B.C. – court finds arbitrator’s disclosure sufficient for binding waiver of right to object to bias – #024

British Columbia Supreme Court refused to order the revocation of an arbitrator’s authority for allegedly failing to make sufficient disclosure of potential conflicts.  The Supreme Court in Atlantic Industries Limited v. SNC-Lavalin Constructors (Pacific) Inc., 2017 BCSC 1263 determined that the arbitrator had met the standard of disclosure and the objecting party’s waiver of its right to object to potential bias was express, informed and binding.

The dispute stems from a September 2010 contract between SNC-Lavalin Constructors (Pacific) Inc. (“SLCP”) and Atlantic Industries Limited (“AIL”) for the supply of materials for use in a highway construction project in Winnipeg, Manitoba.

In SLCP’s April 27, 2014 response to AIL’s March 31, 2014 Notice of Arbitration, SLCP accepted AIL’s proposal to name William Knutson as sole arbitrator and filed a counterclaim.  The parties subsequently confirmed Mr. Knutson’s appointment by a June 25, 2014 document which also bi-furcated liability and quantum issues and a hearing set for October 5, 2015.

On September 14, 2015, the arbitrator wrote the parties.  The letter is referred to as the “First Letter” and read as follows:

I am writing to inform you of a development within this law firm which the parties to this Arbitration must be made aware of.

I have recently learned that one of the lawyers in this firm was engaged to act on behalf of SNC-Lavalin a few months ago. Apparently the conflict check undertaken at the time, was mistakenly understood to mean that SNC-Lavalin Constructors (Pacific) Inc. was a client of mine.

None of the work involved has anything to do with the Centreport Canada project in Manitoba. I have had no involvement with the work on behalf of SNC-Lavalin. Certainly “Chinese wall” procedures can be put in place, but nonetheless it may very well be that one or both of your clients will be uncomfortable with me continuing as Arbitrator in this matter. If that is the case, then I must immediately withdraw as Arbitrator.

I am acutely aware that the timing of this news is very regrettable. I will await word regarding your instructions.

Counsel for AIL responded the next day by letter informing the arbitrator and SLCP that it is “content” to have the arbitrator continue and that the “use of normal conflict procedures (e.g. a “Chinese wall”) are, in AIL’s view sufficient to deal with the potential conflict that has arisen”.  SLCP also responded the same day and advised that it too had no concerns.

The arbitration began October 5, 2015 and lasted 16 days, ending on March 22, 2016.   Mr. Knutson issued his decision on June 15, 2016 dismissing AIL’s claims and allowing SLCP’s counterclaim.

AIL’s counsel wrote the arbitrator on July 15, 2016 announcing that they “had reason to consider your letter of September 14th 2015”.  AIL sought details on the retainer, including the nature and duration, quantum in dispute, the names of the lawyers involved and an estimate of the fees his firm drew.  The arbitrator replied in detail on July 20, 2016, referred to as the “Second Letter”.

In the following two weeks, AIL changed counsel twice.  One of the counsel (not the firm representing AIL at the court hearing) wrote to advise that AIL’s earlier consent was “void ab initio, not properly informed and withdrawn”.   AIL’s counsel requested that the arbitrator “remove himself from the arbitration and formally withdraw his decision on liability and all prior rulings he had made”.  SLCP’s counsel opposed the requests.   AIL applied to the court for an order removing the arbitrator, vacating all of his decisions, staying the arbitration and costs.

Mr. Justice Geoffrey R.J. Gaul determined that the issue was the waiver of the right to object to a decision-maker’s potential bias.  He recognized that arbitrators owe a duty of fairness to arbitral parties and part of that duty includes avoiding a biased state of mind and the appearance of bias.

He was referred to the Superior Court decision in the October 7, 2016 Canadian Royalties Inc. v. Nearctic Nickel Mines Inc., 2016 QCCS 4828  but distinguished it.  As well, that Superior Court decision was overtaken by the Québec Court of Appeal decision in its August 31, 2017 decision in Canadian Royalties inc. v. Mines de nickel Nearctic inc., 2017 QCCA 1287 which overturned it.  See Urbas Arbitral/Arbitration Matters for a note on the Court of Appeal case and reasoning.

Gaul J. pointed to the test for reasonable apprehension of bias as articulated by the Supreme Court of Canada in Wewyakum Indian Band v. Canada, [2003] 2 SCR 259, 2003 SCC 45 which itself, at para. 60, endorsed the following statement from Committee for Justice and Liberty v. 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 [the decision-maker], whether consciously or unconsciously, would not decide fairly.”

Gaul J. noted that waiver cannot occur if the party’s knowledge is incomplete.

[23]  In my view, full knowledge or complete disclosure in the context of waiver does not mean everything that could be known about the relationship between the decision-maker and another person that allegedly creates a reasonable apprehension of bias. Instead, as the court in Rothesay Residents Association Inc. concluded, waiver requires that a party must have all the “material”, “pertinent”, “salient”, or “essential” facts to support a potential bias allegation (at paras. 28, 30, 31, 33, 34). What constitutes such facts will depend on the unique circumstances of each case.

Gaul J. reproduced what AIL identified as relevant differences between the First Letter and the Second Letter:

a)    The September 14th letter refers to only one retainer “a few months ago” whereas there were two files, one involving a retainer on March 30, 2015 and another on July 16, 2015;

b)    The September 14thletter refers to “one of the lawyers in this firm was engaged to act” whereas four lawyers in his firm provided legal services to SNC;

c)    The July 20thletter disclosed the very substantial legal fees resulted [sic] from these two retainers;

d)    The September 14thletter states that Knutson “had no involvement with the work on behalf of SNC – Lavalin”. While this was true, Knutson clearly had an interest given the sizeable fees to be paid to his firm.

Gaul J. focused in on the issues raised between the First Letter and Second Letter, identifying his task as determining whether the details in the Second Letter meant that AIL’s gave its initial express consent “without knowing all of the material, pertinent, salient, or essential facts” about the arbitrator’s potential conflict of interest.  Gaul J. asked : “do the contents of the First Letter amount to inadequate disclosure for the purpose of AIL’s waiver?

Gaul J. compared the contents of the two letters and held that the information in the Second Letter was not “of such import or magnitude that it recasts the First Letter as insufficient, incomplete or misleading disclosure”.  The Second Letter only expanded on the First Letter and contained no information which the First Letter omitted.

Gaul J. determined that a reasonable person reading the two letters would understand that the existence of the key facts had been shared in the First Letter making that initial express waiver effective.

The First Letter did not preclude multiple mandates and the mention of two mandates in the Second Letter added nothing material to the notice given.  Gaul J. remarked that an “informed person, reading the First Letter realistically and practically, and having thought the matter through, would understand that large corporate clients can and frequently do engage law firms to act on a multitude of issues”.

The mention of “one of the lawyers” being retained did not necessarily imply that only one lawyer would service the client mentioned.  The number of lawyers mentioned in the Second Letter did not alter the information given earlier, namely that one lawyer of the arbitrator’s firm would be serving SNC-Lavalin on at least one matter. Gaul J. observed that a “reasonable and informed person would understand the realities of a high-end litigation practice, where the lawyer engaged by a client will often call on other lawyers within the firm for assistance”.

The Second Letter merely revealed the amount of the legal fees not their existence. In a comment which will cool some enthusiasms, he noted that “the quantum in this case would hardly surprise a reasonable person since it stems from a relationship between a sophisticated Vancouver law firm and a multi-national corporate client”.

Gaul J. noted that AIL had no obligation to make further inquiries after receiving the First Letter but if it had concerns about potential bias, that option was always available to it.

Gaul J. also dismissed AIL’s reliance on section 16(4) of B.C.’s Arbitration Act, RSBC 1996, c 55.  That section provides that the court “must not refuse” an order to revoke the authority of the arbitrator on the ground of the objecting party’s actual or deemed knowledge of the arbitrator’s relationship, inter alia, with another party to the arbitration agreement.  Gaul J. noted that the provision applied to situations in which the arbitrator was named in the parties’ initial arbitration agreement and not, as was the case, to an arbitrator subsequently named as a consequence of the parties having earlier agreed to arbitration. Their agreement did not name the arbitrator and therefore section 16(4) did not apply.

Gaul J. dismissed AIL’s application.