Québec – court’s intervention on challenge to award on jurisdiction is not judicial review

In Khalilian v. Murphy, 2020 QCCS 831, Madam Justice Chantal Chatelain resisted the parties’ joint submission that her intervention on a challenge to an arbitrator’s award on jurisdiction was a judicial review subject to administrative law standards of review.  Instead, referring to Québec’s Code of Civil Procedure, CQLR c C-25.01, leading doctrine and case law in Québec, she emphasized that an arbitrator in a contractual arbitration does not qualify as a tribunal subject to a court’s control and supervision.  A court can intervene on errors of law committed by the arbitrator when deciding jurisdiction because an arbitrator cannot attribute jurisdiction by incorrectly evaluating the facts and the law.

Mr. Mohamed Erfan Khalilian (“Insured”) and Mr. Sean Murphy, in his quality of attorney in fact in Canada for the underwriters, Lloyds’s London, England (“Insurer”) disputed the evaluation of damages suffered by and indemnification owing to Insured under a contract of insurance (“Contract”) in effect at the time fire damaged Insured’s building.  The Contract contained the following undertaking to arbitrate:

4.8 Action against insurer

The Insured may not bring any action to recover the amount of a claim under this policy unless the requirements of this policy have been complied with nor until the amount of the loss has been ascertained by arbitration or by judgment against the Insured or agreement between the parties with the written consent of the Insurer”.

The arbitrator issued an interlocutory award on jurisdiction in which he issued the following conclusion:

1. THIS ARBITRATOR HAS THE COMPETENCE TO, AMONGST OTHER ISSUES:

a) Ascertain the amount of loss;

b) Determine whether original materials or contemporary materials should be used to determine reconstruction costs;

c) Determine which expert evaluations to follow when ascertaining the amount of loss;

d) Determine which hourly rate to use when calculating reconstruction costs.

2. THIS ARBITRATOR DOES NOT HAVE THE COMPETENCE TO, AMONGST OTHER ISSUES:

a) Ascertain the amount of the indemnity that the Insurer must pay to the Insured save and except for the quantum of the loss;

b) Condemn the Insurer to pay the Insured;

c) Determine the applicability of co-insurance”.

The Insurer challenged only two (2) of the conclusions: 1b) and 1c) and sought the Superior Court’s intervention to set those conclusions aside.

Tracking the terms of the agreement to arbitrate, Chatelain J. identified the sequence in which the Insured and Insurer would execute their Contract.  The arbitration agreement provided the arbitrator exclusive jurisdiction to determine the amount of the loss but provided the Superior Court and the Court of Québec with exclusive jurisdiction to determine the Insured’s right to indemnification. As an example, confirmed by agreement of the parties at the hearing, Chatelain J. added that the agreement meant that the arbitrator had no jurisdiction to determine if an event was insured by the Contract and, if covered, the scope of that insurance.

Following the fire, Insured sent Insurer a claim which relied on reconstruction based on original materials rather than contemporary materials. Insurer disagreed. Insured decided to undertake arbitration and issued a notice of arbitration.

Insured objected to arbitration on the ground that the question of whether reconstruction would use original or contemporary materials is a question of coverage and not within the arbitrator’s jurisdiction. Insured disagreed and argued that the issue was closely related and necessarily connected to the arbitrator’s jurisdiction.

Following application by Insured, the Superior Court appointed an arbitrator April 1, 2019 on the ground that it fell first to the arbitrator to determine jurisdiction.  In his award on jurisdiction, the arbitrator explained his approach as follows:

27. The Arbitrator considers the determination of whether reconstruction costs should be based on original or contemporary materials to be essential in its mandate of ascertaining the amount of loss. As with Desputeaux v. Éditions Chouette (2003 CSC 17 (CanLII), [2003] 1 S.C.R. 178), the question is so closely related to the Arbitrator’s mandate that the Arbitrator must be able to answer it in order to fulfill his mandate.

28. Thus, this Arbitrator has decided that he is competent to determine whether reconstruction costs must be based on original materials or contemporary materials in determining the question of the damages. A failure to do so would result in alternate determinations of quantum which this Arbitrator has decided does not fulfill his mandate. Furthermore, the wording of clause 4.8 refers to a singular “amount” of loss and not to alternate possible “amounts” of loss. The arbitration decision on loss must be definitive”.

Insurer applied to the Superior Court under article 632 of Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”) to set aside part of the arbitrator’s award in regard to conclusions 1b) and 1c).

Article 632 C.C.P. Arbitrators conduct the arbitration according to the procedure they determine; they are required, however, to see that the adversarial principle and the principle of proportionality are observed.

Arbitrators have all the necessary powers to exercise their jurisdiction, including the power to administer oaths, the power to appoint an expert and the power to rule on their own jurisdiction.

If an arbitrator rules on the arbitrator’s own jurisdiction, a party, within 30 days after being advised of the decision, may ask the court to rule on the matter. A decision of the court recognizing the jurisdiction of the arbitrator cannot be appealed.

For so long as the court has not made its ruling, the arbitrator may continue the arbitration proceedings and make an award”.

(1) Nature of the court’s intervention – At the hearing before Chatelain J., the parties indicated that Insurer’s application was a form of judicial review and that the standard of reasonableness applied, basing their agreement on 9033-1612 Québec inc. v. 9288-6506 Québec inc., 2018 QCCS 4174 paras 28-34. 

Despite the parties’ joint submission on the approach to take, Chatelain J. disagreed.  She acknowledged that doctrine had observed that the nature of the recourse was not well-defined in the case law. See hon. Pierre J. Dalphond, Commentaires sous l’article 632, dans Luc Chamberland (dir.), Le grand collectif: Code de procédure civile. Commentaires et annotations, vol. 2 (Articles 391 à 836), 4e édition, Montréal, Éditions Yvon Blais, 2019.  She framed the uncertainty as having to decide whether the court’s intervention was judicial review or an autonomous proceeding in which the court rule de novo?

Chatelain J. juxtaposed the two (2) approaches: (a) if the court’s intervention was judicial review, then it would have to follow the principles recently restated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65; but, (b) if the court’s intervention was an autonomous proceeding, then it would not have to apply administrative law principles but, rather, determine according to the applicable standards whether the decision was erroneous.

Chatelain J. pointed out that article 632 C.C.P. did not use the term “review” but authorized the court to “rule” on the matter of the arbitrator’s jurisdiction. Furthermore, she remarked that the parties were subject to a consensual commercial arbitration and not statutory arbitration imposed by legislation.

Chatelain J. added to her analysis by referring precisely to Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 SCR 178 paras 68-69, and doctrine critiquing the conflation of the different types of recourse.  She hightlighted the Supreme Court’s reference to then Prof. Frédéric Bachand’s “Arbitrage commercial:  Assujettissement d’un tribunal arbitral conventionnel au pouvoir de surveillance et de contrôle de la Cour supérieure et contrôle judiciaire d’ordonnances de procédure rendues par les arbitres” (2001), 35 R.J.T. 465.

Having referenced the applicable legislation in article 632 C.C.P., the consensual nature of the commercial arbitration and the emphasis the Supreme Court gave to the autonomy of the agreement to arbitrate commercial disputes, Chatelain J. summed up at para. 22:

[22] [informal translation] This apparently explains why the near constant caselaw establishes that contractual arbitration is not subject to judicial review by the Superior Court.  Thus, in the court’s opinion, as a result, a motion aimed at the court ruling on the arbitrator’s jurisdiction after the latter has already issued a decision on jurisdiction must not be subjected to administrative law’s standard of review”.

Rather, the approach involves the solution favoured by doctrinal writers Denis Ferland & Benoît Emery (dir.), Le déroulement de l’arbitrage (art. 631-637), Précis de procédure civile du Québec, Volume 2 (Art. 302-320, 345-777 C.p.c.), 5e éd., Cowansville, Éditions Yvon Blais, 2015, par. 2-1969.  That solution warned against the court applying standards of judicial review applicable in administrative law contexts “[informal translation] because the arbitrator in a contractual arbitration does not qualify as a tribunal subject to the control and supervision of the Superior Court”.

Chatelain J. illustrated that approach by pointing to Guilde des musiciens du Québec v. Piché, 1998 CanLII 9518 (QC CS) paras 6-9 in which the court held that, in consensual arbitration, an arbitrator’s decision is subject to control over errors in the absence of a privative clause.  Thus, a court can intervene on every error of law that the arbitrator committed in deciding jurisdiction because the arbitrator cannot attribute to herself/himself jurisdiction by an incorrect evaluation of the facts and the law.  This 1998 reasoning remains fresh and relevant, having been endorsed by Prof. Bachand, (now a justice of the Québec Superior Court) in his article L’intervention du juge canadien avant et durant un arbitrage commercial international, Cowansville, Yvon Blais, 2005, footnote 1144.

On the basis of the above, Chatelain J. concluded that her intervention was not judicial review and its applicable standards.  Rather, her role was to decide whether the arbitrator had erred on conclusion 1b) by attributing to himself jurisdiction which he did not have by incorrectly evaluating the facts and the law.

(2) Arbitrator’s jurisdiction – Chatelain J. recognized that arbitrators had all the powers necessary to exercise their jurisdiction and that their jurisdiction and their powers merited a generous interpretation. A generous interpretation does not allow the courts to disregard the intention of the parties.

Chatelain J. examined the wording of the Contract and noted remarks by the arbitrator that no precedent existed on the question which he described as “a most difficult one”.  Chatelain J.’s own reading of the Contract lead her to conclude that the issue of whether to use original or contemporary materials was a question of coverage. 

She expressly agreed with the arbitrator that he could determine the amount of the loss without first knowing if the calculation he made rested on original or contemporary materials.  She disagreed that the question was intrinsic or necessarily connected to the arbitrator’s powers or jurisdiction or that the arbitrator had to decide that issue.  Rather, she considered that an option would be to have the courts determine that issue or, by further agreement, give the arbitrator scope to price both materials in separate determinations in an award.

Given that she set aside conclusion 1b), she held that she did not have to consider 1c).  As a result, she granted the application in part and set aside that sole conclusion.

urbitral note – First, Chatelain J.’s decision is a forceful effort to discourage conflating the courts’ role in judicial review and in challenges to arbitral awards.  That problem still persists for some courts.  See the recent cases and divergent results identified in the recent Arbitration Matters note “Alberta & Manitoba – courts take different paths to different outcomes following same S.C.C. case”.  In Cove Contracting Ltd v. Condominium Corporation No 012 5598 (Ravine Park), 2020 ABQB 106, Mr. Justice Grant S. Dunlop held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 had not changed the standard of review for commercial arbitrations from reasonableness to correctness and denied leave to appeal.  In Buffalo Point First Nation et al. v. Cottage Owners Association, 2020 MBQB 20, Mr. Justice Chris W. Martin held that Canada (Minister of Citizenship and Immigration) v. Vavilov had changed the standard and granted leave to appeal. 

Second, Chatelain J. referred to paras 68-69 of Desputeaux v. Éditions Chouette (1987) inc. which noted and critiqued the tendency to conflate the court’s intervention in consensual commercial arbitration with judicial review.

[68] Despite the specificity of these provisions of the Code of Civil Procedure and the clarity of the legislative intention apparent in them, there have been conflicting lines of authority in the Quebec case law regarding the limits of judicial intervention in cases involving applications for homologation or annulment of arbitration awards governed by the Code of Civil Procedure.  Some judgments have taken a broad view of that power, or sometimes tended to confuse it with the power of judicial review provided for in arts. 33 and 846 C.C.P.  (On this point, see the commentary by F. Bachand, “Arbitrage commercial:  Assujettissement d’un tribunal arbitral conventionnel au pouvoir de surveillance et de contrôle de la Cour supérieure et contrôle judiciaire d’ordonnances de procédure rendues par les arbitres” (2001), 35 R.J.T. 465.)  The judgment in issue here illustrates this tendency when it adopts a standard of review based on simple review of any error of law made in considering a matter of public order.  That approach extends judicial intervention at the point of homologation or an application for annulment of the arbitration award well beyond the cases intended by the legislature.  It ignores the fact that the legislature has voluntarily placed limits on such review, to preserve the autonomy of the arbitration system.  Public order will of course always be relevant, but solely in terms of the determination of the overall outcome of the arbitration proceeding, as we have seen.

[69] This latter approach has been adopted by a significant line of authority.  It recognizes that the remedies that may be sought against arbitration awards are limited to the cases set out in arts. 946 et seq. C.C.P. and that judicial review may not be used to challenge an arbitration decision or, most importantly, to review its merits (Compagnie nationale Air France, supra, at pp. 724‑25; International Civil Aviation Organization v. Tripal Systems Pty. Ltd., [1994] R.J.Q. 2560 (Sup. Ct.), at p. 2564; Régie intermunicipale de l’eau Tracy, St‑Joseph, St‑Roch v. Constructions Méridien inc., [1996] R.J.Q. 1236 (Sup. Ct.), at p. 1238; Régie de l’assurance‑maladie du Québec v. Fédération des médecins spécialistes du Québec, 1987 CanLII 901 (QC CA), [1987] R.D.J. 555 (C.A.), at p. 559, per Vallerand J.A.; Tuyaux Atlas, une division de Atlas Turner Inc. v. Savard, 1985 CanLII 2959 (QC CA), [1985] R.D.J. 556 (C.A.)).  Review of the correctness of arbitration decisions jeopardizes the autonomy intended by the legislature, which cannot accommodate judicial review of a type that is equivalent in practice to a virtually full appeal on the law.  Thibault J.A. identified this problem when she said:

[translation]  In my view, the argument that an interpretation of the regulation that is different from, and in fact contrary to, the interpretation adopted by the ordinary courts means that the arbitration award exceeds the terms of the arbitration agreement stems from a profound misunderstanding of the system of consensual arbitration.  The argument makes that separate system of justice subject to review of the correctness of its decisions, and thereby substantially reduces the latitude that the legislature and the parties intended to grant to the arbitration board.”

Third, two (2) of the key doctrinal materials referred to by Chatelain J. were authored by Prof. Bachand, now Mr. Justice Frédéric Bachand.  Bachand J. recently issued a decision in litigation in which he urged the parties to consider engaging in arbitration as already agreed to by the parties in their contract.  See Équipements de gardien de but Michel Lefebvre inc. v. Sport Maska inc., 2020 QCCS 44 and corresponding Arbitration Matters note “Parties urged to mediate/arbitrate to ‘avoid bogging down’ in ‘complex and costly judicial procedures’”.

Fourth, though the decision effectively eliminated any role for judicial review and administrative law standards of review, Chatelain J. mentioned that the court could and would examine errors in evaluating “facts and law” and decide whether an error was made in incorrectly evaluating the “facts and law”.  In doing so, it appears that the question could be a question of mixed fact and law and the standard of review was correctness.