Date: 20010125
Docket: T-1600-99
OTTAWA, ONTARIO, JANUARY 25, 2001
BEFORE: J.E. DUBÉ J.
BETWEEN:
FRIEDMAN & FRIEDMAN INC.
and
HARRY BICK
Plaintiffs
and
MARC MAYRAND
in his capacity as Superintendent of Bankruptcy, and
MICHEL LEDUC
in his capacity as senior analyst and delegate
of the Superintendent of Bankruptcy
Defendants
ORDER
The application for judicial review is dismissed.
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
Date: 20010125
Docket: T-1600-99
BETWEEN:
FRIEDMAN & FRIEDMAN INC.
and
HARRY BICK
Plaintiffs
and
MARC MAYRAND
in his capacity as Superintendent of Bankruptcy, and
MICHEL LEDUC
in his capacity as senior analyst and delegate
of the Superintendent of Bankruptcy
Defendants
REASONS FOR ORDER
DUBÉ J.
[1] The plaintiffs filed an application for judicial review of an investigation conducted by the Superintendent of Bankruptcy and his report prepared pursuant to subsections 5(3) and 14.01(1) of the Bankruptcy and Insolvency Act ("the Act").[1]
1. Facts
[2] The plaintiffs acted as trustees in the bankruptcy of Pourvoirie J.B. Scott Inc. On March 19, 1997 the Quebec Superior Court allowed the plaintiffs' application for discharge and dismissed the objection filed by the Superintendent of Bankruptcy, represented by the defendant Marc Mayrand. The judgment was not appealed.
[3] In a letter dated November 12, 1997 the Superintendent indicated that he intended to hold an investigation pursuant to sections 10 et seq. of the Act into the administration of the bankruptcy. On June 4, 1998 the Superintendent served subpoenas on the plaintiffs, requesting their testimony in connection with the administration of the bankruptcy. The plaintiffs then filed in the Quebec Superior Court a motion to have the subpoenas quashed. The motion was granted on July 9, 1998 and this judgment was not appealed.
[4] On August 10, 1999 the defendant Michel Leduc, the Superintendent's delegate, wrote the plaintiffs informing them that he had held a disciplinary investigation and prepared a report recommending that disciplinary sanctions be taken against them and inviting them to discuss the facts raised and recommendations made before the hearing contemplated by subsection 14.02(1) of the Act. The plaintiffs accordingly filed the instant application for judicial review, alleging that the defendants had no jurisdiction to hold a disciplinary investigation and to take any disciplinary action whatever pursuant to sections 14.01 et seq. of the Act against the plaintiffs in respect of Pourvoirie J.B. Scott Inc.
2. Issues
[5] Was the plaintiffs' application for a writ of prohibition premature? Does an order to discharge the trustee made pursuant to subsection 41(8) of the Act have the effect of preventing the Superintendent of Bankruptcy from proceeding with an investigation or preparing a report pursuant to subsections 5(3) and 14.01(1) of the Act?
3. Plaintiffs' arguments
[6] The plaintiffs maintained that paragraph 18.1(3)(b) of the Federal Court Act authorizes the Court to prohibit or restrain any act or proceeding of the federal government, without the need to wait for an order or decision. The investigation held and the report prepared are part of a disciplinary process which could lead to sanctions against the plaintiffs and the report could have significant consequences for their rights. In these circumstances, the application for judicial review is not premature.
[7] The plaintiffs further maintained that as a consequence of the discharge judgment on March 19, 1997 and pursuant to subsection 41(8) of the Act, they were relieved of all liability for any act or omission in administering the property of the bankrupt and in relation to their conduct as trustee. In their submission, the defendants had no jurisdiction to hold a disciplinary investigation or to take any disciplinary action whatever against them in respect of the bankruptcy. Subsection 41(8.1) of the Act does not apply to the case at bar since it was not in effect at the time of the plaintiffs' discharge and does not apply retroactively.
4. Defendants' argument
[8] The defendants maintained that if there is no decision or order by the Superintendent of Bankruptcy the Court has no jurisdiction to hear the plaintiffs' application for judicial review and the latter is premature. Further, the application for a writ of prohibition is not admissible to stop the holding of the investigation since the latter has already been held and is over.
[9] The defendants further alleged that subsection 41(8) of the Act discharges the trustee in respect of any act done or default made by him in the administration of the property of the bankrupt, but does not in any way affect the Superintendent's powers of supervision of the conduct and discipline of the trustee pursuant to the provisions of sections 14.01 et seq. of the Act. The Superior Court's discharge order could only apply to the trustee's conduct in respect of third parties and any person having an interest in the bankruptcy. Subsection 41(8.1) of the Act does not apply to the case at bar and only clarifies the rule that the Superintendent has disciplinary jurisdiction over the conduct of trustees that transcends their discharge.
5. Analysis
(1) Basis of application for judicial review
[10] Subsection 18(1) of the Federal Court Act provides that:
18. (1) Subject to s. 28, the Trial Division has exclusive original jurisdiction
(a) to issue an injunction, writ of certiorari, writ of prohibition, writ of mandamus or writ of quo warranto, or grant declaratory relief, against any federal board, commission or other tribunal . . .
[11] It is section 18.1 which lays down the type of proceeding which can be the subject of judicial review. Subsection (3) reads as follows:
18.1 (3) On an application for judicial review, the Trial Division may [...]
. . . . .
(b) declare invalid or unlawful, or quash, set aside or set aside and refer back for determination in accordance with such directions as it considers to be appropriate, prohibit or restrain, a decision, order, act or proceeding of a federal board, commission or other tribunal.
[12] The Superintendent is a federal board, commission or other tribunal within the meaning of that subsection and so may be the subject of a writ of prohibition (NsC Diesel Power Inc. v. Canada (Superintendent of Bankruptcy)[2] and Re Armoires de cuisine de Montréal Ltée; Bank of Nova Scotia v. Perras, Fafard Gagnon Inc.).[3]
[13] In the case at bar, the parties admitted that no decision or order has yet been made against the plaintiffs as to whether the recommendations should be followed. At the same time, the defendants' report and investigation are undoubtedly administrative acts or proceedings subject to judicial review by this Court. It is of the very essence of this application for a writ of prohibition to be issued that it should prohibit the holding of proceedings initiated unlawfully even before a decision is rendered (Denis Lemieux, Le contrôle judiciaire de l'action gouvernementale).[4]
[14] The defendants relied primarily on subsection 18.1(2) of the Federal Court Act as a basis for arguing that the application is premature, since no decision or order has been rendered. The subsection in question reads as follows:
18.1 (2) An application for judicial review in respect of a decision or order of a federal board, commission or other tribunal shall be made within thirty days after the time the decision or order was first communicated by the federal board, commission or other tribunal to the Office of the Deputy Attorney of Canada or to the party directly affected thereby, or within such further time as a judge of the Trial Division may, either before or after the expiration of those thirty days, fix or allow.
[15] The argument is untenable. Subsection 18.1(2) only provides a formal deadline for filing an application for judicial review in cases in which the application is based on a decision or order. The provision does not rule out all recourse against an administrative proceeding or an administrative act. In the latter cases, the thirty-day deadline does not apply. However, an unreasonable deadline in filing an application could prevent the plaintiff from obtaining compensation (Friends of the Oldman River Society v. Canada (Min. of Transport)).[5]
[16] The investigation and report prepared by the defendant Leduc are part of a disciplinary process which could lead to sanctions against the plaintiffs and the report could have significant consequences for their rights. The plaintiffs do not have to wait to see whether the Superintendent's decision will be unfavourable to them, which would require them to apply for an order of certiorari. Accordingly, in such circumstances the application is not premature.
(2) Fundamental issue
[17] What is really at issue in the case at bar is the interpretation of subsections 41(8) and 14.01(1) of the Act.
[18] Subsection 41(8) of the Act read as follows at the relevant time:
41. (8) The discharge of a trustee discharges him from all liability
(a) in respect of any act or default made by him in the administration of the property of the bankrupt, and
(b) in relation to his conduct as trustee,
but any discharge may be revoked by the court on proof that it was obtained by fraud or by suppression or concealment of any material fact.
[19] Subsection 14.01(1) of the Act reads as follows:
14.01 (1) Where, after making or causing to be made an investigation into the conduct of a trustee, it appears to the Superintendent that
(a) a trustee has not properly performed the duties of a trustee or has been guilty of any improper management of an estate,
(b) a trustee has not fully complied with this Act, the General Rules, directives of the Superintendent or any law with regard to the proper administration of any estate, or
(c) it is in the public interest to do so,
the Superintendent may do one or more of the following:
(d) cancel or suspend the licence of the trustee;
(e) place such conditions or limitations on the licence as the Superintendent considers appropriate including a requirement that the trustee successfully take an exam or enrol in a proficiency course, and
(f) require the trustee to make restitution to the estate of such amount of money as the estate has been deprived of as the result of the trustee's conduct.
[20] The Court must determine whether the effect of the trustee's discharge under subsection 41(8) of the Act is to prevent the Superintendent from using subsection 14.01(1) of the Act to impose sanctions on the trustee.
[21] It should be noted that subsection (8.1) was added to section 41 of the Act shortly after the plaintiffs received their discharge. It reads as follows:
41 (8.1) Nothing in subsection (8) shall be construed to prevent an investigation or a proceeding in respect of a trustee under subsection 14.01(1).
[22] The subsection is not retroactive in effect and cannot be applied. Section 45 of the Interpretation Act[6] also states that the repeal or amendment of an enactment, in whole or in part, shall not create a presumption about the previous state of the law or a presumption of new law.
[23] Essentially, the plaintiffs maintain that the trustee's discharge is complete and that he cannot then be the subject of charges by the Superintendent (except in certain special cases such as fraud by the trustee). The courts have offered little clarification of the scope to be given to subsection 41(8) of the Act. In Gallo v. Beber,[7] the Ontario Court of Justice, General Division, said the following:
Although the Bankruptcy and Insolvency Act does provide for the revoking of the discharge of a trustee, there appears to be little or no authority on this point. One must theorize that part of the rationale for s. 41(8) of the Act is to protect a trustee after discharge in order to ensure certainty in the affairs of the trustee and to prevent a chilling effect of latter-day litigation. If trustees could be readily open to litigation after discharge, they might be less willing to undertake their tasks and they might conduct their affairs in a manner which might impair the effectiveness of the operation of the Bankruptcy and Insolvency Act. In logic, I can see little difference in the need of a receiver/manager to obtain some form of protection from the court, however, the nature and degree of that protection would not necessarily be the same as that for a trustee in the event of the applicant subsequently wishing to claim not being a party who had notice of the application for discharge as would take place under the Bankruptcy and Insolvency Act.
[24] The position of the defendants is entirely defensible. The defendant Mayrand maintained that subsection 41(8.1) of the Act only clarified the principle that the Superintendent has disciplinary jurisdiction over the conduct of trustees and that discharge from the administration of the assets in a bankruptcy does not have the effect of preventing the process contemplated by subsection 14.01(1) of the Act from going forward. The Superintendent is given the responsibility of supervising the proper administration of the bankruptcy shceme and matters to which the Act applies (subsection 5(2)). Further, he has responsibility for disciplinary action relating to the conduct of trustees.
[25] In view of the fact that the right to engage in the profession of trustee and bankruptcy is an exclusive one, the trustee must demonstrate the highest degree of professionalism and integrity in the administration of a bankruptcy. The trustee must comply with high standards of ethics, which are of great importance in maintaining public confidence in the implementation of the Act.
[26] It is in connection with this function of supervision and protection of the public interest that the Superintendent has his power to conduct investigations into the conduct of any trustee and to take the disciplinary action necessary when a trustee does not adequately perform his duties or does not observe the Superintendent's instructions regarding the administration of property or when it is in the interest of justice to do so (paragraph 5(3)(e) of the Act).
[27] The scope of sections 14.01 et seq. of the Act was considered by this Court in Groupe G. Tremblay Syndics Inc. v. Canada.[8] The following passage from the reasons of Tremblay-Lamer J. is relevant:
Sections 14.01, 14.02 and 14.03 of the BIA are part of a set of provisions whose essential purpose is the supervision of trustees' administration and conduct. In authorizing such supervision by the Superintendent, Parliament's primary aim is to protect third parties, whether they be debtors or creditors. The nature of the role played by trustees makes the existence of such rules necessary. Trustees act as fiduciaries and as such, as we have seen, they are responsible for administering property owned by others. For this reason, the duties and obligations of trustees in bankruptcy are highly regulated. Such trustees are subject to constant audits, by means of which the Superintendent assures himself of their integrity.
(My emphasis.)
[28] I consider that the defendants' position is consistent with the approach that should be taken in the case at bar. Although subsection 41(8) of the Act discharges the trustee from all liability in respect of any act or default in the administration of a bankrupt's property and in relation to his conduct as trustee, the subsection does not cover all the Superintendent's powers of supervision under sections 14.01 et seq. of the Act. It is the Superintendent who has the exclusive authority to issue trustee licences and to make the obtaining of such licences subject to certain conditions. In return for the privilege of exercising the profession of trustee, a trustee must demonstrate the highest degree of professionalism and integrity.
[29] As indicated by the defendant Leduc, the discharge order made by the Superior Court only affects the trustee's conduct in respect of third parties and any person who has an interest in the bankruptcy. Any other conclusion would ultimately amount to recognizing that the Superior Court has the power to place trustees in bankruptcy beyond the reach of any disciplinary sanction, and this would usurp the Superintendent's jurisdiction. It would be contrary to the public interest to allow a defaulting trustee to avoid disciplinary sanctions once the Superior Court has discharged him or her in respect of third parties and any persons having an interest in the bankruptcy. In my view, the new subsection 41(8.1) of the Act, though it does not apply in the case at bar, is consistent with this situation.
6. Disposition
[30] For these reasons, the application for judicial review is dismissed.
OTTAWA, Ontario
January 25, 2001
Certified true translation
Suzanne M. Gauthier, LL.L. Trad. a.
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT No.: T-1600-99
STYLE OF CAUSE: FRIEDMAN & FRIEDMAN INC. ET AL.
v. MARC MAYRAND ET AL.
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: December 13, 2000
REASONS FOR ORDER BY: DUBÉ J.
DATED: January 25, 2001
APPEARANCES:
Louis Georges Brunet for the plaintiffs
Rosemarie Millar for the defendant
(Marc Mayrand)
Robert Monette for the defendant
(Michel Leduc)
SOLICITORS OF RECORD:
Gagnon, Proulx et Brunet for the plaintiffs
Montréal, Quebec
Morris Rosenberg for the defendant
Deputy Attorney General of Canada (Marc Mayrand)
Ottawa, Ontario
Deblois & Associés for the defendant
Québec, Quebec (Michel Leduc)
[2] (1995), 34 C.B.R. (3d) 286.
[3] (1981), 39 C.B.R. (N.S.) 182.
[4] Denis Lemieux, Le contrôle judiciaire de l'action gouvernementale, CCH Publications Ltd., 1998, at p. 1952.
[6] R.S.C. 1985, c. I-21.
[8] [1997] F.C. 719, at 752.
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