Faraj Baho v. Registrar of Motor Vehicles, 2013 CanLII 65431

Licence Tribunal

Appeal d'appel en

Tribunal matière de permis

DATE:

2013-10-11

8048/CVOR

8048 v. Registrar of Motor Vehicles

Appeal under Section 50(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8, from an Order of the Registrar of Motor Vehicles Pursuant to Section 47(1) to Revoke the Commercial Vehicle Carriers’ Registration Certificate and to Seize the Plate Portion of all Permits Issued

Faraj Baho

Applicant

-and-

Registrar of Motor Vehicles

Respondent

D. Gregory Flude, Vice-Chair

For the Applicants:

Brent Groh, Agent

For the Respondent:

Douglas Lee, Counsel

Heard in Windsor:

September 30 to October 3, 2013

1The Applicant appeals to this Tribunal under section 50(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8 (the “Act”), from an order of the Registrar of Motor Vehicles (the “Registrar”) issued pursuant to section 47(1) to revoke a Commercial Vehicle Operators Registration (“CVOR”) # 119-211-107 and to seize the plate portion of any permits issued.

2The Tribunal heard evidence from Sherry Atallah, a Carrier Safety Rating Administrator at the office of the Registrar, Frank Hansaruk, a former CVOR holder operating under the name of J & J Trucking who had first brought the issues in this appeal to the attention of the Registrar, Richard Schramm, an MTO officer who had conducted an audit on Mr. Hansaruk’s company, and two representatives of insurance companies, Pam Skidmore of Aviva Insurance and Rosie Amidovska of Intact Insurance. The Applicant elected to call no evidence. To improve readability, the narrative below is a review of their evidence without necessarily identifying the specific witness who made each statement.

3The Registrar concedes that there is nothing in the safety record of the Applicant that would lead him to take steps to revoke the Applicant’s CVOR. It is the Applicant’s affiliation with a revoked CVOR operator that causes the Registrar concern. The Registrar’s position is that the Applicant is or has been managed or controlled by the Applicant’s agent in this proceeding, Brent Groh. Mr. Groh owned and operated two CVOR companies, Freight of All Kinds (“FAK”) and Alliance Logistical Services o/a JBJ Trucking (“ALS”). In 2011, both FAK and ALS had their CVORs revoked. ALS had a poor safety record and FAK had accumulated $22,000.00 in unpaid fines. Both Mr. Hansaruk and the Applicant had driven for ALS and FAK and continued to carry freight for ALS following the revocation of its CVOR. The Applicant has incorporated a company called JBJ Trucking Services Incorporated and was refused a CVOR under that name. That decision is not under appeal. Pursuant to the provisions of the Act relating to affiliated persons, the Registrar submits that the Applicant is really a front for Mr. Groh to continue operating.

4The purpose of the CVOR system is to ensure that heavy vehicles operate safely on the highway. The system identifies unsafe carriers by assigning points for at-fault collisions, offences and out-of-service defects. Carriers are given a maximum allowable point total based on the number of trucks they operate and the number of kilometres they travel annually on Ontario roads. Points are recorded against the maximum allowable number for a period of two years and expressed as a percentage of the maximum allowable violation rate (%VR). The system anticipates interventions for carriers whose VR is increasing. At 35% VR, a warning letter is generated. Currently 85% of carriers operate under 35% VR. At 50% an audit is triggered and at 80% a carrier may be called in for an interview. Sanctions are usually imposed if the VR exceeds 100%. Approximately 0.1% of carriers, or approximately 50 out of 50,000 carriers exceeds 100%. In the current case, the Applicant sits at 7.6% VR, a very impressive number.

5The starting point for the Registrar’s investigation into the Applicant was an email from Mr. Hansaruk dated January 21, 2013 seeking to cancel his own CVOR because he alleged that Mr. Groh had attempted to take over his company and run trucks under his CVOR (Ex 3 Tab 17). The troubling allegation in the email stated:

As of November 6, I have not been a part of this operation, [personal information omitted]. During this time, Brent has taken it upon himself to incorporate the J & J Trucking Services name into my name, so he can transfer the trucks into the incorporation, and once that is done, then he plans to remove my name from the corporation, and install his name as sole owner….He has no right to be using my CVOR to continue operating those trucks, as I have not been actively involved in the company since the beginning of November….I have just been made aware of the circumstances by a friend.

6On February 26, 2013 Mr. Hansaruk further fuelled the Registrar’s concerns by stating in an email to Ms Atallah:

He has found a way to operate again, by using Faraj Baho’s CVOR. I know this for a fact, and I would be willing to assist you in any way that I can, to help you prove this if you would like.

7The Registrar decided not to permit Mr. Hansaruk to surrender his CVOR. The Registrar decided to initiate a cancellation process complete with a Notice of Cancellation and Seizure, a Show Cause Meeting and a Cancellation and Seizure Order. It appears that the purpose of taking this more circuitous route was to create a record indicating that yet another company in which Mr. Groh apparently had some control had its CVOR revoked. Of interest is the fact that at the time of the cancellation, Mr. Hansaruk had an excellent safety rating (Ex 3, Tab 15).

8The Registrar initiated a Tier 3 Audit. Tier 3 Audits are ordered for a specific purpose. The audit was carried out by Officer Schramm between August 21 and August 23, 2013 (Ex 3 Tab 12). While Officer Schramm stated that the purpose of his audit was to determine if Mr. Hansaruk and Mr. Baho were affiliated with Mr. Groh, nothing in his notes shows that he had anything but a passing interest in Mr. Baho. He did not meet with Mr. Baho. His single attempt to involve Mr. Baho was to fax a letter to the common fax number for ALS, Frank Hansaruk and Mr. Baho and ask Mr. Groh, whom he identified as acting as Mr. Hansaruk’s dispatcher, to give a copy of the letter to Mr. Baho. The letter was not produced by the Registrar and there was no documentary evidence before the Tribunal that Mr. Baho was given notice that an audit of his CVOR was underway.

9Officer Schramm noted that Mr. Baho operated exclusively under Mr. Hansaruk’s CVOR as an owner operator. His notes indicate that Mr. Hansaruk paid Mr. Baho a percentage of all loads out of which Mr. Baho paid his drivers and paid for the maintenance of the trucks. Records which should be under the control of the CVOR holder relating to Mr. Baho’s trucks were with Mr. Hansaruk but records relating solely to Mr. Baho’s ownership, such as fuel receipts and maintenance records were kept by Mr. Baho at another location. Officer Schramm concluded that ALS, Frank Hansaruk and Mr. Baho were affiliated companies. On closer questioning Officer Schramm based his finding that Mr. Baho was affiliated solely on the fact that he was on owner/operator who had contracted several trucks to Mr. Hansaruk. Officer Schramm stated that this type of relationship was perfectly normal in the trucking industry. He found no other affiliation regarding Mr. Baho.

10The Registrar focused a great deal of attention on the relationship between Mr. Groh and Mr. Hansaruk, apparently advancing the proposition that if Mr. Groh had pulled an anti-avoidance manoeuvre by using Mr. Hansaruk, then he was doing so again using Mr. Baho. Mr. Hansaruk’s emails do not actually go as far as indicating ongoing control by Mr. Groh; nor did his testimony. Mr. Hansaruk did not say, either in his emails or his testimony, that Mr. Groh controlled J & J Trucking throughout the period of its operation. His concern was over the incorporation of J & J Trucking Inc. and his allegation that this was incorporated during a period of personal difficulty as a means of wresting control of his company from him. Despite Mr. Hansaruk’s allegations, the Tribunal can find no indication that such an attempt was made.

11Dates are important when considering Mr. Hansaruk’s testimony. Starting at the beginning of November, 2012, Mr. Hansaruk began to encounter increasing personal difficulties. He was absent from the business until December 20. On his return on December 21, J & J Trucking Service Ltd. was incorporated. The documents indicate that Mr. Groh was the first director. On December 21, all of the necessary resolutions and by-laws were passed to appoint Mr. Hansaruk as the sole director, officer and shareholder of the corporation (Ex 6). With the exception of Mr. Groh’s signature resigning as first director, all of the other corporate papers carry signatures that Mr. Hansaruk confirmed “appeared to be his signature.” Mr. Hansaruk denied seeing any of the documents with his purported signature on them before the day of the hearing. He has been to court to seek a peace bond against Mr. Groh, but there was no evidence to even hint that fraud or forgery charges had been laid against Mr. Groh for forging Mr. Hansaruk’s signature. As an alleged crime, it makes no sense for Mr. Groh to forge Mr. Hansaruk’s signature to ensure that Mr. Groh had no control of J & J Trucking Services Ltd. Any potential benefit to Mr. Groh flows from the opposite behaviour. The Tribunal does not accept Mr. Hansaruk’s evidence that he did not sign the corporate documents. It finds that he was aware of the incorporation of J & J Trucking. Indeed, in bankruptcy documents filed in early February, 2013, Mr. Hansaruk named his corporation as his employer effective December 21, 2013, not the action of someone asserting ignorance of events.

12Ms Atallah reviewed the Applicant’s initial application for a CVOR. In particular she focused on three areas that indicate, in her view, control of the Applicant by Mr. Groh: truck ownership, insurance history and area of business. The Applicant has owned several trucks over the years. He owned two trucks that were contracted to carry freight for ALS and FAK. His brother owned two trucks at the same time. It appears that the Applicant purchased his brother’s trucks such that he now owns four trucks. In Ontario under the CVOR system there may be a separation between the owner of a truck and the owner of the plate portion of a permit. The CVOR holder owns the plate portion of the permit. Tracking the plate portion, Ms Atalllah was able to demonstrate that the Applicant initially operated under the ALS CVOR. The plates were subsequently transferred to operate under the J & J Trucking CVOR. They are now plated to the Applicant’s CVOR. She conceded that it is normal business practice for a truck owner to transfer from a cancelled CVOR operator to a new active CVOR operator.

13Ms Atallah also conceded that in the trucking industry it is possible to carry on business as a load broker or freight forwarder without the need for a CVOR or ownership of any vehicles. She recognized that freight forwarders contract CVOR holders to haul their loads and that such a relationship does not vest any measure of management or control of the CVOR holder in the freight forwarder. Notwithstanding this concession, she was concerned that the Applicant’s intended business plan, the hauling of Canada Post parcels exactly reflects the business carried on by ALS. To follow this concern to its logical conclusion, it appears to be the Registrar’s position that Mr. Groh and ALS are free to act in the capacity of freight forwarders and contract with a CVOR holder to haul freight. The Applicant as a CVOR holder may contract with a freight forwarder to carry its freight. The relationship only becomes problematical, according to the Registrar, when the Applicant contracts with ALS and Mr. Groh because the Applicant has previously contracted with these entities.

14The Registrar led evidence concerning insurance to support the contention that Mr. Groh’s is involved in the management and control of the Applicant. This evidence had two distinct branches: evidence concerning the transfer of ALS’s insurance to Mr. Hansaruk with an understanding that Mr. Groh would stay on in a management position with Mr. Hansaruk and evidence that the Applicant had cited an ALS/Hansaruk policy when he applied for his CVOR in 2011. The Tribunal notes that Mr. Groh’s relationship with Mr. Hansaruk is not the issue before it. As a standalone proposition, the Tribunal does not find the suggestion that Mr. Groh’s involvement in Mr. Hansaruk’s business is probative of whether he is involved in the management or control of the Applicant’s business.

15In the trucking industry it is usual for a CVOR holder to carry insurance covering any vehicles operating under that CVOR, including owner/operator vehicles. Thus, when the Applicant was operating under the ALS CVOR and again under Mr. Hansaruk’s CVOR, it was ALS and Mr. Hansaruk who contracted for the insurance coverage. When the Applicant filled out his CVOR application in 2011, he wrote down the ALS/ policy subsequently transferred to Mr. Hansaruk that was then covering him, a policy with Aviva Insurance. That was incorrect as the policy did not cover him while operating under his own CVOR. It was a requirement for the issuance of a CVOR certificate that he arrange for his own independent insurance. Until recently, he failed to do so. The Registrar relies on this evidence to suggest that the Applicant really was just a front for Mr. Groh because he cited the ALS insurance policy. The Tribunal does not accept that there is any evidence of control or management in these dealings. The Applicant is not the first person to misunderstand the niceties of insurance law. It is a fact that his vehicles were covered by the policy in question at the time he applied for a CVOR, albeit while operating under someone else’s CVOR. The Tribunal finds that this evidence may reflect the Applicant’s confusion over insurance law but it indicates no measure of control by Mr. Groh.

THE LAW

16The statutory authority for the actions of the Registrar and the jurisdiction of the Tribunal are set out in sections 47, 47.1 and 50 of the Highway Traffic Act (the Act), as follows:

(1) Subject to section 47.1, the Registrar may suspend or cancel,

(a) the plate portion of a permit as defined in Part II;

… or

on the grounds of, …

(f) the Registrar having reason to believe, having regard to the safety record of the holder or of a person related to the holder, and any other information that the Registrar considers relevant, that the holder will not operate a commercial motor vehicle safely or in accordance with this Act, the regulations and other laws relating to highway safety;

47.1 (1) Before taking any action under clause 47 (1) (a) or (c) or subsection 47 (2), the Registrar shall notify the person whose plate portion of a permit or CVOR certificate is to be affected of his or her proposed action.

(1) Every person aggrieved by a decision of the Minister made under subsection 32 (5) for which there is a right of appeal pursuant to a regulation made under clause 32 (14) (n) or a decision of the Registrar under section 17 or 47 may appeal the decision to the Tribunal.

(2) The Tribunal may confirm, modify or set aside the decision of the Minister or Registrar.

17The definition of the term “a person related to the holder” in s. 47 (1) (f) is set out in s. 17 (4) of the Act:

(4) An applicant is related to a person for the purpose of subsection (3) if,

(a) the applicant and the person are related individuals;

(b) either the applicant or the person is a partner of the other or was a partner of the other or they have or have had partners in common;

(c) either the applicant or the person, directly or indirectly, controls or controlled or manages or managed the other; or

(d) the applicant and the person have or have had common officers or directors or they are or have been controlled, directly or indirectly, by the same shareholders.

ANALYSIS

18In a proceeding before the Tribunal, the Tribunal is unfettered by any finding of the Registrar. The Tribunal hears evidence and makes its own determination if there is reason to believe, having regard to the safety record of the CVOR holder or of a person related to the holder and any other relevant information, that the holder will not operate safely or in accordance with the Act, the regulations and any other laws relating to highway safety. The Registrar bears the onus of convincing the Tribunal that there is reason for such belief.

19The Tribunal has no doubt that the Applicant and Mr. Groh have, and have had over the years, a close business relationship. The very fact that the Applicant has relied heavily on Mr. Groh in his dealings both with the Registrar and before this Tribunal underscores that fact. Does that business relationship mean that Mr. Groh directly or indirectly, controls or has controlled or manages or has managed the Applicant? If the answer to that question is yes, is there reason to believe that the Applicant will not operate safely and in accordance with the law and regulations?

20When the issue before the Tribunal is a question of avoidance of sanctions by an unscrupulous operator, it would be naïve to believe that evidence of control will be readily available. As Vice-Chair McIntosh said in 2023517 Ontario Inc. (c.o.b. Abest Carriers) (Re) [2003] O.L.A.T.D No. 277:

Such “corporate veil” questions are difficult particularly in the absence of direct evidence of a controlling mind of the company other than that appearing in the corporate documentation.

21The Tribunal must look for the indicia of control. In 2023517 Ontario Inc. one of those indicia was a series of similar names. A major indicator of anti-avoidance may be the total lack of experience of the applicant. In 1772065 Ontario Inc. (Re) [2011] O.L.A.T.D. No. 69, the president of that applicant, Garcha, had no experience operating a company and relied on officers of a revoked company to manage the company for him. The Tribunal found at paragraph 28:

The evidence also discloses that the Applicant is totally dependent on the Khalistan Group for its customers, it maintenance and its truck parking. The evidence of its financial independence does not stand close scrutiny. Mr. Garcha testified that he has no idea what funds his company earns and what amounts it is charged. He did state that he relies totally on Ms. Gosal [an officer of the revoked company] to tell him what he is entitled to receive each month.

22In 1556854 Ontario Ltd. (Re) [2012] O.L.A.T.D. No. 204, there was a close family relationship, a commonality of drivers, common business addresses, common vehicles, and the principal of the revoked carrier took an active role in management including signing documents. The Registrar argues that there are such indicia in the current case.

23The Registrar points to the fact that the vehicles being operated under the Applicant’s CVOR are the same as those operated by ALS and J & J Trucking from the same premises and using the same fax machine. He points to the fact that the Applicant initially applied under a common insurance policy. He points to the fact that the Applicant’s business is to carry loads formerly carried by the ALS and J & J Trucking. Further, he points to the fact of the Applicant’s attempt to get a CVOR on behalf of JBJ Trucking Services Incorporated, a corporate version of the name ALS used to carry on business.

24Despite taking into account the above factors, the Tribunal does not find that the Applicant and Mr. Groh are related persons. In making this finding, the Tribunal is of the view that the Registrar has misunderstood the test set out in the Act. The focus of the Act is safe on-road operation, not on the source of business or freight carried in the trucks. Where it speaks to direct or indirect control or management it is speaking to control of those aspects of the operation that impact on safety: driver training, maintenance, hours of operation, etc. The evidence discloses that the Applicant has always taken charge of those elements of his operation. It was a complaint of Richard Schramm that the Applicants maintenance records and fuel receipts were not at Hansaruk’s premises during the audit. They were not there because that is not the Applicant’s head office so the records should not be there. Mr. Schramm noted that the Applicant pays his drivers and maintains his trucks out of the percentage payment he received for each load. There is no evidence whatsoever of any involvement by Groh in the safety aspects of the operation. The mix-up over the insurance policy falls far short of establishing such involvement. Accepting the Registrar’s interpretation leads to the anomalous result that any CVOR holder, no matter how arm’s length, becomes a related person and subject to revocation simply because they enter into an exclusive contract with Mr. Groh and ALS to haul freight.

25The Tribunal is of the view that on the Applicant’s safety record, notwithstanding any potential relationship with ALS and Brent Groh, there is no reason to believe the Applicant will not operate safely and in accordance with the law and regulations. The Applicant has a stellar safety record. He is experienced in the trucking industry, having operated up to four trucks over the years and the Registrar concedes that he has no concerns with the Applicant’s safety record.

ORDER

26Pursuant to the authority set out in s. 50 (2) of the Act, the Tribunal orders the Registrar not to carry out the provisions of the Cancellation and Seizure Order dated April 17, 2013 with respect to CVOR # 119-211-107.

LICENCE APPEAL TRIBUNAL

D. Gregory Flude, Vice-Chair

Released on: October 11, 2013