407 Can No Longer Suspend Licence Plates of Bankrupts

Litigator and Paralegal SCOPE contributor Darryl Singer explains a decision that affects paralegals whose practice includes judgment enforcement and Provincial Offences.

The corporation that operates the 407 ETR toll highway is the focus of one of the more significant bankruptcy decisions rendered in the last several years by the Court of Appeal for Ontario. The decision, released Dec. 19, 2013, is Canada (Superintendent of Bankruptcy) v. 407 ETR Concession Company Limited, 2013 ONCA 769.

While paralegals cannot give advice or practise in the area of bankruptcy and insolvency law, it is important keep up with current bankruptcy legislation and court decisions.

If you represent parties in enforcement actions after Small Claims Court decisions, you must be alive to changing trends in insolvency law. This will help paralegals to advise clients appropriately. A basic understanding of bankruptcy law as it relates to provincial fines, penalties and suspensions issued by various provincial government ministries, is helpful in Provincial Offences Act practise, as well as in relation to the 407.

Justices Rule Against 407

In the appeal, the three-judge panel of the Court issued a ruling against the corporation that operates the 407 ETR toll highway. The Court’s reasons were ones that insolvency lawyers and bankruptcy trustees have suggested for years. The issue related to 407’s ability to have the Ontario Ministry of Transportation (MTO) refuse to issue or renew licence plates/stickers if the driver in question had money owing to 407 for unpaid tolls.

The case involved a former truck driver and traveling sales agent, Matthew David Moore. Mr. Moore discovered after being discharged from bankruptcy and having all of his pre-bankruptcy debts expunged, that he could not renew his vehicle plate permit unless he paid the 407 at least a portion of the money he technically no longer owed to 407 (as that debt had likewise been wiped clean on the date of his discharge from bankruptcy).

This inability to obtain vehicle plates would, of course, not only prevent him from legally driving on the 407, but also anywhere else in Ontario. Given his employment history, this would also appear to interfere with his ability to earn a livelihood. Such an outcome is in direct contravention to the aims of consumer bankruptcy in Canada — laws that are founded on the “fresh start” principle.

Judicial Officer Agreed with Applicant

Despite the federal bankruptcy regime, the Highway 407 Act 1998, S.O. 1998, c. 28 allowed the 407 to require the MTO to suspend or refuse permits and plates to those who owed even modest sums to the toll highway company. As a result of this perverse quandary he faced after his discharge, Moore applied to the Registrar in Bankruptcy — a judicial officer in the Toronto court with oversight for bankruptcy law — for a judgment requiring 407 to notify the MTO that they could no longer withhold plates.

The Registrar agreed. The 407 then appealed to the Superior Court, which, in what can only be described as a misapprehension of the basic tenets of insolvency policy in Canada, overturned the Registrar’s decision. The judge concluded that there was no apparent conflict between the fresh start concept of the federal bankruptcy regime and the ability of 407 to essentially enforce collection of a debt post-bankruptcy.

Moore was set to appeal to the province’s highest court when the 407 sought to derail the appeal by offering what he said was a “sweetheart deal” to settle his outstanding debt. The federal Superintendent of Bankruptcy stepped in and was permitted by the Court of Appeal to argue the merits of the case for the benefit of all discharged bankrupts who found themselves in Moore’s situation. I understand that number could be in the thousands.

‘Fresh Start’ at Heart of Federal Legislation

In Canada, the Bankruptcy and Insolvency Act R.S.C., 1985, c. B-3 (BIA) deals with consumer bankruptcies with the aim of allowing discharged bankrupts a fresh start. The idea is that an “honest debtor” who has gotten in over his or her head financially would be entitled, after a period of bankruptcy, to a discharge.

Once an Assignment in Bankruptcy is made, no unsecured creditor can continue to enforce or collect upon any debt of the bankrupt. Upon discharge, all debts, except those enumerated in section 178(1) of the BIA, would be expunged, thus allowing the now discharged bankrupt to be free of any and all debts incurred prior to the date of bankruptcy.

In this manner, Parliament reasoned, the individual could move forward and rebuild their financial life free from the past encumbrances. Debts which would survive bankruptcy would include those debts incurred by fraud (one who incurs a debt by committing a fraud is obviously not an “honest debtor”); those related to child or spousal support; certain types of criminal court ordered restitution or fines.

It is long-settled law and policy in Canada that, regardless of the fact that the fresh start principle results in many creditors ending up unpaid to the tune of hundreds of millions of dollars a year, the consumer bankruptcy regime set out in the BIA is actually in the country’s best interests. I would suggest it is also in keeping with our national commitment to social justice and equality of opportunity.

In Through the Back Door

In Ontario, however, an apparent conflict with the aims of the BIA arose as a result of the 407 Act. Although the 407 could no longer take any legal action or enforcement mechanisms to collect its toll debt from a bankrupt, it could still require payment from the discharged bankrupt, in exchange for lifting the permit suspension.

In essence, if one wanted to continue to legally drive in Ontario after being discharged from bankruptcy, one would be forced to make a financial arrangement to repay some or all of the pre-bankruptcy debt one owed to 407, in order to obtain plates and permits. Thus, 407 was obtaining through the back door what it could not legally do by entering through the front door.

Further, because the BIA consumer bankruptcy regime also groups together all unsecured creditors of a bankrupt to share any assets or surplus income of the bankrupt (if any), the 407’s ability to have the MTO suspend plates also gave the 407 an unfair position as against other creditors, granting it a superior position not intended by the BIA.

In fact, this point was not missed by Madam Justice Sarah Pepall, writing for the panel. She stated, quite tongue in cheek, that the “407 Act should not permit (407) to occupy the collector’s lane.”

Paramountcy Doctrine Applied

Madam Justice Pepall also conducted a very detailed historical overview of the Supreme Court of Canada’s decisions on the doctrine of paramountcy. Simply stated, this doctrine specifies that when a federal piece of legislation and a provincial Act are in conflict, the federal legislation reigns supreme. She concluded that as the doctrine of paramountcy applied and further, as the section of the 407 Act which granted the suspension powers to 407 conflicted with the fresh start purpose of the BIA, the relevant section of the 407 Act was to be rendered inoperative.

This is no insignificant decision. Given that there are approximately 25,000 bankruptcies a year in Ontario, thousands of Ontario drivers validly discharged from bankruptcy are currently hindered from a true fresh start because they cannot obtain plates from the MTO.

The 407 is determining whether to seek leave to appeal to the Supreme Court of Canada. I understand that if it does so, it will also seek a stay of the effect of the Court of Appeal’s decision, pending the outcome of the Supreme Court appeal.

Until then, the current state of the law is as set out by the Court of Appeal; the 407 can no longer require the MTO to withhold plate permits from discharged bankrupts. Given the thorough analysis of and reliance upon Supreme Court bankruptcy decisions and paramountcy cases, I suspect even if the matter is appealed, the reasoning of the Court of Appeal is unassailable and will be upheld by the country’s highest court.

That being said, it is my understanding that discharged bankrupts on the 407/MTO suspension list who contacted 407 after the decision was released are still getting the run-around. Apparently, collections agents at 407 are being told not to change their protocol until a decision regarding a stay has been made. I would suggest that this is unlawful on the part of the 407 unless and until they seek and obtain a stay.

Darryl Singer is a Toronto litigator and dedicated 407 user who is thrilled by the Court of Appeal’s decision and encourages those affected by the ruling or their legal representatives to overwhelm the 407 with their demand for plate reinstatement.

Since the writing of this article, 407 has been granted leave to appeal to the Supreme Court of Canada. As well, the Court of Appeal granted a stay of the effect of its Order pending the decision of the Supremes. So technically, the status quo remains, although I am hearing from both lawyers and trustees that they are having mixed results in getting the suspensions lifted, despite the official position of 407 to maintain the suspensions. I personally think the analysis of the Court of Appeal regarding the conflict of laws is almost flawless and the Supreme Court will uphold the decision. Stay tuned…

Read the application for leave to appeal and various applications to intervene.

by Elizabeth Published on Paralegal Scope Magazine