SCALLEN British Columbia Court of Appeal, Maclean, Bull and McFarlane, JJ.A. March 29, 1974.
1974 CanLII 1543 (BC CA)
1974 CanLII 1543 (BC CA) 1974 CanLII 1543 (BC CA)
A. McEachern, for accused, appellant.
R. Paris and J. Hall, for the Crown, respondent. MACLEAN, J.A. :—Appellant appeals against his conviction on two counts: [1.1 At the City of Vancouver, Province of British Columbia, be- tween the 1st day of August 1970 and the 31st day of December 1970, unlawfully did make, circulate or publish a Prospectus dated November 13, 1970, that he knew to be false in a material particular, with intent to induce members of the public to become shareholders in a company, to wit, Northwest Sports Enterprises Ltd., contrary to the form of the Statute in such case made and provided and against the Peace of Our Lady the Queen, Her Crown and Dignity. [2.] At the City of Vancouver, in the Province of British Columbia, on or about the 15th day of December, 1970, unlawfully did
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commit theft of approximately Three Million dollars ($3,000,000.00), the property of Northwest Sports Enterprises Ltd., contrary to the form of the statute in such case made and provided and against the Peace of Our Lady the Queen, Her Crown and Dignity. The grounds of appeal are for the most part concerned with alleged errors in the Judge's charge to the jury. In addition to the grounds involving alleged errors in the charge to the jury, the appellant submits on count 1, the false prospectus charge, that the verdict is unreasonable and cannot be supported by the evidence, and as to count 2, appellant alleges that there was no evidence that $3,000,000 was ever stolen, as alleged in the indictment, it being a chose in action not capable of being stolen. It is further submitted with respect to the theft count that the offence (if one was committed) was not committed in Canada. Before discussing the grounds of appeal, I consider that a very brief outline of the facts would be useful. The appellant Scallen is an attorney-at-law and had prac- tised his profession for about 10 years in Minneapolis until 1960. It also appears that since that time he has occupied him- self in business affairs, particularly in matters involving fi- nance. It appears that in 1960 the appellant Scallen became the largest shareholder and operating head of a Minneapolis based company called Medical Investment Corporation re- ferred to in these proceedings as Medicor. A franchise in the National Hockey League wasoffered to a British Columbia company called Northwest Sports Enter- prises Ltd. Medicor purchased all the shares of all the shareholders of Northwest except those of four shareholders, and obligated it- self to buy those shares later. Medicor required over $2,000,000 to complete the purchase and accordingly borrowed $3,000,000 from E. Heller & Co. in Chicago at a very high rate of interest. The loan was originally for six months, maturing in June, 1970, but it was later extended for a further period of six months to mature on December 16, 1970. The lender intimated to the borrower that a further extension would probably not be granted. On this loan Medicor was required to pay 15% interest to Heller, the lender, 8% to McKnight a guarantor and 1% to a
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St. Paul Bank. With the proceeds of the borrowing in hand Medicor pur- chased 90% of the shares of Northwest and made firm com- mitments for the other 10%. Scallen became a director, president and treasurer of Northwest. The other directors were Walters, Hall, Bell, McMahon and McLean. The evidence was that the directors, other than Scallen, took very little part in the management of the company. During the summer of 1970 there were discussions in Medicor's office in Minneapolis about the repayment of the Heller loan which was due on December 16, 1970. Among various alternatives discussed was an underwriting by Northwest with Northwest funds being used to repay the Heller loan (owing to Heller by Medicor) (see ex. 26 by Denny) . In June, 1970, G. P. Denny was employed by Medicor as an assistant to Scallen with regard to the financial aspects of the company. He said that he would characterize the financial condition of the company as poor at that time. During the summer of 1970 unsuccessful attempts were made to obtain the money with which to repay the Heller loan. In the period immediately previous to and during the underwriting of No- vember 13, 1970, however, I can find no evidence of further attempts to borrow the necessary money to repay the loan and, in my view, this leads to a fair inference that the ap- pellant had then formed a fixed and firm intention to use the proceeds of the Northwest underwriting to repay the Heller loan — which was in fact what happened. He had discussion with Scallen about the repayment of the $3,000,000 loan and presented Scallen with a memo outlining various suggestions for this repayment. In this memo (ex. 26) of June 12, 1970, he said in part: (2) The only real source of funds which could pay off McKnight comes from the Camadian offering, but: (a) Due to the current state of theCanadian markets, October will be the earliest month the offering could go through. (b) It may be illegal to flow the proceeds of the Canadian of- fering up to the parent without either: (1) Stating this in the prospectus, which could make the offering difficult to sell, or (2) Merging Medicor into Northwest Sports or merging Northwest Sports into Medicor. McKnight was the principal guarantor of the loan made by Heller to Medicor.
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It was to proceed with an underwriting for the sale of Northwest securities (which was the alleged purpose of this loan) . The prospectus was signed by Scallen and other directors on November 13, 1970. The underwriter was Royal Securities Corporation Ltd., a subsidiary of Merrill Lynch & Company. There is nothing in the prospectus to indicate that it proposed to pay off the debt of Medicor with the proceeds of the Northwest underwriting. Furthermore, Scallen did not. disclose to those concerned with the prospectus and the under- writers that it was proposed to use the proceeds for such pur- pose. Nor did he even tell his fellow directors of Northwest. To their chagrin the directors discovered this matter several months later as a result of a disclosure being made by another person. The witness Connor, an officer of Merrill Lynch said that if he had known that the proceeds were to be used to pay off an indebtedness of Medicor that his company would not have proceeded with the underwriting. The underwriting was completed on December 8, 1970, when a cheque for $3,439,052.34 was deposited to an account of Northwest at a branch of the Royal Bank of Canada at Vancouver. Three million dollars was immediately placed in a Royal Bank term deposit account 51/2 %. On December 15, 1970, on the instruction of Scallen, a "call" was made on the term deposit and the $3,000,000 was returned to the general account. In the same letter (ex. 45) the Royal Bank was in- structed to arrange to transfer by wire $3,000,000 U.S. funds to a bank account in the name of Bank of South Pacific at the Bank of America in San Francisco. The witness Heath said that he was ordered by a telephone call from Scallen to transfer the funds and to send a letter so instructing the manager of the Royal Bank of Canada at Van- couver. On December 14, 1970, the witness Lewy, an officer of Heller & Co., spoke to Scallen on the phone and arrangements were made for the transfer of the $3,000,000 to the bank ac- count of the Heller Co. in Chicago. The transfer was in fact made on December 16, 1970. The witness Ellis, an officer of Medicor, said that he was instructed by Scallen to make sure that the funds for the payment of the Heller loan were transferred in a proper manner. It is interesting to note that the Bank of South Pacific is a
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wholly-owned subsidiary of Medicor. It is not entitled to carry on the business of banking in California or Canada, and in fact was never so entitled. Mr. Henriksen said that the certificate of deposit of the Bank of South Pacific (ex. 46) was typed in Minneapolis and that he signed it. The letter (ex. 48) was sent to Henriksen by Scallen for transmissal to Heath. Crown counsel has submitted, and in my opinion correctly, that the Bank of South Pacific was only a sham. After the discovery by the directors of Northwest some months later that $3,000,000 of the Northwest underwriting had been used to pay off Medicor's debt to Heller the appellant Scallen became very active and finally succeeded in borrowing money from Mr. Capozzi at a high rate of interest plus premium. The proceeds of this borrowing was then used to pay back Northwest. There is evidence to support the Crown's proposition that between November 13, 1970 (the date of the prospectus) , and December 8, 1970 (the closing day of the underwriting) , that the appellant had a fixed and firm intention of using the proceeds of the underwriting to pay off Medicor's debt to Heller. The evidence of the witness Schenone, amongst others, supports this proposition. COUNT 1 Charge to the Jury I now turn to the consideration of the Judge's charge with respect to count 1, the false prospectus charge laid under s. 358 (1) (a) of the Criminal Code: 358(1) Every one who makes, circulates or publishes a pro- spectus, statement or account, whether written or oral, that he knows is false in a material particular, with intent (a) to induce persons, whether ascertained or not, to become shareholders or partners in a company, (b) to deceive or defraud the members, shareholders or credi- tors, whether ascertained or not, of a company, (c) to induce any person to entrust or advance anything to a company, or (d) to enter into any security for the benefit of a company, is guilty of an indictable offence and is liable to imprisonment for ten years. (2) In this section, "company" means a syndicate, body corporate or company, whether existing or proposed to be created. The Crown's position is that the prospectus was false in that it failed to disclose anywhere that the proceeds of the un- derwriting would be used to retire an indebtedness of Medi- cor, an 'associate company of Northwest, in which Scallen was
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the largest shareholder. The learned Judge in his charge has set forth the statutory elements of the charge: 1. That the prospectus when made (November 13, 1970) was false in a material particular as the learned Judge put it: And, the falsity that the Crown relies on or alleges, is that the ac- cused had already decided to use a substantial portion of the proceeds of the underwriting to pay off a prior indebtedness of Medicor, an affiliated company of Northwest. The second ingredient is: "that the accused knew it was false at the time it was made, circulated or published". And thirdly: that it was done with intent to induce members of the public to become shareholders....
In order to find the accused guilty on Count #1, you must be
satisfied beyond a reasonable doubt that he had a fixed and firm in- tention — and I repeat that — a fixed and firm 'intention during that period to use the proceeds of the underwriting to pay off the Medicor liability. It is suggested 'by appellant's counsel that fraud is an element which must be proved to complete this offence. Without decid- ing that such proof is required, all I say is that when the trial Judge had told the jury that to convict they must find that the prospectus to be false in a material particular, and 2. that it was false to the knowledge of the accused, and 3. that the statement was made to induce people to become shareholders in Northwest; we then have all the elements of fraud even though the word "fraud" was not used. It is to be noted, however, that under s. 358 (1) (a) under which the charge is laid that neither fraud nor deceit is set out as an element required to be proved although deceit is in fact an element to be proved under para (b) of s-,s (1) of the sec- tion. Not only has the learned Judge dealt clearly with the ele- ments required to be proved but he has dealt adequately with the theory of the defence. Appellant's counsel complains that the Securities Act, 1967 (B.C.), c. 45, was mentioned when count 1 was being dealt with. As I read the charge, this reference was directed to the materiality of the statement in the prospectus. The reference to the Securities Act, 1967 would not prejudice the accused as
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the learned Judge said at A.B. vol. III, p. 512: "Please keep in mind that we are not here concerned about breaches of the Securities Act or 'breaches of the Companies Act." The charge contained a very full summary of the relevant facts. In my view, the appeal against the conviction on count 1 should be dismissed. COUNT 2 Theft As already referred to in my summary of the parts the evi- dence establishes that the accused authorized the sending of the letter ex. 15 dated December 15, 1970, which is quoted hereunder: Mr. R. McLean, Mgr., Royal Bank of 'Canada, Robson & Granville Sts., Vancouver, B. C. - Re: Northwest Sports Enterprises Dear Mr. McLean: This will confirm our telephone instructions to call the term de- posit of $3,000,000.00 which you have on 24 hour notice and deposit both principal and interest to the general account. Will you also please arrange 'to transfer by Wire $3,000,000.00 U.S. Funds to the Bank of America, Main Office, San Francisco, California for account of the Bank of South Pacific & Trust Co. Your co-operation is appreciated. Yours very truly, NORTHWEST SPORTS ENTERPRISES LTD. Per : "L. C. HEATH" L. C. Heath, Business Mgr. Per: "B. WISEMAN" BW B. Wiseman, Executive Secretary It is, of course, common ground that the bank did accept the "call" on the funds of Northwest in the term deposit account, and that in response to the ex. 45 that the funds were trans- ferred to the Bank of America to the credit of the Bank of South Pacific and Trust Company. It is also common ground, though still in accordance with the instructions of the ap- pellant, that the $3,000,000 was deposited to the credit of the Heller Company in Chicago to pay off the debt of Medicor to Heller. The Crown submits that thereby occurred a theft as defined by the Criminal Code of $3,000,000. The Act which completed the offence of theft was an act done in Canada on Scallen's instructions.
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On the day before the transactions referred to above, it can be fairly said I think, that Northwest was the owner of $3,000,000. The company was in fact deprived of the $3,000,000 by reason of what was done by their president the appellant, acting in a way described by s. 283 of the Criminal Code, in that he caused the $3,000,000 to be converted to the use of Medicor, a company in which he was the largest share- holder. The appellant's submission that to be the subject of theft that the thing involved must be tangible or material: this submission gives no effect to the word "anything" found in the section "... who ... converts ... anything". The word "anything" as defined by the Oxford Dictionary and by Webster has a wider meaning than the expression "any thing" as it occurs in two words. The 3rd ed., Shorter Ox- ford Dictionary gives the following definition of "anything" at p. 79: "Anything — A comb. of ANY and THING, in the widest sense of the latter. See Any a. Orig. always two words; now rarely exc. when stress is upon thing." It is to be noted that the indictment charges a theft of "three million dollars" a medium of exchange. I cannot accept the proposition that the subject of the theft as alleged is some- thing that cannot be stolen, or is not property, the subject of the theft charge. As a matter of fact the medium of exchange was effectively transferred from Vancouver to San Francisco and ultimately to Chicago. In my view, s-s. (2) of s. 283 does not restrict the meaning of the section and the same may be said of s-ss. (3) , (4) and (5). Appellant's counsel has criticized the charge on the question of "colour of right" and it may be that on this subject that the charge could have been improved upon. However, I do not con- sider that the appellant has suffered any prejudice because even if the charge is less than perfect on this matter the learned Judge said, in putting count 2 in capsule form: If you are satisfied beyond a reasonable doubt that this was a fraudulent scheme conceived and carried out by the accused, then you would be justified in finding him guilty. If you do not accept that it was a fraudulent scheme or if you had a reasonable doubt on the question, you must, I repeat, you must acquit him. He repeated this part of his charge when he gave further instructions at the request of the jury (A.B. III, p. 617) . Counsel complains that insufficient attention was given to
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the words of s. 283 "intent ... to deprive". The learned Judge, however, did give the standard instruc- tion on how intent is to be proved, involving the concept of the natural consequences of his act, and I think that was suf- ficient. The jury was not misled. I have had the privilege of reading the judgment of my brother Bull and agree with his comments on the sufficiency of the charge. As far as the general sufficiency of evidence is concerned I think that there was evidence justifying the conviction on both counts. I would dismiss the appeal. BULL, 3.A.:—The appellant was convicted by a Judge and jury on two charges and has appealed those convictions. The two counts were that at Vancouver, British Columbia: (1) between August 1, 1970, and December 31, 1970, he unlawfully made, circulated or published a prospectus which was dated and signed by him on November 13, 1970, that he knew to be false in a material particular with intent to induce members of the public to become shareholders in Northwest Sports Enterprises Ltd., con- trary to s. 358 (1) (a) of the Criminal Code, and (2) on or about December 15, 1970, he committed theft of ap- proximately $3,000,000, the property of that company, contrary to •s. 294, [rep. & sub. 1972, c. 13, s. 23] of the Criminal Code Although the appellant submitted that the jury's verdict of guilt on the prospectus charge, count (1) above, was unrea- sonable and could not be supported by the evidence, the Court, being of the opinion that it was quite unable to conclude on the cogent evidence adduced that a jury or reasonable persons properly instructed could not, or should not, have reached that verdict, did not find it necessary to call upon the Crown. The appellant's main attack on the conviction was that in five areas the learned trial Judge misdirected the jury, either affirma- tively or by omission, and that in consequence he was entitled to a new trial. With respect to the theft charge, count (2) above, seven grounds of appeal were argued. Three were of a nature which, if accepted by the Court, the appellantsubmitted would entitle him to an acquittal, and the remaining four were alleged mis- directions, or non-directions amounting to misdirection, in the charge to the jury justifying a new trial be ordered. The Court did not find it necessary to call upon the Crown to an-
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swer one of the grounds of appeal in the first group of three. That ground was that the theft charged had not taken place in Canada and, therefore, under Criminal Code, s. 5 (2) the ap- pellant could not be convicted of an "offence committed out- side of Canada". The Court was satisfied on the evidence that although the subject-matter or fruits of the theft were ex- ported out of Canada to the United States at the instigation of the appellant, the offence of theft (if such it was), and the conversion and deprivation involved, was completed and hence committed in Canada. Extensive evidence was adduced at the trial. I consider it advisable to set out a detailed .summary of the circumstances in order that the numerous submissions of the appellant and my conclusions thereon may be understood. The principal disputes on facts were with respect to those involving the purposes, in- tention and state of mind of the appellant at various impor- tant times, and inferences that could properly be drawn therefrom. There was, however, direct conflict of evidence with respect to certain alleged conversations with, and state- ments made by, the appellant during the course of the transac- tions. These matters were, in my view, of considerable impor- tance. Northwest Sports Enterprises Ltd. (hereafter referred to as "Northwest"), along with a wholly-owned subsidiary Van- couver Hockey Club Ltd., were incorporated under the Com- panies Act, R.S.B.C. 1960, e. 67 [repealed by s. 374 of and replaced by 1967, c. 18], in 1965. Northwest was a holding company, and the subsidiary was the operating company. The latter acquired and owned a hockey club and franchise to play professional hockey in a minor hockey league operating in western Canada and the United States, called the Western Hockey League. At all the relevant times the only major hockey league in North America was the National Hockey League. A franchise, or right to play, in that league was consid- ered very desirable and remunerative, and the principals of Northwest were anxious to procure such a franchise. Negotia- tions to that end were carried, on for a considerable period, but, without appreciable success until 1969, when the National Hockey League offered a franchise to Northwest at a fee of $6,000,000 payable by instalments. This was a 300% increase over the franchise fee charged for the last "expansion" of the league three years before. The principals of Northwest felt unable to take up the franchise, although still very anxious, as were the officials of the National Hockey League, that na-
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tional hockey be brought to Vancouver. At this stage the appellant, through Medical Investment Corporation ("Medicor") an United States corporation based in Minneapolis, Minnesota, came into the picture. This cor- poration was one of substance and was operated by the ap- pellant who was president, a director and substantial share- holder. It would appear that in his management of Medicor, the appellant exercised full authority and made the day-to-day decisions, procuring board approval later when indicated. The corporation owned and operated a touring and usually lucra- tive ice show known as the "Ice Follies", as well as control of at least two substantial operating commercial corporations having considerable value. Late in 1969, the appellant heard, through friends in the National Hockey League, about the franchise offer to Northwest and its unwillingness to come up with the $6,000,000 fee required. In result, Medicor, hav- ing expressed interest, was offered the franchise provided that it procured control of Northwest and, especially, the hockey team in Vancouver. Medicor then purchased outright for approximately $2,800,000 all the outstanding shares of Northwest from its shareholders except for a portion of the share holdings of four directors, Messrs. McLean, Hall, McMahon and Bell, but of which Medicor procured options to purchase. Medicor thus acquired about 90% of the issued shares and the right to acquire the remaining 10% and needed about $2,000,000 cash to complete the transaction. The National Hockey League franchise was then granted (which Medicor held in trust for Northwest or its subsidiary Van- couver Hockey Club Ltd.). A down-payment on the fee of some $1,807,541 was required on February 25, 1970, and the balance in five annual instalments of $850,000 each beginning on June 1, 1971. Medicor's cash resources were inadequate to meet the obligations assumed to the Northwest shareholders and the down-payment on the franchise fee. Therefore, late in December, 1969, it borrowed $3,000,000 from the Walter E. HellerCorporation, of Chicago ("Heller") at a very high fi- nancing cost and interest rate, and these borrowed funds were used, inter alia, to pay for the acquisition of the Northwest shares. The Heller loan was to be repaid by Medicor on June 18, 1970. The appellant's expectation that Northwest with a National Hockey League franchise would be a valuable and lucrative undertaking was justified and in due course that company generated considerable cash. In any event, from its own resources, bank borrowings and loans from Medicor,
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Northwest was able to meet the franchise payment due Febru- ary 25, 1970. The loans from Medicor were later repaid from the proceeds of a Northwest bank loan which in turn was secured by, and repaid from, proceeds of advance ticket sales for the 1970-71 hockey season. The appellant became president and treasurer of Northwest and a director. The other directors were McLean, McMahon, Bell, Hall and Lyman Walters. The latter was an officer of Medicor who had been charged jointly with the appellant on the prospectus charge, count (1) , but acquitted at the end of the Crown's case. Although Medicor controlled Northwest, it did not have, as its nominees, a majority of the board of directors. It is clear, however, that the daily operations of the company, its man- agement, administration and decisions were carried out and made by the appellant, with minimal participation by, or con- sultation with, the other members of the board except Walters. In fact, the appellant had never met McMahon or Bell, and McLean and Hall travelled extensively. As put by ap- pellant's counsel, "... Northwest, like Medicor, became almost a one man company", that man being the appellant. In the spring of 1970, due to various reasons including overheavy debt structure, some business reverses as well as seasonal drops in income, Medicor was in poor financial condi- tion in the terms of shortage of funds. It was unable to meet its $3,000,000 obligation to Heller in June without a borrowing or refinancing of some sort. It found it necessary to borrow $505,000 from Northwest. Discussions took place in the spring of 1970 of launching a public offering of Northwest securities, but the idea was temporarily dropped because of the then un- favourable market conditions. As the time for repayment of the Heller Loan approached the appellant made fruitless ef- forts to refinance the debt at various money sources, and a number of plans were devised and discussed by and with the appellant to use Northwest in one way or another as a money- raising vehicle. One of these plans discussed (and in fact put up to a meeting of Medicor's debenture-holders) was that Northwest sell shares to the public in Canada in the fall of 1970 and that the proceeds be channelled into Medicor, it being pointed out that that might be illegal without disclosing it on the prospectus "which would make the offering difficult to sell ...". There was evidence that there were discussions with the appellant of possible mechanics of having the pro- ceeds of Northwest's proposed public offering flow to Medi-
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cor by having the funds advanced to the Bank of the South Pacific and Trust Company, Ltd. ("Bank of South Pacific") and from there to Medicor or to Heller. The Bank of South Pacific was a wholly-owned subsidiary of Medicor, incorpo- rated in the Bahamas, with its only office a small one in San Francisco. It had one employee whose function was to inves- tigate the possible future participation of the bank in develop- ment transactions in Australia or other South Pacific areas. It did not carry on, and had never carried on, any banking activ- ities. It did not even have a bank account in San Francisco, until on the appellant's instructions it opened a deposit ac- count with the Bank of America on December 7, 1970, with a banking resolution signed by the appellant bearing date of November 23, 1970. In June, 1970, Heller was persuaded to extend payment of its loan for six months to December 16, 1970, with the clear indication that any further extensions would be unlikely. In the fall of 1970, the money market improved sufficiently for an underwriter, Royal Securities Limited, to agree to un- derwrite a public issue of Northwest's debentures and shares. This was preceded by the conversion of Northwest from a private to a public company and creation of debentures under a trust indenture. At this time the authorized capital of the company was 2,000,000 common shares of which 800,000 were issued and outstanding. Medicor owned 700,998, McLean, McMahon, Hall and Bell 99,000 between them and the appellant and Walters each had one. The offering was made up of 100,000 shares out of Medicor's holdings (the proceeds of the sale of which would not go to Northwest but to Medicor), 200,000 treasury shares 'of Northwest and $2,000,000 principal amount of its 8I/2 % Convertible Subordinated Debentures, Series A, all to be sold in units of 15 shares and $100 principal amount of debentures. The issue was to raise net to Northwest $3,428,333 and to Medicor $799,167. Although the sale of part of its own Northwest shares and the issue and sale of Northwest treasury shares would dilute Medicor's equity interest in Northwest, it would still retain majority control even if all the debentures offered were converted by their owners into common shares. The drafting of the prospectus for the underwriting pro- ceeded in the fall of 1970 and the appellant actively partici- pated therein. On November 13, 1970, it was signed by the ap- pellant and the other directors, was accepted for filing under the Securities Act, 1967 (B.C.), c. 45, on November 18, 1970, and published and distributed to the public in the Province as well as in other Provinces where the prospectus had been ac-
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cepted for filing or registration. The prospectus, as was required by the British Columbia Securities Act, 1967 with which it purported in its terms to comply, set out in detail, inter alia, the Purposes of Issue and to what uses the proceeds of the underwriting would be put. It represented that on the basis that the net receipts after all ex- penses and costs, would be $3,338,333 of which $77,270 would be to pay off a debt, $850,000 would be paid on the franchise on June 1, 1971, and prior to the date invested in "short-term interest bearing securities". The remainder of approximately $2,411,063 would, it was said, be added to working capital and to the extent not so required in operations, be available for ex- pansion into additional business in the sports, entertainment, recreational and leisure time fields. The paragraph then con- tinues: The Company is presently considering a number of expansion oppor- tunities and has had preliminary discussions in this connection. There can be no assurance that any such discussions will lead to an invest- ment by the Company, and the Company does not propose to make any investment until it is satisfied that the funds are not required for working capital purposes. Pending investment in any additional businesses, these proceeds will be invested in short-term interest bearing securities. Again, under the heading of "Interest of Management and Others in Material Transactions", it was represented that no material transactions had taken place, or were proposed, in which any director or senior officer or shareholder has had or will have an interest, except those which were itemized and which had no relevancy to the matters in issue. It was with respect to the use, in accordance with the appellant's instruc- tions, of $3,000,000 of the proceeds of the underwriting one week after the closing and their receipt that the first charge against him of making, circulating or publishing a prospectus which he knew to be false in material particular was based. On December 8, 1970, the closing took place, the shares and debentures issued and delivered to the underwriter and the net purchase or underwriting price paid by the underwriter. Northwest received a certified cheque for $3,439,052.34 and Medicor one for $779,170. Northwest's cheque was deposited in its corporate bank account No. 136-780-4 in the Royal Bank of Canada. Shortly afterwards, on the instructions of the appellant, the sum of $3,000,000 was removed from the ac- count and placed in a 30-day term deposit account paying 51/2 % interest but with withdrawal at any time permitted. On
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December 15, 1970, Northwest, on the instruction's of the ap- pellant, "called" the term deposit and instructed the bank to deposit the principal and interest to the company's general ac- count and transfer by wire $3,000,000 in United. States funds to the Bank of America (main office) in San Francisco, California for the account of the Bank of South Pacific. This the Royal Bank of Canada did on the same day, and after the instructed remission Northwest's bank account in that institu- tion was debited and reduced by $3,060,939.50 Canadian dol- lars. The Bank of America credited the Bank of South Pacific in its account opened on December 7, 1970, with the $3,000,000 U.S. funds, which were then transferred the next day, December 16, 1970, to Heller in Chicago. Thus Medicor's debt due on that day was repaid. By letter dated the same date, December 16, 1970, the ap- pellant wrote from Minneapolis to the sole employee of the Bank of South Pacific enclosing a printed form of certificate of deposit of that bank, and a letter of transmittal to Northwest, both to be signed by that employee in San Francis- co and forwarded to Northwest promptly in Vancouver. This was done. That certificate of deposit (carrying interest at 81/2% and payable in 90 days) bore a serial number 2210 al- though the testimony of the appellant was that the Bank of South Pacific had never issued such a certificate before. Also the letter of transmittal, so prepared in Minneapolis but sent from the Bank of South Pacific noted the latter's appreciation of "this opportunity to be a banking service to you". In due course Medicor signed a note to the Bank of South Pacific for $3,000,000 with interest at 91/2 % and deposited as security therefor its shares in Northwest and in two other corpora- tions which had a value in excess of the amount secured. All the directors (except Bell, who had died, and Walters, who had been acquitted at the end of the Crown's case) gave evidence that they knew nothing of the $3,000,000 flowing to pay off Medicor's debt to Heller through the channel of the Bank of South Pacific, and were never at any time before or after the underwriting consulted thereon. The fact did not become known to them until April, 1971, when the company's auditor ascertained the destination of the funds and advised the company's solicitor. This resulted in conferences and nego- tiations with the appellant, and, on May 12, 1971, a directors' meeting was held. The minutes recorded the question of the loan being made without the knowledge or consent of the ma- jority of the directors; that the appellant had stated it had been arranged by the then treasurer of Medicor at a time
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when he did not know it should have been mentioned in the prospectus and that on the previous day Medieor had depos- ited all its shares in Northwest and certainshares of other companies with Montreal Trust Company to be sold should the $3,000,000 and a further $505,000, which had been owing by Medicor to Northwest's subsidiary, Vancouver Hockey Club Ltd., be not repaid one month hence on June 10, 1971. In due course, Medicor made arrangements to raise the money owed to Northwest and the total debt, with interest, was paid and the certificate of deposit of the Bank of South Pacific returned to it. It was the actions of the appellant on behalf of his company Medicor, a major and controlling shareholder of Northwest, in arranging and causing the $3,000,000 (the greater portion of the proceeds of the sale of its securities) to be taken from Northwest and used, by indirect process, to pay off an urgent debt of Medicor that formed the basis of the second charge that he committed the theft thereof. Before dealing separately with each of the two charges and the submissions made thereon, as I must do, I think it appro- priate to point out that, speaking generally, the position of the Crown on both was that the appellant had preconceived the plan or scheme to get the proceeds of the underwriting to Medicor and had intended that end from the very onset of, and throughout, the financing; had set up and put into effect the steps necessary to carry it out, and that he did this knowing it was wrong and unauthorized and that it was completely a fraudulent scheme. The Crown conceded that the appellant's possession of this intention before and during the making, circulating or publishing of the prospectus dated and signed November 13, 1970, was essential to its case on the prospectus charge, count (1). The Crown also relied on this intention, its planning and execution, to remove the funds to the use of Medicor to support the essential element of fraud necessary to a conviction on the theft charge, count (2), based on their dep- rivation, permanent or temporary, from Northwest. Although, of course, each charge involved its own characteristics and ele- ments that were required to be proved beyond reasonable doubt before a conviction could properly be made, I stress that the fraudulent intent, early planned, to carry through the result accomplished was basic to the Crown's case on both charges. I will now deal with each conviction and the various submis-
1974 CanLII 1543 (BC CA)
sions of error made by the appellant with respect to each. A. Count I repeat the charge: The appellant ... "between the 1st day of August, 1970 and 31st day of December, 1970, unlawfully did make, circulate or publish a Prospectus dated November, 1970, that they The] knew to be false in a material particular, with intent to induce members of the public to become shareholders in a company, to wit Northwest Sports En- terprises Ltd., ..." With the exception of one submission that the verdict of the jury was unreasonable and could not be supported by the evi- dence, which I have already mentioned and was considered to be without substance, the appellant attacked his conviction on five alleged misdirections, or non-directions amounting to misdirections, in the trial Judge's charge to the jury. After giving the usual directions to juries, including a careful instruction on the important question of how intent and knowledge are proven, the Judge proceeded to deal with the specific charge. He made it abundantly clear that the Crown had to prove each and every ingredient of the offence beyond a reasonable doubt, and properly pointed out that the offence could be committed by, and falsity consist of, the omission of a material fact as well as by a positive false state- ment. He continued as follows: The offense may be committed by the omission of a material par- ticular as well as by a positive false statement. Now, that is, of course, what the Crown alleges here. The Crown alleges that the prospectus failed to mention that a portion of the proceeds of the underwriting was to be used to pay off a prior indebtedness of Medi- cal Investment Corporation, Medicor. Now, the essence of the of- fense is an attempt to induce persons to purchase shares in the com- pany by means of a prospectus known to the accused to be false in a material particular. I should mention that the making, circulating, or publishing are not separate offenses, but are merely different modes in which the one offense may be committed. The three essential ingredients that the Crown must prove are: one, that the prospectus when made, circulated or published was false in a material particular, and of course the Crown has indicated the particular, the material particular that it relies on 'and it must prove that one and not just any falsity that the Crown relies on or alleges, is that the accused had 'already decided to use a substantial portion of the proceeds of the underwriting to pay off a prior in- debtedness of Medicor, an affiliated company of Northwest. The sec- ond ingredient is that the accused knew it was false at the time it was made, circulated or published. And, thirdly, that it was done with intent to induce members of the public to become shareholders in Northwest Sports Enterprises Limited. I repeat those three essen- tial ingredients: that the prospectus, when made, circulated or published was false in a material particular; that the accused knew
1974 CanLII 1543 (BC CA)
it was false 'at the time it was made, circulated or published; and, thirdly, that it was done with intent to induce members of the public to become 'shareholders in Northwest Sports Enterprises Limited. Unless the Crown proves all three of those ingredients beyond a rea- sonable doubt, you must acquit. If you find that the prospectus was false in a material particular to the knowledge of the accused, then you would be justified in finding that it was done with the intention of inducing the public to purchase shares in the company. The whole object of a prospectus is to induce members of the public to purchase shares. The question 'then remains, was the prospectus false in a ma- terial particular and, if so, was it false to the knowledge of the 'ac- cused? The Securities Act of British Columbia prohibits an industrial company, such as Northwest, from making a primary distribution of its shares until there has been filed with and accepted by the Securi- ties Commission, a prospectus in respect to the offering. The Act also provides that a prospectus shall contain, and I quote, "Full, true and plain disclosure of all material facts relating to the secu- rity to be traded." I repeat: "It shall contain full, true and plain disclosure of all material facts relating to the security to be traded." Regulations passed pursuant to the Securites Act state what in- formation must be provided and with respect to the use of the proceeds, this is the requirement: "State the estimated net proceeds to be derived by the issuer from the sale of the securities to be offered; the principal pur- poses for which the net proceeds are intended to be used; and the approximate amount intended to be used for each such pur- pose." The accused was required to make full, true and plan disclosure to all material facts. I suggest, it's for you to determine, 'but I suggest that you will have no difficulty in determining that an intention to use a substantial portion of the proceeds of the underwriting to pay off the prior indebtedness of an affiliated company is a material fact that must be disclosed. You will have no difficulty in determining that disclosure of such a fact is necessary to permit members of the investing public to determine whether or not they wish to purchase shares. Even if part of the proceeds of the underwriting was to be used to retire the indebtedness of Northwest, it would have to be disclosed, let alone the retirement of debt of an affiliated company. Section 152 of the Companies Act of British Columbia prohibits a company from giving, directly or indirectly, by means of a loan or otherwise, financial assistance for the purpose of or in connection with the purchase of shares made or to be made by any company. In other words, if it had been disclosed that the proceeds were to be used to pay off a loan made by Medicor to buy shares in Northwest, it would have been quickly pointed out that this was prohibited under the Companies Act of British Columbia. I repeat that al- though it is for you to determine, I cannot see how you could reasonably find otherwise than that an intention to use a substantial portion of the proceeds of the underwriting to pay off the prior hi- debtedness of an affiliated company, either directly or indirectly through the use of the Bank of South Pacific and Trust, would 'be a
1974 CanLII 1543 (BC CA)
material fact that must be disclosed in the prospectus. Now that, of course, does not determine the matter. Now, the all-important ques- tion still remaining for you, is did the accused at the time in ques- tion, have the intention of using part of the proceeds of the un- derwriting to pay off the indebtedness of Medicor to Heller and Company? I repeat the question again: did the accused, at the time in question, have the intention of using part of the proceeds of the underwriting to pay off the indebtedness of Medicor to Heller 'and Company? The accused testified that he did not at the time he signed the prospectus or at any time during the primary distribution period, intend to use the proceeds of the underwriting or any portion thereof, to pay off Medicor's debt to Heller and 'Company. If you ac- cept his evidence or- if you have .a reasonable doubt in the matter, then you must acquit him. The evidence is that the accused signed the prospectus on November 13th, 1970. There is evidence that the shares had all been purchased, subject to confirmation, by December 4th, 1970. Mr. Williston took the position that the primary distribu- tion period ended by December 4th, 1970. With respect, I disagree. The primary distribution period did not end until at least the closing date of December 8th, 1970. So, it is that period that you must con- cern yourself with, November 13th, 1970, to December 8th, 1970. In order to find the accused guilty on Count #1, you must be satisfied beyond a reasonable doubt that he 'had a fixed and firm intention — and I repeat that — a fixed and firm intention •during that period to use the proceeds of the underwriting to pay off the Medicor liability. If he had the intention earlier and then discarded it and then after the primary distribution period had expired he once again decided to use the proceeds to pay off Medicor's debt, you must, of course, acquit him. If, as he testified, he did not make the decision until after December 8th, then you must acquit 'him. If you have a reason- able doubt on either of those propositions then that doubt must be resolved in his favour. Please keep in mind that we are not here concerned about breaches of the Securities Act or breaches of the Companies Act. They are provincial statutes regulating companies in securities mat- ters and are not concerned with crime. I said, for instance, that in my view the payment of the monies from the underwriting to Medicor to 'allow it to pay off a debt acquired in order to purchase shares in Northwest was prohibited by the Companies' Act. If I am correct, it would be breach of the Companies' Act and certain non- criminal consequences could flow from it but it is not a crime and it is not what we are concerned with here. Although the learned Judge later dealt with the theories of the Crown's case and that of the defence on this charge, and gave supplementary instructions, the foregoing substantially covers the whole of his charge on the prospectus count, and is what has given rise to the five submissions of error. I will deal with those five allegations in sequence. I. The appellant said that the Judge erred in his directions as to falsity of the prospectus to the appellant's knowledge and failed to place before the jury the defence of lack of knowl-
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edge of falsity in the appellant. It was pointed out that the Judge stressed and underlined only the question of the in- tention of the appellant throughout the relevant time to have the funds flow to Medicor and that that could be found to be a material fact that should have been disclosed in the prospectus, which it was not. But that, said the appellant if I understand his submissions correctly, was only a part (although an important one) of the matter. What was not stressed or sufficiently said (if at all) was that, notwith- standing any such intention as alleged, the appellant's position was that what was said in the prospectus was in fact true and he believed it to be so. That was that the pros- pectus recited that the proceeds would be temporarily in- vested in short-term interest bearing securities, and that was exactly what was done and what the Bank of South Pacific certificate of deposit was. In other words, the appel- lant submitted his defence was two-fold, not only did he not have any such fixed and firm intention to do what was done during the relevant period (and that it only was decided upon after receipt of the money on December 8, 1970) but also that, whatever his intention whenever formed, he thought that he was making an investment for Northwest of the kind clearly disclosed and that he honestly believed that what he did was in pursuance of, and in conformity with, the information 'disclosed in the prospectus. I agree that if the learned Judge was bound to charge the jury as submitted, there might well have been error. The Judge did not, on this charge, mention the matter of the ap- pellant doing, and honestly thinking that he was entitled to do, what the prospectus disclosed would or could be done. There can be no doubt of the law that a Judge must charge a jury with, and fairly put to it, a defence which, although not raised at trial, might arise on the evidence. But he is not required so to do if there be no evidence to support such an al- ternative defence or if it be of a nature inconsistent with or negatived by the defence actually relied upon. Here the de- fence was clearly and emphatically presented on the ap- pellant's own testimony that he never had any intention to have the funds advanced to Medicor by any means or by any method of investment during the period from the signing of the prospectus to the time of the closing on December 8, 1970. To my mind that excludes any realism to an alternative defence not raised that he intended during the relevant time to make such an investment because he honestly believed he
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would be doing so in conformity with the disclosures of use of the money in the prospectus. The learned trial Judge said time and time again that if the jury found that the appellant did not have a "fixed and firm intention" before closing to use the underwriting proceeds to pay off the Medicar liability, or if it had any reasonable doubt on that score, he must be acquitted. I think it inconsistent to require the Judge to put up a defence not raised that even if he had such a "fixed and firm inten- tion" he thought that what he did was in compliance with the prospectus. Also, in my view, the foundation for the appellant's submis- sion is unsound and the suggested alternative defence would not be a defence to the charge as alleged by the Crown. No particulars of the count were requested or given and the Crown clearly presented its case, not on the basis that the paper or security given for the funds did not come within technical meaning of the words "short-term interest bearing securities", but that the falsity lay in the omission to state a fact of great materiality, i.e., that whatever the form used the funds were intended to be lent to the majority shareholder of the company to meet the urgent monetary needs of that shareholder. The theory so put up by the appellant that the form or method used was within the ambit of disclosure in the prospectus, and thought to be so by the appellant, would .be no defence to the falsity claimed, that is, the omission to disclose the predetermined use and destination of the moneys regard- less of what kind of paper or security, whether of value or no, was given to the company with respect thereto. I conclude, therefore, that the learned Judge did not misdi- rect, or omit to properly direct, the jury as submitted. II. The second submission had to do with the references made by the learned Judge to the Securities Act, 1967 and Regu- lations, B.C. Reg. 193/67, and submitted that the provi- sions thereof were wrongly used to determine "falsity" in the prospectus and the "materiality" thereof. It was urged that the standards of disclosure required under the provin- cial statute were erroneously assumed by the Judge to be those required under the Criminal Code, s. 358 (1) (a) . Specifically, the point was that the provision in the Securi- ties Act, 1967 to make "full, true and plain disclosure" was used as the test to determine whether a statement in a prospectus was false or not under the Criminal Code, whereas that provision had no bearing whatsoever to the standard or test to be applied to make a statement false so as to constitute a crime. The appellant added that the
1974 CanLII 1543 (BC CA)
prospectus set out what was or might be done with the proceeds of the financing, and what was in fact done fell into that, and so falsity in a material particular as re- quired by s. 358 (1) (a) was not shown by the Crown. As a 'corrollary to that submission, the appellant relied on the proposition that when in a criminal case reliance is placed on an allegation that a statement is false not because of mis- statement but because of omission, the omission or withhold- ing of facts must be such as to make the statement actually made absolutely false. Cited in support were: R. v. Kylsant, [1932] 101 L.J.K.B. 97, 23 Cr. App. R. 83; Peek v. Gurney (1873), L.R. 6 H.L. 377; Cox and Paton v. The Queen, [1963] 2 C.C.C. 148, [1963] S.C.R. 500, 40 C.R. 52, and R. v. Bishir- gian, [1936] 1 All E.R. 586. The appellant says that the Judge should have, but did not, instruct the jury along those lines. As to the first branch of the submission, I am unable to conclude that the jury was so wrongly charged, or was misled in any way by the charge, in the manner set out. In the first place, upon considering the charge on the prospectus count as a whole and the context therein of the ref- erences to the Securities Act, 1967, I cannot read those refer- ences as any invitation to the jury to relate the standard of truthfulness to be determined to the provincial legislation. Having properly told the jury that in order to convict it must find the prospectus false to the knowledge of the appellant in a material particular, he pointed out clearly that the offence could be committed by the omission of a material particular as well as by a positive false statement. In my view, that was right. He then elaborated on what the Crown claimed was the material particular which the prospectus failed to mention and which made it false, namely, the failure to mention that a major portion of the proceeds was to be used to pay off a prior indebtedness of Medicor which he described as an affiliate (but could have described as a "parent") company of Northwest. He then posed the vital questions — was there a falsity in a material particular and, if so, was it false to the knowledge of the appellant? It was at this stage and in relation to these questions posed that he came to the Securities Act, 1967 and a Regulation thereunder, dealing with disclosures to be made in prospectuses to be used in the Province. The prospectus, the subject of the charge, purported in its terms to be in com- pliance with the requirement of that statute and Regulations, and the signature of the appellant, inter alia, thereon certified
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to that compliance. I think it was a clear and proper way to bring to a jury's attention for their determination of an issue as to whether or not a statement in, or omission from, a pros- pectus was material, to point out the requirements upon which the impugned statements or omissions were founded, and, in effect, the statutory source of the document. I am satisfied that the references were not intended to be, and the jury would not think they were, put to it as a standard of truthfulness. They were, and would be taken to be, a proper instruction to assist in the necessary determination as to ma- teriality of what was disclosed and;/or omitted to be ,disclosèd. I think this is made quite clear when the learned. trial Judge then proceeded to point out (as he was entitled to do) that al- though the jury must determine the question, he considered that they would have no difficulty in concluding that a precon- ceived intention to use a substantial portion of the proceeds to pay off the debts of Medicor was a material fact requiring disclosure. Although I think the direction was a proper one, the question was put beyond all doubt when the Judge con- cluded his charge in this area by instructing the jury that it was not concerned with any breaches of the Securities Act, 1967 and the Companies Act which are "not concerned with crime". I have had more difficulty with the second prong of the submission, namely, that the Judge failed to direct the jury in accordance with the cases cited above to the effect that in con- sidering whether an omission of a material fact makes a state- ment in a prospectus false, they must find that the omission had the effect of making the statement made "absolutely false" (R. v. Kylsant, supra) or "fraudulent" (Cox and Paton v. The Queen, supra) or "a cheat from beginning to end" (R. v. Bishirgian et al., supra) . This submission is allied to the first alleged misdirection dealt with in No. I above and re- jected, but raises different considerations. There the appellant alleged error in not putting up a defence of lack of knowledge of falsity because of belief that what was done was done in ac- cordance with the disclosure in the prospectus. Here the submission is that the jury were not told, in effect, what con- stituted "falsity" by omission. Obviously, there would be no problem when the allegation is that a fact was misstated. But where it is claimed, as here, that an omission to disclose a ma- terial fact made what was disclosed false, it must be deter- mined whether the learned Judge should have given an expla- nation that the falsity alleged must be of such a nature to make the disclosures in the prospectus absolutely false, fraud-
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ulent or a cheat. I think the situation in the case at bar has distinguishing features that make the directions indicated in those cases cited unnecessary to the extent, at least, that their omission would constitute a misdirection. In R. v. Kylsant, supra, what was involved was a disclosure and concomitant non-disclosure of past facts. Certain historical financial results were shown but others were not. It was in that context that the Court held that the omission must have been known to be such a material particular as to make what was set out misleading to the public being induced to become members of the company and hence absolutely false. The ratio was that the omission made the disclosure false. Again, in the Supreme Court of Canada case of Cox and Paton v. The Queen, supra, the question was whether the accused knew that the prospectus was false in ma- terial particular in the disclosure, like here, of the purposes for which the proceeds were to be used. One purpose was disclosed but the evidence was that the makers of the pro- spectus never had any intention to use the proceeds for that purpose. It was on this situation that the Court held that the prospectus was false in a material statement as to use of proceeds when there never was any such intention of user, and hence the test was whether the statement actually made was fraudulent. In R. v. Bishirgian et al., supra, the case again was a non-disclosure which made "partial and fragmentary" disclosures false. In this case it was held a proper direction for the trial Judge to tell the jury that they must be satisfied that the accused knew the omission made the document a false one. I think the learned Judge here might well have told the jury in so many words (which he did not do) that in order to con- vict it should find the appellant not only knew that the prospectus omitted to disclose a proposed use which would be material to persons being induced to become shareholders, but that if not so disclosed the prospectus would be false. But I have concluded, after anxious consideration, that under the particular circumstances here and the instructions actually given, any failure to so direct did not amount to misdirection. What was forcibly put to the jury on several occasions was that unless the appellant was found to have had a fixed and firm intention to use the proceeds of the financing for the use of Medicor at the time this prospectus was signed and thereaf- ter to the closing on December 8, 1970, knowing that to be a material matter that must be disclosed in the prospectus, he must be acquitted. To my mind that direction was favourable
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to the appellant and adequately covered the question of knowl- edge of falsity. This case was tried, not on the basis of the fal- sity of what was disclosed, but as one where it was obvious that if such a fixed and firm intention throughout existed in the mind of the appellant, it was clearly of such a nature, ex- tent and magnitude as to make the prospectus false as charged. What was essential to go in was left out, obviously with the full knowledge of the person who allegedly formed and intended the undisclosed scheme and, if the jurors conc- luded that the appellant had that scheme, I cannot conceive that any direction as suggested would have raised any doubt in their minds. I must, therefore, reject the appellant's second submission. III. and IV. The third and fourth grounds asserted are essen- tially amplifications or variation's of those set out and al- ready considered in No. II above. They were that the learned Judge erred in (a) not instructing the jury in ac- cordance with Cox and Paton v. The Queen, supra, and (b) not pointing out to the jury the requirement of fraudu- lent intention as an essential ingredient of the charge. I think both points have been covered in my views expressed in No. II and need not be repeated. I only add that with respect to (a) that the test in the Cox and Paton case, being whether or not the conduct of the ac- cused was "fraudulent", was made in the context of the ar- gument which was rejected in that case, that "false in a mate- rial particular" amounted to a "false pretence". Clearly, all that was meant was that when a person making a prospectus never had any intention to carry out that what he said he would do, that was fraudulent conduct resulting in the non- disclosure of the true intent making the prospectus "false in a material particular". The fact that the appellant here had (as he said he had, and as the learned Judge reminded the jury) other intentions in due course to use the proceeds for other ventures adequately disclosed in the prospectus, can in no way modify what the jury was told, i.e., if the appellant from the inception was found to have had a firm and fixed intention to use the proceeds as he in fact did, that would be making the prospectus false in a material particular to the knowledge of the appellant. The word "fraud" was not used, but I see no necessity for it to have been used. As to (b), the appellant relied on R. v. Harcourt (1929), 52 C.C.C. 342, [1930] 1 D.L.R. 736, 64 O.L.R. 566, a decision of the Ontario Court of Appeal, and on R. v. Davidson (1971) , 3
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C.C.C. (2d) 509, [1971] 4 W.W.R. 731, a majority decision of this Court. In both cases it was held that an "intent to defraud" is an essential element of a charge under Criminal Code, s. 358. The gravamen of the complaint is that nowhere was the jury directed that, even if the appellant had the "firm and fixed intention" as to the destination of the funds, they must determine whether or not he entertained an honest belief that what was in the prospectus was sufficient and hence he had no dishonest or fraudulent intent. As already indicated this was not included in the charge, and the question is would the omission amount to misdirection under the particular facts of the case. Again, I must conclude that there was no need for the jury to have been instructed as submitted. At the risk of being repetitive, I again say that the trial Judge put the essentials of the crime to the jury. He told them that before convicting they had to find beyond reasonable doubt falsity in a material particular, the knowledge in the appellant of such falsity and that what was done was with intent to induce members of the public to become shareholders. He dealt with each properly and then, on the vital questions of whether the falsity was in a material particular and the appellant's knowl- edge of such falsity, he succinctly told the jury that if they found that the appellant had himself formed and maintained the fixed and firm intention to use the funds as he later did, that could be found to be a material fact that must be, and was not, disclosed making the statement false, and that upon so finding they would be justified in finding that the appellant's intent was to induce the public etc. I think it implicit in the charge, and would be so accepted, that if the appellant himself formed and kept the intention to use the funds for Medicor knowing that that use was not disclosed and he knew it to be material matter to induce the public to buy shares, he would have had a fraudulent intent. It could not be otherwise. I would reject the appellant's third and fourth submissions with respect to deficiencies in the charge to the jury. V. The last attack on the charge was that the Judge failed to instruct the jury that an honest mistake of fact or law, or of mixed fact and law, on the appellant's obligation of disclosure would negative guilty knowledge and fraudulent intention. As I understand the argument, the appellant said that one of his defences was that there was no falsity in the prospectus to his knowledge, and that it was true. It follows, then, that if there was a falsity found he, the ap- pellant, was mistaken in fact or in law, and so the jury
1974 CanLII 1543 (BC CA)
should have been told about its consequences and effect of negativing guilty knowledge or fraud. In my opinion, the argument is based on a completely false premise. As indicated earlier in these reasons, the only defence asserted was that at no time did the appellant have any inten- tion to use the funds as he in fact did until after the closing. The Crown conceded, and the jury was told, that if that were so the appellant was entitled to be acquitted as after the clos- ing there was no obligation to disclose anything further in the prospectus. It was in that context that the appellant said he thought the prospectus was completely true during the rele- vant period, because during that period he had no intention to use the proceeds in any other way than was plainly disclosed. Once the key questions were put to the jury as to (i) whether the firm and fixed intention in question was a material fact the omission of which would make the prospectus false to the knowledge of the appellant, and (ii) whether the appellant had that intention without which he must be acquitted, I can see no necessity for a direction on mistake, whether of fact or of law. Such could only have relevance to a defence which not only was not raised, but really denied, that the appellant did intend throughout the whole period to pass the funds to Medicor but both not knowing a falsity was involved and thinking that he was entitled so to do. In my view, a direction as suggested was not necessary or indicated and its omission did not constitute misdirection. In result, I find that I must reject all the appellant's submissions of error regarding count 1 with respect to the prospectus, and, therefore, I would dismiss his appeal against his conviction on that charge. B. COUNT 2 The second charge upon which the appellant was convicted and which conviction- he has appealed reads as follows: ... that he, the said Thomas Scallen, at the City of Vancouver, Prov- ince of British Columbia, on or about the 15th day of December 1970, unlawfully did commit theft of approximately three million dollars ($3,000,000.00) the property of Northwest Sports Enterprises Ltd., contrary to... The charge was laid under Criminal Code, s. 294, and it was common ground that the relevant definition of theft applica- ble was that set out in s. 283 (1) (a) reading as follows: 283(1) Every one commits theft who fraudulently and without colour of right takes, or fraudulently and without colour of right converts to his use or to the use of another person, anything whether animate or inanimate, with intent,
1974 CanLII 1543 (BC CA)
(a) to deprive, temporarily or absolutely, the owner of it or a person who has a special property or interest in it, of the thing or of his property or interest in it, The Crown's case against the appellant was that when on December 15, 1970, the appellant instructed and caused the 51/2 % term deposit of $3,000,000 (held by Northwest and in which that amount of the proceeds of the underwriting re- ceived on December 8, 1970, had been placed in the Royal Bank of Canada), to be called and the $3,000,000 proceeds to be despatched in United States funds to the Bank of America to the credit of the Bank of South Pacific and the next day despatched and paid to the credit of Heller in Chicago in ex- tinguishment of Medicor's debt due that day, he had commit- ted theft of those proceeds by converting same to the use of Medicor intending to deprive Northwest temporarily of those funds and that such conversion was fraudulent and done without colour of right. It is obvious that, unlike the prospectus charge, the intent of the appellant on the date charged, i.e., December 15, 1970, was the material time and his intent prior to the closing and receipt of the underwriting proceeds, or even afterwards up to December 15, 1970, was only material to the extent it had bearing on his intent at the time the theft was so alleged to have taken place. The appellant submitted seven grounds of appeal. Three of these, if accepted, would involve acquittal. The other four related to alleged errors of misdirection, or of non-direction amounting to misdirection, in the trial Judge's charge to the jury and which the appellant alleged entitled him to a new trial. I propose to deal first with the grounds of appeal which if valid would require an acquittal to be directed. I have already mentioned that one of the appellant's submissions, namely, that any theft that took place as charged did not take place in Canada, was in effect dealt with at the hearing and the Crown was not called upon to reply to it. There is no need to deal with it further in these reasons, as it is quite apparent that if any theft by conversion took place it was completed on December 15, 1970, entirely in Canada, and the transfer of the funds to the United States was just the mechanics of carrying out the purpose for which the conversion and deprivation had been perpetrated. The other two grounds of appeal not involving the charge to the jury are separate and distinct but can be dealt with conve-
1974 CanLII 1543 (BC CA)
niently together. They are: (a) that there was no evidence that the appellant committed theft of $3,000,000, and (b) if he did, there was no evidence that it was the property of Northwest. As to (a) the appellant's simple point was that no $3,000,000 or any amount of money was involved in the alleged theft by conversion, as that what was alleged to have been converted was not money, but, on the contrary, was merely a chose in action or credit in the Royal Bank of Canada. Northwest received a certified cheque on December 8, 1970, which was deposited to its credit in the company's bank ac- count. Then that bank credit was changed to a special term credit, then back again to an ordinary credit of the bank in favour of the company. This was followed, said the appellant, by that credit or debt from the bank being merely transferred on December 15, 1970, as a credit to the Bank of America for the account of the Bank of South Pacific. In other words, it was argued that there never were any dollars or money of any kind in existence of which the company was deprived tempo- rarily or permanently. Any money involved was possessed and owned by the bank, and the only entitlement of Northwest was to the debt of the bank as evidenced by the credit in its account, and the right, never exercised, of drawing money from the bank thereon. Such a credit being merely a chose in action was not, argued the appellant, capable of being stolen. Northwest may have beendefrauded of its bank credit and lost it, but the appellant was not charged with that offence. He was charged with the theft of $3,000,000 belonging to Northwest, and Northwest did not at the relevant time have $3,000,000 capa- ble of being stolen. In support of this most interesting submission, the ap- pellant relied on the historical background that larceny could only involve the taking of movable corporeal goods, and that there could not be theft of incorporeals such as choses in ac- tion, ideas, credits and other like intangibles. The submission went that although the defnition of theft in the Criminal Code is now broader that what was encompassed in the old lar- cenies, it is yet confined to that which is a "thing", whether animate or inanimate, and does not go so far as to include in- tangibles that were never from the earliest times considered capable of being stolen. In support of this thesis, it was argued that the addition of the words "animate or inanimate" in the Criminal Code in 1955, but without inclusion of the words "tangible or intangible", gives strength to the view that
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the development of the law of theft in Canada has not been ex- tended so far that a debt or a credit is something that is capa- ble of being stolen. Reliance was placed on the decision of the Supreme Court of Canada in Smith et al. v. The Queen (1961), 131 C.C.C. 403, [1962] S.C.R. 215, 36 C.R. 384, the decision of the English Court of Criminal Appeal in R. v. Dav- enport (1954) , 38 Cr. App. R. 37, and the unreported County Court decision of R. v. Stevens et al. (June 4, 1973) [since reported 14 C.C.C. (2d) 153]. Although I agree that historically the offence of larceny was so confined as submitted by the appellant, I recognize the danger in applying old English common law principles and distinctions which in that country through evolution and stat- ute have often developed quite differently from their course in Canada. The old larceny laws covered only things "capable of being stolen" but over the years (although the words still remain) what fell within those words has been gradually ex- tended, both by statute and judicial decision, to meet develop- ing needs and today in England do cover debts and other choses in action. In Canada, when the first Criminal Code was drafted, an effort was made to get away from the English re- finements of larceny, both grand and petty, stealing, em- bezzlement and conversion, and to that end our offence of theft was introduced and defined. Until the new Criminal Code was introduced in 1955, 1953-54 (Can.), c. 51, the words "capable of being stolen" were retained in the definition of theft but in the 1955 Criminal Code those words were removed and that situation exists today. Now the definition reads so that theft can be committed of "anything whether animate or inanimate" rather than as before 1955, and as still in Eng- land, as "anything capable of being stolen". In my view, it would be wrong to interpret "anything" as now used in the Criminal Code in the same manner as the old "anything capa- ble of being stolen", and thereupon attributing to "anything", and limiting it by, the early law as to those types of things which had been held were capable of being stolen. That such limitation and restrictions formerly existed in Canada is in- dicated by the old s. 344 [R.S.C. 1927, c. 36] which defined when inanimate things became capable of being stolen. This has not been carried forward into our modern definition of theft. Nor, do I think, as submitted by the appellant, that s. 283(2), providing that theft is committed when with intent to steal anything, it is moved or caused to move or be moved, should be read as a limiting provision ruling the generality of "anything" as contained in the definition of theft in s. 283 (1) .
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It is, in my view, merely a provision that is provided to have application in certain situations. The word "anything", now standing alone and without the early limiting words, is an ordinary word in everyday use, and I can see no reason why its meaning should be limited by ar- chaic restrictions long since inappropriate to modern life. In the Shorter Oxford English Dictionary, vol. VI, p. 79, the primary meaning of the word, as one word, is shown as a com- bination of the two words "any" and "thing" in the widest sense of the latter; and it is stated that the word was origi- nally used always as two words but now rarely, except when stress is upon "thing". I see no reason to construe "any- thing" in s. 283 (1) with stress on "thing", and I think the word should be construed in its broad sense and to mean exactly what it says, that theft can be committed of "anything" that was property. That would include a bank credit in a bank ac- count —, which any normal person having one would describe by saying that "he had money in the bank". I think it would be difficult to convince him otherwise, even if in strict domestic law all he had was the right to draw money from the bank in cash, by banknotes, by cheque or by transfers elsewhere. Although the case did not involve theft but an entirely dif- ferent type of crime, in R. v. Bird, [1970] 3 C.C.C. 340, 9 C.R.N.S. 1, 71 W.W.R. 256, this Court interpreted "anything" to have such wide unrestricted meaning and application as to include in the phrase "extort or gain anything" sexual inter- course. I think that today when, I would reckon, most day-to- day business and personal transactions and dealings are carried out by use of bank accounts and the drawings thereon, and depositing therein cheques and orders, it would be verging on the ridiculous to hold that a credit or deposit in a banking institution falls outside the word "anything" and is thereby exempted in Canada from being stolen. The appellant was not charged with stealing cash or money, but only "three million dollars", and in my view, dollars are merely units of exchange. The company had $3,000,000 stand- ing to its credit in the Royal Bank ofCanada, and by instruc- tions to the bank on December 15, 1970 (ex. 45), the appellant admittedly caused the bank to "transfer by wire $3,000,000 U.S. Funds" out of the company 'deposit account to the Bank of America in San Francisco, from whence the funds con- tinued their journey to extinguish the debt of Medicor to Heller the next day. I see no substance in the argument that Northwest was not deprived, immediately on the despatch as instructed, of the $3,000,000 to which it was entitled one sec-
1974 CanLII 1543 (BC CA)
ond before the transfer and was no longer entitled one second after the transfer. I do not consider that the cases referred to above' by the ap- pellant to be of any assistance to him in the submission which he has presented. I am, therefore, satisfied that the allegation that there was no evidence of theft because no actual money but only a bank credit was involved is unsound and must be rejected. As to (b) the allied submission that there was no evidence that if the $3,000,000 was stolen it was the property of Northwest, the appellant relied on the proposition laid down in many authorities that once money is 'deposited in a bank, it becomes the property of the bank and the depositor has no jus in, re in the money, the bank only having the obligation to repay the depositor owing to contract, 'and that entitlement to be repaid is the only right of the depositor. On this basis, the appellant said Northwest could have no property right in the money standing to its account in the bank, and that it was the money that was stolen. In my view, as stated above, it was the $3,000,000 credit of Northwest from which it was deprived. The bank owned noth- ing that was taken from it, which would have been the situ- ation had the bank been 'deprived of its money. The bank lost nothing. What was done was that Northwest was deprived of its property which was that $3,000,000 which it had had to its credit. In any event, if Northwest was not strictly the "owner" of the $3,000,000 it was plainly "a person who has a special property or interest in it" within the meaning of Crim- inal Code, s. 283(1) (a). I must reject the submission. I come now to the four submissions that the learned trial Judge erred by misdirection, positive or by omission, in his charge to the jury with respect to the theft charge. I will deal with them in the order in which they were presented to the Court. 1. The first allegation was that the Judge erred in several particulars with respect to his 'directions on the authority of the appellant to invest the money of Northwest. The ap- pellant submitted that the question of whether, on De- cember 15, 1970, the appellant had express or implied au- thority to invest the proceeds of the financing as he saw fit or in short-term interest bearing securities was vital to the defence and should have been left with the jury prop-
1974 CanLII 1543 (BC CA)
erly. The first complaint was that the Judge's reference to the fact that there was nothing in the articles or minutes of Northwest to indicate any "extraordinary power having been given" to the appellant, was highly prejudicial and incomplete because it would lead the jury to think there must be an "extraordinary" authority to be found some- where before it could find he had any authority to act as he did and as he said he was entitled and authorized to act. Thus, in effect, the result was that burden was shifted to the appellant to show that he had authority. The further point was made that the reference to there being no such "extraordinary power" in the minutes was erroneous as they did record other transactions which had taken place without prior consultation with the other directors. Consideration of the foregoing involves placing the ques- tioned instructions in their proper context. The Judge, having with meticulous care explained the ingredients of the theft charge that must be proved beyond reasonable doubt before a conviction could be reached, then pointed out that in this case "fraudulently and without colour of right" were of extreme importance and the crux of the case. He pointed out there was not much doubt as to what was actually done, but the question was of the state of mind of the appellant when it was done. He explained what "fraudulently" meant and what "without colour of right" meant. Then, after 'a reference to the matter of conversion, he went back and again stated that the state of mind of the appellant was the question and that the Crown had to establish beyond a reasonable doubt that what the ap- pellant did was "done fraudulently and without colour of right; that it was a fraudulent scheme conceived and carried out by the accused to use the money of Northwest to pay off the indebtedness of Medicor". It was then stated that the Crown's position was that the appellant had no authority, and knew he had no authority, to deal with the money as he did. He then explained in clear, unambiguous language that the ap- pellant said he acted honestly and not fraudulently, that ev- erything was open and above board, that he had authority to do what he "did or at "the very least he honestly believed he had the authority or the right to do what he did". The jury was then told if they found that so, or had a reasonable doubt, they must acquit. The Judge then embarked upon a discussion of the duties and rights of directors, and gave a summary of how compa- nies operated with their directors, pointing out, in particular, that often decisions are made by officers without prior ap-
1974 CanLII 1543 (BC CA)
proval and in anticipation of later board ratification. The jury's attention was drawn to the fact that there was evidence that in other companies in which the appellant was involved he had wide ranging power which would tend to be later ratified. It is here that mention was made that no "extraordinary power" was shown in the articles or minutes of Northwest to have been given the appellant. This was immediately followed by a statement that the appellant readily admitted that he had not procured directors' approval; that he never thought of it; that he thought he was empowered to invest as he saw fit; that this was made clear to the directors when he moved into the Northwest picture, and that he had implied authority to invest the funds as and when he saw fit. Then, after referring to the testimony of other directors on this point, he continued : If you accept the evidence of the accused that he had the implied au- thority of the directors to invest the monies as he saw it, or honestly believed that he had such authority, •then you must acquit. If you have a reasonable doubt on the question then you must acquit. It may be that you will find that although he did not have authority express or implied to invest the monies as he saw fit, that he did have authority, express or implied, to invest the proceeds in short term interest-bearing debentures or securities. If you so find then the question would be: did he honestly believe that what he did was invest in short term interest-bearing securities, as that term is known and understood in the commercial world. If you so find or if you have a reasonable doubt on the question, you must acquit. I am going to attempt to put the issue on count #2 in capsule form for you. It is clear from the evidence that the money in ques- tion was applied to the use of Medicor; that Northwest was tempo- rarily deprived of that money; and, that it was all done on the in- structions of the accused. If you are satisfied beyond a reasonable doubt that this was a fraudulent scheme conceived in and carried out by the accused, then you would be justified in finding him guilty. If you do not accept that it was a fraudulent scheme or if you had 'a reasonable doubt on the question, you must, I repeat, you must acquit him. In that context I can see no substance in the submission that the issue of authority in the appellant was inaccurately or in- sufficiently charged. The impugned word "extraordinary" in its context was appropriate and, I think, properly used. I can see no prejudice or shifting of onus being raised, or any unique search be the jury being raised by use of the word. Again with respect to the same portion of the charge, including that quoted above, the appellant suggested that included therein should have been references to various facts adduced to support the appellant's belief that he had authority to invest as he did, including references to the prospectus as
1974 CanLII 1543 (BC CA)
giving authority to the president and treasurer to invest in certain securities. These matters were, in the main, directed to the jury's attention later in the charge when the Judge was explaining and outlining the theory of the appellant's defence to the theft charge. As to any suggested authority to the ap- pellant being derived from the prospectus itself, I can find none therein. The appellant concluded his argument on the submission with an attack on the first sentence of the part above quoted, submitting that the way it was worded the jury would think they had to believe the appellant about his claim to express or implied authority before an acquittal was obligatory. I am quite unable to accept that the jury would so think, or that what was said was misleading or incorrect. I think the pas- sage was favourable to the appellant. I reject the appellant's complaints against the charge to the jury on the question of authority in the appellant to do, or invest, as he did. 2. 'The next submission was that the Judge erred in his in- structions by referring to "short term interest-bearing securities" (in which the appellant claimed he was entitled to, and did, invest by procuring the deposit certificate of the Bank of South Pacific) by adding the words "as that term is known and understood in the commercial world". It was said that the definition was too limited and should have been broader. The passage appears in the last two. sentences in the first paragraph of the passage quoted in No. 1 above. I see nothing wrong in the description used; "short term in- terest-bearing securities" were what the prospectus, signed by all directors, envisaged as being possibly acquired temporarily out of the proceeds of the underwriting. That was a commer- cial document and the term could not be considered in any other light than as a form of security known in the commer- cial world. There was evidence as to the meaning of the term. The learned trial Judge referred to this evidence and also to that of the accused that he was of the opinion that the invest- ment of the $3,000,000 was in a short term interest-bearing se- curity. It was made plain to the jury that what a "short term interest-bearing security" was, was for its decision as was the question of whether or not the appellant honestly believed he was investing in one. I see no need for the Judge to have gone further into the matter than he did. I find no prejudicial omis- sion as submitted.
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3. The third submission was directed to alleged misdirection with respect to the defence of "mens rea" particularly with the "intent to deprive" Northwest of its property temporarily, and on the question of "conversion", both necessary ingredients of theft under Criminal Code, s. 283(1) (a). Without in any way derogating from the lengthy and able argument of appellant's counsel, if I understand it correctly, it can be compendiously stated to be that although the necessary ingredients of theft under s. 283 (1) (a) require that the con- duct (i) be fraudulent and without colour of right, and (ii) be done "with intent to deprive" the owner of his property tem- porarily or absolutely, in his lengthy charge to the jury the learned Judge (except for reading that essential when quoting the section) never mentioned the question of the existence or no of such intent, and so the issue of whether or not the ap- pellant had such an intent to deprive was never raised. The Judge did on several occasions refer to the question of whether or not Northwest was in fact deprived of the money, and this was put to it as an issue which it had to determine. But, said counsel, important as the fact of deprivation was, the intent to so deprive was what had to be found in the ap- pellant before he could be convicted of theft. On the premises outlined, I think the ground of appeal had substance and one which, standing by itself, I would be obliged to consider a serious non-direction amounting to mis- direction. This is so because it was conceivable, for example, that the appellant did not intend to deprive Northwest tempo- rarily of the funds, but only to invest them, but that depriva- tion in fact resulted. They are two different things. But con- sideration must be given to what was said in other contexts that could have the effect of minimizing any error to where it could not beconsidered a misdirection, or alternatively, be properly treated as an omission to which the saving provisions of Criminal Code, s. 613 (1) (b) (iii) , should be applied. After anxious consideration, I have concluded that the an- swer lies in a combination of several instructions wherein in- tention and state of mind were fully dealt with. The usual di- rection with reference to intent generally, and knowledge, and how same could be proven were carefully outlined during the charge proper, and again in detail when the jury returned and asked to be recharged on certain matters. Further, in charg- ing on the theory of the defence, the Judge pointed out that the defence was that everything the appellant did, and in-
1974 CanLII 1543 (BC CA)
structed to be done, was done without a guilty mind, that he honestly believed he was authorized and entitled so to do and without fraudulent intent, and further, that the transfer of the funds claimed to constitute 'deprivation was no more than was required of him, namely, to invest in short-term securi- ties. Then, of course, the most important feature which was stressed time and again was that unless the jury were satis- fied beyond a reasonable doubt that everything the appellant did was a fraudulent scheme conceived and carried out by him to use the moneys of Northwest to pay off the obligations of Medicor, he must be acquitted. This was the last thing said to the jury and immediately followed the following : You will have to determine whether Northwest was deprived, either absolutely or temporarily, of those funds. If they were not of course he must be acquitted, but if you find that Northwest was deprived ab- solutely or temporarily of those funds and if you find it was all done on the instructions of the accused — and I would think you would have no question about that. He admits that everything that was done was done on his instructions, and I said I would try and put it in capsule form. In result, I cannot think that, in the light of the obvious that the appellant was the one who admittedly caused every- thing to be done without suggestion that he did not intend the natural and probable consequences, and effect, of all he so caused to be done, combined with the repeated instruction that unless the whole thing was found to be a fraudulent scheme devised by him to get the funds to the use of Medicor he must be acquitted, the failure to specifically put the issue of "intent to deprive" had any importance 'or raised any prejudice. Hence, in my view, the omission was one of such minor signifi- cance as not to amount to a misdirection in the circumstances. But even if it was misdirection, I am satisfied that the in- clusion of the omitted issue could not have changed the jury's verdict. No substantial wrong or miscarriage of justice occur- red by the omission and I would apply the saving provisions of Criminal Code, s. 613 (1) (b) (iii) . I would, therefore, not accede to the appellant's submis- sions. 4. The last submission was that the charge was defective because of misdirection on the definition of "without colour of right" as used in Criminal 'Code, s. 283 (1) . During the course of his charge to the jury on the theft count, the trial Judge carefully broke down the various com- ponents making up the offence and explained each one in
1974 CanLII 1543 (BC CA)
order. After defining and explaining "fraudulently" he came to "colour of right" and said : Colour of right means an honest belief held by a person in a state of facts which if it existed would furnish a legal justification or excuse for the act complained of.
A 'short time later these words were added :
There is another matter I wish to make very clear at this point. I said that the colour of right means an honest belief held by a person in a state of facts which, if it existed, would furnish a legal jus- tification or excuse for the acts complained of. Now, the question is not whether his belief is reasonable. The question is whether his belief is an honest one. Someone may honestly believe in 'a state of facts while others may say that it was not reasonable for him to hold such a belief. Whether it was reasonable or not is not the ques- tion. It is whether he honestly believed. Now, the reasonableness of the belief is of course relevant in a determination of whether or not the belief was an honest one. Both those directions were repeated almost verbatim on a recharge to the jury at its request. Mention was made before the commencement of the charge, in the absence of the jury, as to whether the Judge should include in his charge not only the necessity of an honest belief in a state of facts, which if true, would furnish justification but an honest belief in a state of law or legal right which would have the same result. The Judge determined not to add the element of mistake of law, and at the conclusion of his charge, when the question was raised again, refused to redirect by adding that element. _ The appellant takes the position that the Judge erred in so deciding and that this element of mistake of law as well as fact is, or should be, included in the definition of "colour of right". In an interesting and able argument, appellant's coun- sel developed the proposition that in England and other Com- monwealth countries where systems are based on common law, there is no question but that an honest mistake of law as well as of fact can constitute a colour of right, and that it is only in Canada that there is confusion, and that it is apparent that there are differences of 'opinion on the matter in the appellate Courts of the Provinces. It was pointed out that the common law rule wherein an honest mistake in law or of a legal right constitutes a claim or colour of right, is an old one in England and should have been accepted in Canada pursuant to Crimi- nal Code, 's.7(3). Admitting that that result has not been universally accepted in Canada, a careful analysis of the various pertinent decisions was presented. It was stressed that the Ontario Court of Appeal, as appears from a long line
1974 CanLII 1543 (BC CA)
of cases, including R. v. Howson, [1966] 3 C.C.C. 348, 55 D.L.R. (2d) 582, [1966] 2 O.R. 63, had adopted the English view, whereas others, such as the Supreme' Court of Nova Sco- tia, Appeal Division which in R. v. Pace, [1965] 3 C'.C:C. 55, 48 D.L.R. (2d) 532, 50 M.P.R. 301, purported to follow the ratio of the majority of the Supreme Court of Canada in R. v. Shymkowie'h (1954), 110 'C.C.C. 97, [1954] S.C.R. 606, 19 C.R. 401, have held that the proper definition of "colour of right" is that as outlined by the learned trial Judge in the case at bar and as above quoted. Most persuasively appellant's counsel submitted that the Shymkowich case did not decide that what it has been said to do, and that the confusion has mainly arisen by the failure to separate the principle of the maxim ignorantia facit excusat; ignorantia juris non excusat (which has been enacted in Criminal Code, s. 19, as "igno- rance of the law by a person who commits an offence is not an excuse for committing that offence") from the matter of igno- rance or mistake of private law or of legal right not going to the law of the crime itself ,but only to the matter of colour of right as a vital element in the crime of theft. Ignorance of the criminal law, he stated, was no excuse for committing that crime, but an honest mistake as to a fact or a legal right in civil law which if true, would have negatived theft, is not an excuse for theft, but something that the Crown must prove in order to establish the crime of theft itself. As interesting and important as is the problem raised, I find that it is quite unnecessary for me to endeavour to deter- mine it. I am, satisfied that in this particular case it was quite irrelevant as to whether or not the 'learned. Judge included the words "or of law" in his definition. I can find no question of law existing or raised with respect to which an honest mistake was claimed. The honest mistakes upon which the appellant relied, if they were mistakes, were clearly ones of fact prop- erly put to the jury for its determination. If any point of law could be recognized as lurking in the background, it was cer- tainly merged in the question of fact, and I have no doubt that the jury (even if it recognized any such point as one of law) would so consider. It is necessary to look to other portions of the Judge's charge to highlight my conclusion. Immediately after the first time the Judge defined "colour of right" when listing the nec- essary elements of the crime of theft, he said : So, the question remains as to the state of mind of the accused. We know what happened to the money step by step. But before you are
1974 CanLII 1543 (BC CA)
entitled to convict the Crown must establish beyond 'a reasonable doubt that what was done was done fraudulently and without colour of right; that it was a fraudulent scheme conceived and carried out by the accused to use the money of Northwest to pay off the indebt- edness of Medicor to Heller. The Crown says that the accused had no authority to deal with the money as he did and knew he had no authority. The Crown says he had no right to deal with the money as he did and knew he had no right to deal with it as he did. Yet notwithstanding this, he deliber- ately directed the movement of the money to pay off the debt of Medicor, a company in which he was vitally concerned. If, Mr. Foreman and members of the jury, the Crown has established that to you beyond a reasonable doubt, then you would be justified in finding the accused guilty on count #2. The defense says the ac- cused acted honestly and not fraudulently in the transaction; that everything was open and above-board; that he had the authority to do what he did or at the very 'least he honestly believed he 'had the authority or the right to do what 'he did. Mr. Foreman and members of the jury, if you find that that was the case or if you have a rea- sonable doubt on the question, then you must, I repeat, must acquit the accused. Again, after the second time in which he dealt with "colour of right" as above, and after discussing the rights and duties of directors and officers and the practical, and sometimes loose ways in which companies are often operated, he added : If you accept the evidence of the 'accused that he had the implied au- thority of the directors to invest the monies as he saw it, or honestly believed that he had such authority, then you must acquit. If you have a reasonable doubt on the question then you must acquit. It may be that you will find that although he did not have authority express or implied to invest the monies as he saw fit, that he did have authority, either express or implied, to invest the proceeds in short term interest-bearing debentures or securities. If you so find then the question would be: did he honestly believe that what he did was invest in short term interest-bearing securities, as that term is known and understood in the commercial world. If you so find or if you 'have a reasonable doubt on the question, you must acquit. During his careful 'analysis of the theory of the defence, the following clear outline of the appellant's position was given : Counsel says this indicates this accused, with the tacit approval of the directors, pretty well had a free hand to do what he felt was proper. Defense says on those facts it is quite reasonable that the accused assumed and honestly believed that he had full authority, full right when it came to financial matters. Defense said it may not have been what a conservative or prudent man would have done, it may not have been what Mr. Connor might think should be done, but the defense says it was done honestly and without fraudulent intent. Defense says he believed he was doing no more than what he was required to do, invest in short term securities, get the best return for the company. Defense says unorthodox yes, but dishonest, no. In view of the foregoing it is plain that any mistake the ap-
1974 CanLII 1543 (BC CA)
pellant could rely on to indicate a colour of right would be as to what authority he had, express or implied, from Northwest and whether or not he thought he was investing in an interest bearing short-term security, and these were questions of fact put to the jury. And even on those questions the jury were told they must acquit if he honestly believed as he said he did. Hence, in my view, the fine question of whether a point of law was or was not somewhere involved, and, if so, whether the jury should have been directed as submitted, were quite imma- terial in the light of the defence and the instructions given that any honest belief held by the appellant as to his right, en- titlement or obligation to do what he did called for an acquit- tal. In addition, I can see no room for possibility of confusion or lack of understanding on the part of the jury in the face of that definite instruction. I must, therefore, reject the appellant's submission that even if the definition given was erroneous in law (but which I do not decide) it amounted to misdirection. It follows that, in my opinion, the appellant's attacks on his conviction on count 2 of theft of $3,000,000 must fail. In view of my conclusions outlined above, in my opinion the appeal from both convictions must be dismissed. MCFARLANE, J.A. :—I agree with my brothers Maclean and Bull that this appeal must be dismissed and subject to the fol- lowing comments, I agree with the reasons which they have given. The theme of the argument for the appellant was that the trial Judge, McKay, J., in his charge to the jury, over- simplified a complex case and consequently failed to instruct the jury adequately about ingredients of the offences which must be proved by the Crown in order to justify the convic- tions. In my opinion, the trial Judge succeeded admirably in simplifying and clarifying the issues and he did so without omitting proper and adequate direction as to all of the essen- tial ingredients of both offences. I am satisfied upon a careful examination of the charge as a whole that the jury was in- structed clearly and adequately as to what were the issues of fact upon which their findings were required and the law relating to those issues. For example, with reference to count one, the false pro- spectus charge, the jury was told clearly that the 'Crown must prove the making, circulating or publishing of a prospectus by the accused ; that the prospectus contained a statement which was false in a material particular and that the accused knew
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that the statement was so false. Further, the jury was in- structed clearly that in order to convict, the Crown must prove that the prospectus was made, circulated or published with intent to induce persons to become shareholders in a com- pany. While the questions were left clearly for the jury's de- termination there was in the case no real issue as to the mak- ing, circulating or publishing of the prospectus or that the alleged false statement was a material particular or that the intent involved was that of inducing persons to become share- holders in the company. The real issues were whether the statement was false and whether the accused knew that it was false. The trial Judge emphasized to the jury a consideration summed up in the following extract : In order to find the accused guilty on Count #i you must be satisfied beyond 'a reasonable doubt that he had a fixed and firm in- tention — and I repeat that — a fixed and firm intention during that period to use the proceeds of the underwriting to pay off the Medicor liability. It is implicit in the jury's verdict that they found that the ap- pellant had that fixed and firm intention. It follows inexora- bly that the statement in the prospectus was false and it equally follows that it was false to the knowledge of the ap- pellant. This is so because the falsity of the statement arises from the state of mind of the appellant which has been found by the jury. With respect to count 2, theft, the jury was told carefully what were all the essential ingredients of the offence as described in Criminal Code, s. 283. All of the essential issues for determination by the jury are, I think, summed up ade- quately in the following statement by the trial Judge which was made on more than one occasion : If you are satisfied beyond a reasonable doubt that this was a fraudulent scheme conceived and carried out by the Accused to use the monies of Northwest to pay off the obligation of Medicor, then you would be justified in finding him guilty. If you do not accept that it was a fraudulent scheme or if you have a reasonable doubt on the question you must acquit. Because of this view of the effect of the charge as a whole I do not discuss seriatim the several grounds of objection so ably presented by Mr. McEachern. COUNT 1 I am quite unable to say that the verdict of the jury is un- reasonable or cannot be supported by the evidence. It was submitted that the trial Judge erred in failing to in- struct the jury on the requirement of fraudulent intention as
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an essential ingredient of the offence. In my opinion "intent to defraud" is not an essential ingredient of the offence de- scribed in s. 358 (1) (a) of the Criminal Code. I examine the question first by an interpretation of the sec- tion itself. It reads : 358(1) Every one who makes, circulates or publishes a pro- spectus, statement or account, whether written or oral, that he knows is false in a material particular, with intent (a) to induce persons, whether ascertained or not, to become shareholders or partners in a company, (b) to deceive or defraud the members, shareholders or credi- tors, whether ascertained or not, of a company, (c) to induce any person to entrust or advance anything to a company, or (d) to enter into any security for the benefit-of 'a company, is guilty of an indictable offence and is liable to imprisonment for ten years. The charge in this case was laid under s-s. (1) (a) in re- spect of which the intent prescribed by Parliament is : "with intent to induce persons, whether ascertained or not to become shareholders or partners in a company". A charge under para. (b) does expressly require the intent to deceive or defraud members, shareholders or creditors. I think the lan- guage of the section is perfectly clear and unambiguous. Where intent to defraud is an ingredient Parliament has said so. The language being clear, it is unnecessary to impute a reason for the distinction made by Parliament but I think it is not difficult to realize what may have been one reason. It is notorious that promoters are optimistic and it is not incon- ceivable that a man might knowingly make a false statement in a prospectus with the bona fide intention of benefiting the persons who would be induced to subscribe for shares. This consideration does not apply where the persons to be affected by the prospectus, statement or account are already share- holders or creditors of the company. It was argued, however, that certain decisions to which I will now refer require this Court to hold that an intent to defraud is an essential ingredient of the offence charged under s-s. (1) (a). I refer first to the decision of this Court in R. v. Davidson (1971), 3 C.C.C. (2d) 509, [1971] 4 W.W.R. 731. In this case the question for determination was whether or not a jury had been instructed properly on the important questions of the falsity of a statement and of the knowledge of that falsity in the mind of the accused. The element of intent to defraud was not in issue and therefore comments on that subject in the judgments are, in my opinion, obiter. At p. 514
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Nemetz, J.A. (as he then was), said: It has been held (R. v. Harcourt, 52 C.C.C. 342, [1930] 1 D.L.R. 736, 64 O.L.R. 566) that three elements to make up the offence set out in s. 343 (1) (a), namely: (1) that the statement made was false in some material particular; (2) that the accused knew that it was false; (3) that it was made with intent to defraud. An examination of the Harcourt decision by the Ontario Court of Appeal shows that the headnotes in the Ontario Law Reports and in the Dominion Law Reports are misleading. I am convinced, with respect, that the misleading headnotes must have led to a misunderstanding of the decision. The provision of the Criminal Code which applied in R. v. Harcourt (1929), 52 C.C.C. 342, [1930] 1 D.L.R. 736, 64 O.L.R. 566, was s. 414 in R.S.C. 1927, c. 36, which read as follows : 414. Every one is guilty of an indictable offence and liable to five years' imprisonment who, being 'a promoter, director, officer or man- ager of any body corporate or company, either existing or intended to be formed, makes, circulates, or publishes, or concures in making, circulating or publishing any prospectus, statement or account which he knows to be false in any material particular, with intent to induce persons whether ascertained or not to become shareholders or partners, or with intent to deceive or defraud the members, share- holders or creditors, or any of them, whether ascertained or not, of such body corporate or company, or with intent to induce any person to entrust or advance any property to such body corporate or com- pany, or to enter into any security for the benefit thereof. The charge against the accused was [at pp. 344-5] : " .. for that he, on or about the year 1928, at the city of Toronto, in the County of York, being a promoter, director, officer or manager of a body corporate or company, to wit, Jackson-Manion Mines Ltd., unlawfully did make, circulate or publish, or concurred in making, circulating or publishing, prospectuses, statements or accounts which he knew to be false in material particulars, with intent to in- duce persons to become shareholders or with intent to deceive or defraud the shareholders or creditors, or any of them, of such body corporate, or company, contrary to the' Cr. Code, s. 414." It is apparent, therefore, that the charge included the exis- tence of intent to deceive or defraud shareholders or creditors. There can be no doubt that intent to defraud is an ingredient of that part of the offence charged. That offence is one which would now be laid under Criminal Code, s. 358 (1) (b) . At p. 374 Middleton, J.A., cited R. v. Birt (1899), 63 J.P. 328, for the proposition : The falsity of the statement and the knowledge of the falsity are es-
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sential factors in guilt, and are matters of proof. An intention to defraud is also essential; but, When it is proved that the statements are false to the knowledge of the accused, then the intention to defraud may pressed. R. v. Birt was a case tried by Ridley, J., and a jury. The de- fendant was indicted under ss. 83 and 84 of the Larceny Act of 1861. Four counts are referred to in the report. Count 1 was for publishing a statement with intent to deceive share- holders of the company; count 2 was publishing a statement with intent to defraud shareholders of the company; count 3 was publishing a statement with intent to induce persons to become shareholders, and count 4 was for falsifying books with intent to defraud. 'Thus, with the exception of count 3 the intent to defraud was an essential allegation in each count. Counsel for the defence asserted that the intent alleged in s. 84 is either to deceive or defraud any shareholder and that the indictment could be drawn as was done there alleging both of those intents. He asserted also that s. 83 was governed by the words "with intent to defraud". The jury found intent to deceive. The result was conviction on counts which alleged that intent, and acquittal on the counts which alleged intent to defraud. Returning to R. v. Harcourt, supra, it appears that the statements complained of were contained in reports made by the managing director of a company to his co-directors. The questions for determination were whether the evidence justi- fied a finding that the statements were false, and if false, whether the accused knew that they were false. The nature of the intent of the accused and proof of an intent to defraud were not essential questions in the case. 'Counsel for the appellant relied also on the judgment of the Supreme Court of Canada in Cox and Paton v. The Queen, [1963] 2 C.C.C'. 148, [1963] S.C.R. 500, 40 C.R. 52, and in par- ticular on the final paragraph of the judgment of ,Cartwright, J. (as he then was), at p. 171. I agree with the analysis of that judgment which has been made by my brother Bull and will not repeat. In my opinion, when Cartwright, J., used the word "fraudulent" in the context he was merely using an adjective to describe compendiously the conduct which he had set out in the preceding sentence. I accordingly find that none of the authorities cited binds or persuades me that an intent to defraud is an essential ingre- dient of the offence described in Criminal Code, s. 358 (1) (a) . For these reasons, in addition to those given by my brother Maclean, I am of the opinion that there was neither non-direc-
1974 CanLII 1543 (BC CA)
tion or misdirection of the jury in this respect. COUNT 2 I am of the opinion that the act of conversion implicitly found by the jury occurred in Canada and consisted of the issue of instructions to the Royal Bank to transfer $3,000,000 from the account of Northwest to that of the Bank of the South Pacific and Trust Company in the Bank of America at San Francisco. I have no difficulty in holding that $3,000,000, which I regard as the description of the monetary value of a medium of exchange, comes within the meaning of the words "any- thing whether animate or inanimate" which Parliament has used in s. 283 to describe the subject of a theft. The trial Judge instructed the jury on at least three oc- casions that an essential ingredient of the charge was an in- tent to deprive temporarily or absolutely the owner of prop- erty or of his interest in it. In my opinion, having regard to the realities of the issues which the jury was called upon to decide, it was unnecessary for him to enlarge further than he did on this aspect of the case. I would accordingly dismiss the appeal. Appeal dismissed.
Douglas Troll, As Receiver of Eastern Insurance Company v. The Chase National Bank of City of New York, and Jack Ackerman, 257 F.2d 825, 2d Cir. (1958)
Fed. Sec. L. Rep. P 99,479 Samuel Mallis and Franklyn B. Kupferman, Cross-Appellants v. Bankers Trust Company, Cross-Appellee, 717 F.2d 683, 2d Cir. (1983)
Algernon L. Butler, JR., Trustee in Bankruptcy For Cheryl Lynn Harper v. Nationsbank, N.A. (Formerly NCNB National Bank of North Carolina), 58 F.3d 1022, 4th Cir. (1995)
Mercantile Bank & Trust Co., Ltd., Counter-Defendant-Appellant v. Fidelity and Deposit Company, Etc., Counter-Claimant v. United States of America, Counter and International Energy Corporation, Counter-Defendants, 750 F.2d 838, 11th Cir. (1985)
उच्चत्तर शिक्षा शिभाग शिक्षा मंत्रालय भारत सरकार के तहत एक स्वायत्त संगठन ( (An Autonomous Organization under the Department of Higher Education, Ministry of Education, Government of India)