A Commentary on Recent Legal Developments by the Canadian Appeals Monitor

Since our last post, the Supreme Court has released a significant trilogy of judgments involving issues of federal paramountcy and the Bankruptcy and Insolvency Act (the “BIA”).

The Court’s decision in Alberta (Attorney General) v. Moloney, dealt with an alleged operational conflict between section 178(2) of the BIA and section 102 of Alberta’s Traffic Safety Act. The TSA provision applies where an uninsured person is found liable for damages arising from a motor vehicle accident. It allows the province to suspend that person’s driver’s license until the judgment against him or her is satisfied (which often means repaying the province for compensation distributed under the Motor Vehicle Accident Claims Act). The BIA, on the other hand, releases the bankrupt upon discharge from all debts that are claims provable in bankruptcy (which would include the province’s claim for repayment of compensation). The debtor in this case challenged the province’s constitutional authority to suspend his license after he was discharged from bankruptcy.

Justice Gascon (for the majority consisting of Abella, Rothstein, Cromwell, Moldaver, Karakatsanis, and Wagner JJ.) held that there is an operational conflict between the provincial and federal legislation. Specifically, the Court held that the two pieces of legislation provided inconsistent answers on whether there is an enforceable obligation on the discharged bankrupt to repay the province’s claim for compensation. The Court characterized the impugned section as a debt collection mechanism which essentially created a new class of exempt debt, which directly conflicts with the BIA since it states that the claim has been released. Therefore, the majority of the Court held that the TSA provision is inoperable to the extent of the conflict.

The Court further held that because section 102 of the TSA frustrates the purpose of the BIA (which it construed as financial rehabilitation of the debtor), the impugned provision would also be found inoperative under the second branch of the paramountcy analysis.

The same result was reached in the companion case of 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), which dealt with the Registrar of Motor Vehicle’s power under section 22(1) of the Highway 407 Act in Ontario to refuse to issue a debtor’s vehicle permit for failure to pay a Highway 407 toll debt.

In both cases, Justice Côté (McLachlin CJ. concurring), dissenting in part, did not find that there was an operational conflict between the two pieces of legislation, as the bankrupt could choose to comply with the provincial legislation without violating the federal legislation by renouncing his rights under the BIA, or alternatively, the debtor could avoid the conflict by choosing not to drive. The majority rejected these scenarios as instances of single compliance to avoid a clear conflict. However, Justice Côté agreed with the majority that the provincial legislation still frustrated the purpose of the BIA, and would accordingly have reached the same result.

A similar issue was addressed by the Court in Saskatchewan Attorney General) v. Lemare Lake Logging Ltd. In that case, a secured creditor brought an application pursuant to section 243(1) of the BIA for the appointment of a receiver over substantially all of the assets of a debtor, who in this case was a farmer. The debtor contested the application on the grounds that the creditor had to comply with Part II of The Saskatchewan Farm Security Act, which provides that where a person wishes to commence an action in respect of farm land, they must first serve a Notice of Intent providing 150 days’ notice, and comply with other requirements including a mandatory review and mediation process. In contrast, section 243(1) of the BIA, requires only 10 days’ notice.

Justices Abella and Gascon (writing on behalf of a majority consisting of Cromwell, Moldaver, Karakatsanis, and Wagner) upheld the constitutionality of the provincial legislation, holding that there was no operational conflict, since the creditor could comply with both by complying with the longer of the two notice periods and the additional administrative requirements. While Justice Côté in dissent agreed that there was no operational conflict, she held that the provincial legislation frustrated the purpose of a timely-process implicit in the 10 day notice provision of the BIA. By contrast, the majority gave the BIA provision a simpler and narrower construction, i.e.: “the establishment of a regime allowing for the appointment of a national receiver, thereby eliminating the need to apply for the appointment of a receiver in multiple jurisdictions”.  It therefore found that there was no frustration of purpose, so the provincial provision was upheld.

The trilogy is significant in that it demonstrates the appropriate application of paramountcy principles. The cases highlight that under the first branch of the paramountcy test, a provincial statute will be inoperative to the extent that it is incompatible with valid federal legislation. This normally refers to situations where it is impossible to comply with both.  However impossibility of dual compliance is not necessary, as the Court would not require a person to renounce the protection afforded by one statute in order to avoid a conflict with another. With respect to the BIA, these cases establish that there is a true incompatibility where provinces attempt to legislate to compel payment of a debt that has been released under the BIA.

Under the second branch of the paramountcy test, the Court confirmed that the purpose of the federal statute ought to be given a simple and narrow construction. In the interest of “cooperative federalism”, Courts should avoid constructions that are unnecessarily broad where a narrower construction would save the impugned provincial statute.

Specifically, with respect to the BIA, the Court confirmed that a purpose of the Act is to provide a “fresh start” to the discharged bankrupt. The Court rejected the position that the purpose of the Act implicitly encompasses the broad notions of urgency or “real-time insolvency”.

Applications For Leave

The Supreme Court also recently granted leave in Endean v. British Columbia, which will be heard together with Parsons v. Ontario. Both appeals deal with the question of whether a judge may hear a contested motion while sitting in another province, with or without a videoconference link to a physical courtroom in the judge’s home province. The issue arises in the context of a class proceeding that was separately certified in British Columbia, Ontario, and Quebec, and which was the subject of a national settlement agreement. These appeals will give the Court the opportunity to address the requirements of the open courts principle in the context of administering a national class action settlement.  Depending on the manner in which the issues are framed, this appeal may also provide an opportunity to articulate the extent of the courts’ inherent jurisdiction to craft practical solutions to class actions that cross provincial boundaries.