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Arbitration - Appointment of Arbitration Tribunal [s.10]. Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc.
In Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc. (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal, here in an international arbitration bias context.
Here the court considers international arbitration in Ontario, and duties of an arbitrator to disclose issues of bias and conflicts of interest:[1] Arbitration is an important, statutorily sanctioned, mode of dispute resolution. Undergirding its acceptability is the core principle that an arbitrator must be impartial. An arbitrator must not actually be biased, nor can there be a reasonable apprehension that the arbitrator is biased.
[2] An international commercial arbitration seated in Ontario is governed by the UNCITRAL Model Law on International Arbitration (the “Model Law”), adopted in the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5. The Model Law contains provisions that promote the core principle of arbitral impartiality. Article 12(1) imposes a duty on an arbitrator to disclose – before appointment and as the arbitration proceeds – any circumstance likely to give rise to justifiable doubts about the arbitrator’s impartiality. Article 12(2) permits a challenge to the arbitrator or the award that was made if circumstances exist that give rise to justifiable doubts about the arbitrator’s impartiality, as long as the person making the challenge was unaware of the circumstances when they participated in the arbitrator’s appointment. Justifiable doubts about impartiality is an equivalent phrase to reasonable apprehension of bias.
[3] Although the duty to disclose and the test for a successful challenge are easy to articulate, their interaction and application in differently nuanced cases can be more challenging.
[4] High stakes arbitrations often involve arbitrators who are in high demand, sophisticated parties, and experienced lawyers. This gives rise to the prospect that an arbitrator might have had prior engagements or be asked to undertake future ones, in which the parties or lawyers have some involvement. How the duty to disclose, and the right to successfully challenge an arbitral outcome, apply based on different versions of this potential scenario have recently been extensively canvassed by courts in the United Kingdom: Halliburton Company v. Chubb Bermuda Insurance Ltd., [2020] UKSC 48, [2021] 2 All E.R. 1175, and Aiteo Eastern E & P Company Ltd. v. Shell Western Supply and Trading Ltd. & Ors, [2024] EWHC 1993 (Comm). This case requires those issues to be considered in yet another variation of this potential scenario.
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[11] The Model Law’s test that dictates when an arbitrator must make disclosure is an objective one. It considers whether relevant circumstances would likely give rise to justifiable doubts about impartiality from the standpoint of a fair-minded and informed observer, rather than through the eyes of the parties. The application judge erred in law in the way she articulated and applied the test for disclosure and by taking into account subjective considerations that the parties did not make known to the Arbitrator. Her approach essentially converted the objective test into a subjective one. Under the objective test, the Arbitrator’s failure to disclose his engagement in what the application judge herself termed a second unrelated arbitration – one which, vis-à-vis the ongoing MFA Arbitration, had no common party or overlapping issues of significance – was not a breach of the legal duty of disclosure.
[12] A finding that there was a breach of the legal duty of disclosure is germane to, although not determinative of, whether an arbitral award should be set aside for reasonable apprehension of bias. A failure to make legally required disclosure may indicate a lack of concern about matters that likely raise justifiable doubts about impartiality in a way that confirms the existence of those justifiable doubts. But a failure of an arbitrator to disclose according to an expectation of the parties that was not shared with the arbitrator does not have a similar effect. The application judge erred in taking into account this kind of failure to disclose in her analysis of reasonable apprehension of bias.
[13] The test for a reasonable apprehension of bias on the part of an arbitrator is objective – like the legal test for disclosure, it considers the relevant circumstances from the standpoint of a fair-minded and informed observer, applied against the backdrop of a strong presumption that an arbitrator is impartial. The application judge erred in law in the way she applied that test, in effect changing the test to one particularly attuned to unshared subjective views. The circumstances she considered to determine that a reasonable apprehension of bias was present went outside of those properly considered in applying the test objectively.
[14] Applying the standard of reasonable apprehension of bias objectively, the presumption of impartiality on the part of the Arbitrator was not displaced by his acceptance of a retainer to arbitrate a second matter that did not involve any of the parties to the MFA Arbitration nor any overlapping issues of significance.
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(1) The Legal Duty of Disclosure
[69] What disclosure is required turns on the legal regime that governs the arbitration. The MFA Arbitration was governed by the Model Law. Article 12(1) of the Model Law sets out the legally mandated duty of disclosure of an arbitrator: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.[3] [70] In Halliburton, the Supreme Court of the United Kingdom endorsed the view that English common law on an arbitrator’s duty to disclose should develop consistently with the Model Law: at paras. 113-15. Halliburton is therefore germane to the interpretation of the legal requirement to make disclosure applicable in this case.
[71] Article 12(1) is best understood in relation to its purposes. The purposes of disclosure by an arbitrator are intertwined: disclosure allows the arbitrator to avoid the appearance of bias and the parties to consider disclosed matters and take steps if so advised. As Lord Hodge said in Halliburton, at para. 70:One way in which an arbitrator can avoid the appearance of bias is by disclosing matters which could arguably be said to give rise to a real possibility of bias. Such disclosure allows parties to consider the disclosed circumstances, obtain necessary advice, and decide whether there is a problem with the involvement of the arbitrator in the reference and, if so, whether to object or otherwise to act to mitigate or remove the problem [citations omitted]. [72] Article 12(1) is thus aimed at surfacing matters that could justify challenging the arbitrator for bias. Article 12(2) of the Model Law provides that an arbitrator may be challenged “if circumstances exist that give rise to justifiable doubts as to [the arbitrator’s] impartiality or independence”. The key difference between the two subsections is that disclosure is required for a circumstance that is likely to give rise to justifiable doubts, while a challenge may be brought only where the circumstances give rise to justifiable doubts. The word “likely” means that the obligation to disclose arises if the “circumstances could reasonably give rise to justifiable doubts.” Thus “the obligation to disclose extends … to matters which may not ultimately prove to be sufficient to establish justifiable doubts as to the arbitrator’s impartiality”: Halliburton, at paras. 113, 117.
[73] As explained in Halliburton, at paras. 113-15, like the test for disclosure prescribed by the English common law, Article 12(1) of the Model Law sets out an objective test. Circumstances “likely to give rise to justifiable doubts as to [the proposed arbitrator’s] impartiality or independence” are to be assessed from the standpoint of a fair-minded and informed observer.
[74] Unlike the Model Law, the IBA Guidelines are not a legal standard. As explained in Halliburton, the IBA Guidelines “set out good arbitral practice which is recognised internationally … [and] can assist the court in identifying … what matters may require disclosure…. But the IBA Guidelines do not of themselves give rise to legal obligations or override national law or the arbitral rules chosen by the parties”: at para. 71. The parties could have, but did not, adopt the IBA Guidelines as the governing disclosure regime for their arbitration.[4]
[75] This distinction is especially important in this case, because the objective standard for disclosure in Article 12(1) of the Model Law differs from the IBA Guidelines which propose, in General Standard 3(a), a different rule for disclosure by an arbitrator. It provides that “If facts or circumstances exist that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence, the arbitrator shall disclose such facts or circumstances to the parties … prior to accepting his or her appointment or, if thereafter, as soon as the arbitrator learns of them” (emphasis added).
[76] In other words, as Halliburton explained, the IBA Guidelines use a “subjective approach to the duty of disclosure … [that] addresses the perception of parties to an arbitration who are … involved in a stressful and often expensive dispute. English law, by contrast, adopts an objective test by looking to the judgement of the fair-minded and informed observer”: at para. 72.
[77] At para. 116, the court in Halliburton reinforced this distinction:In summary, the arbitrator’s legal obligation of disclosure imposes an objective test. This differs from the rules of many arbitral institutions which look to the perceptions of the parties to the particular arbitration and ask whether they might have justifiable doubts as to the arbitrator’s impartiality. [78] This does not mean that other parts of the IBA Guidelines, which provide practical guidance about disclosure, are not useful even when the legal requirement for disclosure is the objective test in the Model Law, rather than the subjective test in General Standard 3(a). The “Practical Application” guidance in Part II of the IBA Guidelines (the stop-light system and the commentary about it) can be used to “assist the court in identifying … what matters may require disclosure”: Halliburton, at para. 71. They can be viewed as “an authoritative source of information as to how the international arbitration community may regard particular fact situations in reasonable apprehension of bias cases”: Jacob Securities Inc. v. Typhoon Capital B.V., 2016 ONSC 604, at para. 41. But care must always be taken to use that guidance through the lens of the legal requirement of disclosure that governs the arbitration, rather than changing the requirement. At paras 79-95 the court explains the application judge's errors, and then applies the 'objective test' for disclosure at paras 96-119.
. Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp.
In Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp. (Ont CA, 2024) the Ontario Court of Appeal quashes an appeal - here in an Arbitration Act 1991, s.10 ['Appointment of arbitral tribunal'] context:[1] The Arbitration Act, 1991, S.O. 1991, c. 17 restricts court intervention in matters parties have agreed to arbitrate. In defined circumstances the Act permits the court to appoint an arbitrator for the parties’ dispute. But it does not permit an appeal from a court-ordered appointment.
[2] Whether this appeal from an order appointing an arbitrator is properly brought principally turns on the breadth of the power to appoint an arbitrator under the Act and therefore of its corresponding preclusion of appeals. Was the arbitrator appointed under the power to do so in s. 10 of the Act, or was there another source of jurisdiction for it which is free of any restriction on appeal rights?
[3] For the reasons below, I conclude that the power of the court to appoint an arbitrator under s. 10 of the Act exists when parties jointly have the power to appoint an arbitrator and they either fail to agree on the arbitrator or, having reached an agreement, one party then refuses to follow through on it. That was the situation the application judge found existed. Her order appointing an arbitrator in those circumstances was made under s. 10 of the Act. No appeal from it lies by reason of s. 10(2) of the Act.
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The Application to Appoint an Arbitrator and the Application Judge’s Decision
[8] The Condo Corp. brought an application seeking, among other things, an order from the application judge appointing Mr. Campbell as arbitrator and confirming that all issues raised in the 2022 Notice were within his jurisdiction. The application was styled as being made under ss. 6, 7 and 17 of the Act, and r. 14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
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[15] The Condo Corp. submits that the application judge’s order was made under s. 10(1) of the Act, and that an appeal from it is precluded by s. 10(2). Section 10 provides, in relevant part, as follows:10 (1) The court may appoint the arbitral tribunal, on a party’s application, if,
(a) the arbitration agreement provides no procedure for appointing the arbitral tribunal; or
(b) a person with power to appoint the arbitral tribunal has not done so after a party has given the person seven days notice to do so.
(2) There is no appeal from the court’s appointment of the arbitral tribunal. [16] Distillery argues that s. 10(2) of the Act does not apply to preclude the appeal, because the order sought to be appealed was not made under s. 10(1). .... Second, it submits that the order could not have been made under ss. 10(1)(a) or (b) as they only pertain to narrow circumstances not applicable here.
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[21] I also reject Distillery’s second point, that the order could not have been made under s. 10(1) as the facts did not fit within it. I accept the Condo Corp.’s argument that the case fits within s. 10(1)(b).
[22] The issue is one of statutory interpretation. In “accordance with the modern approach to statutory interpretation, the meaning of [the provision in issue – here s. 10 of the Act] must be determined by considering its text, context and purpose”: R. v. Basque, 2023 SCC 18, 482 D.L.R. (4th) 203, at para. 63; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26; Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21.
[23] Following that approach, I conclude that where parties jointly have the power to appoint an arbitrator and they either fail to agree, or they reach an agreement but one then refuses to follow through on it, “a person with power to appoint the arbitral tribunal has not done so”, triggering the court’s discretionary power to appoint within the meaning of s. 10(1)(b).
[24] The text of the section supports this reading. The phrase “person with power to appoint an arbitrator” is not limited to a person with the sole or exclusive authority to make the appointment. It clearly extends to a person whose power resides in the requirement for their agreement to an appointment. A person with that power will have “not done so” within the language of the section when they either fail to agree or, after agreeing, back away from the agreement and resist its implementation.
[25] The context and purpose of the Act also support this reading.
[26] First, the Act contemplates an important, but limited, role for the court in matters that are the subject of an arbitration agreement. It forbids court intervention in arbitrations except in accordance with the Act for specific purposes, among them “[t]o assist the conducting of arbitrations” and “[t]o ensure that arbitrations are conducted in accordance with arbitration agreements”: s. 6.
[27] An interpretation that allows the court to appoint an arbitrator where the appointment is frustrated by the failure of the parties to agree or carry out an agreement about who will be the arbitrator furthers the important role of the court to “assist in the conduct of arbitration”. And since an agreement about who the arbitrator will be is deemed part of the arbitration agreement (as a “further agreement in connection with the arbitration” – see s. 5(2) of the Act), an interpretation that allows the court to make an appointment where the parties have agreed on the appointment and one side has backed away furthers the court’s important role of ensuring “that arbitrations are conducted in accordance with arbitration agreements”.
[28] Second, the Act contemplates a limited role for the court. One way it does this is by limiting appeal rights even where court intervention is permitted.[2] An interpretation of s. 10(1) that permits the court to meaningfully respond to a log jam in the appointment of an arbitrator is consistent with that limited role, because the corollary to finding the authority to make the appointment in s. 10(1) means that there is no appeal from an appointment order by reason of s. 10(2).
[29] This interpretation is also consistent with that suggested by a leading authority on arbitration as being applicable to a broad range of similarly worded arbitration legislation. In J. Brian Casey, Arbitration Law of Canada: Practice and Procedure, 4th ed. (Huntington, N.Y.: Juris, 2022), at p. 362, the author states:Under most of the Domestic Acts, the court, on a party’s application, may appoint the arbitral tribunal if an arbitration agreement provides no procedure for the appointment of the arbitral tribunal or the person with power to appoint the tribunal has not done so after being given proper notice. There is no appeal from the court’s appointment. […] Where the parties are to agree on a single arbitrator, they collectively are the “person with the power to appoint” and the same procedure would be followed if they collectively fail to appoint. [Internal citations omitted; emphasis added.] [30] In the situation found by the application judge – an agreement to appoint Mr. Campbell that continued in force as it had not been repudiated – the authority to make an appointment under s. 10(1) of the Act was clearly engaged.
[31] It is important to note that Distillery does not argue that the court is powerless to make an appointment in the situation the application judge found. It argues, however, that the court’s authority is simply the Superior Court’s general jurisdiction to enforce an agreement, rather than any provision of the Act.
[32] With respect, there are several flaws in this argument. First, s. 6 of the Act provides that “[n]o court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act” (emphasis added). Subject to exceptions which are inapplicable here, the Act governs arbitrations under arbitration agreements, which includes the SFA’s arbitration provisions and the further agreement to appoint an arbitrator under it: ss. 2(1) and 5(2). Positing a free-standing jurisdiction, outside the Act, for the court to appoint an arbitrator is inconsistent with the Act’s restriction on court intervention except “in accordance with this Act”.[3]
[33] Second, placing the jurisdiction to appoint outside the Act does an end around the restrictions on appeal rights that the Act has so carefully crafted. Restricted appeal rights are a feature of the Act.
[34] As the application judge’s authority to make the appointment arose under s. 10(1), an appeal is precluded by s. 10(2): Toronto Standard Condominium Corporation No. 2130 v. York Bremner Developments Limited, 2014 ONCA 809, at para. 23.
[35] Distillery argues that even if the appeal from the appointment is precluded, the portion of the order that provides that Mr. Campbell would determine issues about his jurisdiction, his mandate, and the addition of a party is not part of the appointment order and therefore falls outside the appeal prohibition.
[36] I disagree. An appointment order will always relate to a dispute to be arbitrated. In giving effect to the principle in s. 17 of the Act,[4] which contemplates the arbitrator first ruling on his own jurisdiction and thus the scope of the dispute to be arbitrated, the application judge did not step outside the authority to make an appointment under the Act. It would be inconsistent with the Act to construe that part of the order as somehow severable from the appointment and subject to its own appeal regime.
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