COURT FILE NO.: CR-15-90000-335-0000

DATE: 20190607

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

HER MAJESTY THE QUEEN

– and –

OMAR KALAIR and YUSUF PANCHBHAYA

Damian Frost and Kelsey Ivory, for the Applicant

Edward Prutschi and Brittany Smith, for the Respondent Omar Kalair and Tom LeRoy and Megan Howatt, Amicus Curiae

HEARD: October 18, 19, 22, 23, 25, 26, 30, 2018; November 1, 2, 13, 15, 16, 19, 20, 23 26, 27, 28, 29, 30, 2018; and December 3, 2018

ferguson, j.

REASONS FOR JUDGMENT

CHARGES

[1] Omar Kalair (“Kalair”) was the CEO of UM Financial Inc. and UM Capital Inc. (collectively, “UM”) which provided Shariah compliant home financing. UM entered into an agreement with Central 1, previously Credit Union Central of Ontario (“CUCO/Central 1”), to act as a financial backer and lending institution. UM also worked with an independent Shariah Ethics Board (“SEB”), later incorporated as the Multicultural Consultancy Canada Inc. (together, “SEB/MCC”), to oversee the religious aspects of the financing. Yusuf Panchbhaya (“Panchbhaya”) is a Mufti or Islamic scholar who was the chair of the SEB/MCC.

[2] UM operated its Shariah compliant home financing business from 2004 until 2011, when it was ordered into receivership by the court after an application was made by CUCO/Central 1. While the receivership proceedings were ongoing, Kalair used funds from UM’s bank account to purchase precious metals valuing over $2 million. The Crown contends that these funds should have been remitted to CUCO/Central 1, and that Kalair and Panchbhaya fraudulently converted the funds into precious metals. In contrast, Kalair contends that this purchase was made to pay the debt UM owed to the SEB/MCC for Shariah services it provided, and that the payment was in accordance with the agreements it had with the SEB/MCC and CUCO/Central 1. The silver was ultimately turned over to CUCO/Central 1 by Panchbhaya, but the gold remains outstanding.

[3] As a result, Kalair and Panchbhaya are charged as follows:

(a) Kalair and Panchbhaya are jointly charged with three Criminal Code, R.S.C. 1985, c. C-46 (“CC”) offences of (i) theft; (ii) fraud; and (iii) money laundering; and one Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) offence of fraudulent disposal of property. These offences relate primarily to the precious metals.

(b) Kalair is individually also charged with two additional CC offences of (i) theft and (ii) fraud, and two additional BIA offences of (i) failure to perform duties of a bankrupt and (ii) unlawful refusal to answer fully and truthfully. The CC offences relate primarily to the mortgage payments (prepayments and paid off mortgages). The BIA offences arise out of Kalair’s obligations as president and CEO of UM upon its bankruptcy.

[4] After the evidence was completed, the matter was put over for written submissions. I received submissions and reply submissions from the Crown; submissions from Amicus Curiae; and submissions (and a brief reply email submission) from counsel for Kalair. I received further written submissions after inquiring if there could be a conviction for money laundering alone if there were acquittals on the theft and fraud charges. The key trial transcripts were obtained. I have reviewed counsel’s references to those transcripts as well as other references to evidence where transcripts were not obtained and find them to be accurate. Accordingly, I have not included these evidentiary references in these reasons. All written submissions and various email exchanges have been made exhibits.

THE LAW

(i) CC Charges

A. Fraud – Section 380 of the CC

[5] The offence of fraud is set out in s. 380(1) of the CC. The relevant portion is as follows:

380 (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

(a) is guilty of an indictable offence… where… the value of the subject-matter of the offence exceeds five thousand dollars; …

1. Required Elements of Fraud

[6] The actus reus of the offence of fraud will be established by proof of:

(i) the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and

(ii) deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim's pecuniary interests at risk.[^1]

[7] The mens rea of fraud is established by proof of:

(i) subjective knowledge of the prohibited act; and

(ii) subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim's pecuniary interests are put at risk).

[8] The mens rea of the offence of fraud can be satisfied by the proof of willful blindness. In Regina v. Drabinsky, the court considered the meaning of the mens rea of fraud in relation to the subjective belief held by an accused that his conduct was not dishonest or that deprivation was not intended, stating the following:

The question is whether the accused subjectively appreciated that certain consequences would follow from his act, not whether he believed they were moral: "...the defrauder will not be acquitted because he believed what he was doing was honest”.

The fact that the accused may have hoped deprivation would not occur or may have thought what he was doing was not wrong is no defense. Where the accused knowingly undertook the acts in question aware that deprivation or risk of deprivation could follow, the accused is guilty. This is so whether he actually intended the consequences or was reckless as to whether they would occur. In other words a "sanguine belief that all will come out right in the end" is not a defense. "Many frauds" are perpetrated by people who think there is nothing wrong with what they are doing or who think it will turn out alright in the end.[^2]

[9] Therefore, where the conduct and knowledge required by these definitions are established, the accused is guilty whether he actually intended the prohibited consequence or was reckless as to whether it would occur.[^3]

[10] As demonstrated by both the mens rea and actus reus, above, fraud consists of dishonest acts resulting in prejudice or a risk of prejudice to any person’s "property, money or valuable security". The requisite elements of fraud are therefore dishonesty and deprivation. Each of these elements is defined below.

2. “Dishonest Acts” Defined

[11] Dishonesty includes, but is not limited to, conduct that involves either deceit or falsehood. In Zlatic, the Supreme Court of Canada indicated the following:

As is pointed out in Théroux, proof of deceit or falsehood is sufficient to establish the actus reus of fraud; no further proof of dishonest action is needed. However, the third category of “other fraudulent means” has been used to support convictions in a number of situations where deceit or falsehood cannot be shown. These situations include, to date, 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.[^4]

[12] In addition, according to the court in Olan:

The words “other fraudulent means” … include means which are not in the nature of a falsehood or a deceit; they encompass all other means which can properly be stigmatized as dishonest.[^5]

[13] Dishonesty is determined objectively by reference to what a reasonable person would consider to be discreditable as being clearly at variance with straightforward honourable dealings.[^6]

[14] In Regina v. Emond, the Quebec Court of Appeal decided that dishonesty, and more particularly, a falsehood, can consist of a mere omission.

That is to say a situation where, through his silence, an individual hides from the other person a fundamental and essential element […] this silence or this omission must be such as would mislead a ‘reasonable man’.[^7]

[15] A dishonest act can constitute voluntarily spending monies gained on credit with no concern for repayment. However, “[w]hat would deprive the act of its dishonest character is if a reasonable person would foresee realistic expectation for repayments”.[^8]

3. “Deprivation” Defined

[16] Deprivation does not require any actual pecuniary loss. It is satisfied by the potential risk of prejudice to the economic interests of the victim.[^9]

[17] The Crown is not required to show actual economic loss by the victim in order to establish fraud. The mere risk of deprivation is sufficient. In Olan, supra, the court makes this clear, at p. 1182:

The element of deprivation is satisfied on proof of detriment, prejudice, or risk of prejudice to the economic interests of the victim. It is not essential that there be actual economic loss as the outcome of the fraud. The following passages from the English Court of Appeal judgment in R. v. Allsop [(1976), 64 Cr. App. R. 29.] in my view correctly state the law on the role of economic loss in fraud, at pp.31, 32:

Generally, the primary objective of fraudsmen is to advantage themselves. The detriment that results to their victims is secondary to that purpose and incidental. It is "intended" only in the sense that it is a contemplated outcome of the fraud that is perpetrated. If the deceit which is employed imperils the economic interest of the person deceived, this is sufficient to constitute fraud even though in the event no actual loss is suffered and notwithstanding that the deceiver did not desire to bring about an actual loss.

[18] Where a specific amount is alleged in a count on the information, it is not necessary to prove the dollar amount alleged precisely.[^10] This is consistent with the legal principle that no actual economic loss need be proven.

B. Theft – Section 334(a) of the CC

[19] Section 322 provides:

(1) Every one commits theft who fraudulently and without colour of right takes, or fraudulently and without colour of right converts to his use or to the use of another person, anything, whether animate or inanimate, with intent,

(a) to deprive, temporarily or absolutely, the owner of it, or a person who has a special property or interest in it, of the thing or of his property or interest in it;

(b) to pledge it or deposit it as security;

(c) to part with it under a condition with respect to its return that the person who parts with it may be unable to perform; or

(d) to deal with it in such a manner that it cannot be restored in the condition in which it was at the time it was taken or converted.

(2) A person commits theft when, with intent to steal anything, he moves it or causes it to move or to be moved, or begins to cause it to become movable.

(3) A taking or conversion of anything may be fraudulent notwithstanding that it is effected without secrecy or attempt at concealment.

(4) For the purposes of this Act, the question whether anything that is converted is taken for the purpose of conversion, or whether it is, at the time it is converted, in the lawful possession of the person who converts it is not material.

[20] The CC provides several types of theft in addition to a general description in s. 322. Generally, theft as defined by s. 322 is the broadest and most serious of the theft provisions as it incorporates the more specific provisions. It is only if the court did not find the conduct in issue did not come within the definition of theft contained in s. 322 that the court would still be obliged to consider the more limited and specific theft provisions.[^11]It is open to the Crown to rely on more than one of the "definitional theft sections in the Code".[^12]

[21] Section 334(a) provides the following:

Except where otherwise provided by law, every one who commits theft

(a) is guilty of an indictable offence… where… the value of what is stolen exceeds five thousand dollars; or

(b) is guilty

(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or

(ii) of an offence punishable on summary conviction,

where the value of what is stolen does not exceed five thousand dollars.

[22] Section 330 provides:

(1) Every one commits theft who, having received anything from any person on terms that require him to account for or pay it or the proceeds of it or a part of the proceeds to that person or another person, fraudulently fails to account for or pay it or the proceeds of it or the part of the proceeds of it accordingly.

(2) Where subsection (1) otherwise applies, but one of the terms is that the thing received or the proceeds or part of the proceeds of it shall be an item in a debtor and creditor account between the person who receives the thing and the person to whom he is to account for or to pay it, and that the latter shall rely only on the liability of the other as his debtor in respect thereof, a proper entry in that account of the thing received or the proceeds or part of the proceeds of it, as the case may be, is a sufficient accounting therefor, and no fraudulent conversion of the thing or the proceeds or part of the proceeds of it thereby accounted for shall be deemed to have taken place.

1. The Actus Reus and Mens Rea of Theft

[23] The actus reus of theft as defined in s. 322 is a taking or conversion of anything fraudulently and without colour of right. Taking is fairly self-explanatory. Conversion, on the other hand, does not require a physical taking but is accomplished by exercising dominion over the subject of the theft to the exclusion of others. Conversion can occur where possession of the property was lawfully acquired.[^13]

[24] The mens rea of the theft as defined in s. 322 requires proof that the taking or conversion is intentional, under no mistake, and fraudulent. The latter imports the same element of dishonesty as the offence of fraud. The "no mistake" requirement arises from the "without colour of right" language in s. 322.

2. “Colour of Right” Defence

[25] The term "colour of right" generally, although not exclusively, refers to a situation where there is an assertion of a proprietary or possessory right to the thing which is the subject matter of the alleged offence. It is used to denote an honest belief in a state of facts, which, if it actually existed, would at law justify or excuse the act done.[^14]

[26] The test for the determination of the presence of an honest belief is subjective rather than objective:

Possibly some of the strongest beliefs held by human beings might be found by other minds to be completely destitute of reasonable grounds. ... A man may be ever so much mistaken in his reasoning processes and yet be honest, though you would not accept his mere statement of opinion unless there was some colour in the circumstances for his entertaining the opinion he claims to have had.[^15]

[27] To put the defence of colour of right in play, an accused bears the onus on a balance of probabilities of showing that there is an "air of reality" to the asserted defence - i.e., whether there is some evidence upon which a trier of fact, properly instructed and acting reasonably, could be left in a state of reasonable doubt about colour of right. Once this threshold is surpassed, the burden falls on the Crown to disprove the defence beyond a reasonable doubt.[^16] The trier of fact must determine whether, upon all the evidence, the proper inference to be drawn would be that the accused held an honest belief in the legitimacy of his actions.[^17]

[28] The honest belief does not have to be reasonable. Instead, “the reasonableness of the belief is a factor to consider in assessing whether the belief was an honest one”.[^18]

[29] In a 1963 case from the Ontario Court of Appeal, the accused, a municipal treasurer and tax collector, was charged with unlawfully converting to her own use $10,000, which was property of the municipal corporation. The accused admitted to taking the money, intentionally destroying records of the transaction, and giving the money to the Mayor in accordance with his orders. She testified that she felt justified in following the Mayor's orders. The court said as follows:

In discussing fraudulent intent the learned trial judge told the jury that if the "accused honestly thought she was obliged to take this money" as ordered by the mayor upon the authorization of the municipal council, they ought to acquit. In effect this instruction is to acquit only if the jury found that the appellant believed that she was under a legal compulsion to obey the mayor's orders. I think it sufficient if she honestly believed that she was justified in following the mayor's orders even though not bound to do so and even if that belief was without foundation.[^19]

[30] Although the Supreme Court of Canada restored the conviction,[^20] they did so on the basis that on the particular facts, “there could be no honesty or honest opinion of right in these transactions”.[^21] They did not interfere with the Court of Appeal’s strong language set out above. The test remains whether an accused has an honest subjectively held belief in the permissibility of their conduct.

[31] The "colour of right" defence to fraud depends on whether the defendant, at the time of the taking or conversion, had an honest belief of a right to the property. A belief in a moral right is not a defence. It must be based on a mistake of the facts or an honest belief in a legal claim which would negate the mens rea for the offence.[^22]

C. Money Laundering – Section 462.31(1) of the CC

[32] Section 462.31(1) provides the following:

Every one commits an offence who uses, transfers the possession of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of property with intent to conceal or convert that property or those proceeds, knowing or believing that all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of

(a) the commission in Canada of a designated offence; or

(b) an act or commission anywhere that, if it had occurred in Canada, would have constituted a designated offence.

1. Essential Elements of Money Laundering

[33] In order to establish the offence of money laundering, the Crown must prove each of the following essential elements beyond a reasonable doubt: that the accused dealt with property (in this case, money); that the money was obtained by crime (in this case, fraud); that the accused knew or believed that the money had been obtained by crime; and that the accused intended to conceal or convert the money.

[34] The elements of an offence under s. 462.31(1) of the CC are broad. Those elements are “captur[ed] by a broad array of activities involving property or the proceeds of property. Almost anything done with property will satisfy the conduct component of the offence”.[^23]

2. The Actus Reus and Mens Rea of Money Laundering

[35] The actus reus of the offence of laundering proceeds of crime is very broad and involves dealing with any property or the proceeds of any property in any of the enumerated ways set out in s. 462.31.[^24]

[36] The mens rea of the offence has two elements: the knowledge or belief that the property or proceeds were derived from the designated offence, and the intent to conceal or convert the property or proceeds of property.[^25] The mens rea of money laundering can be satisfied by either a finding of belief or a finding of wilful blindness.[^26] The Crown does not have to prove that either of the accused knew or believed the details of the designated offence, only that the property was derived from the commission of fraud over $5000.[^27] Wilful blindness may fulfill this mens rea requirement.[^28]

(ii) BIA Charges

[37] The primary objectives of the bankruptcy regime include the restitution of creditors, to the degree possible, of the money they in good faith extended to the bankrupt.[^29]

[38] The BIA regime is remedial, not punitive, despite the fact that charges may be laid pursuant to the legislative regime. This court stated the following in R. v. Kotchetova :

[…] the BIA is designed to provide an opportunity for bankrupt persons to escape from the weight of their insolvency by way of a discharge of their debts in the bankruptcy process […].

Not surprisingly, however, given its power to relieve debtors of their debts, the legislation does contain provisions that create offences that may potentially be laid against bankrupt individuals who abuse the process, who are less than full and frank in the disclosure of their financial affairs, or who refuse in some respect to comply with the legislative regime. The legislation ensures that only bankrupt persons who fully, truly, and fairly report on their economic circumstances and who otherwise comply with its requirements, can potentially be relieved from the circumstances of their insolvency and permitted to commence their economic life anew, unburdened by the debt they had previously accumulated.[^30]

[39] Section 2 of the BIA provides relevant definitions, including the following:

• A bankrupt is defined as “a person who has made an assignment or against whom a bankruptcy order has been made or the legal status of that person”;

• A debtor is defined as including “an insolvent person and any person who, at the time of an act of bankruptcy was committed by him, resided or carried on business in Canada and, where the context requires, includes a bankrupt”;

• A creditor is defined as, “a person having a claim provable as a claim under this Act”; and

• A secured creditor is defined as “a person holding a mortgage, hypothec, pledge, charge or lien on or against the property of the debtor or any part of that property as security for a debt due or accruing due to the person from the debtor, or a person whose claim is based on, or secured by, a negotiable instrument held as collateral security and on which the debtor is only indirectly or secondarily liable […]”.

[40] In strict liability regulatory offences, where the principal’s mens rea need not be proven, the party’s liability may also be proven through the application of strict liability, depending on the statutory language.[^31]

A. Fraudulent Disposal – Section 198(1)(a) of the BIA

[41] Section 198(1)(a) of the BIA provides that “[a]ny bankrupt who makes any fraudulent disposition of the bankrupt’s property before or after the date of the initial bankruptcy event, is guilty of an offence […]”.

[42] The elements of the offence are (i) the person is a bankrupt within the meaning of the BIA, (ii) the bankrupt disposed of property before or after the date of the initial bankruptcy event, as defined by the BIA, (iii) the disposition was intentional, and (iv) the disposition was fraudulent, in that the accused had subjective knowledge that the act could cause deprivation.[^32]

[43] The mens rea requirement for an offence under s. 198(1)(a) requires that the accused “had subjective knowledge that the act could have deprivation as a consequence”. Further, the Crown must prove that the accused, “at the time of the commission of the alleged offence, […] knew that he or she would become bankrupt or was wilfully blind to that prospect”.[^33]

[44] Creditors are entitled to know what assets form part of the bankrupt’s estate. A failure to disclose the circumstances of the disposal of an asset deprives the creditors of an opportunity to respond and recoup their losses. Transactions and their non-disclosure can constitute a fraudulent transaction, as discussed in R. v. Farrell.[^34]

B. Failure to Fulfill Duties of a Bankrupt – Section 198(2) of the BIA

[45] The BIA designates that the failure to comply with duties is an offence pursuant to s. 198(2), which reads as follows:

(2) A bankrupt who, without reasonable cause, fails to comply with an order of the court made under section 68 or to do any of the things required of the bankrupt under section 158 is guilty of an offence and is liable […]

(b) on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

[46] Section 158 of the BIA enumerates the duties of a bankrupt, and includes that a bankrupt shall do the following:

(a) make discovery of and deliver all his property that is under his possession or control to the trustee or to any person authorized by the trustee to take possession of it or any part thereof;

(a.1) […]

(b) deliver to the trustee all books, records, documents, writings and papers including, without restricting the generality of the foregoing, title papers, insurance policies and tax records and returns and copies thereof in any way relating to his property or affairs;

(c) at such time and place as may be fixed by the official receiver, attend before the official receiver for examination under oath with respect to his conduct, the causes of his bankruptcy and the disposition of his property;

(f) make disclosure to the trustee of all property disposed of within the period beginning on the day that is one year before the date of the initial bankruptcy event or beginning on such other antecedent date as the court may direct, and ending on the date of bankruptcy, both dates included, and how and to whom and for what consideration any part thereof was disposed of except such part as had been disposed of in the ordinary manner of trade or used for reasonable personal expenses;

(h) attend the first meeting of his creditors unless prevented by sickness or other sufficient cause and submit thereat to examination;

(i) when required, attend other meetings of his creditors or of the inspectors, or attend on the trustee;

(j) submit to other examinations under oath with respect to his property or affairs as required;

(k) aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors;

(o) generally do all such acts and things in relation to his property and the distribution of the proceeds among his creditors as may be reasonably required by the trustee, or may be prescribed by the General Rules, or may be directed by the court by any special order made with reference to any particular case or made on the occasion of any special application by the trustee, or any creditor or person interested

[47] The offence of failure to fulfill duties of a bankrupt is a strict liability offence,[^35] meaning that the Crown only has to prove the actus reus of the offence, as indicated by the Supreme Court in R. v. Sault Ste Marie (City):

There is no necessity for the prosecution to prove the existence of mens rea; the doing of the prohibited act prima facie imports the offence, leaving it open to the accused to avoid liability by proving that he took all reasonable care. This involves consideration of what a reasonable man would have done in the circumstances. The defence will be available if the accused reasonably believed in a mistaken set of facts which, if true, would render the act or omission innocent, or if he took all reasonable steps to avoid the particular event.[^36]

C. Failure to Answer Fully and Truthfully – Section 198(1)(b) of the BIA

[48] The BIA states the following:

198(1) Any bankrupt who,

(b) refuses or neglects to answer fully and truthfully all proper questions put to the bankrupt at any examination held pursuant to this Act.

is guilty of an offence and is liable […] on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.

[49] The Crown is permitted to use statements of affairs and examinations as part of its case. These statements form the actus reus of the offences and are therefore a necessary part of the Crown’s case.[^37]

GENERAL LEGAL PRINCIPLES

(i) The Burden and Standard of Proof

[50] An accused is presumed to be innocent. The burden of proof remains with the Crown to prove all of the essential elements of the offences to a standard beyond a reasonable doubt. Reasonable doubt is based on reason and common sense[^38] which arises logically from the evidence or absence of evidence.[^39] That standard relates to the elements of the offence and does not relate to individual items of evidence.

[51] Where the proof of one or more elements of the offence depends largely on circumstantial evidence, a finding of guilt can only result where it has been proven beyond a reasonable doubt that the only reasonable inference to be drawn from the whole of the evidence is the guilt of the accused.[^40]

(ii) The Accused’s Right to Remain Silent

[52] A person charged with an offence has the right to remain silent at trial. There can be no negative inference drawn from his failure to testify, even where a co‑accused has testified.[^41] An accused is not required to prove his innocence or disprove any of the evidence led by the Crown.[^42]

(iii) The Credibility and Reliability of Witnesses

[53] Although there is no jury in this case, reviewing a jury instruction can provide courts with guidance. An appropriate way to instruct a jury on the issue of credibility is to instruct them of the following:

1. If they believe the evidence of the defendant, they must acquit;

2. If they do not believe the evidence of the defendant, but are left with a reasonable doubt by it, they must acquit; and

3. If they do not believe the evidence of the defendant and are not left in a reasonable doubt by it, they must consider whether, on the basis of the evidence that they do accept, they are convinced beyond a reasonable doubt of the guilt of the defendant.[^43]

[54] Although the Crown submits that this W. (D.) instruction is only required where a defendant has testified and given significant exculpatory evidence, it is important to remember, however, that the principles of W. (D.) apply even in cases where the accused has not testified, and applies to all exculpatory evidence whether presented by the Crown or the defence.[^44]

[55] When assessing and weighing the evidence of the witnesses in this trial, the court may accept some, all or none of the evidence proffered by a witness.

[56] The issue of reliability goes to the accuracy of the witness’ testimony. It is determined by analyzing whether the witness was able to make relevant observations, recall what was observed, and communicate those observations accurately. Even an apparently convincing, confident and credible witness may not be accurate or reliable.[^45] Attention must be paid to the frailties of memory.

[57] In contrast, the issue of credibility goes to the veracity or believability of the witness. A witness that is not credible cannot give reliable evidence.[^46]

SUMMARY OF POSITIONS REGARDING THE JOINT CHARGES – THEFT, FRAUD, MONEY LAUNDERING, AND FRAUDULENT DISPOSALL

1. The Crown

[58] Regarding the offences of theft and fraud, Kalair and Panchbhaya, acting in concert, agreed to and misappropriated more than $2 million by purchasing gold and silver bullion from funds located in the UM bank account shortly before its inevitable receivership/bankruptcy thus defrauding its creditor, CUCO/Central 1 . These actions constitute the offences of fraud and theft by conversion.

[59] Regarding the offence of money laundering, Kalair and Panchbhaya, acting in concert, agreed to purchase precious metals with funds located in UM’s bank account owed to CUCO/Central 1 and then transferred the precious metals to a third party, Joseph Adam (“Adam”), whose whereabouts are unknown. The purchase of these precious metals constitutes the conversion of those misappropriated funds with the intent to conceal the whereabouts of the funds, rendering it virtually impossible to trace them.

[60] Regarding the offence of fraudulent disposal under the BIA, UM was bankrupt, and both the funds used to purchase the precious metals and the precious metals themselves were the property of CUCO/Central 1. Before assignment, property was fraudulently disposed of by UM with the assistance and encouragement of Kalair and Panchbhaya.

2. Kalair

[61] The facts reveal a clear intention by CUCO/Central 1 and UM to enter into a Mudarabah relationship governed by the principles of Islamic finance, operating within the over‑arching structure of Ontario corporate law. CUCO/Central 1 and UM were engaged in a form of joint venture or limited partnership rather than a traditional debtor/creditor relationship. This structure created an accepted risk of loss on the part of CUCO/Central 1, while simultaneously recognizing that there would be expenses borne by UM to ensure Shariah compliance and certification of the venture.

[62] As a result of this structure, homeowners’ payments to UM were contractually permitted to be utilized by UM to pay CUCO/Central 1 its share of the profits; pay UM its share of the profits; and pay the various expenses of the joint venture, such as those associated with the SEB/MCC. UM and the SEB/MCC were prepared to defer some profits. However, CUCO/Central 1’s unilateral decision to end the Mudarabah left Kalair in an impossible position where he faced demands to pay CUCO/Central 1 and the SEB/MCC, while also ensuring that the homeowners’ mortgages remained Shariah compliant.

[63] Kalair struggled to balance these competing demands. He utilized funds in the UM account to cover the costs associated with the closing out of the Mudarabah venture. The vast majority of these costs related to paying the Shariah scholars. Kalair understood that the Mudarabah partnership authorized him to use UM funds to cover these expenses, and if this generated a shortfall, that shortfall would be borne by the funding partner in the Mudarabah, CUCO/Central 1, in accordance with the rules of Islamic finance. Moreover, even if he was wrong in these beliefs, they were honest but mistaken ones and he should therefore be found not guilty.

[64] In relation to the actus reus of these counts, there are two parties who could be characterized as victims: homeowners and CUCO/Central 1. However, regarding the homeowners, it was established conclusively that the homeowners suffered no loss whatsoever. There was evidence that payments were made by the homeowners in satisfaction of their Musharakah mortgage payments. Kalair did not block the accounting of these payments or the discharge of their mortgages. The only way homeowners could have lost money would have been if either the receiver, Grant Thornton Limited (“GTL”), or CUCO/Central 1 refused to accept the evidence of the payments and moved to enforce on the mortgage security even while knowing that UM, CUCO/Central 1’s partner, had been paid.

[65] To make the finding that the second potential victim is CUCO/Central 1, the court would have to find that CUCO/Central 1’s relationship with UM was that of a traditional debtor/creditor. However, Kalair’s position is that the true relationship between UM and CUCO/Central 1 is a Shariah compliant Mudarabah partnership which is more accurately viewed as a joint venture or limited partnership. In such a structure, the possibility of an investment loss to CUCO/Central 1 is both possible and contemplated by the parties. Such an investment loss cannot be fairly characterized as resulting from the criminality of fraud or theft.

[66] In relation to the mens rea, all the evidence suggests that Kalair had no subjective belief that his appropriation of the funds from the UM bank account could create even the possibility of loss to the homeowners. Any loss the use of such funds might cause to CUCO/Central 1 cannot be said to be as a result of a prohibited act because Kalair was operating under the assumption that UM’s relationship with CUCO/Central 1 was a joint-venture Mudarabah partnership in which investment losses were an acknowledged possible outcome should the venture fail.

[67] Kalair also invokes the defence of colour of right, used to denote an honest belief in a state of facts, which, if it actually existed, would at law justify or excuse the act done.[^47] The law regarding this defence is set out above.

[68] Applied to the facts, Kalair honestly believed that he was required to follow the orders, instructions, and requests of the SEB/MCC. A SEB holds a position of unique power and authority in Islamic finance relationships. Culturally, religiously and in accordance with Shariah law, Kalair was under an obligation to show deference to the requests and instructions of the SEB/MCC including as directed by Panchbhaya. The relationship between SEBs and their Islamic finance institutions was the subject of expert opinion through Abdulkader Thomas (“Thomas”). Kalair’s actions were not only motivated by the instructions and directions he received from the SEB/MCC but were also impacted by his understanding of the CUCO/Central 1/UM contracts structured to create a Mudarabah partnership. Kalair was therefore required to show deference to the requests and instructions of the SEB/MCC, including as directed by Panchbhaya. Kalair believed on reasonable grounds that the Mudarabah partnership granted him full authority to utilize funds to make expense payments and purchase precious metals on behalf of the SEB/MCC. There was no intent to steal, defraud, or deprive. Although Kalair concedes that he was dishonest, any inconsistent explanations offered by him to third parties did not alter the fact that he acted at all times in accordance with his reasonably held belief that the funds were his to use for the Mudarabah partnership.

[69] Colour of right is informed by cultural practices and traditions. In R. v. Potts,[^48] an indigenous chief was acquitted of mischief due to his knowledge and belief which were based on his beliefs founded on his knowledge of his ancestry, kinship, and aboriginal traditions. The accused was an indigenous chief who was charged with mischief after blocking a road that was to be extended onto property that was the subject of a land claim issue. The Chief and his people believed that they had a moral right to the land. The court discussed the distinction between an objective versus subjective view of colour of right as follows:

From a purely objective point of view, from the point of view of an informed legal mind, and on the basis of English and Canadian law standards and concepts, it is clear that the accused, Chief Gary Potts could not be said to have any semblance of "colour of right". But from an appropriate "subjective" point of view, having regard to his knowledge and belief which it must be said were based not only on some layman's appreciation of the legal system with which he was dealing, but also based on his beliefs founded on his knowledge of his ancestry and kinship, and their respective aboriginal traditions, the answer is not so readily attainable!

Chief Potts was required to provide some evidence, which he did, to demonstrate to the Court, that there was some colour in the circumstances for his entertaining the opinion he claims to have had, and to still have

The ultimate burden is on the Crown and the critical question is whether Potts can be said to have had no honest belief in his right to take the action that he did. In this case, and in these circumstances, I have a doubt that I must resolve in favour of the accused.[^49]

[70] This case is of particular relevance to these facts.

3. Amicus Curiae

[71] Regarding theft and fraud, the Crown has not proven the offences against Panchbhaya beyond a reasonable doubt.

[72] There is no evidence that Panchbhaya had any knowledge about the contents of UM’s bank accounts. He did not have access to or control over them, and he did not have knowledge of the sums accumulating in them or that they were owed to CUCO/Central 1. The Crown has not proven that Panchbhaya ever possessed or exercised control over the gold, which goes to the actus reus of the offence. All of the evidence regarding the purchase of the precious metals points to Kalair as the person who undertook this purchase on his own and for his own purpose. Panchbhaya did not benefit from the precious metals. There is no evidence that he received any compensation from the scheme at all. There are innocent inferences that can be drawn from the SEB/MCC’s actions that are not connected to a fraudulent purpose.

[73] Even if the Crown was to assert that Panchbhaya was acting as a party to the theft and fraud, it would need to prove that he possessed the requisite mens rea. The Crown has not proven that Panchbhaya possessed the mens rea of the act of the risk of deprivation. Factors to consider include his lack of knowledge of English; his lack of understanding about finance and business; the flawed and compromised advice that he was receiving from his lawyer, Shahzad Siddiqui (“Siddiqui”); and the level of influence Kalair exercised over him.

[74] Regarding the offence of money laundering, the Crown has also not proven this offence beyond a reasonable doubt. The Crown has not proven that Panchbhaya had possession or control over the proceeds of crime – the funds in the UM account owed to CUCO/Central 1 that were converted into precious metals. The Crown has also failed to prove the mens rea, which was that Panchbhaya intended to conceal or convert the property and had subjective knowledge that the property was derived from fraud.

[75] Regarding the offence of fraudulent disposal under the BIA, the Crown has also not proven this offence beyond a reasonable doubt. The Crown has not demonstrated that Panchbhaya is a “bankrupt” or a party to the offence. He is not the operating or controlling mind of UM. The Crown has not proven that Panchbhaya disposed of the property of the bankrupt because it has not proven Panchbhaya’s role in the purchase of the precious metals.

[76] In addition, the Crown has not proven beyond a reasonable doubt that Panchbhaya possessed the required mens rea, i.e. that he intended to dispose of the property and that he had subjective knowledge that the act could result in deprivation. The Crown has not proven that Panchbhaya knew that UM would become bankrupt as he was not granted standing to intervene in the receivership. The Crown has not proven that Panchbhaya had subjective knowledge that the act could result in deprivation. In order to prove this, the Crown must prove that Panchbhaya understood that the money used to purchase the metals was owed to CUCO/Central 1 or other creditors, which it has not proven.

SUMMARY OF POSITIONS REGARDING THE INDIVIDUAL CHARGES AGAINST KALAIR – THEFT, FRAUD, FAILURE TO FULFILL DUTIES OF A BANKRUPT, AND FAILURE TO ANSWER FULLY AND TRUTHFULLY

1. The Crown

[77] Regarding the offences of theft and fraud, Kalair fraudulently misappropriated more than $2 million. He was required to remit the entirety of any mortgage payments to CUCO/Central 1 but he did not, instead converting them into precious metals and transferring them to a third party.

[78] Kalair failed to perform his duties of a bankrupt as required by s. 158 of the BIA, including the following: to produce and deliver all of the property of the bankrupt to the trustee; to deliver all books, records, and documents relating to the bankrupt’s affairs to the trustee; to attend before the Official Receiver (“OR”); to disclose to the trustee all property disposed of within a year of the initial bankruptcy event; and to attend the first meeting of creditors.

[79] Kalair further refused or neglected to answer fully and truthfully all proper questions put to him at the examination before the O.R. on February 14, 2013. In particular, he failed to truthfully answer questions about the purchase and disposition of the precious metals, and he did not acknowledge his misappropriation of homeowners’ payments.

2. Kalair

[80] Kalair makes the same submissions for the individual counts of theft and fraud as the joint charges for the same offences. CUCO/Central 1 and UM were engaged in a form of joint venture or limited partnership in accordance with Islamic finance, rather than a traditional debtor/creditor relationship. Kalair understood that the Mudarabah partnership authorized him to use UM funds to cover costs associated with closing out the Mudarabah partnership. If this generated a shortfall, Kalair understood that the shortfall would be borne by the funding partner in the Mudarabah, CUCO/Central 1, in accordance with the rules of Islamic finance. Even if he was wrong in these beliefs, they were honest but mistaken and he should therefore be found not guilty. He relies on the defence of colour of right.

[81] Regarding the individual counts against him under the BIA, he adequately performed the duties of a bankrupt and answered all the questions posed to him to the best of his ability. He took all reasonable steps under the trying circumstances to discharge his duties under the BIA. When GTL attended at UM’s offices on October 7, 2011, they took as many as 20 banker’s boxes of documents and Kalair instructed his staff to make passwords available. He also disclosed that he had paid $2.1 million to the SEB/MCC. Then, in the days following that visit, Kalair was responsive by email and phone when GTL made requests for further documents and property. Furthermore, both Mark Thompson (“Thompson”), formerly from GTL, and Roch Dupont (“Dupont”), the OR, acknowledged that bankrupt companies are not at their best and it is common to see that the bankrupt company has poor financial controls and poor record keeping. This should be considered when determining if he met the standard expected of him under the BIA.

[82] In addition, Kalair provided full and truthful answers to the best of his knowledge. His explanations to Thompson in November of 2011, to Dupont at his examination in February of 2013, and at trial in 2018, were essentially the same.

OTHER LEGAL ISSUES

[83] At trial, the following issues also emerged in determining the guilt or innocence of the accused: (i) were the parties willfully blind and is this a defence to the charges?; (ii) were both accused “parties to an offence”?; (iii) should the evidence of Thomas be admitted?; (iv) should the non-expert opinion evidence of Siddiqui be admitted?; (v) was a portion of Siddiqui’s evidence hearsay?; and (vi) what weight should be attributed to the evidence of Sergeant Scott (“Scott”)?

(i) Wilful Blindness

[84] Wilful blindness can satisfy the mens rea component of the charges.

[85] The doctrine of wilful blindness imputes knowledge to an accused whose suspicion is aroused to the point that he or she sees the need for further inquiries, but deliberately chooses not to make those inquiries.[^50]

[86] The doctrine has a very narrow scope. In Sansregret, the Supreme Court of Canada quoted the following excerpts on wilful blindness:

A court can properly find wilful blindness only where it can almost be said that the defendant actually knew. He suspected the fact; he realized its probability; but he refrained from obtaining the final confirmation because he wanted in the event to be able to deny knowledge. […][^51]

[87] The question to be asked when considering whether an accused was wilfully blind was phrased in the Supreme Court of Canada’s decision, Jorgensen, as follows: "Did the accused shut his eyes because he knew or strongly suspected that looking would fix him with knowledge?"[^52]

A. The Parties’ Positions

1. The Crown

[88] If Panchbhaya did not intentionally act in concert with Kalair, then Panchbhaya was wilfully blind to Kalair fraudulently converting the funds owed to CUCO/Central 1 into precious metals. This conduct would have aroused suspicion, but Panchbhaya chose to “shut his eyes” and not make any inquiries.

2. Kalair

[89] Kalair did not make submissions on this issue.

3. Amicus Curiae

[90] Panchbhaya was not wilfully blind, but instead, had no knowledge of the contents of UM’s bank accounts. He had no reason to believe that the funds owed to the SEB/MCC were not properly belonging to UM. Therefore, there was no intention to deprive CUCO/Central 1 of its funds nor wilful blindness to depriving or a risk of depriving CUCO/Central 1.

(ii) Parties to an Offence

[91] The second issue was whether both accused were “parties to an offence”. In addition to being liable for an offence as a principal, an accused may also be liable pursuant to s. 21(1)(b) and (c) of the CC as a party to an offence. This section reads as follows:

21(1) Everyone is party to an offence who

(b) does or omits to do anything for the purpose of aiding any person to commit it; or

(c) abets any person in committing it.

[92] Aiding means to assist or help the actor. Abetting means to encourage, instigate, promote or procure the crime to be committed.[^53]

[93] The mens rea for party liability as contained in s. 21(1)(b) was set out by the court in R. v. Roach as follows:

In summary, the mens rea for party liability is contained in s. 21(1)(b) of the Criminal Code that requires that the aid given by the accessory to the principal be "for the purpose of aiding" the principal to commit the crime of which the accessory has been charged. To be convicted as an aider, the defendant must not only assist the principal in the commission of the offence, but must intend to do so, although it is not necessary that the aider know all the details of the crime committed. It is sufficient that the aider was aware of the type of crime to be committed and knew the circumstances necessary to constitute the crime that he or she is accused of aiding. On the basis of Woolworth and McDaid knowledge will include actual knowledge or wilful blindness, but will not include recklessness.[^54]

A. The Parties’ Positions

1. The Crown

[94] Kalair and Panchbhaya intended to act in concert to fraudulently convert and launder UM’s funds by using them to purchase precious metals.

2. Kalair

[95] Kalair did not make submissions on this issue.

3. Amicus Curiae

[96] The Crown has relied on Siddiqui’s testimony that Kalair and Panchbhaya were acting in concert for the same interest throughout the relevant time period, and in particular when it came to the procurement and subsequent disbursement of the precious metals. However, this overstates Siddiqui’s evidence as Siddiqui referred to the fact that the two were acting in concert for the purposes of the intervention in the court proceeding. This does not go so far as to support that they were acting in concert in every decision and step taken during the relevant period, particularly as it pertains to the precious metals, and certainly does not amount to acting in concert for a criminal purpose.

[97] There are significant concerns about the credibility and reliability of Siddiqui’s evidence. Siddiqui was unable to give a coherent and consistent recollection of his time representing Panchbhaya and the SEB/MCC and he could not recall details. Furthermore, his credibility was undermined by his motivation to minimize his role in this matter and bolster his representation of Panchbhaya because of his own concerns for his reputation and being perceived as falling short of his professional obligations.

(iii) Admissibility of Thomas’ Evidence

[98] During the course of the trial, objection was taken to the admissibility of evidence for which the rulings were deferred until the conclusion of the evidentiary portion of the trial. It was agreed that these issues of admissibility would be addressed in final submissions.

[99] First, the Crown objected to the admissibility of Thomas’ expert opinion evidence on the basis that he could not provide an opinion on the credibility or truthfulness of Kalair and further, that Thomas was not independent, credible or reliable. Thomas was called by Kalair, who asked the court to qualify him as an expert in Islamic finance regarding the application of Shariah law to financial contracts.

[100] The test for the admission of expert evidence, in accordance with the Supreme Court of Canada’s decision in R. v. Mohan and the Ontario Court of Appeal’s decision in R. v. Abbey, is as follows. The admissibility of expert evidence depends upon the application of four criteria:

1. Relevance;

2. Necessity in assisting the trier of fact;

3. Absence of any exclusionary rule; and

4. A properly qualified expert.[^55]

[101] Expert opinion evidence is presumptively inadmissible. The party tendering the evidence must establish its admissibility on a balance of probabilities. There is a two‑step process in applying the Mohan criteria, which is the following:[^56]

1. The party establishes the conditions precedent to the admissibility for Mohan; and

2. The trial judge performs a “gatekeeping” function involving a cost-benefit analysis.

[102] In general, expert opinion evidence is inadmissible when tendered to bolster or attack the credibility of a witness.[^57] In Regina v. Marquard, the Supreme Court of Canada reiterated the longstanding limit on the admissibility of expert opinion evidence regarding the believability of a witness:

49 It is a fundamental axiom of our trial process that the ultimate conclusion as to the credibility or truthfulness of a particular witness is for the trier of fact, and is not the proper subject of expert opinion. This Court affirmed that proposition in R. c. Béland, supra, at p. 408, in rejecting the use of polygraph examinations as a tool to determine the credibility of witnesses:

From the foregoing comments, it will be seen that the rule against oath‑helping, that is, adducing evidence solely for the purpose of bolstering a witness's credibility, is well grounded in authority.[^58]

[103] Experts are also required to be independent. The Ontario Court of Appeal, in R. v. Natsis, recently summarized the principles expressed in White Burgess relating to the need for an independent expert witness as follows:

I extract the following principles concerning the admissibility of expert evidence from White Burgess, at paras. 46-54:

(a) Expert witnesses have a duty to assist the court that overrides their obligation to the party calling them. If the witness is unable or unwilling to fulfill that duty, their evidence should be excluded.

(b) An expert's attestation or testimony recognizing and accepting their duty to the court will generally suffice to meet the threshold for admissibility as it relates to BIAs.

(c) The burden rests on the party opposing the admission of the evidence to show that there is a realistic concern that the expert's evidence should not be received because the expert is unable or unwilling to comply with their duty to the court.

(d) If the opposing party establishes that there is a realistic concern, then the party proposing to call the evidence must establish that the expert is able and willing to comply with their duty to the court on a balance of probabilities. If this is not done the evidence, or those parts of it that are tainted by a lack of independence or impartiality should be excluded.

(e) Even if the evidence satisfies the threshold admissibility inquiry, any concern about the expert's impartiality and independence is still a relevant factor in weighing the R. v. Mohan, 1994 80 (SCC), [1994] 2 S.C.R. 9 factors for admissibility — such as relevance, necessity, reliability, and absence of BIAs. BIAs remains a factor to be considered in determining whether the potential helpfulness of the evidence is outweighed by the risk of the dangers associated with that expert evidence.

(f) Expert evidence will rarely be excluded for BIAs; anything less than clear unwillingness or inability to provide the court with fair, objective, and non‑partisan evidence should not result in exclusion. Rather, BIAs must be taken into account in the overall weighing of the costs and benefits of receiving the evidence. Context is important. Both the extent of the expert's alleged BIAs and the nature of the proposed evidence are relevant.[^59]

A. The Parties’ Positions

1. The Crown

[104] Thomas was not entitled to provide an opinion as to the credibility or truthfulness of Kalair. Thomas sought to provide his opinion as to Kalair’s belief that he was entitled to use homeowner’s payments to pay reasonable expenses including the SEB/MCC invoice, and went further to say that the invoice would appear to Kalair to be legitimate and actionable. Expert opinion evidence is inadmissible when tendered to bolster or attack the credibility of a witness,[^60] and also this determination is best left to the trier of fact.[^61] Thomas was not sufficiently independent, credible, or reliable to be permitted to provide an expert opinion. Thomas’ testimony raised a realistic concern that he was unable and unwilling to comply with his duty to provide the court with fair, objective, and non‑partisan evidence. In the alternative, Thomas’ apparent bias should be taken into account in weighing the costs and benefits of receiving his evidence.[^62]

2. Kalair

[105] The Crown has entirely misconstrued Thomas’ expert opinion. The true purpose of his opinion evidence was not to opine on Kalair’s credibility as a witness, but rather to provide background and knowledge about what is normative in the context of Islamic finance. Thomas’ evidence assists in educating the court on industry standards, against which Kalair’s behaviour must be measured and understood.

[106] Thomas’ evidence aids in the following respects: the core principles of a Mudarabah and how such a relationship may be formed using traditional western legal contracts; what deference, if any, is typically accorded by Islamic finance institutions to their SEBs; whether it is normative to pay SEB members; how much SEB members are paid; whether SEB members would defer receipt of payment; whether SEBs could be paid in precious metals; the cultural significance of gold in Islamic finance; whether SEBs can impose fines; and other material elements that are necessary to conduct a fair assessment of Kalair’s conduct in the circumstances of this case.

[107] Thomas reviewed the relevant documents provided by counsel and declined to review potentially self-serving materials sent to him by Kalair or Adam, the man allegedly in Egypt in possession of the gold. Adam had earlier been appointed as SEB/MCC’s manager of finance. Thomas formed his opinion without being tainted by such evidence. Thomas was a neutral expert who was willing and available to review any additional materials the Crown felt relevant and answer questions.

3. Amicus Curiae

[108] Amicus Curiae takes no position on the admissibility of Thomas’ evidence.

4. Conclusion on Admissibility of Thomas’ Evidence as an Expert Witness

[109] I am permitting Thomas’ evidence providing opinion evidence regarding Islamic finance and Shariah compliant mortgages. I am not relying on any evidence from Thomas which tends to bolster Kalair’s credibility or truthfulness.

(iv) Admissibility of Siddiqui’s Non-Expert Opinion Evidence

[110] The second objection to the admissibility of evidence for which the rulings were deferred until the conclusion of the evidentiary portion of the trial was the Crown’s objection to Siddiqui’s qualifications to provide his opinion as to whether the SEB/MCC was entitled to be paid and, if so, how much.

A. The Parties’ Positions

1. The Crown

[111] Generally, witnesses give evidence of facts, not inference or opinions.[^63] However, Siddiqui was asked for an opinion that required special knowledge and experience in an area in which he is not a qualified expert. Therefore, his opinion as to whether the SEB/MCC was entitled to be paid, and if so, how much, is inadmissible.

2. Kalair

[112] Siddiqui’s evidence with respect to the payment to the SEB/MCC was not intended to be expert opinion, but rather a direct observation made by someone who has worked in and studied Islamic finance. Furthermore, Siddiqui’s evidence is bolstered by Thomas’ evidence which should alleviate any concerns the court may have in relying solely on Siddiqui’s non-expert evidence.

3. Amicus Curiae

[113] Amicus Curiae did not make submissions on this issue.

4. Conclusion on Admissibility of Siddiqui’s Opinion Evidence

[114] Siddiqui was not qualified as an expert in Islamic finance and as a result he could not provide opinion evidence. He has however worked exclusively in and has studied Islamic finance. His testimony regarding a SEB/MCC’s remuneration does have a factual basis and is admissible, given “some” weight only.

(v) Whether Siddiqui’s Evidence Constituted Hearsay and Its Admissibility

[115] The third objection for which a ruling was deferred was the Crown’s objection to Siddiqui’s recounting of whether, in an out‑of‑court conversation, Panchbhaya indicated whether he “got any money out of the entire mortgage compliance structure” because the evidence was inadmissible hearsay.

[116] The essential defining features of hearsay are twofold:

1. The out-of-court statement is introduced to prove the truth of its contents, and

2. The absence of a contemporaneous opportunity to cross-examine the declarant.[^64]

A. The Parties’ Positions

1. The Crown

[117] Panchbhaya chose not to testify. It was his out-of-court statement that counsel was introducing for the truth of its contents. There was no suggestion that the statement met an exception to the hearsay rule or that it be admitted on the application of the principled exception balancing necessity and reliability. Therefore, the statement was not admissible.

2. Kalair

[118] Kalair did not make submissions on this issue.

3. Amicus Curiae

[119] When Amicus Curiae objected to one of the Crown’s questions to Siddiqui, the Crown rephrased it and asked whether Panchbhaya had ever received money from UM, to which Siddiqui said no. The question was rephrased in such a manner avoiding eliciting hearsay. The question asked Siddiqui about his knowledge about whether Panchbhaya had received funds personally, which is admissible evidence.

4. Conclusion on the Hearsay Aspect of Siddiqui’s Evidence

[120] Once the question was rephrased by the Crown, Siddiqui’s evidence that Panchbhaya had never received money from UM was a matter on which Siddiqui had personal knowledge. The evidence is admissible.

(vi) The Weight to be Given to Scott’s Evidence

A. The Parties’ Positions

1. The Crown

[121] The Crown did not make any submissions on this issue as Scott had been qualified as an expert of money laundering during pre‑trial motions.

2. Kalair

[122] Kalair concedes that Scott was qualified as an expert at a pre‑trial motion. However, after hearing his testimony, very limited weight should be given to his evidence because of his lack of independence, his qualifications, and the necessity of his evidence.

[123] Scott’s independence was undermined when it was discovered that Scott was employed by the Alberta Central 1 Credit Union, a member of Central 1.

[124] Scott admits to having very little expertise in the area of precious metals. He was also naïve to, or ignorant of, the significance of Islamic finance and Shariah law. He did not conduct any research regarding the cultural and religious significance of gold in those fields and suggested that the same general principles apply in any culture.

[125] Scott’s evidence was within the routine knowledge of a layperson and was not necessary. It is common knowledge that gold has an intrinsic value; that there is a limited supply in the world; that it is heavier but less bulky than cash; and that it has substantial value relative to its size. No expertise is required to understand these concepts.

[126] Kalair takes issue with Scott’s assertion that gold is “entirely untraceable and anonymous”. Rather, gold bars are impressed with unique, identifiable serial numbers which were used in this case to trace the gold bars at issue. Furthermore, Scott was unable to say whether the funds used to purchase the precious metals were sourced in crime. He testified that confidentiality is a central tenant of money laundering, but confirmed that Kalair made no effort to conceal his identity, which Scott agreed was not typical money laundering behaviour.

3. Amicus Curiae

[127] Scott’s evidence was overstated. It is clear that Panchbhaya was not involved in the precious stones and metals business. Therefore, another explanation for his form of delivery of the metals in his car is that he would not have the training or equipment suggested by Scott to transport the precious stones and metals. In any event, Scott did not mention Panchbhaya in his testimony. He did not highlight Panchbhaya or the SEB/MCC as playing a role in the alleged money laundering.

4. Conclusion on the Weight of Scott’s Evidence

[128] Scott was previously qualified to provide opinion evidence on money laundering. He remains so qualified.

[129] I am not concerned about Scott’s independence. I am mindful of the limitation regarding his expertise in precious metals.

FACTS AND EVIDENCE UPON WHICH I AM RELYING

(i) History of UM

[130] UM Financial Inc. was incorporated on July 29, 2004 and UM Capital Inc. on November 29, 2006 (together, UM). Kalair was the president and CEO of UM. UM provided Shariah compliant real estate loans to borrowers in Canada as Islamic finance prohibits earning interest. Shariah is the fundamental religious concept of Islam – the divinely ordained path of conduct that guides Muslims toward a practical expression of religious conviction. Generally, Shariah compliant mortgages avoid the payment of interest and require the homeowner to pay an amount as “profit” instead of interest on the loan. Like conventional mortgages, the homeowner was required to make monthly payments. Also like conventional mortgages, a homeowner could make prepayments and could also pay off their mortgage. The mortgage was secured like conventional mortgages with a charge against the title to property.

(ii) Relationship between UM, CUCO/Central 1, and the Homeowners

[131] Financing was required by UM so that it could loan money to homeowners wanting to buy houses. Financing came from a credit union – CUCO/Central 1 (a “bank for a bank”) – which lent UM millions of dollars through a commercial loan. UM and CUCO/Central 1 entered into a Mudarabah limited partnership model, a Shariah compliant contract.[^65]

[132] UM then offered mortgages to homeowners through financing agreements - Mushakarah agreements, also Shariah compliant contracts. These agreements granted mortgages on the properties, which were registered against the properties and were characterized as partnership agreements.

[133] When a homeowner received home financing from UM, CUCO/Central 1 received a specific assignment of the mortgage, as well as a promissory note from UM. The loans were secured by a general security agreement (“GSA”) and a master mortgage assignment security agreement (“MMASA”). Loans were also secured by a specific assignment of any and all security deposits, being any prepaid amounts received from the purchasers, which funds were to be held in trust for CUCO/Central 1. The loans were to be re-paid to CUCO/Central 1 in blended monthly payments of principal and the charge amount. UM was required to remit payments from homeowners to CUCO/Central 1 and to account for homeowner payments.

[134] Many homeowners were not aware that CUCO/Central 1 was the ultimate source of the funds. It was the homeowners’ evidence that their payments would be applied against monies outstanding in relation to their mortgages and that all lump sum payments made, regardless of their amount, would be applied against their mortgages and would reduce their monthly payment amounts.

[135] UM needed to ensure that the mortgages it offered were Shariah compliant. A board of Muslim clerics was therefore formed to provide rulings (fatwa) confirming that the mortgages were Shariah compliant. It was known as the SEB, and later incorporated as the MCC. Panchbhaya is a Mufti or Islamic scholar and was the chair of the five member independent SEB/MCC. Panchbhaya’s primary languages are Guajarti and Urdu and his secondary languages are Arabic and English. His life is devoted to religious study and teaching. He completed Islamic seminary education and has a licence to issue fatwa. Generally, in an Islamic seminary, basic math and science courses end at grade 6, 7 or 8 with the rest of the studies being devoted entirely to religious education. Panchbhaya has no formal business education. He was described by witnesses as living a simple life. He has always rented his home. He was unable to qualify for a UM mortgage. He taught Kalair at a religious school, worked with Kalair at his charity and later with UM. The SEB/MCC’s oversight (and Panchbhaya’s) was limited to the religious aspects of the Shariah home financing and did not relate to the management or operation of UM.

[136] Thomas referred to the Shariah scholars, including Panchbhaya, as showing a level of naiveté and inexperience in the financial sector.

[137] Panchbhaya was not a member of UM and there is no evidence that he had access to or any knowledge regarding UM’s bank accounts. There is no evidence that he was even aware of the Bank of Nova Scotia (“BNS”) account. The only bank account that he had access to was the Alterna Savings (“Alterna”) account with low transaction amounts of $500 and under. There is no evidence that he had any knowledge of UM’s bank account or that monies that came from homeowners should have been remitted to CUCO/Central 1.

[138] Panchbhaya had very little interaction with CUCO/Central 1. The evidence confirms emails to CUCO/Central 1 regarding the SEB/MCC’s concerns about the impact on homeowners and the future Shariah compliance of the mortgages if UM went into receivership. Kalair testified that Panchbhaya did not draft these emails.

[139] The homeowners who testified had no interaction with Panchbhaya nor did they rely on him when choosing to use UM. Most had never heard of him.

(iii) UM and CUCO/Central 1’s Relationship after the August 2007 Financial Crisis

[140] In August of 2007, CUCO/Central 1 unilaterally stopped advancing funds for new mortgages due to the credit crisis. Existing mortgages would be renewed as they came due. CUCO/Central 1 ceased to honour its 49 million dollar commitment letter. CUCO/Central 1 also clawed back UM’s profit margin on the existing mortgages. In 2008 or 2009, regulatory restrictions resulted in CUCO/Central 1 purchasing some of the remaining mortgages outright with UM continuing to service them (some for a fee). The homeowners continued to make payments to UM and UM was to pay the full amount to CUCO/Central 1.

[141] In November of 2010, CUCO/Central 1 terminated its relationship with UM.

[142] When UM did not repay its debts or cure its defaults, on March 16, 2011, CUCO/Central 1 made an application for the appointment of GTL as the receiver and manager of all the assets, property, and undertakings of UM. Although UM initially opposed the application, in the end it withdrew its opposition.

[143] On June 23, 2011, UM commenced a lawsuit against CUCO/Central 1 for $50 million.

[144] In August of 2011, CUCO/Central 1 became aware that it had not received scheduled payments/funds in relation to a series of properties. It eventually realized that mortgages had been paid out by homeowners without those funds being remitted to it. After further investigation, CUCO/Central 1 also discovered that paid out mortgages had not been discharged on title.

(iv) The Retainer of Siddiqui

[145] Facing receivership, Siddiqui was retained by Panchbhaya on behalf of the SEB/MCC. The scope of the written retainer was clearly intended to be limited to the application for intervention. Although the only client listed in the retainer was the SEB/MCC, it is clear that Kalair was interested and involved in almost all meetings regarding the SEB/MCC’s legal matters (further factual findings regarding Siddiqui are set out extensively below).

(v) The Purchase of the Precious Metals

[146] As of August 30, 2011, UM had accumulated in excess of $2.3 million in its BNS account.

[147] Kalair purchased 15 one-kilogram gold bars from the BNS on August 30, 2011. His request to purchase 18 additional bars from the BNS was denied by the branch manager, Michael Durst (“Durst”), who completed an unusual transaction report which was ultimately forwarded to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Durst referred Kalair to Bendix Foreign Exchange (“Bendix”). Kalair then purchased 18 additional gold bars from Julius Gryguc (“Gryguc”) and Marty Goodman (“Goodman”) – both employed with Bendix on September 2, 2011 as well as 15 100‑ounce silver bars and 5800 1‑ounce silver coins. Between August 30 and September 8, 2011, Kalair purchased precious metals with funds totalling $2,179,121.51. Kalair claimed that the purchase was made to fulfill the debt for outstanding fees for Shariah services that were claimed by the SEB/MCC. He also claimed that the precious metals were purchased for one of his investors, while also promising some of the gold bars as security for a loan with another possible lender (Romspen).

[148] Durst testified that Kalair explained that he wanted to buy the gold for an investor in his business who wanted to convert some of his 5-million dollar investment into gold due to the its potential increase in value. Kalair testified that this was not an accurate statement and that Durst misunderstood their conversation about the investors in his second mortgage plan.

[149] When Kalair purchased the precious metals from Bendix, he included a letter on UM letterhead explaining that he wished to “allocate a portion of our treasure from cash to gold bars”.

[150] Panchbhaya was not present for these purchases and there is no evidence that he had knowledge of those purchases at the time that they were made.

[151] None of the witnesses who testified about the precious metals transactions gave any evidence about Panchbhaya or the SEB/MCC being connected to these purchases. There is no evidence, other than the testimony of Kalair, that the purchase of the metals was accomplished to pay the SEB/MCC and that Panchbhaya had any knowledge of or control over the purchase. Kalair testified that Panchbhaya requested the precious metals because gold and silver have unique cultural and religious significance within Islam.

[152] After the purchase of the precious metals, there is little evidence about what happened to them. Kalair testified that throughout the acquisition of the precious metals he was in contact with Panchbhaya who was communicating on behalf of the SEB/MCC. There are no documents to support these communications, as it was all done verbally. When asked by the Crown about why he did not make a record of these instructions, Kalair responded that he was too busy running around, looking for lenders, and travelling that he did not have time to put together an email.

[153] After the purchase of the metals, Kalair testified that he transported them in his car back to his office, where he stored them in a locked cabinet. The “action plan” was to have the SEB incorporate and then they would “transact”. The incorporation did not occur until September 19, 2011.

[154] Kalair testified that on October 4, 2011, he transferred the gold and silver to Adam from his car to Adam’s car in a parking lot in Rexdale. Kalair testified that Adam remained in possession and control of the gold. Up to October 4, 2011, Kalair testified that Panchbhaya had not even seen the gold or any of the precious metals.

[155] On October 5, 2011, Rompsen, a potential replacement lender, signed a commitment letter to take over the funding of the Shariah mortgage plan in return for security of 17 kilos of gold. Kalair testified that he had received consent from the SEB/MCC to use this asset that had been set aside for them, and that he had conversations with Panchbhaya about this.

[156] On November 1, 2011, Kalair testified that Adam returned the silver to him, which he in turn gave to Panchbhaya. This transfer was done again from vehicle to vehicle in the parking lot of UM.

[157] It is clear that at no point did Panchbhaya ever possess or exercise control over the gold. There is no evidence to suggest that he even saw the gold bars.

(vi) The Invoice

[158] At issue is the invoice that purports to come from the SEB/MCC dated September 26, 2011 which is a statement of accounts payable for the retainer of the SEB/MCC’s monthly services outstanding since 2004. The total of the invoice is $2.79 million, and includes a note that fees had not been paid since inception, and that once UM had funds in excess of $1,000,000, the payment for past fees would be made.

[159] Kalair testified that Panchbhaya came into the office and asked him to prepare the invoice and that no one else was present. The invoice was not signed and Siddiqui was not present during the preparation of the invoice. Kalair testified that Siddiqui knew about the invoice at the time it was made and may have been included in a conference call on September 26, 2011 regarding the invoice. Siddiqui testified that he did not learn of the invoice until October 21, 2011.

[160] Siddiqui received the invoice from Kalair sometime in October. An email dated October 24, 2011 includes the invoice sent from Kalair to Siddiqui, with Panchbhaya carbon copied. Siddiqui testified that it is possible that Panchbhaya may not have seen this email, but that it was his recollection that Panchbhaya was aware of the invoice. Siddiqui also testified that he reviewed the invoice with Panchbhaya but could not remember when this occurred, and there are no collateral documents to support this assertion. Siddiqui forwarded this invoice to counsel of the receiver, Jane Dietrich (“Dietrich”) on October 26, 2011.

[161] Siddiqui testified that Panchbhaya informed him that the SEB/MCC had received partial payment of the invoice, although Siddiqui cannot remember the date of this conversation. Siddiqui testified that Panchbhaya told him that he did not receive the funds directly, but rather that they were paid to an independent third party. To Siddiqui’s knowledge, neither Panchbhaya nor the SEB/MCC received any funds from the home financing arrangement.

(vii) The SEB/MCC Resolution Appointing Adam

[162] On October 4, 2011 a resolution by the SEB/MCC, signed by Panchbhaya, was made appointing Adam as the manager of finance.

[163] Kalair testified that he could not recall whether he prepared the resolution or whether Siddiqui had prepared it and emailed it to him. While he recalled that Panchbhaya signed the resolution, he does not recall where this was done. Kalair testified that the resolution was the basis for transferring the precious metals to Adam.

(viii) Other Expenses and Purchases of UM

[164] Between September 8 and October 7, 2011, UM made other payments from its account totaling $241,151.48 and charged $20,081.20 against its VISA account. This included a $75,000 payment to Romspen; $85,000 for legal fees; compensation for Kalair for July and September; a payment of about $30,000 to Farooq Bajwa in London, England; and a cash withdrawal of $5,000.

[165] The Visa card was used for other legal fees and purchases at Future Shop for three laptops, a printer and a Blueray player.

(ix) SEB’s Incorporation and Application to Intervene in Receivership

[166] On September 19, 2011, the SEB was incorporated as the MCC, whose sole director was Panchbhaya. The MCC then submitted an application to intervene in the UM receivership application, represented by Siddiqui. In support of its intervention application, Panchbhaya provided an affidavit aimed at providing the court with a background on Islamic finance. Siddiqui primarily drafted the affidavit. The SEB was incorporated on the advice of Siddiqui in order to limit Panchbhaya’s and the board’s liability against claims from homeowners and to help with standing in the intervention application. The incorporation was done quickly leading to Panchbhaya being the only named director. Ultimately, the application for intervention in the receivership was denied on September 26, 2011.

[167] After it was denied, Siddiqui continued to act and communicate on behalf of the SEB/MCC until November 7, 2011. There was no new written retainer and there is very little documentary evidence to support Siddiqui’s testimony of what he did and had instructions to do. Sometimes Siddiqui sent a follow‑up email after a meeting, but he usually did not. There is only one meeting confirmed by a memo to file. Siddiqui confirmed his language issues with Panchbhaya and the fact that he did not use a translator even when presenting Panchbhaya with legal documents. It is clear that Siddiqui did not take adequate steps to ensure that Panchbhaya understood the legal complexities with which he was dealing in documents in a language that was not his primary language.

[168] Siddiqui was engaged in email correspondence with Dietrich. He agreed that he had no specific instructions to speak with her. He thought that he had instructions from Panchbhaya prior to sending her the September 26, 2011 invoice but has no notes of that conversation nor a specific memory.

[169] Siddiqui does not recall whether he sought a further retainer when the issue of the invoice and precious metals came about. He was more focused on how to extricate himself from the retainer because he was troubled by the invoice. He continued to work on the file for over two more weeks. Siddiqui was unsure whether he informed Panchbhaya that he was conceding to Dietrich that she could tell the court that he (Siddiqui) knew nothing about the location of the precious metals.

[170] It is clear that Siddiqui was taking action without clear instructions from Panchbhaya.

[171] Although the client listed in the retainer was the SEB/MCC (with Panchbhaya signing on behalf of the SEB/MCC), it is clear that Kalair was interested and involved in almost all meetings regarding the SEB/MCC’s legal matters. There was no joint retainer with Kalair and Siddiqui testified that he was not providing separate legal advice to Kalair under a separate retainer. Siddiqui was asked whether he ever explained to Panchbhaya the impact the presence of a third party not covered in the retainer agreement at these meetings would have on solicitor-client privilege. He stated that he could not recall, but that he “probably” had that discussion with him.

[172] Siddiqui was also asked about whether he advised Panchbhaya about the risk of a conflict of interest between he and Kalair. He certainly raised it when the issue of the gold and silver arose, but not before that time. Siddiqui believed in his mind that he had implied authority to deal with Kalair because he was present with Panchbhaya. There is no evidence that Siddiqui ever took the time to seek explicit consent from Panchbhaya to deal with Kalair during the retainer. Even when he became increasingly concerned with the invoice, Siddiqui still did not believe that there was a conflict between Panchbhaya and Kalair, and it does not appear that he cautioned Panchbhaya.

[173] Siddiqui testified that he was “pretty friendly” with Kalair throughout his relationship with him. He had known Kalair since 2005 or 2006 and they had shared a mutual interest in Islamic finance. Siddiqui also represented Kalair on two litigation files that were completed well before 2011. Siddiqui testified that he did not think that this relationship got in the way of his representation of Panchbhaya.

[174] Kalair was often carbon copied or blind carbon copied on communications between Siddiqui and Panchbhaya regarding the SEB/MCC matters. Additionally, Siddiqui and Kalair communicated directly to each other about the SEB/MCC matters. For example, on October 14, 2011, Siddiqui sent an email to Kalair (without including Panchbhaya) where he stated: “I am not doing further work on this file today as we have been fighting fires all day”. Kalair sent the September 26, 2011 invoice to Siddiqui, with Panchbhaya carbon copied.

[175] Siddiqui testified that he spoke to Panchbhaya about a proposed October 6, 2011 letter to homeowners from the SEB/MCC, but that he also expected that Kalair was involved in the creation of this letter. Later, Siddiqui spoke directly with Kalair alone about the email that went out to homeowners on October 13, 2011 and then later spoke to Panchbhaya, although he cannot remember the content of that discussion.

[176] Siddiqui’s perception that he was working for both Panchbhaya and Kalair was confirmed when he made frequent reference to the “clients” in the plural form, even though he only had one client: Panchbhaya. When pressed on this use of the plural tense, he agreed that he was referring to Kalair and Panchbhaya, with Kalair being represented by Minden Gross.

[177] As things unravelled with UM, particularly upon seeing the invoice, Siddiqui became more concerned with “extricating” himself from his retainer rather than continuing to advise Panchbhaya about his difficult legal situation.

[178] When asked why he did not try to expand his retainer prior to speaking to the O.R. about the invoice and the precious metals, Siddiqui responded that, “at that point in time I, as I said earlier, I was trying to put my mind to how to extricate myself […]”.

[179] Near the end of the retainer, Siddiqui was clearly in a conflict and preoccupied with extricating himself from the retainer and referring Panchbhaya to other counsel. He was less concerned with protecting Panchbhaya’s legal rights and ensuring that he fully understood his complex situation.

[180] Until November 7, 2011, Siddiqui continued to act and communicate on behalf of the SEB/MCC although he was only retained for the purposes of the application for intervention in the receivership.

(x) Assignment of UM’s Claim against CUCO/Central 1 to SEB/MCC

[181] On October 6, 2011, UM’s $50 million claim against CUCO/Central 1 was assigned to the SEB/MCC, done on the advice of Siddiqui. The assignment stated that the SEB/MCC was a creditor of UM in the amount of $1,000. Siddiqui testified that he advised Panchbhaya about this assignment, however, there is no evidence to show that he made efforts to translate such a complex legal document. On October 21, 2011, Siddiqui sent this assignment of claim to counsel for CUCO/Central 1.

[182] The assignment of the claim states that the SEB/MCC is a creditor of UM for outstanding fees of $1,000. Siddiqui gave two explanations about why the document only states the sum owed as $1,000. First, the consideration required for the assignment needed to be “more than a peppercorn” and the amount included was an estimate of the work done by the SEB/MCC between the time of its incorporation on September 19, 2011 and the time of the assignment on October 6, 2011. Siddiqui also testified that he had been contacted by counsel for Kalair who raised the concern that the assignment document should reflect the true fees owing to the SEB/MCC, which was in the range of $2 million. While Siddiqui agreed that UM’s indebtedness to the SEB/MCC should have been accurately reflected, he did not take any steps to fix the sum contained in the assignment of claim.

(xi) Receivership

[183] On October 7, 2011, GTL was appointed as receiver and receiver manager of UM. GTL, with the assistance of CUCO/Central 1, began an investigation which revealed that UM had accumulated payments from homeowners intended to be paid against their mortgages which were never applied by UM. A forensic accounting expert called by the Crown, Paul Coort (“Coort”), found that the total amount of misapplied mortgage payments totalled $4,341,581.93.

[184] On October 7, 2011, representatives from GTL, including Thompson, attended at UM’s offices to enforce the Receivership Order (the “RO”) where they met Kalair and its investigation began.

[185] On October 11, 2011, Kalair resigned as Director and CEO of UM.

[186] On October 11 and 13, 2011, two emails were sent to homeowners from anonymous sources at info@creditunionandumfinancial.com stating that homeowners could decide whether they would continue to pay their mortgages or not. These emails contradicted the correspondence sent to the homeowners by GTL. Each email had several attachments. The October 11, 2011 email attached a letter from the SEB/MCC and from UMF dated October 6, 2011. The October 13, 2011 email attached a CUCO/Central 1 acknowledgement of discharge letter “purportedly” signed by Vickie Sacco (“Sacco”) of CUCO/Central 1 (she denied sending it), a UM payout statement for the homeowner’s specific property, and a letter from Siddiqui’s office dated October 13, 2011 advising CUCO/Central 1 that a mortgage for a specific property had been paid in full. Counsel for the O.R. sent a cease and desist email to info@creditunionandumfinancial.com on October 18, 2011.

[187] Siddiqui advised Panchbhaya with respect to the SEB/MCC October 6, 2011 letter, addressed “To the Community who have relied on our rulings for home financing”, and which was ultimately attached to the October 11, 2011 anonymous email. The letter states that UMF’s funder decided to “unilaterally terminate its Mudarabah partnership with [UMF] and could not find a Shariah compliant exit”. Siddiqui was aware, however, that upon receivership, the O.R. steps into the shoes of the debtor and that the debtor’s agreements were not nullified. Siddiqui did not feel that the statement regarding the unilateral termination of the partnership was a fair statement, but taken more broadly there would be a basis for the statement “if CUCO/Central 1 was forcing the receivership on UM Financial […] without UM Financial’s consent”.

[188] The purpose of the October 13, 2011 letter from Siddiqui’s firm to CUCO/Central 1 was to pressure CUCO/Central 1 to negotiate with UM and was in line with Siddiqui’s proposed “litigation strategy”. Siddiqui advised Pancbhaya that this letter should not be sent to anyone, because the statement contained in the letter that the mortgages had been paid in full to UM was untrue. No steps had been taken to discharge the mortgages or remove the charge that had been assigned to CUCO/Central 1 and remove them from title. On October 13, 2011, CUCO/Central 1 received from Siddiqui’s office the CUCO/Central 1 acknowledgement of discharge letter “purportedly” signed by Sacco. CUCO/Central 1 did not produce or authorize the creation of this document.

[189] Siddiqui had a letter from Kalair dated October 6, 2011 which purported to provide authority for the issuance of 172 payout statements.

[190] GTL sent a letter to homeowners in response to this series of correspondence, including the anonymous emails, reiterating that monthly payments must continue in the normal course. GTL also requested homeowners to contact the O.R. should they receive further such correspondence.

[191] Kalair sent an email with instructions to Siddiqui on October 14, 2011 requesting that he send CUCO/Central 1 a letter. Siddiqui responded on the same day stating that he would not be working more on the file that day, and,

This is primarily due to the inappropriate action of sending payout letters to the clients and circulation to the wider community. Respected lawyers in the community are now asking us if this is a joke and our name is being smeared.

At most this was supposed to be a litigation strategy and not a means to tell UM Financial clients they can stop paying their mortgage! We have maintained and constantly advised the Shari’a board that, even if the mortgages are null and void according to Shari’a principles, that the contracts continue to be in full force and effect according too Ontario law. Saying anything otherwise without a court order places the clients at considerable risk and the board exposed to further reputational harm.

[192] On October 21, 2011, Siddiqui notified counsel for CUCO/Central 1 of the assignment of claim by email also blind-copied to Kalair and Panchbhaya.

[193] On October 24, 2011, Kalair sent Siddiqui the SEB/MCC invoice by email and carbon copied Panchbhaya. Siddiqui was troubled regarding the amount of the invoice and by the fact that it came very late in the day and that this was the first invoice issued by the SEB/MCC. Siddiqui was concerned that the trustee might challenge the SEB/MCC invoice and told Panchbhaya that he should pay the amounts back.

[194] In late October of 2011, counsel for GTL requested further information from the SEB/MCC, including (i) the contact information for the third party in possession of the precious metals; (ii) the particulars of the metals received from UM including date of receipt, type, weight, and serial number; and (iii) the particulars of the metals held by the third party including date of receipt, type, weight, and serial number.

[195] On November 10, 2011 an order for the recovery of the precious metals was made. The court ordered that the parties in possession or in control of the precious metals deliver them to a Schedule 1 Bank by the close of business on November 14, 2011. The court also empowered GTL to examine Kalair and any others with knowledge of the affairs of UM, and required that Kalair “produce books, documents, correspondence or papers in that person’s possession or power relating in all or in part to either of the debtors or their dealings or property”.

[196] On November 1, 2011 Kalair turned over all of the silver to Panchbhaya who made arrangements to return the silver.

[197] On November 14, 2011, Panchbhaya arrived at the BNS in his car with a lawyer to return all of the silver. His car was heavily laden and driven into the loading dock of the vault of the BNS. This was the first time Thompson had met Panchbhaya, but Thompson does not recall speaking to Panchbhaya other than to say hello.

[198] On November 16, 2011, new counsel for the SEB/MCC notified GTL that “the gold was to be given to Adam on or about October 4, 2011” pursuant to the SEB/MCC resolution appointing Adam as the financial manager of the SEB/MCC. Kalair testified that it was his understanding that Adam was being given the authority to deal with the SEB/MCC’s assets and he was therefore to transfer the precious metals to the SEB/MCC to pay religious scholars for their services to the SEB/MCC. He met Adam in a parking lot to conduct a vehicle to vehicle transfer. There was no receipt for this payment.

[199] The 32 kg of gold bullion was not returned to GTL and remains outstanding and missing, allegedly in Egypt.

(xii) Bankruptcy

[200] On November 23, 2011, UM was assigned into bankruptcy. GTL was made the trustee in bankruptcy. A First Meeting of Creditors was scheduled for December 13, 2011. Kalair was notified of that meeting but did not attend. He was not available to attend on that day and the date was not changed. He was designated as an officer of UM in accordance with s. 159(b) of the BIA, for the purpose of performing the duties of a bankrupt and to be examined before the OR.

[201] On February 8, 2012, Kalair was to attend an examination before the OR. He did not attend on that date however an examination was conducted a year later on February 14, 2013 when Kalair denied that UM had failed to meet its financial obligations; indicated that he was well aware of the mortgage issues; and stated that all he knew of the whereabouts of the gold was that it was in the possession of Adam in Egypt.

CHARGES AGAINST PANCHBHAYA

[202] In order for the Crown to prove the joint charges beyond a reasonable doubt, it must prove that Kalair and Panchbhaya acted in concert for the same interest throughout the relevant time period and in particular, when it came to the procurement and disbursement of the precious metals.

[203] With respect to Panchbhaya acting as a party to the offences, the Crown must prove that Panchbhaya possessed the requisite mens rea and that, as an aider, he not only assisted the principal in the commission of the offence, but must have intended to do so. An aider must have been aware of the type of crime to be committed and the circumstances necessary to constitute the crime that he is accused of aiding.

CONCLUSIONS REGARDING PANCHBHAYA

[204] I agree with Amicus Curiae that over the 23 days of evidence, many of the 15 witnesses had very little to say, most nothing, about Panchbhaya. I have set out the most relevant pieces of evidence regarding Panchbhaya above and these are now my conclusions regarding Panchbhaya’s acquittals on all counts in the indictment.

[205] The witnesses who testified about the purchase of the precious metals – Durst, Gryguc, and Goodman – did not mention Panchbhaya or the SEB/MCC in their testimony. They did not provide any evidence that Panchbhaya or the SEB/MCC were in any way connected with the purchases.

[206] The witness for the OR, Thompson, also had little direct evidence regarding Panchbhaya or the SEB/MCC, except for his observations during the return of the silver. The evidence that he gave about the SEB/MCC was told to him by Kalair who told him that the purchase of the metals was done to pay the SEB/MCC.

[207] The homeowners – Farooq Atesever, Abdul Khattab, Fuad Muhammad, and Ahmeed Abdul‑Hamid – testified that they had not met Panchbhaya and only one had even heard of him.

[208] The forensic accountant, Coort, testified about the existence of the SEB/MCC invoice but did not look at any other records of the SEB/MCC and did not examine Panchbhaya.

[209] Dupont, the OR, did not interview Panchbhaya or anyone from the SEB/MCC. Much of what Dupont included in his report regarding the SEB/MCC was told to him by Kalair.

[210] Sacco, who testified from CUCO/Central 1, did not mention Panchbhaya at all in her testimony. She did not have any dealings with Panchbhaya or the SEB/MCC.

[211] Scott, the expert on money laundering, did not mention Panchbhaya in his testimony. In his report, he included two brief references to Panchbhaya. First, that he could not speak to the veracity of the explanations provided by Kalair for the purchase of the gold, including the payment to the Shariah scholars. Second, he stated that “there is no actual evidence that Kalair or Panchbhaya repatriated the missing gold or used it for any other purpose at some point in the future”.

[212] The Crown points to the testimony of Scott for the proposition that the failure to use security and armoured cars to transport precious metals is a potential indicator of money laundering. This again overstates Scott’s testimony, where he explained that people in the precious metals and stones industry go to great lengths to ensure the safety of their goods. It is clear from the evidence that Panchbhaya was not involved in the precious stones and metals business, so he would not have had the training suggested by Scott on how to transport and safeguard the precious metals. It can be equally inferred that Panchbhaya’s failure to transport the silver in an armoured car was a result of his inexperience with precious metals and lack of understanding of the proper manner to transport it, rather than any indication that it was as a result of money laundering.

[213] Siddiqui testified about the events that took place over the summer and fall of 2011. The Crown has relied on Siddiqui’s testimony that Kalair and Panchbhaya were “acting in concert” to demonstrate that they were acting for the same interest throughout the relevant time period, and in particular when it came to the procurement and subsequent disbursement of the precious metals. I agree that this overstates the comments made by Siddiqui. He used this phrase on two occasions when questioned about whether he had taken proper precautions to avoid conflicts of interest between Kalair and Panchbhaya. In particular, Siddiqui was referring to the fact that Kalair and Panchbhaya were acting in concert for the purposes of the court receivership application intervention. The fact that Kalair and Panchbhaya were in agreement on trying to protect the Shariah compliance of the home financing products by launching an intervention in the receivership proceedings does not go so far as to say that they were acting in concert on every decision and step taken during the relevant period, particularly as it pertains to the precious metals, and does not amount to acting in concert for a criminal purpose.

[214] I agree that much of Siddiqui’s evidence is not reliable. He was unable to give a coherent and consistent recitation of his time representing Panchbhaya and the SEB/MCC. He could not recollect important details including specific dates, conversations, names of people, or details of events. Siddiqui failed to keep adequate records of his representation of Panchbhaya. He did not make memos, record telephone conversations, or take notes of instructions from or meetings with Panchbhaya. He would send a follow up e‑mail after a meeting but agreed that the memo to file that was entered as an exhibit was probably the only one he had in his file.

[215] I agree that Siddiqui’s credibility was undermined by the severity of his unreliability. There are simply too many occasions where Siddiqui could not recall essential facts thereby calling into question the believability of the things that he claimed to recall.

[216] Siddiqui was motivated to minimize his role and bolster his representation of Panchbhaya and the SEB/MCC because of his own concerns for his reputation and the fact that he might be perceived as falling short of his professional obligations. He testified that he had instructions from Panchbhaya for various actions that he took even though those instructions were not supported by documents. He agreed that when he could not convey legal advice to Panchbhaya in Urdu he would do so in English. He failed to work with an interpreter to ensure that his oral communications and complex legal documents were understood by Panchbhaya. It is also clear that Kalair played a role in most of the meetings and had an influence over the issues discussed and the actions taken. Siddiqui’s motivation to protect his own interests over those of Panchbhaya’s is demonstrated by his desire to “extricate” himself from the retainer despite continuing to speak to Dietrich during this period. Siddiqui was not credible in his testimony that he was only taking instructions from Panchbhaya, and that Panchbhaya fully understood the actions that were taken on his behalf. He was also not credible with his claim that he was instructed by Panchbhaya on relevant issues but was not influenced by Kalair.

[217] I agree that on several key points, Siddiqui was prone to “leaps in logic” or assumptions. The most important example of this was Siddiqui’s testimony that Kalair asked Panchbhaya “What about Rompsen?” at the end of their November 4, 2011 meeting at Hamdi’s (a restaurant), and Panchbhaya did not respond to this comment. This evidence was only provided while he was in re‑examination by the Crown. Siddiqui testified that at the time of the comment, he did not know what it was about. However, I agree that he made a “leap of logic” to connect this comment to the gold. There are several possible inferences that can be drawn from that question if it was uttered, including whether Romspen could still become a replacement lender. Siddiqui preferred the most prejudicial interpretation. His testimony on this issue was uncorroborated.

[218] Kalair’s evidence on important issues, such as the creation of the invoice and the instructions that he received from Panchbhaya regarding the precious metals, are also uncorroborated.

[219] Kalair also testified as to his lack of respect for Panchbhaya. He called Panchbhaya (and the other members of the SEB/MCC): “just local imams. No one had any formal training on Islamic finance”. He testified that initially he did not want Panchbhaya as the chair of the SEB/MCC, and instead asked other scholars, but settled on Panchbhaya because they “didn’t have any other options”. He also confirmed that Panchbhaya had nowhere near the amount of business training that he himself had and that Panchbhaya was not involved in the key business decisions.

[220] Despite his view of Panchbhaya, Kalair testified that he was duty bound to follow the orders of Panchbhaya and the SEB/MCC to pay the invoice with precious metals without question and without asking for receipts or documentation.

[221] The Crown has not met its burden of proving Panchbhaya’s guilt on each of the essential elements of theft, fraud, money laundering and the BIA charge.

[222] There is no evidence that Panchbhaya had any knowledge about the contents of UM’s bank accounts nor did he have access to or control over those accounts. He also had no knowledge that funds were accumulating in those accounts and were owed to CUCO/Central 1. Kalair confirmed that he had informed the SEB/MCC that once UM had accumulated over $1 million, then the SEB/MCC fees would be paid. He did not detail where these funds would come from. Panchbhaya had no reason to believe that the funds did not properly belong to UM. As a result, there was no intention to deprive CUCO/Central 1 of the funds, nor was there any willful blindness to the fact that the use of funds deprived or risked depriving CUCO/Central 1.

[223] There is also no evidence that Panchbhaya was involved in the purchase of the precious metals. None of the witnesses who testified about the precious metals mentioned Panchbhaya. Kalair’s explanation that he purchased the precious metals on the SEB/MCC instructions is contradicted by the varied explanations he provided to Durst and Gryguc at the time of the purchases. All of the evidence regarding the purchase of the precious metals points to Kalair as the person who undertook the purchases on his own.

[224] After the purchase of the precious metals, there is no evidence that Panchbhaya ever possessed or controlled the gold. Panchbhaya possessed the silver, which he returned when he understood that it was owed to the OR, which confirms that he was lacking the intention to deprive the OR. Further, Siddiqui confirmed that Panchbhaya did not benefit (including compensation) from the precious metals.

[225] The Crown points to the incorporation of the SEB into MCC; SEB/MCC’s intervention in the receivership application; the SEB/MCC invoice; the Adam/MCC resolution; and the assignment of claim as evidence of steps taken by the SEB/MCC to “conceal and obscure” the precious metals. I agree with Amicus Curaie that the inferences suggested by the Crown that all of these actions were taken to conceal the precious metals do not meet proof beyond a reasonable doubt. There are other innocent inferences that can be drawn from the actions of the SEB/MCC that are not connected to a fraudulent plan. Siddiqui testified that the incorporation of the SEB to the MCC was done to limit the SEB’s liability and to provide a basis to obtain standing in the intervention application which was intended to raise the issue of Shariah compliance with the court. Further, not much can be inferred from the Adam resolution other than its bare meaning that it appointed Adam as finance manager.

[226] I agree that in order to connect these actions to the essential elements of the offences, “leaps of logic” are again required that ignore the Crown’s failure to prove Panchbhaya’s subjective knowledge of the prohibited act and that the prohibited act led to a risk of deprivation to CUCO/Central 1.

[227] Personal factors such as Panchbhaya’s lack of knowledge of English; his lack of understanding about finance and business; the advice that he was receiving from Siddiqui; and Kalair’s level of influence over him must be taken into account when considering his subjective knowledge.[^66] Siddiqui failed to adequately represent Panchbhaya in making sure that his client was not placed in a conflict of interest with Kalair.

[228] The Crown has not proven beyond a reasonable doubt that Panchbhaya had subjective knowledge of the act or the risk of deprivation.

[229] The Crown also alleges that Panchbhaya is guilty of money laundering because he acted with Kalair in the purchase of the precious metals with funds from UM’s bank account that were owed to CUCO/Central 1 with intent to conceal the whereabouts of the funds.

[230] There is no evidence to establish that Panchbhaya was directly involved in the purchase, storage, and disbursement of the precious metals, and more specifically the gold. Kalair confirmed that Panchbhaya had never seen the gold nor was he involved in the transfer of the gold to Adam. The appointment of Adam as financial manager of the SEB/MCC does not automatically lead to the conclusion that the resolution was made for the purpose of converting or concealing the precious metals by Panchbhaya. The only testimony about the whereabouts of the gold was from Kalair that the gold was given to Adam. The return of the silver by Panchbhaya demonstrates that he did not have the intention to conceal or convert the property.

[231] In support of the money laundering offence, Scott focused on Kalair’s active role in acquiring and disseminating the precious metals. Scott did not highlight Panchbhaya or the SEB/MCC as playing a role in the alleged laundering. Scott testified that “there is no actual evidence that Kalair or Panchbhaya repatriated the missing gold or used it for any other purpose at some point in the future”.

[232] There is also no evidence that Panchbhaya possessed the required knowledge that the money from the UM bank account was obtained as a result of a designated offence. The Crown submits that it “does not have to prove that either of the accused knew or believed the details of the designated offence, only that the property was derived from the commission of fraud over $5,000”. I agree that although the Crown is not required to prove that the accused knew the specifics of the underlying offence, it is required to prove that the accused knew or believed that the property was obtained or derived from the commission of an indictable offence.[^67]The Crown has not proven that beyond a reasonable doubt.

[233] This is a circumstantial case and I agree that the Crown must show that Panchbhaya’s knowledge that the property was derived from an offence, either actually or a result of willful blindness, is the only reasonable inference. It is equally plausible, however, that Panchbhaya did not know that the property was derived from an offence. In R. v. Marziliano, the court found that there was a reasonable doubt regarding the issue of knowledge due to competing inferences available to him.[^68]

[234] The Crown also alleges that Panchbhaya committed an offence under the BIA for the fraudulent disposal of UM’s property immediately prior to the initial bankruptcy event. Because I have not found Panchbhaya to be guilty of any CC offence for the same conduct, he is also not guilty of this BIA offence.

FURTHER EVIDENCE RELIED UPON REGARDING KALAIR

(i) Opinion Evidence of Thomas

[235] Thomas teaches in the area of Islamic finance. He has conducted Shariah audits and has been a member of a SEB. He has also developed a partnership model for home financing similar to that of UM. He was an appropriately qualified expert. I acknowledge that I experienced a significant “learning curve” on matters of Islamic finance.

[236] Thomas’ expert evidence provided background and knowledge about what is normative in the context of Islamic finance. I agree that it is essential to assess Kalair’s conduct against that backdrop as UM was supplying Shariah compliant mortgages. I initially believed that an unwillingness to pay conventional interest on a loan appears (to use Kalair’s counsel’s word) “bizarre” until I learned that the payment of interest is considered a serious sin in the Islamic faith and violates a central pillar of Shariah law. This understanding was essential in my understanding of Kalair’s operating mind. Thomas’ evidence was also educative regarding industry standards against which Kalair’s conduct must be assessed. I am going to break down Thomas’ evidence using the same categories as set out by his counsel.

A. The Mudarabah Partnership and its Relationship with Traditional Western Legal Contracts

[237] A Mudarabah, similar to a limited partnership, is the relationship that exists between the Mudarib - UM - and the Rabb al mal (owner/supplier of the funds) - CUCO/Central 1. Under this relationship, CUCO/Central 1 supplies capital to UM and UM manages that capital.

[238] A Mudarabah is a true partnership and as such, the Rabb al mal bears some form of financial risk or variable income risk. In the realm of Islamic finance, this is justified because the Mudarib manages the enterprise while the Rabb al mal only invests and puts up cash.

[239] The relationship between UM and CUCO/Central 1 was premised on a Mudarabah partnership. A representative from CUCO/Central 1 (Jens Lohmueller (“Lohmueller”)) confirmed this relationship on CUCO/Central 1 letterhead (“the letter”) in 2005 when the relationship was first developed. The letter is bolstered by the contracts that govern that relationship, regardless of the fact that they read somewhat like traditional financial instruments. Thomas testified that “it’s not at all unusual for transactions between conventional and Islamic counterparties to be termed in lay terminology for different reasons - This could happen out of laziness. This could happen out of a desire to preserve tax positioning…”. It could also be because CUCO/Central 1 was uncomfortable with using such non-traditional language and terminology, particularly if it risked raising flags in the highly regulated environment of Canadian banking.

B. The Musharakah Relationship between UM and its Homeowner Clients

[240] The Musharakah is the partnership agreement entered into between the fund provider (UM) and the consumer (the homeowner). The first step is co-ownership of property; the second step is a tenancy or a leasing of the property; and the third step is a rental payback and eventual buy‑back of the property. The purchaser gains ownership of the property by paying UM a monthly rental fee similar to a traditional mortgage payment until they are able to buy back the property. This type of partnership agreement is considered to be Shariah compliant because rather than earning ‘money on money’, UM’s profit is derived from the homeowner’s use of the shared property and as such, it is ‘money on property’.

[241] The letter also recognizes that the relationship between UM and the homeowners is a Musharakah. Further, the contracts signed by the homeowners are titled “Musharakah Home Agreement”.

C. The Relationship Between the Mudarabah and Musharakah

[242] Under the Musharakah agreements, UM received various monthly lease payments. UM was obliged to pay some of those payment funds to CUCO/Central 1 under the Mudarabah agreement. The quantum depended on the contracts that governed their relationship. Under a typical Mudarabah partnership, the Mudarib is permitted to pay expenses related to the Mudarabah or the Musharakah(s) before it pays the Rabb al mal. The Mudarib then takes its share of the profits (known in this case as UM’s “servicing fee”), and the balance is then paid to the Rabb al mal.

[243] The essential governing contracts between UM and CUCO/Central 1 include the MMASA and the MMSSA. Both contracts include provisions about the payment of expenses and are vague. According to Thomas, unless the contracts explicitly ruled out certain expenses, the Mudarib would reasonably have believed that it could pay for whatever expenses it felt were critical to the mission of performing its job, in this case the creation and selling of Shariah compliant mortgages. Thomas testified that if CUCO/Central 1 did not agree with this interpretation, it should have challenged or clarified how expenses would be handled.

[244] Thomas testified that paying a SEB is clearly a necessary expense critical to the Mudarabah venture and, therefore, would qualify as an expense that could legitimately be paid prior to paying CUCO/Central 1.

[245] In terms of any prepayments received from homeowners under the Musharakah agreements, Thomas testified that according to the rules of Islamic finance, in the absence of specific guidance in the Mudarabah, the Mudarib could repatriate those funds to the Rabb al mal whenever it felt it was appropriate.

[246] The contracts that govern the relationship between UM and CUCO/Central 1 only provided guidance about pre-payments received in very specific circumstances: as “a result of sale of the mortgaged premises, expropriation, damage of the mortgaged premises by fire or other similar cause”. There was no guidance as to what UM must do with the prepayments received under any other circumstance.

D. The Mudarabah Breakdown When CUCO/Central 1 Terminated its Arrangement with UM

[247] Thomas identified the cultural chasm that delineated the relationship between UM and CUCO/Central 1 as follows:

…there’s no evidence that UM, at least that I saw, thinks that the relationship is any different. They feel that they’re being pressured to give up more of the profits, but they don’t appear to understand that they’re being treated as a, a borrower. Whereas it, it seems that Central 1 was taking a harder and harder view that this is purely a borrower/lender relationship.

[248] In the case of a Mudarabah breakdown, all of the accumulated money should first be allocated towards any outstanding or unpaid obligations of the Mudarabah (the SEB included) while the remainder should ultimately go back to the Rabb al mal.

[249] In this case, although there was a breakdown of the Mudarabah, the Musharakahs were still in working order. The homeowners continued to make their payments in accordance with the contracts and were prepared to continue making those payments. In accordance with the rules of Islamic finance, the Musharakah agreements should have continued to operate as originally planned. CUCO/Central 1 should have stepped into the shoes of UM and worked with the homeowners to arrive at a Shariah compliant solution. Thomas testified as follows:

Once UM was out of the picture, I would have thought that the Musharakah arrangements would continue to be in place and that Central 1 would honour those agreements by themselves. In the absence of UM, it would strike me that article 17 of the document prepared by – or reviewed by Mufti (indiscernible) requires mediation and in the absence of UM, Central 1 should have mediated with the community members who had purchased their houses under Musharakah if they wanted to change things, but this seems not to have happened.

E. SEBs

[250] A SEB is a group of advisors or scholars who are experts in Shariah law. Its role is to provide advice to organizations such as UM or to the broader Muslim community who will be utilizing the services/products of the organization as to whether or not a particular service/product is Shariah compliant.

[251] SEBs are comprised of scholars who resonate with the local community that they are servicing. They are a signal of legitimacy and form a bridge from the funding organization to the consumer. Thomas testified that it is important to find scholars who connect with and are appealing to the local community, even if such persons might lack experience in finance. If the scholars are sufficiently known to the local community, they might be considered by the target market as even more trustworthy than scholars who enjoy international recognition.

[252] When an organization hires a SEB, it is actually “hiring [its] new compliance”. Management of the organization often feels that they are obliged to defer to the superior knowledge of the SEB in matters that relate to the Islamic faith. Members of the management team would be highly motivated to follow the SEB’s rulings, opinions and requests. UM’s financing model and product development were designed under the guidance of its SEB.

[253] The members of a SEB collectively issue one or more fatwa to determine whether a transaction or activity is permissible from an Islamic perspective. A fatwa tells Muslims that the product/service as structured under Canadian law complies with the rules of Shariah law. It is not unusual for the local scholars to seek the advice of their peers, including more well‑known international scholars.

F. The Payment of SEB Scholars

[254] When a new financial product is introduced in a country with a traditional interest-based financial system, a SEB would be required to spend significant time and resources trying to understand the documentation and trying to find resources that support the legitimacy of the product. SEB members are not volunteers and they expect to be paid for their time. Payment arrangements can be quite informal where there is no written contract. It is not particularly “strange” to find that the management company generates the invoice for the SEB as the SEB often requires assistance in defining the terms of payment. As a result, Kalair’s limited involvement in formalizing and preparing the SEB/MCC invoice does not stand out as a red flag.

[255] SEBs are often willing to defer their compensation, particularly with a management company start-up.Thomas testified that although the SEB/MCC invoice should have been more specific, there are some SEBs who do not issue invoices at all.

[256] In terms of quantum, Thomas testified as to an annual income range of a SEB to be $5,000.00 to $210,000.00 USD per year. In speaking about the amount paid to the SEB/MCC in this case, Thomas testified as follows:

Well, when I do the simple math and divide the number by the number of years that the scholars were active with UM, the number is not, is not a terrifying or exceptionally high number. When I look at the relative obscurity of the Canadian Scholars, they’re just not the most famous guys in Islamic finance and the total (indiscernible) the Egyptian Scholars, the number seems high. Kalair was would not easily seek to negotiate or re-negotiate if posed with a, a particular number or (indiscernible) from there. There are elders that (indiscernible) and particular religious leaders. So, is it high? I think so. Unusually high? No… But is it a situation where many managers who (indiscernible) difficulty to push back? Yes. Is it a situation where many managers would not be comfortable pushing back, especially having let it go for 10 years or more.

[257] Thomas also testified that Guidance Financial, another North American Islamic finance entity, is paying its scholars significantly more than what was invoiced by the SEB/MCC.

[258] A SEB also has the ability to issue a fine against the organization if it feels that the organization has engaged in a misstep that is contrary to Shariah law. Generally, it would direct that the fine be paid to an independent charity; however, should the misstep result in direct harm to the consumer, it would direct that the fine be paid back to the consumer who suffered the harm.

G. Gold and Islamic Finance

[259] There is a cultural attraction to gold in Islamic communities. Gold has an ancient religious connection to Islam as one of the six staple goods mentioned in the Quran. Recent history has seen a collapse of the currency in Iran, Libya, Syria, Iraq and Egypt. When asked about the payment of the SEB/MCC scholars in gold, Thomas testified that, “from a Shariah perspective on permissibility it’s totally permissible. From a business perspective it’s completely unusual”.

H. Romspen Commitment Letter

[260] The Crown alleges that “Kalair’s willingness to accept non-Shariah compliant alternate funding [Romspen commitment letter] belied his claim that he believed his agreements with CUCO/Central 1 must be interpreted as Mudarabah”.

[261] Thomas testified that the Romspen agreement is in fact Shariah compliant. The supporting documents and agreements (that include a Gowlings’ opinion letter; the Musharakah agreement; a memo; and fatwa signed by international scholars) would have also been sent to Romspen alongside the commitment letters. Thomas testified that in the realm of Islamic finance, it is not unusual to have conventional documents with side agreements.

I. Thomas’ Conclusions

[262] UM and CUCO/Central 1’s execution of a Canadian Shariah compliant Mudarabah was not in accordance with best practice. Although genuine efforts were made, “they were not the world’s sterling example of the best way to do things”. It is Thomas’ conclusion, however, that a Mudarabah did exist and that the documents support that conclusion.

[263] An Islamic interpretation of the contracts relied upon at the time suggests the following:

(a) Kalair was permitted to pay legitimate business expenses, including legitimate fees owed to its SEB/MCC, prior to remitting those funds to CUCO/Central 1; and

(b) Kalair was permitted to use the homeowner prepayments for accrued expenses, legal fees, and consultancy fees from the SEB/MCC.

[264] I agree that Thomas’ evidence provides the necessary contextual backdrop against which to assess whether there is an “air of reality” to Kalair’s claimed justification for his actions. I find that there is such an air of reality in light of this expert evidence on Shariah issues. It is impossible to dismiss Kalair’s subjectively held belief that he was acting in a permissible manner throughout his interactions with CUCO/Central 1 and the homeowners.

(ii) Evidence of CUCO/Central 1 Witness - Sacco

A. Relationship between CUCO/Central 1 and UM

[265] In 2005, CUCO/Central 1 entered into a commercial partnership with UM. The CUCO/Central 1 point of contact was originally Lohmueller, who was Manager of Commercial Lending and Product Development. Lohmueller worked with UM to develop the business model. On August 26, 2005, he wrote a letter on CUCO/Central 1 letterhead explaining the Islamic principles that were to govern the relationship. The subject line of the letter is “UM Financial Shariah Board Ruling”. The letter included the following:

The residential mortgage contract between the client and UMF are based on the Islamic concept of Murabahah. Under the Murabahah concept, UM Financial purchases a residential real estate for a client and sells it to the client with a pre‑agreed upon profit. The underlying mortgage contract does not contain interest.

AND

Credit Union Central of Ontario is making financing available to UM Financial to assist in the purchasing of said residential real estate. This relationship was formed based upon the concept of Mudarabah. The financing contract is based on a pre‑agreed upon profit sharing ratio between both parties and proceeds are shared after the occurrence on a monthly basis. The underlying financing contract does not contain interest.

[266] Sacco was delegated to administer the credit lending facility between CUCO/Central 1 and UM. She administered that relationship after Lohmueller left CUCO/Central 1 and until the receivership. Sacco had never seen the letter signed by Lohmueller until it was shown to her at trial. She was unaware of the multiple edits to the original commitment letter drafted to ensure the contracts were Shariah compliant. In her mind, the wording in the UM contracts were just words.

[267] Sacco was never given any indication by anyone at CUCO/Central 1 that UM was anything but a traditional interest-bearing commercial loan company. She was never informed of any aspects of the Shariah compliant relationship and did not undertake any steps to ensure Shariah compliance.

[268] Sacco was further unaware of the multiple edits to the original commitment letters that had been drafted to ensure that the contracts themselves were Shariah compliant. Sacco was asked to compare the executed commitment letter with the draft version where terminology was changed from traditional mortgage terms such as “borrower” and “lender” to “credit facility utilizer” and “credit facility provider”, terms that are not industry standard, but satisfy the requirements of Shariah law.

[269] Kalair testified that Lohmueller accepted these changes because he understood that the relationship was predicated on Shariah law and Shariah compliance. Kalair believed, and had reason to believe, that Lohmueller would have communicated such things to other CUCO/Central 1 employees, particularly to those that would be working directly with UM.

[270] I agree that although Sacco is not to “blame” for the communications failure regarding the relationship between CUCO/Central 1 and UM, she is a symptom of the miscommunication which left a chasm between the factual realities understood by Kalair on behalf of UM as contrasted with the factual realities as understood by Sacco on behalf of CUCO/Central 1 in the post‑Lohmueller era. Sacco’s view of the calculated and purposeful use of language in the contracts was that it “doesn’t make it, in my opinion, like, a Shariah thing. It’s just using different terminology in the contract”. In her mind, they were “just words”.

[271] I accept Kalair’s evidence that this unilateral change in viewpoint was never communicated to him.

[272] Years later, Kalair continued to use the language of Shariah law, while Sacco used the language of traditional finance. This caused friction in the CUCO/Central 1 and UM relationship and is critical to understanding and assessing the honesty of Kalair’s belief in the propriety of his actions.

B. The Contracts

[273] The relationship between CUCO/Central 1 and UM was governed by multiple contracts including the MMSAAand the MMASA.

[274] On page 17 of the MMSAA, subsection Q reads as follows:

Remit to the assignee (CUCO/Central 1) all collections received or collected by the assignor (UM) from time to time under the purchased mortgages on a daily basis by pre‑authorized payment from the collections trust account. The assignor may deduct, at its option, expenses and fees authorized pursuant to this agreement and shall not be required to remit amounts collected for the purposes of paying realty taxes but shall apply those sums in payment of applicable realty taxes.

[275] The MMASA in sections 2.1 reads as follows:

Unless specified otherwise, all costs and expenses including, without limitation, the fees and disbursements of legal counsel incurred in connection with the agreement and the transactions contemplated hereby, shall be paid by the party incurring such expenses.

[276] I agree that it is not clear which expenses are contemplated in these sections and that it is certainly open to interpretation. I further agree that someone viewing this contract through the lens of Shariah law would understand these sections to mean any operating expense incurred by UM, including any cost related to ensuring the company remained Shariah compliant such as payment to the SEB/MCC.

[277] Sacco ultimately agreed with that suggestion, as demonstrated by the following during her cross-examination:

Q. And I don’t know if you know this, but I’m going to suggest to you that one of the requirements to make this Shariah compliant, meant that they also had an expense to pay Shariah scholars. Did you have any knowledge about the Shariah compliance costs...

A. No.

Q. ...of this...

A. None.

Q. ...project?

A. No.

Q. Okay. But, if there were such costs, your expectation would have UM has to pay them, correct?

A. I would assume so, yes.

Q. And obviously, those payments are anticipated to come out of the UM’s side of the profits of this arrangement, right?

A. I would assume so.

[278] The MMSAA and the MMASA are also vague when it comes to how pre-payments should be managed:

If a purchased mortgage is prepaid, in whole or in part, as a result of sale of the mortgaged premises, expropriation, damage of the mortgaged premises by fire or other similar cause, the assignor (UM) shall receive any such prepayment, including any penalties provided for in the mortgage or the credit and collection policy or any loan document underlying the mortgage, in trust of the assignee (C1), initially deposit same into the collections trust account, and then forthwith deliver such funds to the assignee (CUCO/Central 1).

[279] I agree that this language seems to suggest that only in the enumerated circumstances should prepayments be forwarded to CUCO/Central 1 and therefore, in any circumstance not covered by the section, UM was permitted to keep the prepayments, presumably until the mortgage was paid off in full.

[280] I agree that even where the Shariah interpretation may not be the most plausible explanation, taking into account the evidence of Kalair and Thomas, there is ambiguity giving rise to an air of reality to Kalair’s claim of colour of right.

C. The Demonstrable Loss

[281] Sacco was unable to quantify the loss to CUCO/Central 1. She testified that CUCO/Central 1 is still realizing on profits today as they continue to receive monthly mortgage payments and lump sum payments from a small number of the UM homeowners who remained CUCO/Central 1 clients after the receivership and who accepted traditional non‑Shariah compliant financing and accepted the payment of interest at the rate specified in the contracts.

[282] To sustain a conviction for fraud or theft, the Crown does not have to prove a specific quantum but can rely on the mere creation of a risk of deprivation. However, that risk cannot be something contemplated and agreed to by the parties to the venture if it is to be the basis of a criminal charge. A joint venture or partnership that subjects one partner to a risk of loss (or actual loss) is not a crime. CUCO/Central 1 withdrew from the Mudarabah partnership when, taking into account expenses of the venture, there were insufficient profits to cover liabilities. A potential loss for one or both of the parties would have been contemplated and agreed to by them when they entered into the Mudarabah.

[283] With respect to the homeowners, there was no loss in actuality nor any risk of loss. Payments by homeowners to UM were recorded, accounted for, and credited by GTL using the documents provided by UM in answer to the R.O. The shortfall caused by UM’s needs to cover such things as legal expenses and the payment to the SEB at the dissolution of the Mudarabah never threatened the assets of the homeowners. They were, in accordance with Shariah law and the original contracts, a debt of the Mudarabah to be dealt with between UM and CUCO/Central 1.

EVIDENCE OF KALAIR

(i) Background

[284] Kalair received both a Bachelor in Business Economics and a graduate degree in business administration from Wilfred Laurier University. His commitment to the Canadian Islamic community began as a student. He was a member of the university’s Muslim Student Association and helped in the creation of the university’s first prayer room. He regularly attended at Muslim community events and spent time with various Islamic scholars, including Panchbhaya. Kalair has known Panchbhaya since he was ten years old when he was attending at Panchbhaya’s home for religious education.

[285] When Kalair was around 25 years old, he became a director of a Canadian charitable organization by the name Miftahul Uloom of Canada, which had a goal of “adding value to the Muslim community”. The charity began by starting the first Islamic radio show, but was ultimately responsible for the organization of many community events during the years 2000-2004. During such time, Kalair and Panchbhaya worked closely and it was under the name of this charity that Kalair and Panchbhaya had their first meeting with CUCO/Central 1 at which meeting they explained the huge untapped market of Muslim Canadians who were seeking Shariah compliant home financing.

[286] In the early 2000s, there was visible growth in the field of Islamic finance in both the United States and the United Kingdom. Kalair looked at the business models used by his international counterparts to come up with a business plan that he could present to CUCO/Central 1. The intention was to embark on the business venture in the capacity of a non-profit. The goals were not monetary, but rather to provide a valued service to the Muslim Canadian community.

[287] Lohmueller worked directly with UM, exploring the various models of Islamic home finance. According to Kalair, Lohmueller was himself an immigrant open to a new approach because he felt that “credit unions are here to be more involved in the community”. Kalair believed that Lohmueller did his own research on Islamic finance and championed the product internally. It was Lohmueller who signed the CUCO/Central 1 letter that defines the relationship between UM and CUCO/Central 1 as being based on a Mudarabah and the relationship between UM and the homeowners as being based on a Musharakah. That same letter was posted to the UM website and was shared with potential clients.

[288] CUCO/Central 1 advised that due to market regulations, it could not develop its own Islamic home finance product and instead suggested that UM acquire funds from the CUCO/Central 1 commercial division and create the product itself.

(ii) The SEB/MCC and its Fatawa

[289] UM looked to form an independent SEB who could approve the business relationship between CUCO/Central 1 and UM. UM had to be Shariah compliant on both the front end (relationship with homeowners) and the back end (relationship with CUCO/Central 1). UM reached out to various Islamic scholars, including the most well-known scholar internationally, Mufti Taqi Usmani. According to Kalair, it was Mufti Usmani who suggested that UM make Panchbhaya the chairman of its SEB/MCC. Panchbhaya and Mufti Usman Patel were the only two Muftis in the Canadian Muslim community who were giving consistent fatwas. Both agreed to work for the SEB/MCC.

[290] The SEB/MCC met on many occasions as is evidenced by the various meeting minutes. The SEB/MCC requested that UM management send them monthly reports so that they could stay informed of what was happening. They also reviewed the draft commitment letters (the Mudarabah documents) to ensure that every detail was Shariah compliant. Changes, comments or questions of the SEB/MCC were canvassed with Lohmueller and the commitment letters were edited to reflect those discussions. On some occasions, Lohmueller met with members of the SEB/MCC directly.

[291] There were handwritten changes to the proposed contract, varying the language to ensure Shariah compliancy. Those changes were penciled in by Kalair on the advice of the SEB/MCC, communicated to Lohmueller and ultimately, adopted into the final contracts. Although Lohmueller was generally agreeable to these changes, CUCO/Central 1’s regulating body did not permit the explicit use of Islamic terminology. This is why the term “Mudarabah” is not found anywhere in the contracts.

[292] The SEB/MCC was paid for their travel expenses up front, but in recognizing that UM was a start up with little to no capital, they agreed to a deferral of market-rate payment that would eventually be paid for their expertise.

[293] The SEB/MCC issued five fatwa. The first was signed in January of 2005, after the SEB/MCC had a chance to review the documents that were to govern the relationships between UM and CUCO/Central 1 and UM and the homeowners. This fatwa confirmed that the relationship between CUCO/Central 1 and UM was a Mudarabah and that UM intended to use the fatwa as a marketing tool, as it signaled to the community the legitimacy of the product.

[294] UM and CUCO/Central 1 agreed to share the profits at a 97/3 profit ratio, whereby UM received 3% for managing the CUCO/Central 1 funds. There was also an explicit reference in the fatwa that “UMF will share any loss, if they are negligent or dishonest”. This statement is in accordance with the traditional rules of a Mudarabah and as a consequence, according to the fatwa, should loss occur in the absence of negligence or dishonesty, it was CUCO/Central 1 who should suffer that loss.

[295] Based on the language used in this fatwa and on his understanding of the rules of Islamic finance, Kalair believed that:

We would never be in a situation where we would go negative. So this is where when people say a, a mudarib, which was UM Financial went into bankruptcy, it's not conceivable from a Shariah aspect because a, a mudarib can never go into bankruptcy because it's simply acting as an agent and, and it doesn't expose itself to any sort of creditor's risk.

[296] In keeping in line with the rules of Islamic finance, the SEB/MCC also wanted to ensure that UM could not penalize a homeowner for missing a payment. As such, if UM did not receive a monthly payment from a homeowner, it would still be required to remit the monthly payment to CUCO/Central 1. The payment would come directly out of UM’s pocket. UM did not miss a monthly payment in seven years. It made its payments right up to the date of the receivership.

(iii) SEB/MCC Fines

[297] According to section 17 of the Musharakah agreements, if the homeowner was unhappy about a decision made by UM, he or she was entitled to mediate or arbitrate that decision through the SEB/MCC. In total, there were seven incidents where the SEB/MCC directed UM to pay the homeowner between $3,000 and $7,000, depending on the grievance. UM’s auditors referred to these payments as “fines”. Kalair testified that he explained this “fine” process to the O.R. when he attended the UM offices on October 7, 2011. Kalair believes that the O.R. misunderstood this statement to mean that the only role of the SEB/MCC was to impose fines and therefore, that the $2.1 million payment would be to pay them for same. However, Kalair was explaining only one role of the SEB/MCC:

So in that discussions, there's three members there so sometimes the other members from Grant Thornton would ask the questions and we got a lot into this detail. I think from that they misunderstood that the 2.1 million was to pay fines. It wasn't to pay fines, it was for their fees for their seven years of work. And I told them this, is that the Shariah Board worked for seven years and they weren't paid and this was a payment towards that.

[298] Kalair was consistent in his testimony that at all times he indicated that the $2.1 million owed to the SEB/MCC was for unpaid fees.

(iv) The Contracts

[299] Kalair testified as to his understanding of the provisions of the contracts which was informed by his discussions with the SEB/MCC and his discussions with CUCO/Central 1 and specifically, Lohmueller. When asked about the provision of the MMASA relating to expenses, Kalair replied:

Yeah, so this was a point that came up with our Shariah Board that, yes, we're agreeing on the profits but obviously the profits are only calculated after expenses are deducted. So we wanted to see an explicit mention where expenses UM could deduct before it gave funds back to the credit union. So this was a clause that we showed… So from that the Shariah Board concluded, yes, we're agreeing to the profits and obviously the expenses the credit union is agreeing in this letter or in this document that it would be deducted before giving it to them.

[300] Kalair’s understanding of any prepayment received from a homeowner was, again, based on the rules of a Mudarabah. According to him and Thomas, the prepayment funds belonged to the silent partner (CUCO/Central 1), who had given UM the authority to use those funds for expenses related to its business. These prepayments resided with UM until a mortgage was paid off completely.

(v) The Receivership

[301] UM grew to the point where it had as many as 20 employees and 8 offices. Both UM and CUCO/Central 1 were profitable. Millions of dollars were advanced by CUCO/Central 1 and hundreds of Muslim Canadians had Shariah compliant mortgages. CUCO/Central 1 blamed the credit crisis when they reneged on the $49 million dollar commitment letter that was issued by Lohmueller in 2007 before he left CUCO/Central 1. Without that additional funding, UM was unable to provide finance to any additional homeowners and its profit was limited to existing clientele.

[302] With the departure of Lohmueller, Sacco became the point of contact. The profit model changed when Sacco came on board, and although Kalair was assured that UM would be receiving 20 basis points per mortgage, it was not until he hired an auditor that he realized that CUCO/Central 1 was taking 100% of the profits on most of its mortgage files.

[303] Over the years, UM found itself in a position where it was forced to take a loss (a power of sale, for example), and because a Mudarabah does not permit the Mudarib to take a loss, UM looked to CUCO/Central 1 to find a solution. At one point, Kalair offered to put up his home to keep the contracts Shariah compliant. I agree that this proposal greatly undermines the allegation that Kalair was behaving in a deceitful or dishonest manner, putting the homeowners at risk of deprivation. I agree that it was Kalair himself who was assuming great personal risk in order to protect the Shariah integrity of a homeowner in arrears. CUCO/Central 1, as a regulated financial body, was unable to accept Kalair’s proposal, but instead settled on a reduction in UM’s profit margins for a one-year period.

[304] When CUCO/Central 1 terminated the relationship with UM in 2010, Kalair continued to attempt to keep the mortgages Shariah compliant. UM could not take on any more clients and also could not renew the contracts of existing clients.

[305] Kalair was attempting to find an alternative funder to replace CUCO/Central 1. During this time, the homeowner’s contracts were up for renewal and homeowners were eager to renew in an era of declining interest rates, yet no refinancing was available. The homeowners continued to make their monthly payments and UM continued to forward those payments to CUCO/Central 1. Although some exit deals were being contemplated and shared with CUCO/Central 1, in 2011, UM received the formal Notice of Receivership. After UM received that notice, it retained counsel to formally respond to CUCO/Central 1 and essentially asked for CUCO/Central 1’s reconsideration. UM then filed its $50 million lawsuit, as demonstrated by Kalair’s evidence:

Yeah, yeah, we – after we had our notices given, then we said is that we've been quiet in terms of taking legal action against CUCO/Central 1, so now that, you know, they brought out their dagger, you know, we, we did what we were legally entitled to, is that to quantify our grievances and file it in court.

[306] The main concern of the SEB/MCC was with respect to the absence of Shariah compliancy in the post‑receivership environment.

(vi) Romspen

[307] Although the Romspen commitment letters are, on their face, traditional financial contracts with traditional financial terminology, Thomas testified that with the right supplemental documents, a traditional contract becomes Shariah compliant.

[308] When Kalair was shopping around for an alternative funder, he found that prospective purchasers took issue with the current UM finance model. As a result, he attempted to redesign the model based on examples that were successful in other countries. He put together a legal opinion (from Gowlings), an international SEB who signed fatwa as to the legitimacy of the new product and a new Musharakah agreement. Kalair testified that these documents would have been part of the package sent to Romspen in addition to any commitment letters. This kept the Shariah component of the relationship outside the scope of the financial regulators but satisfied the religious requirements of Muslim consumers. Kalair testified that:

So when OSFI (ph) or any regulator looks at it, you’ll just see a regular mortgage with an interest rate, but the financial institution would have signed these additional documents to meet the Shariah compliant side of it.

[309] Kalair agrees that he was prepared to pledge 17kg of the gold to Rompsen in order to secure a deal, even though that gold was promised to the SEB/MCC. Both Kalair and the SEB/MCC were to find a Shariah compliant alternative.

[310] Romspen seemed interested in stepping into the mortgage portfolio and maintaining a Shariah compliant structure but was demanding one million dollars in security to move forward. Although Kalair suggested that he mortgage his own home as a means of security, Rompsen was not agreeable. The SEB/MCC was content to pledge a portion of the gold payable to it and to again defer payment of its professional fees if it meant that the portfolio would remain Shariah compliant. The issue of payment of the gold to Romspen over the SEB/MCC became moot, as the receivership was ordered before the details of a deal could be finalized.

(vii) Payment of the Precious Metals

[311] Both UM and the SEB/MCC agreed that the scholars would be paid industry standard rates once UM had more than one million dollars in its bank account. UM started to see an accumulation of funds in its bank account in 2011. This was a result of mortgages for which UM did not have 100% of the funds it was owed. As a result, it was not in a position to forward the full payment to CUCO/Central 1. Under the Mudarabah contract, those funds rightly belonged to UM until the Mudarabah expenses were satisfied and the profits, if any, were distributed.

[312] The SEB/MCC requested that its fees be set aside in gold and silver. This request did not cause Kalair concern. He had made and had to fulfill his promise to the SEB/MCC. He understood the significance of gold and silver in Islamic culture as both metals are staples of cultural and religious importance.

[313] The discussion of the SEB/MCC fees arose numerous times and the frequency of the requests increased once the court ordered the receivership.

[314] Durst assisted with the first purchase of gold on August 30, 2011. In the course of their usual discussions about business, Kalair explained to Durst the interplay of first and second mortgages to assist homeowners in meeting their down payment obligations. These second mortgages were often funded by investors through a $5 million fund held by UM’s sister company, UM Real Estate (UMRE) which shared office space with UM. At trial, Kalair was presented with Durst’s summary of their conversation, which alleges that Kalair stated that he wanted to purchase the gold at the request of one of his investors. However, Kalair testified that the only time $5 million was mentioned in his exchange with Durst was in reference to UM and UMRE, even though the purchase of gold had nothing to do with UM or UMRE. It also had nothing to do with an investor. Kalair testified that Durst’s recollection was therefore not an accurate statement of the conversation they had. He does not even recall Durst asking him why he wanted to buy gold; therefore, there was no mention of the SEB/MCC.

[315] At this point in time, Kalair had a sense that the SEB/MCC was to be paid about $30,000 a month dating back to 2004. Overall, they were owed somewhere around $2.8 million. When Kalair came back a second time and told Durst that he was looking to purchase more gold, Durst directed him to Bendix. Kalair provided Bendix with all the requested documentation including multiple pieces of ID. He did not believe that he had anything to hide.

[316] The $2.79 million invoice was drafted on September 26, 2011 by Kalair on the instructions of Panchbhaya, on behalf of the collective SEB/MCC. Kalair did not know how the money would be split up amongst the scholars. With respect to whether or not the money would be paid to international scholars, Kalair testified that:

Q. So did you make any inquiries about whether some of these funds were going to be going, as I said overseas to international scholars?

A. Well in my discussions with them I was, I understood from what they shared to me that yes there were a group of scholars overseas that had issued a Fatwa and they were directly involved or reporting to this Shariah Board.

Q. Did you ever get to see that Fatwa that you thought was issued by someone internationally?

A. No, I have not.

[317] After Adam was appointed as Manager of Finance for the SEB/MCC, Kalair was to provide the precious metals to him. Kalair had known Adam for 20 years as an active member of the Muslim community. Kalair had complete trust in Adam and once he passed off the precious metals, it was his view that he had satisfied his obligations.

(viii) Assignment of Claim

[318] UM filed a $50 million statement of claim against CUCO/Central 1. In October of 2011, that claim was assigned to the SEB/MCC because the SEB/MCC shared the goal of keeping the mortgage portfolio Shariah compliant. Had the claim succeeded, funds from that claim could have offset any debt owed to CUCO/Central 1 and the SEB/MCC, and might have left Kalair in a position to restart the business of UM. There was nothing improper about this assignment.

[319] Although originally assigned for $1,000, I agree that the evidence suggested that this was a typographical error. The correct amount, as corroborated by Siddiqui and in a letter written by counsel for UM, would have been somewhere around $2 million.

[320] With respect to the intentions behind the claim against Kalair, CUCO/Central 1 testified that:

…if there were any proceeds to come out of that, that would also be for the betterment of our community and have the Shariah Board intervene and got a settlement from that 50 million dollar Statement of Claim, that would be for the home owners who’d been caused a lot of these issues that are quantified in our 50 million Statement of Claim. It wasn’t any personal motive that I was after.

[321] Once the precious metals were transferred and this claim was assigned, Kalair was of the view that UM had paid its debt and was no longer involved in the affairs of the SEB/MCC.

(ix) The Receivership

[322] After UM was placed into receivership, Kalair and UM were in a state of chaos. A group of six homeowners in fact retained their own legal counsel as they felt that they were being forced to accept non-Shariah compliant financing. Kalair testified that it was this dissident group of homeowners who sent the mystery emails from “info@creditunionandumfinancial.com”. I agree that there is no evidence that suggests they were sent by Kalair.

[323] On November 1, 2011, Adam transferred the silver back to Kalair who in turn transferred it to Panchbhaya. It was Kalair’s understanding that the silver was to be kept for payment to the local scholars and that the gold was to be paid to the international scholars.

[324] It was not until Siddiqui informed Kalair that the precious metals needed to be returned that he suspected that there may have been something wrong with the transaction. Siddiqui began to look and act increasingly nervous and Kalair believed he was attempting to remove himself from the file completely. Kalair testified that Siddiqui never questioned him about the whereabouts of the gold.

[325] By the time the court ordered the return of the precious metals, Kalair’s understanding was the following:

A. Joseph Adam had already left and he was already in Egypt and he had already disbursed the funds. So in my discussion with Mufti Yusuf is that when he tried, or the information that he had, I don’t know where he gained it from was that everything was already distributed before any court Order was in place.

Q. Were you in a position to make any efforts to recover the gold?

A. No, so again, Joseph Adam was appointed by MCC. He was a Finance Manager, so MCC would have the onus to inquire or push for that.

[326] In December of 2011, UM received a cheque in error in the amount of approximately $100,000 which Kalair instructed his staff to send back to CUCO/Central 1.

CONCLUSION REGARDING CC COUNTS AGAINST KALAIR

[327] I agree with counsel for Kalair that in order to convict Kalair of the CC offences and the BIA charge of fraudulent disposal, I must be satisfied beyond a reasonable doubt that the relationship between CUCO/Central 1 and UM was predicated on a traditional debtor/creditor understanding. I am not so satisfied.

[328] Contracts were drafted, edited, and finalized with a clear intention to respect and incorporate the Islamic finance framework necessary to satisfy the unique clientele seeking out the CUCO/Central 1 and UM product. Lohmueller, on behalf of CUCO/Central 1, worked actively with UM to formulate contracts which accorded with Islamic law, changing traditional terminology, waiving traditional processes and taking other steps that would have been viewed as unconventional to traditional creditor/debtor models, but necessary for a Shariah compliant model. CUCO/Central 1’s early documents during the product development and launch phase leave no doubt that the foundational concepts of its relationship with UM were rooted in Islamic law and Shariah compliance. There was a clear intention by CUCO/Central 1 and UM to enter into a Mudarabah relationship governed by the principles of Islamic finance operating within the overreaching structure of Ontario corporate law. Given the Mudarabah relationship, CUCO/Central 1 and UM were to be engaged in a form of joint venture or limited partnership rather than a traditional debtor/creditor relationship. That structure created an accepted risk of loss on the part of CUCO/Central 1 while simultaneously recognizing that there would be expenses borne by UM to ensure Shariah compliance and certification of the venture, which included the SEB/MCC.

[329] While CUCO/Central 1 and UM negotiated the terms of their product, UM hired a SEB who issued fatwa, which were circulated to the Islamic community and signalled the legitimacy and Shariah compliancy of the product. UM was then able to enter into Musharakah partnerships with homeowners. With all these partnerships in place, payments by homeowners to UM were contractually permitted to be utilized by UM to pay CUCO/Central 1 its share of the profits (if any), to pay UM its share of the profits (if any) and to pay the various expenses of the joint venture, including those associated with the SEB/MCC. So long as there was a continuing pipeline of new homeowners, UM was prepared to defer some profits and the SEB/MCC was prepared to defer payment of its expense.

[330] Over the span of CUCO/Central 1 and UM’s partnership, CUCO/Central 1 advanced nearly $100 million to UM for approximately 500 homeowner mortgages. Kalair was presenting the successful Shariah compliant finance model at international conferences and was awarding “trophies” to staff at CUCO/Central 1 to acknowledge their mutual achievement.

[331] However, when the credit crisis hit in 2007, CUCO/Central 1 made the unilateral decision not to finance any new mortgages, reneging on its $49 million commitment letter. CUCO/Central 1 also clawed back the profit margin that UM had been earning on existing mortgages to the point where UM was left servicing many mortgages essentially for free. UM made efforts to transfer the mortgage portfolio to alternative financial lenders but this was without success.

[332] Then, in November of 2010, CUCO/Central 1 terminated its relationship with UM. Not only was UM not able to acquire new business, but it could not continue to profit off the business already secured. CUCO/Central 1 unilaterally changed its relationship with UM, which had, up until that point, been governed in accordance with Shariah law principles. CUCO/Central 1’s unilateral business decision to curtail the project mid-stream created a cascade failure that triggered the abrupt end of the Mudarabah. Kalair faced demands for payments from the SEB/MCC, demands for payment from CUCO/Central 1 and demands from homeowners who had an expectation that the financial product they had purchased remain at all times Shariah compliant.

[333] As a result, Kalair utilized funds in the UM account, which consisted of accumulated profits, and a portion of homeowner funds to cover the costs associated with closing out the Mudarabah venture (mainly the SEB/MCC). Kalair understood that the Mudarabah authorized him to use funds in the UM account to cover these expenses. If this generated a shortfall, in accordance with the rules of Islamic finance, that shortfall would be borne by the funding partner in the Mudarabah – CUCO/Central 1.

[334] I agree that even if Kalair was wrong in his interpretation or application of Shariah law, if he held an honest but mistaken belief that he was acting appropriately under the circumstances, he must be found not guilty of counts one through six. Even if Kalair’s understanding of the application of Shariah law was wrong in law, I find that he honestly believed at all times, and had reasonable grounds to believe, that he was acting appropriately under the circumstances. In dealing with the alleged misappropriated funds, Kalair acted with colour of right and he dealt with said funds in a way that was lawfully consistent with that colour of right. He is Chief Potts (the indigenous chief in R. v. Potts[^69] who was acquitted of mischief because he acted on his beliefs, which were founded on his knowledge of his ancestry, kinship, and aboriginal traditions) in a different set of circumstances. I therefore agree that the Crown has failed in its burden to prove the mens rea of the CC offences beyond a reasonable doubt.

CONCLUSION REGARDING BIA COUNTS AGAINST KALAIR

(i) Fraudulent Disposal of UM Property Contrary to s. 198(a) of the BIA

[335] The Crown also alleges that Kalair committed an offence under the BIA for the fraudulent disposal of UM’s property immediately prior to the initial bankruptcy event. Because I have not found Kalair to be guilty of any CC offence, he is also not guilty of this offence as the mens rea has not been proven beyond a reasonable doubt.

(ii) Failure to Perform Duties of a Bankrupt Contrary to s. 198(2) of the BIA

[336] The Crown alleges that Kalair failed to attend before the O.R. as required. The notice, however, was sent only two weeks prior to the scheduled examination which was set up without any consultation with Kalair as to his availability. Kalair then retained counsel, who indicated that Kalair intended to cooperate, suggested that Kalair had already been examined by counsel for the OR, and provided the O.R. with the transcript from that examination. Despite counsel sending this correspondence, Dupont issued a Notice of Failure to Attend. Kalair eventually reached out to Dupont to see if his attendance was required and his examination took place.

[337] The Crown also alleges that Kalair failed to produce and deliver all of the books, records, documents, and property relating to the bankrupt affairs to the O.R. The evidence is clear that many banker boxes of documents were provided by Kalair, laptops were mirrored, and passwords for electronics were provided. Kalair indicated a willingness to either make himself available to attend meetings or to be available by telephone. More boxes of documents were provided.

[338] The Crown further alleges that Kalair failed to disclose all property disposed of