Resolving the conflict on conflicts of interest: the Court of Appeal’s decision in Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc.

In the recent case of Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839, the Court of Appeal for Ontario allowed an appeal, overturning the decision of the Ontario Superior Court of Justice about whether an arbitrator is required to disclose as a potential conflict of interest that the arbitrator is presiding over more than one arbitration involving lawyers of the same firm.

Background

An arbitrator was appointed to arbitrate a franchise dispute relating to Aroma Espresso Bar. At the outset of the arbitration, the arbitrator confirmed that he had no conflicts of interest for either party to the dispute. Approximately 17 months into the Aroma arbitration, and well before that arbitration was completed, a lawyer for one of the parties was involved in retaining the same arbitrator for a new arbitration involving entirely different clients.

The result was that lawyers at the same firm were simultaneously representing a party in the Aroma arbitration, as well as a different party in the second arbitration. The arbitrator did not disclose this fact to the other party to the Aroma arbitration. The other party only learned of this fact after the final award had been issued in the Aroma arbitration and brought an application to set the award aside.

The Court Decisions

The application judge at the Ontario Superior Court of Justice set aside the arbitrator’s award in the Aroma arbitration and directed a new arbitration before a different arbitrator. The judge held that the arbitrator was required to disclose that he was also the arbitrator in the second arbitration, and the failure to do so created a reasonable apprehension of bias. The judge relied on communications between the lawyers prior to the arbitrator’s appointment in the second arbitrator as to the lawyers’ relationships with various potential arbitrators, as an indication of the parties’ disclosure expectations.

The Court of Appeal disagreed, overturning the application decision. The Court of Appeal found that the parties’ expectations of disclosure were not shared with the arbitrator and there was no reasonable apprehension of bias on the part of the arbitrator. The arbitrator did not have a legal duty to disclose the second arbitration because neither of the parties to the second arbitration were involved in the Aroma arbitration and there were no overlapping issues. The two arbitrations were essentially unrelated.

Key Takeaways

There is no specific duty for an arbitrator to disclose subsequent arbitrations involving the same law firm but different parties.

If a party to an arbitration, or a lawyer representing a party, has questions about an arbitrator’s involvement with the lawyers, those questions should be posed to the arbitrator at the outset of the arbitration.

There is a high standard for disqualifying an arbitrator for reasonable apprehension of bias.

This article is for information purposes only and is not legal advice. If you have any questions about construction disputes, including arbitration, please contact any of the lawyers at Construct Legal.