Samuel S. Lévy and Sam Lévy & Associés Inc. — December 19, 2003

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.

Canada
Province of Québec

In the Matter of Professional Discipline Proceedings under the Bankruptcy and Insolvency Act Respecting Sam Lévy & Associés Inc., a Corporate Licensed Trustee, and Sam Lévy, An Individual Licensed Trustee

I

Further to my interlocutory Decision given on December 4, 2003, in which I declared to have the necessary jurisdiction to hear and decide a motion made by the Respondents pour faire déclarer inopérants les articles 14.01, 14.02 et 14.03 de la loi sur la faillite et l'insolvabilité et pour arrêt de procédures, I proceeded to hear the motion on the merits on December 10 and 11, 2003. What follows, is my Decision on the motion.

The Respondents – their interests are identical and they are represented by the same counsel – allege, as the title of their motion suggests, that sections 14.01, 14.02 and 14.03 of the Bankruptcy and Insolvency Act ("Act") are, for a variety of reasons, unconstitutional, and that I should therefore hold them to be inoperative insofar as the proceedings now before me are concerned. Subsidiarily, and in the alternative, they argue that even if I were to find that the impugned sections are not unconstitutional, I should still, again for a variety of reasons, order a stay of proceedings.

As I said in my Decision, the Respondents' position may be summarized by saying that the procedural safeguards contained in the legislation are insufficient to guarantee a fair and equitable hearing. That being so, they (the trustees) should not be obliged to undergo a process which may result in the suspension or loss of their licenses. Their arguments are set out in great detail in paragraph of the motion, and I will deal with them, though not in the same order, in my analysis which follows.

Before I do so, however, and for a better understanding of what follows, it is necessary to reproduce the sections of the Act which the Respondents find offensive.

14.01

  • (1) [Decision affecting licence] Where, after making or causing to be made an investigation into the conduct of a trustee, it appears to the Superintendent that
    1. a trustee has not properly performed the duties of a trustee or has been guilty of any improper management of an estate;
    2. 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
    3. it is in the public interest to do so; the Superintendent may do one or more of the following:
    4. cancel or suspend the licence of the trustee;
    5. 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
    6. require the trustee to make restitution to the estate of such amount of money as the estate has been deprived of as a result of the trustee's conduct.
  • (1.1) [Application to former trustees] This section and section 14.02 apply, in so far as they are applicable, in respect of former trustees, with such modifications as the circumstances require.
  • (2) [Delegation] The Superintendent may delegate by written instrument, on such terms and conditions as are therein specified, any or all of the Superintendent's powers, duties and functions under subsection (1), subsection 13.2(5), (6) or (7) or section 14.02 or 14.03.
  • (3) [Notification to trustee] Where the Superintendent delegates in accordance with subsection (2), the Superintendent or the delegate shall
    1. where there is a delegation in relation to trustees generally, give written notice of the delegation to all trustees; and
    2. whether or not paragraph (a) applies, give written notice of the delegation of a power to any trustee who may be affected by the exercise of that power, either before the power is exercised or at the time the power is exercised.

14.02

  • (1) [Notice of proposed decision to trustee] Where the Superintendent intends to exercise any of the powers referred to in subsection 14.01(1), the Superintendent shall send the trustee written notice of the powers that the Superintendent intends to exercise and the reasons therefor and afford the trustee a reasonable opportunity for a hearing.
  • (2) [Procedure at hearing] At a hearing referred to in subsection (1), the Superintendent
    1. has the power to administer oaths;
    2. is not bound by any legal or technical rules of evidence in conducting the hearing
    3. shall deal with the matters set out in the notice of the hearing as informally and expeditiously as the circumstances and a consideration of fairness permit; and
    4. shall cause a summary of any oral evidence to be made in writing.
  • (3) [Record] The notice referred to in subsection (1) and, where applicable, the summary of oral evidence referred to in paragraph (2)(d), together with such documentary evidence as the Superintendent receives in evidence, form the records of the hearing and the records and the hearing are public, unless the Superintendent is satisfied that personal or other matters that may be disclosed are of such a nature that the desirability of avoiding public disclosure of those matters, in the interest of a third party or in the public interest, outweighs the desirability of the access by the public to information about those matters.
  • (4) [Decision] The decision of the Superintendent after a hearing referred to in subsection (1), together with the reasons therefor, shall be given in writing to the trustee not later than three months after the conclusion of the hearing, and is public.
  • (5) [Review by Federal Court] A decision of the Superintendent given pursuant to subsection (4) is deemed to be a decision of a federal board, commission or other tribunal that may be reviewed and set aside pursuant to the Federal Court Act.

14.03

  • (1) [Conservatory measures] The Superintendent may, for the protection of an estate in the circumstances referred to in subsection (2),
    1. direct a person to deal with property of the estate described in the direction in such manner as may be indicated in the direction, including the continuation of the administration of the estate;
    2. direct any person to take such steps as the Superintendent considers necessary to preserve the books, records, data, including data in electronic form, and documents of the estate;
    3. direct a bank or other depository not to pay out funds held to the credit of the estate except in accordance with the direction; and
    4. direct the official receiver not to appoint the trustee in respect of any new estates until a decision is made under subsection 13.2(5) or 14.01(1).
  • (2) [Circumstances] The circumstances in which the Superintendent is authorized to exercise the powers set out in subsection (1) are where
    1. an estate is left without a trustee by the death, removal or incapacity of the trustee;
    2. the Superintendent makes or causes to be made any investigation pursuant to paragraph 5(2)(e);
    3. the Superintendent exercises any of the powers set out in section 14.01;
    4. the fees referred to in subsection 13.2(2) have not been paid in respect of the trustee's licence;
    5. a trustee becomes insolvent;
    6. a trustee is convicted of an indictable offence or has failed to comply with any of the conditions or limitations to which the trustee's licence is subject; or
    7. a circumstance referred to in paragraph 13.2(5)(d) or (d) exists and the Superintendent is considering cancelling the licence under subsection 13.2(5).
  • (3) [Contents and effect of direction] A direction given pursuant to subsection (1)
    1. shall state the statutory authority pursuant to which the direction is given
    2. is binding on the person to whom it is given; and
    3. is, in favour of the person to whom it is given, conclusive proof of the facts set out therein.
  • (4) [Liability ceases on compliance] A person who complies with a direction given pursuant to subsection (1) is not liable for any act done by the person only to comply with the direction.

II

The first three points raised in the motion are basic and can be dealt with quickly.

100 (i)

Even though a trustee's license is granted by the state, and even though it is subjected to a number of administrative controls, a trustee is nonetheless a private professional, administering private funds for the benefit of private interests.

I accept what was said by Turgeon J.A. in Lavallée v. Gagnon, [1975] C.A. 601 (a unanimous judgment of the Quebec Court of Appeal in which I participated): a trustee's actions are of interest only to the creditors and to the debtor, in whose interest it is that the latter's goods are sold at the highest possible price.

100 (ii)

The revocation of a license or a permit issued by the state constitutes a judicial or quasi-judicial act, and this applies to the license of a trustee in bankruptcy.

I accept what was said by the Federal Court of Appeal in Blais v. Basford, [1972] F.C. 151: decisions to restrict or revoke a trustee's license are judicial or quasi-judicial in nature and therefore must be decided on that basis.

100 (iii)

When a person's right to exercise a profession is in issue, "une justice de haute qualité est en jeu."

I agree with this proposition.

100 (iv) to (xi) and (xiii) to (xvi)

I paraphrase the allegations: the Superintendent now combines the functions of investigator, prosecutor and judge and, objectively, this gives rise to an apprehension of bias; nor is it just that he (or she) is empowered to appoint a delegate, particularly where the latter may be replaced at will; the Superintendent's powers to order payments to cover the costs of the inquiry, raise serious questions; there are no criteria when or to whom the Superintendent may delegate his powers, leaving the matter uncertain; the power to remove a delegate should not be left to the person who named him (or her); in fact, the Superintendent himself has no security of tenure. All this and more infringes on the trustees' right to be tried by a truly impartial tribunal, as guaranteed by the Canadian Bill of Rights, S.C. 1960, c. 44, the Canadian Charter of Rights and Freedoms, and the dictates of natural justice.

These are serious arguments and they were discussed in detail at the hearing. The principal authority cited on the first of these propositions is the judgment of the Federal Court of Appeal in MacBain v. Lederman, [1985] 1 F.C. 856. This case dealt with proceedings under the Canadian Human Rights Act, S.C. 1976–77, c. 33, and the Court found that the provisions of subsection 1 and 5 of section 39 of that Act were inoperative against the Respondents. The reason, put briefly, was that the Commission (which had already adopted a report that the Respondents had engaged in discriminatory practices) appointed the members of the tribunal which would hear the complaint. In other words, as the Court said, "the Commission investigated, made findings of substantiation and then prosecuted the complaint." Worse still, "the very same Commission also appointed the Tribunal members who heard and decided the case adversely" to the applicants. Under those circumstances, there existed a reasonable apprehension of bias, and hence the Court's conclusion.

Counsel for the trustees suggest that the same reasons must, of necessity, apply to the case now before me. First, the Superintendent makes or causes to be made an investigation into the conduct of a trustee. Where it appears as a result of this investigation that the trustee has not properly performed his (or her) duties or otherwise fully complied with the Act, the Superintendent may do a number of things (set out in paragraphs (d), (e) and (f) of subsection 14.01(1)), including the cancellation or suspension of the trustee's license. However, where the Superintendent intends to exercise any of the powers set out in the paragraphs cited above, he must so advise the trustee and afford the latter "a reasonable opportunity for a hearing." Such a hearing (as indeed the prior investigation) may be carried out by the Superintendent himself or by a person or persons to whom he has delegated these powers (s. 14.01(2)).

Leaving aside for the moment the power to delegate, it is therefore possible, as provided for in sections 14.02 and 14.03 of the Act, for the Superintendent to investigate, decide that a sanction is in order, then hear what the trustee has to say, and ultimately rule on the case. Or, to put it more bluntly, the Superintendent can, under the law, combine the functions of investigator, prosecutor and judge. This, the trustees suggest, offends not only the Bill of Rights and the Charter, but also the dictates of natural justice.

Not surprisingly, counsel for the Senior Analyst take a different approach. While they accept, as they must, the Superintendent's powers discussed above, they argue that the issue cannot be decided in a "vacuum" and that one must look at the "reality" of the situation: the Superintendent, far from deciding everything himself, in the case now before us, delegated the investigation to someone else, and when he received the report which indicated that the trustees had not properly performed their duties, he delegated the next phase — the trial, if one may call it that — to another person, in this case myself. How, they ask, can there be a reasonable apprehension of bias, particularly where, as here, the Superintendent took care in his Instrument of Delegation to stress that, "in the interests of natural justice and of proceeding with the hearing of the trustees in a timely manner, it would be advisable to delegate certain of the adjudicative and associated conservatory measures, powers, duties and functions of the Superintendent to an independent jurist," and that, in fact, he so did?

With respect, the issue is not as simple as that, because where the Superintendent decides to delegate the adjudicative function, he has no predetermined criteria by which to make his choice. However, the evidence shows (Exhibit R-17) that, in the past, where the Superintendent chose not to conduct the hearing himself, the persons to whom he delegated these powers, were either practising lawyers or retired judges. I note that the Respondents do not in any way attack the integrity of these persons or of myself, but they do say that, in the words of Lamer J. in R. v. Généreux, [1992] 1 S.C.R. 259 at 286, "an informed and reasonable person would [not] perceive the tribunal as independent."

Not only, they say, does the Superintendent choose whomever he wishes, the person so appointed has no security of tenure even for the case to which he or she was appointed. A case in point is Laflamme (Exhibits R-9–R-15), where a delegate who had been named to hear the case against a trustee was removed, without reasons being given, before the completion of his mandate. (It is coincidental, but should be mentioned for the purpose of the record, that I was subsequently appointed to replace the delegate in question.)

I note that Laflamme was heard prior to the amendments to the Act which created the sections now impugned, and that hearings which might lead to the loss or suspension of a trustee's licence were then held by the Minister of Industry and Science or his or her delegate. Furthermore, the previous delegate's contract (Exhibit R-12) provided (in Article 7.1) that "Le Ministre peut, en donnant un avis écrit à l'Entrepreneur, arrêter ou suspendre l'exécution de la totalité ou de n'importe quelle partie ou parties des travaux." My contract, on the other hand (Exhibit R-3), provides, in Article 5.1, that "Her Majesty may, by written notice to the Contractor, terminate the work and the Superintendent may, by written instrument, revoke the delegation of such powers … where Her Majesty or the Superintendent concludes that the Contractor" has become incapacitated, has been guilty of misconduct, has failed in the proper execution of his obligations under the contract, or "has been placed, by conduct or otherwise, in a position that is incompatible with the due and proper execution of the Contractor's obligations under the contract."

While the conditions for dismissal set out above are not, perhaps, as clear as one might wish, they do give me a great deal more security than the Minister's contract gave to my predecessor, and this is relevant to the present discussion.

While the provisions of sections 14.01, 14.02 and 14.03 raise serious questions, I find that the accumulation of functions reposed in the Superintendent is not of a nature to cause "an informed and reasonable person" to conclude that a trustee will necessarily be deprived of his or her rights to a fair and impartial hearing. However, having said that, I also conclude that the application of these sections may, in fact, lead to an apprehension of bias. In other words, as the Quebec Court of Appeal said in Métivier v. Mayrand (October 30, 2003), once a decision is made that the sections in question are not intrinsically offensive, further consideration cannot take place "sans égard à la pratique établie." (I should point out that in Métivier the Court dealt only with sections 14.01 and 14.02. The point, however, remains the same.)

I respectfully adopt what was said by Dussault J.A. in Métivier:

[45] Pour ce motif, tout comme je l'ai fait pour le reproche de l'appelant à l'égard du cumul de fonctions prévu par les articles 14.01 et 14.02, je me limite à conclure que le reproche qu'il formule à l'égard de l'indépendance du surintendant aux fins de l'application de ces article ne justifie pas davantage de les déclarer inopérants parce qu'incompatibles avec l'alinéa 2e) de la Déclaration protégeant son droit à une audition devant un tribunal indépendant. Si, par hypothèse, les conditions d'embauche du délégué nommé en l'espèce ne lui garantissent pas l'indépendance requise … ce ne sont pas les article 14.01 et 14.02 qui devront être déclarés invalides. La Cour compétent devra tout simplement conclure que le processus quasi judiciaire en cause soulève une crainte raisonnable de partialité dans ce cas précis.

While there is no evidence by what process I was chosen to be the Superintendent's delegate, my terms of engagement provide that I can only be relieved of my functions for cause. True, the criteria set out in the contract are somewhat vague, but they do give me, as I noted before, greater security than the terms of engagement of the delegate in Laflamme.

I therefore conclude that at this stage of the proceedings the trustees have not demonstrated an apprehension of bias based on the accumulation of functions reposed in the Superintendent or on the mode by which his delegate was chosen.

III

(xii)

The trustees argue that the procedure set out in section 14.02(2) denies them the right to a fair hearing. For instance, the hearing officer, be it the Superintendent or his delegate, has no power to subpoena witnesses – a power found, for instance, in section 147 of the Quebec Code des professions, L.R.Q., c. C-26. Counsel for the Senior Analyst suggest this could be overcome by calling-in-aid the powers of the Federal Court. However, this is a point which I need not now decide since the issue has not at this stage arisen.

The trustees also suggest that paragraph 14.02(2)(b), which provides that the Superintendent "is not bound by any legal or technical rules of evidence in conducting the hearing." However, once again, having found that the sections in question do not intrinsically violate the Bill of Rights, the Charter or the dictates of natural justice, the procedure in the present case must be examined, and this cannot be done at this stage. That being so, the trustees are, of course, free to renew their application at the appropriate time and in the appropriate forum.

100 (xvii)

The trustees question the legality of the Superintendent's power, conferred on him in section 14.01(1)(f), to "require the trustee to make restitution to the estate of such amount of money as the estate has been deprived of as a result of the trustee's conduct." This, it is argued, is contrary to section 1(a) of the Bill of Rights which guarantees "the right of the individual to life, liberty, security of the person and enjoyment of property, and the right not to be deprived thereof except by due process of law." (Emphasis added.)

The record shows that the Senior Analyst may request an order for restitution. Should that be the case, I am prepared to entertain this issue at that time.

(xviii)

The point raised here concerns the provisions of section 14.03, which give the Superintendent the power to impose certain conservatory measures. Indeed, some measures of this kind have already been taken, but they are not in issue at this point.

Here too, should I be asked to invoke the provisions of this section, I am prepared to entertain this issue at that time.

V

While recent cases suggest that the paradigm appears to be shifting in favour of a wider or more liberal interpretation of the notion of apprehension of bias, the trustees have failed to demonstrate that a reasonable and informed person would, at this stage, fear that they will not be judged fairly.

The motion is dismissed and I order that the case be heard on the merits on the dates already arranged.

Addendum

I have a second motion before me. It asks me to rule on the burden of proof. Counsel for the Senior Analyst have already declared that they intend to follow the rule laid down by the Honourable Benjamin J. Greenberg, Q.C. in Sztern (Montreal, May 29, 2001) and by Marc Mayrand in Sheriff (Ottawa, September 3, 2002). I agree with what was said in these case and I propose to guide myself accordingly.

Toronto, December 19, 2003.

Hon. Fred Kaufman
Delegate


This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.

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