DATE: 20031014

DOCKET: C33343-C33618

COURT OF APPEAL FOR ONTARIO

MACPHERSON, SHARPE and CRONK JJ.A.

B E T W E E N:

C33343

HER MAJESTY THE QUEEN

Einar Bellfield

appearing in person

(Respondent)

David E. Harris

• and -

for the appellant, Minchella

EINAR BJELLEBO (A.K.A. BELLFIELD)

David Littlefield and

(Appellant)

A N D B E T W E E N:

HER MAJESTY THE QUEEN

(Respondent)

• and -

OSVALDO MINCHELLA

(Appellant)

Peter DeFreitas for the respondent

C33618

Heard: October 6 and 7, 2003

On appeal from the conviction of Justice Sandra Chapnik of the Superior Court of Justice, sitting with a jury, dated December 9, 1999.

SHARPE J.A.:

[1] The appellants were convicted of two counts of fraud and two counts of uttering forged documents after a nine-month trial before Chapnik J. and a jury. The fraud entailed a complex scheme involving Overseas Credit and Guaranty Corporation (OCGC) and the sale of limited partnerships to approximately 600 investors. The crown alleged that the investors were defrauded of approximately $22,000,000 and that approximately $118,000,000 in fraudulent tax losses were claimed. Bellfield was sentenced to ten years imprisonment and a fine of $1,000,000 and Minchella was sentenced to seven years imprisonment. The appellants appeal both conviction and sentence.

1. Conviction Appeals: Charter Issues

[2] The central issue on the conviction appeals is the admissibility of evidence obtained in violation of the appellants’ s. 7 and s. 8 rights under the Canadian Charter of Rights and Freedoms. After a lengthy pre-trial Charter motion, the trial judge found a violation of ss. 7 and 8, but ruled that the evidence should be admitted under s. 24(2). The appellants argue that the trial judge erred in two ways: first, that the nature and extent of the Charter breach was more serious than found by the trial judge; and second, (especially if the trial judge erred with respect to the extent of the Charter breach) the evidence should have been excluded under s. 24(2).

[3] With respect to ss. 7 and 8 of the Charter, the issue is one of timing. When did the violation of the appellants’ ss. 7 and 8 rights start? Revenue Canada’s Tax Avoidance Section (“TA”) began an investigation of the business losses claimed by various investors in the OCGC partnerships in 1986. The Special Investigations Section of Revenue Canada (“SI”) became involved in May 1987. Thereafter, from June 1987 to June 1989 when search warrants obtained under the Income Tax Act (“ITA”) were executed, SI and TA carried out a joint investigation, sharing information gathered and collaborating on strategy. The involvement of SI was not disclosed to the appellants, and active steps were taken to avoid disclosure of SI’s participation until the execution of the ITA search

warrants.

[4] The trial judge ruled that in relation to this investigation the point at which the appellants’ Charter rights arose was January 1988. She found that by that date there were reasonable and probable grounds to support a criminal prosecution and that the appellants, accordingly, were entitled to Charter protection.

[5] At trial, Chapnik J. did not have the benefit of R. v. Jarvis (2002), 2002 SCC 73, 169 C.C.C. (3d) 1 (S.C.C.) and R. v. Ling (2002), 2002 SCC 74, 169 C.C.C. (3d) 46. The appellants submit that the application of the “predominant purpose” test established by Jarvis and Ling would push back the date upon which Charter rights arose to the time when SI first became involved in the investigation. They argue that since SI’s role is to prosecute, the only reason for SI’s involvement from the start was the potential criminal prosecution of OCGC and its principals. According to the appellants, Charter rights were breached from the very beginning of SI’s involvement in the case.

[6] As SI’s mandate is prosecution rather than enforcement, SI’s involvement is clearly an important factor to consider in determining when Charter rights arise. However, I do not accept the submission that from the moment SI became involved in this case, the appellant’s Charter rights were thereby automatically triggered. That argument is not borne out by Jarvis where, at para. 88, the Supreme Court held that there is “no clear formula” that can determine when the income tax authorities “cross the Rubicon” that divides compliance from prosecution, and engages “the adversarial relationship between the taxpayer and the state” so as to trigger Charter rights. Rather, said the Supreme Court, “one must look to all factors that bear upon the nature of that inquiry”, and the involvement of SI is only one of the factors to be considered. At para. 94, the Court stated:

In this connection, the trial judge will look at all factors, including but not limited to such questions as:

(a) Did the authorities have reasonable grounds to lay charges? Does it appear from the record that a decision to proceed with a criminal investigation could have been made?

(b) Was the general conduct of the authorities such that it was consistent with the pursuit of a criminal investigation?

(c) Had the auditor transferred his or her files and materials to the investigators?

(d) Was the conduct of the auditor such that he or she was effectively acting as an agent for the investigators?

(e) Does it appear that the investigators intended to use the auditor as their agent in the collection of evidence?

(f) Is the evidence sought relevant to taxpayer liability generally? Or, as is the case with evidence as to the taxpayer’s mens rea, is the evidence relevant only to the taxpayer's penal liability?

(g) Are there any other circumstances or factors that can lead the trial judge to the conclusion that the compliance audit had in reality become a criminal investigation?

[7] While the trial judge did not have the “predominant purpose” test in mind, she did make certain findings on several of these factors. I have already mentioned her finding on the first point: in her view, the authorities did not have reasonable grounds for prosecution until January 1988. She was not persuaded that the general conduct of the authorities was consistent with the pursuit of a criminal investigation from the start. Rather, she found OCGC’s tax returns and supporting accounting information had to be obtained and considered before any assessment of the legitimacy of the scheme could be made. She also rejected the contention that TA was acting as the agent for SI.

[8] I would not interfere with these findings. In my view, they support the respondent’s position that the mere involvement of SI and the use of statutory powers to compel production of the OCGC tax returns and supporting accounting records did not reveal that the predominant purpose was that of prosecution. The income tax authorities did not “cross the Rubicon” of compliance and enter the territory of prosecution from the moment of SI’s involvement.

[9] It may be the case that upon full consideration of the Jarvis factors the predominant purpose test was met at a date somewhat earlier than January 1988. In other words, as applied in Ling, the adversarial relationship between the appellants and the state may have been engaged prior to the date upon which SI had reasonable and probable grounds for prosecution. Certainly the inquiries and activities of the investigators progressed steadily along a continuum from June 1987 to January 1988. In the circumstances of this case, however, I find it unnecessary to decide the precise date of the Charter breach since I am not persuaded that the result would be different under s. 24(2) in any event. In my view, the appellants simply cannot overcome the trial judge’s finding that any evidence obtained as a result of the Charter breach would have been obtained from an independent source or was otherwise discoverable. The trial judge made the following key findings that are unassailable on the record before us:

• The appellants began creating false documents before SI’s involvement.

• The appellants had to provide the evidence in relation to the civil audits of the individual investors to support their claims for tax losses, and indeed provided most of the impugned evidence to the investors’ counsel from whom it was subsequently seized.

• The appellants disseminated many of the false documents to third parties from whom they could have been easily obtained for the prosecution.

• The appellants continued to produce incriminating documents and Bellfield continued to make incriminating statements in furtherance of the fraud even after they knew that they were under criminal investigation.

[10] Simply put, through their own conduct, the appellants created a situation where they had no realistic option except to provide the income tax authorities with documents and evidence to support their scheme, and that is precisely what they did. Bellfield had been warned from the start by his own advisors that the scheme was likely to attract the attention of the income tax authorities. When, as predicted, over 600 individual investors (who were OCGC’s sole source of revenue) were audited for the losses they had claimed, the appellants, as a practical matter and quite apart from any compulsion from investigators determined to prosecute, had to provide the information the investors required to support their tax claims.

[11] Accordingly, even if the breach was more serious than found by the trial judge, that does not undermine her core finding that the evidence obtained as a result was inevitably discoverable.

2. Conviction Appeals: Other Issues

[12] Bellfield raised several additional grounds of appeal in his factum, but he did not advance those arguments in his oral submissions and I see no merit in them. In his oral presentation, Bellfield tried to persuade us that the scheme that gave rise to these charges was a legitimate business arrangement. I am satisfied that Bellfield’s position in that regard was fully and fairly put to the jury. The jury did not accept his explanation and he has failed to persuade us that there is any basis for us to interfere with the jury’s verdict.

3. Sentence Appeals

[13] While at the high end, the sentences imposed by the trial judge fell within the acceptable range. This was a highly sophisticated and massive fraud involving $118,000,000 against the public purse and $22,000,000 against more than 600 individuals. It was perpetrated over a lengthy period of time, and involved thousands of documents, off-shore companies and accounts.

[14] I do not accept the submission that the trial judge erred in principle in arriving at the sentences she imposed. Nor did she err by failing to apply the Kienapple principle to the uttering charges, since the fabrication of the elaborate documents required to support the scheme involved an additional and distinguishing element.

[15] There was evidence from which the trial judge could infer that Bellfield had the capacity to pay a substantial fine and, in any event, s. 734.7(b)(ii) of the Criminal Code requires that before any warrant of committal be issued for failure to pay the fine, the court must be satisfied “that the offender has, without reasonable excuse, refused to pay the fine…”

[16] The appellants submit that the sentences are tainted with bias as a result of the post conviction reception to which the trial judge invited the jury, counsel and the income tax investigators. One can appreciate at a human level why the trial judge might have shown this kindness to the jury after such a long and difficult trial. However, such a practice seems to me to be ill-advised. It could well detract from the solemnity of the trial process and verdict, and there is a risk that a convicted accused might regard it as an inappropriate celebration of his condemnation. That said, I do not agree that it gave rise to a perception of bias in the present case. Defence counsel participated without objection. In my view, a reasonable observer, viewing the matter realistically and objectively, would not conclude that this act of generosity on the part of the trial judge had any bearing on the sentences she later imposed.

4. Disposition

[17] For these reasons, I would dismiss the appeals against conviction. I would grant leave to appeal sentence but dismiss the sentence appeals.

RELEASED: “JCM” “OCT 14 2003”

“Robert J. Sharpe J.A.”

I agree J.C. MacPherson J.A.”

“I agree E.A. Cronk J.A.”