COURT OF APPEAL FOR ONTARIO
Watt, Hourigan and Pardu JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
Robert Karey Waxman
Appellant
Brian H. Greenspan and Naomi M. Lutes, for the appellant
Alexander Hrybinsky and Randy Schwartz, for the respondent
Heard: March 24, 25 and 26, 2014
On appeal from the conviction entered on March 11, 2011 by Justice Thomas R. Lofchik of the Superior Court of Justice, sitting with a jury, and the sentence imposed on October 20, 2011, with reasons reported at 2011 ONSC 6207.
ENDORSEMENT
1Robert Waxman appeals his convictions on four counts of fraud over $5,000. His convictions on two counts of theft over $5,000 were stayed pursuant to Kienapple v. The Queen, 1974 SCC 14 (SCC), [1975] 1 S.C.R. 729. He was sentenced to eight years’ incarceration and was subject to a US $17,990,740.98 restitution order, and a fine in lieu of forfeiture of US $15,514,643.61, to be paid within three years of release from custody, failing which an additional six years’ imprisonment would be imposed. The appellant also seeks leave to appeal his sentence.
2The charges stem from the appellant’s concurrent service as a director and senior officer of Philip Services Corporation (“Philip”), a publicly held waste management firm, and as a director and senior officer of Philip Enterprises Inc., a wholly-owned subsidiary of Philip. Philip Enterprises Inc. operated as part of Philip’s “Metals Recovery Group” division, of which the appellant was president. As described below, the appellant was convicted for having wrongly profited at the expense of his employer from his undisclosed involvement in copper trading.
3During the period 1994 to 1997, Philip was experiencing cash shortages. The Metals Recovery Group helped alleviate these cash shortages through “ring out” transactions whereby the Metals Recovery Group would enter into legitimate two way transactions with an independent party for the sale and immediate repurchase of copper cathode. These transactions did not result in a change of ownership in the underlying copper, but their payment terms generated cash flow for Philip.
4Between April 1996 and April 1997, the Metals Recovery Group, under the appellant’s direction, carried out 69 three way ring out copper transactions involving Philip, an independent company, Pechiney World Trade (U.S.A.), Inc. (“Pechiney”), and a company in which the appellant held a 75 per cent ownership interest in, Parametal Trading Inc. (“Parametal”). During this period he also carried out one two way transaction involving only Parametal and Philip. Parametal's total profit on these transactions was $7,352,543.70. The appellant personally received payment through a company he owned, Monopol Commodities LLC (“Monopol”), of over $4.9 million from these transactions.
5The appellant also arranged ring out transactions involving MIT International (“MIT”), a company owned by his friend, Mark Schmidt-Fellner. Between November 1996 and April of 1997, there were seven three way ring outs involving MIT. In each of these transactions MIT would purchase copper from Philip and sell it to Pechiney. MIT made a profit on each of these transactions. The appellant held no ownership interest in MIT, however, he would instruct Mr. Schmidt-Fellner to wire money to Oracle International LLC (“Oracle”), a company he owned. MIT made a profit of $623,104.36 on these seven ring outs and most of these funds were forwarded to Oracle’s bank account.
6In addition to the ring out transactions, the appellant used his position at Philip to arrange for the transfer of copper from Philip to other parties with no payment being received by Philip. For example, Philip transferred copper to Parametal in a series of transactions, but never billed Parametal for the copper that was transferred. Parametal made a profit of $8,866,822.98 on these transactions and the appellant received approximately $8,571,060 through Oracle. Similarly, Philip bought copper from Pechiney and forwarded the copper to MIT but never sent MIT an invoice. MIT then sold the copper to Pechiney. Pechiney then paid MIT for the copper by depositing the money into MIT's bank account. Each time Pechiney paid MIT, a few days later MIT made a payment to Oracle's bank account. MIT's profit on these three transactions was $1,148,270, of which $1,092,700 was transferred to Oracle's bank account.
7At trial the appellant conceded, among other things, that the funds diverted to Monopol, Oracle and another company he controlled, Elohs SA, were used for his own personal purposes. The appellant called no evidence at trial, but argued that the jury should have a reasonable doubt as to his guilt.
8There are three grounds of appeal on the conviction appeal: (i) the trial judge erred in instructing the jury as to how the appellant’s duty to disclose his interest in the third party companies related to his mens rea for fraud; (ii) the trial judge erred in response to a question from the jury about the use of the terms “unbilled” or “unpaid” to describe some of the transactions; and (iii) the jury charge was unfair and unbalanced.
9For the reasons that follow, we see no merit in any of the grounds of appeal advanced and dismiss the appeal.
The Duty to Disclose
10The appellant asserts that the trial judge erred in instructing the jury that he had a duty to disclose his personal involvement in the impugned transactions to Philip because Philip Enterprises Inc. and not Philip was the party to the transactions.
11There was no error by the trial judge. There can be no serious contention that, as a senior officer and director of Philip, the appellant owed a fiduciary duty to his employer, Philip, which included, among other things, a duty of disclosure, a duty of good faith and the avoidance of conflicts of interest: Canadian Aero Service Ltd. v. O’Malley, 1973 SCC 23 (SCC), [1974] S.C.R. 592, at p. 606-07. The appellant’s duty of disclosure was particularly pronounced in this case, given that the purpose of the ring out transactions was to generate much needed cash flow for the parent company, Philip.
12We note as well that the trial judge cautioned the jury that failure to disclose was not criminal in itself, but that the failure to disclose might form part of the basis for a finding of intent to defraud. The trial judge also fairly set out in his charge to the jury the circumstantial evidence relied upon by the appellant to support his submission that his supervisor might have been aware of his actions.
13We conclude that the trial judge properly instructed the jury with respect to the mens rea associated with non-disclosure. Accordingly, we see no merit in the first ground of appeal.
“Unpaid” and “Unbilled”
14Turning to the second ground of appeal, during its deliberations the jury asked a question related to count 2, a count which involved transfers of copper to MIT. They asked whether they only had to be satisfied that fraud was committed beyond a reasonable doubt, or whether they also needed to separately be satisfied that the transactions were “unbilled” and/or “unpaid”. After hearing submissions from counsel, the trial judge told the jury that the terms unbilled and/or unpaid were merely labels used during the trial to refer to certain transactions. He instructed the jury that they must be satisfied that the elements of fraud were proven beyond a reasonable doubt and referred them to the guideline he had given them to assist with their deliberations in deciding whether the elements of fraud had been made out.
15The appellant asserts that the judge’s response to the jury’s question failed to recognize the central importance of the issue of whether the amounts in issue were simply unpaid or were unpaid and unbilled. He also argues that the question indicates that the jury was struggling with the issue of whether the transfers were unbilled.
16We disagree. The trial judge correctly instructed the jury that their task was to consider whether the elements of the fraud alleged had been proven beyond a reasonable doubt, and that “unbilled/unpaid” was a convenient way to refer to those transactions during the trial. The notion that these charges were unbilled and unpaid was not particularized in the indictment and the Crown was under no obligation to prove that fact.
17We also do not view the jury’s question as evidence that it was struggling to decide whether the transactions were in fact unbilled. There was no need for the trial judge to have further instructed them on this issue. Moreover, we reject the submission that the trial judge ignored the defence asserted by the appellant in response to this charge. The trial judge fairly put the defence position to the jury, much of which called for inferences based on circumstantial evidence.
Unbalanced Charge
18The final ground of appeal on the conviction appeal is the assertion that the jury charge was unfair and unbalanced. We disagree. This case was extremely complex. The trial judge did an admirable job in summarizing the arguments of the parties and the evidence in a careful and measured manner.
19The trial judge raised, at the request of the defence, the issue of hedging notwithstanding that the defence never conveyed a coherent submission on how a hedging strategy would have either prevented the siphoning of funds to the appellant or would have alleviated any concerns that the board of directors might have had, if they had in fact been advised of the appellant’s profit taking activities.
20We also find no fault with the trial judge’s legal instructions, which meticulously took the jury through the elements of each offence. Further, his responses to the jury questions were accurate and appropriate. Contrary to the submission of the appellant, we do not believe that when the jury asked for a replay of evidence that it was necessary for the trial judge to go beyond that request and further instruct the jury on the legal issues raised in the evidence that was the subject of the request.
21In summary, we see no merit in the grounds of appeal asserted by the appellant and do not find any basis for appellant intervention.
The Sentence Appeal
22The appellant asserts on his application for leave to appeal sentence that the trial judge misapprehended evidence which was critical to a proper determination of sentence, failed to consider mitigating factors, and found certain factors to be aggravating in the absence of evidence. He further submits that the trial judge erred in imposing a restitution order and a fine in lieu of forfeiture.
23We note that the appellant conceded on the hearing of the appeal that the sentence was within the appropriate range for a major commercial fraud. This was a sensible concession given recent sentences in similar cases (e.g. R v. Drabinsky, 2011 ONCA 582, R v. Koval, [2001] O.J. No. 1205 (S.C.), and R v. Bjellebo, (2003), 2003 ONCA 26907 (ON CA), 177 O.A.C. 378 (C.A.)).
24We are not satisfied that the trial judge misapprehended any evidence in imposing his sentence. In any event, even if the appellant could establish some errors regarding the relatively minor factual references complained of, he has failed to demonstrate how such alleged errors rendered the term of imprisonment unfit. Similarly, we do not see how the failure to credit the appellant for paying back approximately ten percent of the missing funds, when the trial judge found that the appellant had, at least at one point, the ability to pay back more, rendered the sentence unfit.
25This was an entirely appropriate case for a restitution order, as counsel for the appellant appeared to concede to the trial judge in making his sentencing submissions. The appellant diverted millions of dollars to his personal use at the expense of the shareholders of a public company. That he should be obliged to disgorge his ill-gotten profits is hardly inequitable. Depriving an offender of the proceeds of crime is one of the fundamental purposes of restitution orders.
26We also do not see any error in the quantum of restitution ordered. The figure utilized was taken from expert forensic accounting evidence provided at trial and on the sentencing hearing. The appellant submitted that the quantum was overstated but provided no competing figure and raised no serious issue regarding the accuracy of the amount ordered.
27In imposing the restitution order, the trial judge did not explicitly indicate that he was considering the appellant’s ability to pay, but he did so implicitly by reviewing the lack of evidence of the appellant’s finances. It hardly lies in the mouth of the appellant to complain that his ability to pay was not considered given his decision not to provide any evidence during sentencing regarding his financial position. In any event, the ability to pay is but one consideration in deciding whether to impose a restitution order, it is not determinative: R. v. Eizenga, 2011 ONCA 113, at paras. 99-103.
28The complaint raised by the appellant regarding the fine in lieu of forfeiture is that the trial judge failed to consider his ability to pay in determining the length of time for the payment of the fine. The trial judge ordered that the appellant has three years from the time he is released on parole to pay the fine. The appellant submits that the time to pay should not commence until an order in an unrelated civil proceeding freezing his assets is lifted.
29We see no basis to interfere with the time for payment ordered by the trial judge, especially given the failure of the appellant to provide the court with evidence regarding his financial position. The appellant has been granted a significant period to pay the fine. The trial judge contemplated that, if he was unable to meet this deadline, further incarceration was not automatic, as he would be permitted to make submissions to the court regarding his inability to pay.
30An issue arises concerning the interplay between the restitution order and the fine in lieu of forfeiture order. On the current wording of the court’s orders, it is theoretically possible that payment of restitution would not be credited against the fine in lieu of forfeiture, thus exposing the appellant to the risk of double collection of the same amount. The parties have assured us that this is not their understanding of the orders and that any payment made would be credited to both orders equally.
31For greater certainty, we would amend the order of the trial judge to state: “the restitution order shall take priority over payment of the fine in lieu of forfeiture ordered herein, and the fine in lieu of forfeiture shall be reduced by any amount paid pursuant to the restitution order”.
32The appeal from conviction is dismissed. Leave to appeal sentence is granted but the sentence appeal is dismissed save for the clarification noted in the preceding paragraph to ensure that payment of restitution is also credited against the fine in lieu of forfeiture imposed by the trial judge.
“David Watt J.A.”
“C. W. Hourigan J.A.”
“G. Pardu J.A.”
