This article is an extract from the 5th edition of Government Procurement.
In its July 2023 decision in Winnipeg (City) v. Caspian Projects Inc., the Manitoba Court of Appeal dismissed the appeal of a former municipal chief administrative officer who was found liable for accepting bribes in relation to a major contract award.
The conflict of interest dispute dealt with a civil claim brought by the City of Winnipeg for the tort of bribery. As the Court of Appeal detailed, the case dealt with a municipal construction project for a new police headquarters that involved construction delays, cost overruns, bribery allegations, and a lengthy criminal investigation. While the police investigation did not result in criminal charges, the municipality brought a civil claim against its former chief administrative officer for financial compensation based on the tort of bribery:
The Latin expression quid pro quo means something for something. The litigation giving rise to this civil bribery appeal focused on whether an exchange was legitimate or corrupt. While the poverty of ethics on display here piques curiosity, a breach of ethics does not necessarily mean a breach of the law has occurred. Bribery is a special form of fraud that does not require a false representation, reliance or dishonesty. The heart of bribery is a secret payment that, as here, gives rise to a realistic prospect of a conflict of interest.
Between 2009 and 2016, the plaintiff (the City) purchased the old Canada Post mail processing building in downtown Winnipeg and then commissioned and funded a multi-million-dollar redevelopment project for the new headquarters of the Winnipeg Police Service (the project).
The project became a scandal. It was significantly delayed, there were millions of dollars in cost overruns, there were and still are concerns as to the quality of the construction and, in a sad irony, an undertaking to build the municipal police headquarters itself became the subject of a lengthy criminal corruption investigation by the RCMP known as Project Dalton.
One sordid revelation of Project Dalton is that, in 2011 and 2012, the defendant, Phil Sheegl, the then chief administrative officer (the CAO) of the City, secretly received two payments — $200,000 (in Canadian funds) and $127,200 (in US funds) — from the defendant, Armik Babakhanians. At the time, Armik and his companies, the defendants Caspian Projects Inc. and Caspian Construction Inc. (collectively, Caspian), were providing construction management services on the project pursuant to contracts that Sheegl had used his influence to award to Caspian.
By 2013, Sheegl’s tenure at City Hall was over. He resigned amid controversy and was paid a severance payment by the City.
In 2017, the payments from Armik to Sheegl became public as part of the media coverage of Project Dalton. While it normally falls to the criminal courts to hear and determine serious allegations of malfeasance, no criminal charges were laid as a result of Project Dalton. That there were no criminal charges is of no moment to decide this civil appeal.
In 2020, the City commenced an action alleging a multi-dimensional fraud scheme relating to the project. As part of its action, the City claimed that the two payments from Armik to Sheegl amounted to the tort of bribery and that Sheegl also breached his fiduciary duty to the City by the receipt of the money and in numerous other ways.
As the Court of Appeal summarized, the trial court granted the City’s summary judgment application after rejecting the defendant’s argument that the payments in question from the contractor related to a separate real estate transaction and were not a bribe connected to the award of the police headquarters project:
At the summary judgment hearing, the Sheegl defendants did not dispute receipt of the two payments from Armik. Rather, their position was that the exchange was what the motion judge called a “handshake deal” (at para 24). Sheegl claimed that the payments were not a corrupt bribe, as the City alleged, but were in relation to a bona fide real estate transaction in the town of Buckeye, Arizona referred to as the Tartesso Land Development (Tartesso) involving the two men and their mutual friend, the mayor of Winnipeg from 2004 to 2014, Sam Katz.
The motion judge granted the City’s motion for summary judgment and dismissed the cross-motion of the Sheegl defendants. He rejected Sheegl’s explanation of the handshake deal, calling it “incredible” (at para 220) and “fictional” (at para 233) given the record before him and, in particular, the complete absence of documentation that would normally be generated by such a real estate investment. In any event, he said the debate about the true character of the transaction and whether it was corruption was entirely academic because, even if Sheegl’s explanation had been true, it would not have provided “any relief in law” as far as the tort of bribery was concerned (at para 220). He stated that, “once the elements to the tort of bribery [were] established, the motives behind that payment [were] irrelevant” (at para 233).
In terms of the claim of breach of fiduciary duty, the motion judge catalogued 14 different instances during the tendering process for contracts for the project from 2010 to 2012 where he found that Sheegl failed to give loyal, honest and disinterested advice to the City (see paras 169, 246, 249). In each of these serious derelictions of duty, Sheegl misused his influence to favour Armik, Caspian or another defendant connected to Caspian.
The motion judge said that the civil bribe was itself yet another breach of fiduciary duty by Sheegl and, regardless of what the true motives behind the two payments were, what was not disputed was that Sheegl never disclosed receipt of the payments to the City as he was required to do as a fiduciary. The motion judge said it would be a “preposterous message” if “high-ranking public officials [could] do business in secret with persons [who, at the same time, were] seeking contracts from the very public bodies for whom [the] public officials [worked]. Neither the law nor common sense [supported] or [justified] such a dubious conclusion or message” (at para 264).
The motion judge ordered that the Sheegl defendants pay the City damages consisting of: (i) the amount of the bribe money, plus interest; (ii) the amount of the severance payment paid on the termination of Sheegl’s employment, plus interest; and (iii) punitive damages of $100,000. He ordered further that the Sheegl defendants pay the City costs for the lawsuit on a lawyer and client basis.
The defendant appealed the trial ruling, arguing that a summary judgement was not appropriate in the circumstances. However, the Court of Appeal dismissed that appeal.
In rendering its decision, the Court of Appeal provided an overview of the law of bribery, which is regulated under both criminal and civil law:
The Law of Bribery
The law sees bribery as a “corrosive practice” (Wood v Commercial First Business Ltd & Ors, [2021] EWCA Civ 471 (BAILII) at para 42). The giving and receiving of bribes is injurious to the proper operation of the free market and the good governance of public institutions. It is, as Templeman LJ explained in Attorney-General for Hong Kong v Reid (1993), [1994] 1 AC 324 (PC (Eng)), an “evil practice which threatens the foundations of any civilised society” (at p 330).
The criminal law and the civil law take different approaches to regulate bribery. The former is primarily a product of statute and the latter of the common law.
Separate and apart from general crimes, such as conspiracy, fraud, theft, possession of property obtained by crime and money laundering, the Criminal Code (the Code) creates several offences to address different forms of domestic bribery and corruption (see sections 119-125, 426). Of particular relevance here is the scenario where a municipal official receives money in exchange for greater cooperation in favour of the payer. Such conduct may give rise to criminal charges under section 122 (breach of trust by public officer) and/or section 123 (municipal corruption) of the Code. As Richards JA (as he then was) explained in Strudwick v Lee, 2007 SKCA 11, section 123, “in plainest terms, prohibits the payment of bribes to municipal officials” (at para 16).
In the civil law, bribery lies at the crossroads between common law and equitable rules as remedies for bribery can arise in both realms (see Wood at para 94). An allegation of bribery, as is the case here, will also often give rise to multiple, overlapping and sometimes esoteric causes of action in contract, tort and equity (see Paul M Perell, “Remedies for the Victims of a Bribe” (1999) 22:2 Adv Q 198; and Peter T Burns & Joost Blom, Economic Torts in Canada, 2nd ed (LexisNexis, 2016) at ch 10).
The Court of Appeal also explained that under civil law, the tort of bribery allows a prejudiced party to seek monetary compensation against an agent who accepted a bribe, as well as against the third party who paid the bribe:
Historically, in tort law, bribery has been seen as a special form of fraud based on the fact that the bribe was secret from the plaintiff (typically the principal of the agent who received the bribe directly or indirectly). The cause of action does not require a false representation, any reliance or a finding of dishonesty (see Petrotrade v Smith, [2000] 1 Lloyd’s Rep 486 at 490 (QB (Eng))).
An action for the tort of bribery and resulting remedies (such as account of profits, compensation for loss and rescission (if possible)) is available whether the defendant is the payer or payee of the bribe (see Frigidaire Corp v Steedman, [1931] 3 DLR 370 at 373 (Ont SC (AD)); and Wood at paras 83, 94-96. The law does not distinguish between bribery schemes of inducement where the payer is seeking favour, or those of graft, where the payee is demanding a bribe. A plaintiff has a separate and distinct cause of action against both the payer and the payee of the bribe, not one cause of action against both or either of them (see Salford (Mayor of) v Lever (1890), [1891] 1 QB 168 (CA (Eng))).
The Court of Appeal also noted the legal definition of bribery under common law is broad enough to go beyond improper monetary payments to also include other types of inducements including gifts:
A working definition of a “bribe” was provided by Leggatt J (as he then was) in Anangel v IHI (1989), [1990] 1 Lloyd’s Rep 167 (QB (Eng)), where he stated a bribe is a “commission or other inducement, which is given by a third party to an agent as such, and which is secret from his principal” (at p 171). The meaning of a bribe “extends well beyond its popular connotation of a corrupt payment, to include any payment or gift made as an inducement to an ‘agent’ and not disclosed to the ‘principal'” (Wood at para 43).
Citing prior case law, the Court of Appeal also noted that the tort of bribery is not limited to those who owe a fiduciary duty to the claimant, but also applies to other trusted advisors:
Finally, the point was made in Wood that the tort of bribery is not reserved for situations, such as the facts of this case, where a fiduciary relationship exists between the payee and the plaintiff. All that must be shown is that the payee is under a “duty to provide information, advice or recommendation on an impartial or disinterested basis”; if that is established, “the payment of bribes or secret commissions exposes the payer and the payee to the applicable civil remedies. No further enquiry as to the legal nature of their relationship is required” (at para 48; see also paras 92-102).
As this case illustrates, public institutions do not have to rely on the criminal law as the only regulatory mechanism for dealing with procurement-related bribery. The tort of bribery offers a civil law avenue to seek financial remedies against parties who engage in bribery in relation to an institution’s contracting activities.
