The "Single Proceeding Model" Prevails In Ontario'At Least For This Case

• Published date: 29 September 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Arbitration & Dispute Resolution
• Law Firm: McCarthy Tétrault LLP
• Author: The International Arbitration Blog, Andrew Kalamut and Olivia Trojko

In Mundo Media Ltd. (Re),2022 ONCA 607, the Court of Appeal for Ontario (the "Court of Appeal") dismissed a motion for leave to appeal the motion judge's decision in Royal Bank of Canada v. Mundo Media Ltd.,2022 ONSC 2147. This decision addressed the tension between a contractual arbitration clause versus the "single proceeding model" under a receivership.

The Court of Appeal upheld the lower court's decision that the single proceeding model associated with insolvency proceeding prevailed over arbitration (which we commented on in our blog post here).

Why This Case Matters

The Court of Appeal's decision confirmed that the single proceeding model is a core principle of insolvency law, and intended to act as a shield to protect debtors from having to defend claims in multiple proceedings and jurisdiction. This may include proceedings that may otherwise be subject to arbitration agreements.¹

However, the Court of Appeal was clear that it will not always be the case that third parties with set-off defences or claims subject to arbitration will find themselves pulled into insolvency proceedings. The "'degree of connection of the claim to the insolvency proceedings'" is the determining factor.²

Canadian courts will typically respect arbitral agreements contractually agreed upon by the parties and stay court proceedings in favour of arbitration. However, where an arbitral proceeding overlaps with an insolvency proceeding, the reviewing Court will first need to consider the degree of the connection of the subject matter of the arbitration to the insolvency proceedings.

Background to the Leave to Appeal Application

SPay Inc. ("SPay"), a sports management technology company, had two agreements with Mundo Media Ltd ("Mundo"). One was a Management and Support Agreement (the "First Agreement"), and the second was a Publisher Agreement (the "Second Agreement"). Both agreements contained an arbitration clause that required disputes arising to be arbitrated in New York according to the JAMS Comprehensive Arbitration Rules & Procedures and applying New York Law.³

Mundo became insolvent and receivership proceedings were commenced in Ontario. Mundo's Receiver asserted that SPay owed Mundo $4.1 million under the First Agreement. This was Mundo's largest outstanding account receivable owing in the receivership.⁴ As part of its presumptive defence, SPay asserted a right of set-off relating to amounts owing to it by Mundo under the Second Agreement.

SPay also sought to stay the...