Whether the dispute is about a coffee chain or a divorce, choosing the right mediator/arbitrator is not just a procedural step; it is a strategic necessity.
The recent Ontario Court of Appeal decision in Aroma Franchise Company, Inc. v. Aroma Espresso Bar Canada Inc., 2024 ONCA 839 (Aroma), highlights the critical importance of selecting a neutral who possesses not only relevant expertise but also a reputation for objectivity and impartiality.
The Aroma case stemmed from a multimillion-dollar franchise dispute under a master franchise agreement (MFA) requiring arbitration by a single arbitrator. The arbitrator, whose final award favoured Aroma Espresso Bar Canada Inc. (AC), later faced allegations of reasonable apprehension of bias when it emerged he had accepted a retainer in an unrelated arbitration involving AC’s law firm.
The Superior Court initially set aside the arbitration awards, citing a lack of disclosure. However, the Court of Appeal reinstated the awards, clarifying critical points about impartiality, disclosure and the objective standards that govern these principles.
Subject-Matter Expertise: Arbitrators and mediators with deep knowledge of the legal and industry-specific issues at play bring invaluable insight to the table. In Aroma, the MFA explicitly required the arbitrator to be a retired judge or a lawyer experienced in franchise law. This stipulation reflects the reality that nuanced understanding of the subject matter ensures fair and informed decision-making, which equally applies in divorce cases that involve real estate, tax, corporate and estates law.
Objectivity and Independence: The Aroma decision underscores the importance of appointing an arbitrator who embodies objectivity and independence. Justice Zarnett, writing for the Court of Appeal, reiterated the strong presumption of impartiality that applies to arbitrators, akin to that of judges. This presumption is crucial to maintaining confidence in the arbitration process and preventing unnecessary challenges to arbitral awards, which is even more critical in divorce where emotions and distrust run high.
The Court of Appeal emphasized that the duty of impartiality must be assessed through an objective standard—what a fair-minded and informed observer would conclude. This ruling reinforces that mere perceptions or unshared expectations are insufficient to displace the presumption of impartiality.
Transparency and Disclosure: While arbitrators are required to disclose circumstances that could reasonably give rise to doubts about their impartiality or independence, the disclosure obligation is also governed by an objective standard. In Aroma, the arbitrator’s failure to disclose his engagement in an unrelated arbitration involving AC’s law firm did not breach this duty because the second arbitration lacked any material connection to the MFA arbitration.
Importantly, the Court clarified that parties must communicate their specific expectations for disclosure if they wish for them to go beyond the legal standard. Absent such communication, the default remains the objective test under the applicable legal regime.
The Aroma case illustrates how disputes over perceived bias can derail arbitration, undermining its efficiency and cost-effectiveness. Protracted litigation over the arbitrator’s impartiality effectively nullified the benefits of arbitration as a private and streamlined alternative to court proceedings.
For clients and legal professionals, this highlights the need to scrutinize potential neutrals’ backgrounds, expertise and independence thoroughly before appointment. Ambiguities or overlooked concerns in the selection process can lead to disputes that prolong and complicate the resolution process.
The Court of Appeal’s decision in Aroma reaffirmed the foundational principle of arbitrator impartiality, which, if undermined, could cast doubt over the entire arbitration framework. For mediators and arbitrators, this ruling is a reminder of the high standards they must uphold, both in their conduct and in their disclosures. For parties, it underscores the importance of appointing neutrals whose independence is beyond reproach.
The Aroma case serves as both a cautionary tale and a guidepost for lawyers and clients navigating dispute resolution. The careful selection of mediators and arbitrators—focusing on expertise, objectivity, and impartiality—can prevent unnecessary challenges and ensure the integrity of the process.
For legal professionals advising clients, the takeaways from Aroma are clear: outline your expectations for neutrality explicitly, communicate them clearly, and ensure your chosen neutral has the skills and reputation to withstand scrutiny. By doing so, you lay the groundwork for a fair, efficient and final resolution to disputes, avoiding the pitfalls of challenges based on perceived bias. After all, trust in the process begins with trust in the neutral.
Steve Benmor, B.Sc., LL.B., LL.M. (Family Law), C.S., Cert.F.Med., C.Arb., FDRP PC, is the founder and principal lawyer of Benmor Family Law Group, a boutique matrimonial law firm in downtown Toronto. He is a Certified Specialist in Family Law, a Certified Specialist in Parenting Coordination and was admitted as a Fellow to the prestigious International Academy of Family Lawyers. Steve is regularly retained as a Divorce Mediator/Arbitrator and Parenting Coordinator. Steve uses his 30 years of in-depth knowledge of family law, court-room experience and expert problem-solving skills in Divorce Mediation/Arbitration to help spouses reach fair, fast and cooperative divorce settlements without the financial losses, emotional costs and lengthy delays from divorce court.
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