Why This Decision Matters

The grounds to set aside an international arbitral award under Article 34 UNCITRAL Model Law on International Arbitration of the Model Law, (the “Model Law”) are narrow. In addition, courts owe a high degree of deference to the awards of the arbitral tribunals.

Recently, the Ontario Superior Court of Justice in Aroma Franchise Company, Inc. et al v. Aroma Espresso Bar Canada Inc. et al demonstrated such restraint when it dismissed an application to set aside arbitration awards, despite finding that there was a breach of procedural fairness during the arbitration.

The Court’s DecisionBackground

Aroma USA, Inc. (the “Applicant”) and Aroma Espresso Bar Canada Inc. (the “Respondent”) entered into a master franchise agreement (“MFA”) in 2007. The dispute concerned unauthorized changes of coffee suppliers and termination rights under the MFA. The parties pursued arbitration and the arbitrator issued two international arbitral awards dated January 11, 2022 (the “Final Award”) and October 11, 2022 (the “Interest and Costs Award”). In the Final Award, the arbitrator found the MFA was wrongfully terminated and awarded the Respondent $10,000,000 in damages, plus $200,000 in statutory bad faith damages.

The Applicant successfully brought an application to set aside the awards on the basis that there was a reasonable apprehension of bias of the arbitrator. That decision was appealed, and the Ontario Court of Appeal overturned the order setting aside the awards. However, because the Applicant raised a number of other grounds attacking the awards (in addition to a reasonable apprehension of bias) that had not been fully adjudicated by the application judge, the Court of Appeal remitted those matters back to the Superior Court for determination. The Court of Appeal decision is described in our blog post.

Remitted Application

In the remitted application, the Applicant advanced three grounds under Article 34 of the Model Law to set aside the international arbitral awards.

Ground 1: Article 34, s. (2)(a)(ii) - Party Unable to Present its Case

Article 34, s. 2(a)(ii) applies where the party making the application was unable to present its case. At the time the MFA was executed, a majority of the Respondent’s shares were held by Shalva Investment Limited, a corporation controlled by Mr. Gorman, who later became the Respondent’s interim managing partner. In the Final Award, the arbitrator stated that Mr. Gorman was not a proper party to the arbitration, a point on which neither party had made submissions. The Court held that this amounted to a breach of procedural fairness falling within Article 34, s. 2(a)(ii). However, the Court declined to set aside the award on this ground.

The Court acknowledged that not permitting a party to make submissions on an issue is a serious breach of procedural fairness. However, when putting the breach into the context of the matters at issue and the decision as a whole, the  Court concluded it was immaterial to the ultimate determination of the issues. The arbitrator had made a separate finding that there were no extraordinary circumstances to pierce the corporate veil and thus it was not possible for Mr. Gorman to have had personal liability. Therefore, when put into context, a finding that Mr. Gorman was not a proper party to the arbitration was superfluous to the decision.

Ground 2: Article 34, s. (2)(a)(iii) - Award Addresses Issues Outside the Scope of the Arbitration

Article 34, s. 2(a)(iii) applies when the award addresses a dispute not falling within, or contains decisions on matters beyond, the scope of the submission to arbitration. The Applicant argued the arbitrator exceeded his jurisdiction by “modifying”, rather than interpreting, the MFA which was contrary to clause 17.4.2 of the MFA requiring strict enforcement. The Applicant alleged that the arbitrator ignored contractual terms and rewrote the MFA by concluding the MFA was wrongfully terminated despite finding that the Respondent had breached the MFA in cancelling coffee supply orders.

The Court rejected the argument. No true jurisdictional error was established. While the Applicant disagreed with the arbitrator’s interpretation of the MFA, the Court was satisfied that the arbitrator undertook a contractual interpretation and fact-finding exercise to interpret the MFA.

Ground 3: Article 34, s.(2)(a)(iv) - Arbitral Procedure not in Accordance with Agreement

Article 34, s. 2(a)(iv) applies when the arbitral procedure is not in accordance with the agreement of the parties. The Applicant alleged that the awards lacked sufficient reasons  required to provide pursuant to the MFA and under Article 31 of the Model Law.

The Court found that the Final Award was responsive to the issues and provided a basis for meaningful appellate review. The Court rejected the Applicant’s argument that the arbitrator’s failure to deal with one specific argument amounted to insufficient reasons and warned against “back door” challenges to the merits of the decision.

With respect to the Interest and Cost Award, the Court found no basis to intervene. Delivering the Cost Award after the deadline provided for by the rules did not amount to insufficient reasons as the arbitrator expressly extended the time-limit and provided his reasons for doing so.

Concluding Thoughts - Deference and Discretion

The decision in Aroma is a reminder of the strong deference given to international arbitration awards. Parties seeking to set aside awards must frame their claims within the narrow grounds of Article 34 of the Model Law. Even where such grounds are met, the Court may, in its discretion, decline to set aside the award where the breach did not have an impact on the outcome.

Case Information

Aroma Franchise Company, Inc. et al v. Aroma Espresso Bar Canada Inc. et al, 2026 ONSC 768

Docket: CV-22-00689891-00CL

Date of Decision: February 9, 2026