Just before the Christmas holiday break, the Court of Appeal for Ontario issued a ruling against the 407 ETR corporation (“407”) on an issue that insolvency lawyers and bankruptcy trustees have suggested for years should have been obvious. 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, which laws are founded on the “fresh start” principle. Despite the federal bankruptcy regime, the 407 Act of Ontario 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 he was no longer indebted to them. The Registrar agreed. The 407 then appealed to a single judge of the Superior Court who overturned the Registrar’s decision, concluding 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. Fortunately, 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, a number which I understand to be in the thousands.
In Canada, the Bankruptcy and Insolvency Act (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 (through illness, long term unemployment, marital breakdown, a failed attempt to run a business, among other reasons) would be entitled, after a period of bankruptcy, to a discharge. Once an Assignment in Bankruptcy is made (thus putting the individula into a state of bankruptcy) 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 Ontario, however, an apparent conflict with the aims of the BIA has arisen as a result of the 407 Act. Upon discharge, although the 407 could no longer take any legal action or other collection and enforcement mechanisms to collect its toll debt from the 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, as the BIA consumer bankruptcy regime also groups together all unsecured creditors of a bankrupt (generally speaking these would include banks for unsecured loans and credit cards; other charge card companies; utility providers; private lenders including family; and often Revenue Canada) to share any assets or surplus income of the bankrupt (or more likely to all lose out in the majority of consumer bankruptcies), 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 the Court of Appeal in deciding the case. Madam Justice Sarah Pepall, writing for the unanimous Court of Appeal panel in Canada (Superintendent of Bankruptcy) v 407 ETR Concession Company Limited, stated quite tongue in cheek, that the “407 Act should not permit (407) to occupy the collector’s lane”.
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 the relevant section of the 407 Act as to be rendered inoperative. This is no insignificant decision. Given that there are approximately 25,000 bankruptcies a year in Ontario, there are presently thousands of Ontario drivers validly discharged from bankruptcy hindered from a true fresh start because they cannot obtain the necessary permit to legally drive in a province where except for those living in the core of Toronto, private vehicle transportation is necessary just to get to work. This number would have been bound to increase by several thousand a year had it not been for this decision.
While 407 is currently determining whether to seek leave to appeal to the Supreme Court of Canada, I would advise any discharged bankrupt with a permit denial as a result of pre-bankruptcy debt to immediately contact the collections department of 407. Demand confirmation that 407 will advise MTO to remove any 407 imposed restriction from their database. Given that the decision was just released I have not had any feedback on whether MTO will simply abide by the ruling of its own accord without the need for a 407 clearance notice for each individual affected driver. But the current state of the law is as set out by the Court of Appeal, which means 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.
The complete case can be found here: http://www.ontariocourts.ca/decisions/2013/2013ONCA0769.htm