Supreme Court of Canada rules federal Bankruptcy & Insolvency Act can trump provincial motor vehicle laws if the two are in conflict

Top court rules bankruptcy act can trump provincial traffic laws by Leslie MacKinnon, The Canadian Press, November 13, 2015, ipolitics

The Supreme Court of Canada has allowed two men to have their driver’s licence or permit restored even though, because they had declared bankruptcy, they didn’t repay substantial fines incurred while driving their vehicles.

In doing so, the court made use of the so-called doctrine of paramountcy, which gives the federal Bankruptcy and Insolvency Act precedence over provincial motor vehicle laws if the two are in conflict.

Bankruptcy is a last-ditch measure meant to pay off creditors in a equitable way, but it also gives people drowning from excessive debt a fresh start in their financial lives.

Friday, the Supreme Court of Canada ruled on three bankruptcy cases, finding a common thread in all of them.

1.

In one case, in 1989, truck driver Joseph Maloney caused a serious accident while he was driving with no insurance. In 1996 a default judgement was levied against him for $194,875 but, although he tried, he couldn’t repay the whole amount. As authorized by the provincial Traffic Safety Act, the province of Alberta suspended his driver’s licence. Maloney filed for bankruptcy, but the province continued to refuse to renew his licence.

His case eventually landed at the highest court with the Attorney General of Alberta arguing, “The Bankruptcy and Insolvency Act does not provide discharged bankrupts with a positive right to a fresh start in all aspects of their lives.”

Friday, in a 7-2 decision, Justice Clémont Gascon, writing for the majority, found a conflict between Alberta traffic law and the federal bankruptcy act.
Gascon also found, “The crushing burden of the province’s claim against him [Maloney] was the main reason for his bankruptcy,” adding, “As a truck driver, his ability to gain a livelihood is tied to his ability to drive.” Gascon’s majority opinion contrasts sharply with the dissent written by Justice Suzanne Côté, who wrote Maloney could avoid the debt by simply choosing not to drive.

2.

In another case, in Ontario, Matthew Moore drove on the privately-owned 407 toll highway near Toronto for over five years, mostly in his 2002 Mercedes, and racked up over $30,000 in toll fees, an amount that more than doubled over the years with interest charged.

Even after the Registrar of Bankruptcy allowed him to pay just $1,200 and gave him an absolute discharge from the 407 debt, vehicle permits for his two cars were withheld by the province.

Moore’s case is not an isolated one. Since 2007 the number of bankrupts in Ontario who list Highway 407 as a creditor exceeds 6,000 people.
The top court found the 407 act frustrated Parliament’s purpose of providing discharged bankrupts with the ability to financially rehabilitate themselves.

Again, Gascon, writing for the 7-2 majority, spoke of the “crushing financial liability” of Moore’s 407 debt, noting the rapidly accumulating interest created an unliftable burden: “The more Mr. Moore delays payment of the toll debt, the more unlikely it is he will ever be able to pay it and recover his vehicle registration purposes.”

3.

In the third case, in an “intergenerational family dispute,” according to court documents, two brothers in Saskatchewan tried to force their father, a farmer, into bankruptcy, for failing to pay the farm’s mortgage he owed to his sons’ company.

However, the Saskatchewan Farm Security Act, a law that in various forms dates back to the days of Tommy Douglas, mandates up to 150 days of mediation between farmers and mortgage holders in order to protect farmers from having their land seized.

Gascon, again writing for the majority, found no evidence a 150-day wait for mediation frustrated the timeliness or effectiveness of the bankruptcy act.
[Emphasis added]

[Refer also to:

2014 07 17: What happens when an insolvent energy company fails to pay its surface rent to a landowner?

2015 10 27: What Happens When an Insolvent Energy Company Fails to Pay its Surface Rent to a Landowner? Part 2

These numbers certainly suggest section 36 is an overworked provision, and that the failure by energy companies to pay their rent is not uncommon. Alberta taxpayers have paid out nearly $10 million to cover rent owed by the oil & gas industry to landowners over the past 10 years.

The Board’s position remains that it is precluded from proceeding with the Lemkes’ section 36 application (more later on why I’ve underlined this application specifically) because it runs afoul of provisions of the Bankruptcy and Insolvency Act which, generally speaking, state no proceeding outside of the federal bankruptcy and insolvency process may be commenced against a bankrupt, and that the doctrine of federal paramountcy means section 36 is inoperable for non-payment of rent by a bankrupt energy company.

If you find the Board’s reasoning across these cases hard to follow, I’m sure you are not alone. It seems the Lemkes may apply under section 36 to recover unpaid rent from PetroGlobe that accrued before it was assigned into bankruptcy, but that request will only be processed by the Board if it is attached to a further request for the recovery of unpaid rent that accrued after the company was assigned into bankruptcy. This is legal formalism at its worst. [Emphasis added]

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