British Columbia Supreme Court Exercises Inherent Jurisdiction to Grant Court Application Despite Arbitration Clause

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Author: Robert Jones, Law Works P.C.
Editor:   Ben Hanuka, Law Works P.C.

In Industrial Alliance Insurance and Financial Services Inc v Wedgemount Power Limited Partnership, a May 4, 2018 decision of the British Columbia Supreme Court, the court dismissed a motion to stay an application for declaratory relief in respect of a long-term electricity purchase agreement which contained an arbitration clause. The court exercised its inherent jurisdiction to hear the application in order to avoid a procedurally unfair result.

Key facts

Wedgemount Power Limited Partnership and Wedgemount Power Inc. (“Wedgemount”) are the owner and developer of a run-of-river power generation project near Whistler, British Columbia.

The British Columbia Hydro and Power Authority (“BC Hydro”) is a crown corporation which entered into a long-term electricity purchase agreement with Wedgemount to develop the project.

A receivership order was granted over Wedgemount under the Bankruptcy and Insolvency Act (“BIA”) which resulted in a stay of proceedings. The stay prohibited, amongst other things, terminating existing contracts with the debtor. The receiver wanted to complete construction of the project so that Wedgemount’s rights under the agreement could be sold to maximize recovery for its creditors. BC Hydro brought an application seeking to lift the stay imposed by the receivership order to exercise termination rights under the agreement.

In response, the receiver brought an application seeking a declaration that BC Hydro may not terminate the agreement based on any existing ground or fact. BC Hydro then brought another application under section 15 of the BC Arbitration Act (“the Act”) seeking to stay the Receiver’s application because it involves a determination of rights under the agreement, which must be referred to arbitration because of the arbitration clause contained in the agreement.

The inherent jurisdiction of the court

Even though s.15(2) of the Act states that the court “must” make an order staying any legal proceedings commenced in contravention of an arbitration agreement, the court determined that it had inherent jurisdiction to hear the receiver’s application.

The court described inherent jurisdiction as an “important but sparingly used tool”, employed to “further the objects of the BIA where the Act does not provide a specific mechanism”. The court endorsed a two-part test from re Pope & Talbot governing the exercise of inherent jurisdiction:

1. The BIA must be silent on point or not have dealt with a matter exhaustively; and
2. After balancing competing interests, the benefit of granting the relief must outweigh the relative prejudice to those affected by it.

The relevance of extenuating circumstances

The court found that the application was necessary to facilitate the preservation and realization of the assets for the benefit of creditors. When BC Hydro brought its application for a stay, the project was more than 90% complete. The project urgently needed financing to deal with spring runoff caused by melting snow. Wedgemount’s secured creditor would not be providing any such funding unless BC Hydro’s purported termination rights under the agreement were resolved as requested by the receiver.

The court was concerned to prevent BC Hydro from achieving termination of the agreement indirectly through the delay associated with granting a stay. Without the financing, the project would be at an end, with negative impacts on creditors, contractors, a First Nation and the Province.

In the result, the court exercised its inherent jurisdiction to hear the receiver’s application so that the dispute about termination rights could be resolved on the merits.

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