December 19, 2013, the Ontario Court of Appeal held that the
Registrar of Motor Vehicles (the "RMV")
cannot deny vehicle permits to individuals on account of
pre-bankruptcy debts owing to the ETR Concession Company Limited
(the "ETR"). Based on the intent and
purpose of federal bankruptcy law to permit debtors to obtain a
"fresh start," it was concluded that the provincial act
establishing the ETR conflicts with bankruptcy law and was, as a
result, unconstitutional in part.
Matthew David Moore (the "Debtor")
was a truck driver whose debts to the ETR resulting from his use of
Highway 407 amounted to approximately $35,000 at the time of his
assignment into bankruptcy. Although listed as a creditor on the
Debtor's statement of affairs, the ETR did not file a proof of
claim. Instead, the ETR followed the procedures set forth in
section 22(1) of the Highway 407 Act (the
"407 Act"), which provides that the ETR
may notify the RMV of a driver's failure to pay ETR tolls, fees
and related interest. Pursuant to section 22(4) of the 407 Act, the
RMV is then required by law to refuse to issue a new vehicle permit
to the indebted driver. Upon receiving a discharge from his
bankruptcy, the Debtor applied to the RMV for a new vehicle permit.
Following Section 22(4) of the 407 Act, the RMV denied the
Subsequently, the Debtor moved before a Registrar in Bankruptcy,
seeking a declaration that his debt to the ETR was released as a
result of his bankruptcy discharge. The Registrar ordered that,
pursuant to section 178(2) of the Bankruptcy and Insolvency
Act (the "BIA"), the Debtor's discharge from
bankruptcy released all provable claims, including the ETR debt,
and a vehicle permit should be issued upon payment of the customary
licensing fee. The ETR then successfully moved before a judge to
set aside the order of the Registrar. The Superintendent of
Bankruptcy ("Superintendent"), believing
there to be an inconsistency between the provincial 407 Act and the
federal BIA, sought and received leave to appeal the decision of
the motion judge. As the doctrine of paramountcy dictates, where
there is an inconsistency between validly enacted but overlapping
provincial and federal legislation, the provincial legislation is
inoperative to the extent of such inconsistency.
The Court of Appeal's Decision
In a unanimous decision, the Ontario Court of Appeal confirmed
that an inconsistency between federal and provincial laws may arise
in one of two ways: (i) where there is an operational conflict,
such that dual compliance with both a federal and a provincial law
is impossible; or (ii) where dual compliance is possible, but the
operation of the provincial law is incompatible with, or
frustrates, the purpose of the federal law.
Under the first branch of the test, the Court determined that
there was no operational conflict between the impugned elements of
the BIA and the 407 Act, because while the BIA bars creditors from
enforcing their claims after a discharge, the 407 Act merely
permits (but does not require) the ETR to enforce its
claims by obliging the RMV to withhold vehicle permits.
Technically, the ETR could comply with both statutes by choosing
not to notify the RMV.
However, under the second branch, the Court found that the
purpose of section 22(4) of the 407 Act was to collect toll debt,
which was effectuated by requiring the RMV to deny vehicle permits
to anyone who had not paid his or her debts to the ETR, subject to
due notice, whether or not such person had received a discharge in
bankruptcy. As the Court found, "...permitting a creditor
to insist on payment of pre-bankruptcy indebtedness after a
bankruptcy discharge frustrates a bankrupt's ability to start
life afresh unencumbered by his or her past
indebtedness." Given this conclusion, it was unnecessary
to examine whether the 407 Act frustrated the BIA's other chief
purpose, the equal treatment of a debtor's unsecured
As a result of the Court's decision, section 22(4) of the
407 Act is now inoperative to the extent of its application against
a discharged bankrupt.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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