In Vento Motorcycles, Inc. v. United Mexican States, the Ontario Superior Court of Justice (Court) rejected an application to set aside an arbitral award (the Award), which a three-arbitrator Tribunal issued, on the basis of procedural unfairness and reasonable apprehension of bias established on the part of one arbitrator. The Court’s decision provides important guidance about the circumstances in which courts may exercise their discretion to not set aside arbitral awards, even where an arbitrator’s conduct gives rise to a reasonable apprehension of bias.
The applicant, Vento Motorcycles Inc. (Vento), is a United States-based motorcycles manufacturer that sells and markets motorcycles through a joint venture in Mexico.
Vento initiated an investor-state dispute settlement arbitration that challenged Mexico’s denial of a preferential import tariff under the North American Free Trade Agreement. In accordance with the applicable rules, all three arbitrators provided the parties with a declaration of their independence and impartiality. The arbitrators acknowledged their continuing obligation to disclose circumstances that might cause their reliability for independent judgment to be questioned by a party.
The Tribunal issued its Award on July 6, 2020 and unanimously dismissed Vento’s claims on the merits. After the Award was issued, Vento discovered that the arbitrator Mexico appointed (Mr. Perezcano) had failed to disclose communications between himself and representatives of Mexico, including Mexico’s lead counsel, about opportunities for potentially lucrative arbitral appointments. During the arbitration, Mexico had offered and awarded Mr. Perezcano opportunities to be appointed to rosters of arbitrators under two different trade agreements.
The Court’s Decision
Vento made an application to the Court to set aside the Award on two grounds:
Vento was unable to present its case because the Tribunal had refused to allow one of Vento’s witnesses to testify in response to an incomplete recording of a phone conversation that was adduced in Mexico’s rejoinder evidence; and
There was reasonable apprehension that Mr. Perezcano was biased because Mexico offered opportunities to him that were not disclosed while the arbitration was ongoing.
The Court denied both grounds and dismissed Vento’s application on October 23, 2023.
The Court rejected Vento’s argument that it was unable to present its case in the arbitration. It was not unfair that the Tribunal declined Vento’s request to allow its witness to testify in response to the recording. The Award did not mention the recording and the Tribunal did not make any adverse findings of credibility against this witness. Vento had the opportunity to adduce substantial evidence and make arguments in support of its position on all the issues on which the Tribunal made rulings. Accordingly, the Court held that Vento did not establish that the Award should be set aside for fairness reasons. Vento was able to present its case.
Reasonable Apprehension of Bias
The Court held that an informed person, viewing the matter realistically and practically, would conclude that it was more likely than not that Mr. Perezcano would have a leaning or predisposition toward Mexico when making his decision in arbitration. Focusing on Mr. Perezcano’s incentive to please Mexico, after he was informed that he was being considered for the arbitrator appointments, the Court concluded that Mr. Perezcano’s conduct gave rise to a reasonable apprehension of bias.
However, the Court ultimately exercised its discretion to not set aside the Award. The Court reasoned that Mr. Perezcano’s reasonable apprehension of bias did not produce real unfairness or real practical injustice because it did not taint the reasoning of the other two arbitrators. The three arbitrators reached the same conclusion in the arbitration and issued a unanimous Award.
This decision serves as an important reminder that procedural deficiencies in an arbitral process will not necessarily lead to the award being set aside by a reviewing court. Canadian courts still retain discretion to decline to interfere with an arbitral award where there has been no “real unfairness or real practical injustice.”
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