




CITATION:
R. v.
Valovic
, 2011 ONCA 320



DATE: 20110421



DOCKET: C50618



COURT OF APPEAL FOR ONTARIO



Simmons, Rouleau and Karakatsanis JJ.A.



BETWEEN



Her Majesty the Queen



Respondent



and



Ivan Valovic and Ivans Electric Limited



Appellants



Murray Shore and Daniel Moore, for the appellants



Robert Goldstein, for the respondent



Heard:
March 7, 2011



On appeal from the judgment of Justice John R. Belleghem of
          the Superior Court of Justice dated May 22, 2009, dismissing the appeal from
          the summary conviction entered by Justice J. Elliott Allen of the Ontario
          Court of Justice on October 19, 2006, with reasons reported at
[2006] O.J. No. 5564
.



By the Court:



[1]

Ivan Valovic, his wife Dagmar and their co-owned
    company Ivans Electric Limited were convicted summarily of multiple counts of
    GST and income tax evasion and filing false tax returns contrary to s. 239(1)
    of the
Income Tax Act
, R.S.C. 1985,
    c. 1 (5th Supp.), and s. 327(1) of the
Excise
    Tax Act
, R.S.C. 1985, c. E-15.

[2]

The summary conviction was upheld on appeal to the
    Superior Court of Justice although the sentence was varied to vacate the
    custodial portion of the sentence.

[3]

Mr. Valovic and Ivans Electric Limited now seek leave to
    appeal the summary conviction appeal decision. They argue that the summary
    conviction appeal judge misinterpreted the trial judges reasons, reached
    unreasonable conclusions and, as a result, failed to exercise his appellate
    jurisdiction properly. Dagmar Valovic does not appeal.

[4]

The threshold question for the court is whether leave
    to appeal ought to be granted. As set out in
R. v. R
.(
R.)
(2008), 234 C.C.C. (3d) 463 (Ont.
    C.A.), at para. 37, leave to appeal should be granted sparingly, taking into
    account the significance of the legal issues
raised
to
    the general administration of criminal justice and the merits of the proposed
    grounds of appeal.

[5]

For the reasons that follow, we do not grant leave to
    appeal. The issues raised in the proposed appeal have little significance to
    the administration of justice beyond this case and the merits of the proposed
    appeal are not strong. We also agree with the summary conviction appeal judge
    that the case against the appellants was overwhelming. Although the trial
    judges reasons contain two unfortunate comments, they do not, as the
    appellants suggest, raise significant issues of trial fairness.

ANALYSIS

1.
No broader significance to the administration
    of justice

[6]

The
appellants
claim that the
    proposed appeal would be the first time a provincial appellate court in Canada
    has specifically dealt with the issue of what sort of evidence, in addition to
    a discrepancy demonstrated by a net worth analysis, is required to prove the
actus reus
of tax evasion. A net worth
    analysis calculates the taxpayers net worth at the beginning and at the end of
    the period under review.  Where the taxpayers
    declared income and other sources of money cannot account for the increase in
    the taxpayers net worth, a discrepancy is demonstrated and may lead to the
    inference that the taxpayer earned income that was not reported to the tax
    authorities.

[7]

We do not give effect to this submission. That issue
    was recently addressed in
R. v. Hunter
,
    2008 ONCA 103, where this court held at paras. 4-5 that in the appropriate
    case, a discrepancy alone is sufficient to prove the
actus
reus
. In the present case, this is
    precisely what the trial judge concluded. The conclusion was open to him based
    on the extent of the discrepancy, the appellants failure to keep proper books
    and records, the absence of any evidence explaining the discrepancy, and the
    evidence as to the accuracy of the net worth calculations relied on by the
    Crown.

2.
There
    is no significant merit

[8]

Although the appellants listed several grounds of
    appeal in their factum, in oral submissions it became apparent that the appeal centred
    on two statements made by the trial judge in his reasons. The appellants
    contend that these two statements indicate that the trial judge improperly stereotyped
    electricians as likely to evade taxes and, by relying on documents suggesting
    Mr. Valovic was involved in an unrelated fraud scheme, engaged in prohibited
    propensity reasoning.

[9]

Both of these problematic statements were raised as
    grounds of appeal in the summary conviction appeal court and were rejected by
    the summary conviction appeal judge. We will address each of the two statements
    in turn.

a)

Did the trial judge improperly stereotype electricians
    as likely to evade taxes?

[10]

The first of the impugned statements is the following:

The likely source of funds in this case is the
    electrician business which as a trade is notoriously likely to involve cash
    transactions more or less depending on the inclination of the tradesman. When
    the books of Ivans Electric reveal the failure to keep proper records, the
    potential source of undisclosed funds is obvious.

[11]

The appellants submit that the trial judges use of the
    word notoriously to describe the propensity of a particular group of
    tradespeople to engage in cash transactions casts those transactions and those
    tradespeople in a pejorative light, suggesting that there is something unseemly
    or illicit in the practice. This, in the appellants submission, shows that the
    trial judge demonstrated bias by stereotyping a group to which Mr. Valovic
    belongs as having a propensity to commit the crime of tax evasion.

[12]

We disagree. That issue was fully canvassed and
    rejected by the summary conviction appeal judge. In our view, this passage in
    the reasons does not indicate that the trial judge was stereotyping or improperly
    taking judicial notice of the nature of the electrician trade as being a cash
    business or expressing a bias against electricians. The record shows that Mr.
    Valovic described himself as a sole practitioner electrician who repairs
    televisions, microwaves, videocassette recorders and other small appliances,
    and who does most of the work himself. Given the small and inexpensive items
    Mr. Valovic repaired, it was open to the trial judge to infer that the
    unexplained increase in net worth of Mr. Valovic was likely as a result of his making
    unrecorded cash transactions.

[13]

Read in the context of the reasons as a whole, the
    statement does not suggest that the trial judge was biased against
    electricians. Although the comment should have been restricted to the nature of
    Mr.
Valovics
business and his circumstances rather
    than referring to electricians generally, it is apparent that the trial judge was
    addressing the issue of the likely source of Mr. Valovics undeclared income.

b)  Did the trial judge make
    improper use of the Nigerian scheme documents?

[14]

The appellants argue that the trial judges reference
    in his reasons to correspondence between Mr. Valovic and a Nigerian contact
    raises concerns as to whether the trial judge engaged in inappropriate
    propensity reasoning and whether the appellants had a fair trial. To understand
    the appellants concern, we need to provide context.

[15]

In the course of the trial, a number of documents were
    entered into evidence suggesting that Mr. Valovic was considering getting
    involved in what appeared to be a $21 million fraudulent scheme with someone in
    Nigeria. The scheme does not appear to have been carried out and, in any event,
    it was unrelated to the charges before the court. The documents indicated that
    Mr. Valovic opened a bank account in Slovakia at or around the time of that
    correspondence and that the account was related to the scheme he was discussing
    with the Nigerian contact. The documents also contain a statement by Mr.
    Valovic indicating his awareness of there being tax implications if the Canada Revenue
    Agency became aware of the proposed fictitious invoices.

[16]

The Crown submitted that the Nigerian documents served
    to show that the appellants knew that they had to pay taxes on income. The
    documents were also tendered to counter the defences suggestion that the
    Slovakian bank account had been opened and used by Mr. Valovic to receive a
    gift from his father. Receiving a gift through an overseas account could have served
    to explain the discrepancy in Mr. Valovics net worth analysis.

[17]

The portion of the reasons containing the impugned
    statement appears towards the end of the trial judges analysis of the
mens rea
component of the offence. It
    comes after the trial judge found that Mr. Valovic had deducted personal
    expenses from his business income and after he rejected the suggestion that
    this was due to sloppy bookkeeping. The statement is as follows:

One particularly informative piece of evidence was
    the correspondence around the Nigerian scheme. It appeared Mr. Valovic was
    prepared to submit a huge fraudulent invoice to his Nigerian contact and that
    he was alert to the tax implications. That is compelling evidence of his
    dishonesty and guile. On the basis of the evidence presented I am of the view
    that there is no real possibility that the discrepancy in net worth came about
    as a result of sloppy bookkeeping or some other mistake.

[18]

The appellants argue that the statement shows that the
    trial judge engaged in inappropriate propensity reasoning. The appellants
    further argue that the trial judge had stated in the course of final submissions
    that he would make no use of the Nigerian documents, and thus his use of the
    documents for any purpose, even to show that Mr. Valovic knew he had to pay
    taxes, rendered the trial unfair.

[19]

We disagree.

[20]

During final submissions, the defence argued that the
    apparent fraudulent scheme disclosed in the Nigerian documents was highly
    prejudicial as it reflected disreputable conduct. The trial judge made it abundantly
    clear that he agreed with the concern and that he would not use the documents to
    infer disreputable conduct or propensity. As to the two bases for which the
    documents were originally tendered in evidence, the trial judge advised the
    Crown that there was no need to use the documents to demonstrate that Mr.
    Valovic knew that he had to pay taxes, since that was not a live issue by the
    time the trial was completed. The trial judge appears to have accepted the use
    of the documents to counter any suggestion that the Slovakian account was a
    source of gifted funds from his father. This, however, was a very minor point.

i)

The
    propensity reasoning concern

[21]

The propensity reasoning concern was fully canvassed on
    the summary conviction appeal. That court found that the trial judge did not
    use the documents for prohibited propensity reasoning. This conclusion is fully
    supported by the lengthy exchange between counsel and the trial judge wherein
    the trial judge demonstrated a clear understanding of the prohibition on using
    the documents either as similar fact evidence or to show a dishonest propensity
    and unequivocally stated that he would not use the documents for such improper
    purposes. The summary conviction appeal judges conclusion that the reference
    to the Nigerian documents was nothing more than a general throw away
comment
and that the trial judge did not make any finding of
    dishonest propensity to bolster his finding that the appellants had the
    necessary
mens rea
 is supported by a
    reading of the transcript and reasons as a whole.

[22]

Although we consider the trial judges comment that the
    Nigerian Scheme is compelling evidence of [Mr. Valovics] dishonesty and
    guile to be truly unfortunate and gratuitous, it does not, in our view, amount
    to a reviewable error, nor does it alone or together with the comment regarding
    the electricians demonstrate a reasonable apprehension of bias.

ii)

The trial fairness concern

[23]

Although it appears from the reasons that the trial
    judge used the Nigerian Scheme documents to indicate that Mr. Valovic was alert
    to the tax implications of earning revenue, something the trial judge said was
    not necessary, the reference is, in our view, harmless. As explained by the trial
    judge, using the documents for that purpose was unnecessary because Mr.
    Valovics knowledge of the tax implications of earning revenue was not a live
    issue by the end of the trial. The appellants trial counsel did not suggest
    otherwise. It is apparent, therefore, that the appellants suffered no prejudice
    from the trial judges reference to the Nigerian documents in this context.

CONCLUSION

[24]

All of the grounds of appeal raised in this court were raised
    and rejected in the summary conviction appeal court. In addition to rejecting
    these grounds of appeal, the summary conviction appeal judge carefully reviewed
    the evidence and concluded:

[T]he evidence in this case was overwhelming
    against the appellants. In particular, the net worth evidence was structured in
    such a way as to give the appellants the benefit of the doubt on virtually
    every item in dispute other than those such as the purported shareholders meeting
    in Barbados. Common sense would tell anyone that this was nothing but a sham.

[25]

The summary conviction appeal judge also rejected the
    suggestion that this was a case of inadvertent sloppy bookkeeping. Mr. Valovic
    had previously been audited by the Canada Revenue Agency and had undertaken to
    keep proper records, which he had not done.

[26]

In our view, the grounds of appeal from the summary
    conviction appeal court are not strong. As there is no legal issue raised that
    has significance to the general administration of criminal justice, the
    appellants have not met the test set out in
R.
    v. R
.(
R.)
. Leave to appeal is denied.

Janet Simmons J.A.

Paul Rouleau J.A.

Karakatsanis J.A.

RELEASED: April 21, 2011


