Thursday, September 6, 2012

Does Bankruptcy Clear Your ETR Debt?

This is an issue that has gotten a bit of media attention, and it's looking like it will soon get some judicial attention as well.

Most of my readers will know that the 407 ETR, part of the legacy of the Mike Harris regime, is a private toll highway.  As most modern toll highways, it has photographic and electronic tolling systems - they track your entry and exit from the highway (via electronic transponder or photographs of your plates) - and send you a bill for your use of the highway.

If you don't pay the bill, they get to tell the Registrar of Motor Vehicles not to renew your license plates.  And, following some litigation in early years in which the government tried to rein in control of the ETR, the ETR established a pretty unqualified right to do so.

So the interesting question is this:  Can the ETR continue to insist that the Registrar refuse to renew the license plates of a discharged bankrupt?

Before we move on, let me give a 30-second crash course on bankruptcy for beginners:

Bankruptcy is a process designed to give people buried in insurmountable debt 'a fresh start'.  Basically, when you apply for bankruptcy, the Courts make you satisfy your creditors to the extent that you're able for a period of time, and then you get a 'discharge'.  Nearly all debts (with some exceptions) are cleared by the discharge - the discharge prevents your creditors from chasing after your assets moving forward.  They can't sue you, they can't get a judgment, and they can't take enforcement actions based on pre-bankruptcy debts.

That's a pretty oversimplified view of bankruptcy, but it gets you what you need to know here.

Let's look at the Matthew Moore case, as an example of what has been happening.  Mr. Moore made an assignment in bankruptcy in November 2007.  His debts included a $35,000 debt to the ETR.

On June 21, 2011, Moore received an absolute discharge from bankruptcy.  Figuring this cleared his debts, he then went to renew his plates.  But he couldn't.  The ETR takes the position that, even though it can't sue Moore for the money, it is still entitled to force the Registrar to refuse to renew plates until the debt is paid.

How Does the ETR Justify This?

The ETR's web site explains its position on the point.  Notwithstanding the ETR's implication therein that the matter is settled law, nothing could be further from the truth.  The only case I've even heard of where the question was judicially considered is the Moore case, and the Moore case is (sort of) subject to appeal, which I'll explain below.

The ETR calls itself an "open access highway", and says that, "[u]nlike other service providers, 407 ETR does not have the opportunity or ability to screen or examine the credit-worthiness of its customers until after they have used the highway....unlike other companies that can refuse to provide service, cancel credit or turn off utilities to those who fail to pay, plate denial is the only effective remedy available to 407 ETR."

In my view, there are several problems with this analysis.  It is arguable whether or not the ETR is unable to deny services, and in any event if it is so unable this inability arises as a matter of contract.  There are certainly other remedies available to it, but the plate denial remedy is more cost-effective - all the ETR has to do is engage plate denial, and then it can sit back and wait for the debtor to come, cash in hand.  Most importantly, it is not alone in not being able to choose its debtors.  And finally, if there's a conflict with the Bankruptcy and Insolvency Act ("the BIA"), the BIA takes precedence over anything the Province can legislate or contract for anyways.

Open Access Highway

This phrase, 'open access highway', doesn't really have any significance in law, and it's a little misleading for the 407 to refer to itself as such.  There is a term, "controlled-access highway", which refers to highways which have controlled points of access, and includes all 400-series highways, including the 407.  What the 407 means by "open access" is that it doesn't place physical barriers blocking or restricting vehicles from using the access ramps.

That's a business model, though, and not a legal barrier.  Nothing in the Highway 407 Act prevents the construction of physical toll booths.  It's a good business model, too - for the handful of delinquent accounts it can't collect on, the administration of the electronic toll system is quite cost-effective and permits effective collection for huge numbers of tolls.  It is not the case that the legislature came in with a law saying "You can't block people from accessing the highway."

Furthermore, as a private occupier of land, there is no law preventing the ETR from issuing Notices of Trespass to non-paying users, prohibiting such people from using the ETR, and enforcing remedies under the Trespass to Property Act.

Of course, it's never quite that simple.  The ETR contracted with the Ontario government to lease the land, and the lease imposes certain requirements on the ETR regarding the provision of service.  The electronic toll system is expressly set out in the schedules to the contract, and the contract itself provides for "barrier free access" for use by "all members of the public", without requiring pre-payment or prior notification by users.

So, obviously it would be breaching the contract by changing its business model in respect of the toll system. And there may be an argument to be had about whether or not the contract permits it to prohibit use by people with delinquent accounts - I'm not familiar with all the ins and outs of the contract, but from what I have seen I think the Province would have a hard time arguing that the ETR is not entitled to do so.

But at the end of the day, it's all kind of moot.  This is a contract, entered into by the ETR, voluntarily, with its landlord, which happens to be the government.  If I contract with my landlord to offer services to all people, regardless of creditworthiness, I can hardly complain later about my inability to screen credit.

Other Remedies

The BIA gives remedies to creditors.  They aren't perfect, but they're there.  If a person isn't bankrupt, a court action can be used to enforce rights.  For the ETR to say that it has no remedies other than plate denial is simply untrue.

The ETR is not Unique

The ETR's claim to be different is rooted in the fact that it cannot pre-select its debtors.  There is a term for this:  "Involuntary creditor".  (Again, of course, noting that I'm not sure the ETR really is an involuntary creditor.  I would say that it is somewhat more akin to a gas station, or any other industry where the custom is to provide the service prior to asking for payment.)

There are a number of kinds of involuntary creditors.  Tax authorities, tort victims, and others who had no opportunity to vet who owes them money.  In general, these debts are not protected against bankruptcy.

Many intentional tort debts are not discharged.  Debts arising from fraud, theft, intentional bodily harm or sexual assault, for example, are not discharged.  However, most other tort debts do get discharged.  So if somebody negligently causes me a serious and permanent injury, and then becomes bankrupt, I will not have any remedies beyond what I get through the bankruptcy process itself.

As involuntary creditors go, who is more sympathetic?  The paraplegic who was injured by the bankrupt's negligence?  Or the corporation whose highway was driven upon?

The BIA is Federal Legislation

There's a matter of paramountcy to consider here.  The Provincial legislature cannot legislate over Federal legislation like the BIA.  Whether or not there is an operational conflict can be argued:  Whether or not the plate denial mechanism falls within the scope of the BIA (thus making it impossible to engage after a discharge) can be questioned.

But ultimately, that's the question.  Whether or not the 407 can or can't block access to people, whether or not it is an involuntary creditor, whether or not it has other remedies, the sole question is whether or not the recourse to plate denial is prohibited by operation of a BIA discharge.

The jurisprudence on comparable issues is mixed, and there is case law suggesting that the purpose of the licence suspension is the material question:  If you're using a licence suspension to prevent a bad driver from driving, that's fine.  If you're using it as an enforcement mechanism to collect on a debt, then to permit that to proceed notwithstanding an assignment in bankruptcy would usurp the power of the bankruptcy court.

What's happening now?

A number of legal challenges are outstanding, but the most promising regards the Moore case.  Mr. Moore originally got an order from the bankruptcy court, but the ETR set that aside and obtained an order to the contrary in the Superior Court.  Moore was going to appeal, and the Superintendent of Bankruptcy was going to intervene, but at the eleventh hour Moore and the ETR settled...which the ETR figured would kill the matter, leaving them with an unchallenged precedent saying that bankruptcy didn't block their plate denial remedy.

However, the Superintendent of Bankruptcy is proceeding with the appeal nonetheless.  Earlier this week, the Court of Appeal decided a preliminary issue as to whether or not the Superintendent has standing to bring the appeal.  The Court concluded that the Superintendent may bring the appeal 'with leave', and granted leave.  Which means that there will likely be a Court of Appeal showdown on the merits, between the Superintendent of Bankruptcy and the ETR.

Should be interesting.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.


  1. Was there an update on this story?

    1. Good question. I was just looking into this myself a little while ago. I can't confirm this, but it looks like the hearing occurred last month. The Court of Appeal can take several months to release decisions.

  2. Now there is an update: