Over the past few years, several Canadian jurisdictions have legislated increasing use of arbitration for the resolution of payment and certain other construction disputes. The Ontario Court of Appeal recently provided updated guidance regarding claims of arbitrator bias. In Aroma Franchise Company Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839 ("Aroma"), the Ontario Court of Appeal clarified arbitrators' disclosure obligations and the test for reasonable apprehension of bias.
Background
The dispute arose from a franchise agreement that included an arbitration clause requiring the appointment of a single arbitrator with no prior relationships with either party. After a lengthy arbitration, the arbitrator issued an award in favour of Aroma Canada. In issuing the award, the arbitrator inadvertently copied another lawyer from Aroma Canada's law firm who was not involved in the arbitration. Aroma Franchise then discovered that, partway through the arbitration, the arbitrator had been retained by Aroma Canada’s counsel to hear an unrelated second arbitration.
This second arbitration involved unrelated parties and issues, but the arbitrator had not disclosed the new proceeding. Aroma Franchise brought an application to set aside the award, arguing a reasonable apprehension of bias. The Ontario trial level Court agreed, finding that nondisclosure tainted the arbitration and necessitated a new hearing.
On appeal, the Ontario Court of Appeal unanimously overturned the lower Court decision. The Court of Appeal emphasised that arbitrator disclosure obligations are governed by the applicable legal framework — in this case, Ontario’s International Commercial Arbitration Act, which incorporates the UNCITRAL Model Law. Under the Model Law, an arbitrator must disclose circumstances likely to give rise to justifiable doubts about their impartiality, assessed objectively from the perspective of a fair-minded and informed observer. The Court of Appeal found that the second appointment did not meet this threshold. It involved different parties and issues, and there was no meaningful connection to the original arbitration. The Court also clarified that expectations set in correspondence between parties, especially when not communicated to the arbitrator, do not shape the legal duty of disclosure.
Importantly, the Court reinforced that arbitrators, like judges, are presumed impartial. That presumption is not displaced by non-disclosure of an unrelated appointment unless the facts would cause a reasonable observer to conclude there is a real risk of bias. In this case, no such conclusion was warranted.
Conclusion and key takeaways
The decision is particularly meaningful to construction disputes given the increasing likelihood of resolving construction disputes through arbitration proceedings. The decision underscores that disclosure must be assessed objectively, and unrelated appointments with no overlapping issues or parties are unlikely to give rise to a reasonable apprehension of bias.
The decision also emphasises the importance of the wording of arbitral agreements between parties. If either party is concerned about potential arbitrator conflicts or other similar concerns, additional limitations ought to be added to the governing arbitral agreement before a proceeding is commenced or an arbitrator selected.
For further information regarding construction disputes in Canada Gordon Becher – Whitelaw Twining
