“The decision reaffirms this principle as one that is core to a fair hearing, and brings Canadian jurisprudence into line with that of many other arbitral seats,” counsel for the appellant Myriam Seers of Agora International LLP, told Law360 Canada in an email.
In Vento Motorcycles, Inc. v. Mexico, 2025 ONCA 82, the appellant, Vento Motorcycles Inc., had commenced an arbitral claim against the respondent Mexico pursuant to Chapter 11 of the North American Free Trade Agreement (NAFTA). It valued the claim between US$658 million and US$2.748 billion.
Mexico had denied NAFTA preferential import tariffs to motorcycles that Vento assembled in the United States and exported to Mexico. Vento submitted that this resulted in substantial business losses and the destruction of its business. The tribunal unanimously held that Mexico did not breach NAFTA obligations and dismissed the claim.
Vento later learned that Mexican officials had been in communication with Hugo Perezcano, the Mexican nominee to the tribunal, during the arbitration. Officials included Orlando Pérez Gárate, who was lead counsel for Mexico on the arbitration and a senior Mexican trade official. He had first invited Perezcano to apply to Mexico to appoint him to future arbitration panels under different trade agreements and eventually confirmed Perezcano’s appointments.
The application judge had found that Perezcano’s conduct gave rise to a reasonable apprehension of bias, “compounded by the failure of both Perezcano and Mexico to disclose the offers and the related communications during the arbitration.”
However, the judge found that this “did not taint the Tribunal” and declined to set aside the dismissal. She found that “the reasonable apprehension that one member of a panel is biased does not necessarily ‘taint’ the award and the entire panel.” In this case, there were three people on the panel.
The judge noted that the events in dispute occurred over 20 years ago and requiring a redo of the arbitration would result in wasted time, resources and fees and would rely too much on witnesses’ faded memories.
Justice Grant Huscroft of the appellate court found that a reasonable apprehension of bias is a major violation of procedural fairness, and as such would mean that it is objectively reasonable to think that an adjudicator may not fairly decide on a dispute. A reasonable apprehension of bias undermines integrity and legitimacy of the adjudicative process, he ruled, compromising it irreparably.
“No matter what gives rise to a reasonable apprehension of bias, once the finding is made the adjudicator is disqualified. If a decision has already been reached, the decision is void,” he wrote, later adding that this principle is true for public law proceedings and he saw no reason why it should not also be the same for commercial arbitration.
“The decision to set aside an award does not depend on a demonstration that the participation of the disqualified member affected the outcome — that the disqualified member cast the deciding vote in a split decision,” he later added. “On the contrary, the bias of one member taints the tribunal.”
“The rationale is plain: it is impossible to know whether — or to what extent — the participation of a biased member affected a panel’s decision," he wrote. "It cannot be left to conjecture, nor can it be ignored by assuming that the presumed impartiality and independence of the other two members of the panel rendered it harmless. The parties to an arbitration are entitled to an independent and impartial tribunal, not simply the decision of a quorum of panel members who are unbiased.”
It was noted that Mexico had accepted that the court can set aside an award on the basis of a reasonable apprehension of bias.
The appellate court found that it was necessary for the tribunal decision to be set aside. Perezcano was part of the hearing, deliberation and decision-making process, and there was no basis to conclude that his participation was harmless," it ruled. Further, the participation of a biased member requires the decision to be set aside, regardless of the unanimity of the panel.
The Court of Appeal also found that the application judge erred in assuming the impartiality of the other two members in her decision to refuse to set aside the tribunal decision. It was not necessary for the appellant to establish that a majority of the tribunal was subject to a reasonable apprehension of bias in order for remedy.
“This result is unfortunate, to be sure, given the importance of finality and economic efficiency in commercial arbitration,” said Justice Huscroft. “But it is the only result that is appropriate in the circumstances. It is the only result that guarantees the integrity of the commercial arbitration process.”
The appellant Vento said the result was “a positive development in our multi-year battle to obtain justice for the way our company was treated.”
“We are extremely relieved that the Ontario Court of Appeal has ruled in our favour, given the serious concerns we had about the integrity of the arbitral tribunal’s process,” a company spokesperson said in an emailed statement to Law360 Canada.
“The Court’s finding that bias by one arbitrator taints the entire tribunal and renders their award void is particularly welcome. We are aware that ICSID awards are rarely set aside, and are very pleased that justice and the rule of law have prevailed at this stage of our case.”
The appeal was allowed and the tribunal’s decision was set aside. Justices Gary Trotter and Jonathan Dawe agreed.
The appellant was also represented by John Terry of Torys LLP.
Counsel for the respondent were Vincent DeRose, Jennifer Radford and Stéphanie Desjardins of Tereposky & DeRose LLP, who were not immediately available for comment.
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