Court says arbitrator can appoint receiver?

Highbreed Financial Corporation v. Canada Tax Reviews Inc., 2025 ONSC 7014
Does an arbitrator have jurisdiction to appoint a receiver?

Summary: The Ontario Superior Court stayed a secured creditor’s application to appoint a receiver, holding that the dispute was at least arguably subject to arbitration under a unanimous shareholders agreement and that an arbitrator could, in appropriate circumstances, appoint a receiver to preserve assets and obtain information. Although the creditor argued it was proceeding solely as a secured lender under separate loan and security documents that contemplated court enforcement, the Court found the loan, security, investment, and shareholders agreements were interrelated parts of a single transaction, with a significant portion of the claimed debt arising from shareholder advances governed by the shareholders agreement. As a result, the statutory prerequisites for a mandatory stay under the Arbitration Act were met, no exception applied, and challenges to arbitral jurisdiction were to be determined by the arbitrator. The Court further rejected the creditor’s cross-motion for an interim receiver, finding no evidence of the grave and immediate risk required under the Bankruptcy and Insolvency Act, and concluded that if jurisdiction existed, the arbitrator could grant interim measures and direct recourse to the Court where third-party powers were required.

Highbreed Financial Corporation (“HBFC”), a creditor and a 50% shareholder of Canada Tax Reviews Inc. (“CTR”), sought, among other things, to appoint a receiver over CTR pursuant to section 243(1) of the Bankruptcy and Insolvency Act (the “BIA”) section 101 of the Courts of Justice Act (the “CJA”). CTR and certain other respondents (the “Respondents”) brought a motion for an order staying the application pursuant to s. 7 of the Arbitration Act, 1991 (the “Arbitration Act”) on the ground that the application was in respect of matters to be submitted to arbitration under an arbitration agreement in a Unanimous Shareholders Agreement (“USA”) dated May 10, 2022 to which HBFC and CTR were parties. In response to the Respondents’ motion to stay the application, HBFC subsequently brought a cross-motion seeking the appointment of an interim receiver.

HBFC argued that the application was in not respect of matters to be arbitrated under the USA. Rather, the application was brought by HBFC as a secured creditor of CTR pursuant to a Loan Agreement (with an entire agreement clause), promissory note, and general security agreement, and that it sought relief only in this capacity, and not as an investor or shareholder of CTR.

HBFC was a holding company that loaned funds in the principal amount of $2,355,339.18 to CTR. CTR was a tax review and recovery company. On May 10, 2022, HBFC and CTR entered a Loan Agreement, a General Security Agreement (the "GSA") and a promissory note in respect of an initial secured loan of $1,000,000. At the same time, HBFC also became a 50% shareholder of CTR, and an Investment Agreement and the USA were executed.

The USA provided for additional advances by HBFC to rank equal to the initial loan, as provided for in the USA. HBFC made additional advances to CTR in the total amount of $1,355,339.18 between May 2022 and June 2023. HBFC issued a Notice of Intention to Enforce Security pursuant to s. 244 of the BIA on August 15, 2024, and commenced its application on July 11, 2025.

The Court first considered the Respondents’ motion. When making a request to stay an action under s. 7 of the Arbitration Act, the applicant must first establish the technical prerequisites for a mandatory stay of court proceedings on the “applicable standard of proof” and, if this is done, the party seeking to avoid arbitration then must show that one of the statutory exceptions applies, such that a stay should be refused. Provincial legislation typically contains four relevant technical prerequisites:

1. an arbitration agreement exists;

2. court proceedings have been commenced by a “party” to the arbitration agreement;

3. the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and

4. the party applying for a stay in favour of arbitration does so before taking any “step” in the court proceedings.

If all the technical prerequisites are met, the stay provision is engaged. The court should then consider the statutory exceptions to granting a stay. Absent legislated exceptions, a court normally should refer challenges to an arbitrator’s jurisdiction to the arbitrator. A court may resolve a challenge to an arbitrator’s jurisdiction if the challenge involves pure questions of law or questions of mixed fact and law that require only superficial consideration of the evidentiary record. Where questions of fact alone are in dispute, a court should normally refer the case to arbitration.

On this motion, there was no issue about the technical prerequisites for a mandatory stay of court proceedings, other than the third one. In this regard, the Respondents submitted that there was at least an arguable case that the application was in respect of matters that the parties agreed to submit to arbitration pursuant to the arbitration agreement in the USA. The Respondents argued that the five agreements were made as part of one overall transaction, had the same effective date of May 10, 2022, and were deeply interrelated.

HBFC submitted that the lending and security relationship was created and governed by the Loan Agreement, the Promissory Note and the GSA, and the shareholder and corporate governance relationship was created and controlled by the Investment Agreement and the USA. Further, the agreements had different purposes, imposed different obligations, and contained different remedies. HBFC submitted that the loan agreements did not incorporate the arbitration clause in the USA and expressly contemplated court-based enforcement, including the right to seek a court-appointed interim receiver and receiver.

The Court concluded it was arguable that the five agreements were interrelated agreements that were part of a single transaction and each should be interpreted having regard to the provisions of the other agreements. Given this, it was also arguable that the question of whether, under the GSA, there was a material breach of the “Loan Documents” by CTR of its obligation to provide information and records to HBFC would require consideration of the rights and obligations of the parties under all five agreements, including the USA.

The USA, and not the Loan Agreement, provided for HBFC to make shareholder loans to CTR over and above the $1 million loan, to fund operating expense shortfalls. These shareholder loans represented a significant part of the overall indebtedness claimed by HBFC against CTR in the application. The Respondents established an arguable case that HBFC’s application was, at least in part, in respect of “disputes, disagreements, controversies, questions or claims arising out of or relating to” the USA, including with respect to the “interpretation, performance, breach, ... or enforcement” of the USA. Accordingly, the stay provision was engaged.

The Court went on to consider the statutory exceptions to granting a stay of the court proceeding provided in s. 7(2) of the Arbitration Act. One of these cases is where the subject matter of the dispute is not capable of being the subject of arbitration under Ontario law. HBFC submitted that arbitration would deprive it of the court-supervised process required for secured enforcement of its rights under the Loan Agreement and the GSA, delay protection of collateral, and lack the necessary powers vis-à-vis third parties. The parties agreed to exclude the application of s. 7(2) of the Arbitration Act. Accordingly, the statutory exceptions in s. 7(2) did not apply to allow the Court to refuse to stay the application.

The Court also held that an arbitrator would have jurisdiction to appoint a person to act as a receiver to obtain access to information from CTR and to preserve the assets of CTR. An arbitrator would be able to make necessary factual findings and to direct the parties to court, if it were necessary for a receiver to be appointed to exercise powers affecting persons who were not parties to the arbitration agreement. Given the above, the Court concluded that the application should be stayed under s. 7(1) of the Arbitration Act.

With respect to HBFC’s cross-motion, the Court held that HBFC failed to establish that there was an immediate need for the appointment of an interim receiver for protection of the assets and property of CTR due to the grave danger that the assets would disappear or be improperly dissipated, as required by s. 47(3) of the BIA. As HBFC failed to establish that an interim receiver should be appointed under s. 47(1) of the BIA, it was not just or convenient for an interim receiver to be appointed under the CJA.

The Court held that the application should be stayed and that an arbitrator should determine whether there is jurisdiction to decide the matters in dispute in the application. If the arbitrator determines that there is jurisdiction to decide these matters in dispute, the arbitrator will also have jurisdiction under the Arbitration Act, and the power under section 9.2.2 of the USA, to take interim measures in respect of such matters.

Judge: Cavanagh J. 

Professionals involved:

• Nathaniel Read-Ellis and David Ionis of Adair Goldblatt Bieber for the Respondents Canada Tax Reviews Inc., Abraham Shomer, 2499969 Ontario Inc., 2313833 Ontario Inc. and 1000031025 Ontario Inc.

• Cameron Wetmore and Melvyn Solmon for the Applicant Highbreed Financial Corporation