Vol 13 (2016) - Issue 4

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Provincial Legislation is of Paramount Importance: The Supreme Court of Canada’s Recent Interpretation of the Doctrine of Paramountcy

Federal legislation to govern the procedural operation of a bankruptcy or a restructuring process is imperative, given the number of debtors with a presence in multiple Canadian jurisdictions. The Bankruptcy and Insolvency Act (Canada) (the 'BIA'), provides a uniform framework with one set of rules for stakeholders in a bankruptcy proceeding to abide by, thereby levelling the playing field in order to attain the best collective outcome for stakeholders in an often precarious situation. However, the Supreme Court of Canada has recently reaffirmed that the relevance and the impact of applicable provincial statutes cannot simply be ignored. On November 13, 2015, the SCC issued its decision in Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., touching on the doctrine of paramountcy in the context of the federal BIA and The Saskatchewan Farm Security Act (the 'SFSA'). This article provides a summary of the decision, which considers the tension between federal and provincial legislation in the context of bankruptcy and insolvency. In Lemare Lake Logging, the SCC took an approach to the interpretation of the relevant legislation that would effectively allow both the provincial and federal laws to operate conjointly, rather than permitting the federal legislation to supersede the provincial in a situation where the two laws overlap. Arguably, the decision would operate to undermine the uniformity that the federal legislation strives to attain.
Lemare Lake Logging revolved around the question of whether a secured creditor, in enforcing its mortgage against land in Saskatchewan, is required to comply with the BIA notice provisions, or alternatively, the much more onerous notice provisions of the SFSA. This decision is notable for lending and restructuring professionals, particularly those with clients that operate across Canada. The SCC’s narrow interpretation of the intended purpose of subsection 243(1) of the BIA led to the conclusion that the secured creditor must comply with the SFSA, under which a secured creditor must provide at least 150 days’ written notice to an insolvent debtor and satisfy certain other requirements set out in the SFSA before it may commence proceedings against the debtor. This is a much more cumbersome process for creditors than the 10 days’ notice of enforcement required under the BIA.
In Lemare Lake Logging, the dispute arose from debt obligations of two competing family businesses: 3L Cattle Company Ltd., owned by David Dutcyvich, and Lemare Lake Logging Ltd., owned by Mr. Dutcyvich’s two sons. Both businesses were originally owned by Mr. Dutcyvich, though due to irreconcilable disagreements between Mr. Dutcyvich and his sons the businesses were ultimately restructured such that Mr. Dutcyvich owned one and his sons owned the other. In connection with the corporate restructuring of the companies, 3L Cattle assumed an obligation to repay a loan in the principal amount of $10,000,000 to Concentra Financial Services Association. Lemare Lake remained indirectly liable for the debt and 3L Cattle granted an indemnity in favour of Lemare Lake in respect of such liability. As security for the payment and performance of such indemnity obligations, 3L Cattle also granted in favour of Lemare Lake a mortgage over certain lands and a security interest in certain other property.