Canada: Supreme Court Revisits Test For Federal Paramountcy

Last Updated: December 1 2015
Article by Byron Shaw

Most Read Contributor in Canada, September 2018

The principle of federal paramountcy provides that valid provincial legislation will be rendered inoperative to the extent it conflicts with valid federal legislation where: (1) there is an operational conflict such that it is impossible to comply with both laws; or (2) operation of the provincial law frustrates the purpose of the federal law.1

Like many constitutional principles, the paramountcy test is easy to state yet more difficult to apply. According to the minority of the Supreme Court in Alberta (Attorney General) v. Moloney,2 decided together with the companion case of 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy),3 the "two branches have been confused" in the jurisprudence.4 One of the potential sources of the confusion may stem from differences in how the provincial and federal laws are characterized by the Court and what it means for a citizen to be "compelled" to act by either level of government.

Background

Mr. Moloney caused a car accident while he was uninsured. The province of Alberta compensated a person who was injured in the accident and sought to recover the amount of the compensation from Mr. Moloney. Section 102 of Alberta's Traffic Safety Act (the "TSA") allows the province to suspend an individual's driver's license until the amount of the compensation owed to the injured party has been paid. Mr. Moloney made an assignment in bankruptcy under the federal Bankruptcy and Insolvency Act (the "BIA") and was discharged from bankruptcy. Section 178(2) of the BIA provides that upon discharge, the debtor is released from all debts that are claims provable in bankruptcy. The province's claim against Mr. Moloney was a claim provable in bankruptcy. Mr. Moloney did not pay the claim, relying on s. 178(2) of the BIA. Alberta suspended his driver's license, and he challenged the suspension.

Operational Conflict, Purpose Conflict or Both?

The Supreme Court unanimously agreed that s. 102 of the TSA and s. 178(2) of the BIA were in conflict and that s. 102 of the TSA was therefore inoperative. The majority (per Abella, Rothstein, Cromwell, Karakatsanis, Wagner and Gascon JJ.) held that there was operational and purpose conflict. The minority (per Coté J. and McLachlin C.J.) held that there was purpose conflict only.

Both the majority and minority returned to Multiple Access Ltd. v. McCutcheon,5 the seminal decision on what is now considered to be the first branch of the paramountcy test. In Multiple Access, Dickson C.J. held:

In principle, there would seem to be no good reasons to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says "yes" and the other says "no"; "the same citizens are being told to do inconsistent things"; compliance with one is defiance of the other.6

The majority held that there was an operational conflict between s. 102 of the TSA and s. 178(2) of the BIA. According to the majority, the TSA provisions were a debt enforcement mechanism; they allowed the province to compel payment of a provable claim that had been released under federal law:

In a case like this one, the test for operational conflict cannot be limited to asking whether the respondent can comply with both laws by renouncing the protection afforded to him or her under the federal law or the privilege he or she is otherwise entitled to under the provincial law. In that regard, the debtor's response to the suspension of his or her driving privileges is not determinative.  In analyzing the operational conflict at issue in this case, we cannot disregard the fact that whether the debtor pays or not, the province, as a creditor, is still compelling payment of a provable claim that has been released, which is in direct contradiction with s. 178(2) of the BIA.7

By contrast, the minority held that operational conflict is limited to situations where there is incompatibility evident "on the face of the provisions themselves."8 If the provincial law allows the very same thing the federal law prohibits, there is operational conflict.9 According to the minority, s. 102 of the TSA does not revive discharged claims; if a debtor chooses not to drive, the province cannot enforce its claim against the debtor. Alternatively, the individual can voluntarily pay the discharged debt, in which case the province has nothing to enforce. In either case, the bankrupt is still "discharged" within the meaning of s. 178(2) of the BIA.10

As discussed above, both the majority and the minority agreed that the provincial law frustrated the purpose of the BIA provisions. A central purpose of the BIA discharge provisions is the financial rehabilitation of the debtor. The TSA provisions frustrate that purpose by allowing the province to withhold the debtor's driver's license unless and until its claim for unpaid compensation has been reimbursed. 11

Implications

The majority and minority in Moloney went to great lengths to debate the proper scope of each branch of the test for paramountcy and the policy implications of adopting either a broad or narrow interpretation of the operational conflict test. However, a close analysis reveals that the root of the Court's disagreement in Moloney has less to do with doctrinal differences on the paramountcy test and more to do with the Court's characterization of the laws at issue and the meaning of compulsion.

The majority characterized the TSA provisions as a debt enforcement mechanism which allows the province to demand payment from the debtor notwithstanding his discharge from bankruptcy. Under this characterization, the TSA permits what the BIA prohibits. This amounts to an operational conflict, even on the minority's formulation of the test.12 Further, the majority held that Mr. Moloney was being compelled to do different things by federal and provincial laws within the meaning of Multiple Access:

If [the respondent] pays the debt, then the provincial law will have required him to pay a debt that has been released by the federal law. If [he] does not pay the debt, then the provincial law will have punished him — by withholding his driver's licence — for failing to pay a debt that has been released by the federal law.13

The minority went to great pains to state that an analysis of the purpose or effect of a provincial law has no place in the first branch of the paramountcy test and that operational conflict should be limited to a search for impossibility of dual compliance based on the wording of the provisions alone.14 Yet, the minority's decision is premised on its characterization of the legislative provisions at issue and a (far more) literal concept of compulsion.

The minority characterized the TSA provisions as regulatory rather than in the nature of debt enforcement, noting that the two statutes had "different contents and provide for different remedies."15 Accordingly, the minority held that s. 102 does not "revive an extinguished claim [under the BIA] per se; it simply allows the province to suspend the debtor's driver's license unless and until the claim is reimbursed by the debtor.16 Furthermore, in the minority's view, Mr. Moloney was not "compelled" to comply with inconsistent laws at all – he could simply choose not to drive or to pay the debt voluntarily.17

While the paramountcy test has two parts, a finding of operational conflict ends the paramountcy inquiry and relieves the party seeking relief from a provincial law from the burden of proving that it "frustrates" the purpose of the federal enactment. Litigants seeking to take advantage of the paramountcy doctrine should characterize the provincial law so as to tie it as closely as possible to the federal statute, i.e. demonstrate that the laws deal with the very same matter. In addition, they should develop a strong evidentiary record of inconsistent conduct resulting from the application of laws enacted by each level of government.

Case Information

Alberta (Attorney General) v. Moloney, 2015 SCC 51

Docket: 35820

Date of Decision: November 13, 2015

407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), 2015 SCC 52

Docket: 35696

Date of Decision: November 13, 2015

Footnotes

1. Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, at para. 75.

2. 2015 SCC 51 [Moloney].

3. 2015 SCC 52. Only the Moloney decision will be addressed in this post.

4. Moloney at para. 114.

5. [1982] 2 S.C.R. 161.

6. Ibid. at p. 191.

7. Moloney at para. 60.

8. Ibid. at para. 108.

9. Ibid. at para. 110.

10. Ibid. at para. 97.

11. Ibid. at paras. 77-83.

12. Ibid. at paras. 75, 110 and 128.

13. Ibid. at para. 60.

14. Ibid. at para. 108.

15. Ibid. at para. 123.

16. Ibid. at para. 97.

17. Ibid. at para. 123.

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