Legal Blog

Bribe

The courts do not like underhanded dealings and come down hard on proven malefactors. One example is set out in Enbridge Gas Distribution Inc. v. Marinaccio 2012 CarswellOnt 12100, 2012 ONCA 650 (C.A.).

Scheme

Three participants in a scheme had a great idea to make money. The first (the “Employee”) was a trusted operations supervisor of Enbridge. As such, he had authority to hire outside contractors for repairs and to approve their invoices up to $5,000. The second (the “Labourer”) opened a number of businesses in his name only. These businesses used various names and styles; the Labourer did not bother to incorporate. The third (the “Accountant”) was an accountant.

The Employee was to hire the subcontractors to do the repair work. The Accountant prepared all invoices for the supposed work in the name of the Labourer’s businesses and delivered the invoices to the Employee for approval. Enbridge paid the Labourer’s business entities the invoiced amounts and the Labourer’s business entities, though the Accountant, paid the Employee.

One last minor fact. The Employee never hired any subcontractors to do the alleged work. All of the money paid to him went directly into his pocket. The Employee alleged that the Labourer and the Accountant knew he was doing this. The Accountant denied it and the Labourer said that he did not know about it while it was ongoing, but later learned of it.

The participants carried out the scheme for 6 years, during which time Enbridge paid the Labourer’s businesses over $6.5 million. Of this amount, the Employee received about $4.09 Million and the Labourer and the Accountant split the remainder. Alas, like most frauds, somehow the defrauded party finally discovered what was happening; the good times ended and the bad times began.

Enbridge sued everybody. Enbridge and the Employee settled by way of a payment to Enbridge of $1.9 million. Enbridge credited the net amount it received from the Employee and then looked to the Labourer and the Accountant for the balance by way of a summary judgment motion.

Fiduciary

The motions judge held that the Employee was a fiduciary for Enbridge. He made this ruling because, at the motion, counsel for the Labourer and the Accountant agreed. On appeal, however, the Labourer took the position that the Employee was not a fiduciary because he did not hold a sufficiently senior position at Enbridge. The court stated that the motions judge’s fiduciary finding deserved deference because there was evidence to support that finding. The Employee had the power to affect the legal or substantial interests of Enbridge and Enbridge was vulnerable to the Employee.

However, the court went to great pains to note that its ruling did not mean that all mid-level employees owed a fiduciary duty to their employers. Rather, given the motion judge’s findings, the extent of the fraud, and the use of discretionary power over a vulnerable employer, there was enough, in this fact situation, to find that the Employee was a fiduciary.

Knowing Assistance

A person may be liable for knowing assistance to a breach of a fiduciary duty (or breach of a trust) if a) there is a fiduciary duty, b) the fiduciary breaches that duty fraudulently and dishonestly, c) the stranger to the fiduciary relationship had actual knowledge of the improper conduct, was wilfully blind to the breach, or reckless in his failure to realise there was a breach, and d) the stranger participated in or assisted the fiduciary’s improper conduct. 

The Labourer and the Accountant argued that they had no knowledge of the Employee’s fraud; they expected that he was doing the work and paying his subcontractors. However, the court held that it was not necessary to prove that the Labourer and the Accountant knew about the exact fraud as long as they knew that the Employee was dishonestly breaching his fiduciary duty while he participated in the scheme (i.e. acting in a conflict of interest, approving invoices, and concealing his involvement). The court held that, “In the context of a claim for knowing assistance in the breach of a fiduciary duty, dishonest and fraudulent conduct signify a level of misconduct or impropriety that is morally reprehensible but does not necessarily amount to criminal behaviour. The term fraudulent does not signify that an additional degree of corruption is necessary to make out the tort; it simply emphasizes the required dishonest quality of the fiduciary’s act.”

The court held the Labourer and the Accountant jointly and severally liable for knowing assistance to the breach of the Employee’s fiduciary duty.

Bribery

There is a civil tort of bribery. Really. It is the payment of a secret commission, such “(i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent.”

The Labourer and the Accountant admitted that they made secret payments to the Employee, who was Enbridge’s agent, of at least $2 million (i.e. of the $4.09 million paid in total, $2 million was to go to the Employee and $2.09 million for subcontractors). It did not matter whether the Labourer and the Accountant knew of the exact fraud. They made the $4.09 million payment to the Employee and that was enough. The fact that they may not have known of the full extent of the fraud did not assist them. Accordingly, they were held liable for the full amount of the secret commission/bribe.

Unjust Enrichment

The court also held that the Labourer and the Accountant were liable for this tort. They obtained an enrichment (i.e. the $2 million they received from the scheme); Enbridge had a corresponding deprivation; and there was no juristic reason for the enrichment. There was a deprivation because Enbridge never received anything from the scheme. The Labourer had no evidence that the Employee had ever performed any work and failed to enquire whether the Employee retained and paid subcontractors. Further, the fact that they did not know that their scheme had been elevated from subterfuge to full fraud did not mean that there was a juristic reason for their enrichment.

Judgment Amount

The Labourer and the Accountant claimed that they should receive credit for the full $1.9 million that the Employee paid to Enbridge to settle Enbridge’s claim against him. They argued that Enbridge should not have been able to deduct the costs it incurred in obtaining that payment. Nonsense, said the court. The cost of recovery was over $1 million and the Labourer and the Accountant were not going to get the benefit of money that Enbridge did not receive because it incurred recovery expenses.

Interest

Normally, a court awards simple interest. In this case, the motions judge awarded interest compounded monthly. The court agreed and stated, “this court has consistently approved of the trial court’s exercise of discretion to award compound interest for breach of fiduciary duty or breach of trust.”

Costs

To add insult to injury, the court awarded costs of the appeal of $40,000 to Enbridge.