Court of Appeal for Ontario

Date: 2021-07-13 Docket: C67582

Miller, Paciocco and Nordheimer JJ.A.

BETWEEN

Her Majesty the Queen Appellant

and

Joern (John) Scholz Respondent

Counsel: Marie Comiskey, for the appellant Jody Berkes and Cristina Candea, for the respondent

Heard: June 18, 2021 by videoconference

On appeal from the sentence imposed by Justice Andrew J. Goodman of the Superior Court of Justice, dated September 26, 2019, with reasons reported at 2019 ONSC 5490.

Nordheimer J.A.:

[1] The Crown appeals from the conditional sentence of two years less a day imposed by the trial judge following the respondent’s conviction for fraud over $5,000. For the reasons that follow, I conclude that the trial judge made errors in principle in imposing the sentence he did. I would allow the appeal.

Background

[2] The respondent was charged on an indictment alleging three counts of fraud over $5,000. Counts 1 and 2 alleged frauds in relation to a unique Registered Retirement Savings Plan (“RRSP”) that the respondent created and marketed to approximately 300 investors. The investment involved the transfer of the respondent’s clients’ RRSP monies to Western Pacific Trust Company (“WPTC”) in Vancouver, B.C. and, thereafter, the purchase of shares of either Red Hill Capital or Northland Capital. In total, the respondent facilitated the transfer of over $22 million to WPTC.

[3] Count 3 alleged that the respondent failed to declare the income received from facilitating these transactions on his personal income taxes and failed to remit the GST/HST he should have charged the investors.

[4] The trial proceeded before a jury. The jury ultimately acquitted the respondent of counts 1 and 2 but convicted the respondent of count 3. Subsequent to the conviction, and after a Gardiner hearing [1], the trial judge found that the appellant had not proved beyond a reasonable doubt that the quantum of this fraud exceeded $1 million.

[5] At sentencing, the defence argued for a conditional sentence of imprisonment of between 18 months and 2 years less a day. [2] The Crown sought a sentence of imprisonment of three years and a $500,000 fine. Prior to passing sentence, defence counsel advised the trial judge that the respondent had deposited $100,000 in counsel’s trust account toward payment of any fine ordered. We were advised that that amount has since been paid.

The sentencing decision

[6] The trial judge imposed a conditional sentence of two years less a day and a fine along with a victim surcharge.

[7] In imposing a conditional sentence, the trial judge made certain factual findings. The trial judge also reviewed a number of decisions regarding the appropriate sentence, many of which he noted were dissimilar, either based on their facts or on the circumstances of the particular offender.

[8] In reaching his conclusion on the appropriate sentence, the trial judge said, on more than one occasion, that this was not a tax evasion case. He also noted that, where conditional sentences had been imposed in “major-scale fraud cases”, there had been exceptional circumstances.

[9] The trial judge mentioned certain aggravating factors in this case including the nature of the offence (the impact of tax fraud on the taxpayers of Canada), the role of the respondent over many years to commit the fraud, and the respondent’s professional designation as a Chartered Accountant, which helped him facilitate the fraud. The trial judge also found that the sole motivation for the offence appeared to be greed.

[10] On the issue of the quantum of the fraud, the trial judge was not satisfied that the appellant had proven beyond a reasonable doubt that the amount of the fraud exceeded $1 million, although he also said that the amount “may be close” to the amounts asserted by the appellant, which totalled about $1.05 million.

[11] In terms of mitigating factors, the trial judge pointed out that the respondent was a first-time offender. His actions were not driven by addiction or compulsion. The trial judge found that there were no bars to the respondent’s rehabilitation. He noted that the respondent enjoyed the support of his family for whom he was the primary breadwinner. The trial judge also noted that the respondent would lose his professional designation as a Chartered Accountant, as a result of the offence, and that his ability to earn an income would be adversely affected. He further noted that the respondent was the subject of ongoing audits by the Canada Revenue Agency. Lastly, the trial judge found that the respondent was a person of good character and that he had expressed remorse for his actions.

[12] In determining the appropriate sentence, the trial judge relied on one other factor. He found that the lead investigator for the Ontario Securities Commission (“OSC”), where the investigation of the matter had begun, had acted in a “heavy-handed” manner. The trial judge said that he was persuaded that the conduct of the OSC investigator “should play a collateral role in mitigation.”

[13] On the issue of a conditional sentence, the trial judge distinguished the cases relied upon by the appellant that held that a conditional sentence was not appropriate in such cases. In doing so, the trial judge said, “[T]his is not a situation where [the respondent] committed the tax fraud as a breach of trust or in his professional capacity”.

[14] Finally, the trial judge said that the principle of specific deterrence was paramount, while general deterrence and denunciation needed to be achieved. He concluded:

It is trite law that a conditional sentence can include restrictive and punitive elements. In this case, I am persuaded that this form of sentence would provide the requisite deterrent elements. Such a disposition is in the best interests of the offender and is in the public interest.

Analysis

[15] Appellate courts are instructed by the Supreme Court of Canada to give substantial deference to the sentencing decisions of trial judges. Appellate courts should only interfere with a sentence if it is demonstrably unfit or if the trial judge has committed an error in principle, failed to consider a relevant factor, or erroneously considered aggravating or mitigating factors, and such an error had an impact on the sentence: R. v. Lacasse, 2015 SCC 64, [2015] 3 S.C.R. 1089, at paras. 41, 43-44.

[16] At the same time, appellate courts perform an important task of ensuring, to the degree possible, that the principle of parity is properly applied in the sentencing process: see Lacasse, at para. 37. In other words, that offenders who have committed similar crimes in similar circumstances receive similar sentences. To that end, appellate courts may establish sentencing ranges for particular offences. If that is done, those sentencing ranges are intended to serve as guidelines for sentencing judges. While a sentence imposed outside of the range is not “necessarily” unfit, it will naturally raise a question regarding fitness: see R. v. Nasogaluak, 2010 SCC 6, [2010] 1 S.C.R. 206, at para. 44. As LeBel J. said in Nasogaluak, at para. 44:

The wide discretion granted to sentencing judges has limits. It is fettered in part by the case law that has set down, in some circumstances, general ranges of sentences for particular offences, to encourage greater consistency between sentencing decisions in accordance with the principle of parity enshrined in the Code.

[17] In my view, the trial judge committed two errors in principle in imposing the sentence that he did. First, he imposed a sentence that is outside the range established by this court for major frauds, and he did so without explaining the basis for departing from that range. Second, the trial judge failed to follow the necessary analytical process and consider all of the factors required before imposing a conditional sentence.

[18] With respect to the first error, this court has an established range of three to five years as the sentence for major frauds: R. v. Bogart (2002), 61 O.R. (3d) 75 (C.A.), at para. 36, leave to appeal refused, [2002] S.C.C.A. No. 398; R. v. Davatgar-Jafarpour, 2019 ONCA 353, 146 O.R. (3d) 206, at para. 34. It is a range of sentence that has been set for many years. [3] The trial judge acknowledged that a penitentiary term of imprisonment was the norm, although he stated the range as being two to six years. Regardless of which of those two ranges is accepted, the trial judge still departed from the range without explaining the reasons why he felt justified in doing so. On that point, I would reiterate the admonition in Davatgar-Jafarpour, at para. 32, where Roberts J.A. said, “[S]entencing ranges cannot be arbitrarily ignored otherwise they become meaningless.”

[19] I do not propose to review all of the past decisions of this court dealing with the subject of the appropriate sentence for major frauds. Many of the older cases were reviewed in R. v. Dobis (2002), 58 O.R. (3d) 536 (C.A.), where MacPherson J.A. concluded, at para. 42:

However, in the end I am persuaded that the serious nature and consequences of the offences committed by the respondent required the imposition of a penitentiary sentence. There is a real need to emphasize denunciation and, especially, general deterrence in the realm of large-scale frauds committed by persons in positions of trust with devastating consequences for their victims, which is how I would characterize the offences in this case.

[20] In this case, of course, there were no specific individual victims of the respondent’s offence. Rather, the victims were the taxpayers of Canada. The Government of Canada was deprived of tax revenue, which has the effect of increasing the tax burden on all other taxpayers in order to fund the work of the federal government. This very point was restated by this court in Davatgar-Jafarpour, at paras. 44-45. It was also made by the Quebec Court of Appeal in R. c. Coffin, 2006 QCCA 471, 210 C.C.C. (3d) 227, where the court rightly said, at para. 46: “Defrauding the government is equivalent to stealing from one's fellow citizens.”

[21] The need for a penitentiary term of imprisonment in major fraud cases has been reiterated in other decisions of this court, including Bogart, at para. 36; R. v. Drabinsky, 2011 ONCA 582, 107 O.R. (3d) 595, at para. 164, leave to appeal refused, [2011] S.C.C.A. No. 491; and Davatgar-Jafarpour, at para. 35.

[22] Further, in considering the statement made by MacPherson J.A. in Dobis, at para. 42, it should also be mentioned that an offender does not have to be in a position of trust in order to warrant the penalty of a penitentiary term of imprisonment: R. v. Khatchatourov, 2014 ONCA 464, 313 C.C.C. (3d) 94, at para. 39.

[23] The trial judge does not refer to any specific factor that would have justified a departure from this established range of sentence. Factors that have led to a departure in the past have included a guilty plea; or the repayment of the monies taken; or that the offender played only a minor role in the fraud itself; or that the offender was at an advanced age; or that the offender had serious health issues. None of those factors are present in this case.

[24] The mitigating factors that the trial judge did refer to, the fact that the appellant is a first-time offender and that he is of good character, are not factors that will operate to reduce the sentence in a fraud case below the usual range. This is because it is those very factors that generally permit the offender to commit the offence. This point was aptly made in Drabinsky, where this court said, at para. 167:

Second, individuals who perpetrate frauds like these are usually seen in the community as solid, responsible and law-abiding citizens. Often, they suffer personal and financial ruin as a result of the exposure of their frauds. Those factors cannot, however, alone justify any departure from the range. The offender's prior good character and standing in the community are to some extent the tools by which they commit and sustain frauds over lengthy time periods. Considerable personal hardship, if not ruin, is virtually inevitable upon exposure of one's involvement in these kinds of frauds. It cannot be regarded as the kind of unusual circumstance meriting departure from the range.

[25] However, even assuming for the moment that the mitigating factors relied upon by the trial judge could justify a sentence below the low end of the three to five year range, they still would not justify less than a penitentiary term of imprisonment. That fact alone removes a conditional sentence as a sentencing option.

[26] This leads to the second error in principle. In R. v. Proulx, 2000 SCC 5, [2000] 1 S.C.R. 61, Lamer C.J. set out the process that a trial judge should follow in determining whether it is appropriate to impose a conditional sentence. The first step in that process is to determine the proper sentence. In that regard, Lamer C.J. said, at para. 50:

A literal reading of s. 742.1(a) suggests that the decision to impose a conditional sentence should be made in two distinct stages. In the first stage, the judge would have to decide the appropriate sentence according to the general purposes and principles of sentencing (now set out in ss. 718 to 718.2). Having found that a term of imprisonment of less than two years is warranted, the judge would then, in a second stage, decide whether this same term should be served in the community pursuant to s. 742.1.

[27] The trial judge did not make the preliminary determination that a sentence of less than two years was appropriate. Indeed, the trial judge never actually addressed what the appropriate sentence should be. Rather, he simply found that a conditional sentence was appropriate which required no greater sentence than two years less a day.

[28] In my view, if the trial judge had first considered what an appropriate sentence was for the offence committed, he would have had to conclude that a penitentiary term of imprisonment was required. That finding, by itself, would have removed a conditional sentence as an option.

[29] I should mention on this point that the trial judge not once, but on three separate occasions, mentioned that this was not a tax evasion case. He seems to have repeatedly made that point as a way of lessening the seriousness of the offence. Indeed, in his conclusion, he said that it was “worth repeating that this is not a tax evasion case.” However, the fact is that it was a tax evasion case. Admittedly, it was not a prosecution for tax evasion, but the basis of the fraud was the evasion of taxes. The choice to prosecute the offence as fraud over $5,000, rather than as tax evasion, does not change the seriousness of the conduct. Simply put, it does not change the fact that the respondent was convicted of orchestrating a large-scale fraud on the federal government and, thus, on the taxpayers of Canada.

[30] I should address one other factor that played into the trial judge’s conclusion on the sentence and that is the role that the OSC investigator’s actions played in the overall prosecution. It is not entirely clear what basis the trial judge relied on to conclude that his concerns about the OSC investigator’s conduct should impact on the sentence imposed. In particular, it is not clear what the trial judge meant when he said that the conduct “should play a collateral role in mitigation”.

[31] It was established in Nasogaluak, at para. 53, that “a sentence can be reduced in light of state misconduct even when the incidents complained of do not rise to the level of a Charter breach.” However, in this case, it is difficult to see how the OSC investigator’s conduct would have given rise to any significant reduction in the appellant’s sentence. I say that for one principal reason. The actions of the OSC investigator related to the two offences for which the respondent was acquitted. As was observed in Nasogaluak, at para. 4, “[w]here the state misconduct does not relate to the circumstances of the offence or the offender” no remedy by way of sentencing is appropriate.

[32] In any event, even if a remedy of sorts was to be provided on that basis, it could not operate to reduce the sentence from a penitentiary sentence to a reformatory sentence, given the nature of the offence. The actions of the OSC investigator, as described by the trial judge, did not rise to the level required for that exceptional result.

[33] Finally, I should address the concern that the sentence imposed by the trial judge can be justified because the appellant’s position on sentence might be seen as being a concession that a reformatory sentence was an available outcome.

[34] First, I do not see that the appellant made any such concession before the trial judge. In fact, before the trial judge, the appellant sought a sentence of three years and strongly resisted any suggestion that a conditional sentence would be appropriate.

[35] Perhaps unfortunately in this court, the appellant said in its factum that a fit and proper sentence “is a 3 year jail sentence or in the alternative, a sentence of two years less a day imprisonment.” However, in the very next paragraph, after reviewing the relevant case law, the appellant said, “Based on this Court’s jurisprudence a fit sentence for the Respondent’s major tax fraud of almost a million dollars is 3 years in the absence of any exceptional circumstance.” Taken together, I do not read these statements from the appellant’s factum as being a concession that a reformatory term of imprisonment was appropriate. Indeed, all of the authorities cited by the appellant were directed at establishing that a conditional sentence was not available in this case.

[36] However, even if it could be held that the appellant had made that concession, it is not binding on this court: see R. v. Barabash, 2015 SCC 29, [2015] 2 S.C.R. 522, at para. 54. This court must be satisfied that the sentence is a fit and proper one based on the existing authorities, including the range that this court has established for this offence. As I have endeavoured to set out, a conditional sentence was not properly available on the facts of this case.

[37] Before concluding, I must address two issues that were raised by the respondent. First is the fact that the trial judge imposed a victim surcharge. Second, the respondent seeks a reduction in the fine imposed by the trial judge. He asks that the fine be reduced to the $100,000 that he paid shortly after he was sentenced.

[38] Assuming, without deciding, that the issue of the appropriateness of the fine is open for our consideration in the absence of a cross-appeal, I would not interfere with the fine that the trial judge imposed. The respondent has not put any evidence before this court that would provide us with a proper basis for interfering with the fact that a fine was imposed by the trial judge nor with respect to the quantum of that fine.

Conclusion

[39] I would grant leave to appeal the sentence, allow the appeal, and set aside the sentence imposed by the trial judge. In its place, I would impose a sentence of three years’ imprisonment. I would give the respondent credit for the time that he has spent on his conditional sentence to date which amounts to approximately one year and ten months. That leaves one year and two months remaining to be served. I would not interfere with any of the ancillary orders, including the fine imposed, save and except that the victim surcharge would be set aside.

[40] A warrant for the arrest of the respondent may issue if required.

Released: July 13, 2021 “B.M.” “I.V.B. Nordheimer J.A.” “I agree. B.W. Miller J.A.” “I agree. David M. Paciocco J.A.”

Footnotes

[1] See R. v. Gardiner, [1982] 2 S.C.R. 368 (disputed aggravating facts relevant to sentencing must be proved by the Crown beyond a reasonable doubt).

[2] Given the time when the offence occurred, a conditional sentence was available for the offence of fraud over $5,000.

[3] Even this sentence range must be approached with caution as it was set prior to the increase in the maximum sentence for fraud over $5,000 from 10 to 14 years: see R. v. Reeve, 2020 ONCA 381, 151 O.R. (3d) 65, at para. 39.