jan. 2. 2016

Paramountcy Problems Part II – Narrowing “Federal Purpose” in Saskatchewan (Attorney General) v Lemare Lake Logging

Saskatchewan (Procureur général) c. Lemare Lake Logging Ltd., 2015 CSC 53 (CanLII)

In a series of recent decisions, the Supreme Court of Canada (“SCC”) sought to clarify the proper application of the constitutional paramountcy doctrine. Part I of this two-part series looked at the implications of Alberta (Attorney General) v Moloney, 2015 SCC 51 [Moloney]. This analysis will focus on the Saskatchewan (Attorney General) v Lemare Lake Logging, 2015 SCC 53 [Lemare] decision.

As discussed in Part I, Canada is a federal state, with equal, exclusive, and autonomous law-making powers constitutionally conferred to both the Parliament of Canada and the ten provincial legislatures. Where there is an inconsistency between validly enacted federal and provincial legislation, however, the paramountcy doctrine provides that that the federal law takes primacy, with the provincial law deemed inoperable to the extent of the inconsistency.

Over several decades, the SCC has refined, re-cast, and re-considered the characterization of “inconsistency,” which is now understood through a two part test: (a) There is an operational conflict between federal and provincial legislation, whereby compliance with both laws is impossible; or (b) the provincial law has the effect of frustrating the purpose of the federal law. Despite the apparent clarity of this test, courts and judicial decision-makers continue to struggle with its application. Indeed, the proper meaning of “inconsistency” remained the central issue at play in Moloney, 407 ETR Concession Co v Canada (Superintendent of Bankruptcy), 2015 SCC 52 [407 ETR] and Lemare. The latter decision centred on the second branch of the paramountcy test—the frustration of federal purpose.

Factual and Judicial Background

In 2010, after some restructuring from within the two companies, 3L Cattle Company Ltd (“3L”) had agreed to indemnify Lemare Lake Logging Ltd. (“Lemare Lake”) from any liability with respect to a $10 million loan to Concentra Financial Services Association (“Concentra”). 3L also gave Lemare Lake a loan “in respect of its interest in 120 parcels of land in Saskatchewan, and a security interest in all non-inventory goods and equipment of 3L” (Lemare, para 7). In 2013, after 3L failed to repay its loan, Concentra pursued both 3L and Lemare Lake. The latter sought to realize on its security over 3L’s assets, and accordingly, applied to the Saskatchewan Court of Queen’s Bench (“SKQB”) to appoint a national receiver, pursuant to section 243(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 [BIA].

Section 243(1) of the BIA stipulates that a court may appoint a receiver to (inter alia) “take possession or control over all the inventory accounts receivable, or other property of an insolvent person,” within ten days, on application of a secured creditor. By contrast, Part II of The Saskatchewan Farm Security Act, SS 1988-89, c S-17 [SFSA] requires creditors to “serve a ‘notice of intention’, engage in mandatory mediation, and prove that the debtor has no reasonable possibility of meeting its obligations or is not making a sincere and reasonable effort to meet its obligations” before it can begin an action with respect to farm land (Lemare, para 3). 3L contested this, arguing that “because it was a ‘farmer’ within the meaning of the SFSA, Lemare Lake had to comply with Part II of the SFSA before applying for the appointment of a national receiver” (Lemare, para 9).

The dispute was argued along constitutional grounds. Lemare Lake argued that the impugned provisions of the SFSAconflicted with section 243 of the BIA, and as such, the doctrine of paramountcy rendered the former constitutionally inoperative to the extent of such conflict. However, the chambers judge of the SKQB found that there was no inconsistency between the two statutes, deciding instead that a “secured creditor must comply with the provisions of Part II of the SFSAbefore making an application pursuant to s[ection] 243(1) of the BIA” (Lemare, para 10). She also found no conflict regarding the federal purpose.

Although the Saskatchewan Court of Appeal (“SKCA”) agreed with the SKQB’s application of the “operational conflict” test, it reversed the lower court’s ultimate holding on the basis that Part II of the SFSA frustrates the purpose of the federal bankruptcy legislation. As such, the SKCA deemed the former “inoperative in circumstances where an application is made to appoint a receiver pursuant to s[ection] 243(1) of the BIA” (Lemare Lake Logging Ltd v 3L Cattle Company Ltd, 2014 SKCA 35, para 67).

The dispute between 3L and Lemare Lake was privately settled shortly thereafter. However, the Attorney General for Saskatchewan nonetheless sought leave to appeal before the SCC, given the “ongoing importance of resolving [that] issue in Saskatchewan” (Lemare, para 13). Counsel for Lemare Lake was appointed as amicus curiae for the purpose of the appeal.

The SCC’s Decision: Majority and Dissent

For a six-judge majority, Justices Abella and Gascon (the latter of whom also authored the majority reasons in Moloney) began their analysis by setting out the framework of the paramountcy doctrine within the context of cooperative federalism—a principle that permits a degree of overlap between federal and provincial heads of power. Under this framework, courts should narrowly construe the doctrine of paramountcy, favouring “harmonious interpretations of federal and provincial legislation … over interpretations that result in incompatibility” (Lemare, para 21). Provincial legislative power should not be constrained, absent an actual operational conflict.

Applied to the second branch of paramountcy, which focuses on whether the provincial law frustrates the purpose of the federal law, the majority held that decision makers ought to avoid an “expansive interpretation of the purpose of federal legislation which will bring it into conflict with provincial legislation” (para 23). In line with the SCC’s holdings in Quebec (Attorney General) v Canadian Owners and Pilots Association, [2010] 2 SCR 536 and Canadian Western Bank v Alberta, [2007] 2 SCR 3, the decision in Lemare stands for the principle that clear proof of the federal law’s purpose is required to trigger the second branch of the paramountcy doctrine, so as to render a provincial law inoperative.

As such, the majority easily rejected a wide characterization of the BIA’s purpose. Despite pointing to a fair number of secondary sources to bolster its arguments, the SCC was unwilling to recognize timeliness and promptness as purposes of the federal legislation for the purpose of this paramountcy analysis. Instead, it found that the evidence presented shows “a simple and narrow purpose: the establishment of a regime allowing for the appointment of a national receiver, thereby eliminating the need to apply for the appointment of a receiver in multiple jurisdictions” (Lemare, para 45). Characterized as such, the majority easily found that Part II of the SFSA did not conflict with section 243 of the BIA, despite putting in place significant hurdles to the timely appointment of a federal receiver.

Despite affirming the importance of cooperative federalism in constitutional analysis, Justice Côté’s dissent cautions against the majority’s approach, noting that a “harmonious interpretation of both federal and provincial legislation cannot lead this Court to disregard obvious purposes that are pursued in federal legislation” (Lemare, para 78). This, she argues, is in line with the proper understanding of the constitutional division of powers, citing the following passage from Justice Gonthier in Law Society of British Columbia v Mangat, [2001] 3 SCR 113:

I consider irrelevant the principle of statutory interpretation whereby a statute should be read in a manner that will uphold the constitutionality of the relevant legislative provisions. This principle only applies when both competing interpretations are reasonably open to the court (para 66).

In this way, Justice Côté disagreed with the majority’s characterization of the impugned provision’s federal purpose. Instead, she found that section 243 of the BIA was aimed at ensuring an effective and timely bankruptcy regime, particularly in the context of emergencies (Lemare, para 114). As such, the additional hurdles put in place by the provincial statute were deemed an undue frustration of the Federal framework, thereby triggering the doctrine of paramountcy so as to render inoperative Part II of the SFSA to the extent of the inconsistency.

Narrowing the “Federal Purpose” Branch

As noted by Professor Peter Hogg, this branch of the paramountcy test is “oftentimes regarded as a subset of express contradiction, although it is much less ‘express’ than the impossibility of dual compliance” (Peter W Hogg, Constitutional Law of Canada, 2013 Student Edition (Toronto: Carswell, 2013) at 16-7). Whereas an “express” and literal reading of the impugned statutes (which was arguably broadened by the SCC in Moloney) may be appropriate at the impossibility of dual compliance stage, the analysis at this second stage requires a more in-depth analysis and interpretation of the federal statute in order to properly identify its purpose. Indeed, the inquiry on this branch appears to be much wider than the former, capturing instances where dual compliance is formally possible, but substantively and purposively problematic.

This was the central point of contention in Lemare: the breadth by which the courts ought to define the purpose of the federal legislation. Whereas the one-judge dissent was willing to accept amicus’s broad characterization of the impugned federal provision, the majority opted instead for a very high threshold to succeed on this branch, requiring clear proof of purpose.

This holding effectively restricts the paramountcy doctrine to only those instances where the purpose of the federal statute—for which only clear proof is sufficient—is frustrated by the provincial legislation. Unlike the approach adopted by Justice Côté, the majority was unwilling to draw the federal purpose “in broad strokes” (Lemare, para 114), preferring a narrow construction of the paramountcy doctrine. As such, the holding provides guidance to future courts deciding on such matters; decision makers should not search high and low for that elusive federal purpose, as too broad a characterization can have the unwanted effect of improperly impairing provincial legislative authority. This was reflected in the diminished weight the majority placed on amicus’s case law and secondary source evidence (paras 41, 120-21).

Moreover, Lemare further affirms a restrictive approach to the “covering the field approach” that dominated the SCC’s reasoning in Bank of Montreal v Hall, [1990] 1 SCR 121. In that case, a provision of Saskatchewan’s Limitation of Civil Rights Act, RSS 1978, c L-16 was rendered inoperative on the basis that it imposed significant hurdles to the operation of the federal Bank Act, RSC 1985, c B-1, which provided for an expedient procedure to foreclosure proceedings. For a unanimous bench, Justice La Forest determined that the federal Bank Act provided a “complete code” governing banking in Canada, thereby precluding interference from provincial legislation. Unlike that statute, the BIA has a provision explicitly authorizing its coexistence with provincial statutes relating to property and civil rights. Nonetheless, the majority found that this such an explicit provision is not a necessary condition, noting that “[i]n the absence of ‘very clear’ statutory language to the contrary, courts should not presume that Parliament intended to ‘occupy the field’ and render inoperative provincial legislation in relation to the subject” (Lemare, para 27).

Although not the first time the SCC has taken a restrictive view of the doctrine, the approach adopted by the majority accords the dominant approach to the constitutional division of powers—one which seeks to keep alive democratically enacted laws except for in the clearest and most substantial situations. In other words, Lemare recognizes the high burden required to succeed on the frustration of federal purpose analysis, thereby affirming a narrow approach to the second branch of paramountcy.

Going Forward…

Of course, decisions cannot be analyzed in a vacuum, and it is necessary to interpret this decision within the context of the 2015 paramountcy trilogy. In Moloney and 407 ETR, Justice Gascon’s majorities appear to have injected a substantive component to the impossibility of dual compliance test, thereby arguably broadening the reach of that stage of paramountcy. Lemare, by contrast, indicates the narrowing of the frustration of federal purpose stage.

So where does this leave our understanding of the paramountcy doctrine? The two-stage approach appears to have survived judicial scrutiny on this round, but not without a degree of foreshadowing. In Moloney, Justice Côté’s dissent criticized the majority’s approach to the impossibility of dual compliance, claiming that it “conflates the two branches of the federal paramountcy test, or at a minimum, blurs the difference between them” (Moloney, para 93). More significantly, Justice Gascon in Lemare suggested that “[a]t some point in the future, it may be argued that the two branches of the paramountcy test are no longer analytically necessary or useful, but that [this] is a question for another day” (Lemare, para 23). Indeed, whether Justice Gascon’s approach in this recent paramountcy trilogy will have the effect of shaping a singular test remains to be seen.