Friday, October 28, 2016

Supreme Court Tosses Finding of Contempt Against Student Leader


The Supreme Court of Canada released this week its decision in a case overturning a ruling in which a court in Quebec had found a student leader guilty of contempt of court - Morasse v. Nadeau-Dubois 2016 SCC 44.

 The background goes back to the spring of 2012, when massive and sustained student protests took place in the province of Quebec over the issue of proposed increases in university tuition fees.  The increases were announced as part of the budget introduced by the provincial government.  Several student organizations which were opposed to the increases organized protests. 

 

The protests paralyzed several post-secondary institutions.  Classes at several institutions were cancelled.  Student organizations held votes declaring themselves to be “on strike”.  Picket lines were formed at several universities and CEGEPs.  Students and teachers were prevented from entering the buildings in which classes were to be held.  As a result, several injunctions were sought to resist these blockages and help ensure the continuation of the school year.

 

At the time, the defendant Gabriel Nadeau-Dubois, was the spokesperson for the Coalition large de L’Association pour une solidarite syndicaté etudiante (“CLASSE”).  CLASSE was one of the most active student organizations in Quebec.   It organized protests and picket lines in various post-secondary institutions. 

 

At the height of the protests, the plaintiff Jean-François Morasse was a student in his final year at Laval University’s Faculty of Planning, Architecture, Arts & Design.  Mr. Morasse was completing a certificate in visual arts. The Association des etudiants en arts plastiques de L’Universite Laval (“ASETAP”), the organization representing students in that program, held a strike vote and organized protests.  On February 29, 2012, picket lines were erected to block the entrance to the building where Mr. Morasse’s classes were held.  Mr. Morasse instituted civil proceedings against Laval University, ASETAP and another student organization and in April of 2012 obtained a provisional interlocutory injunction for a 10 day period.  The injunction mandated free access to the facilities in which classes for the visual arts program were held.  It also ordered all persons who were then boycotting classes to refrain from obstructing or otherwise blocking access to classes by way of intimidation or through other actions likely to have this effect.   

 

Mr. Morasse brought an application to renew the injunction after the initial 10 day period.  A judge of the Quebec Superior Court renewed the injunction through a safeguard order which was valid until September of 2012.  The judge’s order reaffirmed the prohibition to obstruct or otherwise prevent access to classes but made no specific reference to picketing generally.  Eleven days after the court renewed the injunction, in May of 2012, Mr. Nadeau-Dubois was interviewed by CBC’s French television news network after one CEGEP resumed its regular schedule of classes upon being ordered to do so by the Superior Court.  Appearing with him was Léo Bureau-Blouin, head of the Fédération etudiante collégiale du Québec, a coalition representing student unions of Quebec’s CEGEPs and private colleges.  The interview was broadcast live throughout the province.

 

After the interview, Mr. Morasse filed a motion for contempt against Mr. Nadeau-Dubois for his comments in the interview.  Mr. Morasse claimed that Mr. Nadeau-Dubois’ comments had violated a paragraph in the Superior Court’s May 2012 order relating to refraining from instructing or impeding access to classes by means of intimidation or from taking any action that could prevent or adversely affect access to the classes in question.  Mr. Nadeau-Dubois had stated during the interview that such attempts to force students back to class do not work, that a minority of students use the courts to circumvent the majorities collective decision to go on strike, and that picket lines are an entirely legitimate means to ensure respect of the vote to strike. 

 

Mr. Nadeau-Dubois was found guilty of contempt of court under an article of the Quebec Civil Code and sentenced to 120 hours of community service to be completed within six months under the supervision of a probation officer.

 

The Quebec Court of Appeal set aside the conviction and sentence and entered an acquittal. 

 

The matter was further appealed to the Supreme Court of Canada. 

 

The appeal was dismissed by the Supreme Court of Canada (6 – 3).  The majority decision was written jointly by Chief Justice McLachlin and Justice Abella.  Separate but concurring reasons were written by Justice Moldaver. 

 

Justices McLachlin and Abella held that what is at issue is whether a contempt charge brought by a private citizen against another individual, meets the strict procedural and substantive safeguards required by law to ensure that the liberty interest of those accused of contempt are fully protected.    

 

The power to find an individual guilty of contempt of court is an exceptional one.  It is an enforcement power of last resort and the only civil proceeding in Quebec that may result in a penalty of imprisonment.  Because of the potential impact on an individual’s liberty, the formalities for contempt proceedings must be strictly complied with.  The accused must be given clear, precise and unambiguous notice of a specific contempt offence and the elements required for a conviction must be proven beyond a reasonable doubt.  A conviction for contempt should only be entered where it is genuinely necessary to safeguard the administration of justice. 

 

The only allegations raised by Mr. Morasse against Mr. Nadeau-Dubois related to an alleged violation of one paragraph in an injunction order in the form of comments that Mr. Nadeau-Dubois had made in an interview.  Mr. Nadeau-Dubois was not given notice as to which specific branch of the Civil Code, if any, he was being charged under.  There was no evidence that Mr. Nadeau-Dubois had knowledge, either actual or inferred, of the order that the Superior Court had made.  Knowledge could not be imputed to Mr. Nadeau-Dubois on the basis of his comments during the interview, questions he was asked or the statements other student leader had made.  His endorsement of students picketing in general did not amount to an encouragement to use picket lines to block access to classes since the order did not prohibit picketing altogether.  Mr. Morasse’s failure to provide Mr. Nadeau-Dubois’ actual or inferred knowledge of the order was dispositive of the appeal. 

 

In his occurring reasons, Justice Moldaver held that in the television interview, Mr. Nadeau-Dubois intended to incite students at large to breach any and all court orders which enjoined the use of picket lines to block access to classes.  Had the case proceeded on that basis, his call to disobey at large would have included the injunction obtained by Mr. Morasse regardless of whether or not he had specific knowledge of it.  However, the issue at trial was whether Mr. Nadeau-Dubois breached this particular order.  The Quebec Court of Appeal had found correctly that the evidence did not support a finding that he had specific knowledge of the order that was in place and this was fatal to the finding of contempt.

 

The dissenting judges were Justices Wagner, Cote and Brown.  Justice Wagner wrote those reasons.  He held that the purpose of convictions for contempt of court, whether in a civil or criminal context is to maintain public confidence in the administration of justice and ensure the smooth functioning of the courts.  This power is exceptional and must be exercised only as a last resort.  Exercising it is nonetheless justified where a contempt conviction is necessary to protect the integrity of the justice system and ensure the systems credibility in the eyes of the public.

 

In this case, Mr. Nadeau-Dubois knew full well that the contempt charge he had to answer had been laid under two articles of the Civil Code as could be seen from statements made by Mr. Morasse’s counsel and other matters alleged by Mr. Morasse. 

 

Specific knowledge of an order is not essential for the purposes of the specific article under the Civil Code because actual personal knowledge can always be inferred from circumstantial evidence.  The inference must be reasonable given the evidence or absence of evidence, assessed logically and in the light of common sense and human experience.

 

The dissenting judges found that in this case a contextual analysis of Mr. Nadeau-Dubois’ words could lead to only one reasonable inference.  When considering the context of the entire interview, those words showed beyond a reasonable doubt that he knew of the existence, content and scope of the orders and that he incited students to breach them. 

 

Finally the dissenting judges held that the importance of freedom of expression and the protection of that freedom in a democratic society can never be overstated.  But one may not use the exercise of one’s freedom of expression as a pretext for inciting people to breach a court order.   

Regards,

Blair

 

Tuesday, October 25, 2016

Bernie Madoff's Frauds Continue To Reverberate Years Later


Seven years after Bernie Madoff was sentenced to 150 years in prison for frauds worth an estimated US$65 billion, the legal shockwaves from his disgraced empire continues to reverberate.  In a case that was recently decided by the Grand Court of the Cayman Islands, the court determined how the remaining value of a Cayman “feeder fund”, once part of the Madoff empire and now in official liquidation, should be distributed among its investors.

 

In this case, Herald and Primeo were open-ended investment funds.  They both placed funds for investment with a Madoff-related entity called BLMIS. 

 

In 2007, Primeo assigned the credit of its account with BLMIS to Herald in return for subscribing for shares in Herald.  The number of Herald shares provided to Primeo was based on the perceived value of Primeo’s account with BLMIS, which at that time was valued at US$466 million. 

 

In 2008, it was discovered that BLMIS was a Madoff run Ponzi scheme, with the consequence that every reported Net Asset Value (“NAV”) had been misstated, including the NAV used to calculate the value of Primeo’s consideration under its subscription with Herald. 

 

Herald was subsequently put into liquidation and its liquidator sought to determine how the remaining value in the fund should be distributed among its shareholders, including Primeo.  In particular, the liquidator was tasked with determining whether Primeo’s shareholding in Herald should be adjusted to reflect the fact that it had received a greater number of shares in Herald than it would have otherwise received if the actual value of its account with BLMIS had been known at the time of the subscription.  

The issues before the Cayman Court were:  (a) whether Herald’s share register should be rectified; and, (b) if so, on what basis should any rectification be performed.  

Under the applicable Cayman Islands Companies Law, the concept of rectification implied restoring the shareholder’s register to a position that accurately reflected the relative position of all shareholders as it would be if all subscriptions and redemptions had been transferred at a “true” NAV per share.  The court found that since every subscription and redemption of shares in Herald after the initial offering had occurred on the basis of a fraudulently misstated NAV, there could be no clearer case in which the power of the liquidator to rectify should be exercised.  The court held that any rectification needed to apply equally to all remaining shareholders.

 

There were several methods as to what basis rectification should be performed.  The liquidator submitted that the register should be rectified so that the net loss of subscription monies in Herald was borne rateably and that the remaining shareholders shared equitably in the pool of funds available for distribution. 

Two methods were proposed to achieve this:  (a) the net investment method – this method calculates each shareholder's economic interest on the basis of the amount of their total subscriptions, less any redemptions, as a percentage of the total surplus fund available for distribution; and  (b) the rising tide method – this method directly takes account of redemptions that have already been paid to investors in addition to the remaining value in the company.  It works by distributing remaining funds to shareholders according to the value each shareholder has already realized.

 

The Cayman Court found that both methods would create a result whereby Herald's shareholders would "share in the common misfortune of Madoff's fraud".  However, he concluded that the Companies Law prevented either method from being available.

Instead, the court held that the proper approach was to assign a constant “true” NAV for each and every subscription and redemption throughout Herald’s active life.  Since Herald’s NAV had been fraudulently misstated since its inception, the true NAV was held to be the initial offering price of the shares.  All NAVs after this date needed to be disregarded despite the value that may have actually been assigned (and paid) for shares at the time. 

 

The court directed the liquidator to recalculate each subscription and redemption of shares in Herald  at this constant “true” NAV and rectify the share register accordingly. 

Regards,

Blair