Ontario court rules against auto accident claims fund after attempt to suspend uninsured driver’s licence

An Ontario court recently ruled against the province’s Minister of Finance when the Financial Services Commission of Ontario’s payer of last resort tried to collect money from and threatened to suspend the licence of an uninsured driver who had been involved in an accident.

The uninsured driver, Sandra Clarke, was involved in an accident 24 years ago. The injured passenger successfully sued Clarke, who was unable to pay the judgment in full.

The victim got paid by FSCO’s Motor Vehicle Accident Claims Fund (MVACF). Although Clarke got behind in her payments to MVACF, which in October 2010 threatened to suspend her licence, she had also been through the bankruptcy process in 2009.

But in receiving from MVACF a threat to have her licence suspended if she fails to bring her account up to date, Clarke “is not being punished for irresponsible driving but for failing to pay a judgment debt,” Mr. Justice Robert Goldstein of the Ontario Superior Court of Justice wrote in a decision published April 12.

In ruling in favour of Clarke, Judge Goldstein suggested that when a provincial agency denies a driver’s licence to someone who has been through the bankruptcy process and who has “not fulfilled a judgment debt incurred as a result of an automobile accident,” this is debt collection and is therefore in violation of the federal Bankruptcy and Insolvency Act.

“The federal BIA takes precedence over the provincial legislation,” Judge Goldstein wrote in his ruling, in which he dismissed an appeal from the Ontario Minister of Finance, to whom FSCO reports. That appeal was of an earlier ruling by Superior Court of Justice Case Management Master Thomas Hawkins. Master Hawkins had dismissed a motion from the finance minister seeking an order permitting renewal of an expired writ against Clarke.

According to court records, in 1989, Clarke was driving, uninsured, on Allen Road in Toronto. She lost control of her vehicle and crashed into the guardrail. Her passenger successfully sued Clarke for $55,000 for her injuries, though the passenger was actually paid by MVACF, FSCO’s “payer of last resort.”

MVACF provides compensation or statutory accident benefits to injured persons who either have no recourse to auto insurance or who are involved in accidents with uninsured or unidentified drivers. The fund also, where legally permissible, recovers funds from the drivers or owners of money paid out on their behalf, which is what it attempted to do with Clarke.

In 1995 the MVACF registered a writ against Clarke, but that writ expired in 2001 and it was not renewed due to an “administrative error.”

Clarke had made an arrangement to pay MVACF $50 per month but then in 2009, she made a consumer proposal under the federal Bankruptcy and Insolvency Act. After that she started making payments to a bankruptcy administrator and continued paying in instalments to MVACF.

“Ms. Clarke listed the Fund as an unsecured creditor in her statement of affairs although the Fund did not file a proof of claim,” Judge Goldstein noted in his ruling.

However, in 2010, MVACF sent Clarke a letter stating her payments were in arrears and that failure to bring her account up do date would result in a request for automatic suspension of her licence.

In his analysis, Judge Goldstein noted that the “real question” in Clarke’s case was whether the Motor Vehicle Claims Act was being used to enforce a judgment debt or to promote responsible driving, adding he does “not see any evidence of a rational connection” between paying a debt and good driving habits.

“More important, even if a rational connection could be demonstrated, every judgment debtor still has the opportunity to obtain their licence as long as they pay something,” Judge Goldstein wrote. “If Ms. Clarke had won the lottery and paid off the debt, that would have fulfilled the critical condition for renewing the licence without conditions.  Obviously serendipitous winning of the lottery does not make a driver more responsible.”

The Highway Traffic Act permits MVACF to suspend driver’s licences in some cases. But the federal Superintendent of Bankruptcy, which had intervener status in Clarke’s case, argued there is a conflict between provincial law and the federal bankruptcy law, which stipulates that claims against people making consumer proposals are released upon discharge, and the key purpose of federal bankruptcy law is to give individuals a “fresh start” upon discharge.

When he initially ruled against the Minister of Finance, Master Hawkins found that federal bankruptcy law prevents the provincial accident claims fund “from enforcing a judgment debt against a bankrupt or someone who has filed a consumer proposal.”

In dismissing the Minister of Finance’s appeal of Master Hawkins’ decision,  Judge Goldstein ruled April 12 that the Ontario Motor Vehicle Claims Act is in conflict with the federal bankruptcy law “and is inoperative to the extent of the inconsistency.”

Court records suggest FSCO had argued that a driver’s licence is not “property available to other creditors” and that the provincial licensing scheme gives the MVACF discretion regarding the issue of a licence. But in ruling against the finance minister, Judge Goldstein quoted from a Supreme Court of Canada decision last year in favour of AbitibiBowater Inc., now known as Resolute Forest Products.

In November, 2009, the Newfoundland and Labrador government had issued environmental cleanup orders to AbitibiBowater, which had filed for protection from creditors in a Quebec court under the Companies’ Creditors Arrangement Act. The Newfoundland and Labrador government had sought a declaration in the Quebec court that its cleanup orders were not “claims” because they were not monetary in nature, but the Quebec court dismissed its claim.

The case was appealed all the way up to the highest court in the land, which ruled in 2012 that a province “cannot disturb the priority scheme established by federal insolvency legislation” and that for claims under the CCAA, the court examines not the provincial regulator’s exercise of discretion, but “whether the facts indicate that the conditions for inclusion in the claims process are met.”

In applying the AbitibiBowater decision to his ruling in the Minister of Finance vs. Clarke, Judge Goldstein noted that Clarke became a “judgement debtor” and the Ontario Minister of Finance became a “judgement creditor” for the purposes of the federal Bankruptcy and Insolvency Act. That relationship “crystallized prior to Ms. Clarke’s consumer proposal,” Judge Goldstein added, noting there is “obviously a monetary value” to FSCO’s claim.

Judge Goldstein wrote that the property is not Clarke’s driver’s licence, but the money used to pay MVACF in instalments.

“Those funds are not available to other judgment creditors,” Judge Goldstein wrote. “The effect of the licensing scheme is to alter the scheme of distribution and re-arrange priorities among creditors by taking funds that would otherwise be available to other judgment creditors, because the Minister obtains funds outside the bankruptcy process.”

The writ of execution the Finance Minister had sought from the court is “notice to the world that Ms. Clarke is a judgment debtor and the Minister is a judgment creditor,” which, Judge Goldstein wrote, “has nothing to do with safe driving.”