Segal & Partners Inc. and Todd Y. Sheriff (Ontario)—

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.

In the Matter of Professional Discipline Proceedings Under the Bankruptcy and Insolvency Act Respecting Todd Y. Sheriff, an Individual Licensed Trustee, ans Segal & Partners, Inc., a Corporate Licensed Trustee.

I

I have before me a motion by the Trustees which seeks:

  1. An Order permanently staying the proceedings herein;
  2. In the alternative, an Order:
    1. Adjourning the proceedings herein pending determination by the Federal Court of Canada of the Application for Judicial Review in Court File No. T-1687-02 which was heard on and ;
    2. Requiring the Senior Discipline Analyst ("SDA") to produce to the Delegate for review by the Delegate documents listed as numbers 1, 4, 5, 9, 10, 11, 14, 16 and 19 in the letter by counsel for the SDA dated , for determination with respect to waiver by the SDA of solicitor-client privilege with respect to these documents.
  3. Costs of this motion as determined by the Honourable Delegate.
  4. Such further and other relief as the Honourable Delegate may deem just in the circumstances.

At the hearing, which was held in Toronto on , counsel for the Trustees further moved for:

  1. An Order that:
    1. The SDA produce to the Delegate for review on the basis of waiver of solicitor client privilege, all six documents listed in Mr. Matte's letter to the Delegate dated ;
    2. The SDA create a list of all solicitor client privileged documents in the possession of the SDA and his or her solicitors with respect to any issue, advice or discussion with respect to disclosure or which otherwise in any way references questions of disclosure, prior and subsequent to the issuance of the second report.
    3. The SDA deliver to the Trustees a copy of the list referred to in (b) above;
    4. The SDA deliver to the Delegate copies of all documents listed in (b) above for review on the basis of waiver of solicitor client privilege.
    5. The SDA deliver to the Delegate copies of all documents listed in Mr. Matte's letters of and , for review by the Delegate on the basis of whether the documents contain any information which is not subject to solicitor client privilege.

II

This is the second time the Trustees have sought a stay of proceedings. The first request was made on , when the moving parties sought a stay "on the basis of a persistent pattern of conduct by the Senior Discipline Analyst … of failing to disclose material documents in this and a related discipline proceeding." The "related discipline proceeding" is a complaint made by the same Senior Discipline Analyst against the same parties, which was heard and decided by the Superintendent. In that case, the Superintendent found, inter alia, that "a breach of the duty to disclose to the trustees all relevant information available to the SDA" had occurred. But he also found that, despite this breach, he could not conclude, on a balance of probabilities, that his decision would have been different had the undisclosed evidence been communicated to the Trustees prior to the hearing of the case. This decision is currently the subject of the judicial review application which is referred to in paragraph 2(a) of the principal motion.

I dismissed the Trustees' first application for a stay of proceedings on , noting that the Senior Discipline Analyst, in an affidavit dated , had declared that she had complied with all requests for disclosure, even though some of the documents transmitted to the Trustees "have a lack of relevance to the matters in issue." Based on this information, I held that "I have no evidence before me at this point that any further undisclosed material exists." (Emphasis added.) As a result, applying the decision of the Supreme Court of Canada in Dixon v. The Queen (1998), 122 C.C.C. (3d) 1, I dismissed the motion, noting that the appropriate remedy, at trial, for failure to disclose relevant material is "an order for production or an adjournment."

I also noted that while the case before me involved the same parties as the case heard by the Superintendent, the motion had to "stand or fall on the particular evidence," and whatever may have occurred in the other case was not germane to the issue.

That was in . Yet, despite the SDA's assurance that full disclosure had been made, additional disclosure was sent to the trustees in , shortly before the date fixed for the commencement of the hearing on the merits. The Trustees submit that this new material "contains significant additional evidence with respect to the involvement of the SDA in the audit process." This may or may not be so — I have not examined the issue in detail — but, as the Trustees further submit, it heightens their fear that even now disclosure may not be complete. This, they suggest, has so undermined the integrity of the proceeds as to warrant a stay.

III

The history of the present proceedings shows that prior to the first motion for a stay (notice of which was given on ), disclosure was made on three separate occasions, at least once as a result of repeated requests by the Trustees, who had learned of the existence of undisclosed material in the course of their examinations in the case which is now before the Federal Court of Canada.

Now, in an affidavit dated , The Senior Discipline Analyst states:

3. It is true that in the context of the trustees' previous motion for a stay of proceedings, I indicated in my affidavit that all requests for disclosure had been fulfilled. This remains the case today and I am unaware of any requests for further documentation which have not been satisfied. … The latest production which was made was made voluntarily and not in response to any request.

The Senior Discipline Analyst further states:

5. However, recently, and in preparation for the hearing, we reviewed a selection of my e-mails that pertain to the trustees, and the Report, and which predated the issuance thereof. As a result of this review, certain emails which were not subject to privilege were provided to the trustees under cover of letter dated , addressed to counsel for the trustees.

The Trustees acknowledge that they cannot point to any particular item which should have been disclosed and which was not. But, they argue, they do not know what further material may be in the SDA's hands, and even though we have her affidavit dated , given the history of the two cases — and I shall return to that in a moment — they are forced to remain doubtful whether full disclosure has, in fact, been made.

As noted before, in my Decision dated , I held that the two cases — this and the "related proceedings" — are separate in law and cannot, therefore, be considered together. "Each case," I then said, "must stand or fall on the particular evidence," and I proceeded to rule according to the evidence before me. Now, however, the Trustees argue that their lack of confidence in the SDA's assertions that full disclosure has been made must be judged not only on the facts as I know them to be in this case, but on the totality of their experience with the adverse party. And that is where the first case enters.

Under normal circumstances I would give little weight to this type of argument, particularly where the record contains a sworn statement by the person best able to say whether full disclosure has been made. But — and I now reach back to the case before the Superintendent — the Trustees were burnt once (if I may put it that way), and I can understand their concern that similar conditions may exist in the case now before me. Indeed, disclosure seems to keep on coming, although I must bear in mind the SDA's assertion that some of the most recent items disclosed may not, in fact, be relevant or required. Nevertheless, the facts leave me uneasy.

IV

The history of the first case is set out in some detail in my Decision dated , and I do not intend to repeat what I then said. Nor is it necessary to go beyond what I said above to put into focus the situation as it exists today.

The question is: Do these facts give rise to the relief sought by the Trustees? And, should I find that they do, do I have the power to grant this relief?

The charges brought against the Trustees by the SDA are set out in a Report dated . They are the result of a Special Audit which sampled 15 estates and which disclosed (according to the auditor) "deficiencies with respect to the verification Statements of Affairs, propriety of costs, administration of Proofs of Claim, administration of bankruptcy and proposal estates, including several issues with respect to control over the operation of the practice which have affected the administration of estates and contributed to the misappropriation of estate funds." As noted by the SDA (in paragraph 10), "In certain instances, individual issues could, when considered on their own, be regarded as relatively minor. However, the cumulative effect of the documented deficiencies indicates a very serious lack of internal control and administrative competence."

Obviously, the gravity — or even veracity — of these allegations cannot be determined without a hearing, but it is fair to say that even without minimizing the cumulative effect, the deficiencies alleged are not of the most serious kind. This is a relevant factor in the equation. So is the fact that the Trustees' very right to continue their profession is at stake.

The right to disclosure in disciplinary proceedings is no longer in doubt, and I refer in particular to the judgment of Boyd J. in Milner v. Registered Nurses Assn. of British Columbia, [1999] B.C.J. No. 2743, and the cases cited therein. While defence counsel's diligence enters the picture, counsel cannot be expected to request disclosure of every document. The onus rests with the person who has the duty to disclose: James T. Casey, The Regulation of Professions in Canada, 8-24.

While the rules differ at the appellate stage, it is appropriate to note what the Supreme Court of Canada said in part in R. v. Dixon, [1998] 1 S.C.R. 244 at 264: undisclosed information may not only impair the right to full answer and defence because of the content of the information, but also because it may deprive the defence of realistic opportunities to explore possible uses of the undisclosed information for purposes of investigation and gathering evidence. That is precisely the fear expressed by the Trustees before me: what if there is more material which would help us prepare a proper and complete defence.

As I said on , quoting Dixon, the appropriate remedy for failure disclose is, at trial, "an order for production or an adjournment." But I cannot make such an order where the SDA assures me (as she had once before) that no further documents exist which should be disclosed, and where the defence cannot point to the existence of such material. In many respects, therefore, this case is somewhat unique because the motion to stay the proceedings is based on the Trustees' apprehension that justice can no longer be done: they have lost confidence in the process.

Having studied both records, I understand their concern. But do the circumstances warrant a stay of proceedings?

As the Supreme Court said in R. v. Taillefer; R. v. Dugay, [2003] S.C.J. No. 75, a stay of proceedings should only be granted in the clearest of cases. Is this such a case? At best, it is borderline, but when I balance the interests of the Trustees and the interests of the state in having the alleged misconduct punished, I find the scale tips in favour of the Trustees. The violations with which they are charged are not of the most serious kind. They have a judgment of the Superintendent attesting that they had not received full disclosure in a related case. They were assured in the present case that disclosure was complete, only to receive further disclosure at a later date. The integrity of the process is put in question, and so is their right and ability to make full answer and defence. In my respectful view, their application should succeed.

But do I have the power to grant the remedy sought? The Trustees say I do. This is strongly contested by the SDA.

My colleague, the Honourable Benjamin J. Greenberg, Q.C., in Laperrière v. Pfeiffer et al. (Montreal, ), held that he had no jurisdiction to grant a stay of proceedings "since to do so would be a refusal to exercise his jurisdiction under the ACT and his delegation." With respect, I do not agree. Nor do I feel bound by what was said by the Federal Court of Appeal in Re Anheuser-Busch, Inc. and Carling O'Keefe Breweries of Canada Ltd. et al. (1982), 142 D.L.R. (3d) 548 at 554: "The power to grant a stay of any proceedings before the Registrar [of Trade Marks] must be found either in the Trade Marks Act or in the regulations promulgated thereunder through express language or through an "undeniable implication."

The law governing stays has evolved since then. And, in any case, I am confident that the wording of the Bankruptcy and Insolvency Act gives me the necessary power.

Therefore, for the reasons set out above, the Trustees' principal motion is granted and the proceedings initiated against them by the Senior Discipline Analyst are stayed.

I wish to make one further comment. Nothing that is said above in any way calls in question the integrity of the Senior Discipline Analyst or her counsel and other advisors. I have no doubt that she carried out her duties to the best of her knowledge and ability. But the law of disclosure is strict and must be applied to the fullest. I also wish to thank all counsel for their assistance throughout.

Given in Toronto, .

The Honourable Fred Kaufman, C.M., Q.C.
Delegate

Counsel for the Senior Discipline Analyst: Allan Matte, Industry Canada Legal Services.
Counsel for the Trustees: Craig R. Colraine and Joanna Birenbaum, Birenbaum, Steinberg, Landau, Savin & Colraine LL.P.


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

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