Summary
On
The SCC will now have the final word on:
-
whether a receiver is bound by an arbitration clause, while adopting and suing on the balance of the contract;
- whether a receiver's disclaimer power applies to arbitration clauses; and/or
- whether inherent jurisdiction applies to override a binding arbitration agreement.
As such, this case will have important implications for insolvency and arbitration practitioners alike.
Background
Before the insolvency proceedings,
In response, PHRP applied to the
In reasons indexed at 2019 BCSC 2221, Madam
The Chambers Judge found that the receiver was a party to the arbitration agreements, which were valid and thus that section 15 of the Arbitration was "engaged".
Despite this, the Chambers Judge concluded that the court had discretion to refuse to stay the court proceedings, pursuant to section 183 of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (BIA). That provision provides that
BCCA decision
PHRP then sought and was granted leave to appeal the decision of the Chambers Judge to the BCCA. The BCCA began its analysis by cautioning that "inherent jurisdiction" under the BIA should not be used to negate express legislative requirements, such as section 15 of the Arbitration Act.
However, the BCCA focused its analysis on whether section 15 of the Arbitration Act was engaged at all. Unlike the Chambers Judge, the BCCA explained that the Receiver is an officer of the court and owes fiduciary duties to all stakeholders. Thus, the Receiver does not bring litigation on behalf of or as agent for the debtor, but rather in "fulfillment of its own court-authorized and fiduciary duties". Accordingly, the BCCA held that the Receiver is not party to and not bound by arbitration agreements entered into by the debtor pre-insolvency.
Further, the BCCA held that even if the Receiver seeks to sue on contracts containing arbitration agreements, as was the case here, the Receiver is still not required to arbitrate. Rather, the Receiver is entitled to disclaim an arbitration agreement and rely on the substantive provisions of the contracts. According to the BCCA, this follows from the well-established doctrine of "separability", namely that arbitration clauses are independent agreements that are not merged into the underlying contract.
Ultimately, the BCCA concluded that the Receiver was entitled to litigate the claims against PHRP and upheld the Chamber Judge's decision. Unlike the Chamber's Judge, the BCCA did not rely on the court's "inherent jurisdiction" and continued the trend of appellate courts limiting the scope of "inherent jurisdiction" under the BIA.
Looking ahead
On
In the meantime, receivers appear at liberty to disclaim pre-insolvency arbitration agreements. This approach is persuasive given that arbitration is fundamentally premised on party autonomy and a court-appointed receiver is a stranger to that agreement.
Footnote
1 As a result of BC enacting a new arbitration legislation after this litigation arose (the Arbitration Act, SBC 2020, c 2) section 15 is now section 7 of the new BC Arbitration Act.
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