisdiction to Issue Orders Sought by Plaintiff
Art. 622 C.c.p. provides that unless otherwise provided by law, the issues on which the parties have an arbitration agreement cannot be brought before a court. This principle has been described as the “règle de l’exhaustivité” in the Honorable Frédéric Bachand’s book published on 2005: L’intervention du juge Canadian avant et durant un arbitrage commercial international (para. 27 of the Decision).
As such, according to the Code of Civil Procedure, where the parties have agreed to submit their disputes to binding arbitration, the Court may only intervene: 1) to grant provisional measures or safeguard orders before or during arbitration proceedings (art. 623 C.c.p.); 2) to take necessary measure to see to the appointment if the appointment of an arbitrator proves difficult (art. 625 C.c.p.); 3) to decide on a request for recusal of the arbitrator presented by a party within 15 days after becoming aware of the appointment or of the cause for récusation (art. 627 (1) C.c.p.); 4) to revoke an arbitrator if this arbitrator is impossible to carry out his or her mission or if this arbitrator does not discharge their functions within a reasonable time (Art. 628 C.c.p.); 5) to rule on the arbitrator’s determination of his or her own jurisdiction within 30 days after being advised of the decision (Art. 632 (3) C.c.p.); 6) to decide on an application for the homologation of an arbitral award (art. 645 C.c.p.); 7) to decide on an application for the annulment of an arbitral award (Art. 648 C.c.p.).
None of the above-mentioned articles empowers the Court to annul the nomination of an arbitrator by an arbitration institution. Therefore, the Honorable Mark Phillips, j.c.s. concluded that although Plaintiff’s request could potentially be the subject of a review by the Superior Court of Québec under the terms of Article 627 C.c.p. Plaintiff failed to act within the delay, i.e. 15 days; and failed to justify its delay i.e. approximately 8 months.
3. The Plaintiff’s Request for Injunction is Moot
The Honorable Mark Phillips, j.c.s. found that Plaintiff’s request is moot as the arbitration was terminated in September 2021 due to Plaintiff’s non-payment of incurred arbitration compensation (paras. 34 and 35 of the Decision).
For these reasons, the Court dismiss Plaintiff’s Request for Provisional Interlocutory Injunction, and Order to Safeguard the Rights.
- It is worth to note that the Supreme Court of Canada in 6362222 Canada Inc. v. Prelco inc., 2021 SCC 39 recently affirmed that non-liability clauses are valid in principle under Québec law. Although, Art. 1437 C.c.Q. (abusive clause) sets a limit to non-liability clauses in the case of an abusive clause contained in a consumer contract (Art. 1384 C.c.Q.) and a contract of adhesion (Art. 1379 C.c.Q.), the stated limit would not apply in the present file given that the non-liability clause set out in the AAA’s Commercial Arbitration Rules and the arbitration agreement between the parties does not “so depart from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract” (Art. 1437 (2) C.c.Q.).
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)