COURT FILE NO. 1528/16 DATE: 20160914
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
HER MAJESTY THE QUEEN Respondent
GREGORY HENDRY, for the Respondent
- and -
ETHAN MIAZAD Applicant
GLENN HENDERSON, for the Applicant
HEARD: August 15, 2016
JUDGMENT ON CERTIORARI APPLICATION
DURNO, J.
[1] Ammer Beg and Ethan Elias Miazad were charged with defrauding Dr. Rhuel Maano of over $5,000 in relation to a multi-disciplinary medical clinic they established. The Crown alleged the accused used Maano as a classic straw man, stringing him along with lies so that he assumed legal ownership of the clinic, obtained a loan which he personally guaranteed and they failed to repay. When the loan went into default, Dr. Maano was held responsible for the debt to the extent of his personal guarantee but the company was sold to a company associated with the accused so that they wound up with ownership of the clinic but without the debt incurred by the renovations.
[2] In addition, Ammer Beg and Ethan Miazad arranged for Dr. Maano to obtain a $350,000 business loan to finance renovations to establish the medical clinic. The Crown alleged that Beg and Miazad diverted the loan money to companies they owned or with whom they were associated and did not repay the loans, leaving Maano liable for the $85,000 advanced on the loan when it quickly went into default. By failing to disclose that the companies who were receiving the loan funds were not at arm’s length with the accused, the Crown alleged they committed fraud by “other fraudulent means.”
[3] After a two-day preliminary inquiry at which Maano and the investigating officer testified Miazad and Beg were committed to stand trial.
[4] Ethan Miazad challenges his committal by certiorari and seeks his discharge. The Crown opposes the application. Ammer Beg did not apply for certiorari.
[5] For the following reasons, the application is dismissed.
The Evidence
[6] Rhuel Maano is a chiropractor. In the summer of 2010, Miazad and Beg contacted him looking for a chiropractor to join the staff of a multi-disciplinary medical clinic they were establishing. He agreed to join the clinic and to be paid $40 per hour.
[7] The premises, at 1-3470 Laird Road, Mississauga, were under construction and money was required to finance the project including construction of leasehold improvements. Miazad and Beg told Maano that loan applications would be more favourably accepted by the bank if they were made by licensed health care practitioners which they were not. They persuaded Maano to apply for the loan.
[8] Maano testified that he left all of the business operations to Beg and Miazad. He was not paid for the hours he worked, instead agreeing with them to invest “sweat equity” in building up the business. Maano was not at the clinic daily as he had another full time job.
[9] A numbered company listed Mirza Beg and Abdul Malik Khalid as directors of the clinic as of February 2, 2010. A document resolved that Khalid had resigned as president and Rhuel Maano was appointed President and Secretary. It also confirmed Maano as an officer of the company. Maano signed the document.
[10] A second document in relation to the same company, resulted in Rhuel Maano being elected as the sole director. This document was signed by Maano. Maano testified that these steps were taken in order to facilitate obtaining the bank loan.
[11] In May, 2011, Maano executed various financial documents from the CIBC, in his own name on behalf of the company, including a Canada Small Business Credit application and guarantee. The documents showed Maano as the sole proprietor of the numbered company. The loan was for $350,000 with Maano executing a personal guarantee for $87,500.
[12] While funds were advanced to sub-contractors, the loan defaulted in 2012 and the bank obtained a default judgment against Maano. He testified he met with a lawyer, Beg and Miazad and was assured everything would all be looked after. Maano ultimately paid $85,000 to the bank and $105,000 in total. Maano testified that the lawyers Beg and Miazad had selected let the CIBC get summary judgment.
[13] The loans did not involve the bank advancing the funds to Maano. Rather, the loans operated with invoices sent to the bank by companies who represented that they did work on the clinic and the funds were released directly to the companies.
[14] Maano testified that he had nothing to do with preparing the invoices. He subsequently learned that the invoices presented were from three corporations that he learned were set up by Miazad and Beg although the Crown conceded his evidence was hearsay in relation to the companies.
[15] While Maano saw work being done at the clinic, he said that with regards to the invoices he said, “Anything having to do with the actual day-to-day running of the clinic, preparing the invoices would be included in that I guess, then that was all [Miazad and Beg].” He was aware invoices were being submitted to the bank. Maano said, “Elias and Ammar pretty much handled the banking aspect of things.”
[16] The Crown led evidence in relation to three companies through the officer-in-charge. The three companies were Genshaw Networking Solution which was owned by a man named Sawabi, an alias used by the applicant; MZB Development Inc., owned by Zaheer Beg, a relative of the accused Beg; and Lifelong Construction owned by Ammar Mirza Beg, the accused.
[17] This information came from disclosure from the CIBC to the police. The business registry documents were given to the police in 2013. The corporate records searches for the three companies were conducted in January and April, 2013. The loans went into default in the summer of 2012.
[18] Maano testified that he was unfamiliar with any of the companies although with respect to MZB, he would have been familiar with it once work was being done. The name sounded familiar. The Crown prefaced his questions regarding the companies with “I’m going to name some companies for which cheques were issued off of the account, off the loan, okay?” Maano testified that if he had known the true state of affairs that he would never have signed the loan agreement. Beg and Miazad were responsible for finding companies that were supposed to do the work.
[19] Maano testified that neither Beg nor Miazad ever disclosed to him that any of the companies doing work on the clinic were in facts theirs or those of their family members. The Crown’s questions continued:
Q: Okay. And in terms of if that were to be true, like if that were to have been disclosed, would that have affected your decision-making at – in 2011? A: If they had been truthful about what they were ultimately they were going to do, absolutely I would not have gone into business with them. Q: Okay. Why do you say that? A: Because that would ultimately be them telling me that their plan was to siphon the money into their own companies, which is not what – the whole goal was to set up a clinic, not to line their pockets. Q: Okay. Would you have made inquiries with them about the – about those companies, or further inquiries about those companies then if you were disclosed that? A: I trusted them at that point in time that they were properly vetting and had the best interest of the company.
[20] Maano said that initially it appeared that the obligations at the bank were being met. Then the bank started notifying him that there were some issues with the company’s monthly obligations at the bank that were not being fulfilled. When he asked Beg and Miazad, they told him not to be so stressed out and to enjoy his vacation. He did not have to worry about it as everything would be handled by the lawyers.
[21] A document dated February 19, 2013, selling the numbered company to Reflex Health Alliance Ltd. for $415,000 was e-mailed to Maano. The owner of Reflex Alliance was Kahled Abdul Malek with the corporate records showing that the applicant came on as a director in 2013. Miazad told him that the clinic was going to be sold and taken over by Reflex Health Alliance because Reflex would be able to meet the financial responsibilities of the clinic. It sounded like a fair sale to Maano if they were going to buy the clinic for $415,000 and pay off the clinic’s debts.
[22] Maano signed the agreement and scanned it back to Elias. There was no evidence it was executed. Maano never received any funds from the sale. The Crown contended that the result of the sale was that the principals of Reflex Health Alliance own the medical clinic without the financial obligations which were all incurred by Maano personally. He had the debt. The principals have reverted to those Maano entered into the development with.
The Reasons for Judgment
[23] The committing justice found that there were inferences of fact capable of supporting the Crown’s case. For the purpose of the preliminary inquiry the Crown’s case was to be taken at its highest.
[24] His Honour found loan funds had been advanced to: Gemshaw Networking Solutions, MZB Development Inc., Lifelong Construction; and Reflex Health Alliance.
[25] He also found that the effect of the transactions was to leave Maano with the bank debt and others owning the company debt free.
The Law of Fraud
[26] Fraud can be committed by deceit, falsehood or other fraudulent means: s. 380 Criminal Code. The Crown’s case in relation to the failure to disclose that the companies were not at arm’s length to Miazad and Beg rests on “other fraudulent means” which was addressed by the Supreme Court of Canada in R. v. Theroux, [1993] 2 S.C.R. 5, as follows:
16 Since the mens rea of an offence is related to its actus reus, it is helpful to begin the analysis by considering the actus reus of the offence of fraud. Speaking of the actus reus of this offence, Dickson J. (as he then was) set out the following principles in Olan:
(i) the offence has two elements: dishonest act and deprivation; (ii) the dishonest act is established by proof of deceit, falsehood or "other fraudulent means"; (iii) the element of deprivation is established by proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim, caused by the dishonest act.
17 Olan marked a broadening of the law of fraud in two respects. First, it overruled previous authority which suggested that deceit was an essential element of the offence. Instead, it posited the general concept of dishonesty, which might manifest itself in deceit, falsehood or some other form of dishonesty. Just as what constitutes a lie or a deceitful act for the purpose of the actus reus is judged on the objective facts, so the "other fraudulent means" in the third category is determined objectively, by reference to what a reasonable person would consider to be a dishonest act. Second, Olan made it clear that economic loss was not essential to the offence; the imperilling of an economic interest is sufficient even though no actual loss has been suffered. By adopting an expansive interpretation of the offence, the Court established fraud as an offence of general scope capable of encompassing a wide range of dishonest commercial dealings.
18 Subsequent cases followed Olan's lead, fleshing out the elements of the offence set out in Olan in a broad and purposive manner. One of the first questions which arose was whether the third type of dishonest conduct, "other fraudulent means", was a super-added element which the Crown must prove in addition to proving either deceit or falsehood. This was rejected in R. v. Doren (1982), 36 O.R. (2d) 114 (C.A.); see also R. v. Kirkwood (1983), 42 O.R. (2d) 65 (C.A.). In a number of subsequent cases, courts have defined the sort of conduct which may fall under this third category of other fraudulent means to include the use of corporate funds for personal purposes, non-disclosure of important facts, exploiting the weakness of another, unauthorized diversion of funds, and unauthorized arrogation of funds or property: [citations omitted] As noted above, where it is alleged that the actus reus of a particular fraud is "other fraudulent means", the existence of such means will be determined by what reasonable people consider to be dishonest dealing. In instances of fraud by deceit or falsehood, it will not be necessary to undertake such an inquiry; all that need be determined is whether the accused, as a matter of fact, represented that a situation was of a certain character, when, in reality, it was not.
40 The requirement of intentional fraudulent action excludes mere negligent misrepresentation. It also excludes improvident business conduct or conduct which is sharp in the sense of taking advantage of a business opportunity to the detriment of someone less astute. The accused must intentionally deceive, lie or commit some other fraudulent act for the offence to be established. Neither a negligent misstatement, nor a sharp business practice, will suffice, because in neither case will the required intent to deprive by fraudulent means be present. A statement made carelessly, even if it is untrue, will not amount to an intentional falsehood, subjectively appreciated. Nor will any seizing of a business opportunity which is not motivated by a person's subjective intent to deprive by cheating or misleading others amount to an instance of fraud. Again, an act of deceit which is made carelessly without any expectation of consequences, as for example, an innocent prank or a statement made in debate which is not intended to be acted upon, would not amount to fraud because the accused would have no knowledge that the prank would put the property of those who heard it at risk. We are left then with deliberately practised fraudulent acts which, in the knowledge of the accused, actually put the property of others at risk. Such conduct may be appropriately criminalized, in my view.
The Law of Certiorari
[27] The Court of Appeal held in R. v. Wilson, 2016 ONCA 235:
[21] The test for committal is well settled: is there any evidence on which a reasonable jury properly instructed could return a guilty verdict? A preliminary inquiry judge must commit the accused to stand trial “in any case in which there is admissible evidence which could, if it were believed, result in a conviction”: United States of America v. Shephard, [1977] 2 S.C.R. 1067, at p. 1080.
[22] The test is the same whether the evidence is direct or circumstantial. However, with circumstantial evidence, there is an inferential gap between the evidence and the matter to be established. The question becomes whether the elements of the offence to which the Crown has not advanced direct evidence may reasonably be inferred from the circumstantial evidence.
[23] The preliminary inquiry judge must therefore engage in a limited weighing of the evidence to assess whether it is reasonably capable of supporting the inferences that the Crown asks the jury to draw. This does not entail considering whether he or she would conclude that the accused is guilty. Nor does the judge draw factual inferences or assess credibility. Rather, the preliminary inquiry judge asks whether the evidence, if believed, could reasonably support an inference of guilt: R. v. Arcuri, [2001] 2 S.C.R. 828, at paras. 1 and 23.
[24] Any reasonable interpretation or permissible inference from the evidence, beyond conjecture or speculation, is to be resolved in the prosecution’s favour. At the preliminary inquiry stage, if more than one inference can be drawn from the evidence, only the inferences that favour the Crown are to be considered: R. v. Sazant, [2004] 3 S.C.R. 635, at para. 18. To weigh competing inferences is to usurp the function of the trier of fact: R. v. Clarke (2002), 159 O.A.C. 221 (ONCA), at para. 4.
[28] Where the evidence is circumstantial the presiding justice has limited scope for discharge. The following Court of Appeal judgments set out the limited scope: In R. v. Dwyer, 2013 ONCA 368, at para. 4 Doherty J.A. held, “Reasonable inferences are not necessarily likely or probable inferences. The inference that is most favourable to the Crown must be drawn at the preliminary inquiry stage. Difficult inferences to draw may still nonetheless be reasonable.”
[29] In R. v. Campbell (1999), 140 C.C.C. (3d) 164 (Ont.C.A.) the Court held:
… Here the preliminary hearing judge rested his decision to discharge the appellants on his "no evidence" findings. However, these findings are not the only factual conclusions that could reasonably be drawn from this evidence. As McCombs J. points out in the passage quoted above, there are other inferences that could reasonably be drawn from all the circumstantial evidence and upon which a reasonable jury, properly instructed, could find the appellants guilty of manslaughter. The preliminary hearing judge, in effect, rejected these other inferences in preference to the factual conclusions which he recited. In doing so he committed jurisdictional error by deciding the question reserved for the trier of fact.
[30] Finally, the Court of Appeal held in R. v. Kamermans, 2016 ONCA 117 at para. 20:
Third, in resting his conclusion to discharge the appellants in part at least because of a "difficulty" in drawing the inferences proposed by the Crown, the preliminary inquiry judge exceeded his jurisdiction. Whether an inference is easy, hard or difficult to draw is of no moment to a decision on committal. Provided the inferences advanced by the Crown are within the field of available inferences and provide evidence of each essential element of the offence, committal follows.
The Positions of Counsel
[31] Mr. Henderson submits that while there was evidence of economic loss or risk of loss, there was no evidence of a fraudulent act by the applicant. There was no deceit or falsehood. Nor was there any evidence of “other fraudulent means.” While the Crown says that it was by omission, the applicant disagrees. He contends there was no underpinning as required for “other fraudulent means.” In the alternative, if there was an omission, he submits that it was not material. Further, he argues there was no analysis of the requisite mens rea in the committing justice’s reasons.
[32] The applicant submits that the complainant’s subjective belief, “I would not have signed the loan had I known,” must be reasonable. Where the committing justice erred is in not assessing whether the subjective belief was objectively reasonable. The applicant submits that was not and no jury could find it to have been reasonable. Maano is an educated person who went in with his eyes wide open. He never asked questions, even after the loan went into default. It was only when the police approached Maano that he became concerned and walked away from the company.
[33] The applicant submits that when there is an act of omission, it is not the perspective of the complainant that is important. Rather, an omission must be viewed on a reasonableness standard, an objective basis. When Dr. Maano said that he would have made a different decision had he known all the facts, that statement must be considered reasonable in all the circumstances. Whether there is evidence of “other fraudulent means, the existence of such means is determined by what reasonable people considered to be dishonest dealings. While fraud can include non-disclosure, it has to be viewed by the reasonable person as dishonest. The trial judge’s error was in not determining whether there was an objective basis upon which a jury could convict when Dr. Maano had no interest at all in the management of the business.
[34] The applicant submits that not every failed business venture amounts to fraud. He submits Maano knowingly and wilfully assumed the risk at the bank. He showed no insight or interest in the management of the clinic and made no meaningful inquiries.
[35] Further, the applicant contends there was no evidence any of the four companies the committing judge found had received funds were given any money. The company information was found in a file the bank provided to the police. There was no evidence any of the companies were associated with the business loan. There is no evidence the work invoiced was not done or that it was not done properly. That the corporate searches conducted months after the loans went into default cannot assist the Crown with the corporate state as of the date of the default.
[36] Finally, the applicant submits this was not a ‘straw man’ scenario where someone is engaged to defraud someone else. Here, the Crown argues that the ‘straw man’ was the victim. However, that man understood his equity and liability. There is no evidence he was ever mislead.
[37] The Crown submits this was the classic ‘straw man’ fraud. The deception involved the scheme to put all the debt on Maano while maintaining ownership in the clinic for the accused and by withholding information regarding the loan with payments to companies associated with Beg and Miazad. There was deception obtaining Maano’s signature. He was essentially set up as the ‘front man’ to secure financing for the clinic at his own financial peril.
[38] While the finding that the funds were advanced to the three companies was “tenuous,” it was sufficient to commit for trial. All that is required is that the applicant failed to disclose the companies were not arm’s length for the committal to be upheld. The loan Maano applied for was not designed to give Beg and Miazad funds.
Analysis
[39] The context in which the events occurred is important. While the applicant’s repeated references to Dr. Maano going into the relationship and loan with his eye wide open (and that might be a trier of fact’s conclusions) that is not the only inference to be drawn. When the loans went into default he did ask questions. He was told not to worry, that everything would be okay. Miazad and Beg were to repay the loans. They did not. The lawyer would take care of everything. The bank obtained a default judgment.
[40] Maano was a 35-year-old chiropractor. Beg and Miazad had taken out a lease on the Laird Road clinic. Maano agreed to come in as their chiropractor for the clinic. Later, the issue of loans arose. Maano was to start seeing patients and the loans were to be used towards building out the balance of the space at the clinic. The companies doing work were to submit their invoices to the bank and were to be paid directly by the bank. Maano had nothing to do with preparing or submitting the invoices. While there are issues with his evidence, he said that the business aspect of the clinic was left to Beg and Miazad. He worked at the clinic part time and had another full time job.
[41] Maano’s evidence was that the only reason he became involved in the company other than as an employee was to facilitate the bank loan. The preliminary inquiry judge was required to proceed on the basis that was the only reason for Maano becoming the owner of the numbered company. He left the day-to-day operation and management of the clinic to Beg and Miazad. They were to arrange for the contractors and renovations and to pay the bank.
[42] Against this background, the two issues are whether there was evidence upon which the committing judge could conclude that a reasonable jury properly instructed could convict on the basis of the Crown’s overall fraud theory and/or non-disclosure of the ownership of the companies who received the loan payments.
[43] With regards to the overall straw man fraud basis, I am persuaded there was evidence to support committal for trial. There was evidence from which it could be inferred that the applicant and Beg dishonestly misled Maano to his financial detriment. He was told that the only reason he was going to become the clinic’s owner was to facilitate getting a loan and that the loan would be repaid. It was not. He said he had nothing to do with running the company of the clinic. In the end, Maano wound up with the debt and no ownership interest in the company. While it is far from inevitable that a jury would conclude there was fraud on this basis, it would be open to conclude that Maano was lied to with regards the applicant’s motivation in getting him to apply for the loan.
[44] It was Miazad who approached Maano about Reflex buying the numbered company and had Maano sign the agreement. While there was no evidence the agreement was executed, Miazad’s discussion with Maano could lend support to the overall fraud conclusion. It would be open to a trier of fact to conclude that the applicant had the requisite mens rea for fraud by misleading Maano as to the real intention when he became the clinic’s owner and took out the loan.
[45] The next area requires a determination of whether there was any evidence the four companies received loan funds and that they were linked to Beg and/or Miazad at the relevant time. The Crown says the evidence is tenuous, the applicant says it is non-existent.
[46] First, with regards to Reflex Alliance, I agree with counsel that there was no evidence from which it could be concluded that any loan money went to that company. That was the company that was buying the numbered company.
[47] Second, I am persuaded that there was evidence upon which a reasonable jury could conclude the other three companies were given loan funds and that they were linked to Beg and Miazad. The documents were received from the bank in relation to the investigation of the loans. The method of paying invoices involved the company submitting invoices which were directly paid by the bank. It is a reasonable inference that the loan investigation would only include companies that had submitted invoices. There was no reason to do corporate searches of other companies that did not submit invoices. There was evidence that money was advanced on the loan. Accordingly, there was evidence from which it could be inferred the companies received funds. Reasonable inferences need not be probable or likely.
[48] With regards to the ownership of the companies, while the searches were conducted after the moneys were paid and the loans defaulted, it would be open to a jury to conclude that the ownership had not changed. In determining whether to draw that inference the trier of fact would consider what the chances were of people with a link to Beg and Miazad just becoming involved after the loan payments. As Doherty J.A. held in Dwyer: “… [d]ifficult inferences to draw may still nonetheless be reasonable.”
[49] Turning next to the non-disclosure issue, many of the applicant’s arguments may be compelling at trial in raising a reasonable doubt with respect to the elements of the offence. The problem with the applicant’s reliance on R. v. Wright, 2012 ONSC 4713 is that the findings there were at trial where the test is proof beyond a reasonable doubt.
[50] Regardless of whether the trial judge addressed the mens rea issue, the question here is whether there was evidence upon which a trier of fact could find that a reasonable person would consider it dishonest that Beg and Miazad did not tell Maano that they had links to the companies who were being paid and presumably doing the work at the clinic. Clearly, with Maano’s evidence that he would not have entered the business, the subjective element was open to find.
[51] I am persuaded that in the context of this relationship that there was evidence from which it would be open for a jury to conclude that objectively there was material non-disclosure. That a trier of fact could determine that there was no objective basis to find fraud by omission, is not the test. The question is whether there was evidence upon which the trier of fact could find the objective basis existed. There was.
[52] While Maano’s apparent lack of interest in the business aspect of the clinic notwithstanding his legal obligations on the loan will no doubt be argued at trial, it would also be open to the jury to conclude that Maano had no role and was never expected to have any role in the business of the clinic. He said that he only became involved to get the one loan and left everything up to Beg and Miazad. They were to run the business aspect of the clinic without jeopardizing his financial position and by hiring arm’s length contractors. They assured him that everything would be taken care of. In the context where Beg and Miazad were to take care of the business, including repaying the loans, did not repay the loans, yet the funds went to companies with which they had an association provides the evidentiary basis upon which committal could be ordered. In that context, I find that a reasonable person could conclude Beg and Miazad not telling Maano that they were linked to the companies that were getting the money from the loan was dishonest.
Conclusion
[53] The application is dismissed.
DURNO, J.
Released: September 14, 2016