Alberta Court Applies Petrowest to Stay Arbitration in Favour of Receivership Proceeding

On May 26, 2025, the Court of King’s Bench of Alberta stayed a proposed arbitration in favour of an ongoing receivership proceeding in Mayfield Investments Ltd (Re). This decision marks the first time that an Alberta court has applied the framework established by the Supreme Court of Canada in Peace River Hydro Partners v. Petrowest Corp. (Petrowest) for determining the precedence between arbitration and receivership proceedings under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA).

Background

The debtor Mayfield Investments Ltd. (Mayfield) owned a 50% indirect interest in a casino. The other 50% was indirectly owned by two individuals. The three shareholders were bound by a unanimous shareholders agreement that contained a mandatory arbitration clause for resolving disputes (the Arbitration Agreement). The casino operated out of a hotel leased from Mayfield. The lease agreement was set to expire in December 2024, but gave the tenants an option to renew.

In the months leading up to the lease’s expiry, Mayfield became insolvent and a receiver (the Receiver) was appointed over its business pursuant to the BIA. Days before the Receiver’s appointment in September 2024, the tenants exercised their right to renew the casino lease.

Seven months later, in April 2025, one of the individual shareholders (the Shareholder) delivered a Notice to Arbitrate to the Receiver that related to the validity of the casino lease renewal (the Lease Dispute). At that time, a court-approved sales and investment solicitation process (SISP), which included Mayfield’s interest in the casino, had already advanced to a critical stage. The Receiver argued that the Notice to Arbitrate was stayed by the receivership order and invalid, and that the issue of the validity of the lease was properly determined by the Court in the context of the ongoing receivership proceedings.

The Court’s Decision

The Court, applying the principles in Petrowest, considered whether the Shareholder’s Lease Dispute was required to be determined by arbitration or as part of the receivership proceedings. Petrowest sets out a two-step analysis for determining when a court proceeding must be stayed in favour of arbitration. The Court commented that while the Shareholder was not applying to have the receivership proceedings stayed, he was relying on the Arbitration Agreement to argue that the Lease Dispute must be determined by arbitration and not as part of the receivership proceedings. Accordingly, the Court noted that some flexibility in applying the Petrowest analysis was required.

The first part of the Petrowest analysis inquires whether an arbitration agreement engages the mandatory stay provision in the applicable arbitration statute. Under the Alberta Arbitration Act, RSA 2000, c A-43 (Arbitration Act), the applicant must establish an “arguable case” that the following four prerequisites are met: (a) an arbitration agreement exists; (b) court proceedings have been commenced by a party to the arbitration agreement; (c) the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and (d) the party applying for a stay does so before taking any step in the court proceedings.

If the mandatory stay provision is engaged, the second part of the Petrowest analysis inquires whether, on a balance of probabilities, the opposing party has established a “clear case” that one or more of the statutory exceptions to the mandatory stay provision apply. 

Here, the Court had no difficulty finding that the first three prerequisites of the first part of the Petrowest analysis were met. Importantly, in its analysis of the second prerequisite, the Court held that “court proceedings” need not be commenced directly against another party to the arbitration agreement, so long as the court proceedings “engage an interest of that party.” The Court was satisfied that the issues in the receivership proceedings engaged the Shareholder’s interests, and that he had standing, as an interested party, to challenge the Receiver’s actions (and in fact had already availed himself of that right). The Court concluded that “court proceedings” included the “receivership proceedings” and that the second prerequisite had been satisfied.

However, the Court concluded that the Shareholder failed to meet the fourth prerequisite of the first part of the Petrowest analysis given that he had participated in the receivership proceedings for a number of months prior to delivering his Notice to Arbitrate. The Court emphasized that it would be “extremely problematic” to allow parties who participate in court proceedings, and thereby implicitly affirm their willingness to accept a determination of a court, to later pursue arbitration. Accordingly, the Court found that the requirements for a mandatory stay of court proceedings pursuant to section 7(1) of the Arbitration Act had not been met. Given this conclusion, the Court determined that the second part of the Petrowest analysis need not be considered.

The Court commented that even though the mandatory stay of proceedings provision in the Arbitration Act was not engaged, the Court was left with two overlapping proceedings — the arbitration proceedings and receivership proceedings — that both purported to deal with the Lease Dispute. The Court held that it had statutory jurisdiction under section 183(1) and 243(1)(c) of the BIA to determine which proceeding had primacy. The Court noted that section 243(1) of the BIA permits the Court to take any action that the Court considers advisable, if the Court considers it just or convenient to do so. The Court concluded that practicality demanded that the Lease Dispute be determined within the context of the receivership proceedings, and that it would be “unfair, disruptive and prejudicial” to permit the Shareholder’s proposed arbitration to derail the SISP given the late stage of the SISP. The Court stayed the arbitration.

Key Takeaways

The sequence of events in this case illustrates why, as stated in Petrowest, it is necessary to ensure that the public interest in the “expeditious, efficient and economical clean-up of the aftermath of a financial collapse” is protected through a centralized judicial process.

This case also illustrates that a party to an arbitration agreement may lose the right to arbitrate if it participates in receivership proceedings, in respect of issues that are the subject of the arbitration agreement, before bringing an application to stay those proceedings. This is consistent with the principles in Petrowest and section 7(1) of the Arbitration Act that make clear that a party that applies for a stay of court proceedings in favour of arbitration must do so before it takes any step in those proceedings.

The authors were counsel for the applicant, Ernst & Young Inc., in its capacity as court-appointed receiver of Mayfield Investments Ltd. 

For more information, please contact the authors or any other member of our Restructuring & Insolvency or Arbitration groups.