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Criminal - Property Forfeiture. R. v. Breton
In R. v. Breton (Ont CA, 2025) the Ontario Court of Appeal dismissed a criminal appeal, here brought against a Crown-successful "application for an order under s. 490(9) of the Criminal Code" ['Disposal of things seized']:ii. Forfeiture applications under s. 490(9) of the Criminal Code
[61] Section 489.1(1) of the Criminal Code requires that where “anything” is seized under a warrant issued under the Criminal Code, a peace officer shall, as soon as practicable, comply with paragraphs (a) or (b).[5] Section 489.1(1)(a) pertains to the return of the thing seized if it is not required for an investigation or a proceeding. Section 489.1(1)(b) pertains to those situations where the thing seized is to be detained, in which case a report must be brought before a justice so that the thing can be “dealt with in accordance with subsection 490(1)”.[6] At that point, the seized property becomes subject to judicial supervision under s. 490: R. v. Garcia-Machado, 2015 ONCA 569, 126 O.R. (3d) 737, at paras. 14-16.
[62] Section 490 of the Criminal Code is a lengthy and complex, some might even say unnecessarily complex, statutory scheme designed to address the supervision, return and disposition of seized items: R. v. Backhouse (2005), 2005 CanLII 4937 (ON CA), 194 C.C.C. (3d) 1 (Ont. C.A.), at para. 112. The s. 490 scheme aims to ensure that seized items are returned to their lawful owners or someone lawfully entitled to their possession when their continued detention is no longer required for the purposes of an investigation or court proceedings. It seeks to strike “a balance between the societal interest in the investigation of crime on the one hand, and the property and privacy interests of individuals from whom the things were seized on the other”: R. v. Hollaman, 2025 BCCA 315, at para. 97.
[63] Section 490(9) granted the jurisdiction for the trial judge to entertain the application in this case. To better understand the provision, it is helpful to place it within its broader context.
[64] Sections 490(1) to (3.1) are the statutory provisions required to detain seized items for various periods of time. Section 490(4) requires that anything detained be forwarded to the court in which the accused will be tried once he or she is ordered to stand trial. Sections 490(5) to (8) govern applications for the disposition or return of things detained once they are no longer required or time periods have expired. Then, s. 490(9), which sits at the centre of this appeal, provides the statutory scheme for the disposal of things seized when applications are made for the return or disposal of those items. Section 490(9.1) provides for an exception to the operation of s. 490(9), an exception that is not operative in this case.
[65] The balance of the provisions, ss. 490(10) to (18), govern applications for the return of things seized from those claiming to be their lawful owners, how detention is dealt with pending appeal, the retention of copies, access to things seized and notice and rights of appeal from decisions rendered pursuant to s. 490, including s. 490(9).
[66] Section 490(17) allows for an appeal as of right to this court from an order made pursuant to s. 490(9) when the order has been made by a judge of a superior court of criminal jurisdiction. It is from s. 490(17) that we draw our jurisdiction on this appeal.
[67] To bring this all together, following the execution of the first warrant, under which the cash in and under the garage was found, the police made a s. 489.1(1)(b) report to a justice. Once the trial was over and, therefore, the periods for detention expired, the Crown brought an application for a forfeiture order under s. 490(9).
[68] The salient portion of s. 490(9) requires that upon being satisfied that certain time periods have expired, which is not in dispute in this case, a judge or justice before whom an application is made is to do one of three things:(1) If the property was seized from someone who possessed it lawfully, the judge or justice shall order it returned to that person (see s. 490(9)(c)).
(2) If the property was seized from someone who possessed it unlawfully and the lawful owner is known, the judge or justice shall order it returned to the lawful owner (see s. 490(9)(d)).
(3) If the property was seized from someone who possessed it unlawfully or if it was seized when it was not in the possession of anyone and the lawful owner is not known, the judge or justice may order it “forfeited to Her Majesty, to be disposed of as the Attorney General directs, or otherwise dealt with in accordance with the law” (see s. 490(9)). [69] It is the third option that is relevant to this appeal. It encapsulates the ability of a judge or justice exercising their jurisdiction under s. 490(9) to order the thing(s) forfeited to the Crown to be “disposed of as the Attorney General directs, or otherwise dealt with in accordance with the law”, where the “possession of it by the person from whom it was seized is unlawful”. Here, there is no dispute that the appellant was in possession of the cash found in and under the garage. The sole question is whether his possession of it was unlawful and, more specifically, whether, in answering that question, the trial judge could take into account the evidence excluded from the trial pursuant to s. 24(2).
[70] As in all applications of this nature, the Crown bore the onus of proving the appellant’s possession was unlawful on the criminal standard of proof beyond a reasonable doubt: R. v. Mac (1995), 1995 CanLII 2071 (ON CA), 97 C.C.C. (3d) 115 (Ont. C.A.), at pp. 124-25; R. v. West (2005), 2005 CanLII 30052 (ON CA), 77 O.R. (3d) 185 (C.A.), at paras. 19, 27. . R. v. Breton [issue estoppel]
In R. v. Breton (Ont CA, 2025) the Ontario Court of Appeal dismissed a criminal appeal, here brought against a Crown-successful "application for an order under s. 490(9) of the Criminal Code" ['Disposal of things seized'].
The court considered an issue estoppel argument - here where the defendant was acquitted of charges, but the Crown pursued the CCC 490(9) forfeiture application. The case is useful for distinguishing how different issues may or may not have estoppel attach to them:[1] Police seized over $1.2 million in cash secreted around the appellant’s house and garage, including $1,235,620 found inside a Rubbermaid tub buried under the dirt floor of the garage. There were numerous other items seized, including drugs, drug paraphernalia, motorized vehicles and the like. This appeal concerns only the cash found secreted in the garage.
[2] The appellant was charged with possession of the proceeds of crime and various other offences. At trial, he successfully challenged the search warrant under which the seizures were made, a challenge brought pursuant to s. 8 of the Canadian Charter of Rights and Freedoms. The trial judge excluded all of the evidence under s. 24(2) of the Charter. The exclusion of the evidence resulted in the Crown calling no evidence and, as a corollary, acquittals being entered.
[3] This left the question of what to do with the cash – should it be returned to the appellant or forfeited to the Crown? The Crown brought an application for an order under s. 490(9) of the Criminal Code, R.S.C. 1985, c. C-46. Although the Crown originally sought the forfeiture of almost all seized items, in the end, the Crown focused on the seized cash. The appellant countered with an application to have the evidence excluded from the forfeiture proceeding. This time the trial judge[1] denied the s. 24(2) application, declining to exclude the cash and evidence surrounding its seizure from the forfeiture proceeding. He ultimately ordered that the cash found in and under the garage be forfeited to the Crown.
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ii. Law of issue estoppel following an acquittal
[37] Issue estoppel is one branch of res judicata, which is a doctrine that prevents unfair relitigation of matters that have already been decided: R. v. Mahalingan, 2008 SCC 63, [2008] 3 S.C.R. 316, at paras. 14-16. In the context of criminal cases, it “prevent[s] the Crown from relitigating an issue that has been determined in the accused’s favour in a prior criminal proceeding, whether on the basis of a positive finding or reasonable doubt”: Mahalingan, at para. 31. Issue estoppel serves the goals of (1) fairness to the accused, who should not have to confront issues already decided in their favour; (2) integrity and coherence of the criminal law; and (3) judicial finality and economy: Mahalingan, at paras. 2, 38.
[38] Issue estoppel has three core requirements:(1) that the same question has been decided;
(2) that the judicial decision which is said to create the estoppel was final; and
(3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies: Mahalingan, at para. 49. [39] To satisfy the first requirement, an accused must show that the question “was or must necessarily have been resolved on the merits in the accused’s favour in the earlier proceeding”: Mahalingan, at para. 52. The question will be whether the finding said to be in favour of the accused is one that is “logically necessary” to the acquittal, to be determined by reference to the essential elements of the verdict: Mahalingan, at para. 53. In a multi-issue jury trial where there are no reasons, it will sometimes be harder to rely on issue estoppel because it will not always be clear which issues were decided in favour of the accused: Mahalingan, at para. 54; Punko, at para. 22.
[40] In Punko, the Supreme Court applied the test from Mahalingan in the context of a multi-issue jury trial. The issue was whether the Crown was estopped from proving that a chapter of the Hells Angels was a criminal organization because the issue was decided adversely to the Crown in a prior jury trial. At the first jury trial, the appellants were acquitted of counts allegedly committed for the benefit of, or at the direction of, a criminal organization. The Supreme Court concluded that issue estoppel did not apply and that it was open to the Crown to seek to prove the criminal organization issue at the second trial. This is because where there is more than one logical explanation for a verdict, and if one of these explanations does not depend on the relevant issue having been resolved in favour of the accused, the verdict cannot be relied upon in support of issue estoppel: Punko, at para. 8.
iii. Application
[41] In my view, issue estoppel did not preclude the Crown from arguing at the forfeiture hearing that the cash the appellant possessed was obtained unlawfully, for two reasons:(1) A finding about whether the seized cash was obtained unlawfully was not logically necessary to the appellant’s acquittal.
(2) Regardless, the trial judge cannot have made any findings about the cash found in and under the garage, since it was not in evidence. [42] We need to start by grounding ourselves in why the appellant was acquitted across the board. Here, the trial judge did not provide reasons explaining why he entertained a reasonable doubt as to one or more of the elements of the offence. Rather, following the exclusion of the evidence under s. 24(2), and the Crown opting to call no evidence, acquittals were necessarily entered. This is reflected in the trial judge’s brief endorsement offering his sole explanation for acquitting the appellant: “As [Crown] calls no evidence, I find Marcel Breton not guilty”. That is it.
[43] The appellant argues that Grdic governs this appeal. He contends that the verdict of not guilty is tantamount to a “declaration of innocence” for all purposes: R. v. Verney (1993), 1993 CanLII 14688 (ON CA), 87 C.C.C. (3d) 363 (Ont. C.A.), at p. 371. Leaning on Grdic, the appellant maintains that it makes no difference whether the appellant was acquitted as a result of a Charter application or whether he was acquitted after a full review of the evidence, given that Grdic, at p. 825, makes clear that an “‘acquittal is the equivalent to a finding of innocence’”. And if he has been found innocent, he cannot have been unlawfully in possession of the disputed cash.
[44] I do not read Grdic in the same way as the appellant. In my view, it does not stand for the proposition advanced by the appellant.
[45] Indeed, the suggestion that the fact of an acquittal precludes any issue raised in a previous trial from being dealt with at a subsequent proceeding has been referred to as a “misreading” of Grdic: Mahalingan, at para. 22. It is only those issues that were specifically decided in the accused’s favour during the first trial, either by way of a factual finding or a reasonable doubt, that become the subject of issue estoppel at the subsequent proceeding. As the majority in Mahalingan found, whether the Crown was estopped from relitigating an issue is dependent, not on the fact of the acquittal, but on “whether the issue in question has been decided in the accused’s favour in a previous proceeding”: at para. 21. To proceed otherwise is to conflate the concept of double jeopardy on the ultimate verdict (not in issue here), with the central concern behind issue estoppel, which is to preclude the litigation of issues that have been specifically resolved in reaching a verdict: Mahalingan, at para. 21.
[46] Therefore, not every issue at a trial that results in an acquittal will be estopped at a subsequent proceeding. Only those issues that were “expressly resolved or, given how the case was argued, had to be resolved for there to be an acquittal” are estopped from reconsideration: Mahalingan, at para. 23. This is to be decided on the whole of the record. The whole of the record here demonstrates that no estoppel on the issue of whether the seized cash was obtained unlawfully arises from the acquittal.
[47] First, I agree with the Crown that a finding about whether the seized cash was obtained unlawfully was not logically necessary to the appellant’s acquittal. Therefore, the trial judge was not bound by issue estoppel on this point, and it was open to him to conclude that the cash found in and under the garage was the proceeds of crime, satisfying the requirement in s. 490(9) that “possession of it by the person from whom it was seized is unlawful”.
[48] The appellant was charged with and acquitted of possession of the proceeds of crime under ss. 354(1)(a) and 355(a) of the Criminal Code. This offence can be broken down into at least three elements: the property must have been obtained or derived from the commission of an indictable offence in Canada, the property was in the accused’s possession, and the accused must have known the property was unlawfully obtained: R. v. Farnsworth, 2017 ABCA 358, 356 C.C.C. (3d) 255, at paras. 32-36.
[49] Failure to prove any of these elements beyond a reasonable doubt would result in an acquittal. We simply cannot conclude that any one of these issues was “logically necessary” to the acquittal. For example, if the trial judge were convinced that the seized cash was proceeds of crime but was not satisfied either that the appellant was in possession of it or that he had knowledge of its origins, this would have resulted in an acquittal. As the trial judge provided no reasons other than a brief endorsement on the indictment noting that the Crown had called no evidence, it cannot be said which issue or issues were resolved for purposes of arriving at the acquittal. This is not unlike a jury verdict where the basis of the acquittal is not explained, and all we know is that the trier of fact had a reasonable doubt about something, more than one thing or possibly everything.
[50] I recognize that in a situation where the Crown calls no evidence, we might conclude that the trial judge must have had a reasonable doubt about every element of the offence. Having been presented with zero evidence, how could the trial judge have been convinced of anything beyond a reasonable doubt? But it does not follow that issue estoppel should apply in these circumstances. Issue estoppel in the criminal context is necessarily narrow: Mahalingan, at para. 1; Punko, at para. 7. It only applies to findings that are logically necessary to a verdict: Mahalingan, at para. 53. In a multi-issue jury trial, “it will be rare for an acquittal to ground issue estoppel, because such an acquittal will often have more than one possible basis”: Punko, at para. 22; Mahalingan, at paras. 24, 54. In my view, this case is analogous to a multi-issue jury trial, in the sense that there is more than one possible basis for the acquittal and there are no reasons explaining what the basis is.
[51] Second, regardless of what we can logically infer from the verdict of acquittal, in my view the trial judge cannot have made any finding with respect to the seized cash at the criminal trial because the seized cash was not before him, having been excluded as inadmissible under s. 24(2).
[52] To understand what the appellant was acquitted of, we must look to the indictment. The indictment does not specify the seized cash from in and under the garage. It simply alleges that the appellant was in possession of “proceeds of property of a value exceeding five thousand dollars” in general terms:Marcel Donald BRETON, on or about the 1st day of December in the year 2009 at the Township of Gorham, in the said Region, unlawfully did have in his possession proceeds of property of a value exceeding five thousand dollars, knowing that all or part of the currency was obtained or derived directly or indirectly from the commission in Canada of an offence punishable by indictment, contrary to Section 354(1)(a) of the Criminal Code thereby committing an offence under Section 355(a) of the Criminal Code. [Emphasis added.] [53] Even though the trial judge surely had a reasonable doubt about whether the appellant possessed proceeds “of a value exceeding five thousand dollars” given that the Crown called no evidence, it does not follow that the trial judge had a reasonable doubt about whether the seized cash was the proceeds of crime. Quite simply, that cash was not in evidence at the trial at the point that the decision to acquit was made and so the trial judge cannot have made any findings about its status, either explicitly or on the basis of reasonable doubt, one way or the other.
[54] In my view, this conclusion is entirely consistent with the goals of issue estoppel, as set out in Mahalingan, at para. 38.
[55] First, there is no unfairness to the appellant because the issue of whether he unlawfully possessed the cash in and under the garage was not determined at his trial because it was not litigated in light of the exclusion of the evidence – including the cash itself – pursuant to s. 24(2).
[56] Second, this result does not undermine the integrity or coherence of the criminal process, because the appellant’s acquittal of possession of the proceeds of crime did not entail or depend on a finding that the seized cash was not the proceeds of crime.
[57] Finally, and for the same reasons, this conclusion does not undermine the institutional values of finality and judicial economy. While these values are of course essential to preserving the public’s confidence in the administration of justice, and relitigation is barred in order to preserve these values, there was no original litigation on the core issue in this case that resulted in findings upon which issue estoppel could rest. . R. v. Samuels
In R. v. Samuels (Ont CA, 2025) the Ontario Court of Appeal dismissed the defendant's criminal appeal, here brought against convictions for "two counts of possession of controlled substances (cocaine and crystal methamphetamine) for the purpose of trafficking".
Here the court considered a forfeiture order [CCC s.490]:ii. The forfeiture order
[86] The appellant argues that the trial judge erred in making a forfeiture order for the funds found on his person when he was arrested when there was no charge of possession of proceeds of crime, no meaningful advance notice, and no hearing into the matter. The Crown responds that there was no suggestion from anyone during the trial that the money could have come from any source other than drug trafficking. The Crown also notes that defence counsel at trial did not raise any disagreement with the Crown’s request for forfeiture. Instead, defence counsel only raised the issue after the sentence was imposed. Accordingly, the Crown submits that there was every reason to believe that the appellant acquiesced to forfeiture, and the court ought not to entertain the appellant’s arguments against the forfeiture order on appeal.
[87] The Crown’s initial request for forfeiture, made at the end of sentencing submissions and without any other advance notice, was skeletal at best and narrowly based. Crown counsel asked for “a [s.] 490 [of the Code] order for all ... items seized.” There was no articulation of the basis on which s. 490 would apply to the funds in this case. Defence counsel did not specifically address that request, and it undoubtedly would have been better if he had, but nothing suggests that he consented to such an order or to the existence of grounds to make it. Prior to the trial judge indicating that a forfeiture order would be made, no other provision was relied on by the Crown.
[88] The actual order for forfeiture that was made refers to four provisions: ss. 462.37, 490.1, and 490 of the Code as well as s. 16 of the CDSA. It contemplates that the property forfeited under each provision will be separately identified later in the order, as the grounds for forfeiture under each provision are different. However, the order contains no separate listing identifying the specific property forfeited under each provision. The order simply says that the property “listed” is forfeited to “Her Majesty the Queen in Right of Canada to be disposed of … in accordance with the law” and that the property governed by the order is “all items seized”.
[89] On appeal, the parties dispute which provision of the Code or the CDSA could provide authority for the forfeiture of the items in issue, specifically the funds. However, the main complaint of the appellant is about the absence of a procedurally fair process for the forfeiture issue as it related to the funds. I agree with this submission.
[90] Forfeiture was not mandatory simply upon the Crown asking for it. In the absence of consent, the trial judge had to be satisfied that the requirements of the section under which forfeiture was being sought were met.
[91] In this case, there was no consent. The fact that the Crown relied on one provision to justify forfeiture, while the actual order cites four, and the parties on appeal contest which provision could apply to the funds, underscores the problem. The trial judge’s initial inclination, when defence counsel queried how the funds could be ordered forfeited in the circumstances, was to direct a forfeiture hearing. That was the procedurally fair way to proceed in these circumstances. The trial judge erred in failing to follow through on that, and in instead directing the forfeiture set out in the order.
[92] Given this error, I would set aside the forfeiture order with respect to the funds seized from the appellant on his arrest, without prejudice to an application for a forfeiture order on proper notice. . R. v. Travelers Insurance Company of Canada
In R. v. Travelers Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal allowed a Criminal Code property forfeiture appeal by an insurance company against the Crown, here alleging a restitutionary/constructive trust claims by subrogation [under CCC 462.37(2.01)]..
Here the court distinguishes between the Criminal Code property forfeiture status of an insurer between 'ordinary creditor' and 'victim':[34] Travelers submits that the application judge erred in failing to recognize that it was a victim and not an ordinary creditor and that with respect to the amounts paid to Xpertdoc, it had a claim for unjust enrichment and the requisite constructive interest in the property forfeited in the amount of $270,550. It argues that the relevant amount in which it has a constructive property interest is the amount that should have been and was not paid as restitution by the sentencing judge because of the Crown’s erroneous omissions. While she alluded to the admitted and erroneous omission of Travelers’s Xpertdoc claim by the Crown, Travelers submits that the application judge erred by concluding that it had no claim for unjust enrichment.
[35] The Crown submits that Travelers has no claim for unjust enrichment in respect of the forfeited proceeds. Rather, it submits that its claim for relief from forfeiture is effectively a claim for restitution that cannot be recovered under the relief from forfeiture provisions of the Criminal Code.
[36] As I explain in greater detail below, the application judge’s conclusions are the product of a cascade of analytical errors: 1) the application judge erred in failing to give effect to her various factual findings about the Crown’s erroneous omissions and the likelihood of restitution to Travelers for the Xpertdoc claim; 2) the failure to give effect to her factual findings led her to erroneously divorce what happened before the sentencing judge from her consideration of Travelers’s application; 3) she also failed to consider whether Travelers could have an interest in the property forfeited to the Crown by way of constructive trust that goes beyond the direct transfer of property to the offender; 4) as a result, she concluded that, apart from the ransom payment, Travelers was an ordinary creditor without an interest in the forfeited property; and 5) she concluded that it would therefore be inappropriate for her to exercise her discretion to grant relief from forfeiture.
[37] The application judge correctly recognized Travelers’s position for the purpose of obtaining relief from forfeiture of the ransom payment. Having paid out Xpertdoc’s losses, Travelers stepped into the shoes of its insured and was entitled to seek compensation for its subrogated claim as a victim of the offences: R. v. Popert, 2010 ONCA 89, 258 O.A.C. 163; Somersall v. Friedman, 2002 SCC 59, [2002] 3 S.C.R. 109, at para. 50. However, with respect to the balance of Travelers’s claim, the application judge misapplied the test for ordering relief from forfeiture under s. 462.42 by finding that Travelers did not discharge its onus that it “has a valid interest in the property that goes beyond the interest of a general creditor and that the nature and extent of that claim has been proven” and that it would be “appropriate in the circumstances for [Travelers’s] interest to take priority over the [f]orfeiture [o]rder”: 1431633 Ontario Inc., at para. 26 [emphasis added].
[38] Because of her mischaracterization of Travelers as an ordinary creditor for the balance of its claim, the sentencing judge too narrowly construed Travelers’s “interest in property forfeited” for the purposes of s. 426.42(1) as only an interest in the funds that were paid as ransom to Mr. Vachon-Desjardins. She failed to consider whether the circumstances of the Crown’s erroneous omissions and the likelihood of restitution to Travelers gave rise to a claim for unjust enrichment supporting a constructive trust over the proceeds in the amount of the Xpertdoc claim in the circumstances of this case.
[39] Further, because of her mischaracterization of Travelers as an ordinary creditor, in considering whether to exercise her discretion, the application judge erred by relying on inapplicable policy concerns that payment out of Travelers’s subrogated claims from the forfeited proceeds of crime would benefit the offender, as expressed in Lumen Inc. v. Canada (Attorney General) (1997), 1997 CanLII 10717 (QC CA), 151 D.L.R. (4th) 661 (Que. C.A.), leave to appeal refused [1997] C.S.C.R. No. 448 and other cases. The Court of Appeal of Quebec noted in Lumen, at p. 665, that ordinary creditors do not as a general rule have an enforceable interest in any particular assets of debtors.
[40] However, the present case does not involve a third-party debt, the payment of which would benefit Mr. Vachon-Desjardins because the proceeds of crime would pay down or extinguish his debt. Rather, this is compensation to the victim of the very crime which gave rise to the forfeiture order: R. v. Tatarchuk, 1992 CanLII 6161 (AB KB), [1993] 133 A.R. 6 (Alta. Q.B.), at para. 5. As the Alberta Court of Queen’s Bench noted in Tatarchuk, at para. 5: “Payment of proceeds of crime to one of the victims of the crimes cannot in any fashion be seen as benefitting the wrongdoer.” Further, to the extent there is any indirect benefit to the wrongdoer from ordering relief from forfeiture, it must be balanced against the victim’s legitimate interests in the property: see Wilson v. R., 1993 CanLII 8665 (ON CA), [1994] 15 O.R. (3d) 645 (C.A.), at p. 657; Connolly NLCA, at para. 38.
[41] As a result of the application judge’s analytical errors, I would accord no deference to her dismissal of the balance of Travelers’s Xpertdoc claim and undertake afresh the required analysis of whether Travelers is entitled to relief from forfeiture. . R. v. Travelers Insurance Company of Canada
In R. v. Travelers Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal allowed a Criminal Code property forfeiture appeal by an insurance company against the Crown, here alleging subrogated restitutionary/constructive trust claims [under CCC 462.37(2.01)].
Here the court canvasses these infrequently-used procedures:[1] The appellant, Travelers Insurance Company of Canada (“Travelers”), challenges the application judge’s dismissal of part of its subrogated claim for payment from proceeds of crime that were forfeited to the Crown under s. 462.37(2.01) of the Criminal Code, R.S.C. 1985, c. C-46.
[2] This appeal turns on the question of whether, in the particular and narrow circumstances of this case, Travelers has an interest in property by way of a constructive trust that should have been paid as restitution to its insured that was a victim of a crime but was instead forfeited in error to the Crown.
[3] Sections 462.42(1) and 462.42(4) of the Criminal Code together provide that “[a]ny person who claims an interest in property that is forfeited” as proceeds of crime to the Crown may seek an order “declaring that the interest of the applicant is not affected by the forfeiture and declaring the nature and extent of the interest.” Here, if Travelers has the requisite “interest in property that is forfeited”, it would be entitled to payment of its subrogated claim from the funds forfeited to the Crown under s. 462.37(2.01).
[4] Travelers paid out two insureds under their respective insurance policies for losses suffered as a result of a large-scale cyber-fraud operation. Specifically, under the cyber-fraud insurance policies it had issued, Travelers paid out over $250,000 to its insured, Technologies Xpertdoc Inc. (“Xpertdoc”), and about $1 million to its insured, Robert Thibert Inc. (“Thibert”).
[5] The person behind the operation, Mr. Sébastien Vachon-Desjardins, pleaded guilty to various counts related to the ransomware attacks by which he gained control over the victims’ data, holding the data until he was paid a ransom in Bitcoin. He cooperated with the police, identifying the victims of his frauds, including Travelers’s two insureds. He consented to restitution of the claims of all his victims.
[6] Travelers participated in the process to obtain restitution of the amounts paid to its two insureds in the sentencing proceedings against Mr. Vachon-Desjardins. Certain of Mr. Vachon-Desjardins’s property (including what was at the time several million dollars’ worth of Bitcoin and several hundred thousand dollars in cash) was seized by the RCMP in January 2021. For the purpose of making a claim for restitution before the sentencing judge, Travelers provided information to support restitution for its two subrogated claims (the “Thibert claim” and the “Xpertdoc claim”). No issue was taken with Travelers’s subrogated claims. Travelers understood that the Crown would put its subrogated claims before the sentencing judge.
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(a) General principles of equity and relevant statutory provisions
[29] To place Travelers’s appeal in the proper context, it is helpful to start with a review of the forfeiture provisions under the Criminal Code.
[30] Sections 462.37(1), 462.37(2.01), and 462.38(2) are the forfeiture provisions that permit the court to order, on application by the Attorney General, that any property that is proceeds of crime obtained through the commission of a designated offence (including the ones in issue here) be forfeited to the Crown “to be disposed of as the Attorney General directs or otherwise dealt with in accordance with the law.” In this case, the forfeiture order was made under s. 462.37(2.01), and, unlike a forfeiture order under s. 462.38, Travelers had no right to appeal from that order: Criminal Code, s. 462.44.
[31] Section 462.41(1) requires that, before making a forfeiture order in relation to any property, “a court shall require notice in accordance with subsection (2) to be given to and may hear any person who, in the opinion of the court, appears to have a valid interest in the property.” In complying with this requirement, the court must rely on the assistance of the Crown, as the party seeking forfeiture, to identify possible interested parties, and it is the responsibility of the Crown to provide the court with the necessary information to permit the judge to make the appropriate orders under s. 462.41(4): Connolly NLCA, at paras. 12-14.
[32] Section 462.42 sets out the relief from forfeiture provisions. Section 462.42(1) allows any person[2] “who claims an interest in property that is forfeited” to the Crown to apply for an order under s. 462.42(4). Section 462.42(4) allows a judge to order relief from forfeiture. Under s. 462.42(4), the judge hearing the application “may make an order declaring that the interest of the applicant is not affected by the forfeiture and declaring the nature and extent of the interest.” Before making such an order, however, the application judge must be satisfied that the applicant has established, among other requirements, that they have a valid interest in the property that goes beyond the interest of a general or an ordinary creditor and that it is appropriate in the circumstances for their interest to take priority over the forfeiture order: see Criminal Code, s. 462.41(1); 1431633 Ontario Inc. v. Canada (Attorney General), 2010 ONSC 266, 250 C.C.C. (3d) 354, at para. 26. If the application judge grants the order, the Attorney General “shall”, following the expiry of the appeal period or the determination of an appeal under s. 462.42(5), upon application pursuant to s. 462.42(6) by the person who obtained the order, return the property to that person or remit an amount equal to the value of the interest to them.
[33] Relief from forfeiture is discretionary. Accordingly, it is important not to take a narrow view of the rules and procedures in the Criminal Code concerning the forfeiture of proceeds of crime: Chun v. R., 2015 QCCA 590, per Kasirer J.A. (as he then was), at fn. 12. Courts considering an application for relief from forfeiture must not lose sight of the rationale behind the scheme and the effect of forfeiture on innocent third parties with a legitimate interest in the forfeited property: R. v. 170888 Canada Ltée, 1999 CanLII 13794 (QC CA), [1999] 174 D.L.R. (4th) 340, at pp. 347-48 (Que. C.A.). As the Court of Appeal of Quebec, per Fish J.A. (as he then was), further observed in 170888 Canada Ltée, at p. 349:An important objective of that scheme is to afford a meaningful recourse to innocent third parties whose property rights are affected by an order of forfeiture under s. 462.37 - not ultimately, in the civil courts, but rather immediately, before a court of criminal jurisdiction and within the framework of the forfeiture scheme itself.
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