Québec – Court of Appeal rules that test for impartiality of judges applies equally to arbitrator – #006

The Québec Court of Appeal in Canadian Royalties inc. v. Mines de nickel Nearctic inc., 2017 QCCA 1287 held that the test for deciding an arbitrator’s impartiality is the same test as for judges.  The Court of Appeal overturned a Superior Court decision which granted a motion to retract an earlier court decision which homologated a final arbitral award.  

The timeline of the arbitration and resulting court proceedings is worth outlining.  The award in issue stemmed from one of six different separate arbitrations initiated between the parties.  The arbitrator, Mtre. Jean-Louis Baudouin, was named January 13, 2011 by an arbitral award rendered by two arbitrators and served as sole arbitrator.  Mtre. Baudouin is a former Québec Court of Appeal judge, former law professor and the author of several leading texts on Québec Civil Law.  He issued his final arbitral award August 27, 2014.  After receipt of the award, the parties negotiated a transaction by which, in exchange for certain terms, respondents would consent to the homologation of the award. Upon motion to the court on consent of respondents, the Superior Court homologated the award by December 19, 2014 decision. 

On September 8, 2015, respondents sought the retraction of the December 2014 decision.  They claimed that one of their representatives discovered on August 24, 2015 after examining several documents that the arbitrator was allegedly in conflict of interest during the entire arbitration and thus allegedly lacked the required independence and impartiality.  The basis of the application for retraction was precise.  They claimed to have learned, after the issuance of the final award, that the national law firm to which the arbitrator belonged had, on the date he was first named, acted for the underwriters in a call for tenders for the claimant in 2008.   

Claimant opposed the application.  It argued that the law firm’s involvement for the underwriters was  publicly disclosed, the documents disclosing same had been filed in the arbitration, the arbitration protocol contained a waiver of conflict of interest and the arbitrator was not in a conflict. 

The original motions judge reviewed the evidence before him and concluded that the evidence, allegedly learned by respondents after the issuance of the arbitral award, would likely have lead to a different decision on the homologation decision.  The judge ruled that, to maintain the homologation in those circumstances would bring the administration of justice into disrepute.  The judge created some procedural uncertainty by both ‘suspending’ the initial homologation decision and ‘retracting’ it.  Claimant and respondents disputed the effect of that suspension/retraction and claimant turned to the Court of Appeal for resolution. 

The Court of Appeal discussed at some length the procedural concerns raised by the retraction decision and provided helpful comments on the efficacy of decision making and discretion in decision making.  That said, for the purposes of the present, it is sufficient to note that leave to appeal was granted and a panel of three judges heard the appeal. 

As a matter of fact, at both the retraction hearing and in appeal, it was clearly determined that the arbitrator had no personal knowledge of his law firm’s involvement for the underwriter.  The Court of Appeal held that the judge hearing the retraction motion did not have to examine the facts from the respondents’ point of view in order to decide if they would have accepted the arbitrator’s appointment had they known of the law firm’s prior retainer for the underwriters.   

The Court of Appeal held that the test to apply is an objective appreciation of the situation. 

The parties’ arbitration protocol was subject to the Code of Civil Procedure, CQLR c C-25.01 and, by implication, article 626. 

Article 626 An arbitrator may be recused if there is serious reason to question their impartiality or if the arbitrator does not have the qualifications agreed by the parties. 

An arbitrator is required to declare to the parties any fact that could cast doubt on the arbitrator’s impartiality and justify a recusation.

The parties’ protocol also included their own tailored text for matters of the arbitrator’s revocation and recusal. 

4.         Revocation and Recusation of Arbitrator 

(a)    The Arbitrator may only be challenged if circumstances exist that give justifiable doubts as to the Arbitrator’s impartiality or independence. The Parties are not currently aware of any circumstances that give rise to justifiable doubts as to the Arbitrator’s impartiality or independence; 

(b)    The Arbitrator declares that he will be independent of the parties and shall act impartially. The Arbitrator is not aware of any circumstances that may give rise to a reasonable apprehension of bias. The parties have waived any and all objections to the arbitration arising out of his direct or indirect relationship with the parties are persons associated or related to the parties (.) 

The parties’ protocol also included a lengthy article on waiver of conflicts.  

7.         Waiver of Conflicts 

(a)    Ungava and CRI confirm and agree that the Arbitrator, Jean-Louis Baudouin, and his firm, Fasken Martineau DuMoulin, are not acting nor engaged in a lawyer-client relationship nor any other fiduciary relationship with Ungava, CRI or their related persons and entities. The Parties, on their own behalf and on behalf of their related, affiliated and subsidiary corporations also acknowledge and agree that: 

(i)      The Arbitrator is being retained in his personal capacity, and not on behalf of his law firm, though the Arbitrator has confirmed in the firm’s conflicts system that there is no conflict or potential conflict which would prevent them acting as an arbitrator; 

(ii)      Fasken Martineau DuMoulin represents a diverse base of clients and, in the future, it shall be entitled to represent Ungava or CRI or other third parties or entities, on any matter, other than matters subject to this arbitration, whether or not such representation may be adverse to Ungava or CRI, or any related, affiliated, or subsidiary entity. In particular, Ungava and CRI agree that Fasken Martineau DuMoulin may represent Ungava or CRI or any other client in any other matter which may be directly adverse to the interest of Ungava or CRI, including pursuant to a lawsuit, negotiation, financing transaction, auction or the acquisition, transaction, regulatory proceeding, insolvency/restructuring or other matter, provided that such matter does not relate directly to the dispute or the subject matter of the dispute(.) 

In addition to the above, the arbitrator personally undertook to establish a confidential secure wall around his file separating his work from that of the law firm.   The Court also noted that the link between the arbitrator and his law firm was well known and that the initial preparatory meetings in the arbitration were held at his law firm.  

The Court observed that the standard for a judge’s impartiality had been established by the Supreme Court of Canada in Wewaykum Indian Band v. Canada, [2003] 2 SCR 259, 2003 SCC 45 .  That decision set the standard as being a reasonable apprehension of bias.  The Court of Appeal held that the same test applied in arbitration as well as administrative justice, relying on the Supreme Court of Canada’s reasoning in Committee for Justice and Liberty et al. v. National Energy Board et al., [1978] 1 SCR 369, 1976 CanLII 2 (“Committee for Justice and Liberty”).  Applying that standard requires a factual inquiry of each particular situation and no peremptory principle applies automatically.  The Supreme Court in Committee for Justice and Liberty (at page 394) held that the test was simple: 

The proper test to be applied in a matter of this type was correctly expressed by the Court of Appeal. As already seen by the quotation above, 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.” 

The Court of Appeal reviewed its reasoning on impartiality of judges in another, earlier case and, referring to the Committee for Justice and Liberty concluded that it was important to ask if the arbitrator in question had a real knowledge of the facts giving rise to alleged bias.    The Court of Appeal referred to passages in Committee for Justice and Liberty in which the Supreme Court itself reproduced an excerpt of a U.K. Court of Appeal’s decision.  The latter asked ‘how can there be a real risk of bias or objective fear of bias if the judge had no knowledge of the facts giving rise to the conflict of interest’? 

The Court held that the motions judge had not applied the correct test by asking what the parties would have done had they known the facts about the arbitrator’s law firm and the underwriters. The Court wrote that had the judge applied the correct test, he would not have been able to conclude to any bias.  Rather, on the facts applied to the proper test, a reasonable, well-informed person, sensible and ‘unfussy’, would have no doubts about the impartiality of the arbitrator who all agreed had an excellent reputation.  

The Court provided further comments about the role and use of new evidence and whether the information relied on by the respondents qualified as such.  The Court held that the information was available to respondents before the homologation application and their seeing it in a new light on a different day did not meet the standards developed to safeguard the stability of court decisions.