r v. GEORGES MARCIANO, 2012 QCCA 1881

Marciano (Séquestre de) 2012 QCCA 1881 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-022220-115 (500-11-041322-112) DATE: October 23, 2012 CORAM: THE HONOURABLE ANDRÉ ROCHON, J.A. PIERRE J. DALPHOND, J.A. NICHOLAS KASIRER, J.A. IN RE: GEORGES MARCIANO JOSEPH FAHS STEVEN CHAPNICK ELIZABETH TAGLE APPELLANTS – Creditors/Respondents DAVID GOTTLIEB APPELANT – Foreign Representative/Respondent PRICEWATERHOUSECOOPERS INC. APPELLANT – Receiver/Interim Receiver v.

GEORGES MARCIANO MICHEL BENSMIHEN, in his capacity as Trustee for the CKSM Family Trust 9204-7570 QUÉBEC INC. 9211-9882 QUÉBEC INC. 9213-4568 QUÉBEC INC. RESPONDENTS – Co-Petitioners JUDGMENT [ 1 ] On appeal from a judgment of the Superior Court, District of Montreal, rendered on December 8, 2011 (the Honourable Mr. Justice Mark Schrager) granting respondents' motions to review, rescind and vary various orders rendered ex parte under the Bankruptcy and Insolvency Act , R.S.C. 1985, c.

B-3. [ 2 ] For the reasons of Dalphond, J.A., with which Rochon and Kasirer, JJ.A. agree; THE COURT: [ 3 ] ALLOWS the appeal, without costs; [ 4 ] SETS ASIDE paras. 197 to 216 and replaces them by the following: [197] GRANTS in part the Motion to Review, Rescind and Vary Various Orders Rendered pursuant to the Bankruptcy and Insolvency Act of Georges Marciano; [198] GRANTS in part the Motion to Quash the Issuance of a Search Warrant and Authorization to Seize the Property of the Debtor, to Rescind and Dismiss Orders and for the Issuance of Safeguard Orders of Michel Bensmihen, ès qualités of trustee of the C.K.S.M.

Trust, 9204-7570 Québec Inc., 9211-9882 Québec Inc. and 9213-4568 Québec Inc.; [199] RESCINDS the following orders, issued by Justice Chantal Corriveau dated September 15, 2011 : 1. Paras. 9, 10 and 13 of the judgment on the motion for the Recognition of a main Foreign Proceeding and replaces paras. 11 and 12 by the following: [11] APPOINTS PWC as interim receiver of Georges Marciano's property located in Canada; [12] EMPOWERS PWC to seize any moveable assets that belong or could have been under the control of Marciano and that could

easily be moved or otherwise disposed of, and RESERVES to PWC the right to apply to this Court for any further orders that may be necessary or appropriate to protect the rights of Marciano's creditors; 2. Paras. 8 and 9 of the judgment on the motion for the Issuance of a search warrant and the authorization to seize property of the Debtor; 3.

All orders made further to the motion for an Interim Receiver. [200] QUASHES all seizures of immovables made in virtue of the Warrant of Search and Seizure dated September 15, 2011, the Second Warrant of Search and Seizure dated September 16, 2011 and the Amended Second Warrant of Search and Seizure dated September 16, 2011 and; [201] GRANTS mainlevée of all of the seizures practiced in the present record of all immovable property and more specifically, with regard to the following: «

a) La fraction de l'immeuble détenu en copropriété divise ayant front sur la rue St-Jacques, en la ville de Montréal, province de Québec, comprenant : - La

partie privative (unité résidentielle) connue et désignée comme étant le lot numéro TROIS MILLIONS QUATRE CENT DOUZE MILLE SEPT CENT CINQUANTE-SEPT (3 412 757) du cadastre du Québec, circonscription foncière de Montréal; - La quote part afférente à ladite

partie privative dans la

partie commune et connue et désignée comme étant le lot numéro TROIS MILLIONS QUATRE CENT DOUZE MILLE SEPT CENT CINQUANTE-SIX (3 412 756) du cadastre du Québec, circonscription foncière de Montréal. Le tout tel qu'établi à la déclaration de copropriété publiée au bureau de la publicité des droits de la circonscription foncière de Montréal sous le numéro 13 061 075. Avec la bâtisse dessus érigée portant le numéro 262, Saint-Jacques, Montréal, province de Québec, H2Y 1N1 . »

b) « Un certain emplacement ayant front sur la rue Saint-Paul est dans la Ville de Montréal, province de Québec, connu et désigné comme composé du lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE HUIT CENT DIX-NEUF (1 181 819) du cadastre du Québec, circonscription foncière de Montréal, avec les bâtisses dessus érigées notamment celle portant le numéro 320, rue Notre- Dame Est, Ville de Montréal, province de Québec, H2Y 1C7 . »

c) « Un certain emplacement ayant front sur la Place d'Armes dans la Ville de Montréal, province de Québec, connu et désigné comme composé du lot numéro UN MILLION CENT QUATRE-VINGT MILLE NEUF CENT QUARANTE-ET-UN (1 180 941) et de la moitié indivise (1/2) du lot numéro UN MILLION CENT QUATRE-VINGT MILLE NEUF CENT TRENTE-NEUF (1 180 939) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse dessus érigée portant le numéro 501-507, Place d'Armes, Ville de Montréal, province de Québec H2Y 2W8 . »

d) « Un certain emplacement situé sur la Place Jacques Cartier, dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE SIX CENT TRENTE-HUIT (1 181 638) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse dessus érigée portant les numéros 444-454 Place Jacques Cartier, Ville de Montréal, province de Québec, H2Y 3C3 . »

e) « Un certain emplacement situé sur la rue Saint-Paul est dans la Ville de Montréal, province de Québec, connu et désigné comme composé du lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE HUIT CENT ONZE (1 181 811) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse de cinq étages dessus érigée portant les numéros 281 et 295 rue Saint Paul est, Ville de Montréal, province de Québec H2Y 1H1 . »

f) « Un certain emplacement ayant front sur la rue Saint-Paul est dans la Ville de Montréal, province de Québec, connu et désigné comme composé du lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE NEUF CENT QUATRE (1 181 904) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse de cinq étages dessus érigée portant les numéros 262 et 264 rue Saint Paul est, Ville de Montréal, province de Québec H2Y 1G9 . »

g) « Un certain emplacement situé sur la Place Jacques Cartier, dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE SIX CENT QUARANTE (1 181 640) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse dessus érigée portant les numéros 438 à 442 Place Jacques Cartier, Ville de Montréal, province de Québec H2Y 3B3 . »

h) « Un certain emplacement ayant front sur la rue Notre-Dame ouest dans la Ville de Montréal, province de Québec, connu et désigné comme étant les lots numéros UN MILLION CENT QUATRE-VINGT MILLE NEUF CENT CINQUANTE-HUIT (1 180 958) et TROIS MILLIONS DEUX CENT QUARANTE QUATRE MILLE SIX CENT QUATRE-VINGT-SEPT (3 244 687) du cadastre du Québec, circonscription foncière de Montréal, avec l'immeuble ci-dessus érigé portant l'adresse 11 – 21, rue Notre-Dame ouest, Ville de Montréal, province de Québec H2Y 1S5 . »

i) « Un certain emplacement situé sur la rue de la Commune Ouest, dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE DEUX CENT SOIXANTE-ET-ONZE (1 181 271) du cadastre du Québec, circonscription foncière de Montréal, avec l'immeuble dessus érigé portant les numéros 109, 111, 115, 117 et 119, rue de la Commune Ouest et 115, rue de la Capitale, Ville de Montréal, province de Québec H2Y 2C7 . »

j) « Un certain emplacement situé sur la rue de la Commune Ouest, dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE DEUX CENT SOIXANTE-TROIS

(1 181 263) du cadastre du Québec, circonscription foncière de Montréal, avec la bâtisse dessus érigée portant le numéro 133, rue de la Commune Ouest, Ville de Montréal, province de Québec H2Y 2C7 . »

k) « Un certain emplacement situé sur la rue Notre-Dame ouest dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT MILLE SEPT CENT QUATRE-VINGT QUATORZE (1 180 794) du cadastre du Québec, circonscription foncière de Montréal, avec l'immeuble ci-dessus érigé portant les numéros 200-212, rue Notre- Dame ouest, Ville de Montréal, province de Québec H2Y 1T3 . »

l) « La fraction de l'immeuble détenu en copropriété divise situé dans la Ville de Montréal (Arrondissement Ville-Marie) comprenant : - La

partie privative connue et désignée comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE SEPT CENT QUATRE-VINGT-HUIT (1 181 788) du cadastre du Québec, circonscription foncière de Montréal, correspondant à l'appartement dont l'adresse est le 428 Place Jacques Cartier, Ville de Montréal, province de Québec, H2Y 3B3 ; - La quote part afférente à ladite

partie privative dans les parties communes connues et désignées comme étant les lots numéros UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-NEUF (1 285 169), UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-DIX (1 285 170) et UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-ET-ONZE (1 285 171) du cadastre du Québec, circonscription foncière de Montréal, Le tout tel qu'établi à la déclaration de copropriété publiée au bureau de la publicité des droits de la circonscription foncière de Montréal sous le numéro 3 913 667 telle qu'amendée aux termes de l'acte publié à Montréal sous le numéro 5 242 571. »

m) « Un certain emplacement situé sur la rue Notre-Dame ouest dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT MILLE NEUF CENT QUARANTE-SIX (1 180 946) du cadastre du Québec, circonscription foncière de Montréal, avec l'immeuble ci-dessus érigé portant le numéro 60 rue Notre-Dame ouest, Ville de Montréal, province de Québec H2Y 1S6 . »

n) « Un certain emplacement situé sur la rue Notre-Dame ouest dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT MILLE NEUF CENT QUARANTE-SEPT (1 180 947) du cadastre du Québec, circonscription foncière de Montréal, avec les bâtisses ci-dessus érigées notamment celle portant les numéros 54 et 56 rue Notre-Dame ouest, Ville de Montréal, province de Québec H2Y 1S6 . »

o) « Un certain emplacement ayant front sur la rue Saint-Jacques ouest dans la Ville de Montréal, province de Québec, connu et désigné comme étant le lot numéro UN MILLION CENT QUATRE-VINGT MILLE SIX CENT TRENTE-SEPT (1 180 637) du cadastre du Québec, circonscription foncière de Montréal, avec l'immeuble ci-dessus érigée portant les adresses 249-251, rue Saint- Jacques, Ville de Montréal, province de Québec H2Y 1M6

p) « La fraction de l'immeuble détenu en copropriété divise situé dans la Ville de Montréal (Arrondissement Ville-Marie) comprenant : - La

partie privative connue et désignée comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE SEPT CENT QUATRE-VINGT-SEPT (1 181 787) du cadastre du Québec, circonscription foncière de Montréal, correspondant à l'appartement dont l'adresse est le 422 Place Jacques Cartier, Ville de Montréal, province de Québec, H2Y 3B3 ; - La quote part afférente à ladite

partie privative dans les parties communes connues et désignées comme étant les lots numéros UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-NEUF (1 285 169), UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-DIX (1 285 170) et UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-ET-ONZE (1 285 171) du cadastre du Québec, circonscription foncière de Montréal, Le tout tel qu'établi à la déclaration de copropriété publiée au bureau de la publicité des droits de la circonscription foncière de Montréal sous le numéro 3 913 667 telle qu'amendée aux termes de l'acte publié à Montréal sous le numéro 5 242 571. »

q) « La fraction de l'immeuble détenu en copropriété divise situé dans la Ville de Montréal (Arrondissement Ville-Marie) comprenant : - La

partie privative connue et désignée comme étant le lot numéro UN MILLION CENT QUATRE-VINGT-UN MILLE SEPT CENT QUATRE-VINGT-NEUF (1 181 789) du cadastre du Québec, circonscription foncière de Montréal, correspondant à l'appartement dont l'adresse est le 424 Place Jacques Cartier, Ville de Montréal, province de Québec H2Y 3B3 ; - La quote part afférente à ladite

partie privative dans les parties communes connues et désignées comme étant les lots numéros UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-NEUF (1 285 169), UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-DIX (1 285 170) et UN MILLION DEUX CENT QUATRE-VINGT-CINQ MILLE CENT SOIXANTE-ET-ONZE (1 285 171) du cadastre du Québec, circonscription foncière de Montréal, Le tout tel qu'établi à la déclaration de copropriété publiée au bureau de la publicité des droits de la circonscription foncière de Montréal sous le numéro 3 913 667 telle qu'amendée aux termes de l'acte publié à Montréal sous le numéro 5 242 571. » [202] ORDERS the cancellation of all inscriptions of such immovable seizures from the Index of Immovables; [203] ORDERS Joseph Fahs, Steven Chapnick and Elizabeth Tagle to return any and all documents and computer hard discs seized in any form, and not to retain copies of any such documents or computer records, in any form; [204] ORDERS PricewaterhouseCoopers Inc. to render account of any and all receipts and disbursements of any business interests in

their possession or under their control or surveillance as Interim Receiver in this file since September 15, 2011; [205] RESERVES the rights and recourses of Georges Marciano, Michel Bensmihen ès qualités of Trustee to the C.K.S.M. Trust, 9204- 7570 Québec Inc., 9211-9882 Québec Inc. and 9213-4568 Québec Inc. to return to this Court for supplemental orders as may be necessary to give effect hereto; [206] ORDERS provisional execution of this judgment notwithstanding appeal; [207] THE WHOLE with costs against Joseph Fahs, Steven Chapnick and Elizabeth Tagle, solidarily. ANDRÉ ROCHON, J.A. PIERRE J. DALPHOND, J.A.

NICHOLAS KASIRER, J.A. Mtre Bernard Boucher Mtre Réal A. Forest Mtre Caroline Dion BLAKE, CASSELS & GRAYDON For the appellants (Joseph Fahs, Steven Chapnick, Elizabeth Tagle and David Gottlieb) Mtre Martin Desrosiers Mtre Alexandre Fallon OSLER, HOSKIN & HARCOURT For the appellant (Pricewaterhousecoopers inc.) Mtre Jean-Yves Fortin Mtre Hubert Sibre Mtre Mélanie Martel DAVIS For the respondent Georges Marciano Mtre Mortimer G. Freiheit Mtre Marion Soumagne FREIHEIT LEGAL INC. For the respondent Michel Bensmihen Mtre C.

Jean Fontaine Mtre Pierre-Paul Daunais STIKEMAN ELLIOTT For the respondents (9204-7570 Québec inc., 9211-9882 Québec inc. and 9213-4568 Québec inc.) Date of hearing: March 28, 2012 REASONS OF DALPHOND, J.A. [ 5 ] These reasons deal with an appeal by three US creditors, a US trustee and a Canadian receiver from a judgment rendered by Mr. Justice Mark Schrager of the Quebec Superior Court on December 8, 2011, granting respondents' motions to review, rescind and vary various orders rendered ex parte by Madam Justice Chantal Corriveau under the Bankruptcy and Insolvency Act , R.S.C. 1985, c.

B- 3 (BIA). [ 6 ] This appeal raises the issues of the conduct of a party applying for an order ex parte and of the power of the Superior Court to review and rescind its orders under the BIA , as well as the effect in Canada of foreign civil judgments condemning a party to pay millions of dollars in non-pecuniary damages that are enforceable notwithstanding appeal and of a foreign bankruptcy judgment obtained to compel the execution of these civil judgments.

THE FACTS [ 7 ] Respondent Georges Marciano is a wealthy businessman. He estimates his net worth at about US$175,000,000. Marciano's de facto spouse is a Montreal native. Between 2006 and 2009, he acquired 18 buildings in Old Montreal, including a boutique hotel.

Currently a Montreal resident, he has brought with him from California various moveable items, such as luxury cars worth $3,225,000, a collection of jewellery and watches worth $30,736,821, and an art collection (paintings and sculptures) worth $36,205,953. [ 8 ] In August 2007, while a California resident, he sued five former employees, in Los Angeles Superior Court including the appellants Joseph Fahs, Steven Chapnick and Elizabeth Tagle ("Fahs et al."), for embezzlement and related claims (L.A. Sup. Ct Case No. BC375824).

He also filed complaints against them with the local police, the FBI and the tax authorities. He claimed from them about US$400,000,000 in total. The employees filed cross-complaints in which they claimed damages for defamation and intentional infliction of emotional harm. During the proceedings, Marciano often changed attorneys and failed to comply with various discovery obligations. At one point, a judge concluded that he had committed an abuse of process, which led to the

summary dismissal of his complaint and of his answers to all of the cross-complaints and the authorization to cross-complainants to proceed by default (called in California "terminating sanctions"). An ex parte prove-up hearing took place in front of an advisory civil jury which in July 2009 rendered five identical verdicts of US$74,000,000 for future economic loss, moral and punitive damages, significantly in excess of the amounts sought, totalling US$370,000,000.

Later, the awards were reduced as follows by the trial judge so as to not exceed the amounts claimed by the cross-complainants in their proceedings: Joseph Fahs US$55,000,000 (instead of US$74,044,000 including US$5 million in punitive damages) Steven Chapnick US$25,000,000 (instead of US$74,044,000 including US$5 million in punitive damages) Elizabeth Tagle US$15,300,000 (instead of US$74,044,000 including US$5 million in punitive damages ) Miriam Choi US$55,000,000 (instead of US$74,044,000 including US$5 million in punitive damages) Camille Abat US$55,000,000 (instead of US$74,044,000 including US$5 million in punitive damages) These Los Angeles Superior Court judgments total US$205,300,000. [ 9 ] In separate proceedings instituted in 2008, Marciano also sued his former tax accountant, Gary Iskowitz and two related parties for considerable amounts.

The defendants later filed cross-complaints for emotional harm and defamation (L.A. Sup. Ct Case No. BC384493). On August 26, 2009, Marciano's claim was summarily dismissed and subsequently the cross-complainant Iskowitz was awarded US$45,000,000 (including US$5,000,000 for loss of professional and personal reputation, 10,000,000 for emotional harm and US$10,000,000 on for hurt feelings the whole without expert evidence of emotional harm), and the two other co-cross-claimants were awarded US$5,000,000 each. [ 10 ] The total amount of the awards against Marciano is a little over US$260,000,000 ("Civil Judgments").

Most of the amounts awarded are not related to economic losses, but rather to emotional distress, harm to reputation, hurt feelings and punitive damages, all granted without the benefit of fully contested evidentiary hearings. [ 11 ] Marciano appealed the Civil Judgments. According to California law, a bond of an amount of one and a half times the amounts awarded must be posted for the judgments not to be enforceable notwithstanding appeal, unless appellant obtains a judicial stay pending appeal, called " supersedeas ".

Marciano's attempts to obtain a stay were unsuccessful, including a majority decision by a panel of the California Court of Appeal. Despite his considerable wealth, Marciano was unable to post the required statutory bond.

Accordingly the Civil Judgments remained enforceable despite the appeal proceedings, a situation that the creditors, including the appellants, decided to act upon to their advantage, as will be further explained below. [ 12 ] Concurrently, Marciano caused the transfer of his 18 Montreal buildings to three companies: 9204-7570 Québec inc., 9211- 9882 Québec inc. and 9213-4568 Québec inc. that are now controlled by the CKSM Family Trust the beneficiaries of which are Marciano and his four children.

Michel Bensmihen is the representative of the three companies and the trustee of the family trust, which are together designated as the "Interveners". [ 13 ] Unable to seize any property of significance, some of the US creditors, including the appellants, decided to petition Marciano into bankruptcy in October 2009. Despite the fact that appeals were pending that might drastically reduce the awards, a California bankruptcy judge declared Marciano bankrupt on December 28, 2010.

For a time, Marciano remained in possession of his assets as "debtor-in-possession" until he failed to comply with specific orders of the Bankruptcy Court. David Gottlieb was then named as trustee and took control of Marciano's Californian assets evaluated at about US$50,000,000, including his L.A. residence estimated at

US$25,000,000. [ 14 ] On September 15, 2011 the bankruptcy judgment was upheld by a majority of a Bankruptcy Appellate Panel. The dissenting judge strongly objected to the use of bankruptcy proceedings in such a context. [ 15 ] On September 14, 2011 the legal saga moved to Montreal where Marciano now lives. That day, Fahs et al., Gottlieb and PricewaterhouseCoopers inc. (PWC) filed four motions:

i) a "Motion to Obtain the Recognition of a Main Foreign Proceedings (section 272 of the Bankruptcy and Insolvency Act )", dated September 13, 2011. In this motion Gottlieb sought recognition of the bankruptcy judgment as a foreign main proceeding under the BIA and of him as the foreign representative. Orders were also sought to allow for the examinations of various persons including, Marciano, and the appointment of PwC as receiver pursuant to s. 272(1) (

d) BIA with various powers over the assets of Marciano, the interveners and other corporate and trust entities; ii) a "Petition for a Receiving Order" under s. 43 BIA , dated September 13, 2011 filed by Fahs et al. in order to have Marciano declared bankrupt in Canada, presentable October 4, 2011 ; iii) a "Motion to Appoint an Interim Receiver (section 46 of the Bankruptcy and Insolvency Act )", dated September 13, 2011 filed by Fahs et al. pursuant to which PwC was to be appointed as interim receiver under the BIA with respect to Marciano's Canadian assets and those of various related entities; iv) a "Motion to Obtain the Issuance of a Search Warrant and the Authorization to Seize the Property of the Debtor (section 189 of the Bankruptcy and Insolvency Act )", dated September 13, 2011 filed by PwC pursuant to which an authorization to search various premises was sought with the power to seize property found therein belonging to Marciano and related corporate and trust entities. [ 16 ] The very same day, these proceedings, save for the Petition for a Receiving Order, were presented ex parte to the Commercial Division of the Superior Court, supported by thirteen binders of exhibits.

The following day, September 15, 2011, Corriveau J. granted the three motions. Her judgments are in fact endorsements of draft judgments prepared by the petitioners with extremely brief reasons. The first declares that the United States bankruptcy proceeding is a foreign main proceeding, recognizes that Gottlieb is entitled to act as a foreign representative, orders that the administration and realization of all Marciano's Canadian assets shall be carried out by PWC acting as a receiver and gives PWC a number of powers.

The second appoints PWC as an interim receiver pursuant to s. 46 BIA and grants it all powers provided by law. The third issues a warrant authorizing PWC to enter and search several premises and to seize any item of Marciano's property. On September 16, 2011, an additional search warrant order was granted ex parte by Corriveau J. at the request of PWC. [ 17 ] In the following hours, the full might of the law was made manifest and the events made headlines in the local media. PWC proceeded with searches and seizures at various locations.

Seven hundred paintings, prints and sculptures, 375 watches, an 84.37 carat diamond worth over $16,000,000, 16 cars (including 10 Ferraris, 2 Rolls-Royces, 2 Mercedes), 18 buildings, cash, computers and various documents belonging to Marciano and related entities (corporations or trusts) were seized. PWC assumed control of the hotel, posted guards there and removed art works, in some instances having to use a crane. [ 18 ] On September 26, 2011, Montreal lawyers acting for Marciano filed Notices of Appeal against the appointing orders and the search orders.

Judgments in these appeals are being rendered concurrently with the judgment in this appeal. [ 19 ] On September 28, 2011, Marciano filed a motion to review, rescind and vary the various orders rendered ex parte (Marciano's Motion).

Other lawyers did likewise on behalf of the family trust and the three Quebec corporations (Interveners' Motion). [ 20 ] On October 5, 2011, Marciano appealed the judgment of the Appellate Panel before the United States Court of Appeals, Ninth Circuit. [ 21 ] That same day, the Quebec Superior Court (Lalonde J.) granted in part a motion of PWC to authorize the payment of its judicial costs up to an amount of $554,796.56 and a provision for costs of $250,000.

Unable to ascertain whether the fees dedicated to the execution of the orders of Corriveau, J. were reasonable and considering that PWC as receiver must be compensated for the costs incurred, the motions judge granted PWC the sum of $556,636.98 to pay its judicial costs up to an amount of $56,636.98, the balance ($500,000) being only a provision for costs.

The funds come principally from accounts held by the numbered companies; these companies and the family trust filed an appeal against that order and a judgment released concurrently deals with it. [ 22 ] On October 14, 15 and 17, 2011, the motions to rescind of Marciano and the Interveners were heard by Schrager J. [ 23 ] In the course of the US bankruptcy appeal, the creditors were invited to mediate their claims with the trustee. Between October 17 and 19, 2011, a mediation took place presided by Cruz Reynoso, a former judge of the California Supreme Court.

The judgment creditors agreed to resolve their claims for US$8,625,00 each to Fahs, Chapnick, Tagle and Abat, US$9,625,000 to Choi, US$17,250,000 to Gary Iskowitz, and US$2,250,000 to Theresa Iskowitz, plus interest. The total amount due to civil creditors for bankruptcy purposes would then be around US$63,625,000, which means the Civil Judgments would be reduced to an amount slightly more than the value of Marciano's Californian assets.

According to the representations made by counsel for the appellants at the hearing before this Court, this settlement agreement is not enforceable because the bankruptcy judge, Madam Justice Kaufman, has decided to wait for the judgments of the California Court of Appeal in the civil appeals. Schrager J. was informed of the results of the mediation in California. [ 24 ] On December 8, 2011, Schrager J. granted Marciano's Motion as well as the Interveners' Motion.

PWC as receiver/interim receiver was dismissed and ordered to return all property seized at its own costs. [ 25 ] On December 28, 2011, the Interveners filed a motion for contempt of court against Gottlieb before the Quebec Superior Court alleging that some documents seized were not remitted on time.

[ 26 ] On January 12, 2012, the Interveners filed an action in damages in the Quebec Superior Court asking for the condemnation of Fahs et al. in the amount of $3,200,000 for what they consider to be abusive seizures. [ 27 ] On January 13, 2012, a judgment was rendered by the US Bankruptcy Court condemning Marciano for contempt of court and ordering the issuance of a warrant for his arrest. [ 28 ] On March 6, 2012, the hearing of the civil appeal in the related action of Iskowitz et al. took place in the California Court of Appeal ( Marciano v. Iskowitz , 2d Cir. No. B216029, 219558).

At the opening of the hearing, the panel issued the following tentative ruling: We do not think there was an abuse of discretion in the imposition of the terminating sanctions, which resulted in the entry of Marciano's default. But, the amount of damages, which were awarded on the default prove up, we felt were excessive. What we plan to do, short of listening to counsel here today, is to reverse the judgment and remand the matter for a new prove up before a different judge. I don't think it's fair to send this thing back to the judge who felt really put upon by this fact situation and by Mr.

Marciano. [ 29 ] During the exchange that followed, the Court pointed to the lack of evidence of ongoing treatment or of economic loss and said that the amounts of damages awarded were often duplicative. In reply to a question from the Court, Gottlieb's attorney suggested that it would have been fair to award Iskowitz about $1,000,000 for all emotional harm, exclusive of punitive damages. [1] Counsel for Iskowitz replied that the amount should not be less than 50% of the amounts granted by the Superior Court.

The case is now under advisement and it is not clear if the Court of Appeal will suggest numbers or just remand. It bears noting that Iskowitz agreed during the mediation in the bankruptcy file to an amount of US$17,250,000. In all likelihood, he will be awarded less than that at the end of the day from the civil courts. [ 30 ] In a brief filed on March 23, 2012 in the civil appeal dealing with the first five former employees, including the three respondents before us, Gottlieb's attorney, acting on behalf of Marciano as bankrupt, wrote that the L.A.

Superior Court judgments "lack sufficient evidentiary support and are internally duplicative", "appear to result from passion and prejudice, rather than from a reasoned analysis based upon compensatory or constitutional law" and "the trial court abused its discretion by imposing terminating sanctions rather than other serious sanctions that would, nonetheless, have permitted Marciano's counsel to participate in the determination of damages".

The conclusion to this brief states that these judgments "should be reversed and vacated". [ 31 ] From the latest developments, it appears that the argument over what amounts should be awarded to all the defendants/cross- plaintiffs is to resume before the L.A. Superior Court, unless settlements are reached, and that the civil awards eventually to be awarded will most likely be considerably less than the initial ones. It is even possible that Marciano's US

Chapter 11 estate will be solvent in the end unless the US trustee fees and disbursements prevent it (the latter amounting to over US$12,000,000 thus far).

THE JUDGMENT UNDER APPEAL [ 32 ] Schrager J., held that Marciano's Motion and the Interveners' Motion is not a disguised appeal but a set of new circumstances or fresh evidence because the orders under review were made on an ex parte basis: [42] In the view of the undersigned, given that the orders under review were made on an ex parte basis, virtually every argument and fact brought forward by Marciano and the Interveners constitutes a new circumstance (unless perhaps any such fact or argument was already raised and fully discussed at the ex parte hearing).

This Court has a broad discretion under section 187(5) BIA and this is particularly so where the initial orders were granted on an ex parte basis.

None of the arguments upon which the undersigned has relied were put before Justice Corriveau – either not at all or not fully. [44] (…) Again, this Court reiterates that on rescinding the decisions, the undersigned has relied on facts before the Court and legal arguments presented to the undersigned that were not put before Justice Corriveau. (…) He therefore concluded that it was within his power to rescind the orders issued by Corriveau J. [ 33 ] Once his jurisdiction established, he found as a first ground to rescind the fact that Corriveau J. may have believed that the Civil Judgments were final, notably because the notices of appeal were not produced at all (this factual premise is erroneous since the binders given to Corriveau J. included copies of these notices).

In his opinion, the appellants should have clearly told Corriveau J. that the Civil Judgments and the bankruptcy judgment were subject to pending appeals even though they were enforceable under American law.

According to him, this failure to disclose fully and frankly that the Civil Judgments were not final justified the rescinding of all the orders: [76] In the case before the undersigned and as more fully set forth hereinafter, the failure to disclose in this case is fatal not merely because of such failure per se but because the information which was not disclosed was fatal to the applications, even on a contested basis. [77] In

summary, an ex parte hearing cannot be used as an opportunity by the moving party to obtain a strategic advantage. The moving party has the obligation to disclose all material points of fact and law and particularly those which might militate in favor of the absent party and even the possible dismissal of the applications. In the case at bar the failure to disclose that the judgments for which recognition and enforcement was sought were not final but rather subject to appeal was highly material and not subject to any debate.

From the review of the facts above there can be no other conclusion than that the moving parties and their attorneys chose to conceal the existence of the appeals and to give the impression that the Civil Judgments and the Bankruptcy Judgment were final because they were enforceable. [78] The failure to fully and frankly disclose to Justice Corriveau that the Civil Judgments and Bankruptcy Judgment were not final is

sufficient to rescind the orders. (…) [ 34 ] Nevertheless Schrager J. dealt with the other substantive grounds raised by the respondents and adjudicated them in order to dispel any doubt on the final outcome. In his reasons, he wrote that the foreign judgments whose recognition were sought could not be enforced directly or indirectly through the Canadian bankruptcy process because they were not final.

According to him It was impermissible to rely on the foreign bankruptcy order as a foreign main proceeding because it was not final; moreover it merely sought to enforce civil damage awards which were themselves not final and enforceable at the time of the hearing before Corriveau J. [ 35 ] He also addressed issues of public policy. According to him, the damages awarded in the Civil Judgments were arbitrary and clearly excessive from a Quebec or Canadian point of view.

Therefore, their recognition would be contrary to public order as provided in the C.C.Q. and the BIA . [ 36 ] With regard to the search warrants, he wrote that s.189 BIA applies only after a bankruptcy judgment is made by a Canadian court. Since Marciano is not a bankrupt under the BIA, the search warrants should be quashed. He also concluded that the seizures of the immovables and documents were illegal considering that they belong to third parties and not to Marciano.

With regard to movable property, he did not conclude that the seizures were to be quashed solely on the basis of arguments relating to the title of the property seized, but he would nevertheless annul the order on other grounds. [ 37 ] As a result, Schrager J. rescinded all the orders rendered by Corriveau J., granted a release from all the seizures of property owned by Marciano and the Interveners and ordered PWC to return, at its expense, the movable property and documents seized as well as cash seized and amounts received on account of fees and disbursements.

Finally, he ordered provisional execution of his judgment. [ 38 ] On December 8, 2011, a joint notice of appeal on behalf of the US trustee, the US creditors and PWC was filed by the same law firm (on December 16, 2011, PWC retained its own counsel that filed a separate amended notice of appeal [2] and later a brief, and made representations before us). On December 22, 2011, a judge of this Court dismissed a motion to suspend the provisional execution Schrager J. had ordered and referred the appellants’ motion for the issuance of a safeguard order to a panel.

On February 3, 2012, a panel of this Court dismissed the motion for a safeguard order and suspension of provisional execution as well as a motion by Marciano for security for costs.

ISSUES IN DISPUTE [ 39 ] The issues raised in this appeal can be summarized as follows : - The conduct of an applicant during an ex parte hearing; - The scope and extent of the power to review and rescind under s. 187(5) BIA ; - The enforceability of the Californian judgments in Quebec; - The meaning of the word "bankrupt" in s. 189 BIA and the right to seize assets belonging prima facie to third parties; - The right of the receiver to be paid for the searches and seizures of Marciano and Interveners' assets. ANALYSIS I.

The conduct of a party applying for an order ex parte [ 40 ] The adversary nature of the proceedings before our courts is considered to be a safeguard against injustice and arbitrariness. The rights of a person should not be affected unless he or she has been provided an opportunity to be heard and present proof and arguments before a neutral decision-maker, preferably with the assistance of a counsel.

This partakes of the essence of our judicial system. [ 41 ] However, there are some exceptions to the requirement of a contested hearing in rare circumstances, such as in cases where there is a likelihood that without an ex parte order property or documents will disappear or be destroyed (e.g., seizure before judgment, Mareva injunction, Anton Piller order) or irreparable harm will occur (e.g., some provisional injunctions; some initial orders under the Companies' Creditors Arrangement Act , R.S.C.1985, c. C-36 (CCAA) in exceptional situations).

Even there, the judge will grant only temporary conclusions or conclusions subject to review. [ 42 ] In Ontario, the courts have held that a party seeking an ex parte order has a duty of full and frank disclosure. In United States of America v. Friedland , 1996 O.J. No. 4399 (Sup. Ct.) , a case where a Mareva injunction freezing US$152,000,000 worth of shares owned by the defendant Friedland was issued ex parte , Sharpe J., as he then was, sitting on a motion to renew, wrote: 26.

It is a well established principle of our law that a party who seeks the extraordinary relief of an ex parte injunction must make full and frank disclosure of the case. The rationale for this rule is obvious. The Judge hearing an ex parte motion and the absent party are literally at the mercy of the party seeking injunctive relief. The ordinary checks and balances of the adversary system are not operative. The opposite party is deprived of the opportunity to challenge the factual and legal contentions advanced by the moving party in support of the injunction.

The situation is rife with the danger that an injustice will be done to the absent party. As a British Columbia judge noted recently:

There is no situation more fraught with potential injustice and abuse of the Court's powers than an application for an ex parteinjunction.[3] 27. For that reason, the law imposes an exceptional duty on the party who seeks ex parte relief. That party is not entitled to present onlyits side of the case in the best possible light, as it would if the other side were present. Rather, it is incumbent on the moving party tomake a balanced presentation of the facts in law. The moving party must state its own case fairly and must inform the Court of anypoints of fact or law known to it which favour the other side.

The duty of full and frank disclosure is required to mitigate the obvious riskof injustice inherent in any situation where a Judge is asked to grant an order without hearing from the other side. 28. If the party seeking ex parte relief fails to abide by this duty to make full and frank disclosure by omitting or misrepresentingmaterial facts, the opposite party is entitled to have the injunction set aside. That is the price the Plaintiff must pay for failure to live upto the duty imposed by the law.

Were it otherwise, the duty would be empty and the law would be powerless to protect the absent party. 29 These principles are so well established in the law that it is hardly necessary to cite supporting authority. They find expression inthe Rules of Court. Rule 39.01(6) provides: Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all materialfacts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application. 30 The principle has been affirmed and reaffirmed by judicial decision.

In the leading Ontario case on Mareva injunctions, Chitel v.Rothbart (1982) (ON CA), 39 O.R. (2d) 513, a judgment of the Court of Appeal, Associate Chief Justice MacKinnonstated, at page 519: There is no necessity for citation of any authority to state the obvious that the plaintiff must, in securing an ex parte interim injunction,make full and frank disclosure of the relevant facts, including facts which may explain the defendant's position if known to the plaintiff.If there is less than this full and accurate disclosure in a material way or if there is a misleading of the court on material facts in theoriginal application, the court will not exercise its discretion in favour of the plaintiff and continue the injunction. 31 The duty of full and frank disclosure is, however, not to be imposed in a formal or mechanical manner.

Ex parte applications arealmost by definition brought quickly and with little time for preparation of material. A plaintiff should not be deprived of a remedybecause there are mere imperfections in the affidavit or because inconsequential facts have not been disclosed. There must be somelatitude and the defects complained of must be relevant and material to the discretion to be exercised by the Court. (See Mooney v. Orr,(1994) (BC SC), 100 B.C.L.R. (2d) 335; Rust Check v. Buchowski (1994) (ON SC), 58 C.P.R. (3d)324. 32 On the other hand, a Mareva injunction is far from a routine remedy.

It is an exception to the basic rule that the Defendant isentitled to its day in court before being called upon to satisfy the Plaintiff's claim or to offer security for the judgment. This is clear fromthe decision in Chitel v. Rothbart, supra. It was emphasized by the decision of the Supreme Court of Canada in Aetna Financial Servicesv.

Feigelman (SCC), [1985] 1 S.C.R. 2, where Justice Estey referred to what he described as "the simple proposition thatin our jurisprudence, execution cannot be obtained prior to judgment and judgment cannot be obtained prior to trial". 33 Justice Estey went on to say: There is still ... a profound unfairness in a rule that sees one's assets tied up indefinitely pending a trail of an action which may notsucceed, and even it does succeed, which may result in an award far less than the caged assets. 34 Justice Estey stated as well: A plaintiff with an apparent claim, without ultimate substance, may, by the Mareva exception to the Lister rule, tie up the assets of thedefendant, not for the purpose of their preservation until judgment, but to force, by litigious blackmail, a settlement on the defendantwho, for any one of many reasons cannot afford to await the ultimate vindication after trial. 35 For this reason, it has been said that respect for the duty of full and frank disclosure is especially important with respect to Marevainjunctions because, by their very nature, they are liable to cause substantial prejudice to the defendant. (See the leading English text,Gee, Mareva Injunctions and Anton Piller Relief (3d Edition 1995 at p. 97). 36 It is also clear from the authorities that the test of materiality is an objective one.

Again to quote the Gee text at page 98: ... The duty extends to placing before the court all matters which are relevant to the court's assessment of the application, and it is noanswer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been thesame.

The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is noexcuse for the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important.All matters which are relevant to the 'weighing operation' that the court has to make in deciding whether or not to grant the order must bedisclosed. 37 This principle is affirmed by decisions in Canada. (See Leung v. Leung (1993) 77 B.C.L.R. (2d) 305 at 313; Canadian PacificRailway v.

United Transportation Union (1970) 14 D.L.R. (3d) at 497; and Panzer v. The Queen (1990) (ON SC), 74O.R. (2d) 130. [43] These principles are now part of Rule 4 Relationship to the Administration of Justice, of the Rules of Professional Conductadopted by the Law Society of Upper Canada.

In the commentary under Rule 4.01 The Lawyer as Advocate, it is stated: When opposing interests are not represented, for example, in without notice or uncontested matters or in other situations where the fullproof and argument inherent in the adversary system cannot be achieved, the lawyer must take particular care to be accurate, candid, and

comprehensive in presenting the client's case so as to ensure that the tribunal is not misled. [44] In other common law provinces, the same attitude prevails. For example, Justice Green, as he then was, of the Newfoundlandand Labrador Court of Appeal stated in Canadian Paraplegic Association (Newfoundland and Labrador) Inc. v. Sparcott EngineeringLtd. (1997), (NL CA), 150 Nfld. & P.E.I.R. 203 at para. 18: On any ex parte application, the utmost good faith must be observed.

That requires full and frank disclosure of all material facts knownto the applicant or counsel that could reasonably be expected to have a bearing on the outcome of the application.

Because counsel forthe applicant is asking the judge to invoke a procedure that runs counter to the fundamental principle of justice that all sides of a disputeshould be heard, counsel is under a super-added duty to the court and the other parties to ensure that as balanced a consideration of theissue is undertaken as is consonant with the circumstances. (A thorough review of the situation in the Federal Courts and in the Common Law provinces is found in Professor Robert J. Currie,"Nobody Expects the Spanish Inquisition: A Primer on the Use (and Abuse) of Ex Parte Proceedings in Civil Cases"

(2009) AnnualReview of Civil Litigation, 443). [45] In Quebec, the case law reflects the principle that ex parte orders can be made only in exceptional circumstances and must belimited to what is absolutely necessary (see for ex.: Wilhelmy c. Radiomutuel inc., J.E. 93-354 (C.A., motions' judge)). [46] In Microcell Solutions Inc. c. Telus Communications Inc., J.E. 2004-738 (Sup. Ct.), Dufresne J., then at the Superior Court,dealing with two motions to strike orders for contempt made ex parte, echoing the Friedland judgment, stated: [16]

Malgré que ces principes aient été énoncés dans le cadre d'une injonction Mareva qui, en soi, a un caractère bien exceptionnel etmalgré l'existence d'une règle de pratique de l'Ontario Court of Justice (General Division), règle qui ne trouve pas son équivalent dansnos règles de procédure, l'obligation de divulgation complète et franche peut trouver néanmoins application en matière d'autorisation oud'ordonnance obtenue ex parte, en l'absence de l'autre partie. [17] Cette obligation découle du caractère exceptionnel d'une ordonnance ou d'une autorisation obtenue dans pareille condition. (…) [18] L'obligation de divulgation franche et complète (« full and frank disclosure ») existe et est d'autant plus grande que le remèderecherché en est un d'exception.

Une requête pour demander l'émission d'une citation à comparaître pour outrage au tribunal présentée exparte à un juge est nécessairement une procédure d'exception, la règle étant la procédure contradictoire. [19] La

partie qui obtient une autorisation d'un juge à la suite d'une demande entendue ex parte s'expose à voir sa demande rejetéesubséquemment s'il devait être démontré que des faits significatifs pour la décision du juge d'émettre l'autorisation avait fait l'objetd'omission délibérée ou stratégique de la part de celui qui recherchait l'autorisation. L'omission doit évidemment être flagrante. [20] Bien que cette obligation peut nécessiter l'allégation de faits qui pourraient être favorables à la défense, cette obligation ne vatoutefois pas jusqu'à obliger la

partie qui recherche une autorisation d'inclure dans sa requête les moyens de défense que pourrait fairevaloir la

partie visée par l'autorisation. L'omission reprochable porte essentiellement sur des faits déterminants et connus de la

partie quirecherche l'autorisation. [Emphasis added] [47] I fully agree with my colleague Justice Dufresne in Microcell. As a general rule, an obligation of full and frank disclosureapplies in Quebec in connection with any ex parte orders because counsel for the applicant is asking the judge to engage in a procedurethat runs counter to the fundamental principle of justice that all sides of a dispute should be heard.

In my view, it follows that in caseswhere opposing interests are certain to exist, the moving party "is under a super-added duty to the court" (Canadian ParaplegicAssociation, supra) to state its own case fairly and to inform the Court of any points of fact or law known to it which favour the otherside that may have a bearing on the outcome of the application.

This obligation should be considered according to an objective standard:what would a reasonably qualified lawyer have done in the same circumstances? [48] This was the substance of Schrager J.'s view in the instant case and I find there to be no error of law. The attorneys for the UScreditors nevertheless argue that the trial judge erred in fact by concluding that they did not meet that obligation and in making harshcomments on their conduct in the ex parte proceeding held before Corriveau J. [49] One may well understand that it is a sensitive issue for them.

However, as the Court points out in its February 3, 2012 judgment(2012 QCCA 256), Schrager J.'s judgment should not be read as concluding that these attorneys chose to conceal material facts, namelythat the civil and bankruptcy judgments were subject to appeals, but rather that they did not adequately disclose the nature of the appeals(under the direction of Gottlieb before the California Court of Appeal and under the direction of Marciano before the ninth Circuit Courtof Appeals) and the fact that neither the Civil Judgments nor the bankruptcy judgments were final: [24] Sans minimiser la portée et la valeur de cet argument, il convient de noter que M. le juge Schrager n'a pas exactement conclu quePWC, Gottlieb et le groupe Fahs avaient caché à Mme la juge Corriveau l'existence des appels interjetés par M.

Marciano en Californie.Il a plutôt indiqué qu'à son avis ceux-ci n'avaient pas adéquatement ou objectivement dévoilé ce fait à Mme la juge Corriveau. Il écrit : [56] By far the most striking omission which is of sufficient importance by itself to rescind the orders, is the failure to adequatelydisclose to Justice Corriveau that both the Civil Judgments and the Bankruptcy Judgment, were subject to appeal.

They were not final atthe time of the hearing before Justice Corriveau nor were they final at the time of the hearing before the undersigned. [57] Counsel for the Creditors points to one verbal mention to Justice Corriveau at one point on the second day of his presentation(September 16, 2011). At that time, he mentioned almost « en passant » that appeals had been filed, putting the emphasis however on thefact that all judgments were enforceable.

[Emphasis added by the panel] [50] Without attributing any intent to mislead Corriveau J. by the attorneys acting then for both the US creditors and the US trustee,it remains, considering some comments made by the ex parte judge,[4] that she did not properly understand the true status of the civiland bankruptcy judgments, namely that none was final and that there was a genuine likelihood that the amounts awarded by theCalifornia Superior Court would be significantly reduced on appeal or upon negotiation (a fact that Gottlieb and his counsel couldreasonably not ignore). [51] It was then up to the lawyers for the moving parties under their super-added duty to the court to correct her misapprehension ofthese important aspects of the file.

As stated above, an attorney acting in an ex parte proceeding has an obligation to disclose all relevantmaterial facts including those favouring the absent adversely affected party, especially when, as is the case here, the appeal proceduresare different from those with which the judge is familiar and bear distinctive consequences (the bankruptcy appeal decision relied uponwas from a panel of the trial court; existence of a right of appeal from that decision before the ninth circuit US Court of Appeals; a civilappeal does not suspend execution under the California Code of Civil Procedure and the need to post a statutory bond for an uncommonamount failing a supersedeas order; position of the US trustee in the civil appeals strongly contesting the rights of the creditors; etc). [52] In case of insufficient disclosure, in the common law jurisdictions the case law provides for two distinct judicial approaches,that are described by Antonio F.

Azevedo in "The duty to disclose on motions without notice for injunctive relief ", (2000) 23 AdvocatesQuarterly 499, at p. 503 as the "punitive approach" and the "discretionary approach"; see also Robert J. Sharpe, Injunctions and SpecificPerformance, Looseleaf Edition, Canada Law Book, at. paras 2.40 and 2.45. [53] Under the first approach, the failure to disclose a material or relevant fact, even inadvertently, causes a judgment setting asideor dissolving the ex parte injunction possibly with solicitor and client costs and even damages.

Under the second, the courts found thatnotwithstanding material non-disclosure there was a residual discretion to continue the injunction. [54] In England, two Court of Appeal decisions adopted the second approach: Brink's-Mat Ltd v. Elcombre [1988] 3 All E. R. 188and Memory Corporation PLC v. Sidhu (No.2) [2000] 1 W.L.R. 1443. The rationale for it is explained as follows in Brink's-Mat by LordJustice Slade: Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before thecourt cannot be overlooked.

By their very nature, ex parte applications usually necessitate the giving and taking of instructions and thepreparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on personsmaking ex parte applications, I do not think the application of the principle should be carried to extreme lengths.

In one or two otherrecent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parteinjunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners (1917) 1 K.B. 486principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially theonly hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case oron the balance of convenience.

Though in the present case I agree that there was some material, albeit innocent, non-disclosure on the application to Roch J., I am quitesatisfied that the punishment would be out of all proportion to the offence, and indeed would cause a serious potential injustice if thiscourt were, on account of such nondisclosure, to refuse to continue the injunction granted by Roch J. on 9 December 1986. [55] In Canada, so also held the Alberta Court of Appeal in Edmonton Northlands v. Edmonton Oilers Hockey Corp. 1994 ABCA 40, [1994] A.J. No. 138, the Manitoba Court of Appeal in Pulse Microsystems Ltd. V.

Safesoft Systems Inc. (1996), (MB CA), 134 D.L.R.(4th) 701 and the British Columbia Court of Appeal in Girocredit Bank A.G v.Bader (BCCA), [1998] B.C.J. No. 1516 and in Bank of Credit and Commerce International (Overseas) Ltd. (Liquidator) v. Akbar, 2001 BCCA204. [56] In my view the second approach should be adopted in Quebec as well.

When there is material non-disclosure, the followingfactors should be considered by the judge hearing a motion to rescind or annul an ex parte order: - the importance of the omitted facts to each of the issues decided by the judge; - whether the omission was inadvertent, its relevance was misconstrued or whether the omission was made with the intent to mislead thejudge; - the prejudice occasioned to the party affected by the ex parte order; - whether the order reviewed could be granted again on the basis of a corrected record.

In the end, this analysis shall in no way excuse counsel who did not discharge his or her heavy duty of candour and care. In fact, failureto comply with the obligation of full and frank disclosure is a serious breach by a court officer calling for discipline by the Court and/orthe Bar. [57] To sum up, in the present case there are two opposite ways of thinking about the situation. On the one hand, some of theunusual features of the various US proceedings were not fully brought to the attention of Corriveau J., an omission that may justifyrescinding orders, as explained below.

On the other hand, some features of the foreign proceedings may not have been fully understoodby her, a situation that may justify redress in appeal, as explained in the concurrent judgments in files no. 500-09-022041-115 and 500-09-022040-117.

II. The power to review and rescind under the BIA [58] It cannot be seriously disputed that ex parte orders can be made under the BIA in appropriate circumstances, such as theissuance of a search warrant (see s. 189(1) BIA; L.W. Houlden, G.B.

Morawetz & Janis Sarra, Bankruptcy and Insolvency Law ofCanada, 4th ed. rev. looseleaf, (Toronto: Carswell, 2009) vol. 3 at p. 7-61 and following). [59] Normally in cases where an ex parte order may be obtained, the applicable law provides for a means by which the affectedparty may challenge, suspend or review the ex parte order by the issuing court (for ex.: art. 757 (injunction), art. 738 (seizure beforejudgment) C.C.P.).

Even when the rules are silent, a superior court has the inherent power to rescind or annul an order made ex partewhen appropriate. [60] The power of the Quebec Superior Court to review orders made under the BIA is provided at s. 187(5) BIA, which reads asfollows: 187

(5) Every court may review, rescind or varyany order made by it under its bankruptcyjurisdiction. 187

(5) Tout tribunal peut réviser, rescinder oumodifier toute ordonnance qu’il a rendue envertu de sa juridiction en matière de faillite. [61] A motion pursuant to s. 187(5) BIA, rather than an appeal, should be preferred in a situation such as the present one for variousreasons. First, fresh evidence may be adduced as of right, whereas leave is necessary to do so on appeal. Second, a court of appeal is ill-equipped to deal with fact-finding. Third, the appeal procedure and process is more complex and expensive (for example transcripts inseven copies) than the hearing of a motion by a single trial judge.

Without excluding the possibility of an appeal, all these elementsfavour the use of s. 187(5) BIA. [62] It should also be resorted to when there is a change in circumstance or discovery of significant evidence that was unknown atthe time of the issuance of the previous order, even if made after having heard all the parties, and which might have led to a differentresult. In Elias v. Hutchison (1981), 1981 ABCA 31 , 14 Alta. L.R. (2d) 268, the Alberta Court of Appeal wrote: While the language of this

section is broad, it seems to me that it is designed to permit of a judge to deal with continuing matters in thebankruptcy so as not to be [b]ound by an earlier decision if faced by changing circumstances. [63] A motion under s. 187(5) BIA can be produced even if an appeal is pending.[5] However, it cannot be brought as a substitutefor an appeal in situations where all the parties were heard and the losing one merely seeks a reversal, alleging an error of law or fact; insuch a case, an appeal is the only suitable procedure. In Ontario (Motor Vehicle Dealers Act, Registrar) v. A.

Farber & Partners Inc.,2008 ONCA 390, 293 D.L.R. (4th) 455, the Court of Appeal of Ontario recalled that the power to rescind or review is unique and not asubstitute for an appeal: 27 It has been said that s. 187(5) is unique to insolvency in that it allows the court to review and rescind or vary an order made by acourt of co-ordinate jurisdiction, and applies to any order made in the exercise of bankruptcy jurisdiction: Fitch v.

Official Receiver,[1996] 1 W.L.R. 242 (C.A.), discussing s. 375(1) of the English Insolvency Act 1986, which is virtually identical to s. 187(5) of the BIA.However, unlike rule 37.14(1), no conditions apply before resort can be had to s. 187(5). As I will explain, a motion under s. 187(5)cannot be brought as a substitute for an appeal, such as when the time to appeal has expired. An appeal is brought when it is believedthat there is reversible error in the court below. A motion under s. 187(5) is essentially different.

As the English Court of Appeal states inFitch at p. 246, for the provision to apply, there must be a fundamental change in circumstances, between the original hearing and thetime of the motion to vary, or evidence must have been discovered that was not known at the time of the original hearing and whichcould have led to a different result.

Or, as the leading Canadian case has put it, the court should not hear a motion under s. 187(5) if itsonly purpose it to obtain an opportunity to appeal where the time to appeal has elapsed: Re Catalina Exploration and Development Ltd.(1981), 1981 ABCA 31 , 121 D.L.R. (3d) 95 (Alta. C.A.), rev'g (1980), (AB KB), 35 C.B.R. (N.S.) 30 (Alta.Q.B.). By this motion and the appeal, the Registrar asks that the court rehear the trustee's motion for directions and make another orderin the place of the one already made, drawn up, entered and acted upon.

This, of course, the court cannot do. [Emphasis added] [64] Schrager J. correctly applied these rules when he asserted his jurisdiction to review: [42] In the view of the undersigned, given that the orders under review were made on an ex parte basis, virtually every argument and factbrought forward by Marciano and the Interveners constitutes a new circumstance (unless perhaps any such fact or argument was alreadyraised and fully discussed at the ex parte hearing). This Court has a broad discretion under section 187(5) BIA and this is particularly sowhere the initial orders were granted on an ex parte basis.

None of the arguments upon which the undersigned has relied were put beforeJustice Corriveau – either not at all or not fully. [65] Schrager J. also based his decision to rescind the orders on the fact that it was understood by Corriveau J. that her orders wouldbe subject to review, at it is usual for initial ex parte orders made by the commercial division of the Superior Court in CCAAproceedings. He wrote at para. 47:

[47] The arguments seeking to limit the scope of review by the undersigned are also somewhat specious in that it was understood thatthere would be a review of the orders issued by Justice Corriveau. On a number of occasions during the hearing before her, JusticeCorriveau states that there will be a review or « comeback » hearing with opposing counsel present.

In such a context, the moving parties cannot seriously argue that the only recourse against the ex parte orders should be an appeal. [66] In conclusion, Schrager J. did not err regarding his authority to entertain motions to review and rescind under s. 187(5) BIA inthe case at bar. III. The enforceability of the US bankruptcy judgment in Canada [67] The motion of the US Trustee was a proceeding in relation to a foreign bankruptcy proceeding.

The US creditors' petition for areceiving order was an attempt to have Marciano declared bankrupt under the BIA for failing to have paid the Civil Judgments. [68] Marciano's lawyers argue that since the appellants proceeded ex parte, they were prevented from showing that not only theCivil Judgments were not final but they offended Canadian public order by their sheer magnitude and the circumstances under whichthey were obtained (by default/ex parte according to them).

So too was the case of the related bankruptcy judgment in their opinion.Therefore Corriveau J. should have dismissed the orders sought and Schrager J. was right to rescind them. [69]

Part XIII, Cross-Border Insolvencies, ss. 267-284 of the BIA, added in 1997, specifically provides mechanisms for dealing withforeign bankruptcy judgments aiming amongst other things, at promoting cooperation between authorities and to protect the value of thedebtors' property (s. 267 BIA). For

Part XIII to apply, "a debtor must have 'property in Canada'; it is unnecessary for the debtor to be aCanadian resident" (Houlden, Morawetz and Sarra, supra, at p. 7-377). [70] Under s. 269, a foreign representative such as Gottlieb was entitled to petition the Superior Court of Quebec, the Canadianprovince where Marciano owns directly or indirectly substantial assets, for a recognition of the US bankruptcy judgment even if not finalsince s. 281 BIA provides that the foreign proceeding does not have to be final: 281.

A foreign representative is not preventedfrom making an application to the court underthis Part by reason only that proceedings by wayof appeal or review have been taken in a foreignproceeding, and the court may, on an applicationif such proceedings have been taken, grant reliefas if the proceedings had not been taken. 281. Le fait qu’une instance étrangère fait l’objetd’un appel ou d’une révision n’a pas pour effetd’empêcher le représentant étranger de présentertoute demande au tribunal au

titre de la présentepartie; malgré ce fait, le tribunal peut, surdemande, accorder des redressements The fact that under art. 3155 C.C.Q. a foreign civil judgment cannot be enforceable if it is not final is not relevant since s. 281 BIAprevails over the C.C.Q. when there is a conflict: British Columbia v. Henfrey Samson Belair Ltd., (SCC), [1989] 2S.C.R. 24. [71] However, as pointed out by Schrager J., a foreign representative's application for recognition may be denied if consideredcontrary to public policy in Canada, a situation specifically contemplated by s. 284(2): 284. (…)

(2) Nothing in this Part prevents the court fromrefusing to do something that would be contraryto public policy. [Emphasis added] 284. (…)

(2) La présente

partie n’a pas pour effetd’empêcher le tribunal de refuser de prendre unemesure contraire à l’ordre public [72] Since s. 284 BIA is included in

Part XIII of the BIA dealing with foreign bankruptcy proceedings, we must construe the "publicpolicy" (ordre public) exception in the context of private international law.[6] It follows that the teachings of our Supreme Court in Bealsv. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416, become very relevant. In Beals, an action was brought in a Florida court over the sale ofa land valued at US$8,000 and a jury awarded US$210,000 in compensatory damages and US$50,000 in punitive damages.

The SupremeCourt of Canada considered a defence to counter the enforcement of this judgment in Ontario based on the notion of public policy, atparas. 71-77: The third and final defence is that of publicpolicy. This defence prevents the enforcement ofa foreign judgment which is contrary to theCanadian concept of justice. The public policydefence turns on whether the foreign law iscontrary to our view of basic morality. As stated Le troisième et dernier moyen de défense estfondé sur l’ordre public. Ce moyen de défenseempêche l’exécution d’un jugement étrangercontraire à la notion de justice canadienne.

Ils’agit de savoir si le droit étranger est contraire ànos valeurs morales fondamentales. Comme

in Castel and Walker, supra , at p. 14-28: … the traditional public policy defence appears to be directed at the concept of repugnant laws and not repugnant facts . . . . How is this defence of assistance to a defendant seeking to block the enforcement of a foreign judgment? It would, for example, prohibit the enforcement of a foreign judgment that is founded on a law contrary to the fundamental morality of the Canadian legal system .

Similarly, the public policy defence guards against the enforcement of a judgment rendered by a foreign court proven to be corrupt or biassed . […] The use of the defence of public policy to challenge the enforcement of a foreign judgment involves impeachment of that judgment by condemning the foreign law on which the judgment is based. It is not a remedy to be used lightly . The expansion of this defence to include perceived injustices that do not offend our sense of morality is unwarranted. The defence of public policy should continue to have a narrow application .

The award of damages by the Florida jury does not violate our principles of morality. The sums involved, although they have grown large, are not by themselves a basis to refuse enforcement of the foreign judgment in Canada . Even if it could be argued in another case that the arbitrariness of the award can properly fit into a public policy argument, the record here does not provide any basis allowing the Canadian court to re-evaluate the amount of the award.

The public policy defence is not meant to bar enforcement of a judgment rendered by a foreign court with a real and substantial connection to the cause of action for the sole reason that the claim in that foreign jurisdiction would not yield comparable damages in Canada. There was no evidence that the Florida procedure would offend the Canadian concept of justice.

I disagree for the foregoing reasons that enforcement of the Florida monetary judgement would shock the conscience of the reasonable l’affirment Castel et Walker, op. cit. , p. 14-28 : [ TRADUCTION ] . . . le moyen de défense traditionnel fondé sur l’ordre public paraît axé sur la notion de lois répugnantes et non sur la notion de faits répugnants... Quelle est l’utilité de ce moyen de défense pour le défendeur qui veut empêcher l’exécution d’un jugement étranger?

Il sert notamment à interdire l’exécution d’un jugement étranger fondé sur une loi contraire aux valeurs morales fondamentales du régime juridique canadien. De même, le moyen de défense fondé sur l’ordre public empêche l’exécution du jugement d’un tribunal étranger indubitablement corrompu ou partial. […] Le recours au moyen de défense fondé sur l’ordre public pour contester l’exécution d’un jugement étranger signifie que l’on attaque la validité de ce jugement en dénonçant la loi étrangère sur laquelle il est fondé. Ce moyen de défense ne doit pas être invoqué à la légère .

Rien ne justifie d’en élargir la portée de manière à pouvoir l’invoquer pour remédier à des injustices perçues qui ne heurtent pas notre sens des valeurs. Le moyen de défense fondé sur l’ordre public devrait continuer d’être appliqué d’une manière restrictive . Le montant des dommages-intérêts accordés par le jury de la Floride ne fait pas entorse à nos principes.

Malgré l’ampleur qu’elles ont prise, les sommes en question ne justifient pas, à elles seules, un refus d’exécuter le jugement étranger au Canada . Même s’il était possible, dans une autre affaire, d’invoquer l’ordre public pour faire valoir que le montant accordé est arbitraire, rien dans le dossier soumis en l’espèce n’autorise le tribunal canadien à réévaluer le montant accordé.

Le moyen de défense fondé sur l’ordre public n’est pas destine à empêcher l’exécution du jugement d’un tribunal étranger ayant un lien réel et substantiel avec la cause d’action, pour le seul motif que la demande présentée dans ce ressort étranger ne donnerait pas lieu à des dommages-intérêts comparables au Canada . Rien ne prouvait que la procédure suivie en Floride était contraire à la notion de justice canadienne. Pour les motifs qui précèdent, je ne suis pas d’accord pour dire que l’exécution du jugement rendu en Floride choquerait la conscience des Canadiens et des Canadiennes raisonnables.

Canadian. [Emphasis added] [ 73 ] The right to seek damages for harm to one's reputation and related consequences under California law cannot be said to be a law contrary to the fundamental morality of the Canadian legal system. On the contrary, it is a remedy well recognized under both legal traditions of this country, civil law and common law. [ 74 ] The same is true of the possibility for a court to control abuses of process by dismissing the abusive party's claim or restricting otherwise his rights.

Before the California Superior Court, a foreign court not proven to be corrupt or biased, Marciano's behaviour was depicted as abusive. His refusal to provide certain information, his erratic answers on key facts, such as his financial worth, and the firing of his acting attorneys on 16 occasions are all indications that the finding of the California Superior Court may be well founded.

It is not up to us to decide that but to the California Court of Appeal; suffice to say that the decisions to exclude Marciano and to reject summarily his claims do not appear contrary to the fundamental morality of the Canadian legal system. [ 75 ] What was apparently shocking the trial judge is the size of the civil awards. Schrager J. wrote: [123] In the case at bar, one of the judgment creditors who is not a party to the Canadian litigation, Mr.

Iskowitz, proceeded to prove his damages before a judge alone and there is evidence in this record of the actual proof that was made of damages suffered by Itzkowitz to his reputation and his accounting practice. However with respect to the five Fahs Judgment Creditors (including the three seeking recognition in this Court) the record before the undersigned of that which was placed before the jury underscores that the damage awards were arbitrary on the face of the record : Chapnick was an administrative assistant, Tegal a bookkeeper and Fahs an IT specialist. They earned $35,000 to $50,000 annually.

One ill imagines the reputation and lost earning potential of such individuals to be in the magnitude of the jury awards. The jury awards were identical to the dollar for each party. The examination of Marciano by the attorney of judgment creditors Choi and Abat is an exercise in embarrassing and shaming Marciano . No cross-examination by Marciano's counsel was permitted.

Michael Resnick in his testimony in this record raises serious questions about the integrity of the process as a whole and specifically the so called « prove-up » hearing with regard to damages. […] [137] The dissenting judge on the Bankruptcy Appeal Panel in addressing whether the debt allegedly due by Marciano was the subject of a bona fide dispute before the Bankruptcy Court, characterized the civil process referred to above as follows : « The massive judgment against Marciano is not a judgment on the merits of petitioning creditors' claims, but rather an unprecedented sanction for Marciano's conduct with respect to the determination of those claims .

The only reason that there is no dispute is that the state court precluded Marciano from defending himself by striking his answer and entering judgment as if he had made no appearance at all. Simply put, Marciano undisputedly disputes the claim; it is just that the state court muzzled him. […] if ever there were a case in which the debtor could claim a dispute, this would be it . ». (emphasis added) [ 76 ] It is quite true that the final civil awards made by the California Superior Court are well beyond what a Canadian court would likely grant in similar circumstances.

However it should not be forgotten that Marciano himself was claiming very substantial amounts against the defendants/cross-plaintiffs who, as the trial judge pointed out, were earning $35,000 to $50,000 annually. In appearance, the Civil Judgments are commensurate with Marciano's claims and should not be considered in themselves a basis to refuse enforcement in Canada. Considering that the defence of public policy should have a narrow application, it could not be invoked to refuse to recognize the US bankruptcy judgment.

Gottlieb's motion to obtain the recognition of the US bankruptcy judgment could not be denied on grounds of public policy. [ 77 ] Could it then be granted ex parte ? [ 78 ] In my view, the order could be granted ex parte given the tenor of the allegations made by Gotlieb, a US court officer, concerning Marciano's past behaviour: "left his creditors in the lurch by leaving the United States", "brought with him all the assets he could easily transport, including his art collection", "is attempting to frustrate his creditors by transferring his assets to companies", " has the option, if advised of the U.S.

Trustee's attempts to file the present motion, to once flee Canada taking as many assets with him as he can, as he has already done once", "has demonstrated his contempt for judicial process", "publically (sic) declared that he did not intend to pas a single penny to his creditors". In these circumstances, Corriveau J. did not abuse of her discretion in proceeding ex parte . [ 79 ] Once she decided to recognize the US bankruptcy proceeding, Corriveau J.had to specify whether it was a foreign “main” proceeding or a foreign “non-main” proceeding.

In her judgment on Gotlieb's motion rendered on September 15, 2011, she declared that the US bankruptcy proceeding was a foreign main proceeding pursuant to s. 270(2) BIA . [ 80 ] Under s. 272(1) BIA , once the foreign judgment recognized, Corriveau J. was empowered to make any order that she considered appropriate for the protection of the debtor's property or the interests of the creditors: 272.

(1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor’s 272.

(1) Si l’ordonnance de recon-naissance a été rendue, le tribunal, sur demande présentée par le représentant étranger demandeur, peut, s’il est convaincu que la mesure est nécessaire pour protéger les biens du débiteur ou les intérêts d’un

property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order (

a) if the foreign

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