



COURT OF APPEAL FOR ONTARIO

CITATION: R. v. Scholz, 2021 ONCA 506

DATE: 20210713

DOCKET: C67582

Miller, Paciocco and Nordheimer
    JJ.A.

BETWEEN

Her Majesty the Queen

Appellant

and

Joern (John) Scholz

Respondent

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 respondents
    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 respondents 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 counsels
    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 respondents 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 respondents 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 respondents 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 judges conclusion on the sentence and that is the role that the
    OSC investigators 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 investigators 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
    investigators conduct would have given rise to any significant reduction in
    the appellants 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 appellants
    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 Courts jurisprudence a fit sentence for the
    Respondents 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 appellants 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.





[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.


