In TSA CORPORATION et al v KPMG LLP, 2026 NWTSC 2, the Court approved a Receiver’s request to disclaim arbitration agreements between companies in receivership (the “LKDFN Companies”) and KPMG, which the LKDFN Companies’ former CEO had engaged to provide accounting services and tax advice. The Receiver had been appointed to facilitate the LKDFN Companies’ recovery from oppression at the hands of their former CEO. Relevant statutes, and the Receiver’s appointment order, authorized a broad range of potential remedies, expressly including the power to disclaim contracts with third parties. Reasoning by analogy to Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, the Court approved the Receiver’s request because “not doing so would compromise the fair and orderly correction” of “a scenario of exploitation, unfairness, and the obliteration of autonomy.” The Receiver’s disclaimer rendered arbitration agreements between the LKDFN Companies and KPMG unenforceable under the Arbitration Act, SNWT 2022, c 14. As a result, the Court denied KPMG’s application to stay derivative actions brought against it.
The social context of this case was key. The LKDFN Companies’ former CEO had “knowingly breached his fiduciary duties to the LKDFN Companies, including failing to disclose his own interests, which were significant, and he caused them to enter into agreements, transactions, and governance structures which were unfair and prejudicial.” The LKDFN Companies had been organized to serve economic and other needs of the First Nation, infusing this case with the “special social context attendant to the exploitation of a vulnerable indigenous group.” This context situated the case in the process of truth and reconciliation with Canada’s First Nations, including the interpretive lens of federal and territorial legislation implementing the United Nations Declaration on the Rights of Indigenous Peoples.
Background – In 2023, an aide to the LKDFN Companies’ former CEO came forward as a whistle-blower. That led the First Nation to act, obtaining the appointment of a Receiver to take over the LKDFN Companies, the removal of the former CEO, and a Mareva injunction over certain assets of the former CEO and related entities. In 2024, the Court found that the former CEO had “breached his fiduciary duties, and that he did so in an extreme and egregious manner.” (See Marlowe et al v Barlas et al, 2024 NWTSC 38, aff’d 2025 NWTCA 6.) A trial to quantify the First Nation’s losses has not yet been held.
One day after the Court released its oppression finding, it authorized the First Nation to bring derivative actions – which the Receiver supported – on behalf of the LKDFN Companies against their former corporate solicitors, and against KPMG as the LKDFN Companies’ former accountants and auditors. (See Marlowe et al v Barlas et al, 2024 NWTSC 39.) The former CEO had engaged each of those advisers personally, and also to provide corporate services to the LKDFN Companies. The First Nation’s derivative suit alleged that KPMG had a conflict of interest and, while knowing of the former CEO’s self-dealing, had issued misleading financial statements and presentations to corporate insiders, and knew, or were willfully blind, to what the former CEO was doing.
The motions before the Court – The decision addressed in this blog post resolved several motions filed after the derivative action against KPMG was authorized:
- KPMG applied to stay the derivative action against it, arguing that the LKDFN Companies’ claims were within the scope of the arbitration agreements in KPMG’s engagement terms. In parallel, KPMG commenced an arbitration in British Columbia;
- The First Nation then brought a new, separate application for relief from oppression directly against KPMG (the “KPMG Oppression Application”), asserting claims on behalf of members of the First Nation that mirrored those asserted in the derivative action but seeking different relief – including an order setting aside the arbitration agreements with KPMG;
- KPMG brought a parallel application to stay the KPMG Oppression Application, arguing that it was also captured by the arbitration agreements between KPMG and the LKDFN Companies; and
- The Receiver of the LKDFN Companies sought, among other relief, an order setting aside the arbitration agreements with KPMG, analogizing the situation to the receivership at issue in Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41.
Disposition of the applications – As noted above, the Court granted the Receiver’s application to disclaim the arbitration agreements with KPMG. However, it first considered KPMG’s application for a stay under the two-step framework prescribed in Peace River, at para. 76 et seq.:(1) has the party seeking arbitration established all technical prerequisites on the low “arguable case” standard; and (2) has the party resisting arbitration shown, on a balance of probabilities, any exceptions to a stay of court proceedings?
- KPMG satisfied the first Peace River step by making out an arguable case for the technical prerequisites under ss. 8(1) and 8(2) of the Arbitration Act (i.e., an arbitration agreement exists; court proceedings have been commenced by a party to it; the court proceedings are in respect of a matter the parties agreed to submit to arbitration; and KPMG had applied for a stay before taking any “step” in the court proceedings);
- At step two of the Peace River analysis: (1) the parties resisting arbitration established, on a balance of probabilities, that a tort claim against KPMG for knowing assistance of breach of fiduciary duty – relating to services KPMG provided to the former CEO personally and to entities related to him, and not the LKDFN Companies – was not subject to an agreement to arbitrate; and (2) the arbitration agreements between KPMG and the LKDFN Companies were not void for illegality or unconscionability.
Having reached these conclusions, but for the Receiver’s intervention, nearly all the derivative claims against KPMG would have been sent to arbitration.
The Receiver’s application to set-aside the arbitration agreements – The Court found that both the Receivership Order and the relevant federal and territorial legislation expressly authorized the Receiver to set aside contracts as an oppression remedy. As the Court explained at para. 247:
“[u]nlike in bankruptcy, the root power to avoid contractual arbitration obligations undeniably exists in the realm of oppression. The text, context, and purpose of the governing statutes [i.e., the Canada Not-For-Profit Corporations Act, SC 2009, c 23, s. 253(3) and Business Corporations Act, SNWT 1996, c 19, s. 243(3)] make this clear. While insolvency courts have arrogated to themselves, and their appointed Receivers, a phenomenal breadth of creative powers under a relatively austere and non-specific legislative regime, the power to set aside contracts when correcting oppression is expressly provided on the face of the statutory instruments driving the oppression remedy.”
Accordingly, “[u]nlike in Peace River, the question in this case is not whether arbitration agreements can be set aside, but whether this is a proper case to deploy this exceptional power as a form of oppression relief. The question is whether the power to avoid arbitration obligations should be used, not if it exists” [para. 251].
The Receiver asserted that it was appropriate here because allowing “parallel arbitration proceedings would invite inconsistent outcomes, impose significant, duplicative costs on the LKDFN Companies, compromise the objectives of the receivership in maximizing recovery as redress for the harm caused by [the former CEO’s] oppressive conduct, and simply be unjust”[para. 207].
KPMG disputed that arbitration would be less favorable to the LKDFN Companies; argued that the Peace River refusal to enforce an arbitration agreement was limited to the single-proceeding model in insolvency, not oppression actions; and that the Receiver’s disclaimer power could not reach contracts with an innocent third party (which KPMG asserted it was).
The Court declined to articulate an omnibus test for when a Receiver may disclaim an arbitration agreement to remedy oppression, instead listing at para. 262 factors “militating in favour of exercising the power.” The Court found as a fact that all of these factors were present:
- the arbitration agreement had some nexus to the oppression (at para. 269: “The oppressor got the LKDFN Companies into the arbitration agreement as a side-effect of trying to cover his tracks and avoid detection. It is thus tainted by his wrongdoing, irrespective of whether KPMG is found to be negligently or knowingly complicit”; and, at para. 268, “This matters because the oppression remedy must not be popularized as a backdoor to avoid arbitration.”);
- the broader deal in which the arbitration agreement is found yielded minimal or generic benefit to the subject company [para. 271];
- there was minimal conscious consideration or negotiation of the arbitration agreement [para. 272];
- the company’s governance in and around the entering of the broader agreement was compromised [para. 274]; and
- the arbitration in question can be shown to materially interfere with efficient and fair resolution of the oppression [paras. 275-279].
The analogy to Peace River was most relevant to the latter factor, concerning the degree of interference between an arbitration agreement and a statutory corporate clean up (there insolvency, here oppression) required to uphold the Receiver’s exercise of the power to disclaim contracts [e.g., para. 240].
The special social context of this case – This case featured each factor noted above, along with the “special social context attendant to the exploitation of a vulnerable indigenous group.” This, with the court’s analysis summarized above, tipped the balance in favour of setting aside the KPMG arbitration agreements.
The Court’s comments suggest that the unique social context of this case was crucial to distinguishing it from the “archetypal scenario in which sophisticated, free-contracting, commercial entities have agreed to arbitration, and that agreement should be enforced.” Under that veneer, the truth was “a scenario of exploitation, unfairness, and the obliteration of autonomy, in which the arbitration agreement takes on a rather different appearance.”
In other words, the facts of this case situate it in the context of Canada’s reconciliation with indigenous peoples. “Allowing First Nations to seek public redress through the courts is foundational to the ‘truth’ component of Canada’s reconciliation project.” The interpretive lens of the United Nations Declaration on the Rights of Indigenous Peoples and Calls to Action of the Truth and Reconciliation Commission “supercharge[d]” the weight of benefits to the remedial process in the balance against part autonomy and freedom of contract: para. 295. As the Court explained, at para. 281:
“On the one hand, this case presents as a contractual relationship between a professionally managed million-dollar commercial enterprise and the high-end advisors it retained. On the other, it is a situation in which standard bearers of colonial capitalist power – big law and big accountancy – walked into a remote indigenous community, appeared to vouch (innocently or otherwise) for the fraudster who was robbing this small band of people blind and, when called to account for their actions, rely on a contract the First Nation never knew existed, signed by their oppressor as part of his scheme to defraud them, forcing them to spend much more of their limited resources to litigate for compensation in secret, in a foreign jurisdiction, far from their home.”
Contributor’s Notes:
It is no exaggeration to call the facts of this case unique. They implicated a novel intersection of at least three areas of law, each with distinct foundations and competing policy impulses: the enforcement of private contracts; the scope of oppression remedies for corporate malfeasance; and reconciliation with indigenous peoples.
Readers of this blog might see the headline and worry that a new, oppression-shaped fault line may have opened in the public policy favouring enforcement of arbitration agreements. But these extreme facts, and the emphasis the Court put on how uncommon this situation is, should allay fears about the proliferation of categorical exceptions to the enforcement of arbitration agreements. As well, the Court pointed out at paras. 257 and 304-305 that if KPMG succeeds in court, it may be eligible for compensation for the loss of its contractual right to arbitrate through an enhanced costs order.
Commercial parties acting in good faith can also look to the list of factors the Court considered at para. 265 for strategies to fortify their arbitration agreements, in case a contract counterparty ends up similarly situated to the LKDFN Companies. Moreover, the Court’s observations on the risk of chilling commercial engagement with indigenous peoples are worthy of attention. At para. 297, the Court stated:
“Rather than worrying about the enforceability of standard-form arbitration agreements, large corporate actors should: ‘…ask themselves how their relationships and any agreements they enter into with Indigenous Peoples are enabling the solutions to the broader challenges of rebuilding Indigenous communities, governance, and nations as necessary in order to live together’: Jody Wilson Raybould, True Reconciliation: How to Be a Force for Change (Toronto: McClelland & Stewart, 2024) at p. 302.”
Unsurprisingly, given the similarities between insolvency and oppression remedies, the Supreme Court of Canada’s holding in Peace River was at the centre of the Court’s reasons. One way to understand Peace River, which the Court explored at paras. 227-240,is that the majority judgment may be somewhat more pro-arbitration than the minority by setting a higher threshold of interference with a single-proceeding insolvency for finding an arbitration agreement inoperable or incapable of being performed:
- the majority, at para. 155: “where enforcing it would compromise the orderly and efficient resolution of insolvency proceedings”; and
- the minority, at para. 193: where avoiding the arbitration agreement would “best promote the orderly and efficient resolution of the receivership.”
The Court thought this distinction could be more academic than real and left it for another case to resolve.
The case also provides a real-world application of using the Peace River framework to determine, on a superficial consideration of the evidentiary record, whether a claim is in-scope of an arbitration agreement. KPMG had sought to compel arbitration of a claim in relation to advice KPMG provided to the former CEO in his personal capacity, rather than to the LKDFN Companies. At para. 116, the Court explained why this claim was “not in respect of any matter that is the subject of an arbitration agreement”:
“The difference is thus between in-scope complaints about poor or even corrupt service rendered under the Engagement Letters, and out-of-scope claims that KPMG did bad things as a service rendered to [the former CEO], under entirely separate contracts, for separate consideration. That latter category of actions – being hired by [the former CEO] to help him structure and tax-optimize his devices of defraudment – cannot be brought under even the broadest understanding of KPMG’s ‘services’ to the LKDFN Companies.”
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Finally, the judgment is, at least for lawyers, a great read. There is a lot packed into its 330 paragraphs, and it was crafted with care. For interested and ambitious readers, the First Nation’s claims against the former CEO and other parties have generated several other notable decisions, including a judgment of the Court of Appeal for the Northwest Territories about the appropriateness of summary procedures to decide an application for relief from oppression (Chief Marlowe et al v Barlas et al, 2025 NWTCA 6), and of the Supreme Court of the Northwest Territories on the appropriate length and content of foundational pleadings (TSA CORPORATION et al v REYNOLDS MIRTH RICHARDS & FARMER LLP et al, 2025 NWTSC 16).