COURT OF APPEAL FOR ONTARIO
Simmons, Rouleau and Karakatsanis JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
Ivan Valovic and Ivan’s Electric Limited
Appellants
Murray Shore and Daniel Moore, for the appellants
Robert Goldstein, for the respondent
Heard: March 7, 2011
On appeal from the judgment of Justice John R. Belleghem of the Superior Court of Justice dated May 22, 2009, dismissing the appeal from the summary conviction entered by Justice J. Elliott Allen of the Ontario Court of Justice on October 19, 2006, with reasons reported at [2006] O.J. No. 5564.
1Ivan Valovic, his wife Dagmar and their co-owned company Ivan’s Electric Limited were convicted summarily of multiple counts of GST and income tax evasion and filing false tax returns contrary to s. 239(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), and s. 327(1) of the Excise Tax Act, R.S.C. 1985, c. E-15.
2The summary conviction was upheld on appeal to the Superior Court of Justice although the sentence was varied to vacate the custodial portion of the sentence.
3Mr. Valovic and Ivan’s Electric Limited now seek leave to appeal the summary conviction appeal decision. They argue that the summary conviction appeal judge misinterpreted the trial judge’s reasons, reached unreasonable conclusions and, as a result, failed to exercise his appellate jurisdiction properly. Dagmar Valovic does not appeal.
4The threshold question for the court is whether leave to appeal ought to be granted. As set out in R. v. R.(R.) (2008), 2008 ONCA 497, 234 C.C.C. (3d) 463 (Ont. C.A.), at para. 37, leave to appeal should be granted sparingly, taking into account the significance of the legal issues raised to the general administration of criminal justice and the merits of the proposed grounds of appeal.
5For the reasons that follow, we do not grant leave to appeal. The issues raised in the proposed appeal have little significance to the administration of justice beyond this case and the merits of the proposed appeal are not strong. We also agree with the summary conviction appeal judge that the case against the appellants was overwhelming. Although the trial judge’s reasons contain two unfortunate comments, they do not, as the appellants suggest, raise significant issues of trial fairness.
ANALYSIS
1. No broader significance to the administration of justice
6The appellants claim that the proposed appeal would be the first time a provincial appellate court in Canada has specifically dealt with the issue of what sort of evidence, in addition to a discrepancy demonstrated by a net worth analysis, is required to prove the actus reus of tax evasion. A net worth analysis calculates the taxpayer’s net worth at the beginning and at the end of the period under review. Where the taxpayer’s declared income and other sources of money cannot account for the increase in the taxpayer’s net worth, a discrepancy is demonstrated and may lead to the inference that the taxpayer earned income that was not reported to the tax authorities.
7We do not give effect to this submission. That issue was recently addressed in R. v. Hunter, 2008 ONCA 103, where this court held at paras. 4-5 that in the appropriate case, a discrepancy alone is sufficient to prove the actus reus. In the present case, this is precisely what the trial judge concluded. The conclusion was open to him based on the extent of the discrepancy, the appellants’ failure to keep proper books and records, the absence of any evidence explaining the discrepancy, and the evidence as to the accuracy of the net worth calculations relied on by the Crown.
2. There is no significant merit
8Although the appellants listed several grounds of appeal in their factum, in oral submissions it became apparent that the appeal centred on two statements made by the trial judge in his reasons. The appellants contend that these two statements indicate that the trial judge improperly stereotyped electricians as likely to evade taxes and, by relying on documents suggesting Mr. Valovic was involved in an unrelated fraud scheme, engaged in prohibited propensity reasoning.
9Both of these problematic statements were raised as grounds of appeal in the summary conviction appeal court and were rejected by the summary conviction appeal judge. We will address each of the two statements in turn.
a) Did the trial judge improperly stereotype electricians as likely to evade taxes?
10The first of the impugned statements is the following:
The likely source of funds in this case is the electrician business which as a trade is notoriously likely to involve cash transactions more or less depending on the inclination of the tradesman. When the books of Ivan’s Electric reveal the failure to keep proper records, the potential source of undisclosed funds is obvious.
11The appellants submit that the trial judge’s use of the word “notoriously” to describe the propensity of a particular group of tradespeople to engage in cash transactions casts those transactions and those tradespeople in a pejorative light, suggesting that there is something unseemly or illicit in the practice. This, in the appellants’ submission, shows that the trial judge demonstrated bias by stereotyping a group to which Mr. Valovic belongs as having a propensity to commit the crime of tax evasion.
12We disagree. That issue was fully canvassed and rejected by the summary conviction appeal judge. In our view, this passage in the reasons does not indicate that the trial judge was stereotyping or improperly taking judicial notice of the nature of the electrician trade as being a cash business or expressing a bias against electricians. The record shows that Mr. Valovic described himself as a sole practitioner electrician who repairs televisions, microwaves, videocassette recorders and other small appliances, and who does most of the work himself. Given the small and inexpensive items Mr. Valovic repaired, it was open to the trial judge to infer that the unexplained increase in net worth of Mr. Valovic was likely as a result of his making unrecorded cash transactions.
13Read in the context of the reasons as a whole, the statement does not suggest that the trial judge was biased against electricians. Although the comment should have been restricted to the nature of Mr. Valovic’s business and his circumstances rather than referring to electricians generally, it is apparent that the trial judge was addressing the issue of the likely source of Mr. Valovic’s undeclared income.
b) Did the trial judge make improper use of the Nigerian scheme documents?
14The appellants argue that the trial judge’s reference in his reasons to correspondence between Mr. Valovic and a Nigerian contact raises concerns as to whether the trial judge engaged in inappropriate propensity reasoning and whether the appellants had a fair trial. To understand the appellants’ concern, we need to provide context.
15In the course of the trial, a number of documents were entered into evidence suggesting that Mr. Valovic was considering getting involved in what appeared to be a $21 million fraudulent scheme with someone in Nigeria. The scheme does not appear to have been carried out and, in any event, it was unrelated to the charges before the court. The documents indicated that Mr. Valovic opened a bank account in Slovakia at or around the time of that correspondence and that the account was related to the scheme he was discussing with the Nigerian contact. The documents also contain a statement by Mr. Valovic indicating his awareness of there being tax implications if the Canada Revenue Agency became aware of the proposed fictitious invoices.
16The Crown submitted that the Nigerian documents served to show that the appellants knew that they had to pay taxes on income. The documents were also tendered to counter the defence’s suggestion that the Slovakian bank account had been opened and used by Mr. Valovic to receive a gift from his father. Receiving a gift through an overseas account could have served to explain the discrepancy in Mr. Valovic’s net worth analysis.
17The portion of the reasons containing the impugned statement appears towards the end of the trial judge’s analysis of the mens rea component of the offence. It comes after the trial judge found that Mr. Valovic had deducted personal expenses from his business income and after he rejected the suggestion that this was due to sloppy bookkeeping. The statement is as follows:
One particularly informative piece of evidence was the correspondence around the Nigerian scheme. It appeared Mr. Valovic was prepared to submit a huge fraudulent invoice to his Nigerian contact and that he was alert to the tax implications. That is compelling evidence of his dishonesty and guile. On the basis of the evidence presented I am of the view that there is no real possibility that the discrepancy in net worth came about as a result of sloppy bookkeeping or some other mistake.
18The appellants argue that the statement shows that the trial judge engaged in inappropriate propensity reasoning. The appellants further argue that the trial judge had stated in the course of final submissions that he would make no use of the Nigerian documents, and thus his use of the documents for any purpose, even to show that Mr. Valovic knew he had to pay taxes, rendered the trial unfair.
19We disagree.
20During final submissions, the defence argued that the apparent fraudulent scheme disclosed in the Nigerian documents was highly prejudicial as it reflected disreputable conduct. The trial judge made it abundantly clear that he agreed with the concern and that he would not use the documents to infer disreputable conduct or propensity. As to the two bases for which the documents were originally tendered in evidence, the trial judge advised the Crown that there was no need to use the documents to demonstrate that Mr. Valovic knew that he had to pay taxes, since that was not a live issue by the time the trial was completed. The trial judge appears to have accepted the use of the documents to counter any suggestion that the Slovakian account was a source of gifted funds from his father. This, however, was a very minor point.
i) The propensity reasoning concern
21The propensity reasoning concern was fully canvassed on the summary conviction appeal. That court found that the trial judge did not use the documents for prohibited propensity reasoning. This conclusion is fully supported by the lengthy exchange between counsel and the trial judge wherein the trial judge demonstrated a clear understanding of the prohibition on using the documents either as similar fact evidence or to show a dishonest propensity and unequivocally stated that he would not use the documents for such improper purposes. The summary conviction appeal judge’s conclusion that the reference to the Nigerian documents was “nothing more than a general ‘throw away’ comment and that the trial judge did not make any finding of dishonest propensity to bolster his finding that the appellants had the necessary mens rea” is supported by a reading of the transcript and reasons as a whole.
22Although we consider the trial judge’s comment that the Nigerian Scheme is “compelling evidence of [Mr. Valovic’s] dishonesty and guile” to be truly unfortunate and gratuitous, it does not, in our view, amount to a reviewable error, nor does it alone or together with the comment regarding the electricians demonstrate a reasonable apprehension of bias.
ii) The trial fairness concern
23Although it appears from the reasons that the trial judge used the Nigerian Scheme documents to indicate that Mr. Valovic was alert to the tax implications of earning revenue, something the trial judge said was not necessary, the reference is, in our view, harmless. As explained by the trial judge, using the documents for that purpose was unnecessary because Mr. Valovic’s knowledge of the tax implications of earning revenue was not a live issue by the end of the trial. The appellants’ trial counsel did not suggest otherwise. It is apparent, therefore, that the appellants suffered no prejudice from the trial judge’s reference to the Nigerian documents in this context.
CONCLUSION
24All of the grounds of appeal raised in this court were raised and rejected in the summary conviction appeal court. In addition to rejecting these grounds of appeal, the summary conviction appeal judge carefully reviewed the evidence and concluded:
[T]he evidence in this case was overwhelming against the appellants. In particular, the net worth evidence was structured in such a way as to give the appellants the benefit of the doubt on virtually every item in dispute other than those such as the purported shareholders meeting in Barbados. Common sense would tell anyone that this was nothing but a sham.
25The summary conviction appeal judge also rejected the suggestion that this was a case of inadvertent sloppy bookkeeping. Mr. Valovic had previously been audited by the Canada Revenue Agency and had undertaken to keep proper records, which he had not done.
26In our view, the grounds of appeal from the summary conviction appeal court are not strong. As there is no legal issue raised that has significance to the general administration of criminal justice, the appellants have not met the test set out in R. v. R.(R.). Leave to appeal is denied.
“Janet Simmons J.A.”
“Paul Rouleau J.A.”
“Karakatsanis J.A.”
RELEASED: April 21, 2011
