R. v. Endeavour Developments Ltd. et al. Date:, 2011 BCPC 77

Citation: R. v. Endeavour Developments Ltd. et al. Date: 20110215 2011 BCPC 0077 File No: 131180-1 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA REGINA v. ENDEAVOUR DEVELOPMENTS LTD., ADOLF SCHIEL, SANDY SCHIEL AND GOLDEN HORIZON RESORT LTD. REASONS FOR SENTENCE OF THE HONOURABLE JUDGE BOWDEN Crown Counsel: B. Harper Appearing on his own behalf: Adolf Schiel Appearing on her own behalf: Sandy Schiel Appearing for Endeavour Developments Ltd. and Golden Horizon Resort Ltd. Adolf Schiel and Sandy Schiel, officers of the companies Place of Hearing: Vancouver , B.C.

Date of Judgment: February 15, 2011 [ 1 ] THE COURT: Following a lengthy trial, I convicted Endeavour Developments Ltd. (Endeavour), Golden Horizon Resort Ltd. (Golden), Mr. Adolf Schiel and Ms. Sandy Schiel of all eight counts in Information Number 131180-1 under ss. 327(1) (

a) and (

d) of the Excise Tax Act (R.S., 1985, c. E-15)., I will refer to as the Act, which provides for the Goods and Services Tax (GST) in Canada. [ 2 ] The conviction followed a second trial of this matter which was ordered by the British Columbia Court of Appeal following an appeal by the Crown from an acquittal of the accused at the first trial. Applying the Kienapple principle, the Crown asked that convictions be entered only on Counts 3, 4, 5, 7 and 8 which are the offences under s. 327(1)(

d) of the Act. A stay of proceedings was entered in respect of the remaining counts. [ 3 ] I will turn to the offences. Endeavour, Adolf Schiel and Sandy Schiel made or participated in the making of false or deceptive statements in quarterly GST returns from February, 1998, to October, 1998, and from November, 1998, to March of 2002, by overstating input tax credits (ITCs) in the total amount of one million four hundred thirty-seven dollars three hundred and -- four hundred thirty- seven three hundred and two dollars, rather.

From February, 1998, to March, 2002, they also attempted to obtain refunds totalling $97,158.22 and wilfully obtained refunds totalling $1,340,143 to which none of them were entitled. [ 4 ] I also found that Golden, Adolf Schiel and Sandy Schiel made or participated in making false or deceptive statements in quarterly GST returns from November, 1998, to December of 2000, by overstating input tax credits in the amount of $522,608. From November, 1998, to December, 2000, they attempted to obtain a refund of $18,828 and wilfully obtained refunds totalling $503,780 to which none of them were entitled.

The total amount of the tax fraud in which I found that Adolf Schiel and Sandy Schiel participated was $1,959,910.

[ 5 ] The nature of the fraud was such that while the corporate accused initially commenced legitimate real estate developments, those developments ceased and were never completed, yet the corporate offenders, guided by the individual offenders, continued to claim ITCs by reporting false expenditures in relation to the property of the corporations. Fraudulent GST returns were completed by Sandy Schiel and filed for both corporations based on calculations provided by Adolf Schiel.

More details regarding the offences and how they were committed may be found in my reasons for judgment convicting the accused in registry file number 131180 of the Robson Square Registry of the Provincial Court of B.C. [ 6 ] As convictions have been entered in respect of indictable offences under s. 327(1) (

b) of the Excise Tax Act , I will quote the relevant penalty provisions in that section. Section 327(1) provides: Every person who has (

d) wilfully, in any manner, obtained or attempted to obtain a rebate or refund to which the person is not entitled under this Part. (2) provides: Every person who is charged with an offence described in subsection (1) may, at the election of the Attorney General of Canada, be prosecuted on indictment and, if convicted, is, in addition to any penalty otherwise provided, liable to (

a) a fine of not less than 100%, and not more than 200%, of the amount of the tax or net tax that was sought to be evaded, or of the rebate or refund sought, or, where the amount that was sought to be evaded cannot be ascertained, a fine of not less than $2,000 and not more than $25,000, or (

b) both a fine referred to in paragraph (

a) and imprisonment for a term not exceeding five years. [ 7 ] I will turn now to the circumstances of the offenders. Golden Horizon Resort Limited was incorporated in British Columbia on October 19th, 1994. At all relevant times, Adolf Schiel was the president and sole director and Sandy Schiel was the secretary of Golden. In 1995, Golden purchased a 48 acre parcel of waterfront property described as Lot 281 from the District of Ucluelet, British Columbia. Golden and Adolf Schiel originally intended to develop revenue producing property on that site, but that was never done.

No money was spent in relation to the Ucluelet property after 1996 except the payment of legal fees arising from a dispute between Golden and the District of Ucluelet. [ 8 ] Endeavour Developments was incorporated in British Columbia on December 20th, 1997. Adolf Schiel was the president, secretary and the sole director of Endeavour at all times relevant to this matter. Endeavour purchased 75 acres of undeveloped land from Pacific Playgrounds Ltd., a company controlled by Robert Nissen, in September of 1993.

Endeavour paid $225,000 of a $1.8 million price and the balance was financed with a mortgage back from Nissen. Endeavour and Adolf Schiel planned to develop a modular home park on the property which was to be called Emerald Estates. The property was located near Black Creek just south of Campbell River on Vancouver Island. Endeavour was registered under the Act for GST purposes on September 17th, 1993. Its major activity was described as land development. The registration documents indicate that the contacts for Endeavour were Adolf Schiel and Sandy Schiel. [ 9 ] Turning to Sandy Schiel, Ms.

Schiel is 43 years of age. She was born in Vancouver, British Columbia, and resides in Surrey, B.C. The presentence report prepared in relation to Ms. Schiel discloses nothing remarkable about her past. Those interviewed by the probation officer who prepared the report had nothing but positive things to say about her. She completed three years of university towards a business degree, but did not finish in order to join the family business. Since 2006, Ms. Schiel has been employed managing mobile home parks in the United States. She has no alcohol or drug abuse issues, nor does she have any criminal history.

As to her attitude and understanding of the offences, the probation officer says that they cannot be assessed because of her position on the outcome of the trial. I take that to mean that Ms. Schiel continues to be of the view that she is innocent and does not wish to make statements which are inconsistent with that position. I do note at the sentence hearing she did express remorse for her actions leading to these charges. [ 10 ] Turning to Mr. Adolf Schiel, Mr. Schiel is 74 years of age and resides in Surrey, B.C., with his wife of 49 years, Hilda Schiel.

He has one son from a prior marriage and three children from his current marriage. He was raised in Germany during World War II and then immigrated to Canada in 1958 at the age of 22. His work background includes building and selling houses and developing and selling other types of real property in the Lower Mainland and in the U.S. He receives a Canadian government pension, old age security, and works for a company checking daily gas prices for which he is paid $750 per month. He also receives financial assistance from his daughter, Sandy Schiel.

He is also involved in what are described in the presentence report as financial deals in Africa and New York. Mr. Schiel indicated that he consumes some wine on a daily basis, but no drug or alcohol abuse is reported. [ 11 ] Mr. Schiel produced a letter from his family doctor summarizing his medical history which includes the following: 1. Ischemic heart disease, myocardial infarction in 1987 and cardiac bypass surgery in 2007. 2. Diabetes Type 2 which is controlled by diet and medication. 3. Hypertension. 4.

A life-threatening cardiac arrhythmia which resulted in a cardiac arrest in 2009 and the implantation of an automatic defibrillator. 5. Organic brain damage from the cardiac arrest and a decline in cognitive function. [ 12 ] His family doctor reports that Mr. Schiel is currently medical stable, but may suffer adverse complications which require rapid and ready access to medical care. I reject his family doctor's opinion that it would not be safe for Mr. Schiel to be incarcerated. In my view, he is not qualified to express that opinion. There is no evidence before the court indicating that Mr.

Schiel's doctor has any expert

knowledge of the medical care available in the institutions where Mr. Schiel may be incarcerated. [ 13 ] Mr. Schiel has a prior conviction under the Bankruptcy Act in 2002 when a $7,500 fine was imposed. As to his attitude and understanding of the offences, the probation officer states that that cannot be assessed because of his position regarding the outcome of the trial. I take that to mean that he believes that he is not guilty. I note that he expressed remorse at the sentence hearing through his son, Roy Schiel, who spoke on behalf of both Mr. Schiel and Ms.

Schiel. [ 14 ] I will turn now to the Crown's position on sentence. The Crown's position on sentence may be summarized as follows: 1. Endeavour, on Counts 3 to 5, a fine of $1,437,302. 2. Golden, on Counts 7 and 8, a fine of $522,608. 3. Adolf Schiel, a total of six years imprisonment plus a fine of $1,959,910 consisting of, (

a) Counts 3 to 5 relating to the Endeavour fraud, four years imprisonment and a fine of $1,437,302; (

b) Counts 7 and 8 relating to the Golden fraud, two years imprisonment consecutive -- to be served consecutively, and a fine of $522,608. 4. With regard to Sandy Schiel, the Crown is seeking a total of six years imprisonment and a fine of $1,959,910 consisting of, (

a) in relation to Counts 3 to 5, the Endeavour fraud, four years imprisonment and a fine of $1,437,302; (

b) Counts 7 and 8, relating to the Golden fraud, two years imprisonment to be served consecutively and a fine of $522,608. [ 15 ] I will now turn to the accused's position on sentence. Ms. Schiel submitted that she did not benefit financially from Endeavour. She did not present any evidence to support that position. Instead, she referred to the Crown's analysis of Endeavour's bank records which show that she deposited $57,050 to Endeavour's bank account from June 11, 1998, until November 23, 1998, and during that period she only withdrew $37,584.

This, however, does not account for the indirect benefits received by Ms. Schiel from Endeavour as the Crown established that Endeavour paid for various personal expenses of both Mr. Schiel and Ms. Schiel. It was clear from the evidence that the only individuals who benefited from most of the refunds illegally obtained by Endeavour were Mr. Schiel and Ms. Schiel. [ 16 ] Again, relying only on the Crown's analysis of Endeavour's bank records, Mr. Schiel submits that he only received a net amount of $20,425 from Endeavour. However, the evidence established that Mr. Schiel and Ms.

Schiel received benefits indirectly from Endeavour by way of payments on their behalf or for their benefit. I will note that while the extent to which Mr. Schiel and Ms. Schiel benefited financially from the offences committed is a factor to be considered in sentencing, they have both been convicted of being parties to the offences charged and the amount of the tax evaded was clearly established by the Crown. Furthermore, the evidence makes it clear that Adolf Schiel and Sandy Schiel benefited directly and indirectly from the tax fraud.

Furthermore, without their involvement the fraud would not have taken place as it did. [ 17 ] The accused referred to the decision of the British Columbia Court of Appeal in R. v. Port Chevrolet Oldsmobile Ltd. and Wolfe , 2010 BCCA 47 , where the individual offender, Wolfe, was not the main proponent of a tax fraud amounting to $6.9 million dollars and received a sentence of two years less a day. They also refer to the decision in R. v. Gauthier , which I will refer to the citation later in these reasons, where the offender was given a conditional sentence of two and a half years. Rather, two years less a day.

They point out that the offender in that case had a significant criminal record. They also say that like Gauthier, over the more than seven years since these offences were charged they have been significantly rehabilitated and have not engaged in any criminal behaviour. [ 18 ] The accused also pointed out that the civil reassessments of tax have been very costly to them and they have been emotionally devastated and humbled by what has happened. The accused submit that a sentence of two years less a day served as house arrest might be appropriate in the circumstances.

They refer to a decision of the Court of Appeal of B.C., R. v. Dickson , where the Chief Justice made it clear that a conditional sentence is no less a deterrent than a custodial sentence. [ 19 ] I will turn now to my analysis. The fundamental purpose of sentencing is to contribute to respect for the law and the maintenance of a just, peaceful and safe society by imposing just sanctions. A sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.

In this case, the objectives of the sentence are: (1) to denounce the unlawful conduct; (2) to deter Adolf Schiel and Sandy Schiel and others from committing such offences; (3) to assist in the rehabilitation of Mr. Schiel and Ms. Schiel; (4) to provide reparations for the harm done to the community resulting from a tax fraud. [ 20 ] In a case involving substantial fraud, the paramount sentencing principles are general deterrence and denunciation.

Section 718.2(1) of the Criminal Code provides that a sentence should be increased or reduced depending upon the aggravating or mitigating circumstances. The aggravating factors in this case are as follows:

(1) More than one fraud was committed.

(2) The frauds were for a large amount, namely $1,959,910.

(3) Most of the fraudulent refunds obtained were actually paid out to the accused.

(4) Much of the fraudulently obtained monies were used by the accused for personal expenses with the remainder being used to fund lawsuits relating to the unsuccessful real estate projects.

(5) The frauds were sophisticated and took place over an extended period of time. The Endeavour fraud continued for about four years and the Golden fraud for about two years.

(6) During the time period of the fraud, Endeavour and Golden were not engaged in any legitimate business activity.

(7) When Golden was audited by the Canada Revenue Agency, the accused took steps to impede the audit and took numerous and sophisticated steps to create false accounting records in order to cover up the fraud and to deceive the auditor.

The only mitigating factor in this sentence is the apparent remorse expressed by the accused or on their behalf, although it is not clear to me whether the remorse relates to being discovered by the CRA or to the commission of the offences. [ 21 ] A further principle of sentencing is that an offender should not be deprived of liberty if less restrictive sanctions may be appropriate in the circumstances. Furthermore, a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances.

In determining an appropriate and fit sentence, I have considered the cases submitted by the Crown and the accused which deal with similar offences. I have reviewed all of the cases referred to by the Crown and the accused; however, I will now briefly review those cases which I view as particularly relevant to the determination of a fit sentence in this case. [ 22 ] In R. v. Davda , Provincial Court, Vancouver Registry No. 467-1, the accused pleaded guilty to obtaining or attempting to obtain GST refunds through a company to which he was not entitled.

The total amount of the fraud was $340,398, and the refunds actually obtained amounted to $176,885. In that case the accused had a prior conviction for fraud in respect of which he received a 10 month conditional sentence. The accused was sentenced to three years imprisonment. [ 23 ] In R. v. Hofbauer , 2004 BCSC 1810 , the amount of the fraud was $717,522 of which $343,959 was actually obtained. A sentence of three years imprisonment was imposed by my sister judge, Gerow J.

She also stated that the health problems of the accused was a mitigating factor and reduced his sentence from four years to three on that account. [ 24 ] In R v. Alexander Street Lofts Development Corp. , 2007 ONCA 309 , the offenders -- the offender, rather, and his companies were convicted after a long trial of GST fraud and attempted fraud. The principal was sentenced to 30 months incarceration. The offenders were also jointly fined $702,948. The principal did not have a criminal record, but did not acknowledge any responsibility for the crimes.

The court specifically rejected a conditional sentence and in so doing referred to the following comments from the Ontario Court of Appeal in R. v. Onkar Investments , 2005 O.J. No. 1452 : This was a massive fraud on the public. The appellant failed to remit three-quarters of a million dollars in GST funds he had collected. This type of fraud would ordinarily call for a penitentiary sentence. The many mitigating factors make this a proper case for a reformatory sentence but the objective of general deterrence would not be met in the circumstances of this case by a conditional sentence. [ 25 ] In R. v.

Elless , 2007 BCSC 962 , the accused, Mr. [sic] Elless, and two corporations which she controlled were convicted after trial of 130 counts involving fraudulent GST claims resulting in refunds of GST. As a result, Ms. Elless received directly and indirectly amounts just exceeding $1,000,000 in refunds to which neither she nor her companies were entitled. She was 49 years of age and had no prior criminal record. She did not accept responsibility for the offences, nor did she express any remorse.

She personally used about $300,000 of the fraudulently obtained refunds and paid the balance to her husband and other individuals, or used it to pay various expenses. [ 26 ] In Elless , the court speaks of the range of sentence for this type of sentence: . . . with the mitigating circumstance of a guilty plea and without significant aggravating circumstances is [being] between 18 and 36 months' imprisonment . . . With aggravating circumstances, Prowse J., as she then was, says the range is between three and five years imprisonment.

At paragraph 50, Prowse J. says: Depending on the circumstances of the offence and the offender, I may impose a sentence that is at the higher, the mid or the lower point of the range. In addition, I can depart from the range entirely if I find that the circumstances of a particular offence or of a particular offender make such a departure appropriate. [ 27 ] As to the suitability of a conditional sentence, the court in Elless said that the issue is whether the circumstances of the case call for a departure from the sentencing range. The sentencing judge concluded that they did not.

As a result, a conditional sentence was not an option. A sentence of four years imprisonment was imposed together with a minimum fine of $1,248,709. [ 28 ] Although not referred to by the Crown, I have also considered the decision in R. v. DiGiuseppe , 2008 ONCJ 127 , where a tax fraud of some $3.5 million was involved and arose from the offender's failure to file tax returns and to remit income tax and GST. He was sentenced to a fine of $2,000,000 and a six year jail term. Unlike the case at bar, the offender was motivated solely by personal greed and derived the -- sorry, I am deleting that last sentence.

That is not correct. Six year jail term. He also showed no remorse for his crimes and was convicted after a long trial. I also note that he did not have a criminal record. He was 61 years of age and suffered from a number of health problems. [ 29 ] Among other case authorities, the accused have referred to my decision in R v. Gauthier , Dawson Creek Supreme Court Registry No. 27648-2, and a decision that I have referred to in the B.C. Court of Appeal, R. v. Port Chevrolet Oldsmobile Ltd. and Wolfe . That is 2010 BCCA 47 . In R. v.

Port Chevrolet Oldsmobile Ltd. and Wolfe , the GST fraud amounted to some $6.9 million. The accused Wolfe received a sentence of two years less a day. Unlike the individual offenders in the case at bar, Wolfe was not the principal in the

fraudulent scheme whereby the GST input tax credits were refunded to the corporate offender. Had the principal offender in the scheme been convicted, the Court of Appeal notes that he could have expected a much greater sentence than that imposed on Mr. Wolfe. The Court of Appeal states that such an offence committed by the principal fraudster often attracts a period of penitentiary incarceration. [ 30 ] In R. v. Gauthier , a GST fraud amounted to some $1,731,000. The offender, an aboriginal, assisted her brother and his company in fraudulently obtaining GST refunds and evading the payment of tax. Ms.

Gauthier's benefits from the company during the period of the fraud amounted to some $137,000. She had earlier been sentenced to 28 months incarceration for offences involving fraud. That sentence was imposed after she committed the tax fraud, but before the charges were laid. Since her release on parole, there was no indication that Ms. Gauthier had been involved in any criminal activity. Thus, at least to some extent, the principles of sentencing, particularly specific deterrence, appear to have been addressed by her period of incarceration.

Of particular significance, however, were the considerations arising from her aboriginal background which included extensive poverty, drug use and sexual abuse. In addition, in the case at bar it was clear that Adolf Schiel and Sandy Schiel were the major beneficiaries of the fraudulently obtained funds. [ 31 ]

Section 742.1 of the Criminal Code provides that: . . . if a court imposes a sentence of imprisonment of less than two years and is satisfied that the service of the sentence in the community would not endanger the safety of the community and would be consistent with the fundamental purpose and principles of sentencing . . ., the court may . . . order that . . . the sentence in the community . . .

Although in my view the accused in this case would pose no danger to the safety of the community if they served a conditional sentence and such a sentence would be consistent with the purpose and principle of sentencing, relying on the authorities that I have referred to, the nature and circumstances of this offence, as well as the aggravating factors referred to, require a penitentiary sentence or a sentence exceeding two years less a day.

Accordingly a conditional sentence is not available to the accused. [ 32 ] Having reviewed the authorities referred to, I have concluded that the appropriate range of sentence for each of the individual accused is between three to five years of incarceration. I am satisfied that each of the individual accused are equally culpable in relation to the offences committed and their sentences should be the same save only for factoring in the poor health of Mr.

Schiel. [ 33 ] Before passing sentence, I wish to say that I am deeply saddened performing my duty today as a judge imposing, as the law requires me to do, a sentence of incarceration in the case of an elderly man and his daughter, neither of whom have a criminal past. However, I am but an instrument of the people of Canada who, through Parliament and the courts, require that someone who has committed a fraud of such magnitude and in such circumstances on the Government of Canada and its people must serve a penitentiary sentence. [ 34 ] I will ask, Ms. Schiel, if you would stand now, please, ma'am.

On Counts 3 to 5 I impose a sentence of four years imprisonment and a fine of $1,437,302. On Counts 7 and 8, I impose a sentence of one year imprisonment to be served consecutively, plus a fine of $522,608. The total sentence is therefore five years of imprisonment and a fine of $1,959,910. The fine will not be payable until your release from prison and at that time I will order that you commence payment of the fine at the rate of $500 a month, and in default of the monthly payment the balance of the fine will become payable in full.

In failure of the payment of the fine, the maximum additional sentence will be six months imprisonment. That concludes the sentence of Ms. Schiel. [ 35 ] Mr. Schiel, I would ask you to stand, please, sir. I am prepared to follow the approach of my sister Gerow J. in R. v. Hofbauer and reduce the sentence that I would otherwise impose by a period of one year in recognition of your state of health. On Counts 3 to 5, I impose a sentence of three years imprisonment and a fine of $1,437,302. On Counts 7 and 8, I impose a sentence of one year imprisonment to be served consecutively, plus a fine of $522,608.

The total sentence therefore is four years imprisonment and a fine of $1,959,910. The terms of payment will be the same as indicated for Ms. Schiel. [ 36 ] By way of direction to the Correctional Service of Canada which I acknowledge is not a binding direction, I recommend that both Adolf Schiel and Sandy Schiel be placed in a minimum security correctional facility as soon as appropriate space is available in such facilities and assuming that they are otherwise qualified to serve their sentence in such a facility. I also direct that particular attention be given to Mr.

Schiel's health care needs in assigning him to the institution where he will serve his sentence. [ 37 ] With regard -- please be seated, sir. With regard to Endeavour Developments in respect of Counts 3 to 5, its sentence shall be a fine of $1,437,302 and I propose that it be payable forthwith. With regard to Golden Horizon Resort Ltd. in respect of Counts 7 and 8, its sentence will be a fine of $522,608 again payable forthwith. [ 38 ] I also would point out to both Mr. Schiel and Ms. Schiel that I understand you will be appealing from the conviction and the sentence and it is open to you to apply to the B.C.

Court of Appeal for release on bail pending the hearing of the appeal. So that is something you may wish to legal counsel about. All right, thank you. (REASONS CONCLUDED)