Federal Court of Appeal Decisions

Date: 20060418

Docket: A-114-05

Citation: 2006 FCA 139

CORAM:        DÉCARY J.A.

                        EVANS J.A.

                        MALONE J.A.

BETWEEN:

TODD Y. SHERIFF, holder of a trustee license
and SEGAL & PARTNERS INC.,
holder of a corporate trustee license

Appellants

and

ATTORNEY GENERAL OF CANADA

Respondent

Heard at Toronto, Ontario, on March 8, 2006.

Judgment delivered at Ottawa, Ontario, on April 18, 2006.

Date: 20060418

Docket: A-114-05

Citation: 2006 FCA 139

CORAM:        DÉCARY J.A.

                        EVANS J.A.               

                        MALONE J.A.

BETWEEN:

TODD Y. SHERIFF, holder of a trustee license
and SEGAL & PARTNERS INC.,
holder of a corporate trustee license

Appellants

and

ATTORNEY GENERAL OF CANADA

Respondent

REASONS FOR JUDGMENT

MALONE J.A.

[1]                This appeal raises the issue of the scope of the duty that a senior disciplinary analyst (SDA) in the Office of the Superintendent of Bankruptcy (OSB) owes to a trustee in bankruptcy facing disciplinary proceedings. Does that duty require an SDA to make timely disclosure of all relevant evidence gathered during the disciplinary investigation?

[2]                The appellants (the Trustees) appeal the order of a Federal Court Judge (the Applications Judge) dated February 25, 2005, dismissing their application for judicial review of three decisions of the Superintendent of Bankruptcy (the Superintendent) from 2002 and 2003 (reported as 2005 FC 305). These decisions concern disciplinary proceedings taken against the Trustees pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3 (the Act).

II. BACKGROUND

[3]                The lengthy proceedings leading up to this appeal must be carefully reviewed in order to put the current issue into context.

[4]                The Superintendent is appointed by the Governor in Council and is responsible for supervising the administration of all estates and matters to which the Act applies. The Act provides the Superintendent with powers related to the licensing and supervision of trustees in bankruptcy and allows the Superintendent to investigate complaints from the public concerning trustees. If deficiencies are found in their conduct, the Superintendent has the ability to impose disciplinary sanctions on a trustee (see sections 14.01 and 14.02 of the Act).

[5]                Todd Sheriff is a licensed trustee in bankruptcy, who is employed by Segal and Partners Inc.. Segal and Partners Inc. is a corporate trustee. As a result of a complaint received from a creditor that the Trustees had solicited proxies in the course of administering an estate, an investigation was undertaken in accordance with the provisions of the Act. This investigation resulted in a report dated June 29, 2001, prepared by Ann Speers, an SDA (the first report). This report identified seven categories of deficiencies in the Trustees' practices in the year 2000.

[6]                After the first report was prepared, an audit was conducted by an audit group in the OSB. This audit resulted in the preparation of a report dated October 25, 2001 (the second report), which identified further deficiencies in the Trustees' practices. While the first report related to certain failures to meet professional standards on the part of the Trustees, the second report related to perceived wrongdoing against the interests of beneficiaries of bankrupt estates, including employee theft and serious deficiencies in the Trustees' internal controls.

[7]                Both reports were originally scheduled for hearing before the Superintendent in May of 2002. However, the second report was delegated by the Superintendent to a different adjudicator (Kaufman) who ultimately granted a stay of proceedings based on post-hearing disclosure problems. This decision was upheld by Mactavish J. of the Federal Court on December 20, 2005 and reported as 2005 FC 1726. This decision has been appealed.

[8]                A similar decision involving the scope of procedural fairness for the Superintendent was rendered by Martineau J. of the Federal Court in Sam Lévy & Associates Inc. v. Canada (Superintendent of Bankruptcy) reported as 2005 FC 702. This decision has also been appealed.

[9]                A hearing on the first report was held before the Superintendent in May and June of 2002, ultimately leading to his decision on September 3, 2002 (the first decision). The Superintendent found the Trustees guilty of professional misconduct. Prior to that hearing, the Trustees had received limited document disclosure, including various SDA notes, as well as the first report.

[10]            After the Superintendent's decision was rendered and prior to the imposition of penalty, the Trustees learned for the first time of a trustee report prepared by another trustee, Mr. Michalos. That report in April of 2002, related to the misconduct of Lezette Armshaw, a former employee of the Trustees. Mr. Michalos had employed Ms. Armshaw after her employment at Segal & Partners had been terminated for misappropriation of estate funds. His report also described her misappropriation of trust monies from his firm, similar to the experience of the Trustees.

[11]            The Trustees asserted that Ms. Speers had deliberately withheld Mr. Michalos' report because it was not helpful to the prosecution; a submission that is in accordance with the subsequent finding of the Superintendent that Michalos' report was clearly relevant. The Trustees also urged that the Michalos report was directly relevant to Ms. Armshaw, her role in their office and the issue as to whether they ought to have been vicariously responsible for her misconduct. Had they known of the Michalos report prior to the conclusion of the hearing, the Trustees submitted that they would have called Ms. Armshaw to testify, and would have called Mr. Michalos or other employees of his firm to testify, specifically with respect to the issues of dishonesty.

[12]            As a result of the SDA's failure to disclose the Michalos report, the Trustees brought a motion before the Superintendent seeking to stay the proceeding or obtain a new hearing. This motion was heard on November 12, 2002.

[13]            In his decision, dated February 12, 2003 (the second decision), the Superintendent dismissed the Trustees' motion. He refused to grant a stay because, in his view, while the document should have been disclosed to the Trustees by Ms. Speers, the undisclosed information would not have led to a different result, nor would it have led the Trustees to pursue different lines of inquiry.

[14]            In refusing to grant a new hearing, the Superintendent reviewed the law with respect to pre-hearing disclosure in administrative proceedings, and made a number of observations. In particular, the Superintendent found that the obligation of full disclosure contemplated by the Supreme Court of Canada in R. v. Stinchcombe, [1991] 3 S.C.R. 326 in relation to crown counsel in the criminal law context, applied to senior discipline analysts "with the appropriate adaptation". According to the Superintendent "[t]he role of the SDA is to present all relevant evidence to the Superintendent or his adjudicating delegate so that he can determine if misconduct has occurred."

[15]            The Superintendent held that the evidence relating to Ms. Armshaw was relevant:

With all due respect for the SDA's counsel, I find that his approach is not in accordance with the one suggested by the case law. The very fact that the SDA's report contained an "under oath" statement from Mrs. Armshaw is clear indication that she thought that Mrs. Armshaw's role was somewhat relevant at the time of the report as well as at the hearing on May 27^th, 2002.

The SDA insisted on keeping Mrs. Armshaw's statements as part of the supporting material despite the objections of the trustees, and while knowing fully about the other trustee firm's report. In view of such insistence, it is difficult to see how a report touching on the conduct of Mrs. Armshaw at another trustee firm could be seen as "clearly irrelevant" when it could easily be of some assistance in further undermining the credibility of any statement from Mrs. Armshaw to be used against the trustees by the SDA...

[16]            The Superintendent concluded that in the circumstances of this case, the failure to communicate the other trustee's report to the present appellants constituted a breach of the duty to disclose all relevant information available to the SDA.

[17]            In his third decision, on June 23, 2003, the Superintendent imposed penalties. After taking into account the findings from the hearing and factors such as the Trustee's failure to appreciate the seriousness of their deficiencies, the Superintendent restricted the corporate appellant's license for one month. He also suspended Mr. Sheriff's license for six months with further restrictions for eighteen months, as well as a direction that Mr. Sheriff attend certain ethics courses. These sanctions have been stayed until the present appeal is resolved.

[18]            The parties then prepared for a hearing by adjudicator Kaufman in regard to the second report of the SDA. In the course of their preparation, the Trustees continued to seek disclosure or information from Ms. Speers.

[19]            Despite the decision of the Superintendent on February 12, 2003, as to the SDA's disclosure obligations, and his finding that the SDA had breached her disclosure obligations, the Trustees received no additional disclosure from Ms. Speers between February 12, 2003 and March 17, 2004. Ms. Speers testified under cross-examination in October 2003, that the documents that had been disclosed were those that support the findings in the report, and that other documents that were related to the investigation would not be provided. In essence, Ms. Speers took a different view of her disclosure obligations than that of the Superintendent.

[20]            During this cross-examination, the Trustees ascertained for the first time that the following additional information was not disclosed by Ms. Speers prior to the May 2002 hearing:

(i)                   notes regarding communications with witnesses who testified at the hearing, namely, Mr. Ahlborn and Mr. Bill Webster;

(ii)                 the name of those interviewed by the SDA whose evidence was not included in the report;

(iii)                e-mails between Mr. Webster and Ms. Speers; and

(iv)               the original draft statement of the witness Bill Webster.

[21]            As a result of the SDA's testimony on cross-examination, the Trustees requested further disclosure of any notes made by Ms. Speers regarding Ms. Armshaw that had not been produced to date.

[22]            Disclosures from the SDA continued sporadically thereafter on March 17^th, April 15^th and November 2, 2004, in a process that continued to be somewhat adversarial. These disclosures included various notes and e-mails to and from Ms. Speers and others during the investigation, as well as audits and working papers. The relevance of these materials was strongly debated by the SDA throughout this nine month period.

[23]            The Trustees therefore assert in this appeal that they were found to have committed acts of professional misconduct based on a disciplinary proceeding that was fundamentally flawed. As to the judicial review, the Trustees allege serious errors of both fact and law on the part of the Applications Judge. They alleged that the Applications Judge failed to recognize that the SDA did not make proper and timely disclosure of all relevant evidence and there was a serious misapprehension of the evidence on which the Trustees were found culpable.

III. STANDARD OF REVIEW

[24]            It is not disputed that a common law duty of fairness is owed in proceedings under sections 14.01 and 14.02 of the Act. Accordingly, the standard of review on the disclosure issue is correctness as applied by the Applications Judge (see Ellis-Don Ltd. v. Ontario(Labour Relations Board), [2001] 1 S.C.R. 221 at paragraph 65).

IV. ANALYSIS

A. DISCLOSURE

(i) STINCHCOMBE DISCLOSURE

[25]            The first issue to be resolved is whether the learned Applications Judge erred in relation to the scope of the disclosure obligations on the part of Ms. Speers. According to the Trustees, they are entitled to a high standard of disclosure similar to that established in a criminal law context in R. v. Stinchcombe (supra at paragraph 15), with adaptations, as found by the Superintendent in his September 3, 2002 decision. In accepting a lower standard of disclosure in this case, which included only the disclosure of the report and the information on which it was based, the Applications Judge is said to be in error, leading to procedural unfairness and a flawed decision.

[26]            In support of the Applications Judge's decision, the Attorney General first notes that the disciplinary penalties will not prevent the Trustees from continuing as chartered accountants, nor are criminal sanctions involved. In addition, the respondent argues that disciplinary proceedings for licensed trustees cannot be compared to the administrative disclosure procedures for other professionals, such as nurses, doctors or lawyers. This is because the statutory scheme under the Act requires the Superintendent to supervise the administration of all estates with a direct responsibility to license and supervise the conduct of licensed trustees. No such level of supervision exists in these other professional disciplinary settings.

[27]            In a decision rendered after that of the Applications Judge, the Supreme Court of Canada commented on the use of the Stinchcombe principles (supra at paragraph 15) in an administrative law context in the case of May v. Ferndale Institution, 2005 SCC 82.

[28]            In that case, prisoners who were challenging their involuntary transfer from a minimum to a medium security facility, claimed, based on the Stinchcombe principles, that they had not received sufficient disclosure to adequately challenge the transfer. In dealing with the prisoners' claim that the Stinchcombe principles applied, Justices Lebel and Fish stated:

It is important to bear in mind that the Stinchcombe principles were enunciated in the particular context of criminal proceedings where the innocence of the accused was at stake. Given the severity of the potential consequences the appropriate level of disclosure was quite high. In these cases, the impugned decisions are purely administrative. These cases do not involve a criminal trial and innocence is not at stake. The Stinchcombe principles do not apply in the administrative context. In the administrative context, the duty of procedural fairness generally requires that the decision-maker discloses the information he or she relied upon. The requirement is that the individual must know the case he or she has to meet. If the decision maker fails to provide sufficient information, his or her decision is void for lack of jurisdiction.

[29]            While the Court is unequivocal in stating that "[t]he Stinchcombe principles do not apply in the administrative context", it clearly is not referring to a licensing review hearing, where a loss of livelihood and damage to professional reputation are at stake. In contrast, in the present appeal, the innocence, i.e. the reputation of the Trustees, is under review. Accordingly, I would classify a review of a trustee in bankruptcy's license by the OSB as an exception to the rule established in May.

[30]            It must be noted that this Court has on a number of occasions refused requests for disclosure of all documents related to an investigation (see Re CIBA-Geigy Canada Ltd., 1994 CarswellNat 1796 (C.A.); D & B Co. of Canada Ltd. v. Canada (Director of Investigations & Research) (1994), 176 N.R. 62 (C.A.)). However, these cases can be easily distinguished from the case on appeal because of the nature of the action. While both CIBA and D & B involve potential economic hardship for the appellant companies, neither case involves the individual's right to work or professional reputation. The interests of the appellants in these cases do not parallel those of the accused in a criminal proceeding; therefore, a lower level of disclosure was appropriate.

[31]            In contrast, our Courts have repeatedly recognized a higher standard of procedure for professional discipline bodies when the right to continue in one's profession or employment is at stake (see Kane v. Board of Governors of University of British Columbia, [1980] 1 S.C.R. 1105 at page 1113; Brown and Evans, Judicial Review of Administrative Action in Canada (Canvasback Publishing: Toronto, 1998) at pages 9-57 and 9-58). This higher standard of disclosure exists regardless of whether the provincial jurisdiction recognizes the application of section 7 of the Charter in these cases.

[32]            The requirement for increased disclosure is justified by the significant consequences for the professional person's career and status in the community. Some Courts have noted that a finding of professional misconduct may be more serious than a criminal conviction (see Howe v. Institute of Chartered Accountants (1994), 19 O.R. (3d) 483 (C.A.) per Laskin J.A. in dissent at pages 495-496; Emerson v. Law Society of Upper Canada (1983), 44 O.R. (2d) 729, at page 744).

[33]            The scope of disclosure in professional hearings continues to be expanded by provincial courts, which have applied the Stinchcombe principles in cases where the administrative body might terminate or restrict the right to practice or seriously impact on a professional reputation (see Hammami v. College of Physicians and Surgeons of British Columbia (1977), 47 Admin. L.R. (2d) 30 (B.C.S.C.) at paragraph 75; Milner v. Registered Nurses Association (British Columbia) (1997), 71 B.C.L.R. (3d) 372 (S.C.)). In Stinchcombe, the Supreme Court of Canada held that there is a general duty on Crown prosecutors to disclose all evidence that may assist the accused, even if the prosecution did not plan to adduce it. While these principles originally only applied in the criminal law context, the similarities between a criminal prosecution and a disciplinary hearing are such that the objectives are, in my analysis, the same, i.e. the search for truth and finding the correct result.

[34]            In this case, the Trustees face a suspension of their license and injury to their professional reputation. In order to fully understand the case against them and to ensure a fair disciplinary proceeding, the Trustees must have access to all relevant material which may assist them. This is consistent with the Superintendent's earlier ruling in this case that the SDA had a duty to disclose all documents unless they were "clearly irrelevant."

(ii) STATUTORY DISCLOSURE REQUIREMENTS

[35]            I am further comforted that the Stinchcombe principles do apply in the present appeal, when one considers the obligation of the Superintendent pursuant to subsections 14.01(1), 14.02(1) and (2), as well as the procedures established by the Superintendent in a document entitled "Disciplinary Process under sections 14.01 and 14.02 of the Act" (hereafter the Superintendent's Directive).

[36]            The above mentioned subsections of the Act are reproduced in part as follows:

[37]            The Superintendent's Directive describes the procedure to be followed by the OSB in examining the conduct of a trustee which may lead to disciplinary measures involving his or her license. While such directives do not have the force of an act or regulation, they can be used to provide legal context and inform decisions. Here, the Superintendent's Directive is a helpful source of interpretive opinion and should be accorded some weight (see Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, Fourth Edition (Toronto: Butterworths, 2002) at pages 503-504). The objectives are established in section 2 of the Superintendent's Directive as follows:

[38]            Section 8 of the Superintendent's Directive further requires the Superintendent to provide a reasonable opportunity to a trustee to prepare for a public hearing following written notice to the trustee of an investigation as to his conduct that may justify a 'disciplinary sanction'. (See Appendix 1, Appeal Book, page 1578.)

[39]            Some of the factors that are relevant in determining the level of procedural fairness in a given case were set out by the Supreme Court of Canada in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817.

[40]            First, as to the nature of the decision being made, the Court inBaker commented that the closer an administrative process is to a judicial process, the more procedural fairness is likely to be required. While the procedures before the Superintendent are informal (depending on the circumstances and a consideration of fairness), the Trustees do face the possible cancellation or suspension of their licenses; consequences that effect both their income and professional reputation. Accordingly, the importance of the decision to the Trustees does, as per Baker, suggest that a higher level of procedural fairness is required (see Kane, supra at paragraph 31).

[41]            The remaining contextual factors identified in Baker did not impact on the duty of fairness in the present appeal. Based on the facts before me, the other considerations from Baker, which include the nature of the statutory scheme, legitimate expectations and the choice of procedure, do not militate towards a higher or lower level of procedural fairness accorded to the Trustees.

[42]            In sum, the procedural requirements for disciplinary proceedings pursuant to sections 14.01 and 14.02 which give rise to sanctions, as well as the Superintendent's Directive, collectively give rise to a clear duty to afford the Trustees fulsome disclosure, similar to the Stinchcombe principles. Accordingly, I am respectfully of the view that the Applications Judge erred in law when he restricted disclosure to the first report and the information upon which it was based.

B. THE UNDISCLOSED MATERIAL AND ITS EFFECT ON THE RESULTS OF THE HEARING (THE REASONABLE POSSIBILITY TEST)

[43]            Once it is established that relevant materials were not disclosed, it must be determined whether that failure to disclose impaired the Trustee's right to explore possible avenues of investigation and to make full answer and defence. The Supreme Court of Canada in R v. Dixon, [1998] 1 S.C.R. 244 at paragraph 36 set out a two-step analysis in order to establish impairment:

First, in order to assess the reliability of the result, the undisclosed information must be examined to determine the impact it might have had on the decision to convict...If at the first stage an appellate court is persuaded that there is a reasonable possibility that, on its face, the undisclosed information affects the reliability of the conviction, a new trial should be ordered. Even if the undisclosed information does not affect the reliability of the result at trial, the effect of the non-disclosure on the overall fairness of the trial process must be considered at the second stage of analysis. This will be done by assessing, on the basis of a reasonable possibility, the lines of inquiries with witnesses or the opportunities to garner additional evidence that could have been available to the defence if the relevant information had been disclosed. In short, the reasonable possibility that the undisclosed information impaired the right to full answer and defence relates not only to the content of the information itself, but also to the realistic opportunities to explore possible uses of the undisclosed information for purposes of investigation and gathering evidence.

[44]            After considering all of the disclosure materials in the appeal record, I agree with the Applications Judge that the additional disclosure was not relevant for a review of the decisions of the Superintendent. In my view, there is no reasonable possibility that the result of this proceeding would be different if the Michalos report and the other materials had been disclosed or that it would open new lines of inquiry.

[45]            A review of the two key issues before the Superintendent is in order. In the first decision, the Superintendent accepted the testimony of Mr. Sheriff regarding the role of Ms. Armshaw. Had the Superintendent relied on the role or credibility of Ms. Armshaw in his findings against the Trustees, or if she had been called and her testimony given more credibility than Mr. Sheriff, then the undisclosed report by Mr. Michalos might be of significance, but those are not the facts here.

[46]            As to the issue of the solicitation of proxies, a review of the transcripts of the testimony of Mrs. Won and Mr. Sheriff indicates that Ms. Armshaw did not instruct Mrs. Won to demand proxies and there is nothing to suggest that Mr. Sheriff's initial instructions were distorted by Ms. Armshaw or Mrs. Won. Again, early disclosure of all of the material surrounding the proxies would not have altered the result.

[47]            In my respectful view, the Applications Judge erred in deciding that Stinchcombe principles do not apply in this case. However, given a careful review of the record, the breach of the duty of disclosure does not require this Court to intervene in the Applications Judge's decision because there is not a reasonable possibility that the information contained in the disclosure documents would affect the final outcome or otherwise impair a trustee's right to make full answer and defense.

C. REASONABLE APPREHENSION OF BIAS

[48]            It should also be noted that the Trustees argued that a reasonable apprehension of bias existed because the Superintendent sat as the adjudicator and his office investigated and prosecuted the case. This submission is without merit. The fact that the same person has the statutory power to investigate and adjudicate allegations of misconduct is not sufficient to create a reasonable apprehension of bias as long as that person does not both prosecute and participate in adjudicating the case (Ocean Port Hotel Ltd. v. British Columbia (General Manager, Liquor Control & Licensing Branch), [2001] 2 S.C.R. 781 at paragraphs 40-41; Bell Canada v. C.T.E.A., [2003] 1 S.C.R. 884].

[49]            In this case the Superintendent did not conduct the investigation; it was delegated to the SDA. A similar situation pertaining to the Superintendent and his duties under sections 14.01 and 14.02 of the Act was reviewed by the Quebec Court of Appeal in Métivier v. Mayrand, [2003] Q.J. NO. 15389 and the Court concluded that there was no apprehension of bias.

V. CONCLUSION

[50]            In summary, the appeal should be dismissed and the order of the Applications Judge dated February 25, 2005 confirmed, but for different reasons. The Attorney General should be awarded his costs on appeal.

"B. Malone"

"I concur

Robert Décary J.A."

"I agree

John M. Evans J.A."

FEDERAL COURT OF APPEAL

NAME OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                                       A-114-05

STYLE OF CAUSE:                                       TODD Y. SHERIFF ET AL

Appellants

                                                                        -and-

            THE ATTORNEY GENERAL OF CANADA

Respondent

PLACE OF HEARING:                                 TORONTO, ONTARIO

DATE OF HEARING:                                   MARCH 8, 2006

REASONS FOR JUDGMENT BY:              MALONE J.A.

CONCURRED IN BY:                                  DÉCARY J.A.

                                                                        EVANS J.A.

DATED:                                                          APRIL 18, 2006

APPEARANCES:                              

Craig Colraine                                                   FOR THE APPELLANTS

Liz Tinker                                                          FOR THE RESPONDENT

Mr. John Pro

SOLICITORS OF RECORD:          

Birenbaum, Steingberg, Landau, Savin & Colraine LLP

Barristers & Solicitors

Toronto, Ontario                                               FOR THE APPELLANTS

John H. Sims, Q.C.

Deputy Attorney General of Canada                  FOR THE RESPONDENT