The court rejected the claim that the tribunal's unanimity negated the impact of the bias
The Court of Appeal for Ontario has set aside an arbitration award under Chapter 11 of the North American Free Trade Agreement after finding a reasonable apprehension of bias involving one of the arbitrators.
The decision overturned a lower court ruling that had declined to nullify the award despite acknowledging concerns of partiality.
Vento Motorcycles Inc., a US-based motorcycle manufacturer, initiated arbitration against Mexico in 2017, claiming that Mexico unlawfully denied preferential import tariffs to its motorcycles assembled in the US. The company alleged that this action destroyed its business in Mexico and sought damages between US$658 million and US$2.748 billion.
Under NAFTA, a three-member arbitration tribunal was convened, with each party appointing an arbitrator. Vento selected Professor David Gantz, Mexico appointed Hugo Perezcano, and the International Centre for Settlement of Investment Disputes (ICSID) appointed Dr. Andrés Rigo Sureda as the presiding arbitrator. The arbitration was held in Toronto over five days in November 2019, and the tribunal issued its decision on July 6, 2020, unanimously ruling in favour of Mexico.
After the tribunal issued the award, Vento discovered that during the arbitration process, Perezcano had communicated with senior Mexican officials, including Orlando Pérez Gárate, lead counsel for Mexico in the arbitration. The communications involved invitations for Perezcano to apply for appointment to arbitration panels under different trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Canada-United States-Mexico Agreement (CUSMA). Officials later confirmed these invitations as appointments.
Vento applied to the Ontario Superior Court to set aside the tribunal's award, arguing that the undisclosed interactions created a reasonable apprehension of bias. The application judge agreed that Perezcano's conduct raised concerns but concluded that the impartiality of the other two arbitrators preserved the integrity of the tribunal's award. She found that the procedural breach did not result in real unfairness or practical injustice and declined to set aside the award.
On appeal, the Court of Appeal found that the lower court erred in refusing to nullify the award. The panel emphasized that a reasonable apprehension of bias is a fundamental breach of procedural fairness that the perceived independence of the other arbitrators cannot excuse.
The court highlighted that bias taints the entire tribunal. It noted that the legal standard for impartiality is strict, and once a reasonable apprehension of bias is established, the decision must be set aside. The court rejected the argument that the tribunal's unanimity negated the impact of the bias.
The court noted that the participation of a biased member requires the decision to be set aside regardless of the panel's unanimity. The court also dismissed concerns over the cost and time associated with redoing the arbitration, affirming that maintaining the integrity of the arbitration process takes precedence over efficiency considerations. Ultimately, the Court of Appeal allowed Vento's appeal and set aside the tribunal's award.
