On February 29, 2012, the Quebec Court of Appeal handed down judgment in Nearctic Nickel Mines Inc. v Canadian Royalties Inc.,1 confirming that arbitrators can order specific performance of contractual obligations. This ruling affirms the decision of the Quebec Superior Court of September 22, 2010,2 which was the focus of our bulletin of January 31, 2011. It also follows the position adopted by the Court of Appeal in Service Bérubé ltée c General Motors du Canada ltée,3 which was reviewed in our bulletin of April 14, 2011.
Briefly, the parties had entered into an option and joint venture agreement for the commercial development of a mining property, which agreement provided that the minority partner had an obligation to transfer 10% of its interest in the property to the majority partner subject to obtaining a bankable feasibility study that was to be financed by the majority partner. Although the feasibility study was financed by the majority partner, the minority partner contended that it did not meet the contractual condition and refused to transfer 10% of its interest. Pursuant to the binding arbitration clause contained in the agreement, the dispute was submitted to arbitration. The arbitrator found in favour of the majority partner and ordered the minority partner to transfer 10% of its interest in the mining property to the majority partner. The minority partner sought to have the arbitral award set aside on the grounds that the arbitrator had exceeded his powers by issuing an order of an "injunctive" nature.
Arbitrator's power to order specific performance
The Court of Appeal begins by noting that Quebec's Code of Civil Procedure (CCP) is silent on the power of arbitrators to order injunctive relief, unlike Ontario's Arbitration Act which explicitly provides that arbitrators can issue orders for specific performance and injunctions. The Court nevertheless rejects the assertion that an arbitrator never possesses the power to grant orders "of an injunctive nature," pointing out that such an interpretation would be incompatible with article 944.1 CCP, which provides that arbitrators "have all the necessary powers for the exercise of their jurisdiction." Following the liberal interpretation adopted by the Supreme Court of Canada in the Desputeaux v Chouette4 case, the Court of Appeal observes that the arbitration process is understood to constitute a complete system of alternate dispute resolution. It must therefore be possible for arbitral awards to be executed through orders of specific performance that are sufficiently comprehensive to give full effect to the rights of the parties, without the need to refer to the courts of ordinary jurisdiction.
The Court of Appeal recalls, as it did in Service Bérubé ltée, that all orders of specific performance are not necessarily "injunctions" within the meaning of article 751 CCP. In order to distinguish between the two in the context of a particular arbitral award, it is necessary to look at the relevant commercial agreement, determine the true intent of the parties and decide whether, in light of all the circumstances, the pith and substance of the order truly constitutes an "injunction", with all its penal implications, or whether it is instead of a "declaratory nature," merely serving to give full effect to the arbitrator's determinations of the parties' rights. The Court concludes that the matter submitted to the arbitrator in this case was tantamount to an action for conveyance of title, and that the arbitrator merely ordered the specific performance of the minority shareholder's contractual obligations and did not usurp the Superior Court's exclusive jurisdiction to issue injunctions.
Interpretation of the Code of Civil Procedure in light of the Model Law
In obiter, the Court of Appeal goes on to suggest that arbitrators have the power to grant interim measures, even when the arbitration agreement is silent on the matter. The Court notes that the legislature did not explicitly prohibit arbitrators from granting such measures. On the contrary, the Court points out that section 17 of the United Nations Model Law on International Commercial Arbitration specifically provides that they may do so, and that this provision is to be taken into consideration in interpreting the provisions pertaining to arbitration in the Code of Civil Procedure in the context of inter-provincial or international arbitrations. In the Court's view, nothing would seem to justify domestic arbitration following different rules.
Interpretation of the agreement by the arbitrator
Lastly, the Court of Appeal clarifies another important issue in confirming that an arbitrator is competent to interpret an agreement by seeking to determine the true intention of the parties, rather than adhering to the literal meaning of the words, in accordance with articles 1425 and 1426 of the Civil Code of Québec. Accordingly, the arbitrator has authority to allow the parties' true intent to take precedence over the express terms of an agreement, even where those terms are clear. In interpreting an agreement, the arbitrator is to take into account the nature of the contract, the circumstances in which it was formed, usage, prior interpretation by the parties and the conduct of the parties after the agreement was formed. In the view of the Court of Appeal, such an interpretation is not at odds with article 944.10 CCP, which precludes an arbitrator from rewriting a contract by adding or removing certain terms.
Arbitrators now clearly have the green light, under Quebec law, to order specific performance of contractual obligations, where circumstances warrant. The decision in Nearctic Nickel Mines Inc. v Canadian Royalties Inc. reflects a trend toward a modern and liberal interpretation of arbitration agreements, in which the arbitration process is seen as constituting a complete system for the resolution of commercial disputes, which is no less legitimate or effective than the courts of ordinary jurisdiction.
1 2012 QCCA 385
2 2010 QCCS 4600
3 2011 QCCA 567
4  1 SCR 178
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