ONTARIO – Arbitration – Application to Set Aside Arbitral Award – Where a party can present its case and the Tribunal’s conduct did not offend basic notions of morality and justice, the award will not be set aside for reasons of fairness or natural justice. A reviewing court must give a high degree of deference to an international arbitral tribunal’s award under the Model Law. The reviewing court cannot set aside the award simply because it believes the tribunal wrongly decided a point of fact or law.
ONTARIO – Arbitration – Reasonable Apprehension of Bias – Even where there is a reasonable apprehension of bias, the court may exercise its discretion and refuse to set aside the award where the reasonable apprehension of bias did not undermine the reliability of the result and did not produce real unfairness or real practical injustice.
Vento Motorcycles, Inc. v. United Mexican States, 2023 ONSC 5964 (CanLII)
2023 ONSC 5964 (October 23, 2023)
Ontario Superior Court of Justice (Vermette J.)
This was an application to set aside the award of an arbitral tribunal in an arbitration administered by the International Centre for Settlement of Investment Disputes (“ICSID”) on two grounds (paras. 1-2):
- The Applicant was unable to present its case because the Tribunal refused to allow one of its witnesses (Carcova) to testify in response to a recording that was filed to impeach his credibility; and
- There was a reasonable apprehension of bias because the Respondent offerrf opportunities to one of the arbitrators (Perezcano) while the arbitration was ongoing that were not disclosed.
The court declined to set aside the award. Justice Vermette found that the Applicant had not established that the award should be set aside for reasons of fairness or natural justice. The Respondent was able to present its case and the Tribunal’s conduct did not offend basic notions of morality and justice. While finding that there was a reasonable apprehension of bias related to Arbitrator Perezcano, Justice Vermette exercised her discretion not to set aside the award on that basis because “the reasonable apprehension of bias did not undermine the reliability of the result and did not produce real unfairness or real practical injustice. The award was unanimous and the other two arbitrators were not ‘tainted’ by Mr. Perezcano.” (para. 3)
The application was made pursuant to Article 34 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), which has been adopted by section 5 and Schedule 2 of the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5. (para. 45)
The Applicant also relied upon Article 18 of the Model Law, which requires that the parties must be treated with equality and that each party shall be given the full opportunity to present their case. (para. 47)
Justice Vermette noted that a reviewing court must give a high degree of deference to an international arbitral tribunal’s award under the Model Law and that the court cannot set aside the award simply because it believes the tribunal wrongly decided a point of fact or law. (para. 48)
Pursuant to Article 34(2)(a)(ii) of the Model Law, “to justify setting aside an award under that provision for reasons of fairness or natural justice, the conduct of the Tribunal must be sufficiently serious to offend our most basic notions of morality and justice. Judicial intervention will be warranted only when the arbitral tribunal’s conduct is so serious that it cannot be condoned under Ontario law.” (para. 61)
Whether the Applicant was Unable to Present Its Case
The Applicant argued that it was prevented from presenting its case on the following three grounds (para. 65):
- “The Tribunal failed to give Vento an opportunity to respond to Mexico’s arguments based on the Recording that impugned Mr. Ortúzar’s credibility.
- The Tribunal failed to allow Mr. Ortúzar to respond directly to the attacks on his credibility.
- The Tribunal failed to admit evidence that went to the important issue in the case of whether there were ‘marching orders’ against Vento.”
Justice Vermette found that ground (b) was subsumed in ground (a), holding that: “Mr. Ortúzar has no independent right in this application, and he had no independent right in the arbitration. The issue before me is whether Vento was unable to present its case as a result of the attack on Mr. Ortúzar’s credibility.” (para. 66) Her Honour also rejected ground (c) to the extent that it was not subsumed in ground (a), finding that the Respondent had ample opportunity to present its case on the issue of “marching orders”. The Respondent did not make a request to adduce new evidence on that issue but instead, requested to give context to the recording and address the allegations the Applicant made based on the recording, which point was subsumed in ground (a). (para. 67)
The Respondent relied on the rule in Browne v. Dunn in support of its position on ground (a). That rule states that where a party intends to impeach a witness called by the other party, the party seeking to impeach must give the witness an opportunity to provide an explanation for the contradictory evidence while they are in the witness box. (paras. 68 and 69)
Justice Vermette held that the application of the rule in Browne v. Dunn is a rule of fairness, but it is not a fixed rule. “The extent of its application lies within the sound discretion of the trial judge and depends on the circumstances of each case. Compliance with the rule in Browne v. Dunn does not require that every scrap of evidence on which a party desires to contradict the witness for the opposite party be put to that witness in cross-examination. The cross-examination should confront the witness with matters of substance on which the party seeks to impeach the witness’ credibility and on which the witness has not had an opportunity of giving an explanation because there has been no suggestion whatever that the witness’ story is not accepted.” (para. 70)
Where there is a breach of the rule, the court must assess the effect it should give to the breach in the circumstances of the case. The trial judge has two options to rectify breach of the rule: (1) “take into account the breach of the rule when assessing a witness’ credibility and deciding the weight to attach to that witness’ evidence”; or (2) “allow counsel to recall the witness whose evidence was impeached without notice”. (para. 73)
On the evidence, Justice Vermette found that the Respondent was able to present its case, the Tribunal’s conduct was not so serious that it could not be condoned under Ontario law and that the award showed that the Respondent was able to adduce substantial evidence and make arguments in support of its position on all the issues. (para. 74) The court also held that the Tribunal had not offended our most basic notions of morality and justice in its procedural order. (para. 75)
Justice Vermette held that the rule in Browne v. Dunn did not assist the Respondent. The Tribunal was best placed to assess whether there was any unfairness arose due to the failure to cross-examine and there were various ways any unfairness could be remedied during the hearing. The court thus concluded that “[g]iven this and the fact that the rule in Browne v. Dunne is a nuanced rule, not an absolute one, it is by no means a foregone conclusion that a breach of this rule will offend our most basic notions of morality and justice and justify setting aside an arbitral award under the Model Law.” (para. 76)
In this case, Justice Vermette found that the subjects not touched in the cross-examination but later contradicted were or little significance in the conduct of the case and the resolution of critical factual issues when the award was considered in its entirety. (para. 77)
Reasonable Apprehension of Bias
The test to determine whether there is a reasonable apprehension of bias in an arbitrator acting in a judicial or quasi-judicial capacity is the same as that which applies to judges. The court must ask: “What would an informed person, viewing the matter realistically and practically – and having thought the matter through – conclude? Would the person think that it is more likely than not that the decision-maker, whether consciously or unconsciously, would not decide fairly?” (para. 92)
The Respondent argued that the following circumstances gave rise to a reasonable apprehension of bias in Arbitrator Perezcano (para. 93):
- “During the course of the arbitration, Mexico offered and awarded Mr. Perezcano prestigious and potentially lucrative opportunities to be listed on panels of arbitrators under two different trade agreements.
- Neither Mexico nor Arbitrator Perezcano disclosed these to Vento.
- Vento only found out about them either through public sources after the award was rendered, through access to information requests, through document requests in this proceeding or through cross-examinations in this proceeding.”
The Applicant denied that there was a reasonable apprehension of bias.
In finding that there was a reasonable apprehension of bias, Justice Vermette referred to the IBA Guidelines,.(para. 107) The lists of situations in the IBA Guidelines provide guidance at to which situations do or do not constitute conflicts of interest or should or should not be disclosed. However, the lists are not comprehensive and cannot cover every situation. (para. 109)
The court held that like the situation in Aroma Franchise Company Inc. v. Aroma Espresso Bar Canada Inc., 2023 ONSC 1827, the particular fact situation in the case before it was not included in the IBA Guidelines. Justice Vermette found that this case differed from Aroma in that there was a panel of arbitrators, not one, and the parties did not have the concerns that were in Aroma about prior relationships between the arbitrators and the parties or their counsel. (para. 111)
Justice Vermette found that Arbitrator Perezcano’s conduct gave rise to a reasonable apprehension of bias on the basis that (paras. 117-121):
- His appointments to rosters of panelists were valuable professional opportunities for him and a “gateway” to future work and remuneration. They therefore gave him a professional benefit and the potential for future financial rewards.
- There was incentive for Perezcano to please the Applicant after he was told that he was being considered for these appointments.
- As a result of the Applicant holding out the possibility of other appointments, “an informed person, viewing the matter realistically and practically, would conclude that it is more likely than not that Mr. Perezcano, whether consciously or unconsciously, would have “a leaning, inclination bent or predisposition towards” Mexico, or that he could be influenced by factors other than the merits of the case as presented by the parties in reaching his decision.”
- Perezcano had a duty to disclose the offers to appoint or nominate him during the arbitration because they were likely to give rise to “justifiable doubts as to his impartiality or independence”, which he failed to do.
While Justice Vermette found a reasonable apprehension of bias, she exercised her discretion not to set aside the award by applying the test: “what did the procedural error do to the reliability of the result, or to the fairness, or the appearance of fairness of the process? The procedural errors must have produced real unfairness or real practical injustice.”
The factors the court considers when deciding whether to exercise its discretion include “the seriousness of the breach, the potential impact of the breach on the result, and the potential prejudice flowing from the need to redo the arbitration were the award to be set aside.” (para. 123)
Justice Vermette found that the most important factor was the second one because there was a three-arbitrator panel. Vermette J. held that the fact that there was a reasonable apprehension of bias on the part of one arbitrator in a three-arbitrator panel did not “necessarily ‘taint’ the award and the entire panel”. (para. 124-125) The court noted that the three arbitrators had been appointed separately, there was no evidence that they sat together regularly, and they all signed the award, which led to the conclusion that they all shared the same view as to disposition of the case. (para. 126)
The court concluded that no reasonable person, “viewing the matter realistically”, would conclude that the other two arbitrators were tainted or biased by Perezcano. Justice Vermette held that the reasonable apprehension of bias related to Perezcano “did not undermine the reliability of the result and did not produce real unfairness or real practical injustice.” (para. 128)
Finally, Justice Vermette concluded that while they were not as important factors in this case, the other two factors (seriousness of the breach and the potential prejudice flowing from the need to redo the arbitration if the award was set aside) also supported the court exercising its discretion not to set aside the Award. (para. 129)