Thomas Telfer: Bankruptcy law and legal literacy in late nineteenth- and early twentieth-century Canada
Professor Thomas Telfer (Western University) visited the Turku Faculty of Law as a guest of the project Legal Literacy in Finland ca. 1750-1920 on 29 September 2018. He gave a very thought-provoking presentation on legal literacy and bankruptcy law in Canada 1919-1920, while LL.D. Jussi Sallila, who defended his thesis on Finnish nineteenth-century bankruptcy law some years ago, had been invited as a commentator.
Thomas Telfer explained that between 1880 and 1919 Canada did not have national bankruptcy law, only state-level norms, until new legislation was passed in 1919. This new act was basically the work of a private lawyer, H. P. Grundy, representing creditor-friendly interest groups. Grundy had borrowed heavily from English bankruptcy law, but with some modifications. The reform was supported by business interests as creating uniformity in Canada. Yet, it also gave rise to a constitutional dispute involving national bankruptcy law continuing for almost a decade. This tension between parliament and states was especially clear in the case of Quebec with its civilian tradition and Civil Code. There, the new Bankruptcy Act constituted a clear break with tradition.
As a result of the private drafting, the government did not have experts on the new Bankruptcy Act. As Thomas Telfer pointed out, “few of the legal profession knew anything about the law” or they were “only familiarizing themselves” with it. This became an especially pressing dilemma in the early 1920s, or “the stattering 1920s”, when Canada faced an economic crisis until 1925. Not surprisingly, it also became a bankruptcy crisis. While there had been less than 2,500 bankruptcies per year in 1921, the following year the number peaked to nearly 4,000.
Therefore, the question whether lawyers and trustees actually knew and understood the new bankruptcy law is very relevant. As for the Canadian legal profession, lawyers came to discover that there was not yet sufficient case law to interpret the statute even if interpretative assistance could be obtained from English law and legal commentaries. Another problem was that the new Canadian Bankruptcy Act had not yet been published in French, making the lack of expert legal literacy on the Act even greater in French-speaking regions. Moreover, the parliament came to emend the Act three times during a period of a few years rendering it “scarcely recognizable”. Thus, for several reasons the Act was considered inadequate and deficient, becoming the target of lawyerly opposition.
In addition to lawyers, the legal literacy of laymen, the trustees in bankruptcy, had a pivotal role in bankruptcy practice. They managed the estate, advised the debtor, sold off assets and made distributions. How were they then regulated? The solution chosen in the 1919 Act seems to have been very laissez-faire. No qualifications were specified in the Act above that the trustees were to be authorized and “fit and proper persons”. In Canada, the trustees could be auditors, financial agents and accountants – unlike the United States. In English law, there had been official oversight over trustees, but in the Canadian version this had not been adopted. Grundy had chosen not to look at solutions in the USA, which was considered too debtor-friendly. However, control could protect creditors as well.
The post-1919 bankruptcy practice indicates that there were problems with the trustees on the local level and some were even out-and-out corrupt. Unqualified and inexperienced trustees could handle estates, while occasionally they had been convicted of crimes or were themselves (undischarged) bankrupts. Such dubious trustees could engage in fraudulent and illicit acts or collusive practices with the debtors. Some trustees soliciting aggressively for bankruptcy cases, and “debtor-friendly” trustees gained more market. As for debtors, their knowledge of the new legislation tended to be very limited and they mainly understood the law through trustees. All debtors did not even know that they were signing for bankruptcy and what followed could take them by surprise.
Thus, according to Professor Thomas Telfer, various groups including lawyers had only limited – or deficient – legal literacy regarding the Canadian Bankruptcy Act of 1919. This came to cause problems during the economic depression of the early 1920s and the ensuing massive increase in bankruptcy cases.