Conflict and Frustration

Last Friday, the Supreme Court issued decisions in three cases dealing with the federal paramountcy doctrine, which holds that when both a federal and a provincial statutes are applicable to a situation, the federal one prevails, and the provincial one is rendered inoperative, to the extent ― if any ― of the conflict between them. In this post, I will comment on two of these decisions, Alberta (Attorney General) v. Moloney, 2015 SCC 51, and 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), 2015 SCC 52, which deal largely with the specific issue of the kinds of conflict that can arise between a federal and a provincial statute, and how to distinguish between them.

The Court is split, with Justice Gascon writing for a seven-judge majority in both cases, and Justice Côté (with the agreement of the Chief Justice) concurring in judgment but disagreeing about the reasoning. Yet it seems to me that this conflict within the court is quite unnecessary, and only serves to illustrate the unsatisfactory character of the Supreme Court’s jurisprudence on the issue of paramountcy (as well as some other federalism issues not in play in these cases), about which I complained after its previous engagements with this topic in Marine Services International Ltd. v. Ryan Estate, 2013 SCC 44, [2013] 3 S.C.R. 53 and in Bank of Montreal v. Marcotte, 2014 SCC 55, [2014] 2 S.C.R. 725.

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The issue in both Moloney and 407 Concession was whether provincial laws which prevented a person from renewing a driver’s license or registering an automobile unless he or she paid back certain debts ― one related to a traffic accident caused while driving uninsured in Moloney and one resulting from an accumulation of unpaid road tolls in 407 Concession ― could be applied to persons whose debts had been released through a bankruptcy. Bankruptcy law is a federal competence, and the federal Bankruptcy and Insolvency Act provides rules governing a bankrupt’s release from all “claims provable in bankruptcy,” which the debts in question were conceded to be. Provincial law, meanwhile, doesn’t force the bankrupt to satisfy these claims but, by making it impossible for him or her to keep driving on the province’s roads, creates a very strong incentive to do so.

All the judges agreed that this amounted to a conflict between federal and provincial law, which triggered the application of the doctrine of federal paramountcy, so that provincial law became inoperative. The provinces cannot refuse to register the vehicles of persons discharged from bankruptcy in order to induce them to pay the debts from which the bankruptcy was supposed to have released them. But, as I mention above, the judges did not agree about the reasons for this conclusion.

For the majority, there existed an “operational conflict” between the federal and the provincial laws at issue, meaning that “it is impossible to comply with both.” [Moloney, 18] The conflict must be “clear, direct or definite,” [22] but in asking whether a conflict exists the court need not limit itself “to the actual words or to the literal meaning of the words of the provisions at issue.” [23] The ordinary methods of statutory interpretation are to be used. In Moloney,

the test for operational conflict cannot be limited to asking whether the respondent can comply with both laws by renouncing the protection afforded to him or her under the federal law or the privilege he or she is otherwise entitled to under the provincial law. … [T]he laws at issue give inconsistent answers to the question whether there is an enforceable obligation: one law says yes and the other says no. [60]

For the majority, this is sufficient for a finding of conflict. Similarly, in 407 Concession, “[u]nder the federal law, the debt is not enforceable; under the provincial law, it is. The inconsistency is clear and definite. One law allows what the other precisely prohibits.” [25]

The concurrence disagreed. In its view, the majority’s

analysis contrasts with the clear standard that has been adopted for the purpose of determining whether an operational conflict exists in the context of the federal paramountcy test: impossibility of dual compliance as a result of an express conflict [and] conflates the two branches of the federal paramountcy test, or at a minimum blurs the difference between them and returns the jurisprudence to the state it was at before the second branch was recognized as a separate branch. [Moloney, 93]

So long as the discharged bankrupt does not drive, the province has no “leverage to compel payment of the debt” and “the literal requirement of the federal statute is, strictly speaking, met. It therefore follows that the two acts can operate side by side without conflict.” [97] The same was true in 407 Concession. Indeed, courts should favour findings of no operational conflict, including by interpreting ambiguous federal legislation narrowly so as to make room for provincial laws to operate alongside it.

In the concurrence’s view, these cases, and perhaps most others where the doctrine of paramountcy is invoked, ought to be analyzed under the heading of the frustration of the purpose of the federal statute. This makes it possible to carefully analyze the purpose of the federal law and to take into account the federal government’s view of whether this purpose is being frustrated by the operation of the provincial legislation, and generally to foster a co-operative approach to federalism that embraces the concurrent operation of federal and provincial laws in the same area.

Ultimately, the concurrence endorses the majority’s view that the frustration-of-federal-purpose test is met in these cases. Bankruptcy law aims at the “financial rehabilitation” of the bankrupt, allowing (and/or providing the incentive for) him or her to re-integrate economic life free from the burden of past debts. Giving the province the ability to demand payment of some debts goes against this purpose. If the bankrupt wants to drive, he or she must pay out; it is as though the debts at issue were not a thing of the past. And while a creditor might be able to “revive” a debt in exchange for fresh consideration, letting a bankrupt drive is not good consideration because the province has no authority to prevent a person from driving on account of his or her failure “to satisfy a … debt that was released in bankruptcy” [81] to begin with.

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Given this ultimate agreement, the apparent conflict between the majority and the concurrence is a bit surprising. Justices Gascon and Côté trade mutual accusations of making one or the other “branch” of the paramountcy test “meaningless” [69; 128], but never actually explain why these accusations are serious ones. What would be lost if the two branches of the test were fused?

Like the doctrine of federal paramountcy itself, the two-branch test used to apply it was created by the Supreme Court itself. Unlike the doctrine, however, it is both a relatively recent creation, and one that can be dispensed with. It seems to me that the “operational conflict” branch of the test can easily be, not just “rendered meaningless,” but abandoned altogether.

To be sure, Justice Côté quotes the majority reasons in Quebec (Attorney General) v. Canadian Owners and Pilots Association, 2010 SCC 39, [2010] 2 S.C.R. 536, at par. 64, for the proposition that “[c]laims in paramountcy may arise from two different forms of conflict.” But that statement is itself only asserted, not explained. Justice Côté claims that

[w]hile it is true that [these two branches of the paramountcy test] overlap, it is not true that a finding of an operational conflict in the first branch will necessarily entail a finding of frustration of a federal purpose in the second branch. An overlap between the two forms of conflict does not mean the branches are necessarily redundant. [107]

Unfortunately, Justice Côté does not give any examples of situations where an operational conflict would not coincide with a frustration of the purpose of the federal law. She only states that “[t]he federal scheme may be drafted in a manner that does not match the record of Parliament’s intent, but that results in an express conflict with a provincial law,” [107] but the ― purely hypothetical ― possibility of such poor legislative drafting seems like a very weak reason for preserving a legal distinction that will, in practice, (almost?) never make any difference, and yet will generate disagreement and confusion.

It seems to me that the “operational conflict” branch of the paramountcy test should simply be discarded. Impossibility of dual compliance should be regarded as an instance ― perhaps the clearest, but not the only possible instance ― of a frustration of the federal purpose.  What Justice Côté says about the way to analyze frustration of purpose makes sense, at least so long as one accepts the general thrust of the Supreme Court’s federalism jurisprudence which favours what it terms co-operation (but which I believe is actually competition) resulting from the concurrent operation of federal and provincial legislation. But it’s not clear to me that one cannot approach frustration of purpose in the way described by Justice Côté unless one insists on a rigid separation and a narrow definition of the “operational conflict” branch of the paramountcy test.

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In the meantime, the situation is a bit like the one that prevailed in administrative law before Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190. The Supreme Court had first created a “patent unreasonableness” standard of review, and then, considering that it was too narrow, added an additional one, called “reasonableness simpliciter” ― without discarding “patent unreasonableness.” As a result, courts wasted a great deal of time deciding which of the two applied. Similarly after articulating the “operational conflict” test for the application of the paramountcy doctrine, the Supreme Court concluded that it did not capture all the situations where the doctrine should apply and, instead of simply broadening the test, added another one on top of it. As a result, courts will waste time in inconsequential efforts to figure out which of the two should be applied, before arriving to the same result.

The unsatisfying dispute between the majority and the concurrence in Moloney and in 407 Concession is a reminder, if one was needed, that conflict and frustration tend to go together. The Supreme Court’s attempts to disentangle them serve no useful purpose.