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Arbitration - Bias in Arbitrator. Vento Motorcycles, Inc. v. Mexico [commercial arbitration]
In Vento Motorcycles, Inc. v. Mexico (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal, this from a Chapter 11 decision by a three-arbitrator NAFTA tribunal, here against Mexico.
The case turned on bias in one of the arbitrators:[2] Three arbitrators were appointed to the Tribunal, each of whom provided declarations of their independence and impartiality. The arbitration took place in November of 2019 and the Tribunal issued its award on July 6, 2020. The Tribunal held, unanimously, that Mexico did not breach its obligations under NAFTA and dismissed Vento’s claim.
[3] Subsequently, Vento learned that Mexican officials had been communicating with the Mexican nominee to the Tribunal, Mr. Hugo Perezcano, during the arbitration. Among these officials was Mr. Orlando Pérez Gárate, lead counsel for Mexico on the arbitration and a senior Mexican trade official. At first, he invited Perezcano to apply for Mexico to appoint him to future arbitration panels under different trade agreements. Eventually, Pérez confirmed Perezcano’s appointments.
[4] Vento brought an application to set aside the award. The application judge found that Perezcano’s conduct during the arbitration gave rise to a reasonable apprehension of bias but refused to set aside the Tribunal’s award. In her view, the apprehension of Perezcano’s bias did not undermine the reliability of the Tribunal’s award, nor did it result in real unfairness or practical injustice. The application judge found, further, that the seriousness of the breach and the potential prejudice from rehearing the arbitration also supported the exercise of her discretion not to set aside the award.
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[26] There is considerable room for disagreement as to what constitutes bias in particular circumstances, not least because actual bias is difficult to establish. It is usually impossible to know what an adjudicator thinks and, as a result, whether or not they can (or did) act impartially in deciding a particular dispute. Thus, Canadian law takes an objective approach to establishing bias: the question is not whether a decisionmaker is in fact biased but, instead, whether there is a reasonable apprehension that the decisionmaker is biased.
[27] This approach asks whether “an informed person viewing the matter realistically and practically … [w]ould think that it is more likely than not that [the decisionmaker], whether consciously or unconsciously, would not decide fairly”: Committee for Justice and Liberty v. National Energy Board, 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369, at p. 394, per de Grandpré J. (dissenting in the result). This test applies to a wide range of decisionmakers in public and private law, including both statutory and private consensual adjudicators. See Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839, at paras. 127-32. It gives effect to the purpose that underlies the reasonable apprehension of bias concept, captured eloquently by Lord Hewart C.J.’s famous aphorism that “it is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done”: R. v. Sussex Justices; Ex parte McCarthy, [1924] 1 K.B. 256 (E.W.H.C.), at p. 259.
[28] Regardless of what constitutes a reasonable apprehension of bias in particular circumstances, it is no minor procedural defect. A reasonable apprehension of bias means that it is objectively reasonable to think an adjudicator would not decide a dispute fairly. It is a finding that undermines the integrity and legitimacy of the adjudicative process. A reasonable apprehension of bias is necessarily a major violation of procedural fairness.
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Procedural protection in commercial arbitration
[34] Commercial arbitration is designed to operate outside the judicial system. It involves sophisticated parties, represented by counsel, who choose the arbitrators that will decide their dispute and the procedures pursuant to which it will be decided. See, generally, the helpful discussion in Halliburton Company v. Chubb Bermuda Insurance Ltd., [2020] UKSC 48, [2021] 2 All E.R. 1175, at paras. 56-62.
[35] Although the courts have a role in overseeing commercial arbitration, that role is strictly limited by art. 34(2) of the Model Law to matters that are, in general, not concerned with the substance of the arbitration award. For example, an award may be set aside because of a party’s incapacity or the invalidity of the arbitration agreement itself (art. 34(2)(a)(i)), or because of a failure of notice or breach of procedural fairness (art. 34(2)(a)(ii)). In exceptional circumstances the court may consider the substance of an award, but only for the limited purpose of ensuring that the tribunal did not go beyond the issues the parties agreed to submit to arbitration (art. 34(2)(a)(iii)). As this court has emphasized repeatedly, courts have no authority to scrutinize an award for an error of law that is otherwise immune from appeal or review and use any such error as a pretext to set aside an award on the basis of “jurisdictional error”. See Clayton v. Canada (Attorney General), 2024 ONCA 581, leave to appeal to S.C.C. requested, 41473; Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769, leave to appeal to S.C.C. refused, 40546; and Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, 145 O.R. (3d) 481, leave to appeal to S.C.C. refused, 38665.
[36] Although art. 34(2)(a) does not refer specifically to bias, Mexico accepts that the court can set aside an award on the basis of a reasonable apprehension of bias. This flows from art. 34(2)(a)(iv), which states that an award may be set aside if “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties”. This provision gives effect to the requirement in art. 18 of “equal treatment” of the parties in the arbitration process: an arbitral procedure tainted by bias fails to treat the parties equally, and so is not in accordance with their agreement. See also Jacob Securities Inc. v. Typhoon Capital B.V., 2016 ONSC 604, at para. 33; and Aroma Franchise Company Inc. et al. v. Aroma Espresso Bar Canada Inc. et al., 2023 ONSC 1827, at para. 29, rev’d on other grounds, 2024 ONCA 839.
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The effect of fair hearing errors in commercial arbitration
[37] Not only is the court’s authority to set aside an arbitration award strictly limited by art. 34(2); that authority must be exercised having regard to the unique circumstances of commercial arbitration. Procedural infirmities or irregularities in commercial arbitration – fair hearing errors – do not necessarily raise the same concerns as they do in the exercise of public authority. Countervailing concerns in the context of commercial arbitration limit the circumstances in which it is appropriate to set aside an award.
[38] This court summarized the Canadian approach to setting aside arbitration awards on the basis of fair hearing breaches in commercial arbitration in Popack. Courts are to engage in what is essentially a balancing exercise, considering both “the extent that the breach undermines the fairness or the appearance of fairness of the arbitration and the effect of the breach on the award itself”: Popack, at para. 31.
[39] The need for finality supplies the rationale for taking this approach. If, as at common law, every fair hearing breach – no matter how minor or inconsequential – were treated as a sufficient basis for voiding an arbitral award, the finality of arbitration awards would be compromised severely. Thus, courts will interfere only where a fair hearing breach can be shown to have affected the substantive fairness of the hearing: Rhéaume v. Société d’investissements l’Excellence inc., 2010 QCCA 2269, [2011] R.J.Q. 1, at para. 61. The same kind of balancing is reflected in New Zealand and Australian law, and the same rationale underpins its deployment: Kyburn Investments Ltd. v. Beca Corporate Holdings Ltd., [2015] NZCA 290, [2015] 3 N.Z.L.R. 644, at para. 42; TCL Air Conditioner (Zhongshan) Co. v. Castel Electronics Pty. Ltd., [2014] FCAFC 83, 232 F.C.R. 361, at para. 109.
[40] The balancing exercise contemplated in Popack emphasizes the instrumental purpose of the protection afforded by art. 34(2): fair hearing procedure is a means to an end – a fair hearing and a fair decision – rather than an end in itself. The dignitarian concern that underlies fair hearing procedural requirements in public law proceedings is not present in commercial arbitration. As Doherty J.A. put it, “[w]hatever label is placed on the procedural error, and whichever subsection of art. 34(2) is invoked, the essential question remains the same – what did the procedural error do to the reliability of the result, or to the fairness, or the appearance of fairness of the process?”: Popack, at para. 45.
[41] Although this language is ostensibly broad, it does not mean that every type of breach falling within art. 34(2) can be balanced away. Popack was concerned with a relatively minor fair hearing breach – an ex parte meeting between the tribunal and a prior arbitrator without notice to the parties – that clearly did not affect the outcome of the arbitration. The appellants sought to classify this fair hearing error as a breach of public policy under art. 34(2)(b)(ii), and this was the context in which Doherty J.A. stated that the label placed on the mistake did not matter. He recognized that some procedural breaches are more important than others. “It is clear from the case law”, he explained, “that the scope of the discretion under art. 34(2) is significantly affected by the ground upon which the award could be set aside”: para. 30. Thus, although courts may exercise their discretion to uphold an arbitral award despite breaches of the fair hearing requirement, it does not follow that they enjoy the same discretion in respect of more significant breaches, and in particular in respect of a reasonable apprehension of bias.
The effect of bias in commercial arbitration
[42] It is important to reiterate that a reasonable apprehension of bias is no minor procedural breach. It is a finding that the integrity and legitimacy of an adjudicative process have been compromised irreparably. It cannot be balanced away on the basis that it is not serious; that it is thought to have had little impact on the result; or that it would be inconvenient and costly to rehear the arbitration if the award were set aside. A finding of a reasonable apprehension of bias means that it is objectively reasonable to conclude it is more likely than not that a dispute would not be decided fairly. It disqualifies an adjudicator in public law proceedings, and I see no reason why a different result should follow in the context of commercial arbitration.
[43] Nothing in art. 34(2) nor in the nature of commercial arbitration requires a different result. Nor does the well-established principle of judicial restraint in arbitration proceedings. That principle limits judicial intervention to matters that are, in general, not concerned with the substance of the arbitration award. It does so out of respect for the parties’ choice to submit their disputes to arbitration. But respect for that choice neither requires nor justifies a decision compelling the parties to accept a decision made by an adjudicator subject to a reasonable apprehension of bias.
The bias of one panel member taints the decision of the entire panel
[44] There is no doubt that a commercial arbitration award would properly be set aside if it were rendered by a single arbitrator whose conduct was found to give rise to a reasonable apprehension of bias. Does it make a difference that Perezcano was one of three arbitrators on the Tribunal?
[45] The application judge concluded that it did, as it affected the potential impact of what she described as a “procedural error”. She noted that the parties did not refer to any cases dealing with the question but concluded, based on Wewaykum, that the reasonable apprehension that one member of a panel is biased does not necessarily “taint” the award and the entire panel. It is unfortunate that the application judge did not have the benefit of fuller argument on the matter.
[46] The decision to set aside an award does not depend on a demonstration that the participation of the disqualified member affected the outcome – that the disqualified member cast the deciding vote in a split decision. On the contrary, the bias of one member taints the tribunal. The rationale is plain: it is impossible to know whether – or to what extent – the participation of a biased member affected a panel’s decision. It cannot be left to conjecture, nor can it be ignored by assuming that the presumed impartiality and independence of the other two members of the panel rendered it harmless. The parties to an arbitration are entitled to an independent and impartial tribunal, not simply the decision of a quorum of panel members who are unbiased.
[47] This approach can be traced at least to the 1963 decision of McRuer C.J.H.C. in R. v. Ontario Labour Relations Board; Ex parte Hall (1963), 1963 CanLII 189 (ON SC), 39 D.L.R. (2d) 113 (Ont. H.C.), at pp. 117-18, citing Frome United Breweries Co. v. Keepers of the Peace & Justices for County Borough of Bath, [1926] A.C. 586 (H.L.), at p. 591. The British Columbia Court of Appeal endorsed McRuer C.J.H.C.’s approach in R. v. B.C. Labour Relations Board, Ex. p. International Union of Mine, Mill & Smelter Workers (1964), 1964 CanLII 644 (BC CA), 45 D.L.R. (2d) 27 (B.C. C.A.), at p. 29, stating that it is “clear that the decisions of a tribunal or board consisting of more than one member will be vitiated if the circumstances establish a real likelihood that any member participating in the decision would be biased in favour of one of the parties”.
[48] This principle, sometimes described as “poisoning the well”, was endorsed by Esson J.A. in Haight-Smith v. Kamloops School District No. 34 (1988), 1988 CanLII 2900 (BC CA), 51 D.L.R. (4th) 608 (B.C. C.A.), at p. 614, and by Rothstein J. (as he then was) in Sparvier v. Cowesses Indian Band (T.D.), 1993 CanLII 2958 (FC), [1993] 3 F.C. 142, at p. 166. Writing in 2001, David J. Mullan summarized the law as follows: “[a] reasonable apprehension of bias in one member of a tribunal is sufficient to disqualify the whole tribunal, even though that member merely sat at the hearing without taking an active role in either it or subsequent deliberations. Mere presence is generally enough”: Administrative Law (Toronto: Irwin Law, 2001), at p. 131.
[49] This principle is also well established in English law, even where the finding of bias concerns a member of a judicial, as opposed to an arbitral, panel. See In re Medicaments and Related Classes of Goods (No 2), [2001] EWCA Civ 1217, [2001] 1 W.L.R. 700, at para. 99, endorsed by the Judicial Committee of the Privy Council in Stubbs v. The Queen, [2018] UKPC 30, [2019] A.C. 868, at para. 33. As that court explained, the bias of a single member necessarily vitiated a panel’s decision: “the whole point of the appeal was that three judges should consider the issues”, and “[t]he mutual influence of each member of the court over the others necessarily means that if any of them was affected by apparent bias the whole decision would have to be set aside”. . 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 the Canadian objective standard for reasonable apprehension of bias, concluding that the presumption of impartiality applies to arbitrators:(6) The Test for Reasonable Apprehension of Bias is Objective
[127] Unlike the situation with disclosure, where some regimes use a subjective standard while others (including the Model Law) use an objective standard, reasonable apprehension of bias in Canadian law is determined on an objective standard: Wewaykum Indian Band v. Canada, 2003 SCC 45, [2003] 2 S.C.R. 259, at para. 67. It is that standard that is to be used in the context of arbitrations.
[128] In Committee for Justice and Liberty et al. v. National Energy Board et al., 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369, at p. 394, the test was described in objective terms:The proper test to be applied in a matter of this type was correctly expressed [as follows:]…. [T]he apprehension of bias must be a reasonable one, held by reasonable and right minded persons, applying themselves to the question and obtaining thereon the required information…. [The] test is “what would an informed person, viewing the matter realistically and practically—and having thought the matter through—conclude. Would he think that it is more likely than not that [the decision-maker], whether consciously or unconsciously, would not decide fairly.” [Emphasis added.] [129] In Jacob Securities, Mew J. reached the conclusion that the same test applies in a case governed by the Model Law, even though the Model Law does not expressly use the phrase reasonable apprehension of bias: at paras. 25-26, 33, 35-37.[9]
[130] The English common law test for a reasonable apprehension of bias is also objective: “the question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”: Porter v. Magill, [2001] UKHL 67, [2002] 2 A.C. 357, at para. 103; see also Halliburton, at para. 52; Aiteo, at para. 45. As the court pointed out in Halliburton, at para. 54, that (English) “objective test of the appearance of bias is similar to the test of ‘justifiable doubts’ which is adopted in [Article 12(2) of the Model Law]”.[10]
[131] Even the IBA Guidelines on when an arbitrator must decline an appointment or refuse to continue to act, use an objective standard. They refer to the existence or emergence of “facts or circumstances ... which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator’s impartiality or independence”, and refer to doubts being justifiable “if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching [his or her decision]”: General Standard 2.
[132] There are several consequences that flow from or are related to this test and its objective nature.
(i) The Presumption of Impartiality Applies to Arbitrators
[133] The first consequence is that the objective test is to be applied against the backdrop of a strong presumption of impartiality: Wewaykum, at para. 76. In the case of a judge, a reasonable person, before concluding that a reasonable apprehension of bias existed, would require clear evidence that the judge was not approaching the matter with an open mind fair to all parties: R. v. S. (R.D.), 1997 CanLII 324 (SCC), [1997] 3 S.C.R. 484, at para. 49. The “presumption of impartiality carries considerable weight” because a judge’s “authority depends upon that presumption”: Wewaykum, at para. 59.
[134] This court has held that the strong presumption applies beyond judges to adjudicators whose mandate comes from a statute: Ontario Provincial Police v. MacDonald, 2009 ONCA 805, 255 O.A.C. 376, at para. 44 (adjudicator under the Police Services Act, R.S.O. 1990, c. P.15); Terceira v. Labourers International Union of North America, 2014 ONCA 839, 122 O.R. (3d) 521, at para. 27 (member of the Ontario Labour Relations Board serving as adjudicator).
[135] In Jacob Securities, a case dealing with a privately appointed arbitrator, Mew J., citing Terceira, stated that the strong presumption of impartiality “is equally applicable to arbitrators whose function is in the nature of judicial determination”: at para. 40. The application judge also referred to the presumption. I agree with Mew J.’s conclusion.
[136] In oral argument, counsel for the respondents asserted that privately appointed arbitrators do not benefit from the presumption. I do not accept that argument.
[137] The legislature allows parties to entrust their disputes to arbitration and restricts recourse to court when they have done so. It would undermine the integrity of this legislatively endorsed system of dispute resolution, as well as confidence in the finality of the results coming out of it, to hold there to be no presumption that those results were reached by an impartial decision-maker. This would place the entire arbitral scheme under an unwarranted cloud. At paras 138-144 the court considers the objective standard for reasonable apprehension of bias and the application judge's treatment of it.
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