Date: 20061110

Docket: A-658-04

Citation: 2006 FCA 368

 

CORAM:       LÉTOURNEAU J.A.

                        NOËL J.A.

                        PELLETIER J.A.

 

BETWEEN:

MARCHAND SYNDICS INC., trustee

GEORGES E. MARCHAND, trustee

BRUNO MARCHAND, trustee

Appellants

and

SYLVIE LAPERRIÈRE

Respondent

 

 

 

 

 

 

Hearing held at Ottawa, Ontario, on October 18, 2006.

Judgment delivered at Ottawa, Ontario, on November 10, 2006.

 

REASONS FOR JUDGMENT:                                                                LÉTOURNEAU J.A.

CONCURRED IN BY:                                                                                             NOËL J.A.

                                                                                                                       PELLETIER J.A.

 

 

Date: 20061110

Docket: A-658-04

Citation: 2006 FCA 368

 

CORAM:       LÉTOURNEAU J.A.

                        NOËL J.A.

                        PELLETIER J.A.

 

BETWEEN:

MARCHAND SYNDICS INC., trustee

GEORGES E. MARCHAND, trustee

BRUNO MARCHAND, trustee

 

Appellants

and

SYLVIE LAPERRIÈRE

Respondent

 

 

REASONS FOR JUDGMENT

 

 

LÉTOURNEAU J.A.

 

ISSUES

 

[1]               The appellants are challenging a decision by Madam Justice Tremblay-Lamer of the Federal Court (judge) dated November 10, 2004. They raised three grounds for appeal including one regarding the judge’s refusal to hear a motion for her disqualification. They wisely withdrew this ground of appeal at the hearing.

 

[2]               At the hearing, the two issues that we accepted and regarding which we invited counsel to submit their arguments, are the following:

 

(a)        Did the appellants have the right to be heard before conservatory measures were taken with respect to the estate managed by the appellants pursuant to section 14.03 of the Bankruptcy Act, R.S.C. 1985, c. B-3 (Act), such that there was a breach of procedural fairness?

 

(b)        Was there a rational connection between the facts giving rise to the decision to use conservatory measures and the conservatory measure directing the official receiver not to appoint the appellants to administer any new ordinary administration estates until further notice or until a decision had been made under section 14.01 of the Act?

                                                                                                            [Emphasis added.]

[3]               The appellants state that, in the absence of a rational connection, the measure was legally unfounded and is therefore void because it breaches section 14.03 of the Act and paragraphs 18.1(3)(b) and 4(a), (c) and (f) of the Federal Courts Act, R.S.C. 1985, c. F-7.

 

[4]               I refer to the provisions of the Act as well as the directions on conservatory measures relevant to the resolution of the dispute:

 

 

 

 

 

CANADA

 

In the matter of:    Bruno Marchand

Georges E. Marchand

Marchand Syndics Inc.

 

 

Directions for Conservatory Measures

(section 14.03 of the Bankruptcy and Insolvency Act)

 

--------------------------------------------------------------------------------

 

WHEREAS the Bankruptcy and Insolvency Act (the Act) provides the Superintendent of Bankruptcy with the general power to supervise the administration of all estates and matters to which the Act applies;

 

 

WHEREAS the exercise of the powers of the Superintendent of Bankruptcy set out in paragraph 5(3)e) of the Act revealed that the trustees have an abnormally high number of files that have been open more than three years;

 

 

WHEREAS the trustees are also the subject of an investigation under the provisions of section 14.01 of the Act;

 

WHEREAS on August 5, 2003 a letter was sent to the trustees giving them 15 business days in which to submit an acceptable closing plan intended, among other things, to reduce to 10% of their inventory the percentage of summary administration files open for more than 36 months and to 40% of their inventory the number of ordinary administration files open for more than 36 months, or to provide the Superintendent of Bankruptcy with a satisfactory explanation as to why the number of files older than three years exceeds these levels;

 

WHEREAS despite repeated requests, the trustees did not submit, within the prescribed time, a detailed closing plan in compliance with the requirements of the Superintendent of Bankruptcy;

 

WHEREAS the trustees effectively refused to submit a detailed closing plan, submitting only a plan that does not accord any priority to the oldest files, nor to those with large bank balances, and which plan does not even set time lines for the various stages of closing, the trustees in question instead chose to challenge the authority of the Office of the Superintendent to require such a closing plan;

 

 

WHEREAS moreover the trustees did not even respect their own closing plan, which had not, for the reasons set out above, been accepted by the Office of the Superintendent;

 

 

WHEREAS the trustees lacked diligence in closing their files, of which the number of ordinary administration estate files open for more than three years, as of February 3, 2004, was 69 administered by the corporate trustee and Bruno Marchand (99% of his total inventory of ordinary administration files), and 133 by the corporate trustee and Georges E. Marchand, 35 of which were under the personal licence of Georges E. Marchand (98% of his total inventory of ordinary administration files);

 

WHEREAS some of these estates contain large sums of money which the trustees are not distributing to the creditors;

 

WHEREAS the trustees’ conduct is prejudicial to the creditors, who are being subjected to undue delays in the payment of their dividends;

 

WHEREAS the trustees refuse or neglect to complete the administration of these files, and in so doing, are not rendering their accounts as required by the Act;

 

WHEREAS it is not permissible for a fiduciary, such as a bankruptcy trustee, to refuse or neglect to account for his administration;

 

WHEREAS the Superintendent of Bankruptcy has reasonable grounds to believe that the estate files require protection and that the administration of these files should be completed as soon as possible;

 

WHEREAS the Superintendent of Bankruptcy may, in order to protect estates, exercise the powers set out in subsection 14.03(1) of the Act, under the circumstances anticipated in subsection 14.03(2) of the Act;

 

WHEREAS the Superintendent of Bankruptcy has delegated to the undersigned, in accordance with subsection 14.01(2) of the Act, in certain situations mentioned in subsection 14.03(2), the Superintendent’s powers as specified at subsection 14.03 (1) of the Act, copies of which delegation are attached, along with copies of subsections 14.01(2) and 14.03(1) to (4) of the Act;

 

WHEREAS subsections 14.03(1)a) and b) and (2)b) of the Bankruptcy and Insolvency Act apply;

 

I, the undersigned, Sylvie Laperrière, in my capacity as Senior Analyst, Professional Conduct, direct:

 

The Official Receiver to not appoint Bruno Marchand, Georges E. Marchand and Marchand Syndics Inc. to administer any new ordinary administration estates;

 

These directions take effect immediately and will stay in place until further notice or until a decision is rendered under section 14.01 of the Act.

 

In accordance with subsection 14.03(3) of the Act, these directions bind their addressees, who must comply with them;

 

In accordance with subsection 14.03(4) of the Act, a person who complies with these directions is not liable for any act done by the person only to comply with them.

 

SIGNED, in the City of Sainte-Foy, Quebec

February 10, 2004

 

 

 

Sylvie Laperrière

Senior Analyst, Professional Conduct

 

                                                                                                [Emphasis added.]

 

 

[5]               I have not referred to the provisions relied on from the Federal Courts Act because they are not necessary to the resolution of the dispute.

 

[6]               Some background is required regarding the issuance of this conservatory measure, which was not the only one. Others were issued, withdrawing the appellants’ administration of 48 files and entrusting them to the official receiver to ensure their conservation, and then to an agent of the Office of the Superintendent for Bankruptcy, for their administration and settlement: see the appeal book, volumes 5 and 6, pages 969 to 972 and 997 to 1,000.

 

THE FACTS AND THE PROCEDURE

 

[7]               The judge properly summarized the factual background of this case and the circumstances leading ultimately to the issuance of the conservatory measures. We need not review all of them even though they are very informative and enlightening in regard to the appellants’ conduct. I will simply refer to paragraphs 2 to 5, 7 to 23 and 28 to 31 of her decision.

 

[2]           The applicants were the subject of a number of reports of the Office of the Superintendent of Bankruptcy (OSB) for more than a decade because their administration displayed some chronic deficiencies in the time taken to close files. An audit report in January 1992 indicated, for example, that a file opened in February 1973 had never been closed. In February 2004, this file was still open and the monies had still not been distributed to the creditors, when the balance of the trust account in this case amounted to $575,505.30.

 

[3]           That may represent the most extreme case, but other supervision and audit reports, in October 2000 and March 2003, indicate the same problems.

 

[4]           Seven agreements in relation to closure plans were developed during the period from 1993 to 2001 by the OSB in collaboration with the applicants under which they would proceed to close their files that were more than three years old. Only one of these seven plans (the 1996 one) was implemented by the applicants.

 

[5]           Moreover, during this period, many creditors complained about the slowness with which the applicants were completing the administration of their file and a number of judgments of the Superior Court of Quebec denounced their negligence.

 

. . .

 

[7]           In July 2003, the OSB began the Initiative for the Orderly and Timely Administration of Insolvency Estates (IAPO) throughout the country. Pursuant to paragraph 5(3)(e) of the Act, the OSB conducted a general investigation to identify all the trustees in Canada who had not managed to close their files in less than three years at an acceptable level. To be identified by this program, the ordinary administration files dating back more than three years had to make up more than 60% of the trustee’s inventory, and summary administration files had to make up more than 15%.

 

[8]           The goal of the IAPO was to lower these levels to less than 40% and 10% respectively. Ninety-nine trustees were identified in this investigation, and the applicants were included in this group.

 

[9]           On August 5, 2003, Ms. Lorraine Provost, the OSB representative, wrote to the 99 trustees who had been identified urging them to provide, within 15 business days, a closure plan acceptable to the OSB and to demonstrate regular progress throughout the year. The monthly reports were to list, at minimum, the files closed in the preceding month and the files that would be closed in the current month, as well as provide any further information concerning the status of the other files that were to be closed under the plan. She explained that the OSB considered a file to be closed only when the trustee obtained his or her discharge, and not earlier.

 

[10]         In the letter she sent to the applicants, she noted that 94.29% of the ordinary files and 57.76% of the summary files of Georges Marchand, and 97.70% of the ordinary files and 62.63% of the summary files of Bruno Marchand had been open for more than three years.

 

[11]         The applicants and all the other trustees identified in the IAPO program were also informed that failure to produce the documents or comply with the requests for a closure plan acceptable to the OSB within the time allotted would expose them to conservatory measures under section 14.03 of the Act.

 

[12]         On August 26, 2003, the applicants submitted to the OSB a table in which they indicated the number of files they planned to close for each of the following four quarters commencing September 1, 2003.

 

[13]         The exchange of correspondence between the parties during this period is crucial, since it is at the heart of the litigation. It is important, therefore, to relate its content in some detail.

 

[14]         On September 4, 2003, Mr. Georges Marchand sent a letter to Mr. François Leblanc of the OSB in which he stated that he had understood that the closure plan was to be more detailed, and further details were provided on September 8, 2003.

 

[15]         In a letter sent on the same date, Ms. Provost explained that the suggested plan was not acceptable. To be acceptable, the plan had to indicate:

 

-  the number of summary administration files of more than three years for which receipts and disbursements returns would be produced;

 

-  the number of summary administration files of more than three years for which the trustee’s discharge would be obtained;

 

-  the number of ordinary administration files of more than three years for which receipts and disbursements returns would be produced;

 

-  the number of ordinary administration files of more than three years for which the trustee’s discharge would be obtained.

 

[16]         The OSB also asked that the applicants supply a detailed list of the files that were to be closed within the next quarter.

 

[17]         In a letter dated September 10, 2003, the applicants asked the OSB for clarifications as to all of the comments exchanged in the letter of August 5, 2003, and more particularly the reference to section 14.03 of the Act. The applicants further explained that in their opinion the decision of the Superior Court in Abderrazik (Syndic de), [2002] J.Q. No. 2241 (S.C.) (QL), the OSB did not have authority to demand a detailed list of the files to be closed.

 

[18]         On September 19, 2003, in reply to this letter, Ms. Provost informed the applicants that the plan submitted was not accepted by the OSB. She explained that the expression [translation] “the files closed” meant that the OSB would receive, before the deadline, a document showing that the trustee had been discharged, i.e. the certificate of compliance or order of discharge.

 

[19]         On September 25, 2003, the applicants’ counsel wrote a further letter to Ms. Provost. He repeated that the plan submitted was acceptable and that the request for a detailed list went beyond the OSB’s administrative authority. He suggested a meeting within 90 days, should that prove necessary, to discuss this matter.

 

[20]         In a letter dated October 24, 2003, the OSB counsel again notified the applicants that the plan submitted was not acceptable and requested a written undertaking to close on a priority basis files dating back ten years or more with a bank balance of $25,000 or more, that is, a total of 17 ordinary administration files, a list of which was provided to them.

 

[21]         On October 31, 2003, the applicant’s counsel replied to the letter of October 24, 2003, providing some figures in respect of the closure of files and objectives to be achieved within the period in question. He suggested a meeting in early January 2004 to describe and review the efforts made for that purpose over a represented period of several months.

 

[22]         On November 7, 2003, the OSB counsel stated that the case was very serious. He said that the OSB request in relation to the file closure plan remained unchanged.

 

[23]         That same day, the applicant’s counsel renewed his request for a meeting in early January 2004 and asked once again what statutory authority the OSB had to demand a sequential order of closure of the files.

 

 

…

 

[28]         He also mentioned that the process of closing a bankruptcy file is subject to some delays over which the trustee has no control. That is why the IAPO program normally gives the trustees 12 months in which to present their evidence. It was not fair that the respondent was suggesting the imposition of conservatory measures after only six months. The applicants were available to discuss the actual and meaningful progress in the closure process and thereby to avoid conservatory measures being taken.

 

[29]         It was at that point, in view of the repeated refusal of the applicants to comply with the OSB requirements, that the respondent’s decision to impose two series of conservatory measures directions crystallized. These measures were taken only in regard to the 48 files with large bank balances ($10,000 or more) since those are the files that are likely to produce a dividend for the creditor.

 

[30]         The first series, which took effect on February 10, 2004, provided:

 

-  that 48 active ordinary administration files opened for several years would be withdrawn from the applicants until the official receiver wound up their administration or a custodial trustee was appointed for that purpose; and

 

-  that the applicants could not be assigned any new ordinary administration files by the official receiver.

 

 

[31]         The second series, issued on February 24, 2004, resulted in the firm of H.H. Davis & Associés Inc. being instructed to wind up the administration of the 48 files withdrawn from the applicants.

 

 

[8]               As the judge states, the Office of the Superintendent did not take the conservatory measures capriciously. They were taken following a history of inexcusable delays sanctioned by the Court: see Société Chapichou Inc., Georges Marchand et Procureur général du Canada, S.C. No. 500‑11‑002944‑862, March 16, 1995, where the judge determined that there was no valid excuse for the trustee’s failure to finalize the matter and that the trustee was solely responsible for the delays described as unacceptable; Dubois (Re), [1995] A.Q. No. 1684, where the judge stated that it seemed difficult to justify prolonging the management of a small estate for eight years; Benchaya et Marchand Syndics Inc. et Surintendant des Faillites, S.C. No. 500-11-006335-976, January 17, 2000; Benchaya et Marchand Syndics Inc., S.C. No.  500-11-006335-976, July 6, 2000, where the trustee, in the same matter, was fined $1,000 for contempt of court because he refused to obey an order of the Superior Court directing him to pay the debtor the amount of $5,157.92; Blais et Marchand Syndics Inc. et Surintendant des Faillites, S.C. No. 405-11-000158-897, January 15, 2003, where Sénécal J. determined that there was no justification for the matter to have dragged on for 10 years.

 

[9]               The appellants challenged the validity of these measures before both the Superior Court of Québec and the Federal Court on practically the same basis, however without elaborating the argument of unconstitutionality based on paragraph 2(e) of the Canadian Bill of Rights in their written memorandum before us. They were successful in the Superior Court: see Marchand Syndics Inc. v. Procureur général du Canada et H.H. Davis et associés Inc., [2005] R.J.Q. 2094. The Superior Court declared that paragraphs 14.03(1)(a) and (d) of the Act were inoperative because they were inconsistent with paragraphs 1(a) and 2(e) of the Canadian Bill of Rights. The respondents appealed and the matter is now pending before the Court of Appeal of Québec.

 

[10]           By contrast, the Federal Court dismissed the appellants’ arguments accepted by the Superior Court of Québec. Hence the appeal before us by Marchand Syndics Inc. as well as the trustees Georges and Bruno Marchand.

 

[11]           On appeal before us, I must say that the appellants were in no rush to move their case forward. On July 15, 2005, the Court awarded them an extension of time to file a reply to a motion to dismiss their appeal for failing to proceed diligently, without costs: see docket A-658-04, order dated July 15, 2005. In a decision dated August 25, 2005, the Court observed that more than eight months had elapsed since the motion had been filed and that the appellant had not taken any steps to advance the matter. The Court nevertheless dismissed the motion to dismiss the appeal, but ordered the appellants to pay $1,000 in costs, payable immediately: see docket A-658-04, order dated August 25, 2005.

 

[12]           Finally, on July 18, 2006, the Court dismissed an unfounded application by the appellants to suspend the hearing of this appeal. It ordered them to pay $1,500 in costs, payable immediately regardless of the outcome of the litigation. The Court also ordered the judicial administrator to schedule the hearing of this appeal, which had already dragged on enough, as soon as possible. Accordingly, it was heard on October 18, 2006, i.e. three months after the order: see docket A‑658‑04, order dated July 18, 2006.

 

ANALYSIS OF THE APPELLANTS’ SUBMISSIONS AND OF THE DECISION BY THE JUDGE OF THE FEDERAL COURT

 

 

The alleged breach of procedural fairness

 

[13]           The appellants submit that the directions for conservatory measures were issued  in breach of the rules of procedural fairness and fundamental justice. Three grounds were raised at the hearing in support of this argument. First, the appellants contend that they had the right to be heard, in an oral hearing, on the advisability of issuing conservatory measures. Second, the measures are measures of indefinite duration and they seriously compromise their right to practice. Third, the measures were issued by a person who was both judge and a party, thereby breaching the rule of Nemo judex in causa sua: no one can be a judge in their own case.

 

[14]           I will examine each of these arguments, beginning with the right to be heard. I must point out though, as with the unconstitutionality argument based on the Canadian Bill of Rights, this procedural fairness argument, as pleaded at the hearing, does not appear in the notice of appeal as a ground of appeal or in the appellant’s written memorandum. The only breach of procedural fairness that they raised is the one relating to the refusal to receive the motion to disqualify the judge. And that is a ground for appeal that they withdrew. The appellants’ counsel simply referred us to paragraph 20 of their written memorandum, where it states that their memorandum of fact and law filed at first instance supplements the arguments set out therein. Yet, there was no such argument. Nevertheless, section 337 indeed provides that the notice of appeal must set out a complete and concise statement of the grounds intended to be argued. These are the grounds normally elaborated in the memorandum of fact and law. The appellants’ notice of appeal is twenty (20) pages long and reflects everything but the complete, concise, and precise grounds of appeal. It is in fact a veiled, deficient memorandum of fact and law.

 

 

 

The right to be heard before conservatory measures are directed under section 14.03 of the Act

 

 

[15]           At the hearing, the appellants claimed that they were entitled to an oral hearing on the conservatory measures, presumably before a third party, probably a judge, to decide whether such measures should be issued. It is difficult to know the appellants’ exact position because, as I said, their memorandum of fact and law did not refer to this issue, much less the issue of the right to be heard by a third party. The respondent’s counsel, in relying on this same procedural fairness that the appellants so ardently claimed, objected to a new ground of appeal being raised for the first time on appeal, at the hearing, when it did not appear in the written memorandum or in the notice of appeal. The oral arguments of the appellants’ counsel were not much more enlightening on the issue, as they simply stated that the hearing could not take place before the same person, nothing more.

 

[16]           In fact, the appellants challenge our Court’s decision in Tremblay v. Canada (Superintendent of Bankruptcy), 2001 FCA 46, where our Court dismissed a similar claim to a right to an oral hearing when resorting to conservatory measures. At paragraphs 4 to 6, the Court writes:

 

[4]           In such circumstances, it is hardly surprising that the Superintendent thought it necessary to take conservatory measures to protect the assets which, objectively, on the evidence before him, seemed to be at risk at the time.

 

[5]           We consider that there is no merit in the appellants’ argument that the Superintendent failed to observe the rules of natural justice in dealing with them. The appellants were aware of the audits taking place in their offices. They knew that a number of complaints had been filed against them and they knew the nature of the complaints. As the motions judge properly pointed out, they had several opportunities to be heard and to provide explanations about the alleged deficiencies, but chose to ignore them. They are hardly in any position to complain now.

 

[6]           Finally, the appellants argued that the Superintendent taking control of the estate records was a disguised revocation of their trustee licence without their having an opportunity to be heard as required in s. 14.02 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (“the Act”). This argument is without basis in the case at bar and is founded on a misapprehension, not to say distortion, of the action taken by the Superintendent. The taking control of the estate records, which was made necessary by the appellants’ conduct, was a measure taken to protect a third party’s property involved in an administrative and disciplinary inquiry. This inquiry is now concluded, disciplinary proceedings have been initiated and the appellants may exercise the rights conferred on them by s. 14.02, if that has not already been done.

 

                                                                                                                        [Emphasis added.]

 

[17]           In this case, as in Tremblay, the appellants had many opportunities to express their point of view regarding the requests by the Office of the Superintendent. They were well aware of the allegations against them. They provided explanations in that regard on more than one occasion. They knew they had been asked to provide a detailed plan for the closing of files that had been long drawn out to the detriment of the creditors, failing which they would face conservatory measures. They refused to do so on the grounds that in their opinion, the Office of the Superintendent did not have the authority to demand such a plan from them.

 

[18]           In passing, the appellants’ counsel argued at the hearing that the judge improperly determined that their clients had not provided the detailed plan that they had been asked to provide. They referred us to letters containing statistical projections on file closings (e.g. 90 files by November 30, 2003, 170 by February 28, 2004, etc.): see appeal book, volume II, page 359. Clearly, without further details and specifications, these letters did not amount to a valid closing plan addressing the concerns expressed by the Office of the Superintendent about the backlog of files and the value of the estates at issue. In short, it was impossible for the Office of the Superintendent to know whether the emphasis had truly been placed on the backlog of files, where significant amounts lay stagnant to the detriment of the creditors (see, for example, the case of a matter dating back to 1973 with $575,505.30 held in trust and which, in 2004, had still not been settled: judge’s decision, paragraph 2; see also the matters of Vide et Traitement Canada Inc. dating back to 1992; Les Remorques Bédard Inc., dating back to 1990; and Matériaux de Plomberie et Chauffage du Coteau Inc., dating back to 1991, with respective estates of $414,986.93, $272,008.19 and $146,990.09). In fact, the appellants’ counsel was unable to point out any evidence in the appeal record establishing that the detailed plan requested had in fact been provided.

 

[19]           I share the opinion of the judge that in this case there was no breach of procedural fairness and that the appellants were heard and given the opportunity to raise their arguments. I refer to  paragraphs 82 to 86 of her decision which accurately summarizes this opinion:

 

[82]         In this case, I must take into consideration the efforts made by the OSB with its decision to begin the IAPO across the country, which led to a more specific investigation into the cases of administration of the applicants’ active files. I note that once this process began between the OSB and the Syndics Marchand, the OSB informed the applicants that the failure to provide an acceptable closure plan could trigger some conservatory measures.

 

[83]         The abundant correspondence exchanged between the applicants and the OSB indicates that the rules of natural justice were complied with since the applicants were informed on many occasions of the OSB’s requirements and the consequences they were risking should they refuse to comply with those requirements.

 

[84]         The applicants also think they had some legitimate expectations that a certain procedure would be followed. They state that the process contemplated by the IAPO program extended over a 12-month period, but that in their case the conservatory measures had been issued after only six months. I note, however, that the IAPO program required that a closure plan meeting the OSB’s requirements be accepted at the outset. That did not happen in this case. The respondent did not contravene the procedure laid down by the IAPO program, therefore, since the applicants never provided an acceptable closure plan.

 

[85]         In the circumstances, given the statutory framework, the OSB had no need to grant the applicants a hearing or to meet with them one last time, since all the previous attempts had proved unproductive. As I said in Groupe G. Tremblay, supra, a hearing is not necessary before taking conservatory steps since when they prove necessary it is imperative that the OSB act swiftly.

 

[86]         I am satisfied, therefore, that the rules of natural justice were complied with in regard to the applicants and that the decision to issue conservatory measures directions does not contravene paragraph 2(e) of the Canadian Bill of Rights, supra.

.

 

 

 

[20]           The appellants acknowledge that they were heard on many points but not, they say, on the nature and choice of conservatory measures taken against them. In my opinion, our Court’s decision in Tremblay, supra, is determinative. The appellants have not persuaded me that there are grounds to derogate from it. The fact that paragraph (d) of section 14.03 was added to the Act after the decision by this Court does not change the fact that we have before us conservatory measures which, as we shall discuss later on, are a means of protecting and administering property belonging to third parties, dictated by imperatives of safety, emergency or the need to carry out the objectives of the Act.

 

[21]           I would add the following for purely pragmatic and functional purposes. Can we conceive that a measure taken to preserve evidence – an inspector’s order to shut down a workplace in accordance with section 186 of An Act respecting Occupational Health and Safety, R.S.Q., c. S-2.1 to ensure the safety of the workers or an order to garnish from a third party pursuant to subsection 224(1) of the Income Tax Act – be subject to a notice of preliminary hearing? The question is asked and answered. Indeed, the Superior Court of Québec did not hesitate to answer in these terms in regard to section 15 of An Act respecting the Ministère du Revenu du Québec, a provision that is analogous with subsection 224(1) of the federal statute, in Sioui v. Sous-ministre du Revenu du Québec, [1995] R.J.Q. 2,492, at page 2,496:

 

[translation]

 

The Court is of the opinion that the right to be heard, enshrined by section 23 of the Charter, does not apply to the seizure under section 15… This seizure does not determine the party’s right; it is a  provisional measure intended to ensure income tax is paid until there has been a definitive decision in the dispute.

 

 

[22]           In this case, as we shall see later on, the conservatory measure was itself an interim measure and therefore of limited duration. Beyond that fact, the appellants were not without recourse. They could seek a judicial review of the decision made: in fact, they did seek two reviews before two different courts where they were heard on the constitutionality of the existence of a power to direct such measures as well as the lawfulness of the power that was exercised in their case. They could also have been heard at the hearing regarding their licence: section 14.02 expressly provides that it and the resulting decision is subject to judicial review and then to a subsequent appeal.

 

 

The nature of the conservatory measures under section 14.03 of the Act

 

[23]           As this Court pointed out in Tremblay, supra, the conservatory measures under section 14.03 of the Act are measures taken to protect the property of third parties in the course of an administrative and disciplinary inquiry. They are dictated by a necessity to act quickly in order to ensure estates are preserved in the circumstances provided in subsection 14.03(2). “Preserve” in this case means not only protection against the loss or destruction of the estates in question, but also protection against improper or lacking management of the administration of an estate, to the detriment of creditors and the public interest. This is indeed suggested by the circumstances established by the Act whereby the Superintendent may resort to those measures.

 

[24]           In fact, the Superintendent may resort to these protective measures when carrying out an inquiry or investigation pursuant to the powers conferred to him under paragraph 5(3)(e) of the Act, when pursuant to subsection 14.01(1) measures have been taken in regard to a trustee’s licence for failing to properly fulfil the duties of a trustee, for improper management of the estate or for failing to comply with the Superintendent’s directions (subsection 14.01(1), when it is in the public interest to do so (ibidem) or when a trustee fails to comply with one of the conditions of the licence, including the code of ethics respecting the conduct of trustees (section 13.5) [Emphasis added].

 

[25]           It is clear that the use of conservatory measures is not, as the appellants ultimately claim, limited only to cases of estates compromised as a result of fraud, misappropriation or embezzlement. It is there so that the objectives of the Act are attained, which certainly includes the objectives of properly and efficiently administering estates as well as the objective of trustees respecting the terms and conditions of their licences.

 

[26]           It would be false to claim, as the appellants do, that the conservatory measures apply indefinitely, particularly in this case.

 

[27]           First, the Act itself clearly provides a time limit on the restriction in regard to the administration of new assets. Paragraph 14.03(1)(d) stipulates that it remains in effect until there has been a decision regarding the suspension or cancellation of the licence. The conservatory measures at issue are measures that are purely accessory to the principal litigation, which is disciplinary in terms of the appellants’ ability to practice their profession: they are born of the litigation and extinguish with it.

 

[28]           Second, the conservatory measure which is in dispute here has an additional limit: the order may be lifted when the Superintendent is satisfied with the guarantees offered regarding the proper and diligent administration of the estates to the creditors’ benefit rather than to their detriment. In the words of the direction itself, “[t]hese directions take effect immediately and will stay in place until further notice”.

 

[29]           The appellants were certainly affected by this measure dated February 10, 2004, temporarily limiting their access to new estates. But we must not exaggerate. Beyond the time limit, the direction also contained a material limit: it applied only to new ordinary administration estates. It is closely connected and adapted to the problem alleged against the appellants: i.e. negligence in the administration of ordinary administration estates. As stated by Mr. Justice Chamberland of the Court of Appeal of Québec – from whom the appellants requested the interim execution of a judgment in their favour, declaring inoperative paragraphs (a) and (d) of section 14.03 and, accordingly, quashing the directions for conservatory measures – the appellants were certainly impeded in their professional activities, but they were not prevented from acting as trustees in summary administration estates, in certain ordinary administration estates or in proposals: see Procureur général du Canada et al. v. Marchand Syndics Inc. et al. et H.H. Davis et Ass. Inc. et Banque canadienne impériale de commerce, C.A.Q., No. 500-09-015869-050, November 8, 2005.

 

[30]           In support of dismissing the appellants’ motion, Mr. Justice Chamberland writes:

 

 

[translation]

 

The evidence of irreparable harm is not very persuasive. There is no doubt that the measures imposed on the petitioners since February 2004 impede their professional activities. The evidence establishes however that this does not prevent them from continuing to act as trustees, i.e. continuing to administer certain ordinary administration bankruptcies, namely by administering summary administration estates and proposals. The situation is perhaps difficult – since they cannot be appointed as trustees in ordinary administration bankruptcies – but it is not critical, and is not an irreparable prejudice.

 

[31]           I would add as complementary information that the appellants had informed the Office of the Superintendent that in any event they wanted to significantly reduce the influx of new ordinary administration estates. They reiterated this information before us, adding that the appellants were planning to retire.

 

[32]           I turn now to the appellants’ complaint in support of their allegation of a breach of procedural fairness, namely that the person who directed the conservatory measures was at once judge and a party. It would not usually be necessary to address this issue since it is another issue that the appellants failed to raise or elaborate in their memorandum of fact and law. But the appellants insisted that it be decided in order to avoid the undertaking of a new challenge.

 

[33]           The allegation is unfounded for the reasons that I have already stated relating to the very nature of a conservatory measure. It is also unfounded because the appellants based their claim on a narrow and incorrect interpretation of Sheriff et al. v. Attorney General of Canada, 2006 FCA 139, decided by our Court.

 

[34]           In that matter, our Court simply reiterated the principle that a person cannot initiate and judge an action. That goes without saying. But here the conservatory measures are not an action. As I already stated, they are incidental and accessory to a disciplinary proceeding brought against the appellants. The hearing of this proceeding, pending decisions on the various recourse brought by the appellants challenging the Superintendent’s powers, was entrusted to Mr. Greenberg, an independent adjudicator who will hear the appellants in accordance with section 14.02. I believe it would be superfluous to say more.

 

[35]           The appellants also relied on Authorson v. Canada (Attorney General), [2003] 2 S.C.R. 40 and Air Canada v. Procureure générale du Canada et le Commissaire de la concurrence, [2003] R.J.Q. 322 (C.A.Q.) in support of their argument.

 

[36]           Authorson is of no help to the appellants. At paragraph 42 of this decision, Mr. Justice Major states that paragraph 1(a) of the Canadian Bill of Rights guarantees notice and some opportunity to contest a governmental deprivation of property rights only in the context of an adjudication of that person’s rights and obligations before a court or tribunal. [Emphasis added.]. While it is obvious that the conservatory measure has an impact on the appellants’ business, it is accepted that they do not have property rights over the estates of third parties, which they are responsible for administering in accordance with the Act and the conditions of their licence. They are only trustees and, under subsections 5(2) and (4) of the Act, the Superintendent has the ultimate control of the estates and can give trustees directives regarding the performance of their duties. Moreover, the respondent’s decision, like that of an inspector, is an administrative decision authorized by the Act.

 

[37]           At paragraph 59, Mr. Justice Major lists the guarantees of fundamental Justice conferred by paragraph 2(e) of the Canadian Bill of Rights. He adds and I quote:

 

All of these protections are legal rights applicable in the context of, or prior to, a hearing before a court or tribunal.

 

. . .

 

Its protections are operative only in the application of law to individual circumstances in a proceeding before a court, tribunal or similar body.

 

 

The proceeding referred to by Major J. is the disciplinary proceeding where the appellants will be heard in accordance with section 14.02 of the Act before a disciplinary tribunal. Resorting to conservatory measures is not a proceeding before such a forum: the respondent is not a court or a tribunal or a similar body.

 

[38]           With regard to Air Canada, supra, we did not have the benefit of any such arguments in the respondent’s written memorandum since the appellants’ ground for appeal was new and did not appear, as I already mentioned, in their notice of appeal or in their memorandum of fact and law (the only reference to this case by the appellants in their memorandum is found in three lines at paragraph 44; it was made in relation to the ground for appeal involving the judge’s disqualification and was withdrawn at the hearing). But that aside, the decision of the Court of Appeal of Québec in that matter is entirely different from the one at issue in this case.

 

[39]           In Air Canada, the Commissioner of Competition (Commissioner) issued an interim order for an injunction against Air Canada prohibiting it from offering to sell or selling, directly or indirectly, particular fares on a given number of routes. The Court of Appeal of Québec determined that the Commissioner, while continuing the inquiry against Air Canada, had become a judge for the purposes of issuing an injunctive order. This is not at all the case with respect to the respondent under the Act and section 14.03. Indeed, in Métivier v. Mayrand, [2003] J.Q. No. 15389 (C.A.Q.), the Court of Appeal of Québec distinguished the Superintendent’s situation from the Commissioner’s in terms of the guarantees of the Superintendent of Bankruptcy’s independence and impartiality under paragraph 2(e) of the Canadian Bill of Rights. It determined that the legislative scheme resulting from 14.01 and 14.02 of the Act was not contrary to the Canadian Bill of Rights  and therefore was not invalid or inoperative.

 

[40]           Moreover, the decision made by the respondent to resort to conservatory measures was not an injunctive measure like the one taken by the Commissioner. It did not prohibit the appellants from carry on their activities as trustees. It only removed certain files whose administration was jeopardized as a result of their inability to close them and their failure or refusal to cooperate with a procedure that would likely have enabled them to keep them.

 

[41]           It is true that the appellants have been temporarily deprived of the opportunity to receive new ordinary administration estates. But that fact does not change the conservatory nature of the measure taken pursuant to paragraph (d) of section 14.03, as long as there is a rational connection between that measure and the facts underlying the decision to resort to conservatory measures. I will now address that issue.

 

 

 

Was there a rational connection between the facts underlying the decision to resort to conservatory measures and the decision made under paragraph (d) of section 14.03 of the Act?

 

[42]           The judge determined that the appellants were repeatedly asked, to no avail, to provide a specific closing plan which, under the circumstances, would have provided that the most problematic files be given priority. This finding of fact is amply supported by the evidence.

 

[43]           Following the series of refusals and the notices that conservatory measures could be taken, the judge also determined at paragraph 70 of her decision that “it was not patently unreasonable to consider that the administration of the estates in the oldest files was compromised and that it was necessary to protect them by resorting to conservatory measures so that the administration of the files could be diligently wound up and the sums obtained would be paid to the creditors at the earliest opportunity”. Whether in this case we apply the standard of patent unreasonableness or that of simple unreasonableness, the situation in my opinion warranted that these measures be taken in the interest of the creditors, in the public interest and in the interest of properly and efficiently administering third party property as the appellants were bound to do under the Act.

 

[44]           In a situation where there was undeniable and certain negligence in the management of ordinary administration estates and a refusal to cooperate to accelerate their settlement, it was not unreasonable to avoid aggravating the existing problem by not allowing similar estates of that type to be added to those the appellants continued to administer, thereby potentially compromising the proper administration of both those and the new estates. Only 48 of the most drastic ordinary administration estates were removed from them through the conservatory measures, in accordance with the ordered and timely administration of insolvency cases across the country. The others – 144 in all – remained under their administration.

 

CONCLUSION

[45]           In my opinion, in analyzing the arguments submitted by the appellants and in applying the law to the facts of the matter, the judge did not make any error that would justify our intervention. The temporary conservatory measures taken were necessary to ensure the proper administration of ordinary administration estates which were compromised by the appellants’ negligence and refusal to cooperate. The measures were taken in keeping with the Act and the rights that it confers on the appellants. They were complaining about measures that were brought about by their own wrongdoing.

 

[46]           For these reasons, I would dismiss the appeal with costs. Under the circumstances, given the state of the proceedings in the appeal book as well as the nature of the challenge which was derived in large part from it’s first time around, I would order that costs be payable immediately and that they be assessed in accordance with column V of Tariff B.

“Gilles Létourneau”                  

“I concur

            Marc Noël J.A.”

 

“I concur

            J.D. Denis Pelletier J.A.”

 

Certified true translation

 

Kelley A. Harvey, BCL, LLB

FEDERAL COURT OF APPEAL

SOLICITORS OF RECORD

 

 

DOCKET:                                          A-658-04

 

APPEAL FROM AN ORDER BY THE HONOURABLE MADAM JUSTICE TREMBLAY-LAMER DATED NOVEMBER 10, 2004,

IN DOCKET T-1116-04.

 

STYLE OF CAUSE:                          MARCHAND SYNDIC INC., trustee et al. v.

                                                            SYLVIE LAPERRIÈRE

 

PLACE OF HEARING:                    Ottawa, Ontario

 

DATE OF HEARING:                      October 18, 2006

 

REASONS FOR JUDGMENT:       LÉTOURNEAU J.A.

 

CONCURRED IN BY:                     NOËL J.A.

                                                            PELLETIER J.A.

 

DATE OF REASONS:                      November 10, 2006

 

 

APPEARANCES:

 

Michel Décary Jean-Philippe Gervais	FOR THE APPELLANTS
Bernard Letarte	FOR THE RESPONDENT

 

SOLICITORS OF RECORD:

 

Stikeman Elliott Montréal, Quebec   Gervais & Gervais Montréal, Quebec	FOR THE APPELLANTS
John H. Sims, Q.C. Deputy Attorney General of Canada	FOR THE RESPONDENT

 

 

Date: 20061110

Docket: A-658-04

 

Ottawa, Ontario, November 10, 2006

 

CORAM:       LÉTOURNEAU J.A.

                        NOËL J.A.

                        PELLETIER J.A.

 

BETWEEN:

MARCHAND SYNDICS INC., trustee

GEORGES E. MARCHAND, trustee

BRUNO MARCHAND, trustee

 

Appellants

and

SYLVIE LAPERRIÈRE

Respondent

 

 

JUDGMENT

 

            The appeal is dismissed with costs payable immediately and assessed under column V of Tariff B.

“Gilles Létourneau”

Certified true translation

 

 

Kelley A. Harvey, BCL, LLB