COURT OF APPEAL FOR ONTARIO

CITATION: R. v. Waxman, 2014 ONCA 256

DATE: 20140403 DOCKET: C54368

Watt, Hourigan and Pardu JJ.A.

BETWEEN

Her Majesty the Queen

Respondent

and

Robert Karey Waxman

Appellant

Brian H. Greenspan and Naomi M. Lutes, for the appellant

Alexander Hrybinsky and Randy Schwartz, for the respondent

Heard: March 24, 25 and 26, 2014

On appeal from the conviction entered on March 11, 2011 by Justice Thomas R. Lofchik of the Superior Court of Justice, sitting with a jury, and the sentence imposed on October 20, 2011, with reasons reported at 2011 ONSC 6207.

ENDORSEMENT

[1] Robert Waxman appeals his convictions on four counts of fraud over

$5,000. His convictions on two counts of theft over $5,000 were stayed pursuant to

Kienapple v. The Queen, [1975] 1 S.C.R. 729. He was sentenced to eight years’

incarceration and was subject to a US $17,990,740.98 restitution order, and a fine in

2

lieu of forfeiture of US $15,514,643.61, to be paid within three years of release from

custody, failing which an additional six years’ imprisonment would be imposed. The

appellant also seeks leave to appeal his sentence.

[2] The charges stem from the appellant’s concurrent service as a director and

senior officer of Philip Services Corporation (“Philip”), a publicly held waste

management firm, and as a director and senior officer of Philip Enterprises Inc., a

wholly-owned subsidiary of Philip. Philip Enterprises Inc. operated as part of Philip’s

“Metals Recovery Group” division, of which the appellant was president. As described

below, the appellant was convicted for having wrongly profited at the expense of his

employer from his undisclosed involvement in copper trading.

[3] During the period 1994 to 1997, Philip was experiencing cash shortages. The

Metals Recovery Group helped alleviate these cash shortages through “ring out”

transactions whereby the Metals Recovery Group would enter into legitimate two way

transactions with an independent party for the sale and immediate repurchase of copper

cathode. These transactions did not result in a change of ownership in the underlying

copper, but their payment terms generated cash flow for Philip.

[4] Between April 1996 and April 1997, the Metals Recovery Group, under the

appellant’s direction, carried out 69 three way ring out copper transactions involving

Philip, an independent company, Pechiney World Trade (U.S.A.), Inc. (“Pechiney”), and

a company in which the appellant held a 75 per cent ownership interest in, Parametal

Trading Inc. (“Parametal”). During this period he also carried out one two way

transaction involving only Parametal and Philip. Parametal's total profit on these

transactions was $7,352,543.70. The appellant personally received payment through a

3

company he owned, Monopol Commodities LLC (“Monopol”), of over $4.9 million from

these transactions.

[5] The appellant also arranged ring out transactions involving MIT International

(“MIT”), a company owned by his friend, Mark Schmidt-Fellner. Between November

1996 and April of 1997, there were seven three way ring outs involving MIT. In each of

these transactions MIT would purchase copper from Philip and sell it to Pechiney. MIT

made a profit on each of these transactions. The appellant held no ownership interest in

MIT, however, he would instruct Mr. Schmidt-Fellner to wire money to Oracle

International LLC (“Oracle”), a company he owned. MIT made a profit of $623,104.36 on

these seven ring outs and most of these funds were forwarded to Oracle’s bank

account.

[6] In addition to the ring out transactions, the appellant used his position at Philip to

arrange for the transfer of copper from Philip to other parties with no payment being

received by Philip. For example, Philip transferred copper to Parametal in a series of

transactions, but never billed Parametal for the copper that was transferred. Parametal

made a profit of $8,866,822.98 on these transactions and the appellant received

approximately $8,571,060 through Oracle. Similarly, Philip bought copper from

Pechiney and forwarded the copper to MIT but never sent MIT an invoice. MIT then sold

the copper to Pechiney. Pechiney then paid MIT for the copper by depositing the money

into MIT's bank account. Each time Pechiney paid MIT, a few days later MIT made a

payment to Oracle's bank account. MIT's profit on these three transactions was

$1,148,270, of which $1,092,700 was transferred to Oracle's bank account.

4

[7] At trial the appellant conceded, among other things, that the funds diverted to

Monopol, Oracle and another company he controlled, Elohs SA, were used for his own

personal purposes. The appellant called no evidence at trial, but argued that the jury

should have a reasonable doubt as to his guilt.

[8] There are three grounds of appeal on the conviction appeal: (i) the trial judge

erred in instructing the jury as to how the appellant’s duty to disclose his interest in the

third party companies related to his mens rea for fraud; (ii) the trial judge erred in

response to a question from the jury about the use of the terms “unbilled” or “unpaid” to

describe some of the transactions; and (iii) the jury charge was unfair and unbalanced.

[9] For the reasons that follow, we see no merit in any of the grounds of appeal

advanced and dismiss the appeal.

The Duty to Disclose

[10] The appellant asserts that the trial judge erred in instructing the jury that he had a

duty to disclose his personal involvement in the impugned transactions to Philip

because Philip Enterprises Inc. and not Philip was the party to the transactions.

[11] There was no error by the trial judge. There can be no serious contention that, as

a senior officer and director of Philip, the appellant owed a fiduciary duty to his

employer, Philip, which included, among other things, a duty of disclosure, a duty of

good faith and the avoidance of conflicts of interest: Canadian Aero Service Ltd. v.

O’Malley, [1974] S.C.R. 592, at p. 606-07. The appellant’s duty of disclosure was

particularly pronounced in this case, given that the purpose of the ring out transactions

was to generate much needed cash flow for the parent company, Philip.

5

[12] We note as well that the trial judge cautioned the jury that failure to disclose was

not criminal in itself, but that the failure to disclose might form part of the basis for a

finding of intent to defraud. The trial judge also fairly set out in his charge to the jury the

circumstantial evidence relied upon by the appellant to support his submission that his

supervisor might have been aware of his actions.

[13] We conclude that the trial judge properly instructed the jury with respect to the

mens rea associated with non-disclosure. Accordingly, we see no merit in the first

ground of appeal.

“Unpaid” and “Unbilled”

[14] Turning to the second ground of appeal, during its deliberations the jury asked a

question related to count 2, a count which involved transfers of copper to MIT. They

asked whether they only had to be satisfied that fraud was committed beyond a

reasonable doubt, or whether they also needed to separately be satisfied that the

transactions were “unbilled” and/or “unpaid”. After hearing submissions from counsel,

the trial judge told the jury that the terms unbilled and/or unpaid were merely labels

used during the trial to refer to certain transactions. He instructed the jury that they must

be satisfied that the elements of fraud were proven beyond a reasonable doubt and

referred them to the guideline he had given them to assist with their deliberations in

deciding whether the elements of fraud had been made out.

[15] The appellant asserts that the judge’s response to the jury’s question failed to

recognize the central importance of the issue of whether the amounts in issue were

6

simply unpaid or were unpaid and unbilled. He also argues that the question indicates

that the jury was struggling with the issue of whether the transfers were unbilled.

[16] We disagree. The trial judge correctly instructed the jury that their task was to

consider whether the elements of the fraud alleged had been proven beyond a

reasonable doubt, and that “unbilled/unpaid” was a convenient way to refer to those

transactions during the trial. The notion that these charges were unbilled and unpaid

was not particularized in the indictment and the Crown was under no obligation to prove

that fact.

[17] We also do not view the jury’s question as evidence that it was struggling to

decide whether the transactions were in fact unbilled. There was no need for the trial

judge to have further instructed them on this issue. Moreover, we reject the submission

that the trial judge ignored the defence asserted by the appellant in response to this

charge. The trial judge fairly put the defence position to the jury, much of which called

for inferences based on circumstantial evidence.

Unbalanced Charge

[18] The final ground of appeal on the conviction appeal is the assertion that the jury

charge was unfair and unbalanced. We disagree. This case was extremely complex.

The trial judge did an admirable job in summarizing the arguments of the parties and the

evidence in a careful and measured manner.

[19] The trial judge raised, at the request of the defence, the issue of hedging

notwithstanding that the defence never conveyed a coherent submission on how a

hedging strategy would have either prevented the siphoning of funds to the appellant or

7

would have alleviated any concerns that the board of directors might have had, if they

had in fact been advised of the appellant’s profit taking activities.

[20] We also find no fault with the trial judge’s legal instructions, which meticulously

took the jury through the elements of each offence. Further, his responses to the jury

questions were accurate and appropriate. Contrary to the submission of the appellant,

we do not believe that when the jury asked for a replay of evidence that it was

necessary for the trial judge to go beyond that request and further instruct the jury on

the legal issues raised in the evidence that was the subject of the request.

[21] In summary, we see no merit in the grounds of appeal asserted by the appellant

and do not find any basis for appellant intervention.

The Sentence Appeal

[22] The appellant asserts on his application for leave to appeal sentence that the trial

judge misapprehended evidence which was critical to a proper determination of

sentence, failed to consider mitigating factors, and found certain factors to be

aggravating in the absence of evidence. He further submits that the trial judge erred in

imposing a restitution order and a fine in lieu of forfeiture.

[23] We note that the appellant conceded on the hearing of the appeal that the

sentence was within the appropriate range for a major commercial fraud. This was a

sensible concession given recent sentences in similar cases (e.g. R v. Drabinsky, 2011

ONCA 582, R v. Koval, [2001] O.J. No. 1205 (S.C.), and R v. Bjellebo, (2003), 177

O.A.C. 378 (C.A.)).

8

[24] We are not satisfied that the trial judge misapprehended any evidence in

imposing his sentence. In any event, even if the appellant could establish some errors

regarding the relatively minor factual references complained of, he has failed to

demonstrate how such alleged errors rendered the term of imprisonment unfit. Similarly,

we do not see how the failure to credit the appellant for paying back approximately ten

percent of the missing funds, when the trial judge found that the appellant had, at least

at one point, the ability to pay back more, rendered the sentence unfit.

[25] This was an entirely appropriate case for a restitution order, as counsel for the

appellant appeared to concede to the trial judge in making his sentencing submissions.

The appellant diverted millions of dollars to his personal use at the expense of the

shareholders of a public company. That he should be obliged to disgorge his ill-gotten

profits is hardly inequitable. Depriving an offender of the proceeds of crime is one of the

fundamental purposes of restitution orders.

[26] We also do not see any error in the quantum of restitution ordered. The figure

utilized was taken from expert forensic accounting evidence provided at trial and on the

sentencing hearing. The appellant submitted that the quantum was overstated but

provided no competing figure and raised no serious issue regarding the accuracy of the

amount ordered.

[27] In imposing the restitution order, the trial judge did not explicitly indicate that he

was considering the appellant’s ability to pay, but he did so implicitly by reviewing the

lack of evidence of the appellant’s finances. It hardly lies in the mouth of the appellant to

complain that his ability to pay was not considered given his decision not to provide any

evidence during sentencing regarding his financial position. In any event, the ability to

9

pay is but one consideration in deciding whether to impose a restitution order, it is not

determinative: R. v. Eizenga, 2011 ONCA 113, at paras. 99-103.

[28] The complaint raised by the appellant regarding the fine in lieu of forfeiture is that

the trial judge failed to consider his ability to pay in determining the length of time for the

payment of the fine. The trial judge ordered that the appellant has three years from the

time he is released on parole to pay the fine. The appellant submits that the time to pay

should not commence until an order in an unrelated civil proceeding freezing his assets

is lifted.

[29] We see no basis to interfere with the time for payment ordered by the trial judge,

especially given the failure of the appellant to provide the court with evidence regarding

his financial position. The appellant has been granted a significant period to pay the

fine. The trial judge contemplated that, if he was unable to meet this deadline, further

incarceration was not automatic, as he would be permitted to make submissions to the

court regarding his inability to pay.

[30] An issue arises concerning the interplay between the restitution order and the

fine in lieu of forfeiture order. On the current wording of the court’s orders, it is

theoretically possible that payment of restitution would not be credited against the fine in

lieu of forfeiture, thus exposing the appellant to the risk of double collection of the same

amount. The parties have assured us that this is not their understanding of the orders

and that any payment made would be credited to both orders equally.

[31] For greater certainty, we would amend the order of the trial judge to state: “the

restitution order shall take priority over payment of the fine in lieu of forfeiture ordered

10

herein, and the fine in lieu of forfeiture shall be reduced by any amount paid pursuant to

the restitution order”.

[32] The appeal from conviction is dismissed. Leave to appeal sentence is granted

but the sentence appeal is dismissed save for the clarification noted in the preceding

paragraph to ensure that payment of restitution is also credited against the fine in lieu of

forfeiture imposed by the trial judge.

“David Watt J.A.”

“C. W. Hourigan J.A.”

“G. Pardu J.A.”