Canada: BCSC Finds A Canadian Arbitrator Could Create A Perception Of Bias Because One Party Carried On Business In Canada

Significance

In Fotmer v. Tilray, 2023 BCSC 132, the Supreme Court of British Columbia refused to appoint a Canadian arbitrator to hear an international arbitration governed by British Columbia law. While neither party was Canadian, one carried on business in British Columbia. The court concluded that a Canadian sole arbitrator could create a perception of bias.

Under Fotmer's analysis, a party should not expect to secure the contested appointment of a sole arbitrator from a jurisdiction where they carry on business in an international arbitration. That will particularly affect companies with global operations, which may have to look to arbitrators from jurisdictions where they do not carry on business.

Background

The parties had agreed to appoint a sole arbitrator to resolve their dispute but could not agree on who to appoint. Their arbitration was governed by British Columbia's International Commercial Arbitration Act, which implements the Model Law.

The ICAA requires the Supreme Court of British Columbia to appoint a sole arbitrator if the parties cannot ( s. 11). The ICAA requires the court to have due regard to any qualifications the parties agree to and "other considerations as are likely to secure the appointment of an independent and impartial arbitrator." Further, the ICAA prevents the court from appointing an arbitrator who is the same nationality as any party unless the parties agree otherwise.

Fotmer turned on a dispute over the arbitrator's nationality—could a Canadian national be appointed? Both parties were corporations, one incorporated in the United States, the other in Uruguay. Thus neither company was Canadian and the ICAA did not preclude the appointment of a Canadian arbitrator.

However, one party carried on business in British Columbia. That party preferred a Canadian arbitrator familiar with British Columbia law, which governed the dispute. The other party opposed the appointment of a Canadian arbitrator on the basis that a Canadian arbitrator would not have the requisite neutrality.

Decision

The court refused to appoint a Canadian arbitrator. Holding that a place of business was a relevant "other consideration" under the ICAA, the court found that "the appointment of a British Columbian or Canadian arbitrator could give rise to a perception of bias and risk undermining the integrity of the arbitration process" ( para. 47).

The court also rejected the argument that the arbitrator should be familiar with British Columbia's governing law. The court found that requiring the arbitrator to be qualified in the governing law was incompatible with the national neutrality principle—if any party resided in the governing law jurisdiction, that party would share a nationality with the arbitrator. The court also rejected an argument that a Canadian-based arbitrator was required for practical reasons. The nature of international arbitration requires arbitrators to apply foreign law and travel to foreign jurisdictions—made easier today with virtual hearings.

Concluding Thoughts

Parties considering arbitration agreements who want to avoid the appointment issues in Fotmer have options. For example, parties can agree in an arbitration clause that a sole arbitrator may have the same nationality as party—or may reside in a jurisdiction where a party carries on business. Parties can also address other relevant criteria and the manner of appointment more generally in an arbitration clause before a dispute about an arbitrator's identity arises.

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