Professional Conduct Decision
What is a professional conduct decision?
An investigation into a Licensed Insolvency Trustees (LIT)'s professional conduct is initiated when there is information to suggest that the LIT has not properly performed the duties of a trustee or there has been improper administration of an estate or lack of compliance with the Bankruptcy and Insolvency Act (BIA).
In some cases, the findings are sufficiently serious to support a recommendation for sanctions against the LIT's licence (cancel or suspend a LIT's licence (subsection 13.2(5) of the BIA) or impose conditions or limitations (subsection 14.01(1) of the BIA)).
The professional conduct decision is deemed to be a decision of a federal board, commission or tribunal and may be judicially reviewed by the federal court.
Province of Quebec
District of Montréal
In Re Disciplinary Proceedings Pursuant to the Bankruptcy and Insolvency Act (hereinafter "the Act")
Senior Analyst in the Montréal Regional Office of the Superintendent of Bankruptcy
(hereinafter "the senior analyst")
Georges Marchand (hereinafter "georges")
Bruno Marchand (hereinafter "BRUNO")
Marchand Syndics Inc. (hereinafter "Inc.")
(hereinafter jointly "the trustees")
The Honourable Benjamin J. Greenberg, Q.C.,
Superintendent of Bankruptcy's Delegate
(hereinafter "the DELEGATE")
Decision on Preliminary Applications by Trustees
- By Order in Council No. 1997–693, dated and promulgated pursuant to section 5(1) of the Act, Marc Mayrand of Gloucester, Ontario was appointed Superintendent of Bankruptcy, to take effect on . He is referred to hereinafter as "the Superintendent".
- Section 5(2) and (3)(e) directs the Superintendent to supervise the administration of all estates and matters to which this Act applies, and imposes on him a duty to make or cause to be made "such inspection or investigation of estates or other matters to which this Act applies, including the conduct of a trustee or a trustee acting as a receiver or interim receiver, as the Superintendent may deem expedient".
- On the Superintendent, in carrying out this duty pursuant to section 14.01(2)Footnote 1 of the Act, delegated to the Senior Analyst certain of his powers, duties and functions, except for the requirement of giving the trustees an opportunity to be heard.
- The Senior Analyst subsequently held an investigation into the conduct of the trustees, and after completing it, filed a report dated (hereinafter referred to as "the report", with its 111 appendices), recommending that the Superintendent take one or more of the disciplinary actions mentioned in section 14.01(1) of the Act, which is/are unknown to us.
- Following the report, the Superintendent decided to take one or more of these disciplinary actions against the trustees.
- Consequently, as the Superintendent's delegate, the Senior Analyst sent the report to the trustees, to take the place of the written notice required in section 14.02(1) of the Act.
- Subsequently, the Superintendent decided that in the interests of natural justice, and to allow the trustees an opportunity to be heard as promptly as possible, it would be advisable to delegate some of his decision-making powers and related powers to an independent lawyer.
- Accordingly, on , pursuant to section 14.01(2) of the Act, the Superintendent delegated the said powers, duties and functions bearing on the instant disciplinary proceedings to the undersigned.
- At the preliminary teleconferencing call presided over by the undersigned on the then counsel for the Senior Analyst and counsel for the trustees were present.
- At the said conference the Delegate drew up, inter alia, a schedule for the various stages of the disciplinary process. To begin with, the hearing on the merits was provisionally set down for seven days, March 7, 8, 9, 10, 11, 14 and 15, 2005.
- On the said hearing was postponed until , depending on the outcome of the instant preliminary applications by the trustees: the hearing on the merits was again provisionally set down for seven days, November 14, 15, 16, 17, 18, 21 and 22, 2005.
- At a teleconferencing call with both counsel held on , because of delays which had occurred in the process since the hearing of September 15 and 16, 2005, the undersigned accepted the joint submission by counsel that the hearing on the merits that was to begin on be cancelled, subject to re-scheduling after our decision is issued on the trustees' preliminary applications, if necessary.
- The trustees' preliminary applications are in four parts:
- an application that the report be declared null and void, with a consequent non-definitive stay of the proceedings;
- an alternative application to stay the instant proceedings pending the final judgment of the Federal Court of Appeal in cases T-75-04 and T-547-04: this is the trial judgment of Luc Martineau J. dated , in the cases of the trustees Levy and Roy (hereinafter "the Martineau judgment"); Mr. Gervais is appearing for the trustees Levy and Roy in the said cases;
- an application to disclose evidence; and
- an application by Bruno to separate his disciplinary hearing from that of his father georges.
- On the non-definitive stay of the proceedings, counsel for the trustees based his arguments primarily on comparing the stage of the investigation involving the disciplinary proceedings pursuant to the Act to the investigation stage under the Canadian Human Rights ActFootnote 2 (hereinafter "the Canadian Act").
- He submitted a large number of judgments in which the decisions by the Canadian Human Rights Commission (hereinafter "the Commission") were quashed by the Federal Court because the investigation leading to them had not met the requirements of "neutrality and thoroughness". Footnote 3
- Because Mr. Leduc did not hold discussions with certain individuals to whom Mr. Gervais thought he should have spoken, and because Mr. Leduc did not completely follow up certain points of fact Mr. Gervais thought he should have followed up, Mr. Gervais considered that his investigation lacked thoroughness and was [translation] "done hastily".
- It is true that the Senior Analyst limited his consultations primarily to his working colleagues and counsel in the Office of the Superintendent of Bankruptcy (hereinafter "the OSB") and held no consultations with other bankruptcy trustees nor with attorneys or businessmen outside the OSB.
- Counsel for the trustees also relied on the argument that the Senior Analyst did not observe the requirement of neutrality as during 1995 and 1996 he was the official receiver for the trustees, though he disclosed this to his supervisor Alain Lafontaine, Deputy Superintendent, Programs, Standards and Regulatory Affairs, when the latter asked him to act as Senior Analyst in respect of the trustees.
- It was not until the Senior Analyst received the instruction Footnote 4 that he learned that the two principal complaints against the trustees were the Benchaya bankruptcy and the lack of dispatch in closing files over three years old.
- During 1995 and 1996, when Mr. Leduc was acting as official receiver for the trustees, the problem of dilatoriness in closing files over three years old was already a pressing one and some of those files which had not been closed in 1995 and 1996 were still not closed in 2003–2004.
- However, the Senior Analyst did not at that time think it was necessary, advisable or appropriate to notify Mr. Lafontaine of these facts and that it might perhaps have been better to assign the trustees' disciplinary file to another Senior Analyst.
- This, counsel for the trustees argued, may cast doubt on the neutrality of the Senior Analyst, but undoubtedly casts doubt on whether he appears to be neutral.
- In asking this tribunal to quash the report and the non-definitive stay of proceedings, Mr. Gervais conceded that if necessary the Superintendent could subsequently, if he sees fit, assign to another Senior Analyst the same duties he had first assigned to the Senior Analyst in the instant case, and that the new Senior Analyst would begin his investigation from scratch and would eventually submit a new report.
- Counsel for the trustees sought to rely on the decision by the Superintendent, Marc Mayrand, dated , in the case of PriceWaterhouseCoopers Inc. (hereinafter "PWC") et al..
- The Delegate appointed in that case, Jean-Claude Demers, withdrew during the hearing on the merits after hearing the examination-in-chief and cross-examination of Michel Leduc, the Senior Analyst here, who was acting as Senior Analyst in the said proceeding, and the testimony of two attorneys called by one of the trustees.
- As the cross-examination of Mr. Leduc ended in the afternoon in question, the Delegate Demers joined Mr. Leduc, the latter's counsel and an OSB auditor, whose examination was to begin the following morning, to dine together, unknown to the trustees concerned and their counsel.
- When the hearing resumed on the following day the Delegate Demers, having apparently realized the compromising nature of what had happened the evening before, told the parties and their counsel everything.
- Counsel for the trustees then asked the Delegate Demers to rule that all the complaints were dismissed in view of the [translation] "obvious weakness of the evidence on the complaint".
- The Delegate Demers then wondered, in view of the events of the evening before and the concept of the perception of impartiality, whether it was still appropriate for him to preside over the hearing. All the parties then made an application that the delegate withdraw, which he did.
- An application was subsequently made to the Superintendent [translation] "to withdraw the complaints and charges made against PWC Inc. and Robert Brochu" and, additionally, to [translation] "order the termination of proceedings" against another individual trustee and his affiliated corporate trustee.
- The Superintendent considered that in order to rule on these applications he would first have to [translation] "consider the advancement of the case and the evidence submitted to date". He felt that [translation] "in light of the exceptional circumstances of this case, I must determine whether the process has been tainted by irregularities to the extent that a termination of the proceedings would be justified, and whether or not the Senior Analyst has sufficiently met the burden of proof incumbent upon him to conclude that it is possible to continue these proceedings in a way that would not constitute a denial of justice to the parties nor compromise public interest in question" (emphasis added).
- As to how this assessment should be made, the Superintendent continued: [translation] This approach is not, in my opinion, substantially different from the one usually followed in any case involving matters of professional conduct where, before making a determination as to the need for a hearing, I ascertain that the report is prima facie sufficient to warrant the exercise of one of the powers specified in section 14.01 of the BIA, provided that the alleged facts are found to be true.
- On the two charges made against the trustees in the PWC case, the Superintendent considered: [translation]
On the question of "dishonesty", the Senior Analyst simply stated his opinion without referring to any fact or circumstance which his investigation would have allowed him to bring forward in order to support this opinion.
As to the breach of the duty to deal with the property of the bankrupt in a commercially reasonable manner, the witness admits that he does not have the necessary skills to evaluate and describe what acting in a commercially reasonable manner might be. His testimony reveals that his investigation was confined to discussions with work colleagues and that he did not see fit to seek further information from practitioners, creditors or inspectors with regard to current commercially reasonable practices or what would be considered reasonable or not.
I therefore find that the evidence of the Senior Analyst established in the file amounts to nothing more than unsubstantiated allegations and that he did not meet the burden of proof with respect to the alleged offences.
In view of the Senior Analyst's admission regarding his lack of experience in the area of commercial dealings and of the fact that he did not, as part of his investigation, make any inquiries about commercial practices, I find as a fact that the evidence given by the two lawyers called as witnesses is conclusive in that it is not unusual for such non-disclosure clauses to be included in cases similar to the one at hand. And here again, counsel for the analyst did not raise any objection as to the type of evidence submitted.
As to the offence which allegedly occurred as a result of the sale made on , I find the testimony given by the Senior Analyst leaves much to be desired. Under examination and cross-examination, the Senior Analyst expressed his opinion that the agreement dated resulted in the trustee relinquishing all of his ownership, possession and management rights with regard to the secured assets and other rights resulting from the deed of trust. He acknowledged not having read the deed of trust especially as regards the fiduciary duty to transfer any surplus from the realization to the debtor or his successors (in this case, the trustee in bankruptcy). He testified that the allegations raised in his report are the result of discussions with his work colleagues and with lawyers for the Office of the Superintendent of Bankruptcy while indicating that he never received a formal legal opinion about the legal documents on which these allegations are based. The evidence does, however, show that four lawyers did express separate opinions supporting the validity, from legal and ethical points of view, of the agreement signed on , and of the sale made on .
For these reasons, I must again find that the Senior Analyst did not meet the burden incumbent upon him to prove the allegations made against the trustees PriceWaterhouseCoopers Inc. and Robert Brochu as to the sale that occurred on .
- In his final conclusions, the Superintendent said the following:
After reviewing this case, I find that Senior Analyst Leduc has demonstrated a serious lack of diligence throughout his investigation, that he has shown carelessness and lack of judgement which has affected the integrity of the investigation and of the hearing conducted in this case, and has seriously undermined the credibility of the Office of the Superintendent of Bankruptcy as a whole. Obviously, Mr. Leduc shall no longer lead investigations into the professional conduct of trustees in the future.
As a result of the foregoing:
- I find that the Senior Analyst did not meet the burden of proof incumbent upon him and order the dismissal of all the complaints brought against the trustees PricewaterhouseCoopers Inc., Robert Brochu, Serge Morency & Associates Inc., and Serge Morency, as formulated in the disciplinary report;
- I find that the investigation process and the hearings in this case to be so flawed as to bar any further proceedings, in light of the duty of procedural fairness which is binding on the Superintendent and his delegates pursuant to the provisions of paragraph 14.02(2)(c) of the BIA…
- The portrait painted by the Superintendent of Mr. Leduc, his own Senior Analyst in PWC et al., is not an attractive one.
- As in PWC et al., here again Mr. Leduc limited his consultations grosso modo to his working colleagues and counsel in the OSB.
- However, a significant distinction must be made: in PWC et al., Mr. Leduc had already testified on the merits before the Delegate Demers, and when the case again came before him the Superintendent had before him and considered virtually all the evidence to be presented by the Senior Analyst, while here, though Mr. Leduc was questioned by counsel for the trustees in his preliminary proceeding, that is not the same thing as testifying on the merits, introduced and guided by his own counsel.
- Accordingly, in the instant case it is impossible to assess the Senior Analyst's evidence on the merits as his testimony at that stage has not yet been given.
- Additionally, the [translation] "exceptional circumstances" referred to by the Superintendent in the portion of his decision cited in paragraph 31 above do not exist in the instant case.
- What is more, it should be borne in mind that except for PWC et al. and the present case, as Senior Analyst Mr. Leduc has conducted without objection a total of ten investigations involving 16 trustees.Footnote 5
- We have carefully examined all the precedents cited and the legal arguments submitted by counsel for the trustees, and with respect for his view, which is contrary to our own, we feel that although the Commission and the Superintendent (or his delegate) are "federal boards, commissions or other tribunals", their roles and functions are not conceptually the same in both situations.
- In one case, there is legislation which confirms and/or creates individual rights and provides an investigative process, and if necessary a hearing before the Commission, for complaints filed by persons who consider that their said human rights have been infringed.
- The other case concerns a professional disciplinary process applicable to bankruptcy trustees, who have allegedly in that capacity infringed the Act and/or General Rules (including the "Code of Ethics for Trustees", namely Rules 34 to 53) enacted pursuant to the Act and/or directions issued by the Superintendent.
- What is more, under the Canadian Act the investigator's function is much more regulated and structured than is the function of a Senior Analyst under the Act.
- The Act states the following regarding the Superintendent, who may delegate the powers in question to a Senior Analyst:
The Superintendent shall, without limiting the authority conferred by subsection (2),
(e) … make or cause to be made such inspection or investigation of… including the conduct of a trustee…
Where, after making or causing to be made an investigation into the conduct of a trustee … the Superintendent may do one or more of the following…
- Thus, in the delegation by the Superintendent to the Senior Analyst in the instant case,Footnote 6 without further details or particulars in this regard, we find the following on page two: [translation] CONSEQUENTLY, and in accordance with subsection 14.01(2) of the Act, I, Marc Mayrand, Superintendent of Bankruptcy, do delegate to Michel Leduc, Senior Analyst, Professional Conduct, in the Office of the Superintendent of Bankruptcy, the following powers of the Superintendent regarding supervision of trustees, which shall be exercised in the circumstances and on the conditions set out in the Act and in compliance with the further requirements stated below:1. The power mentioned in subsection 14.01(1) to hold an investigation into the conduct of a trustee…
The Canadian Act and one of its Regulations provide the following regarding an investigator pursuant to the said legislation:
The Governor in Council may make regulations:
prescribing procedures to be followed by investigators;
authorizing the manner in which complaints are to be investigated pursuant to this Part…
And, for example, the Immigration Investigation Regulations provide: Footnote 7
Where a complaint relating to immigration is received by the Commission against the Canada Employment and Immigration Commission or one of its officers, the Commission shall serve on the Chairman of the Canada Employment and Immigration Commission:
- a proposed investigation plan
- identifying relevant documents believed to be in the possession of the Canada Employment and Immigration Commission that are required to be examined by the investigator, and
- identifying persons in the employ of the Canada Employment and Immigration Commission who are required to be examined by the investigator,
- There are no analogous or similar provisions in the Act.
- Accordingly, we consider that the investigation by the Senior Analyst is governed primarily not by the requirements of "neutrality and thoroughness" as adopted by the courts in respect of the Canadian Act, the Commission and its investigators, but rather by the concept of fairness mentioned in section 14.02(2)(c) of the Act and by the rules of natural justice.
- In conclusion, although the investigation of the Senior Analyst in the instant case leaves much to be desired, its deficiencies are not so serious as to justify reacting as the Superintendent did in PWC et al.. The fact remains that when appearing at the hearing on the merits the Senior Analyst will have the burden of proof.Footnote 8
- Consequently, the trustees' first preliminary application will be dismissed.
- On the second preliminary application, alternative to the first, the trustees wish to stay the instant proceedings pending the final judgment by the Federal Court of Appeal in the two cases described in paragraph 13(b) above.
- In a decision by the undersigned on in Pfeiffer, we concluded (mistakenly, as it now appears) that we did not have jurisdiction to stay proceedings pursuant to section 14.02(2) of the Act for an indefinite period, that is until judgment was rendered in an unrelated case brought before another tribunal.Footnote 9
- However, the three Delegates, Kaufman, Meyer and Poitras, had recognized such jurisdiction.Footnote 10
- At that time we relied on the speed that is urged in section 14.02(2)(c) of the Act and on the judgment of the Federal Court in Anheuser-Busch. Footnote 11
- Since then the unanimous opinion expressed in various judgments by Federal Court Trial Division judges is that the Superintendent (and so his Delegates) has jurisdiction to decide any point of law that arises in exercising his jurisdiction under the Act, including points of law of a constitutional nature.
- So, how can it be said that someone exercising quasi-judicial jurisdiction, which includes jurisdiction over constitutional questions, does not have the power to stay proceedings brought before him until a judgment is rendered by a court of record at trial or on appeal? The question provides its own answer! We conclude that we have such jurisdiction.
- Nonetheless, in the four cases cited in reference 10 above, although in each case the Delegate considered that he or she had such jurisdiction, it was exercised in only one case (that of Levy). In the other three cases, although in Sherriff it was the same delegate as in Levy, namely Hon. Fred Kaufman, the three delegates declined to exercise the jurisdiction which each one considered he or she had.
- Ought we to exercise such jurisdiction, which we consider we have, in the instant case?
- First, the tribunal must be fair to the trustees. If we proceed despite the fact that the Martineau judgment is on appeal, in the event of a subsequent judgment in the appellants' favour the costs and the stress incurred by the trustees would have been in vain and so unfair.
- However, we must also consider the public interest, which means not only the protection of possible clients of the trustees and interested creditors, but also maintenance of the integrity of the bankruptcy and insolvency system.
- Thus far quite severe conservatory measures have been in effect against the trustees pursuant to section 14.03 of the Act (hereinafter "the conservatory measures").
- In a judgment by Robert Mongeon J. (hereinafter "the Mongeon judgment") on in a case involving the trustees, the Superior Court held that section 14.03(1)(a) and (d) are inconsistent with and contravene sections 1(a) and 2(e) of the Canadian Bill of Rights, and consequently the said provisions are of no force or effect.
- The Attorney General of Canada appealed the Mongeon judgment. However, Mongeon J. did not order that his judgment be provisionally implemented notwithstanding appeal, and in pleadings in connection with the preliminary applications by the trustees in the instant case on September 15 and 16, 2005, the trustees had not yet requested that the Mongeon judgment be provisionally implemented.
- Accordingly, the conservatory measures continued in effect and the public interest was thus still protected.
- In the letter written to me on counsel for the trustees said the following:
Thirdly, we have served a motion for provisional execution of the judgment by Robert Mongeon J.S.C., which is to be heard by the Quebec Court of Appeal on , following the motion to stay made by counsel for the Attorney General of Canada. The result of that argument may have some implications for certain aspects of the points at issue before you.
- When in our letter of we asked him to clarify the result of his application to the Quebec Court of Appeal, in a letter written to us on , supported by a copy of the judgment of Jacques Chamberland J.A. of the Quebec Court of Appeal, sitting alone, the said counsel advised us that:
We enclose a copy of the judgment dismissing the motion for provisional execution, which we received on Thursday…
As our motion has been dismissed, the situation is no different from that which existed at the time of the pleadings, and the arguments made to you at that time continue to be relevant.
- Accordingly, the public interest and the integrity of the bankruptcy and insolvency system continue to be protected, and hence the duty to act with fairness to the trustees has priority in the present circumstances, and we will allow their second preliminary application. The hearing on the merits in the instant matter will be stayed pending the final judgment of the Federal Court of Appeal on the Martineau judgment.
- Then, if the appeal from the Martineau judgment succeeds, the third and fourth preliminary applications by the trustees will become moot. Accordingly, we will not rule on the said applications at this stage of the instant proceedings. We direct Mr. Gervais to inform us of the outcome of the said appeal within three days of the rendering of the final judgment by the Federal Court of Appeal.
- If the appeal from the Martineau judgment does not succeed, we will then proceed to rule on the trustees' third and fourth preliminary applications. If necessary, we would already have heard the evidence and submissions by counsel on these preliminary applications.
- Each copy of the decision on the trustees' preliminary applications signed by the Delegate is also valid and authentic and may serve for all legal purposes.
For All These Reasons:
The first preliminary application, to declare that the report and consequently the non-definitive stay of proceedings is null and void, is dismissed;
The second preliminary application, to stay the instant proceedings pending the final judgment of the Federal Court of Appeal on the Martineau judgment in cases T-75-04 and T-547-04, is allowed;
The third and fourth preliminary applications, namely the applications to disclose evidence and separate the disciplinary hearing, are stayed until the final judgment of the Federal Court of Appeal is rendered in the said cases T–75–04 and T-547-04.
Signed at Montréal, Quebec on .
Hon. Benjamin J. Greenberg, Q.C.
Alain N. Tardif
McCarthy, Tétrault, S.E.N.C.R.L., s.r.l.
Counsel for the Senior Analyst
Gervais & Gervais
Counsel for the trustees