Careless Whispers: Ex Parte Communications Lead to Overturned Arbitration Award

In its recent decision in Hunt v. The Owners, Strata Plan LMS 2556, the British Columbia Court of Appeal (BCCA) held that private communications between an arbitration panel and only one party to the arbitration can give rise to a reasonable apprehension of bias, rendering the arbitration award void and unenforceable.  

BACKGROUND

The arbitration was between the owners of a residential unit in a strata building (the Hunts), and the strata corporation (Strata) under the Strata Property Act (Act). The Hunts initiated the arbitration in April 2014 over concerns that the installation of an HVAC system would disturb their enjoyment of their unit. 

The arbitral panel ruled against the Hunts on all major issues and awarded full indemnity costs to the Strata. The Hunts sought leave to appeal the costs order at the B.C. Supreme Court, but their application was dismissed.

In preparing for the costs assessment, the Hunts obtained the file of the Strata’s lawyer and discovered that at least four private communications had taken place between the Strata’s lawyer and the arbitrators during the course of the arbitration proceeding.

The Hunts brought an application before the B.C. Supreme Court to set aside the arbitration award, including the costs award on the basis of procedural unfairness, including a reasonable apprehension of bias on the part of the arbitrators due to the ex parte communications.

B.C. SUPREME COURT DECISION

The chambers judge of the B.C. Supreme Court found that there was no dispute to arbitrate and that there was no prejudice to the Hunts resulting from the ex parte communications. The judge made no finding as to whether the ex parte communications gave rise to a reasonable apprehension of bias and did not address the merits of that submission. The judge also implied that the application to set aside the award was a collateral attack on the court’s previous order refusing leave to appeal the costs award.

BCCA DECISION 

The BCCA allowed the appeal, setting aside the arbitration decision and the costs award. The BCCA held that the ex parte communications gave rise to a reasonable apprehension of bias by the arbitral panel.

The BCCA held that the set aside proceedings were not a collateral attack. In particular, the BCCA referenced the new evidence of private communications between the Strata lawyer and arbitrators. This evidence was not disclosed and could not have been discovered by the Hunts until after the dismissal of the application for leave to appeal the costs award.

The BCCA concluded that both party-appointed arbitrators under the Act and the Chair are expected to play a role similar to that of a judge — they “must be impartial, independent decision-makers, free from ‘reasoned suspicion of biased appraisal and judgment’”.

The BCCA’s discussion and analysis of the four ex parte communications addressed three sub-issues:

1. Characterization of the Communications as Procedural

The BCCA rejected the Strata’s argument that the ex parte communications were merely procedural in nature. The BCCA found that it was not just discussions regarding the merits of the dispute that may give rise to a disqualification of an arbitrator. In this case, the procedural discussions included issues that were important to the parties.

2. Treatment of the Arbitrator as Nominee

The Strata argued that since one of the arbitrators was the Strata Corporation’s nominee (Arbitrator), there was nothing inappropriate about the Strata contacting him, “particularly on a strictly procedural issue and only to communicate the Strata Corporation’s position that it had not had the chance to previously set out”. The Court disagreed with this argument, noting:

The Strata’s private lobbying and expectation that [the Arbitrator] as nominee would be influenced by the Strata’s desired outcome unfortunately destroyed any appearance of adjudicative neutrality.

This finding is consistent with modern arbitral law and practice, which requires all arbitrators to be independent and impartial, regardless of whether one party nominated them.

3. Ex Parte Communications About Mediation

The BCCA held that the ex parte communications about mediation were akin to a judge meeting outside of the courtroom with only one party to discuss the prospect of mediation or settlement. It also rejected the argument that there was nothing to arbitrate or mediate. Unlike the chambers judge, the BCCA found this argument to be unpersuasive and irrelevant to the question of whether there was a reasonable apprehension of bias.

CONCLUSION

Parties need to be assured that they can rely on all arbitrators, regardless of their method of appointment, to remain impartial, independent and to refrain from any ex parte communications. There may be circumstances in which arbitrators are tempted to share the frustration of counsel with what are perceived to be difficult parties and positions or to steer a hopeless case in the direction of settlement. The BCCA’s judgment is an important reminder of the ethical and procedural duty of arbitrators to maintain professional distance and not discuss any aspects of an active arbitration without all parties present.

For further information, please contact:

Joe McArthur                            604-631-3383

or any other member of our Arbitration group.

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