10 Sep

The Independent Arbitrator: Challenging Arbitrator Independence

 

By Earl A. Cherniak, Q.C., LL.B, FCIArb & Rebecca Shoom

 

An arbitrator must be independent, so that the parties to a dispute have confidence in the adjudication process. When disputes arise as to the independence of a proposed nominee, the parties must find a way to resolve them so that the arbitration can proceed efficiently. This article reviews an arbitrator’s disclosure obligations, and the avenues available where a party wants to challenge a nominee’s independence, or where the parties cannot agree on an arbitrator. Practical examples of how such disputes have been resolved in prior arbitrations are included to demonstrate the creative solutions that are available.

Independence and impartiality are fundamental duties of an arbitrator, enshrined in s. 11(1) of Ontario’s Arbitration Act, 1991. [1] Comparable provisions appear in arbitration statutes of other provinces; we refer to the Ontario statute as representative.

Arbitration statutes provide safeguards to ensure independence throughout an arbitration, and permit the parties to ensure the impartiality of the tribunal and to take steps to address any real or perceived lack of impartiality. These safeguards are crucial. Concepts of independence and impartiality are broader than the avoidance of actual bias, a direct relationship with the parties or the subject matter of the dispute. Depending on the circumstances, an arbitrator’s independence, whether real or perceived, can be affected by political or cultural ties, by indirect relationships through the clients of an arbitrator’s former or current law firm colleagues, or even by family relationships.

Before accepting an arbitral appointment, an arbitrator must disclose to all parties any known circumstances that may give rise to a reasonable apprehension of a lack of independence. The duty of prompt disclosure is continuous.[2] If a proposed arbitrator is aware of no circumstances which he or she believes would create a reasonable apprehension of a lack of independence, the arbitrator should confirm that investigations were made and the result.

Whether an arbitrator is or is not independent, or whether a disclosed circumstance does or does not give rise to a conflict of interest or other reasonable apprehension of a lack of independence, is not always clear-cut. Disputes about the independence of a proposed nominee not infrequently arise and can delay the progress of an arbitration. The nature and impact of such disputes, and how to move past them, will vary based on the parties’ appointment process, as discussed below.

Challenging a Party Appointment

If the appointment process permits each party to make an appointment, concern as to another party’s nominee can be addressed through a challenge. A party may challenge an arbitrator where there exist circumstances that may give rise to a reasonable apprehension of bias,[3] or “if circumstances exist that give rise to justifiable doubts as to his impartiality or independence”.[4]

Before mounting a challenge, a party should first confirm that the arbitrator has made full disclosure. If a party is aware of an omission from the disclosure, it should put the omitted circumstance to the arbitrator for response. While the existence of an omission may alone be sufficient to give rise to a reasonable apprehension of a lack of independence, giving the arbitrator an opportunity to address the omission could result in the clarification of any concerns, or prompt the arbitrator to resign from or decline the appointment, saving the time and expense of a formal challenge.

If a formal challenge is required, the parties, with the help of the tribunal, should determine how the challenge can be dealt with expeditiously. Pursuant to s. 13(3) of the Act, a party challenging an arbitrator must send the arbitral tribunal (including the challenged arbitrator) a statement of the grounds for the challenge within fifteen days of becoming aware of the grounds. Arbitration statutes do not require that a challenge be brought by way of a formal motion.

In determining the best way to proceed, the challenging party should keep in mind the test to succeed on a challenge: whether a reasonably informed bystander could reasonably perceive bias on the part of the adjudicator.[5]

Depending on the grounds for the challenge, it may be helpful or necessary for the parties to provide evidence and to proceed with a challenge through a formal motion process, with oral argument. For example, in one recent confidential arbitration, the challenging party required an opportunity to play an audio recording to establish a prior relationship between a proposed arbitrator’s law firm and a party to the arbitration. The challenged arbitrator chose to resign following the receipt of affidavit evidence and oral argument on the contested challenge motion, when correspondence preceding the motion had failed to bring that result.

Where the Appointment Process Fails

Where an arbitration clause requires an agreed sole arbitrator, disagreements as to the existence of a lack of independence prevent, in some cases, any appointment from taking place. In another recent confidential arbitration, the parties sought agreement by exchanging lists of proposed arbitrators, but disagreements as to independence resulted in numerous rounds of exchange and, ultimately, an impasse.  In such cases, arbitration statutes provide that the parties can request the court to appoint an arbitrator.[6]  In the case described directly above, an application to an Ontario Commercial List judge resulted in an order requiring the blind submission by each party of three proposed arbitrators to the judge, who made a selection from those proposals. When further dispute arose regarding that selection, the Commercial List judge remained seized of the dispute and was able to resolve it in a timely manner.

Courts are not the only avenues available to assist parties in arbitrator appointments. Institutions such as the ADR Institute of Canada, Inc., the International Centre for Dispute Resolution, and the American Arbitration Association offer fee-based selection/appointment services on an ad hoc basis.

Populating an arbitration panel, or even appointing a sole arbitrator, is an art, not a science, and often requires a creative approach. Many firms with a sophisticated arbitration practice keep a record of possible arbitrators, updating it regularly as more information becomes available as to their experience and predilections, so as to be able to make a more informed choice when appointments are under consideration.

[1] SO 1991, c 17 (the “Act”)

[2] Ss 11(2)-(3) of the Act; art. 12(1) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”)

[3] S. 13(1) of the Act.

[4] Art. 12(2) of the Model Law.

[5] Newfoundland Telephone Co. v Newfoundland (Board of Commissioners of Public Utilities, [1992] 1 SCR 623.

[6] S 10(1) of the Act; art. 11(3)-(4) of the Model Law.


Earl A. Cherniak, Q.C., LL.B, FCI.Arb is a partner at Lerners LLP in Toronto. His litigation practice includes trial and appellate work, arbitrations and mediations, specializing in complex commercial litigation, public law and appeals.

Rebecca Shoom is an associate at Lerners LLP in Toronto. Her practice focuses on commercial litigation, specializing in commercial arbitrations, business and shareholder disputes and professional negligence.

 

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