Introduction
On August 2, 2024, the Québec Superior Court handed down an unprecedented decision confirming that in Québec, an appeal mechanism could be included in an arbitration clause.[1] According to the Honourable Chantal Masse, J.S.C., nothing prevents the parties from agreeing to an arbitration appeal process, thereby enabling an appeal arbitration body to confirm or reverse an initial arbitration award.
Background
In June 2023, 9727272 Canada Inc. (“972”), a car dealership operating in Laval, filed a request for arbitration in a dispute with McLaren Automotive Inc. (“McLaren”). First, McLaren successfully challenged the jurisdiction of the appointed arbitrator (the “Arbitrator”), arguing, among other things, that the contract had not taken effect and that the arbitration clause included was in part contrary to public order. Accordingly, the Arbitrator declined jurisdiction in an award rendered on August 24, 2023, concluding in particular that the contract between the parties had not been signed and that the parties’ conduct indicated an intention to do so.
972 then availed itself of the contractual appeal mechanism and the initial award was overturned following the Appeal Panel’s decision handed down on October 30, 2023. The Appeal Panel reinstated the Arbitrator’s jurisdiction, after finding that (i) the appeal was governed by section 75 of the National Automobile Dealer Arbitration Program Rules for Dispute and Resolution (“NADAP”) and (ii) article 632 of the Québec Code of Civil Procedure (“CCP”) in no way prevented the parties from agreeing to such an appeal process. The Appeal Panel therefore returned the matter to the Arbitrator for a decision on the merits.
Assuming that, since the appeal mechanism provided for in the contract was invalid, this invalidated the Appeal Panel decision, McLaren then disregarded the Appeal Panel’s decision and turned to the Superior Court to homologate the Arbitrator’s initial award.
Superior Court Judgment
The Honourable Chantal Masse, J.S.C., writing for the Court, rejected McLaren’s application for homologation and annulment of an arbitration award, confirming the validity of the arbitration process as well as the Appeal Panel’s jurisdiction in this matter.
The Court noted that while courts generally do not have jurisdiction over matters arising from an arbitration agreement, they do retain a role where the arbitration process agreed to by the parties results in an interlocutory decision on the jurisdiction of the arbitrator(s). Article 632 CCP allows the courts to rule on the matter of the jurisdiction of the arbitrator(s) when it is a preliminary decision in that regard.
Judge Masse also pointed out that the first paragraph of article 648 CCP, interpreted in light of articles 2638 and 2643 of the Civil Code of Québec and articles 622 and 649 CCP, does not preclude the parties from agreeing on an arbitral appeal mechanism, provided that the jurisdiction of the Superior Court of Québec is preserved once the final award is rendered and that it can only be exercised by way of an application for its annulment. In the Court’s view, the court’s jurisdiction is fully preserved, even where an arbitration appeal tribunal is involved. Moreover, the Court pointed out that if the legislative intent was to prevent the parties from agreeing to an arbitration appeal process, then that intention would be clearly expressed in the law.
Finally, McLaren did not establish that the rules of the National Automobile Dealer Arbitration Program were inconsistent with article 648, paragraph 1 CCP or were contrary to Québec public order. Accordingly, the Court could not accept the grounds asserted by McLaren, namely that the parties could not validly agree on a right to appeal to the Appeal Panel given article 648 and article 622, paragraph 3 CCP.
Conclusion
In sum, the Superior Court sheds new light on the interpretation of arbitration appeal mechanisms under Québec law. In rejecting McLaren’s application, the Court confirmed that the parties could validly provide for an arbitration process with a “contractual” right of appeal, so long as the fundamental principles of the jurisdiction of the courts and the right to apply for annulment of the award were respected. This ruling paves the way for greater flexibility in the drafting of arbitration agreements, particularly in complex commercial contracts where the parties may wish to provide for a contractual right to appeal.
