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mardi 13 novembre 2012

Full and Frank Disclosure is a Must in Ex Parte Proceedings

By Sarah Pinsonnault
De Granpré Joli-Coeur s.e.n.c.r.l./LLP

In the recent case Marciano (Séquestre de), 2012 QCCA 1881, the Court of Appeal confirmed that a party seeking an ex parte order has a duty of full and frank disclosure. Whether it be in its favour or not, the party must disclose all of the material facts or points of law known to it in order to ensure that the court is not misled. This is, after all, the essence of the adversary nature of our judicial system. 

This lengthy legal saga began in Los Angeles with Georges Marciano, a wealthy businessman with a net worth estimated at roughly USD $175,000,000, who decided to institute proceedings against his former employees and tax accountant (“Civil Judgments”). Marciano’s complaints were eventually dismissed due to abuse of process committed on his part. Nevertheless, the cross-complaints of these Civil Judgments were authorized to proceed and ultimately ended with Marciano owing a little over USD $260,000,000 to the cross-complainants (the “Appelants”).

Marciano appealed these judgments but, according to California law, they remained enforceable given that Marciano was unable to post the required statutory bond. Unable to seize any property of significant value in California, some of Marciano’s US creditors (which included the Appellants) decided to petition him into bankruptcy. This was granted by a California bankruptcy judge and confirmed by the Bankruptcy Appellate Panel.

Throughout this process, Marciano decided to move to Montreal, bringing with him the legal saga. Once declared bankrupt, the Appellants, the trustee to Marciano’s California assets and PricewaterhouseCoopers inc. (PWC) filed four motions before Justice Corriveau of the Quebec Superior Court seeking, inter alia, the appointment of an interim receiver and the issuance of a search warrant and authorization to seize the property of Marciano. These proceedings were presented ex parte and the majority of them were granted by Justice Corriveau.

Within hours of this ruling, PWC proceeded with searches and seized several of Marciano’s assets (precious artwork, 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, etc.).

In response, Marciano filed a motion to review, rescind, and vary the various orders rendered ex parte by Justice Corriveau. This motion was granted by Justice Schrager and PWC was dismissed as receiver/interim receiver and ordered to return all property seized at its own cost.

According to Justice Schrager, new circumstances and evidence were brought to his attention given that the orders under review were made on an ex parte basis. It appeared as though Justice Corriveau was not in full knowledge of the facts, namely with regards to:
-          The Civil and bankruptcy judgments being subject to appeal and therefore not yet final;
-          There being a likelihood that the Civil Judgments would be considerably reduced by the California Court of Appeal; and
-          That Marciano had considerable assets in California.

Thus, according to Justice Schrager, the Appellants’ failure to disclose fully and frankly such information justified the rescinding of all of Justice Corriveau’s orders.

Finally ending before the Quebec Court of Appeal, Justice Dalphond analyses the conduct an applicant must adopt in an ex parte hearing:

“ [47] […]As a general rule, an obligation of full and frank disclosure applies in Quebec in connection with any ex parte orders because counsel for the applicant is asking the judge to engage in a procedure that runs counter to the fundamental principle of justice that all sides of a dispute should be heard. In my view, it follows that in cases where opposing interests are certain to exist, the moving party "is under a super-added duty to the court" (Canadian Paraplegic Association, 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 other side 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?”

Justice Dalphond adds that in cases where there was a failure to disclose a material or relevant fact, even if done inadvertently, the judge hearing a motion to rescind or annul an ex parte order should consider the following factors:

- 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 the judge;
- 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.

Thus, based on these factors, Justice Dalphond ruled that the appointment of an interim receiver was correct but that the powers granted ex parte should have been limited to the search and seizure of movable property that could be easily disposed of or transferred (i.e. not the 18 buildings).

To read the decision in its entirety, click here.

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