



COURT OF APPEAL FOR ONTARIO

CITATION: R. v.
    Kachkar, 2014 ONCA 560

DATE: 20140721

DOCKET: M43083

Watt J.A. (In Chambers)

IN THE MATTER OF an application pursuant to s. 20(1) of
    the
Mutual Legal Assistance in Criminal Matters Act
, S.C. 1988, c.37,
    as amended, for an Order to Send Evidence gathered in Canada for use by
    authorities in the United States of America in their investigation of Jack
    Kachkar, Steven Handley, Colin Hunter, Rima Goldschmidt, et al, as operators of
    Inyx Inc.

BETWEEN

Her Majesty the Queen

Respondent

and

Jack Kachkar

Applicant

Jack Kachkar, appearing in person

Susan Ficek, for the respondent

Heard: February 19, 2014

Motion for leave to appeal from the order of Justice M.A.
    Code of the Superior Court of Justice, dated October 23, 2013.

Watt J.A.:

[1]

Jack Kachkar (the applicant) seeks leave to appeal from a sending order
    made by a judge of the Superior Court of Justice under s. 20(1) of the
Mutual
    Legal Assistance in Criminal Matters Act
, R.S.C. 1985, c. 30, as amended (the
MLAT
or the Act).

[2]

The applicants principal complaint is with the scope of the sending
    order. He says that the judge who made the order misinterpreted his earlier
    amended gathering order and applied, incorrectly, the decision in this court in
Russian Federation v. Pokidyshev
(1999), 138 C.C.C. (3d) 321 (Ont.
    C.A.) (
Pokidyshev
). The result, according to the applicant, is that
    the sending order included records of corporate entities that had not been
    included within the four corners of the amended gathering order and should be
    set aside.

[3]

These reasons explain why I would dismiss this application and refuse
    leave to appeal.

THE BACKGROUND FACTS

[4]

The grounds upon which the applicant seeks leave to appeal render a
    forced march through the circumstances that underpin the relevant
MLAT
orders unnecessary. An overview is sufficient.

The Principals

[5]

Inyx Inc. is an American corporation with several subsidiaries including
    Inyx Canada, Inyx USA and Inyx Pharma. Jack Kachkar, a medical doctor, is the
    Chairman of the Board and Chief Executive Officer of Inyx Inc. and a director
    of Inyx Canada and Inyx USA. Rima Goldschmidt is the secretary of Inyx Inc. and
    a director of Inyx USA.

[6]

Westernbank Puerto Rico was a financial institution and commercial
    lender.

The Loan Agreement

[7]

In early 2005, Inyx Inc. and Inyx USA entered into a loan and security
    agreement with Westernbank. The agreement was signed by both the applicant and
    Goldschmidt in their corporate capacities.

[8]

Westernbank agreed to loan Inyx Inc., Inyx Pharma and Inyx USA up to 46,000,000
    USD in a revolving loan of 10,000,000 USD and four separate term loans of 9,000,000
    USD each.

[9]

About two months later, Inyx Pharma became a co-borrower under the
    agreement. The borrower and Inyx Canada executed an amendment to the agreement
    that guaranteed payment of the loan obligations and provided security
    agreements.

[10]

To
    obtain funds from revolving lines of credit under the agreement, Inyx Inc. was
    required to submit:

·

information about its eligible accounts receivable from its sales
    of pharmaceutical products; and

·

copies and invoices for accounts receivable for each of its
    subsidiaries.

When Inyx Inc. had satisfied these obligations under
    the agreement, it was permitted to withdraw funds up to a percentage of
    eligible accounts receivable.

The Alleged Schemes

[11]

United
    States authorities allege that over a period of about two years, those involved
    in the operation of Inyx engaged in a series of fraudulent schemes to obtain
    funds for Inyx under the agreement. The schemes included:

i.

submitting inaccurate, altered and false invoices and accounts
    receivable assignment sheets that had the effect of inflating the amount of
    Inyxs receivables;

ii.

directing customers to pay Inyx directly rather than depositing them in
    locked box accounts that were the property of the Bank, as required by the
    agreement; and

iii.

offsetting Inyxs debts against receivables due from those to whom Inyx
    owed money.

The Default

[12]

Inyx
    defaulted on its obligations under the agreement. The amount owing is alleged
    to be 142,000,000 USD.

[13]

Westernbank
    went into receivership. United States authorities began an investigation into
    its activities for alleged violations of U.S. banking law and regulations. The
    Federal Deposit Insurance Corporation became the receiver of Westernbank.

The United States Litigation

[14]

A
    class action lawsuit was launched involving the Federal Deposit Insurance
    Corporation, as receiver for Westernbank, Inyx Inc., the applicant and his
    wife, Viktoria Benkovitch.

[15]

In
    late September 2013, a partial settlement was reached in the lawsuit. Under the
    settlement agreement, judgment was entered in favour of the Federal Deposit
    Insurance Corporation as receiver for Westernbank:

i.

in the amount of 120,000,000 USD against Inyx Inc.; and

ii.

in the amount of 100,000,000 USD against the applicant and his wife
    personally.

The Canadian Litigation

[16]

Westernbank
    sued Inyx Canada in the Superior Court of Justice. In July, 2007, a judge
    appointed a receiver for Inyx Canada and authorized the receiver to remove
    documents and records from the offices occupied by Inyx Canada. The receiver
    removed about 400 boxes of material along with imaged copies of computer hard
    drives and other loose electronic media. Later, copies were made of the paper
    documents and of the loose electronic media and the copies returned to Inyx
    Canada.

The
MLAT
Request

[17]

Early
    in 2010, the United States Central Authority sought Canadian assistance in
    gathering records for use in an investigation of Inyx Inc. for a suspected
    fraud against Westernbank. The records were believed to be among the 400 boxes
    of documents seized by the receiver. The United States sought:

All business records and internal and external correspondence,
    including e-mail messages and attachments, telephone and facsimile records,
    relating to the manufacture, sale and marketing, shipping, invoicing and
    payment collection, of pharmaceutical products manufactured, marketed and sold
    by Inyx Canada, Inyx USA, Inyx Inc., Inyx Pharma, Inyx UK, Ashton
    Pharmaceuticals and their subsidiaries (hereafter Inyx Companies). These records
    include purchase / sales agreements, purchase orders, shipping orders, and
    customer accounts, including customer repayment agreements, invoices,
    remittances / credits for payment, and outstanding balances as reflected in the
    General Ledger and sub-ledgers, including the Accounts Receivables Reports, of
    the above companies. Records regarding the transmission of sales, delivery,
    invoicing and collection information between Inyx Canada and the other named
    companies and subsidiaries are also sought. Additionally, we seek records
    relating to debts owed by Inyx Companies to customers / clients and all credit
    agreements, invoicing / remittance records, repayments, loan modification
    agreements, and any agreements to off-set these debts with corresponding receivables
    between the parties. These records include account statements, transactions and
    supporting documentation, and correspondence for all accounts at banks and
    financial institutions, foreign and domestic, involving the business operations
    of Inyx Companies.

2. Additional records sought are those relating to loans,
    security agreements, funds received from and remitted to Westernbank Puerto
    Rico, to include financial statements, collateral pledged, loan modification
    agreements, extensions of additional credit, repayment histories, transactions
    and account balances of these obligations as reflected in the General Ledger
    and sub-ledgers of the above companies. These records include any
    investigations, reports and supporting documentation commissioned by Westernbank
    Puerto Rico that may be contained within the records of Inyx Companies.

[18]

In
    their request, the United States also sought permission for their investigators
    to be present during the gathering process to assist Canadian authorities to
    identify which materials were relevant for the purposes of the United States
    investigation.

The Gathering Orders

[19]

About
    two years after the receiver removed and copied the records from the office of
    Inyx Canada, the provincial Crown obtained a Gathering Order that required the
    receiver to deliver copies of the seized records to an officer of the Toronto
    Police Service. As a result of a motion by the receiver, the documents were
    transferred, first to the possession of the RCMP, and finally to the Sherriff
    at Brampton.

[20]

About
    four months after the original Gathering Order had been made, the Crown
    obtained an Amended Gathering Order. In its material parts, the amended order
    authorized Detective Constable Lum of the Toronto Police Service to gather:

copies of the business records relating to Inyx Canada between
    1 January 2005 and 31 December 2007, including:

 Purchase / sales agreements; purchase orders; shipping
    orders;

 Customer accounts, including customer repayment agreements,
    invoices, remittances / credits for payment;

 Outstanding balances as reflected in the general ledger and
    sub-ledgers, including the accounts receivables reports of Inyx and its
    subsidiaries;

 Records relating (to) the transmission of sales, delivery,
    invoicing and collection information between Inyx Canada and the other Inyx
    companies;

 Records relating to debts owed by Inyx companies to customers
    / clients and all credit agreements, invoicing / remittance records,
    repayments, loan modification agreements, and any agreements to off-set these
    debts with corresponding receivables between the parties;

These records also include account statements, transactions
    and supporting documentation, and correspondence for accounts at banks and
    financial institutions, foreign and domestic, involving the business operations
    of Inyx companies.

The amended order did not include any records in
    respect of which a claim of privilege was asserted.

Execution of the Gathering Orders

[21]

In
    early May 2013, with the assistance of seven U.S. agents, D.C. Lum reviewed the
    contents of the boxes of materials originally obtained by the receiver. The
    applicant was present so that he could identify any items in respect of which
    he wished to advance a claim of privilege.

[22]

When
    the gathering process had been completed, D.C. Lum had collected 109 boxes of
    documents, including 25 boxes in respect of which the applicant asserted claims
    of privilege. D.C. Lum took possession of all 109 boxes, ensuring that those in
    respect of which the applicant claimed privilege were kept separate and apart
    from the others.

[23]

After
    the Amended Gathering Order had been executed, the applicant retained counsel.
    At counsels request, a second review of the privileged materials was
    conducted. The materials were then divided into three categories:

i.

materials in respect of which privilege was asserted (the privileged
    materials);

ii.

materials admittedly within the scope of the Amended Gathering Order
    (the responsive materials); and

iii.

materials challenged by the applicant on grounds other than privilege
    (the non-responsive materials).

The Sending Hearing and Order

[24]

About
    two months after the second review had been completed, the judge who made the
    gathering orders conducted a sending hearing under s. 20(1) of the
MLAT
.
    The applicant was represented by counsel who agreed that the responsive
    materials should be included in the sending order. Counsel confined his
    opposition to the sending of non-responsive materials that he submitted should
    be excluded because they fell outside the scope of the gathering order. The documents
    to which counsel objected were:

i.

the applicants personal financial records; and

ii.

the records of La Boutique Floriane du Québec, Karver International, DBA
    Global Consulting, Karian Holdings and Devlin Air.

[25]

The
    Sending Order included both the responsive and non-responsive documents.

THE MOTION FOR LEAVE TO APPEAL

[26]

The
    applicant seeks leave to appeal on three discrete but related grounds. I would
    paraphrase the proposed grounds of appeal as submissions that the judge at the
    sending hearing erred in:

i.

including in the Sending Order records that fell outside the terms of
    the gathering order;

ii.

interpreting the Gathering Order; and

iii.

applying the decision of this court in
Pokidyshev
to the
    circumstances of this case.

The Governing Principles

[27]

The
    principles that control the fate of this application lack a common origin. Some
    distinguish between questions of fact, questions of law, and questions of mixed
    law and fact. Others describe the test for leave to appeal under s. 35 of the
MLAT
.
    And yet others explain the operation of relevant provisions of the
MLAT
and the judges role in connection with it.

A Question of Law

[28]

Section
    35 of the
MLAT
permits an appeal to the court of appeal from any order
    or decision a judge or court in Canada makes under the
MLAT
. But no appeal
    lies as of right. Leave to appeal is required. And the appeal is limited to
    questions of law alone. Further, the application for leave to appeal must be
    made to a judge of the court of appeal within 15 days after the order or
    decision that is challenged.

[29]

The
    distinction between questions of law, on the one hand, and questions of mixed
    fact and law, on the other, is often difficult. Sometimes, what appears at
    first blush to be a question of mixed fact and law turns out to be a question
    of law. The opposite is also true:
Canada (Director of Investigation and
    Research) v. Southam Inc.
, [1997] 1 S.C.R. 748, at pp. 766-767.

[30]

Questions
    of law are about what the correct legal test is, while questions of fact are
    questions about what actually took place between the parties. Questions of
    mixed fact and law are questions about whether the facts satisfy the legal
    tests:
Southam Inc.
, at pp. 766-767. A question that is about the
    application of legal standard is also a question of law:
R. v. Araujo
,
    [2000] 2 S.C.R. 992, at para. 18.

The Test for Leave to Appeal

[31]

Section
    35 of the
MLAT
does not define the standard to be applied to determine
    whether leave to appeal should be granted. Nor does the section provide a list
    of factors, either illustrative or exhaustive, to be considered in resolving
    the issue of whether leave to appeal should be granted.

[32]

The
    jurisprudence has filled the statutory void by listing several factors a judge
    or court should consider in deciding whether leave should be given if satisfied
    that a question of law alone has been raised. The factors, in question form,
    are these:

i.

Is the question raised not settled by authority?

ii.

Is the question raised of importance generally and, if not of importance
    generally, is it nonetheless of great importance to a person with serious
    interests, such as his liberty, at stake?

iii.

Does the proposition of law put forward have any merit or, to put it
    another way, does it appear to the judge not to be frivolous?

iv.

Are there other discretionary considerations, such as prejudice to
    either the applicant or the requesting state, which require to be taken into
    account?

See,
United States of America v. Ross
(1994),
    44 B.C.A.C. 228 (Chrs), at para. 33; and
Ontario (Attorney General) v.
    Vonk Dairy Products B.V. et al
(1998), W.C.B. (2d) 221 (Ont. CA-Chrs), at
    para. 9.

The Ministerial and Judicial Roles
    under the
MLAT

[33]

Both
    the Minister of Justice and judges of provincial and territorial superior
    courts have duties assigned to them under the
MLAT
.

[34]

The
    Minister of Justice is the guardian of Canadian sovereignty interests. He
    controls the front and back end of the process. No request proceeds without the
    Ministers approval. No sending order is implemented without the Ministers
    approval. As in extradition cases, the central role of the Minister of Justice
    reflects the essential political nature of decisions involving international
    relations:
Pokidyshev
, at para. 18.

[35]

The
    judicial role under Part I of the
MLAT
differs from that of the
    Minister. The judge is tasked with the responsibility of ensuring compliance
    with the statutory conditions precedent to the making of the order requested by
    the competent authority. And the judge must also fashion an order that balances
    the legitimate state and individual interests at stake:
Pokidyshev
, at
    para. 20. In large measure, the terms of the order will depend on the nature of
    the order that is to be made and the individual interests affected by the
    order:
Pokidyshev
, at para. 20.

Sending Orders

[36]

Under
    s. 20(1) of the
MLAT
, the judge who made the gathering order under s.
    18(1), and who has received  the report required by s. 19(1) of the Act, has
    the authority to order, among other things, that:

i.

a report under s. 19(1); and

ii.

any record or thing produced under the gathering order

be sent to the state or entity that has sought legal
    assistance under the Act.

[37]

The
    sending authority for which s. 20(1) provides is discretionary, not mandatory.
    But the section is mute about the standard the judge is to apply, or the
    factors the judge must or may consider, in deciding whether to make a sending
    order. In a similar way, s. 20(2) permits, but does not require the judge who
    makes the sending order to impose any terms or conditions that the judge
    considers desirable. Neither s. 20(1) nor s. 20(2) require that the judge
    presiding at the sending hearing be satisfied that:

i.

the material was gathered in accordance with the gathering order; or

ii.

the material gathered will afford evidence of the commission of an
    offence in the foreign jurisdiction.

The sending hearing is not an appeal from or a review
    of the antecedent gathering order:
Pokidyshev
, at para. 38.

[38]

The
    breadth of the discretion conferred by ss. 20(1) and 20(2) accommodates
    consideration of specific issues raised in the peculiar circumstances of
    individual applications for sending orders. Relevant factors that might inform
    the judges discretion under either subsection might include the nature of the
    material the applicant seeks to have sent, the nexus or connection between the
    material and the investigation in the foreign state, and the accuracy and
    completeness of information provided on the application for the gathering
    order:
Pokidyshev
, at para. 39.

[39]

The
    discretion of the judge conducting a sending hearing under s. 20 is not without
    limit. Recall the nature of the judicial role in the process for which the Act
    provides. Beyond the sweep of the discretion reposed in the judge at the
    sending hearing are factors like:

i.

the advisability of assisting the foreign jurisdiction;

ii.

the likelihood of compliance by the foreign jurisdiction with the order
    or any terms or conditions imposed in the order;

iii.

the ultimate evidentiary value of the requested material to the foreign
    jurisdiction; or

iv.

the conduct of the proceedings in the foreign jurisdiction.

See,
Pokidyshev
, at para. 40.

[40]

Judges
    who preside on applications for a sending order are entitled to approach the
    question of relevance on an expansive basis. In this context, the term
    relevance means helpful to the authorities in discovering, understanding and
    proving the complex series of events that underpin the allegations that are the
    subject-matter of the foreign investigation:
Pokidyshev
, at para. 60.

The Principles Applied

[41]

The
    applicant seeks leave to appeal on three grounds that he says involve questions
    of law alone of sufficient importance to warrant leave to appeal. I disagree.
    The reasons for my disagreement follow.

[42]

First,
    leaving aside the third proposed ground of appeal, the interpretation of the
    decision of this court in
Pokidyshev
, it is arguable that at least the
    first, and perhaps the second, proposed ground of appeal involve a question of
    mixed fact and law, rather than a question of law alone. Whether certain
    records collected under the Gathering Order fall within business records
relating
    to
Inyx Canada seems more a question about whether the records satisfy
    the standard set in the order than about the standard itself.

[43]

Second,
    the first two proposed grounds of appeal are unique to the circumstances of
    this case. Although their unique nature means that neither is settled by
    authority, it also follows that neither raises any issue of overarching
    importance beyond the idiosyncratic circumstances of this case. Doubtless, the
    questions raised are of importance to the applicant. But that is not enough. No
    proceedings are extant in the requesting jurisdiction thus the applicants
    liberty interest is not implicated.

[44]

Third,
    the merits of the proposed grounds of appeal are not strong.

[45]

In
    support of the application for a Sending Order, the Attorney General for Ontario
    filed three volumes of materials that revealed a significant degree of
    interconnectedness between the affairs of Inyx Canada, for all practical
    purposes a shell company, its parent, Inyx Inc, Karver International, La
    Boutique Floriane du Québec, Karian Holdings, DBA Global Consulting, Devlin Air
    and the applicants personal finances. The applicant filed no responding
    evidentiary materials. It approaches the self-evident to say that these
    documents were business records relating to Inyx Canada.

[46]

It
    is worth reminder that the evidence here was obtained under a gathering order,
    not seized in accordance with a search warrant. In
Pokidyshev
, at
    para. 38, this court decided that on a sending hearing, the judge need not
    satisfy him or herself:

i.

that the material was gathered in accordance with a gathering order; or

ii.

that the material will afford evidence of the commission of an offence
    in the requesting state.

The argument that the applicant proposes to advance
    here is simply a repackaging of an argument that is irrelevant for the judge at
    the sending hearing.

[47]

Finally,
    the time is ripe to move this case forward, to give effect to our international
    obligations, and to put paid to some of the delaying tactics of the applicant.

CONCLUSION

[48]

For
    these reasons, the motion for leave to appeal is dismissed and leave to appeal
    is refused.

Released: July 21, 2014 (DW)

David
    Watt J.A.


