SCC rules against toll-road operator in conflict over bankruptcy law

Sections of Ontario’s Highway 407 Act frustrate the purpose of financial rehabilitation under the federal Bankruptcy and Insolvency Act, the Supreme Court of Canada ruled in a decision released today.

“In my view, s. 22(4) of the 407 Act is inoperative to the extent that it conflicts with s. 178(2) of the BIA. This provision cannot be used by ETR to enforce an otherwise discharged provable claim contrary to s. 178(2) of the BIA,” wrote Justice Clément Gascon in 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy).

Shibley Righton LLP partner Joel Watson says it’s a welcome ruling that properly upholds the bankruptcy legislation.

“It’s a masterful ruling,” he says.

“The [407] act is a modern-day equivalent of debtor prisons that says we’re going to virtually incarcerate you until you pay your debts, but you can’t work to pay your debts while you’re incarcerated,” he adds.

“Once a debt is paid or cleared, that’s it, end of story, and I think that’s a ruling the public can support and understand clearly.”

In the original matter, Matthew David Moore had amassed a massive $34,977.06 debt to the 407 ETR Concession Co. Ltd. after using the toll route about 2,000 times between August 1998 and March 2007, according to the agreed statement of facts. He never made payments for the use and in early 2005 and again in late 2006, 407 ETR sent notice to the registrar of motor vehicles, which refused to validate Moore’s vehicle permits when they expired.

Moore filed for bankruptcy in November 2007 and was granted an absolute discharge in June 2011, but 407 ETR continued to seek the costs. He brought a motion before the registrar of bankruptcy and then to the Superior Court of Justice seeking to release his debt to 407 ETR upon satisfying the terms of his conditional discharge order and requested an order compelling the Ministry of Transportation to issue a vehicle permit to him upon payment of the applicable licencing fees by virtue of an operational conflict between s. 22 (4) of the 407 Act and the bankruptcy law.

In a decision in October 2011, the court dismissed the motion and held that there was no conflict in the operation of the acts. According to the agreed statement of facts, that, too, was appealed in late 2013 and the Court of Appeal found that there was no operational conflict between the two provisions. However, the appeal court also found that s. 22(4) of the 407 Act frustrated the purpose of the bankruptcy legislation by denying a vehicle permit to a driver following his discharge from bankruptcy. The court reasoned that one of the purposes of the bankruptcy act was to give discharged bankrupts a fresh start and that the provision of the 407 act that barred Moore from obtaining a vehicle permit was inoperative by reason of the doctrine of paramountcy.

407 ETR appealed that ruling to the Supreme Court on the grounds the appeal court had erred in several areas. Among other things, it argued the appeal court had defined the scope and purpose of the bankruptcy legislation too broadly.

“Gascon’s ruling is ultimately so principled, candid, and helpful and this level of common sense is really needed because it makes the judicial system far more effective,” says Watson.

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