Is Your Arbitration Agreement Enforceable In A Crisis? A Post-Petrowest Guide For Business Leaders

When the Supreme Court of Canada released its landmark decision Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 ("Petrowest"),¹ 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, not only across provincial arbitration acts but even into proceedings under the Companies' Creditors Arrangement Act, RSC, 1985, c. C-36 (the "CCAA").

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 as both a sword and a shield, and learn the key factors that determine if your arbitration agreement will hold up when it matters most.

Petrowest revisited: From landmark case to legal toolbox

Petrowest Corp., an Alberta-based construction company, was contracted by Peace River Hydro Partners ("PRHP") to complete construction work on a hydroelectric project in British Columbia. The parties' agreement contained various arbitration clauses requiring that disputes between them would be resolved through arbitration pursuant to British Columbia's Arbitration Act, RSBC 1996, c. 55. (the "Arbitration Act").

Petrowest Corp. entered financial difficulty and was ordered into receivership pursuant to section 243 of the Bankruptcy and Insolvency Act (the "BIA"). 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 "void, inoperable or incapable of being performed".² In this sense, the receiver sought to use the BIA as a sword to pursue the civil claim against PRHP— something that would not have been possible outside of the insolvency context.

The Supreme Court of Canada was tasked with resolving the conflict between the mandatory stay of the Arbitration Act and the single proceeding model foundational to the BIA.

In a November 2022 article, Miller Thomson weighed in on the Petrowest decision after its release. With the decision came hope that the technical prerequisites³ and legal test⁴ set out by the court would provide much-needed

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

Can receivers use the BIA to override arbitration clauses? Lessons from Alberta's Mayfield case

The Supreme Court in Petrowest avoided having to engage in a paramountcy analysis by relying on the word "inoperative" in section 15 of the Arbitration Act, which allowed the court to uphold the single proceeding model of the BIA while still complying with the Arbitration Act. However, other jurisdictions' comparable arbitration acts lack the same broad language of the Arbitration Act to exempt stays in cases where arbitration agreements are "void, inoperative or incapable of being performed".⁶ In Alberta and Ontario, for example, their arbitration acts only permit a judge to decline a stay where the agreement is "invalid".⁷

For instance, this discrepancy between the language of provincial arbitration legislation was recently addressed in Mayfield Investments Ltd (Re), 2025 ABKB 326 ("Mayfield")⁸. While the receiver in Petrowest used the BIA as a sword to bring civil claims otherwise subject to arbitration to within the BIA proceedings, the receiver in Mayfield 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.⁹

The court in Mayfield disagreed, holding that the arbitration agreement was valid. In doing so, the court noted that the language of Alberta's Arbitration Act was more restrictive than the equivalent BC statute as it does not contain an exception for agreements made "inoperative or incapable of being performed", being the exclusion relied upon in Petrowest.¹⁰ Yet, despite the validity of the arbitration agreement, for policy reasons highlighted in Petrowest, the arbitration was stayed to allow for a sales and investment solicitation process (SISP) and to avoid the inefficiency of overlapping arbitrations.¹¹ Thus, while the court reached the same result, the decision rejected the argument that insolvency proceedings automatically render arbitration agreements invalid. In distinguishing itself from Petrowest, Mayfield highlighted that a court's 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.

Beyond arbitration: applying Petrowest to broader contractual disputes

In Mayfield, the Receiver used the Petrowest 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, 2025 ABCA 25 ("Export"), a case that applied Petrowest principles as a "sword" in a receiver driven BIA proceeding outside the context of arbitration agreements.

In Export, the primary asset of the debtor company was "the possibility that it could successfully dispute the appellant's rejection of its insurance claims".¹² The court was asked to determine whether the receiver should be able to sell these rejected claims to an affiliated party.¹³ 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.

Relying on Petrowest, the court interpreted section 243(1) of the BIA as granting courts authority to authorize receivers to override contractual requirements.¹⁴ This includes discharging onerous contracts¹⁵ 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, in certain circumstances.¹⁶

The court then analogously applied Petrowest criteria—the need to balance autonomy and freedom of contract with an orderly and equitable distribution of the debtor's assets, the prejudicial impact to parties enforcing or overriding the contractual provision, and "any other factor the court considers material"¹⁷ — to permit the court to override the consent requirement in the insurance contract.¹⁸

Accordingly, the court allowed the receiver to sell the rejected insurance claims, noting that the "assignment of the insurance claim does not alter the risk born by the [insurer]" and that the insurer's 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

Export indicates that courts are willing to apply Petrowest to disputes unrelated to arbitration agreements to bring them within the umbrella of the insolvency proceeding.

Petrowest applied to debtor-led CCAA proceedings

Can debtors bring arbitration disputes into creditor-led proceedings? The Mercy Falls decision

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.

In Mercy Falls BC Inc. (Re), 2025 BCSC 1960 ("Mercy Falls")²⁰, the primary asset of Mercy Falls BC Inc. (the "Company") was the contract claim it had against a film studio (the "Studio"), which had allegedly failed to advance approximately $9,000,000 in agreedupon funding for a film production.²¹ The production services agreement between the parties included a clause by which the parties agreed that "any controversy arising out of or related to this Agreement or any breach thereof shall be settled by arbitration...". The Studio opposed bringing the contractual dispute into the CCAA proceeding, on the basis that it would be an "improvident use of the court's resources and the parties' time".²² The Studio failed to attend subsequent application hearings, following withdrawal of its counsel.

In its argument, the Company argued for a condensed litigation schedule on three grounds:

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's 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
2. The court had jurisdiction under section 11 of the CCAA to find the contract's mandatory arbitration clause inoperative, as arbitration would compromise the remedial objectives of the CCAA and the single proceeding model;²⁴and
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

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

In deciding whether to bring the contract claim within the CCAA proceeding, Justice Basran began by acknowledging the "broad discretionary power" that section 11 of the CCAA provides.²⁷ He cited Alderbridge Way GP Ltd. (Re), 2023 BCSC 1718²⁸ as authority for the proposition that an order is appropriate where it advances the remedial objectives of the CCAA.²⁹ 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

Justice Basran then cited Petrowest³¹ for the position that "in some circumstances, a court may find an arbitration agreement inoperative in the insolvency context".³² He then set out the 5Petrowestfactors:³³

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.;
2. the relative prejudice to the parties from the referral of the dispute to arbitration.;
3. the urgency of resolving the dispute, as the court should generally prefer the more expeditious procedure.;
4. the applicability of a stay of proceedings under bankruptcy or insolvency law.; and 5. any other factor the court considers material in the circumstances.

Without addressing each factor individually, Justice Basran proceeded to consider the relief sought in the context of the Petrowest 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 Leaving the contract dispute to be resolved through arbitration would likely delay the matter due to lack of judicial supervision over the process,³⁵ and, in this case, the claim was not one that required "any specialized knowledge or experience" of an arbitrator.³⁶

Justice Basran cited the Studio's non-participation in the proceeding as a primary consideration when applying the Petrowest 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

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

Notably, in the decision, Justice Basran did not expressly declare the arbitration provision inoperative in the CCAA context, only noting that a court "may" do so.³⁹ Instead, his decision centered on:

• the lack of participation of a party to the arbitration agreement;
• the resulting need for court oversight; and
• the relative merits of a potential arbitration versus the proposed litigation schedule viewed through the lens of the Petrowest factors.

Mercy Falls serves as another example of courts exercising their authority to bring contractual disputes that are otherwise governed by arbitration provisions or agreements to fall within insolvency proceedings. The decision makes clear that Petrowest principles may also be applied to creditor-led, CCAA proceedings.

Key takeaways: What Petrowest means for arbitration and insolvency in 2025

• Courts are increasingly willing to apply the Petrowest principles across other jurisdictions, to CCAA proceedings, and to contractual disputes outside of arbitration agreements.
• Using Petrowest to bring contract-related claims within an insolvency proceeding can be used as both a "sword" or a "shield", depending on the circumstances.
• In determining whether to override an arbitration clause, a court may consider the specifics of the contemplated arbitration and any alternative proposed.

Nearly three years after Petrowest, courts continue to define the boundaries where insolvency law interacts with private contracts. The recent Mayfield, Export, and Mercy Falls decisions demonstrate a growing judicial willingness to prioritize insolvency efficiency over contractual autonomy—whether in relation to arbitration or assignment. For businesses, lenders, and insolvency professionals, the takeaway is simple: contractual certainty ends where insolvency begins. Understanding how courts may apply Petrowest can mean the difference between preserving your contractual rights and losing strategic control of a dispute.

Don't let your dispute resolution clauses become a liability in insolvency. Spark a conversation with Miller Thomson's Restructuring and Insolvency Group to assess your exposure and develop a proactive strategy before proceedings begin.

Q&A

Q: What was the main holding in the Petrowest case?

A: The Supreme Court of Canada held that an arbitration agreement can be found "inoperative" under provincial law if enforcing it would undermine the core principles of orderly and efficient insolvency proceedings under the Bankruptcy and Insolvency Act.

Q: Does insolvency automatically void arbitration agreements?

A: No. As confirmed in Mayfield, insolvency does not automatically invalidate arbitration agreements. Courts use a flexible, multi-factor test to determine whether upholding the clause would be impractical or cause undue inefficiency.

Q: Can Petrowest apply to non-arbitration contracts?

A: Yes. As Export Development Corporation v. MNP Ltd. shows, courts may extend Petrowest principles to override other contractual barriers that hinder the realization of debtor assets.

Footnotes

1. Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41 ["Petrowest"].

2. Arbitration Act, at s 15.

3. Petrowest, at para 83.

4. Ibid, at para 155.

5. Peace River Hydro Partners v Petrowest Corp: Opening the Floodgates for Forum Selection Clauses, or a Meandering Return to the Headwaters of the "Single-Control Doctrine" (2023) CanLIIDocs 3085 at pp. 13-4.

6. See for example Alberta's Arbitration Act, RSA 2000 c A-43, s 7(2) and Ontario's Arbitration Act, 1991 SC c 17, s 7(2).

7. Ibid.

8. Mayfield Investments Ltd (Re),2025 ABKB 326 ["Mayfield"].

9. Ibid, at para 49.

10. Ibid, at para 50.

11. Ibid, at paras 48, 57.

12. Export Development Corporation v MNP Ltd, 2025 ABCA 25 ["Export"], at para 3.

13. Ibid, at para 5.

14. Ibid, at para 10.

15. Ibid, at para 11, citing Petrowest, supra note 1, at paras 58, 148

16. Ibid, at para 13, citing Petrowest, supra note 1, at paras 149.

17. Ibid, at para 14.

18. Ibid, at para 16.

19. Ibid, at para 17.

20. Mercy Falls BC Inc. (Re), 2025 BCSC 1960 ["Mercy Falls"]

21. Ibid, at paras 8,37.

22. Re Mercy Falls BC Inc., Notice of Application(29 July 2025, Amended August 12, 2025), Vancouver Registry, CCAA Proceeding No S-253718 (BCSC), at para 60. ["Mercy Falls NOA"].

23. Ibid, at para 88, citing Mayfield, supra note 8, at paras 43-47;.

24. Ibid, at para 88, citing Petrowest, supra note 1 at para 73, among other authorities.

25. Ibid, at para 88, citing Mercy Falls BC Inc. (Re), 2025 BCSC 1045, at paras 22-23.

26. Ibid, at para 89.

27. Mercy Falls, supra note 20 at para 28.

28. Alderbridge Way GP Ltd. (Re), 2023 BCSC 1718.

29. Mercy Falls, supra note 20 at para 29.

30. Ibid, at para 30, citing Alderbridge Way, supra note 28, at para 56.

31. Petrowest, supra note 1.

32. Mercy Falls, supra note 20 at para 32, citing Petrowest, supra note 1 at para 155.

33. Ibid.

34. Mercy Falls, supra note 20 at para 33.

35. Ibid, at paras 35, 36, 39.

36. Ibid, at para 37.

37. Ibid, at para 38: (Justice Basran also acknowledged the factors set out in Walter Energy Canada Holdings Inc. (Re), 2017 BCSC 709 at paras 23–27 for determining when a claim may be determined on a nonsummary basis within a CCAA proceeding).

38. Mercy Falls, supra note 20 at para 45.

39. Mercy Falls, supra note 20 at para 32, citing Petrowest, supra note 1 at para 155.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.