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A Canadian appeals court has revived U.S.-based Vento Motorcycle’s $2.7 billion Mexico suit, ruling Tuesday that a lower court judge wrongly upheld an arbitral award despite finding that one of the arbitrators may have been biased.

The Court of Appeal for Ontario determined that Judge Marie-Andrée Vermette of the Superior Court of Justice of Ontario erred when she declined to set aside an arbitration ruling that dismissed Vento’s claim. Judge Vermette had acknowledged that arbitrator Hugo Perezcano engaged in undisclosed communications with Mexican government officials during arbitration, raising concerns about his impartiality. However, she concluded that the other two arbitrators remained unaffected, as they had unanimously rejected Vento’s claim.

That reasoning was incorrect, the appeals court ruled, emphasizing that once a reasonable apprehension of bias is established, the arbitrator is disqualified, and any decision they participated in is void.

Bias Cannot Be Overlooked, Appeals Court Says

The appellate panel underscored that fairness in adjudication is paramount, noting that an arbitration ruling cannot stand when there is credible evidence of bias.

The ruling further clarified that it is not necessary for Vento to prove that the arbitration outcome would have been different absent the alleged bias. The presence of undisclosed incentives alone undermined the fairness of the arbitration process.

At the core of the case were communications between Perezcano and Mexican officials, during which he was offered a position on a roster of arbitrators eligible to serve in future disputes under two separate trade agreements. Vento argued that these opportunities were both “prestigious and potentially lucrative.”

Judge Vermette had agreed that the offers constituted “valuable professional opportunities” and should have been disclosed. However, she had reasoned that because the final arbitration ruling was unanimous, the outcome was unlikely to have been influenced by Perezcano’s bias. The appeals court disagreed, ruling that the entire tribunal was tainted.

NAFTA Dispute at the Heart of the Case

Vento’s $2.7 billion claim against Mexico stems from allegations that the Mexican government violated the North American Free Trade Agreement (NAFTA) by imposing retroactive tariffs on its motorcycles. The company argued that Mexico wrongly determined its bikes were made in China rather than the U.S., leading to unfair financial penalties.

Vento further alleged that these actions, taken under pressure from local competitors, destroyed a joint venture it had established to market and sell motorcycles in Mexico.

The arbitration was administered by the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank based in Washington, D.C.

Legal Representation and Case Details

Vento Motorcycles is represented by Myriam Seers and Paul Trinel of Agora International LLP and John Terry of Torys LLP. During arbitration, it was also represented by Luis Felipe Aguilar Rico, Fiamma Rizzo Fuentes, Patricia Arratibel Siles, and Rodrigo Aguilar Guízar of Aguilar & Loera, along with George Ruttinger and Eduardo Mathison of Crowell & Moring LLP and Todd Weiler.

Mexico is represented by Vince DeRose, Jennifer Radford, and Stephanie Desjardins of Tereposky & DeRose LLP. In arbitration, it was defended by its Subsecretaría de Comercio Exterior, Tereposky & DeRose LLP, and Pillsbury Winthrop Shaw Pittman LLP.