Vento Motorcycles, Inc. v The United Mexican States, 2025 ONCA 82 is the second recent Ontario decision (after Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839 on the issue of reasonable apprehension of bias of an arbitrator, which arbitration practitioners have been awaiting. In this decision, there was no challenge to the finding in the Court below that the conduct of one of the arbitrators on a panel of three met the test for reasonable apprehension of bias. The appellant argued that the judge below was wrong to exercise her discretion to not set aside the award. This Court allowed the appeal and set aside the award. It found that it was impossible to determine whether one arbitrator’s bias affected the outcome. Reasonable apprehension of bias on the part of the arbitrator is such a serious breach of procedural fairness that the award must be set aside, even if it requires a re-hearing of the arbitration.
Background facts – The facts before the judge below are found in a previous Arbitration Matters case note: Chris Reflects (2023): Arbitrator Bias and the Unanimous Award – #807 – Arbitration Matters.
The Court set out the key underlying facts as follows.
Vento Motorcycles Inc. (“Vento”) brought a claim against the United Mexican States (“Mexico”) under Chapter 11 of the North American Free Trade Agreement (“NAFTA”). The parties established a tribunal to hear the claim.
Three arbitrators were appointed to the Tribunal, each of whom provided declarations of their independence and impartiality. The arbitration took place in November, 2019, and the Tribunal issued its award on July 6, 2020. The Tribunal held, unanimously, that Mexico did not breach its obligations under NAFTA and dismissed Vento’s claim.
After the final award was issued, Vento learned that Mexican officials had been communicating with the Mexican appointee to the Tribunal during the arbitration. Among these officials was lead counsel for Mexico in the arbitration. At first, he invited the Mexican appointee to apply to have Mexico to appoint him to future arbitration panels under certain trade agreements. There were about seven of these communications before the Tribunal issued its award and the Mexican appointee received an appointment shortly after the award was issued.
The decision below – Vento brought an application to set aside the award. The Judge below found that although appointment to the rosters of panelists eligible to hear disputes did not involve any direct financial compensation or amount to an actual appointment to a tribunal, it was still a “valuable professional opportunit[y]” that enhanced the professional reputation of Mexico’s appointee to the tribunal. He failed in his duty to disclose and his conduct during the arbitration gave rise to a reasonable apprehension of bias because, from the perspective of a reasonable informed person, he had an incentive to please Mexico after he was informed that he was being considered for these appointments.
However, the Judge below refused to set aside the Tribunal’s award. She found that Article 34(2) of the Model Law gave her the discretion to determine whether or not the award should be set aside, even when the grounds listed were met, because it provided that, [a]n arbitral award “may” be set aside.
In her view, the Mexican appointee’s apprehension of bias was a “procedural error” that did not undermine the reliability of the Tribunal’s award. Citing Popack v. Lipszyc, 2016 ONCA 135, she stated that the essential question was whether this error resulted in real unfairness or practical injustice. It did not because the decision of the Tribunal was unanimous. In other words, the reasonable apprehension of bias of Mexico’s appointee did not “taint” the Tribunal. The Judge below also considered that the seriousness of the breach and the potential prejudice that would arise from a rehearing the arbitration also supported the exercise of her discretion not to set aside the award.
The appeal – Vento appealed. In response, Mexico did not challenge the finding that there was a reasonable apprehension of bias but argued that the application judge properly exercised her discretion to decline to set aside the Tribunal’s award.
On the reasonable apprehension of bias issue, the Court’s decision can be summarized as follows.
First, a failure to provide a fair hearing has resulted in the quashing of a decision, regardless of whether the result might otherwise have been obtained. The rule against bias is stricter still. No matter what gives rise to a reasonable apprehension of bias, once the finding is made, the adjudicator is disqualified. If a decision has already been reached, it is void because it is impossible to have a fair hearing or procedural fairness. The damage caused by apprehension of bias cannot be remedied. Under the common law there is no discretion to remedy a reasonable apprehension of bias because it is not sufficiently serious or it would be inconvenient to provide the remedy.
Second, Art. 34(2) of the Model Law limits court intervention in arbitration to matters that do not concern the substance of the arbitration award. Although Art. 34(2)(a) does not refer specifically to bias, Mexico accepted that the Court can set aside an award on the basis of a reasonable apprehension of bias. This flows from Art. 34(2)(a)(iv), which states that an award may be set aside if, “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties”. This provision gives effect to the requirement in Art. 18 of “equal treatment” of the parties in the arbitration process: an arbitral procedure tainted by bias fails to treat the parties equally, and so is not in accordance with their agreement.
Third, not only is the Court’s authority to set aside an arbitration award strictly limited by Art. 34(2), that authority must be exercised having regard to the unique circumstances of commercial arbitration. Procedural infirmities or irregularities in commercial arbitration – fair hearing errors – do not necessarily raise the same concerns as they do in the exercise of public authority. Countervailing concerns in the context of commercial arbitration limit the circumstances in which it is appropriate to set aside an award. The court summarized the Canadian approach to setting aside arbitration awards on the basis of fair hearing breaches in commercial arbitration in Popack. Courts are to engage in what is essentially a balancing exercise, considering both, “the extent that the breach undermines the fairness or the appearance of fairness of the arbitration and the effect of the breach on the award itself”: Popack, at para. 31. “Whichever subsection of Art. 34(2) is invoked, the essential question remains the same – what did the procedural error do to the reliability of the result, or to the fairness, or the appearance of fairness of the process?: Popack”, at para. 45. Thus, although courts may exercise their discretion to uphold an arbitral award despite breaches of the fair hearing requirement, it does not follow that they enjoy the same discretion in respect of more significant breaches, and in particular in respect of a reasonable apprehension of bias. In those cases, there is no balancing exercise. The award must be set aside.
Fourth, there is no doubt that a commercial arbitration award would properly be set aside if it were rendered by a single arbitrator whose conduct was found to give rise to a reasonable apprehension of bias. But the question is whether it makes a difference that Mexico’s appointee was one of three arbitrators on the Tribunal. The bias of one member taints the tribunal. The rationale is plain: it is impossible to know whether – or to what extent – the participation of a biased member affected a panel’s decision. It cannot be left to conjecture, nor can it be ignored by assuming that the presumed impartiality and independence of the other two members of the panel rendered it harmless. The parties to an arbitration are entitled to an independent and impartial tribunal, not simply the decision of a quorum of panel members who are unbiased. Therefore, the independence and impartiality of the other two members of the Tribunal is irrelevant.
The Court set aside the award on the basis that it was the only result that guaranteed the integrity of the commercial arbitration process.
Editor’s commentary:
First, the Court of Appeal panel in Vento (Huscroft, Trotter, and Dawe JJA) was different than the Court of Appeal panel in Aroma (Fairburn, van Rensburg, and Zarnett JJA. However, it is doubtful this had any effect on the outcome. There are key differences in the two cases. For example, one is a duty to disclose case and the other is a reasonable apprehension of bias case. However, both cases involve ex parte communications by counsel for one party with the arbitrator. In Vento, the party (Mexico’s officials) also had communications with the arbitrator. The Court in Vento did not need to draw on Aroma because Mexico conceded that the arbitrator’s conduct demonstrated a reasonable apprehension of bias. As a practical matter, in markets where there are few arbitrators with relevant expertise, it is common for counsel (and perhaps parties) to have ongoing relationships with arbitrators. We know from Aroma that those relationships may not have to be disclosed. We know from Vento (among other things) that those relationships should not be overly familiar and that the line is crossed into reasonable apprehension of bias where counsel and/or a party offers opportunities to the arbitrator for prestigious appointments offering significant remuneration. It follows that those relationships must be disclosed.
Second, the Court stated (at para. 13) that, “the apprehension of bias was compounded by the failure of both [Mexico’s appointee] and Mexico to disclose the offers and related communications during the arbitration”. Like the Aroma case, this highlights the duty of both the arbitrator and the party to make disclosure. The ADRIC-Arbitration-Rules-2025 (effective as of March 1, 2025) address the duty of the parties. They make explicit the duty of the parties and the arbitrator to make disclosure and that it is an ongoing duty. See Rule 3.3.2(a).
Third, the Court acknowledged that there is discretion under Article 34(2) to determine whether an award is to be set aside if the grounds under Article 34(2) are met. However, no such discretion arises if there is a finding of a reasonable apprehension of bias. Inconvenience, cost, and inefficiency are not factors to be considered. The award is void.
Fourth, the case raises an important and practical question about internal tribunal dynamics. All arbitrators owe a duty of independence and impartiality, regardless of whether or not they sign a declaration (as they did in this case). This case says nothing about whether the other members of the tribunal knew of the ex parte communications between Mexico, its counsel, and its appointee on the tribunal while the arbitration was ongoing. This case makes it clear that if they had such knowledge, it was not sufficient that for them to simply exercise that duty of independence and impartiality in their decision making, knowing that if they were to disagree with Mexico’s appointee, their majority decision would determine the outcome. Vento says that the parties are entitled to an independent tribunal. The award will not be protected from set aside and they will have failed in their primary obligation as arbitrators, which is to issue an award that can be enforced. It seems that their only recourse would be to try to persuade Mexico’s appointee to resign or for them to resign. It is then up to the parties to decide what happens to the arbitration – whether it starts again or picks up where it left off with a new tribunal. In other words, it is the parties who bear the costly consequences of this. Unfortunately, if one party knows of or is involved in communications with its appointee on the Tribunal and has not met its disclosure obligation, it will be able to make this important strategic (and costly) decision with more information than the innocent party.
In both Aroma and Vento, counsel were involved in the conduct which was the subject of the application to set aside the award, but in Vento one of the parties was also involved. In such a case, what remedy could a court impose on a party which has knowingly participated in such a breach? And what relief, if any, could the innocent party seek against the offending party?