How far must an arbitrator go in disclosing a potential conflict of interest?

The B.C. Supreme Court answered this question in Atlantic Industries Limited v. SNC-Lavalin Constructors (Pacific) Inc. 2017 BCSC 1263.  In the Atlantic case, an arbitrator advised the parties who had retained him that one of the lawyers in his firm had been engaged to act for SNC-Lavalin (“SNC”) “a few months ago”.  The arbitrator himself had not been involved in the SNC work and the work itself was not connected to the dispute under arbitration.  Both parties confirmed they were content to have the arbitrator continue with the arbitration.

The following year, the arbitrator rendered a decision in favor of SNC.  He then received a letter from Atlantic Industries Limited (“Atlantic”) asking for clarification in respect of the conflict.  The arbitrator provided additional details confirming that his firm had acted directly for SNC on one matter and in a joint venture which included SNC.  The legal fees for these matters were sizeable.  Ultimately, Atlantic challenged the arbitrator’s ability to render a decision on the basis that it had not been properly informed of all of the circumstances of the conflict.

The court noted that a party can waive their right to object to a decision maker’s bias if they know of the bias and fail to object at the earliest practicable opportunity.  At the same time, no presumption of waiver can be inferred if the adjudicator failed to make a complete disclosure of his interest.  An award by an arbitrator will not be set aside if the circumstances alleged to disqualify him or her were known to both parties before the arbitration commenced and they proceeded without objection.  Complete disclosure does not require an exhaustive particularization of the relationship between the arbitrator and another party.  Rather, a party providing a waiver simply needs to have all of the “material”, “pertinent”, “salient”, or “essential” facts.

Here, the court did not accept the arguments made by Atlantic.  It determined that while the arbitrator’s second explanation expanded upon the first, it did not contain any additional and material information.   The court found that a reasonable person would realize, given the relationship between a sophisticated law firm and a large corporation, that more than one file might be open and that more than one lawyer at that firm might be working on the files.  Further, a reasonable person would expect that since SNC was a client, they would incur legal fees to the arbitrator’s firm.  While the size of fees might be relevant in certain situations, the court did not feel that was the case here.  Finally, the court noted a reluctance to reward a party raising an objection of bias after losing its case.  Such allegations have serious implications on the reputation of an arbitrator and, in fairness, should be made promptly.  The genuineness of the apprehension also becomes suspect when it is not acted upon right away.

While this decision relates to the conduct of an arbitration, many of the points raised by the court might well be applicable to the appointment of mediators.