| Reference Re Farmers' Creditors Arrangement Act | |
| Court: | Judicial Committee of the Privy Council |
| Full Name: | Attorney 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 |
| Number Of Judges: | 5 |
| Decision By: | Lord Thankerton |
| Appealed From: | Reference 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. scc. 35. canlii. [1936] SCR 384. 1936-06-17. auto. |
| Italic Title: | force |
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.
By 1934, the farm debt problem in Canada, which had been provoked by the Great Depression, reached a scale where provincial moratory legislation could not resolve it, as it could not remove the farmer from his position of default. 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). Cash flow problems also resulted in a significant increase in the amount of short-term obligations. It reached the point where Prime Minister R.B. Bennett decided to introduce remedial legislation to address it at the federal level, based in large part on the Companies' Creditors Arrangement Act[2] passed in the previous year.
The Act's constitutionality was attacked on two grounds, in that the Parliament of Canada lacked jurisdiction, when enacting legislation concerning bankruptcy and insolvency:[3]
Accordingly, a reference question was presented to the Supreme Court of Canada, asking:
By 5-1, the SCC held that the Act was intra vires of the Parliament of Canada.
The grounds of attack were dismissed by Duff CJ as follows:
Cannon J declared that the Act could not be constitutional, as it:
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.[10]
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." 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."
Many Canadian legal commentators at the time expected that the FCAA, together with 1933's Companies' Creditors Arrangement Act,[11] (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.