Wednesday, February 26, 2014

Update: ETR Can't Go After Discharged Bankrupts

Back in 2012, I posted about a case going to the Ontario Court of Appeal:  In a nutshell, the question is whether or not a discharged bankrupt still has to pay his ETR bill to renew his vehicle plates.

Ironically, the bankrupt at the heart of the case didn't pursue the appeal, because he had received a "very, very attractive offer" to settle with the ETR.  It makes sense - the ETR absolutely loved the decision below.  It allowed them to put on their website that the courts have upheld their position that they can still enforce plate denial against discharged bankrupts, and it created a great precedent which would disincent discharged bankrupts from challenging them on it.  So, rather than fight the appeal, risking a loss, and immediately losing any ability to collect against discharged bankrupts, they figured it's better to settle with the guy and leave the decision below intact.

One problem:  The Superintendent of Bankruptcy, with a public mandate to maintain the integrity of the bankruptcy system, stepped in to proceed with the appeal.  So, technically, while the Superintendent was essentially fighting to protect Mr. Moore's rights, Mr. Moore was a respondent on the appeal.  (I don't know enough about the settlement details to know if the settlement survives the result of the appeal.)

The core legal question, as I highlighted in my prior post, is whether or not the ETR's plate denial mechanism, pursuant to Ontario legislation, is contrary to the provisions of the Bankruptcy and Insolvency Act.  If there's a conflict, then the BIA trumps, being federal legislation.

And the Court of Appeal has said that yes, there is a conflict.  Therefore, the ETR cannot seek plate denial of discharged bankrupts.  (Whether or not the same applies to undischarged bankrupts is a battle for another day, however.)

Operational Conflict versus Conflict of Purpose

There's a distinction to be drawn between 'operational conflicts' and 'conflicts of purpose'.  And the notion of an operational conflict wasn't really pursued.  Simply put, a bankruptcy doesn't extinguish indebtedness; the debt still exists, but a discharged bankrupt can't be sued on such debts (with certain exceptions).  So the fact that the 407 Act permits the ETR to continue to enforce plate denial against discharged bankrupts isn't really a problem - the ETR can't sue a discharged bankrupt for the debt, due to the operation of the BIA, but plate denial is an entirely different animal.

However, there's still another layer to the analysis, and it's that Federal paramountcy doesn't permit Provincial legislation to frustrate the purpose of properly-enacted Federal legislation.

And there are two purposes of the BIA in issue:  The "fresh start" principle, and the equal treatment of unsecured creditors.  (Sadly, the Court of Appeal found it unnecessary to address the second principle.  I would have been interested in that commentary.)

The very point of the BIA is to give people a 'fresh start'.  You're buried in debt, and if those debts are all enforced against you, that means that you'll spend the rest of your life under the crippling burden of insolvency.  The BIA gives you an opportunity to try again - you pay what you can of your debts, and after a period of time, you're able to start anew.

And since the purpose of the plate denial is to help the ETR collect on a debt, it thwarts the purpose of the BIA.

To be clear, the result isn't a declaration of invalidity of the relevant statutory provision - it's a finding that the provision is invalid "to the extent" that it affects discharged bankrupts.  (That's what we lawyers call "reading down".)


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.

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