Superior Court of Justice

COURT FILE NO. CR-12-9675-SR DATE: 2019-12-23 ONTARIO

BETWEEN:

HER MAJESTY THE QUEEN

– and –

LAWRENCE WATTS

Counsel: Erin Carley and Concetta Zary, for the Crown Lawrence Watts, in person

Heard: June 20 and August 30, 2019

Bale J.

Introduction

[1] On June 6, 2016, I sentenced Lawrence Watts to a six-year prison term, following his conviction by a jury on one count of defrauding the Government of Canada. At the same time, I imposed a fine in lieu of forfeiture in the amount of $149,129.11, with $100,000 to be paid no later than June 16, 2016, and the balance to be paid no later than June 6, 2019.[^1]

[2] There are now two applications before the court. The first is an application by Mr. Watts under s. 734.3 of the Criminal Code to extend the time for payment of the fine to June 6, 2022. The second is an application by the Crown under s. 734.7 of the Code for a warrant of committal.

[3] For the reasons that follow, both applications are dismissed.

Background facts

[4] A jury found Lawrence Watts guilty of fraud over $5,000, contrary to section 380(1)(a) of the Criminal Code. The charge arose from the fraudulent preparation, by the offender, of one or more income tax returns for 241 Canadian taxpayers. In each case, a non-existent business loss, of a non-existent business, was reported resulting in a claim for a refund of all the tax paid in the three previous years, and of the money withheld at source by their employers for the then current year. The total amount of federal tax revenue that would have been lost had all of the returns been assessed as filed was $10,507,131. However, at some point, Canada Revenue Agency caught on to the scheme and began to disallow the refund claims. The actual amount paid out in federal tax refunds, or otherwise credited to the taxpayers’ federal tax accounts, was $2,750,288.

[5] In preparing the tax returns, Mr. Watts used the business name “Fiscal Arbitrators”. For his services, the taxpayers were charged 20 per cent of the tax refunds, or credits, received from CRA. Pursuant to an admission made by Mr. Watts under s. 655 of the Criminal Code, the parties agreed that the total amount received by Fiscal Arbitrators was $545,401.92, that after payments to agents and promoters, a sum of $298,256.21 remained, that the remaining amount was split between Watts and his business partner, all with the result that the personal benefit to him was $149,128.11.

[6] In September 2009, Mr. Watts and his wife Miriam bought a home in Thornhill. Title to the home was registered in Mrs. Watts’ name. The purchase price of the home was $520,000. Both the deposit of $20,000, and the down payment of $118,550, were paid from the bank account into which Mr. Watts’ share of the fraudulently generated revenue was deposited.

[7] In September 2013, the home was sold for $800,001. The solicitor acting for Mr. and Mrs. Watts on the sale was a Mr. Peddle. A judicial interim release order dated September 30, 2013 contained the following provision: “$100,000 being held in trust by counsel Mr. Peddle shall be operated by Mr. Peddle and not released without further order of the court.”

[8] Prior to the commencement of the sentence hearing, Crown counsel served notice on Mr. Watts that she would be asking the court to make a forfeiture order, in relation to the money held in trust by Mr. Peddle. Because the house had been registered in the name of Miriam Watts, I ordered that she be served with notice of the Crown’s application. At Mr. Watts’ request, the balance of the sentence hearing was heard first, and a separate date was scheduled for completion of the forfeiture hearing.

[9] On March 31, 2016, Mr. and Mrs. Watts attended for the forfeiture hearing, and requested an adjournment to allow them to argue that the forfeiture provisions of the Criminal Code were unconstitutional. I advised them to obtain legal advice and adjourned the sentence hearing to May 10, 2016. The Crown’s position at that time was that the $100,000 held by Mr. Peddle should be forfeited, and that there should be a fine in lieu of forfeiture, in the amount of $49,128.11, being the balance of the amount by which Mr. Watts had admitted he benefitted.

[10] On May 10, 2016, Mr. Watts, but not Mrs. Watts, attended in court for the forfeiture hearing. Mr. Watts advised that they had obtained legal advice, and that Mrs. Watts had been advised to “pull her bail”, which she did, resulting in his arrest. A bail hearing had then taken place, the existing release order with the provision relating to the money in Mr. Peddle’s trust account had been cancelled, a new release order, without such a provision, had been made, and Mr. Peddle had released the $100,000 in his trust account to Mrs. Watts. In these circumstances, Crown counsel withdrew her application for forfeiture of the money in Mr. Peddle’s account, and requested a fine of $149,128.11 in lieu of forfeiture, with $100,000 to be paid immediately, and the balance within two to three years.

[11] On June 6, 2016, I sentenced Mr. Watts to a prison term of six years. In addition, I ordered that he pay a fine in lieu of forfeiture, in the amount of $149,129.11, of which $100,000 was to be paid no later than June 16, 2016, and the remaining $49,129.11 was to be paid no later than June 6, 2019. As required by s. 462.37(4)(a)(v) of the Criminal Code, I ordered that in default of payment of the fine, he would serve an additional two years, consecutive to the six-year term, and to any other term of imprisonment that he might then be serving.

[12] In delivering my reasons for imposing a fine in lieu of forfeiture, I ruled that the home purchased in Mrs. Watts’ name had been purchased with proceeds of crime, that she had no right to retain the proceeds of sale, and that the $100,000 released to Mrs. Watts from Mr. Peddle’s trust account was available to Mr. Watts to pay the first installment of the fine, due on June 16, 2016. Significantly, Mrs. Watts was present in the courtroom when I made that ruling.

[13] Mr. Watts appealed to the Court of Appeal from both conviction and sentence and applied to the court for an order that his obligation to pay the fine be suspended, until his appeal had been determined. The application was disposed of on the basis of Crown counsel’s undertaking to take no steps to enforce payment of the fine, pending final disposition of the appeal. The appeal was dismissed on February 14, 2018, and a subsequent application for leave to appeal to the Supreme Court of Canada was dismissed on September 27, 2018.

[14] In January 2019, Mr. Watts filed an application for an order extending the deadline for payment of the fine to June 6, 2022. The application came on for hearing on June 20, 2019. As of that date, the total amount paid on account of the fine was $340. The application included an affidavit in which he described his limited ability to earn income since he was released on parole in June 2018.

[15] At the outset of the hearing, I advised Mr. Watts that I could hear argument based upon the affidavit he had filed, or if he wished, he could give oral evidence and call any witnesses he wished to call in support of the application. In order to assist him in making a decision as to whether to call evidence, I told him that based upon my reading of his application, I would consider an extension of the time for payment of the $49,128.11 due on June 6, 2019, but that I saw nothing in the application to support an extension of the time for payment of the $100,000 due on June 16, 2016.

[16] Mr. Watts then testified that his wife had told him “in no uncertain terms” that the remaining $100,000 of the proceeds of sale of the home “was her money, and she wasn’t going to use it to pay any fine of mine.” The following exchange then occurred:

THE COURT: All right. So, what you are saying is that your wife, who was in the courtroom at the time that I ruled that that money was proceeds of crime, and after that ruling it was your intention to have that money go toward payment of the fine, but your wife refused to cooperate and give you the money in order to pay the fine?

LAWRENCE WATTS: Well essentially, yes. Refusing to cooperate. If she had of had an order directed at her, I’m not sure that there would have been a refusal to cooperate, but there was no order directed at her. It was an order directed at me, and – and so she didn’t feel obligated.

[17] I then suggested to Mr. Watts that although it was up to him what evidence he called, it would be of assistance to his application if he were to call his wife as a witness to give that evidence. He asked whether an affidavit would do, and again I told him that it was up to him to decide what evidence to call but suggested that her evidence would potentially be more persuasive, if she were to give it in person, and be subject to cross-examination. Mr. Watts said that he would need an adjournment for that purpose. I then adjourned the application to August 30, 2019 to be heard together with the Crown’s application for a writ of committal.

[18] On August 30, 2019, Mr. Watts attended and filed an affidavit sworn by Mrs. Watts. In the affidavit, she said that on the date the application was to be heard, she would be “out of the country on a planned vacation with family members and not able to attend court with my spouse.” She said that her understanding had been that the sole purpose of the order requiring the $100,000 to remain in Mr. Peddle’s trust account was to secure her obligation as her husband’s surety, but that “prior to sentencing, it became apparent to me that the reason the Crown insisted on having Mr. Peddle retain the $100,000 was not simply to secure the bail amount, but ultimately so they could specifically identify that amount in a forfeiture hearing.” She also confirmed that she had been in the courtroom when I sentenced Mr. Watts, and that when she spoke to him later in the week, she “made it clear to my spouse at that time, that the proceeds that I received from the sale of my house were mine and are not available to him to pay any fine either then or at any time in the future. That is still my position.”

Analysis

[19] Mr. Watts has been paying five per cent of his income on account of the fine. His evidence is that he has no savings and is unable to pay more than that amount. This is not surprising given the prison sentence he served. The real question here is what happened to the proceeds of sale of the home, including the $100,000 that was released to Mrs. Watts while the forfeiture hearing was pending. I am not satisfied based on the affidavit evidence of Miriam Watts that the money, or at least a substantial amount of it, does not remain available. She says in the affidavit that she used $36,000 of that money to pay income taxes but provides no evidence with respect to the balance. And of course, contrary to what she says in her affidavit, the money was never hers.

[20] Mr. Watts’ application to extend the time for payment of the fine is made under s. 734.3 of the Criminal Code which provides that a court that makes an order under s. 734.1 may change any term of the order, except the amount of the fine. The difficulty with the application is that the fine in question was imposed under s. 462.37(3) of the Code, and not under s. 734.1. There is no provision in the Code similar to s. 734.3 providing for an extension of the time for payment of a fine in lieu of forfeiture.[^2] As I said in my reasons for sentence,[^3] if Mr. Watts is unable to pay the fine, relief is available to him under s. 734.7 of the Code.[^4]

[21] Section 734.7 of the Criminal Code provides as follows:

Warrant of committal — Where time has been allowed for payment of a fine, the court shall not issue a warrant of committal in default of payment of the fine

(a) until the expiration of the time allowed for payment of the fine in full; and

(b) unless the court is satisfied

(i) that the mechanisms provided by sections 734.5 and 734.6 are not appropriate in the circumstances, or

(ii) that the offender has, without reasonable excuse, refused to pay the fine or discharge it under section 736.

Where an offender is in default of payment of a fine, s. 734.5 authorizes the government to refuse to renew a licence or permit until the fine is paid, and s. 734.6 provides for the filing of the order as a civil judgment, and for its enforcement as such. Section 734.7 provides relief to an impoverished offender, because inability to pay a fine is a reasonable excuse for failing to do so: R. v. Wu, 2003 SCC 73, at para. 3.

[22] Based upon Mr. Watts’ evidence with respect to his income and assets, and the uncertainty relating to the balance of the proceeds of sale of the home, Crown counsel has not satisfied me that he has, without reasonable excuse, refused to pay the fine. I am also not satisfied that civil enforcement is not appropriate. If the fine order is entered as a civil judgment, Crown counsel would have an array of civil enforcement remedies available to it, including a motion for an order compelling Miriam Watts to attend for an examination in aid of execution.

[23] For the reasons given, both applications are dismissed.

“Bale J.”

Released: December 23, 2019

REASONS FOR DECISION

Bale J.

Released: December 23, 2019

[^1]: Reasons for sentence reported at 2016 ONSC 4843. [^2]: Fines under s. 462.37(3) in lieu of forfeiture are treated differently from fines imposed under s. 734.1. As a second example, the fine option program is not available to an offender against whom a fine in lieu of forfeiture is imposed (see ss. 462.37(5) and 736). [^3]: R. v. Watts, 2016 ONSC 4843, at para. 48. [^4]: In both R. v. Chung, 2018 ONSC 6633, at para. 35 and R. v. Gandhi, 2018 ONSC 941, at para. 38, the court comments that an extension of time to pay is available under s. 734.3 with respect to fines in lieu of forfeiture. I respectfully disagree and note that in neither case was the court dealing with an application under s. 734.3.