ONTARIO – In a second arbitration between the same parties, the Court rejected the claimant’s request to appoint the same arbitrator on the basis that vocal objection to the appointment of a “repeat arbitrator” should be taken seriously and there was no identifiable advantage for the re-appointment.

 Aquanta Group Inc. v. Lightbox Enterprises Ltd.
 2022 ONSC 3036 May 20, 2022
Superior Court of Justice ( Morgan J.)

The Applicants are franchisees, and the Respondent is the franchisor of the “Dutch Love” franchise system, of retail cannabis stores. The four License and four Service Agreements ( “Agreements”) between the parties all contain arbitration agreements. (para.3)

The arbitration agreements state that if the parties cannot agree upon an arbitrator either party may apply to a court of competent jurisdiction for the appointment of a single arbitrator.

In January 2022 the parties were involved in an arbitration. The parties agreed to the appointment of a retired Superior Court judge as the sole arbitrator. The arbitral award in the first arbitration was in favour of the Respondent and has been appealed by the Applicants. Prior to the first arbitration the Applicants delivered notices of rescission (“Notices”) pursuant to section 6(2) and (3) of the Arthur Wishart Act, 2000, SO 2000 c 3. These Notices did not form part of the first arbitration.

As a result of the delivery of Notices by the Applicants a second arbitration was commenced under the Agreements. The parties could not agree upon an arbitrator. The Respondent wished to appoint the same arbitrator. Not surprisingly, the Applicants refused and proposed several other former judges as arbitrators. (para.6)

The Respondent argued that the first arbitrator was the best choice of arbitrator as he was already familiar with the franchise business and that time and money would be saved. The Respondent also argued the first arbitrator had expertise in contracts and commercial relationships and was familiar with these agreements.

The Applicants main objection to the appointment of the first arbitrator was that the first arbitral award and his involvement in the first arbitration could create a reasonable apprehension of bias . (paras. 9-11)

The Applicants relied on ICP v. JCP, 2018 ONSC 40 which involved an objection to an experienced arbitrator, who had been involved in a previous arbitration between the parties and made findings of credibility which were adverse to one of the parties. In the ICP case, the court held that the findings of credibility that were unfavorable to one party suggest that the previous arbitration could influence the credibility determinations in the subsequent arbitration.( para.12).

The Respondents also relied on Axa Insurance v. Belair Direct, 2003 CarswellOnt 2992, at para 4, where the court held that an arbitrator should not be appointed over the public objection of one of the parties as this risks, injecting an element of hostility into the ongoing process.

Morgan J. held that a party’s vocal objection to one arbitrator in particular should be taken seriously in determining who will be appointed. (paras. 14-15)

The Respondents intended to challenge the second arbitration on the grounds that it is “res judicata” as the issue of recission and the Arthur Wishart Act cannot be the subject of a new arbitration as these issues should have been raised in the first arbitration. For this reason, Justice Morgan held that there was a strong reason not to appoint the same arbitrator on a subsequent arbitration that involves the same parties and contracts. (para. 18).

In response to the Respondent’s submission that the first arbitrator could use his personal notes from the first arbitration in the second arbitration, Morgan J. referred to the concept of “deliberative secrecy” in arbitrations. That it is generally an accepted principle that arbitrators and judges are to decide cases on the basis of the evidentiary record before them; that the record is open and available to all the parties; and that they “must be free to allow their minds to explore the various avenues that may or may ultimately find their way into the decision at hand.”( para.20)

Once a decision is rendered the decision maker is “functus”, the decision must stand and be interpreted on its own strength. In support of this legal principle, Morgan J. referred to Reekie v Messervey, 1990 CanLII 158 (SCC), (para.23)

Morgan J. held that the first arbitrator was not to be re-appointed and that the parties should approach the two other proposed arbitrators, in alphabetical order. If the first potential arbitrator was prepared to act and a consent was filed with the court an order would issue appointing that person. If not, then the second person would be approached and so on. If the second person was unable to act the parties would approach another retired judge to arbitrate the matter. ( paras.26-27)

Editor’s Note

The Arbitration Act, 1991, SO 1991, c 17, at section 11 (1) states, “An arbitrator shall be independent of the parties and shall act impartially.” In addition, that an arbitrator has an obligation before accepting an appointment and after of disclosure of any circumstances that may give rise to a reasonable apprehension of bias.

The IBA Guidelines on Conflicts of Interest in International Arbitration with the waivable and non-waivable situations in red, green and orange are a useful resource as they detail specific situations that depending on the facts of a given case give rise to justifiable doubts as to the arbitrator’s impartiality and independence.

The UNCITRAL Model Law on International Commercial Arbitration Part 1 , Article 12 sets out the grounds to challenge an arbitrator. The words “circumstances that give rise to justifiable doubts” as to the arbitrator’s impartiality and independence are used. The Model Law has been adopted in the Ontario International Commercial Arbitration Act, 2017, S.)., c.2 at Schedule 2.

The test for reasonable apprehension of bias which governs in Canadian courts was articulated by the Supreme Court in Committee for Justice and Liberty v. Canada (National Energy Board), 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369, at p. 394:

“The 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. In the words of the Court of Appeal, that 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 Mr. Crowe, whether consciously or unconsciously, would not decide fairly.”

See also Telesat Canada v. Boeing Satellite Systems International, Inc., 2010 ONSC 4023, at para. 130, regarding an arbitrator’s existing membership in a law firm raises all of the considerations associated with that environment (in contrast to judges who hold a public office).