Executive Summary: Key Legal and Evidentiary Issues

• Scope of the USA arbitration clause and whether HBFC’s secured enforcement application is a “dispute…arising out of or relating to” the shareholder arrangements
• Interrelationship of five contemporaneous agreements (Loan Agreement, GSA, Promissory Note, Investment Agreement, USA) and the effect of competing entire agreement clauses on forum and remedies
• Whether CTR’s failures to provide financial records, insurance information, and disclosure of asset transfers constituted “material” breaches and an Event of Default under the Loan Documents
• Treatment and control of collateral, including transfer and later re-transfer of a key automation software tool and handling of Lloyd’s business interruption insurance proceeds in light of HBFC’s security and loss-payee expectations
• Availability and necessity of interim receivership under s. 47 BIA and s. 101 CJA, including proof of “immediate need” and “grave danger” to the debtor’s estate or secured creditor’s interests
• Application of the competence-competence principle, the “arguable case” standard under s. 7 of the Arbitration Act, and the limits on the court’s discretion to refuse a stay where parties have contracted out of s. 7(2) Arbitration Act

Factual background

Highbreed Financial Corporation (HBFC) is a holding company that loaned funds to Canada Tax Reviews Inc. (CTR) and also acquired half of CTR’s equity. HBFC owns 50% of the common shares of CTR and has two directors, including its principal, George Douramakos. CTR’s other 50% shareholder is 2499969 Ontario Inc., a company owned and controlled by Abraham Shomer and his wife. HBFC is therefore both a major secured creditor and an equal shareholder in CTR.
CTR is a tax review and recovery company. Mr. Shomer is a director of CTR and acts as CEO, exercising operational and financial control, including control over CTR’s banking and finances. He indirectly owns his 50% shareholding through his holding company, creating a closely held, two-side ownership and control structure between HBFC and the Shomer interests.
On May 10, 2022, HBFC and CTR executed a suite of agreements as part of a single commercial transaction. These included a Loan Agreement, a General Security Agreement (GSA), and a Promissory Note in respect of an initial secured loan of $1,000,000 advanced by HBFC to CTR. On the same date, HBFC also became a 50% shareholder of CTR and entered into an Investment Agreement and a Unanimous Shareholders Agreement (USA). These five contemporaneous agreements established HBFC’s dual role as secured lender and equity investor.
Under the USA, HBFC undertook additional funding obligations beyond the initial $1,000,000 “Highbreed Loan.” The USA provided that HBFC would fund CTR’s operating expense shortfalls as shareholder loans, and that such loans would rank equally with the original $1,000,000 loan. HBFC subsequently advanced a further $1,355,339.18 to CTR between May 2022 and June 2023, so that HBFC’s total advances to CTR reached $2,355,339.18, the amount later claimed in the application.

Contractual structure and key clauses at issue

The parties organized their legal relationships using five main documents: (a) the Loan Agreement, Promissory Note, and GSA, and (b) the Investment Agreement and USA. HBFC argued that the lending and security relationship was fully governed by the Loan Agreement, Promissory Note, and GSA, while the shareholder and governance relationship was governed separately by the Investment Agreement and USA, each group with distinct purposes, obligations, and remedies.
The Loan Agreement contained an entire agreement clause providing that it “contains the whole agreement between the parties in respect of the subject matter hereof” and that no other warranties, representations, or collateral agreements exist beyond those set out in it. “Event of Default” is defined as any material breach of the “Loan Documents” (Loan Agreement, Promissory Note, GSA) that remains unresolved within specified cure periods of five business days, extendable by ten further business days if the borrower is in the process of remedying the default. A material default triggers acceleration, making all principal, interest, and fees immediately due and payable without demand.
The GSA granted HBFC a general and continuing security interest over CTR’s present and after-acquired property, assets, and undertaking as security for all present and future obligations under the Loan Agreement. It imposed extensive information-sharing and inspection covenants, including a covenant that CTR provide HBFC complete access to information concerning the collateral, allow examination and extraction of CTR’s books and records, and supply any information reasonably requested concerning the collateral, CTR, and its business. The GSA also required CTR to maintain insurance over the collateral and to name HBFC as loss payee, and expressly allowed HBFC, upon a continuing Event of Default, to realize on the collateral and apply to a court of competent jurisdiction for appointment of a receiver or interim receiver, while containing a non-exclusive attornment to Ontario courts.
The Investment Agreement referenced the “Loan Agreements” and attached forms of the loan and security documents as exhibits. It also contained a broader, transaction-level entire agreement clause stating that the Investment Agreement (including exhibits), together with the Shareholders’ Agreement (the USA) and other ancillary agreements delivered in connection with them, contained the entire agreement of the parties regarding the subject matter. This clause expressly treated the Loan Agreements and the USA as integral parts of a unified transaction.
The USA was central to the arbitration issue. Article 9.1 contained a broad arbitration clause requiring that “all disputes, disagreements, controversies, questions or claims arising out of or relating to” the USA, including matters relating to formation, execution, validity, interpretation, performance, breach, termination or enforcement of the USA, as well as any dispute about conduct claimed to be oppressive or unfairly prejudicial (but excluding disputes over the “Fair Value of Shares”), be determined by a sole arbitrator under the Arbitration Act, 1991. The USA also defined the “Highbreed Loan” as the $1,000,000 loan and provided that HBFC would fund operating shortfalls as shareholder loans ranking equally with that loan. A “waterfall” clause (section 4.4.2) addressed how “Distributable Cash” was to be paid: among other things, it contemplated a priority $1,000,000 distribution to Mr. Shomer’s holding company ahead of repayment of the Highbreed Loan. HBFC disputed that this waterfall clause applied in the circumstances or that it could override loan enforcement rights.
The USA further contained section 9.2.1, allowing the Arbitration Parties to seek interim relief from the courts before appointment of an arbitrator without being taken to have waived the arbitration clause, and section 9.2.2 authorizing the arbitrator to take interim measures, including preservation of assets, conservation of goods, or sale of perishable goods. The parties had also agreed in the USA that the statutory exceptions to a mandatory stay in s. 7(2) of the Arbitration Act would not apply to any “Dispute” as defined, and nothing in s. 3 of the Arbitration Act prevented them from contracting out of s. 7(2).

Events leading to the alleged default and enforcement steps

Over many months, including from late 2023, HBFC repeatedly requested detailed financial information and records from CTR pursuant to the GSA’s information covenants. On May 3, 2024, Mr. Douramakos and others attended CTR’s offices to review its records. HBFC’s evidence was that CTR only produced incomplete information, while CTR disputed that characterization and maintained it provided broad access.
On July 19, 2024, HBFC’s lawyers delivered a formal Notice of an Event of Default under the Loan Agreement, identifying a detailed list of information and records that CTR was required to provide within five days under the Loan Documents. HBFC’s position was that CTR failed to provide the requested information within the five days and the subsequent 15-day cure period, thereby crystallizing an Event of Default.
By letter of August 15, 2024, HBFC’s counsel wrote to CTR advising that an Event of Default had occurred, demanding repayment of the full debt of $2,355,339.18 and enclosing a Notice of Intention to Enforce Security under s. 244 of the Bankruptcy and Insolvency Act (BIA). This commenced the secured enforcement phase of the relationship.

Collateral and insurance issues, including Lloyd’s policy

A further dispute concerned CTR’s treatment of collateral and insurance proceeds. HBFC alleged that CTR breached the GSA by transferring collateral to an entity controlled by Mr. Shomer. Specifically, a company under his control, 100031025 Ontario Inc., entered into a software transfer agreement with Digital Research Labs to acquire ownership of a new automation tool that had been developed for CTR, in part using funds advanced by HBFC. HBFC maintained that this software tool was essential to CTR’s business and formed part of its secured collateral. CTR later advised in November 2024 that the tool was in the process of being transferred back to CTR; after the proceeding commenced, 100031025 Ontario Inc. formally transferred the tool to CTR on November 11, 2025.
HBFC also relied on insurance-related provisions in the GSA, including the requirement that the collateral be insured with HBFC named as loss payee, and insisted that CTR’s conduct regarding a Lloyd’s business interruption policy constituted default. HBFC claimed it had not been properly named as loss payee and that CTR’s handling of insurance proceeds interfered with HBFC’s security. A payment of $102,590.63 under the Lloyd’s policy was made to CTR on July 25, 2024, after the July 19 demand for information, and this payment was not disclosed to HBFC until August 23, 2024. HBFC contended that this non-disclosure, and CTR’s refusal to agree that insurance proceeds be paid directly to HBFC, undermined its secured position. After the application was issued, the parties agreed that the final payment under the Lloyd’s policy would be paid into escrow pending further court determination, which was reflected in an order dated September 25, 2025.

Commencement of the application and HBFC’s claimed relief

On July 11, 2025, HBFC commenced an application seeking, among other things: (a) a declaration that an Event of Default had occurred under the Loan Agreement and GSA, (b) judgment against CTR for $2,355,339.18 (representing both the initial loan and additional advances), and (c) an order appointing a receiver and manager of all CTR’s assets, undertakings and properties under s. 243(1) BIA and s. 101 of the Courts of Justice Act (CJA), together with related enforcement relief.
In its pleadings, HBFC asserted multiple grounds to support appointment of a receiver and realization on the collateral. These included CTR’s alleged failure to provide financial information, non-disclosure of transactions and obligations, the initial secret transfer of the automation tool to a Shomer-controlled company, related-party transactions without board approval, and CTR’s handling of the Lloyd’s business interruption insurance proceeds. HBFC also alleged that to induce HBFC to invest and lend, Mr. Shomer had made representations about CTR’s liabilities in the Investment Agreement that he knew were false, and that this fraudulent conduct further justified a receivership.

The CTR Parties’ motion for a stay in favour of arbitration

The CTR Parties (CTR, Mr. Shomer, and his holding companies) responded with a motion under s. 7(1) of the Arbitration Act seeking a stay of the entire application on the basis that it related to matters agreed to be arbitrated under the USA arbitration clause. They argued that the five agreements were deeply interrelated, formed a single transaction, and had to be interpreted together, including the broader entire agreement clause in the Investment Agreement, which expressly linked the Loan Agreements and the USA. On this footing, they contended that HBFC’s claims could not be cleanly separated into “creditor only” matters divorced from the USA.
Citing recent appellate authority, the court organized the stay analysis into two stages: (1) whether the “technical prerequisites” for a mandatory stay were met, and if so, (2) whether any statutory exception in s. 7(2) applied. The four prerequisites were: (a) the existence of an arbitration agreement; (b) the commencement of court proceedings by a party to that agreement; (c) that the proceeding is “in respect of a matter” that the parties agreed to submit to arbitration; and (d) that the stay motion is brought before the moving party takes a step in the court proceeding. The standard of proof on these prerequisites is an “arguable case,” reflecting the competence-competence principle that arbitrators should generally rule first on their own jurisdiction unless the jurisdictional issue is purely legal or can be resolved on a superficial review of undisputed facts and documents.
Only the third prerequisite was contested. HBFC argued that its application was strictly a secured creditor enforcement proceeding under the Loan Documents, that the Loan Agreement’s narrower entire agreement clause insulated it from the USA arbitration clause, and that the GSA’s provisions contemplating court-appointed receivers and non-exclusive attornment to Ontario courts confirmed that loan enforcement belonged in court, not before an arbitrator. HBFC relied on several Ontario decisions where arbitration clauses in one agreement were found not to reach disputes under separate contracts, especially when each had its own entire agreement clause.
The court distinguished those authorities and held that, at a minimum, there was an arguable case that HBFC’s claims were intertwined with rights and obligations under the USA and Investment Agreement. The Investment Agreement’s broader entire agreement clause, expressly embracing the Loan Agreements and the USA as “integral” to a single investment transaction, made it at least arguable that all five contracts should be read together. The court noted that questions of contractual interpretation under modern principles (Sattva) are questions of mixed fact and law requiring consideration of the surrounding circumstances, and that this favoured allowing the arbitrator to determine jurisdiction.

Nexus between the application and the USA

In examining whether the proceeding “is in respect of a matter” agreed to be arbitrated, the judge looked not only at HBFC’s claims but also at CTR’s defences and counter-position. CTR contended, among other things, that HBFC had breached its funding obligations under the USA by failing, from May 2023, to fund operating shortfalls and agreed capital expenditures, and that CTR had suffered damages of approximately $5 million for which it claimed a set-off against HBFC’s debt claim. HBFC had already commenced a separate arbitration asserting those USA-based claims for breach of funding obligations.
The court found it arguable that CTR’s alleged damages and set-off defence under the USA were directly engaged by HBFC’s application to enforce repayment of the indebtedness that itself included shareholder loans made under the USA. The USA, not the Loan Agreement, created HBFC’s obligation to make these further shareholder loans and apply commercially reasonable efforts to procure capital expenditure funding. Determination of set-off and breach of these funding obligations fell squarely within the scope of the USA arbitration clause.
The court also noted HBFC’s reliance on alleged misrepresentations that were said to have been made in the Investment Agreement, which, together with the USA, controlled the investment and governance aspects of the transaction. This further linked HBFC’s claims to agreements expressly captured by the USA arbitration clause. In addition, the contested interpretation of the USA’s cash distribution “waterfall” clause—under which the CTR Parties argued that a $1 million preference to Mr. Shomer’s holding company took priority over repayment of the Highbreed Loan—raised a pure question of USA interpretation, further evidencing a nexus with matters agreed to be arbitrated.
In light of the interplay between claims, defences, and the suite of agreements, the court concluded that it could not say, on a superficial review, that there was “no nexus” between the application and disputes “arising out of or relating to” the USA. To the contrary, the CTR Parties had established, to the required “arguable case” standard, that elements of HBFC’s application fell within the arbitration clause. Consequently, the competence-competence principle required that any jurisdictional challenge be first addressed by the arbitrator.

Statutory exceptions, arbitrability, and interim relief

Having found the four technical prerequisites met, the court turned to whether any statutory exception in s. 7(2) of the Arbitration Act could justify refusing a stay. HBFC argued that the subject matter was not capable of arbitration under Ontario law because secured enforcement proceedings and court-supervised receiverships were inherently judicial, especially where third-party rights might be involved. HBFC also invoked s. 48(1) of the Arbitration Act, which allows a court at any stage “during or after an arbitration” to declare an arbitration invalid on the same grounds as in s. 7(2), and pointed to s. 3, which prevents parties from contracting out of s. 48.
The court rejected these arguments as a basis to refuse a stay. First, s. 48(1) was inapplicable because no arbitration in respect of the application’s claims had yet commenced; that provision only operates “during or after” an arbitration. Second, while s. 3 prevents parties from excluding s. 48, it does not bar them from contracting out of s. 7(2). The USA expressly provided that s. 7(2) would not apply to arbitration of “Disputes,” and there was no statutory prohibition on such a contractual variation. Thus, the s. 7(2) exceptions could not be invoked to deny a stay.
On arbitrability and remedies, the court relied on Randhawa v. Randhawa to affirm that arbitrators may adjudicate statutory corporate remedies and can appoint inspectors or analogous officers, at least as between parties to the arbitration agreement. An arbitrator may lack power to bind non-parties but can still make factual findings and, where needed, direct the parties back to court to extend orders affecting third parties. Applied here, the court held that an arbitrator would have jurisdiction to appoint someone in a receiver-like role to obtain information from CTR and preserve its assets, and could then direct the parties to court if the receiver needed powers against non-parties. Combined with the arbitrator’s express power under USA section 9.2.2 to order interim measures for the preservation of assets, this undermined HBFC’s argument that only a court could provide effective protection of the collateral.
Accordingly, the court held that there was no applicable statutory basis to refuse a stay; the mandatory stay provision of s. 7(1) was engaged, and the application had to be stayed in favour of arbitration.

HBFC’s cross-motion for appointment of an interim receiver

Parallel to the stay motion, HBFC brought a cross-motion for appointment of an interim receiver over all of CTR’s assets, undertakings, and properties, relying on s. 47(1) BIA and s. 101 CJA. HBFC emphasized CTR’s alleged pattern of non-disclosure and asset mismanagement: ongoing refusal to provide full financial records and supporting documentation; the undisclosed July 25, 2024 Lloyd’s insurance payment of $102,590.63; the initial transfer of the automation tool to a Shomer-controlled company; and related-party dealings without board approval. HBFC contended that this conduct placed its secured position at significant risk and justified immediate receiver intervention to protect the collateral and secure access to information.
Section 47(1) BIA allows a court, where a s. 244(1) notice has been or is about to be sent, to appoint an interim receiver of all or part of the debtor’s property subject to the relevant security, but under s. 47(3) such an appointment may be made only if it is shown to be “necessary for the protection of the debtor’s estate” or “the interests of the creditor who sent the notice.” The jurisprudence requires an “immediate need” for protection driven by “grave danger” that the assets will disappear or the estate be otherwise jeopardized.
CTR disputed that any Event of Default had occurred or that any breaches were material. It argued that any information gaps were at most technical breaches and not “substantial, serious, and consequential.” CTR maintained that it had provided broad access to records, including at the May 3, 2024 meeting, and that it had offered further disclosure on a counsel’s-eyes-only basis in light of concerns that Mr. Douramakos had misused confidential corporate information and appropriated a corporate opportunity. CTR also pointed out that the automation tool had now been transferred back to CTR, and that the Lloyd’s insurance proceeds were secured in escrow by agreement of the parties, significantly reducing any risk of dissipation.

Assessment of urgency and necessity for interim receivership

The court noted that HBFC had been aware of the automation tool transfer since November 2024 and of the insurance proceeds issue since August 2024. HBFC had been pressing for information since before May 2024 but had not sought a receiver or interim receiver when these concerns first surfaced. Instead, the application was commenced in July 2025, and the interim receiver motion was only brought in late August 2025, after the CTR Parties had already moved to stay the proceeding. This timing undercut HBFC’s claim that there was an “immediate” and “grave” danger requiring urgent receivership.
Weighing all the circumstances, the judge was not satisfied that HBFC had demonstrated the level of immediate risk to CTR’s estate or to HBFC’s secured interest necessary to meet the statutory and common law test under s. 47(3). The contested defaults were significantly fact-dependent, CTR had offered some mitigating steps, and critical items like the insurance proceeds and the software tool were already addressed (escrow and re-transfer). The court also held that where HBFC failed to establish grounds for an interim receiver under the BIA, it was neither just nor convenient to appoint one under the CJA’s more general equitable jurisdiction.

Outcome and implications

The court ultimately granted the CTR Parties’ motion and stayed HBFC’s application under s. 7(1) of the Arbitration Act, holding that the technical prerequisites for a mandatory stay were met on the “arguable case” standard and that the parties had effectively contracted out of the s. 7(2) exceptions. Issues regarding the interrelationship of the Loan Documents, the Investment Agreement, and the USA, and the scope of the USA arbitration clause, will therefore be for the arbitrator to determine in the first instance, consistent with the competence-competence principle.
HBFC’s cross-motion for the appointment of an interim receiver was dismissed. The court found that HBFC had not shown an immediate need for protection or grave danger of dissipation of CTR’s assets sufficient to justify extraordinary interim receivership relief, particularly in light of the time that had elapsed since the key events, the remedial steps taken (escrow of insurance proceeds and re-transfer of the automation tool), and the availability of interim measures in arbitration.
In procedural and practical terms, the successful parties in this decision were the CTR Parties—Canada Tax Reviews Inc., Abraham Shomer, 2313833 Ontario Inc., 2499969 Ontario Inc., and 1000031025 Ontario Inc.—who obtained the stay of the court application and defeated HBFC’s bid for an interim receiver. No monetary judgment, damages award, or quantified costs order was granted in this endorsement, and the judge left costs to be addressed by further written submissions if the parties could not agree. As a result, while CTR prevailed on both motions, no specific dollar amount was ordered or awarded in favour of any party in this decision, and the exact amount of any future costs or monetary award cannot be determined from this ruling.