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The tension between upholding arbitration agreements and pursuing the efficiency of the single proceeding model remains one of the defining challenges in modern restructuring law. Further to our previous article on the lasting impact of the Petrowest decision on subsequent case law, including the Mercy Falls decision, courts have shown increased willingness to bring arbitration disputes within Bankruptcy and Insolvency Act and Companies' Creditors Arrangement Act (the "CCAA") insolvency proceedings in pursuit of the single proceeding model. However, just 45 days after the Mercy Falls decision was released, the Québec Superior Court (the "Court") issued a decision that appears to provide an outer limit on how Petrowest may be applied to override arbitration clauses.
This update examines how the Court applied, and ultimately constrained, the Petrowest analysis to uphold a well-advanced arbitration between sophisticated commercial parties.
What happened in Arrangement relatif à 9550-1714 Québec inc., 2025 QCCS 3840?
On October 23, 2025, Justice Luc Morin released Arrangement relatif à 9550-1714 Québec inc., 2025 QCCS 3840.1 This case involved a $16.3 million dispute among four partners of the Varennes Cellulosic Ethanol waste-to-biofuel project. Three partners alleged that the fourth partner, Proman Canada ("Proman"), had failed to provide funding agreed upon under their Limited Partnership Agreement ("LPA"). The dispute was governed by an arbitration clause and, notably, prior to the commencement of the CCAA proceedings, the parties had made steps towards an arbitration hearing, including submitting motion materials and selecting a panel.
The arbitration was stayed pursuant to an Initial Order of the Court. Subsequently, a Reverse Vesting Order was approved that facilitated the sale of core assets, with the remaining assets, including any proceeds from the litigation against Proman, being transferred to the applicants.
The applicants sought to bring the dispute with Proman into the CCCA proceedings "in the name of efficiency and costs." Proman, however, argued that for reasons of contractual autonomy and, similarly, efficiency, the CCAA court should defer to the arbitration panel. The Court sided with Proman and upheld the arbitration, despite the active CCAA proceedings.
When will Québec courts refuse to override arbitration in insolvency proceedings?
Justice Morin emphasized that the Petrowest analysis is inherently fact-specific.2 Several key factual influences appeared to be determinative:
- The arbitration was already well-advanced. The Court noted "it makes little sense to disrupt a well-advanced arbitration between sophisticated parties."3
- The restructuring process was, "for all intents and purposes," complete.4 No concerns about going-concern protection were at issue.
Justice Morin also noted that Petrowest held that valid arbitration agreements should be respected except in clear cases where a statutory exemption applies or where the continuation of arbitration would compromise the orderly and efficient conduct of the proceedings.5 This determination is highly factual, and the burden rests on the party attempting to circumvent arbitration to prove that it would jeopardize the restructuring process.6
With respect to efficiency, the Court found that both options would take a comparable amount of time and that the applicants had not proven that hearing the dispute within the CCAA proceedings in Québec would be more cost-efficient than an arbitration in Ontario, the governing jurisdiction of the agreement.7
Does confidentiality in arbitration conflict with CCAA transparency requirements?
Justice Morin attempted to reconcile the competing expectations of confidentiality in the arbitration process and transparency, a core tenant of the CCAA regime.8 He noted: "If the confidentiality of arbitration is to be preserved fully – even under the purview of the CCAA – this could result in an unacceptable level of opacity in a process that demands transparency."9 The apparent conflict between the two potential dispute resolution forums was left unresolved.10 However, Justice Morin made clear the Court's expectation that the Monitor was to provide regular updates on the arbitration's progress and "ensure that the interests of transparency and fairness remain protected throughout."11 Thus, while the arbitration prevailed, it did so with a "to-be-determined" element of CCAA court oversight.
Key takeaways
In the circumstances, the Court determined that there was no conflict between the principles of contractual autonomy and the single proceeding model.12 The decision serves as an example of a court resisting the tendency to bring disputes into ongoing insolvency proceedings, where the party seeking to override the arbitration clause has not proven the benefit of doing so.
For businesses relying on arbitration clauses in partnership, financing, or commercial agreements, this ruling reinforces that advanced arbitration processes remain legally resilient, even in the shadow of CCAA protection. However, the ultimate determination remains context-specific.
When considering arbitration agreements in the context of insolvency, the analysis remains highly factual. Contact Miller Thomson's Restructuring and Insolvency Group to discuss the potential impacts of insolvency on your contractual rights.
Can an arbitration clause be overridden in a CCAA proceeding?
Yes, but it is not automatic. Courts use a fact-specific test from the Petrowest decision. The party seeking to override the clause must prove that continuing the arbitration would compromise the efficiency or integrity of the restructuring.
What factors make an arbitration more likely to be upheld?
Courts are more likely to uphold arbitration when proceedings are well-advanced and the restructuring process is substantially complete.
Does efficiency justify moving arbitration into CCAA proceedings?
Not necessarily. The party seeking to override arbitration must prove that court proceedings would be more efficient and cost-effective.
How does confidentiality affect arbitration under CCAA?
Courts may allow arbitration to proceed but impose oversight requirements to ensure transparency consistent with insolvency-regime principles.
What is the practical takeaway for commercial parties?
Well-drafted arbitration clauses remain powerful tools, but their enforceability in insolvency depends on timing, progress, and restructuring impact.
Footnotes
1. Arrangement relatif à 9550-1714 Québec inc., 2025 QCCS 3840 ["Re 9550-1714"]
2. Re 9550-1714, at para 37.
3. Re 9550-1714, at para 14.
4. Re 9550-1714, at para 15.
5. Re 9550-1714, at para 37-9.
6. Re 9550-1714, at para 45.
7. Justice Morin also considered factors such as the risk of contradictory judgments in other jurisdictions and the potential for the Monitor to have a vested interest in the outcome of the decision which warranted a heightened level of caution.
8. Re 9550-1714, at para 87-95.
9. Re 9550-1714, at para 87.
10. Re 9550-1714, at para 95.
11. Re 9550-1714, at para 96.
12. Re 9550-1714, at para 18.
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.
