SCC Confirms Federal Paramountcy Test Still Applies – For Now in Alberta (Attorney General) v. Moloney, 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy) and Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd.
November 16, 2015
By Benjamin Durnford, Partner at McInnes Cooper,
Natalie Stewart, former lawyer at McInnes Cooper
On November 13, 2015, the Supreme Court of Canada (SCC) confirmed, in a series of three decisions, that any provincial law that is operationally inconsistent with the federal bankruptcy scheme, or that frustrates its rehabilitative purpose, is of no force and effect – but left the future of the federal paramountcy test to be addressed further on another day.
Operational Inconsistency. The first two cases each involved a driver with an outstanding debt imposed under provincial legislation; each subsequently declared, and was discharged in, bankruptcy. However, the Province refused to renew their drivers’ licences based on provincial legislation authorizing it to do so until the driver paid the outstanding debt under the provincial legislation – even after bankruptcy. Both drivers challenged the Province’s authority to do so in the face of section 178(2) of the Bankruptcy and Insolvency Act (BIA) providing that a discharge in bankruptcy releases a debtor from all debts that are claims provable in bankruptcy. In both cases, the SCC decided the provincial legislation is constitutionally inoperative to the extent it was used to enforce a debt discharged in bankruptcy. The SCC decided the provincial legislation and the federal BIA clearly conflict – and can’t operate concurrently: one provides for the release of all claims provable in bankruptcy, while the other disregards this release and allows for the use of a debt enforcement mechanism to exclude a discharge in bankruptcy. Read the SCC’s decisions in Alberta (Attorney General) v. Moloney, 2015 SCC 51 and 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), 2015 SCC 52 here. The SCC reached a different conclusion in the third case. The provincial Saskatchewan Farm Security Act imposed certain additional restrictions on farm land, including a notice period exceeding the 10-day period in section 243(1) of the BIA. The SCC decided that operationally, it’s possible to comply with both the provincial and the federal legislation. Read the SCC’s decision in Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., 2015 SCC 53 here.
Frustration of Purpose. In the first two cases, the SCC decided that the provincial legislation also frustrated one of the main purposes of the BIA: financial rehabilitation. The effect of the provincial legislation was to continue burdening the discharged bankrupt until full payment of the debt, as if the discharge in bankruptcy had never occurred. Again, however, the SCC reached a different conclusion in the third case. There, the provincial legislation didn’t frustrate the narrow purpose of section 243: avoidance of a multiplicity of proceedings by establishing a national regime. The BIA does not state that the 10-day waiting period should be treated as a ceiling, rather than a floor, and the discretionary nature of the section 243 remedy – a court “may” appoint a receiver – supports a narrower reading of the provision’s purpose. Finally, section 72(1) of the BIA clearly states that Parliament explicitly recognizes the continued operation of provincial law, except to the extent it is inconsistent with the BIA. However, the SCC did expressly leave open the argument that the two branches of the paramountcy test are no longer analytically necessary or useful – but left that question “for another day.”
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Bankruptcy & Insolvency Team to discuss this topic or any other legal issue.
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