A Canadian court annulled a Montreal arbitrator's award in a healthcare dispute, saying that in writing his decision, he wrongly relied on numerous "hallucinated" legal authorities provided to him by a generative artificial intelligence tool.

The Quebec Superior Court annulled the arbitration award in an April 22 ruling by Judge Martin F. Sheehan that found the defendant, arbitrator Michel A. Jeanniot, had cited nonexistent court decisions created by the AI tool when he resolved the dispute between a clinic and a health authority.

Judge Sheehan ordered the parties to choose a new arbitrator within 60 days of this judgment.

In overturning the arbitral award issued Aug. 8, 2025, that sided with health authority Quebec Health - Integrated University Health and Social Services Centre of South-Central Montreal, the judge found that all doctrinal and jurisprudential references the arbitrator relied on were "non-existent and hallucinatory."

For example, Jeanniot cited a decision in a city of Montreal case against a workers union, as well as a decision in a Concordia University case, among others, even though the decisions did not exist, according to the court.

"The references mentioned above are central to the arbitrator's reasoning," Judge Sheehan said. "They constitute the only doctrinal or jurisprudential references used as legal support for the award."

The judge added that the preponderance of evidence led him to conclude that the arbitrator's authority was formally delegated to him, but he had abdicated his role in reviewing the result.

"To ensure the highest standards of accuracy and authenticity, AI-generated observations must undergo rigorous human review," Judge Sheehan said. "This verification can be achieved by cross-referencing them with reliable legal databases to confirm that the references and their content withstand close scrutiny. This approach aligns with long-standing practices among legal professionals."

The dispute stemmed from a CA$1.2 million payment that the clinic, Centre Santé Osman, said the CIUSSS health authority owed it.

An association representing Osman, the Quebec Association of Intermediate Housing Resources, argued that the clinic had a three-year window to file a dispute, but CIUSSS argued in the arbitration proceedings that Osman was subject to a shorter 90-day deadline.

Although the arbitrator sided with the health authority, Judge Sheehan later found that the court decisions supporting a shorter deadline did not in fact exist but were generated by the AI tool.

The parties who selected Jeanniot to serve as their arbitrator from a limited list of 10 arbitrators, had the right to expect he would hear the case in full, according to the judge.

"It goes without saying that by choosing the arbitrator who will hear their dispute, the parties are entitled to expect that this arbitrator will make the decision," Judge Sheehan stated. "It is also accepted that a failure to comply with the arbitration procedure ... is not limited to the procedure relating to the hearing itself, but may include a violation relating to the deliberations."

Turning to what he termed "the special case of artificial intelligence," the judge noted that a growing number of legal professionals are using large language models to help them with a variety of tasks, including summarizing documents, identifying trends, transcribing audio files and refining drafts of existing text.

But that help comes with risks, including the risk of incorporating AI hallucinations into legal documents that arbitrators, courts and parties depend on to be accurate, he said.

"These hallucinations can be extremely deceptive and difficult to detect, as they often exhibit all the characteristics of genuine quotations and can only be identified as false after careful examination," Judge Sheehan said. "This type of hallucination forces other parties and the court to devote valuable time not only to attempting to locate something that does not exist, but also to reviewing observations that rely on such nonexistent sources."

Representatives for the parties could not be reached immediately for comment Monday.

ARIHQ is represented by Philippe Faucher and Benjamin Lachance.

CIUSSS is represented by Christian Azzam of Donati Maisonneuve.

The case is Quebec Association of Intermediate Housing Resources (ARIHQ) et al. v. Quebec Health - Integrated University Health and Social Services Centre of South-Central Montreal (CIUSSS), case number 2026 QCCS 1360, in the Quebec Superior Court, Commercial Chamber.

--Editing by Kristen Becker.

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