An Express Contradiction: Moloney, 407 ETR, and Federal Paramountcy

In 2015, the Supreme Court of Canada rendered two decisions concerning the interplay of the federal Bankruptcy and Insolvency Act and provincial vehicle licensing regimes. In rendering its decisions, the Court altered the federal paramountcy test. I argue that the changes to the test are inappropriate.

In Alberta (Attorney General) v. Moloney1 and 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy),2 the Supreme Court of Canada considered the relationship between the discharge provisions of the Bankruptcy and Insolvency Act3 and provincial driver’s licensing regimes in Alberta and Ontario.4 Section 178 of the BIA provides for a discharge order, which ordinarily releases a bankrupt from all claims provable in bankruptcy.5 The provincial licensing regimes in Moloney and 407 ETR purported to deny driver’s licences on the basis of debts owed by drivers that had been discharged in bankruptcy.6 

In both cases, the Supreme Court resolved the paramountcy question in favour of the BIA

The implications of Moloney and 407 ETR for the rehabilitative purpose of the BIA and the recovery of discharged debts under provincial regimes are better canvassed elsewhere.7 My present interest in the decisions is limited to the Supreme Court’s treatment of the impossibility of dual compliance branch of the paramountcy test. 

In Moloney and 407 ETR, the majority of the Supreme Court, led by Justice Gascon, concluded that the provincial licensing regimes expressly contradicted the BIA under the first branch of the paramountcy test,8 and frustrated its federal purpose under the second branch of the test.9 In dissent, Justice Côté (with Chief Justice McLachlin) agreed that the provincial regimes frustrated the federal purpose of the BIA, but declined to recognize operational conflicts under the first branch.10 

The majority and the dissent disagreed about the appropriate scope of the impossibility of dual compliance branch of the paramountcy test: the majority adopted an expansive approach and the dissent adopted a restrictive approach. In this comment, I show that the majority’s expansive approach to the first branch of the test articulated in Moloney, and applied in 407 ETR, is analytically unsound. The approach originates in an interpretive error that caused the majority to conflate the first and second branches of the paramountcy test, unduly widening the ambit of impossibility of dual compliance. The consequences of this approach reach beyond the first branch of the test. 

The first branch of the paramountcy test—impossibility of dual compliance—asks whether there is an operational conflict between competing, but validly enacted, federal and provincial laws.11 An operational conflict is one in which “there is actual conflict in operation as where one enactment says ‘yes’ and the other says ‘no’…[so that] compliance with one [law] is defiance of the other.”12 Such “express contradictions”13 are rare because even a possibility of superficial dual compliance will deny a finding of an operational conflict under the first branch of the test.14 Moreover, in view of the principle of co-operative federalism, where it is possible to interpret the laws as operating harmoniously, courts will tend to do so.15 

The second branch of the paramountcy test—frustration of federal purpose—takes a broader view of the relationship between opposing statutes.16 Where it is possible to comply with both laws, but the effect of the provincial law frustrates the purpose of the federal law, federal paramountcy is triggered.17 The second branch of the test requires the court to interpret the federal law to determine its purpose, and then to determine whether the provincial law’s operation would frustrate that purpose. It takes a broader view than the narrow interpretation of the opposing laws in the first branch of the test. 

In Moloney and 407 ETR, Gascon J. approached the first branch of the test by attempting to discover the “true meaning and substantive effect” of the opposing legislative regimes.18 He determined that s. 178(2) of the BIA released the debtor from all claims provable in bankruptcy, which prevented creditors from enforcing those claims.19 The provincial licensing regimes attempted to enforce such debts by withholding licensing privileges.20 In each case, Gascon J. rejected the argument that an express contradiction was avoided by the debtor’s choice to either decide not to drive or voluntarily pay the debt.21 

By declining to recognize these means of possible (albeit superficial) dual compliance, Gascon J. articulated a broad interpretation of “express contradiction” under the first branch of the paramountcy test.22 Gascon J. justified his expansive approach to the first branch by appealing, in the main, to the Supreme Court’s prior decision in M & D Farm Ltd. v. Manitoba Agricultural Credit Corp.23 

In M & D Farm, the mortgagee commenced proceedings under federal farm debt review legislation to recover against the mortgagor.24 In response, the mortgagor obtained a 120-day stay of proceedings under the federal act.25 The mortgagee then sought and was granted an order by the Manitoba Court of Queen’s Bench authorizing the commencement of immediate foreclosure proceedings under the provincial farm protection act.26 At the Supreme Court, Justice Binnie held that the orders were contradictory: the stay issued under the federal law prohibited any proceeding authorized under the provincial law.27 By operation of federal paramountcy, the provincial law was rendered inoperative.28 

Gascon J. reasoned that an operational conflict was found in M & D Farm because “the provincial law expressly authorized the very proceedings that the federal stay precluded.”29 He posited the conflict was not averted by the fact that “the debtors could choose to voluntarily pay the mortgage debt…[n]or was conflict avoided because the creditor could have chosen not to seek leave to commence foreclosure proceedings.”30 Gascon J.’s interpretation of M & D Farm suggests that superficial dual compliance is insufficient to avert an operational conflict.31 

The conception of dual compliance articulated in M & D Farm drew support from the Supreme Court’s prior decision in Bank of Montreal v. Hall.32 In that case, a Saskatchewan farmer contracted for loans from the Bank of Montreal in exchange for mortgages on his real property and a security interest on his personal property in favour of the bank. When the farmer defaulted, the bank seized the personal property and commenced foreclosure proceedings under the federal Bank Act.33 The farmer defended against the seizure of the personal property by asserting that the bank failed to serve notice under the provincial Limitation of Civil Rights Act.34 At the Supreme Court, Justice La Forest opined that: 

[a] showing that conflict can be avoided if a provincial Act is followed to the exclusion of a federal Act can hardly be determinative of the question whether the provincial and federal acts are in conflict, and, hence repugnant…The focus of the inquiry, rather, must be on the broader question whether operation of the provincial Act is compatible with the federal legislative purpose. Absent this compatibility, dual compliance is impossible.35 

La Forest J. held that the provincial Limitation of Civil Rights Act created an “actual conflict in operation” with the Bank Act, “in the sense that the legislative purpose of Parliament [was] displaced” by the provincial law.36 Notwithstanding his recognition of superficial dual compliance, La Forest J. found that the provincial law frustrated the purpose of the federal law. 

It is apparent that La Forest J. was prototypically articulating the second branch of the paramountcy test, which, at that time, had not been fully realized by the courts.37 This interpretation of Bank of Montreal was adopted in subsequent decisions.38 Given its reliance on Bank of Montreal, it is not clear that M & D Farm appropriately reflects the scope of the first branch of the paramountcy test or the threshold for dual compliance. 

In Moloney and 407 ETR, Gascon J. uncritically applied the approach from M & D Farm (and, impliedly, Bank of Montreal), identifying the “true meaning and substantive effect” of the opposing laws in order to discover the operational conflict between the provincial licensing regimes and s. 178 of the BIA.39 In dissent, Côté J. warned that the majority’s approach “conflate[d] the two branches of the…paramountcy test, or at a minimum blur[red] the difference between them and return[ed] the jurisprudence to the state it was at before the second branch was recognized as a separate branch.”40 In my view, this is the folly of the majority’s interpretation of federal paramountcy. Gascon J.’s expansive approach to the first branch of the paramountcy test is, in fact, a misapplication of the second branch of the test. 

The consequences of the unjustified broadening of the first branch of the paramountcy test are beyond the scope of this comment. However, I draw attention briefly to one area of concern. 

In Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd.,41 a decision rendered alongside Moloney and 407 ETR, the majority of the Supreme Court narrowly construed the purpose of the national receiver appointment provisions of the BIA,42 declining to recognize the federal purpose of timeliness in receiver appointments.43 The Court did so by restricting the frustration of federal purpose branch of the paramountcy test to require “very clear” statutory language to evince a federal purpose.44 

The requirement of clear statutory language circumscribes the frustration of federal purpose branch of the paramountcy test by denying any extrinsic evidence of a federal purpose. I suggest that the majority located support for this approach by leaning on its expansive interpretation of the first branch in Moloney and 407 ETR.45 

The result in Lemare is commercially untenable.46 The decision leaves national receivers potentially at the mercy of onerous provincial regimes, which could undermine the effectiveness of receiver appointments under the BIA.47 

In Lemare, Gascon J. (writing for the majority with Justice Abella) opined that “[a]t some point in the future, it may be argued that the two branches of the paramountcy test are no longer analytically necessary or useful, but that is a question for another day.”48 The approach in Moloney and 407 ETR suggests that the Supreme Court intends to retire the frustration of federal purpose branch of the test, and to rely on an expansive application of the first branch. To the extent that modification of the paramountcy test guided the incongruous result in Lemare, we should be wary about the notion that a single-branch paramountcy test based on an expansive conception of impossibility of dual compliance can adequately balance federal and provincial interests. 

* BA (University of Regina), JD Candidate (University of Saskatchewan). I thank Mike Crampton and his editing team for their diligence in proofreading the final draft. Any errors are my own.

1 2015 SCC 51, [2015] 3 SCR 327 [Moloney].

2 2015 SCC 52, [2015] 3 SCR 397 [407 ETR].

3 RSC 1985, c B-3, s 178 [BIA].

4 Moloney concerned the Alberta Traffic Safety Act (RSA 2000, c T‑6, s 102 [TSA]); 407 ETR concerned the Ontario Highway 407 Act, 1998 (SO 1998, c 28, ss 22(1), 22(4) [407 Act]).

5 BIA, supra note 3, s 178(2).

6 TSA, supra note 4, s 102(2); 407 Act, supra note 4, ss 22(1), 22(4).

7 See e.g. Craig E Jones, “Taking the ‘Fresh Start’ Seriously: A Case Comment on Canada (Superintendent of Bankruptcy) v 407 ETR Concession Company Limited and Moloney v Alberta (Administrator, Motor Vehicle Accident Claims Act)” in Janis P Sarra & Justice Barbara Romaine, eds, Annual Review of Insolvency Law 2014 (Toronto: Carswell, 2015) 405; Anna Lund, “407 ETR, Moloney and the Contested Meaning of Rehabilitation in Canada’s Personal Bankruptcy System” (2016) 79:2 Sask L Rev 265.

8 Moloney, supra note 1 at para 63; 407 ETR, supra note 2 at para 27.

9 Moloney, ibid at para 77; 407 ETR, ibid at para 28.

10 Moloney, ibid at para 91; 407 ETR, ibid at para 40.

11 The validity test concerns the “pith and substance” of the laws. See e.g. Canadian Western Bank v Alberta, 2007 SCC 22 at para 27, [2007] 2 SCR 3 [Canadian Western Bank]; Reference re Firearms Act (Can.), 2000 SCC 31 at para 16, [2001] 1 SCR 783.

12 Multiple Access Ltd. v McCutcheon, [1982] 2 SCR 161 at 191, 138 DLR (3d) 1 [Multiple Access].

13 The language of “express contradiction” originates in Multiple Access (ibid at 187), and has been subsequently endorsed in decisions such as 114957 Canada Ltée (Spraytech, Société d'arrosage) v Hudson (Town) (2001 SCC 40 at paras 34-35, [2001] 2 SCR 241) and Canadian Western Bank (supra note 11 at para 126).

14 See e.g. Law Society of British Columbia v Mangat, 2001 SCC 67 at para 72, [2001] 3 SCR 113 [Mangat], wherein the Supreme Court recognized the possibility of superficial dual compliance under what is conventionally understood to be the first branch of the paramountcy test, but determined that such dual compliance frustrated the purpose of the federal law.

15 See e.g. Smith v The Queen, [1960] SCR 776 at 800, 25 DLR (2d) 225; Multiple Access, supra note 12 at 191; Marine Services International Ltd. v Ryan Estate, 2013 SCC 44 at paras 77-83, [2013] 3 SCR 53.

16 Bank of Montreal v Hall, [1990] 1 SCR 121 at 155, 65 DLR (4th) 361 [Bank of Montreal].

17 See e.g. Mangat, supra note 14; Rothmans, Benson & Hedges Inc. v Saskatchewan, 2005 SCC 13, [2005] 1 SCR 188 [Rothmans]; British Columbia (Attorney General) v Lafarge Canada Inc., 2007 SCC 23, [2007] 2 SCR 86 [Lafarge]; Quebec (Attorney General) v Canadian Owners and Pilots Association, 2010 SCC 39, [2010] 2 SCR 536. See generally Peter W Hogg, “Paramountcy and Tobacco” (2006) 34 SCLR (2d) 335 at 340 [Hogg, “Paramountcy and Tobacco”].

18 407 ETR, supra note 2 at para 16.

19 Moloney, supra note 1 at para 61; 407 ETR, ibid at para 24. Subsection 178(1) of the BIA provides a list of claims that are not released by a bankruptcy discharge.

20 Moloney, ibid at para 62; 407 ETR, ibid at paras 17, 21.

21 Moloney, ibid at para 60; 407 ETR, ibid at para 24.

22 See e.g. Mangat, supra note 11 at paras 71-73. See generally Hogg, “Paramountcy and Tobacco”, supra note 17 at 337-38.

23 [1999] 2 SCR 961, 176 DLR (4th) 585 [M & D Farm]. Gascon J also relied on the Supreme Court’s decision in Husky Oil Operations Ltd. v Minister of National Revenue ([1995] 3 SCR 453, 128 DLR (4th) 1 [Husky Oil]). My analysis and conclusion with respect to M & D Farm also applies to Husky Oil.

24 Farm Debt Review Act, RSC 1985, c 25 (2nd Supp) (repealed).

25 M & D Farm, supra note 23 at paras 1-2.

26 Ibid.

27 Ibid at paras 43-46.

28 Ibid at paras 41-42.

29 Moloney, supra note 1 at para 71.

30 Ibid.

31 See also Lafarge (supra note 17), wherein the Supreme Court came to the same conclusion after relying on M & D Farm to discover an operational conflict (supra note 17 at paras 77, 82).

32 Supra note 16, cited in M & D Farm, supra note 23 at para 41.

33 RSC 1985, c B-1, ss 178, 179.

34 RSS 1978, c L-16, ss 19-36.

35 Bank of Montreal, supra note 16 at 155.

36 Ibid at 151-52.

37 This interpretation has been endorsed by Peter W Hogg (Constitutional Law of Canada, 5th ed (Toronto: Carswell, 2007) at 489).

38 See e.g. Mangat, supra note 14 at paras 70-73; Rothmans, supra note 17 at paras 12-14.

39 Gascon J described his approach in this manner in 407 ETR (supra note 2 at para 16).

40 Moloney, supra note 1 at para 93.

41 2015 SCC 53, [2015] 3 SCR 419 [Lemare]. The BIA confers discretionary authority on a court to appoint a national receiver of an insolvent debtor (supra note 3, s 243(1)). Where the court deems it “just or convenient,” the national receiver may take possession and exercise control of the property of the insolvent person used in relation to the business, or take any other action that the court considers advisable (ibid). A creditor seeking to enforce a security on substantially all the insolvent debtor’s property must give notice to the insolvent debtor (ibid, s 244(1)). The court may not appoint a receiver before the expiry of a ten-day notice period, unless the debtor consents to an earlier enforcement or the court considers it appropriate to act sooner (ibid, s 243(1.1)).

42 BIA, supra note 3, s 243(1).

43 The majority reached this conclusion despite ample evidence of the time sensitive nature of receivership appointments under the BIA (see Lemare, supra note 41 at paras 80-121, Côté J). In dissent, Côté J convincingly demonstrated that the operation of the provincial law frustrated the timeliness purpose of the BIA’s receivership provisions (ibid at paras 122-28). She noted that “the provincial legislation cannot operate in real time, and is in fact intended to hinder the timely appointment of a receiver over mortgaged farmland” (ibid at para 128).

44 Lemare, ibid at para 27. At the Saskatchewan Court of Appeal, Richards CJS acknowledged that s 243 of the BIA contained no express language of timeliness, but reasoned—correctly, in my view—that the context of s 243’s invocation “is self-evidently one where events move quickly and where, by their nature, proceedings are time sensitive” (Lemare Lake Logging Ltd. v 3L Cattle Co, 2014 SKCA 35 at para 51, 371 DLR (4th) 663).

45 I consider this issue in detail in a forthcoming paper. My argument is that the expansion of the first branch of the paramountcy test in Moloney and 407 ETR does not compensate for the restriction of the second branch in Lemare. An expansive approach to operational conflicts does not capture instances where the broader purpose of the federal law, located outside of the wording of the provisions at issue, is frustrated by the provincial law. The failure to identify these conflicts lessens the likelihood of finding a frustration of federal purpose. As a result, the overall scope of the paramountcy doctrine is circumscribed, and federal regimes are exposed to incursions by provincial laws. This consequence is evinced by the result in Lemare, wherein the Supreme Court found no frustration of federal purpose under its restrictive approach to the second branch of the test, and summarily declined to examine the laws under the first branch on the untested conclusion that dual compliance was possible.

46 See e.g. Michael W Milani, “Corralling the Ability to Appoint National Receivers: A Commentary on 3L Cattle Company” (2015) 4 J Insolvency Institute of Can 101 [Milani, “Corralling”] (in respect of the Saskatchewan Court of Appeal decision); Christian Lachance & Hugo Babos-Marchand, “The ‘Impractical Effect’ of Lemare Lake Logging Ltd. in the Enforcement of Security in Quebec” (2016) 28:3 Commercial Insolvency Reporter 25; Roderick J Wood, “The Paramountcy Principle in Bankruptcy and Insolvency Law: The Latest Word” 58:1 Can Bus LJ 27.

47 Lemare concerned the interaction of s 243 of the BIA and the Saskatchewan Farm Security Act (SS 1988-89, c S-17.1 [SFSA]). Part II of the SFSA protects farm debtors by imposing hurdles that secured creditors must clear before commencing an action in respect of a mortgage on farm land. In addition to numerous notice requirements, the SFSA imposes a 150-day moratorium (ibid, s 12(1)) before an action can be taken, substantially displacing the minimum 10-day period contemplated by s 243(1) of the BIA. This delay can destroy the integrity of the collateral (see Milani, “Corralling”, ibid at 119).

48 Lemare, supra note 41 at para 23.