Christian Brothers of Ireland in Canada (Re)

IN THE MATTER OF the Winding-Up and Restructuring Act,
R.S.C. 1985, c. W.11, as amended
AND IN THE MATTER OF the Winding-Up of the Christian
Brothers of Ireland in Canada

Re: The Christian Brothers of Ireland in Canada, applicant

[2004] O.J. No. 359
Court File No. 98-CL-002670

Ontario Superior Court of Justice
Commercial List
Blair J.

Heard: November 10-13 and 17-21, 2003.
Judgment: February 4, 2004.
(209 paras.)

Counsel:

       BLAIR J.:—

Introduction

¶ 1      Underlying these proceedings is a story of aching proportions.

¶ 2      Between December 1962 and the late 1980's a succession of teachers -- all cloaked in the trust-evoking aura of religious orders -- committed unspeakable acts of physical, sexual and emotional abuse on a group of boys who were under their protection and care at the Mount Cashel Orphanage in Newfoundland and elsewhere. These cruel and sadistic men were all members of the Christian Brothers of Ireland in Canada, a corporate entity that is being wound up in these proceedings [See Note 1 below].

   Note 1: I shall refer to the Christian Brothers of Ireland in Canada throughout these Reasons as "the Christian Brothers" or "the Corporation".

¶ 3      The heartbreak of this tragedy was exacerbated when revelations of the abuse, made by some of these vulnerable boys in 1975, were suppressed and covered up, and the boys sent back to the "care" of their abusers. The cover-up involved not only leaders of the Christian Brothers themselves, but people in very high places in the police and the Government of Newfoundland and Labrador. The impact and reverberations of the Christian Brothers' treatment of their victims, and the torment it has caused them, continues to this day.

¶ 4      This is an old story in Canada, but it is an unfinished story. Hopefully, the outcome of this winding-up proceeding and the Order made as a result of the present Hearing will provide a concluding chapter to the story and some closure to the anguish the victims have endured.

Background

¶ 5      The present Hearing involves a motion by the Provisional Liquidator [See Note 2 below] of the Christian Brothers for approval of the Recommendations contained in the Eleventh Report of the Liquidator dated April 10, 2003.

   Note 2: I shall refer to the Provisional Liquidator as "the Liquidator" throughout these Reasons.

¶ 6      On October 28, 1996, the Christian Brothers applied to the Ontario Superior Court of Justice to be wound up under the provisions of the Winding-up and Restructuring Act, R.S.C. 1985, c. W.11, as amended ("the Act"). The Corporation was insolvent because of numerous claims made against it by those who had been abused by members of the Christian Brothers ("the Claimants" or "the Abuse Victims"). The winding-up was stated to be for the purpose of ensuring that "the maximum amount of the corporation's assets ... were employed [to compensate] all of the Claimants in a fair and expedited manner".

¶ 7      While I am sure the Claimants would not view the process to have been an "expedited" one, the assets of the Corporation have now been realized and the Liquidator is in a position to distribute the proceeds amongst the Claimants. On this motion it is asking the Court to approve: the methodology which the Liquidator has developed for proving and valuing the claims against the Estate; the Recommendations arising out of the implementation of that methodology and leading to the distribution of funds to the Claimants in the individual amounts indicated in the Report; and, as well, an Agreement it has entered into with the Government of Newfoundland and Labrador.

¶ 8      Although the majority of the (now) 83 Claimants support the Recommendations, certain of the Claimants oppose the approval of the Report on various grounds ("the Objecting Claimants"). Some of the Objecting Claimants ask the Court to reject the Liquidator's methodology; others request that it reject an agreement that has been entered into between the Liquidator and the Government of Newfoundland and Labrador and which the Liquidator asserts is central to its ability to distribute the assets to the Claimants at this time and in the amounts indicated; and, finally, certain Objecting Claimants ask the Court to award them different amounts of compensation than what the Liquidator has recommended. A number of the Objecting Claimants are in more than one of these camps.

¶ 9      Various Notices of Objection have been filed, and there are several cross-motions seeking changes in the amounts recommended respecting four Claimants and requesting that the claims of the Government be subordinated to those of the Claimants in the liquidation.

¶ 10      To preserve the confidentiality of the identities of the Claimants I shall refer to them by the Master Identification Number attributed to them by the Liquidator for those purposes, rather than by their names, throughout these Reasons. There is one exception. Claimant #35, Mr. Wayne Pittman, appeared and participated in person at the Hearing. He has advised that he wishes to be referred to by his name rather than by his I.D. number, and I have accommodated that request.

¶ 11      Some further background is necessary in order to appreciate the context of the Liquidator's Recommendations.

¶ 12      The original winding-up Order was made on October 28, 1996. On December 10, 1996, the Court ordered that anyone who wished to make a claim against the Christian Brothers must file a proof of claim with the Liquidator by February 14, 1997 (this date was subsequently extended to December 10, 1997). As of February 28, 2003, a total of 111 people had filed proofs of claim.

¶ 13      By Order dated July 28, 1998, the Court appointed Representative Counsel to represent the interests of the Abuse Victims. Representative Counsel was asked, amongst other things, to assist Claimants in understanding the compensation process and to report to the Winding-up Court with respect to the compensation process. Mr. Garbig has performed that role admirably. The Court is grateful for his assistance to it and to the Claimants throughout.

       Motion for Advice and Directions

¶ 14      In December 1997, the Liquidator sought advice and direction from the Court on a number of questions, including that of whether the Liquidator should be ordered to admit liability on behalf of the Christian Brothers to those people whose claims related to abuse they had suffered while in the care of members of the organization and, if so, for which claims. On February 27, 1998, the Court ordered the Liquidator to admit such liability where it was proved that after December 20, 1962, a Brother of the Congregation physically, emotionally or sexually assaulted or abused a person in attendance at an institution managed or operated by the corporation.

¶ 15      At the same time, the Court ordered the Liquidator to propose a method to determine the veracity of the allegations of abuse made by Claimants and the damages that ought to be paid by the Christian Brothers to each such Claimant.

       The Liquidator's Sixth Report

¶ 16      The Liquidator filed its Sixth Report with the Court on July 9, 1998, setting out its proposed method for determining the veracity of the abuse allegations. By Order dated July 28, 1998, the Court approved the implementation of those terms. The particulars of this Order are of some significance to the motions presently being considered. I will therefore summarize a number of its provisions in more detail. The Order:

¶ 17      The Liquidator followed this process. It sent out statutory declaration forms to each person who had submitted a Proof of Claim. By mid-1999, however, it had concluded that in many cases the statutory declarations submitted to it had not been prepared with sufficient care and detail. Many contained what the Liquidator described as "boilerplate information which on their faces did not permit the Liquidator to admit those Claimants signing the declarations as creditors of the Estate" [See Note 3 below]. The Liquidator therefore submitted its Eighth Report to the Court, setting out a revised methodology for making its Recommendations, having regard to this situation.

   Note 3: Deloitte & Touche, The Eleventh Report of the Provisional Liquidator: April 30, 2003, at 8-9 ("Eleventh Report")

       The Liquidator's Eighth Report

¶ 18      The Eighth Report proposed [See Note 4 below], firstly, that the Claimants who had filed statutory declarations within the prescribed time be placed into one of three categories based on the information contained in their statutory declarations, namely:

   Note 4: The information contained under this heading is taken from the Eleventh Report at pp. 8-10.

¶ 19      Secondly, the Liquidator proposed retaining Dr. David Wolfe as an expert to perform certain psychological evaluations and to provide an opinion for each Claimant as to:

¶ 20      Thirdly, the Liquidator proposed that in valuing the Claimants' damages it would use a methodology that hewed as closely as possible to the methodology used by a court in assessing liability and damages for tortious wrongdoing, including general, aggravated and special damages. Only those Claimants whose damages were caused by the abuse were to receive special damages, however. In that regard, since the Liquidator did not wish to invoke a standard of proof of causation that would be impossible or even very difficult for a Claimant to meet, it proposed that Dr. Wolfe would review each of the statutory declarations and conduct personal interviews and psychological assessments of all Claimants in order to provide the Liquidator with the following opinions:

¶ 21      Finally, the Liquidator also requested in the Eighth Report that an expert be retained to provide economic opinions and advice to determine the special damages Claimant would be entitled to receive and, in particular, damages for lost income. [See Note 5 below]

   Note 5: The Liquidator subsequently concluded that an economic model would not address any individual Claimant's economic loss and would only provide generalizations and averages. As a result, the Liquidator decided not to rely on an economic model to assess damages.

¶ 22      The Court approved the revised methodology proposed by the Liquidator in its Eighth Report, by Order dated July 27, 1999. Based on his qualifications and expertise, Dr. Wolfe's retainer was accepted in that Order as well.

       The Claims

¶ 23      From its review of the statutory declarations and other information available to it, the Liquidator admitted 32 Claimants under Category I. It sought more evidence for 37 Claimants under Category II. It rejected 13 Claimants under Category III and concluded that 3 Claimants did not meet the liability threshold even if the information contained in their claims were accepted. Following the receipt of Dr. Wolfe's reports, the Liquidator accepted liability for 81 of the 85 Claimants who had filed statutory declarations. No one whose claim was rejected is opposing the Liquidator's Recommendations. At the commencement of the hearing of this motion, I granted leave to 2 additional Claimants to file statutory declarations, bringing the total of Claimants presently before the Court to 83.

¶ 24      Amongst the 81 pre-Hearing Claimants are 28 individuals who had formerly sued the Government of Newfoundland and Labrador (the "Government") and the Christian Brothers in the Supreme Court of Newfoundland and Labrador, and who settled those claims in 1996 for their individual portions of a total of $11.2 million paid by the Government. I shall refer to these 28 Claimants, as a group, from time to time as the "1996 Claimants", and to the settlement as the "1996 Settlement". Each of the 1996 Claimants gave a release to the Government and, as well, assigned their claims against the Christian Brothers to it (the "Assigned Claims"). The Government has filed a Proof of Claim in the liquidation with respect to the Assigned Claims and with respect to its claim for contribution and indemnity from the Christian Brothers arising out of the actions leading up to the 1996 Settlement (the "Contribution Claim").

¶ 25      Also amongst the 81 Claimants are 38 individuals who, since 1996, have commenced new proceedings in the Supreme Court of Newfoundland and Labrador against the Government (the "post-1996 Litigants"). The Government has taken third party proceedings against the Christian Brothers in those actions, and also asserts a claim in the Estate for contribution and indemnity with respect to those proceedings (the "Third Party Claims").

¶ 26      In addition, there are 12 Claimants in the Estate who are not 1996 Claimants or post-1996 Litigants, but who have claims against both the Estate and the Government. Finally, there are 3 Claimants who were abused by the Christian Brothers in institutions in British Columbia (the "B.C. Claimants") and who, therefore, have no claim against the Government with regard to their abuse.

       The Hearing

¶ 27      The Hearing extended over eight days. It took the format of a Motion, with supporting and opposing materials, supplemented by viva voce testimony. Three Claimants participated by video-conferencing from various parts of the country.

¶ 28      The Liquidator filed its Eleventh Report and Supplementary Eleventh Report, together with the individual assessments prepared by Dr. Wolfe respecting the Objecting Claimants, and other materials to assist the Court. Notices of Objection to the approval of the Liquidator's Recommendations were filed by, or on behalf of, 26 Claimants. Various of the Notices of Objections were accompanied by affidavits and other documentation.

¶ 29      Dr. Wolfe testified. He was examined in chief respecting his assessments and reports by Mr. Wingfield, and cross-examined by a number of counsel, by two of the Claimants who attended personally at the Hearing (Claimant #28 and Mr. Pittman) and by the three Claimants who participated by video-conferencing (Claimants #45, #55 and #63). The two Claimants who attended personally to participate in the Hearing also testified and made submissions (one of them, Claimant #28 had previously filed an affidavit and written materials). In addition, three other Claimants (#33, #20 and #70) attended to give evidence (two in opposition to the Recommendations, one in support of them). All three Claimants who participated by video-conferencing during the Hearing had filed written affidavits and materials, and two of them made a further statement and submissions by video.

¶ 30      Counsel also participated in the Hearing on behalf of various Claimants.

¶ 31      What is the legal standard for approval of the Liquidator's Recommendations?

¶ 32      This is an unusual winding-up proceeding. Normally the assets of an insolvent company are liquidated and the proceeds distributed amongst creditors whose claims are essentially of a commercial nature. That is not the case here. The essence of this winding-up is that the Company's assets have been liquidated specifically to provide a pool of funds for distribution to tort victims of institutional abuse for which the Corporation is liable. The nub of what is before the Court on these motions is the Liquidator's request for approval of its Recommendations concerning the scheme for distribution of the liquidated assets to those tort victims based upon what is loosely parallel to an assessment of damages for that institutional abuse.

¶ 33      The Liquidator was asked to do a great deal in this case. The process and the methodology leading up to the preparation of these Recommendations has been described above. It has been approved by earlier Orders of this Court that have not been contested or appealed. The procedure is founded upon the claims procedure set out in sections 71-5 of the Act, upon the Court's authority under section 111 to confer and delegate any of its powers under the Act to an officer of the court -- in this case, the Liquidator -- and upon the general equitable jurisdiction of the Winding-up Court, coupled with its general supervisory power over the proceedings and the Liquidator.

¶ 34      The Court has given the Liquidator a mandate to assess and value the claims of the Claimants, subject to court approval, and a considerable discretion in doing so. On February 27, 1998, the Liquidator was directed and authorized to propose a method for determining the veracity of the claims and to value the claims; by Order dated July 28, 1998, it was directed and authorized to determine, by any method which it determined to be fair and reasonable, which Claimants should be entitled to compensation and in what amounts; and on July 27, 1999, this Court approved the methodology proposed by the Liquidator to effect this result, together with the appointment of Dr. Wolfe to assist in the process.

¶ 35      On behalf of the Liquidator Mr. Wingfield submits that the Court has placed a great deal of trust and confidence in its officer by assigning the Liquidator the foregoing tasks, and that the Court should therefore show considerable deference to the Liquidator's Recommendations. The Court should only decline to approve the Recommendations -- in the exercise of its supervisory mandate -- if it is satisfied that its officer has acted unfairly, imprudently or arbitrarily in making them. On the other hand, Mr. Prophet argues, on behalf of the Claimants he represents, that there should be no deference to the Liquidator's Recommendations and that where an individual Claimant objects to the recommendation pertaining to him the Court has an obligation to consider that claim as if it were adjudicating it separately and in accordance with normal tort damage principles. He contends that the previous Orders do not ask the Liquidator to adjudicate the claims of the Claimants, but rather to provide the Court with assistance in adjudicating the claims.

¶ 36      I agree that it is ultimately for the Court to "adjudicate" the claims, in the sense that the Court must be satisfied that the Recommendations in question should or should not be approved. However, I accept that the Court should afford a certain deference to the Recommendations made by the Liquidator.

¶ 37      In Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1 (C.A.) and in Crown Trust Co. v. Rosenberg (1986), 60 O.R. (2d) 87 (Ont. H.C.J.), the courts have enunciated certain criteria for consideration when they are dealing with a receiver's recommendations concerning the sale of an asset. They speak to deference in such circumstances. While I agree that the nature of the recommendations before the courts in those cases was more strictly commercial than ones dealing with an assessment and valuation of tort claims based on institutional abuse, I do not agree with the submission that the principles stated in Soundair and Crown Trust are of no assistance in these circumstances. In my view they are of assistance.

¶ 38      Mr. Prophet reasonably raises the distinction between this winding-up proceeding and Soundair and Crown Trust, where the Court lacked the commercial expertise of its receiver. Here, it is not a matter of lack of expertise on the Court's part in adjudicating and assessing damages in tort cases. Obviously, courts perform this function regularly. However, the claims in question are for institutional abuse, a relatively new category of tort claim. They are difficult to prove. The damages are uncertain. Significantly, the pool of funds available to respond to the claims is finite, and limited. Once their claim has been assessed, what each Claimant has is a proportionate entitlement to those funds.

¶ 39      In those circumstances -- given the complexities of this winding-up, the nature of the claims being asserted, the need for a fair overall process that would treat all Claimants with similar claims reasonably and equally, and the limited resources available for the resolution of individual claims disputes -- it made sense to direct and authorize the Liquidator, as an officer of the court, to engage in the process described, to develop the methodology utilized, and to make recommendations accordingly. The Liquidator and its advisors not only have some competence in the area, they have time and ability beyond that of the Court to engage in the exercise. To paraphrase Justice Galligan in Soundair, supra (at. 5), when a court appoints a liquidator to use its expertise, time and abilities to administer the Estate and develop such a process and methodology, "it is inescapable that it intends to rely upon" what the liquidator does in that regard.

¶ 40      I therefore accept Mr. Wingfield's submission that the test the Court should adopt in the circumstances of this winding-up is a modified version of the criteria set out in Soundair and Crown Trust. The Court must review the Recommendations in light of the specific mandate given to the Liquidator, and, in determining whether to approve them or not, should consider:

¶ 41      I have concluded that these criteria have been met, in the circumstances, and that the Recommendations should be approved notwithstanding the arguments of the Objecting Claimants. My reasons for arriving at this conclusion follow.

       Dr. Wolfe's Assessments and Reports

¶ 42      Dr. Wolfe's reports form a part of the record. He testified at the Hearing. I was impressed not only by his expertise and experience, but also by the clarity and fairness of his testimony and the sensitivity with which it was given -- particularly in the face of questioning by deeply troubled Claimants in circumstances where imperfect video-conferencing technology made the communication of his evidence difficult.

¶ 43      Dr. Wolfe is a distinguished clinician, teacher, researcher, and author in the field of clinical psychology, mental disorders, and psychopathology. His field of expertise includes, in particular, the areas of abnormal development of children, the effects of abuse on children, and the long-term effects of abuse into adulthood. Although his work in this case constituted his first involvement with male adult victims of institutional sexual abuse -- as opposed to domestic abuse situations -- I do not regard this as significant given his overwhelming expertise and experience in the field of child abuse and its developmental effects through adult life. He does have experience in dealing with female victims of sexual abuse by priests or teachers in school institutions. Dr. Wolfe was also questioned about the tests he chose to administer -- in contrast to others that might have been selected -- and about the manner in which the tests were administered and, generally, about the way in which he conducted his interviews and prepared his diagnoses. I do not see any criticism of merit in respect of these issues.

¶ 44      No expert evidence was tendered in opposition to that of Dr. Wolfe. I accept his evidence.

¶ 45      Dr. Wolfe prepared a general Report for the Liquidator, dated February 10, 2003, in which he described the methodology he used in evaluating each Claimant and explained his conclusions. He also provided the Liquidator with individual reports on each Claimant he met and assessed. Of the 85 Claimants who filed statutory declarations, Dr. Wolfe individually interviewed 79 (three claims were rejected outright by the Liquidator, three Claimants had died).

¶ 46      These assessments confirmed that the Claimants had encountered the same types of wide-ranging harm generally experienced by victims of child sexual abuse, and described in the following passages from the February 10th Report: [See Note 6 below]

   Note 6: Eleventh Report, supra note 3 at 320-21.

¶ 47      The Claimants abused by the Christian Brothers' experienced similar impacts, to varying degrees: See the February 10th Report, p. 14 (Eleventh Report, p. 332).

¶ 48      Dr. Wolfe was not the investigator of the abuse claims, however. He used as his informational base the data set out in the statutory declarations and whatever other records the Liquidator or others were able to provide concerning pertinent life experiences and background, clinical notes and records of family physicians and medical specialists and hospitals where available. All of this material was reviewed before the assessment. Each assessment began with a semi-structured clinical interview which was followed (in most cases) by the administration of two psychological tests -- the Trauma Symptom Inventory ("TSI") and the Personality Assessment Inventory ("PAI") -- and, finally, a diagnostic interview. The sessions varied in length but on average lasted three to four hours.

¶ 49      The following opinions were provided for each Claimant. [See Note 7 below] For the claims already accepted by the Liquidator (Category I), Dr. Wolfe determined the extent to which that Claimant suffered psychological harm as a result of the abuse. For claims needing additional information (Category II) or provisionally rejected by the Liquidator (Category III) he determined -- as requested, and in accordance with the July 27, 1999 Order -- whether the Claimant showed symptoms consistent with abuse of the nature, degree and frequency that the Claimant alleged had been suffered, and then he determined the extent to which the Claimant suffered psychological harm as a result of the abuse.

   Note 7: See the Eleventh Report, supra note 3 at 19-21.

¶ 50      As part of the process, Dr. Wolfe gave an opinion as to the nature and severity of abuse suffered by a Claimant compared to the other Claimants he had assessed. In this respect, Claimants were placed in one of three relative categories, namely, whether the abuse suffered by them was (a) similar to, (b) significantly more extreme than, or (c) significantly less extreme than that suffered by others.

¶ 51      The manner in which this comparative analysis was conducted was the subject of some controversy during the Hearing. If the Liquidator had previously accepted the claim (Category I), Dr. Wolfe did not ask the Claimant to describe the abuse again during his interviews; instead, the Claimant was reminded the claim had been accepted and told that there was no need to discuss the upsetting events further unless the Claimant wanted to elaborate further. In those instances, the nature and severity of the abuse was simply summarized from the statutory declaration and other sources of information provided. On the other hand, if the Liquidator had not already accepted the claim (Categories II and III), Dr. Wolfe asked the Claimant to describe and elaborate upon the incidents of abuse alleged in the statutory declaration. This approach was criticized by a number of the Claimants -- Claimants #28, #35 (Wayne Pittman), #45, #55 and #63, in particular -- on the basis that their statutory declarations and other records (or, in the case of Mr. Pittman, a lack of records) did not accurately reflect the nature or severity of the acts of abuse to which they were subjected. It was argued that Dr. Wolfe should have probed further.

¶ 52      As I have indicated, however, it was not Dr. Wolfe's role in this process to conduct a further investigation of the acts of abuse in question. I am satisfied the restrictions on time and resources that are inherent in this liquidation, together with the generally painful and possibly detrimental impact on the Claimants of discussing the particulars of the abuse they sustained in detail with the assessor, justified the approach taken by Dr. Wolfe and the Liquidator in this regard. While there may have been instances where the full nature of the abuse was not articulated in the statutory declaration or apparent from other records, I am not persuaded on the evidence there would have been any significant overall difference in the categorization of Claimants on this basis.

¶ 53      In addition to his opinions on the foregoing matters, Dr. Wolfe also provided a psychological measurement of the harm to Claimants in terms of their current and past functioning. This was done through what is known as a Global Assessment of Functioning ("GAF") and a Social and Occupational Functioning Assessment ("SOFA"). The GAF is a standard scale used for rating an individual's overall psychological, social, and occupational functioning. Recognizing that a person's global functioning may have changed since the childhood abuse, a GAF score was provided for each Claimant on the basis of his current functioning and on the basis of his worst level of functioning after 21 years of age. The SOFA considers social and occupational functioning (not psychological), but includes impairments due to both physical and mental limitations. Each Claimant's report sets out the GAF and SOFA scores and the average of those scores.

¶ 54      Dr. Wolfe described these two assessments as follows: [See Note 8 below]

   Note 8: Eleventh Report, supra note 3 at 327-28.

¶ 55      Finally, Dr. Wolfe provided the Liquidator with a psychological opinion whether the abuse suffered by a Claimant materially contributed to his impairment -- i.e., whether it had more than a de minimus impact -- or was the result of other factors in the individual's life. In doing so he was required to have a high degree of confidence that the abuse suffered did not contribute in more than an inconsequential way to the Claimant's overall level of functioning and that it was caused by other identifiable factors. There were 12 Claimants for whom Dr. Wolfe felt the abuse suffered did not materially contribute to their psychological impairment.

       Methodology and the Liquidator's Recommendations

¶ 56      Following receipt of Dr. Wolfe's reports the Liquidator prepared its Recommendations for the Court. They are contained in its Eleventh Report and the Supplementary Eleventh Report. The first part of the Recommendations deals with how the pool of distributable assets available in the liquidation (the "Distributable Amount") is to be allocated proportionately to each of the Claimants. The second part deals with an agreement that has been entered into between the Liquidator and the Government of Newfoundland and Labrador (the "Government Agreement"), and which the Liquidator says is essential to the proper liquidation of the Estate.

¶ 57      The Distributable Amount is finite and limited. It is approximately $15.5 million. Given the number of Claimants, the nature of the abuse inflicted upon them by the Christian Brothers, and the damages that might well be awarded to most Claimants were they to litigate their individual claims against the Corporation, it is obvious that $15.5 million cannot come remotely close to compensating the Claimants in any full way for the harm they have endured. This reality cannot be ignored when considering the process and methodology followed by the Liquidator in arriving at its Recommendations. It must be borne in mind as well, in terms of the nature of an approval motion under the Winding-up and Restructuring Act, that limited distributable amounts and a proportionate-reimbursement approach to the allocation of those funds makes it cumbersome and ineffective to conduct the Hearing as if it were 81 separate personal injury actions.

¶ 58      The Liquidator recommends that the allocation of the Distributable Amount be accomplished under three separate headings. It argues these headings together encompass general, aggravated, and special damages. The proposal is as follows:

¶ 59      A helpful overview of the methodology used by the Liquidator in arriving at its Recommendations, and of the proposed manner of allocating the Distributable Amount, is found in the "Flow Chart for Liability and Damage Assessments" attached as Schedule "A" to these Reasons. A summary of the individual payments proposed, by Claimant Number, is included as Schedule "B" to the Reasons. [Editor's note: Schedules A and B were not attached to the copy received from the Court and therefore are not included in the judgment.] The latter indicates in columnar form the amounts suggested for each category of compensation, the severity of abuse and amount of severity payment, the GAF and SOFA scores and quantum of impaired functioning payment, and the total amount of compensation proposed for each Claimant. Where a Claimant was involved in the 1996 Settlement, the sum received from that Settlement is deducted from the liability, severity and impaired functioning payments to arrive at the total distribution. Everyone receives at least $20,000, however.

¶ 60      The amounts recommended to be paid cannot be allocated, however, without a consideration of the position of the Government, and of the Government Agreement and the issues surrounding it. I turn to those subjects next, prefaced by a brief discussion into a topic that underlies and colours everything flowing from the Mount Cashel abuse.

¶ 61      The topic I refer to is what I shall describe in general terms as "the 1975-76 Cover-up". The fallout from this cover-up is at the core of the opposition of some Claimants to the Government Agreement and its approval; but it lies beneath the objections of certain Claimants to their categorization in terms of severity of abuse and impaired functioning, as well.

¶ 62      The 1975-76 Cover-up was examined, and confirmed beyond peradventure, by the Royal Commission of Inquiry into the Response of the Newfoundland Criminal Justice System to Complaints, conducted by the Honourable S.H.S. Hughes Q.C. in 1989-90 ("the Hughes Inquiry") [See Note 9 below]. A police investigation regarding physical and sexual abuse by five Brothers at Mount Cashel was interfered with and ultimately terminated and suppressed by the then Chief of the Royal Newfoundland Constabulary and (and at the instance of) the then Deputy Minister of Justice. The investigation, which was launched as a result of complaints regarding one Mount Cashel boy, was soon buttressed in the Fall of 1975 by particulars of widespread physical and sexual mistreatment obtained in interviews with some 26 boys, many of whom gave statements. [See Note 10 below] It was also supported by admissions from two of the Brothers. The investigating officer prepared two reports, dated December 18, 1975 and March 3, 1976, but he was ordered by his Chief to alter an earlier version of his first report to remove all references to sexual abuse, an edict he only partially obeyed. His first report was accompanied by the written statements of boys who had been interviewed, however. These reports were closely guarded by the Deputy Minister and were never shown to the Minister of Justice, as found by Commissioner Hughes. [See Note 11 below]

   Note 9: Newfoundland & Labrador, Report of the Royal Commission of Inquiry into the Response of the Newfoundland Justice System to Complaints, vols. 1 & 2 (St. John's: Queen's Printer, 1991).

   Note 10: See the Hughes Inquiry Report, supra, at 196 and Appendix F.

   Note 11: Ibid., at 209.

¶ 63      Shortly after the March 3rd report, it seems, a meeting took place between senior officials of the Christian Brothers and the Deputy Minister of Justice, at which time a tacit agreement was made whereby the implicated Brothers would be removed from Newfoundland and would undergo treatment, in exchange for which the laying of any criminal charges would be suspended. By letter dated January 26, 1977, the Deputy Minister returned the two reports to the Chief of police, together with copies of letters from Christian Brothers' officials attesting to treatment undertaken by the offending Brothers, and stating:

   Note 12: Ibid., at 152-153.

¶ 64      Commissioner Hughes described what happened in December 1975 in the following words:

   Note 13: Brother Kenny was at the time the Superintendent of Mount Cashel. He was also one of the Brothers accused by the boys of sexual abuse.

   Note 14: Ibid., at 196-197.

¶ 65      From the standpoint of the child victims, of course, the trauma was only heightened by the fact that they were forced to return with Brother Kenny and to continue to reside at Mount Cashel with their abusers. Many were further molested and beaten as a "reward" for their co-operation with the police.

¶ 66      One can readily understand the tormented memories that haunt those boys to this day. Many of them are Claimants in the liquidation. Three -- Claimants #28, #35 (Mr. Pittman) and #63 -- participated personally or by video-conferencing at this Hearing. They expressed in differing ways, but equally eloquently, the impact the experience of the 1975-76 Cover-up had on them and their reasons why it should preclude the Government from evading responsibility for its actions (and inaction) through the mechanism of the Government Agreement, as well as their perspective of the experience in the context of the severity of their abuse and impaired functioning.

¶ 67      Mr. Pittman was particularly vocal in his testimony regarding these issues. He has become very focused on what he perceives to be an ongoing conspiracy to obstruct justice and to cover up what actually happened on the part of the Government, beginning in 1975 and continuing through the Hughes Inquiry (which he also challenges) to the present attempt by the Government to avoid responsibility by forcing the Claimants to provide releases by means of the Government Agreement. Apart from what is already in the public domain concerning the role of senior government officials and police in the 1975-76 Cover-up through the Hughes Inquiry and subsequent criminal proceedings involving certain Brothers, I am aware of no real basis for Mr. Pittman's allegations.

¶ 68      To this mix of frustration and anger Mr. Pittman adds a dissatisfaction with Mr. Budden (in relation to his services provided earlier concerning the liquidation) and Mr. Day (in relation to certain things that happened at the Hughes Inquiry, where Mr. Day was co-counsel to the Commission). The former arises out of the conviction that his historical records were not provided to Dr. Wolfe when they should have been. The latter relates to a controversy over whether there were written statements given by Mr. Pittman in November or December 1975 and, if so, whether they should have been tendered at the Hughes Inquiry. Again, I see nothing in the Record before me that provides any objective basis for Mr. Pittman's grievances with respect to these allegations.

¶ 69      In any event, both the accusations concerning particulars of the Cover-up and the Hughes Inquiry and those concerning the solicitors are well beyond the scope of the liquidation and this Hearing.

¶ 70      Having said that, however, I have no doubt Mr. Pittman subjectively believes that his concerns are justified. While this is peripheral to the issues to be determined at this Hearing, it has a great deal to do with his sense of justice being done and with his ability to achieve closure respecting the Christian Brothers' affair.

¶ 71      Mr. Pittman says that he and his brother spoke to the police, and gave statements, in November 1975, as well as in December of that year. In addition, he spoke to his father, to a teacher he was put in contact with, and to the guidance counsellor at Brother Rice High School where he attended. Nothing came of these efforts, as far as he can determine. The abuse continued, particularly respecting his brother, and he has a sense of guilt about not having been able to protect his brother. [See Note 15 below] In addition he is frustrated by the fact -- as he sees it -- that his efforts to report and put an end to the ongoing abuse seem to have been ignored and the statements he gave either ignored or (worse) their existence denied. Mr. Pittman did not attend or testify at the Hughes Inquiry because he simply felt unable to do so. There is some controversy over whether written statements from him exist, but I think that Mr. Pittman's concerns in this regard are more subjective than real. On a review of Appendix G to the Hughes Inquiry Report [See Note 16 below] it is apparent that Mr. Pittman spoke to the police at least on December 12, 1975, and that the Commissioner accepted this was so. Thus, I think Mr. Pittman can take some measure of comfort that he and his brother's contacts with the police played a role -- along with the information provided by the other 26 boys -- in unravelling the Mount Cashel disgraces.

   Note 15: Mr. Pittman can take some comfort from the fact that he was eventually able to help his brother, in any event. It was at least in part because of what I heard during his testimony on the first day of the Hearing that I was persuaded to make the order I did, granting an extension of time and leave to the brother to participate as a Claimant in the liquidation.

   Note 16: Supra, note 9, vol. 2 at 76-89 and 86

¶ 72      I cannot leave this part of these Reasons, though, without commenting on the extraordinary bravery of the young boys, including Claimants #28, #63 and Mr. Pittman, who were courageous enough in 1975 to attempt to put a stop to the tragedy that was unfolding. To say that it is difficult to restrain one's sense of disbelief and outright abhorrence at the egregious and despicable acts of physical, sexual and emotional abuse visited upon the young boys who were placed in the care of the Christian Brothers is an understatement. However, the sense of horror, betrayal and breach of trust that must have been experienced by the Claimants who were courageous and bold enough to risk revealing the abuse, only to have those acts of bravery rewarded by more years of the same abuse by the same perpetrators, with the apparent condonation of those in authority, cannot be imagined. I salute those valiant boys. I express my revulsion, and, to the extent I can, that of the society this Court represents, at what happened to them.

¶ 73      Most of the Mount Cashel victims assert a claim against the Government as well as against the Christian Brothers. The claims against the Government rest on various foundations, including the assertions that the victims were wards of the Province when placed in the care of the Christian Brothers and therefore the Government was responsible for ensuring their protection; if not wards, the Government was responsible, nonetheless, in its capacity as parens patriae. The claims are framed in breach of fiduciary duty, breach of duty of care, and vicarious liability. Claims are also put forward in relation to the 1975-76 Cover-up following the initial revelations of abuse by a group of boys in the Fall of 1975 and the failure of the police and government agencies to deal with those allegations at the time.

¶ 74      The validity or strength of the claims against the Government is of only tangential significance for this Hearing. What is important is that the claims exist. That fact has two important implications for this Hearing. First, for understandable emotional and psychological reasons, the suggestion that Claimants should be expected to give up their claims against the Government is a flashpoint for a generation of built-up anger and bitterness. Secondly -- but on the other side of the ledger -- the existence of those claims has led to the separate reality of the Government's claims against the Estate. The convergence of these two factors is the source of much of the tension underlying the Objecting Claimants' opposition to the Government Agreement.

¶ 75      The Government settled with the 1996 Claimants by paying a substantial sum in total. It holds the Assigned Claims of those plaintiffs against the Christian Brothers directly, as well as the Contribution Claims and the Third Party Claims. The Government is by far the largest single creditor in the liquidation, with demands that, if entitled to Crown Priority, would equal or exceed the Distributable Amount. Its claims are the sword of Damocles hanging over the Liquidator's ability to distribute the assets of the Estate to the Claimants. They have to be resolved before the Estate can be liquidated.

¶ 76      So, too, does the question of how to treat the claims of the 1996 Claimants relative to the claims of those who have never received any settlement payment or who are currently suing the Government as well as claiming in the Estate.

¶ 77      These factors led the Liquidator to negotiate the Government Agreement. In that Agreement the Government has agreed to subordinate its Contribution Claim to the individual Claimants. It has agreed not to pursue its Assigned Claims, and it has agreed to dismiss the Third Party Claims. The Government's agreement comes at a price, however. The Agreement is subject to certain conditions, including the following:

¶ 78      The Liquidator's rationale in support of the Government Agreement is that it generally benefits the various groups of Claimants and enables the Liquidator to wind up the Estate and distribute the assets in a timely fashion while at the same time disposing of the Government's claims with finality.

¶ 79      From the Liquidator's perspective the benefit of the Agreement is that it permits the Estate to be wound up in a fair and timely fashion. From the perspective of the 1996 Claimants, the advantage is that they recover at least $20,000 from the Estate -- and in some cases significantly more -- even though they have already settled with, and received monies from, the Government; in addition, they receive concrete recognition of the Christian Brothers' liability for their abuse. From the perspective of the post-1996 Claimants, there is the option of recovering compensation immediately from the Estate or of continuing or commencing their pursuit of "full compensation" from the Government. In exchange for these benefits, the Claimants must provide the Government with releases and, in the case of the post-1996 Claimants who have sued the Government, discontinuances of their actions.

¶ 80      The Claimants, generally, benefit from the fact that the Distributable Amount has been increased, for purposes of calculating payments to be made, by the value of the Government's entitlement under the Assigned Claims ($6.9 million), which has effectively been added back into the Estate for these purposes. The Claimants will then receive their proportionate share of the Distributable Amount immediately, without having to wait for a determination of the existing series of actions in the Supreme Court of Newfoundland and Labrador and the Third Party Claims in those actions and -- in the case of the 1996 Claimants -- without having to pay anything to the Government under the assignments they gave. The four Claimants from British Columbia, who have no claim against the Government of Newfoundland and Labrador, will also benefit from an immediate distribution without having to await the outcome of proceedings that are of no concern to them.

¶ 81      The Liquidator points out, as well, that the compensation amounts proposed in the Recommendations are, on average, consistent with the average amounts received by the 1996 Claimants. Moreover, the great majority (55, or 68%) of the 81 Claimants against the Estate support the Recommendations and the Agreement.

¶ 82      The Liquidator submits that to be able to administer the Estate it requires two things. First, it needs the Government's Third Party Claims to be dismissed. Secondly, it needs the Government's remaining claims to be subordinated or abandoned. The Agreement gives the Liquidator both of these things. The Liquidator does not believe that either can be accomplished except with the consent of the Government.

¶ 83      Those opposing approval of the Agreement take a different view, however.

¶ 84      The opposition is based in some part on litigation strategy -- the post-1996 Claimants should be allowed to recover from the Estate and be able to continue to pursue the Government in the courts, just as the 1996 Claimants had been able to do -- but it is in large part rooted in a deeply-held belief that it is wrong and unfair to permit the Government to escape its civil obligations to the post-1996 Claimants by, in effect, forcing those Claimants to accept less than full compensation out of the Estate. In developing his argument about what he called "the Government's goal of thrifty litigation immunization", Mr. Stagg summarized the profound sense of anger towards the Government in the colourful opening to his factum, submitted on behalf of Claimant #46:

¶ 85      The solution proposed by those objecting to the Government Agreement is that the Court should rule either (a) that the doctrine of Crown priority does not apply in the circumstances of this liquidation, and therefore that the Government's claims do not rank in priority to those of the abuse victims but are subordinated to them, or (b) that the Government's claims are subordinated to those of the Abuse Victims on the basis of the doctrine of "equitable subordination". I turn briefly to these issues now, although I have concluded that they are not dispositive of this matter.

       Crown Priority

¶ 86      Crown priority is a vestige of the prerogative powers of the Crown, which arise at common law. In essence, it provides that "when the rights of the Crown come in conflict with the right of a subject in respect to payment of debts of equal degree, the right of the Crown must prevail": Canada v. Bank of Nova Scotia (1885), 11 S.C.R. 1, at 10. The principle was reiterated in Household Realty Corp. v. Canada (Attorney-General), [1980] 1 S.C.R. 423. It is argued that Crown priority can only be defeated either by statutory abolition or by demonstrating that the nature of the debt held by the Crown is of a lesser degree than that of the other creditors.

¶ 87      Nothing in the Winding-up and Restructuring Act abolishes Crown priority. The debt of the Christian Brothers to the Claimants and its debt to the Government for the Contribution Claims and, potentially, for the Third Party Claims, are of equal degree since they are all unsecured claims. Therefore, the Crown's argument goes, the principle of Crown priority applies in favour of the Government. It is submitted for good measure that courts have declined to subordinate the Crown's right on equitable grounds: see, for example, Crowther v. Attorney-General of Canada (1959), 17 D.L.R. (2d) 437 (N.S.S.C.).

¶ 88      Mr. Prophet argued on behalf of a number of Objecting Claimants, however, as did Mr. Stagg on behalf of his client, that Crown priority ought not to attach to the Government's claims in this case. Mr. Prophet submitted that the priority applies to situations where the Crown is acting in a capacity that is unique to the Crown -- for example, the collection of taxes -- and not where the Crown is acting simply like any one of its subjects. He relies upon the reasoning of Lord Shaw of Dunfermline in Food Controller and Others v. Cork [1923] A.C. 647 (H.L.), where, at p. 666, Lord Shaw said:

¶ 89      In the Food Controller case the Crown was claiming on a debt owed to it by an insolvent company that was acting as the Crown's agent for the sale and distribution of frozen rabbits imported from Australia. The Crown priority was held to have been extinguished by statute in that case, but Lord Shaw of Dunfermline felt obliged to consider the nature of the debt "in case the treatment of this appeal should ever be attempted as a precedent for recognition on a wide scale of what are Crown debts" (p. 665). He concluded, at 667-668:

¶ 90      The sentiments of Lord Shaw of Dunfermline have found favour in certain western Canadian cases: see The Queen v. Workmen's Compensation Board et al. (1962), 36 D.L.R. (2d) 166, affirmed in part on other grounds 40 D.L.R. (2d) 243, [sub nom. R. (Provincial Treasurer) v. Workmen's Compensation Board et al.] (Alta. C.A.); Alberta Government Telephones v. Selk, [1974] 4 W.W.R. 205 (Alta. Dist. Ct.). In Manitoba Hydro v. Dvorak (1980), 119 D.L.R. (3d) 173, however, the Manitoba Court of Appeal declined to accept that view in the circumstances of a specific provision in the Bankruptcy Act which excluded the application of a Part of the Act to debts owing to Her Majesty (of which Manitoba Hydro was held to be an agent); nonetheless, Freedman C.J.M., with whom Matas J.A. concurred, expressed the view that "there may be cases in which we will be called upon to consider whether the principle set forth by Lord Shaw of Dunfermline in Food Controller et al. v. Cork ... should be applied" (pp. 173-174).

¶ 91      Here, the substance of the Government's claim in the Estate is by way of a claim for contribution or indemnity in relation to a liability to which both the Christian Brothers and the Crown are exposed as a result of abuse inflicted on young boys. It is even more removed than a strictly commercial debt from the exercise of a power vested in the Crown "by way of the imposition of a duty or a tax". What could be the policy rationale for preserving Crown priority in relation to such a tainted claim, particularly when the contest is between the Crown and the very victims of the acts that give rise to the claims in the first place? I can see little rationale for doing so.

¶ 92      I pause to digress and to note that the Government of Newfoundland and Labrador chose not to attend and make submissions at this Hearing. It would have been more supportive of, and beneficial to, the process if they had.

¶ 93      The Christian Brothers' winding-up has been underway since 1996. This Hearing constitutes the first opportunity, for practical purposes, however, for the abuse victims to participate themselves. It embraces the very core of what the winding-up procedure is about: the distribution of monies from the liquidation of the Christian Brothers' assets to victims in recompense for the horrific wrongs perpetrated upon those victims. In the nightmares of many of those victims, of course, the Government of Newfoundland and Labrador is seen as co-perpetrator of those wrongs. The Government has participated in many hearings over the course of the proceedings, where its interests needed to be protected. For somewhat thin reasons, expressed in a letter filed with the Court late in the Hearing, [See Note 17 below] however, it chose not to participate on this occasion. It simply filed a slim, 5-page, written submission setting out its position on the issue of Crown priority. This choice was puzzling, because the Government Agreement is central to the Liquidator's Recommendations and its approval a key issue at the Hearing. One is left with the impression that the Government is neutral, at best, about whether the Agreement is approved, and willing to let the chips fall where they may and fight these abused victims to the bitter end. The choice is as regrettable as it is puzzling. First, it leaves the Court without the benefit of oral argument -- directly responsive to questions arising during the Hearing -- on the part of the Government. Worse, however, the Government's absence at the Hearing, perhaps unwittingly, fuelled and reinforced the sense of abandonment and betrayal that underlies the very life-experience of these abuse victims. The Mount Cashel story is a source of unremitting shame on the Christian Brothers, the Roman Catholic Church, and the Government of Newfoundland and Labrador. The Government's presence at this Hearing would have been helpful.

   Note 17: The reasons were twofold: (1) The Government takes the position it is not bound by the Winding-up and Restructuring Act; and (2) The Government indicates it is not objecting to the Recommendations and takes the position that it is the role of the Liquidator to seek and obtain approval of those Recommendations (including, apparently, the Government Agreement).

¶ 94      There is a certain attraction to the argument that Crown priority does not apply in the circumstances of this liquidation, and I might be tempted to hold that Crown priority does not attach to the Government's claims if it would help resolve the problems of the liquidation by doing so; but it would not. The true issue here is not whether the Government's claims have priority over those of the Claimants, but whether the Liquidator's Recommendations, including the Government Agreement, should be approved. Even if the Government's claims do not have priority they are sufficiently large that everyone agrees they would "eat up" the Estate, or at least render the proposed distribution unworkable, if the Government were to share pari passu in the distribution.

¶ 95      Mr. Prophet also submitted that the Government has admitted it either ranks in priority to the Claimants or its claims are inferior to the others. This argument is founded upon the following statement in the Government's written submission (at p. 5):

¶ 96      On its face the statement might appear to be such an admission. It would have been helpful to have had counsel for the Government present to explain what was meant. I think it is apparent, however, that the statement was made in the context of a situation where the principle of Crown priority is applicable. If it were held that Crown priority did not apply to the debts in question, not because of statutory abolition of the concept or because the debts were of lesser degree, but because Crown priority simply does not attach to such debts on Food Controller principles and therefore did not have to be "displaced", then the debt, being of equal degree, would have to be treated pari passu with the others.

¶ 97      Finally, Mr. Prophet raised a technical argument. He contended that the Government had not claimed a priority in the claims form filed with the Liquidator and therefore was out of time to assert such a claim without leave from the Court to do so, which has not been sought. This argument requires a formulistic interpretation of the forms in question but, in any event, does not accord with the substance of the situation because the Liquidator has at all times been aware that the Government is claiming Crown priority in the liquidation. Furthermore, the issue was not raised in Mr. Prophet's factum and he candidly conceded that the Government did not have notice of this specific contention. I would not strike the Government's claim to priority on this basis.

¶ 98      In the end, I decline to rule on the issue of Crown priority because it is neither necessary nor helpful in the circumstances to do so, and might well simply engender further litigation. Even if the Government's claims do not have priority, but must rank pari passu with those of the Claimants, the Government's claims would pose a considerable problem for the Liquidator. Hence the need for the Liquidator to make a deal with the Government would continue.

       Equitable Subordination

¶ 99      Regardless of Crown priority, the Objecting Claimants contend that the Government's claims in the liquidation can and should be subordinated to those of the Claimants by reason of the doctrine of "equitable subordination".

¶ 100      Equitable subordination is a concept that has been applied in insolvency matters in the United States for many years. In Matter of Mobile Steel Co., (1977), 563 F. 2d 692, the U.S. Court of Appeal for the Fifth Circuit described it in this fashion (per Clark J.):

¶ 101      Mobile Steel articulated three requirements for a successful claim of equitable subordination: (a) the Claimant must have engaged in some type of inequitable conduct; (b) the misconduct must have resulted in injury to the creditors of the bankrupt or conferred an unfair advantage on the Claimant; and (c) equitable subordination of the claim must not be inconsistent with the provisions of the bankruptcy statute. Although the Supreme Court of Canada expressly declined to determine the question whether the equitable subordination doctrine applied to Canadian insolvency law in Canada Deposit Insurance Corp. v. Canadian Commercial Bank [1992] 3 S.C.R. 558, per Iacobucci J. at 608-609, some courts in Canada have applied it, expressly or by implication: see, for example, Bulut v. Brampton (City) (2000), 48 O.R. (3d) 108 (C.A.); C.C. Petroleum Ltd. v. Allen (2002), 35 C.B.R. (4th) 22 (Ont. S.C.J., Commercial List); Laronge Realty Ltd. v. Golconda Investments Ltd. (1986), 7 B.C.L.R. (2d) 90 (C.A.);

¶ 102      The authority the Objecting Claimants rely on primarily in connection with the claim for equitable subordination is the decision of the Ontario Court of Appeal in Bulut, supra. There, the Court upheld a decision of MacKenzie J. who had allowed a lien holder to enforce its lien rights for occupancy costs against a bankrupt company in priority to the claims of two secured creditors. The securities of the two creditors had been registered prior to the court order that preserved the lien holder's right to occupancy costs. However, the secured creditors had been guilty of misconduct in delaying the payment of those costs. Speaking for the majority of the Court, Macpherson J.A. said, at paras. 76-78:

   Note 18: Sun Life was the lien holder with the claim for occupancy costs. Leavere v. Port Colborne (City) is reported at (1995), 22 O.R. (3d) 44 (C.A.). The BIA is the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B.3. The PPSA is the Personal Property Security Act, R.S.O. 1990, c. P.10.

¶ 103      The Objecting Claimants argue that this is precisely the situation here. In a contest between the unsecured claims of the Abuse Victims and the unsecured claims of the Government, the claims of the Abuse Victims have "the better equity". The three requisites of the Mobile Steel test have been met, they submit, since (a) the Government has engaged in inequitable conduct, having breached its fiduciary duty and duty of care to the Abuse Victims, (b) those breaches of duty have caused and/or contributed to the abuses suffered by the Abuse Victims, who are the competing Claimants in the Estate, and have resulted in the Government being vicariously liable for the damages of the abuse victims, and (c) equitable subordination would not be inconsistent with the provisions of the Winding-up and Restructuring Act because there is no provision in that Act which grants the Government priority. Therefore, the claims of the Government for contribution in relation to the 1996 Settlement and the contingent claims for contribution in relation to the presently pending Third Party Claims should be subordinated to the claims of the Abuse Victims in the liquidation.

¶ 104      Like the argument in favour of holding there is no Crown priority in the circumstances of this case, the equitable subordination argument is attractive, too. I find that on the facts the Court could apply the doctrine to the Government's Contribution and Third Party Claims, and I have little doubt -- based on the equitable principles outlined above and the lack of any governing statutory regime to the contrary -- that the Winding-up Court has the jurisdiction to do so. However, like the Crown priority argument as well, I am not satisfied that it is equitable or appropriate to apply subordination principles in the circumstances and to refuse to approve the Government Agreement on that basis. I come to this conclusion because I do not think the application of equitable subordination will solve the problem. My analysis of this is as follows.

¶ 105      The doctrine might be used to subordinate the Government's Contribution Claims and Third Party Claims. I do not accept there is a jurisdictional or constitutional impediment to subordinating these claims in the liquidation. Although the Liquidator does not make the argument for the (absent at the Hearing) Government, Mr. Wingfield is nonetheless concerned about the contention that the Winding-up and Restructuring Act does not bind the Crown and that this Court does not have the jurisdiction to determine the priorities of the Crown because only the Supreme Court of Newfoundland and Labrador has the competence to do so. I agree that only the latter Court has jurisdiction to deal with the actions that are presently pending against the Government and in which the Christian Brothers have been third partied. It is for the Supreme Court of Newfoundland and Labrador to determine the liability of the Province to the plaintiffs in those proceedings, the liability of the Christian Brothers, the proportionate liability as between the Government and the Christian Brothers, the plaintiffs damages and therefore the quantum of the Government's claims.

¶ 106      None of the issues to be determined by the Supreme Court of Newfoundland and Labrador directly concern this Court in the liquidation, however. The concern of this Court is to decide how the liquidated assets of the Estate are to be distributed amongst the creditors, in what amounts, and in accordance with what priorities for purposes of the liquidation. Parliament has legislated in this area pursuant to its jurisdiction to legislate in the field of bankruptcy and insolvency under section 91(21) of the Constitution Act, 1867 [See Note 19 below], by enacting the Winding-up and Restructuring Act. That Act provides this Court with the authority to determine claims and rule as to distributions.

   Note 19: (U.K), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App. II, No. 5.

¶ 107      In relation specifically to claims subject to a contingency or for unliquidated damages or which for any other reason do not bear a certain value, section 71(2) empowers the court to "determine the value of the claim and the amount for which it shall rank". To the extent, then, that the Contribution Claims and the Third Party Claims are claims for unliquidated damages, the Winding-up Court has the power to determine the value for which they shall rank for distribution in the liquidation. Further, sections 87 to 92 of the Act provide a mechanism for the contestation of claims or of dividends proposed to be paid. The Court has the power to hold a hearing to determine the contestation: s. 89. In such circumstances it would be open for an opposing creditor, or the Liquidator, to contest -- for instance -- a Crown claim for priority in the liquidation or to argue that the Crown's claim in the liquidation should be subordinated on equitable grounds.

¶ 108      In my view, the Crown is not free to assert a claim in a winding-up proceeding and then take the position that the Winding-up Court does not have jurisdiction or the constitutional authority to deal with any objections contesting its claim. If the Crown seeks to participate in, and benefit from, the winding-up proceedings, it exposes itself to the jurisdiction of the Court under the Winding-up and Restructuring Act to determine any contestation relating to its claim, for purposes of the liquidation.

¶ 109      Accordingly, while I recognize the Liquidator's concerns in this regard, I am satisfied that there is no jurisdictional or constitutional impediment to this Court's ability to subordinate the Contribution Claims and the Third Party Claims to those of the Claimants in the liquidation, based on equitable grounds, should the Court feel it appropriate to do so.

¶ 110      As I have indicated, however, I do not think it is appropriate to do so.

¶ 111      The concept of subordination in relation to the Assigned Claims is problematic. The Assigned Claims are not claims of the Government against the Christian Brothers; they are the claims of the 1996 Claimants against the Christian Brothers. They are before the Court only because the Liquidator treated the claim filed by the Government in this regard as a claim on behalf of the 1996 Claimants, and sent them a statutory declaration to complete. A claim cannot be subordinated to itself. To subordinate the Assigned Claims wou