Judgments

T-3105-92

The Sovereign Life Insurance Company (Appellant)

v.

The Minister of Finance (Respondent)

Indexed as: Sovereign Life Insurance Co.v. Canada (Minister of Finance) (T.D.)

Trial Division, Gibson J."Calgary, April 23 and 24; Ottawa, July 29, 1997.

Administrative law — Statutory appeals — Appeal from Minister of Finance's direction to Superintendent of Financial Institutions to take control of appellant — Insurance Companies Act, s. 680(2) permitting Minister to make such direction where believing circumstances in s. 680(1)(b) existing — Superintendent making three recommendations, including direction herein — At Minister of Finance's request, Minister of State (Finance and Privatization) hearing appellant's representations — Appellant also making written submissions — Appellant not given opportunity to respond to either letter from private company expressing support for Superintendent's recommendations or Minister of State's report analyzing positions, drawing conclusions, making recommendations — Appeal dismissed — (1) Minister forming belief necessary as condition precedent to exercise of s. 680(2) authority — Not simply acting on Superintendent's recommendation — Adopting only two of three recommendations — (2) Minister not improperly delegating decision-making authority to Minister of State — —Reasonable opportunity to make representations— met by providing opportunity to make written representations — Provision of opportunity to make oral representations, designating Minister of State to preside at meeting, not delegation of authority since no obligation to provide oral hearing — Minister making decision of such wide, significant import entitled to seek advice — As not acting under delegation of authority, Minister of State not exceeding jurisdiction by making recommendations — (3) Ministerial decision based on public policy grounds affording little procedural protection, except as required on face of statute — Neither Minister of State's report nor private company's letter containing new facts — Failure to share either not grounds for appeal.

Insurance — Appeal from Minister of Finance's direction to Superintendent of Financial Institutions to take control of life insurance company — Insurance Companies Act, s. 680(2) permitting Minister of Finance to make such direction where believing circumstances in s. 680(1)(b) existing — Minister required to give company reasonable opportunity to make representations — After Superintendent recommending such action in report, appellant making oral representations to Minister of State appointed to assist Minister, submitting written representations — Not having opportunity to respond to Minister of State's report, letter from corporate administrator of industry's protection plan supporting Superintendent's recommendations — Minister not fettering discretion by simply acting on Superintendent's recommendations — Adopting only two of three — —Reasonable opportunity to make representations— satisfied by opportunity to provide written representations — Although s. 704 permitting delegation of powers to Minister of State appointed to assist Minister, entrusting Minister of State to hear appellant's oral representations not delegation of powers as no obligation to provide such hearing — In making decision of such wide import, Minister of Finance entitled to seek advice — As not acting under delegation of powers, Minister of State not constrained in making recommendations — Ministerial decision based on policy grounds affording no procedural protection except that required by statute — Neither Minister of State's report nor letter from corporate administrator containing new information — Minister not required to share either with appellant.

This was a statutory appeal from a direction by the Minister of Finance (the Minister) pursuant to Insurance Companies Act, paragraph 680(2)(c) to the Superintendent of Financial Institutions to take control of the appellant. Paragraph 680(2)(c) permits the Minister to direct the Superintendent to take control of a company where he believes that any of the circumstances set out in paragraph 680(1)(b) exists e.g. the company is unable to pay its liabilities or its assets are insufficient to protect the policyholders. The Office of the Superintendent of Financial Institutions (OSFI) had been monitoring Sovereign's activities and concluded that its capital situation was critical because problems with its loan and real estate portfolio had virtually wiped out its margin of free capital and surplus. In a report dated November 18, 1992 OSFI recommended that the Minister (1) require the Superintendent to make the order approving the commencement and carrying on of business by the company subject to the limitation of not having the power to issue new policies; (2) direct the Superintendent to take control of the company; and (3) request that the Attorney General apply to a court for an order to wind up the company. Subsection 680(2) required the Minister to provide Sovereign a reasonable opportunity to make representations with respect to the recommendations. At the Minister's request, the Minister of State (Finance and Privatization) met with Sovereign's representatives to review the Superintendent's report, and Sovereign submitted a written brief. On December 14, 1992 the President of Canadian Life and Health Insurance Compensation Corporation (CompCorp), a private company established to administer the life and health insurance industry's consumer protection plan, wrote to the Minister of Finance, to express support for the Superintendent's recommendations. On December 17, the Minister of State reported to the Minister of Finance in writing, supporting the recommendations contained in the Superintendent's November 18 memorandum. On December 21, the Minister issued the direction here under appeal. Sovereign was not provided an opportunity to reply either to the CompCorp letter or to the report of the Minister of State.

The issues were (1) whether the Minister had fettered his discretion by simply acting on the recommendation of the Superintendent without forming the belief that was a condition precedent to his authority under subsection 680(2) to require the Superintendent to take control of Sovereign; (2) whether the Minister had improperly delegated his decision-making authority to the Minister of State or fettered his discretion by adopting the recommendation of the Minister of State; and (3) whether the Minister had breached the duty of fairness in failing to share with Sovereign the report by the Minister of State and the letter from CompCorp.

Held, the appeal should be dismissed.

(1) While section 704 provides limited authority to the Minister to delegate any of his powers, duties and functions under the Act to a Minister of State appointed to assist the Minister, it does not authorize delegation of the Minister's decision-making responsibility under subsection 680(2) to the Superintendent. The uncontradicted affidavit evidence, that the Minister simply accepted the Superintendent's recommendation without forming the requisite belief, was not as strong as it first appeared because of ambiguities. The Minister was a very senior and experienced Minister, charged with an important matter with very significant economic, social and political implications. There was evidence that he acted prudently and did form the requisite opinion. He did not simply make the determination that was recommended to him. He adopted two of the three recommendations made to him. Little weight should be attached to the fact that the Minister's decision was made shortly after the Minister of State's report was received. The Minister was probably familiar with the issue and would only have had to refresh his memory in light of the latest material to come forward.

(2) Section 704 permits the Minister to delegate any of his powers, duties and functions to any Minister of State appointed to assist him. The Minister did not, by entrusting to the Minister of State the function of hearing Sovereign's oral representations, make a delegation within the meaning of section 704. The Minister's responsibility under subsection 680(2) to afford Sovereign a reasonable opportunity to make representations did not encompass a duty to meet personally with Sovereign's representatives and allow them to submit oral representations or to have any other person on his behalf meet with Sovereign's representatives to receive oral representations. It was sufficient on the face of subsection 680(2) that the Minister provided Sovereign an opportunity to make written representations, as he did. In providing such an opportunity and designating the Minister of State to preside at that meeting and to report to him, the Minister did not delegate anything since he had no obligation to provide for such a hearing.

In the context of an administrative decision-making process it is open to the Minister of the Crown charged with making a decision of wide and significant import to seek advice where he or she considers it appropriate to do so, subject to conflict of interest considerations and limitations provided by law. The Minister of State was not acting pursuant to a delegation under section 704 of the Act that in any way constrained his initiative in reporting to the Minister of Finance as he clearly and unequivocally indicated to representatives of Sovereign that he would. The Minister of State did not err in jurisdiction by exercising the initiative to analyze the representations on both sides of the issue, made directly to him and directly to the Minister of Finance, by drawing conclusions from that analysis, and by making recommendations to the Minister of Finance. It was entirely open to the Minister of Finance, if he chose to do so, to ignore the analysis, conclusions, and recommendations of the Minister of State. Ultimately, he did not fully adopt the recommendations of either the Superintendent or the Minister of State.

(3) This was a ministerial decision, based on broad grounds of public policy, which typically does not afford the individual any procedural protection except that required on the face of the statute authorizing the ministerial discretion, in this case, the Minister's obligation to provide Sovereign a reasonable opportunity to make representations. The Minister of State's report contained no new facts. The analysis and conclusions contained therein added little to the analysis and conclusions of the Superintendent. To the extent that it might have added anything, it was advice of an independent third party which the Minister of Finance was entitled to seek and which was not in the nature of expert opinion.

The CompCorp letter contained no new information whatsoever other than the fact of CompCorp's support for the recommendations of the Superintendent. That expression of support was not information that the Minister was under an obligation to share or to provide an opportunity to respond to.

statutes and regulations judicially considered

Federal Court Rules, C.R.C., c. 663, R. 1312.

Financial Institutions and Deposit Insurance System Amendment Act, R.S.C., 1985 (3rd Supp.), c. 18.

Insurance Companies Act, S.C. 1991, c. 47, ss. 679(1)(d),(e),(f), 680, 681, 682, 684, 702(1)(a), (b),(2)(a),(b),(c), 704.

Ministries and Ministers of State Act, R.S.C., 1985, c. M-8.

Office of the Superintendent of Financial Institutions Act, R.S.C., 1985 (3rd Supp.), c. 18, Part I, ss. 2 "financial institution", 6.

cases judicially considered

applied:

Boulis v. Minister of Manpower and Immigration, [1974] S.C.R. 875; (1972), 26 D.L.R. (3d) 216; Williams v. Canada (Minister of Citizenship and Immigration), [1997] 2 F.C. 646 (C.A.); Save Richmond Farmland Society v. Richmond (Township), [1990] 3 S.C.R. 1213; (1990), 75 D.L.R. (4th) 425; [1991] 2 W.W.R. 178; 52 B.C.L.R. (2d) 145; 46 Admin. L.R. 264; 2 M.P.L.R. (2d) 288; 116 N.R. 68; Cardinal Insurance Co. and Minister of State (Finance), Re (1982), 138 D.L.R. (3d) 693; [1982] I.L.R. 1-1541; 44 N.R. 428 (F.C.A.).

distinguished:

League for Human Rights of B'nai Brith Canada and Commission of Inquiry on War Criminals, Re (1986), 28 D.L.R. (4th) 264; 69 N.R. 110 (F.C.A.); Mercier v. Canada (Human Rights Commission), [1994] 3 F.C. 3; (1994), 167 N.R. 241 (C.A.).

considered:

Muliadi v. Canada (Minister of Employment and Immigration), [1986] 2 F.C. 205; (1986), 18 Admin. L.R. 243; 66 N.R. 8 (C.A.).

referred to:

Martinoff v. Canada, [1994] 2 F.C. 33; (1993), 18 Admin. L.R. (2d) 191; 88 C.C.C. (3d) 341; 165 N.R. 309 (C.A.).

authors cited

Ketcham, Brock, "Tale of Intrigue", Calgary Herald , 15 August 1993.

Wade, H.W.R. and C. Forsyth. Administrative Law, 7th ed. Oxford: Clarendon Press, 1994.

APPEAL from Minister of Finance's direction pursuant to Insurance Companies Act, paragraph 680(2)(c) to the Superintendent of Financial Institutions to take control of the appellant. Appeal dismissed.

counsel:

Thomas G. Heintzman and Timothy S. Ellan for plaintiffs.

Edward R. Sojonky and Lyndsay K. Jeanes for defendants.

solicitors:

McCarthy Tétrault, Toronto, for plaintiffs.

Deputy Attorney General of Canada for defendants.

The following are the reasons for judgment rendered in English by

Gibson J.:

INTRODUCTION

These reasons arise out of a statutory appeal by The Sovereign Life Insurance Company (Sovereign) of a direction of the Minister of Finance (the Minister), made pursuant to section 680 of the Insurance Companies Act,¹ (the Act) dated the 21st of December 1992 wherein the Minister directed the Superintendent of Financial Institutions (the Superintendent) to take control of Sovereign.

The grounds for Sovereign's appeal are set in the notice of appeal and a subsequent amending document in the following terms:

1. The Minister of Finance erred in law and in jurisdiction in making an order without any evidence before him that the circumstances set forth in Section 680(1) of the Act existed.

2. The Superintendent of Financial Institutions did not submit to the hearing held on November 30, 1992 or otherwise any facts or actuarial opinions upon which the Minister of Finance could properly exercise his discretion to make an Order against Sovereign Life under Section 680 of the Act.

3. The Minister of Finance erred in law and in jurisdiction in failing to conduct before himself the hearing required under Section 680 of The Act and failed to himself make due consideration and himself form the belief stipulated under Section 680 (2) of the Insurance Companies Act . . . . [Citation Omitted.]

STATUTORY FRAMEWORK

The provisions of the Act relevant to this appeal, as they read at the relevant time, are as follows:

679. (1) Where

. . .

(d) in the opinion of the Superintendent, the assets of a company, . . . or provincial company . . . are not sufficient, having regard to all the circumstances, to give adequate protection to all the policyholders and creditors of the company or provincial company, . . . or

(e) the Superintendent is of the opinion that there exists any practice or state of affairs that is materially prejudicial to the interests of the policyholders or creditors of a company or provincial company, . . . ,

the Superintendent may immediately take control of

(f) the assets of the company, . . . or provincial company, or

. . .

and may maintain that control for a period of seven days or for such longer period as the Minister considers necessary to enable the company, . . . [or] provincial company. . . to make representations pursuant to subsection 680(2).

. . .

680. (1) The Superintendent shall report to the Minister in any case where

. . .

(b) the Superintendent is of the opinion that

. . .

(viii) a company, . . . or provincial company will not be able to pay its liabilities, . . . as they become due and payable,

(ix) the assets of a company, . . . or provincial company . . . are not sufficient, having regard to all the circumstances, to give adequate protection to the policyholders and creditors of the company or provincial company, . . . ,

. . .

(2) The Minister, after due consideration and after a reasonable opportunity has been provided to a company, . . . or provincial company or a person to make representations, may, where the Superintendent has taken control of the assets of a company, . . . or provincial company, or where the Minister believes that any circumstances described in paragraph (1)(b) exist,

. . .

(c) direct the Superintendent to take control of the company, . . . or provincial company . . . .

. . .

681. (1) Any company, society, foreign company or provincial company to which a direction under paragraph 680(2)(c) or subsection 680(3) relates may, by notice in writing served on the Minister and the Superintendent not later than thirty days after the making of the direction, appeal the direction in accordance with section 702.

(2) A direction under paragraph 680(2)(c) or subsection 680(3) shall not be stayed by an appeal under subsection (1).

. . .

702. (1) Notwithstanding section 30 of the Federal Court Act, an appeal lies to the Federal Court"Trial Division

(a) from any direction of the Minister made pursuant to subsection 46(1) or 432(1), paragraph 680(2)(b) or subsection 680(3); and

(b) from any decision of the Minister made under section 59, subsection 302(2) or section 586 or 677.

(2) The Federal Court"Trial Division may, in an appeal under subsection (1),

(a) dismiss the appeal;

(b) set aside the direction or decision; or

(c) set aside the direction or decision and refer the matter back for re-determination.

. . .

704. The Minister may delegate any of the Minister's powers, duties and functions under this Act to any Minister of State appointed pursuant to the Ministries and Ministers of State Act to assist the Minister.

The direction of the Minister here at issue was made pursuant to paragraph 680(2)(c), and therefore section 702 applies by virtue of section 681.

By Part I of the Financial Institutions and Deposit Insurance System Amendment Act,² that Part being known as the Office of the Superintendent of Financial Institutions Act, the Office of the Superintendent of Financial Institutions (OSFI) was established. The Minister presides over and is responsible for OSFI. An officer called the Superintendent of Financial Institutions (the Superintendent) is required to be appointed by the Governor in Council. The Superintendent is the "deputy head" of OSFI. The duties of the Superintendent are described in part in the following terms:

6. (1) The Superintendent shall perform the duties required to be performed by the Superintendent in the Acts or portions thereof referred to in the schedule to this Part and shall examine into and report to the Minister from time to time on all matters connected with the administration of those Acts or portions thereof.

(2) Where, pursuant to the Act that applies to it, a financial institution or any of its officers or employees engages in

(a) underwriting securities,

(b) trading in securities, or

(c) providing advisory or management services in respect of securities,

the Superintendent shall examine and inquire into the carrying out of those activities, and report to the Minister from time to time on all matters connected therewith.

The Insurance Companies Act is referred to in the relevant Schedule. "financial institution" is defined to include a company or provincial company to which the Insurance Companies Act applies.

THE FACTUAL BACKGROUND

Sovereign was, at all relevant times, a chartered financial institution licensed to carry on business in each province and territory of Canada. By certificate of amalgamation and letters patent both dated 31 December, 1990, The Sovereign Life Insurance Company and Pioneer Life Assurance Company were amalgamated as Sovereign.

OSFI's mandate extended to monitoring the operations of companies such as Sovereign for the purposes of detecting solvency, liquidity and compliance problems.

In the spring of 1991, OSFI commenced monitoring the activities of Sovereign on an intensive basis. In an extensive memorandum to the Minister dated 18 November, 1992, in which the direction resulting in this appeal was recommended, the Superintendent outlined the course of events from the spring of 1991.

OSFI conducted an on-site examination of Sovereign in the spring of 1991 which:

. . . included for the first time a detailed review of loan files by credit consultants hired by [OSFI]. This examination revealed serious problems in Sovereign's loan and real estate portfolio. As well, we confirmed that the high risk nature of the portfolio was not recognized in the company's accounting.

OSFI recommended that Sovereign make additional provision for losses on its loan and real estate portfolio. The recommended adjustment resulted in Sovereign's capital and surplus falling below the minimum 5% ratio of capital and unappropriated surplus to liabilities and appropriated surplus required by OSFI.

Interim financial statements filed monthly by Sovereign with OSFI led OSFI to believe by August of 1991 that Sovereign's asset situation was deteriorating quickly. By September, OSFI reached the conclusion that Sovereign's capital position was critical because the problems with its loan and real estate portfolio had virtually wiped out its margin of free capital and surplus.

The owner of Sovereign through a number of other companies, advised that he did not have the resources to make a capital injection to Sovereign but asked OSFI to reconsider regulatory action on the basis that he had decided to sell all or part of Sovereign so that a new owner could inject additional capital into the operation. He anticipated that a sale could be arranged by the end of 1991. On the basis of this proposal, OSFI held off taking regulatory action. The owner's efforts to sell all or part of Sovereign through to June of 1992 were unsuccessful.

OSFI required Sovereign's external auditor to perform an extended audit as of the end of 1991. The extended audit was not completed to the satisfaction of OSFI by the middle of 1992.

In early July 1992, debenture holders of Sovereign's parent company realized on their security by arranging for the acquisition of Sovereign's common shares by a third party nominee on behalf of the debenture holders. In the result, the ultimate owner of Sovereign ceased to be an officer and a director of Sovereign. The debenture holders themselves were unsuccessful in attempting to sell Sovereign. Further, the debenture holders were unsuccessful in their efforts to obtain a significant injection of capital from other sources. In the result, given OSFI's view of what it considered to be "the critical level of the company's capital position and its ongoing monthly losses" OSFI advised the debenture holders that it could not allow the situation to continue beyond 15 October 1992 unless the debenture holders were prepared to inject capital on a monthly basis equal in amount to Sovereign's monthly loss.

OSFI officials met with the Board of Sovereign on 30 October 1992. At the request of counsel for Sovereign, OSFI officials attended a series of meetings with Sovereign's actuarial and financial advisors and its directors on the 9th and 10th of November. OSFI's officials were presented with a report by Sovereign's appointed actuary. OSFI officials regarded the information provided by the appointed actuary as incomplete. The appointed actuary acknowledged that the necessary support for the assumptions on which his report was based was not documented and indicated that it would take at least a further month and likely longer to produce the documentation. OSFI's actuaries also concluded that certain assumptions of the appointed actuary were not appropriate to Sovereign's circumstances. OSFI concluded that the proposals presented would not resolve Sovereign's real problems, but rather would actually worsen Sovereign's earnings problems for the future. OSFI advised Sovereign's Board of Directors of its conclusions.

Further efforts to secure additional funding for Sovereign proved unsuccessful.

In his report, the Superintendent advised the Minister that the Canadian Life and Health Insurance Compensation Corporation (CompCorp) had "been kept up to date on the Sovereign's situation". CompCorp is a federally incorporated private company established to administer the life and health insurance industry's consumer protection plan which was introduced in 1990.

As indicated earlier, the foregoing summary of events from the spring of 1991 is abstracted from a report by the Superintendent to the Minister dated 18 November 1992. A copy of that report was provided to Sovereign on the same date. The report concluded with the following recommendations:

It is the recommendation of the Superintendent of Financial Institutions that the Minister:

" require the Superintendent to make the order approving the commencement and carrying on of business by the company subject to the limitation of servicing existing policies only, that is not having the power to issue new policies,

" direct the Superintendent to take control of the company and, once this action has been taken,

" request that the Attorney General of Canada apply to a court for an order to wind up the company under the Winding-up Act .

The first two recommendations were based on the authority of the Minister under subsection 680(2) of the Act. The third recommendation is based on the authority of the Minister under section 684 of the Act. The Superintendent advised the Minister of his obligation under subsection 680(2) of the Act to provide Sovereign a reasonable opportunity to make representations with respect to the recommendations.

That Sovereign was critically interested in any report that the Superintendent might make to the Minister, is reflected in the following extract from a letter dated 3 November 1992 from counsel for Sovereign to the Superintendent.

Since your discussion with the board [of Sovereign], management of Sovereign has undertaken a careful review of the facts and information available to it. In view of the critical importance of determining the accuracy of the financial information upon which you may be acting and Sovereign's wish to fully explain its position to you and the Minister, I would ask that you not take any action under Section 679 as such action would have a devastating impact upon Sovereign and would, for all practical purposes, impair if not remove any meaningful or effective opportunity to make a case before the Minister. Of fundamental importance is the correctness of the assumptions used in connection with the preparation of the financial statements for the Company. We are attaching a letter from Ken Clark, Actuary, on this point. It is crucial to your views of this Company to understand this issue. Based on Mr. Clark's views, the Company's ability to withstand asset impairment has for some time been substantially better than had been supposed"to the tune of at least $40,000,000.

I would now like to address your proposed action under Section 680. From the statements made at last Friday's meeting, there would appear to be a genuine difference of opinions with respect to the financial condition and future financial prospects of the Company. For example, you appear to be particularly concerned that there has been an increase in the redemption rate of existing policies and that asset impairment is continuing to worsen. Management, however, is of the view that there has been no significant adverse change in either area in recent weeks that would warrant the type of action that you are now contemplating. In fact, there is some evidence that stabilization has recently occurred. In some respects you appear to be acting upon information obtained from competitors or potential purchasers of Sovereign. Sovereign has not been given an opportunity to respond to that information.

Both the directors and management were extremely sur-prised that they were not provided with any prior indication of the course of action that you announced at the meeting last Friday. No information was conveyed to Sovereign prior to the meeting about the agenda of the meeting or the financial information presented by you to the meeting. Consequently, neither the directors nor management were in a position to respond to your conclusions as to the financial condition of the Company and your proposed course of action.

The Company therefore requests that a meeting be held as soon as possible. We suggest Monday next (November 9, 1992) to:

a) specifically respond to various matters you addressed last Friday as the reasons for your proposed course of action; and

b) review in detail with the Company's advisors the basis for your assessment of the Company's assets and its financial condition so as to fully understand the difference between your views and those of the Company, consulting actuary, Ken Clark and Deloitte & Touche. In making this request we wish to provide a meaningful and constructive response to your concerns and to insure that you have accurate information upon which to base your decision. Understanding these differences will also assist the board which, as you know, includes eminent Canadians to conclude what course of action is in the best interest of the Company and its policyholders at this time.

It is absolutely fundamental to fairness that Sovereign be given the full reasons for the Superintendent's actions and a full understanding of the financial information upon which the Superintendent is acting. In view of the drastic consequences of the Superintendent's actions, a refusal to provide the information and documentation upon which the Superintendent may be acting would amount to a breach of the rules of fairness: . . . it is the desire of Sovereign to insure that the Superintendent is acting upon correct information. Only by fully understanding that information can Sovereign meaningfully ensure that the information which the Superintendent is acting upon is fair and accurate. [Citations omitted.]

On 30 November 1992 representatives of Sovereign, together with a range of advisors, met with the Minister of State (Finance and Privatization) to review the memorandum from OSFI to the Minister of Finance dated the 18th of November 1992. A written brief was presented, supported by a slide presentation. A verbatim transcript of the meeting which lasted 1 1/2 hours was prepared. The Minister of State opened the meeting with a statement which included the following:

Pursuant to section 680 of the Insurance Act, Sovereign Life Insurance Company has the right to make representations respecting this matter and I am pleased that you're here today for this purpose. The Minister of Finance has asked me to hear your representations and then report back to him respecting this matter and what transpires today. I should make it clear that it will be the Minister of Finance, after consideration of the matter, who will be making the decision.

The following is taken from the report and representations of Sovereign that was presented at the meeting:

Over the past several months, Sovereign Life has assembled a group of leading industry experts and other external professionals to help determine and verify the Company's true financial situation . . . . That exercise has generated important information of great relevance to the future of the Company and therefore, we submit, of great relevance to the Minister.

The core of this information is embodied in a Report of the Appointed Actuary to the Board of Directors of The Sovereign Life Insurance Company, dated November 9th, 1992 and supplemented on November 11th, 1992 (the "Clark Report") . . . .

. . .

Stated briefly, Mr. Clark has given his professional opinion that:

" the financial position and expected financial condition of Sovereign Life are materially better than suggested by OSFI;

" the Company was solvent at the end of 1991 and will continue to be solvent at the end of 1992;

" the Company meets and, indeed, exceeds OSFI's "Minimum Continuing Capital and Surplus Requirements" as at the end of both 1991 and 1992;

" the Company is in no immediate danger as long as it is in the meantime perceived and managed as a going concern; and

" the Company needs additional capital, and additional capital even of a moderate amount would allay public concern about the Company's viability.

This description of Sovereign Life stands out in stark contrast against the bleak and negative picture painted by OSFI.

The Sovereign report and representations concludes in part in the following terms:

We believe that the OSFI conclusions are answered as follows:

" the Company has sufficient capital to meet the claims of its policyholders;

" but for non-recurring items the Company's losses for 1992 should be negligible, there is no evidence of negative cash flows and a turnaround is in sight with a return to profitability in 1993;

" the Company's assets allow for a modest profit in the near term, and more significant profits as the economy recovers;

" the restatement of actuarial reserves proposed by Mr. Clark are necessary as the reserves would otherwise be inappropriate; as a result of such restatement, the Company is in substantially better financial condition that [sic] was thought; and

" with the new financial information available, there are reasonable possibilities of finding an investor.

. . .

In the circumstances we would strongly recommend that the Minister not take the action requested by OSFI and that the Company should be permitted to continue in business without restriction. Naturally, we would understand that this decision is subject to review at any time and we would undertake to immediately report any material adverse change in the circumstances of the Company. In view of the extraordinary strain placed on the personnel of the Company over the past several months we would also ask that barring any unusual circumstances no further action be taken in respect of the Company at least until the audited 1992 financial statements are available at the end of February 1993.

Toward the end of the meeting on November 30, at the request of the Minister of State, the Superintendent, Mr. Mackenzie, commented and had the following exchange with Mr. Clark:

Mr. MACKENZIE: Minister, first of all I should make it abundantly clear to you that to write the memorandum that we did some weeks ago was done by us, contrary to the impression given here this morning, with extraordinary reluctance. There is no question, we do not desire to sink a company that is solvent. That's the last thing on earth we want to do. Secondly, that this situation as you know has been going on for some time and the activities to search out a new buyer have been going for some time and the buyers identified here, potential buyers, are very sophisticated people armed with their own competent actuaries as well as other personnel. Thirdly, I guess the only real new information that we have as of a result of this morning is that Mr. Clark has moved from a provisional opinion to a concrete definitive opinion.

MR. CLARKE: Oh, let me interrupt, please. That's not the case. I think I used the word provisional. I used the word provisional because we need better quality information for me to give a definitive opinion. The word provisional is in my report and I used the word provisional in my oral presentation today.

. . .

MR. MACKENZIE: Well, finally, Mr. Minister . . . I'm just reflecting on that last statement. I have not at the moment, based on what I've heard this morning, been persuaded to change my view. I have heard nothing that is a surprise to me in that sense. I mean I obviously owe it to the situation, that we've been given a substantial amount of information here, that we will promptly review this information and get back to you [the Minister of State] tomorrow to confirm or not our conclusion as stated.

The Minister of State thanked those attending and concluded:

I will be reporting to the Minister of Finance what transpired today and he will be making a decision regarding this in the near future and we'll so inform you.

The Superintendent reported to the Minister on 1 December 1992. He wrote:

I note that Mr. Clark on being questioned on the point, confirmed that the Report of the Appointed Actuary mentioned above, on which much emphasis was placed in the representations, set out his provisional conclusions; these did not constitute a signed actuarial opinion.

The company's representatives requested that the Minister delay his decision to allow more time for them to complete the actuarial analysis and produce audited financial statements as at December 31, 1992. Completion of these financial statements would take at least until the end of February 1993.

I understood the representatives' rationale for the request to be their belief that neither they nor our Office had sufficient, accurate information to make such important decisions at this time. I disagree with the contention and am satisfied that my report of November 18 presents a reasonable and accurate estimation of the company's financial situation. I do not believe that additional time will result in our differences regarding the company's current financial situation being resolved in favour of the position of the company's representatives.

In the result, the Superintendent concluded:

In the absence of a reasonable business plan that includes a substantial capital input to the company, I reiterate the conclusion presented in my report of November 18, 1992, that the interests of all policyholders will be best served by liquidating the company under the Winding-up Act, using a scheme of proportional reinsurance.

I therefore recommend that you not accede to the company's request to delay your decision.

A copy of this report was apparently provided to Sovereign and Sovereign replied to the Minister on 6 December 1992.

On 7 December 1992 the Chairman of the Steering Committee of the lenders to Sovereign Financial Corporation, the parent of Sovereign, wrote to the Minister. He concluded:

We would therefore submit that it is in the best interests of the policyholders and the shareholders of Sovereign Life, and the Canadian life insurance industry generally, that a decision be made as expeditiously as possible to reject the recommendations made by the Superintendent in the November 18 report.

On December 9 the Minister of State wrote to the Superintendent posing questions arising out of the Superintendent's memorandum to the Minister of November 18, the meeting of November 30 and the Superintendent's further memo of December 1. The Superintendent responded to the questions on December 10. Sovereign was apparently copied on this exchange and itself replied to the Minister of State.

On 14 December 1992, the President of CompCorp wrote to the Minister of Finance. His letter stated in part:

We have been aware for some time now of the financial difficulties being experienced by Sovereign Life, and I am now writing to express our support for the recommendation of the Superintendent of Financial Institutions that he be instructed to take control of Sovereign Life, and that a wind-up order be sought forthwith.

The Superintendent has kept CompCorp fully informed of the situation over the past several months. We believe he has acted appropriately in the circumstances and has explored every possible alternative solution.

If the company is in fact currently viable, as is claimed in the recent Eckler report, we would have expected the current owners to inject capital at least sufficient to meet the current operating losses, as a way of buying time for a favourable work-out of the difficulties. In the circumstances, we and our advisors believe it is unlikely that any other source of capital will be found.

The letter concluded:

. . . we urge that you act promptly to accept the recommendation of the Superintendent. We believe that any further delay in winding up Sovereign's operations will simply exacerbate an already difficult and costly situation.

On 17 December 1992, the Minister of State reported to the Minister of Finance in writing. He concluded by supporting the recommendations contained in the Superintendent's memorandum of 18 November 1992.

In the result, on 21 December 1992, the Minister issued the direction to the Superintendent that is here under appeal. There was no evidence before me that Sovereign was provided an opportunity to reply, either to the CompCorp letter, or to the report of the Minister of State.

EVIDENCE PURPORTING TO DEMONSTRATE THAT THE MINISTER DID NOT MAKE THE DECISION UNDER APPEAL

By order dated the 11th of December 1996, I added to the appeal case in this matter two affidavits, one sworn by Wendy Harvey on 31 December 1992 and the other sworn by Brock Ketcham dated 20 January 1994.

Ms. Harvey attested that she was a receptionist for Sovereign. On 21 December 1992, she noted the Minister on television indicating that Sovereign was in deep financial difficulty with no prospective purchaser at hand. She regarded this as a misconception on the part of the Minister and, that same evening, attempted to reach him by telephone at his home. She was unsuccessful on her first call. On the second attempt, she reached the Minister. She expressed her views to the Minister that Sovereign was not in deep financial difficulty. She attested:

Mr. Mazankowski's [the Minister's] reaction to these statements was that he was not familiar with the actual financial condition of the Company and that he made his decision based on the recommendation of the Superintendent of Financial Institutions, Mr. Michael Mackenzie. Mr. Mazankowski went on to state that under the law he was obligated to act on the recommendation of the Superintendent.

Mr. Ketcham attested that he was a reporter for the Calgary Herald and wrote an article entitled "Tale of Intrigue" which appeared in the 15th of August 1993 edition of that newspaper. That article included the following:

"The Superintendent is the person who makes the call", Mazankowski said from his home in Vegreville. "I had an obligation to conform."

Mr. Ketcham attested that the foregoing quotation was a true and accurate reflection of words spoken to him by the Minister in a conversation between the Minister and Mr. Ketcham, himself.

STANDARD OF REVIEW

In Boulis v. Minister of Manpower and Immigration,³ a statutory appeal with leave direct to the Supreme Court of Canada from an exercise of statutory discretion by the Immigration Appeal Board, Mr. Justice Abbott wrote:

In my opinion however, such an appeal can succeed only if it be shown that the Board (a) has refused to exercise its jurisdiction or (b) failed to exercise the discretion given under s. 15 in accordance with well established legal principles. As to those principles, Lord Macmillan speaking for the Judicial Committee said in D. R. Fraser and Co. Ltd. v. Minister of National Revenue . . . :

The criteria by which the exercise of a statutory discretion must be judged have been defined in many authoritative cases, and it is well settled that if the discretion has been exercised bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally, no court is entitled to interfere even if the court, had the discretion been theirs, might have exercised it otherwise.

Much more recently, in a decision relating to the exercise of statutory discretion by a minister, in Williams v. Canada (Minister of Citizenship and Immigration),⁴ Mr. Justice Strayer wrote:

It is striking that subsection 70(5) says that no appeal may be made under subsection 70(1) "where the Minister is of the opinion" [underlining added], not "where a judge is of the opinion" that the deportee constitutes a danger. Nor did Parliament put the matter in objective terms whereby a certificate precluding further appeal could only be issued where it is "established" or "determined" that the appellant constitutes a danger to the public in Canada. Instead the power to make such a finding is stated in subjective terms: the test is not whether the permanent resident is a danger to the public but whether "the Minister is of the opinion" [underlining added] that he is such a danger. There is ample authority that, unless the overall scheme of the Act indicates otherwise through e.g. an unlimited right of appeal of such an opinion, such subjective decisions cannot be judicially reviewed except on grounds such as that the decision maker acted in bad faith, or erred in law, or acted upon the basis of irrelevant considerations.

By footnote referencing the "unlimited right of appeal of such an opinion", Mr. Justice Strayer refers to a matter where a right of appeal was provided by statute to be in the nature of a trial de novo . That is not the case with the appeal before me. While Mr. Justice Strayer had before him a matter where the discretionary decision of the Minister was subject to judicial review rather than to a statutory appeal, I am satisfied that his statement of the appropriate standard of review is equally applicable to the standard of review on this statutory appeal. I am further satisfied that the term "illegally" as adopted by Mr. Justice Abbott in Boulis and the expression "erred in law" as used by Mr. Justice Strayer in Williams , include errors of jurisdiction and breaches of natural justice and procedural fairness.

ISSUES

Before me, counsel for Sovereign raised a range of issues, all within the grounds for Sovereign's appeal that are set out earlier on in these reasons. The following analysis addresses the issues as raised.

DID THE MINISTER MAKE THE DECISION UNDER APPEAL?

On the basis of the Harvey and Ketcham affidavits, and on the basis of the evidence of a very brief lapse of time between the completion of the material allegedly before the Minister on which he was required to base his decision and the date of the decision itself, counsel for Sovereign argued that the Minister made no decision, but rather fettered his discretion by simply acting on the recommendation of the Superintendent without forming the belief that was a condition precedent to his authority under subsection 680(2) to require the Superintendent to take control of Sovereign. As such, counsel urged that the decision that is the subject of this appeal is void.

In support of this position, counsel cited Administrative Law⁵ where at page 347, the learned authors wrote:

An element which is essential to the lawful exercise of power is that it should be exercised by the authority upon whom it is conferred, and by no one else. The principle is strictly applied, even where it causes administrative inconvenience, except in cases where it may reasonably be inferred that the power was intended to be delegable. Normally the courts are rigorous in requiring the power to be exercised by the precise person or body stated in the statute, and in condemning as ultra vires action taken by agents, sub-committees or delegates, however expressly authorized by the authority endowed with the power.

While section 704 of the Act, quoted earlier in these reasons, provides limited authority to the Minister to delegate any of his powers, duties and functions under the Act, that authority is to delegate to a Minister of State appointed pursuant to the Ministries and Ministers of State Act [R.S.C., 1985, c. M-8] to assist the Minister. Section 704 certainly cannot be read as authorizing a delegation of the Minister's decision-making responsibility under subsection 680(2) to the Superintendent.

Wade and Forsyth continue at page 356 in the following terms:

Departments of the central government have the benefit of a special rule whereby officials may act in their ministers' names without any formal delegation of authority. When powers are conferred upon ministers who have charge of large departments, it is obvious that they will often not be exercised by the minister in person. Parliament is well aware of this, and ministerial powers are therefore taken to be exercisable by officials of the minister's department acting in his name in the customary way.

Counsel for Sovereign argued that, given the specific statutory provision regarding delegation that is section 704 of the Act, the foregoing statement from Wade and Forsyth is overridden in the circumstances of the particular decision here under appeal and other decisions of the Minister for which he or she is specifically made responsible by the Act.

In Muliadi v. Canada (Minister of Employment and Immigration)⁶ Mr. Justice Stone wrote at page 218:

Secondly, the evidence before us strongly suggests that the decision to refuse the appellant's application was made by a Government of Ontario official rather than by the visa officer. That evidence appears in paragraph 3(m) of the appellant's affidavit . . . . It relates to what transpired at the appellant's interview . . . by the visa officer. He states:

I was told straight away by Mr. Lukie that my application was being refused and he showed me as constituting the reason therefore, a telex sent to him from what I understood to be the Province of Ontario, refusing my application. I asked him, why did he call me for an interview if an assessment by him was not to be made, and he said he was very sympathetic to my case, but he was sorry for as the decision was made by the authority who sent the telex, there was nothing he could do about it . . . . The interview left me with no doubt that the decision (or assessment) had not been made by him but rather by the person or authority who sent the telex and that he had neither authority or discretion in the matter. (Emphasis added.)

That evidence, as I have already observed, has not been contradicted in any way by the respondents.

It is elementary that the decision on the application had to be made by the visa officer and that it could not be delegated in the above fashion. The visa officer appears to have allowed it to be made by the person in Ontario from whom he received information regarding the viability of the appellant's business plan. Though he was entitled to receive information on that subject from that source it remained his duty to decide the matter in accordance with the Act and the regulations. It was therefore a serious error to allow the decision to be made by the Ontario official rather than kept in his own hands where it properly belonged. That being so, I think the appeal should succeed on this ground as well.⁷

On the face of the Harvey and Ketcham affidavits, material, the foregoing authorities would appear to be decisive of this matter. The substance of the affidavit evidence is to the effect that a senior Minister of the Crown, charged with the responsibility to form a belief before giving a direction to a senior official, simply accepted the recommendation of that official without forming the belief on the basis that he was somehow obliged to do so. The affidavit evidence stands uncontradicted by, for example, an affidavit of the Minister, or of some other person able to attest to the fact that the Minister actually turned his mind to forming the belief. Neither affiant was cross-examined on her or his affidavit despite the fact that the hearing of this matter was adjourned, at least in part, to allow time for such cross-examination.

On the other hand, the affidavit evidence may not be as strong as it appears at first glance. The statement contained in the Harvey affidavit that the Minister stated "that under the law he was obligated to act on the recommendation of the Superintendent", is capable of at least two meanings. I think it is fair to say that the Minister was indeed obligated to act on the recommendation of the Superintendent on all of the facts of this matter. He was obligated to act either by accepting the recommendation, giving a direction that varied from the recommendation, or rejecting the recommendation. He could not simply ignore it. To say he was obligated to act is not the same as to say that he was obligated to accept the recommendation. In the event, he only accepted the recommendation in part.

The statement attributed to the Minister in the Ketcham affidavit is less ambiguous. It runs:

The Superintendent is the person that makes the call. . . . I had an obligation to conform.

This statement appears from the Calgary Herald article to have been made, like the statement to Ms. Harvey, in a telephone conversation with the Minister at his home.

I am loathe to give significant weight to a quotation derived from a telephone conversation with a senior Minister of the Crown where the call was made to the Minister's home, and is unsupported by other than the ambiguous statement to Ms. Harvey, and is in fact contradicted by the Minister's own actions.

The Minister here in question was a very senior and experienced Minister. The matter that he was charged to deal with was an important one with very significant economic, social and political implications. There is evidence that he acted prudently and did form the requisite opinion. He did not simply make the determination that was recommended to him. The recommendation made to him consisted of three elements. He adopted two and rejected the third. He was obliged to provide Sovereign with a "reasonable opportunity" to make representations; he went further. He ensured that there was an opportunity to make those representations in person, not merely in writing or before his officials, but before one of his colleagues in Cabinet who had been assigned to assist him. He received a report on those representations, not merely from officials, but also from his colleague.

I attach little weight to the fact that the decision was made quickly once the file was complete. I am not prepared to assume that the Minister faced the issue for the first time once the file was complete. Rather, I assume he was familiar with the issue and would only have had to refresh his memory in light of the latest material to come forward.

On all of the evidence before me, I am not prepared to give the weight to the affidavit evidence and to the short interval for a reasoned decision that counsel for Sovereign would have me give to it. I am not prepared to conclude that, on the evidence as a whole, the Minister failed to form the belief that was a condition precedent to the validity of the direction that he gave to the Superintendent. In the result, this argument on behalf of Sovereign fails.

DID THE MINISTER IMPROPERLY DELEGATE HIS DECISION-MAKING AUTHORITY TO THE MINISTER OF STATE OR FETTER HIS DISCRETION BY SIMPLY ADOPTING THE RECOMMENDATION OF THE MINISTER OF STATE?

(a)  Improper Delegation

Counsel for Sovereign urged that the Minister had no authority to delegate his responsibility under subsection 680(2) to the Minister of State and that if he did have such authority, he was obliged to delegate the whole of his responsibility and not merely part thereof. In particular, counsel urged that it was improper for the Minister to delegate the responsibility to preside at a meeting intended to provide Sovereign a reasonable opportunity to be heard, while retaining to himself the decision-making responsibility. For ease of reference, I quote again section 704 of the Act:

704. The Minister may delegate any of the Minister's powers, duties and functions under this Act to any Minister of State appointed pursuant to the Ministries and Ministers of State Act to assist the Minister.

It was not in dispute before me that the Minister of State who met with Sovereign's delegation on 30 November 1992 and heard their oral presentation, and subsequently reported to the Minister with recommendations, was a Minister to whom a delegation could be made under section 704. But did the Minister, by entrusting to the Minister of State the function of hearing Sovereign's oral representations, make a delegation within the meaning of section 704 of the Act?

I think not.

The Minister's responsibility to Sovereign under subsection 680(2) of the Act was to afford Sovereign a reasonable opportunity to make representations. I do not read that statutory obligation to encompass a duty on the part of the Minister to meet personally with Sovereign's representatives and allow them to submit oral representations or indeed to have any other person on his behalf meet with Sovereign's representatives to receive oral representations. It was sufficient on the face of subsection 680(2) that the Minister provided Sovereign an opportunity to make written representations, as he did. In providing an opportunity for oral representations, the Minister was acting in good faith and, one might assume, out of an abundance of caution or fairness, presumably in recognition of the significance for Sovereign, its employees, creditors, policyholders and shareholders of the decision he was called upon to make. In providing such an opportunity and designating the Minister of State to preside at that meeting and to report to him, the Minister was delegating nothing since he had no obligation to provide for such a hearing.

I conclude that the Minister made no error, and certainly no error justifying relief to Sovereign on an appeal such as this, in providing for an oral hearing and designating the Minister of State to preside thereat.

(b)  Fettering Discretion

As indicated earlier in these reasons, following the opportunity to make oral representations that was presided over by the Minister of State, the Minister of State reported to the Minister of Finance and included in that report conclusions and recommendations. That the Minister of State would be reporting on the representations he received was made abundantly clear, accordingly to the transcript of the meeting, at both the beginning of the meeting and at the close of the meeting. However, in neither statement did the Minister of State indicate that he would be drawing conclusions and making recommendations.

The conclusions of the Minister of State in his report to the Minister of Finance are in the following terms:

The Superintendent is recommending that you direct him to take control of the company and request that the Attorney General apply to the Court for the winding up of the company. The company is asking that it be given until February to verify its view of its financial condition and potentially line up new investors to inject more capital.

The company has been provided with reasonable opportunities to make representations.

The possibility exists under the Insurance Companies Act for an independent actuarial assessment to be done of the company. However, while this possibility was referred to in the company's original written submission, it was not raised by Sovereign's representatives at their meeting with me and their formal recommendation remains as set out above. Appointing an independent actuary and having his report would take significant time and thus would in practice amount to agreeing with the company's suggestion and rejecting the approach of the Superintendent. Accordingly, I do not believe it is a separate option that needs to be considered.

I think that there are three main issues to be addressed. They are set out in my letter to the Superintendent dated December 9, 1992. [The letter requesting answers to certain questions, as referred to earlier in these reasons] The first is the issue of potential investors willing to inject additional capital to cover potential or actual losses and to increase the earning capacity of the company. The second is the reasonable level of loan loss provisions. The third is the issue of the possible reduction of actuarial reserve liabilities, thus adding to the company's capital.

While the company has sought to demonstrate that the company's financial condition is not as serious as described by the Superintendent, certain points cannot be ignored. Many of these are not actuarial in nature but are rather issues of what is reasonable to assume about loan losses and investment performance. There has been disagreement about the key assumptions used by the Superintendent versus Sovereign and indeed about whether the Superintendent was provided full information about Mr. Clark's analysis. (The Superintendent noted in his November 18 report that the necessary support for Mr. Clark's assumptions was not documented, while Sovereign noted that Mr. Clark has articulated his assumptions and methodology. I have noted that on November 11, Mr. Clark provided the Board of Sovereign with a supplement to his report of November 9 in which he notes "my statutory report to OSFI for the 1992 financial statements will describe completely the revised basis, including the revised basis for the asset impairment assumptions".)

On the first point about potential investors, I would note that, despite clear deadlines to come up with an offer, no one has indicated an unqualified willingness to put up money in order to cover losses and preserve the right to buy the company. The most recent exchange of correspondence makes clear that there are no firm commitments to inject material new capital and indeed, the Superintendent notes that one potential buyer's interest (Sun Life) was significantly overstated to me in the company's initial written and oral representations (a fact that the company's latest submission does not rebut).

On the second issue of loan and real estate losses, the loan loss provisions determined by the Superintendent are at least $17 million higher than the company's at the end of this year. According to the Superintendent, approximately 25% of the company's assets (some $200 million) are either non-performing, or under-performing or at risk of becoming so, and this is supported by credit consultants working with the Superintendent's examination staff. As at the end of October, loan arrears were continuing to rise. The company questions this but the table which the company provides indicates that there is support for the Superintendent's view (particularly if one looks at the gross totals before deducting loans that are committed to be brought back on side or sold"which is sensible to focus on since commitments may not materialize). The Superintendent's approach is based on a combination of company-specific and more general provisions for losses. The Superintendent has considerable experience in this area since he deals with a wide range and large number of financial institutions. The Superintendent has indicated that a conservative view of the full value of future losses from a $200 million problem loan and real estate portfolio is closer to $100 million, which is much higher than the company is providing for. Ultimately this has to be a matter of your relying on the judgment of those responsible for regulating financial institutions.

Thirdly, there is a debate over whether it is prudent to release a substantial amount of money from the company's actuarial policy reserves, and whether this would solve the company's problems. The company's actuary stands by his view that $52 million can be shifted into capital and the company has noted that some other actuaries agree with its approach. The Superintendent, however, believes that only $16 million can reasonably be shifted and, in his November 18 report, the Superintendent noted that this would not provide a solution to the company's problem. Sun Life says that such a reduction in policy reserves, even if agreed to by the Superintendent, does not improve Sun Life's interest in acquiring the company without someone providing guarantees against expected losses on the loan and real estate portfolios.

According to the Superintendent, the key difference in approaches is the investment return assumed in setting up the actuarial reserves. I would note that, the letter I received from Mr. McCrossan and Mr. Clark dated December 13 suggests that a change in the valuation interest rate would not have a material dollar effect on liabilities. At the same time, Mr. Clark's report dated November 11 to the Board of Sovereign indicates that the main difference between his valuation of policy liabilities and the valuation of policy liabilities made by Sovereign's former actuary is the assumed investment return rate.

I believe there is reasonable doubt whether a company such as Sovereign with poor quality assets can earn the return necessary to justify the reduction in policy reserves requested by the company. I would also note that even if the Superintendent were to accept the company's view that a large release in actuarial reserves is warranted, I do not believe that the Superintendent would change his recommendations, given his other concerns about lack of adequate provisions for loan and real estate losses and poor earning capacity.

I believe that you have to weigh these factors in light of the risks for policy holders. It is certainly the case that, if the company should prove able to meet its liabilities as they come due, that is the best outcome for policyholders. However given the views of the Superintendent, that outcome cannot be considered as anything close to certain. Thus I believe that you should weigh the risk for policyholders resulting from the various options. Indeed, I believe that policyholders' interests have to be the priority.

It should be noted, for background, that, under a liquidation with proportional reinsurance as recommended by the Superintendent, a buyer would assume Sovereign's business at a price dictated by what Sovereign's assets are worth: the lower the value of the assets, the larger discount to the face value of the policy (i.e. the less coverage) the buyer would provide to policyholders. Policies up to $200,000 and annuities up to $60,000 are fully protected by the industry-run CompCorp policyholder insurance arrangement. Policyholders with policies over the $200,000 CompCorp limit would stand to lose as coverage would be reduced by the amount of the discount of the buyer of the business.

If the company remains open pursuant to the company's recommendation, and deteriorates further as the Superintendent believes, or is found as of February to be in worse shape than the company now believes, it is policyholders who will be harmed. For example, policyholders with claims prior to a closure would be paid out in full while policyholders with claims after a closure would receive payouts only to the maximum of $200,000 provided by CompCorp. Also, while a liquidation could probably be done now with all of the assets and liabilities being sold to a buyer at a small discount, a liquidation done later might only be done by selling the assets and liabilities at a much deeper discount. I think that it is valid to base a decision on minimising the risk of further downsize for policyholders as opposed to basing a decision on a chance of an upside.

In the result, the Minister of State recommended that the Minister of Finance adopt the Superintendent's three recommendations.

The "conclusions" of the Minister of State, which really amount to an analysis of the material before the Minister as well as conclusions, were clearly a succinct summary, from one individual's perspective, of the position of the Superintendent and the sum total of the representations of Sovereign that were before the Minister. They undoubtedly would not have been supported by Sovereign if Sovereign had been provided an opportunity to respond to them. But that is not the issue or question here under examination. To reiterate, the issue or question under examination is whether or not the Minister fettered his discretion by receiving and presumably taking into account a report from the Minister of State containing analysis and conclusions and making recommendations.

Counsel for Sovereign urged that the Minister of State, in effect, acted as the decision-maker and made the decision required by the Act to be made by the Minister of Finance, in the absence of full delegation under section 704 of the Act. He argued that, the report of the Minister of State having been made on 17 December 1992, a Thursday, and the decision letter of the Minister having been dated Monday the 21st of December, I should conclude that the Minister of Finance made no decision at all. I have already concluded earlier in these reasons that the Minister formed his own belief and made his own decision.

In the context of an administrative decision-making process such as that here at issue, I am satisfied that it is open to the Minister of the Crown charged with making a decision of wide and significant import to seek advice where he or she considers it appropriate to do so, subject of course to conflict of interest considerations and limitations provided by law. I have already noted my conclusion that the Minister of State was not acting under a delegation under section 704 of the Act that in any way constrained his initiative in reporting to the Minister of Finance as he clearly and unequivocally indicated to representatives of Sovereign that he would. I find no basis whatsoever for concluding that the Minister of State erred in jurisdiction by exercising the initiative to analyze the representations, on both sides of the issue, made directly to him and directly to the Minister of Finance, by drawing conclusions from that analysis, and by making recommendations to the Minister of Finance. It was entirely open to the Minister of Finance, if he chose so to do, to ignore the analysis, conclusions, and recommendations of the Minister of State. In the event, he did not fully adopt the recommendations of either the Superintendent or the Minister of State.

DID THE MINISTER BREACH THE DUTY OF FAIRNESS IN FAILING TO SHARE WITH SOVEREIGN THE REPORT BY THE MINISTER OF STATE AND THE LETTER FROM COMPCORP?

I am satisfied that the duty of fairness owed by the Minister on an administrative decision such as this is relatively low. In Save Richmond Farmland Society v. Richmond (Township),⁸ Mr. Justice La Forest wrote at pages 1231 and 1232:

The aldermen who participate in such a process should be viewed accordingly not as judges, but as elected representatives who are answerable to the concerns of their constituents.

The above result finds support in the decisions of this Court in Martineau v. Matsqui Disciplinary Board, [1980] 1 S.C.R. 602, and Knight v. Indian Head School Division No. 19, [1990] 1 S.C.R. 653, which both stress that the attributes of natural justice that apply in a given context will vary according to the character of the decision made. Dickson J. puts the matter well in Martineau, supra, at pp. 628-29:

. . . A purely ministerial decision, on broad grounds of public policy, will typically afford the individual no procedural protection, and any attack upon such a decision will have to be founded upon abuse of discretion. Similarly, public bodies exercising legislative functions may not be amenable to judicial supervision. On the other hand, a function that approaches the judicial end of the spectrum will entail substantial procedural safeguards. Between the judicial decisions and those which are discretionary and policy-oriented will be found a myriad decision-making processes with a flexible gradation of procedural fairness through the administrative spectrum.

On the facts before me, I am satisfied that I am examining a ministerial decision, based on broad grounds of public policy, which in the words of Mr. Justice Dickson, as he then was, quoted with approval by Mr. Justice La Forest, "will typically afford the individual [in this case Sovereign] no procedural protection". An exception must, of course, be made for procedural protection required on the face of the statute authorizing the ministerial discretion, in this case, the Minister's obligation to provide Sovereign a reasonable opportunity to make representations.

In League for Human Rights of B'nai Brith Canada and Commission of Inquiry on War Criminals, Re,⁹ Mr. Justice Mahoney wrote at page 267:

In the particular circumstances of this Commission, the reports of the working group will not play the peripheral or incidental role which legal opinions usually play in the result of an inquiry. Instead, they are directed precisely to matters which the Commission is expressly required to address in its report. They are in the nature of expert evidence and to be dealt with accordingly. One would ordinarily expect the advice to a commission of any independent expert chosen by it to carry significant weight. [Underlining added by me for emphasis.]

Mr. Justice Mahoney continued at page 268:

It cannot be said that the opportunity afforded the appellant and other interested parties to present their own views and comment on the views of others fulfils the duty of fairness absent the opportunity to comment on the opinions of the independent experts.

It is trite law that what is required to discharge the duty of fairness varies with the circumstances of each case. In the present circumstances, I am satisfied that the opportunity to comment on the working group's reports is required. Fairness does not, however, in my opinion, demand that opportunities be afforded for further comment on the comments others may make on those reports. [Underlining added by me for emphasis.]

In Mercier v. Canada (Human Rights Commission),¹⁰ Mr. Justice Décary wrote at page 13:

In the case at bar, the appellant certainly was never in a position to foresee, a fortiori to counter, the decision the Commission was going to make, nor to know nor even suspect the grounds on which it would decide not to follow its investigator's recommendation. The investigation report was in fact favourable to her. The Service's comments were filed without her knowledge and outside the time limit which the Commission had imposed and described as mandatory. These comments were much more than argument based on the facts set out by the investigator in his report; on the contrary, they were replete with facts that did not appear in the file that had until then been before the Commission, and went so far as to attack the appellant's credibility.

Mr. Justice Décary continued at page 14:

I am not saying that the rules of procedural fairness require that the Commission systematically disclose to one party the comments it receives from the other; I am saying that they require this when those comments contain facts that differ from the facts set out in the investigation report which the adverse party would have been entitled to try to rebut had it known about them at the stage of the investigation, properly speaking.

In Cardinal Insurance Co. and Minister of State (Finance), Re,¹¹ a case with a fact situation much more similar to that before me than those in the immediately preceding cases and involving a decision-maker and a decision also of a more similar nature, Mr. Justice Urie wrote at pages 707 and 708:

I am of the opinion that the failure to make Cardinal aware of the existence of those documents and their contents [2 reports to the Minister by the Superintendent of Insurance and a third document in the nature of a briefing paper for a hearing held by the Minister] did not constitute a breach of a principle of natural justice. The memorandum of January 29, 1982, was, as stated, a report made in accordance with the requirements of s-s. 103.2(1) of the Act and, at the time of its issuance, all of the information contained therein was known to Cardinal, including, as already found, the possibility of the company's assets being taken over by the superintendent. In so far as the February 4th memorandum is concerned, much of the information contained therein was supplied by Cardinal and the remainder was known to it since it resulted from the meetings held with Union and Cardinal after January 29th. The briefing memorandum of February 8th, contains nothing that was not known to Cardinal.

In Lazarov v. Secretary of State of Canada (1973), 39 D.L.R. (3d) 738 at pp. 749-50, . . . Thurlow J., as he then was, had this to say about the requirement to disclose the existence of confidential reports and their contents:

In my opinion, therefore, the rule audi alteram partem applies whenever the Minister proposes to exercise his discretion to refuse an application on the basis of facts pertaining to the particular applicant or his application and where he has not already had an opportunity in the course of the proceedings before the Citizenship Court he must be afforded a fair opportunity in one way or another of stating his position with respect to any matters which in the absence of refutation or explanation would lead to the rejection of his application. That is not to say that a confidential report or its contents need be disclosed to him but the pertinent allegations which if undenied or unresolved would lead to rejection of his application must, as I see it, be made known to him to an extent sufficient to enable him to respond to them and he must have a fair opportunity to dispute or explain them.

I am of the opinion that this reasoning is wholly applicable to this case. There had been from the beginning complete disclosure of information in the possession of the Minister to Cardinal so that it was in a position to make full response thereto and to make all submissions and representations necessary to support its position.

I am satisfied that the reasoning in Cardinal applies here and that the League for Human Rights and Mercier cases can be distinguished on their facts and on the basis of the nature of the decision-making bodies and the nature of the decisions to be made in those cases. The report of the Minister of State contained no new facts. Counsel for Sovereign argued that it was not a fair and complete summary of a hearing of Sovereign's representatives. Therefore, there was not before the Minister of Finance for his consideration in reaching his decision their representations or a fair and reasonable summary thereof. I reject that argument. There is no evidence before me on which to base a conclusion that Sovereign's written representations, and the transcript of its representatives' oral representations were not before the Minister.

The analysis and conclusions contained in the report of the Minister of State also reflected no new facts and, further, added little if anything to the analysis and conclusions of the Superintendent. To the extent that it might have added anything, it was advice of an independent third party whose advice, I am satisfied, the Minister of Finance was entitled to seek and whose advice was not, as in the League for Human Rights case, in the nature of expert opinion.

In the case of the CompCorp letter, I am satisfied that, on a careful reading of the letter, it contains no new information whatsoever other than the fact of CompCorp's support for the recommendations of the Superintendent. I am satisfied that that expression of support, of itself, was not information that the Minister was under an obligation to share or to provide an opportunity to respond to.

In the result, I conclude that the Minister's failure to share with Sovereign the report of the Minister of State following his meeting with Sovereign's representatives and the letter of 14 December 1992 from CompCorp to the Minister provides no grounds for success by Sovereign on this appeal.

CONCLUSION

I conclude that, against the standard of review applicable on an appeal such as this, Sovereign has failed to demonstrate an error that would warrant relief in its favour. In the result, this appeal will be dismissed.

Rule 1312 of the Federal Court Rules¹² provides that no costs shall be payable by any party to a statutory appeal such as this unless the Court, in its discretion, for special reasons, so orders. No special reasons were urged on behalf of the Minister. There will be no order as to costs.

¹ S.C. 1991, c. 47. Ss. 680 to 682 have since been repealed. See S.C. 1996, c. 6, s. 96.

² R.S.C., 1985 (3rd Supp.), c. 18.

³ [1974] S.C.R. 875, at p. 877.

⁴ [1997] 2 F.C. 646 (C.A.), at pp. 663-664. (not cited before me) (application for leave to appeal to the Supreme Court of Canada filed June 10, 1997).

⁵ Sir William Wade and Christopher Forsyth, 7th ed., Oxford: Clarendon Press, 1994.

⁶ [1986] 2 F.C. 205 (C.A.).

⁷ To the same effect, see Martinoff v. Canada, [1994] 2 F.C. 33 (C.A.), at p. 39.

⁸ [1990] 3 S.C.R. 1213.

⁹ (1986), 28 D.L.R. (4th) 264 (F.C.A.).

¹⁰ [1994] 3 F.C. 3 (C.A.).

¹¹ (1982), 138 D.L.R. (3d) 693 (F.C.A.).

¹² C.R.C., c. 663.