View All News Items

Judge orders Ottawa to pay $70M - Friday, August 15, 2003 at 10:50

http://www.nationalpost.com/utilities/story.html?id=C6691B2D-9CA7-4A3E-B8E3-91FE73DFCAB7

Judge orders Ottawa to pay $70M
Treatment of company is called shocking - internal e-mail advised 'sink the suckers'
 
Andrew McIntosh
National Post
Tuesday, August 12, 2003

OTTAWA - A Superior Court of Ontario Justice has ordered the federal government to pay more than $70-million to a now-defunct Ontario company and two investors after ruling that scheming and lying Canadian bureaucrats virtually destroyed the firm while defrauding the U.S. government.

Amertek Inc., once a maker of fire rescue truck bodies, and its backers were unsuspecting victims of "shocking behaviour on the part of federal civil servants, behaviour that would cause the reasonably informed person to lose confidence in a Crown corporation and a department of the federal government," Mr. Justice John O'Driscoll wrote in a searing 198-page decision handed down in Toronto last week.

The "shocking behaviour" included the sending of an e-mail by a bureaucrat describing the company as "suckers" who should be pushed into bankruptcy.

The judge ordered the Canadian Commercial Corporation (CCC), a federal Crown corporation, and the Attorney-General of Canada to pay US$26.5-million plus interest and other damages from 1985 to Amertek Inc. (the remains of which are now known as Shu-Pak Equipment of Guelph, Ont.) and two investors, Dr. Victor Mele and the estate of the late Dr. William Forder. The total, according to a formula in the court judgment, adds up to more than $70-million.

Robert C. Taylor and John F. Collins, Amertek's Toronto lawyers, called their stunning legal victory after an 87-day trial last year "bittersweet."

Amertek was all but wiped out, one of its investors is now dead and hundreds of jobs at the Amertek plant in Ontario were lost, the lawyers said.

"What the judge is doing here is using his power to force the government to disgorge the benefit it enjoyed because of its wrongful conduct," Mr. Collins said

Added Mr. Taylor: " As they say, the CCC has a lot of explaining to do."

Patrick Doyon, the CCC's director of communications, said officials at the Crown corporation received the court judgment late last week and are analyzing it.

"It's voluminous and complex. We have 30 days to decide if we will appeal," Mr. Doyon added, declining comment on the judge's criticism of the agency and its staff.

The Amertek case is the latest in a series of criminal and civil cases in which alleged or proven misconduct by federal bureaucrats has been exposed in what Canadian Alliance MP John Williams calls an "ethical malaise" sweeping the public service.

The incidents have included alleged bribery of Immigration judges and a Health Canada bureaucrat, embezzlement by a Public Works accountant and allegations by helicopter manufacturers that the Liberal government has rigged the bidding for its new Maritime helicopter to favour a French consortium.

The Amertek story began in 1984, when the Canadian and U.S. governments awarded contracts to Quebec-based Walter Trucks Inc. to build fire and crash rescue trucks for Transport Canada and the U.S. Army. The deal was part of a federal regional development strategy.

Performance of the U.S. military deal was guaranteed by the CCC, a little-known Crown corporation that guarantees all Canada-U.S. military contracts by ensuring Canadian bidders have the financial and technical strength to honour their deals.

A few weeks after getting the U.S. Army deal for 362 fire trucks over five years, Walter Trucks went bankrupt, leaving the CCC with almost $20-million in penalties owing to the U.S. Army because it had negligently failed to ensure its Canadian contractor could deliver the trucks on time and according to specifications.

Senior CCC officials persuaded Amertek to take over the contract -- without checking on Amertek's own finances or technical ability to do the job and misleading the company about serious flaws it knew about with Walter's low-cost bid.

Canadian officials sought the consent of U.S. Army officials to substitute Amertek for Walter, telling U.S. military brass that the Canadian firm had the money and technical ability to handle the big contract.

In fact, CCC officials felt the opposite was true and said as much in internal reports, but concealed that information from both Amertek and the U.S. Army.

"This was fraud on the U.S. government, a third party," Judge O'Driscoll wrote. "It is relevant because without obtaining the consent of the U.S. government for Amertek, the CCC and Department of Supply and Services [now called Public Works] would have had no one to manufacture the 362 crash trucks and CCC would have been liable under the default clause of the prime contract."

"This was a Crown corporation withholding material information and telling lies to a supplier, known by CCC to be a novice that trusted its government to be acting in its best interests," Judge O'Driscoll added.

Amertek went out of business in 1993 after incurring significant losses on its big U.S. Army truck contracts. Part of its operations continue under the Shu-Pak name, making recycling side loader trucks.

Dennis Mills, a Toronto Liberal MP, subsequently pressured the government to review the CCC officials' conduct in the case. Public Works hired auditors at Deloitte Touche to conduct "an objective, independent and comprehensive review."

Instead, Judge O'Driscoll found, the government hired auditors who had done considerable prior work for the CCC. Worse, their report was reviewed by the president of CCC, Douglas Patriquin, at every stage of the process and of its editing.

Mr. Taylor and Mr. Collins, the lawyers for Amertek, argued the Deloitte Touche review, which cleared CCC officials of any improper conduct, was "a farce" and "a whitewash" done to curry favour with CCC for future business.

"I agree with those submissions," Judge O'Driscoll wrote.

The 25,000 pages of evidence submitted to the court established that the CCC and other government officials engaged in a long course of deception and wrongdoing toward Amertek and the U.S. government, he added.

After Amertek launched its legal action to recover money lost after it was misled about potential profits on the truck contract, CCC and federal officials involved even began what the judge called a campaign to drive Amertek out of business by forcing it into bankruptcy twice.

One piece of evidence was particularly shocking. It involved an e-mail written by Paul E. McKenna, a senior CCC official, who was discussing bankruptcy court proceedings involving Amertek, which was making a proposal to its creditors to restructure and repay a portion of its last few debts.

"Voting against the proposal as it stands, will see Amertek Inc. being deemed to have made an assignment in bankruptcy," Mr. McKenna wrote.

"As I see it here, this is our chance to sink the suckers in bankruptcy. They are out on the plank. Let's keep them walking," Mr. McKenna added in his e-mail to CCC in-house legal counsel and other senior CCC executives.

At trial, a sanitized version of the "suckers" e-mail was produced and Mr. McKenna testified he created the sanitized one before the original.

Judge O'Driscoll said he did not believe Mr. McKenna.