Single Proceeding Model Trumps Contractual Rights – Arbitration Clause Held "Inoperative" In Insolvency Proceeding

A recent decision of the Ontario Court of Appeal invalidated an arbitration and forum selection clause in a commercial agreement in favour of having a dispute between the debtor and its former customer adjudicated within a receivership proceeding.

In Mundo Media Ltd., (Re),¹ the Court of Appeal compelled one party to defend its position in an Ontario court despite an existing contractual arrangement providing for arbitration in New York under New York law. The decision in Mundo Media provides that the "single proceeding" model of insolvency law may usurp the normal function of an arbitration and forum selection clause where the fallout of a financial collapse of one of the parties to the clause calls for a more efficient resolution of the dispute from the perspective of the insolvent party's creditors.