CITATION: Jacob Securities Inc. v. Typhoon Capital B.V. 2016 ONSC 604
COURT FILE NO.: CV-15-520149
DATE: 20160126
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JACOB SECURITIES INC.
Applicant
– and –
TYPHOON CAPITAL B.V. and TYPHOON OFFSHORE B.V.
Respondents
Richard P. Quance and Daniel Waldman, for the Applicant
Michael Schafler, Michael Beeforth and Holly Cunliffe for the Respondents
HEARD: 17 December 2015 at Toronto
MEW J.
REASONS FOR DECISION
(Application to set aside arbitral award pursuant to Articles 34 and 36 of the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on June 21, 1985, Schedule 1 to the International Commercial Arbitration Act, R.S.O 1990, c. I.9)
[1] This is an application to set aside an arbitral award of Thomas G. Heintzman O.C., Q.C., FCIArb (the “Arbitrator”), dated 20 October 2014. The arbitration involved disputed compensation, claimed by the applicant, for introducing a company called Northland Power Inc. as a potential investor and participant in the respondents’ offshore wind power project known as “Project Gemini”.
[2] The applicants assert that the Arbitrator should have known that his former law firm, McCarthy Tétrault LLP (“McCarthys”) had acted for the underwriters of Project Gemini (the “Underwriters”) and that the firm had, in the past, acted for Northland Power Inc. (the Chief Financial Officer of Northland provided a witness statement in the arbitration). They say that his failure to conduct a conflicts check which would have disclosed McCarthys’ relationship with Northland and the Underwriters and, as a result, his failure to disclose those potential conflicts of interest to the parties to the arbitration, amounts to circumstances that give rise to justifiable doubts as to his independence or impartiality and, thus, to a reasonable apprehension of bias.
[3] The applicant also seeks an order directing the parties to commence a fresh arbitral proceeding pursuant to the Simplified Arbitration Rules of the ADR Institute of Canada, Inc., including the appointment of a different arbitrator.
Factual Background
[4] The applicant is a Canadian investment bank that specialises in providing financial advisory services to renewable energy companies. The respondent, Typhoon Capital B.V. (“Typhoon Capital”), is a company based in Amsterdam, Netherlands that carries on business in the renewable energy sector. Its wholly-owned subsidiary, Typhoon Offshore B.V. (“Typhoon Offshore”), is in the business of developing offshore wind projects in the North Sea. References in these reasons to “Typhoon” relate to either entity or both of them.
[5] A dispute arose between the parties relating to the applicant’s entitlement to compensation under an Engagement Agreement entered into by the parties for equity project financing provided by Northland Power Inc. and Northland Capital Inc. (“Northland”) to Typhoon Offshore for the “Project Gemini” wind project. The applicant claimed compensation for its role in introducing Northland to Typhoon, and Northland’s subsequent investment and financial participation in Project Gemini. The applicant submitted a Notice of Request to Arbitrate pursuant to the arbitration clause in the Engagement Agreement on 17 October 2013.
[6] The Arbitrator was nominated by the parties after another arbitrator, who had initially accepted the appointment, withdrew on conflict grounds. Upon his nomination, the Arbitrator advised the parties that he had had no previous dealings with the parties, and thus, had no conflict. He further offered to check conflicts against the principals of the corporations. The names of the principals of the corporations involved in the dispute were then provided to the Arbitrator, who indicated he did not have any conflicts with those individuals.
[7] The Arbitrator wrote to the parties accepting the appointment on 28 November 2013. On 20 January 2014, the parties and the Arbitrator formally entered into an Arbitration Agreement, which specifically addressed the issue of conflicts in these terms:
The Arbitrator has set forth in Schedule “A” any circumstances of which he is aware that might give rise to a conflict of interest or reasonable apprehension of bias. Notwithstanding those circumstances, the Arbitrator considers that he can act impartially and independently in this Arbitration.
The Parties are not aware of any other circumstances that would disqualify the Arbitrator from presiding over the Dispute. The Parties confirm that they do not object to, and are not aware of, any grounds upon which to object to the appointment of the Arbitrator and they waive any right to challenge the authority, independence and impartiality of the Arbitrator, including any challenge based on the circumstances set forth in this Schedule “A”.
[8] For over 40 years, until his retirement on 31 December 2012, the Arbitrator worked at McCarthys as a litigator. Although he withdrew from the partnership in 2008, he continued in practice as Senior Counsel until he retired.
[9] The parties do not dispute that the Arbitrator had no knowledge of his former firm’s relationship with Northland or Project Gemini. But he did not undertake a conflict search with his former firm.
[10] The arbitration hearing was held on 23-25 June 2014.
[11] The applicant claims that it was unaware of the involvement of McCarthys as lawyers for the Underwriters in Project Gemini (although Northland’s Prospectus Supplement, a public document, which was tendered in evidence at the arbitration hearing, identified McCarthys as advisers to the Underwriters).
[12] On 26 September 2014, the Arbitrator released his reasons and order, dismissing the applicant’s claim, and retaining jurisdiction to deal with any submissions related to costs or arising from the Reasons for Decision. The Arbitrator’s Final Award was released on 20 October 2014, dismissing the applicant’s claim, and confirming the parties’ agreement regarding costs.
[13] The applicant’s evidence is that it became aware of the relationship between McCarthys, Northland and the Underwriters on 16 November 2104. Having engaged new lawyers to consider the merits of challenging the final award, the applicant’s discovery of McCarthys’ relationship with Northland was described by the applicant’s representative, Sasha Jacob, as follows:
At the request of JSI's new counsel, on or about November 16, 2014, I directed Ryan Lee, an Associate in JSI's Investment Banking division to conduct a search on the Capital IQ database regarding Northland Power Inc. I am advised by Ryan Lee and believe to be true that his investigations revealed the previously undisclosed relationship between Mr. Heintzman's former law firm and Northland, with McCarthy Tetrault having acted in five transactions involving Northland on behalf of the Underwriters and one transaction directly acting for Northland. Specifically, in 2012, while I understand Mr. Heintzman was still senior counsel at McCarthy Tetrault, his firm represented the Underwriters in the Project Gemini transaction, including, inter alia, the filing of a Short Form Base Shelf Prospectus dated March 23, 2012 and, thereafter, a Prospectus Supplement dated February 26, 2014.
[14] This application to challenge the final award was commenced on 20 January 2015.
[15] Evidence was provided by McCarthys that:
a. Former lawyers of McCarthys (partners, former associates, counsel) are not able to search conflicts at the firm.
b. It is an "exceedingly rare" case that after a lawyer leaves the firm that they will check with McCarthys about a conflict.
c. The Arbitrator contacted McCarthys only after the allegation of reasonable apprehension of bias was made.
d. With respect to McCarthys’ representation of Northland-related companies, the firm only acted for Northland once, and that was from 2003 to 2005 (there was one docket entry for 30 minutes in 2007), in relation to the Mont Miller Wind Power Project.
e. McCarthys acted for the underwriters in various offerings of securities issued by Northland Power Income Fund between 2003 and 2006.
f. McCarthys acted for the underwriters in an offering of securities issued by Northland Power Preferred Equity Inc. (which was indirectly controlled by Northland Power Income Fund) in 2010.
g. McCarthys acted for the underwriters in four offerings of securities issued by Northland Power Inc. between 2012 and 2015, including Project Gemini (in which the Prospectus stated that "The proceeds of the Offering and the proceeds from the Concurrent Private Placement will be utilized to satisfy a portion of Northland's equity contribution to Gemini and to fund the subordinated loan to the Project").
h. Part of the "Use of Proceeds" referred to in the Prospectus Supplement of Northland Power dated 15 May 2015, includes legal fees paid to McCarthys for acting for the Underwriters.
i. The Arbitrator was not personally associated with any of the work done by McCarthys in respect of Project Gemini or for Northland.
Issues
[16] The following issues fall to be determined:
a. Are the remedies sought by the applicant available pursuant to the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on June 21, 1985, Schedule 1 to the International Commercial Arbitration Act, R.S.O 1990, c. I.9 (the “Model Law”)?
b. If so, should the award be set aside on the basis of reasonable apprehension of bias for the Arbitrator’s failure to conduct a conflict search with his former law firm relating to its representation of Northland and the Underwriters of Project Gemini?
i. Was the connection between the Arbitrator’s former firm and the Underwriters and Northland sufficient to establish a reasonable apprehension of bias?
ii. Did the Arbitrator have a duty to investigate any possible conflicts of interest with his former law firm?
Position of the Parties
Applicant
[17] The Arbitrator failed to conduct a conflict search which would have disclosed that his former law firm, McCarthys, acted for Northland Power, the Chief Financial Officer of which was a key witness at the arbitration hearing, and also acted for the Underwriters of Project Gemini.
[18] It is a mandatory requirement under Article 12 of the Model Law that an arbitrator must disclose any circumstances likely to give rise to doubts about his or her impartiality or possible bias. Article 18 of the Model Law addresses equal treatment of parties and provides that “[t]he parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”
[19] A reasonable and informed person would likely have concluded that a reasonable apprehension of bias existed in this case, that marred the appearance of impartiality on the Arbitrator’s part.
[20] An arbitrator is considered to bear the identity of his or her law firm (see IBA Guidelines on Conflicts of Interest in International Arbitration, (2014, International Bar Association), General Standard 6). The relevant circumstances of the activities of the Arbitrator’s law firm and the Arbitrator’s relationship with the firm should be considered in each individual case to determine whether there is a conflict of interest. However, because the Arbitrator did not make the necessary inquiries, the applicant never had the opportunity to challenge the Arbitrator’s appointment based on conflict of interest or reasonable apprehension of bias.
Respondents
[21] There is a rebuttable presumption that the Arbitrator was impartial. The Arbitrator had no knowledge of any of the conflict issues subsequently raised by the applicant. There was no evidence of any ongoing relationship between the Arbitrator and McCarthys. Furthermore, McCarthys had no involvement with the arbitration or with the dispute between the parties. The Underwriters who McCarthys acted for in relation to Project Gemini were adverse in interest to Northland. As such, there is no possibility that a reasonable apprehension of bias arose.
[22] As a former lawyer at McCarthys, the Arbitrator was not in a position to conduct a conflicts search with respect to McCarthys’ current or former clients. Such information would be confidential to the law firm and its clients.
[23] Articles 34 and 36 of the Model Law deal with a number of specifically enumerated situations, but do not expressly address reasonable apprehension of bias. Rather, issues of bias are properly addressed under Articles 12 and 13 of the Model Law, which provide that an arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to his independence and impartiality. However, Article 13(2) provides that a party who intends to challenge an arbitrator following his appointment shall do so within 15 days of becoming aware of circumstances giving rise to doubts about his or her impartiality. If the arbitration has already been completed, the effect of Article 13(2) is to re-open the window in which an allegation of bias can be made, thereby creating an exception to the principle of functus officio. The applicant failed to bring a timely challenge. Had it done so, the Arbitrator would have had an opportunity to respond, and had the Arbitrator not responded to the applicant’s satisfaction, the applicant could and should have applied to the court to decide on the challenge (s. 13(3) of the Model Law).
[24] The application is, ultimately, a “thinly disguised attempt to avoid the consequences of an adverse decision on the merits.”
Analysis
The Court’s Jurisdiction
[25] The applicant relies on Articles 34 and 36 of the Model Law. Article 34 sets out the exclusive grounds upon which an application can be made to this court to set aside an award in an arbitration governed by the International Commercial Arbitration Act, R.S.O 1990, c. I.9. Article 36 deals with the grounds for refusing recognition and enforcement of an arbitral award.
[26] Bias is not, as the respondents point out, expressly identified as a ground under either Article 34 or 36, whereas Article 12(2) does make provision for challenging an arbitrator’s appointment where circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.
[27] Article 13(2) contains the default process for challenging an arbitrator and provides that a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of any circumstance referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. [emphasis added]
[28] In the present case, concerns about the Arbitrator’s impartiality and independence did not arise until after the final award had been released, the applicant engaged new lawyers and undertook a database search
[29] Articles 12 and 13 address situations where the arbitration is extant. Ordinarily, the challenge is then submitted to the arbitral tribunal. However, as provided by article 32(1), the arbitration is terminated by the Final Award, subject to the provisions of Article 33 (correction and interpretation of award; additional award) and Article 34(4) (suspension of the setting aside proceedings for a period of time determined by the court in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action that, in the arbitral tribunal’s opinion, will eliminate the grounds for setting aside).
[30] Neither Article 33 nor Article 34(4) have been invoked by the parties to the present application.
[31] In my view, Articles 12 and 13, which form part of a series of provisions relating to the composition of the arbitral tribunal, have no application to a challenge of an award made after the final award has been released and the Arbitrator is functus officio. The only recourse then is to challenge the award or its enforcement.
[32] One of the grounds for setting aside an arbitral award is if the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the Model Law (Article 34(2)(a)(iv)). To similar effect, recognition or enforcement of an arbitral award may be refused where arbitral procedure was not in accordance with the agreement of the parties, or, if applicable, the Model Law (Article 36(1)(a)(iv)).
[33] Challenges to an award based on reasonable apprehension of bias amount to claims of unequal treatment, which would be contrary to Article 18 and, hence, would seem to be properly brought under Articles 34 and 36: J. Brian Casey, Arbitration Law of Canada: Practice and Procedure, 2nd ed. (Huntington, New York: JurisNet LLC, 2011), at pp. 331-332 and 419-420.
[34] It follows that I find that the court has jurisdiction to consider the applicant’s challenge. Because the seat of the arbitration was in Toronto, it is only strictly necessary to consider Article 34, as the effect of setting the award aside would render academic the question of its enforcement.
Do the Facts Establish a Reasonable Apprehension of Bias?
[35] The test for reasonable apprehension of bias which governs in Canadian courts was articulated by the Supreme Court in Committee for Justice and Liberty v. Canada (National Energy Board), 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369, at p. 394:
… the apprehension of bias must be a reasonable one, held by reasonable and right minded persons, applying themselves to the question and obtaining thereon the required information. In the words of the Court of Appeal, that test is "what would an informed person, viewing the matter realistically and practically - and having thought the matter through - conclude. Would he think that it is more likely than not that Mr. Crowe, whether consciously or unconsciously, would not decide fairly.
[36] In McCormack v. Toronto Police Service, [2005] O.J. No. 5149, at para. 20, Then J. held that the same reasonable apprehension of bias test applies to administrative boards and, in particular, those which are adjudicative in nature, “to provide procedural fairness, an essential ingredient of which is that the board be free of a reasonable apprehension of bias.”
[37] This test is equally applicable to an arbitrator who acts in a judicial or quasi-judicial capacity: Szilard v. Szasz, 1954 CanLII 4 (SCC), [1955] S.C.R. 3, at p.4.
[38] Actual bias does not have to be established. It is the existence of a reasonable apprehension of bias and not the existence of actual partiality by which bias is judged: Ghirardosi v. Minister of Highways for British Columbia, 1966 CanLII 47 (SCC), [1966] S.C.R. 367.
[39] In Szilard v. Szasz, 1954 CanLII 4 (SCC), [1955] 1 D.L.R. 370), at 6-7, the Supreme Court of Canada observed, in the context of an arbitration award that had been set aside, that:
It is the probability or the reasoned suspicion of biased appraisal and judgment, unintended though it may be, that defeats the adjudication at its threshold. Each party, acting reasonably, is entitled to a sustained confidence in the independence of mind of those who are to sit in judgment on him and his affairs.
[40] There is a strong presumption of judicial impartiality (see R. v. S. (R.D.), 1997 CanLII 324 (SCC), [1997] 3 S.C.R. 484, at para. 49), which is equally applicable to arbitrators whose function is in the nature of judicial determination: Terceira v. LIUNA, 2014 ONCA 839, 122 O.R. (3d) 521, at para 27. The burden to rebut the presumption falls on the party making the allegation. There must be a real likelihood of probability of bias. “Surmise or conjecture is not enough” (per Lord Denning M.R. in Metropolitan Properties Co. v. Lannon, [1969] 1 Q.B. 577 (C.A.), at p. 599; R. v. S. (R.D.), [1997] 3 S.C.R. 484, at para. 112).
[41] The IBA Guidelines on Conflicts of Interest in International Arbitration (London: International Bar Association, 2014) are widely recognised as an authoritative source of information as to how the international arbitration community may regard particular fact situations in reasonable apprehension of bias cases. General Standard 2 addresses conflicts of interest and provides:
(a) An arbitrator shall decline to accept an appointment or, if the arbitration has already been commenced, refuse to continue to act as an arbitrator, if he or she has any doubt as to his or her ability to be impartial or independent.
(b) The same principle applies if facts or circumstances exist, or have arisen since the appointment, which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator’s impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirements set out in General Standard 4.
(c) Doubts are justifiable if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision.
(d) Justifiable doubts necessarily exist as to the arbitrator’s impartiality or independence in any of the situations described in the Non-Waivable Red List.
[42] The “Non-Waivable Red List” is a non-exhaustive list of specific situations that, depending on the facts of a given case, will give rise to justifiable doubts as to the arbitrator’s impartiality and independence. Situations described by the Non-Waivable Red List include the following:
1.1 There is an identity between a party and the arbitrator, or the arbitrator is a legal representative or employee of an entity that is a party in the arbitration.
1.4 The arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom.
[43] In the present case, it is accepted that the Arbitrator did not work on any matters involving Northland while he was at McCarthys and that he had no knowledge of McCarthys’ relationship with Northland or the underwriters of various Northland projects, including Project Gemini.
[44] In D.K. Investments Ltd. v. S.W.S. Investments Ltd. (1985), 1985 CanLII 467 (BC SC), 63 B.C.L.R. 226 (B.C.S.C.), the trial judge had formerly been the responsible partner in a law firm which had acted against the plaintiff in other litigation. Like the Arbitrator in the present case, the judge had not personally been involved in the conduct of that action. Such involvement was held not, in and of itself, to be sufficient to raise a reasonable apprehension of bias. The court stated at p. 228:
To raise any concern as to impartiality on the part of the trial judge in the mind of a reasonable person would require far more than is shown here. At a minimum, there would, in my view, have to be shown some awareness on the part of the trial judge of the previous litigation and some evidence that awareness of the previous litigation was capable of inducing in his mind an attitude that might prevent his approaching the case with an open mind...
[45] In Rando Drugs Ltd. v. Scott, 86 O.R. (3d) 641, 2007 ONCA 553, 86 O.R. (3d) 653, the fact that a trial judge’s law firm acted for a party to the litigation ten years prior to the trial, was not sufficient to disqualify the judge. At para. 36, the Court of Appeal asked:
…how can there be any real danger of bias, or any reasonable apprehension or likelihood of bias, if the judge does not know of the facts that, in argument, are relied on as giving rise to a conflict of interest?
[46] Arbitrators are often still members of law firms. As Kane J. noted in Telesat Canada v. Boeing Satellite Systems International, Inc., 2010 ONSC 4023, at para 130, an arbitrator’s existing membership in a law firm raises all of the considerations associated with that environment (in contrast to judges who hold a public office).
[47] In Telesat Canada, the chair of an arbitration panel was removed on the ground of reasonable apprehension of bias because one of the issues her panel would be called upon to decide was whether the decision of an arbitration panel in a related matter, on which the chair’s partner had served as an arbitrator, was binding on the parties. The court was concerned that the partner’s decision in the related matter “potentially becomes an underlying, albeit subtle influence…” (at para. 148).
[48] In SA Auto Guadeloupe Investissements v Colombus Acquisitions Inc, RG 13/13459 (cour d’appel de Paris, 14 October 2014), a French court declined to enforce a partial award where an arbitrator had failed to fully disclose a conflict of interest stemming from the work of his law firm. The arbitrator's declaration of independence stated that although his firm had previously represented a parent company of the claimant, it was no longer doing so; however, in reality (and unknown to the arbitrator), the firm was continuing to represent the parent company and did so throughout the period of the arbitration. The court considered this work as an important engagement for the firm and therefore found its nondisclosure undermined the arbitrator's independence and impartiality.
[49] The circumstances of the present case do not come close to those described in Telesat Canada or Auto Guadeloupe. McCarthys had one direct retainer from Northland which, at the very outside, was completed in 2007. The services it provided to the underwriters, including those related to Project Gemini, were not services provided to Northland, and had no bearing on any issue which the Arbitrator had to resolve. Northland was not even a party to the arbitration (its Chief Financial Officer was a witness, albeit an important one).
[50] Although there is a possibility that an arbitrator’s relationship with a witness in a case could be sufficient to establish a reasonable apprehension of bias on the part of the arbitrator, the connection between Northland, the Underwriters, and McCarthys to the Arbitrator in this case is far too remote to establish a reasonable apprehension of bias. In my view, to raise any concern as to the Arbitrator’s partiality would require far more than has been established by the applicant.
Duty to Investigate Possible Conflicts of Interest
[51] The applicant takes its challenge one step further than seeking to establish reasonable apprehension of bias. It argues that because the Arbitrator failed to conduct an adequate investigation of possible conflicts of interest, the applicant was deprived of the opportunity to make a fully informed decision when it agreed to the appointment of the Arbitrator. According to Mr. Jacob:
… had Mr. Heintzman disclosed his former law firm’s representation in Project Gemini and its historical involvement in other Northland transactions, JSI would not have agreed to his appointment as arbitrator.
[52] According to the applicant, the Arbitrator had a positive obligation to check any conflicts with his former firm. It says that impartiality requires more than the arbitrator saying “I can’t think of any conflicts.” Rather, it argues that on the test for reasonable apprehension of bias, an objective person would expect an arbitrator to be proactive in seeking out any possible conflict with his former law firm, which would include requesting a conflict search with that firm.
[53] The applicant roots its assertion in General Standard 3 of the IBA Conflict Guidelines, which provides:
(3) Disclosure by the Arbitrator
(a) If facts or circumstances exist that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence, the arbitrator shall disclose such facts or circumstances to the parties, the arbitration institution or other appointing authority (if any, and if so required by the applicable institutional rules) and the co-arbitrators, if any, prior to accepting his or her appointment or, if thereafter, as soon as he or she learns of them.
(b) An advance declaration or waiver in relation to possible conflicts of interest arising from facts and circumstances that may arise in the future does not discharge the arbitrator’s ongoing duty of disclosure under General Standard 3(a).
(c) It follows from General Standards 1 and 2(a) that an arbitrator who has made a disclosure considers himself or herself to be impartial and independent of the parties, despite the disclosed facts, and, therefore, capable of performing his or her duties as arbitrator. Otherwise, he or she would have declined the nomination or appointment at the outset, or resigned.
(d) Any doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure.
(e) When considering whether facts or circumstances exist that should be disclosed, the arbitrator shall not take into account whether the arbitration is at the beginning or at a later stage.
[54] According to the applicant, (a) an arbitrator’s failure to comply with the IBA disclosure requirement may itself give rise to justifiable doubts as to that arbitrator’s impartiality and independence; and (b) the disclosure requirement in the Model Law requires an arbitrator to conduct a conflicts check.
[55] In support of the second limb of this argument, the applicant relies on HSMV. Corp. v. ADI Ltd., 72 F. Supp. 2d 1122 (1999), a decision of the United States District Court, Central District Court for California. In that case an arbitrator’s award was vacated when it transpired that his law firm was acting for the Australian Government in relation to its attempts to sell its ownership interest in one of the parties to the arbitration. The court found that the contemporaneous representation by the arbitrator’s law firm of the owners of one of the parties to the dispute presented a conflict of interest. The court stated, at p. 1129:
While neither the [California International Arbitration and Conciliation Act] nor the Model Law expressly provides that the arbitrator must “investigate” whether he has any of the questionable relationships and/or interests, the Court concludes that the disclosure requirement imposed by both rules necessarily implicates a duty to investigate whether instances of potential conflict exist. Under either rule, an arbitrator is obligated to conduct a conflicts check to see if he must disclose any circumstances that might cause his impartiality to be questioned. It is undisputed that Gibson failed to do so.
[56] I would agree that an arbitrator who is a partner of, or otherwise works for a law firm, has a positive duty to investigate any potential conflicts of interest with his or her law firm in order to satisfy his or her disclosure obligations. However, the question posed by the present case is whether that obligation extends to the Arbitrator’s former law firm and, if it does, whether the search should include not only the names of the parties to the arbitration, but also to witnesses, the employers of witnesses, or non-parties to the dispute, who nevertheless feature in it.
[57] In contrast to the arbitrator in HSMV Corp., Mr. Heintzman had left McCarthys eleven months prior to accepting his appointment. The applicant argues that this was not a very long interval. In Rando Drugs, the Court of Appeal made reference to the common practice of judges in the Superior Court of not hearing cases involving their former firms for at least three years following their appointment.
[58] I am aware of no authority which imposes on judges, recently appointed or otherwise, a duty to ask their former firms to conduct conflict searches for the names of all parties to the cases which the judge deals with. Judges will typically know the clients they acted for when they were lawyers as well as other major clients of their former firms. But they cannot possibly know or be expected to know every client that their former firms acted for. I do not see why the position of an arbitrator who is in independent practice and who is no longer associated with a law firm should be any different. As with the judge in Rando Drugs, the Arbitrator was unaware of the facts relied upon by the applicant as giving rise to a conflict of interest. The notion that a judge or arbitrator must make a concerted effort to search for hitherto unknown conflicts from a firm that he or she no longer works with would be a burdensome exercise and wholly disproportionate response to the duty to disclose.
[59] As a practical matter, firms such as McCarthys owe an obligation to their clients not to disclose confidential information to third parties, which would include former partners and lawyers. It is presumably for that reason that McCarthys are rarely asked to conduct conflict searches by individuals who formerly worked at the firm. Furthermore, the parties to a private arbitration might have confidentiality concerns of their own about their names being run through the conflict search system of a firm that an arbitrator is no longer a member of.
[60] Even if there had been an obligation on the part of the Arbitrator to run a conflict search, it would not, in my view, go beyond the names of the parties and, perhaps, key players in the arbitration. On the facts of this case, it would be unreasonable to have expected a search to be done for Northland or its Chief Financial Officer.
Conclusion
[61] A reasonable person would not conclude that there was a reasonable apprehension of bias on the part of the Arbitrator. The Arbitrator did not have a duty to disclose any connection between his former firm and the Underwriters or Northland. The connection between the Arbitrator and his former firm’s representation of those parties is too remote. Despite the Arbitrator having only been retired for approximately one year when he accepted the appointment as arbitrator in this case, he was no longer able to conduct a conflict search, in any event. Furthermore, he was unaware of such connections, whether or not such connections were sufficient to question his partiality. As such, the applicant has failed to rebut the presumption of impartiality. The application is therefore dismissed.
Costs
[62] One of the benefits of commercial arbitration is finality. As the affidavit of Mr. Jacob candidly discloses, after the final award was handed down, the applicant, no doubt disappointed with the outcome, retained new lawyers to consider the merits of challenging the award. The applicant would have been advised that, absent agreement to the contrary, there are no rights of appeal in arbitrations governed by the International Commercial Arbitration Act. As a result, the applicant went looking to see if other grounds of challenge could be developed.
[63] In Allied Track Services Inc. v Swift, 2015 ONSC 5496, Newbould J. concluded that where there were no grounds to conclude the existence of a reasonable apprehension of bias on the part of proposed arbitrators (who had nevertheless chosen to withdraw in the face of allegations of bias that had been made), the applicant had acted in bad faith, warranting an award of costs on a substantial indemnity basis.
[64] While the history of the litigation in Allied Track Services included breach of court orders, a feature not present in the instant case, I would concur with the respondents’ submission that this application is a thinly disguised attempt to avoid the consequences of an adverse decision on the merits. Just as Newbould J., in awarding substantial indemnity costs, regarded the respondents in the case before him as having done their best to upset the arbitration process, a similar approach is warranted here to deter losing parties in international commercial arbitrations from launching baseless ex post facto challenges to an arbitrator’s impartiality.
[65] The parties have provided me with costs outlines but have not argued the issue of what the appropriate scale of costs should be. I am provisionally of the view that the applicant should pay costs to the respondents on a substantial indemnity scale and would invite the parties to endeavour to agree on quantum. However, if a different disposition of costs is requested, or the parties cannot agree on quantum, either party may notify my judicial assistant within 14 days of the release of these reasons. I will then give directions on how and when further submissions on the issue of costs will be received.
Graeme Mew J.
Released: 26 January 2016
CITATION: Jacob Securities Inc. v. Typhoon Capital B.V. 2016 ONSC 604
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JACOB SECURITIES INC.
Applicant
– and –
TYPHOON CAPITAL B.V. and TYPHOON OFFSHORE B.V.
Respondents
REASONS FOR DECISION
Mew J.
Released: 26 January 2016