Underlying suit seeks relief from oppression against man who was CEO of three companies
The Northwest Territories Court of Appeal has stayed a derivative action against KPMG LLP until the determination of appeals against the Jan. 14 order of a judge who granted a “somewhat exceptional remedy” by setting aside an arbitration agreement.
Łutsel K’e Dene First Nation (LKDFN) applied for relief from oppression against a man who served as chief executive officer (CEO) of Tsa Corporation, Ta’egera Company, and Denesoline Corporation Ltd (the LKDFN companies) and against related entities.
KPMG – the applicant in Tsa Corporation v KPMG LLP, 2026 NWTCA 4 – began providing accounting services to the LKDFN companies in 2016. In 2023, the receiver appointed to protect the assets of the LKDFN companies terminated KPMG’s engagement.
Upon learning that the LKDFN planned to bring a derivative action against it, KPMG commenced an arbitral proceeding in British Columbia on Mar. 21, 2024. KPMG claimed that arbitration was appropriate because its engagement letters with the LKDFN companies included an arbitration clause.
In the underlying oppression action, the receiver applied for a direction that the arbitration clause was inoperative, void, or incapable of performance.
On the LKDFN companies’ behalf and with the receiver’s support, the LKDFN brought the derivative action against KPMG on Aug. 2, 2024. It filed a separate derivative action against Reynolds, Mirth, Richards and Farmer LLP and four lawyers.
On Aug. 13, 2024, KPMG applied to stay the court proceeding in favour of arbitration. On Dec. 17, 2024, the LKDFN filed its originating notice asserting that KPMG knowingly assisted in the CEO’s oppressive conduct and breaches.
The KPMG derivative action sought to recover equitable compensation and damages of $30 million and punitive damages for the alleged conspiracy and KPMG’s knowing assistance in breach of fiduciary duty, breach of contract, and/or negligence.
In the KPMG oppression action, the LKDFN requested an order to set aside the KPMG engagement letters under s. 253 of the Canada Not-for-Profit Corporations Act, 2009, and s. 243 of the NWT’s Business Corporations Act, 1996.
Last Jan. 14, an application judge of the Supreme Court of the Northwest Territories stayed the KPMG oppression action, which he described as “an attempt to end-run the arbitration agreement” that fully duplicated actions and applications already pending.
The judge acknowledged that the arbitration agreement bound the LKDFN companies. However, he set aside the agreement as a “necessary adjunct to successfully carrying out the ongoing recovery” from the CEO’s oppression, as the receiver had requested.
The judge determined that the arbitration agreement did not cover the claims concerning KPMG’s direct engagements with the CEO and entities controlled by his family (the CEO advice claim) under s. 8 of NWT’s Arbitration Act, 2022.
On Feb. 13, KPMG filed a notice of appeal challenging the judge’s decision to set aside the arbitration agreement and his determination that the CEO advice claim was not subject to arbitration. The LKDFN also appealed the order staying the KPMG oppression action.
The NWT Court of Appeal will hear the appeals this June. KPMG applied to stay the derivative action against it pending its appeal.
Derivative action stayed
The Court of Appeal for the Northwest Territories found it just and equitable to stay the KPMG derivative action in the circumstances.
The appeal court addressed the applicable test for a stay pending appeal in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311.
First, the appeal court saw a serious question for the appeals to determine, given the application judge’s novel approach of setting aside the arbitration agreement to aid in the recovery from the CEO’s oppression.
Second, the appeal court ruled that denying a stay would irreparably harm KPMG, given the differences between judicial and arbitral processes. The appeal court stressed that KPMG could not undo the displacement of the arbitrator’s discretion over the production of documents and pre-hearing questioning.
Third, the appeal court held that the balance of convenience favoured KPMG. The appeal court reiterated that KPMG could not restore its lost arbitral rights.
Given the scheduled appeal hearing in June, the appeal court explained that the relatively short delay would not cause harm to the respondents outweighing the possibility of rendering KPMG’s appeal nugatory or insignificant.
