Court rules former Winnipeg CAO accepted $327K bribe, must pay at least $677K

A Manitoba court has ruled in favour of the City of Winnipeg's civil claim that former chief administrative officer Phil Sheegl accepted a bribe and breached his duty as a city officer by accepting $327,000 from the contractor who built the city's police headquarters.

Justice sides with city in lawsuit against former top civil servant Phil Sheegl

A Manitoba court has ruled in favour of the city's claim against former chief administrative officer Phil Sheegl. (CBC)

A Manitoba court has ruled in favour of the City of Winnipeg's civil claim that former chief administrative officer Phil Sheegl accepted a bribe and breached his duty as a city officer by accepting $327,000 from the contractor who built the city's police headquarters.

In a 129-page decision issued Tuesday, Chief Justice Glenn Joyal of the Court of Queen's Bench granted the city's request for a summary judgment against Sheegl and two co-defendants — FSS Financial Support Services Inc. and 2686814 Manitoba Ltd. — under the torts of bribery and breach of fiduciary duty.

"This is a case about the acceptance of a bribe by a high-ranking city official, from a person with whom the city was then negotiating a multi-million-dollar contract," Joyal wrote in his decision.

The city claimed Sheegl fabricated a land deal in Arizona with police headquarters contractor Armik Babakhanians of Caspian Construction in order to cover up a $327,200 payment Babakhanians made to Sheegl.

The city sought repayment of the $327,200, as well as $250,000 in severance paid to Sheegl when he left the city, along with $100,000 in punitive costs and legal costs.

Joyal awarded the city the severance, punitive and legal costs, and may yet award the city the $327,200, pending further legal submissions. Joyal said Sheegl should not be allowed to keep that money but it is unclear who should be repaid.

This case dates back to the city's 2009 purchase of Canada Post's former downtown Winnipeg warehouse-and-office tower complex and its subsequent conversion into the new headquarters of the Winnipeg Police Service.

The Winnipeg police headquarters project has been subject of two city audits, an RCMP investigation and an ongoing civil suit. (CBC)

The $214-million purchase-and-renovation project, completed $79 million over budget in 2016, has already been the subject of two City of Winnipeg audits as well as a five-year RCMP fraud-and-forgery investigation that concluded without charges in 2019.

The city launched a civil lawsuit against Sheegl weeks after the RCMP ended that investigation.

In 2016 court documents, the RCMP alleged Caspian owner Babakhanians paid Sheegl a $200,000 secret commission for showing favour to him in the award of a contract. Police said Sheegl then split the money with former mayor Sam Katz.

In 2017, the RCMP changed the allegation, saying Sheegl committed a breach of trust by engaging in business with Babakhanians and receiving a benefit from him while the former CAO was working on the police headquarters file.

At the time, Sheegl's lawyer Robert Tapper told CBC News the money was part of a real estate deal Sheegl and Katz made with Babakhanians involving a parcel of land in Tartesso, Ariz.

The raw desert land owned by Phil Sheegl, Sam Katz and their co-investors is south of the partially constructed community of Tartesso. Babakhanians bought an interest in about one acre in 2011. (CBC)

Tapper said the property transaction was a handshake deal reached in May or June 2011 that Sheegl and Katz got around to putting on paper in May 2012.

He presented CBC News a copy of a handwritten agreement that was signed by Sheegl and had a space for Babakhanians' signature.

Caspian's Armik Babakhanians, left, and former Winnipeg mayor Sam Katz are shown in this photo from the 2015 Dream Maker Auction, a fundraising event for The Dream Factory, a Winnipeg-based charity. (

The city argued in its lawsuit the transaction was made up, pointing to a 2011 payment made by Caspian-controlled Mountain Construction to the Sheegl-controlled FSS Financial Support Services.

That payment was made days after Sheegl, acting as Winnipeg's CAO, awarded Caspian a police-headquarters construction contract later set at $137 million.

The city initially filed civil suit against Sheegl and two dozen other defendants before Sheegl convinced the court to sever his proceedings, together with FSS and 2686814 Manitoba Ltd., from those of the other defendants. The city case against them remains before the court.

Both the city and Sheegl sought a summary judgment in the case of Sheegl and his two co-defendants. Justice Joyal sided with the city, characterizing Sheegl's behaviour as reprehensible and scandalous in his decision.

"Based on the evidence before me, were I to find that Sheegl's undisclosed receipt of the $327,200 payment from Armik (for whatever reason), while Sheegl was an officer with the city and while he was negotiating a multi-million dollar contract with Armik's company, did not constitute a breach of fiduciary duty, I would in my view be sending a preposterous message," Joyal wrote.

"That message would be nothing short of suggesting that high-ranking public officials can do business in secret with persons seeking contracts from the very public bodies for whom public officials work. Neither the law nor common sense support or justify such a dubious conclusion or message."

CBC News has sought comment from Sheegl and Babakhanians.

The police initially spent three days executing a search warrant at Caspian Construction's McGillivray Boulevard office in December 2014. (Brett Purdy/CBC)

In an email to Mayor Brian Bowman and members of city council, Winnipeg chief administrative officer Michael Jack said the city is encouraged by Joyal's decision.

"It is consistent with the allegations that the city has been making for several years. We remain hopeful that the main action against the remaining defendants can be brought to a favourable conclusion as soon as possible," Jack wrote in a memo sent on Tuesday afternoon.

Jack said the city is still reviewing details of the decision. One loose end is who is in line to receive the $327,200 the city sought from Sheegl in lieu of the payment he received from Babakhanians.

"Insofar as the payment of the $327,200 did constitute a civil bribe, any portion of that tainted money paid to Sheegl cannot be permitted to remain with Sheegl," Joyal wrote, requesting oral submissions from lawyers for both parties.

Joyal also noted in his decision Sheegl only produced two emails between himself and Babakhanians as part of the discovery process even though hundreds of messages were sent between the two parties. Joyal called Sheegl's recollection of events that transpired before the police-HQ contract was awarded as "sketchy and selective."

Conspiracy outlined in court decision

Joyal said he agreed with the city's contention that Sheegl, Babakhanians, Armik's son Shaun Babakhanians and police-headquarters construction official Ossama AbouZeid conspired to induce the city to award construction contracts to Caspian by providing Sheegl with secret commissions in exchange for improper procurement advantages.

Joyal itemizes these events as follows:

  • On Dec. 15, 2010, after Sheegl blind copied Armik Babakhanians on an email to the city advocating for construction bonding on the project to be lowered, as requested by Babakhanians, the latter thanked Sheegl, stating "YOU ARE MY MAN I WILL DO YOU PROUD." Joyal states Babakhanians treated the award of the construction contracts to Caspian as a fait accompli.
  • Joyal states Babakhanians "appeared to appreciate the questionable nature of his dealings" when he tells his son Shaun the same: "Integrity, well, when we deal with politicians that tends to be compromised to a certain extent." 
  • On Dec. 16, 2010, Sheegl sent the elder Babakhanians an email, stating he was about to send him "a blind copy of a confidential email. Please be careful with it, it's part of my strategy to get this done for you." Within a minute, Sheegl forwarded  Babakhanians a copy of an email where Sheegl continued to advocate for the bonding to be lowered.
  •  On Jan. 17, 2011, Babakhanians told AbouZeid Caspian was putting together a proposal for the police headquarters project, that he would appreciate AbouZeid's help and that "Sheegl is on it." 
  • On Jan. 26, 2011, Babakhanians reminded Sheegl Caspian "really wanted this project." Sheegl responded by stating "I know and I will do everything I can to help us all succeed here together." Joyal wrote "there is clearly a common purpose and a common intention" to get Caspian the police headquarters project.
  • On Feb. 7, 2011, Armik and Shaun Babakhanians exchanged emails where they stated that "Phil and Sam [former Winnipeg Mayor Katz] are pulling for us" and that "Phil assured us" Caspian would get the project. Joyal wrote both Babakhanians made reference to a prior commitment by Sheegl and Katz to get Caspian the police headquarters project.
  • On Feb. 17, 2011, Armik Babakhanians sent an email to himself, stating Sheegl said he will get approval for a $126-million contract, "However I think he wanted 2+2 for sam and phil but the rest for us."
  • On Feb. 24, 2011, Shaun  Babakhanians forwarded his email exchange with police service official Abdul Aziz to Sheegl, commenting on a gentlemen's agreement between himself, Armik Babakhanians and Sheegl. "In particular, Shaun stated: "My letter was written knowing full well we as gentlemen have committed each other to get this done."

Former mayor Katz has also been asked to comment.

Jamie Kagan, legal counsel for AbouZeid, said his client is aware of the court's decision.

"We did not participate or take any position in the motions," he said in a statement. "We filed no evidence, did not appear on the motions and no order against or affecting our client has been made."

Justice sides with city in lawsuit against former top civil servant Phil Sheegl

9 months ago
Duration 1:37
A Manitoba court has ruled in favour of the City of Winnipeg's civil claim that former chief administrative officer Phil Sheegl accepted a bribe and breached his duty as a city officer by accepting $327,000 from the contractor who built the city's police headquarters.


Bartley Kives

Senior reporter, CBC Manitoba

Bartley Kives joined CBC Manitoba in 2016. Prior to that, he spent three years at the Winnipeg Sun and 18 at the Winnipeg Free Press, writing about politics, music, food and outdoor recreation. He's the author of the Canadian bestseller A Daytripper's Guide to Manitoba: Exploring Canada's Undiscovered Province and co-author of both Stuck in the Middle: Dissenting Views of Winnipeg and Stuck In The Middle 2: Defining Views of Manitoba.