Evolving conflicts disclosure standards in domestic and international arbitration

In 2023, the Ontario Superior Court surprised some observers in Aroma Franchise Company v. Aroma Espresso Bar Canada when it held that an arbitrator’s failure to disclose a subsequent appointment by the same counsel raised a reasonable apprehension of bias¹. The question of when an arbitrator must disclose prior or subsequent affiliations with the parties or their counsel has been subject to evolving law and arbitral rules for years.

2024 has been a clarifying year: the Ontario Court of Appeal overturned Aroma, the IBA released updated Guidelines on Conflict of Interest in International Arbitration (IBA Guidelines), and the ADR Institute of Canada prepared new rules addressing arbitrator disclosure.

The continued attention on this issue in Canada and abroad indicates that it will continue to be an area of focus. Parties should consider clarifying disclosure requirements and expectations when appointing an arbitrator, and ensure they receive adequate disclosure from arbitrators at the time of appointment in order to avoid issues down the road.

Aroma overturned

The Ontario Court of Appeal recently overturned the decision in Aroma Franchise Company v. Aroma Espresso Bar. The case had been widely viewed as a leading Canadian case on arbitrators’ duty of disclosure, grounded in an arbitrator’s duty of independence and impartiality.

In the 2023 application decision in Aroma, the Court disqualified an arbitrator in a large franchise arbitration for failing to disclose to the parties that he had received a second subsequent appointment in a different arbitration involving one of the same lawyers. Though counsel was the same, the disputing parties in the two arbitrations were different, as were the issues. The Court relied in part on the IBA Guidelines, which require disclosure in that circumstance.

The Court of Appeal disagreed². The Court reaffirmed that the test for reasonable apprehension of bias is an objective one that considers the relevant circumstances from the standpoint of a fair-minded and informed observer, applied against the backdrop of a strong presumption of impartiality. In that context, breach of a disclosure obligation is relevant to, but not determinative of, that analysis. Similarly, the IBA Guidelines—or any other disclosure standard different from or more specific than Ontario law—are useful, but not binding unless expressly adopted by the parties.

Applying this objective test, the Court held that the arbitrator had no duty to disclose the other appointment by counsel, since (1) the IBA Guidelines were not adopted by the parties; (2) the parties’ expectations of their use or disclosure in this circumstance were not communicated to the arbitrator; and (3) the parties and issues in the two arbitrations did not overlap.

Parties may wish to clarify the use of any disclosure guidelines with an arbitrator when making an appointment, in order to avoid misaligned expectations that may give rise to issues in the middle of a proceeding.

IBA Guidelines revised

The IBA Guidelines on Conflict of Interest in International Arbitration are widely regarded as the leading standard governing disclosure of conflicts of interest in international arbitration. While domestic laws provide the overarching framework governing arbitrator independence and impartiality, they may offer only limited practical guidance. Adherence to respected disclosure standards may be a good way to prevent conflicts from affecting the validity of an arbitral award.

In 2024, the IBA updated their 2014 Guidelines. Though the need to ensure that the arbitration proceedings are conducted impartially and independently is primarily seen as an arbitrator’s duty, the 2024 Guidelines place greater emphasis on the role of counsel and parties as equally important, requiring:

1. Deeper diligence by parties. Parties must undertake “reasonable enquiries” in order to comply with obligations regarding disclosure of all relevant relationships that may call into question an arbitrator’s independence or impartiality, including greater emphasis on relationships between an arbitrator and (a) “a person or entity over which a party has a controlling influence”, or (b) “any other person or entity” the party “believes an arbitrator should take into consideration when making disclosures”³.
2. Broader obligation to raise potential conflicts. Parties must raise a potential conflict of interest with an arbitrator no more than 30 days after gaining actual or constructive knowledge of a potential conflict of interest. In the event a party does not raise the issue, the party is deemed to have waived an objection on that basis⁴.

Parties will want to consider these enhanced duties particularly where there is agreement that the IBA Guidelines apply to an arbitration.

ADRIC Rules updated

In 2025, the ADR Institute of Canada (ADRIC) will adopt new arbitration rules. While the text has not yet been released, ADRIC has indicated that the new rules will require greater disclosure from parties and arbitrators, including:

1. Initial and ongoing party disclosure. Parties will be required to set out any information reasonably known to the party that would enable the arbitrator to assess whether circumstances exist that could give rise to justifiable doubts as to their independence or impartiality. In addition, parties will have an ongoing obligation to update their disclosure as soon as information changes or additional information becomes available⁵.
2. Initial and ongoing arbitrator disclosure. Arbitrators will be required to provide reciprocal disclosure before accepting an appointment, and, on an ongoing basis, disclose “to the best of their knowledge” any circumstances that may give rise to justifiable doubts as to their independence and impartiality⁶.

Parties and arbitrators working under the ADRIC Rules will want to consider these mandatory initial and ongoing obligations.