Consumer Bankruptcy Law — Technical Update

Co-author with Jonathon Baker, Law Studio Professional Corporation

Introduction

This paper aims to present a brief summary of significant legal decisions over the past year, as they relate to and impact Ontario consumer bankruptcy and insolvency practitioners. It is by no means necessarily comprehensive or exhaustive.

Effect of an Order of Discharge on driver's licenses and outstanding penalties

The case-law on the issue of a suspended or non-renewed driver's license and unpaid penalties following a bankrupt's discharge from bankruptcy, has remained a contentious topic for some time. There was a line of cases which held that provincial licensing authority remained valid after a bankrupt's discharge from bankruptcy; as such, a province, as part of its licensing authority, could deny a reinstatement of a bankrupt's driver's license where there remained an unpaid judgment arising out of a motor vehicle accident.1 In Ontario, there are two recent decisions of significance. The first is Ontario (Minister of Finance) v. Clarke,2 where the Ontario Superior Court of Justice dismissed an appeal from a Master's decision holding that the denial of a driver's license to a bankrupt with an un-fulfilled judgment debt incurred as the result of a motor vehicle accident, is considered to be 'debt collection' and therefore in conflict with the BIA. In Clarke, the subject judgment arose pursuant to the Ontario Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41, where an accident victim obtained judgment against an uninsured motorist (the proposal debtor); payment was obtained from the Motor Vehicle Accident Claims Fund ("MVACF") under its compensation programme, which was then assigned the judgment and sought to collect from the uninsured debtor. The presiding Judge considered that the effect of the Supreme Court of Canada decision in AbitibiBowater3 and also relevant American caselaw (Perez v. Campbell, 402 U.S. 637 (1971)) were to confirm that where a provable claim from a regulatory body can be reduced to a monetary claim, it must be dealt with through the bankruptcy process. The contrary, would amount to creating a 'carve-out' for provincial regulatory or licensing schemes to permit debt enforcement after discharge, and would alter the scheme of distribution and re-order priorities.

The second significant decision is the Ontario Court of Appeal decision in Re Moore,4 which allowed an appeal from the Ontario Superior Court of Justice's determination that the bankrupt, who had accumulated an ETR debt of over $88,000, could continue to be subject to the toll debt as it affected the bankrupt's driver's license. Although the bankrupt had not appealed the Superior Court decision, the Superintendent of Bankruptcy ("OSB") intervened and appealed the decision, arguing that the doctrine of federal paramountcy renders s. 22(4) of the Highway 407 Act, 1998, R.S.O. c. 28, (the "407 Act) inoperative, in that it conflicts with s. 178(2) of the BIA and secondly, frustrates the purposes of the bankruptcy and insolvency system. The Court of Appeal, in applying the doctrine of paramountcy, determined that there was no operational conflict between the 407 Act and the BIA. In applying the constitutional test,5 the ETR could comply with both statutes by declining to pursue its remedies under the 407 Act; as for the bankrupt, the bankrupt had freedom of choice in respect of the 407 Act and was not required to obtain a vehicle permit, and could also choose whether to pay the toll debt or not. Notwithstanding, the Ontario Court of Appeal determined that operation of the 407 Act does conflict with the purpose of the BIA, namely the 'fresh start principle' and the unequal treatment of unsecured creditors. In respect of the 'fresh start principle', the Court of Appeal held that permitting a debtor a chance for a new start unencumbered by past indebtedness is an underlying principle of the BIA. The BIA also contains certain exceptions to the principle, which are prescribed by s. 178(1), and which include debts under certain specified provincial programmes, of which toll debt owing to ETR was not one. The Court of Appeal further held that the 407 Act frustrates the purpose of the BIA by creating a new class of debt which survives bankruptcy and frustrates the principle of treating all unsecured creditors equitably. It should be noted that the Court of Appeal did however, distinguish certain cases where there was professional misconduct or a disciplinary objective of the underlying provincial regulatory authority, where the power to suspend was founded...