The Ontario government can’t refuse to renew the driver’s licences of bankrupts who haven’t paid their debts to the province, a Superior Court judge has ruled.
Refusing to renew a driver’s licence is one of the remedies the province uses against debtors who haven’t kept up with their payments. But if these debtors have filed for bankruptcy under federal laws, the province should no longer be able to decline licence renewals, according to the court.
Provisions that allow the Ontario government to force its debtors to pay up go against the federal Bankruptcy and Insolvency Act aimed at protecting bankrupts from creditor sanctions and giving them a “fresh start,” the court found.
In Ontario (Finance) v. Clarke and Superintendent of Insurance for Ontario, applicant Sandra Clarke had been in a 1995 car accident in which her passenger suffered an injury. Clarke, who was driving without insurance, was on the hook for $55,000 in damages to the injured passenger. Since Clarke couldn’t afford to pay the judgment, the provincial motor vehicle accident claims fund paid the passenger and made Clarke its debtor.
But in August 2009, Clarke filed for bankruptcy under the Bankruptcy and Insolvency Act.
In a decision contrary to how the court ruled in Moore v. 407 ETR Concession, Superior Court Justice Robert Goldstein said the province’s leverage in the matter conflicts with federal bankruptcy laws and impedes on the fresh-start principle. The Ministry of Finance argued otherwise, saying a driver’s licence is a privilege and not property that can be taken out of a bankrupt’s assets.
Goldstein disagreed. “In this case, the property is not Ms. Clarke’s driver’s licence but the funds used to make the instalment payments,” he wrote.
“Those funds are not available to other judgment creditors.”
The province’s licensing scheme also “offends the ‘fresh start’ principle,” the judge said, adding that although Clarke listed the province as creditor when she filed for bankruptcy, the government “took no steps to file a proof of claim.”
The minister of finance also argued that making sure Ontarians pay their judgment debt encourages good driving habits, an argument Goldstein found entirely flawed. “I do not see any evidence of rational connection between paying a judgment debt and good driving habits,” he wrote.
He added: “Every judgment debtor still has the opportunity to obtain their licence as long as they pay something. This discretion undoubtedly exists so that people of modest means will not be unduly penalized, but it means that even the most irresponsible drivers also have an opportunity to regain their licence — not by taking a driving test or driver education, but by paying a judgment debt.”
Richard Howell, a certified specialist in bankruptcy and insolvency law at Clark Farb Fiksel LLP, calls the province’s argument about promoting good driving habits “absolute nonsense.”
“It’s not regulatory, it’s collections,” he says. “It’s just a way to gouge money out of the bankrupt and circumvent the operations of the bankruptcy act.”
Mark Taggart, who intervened on the behalf of the Superintendent of Bankruptcy in the case, says discussion on the issue is coming late to Canada. Ontario’s decades-old licensing scheme came into effect before mandatory car insurance, says Taggart. At the time, a policy that said debtors must pay the province regardless of their bankruptcy status made sense given the need to persuade people to purchase car insurance, adds Taggart.
Now that there’s a mandatory car insurance regime in place, the legislation dating back to 1930 is outdated, he notes.
“In the United States in 1971, they said, ‘Enough is enough. We don’t need this anymore.’ But in Canada, it seems like no one took notice of it.”
When it comes to this issue, the U.S. bankruptcy code is much clearer, says Michael Nowina, a bankruptcy lawyer at Baker & McKenzie LLP.
The American legislation makes it clear that a government unit “cannot revoke or refuse to renew a licence solely because a debtor has not paid a debt that was discharged by an insolvency filing,” he says.
“We simply do not have that clear legislative direction in Canada. There are now conflicting Ontario decisions, so hopefully appellate level guidance will come soon.”
When reached by Law Times, Susie Heath, spokeswoman for the minister of finance, said she couldn’t comment. “Unfortunately, there isn’t much that the ministry is able to say at this time as the matter is still before the courts,” said Heath.
In Moore, a bankrupt was facing more than $88,000 in Highway 407 toll payments. The Ontario Court of Appeal will hear the case in June after a judge rejected the applicant’s argument that there was an operational conflict between the Highway 407 Act and the bankruptcy legislation.
According to Taggart, more than 13,000 bankruptcy and proposal filings in the superintendent of bankruptcy’s records between 2007 and 2011 listed “407” or “407 ETR” as a creditor. The estimated monetary value related to these filings is more than $30 million, he says.
“The act of denying vehicle and licence renewals unless repayment of toll arrears has occurred does not respect the operation of the discharge provisions of the Bankruptcy and Insolvency Act,” says Taggart in describing the Office of the Superintendent of Bankruptcy’s position.
Goldstein’s decision is in line with this position. “In my view, if the minister’s argument is accepted, it would amount to creating a carve-out for provincial regulatory or licensing schemes to permit debt enforcement after discharge,” the judge said.
“Regulatory bodies cannot claim a ‘carve-out’ from bankruptcy legislation in order to carry out their duties,” he added. “No such carve-out exists except where Parliament specifically creates one.”
Since the decision applies specifically to judgment debtors, it can’t translate into bankrupts being exempt from other penalties such as parking tickets, says Howell. But for Nowina, there’s a potential for such a scenario.
“The decision cries out to an appellate review,” he says.
“Given that there were interveners in this case, I’d be surprised if they don’t take it to the next level. Most bankruptcy cases don’t end up having interveners from the superintendent of bankruptcy. The superintendent deciding to intervene is a significant factor.”