{"id":40869,"date":"2025-11-05T11:14:27","date_gmt":"2025-11-05T16:14:27","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=40869"},"modified":"2025-11-05T11:14:32","modified_gmt":"2025-11-05T16:14:32","slug":"is-your-arbitration-agreement-enforceable-in-a-crisis-a-post-petrowest-guide-for-business-leaders","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/commercial-litigation\/is-your-arbitration-agreement-enforceable-in-a-crisis-a-post-petrowest-guide-for-business-leaders\/","title":{"rendered":"Is your arbitration agreement enforceable in a crisis? A post-Petrowest<\/i> guide for business leaders"},"content":{"rendered":"\n

When the Supreme Court of Canada released its landmark decision Peace River Hydro Partners v. Petrowest Corp<\/em>., 2022 SCC 41 (\u201cPetrowest<\/em><\/strong>\u201d),[1]<\/sup><\/a> the court had to make a determination as to the priority of two competing principles: the efficiency of insolvency proceedings and the autonomy of contracting parties to arbitrate disputes. Three years later, the pendulum keeps swinging in favour of efficiency over contractual autonomy. Recent cases show courts increasingly willing to stretch Petrowest<\/em>, not only across provincial arbitration acts but even into proceedings under the Companies\u2019 Creditors Arrangement Act<\/em>, RSC, 1985, c. C-36 (the \u201cCCAA<\/strong>\u201d). <\/p>\n\n\n\n

For in-house counsel and business leaders, understanding this evolving landscape is critical. This article cuts through the complexity, analyzing recent rulings to give you a practical playbook. Discover how courts are now applying Petrowest<\/em> as both a sword and a shield, <\/s> and learn the key factors that determine if your arbitration agreement will hold up when it matters most.<\/p>\n\n\n\n

Petrowest revisited: From landmark case to legal toolbox<\/h2>\n\n\n\n

Petrowest Corp., an Alberta-based construction company, was contracted by Peace River Hydro Partners (\u201cPRHP<\/strong>\u201d) to complete construction work on a hydroelectric project in British Columbia. The parties\u2019 agreement contained various arbitration clauses requiring that disputes between them would be resolved through arbitration pursuant to British Columbia\u2019s Arbitration Act<\/em>, RSBC 1996, c. 55. (the \u201cArbitration Act<\/em><\/strong>\u201d). <\/p>\n\n\n\n

Petrowest Corp. entered financial difficulty and was ordered into receivership pursuant to section 243 of the Bankruptcy and Insolvency Act<\/em> (the \u201cBIA<\/strong>\u201d). In the BIA proceedings, the receiver of Petrowest Corp. brought a civil action against PRHP for amounts they allegedly owed. PRHP sought to stay the civil proceedings under section 15 of the Arbitration Act, which requires courts to stay legal proceedings that are otherwise covered under an arbitration agreement unless they determine such agreements are \u201cvoid, inoperable or incapable of being performed\u201d.[2]<\/sup><\/a> In this sense, the receiver sought to use the BIA as a sword to pursue the civil claim against PRHP\u2014 something that would not have been possible outside of the insolvency context. <\/p>\n\n\n\n

The Supreme Court of Canada was tasked with resolving the conflict between the mandatory stay of the Arbitration Act<\/em> and the single proceeding model foundational to the BIA.<\/p>\n\n\n\n

In a November 2022 article, Miller Thomson weighed in on the Petrowest<\/em> decision after its release. With the decision came hope that the technical prerequisites[3]<\/sup><\/a> and legal test[4]<\/sup><\/a> set out by the court would provide much-needed<\/p>\n\n\n\n

clarity around when courts will decline to uphold arbitration agreements in insolvency proceedings. The decision also raised questions regarding how the Petrowest<\/em> framework would apply under other provinces\u2019 arbitration acts or in debtor-led (as opposed to court-officer led) proceedings.[5]<\/sup><\/a> Nearly three years after Petrowest<\/em>, these are questions worth revisiting through a survey of recent case law.<\/p>\n\n\n\n

Can receivers use the BIA to override arbitration clauses? Lessons from Alberta\u2019s Mayfield<\/em> case<\/h2>\n\n\n\n

The Supreme Court in Petrowest<\/em> avoided having to engage in a paramountcy analysis by relying on the word \u201cinoperative\u201d in section 15 of the Arbitration Act<\/em>, which allowed the court to uphold the single proceeding model of the BIA while still complying with the Arbitration Act<\/em>. However, other jurisdictions\u2019 comparable arbitration acts lack the same broad language of the Arbitration Act<\/em> to exempt stays in cases where arbitration agreements are \u201cvoid, inoperative or incapable of being performed\u201d.[6]<\/sup><\/a> In Alberta and Ontario, for example, their arbitration acts only permit a judge to decline a stay where the agreement is \u201cinvalid\u201d.[7]<\/sup><\/a><\/p>\n\n\n\n

For instance, this discrepancy between the language of provincial arbitration legislation was recently addressed in Mayfield Investments Ltd (Re),<\/em> 2025 ABKB 326 (\u201cMayfield<\/em><\/strong>\u201d)[8]<\/sup><\/a>. While the receiver in Petrowest<\/em> used the BIA as a sword to bring civil claims otherwise subject to arbitration to within the BIA proceedings, the receiver in Mayfield<\/em> sought to use the BIA as a shield to stay arbitration pursued in claims made against Mayfield Investments Ltd. The receiver sought a stay on the grounds that the arbitration agreement made between parties was invalid for similar reasons to those the court cited in Petrowest<\/em>.[9]<\/sup><\/a>\u00a0<\/p>\n\n\n\n

The court in Mayfield <\/em>disagreed, holding that the arbitration agreement was valid. In doing so, the court noted that the language of Alberta\u2019s Arbitration Act<\/em> was more restrictive than the equivalent BC statute as it does not contain an exception for agreements made \u201cinoperative or incapable of being performed\u201d, being the exclusion relied upon in Petrowest<\/em>.[10]<\/sup><\/a> Yet, despite the validity of the arbitration agreement, for policy reasons highlighted in Petrowest<\/em>, the arbitration was stayed to allow for a sales and investment solicitation process (SISP) and to avoid the inefficiency of overlapping arbitrations.[11]<\/sup><\/a> Thus, while the court reached the same result, the decision rejected the argument that insolvency proceedings automatically<\/em> render arbitration agreements invalid. In distinguishing itself from Petrowest<\/em>, Mayfield<\/em> highlighted that a court\u2019s decision to set aside an arbitration agreement in the insolvency context will likely turn on the specific facts of the matter, with regard for whether the arbitration agreement would in fact cause inefficiencies.<\/p>\n\n\n\n

Beyond arbitration: applying Petrowest <\/em>to broader contractual disputes<\/h2>\n\n\n\n

In Mayfield,<\/em> the Receiver used the Petrowest<\/em> principles as a shield to stay the arbitration proceedings sought, and to bring the action within the BIA proceedings. Earlier in the same year, the Court of Appeal of Alberta heard the case of Export Development Corporation v MNP Ltd<\/em>, 2025 ABCA 25 (\u201cExport<\/em><\/strong>\u201d), a case that applied Petrowest<\/em> principles as a \u201csword\u201d in a receiverdriven BIA proceeding outside the context of arbitration agreements. <\/p>\n\n\n\n

In Export, <\/em>the primary asset of the debtor company was \u201cthe possibility that it could successfully dispute the appellant\u2019s rejection of its insurance claims\u201d.[12]<\/sup><\/a> The court was asked to determine whether the receiver should be able to sell these rejected claims to an affiliated party.[13]<\/sup><\/a> The insurer opposed on the basis that the insurance contract required their consent to be assigned to any party other than the debtor company and thus claims relating to it could not be sold as part of the BIA proceedings.<\/p>\n\n\n\n

Relying on Petrowest<\/em>, the court interpreted section 243(1) of the BIA as granting courts authority to authorize receivers to override contractual requirements.[14]<\/sup><\/a> This includes discharging onerous contracts[15]<\/sup><\/a> and acting “as the court considers advisable” to preserve and realize the debtor’s assets for creditors.The court further held that sections 243 and 183 provide a statutory basis for declaring arbitration agreements inoperative, and declining to enforce them, <\/s>\u00a0in certain circumstances.[16]<\/sup><\/a><\/p>\n\n\n\n

The court then analogously applied Petrowest<\/em> criteria\u2014the need to balance autonomy and freedom of contract with an orderly and equitable distribution of the debtor\u2019s assets, the prejudicial impact to parties enforcing or overriding the contractual provision, and \u201cany other factor the court considers material\u201d[17]<\/sup><\/a>\u2014 to permit the court to override the consent requirement in the insurance contract.[18]<\/sup><\/a>  <\/p>\n\n\n\n

Accordingly, the court allowed the receiver to sell the rejected insurance claims, noting that the \u201cassignment of the insurance claim does not alter the risk born by the [insurer]\u201d and that the insurer\u2019s concerns did not outweigh potential prejudice to the creditors or the burden that would arise by requiring the receiver to litigate the insurance claims on behalf of the debtor.[19]<\/sup><\/a> <\/p>\n\n\n\n

Export<\/em> indicates that courts are willing to apply Petrowest<\/em> to disputes unrelated to arbitration agreements to bring them within the umbrella of the insolvency proceeding. <\/p>\n\n\n\n

Petrowest<\/em> applied to debtor-led CCAA proceedings<\/h2>\n\n\n\n

Can debtors bring arbitration disputes into creditor-led proceedings? The Mercy Falls<\/em> decision<\/h3>\n\n\n\n

On September 8, 2025, Justice Basran of the Supreme Court of British Columbia granted an order bringing a contractual dispute, otherwise subject to an arbitration clause, to within the CCAA proceedings of Mercy Falls BC Inc.  <\/p>\n\n\n\n

In Mercy Falls BC Inc. (Re)<\/em>, 2025 BCSC 1960 (\u201cMercy Falls<\/em><\/strong>\u201d)[20]<\/strong><\/a><\/em>, the primary asset of Mercy Falls BC Inc. (the \u201cCompany<\/strong>\u201d) was the contract claim it had against a film studio (the \u201cStudio<\/strong>\u201d), which had allegedly failed to advance approximately $9,000,000 in agreedupon funding for a film production.[21]<\/sup><\/a> The production services agreement between the parties included a clause by which the parties agreed that \u201cany controversy arising out of or related to this Agreement or any breach thereof shall be settled by arbitration\u2026\u201d. The Studio opposed bringing the contractual dispute into the CCAA proceeding, on the basis that it would be an \u201cimprovident use of the court\u2019s resources and the parties\u2019 time\u201d.[22]<\/sup><\/a> The Studio failed to attend subsequent application hearings, following withdrawal of its counsel.<\/p>\n\n\n\n

In its argument, the Company argued for a condensed litigation schedule on three grounds:<\/p>\n\n\n\n

    \n
  1. The Studio had attorned to the jurisdiction of the CCAA by participating in the comeback hearing on May 26, 2025, where the Company sought, among other things, to extend the original stay period to resolve the contract claim with the Studio. The Company argued the Studio\u2019s participation in the hearing, including filing an application in opposition to the relief sought, precluded it from taking the position that the claim must be determined by way of arbitration;[23]<\/sup><\/a>\u00a0<\/li>\n\n\n\n
  2. The court had jurisdiction under section 11 of the CCAA to find the contract\u2019s mandatory arbitration clause inoperative, as arbitration would compromise the remedial objectives of the CCAA and the single proceeding model;[24]<\/sup><\/a> and<\/li>\n\n\n\n
  3. During previous interim proceedings where the Studio was represented and made submissions, the court stated it would be appropriate to use the CCAA as an expedited litigation mechanism.[25]<\/sup><\/a><\/li>\n<\/ol>\n\n\n\n

    Regarding the second ground, the Company argued that permitting the arbitration would undermine the goals of the CCAA by giving the Studio additional time to delay, given the uncertain timeline of their arbitration agreement.[26]<\/sup><\/a><\/p>\n\n\n\n

    In deciding whether to bring the contract claim within the CCAA proceeding, Justice Basran began by acknowledging the \u201cbroad discretionary power\u201d that section 11 of the CCAA provides.[27]<\/sup><\/a> He cited Alderbridge Way GP Ltd. (Re),<\/em> 2023 BCSC 1718[28]<\/sup><\/a> as authority for the proposition that an order is appropriate where it advances the remedial objectives of the CCAA.[29]<\/sup><\/a> On this basis, section 11 of the CCAA gives the court authority to bring claims into CCAA proceedings where doing so assists with the restructuring process and furthers the purposes of the statute.[30]<\/sup><\/a><\/p>\n\n\n\n

    Justice Basran then cited Petrowest<\/em>[31]<\/sup><\/a> for the position that \u201cin some circumstances, a court may find an arbitration agreement inoperative in the insolvency context\u201d.[32]<\/sup><\/a> He then set out the 5 Petrowest<\/em> factors:[33]<\/sup><\/a><\/p>\n\n\n\n

      \n
    1. The effect of arbitration on the integrity of the insolvency proceeds, in particular whether an arbitral process would compromise the orderly and expeditious administration of the debtor’s property.<\/s>;<\/li>\n\n\n\n
    2. the relative prejudice to the parties from the referral of the dispute to arbitration.<\/s>;<\/li>\n\n\n\n
    3. the urgency of resolving the dispute, as the court should generally prefer the more expeditious procedure.<\/s>;<\/li>\n\n\n\n
    4. the applicability of a stay of proceedings under bankruptcy or insolvency law.<\/s>; and 5. any other factor the court considers material in the circumstances.<\/li>\n<\/ol>\n\n\n\n

      Without addressing each factor individually, Justice Basran proceeded to consider the relief sought in the context of the Petrowest<\/em> framework. He noted that while arbitration can sometimes be more efficient, in the circumstances, an expedited litigation schedule better served the objectives of the CCAA.[34]<\/sup><\/a> Leaving the contract dispute to be resolved through arbitration would likely delay the matter due to lack of judicial supervision over the process, [35]<\/sup><\/a> and, in this case, the claim was not one that required \u201cany specialized knowledge or experience\u201d of an arbitrator.[36]<\/sup><\/a> <\/p>\n\n\n\n

      Justice Basran cited the Studio\u2019s non-participation in the proceeding as a primary consideration when applying the Petrowest<\/em> factors. He noted that effective arbitration requires some cooperation between parties and that a lack of participation could cause the arbitration to take longer than a determination within the CCAA proceeding. This delay could, in turn, be prejudicial to the Company and its unsecured creditors. Justice Basran acknowledged that the litigation schedule proposed by the Company was aggressive, but was satisfied it was reasonable and achievable in the context of a straightforward breach of contract claim.[37]<\/sup><\/a><\/p>\n\n\n\n

      For these reasons, Justice Basran granted the Order to bring the claim to within the CCAA proceeding, to be heard on an expedited litigation schedule.[38]<\/sup><\/a> <\/p>\n\n\n\n

      Notably, in the decision, Justice Basran did not expressly declare the arbitration provision inoperative in the CCAA context, only noting that a court \u201cmay\u201d do so.[39]<\/sup><\/a> Instead, his decision centered on:<\/p>\n\n\n\n