Duel of the Forums – Petrowest Distinguished as Court Denies Receivership in Favour of Arbitration

In Alberta Finance & Mortgage Corporation v. Westana Asset Management Corp., the Court of King’s Bench of Alberta (Court) denied applications (Receivership Applications) by Alberta Finance & Mortgage Corporation (AFMC) for receivership orders against two groups of related entities (Companies). The Court distinguished the Supreme Court of Canada’s decision in Peace River Hydro Partners v. Petrowest Corp. (Petrowest) and concluded that it was not just or convenient to grant the Receivership Applications given, among other things, the existence of a binding Arbitration Agreement dealing with the wind-down of the Companies.

This case illustrates the Court’s respect for binding arbitration agreements and deference to arbitrators. The Court noted, however, that it remains available to assist in the arbitration where necessary for the proper administration of justice.

Background

At the centre of the disputes were two individuals — Cameron Quilliam and Robert Cramer — who each indirectly owned 50% of the Companies. The relationship between Quilliam and Cramer deteriorated into a quagmire involving multiple oppression actions, a foreclosure proceeding and an ongoing arbitration. Both agreed that the Companies needed to be wound down and liquidated, but there was disagreement on how this should occur. Quilliam wanted the entities placed into receivership, while Cramer believed the matter should be dealt with in an existing arbitration, as agreed in an earlier Arbitration Agreement.

Quilliam was also a director and shareholder of AFMC and used AFMC to bring the Receivership Applications, on the basis that the Companies owed substantial debts to AFMC.

Cramer raised various issues in opposing the Receivership Applications. In particular, he noted that there was an ongoing dispute as to how to wind down and liquidate the Companies, which was subject to an Arbitration Agreement. Cramer also raised several significant factual disputes regarding the alleged indebtedness of the Companies.

The Court explored the various factors militating for, or against, each proposed method of winding down the Companies, and whether it was “just and equitable” to grant the Receivership Applications.

Serious Disputes of Fact

The Receivership Applications were commenced by Originating Application, which is only appropriate where there is no substantial factual dispute. However, the core fact of the indebtedness and its extent were disputed. There were conflicting affidavits and a complete lack of questioning. There was an incomplete picture before the Court, which militated against granting the Receivership Applications.

Existence of an Arbitration Agreement

As a result of their ongoing dispute regarding the Companies, Cramer and Quilliam had entered into the Arbitration Agreement that bound them and the Companies, but not AFMC.

Cramer argued that the Receivership Applications were an attempt to circumvent the Arbitration Agreement. AFMC argued that it was not a party to and not bound by the Arbitration Agreement.

The Court noted that Alberta Courts have granted a stay of proceedings in favour of arbitration where parties to an action were not party to an arbitration agreement, if (1) the arbitration issues were closely related to the litigation, (2) it was just and equitable to stay the action, or (3) it was not reasonable to separate the matters in dispute because the parties and non-parties are related to the same subject matter. Here, the Court found that it was just, equitable and reasonable to include AFMC in the arbitration as it was a related party to Quilliam.

Distinguishing Petrowest

Though neither side referred to Petrowest — which addressed when contractual arbitration agreements should give way to court-ordered receiverships — the Court felt it was necessary to do so. In Petrowest, the Supreme Court confirmed that parties should generally be held to their arbitration agreement notwithstanding ongoing insolvency proceedings. An exception may occur when arbitration would compromise the orderly and efficient conduct of a court-ordered receivership, in which case a Court may assert control over the proceedings. The Supreme Court in Petrowest ultimately declined to enforce an arbitration agreement in the middle of a commercial insolvency, on the basis that the arbitral process would compromise the orderly resolution of the receivership, contrary to the objectives of the Bankruptcy and Insolvency Act (BIA).

The Court distinguished Petrowest for several reasons, including that:

1. In Petrowest, the debtor was already in receivership when the arbitrable dispute arose, whereas in the immediate case, no receivership existed.
2. Arbitration between the parties would be more expedient and less expensive than a receivership to achieve the same outcome.
3. It was not clear whether the BIA applied to the Companies, as the existence of debt and the validity of the security were disputed.

The Court stated that the reasoning in Petrowest did not compel it to impose a Receivership Order and instead directed it to enforce the arbitration process.

Ultimate Decision

In the result, the Court exercised its discretion to deny the Receivership Applications. There was too much factual uncertainty regarding the Companies’ debts and the security they may have granted. That AFMC was not party to the Arbitration Agreement was not an insurmountable obstacle, and it was for the Arbitrator to decide whether they had jurisdiction over AFMC’s claims. It was not commercially reasonable to grant a Receivership Order when arbitration had been agreed to and was a more cost-effective and efficient means to obtain the same objectives.

Key Takeaways

This decision underscores that Petrowest does not mandate receivership over arbitration in all circumstances — particularly where no receivership is already underway. Courts will defer to agreed-upon arbitration processes when factual disputes remain unresolved, the existence of the debt and security is uncertain, and arbitration offers a more efficient path to resolution. Practitioners should note that receivership, as a discretionary remedy, requires a clear evidentiary foundation and a demonstration that the equities favour intervention.

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