CITATION: R. v. Prokofiew, 2008 ONCA 585
DATE: 20080814
DOCKET: C42571 and C42741
COURT OF APPEAL FOR ONTARIO
WEILER, BORINS and MACFARLAND JJ.A.
BETWEEN:
HER MAJESTY THE QUEEN
Respondent
and
EWARYST PROKOFIEW and GREGORY POSTNIKOFF
Appellants
Russell Silverstein and Ingrid Grant for the appellant Ewaryst Prokofiew
Catherine Glaister for the appellant Gregory Postnikoff
Ivan S. Bloom, Q.C., Rick Visca, Lisa Csele and Ghazala Zaman for the respondent
Heard: May 13 and 14, 2008
On appeal from the convictions entered on March 5, 2004, and the sentences imposed on July 12, 2004 by Justice L. Templeton of the Superior Court of Justice, with reasons reported at [2004] O.J. No. 1388 and [2004] O.J. No. 5133.
BORINS J.A:
I
[1] The appellant, Ewaryst Prokofiew, was convicted of conspiracy to defraud the Government of Canada and six counts of fraud over $5,000 relating to six companies. He was sentenced to four years and ordered to pay restitution of $500,000. The appellant, Gregory Postnikoff, was convicted of the same conspiracy, and of four counts of fraud over $5,000 relating to four companies. He was sentenced to a conditional sentence of two years less a day and ordered to pay restitution in the amount of $155,000. Each appellant appeals both conviction and sentence.
[2] Although between them the appellants relied on several grounds of appeal, in my view I need deal only with one ground – that the trial judge gave insufficient reasons for convicting the appellant. For the reasons that follow, I would give effect to this ground and allow each appeal.
II
[3] For the purpose of these reasons, it is unnecessary to review the facts in any detail. Indeed, as there must be a new trial, it is preferable not to do so.
[4] The appellants, together with a number of other individuals, were alleged to have executed a fraudulent scheme, the purpose of which was to collect and not remit G.S.T. and to fraudulently obtain refunds of Goods and Services Tax (“G.S.T.”), known as Input Tax Credits. The scheme involved the purported sales of automobiles. While the automobiles often existed, they were not the subject matter of the sales.
[5] The scheme involved three categories of business entities: (1) paper companies; (2) legitimate automobile dealers; and (3) aboriginal registered companies. First, the paper companies were created and operated under the direction of one of more of the named defendants. These paper companies were registered to nominees, who were recruited to facilitate the fraudulent transactions and to ensure that the names of the defendants did not appear on government documents in relation to these companies. Second, there were legitimate automobile dealers (middle companies), involved in the sale of automobiles. The scheme involved a sham sale of an automobile by one of the first group of entities (the paper companies) to a company falling within the second group (the legitimate automobile dealers). The vendor paper companies would collect and not remit the G.S.T. from the transaction. The purchaser (legitimate automobile dealers) would pay G.S.T. to the paper companies. The legitimate automobile dealers would then claim a G.S.T. refund from the federal government (an Input Tax Credit) upon a sham resale of the non-existent automobile to an entity in the third category, companies registered in the name of tax exempt aboriginal individuals.[^1] The scheme depended on the G.S.T. exempt status of the entities in the third category for its “apparent” legitimacy.
[6] At trial, the Crown argued that the evidence established beyond a reasonable doubt that the defendants conspired to fabricate documentation respecting delivery of vehicles to a reserve or that they recruited carrier companies or individuals to physically drive vehicles to a reserve, take a photo of the vehicle and then return the vehicle to the original dealership or rental agency. The photographed vehicles were never left on the reserve. None of the photographs contained identifying information such as the VIN, licence plate number or odometer reading. The trial judge found that it was clear beyond a reasonable doubt that both appellants and an additional named defendant, Joseph Rothe, were members of the conspiracy and were guilty of the various counts of fraud. She found that the quantum of loss to the federal government in both G.S.T. collected and not remitted and fraudulent funds paid was in excess of $11 million.
[7] In respect of the appellant, Prokofiew, the trial judge found that he was not only a member of the conspiracy, but also that he played a significant role in the scheme to defraud the Canadian government. She determined that this appellant first became involved in the scheme while a general manager of Oakville Motors Inc. between 1993 and 1997. After he resigned from Oakville Motors, he continued working in the wholesale car industry by brokering wholesale car deals for which he was paid a consulting or brokerage fee. This appellant was found to have brokered transactions for a number of companies that were involved in all three phases of the scheme. Prokofiew did not testify. In this appeal, he accepts the correctness of the trial judge’s findings with respect to the existence of the conspiracy, but takes issue with the finding that he participated in it. He further submits that the trial judge gave insufficient reasons for her verdict.
[8] The appellant, Postnikoff, also takes no issue with the trial judge’s finding of the existence of the fraudulent scheme and limits his complaints on appeal to the finding of his participation in it and the failure of the trial judge to provide sufficient reasons for her verdict. The trial judge expressly rejected Postnikoff’s submission that he was “merely a nominee”. This appellant was the registered owner of a company called Adnil Holdings. This company was part of the fraudulent scheme involved in the purported sale of vehicles. Funds in excess of $50 million flowed through Adnil Holdings’ bank account between 1995 and 1997. Prokofiew brokered deals for Adnil Holdings and the evidence indicated that Postnikoff knew and worked with Prokofiew. The trial judge determined that Postnikoff was a member of the conspiracy whose role was the implementation of fraudulent transactions, particularly on the east coast of Canada. In reaching this determination, she accepted the evidence of Dennis Leggett, an individual recruited by Postnikoff and other conspirators for the purpose of establishing companies in the wholesale car business. Leggett testified that the appellant recruited him and manipulated him into setting up the company, Coast to Coast Auto, as a “nominee owner”. Postnikoff then excluded Leggett from the operation of the company except as required with respect to the financial administration. The trial judge relied heavily on the testimony of Leggett in support of her conclusion that Postnikoff was a member of the conspiracy and involved in setting up fraudulent transactions. This appellant did not testify.
III
[9] This was a very long trial. It took place intermittently over a period of seven months. The trial judge’s reasons for conviction consist of 742 paragraphs. An additional 122 paragraphs comprise her reasons for sentence. Because the trial judge left for the sentencing phase of the trial certain critical findings of fact, it is fair to say that her reasons for judgment comprised 864 paragraphs. Although it may appear counter-intuitive for the appellants to argue that the lengthy reasons for judgment are fatally flawed because they contain insufficient reasons explaining the convictions, as I will explain, the appellants are correct.
[10] The trial judge structured her reasons for judgment in this way. First, she reviewed the elements of the offences of conspiracy and fraud. She then provided an overview of the allegations against the nine defendants who were being tried by her. Following this overview, the trial judge described the creation of the G.S.T. by a number of sections of the Excise Tax Act, R.S.C. 1985, c. E-15 and also by s. 87 of the Indian Act that provides that the personal property of an Indian situated on a reserve is exempt from taxation. Then she spent considerable time discussing the wholesale car business, which is at the heart of the alleged conspiracy and fraudulent transactions. Next the trial judge summarized what she described as “the indicia in the evidence relied upon by the Crown to prove the existence of a conspiracy to defraud the federal government and fraudulent activity”. She then devoted 24 paragraphs to a review of the evidence of Leslie Winters.
[11] The trial judge then moved to a consideration of the issues. First she considered whether there was a conspiracy. To do so, she reviewed the evidence of many witnesses under the following headings:
(a) the relationship of the defendants, one to another;
(b) the creation of “paper companies”;
(c) payment to the holders of “paper companies”;
(d) execution of blank cheques;
(e) forged, unauthorized or unknown signatures;
(f) false documents;
(g) the same vehicle purchased or sold more than once by the same party or parties; and
(h) the “Zolis” analysis and the “Lomer” chart.
This review of the evidence occupied 128 paragraphs.
[12] Next, the trial judge considered the position of the defence. First, she dealt with whether the Crown had proved beyond a reasonable doubt in respect to the transactions that formed the basis of the indictment, whether they concerned vehicles that did not exist, described as “phantom vehicles”. She appears to have resolved this issue in favour of the Crown. Second, the trial judge considered, and rejected, the defence submission that the conspiracy charges should be dismissed because the Crown had relied on multiple conspiracies rather than the conspiracy as charged. There is no appeal from this finding.
[13] This preliminary aspect of the trial judge’s reasons required 296 paragraphs. At paragraph 297 she stated her conclusion that the Crown had proved the existence of the conspiracy as charged:
Notwithstanding the submissions of defence counsel, I had the opportunity to observe all of the witnesses, review their testimony and the exhibits at trial and I find on all of the admissible evidence I am entitled to consider that the first essential element of the count of conspiracy has been proved beyond a reasonable doubt.
[14] The trial judge then moved to a consideration of whether the Crown had proved whether any of the defendants were members of the conspiracy. First, she considered the evidence relating to Mr. Prokofiew. Before doing so, she stated at paragraphs 302 and 303:
Mr. Prokofiew stands charged with not only the count of conspiracy but also a number of counts involving fraud and the companies known as Fulton Auto, Trent International Export Inc., Ry Se Services, Coast to Coast Auto Truck and Leasing, Adnil Holdings and Erinwood Ford Sales.
On the evidence before me, I find that I am satisfied beyond a reasonable doubt that Mr. Prokofiew was not only a member of the conspiracy but along with Mr. Rothe, he played a significant role in the formulation and implementation of the agreement to defraud the Government of Canada and did defraud the Government of Canada.
In the following 57 paragraphs, the trial judge reviewed small portions of the testimony of Mr. Nettagog, Mr. Tulloch, Mr. Ponte, Mr. Proszak, Mr. Winters, Ms. Girouard and Ms. O’Meara. She concluded at paragraphs 361 to 364:
There is no evidence that Mr. Prokofiew was involved in all of the transactions before the Court. In other words, there is no evidence that Mr. Prokofiew was involved in every aspect of the implementation of the conspiracy or was even aware of the extent of the implementation of the conspiracy.
I am entirely satisfied beyond a reasonable doubt, however, that Mr. Prokofiew was a member of the conspiracy to defraud the Government of Canada as alleged.
I am also satisfied beyond a reasonable doubt for the foregoing reasons that Mr. Prokofiew is guilty of the remaining outstanding offences of fraud involving the companies as set out in the Indictment.
For all of these reasons, I find Mr. Prokofiew guilty as charged.
[15] The next part of the trial judge’s reasons relate to the evidence against Mr. Postnikoff. As she did in respect to Mr. Prokofiew, she reviewed some of the testimony of the following witnesses – Mr. Ponte, Mr. Tulloch, Mr. Weeks, Mr. Marling-Howse and Mr. Legget. This required 40 paragraphs, followed by the trial judge’s conclusion at paragraph 405:
Mr. Postnikoff is guilty as charged.
[16] The trial judge then considered the evidence in respect to the remaining five defendants. (Two of the original nine defendants had pleaded guilty). This exercise required 318 paragraphs. After some general comments, the trial judge concluded her reasons for conviction by stating the following at paragraphs 740 to 742:
Finally, although I am entirely satisfied beyond a reasonable doubt that a conspiracy as alleged in the Indictment existed and that Mr. Prokofiew, Mr. Rothe and Mr. Postnikoff were members of that conspiracy and are also guilty of the charges of fraud as alleged by the Crown, I am not satisfied beyond a reasonable doubt that the extent of the fraud amounted to 25 million dollars.
As I have indicated in my Judgment, the fact of and coexistence of legitimate transactions does not undermine the fraudulent nature of other transactions. The fact and coexistence of legitimate transactions in this case, however, does undermine the allegation that the Government of Canada was wrongly deprived to the extent of $25 million.
I make these comments with respect to the quantum only to alert the parties with respect to submissions on sentencing should counsel deem it relevant.
The Crown’s position was that the defendants had defrauded the government of Canada of $25 million.
[17] As the trial judge had not made a finding of fact in her reasons for conviction of the actual amount by which the defendants had defrauded the government of Canada, she turned to this issue in her reasons for sentence. At the sentencing hearing, the Crown called the lead investigator who testified that all of the G.S.T. money that was collected but not remitted to the government was about $24 million. The trial judge rejected the investigator’s evidence. At paragraph 65, she found that “the accumulated potential and actual loss to the Federal Government as a result of this conspiracy and fraud executed in the Province of Ontario and as set out in the Indictment was in excess of $11 million”.
IV
[18] The appellants’ position is that the trial judge provided insufficient reasons for convicting them of conspiracy, and no reasons for convicting them of the individual counts of fraud over $5,000. Although Mr. Prokofiew took no issue with the correctness of the trial judge’s finding that the Crown had proved the existence of a conspiracy, he took issue with the trial judge’s findings as to the mechanics of the conspiracy, that he was a member of it and that he had committed the substantive fraud charges. His simple point is that because the trial judge made so few findings of fact in respect to his convictions it is impossible to trace the path she followed in convicting him. In other words, her finding of guilt is merely conclusory. While it can be said that the evidence she reviewed before finding him guilty of all charges, in a general sense, related to the conspiracy count, she did not relate that evidence to the seven substantive counts of fraud relating to seven different companies. Counsel for Mr. Prokofiew concluded by stating that the deficiencies in the trial judge’s reasoning means that this court cannot follow the analytical path she took in convicting him, and, thus, properly assess the correctness of the verdicts. Counsel for Mr. Postnikoff adopted this argument.
[19] Because of my view of Mr. Prokofiew’s principle argument, it is not necessary to deal with his alternative submission that the trial judge misapprehended and misunderstood the substance of the evidence.
[20] In respect to the appellants’ position that the trial judge gave insufficient reasons for convicting them on the conspiracy count, the respondent’s reply was that the trial judge noted that she had considered all of the evidence that enured to the benefit of the appellant. Counsel for the respondent argued that she had referred to ample evidence under a variety of categories to support her findings of guilt. I took these submissions as an invitation for the court to engage in its own review of the record which, on analysis, counsel for the respondent submitted we would find supported the appellants’ convictions.
[21] The respondent acknowledged that the trial judge did not specifically break down her findings in respect of liability on the conspiracy count and the substantive fraud counts. This, the respondent argued, did not have the effect of undermining the conspiracy convictions. Counsel for the respondent submitted that the evidence of the conspiracy was in substance the same evidence as that of the substantive offences. Therefore, it would be unreasonable to expect the trial judge to have separated her analysis of guilt on the conspiracy count from her analysis on the substantive fraud counts. However, the trial judge made no finding that a joint enterprise existed, which would have enabled the same evidence to apply to both the conspiracy and the substantive counts.
V
[22] I agree with counsel for the appellants that the trial judge failed to provide sufficient reasons to allow for meaningful appellate review. In my view, counsel for the Crown did not provide an effective answer to the appellants’ position.
[23] The trial judge made a number of findings of fact with respect to the involvement of Mr. Prokofiew and Mr. Postnikoff in the conspiracy with which they were charged. In regard to Mr. Prokofiew, her principle findings were (1) that he was involved with the other defendants in the wholesale car business and (2) that he had control over some companies that were found to have been involved in the illicit scheme.
[24] In my view, these findings could not support a conviction for conspiracy. The problem with the first finding on its own is that the trial judge failed to take this finding to the next step and explicitly find that Mr. Prokofiew was involved in the illegitimate transactions engaged in by some of the other defendants. There is a similar problem with the second finding. It would appear that the trial judge implicitly concluded that Mr. Prokofiew’s control over the transactions of certain companies found to be involved in the scheme established his involvement in the conspiracy. Again, the difficulty with these findings is that the trial judge failed to distinguish between the legitimate and illegitimate transactions of these companies and specifically identify what evidence established Mr. Prokofiew’s involvement in the illegitimate transactions.
[25] In respect to Mr. Postnikoff, the trial judge’s principle finding was that he knew people who were involved in the conspiracy. She also found that he owned a company, and “was involved” with another company, that were engaged in illegitimate transactions. She seems to have inferred from these findings that he was aware of and participated in the illegitimate transactions of these companies. However, as with Mr. Prokofiew, the reasons supporting this inference are insufficient on which to found a conviction as they fail to identify evidence establishing Mr. Postnikoff’s participation in the illegitimate transactions, apart from simply his control over these companies.
[26] I agree with the position of counsel for the appellants that the trial judge failed to provide sufficient reasons to allow for meaningful appellate review. In reaching my conclusion, I have found helpful the recent decisions of the Supreme Court of Canada in R. v. Dinardo, (2008), 2008 SCC 24, 231 C.C.C. (3d) 177 (Sup. Ct. Can.), and R. v. Walker, (2008), 2008 SCC 34, 231 C.C.C. (3d) 289 (Sup. Ct. Can.).
[27] In Dinardo, Charron J. reviewed the jurisprudence that requires a trial judge to provide meaningful reasons for conviction or acquittal, with particular emphasis on the leading decision in R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869. In the course of this review, Charron J. emphasizes that an appeal court reviewing the sufficiency of reasons should adopt a “functional approach”, examining the evidence as a whole and the submissions of counsel in the assessment of whether the reasons respond to the case’s live issues. She emphasizes that it is only where “the trial judge’s reasons are so deficient that they foreclose meaningful appellate review”, that the appeal based on insufficient reasons will be allowed: Dinardo at para. 25.
[28] At paras. 30 & 32, in comments relevant to this appeal, Charron J. concluded:
[T]here is no general requirement that reasons be so detailed that they allow an appeal court to retry the entire case on appeal. There is no need to prove that the trial judge was alive to and considered all of the evidence, or answer each and every argument of counsel (Braich, at para. 38).
This Court emphasized in Sheppard that no error will be found where the basis for the trial judge’s conclusion is “apparent from the record, even without being articulated” (para. 55). If the trial judge’s reasons are deficient, the reviewing court must examine the evidence and determine whether the reasons for conviction are, in fact, patent on the record. This exercise is not an invitation to appellate courts to engage in a reassessment of aspects of the case not resolved by the trial judge. Where the trial judge’s reasoning is not apparent from the reasons or the record…the appeal court ought not to substitute its own analysis for that of the trial judge (Sheppard, at paras. 52 and 55). [Emphasis added.]
[29] The principles espoused in Dinardo are recognized as well by Binnie J. in R. v. Walker at para. 20, who also refers to Sheppard and the principle that “[t]he appellate court is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself”. Binnie J. also refers to Sheppard’s recognition of a number of broad policy reasons that underscore the importance of the duty to give adequate reasons at para. 19:
At the trial level, the reasons justify and explain the result. “Reasons for judgment are the primary mechanism by which judges account to the parties and to the public for the decisions they render” (para. 15). The losing party is entitled to know why he or she has lost. Informed consideration can be given to grounds for appeal. “Interested members of the public can satisfy themselves that justice has been done, or not, as the case may be” (para. 24). “Trial courts, where the essential findings of facts and drawing of inferences are done, can only be held properly to account if the reasons for their adjudication are transparent and accessible to the public and to the appellate courts” (para. 15).
[30] It appears that the entire focus of the trial judge’s reasons in this case was whether the Crown had proved that the appellants were guilty of conspiracy. She understood the issues, which were whether the Crown had proved a conspiracy and whether the appellants were members of it. My main problem with the trial judge’s reasons is that she made so few findings of fact on her way to the conclusory finding that each appellant was guilty as charged – meaning guilty of conspiracy and the individual counts of fraud over $5,000 with which each appellant was charged. Consequently, the facts on which she based the convictions are lacking. Because reasons for conviction were not patent on the record, I am unable to determine the analytical path she followed in convicting the appellants. Consequently, the trial judge failed to provide sufficient reasons to allow for meaningful appellate review.
[31] As for the individual counts of fraud, the trial judge failed to consider them at all. Because of the wording of the charges, it was important for her to find the facts on which she based her convictions. For example, a typical fraud charge reads as follows:
THAT Ewaryst Romuald PROKOFIEW and Peter Steven SOLTY between the 1st day of May in 1997 and the 31st day of July in the year 1997, both dates inclusive, at the Town of Oakville in the said Region and elsewhere in the Province of Ontario did by deceit, falsehood or other fraudulent means defraud the Government of Canada of monies of a value exceeding five thousand dollars ($5,000.00) in relation to Erinwood Ford contrary to Section 380(1)(a) of the Criminal Code of Canada.
Each of the other fraud charges referred to a different company. The trial judge was required to separately consider the evidence relative to each count of fraud, as well as the evidence relevant to the conspiracy counts. In respect to the above count, for example, she was required to find what the accused did that constituted the defrauding of Erinwood Ford, and that the amount of the fraud exceeded $5,000. Nowhere in her reasons did she embark on this exercise in respect to any of the fraud counts. Clearly, the trial judge’s lack of reasons do not allow for meaningful appellate review of the fraud convictions.
VI
[32] Obviously the trial judge spent a lot of time and effort in drafting her reasons for judgment. It took her about a year to release her reasons. Regrettably, despite this, for the reasons that I have explained, there must be a new trial as there is evidence on which a conviction could be found on all the charges.
[33] For all of the foregoing reasons, I would allow the appeals, set aside the appellants’ convictions and order a new trial. It is unnecessary, of course, to deal with the sentence appeals.
RELEASED: August 14, 2008 (“K.M.W.”)
“S. Borins J.A.”
“I agree K.M. Weiler J.A.”
“I agree J. MacFarland J.A.”
[^1]: Under s. 87(1)(b) of the Indian Act, R.S.C. 1985, c. I-5 the personal property of an Indian on a reserve is not subject to tax. Thus, a vendor who sells to an aboriginal on a reserve is not required to collect G.S.T. and the aboriginal is not required to pay it.