Context
The Superior Court of Québec recently rendered an interesting decision in the case, Libelula Inc. c. Presse Café Franchise Restaurant inc., involving a franchisee and a franchisor and a dispute regarding the recognition and enforcement of a foreign arbitration award.
The Court decided to stay the application for homologation and recognition of the award until the Ontario Superior Court ruled on the franchisor’s appeal of the award. It also ordered the franchisor to provide a suretyship of $620,000 to protect the plaintiffs’ interests while awaiting the final decision of the Ontario courts.
This decision will affect Canadian jurisprudence where the enforcement of foreign arbitration awards and interprovincial judicial cooperation are involved.
Summary of the Facts
The Superior Court of Québec recently ruled on an application for homologation and recognition of a foreign arbitration award in Libelula Inc. c. Presse Café Franchise Restaurant inc., 2024 QCCS 421. The Court highlighted important issues regarding the recognition of foreign arbitration awards in Québec, the application of provincial franchise legislation as well as interprovincial judicial coordination. Justice Immer’s findings led him to stay the application for homologation and recognition and allow the partial appeal of the award to proceed before the Ontario courts, while ordering the franchisor, who had been ordered to pay an arbitration award of $619,608.22, to provide a suretyship of $620,000.
The initial dispute involved a franchise agreement between Libelula Inc. and Presse Café Franchise Restaurant Inc., governed by the Arthur Wishart Act (“AWA”), which imposes considerable disclosure obligations on franchisors. The plaintiffs, Libelula, Bautista and Placarte, relying on their rights under the AWA, won their case before an arbitrator in Ontario and obtained the rescission of their franchise agreement, and the franchisor and franchisor’s associates were ordered to pay substantial damages and costs. The AWA allows franchisees to solidarily claim sums owed from a franchisor’s associate. In this case, the plaintiffs won not only against the franchisor, but also against two of the franchisor’s associates, namely Marcel Hachem (“Hachem”) and the Eastern Canadian Coffee Company Ltd. “ECCC”).
The plaintiffs sought to obtain, in Québec, the homologation and recognition of the arbitration award against the franchisor, who had contested the award in part and initiated parallel appeal proceedings in Ontario.
The Court decided to stay the application for homologation and recognition of the award until the Ontario Superior Court ruled on the franchisor’s appeal of the award. First, the Court noted that the application for homologation was aimed at the franchisor alone and, therefore, rejected the franchisor’s argument that the Court could not homologate the award because Hachem and ECCC were not parties to the arbitration agreement.
Second, it relied on article 653(6) of the Code of Civil Procedure (“CCP”), the Model Law on International Commercial Arbitration (the “Model Law”), and the Supreme Court of Canada decision in Yugraneft Corp. v. Rexx Management Corp.,[1] and found that the appropriate remedy in the circumstances was to stay the application for homologation until the Superior Court of Ontario rendered a final decision on the franchisor’s appeal to obtain the partial annulment of the award. The decision to stay was based on a careful analysis of the provisions of the CCP, the Model Law and the importance of respecting the judicial process in another jurisdiction.
In short, by staying the proceedings, the Superior Court recognized the validity of the arbitration award while pointing out the need to await the outcome of the Ontario proceedings to avoid rendering a premature decision that could jeopardize the parties’ rights.
However, by ordering the franchisor to provide a suretyship in the sum of $620,000, as authorized under article 654(2) CCP, the Court also acknowledged the potential for the applicants to suffer financial harm should there be a delay in enforcing the award and the lack of an appeal process with respect to the portion of the award applicable to the franchisor.
This decision illustrates the Court’s willingness to balance the interests of all parties, thereby effectively protecting the plaintiffs, in light of the arbitration award, while respecting the legal framework and the proceedings pending in another province.
The Court’s prudent and proactive approach is a testament to the principle that justice in a particular State, while expressed differently by different jurisdictions, requires not only a thorough understanding of legal issues but also a certain receptiveness to different procedural contexts.
Acting prudently, the Court imposed the suretyship so as to maintain a balance between the rights of the parties while awaiting final decisions from other national courts. The decision marks an important milestone in the case law on the enforcement of foreign arbitration awards and interprovincial judicial cooperation, especially with respect to the application and scope of articles 653 and 654 CCP.
