Reference Re Farmers' Creditors Arrangement Act

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Reference Re Farmers' Creditors Arrangement Act
Royal Arms of the United Kingdom (Privy Council).svg
Court Judicial Committee of the Privy Council
Full case nameAttorney General of British Columbia v Attorney General of Canada and others, In the Matter of a Reference as to whether the Parliament of Canada had legislative jurisdiction to enact the Farmers’ Creditors Arrangement Act, 1934, as amended by the Farmers’ Creditors Arrangement Act Amendment Act, 1935
Decided 28 January 1937 (1937-01-28)
Case history
Appealed fromReference re legislative jurisdiction of Parliament of Canada to enact the Farmers' Creditors Arrangement Act, 1934, as amended by the Farmers' Creditors Arrangement Act Amendment Act, 1935 1936 CanLII 35, [1936] SCR 384(17 June 1936), Supreme Court (Canada)
Court membership
Judges sitting
Case opinions
Decision by Lord Thankerton

Reference Re Farmers' Creditors Arrangement Act [1] is a decision of the Judicial Committee of the Privy Council on the constitutionality of the Farmers' Creditors Arrangement Act as part of the bankruptcy and insolvency jurisdiction of the Parliament of Canada.

Judicial Committee of the Privy Council judicial body in the United Kingdom

The Judicial Committee of the Privy Council (JCPC) is the highest court of appeal for certain British territories and Commonwealth countries. Established on 13 August 1833 to hear appeals formerly heard by the King-in-Council, the Privy Council formerly acted as the court of last resort for the entire British Empire, and continues to act as the highest court of appeal for several independent Commonwealth nations, the Crown Dependencies, and the British Overseas Territories.

<i>Farmers Creditors Arrangement Act</i>

The Farmers' Creditors Arrangement Act, was an Act of the Parliament of Canada that attempted to remedy a wave of insolvencies that occurred among Canadian farmers during the Great Depression. Originally framed to deal with such problems nationwide, it was gradually reduced in scope, and was reenacted in 1943 to apply solely to farmers in the Prairie Provinces.

Bankruptcy legal status of a person or other entity that cannot repay the debts it owes to creditors

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Contents

Background

By 1934, the farm debt problem in Canada, which had been provoked by the Great Depression, reached a scale where provincial moratory legislation [lower-alpha 1] could not resolve it, as it could not remove the farmer from his position of default. [2] The last agricultural census reported that 244,201 farms (33.61% of all farms in Canada) reported having mortgages totalling $677,000,000 (16.75% of the value of all farms, or 49% of the value of owned farms). [3] Cash flow problems also resulted in a significant increase in the amount of short-term obligations. [3] It reached the point where Prime Minister R.B. Bennett decided to introduce remedial legislation to address it at the federal level, [4] based in large part on the Companies' Creditors Arrangement Act [5] passed in the previous year.

Great Depression 20th-century worldwide economic depression

The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across nations; in most countries it started in 1929 and lasted until the late-1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how intensely the world's economy can decline.

A moratorium is a delay or suspension of an activity or a law. In a legal context, it may refer to the temporary suspension of a law to allow a legal challenge to be carried out.

Default (finance) failure to meet the conditions of a loan

In finance, default is failure to meet the legal obligations of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt.

The Act's constitutionality was attacked on two grounds, in that the Parliament of Canada lacked jurisdiction, when enacting legislation concerning bankruptcy and insolvency: [6]

  • to deprive a secured creditor of his right to realize his security fully for the recovery of the debt owing to him, where such security consists of a conventional charge upon the property of the insolvent or affecting that right by subjecting him in respect of it to the discretionary order of a tribunal.
  • to frame it in such a way as to affect the rights of the government of a province as creditor of an insolvent

Accordingly, a reference question was presented to the Supreme Court of Canada, asking:

In Canadian law, a reference question or reference case is a submission by the federal or a provincial government to the courts asking for an advisory opinion on a major legal issue. Typically the question concerns the constitutionality of legislation.

Supreme Court of Canada highest court of Canada

The Supreme Court of Canada is the highest court of Canada, the final court of appeals in the Canadian justice system. The court grants permission to between 40 and 75 litigants each year to appeal decisions rendered by provincial, territorial and federal appellate courts. Its decisions are the ultimate expression and application of Canadian law and binding upon all lower courts of Canada, except to the extent that they are overridden or otherwise made ineffective by an Act of Parliament or the Act of a provincial legislative assembly pursuant to section 33 of the Canadian Charter of Rights and Freedoms.

At the Supreme Court of Canada

By 5-1, the SCC held that the Act was intra vires of the Parliament of Canada.

Majority (Duff CJ)

The grounds of attack were dismissed by Duff CJ as follows:

  1. L'Union St-Jacques v Bélisle , in the 1874 judgment given by Lord Selborne, [8] construed the federal power over bankruptcy and insolvency in very wide terms, which had been affirmed in 1934 in the Reference Re Companies' Creditors Arrangement Act [9] [10]
  2. In 1932, the Privy Council had already ruled [11] that the Parliament of Canada could deal with the privilege attaching to debts owing to the Crown in the right of a province and to take away any priority accorded to such debts by the law of a province, to which Duff CJ declared, "The legislative authority in bankruptcy matters to deal with debts owing to a province is no less than the authority to deal with debts owing to the Dominion." [12]

Dissent (Cannon J)

Cannon J declared that the Act could not be constitutional, as it:

  1. did not provide for the rateable distribution of the assets of the debtor nor for the discharge of the debt
  2. in establishing Boards of Review, did not provide for proper bankruptcy proceedings, unlike what had been set out in the Companies' Creditors Arrangement Act
  3. had "nothing to do directly with agriculture, with the science, the art or the process of supplying human wants by raising the products of the soil" [13]

However, he did hold that s. 17 of the Act (which provided for the adjustment of interest rates on certain farm mortgages) was constitutional under the federal interest power. [14]

At the Privy Council

The Board upheld the majority decision of the SCC. In so doing, Lord Thankerton found nothing wrong with the Board of Review framework, noting with approval that "it cannot be maintained that legislative provision as to compositions, by which bankruptcy is avoided, but which assumes insolvency, is not properly within the sphere of bankruptcy legislation." [lower-alpha 2] He also rejected the contention that a secured creditor would, as a result of the composition, be deprived of his property, observing that "the reduction of the debt itself or an extension of time for its payment... is a familiar feature of compositions."

Impact

Many Canadian legal commentators at the time expected that the FCAA, together with 1933's Companies' Creditors Arrangement Act , [15] (which was effectively under collateral attack) would be declared unconstitutional as encroaching upon the provincial power over property and civil rights in relation to the rights of secured creditors, and they were astonished when both were upheld. [16]

Further reading

Notes

  1. ↑ as, in Ontario for example, The Mortgagors' and Purchasers' Relief Act, 1932 , S.O. 1932, c. 49 , followed the following year by The Mortgagors' and Purchasers' Relief Act, 1933 , S.O. 1933, c. 35
  2. ↑ referring to the SCC's Reference Re Companies' Creditors Arrangement Act, at p. 660

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<i>Reference Re Companies Creditors Arrangement Act</i>

Reference Re Companies' Creditors Arrangement Act is a decision of the Supreme Court of Canada on the constitutionality of the Companies' Creditors Arrangement Act as part of the bankruptcy and insolvency jurisdiction of the Parliament of Canada.

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References

  1. ↑ Attorney General of British Columbia v Attorney General of Canada [1937] UKPC 10 (28 January 1937), Privy Council (on appeal from Canada)
  2. ↑ MacPherson 1934, p. 70.
  3. 1 2 MacPherson 1934, p. 71.
  4. ↑ Bryce 1986, p. 160.
  5. ↑ The Companies’ Creditors Arrangement Act, 1933 , S.C. 1932-33, c. 36
  6. ↑ SCC, p. 388
  7. ↑ SCC, p. 385
  8. ↑ L'Union St-Jacques de Montréal v Bélisle [1874] UKPC 53 , (1874) 6 LR PC 31(8 July 1874), Privy Council (on appeal from Quebec)
  9. ↑ Reference Re Companies' Creditors Arrangement Act 1934 CanLII 72 at p. 660, [1934] SCR 659(6 June 1934), Supreme Court (Canada)
  10. ↑ SCC, p. 389
  11. ↑ Attorney General of Quebec v Attorney General of Canada, In re Silver Brothers Limited [1932] UKPC 6 (9 February 1932), Privy Council (on appeal from Canada)
  12. ↑ SCC, p. 393
  13. ↑ SCC, pp. 394-398
  14. ↑ SCC, p. 398
  15. ↑ The Companies’ Creditors Arrangement Act, 1933 , S.C. 1932-33, c. 36
  16. ↑ Torrie 2017, p. 5.
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