It is well established that in commercial arbitration, a court's authority to set aside an award is – for good reason – limited. That being said, the exceptions to this general proposition have resulted in a wealth of case law, both in Canada and abroad, regarding when set-aside is warranted.
The Court of Appeal for Ontario's recent decision in Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82, adds valuable clarity to the Court's authority to scrutinize and set aside an arbitral award on grounds of bias. In Vento, the Court, considering a trade dispute between a United States manufacturer and the government of Mexico, concluded that an award must be set aside where there is a reasonable apprehension of bias by a single member of the tribunal, even where the award is unanimous.
Below, we review the Court's decision and consider its implications.
Factual Background
Vento Motorcycles ("Vento"), the applicant, is a motorcycle manufacturer based in the United States. In 2019, it brought a claim against Mexico, under Chapter 11 of NAFTA, alleging that Mexico had denied it preferential import tariffs in an attempt to drive its motorcycles out of the Mexican market. As a result of this claim, which was valued between USD $658 million and $2.748 billion, the parties initiated arbitration.
Although the hearing took place in Washington D.C., Toronto was established as the place of arbitration. Each of Vento and Mexico appointed one member of the arbitration tribunal, with the final member being appointed by ICSID. Pursuant to Article 13 of the ICSID Rules, each of the arbitrators provided declarations of their independence and impartiality. The arbitration hearing, which lasted five days, concluded on November 22, 2019, and the Tribunal issued its award (the "Award") on July 6, 2020. The Tribunal unanimously concluded that Mexico had not breached its NAFTA obligations, and dismissed Vento's claim.
Following the release of the Award, however, Vento became aware that during the arbitration process, the arbitrator appointed by Mexico (the "Arbitrator") had engaged in undisclosed communications with Mexican officials. In particular, the Arbitrator had communicated with the lead counsel for Mexico, who was the Director General of the Legal Office of International Trade at Mexico's Ministry of Economy. Of note, prior to the arbitration, the Arbitrator had disclosed in his declaration that, as a result of his professional career, he knew officials in the Ministry of Economy. At the time, however, Vento expressed no concern with the arbitrator's disclosure.
The undisclosed communications were initiated by the Arbitrator in January 2019, just after Mexico filed its Counter-Memorial and several months prior to the arbitration hearing. The first communication simply involved the Arbitrator congratulating the Director General on his new position in the Mexican government. However, in May 2019, the Director General invited the Arbitrator to submit his CV for consideration for a roster of 15 arbitrators eligible to serve as chairs of arbitral panels under the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, which the Arbitrator did. Then, in March 2020, several months after the hearing but prior to the release of the decision, the Arbitrator was again invited to submit his resume, this time for consideration to the list of panelists eligible to hear disputes under the Canada-United States-Mexico Agreement ("CUSMA"). On July 2, 2020, the same day the Tribunal signed the Award, the Arbitrator received confirmation that he had been appointed to the roster of arbitrators. Upon learning of these undisclosed communications, Vento initiated an application to have the Award set aside.
The Application Judge's Decision
The Application Judge dismissed Vento's application. In declining to set aside the Award, the Application Judge considered both whether the Arbitrator's conduct gave rise to a reasonable apprehension of bias (and ought to have been disclosed) and, if it did, whether the apprehension of bias undermined the reliability of the Award such that it ought to be set aside. The Application Judge concluded that Mexico's offers to appoint the Arbitrator to the rosters of panelists were sufficient in and of themselves to give rise to a reasonable apprehension of bias, and therefore, should have been disclosed by the Arbitrator.
Nevertheless, the Application Judge found that this error alone did not produce either a real unfairness or practical injustice. The Application Judge concluded that since (1) nothing in the Arbitrator's conduct during the arbitration gave rise to a reasonable apprehension of bias, (2) it was unlikely the entire Tribunal had been biased by the Arbitrator's participation, particularly given the strong presumption of impartiality of the other members of the panel, (3) the communications between the Arbitrator and the Director General were "generic", and (4) no financial compensation was involved, the Court should exercise its discretion not to set aside the Award. Moreover, the Application Judge emphasized the significant waste in time, resources, and fees that would result from redoing the arbitration. For these reasons, the Application Judge dismissed the application. Vento appealed.
The Court of Appeal's Decision
In a unanimous decision, the Court of Appeal allowed the appeal. In arriving at the conclusion that the Application Judge had erred in declining to set aside the Award, the Court of Appeal considered one principal issue – whether a finding of a reasonable apprehension of bias requires the setting aside of an arbitral award.
Notably, Mexico did not challenge the Application Judge's finding of a reasonable apprehension of bias. Rather, it argued only that, despite the finding of bias, the Application Judge had nonetheless properly exercised her discretion in declining to set aside the Award.
In response, the Court emphasized that a reasonable apprehension of bias is no minor procedural defect, but is in fact a major violation of procedural fairness. It means, the Court stated, that it is "objectively reasonable to think an adjudicator would not decide a dispute fairly"1 – a finding, the Court cautioned, which "undermines the integrity and legitimacy of the adjudicative process".2 Consequently, the Court pointed to the common law's historically strict response to breaches of procedural rights, and the willingness of courts to quash a decision for failure to provide a fair hearing regardless of whether the outcome would have been different had the procedure been fair.
Therefore, the Court concluded that once a reasonable apprehension of bias has been found, the adjudicator must be disqualified and any decision reached must be nullified. "Bias", the Court stated, "is intolerable in any system that aspires to the rule of law" and "[n]o one whose rights, interests, or privileges are at stake can be required to accept a decision made by an adjudicator whose ability to decide fairly is... reasonably in doubt."3
Next, the Court turned its attention to procedural fairness in the context of commercial arbitration. The Court noted that commercial arbitration is meant to operate outside the judicial system, but nevertheless observed that pursuant to Article 34(2)(a)(iv) of the Model Law, an award may be set aside where proof is furnished that the composition of the tribunal or the arbitral procedure is not in accordance with the agreement of the parties. Since Article 18 of the Model Law dictates equal treatment of the parties (a requirement that cannot be waived by the parties), and since an arbitral procedure tainted by bias fails to treat the parties equally, the procedure was therefore not in accordance with the agreement, and set-aside was warranted.
Still, the Court noted that procedural irregularities in the context of commercial arbitration do not necessarily give rise to the same concerns as in the exercise of public authority. The Court explained that given the need for finality in the context of commercial arbitration, when deciding whether to set aside an arbitral award, a court must balance the extent to which the breach undermines the appearance of fairness and the effect of the breach on the award itself. As a result, the Court held, a court should only interfere with an arbitral award "where a fair hearing breach can be shown to have affected the substantive fairness of the hearing".4
Nevertheless, the Court reiterated the seriousness of bias, and held that it cannot be balanced away by arguments that it would have little impact on the result or that it would be inconvenient and expensive to re-run the arbitration. Moreover, with respect to judicial restraint in the supervision of arbitration proceedings, respect for the parties' choice does not justify a decision which compels the parties to accept an award made under a reasonable apprehension of bias.
Finally, the Court rejected the Application Judge's finding that the reasonable apprehension of bias of one member of a tribunal does not necessarily taint the entire panel. Rather, citing the principle of "poisoning the well", the Court held that a reasonable apprehension of bias in one member disqualifies the entire panel and its award. After all, the Court explained, the influence of one member over the others cannot be determined, and therefore cannot be ignored. Accordingly, the Court held that the Arbitrator's participation tainted the Panel, and that the Award must be set aside.
Commentary
The Court of Appeal's decision in Vento is instructive in that it emphasizes the significance of a finding of a reasonable apprehension of bias while also underscoring the importance of disclosure by arbitrators. The Court in Vento made clear that once a finding of a reasonable apprehension of bias has been made, the adjudicator must be disqualified and any decision already reached, is void. Moreover, the Court was emphatic that (1) a reasonable apprehension of bias may not be balanced away by surrounding circumstances, such as the seriousness of the bias or the inconvenience of redoing the arbitration, and (2) the reasonable apprehension of bias of one arbitrator is sufficient to taint the entire tribunal.
Further, Vento yet again calls attention to the need for arbitrators to engage in continuous disclosure during the arbitration process – a proposition that has been affirmed a number of times in recent years. Although the Arbitrator was upfront about his ties to officials in Mexico's Ministry of Economy, his failure to disclose (even generic) ongoing communications with these officials as the arbitration proceeded was found to undermine the presumption of his impartiality.
In addition, Vento raises several other noteworthy issues for consideration.
First, the Court's balancing of procedural fairness against finality and efficiency is significant. On the one hand, the Court's conclusion makes good intuitive sense from a legal perspective, insofar as parties are entitled to a completely independent and impartial tribunal. In that regard, the deliberative secrecy afforded to the tribunal made it impossible to scrutinize the extent to which the Arbitrator's ostensible bias may have influenced the other tribunal members.
On the other hand, one cannot help but sympathize from a practical perspective about the wasted time and costs incurred by both parties. The administrative fees alone in Vento were USD $625,000, while the legal fees (and expert fees, if any) were likely in the order of several million dollars, all over a period of five year. Given the premium that parties place on arbitration as an efficient method of dispute resolution (a proposition embodied in various institutional rules), it stands to reason that non-lawyers might view the outcome of Vento more skeptically.
Second, the limited review of international case law was perhaps somewhat surprising, given the Model Law's stipulation at Article 2(a)) that it is to be interpreted so as to promote international uniformity. Although not discussed in detail, the Court explained this to be due to (1) the difficulties inherent in citing authorities from non-common law jurisdictions, (2) difficulties with accessibility given the need for them to be translated into English, and (3) the fact that the legal principle in question is already well-established in Canada.
All of the foregoing are apposite concerns, and ones which might warrant extensive discussion all on their own. At the same time, however, the Court did demonstrate a willingness to rely upon procedural fairness case law drawn from slightly different contexts than arbitration – i.e. the judicial and administrative contexts. It is arguable that procedural fairness concerns might differ to some extent in commercial arbitration as opposed to court or administrative proceedings, particularly given the premium placed on efficiency and finality, combined with the fact that arbitrating parties select their own adjudicators. Arguably, such a distinction might warrant further consideration as it pertains to the precedential and persuasive value of non-arbitration case law in the arbitration context.
Finally, the Court's analysis of Wewaykum Indian Band v. Canada, 2003 SCC 45 may warrant further attention, insofar as it raises the issue of differing approaches to bias amongst various provinces. Specifically, Mexico cited Wewaykum as support for the proposition that a tribunal is not necessarily tainted where one member is biased. However, the Court of Appeal observed that the Supreme Court's remarks in Wewaykum were obiter, and in any event applied only to the unique context of appellate courts (and was therefore not applicable to an arbitral tribunal). On the other hand, however, the Court of Appeal also observed that each of the Manitoba, Alberta, and Saskatchewan Courts of Appeal have relied upon Wewaykum (either in obiter or otherwise) in support of the proposition that the bias of a single panel member does not necessarily taint the entire panel.
Given the divergent appellate treatment of Wewaykum, as well as the questions raised by Vento regarding the distinction (if any) between setting aside a decision for bias in the administrative or judicial versus arbitral contexts, we therefore await with interest to see if leave to appeal to the Supreme Court will be sought.
Footnotes
1. Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82 at para 28.
2. Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82 at para 28.
3. Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82 at para 32.
4. Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82 at para 39.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
