Former Winnipeg CAO Phil Sheegl loses appeal, must pay $1.1M for accepting bribe from police HQ contractor

Former Winnipeg chief administrative officer Phil Sheegl has lost his appeal of a Court of King's Bench ruling that found he accepted a bribe from the contractor responsible for the city's police headquarters.

The 2022 King's Bench decision also found Sheegl favoured that contractor in the tendering process.

A Manitoba Court of Appeal  decision issued Friday morning dismissed Sheegl's appeal of the 2022 judgment and said the punitive damages awarded by the lower court could have been higher in order to adequately punish and denounce Sheegl for his actions and deter future ethical breaches by municipal officials.

"The evidence of Sheegl's dereliction of duty is nothing short of staggering," appeal court Justice Christopher Mainella wrote in a decision on behalf of himself and fellow justices Janice leMaistre and Freda Steel.

That 40-page decision states Sheegl engaged in 14 breaches of duty from 2010 to 2012, when Winnipeg was selecting a contractor to convert the former Canada Post complex in downtown Winnipeg into a new police headquarters.

Some of those breaches involved providing confidential information to Armik Babakhanians, the owner of police HQ contractor Caspian Construction, as well as manipulating the tendering process to favour Caspian.

In addition to those breaches, the appeal court stated Sheegl accepted $327,200 from Babakhanians and was involved in "conjuring up a sham transaction" with Babakhanians in Arizona to try to explain the payments away.

"There can be no reasonable debate that Sheegl failed to provide the city with the required loyal and disinterested advice in several ways during the tendering of contracts on the project, separate and apart from the bribery allegation," Mainella wrote in the decision.

The appeal court also noted Sheegl refused to disclose relevant emails to the city during the civil lawsuit launched against him by the City of Winnipeg, effectively "obstructing discovery of truth" to the point where where the city had to take the "extraordinary remedy" of compelling the RCMP to hand over files compiled during a criminal investigation of the police HQ project. 

The appeal court also noted that although former Winnipeg mayor Sam Katz was not a party to the lawsuit and is not accused of any wrongdoing, he can be considered a material witness.

Katz "received precisely half the money" paid to Sheegl by Babakhanians, Mainella noted.

The appeal court found Sheegl's effort to dismiss the claims against him were not persuasive, raised no point of substance and had little merit.

Sheegl is now required to pay the city approximately $1.1 million. That includes $327,200, plus $50,000 in interest, in what amounts to the return of the bribe money.

He must also pay $250,000, plus $32,000 in interest, in what would be a return of the severance payment the former CAO received when he left the city.

Sheegl is also required to pay the city $333,000 in court costs plus $100,000 worth of damages.

"The bribery scheme here impacts not just one or even many victims, but public confidence in municipal government generally," Mainella wrote.

"Deterring and denouncing public corruption is a matter not just for the criminal courts because, as is the case here, sometimes criminal law solutions are unworkable or unsuccessful," the decision said.

"Bribery prosecutions are complicated and rare; however, that does not mean the law is powerless to address the 'evil' of bribery."

'Reprehensible' conduct could justify higher damages: court

The appeal court also noted the Court of King's Bench could have awarded higher punitive damages.

"The conduct of Sheegl was so serious and so reprehensible that the bounds of rationality could have justified a much higher award of punitive damages than $100,000 to satisfy the need for retribution, deterrence and denunciation in light of the total award and the conduct in issue," Mainella wrote.

"Coverups by public officials and being dishonest about one's disclosure obligations in a civil suit will not be tolerated."

Sheegl's legal counsel, Robert Tapper, declined comment, saying he had yet to speak to his client.

City officials said they were pleased with the decision.

"We always felt the evidence was really clear of what had occurred here, particularly with respect to the conduct which was the subject of the litigation," current Winnipeg CAO Michael Jack said in an interview.

Other defendants in the city's legal action over the police headquarters, including Caspian and Babakhanians, agreed to settle with the city in March.

The City of Winnipeg is poised to receive $21.5 million to $28 million in that settlement, depending on how long it takes for money to be paid back.

Between that and the judgment against Sheegl, the city "is poised to recover a significant sum of money," Mayor Scott Gillingham said in a statement.

"That's a victory for the people of Winnipeg."

The Winnipeg Police Headquarters opened in 2016 after the city spent $214 million buying Canada Post's former office tower and warehouse complex on Graham Avenue and converting it into a new home for the Winnipeg Police Service.

City council originally approved the project in 2009 at a total cost of $135 million for both the purchase and construction. The construction component alone ballooned to $137.1 million by 2011 and then eventually to $156.4 million, not including additional work outside the scope of the core contract, described as "soft costs" by the city.

The real estate procurement portion of the project was one of the subjects of a 2014 audit that found the city did not seriously consider any other location for the project. 

The construction component of the project was subject to a city-commissioned external audit in 2014 and a five-year RCMP investigation that concluded in 2019 without any charges.