Ex Parte Communications in Arbitral Proceedings - Worth the Risk?: Hunt v. The Owners, Strata Plan LMS 2556

It is a well-established principle in judicial proceedings that a judge should not discuss any part of an ongoing case with only one party to the dispute. In Hunt v. The Owners, Strata Plan LMS 2556, the B.C. Court of Appeal recently confirmed that private conversations between an arbitrator and one party to the dispute, even those touching on procedural matters, can give rise to a reasonable apprehension of bias and provide a basis to set aside an arbitral award.

Background

The Hunts, owners of a strata unit and self-represented litigants, initiated an arbitration against the Strata Corporation (the “Strata”) under the Strata Property Act, S.B.C. 1998, c. 43 (the “Act”). Although the Hunts expressed a preference for a single arbitrator, a three-person arbitration panel was constituted. After a four-day hearing, the arbitrators ultimately ruled against the Hunts and awarded special costs in favour of the Strata.

In preparing for the special costs assessment, the Hunts discovered that the Strata’s lawyer had engaged in the following four private communications with the arbitrators during the proceedings:

1. An email to the Strata’s nominated arbitrator on the issue of whether there should be a single arbitrator or a panel of three;

2. A private conversation with the panel chair on the Strata’s settlement proposal should the dispute go to mediation;

3. A private conversation with the Hunts’ nominated arbitrator on the Strata’s proposed mediation settlement; and

4. A phone call from the Strata’s nominated arbitrator on the possibility of a mediated settlement.

These private conversations were never disclosed to the Hunts by the Strata’s counsel or by the arbitrators. Rather, the Hunts obtained the file of the Strata’s counsel in the course of preparing for the assessment of special costs.

After discovering the communications, the Hunts brought an application for judicial review to set aside the arbitral and costs awards. The chambers judge dismissed the application for judicial review, finding that the arbitrators’ decision was correct.

The Court of Appeal allowed the appeal and found that the chambers judge erred in failing to find that the four ex parte communications created a reasonable apprehension of bias.

Private communications and the apprehension of bias

On appeal, the Strata argued that the content of the ex parte communications was purely procedural and did not involve the taking of evidence. As such, the conversations did not raise a reasonable apprehension of bias.

In considering the issue of procedural fairness, the Court of Appeal cited the well-accepted principle that the closer the function of the decision-maker is to the judicial function of adjudicating a dispute, the more the decision-maker will be expected to comply closely with the standards expected of judges.[1] In this case, the Court noted that the arbitration proceeding under the Act was modelled on a judicial proceeding; the arbitration decisions were important to the persons affected by them; and the arbitrators were lawyers presumed to be well-versed in the legal tradition of the neutrality of decision-makers.

Further, the Court found that the issues being discussed in the ex parte communications were not trivial, stating:

“Private conversations between an arbitrator and one party to the dispute do not necessarily have to deal with the merits of the dispute or evidence in order to be disqualifying.”[2]

For example, the first of the private conversations related to the decision to be made by two of the arbitrators on whether the arbitration would proceed before a single arbitrator or a panel of three. The Court of Appeal found that this decision was material having significant costs consequences for the Hunts who had advocated for a single arbitrator. Indeed, the Strata’s lawyer himself recognized that the costs of the arbitration might be of some strategic importance.

Likewise, the private discussions regarding mediation were also found to have significant consequences to the Hunts. These discussions painted the Strata as the reasonable party in the dispute (and by inference painted the Hunts as the unreasonable party). The Court specifically noted the irony in the arbitrators’ willingness to engage in ex parte communications with the Strata’s lawyer regarding the Hunts’ position on mediation while failing to comply with their arbitral duty under the Act to raise the mediation option with both parties. In this case, the Strata understood that the comparative costs as between mediation and arbitration were of strategic importance and could be used as a tool to put pressure on the Hunts.

The Court concluded that there was a reasonable apprehension of bias, applying the test as to what an informed person, viewing the matter realistically and practically, and having thought the matter through, would conclude.  Actual prejudice is not necessary to give rise to an unfair process.

The Court of Appeal also addressed a common misperception about the role of a “nominated” arbitrator.  The Court noted certain correspondence from the Strata to its counsel wherein the Strata referred to one of the arbitrators on the panel as “its nominee”.[3] This possessory use of the word “nominee” implied an expectation that the arbitrator would show some loyalty to the Strata and be more receptive to its viewpoint. The Court of Appeal affirmed the principle that, once appointed, the duty of arbitrators is “not to act as advocates but as free, independent, and impartial minds”.[4]

Significance

This decision underscores the importance of maintaining “appropriate professional distance” in arbitral proceedings. Despite the often flexible and informal nature of arbitral proceedings, which has the benefit of promoting the expeditious resolution of disputes, care must be taken not to slip into the realm of familiarity between arbitrator and counsel even in seemingly trivial procedural matters. The Court reminds us of the old adage: “justice must not only be done, it must be seen to be done”.[5] This principle applies equally to arbitral proceedings, even where there is provision for a party’s nominee on the arbitral panel. 

The Court of Appeal’s decision in Hunt does not mean that every private communication between a party and an arbitrator will give rise to reasonable apprehension of bias. However, this begs the practical question: why risk tainting the process?

 

[1] Hunt v. The Owners, Strata Plan LMS 2556, 2018 BCCA 159 at para 75 [Hunt].

[2] Hunt, supra at para 99.

[3] Emphasis in original.

[4] Hunt, supra at para 115, citing Refrigeration Workers Union, Local 516 v Labour Relations Board of British Columbia (1986), 27 DLR (4th) 676 at 681 (BCCA).

[5] Hunt, supra at para 82; Strata Plan VR 2733 v Jensen, 2000 BCSC 1489 at para 19, citing The King v Sussex Justices, [1924] 1 KB 256 at 259.

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