Court of Appeal for Ontario

Date: November 15, 2018 Docket: C62209

Justices: Sharpe, Lauwers and van Rensburg JJ.A.

Between

Her Majesty the Queen Respondent

and

Stephen Headley Appellant

Counsel:

• Mark Halfyard and Breana Vandebeek, for the appellant
• Avene Derwa, for the respondent

Heard: October 4, 2018

On appeal from the convictions entered on March 11, 2016, by Justice K. Barnes of the Superior Court of Justice, sitting with a jury.

Endorsement

Lauwers J.A.:

Introduction

[1] The appellant was convicted of six counts of fraud over $5,000 (three counts against Deborah Lo, two counts against Glenford Jones, the appellant's half-brother, and one count against Scotiabank), one count of uttering a forged document (an IBM invoice) and one count of personation (for impersonating Mr. Jones). He was sentenced to four years in jail, restitution and a fine in lieu of forfeiture. The total loss was just over $600,000. He appeals his conviction and seeks a new trial.

[2] The appellant raises two grounds of appeal: First, the trial judge erred in admitting the hearsay evidence of the Scotiabank account manager, Dean Karahojitis, at the trial under s. 715(1) of the Criminal Code, because doing so was fundamentally unfair to the appellant's right to full answer and defence. Second, the trial judge failed to relate the large volume of oral and documentary evidence to the individual counts in his jury charge. I address each issue after setting out the factual background. I would dismiss the appeal.

The Factual Background

[3] The appellant was a financial advisor. He controlled a number of financial companies, including Laers Inc., Laers LPC, and 1590 Group Inc. He was alleged to have defrauded two clients: his friend Deborah Lo and his half-brother Glenford Jones. Ms. Lo lost $350,000 in what the appellant portrayed as an investment in Gametronics gone bad. The jury found that it was a fraud. Mr. Jones lost $11,826.73 because the appellant cashed in his RRSP and took the money. He also lost $35,340 on his investment in Gametronics. Convictions for these frauds are not seriously challenged by the appellant.

[4] The heart of this appeal is the Scotiabank fraud. The appellant was alleged to have personated Mr. Jones and used a fraudulent IBM invoice and other documentation in order to obtain from Scotiabank $250,000 advanced as a loan and line of credit, to be used in part to finance the acquisition of an IBM computer server (the "Laers loan"). The substantiating documents included insurance, an invoice for the purchase of the IBM server, and the unaudited financial statements of Laers Inc. The documents, all fakes, were provided to Mr. Karahojitis by "Jones".

[5] Mr. Karahojitis testified at the appellant's preliminary inquiry but died before trial. He testified that he met "Jones" before the loan was made. He also testified that he and his superior Wayne Ellis met with "Jones" in August 2005 after the Laers loan was in arrears, when "Jones" showed him evidence of assets of over $400,000 with TD Bank. Mr. Karahojitis identified the appellant's Ministry of Transportation ("MTO") picture as being that of Mr. Jones, but did not recognize Mr. Jones' actual MTO picture. This testimony supported the Crown's theory that the appellant was personating Mr. Jones in order to secure the loan from Scotiabank.

[6] Mr. Karahojitis testified that he did his due diligence by inspecting the server at Mr. Jones' business address, by contacting IBM and verifying the transaction, and by investigating Laers Inc.'s financial statements that were purportedly prepared by "Val Purushothaman, Chartered Accountant". However, Mr. Purushothaman denied preparing these statements. IBM's head of investigation denied that Mr. Karahojitis spoke to IBM about the server; there was no such server to be inspected.

[7] Mr. Karahojitis also admitted he improperly kept client files at home. Among the items found at his home was the second fraudulent IBM invoice. It was contained in the documents disclosed by the Crown before the preliminary inquiry. It was located at Tab 18 of the Crown's disclosure book and labeled as "Documents found from Dean Karahojitis' residence." Mr. Karahojitis was not questioned about the second fraudulent IBM invoice, although defence counsel cross-examined him extensively and impeached his testimony.

[8] The second IBM invoice, which was not referred to at the preliminary inquiry, assumed some importance at trial. The fact that Mr. Karahojitis was no longer available to be cross-examined on this document was raised by trial defence counsel (who was not counsel at the preliminary inquiry) three times: in a pre-trial motion, during the trial, and in an application for a mistrial. This leads to the first issue.

Issue One: Did the trial judge err in admitting Mr. Karahojitis' hearsay evidence at the trial under s. 715(1) of the Criminal Code?

[9] Mr. Karahojitis died before trial. The Crown was obliged to bring a pre-trial motion to admit his preliminary inquiry testimony under s. 715(1) of the Criminal Code in order to use his evidence in the appellant's prosecution. The defence agreed that the testimony met the statutory pre-conditions in s. 715(1), but argued that the judge should refuse to admit the testimony using his residual discretion, because the admission of the testimony would undermine trial fairness.

[10] The governing principles regarding both the application of s. 715 of the Code and the application of the trial judge's residual discretion were canvassed extensively by Watt J.A., in R. v. Saleh, 2013 ONCA 742, 303 C.C.C. (3d) 431, and by Brown J.A. in R. v. Jones-Solomon, 2015 ONCA 654, 329 C.C.C. (3d) 191.

[11] Watt J.A. noted in Saleh, at paras. 77-78, that among the factors to be considered by the trial judge in the exercise of the residual discretion to exclude evidence admissible under s. 715(1) are "the crucial nature of the evidence itself" and "the crucial nature of the credibility of the witness whose evidence is tendered for admission". He added that the circumstances in which the evidence may be excluded "are comparatively rare". The appellant argues that this is one such rare case.

The Pre-Trial Motion

[12] Trial defence counsel raised the issue of the second fraudulent IBM invoice in his argument opposing the admission of Mr. Karahojitis' testimony at trial under s. 715(1) of the Code. If the invoice really did come from Mr. Karahojitis' home, then it could have been used to impeach him in two ways. First, the invoice was addressed to 1590 Group Inc. (one of Mr. Headley's companies), potentially contradicting Mr. Karahojitis' testimony that he had no knowledge of this company. Second, there was no apparent reason why Mr. Karahojitis should have had this second fraudulent invoice in his possession unless he was complicit in the fraud. The defence theory was that Mr. Karahojitis actually met with the real Mr. Jones and that the two of them worked together to defraud Scotiabank.

[13] Crown counsel was not prepared to admit that the second IBM invoice was found at Mr. Karahojitis' residence until this was confirmed by the investigating officer. However, Crown counsel said he was satisfied that the invoice was in the Crown disclosure and had come from Mr. Ellis.

[14] Defence counsel expressed the view that second IBM invoice had been found in Mr. Karahojitis' residence, but said he was "content" with the Crown's answer. Defence counsel also stated his view that it "would be getting closer to fairness" if the judge gave a jury instruction that the defence had not had an opportunity to cross-examine Mr. Karahojitis on this document and combined this with a Vetrovec warning.

[15] The trial judge granted the Crown's application to admit Mr. Karahojitis' preliminary inquiry testimony at trial under s. 715(1) of the Code, and said he would give reasons in writing at a later date. He stated:

I am not going to write my reasons because I haven't had a chance to do that. I am going to, these are not my reasons but just to give you an idea of the ballpark. I am going to permit, I am going to grant the Crown's application and the expectations that the jury receive the usual instructions and I'll set it out as we discussed. And if the evidence comes out the way in which the defence has said it's going to come out I am inclined to give a Vetrovec with respect to him, all right. So I am inclined to give a Vetrovec with respect to him and that forms an important component of my reasons. So at least you have an idea of the parameters with respect to that. That will allow us to be able to start the trial.

[16] The trial judge's written reasons arrived shortly before the argument of the appeal but this court did not consider them, nor did counsel refer to them in oral argument.

Trial

[17] Partway through the Crown's case, on February 11, 2016, defence counsel again raised the issue of the second IBM invoice. Crown counsel repeated that he did not know where it had been found. Defence counsel pointed out that Tab 18 was labeled "Documents found from Dean Karahojitis' residence" and asked the Crown to make further inquiries. Crown counsel said he had already done so and would again, but reiterated that he thought the documents had come from Mr. Ellis.

[18] The defence then called Mr. Ellis, who was cross-examined by the defence as a hostile witness. He testified that Mr. Karahojitis was fired for violating bank policies and poor performance. Mr. Ellis agreed that he had a meeting with "Jones" and Mr. Karahojitis after the Laers loan went into arrears. He identified the appellant as "Jones" and did not recognize Mr. Jones' genuine MTO photograph.

[19] The defence also called Mr. Karahojitis' ex-wife Ms. Skordakis. She testified that she returned a large quantity of bank documents to Mr. Ellis from Mr. Karahojitis' home shortly after he died. Inside one of those boxes was the second IBM invoice, an application for banking services completed by the appellant, and multiple pieces of the appellant's ID. The defence called both Mr. Ellis and Ms. Skordakis to prove where the key documents came from, but neither recalled having seen these documents.

[20] On February 23, 2016, during the defence's case, defence counsel raised the second IBM invoice again and said he would bring a motion to stay the Scotiabank charges. After receiving a copy of the index for Tab 18 of the Crown disclosure from the defence, the Crown finally conceded that the documents had in fact been retrieved from Mr. Karahojitis' home.

The Mistrial Application

[21] The next day the defence applied for a mistrial, and/or a stay, and to reopen the s. 715(1) application. Defence counsel argued that the Crown's concession contradicted and nullified Mr. Karahojitis' preliminary inquiry testimony. He also asserted that had the Crown not required the defence to establish continuity of possession of the second invoice, he would not have called Mr. Ellis to testify.

[22] The trial judge maintained his original ruling on the s. 715 application and dismissed the mistrial and/or stay application. He stated that he was not satisfied that the timing of the revelation of the source of the second IBM invoice and associated documents adversely affected the appellant's ability to make a full answer and defence. The trial judge considered that a strong Vetrovec warning would be sufficient and he would point out the fact that the documents were found in Mr. Karahojitis' residence in the Vetrovec warning. He also expressed his view that the information about the source of the documents, which took the form of an agreed statement of fact, enhanced the defence's position that Mr. Karahojitis had framed the appellant and was complicit in the offence.

Discussion

[23] The trial judge's decisions now being challenged were discretionary and attract appellate deference: Saleh, at paras. 87, 90; Jones-Solomon, at para. 46.

[24] The appellant asserts that his trial counsel would not have called Mr. Ellis to testify if the Crown had admitted that the second invoice came from Mr. Karahojitis' residence. This is because the defence had a problem with Mr. Ellis' evidence: although Mr. Ellis could establish the continuity of the second IBM fraudulent invoice linking Mr. Karahojitis to the fraud, he could also provide what the appellant describes as "harmful evidence—identifying the Appellant as "Glenford Jones" and denying that he knew the Appellant or met him and Jones together."

[25] However, this is hindsight reasoning. The trial judge rejected this assertion in argument on the mistrial application. He found that the defence would have called Mr. Ellis in any event, because:

[T]here's overwhelming evidence that the primary reason for calling Wayne Ellis was to show that he was a corrupt banker in cahoots with Dean [Karahojitis]. That was the primary reason. And if anything, this concession makes your case in terms of making that point even stronger than it did before Wayne Ellis, than at the end of the case. Right? So, you know, I am having difficulty understanding how that point puts you in an inability to make full answer and defence.

[26] Although the second IBM invoice was positioned by the defence as new evidence, it was in the Crown disclosure from the outset. It is not known why preliminary inquiry defence counsel either did not notice the document, or decided not to cross-examine Mr. Karahojitis on it. Trial defence counsel was left to make the best of it.

[27] The trial judge took the view that trial defence counsel had made the strategic decision to pursue a theory of an alternate suspect defence positioned around Mr. Ellis and Mr. Jones.

[28] The trial judge decided that a strong Vetrovec warning about Mr. Karahojitis' testimony would be sufficient to balance the absence of cross-examination on the second invoice. This was not an unreasonable assessment. In my view the trial judge made no error in principle in allowing the Crown's s. 715(1) pre-trial application, and in rejecting the defence applications for a mistrial, and/or a stay, and to reopen the s. 715(1) application. I would dismiss this ground of appeal.

Issue Two: Did the trial judge fail to relate the evidence to the individual counts in his jury charge, rendering the verdict unreasonable?

[29] The governing principles concerning the assessment of the adequacy of jury charges are well known. Appellate review must consider the context of the trial as a whole. Watt J.A stated in R. v. P.J.B., 2012 ONCA 730, 298 O.A.C. 267, at para. 49, that:

Appellate review on this issue includes consideration of the complexity and volume of the evidence adduced at trial, the extent of its review by counsel in their closing addresses, the length of trial proceedings, the issues to be resolved by the jury, the effect of a more complete and balanced review of the evidence, and whether counsel objected to the charge on the ground advanced on appeal. The test is one of fairness: Daley, at para. 57. Provided the evidence is left to the jury in a way that will permit the jurors to fully appreciate the issues raised and the defences advanced, the charge will be adequate: Daley, at para. 57.

[30] The adequacy analysis was further explained by Laskin J.A. in R. v. Newton, 2017 ONCA 496, 349 C.C.C. (3d) 508, at para. 13:

On appeal, the standard of review is adequacy, not perfection. An appellate court's approach is "functional". It assesses the adequacy of the charge in the light of its purpose. Even if a trial judge strays from the ideal, the fundamental question an appellate court must ask is: has the jury been "left with a sufficient understanding of the facts as they relate to the relevant issues"… Or, are we satisfied "that the jurors would adequately understand the issues involved, the law relating to the charge the accused is facing, and the evidence they should consider in resolving the issues"… If the answer to either question is "yes", then the charge will be upheld on appeal, despite any imperfections. If the answer is "no", then the accused will have been denied a fair trial and any convictions must be set aside.

[31] In assessing adequacy two questions are to be addressed: Would the jury appreciate the potential significance of the evidence to the issues from the perspectives of both the Crown and defence? Was the instruction fair, in the sense that it represented an even-handed treatment of the evidence as it related to the issues the jury had to decide? See R. v. Figliola, 2018 ONCA 578, 141 O.R. (3d) 662, at para. 11, per Doherty J.A.

[32] The assessment of adequacy must advert to the necessary components of a criminal jury charge, which Laskin J.A. set out in Newton, at para. 11:

In addition to general instructions on the presumption of innocence, the burden of proof, how to assess the credibility and reliability of witnesses' testimony and the like, the charge on the particular case should contain the following five components:

i. the legal framework, typically the elements of the offence or offences with which the accused is charged;

ii. the factual issues arising out of the legal framework that the jury must resolve;

iii. the material evidence relevant to these issues;

iv. the position of the Crown and defence on these issues; and

v. the evidence supporting each of their positions on these issues.

[33] This list of components aims to link the elements of the offence with the factual issues in the case, with the relevant evidence, and with the respective positions of the parties. In R. v. Cudjoe, 2009 ONCA 543, 251 O.A.C. 163, Watt J.A. said, at para. 152:

The role of the trial judge in instructing a jury generally, and in reviewing and relating the evidence to the issues in particular, is to decant and simplify. The trial judge should not simply leave the evidence in bulk for the jury, assigning to them responsibility for determining the relationship between the evidence and the issues that arise for their decision.

[34] Justice Watt noted, at para. 173: "Relating the evidence to the issues requires the trial judge to apprise the jurors of the essential features of the evidence that they may apply in resolving the issues that are theirs to decide and that will lead them, ultimately, to their verdict." He said, at para. 175: "A crucial constituent of this scheme… involves linking the critical features of the evidence to the issue or essential element to which the evidence relates." He added: "Said somewhat differently, what must be proven (the essential element) is mated with what is offered to prove it (the evidence)."

[35] The necessary links should be made in the jury charge, but where this task is not adequately performed, the issue on appeal is whether the functional purposes of a proper charge were nonetheless accomplished in the context of the trial as a whole, including the live issues in the trial, the nature of the evidence, the content of the jury addresses of counsel, and the jury charge.

The Jury Charge

[36] The jury charge covered over 300 pages of transcript and took about four and a half hours over two days to deliver. Consistent with best practice, the trial judge gave counsel a draft of the charge and took submissions on the text. Counsel did not object to the structure or content of the charge, a copy of which was provided to the jury. The trial judge also amended the written charge during the breaks in response to comments from counsel as he proceeded through it.

[37] The trial judge's charge had three main sections, apart from the standard first section generally describing the jury's duties. He conducted a lengthy review of the evidence witness-by-witness without relating the evidence to the counts. Next, he read out each of the counts, explained the legal elements which the Crown was obliged to prove, and mentioned briefly the individuals involved, but without linking the related evidence in any detail. He ended with a review of the positions of the parties.

[38] In the text of the jury charge, the defence position was organized on a count-by-count basis and did make detailed links to the evidence. The Crown position was organized not by counts but by victim, with a section for each of Ms. Lo, Mr. Jones, and Scotiabank. The links between each of the counts and the related evidence was carefully laid out.

[39] In discussing Mr. Karahojitis' testimony, the trial judge reminded the jury that the defence did not have an opportunity to cross-examine him at trial, and that the jury did not see or hear him testify. He also gave a Vetrovec warning about Mr. Karahojitis' testimony. He specifically mentioned some problems with the testimony, including the following:

• Mr. Karahojitis testified that the chartered accountant had prepared a financial statement of Laers Inc., but the accountant testified and denied preparing it or even speaking to him;

• Mr. Karahojitis testified that he called IBM to verify that Laers had purchased a server, but an IBM witness testified that the invoice was fraudulent;

• Mr. Karahojitis claimed that he only knew the appellant as "Jones", but the appellant's proper identification was found in Mr. Karahojitis' residence;

• "All the documents" submitted in support of the loan application were fraudulent.

Discussion

[40] The appellant argues that the trial judge's jury charge did not provide sufficient assistance to the jury in the context of this lengthy and complex 5-week fraud trial, in which there were three different complainants involved in multiple transactions. Sixteen witnesses testified and there were hundreds of documentary exhibits. The appellant testified, and gave what his counsel described as "a complicated denial" of the allegations.

[41] The appellant argues that in the face of this complexity, the trial judge "did nothing to relate the evidence to each count". The appellant points out that the trial judge ended his review of the essential elements with a boilerplate paragraph: "This same passage— word-for-word —was repeated 25 times, often multiple times per count, for each element of the offence":

I have previously provided an extensive summary of the evidence relevant to this offence. Remember that if your recollection of the evidence varies from my recollection of the evidence it is your recollection of the evidence that must prevail. Do not place any undue emphasis on any evidence that I have included or any evidence that I may have excluded. You are to consider all the applicable evidence to determine if the Crown has discharged its burden of proof beyond a reasonable doubt.

[42] The appellant submits that this situation was well described by Watt J.A. in Cudjoe, at para. 172, "when jurors are numbed into near automatistic states by a mindless recitation".

[43] The appellant points out a remark by the trial judge to the jury: "I am going to repeat the same instruction six times. At some point you are going to say this judge is insane." He then added: "This is our process, okay? So bear with me. It's something that I have to do, all right?"

[44] With respect, such repetition is neither necessary nor helpful to the jury. Nor does it serve to appeal-proof a jury charge. This charge is far from a model to be followed in other case. But that does not mean it was inadequate. The adequacy of a charge is to be assessed on a case-specific basis.

[45] In my view, despite the infirmities in the charge, the jury would have appreciated the potential significance of the evidence to the issues from the perspectives of both the Crown and the defence.

[46] First, contrary to the submissions of the appellant, the fraud charges were not complex. They were relatively simple and were not particularized in a confusing manner. While there was voluminous evidence, there were really only three credibility contests before the jury: the first was between the appellant and Ms. Lo; the second was between the appellant and Mr. Jones; and the third was between Mr. Headley on the one hand, and the witnesses he implicated in the Scotiabank fraud, Mr. Karahojitis, Mr. Ellis and Mr. Jones. The evidence relating to each of these opposed pairs was relatively simple.

[47] Second, while the trial judge's treatment of the elements of each count was laborious, the fraud at the core and the credibility of the witnesses related to each count, would not have been lost on the jury.

[48] Third, the charge must be read as a whole. On balance, it did communicate the legal framework. A witness-by-witness recitation or summary of the evidence, without explaining how the significant parts of the evidence relate to the particular issues in the case has been criticized by this court as generally ineffective and unhelpful: see e.g. Newton, at paras. 15-19; R. v. Dieckmann, 2017 ONCA 575, 355 C.C.C. (3d) 216, at para. 41. In this case, however, the trial judge's approach of summarizing the evidence witness-by-witness did no harm.

[49] Take, for example, the Scotiabank fraud, to which the bulk of the appellant's arguments were addressed. The Crown's key witness was Mr. Karahojitis; his preliminary inquiry evidence was extensively treated by the trial judge and by the parties in their jury addresses. Moreover, their positions were well laid out in the jury charge in digestible form. The very nature of the Scotiabank count was to link it with the evidence of Mr. Karahojitis, Mr. Ellis and Mr. Jones as against the appellant's testimony.

[50] Fourth, the instruction was fair and represented an even-handed treatment of the evidence relating to the issues: Figliola, at para. 11.

[51] Did the jury have before it an understanding of the law and the evidence necessary to make the credibility determinations necessary in this case? In my view, it did. The lack of objection to the jury charge in draft, or after it was delivered, is indicative that trial counsel had the same sense. In this case, the lack of an objection is material: see R. v. P.J.B., at para. 49; Cudjoe, at para. 155.

[52] I would dismiss the appeal for these reasons.

Released: November 15, 2018

"P. Lauwers J.A."

"I agree. Robert J. Sharpe J.A."

"I agree. K. van Rensburg J.A."

Footnote

[1] Tab 18 is described as saying that the documents were variously "discovered", "found" and "retrieved" from Mr. Karahojitis' residence but the meaning is clear: the documents were found at his residence: see e.g. February 1, 2016 Transcript, p. 52; February 2, 2016 Transcript, p. 3; February 11, 2016 Transcript p. 72.