Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
IN THE MATTER OF THE ESTATE OF DONALD HARRY BUNKER, deceased
RE: Kenneth Bunker and Christy O’Connell as Executors of the Estate of Donald Harry Bunker, Applicants
AND:
Ian and Christine Veall, Attorney General of Canada and Attorney General of Ontario, Respondents
BEFORE: C. Gilmore, J.
COUNSEL: Aaron Kreaden and Hamza Mohamadhossen, Counsel for the Applicants
Young Park, Counsel for the Respondents Ian and Christine Veall
HEARD: October 7, 2022
ENDORSEMENT on Application
INTRODUCTION
1The Applicants seek declaratory relief from the Court on whether a payment made by the within Estate in connection with a Dubai judgment would be contrary to Canadian law. If the payment is determined to be lawful, they seek an Order authorizing the executors of the Estate to pay an amount sufficient in Canadian currency to purchase USD $618,521.68.
2The Applicants’ position is that the second issue before the Court is articulated in Justice Kimmel’s endorsement dated March 3, 2022, wherein she specifically states that “the implications of the forum selection clause will be adjudicated at the scheduled hearing, under the reservation of rights agreed to as outlined in Schedule A.”
3The Respondents deny that any such payment would be in violation of section 83.03(b) of the Criminal Code. Further, the Respondents do not agree that, if lawful, the amount proposed to be paid by the Applicants is sufficient to satisfy the Estate’s obligations under the judgment.
4In addition, the Respondents disagree that the implications of the forum selection clause are to be adjudicated at this hearing. They refer specifically to the reservation of rights attached as Schedule A to Justice Kimmel’s judgment in which the only condition under which the Respondents attorned to the jurisdiction of the Ontario Superior Court is whether payment under Dubai judgment is legal under Canadian law. They specifically reserved their rights to contest the jurisdiction of this Court with respect to “the quantum, extent and basis of the Estate’s liability in connection with the United Arab Emirates (“UAE”) judgment or the validity of any agreement that the Applicants allege was reached with the Respondents regarding such liability.” The Respondents’ position is that the issue of jurisdiction must be adjourned to a separate hearing.
5The Applicants point out that the reservation of rights specifically does not prejudice their right to advance any contrary position at the return of the Application.
6The Attorney Generals of Canada and Ontario are named Respondents and were given notice of this proceeding. However, both have indicated that they do not intend to participate in this proceeding, nor did they file any materials.
7As will be set out below, the Court has determined that only the issue of the legality of the subject payment will be determined at this hearing as per the agreed upon reservation of rights as between the parties. Further, for the reasons set out below, this Court has determined that any payment by the Estate under the Dubai judgment is unlawful and contrary to the Criminal Code.
BACKGROUND FACTS
The Firm
8The Applicants are the co-executors of the Estate of their father Donald Harry Bunker (“the Estate”). Dr. Bunker was a lawyer and the founder of Donald Harry Bunker Legal Consultants (“the Firm”) in Dubai, UAE. The Applicant Kenneth Donald Bunker resides in Quebec. The Applicant Christy O’Donnell resides in Ontario. All funds belonging to the Estate are held in a Scotiabank account in Toronto, Ontario.
9The Respondents practiced aviation law with Dr. Bunker in Dubai from April 2008 until Dr. Bunker’s death in January 2018. The Firm was founded by Dr. Bunker in 1994 and was the only aviation law firm in the Arabian Gulf. The Firm specialized in international aerospace legal consultancy which included the purchase, leasing, selling and financing of aircraft. The Respondents continue to operate the Firm in Dubai.
10The Respondents are spouses and non-resident Canadians who reside in Dubai. They continue to carry on the business of the Firm.
11Dr. Bunker and the Respondents entered into a Civil Partnership Agreement (“the CPA”) on July 16, 2009. The CPA set out that Dr. Bunker owned 52% of the partnership and the Respondents each owned 24%.
12The CPA is governed by Dubai law and contains the following relevant provisions:
(a) All profits and losses shall be divided between and allocated among the partners in proportion to their respective shares in the capital of the partnership (Art. 8);
(b) The partnership shall be dissolved upon the death of any of the partners unless the surviving partners agree to continue the partnership with the heirs of the deceased partner (Art. 9);
(c) Any amendments or change to the CPA must be made in writing and signed by all partners (Art. 12(1)); and
(d) Any dispute between the partners relating to the CPA must be arbitrated in Dubai before a sole arbitrator nominated by the Committee of the Dubai Chamber of Commerce and Industry Rules of Conciliation and Arbitration (Art. 12(2)).
13In 2015 Dr. Bunker began to wind down his practice and in November 2015 reduced his shareholding interest in the Firm from 52% to 10%. In late 2017 Dr. Bunker transferred his remaining 10% interest in the Firm to the Respondents equally.
14Dr. Bunker left a Will naming three executors. The third executor has resigned, and the remaining two executors (Dr. Bunker’s children) obtained a Probate Letter from the Supreme Court of British Columbia on September 4, 2019 which authorizes them to administer the Estate.
The Firm’s Dealings with Sorinet
15In March 2011 the Firm was retained by Sorinet Aviation Ltd. (“Sorinet BVI”) to purchase aircraft for travel demands in Iran. The majority shareholder and principal of Sorinet BVI, Babak Zanjani (“Zanjani”) was the instructing client. Zanjani owns 99% of Sorinet BVI’s shares.
16Escrow funds for the transaction were provided by Sorinet General Trading LLC (“Sorinet Dubai”) and Sorinet BVI (“the Sorinet Entities”). Zanjani is an Iranian national. He is also the minority shareholder and manager of Sorinet Dubai.
17The Firm advised Zanjani that any purchase transaction had to comply with international sanctions against Iran, or the Firm could not act. The client agreed. In August 2011 Sorinet BVI reneged on this agreement when Zanjani admitted that he intended to seize any aircraft purchased by the Firm upon entry into Iran and that the aircraft would be operated by Iranian entities and Iranian nationals, all of which was contrary to international sanctions.
18The Firm terminated the retainer and returned USD $43,699,00 to the client. The Firm retained USD $5,300,00 in damages by way of an agreement with client and USD $1M as an indemnity for one year in the event that Sorinet BVI made any derogatory statements about the Firm (“the Indemnity Amount”). The client did not agree to the retention of the Indemnity Amount for more than one year.
19Dr. Bunker took the position that the Indemnity Amount was forfeited in August 2012 after the Sorinet Entities made a criminal complaint against him in January 2012. The criminal charges were withdrawn in March 2012. The Sorinet Entities were advised of the default in November 2012 and the Indemnity Amount was forfeited to the Firm in November 2013.
20From May 2013 to February 2016 Zanjani was on the Canadian Special Economic Measures sanctions list. Zanjani and a related Sorinet entity were placed on the EU sanctions list from December 2012 to January 2016 and on the US sanctions list from April 2013 to January 2016. The U.S. Treasury Department noted at that time that Zanjani used a network of front companies to move billions of dollars on behalf of the Iranian regime in an attempt to evade sanctions. As of February 2016, Zanjani and Sorinet are not identified by Public Safety Canada as “currently listed entities.”
21In 2013 Sorinet BVI was struck off the Registry of Companies in BVI for failure to pay government fees. Sorinet BVI is subject to a Liquidation Order of the High Court of Justice of the Virgin Islands. Kalo BVI Limited is the court-appointed Liquidator.
22In 2013 Sorinet Dubai’s commercial licence was cancelled and it was removed from the Commercial Register of Companies in Dubai.
The Dubai Proceedings
23On November 6, 2018 the Sorinet Entities with Zanjani identified as their manager commenced civil proceedings relating to the forfeiture of the Indemnity Amount (“the Dubai Proceedings”). The Firm, Dr. Bunker (and later his heirs) and the Respondents were named as Defendants. Sorinet was represented by the Kabban firm.
24After the Dubai Proceedings were commenced, the Applicants and the Respondents began discussions about a defence. The parties agreed to retain a Dubai-based firm, namely Al-Dabashi Gray (“ADG”) and shared the cost of legal fees for the defence. The Applicants’ position is that the parties further agreed to share the cost of any judgment rendered against the Firm. The Respondents deny any such agreement was reached.
25On January 26, 2020 the Dubai Court of First Instance issued a judgment against the Firm for unlawfully retaining the Indemnity Amount. The amount of the judgment was USD $1M plus 9% interest per annum from the date the claim was filed. The claims against the Estate, the beneficiaries and the Respondents personally were dismissed.
26The judgment of the Dubai Court of First Instance was upheld on appeal by the Dubai Court of Appeal and subsequently on November 5, 2020 by the Dubai Court of Cassation.
27In January 2021 the Applicants began to prepare to pay what they acknowledged was their 50% share of the judgment. However, before doing so they sought information in relation to sanctions against Zanjani and sought legal advice about the implications of making a payment to the Sorinet Entities. In February 2021 ADG confirmed that the Estate’s share of the judgment would be USD $618,521.68.
28Given the Applicants’ fiduciary duties as Executors and given Ms. O’Donnell’s executive position at the bank where the Estate funds were held, the Executors sought independent legal advice that any payment to the Sorinet Entities would be lawful. Such advice was sought from Mr. Shawn Neylan, a partner at Stikeman Elliott LLP whose practice focuses on sanctions and financial criminal violations.
29Through the advice given by Mr. Neylan, the Estate learned that Zanjani and the Sorinet Entities were no longer subject to sanctions but that making a payment to the Sorinet Entities might still be contrary to Canadian law. Specifically, the Applicants were concerned when they learned that Sorinet and Zanjani were affiliated with the Islamic Revolutionary Guards Corp (“IRGC”) and had used Sorinet to raise funds for the IRGC. The IRGC is a terrorist entity.
30The Applicants were equally concerned when they learned that Zanjani was imprisoned in Tehran for failing to repay $2.7 billion which he skimmed from Iranian authorities and the IRGC. In short, the Applicants were concerned that any payment they made to the Sorinet Entities may indirectly benefit the IRGC and was therefore contrary to Canadian law and specifically section 83.03(b) of the Criminal Code. Zanjani was arrested in 2013 and convicted for embezzlement in March 2016. He remains in prison awaiting a death sentence.
31The Respondents disagreed with the Applicants’ position with respect to the legality of the payment. The Respondents viewed the Applicants’ position as a tactic to avoid payment and threatened to commence proceedings against the Estate for the full amount of the Dubai judgment. The Respondents have submitted their own expert opinions from lawyers in the BVI and UAE who have concluded that there is no risk that a payment by the Estate would directly or indirectly benefit a terrorist group.
32Further, because Sorinet Dubai has been de-registered, any payment in relation to the judgment would be made by the Dubai Court to Sorinet’s counsel’s trust account. Both Sorinet’s counsel and UAE banks are subject to strict Anti-Money Laundering (“AML”) laws with respect to the financing of terrorism. Failure to comply with UAE AML law would result in significant fines, arrest or revocation of licences.
33In response to the Respondents’ concerns the Applicants commenced the within Application. Further, pursuant to an Interpleader Order dated September 6, 2022, the Applicants have paid into Court the sum of $784,594.75 from the Estate’s bank account. The Interpleader Order further states that if the payment is determined to be lawful, the funds paid into Court shall be paid to the Respondents within 30 days of such declaration.
34It is not denied by the Applicants that the failure to pay the Dubai judgment has resulted in hardship to the Respondents. This includes arrest warrants, freezing of the Firm’s bank accounts, attempts to attach the Vealls’ personal assets, litigation against the Firm and the partners personally, suspension of the Firm’s licence, professional misconduct proceedings before the Dubai Legal Affairs Department and travel bans issued against Ian Veall which resulted in him being unable to visit his ailing parents in Canada or attend his mother’s memorial service.
35In a letter dated May 3, 2021, Mr. Ian Veall states that the Executors are “avoiding their obligations” and that the Firm intends to commence legal proceedings against the Executors to procure payment for losses attributable to the Dubai judgment.
The Issues
Issue #1 – What Issues are Before the Court on this Application?
36The Applicants rely on Justice Kimmel’s March 3, 2022 endorsement as “modifying” this hearing to include not only the legality of any payment by the Applicants toward the judgment but also the “implications of the forum selection clause in the CPA subject to the reservation of rights attached as Schedule A to the endorsement.”
37The reservation of rights limits the Respondents’ attornment to this Court solely on the issue of whether any payment towards the Dubai judgment by the Executors of the Estate is legal under Canadian laws. The reservation of rights is specific in that it excludes attornment on the issue of the Estate’s liability in relation to the Dubai judgment or the validity of any alleged agreement reached by the parties. They preserved their rights to protest the jurisdiction of this Court over the abovementioned issues.
38While the Applicants also reserved their rights to advance any contrary positions at the return of the Application, the Respondents submit they were “ambushed” in that the Applicants have not pleaded any relief in relation to the validity of the alleged 50/50 Agreement. They are using Justice Kimmel’s endorsement to in fact amend their Application without a formal amendment. Further, the Respondents drafted their material and elected not to cross-examine on the basis of the reservation of rights and their understanding that they had only attorned to the issue of the legality of the subject payment.
39The Respondents submit that the jurisdiction simpliciter issue must be adjourned to another day so that they may present a full record to the Court on this issue.
40The Applicants submit that Justice Kimmel’s endorsement is very specific that the issue of whether the forum selection clause in the CPA outs this Court from determining quantum is before the Court. If the Court has jurisdiction, the issue of quantum will be determined on another date.
41I agree with the Respondents on this point. The Kimmel endorsement is unintentionally contradictory in that it specifies what is to be heard on this Application but limits it to the reservation of rights. The Respondents agreed to attorn to this Court’s jurisdiction only on the issue of the legality of the payment. The Applicants are not able to add more and effectively amend their Application in reliance on Justice Kimmel’s endorsement.
42The issue of jurisdiction simpliciter and the implications of whether the alleged 50/50 agreement is valid are issues of significant importance. The Respondents must be permitted to present a full and proper record to the Court on those issues including cross-examination transcripts if they so elect. I do not accept that the last paragraph of the reservation of rights which simply sets out that the Applicants may advance any contrary positions at the hearing of the Application is sufficient to put the Respondents on notice as to what was coming.
43In summary, these reasons will deal solely with the issue of the legality of any payment by the Estate towards the Dubai judgment. The issue of jurisdiction and the forum selection clause shall be scheduled for a separate hearing. While the Court accepts the Respondents’ position on this issue, it will unfortunately result in more delay for the Respondents.
Issue #2 – The Legality of any Payment towards the Dubai Judgment
The Positions of the Parties
A. The Applicants
44The Applicants contend that any payment by the Estate towards the Dubai judgment would violate section 83.03(b) of the Canadian Criminal Code (“the Code”). That section provides as follows:
Every person is guilty of an indictable offence and liable to imprisonment for a term of not more than 10 years, who directly or indirectly…provides or…makes available property or financial or related services…(b) knowing that, in whole or part, they will be used by or will benefit a terrorist group.
45Under section 83.01(1) of the Code, a “terrorist group” is defined as a listed entity or an entity that has as one of its purposes or activities facilitating or carrying out any terrorist activity. The definition includes an association of such entities. “Terrorist activity” is defined as i) acts or omissions constituting offences under various international conventions or agreements; or ii) acts committed for political, religious or ideological purpose, objective or cause with the intention of intimidating the public that intentionally causes death or serious bodily harm to a person.
46Facilitation of terrorist activity is defined in section 83.19 (2) as follows:
Facilitation
(2) For the purposes of this Part, a terrorist activity is facilitated whether or not
(a) the facilitator knows that a particular terrorist activity is facilitated;
(b) any particular terrorist activity was foreseen or planned at the time it was facilitated; or
(c) any terrorist activity was actually carried out.
47The Islamic Revolutionary Guard Corps’ Qods Force is a listed entity on the Public Safety Canada website. This entity was listed on April 2, 2003 and remains listed. It is described on the website as follows:
The Islamic Revolutionary Guard Corps' Qods Force is the clandestine branch of Iran's Islamic Revolutionary Guard Corps (IRGC) responsible for extraterritorial operations, and for exporting the Iranian Revolution through activities such as facilitating terrorist operations. The Islamic Revolutionary Guard Corps' Qods Force provides arms, funding and paramilitary training to extremist groups, including the Taliban, Lebanese Hizballah, Hamas, Palestinian Islamic Jihad (PIJ) and the Popular Front for the Liberation of Palestine-General Command (PFLP-GC).
48The Applicants submit, therefore, that the IRGC is an associated entity of the Islamic Revolutionary Guard Corps’ Qods Force and is therefore a listed entity.
49The Applicants also submit that the Sorinet entities also meet the definition of a terrorist group because they have acted as a front for the IRGC and therefore facilitated IRGC in their terrorist activities.
50The Applicants rely on Zarei v. Iran, 2021 ONSC 3377, 67 CPC (8th) 44, a case in which this Court found that the IRGC engaged in terrorist activity under the Code when it intentionally shot down an aircraft on January 8, 2020 and killed 176 people. Specifically, Justice Belobaba found that the shooting down of Flight 752 by the Defendants (which included the IRGC) was an act of terrorism and constituted terrorist activity as defined by the Code.
51In making the connection between Sorinet and terrorist activities, the Applicants rely on several documents. First, the Applicants acknowledge that sanctions against Zanjani personally ceased in 2016. However, a World Check Profile Report on Zanjani shows that during the time he was on the sanctions list he provided essential services to the IRGC by enabling transfers of funds to Khatam-al-Anbiya, an IRGC owned company subject to EU and UN sanctions. The Applicants submit that it is clear that Zanjani was assisting in raising funds for the IRGC as the directing mind of the Sorinet entities.
52A Turkish daily newspaper published an article entitled “Who’s Afraid of Babak Zanjani” in January 2014. That article describes Zanjani as a “billionaire Iranian business tycoon and sanction buster…” With respect to his links to the IRGC, the author wrote:
That is hardly surprising, given his [Zanjani’s] links to Iran's Revolutionary Guards. When the United States and the European Union sanctioned the Iranian energy sector as a means to deter Iran's illicit nuclear program, Zanjani reportedly acted on behalf of the former oil minister and IRGC commander, Rostam Qasemi, to elude the embargo through various financial schemes. Zanjani is also reportedly close to Hamid Fallah Heravi, a former member of Iran's security services and vice chairman at Sorinet's Qeshm Development Holding. Heravi also sat on the board of a subsidiary of U.S.- sanctioned Ghadir Investment, an investment company controlled by U.S.- sanctioned Bank Saderat and various holding companies owned by Iran's military, including the IRGC.
53A Reuters article published in August 2013 discussed Zanjani’s ties to the President of Tajikstan, Imomali Rahmon as follows:
Beyond Tajikistan, Zanjani's business interests are sprawling. On its website, the Dubai-based Sorinet Group, which describes Zanjani as its chairman, lists at least two dozen companies engaging in construction, cosmetics, hospitality, transport, and oil and gas extraction. The site also lists the Asia Express Terminal in Dushanbe as one of its subsidiaries. A photo on the site shows Zanjani with Rahmon and Dushanbe mayor Mahmadsaid Ubaydulloyev admiring a model of the terminal.
It appears that Rahmon has embraced the head of a group of companies and financial institutions the US Treasury Department says "have been used by the Iranian government to finance its sales of oil around the world." In April, the Treasury Department targeted Zanjani and a Malaysian bank under his control, along with "an international network of front companies" including Sorinet Commercial Trust. US officials believe the Zanjani-connected entities are "moving billions of dollars on behalf of the Iranian regime, including tens of millions of dollars to an Islamic Revolutionary Guards Corps (IRGC) company." The Treasury Department is also targeting his Kont Investment Bank, based at 43 Bukhara Street in Dushanbe. Last December the European Union sanctioned Zanjani for being "a key facilitator for Iranian oil deals and transferring oil-related money. Zanjani owns and operates the UAE-based Sorinet Group, and some of its companies are used by Zanjani to channel oil-related payments."
54Based on the information above, the Applicants are concerned that any payment in relation to the Dubai judgment would be caught by section 83.03 of the Code in relation to the Financing of Terrorism as follows:
Providing, making available, etc., property or services for terrorist purposes
83.03 Every person is guilty of an indictable offence and liable to imprisonment for a term of not more than 10 years who, directly or indirectly, collects property or invites a person to provide, or makes available property or financial or other related services
(a) intending that they be used, or knowing that they will be used, in whole or in part, for the purpose of facilitating or carrying out any terrorist activity, or for the purpose of benefiting any person who is facilitating or carrying out such an activity,
(b) knowing that, in whole or part, they will be used by or will benefit a terrorist group.
55The Applicants argue that the Dubai judgment was obtained by a terrorist group. Any payment to the Sorinet Entities will either directly benefit those Entities or indirectly benefit the IRGC.
56The Applicants concede that Zanjani is awaiting his death sentence in a jail in Tehran. However, he is still the directing mind of the Sorinet Entities and listed as the “manager” of Sorinet on the Dubai judgment. Zanjani owes money to terrorists, namely the IRGC. The Applicants simply cannot take the risk that funds paid to satisfy the Dubai judgment would not be used to repay IRGC debts or fund terrorist activities.
57The Applicants deny that they are not willing to make a payment towards the Dubai judgment. Rather, their position is that such a payment would be an offence as a matter of Canadian law.
58The Respondents have offered to make declarations that any payment received by the Firm would not be applied to the Dubai judgment. The Applicants do not view this as a solution given the wording of section 83.03 with respect to indirect payments.
B. The Respondents
59The Respondents submit that the Applicants are using the provisions of the Code as a means not to pay the Dubai judgment. Both Sorinet BVI and Sorinet Dubai have been struck from their respective registries since 2013. Sorinet BVI is in liquidation. None of Zanjani, Sorinet BVI or Sorinet Dubai have ever been listed as terrorist entities.
60The Respondents submit that the uncontested conclusions of the Respondents’ experts are that there is no practical risk that a payment made into the Dubai Court or to Sorinet BVI would reach Zanjani or benefit any terrorist group. Further, the Dubai judgment has been upheld twice by Courts of Appeal in Dubai. The Respondents characterize the Applicants’ position as “tenuous at best.”
61The Respondents submit that the Applicants are reading section 83.03 too narrowly. In R. v. Khawaja, 2012 SCC 69, [2012] 3 SCR 555 and dealing with an appeal under that section the Court stated at para 25 that terrorist activity must be accompanied by the requisite mental state in order to constitute an offence under the Code. That is, the act or omission must be done with the intent to cause one of the enumerated consequences and the relevant section is not intended to “punish individuals for innocent, socially useful or casual acts which, absent any intent, indirectly contributes to a terrorist activity”: at para. 44.
62Further, the definition of terrorist group in section 83.01 is in the present tense and therefore denotes forward looking or ongoing actions with respect to terrorist entities. As neither Sorinet nor Zanjani are listed entities, the sole question for consideration by the Court is whether payment would be made knowing it will be used by or will benefit a terrorist group.
63As neither Zanjani nor Sorinet are terrorist entities, they cannot have any present “purposes” or “activities” that relate to terrorism. Sorinet BVI is under liquidation and de-registered since 2013. Sorinet BVI has been de-registered since 2013. Zanjani has been in jail since December 2013. Therefore, Sorinet has not had any legal capacity to engage in activities for 9 years and there is no evidence that Zanjani as the directing mind of those entities has been able to perform any form of directing from jail. Even if Zanjani facilitated terrorist activities in the past, there is no evidence that past conduct would trigger the relevant provisions of the Code especially given their meaning in the present tense.
64The Applicants have not provided any evidence that a payment towards the judgment might reach the IRGC. The opinion of both of the Respondents’ experts is that AML laws in BVI and the UAE would eliminate any practical risk of that happening. Reaching any other conclusion would be engaging in pure speculation. The Applicants’ reliance on newspaper articles with respect to any relationship between Zanjani, Sorinet and the IRGC is misplaced and consists of untested hearsay. The Court should not rely on such evidence.
65Even in their factum the Applicants use phrasing such as “it also appears that Zanjani owes a significant sum to the IRGC” and the “judgment debt…appears to be to Zanjani’s benefit.” The Applicants cannot make definitive statements because there is no evidence to base such statements.
66Therefore, the Applicants are unable to establish that payment by the Estate would be made knowing that it would be used in whole or in part to benefit a terrorist group.
67There are assurances in place regarding the distribution of any payment which must satisfy the Court’s concerns. First, payment would be made to a Dubai bank which is subject to strict AML laws. Next, Sorinet’s lawyers would apply to have the funds paid out to them. Kabban is also subject to strict AML laws. Those laws include compliance requirements, reporting and significant fines, arrest or licence revocation for offending parties. The Applicants concern that Kabban may not act in accordance with those laws is alarming to say the least.
The Expert Reports
68The Respondents provided an expert report from Mr. Christopher McKenzie, a solicitor practicing in the British Virgin Islands since 1990. Mr. McKenzie specializes in insolvency, corporate, trust and fund services. Mr. McKenzie provided a report dated May 10, 2022 with respect to Sorinet BVI as well as an Expert’s Undertaking as required by the Rules. No one contested Mr. McKenzie’s qualifications to provide such a report nor was he cross-examined on the report.
69Mr. McKenzie confirmed that Sorinet BVI is in insolvent liquidation and may not lawfully operate as a going concern in the BVI. Mr. McKenzie’s report provides that in the event a payment in relation to the judgment is made to Sorinet BVI it would be used to pay off any costs, expenses and claims against Sorinet BVI. If there are surplus funds remaining, those funds would be distributed to the “members” of Sorinet BVI.
70Mr. McKenzie further opines that there is no possibility any payment made to Sorinet BVI could be used by it to engage in terrorist activity. This is because any surplus paid to the members of Sorinet BVI must be made in accordance with BVI law. As the Liquidator must ensure compliance with those laws, the Liquidator may apply to the Court for directions if there is any doubt.
71Mr. McKenzie’s report sets out that there is very little risk that any payment to Sorinet BVI would eventually be paid to Zanjani for the benefit of any person or entity carrying out terrorist activities. The Liquidator and the BVI banks would be precluded from making any payment to Zanjani if international financial sanctions have been applied to him or any legal entities belonging to or associated with him. As the Liquidator has been put on notice of Zanjani’s history, there would be very little discretion afforded either the Liquidator or a BVI bank with respect to a payment to Zanjani.
72The Respondents provided a further expert’s report from Mr. Hamdan Al Shamsi dated May 31, 2022. Mr. Al Shamsi is the senior partner of Hamdan Al Shamsi Lawyers & Legal Consultants with 14 years of experience practicing before the Dubai Courts dealing with UAE Federal Laws. Mr. Al Shamsi’s qualifications were not contested and he was not cross-examined. Mr. Al Shamsi signed an Acknowledgement of Expert’s Duty as required by the Rules.
73Mr. Al Shamsi was asked how payment under the judgment would be distributed given the current status of Sorinet Dubai in that its commercial licence has been cancelled and its registration erased from the Dubai Commercial Registry.
74Mr. Al Shamsi reported that given Sorinet Dubai’s current status it would need to be liquidated. In the interim, company management will continue to manage the company until a liquidator is appointed. If no creditor or shareholder comes forward, it is often the case that the company remains dormant without any liquidation order being made.
75If payment is made under the Dubai judgment, it would have to be made first into the Dubai Court’s account. The party enforcing the judgment would then be entitled to apply to have the monies paid out. Funds would then be transferred to the Sorinet Dubai bank account if such an account still exists. If not, payment would be made to Sorinet Dubai’s lawyers, Kabban. Kabban would be required to comply with the required AML laws. Ultimately Kabban would pay the funds to Sorinet Dubai after payment of any costs, expenses or claims against Sorinet Dubai.
76Assuming that the flow of funds would be to the Court, to a Dubai bank and then to Kabban, Mr. Al Shamsi opined that any Dubai bank handling the subject funds would be subject to AML checks and compliance as would Kabban. Mr. Al Shamsi assumed that Kabban would have internal policies to undertake the necessary due diligence measures to reduce any risks. Law firms in Dubai such as Kabban are required under AML laws to appoint a compliance officer who must perform his/her duties in accordance with UAE laws and regulations in order to identify suspicious transactions which could offend AML laws and report such transactions to UAE’s Financial Intelligence Unit. Failure to abide by AML laws in Dubai is subject to severe and broad penalties.
77Mr. Al Shamsi was asked the same question with respect to any risk that a payment could be provided to Zanjani or benefit any person or entity facilitating or carrying out terrorist activity. His answers were essentially the same as above. Mr. Al Shamsi went on to elaborate on and outline the various federal laws, regulations and guidelines which govern both banks and lawyers in the UAE in relation to money laundering.
78The Applicants rely on a legal opinion dated March 19, 2021 from counsel Mr. Shawn C.D. Neylan of Stikeman Elliott in Toronto. He was responding to a request by the Respondents to the Executors to make a payment in partial satisfaction of the Dubai judgment. He noted that the payment would be submitted to one or both of Sorinet BVI and Sorinet Dubai.
79Mr. Neylan wrote that Zanjani was a director for both of the Sorinet Entities and that those entities assisted Iran in violating international sanctions by facilitating the sale of oil which provided financial support for the government of Iran. At least one Sorinet group enabled the transfer of funds to Khatam al-Anbiya, a company owned by the IRGC.
80Mr. Neylan’s view was that a payment in partial satisfaction of the judgment would be contrary to Canadian law and in violation of section 83.03(b) of the Code. He noted that the IRGC’s Qods Force is listed as a terrorist entity in Canada and the IRGC is listed as a terrorist group in the U.S. Mr. Neylan’s opinion was that Sorinet’s history of remitting funds to Khatam al-Anbiya and raising funds for Iran which supports the IRGC and the Qods Force, a payment to Sorinet would be equivalent to making such funds available to a terrorist group.
81It was Mr. Neylan’s further opinion that any person making such a payment would be subject to potential secondary sanctions imposed by the U.S. Government on non-U.S. persons who engage in certain financial transactions with Iranian persons.
82Given Mr. Neylan’s opinion, he advised that the Estate would decline to make the requested payment without a Canadian Court Order specifying that the payment would not be contrary to Canadian law.
83In response to Mr. Neylan’s opinion, the Respondents insisted that the Applicants commence the within Application. The Applicants refused. The parties were at an impasse in April 2021 with respect to who would obtain the required Court Order. Given the impasse, Mr. Neylan obtained instructions to commence the within Application in Ontario. On September 21, 2021 Mr. Veall wrote to Mr. Neylan and advised that the Application was an abuse of process and that neither he nor Ms. Veall would accept service of the Application.
Analysis and Ruling
84I agree with the Applicants that the IRGC cannot be seen to be other than a terrorist organization given the findings in Zarei. I also agree with the Applicants that even if one argues that the Qods Force is the only listed entity, then the IRGC becomes a listed entity by association.
85The “associated entity” conclusion is also supported by cases such as Tracy v. The Iranian Ministry of Information and Security, 2016 ONSC 3759, 400 DLR (4th) 670. In that case, victims of Hamas and Hezbollah attacks in Lebanon and Saudi Arabia obtained a U.S. judgment against the Defendants which included the IRGC and the Republic of Iran. The Plaintiffs commenced proceedings in Canada to enforce the U.S. judgments. In obtaining the judgments, the U.S. Court found that Iran provided Hezbollah with material support.
86The Canada Public Safety website sets out that Qods Force (as the clandestine branch of the IRGC) provides arms, funding and military training to the Lebanese Hezbollah and Hamas.
87The Respondents argue that it is wrong to assume that funds sent to Sorinet to satisfy the Dubai judgment would be used for terrorist activities. I disagree. Section 83.19(a) of the Code makes it clear that a terrorist activity is facilitated whether or not the facilitator knows of the terrorist activity. That is, the mere risk that the judgment funds could be used by the Sorinet Entities to fund IRGC activities is sufficient. Specifically, even if the facilitator does not know all the details or connections of the terrorist groups or whether any activity was foreseen or planned, they are caught by section 83.19(a).
88In R. v. Thambaithurai, 2010 BCSC 1949, [2010] B.C.J. No. 2810 aff’d 2011 BCCA 137, [2011] B.C.J. No. 449, the accused pleaded guilty to one count under s.83.03 of the Code. In that case, Mr. Thambaithurai sought pledges of financial support for the World Tamil Movement. He did not tell those from whom he sought pledges of the association that the World Tamil Movement was a front for the Tamil Tigers, a listed terrorist entity. Mr. Thambaithurai claimed he was raising money for humanitarian purposes to assist those who were the victims of suffering and hardship in Sri Lanka due to the 2004 tsunami.
89The Court dealt with the matter as a serious offence despite the fact that the pledges were not significant amounts. Specifically, the Court mentioned that while Mr. Thambaithurai may have hoped the money would be used for humanitarian purposes, he was also willing to accept it may have been put to use by a known terrorist group: at para. 16.
90While it is clear that there are no longer any sanctions against Zanjani and that there never were any sanctions against Sorinet specifically, Zanjani is the directing mind of the Sorinet Entities. It was known that Zanjani was helping the IRGC raise funds.
91I agree with the Applicants that it does not matter whether Zanjani or Sorinet knew what funds loaned or given to the IRGC would be used for when the IRGC was a known terrorist entity. That is, the Estate’s knowledge that funds would be paid to Sorinet and perhaps diverted to the IRGC for use at their discretion satisfies the knowledge requirement under section 83.03(b). This Court has confirmed that the IRGC is a terrorist entity as per Zarei.
92Further, the fact that Zanjani is no longer subject to sanctions is irrelevant with respect to the terrorism issue. It is the historical connection between Zanjani/Sorinet and their fundraising activities for the IRGC that is important. The lifting of sanctions against Zanjani cannot be seen to be an excusal or exoneration of his past activities.
93The Respondents and their experts spent significant time arguing that the AML laws governing banks and lawyers in Dubai would be sufficient to ensure compliance and avoid any possible illegality. That is helpful but insufficient in this Court’s view. Once the payment is made to Sorinet, control over what happens to the payment is lost. Further, if payment is made, for example, to Kabban, the same legal question may arise as is before this Court. There is no reason not to decide the issue now.
94The Respondents rely heavily on their experts’ reports. However, I share the Applicants’ concerns with respect to Sorinet BVI. First, the Liquidator does not have any of Sorinet BVI’s books and records and as such there is no ability to determine who would benefit from a payment to Sorinet BVI. What is known is that after the payment of fees and expenses of the Liquidator that any remaining funds would be paid out to the members of Sorinet BVI. Since there is no information about what claims might exist against Sorinet BVI, this provision might mean that Sorinet BVI could receive a significant payment net of expenses. Zanjani is the majority shareholder of Sorinet BVI and would receive most of those funds.
95The Respondents’ expert Mr. MacKenzie opines that the Liquidator as an officer of the Court has a duty of care to ensure no BVI laws are infringed. The Liquidator could apply for directions, but it is unknown whether the laws of BVI would permit a payment to Sorinet BVI given that Sorinet BVI is not subject to any international sanctions. Such a payment, if made would still be contrary to the Code in Canada based on the findings in these Reasons. Mr. McKenzie’s report, therefore, does not assist in answering the Applicants’ concerns.
96With respect to Mr. Al Shamsi’s report, there are similar concerns. First, Sorinet Dubai is on the cusp of liquidation. Mr. Al Shamsi states that a manager would need to be appointed pending any Court ordered liquidation. Zanjani is noted as the manager of both Sorinet Dubai and Sorinet BVI in the Dubai judgment, so would he be appointed? That seems unlikely since he is in jail but somehow Sorinet Dubai commenced and pursued a claim and went through two levels of appeal to obtain a judgment while they were struck off the register. The actual status of Sorinet Dubai as an entity is therefore unclear. It appears that despite it lacking legal status, it has managed to hire counsel and aggressively litigate against the Firm and the Estate. Therefore, relying on Sorinet Dubai’s reduced status is not helpful. Clearly someone at Sorinet Dubai is retaining and instructing counsel and commencing litigation on its behalf.
97Mr. Al Shamsi points out that Kabban is caught by UAE AML regulations and the Applicants should therefore have no concern about Sorinet Dubai’s counsel ensuring compliance. While there are strict penalties for non-compliance with AML laws in the UAE, the Applicants could still be subject to both Canadian (and possibly American) penal laws if Kabban determined that a payment should be made towards the judgment to Sorinet.
98I would add that it is puzzling that the Respondents did not obtain an expert’s report with respect to the effect of any payment under Canadian law.
99The Respondents have complained bitterly about what they perceive as the Applicants’ about-face regarding the Payment and what they also perceive as delay tactics which have caused them extreme personal hardship.
100These complaints are misplaced. The Respondents have always had a degree of control over this situation. They could have, for example, required the Firm to pay out the entire judgment without prejudice and then sought contribution and damages from the Applicants. Further, their delay complaints ring hollow when in an email from the Vealls dated January 19, 2021 they address the sanctions issue by suggesting that payment be delayed:
We understand it is a common practice of OFAC [the Office of Foreign Assets Control] to use such uncertainty to incline others not to deal with an individual who might be potentially subject to sanctions. Based on the above, we suspect BZ [Zanjani] is no longer subject to EU or US sanctions. Nevertheless, our approach to Emirates NBD was to similarly use such uncertainty to prompt that bank not to release funds paid into court, in satisfaction of the judgement, to BZ paid out of an abundance of caution.
101The Respondents knew as early as March 2021 that the Applicants intended to seek legal advice regarding the legality of the Payment. Their response was to offer declarations that funds paid by the Estate would not be used to satisfy the Dubai judgment. Given the provisions of the Code, the Applicants were naturally wary that such a solution could be characterized as an indirect payment to a terrorist group.
102Finally, the Respondents insisted that the Applicants bring the within Application and then refused to accept service of the Application. This led to the Applicants having to bring a motion to validate service with the accompanying delay.
103I now turn to the Respondents’ submission with respect to Section 83.01(1) and their position that the definition of a “terrorist group” is defined in the present tense with respect to the facilitating or carrying out terrorist activities. They submit that the prohibition under that section is forward looking and therefore any historical associations with terrorist groups are not contemplated.
104I disagree. Respectfully, that cannot be the proper interpretation of this wording. Otherwise, a terrorist group who engaged in terrorist activities last week but not currently would not be caught by the section. I agree with the Applicants that such an interpretation would be inconsistent with the meaning of facilitation within the relevant section.
105The Respondents suggest that this Court should apply a stringent knowledge test to section 83.03(b) of the Code requiring that the Applicants have the burden of proving that the funds paid to Sorinet will be used for terrorist activities. With respect, this is an Application for Directions and a request for a declaration with respect to a legal question. The burden on the Applicants cannot, therefore, be equated to any burden which the Crown would have in prosecuting an offence under section 83.03 of the Code.
106Given all of the above, I find that the payment by the Estate towards the Dubai judgment would be contrary to Canadian law and specifically contrary to section 83.03 of the Code.
RULING AND COSTS
107As indicated above, the Court will not deal with the issue of jurisdiction at this juncture. Given the complaints of the Respondents about having been “ambushed” by the Applicants and their further complaint that the Applicants effectively amended their Application by relying on Justice Kimmell’s endorsement, the Respondents will be given an opportunity to fully argue that issue on a separate scheduled date if so advised.
108Based on the reasons above, the Applicants are not required to make a payment towards the Dubai judgment given my finding that such a payment would be contrary to Canadian law and the Code.
109The parties to arrange a further scheduling date for the jurisdiction motion if required.
110With respect to costs, I will deal only with the costs in relation to the Legality Question. Costs related to the jurisdiction issue may be carried over and dealt with by the judge hearing that motion.
111Since it not possible to parse out the costs related solely to the Legality Question, I will require that counsel provide written submissions of not longer than 3 double spaced pages (hyperlinked as needed) on that issue and the costs of the validation of service motion. The Applicants are to serve their submissions along with a revised Bill of Costs by November 9, 2022, the Respondents by November 18, 2022 and any reply by the Applicants by November 25, 2022. All submissions are to be uploaded to Caselines.
C. Gilmore, J.
Date: October 28, 2022