M & D Farm Ltd. v. Manitoba Agricultural Credit Corp.

Binnie J. -- At what point do legislators give up the struggle to keep defaulting farmers on the farm? For the last 28 years, the Desrochers family has worked a homestead on 160 acres of land near Pilot Mound, Manitoba. (M & D Farm Limited is a family corporation owned by the individual appellants, which took title in 1979.) The farm was mortgaged to the Manitoba Agricultural Credit Corporation (“MACC”) for $39,500 in 1972 and payments were made on this mortgage with varying degrees of punctuality and sufficiency of amount until 1989. As a result of “poor crops, bad weather and high farming expenses”, the appellants’ farm slid into insolvency in the early 1990s. For the past 8 years, MACC has made efforts, at times desultory, to realize on its security. It has had to navigate simultaneously the provisions of the federal Farm Debt Review Act, R.S.C., 1985, c. 25 (2nd Supp.), and the Manitoba Family Farm Protection Act, C.C.S.M., c. F15. The question on this appeal is whether the respondent inadvertently navigated itself onto the shoals of the federal paramountcy doctrine, and thereby obtained a remedy which is now to be pronounced a nullity.

More specifically, on January 17, 1994, MACC obtained from the Manitoba Court of Queen’s Bench leave under the Manitoba legislation to commence foreclosure proceedings. The appellants say that the leave application under the provincial Act contravened the federal legislation and is invalid, and that MACC’s subsequent foreclosure sale and possession proceedings based on the invalid grant of leave are equally invalid. At the conclusion of the hearing of the appeal, we gave judgment for the appellants with reasons to follow. These are the reasons.

Facts

Marcel and Darlene Desrochers have had their home on the land at issue since 1971. The land was purchased from members of Mrs. Desrochers’ family using the proceeds of a $39,500 mortgage loan from MACC. The loan was broken into two parts, namely an “intermediate” loan of $14,500 that was paid off by May 1983 and the balance of $25,000 under a long-term mortgage maturing in 2002. The farm seems to have experienced more bad years than good. The most recent mortgage payment was made almost 10 years ago in August 1989. The appellants say they paid $42,643.53 over the years in respect of principal and interest on the $25,000 portion of the debt, and still owed $28,681. MACC says they owed more than that.

On December 1, 1992, MACC demanded payment of arrears owing under the mortgage and also gave notice under s. 22 of the Farm Debt Review Act that it intended to commence proceedings to recover the amounts outstanding if the arrears were not paid. The appellants quickly applied for a stay of proceedings under s. 23 of the federal Farm Debt Review Act, as they were entitled to do, and this stay was granted on January 4, 1994. The stay was continued to May 4, 1994 by virtue of three extensions of 30 days each obtained by the appellants, the maximum number obtainable under the legislation.

The general manager of the federal Farm Debt Review Board (the “Board”) established under the Farm Debt Review Act mailed a copy of the stay of proceedings to MACC on or about January 4, 1994. The evidence is not clear as to when this federal notice was actually received but the fact is that MACC appeared before the Manitoba Court of Queen’s Bench on January 17, 1994, on notice to the appellants, seeking leave under the provincial Act to commence mortgage foreclosure proceedings and to apply for an order for possession of the appellants’ farm. The appellants failed to appear because, they say, they assumed that MACC would not try to proceed under the provincial Act in the face of the federal stay of proceedings. It is common ground that the motions judge was not aware of the federal stay of proceedings, and the leave order issued on January 17, 1994 as requested, plus costs.

The terms of the January 17, 1994 order purport to authorize immediate commencement of mortgage foreclosure proceedings, application to the district registrar for an order of sale and for an order of foreclosure, together with leave to apply for an order of possession of the mortgaged land and premises. On learning of the purported grant of leave under the provincial legislation in March 1994, the appellants made it known to MACC that, in their view, the order of January 17, 1994 was of no effect, and subsequent proceedings were invalid.

MACC refrained from taking any action on the grant of leave until after the expiry of the federal stay of proceedings in May of 1994. Thereafter it moved forward at a measured pace until it obtained a certificate of title to the mortgage property on August 20, 1996. A demand for possession was forwarded to the appellants on October 8, 1996.

At that point the Desrochers, who were still in residence, moved to have the initial order granting MACC leave to proceed and all subsequent proceedings declared nullities. Their Notice of Motion was dated January 14, 1997, almost three years after the issuance of the original order, and almost eight years since their last mortgage payment.

Relevant Legislative Provisions

Farm Debt Review Act, R.S.C., 1985, c. 25 (2nd Supp.)

16. Any farmer who is in financial difficulty may apply, in the prescribed form containing the prescribed information, to the Board established for the province or region of Canada in which the farmer resides for a review of the farmer’s financial affairs or for assistance in facilitating an arrangement with his creditors.

17. (1) Subject to subsection (2), where a Board receives an application made under section 16, the Chairman of the Board shall appoint a review panel with respect to the application in accordance with section 12.

18. A review panel appointed under section 17 shall examine the financial affairs of the farmer concerned and may offer advice, meet with the farmer and any of the farmer’s creditors and assist the farmer and his creditors to enter into an arrangement.

. . .

20. (1) Any insolvent farmer may apply, in the prescribed form containing the prescribed information, to the Board established for the province or region of Canada in which the farmer resides for a review of his financial affairs and for a stay of any proceedings against the farmer by his creditors.

. . .

22. (1) Every secured creditor who intends to realize on any security of a farmer shall give the farmer written notice, in the prescribed form containing the prescribed information, of his intention to do so and in the notice shall advise the farmer of the right of an insolvent farmer to make an application under section 20.

(2) The notice referred to in subsection (1) shall be given to the farmer in the prescribed manner at least fifteen business days before the taking of any action by the secured creditor to realize on the security.

23. Subject to sections 26, 29 and 32, and notwithstanding any other law, on receipt by a Board of an application made by a farmer under section 20, no creditor of the farmer shall, for a period of thirty days after the receipt of the application by the Board, have any remedy against the property of the farmer or shall commence or continue any proceedings or any action, execution or other proceedings, judicial or extra-judicial, for the recovery of a debt, the realization of any security or the taking of any property out of the possession of the farmer.

. . .

26. If a farmer contravenes or is negligent in complying with any directives issued to the farmer by a Board pursuant to subsection 25(1) or if the Board is of the opinion that the farmer has, by any act or omission on his part, jeopardized his assets or obstructed the guardian in the performance of the guardian’s duties and functions under subsection 25(2), the Board may direct that the period referred to in section 23, as it may have been extended under section 29, be terminated and, where the Board so directs, that period shall terminate.

. . .

29. (1) Where a Board considers an extension of the period referred to in section 23 to be essential to the formulation of an arrangement between a farmer and his creditors, the Board may extend that period for a period of thirty days.

(2) Where a Board considers an extension of the period referred to in section 23, as extended under subsection (1), to be essential to the formulation of an arrangement between the farmer and his creditors, the Board may extend that period for a maximum of two further periods of thirty days each.

The Family Farm Protection Act, C.C.S.M., c. F15

8(1) No person shall commence or continue any action or proceeding to realize upon or otherwise enforce

(a) a mortgage, an encumbrance, a security agreement or an agreement for sale of farmland, or any provision contained therein; or

(b) a judgment or an attachment obtained on the basis of a mortgage, an encumbrance, a security agreement or an agreement for sale of farmland, or any provision contained therein;

whereby a farmer could be deprived of the ownership or the possession of farmland of which the farmer is the registered owner or of which the farmer is the purchaser under an agreement for sale, without first obtaining leave of the court under this Part.

. . .

8(4) Any action or proceeding which is commenced or continued after the coming into force of this Act without first obtaining leave of the court as required by this Part is a nullity.

Judgments

Manitoba Court of Queen’s Bench

Clearwater J., who had granted the initial leave application, made a further order on March 20, 1997, declaring his initial order a nullity, and all proceedings taken pursuant to his initial order also to be nullities. He noted that the stay had been granted pursuant to the federal Farm Debt Review Act 13 days before he had granted the leave application. He accepted that MACC may not have been aware of the stay when its motion for leave was brought on January 17, 1994, but he found that MACC definitely was aware of it by March of the same year. While nothing had been done in the intervening three years to vary or set aside the order granting leave, Clearwater J. found that the appellants had at all times made it clear to MACC that, in their view, the order of January 17 was of no force or effect. He commented:

. . . it is difficult to see why, with the issue being put to it, not only by the Desrochers, but at least to some extent by representatives of the Farm Debt Review Board as it appears from the affidavit, a rather simple and not too costly motion might have been brought at a point in time when all stays granted by the federal board had expired.

The issue before Clearwater J. was whether the stay of proceedings granted under s. 23 of the federal statute prohibited MACC from seeking leave under s. 8 of the provincial Act to commence proceedings to enforce its mortgage. MACC submitted that a s. 23 stay was not a prohibition against any proceedings, but only prohibited proceedings “against the property” or otherwise “for the recovery of a debt, the realization of any security or the taking of any property out of the possession of the farmer”. It was MACC’s position that a mere application for leave did none of these things. MACC characterized the motion for leave as a condition precedent to any realization or foreclosure proceedings, and as such was collateral to and distinct from the proceedings prohibited under the federal Act. In any event, MACC argued that the obtaining of leave during the stay was a mere irregularity that had not prejudiced the appellants in any way and therefore could and should be cured by subsequent judicial order. Clearwater J. ruled, however, that the terms of the stay issued under s. 23 of the federal Act were clear and that the steps taken under the provincial statute were of no effect. MACC, as a knowledgeable lender, should have brought a motion to obtain leave to commence proceedings after the stay and its extensions had expired. Clearwater J. found that MACC’s failure to do so irretrievably flawed the subsequent proceedings.

Clearwater J. considered the delay by the Desrochers as “almost inexcusable” and “almost unconscionable”, but considered that nothing could be done for MACC to save a nullity.

Court of Appeal of Manitoba (1997), 118 Man. R. (2d) 174 (Helper J.A., Huband and Lyon JJ.A. concurring)

The Manitoba Court of Appeal was persuaded by MACC’s argument that the January 17, 1994 order was not a proceeding prohibited by the stay but only a “condition precedent” to such a proceeding. Helper J.A. considered that the appellants’ argument to the contrary would lead to an absurdity for if the application for leave itself is an “action or proceeding”, a lender could never realise on its security because an application for leave without prior leave being obtained would itself be prohibited under s. 8 of the provincial statute.

Therefore, Helper J.A. concluded that MACC’s interpretation of the relevant legislation was to be preferred and that a leave application is not a “proceeding”. More importantly, even if a leave application could be characterized as a proceeding, it was not a “remedy against the property of the farmer”, and nor did “it constitute the commencement or the continuation of ‘any proceedings . . .’ for the recovery of a debt”. Accordingly, Helper J.A. concluded, at p. 176, that “MACC was entirely justified in making its application for leave during the continuance of the stay order. It acted in accordance with that order by taking no steps to commence proceedings to realize upon its mortgage until the stay was exhausted in May, 1994”.

It is the Manitoba Court of Appeal’s reversal of the order of Clearwater J. granted March 20, 1997 that is the subject of this appeal.

Analysis

At the root of this appeal is the doctrine of federal paramountcy. The appellants say that MACC’s steps under the provincial Family Farm Protection Act brought it into conflict with the stay issued under the federal Farm Debt Review Act. The order made under the provincial Act gave a green light to commence foreclosure and sale proceedings at a time when the federal stay still showed red. Neither MACC nor the Desrochers challenged the validity of either the federal or provincial statute.

Crucial to the argument is the scope and application of the federal Farm Debt Review Act. Once that is determined, the provisions of the provincial Act must be examined to see whether “there [would be an] actual conflict in operation” when the two statutes purport to function side by side. (See Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161, per Dickson J. (as he then was), at p. 191.) In the event of an express contradiction, the federal enactment prevails to the extent of the inconsistency.

The Federal Scheme

It seems clear that the federal Farm Debt Review Act taken as a whole was intended to create a standstill period or moratorium of short duration. The initial stay of 30 days can only be extended where the Board considers it “essential to the formulation of an arrangement” (s. 29) and even then the maximum period is 120 days. The farmer is given a breathing space in which to attempt to reorganize his or her financial affairs. He or she is provided with the assistance of a neutral panel to mediate with creditors (ss. 17, 18). The function of the Board is to assist the viable farmer to stay on the farm, not to preside over the liquidation of his, her or its assets.

When the Farm Debt Review Act was being considered by Parliament in 1986, the Minister of Agriculture, the Hon. John Wise, described the aim of the legislation in the following terms:

This legislation, in any way, shape or form, will not solve all the problems in Canadian agriculture. It will not address difficult questions about international pricing, nor will it address difficult questions about international markets. It will not erase the past. It is intended to and will help farmers with the potential to be viable and remain in business. [Emphasis added.]

(House of Commons Debates, vol. X, 1st Sess., 33rd Parl., June 20, 1986, at p. 14790.)

Farmers without the protection of a marketing board or other price stabilization schemes face volatile markets and volatile prices. The legislation recognizes that temporary financial embarrassment is part of a farmer’s lot, and does not necessarily signal lack of long-term financial viability. The Act provides a short standstill period within which the farmer has an opportunity to demonstrate long-term viability to creditors.

The federal scheme has two branches. Under the first branch, any farmer --solvent or insolvent — who claims to be in financial difficulty may apply to the Federal Farm Debt Review Board “for a review of the farmer’s financial affairs or for assistance in facilitating an arrangement with his creditors” (s. 16). On receipt of such an application, the Chairman of the Board is directed to appoint a “review panel” (s. 17) whose responsibilities consist of examining the farmer’s financial affairs, offering advice on these affairs to the farmer, meeting with the farmer and his or her creditors and assisting the farmer and his or her creditors to enter into an “arrangement” (s. 18). If the creditors are satisfied of the farmer’s viability, they will likely make an arrangement rather than sue. However, it is important to emphasize that the federal scheme does not stay proceedings against a solvent farmer. Any protection for such farmers is found in the provincial legislation.

The second branch of the federal scheme addresses the plight of the farmer who is insolvent. Section 20 allows an insolvent farmer to apply for “a review of his financial affairs and for a stay of any proceedings”. Where a creditor wishes to exercise its right to sue, s. 22 requires written notice at least 15 business days before taking any action to realize on its security. Section 22 also requires such a secured creditor to notify the insolvent farmer of his or her right under s. 20 to apply to the Board for a stay. The initial stay is automatic, but is balanced by the requirement that a “guardian of the assets of the farmer” be appointed to meet any concerns of creditors about the interim preservation of assets (s. 24).

Once a stay of proceedings has been imposed pursuant to s. 23, a panel is appointed by the Board under s. 28 to “review the financial affairs of the farmer concerned and . . . meet with the farmer and his creditors for the purpose of facilitating an arrangement between them”. Extensions of the initial 30-day stay are discretionary, and may only be granted by the Board in 30-day segments. This allows the Board, if it reaches the conclusion after any segment that the mediation is unproductive, to terminate the standstill period.

Effect of the Federal Stay

MACC contends that the leave it obtained under the provincial Act does not violate the terms of the federal stay. The leave application, it says, is a step preliminary to one of the proceedings prohibited by the federal Act. It does not itself achieve “the recovery of a debt, the realization of any security or the taking of any property out of the possession of the farmer”. It is merely a condition precedent to initiation of such proceedings. MACC says that s. 23 does not stall all litigation against the farmer, only the specific types of proceedings listed in s. 23 itself. It offers the somewhat facetious suggestion that the s. 23 stay would not prohibit divorce proceedings against the farmer, for example.

Here, however, we are not dealing with something as remote as a divorce proceeding. MACC wanted this farmer’s land. It served notice on December 8, 1993 that it was seeking foreclosure, sale and possession. The requirement of leave imposed by the Manitoba legislature was a necessary step to depriving the farmer of his land. Helper J.A., of the Manitoba Court of Appeal, concluded at p. 176 that:

. . . the leave application is not a proceeding as envisioned by s. 23 of the FDRA. An application for leave is not a “remedy against the property of the farmer”, nor does it constitute the commencement or the continuation of “any proceedings or any action, execution or other proceedings” for the recovery of a debt. It is a condition precedent to [their] commencement . . . .

Whether s. 23 should be read narrowly (as did the Manitoba Court of Appeal) or more broadly (as was done by Clearwater J.) turns, I think, on the overall purpose of the federal Farm Debt Review Act, which is to be given “such fair, large and liberal construction and interpretation as best ensures the attainment of its objects”: Interpretation Act , R.S.C., 1985, c. I-21, s. 12 . The applicable principle of statutory interpretation was expressed by Lamer C.J. in R. v. Z. (D.A.), [1992] 2 S.C.R. 1025, in considering the Young Offenders Act, at p. 1042, as follows:

In interpreting the relevant provisions of an Act, the express words used by Parliament must be interpreted not only in their ordinary sense but also in the context of the scheme and purpose of the legislation. . . .

See also Iacobucci J. in Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 23:

Although the Court of Appeal looked to the plain meaning of the specific provisions in question in the present case, with respect, I believe that the court did not pay sufficient attention to the scheme of the [Employment Standards Act], its objects or the intention of the legislature; nor was the context of the words in issue appropriately recognized.

Applying that approach, I agree with the appellants that the Manitoba Court of Appeal in the present case unduly narrowed the scope of s. 23 of the federal Act without adequately taking into consideration the broader federal scheme of which s. 23 is a part. The Minister of Agriculture, in introducing the Farm Debt Review Act, as previously mentioned, characterized it as being enacted to “help farmers with the potential to be viable and remain in business”. The significance of the federal scheme is pointed out by B. Farlinger in “The Farm Debt Review Act” (1988), 2 B.F.L.R. 223, at p. 231:

The Act is significant in that it is based on creditors and applicant farmers coming to a voluntary arrangement. . . . The government has recognized that many insolvent farmers must leave the industry and that only commercially-viable farmers will be assisted by this Act. All applicants are provided with an opportunity to receive third-party expert advice on these financial affairs and relationships with their creditors.

See also M. A. Weinczok, “The Farm Debt Review Act” (1991), 18 Can. Bus. L.J. 43. Thus, although the Farm Debt Review Act does offer some protection to all farmers in financial difficulty, it was truly enacted to assist farmers who are commercially viable in the long term, and whose problems are temporary and solvable with the cooperation of the creditors. The Board cannot coerce a settlement. It has very limited time within which to work. In the end, the farmer remains subject to whatever voluntary arrangements he or she can make with the creditors.

In light of the statutory scheme read as a whole, and particularly the short time frames, my view is that the s. 23 moratorium prohibits the making of a leave application which is directed to the end result of debt collection or depriving the farmer of his or her land or other security. The foreclosure, possession and sale of mortgaged farmland will involve numerous steps and (as the respondent’s original Notice of Motion illustrates), multiple proceedings. It is artificial to isolate the leave application from this multi-faceted process and, having isolated it, contend that it is exempt from the s. 23 stay.

A court proceeding places a drain on the farmer’s resources at the very moment all parties should have their focus on a potential arrangement. A leave application does not itself result in dispossession, but it requires the farmer to put together a defence and this will likely involve hiring a lawyer (despite the fact that the farmer is ex hypothesi insolvent) to assist in the cross-examination on affidavits, preparing opposing affidavits and dealing with adjournments, and the cost and disruption of litigation. All of this is to be done at the very time the Board is attempting to assist in putting together an arrangement with creditors that would render such litigation superfluous.

A leave application under s. 8 of The Family Farm Protection Act is so intimately connected with the proceedings listed in s. 23 that, giving the section a purposive interpretation, the leave application itself is also prohibited during the currency of a s. 23 stay. I should add, parenthetically, that in my view even a literal reading of the text of s. 23, isolated from the larger context, does not necessarily support MACC’s position. Great stress is placed by MACC on the words “for the recovery”, etc., but the ordinary meaning of the word “for” includes “[w]ith a view to; with the object or purpose of: as preparatory to. . . . [c]onducive to” (The Oxford English Dictionary (2nd ed. 1989), vol. 6, at pp. 23-24). The word “pour” used in the French text has a similarly elastic meaning, including “[e]n ce qui concerne”, “ marquant la destination figurée . . ., le but, l’intention”, and “[e]n vue de” (Le Grand Robert de la langue française (2nd ed. 1986), vol. 7, at p. 659). The leave application is clearly “preparatory to. . . . [c]onducive to” the ultimate dispossession of the farmer from his or her land. When this language is then placed in the context of the federal scheme, the conclusion is inescapable that a leave application comes within the prohibition of “any proceedings or any action, execution or other proceedings, judicial or extra-judicial, for the recovery of a debt, the realization of any security or the taking of any property out of the possession of the farmer”.

This conclusion is, I think, consistent with what was said by Beetz J. in connection with a comparable stay provision in the Bankruptcy Act in Vachon v. Canada Employment and Immigration Commission, [1985] 2 S.C.R. 417, at p. 426:

The Bankruptcy Act governs bankruptcy in all its aspects. It is therefore understandable that the legislator wished to suspend all proceedings, administrative or judicial, so that all the objectives of the Act could be attained.

A period of “suspension” is similarly contemplated under the federal Farm Debt Review Act.

The foregoing analysis is consistent not only with the view of Clearwater J. in the present case but also with that of Barkman J. in Farm Credit Corp. v. Lebrun, Man. Q.B., File No. 497-88, March 6, 1990 (unreported), where he considered whether s. 23 stayed a leave application and concluded, as did Clearwater J., that it did:

Although this [leave] application is preliminary application . . . it is of necessity by statute the proceedings to commence or continue the rights under the securities held by The Farm Credit Corporation, and, in that regard, it is, in my opinion, a proceeding that is covered by Section 23 because it is a necessary prerequisite to be authorized to commence or continue any proceeding. I’m of the opinion that the stay affects not only the actual commencement or continuation of the foreclosure proceedings, but also refers to any preliminary proceedings from which authority is granted or obtained from the Court to commence or continue the foreclosure proceeding.

Other Actions by Creditors

It is worth noting that courts have considered the taking of other collection activity by creditors during the currency of a s. 23 stay and have generally pronounced them invalid.

In Davies v. Canadian Imperial Bank of Commerce, [1987] B.C.J. No. 632 (QL) (S.C.), Provenzano L.J.S.C. concluded that an examination of the farmer in aid of execution falls within the scope of a s. 23 stay:

The Shorter Oxford English Dictionary — 3rd Edition at p. 1677 defines “proceedings” as a legal action or process, any act done by authority of a Court of Law or any step taken in a cause by either party. I would, therefore, interpret the words “other proceedings” to include any step, action or process taken relative to or for the purpose of execution of a judgment. Accordingly, an examination in aid of execution fits into these meanings. It is a step in the execution of the judgment and therefore is caught by the prohibition in the Section. The intent of the Section is, in my view, to prohibit not only the final act of execution but also all the steps and processes to achieve that result. [Emphasis added.]

See also Nelson’s Lazy H Ranches (1984) Ltd. v. Canadian Imperial Bank of Commerce, [1992] 3 W.W.R. 574 (Alta. C.A.), where an order confirming a sale and vesting order made during the currency of a s. 23 stay was found to be null and void as being contrary to that section of the Farm Debt Review Act, per Foisy J.A., at p. 576.

MACC attempts to uphold its litigious steps by reference to cases that deal with other types of steps that are not litigious at all. In particular it cites the decision of O’Connor J. in Farm Credit Corp. v. Wade (1994), 28 C.B.R. (3d) 203 (Ont. Ct. (Gen. Div.)), where a farmer complained about service of notices under s. 22 of the Farm Debt Review Act and s. 244(1) of the Bankruptcy and Insolvency Act advising him of his creditor’s intention to realize on its security. These notices were served notwithstanding the existence of a s. 23 stay, and the farmer argued they were nullities. Therefore, he argued, any subsequent action was also a nullity because it had been commenced without the proper giving of the statutory notices. O’Connor J. rejected this argument, finding at p. 207 that giving notice “is merely advisory and passive in nature requiring no responding action by the recipient that would significantly enhance the position of the plaintiff if not taken”. Even if O’Connor J. is correct in the distinction he draws at p. 207 between steps that require active as distinguished from passive responses, a point on which we heard no argument, a leave application does require “responding action by the recipient” and would “significantly enhance the position of the plaintiff” unless successfully opposed. Farm Credit Corp. v. Wade is therefore of no assistance.

As a practical matter, this “purposive” interpretation of s. 23 should not unduly prejudice dissatisfied creditors who, for example, can make known their view to the Board that the initial 30-day stay ought not to be extended. Collection activity taken in ignorance of the federal stay may be reinstituted immediately after the stay expires if no arrangement is made. The problem here arises not because of the stay, as such, but because MACC refused to return to the court for leave once the stay had expired, as Clearwater J. pointed out.

The Manitoba Legislation

There are significant differences between the federal scheme and the provincial scheme. The stay imposed by the former is absolute. The latter does not impose a stay at all. It simply imposes the condition precedent of leave to commence or continue “any action or proceeding” to realize upon or enforce various procedures “whereby a farmer could be deprived of the ownership or the possession of farmland”. The former creates a standstill of no more than 120 days. The latter has no such limitation as to time.

The Manitoba Court of Appeal concluded that a leave application could not be a “proceeding” within the meaning of s. 8 of the provincial Act because otherwise MACC would require prior leave in order to bring a leave application, which means creditors would be effectively stymied. They held at p. 176 (quoting from MACC’s written submission):

. . . one could not bring an application for leave, if it were the commencement of a proceeding, because one could not have the required leave to bring that application.

With respect, the issue is not the meaning of the word “proceeding” in s. 8 of the provincial Act. The appellants’ case rests not on s. 8 of the provincial Act but on s. 23 of the federal Act. The issue is the proper interpretation of “proceeding” in the federal Act, and in that context there is no absurdity in requiring a suspension of collection activities for up to four increments of 30 days. This is particularly so when one remembers the guardianship arrangement to prevent any dissipation of the farmer’s assets during the currency of the stay. (The scope of the word “proceeding” under the provincial Act is not material to the outcome of this case, although the juxtaposition of the concepts of “leave” and “proceeding” in that Act does, as the Manitoba Court of Appeal suggests, necessitate reading down the ordinary meaning of the word “proceeding” to exclude leave applications themselves from the s. 8 leave requirement.) The question here is not whether leave is itself a “proceeding” under s. 8 of the provincial Act, but whether any such action can be taken against the farmer in the face of a stay issued under s. 23 of the federal Act. For reasons already given, my view is that the federal stay prohibits the leave application.

The Constitutional Issue

The constitutional objection to the order of January 17, 1994, and to the decision in this case of the Manitoba Court of Appeal, can be briefly stated. The order of January 17, 1994, issued pursuant to the provincial statute, purported to authorize MACC to commence mortgage foreclosure proceedings, apply to the district registrar for an order of sale and an order of foreclosure and apply for an order of possession of the farmland at issue. The order purported to be effective January 17, 1994. Under the terms of this order, MACC was authorized to move forthwith against the appellants’ land and to realize on the appellants’ debt. An order had been made under a provincial statute that purported to authorize the very litigation that the stay issued pursuant to s. 23 of the federal statute purported to prohibit. In short, there is an operational incompatibility in the orders issuing under the two statutes.

It was suggested on behalf of the respondent MACC that the “incompatibility” did not arise in fact in this case because MACC did not act on the grant of leave until after expiry of the federal stay. The leave order was permissive, not mandatory. By keeping the leave order “in its back pocket”, MACC suggests, it satisfied both federal and provincial requirements. The argument advocates a “wait and see” approach. The January 17, 1994 order may or may not be constitutionally valid, according to this view, depending on what MACC chose to do with it. Dickson J., discussed the nature of a legislative conflict requiring the application of the paramountcy doctrine in the following terms in Multiple Access Ltd., supra, at p. 191:

In principle, there would seem to be no good reason to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says “yes” and the other says “no”; “the same citizens are being told to do inconsistent things”; compliance with one is defiance of the other.

My view is that the validity of the leave order has to be determined as of the date it was made and cannot depend on MACC’s subsequent conduct. The order of Clearwater J. dated January 17, 1994, granted pursuant to a provincial statute, purports to give leave to commence immediately or continue without delay the sale, foreclosure and possession proceedings. On the other hand, the stay granted under the federal statute on January 4, 1994, prohibited the commencement or continuation of exactly these types of proceedings. The legal system cannot simultaneously provide that MACC is entitled to commence mortgage foreclosure proceedings (under provincial law) and that MACC is prohibited from commencing mortgage foreclosure proceedings (under federal law). See Bank of Montreal v. Hall, [1990] 1 S.C.R. 121, per La Forest J., at pp. 152-53. In Crown Grain Co. v. Day, [1908] A.C. 504, the Privy Council was called upon to consider a comparable issue, namely an alleged operational incompatibility between the federal Supreme Court Act, R.S.C. 1906, c. 139, and a provincial Mechanics’ and Wage Earners’ Lien Act, R.S.M. 1902, c. 110. The federal statute provided that an appeal lay to the Supreme Court of Canada “from any final judgment of the highest court of final resort now or hereafter established in any province of Canada”. The provincial statute, on the other hand, purported to make the judgment of the Manitoba Court of Appeal “final and conclusive” in cases relating to liens. The Privy Council found that the two statutes were in conflict and therefore, through the application of the paramountcy doctrine, that the federal statute must prevail to the extent of the inconsistency. While the reasoning of Lord Robertson in that case is somewhat succinct, it has been helpfully (and I believe correctly) rationalized by Professor P. W. Hogg in Constitutional Law of Canada (4th ed. 1997), as follows, at pp. 428-29:

. . . on a superficial analysis, the dual compliance test is not satisfied: the two laws imposed no duties on the parties to litigation, and both laws could be complied with by the losing litigant in a mechanics lien case not taking an appeal to the Supreme Court. But if the laws are recast as directives to a court that has to determine whether or not an appeal to the Supreme Court is available, the contradiction emerges. A court cannot decide that there is a right of appeal (as directed by federal law) and that there is not a right of appeal (as directed by provincial law). For the court, there is an impossibility of dual compliance and therefore an express contradiction.

See also E. Colvin, “Legal Theory and the Paramountcy Rule” (1979), 25 McGill L.J. 82, and Comment on Multiple Access Ltd. v. McCutcheon (1983), 17 U.B.C. L. Rev. 347.

In summary, we have here an “express contradiction” within the extended meaning of the relevant jurisprudence. The doctrine of federal paramountcy is triggered. The order of January 17, 1994, issued pursuant to an inoperative provincial authority, was invalid.

Effect of Invalidating the January 17, 1994 Order

MACC contends that even if the order granting leave dated January 17, 1994 is invalid, the invalidity is in the nature of an irregularity rather than a nullity, and can therefore be relieved against by the court. MACC points out that: (1) the Desrochers did not lose their farm while the stay was in effect; (2) the Desrochers delayed for three years in moving against the grant of leave, without explanation; and (3) the respondent should not have to “retrace all steps in the proceedings” given the sorry financial history of this mortgage. Moreover, MACC argues, a finding that subsequent orders made pursuant to a faulty leave application are nullities would create “a shield behind which an unscrupulous farmer would hide”. In this connection, MACC relies on Calvert v. Salmon (1994), 17 O.R. (3d) 455 (C.A.), which held that failure to give notice under s. 22 of the federal Farm Debt Review Act to a farmer debtor who was already aware of his or her rights did not invalidate subsequent foreclosure proceedings. I think MACC’s argument on this point must also be rejected.

The distinction is well established between legislative provisions that are mandatory (in the sense that non-compliance results in invalidity) and directory (where non-compliance may in certain circumstances be relieved against): Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721, at p. 737. In determining whether a statutory directive is mandatory or directory, this Court must be guided by the object of the statute and the effects of ruling one way or the other: British Columbia (Attorney General) v. Canada (Attorney General); An Act respecting the Vancouver Island Railway (Re), [1994] 2 S.C.R. 41, at pp. 123-24. Indeed, these are the most important considerations: Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344, per McLachlin J., at para. 42.

In the case of the provincial Family Farm Protection Act, however, the Manitoba legislature has left no doubt about the consequences of failure to comply with its leave requirement. Section 8(4) provides that:

8 (4) Any action or proceeding which is commenced or continued after the coming into force of this Act without first obtaining leave of the court as required by this Part is a nullity.

The Court has no authority to breathe life into a leave order issued pursuant to a jurisdiction under a provincial statute which the doctrine of federal paramountcy had rendered inoperative. The January 17, 1994 leave order was made in excess of any constitutionally effective jurisdiction. Section 8 of the provincial Act (which is where the requirement of leave is imposed) is not satisfied by an ultra vires order. I should add that under the new federal Farm Debt Mediation Act , S.C. 1997, c. 21 , in force April 1, 1998 (SI/98-52), which replaced the Farm Debt Review Act at issue in this case, s. 22(1) declares that “any act” done by a creditor in contravention of a stay is null and void. “[A]ny act” would include a leave application.

The Calvert decision does not support MACC’s position. The Ontario Court of Appeal in Calvert, supra, took the view that a debtor who is already aware of his or her right to make application for relief under the Farm Debt Review Act cannot successfully complain about failure to receive formal notice from his or her creditor of what the debtor already knew. The decision is quite consistent with characterising the notice requirement as mandatory. In Eaton v. Brant County Board of Education, [1997] 1 S.C.R. 241, Sopinka J. referred at para. 54 to the possibility of a “de facto notice which is the equivalent of a written notice” in the context of a mandatory requirement. In any event, the Calvert case had under review s. 22 of the federal Act, not (as here) a provision of the provincial Act which declares the legal result of failure to comply with the leave requirement to be a nullity.

Conclusion

MACC showed impressive sang-froid in pressing on with this litigation after the appellants in March 1994 made clear their legal position on the January 17, 1994 leave order. In the end, however, the appellants’ legal position has been upheld and despite having paid nothing on the mortgage since 1989, they are entitled to remain on the farm unless and until MACC obtains a valid court order to the contrary.

Disposition

For the foregoing reasons, the appeal is allowed, the order of the Manitoba Court of Appeal is set aside, and the order of Clearwater J. dated March 20, 1997 is restored. The appellants are awarded their costs against the respondent at all levels on a party and party basis.