The arbitrator accepted a separate appointment for an unrelated case
The Ontario Court of Appeal reinstated an arbitration award in a franchise dispute, overturning a lower court’s bias finding and emphasizing the application of objective standards for arbitrator impartiality.
The dispute in Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839 centred on a Master Franchise Agreement (MFA) that granted Aroma Espresso Bar Canada the right to operate and franchise Aroma cafes in Canada.
In 2019, Aroma Franchise Company terminated the agreement, alleging a breach of an exclusive coffee supply arrangement. Aroma Canada denied the breach and initiated arbitration under the MFA, which mandated disputes be resolved through a neutral arbitrator.
After a lengthy arbitration, the arbitrator issued a final award ruling in favour of Aroma Canada and awarding substantial damages. During the proceedings, however, the arbitrator accepted a separate appointment to arbitrate a different case involving Sotos LLP, the law firm representing Aroma Canada. This second arbitration was unrelated to the MFA case and involved different parties and issues.
The franchisor later learned of the arbitrator’s engagement in the Sotos arbitration and sought to have the MFA arbitration award set aside. The Superior Court found that that the arbitrator’s failure to disclose his appointment in the second arbitration created a reasonable apprehension of bias. The court emphasized that correspondence between the parties’ counsel prior to the arbitrator’s appointment revealed an expectation that any significant professional relationship between the arbitrator and counsel would be disclosed.
The Court of Appeal disagreed with the Superior Court’s reasoning. The court ruled that the disclosure standard under the UNCITRAL Model Law on International Arbitration is objective. The duty to disclose arises when circumstances would likely lead a fair-minded and informed observer to believe there is justifiable doubt about the arbitrator’s impartiality. The arbitrator’s appointment in the unrelated Sotos arbitration did not meet this standard, as there was no overlap of issues or parties, and the engagement did not indicate bias.
The Court of Appeal further found that the Superior Court improperly relied on subjective expectations of the parties that were not communicated to the arbitrator. The court emphasized that a presumption of impartiality applies to arbitrators and that the arbitrator's actions in this case did not undermine the fairness of the proceedings.
Ultimately, the Court of Appeal reinstated the arbitration award but remitted certain unresolved issues raised in the initial application, including claims of procedural fairness, back to the Superior Court for determination.
