August 07 2008
In Coderre v Coderre (Quebec Court of Appeal, May 13 2008) the Quebec Court of Appeal for the first time examined and delineated the powers of an arbitrator with the mandate to decide a dispute as amiable compositeur. The major issue in the case related to the interpretation of Article 944.10(3) of the Code of Civil Procedure, which provides that arbitrators “shall in all cases decide according to the stipulation of the contract and take account of applicable usage”.(1)
The issue was whether this provision applied to an arbitrator acting as amiable compositeur. The Quebec Court of Appeal held that an arbitrator acting in this role may not modify the terms and conditions of a contract unless he or she has been explicitly or implicitly authorized by the parties to do so. The court unanimously held that Article 944.1(3) is applicable both to an arbitrator who must settle the dispute according to the rules of law and to an arbitrator who acts as amiable compositeur.
The parties, which both work in the field of road transport, concluded a settlement agreement in 1998. The settlement agreement included an arbitration clause giving the arbitrator the power to act as amiable compositeur. By the terms of the settlement, Groupe Denis was supposed to pay Groupe Roger a certain amount according to a formula elaborated by their accountants. Groupe Denis was not making its payments to Groupe Roger and therefore Groupe Roger commenced arbitration proceedings.
The arbitrator concluded that the terms of the settlement were inequitable. In order to give effect to the parties’ intentions, the arbitrator rendered decisions in which he modified the accounting formula by striking out two dispositions. According to the arbitrator, he was not contravening Article 944.10(3). His decisions did not ignore the stipulations of the contract between the parties, but rather gave effect to their will and intention.
Groupe Denis applied to the Quebec Superior Court to have the awards annulled. The Quebec Superior Court concluded that the arbitrator had exceeded his powers by striking out stipulations from the transaction. He was allowed by the parties to act as amiable compositeur, but he did not have the power to overrule the settlement.
Groupe Roger then appealed the decision to the Quebec Court of Appeal.
The Quebec Court of Appeal confirmed the Quebec Superior Court’s decision, cancelling the arbitral awards on the basis that the arbitrator exceeded his powers because the parties did not give him the power to modify the settlement. In this decision the Quebec Court of Appeal set out the boundaries between the role of an ordinary arbitrator who must follow the rule of law and an amiable compositeur who is invited to exercise his discretion in resolving a dispute. The Quebec Court of Appeal found that the discretion of an amiable compositeur is not absolute and this arbitrator must respect the rules of public order, including the principles of natural justice.
The Quebec Court of Appeal held that Article 944.10(3) was applicable to an arbitrator acting as amiable compositeur because the use of the terms "in all cases" and "they” were relevant and included both types of arbitrator. In order to interpret Article 944.10(3), the Quebec Court of Appeal referred to the United Nations Commission on International Trade Law Model Law, which has been used as a guide of interpretation since its adoption in 1986.
In order to render Article 944.10(3) effective, the arbitrator as amiable compositeur has the obligation to respect the terms and conditions of the contract agreed to by the parties. Although the obligation must be interpreted with sufficient flexibility to permit the arbitrator to achieve his mandate, it is clear that he cannot remove or rewrite certain stipulations of a contract unless the parties have explicitly authorized him to do so.
This case arose because the concept of amiable compositeur is not defined by law. The only reference to it comes in Article 944.10 of the Code of Civil Procedure, which mentions in its second paragraph that the arbitrator can act as amiable compositeur only with the prior concurrence of the parties. As their powers were not well delineated, some arbitrators acting as amiable compositeur gave themselves the right to modify the contract between the parties without being authorized to do so.
This decision reiterates the importance of respecting the terms of a properly negotiated contract that expresses the will of the contracting parties. The Quebec Court of Appeal decided that it was more significant to attach importance to the contractual security surrounding the conclusion of a contract than to enlarge the powers of arbitrators acting as amiable compositeur.
This clarification on the limits of power of the arbitrator acting as amiable compositeur may have the effect of encouraging more parties to opt for this type of arbitration. Parties that have not explicitly or implicitly relieved the arbitrator of the obligation under Article 944.10(3) of the Code of Civil Procedure have less reason to fear an award which will modify the terms and conditions of their duly negotiated contract.
This decision not only defines the arbitrator’s role and powers, but also emphasizes the parties’ role in establishing the arbitrator’s jurisdiction. Those parties contemplating amiable composition as an open mechanism in which the arbitrator has considerable leeway may now readjust their expectations. The parties are required to define the arbitrator’s jurisdiction.
In recent years arbitration has changed significantly and has played an increasingly important role because of the many benefits it provides parties, including flexibility in applying the rules of law. This decision reminds us that arbitration is a mechanism for settling disputes which remains a private justice whose origin is essentially contractual. Arbitration is an attractive alternative for those parties that can themselves decide upon how to proceed. Often arbitration will be more flexible than court proceedings because it offers the parties several avenues for settling an eventual dispute.
Now that the scope of the powers of an amiable compositeur has been better defined, the question remains as to whether parties will be willing to grant an arbitrator acting as amiable compositeur the power to modify an existing contract when the arbitration clause is being negotiated.
For further information on this topic please contact Simon Grégoire or Josiane Brault at Borden Ladner Gervais LLP by telephone (+1 514 879 1212) or by fax (+1 514 954 1905) or by email (firstname.lastname@example.org or email@example.com).
"The arbitrators shall settle the dispute according to the rules of law which they consider appropriate and, where applicable, determine the amount of the damages.
They cannot act as amiables compositeurs except with the prior concurrence of the parties.
They shall in all cases decide according to the stipulations of the contract and take account of applicable usage.”
ILO provides online commentaries as specialist Legal Newsletters. Written in collaboration with over 500 of the world's leading experts and covering more than 100 jurisdictions, it delivers individually requested information via email to an influential global audience of law firm partners and international corporate counsel. Please click here to register for the service.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription. Register at www.iloinfo.com.