Smart Systems 2008
The Québec Court of Appeal has recently added a new, if uncertain, twist to public order as applied in the context of arbitration. According to Article 949 of the Québec Code of Civil Procedure (C.C.P.), a Québec court may refuse to recognize and execute a foreign arbitration award if doing so would be "contrary to public order." The concept of public order, particularly as applied to enforcing arbitration awards, is a matter of the fundamental values and principles of a legal system, rather than of its mandatory substantive rules (see Desputeaux v. Éditions Chouette (1987) Inc.  1 S.C.R. 178). For the purposes of enforcing arbitration awards, the outcome of the award is measured against this concept of public order.
In Smart Systems Technology v. Domotique Secant Inc., Smart Systems sought recognition and enforcement of an arbitral award rendered in New Mexico. The award annulled the purchase of goods by Smart Systems, rejected a demand for the price by the seller, Domotique, and condemned the latter to damages and punitive damages as well as costs.
The Québec Court of Appeal confirmed the first instance judgment and refused to recognize the foreign arbitration award on the basis that recognition would be against public order as understood, primarily with respect to international relations. Its rationale was that the award was rendered without any reasons contrary to the parties’ arbitration agreement. The court recognized that the parties can expressly waive a reasoned award. The absence of reasons may not always be a cause for annulling an arbitration award, even in some cases where the arbitration agreement requires reasoning. The court provided an example of a "black and white" decision that had been based on the credibility of witnesses. The substance of the arbitration award in that case was not contrary to public order.
Nonetheless, the court appeared to indicate that the parties should be able to review its reasons given the seriousness of the results. In addition to the public order issue, the court refused to recognize the award on the basis of Art. 950(4) and (5) C.C.P. (i) because the arbitrators exceeded their jurisdiction when they annulled the contract and awarded punitive damages, neither of which were part of their mandate, and (ii) due to procedural irregularities including a private communication between an arbitrator and one party during the deliberations. The court stated that the fact the award was homologated by a court in New Mexico does not prevent a Québec court from refusing to recognize the award.
McCarthy Tétrault Notes:
The decision clearly raises the issue of public order in relation to strict adherence to arbitration procedure. While the Court of Appeal appears to elevate the requirement of a reasoned arbitration award to the status of public order, uncertainty remains over when exactly this requirement will be considered a fundamental value under Québec law. The tenor of the decision also blurs the distinction between procedure and substance in arbitration as they apply to the process for recognition of foreign awards. While the case does not yet appear to have been appealed to the Supreme Court of Canada, it is safe to assume that we have not heard the last of these issues.