Ontario Court of Appeal clarified an arbitrator’s duty of disclosure and held that an arbitrator was under no duty to disclose a second unrelated arbitration which had no common parties or overlapping issues.

Facts

A dispute arose between Aroma Espresso Bar Canada Inc. (“Aroma Canada”) a master Canadian franchisee and the franchisor, Aroma Franchise Company Inc. (“Aroma Franchisor”), regarding their master franchise agreement. An arbitration was conducted in Ontario by a single arbitrator governed by the International Commercial Arbitration Act, 2017.

Aroma Canada was largely successful in the arbitration; however, during the arbitration, the arbitrator accepted another sole arbitrator appointment from members of the same law firm as counsel for Aroma Canada, without disclosing this to the parties. The parties and issues in the other case did not overlap with the case at issue.

During the release of the award, counsel for Aroma Franchisor learned of this second appointment of the arbitrator by counsel for Aroma Canada when the arbitrator (twice) inadvertently copied a lawyer involved in the second arbitration on correspondence related to the Aroma arbitration. Aroma Franchisor subsequently sought to set aside the award on the basis that this undisclosed second appointment by the same counsel created a reasonable apprehension of bias.

At first instance, the Ontario Superior Court set aside the award, holding that the undisclosed second appointment in the specific circumstances of this case, including the subjective expectations of the parties, created a reasonable apprehension of bias.

Decision

The Ontario Court of Appeal disagreed, allowed the appeal, and overturned the first instance decision. The Court of Appeal held that the governing principles for assessing issues of disclosure and bias must be based on the applicable legislative framework.

In contrast to the (non-binding) IBA Guidelines on Conflicts of Interest, which adopt a subjective approach to the duty of disclosure, the UNCITRAL Model Law, adopted in Ontario and all other Canadian jurisdiction, imposes an objective test in relation to the arbitrator’s legal obligation of disclosure. Specifically, Article 12(1) of the Model Law sets out an objective test requiring the disclosure of any circumstances “likely to give rise to justifiable doubts as to [the proposed arbitrator’s] impartiality or independence” which are to be assessed from the standpoint of a fair-minded and informed observer.

The Court of Appeal also held that any breach of a disclosure obligation is relevant to, but not determinative of, whether a reasonable apprehension of bias exists.

Hence, it was an error of law for the lower court to consider the parties’ subjective expectations regarding the arbitrator’s disclosure obligations, which had not been communicated to the arbitrator. In applying the objective test, the arbitrator had no duty to disclose the other appointment since the parties and issues did not overlap. As there was no suggestion that the second appointment itself (as opposed to the failure to disclose such appointment) created a reasonable apprehension of bias, the finding that the arbitrator had no duty to disclose the second appointment was fatal to the challenge to the award.

Analysis

The first instance decision was covered in last year’s publication reviewing the most important cases of 2023. In that publication it was noted that two or more appointments by the same lawyer or law firm does not in and of itself give rise to a reasonable apprehension of bias. This view was shared by the Court of Appeal. That said, some arbitrators will as a matter of course identify all appointments involving the same counsel or the same party as part of their ordinary disclosure process for the sake of full transparency.

It is where the multiple appointments risk actually causing a reasonable apprehension of bias that more than one appointment can prove problematic and is required to be disclosed. This might be where there are numerous appointments, creating the perception of a financial dependency on the part of the arbitrator (the IBA Guidelines on Conflicts of Interest places two appointments by the same party or three appointments by the same counsel within three years on its “Orange List”).

It might also be the case where an arbitrator is involved in another arbitration with overlapping issues and parties. This is because evidence and arguments in the first arbitration might indirectly influence the arbitrator’s decision making in the second arbitration.

However, this decision may still have an impact on the disclosure obligations of arbitrators in Canada. In particular, it suggests that if parties or their counsel have concerns about an arbitrator accepting other mandates during an arbitration, those concerns should be identified and clearly disclosed to the arbitrator and opposing counsel prior to the engagement.

If so, an arbitrator might have a heightened disclosure requirement and the failure to comply with this might form the basis for claiming a reasonable apprehension of bias. In other words, the parties may impose a higher burden on the arbitral tribunal and derogate from the Model Law’s default standard.

The appeal also clarifies the standards applicable to determining whether justifiable doubts over impartiality or a reasonable apprehension of bias by an arbitrator exist. This clarification is important for lawyers and arbitrators, especially where the same arbitrator is engaged for different disputes. The Court explained that “justifiable doubts”, the term used in the Model Law, is synonymous with the reasonable apprehension of bias standard known to Canadian lawyers, which is to be assessed on an objective basis.

Aroma Franchise Company, Inc v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839