Canada: Quebec Court of Appeal Confirms Consensual Arbitrators' Power to Order Specific Performance of Contracts

In January, we published a bulletin concerning Canadian Royalties Inc. v. Nearctic Nickel Mines Inc.1 In that decision, the Quebec Superior Court concluded that a consensual arbitrator did not have the power to grant injunctions, but could order specific performance of a contract.

The Canadian Royalties Inc. decision is currently in appeal. However, in Service Bérubé ltée c. General Motors du Canada ltée,2 the Quebec Court of Appeal has just provided an interesting preview of its position on the power of arbitrators to grant injunctions and order specific performance of contracts.

This decision is doubly interesting because the Court not only analyzed the power of arbitrators to grant injunctions and order specific performance of contracts, but also commented on an arbitration clause setting out the arbitrator's power to (i) order the performance of the contract, (ii) grant injunctions or (iii) grant other equitable remedies.

The facts underlying the decision are relatively straightforward. Citing its difficult economic situation, General Motors had refused to renew the franchise agreement with one of its dealers. Under the agreement, the dealer had the right to renew the contract if the requirements of the agreement had been met.

The dealer therefore applied to the Quebec Superior Court to render various declaratory and injunctive orders to force GM to renew its agreement. However, the parties had previously agreed to participate in the National Automobile Dealer Arbitration Program ("NADAP"), which includes a conventional arbitration mechanism for resolving disputes between automobile manufacturers and retail dealers.

GM consequently asked the Quebec Superior Court to have the parties referred to an arbitrator pursuant to the arbitration clause agreed to by the parties. The dealer opposed the request on the ground that only the Quebec Superior Court could grant the sought-after injunctive measures.

The Court confirmed the trial judge's decision and referred the parties to an arbitrator. It noted that Rule 40 of the NADAP granted very broad powers to the arbitrator, including the power to order specific performance and grant injunctions:

40. The Arbitrator shall decide the DISPUTE in accordance with law, including equity, and may, subject to these RULES, order specific performance, injunctions and other equitable remedies. Orders for interim relief shall not be made in Fast Track Arbitrations.

However, the Court voiced doubts about the arbitrator's ability to grant injunctions. According to the Court, only the Quebec Superior Court has the power to grant an injunction under Article 751 of the Code of Civil Procedure ("CCP"). The Court nonetheless stressed that, in the case under consideration, the dealer was not applying for an injunction but for an order for specific performance of the franchise agreement between the parties.

The Court therefore distinguished between an injunction and specific performance of a contractual obligation, concluding that a consensual arbitrator cannot grant injunctions, but can order specific performance of a contract - a line of reasoning consistent with that of the Quebec Superior Court in Canadian Royalties Inc.

Returning to the arbitrator's power to grant injunctions, the Court concluded that, despite the terms of Rule 40 of the NADAP, the parties did not really intend to grant the arbitrator the power to grant an injunction within the meaning of Article 751 CCP.

According to the Court, an injunction is an exceptional remedy that is only granted if there is a real possibility that the decision will meet with resistance and consequently require the intervention of state power. When the parties agree to submit to the decision of the court or the arbitrator, there is no reason to grant an injunction. 

In this instance, as the parties had shown their intention to abide by the arbitrator's decision, an injunction was unnecessary. The Court therefore concluded that the question of the arbitrator's power to grant an injunction was completely theoretical at that stage and did not need to be answered.

Finally, the Court stated that, given the nature of an injunction, the procedure for homologation of the arbitration award set out in Articles 946 and following of the CCP could not have the effect of transforming the arbitrator's order into an injunction of the Quebec Superior Court under the terms of Article 751 of the CCP.

Briefly, the Court's decision unequivocally confirms the power of consensual arbitrators to order specific performance of a contract. Meanwhile, the question of the arbitrator's power to grant an injunction was, in the case at issue, purely theoretical and the Court's comments are therefore only obiter dicta.

It is true that the Court's comments regarding the power of arbitrators to grant injunctions provide a fairly clear idea of the approach the Court would take if the question were asked concretely. However, in our opinion, the Court's decision does not answer the more general question of whether a consensual arbitrator can grant an order to do or cease to do.  

In fact, the Court proposed a very restrictive vision of injunctions, limiting them to situations where state compulsion is needed to enforce a court decision. By taking such a restrictive approach, the Court had no choice but to conclude that only the Quebec Superior Court can issue injunctions. 

Injunctions may, however, be understood in a more general sense and encompass all orders to do or cease to do. Such orders are not necessarily confined to specific performance of contracts. The Court's decision tells us very little about an arbitrator's power to render these types of orders. Very recently, in Seidel c. TELUS Communications Inc.,3 Justice Lebel (dissenting) stated the following concerning the powers of consensual arbitrators:

[145] Arbitrators exercising their jurisdiction under arbitration legislation are generally understood, provided that the arbitration agreement is broadly drafted, to have "jurisdiction to make any award a court could make, whether sounding in contract, tort, equity or by statute" (Casey and Mills, at p. 151).

In our opinion, whether an arbitrator has the power to grant an order to do or cease to do, be it at the provisional or interlocutory stage or at the hearing on the merits, is still an open question - a question that the Court of Appeal may answer for us in Canadian Royalties Inc. This debate is therefore far from over.

Footnotes

1 2010 QCCS 4600

2 2011 QCCA 567

3 2011 SCC 15

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, Calgary and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.

Ogilvy Renault joins Norton Rose Group on June 1, 2011.

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