Regulating Road Safety or Enforcing Debts? Bankruptcy & Provincial Licence Suspension Regimes

Can the driver’s licence of a person whose licence has been suspended due to an unpaid judgment remain suspended if the driver claims bankruptcy?  Two upcoming cases in the Supreme Court of Canada will decide this issue.

Suspensions for Unpaid Judgments

Section 198 of Ontario’s Highway Traffic Act allows the Registrar of Motor Vehicles to suspend the licence of any person who fails to pay a judgment for damages occasioned by a motor vehicle. Similarly, s. 10 of Ontario’s Motor Vehicle Accident Claims Actrequires the Registrar to suspend the licence of anyone on whose behalf a payment was made out of the Motor Vehicle Accident Claims Fund.

Section 198 of the Highway Traffic Act says that upon suspension for non-payment of a judgment for “damages occasioned by a motor vehicle”, the debtor’s driver’s licence:

…shall remain so suspended and shall not at any time thereafter be renewed, nor shall any new driver’s licence be thereafter issued to the person, until the judgment is satisfied or discharged, otherwise than by a discharge in bankruptcy…

Section 102 of Alberta’s Traffic Safety Act is similar to s. 198 of the Ontario act, and uses the same phrase, “otherwise than by a discharge in bankruptcy.”

The use of the phrase “otherwise than by a discharge in bankruptcy” suggests that bankruptcy won’t help the debtor. The licence remains suspended even if the judgment is discharged by a bankruptcy. You can go bankrupt, but you won’t get your driver’s licence back.

The intent of bankruptcy legislation, however, is to allow people a “fresh start” when their debts are too high for them to pay.  Bankruptcy is a federal power and therefore a constitutional question arises as to whether the phrase “otherwise than by a discharge in bankruptcy” in provincial statutes infringes on the federal bankruptcy power.

Courts in Ontario, Saskatchewan and Alberta have all considered related constitutional questions.  But the issue remains unsettled.  In fact, in Ontario (Finance) v Clarke and Superintendent of Insurance for Ontario[1] Justice Goldstein wrote:

There are two lines of authority in this country: one line supports the Minister’s position [no conflict], and one line supports the Superintendent’s position [conflict]. Each forthrightly argues that the line of authority supporting the other is not good law. The leading authority in the United States supports the Superintendent’s position.[2]

Ontario

In Clarke, Justice Goldstein considered whether s. 10 of the Motor Vehicle Accident Claims Act conflicted with the Bankruptcy and Insolvency Act(BIA).  Where the Ministry pays any amount to satisfy a judgment, the MVA Claims Act requires that the Registrar of Motor Vehicles suspend the driver’s licence of the judgment debtor on whose behalf the payment was made until the judgment debtor has repaid the amount or started a payment plan.

Sandra Clarke had a $55,000 judgment ordered against her in 1995. She was a driver in a motor vehicle accident in which her passenger was injured. She was uninsured and could not pay the judgment. The Motor Vehicle Accident Claims Fund paid the plaintiff and sought to collect from Ms. Clarke, who subsequently declared bankruptcy. The Minister of Finance sought to suspend Ms. Clarke’s licence until she agreed to an appropriate repayment plan. Justice Goldstein denied the Minister of Finance’s appeal from a master’s order, writing:

The denial of a driver’s licence to a bankrupt who has not fulfilled a judgment debt incurred as a result of an automobile accident is debt collection and therefore in violation of the BIA. The federal BIA takes precedence over the provincial legislation.”[3]

The issue for Justice Goldstein was “whether the MVA Claims Act is being used to enforce a judgment debt or promote responsible driving.”[4] He found no “evidence of a rational connection between paying a judgment debt and good driving habits.”[5] He concluded that by suspending Ms. Clarke’s driver’s licence, the province was punishing her for failing to pay a judgment debt, not for irresponsible driving.[6]

As a result of the Court’s finding in Clarke, the Director of the Fund will no longer require that a suspension be maintained against judgment debtor who has gone bankrupt.  However, for the time being, the Ontario Ministry of Transportation continues to enforce s. 198 of the Highway Traffic Act. That is, the Ministry will not, after a bankruptcy, lift the suspension of the driver’s licence of a judgment debtor against whom there is an unpaid judgment for damages occasioned by a motor vehicle.

Alberta

In Moloney v. Alberta,[7] the Alberta Court of Appeal has taken a stance similar to Justice Goldstein’s in Clarke.  The court concluded:

In summary, the impugned sections of the Traffic Safety Act have the effect of frustrating Parliament’s legislative purpose in enacting the Bankruptcy and Insolvency Act. Section 102 has an unacceptable impact on the rehabilitative purposes of the bankruptcy regime, and an adverse impact on the objective of providing fair and equal distribution to the creditors. There is an operational conflict between the two statutes, and the federal legislation must prevail. …

In conclusion, the province is not entitled to deny the respondent a driver’s licence because of the unsatisfied personal injury debt that has been discharged in bankruptcy. The words “otherwise than by a discharge in bankruptcy” in s. 102 of the Traffic Safety Act are in operational conflict with the Bankruptcy and Insolvency Act.[8]

On June 12, 2014 the Supreme Court granted the Attorney General of Alberta’s application for leave to appeal the Court of Appeal’s judgment in Moloney v Alberta (Supreme Court of Canada docket 35280). On the appeal the Supreme Court will decide the constitutional question of whether s. 102(2) of the Alberta Traffic Safety Act is constitutionally inoperative by reason of the doctrine of federal paramountcy.  All Attorneys General have been given notice of the question.  It is anticipated that the appeal will be argued at the same time as the appeal in 407 ETR Concession Company Limited v. Superintendent of Bankruptcy,[9] (Supreme Court of Canada docket 35820) discussed below.

Saskatchewan

In Gorguis v Saskatchewan Government Insurance,[10] considering a similar licence suspension provision in Saskatchewan, the Court of Queen’s Bench found that:

…the province’s legitimate administration of driving privileges [may] justif[y] the relatively minor conflict with the federal bankruptcy law, especially since the conflict arises only incidentally. That decision, though, is for Parliament to make. If Parliament wishes a released debt to survive a discharge in bankruptcy in this way, Parliament may so provide in the Bankruptcy and Insolvency Act. It has not done so.[11]

This decision was appealed and an appeal was allowed on the grounds that the Attorney General had not been given notice of the constitutional question.[12]

Non-Renewal of Vehicle Permits for Unpaid ETR Tolls

407 ETR Concession Company Limited v Superintendent of Bankruptcy(Supreme Court of Canada docket # 35696) is going to be argued in the Supreme Court of Canada on January 15, 2015.[13]  In that case, the court has set the following constitutional question for argument: Is s. 22(4) of the Highway 407 Act, 1998, SO 1998, c 28, constitutionally inoperative under the doctrine of federal legislative paramountcy, having regard to the Bankruptcy and Insolvency Act, RSC 1985, c B-3?

If someone fails to pay a 407 toll, the owners of the 407 can prevent that person from renewing their vehicle permit under s. 22(4) of the Highway 407 Act. The 407 owners argue that this power should continue even after a toll debtor has been discharged from a bankruptcy. The Superintendent of Bankruptcy takes the position that provincial licence suspension legislation cannot be used to enforce payment of debts after a discharge from bankruptcy.

Facts in the 407 Case

On October 24, 2011 a car salesman with $35,000 in unpaid 407 tolls brought a motion before the Ontario Superior Court of Justice to compel the province to renew his vehicle permit in light of his recent discharge from bankruptcy. Section 178 of the BIA releases a bankrupt from “all claims provable in bankruptcy”, except for those listed in s. 178(1). The car salesman argued that no steps to collect or enforce the debt can be taken post-bankruptcy unless the debt is listed as an exception in s. 178 of the BIA. He also argued that s. 22(4) of the 407 Act conflicts with the discharge provisions of the BIA, and therefore is of no force and effect under the doctrine of paramountcy.

Judgment at First Instance

Justice Newbould denied the car salesman his vehicle permit in a 9-page decision. Justice Newbould found that: (1) the suspension of a driver’s licence is not a remedy to enforce a judgment because a bankrupt has no property right in their licence; and (2) there is no operational conflict between the two statutes because the order of priorities of creditors under the BIA is not affected by s. 22(4) of the Highway 407 Act.

Decision of the Court of Appeal

Ontario’s Court of Appeal overturned Justice Newbould’s decision in December, 2013.[14] It found that the operation of s. 22(4) of the Highway 407 Act – to allow the 407 Company to enforce toll debts – conflicts with the purpose of the BIA to provide a “fresh start” for bankrupts. As indicated, the Supreme Court has granted leave to hear the appeal.[15] The Court of Appeal granted a stay of its order pending the Supreme Court’s decision on leave and now a motion is before the Supreme Court requesting a further stay pending hearing of the actual appeal.[16]

Suspension for Non-Payment of Family Support

Ontario’s Family Responsibility and Support Arrears Enforcement Act, 1996, is an interesting comparison. It contains specific licence suspension powers that are used for the purpose of enforcing support orders.[17] However, s. 178 of the BIA specifically lists support payments as debts, which survive a discharge from bankruptcy. Therefore, there is no conflict between the two statutes.

Conclusion

We should soon have an answer to the effect of bankruptcy on driver’s licence suspensions for unpaid judgments and 407 tolls.  Canadian case law seems to be stacking up in favour of bankruptcy rights.

The Ontario Superior Court found no “evidence of a rational connection between paying a judgment debt and good driving habits.”  The Alberta Court of Appeal found that the driver’s licence suspension provisions were “disconnected in any real sense from any traffic safety considerations.”  If the Supreme Court agrees, the suspension provisions will likely be found to be unconstitutional.  Ultimately, the provinces’ ability to continue to suspend the licences of bankrupts will depend on the extent to which the licence suspensions can be characterized as something other than a debt collection tool.

 

 

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[1] 2013 ONSC 1920.

[2] At para 18.

[3] At para 2.

[4] At para 51.

[5] At para 54.

[6] At para 54.

[7] 2014 ABCA 68

[8] At para 53 to 54.

[9] 2013 ONCA 769.

[10] 2011 SKQB 132

[11] At para 28.

[12] Saskatchewan Government Insurance v Gorguis, 2013 SKCA 32

[13] This is a tentative date.

[14] 2013 ONCA 769.

[15] The SCC granted leave to appeal on May 8, 2014.

[16] As advised in June, 2014 by sources involved in a class action against the 407 Company on this issue.

[17] Part V, sections 33-39, Family Responsibility and Support Arrears Enforcement Act, 1996, RSO 1990, c M.41.