Court of Appeal for Ontario sets aside award upon finding justifiable doubts as to impartiality of one member of a three-member tribunal.

Facts

The dispute arose out of an investor-state arbitration between Vento Motorcycles, Inc. (“Vento”), an American company, and Mexico. Vento entered into a joint venture agreement with a Mexican company to assemble motorcycles in the United States and export them to Mexico for sale. Mexico refused to apply preferential ad valorem import tariffs to the motorcycles. This prompted Vento to bring a claim under Chapter 11 of the North American Free Trade Agreement.

The three-member tribunal unanimously dismissed Vento’s claim in its entirety. After the award’s release, Vento learned that Mexico’s appointee, Mr. Perezcano, had communicated with Mexican government officials during the arbitration. Mexico’s lead counsel in the arbitration was involved in these communications, which included discussions about Mr. Perezcano’s potential inclusion on Mexico’s roster of tribunal chairpersons under a different trade agreement.

Vento applied to the Ontario Superior Court to set aside the award pursuant to Art. 34 of the Model Law. Vento based its challenge on two grounds:

  1. a reasonable apprehension of bias based on justifiable doubts existing as to Mr. Perezcano’s impartiality; and
  2. the Tribunal violated due process in refusing to strike out a surreptitious recording Mexico put in evidence, and refusing Vento’s request to submit further evidence in response.

The Application Judge rejected the due process ground and upheld the award despite finding that a reasonable apprehension of bias existed on the part of Mexico’s appointee. The Judge reasoned that although one arbitrator might have been biased, this did not taint the unanimous award as the two other arbitrators benefitted from a strong presumption of impartiality which had not been rebutted. Vento appealed.

Decision

The Court of Appeal allowed Vento’s appeal, holding that, once the Application Judge found a reasonable apprehension of bias, there was no alternative but to set the award aside. In light of this conclusion, the Court declined to address the due process ground.

The Court began by noting that a court’s role in reviewing an international commercial arbitral award is limited. Save for a few exceptions, the grounds listed in Model Law Art. 34(2) generally do not require or permit the court to consider the award’s substance and under no circumstances can an application under Art. 34(2) be a bare attack on an award’s merits as it is not an appeal.

Vento relied on Art. 34(2)(a)(iv), which allows the courts to set aside an award where the composition of an arbitral tribunal, or the arbitral procedure, is not in accordance with the agreement of the parties. This provision, the Court found, gives effect to Model Law Art. 18, which requires the parties to be treated with equality and be given a full opportunity to present their case. The Court held that a breach of Art. 18 must be shown to have affected the substantive fairness of the hearing to justify court interference.

However, the Court also held that, in circumstances where there has been a “more significant breach,” such as a finding of a reasonable apprehension of bias, the Court may not have any discretion to uphold an award, even if the breach did not actually impact the outcome. While there is “considerable room for disagreement as to what constitutes bias in particular circumstances,” the Court held that a reasonable apprehension of bias is a major procedural fairness violation; the only remedy is quashing the decision in question, regardless of whether the unfairness impacts the outcome.

The Court rejected the Application Judge’s finding that the breach was “softened” by the absence of financial compensation, the public nature of the appointments, or the general nature of the communications between Mexico’s appointee and Mexico’s lead counsel. Rather, once the Application Judge found a reasonable apprehension of bias, it was mandatory for the Judge to set the award aside. The Court also resoundingly rejected the Application Judge’s attempt to “balance away” the breach against the cost and inconvenience of redoing the arbitration.

Analysis

The first instance decision caused surprise and consternation in the arbitration community. The suggestion that an apprehension of bias in one arbitrator could somehow be negated by the presence of two other arbitrators was a novel and unsatisfactory analysis that failed to adequately consider the risk of influence a tainted arbitrator might have over their fellow arbitrators.

The Court of Appeal is clear: a reasonable apprehension of bias is always a sufficiently grave breach of natural justice to set aside an award. In the case of a multi-member tribunal, a finding that one arbitrator is under a reasonable apprehension of bias is sufficient to render the award null. In addition to being consistent with the approach taken in Canadian administrative law, this approach is also consistent with the practical realities of deliberative secrecy: it is impossible for a court to truly know the impact of a single arbitrator on the outcome of an award and whether they were able to sway their fellow arbitrators towards a particular view on any given issue. In arbitration, although there is some authority for piercing the veil of deliberative secrecy in very rare cases (see for example: CZT v. CZU, [2023] SGHC(I) 11), this protection is strong (Noble China Inc. v. Lei, 1998 CanLII 14708 (ON SC)).

The Court also held that, when examining procedural fairness under the Model Law, the “essential question” is always “what did the procedural error do to the reliability of the result, or to the fairness, or the appearance of fairness of the process?” Put another way, an award should generally stand unless the result might reasonably be different but for the breach. This approach is distinct from that taken in public law and may also be out of step with the approach taken by other courts in the international arbitration context (see for example the Judicial Committee of the Privy Council’s decision in Gol Linhas Aereas S.A v MatlinPatterson Global Opportunities Partners (Cayman) II L.P. and others, [2022] UKPC 21).

As a side note, the Court commented on Vento’s use of non-common law foreign authorities, stating that it was “fraught with difficulty.” The Court expressed that, while such decisions “may be relevant,” the Court had no way of knowing whether these authorities were representative of the law of foreign jurisdictions or anomalous, some were not available in English, and some were cited in translated, excerpted form.

While many would see this comment as logical in other areas of law, it is potentially problematic in the context of an international arbitration under the Model Law. The Model Law is an international instrument that represents a compromise between the civil law and common law. One of its chief goals is to harmonize arbitral law internationally. This goal, which was already supported by the Model Law’s travaux préparatoires, was expressly codified in Art. 2A(1) of the 2006 amendments (adopted in Ontario): “In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.” Art. 2A(1) is a mandatory provision that directs courts to “have regard” to the Model Law’s international, bijural, and multicultural origin, as well as the benefit of promoting uniform interpretation across the Model Law’s adopting jurisdictions.

Importantly, Art. 2A(1) does not purport to bind Ontario’s courts to interpretations made in other jurisdictions; it only requires them to consider those interpretations. There are good reasons for this, including that there is not always a clear international consensus on many issues. In other words, a duty to consult is not a duty to agree.

Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82