The decision in Aroma Franchise Company, Inc v Aroma Espresso Bar Canada Inc., 2024 ONCA 839, reshapes the disclosure obligations of Arbitrators, specifically when appointed for multiple cases by the same party or counsel.

In its decision, the Ontario Court of Appeal clarifies that multiple appointments of an Arbitrator by the same party or counsel does not always meet the threshold of legal disclosure requirements, nor does it automatically lend to a finding of a reasonable apprehension on bias.

In this case, the Court found the following:

  1. disclosure requirements depend on the legal regime that governs the arbitration;
  2. a finding that an Arbitrator breached the legal duty to disclose is a relevant, but not determinative factor in deciding whether a reasonable apprehension of bias exists;
  3. the test for the reasonable apprehension of bias is objective; and
  4. the presumption of impartiality applies to Arbitrators.

Key facts

The dispute arose during an international commercial arbitration between the Appellant (Aroma Espresso Bar Canada Inc) and the Respondent (Aroma Franchise Company Inc) (the "MFA Arbitration"). Approximately 17 months after the arbitration began and 15 months before the Arbitrator issued the Final Award, the lead lawyer of the legal team acting in the MFA Arbitration for the Appellant – members of the Sotos LLP law firm, asked the Arbitrator to arbitrate a separate dispute involving another client of Sotos LLP (the "Sotos Arbitration"). This second arbitration was unrelated to the MFA Arbitration, involving entirely different parties and issues.

The Arbitrator accepted the role in the Sotos Arbitration but did not disclose this engagement to the Respondent in the MFA Arbitration. The MFA Arbitration continued for 15 months before the Final Award was issued. Throughout this period, the Respondent remained unaware of the Arbitrator's involvement in the Sotos Arbitration.

After the Final Award in the MFA Arbitration, the Respondent learned about the Arbitrator's role in the Sotos Arbitration. The Respondent brought an application to the Superior Court to set aside the Final Award, as well as ancillary awards of interest and costs the Arbitrator made in October 2022.

The Application Judge granted the Respondent's application to set aside the Arbitrator's award and directed there be a new arbitration before a different arbitrator. The Application Judge concluded that the Arbitrator's failure to disclose his involvement in the Sotos Arbitration gave rise to a reasonable apprehension of bias, tainting the MFA Arbitration. In arriving at these conclusions, the Application Judge relied heavily on the parties' expectations regarding disclosure, which were derived from correspondence between counsel for the parties prior to the Arbitrator's appointment, and the International Bar Association's Guidelines on Conflicts of Interest in International Arbitration ("IBA Guidelines").

Aroma Espresso Bar Canada Inc appealed the Application Judge's decision to the Ontario Court of Appeal. The Appellant argued that the Application Judge's finding that disclosure was required was erroneous and, that the Application Judge erred in finding a reasonable apprehension of bias by virtue of the Arbitrator's non-disclosure.

The Ontario Court of Appeal allowed the appeal and re-instated the Arbitrator's award, finding that the Application Judge erred in finding that the Arbitrator breached his legal duty to disclose and, erred in finding a reasonable apprehension of bias.

Duty to disclose

The Court found that the Application Judge erred in finding that the Arbitrator breached his legal duty to disclose that he was appointed by counsel to work on the Sotos Arbitration. In its reasoning, the Court considered the legal regime governing the MFA arbitration, that being the Model Law.

The Court considered articles 12(1) and 12(2) of the Model Law, which set out the mandated duty of disclosure of an Arbitrator. Article 12(1) states the following:

When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him. (emphasis added)

Article 12(2) provides that an Arbitrator may be challenged "if circumstances that give rise to justifiable doubts as to the [the arbitrator's] impartiality or independence." (emphasis added)

In considering the above-noted provisions, the Court found that disclosure is required for a circumstance that is likely to give rise to a justifiable doubt, while a challenge can only be brought where the circumstances give rise to a justifiable doubt.

The Court then compared the disclosure requirements as provided for in English common law through the Halliburton decision and the disclosure requirements as set out in the IBA guidelines. Halliburton sets out an objective test for disclosure. As stated in Halliburton, circumstances likely to give rise to justifiable doubts as to the proposed adjudicator's impartiality or independence are assessed from the standpoint of a fair-minded and informed observer. To the contrary, the IBA guidelines provide a subjective test for disclosure requirements, which emphasizes the perception of an Arbitrator's impartiality or bias through the "eyes of the parties."

The Court found that the Application Judge did not use Model Law's objective test in assessing disclosure requirements. Instead, the application judge applied the IBA guidelines, treating these guidelines as the relevant standard for disclosure without acknowledging the difference between the IBA's subjective test and the Model Law's objective test. This is evidenced through the Application Judge's heavy reliance on the correspondence counsel exchanged before the appointment of the Arbitrator. Under the objective test, the Court found, the use of that evidence constituted a legal error as these exchanges between counsel were not shared with the Arbitrator.

Based on the legal regime the parties chose for the Arbitration, the objective test determined what disclosure was necessary by the Arbitrator. The Court found that the parties' decision not to select the IBA Guidelines as the legal regime for their arbitration, and not sharing the correspondence that revealed the parties' subjective disclosure expectations with the Arbitrator, meant that the parties could only expect that the Arbitrator to satisfy the disclosure requirements under the objective test.

In applying the objective test, the Court found that the Arbitrator did not have a duty to disclose that he was being engaged in the Sotos Arbitration as it was an unrelated arbitration. The Sotos Arbitration did not involve any party in the MFA Arbitration and there was no meaningful overlap of the issues. Furthermore, the Court found that that even though counsel for one of the parties to the Sotos Arbitration was also counsel for the Appellant in the MFA arbitration, and that the Arbitrator would be compensated on the Sotos Arbitration, these were insufficient reasons to trigger the Arbitrator's duty to disclose. The Court even considered the IBA guidelines commentary and the Orange List in assessing whether the duty to disclose ought to be triggered. The Court found that according to the Orange List, a single appointment of an arbitrator in an unrelated case does not meet this threshold. Furthermore, situations not listed on the Orange List do not generally require disclosure. As such, the Court concluded that for disclosure to be necessary, circumstances must reasonably give rise to justifiable doubts about impartiality, such as overlapping parties, issues or a critical mass of repeat appointments. These conditions were absent in this case.

The Court therefore concluded that a single, unrelated appointment by counsel for an ongoing arbitration does not meet the standard for mandatory disclosure under either the IBA Guidelines or the objective test. Objectively viewed, this situation would not create justifiable doubts about the Arbitrator's impartiality or independence.

Reasonable apprehension of bias

The Court found that the application judge erred in finding a reasonable apprehension of bias. As stated by the Court, the test for reasonable apprehension of bias is an objective standard. The Court also stated that a legal duty to disclose, is a relevant, but not determinative factor in deciding whether there is a reasonable apprehension of bias.

The Application Judge concluded that the Arbitrator's failure to disclose was due to his failure to meet the parties' expectations for disclosure, of which he was never informed. As a result of not being informed by the parties of these communications or expectations, the Court found that the path from the Arbitrator's non-disclosure to a reasonable apprehension of bias disappeared.

Accordingly, the Court found that this was not a situation in which the Arbitrator was ignoring obligations to disclose or ignoring the parties' desired level of disclosure. The Arbitrator was simply not aware of these expectations. In applying the objective test, the Court found that a fair-minded and informed person would consider the facts and circumstances objectively known and focus on what the Arbitrator was told by the parties. As a result, the Arbitrator's failure to disclose in these circumstances is not indicative of bias on his part.

Furthermore, the Court noted the decision in Jacob Securities, which was a case dealing with private arbitrators. According to Jacob Securities, there is a strong presumption of impartiality to Arbitrators. While the Respondent argued that this presumption does not apply to private Arbitrators, the Court rejected this argument stating that not holding this presumption would undermine the integrity of the endorsed system of dispute resolution, placing the entire arbitral scheme under an "unwarranted cloud."

Key takeaways

This decision highlights the importance of carefully considering the choice of rules to govern an Arbitration. This will ultimately impact the trajectory of the Arbitration, specifically the scope of the disclosure obligations of an Arbitrator. The following points are noteworthy from this decision:

  1. Arbitrators are held to uphold disclosure obligations in Arbitrations and parties are equally held to specify whether these disclosure expectations differ from those set by the applicable authorities;
  2. The objective threshold for meeting disclosure obligations and in finding bias is that of a "fair-minded and informed observer"; and
  3. The threshold for challenging an Arbitrator on the grounds of bias is higher than the test for disclosure as this analysis is limited to circumstances that indeed give rise to justifiable doubts instead of those which are likely to give rise to justifiable doubts.