Procedural Fairness and Materiality in Arbitral Review: Aroma Franchise Company, Inc v Aroma Espresso Bar Canada Inc

In Aroma Franchise Company, Inc v Aroma Espresso Bar Canada Inc, 2026 ONSC 768 (“Aroma Franchise Company”), the Ontario Superior Court of Justice (Commercial List) addressed the grounds on which a court may set aside an international commercial arbitral award under Article 34 of the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law"), as adopted in Ontario through the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5.

In its ruling, the Court considered a number of issues relevant to Canadian practitioners, including the consequences of a procedural fairness breach where the impugned finding was immaterial to the outcome, the scope of an arbitrator’s jurisdiction to interpret a contract, the sufficiency of reasons in an arbitral award, and the discretion available to a court to decline to set aside an award even where a ground under Article 34 is technically established.

Factual Background and Procedural History

The dispute in Aroma Franchise Company arises from a long-standing commercial relationship governing the operation of the “Aroma Espresso Bar” franchise system in Canada.

In 2007, Aroma USA entered into a master franchise agreement (“MFA”) with Aroma Espresso Bar Canada Inc. (“Aroma Canada”), granting Aroma Canada the right to operate as the master franchisee in Canada. The rights under the MFA were subsequently assigned within the applicant group to Aroma Franchise Company, Inc.

The business was unprofitable and incurred ongoing operating losses The respondents took the position that this lack of profitability was attributable, in part, to the financial structure of the franchise system, including royalties, franchise fees, and the cost of goods supplied by the applicants, particularly coffee products sourced from Aroma Espresso Bar Ltd. (“Aroma Israel”).

Against this backdrop, Aroma Canada sought to use an alternative coffee supplier that it estimated would result in significant cost savings. The applicants did not approve this proposal, and the parties were unable to reach agreement on revised supply arrangements.

In March 2019, Aroma Canada cancelled its coffee supply orders from Aroma Israel, effectively implementing a unilateral change to its sourcing practices. The applicants responded by issuing a notice of pending termination of the MFA in April 2019, asserting that Aroma Canada had breached the agreement by sourcing coffee without approval. Aroma Canada disputed the termination and commenced arbitration in May 2019. The business ceased operations shortly thereafter, in June 2019, bringing the parties’ commercial relationship to an end.

The central issues before the arbitrator concerned whether the parties breached the MFA, whether the MFA was wrongfully terminated, and whether the parties had complied with their statutory obligations of fair dealing. In the Final Award, the arbitrator concluded that the applicants had wrongfully terminated the MFA, finding that the termination right had been exercised in a manner that was arbitrary and inconsistent with the duty of good faith. The applicants subsequently applied to the Ontario Superior Court of Justice to set aside the arbitral awards under Article 34 of the UNCITRAL Model Law, advancing multiple grounds including allegations of bias, excess of jurisdiction, procedural unfairness, and inadequate reasons.

In an earlier decision, Justice Steele set aside the awards on the basis of a reasonable apprehension of bias, while also expressing views on certain additional grounds raised by the applicants. A formal order was issued directing that the awards be set aside and that a new arbitration be conducted before a different arbitrator.

The respondents appealed that decision, and the Ontario Court of Appeal allowed the appeal, overturning the finding of bias and reinstating the arbitral awards.[1] However, the Court of Appeal declined to finally determine several additional issues that had been raised but not fully adjudicated, including the consequences of an alleged procedural fairness breach and the adequacy of the arbitrator’s reasons.

Instead, the Court of Appeal remitted those issues to the Ontario Superior Court of Justice for determination, directing that the Court consider, among other matters, the consequences of the arbitrator’s finding that Earl Gorman, the interim managing partner of Aroma Canada and an individual respondent in the arbitration, was not a proper party to the arbitration, as well as any other issues not previously decided. The present decision arises from that remittal and addresses those issues within the framework of Article 34 of the Model Law.

The Decision

The central issue before the Court was whether the arbitral awards should be set aside pursuant to Article 34 of the UNCITRAL Model Law. The applicants relied on three principal grounds, namely: (1) they were unable to present their case, (2) the arbitrator exceeded his jurisdiction, and (3) the awards failed to provide sufficient reasons.

At the outset of its analysis, the Court emphasized that the grounds for setting aside an arbitral award under Article 34 are narrow and must be applied with a high degree of deference to the arbitral tribunal, noting that courts are not permitted to intervene merely because they would have reached a different conclusion on the facts or the law. This framing informed the Court’s treatment of each of the applicants’ arguments.

Procedural Fairness

With respect to procedural fairness, the applicants argued that they had been denied the opportunity to present their case when the arbitrator determined, without submissions from the parties, that Mr. Gorman was not a proper party to the arbitration. The Court accepted that this finding engaged Article 34(2)(a)(ii), as neither party had been afforded the opportunity to address the issue prior to the arbitrator making the determination.

However, the Court proceeded to consider the significance of that breach in the context of the arbitral award as a whole, emphasizing that not every procedural defect warrants setting aside an award. The arbitrator had already made substantive findings rejecting any basis for personal liability on the part of Mr. Gorman, including findings that there was no oppression and no justification for piercing the corporate veil. In those circumstances, the additional statement that Mr. Gorman was not a proper party to the arbitration did not affect the outcome and was characterized as “superfluous”.

Accordingly, while a breach of procedural fairness was established, the Court concluded that it was not material to the issues in dispute and did not justify setting aside the awards.

Jurisdiction

The applicants further argued that the arbitrator exceeded his jurisdiction by modifying, rather than interpreting, the MFA, contrary to the contractual requirement that the agreement be strictly enforced. In particular, they contended that the arbitrator’s conclusion that the termination was wrongful was inconsistent with the express termination provisions of the agreement.

The Court rejected this argument, emphasizing that jurisdictional review under Article 34(2)(a)(iii) must be approached with caution and confined to true questions of jurisdiction, rather than disagreements with the arbitrator’s interpretation of the contract. On a holistic reading of the award, the Court was satisfied that the arbitrator had engaged in an exercise of contractual interpretation, informed by the factual matrix and the statutory duty of good faith. Thus, the applicants’ disagreement with that interpretation did not establish a jurisdictional error.

Adequacy of Reasons

With respect to the adequacy of reasons, the applicants advanced a broad range of criticisms, alleging that the arbitrator failed to address key arguments, omitted references to significant evidence, and provided insufficient analysis on central issues. The Court reiterated that arbitral tribunals are not required to address every argument or piece of evidence, nor to produce reasons of the same depth or form as a judicial decision.

Instead, the Court applied a functional approach, asking whether the reasons, viewed in the context of the record and the issues, were sufficiently intelligible to demonstrate that the arbitrator understood and addressed the substance of the dispute. In this regard, the Court noted that the arbitrator had identified the central issues, summarized the applicable legal principles, made detailed factual findings, and explained the basis for the conclusions reached, including with respect to wrongful termination and damages. The Court concluded that the awards satisfied the requirement to provide reasons under Article 31 of the Model Law and that no ground for intervention under Article 34(2)(a)(iv) had been established.

Remedy

Having found only a limited procedural fairness breach, the Court then considered the appropriate remedy, noting that Article 34 is permissive and that even where a ground is established, the Court retains discretion as to whether to set aside the award. In assessing whether to exercise that discretion, the Court emphasized the importance of considering the seriousness and materiality of the defect in the context of the arbitration as a whole.

Given that the breach related to a non-material issue and did not affect the outcome, the Court declined to set aside the awards or order a new arbitration, concluding that such a remedy would not be appropriate in the circumstances.

The application was therefore dismissed.

Commentary

The decision in Aroma Franchise Company illustrates the limited scope of judicial intervention under Article 34 of the Model Law. While the Court’s analysis is with respect to the Model Law, the underlying principles engaged, including procedural fairness and jurisdiction, are reflected in different forms, across a wide range of arbitral rules and regimes.[2] In that regard, the decision may provide guidance on how courts may approach similar issues, even though the scope of judicial intervention will depend on the governing framework.

The Court’s treatment of procedural fairness is particularly informative. The Court accepted that a breach of procedural fairness occurred when the arbitrator made a finding regarding Mr. Gorman’s status without hearing submissions from the parties but, nonetheless,  declined to set aside the award because the breach was not material to the outcome.

The Court’s reasoning suggests that a key question is not necessarily whether a procedural irregularity occurred, but whether it had a meaningful impact on the issues actually decided.

That has practical implications for how parties conduct themselves during the arbitration. If materiality is key, a party who remains silent in the face of a potential procedural issue may face greater difficulty establishing, after the fact, that the irregularity affected the result. For parties, including those involved in construction arbitrations where multi-party disputes and complex procedural rulings are common, this underscores the importance of addressing procedural concerns as they arise. If a tribunal appears poised to decide an issue on which submissions have not been made, counsel may wish to raise that concern contemporaneously, rather than relying on the possibility of post award review.

The decision in Aroma Franchise Company also serves as a reminder of the deference afforded to arbitral awards in the context of international arbitration. Parties to an international arbitration seeking to set aside an award must frame their claims within the grounds set out in Article 34 of the Model Law. Even where such grounds are engaged, the Court may, in the exercise of its discretion, decline to set aside the award where the alleged breach did not have a meaningful impact on the outcome. In that regard, the decision underscores the limited scope of judicial intervention.