The Court of Appeal for Ontario (Court) recently issued its ruling in Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc. (Aroma). The decision clarifies the law governing an arbitrator’s duty to disclose potential conflicts of interest and the rules governing the assessment of a reasonable apprehension of bias. The Court confirmed that the analysis of an arbitrator’s duty to disclose and any resulting bias is rooted in the rules the parties choose to govern the arbitration. Under the UNCITRAL Model Law on International Arbitration (Model Law), circumstances giving rise to a reasonable apprehension of bias must be assessed objectively.
Application Decision
In Aroma, while an arbitration process was underway, counsel to one of the parties retained the arbitrator to act in a second arbitration. The parties and issues in the second arbitration were unrelated to the arbitration process in Aroma.
In the Superior Court of Justice, the application judge (Judge) held that the arbitrator’s failure to disclose the subsequent unrelated arbitration gave rise to a reasonable apprehension of bias. This conclusion was largely based on correspondence between the parties, before the arbitrator’s appointment, regarding each counsel’s relationships and other engagements with potential arbitrators and the International Bar Association’s Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines). The Judge concluded that the concerns of the parties and the IBA Guidelines required the arbitrator, once retained, to disclose the existence of the second arbitration. Based on the failure to disclose, the Judge determined that the circumstances gave rise to a reasonable apprehension of bias.
Court of Appeal Decision
The Ontario Court of Appeal allowed the appeal and reinstated the arbitrator’s award, subject to unrelated issues that were remitted to the Judge. In reaching its decision, the Court observed that, generally, the circumstances requiring disclosure of potential conflicts of interest are much broader than the circumstances giving rise to a reasonable apprehension of bias. While related, they are distinct concepts.
Duty to Disclose
The Court of Appeal noted that Article 12(1) of the Model Law requires an arbitrator to disclose circumstances “likely” giving rise to bias — an objective standard. Article 12(2) then allows a party to challenge an arbitrator but only in circumstances that give rise to bias. The Court of Appeal considered the purpose of Article 12(1) of the Model Law: disclosure avoids the appearance of arbitrator bias while allowing the parties to consider and take steps respecting the disclosure.
Considering the IBA Guidelines, the Court observed that, while they provide guidance, they do not override the arbitral rules chosen by the parties. The parties did not adopt the IBA Guidelines. Article 12(1), which the parties did adopt, differs from the IBA Guidelines in the standard for disclosure. The IBA Guidelines provide for disclosure by an arbitrator in circumstances that may give rise to bias “in the eyes of the parties.” In other words, the IBA Guidelines are subjective, while the Model Law is objective.
Ultimately, the Court of Appeal concluded that the Judge applied the IBA Guidelines’ subjective test instead of the Model Law’s objective test. The emphasis placed on the correspondence between the parties, which was never disclosed to the arbitrator, highlighted this error. The Court of Appeal determined there was no circumstance known to the arbitrator that could likely give rise to bias, therefore, there was no obligation to disclose under Article 12(1). Notably, the second arbitration did not include the same parties, nor did it involve an overlap of similar issues, and so would not give rise to a duty to disclose under the settled Model Law case law.
Reasonable Apprehension of Bias
The Court of Appeal, reiterating the above distinction between Articles 12(1) and (2), observed that a failure to disclose, though instructive, is not determinative in assessing whether a reasonable apprehension of bias exists. In this case, the failure of the arbitrator to meet a standard of disclosure about which he was never informed was not indicative of bias. Accordingly, the Judge erred in finding bias.
Further, the Court reiterated that reasonable apprehension of bias is an objective standard under Canadian law. It is the same test under the Model Law, although the Model Law uses the phrase “justifiable doubts about the arbitrator’s impartiality.” The objective standard means there is a strong presumption of impartiality in which, while context matters, the subjective views of the parties are not relevant. The Judge erred by allowing such subjective views to inform the context when applying the objective test. Objectively, the circumstances did not give rise to a reasonable apprehension of bias.
Conclusion
The Aroma decision demonstrates the need for parties to carefully consider their choice of arbitration rules and understand the applicable law of the jurisdiction where the arbitration is seated. Irrespective of the applicable rules, if parties want potential arbitrators to consider specific circumstances in assessing conflicts (such as other retainers involving counsel to the parties), they need to raise those specific circumstances with the potential arbitrator at an early stage.
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