The Supreme Court Of Canada Rules On Intersection Of Insolvency And Arbitration Law

• Published date: 14 November 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Arbitration & Dispute Resolution
• Law Firm: Bennett Jones LLP
• Author: Mr Kelsey Meyer, Ciara Mackey and Adam Williams

On November 10, 2022, the Supreme Court of Canada (SCC) issued its much-anticipated decision in Peace River Hydro Partners v Petrowest Corp, 2022 SCC 41, addressing a key intersection of insolvency and arbitration law'whether and in what circumstances a contractual agreement to arbitrate should give way to the public interest in the orderly and efficient resolution of a court-ordered receivership. The nine-member SCC panel unanimously determined (with concurring reasons) that, in this case, it must, and dismissed the appeal with costs to the Receiver.

The decision clarifies the law on when mandatory arbitration clauses will be enforced in the context of insolvency proceedings, and is important for parties to commercial contracts, insolvency practitioners and the arbitration practice generally. As noted by the SCC, it is "not unusual now for a commercial party to find itself in a dispute governed by an arbitration agreement with an insolvent or bankrupt counterparty."

Key Takeaways

• The SCC unanimously agreed that superior courts across Canada have statutory jurisdiction pursuant to the Bankruptcy and Insolvency Act, RSC 1985 c B-3, as amended [BIA] to declare an otherwise valid arbitration agreement inoperative, and to dismiss an application for a stay of court proceedings, if enforcing the arbitration agreement would compromise the orderly and efficient resolution of insolvency proceedings, including a court-ordered receivership. There is no conflict between the provincial arbitration legislation in issue and the federal BIA giving rise to paramountcy concerns.
• The SCC outlined a non-exhaustive list of factors that may be relevant in determining whether a particular arbitration agreement is inoperative in the context of insolvency proceedings.
• In this case, the court-appointed receiver established that the arbitration agreements were inoperative because multiple arbitral processes would compromise the orderly and efficient resolution of the receivership, contrary to the objectives of the BIA.
• In the insolvency context, the single proceeding model favours enforcement of stakeholder rights through a centralized judicial process and promotes the clear "public interest in the expeditious, efficient and economical clean-up of the aftermath of a financial collapse" (Sam Lévy &amp Associés Inc v Azco Mining Inc, 2001 SCC 92).
• The SCC was split on the issue of whether a receiver may also unilaterally disclaim an arbitration agreement, thereby rendering it void, inoperative or incapable of being performed. A four-justice minority decision (concurring...