Her Majesty the Queen v. Rupert Folkard, Folkard of Canada Incorporated, Dendor Roto-Sphere Valves Limited, Brooktree Investments Limited and Lome Yacyshyn, [1993] 1 CTC 408

Langdon, J.:—The accused Folkard and Yacyshyn are charged with numerous counts of income tax evasion. In short terms, the counts relate to alleged fraudulent misuse of the scientific research tax credit program by the two accused and their companies during the taxation years 1986 and 1987. The prosecution has attempted to set out in summary form for the benefit of the Court the nature of the S.R.T.C. tax credit scheme and an overview of the steps alleged to have been taken by the accused to violate that scheme. Exhibits 2 and 5. There can be no question of the complexity, both of the scheme and of the alleged activities of the accused.

The substance of the allegations is that the various parties evaded federal income tax of almost eight million dollars.

An income tax audit of the accused's affairs began in February, 1988. This routine audit should not be confused with the subsequent criminal investigation, which began in or about the month of May, 1989. The investigator in charge was Mr. Sit. His main assistant was Mr. Kodric. They had clerical help from other members of the department.

The pre-charge investigation was relatively brief from May 1989 until January 1990.

In January 1990, applications were made to judges of the General Division in Toronto who granted ten search warrants. These applications were made under provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") which have since been declared unconstitutional by the Federal Court of Appeal.

Mr. Sit made it plain that the more common practice in cases of this nature is to execute the search warrants first, then to take some time reviewing what is found, and then subsequently, to lay charges against and arrest persons considered criminally culpable.

Mr. Sit, after consultation with his superiors and with the Department of Justice, was concerned that the execution of search warrants might cause the accused to flee the jurisdiction. Consequently, they took the uncommon step of arresting the two accused contemporaneously with the execution of the search warrants.

This executive decision will be the subject of later comment. The result of this decision was to expand the period of time between the laying of charges and the preliminary inquiry in order for the prosecution to make disclosure.

Warrants were executed and the accused arrested on January 17, 1990. Both accused were held for bail. Bail was granted to both. Mr. Yacyshyn spent approximately ten days in pre-trial custody. Mr. Folkard was less successful. His bail was set so high that he could not meet it. On April 11, 1990, the bail was varied on consent from $250,000 to $150,000 and he was released. He suffered greatly in jail from the pervasive presence of cigarette smoke to which he has an asthmatic reaction.

At a pre-trial conference before the senior administrative regional judge of the Provincial Division on May 3, the Crown advised that it anticipated that disclosure would take approximately a year. Naturally, no date for a trial or preliminary inquiry could be set until disclosure was complete.

The Judge indicated at that time that a one-year delay in making disclosure would be “totally unacceptable”. He required the parties to reattend before him to report on disclosure progress in July and October of 1990.

One year after arrest, disclosure, according to Crown estimates, was 95 per cent complete. The percentage figure was arrived at by the simple means of a document count. That may not be a relative measure of the importance of disclosure. In order to achieve that disclosure, Messrs. Sit, Kodric and others expended about 3500 hours.

Following disclosure, there was a brief adjournment. Then a preliminary inquiry was set to commence on June 17, 1991. It was almost completed by July 18, 1991. The parties agreed that the preliminary would take place in Orangeville, where courtroom space was more readily available. It seems a reasonable inference that one product of the delayed disclosure was to reduce the potential length of the preliminary inquiry.

Just before the preliminary inquiry, the remaining disclosure (five per cent by document count) was made. That involved another 1300 hours of employee time. Defence, however, have indicated that that disclosure was also very significant. It contained the will-say statements of 10 out of 23 witnesses. The defence did not seek any adjournment of the preliminary inquiry by reason of the late disclosure. It is possible that late disclosure might have influenced any consideration of summary trial. On July 18, 1991, the inquiry was adjourned for two months at the request of the prosecution for the purpose of producing further documents. On September 6, 1991, the matter was further adjourned, on consent of all parties, in order that they might prepare submissions to be heard on November 7.

Following submissions, the preliminary inquiry judge adjourned the matter for a month-and-a-half until December 19 for the purpose of considering his decision on the issue of committal.

Defence had advised the preliminary inquiry judge at the opening of the preliminary that the matter of committal would be seriously contested. Yacyshyn was discharged on a number of counts.

On December 19, the judge reported that his decision was not ready; the matter was further adjourned to February 21. When counsel attended on that day, they discovered that, owing to prior commitments, the judge was sitting in another jurisdiction. The matter was further adjourned to March 11, 1992, for judgment.

On March 11, 1992, the judge indicated that he had considered the evidence taken and refreshed his memory from transcripts. He said,

I have prepared written reasons for the conclusions I am about to enunciate. They are not yet available and will be reproduced as quickly as possible. I do not intend to spend an hour or more this morning reviewing my reasons.

He then announced the result of his deliberations, which was to commit Mr. Folkard on all counts save one that had been withdrawn and to commit Mr. Yacyshyn on all counts save for six. On those counts which, according to counsel, were the most important or serious counts Yacyshyn was facing, he was discharged. The preliminary inquiry judge then stated,

I will make the written reasons in this matter available as soon as they can physically be handled by the staff that I have at my disposal.

The prosecution and the defence have, on a number of occasions since the committal date, made discreet inquiries concerning the reasons for committal. As of January 14, 1993, they have not been forthcoming. In theory, at least, a review of the decision to commit might be possible without those reason; it is, in practical terms, unrealistic considering that the preliminary inquiry yielded 13 volumes of evidence.

Defence counsel have not indicated that they were seriously seeking to challenge the committal for trial, but, of course, it would be difficult to make that determination absent the reasons.

Defence counsel state to this Court that the failure of the preliminary inquiry judge to give his reasons is having a serious impact upon their ability to proceed to trial, and they have indicated that it is possible that between now and the trial dates, adjournment motions may be brought based on their failure to obtain these reasons. The aggregate time elapsed through the Provincial Division was some 26 months.

In attempting to characterize that time, I have relied in particular upon two cases. The cases are R. v. Rahey, [1987] 1 S.C.R. 588, 39 D.L.R. (4th) 481, and the case of R. v. Atkinson (1991), 5 O.R. (3d) 301, 68 C.C.C. (3d) 109 (C.A.). These cases were suggested by counsel as particularly relevant because they also dealt with the issue of unreasonable delay in the context of highly complex cases involving, respectively, income tax evasion and fraud. The case of Atkinson concerned itself with a fraud of seven million dollars, approximately the same magnitude as the amount of tax alleged to have been evaded in this case.

Rahey, supra, dealt with income tax evasion alleged over a period of approximately six years in an amount of approximately $130,000.

Both of those cases proceeded to trial in the Provincial Court, a factor which distinguishes them from the present case.

The Rahey case must be read and interpreted in the light of the many subsequent decisions from the same court dealing with paragraph 11(b), principally, R. v. Askov, [1990] 2 S.C.R. 1199, 74 D.L.R. (4th) 355.

Rahey

As I read the Rahey decision, it involved a pre-charge investigation of three years and four months. The systemic delay between the laying of the charge and the commencement of the trial was 17 months. The trial proceeded over a period of approximately nine months. In the result, the total time elapsed between the laying of the charge and the conclusion of the evidence at the trial was 26 months. At the conclusion of the evidence, the defence brought a motion for a directed verdict. The trial judge reserved his ruling and ultimately, on his own motion, adjourned the case on 20 separate occasions between the conclusion of the motion on December 13, 1982, and November 18, 1983.

The Crown applied for mandamus November 1, 1983, and the accused applied under paragraph 11(b) on November 14. On November 18, 1983, the trial judge rendered a perfunctory decision allowing the application for a directed verdict. The facts of that case indicated that the accused had cooperated substantially in bringing the matter to trial in a speedy fashion. At page 613 (D.L.R. 498), Lamer, J. stated that the 26 months to trial “was, though lengthy, . . . not in violation of the accused's rights under paragraph 11(b) given ‘the time requirements inherent in the nature of the case' ”. However, when the unjustified additional lapse of time caused by the trial judge (11 months) was inserted into the overall period, thereby making the overall delay 37 months, he concluded that an infringement of paragraph 11(b) rights had occurred.

Atkinson

The matter of Atkinson, supra, involved a complex fraud. The investigation ran from 1986 until March, 1989, a period of approximately three years.

The charges were laid in January 1989, and disclosure was made (following Herculean efforts on the part of the investigating officer) in approximately 5 /2 months. It was presented to the defence and to the Crown in June of 1989.

A preliminary inquiry was scheduled in August of 1989 but did not proceed on that date. The next available date for continuation of the preliminary inquiry was April 1990. In April 1990, the Crown finally persuaded defence counsel to withdraw from the case, as he was in a position of obvious conflict. This left one of two accused unrepresented at the commencement of a lengthy fraud hearing. The matter was, therefore, adjourned, ultimately until August 1990, so that that accused could retain counsel. The matter was then set to proceed to trial in December 1990, at which time an 11(b) motion was brought and allowed.

The total time in the Provincial Division was 23 /2 months. The Court characterized that time as follows: intake time, to the conclusion of disclosure, 5/2 months; two months to the preliminary inquiry, a reasonable but nonetheless systemic delay; eight months to the adjourned inquiry, systemic delay; four months referable to retaining new counsel, not systemic. The Court held that the time between August and December, 1990, had been waived by the parties by their conduct.

On this analysis, the systemic delay involved in the proceedings to December, 1990, was no more than eight to ten months. The Court viewed the 51/2 months leading to disclosure as a reasonable intake time considering the complexity of the case.

The Court of Appeal set aside the order of the trial judge staying the proceedings and remitted the matter for trial. The prosecutorial choice made in both the case of Rahey and Atkinson was to conclude the gathering of evidence through a fairly lengthy pre-charge investigation before arresting the persons accused. The result of this decision was a relatively short time between institution of criminal proceedings and the trial. In the case of Rahey, 17 months, which was viewed as acceptable by the Supreme Court of Canada, and in the case of Atkinson, 5'/2 months, which was viewed as acceptable by the Ontario Court of Appeal.

Applying a similar analysis here, I find that intake time was precisely one year from the charge date of January 17,1990,until the disclosure date, January 17, 1991. The issue of pre-trial custody served by Messrs. Folkard and Yacyshyn is better dealt with under the heading of prejudice.

I consider from January 17 to June 17, 1991, six months, to be systemic delay. The preliminary inquiry occupied the Court until July 18, at which time the prosecution sought and received an adjournment for an additional two months. This delay counts against the Crown. The delay from September to November, I would not view as systemic or institutional delay. Considering that there were 13 volumes of evidence, it seems to me that two months to prepare submissions on contested committal is a period which is inherent in the nature of the complex case.

The preliminary inquiry judge was entitled to a reasonable period of time to consider submissions and reach his conclusions. The aggregate time was from November 7 until March 11—in all, a period of four months. Of that four months, one month should count against the Crown as systemic delay because the judge had to be elsewhere on February 21. This necessitated an adjournment until March 11.

Therefore, in the Provincial Division, the aggregate time elapsed was approximately 27 months. Of this period, intake represented one year. I recognize that full disclosure was not complete until 18 months had elapsed. However, the remaining late disclosure did not delay the inquiry.

The delay which is systemic or attributable to the Crown totals nine months. Approximately six months for argument and judgment must be viewed as relatively neutral time which had to be expended considering the time limits inherent in the complexity of the case.

Two issues arise here which have not directly been canvassed in the other cases. The first is what result, if any, flows from the decision of the prosecution in this case to arrest the accused contemporaneously with the execution of the search warrants rather than to adopt the more common procedure of delaying the arrest until the information developed from the search warrants was at least partially digested. It is clear that this decision starts the paragraph 11(b) clock running earlier.

The second issue, which is not precisely the same as in Rahey, is what effect is to be given to failure of the judge at the preliminary inquiry to deliver his reasons.

With respect to the timing of the laying of the charges, it was known to Mr. Sit from the beginning that he could have proceeded with the search warrants alone and laid the charges later. That, after all, was the process in Raney and Atkinson. The result of such a process would be to reduce the post-charge delay in providing disclosure. He was examined in some detail as to why he chose to lay the charges early. It was clear that Mr. Sit made a conscious and informed decision after consulting both his regional director of taxation and the Department of Justice.

Mr. Sit's reasons were as follows: First of all, he considered the enormous quantum of liability. Almost eight million dollars in evaded tax. Next, he considered the use by the accused of nominees, making it difficult to trace assets and dealings. Next, he considered information he had received that Folkard had business connections in Buffalo which might make it easier for him to flee the jurisdiction and establish himself in the United States. He also considered what, in his opinion, was a suspicious transfer of the matrimonial home by Mr. Folkard to his wife. He considered this not merely as a possible attempt to defeat creditors, but also, as evidence, for some reason, that he might skip the country. He considered also information which he had that the wife of one of the accused had dual American and Canadian citizenship, and he considered information that he had received that persons accused in other S.R.T.C. cases had fled the country. it is fairly clear from his examination that he did not have information specific to these two individuals of any intent to flee the country. He also conceded that the normal process would be to arrest at a point in time later than the execution of the search warrants.

I have already alluded to the fact that he and Mr. Kodric and others expended a total of 4815 hours in preparing disclosure between the laying of the charge and May 31, 1991. The significance of that number can perhaps be understood if one considers an individual working a 40-hour week 50 weeks a year as running up a total of 2,000 hours in a year. It is obvious, therefore, that substantially in excess of two full man-years were spent in preparing the disclosure in the 16 months between charge and preliminary inquiry.

It would be very easy for me, with the perfect hindsight acquired with the passage of time, to find fault with the decision to arrest contemporaneously with the execution of search warrants. It would also be very easy for me to criticize Mr. Sit, as perhaps I did during the hearing, for choosing to allocate only two investigators to the case when perhaps he could have enlisted the assistance of several other investigators and thereby shortened the time necessary for the preparation of disclosure. Atkinson recognized the propriety of 5 /2 months to make disclosure.

Put in short terms, how much, if any, of the de facto 12-month intake period should I consider as neutral intake time and how much of it, if any, should I weigh against the Crown as unacceptable delay?

At pages 126 and 127 (O.R. 317-18) of the Atkinson decision, Osborne, J.A., speaking for the three-member Court, stated the following:

It seems to me that much of the work done in the preparation of the disclosure briefs had to be done by someone who knew this case. That person had to be Detective Hayes, in the circumstances. It was Detective Hayes who knew how this case had been put together. He knew what witnesses were relevant to each count. Because he knew the case, he was able to summarize the witnesses’ evidence (having interviewed most of the witnesses) and thus prepare will-say statements and summaries that would be essential for Crown counsel and helpful to defence counsel.

There is no doubt that the preparation of disclosure briefs began about two months after the January 1989 information was laid, Detective Hayes was then involved in a continuing investigation. He thus decided to delay preparing disclosure briefs. I do not think that the practical option of beginning disclosure much earlier was open to him. It would not have made much sense to bring someone new into the picture to finish the investigation, thereby freeing Detective Hayes to work on the required disclosure briefs. Nor, as I have noted, was it practical for someone other that Detective Hayes to bear responsibility for the preparation of disclosure briefs.

One solution to any suggestion of disclosure-induced delay would have been to delay the laying of charges until the investigation was finished and disclosure briefs had been prepared. That is an option often open in cases involving complex fraud allegations, but not generally open in street-crime allegations. . . .

I am not prepared to say that there should be a firm rule that disclosure should be completed, in cases such as this, when the charges are laid. Nor do I think that it is realistic to impose fixed time-frames within which disclosure must be made. Rules of this sort would be impractical and would simply lead to the police and prosecuting authorities delaying the laying of charges.

Disclosure could have been attended to earlier had Detective Hayes had more assistance in the investigation. Some deference should be given to decisions made concerning the commitment of investigative resources to a particular matter, just as deference must be given to political decisions concerning the provisions of court-house facilities and Crown Attorneys: see Askov, supra, at page 1224 (D.L.R. 384).

The delay occasioned by the 5 /2 months it took to complete disclosure was, in my view, minimal, as it relates to the time when the preliminary hearing or trial would otherwise have taken place. In the circumstances of this case. . .no substantial time gains would likely have accrued had disclosure briefs been completed sooner. The real culprits in this case were systemic delay and, to a lesser extent, problems related to the conflict issue, not the timing of disclosure. Thus, it seems to me that relatively little weight should be given to that part of the delay attributable to disclosure.

I must recognize, however, that the disclosure in this case took double the time referred to in Atkinson. On the other hand, I must not weigh the decision of Mr. Sit and those with whom he consulted in jewellers’ scales. The law obliges me to grant a large degree of deference to that decision. It is true that the senior judge of the Provincial Division warned Crown counsel. It is also true that the number of hours expended in preparation of disclosure indicated major efforts on the part of Mr. Sit and his fellow investigator. The issues are complex. Exhibits 2 and 5 disclose a very tangled web of dealings alleged to have been undertaken by the accused and their corporations.

Not without some hesitation, I reach the conclusion that the 12 months to make disclosure (and I include in this the six months for the additional disclosure which, though unfortunate in its timing, did not delay the preliminary inquiry) must be counted as intake time and be viewed as relatively neutral.

The lateness of the last disclosure made immediately before the preliminary inquiry could have prevented the accused before the preliminary inquiry could have prevented the accused from re-electing a speedy trial process. This, of course, represents a prejudice to their rights. The prejudice may have been theoretical rather than practical because it does not appear that there was ever any serious discussion or intention on the part of the accused to proceed to summary trial after the prosecution had obtained the necessary permission to prosecute by indictment.

I must next address the failure of the preliminary inquiry judge to provide the reasons for committal and discharge.

That failure has not delayed setting the trial date. However, that delay may yet seriously embarrass the commencement of the trial. Defence counsel have suggested that the reasons for committal are sufficiently important to them that non-delivery may become the subject of a discrete adjournment application. Obviously, the failure to provide those reasons has effectively prevented a review of the decision by certiorari. Theoretically, the Court could undertake a review of the decision having nothing more than the announced result and the 13 volumes of evidence. The result of such an undertaking, however, would be a potentially colossal expense and waste of time to accused who, according to their affidavits, are already suffering financially. The failure to deliver those reasons had made it impractical to proceed with a certiorari application. This has caused prejudice to the accused and to the Crown because it represents an infringement of their right to make application for a prerogative remedy. However, there has been no statement by either party that, based on their perception of the inquiry, they intended such an application.

The absence of the reasons, therefore, still possesses the potential to embarrass or delay the trial, but that potential remains inchoate. The defence have decided to proceed with the setting of a trial date in the absence of the reasons.

I cannot find that the failure of the preliminary inquiry judge to release the reasons for his decision has yet resulted in a delay of the trial.

The progress of the cases in the general division

When Messrs. Folkard and Yacyshyn were in the Provincial Division, they were jointly charged on one information. Following committal for trial, prosecution laid two indictments, one against Mr. Folkard and certain corporate parties, and another separate indictment against Mr. Yacyshyn.

The accused were first before the General Division April 3, 1992. The matter was adjourned to May 1, at which time a pre-trial conference was set for June

10. A second pre-trial conference was held before Justice Goodearle August 14 and September 11. Trial was fixed for November 30. Had that trial proceeded, the matter would have been concluded in the General Division within a period of approximately eight or nine months at the outside. Considering the complexity of the case and the time limits suggested by Askov for ordinary cases, there could be no complaint. However, when November arrived, Mr. Folkard was forced to seek an adjournment because of problems which he faced retaining counsel for the trial. He has conceded that the two months following November are neutral for paragraph 11(b) purposes. The matter is now scheduled to be tried in February and March.

Assuming that the trial is completed by March, 1993, the aggregate time occupied by the case will have been approximately 39 months: 27 months in the Provincial Division, of which nine can be considered institutional delay; and 12 in the General Division, of which I think it would be fair to consider nine months as institutional delay. The balance of the time is neutral, representing intake time or time which is inherent because of the nature and complexity of the case, or waived time.

I have now examined the length of the delay, the reasons for the delay, and any waiver.

The final factor which must be weighed in the balance is the issue of prejudice.

I accept that there is a presumptive prejudice which increases with the passage of time.

With respect to Mr. Folkard, I recognize that he spent a very unpleasant and somewhat lengthy period of time in pre-trial incarceration. According to what prosecution states at this hearing, it was not the intention of the prosecution to obtain a detention order but, rather, only to obtain conditions of bail which would assure that the accused would attend their trial. It seems to me that to accomplish such a purpose a somewhat excessive period of time was spent in custody by My. Folkard. The period of pre-trial detention suffered by Mr. Yacyshyn, while significant, was much more reasonable.

Mr. Folkard was put to substantial inconvenience. His business requires him to travel out of Canada and, when he did so, it was necessary for him to apply each time to regain his passport and file an itinerary. This precluded meetings on short notice. Mr. Folkard, of course, is presumed innocent and is a chartered accountant by profession. In September, 1991, Revenue Canada misplaced his passport and, before it was located, substantially delayed a business obligation, which resulted at least in part in the loss of a contract. He secured an amendment of his bail in March of 1992 permitting him to retain his passport and file itineraries concerning out-of-country travel. He complains of difficulty in locating defence witnesses and of failing memories. He complains that his life has been on hold. He states accurately that he has done nothing to delay the proceedings. He has in many ways facilitated their progress. He makes a point of saying that the failure of the preliminary inquiry judge to provide reasons for committal for over a year is something that he cannot understand and concerns him greatly.

Mr. Yacyshyn complains that he was unable to set an early date for his preliminary inquiry. He did not waive his right to trial within a reasonable time. He was discharged of the five more serious counts following the preliminary inquiry. He has appeared in the Provincial Division 37 times over a period of 26 months. He has no criminal record. The charges have caused him and his family great anxiety. He points out that his father has suffered three heart attacks and, although there is no medical evidence, it is the deponent's opinion that the charges have contributed to his father’s ill health. He complains that the lack of finality caused his marriage to break down for five months, although his wife has now returned and they are undergoing counselling. He says that his children have lost respect for him and he believes that his son, who is 17, left home because of the charges and that there has been a breakdown in his relationship with him. He claims to have gained 50 pounds of weight and to suffer stomach disorders and vomiting. He has suffered financially. A former counsel is suing him for $21,000. He has reported to the police over three years at least 75 times. He has been prohibited travel outside of the United States or Canada, despite past practices of vacationing elsewhere. He complains that the cost of the charges has resulted in his house being sold by the mortgagee under power of sale. He is now living in rented premises. Mr. Folkard's bail terms require him to report to Peel Police every second Sunday.

I have alluded to other aspects of prejudice to speedy trial rights and to the right to review the committal. I must decide whether the societal interest of bringing these serious charges to trial outweighs the interests of these accused to a trial speedier than what the system has provided for them. The overall period of time will be approximately 39 months for Mr. Folkard, slightly shorter for Mr. Yacyshyn. I have assessed an aggregate institutional delay of approximately 18 months. This is approximately the same institutional delay (although not the same aggregate delay) as was found by Justice Speyer in the case of The Queen v. Donelian, April 3, 1991, unreported. In a similar type of case, he dismissed the paragraph 11(b) motion. If I accept that in simpler cases, delay of up to eight months can be tolerated in the Provincial Division (R. v. Sharma, [1992] 1 S.C.R. 814, 12 C.R. (4th) 45) and up to eight months in the General Division (Askov), I cannot conclude that 18 months delay in these cases is unreasonable. Application dismissed.

Motion dismissed.