Date: 20020719
Docket: T-1067-02
Neutral citation: 2002 FCT 806
BETWEEN:
SYDNEY H. PFEIFFER
and
PFEIFFER AND PFEIFFER INC.
Applicants
and
THE SUPERINTENDENT OF BANKRUPTCY
(MARC MAYRAND)
and
THE DEPUTY SUPERINTENDENT OF BANKRUPTCY
(ALAIN LAFONTAINE)
Respondents
REASONS FOR ORDER
BEAUDRY J.
[1] On July 17, 2002, I issued an Order that the Applicants' motion for an order suspending the effect of a conservatory measure imposed on them be dismissed. I indicated at that time that reasons would follow. The following are my reasons for that Order.
[2] The applicant Sydney H. Pfeiffer ("Pfeiffer") is a trustee in bankruptcy. Pfeiffer & Pfeiffer Inc. ("Pfeiffer Inc.") is a company controlled by Pfeiffer. Pfeiffer is the sole trustee, shareholder and director of Pfeiffer Inc. Pfeiffer Inc. and Pfeiffer are the Applicants for the purposes of this motion.
[3] On July 5, 2002, Blanchard J. granted an ex parte motion brought by the Deputy Superintendent of Bankruptcy (Programs, Standards and Regulatory Affairs) ("Deputy Superintendent") who, along with the Superintendent of Bankruptcy ("Superintendent"), is a respondent in this matter (the Deputy Superintendent and the Superintendent together are the "Respondents"). The Order authorized the Deputy Superintendent to access the Applicants' premises and information systems in order to inspect the business of the Applicants and to obtain information related to the accounts of the Applicants, including information which had previously been requested but which the Applicants had failed to provide.
[4] On the same date, the Deputy Superintendent exercised conservatory measures pursuant to s. 14.03 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (hereinafter "BIA"). Paragraph 14.03(1) as quoted below outlines the conservatory measures that can be taken by the Office of the Superintendent of Bankruptcy (the "Office"):
14.03 (1) The Superintendent may, for the protection of an estate in the circumstances referred to in subsection (2),
(a) 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;
(b) 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;
(c) 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
(d) 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). [je souligne]
14.03 (1) Pour assurer la sauvegarde d'un actif dans les circonstances visées au paragraphe (2), le surintendant peut_:
a) donner instruction à quiconque de s'occuper des biens de l'actif visé dans les instructions conformément aux modalités qui y sont indiquées, notamment d'en continuer l'administration;
b) donner instruction à quiconque de prendre les mesures qu'il estime nécessaires à la sauvegarde des livres, registres, données sur support électronique ou autre, et documents de l'actif;
c) donner instruction à une banque ou autre dépositaire de ne faire aucun paiement sur les fonds détenus au crédit de cet actif, si ce n'est conformément à l'instruction;
d) donner instruction au séquestre officiel de ne plus nommer le syndic en cause pour administrer de nouveaux actifs tant qu'une décision n'est pas rendue au titre des paragraphes 13.2(5) ou 14.01(1). [emphasis added]
[5] On July 10, 2002, the Applicants filed an Application for Leave and Judicial Review pursuant to s. 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7. The Applicants are essentially seeking to end the audit that the Office has been performing since May 1, 2002.
[6] On July 11, 2002, the Applicants filed the motion to which this Order relates. Specifically, the Applicants sought an Order suspending the direction issued by the Office pursuant to 14.03(1)(d), by which the Official Receiver was instructed not to appoint the Applicants, either individually or together, as trustees for any new files. The instruction is to remain in effect until a decision is rendered pursuant to 14.01 of the BIA, which essentially outlines sanctions that the Superintendent can impose upon a trustee in the event of the misconduct to which paragraphs (a) and (b) refer or if such sanctions are in the public interest.
[7] The basis for the arguments advanced both by the Applicants and by the Respondents is the test for the granting of stays introduced to Canada by the Supreme Court decision in Attorney General of Manitoba v. Metropolitan Stores (MTS) Ltd., [1987] 1 S.C.R. 110 (hereinafter "Metropolitan"). The Metropolitan decision was applied in the decision of Dubé J., as he then was, in Tremblay v. Canada (Superintendent of Bankruptcy), [1995] F.C.J. No. 1289 (Q.L.) (hereinafter "Tremblay"). Tremblay also dealt with a motion by a trustee in bankruptcy to suspend conservatory measures.
[8] Dubé J. in Tremblay outlines the relevant criteria as follows:
For all practical purposes, the same three tests apply to a motion for a stay as to one for an interlocutory injunction. First, is there a serious question to be tried? Second, has the applicant suffered irreparable harm? Third, does the balance of convenience [reference omitted] favour one party over the other? [emphasis added]
[9] As in Tremblay, the subject of the motion before this Court is more accurately characterized as an interlocutory injunction than a stay. It is not, strictly speaking, a stay, as the direction given to the Official Receiver is already being performed to the extent that the Applicants are currently not being appointed with respect to new files. What the Applicants request is a lifting of the ban on new files pending disposition of their judicial review application.
[10] I am willing to accept that there is a serious question to be tried. The alleged misconduct of the Applicants is an issue with serious implications in that the result of the investigation by the Respondents could lead to grave consequences for the Applicants. At a minimum, the issues which the Applicants seek to raise on judicial review are neither frivolous nor vexatious. The application for judicial review of the course of action of the Respondents raises issues that are serious enough to clear the first hurdle of the Metropolitan test, a criterion which is not an onerous one in any event.
[11] With respect to irreparable harm, the Applicants claim that they require new files in order to generate the revenue that they require in order to remain in business. Without the suspension of the conservatory order, the business of the Applicants will cease to operate.
[12] I do not accept their arguments in this regard. The record before this Court indicates that the Applicants are responsible for the administering approximately 1,050 bankruptcy files. This is roughly three times the average number of files administrated by a bankruptcy trustee in Canada.
[13] With such a large number of files charged to the Applicants, a proportionate amount of revenue must presumably have been received by them for assuming those files. If the revenue earned from the carriage of those files cannot cover the costs of administering those files, then that specific state of affairs cannot be said to have been caused by the conservatory measure.
[14] Furthermore, the administration by the Applicants of the files for which they were appointed prior to the issuance of the conservatory measure is accompanied by the responsibility that the Applicants have to the debtors and creditors associated with those files. The ban on new files does not relieve the Applicants of that responsibility; therefore, it is difficult for them to claim that they would be lacking work to do or that they could abdicate their duties to those for whom the files are administered simply by proceeding to cease operations.
[15] I am also of the view that my refusal to grant a suspension of the conservatory measure would not be the cause of irreparable harm in that much of the harm suffered by the Applicants would be due at least partially to circumstances under their control. Notwithstanding allegations with respect to their questionable record keeping and account management practices, to which I will allude in my discussion on the balance of convenience, the Applicants could conceivably have avoided, or at least delayed, the imposition of conservatory measures by taking a more cooperative approach to their dealings with the Office.
[16] The Applicants submitted that the operation of s. 215 of the BIA, which prohibits legal action from being taken against the Superintendent except with leave of the Court, may prevent them from seeking damages in the event that they wish to sue for losses caused by the Respondents. However, I am of the view that any harm that is occasioned by the continuation of the conservatory measure is reparable. Given the possibility that the leave required under s. 215 may be granted and that a subsequent action may result in an award of damages in favour of the Applicants, it cannot conclusively be said that the harm which the Applicants would suffer is irreparable.
[17] The balance of convenience clearly favours the Respondents. The Supreme Court developed its analysis in Metropolitan in its judgment in RJR - MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 (hereinafter RJR - MacDonald) with respect to all elements of the test for the granting of relief. Of note in RJR - MacDonald was the Court's observation that the onus of demonstrating irreparable harm to the public interest will be smaller than that of demonstrating irreparable harm to a private interest for the purpose of measuring the balance of convenience. Also of particular note was the reinforcement by the Court of the principle expressed in Metropolitan that in a case where a "suspension", as opposed to an "exemption" is being sought, public interest considerations will weigh more heavily (RJR - MacDonald at 346).
[18] In the motion before this Court, the public interest is in the ability of the Superintendent to carry out thorough investigations in order to police trustees and ensure the integrity of the administration of bankruptcy matters in Canada. When the public interest is viewed in light of the present case, it is as important to protect parties involved in future bankruptcy files from being affected by the alleged malpractice of the Applicants as it is to protect current clients of the Applicants by ensuring that their interests are not compromised by the assumption by the Applicant of new files pending the investigation.
[19] The most compelling factor which tilts the balance of convenience in favour of the Respondents is the conduct of the Applicants. The record indicates that the Applicants have altered some of the financial records which they were asked to produce and of which the Respondents ultimately had to retrieve true copies directly from financial institutions owing to the lack of cooperation on the part of the Applicants.
[20] An example of such discrepancies can be seen by comparing of statements from National Bank Financial Inc. provided by the Applicants (pp. 79, 80 and 81 of the Respondents' Record, Vol. 1) with copies of the same statements provided directly by that institution (pp. 82, 83 and 84 of the Respondents' Record, Vol. 1). It is evident that the Applicants were attempting to conceal information about the nature of the interests that they had in their portfolio holdings. Assets which have been pledged as collateral for margin loans to the Applicants have been represented as being owned by the Applicants without being charged with such pledges.
[21] In addition to discrepancies found in statements from financial institutions and manipulation of the internal records of the Pfeiffer Inc., the investigation by the Superintendent indicates a difference of over $1,000,000 between the amount that, according to the register kept by the Applicants, is supposed to be in the trust funds of the Applicants and the amount that in fact is currently present in those funds. There is clearly a public interest in limiting further opportunities for misconduct by the Applicants and for a thorough investigation of their past conduct.
[22] For the above reasons, I am of the view that this motion should be dismissed, costs in the cause.
(signed) Michel Beaudry
Judge
OTTAWA, Ontario
July 19, 2002
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1067-02
STYLE OF CAUSE : SYDNEY H. PFEIFFER
and
PFEIFFER AND PFEIFFER INC.
Applicants
and
THE SUPERINTENDENT OF BANKRUPTCY
(MARC MAYRAND)
and
THE DEPUTY SUPERINTENDENT OF BANKRUPTCY
(ALAIN LAFONTAINE)
Respondents
PLACE OF HEARING : Ottawa, Ontario
DATE OF HEARING : July 16, 2002
REASONS FOR ORDER : THE HONOURABLE JUSTICE BEAUDRY
APPEARANCES :
Aaron Rodgers FOR THE APPLICANTS
Robert Monette and
Patrick Vézina FOR THE RESPONDENTS
SOLICITORS OF RECORD :
Aaron Rodgers FOR THE APPLICANTS
Spiegel Sohmer
Montreal, Quebec
Morris Rosenberg FOR THE RESPONDENTS
Deputy Attorney General of Canada
Ottawa, Ontario