A. OVERVIEW

[1] Norma Walton was tried on an Indictment alleging two counts of theft over and one count of fraud over. Her husband, Ronauld Walton, was jointly charged with her on the two counts of theft over. After a trial by jury that proceeded for four weeks, Ms. Walton was convicted on the two counts of theft over and acquitted on the one count of fraud over. Her husband was acquitted on the two counts of theft over.

[2] The jury returned their verdicts on June 8, 2019. Sentencing was adjourned to August 16, 2019 when a number of character witnesses testified. Ronauld Walton also testified and numerous documents and character reference letters were filed. The defence sought a further adjournment of sentencing, in order to allow Dr. Hy Bloom to complete a psychiatric assessment of Ms. Walton. I allowed a further adjournment to September 3, 2019, when Dr. Bloom testified. Sentencing submissions were completed on September 4, 2019 and I reserved judgement until September 13, 2019. At that time, a further short adjournment was requested by Ms. Walton due to a family emergency. I adjourned sentencing until September 19, 2019.

[3] These are my Reasons for Sentence.

B. FACTS RELATING TO THE OFFENCES

[4] The facts relating to the two theft offences are somewhat lengthy and complex. The evidence heard at trial is set out in the written Charge to the Jury, at pp. 123-195. The written Charge is a public document, as it was given to the jury during their deliberations and filed as a lettered Exhibit. I will not repeat that lengthy summary of the evidence and simply adopt it for purposes of these Reasons for Sentence.

[5] In brief summary, the facts relating to the two counts of theft over arose out of Ms. Walton’s real estate development business. She and her husband were lawyers who began practising law together in Toronto in 1995. A few years later, in 2000, they began buying, re-developing and selling Toronto real estate. By 2012, they had considerable experience and success in the real estate development business, having bought 28 properties, sold 19 of them, and kept nine. Each property development project was separately incorporated. The projects were financed with both mortgage debt and equity investments. Ms. Walton and her husband also incorporated their own business, the Rose and Thistle Group Ltd., to manage and develop the various real estate projects. Ms. Walton was the active partner in the business. The evidence at trial was that Ronauld Walton played a minimal role in the real estate development business, consistent with the jury’s verdicts of not guilty in relation to Mr. Walton’s alleged involvement in the two counts of theft over.

[6] Dr. Stanley Bernstein was a mortgage lender in eight of Ms. Walton’s real estate projects, between 2008 and 2010. The mortgages were repaid once these projects were completed. In 2010, Dr. Bernstein began investing as an equity partner in Ms. Walton’s projects, together with her and her husband. By 2013, Dr. Bernstein and the Waltons jointly owned 32 separate real estate development projects. Typically, the written investment Agreements for these projects provided that Dr. Bernstein owned 50% of the shares in each corporate entity that was to hold and develop each real estate development project, while the Waltons owned the other 50% of the shares. Dr. Bernstein did not play an active role in any of the real estate development projects. He is a medical doctor and had a busy professional life of his own, running a large number of successful diet clinics. It was Ms. Walton who had the expertise in real estate development and she was the active partner in this business, finding the properties, arranging financing, buying, developing and then selling the various entities that held the real estate. Mr. and Ms. Walton would typically give personal guarantees to the mortgage lenders on these projects.

[7] In the three years between 2010 and 2013, Dr. Bernstein invested about $110 million in the 32 real estate projects that Ms. Walton bought and developed. Towards the end of this period, Dr. Bernstein began to have concerns about his investments in the Walton real estate projects. He had his Director of Finance and Accounting at the diet clinics, one James Reitan, look into the real estate projects. During the spring and summer of 2013, Mr. Reitan became concerned about certain practises and transactions that he had discovered, and he began writing to Ms. Walton about his concerns. In particular, on June 7, 2013 Mr. Reitan wrote Ms. Walton a letter setting out various areas of concern or complaint. The relationship between Dr. Bernstein and Ms. Walton deteriorated over the ensuing months. In September 2013, Dr. Bernstein retained counsel and in early October 2013 he commenced civil litigation against the Waltons, seeking certain oppression remedies. The Court appointed a Receiver and various judgements were issued by Newbould J. and Brown J., as he then was, eventually leading to findings of civil fraud against the Waltons. The civil litigation resulted in a large $66 million judgement. As the civil litigation was proceeding, a criminal investigation was commenced which led to the charges in the present case. The history of these early steps in the civil and criminal proceedings is set out in detail in my written Reasons, dismissing a pre-trial abuse of process Motion. See: R. v. Walton, 2019 ONSC 928.

[8] The two counts of theft over, on which the jury convicted Ms. Walton, relate to two of the real estate projects where Dr. Bernstein was an equity investor. Ms. Walton incorporated Global Mills Inc. and Donalda Developments Ltd. in July and August 2012. Mr. and Ms. Walton were the corporate directors. The purpose of these two corporations was to hold and develop two properties located at 1450 and 1500 Don Mills Road in Toronto. Dr. Bernstein entered into the two investment Agreements with the Waltons on September 4, 2012. He invested $6,510,313 in the Global Mills project and $ 13,500,000 in the Donalda project. The Agreements provided that “any decisions concerning the selling or the refinancing of the Property will require his [Dr. Bernstein’s] approval”. The Agreements also provided that “the Company will only be used to purchase, renovate and sell the property at 1450 (and 1500) Don Mills Road, Toronto, Ontario or such other matters solely relating to the Project and the Property” (emphasis added). Attached to each of the Agreements was a pro forma titled “Exhibit A” setting out the anticipated capital required for each project. The Agreements stated that the projects would be completed “in accordance with Exhibit A” and that “any significant decisions that vary from the Project Plan described in Exhibit A will require his [Dr. Bernstein’s] approval”. Exhibit A to the Global Mills project described the “total capital required” as $31,020,625, including both equity investments by Dr. Bernstein and the Waltons and an $18 million mortgage that was being advanced by a commercial lender, Trez Capital. Exhibit A to the Donalda project described the “total capital required” as $56,823,908, including both equity investments by Dr. Bernstein and the Waltons and two mortgages totaling $34,400,000 from lenders named OTERA and ELAD.

[9] The above mortgage monies were advanced to the two projects in October and November 2012 and the two developments proceeded over the next ten months. On July 31, 2013, Ms. Walton arranged for additional mortgage financing of $3 million on each of the two Don Mills projects. She signed the mortgage agreements in her capacity as President of the Donalda and Global Mills corporations. She also signed personal guarantees, on behalf of both herself and her husband (according to her testimony at trial). She instructed the lawyer on the mortgage transactions, one Todd Holmes, to pay various liens, taxes and fees relating to the mortgages and to then advance the balance of the mortgage proceeds to the Rose and Thistle Group corporate bank account.

[10] There is no dispute that Dr. Bernstein was not advised of this $6 million in new mortgage financing obtained by the two Don Mills projects on July 31, 2013. Nor was he advised that the net proceeds of the two new mortgages was paid out to the Waltons’ own company, Rose and Thistle Group, on August 1, 2013, rather than being paid to Donalda and Global Mills. Mr. Reitan discovered the two new mortgages later in August 2013, when he became suspicious and retained a law firm to search the titles to the two properties. There were a series of email exchanges between Ms. Walton, Dr. Bernstein, and Mr. Reitan in August, September and October 2013, that I will refer to below, where she was not honest and forthright about these two new mortgages or about the use of the mortgage proceeds.

[11] After Newbould J. had appointed a Receiver in October 2013, various banking records were obtained and James Merriweather carried out a tracing analysis in relation to the $6 million mortgage proceeds. Those records and that analysis show the following:

the net proceeds of the new Global Mills mortgage totaled $2,661,369.61 and it was deposited into the Rose and Thistle account on August 1, 2013;
the net proceeds of the new Donalda mortgage totaled $2,888,250.79 and it was deposited into the Rose and Thistle account on August 1, 2013;
the monies from these two large deposits, totaling approximately $5.5 million, were disbursed out of the Rose and Thistle account over the next two weeks. The account had a balance of about $18,000, prior to the two deposits, and it had a balance of about $23,000 after the various disbursements were made during the first two weeks of August 2013. There were no other significant deposits into the account during this two week period. In other words, it appears that the $5.5 million was needed by a number of persons and entities other than Global Mills and Donalda because it was almost immediately disbursed to these other persons and entities;
the recipients of the $5.5 million transferred out of the Rose and Thistle account in these first two weeks of August 2013 were as follows: 32 real estate development projects jointly owned by Dr. Bernstein and the Waltons received approximately $3.3 million (including $1,051,800 advanced to Donalda and $231,300 advanced to Global Mills, the two corporate borrowers of the mortgage monies); and approximately $2.2 million was transferred to 27 other companies, persons, or entities in which only the Waltons, and not Dr. Bernstein, had an interest (I will analyse this $2.2 million in more detail below); included in the latter group of payments to Walton entities was $460,000 transferred directly into the Waltons’ own personal bank account where it was used almost immediately to pay their income taxes owing to Revenue Canada, mortgage payments owing on their home, and various debts owing on personal lines of credit.

[12] The jury must have been satisfied that the above facts made out the essential elements of the offences of theft from the Global Mills and Donalda corporate victims, namely, a taking or converting of money in excess of $5000, that belonged to the two corporate borrowers, fraudulently and without colour of right, and with intent to deprive the corporate victims of the money, at least temporarily. The only element of theft that was seriously challenged by the defence at trial was the primary mental element, namely, whether Ms. Walton took or converted some or all of the mortgage proceeds “fraudulently and without colour of right”. The jury was instructed as follows in relation to assessing Ms. Walton’s testimony concerning this element (at pp. 88-9 of the written Charge):

“If you accept Ms. Walton’s testimony, or if it leaves you in a state of reasonable doubt, to the effect that she honestly believed she had a right to take and spend the mortgage proceeds advanced to the two Don Mills projects as she saw fit, then this third element of theft would not have been proved and you must find Ms. Walton not guilty” (emphasis added).

[13] The jury must have rejected Ms. Walton’s evidence to the effect that she believed she had a legal right to take the mortgage proceeds and to use the money for other purposes (characterizing the various transfers as “inter-company loans” and “withdrawn equity”). The jury must have found that she took or converted some or all of the Donalda and Global Mills mortgage monies “fraudulently and without colour of right”, that is, knowing that she had no legal right to take certain amounts for certain purposes that were unrelated to Donalda and Global Mills. What is not clear from the jury’s verdict is what specific amount of the mortgage proceeds was taken or converted, “fraudulently and without colour of right”. That is because various theories or routes were left to the jury concerning the actus reus element, namely, “takes or converts” an amount of the money in excess of $5000. In this regard, the jury was instructed as follows (at pp. 82-3 and 91-2 of the written Charge):

“… ask whether the Crown has proved that the $6 million mortgage loan monies advanced by the lenders on July 31, 2013 belonged to Global Mills Inc. and to Donalda Developments Ltd. (in the amount of $3 million each). And ask whether the Crown has proved that Ms. Walton “took or converted” that money or some portion of that money, by transferring it to the Rose and Thistle Group corporate bank account, and then further transferring $2.2 million approximately to companies or entities owned solely by the Waltons, including transferring $460,000 to the Waltons’ personal bank account… Whether you take a broad view or a narrow view of any amount that was taken or converted, fraudulently and without colour of right, that amount would appear to exceed $5000” (emphasis added).

[14] The jury’s verdict does not reveal whether they took a narrow or a broad view of the quantum of the two thefts, because the jury does not give Reasons. Accordingly, I must make findings of fact on that issue for purposes of sentencing. See: R. v. Ferguson 2008 SCC 6, [2008] 1 S.C.R. 96. The Crown submits that the entire net proceeds of the two mortgages, totaling almost $6 million, was taken or converted fraudulently and without colour of right, at the moment it was transferred to the Rose and Thistle Group bank account. The defence submits that only $460,000 was the subject of a theft when it was transferred to the Waltons’ personal bank account and spent on their personal debts and personal needs, and that Ms. Walton honestly believed she had a colour of right to transfer the rest of the monies to all the other entities, regardless of whether Dr. Bernstein had any interest in these other entities.

[15] I am satisfied beyond reasonable doubt that the true quantum of the two thefts lies somewhere in between these two positions taken by the parties. I have a reasonable doubt as to whether the approximately $3.3 million transferred initially to the Rose and Thistle account and then on to the 32 real estate projects, jointly owned by Dr. Bernstein and the Waltons, was the subject of theft. All of these transfers, except those made to Global Mills and Donalda, were in violation of the terms of the investment Agreements, which required that the mortgage proceeds be used “solely” in relation to these two projects. It was improper, from a corporate law perspective, to use Global Mills and Donalda corporate assets (their borrowed money) for non-corporate purposes. Nevertheless, a large portion of this money (almost $1.3 million) was almost immediately transferred to the Global Mills and Donalda corporations themselves, suggesting that the Rose and Thistle account may have been used on occasion as a kind of pooling or clearing account for Walton-Bernstein projects, as Ms. Walton asserted in some of her emails. I do not believe or accept Ms. Walton’s testimony for a number of reasons, set out below, but I do have a reasonable doubt as to her honest belief in a colour of right to temporarily transfer monies between the various jointly owned Bernstein-Walton projects (the so-called “joint portfolio” or “Schedule B” companies).

[16] I have no such reasonable doubt in relation to the transfers to the companies, persons, or other Walton entities, in which Dr. Bernstein had no interest whatsoever. Ms. Walton is an intelligent, sophisticated, trained lawyer and it is elementary that she could not, and would know that she could not, take corporate money belonging to Donalda and Global Mills and transfer it and then use it for the benefit of entities that she and her husband owned and that had nothing to do with their joint Bernstein projects. Ms. Walton’s testimony in relation to this issue was not credible on its face. In addition, her evidence changed rather dramatically, between examination in chief and cross-examination, initially describing these transfers as “inter-company loans” and “withdrawal of equity” and then completely denying knowledge of the transfers to non-Bernstein companies. See: Charge to the Jury, pp. 112-114 and 179-188 where this testimony is summarized. I am satisfied that she knew it was wrong to transfer the mortgage proceeds belonging to Global Mills and Donalda into her own personal bank account and into other entities or companies in which Dr. Bernstein had no interest. All of these transfers were solely for her own benefit and her husband’s benefit and she knew she had no legal right to take or convert corporate money for this plainly improper purpose. That is why her “after the fact conduct” was characterized by repeatedly false statements that misled Dr. Bernstein and Mr. Reitan about the two new mortgages, and about the status of the $6 million mortgage proceeds, in her August, September and October 2013 emails (as summarized in the Charge to the Jury at pp. 39-41 and 182-5).

[17] The exact amounts of these transfers of the mortgage proceeds to entities in which Dr. Bernstein had no interest is somewhat difficult to calculate because Mr. Merriweather’s testimony at the criminal trial was quite brief and his tracing analysis did not go into detail about some of the transfers. His analysis of the 27 transfers to the so-called “Schedule C” companies (Walton companies in which Dr. Bernstein had no interest) and to other Walton entities totals $2,214,631. However, I would exclude three of these transfers for the reasons summarized below:

the $353,500 transfer to Richmond Row is in fact a payment to a “Schedule B” company in which Dr. Bernstein had invested. Mr. Merriweather did not treat it as part of the “Schedule B” transfers because it was described as “repay Rose and Thistle loan”, that is, it was payment of a prior Rose and Thistle liability owed to Richmond Row. However, there was no evidence at the criminal trial as to the purpose of the original loan from Richmond Row to Rose and Thistle and I cannot properly evaluate whether this payment does or does not relate to the joint Bernstein-Walton portfolio;
the $55,935 payment for Yardi software purchased by Rose and Thistle. I am satisfied on all the evidence that this purchase was substantially for the benefit of all the “Schedule B” companies, as Dr. Bernstein, Ms. Walton, and Mr. Reitan were actively engaged in efforts to upgrade the joint portfolio’s book-keeping with this new Yardi software; and
the $9,960 final transfer is simply described by Mr. Merriweather in his chart as “other disbursements made by Rose and Thistle.” The Crown agrees that there was no evidence at the criminal trial from Mr. Merriweather, or anyone else, about the four miscellaneous “other payments” under this final column.

[18] These three transfers of the mortgage monies from the Rose and Thistle account total $419,395. They should be deducted from Mr. Merriweather’s total of $2,214,631 in transfers to the “Schedule C” and other Walton entities. In the result, I am satisfied that the total amount of the two thefts is $1,795,236. In other words, the gravity of the thefts, in terms of their quantum, is just under $1.8 million.

C. FACTS RELATING TO THE OFFENDER

[19] Ms. Walton is 49 years old. She was born and raised in London, Ontario. She has three university degrees, including an LLB and an executive MBA from the University of Western Ontario. She met her husband at law school, they married and moved to Toronto in 1993 to article, write bar exams, and then practise law together at their own firm, beginning in 1995. She practised family law and he practised employment law. As noted previously, they began buying, developing, and selling Toronto real estate in 2000 and this became their primary business and source of income.

[20] Ms. Walton was the subject of Law Society disciplinary proceedings in 2014, unrelated to the subject matter of the present case. As a result of these Law Society proceedings, her license to practise law was revoked. When the civil proceedings began before Newbould J. and Brown J., relating to her real estate development activities involving Dr. Bernstein (including the facts relating to present case), a second Law Society disciplinary proceeding was commenced. As a result, a second revocation of Ms. Walton’s license was imposed. She has now been convicted of two counts of theft over. As a practical matter, it is unlikely she can ever be reinstated and can ever practise law again. In addition, Newbould J. granted judgement against her in the amount of $66.95 million, for civil fraud, and he held that the judgement survives bankruptcy. In other words, she will likely be pursued by creditors for the rest of her life. Her husband has surrendered his license to practise law.

[21] The Waltons have four children: two twin boys, aged 13; and two daughters, aged ten and six. The children were the subject of both evidence and argument on the sentencing hearing. In particular, it was submitted that the children would suffer exceptional hardship if their mother was incarcerated because their father was physically “disabled” and “unable to work” and, therefore, was substantially unable to care for the children. I cannot accept this submission, largely because it relies heavily on Mr. Walton’s own testimony about his own alleged incapacity. I do accept that the children will suffer, if their mother is incarcerated, especially the two young girls. But their father is not incapacitated and he is not incapable of working and caring for the children.

[22] The evidence in this regard is that the two 13 year old boys are exceptional hockey players. Indeed, they are apparently amongst the very best in Canada, in their age group. As a result, it appears that they are likely to secure hockey scholarships to U.S. universities. Mr. Walton has been heavily involved in their commitment to hockey and it has become their whole life. They apparently play hockey every single day of the year and are committed to a future as hockey players. The ten year old girl has also become an exceptional hockey player. The four children were described by the character witnesses as very bright and engaged.

[23] Mr. Walton testified at the sentencing hearing about a history of back pain and blood clots due to thrombosis, dating back to 2010 and 2011. He asserted that the combination of these two conditions, and certain difficulties with medical treatment, has caused inability to sleep and inability to work because the pain can sometimes incapacitate him. As a result, Ms. Walton became the primary and sometimes the sole care giver for the four children, as well as the primary worker and source of family income. Mr. Walton was not a credible or reliable witness when he testified at the sentencing hearing. He had a poor memory, he was inconsistent on some issues, improbable on other issues, and evasive on occasion. He seemed to be excited and would over-state and exaggerate his evidence, and would then reconsider and qualify what he had said. Most importantly, the medical records that he provided to the Court do not support his alleged incapacity. Reports from Dr. Hakoun and Dr. Silverman in 2014 and 2015 repeatedly described him as “very active”, “sleeps well”, “exercises daily”, “sleep, no concerns”, “mood, no concerns”, and “he is very active, exercising daily, playing hockey a lot”. In 2016, he was said to have, “relatively full and pain-free neck range and trunk rotation” but “refuses to flex his lumber spine as he is afraid of causing pain”. The doctor prescribed “relaxation strategies” and “breathing” exercises.

[24] Dr. Bloom interviewed Mr. Walton prior to the sentencing hearing. He testified that, in his view, Mr. Walton has difficulties with alcohol, in addition to his deep vein thrombosis. According to Dr. Bloom, Mr. Walton provided “specious reasons” for discontinuing medical treatment for his back pain and blood clots. Mr. Walton mentioned nothing about difficulties with alcohol during his testimony.

[25] In light of the above record, there is no credible evidence before the Court that Mr. Walton is “disabled” due to any medical condition or that he will be unable to work and care for his children. He attended court every day during a four week trial, during a two day pre-trial Motion, and during a three day sentencing hearing, over the course of the eight months that I have seen him. He never appeared to be incapacitated or disabled, including when testifying. In addition, the evidence at the sentencing hearing was that Ms. Walton’s parents have been very helpful. They are close to their grandchildren and have been very involved in their lives. They have also provided financial support to the Waltons. They live nearby in Toronto.

[26] Dr. Bloom was retained to provide a psychiatric assessment as to whether Ms. Walton was suffering from a mental disorder, either related to post-partum depression or a mood disorder, at the time of the relevant events in late July and early August 2013. She had given birth to her fourth and last child in May 2013 and had returned to work in June 2013, a month after giving birth. She took the baby to work and had help from a nanny who would come to work with Ms. Walton. Dr. Bloom rejected Ms. Walton’s suggestion that she was suffering from some kind of mental disorder. However, he did provide helpful insight into her upbringing and her personality, and how it may relate to the present offences. He testified that the theft offences in the present case likely have more to do with the kind of person she is, than with any kind of mental disorder. She came from a religious, competitive, over-achieving family where she was the eldest child and where she was expected to succeed. Her father was very successful, her brother was very accomplished, and failure was not tolerated. She wanted to succeed and wanted to prove that she could reach her goal of a “billion dollar real estate portfolio”. Her husband’s drinking was a constant burden to her, indeed Dr. Bloom was told about some psychological abuse of Ms. Walton by her husband. In Dr. Bloom’s view, the relevant events in late July and early August 2013, in the context of Ms. Walton’s real estate ambitions, were like a “fast moving train” where events simply “got out of control”. She kept taking on more and more responsibility, with no help from her husband, animated by the thrill of her goal and by her need to succeed.

[27] Ms. Walton testified before the jury for four days. She took almost complete control of her own examination-in-chief. She provided an animated, forceful and, at times, righteous and indignant account of the relevant events. Based on my observations, there is considerable merit in Dr. Bloom’s above summarized analysis as to what may have happened in this case and why it happened.

[28] The four character witnesses spoke highly of Ms. Walton’s generosity, warmth, and kindness. This evidence was amplified in the numerous character reference letters.

D. THE POSITIONS OF THE PARTIES

[29] The Crown submitted that the appropriate total sentence is six years in the penitentiary, a restitution order in the amount of $6 million, and a fine in lieu of forfeiture in the amount of $6 million. This submission was premised on the case being at the top end of the appropriate range for this kind of offence because the quantum of the two thefts was just under $6 million (as discussed above) and because of certain other aggravating factors relied on by the Crown (discussed below). When pressed during oral argument as to his position, in the event that the quantum of the thefts was substantially less than $6 million, and taking certain mitigating factors into account, Mr. Power conceded that a three year sentence is the bottom end of the range and that it could be appropriate in these circumstances.

[30] The defence conceded that a prison sentence would normally be required, in order to achieve general deterrence for this kind of offence. However, Mr. Cohen submitted that there were a number of “exceptional circumstances” in this case that made it appropriate to impose a non-custodial sentence, namely, three years probation with a significant Community Service Order. This submission relied heavily on the defence position that the quantum of the theft was $460,000 (as discussed above), together with certain other mitigating circumstances (discussed below). When pressed during oral argument as to his position, in the event that the quantum of the thefts was substantially more than $460,000, Mr. Cohen submitted that a 12 month jail sentence would be appropriate.

[31] It can be seen that the parties are some distance apart, especially in relation to their primary positions, namely, six years imprisonment versus a non-custodial sentence.

E. ANALYSIS

[32] The principles of sentencing are set out in ss. 718, 718.1, and 718.2 and I am bound by those principles. The fundamental principle of sentencing is “proportionality”, as set out in s. 718.1, namely, the sentence “must be proportionate to the gravity of the offence and the degree of responsibility of the offender”.

[33] The predominant sentencing principles and the appropriate range of sentence for the present offence is well-established by a long line of appellate decisions. In the most recent case, R. v. Davatgar-Jafarpour (2019), 2019 ONCA 353, 146 O.R. (3d) 206 at paras 34-35 (Ont. C.A.), the Court summarized this line of binding authority as follows:

In cases of large-scale fraud, the range of sentences imposed in circumstances like the one at bar is generally three to five years: see R. v. Khatchatourov (2014), 2014 ONCA 464, 313 C.C.C. (3d) 94, at paras. 37-45 (Ont. C.A.); R. v. Dobis (2002), 2002 CanLII 32815 (ON CA), 58 O.R. (3d) 536 at paras. 36-37 (C.A.); R. v. Bogart (2002), 2002 CanLII 41073 (ON CA), 61 O.R. (3d) 75 at paras 36 (C.A.), leave to appeal to S.C.C. refused [2002] S.C.C.A. No. 398. This range reflects the substantial weight that courts must give to the principles of general deterrence and denunciation: Bogart, at para. 29; R. v. Drabinsky (2011), 2011 ONCA 582, 107 O.R. (3d) 595 at paras. 160-161 (C.A.), leave to appeal to S.C.C. refused [2011] S.C.C.A. No. 491. As this court explained in Bogart, at para. 30:

This court has affirmed that in cases of large-scale fraud committed by a person in a position of trust, the most important sentencing principle is general deterrence. Mitigating factors and even rehabilitation become secondary. In R. v. Bertram and Wood (1990), 40 O.A.C. 317, this court observed that most major frauds are committed – as this one was – by well-educated persons of previous good character. Thus the court held at p. 319,

The sentences in such cases are not really concerned with rehabilitation. Instead, they are concerned with general deterrence and with warning such persons that substantial penitentiary sentences will follow this type of crime, to say nothing of the serious disgrace to them and everyone connected with them and their probable financial ruin.

(Emphasis in original).

It is well established that, “a penitentiary sentence is the norm, not the exception, in cases of large-scale fraud and in which there are no extraordinary mitigating circumstances”: R. v. Leo-Mensah (2010), 2010 ONCA 139, 101 O.R. (3d) 366 at para. 11 (C.A.), leave to appeal refused [2010] S.C.C.A. No. 170. As this court explained in Drabinsky, at para. 160, the sentencing principles of general deterrence and denunciation for large-scale commercial frauds will “most often find expression in the length of the jail term imposed”. For these reasons, as noted above, large-scale frauds like the one in this case ordinarily merit a sentence in the range of three to five years: see Khatchatourov, at paras. 37-45; Dobis, at paras. 36-37; Bogart, at para. 36.

[34] Sentencing ranges, like the above three to five year range referred to in Jafarpour, “are merely guidelines” and “just one tool among others” in determining an appropriate sentence in a particular case. See: R. v. Suter, 2018 SCC 34, [2018] 2 S.C.R. 496 at para. 25; R. v. Lacasse, 2015 SCC 64, [2015] 3 S.C.R. 1089 at para. 58. As a result, there are cases where particularly strong mitigating circumstances and/or less aggravating circumstances exist, and so shorter sentences outside the three to five year range have been appropriately imposed. See, e.g.: R. v. McEachern (1978), 1978 CanLII 2506 (ON CA), 42 C.C.C. (2d) 189 (Ont. C.A.) and R. v. Pierce (1997), 1997 CanLII 3020 (ON CA), 114 C.C.C. (3d) 23 (Ont. C.A.), where 18 month and 12 month sentences were imposed in cases involving $87,000 and $270,000 frauds committed by an assistant branch manager at a bank (in McEachern) and by the comptroller and book-keeper of a small clothing company (in Pearce). Similarly, there are cases with particularly strong aggravating circumstances and/or weak mitigating circumstances where sentences above the three to five year range have been appropriately imposed. See, e.g.: R. v. Gaudet et al (1998), 1998 CanLII 5017 (ON CA), 125 C.C.C. (3d) 17 at pp. 22 and 40-42 (Ont. C.A.) and R. v. Bellfield, 2003 CanLII 26907 (ON CA), [2003] O.J. No. 3946 (C.A.), where an eight year sentence was upheld for a senior officer and major shareholder of a Toronto brokerage house who was the leader of $12 million fraud (in Gaudet) and where sentences of seven and ten years were upheld as being at “the high end” of “the acceptable range” in a “highly sophisticated and massive fraud involving $118 million against the public purse and $22 million against more than 600 individuals” (in Bellfield).

[35] Before turning to the particular mitigating and aggravating circumstances in the present case, I should address the fact that Ms. Walton was convicted of theft and not fraud. It was not seriously submitted by defence counsel that the above line of authority concerning “cases of large-scale fraud” did not apply because the present case was charged as theft. In my view, the same sentencing principles apply to both large scale thefts and large scale frauds, especially those involving breaches of trust. The offence of theft requires proof of “fraudulent intent”, both fraud and theft are crimes of dishonesty (involving either taking or deprivation of the victim’s property), and the offence of large scale theft by a senior officer and director of a corporation requires emphasis on denunciation and deterrence just as much as the offence of fraud. Indeed, one of the leading cases in the above line of authority, R. v. Dobis (2002), 2002 CanLII 32815 (ON CA), 163 C.C.C. (3d) 259 (Ont. C.A.), involved convictions for both fraud and theft from a company where the accused was the accounting manager. MacPherson J.A. (Moldaver and Feldman JJ.A., concurring) described it as a case of “large scale fraud and theft involving over $2 million committed by a senior and trusted employee of a mid-size family company”. The accused was “in a position of trust” when he engaged in a course of “dishonest conduct” that involved both theft and fraud. The Court held that three years was the appropriate sentence. Also see: R. v. Gaudet, supra at para. 85; R. v. Ruhland (1998), 1998 CanLII 6138 (ON CA), 123 C.C.C. (3d) 262 at para. 21 (Ont. C.A.); R. v. Grossman, [1980] O.J. No. 554 (C.A.). In all three of these cases, the taking of corporate assets was referred to interchangeably by the Court of Appeal as both fraud and theft.

[36] I should also note, in this regard, that the maximum sentence for theft over pursuant to s. 334(a) is ten years imprisonment whereas the maximum sentence for fraud over is now 14 years pursuant to s. 380(1)(a). However, many of the leading cases in the above line of authority, concerning the three to five year range of sentence for “large scale fraud”, were decided prior to the 2004 amendments which increased the sentence for fraud over from ten years to 14 years. In particular, both Bogart and Dobis were decided in 2002 when there was a ten year maximum. The authorities relied on in those two leading Court of Appeal decisions were, needless to say, decided well before the 2004 amendments.

[37] In my view, the aggravating circumstances in the present case are the following:

First, the almost $1.8 million quantum of the two thefts is a very significant amount that immediately distinguishes the present case from the less serious offences committed in cases like McEachern and Pierce, where $87,000 and $270,000 was taken and where reformatory sentences were imposed;
Second, Ms. Walton was a Director and was the President of the two corporate victims. In other words, she was in the most senior position of trust in both companies and she abused that trust. Again, this distinguishes the present case from cases like McEachern and Pierce where more junior employees and officers were involved and so the “quality and degree of trust” was less significant. In this regard, see R. v. Williams, 2007 CanLII 13949 (ON SC), [2007] O.J. No. 1604 at para. 30 (S.C.J.) and R. v. Clarke (2004), 2004 CanLII 7246 (ON CA), 189 O.A.C. 331 at para. 18 (C.A.). It was faintly argued that Ms. Walton did not abuse a position of trust because her scheme was unsophisticated and transparent. This submission is factually inaccurate, as will be explained below, because Ms. Walton attempted to cover up the thefts and was not transparent and open in disclosing the various transactions. It was also submitted that she was not in a position of trust because she was a major shareholder in the two companies and was contractually obliged to act as a Director by her investment Agreement with the other major shareholder, Dr. Bernstein. This submission is legally misconceived. Ms. Walton undoubtedly had a fiduciary duty to the two companies and could not favour her own personal interests to the detriment of the two companies, even though she was a major shareholder. In this regard, see R. v. Ruhland, supra at paras. 19-21 where Finlayson J.A. (Catzman and Goudge JJA., concurring) responded to a similar argument and stated:

The submission that the “owners” of the company, namely Ruhland and the Fingolds, did not consider themselves defrauded and therefore there was no fraud, reflects a complete misunderstanding of the fundamental concept of corporate law that the corporation is a legal entity distinct from its shareholders. Creditors look to the company for the satisfaction of the company’s trade and other debts, not the shareholders. By stripping assets from the corporation, the shareholders committed a crime against the corporation and defeated the ability of the corporation to carry on its commercial life.

Also see: R. v. Kelly (2008), 76 W.C.B. (2d) 779 at paras. 3 and 23-4 (Ont. S.C.J.); R. v. Drabinsky (2009), 2009 CanLII 41220 (ON SC), 246 C.C.C. (3d) 214 at paras. 24-5 (Ont. S.C.J.), aff’d (2011), 2011 ONCA 582, 107 O.R. (3d) 595 (C.A.); R. v. Rosenberg, [1993] O.J. No. 3260 at para. 4 (S.C.J.); Van Duzer, The Law of Partnerships and Corporations [Irwin Law, 2009], 3rd Ed. at pp. 340-345 where the “fiduciary obligation” of officers and directors “to take all necessary steps to protect… shareholders’ interests” is discussed, as Watt J. (as he then was) put it in Rosenberg;

Third, the offences involved relatively sophisticated collateral acts of dishonesty by Ms. Walton, in particular the following: an elaborate deception of the lawyer Todd Holmes concerning Mr. Walton’s personal guarantee; not disclosing to the mortgage lenders that Dr. Bernstein was a 50% shareholder in the two borrower corporations; not advising Dr. Bernstein and obtaining his prior consent to the two new mortgages, as required by the investment Agreements; and then repeatedly misleading Dr. Bernstein and Mr Reitan about the two new mortgages by making deceptive money transfers related to the mortgage payments and by making a series of false statements in emails over a two month period during August, September and October 2013. I cannot be satisfied on the present record, contrary to the Crown’s submission, that these facts constitute either proof beyond reasonable doubt or provide a basis to lay separate criminal charges, that can then be taken into consideration as such on sentencing pursuant to s. 725. However, I am satisfied beyond reasonable doubt, pursuant to s. 724(3)e, that Ms. Walton engaged in a relatively sophisticated pattern of collateral dishonesty, in order to initially commit the offences and then to cover them up during the ensuing two month period, as summarized above. I should also note, in this regard, that there was no evidence at the criminal trial, from any of the contemporaneous records and documents, to support Ms. Walton’s claim that all of the transfers of the mortgage proceeds were recorded in the books as “inter-company loans” or “withdrawn equity”. See: R. v. Jafarpour, supra at para. 39.

[38] On the other hand, there are a number of mitigating circumstances, as follows:

First, the thefts took place during a relatively short two week time frame, although the dishonest steps used to commit the offences and to then attempt a cover-up took place over a longer two to three month period, as summarized above;
Second, there have been significant collateral consequences, in addition to the criminal convictions and the sentence to be imposed. In particular, there is a $66 million civil fraud judgement and Ms. Walton has been disbarred, although both of these consequences relate to conduct that extends well beyond the present offences;
Third, Ms. Walton made some significant efforts to repay the stolen money, after the thefts came to light during the Receivership (as will be discussed below when analysing the Crown’s submission seeking restitution and forfeiture);
Fourth, Ms. Walton is the mother of four children, including two relatively young girls, and the sentence will have an impact on them.

[39] I should briefly address various submissions made by both the Crown and the defence concerning certain other allegedly aggravating and mitigating circumstances that I have not accepted. In particular, the Crown submitted that there was evidence at trial of a broad pattern of mismanagement and misappropriation of Dr. Bernstein’s $110 million investments in the 32 real estate projects that were being developed by Ms. Walton and that this was an aggravating factor that should be considered on sentencing, pursuant to s. 725. There was certainly evidence adduced at trial of many other suspicious transactions, aside from the facts underlying the two theft convictions. These transactions became part of the $66 million civil fraud judgement and they formed part of the evidentiary basis for the fraud that was originally alleged in Count Two of the Indictment. However, the Crown ultimately decided not to proceed on this broad count of fraud, which would have taken many months to try. All of these suspicious transactions involved Ms. Walton’s practise of freely transferring money between the “Schedule B” or “joint portfolio” projects in which the Waltons and Dr. Bernstein were shareholders. These transactions undoubtedly violated the express terms of the investment Agreements and basic principles of corporate law but I cannot be satisfied beyond reasonable doubt, on the present record, that they constituted a broad separate offence that can be considered under s. 725. See: R. v. Larche (2006), 2006 SCC 56, 214 C.C.C. (3d) 289 (S.C.C.).

[40] The Crown further submitted that the two thefts offences were crimes of “greed and ambition”, with none of the mitigating motivations that are sometimes seen in large scale frauds, such as a gambling addiction or some sympathetic personal financial need for the stolen money. The defence, on the other hand, submitted that the thefts were not crimes of “greed” and were not a “scam”; rather, Ms. Walton was simply moving money around in a desperate attempt to keep all the various legitimate Walton businesses and projects afloat, and trying to ensure that everyone would be repaid in the end. See, e.g.: R. v. Drabinsky, supra at paras. 173-4 and R. v. Bogart, supra at para. 26.

[41] In my view, there is some truth to both of these submissions. However, neither of them fully captures the nature of the present offences. On the one hand, there was undoubtedly an element of “greed and ambition.” The Waltons had acquired a very expensive home in the Bridle Path neighbourhood of Toronto and had substantial personal lines of credit and income tax liabilities. Almost a half million dollars of the stolen money was expended in a brief two week period to fund their lifestyle. Ms. Walton was also motivated and excited by her “one billion dollar portfolio” ambition. On the other hand, I am also satisfied that she wanted the joint projects with Dr. Bernstein to succeed, and these were undoubtedly legitimate businesses and they undoubtedly received a large portion of the $6 million. As to the “Schedule C” companies that also received a lot of the stolen monies, I know very little about these companies and whether they were legitimate or not. In the end, the evidence relating to this broad issue is ambiguous. It neither mitigates nor aggravates, in my view. See: R. v. Smickle (2013), 2013 ONCA 678, 304 C.C.C. (3d) 371 at paras. 17-25 (Ont. C.A.); R. v. Holt (1983), 1983 CanLII 3521 (ON CA), 4 C.C.C. (3d) 32 at pp. 51-2 (Ont. C.A.).

[42] Finally, the defence submitted that the large body of character evidence, either filed or called at the sentencing hearing, has a mitigating effect. Mr. Cohen submitted that the statutory prohibition in s.380.1(2), against the use of such evidence in mitigation, only applies to fraud cases and not to theft cases. While this is technically correct, as a matter of narrow statutory interpretation of s.380.1(2), this statutory provision is simply a recent 2004 codification of longstanding common law principles that apply broadly to breach of trust offences. See, e.g.: R. v. Drabinsky, supra at para. 167; R. v. Pierce, supra at p. 36: R. v. Barrick (1985), 7 Cr. App. R.(S.) 142 at 145 (C.A.); R. v. Bertram and Wood (1990), 40 O.A.C. 317 (C.A.). I am satisfied that Ms. Walton’s otherwise good character and her standing in the community cannot mitigate her moral culpability for this kind of offence, which depends for its commission on trust of that very character and standing. I also note that the pattern of collateral acts of dishonesty employed by Ms. Walton, both to commit the offences and then to cover them up (as summarized above), tends to cast doubt on her character for honesty in situations where she is under pressure and needs money.

[43] In conclusion, there are no exceptional mitigating circumstances in this case that would justify a departure from the normal three to five year range of sentence for this kind of offence. Indeed, the three aggravating and four mitigating circumstances summarized above are relatively evenly balanced. However, the four mitigating circumstances are sufficient, in my view, to situate the case at the bottom end of the appropriate range. As a result, I would impose a sentence of three years imprisonment.

F. RESTITUTION AND FORFEITURE

[44] As noted above, the Crown seeks a $6 million restitution Order pursuant to s.738(1)(a) and a $6 million fine in lieu of forfeiture pursuant to s.462.37(3). In light of my finding, set out above, that the quantum of the two thefts is $1,795,236, and not $6 million, the Crown’s request for restitution and forfeiture needs to be modified accordingly.

[45] In response, the defence submits that the amount of money properly characterized as the subject of criminal theft, has been substantially re-paid. The form in which the defence evidence of alleged re-payment came before me at the sentencing hearing is not entirely satisfactory, namely, a brief recent email exchange between Ms. Walton and Mr. Merriweather dated July 17, 2019. It provided little detail or context and it was not fleshed out on the sentencing hearing. Nevertheless, the Crown did not seek to challenge or elaborate on this somewhat cryptic evidence. In the result, there is no dispute as to the following three payments made by “the Walton Group”:

First, a payment of $692,450 to Donalda Developments Inc. “in the fall of 2013.” Mr. Merriweather confirmed that this money “was subsequently paid to the mortgagee”;
Second, payments totaling $172,250 between October 17th and November 4, 2013 “to cover obligations of the joint portfolio”;
Third, payments totaling $710,250 between November 5th and December 17, 2013 “to cover obligations of the joint portfolio.”

[46] The first of these three payments can undoubtedly be characterized as repayment of the stolen monies, as it went directly to the victim Donalda and was used to pay down the mortgage debt incurred on July 31, 2013. The nature and purpose of the second and third payments is less clear, as they are simply characterized as payments towards “obligations of the joint portfolio.” The two new Donalda and Global Mills mortgages, entered into on July 31, 2013, were undoubtedly “obligations of the joint portfolio.” They were also the most suspicious transactions on which Dr. Bernstein, Mr. Reitan, and the Receiver were particularly focused in the fall of 2013, when the civil proceedings were commenced. Finally, they are the only transactions that have resulted in criminal convictions. In all these circumstances, and in the absence of any further clarification as to the nature and purpose of these two payments, I am content to treat them as further repayments of the stolen mortgage monies.

[47] In the result, the total of these three repayments of the stolen mortgage monies is $1,574,950. In other words, substantial repayment was made in the months following the thefts. The amount that has not been repaid is $220,286.

[48] Restitution Orders under s.738(1)(a) form part of the appropriate sentence for this offence and this offender, in the sense that restitution is part of the punishment. It is not simply added automatically where there has been a loss in a criminal case. In deciding whether to order restitution as part of the sentence, the existence of civil proceedings and the impact on the victim are important considerations. See: R. v. Castro (2010), 2010 ONCA 718, 261 C.C.C. (3d) 304 (Ont. C.A.). The present case is somewhat unusual because civil proceedings were commenced and concluded, prior to the criminal trial. There is no dispute that the $6 million in new mortgage liabilities incurred by Donalda and Global Mills on July 31, 2013 was included as part of the $66.95 million civil fraud judgment granted by Newbould J. on September 23, 2016. That judgment survives bankruptcy. See: DBDC Spadina Ltd. et al. v. Norma Walton et al., 2016 ONSC 6018. In these circumstances, a partial restitution Order in the amount of $220,286 does nothing to advance the interests of the victim corporations, it is not needed as part of the punishment of Ms. Walton, and it would raise complex issues as to how to apportion the restitution as between the two corporate victims. For all these reasons, restitution is denied.

[49] The forfeiture issue is somewhat more difficult. There is no issue that theft over is a “designated offence” and that the stolen monies were “proceeds of crime.” Accordingly, the requirements for mandatory forfeiture pursuant to s.462.37(1) are met. I am also satisfied that the stolen monies “cannot … be located”, have been “transferred,” have been “substantially diminished,” and have been “commingled”, and so the criteria for a fine in lieu of forfeiture pursuant to s.462.37(3) have also been met. The power to impose a fine in lieu of forfeiture is discretionary but it is not part of punishment for the offence. It is a separate Criminal Code regime designed to “deprive the offender of the proceeds of crime,” in order to send the message that “crime does not pay.” The discretion must be exercised, bearing that purpose in mind. Ability to pay is not a relevant consideration. See: R. v. Dieckmann (2017), 2017 ONCA 575, 355 C.C.C. (3d) 216 (Ont. C.A.); R. v. Khatchatourov (2014), 2014 ONCA 464, 313 C.C.C. (3d) 94 (Ont. C.A.); R. v. Angelis (2016), 2016 ONCA 675, 340 C.C.C. (3d) 477 (Ont. C.A.).

[50] Ms. Walton was the driving force and sole principal in relation to the two thefts. She directed the transfers of the monies and benefited from the transfers, although others also benefited to some degree. There is no reason to decline to deprive her of the remaining “proceeds of crime” that have not been repaid and that cannot be found. Accordingly, a fine in the amount of $220,286 will be imposed. This is the amount that is “equal to the value of the … part of the property” that cannot be ordered forfeited because of the above s.462.37(3) circumstances. The mandatory provisions of s.462.37(4)(v) require that I impose a minimum two year sentence in default of payment of the fine. Ms. Walton will have five years from the time of her release from serving the three year jail sentence to pay the fine in lieu of forfeiture.

G. CONCLUSION

[51] In conclusion, the sentence imposed is as follows: three years imprisonment; a fine of $220,286 in lieu of forfeiture, with five years to pay the fine after release from prison, and with two years in prison in default of payment of the fine.

M.A. Code J.

Released: September 19, 2019

COURT FILE NO.: CR-19-10000286-0000

DATE: 20190919

ONTARIO

SUPERIOR COURT OF JUSTICE

HER MAJESTY THE QUEEN

– and –

NORMA WALTON

REASONS FOR SENTENCE

M.A. Code J.

Released: September 19, 2019

R. v. Walton, 2019 ONSC 5408

Case Summary

A. OVERVIEW

B. FACTS RELATING TO THE OFFENCES

C. FACTS RELATING TO THE OFFENDER

D. THE POSITIONS OF THE PARTIES

E. ANALYSIS

F. RESTITUTION AND FORFEITURE

G. CONCLUSION

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Expert Witnesses

Financial Outcomes

Issues

Statutory Provisions 9

Legal Tests 2

Legislation 1