Contractor on failed high-speed internet project violated customers’ privacy, City of Morden alleges



a close up of a person using a laptop computer: A contractor is suing the City of Morden over the failed Morenet project to provide high-speed internet to residents. In a countersuit, the city alleges he breached his agreement by 'conducting unauthorized surveillance and monitoring of internet traffic through Morenet,' and violated the privacy of customers.


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A contractor is suing the City of Morden over the failed Morenet project to provide high-speed internet to residents. In a countersuit, the city alleges he breached his agreement by ‘conducting unauthorized surveillance and monitoring of internet traffic through Morenet,’ and violated the privacy of customers.

A contractor hired to develop high-speed internet service for a southern Manitoba community violated customers’ privacy by installing “unauthorized surveillance and monitoring software,” the City of Morden alleges in court documents.

The allegation is made in a counterclaim filed by the city in October, in response to a lawsuit by Sergii Polishchuk and a former Morden city engineer over the cancelled Morenet project.

The counterclaim alleges Polishchuk not only failed to develop the internet service, but also carried out inappropriate surveillance activities under both the Morenet agreement and a separate agreement he had to provide IT services to the city.

Polishchuk, with his business Infotec Manitoba, was contracted by Morden in 2018 to develop the high-speed service known as Morenet.

The city of more than 8,000 announced the internet service in April 2018, saying it would be maintained by the municipality through property taxes and offered at no extra monthly fee to city residents, after a $400 installation fee.

City council terminated the agreement in December 2019, court documents show.

The city alleges Polishchuk breached his agreements with the city by “conducting unauthorized surveillance and monitoring of internet traffic through Morenet,” and “installing unauthorized surveillance and monitoring software and thereby violating the privacy and confidentiality rights of customers, staff of the city, and city councillors.”

Polishchuk established an “unauthorized backdoor access to the server contrary to standard industry practice and inappropriately avoiding the usual logs generated by accessing the system,” the counterclaim says.

Neither the allegations in the counterclaim, nor those in the original lawsuit, have been proven in court. 

Contractor suing for $500K

In his statement of claim, Polishchuk had said he fully performed all services required of him under the Morenet service agreement until it was cancelled. His lawsuit, filed in Manitoba Court of Queen’s Bench last July, seeks more than $500,000 in damages.

In its statement of defence and counterclaim, the City of Morden alleges Polishchuk, operating as Infotec, collected payment of almost $1 million in 2018 “by exploiting his relationship to the city,” but “failed to deliver the Morenet project as represented and exposed the city and the users of Morenet to unnecessary risk and liability.”

It says the city was told the initial capital cost of a network to provide internet to all residents of Morden would be between $300,000 and $400,000, and that it could be ready by the fall of 2018. 

However, the installation of Morenet did not progress as initially projected, the counterclaim says, and by the fall of 2018 the service was available to only about 400 customers. Updated estimates for capital and operating costs were “far in excess of the original projections.”

After the Morenet agreement was cancelled, Morden contracted a different company to develop internet technology for residents and businesses across the city.

In addition to Polishchuk, former city engineer David Haines and former city manager John Scarce are also named as defendants in the counterclaim by Morden.

Haines was the person primarily responsible for initiating the Morenet project and moving it forward, the city claims, adding it approved the project based on representations he made.

City denies damaging reputation

The city’s defence statement denies allegations by Polishchuk that the city made untrue statements disparaging him, or that the city intentionally damaged his reputation.

Similarly, the city denies allegations its representatives made statements disparaging the services and integrity of Haines, the former city engineer.

Polishchuk’s lawsuit alleges confidential information about the technology he designed “was wrongfully disclosed by [the city] to third parties, including competitors of Polishchuk,” which the city also denies.

Polishchuk and Haines had also alleged that they began negotiating with the city in April 2019 to acquire the Morenet’s assets in order to continue development of the service, but the city ended those negotiations unilaterally and in “bad faith.”

The city denies that and says “at no time did it have an obligation to sell the Morenet assets to the plaintiffs” after they allegedly failed to fulfil their obligations.

Employee ‘inappropriately directed funds’: counterclaim

The City of Morden also alleges Haines, its engineer, violated an employee code of conduct and was in a conflict of interest by “deriving a direct or indirect benefit or interest from a municipal contract” on which he influenced decisions.

While acting as a senior city administrator, Haines “inappropriately directed funds” from the city into a numbered company he controlled, the counterclaim alleges.

It says Haines failed to properly disclose to the city that he was the sole shareholder of the numbered company, which was paid more than $90,000 in 2018 and 2019 to provide services and materials to the city.

The counterclaim says Haines failed to properly advise the city on the costs to complete, and then operate Morenet, and alleges he failed to advise on the regulatory requirements of providing internet services, including registering with the CRTC.

In his former role as city manager, Scarce is alleged to have breached his duties to the city through actions such as failing to properly advise on the amounts of money being paid related to the Morenet project to Infotec, Haines, and the numbered company.

The lawyer representing Polishchuk and Haines said his clients have no comment on the statement of defence and counterclaim.

CBC News was unable to reach Scarce.

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