Court of Appeal of Ontario

R. v. DiPalma

Date: 2002-06-18

Docket: C36219

Counsel: None given

Per Curiam:

[1] The appellant appeals in writing from his conviction and sentence on two counts of tax evasion under s. 239(1)(d) of the Income Tax Act. After a lengthy trial, Templeton J. convicted the appellant on both counts of the indictment on March 8, 2001. On May 10, 2001, she imposed sentence as follows: on the first count, a fine of $94,050.00 and 24 months' imprisonment; on the second count, a fine of $1,040,259.00 and 40 months' imprisonment. The periods of imprisonment were concurrent and Templeton J. gave the appellant two-for-one credit for two months' pre-sentence custody, thus reducing the total period of incarceration to 36 months. The total fine of $1,134,309.00 represented 150% of the taxes sought to be evaded.

[2] For the reasons that follow, the appeal against conviction is dismissed and while leave to appeal sentence is granted, the sentence appeal is dismissed.

The Facts

[3] The appellant masterminded and executed an elaborate tax evasion scheme involving a putative mining exploration venture in Guyana, South America. The facts are complex but a brief summary follows.

[4] The appellant became interested in opportunities for mining precious minerals in Guyana in the early 1980s. Over the next several years, he made several trips to Guyana, conducted research into the mining industry in that country and made a number of contacts with individuals in Guyana who were involved or interested in mining. The trial judge accepted that, initially, the appellant had a genuine interest in becoming involved in mining and exploration in Guyana and took "numerous and substantial steps to pursue that interest." Starting in 1989, however, the nature of the appellant's interest in the Guyanese mining and exploration venture took on a different character.

[5] In 1986, the appellant met two Guyanese nationals who would become important players in this case: Kamal Drepaul and his brother-in-law Abdul Abdulla. The evidence of both of these men was introduced at trial by way of videotaped K.G.B. statements taken in Guyana by a Revenue Canada official and an RCMP officer. Mr. Abdulla was a taxi driver with other business interests and Mr. Drepaul was a mechanic who had been involved in mining in the interior. The appellant told Mr. Abdulla and Mr. Drepaul about his interest in becoming involved in a mining and exploration venture in Guyana. Mr. Drepaul accompanied the appellant on his first trip into the Guyanese interior in 1988.

[6] Two agreements underpin the appellant's putative mining exploration venture in Guyana: a loan agreement and an agreement for exploration and mining. The loan agreement is between the appellant and Mr. Abdulla and is dated June 5, 1989. The appellant is identified in the agreement as the borrower and Mr. Abdulla is identified as the lender acting as agent for other unidentified lenders. The loan agreement set the estimated cost of proposed exploration at $4,400,000. According to the document, Mr. Abdulla agreed to lend the appellant up to $5,000,000 Canadian (or its equivalent) between 1990 and 1992 for the exploration work. The agreement provided for royalties to be paid to Mr. Abdulla if there was recovery from any mining claim.

[7] The loan agreement included a number of other terms, including terms requiring the payment of interest and, importantly, terms permitting the loan to be assumed in whole or in part by individual Canadian residents. Certain terms of the loan agreement appear nonsensical. The appellant testified that a lawyer prepared the loan agreement but the trial judge expressed doubt about the truthfulness of that testimony.

[8] There was conflicting evidence about the funds that were actually advanced under the loan agreement. The appellant testified that he paid Mr. Abdulla $10,000 on signing the agreement. According to the appellant, Mr. Abdulla lent him 4,000,000 Guyanese dollars as a personal loan and arranged for the rest of the money required for the exploration venture through several wealthy contacts for a total loan of $3.7 million Canadian. Mr. Abdulla stated that the appellant borrowed only 4,000,000 Guyanese dollars from him.

[9] Like the loan agreement, the agreement for exploration and mining is dated June 5, 1989. It identifies the appellant as the investor and Mr. Drepaul as the exploration contractor. It specifies a number of geographic areas to be explored for mining by Mr. Drepaul. In essence, the trial judge found that the agreement made Mr. Drepaul responsible for implementing, supervising, licensing and overseeing the costs of the exploration project. It provided that the appellant was to pay Mr. Drepaul just over $4,000,000 Canadian between 1990 and 1992. Mr. Drepaul was required to submit a report of the exploration and account fully for the use of all funds given him by the appellant. Mining claims made as a result of the exploration were to be registered in the appellant's name.

[10] Taken together, the loan agreement and the mining and exploration agreement apparently set up a mining exploration venture in which the appellant was the owner of all mining claims arising from the venture, Mr. Abdulla and his anonymous contacts provided financing and the actual exploration work was contracted out to Mr. Drepaul.

[11] The trial judge accepted the appellant's evidence that after he returned from a trip to Guyana during which both of the above agreements were signed, he consulted a lawyer about selling an investment in the exploration venture to various Canadians. The appellant instructed the lawyer to draw up an agreement whereby Canadian investors would take on liability for the loan in Guyana and, in return, acquire an interest in the mining exploration venture. The lawyer drew up an agreement according to these instructions.

[12] The appellant is a sophisticated businessman who has been involved for years in tax return preparation. The trial judge drew an inference that, at the time the appellant entered into the loan agreement and the mining and exploration agreement, he was aware of the potential tax advantage to be gained by Canadian taxpayers as a result of assuming liability for the loan. He knew that tax refunds would be generated for the investors by the losses claimed on the mining exploration venture.

[13] The trial judge found that the appellant devised the following investment scheme. The appellant would lease the right to perform mining operations to individual investors. The investors would sign powers of attorney permitting the appellant's company, Adeldor Mining Inc., to act as their agent and carry out the mining operations. Through Adeldor Mining Inc., the appellant would obtain financing from lenders in Guyana on behalf of the investors. The investors would execute promissory notes in favour of the appellant. Investors would pay the appellant a 10% downpayment on the total work program upon signing the agreement.

[14] Initially, the mining venture would consist of research, development and geological testing. The exploration work would be performed by subcontractors of Adeldor Mining Inc. and paid for by the Guyanese lenders on behalf of the Canadian investors. There would be little or no production in the first few years. The investors would be able to deduct the costs of the mining exploration venture on their personal tax returns. The promissory notes to the appellant would be paid over two years through the tax refunds generated through the deduction of these business losses. The loan would be repaid to the Guyanese lenders through production from the mining operation. Adeldor Mining Inc. and the lenders would receive a royalty of 5% of the net profits of the mining operation.

[15] The work programs allocated to each investor would roughly correspond to their taxable income. The promissory notes would be for an amount equalling approximately 50% of the tax refunds generated over two years.

[16] Implementation of the investment scheme described above began in 1990. The appellant set up an office in his home and circulated maps, surveys, articles, business plans, geological reports and financial projections for Adeldor Mining Inc. The appellant and an associate ultimately signed up over 100 individuals as investors in the scheme. Each investor entered into a series of agreements with the appellant: a lease agreement between the appellant personally and the investor, a management agreement between the investor and Adeldor Mining Inc., and one or two promissory notes and a power of attorney from the investor to the appellant personally.

[17] A number of the investors testified at the trial. The trial judge found that all of the investors signed on to the scheme in hopes of earning a high profit in the long term and/or receiving higher tax refunds generated by business losses in the short term. Most of the investors who testified said that there were parts of the agreements that they did not understand. Many had difficulty with English and some relied totally on the appellant's explanation of the investment scheme. The appellant did not tell the investors that the actual exploration work was being contracted out to Mr. Drepaul. None of the investors were shown the agreements between the appellant and Mr. Abdulla and Mr. Drepaul.

[18] As of the time of trial, none of the investors who testified had been pursued for payment of the money they allegedly owed to Mr. Abdulla under the agreements they signed. The appellant had, however, insisted on payment of the promissory notes.

[19] All of the investors who testified had received tax refunds generated by the declaration of losses on their income tax returns. The appellant admitted at the outset of the trial that he personally prepared or provided the income and expense information contained in the Certificates of Allowable Businesses Investment Loss and the Statements of Business Income and Expenses filed by each of the investors on their 1990 to 1993 income tax returns in connection with his mining exploration venture. The appellant also admitted that if the exploration and mining expenses were false, these documents prima facie represent an evasion or attempted evasion of federal tax in the amount of $756,272. However, the defence took the position that the mens rea of the offence was not made out beyond a reasonable doubt.

[20] In the relevant years, all of the investors who testified paid part or all of their tax refunds to the appellant directly. In total, the promissory notes payable to the appellant between 1990 and 1993 amounted to over $350,000. The appellant acknowledges receiving payment on these promissory notes of $193,000 in 1992 alone. In late 1992 or early 1993, the appellant purchased a teak farm in Costa Rica.

[21] The funds received from the investors were deposited into the appellant's joint personal bank account. The appellant testified that he kept records of the amounts given to him by the investors and that these funds were transferred to another account in Costa Rica before being paid to Mr. Abdulla in US cash.

[22] The investors started to run into problems when Revenue Canada requested documentation to support the business losses they had claimed. When they looked to the appellant to help them fulfil this request, the appellant reassured them but did not produce the necessary documentation. Apparently acting on the advice of certain of the appellant's associates, a number of the investors sent objections to Revenue Canada challenging the constitutionality of the Income Tax Act.

[23] In March 1994, the appellant travelled to Guyana for about a week. During this brief trip, a large number of documents and records were created and signed by Mr. Abdulla, Mr. Drepaul and the appellant. Those documents purported to support the business losses claimed by the investors. They were generated for distribution to the investors and eventual submission to Revenue Canada. The documents were signed and notarized in blank and backdated. The appellant stated that Mr. Drepaul was to give the pre-signed documents to his accountant to be filled out. The appellant defended this procedure by stating that Mr. Drepaul had previously given him statements, "so totals cannot exceed the previous information I had, so basically it was just a matter of allocation at the time." According to the appellant, his only involvement was to supply a list of the investors' names and the amount of the expenses to be allocated to each investor.

[24] The appellant testified that he retrieved the completed documents from Mr. Drepaul and Mr. Abdulla. He returned to Canada with statements, declarations and receipts purporting to prove the amount of each investor's losses. There were also blank documents signed and notarized, which were later found in a search of the appellant's home. The appellant explained the existence of these blank documents by stating that the documents had probably been mistakenly signed when working by candlelight during a power outage. According to the appellant, power outages are common in Guyana.

[25] The appellant evidently believed that Revenue Canada's demand for production of detailed records of business expenses was unreasonable in light of the fact that his mining and exploration venture was managed by a third party in a foreign country. He testified that he thought invoices or statements from Mr. Drepaul and receipts from Mr. Abdulla would be sufficient documentation of the investors' business losses. He said he was confused about what he had to do to satisfy Revenue Canada. The trial judge rejected this part of the appellant's testimony. She held, "[i]t is my view that Mr. DiPalma knew exactly what Revenue Canada wanted. He knew what they wanted. He just did not think it was reasonable that these documents should have to be produced."

[26] Detailed records of the expenses incurred in the operation could not be produced because few expenses were ever incurred. While the appellant had an ongoing interest in mining and exploration in Guyana, the trial judge concluded that his actual involvement amounted to dabbling. The appellant could not produce detailed expense records because, as the trial judge found, "a mining and/or exploration operation to the extent alleged by Mr. DiPalma to his clients and through the submission of documents on their behalf to Revenue Canada did not exist."

[27] The trial judge found that the appellant's foreign investment and subcontracting scheme was "intentionally and carefully designed" to "mask the need for production of detailed expense records." She found that the agreements signed by the investors were no more than a "front" and that "the only obligation met in this entire scheme was the unfortunate payment of money to Mr. DiPalma personally by people who trusted him."

[28] In sum, the trial judge found that the documents submitted to Revenue Canada claiming business losses in connection with the appellant's mining exploration venture were false. And she found that, by participating in the creation of these false documents, the appellant had wilfully evaded or attempted to evade tax.

The Conviction Appeal

[29] The appellant has raised a number of grounds on the conviction appeal. His notice of appeal against conviction lists four grounds:

INCOMPETENT LAWYER

DISCLOSURE RECEIVED DURING TRIAL

DISCLOSURE REQUESTED BUT CROWN REFUSED TO PRODUCE

DENIED THE RIGHT TO MAKE FULL ANSWER AND DEFENCE

The appellant's complaints about his lawyer formed the largest part of his written argument on appeal and will be discussed below. His submission that he was denied the right to make full answer and defence was often repeated throughout his written argument but did not form an independent ground of appeal.

[30] The appellant did not focus on disclosure issues in his written submissions. While the notice of appeal refers to incidents of non-disclosure, the appellant did not offer any particulars of this allegation. He did, however, mention a few pages of late disclosure that he says he received minutes before taking the stand to testify. Apparently this late disclosure concerned the appellant's teak plantation in Costa Rica and his transfers of money to that country. The circumstances of this alleged late disclosure cannot be ascertained on the evidentiary record before us. The appellant baldly asserts that this late disclosure hindered his right to make full answer and defence.

[31] Even assuming the appellant's right to disclosure was violated by the lateness of the disclosure, an appellant seeking a new trial on that ground must demonstrate on a balance of probabilities that there is a reasonable possibility the violation of the right to disclosure affected the outcome of the trial or the overall fairness of the trial process. See R. v. McQuaid (1998), 1998 805 (SCC), 122 C.C.C. (3d) 1 (S.C.C.) in the context of non-disclosure. Beyond commenting that money transfer to Costa Rica played an important role in the trial judge's reasons, the appellant has not explained how the lateness of this disclosure might have affected the outcome or fairness of the trial. The appeal cannot succeed on disclosure grounds.

[32] In addition to the grounds listed in the notice of appeal, the appellant lists three main grounds of appeal in his written submissions:

Firstly, I ask that you address the fact that my lawyer was woefully unqualified and failed to represent me and the facts of the matter as they existed…

Secondly, I had structured my business interests to take full and lawful advantage of Canada's tax laws as I understood them to be and with a view to acting on that which I had also come to recognize as my imprescriptible right and unconditional duty, as well as the right and duty of the investors involved in my case, to refuse to aid, abet or otherwise support a society that is actively participating in plans and preparations that are predicated on a sure and certain will and capacity to commit Mass Murder.

Thirdly, the invalidity of a nonexistent entity, referred to as Her Majesty the Queen, to lay charges against me.

[33] We will deal first with the second of these grounds of appeal. While we have some difficulty understanding the appellant's submission on this ground, two things may be said. First, with respect to the appellant's assertion that he thought he was acting within the law, the trial judge found that the appellant wilfully evaded or attempted to evade federal tax. That finding was fully justified on the record and is unimpeachable on appeal. Second, neither the appellant nor the investors have any right to refuse to pay income tax. This second ground of appeal is without merit.

[34] The third ground of appeal is equally devoid of merit. Indeed, the appellant's challenge to the jurisdiction of Her Majesty the Queen is only one of a number of unmeritorious constitutional arguments raised by the appellant. We will not deal further with any of these arguments.

[35] The first ground of appeal requires closer examination. In effect, the appellant raises an ineffective assistance of counsel argument. The appellant raises a great number of instances in which he says his lawyer was incompetent and failed to represent him properly. His complaints about trial counsel included the following:

• trial counsel failed to raise a number of constitutional arguments urged upon him by the appellant, including arguments under ss. 7, 8, 11(b), 11(d) and 15 of the Canadian Charter of Rights and Freedoms;

• trial counsel made admissions and concessions without the appellant's authorization or agreement, including conceding the admissibility of the K.G.B. statements and the documents seized during the search of the appellant's home, admitting the jurisdiction of the court, and admitting that the appellant personally prepared or provided the information for the investors' statements or certificates of business losses for submission to Revenue Canada;

• trial counsel refused to call various witnesses the appellant wanted called, including Mr. Abdulla, Mr. Drepaul, Mr. Drepaul's unnamed accountant, and expert witnesses to testify about the mining industry in Guyana, Guyanese business practices, and the accounting aspects of the appellant's investment scheme;

• trial counsel never gave the appellant an opportunity to correct certain errors he had made in his testimony, even though the appellant pointed out these errors soon after testifying;

• trial counsel failed to lead certain items of exculpatory evidence of which he was aware; and

• trial counsel often slept during the trial.

It will be unnecessary to examine these allegations in detail.

[36] For an appeal to succeed on the basis of ineffective assistance of counsel, the appellant must establish that counsel was incompetent and that a miscarriage of justice resulted. R. v. B. (G.D.), 2000 SCC 22, [2000] 1 S.C.R. 520 (S.C.C.). The Supreme Court of Canada has held that "[i]n those cases where is it apparent that no prejudice has occurred, it will usually be undesirable for appellate courts to consider the performance component of the analysis." Ibid, at p. 532. This is one such case. On the evidence, the appellant has not established that he suffered any prejudice.

[37] And while it is unnecessary to consider trial counsel's performance, it is fair to observe that all of the allegations of ineffective assistance of counsel are bald assertions on the part of the appellant. In these circumstances, it is difficult to see how he could displace the strong presumption that trial counsel was competent.

[38] Moreover, in advancing this ineffective assistance of counsel argument, the appellant seems to be operating under the misapprehension that defence counsel is required to bring forward all evidence and argument suggested by the accused and to obtain approval from the accused before taking any action in the course of trial. But the proper role of defence counsel is not merely to do the bidding of the accused. Instead, defence counsel is expected and required to exercise independent judgment. R. v. Samra (1998), 1998 7174 (ON CA), 129 C.C.C. (3d) 144 (Ont. C.A.). No doubt the appellant would have conducted his defence differently if he had been unrepresented. That fact alone casts no doubt on the competence of defence counsel. The appellant cannot succeed on grounds of ineffective assistance of counsel.

[39] The appellant raises three additional general arguments in the course of his written submission on the appeal against conviction. First, he makes a number of allegations of misconduct against the police, Revenue Canada officials and prosecutors. These allegations are unsupported by the evidence.

[40] Second, the appellant points to a few alleged errors or points of confusion in the trial judge's reasons. Most of the alleged errors — for example, the appellant's allegations that the trial judge misstated the name of a Guyanese river and the year he purchased an outboard motor — are clearly immaterial.

[41] One alleged error that appears relevant and material concerns the trial judge's review of the evidence of an employee of the Guyana Geology and Mines Commission. That witness, Patricia Agrippa, testified that there were a number of documents on file at the Commission in connection with the appellant. Those documents included a prospecting licence in the appellant's name, as well as applications for trading licences and receipts for claims filing fees. According to another part of the trial judge's reasons. Ms. Agrippa also testified that the Geology and Mines Commission had no permits, licences or claims in the appellant's name.

[42] The appellant points out that these two parts of Ms. Agrippa's evidence, both of which the trial judge accepted, create confusion. In particular, Ms. Agrippa's evidence that the Commission had on file a prospecting licence in the appellant's name appears to contradict the broader statement that the appellant had no licences on file at the Commission. While we agree that Ms. Agrippa's evidence and the trial judge's acceptance of it seems confusing, we take the view that the confusion is more apparent than real. The most reasonable explanation for the confusion is that the broad statement that no claims, licences, or permits existed was intended to be qualified by the prior recognition of the existence of the prospecting licence on file at the Commission.

[43] Ms. Agrippa's testimony about the appellant's records at the Guyana Geology and Mines Commission constituted but one small part of the evidence of the extent of the appellant's involvement in mining and exploration in that country. Even if the trial judge was left in some confusion about whether the appellant had a prospecting licence on file at the Commission, we conclude that that confusion did not affect the outcome of the trial. Whether or not the Commission had on file a prospecting licence in the appellant's name, there was ample evidence to support the trial judge's finding that the Guyanese mining and exploration venture described by the appellant never existed.

[44] The final general argument raised in the appellant's submissions on the conviction appeal concerns the trial judge's factual findings. The appellant identifies a number of factual findings with which he disagrees. Most importantly, the appellant submits that there was no evidence to prove that the expenses allegedly incurred in the exploration venture were not in fact incurred. On the contrary, this key factual finding was fully supported by the evidence. The largely uncontested evidence of the way the documents purporting to prove these expenses were created is only one example of the evidence tending to show that the expenses were never incurred. In short, none of the trial judge's factual findings are unreasonable.

[45] The conviction appeal is therefore dismissed.

The Sentence Appeal

[46] After his conviction, the appellant sought to have his trial counsel removed as solicitor of record on the basis of incompetence and a breakdown in the solicitor/client relationship. The trial judge granted this request and a new lawyer represented the appellant at the sentencing hearing. As stated above, the trial judge imposed a total sentence of 36 months' imprisonment and a fine of $1,134,309 on the two counts of tax evasion.

[47] The appellant advances two grounds of appeal against sentence. We quote them here in full:

1^st reason is that the 1.1 million dollars imposed is unreasonable considering the amount of tax evaded — and not realistic. And also because the investors have also been fined for the evasion. Also the income tax evaded would have to be paid by the taxpayers to Revenue Canada after five years.

2^nd reason is that the sentence should have been based on sec. 239(d) only and not on (239(1) and 239(d)). For reason that a formal amendment for taxpayers who filed under sec. 239(1) was not possible due to the ongoing investigation and that an informal amendment was done by providing additional information similar to the information provided to taxpayers who filed under sec. 239(d). Also, Revenue Canada had obtained the documents necessary to make an amendment with a search warrant. Therefore it was not possible to properly amend the tax returns for the taxpayers who erroneously filed under (sec. 239.1).

We will deal with these two grounds of the appeal against sentence in turn.

[48] In essence, the first ground of appeal is that the fine imposed was excessive. This submission has no merit. The legislation mandates that a fine be imposed. The Crown submitted that an appropriate fine would be 150% of the taxes sought to be evaded plus a further one year in the penitentiary in default of payment. The defence suggested a fine of 100% with a further one year in prison in default of payment if imprisonment in default of payment was appropriate. The trial judge imposed a fine of 150% of the taxes sought to be evaded as suggested by the Crown. However, having determined that the appellant had no ability to pay the fine, she refused to imposed a term of imprisonment in default of payment.

[49] The trial judge's reasons for sentence reveal no error in principle. The fine imposed was appropriate in the circumstances. The fact that the investors were also exposed to penalty is not a mitigating factor that can be relied upon to reduce the appellant's fine. Indeed, the fact that the appellant exposed others who trusted him to tax penalties was properly identified by the Crown and accepted by the trial judge as an aggravating factor in sentencing.

[50] Moving to the second ground of the appeal against sentence, we have concluded that this ground does not in substance raise arguments that are relevant to sentencing.

[51] The appeal against sentence is therefore dismissed.

Disposition

[52] The appeal against conviction is dismissed. Leave to appeal sentence is granted but the appeal is dismissed.

Appeal dismissed.