Preliminary Decision: Robert Brochu, PriceWaterhouseCoopers Inc., Éric Métivier, Serge Morency, Serge Morency & Associés Inc.—October 15, 2002
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
made pursuant to the Bankruptcy and Insolvency Act
In the Matter of the Professional Conduct Of:
holder of a trustee licence for the province of Quebec
holder of a corporate trustee licence with an office in the city of Québec, province of Quebec.
and other parties concerned by the decision
holder of a trustee licence for the province of Quebec
holder of a trustee licence for the province of Quebec
Serge Morency & Associés Inc.
holder of a corporate trustee licence having an office in the city of Sainte-Foy, province of Quebec.
On July 4 last the undersigned communicated to the parties a preliminary decision by which it was held that:
- the hearing on the merits of the cases of Robert Brochu, PriceWaterhouseCoopers Inc. and Éric Métivier, Serge Morency and Serge Morency & Associés Inc. was to have taken place as soon as possible, notwithstanding the appeal from the decision of Godin J. in the Éric Métivier case;
- a joint hearing would be held regarding the actions of the trustees É. Métivier, R. Brochu, PriceWaterhouseCoopers Inc. (hereinafter referred as "Price") and S. Morency involved in the sale of the Auberge Jacques-Cartier;
- after receiving the written submissions of counsel for Price and R. Brochu regarding their preliminary arguments, a decision would be rendered on the advisability of holding a hearing devoted solely to those questions.
Counsel for either side, in accordance with their undertakings, sent me their written representations on these two preliminary arguments.
I indicated to counsel for Price and R. Brochu in a letter of September 24 that I saw no need to hold a hearing to dispose of their preliminary arguments and a decision would rendered on the basis of their written submissions.
The purpose of this decision is to decide the following two preliminary points:
- the Superintendent of Bankruptcy did not have the authority to have the actions taken by R. Brochu in July 1993 investigated, in view of the legislation applicable at that time;
- the Superintendent's delegate (that is the undersigned) did not have the necessary independence and impartiality to decide the question submitted to him.
Before dealing with these two objections, it is important to summarize the relevant facts so that the nature of the first objection can be clearly understood.
In October 1986 the limited partnership Auberge Jacques-Cartier enr. (hereinafter referred to as "A.J.C.l.p.") signed with Montreal Trust as trustee for the Bank of America of Canada a trust deed for all the assets of the Hôtel Le Roussillon in Québec.
Several years later, in February 1993, Montreal Trust served on the owner of the hotel, who was then experiencing financial difficulty, a sixty-day notice as he had not performed his obligations. A few weeks later the A.J.C.l.p. reacted by filing a notice of intention to make a proposal to its creditors, through the trustee Serge Morency & Associés Inc., who following a motion filed with the Registrar the following day was appointed interim receiver.
On March 19, 1993, at the request of Montreal Trust, the firm Price Waterhouse Ltd. was appointed joint interim trustee with the trustee and interim receiver Serge Morency.
In May 1993 the A.J.C.l.p. filed a proposal.
In May 1993 the trustee registered his ownership right in the real property register and on July 7 the A.J.C.l.p. made an assignment of its property to the trustee Serge Morency & Associés, retroactive to March 1, 1993. On July 13, 1993 an agreement containing a confidentiality clause was concluded between the trustee Serge Morency and Price, represented by Robert Brochu, agent for Montreal Trust. That agreement, which is central to the dispute, provided in clause 1.7:
The company Montreal Trust, through its agent Price, wishes to take possession as of this date of all the assets of the debtor affected by sureties created pursuant to the trust deed made by the debtor in favour of Montreal Trust, and Morency consents to voluntarily put Price in possession of its assets, including a hotel, in accordance with the following terms and conditions …
Among those conditions there is, in clause 2.5 of the said agreement, the following:
In consideration of the provisions of the preceding paragraph, and in particular in consideration of the equity resulting from the undertakings mentioned in the preceding paragraphs, Morency undertakes without requiring fees in an additional amount, to the amount of the surplus mentioned in the preceding paragraph, to conclude a deed of sale of all the debtor's assets with a purchaser which Price will bring forward for that purpose, unless Price wishes to sell its assets itself. Price will undertake the necessary action to this end to provide for the sale of its assets.
On July 23 following, Price sent the office of the Superintendent and the trustee Serge Morency & Associés Inc. the receiver's notice and an initial report in accordance with the requirements of the Act. That notice stated that Price had become receiver of the debtor's property, including the hotel and its equipment.
The following week, at the first meeting of the creditors, Serge Morency & Associés was confirmed as trustee of the assets. It was mentioned at that meeting that Price Waterhouse, Montreal Trust's agent, had taken possession of the hotel complex.
Finally, on July 21, 1994 the trustee Éric Métivier replaced Serge Morency & Associés in the matter and proceeded to sell the business on September 23 following.
The saga surrounding the sale of the hotel complex does not end there, but this summary should suffice to clarify the nature of the first preliminary point raised by counsel for Price and R. Brochu.
Did the Superintendent of Bankruptcy have the power in July 1993 to order an investigation into the actions taken by Price and R. Brochu in respect to the sale of A.J.C.l.p.?
Before answering the question, we should clarify the nature of the actions alleged against them. These are described in the investigation report filed by Michel Leduc on January 16, 2001:
PriceWaterhouse Coopers Inc. signed with the trustee Serge Morency & Associés Inc. an agreement by which the latter, although having no interest in the said property, undertook to act in the sale of the debtor's assets as a favour, in order to artificially give the sale of the said assets the appearance of a judicial sale, thereby contravening s. 247 of the Act.
PriceWaterhouse Coopers Inc. signed with Serge Morency & Associés Inc. an agreement which contained an unlawful clause inconsistent with the function of a bankruptcy trustee, thereby contravening s. 247 of the Act.
PriceWaterhouse Coopers Inc. asked the trustee Éric Métiver to intervene in the sale of the debtor's property when Price knew that the said trustee had no right to the assets, thereby contravening s. 247 of the Act.
At the time of the actions alleged against Price and R. Brochu the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended at November 20, 1992, provided in s. 5(3)(e) that the Superintendent shall:
from time to time make or cause to be made such inspection or investigation of estates as he may deem expedient and for the purpose of the inspection or investigation the Superintendent or any person appointed by him for the purpose shall have access to and the right to examine all books, records, documents and papers pertaining or relating to any estate …
In 1997 s. 5(3)(e) of the Bankruptcy and Insolvency Act was amended. It now provides that the Superintendent shall:
from time to time 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 and for the purpose of the inspection or investigation the Superintendent or any person appointed by the Superintendent for the purpose shall have access to and the right to examine and make copies of all books, records, data, including data in electronic form, documents and papers pertaining or relating to any estate or other matter to which this Act applies …
According to counsel for Price and R. Brochu the Superintendent's authority in 1993 was limited to investigating the conduct of persons acting as trustees. At that time s. 5(3)(e) did not give the Superintendent any power of investigation and inquiry regarding other persons concerned so long as they were acting in some other capacity, although holders of a trustee licence.
The effect of the fact that Price and R. Brochu had acted as trust agents in connection with the agreement signed with the trustee Morency was to exclude them from the Superintendent's jurisdiction as it stood at the time, as the investigation did not begin until September 1998, after the amendments were made to the Act.
Counsel then argued that the legislative amendment did not have a retroactive effect, that there was a presumption that legislation was not retroactive, especially legislation containing a penalty. The said counsel further argued that Parliament extended the Superintendent's jurisdiction by allowing him after 1997 to investigate the conduct of receivers or interim receivers. These new powers could not have retroactive effect, and consequently at the time the investigation began the Superintendent had no jurisdiction over the actions alleged against Price and R. Brochu.
In reply, counsel for the Superintendent based his argument on three points: he stated first that the Act, as worded in 1993, authorized the Superintendent to take action. He indicated that under the general powers of supervision and control of assets and the phrase "any matter to which this Act applies" contained in s. 5(2) of the Act, the Superintendent had the authority to take action.
He then relied on the "Trustee Licensing Policy" issued in 1989 and still in effect in 1993, under which a candidate for a trustee licence should demonstrate that he had a "good character and reputation" and that the issuing or renewal of a licence should in no way diminish "public confidence in the licensing process". Finally, he added that under s. 14.01 of the Act, revised in 1992, the Superintendent after investigating a trustee's conduct could take any of the measures mentioned in the section "where . . . it is in the public interest to do so".
Decision on first preliminary argument
I consider that before examining the question of the possible retroactivity of the new s. 5(3)(e) of the BIA it must be determined whether under the language of the Act, as it stood at the time the alleged actions were committed, the Superintendent could take action in such an area.
I have come to the conclusion that the Superintendent must have had such a power, as any other conclusion would lead to an absurdity.
The reasons which have led me to this conclusion are the following: first, the Superintendent of Bankruptcy is the first "administrative officer" appointed by the Governor in Council. The tasks he is given are important. It is his function to ensure that the BIA is applied and its purposes achieved. There are many persons involved in administering the Act: we think of trustees, official or interim receivers, as well as interveners, creditors, secured creditors, debtors and others. The Superintendent must ensure directly or through others that interests which are often divergent are reconciled. The decisions rendered have significant economic consequences for the individuals in question and even for society in general. It is with this in mind that we find in s. 5(2):
The Superintendent shall supervise the administration of all estates and matters to which this Act applies.
The phrase "matters to which this Act applies" must be given a liberal interpretation, as giving it a limiting interpretation would be contrary to the general scheme of the legislation.
In this regard, I recall the comments of Iacobucci J. in Rizzo & Rizzo Shoes Ltd., reported at  1 S.C.R. 40:
21. Although much has been written about the interpretation of legislation (see, e.g., Ruth Sullivan, Statutory Interpretation (1997); Ruth Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994) (hereinafter "Construction of Statutes"); Pierre-André Côté, The Interpretation of Legislation in Canada (2nd ed. 1990)), Elmer Driedger in Construction of Statutes (2nd ed. 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone. At p. 87 he states:
Today there is only one principle or approach, namely, the words of an Act ought to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Recent cases which have cited the above passage with approval include: R. v. Hydro-Quebec,  1 S.C.R. 213; Royal Bank of Canada v. Sparrow Electric Corp.,  1 S.C.R. 411; Verdun v. Toronto-Dominion Bank,  3 S.C.R. 550; Friesen v. Canada,  3 S.C.R. 103.
I also rely upon s. of the Interpretation Act, R.S.O. 1980, ch. 219, which provides that every Act "shall be deemed to be remedial" and direct that every Act shall "receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit".
The Superintendent is the "guardian" of the Act and of the implementation of this complex process set out by Parliament. In this regard, he enjoys and must enjoy considerable powers, as indicated by various provisions dealing with his authority. I cannot conceive that the powers which devolved on him under the legislation in effect in 1993 limited him to investigating only the actions of trustees, and not those of receivers or interim receivers. Price, the holder of a corporate trustee licence, acted in the sale of A.J.C.l.p. as interim receiver and as agent of Montreal Trust. Should it be outside the Superintendent's powers of investigation simply because it was acting at the time in a capacity other that of trustee? I do not think so. I agree with counsel for the Superintendent when he suggests that public confidence in the institution created by Parliament requires that the Superintendent be able to ensure that persons who are accredited to act in that institution act in ways that will not vitiate either their credibility or public confidence. In this connection, I have read with interest the decision by the Superintendent in McMahon. Although the context is quite different, the decision throws light on the latter's need to act when the public trust is involved. The ethical standards applicable to judicial officers, whatever their function, are high and the Superintendent has a duty and the authority to ensure that they are observed.
In view of all the foregoing, I do not have to rule on the question of the retroactivity of s. 5(3)(e) as it reads at this time.
Decision on second preliminary argument
According to counsel for Price and Brochu, I do not have the necessary jurisdiction to decide the question before me. According to their argument and the language of ss. 2(e) and 7 of the Canadian Charter of Rights and Freedoms, I do not have the necessary independence to decide such an issue. Counsel based their objections on the process of appointing and paying the undersigned.
It should be borne in mind that although their arguments apply only to my ability to determine the powers which the Superintendent had or did not have to investigate the instant matter, the reasoning would lead them to the same argument on my jurisdiction to decide the merits of the case.
I would like to refer on this point to the Supreme Court of Canada's decision last year in Ocean Port v. B.C. (Liquor Control),  2 S.C.R. 781. The Court unanimously held, per the Chief Justice, that the constitutional guarantees applicable to courts of law did not apply in the same way to administrative tribunals and that the intention of Parliament regarding the independence and flexibility it wished to give the latter should be respected. In this regard, we find the following:
24.… the degree of independence required of a particular tribunal is a matter of discerning the intention of Parliament or the legislature and, absent constitutional constraints, this choice must be respected.
32.… such tribunals span the constitutional divide between the judiciary and the executive. While they may possess adjudicative functions, they ultimately operate as part of the executive branch of government, under the mandate of the legislature. They are not courts, and do not occupy the same constitutional role as courts.
Further, this question was submitted to Yvon Godin of the Quebec Superior Court in a case involving the trustee Éric Métivier, also concerned in the sale of A.J.C.l.p. Godin J. concluded that the disciplinary process set out in the Bankruptcy and Insolvency Act was constitutional. In this connection, it states:
 In the case at bar, considering all the separation measures existing in the Superintendent's office, and after reviewing the operating method adopted by the Superintendent to give effect to ss. 14.01 and 14.02 of the Bankruptcy and Insolvency Act, the Court considers that a well-informed reasonable person would have no reasonable apprehension of bias.
 In these circumstances, taking into account the practice established by the office of the Superintendent of Bankruptcy for the hearing of investigations into the conduct of a trustee, the Court considers that the principles of natural justice and fundamental justice enshrined in the Canadian Bill of Rights and Canadian Charter of Rights and Freedoms have been observed.
Although that decision was appealed, with all due respect to the Court I would not conclude otherwise here.
In this situation, the second preliminary argument is also dismissed.
Jean-Claude Demers, Q.C.
Delegate of Superintendent of Bankruptcy
October 15, 2002
This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.
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