Langlois Wins an Important Appellate Case

On February 29, 2012, the Québec Court of Appeal rendered a long-awaited judgment in the continuing legal battle between Canadian Royalties and Nearctic Nickel Mines concerning their respective ownership interests in a mining property in the area of the Plan Nord in Northern Quebec called the Expo Ungava Property (the “Property”). Situated just south of Xstrata’s Raglan Mine, the Property has been found to contain significant mineralization and is currently being developed by Canadian Royalties, which has invested in excess of $500 million in developing its Nunavik Nickel Project.

At issue before the Court of Appeal were two important issues related to the autonomy and limits of commercial arbitration in the Province of Quebec. The first question was whether an arbitrator could seek and enforce the common intention of the parties outside of the four corners of their written contract, when the evidence revealed that the written contract did not adequately set out the agreement between the parties. Canadian Royalties argued in the affirmative, and advanced the position that arbitrators were afforded the same interpretative license as judges. Nearctic Nickel Mines’ position was that the arbitrator was, in contradistinction to a judge, held to apply the written instrument. To depart from the text, according to Nearctic Nickel, was tantamount to rewriting the agreement between the parties, which is specifically prohibited by Article 944.10(3) of the Code of Civil Procedure (“CCP”), which provides that arbitrators must “in all cases decide according to the stipulations of the contract.”

The Court of Appeal revisited its earlier findings in the leading case Coderre v. Coderre1, stating that Coderre did not stand for the proposition that an arbitrator could not resort to interpretation to determine the true intention of the parties. Such interpretation, however, must be undertaken in accordance with the applicable rules of law. Moreover, according to the Court of Appeal:

On another important legal issue, the Quebec Court of Appeal held that arbitrators had the power to render orders of specific performance to force a party to perform its contractual obligations. The Court of Appeal thereby reaffirmed its findings in Services Bérubé Ltée2, that an injunction is only required where there is a real possibility that compliance with the order sought could only be ensured by State imposed penal consequences in the event of non-compliance3. Drawing the distinction between orders of specific performance and injunctions, the Court of Appeal made the following remarks:

In order to appreciate whether an arbitrator issued a particular order which would be tantamount to an injunction, one should look at the commercial agreement, determine the true intention 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 of its know penal implications or whether it is more of a declaratory nature which serves the purpose of giving full effect to the Arbitrator’s determination of the parties’ rights.

The Court’s judgment is important in at least three respects. First, it confirms that an arbitrator has the same leeway as a judge to interpret contracts. If Quebec law applies to the contract, the same rules of interpretation apply before the arbitrator in the same way as they would before a judge. Second, even in the absence of specific contractual or legislative language to this effect, arbitrators have the power to compel parties to comply with their contractual obligations by issuing orders of specific performance. Until Service Bérubé and the present case, this was a hotly debated issue.

Finally, the judgment recognizes the limited scope of review available to a judge once an award has been rendered. A judge asked to vacate the award can only do so in extremely limited circumstances, and certainly cannot reconsider any decision made by the arbitrator on the merits. In the face of a claim that the arbitrator “re-wrote” the contract in the guise of interpretation, a judge must simply assess whether the arbitrator “followed the path of interpretation” and not whether the interpretation was sustainable or correct.
1 Coderre v. Coderre, [2008] R.J.Q. 1245.
2 Services Bérubé Ltée v. General Motors du Canada ltée, J.E. 2011-603, 2011 QCCA 567.
3 Ibid., para. 93.

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