In Vento Motorcycles, Inc. v. United Mexican States, 2024 ONCA 480, the Court of Appeal for Ontario held that bias on the part of one arbitrator on a three-member tribunal is sufficient to set aside an arbitration award, reversing a lower court decision. We wrote last year on the lower court’s decision in Vento Motorcycles Inc. v. United Mexican States, 2023 ONSC 5964, which concluded that the existence of a reasonable apprehension of bias relating to one of the members of the panel did not necessarily taint the Award and the entire panel. The Court of Appeal disagreed. Where there is bias on the part of one member of a tribunal, an award must be set aside. It is void. This is because “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.” (para 46)
A reasonable apprehension of bias is a serious defect, not a minor procedural issue. Once a reasonable apprehension of bias is established, it is not necessary for the applicant to show that the outcome of the relevant decision would – or even might – have been different. The remedy is to set aside the award.
The application judge’s decision
To recap the decision under appeal, the application judge found that various undisclosed communications between agents and representatives of the respondent (Mexico) in the underlying arbitration and the arbitrator appointed by the respondent had created a reasonable apprehension of bias.
The application judge then considered whether the tribunal’s award should be set aside. The application judge considered the apprehension of bias on the part of only one of the arbitrators to be a “minor procedural error,” finding that:
- Bias in a three-member panel did not necessarily taint the tribunal as a whole;
- The other two arbitrators were presumed to have been impartial;
- No ex parte communications about the arbitration had taken place; and
- Setting aside the award would be costly and inefficient given the five-year duration of, and significant expenses relating to, the arbitration.
The Court of Appeal’s decision
In responding to the appeal, Mexico did not dispute the finding of reasonable apprehension of bias. Consequently, the issue with respect to bias was simply whether the finding of a reasonable apprehension of bias required the award to be set aside[1].
The Court of Appeal explained that there are two pillars of natural justice. First, audi alteram partem – the right to be heard – requires a decision-maker to hear both sides before deciding a dispute. Second, nemo judex in sua causa, the requirement of impartiality, precludes someone from being a judge in their own cause. (paras 23-24)
Canadian law has adopted an objective test for bias in a decision-maker: whether an informed person, viewing the circumstances realistically, and practically, would “think that it is more likely than not that [the decision-maker], whether consciously or unconsciously, would not decide fairly.” (para 27) Regardless of what gives rises to the reasonable apprehension of bias, “it is no minor procedural defect.” (para 28)
Opining that the existence of a reasonable apprehension of bias constituted “a major violation of procedural fairness” (para 28), the Court of Appeal thus turned its analysis to appropriate remedies for such a failure. The Court of Appeal held that, once a finding of reasonable apprehension of bias is made, the adjudicator is disqualified. If the adjudicator has already reached a decision, that decision is void. Nothing else is sufficient. (paras 31-32)
The common law does not leave any discretion to the court to deny a remedy once a reasonable apprehension of bias is established simply because the issue is deemed not serious enough, or because providing the necessary remedy would be inconvenient (contrary to the findings of the application judge). (para 33)
Under Article 34(2) of the Model Law, “[a]n arbitral award may be set aside by the court.” The Court of Appeal addressed what appears to be permissive “may” language in that provision and the limited grounds on which an award may be set aside under that provision. (para 35) While courts respect and generally promote the desirability of finality in arbitration cases, as required by the Model Law, they “will interfere only where a fair hearing breach can be shown to have affected the substantive fairness of the hearing.” (para 39) The Court of Appeal, citing Popack v. Lipszyc, affirmed that courts must undertake a balancing assessment, taking into account both how much the breach affects the fairness or perceived fairness of the arbitration, and how it influences the outcome of an arbitral award. (para 38) Therefore, courts will intervene only when it can be demonstrated that a fair hearing breach has impacted the substantive fairness of the hearing – which is what happens when there is bias.
The Court of Appeal held that a reasonable apprehension of bias is not a minor procedural breach, that could bring about the type of balancing assessment, and that one panel member’s bias taints the decision of the entire panel. In paragraph 46, the Court of Appeal highlighted that the decision to set aside an award does not depend on proving that the disqualified member affected the result. Instead, the bias of any one member makes the entire tribunal unfair. The parties in an arbitration “are entitled to an independent and impartial tribunal, not simply the decision of a quorum of panel members who are unbiased.”
Conclusion
The Court of Appeal has determined that the application judge erred in assuming that the impartiality of the other two members of the tribunal justified the refusal to set aside the tribunal’s award. The impartiality of the other two members of the tribunal was irrelevant to the question before the application judge, and it was not incumbent on Vento to establish that a majority of the tribunal was subject to a reasonable apprehension of bias to obtain a remedy. The reasonable apprehension that one arbitrator was biased sufficed to require that the award be set aside. (para 64)
The Court of Appeal also commented on the application judge’s financial considerations by stating that “[they] were not relevant at the remedial stage. Either there was a reasonable apprehension of bias or there was not.” (para 66)
This case sets an important precedent in determining the remedy for a significant breach of the right to a fair hearing, including in the context of commercial arbitration, and should give parties to arbitrations seated in Ontario comfort that their procedural rights will be protected and upheld.
For more information on this topic, please contact the authors, Michael D. Schafler, Rachel Howie, Chloe Snider and Ekin Cinar.
[1] There was a second issue on the appeal, whether Vento had been able to fully present its case as a result of a procedural ruling precluding Vento from calling a reply witness at the arbitration hearing. Given its conclusion on the bias issue, the Court of Appeal did not consider it necessary to deal with the second issue.
