Following a series of procedural applications, Joseph Ensom, Edith Chen, and Jonathan Stokes have successfully obtained a default judgment in the amount of $4.7 million against Mercy Falls LLC (the “Studio”) arising from a film production funding dispute involving a Vancouver-based feature film.
In 2024, Mercy Falls BC Inc. (the “Producer”) entered into a production and services agreement (the “PSA”) with the Studio to produce a film adaptation of the popular werewolf romance novel Shiver by Maggie Stiefvater. Under the PSA, the Studio was to fund the film while the Producer was responsible for all aspects of production. By November 2024, the Studio had fallen several million dollars behind on its funding obligations and production of the film stalled, triggering multiple enforcement and collection actions against the Producer. In May of 2025, the Producer sought and was granted protection under the Companies’ Creditors Arrangement Act, RSC 1985, c. C-36 (the “CCAA”).
The Producer alleged that the Studio’s failure to meet their funding obligations was a breach of the PSA (the “Contract Claim”). The Producer sought to resolve the Contract Claim within the CCAA proceedings despite the existence of an arbitration clause in the PSA. In a series of applications before Justice Basran, the court agreed that the Contract Claim was the Producer’s only significant asset and the use of the CCAA as “an expedited litigation mechanism in respect of a material asset” was appropriate, even in the presence of an arbitration clause.[i] After considering the factors set out by the Supreme Court of Canada in Peace River Hydro Partners v Petrowest Corp[ii], the court held that the Studio’s non-participation in the CCAA proceeding offsets the inherent efficiency of arbitration, “because effective use of arbitration requires that the parties work together”.[iii] As a result, several stays were issued over the summer and an expedited Litigation Schedule was put in place at the beginning of September.
Following the Studio’s failure to comply with the Litigation Schedule, the Producer sought and successfully obtained a default judgment in the amount $4,736,455 with leave to apply for a further summary assessment of damages for amounts arising after the order date and amounts currently unknown to the Producer.[iv]
Key Takeaways
Section 11 of the Act provides the courts with broad discretion to bring other claims within CCAA proceedings if doing so would better serve the remedial objectives of the Act. Further, where certain factors are met, the courts may find an arbitration agreement inoperative in the CCAA context.[v] The court will be unlikely to enforce an arbitration clause when a party to the contract with proper notice does not participate in resolution of the dispute. Finally, the courts have discretion under s.11 of the CCAA to grant leave to apply for further damages assessments after a damages award is made.
For more information on this case, contractual disputes, or bankruptcy matters, please contact Joseph Ensom.
[i] Mercy Falls BC Inc. (Re), 2025 BCSC 1045, at para. 23 and Mercy Falls BC Inc. (Re), 2025 BCSC 1960 at para. 33.
[iii] Mercy Falls BC Inc. (Re), 2025 BCSC 1960 at para. 34.
[iv] Mercy Falls BC Inc. (Re), 2025 BCSC 2492.
[v] Mercy Falls BC Inc. (Re), 2025 BCSC 1960, at paras. 28-32. It should be noted that Petrowest was decided in the context of the Bankruptcy Insurance Act, RSC 1985 c. B-3. To our knowledge Mercy Falls is the first case applying the same factors in a CCAA proceeding.