Interest, Insolvency and Prairie Farm Debt : An Historical Analysis of Reference as to the Validity of Section 6 of the Farm Security Act, 1944 (Saskatchewan)

The economic collapse of the 1930s coupled with years of drought caused unprecedented problems for farmers in Saskatchewan. In particular, low wheat prices and depressed global markets caused farmers to become overindebted. Parliament responded with the Farmers’ Creditors Arrangement Act, 1934, which was intended as a temporary solution to create a mechanism through which farmers could negotiate debt compromises. But the prairie provinces still sought long term debt adjustment legislation for farmers. When Tommy Douglas came to power in Saskatchewan in 1944, his government promised economic reforms to help farmers with high debt and interest payments. The Farm Security Act, 1944 (“FSA”) came after a line of provincial debt adjustment statutes had been found to be invalid by courts as encroaching on Parliament’s power over bankruptcy and insolvency. Like other provincial debt adjustment statutes, the federal government referred the question of the FSA’s validity to the Supreme Court of Canada. However, section 6 of the FSA was not found ultra vires as encroaching on the federal jurisdiction over insolvency, and instead was struck down as legislation in relation to interest, another federal area of jurisdiction. This article outlines the historical context of the FSA, the basis for its invalidity, and the impact of the reference decisions. Although the FSA Reference had minimal contemporary impact, perhaps its greatest legacy is to show that the prairie provinces were correct that the economic difficulties experienced in the 1930s were not isolated, and that long-term planning was necessary to protect farmers. While debt relief as a policy option exists alongside other mechanisms it retains a strong position in the legacy of farmer protection