Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether the master franchise agreement (MFA) gave Aroma Israel/Aroma Franchise an enforceable exclusive right to supply coffee, and whether Aroma Canada’s switch to alternative suppliers violated that agreement.
• Central contest about the franchisor’s duty of fair dealing and good faith under s. 3 of the Arthur Wishart Act in exercising the powerful contractual right to terminate the MFA.
• Competing factual narratives about who caused Aroma Canada’s sustained unprofitability, including allegations of profit being siphoned through royalties, franchise fees, and high-margin product supply.
• Challenges to the international arbitral awards based on alleged procedural unfairness (the “proper party” finding about Earl Gorman), excess of jurisdiction, and an asserted failure to provide a properly reasoned award.
• Appellate-level scrutiny of the limits of court intervention under Article 34 of the UNCITRAL Model Law in international commercial arbitration, especially on jurisdiction, adequacy of reasons, and procedural defects.
• Ongoing debate about the proper remedy for a discrete procedural fairness breach and whether it justifies setting aside otherwise comprehensive arbitral awards or ordering a full re-arbitration.

Background and commercial franchise structure
The Aroma Espresso Bar business originated in Israel, with Aroma Espresso Bar Ltd. (“Aroma Israel”) as the ultimate parent of a group that included Aroma USA, Inc. and Aroma Franchise Company, Inc. In August 2007, Aroma USA entered into a master franchise agreement (MFA) with Aroma Espresso Bar Canada Inc. (“Aroma Canada”), later assigning its rights to Aroma Franchise Company, Inc. Under this MFA, Aroma Canada became the master franchisee for Aroma Espresso Bar locations in Canada. At the time of the MFA, Aroma USA held 22.5% of Aroma Canada’s shares, while Shalva Investments Limited, controlled by Earl Gorman, held 67.5%, and 6605702 Canada Inc., owned by Anat Davidzon, held 10%. Over time, Aroma Canada grew to over 45 locations but consistently operated at a loss.

The master franchise agreement and key contractual and statutory duties
The MFA governed the parties’ rights and obligations, including supply arrangements, termination rights, and dispute resolution. One of the core contractual controversies was whether the MFA granted Aroma Israel (through the franchisor entities) an exclusive right to supply coffee to the Canadian system or whether supply could be changed under the contract’s terms. A key clause, s. 17.4.2, required the arbitrator to “strictly enforce the terms” of the MFA and not “limit, expand or otherwise modify” them, which later became central to the franchisor’s jurisdictional arguments in court. Another important provision, s. 14.2 of the MFA, granted the franchisor a broad termination-on-breach right. Statutorily, the relationship was framed by s. 3 of the Arthur Wishart Act (Franchise Disclosure), 2000, which imposes a duty of fair dealing and good faith in the performance and enforcement of franchise agreements. This duty constrained how the franchisor could wield the powerful termination right, requiring that enforcement be fair, honest, and commercially reasonable, not arbitrary or abusive.

Breakdown of the relationship and termination of the MFA
By 2018, Aroma Canada remained unprofitable, prompting management changes and the use of consultants to attempt a turnaround. The Canadian entity argued that its profitability was undermined by high royalties, franchise fees, and significant profit margins on goods supplied by Aroma Israel, particularly coffee. In early 2019, Aroma Canada proposed an alternative coffee supplier, estimating substantial cost savings, but it perceived the franchisor group as unresponsive. In March 2019, Aroma Canada cancelled all coffee supply orders from Aroma Israel, a move the franchisor regarded as a clear contractual breach. On April 16, 2019, Aroma Franchise issued a notice of pending termination, premised on the allegation that Aroma Canada was not permitted to switch coffee suppliers without approval, and also citing alleged breaches of confidentiality and improper disclosure of third-party agreements. Aroma Canada disputed both the purported breaches and the right to terminate, delivering a notice of request to arbitrate on May 8, 2019. By June 2019, Aroma Canada ceased operations, and the central dispute became whether Aroma Canada or Aroma Franchise had breached the MFA, whether the MFA had been wrongfully terminated, and whether any oppressive conduct arose in the corporate/franchise context.

The arbitration proceedings and arbitral awards
The arbitration before P. David McCutcheon was extensive: multiple revised pleadings, numerous case conferences, pre-hearing motions, voluminous documentary production, examinations for discovery, four weeks of viva voce evidence (largely cross-examination on affidavit and expert evidence), lengthy written closing submissions by both sides, oral closings, and supplemental submissions at the arbitrator’s request. The arbitrator identified the core issues as the proper interpretation of the MFA and the parties’ obligations under both contract and statute, with the key legal question focused on whether Aroma Israel had an enforceable exclusive right to supply coffee in Canada or whether the supply could be changed under the MFA. In a detailed Final Award spanning 329 paragraphs, the arbitrator held that Aroma Franchise’s termination of the MFA was wrongful and contrary to its contractual and statutory duties of good faith and fair dealing. The termination clause in s. 14.2 was interpreted in light of the Wishart Act’s fair-dealing requirement, leading the arbitrator to conclude that the franchisor had exercised a powerful contractual right in an arbitrary and bad-faith manner, driven in part by an interest in protecting its own profitable coffee supply business and taking over the Canadian system. The arbitrator found that while cancelling coffee orders constituted a contractual issue, it did not amount to a fundamental breach justifying such a drastic termination in the specific context, especially given Aroma Israel’s own failures to engage constructively on supply-chain reforms and the financial distress of the Canadian operations. He also rejected claims of oppression by either side and concluded that there were no extraordinary circumstances warranting piercing the corporate veil to impose personal liability on Earl Gorman; in that context, he added the controversial comment that Gorman was “not a proper party” to the arbitration.

Damages, interest and costs in the arbitral forum
On liability, the arbitrator determined that Aroma Canada had been wrongfully deprived of its franchise system. He awarded $10,000,000 in compensatory damages and an additional $200,000 in statutory bad-faith damages in favour of Aroma Canada, reflecting a “but for” lost-profits model with adjustments to the expert evidence presented by the Canadian side. At the same time, Aroma Franchise succeeded in part on its own claims, notably in recovering certain unpaid royalties, although the precise amount of those royalties is not specified in the material provided. A subsequent Interest and Costs Award addressed pre- and post-award interest and allocation of legal costs, with the arbitrator expressly extending the time for issuing that award under the UNCITRAL Arbitration Rules and giving reasons for doing so. The exact total of interest and costs awarded in the arbitration, however, is not disclosed in the excerpts available.

Initial application to set aside the awards and the Steele J. decision
The franchisor group (Aroma Franchise Company, Inc., Shefa Franchises Ltd., Aroma Espresso Bar Ltd., Aroma USA, Inc., Yariv Shefa, Oshrat Katri and Aroma Global Ltd.) applied to the Ontario Superior Court (Commercial List) to set aside both the Final Award and the Interest and Costs Award under Article 34(2) of the UNCITRAL Model Law, as incorporated by Ontario’s International Commercial Arbitration Act, 2017. They advanced several grounds: reasonable apprehension of bias, jurisdictional error (alleged rewriting of the MFA contrary to s. 17.4.2), procedural unfairness concerning the “proper party” finding on Earl Gorman, and an alleged failure to provide a reasoned award. Justice Steele allowed the application in 2023, holding that a reasonable apprehension of bias justified setting aside the awards and ordering a new arbitration before a different arbitrator. While she expressed the view that the arbitrator had not exceeded his jurisdiction and had provided a reasoned award, she agreed that the “proper party” comment about Gorman, made without hearing submissions, breached procedural fairness. Her judgment focused on bias as the determinative ground, and she ordered that the arbitration be re-run.

The Court of Appeal’s intervention and remittal
The respondents (Aroma Canada, Shalva, 660, and Mr. Gorman) appealed. In 2024, the Ontario Court of Appeal overturned Justice Steele’s order, reinstating the arbitral awards. The appellate court disagreed with the conclusion that the arbitrator was affected by a reasonable apprehension of bias, emphasizing the need for deference to international arbitral tribunals and the narrow scope of review under Article 34 of the Model Law. However, the Court of Appeal acknowledged that other challenges to the awards—such as excess of jurisdiction, compensatory-damages limits, failure to decide a key issue, inadequate reasons, and the procedural fairness problem concerning the Gorman “proper party” finding—had not all been fully adjudicated below. It therefore remitted certain limited issues to the Superior Court: the consequences of the acknowledged procedural fairness breach about Gorman, and the unresolved complaints about failure to limit the award to compensatory damages and failure to decide a key issue, along with any other non-adjudicated issues. Crucially, the Court of Appeal reinstated the awards subject only to this narrow remittal, confirming that setting aside on bias grounds was not justified.

Dietrich J.’s 2026 decision on remitted issues
On remittal, Justice Dietrich was asked to decide whether the arbitral awards should nonetheless be set aside under Article 34(2)(a)(ii), (iii), or (iv) of the Model Law. The franchisor group argued that: (1) they had been unable to present their case on whether Mr. Gorman was a proper party to the arbitration; (2) the arbitrator exceeded his jurisdiction by effectively modifying the MFA instead of strictly enforcing it; and (3) the awards failed to provide adequate reasons as required by Article 31 of the Model Law and by the parties’ agreement. On the procedural fairness issue, Justice Dietrich agreed that the arbitrator’s statement that Mr. Gorman was “not a proper party” to the arbitration, made without submissions from either side, engaged Article 34(2)(a)(ii) because it deprived the applicants of the opportunity to address that point. However, she assessed whether this defect was material in context. Since the arbitrator had already found no oppression, no breach of the MFA or fair-dealing duties by the corporate respondents in a way that would ground personal liability, and no basis to pierce the corporate veil, Justice Dietrich concluded that the “proper party” remark was superfluous: Gorman could not be personally liable given the underlying findings, so his party status was no longer a live, outcome-determinative issue. Exercising the discretion built into Article 34, she held that while there was a breach of procedural fairness in form, it was not serious enough or sufficiently material to justify setting aside the awards or ordering a new arbitration.

Findings on jurisdiction and adequacy of reasons
On the jurisdictional ground under Article 34(2)(a)(iii), Justice Dietrich rejected the argument that the arbitrator had exceeded his mandate by “rewriting” the MFA. She emphasized that questions of true jurisdiction must be narrowly construed, particularly in the international arbitration context, and that courts are not permitted to re-hear the merits under the guise of jurisdictional review. Examining the award as a whole, she found that the arbitrator had undertaken a conventional exercise of contractual interpretation, informed by Sattva and related authorities, and had balanced the broad termination clause against the statutory duty of fair dealing. Disagreement with that interpretation did not transform it into a jurisdictional error. For adequacy of reasons under Article 34(2)(a)(iv) (read with Article 31), the applicants complained that the arbitrator had not quoted the MFA or disclosure documents at length, had not cited most of the vast evidentiary record, and had not referred to all authorities or arguments. Justice Dietrich reviewed the Final Award’s structure and content, noting that it identified the central issues, summarized the applicable law, canvassed the relevant contractual and statutory framework, provided extensive factual findings over many pages, analyzed the termination and good-faith issues, dealt with oppression and personal liability, and explained the damages reasoning, including the choice between competing expert models. She held that the Model Law does not require exhaustive citation of every piece of evidence or argument; the test is whether the reasons are intelligible, responsive to the live issues, and sufficient to show why the losing party lost and to permit meaningful review. That test was satisfied. Similarly, she found that the Interest and Costs Award contained adequate reasoning, including an explicit explanation for extending the time to issue an additional award under the UNCITRAL Arbitration Rules and for the way costs were handled, even if the applicants strongly disagreed with the result.

Final outcome and significance for the parties
Having found only one limited procedural fairness breach—concerning the un-argued “proper party” comment about Earl Gorman—and having concluded that it was non-material to the substantive outcome, Justice Dietrich exercised her discretion not to set aside either the Final Award or the Interest and Costs Award. The application to set aside the awards was dismissed, and the parties were invited to make short written submissions on costs of the court proceeding, meaning the specific amount of court-level costs had not yet been fixed as of the decision date. In practical terms, this sequence of decisions leaves the arbitral outcomes in place. Aroma Espresso Bar Canada Inc. and its co-respondents emerge as the successful side overall: the Final Award in their favour stands, including $10,000,000 in compensatory damages and $200,000 in statutory bad-faith damages, together with interest and costs awarded by the arbitrator, offset by an unspecified amount of unpaid royalties owing to the franchisor group. Because the exact figures for royalties, arbitral interest and arbitral costs, and any subsequent court-ordered costs are not specified in the materials available, the total net monetary amount ultimately realized by the successful party cannot be determined from this record.