Her Majesty the Queen v. Kachkar

[Indexed as: R. v. Kachkar]

Ontario Reports

Court of Appeal for Ontario,

Watt J.A. (in Chambers)

July 21, 2014

121 O.R. (3d) 197 | 2014 ONCA 560

Case Summary

Criminal law — Mutual legal assistance in criminal matters — Appeals — Applicant seeking leave to appeal sending order under Mutual Legal Assistance in Criminal Matters Act on grounds that judge included records in sending order that fell outside scope of gathering order, erred in interpreting gathering order and erred in applying previous decision of Court of Appeal — Leave to appeal denied — First two grounds not raising any issue of overreaching general importance — Merits of proposed appeal not strong — Judge at sending hearing not required to satisfy himself that material was gathered in accordance with gathering order or that it would afford evidence of commission of offence in requesting state — Mutual Legal Assistance in Criminal Matters Act, R.S.C. 1985, c. 30.

In civil proceedings in Canada, a judge appointed a receiver for Inyx Canada and authorized the receiver to remove documents and records from Inyx Canada's offices. The United States Central Authority subsequently sought Canadian assistance in gathering records for use in an investigation of Inyx Canada's parent corporation for a suspected fraud. The records were believed to be among the boxes of documents seized by the receiver. Gathering orders were granted and executed. A sending hearing was conducted under s. 20(1) of the Mutual Legal Assistance in Criminal Matters Act ("MLAT"). [page198] The applicant sought to exclude from the sending order certain documents that allegedly fell outside the scope of the gathering orders. The judge included those documents in the sending order. The applicant applied for leave to appeal, arguing that the judge erred in including in the sending order records that fell outside the terms of the gathering order; interpreting the gathering order; and applying a previous decision of the Ontario Court of Appeal to the circumstances of this case.

Held, the application should be dismissed.

An appeal from an order or decision under the MLAT is limited to questions of law alone, and leave to appeal is required. It was arguable that at least the first, and perhaps the second, proposed ground of appeal involved a question of mixed fact and law. Moreover, the first two proposed grounds of appeal were unique to the circumstances of this case and did not raise any issue of overarching importance beyond the particular circumstances of this case, notwithstanding the questions raised may be very important to the applicant. The merits of the proposed grounds of appeal were not strong. On a sending hearing, the judge need not satisfy him or herself that the material was gathered in accordance with a gathering order or that the material would afford evidence of the commission of an offence in the requesting state, as would have been the case had records been gathered pursuant to a search warrant. The argument that the applicant proposed to advance here was simply a repackaging of an argument that was irrelevant for the judge at the sending hearing. Finally, the time was ripe to move this case forward.

Russian Federation v. Pokidyshev, 1999 3787 (ON CA), [1999] O.J. No. 3292, 178 D.L.R. (4th) 91, 124 O.A.C. 24, 138 C.C.C. (3d) 321, 27 C.R. (5th) 316, 90 A.C.W.S. (3d) 879, 43 W.C.B. (2d) 325 (C.A.), consd

Other cases referred to

Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, [1996] S.C.J. No. 116, 144 D.L.R. (4th) 1, 209 N.R. 20, J.E. 97-632, 50 Admin. L.R. (2d) 199, 71 C.P.R. (3d) 417, 69 A.C.W.S. (3d) 586, REJB 1997-00386; Ontario (Attorney General) v. Vonk Dairy Products B.V., 1998 1089 (ON CA), [1998] O.J. No. 1988, 38 W.C.B. (2d) 281 (C.A., Chambers); R. v. Araujo, [2000] 2 S.C.R. 992, [2000] S.C.J. No. 65, 2000 SCC 65, 193 D.L.R. (4th) 440, 262 N.R. 346, J.E. 2001-74, 143 B.C.A.C. 257, 149 C.C.C. (3d) 449, 38 C.R. (5th) 307, 79 C.R.R. (2d) 1, REJB 2000-21474, 48 W.C.B. (2d) 65; United States of America v. Ross, 1994 201 (BC CA), [1994] B.C.J. No. 971, 44 B.C.A.C. 228, 24 W.C.B. (2d) 185 (C.A., Chambers)

Statutes referred to

Mutual Legal Assistance in Criminal Matters Act, R.S.C. 1985, c. 30 (4th Supp.), Part I, ss. 18(1) [as am.], 19(1), 20, (1) [as am.], (2), 35 [as am.]

APPLICATION for leave to appeal from the sending order of Code J. of the Superior Court of Justice dated October 23, 2013.

Jack Kachkar, appearing in person.

Susan Ficek, for respondent.

[1] WATT J.A. (in Chambers): — Jack Kachkar (the "applicant") seeks leave to appeal from a sending order made by [page199] a judge of the Superior Court of Justice under s. 20(1) of the Mutual Legal Assistance in Criminal Matters Act, R.S.C. 1985, c. 30 (4th Supp.), as amended ("MLAT" or the "Act").

[2] The applicant's principal complaint is with the scope of the sending order. He says that the judge who made the order misinterpreted his earlier amended gathering order and applied, incorrectly, the decision in this court in Russian Federation v. Pokidyshev, 1999 3787 (ON CA), [1999] O.J. No. 3292, 138 C.C.C. (3d) 321 (C.A.) ("Pokidyshev"). The result, according to the applicant, is that the sending order included records of corporate entities that had not been included within the four corners of the amended gathering order and should be set aside.

[3] These reasons explain why I would dismiss this application and refuse leave to appeal.

The Background Facts

[4] The grounds upon which the applicant seeks leave to appeal render a forced march through the circumstances that underpin the relevant MLAT orders unnecessary. An overview is sufficient.

The principals

[5] Inyx Inc. is an American corporation with several subsidiaries, including Inyx Canada, Inyx USA and Inyx Pharma. Jack Kachkar, a medical doctor, is the chairman of the board and chief executive officer of Inyx Inc. and a director of Inyx Canada and Inyx USA. Rima Goldschmidt is the secretary of Inyx Inc. and a director of Inyx USA.

[6] Westernbank Puerto Rico was a financial institution and commercial lender.

The loan agreement

[7] In early 2005, Inyx Inc. and Inyx USA entered into a loan and security agreement with Westernbank. The agreement was signed by both the applicant and Goldschmidt in their corporate capacities.

[8] Westernbank agreed to loan Inyx Inc., Inyx Pharma and Inyx USA up to US$46 million in a revolving loan of US$10 million and four separate term loans of US$9 million each.

[9] About two months later, Inyx Pharma became a co-borrower under the agreement. The borrower and Inyx Canada executed an amendment to the agreement that guaranteed payment of the loan obligations and provided security agreements. [page200]

[10] To obtain funds from revolving lines of credit under the agreement, Inyx Inc. was required to submit

information about its eligible accounts receivable from its sales of pharmaceutical products; and

copies and invoices for accounts receivable for each of its subsidiaries.

When Inyx Inc. had satisfied these obligations under the agreement, it was permitted to withdraw funds up to a percentage of eligible accounts receivable.

The alleged schemes

[11] United States authorities allege that over a period of about two years, those involved in the operation of Inyx engaged in a series of fraudulent schemes to obtain funds for Inyx under the agreement. The schemes included

(i) submitting inaccurate, altered and false invoices and accounts receivable assignment sheets that had the effect of inflating the amount of Inyx's receivables;

(ii) directing customers to pay Inyx directly rather than depositing them in locked box accounts that were the property of the bank, as required by the agreement; and

(iii) offsetting Inyx's debts against receivables due from those to whom Inyx owed money.

The default

[12] Inyx defaulted on its obligations under the agreement. The amount owing is alleged to be US$142 million.

[13] Westernbank went into receivership. United States authorities began an investigation into its activities for alleged violations of U.S. banking law and regulations. The Federal Deposit Insurance Corporation became the receiver of Westernbank.

The United States litigation

[14] A class action lawsuit was launched involving the Federal Deposit Insurance Corporation, as receiver for Westernbank, Inyx Inc., the applicant and his wife, Viktoria Benkovitch.

[15] In late September 2013, a partial settlement was reached in the lawsuit. Under the settlement agreement, judgment was entered in favour of the Federal Deposit Insurance Corporation as receiver for Westernbank [page201]

(i) in the amount of US$120 million against Inyx Inc.; and

(ii) in the amount of US$100 million against the applicant and his wife personally.

The Canadian litigation

[16] Westernbank sued Inyx Canada in the Superior Court of Justice. In July 2007, a judge appointed a receiver for Inyx Canada and authorized the receiver to remove documents and records from the offices occupied by Inyx Canada. The receiver removed about 400 boxes of material along with imaged copies of computer hard drives and other loose electronic media. Later, copies were made of the paper documents and of the loose electronic media and the copies returned to Inyx Canada.

The MLAT request

[17] Early in 2010, the United States Central Authority sought Canadian assistance in gathering records for use in an investigation of Inyx Inc. for a suspected fraud against Westernbank. The records were believed to be among the 400 boxes of documents seized by the receiver. The United States sought:

All business records and internal and external correspondence, including e-mail messages and attachments, telephone and facsimile records, relating to the manufacture, sale and marketing, shipping, invoicing and payment collection, of pharmaceutical products manufactured, marketed and sold by Inyx Canada, Inyx USA, Inyx Inc., Inyx Pharma, Inyx UK, Ashton Pharmaceuticals and their subsidiaries (hereafter Inyx Companies). These records include purchase / sales agreements, purchase orders, shipping orders, and customer accounts, including customer repayment agreements, invoices, remittances / credits for payment, and outstanding balances as reflected in the General Ledger and sub-ledgers, including the Accounts Receivables Reports, of the above companies. Records regarding the transmission of sales, delivery, invoicing and collection information between Inyx Canada and the other named companies and subsidiaries are also sought. Additionally, we seek records relating to debts owed by Inyx Companies to customers / clients and all credit agreements, invoicing / remittance records, repayments, loan modification agreements, and any agreements to off-set these debts with corresponding receivables between the parties. These records include account statements, transactions and supporting documentation, and correspondence for all accounts at banks and financial institutions, foreign and domestic, involving the business operations of Inyx Companies.

2. Additional records sought are those relating to loans, security agreements, funds received from and remitted to Westernbank Puerto Rico, to include financial statements, collateral pledged, loan modification agreements, extensions of additional credit, repayment histories, transactions and account balances of these obligations as reflected in the General Ledger and sub-ledgers of the above companies. These records include any investigations, reports and supporting documentation commissioned by [page202] Westernbank Puerto Rico that may be contained within the records of Inyx Companies.

[18] In their request, the United States also sought permission for their investigators to be present during the gathering process to assist Canadian authorities to identify which materials were relevant for the purposes of the United States investigation.

The gathering orders

[19] About two years after the receiver removed and copied the records from the office of Inyx Canada, the provincial Crown obtained a gathering order that required the receiver to deliver copies of the seized records to an officer of the Toronto Police Service. As a result of a motion by the receiver, the documents were transferred, first to the possession of the RCMP, and finally to the sherriff at Brampton.

[20] About four months after the original gathering order had been made, the Crown obtained an amended gathering order. In its material parts, the amended order authorized Detective Constable Lum of the Toronto Police Service to gather

. . . copies of the business records relating to Inyx Canada between 1 January 2005 and 31 December 2007, including:

Purchase / sales agreements; purchase orders; shipping orders;

Customer accounts, including customer repayment agreements, invoices, remittances / credits for payment;

Outstanding balances as reflected in the general ledger and sub-ledgers, including the accounts receivables reports of Inyx and its subsidiaries;

Records relating (to) the transmission of sales, delivery, invoicing and collection information between Inyx Canada and the other Inyx companies;

Records relating to debts owed by Inyx companies to customers / clients and all credit agreements, invoicing / remittance records, repayments, loan modification agreements, and any agreements to off-set these debts with corresponding receivables between the parties;

These records also include account statements, transactions and supporting documentation, and correspondence for accounts at banks and financial institutions, foreign and domestic, involving the business operations of Inyx companies.

The amended order did not include any records in respect of which a claim of privilege was asserted.

Execution of the gathering orders

[21] In early May 2013, with the assistance of seven U.S. agents, D.C. Lum reviewed the contents of the boxes of materials [page203] originally obtained by the receiver. The applicant was present so that he could identify any items in respect of which he wished to advance a claim of privilege.

[22] When the gathering process had been completed, D.C. Lum had collected 109 boxes of documents, including 25 boxes in respect of which the applicant asserted claims of privilege. D.C. Lum took possession of all 109 boxes, ensuring that those in respect of which the applicant claimed privilege were kept separate and apart from the others.

[23] After the amended gathering order had been executed, the applicant retained counsel. At counsel's request, a second review of the privileged materials was conducted. The materials were then divided into three categories:

(i) materials in respect of which privilege was asserted (the "privileged materials");

(ii) materials admittedly within the scope of the amended gathering order (the "responsive materials"); and

(iii) materials challenged by the applicant on grounds other than privilege (the "non-responsive materials").

The sending hearing and order

[24] About two months after the second review had been completed, the judge who made the gathering orders conducted a sending hearing under s. 20(1) of the MLAT. The applicant was represented by counsel who agreed that the responsive materials should be included in the sending order. Counsel confined his opposition to the sending of non-responsive materials that he submitted should be excluded because they fell outside the scope of the gathering order. The documents to which counsel objected were

(i) the applicant's personal financial records; and

(ii) the records of La Boutique Floriane du Québec, Karver International, DBA Global Consulting, Karian Holdings and Devlin Air.

[25] The sending order included both the responsive and non-responsive documents.

The Motion for Leave to Appeal

[26] The applicant seeks leave to appeal on three discrete but related grounds. I would paraphrase the proposed grounds of [page204] appeal as submissions that the judge at the sending hearing erred in

(i) including in the sending order records that fell outside the terms of the gathering order;

(ii) interpreting the gathering order; and

(iii) applying the decision of this court in Pokidyshev to the circumstances of this case.

The governing principles

[27] The principles that control the fate of this application lack a common origin. Some distinguish between questions of fact, questions of law, and questions of mixed law and fact. Others describe the test for leave to appeal under s. 35 of the MLAT. And yet others explain the operation of relevant provisions of the MLAT and the judge's role in connection with it.

A question of law

[28] Section 35 of the MLAT permits an appeal to the court of appeal from any order or decision a judge or court in Canada makes under the MLAT. But no appeal lies as of right. Leave to appeal is required. And the appeal is limited to questions of law alone. Further, the application for leave to appeal must be made to a judge of the court of appeal within 15 days after the order or decision that is challenged.

[29] The distinction between questions of law, on the one hand, and questions of mixed fact and law, on the other, is often difficult. Sometimes, what appears at first blush to be a question of mixed fact and law turns out to be a question of law. The opposite is also true: Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, [1996] S.C.J. No. 116, at pp. 766-67 S.C.R.

[30] Questions of law are about what the correct legal test is, while questions of fact are questions about what actually took place between the parties. Questions of mixed fact and law are questions about whether the facts satisfy the legal tests: Southam Inc., at pp. 766-67 S.C.R. A question that is about the application of legal standard is also a question of law: R. v. Araujo, 2000 SCC 65, [2000] 2 S.C.R. 992, [2000] S.C.J. No. 65, at para. 18.

The test for leave to appeal

[31] Section 35 of the MLAT does not define the standard to be applied to determine whether leave to appeal should be granted. Nor does the section provide a list of factors, either illustrative [page205] or exhaustive, to be considered in resolving the issue of whether leave to appeal should be granted.

[32] The jurisprudence has filled the statutory void by listing several factors a judge or court should consider in deciding whether leave should be given if satisfied that a question of law alone has been raised. The factors, in question form, are these:

(i) Is the question raised not settled by authority?

(ii) Is the question raised of importance generally and, if not of importance generally, is it nonetheless of great importance to a person with serious interests, such as his liberty, at stake?

(iii) Does the proposition of law put forward have any merit or, to put it another way, does it appear to the judge not to be frivolous?

(iv) Are there other discretionary considerations, such as prejudice to either the applicant or the requesting state, which require to be taken into account?

See United States of America v. Ross, 1994 201 (BC CA), [1994] B.C.J. No. 971, 44 B.C.A.C. 228 (C.A., Chambers), at para. 33; and Ontario (Attorney General) v. Vonk Dairy Products B.V., 1998 1089 (ON CA), [1998] O.J. No. 1988, 38 W.C.B. (2d) 281 (C.A., Chambers), at para. 9.

The ministerial and judicial roles under the MLAT

[33] Both the Minister of Justice and judges of provincial and territorial superior courts have duties assigned to them under the MLAT.

[34] The Minister of Justice is the guardian of Canadian sovereignty interests. He controls the front and back end of the process. No request proceeds without the minister's approval. No sending order is implemented without the minister's approval. As in extradition cases, the central role of the Minister of Justice reflects the essential political nature of decisions involving international relations: Pokidyshev, at para. 18.

[35] The judicial role under Part I of the MLAT differs from that of the minister. The judge is tasked with the responsibility of ensuring compliance with the statutory conditions precedent to the making of the order requested by the competent authority. And the judge must also fashion an order that balances the legitimate state and individual interests at stake: Pokidyshev, at para. 20. In large measure, the terms of the order will depend on the nature of the order that is to be made and the individual interests affected by the order: Pokidyshev, at para. 20. [page206]

Sending orders

[36] Under s. 20(1) of the MLAT, the judge who made the gathering order under s. 18(1), and who has received the report required by s. 19(1) of the Act, has the authority to order, among other things, that

(i) a report under s. 19(1); and

(ii) any record or thing produced under the gathering order

be sent to the state or entity that has sought legal assistance under the Act.

[37] The sending authority for which s. 20(1) provides is discretionary, not mandatory. But the section is mute about the standard the judge is to apply, or the factors the judge must or may consider, in deciding whether to make a sending order. In a similar way, s. 20(2) permits, but does not require the judge who makes the sending order to impose any terms or conditions that the judge considers desirable. Neither s. 20(1) nor s. 20(2) require that the judge presiding at the sending hearing be satisfied that

(i) the material was gathered in accordance with the gathering order; or

(ii) the material gathered will afford evidence of the commission of an offence in the foreign jurisdiction.

The sending hearing is not an appeal from or a review of the antecedent gathering order: Pokidyshev, at para. 38.

[38] The breadth of the discretion conferred by s. 20(1) and 20(2) accommodates consideration of specific issues raised in the peculiar circumstances of individual applications for sending orders. Relevant factors that might inform the judge's discretion under either subsection might include the nature of the material the applicant seeks to have sent, the nexus or connection between the material and the investigation in the foreign state, and the accuracy and completeness of information provided on the application for the gathering order: Pokidyshev, at para. 39.

[39] The discretion of the judge conducting a sending hearing under s. 20 is not without limit. Recall the nature of the judicial role in the process for which the Act provides. Beyond the sweep of the discretion reposed in the judge at the sending hearing are factors like [page207]

(i) the advisability of assisting the foreign jurisdiction;

(ii) the likelihood of compliance by the foreign jurisdiction with the order or any terms or conditions imposed in the order;

(iii) the ultimate evidentiary value of the requested material to the foreign jurisdiction; or

(iv) the conduct of the proceedings in the foreign jurisdiction.

See Pokidyshev, at para. 40.

[40] Judges who preside on applications for a sending order are entitled to approach the question of relevance on an expansive basis. In this context, the term "relevance" means helpful to the authorities in discovering, understanding and proving the complex series of events that underpin the allegations that are the subject matter of the foreign investigation: Pokidyshev, at para. 60.

The principles applied

[41] The applicant seeks leave to appeal on three grounds that he says involve questions of law alone of sufficient importance to warrant leave to appeal. I disagree. The reasons for my disagreement follow.

[42] First, leaving aside the third proposed ground of appeal, the interpretation of the decision of this court in Pokidyshev, it is arguable that at least the first, and perhaps the second, proposed ground of appeal involve a question of mixed fact and law, rather than a question of law alone. Whether certain records collected under the gathering order fall within "business records relating to Inyx Canada" seems more a question about whether the records satisfy the standard set in the order than about the standard itself.

[43] Second, the first two proposed grounds of appeal are unique to the circumstances of this case. Although their unique nature means that neither is settled by authority, it also follows that neither raises any issue of overarching importance beyond the idiosyncratic circumstances of this case. Doubtless, the questions raised are of importance to the applicant. But that is not enough. No proceedings are extant in the requesting jurisdiction, thus the applicant's liberty interest is not implicated.

[44] Third, the merits of the proposed grounds of appeal are not strong. [page208]

[45] In support of the application for a sending order, the Attorney General for Ontario filed three volumes of materials that revealed a significant degree of interconnectedness between the affairs of Inyx Canada, for all practical purposes a shell company, its parent, Inyx Inc, Karver International, La Boutique Floriane du Québec, Karian Holdings, DBA Global Consulting, Devlin Air and the applicant's personal finances. The applicant filed no responding evidentiary materials. It approaches the self-evident to say that these documents were business records "relating to" Inyx Canada.

[46] It is worth reminder that the evidence here was obtained under a gathering order, not seized in accordance with a search warrant. In Pokidyshev, at para. 38, this court decided that on a sending hearing, the judge need not satisfy him or herself

(i) that the material was gathered in accordance with a gathering order; or

(ii) that the material will afford evidence of the commission of an offence in the requesting state.

The argument that the applicant proposes to advance here is simply a repackaging of an argument that is irrelevant for the judge at the sending hearing.

[47] Finally, the time is ripe to move this case forward, to give effect to our international obligations and to put paid to some of the delaying tactics of the applicant.

Conclusion

[48] For these reasons, the motion for leave to appeal is dismissed and leave to appeal is refused.

Application dismissed.

End of Document