2016 QCCA 1655, 2016 QCCA 1655

R. c. Lavallée 2016 QCCA 1655 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-10-005905-151 (500-01-084924-130) DATE: October 6, 2016 CORAM: THE HONOURABLE MARIE-FRANCE BICH, J.A. JACQUES J. LEVESQUE, J.A. ROBERT M. MAINVILLE, J.A. HER MAJESTY THE QUEEN APPELLANT – Prosecutrix v. DANIEL LAVALLÉE RESPONDENT – Accused JUDGMENT [ 1 ] On September 17, 2014, the appellant pleaded guilty to seven counts of fraud. On May 7, 2015, for the reasons set out in a judgment reported as 2015 QCCQ 3731 (sentencing judgment), the Court of Québec (the Honourable Lori Renée Weitzman) imposed a sentence of 33 months of imprisonment. The sentencing judge also issued an order pursuant to

section 380.2 of the Criminal Code prohibiting the appellant from seeking, obtaining or continuing for five years any employment in any capacity that involves having authority over the real property, money or valuable security of another person. [ 2 ] The sentencing judge did not order restitution to the victims in light of the appellant’s inability to pay. She felt bound in this regard by prior decisions of this Court . [ 3 ] The Crown now seeks leave to appeal the sentence for the purpose of adding a restitution order pursuant to subsection 738(1) of the Criminal Code .

The Crown’s motion for leave was deferred to a panel by a judge of the Court. [1] The context [ 4 ] The sentencing judge set out the context in which the fraud occurred: [2] [1] Mr. Lavallée pleaded guilty to seven counts of fraud, two counts for a value not exceeding $5,000 and 5 counts for a value over $5,000. The accusations stem from purported investments made by the accused on behalf of seven different victims over a three-year period, between May 2005 and September 2008. In fact, the money obtained was never invested, as Mr. Lavallée simply cashed the cheques he received.

The total amount of the fraud is $292,000, with an actual loss suffered of $267,000. [2] Although Mr. Lavallée was once a successful life insurance broker, registered with the ''Autorité des marchés financiers'' (AMF), by 2005, he was no longer a registered broker. Nevertheless, he was well known in his community as a successful broker, and used this reputation to defraud people in his milieu that he knew well. THE CHARGES Count 1: Fraud over $5,000 between April 1, 2007 and September 29, 2008 • Mr. Robert Carter was a friend Mr. Lavallée. They would regularly meet at the bar where Mr.

Lavallée was known as "the millionaire". Mr. Carter was 72 years old at the time of his investment of $20,000 at the suggestion of Mr. Lavallée. He believed he was purchasing policies from Manulife and received false statements confirming the terms that Mr. Lavallée had described. Count 2: Fraud over $5,000 between November 1, 2006 and September 29, 2008 • Michael Biduk was 75 years old in 2006 when he met Mr. Lavallée at a golf tournament. He made three investments through Mr. Lavallée for a total of $127,000 in what he believed were Manulife policies. It was thanks to Mr.

Biduk inquiring with Manulife about his policies that the fraud of Mr. Lavallée was exposed. As he explains in his Victim Impact Statement, Mr. Biduk intended to invest that money to benefit his wife who had undergone a kidney transplant. He hoped to thus provide for her, should he be unable to. The total loss of this money caused grief to both Mr. Biduk and his wife, who has recently passed away.

Count 3: Fraud over $5,000 between May 1, 2005 and September 29, 2008 • Angela Jones received a significant inheritance from her grandmother in 2005 with which she hoped to purchase a home. Her father knew Mr. Lavallée well and encouraged Ms. Jones to follow Mr. Lavallée's recommendations for purchasing a mutual fund, which would provide a 17% return. Ms. Jones was told that her money was invested with Manulife, and she received a fraudulent statement of account to that end. Ms. Jones is the only victim to have received partial compensation, as Mr. Lavallée later reimbursed $25,000 of the $45,000 defrauded. • Ms.

Jones filed a Victim Impact Statement in which she details the many consequences she has suffered due to this fraud. Ms. Jones viewed Mr. Lavallée as a father figure. She trusted him implicitly and thus she still deals with the effects of having been deceived by someone so close to her. She feels ashamed for having been duped. She lost a total of $20,000 (after $25,000 was reimbursed) and was left in the embarrassing position of having to beg family and friends for assistance to cover her debts.

The initial shock at the extent of the deception caused her psychological consequences that she felt at home, at work and in her social circle. As a physical manifestation of her psychological effects, she lost her hair and suffered from insomnia. Count 4: Fraud over $5,000 between July 1, 2007 and September 29, 2008 • Mr. Lavallée gained the trust of Sylvain Pilon who invested twice with him, for a total of $65,000. Mr. Pilon received fraudulent statements that appeared to be from Manulife.

Count 5: Fraud over $5,000 between November 1, 2007 and September 29, 2008 • Robert Pilon was told by his brother, Sylvain, that it would be worthwhile to invest through Mr. Lavallée. He thus invested $25,000. Count 6: Fraud under $5,000 between April 1, 2007 and September 29, 2008 • Mr. Gordon Doe knew Mr. Lavallée from the bar they frequented. Mr. Lavallée convinced Mr. Doe to make two investments for a total of $5,000. Although Mr. Doe was not sure what type of investment was involved, he trusted Mr. Lavallée as he had heard of his experience in the insurance business. Mr.

Doe was 68 years old at the time of this fraud. Count 7: Fraud under $5,000 between March 16, 2007 and September 29, 2008 • David James Parker was a friend of Mr. Lavallée and they would meet on a weekly basis at the local bar. Mr. Lavallée convinced Mr. Parker that he could guarantee a good return on his $5,000 investment. In his Victim Impact Statement, Mr. Parker explains that he was duped by Mr. Lavallée mainly because he viewed him as a trustworthy friend. He was left feeling aggressive toward M Lavallée, as well as insecure with respect to forming friendships in general.

His retirement plans were also affected as he was left without any compensation for his loss. He was 62 years old at the time of this fraud. [3] When the fraudulent nature of all these investments came to light, Mr. Lavallée was nowhere to be found. In fact, he had moved to England, and he was not arrested until February 2013, which explains the lengthy delay between the charges laid and his arrest.

The reasons of the sentencing judge [ 5 ] In view of the aggravating factors she identified, including the breach of trust, the duration of the fraud, the amount involved, the planning required, the consequences on the victims and the absence of significant restitution, the sentencing judge was of the view that the appropriate sentence was at the high end of the sentencing range. She therefore imposed a 33-month sentence of imprisonment and issued a five-year prohibition order pursuant to

section 380.2 of the Criminal Code . [ 6 ] With respect to restitution, citing R. v. Fitzgibbon , [3] the sentencing judge noted that the means of an offender should not in every case be the controlling factor in deciding whether such an order should be made.

She also referred to decisions of the Ontario and Alberta Courts of Appeal finding that in egregious circumstances, such as those involving a breach of trust, a restitution order may be made even absent any likelihood of repayment. [ 7 ] However, the sentencing judge concluded that a restitution order which cannot be fulfilled offends the sentencing principle of rehabilitation. She noted that this Court had found, in both Legault v. R. [4] and Bendwell v. R. , [5] that a restitution order was not appropriate when the offender’s ability to pay was absent.

The sentencing judge quoted the following paragraph from Legault so as to make this point: [6] [14] En conclusion, une ordonnance de dédommagement doit être rendue avec pondération et circonspection afin de remplir les objectifs et principes de la détermination de la peine soit, plus particulièrement, la réparation des torts, la conscience de la responsabilité, la dénonciation et la dissuasion. Cette ordonnance ne constitue pas le substitut à un recours civil.

Lorsque la capacité de payer est absente, comme en l'espèce, il est déraisonnable de rendre une ordonnance de dédommagement de plus d'un million de dollars. Il importe de souligner que l'ordonnance de dédommagement survie à la libération d'un failli.

En l'espèce, le montant du dédommagement est si excessif que le délinquant ne pourra jamais l'acquitter, ce qui met en péril le principe de réinsertion sociale. [ 8 ] The sentencing judge consequently declined to issue a restitution order on the following grounds: [7] [34] […] I am bound by the principles established by the Quebec Court of Appeal, specifically the premise expressed clearly in Legault and Bendwell , that a restitution order which cannot ever be met may have the effect of maintaining an offender in a perpetual state of impoverishment, and as such, it is an obstacle to rehabilitation.

The Crown’s grounds of appeal

[ 9 ] The Crown submits that the sentencing judge and this Court are bound by the Supreme Court of Canada’s decision in Fitzgibbon [8] holding that restitution orders are appropriate in fraud cases even where the offender may have limited or no ability to pay. It adds that the courts of appeal of British Columbia, Alberta, Ontario and Nova Scotia have all decided likewise. [ 10 ] The Crown adds that the decision of this Court in Legault did not concern fraud and therefore should be distinguished on that basis.

The Crown further submits that this Court’s decision in Bendwell is incompatible with Fitzgibbon and should not be followed. Insofar as this Court would not distinguish Legault or would deem itself bound by Bendwell , the Crown asks that these precedents be set aside. Respondent’s position [ 11 ] The respondent does not challenge the debts owed to the victims as a result of the fraud. He also acknowledges that his inability to pay does not constitute an impediment to a restitution order.

However, he submits that the financial capacity of an offender is a factor which must be taken into account before issuing a restitution order, even in cases involving fraud, to ensure that the order does not become an obstacle to the offender’s rehabilitation. In this case, the sentencing judge exercised her discretion judiciously in concluding that a restitution order would be an obstacle to his rehabilitation. [ 12 ] The respondent adds that the term of imprisonment and the prohibition order to which he is subjected are severe punishment.

He submits that the addition of a restitution order would lead to an unjust sentence in his case which would offend the totality principle. Analysis [ 13 ] A restitution order under subsection 738(1) of the Criminal Code is discretionary.

Thus, where such an order is not included in a sentence, an appellate court should only interfere on the basis of an error of principle or a failure to consider a relevant factor. [ 14 ] The first issue before us is whether and how inability to pay should be taken into account with respect to a restitution order in a case involving fraud. [ 15 ] At the outset, it is useful to note that the Victims Bill of Rights Act [9] has brought amendments to the provisions of the Criminal Code dealing with restitution orders. A new

section 739.1 to the Criminal Code now specifically sets out that an offender’s financial means or ability to pay does not prevent a court from making a restitution order. However, this new provision only applies in respect of conduct engaged in on or after its coming into force. [10]

Section 739.1 has therefore no bearing on this appeal. [ 16 ] In The Queen v. Zelensky , [11] a case dealing with what was called a compensation order under then

section 653 of the Criminal Code , Chief Justice Laskin identified certain factors to be considered before issuing such an order: There is, moreover, another important aspect of s. 653 that must be kept in mind. The Court's power to make a concurrent order for compensation as part of the sentencing process is discretionary. I am of the view that in exercising that discretion the Court should have regard to whether the aggrieved person is invoking s. 653 to emphasize the sanctions against the offender as well as to benefit himself.

A relevant consideration would be whether civil proceedings have been taken and, if so, whether they are being pursued.

There are other factors that enter into the exercise of the discretion, such as the means of the offender, and whether the criminal court will be involved in a long process of assessment of the loss, although I do not read s. 653 as requiring exact measurement. […] What all of this comes to is that I agree with Matas J.A. that, constitutionality apart, an order for compensation should only be made with restraint and with caution. [Emphasis added] [ 17 ] That case involved the commission of a theft. The restitution order was initially issued by the sentencing court at the request of the victim, the T.

Eaton Company Limited, as a substitute for or reinforcement to the civil proceedings it had initiated against the offender.

Laskin C.J. found this to be an inappropriate use of the Criminal Code provision, concluding that it is not proper to seek a restitution order “ in terrorem as a substitute for or a reinforcement for civil proceedings”. [12] [ 18 ] The issue of whether the financial capacity of an offender should be taken into account to refuse a restitution order in a fraud case was subsequently canvassed by the Supreme Court of Canada in Fitzgibbon . [13] That case involved the misappropriation of funds entrusted to a lawyer by his clients.

As an integral part of his sentence, the offender was ordered to reimburse the Law Society of Upper Canada the amounts it had paid to partially compensate the offender’s clients. He was also ordered to reimburse a client for that portion of the loss suffered which had not been compensated by the Law Society. [ 19 ] Since the offender was an undischarged bankrupt, the issue arose as to whether consent had to be obtained from the bankruptcy court before the compensation order could be made.

In finding that no such consent was required, Cory J., writing for a unanimous Supreme Court, found that when fraudulent acts are involved, the claims of the victims should be paramount over the offender’s ability to pay. He justified that finding on the provisions of the then Bankruptcy Act (which are still in force today) providing that the eventual bankruptcy discharge of the appellant would not release him from any debt or liability arising out of his fraudulent actions: [14] On the facts of the present case, such an order was appropriate.

Fitzgibbon acknowledged that he had defrauded his clients of the amount agreed to at his trial. The Law Society had compensated the appellant's defrauded clients and was subrogated to their rights against him. Rudolph Gatien was also entitled to the balance defrauded from him for which he had not been compensated by the Law Society. The order was thus appropriate to allow compensation for the Law Society and Gatien. In

summary, it can be seen that compensation orders are an extremely useful part of the sentencing procedure. They are often used in sentencing young persons or first-time offenders who have not committed crimes of violence. Their value cannot be over-emphasized. Much of the efficacy of these orders is the immediacy of their effect. If it is possible, they deserve to be available for consideration in the sentencing of all offenders. It remains only to be determined whether the order could be validly made when the appellant was an undischarged bankrupt at the time of sentencing.

The fact that the appellant is an undischarged bankrupt raises two issues. First, it was recognized in Zelensky that the means of the accused person should be taken into account when a court is considering making a compensation order. However, in the case at bar, the sentencing judge was aware that the appellant was an undischarged bankrupt at the time of the sentencing and nevertheless properly exercised his discretion to make the order. In the Court of Appeal, Martin J.A. carefully considered the words of Laskin C.J. in Zelensky .

He concluded that the means of the offender should not in every case be the controlling factor. I agree with that conclusion of Martin J.A. The appellant was a lawyer who defrauded his clients. He used his position to defraud the very persons who had every reason to trust and rely upon him. The fraudulent acts of a lawyer directed against his own clients warranted the imposition of a compensation order even though the lawyer's means at the time of sentencing were minimal. The claims of the victims of fraudulent acts should be paramount. This seems to be recognized by s. 148 (now s. 178) of the Bankruptcy Act .

That

section provides that the discharge of a bankrupt does not release him from any debt or liability arising out of a fraudulent act committed by him while acting in a fiduciary capacity.

The Bankruptcy Act itself, therefore, permits claims of fraud to survive the discharge of a bankrupt, and the fact that Fitzgibbon is an undischarged bankrupt should not allow him to avoid the imposition of this compensation order as part of his sentence. [Emphasis added] [ 20 ] As a result, though the means of the offender is a factor to take into account when deciding to issue a restitution order, that factor has much less weight when restitution is to compensate victims of a fraud carried out by the offender as a trustee or administrator of property of others or as a result of the offender obtaining property or services by false pretences or fraudulent misrepresentation. [ 21 ] This approach has been followed by numerous Canadian appellate courts. [15] [ 22 ] In R. v.

Castro , Weiler J.A. (as he then was) stated that “in cases involving breach of trust, the paramount consideration is the claims of the victims […] Ability to pay is not the predominant factor”. [16] He summarized the applicable principles as follows: [17] [35] To summarize, a restitution order is simply part of the determination of an overall fit sentence, and general sentencing principles apply.

While consideration of the offender's ability to pay and the impact of a restitution order on an offender's rehabilitation are factors to be considered, the weight to be given to these factors will vary depending on the nature of the offence and the circumstances of the offender. When the offence involves a breach of trust, a primary consideration is the effect on the victim; rehabilitation is a secondary consideration. Furthermore, consideration of the ability to pay includes the ability to make payment from the money taken as a source of restitution. [Emphasis added] [ 23 ] Likewise, in R. v.

Johnson , the Alberta Court of Appeal noted that “an offender’s means have limited import in cases of fraud”, adding that “where a breach of trust is involved, a restitution order may be made even where there does not appear to be any likelihood of repayment”. [18] [ 24 ] This principle was again recently reiterated by the Ontario Court of Appeal in R. v. Wa : [19] [12] When determining whether to impose a restitution order, the sentencing judge must consider the offender's ability to pay.

However, where the circumstances of the offence are particularly egregious, such as where a breach of trust is involved, a restitution order may be imposed even if there does not appear to be any likelihood of repayment : R. v. Castro , 2010 ONCA 718 , 102 O.R. (3d) 609, at para. 28 . As the sentencing judge found, the fraud in this case was a clear breach of trust, which was particularly odious given the charitable nature of the work performed by the victim. [Emphasis added] [ 25 ] As for this Court’s decision in Legault , it has no bearing on the issue at hand.

That case concerned an order in the amount of $1,174,499.04 against an offender as restitution for setting fire to a house. Since fraud or breach of trust were not at issue in that case, this Court was compelled to take into account the offender’s capacity to pay under the principles set out in Fitzgibbon . The distinction is important, since in Legault , the offender did not financially benefit from the fire, while in fraud cases, such as the one involving the appellant, the offender personally benefits financially from the offence. As recently noted by Bennett J.A. in R. v.

Nanos , [20] a case involving similar facts as Legault , where the offender does not profit financially from the offence, his ability to pay restitution becomes a more relevant factor.

Moreover, Legault does not state that inability to pay, as a matter of principle, precludes a restitution order. [ 26 ] In Bendwell , while the Court did take into account the means of the offender with respect to a restitution order in a context of a fraud, this was in circumstances where civil proceedings had been initiated which would allow the victims to obtain judgment in their favour. [21] As noted by Laskin C.J. in Zelensky , a relevant consideration to a restitution order is whether civil proceedings have been brought against the offender . [22] It is in that context that Bendwell should be understood.

Moreover, in that case the offender had been diagnosed with cancer. We do not read Bendwell as contradicting the statement in Fitzgibbon that little weight should be given to the offender’s ability to pay when considering restitution in a fraud case. Rather, Bendwell turns on its own specific facts. [ 27 ] We conclude from this analysis that the sentencing judge’s decision not to order restitution in this case was based on an error of principle.

Indeed, with respect to a judge’s discretion to order restitution in the context of a fraud, the primary consideration is the effect on the victim; the rehabilitation of the offender is a secondary consideration.

This does not imply that a restitution order must be issued in all fraud cases; rather, it requires the sentencing judge to pay particular attention to the effects on the victim. [ 28 ] Where there is no expectation that the victim will ever receive payment pursuant to the restitution order, or where the offender is impecunious and the effect of the fraud on the victim is financially insignificant to that victim taking into account the victim’s entire financial situation, then a sentencing judge may well conclude that a restitution order serves no compelling purpose for the victim and refuse to grant such an order.

However, where the effect of the fraud on the victim is significant and there is some expectation, even faint, that the offender may be in a position to eventually comply, in whole or in part, with the restitution order, then the primary

consideration must be the effects on the victim and a restitution order should follow. [ 29 ] This conclusion leads to a second issue which must now be addressed. That is whether a restitution order should issue against the respondent taking into account the proper principles. [ 30 ] In this case, many of the victims are elderly. Substantial parts of their savings have been taken from them with serious effects on their lives.

The victims can now only turn to the civil courts at their own expense, adding additional costs to the already substantial losses they have suffered to date. [ 31 ] The Crown recognizes that the respondent has little present means of satisfying the restitution order. However, that does not imply that he may not be in a position to satisfy that order in the future, either in whole or in part. The respondent was nicknamed “the millionaire” by his friends, and he maintained a prosperous brokerage business.

Though he will likely be aged in his early 60’s by the time his sentence for the fraud offence is completed, it is not beyond hope that he may find gainful employment in the future and even build anew a prosperous business. [ 32 ] The individual victims of the fraud, and particularly the elderly victims, should not be deprived of the hope of eventually receiving compensation from the respondent. Even if such hope is faint, it is not inexistent.

If a restitution order is issued, the victims will have three years to register it in a civil court. [23] They will thereafter be in a position to execute the resulting civil judgment within the applicable statutory limitation period and in accordance with the procedures and timelines set out under the Code of Civil Procedure and the Civil Code. [ 33 ] The respondent’s rehabilitation in this case will be no more affected by a restitution order than had the victims taken out a civil action against him.

In either case, the respondent’s civil liability towards the victims remains entire, irrespective of his ability to pay: par. 178(1) (

e) of the Bankruptcy Act . [ 34 ] Nor would a restitution order in this case render the overall sentence unreasonable, the applicable sentencing range for the offence at issue varying between six months and three years. [24] [ 35 ] Considering all the circumstances, and applying the proper principles, a restitution order should be issued in this case. FOR THESE REASONS, THE COURT: [ 36 ] GRANTS leave to appeal the sentence passed by the Court of Québec on May 7, 2015. [ 37 ] ALLOWS the appeal of that sentence for the sole purpose of adding thereto the following restitution order. [ 38 ] ORDERS , pursuant to

section 738 of the Criminal Code , Daniel Lavallée to pay to the following individuals the amounts indicated with respect to each: a. Robert E. Carter: $ 20,000 b. Michael Biduk: $ 127,000 c. Angela Jones : $ 20,000 d. Sylvain Pilon : $ 65,000 e. Robert Pilon $ 25,000 f. Gordon Doe : $ 5,000 g. David James Parker : $ 5,000 MARIE-FRANCE BICH, J.A. JACQUES J. LEVESQUE, J.A. ROBERT M. MAINVILLE, J.A. Mtre Mélanie Hébert Directeur des poursuites criminelles et pénales For appellant Mtre Walid Hijazi For respondent Date of hearing: September 16, 2016