ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-0469357
DATE: 20131007
BETWEEN:
PARSONS CANADA LTD.
Plaintiff
– and –
MUMTAZ NATHOO and
NAZNIN JAMAL
Defendants
Ian Dick, for the Plaintiff
Stephen M. Labow, for Naznin Jamal
Warren W. Tobias, for Mumtaz Nathoo
HEARD: September 20, 2013
CHIAPPETTA J.
Introduction
[1] The plaintiff, Parsons Canada Ltd. (“Parsons”), alleges that its former employees, Mumtaz Nathoo (“Nathoo”) and Naznin Jamal (“Jamal”), defrauded it $2,176,845.78 over the course of several years. Parsons commenced an action against Nathoo and Jamal in December 2012 seeking to recover the lost funds. The defendants retained counsel, but did not deliver statements of defence and were noted in default.
[2] On December 20, 2012, Parsons obtained a Mareva injunction and Norwich order on an ex parte basis, tying up some of the defendants’ assets and requiring a bank to produce their personal bank account records.
[3] Parsons now brings this motion for default judgment under Rule 19.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[4] Parsons voluntarily provided counsel for the defendants with notice of this motion and copies of the motion material. Counsel for Nathoo, Mr. Tobias, and counsel for Jamal, Mr. Labow, attended this motion and sought leave to address the court. Counsel for Parsons, Mr. Dick, did not oppose the leave request. Leave was so granted. Defence counsels’ comments at the motion were restricted to two issues: the “unconfirmed amount” as defined below, and punitive damages. After the motion, defence counsel provided written submissions pertaining to costs.
Overview of the Claim
[5] An overview of Parsons’ claim is set out by way of affidavit evidence filed in support of this motion.
[6] Parsons manages private company programs and government programs. The Province of Ontario retained Parsons to help administer a government program (the “Program”). Parsons was responsible for implementing an accounting system to deal with financial transactions for more than 2,000 different facilities involved in the Program. This involved maintaining multiple corporate bank accounts and thousands of daily transactions.
[7] The defendants were accountants involved in administering the Program for the various corporate bank accounts. The two principal corporate accounts were with the Bank of Montreal (“BMO Account”) and the Royal Bank of Canada (“RBC Account”).
[8] Certain anomalies were discovered while reconciling the Program’s accounting system with Parsons’ accounting system in late 2012. Parsons retained its former employee familiar with the system, David Skelton (“Skelton”), to conduct a detailed investigation.
[9] Mr. Skelton swore an affidavit dated December 11, 2012. His affidavit was filed in support of this motion. I accept Skelton’s evidence therein.
[10] One of the discrepancies was in the amount of $31,650. Skelton determined that this discrepancy was the result of a cheque written against the BMO Account by Nathoo to Jamal in the precise amount. Skelton confronted Nathoo who acknowledged and apologized for her wrongdoing. Parsons terminated Nathoo’s employment on November 27, 2012.
[11] When Jamal was confronted, she acknowledged receiving the funds from BMO but maintained the money was a loan and that she was paying it back. Skelton confirmed no loan ever existed in Parsons’ records and there was no evidence of repayment efforts. Jamal was terminated on November 27, 2012.
[12] Skelton’s further investigations revealed that 54 cheques and 5 bank drafts totaling $1,417,299.43 had been drawn on the BMO Account or the RBC Account and made payable to Nathoo or Jamal. He also determined that records maintained by Parsons were altered to cover up these payments.
[13] Parsons next retained Protiviti Independent Risk Consulting (“Protiviti”) to conduct a forensic investigation of the defendants’ activities. The Protiviti team included two fraud experts from Protiviti. Parsons’ legal department and Internal Audit Department oversaw the investigation. The Draft Confidential Internal Investigation Report (“the Protiviti Report”) dated February 6, 2013 was filed through affidavit in support of this motion. I accept the findings of the Protiviti Report.
[14] The investigation team confirmed 88 “flagged” transactions from Parsons’ corporate accounts by the defendants, totaling $1,861,196.27 over a seven year period from 2006 through 2012. The Protiviti Report details the five different methods used by the defendants to fraudulently withdraw the funds. The report therefore identifies the amount of unauthorized funds transferred by the defendants and describes how they affected and concealed the transfers.
[15] Protiviti also identified 65 “suspicious transactions” totaling $316,111.35 that took place between 2004 and 2012. Protiviti could not link the suspicious transactions directly to the defendants.
The Claim for Damages for Fraud
[16] Parsons pleaded sufficient facts to establish that the defendants are liable for conversion, fraud, and breach of fiduciary duty: Amended Statement of Claim, paras. 26, 27, 28, 30, 36, and 38. The defendants engaged in unauthorized acts. They made unauthorized payments to transfer Parsons’ funds to themselves for their personal use and benefit. The defendants are deemed to admit the facts as pleaded in the noted paragraphs of Parsons’ Amended Statement of Claim.
[17] Skelton’s findings as set out in his affidavit, Protiviti’s findings as set out in its report, and the deemed admissions of fact are sufficient to support a judgment in favour of Parsons.
Proof of Loss
[18] As noted above, I accept the findings of the Protiviti Report. Protiviti identified 88 fraudulent withdrawals by the defendants over a seven year period totaling $1,861,196.27. Protiviti identified an additional 65 “suspicious transactions” totaling $316,111.35 that took place between 2004 and 2012, but could not link these transactions directly to the defendants.
[19] After Protiviti completed its report, Parsons made efforts to directly link the suspicious transactions to the defendants. The affidavit of Donna G. Zee (“Zee”) sworn June 25, 2013 was filed in support of this motion. I reviewed Zee’s affidavit and accept her evidence therein.
[20] Zee is a Parsons Audit Manager and has direct knowledge of the relevant matters herein. She states that, after Protiviti completed its report, Parsons recovered a personal budget spreadsheet from Nathoo’s work computer (the “Spreadsheet”). The Spreadsheet included hundreds of pages detailing payments made by Nathoo and amounts received by Nathoo from various sources between May 2000 and December 2012.
[21] Pursuant to a court order, Parsons also obtained the defendants’ personal bank account statements and statements from two other accounts that Nathoo and Jamal maintained with RBC for the period April 2006 to January 2007.
[22] Zee attests that the Audit Group reviewed the Spreadsheet, the defendants’ personal account statements, and the records relating to the two other accounts that Nathoo and Jamal held with RBC. The Audit Group tried to confirm if the defendants took any portion of the $316,111.35 in suspicious transactions. For example, the Audit Group attempted to match suspicious amounts withdrawn from corporate accounts with contemporaneous deposits into accounts controlled by the defendants.
[23] The results of the Audit Group’s review were filed in support of this motion. I reviewed the detailed evidence describing their process of tracing funds withdrawn from the corporate accounts and deposited into bank accounts controlled by the defendants. I am satisfied on a balance of probabilities that the defendants fraudulently withdrew a total of $1,960,191.36 from Parsons’ corporate accounts for their direct benefit. This leaves $216,655.12 in unconfirmed suspicious transactions (the “unconfirmed amount”).
[24] Parsons can identify that the unconfirmed amount was withdrawn from its corporate accounts for no apparent business reason, but cannot trace the amounts into accounts controlled by Nathoo or Jamal. Parsons’ Audit Group concluded that the defendants took the unconfirmed amount as there is no other plausible explanation for the withdrawals.
[25] Parsons submits that the defendants’ failure to defend the action impaired Parsons’ efforts to directly link the defendants to the unconfirmed amount. Parsons’ submission is circular and ignores the reality that bank records are kept only for seven years. The records in question are not available, independent of the defendants’ failure to defend the action.
[26] It is not sufficient for Parsons to say that the defendants must have withdrawn the unconfirmed amount because Parsons could find no other explanation. Parsons must link the defendants to the withdrawals in some meaningful way to satisfy its onus. I agree with defence counsel’s submissions that Parsons has failed to do so. I conclude that Parsons has not met its onus of demonstrating on the balance of probabilities that the defendants are liable for the unconfirmed amount.
[27] Therefore, Parsons can identify on a balance of probabilities that Nathoo or Jamal fraudulently withdrew $1,960,191.36 from Parsons’ corporate accounts for their personal benefit. Parsons is entitled to judgment against the defendants in the amount of $1,960,191.36 for damages for conversion, fraud, and breach of fiduciary duty.
Claim for Punitive Damages
[28] The Court of Appeal has directed that a court may award punitive damages on a motion for default judgment: Barrick Gold Corp. v. Lopehandia (2004), 2004 12938 (ON CA), 71 O.R. (3d) 416 (C.A.). I agree with Parsons that the defendants’ conduct justifies an award of punitive damages.
[29] For several years, the defendants for their direct benefit engaged in a scheme intentionally designed to defraud their employer and grossly abuse their positions of trust and authority. Such conduct is unpalatable, reprehensible, and egregious. The defendants committed almost 100 incidents of fraud over an extended period of time. Their conduct is deserving of punishment on its own: Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362, at paras. 62 and 68.
[30] Parsons seeks $200,000 in punitive damages. Parsons relies on Elekta Ltd. v. Rodkin, 2012 ONSC 2062, [2012] O.J. No. 1439. In my view, an award of $200,000 is not appropriate given the circumstances of this case. Rather, an award of $50,000 is more “rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation)”: Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 74.
[31] I agree with Brown J.’s statement in Elekta at para. 31 that “it is time to raise the range of possible awards of punitive damages made in cases involving serious, protracted fraud by an employee who works in a position of trust handling” an employer’s funds. However, this statement must be considered in the context of the specific case. In this case, three factors impact the award of punitive damages: (i) the motive for the reprehensible conduct, (ii) the ongoing criminal proceedings, and (iii) the amount of the employer’s loss. I consider these three factors below.
[32] First, the defendants’ motives impact punitive damages. On behalf of Nathoo, Mr. Tobias provided the court with the psychiatric report of Dr. Goyer, Forensic Psychiatrist, dated June 25, 2013. On behalf of Jamal, Mr. Labow provided the court with the psychiatric report of Dr. Rootenberg, Forensic Psychiatrist, dated June 29, 2013 (collectively the “expert reports”).
[33] Parsons agrees that the expert reports are properly before the court and that Dr. Goyer and Dr. Rootenberg are qualified to provide expert opinions in forensic psychiatry. However, Parsons submits that the expert reports should be accepted only for their conclusions on the motive behind the fraudulent conduct and not for the facts as represented therein. I agree. The relevant facts to this motion are those deemed true in the Amended Statement of Claim and those as accepted in the affidavits filed in support of the motion, not the facts as represented in the expert reports.
[34] The expert reports conclude that Nathoo and Jamal committed the thefts to serve their gambling disorders. Mr. Goyer describes the problem as “diagnostically better known as Pathological Gambling. This is a medical condition in which a person can lose control over their gambling urges and can lead to a significant loss of money … the behavior has a compulsive quality akin to that as an addiction”. Dr. Rootenberg describes the condition as “severe gambling disorder”.
[35] Second, the defendants’ ongoing criminal proceedings impact the punitive damages award. Nathoo and Jamal are each facing criminal charges of fraud over $5,000. In all probability, the defendants will receive criminal punishments for the fraudulent acts as described in the pleading. It is fully expected that society will collectively denounce the abhorrent conduct and impose a punitive sentence.
[36] Third, the amount of Parsons’ loss impacts the quantum of punitive damages. An award similar to Elekta in this case would be disproportionate. In Elekta, the default defendant defrauded his employer over $12,000,000. The employer received $200,000 for punitive damages. In making the award, Brown J. noted at para. 31 that the employer’s loss was “significantly more” than employer losses in recent past cases where this court awarded punitive damages: Jefflin Investments Ltd. v. Crown Grading & Sodding Ltd., [2009] O.J. No. 5348 and iTrade Finance Holdings Inc. v. Webworx Inc. (2006), 151 A.C.W.S. (3d) 1168.
[37] Considering the above three factors, I conclude that an award of $50,000 in punitive damages is appropriate in the circumstances of this case.
Claim for Investigative Costs
[38] Parsons also seeks judgment for “damages arising out of a forensic investigation undertaken to determine the damages suffered by it as a result of the defendants’ actions”. Parsons filed evidence in support of this claim, including invoices verifying US$272,099.50 in fees. These special damages flow naturally from the established cause of action. As liability and damages for fraud have been established and awarded, I grant Parsons US$272,099.50 as special damages for the costs of a forensic investigation to determine Parsons’ loss as a result of the defendants’ fraudulent actions.
Claim for Legal Costs
[39] Parsons seeks costs and disbursements against the defendants in the amount of $204,720.39 calculated on a substantial indemnity basis. Parsons has established fraudulent conduct by their former employees. For this reason, independent of the written submissions of defence counsel, I conclude that a substantial indemnity costs award is appropriate: Novo Nordisk Canada Inc. v. Murray (21 November 2011), Toronto CV-11-432161 (Ont. S.C.). Actual time and disbursement ledgers support the legal work described in the submitted Bill of Costs. The costs include seeking a Mareva injunction and two Norwich orders. I accept the hourly rates used and I am satisfied the amounts claimed are fair and reasonable. I therefore grant Parsons a costs award against the defendants on a substantial indemnity basis fixed at $204,720.39, inclusive of disbursements and HST.
Set-Off
[40] Parsons submitted affidavit evidence from Sherri Crevelling sworn June 25, 2013. Her affidavit demonstrates that Parsons owes Nathoo $19,910.90 for unused paid time off and $1,402.04 for incurred business expenses. Nathoo is entitled to these amounts. These amounts shall be set off against the damages award.
Disposition
[41] For reasons above, the plaintiff is awarded judgment against the defendants for the following:
Damages in the amount of $1,938,860.42
Special damages in the amount of Canadian dollars equivalent to US$272,099.50
Punitive damages in the amount of $50,000
The costs of this action on a substantial indemnity basis fixed in the amount of $204,720.39, inclusive of disbursements and HST
Pre-judgment interest on the amounts set out at 1 and 2 above in accordance with s. 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43
Post-judgment interest at the rate of 3% per year commencing on the date of judgment in accordance with s. 129 of the Courts of Justice Act.
CHIAPPETTA J.
Released: October 07, 2013
COURT FILE NO.: CV-12-0469357
DATE: 20131007
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
B E T W E E N:
PARSONS CANADA LTD
Plaintiff
and –
MUMTAZ NATHOO and NAZNIN JAMAL
Defendants
REASONS FOR JUDGMENT
CHIAPPETTA J.
Released: October 07, 2013