407 Debts Dischargeable in Bankruptcy – Supreme Court of Canada Decides

In a landmark ruling released on Friday, November 13, 2015 the Supreme Court of Canada has ruled that debts owed to the 407 ETR Highway in Canada are dischargeable in bankruptcy.  In their decision regarding 407 ETR Concession Company Limited the Supreme Court decided that federal bankruptcy law is paramount to provincial legislation, and therefore 407 ETR debts are discharged in bankruptcy.

UPDATE for bankrupts and consumer proposal filers:

Based on information published by the 407 ETR, if you filed bankruptcy or a proposal after November 13, 2015, 407 ETR will remove from plate denial any amounts included in the bankruptcy or proposal as long as you have no new 407 debts or other debts with the Ministry of Transportation (eg parking tickets). If you file with Hoyes Michalos, we will contact 407 ETR directly on your behalf.  We do not yet know the impact of consumer proposal filings, and are investigating, and will post further updates as they become available.

I have written numerous articles on the 407. Why? Isn’t it obvious that debts are discharged in a bankruptcy? Isn’t that the point? It is, but the 407 ETR didn’t want to lose their special power to suspend a license plate renewal for non-payment of 407 tolls, so they took the matter all the way to the Supreme Court.

Back in 2013, the Ontario Court of Appeal ruled that 407 ETR debts are dischargeable in bankruptcy, but 407 ETR appealed that ruling.  The Office of the Superintendent of Bankruptcy intervened and argued that federal law is paramount to provincial law.  In other words, if there exists both provincial and federal legislation on the same point of law, the federal law has paramountcy; it wins.

The arguments in this case were based around two pieces of legislation. The Ontario Highway Traffic Act grants 407 ETR the power to request that the Ministry of Transportation deny a license plate renewal if there are unpaid 407 tolls at the time of renewal. The federal Bankruptcy & Insolvency Act says that “unsecured debts are eliminated in a bankruptcy”.  (I’m over simplifying; some debts, like child support arrears, are not discharged in a bankruptcy, but since there is no specific rule in the federal Bankruptcy & Insolvency Act for road tolls, they should be fully dischargeable).

The Supreme Court has decided, as expected, that federal law wins. In fact they went so far as to say it’s in the best interest of the bankrupt debtor and that this is entirely consistent with bankruptcy law:

The operation of s. 22(4) also frustrates Parliament’s purpose of providing discharged bankrupts with the ability to financially rehabilitate themselves. While the intent of s. 178(2)  is that the debtor will no longer be encumbered by the burden of pre-bankruptcy indebtedness, s. 22(4) allows ETR to continue burdening the discharged bankrupt until full payment of the debt. Had Parliament wished to exempt ETR’s toll debt from the bankruptcy process, as well as from the consequences of a discharge, it would have done so expressly in s. 178(1). It did not.

In my opinion, that’s as it should be.  If the provincial and federal governments both want special laws for toll roads, they should pass specific legislation.  They haven’t, so I agree with the Supreme Court’s decision.

How quickly will bankrupt drivers with 407 tolls be able to renew their license plates?  We don’t know, so stay tuned for further updates.

UPDATE November 26, 2015: Good news: 407ETR has amended their website to advise that if your consumer proposal is accepted by your creditors and 407ETR was listed as a debt, they will remove you from the license plate denial list.  Full details are on the 407 website – see question 12.

Not so good news: Our clients are reporting that 407ETR is requesting discharge documents in order to remove a bankrupt’s name from the license plate denial list.  Thus is the opposite of the standard bankruptcy process, where creditor actions cease when the bankruptcy is filed, not when it ends.  We are investigating and will provide further updates as they become available.

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