Alberta – communication of privileged offers after award but before clarification/costs insufficient to raise bias – #328

In Clark v. Unterschultz, 2020 ABQB 338, Madam Justice June M. Ross dismissed a challenge to an award on the merits, holding that one party’s communication of privileged settlement offers after the award and before the costs award were insufficient to meet the high threshold required to find real or perceived bias.  Ross J. determined that a reasonable person, viewing the matter realistically and practically, and knowing that the hearing had concluded and the substantive award had issued, would be unlikely to conclude that the arbitrator would not decide the remaining matters fairly.

After having undertaken litigation to resolve matrimonial issues including division of property, the parties entered into a submission agreement to have various issues determined by arbitration.  A hearing took place over five (5) days in November and December 2019.

On January 18, 2019, the arbitrator issued a first award regarding property and spousal support (“Award”). When issuing the Award, the arbitrator invited submissions on costs.

Costs must be the subject of further submissions, as there were apparently offers made. There are also other issues, including disclosure problems, and costs already advanced to Penny, that must be considered”.

On January 29, 2019, counsel A sent correspondence to the arbitrator.  Counsel A requested amplification and further explanation of reasons pursuant to section 40(1) of the Arbitration Act and proposed corrections of alleged errors pursuant to section 43.  Counsel A also contained comprehensive submissions on costs and included particulars of offers exchanged between the parties.

On January 30, 2019, counsel B wrote to express an intention to request leave to file further expert evidence as well as to request amplification and explanation of reasons and correction of alleged errors. Counsel B also mentioned that, before doing so, he required the arbitrator to recuse himself.  Ross J. captured those grounds as follows:

However, [counsel B] expressed that before doing so, [counsel A]’s correspondence of January 29, 2019 was tendered which, as part of the cost submissions, disclosed privileged settlement communications. [Counsel B] maintains that communication of these privileged settlement offers eroded the perception of impartiality, created an apprehension of bias, and disqualified the Arbitrator from continuing to act”.

On February 19, 2019, the arbitrator issued a decision determining that he was not biased (“Recusal Decision”).

On February 27, 2019, the arbitrator issued a decision clarifying/amplifying his Award (“Amplification Decision”).

On March 19, 2019, the arbitrator issued a decision on costs (“Costs Award”).

Both parties filed applications:

(1) an application challenging the Arbitrator’s refusal to recuse himself pursuant to section 13 of the Arbitration Act;

(2) an application seeking leave of the Court to appeal the Award on a question of law, pursuant to s 44 of the Arbitration Act, and if granted, an appeal of the Award; and,

(3) an application to set aside the Award on the basis of unfair and unequal treatment, procedural errors and reasonable apprehension of bias, pursuant to s 45 of the Arbitration Act.

This note focuses on the challenge to the Recusal Decision filed by Counsel B and behalf of his client, referred to as the “Applicant” by Ross J. in her reasons.

Section 13(1)(b) recognizes an arbitral party’s right to challenge an arbitrator if circumstances exist that may give rise to a reasonable apprehension of bias.  The challenge is sent first to the arbitrator. If the recusal is not resolved between the parties or accepted by the arbitrator, then the court, on application, can decide the issue.

Ross J. stated the issue as follows:

The application to the court is for judicial review on which the question to be determined is: Did the Arbitrator err when he concluded in his Recusal Decision that the communication of the privileged settlement offers disclosed by the Respondent’s counsel did not create an apprehension of bias?

Ross J. qualified a challenge on bias as raising an issue of procedural fairness and that the applicable standard of review is correctness, citing Mission Institution v. Khela, 2014 SCC 24 at para. 79, Anand v Anand, 2016 ABCA 23 para 8, Ironside v. Alberta (Securities Commission), 2009 ABCA 134 para. 102, and Boardwalk Reit LLP v. Edmonton (City), 2008 ABCA 220 para. 174.

Applicant argued that Respondent’s disclosure occurred before a final determination of all aspects of the matters in dispute, contravening section 53(7) of the Arbitration Act, giving rise to the appearance or risk that the arbitrator could “tailor his or her decision in such a manner as to swing the cost award in favour or against one party”. The test, Applicant submitted, “was not whether the Arbitrator subjectively feels that he is impartial, but whether a reasonable and well informed individual would conclude, in the circumstances, that it is more likely than not that the trier of fact would be unable to decide the issue fairly”.

Respondent noted that the confidential settlement offers were disclosed (i) for determination of costs and (ii) after the Award.  Those offers could not influence the arbitrator’s determinations in the prior Award which settled matters other than costs.  The issue of bias could only apply to the Amplification Decision but Applicant appeals the Award, not the Amplification Decision.

Ross J. followed the test for reasonable apprehension of bias stated in Committee for Justice & Liberty v Canada (National Energy Board), para. 30.

[T]he 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. [T]hat 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 [the decision-maker], whether consciously or unconsciously, would not decide fairly”.

The “informed person” is not just anyone as explained by the Court of Appeal in Nazarewycz v. Dool, 2009 ABCA 70.

[64] The apprehension of bias must be reasonable and held by reasonable and informed persons. The accepted test was set out by Grandpré J. in dissent in Committee for Justice and Liberty v. Canada (Natural Energy Board), 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369 at 394: “[W]hat would an informed person, viewing the matter realistically and practically – and having thought of the matter through – conclude?” An informed person is one with knowledge of all of the relevant circumstances, including an appreciation of the court’s traditions of integrity and impartiality, which duties are undertaken by the judges of the courts. Accordingly, the threshold for a finding of real or perceived bias is high”.

At para. 17 of her reasons, Ross J. lists seven (7) decisions identified by the arbitrator in his Recusal Decision which Ross J. later says confirm that the test and the high threshold stated in Committee for Justice and Liberty v. Canada (Natural Energy Board) apply to arbitrators.

At para. 19, Ross J. reproduces paras 6.1 to 6.7 of the arbitrator’s own Recusal Decision.  Ross J. agreed with the arbitrator that section 53(7) of the Arbitration Act did prohibit communication of offers to settle prior to making “a final determination of matters in dispute other than costs”, it did not per se create a reasonable apprehension of bias. 

Ross J. determined that it was not appropriate to find a reasonable apprehension of bias on Applicant’s “speculation” that the arbitrator could “tailor his decision one way or another based on the disclosure of the terms of the settlement offers”. Instead of speculation, Ross J. held that the legal principles with respect to a determination of reasonable apprehension of bias must be applied.

[25] The Arbitrator correctly stated the test of reasonable apprehension of bias, and in my view, the circumstances that he referred to relating to the timing and context of the disclosure of settlement offers, justify the conclusion that the objective test was not met. A reasonable person, viewing the matter realistically and practically, and knowing that the hearing had concluded and the substantive decision been made, would be unlikely to conclude that the Arbitrator would not decide the remaining matters fairly.

[26] There is a high threshold to find real or perceived bias. The Arbitrator is an experienced family law counsel who is well aware that settlement offers are relevant to costs only. He was chosen by the parties and their counsel to conduct the arbitration. Any adjudicator may be exposed to irrelevant information. Professional adjudicators like the Arbitrator undertake to decide matters before them based on the law and relevant evidence.

[27] The Arbitrator’s additional comments regarding his subjective belief do not detract from the conclusion that the objective test was not met”.

Ross J. dismissed the application to challenge on the basis of reasonable apprehension of bias.

The decision also contains Ross J.’s consideration of other issues raised by the other challenges, including the arbitrator’s handling of expert evidence (paras 57-74) and sufficiency of reasons (paras 90-107). Ross J. also dealt with admissibility of extrinsic evidence which Applicant sought to adduce by way of affidavit evidence in support of the applications for leave to appeal and to set aside the Award (paras 108-140).

Ross J. did allow the appeal in part but limited to the ground that the arbitrator did not provide adequate reasons for the lump sum support award.  Though she had options once she granted the appeal, including confirming, varying or setting aside, she elected to give directions and remit the Award.

[143] I have concluded that the appropriate remedy is to remit the matter to the Arbitrator to provide adequate reasons for the lump sum support award, including the principles of compensatory support and factors considered in relation to these principles, as well as factors considered in awarding lump sum support. Given the Arbitrator’s familiarity with the evidence, and the discretionary nature of support awards, I have concluded that it is not appropriate to give directions or the court’s opinion on the question of law, beyond the requirement for reasons.

[144] It was suggested that I might seize myself with this matter and retain jurisdiction to address and resolve any issues that may arise from the Arbitrator’s additional reasons. In my view this is not necessary. Any future issues would be distinct from the matters addressed in these applications and appeal”.

Ross J. invited the parties to speak to her regarding costs if they were unable to agree.

urbitral note – First, the facts do not require Ross J. or the parties to address more difficult situations which may arise when an arbitral party inadvertently or advertently triggers a recusal issue by sending the same type of materials before an award on the merits. 

Second, the arbitrator and/or the court would have to determine whether: (i) recusal is required due to a recusal-seeking party’s own decision to send such materials prior to the award; (ii) a recusal-seeking party can preclude its own right to seek recusal by having sent the materials advertently; and, (iii) recusal justifies a sanction for costs against the party which sent the materials.