COURT FILE NO.: 3400/17
DATE: 2021 10 19
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
THE REGIONAL MUNICIPALITY OF HALTON
Talia Gordner, for the Plaintiff
Plaintiff
- and -
MOHAMMAD ALIZADEH, ALOISIA MARTIN ALIZADEH, JOÃO (JOHN) MANUEL OLIVEIRA DOS SANTOS, ALLIANCE CONCRETE & INTERLOCK CORPORATION, TOWERVIEW MANAGEMENT INC., ANCASTER CONSTRUCTION CORPORATION, 2236787 ONTARIO INC., 1892451 ONTARIO INC., CHARMS BISTRO CAFÉ INC., JOÃO CASTELHANO, ISABELLE DOS SANTOS, MALJOHN PLASTICS COMPANY LIMITED, MALJOHN COMPANY LIMITED, JASON BLAIR GALBRAITH, TRI-PHASE ENVIRONMENTAL INC., TRI-PHASE CONTRACTING INC./ CONTRACTANT TRI-PHASE INC., CAMILLE K. ATRACHE, MOHUNNAD HUSAMELDIN and ICS SOLUTIONS LTD.
Usman Bhatti, for the Defendants Mohunnad Husameldin and ICS Solutions
Defendants
HEARD: June 28, 2021
REASONS FOR DECISION ON RULE 30.10 MOTION
Daley J.
INTRODUCTION
[1] The plaintiff municipality (“Halton”) moves pursuant to rule 30.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for the production of certain financial records in the possession of non-party financial institutions which are in the name of or connected with the defendants in this action for the period of January 1, 2007 to February 28, 2018.
[2] This action arises from alleged fraudulent conduct on the part of the defendants and others whereby the plaintiff alleges that it was defrauded of approximately $19 million as a result of the manipulation of its procurement processes.
[3] This action is one of several pending actions involving 55 defendants who were allegedly involved in a complex series of fraudulent transactions whereby Halton sustained very significant financial losses. The defendants include now former employees of Halton as well as former approved suppliers and vendors.
[4] The defendants ICS Solutions Ltd. (“ICS”) and its principal Mohunnad Husameldin (“Husameldin”) are the only parties responding to and opposing the plaintiff’s motion for the production of financial records from the third-party financial institutions. These defendants may also be collectively referred to as the ICS Defendants in these reasons.
[5] As discussed below, ICS and its principal take the position that certain financial records in the possession of the TD Bank relating to ICS may be produced covering the specific time frame. Otherwise, ICS and its principal oppose the plaintiff’s motion and, more specifically, the plaintiff’s request for the production of third-party records relating to the defendant ICS’ principal Husameldin.
[6] The third-party financial institutions do not oppose the plaintiff’s motion in respect of any of the defendants, including ICS and its principal.
[7] The plaintiff’s claims against the ICS defendants arise from their alleged financial and personal connections with the defendant Mohammad Alizadeh (“Alizadeh”), his spouse, the defendant Aloisia Martin Alizadeh, and the defendants Towerview Management Inc. and Charms Bistro Café Inc. (“Alizadeh Defendants”).
[8] The defendant Mohammad Alizadeh is a former Halton employee who last held the position of Maintenance Expeditor. He was employed by Halton from May 29, 2000 until the termination of his employment on August 24, 2017. This defendant is the sole director and officer of Towerview Management Inc. and Charms Bistro Café Inc.
[9] ICS is a former approved Halton vendor of various equipment and supplies for use at the municipality’s water and sewer facilities.
[10] The essence of the plaintiff’s claim in this action is that Mohammad Alizadeh, while an employee of Halton, facilitated transactions whereby Halton would purchase products from certain approved vendors at higher prices than the market value for no additional benefit, thereby unlawfully benefiting the approved vendors.
[11] It is further asserted that in exchange for providing the approved vendors with the unlawful benefits, the Alizadeh Defendants in turn were provided with financial and other benefits by the defendant vendors.
[12] On this motion, the plaintiff asserts that it requires the financial records it seeks to have produced as they are relevant to material issues at stake in this action, and further that it would be unfair to make the plaintiff proceed to discovery and trial without production of these financial records.
[13] For the reasons outlined below, I have concluded that the plaintiff has failed to satisfy the requirements of rule 30.10 and as such the motion is dismissed except for the relief sought which went unopposed by the respondents on this motion.
EVIDENTIARY RECORD
[14] In support of its motion the plaintiff filed two affidavits sworn by its forensic accountant Edward Nagel, dated November 12, 2020 and June 11, 2021. The latter affidavit contained more detailed evidence from the deponent specifically relating to the ICS Defendants and their alleged involvement in the fraudulent scheme with the Alizadeh Defendants. This was a reply affidavit in response to the affidavit of the defendant Husameldin dated May 19, 2021.
[15] In Husameldin’s affidavit he offered evidence on his own behalf and as a director of the corporate defendant ICS. He stated that ICS, operating as a sole proprietorship, began doing business with Halton in May or June 2010, and continued up to and including January 2011. He further stated that at no time did he conduct business in his personal capacity with Halton.
[16] ICS, in its capacity as a sole proprietorship, ceased business with Halton in January 2011. Following this, ICS continued to carry on business with Halton in its corporate capacity until February, 2014 at which time it ceased business with the municipality and ceased its operations.
[17] Husameldin further states in his affidavit that when ICS was incorporated, in and around January 2011, a bank account was opened in the corporation’s name. That account shows that the last transaction with the plaintiff was an invoice issued to the plaintiff in January 2014. The bank account was with TD Bank and the plaintiff’s motion record contains reference and details as to this account.
[18] The defendant Husameldin states that at no time did he have any personal financial dealings with the plaintiff.
[19] It is the ICS Defendants position, as outlined in the Husameldin affidavit, that these defendants were agreeable to provide TD Bank statements of the corporate defendant ICS for the period of January 1, 2011 to February 2014, which was the entire timeframe during which the corporate defendant carried on business with the plaintiff.
[20] Although the deponent states that it has been alleged on behalf of the plaintiff that ICS/Husameldin issued invoices to Halton and communicated with Mohammad Alizadeh, no documentary evidence in support of this has been adduced by the plaintiff on its motion.
[21] In the deponent Nagel’s affidavit of June 11, 2021, in reference to ICS as a sole proprietorship, he states that there may have been additional transactions between ICS and Halton that may not have been identified by his investigation, specifically during the period of May 2010 to November 2010, and for that reason it is urged that the third-party banking records be produced. It is notable that evidence with respect to any other transactions between Halton and ICS should be within the possession of Halton.
[22] In the Nagel reply affidavit, further evidence is offered with respect to the incorporation of ICS and the alleged transfer of benefits by the ICS Defendants to the Alizadeh Defendants.
[23] It is common ground in the evidence that there were two specific transactions between Husameldin and ICS, however the parties fundamentally disagree on the nature and significance of these transactions.
[24] The ICS Defendants state by their deponent that a personal cheque was issued by Husameldin to Mohammad Alizadeh in June 2013 in respect of a personal loan unrelated to any business with Halton. There is no evidence that this loan was somehow connected with any business done between ICS and Halton.
[25] The second transaction between ICS and Alizadeh related to a cheque issued in September 2012, payable to the defendant Aloisia Alizadeh, in the sum of $7,500 with a note on the check stating, “Purchase of Honda Generator.” It is the evidence of the ICS Defendants offered by its deponent that this transaction had no connection whatsoever with any business between the ICS Defendants and Halton. Notably, in his affidavit of June 11, 2021, at para. 16 (b), Nagel acknowledges that as of that date he had been unable to substantiate whether or not this cheque was in fact related to the purchase of a generator.
[26] The thrust of the evidence offered by the plaintiff’s forensic accountant, Nagel, is that the banking records in the hands of third-party financial institutions in respect of ICS, as a proprietorship and as a corporation, as well as the personal banking records of the defendant Husameldin, are relevant and necessary and it would be unfair to the plaintiff if it was not provided with those records in advance of examination for discovery and trial. It is urged in the witness’ evidence that these records are required for the purpose of carrying on the forensic accounting investigation, which is ongoing, in order to identify all of the parties involved in fraudulent transactions, and to identify the fraudulent transactions, the amount of money fraudulently taken from the plaintiff, and the status of the funds fraudulently taken.
POSITIONS OF THE PARTIES:
The Plaintiff’s Position:
[27] The plaintiff seeks an order requiring the third-party financial institutions to produce financial records relating to ICS, as a proprietorship and as a corporation, as well as the personal banking records of the defendant Husameldin, on the basis that those records are relevant to a material issue in the action and as it would be unfair for the plaintiff to proceed to trial without having discovery of those documents.
[28] The plaintiff submits that production of these third-party records is necessary, in advance of examinations for discovery, in order to allow for meaningful discovery.
The Defendants’ Position:
[29] The responding defendants oppose the plaintiff’s motion, however even without the court’s adjudication of the plaintiff’s entitlement, the defendants have consented to an order requiring the TD Bank to produce account statements with respect to ICS in both its capacity as a proprietorship and as a corporation, covering the period from June 2010 to February 2014.
[30] The responding defendants oppose all other relief sought by the plaintiff, including an order requiring production of any financial records in the hands of third-party financial institutions relating to the defendant Husameldin.
[31] The defendants oppose such an order as they submit that the plaintiff has failed to satisfy the two-pronged onus required by rule 30.10.
LEGAL FRAMEWORK
[32] The plaintiff’s motion for the production of documents from the non-party financial institutions is brought pursuant to rule 30.10 (1) of the Rules of Civil Procedure which provides as follows:
30.10 (1) The court may, on motion by a party, order production for inspection of a document that is in the possession, control or power of a person not a party and is not privileged where the court is satisfied that,
(a) the document is relevant to a material issue in the action; and
(b) it would be unfair to require the moving party to proceed to trial without having discovery of the document.
[33] This rule requires that the moving party satisfy both branches of the rule.
[34] As to the examination of the first branch of the rule, which requires the moving party to demonstrate that the document is relevant to a material issue, reference to the pleadings is necessary.
[35] Relevance exists as a relationship between an item of evidence and the proposition sought to be established. It does not exist in the abstract: Zimmerman v. McNaull, 2021 ONSC 3436, 155 O.R. (3d) 680, at para. 59.
[36] A piece of evidence is relevant to a proposition in issue if, as a matter of common sense and human experience, the evidence makes the proposition slightly more or less probable than it would be without the evidence: R. v. Luciano, 2011 ONCA 89, 273 O.A.C. 273, at para. 204.
[37] It has long been held that when production of documents is sought and they are in the hands of a non-party, the test for relevance is higher than in the discovery context: Walker v. Doxtator, 2018 ONSC 2112, at para. 12.
[38] As to materiality, an issue material to the action is one which, if determined in favour of the party, would influence the court toward finding in favour of such party in the action: Ontario (Attorney General) v. Ballard Estate et al, [1995] O.J. 1854 (Gen. Div.), at para. 11.
[39] The evidentiary burden resting on a party seeking an interim preservation order pursuant to rule 45.01 is significantly lower than the evidentiary burden resting on a party seeking production from a non-party pursuant to rule 30.10 (1).
[40] Orders providing for the disclosure and production of records in the hands of third parties pursuant to rule 30.10 are exceptional remedies in the context of civil litigation and such orders are not routinely granted and require a robust review of the considerations called for under that rule.
[41] The second branch of rule 30.10 (1) requires the moving party to demonstrate that it would be unfair to proceed to trial without production of the records in question. In Ontario (Attorney General) v. Ballard, 1995 CanLII 3509 (ON CA), 129 D.L.R. (4th) 52 (“Ballard”), the Court of Appeal set out six factors to be considered by the court in determining whether the second part of the test under the rule has been satisfied. The factors are as follows:
(a) the importance of the documents in the litigation;
(b) whether production at the discovery stage of the process as opposed to production at trial is necessary to avoid unfairness to the moving party;
(c) whether the discovery of the defendants with respect to the issues to which the documents are relevant is adequate and if not, whether responsibility for that inadequacy rests with the defendants;
(d) the position of the nonparties with respect to production;
(e) the availability of the documents or their informational equivalent from some other source which is accessible to the moving parties;
(f) the relationship of the non-parties from whom production is sought to the litigation and the parties to the litigation. Non-parties who have an interest in the subject matter of the litigation and whose interests are allied with the party opposing production should be more susceptible to a production order then a true “stranger” to the litigation: Ballard, at p. 56-57.
ANALYSIS
[42] On considering the amended statement of claim in this action, for the purpose of identifying the nature of the claims being asserted against the responding defendants, it is notable that the pleading is framed as primarily asserting a variety of causes of action against the Alizadeh Defendants as acting in association with the other named defendants, including the ICS Defendants. There are very few particulars as to the relationship between the ICS Defendants and the Alizadeh Defendants in terms of their participation in the civil and criminal conduct as alleged.
[43] The essence of the claim is that all of the defendants acted in combination with the Alizadeh Defendants through a series of fraudulent schemes, not necessarily interconnected, and through acts of fraud, breach of fiduciary duties, misuse of confidential information, interference with economic interests, and civil conspiracy that harmed the economic interests of the plaintiff.
[44] The affidavit evidence submitted by the plaintiff’s forensic accountant, Nagel, indicates that the third-party financial records are necessary for the continued and ongoing forensic accounting investigation. The deponent states that the financial records that have been obtained through the investigation thus far are limited to documents in the plaintiff’s possession as well as documents voluntarily produced by some of the defendants in the context of the litigation.
[45] It is submitted on behalf of the plaintiff that the third-party records that are sought will assist in establishing the extent of the fraudulent schemes, the extent of the improper payments or benefits that the Alizadeh Defendants have received directly or indirectly, and the extent of the parties and transactions involved in the fraudulent schemes.
[46] Given the limited pre-discovery production received to date, the plaintiff’s accountant has not been able to fully assess the extent of the plaintiff’s losses.
[47] Unlike defendants in the other related actions brought by the plaintiff, none of the defendants involved in this motion have been convicted of any criminal offences arising from their relationships with the plaintiff.
[48] The affidavit evidence submitted in response to the plaintiff’s motion was not cross-examined on, and in large part it has not been contradicted by any evidence adduced on behalf of the plaintiff.
[49] The defendants, in responding to this motion, do not oppose the third-party TD bank producing certain bank statements relating to ICS, both in its sole proprietorship and corporate capacities, but only limited to the timeframe between 2010 and 2014. It is stated on behalf of the defendants that this was the time during which the defendants were vendors approved by the plaintiff.
[50] As to the defendant Husameldin, in his personal capacity, there is no evidence that indicates he had any direct personal connection with the plaintiff and the only evidence that he or ICS had any financial interaction with the Alizadeh Defendants related to the personal loan and the purchase of the Honda generator as referenced above. The uncontradicted evidence is that those transactions had no connection whatsoever with the plaintiff or the Alizadeh Defendants’ financial interactions with the plaintiff.
[51] Having regard to the first branch of rule 30.10 (1), namely whether the documents sought are relevant to a material issue in the action, as the statement of claim is lacking in specificity with respect to the alleged criminal and civil breaches committed by the responding defendants, on a balance of probabilities I cannot conclude that the financial records in the hands of the third-party financial institutions are relevant to a material issue at stake in the action as articulated in the amended statement of claim.
[52] I reach this conclusion in spite of the responding defendants’ preemptive agreement to provide their consent to the release of certain records in the possession of the TD bank.
[53] Furthermore, recognizing the higher threshold of materiality required when considering a motion for production from third-parties, I cannot conclude that the records sought, based on the allegations made in the pleading, and the evidence adduced by the plaintiff on this motion, would ultimately be determinative of a finding at trial favourable to the plaintiff. Thus, I conclude that the plaintiff has failed to satisfy of the first branch of rule 30.10 (1).
[54] For the completeness of my review of the plaintiff’s motion I will go on to consider the second branch of rule 30.10 (1) within the terms of the six Ballard considerations:
[55] Importance of the documents – considering the nature of the documents generally with respect to both the corporate and personal defendant, having examined the allegations contained in the statement of claim, I cannot conclude at this stage that the documents sought are important to the litigation.
[56] Whether the Production of Documents Pre-Discovery Is Necessary – given my conclusions with respect to the relevance of the documentation sought, I cannot conclude that any unfairness would accrue to the plaintiff if the documents sought were not made available to it prior to examinations for discovery.
[57] Whether Examination for Discovery of the Defendants without Prior Production of the Documents Sought Is Adequate – considering the allegations in the statement of claim and the evidence adduced, I cannot conclude that discovery of the defendants at this stage without production of the documents sought would be inadequate and as such this conclusion favours the respondents’ position on this motion
[58] Positions of the Responding Third-Party Financial Institutions – none of the third parties opposed the plaintiff’s motion, thus this is a neutral consideration.
[59] Availability of the Documents Sought or Their Informational Equivalents from Other Sources – there is evidence that the plaintiff’s own records provide some insight into the history of the financial relationship between the ICS Defendants and the plaintiff. This consideration therefore to some degree favours the responding defendants on the motion.
[60] Relationship of Third Parties to the Parties in the Litigation – the third-party financial institutions are all distant from the subject matter of this litigation. Thus, this consideration favours the respondents on this motion.
[61] On the whole, the consideration of the Ballard factors does not favour the plaintiff on its motion.
CONCLUSION
[62] In the result, the plaintiff’s motion under rule 30.10 (1), whereby it seeks production of the defendant Husameldin’s personal banking records, is dismissed as there is no evidentiary foundation in support of that request.
[63] As already noted, while I have concluded that the plaintiff is not entitled to the production of financial records from the third-party financial institutions, as the ICS Defendants have agreed to an order whereby the TD Bank would produce to the plaintiff bank statements with respect to ICS, as a proprietorship and in its corporate capacity, for the timeframe from June 2010 through to and including February 2014, an order shall issue accordingly in these terms.
[64] As to costs, in the event the parties cannot resolve this issue, counsel for the plaintiff shall deliver costs submissions of no longer than two pages, plus a costs outline, within 20 days from the release of these reasons, followed by similar submissions on behalf of the defendants within 20 days thereafter. No reply submissions are to be filed without leave.
Daley J.
Released: October 19, 2021
COURT FILE NO.: 3400/17
DATE: 2021 10 19
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
REGIONAL MUNICIPALITY OF HALTON
- and -
MOHAMMAD ALIZADEH, ALOISIA MARTIN ALIZADEH, JOÃO (JOHN) MANUEL OLIVEIRA DOS SANTOS, ALLIANCE CONCRETE & INTERLOCK CORPORATION, TOWERVIEW MANAGEMENT INC., ANCASTER CONSTRUCTION CORPORATION, 2236787 ONTARIO INC., 1892451 ONTARIO INC., CHARMS BISTRO CAFÉ INC., JOÃO CASTELHANO, ISABELLE DOS SANTOS, MALJOHN PLASTICS COMPANY LIMITED, MALJOHN COMPANY LIMITED, JASON BLAIR GALBRAITH, TRI-PHASE ENVIRONMENTAL INC., TRI-PHASE CONTRACTING INC./ CONTRACTANT TRI-PHASE INC., CAMILLE K. ATRACHE, MOHUNNAD HUSAMELDIN and ICS SOLUTIONS LTD.
REASONS FOR DECISION ON RULE 30.10 MOTION
Daley J.
Released: October 19, 2021