Court File and Parties

Court File No.: Central East Region-Newmarket 11-04549 and 11-04550

Date: 2014-06-25

Ontario Court of Justice

In the Matter of a costs application by Fercan Developments Inc., GRVN Group Inc., and FirstOntario Credit Union Limited.

Between:

Fercan Developments Inc., GRVN Group Inc. and FirstOntario Credit Union Limited — Applicants

And

Her Majesty the Queen — Respondent

Before: Justice Peter C. West

Application heard on: February 18 and 19, 2014 and March 28, 2014

Ruling given: June 25, 2014

Counsel

Mr. Brian H. Greenspan, Ms. Naomi Lutes — Applicant on Costs Application for Fercan Developments Inc.

Mr. William Friedman, Mr. Patrick Bakos — Applicant on Costs Application for GRVN Group Inc.

Mr. Charles P. Criminisi, Ms. Devon M. Ryerse — Applicant on Costs Application for FirstOntario Credit Union Limited

Mr. Kevin Wilson — Respondent on Costs Application for the Crown

WEST J.:

Introduction

[1] On September 11, 2013, I dismissed the Crown's application for forfeiture pursuant to sections 16 and 19 of the Controlled Drugs and Substances Act, R.S.C. 1996, c. 19 (the "CDSA"). The Crown sought an order for forfeiture of "offence-related" property, respecting the properties located at 1 Big Bay Point Road, Barrie, Ontario and 1408 Rainbow Valley Road, Phelpston, Ontario.

[2] On October 31, 2013, Fercan Developments Inc. (hereinafter referred to as Fercan), GRVN Group Inc. (hereinafter referred to as GRVN) and on November 1, 2013, FirstOntario Credit Union Limited (hereinafter referred to as FirstOntario), all brought applications for an order granting the Applicants' costs of the Crown's forfeiture applications.

[3] A schedule for the filing of written submissions was established and counsel made oral submissions on February 18 and 19, 2014 and March 28, 2014. I reserved judgment until June 9, 2014; however, this date was further adjourned until June 25, 2014. These are my reasons respecting the costs applications.

Factual Background

[4] Fercan was the registered owner of lands upon which the former Molson Brewery Plant was situated on 1 Big Bay Point Road, Barrie, Ontario. The former Molson Plant had approximately 450,000 square feet of space situated on 35 acres of land. GRVN was the registered owner of a residential dwelling located at 1408 Rainbow Valley Road West, Phelpston, Ontario. Fercan had originally paid $8 million for the purchase of the lands, building and equipment from Molsons Brewery in 2001. Molsons provided a vender take-back mortgage in the amount of $5.4 million and Fercan provided payment for the balance of the purchase price. On September 25, 2003, FirstOntario approved a first mortgage in the amount of $3 million on the 1 Big Bay Point Road property in order to pay out the Molsons' vendor take-back mortgage. I heard evidence during the forfeiture application that FirstOntario Credit Union Limited is the second largest credit union in the Province of Ontario. FirstOntario approved the mortgage after extensive due diligence investigations over the summer of 2003. These investigations are reflected in the affidavit of Mr. Ron Choma, former Vice-President of Commercial Services and Retail Credit with FirstOntario, which was filed with FirstOntario's Notice of Application to Vary the Restraint Order dated June 28, 2012.

[5] FirstOntario obtained an appraisal for the property for $9.5 million; this meant their mortgage of $3 million on a loan to value ratio was only 30%, which was much lower than the normal loan to value ratio of 60-65%. As security for the mortgage FirstOntario took collateral mortgages on two other properties owned by Fercan, both of which had good tenant income flow, as well as guarantees from MVD Properties Inc., a company owned by Vincent DeRosa, and from Vincent DeRosa personally. Further, in August 2003, FirstOntario had received information that Vincent DeRosa's personal net worth was $50,800,000.

[6] In January 2004, a search warrant was executed with respect to the Fercan property, the former Molsons Plant, and two large indoor marihuana grow operations were discovered in two of the leased premises located in separate areas of the Molson Plant. These two areas encompassed approximately 20% of the total square footage of the facility. Documents seized during the execution of the search warrant reflected the grow operations commenced as early as March 2002, although the evidence revealed the process of getting the grow operations up and running was done in stages, with one or two tanks becoming operational at a time. A number of individuals were charged with designated substance offences under the CDSA in respect of the two marihuana grow operations (Project Plants). The police investigation continued after the execution of the search warrant (both Project Plants and Project 3D, a further police investigation); however, this did not lead to any charges being laid against Fercan or Vincent DeRosa.

[7] In 2009, a further police investigation (Project Birmingham) was commenced utilizing an undercover police agent. Further designated substance offences were laid in 2010 against additional individuals who were involved in the two indoor marihuana grow operations originally discovered in 2004, as well as new additional CDSA and Criminal Code offences. In addition, individuals were charged with designated substance offences, which were committed during this new police investigation at the property situated at 1408 Rainbow Valley Road West, Phelpston. This further police investigation also did not lead to any charges being laid against Fercan, Vincent DeRosa, GRVN, Nicola DeRosa or FirstOntario or any of the officers or directors of the corporate entities.

[8] It is my understanding from the submissions of counsel and exhibits filed during the two forfeiture applications brought by the Crown that many, if not all, of the individuals who were charged as a result of these police investigations pled guilty and were convicted of designated substance offences contrary to the CDSA in relation to the two above-noted properties. These individuals include Robert Bleich, Scott Walker, Thomas Gates, Rayne Sauve, Craig Walker, Scott Dillon and Michael Dicicco (all charged in 2004) and Robert DeRosa, Jeffrey DaSilva, Dennis Hould, Robert Bleich, Larry McGee and Davorka Pelican (all charged in 2010). Two further individuals, Jeffrey Lawson and Dan Dolic, who from the evidence appear to be the individuals in charge of the various marihuana grow operations, Dan Dolic was not brought before the courts. No evidence was led respecting Jeffrey Lawson during the forfeiture applications; however, I was advised during final submissions that his charges were stayed by the Crown. Dan Dolic is apparently serving a lengthy federal penitentiary sentence in Louisiana for importing and trafficking in cocaine. His charges in Canada are still outstanding while he is serving this sentence.

[9] Both of the properties were subject to ex parte Restraint Orders, dated September 21, 2010 respecting the 1 Big Bay Point Road property and April 11, 2011 respecting the 1408 Rainbow Valley Road property. The Restraint Order dealing with 1 Big Bay Point Road was not made public until sometime after it was issued.

[10] The Crown brought two applications for forfeiture in May 2011, pursuant to section 16(1) of the CDSA in respect of the above-noted two properties. Notice, pursuant to section 19(1), was provided by the Crown to the owners of the two properties, Fercan and GRVN, and to FirstOntario as well as numerous other persons. These applications arose from the conviction of a number of individuals with designated substance offences, which include, inter alia, production of marihuana in association with a criminal organization. The forfeiture application in respect of 1 Big Bay Point Road was commenced more than seven years after the initial discovery of the two marihuana grow operations in January 2004. In a letter dated May 20, 2011, Ms. Shirtliff-Hinds, for the Crown, addressed to the Trial Co-ordinator of the Newmarket Ontario Court of Justice and counsel for Fercan, GRVN, FirstOntario, Larry (Lex) McGee and other individuals, requested the forfeiture applications be heard on June 9, 2011, as part of the sentencing proceedings for Mr. McGee. If forfeiture was contested it was the Crown's position that a two to three day joint hearing should be set.

[11] By letter, on May 27, 2011 and May 30, 2011, counsel for GRVN and Fercan respectively advised that the forfeiture applications would be contested and requested disclosure of all relevant materials, in particular, the affidavit and other material relied upon in the ex parte application for restraint, a list of witnesses the Crown intended to call on the hearing and a breakdown of the Crown's estimate of two to three days for the forfeiture hearing.

[12] Mr. Criminisi, on behalf of FirstOntario, wrote and telephoned the Crown, Ms. Shirtliff-Hinds, concerning the forfeiture application respecting 1 Big Bay Point Road, to discuss the Crown's position respecting FirstOntario's mortgage interest. He wrote to the Crown on June 7, 2011, confirming his understanding that the Crown was taking no issue with the validity and priority of the FirstOntario mortgage for the time being and would advise if their position changed after they had done their due diligence.

[13] Ms. Shirtliff-Hinds responded on the same date and advised Mr. Criminisi that the Crown took no position with respect to the validity of the mortgage but had made no representation respecting the priority of FirstOntario's mortgage. She confirmed the Crown would advise Mr. Criminski if the Crown's position changed. The Crown never advised FirstOntario of any change in their position concerning FirstOntario's mortgage interest until Fercan brought an application to vary Ferguson J.'s Restraint Order in March 2012.

[14] On June 8, 2011, Mr. Greenspan wrote a further letter detailing specific disclosure requests relating to the Crown's forfeiture application. On July 13, 2011, the Crown responded to the disclosure requests and advised they would be providing an Application Record but would not be calling any viva voce evidence. Further, the Crown indicated the two properties should be the subject of separate forfeiture applications. The Crown also advised counsel for Fercan and GRVN that no additional disclosure beyond the Application Record would be provided as they had no standing on the issue of determining whether the property was "offence-related". The Crown took the position that because the onus was on the lawful owners to disprove complicity and collusion, the owners were under an obligation to provide some form of disclosure and witness lists. Upon receipt of this information, the Crown indicated they would determine whether they had any relevant material to the complicity issue that should be disclosed. Disclosure of the Crown's rebuttal case respecting complicity, if applicable, was also predicated on the owners providing disclosure.

[15] On September 8, 2011, the Crown advised counsel for Fercan the Application Record was forthcoming and reiterated their estimate of one to two days to establish the properties were "offence-related". The Crown further advised no information had yet been received that would rebut the "common sense inference of knowledge" of the "offence-related" nature of the properties and requested disclosure of documents and witness lists from the defense.

[16] On October 4, 2011, the Crown consented to the sale of 1408 Rainbow Valley Road, Phelpson, as it was satisfied that the sale was to an arm's-length purchaser at fair market value. The proceeds of the sale were to be paid to the Seized Property Management Directorate ("SPMD"). The Crown did not preclude the possibility that the mortgagee might be paid out from these funds; however, because of the time constraints of the sale the Crown was not in a position to make that determination at that point in time. The Crown expected the mortgagee to provide information regarding their knowledge and involvement.

[17] On October 19, 2011, after a number of judicial pre-trial conferences, 16 days were set aside for the hearing of the Crown's forfeiture applications. On November 24, 2011, counsel for Fercan sought the Crown's consent to the sale of 1 Big Bay Point Road to Prime Real Estate Holdings Inc. ("Prime"). In this letter Fercan advised the Crown it had entered into an agreement of purchase and sale respecting 1 Big Bay Point Road, Barrie and requested the Restraint Order be varied to allow the sale to proceed. The Crown responded on December 1, 2011 and advised all of the proceeds of the sale, including the third party mortgage interest of FirstOntario, would have to be forwarded and deposited with the SPMD. In another letter, dated March 1, 2012, the Crown further elaborated on this position and advised they would not concede the interest of any mortgagees. Those interests would be determined in a separate hearing under s. 20 of the CDSA because "[t]he Attorney General has serious concerns about the circumstances under which this mortgage was extended and maintained, and anticipates a full hearing on this issue."

[18] The next step in the history of the proceedings respecting these properties was a Notice of Application dated March 15, 2012, brought by Fercan in the Superior Court of Justice for a variation of the Restraint Order as follows:

a) approving the agreement of purchase and sale between Prime, as buyer, and Fercan, as seller;

b) that the sale proceeds be paid on closing to the Attorney General in trust, pending the determination of the forfeiture proceedings;

c) allowing payment out of the sale proceeds to the realtor;

d) that on closing, all arrears to realty tax owing to the applicable municipality be paid from the closing proceeds; and

e) that on closing, all monies due and owing pursuant to the first mortgage be paid from the closing proceeds to the first mortgagee, FirstOntario Credit Union Limited ("FirstOntario"), in order to discharge the first mortgage.

[19] Fercan brought this application to vary the Restraint Order because of concerns of financial prejudice against Fercan in relation to the equity position of the 1 Big Bay Point Road property. It was Fercan's position that the true net sale proceeds of the property would be retained with SPMD and the Crown's forfeiture application would deal with this fixed and determined amount. Fercan expressed concern that the value of the property would be further reduced and eroded as a result of the passage of time, rather than selling the property for a known amount and pay out the appropriate parties; namely, the mortgagee, the realty taxes, the real estate agent and lawyer, with the residue being deposited with the Attorney General in the SPMD.

[20] The Crown's factum questioned whether the sale was to an arm's-length purchaser and indicated the Agreement of Purchase and Sale was null and void ab initio as the purchaser's corporation status had been cancelled. Counsel for Fercan responded the purchaser's corporate status had been amended. The Crown argued that the purported amendments were invalid. It was the position of the Crown that it would not concede the interest of the mortgagee, FirstOntario. If the Restraint Order was varied to allow the property to be sold, it was the Crown's position that all proceeds from the sale should be paid to the SPMD and the mortgagee would have to bring an application under s. 20(4) of the CDSA for return of the mortgage amount.

[21] The Crown argued it had serious concerns about the relationship between Fercan and FirstOntario and questioned the fact that the grow operations had been operating from March 2002 and the mortgage was advanced on September 25, 2003. The Crown was also concerned about collateral mortgages, registered on title at 24%, on the 1 Big Bay Point Road property in the amounts of $3 million and $8 million. As well there was a charge of $5 million, taken on the property by Vincent DeRosa, the principal of Fercan, after the Restraint Order was made. Fercan disputed the timing of the $5 million charge to Vincent DeRosa and argued it was issued prior to the Restraint Order being made public. It was the view of the Crown that the property was over-encumbered and the Crown argued the Applicant's assertion that these charges could not be removed while the Restraint Order was in place was incorrect. The Crown indicated production orders would likely be sought in the near future to unravel the "myriad of transactions and encumbrances relating to the property between Fercan and FirstOntario."

[22] It was Mr. Selvaratnam's position it was not for the Crown, at that stage of the proceedings, "to investigate, inquire and determine whether FirstOntario's interest was in good faith and whether they were an innocent third party", rather, the onus was on FirstOntario at a later stage once the forfeiture hearing was completed, namely, the s. 20 stage. He argued legitimate and proper questions could be asked as to the state of knowledge of FirstOntario but he was not putting it any higher than that at this stage. He was not accusing FirstOntario of being involved in a grow operation but there needed to be a proper inquiry. The next set of concerns arose after the discovery of the grow operations in 2004. The first mortgage was set to mature in 2008 but was renewed in 2007. The Crown had no understanding or information about FirstOntario's relationship with Fercan. Mr. Selvaratnam seemed overly intent on not suggesting by his submissions that FirstOntario was complicit or otherwise. He was just raising legitimate concerns the Crown wanted to look into and which the court would want to look into under s. 20 of the CDSA, which, according to the Crown, was for another day.

[23] The Application was heard before Justice Mulligan on March 22, 2012. Mr. Selvaratnam submitted to Justice Mulligan the Crown was involved in a forfeiture process arising from one of the largest grow operations in Canada and its purpose was not simply to punish the offenders. The rational was to make a dent in organized crime, the profits that were made from organized crime, to send out a message of deterrence to people who might not be charged but might be complicit and might be involved in facilitating the processes that were taken up by the actual offenders. He made reference to FirstOntario's collateral mortgages, which were attached to the 1 Big Bay Point Road property. After making these submissions concerning organized crime Mr. Selvaratnam again submitted he was not suggesting there was any criminality involved despite including an article, in his materials, on money laundering. He submitted he put the article in his materials to clarify that we live in a world where mortgage instruments, financial institutions, are used in furtherance of criminal money laundering, terrorist money laundering even. He submitted he was not making these submissions in relation to FirstOntario but argued these were valid concerns the Crown had in reviewing this matter. Again, it would appear Mr. Selvaratnam was overly intent on giving the appearance he was not making any suggestions respecting FirstOntario's complicity in the grow operations, yet it appeared this was exactly his intention.

[24] The Crown submitted it had "serious concerns" regarding FirstOntario's relationship with Fercan and it opposed the sale of the Big Bay Point Road property if FirstOntario's mortgage interest was to be paid out. The Crown advised Justice Mulligan it did not concede FirstOntario was an innocent third party. Justice Mulligan referred to the decision of C.J. Brenner in the British Columbia Supreme Court, in Scotia Mortgage Corp. v. Leung, supra, where he stated at paragraph 41:

If the Attorney General were able to raise even a prima facie case that a mortgage lender were complicit with or in collusion with acts on drug-related property, I would not grant such an order at this stage of the proceedings. However, in the case of an innocent third party mortgage lender, such an order should be granted.

[25] As a result of the Crown's position, Justice Mulligan dismissed Fercan's application, finding the Crown had raised a prima facie case.

[26] On April 3, 2012, the Crown wrote to Mr. Criminisi to advise the Crown would be seeking production orders relating to the dealings between FirstOntario and Fercan. On June 5, 2012, FirstOntario filed a Notice of Sale under Mortgage.

[27] On June 21, 2012, the Crown obtained a Production Order requiring FirstOntario to provide documentation relating to mortgages, advancement of funds, payment schedules, memos concerning approval of mortgages, inspections or investigations into the property subject of mortgages, correspondence, and any internal memos, handwritten or computer generated, pertaining to conversations, discussions or meetings in relation to mortgages advanced from FirstOntario to Fercan. No explanation was provided by the Crown for this delay in obtaining the Production Order. The evidence disclosed FirstOntario provided all of the documentation requested in the Production Order by the beginning of August 2012.

[28] On June 28, 2012, FirstOntario filed a Notice of Application for an order pursuant to s. 19(3) of the CDSA to vary the Restraint Order respecting the 1 Big Bay Point Road property allowing it to be sold so that FirstOntario's mortgage could be paid out. The residual of the sale would be paid into the SPMD. FirstOntario maintained they had not been charged with any designated substance offences in respect of the grow operations discovered at 1 Big Bay Point Road and were innocent of any complicity or collusion. In support of this application, FirstOntario supplied the affidavit of Mr. Anthony (Ron) Choma, former Vice President of Commercial Services and Retail Credit with FirstOntario, who was directly involved with Vincent DeRosa and Fercan in advancing funds pursuant to the mortgage in question. There was documentary evidence included as exhibits to Mr. Choma's affidavit, which included reports detailing FirstOntario's due diligence before approving the first mortgage:

i. The June 2003 Appraisal Report.

ii. The July 2003 Environmental Report.

iii. Photographs of the property, showing its condition/state in 2003.

iv. The August 2002 Fire Department Inspection Report.

The affidavit also contained documentation attesting to the purpose of FirstOntario's first mortgage, which disclosed it was to pay out Molson's vendor take-back mortgage.

[29] Further, an Application Record providing documentation relating to this mortgage was filed by FirstOntario. In submissions before me, Mr. Criminisi advised that the Application Record contained most of the documents provided to the Crown pursuant to the Production Order. There was an admission by Cst. Hayhurst during his testimony at the forfeiture hearing that he did not review all of the documentation provided by FirstOntario in response to the Production Order. The Crown filed, on December 12, 2012, as Exhibit 81 on the forfeiture hearing, a binder containing a number of the documents provided pursuant to the Production Order by FirstOntario. The majority of these documents had been filed by FirstOntario on June 28, 2012 as part of their Application Record on their application under s. 19(3) to vary the Restraint Order to permit the sale of the property and repayment of FirstOntario's mortgage. The identical Application Record was filed by FirstOntario the first day they attended the forfeiture hearing at the end of August 2012 and sought standing.

[30] The Crown filed a factum in response to FirstOntario's application before Justice Mulligan arguing that FirstOntario had a number of avenues available to pursue their third party interest, either as part of the forfeiture hearing scheduled in September 2012 or after the forfeiture hearing was completed by bringing an application under s. 20(4) of the CDSA. The Crown once again refused to concede FirstOntario's third party interest and would not consent to the mortgage being paid out from the sale proceeds. The Crown insisted that if the sale of the property took place the full amount of the sale proceeds should be deposited with SPMD. FirstOntario was not prepared to sell the property without their mortgage interest being paid out as the mortgage principal would receive little or no interest if it was deposited with SPMD, whereas, the mortgage provided interest payments of 6.7% per annum.

[31] The application before Justice Mulligan was heard on August 13, 2012. It was the Crown's position that the application should not be heard by the Superior Court for jurisdictional and practical reasons. There was already a forfeiture hearing scheduled to commence in September 2012. During submissions the Crown argued that although they had received materials from FirstOntario and an affidavit from Ron Choma, former V.P. of FirstOntario, they had not reviewed the paperwork yet. Further, they wanted to cross-examine those persons who conducted investigations at 1 Big Bay Point Road. Consequently, they were not in a position to concede the mortgagee's third party interest until they had more fully reviewed the additional material. Finally, Ms. Healey, in response to FirstOntario's assertion that the Crown had not made out a prima facie case against FirstOntario being complicit or in collusion, and in response to questions by Justice Mulligan, directed Justice Mulligan to his finding on March 23, 2012 that the Crown had raised a prima facie case. It was her position that in light of his previous factual finding FirstOntario's application should fail. In answer to a question by Justice Mulligan, Ms. Healey submitted it was the position of the Crown that the complicity of FirstOntario was a "live issue".

[32] Mr. Criminski submitted to Justice Mulligan in reply that the Crown had received all of the materials on the application, including Mr. Choma's affidavit setting out the due diligence exercised by FirstOntario, which included the investigations and reports FirstOntario relied upon and the Application Record, at least six weeks before the hearing date and had the opportunity to cross-examine Mr. Choma on his affidavit, which they did not take advantage of. Further, the Crown had received at the beginning of August 2012 all of the documents sought in their production order, all of which provided the answers the Crown told Justice Mulligan in March 2012 they still had not received from FirstOntario.

[33] On August 22, 2012, Justice Mulligan dismissed FirstOntario's application, once again concluding the Attorney General had made out a prima facie case that FirstOntario may not be an innocent party. He further noted FirstOntario had remedies available to it, as submitted by the Crown, to seek to participate in the forfeiture hearing scheduled to commence in September 2012 or to bring an application under s. 20(4) after the forfeiture hearing was completed.

[34] The forfeiture hearing commenced in September 2012 and a total of 32 witnesses were called by the Crown and a further 6 witnesses by FirstOntario and Fercan. The forfeiture application was heard over 36 non-consecutive days. On January 29, 2013, Ms. Healey advised Mr. Criminski, by letter, that it was now the Crown's belief that "FirstOntario was misled both at the time the mortgage was advanced and subsequent to the discovery of the grow operations." The Crown was now prepared to consent to varying the Restraint Order to sell the property and return FirstOntario's interest. The Crown ultimately abandoned their application for forfeiture in respect of FirstOntario on February 6, 2013 (Day 31).

[35] I have set out in detail the facts relating to the forfeiture application in my Reasons for Judgment, dated September 11, 2013, at paragraphs 2 through 202. I do not intend to set out those facts again. The Crown, in his written submissions, accepted the finding of facts as set out in those paragraphs with the exception of paragraphs 165-167, 172, and 194-195. Those paragraphs dealt with Justice Mulligan's decisions dismissing various applications to vary the Restraint Orders to allow the property at 1 Big Bay Point Road to be sold and FirstOntario's mortgage to be paid out. I have set out above my factual findings concerning those applications above; the submissions made by the Crown during the proceedings before Justice Mulligan and will comment further on them later in these reasons.

[36] For the purposes of these reasons I adopt my findings of fact set out in my Reasons for Judgment, dated September 11, 2013.

Position of the Parties

(A) Fercan/GRVN

[37] It is the position of Fercan and GRVN that the Crown's application for forfeiture of the two properties, 1 Big Bay Point Road, Barrie, Ontario and 1408 Rainbow Valley Road, Phelpston, Ontario should never have been initiated. Although both properties were "offence-related" properties as defined in s. 2 of the CDSA, there was not a scintilla of evidence which demonstrated complicity or collusion on the part of the owners of those properties. Vincent DeRosa, Fercan, Nicola DeRosa and GRVN were never charged with any designated substance offences. It was incumbent on the Crown to assess whether there was any evidence, direct or circumstantial, to support complicity or collusion on the part of the owners of the two properties. It was not enough for the Crown simply to prove the properties were "offence-related", particularly when the owners of the properties sought to be forfeited are "innocent third parties"; the reasonable standards expected of the Crown required them to do more.

[38] Mr. Greenspan submitted the conduct of the Crowns during the forfeiture hearing, namely, their refusal to acknowledge the owners had any standing on the issue of whether the properties were "offence-related", as well as their refusal to provide any disclosure relating to the three police investigations surrounding the marihuana grow operations and the further police investigations looking for evidence of complicity or collusion on the part of the owners, demonstrates the "marked and unacceptable departure" from the reasonable standards expected of the Crown. The Crown, according to Mr. Greenspan, was obligated to have some evidence of knowledge on the part of the owner concerning the illegal activity which took place. It is abusive for the Crown to bring a s. 16 forfeiture application if they are unable to marshal evidence to at least support knowledge, irrespective of the onus. It was Mr. Greenspan's submission the Crown had no evidence of knowledge; in fact, the evidence in their possession demonstrated a lack of knowledge on the part of Fercan and Vincent DeRosa.

[39] Mr. Greenspan points to P.C. Hayhurst's affidavit in support of the ex parte application for a Restraint and Management Order before Justice Ferguson as omitting any reference to the numerous witnesses who were working daily at the former Molson Plant and were unaware of the marihuana grow operations. P.C. Hayhurst's affidavit alleges there was theft of water and hydro by those involved in the illegal activities and Fercan and/or Vincent DeRosa were aware of this; however, this was incorrect and misleading.

[40] It was Fercan's position that the Crown was aware no witness provided evidence that Vincent DeRosa was aware of the grow operations. In fact, the Crown called Michael Dicicco, who was present in the two grow operations on a daily basis, but never asked him whether Vincent DeRosa was ever in the grow operations or whether he spoke to Vincent DeRosa about the grow operations. It was Mr. Greenspan's submission that despite knowing there was no evidence of complicity or collusion on the part of Fercan or Vincent DeRosa, the Crown still proceeded with the forfeiture application, which he submitted demonstrated a "marked and unacceptable departure" from the reasonable standards expected of the Crown.

[41] Finally, Fercan relies upon R. v. Balemba, which held that "the lowered standard used by the Court of Appeal in Ciarniello should be applied" in respect of an innocent bystander where there was no Charter breach.

(B) FirstOntario Credit Union

[42] It is the position of FirstOntario Credit Union Limited that the Crown's conduct respecting FirstOntario was a marked and unacceptable departure from the reasonable standards expected of the prosecution. FirstOntario provided a first mortgage in the amount of $3 million on the 1 Big Bay Point Road property on September 25, 2003. This mortgage was obtained by Fercan in order to pay out the vendor take-back mortgage given by Molson's in the amount of $5.4 million. Fercan used its own funds and the FirstOntario mortgage to pay out the Molson's mortgage.

[43] Prior to agreeing to advance mortgage funds to Fercan, FirstOntario conducted its own due diligence, which included an independent appraisal of the property, an environmental assessment, a fire inspection, a financial review of Fercan and an on-site visit by Mr. Ron Choma. FirstOntario required personal guarantees from Vincent DeRosa and collateral mortgages on other properties owned by Fercan to secure the $3 million mortgage. It was FirstOntario's position that had the Crown reviewed the material provided in FirstOntario's June 28, 2012 application to vary the Restraint Order, as well as the documentation provided by FirstOntario at the end of July 2012, in response to the Crown's Production Order, dated June 21, 2012, the Crown would have clearly seen there was no evidence to support that FirstOntario was complicit or in collusion with the designated substance offences. It is submitted by FirstOntario that the Crown's failure to review the material provided was a marked and unacceptable departure of the reasonable standards expected of the Crown.

[44] FirstOntario argued that "the Crown's misunderstanding, which continued to exist regardless of full documentary disclosure, of standard mortgage practice and evidence" could be summarized as follows:

a. They misunderstood that FirstOntario was seeking payout for the subject property [1 Big Bay Point Road, Barrie], not for the 15 Church Street, St. Catherine's property [there was a collateral mortgage on 1 Big Bay Point Road securing a mortgage advanced in respect of 15 Church Street];

b. They misunderstood why a commercial mortgage might require a personal guarantee;

c. They misunderstood the rate of interest being charged by FirstOntario;

d. How collateral mortgages operate and are registered on title;

e. The amount of money advanced under the mortgages; and

f. Why the mortgage funds were advanced.

[45] FirstOntario also submits fairness requires that FirstOntario not carry the financial burden flowing from their involvement in the litigation having regard to the exceptional circumstances of the case, FirstOntario's attempts to avoid participation in the forfeiture hearing and FirstOntario's attempts to address the Crown's concerns with respect to its mortgage.

[46] Finally, FirstOntario relies upon R. v. Balemba, which held that "the lowered standard used by the Court of Appeal in Ciarniello should be applied" in respect of an innocent bystander where there was no Charter breach. It is FirstOntario's position that they are an innocent bystander, whose property rights were threatened and they are in exactly the same position as the mortgagee (136) in Balemba.

(C) The Crown

[47] The Crown's position is that neither Fercan nor GRVN have met the high standard required for a costs award against the Crown; namely, a "marked and unacceptable departure from the reasonable standards expected of the prosecution." Mr. Wilson submits the Crown's case was not improperly drawn out, any time estimates given by the Crown are not binding, the Crown took a principled position on disclosure and the forfeiture application was not meritless. It is the position of the Crown that the onus under s. 19(3) of the CDSA was presumptively on the third party owner and the mortgagee, who was lawfully entitled to possession, to demonstrate lack of complicity and collusion.

[48] It is also the Crown's position that the lowered standard for third party bystanders only applies where there has been a breach of the bystander's Charter rights, as set out in Ciarniello in respect of providing a s. 24(1) remedy. None of the applicants are alleging a Charter breach respecting their clients, which are corporations and not "individual" litigants.

[49] Further, it is the Crown's position that the lowered standard in Ciarniello does not apply to non-Charter cases. Mr. Wilson argued that Balemba is wrongly decided if it extends the lowered standard in Ciarniello to third parties in non-Charter circumstances. The exceptional circumstances referred to in Tiffin, are not applicable as this only applies to the "individual" litigant and not a corporation.

[50] Mr. Wilson argued the Crown only needed to establish, on a balance of probabilities, the properties were "offence-related". Once they satisfied this onus, the onus shifted to the third party owner and the person lawfully entitled to possession (mortgagee). There was no responsibility on the Crown to assess whether there was any evidence, either direct or circumstantial, as to whether the third parties were complicit or in collusion in relation to the designated substance offences.

[51] The Crown submitted the forfeiture application was not meritless given that Robert DeRosa, the brother of Vincent DeRosa, worked as Fercan's property manager at 1 Big Bay Point Road. Direct evidence of complicity is not necessary as complicity can be established by inferences drawn from circumstantial evidence. Mr. Wilson points to the Mr. Selvaratnam's submissions that "Vincent DeRosa visited the property on a weekly basis, the extensiveness of the grow operations, the evidence suggesting [Vincent DeRosa] misled FirstOntario's due diligence representative and the fact that grow operations were located on other properties owned by, or otherwise associated with [Vincent DeRosa] or his companies." The fact that the Crown's submissions as to inferences which could be drawn from the evidence called during the forfeiture hearing were not accepted by the court does not retroactively make the Crown's application meritless. It was the Crown's submission it would have been professionally irresponsible for the Crown not to bring a forfeiture application.

[52] Mr. Wilson also pointed to the Crown's assertion that Robert DeRosa was a "directing mind" of Fercan. Fercan was the property owner, not Vincent DeRosa and consequently, even if Vincent DeRosa had no knowledge and was not wilfully blind respecting the existence of the grow operations, knowledge could be imputed to Fercan because Robert DeRosa was a "directing mind".

[53] It was also Mr. Wilson's position the fact the Crowns at the forfeiture hearing did not understand the nature of a collateral mortgage is irrelevant to the court's determination as to whether a costs award should be made. He argues the collateral mortgage issue is a "red herring".

[54] It was Mr. Wilson's position that Mr. Selvaratnam never asserted the Crown had a prima facie case against FirstOntario as to complicity and collusion in his submissions before Justice Mulligan of the Ontario Superior Court.

[55] It was Mr. Wilson's position that FirstOntario "misapprehends the nature of the forfeiture proceedings" when it argues the Crown "abandoned its forfeiture against FirstOntario only after FirstOntario had incurred significant costs." The Crown argues that the onus was on FirstOntario to establish it was not complicit.

[56] It is the Crown's position that the Crown's conduct fell short of the high standard required to order costs against the Crown in a criminal proceeding; namely, it must be a "marked and unacceptable departure from the reasonable standard expected of the prosecution." The Crown never told Justice Mulligan it "had a case against FirstOntario", nor did the Crown make any "allegations against FirstOntario".

[57] The Crown argues FirstOntario's participation in the forfeiture hearing was voluntary, the Crown did not require FirstOntario to initiate power of sale proceedings or to assert a s. 19(3) interest. FirstOntario could have simply waited to bring a s. 20(4) application after the forfeiture hearing was completed.

[58] Finally, it was the Crown's position even if FirstOntario had provided all of the exculpatory evidence in June 2012, which demonstrated its lack of complicity and collusion in respect of the designated substance offences, the Crown's failure to properly assess that evidence was nothing more than an error in judgment. It was Mr. Wilson's submission that costs awards against the Crown are not awarded because of errors in judgment, they are awarded for misconduct.

Basis for a Criminal Court Costs Order

[59] As a general rule, costs awards are not ordinarily imposed in criminal matters and all counsel agree with the prevailing convention of criminal practice, expressed in R. v. C.A.M., "that whether the criminal defendant is successful or unsuccessful on the merits of the case, he or she is generally not entitled to costs." The commonly cited policy reason for restricting costs awards against the Crown is found in R. v. Robinson:

The reasons for limiting costs are that the Crown is not an ordinary litigant, does not win or lose criminal cases, and conducts prosecutions and makes decisions respecting prosecutions in the public interest. In the absence of proof of misconduct, an award of costs against the Crown would be a harsh penalty for a Crown officer carrying out such public duties.

[60] In R. v. 974649 Ontario Inc., at para. 87, McLachlin C.J. stated for the court that costs in a criminal case are only appropriate where it can be shown that there was "a marked and unacceptable departure from the reasonable standards expected of the prosecution." Consequently, as a discretionary remedy, they are unique. The court is obliged to consider and balance relevant factors including the degree and nature of the government misconduct as well as the case for compensatory relief having regard to issues of fairness and hardship: R. v. Zarinchang, supra, at paras. 67-71; R. v. Brown, at paras. 16-21, 24-27; R. v. Tiffin et al., at paras. 92-101; R. v. Ciarniello, at paras. 34-40; R. v. Pawlowski, at paras. 11, 13.

[61] It is recognized that costs against the Crown in the criminal context may be awarded as part of the Superior Courts' inherent jurisdiction. It was agreed by all counsel the CDSA grants concurrent jurisdiction to the Ontario Court of Justice and the Superior Court of Justice to hear applications of forfeiture. Further, it was agreed this Court has jurisdiction to award costs because the Crown proceeded with the forfeiture hearing in the Ontario Court of Justice. Consequently, it would be counterintuitive to hold that the Ontario Court of Justice after hearing a forfeiture application would be unable to control its own process to the extent necessary to prevent injustice and accomplish its objectives.

[62] In R. v. Rollin, Pardu J. succinctly summarized the general rule and placed it in the broader context of compensation generally:

Traditionally, the primary focus of criminal proceedings has been determination of the guilt or innocence of accused persons and in the event of conviction, the penalty. Compensation for losses incurred in the course of those proceedings is ordinarily left to civil proceedings and has been limited on public policy grounds. For example, an innocent person who has incurred expenses to defend him or herself cannot recover those costs in the criminal proceedings and may have a civil remedy only in the event of malicious prosecution. Neither jurors nor witnesses are fully compensated for income lost because of attendances at court. The public interest in unconstrained determination of guilt or innocence sometimes results in losses for persons not at fault. The fact that the Applicant has suffered losses for which she is not responsible is not alone sufficient in criminal proceedings to enable a costs order to be made. [Emphasis added.]

[63] It is important to note that Justice Pardu and the majority of cases dealing with cost awards in criminal matters are concerned with applications for costs by a person charged with a criminal offence. This case does not involve an application for costs by a criminal defendant, rather, the parties bringing the costs application are persons determined after the forfeiture hearing to be innocent third parties as there was no evidence of their being complicit or in collusion in respect of the designated substance offences.

[64] Prior to the Charter, the jurisdiction to award costs in a criminal context was exercised only rarely and only where there was serious misconduct on the part of the prosecution. The majority in Pawlowski, supra, noted that "the clear effect of s. 24(1) of the Charter is to enlarge the grounds upon which that [inherent] jurisdiction can be exercised to include a Charter infringement, along with misconduct by the prosecution."

Threshold for Establishing a Criminal Costs Award

[65] The Ontario Court of Appeal, in R. v. Tiffin, reviewed the circumstances when a costs award may be made against the Crown:

In circumstances of a criminal prosecution there are essentially two instances when costs may be awarded: (i) in cases of misconduct by the Crown; and (ii) in other exceptional circumstances where "fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation": R. v. Garcia (2005), 194 C.C.C. (3d) 361 at para. 13 (Ont. C.A.); R. v. Taylor, [2008] N.S.J. No. 14, 2008 NSCA 5 at para. 54.

While the term "exceptional circumstances" has not been specifically defined, it requires more than a case of general importance, or that a person has suffered losses for which he or she is not responsible: Attorney General of Canada v. Foster (2006), 215 C.C.C. (3d) 59 at para. 63 (Ont. C.A.). As this court noted at para. 69 in Foster, it is the court's inherent power to protect against abuse of process that underlies the definition of exceptional circumstances.

[66] In Tiffin, the Court of Appeal further held that

Costs orders will not be made against the Crown for the misconduct of other parties, such as witnesses or investigative agencies, unless the Crown has participated in the misconduct. Where some other party has engaged in misconduct, the appropriate remedy is a civil claim for damages: see R. v. LeBlanc, 1999 NSCA 170, [1999] N.S.J. No. 179 (N.S.C.A.).

[67] In Attorney General of Canada v. Foster, Rosenberg J.A. (on behalf of the Ontario Court of Appeal) noted, with respect to "exceptional circumstances", that although the category was an open one, one could find guidance in the caselaw:

Courts have not attempted to exhaustively define the scope of exceptional circumstances, outside Crown misconduct, that will justify an award of costs in a criminal matter. The language used in the cases, however, captures the unusual nature of such an order. For example, in R. v. M.(C.A.) (1996), 105 C.C.C. (3d) 327 (S.C.C.) at 377, the court referred to the "prevailing convention of criminal practice" that, absent oppressive or improper conduct by the Crown, a criminal defendant is generally not entitled to costs unless the circumstances are "remarkable". To a similar effect is R. v. Leblanc, 1999 NSCA 170, [1999] N.S.J. No. 179 (C.A.) at para. 15. In R. v. King (1986), 26 C.C.C. (3d) 349 (B.C.C.A.) at 351, the court suggested that while the classes of cases for awarding costs beyond improper Crown conduct or a test case were not closed there would have to be "some special category". In R. v. Curragh Inc. (1997), 113 C.C.C. (3d) 481 (S.C.C.) at para. 13 the circumstances were described as "unique" and justified an order for costs against the Crown. In Curragh Inc. the Supreme Court did not, however, identify the jurisdictional basis for awarding costs.

In my view, a principle that will assist in identifying the exceptional circumstances where costs or any kind of compensation may be awarded (outside the broad remedial powers given a court by s. 24(1) of the Canadian Charter of Rights and Freedoms) lies in the court's inherent power to protect against abuse of process. This principle is illustrated by reference to the generally accepted statement of when costs are payable in criminal matters, absent express statutory authority, by L'Heureux-Dubé J.A. in Attorney-General of Quebec et al. v. Cronier (1981), 63 C.C.C. (2d) 437 (Que. C.A.) at 449, 451, referred to with approval by this court in R. v. Chapman (2006), 204 C.C.C. (3d) 457 at para. 16:

[TRANSLATION] A Superior Court has the power to maintain its authority and to control its procedure so as to put justice in order and efficiently. That this implies sometimes ordering one of the parties and even lawyers to pay the costs of a proceeding in cases of the abuse or of the frivolity of proceedings, of misconduct or dishonesty or [where the proceedings are] taken for some other ulterior motive, is a recognized principle. But the conditions for the exercise of this inherent power must exist.

[68] In R. v. Curragh Inc., the trial judge had improperly contacted senior officials in the prosecutor's office in an attempt to have a prosecuting counsel removed. The trial judge refused to recuse himself and then later ordered a stay of proceedings. The Supreme Court of Canada held that the judge's actions gave rise to an apprehension of bias, that he should have recused himself and had no jurisdiction to stay the proceedings and ordered a new trial. Speaking for the majority, La Forest and Cory JJ. noted at para. 13 that while the accused had suffered considerable financial burden of legal costs, "Ordinarily this is something which must be accepted by those charged with criminal offences." The Supreme Court held that the delays and much of the legal costs incurred "arise from systemic problems that were beyond the control of the appellants" and to a large extent by the improper conduct of the trial judge. Accordingly, in those "unique circumstances" the accused should be able to recover their reasonable legal costs.

[69] In the Nova Scotia Court of Appeal decision of R. v. Taylor, Saunders J.A. (Cromwell and Oland JJ.A. concurring) reviewed the legal authorities for when the Crown would be liable to costs in a criminal proceeding and distilled the following legal principles:

Distilling the relevant legal principles from these several authorities leads me to three general conclusions. First, in criminal proceedings, where exceptional circumstances exist, a costs award may be made against the Crown, whether as a remedy pursuant to s. 24(1) of the Charter or pursuant to the court's own inherent jurisdiction. Second, the prosecution's own misconduct may draw a costs sanction in criminal proceedings where, for example, its actions go well beyond inadvertence or carelessness, and amount to oppressive or otherwise improper conduct. Examples would include a Crown Attorney's failure to disclose evidence. Third, whether seen as a remedy under s. 24(1) of the Charter, or an exercise of the court's own inherent jurisdiction, the imposition of a costs award against the Crown in criminal proceedings will be an unusual order, reserved to situations which may be seen to involve circumstances of a marked and unacceptable departure from the reasonable standards expected of the prosecution, or if not involving prosecutorial misconduct, conduct by the police or 'systemic failures so extraordinary as to be virtually unique in character.

[70] In R. v. Connelly, the Newfoundland Court of Appeal upheld an award for costs in a criminal proceeding that took on civil aspects for a third party. The award of costs was based on the court's inherent jurisdiction to award costs.

[71] The facts in Connelly are as follows: Mr. and Ms. Connelly were both charged in 1998 with possession of proceeds of crime in relation to Mr. Connelly's conviction for trafficking in drugs. Mr. Connelly pleaded guilty to the possession of proceeds of crime in 2000, at a time when he was separated from his wife. As part of his sentence a substantial amount of property, which included the matrimonial home, was forfeited to the Crown under the Criminal Code. Ms. Connelly was not provided notice by the Crown of their application for forfeiture.

[72] Ms. Connelly lived in the matrimonial home with her three children from 1996 until 2003. She began to pay rent to the Crown in February 2002. On November 22, 2002, shortly after she was acquitted of the possession of proceeds of crime, Ms. Connelly filed an application seeking relief from forfeiture with respect to the matrimonial home. However, in April 2003, before her application was dealt with, the Crown gave Ms. Connelly notice to vacate the home effective May 15, 2003. The house was sold by the Crown in June 2003, knowing Ms. Connelly had been acquitted of the charge and that she had commenced an application regarding the matrimonial home.

[73] The applications judge found that Ms. Connelly "was oblivious to Mr. Connelly's illegal activities" and that "she had no knowledge, either directly or indirectly, that her interest" in the property was "in any way the result of proceeds of crime." He ordered she be paid 50% interest of the proceeds of sale of the home, together with interest from the seizure and the Restraint Order, dated March 2, 1998. The applications judge also ordered the Crown to pay Ms. Connelly's costs on a solicitor and client basis. The Crown appealed.

[74] The Newfoundland Court of Appeal found that Ms. Connelly was not given notice of the forfeiture hearing and the Crown did not advise the forfeiture judge of Ms. Connelly's interest in the matrimonial home. As a result, Ms. Connelly was denied the opportunity to request return of the property, a remedy available before the forfeiture order was made. It was noted by the Court that the appeal "engages questions related to the forfeiture of proceeds of crime and the effect on an innocent third party, the wife of the offender." The Court acknowledged that it was unusual for costs to be awarded in a criminal matter; however, "in determining whether the applications judge erred in awarding costs in this case, two factors, in particular must be considered: (1) the conduct of the Crown, first, in failing to advise the court that Ms. Connolly was a person to whom notice of the forfeiture application should have been given, and, second, in selling the house when the forfeiture order was suspended by operation of the legislation; and (2) the quasi-civil nature of the application which is made by an innocent third party."

[75] The Court of Appeal found that "the actions of the Crown…constituted a marked and unacceptable departure from the reasonable standards expected of the Crown." Although the Court found that the applications judge erred when he failed to give counsel the opportunity to make submissions on costs, having heard submissions on the appeal the Court was satisfied that an award of costs on a solicitor and client basis was appropriate.

[76] All of the above cases refer to applications for costs as between persons charged with criminal offences and the Crown. The policy rationale for restricting costs awards against the Crown, as set out in Robinson, to cases where there is a marked and unacceptable departure from the reasonable standards expected of the prosecution is understandable. There are very few decisions involving the awarding of costs as between the Crown and an innocent third party. The issue is whether the same high test should apply in cases involving an innocent third party bystander or whether there should be a lowered standard when the person seeking costs is not an accused.

[77] The Ontario Court of Appeal decision in R. v. Ciarniello is of assistance in addressing this issue. The Applicant in that case had been the subject of a search warrant, which the application judge found was obtained by "recklessly misleading evidence." The Applicant was never charged with a criminal offence. He applied for costs against the Crown, which was denied by the application judge on the grounds there had been no bad faith or misconduct on the part of the Crown.

[78] The Court of Appeal specifically considered whether the application judge erred "by applying the 'serious Crown misconduct' test to the appellant's request for costs?" No issue was raised concerning the traditional rule that costs are not normally awarded in criminal matters. Sharp J.A. (speaking for the Court), found the Applicant had established a serious breach of his Charter rights and considered the cases involving costs as a remedy under s. 24(1) of the Charter; however, he noted those cases were distinguishable:

[T]he cases to which we have been referred do not consider costs as a Charter remedy when claimed by someone other than the accused. On that point, this appears to be a case of first impression. Does the fact that the party claiming costs as a Charter remedy was not the accused, together with any other unusual features of the case, render the traditional rationale for requiring serious Crown misconduct as a prerequisite for a costs award inapplicable?

[79] In Ciarniello, the Court decided the facts distinguished it from the usual situation where costs were not available absent Crown misconduct or other exceptional circumstances, as clarified in Tiffen, supra:

That the appellant was not the target of the investigation nor charged with any offence distinguishes this case from the cases that deal with the Crown misconduct rule in relation to an accused. The appellant's status as a bystander to the prosecution, rather than as the accused, materially alters the appropriate balance of interests between the need to protect Charter rights on the one hand and the need to afford free range to the prosecution on the other. For the following reasons, I conclude that the rationale for limiting costs awards in favour of accused persons to cases of Crown misconduct does not apply with the same force to the bystander. (Emphasis added)

[80] Justice Sharp sets out four reasons for his conclusion. First, from an access to justice perspective, "the compensatory principle that it is just to allow a successful litigant at least partial indemnity for the costs of litigation holds greater sway when the successful litigant is not the accused but a bystander to the criminal prosecution." Second, the criminal process affords a bystander less procedural protections than an accused. In this regard, "the vulnerability of the bystander considerably weakens the case for leaving the Crown's discretion unfettered by the threat of an adverse costs award and considerably strengthens the case for awarding costs to ensure, in the spirit of s. 24(1), that there is a meaningful Charter remedy." Third, the argument that Crown discretion should be unfettered by the threats of a costs order does not apply with the same force in the case of a bystander. In this regard, he held as follows:

The bystander is a member of the very public the prosecution is duty-bound to protect. The cost of securing the Charter rights of an individual not suspected of criminal activity and not charged with an offence should not be automatically or routinely sacrificed in the cause of the general public interest. There is an analogy here with cases where the Crown appeals to settle a point of law and is required to pay the respondent's costs "because it is the public-at-large who are the beneficiaries of such a step and it is not considered just that one individual should be put to substantial expense when it is the Crown that seeks to effect a valid social purpose by taking the appeal": Trask v. The Queen (1987), 37 C.C.C. (3d) 92 (S.C.C.) at p. 95. While this dictum related to a narrow range of Crown appeals, Prof. Kent Roach identifies it as "a much broader rationale for granting costs ... when a case is brought for the benefit of the public at large and when it is not just that the applicant should be put to a substantial expense": Constitutional Remedies, looseleaf (Aurora: Canada Law Book, updated 2005) at para. 11.920.

[81] Fourth, Justice Sharpe referenced the unusual circumstances of the case, which included the cost of litigating the case in both British Columbia and then in Ontario.

[82] The Court found the Crown took what could appropriately be described as a "hardball" attitude toward the Applicant and his Charter rights. It was recognized that the source of the problem was the cavalier and reckless behaviour of the B.C. officer who was not subject to the control of the Ontario Crown; however, the Ontario Crown "despite a clear warning that there were serious problems with the information provided by the B. C. officer [and] decided to tough it out." The Crown's conduct was described as follows:

The Crown's conduct in the Ontario proceedings has been found to fall short of misconduct sufficient to warrant a costs award on the traditional criminal law test, and I do not say that costs would be appropriate if the appellant's claim rested solely on the manner in which the Crown conducted this case. However, the decision of the Crown staunchly to resist the application to quash the warrant in the face of the clear warning from the B.C. Crown that the information was tainted provides an additional factor which, together with the other circumstances discussed above, makes it "appropriate and just" to require the Crown to indemnify the appellant for a reasonable portion of the costs he incurred to secure his Charter rights. (Emphasis added)

[83] The Court allowed the appeal and ordered costs against the Crown in the amount of $20,000 based on the appellant having paid only $26,450, because of his limited means, towards a total bill of costs of $73,666.71, up to the date of the argument for costs, and an additional $14,550.19 thereafter.

[84] Ciarniello therefore is authority that a third party bystander to a criminal proceeding, who seeks costs from the Crown, will not necessarily be held to the traditional rule of having to demonstrate a marked and unacceptable departure from the reasonable standards expected of the prosecution, where there has been a serious Charter breach of the bystander's Charter rights. It is agreed by counsel on behalf of Fercan, GRVN and FirstOntario that in this case there were no Charter breaches by the Crown in respect of the conduct of the forfeiture hearing. Further, Fercan, GRVN and FirstOntario are all corporations to which Charter breaches have no application.

[85] The issue arises therefore whether the traditional rationale for requiring serious Crown misconduct as a prerequisite for a costs award is applicable in the case of a bystander or an innocent third party where the court is exercising its inherent jurisdiction to award costs. In R. v. Balemba, Gilmore J. held that "the lowered standard used by the Court of Appeal in Ciarniello should be applied" in respect of an innocent bystander where there was no Charter breach.

[86] On July 17, 2007, Mark Balemba was charged with Possession of Cocaine for the Purpose of Trafficking, CDSA and Possession of the Proceeds of Crime Over $5000, Criminal Code. On November 7, 2007, he pleaded guilty to both of these charges. He received a sentence of two years on the trafficking and six months concurrent on the proceeds of crime offence. At the time of his arrest and sentencing he owned two properties, one on Lisburn Street in Peterborough and the other on Brick Road in Ennismore. Both properties were encumbered by two mortgages. Crime-related property was found at the Brick Road property and the prosecution brought an ex parte restraint and management application under s. 14 of the CDSA.

[87] Prior to the Restraint Order, 1363669 Ontario Inc. (136) had taken an assignment of the second mortgage on the Lisburn property, which was in the amount of $53,600. This mortgage was collaterally secured as a second mortgage on the Brick property, in the amount of $53,600. No offence-related property was located at the Lisburn property.

[88] The Crown sought forfeiture of the proceeds of sale of the Brick Road property and agreed to vary the restraint and management order to allow the Brick Road property to be sold and agreed to pay out the first mortgage. 136 sought pre-forfeiture payout of its mortgage from the proceeds of sale. The Crown refused to payout the second mortgage on the property. The Crown suggested 136 attend the forfeiture hearing to make submissions about its intention to commence enforcement proceedings. The forfeiture hearing did not commence on the date scheduled. Ultimately it was Mr. Balemba who brought an application to allow the sale of the Brick Road property and the payout of the first mortgage. He also wanted the second mortgage to be paid out to 136. On June 13, 2008, the Brick Road property was sold and the first mortgage paid out. There was a residual of $82,352.08 remaining and it was provided to the Seized Property Management Directorate (SPMD).

[89] The issue of whether 136's second mortgage could be paid out of the proceeds of the sale was adjourned to August 2008. The hearing did not proceed and by November 2008 the amount owed to 136 had increased to $97,546.90. Justice Gilmore began to hear 136's application for payment of its second mortgage from the monies held by SPMD. The prosecution took the position that 136 should first seek payout of its second mortgage on the Lisburn property and then look to any outstanding balance from the monies held by SPMD. 136 did not agree to this position and offered to assign its interest in the second mortgage on the Lisburn property to the SPMD. On February 24, 2009, Justice Gilmore ordered that 136's second mortgage on the Brick Road property be paid out from the monies held by SPMD. 136 also applied for its costs in bringing the application for its second mortgage to be paid from the monies held by SPMD.

[90] Justice Gilmore, after reviewing many of the above-noted cases, held that the "lowered standard used by the Court of Appeal in Ciarniello, should be applied" even though there was no Charter costs remedy sought. She referred to Sharp J.A.'s four reasons for concluding that the "rationale for limiting costs awards in favour of accused persons to cases of Crown misconduct does not apply with the same force to the bystander." Under the first reason the compensatory principle underlying costs held greater sway from an access to justice perspective for a bystander to a criminal prosecution. Second, she held the inherent jurisdiction costs remedy "should be given the same broad interpretation for bystanders, whose procedural rights are often more limited in a criminal case than the rights afforded to an accused." Third, she held the unfettered discretion of the Crown not to be threatened by an award of costs did not apply with the same force for a bystander. Fourth, Justice Gilmore referred to the unusual circumstances of the case; namely, that the Crown failed to appreciate the rights of 136 as mortgagee and bona fide, secured creditor or was indifferent to such rights. She held that 136 was the type of bystander who was "a member of the very public the prosecution is duty-bound to protect."

[91] In Balemba, Justice Gilmore found the conduct of the Crown did not rise to the level of misconduct sufficient to warrant a costs award on the traditional criminal law test; however,

…given the quasi-civil aspects of this case and 136's position as an innocent bystander to the legal proceedings, I do not think that the Crown should be able to rely on the traditional criminal law costs test to shield itself from the unexplained delay, mismanagement and misdirection that occurred here. In the circumstances of this case, it is "appropriate and just" to require the Crown to indemnify 136 for a reasonable portion of the costs it incurred to secure the payout of its mortgage. I find that a reasonable amount in the circumstances would be $20,000.00 which I order the HMQ to pay to 136 forthwith.

[92] The Crown argued that Justice Gilmore's extension of the lowered standard in Ciarniello should not have been applied in respect of an innocent bystander where there was no Charter breach. He submitted that Rosenberg J.A., in Foster, restricted the lowered standard to cases involving a serious Charter breach of an innocent third party bystander's Charter rights. Ms. Lutes, in reply, on behalf of Fercan, argued Justice Rosenberg only distinguished Ciarniello from the facts in Foster as there was no Charter breach alleged and the facts did not involve the unusual set of circumstances which existed in Ciarniello. I have reviewed the decision in Foster and it is my view that the Crown's argument is correct.

[93] Prior to addressing the specific circumstances in Foster, Justice Rosenberg discussed general considerations dealing with costs in criminal matters. He reviewed the caselaw discussed above and concluded, "The general rule that witnesses and other innocent third parties (like the innocent accused) are not compensated for losses and expenses occasioned by the criminal process exists despite the fact that these costs can be onerous." Costs can be awarded, in addition to cases of misconduct by the Crown, where "other exceptional circumstances exist such that fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation" (Doherty J.A. in Garcia, supra, at para. 13). Although the courts have not attempted to exhaustively define the scope of exceptional circumstances, Justice Rosenberg held that "a principle that will assist in identifying the exceptional circumstances where costs or any kind of compensation may be awarded (outside the broad remedial powers given a court by s. 24(1) of the Canadian Charter of Rights and Freedoms) lies in the court's inherent power to protect against abuse of process." (Emphasis added)

[94] Justice Rosenberg, in my view, restricted the lowered standard applied by Sharp J.A. in Ciarniello to circumstances involving a Charter breach.

Speaking for the court, Sharpe J.A. noted that absent a Charter violation, the circumstances in which a costs order will be made against the Crown are narrow. As he said at para. 32: "Routine costs awards in favour of the winning party are a feature of civil, not criminal proceedings." However, as he said at para. 35, "[b]ecause of their constitutional status, Charter rights have a higher claim to judicial protection than non-Charter rights and s. 24(1) entitles the victim of a Charter breach to an appropriate remedy". Unlike Ciarniello, this case does not involve a Charter violation, nor does it involve the unusual set of circumstances that occurred in that case.

[95] The application judge in Foster made a compensation order for costs incurred by the innocent party as part of the Sending Order pursuant to MLAT. Justice Rosenberg found the innocent party provided "no evidence to show that the execution of the order envisaged the kind of exceptional loss to the collectors [innocent party] that would trigger the court's inherent jurisdiction to protect its processes from abuse." Consequently, he found the application judge erred in making the Compensation Order.

[96] Justice Rosenberg applied similar reasoning to whether the application judge erred in requiring the Attorney General of Canada to pay the innocent third party their costs of the application. He indicated he was not persuaded

…that the ordinary rule respecting costs in criminal matters should not apply to a costs order under the Act. While a superior court judge has an inherent jurisdiction to award costs against the competent authority on an application under this Act, absent a breach of the Canadian Charter of Rights and Freedoms the judge should do so only in exceptional circumstances like those discussed by L'Heureux-Dubé J.A. in Cronier or where there has been some similar oppressive conduct.

[97] In Foster, Justice Rosenberg found the applications judge founded his order for costs not on any kind of misconduct or abuse of process, but on the basis that the innocent third parties "were not in any way, shape or form targets of the French investigation." Because of this status the application judge could "see no reason why their costs of these particular proceedings should not be paid." It was Justice Rosenberg's view this reasoning led to costs following as a matter of course in proceedings where innocent third parties are involved, which he held was not the correct approach.

To award costs in proceedings under the Act, virtually as a matter of course, would represent a very significant change in the normal criminal law policy. If Parliament had contemplated such a change I would have expected an express provision to that effect.

[98] Consequently, it is my opinion that the applicants must demonstrate, in order for costs to be ordered against the Crown, either "a marked and unacceptable departure from the conduct expected of the Crown" or where "other exceptional circumstances exist such that fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation". The lowered standard pursuant to Ciarniello has no application to the applicants as there are no Charter breaches and the applicants are corporations.

[99] The Crown has argued that the "other exceptional circumstances exist such that fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation" has no applicability to a corporation. In my view, the Crown's position is incorrect. It is my view that the court's inherent jurisdiction to protect against abuse of process would apply equally to a corporate litigant. I do agree with the Crown; however, that in Foster, Justice Rosenberg held that any definition of "exceptional circumstances" is informed by the court's inherent jurisdiction to protect against abuse of process.

Analysis

[100] The relevant sections of the Controlled Drugs and Substances Act (CDSA) are as follows:

2(1) In this Act,

"offence-related property" means, with the exception of a controlled substance, any property, within or outside Canada,

(a) by means of or in respect of which a designated substance offence is committed,

(b) that is used in any manner in connection with the commission of a designated substance offence, or

(c) that is intended for use for the purpose of committing a designated substance offence;

16. (1) Subject to sections 18 to 19.1, where a person is convicted of a designated substance offence and, on application of the Attorney General, the court is satisfied, on a balance of probabilities, that any property is offence-related property and that the offence was committed in relation to that property, the court shall

(a) in the case of a substance included in Schedule VI, order that the substance be forfeited to Her Majesty in right of Canada and disposed of by the Minister as the Minister thinks fit; and

(b) in the case of any other offence-related property,

(i) where the prosecution of the offence was commenced at the instance of the government of a province and conducted by or on behalf of that government, order that the property be forfeited to Her Majesty in right of that province and disposed of by the Attorney General or Solicitor General of that province in accordance with the law, and

(ii) in any other case, order that the property be forfeited to Her Majesty in right of Canada and disposed of by such member of the Queen's Privy Council for Canada as may be designated for the purposes of this subparagraph in accordance with the law.

(2) Subject to sections 18 to 19.1, where the evidence does not establish to the satisfaction of the court that the designated substance offence of which a person has been convicted was committed in relation to property in respect of which an order of forfeiture would otherwise be made under subsection (1) but the court is satisfied, beyond a reasonable doubt, that that property is offence-related property, the court may make an order of forfeiture under subsection (1) in relation to that property.

(2.1) An order may be issued under this section in respect of property situated outside Canada, with any modifications that the circumstances require.

(3) A person who has been convicted of a designated substance offence or the Attorney General may appeal to the court of appeal from an order or a failure to make an order under subsection (1) as if the appeal were an appeal against the sentence imposed on the person in respect of the offence.

19. (1) Before making an order under subsection 16(1) or 17(2) 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.

(2) A notice given under subsection (1) shall

(a) be given or served in such manner as the court directs or as may be specified in the rules of the court;

(b) be of such duration as the court considers reasonable or as may be specified in the rules of the court; and

(c) set out the designated substance offence charged and a description of the property.

(3) Where a court is satisfied that any person, other than

(a) a person who was charged with a designated substance offence, or

(b) a person who acquired title to or a right of possession of the property from a person referred to in paragraph (a) under circumstances that give rise to a reasonable inference that the title or right was transferred for the purpose of avoiding the forfeiture of the property,

is the lawful owner or is lawfully entitled to possession of any property or any part of any property that would otherwise be forfeited pursuant to an order made under subsection 16(1) or 17(2) and that the person appears innocent of any complicity in an offence referred to in paragraph (a) or of any collusion in relation to such an offence, the court may order that the property or part be returned to that person.

19.1 ...

(3) Subject to an order made under subsection 19(3), if a court is satisfied that the impact of an order of forfeiture made under subsection 16(1) or 17(2) in respect of real property would be disproportionate to the nature and gravity of the offence, the circumstances surrounding the commission of the offence and the criminal record, if any, of the person charged with or convicted of the offence, as the case may be, it may decide not to order the forfeiture of the property or part of the property and may revoke any restraint order made in respect of that property or part.

(4) Where all or part of the property that would otherwise be forfeited under subsection 16(1) or 17(2) is a dwelling-house, when making a decision under subsection (3), the court shall also consider

(a) the impact of an order of forfeiture on any member of the immediate family of the person charged with or convicted of the offence, if the dwelling-house was the member's principal residence at the time the charge was laid and continues to be the member's principal residence; and

(b) whether the member referred to in paragraph (a) appears innocent of any complicity in the offence or of any collusion in relation to the offence.

20. (1) Where any offence-related property is forfeited to Her Majesty pursuant to an order made under subsection 16(1) or 17(2), any person who claims an interest in the property, other than

(a) in the case of property forfeited pursuant to an order made under subsection 16(1), a person who was convicted of the designated substance offence in relation to which the property was forfeited,

(b) in the case of property forfeited pursuant to an order made under subsection 17(2), a person who was charged with the designated substance offence in relation to which the property was forfeited, or

(c) a person who acquired title to or a right of possession of the property from a person referred to in paragraph (a) or (b) under circumstances that give rise to a reasonable inference that the title or right was transferred from that person for the purpose of avoiding the forfeiture of the property,

may, within thirty days after the forfeiture, apply by notice in writing to a judge for an order under subsection (4).

(4) Where, on the hearing of an application made under subsection (1), the judge is satisfied that the applicant

(a) is not a person referred to in paragraph (1)(a), (b) or (c) and appears innocent of any complicity in any designated substance offence that resulted in the forfeiture of the property or of any collusion in relation to such an offence, and

(b) exercised all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an unlawful act by the person who was permitted by the applicant to obtain possession of the property or from whom the applicant obtained possession or, where the applicant is a mortgagee or lienholder, by the mortgagor or lien-giver,

the judge may make an order declaring that the interest of the applicant is not affected by the forfeiture and declaring the nature and the extent or value of the interest.

[101] The CDSA sets out a comprehensive regime for the restraint and forfeiture of offence-related property and the protection of third party interest holders.

[102] Abella J., in R. v. Craig, cited with approval the judgment of the Alberta Court of Appeal in R. v. Gisby, where the Court described the purposes of the antecedent forfeiture scheme under the CDSA as follows:

The CDSA was enacted by Parliament to combat the illicit drug industry. A review of the CDSA and in particular, the provisions related to the forfeiture of property, indicate that the CDSA does so both through punishment and deterrence. The forfeiture provisions are punitive to the extent that they deprive one of offence-related property, broadcasting the message that Canadian society regards designated substance offences with abhorrence. But they also introduce an element of deterrence in relation to designated substance offences. In this respect, the forfeiture provisions attach a very real cost to the business of drug crime directly equivalent to the monetary value of the offence-related property that is subject to forfeiture, thus raising the stakes associated with the commission of those offences. (Gisby at para.19)

The forfeiture provisions serve another purpose. In addition to punishment and deterrence, they help prevent or at least reduce the likelihood of future offences by removing from the illicit drug industry property which, by virtue of the definition found at s. 2(1), is being used to facilitate the commission of a designated substance offence. Provided that all requisite conditions are met, property that has been used to facilitate such offences will be forfeited and thus cannot be used to aid the perpetration of future offences. (Gisby, at para. 20)

[103] In Scotia Mortgage Corp. v. Leung, Chief Justice Brenner of the British Columbia Supreme Court, set out the purpose of the forfeiture provisions in the CDSA:

It is clear that the forfeiture scheme under the CDSA serves three purposes. First, forfeiture punishes the offender by taking away the property that was used in the commission of the designated substance offence. Second, forfeiture is a deterrent in the sense that it "raises the stakes" by imposing a "very real cost" to those who either use, or permit their property to be used, in the commission of a designated substance offence. Third, forfeiture ensures that the property is no longer available for continued use in criminal activities: (see Canada (Attorney General) v. Huynh, [2005] B.C.J. No. 2168, 2005 BCPC 431.

[104] In Gisby, at paragraphs 21-23, the Alberta Court of Appeal also discussed the issue of a non-charged third party owner:

21 One might be inclined to think that if the purpose of the forfeiture provisions is to prevent future offences, forfeiture is redundant to the extent that the conviction of the offender presumably guards against the commission of future offences, as least during the period of punishment. While this may be true with respect to a convicted party, it is often the case that offence-related property is not owned by the offender, but by a culpable third-party with some sort of relationship to him or her, and continues to be used for illicit purposes by other persons notwithstanding the conviction of the designated substance offender. [Emphasis added]

22 However, the innocence or guilt of the property owner is immaterial insofar as the initial determination under s. 16(1) of the CDSA is concerned. That section requires that "a person" be convicted of a designated offence in relation to the property that is subject to be forfeited. Provided that the property in question is offence-related in satisfaction of the definition found at s. 2(1), the property will be subject to forfeiture. The provisions do not require the owner of the property in question to have been convicted in order for forfeiture to take effect, though the person convicted could of course be the owner of the offence-related property.

23 Thus, s. 16(1) gives recognition to the manner in which the illegal drug industry operates. It provides for the forfeiture of offence-related property where "a person", who may or may not be the legal owner of the offence-related property, is convicted. The forfeiture provision is therefore designed to prevent, or at least impede, the commission of further offences by ensuring that offence-related property cannot be used to facilitate those offences.

[105] In Scotia Mortgage Corp. v. Leung, supra, Brenner J. held:

Section 19 of the CDSA addresses the rights of an innocent owner or other person who may have a valid interest in the offence-related property. Section 19 contemplates the return of restrained property that would otherwise be forfeited. The considerations for such a return take place in the context of the forfeiture hearing. Section 19(1) provides that any person appearing to have a valid interest in offence-related property is to receive notice of the forfeiture proceedings.

However, the forfeiture provisions of the CDSA are obviously designed to remove the property from the offender and to ensure that the offender has no further interest in the property. The legislation also provides that an innocent third party is entitled to have its property returned. The obvious legislative goal is to forfeit only the interests of the offender and not those of the innocent third party.

[106] In this case, the Crown took the position that the forfeiture application was a two-stage process. The first stage was the determination as to whether the property was "offence-related" property pursuant to s. 2 of the CDSA. The Crown bore the onus of proving the property was "offence-related" property. It was Mr. Selvaratnam's position once the Crown established, on a balance of probabilities, the property was "offence-related", forfeiture followed unless the third parties established they were innocent of complicity or collusion. The Crown bore no responsibility of determining whether there was any evidence of complicity or collusion on the part of an "innocent" third party prior to commencing the forfeiture hearing. I will deal with the second aspect of the Crown's position later in my reasons.

[107] It was the Crown's position throughout the judicial pre-trial stage and at the commencement of the forfeiture hearing that the innocent third parties had no standing during the first stage and could not cross-examine witnesses, call witnesses, or make submissions. In my view, the Crown's position was not supported by binding appellate authority from the Ontario Court of Appeal in R. v. Wilson. Doherty J.A. held that third party interests are to be determined as part of the forfeiture hearing and prior to a determination of forfeiture.

[108] In R. v. Craig, Ryan J.A. for the British Columbia Court of Appeal also rejected a similar submission made by the Crown.

To summarize, the CDSA does not impose a two-step process as advocated by the Crown. Rather, with respect to forfeiture of real property pursuant to s. 16(1), the onus is on the Crown to establish that a person has been convicted of a "designated substance offence", that the property in question is "offence-based property", and that the offence was committed in relation to that property. If the subject matter is real property, the court, pursuant to s. 19.1(3), is required to go on to consider whether the impact of such an order would be disproportionate, taking into account the nature and gravity of the offence, the circumstances surrounding it, and the criminal record of the offender. At this point the burden shifts to the offender to establish that the impact of forfeiture would be disproportionate. The offender may choose to rely on the Crown's case for proof, or may call evidence in support of his or her position. In addition, if the property is a dwelling-house, the court, pursuant to s. 19.1(4), must consider the "impact of forfeiture" on any member of the offender's family who uses the location as a principal residence.

[109] In the Supreme Court, in R. v. Craig, Abella J., although not specifically dealing with the two-stage process, made the following comment, which reflects its rejection:

An order for forfeiture under s. 16(1) is subject to s. 19.1. That means that before a court orders forfeiture, it must consider the factors set out in s. 19.1. This includes the proportionality factors in s. 19.1(3), the provision dealing with real property.

[110] In Canada (Attorney General) v. Nguyen, Allen J. of the Alberta Provincial Court held:

…the two step procedure is not warranted by the legislative scheme in the CDSA or the jurisprudence. Section 16(1) begins with the phrase "Subject to sections 18 to 19.1." An ordinary reading of this phrase is that before the judge orders forfeiture, he or she must consider s. 18-19.1. In my view, this means that the judge must consider forfeiture in a holistic manner. Before he or she orders forfeiture of real property, the judge must consider whether forfeiture would result in a disproportionate impact on the offender or members of his immediate family as explained in s. 19.1(3) or (4). This reading is inconsistent with the two step procedure suggested by the applicant.

[111] Section 19(3) of the CDSA addresses the rights of a third party owner or person lawfully entitled to possession (i.e., a mortgagee) that has a valid interest in the "offence-related" property. The section further contemplates the return of restrained property that would otherwise be forfeited. In my view, the considerations for such a return take place during the forfeiture hearing, prior to ordering the "offence-related" property forfeited. It is of interest that Mr. Selvaratnam advised, during his submissions on this issue at the outset of the forfeiture hearing, when I raised the judgment of Allen J. in Canada (Attorney General) v. Nguyen, who also rejected the two-stage procedure, that he was well aware of the case as he had originally been Crown counsel. Mr. Selvaratnam ultimately conceded that the weight of authority, particularly in light of Doherty J.'s decision in R. v. Wilson, supra, rejected the two-stage procedure.

[112] It is my view the original position taken by the Crown reflects an intransigent, "hardball" attitude which continued throughout the forfeiture hearing. The next issue raised on the first day of the forfeiture hearing was a disclosure motion brought by the third party applicants. It was the Crown's position there was no requirement for the Crown to provide appropriate full disclosure of the evidence relating to the two grow operations, which would have been in the possession of the accused persons charged with the designated substance offences. The Crown was unable to persuade me why an accused owner should be in a better position than a third party owner, who was not charged.

[113] Further, it was the Crown's position there was no obligation for the Crown to disclose any evidence in their possession relating to the third parties' complicity or collusion. I was advised by counsel that the case management judge had attempted to resolve this issue during numerous pre-trials; however, the Crown's position was inflexible and the third parties were required to bring a disclosure application. Mr. Wilson argued the Crown's position on the forfeiture hearing respecting disclosure was a principled one; however, it is my view this position is a further reflection of the Crown's intransigent, "hardball" attitude towards the third parties and is anything but principled.

[114] On August 21, 2012, at the commencement of the disclosure application and after discussion the Crown relented and three weeks prior to the commencement of the evidence portion of the forfeiture hearing (at that point a total of 23 days had been set), counsel were provided a computer hard drive purportedly containing all of the relevant disclosure in the possession of the Crown relating to the grow operations: Project Plants, Project 3D and Project Birmingham (2009/10 undercover investigation). However, I observed on numerous occasions throughout the forfeiture hearing additional disclosure being provided by the Crown to the third parties. It was my view the Crown displayed a "hardball" attitude towards the third parties throughout the forfeiture hearing and there were numerous occasions I had to remind Crown counsel of their professional obligations of civility to other counsel and to the court.

[115] It was further decided and agreed to by all counsel that the forfeiture hearing would proceed by the Crown calling evidence demonstrating the two properties were "offence-related" as well as any evidence the Crown believed showed complicity or collusion on the part of the third parties. This procedure was likened to a "blended" hearing in a Charter application and was agreed to by all counsel.

[116] Although the Crown's estimates of how long the forfeiture hearing would take changed throughout the course of the proceedings, it is my view that not all of the blame should lie with the Crown. Time estimates for court proceedings are inherently inaccurate and, in my view, do not form part of the conduct of the Crown in determining whether a costs award should be made. The Crown's initial estimates were based on its view the forfeiture hearing was a two-stage proceeding, which I found was contrary to binding appellate authority. The agreement to treat the forfeiture hearing as a "blended" one, dealing with all issues, as contemplated by s. 16 of CDSA, certainly altered the time estimates. Further on this issue, as I have already intimated, blame for the proceeding taking as long as it did lies at everyone's feet.

[117] It is also my view the time between the discovery of the two marihuana grow operations in 2004 and the applications in 2010 and 2011 for restraint and then forfeiture brought by the Crown, is not indicative of the level of Crown misconduct which would result in an award of costs. It was clear from the evidence at the forfeiture hearing that the police investigations did not end with the discovery of the marihuana grow operations. Project 3D involved numerous production orders respecting Fercan's banking institutions. Project Birmingham involved the use of a police agent and undercover police officers and ultimately led to an additional seven or eight individuals being charged with designated substance offences relating to the two grow operations discovered in 2004, as well as new designated substance offences, which occurred after 2004. I will have more to say about these police investigations later in these reasons for judgment.

[118] It was argued by counsel for Fercan that the Crown had engaged in unnecessary questioning of Det. Cst. Bednarczyk and other witnesses. There was no admission by counsel on behalf of the third parties as to 1 Big Bay Point Road being "offence-related" property and consequently, the Crown was required to establish this fact and chose to do so by calling a number of witnesses who demonstrated the nature of the grow operations and their use of a portion of the property to commit the designated substance offences. Counsel for Fercan also argued the Crown failed to focus its questioning of witnesses on the critical issue of whether Fercan or its owner, Vincent DeRosa, had knowledge of the grow operations or was wilfully blind as to their existence. I agree with Mr. Wilson this reflects the Crown's exercising poor judgment in the presentation of their case but does not reflect the type of misconduct that would lead to an award of costs.

[119] However, it is my opinion, the Crown conduct, which demonstrated a "marked and unacceptable departure from the reasonable standards expected of the prosecution", relates to the decision by the Crowns to commence a forfeiture application in the first place. The Crown was clearly aware prior to commencing the ex parte restraint application and prior to commencing the forfeiture applications that the owners of the two properties were never charged by the police in relation to the designated substance offences committed therein. Further, it is my view the "hardball" attitude of the Crown during the forfeiture hearing provides a backdrop to what I would refer to as "serious misconduct" by the Crown to commence both a restraint and forfeiture application in respect of third parties who were not charged by police despite three extensive police investigations.

[120] It is important to start with a consideration of what constitutes "complicity" and "collusion" as this is what must be established either by the Crown, as I decided in my Ruling on Onus, or by the third parties. I adopt my discussion of the law respecting "complicity" and "collusion", which I set out in my Reasons for Judgment on Forfeiture Application. I do not intend to reproduce those paragraphs here but I rely upon them. I find the Crown made no discernable effort to apply any of the law respecting "complicity" and "collusion" to the evidence they were aware of prior to commencing their restraint and forfeiture applications. In my view this demonstrated a "marked and unacceptable departure from the reasonable standards expected of the prosecution."

[121] I intend to address the Crown's decision respecting Fercan and GRVN first and deal with the Crown's conduct towards FirstOntario subsequently.

(A) Fercan Developments Inc. and GRVN Group Inc.

[122] In 2004, seven individuals were charged with cultivation/production of marihuana and possession for the purpose of trafficking in marihuana, contrary to the CDSA. These individuals were the growers or farmers who worked and lived in the marihuana grow operations. The police investigation continued after the discovery of the grow-ops but no evidence of any involvement by Fercan or Vincent DeRosa was uncovered. Fercan and Vincent DeRosa were not charged with any designated substance offences.

[123] During the forfeiture hearing, evidence was led by the Crown reflecting a second police investigation, Project 3D, which involved numerous production orders to financial institutions and an extensive review by police of Fercan and its related companies' banking activity in the years leading up to the discovery of the grow-ops. All this was done in an attempt to link Fercan or Vincent DeRosa with the illegal activity at 1 Big Bay Point Road. There was no evidence to establish such a link and the Crown knew this. Further, the evidence gathered by police concerning financial banking records of Vincent DeRosa and Fercan would have clearly demonstrated the extent of Fercan's real estate holdings, yet the Crown ignored this evidence. This investigation also revealed the sale of Molson's equipment by Fercan and the monies spent to set up Aurora Beverages, a water bottling enterprise, which intended to utilize the Formosa Springs, an excellent source of water used by Molson's. No charges were laid against Vincent DeRosa or Fercan as a result of this extensive police investigation. This investigation established the only monies received by Fercan respecting the grow operations were monthly rent payments and I found this was part of the necessary subterfuge or deception to allow a marihuana grow operation to be set up by Dan Dolic and Jeff Lawson and to prevent anyone not involved in the grow operation from becoming aware of its existence.

[124] During the months following the discovery of the grow operations the majority of the persons working in the former Molsons' Brewery, including employees of Fercan, Aurora Beverages, other tenants and persons with government agencies that had involvement with the property were interviewed by the police. Many of these individuals were called during the forfeiture hearing and they all testified to being completely unaware of the grow operations operating only a few feet from where they worked on a daily basis. Some of the tenants slept in the building and were completely unaware of the grow-ops. There was evidence of fire inspections at the building and of the police attending to arrest an employee of one of the trucking firms, which leased space, for smuggling drugs. There was also evidence of local police conducting training for their "sniffer" drug dogs in the large plant during the time the grow-ops were operational. Much of this evidence was called by the Crown at the forfeiture hearing. This evidence, which was within the knowledge of the Crown, completely discounted and, in my view, eliminated the Crown theory that the size and magnitude of the two grow operations led to the irresistible inference that the owner of Fercan, Vincent DeRosa, had to know of the grow-ops existence or was wilfully blind as to their existence. The Crown argued throughout the forfeiture hearing this evidence led to "a common sense inference of knowledge" on the part of Vincent DeRosa and Fercan. It is my view this submission was wholly and completely unsupported by the evidence and was not based on any proper or thorough review of the witness' statements.

[125] Vincent DeRosa was only present at the facility on Saturday mornings and, on the evidence, he spent only an hour in the offices and within an area of the facility where Aurora Beverages was being set up and Molson's equipment was being removed, all areas from which access to the grow operations were blocked. During the forfeiture hearing the Crown argued there was excessive hydro and water usage, which would have been brought to Vincent DeRosa's attention, yet the evidence called was contrary to the Crown's submissions. The evidence from the Crown's witnesses demonstrated hydro and water usage was within normal levels.

[126] Finally, in 2009, the police commenced an investigation entitled Project Birmingham, which utilized a police agent and undercover police officers to attempt to identify individuals higher up in the criminal organization that set up and operated the two grow operations discovered in 2004. In 2010, Project Birmingham led to the arrest of seven individuals, who were at a much higher level within the criminal organization than the growers, who were charged in 2004. The mastermind behind the two grow operations was Dan Dolic, who is currently serving a 22 year sentence in the United States for drug trafficking. I was advised there are still warrants for Mr. Dolic's arrest in respect of charges for the two grow operations at 1 Big Bay Point Road. Vincent DeRosa and Fercan were not charged with any offences in 2010 in relation to the two grow operations. Vincent DeRosa's brother, Robert DeRosa, was charged, pled guilty and received a seven year jail sentence.

[127] There was no evidence of any link or relationship between Vincent DeRosa and Dan Dolic. Mr. Dicicco was the only viva voce witness called who had a connection to Dan Dolic, Robert DeRosa and the two grow operations. Mr. Dicicco was constantly in contact with those involved with the grow-ops, he was hired by both Robert DeRosa and Dan Dolic to handle all of the logistical details involving supplies for the growers and the grow-ops. He was never asked questions by the Crown as to Vincent DeRosa's knowledge of or involvement with the grow-ops. The Crown's failure to ask these questions clearly demonstrate and establish their knowledge of the fact there was no evidence of any link between Vincent DeRosa and those involved with the grow operations.

[128] What is of greater significance, in my view, is the investigating officers of each of the three projects never obtained or uncovered any evidence sufficient to provide "reasonable and probable grounds" to lay charges, either against Fercan or Vincent DeRosa. "Reasonable and probable grounds" is a much lower standard than proof on a balance of probabilities and the Crown was fully aware of this lack of evidence. Mr. Wilson argued the Crown is not required to provide direct evidence of complicity. I agree as complicity could have been properly established by reasonable inferences drawn from circumstantial evidence. Mr. Wilson referred to my Reasons for Judgment on Forfeiture and set out my paragraph setting out the Crown's position concerning the inferences to be drawn from the evidence. The problem with this argument is none of the inferences urged by the Crown at the forfeiture hearing were reasonable; in fact, I found they never amounted to anything more than conjecture and speculation.

[129] All the Crown could point to at the end of the forfeiture application was the fact that Vincent DeRosa's brother, Robert DeRosa, was a key participant in the two grow operations and therefore Vincent DeRosa and Fercan had to know. The Crown's position was a "common sense inference of knowledge" could be drawn because of the extensive involvement of Vincent DeRosa's brother, Robert DeRosa. The Crown's evidence never amounted to more than speculation or conjecture. The Crown called no evidence from which reasonable inferences could be drawn to support that Vincent DeRosa knew of his brother's criminal activities or was wilfully blind concerning them. The Crown's failure to assess the lack of evidence respecting Vincent DeRosa's or Fercan's complicity or collusion was significantly more serious than what Mr. Wilson termed as "an error in judgment". In my view, it amounted to a "marked and unacceptable departure from the reasonable standards expected of the prosecution."

[130] Mr. Wilson argued just because the Crown's forfeiture application was dismissed does not retroactively make it meritless. I agree. However, based on the evidence in the possession of the Crown, which they led during the forfeiture hearing, and based on the Crown's knowledge that the police did not have reasonable and probable grounds to lay designated substance offences against Fercan or Vincent DeRosa, it is my view the forfeiture application was meritless and the Crown was aware of this. I do not agree with Mr. Wilson's submission it would have been professionally irresponsible for the Crown not to bring a forfeiture application; in fact, it is my view the Crown's conduct in commencing a forfeiture application was a "marked and unacceptable departure from the reasonable standard expected of the prosecution" and therefore was professionally irresponsible. Based on the evidence led by the Crown during the forfeiture hearing, there was no basis to believe there was any direct or circumstantial evidence of complicity or collusion on the part of Vincent DeRosa or of Fercan.

[131] It is my view the Crown has a responsibility, regardless of whether the third party owner or the Crown bears the onus of establishing complicity or collusion, to assess whether there is evidence of complicity or collusion by a third party owner, who was never charged. I do not agree with Mr. Wilson's submission that the Crown's only responsibility was to prove on a balance of probabilities the properties were "offence-related". On February 6, 2013, Ms. Healey indicated there was a continuing Crown obligation to assess the evidence on an on-going basis when she advised the court the Crown was no longer opposed to FirstOntario being paid its mortgage and interest. In my view, the Crown had a responsibility to assess the evidence of complicity and collusion prior to commencing the forfeiture application. As I will discuss in greater detail, there never was any evidence supporting the Crown's position FirstOntario and Fercan/Vincent DeRosa were complicit or in collusion in respect of the marihuana grow operations.

[132] The Crown alleged for the first time in its factum, after the conclusion of the evidence and after dropping their opposition to FirstOntario being paid out its mortgage interest, that Fercan had misled FirstOntario's due diligence representatives. In my view, there was no evidence to support this assertion and it was contrary to the evidence of the witnesses called by the Crown, FirstOntario and Fercan. The only evidence called by the Crown relating to FirstOntario came from FirstOntario's response to a Production Order (Exhibit 81 on the forfeiture application, which was filed by the Crown) and Det. Cst. Hayhurst (Proceeds of Crime investigator on Project 3D). In my view, this position became a post facto justification for abandoning their refusal before Justice Mulligan that FirstOntario's mortgage be paid out if the property was sold. As I indicated, this position is completely unsupported by the evidence called during the forfeiture hearing. As I will discuss later in these reasons, this rewriting of history has more to do with the Crown's recognition of its own misconceptions and misunderstanding of standard mortgage law and practice.

[133] I agree with Mr. Greenspan's submission the Crown's alternative theory of corporate liability, which I find was advanced very late in the proceedings, was "advanced without a proper evidentiary foundation." The Crown did not lead any evidence about the nature of the corporation, its structure, its corporate policy, and its policies respecting delegation, all of which were relevant to a determination of whether Robert DeRosa was a "directing mind" of Fercan. It was my view the Crown's alternate basis for liability arose only after the evidence was completed. The Crown failed to provide me with the leading authorities dealing with "directing minds" and as I found in my Forfeiture Ruling there was no evidence to support the Crown position; in fact, the evidence called during the forfeiture hearing was to the contrary.

[134] The forfeiture application brought by the Crown in this case is unique, in that none of the corporate owners of the properties or the principals of those companies were ever charged with any designated substance offences under the CDSA. The Crown was seeking forfeiture of properties which, in the case of 1 Big Bay Point Road, would have produced a significant benefit to the Crown. Sections 3(d) and 10 of the Seized Property Management Act provide that the net proceeds of forfeited property are shared between the law enforcement agency that participated in the investigation of the offence that led to forfeiture and the Minister of Public Works and Government Services. It is argued by Fercan and FirstOntario this is not a situation where the Crown neither wins nor loses in respect of the prosecution of charges laid by police as referenced in Robinson, supra. In this case, if forfeiture had been ordered, the Crown would have received a significant monetary benefit. Originally the Crown was seeking forfeiture of the entire value, at least $7.35 million, of 1 Big Bay Point Road, Barrie, given they did not concede FirstOntario's financial interest as a mortgagee and person lawfully entitled to possession. On many occasions during the proceedings before Justice Mulligan and during the forfeiture hearing the Crown raised the fact that even if there was a finding of non-complicity and non-collusion on the part of the third parties, the court still had a discretion not to order the return of the property. I am mindful of the comments of Justice Molloy set out below in 1431633 Ontario Inc., infra.

[135] The primary purpose of the forfeiture provisions is to punish the offender found guilty of designated substance offences by taking away property utilized in the commission of the offences. In this case, none of the convicted offenders owned the property utilized in the commission of the designated substance offences. Consequently, this consideration for ordering forfeiture has no application.

[136] Consequently, on the totality of the evidence and materials before me it is my decision there has been a "marked and unacceptable departure from the reasonable standard expected of the Crown" and while a costs award in a criminal matter is rare, the unique circumstances of this case require costs to be awarded.

[137] As previously discussed, a further consideration on a forfeiture hearing is whether the "offence-related" property should be returned to a lawful owner or person lawfully entitled to possession where the property could be used again in the commission of designated substance offences, particularly in respect of a complicit third party owner who permitted their property to be used in the commission of illegal activities. In the present case, I heard evidence the former 450,000 square foot Molson's Plant was torn down prior to the Crown commencing the restraint proceedings. Consequently, the property was raw land and there was no possibility of it being used in the future to house another marihuana grow operation. Justice Mulligan raised this issue during Fercan's attempt to vary the Restraint Order to allow the property to be sold and FirstOntario's mortgage paid out, which the Crown opposed. Further, there was no evidence that Vincent DeRosa or Fercan had permitted the building to be used in the commission of a designated substance offence and therefore, the underlying rational of "raising the stakes" to convey the "very real cost" of permitting one's property to be used in criminal activities was not applicable. In my view, the deterrent effect of forfeiture is only applicable where there is evidence of complicity or collusion on the part of the third party owner.

[138] With respect to the forfeiture application respecting 1408 Rainbow Valley Road, owned by GRVN, as I found in the forfeiture application, "it would appear the Crown's application in respect of this property was really only an afterthought, as very little, if any, evidence was called by either party." Very little evidence was called by the Crown respecting 1408 Rainbow Valley Road except to establish that this property had been used in the commission of designated substance offences and was therefore "offence-related" property. The Crown did not appear to direct its mind as to whether any evidence existed to show complicity or collusion on the part of GRVN or its owner, Nicola DeRosa. Given the lack of any evidence demonstrating complicity or collusion there was no necessity for GRVN to call any evidence.

[139] I was advised for the first time by the Crown, during oral submissions on the forfeiture application on June 17, 2013, the Restraint Order respecting 1408 Rainbow Valley Road was varied to allow the property to be sold and the proceeds of the sale, including the third party mortgagee's interest, was paid into the SPMD. I was not advised by the Crown as to when the third party mortgagee's interest was paid out by the SPMD, on consent of the Crown, leaving $20,136.39.

[140] I apply the same reasoning set out above concerning the Crown's conduct being a "marked and unacceptable departure from the reasonable standards expected of the prosecution" as it relates to the Crown's forfeiture application respecting the GRVN property.

(B) FirstOntario Credit Union Limited

[141] In my view, the Crown's conduct respecting FirstOntario is more egregious than its conduct towards Fercan and GRVN. The Crown's refusal and failure to properly examine and assess FirstOntario's mortgage interest to determine whether FirstOntario was a bona fide mortgagee and an innocent third party so that its interest could be paid out was a "marked and unacceptable departure from the reasonable standards expected of the prosecution." In R. v. 1431633 Ontario Inc., Justice Molloy, in dealing with the rights of a third party, held:

30 Although Parliament intended to deprive criminals of the fruits of their crimes, it clearly did not intend to do so at the expense of innocent third parties who may have a legitimate interest in that same property. That is the purpose of the provisions permitting relief from forfeiture (such as s. 462.42) and that purpose must be kept in mind when considering whether a particular applicant is entitled to the relief sought. [Emphasis added]

57 In my view, the forfeiture provisions of the Criminal Code do not constitute either a "disposition of law" or a "statutory right" for the Crown to keep the enrichment. The Criminal Code provisions do not operate to vest title in the Crown; they merely provide a mechanism whereby the Crown can seek a court order depriving a wrongdoer of the profits of his crime. That legislation is subject to the rights of persons who have an interest in the property seeking an exemption from its operation. Therefore, while the Crown's application for forfeiture is authorized by statute, the statute itself does not require the enrichment of the Crown at the expense of persons claiming an interest in the property. On the contrary, it contemplates the very reverse situation; that innocent third parties will not be deprived of their interest in the property …. [Emphasis added]

58 With respect, I believe Crown counsel missed the point when she argues, as she does in her written submissions that, "The Crown is not 'enriched' when it seizes proceeds of crime. The Crown seizes proceeds of crime as a matter of criminal policy." That would be a perfectly valid argument as against Mr. Karpacs [the accused]. But seizing the proceeds of crime in this case does not require the Crown to also seize the value of the goods supplied by Rona. Those goods were not paid for with proceeds of crime; they were not paid for at all. The Crown has been enriched by having the property value enhanced at the expense of the product supplier.

[142] As I have already stated, in my view the Crown has a responsibility to a potentially innocent third party with an interest in property sought by the Crown to be forfeited, to assess whether there is any evidence of complicity or collusion on the part of the third party who was not charged. It is not good enough to say, as Mr. Selvaratnam did before Justice Mulligan, there is a process and the Crown must follow the process; this creates prejudice and harm to an innocent third party. I adopt the comments by Justice Molloy in my determination of the Crown's conduct towards FirstOntario, as well Fercan and GRVN.

[143] I do not accept Mr. Wilson's characterization of the submissions made by the Crown before Justice Mulligan. Mr. Wilson submits the Crown never actually alleged there was a prima facie case for FirstOntario to meet. I find the Mr. Selvaratnam's and Ms. Healey's suggestions and submissions to Justice Mulligan that they had "serious concerns" about the timing of the mortgages provided by FirstOntario to Fercan, in relation to 1 Big Bay Point Road, after the discovery of the grow operations, as well as questions concerning the commercial transactions and background of the relationship between Fercan and FirstOntario, amounted to the Crown submitting there was a prima facie case without actually using those words. It was Mr. Selvaratnam's position FirstOntario's mortgage should not be paid out over the objection of the Crown at this stage, yet the Crown did not have any evidence in its possession that would establish even a prima facie case of complicity or collusion on the part of FirstOntario.

[144] In March 2012, Mr. Selvaratnam submitted the Crown needed to seek clarification and documentation from FirstOntario. During Fercan's application to vary the Restraint Order, Ms. Healey advised Justice Mulligan the Crown would be obtaining a Production Order to obtain the documentation from FirstOntario. On April 3, 2012, the Crown wrote to Mr. Criminski to advise him the Crown would be seeking production orders relating to the dealings between FirstOntario and Fercan, yet the Crown did not obtain the Production Order until June 21, 2012. It was clearly the position of the Crown that it had no responsibility "to investigate, inquire and determine whether FirstOntario's interest was in good faith and whether they were an innocent third party". As I have already indicated, it is my view the Crown does have a responsibility to assess whether a third party mortgagee is an innocent third party, particularly where that mortgagee advanced mortgage funds to pay out a vendor take-back mortgage and where the third party was not charged in relation to the designated substance offences.

[145] In my view, the comments of Justice Sharp in Ciarniello are applicable to the circumstances of this case:

…the argument that Crown discretion should be unfettered by the threat of a costs order does not apply with the same force in the case of the bystander. Given the lack of other controls, there is less to fear from orders that would encourage the Crown to pay greater heed to bystanders' Charter rights. The bystander is a member of the very public the prosecution is duty-bound to protect. The cost of securing the Charter rights of an individual not suspected of criminal activity and not charged with an offence should not be automatically or routinely sacrificed in the cause of the general public interest.

I recognize FirstOntario is not an individual with Charter rights; however, this does not obviate the Crown's responsibility to deal fairly, diligently and promptly with a potentially innocent third party. The Crown had a responsibility to pay "greater heed to [a] bystanders' [property] rights." Justice Molloy in R. v. 1431633 Ontario Inc. recognized the importance of addressing properly the property rights of innocent third parties, "Although Parliament intended to deprive criminals of the fruits of their crimes, it clearly did not intend to do so at the expense of innocent third parties who may have a legitimate interest in that same property." The Crown's actions were done at the expense of FirstOntario, who did have a legitimate interest in 1 Big Bay Point Road. As was seen, the Crowns' misconduct was further compounded by their continued lack of attention and failure to carefully and diligently review the documentation they had in their possession at the end of June 2012.

[146] On June 28, 2012, FirstOntario brought an application to vary the Restraint Order to allow the Big Bay Point Road property to be sold so their mortgage interest could be paid out. Once again the Crown opposed this application to vary the Restraint Order. The hearing of the application was scheduled almost two months after the Crown was served with Mr. Choma's Affidavit and other materials, yet the Crown did not seek to cross-examine him. In fact, the Crown conceded during the hearing they had not reviewed in any detail the Affidavit of Mr. Choma and its exhibits or FirstOntario's Application Record filed on the application.

[147] The Crown made a decision to require FirstOntario's interest to be determined in a s. 20 hearing after forfeiture was ordered or FirstOntario could take possession of the property and join the forfeiture hearing under s. 16 and 19(3) of the CDSA. The Crown's decision not to investigate, inquire or determine whether FirstOntario's interest was in good faith and whether they were an innocent third party was downplayed by Mr. Wilson, who characterizes this "hardball" intransigent decision as only an "error in judgment". In my view, the conduct of the Crown was a "marked and unacceptable departure from the reasonable standard expected of the prosecution"; the Crown had a responsibility to assess whether there was any evidence FirstOntario was complicit or in collusion with the grow operations before requiring FirstOntario to have their interest determined in a prolonged forfeiture hearing or a s. 20 hearing, which could only take place after the forfeiture hearing.

[148] In fact, the Crown appears to have engaged in the very type of inquiry or investigation respecting the mortgagee involved in 1408 Rainbow Valley Road, which they resisted in relation to FirstOntario. As I previously indicated, this property was sold and initially the entire sale proceeds were provided to SPMD, yet in June 2013 I was advised the mortgagee's interest had been paid out, which would have required the consent of the Crown. The Crown refused and resisted conducting a similar inquiry or investigation respecting FirstOntario.

[149] FirstOntario is a member of the very public the prosecution is duty bound to protect. Mr. Selvaratnam's comment; if the process of forfeiture appears draconian that is just the way the legislative scheme has been set up. In my view this does not accord with the reasonable standards expected of the Crown. The materials in the possession of the Crown by June 2012 respecting FirstOntario clearly demonstrated there was no evidence of complicity or collusion on FirstOntario's part, yet the Crown did not review it. In fact, the Crown only filed Exhibit 81, documents provided by FirstOntario in July 2012, on December 12, 2012. Ms. Healey admitted to counsel for FirstOntario the Crown did not expect to complete its review of all the FirstOntario documents until mid-October 2012. There were only two banker's boxes of documents. Cst. Hayhurst admitted during his testimony that he did not complete his review of the FirstOntario documents and he did not assign any other police officer to complete the review.

[150] It was agreed by all counsel at the commencement of the forfeiture hearing the Crown would call any evidence it alleged demonstrated complicity or collusion on the part of the third parties. As indicated above, the only evidence offered by the Crown, which they submitted was relevant to the issue of complicity or collusion respecting FirstOntario in relation to the designated substance offences, was Exhibit 81. The vast majority of the documents contained in this exhibit were also contained in FirstOntario's Application Record, filed June 28, 2012 before Justice Mulligan, which they also filed at the commencement of the forfeiture hearing after Justice Mulligan dismissed their application on August 13, 2012. In my view, the Crown's attitude towards FirstOntario throughout the forfeiture hearing was a dichotomy and a contradiction; on the one hand, they took a "hardball" attitude concerning the pay out of FirstOntario's mortgage interest yet on the other hand, the Crown appeared to be completely indifferent towards FirstOntario as they refused to review the materials in their possession and provided absolutely no evidence of complicity or collusion. On numerous occasions I queried the Crown as to when I would hear any evidence respecting FirstOntario's complicity or collusion in relation to the grow operations. They continually promised it was coming but it never did. The Crown's assertion they had evidence of complicity and collusion respecting FirstOntario, both to Justice Mulligan and to me, when they had none demonstrates, in my view, a "marked and unacceptable departure from the reasonable standard expected of the Crown."

[151] They had no evidence in their possession of complicity and collusion yet they made submissions before Justice Mulligan during two applications which suggested they did. It was not a question of Justice Mulligan misinterpreting the Crown's submissions when he concluded the Crown had presented a prima facie case. Ms. Healey, in the second application on August 13, 2012, actually quoted to Justice Mulligan his previous finding that the Crown had shown there was a prima facie case. It was her position that in light of his previous factual finding FirstOntario's application should fail. A further submission by the Crown, which in my view reflects the Crown's complete failure to properly assess FirstOntario's mortgage interest, can be seen in the following exchange:

The Court: I just want to review a couple of things with you. Mr. Criminski said a number of things were conceded and I just want to confirm with you. First of all, he said that the lender was an institution. I think that's not argued.

Ms. Healey: That's not an issue.

The Court: And that it was a bona fide transaction at the time.

Ms. Healey: Well, we don't know. That's one thing I can't say. It's disputed, but I can't say we concede it as well. We don't know what the money was used for. We know that at the time there was an ongoing grow operation.

The Court: It appears, though, from the record that the mortgage was used to pay out an existing mortgage on the property which was a vendor take-back.

Ms. Healey: We know that the mortgage was discharged, the…or the…take, vendor take-back from Molson's was discharged. How it actually occurred, we haven't actually reviewed the paperwork to see yet. [Emphasis added]

The Court: And obviously it was…the mortgage was registered prior to the restraint order. That's very clear.

Ms. Healey: Yes.

The Court: And you said there was good consideration. I think that's basically the same point we just discussed. You may not be conceding that, but it's a consideration.

Ms. Healey: It may not be in dispute when we have a fuller picture when we review the additional material we discussed earlier.

[152] Mr. Greenspan provided me with a copy of Public Prosecution Service of Canada, The Federal Prosecution Service Deskbook (December 24, 2008), Part V, Proceedings at Trial and on Appeal, Chapter 15 dealing with the Crown's policy concerning the decision to prosecute. The following are excerpts from The Federal Prosecution Service Deskbook, which are very similar to the policies adopted by the Attorney General in Ontario pursuant to the Report of the Attorney General's Advisory Committee on Charge Screening, Disclosure and Resolution Discussions (G. Arthur Martin, Chair) Toronto: A.G. Ontario, 1993.

15 The Decision to Prosecute Introduction

15.1 Introduction

…Deciding whether to prosecute is among the most important steps in the prosecution process. Considerable care must be taken in each case to ensure that the right decision is made. A wrong decision to prosecute and, conversely, a wrong decision not to prosecute, both tend to undermine the confidence of the community in the criminal justice system….

15.3.1 Sufficiency of the Evidence

In the assessment of the evidence, a bare prima facie case is not enough; the evidence must demonstrate that there is a reasonable prospect of conviction. This decision requires an evaluation of how strong the case is likely to be when presented at trial. This evaluation should be made on the assumption that the trier of fact will act impartially and according to law.

[153] It was conceded by the Applicants that the policy directive of reasonable prospect of conviction was not directly applicable to a decision by the Crown to proceed with a restraint application and a forfeiture application after the conviction of offenders for designated substance offences. However, the Applicants submitted the policy should be applied by analogy to a decision by the Crown to proceed with a restraint application and a forfeiture application. In this case, it is clear from comments made by the prosecuting Crowns that they did not conduct any assessment as to whether there was any evidence of complicity or collusion respecting the third parties. As I have already indicated, with respect to Fercan and GRVN, the evidence overwhelmingly demonstrated a lack of complicity or collusion. The same observation applies to the evidence in the possession of the Crown respecting FirstOntario.

[154] The Crown's "serious concerns" about FirstOntario being complicit or in collusion with Fercan and the grow operations had more to do with their complete misunderstanding concerning standard mortgage financing generally and collateral mortgages in particular. FirstOntario argued that "the Crown's misunderstanding, which continued to exist regardless of full documentary disclosure, of standard mortgage practice and evidence" could be summarized as follows:

a. They misunderstood that FirstOntario was seeking payout for the subject property [1 Big Bay Point Road, Barrie], not for the 15 Church Street, St. Catherine's property [there was a collateral mortgage on 1 Big Bay Point Road securing a mortgage advanced in respect of 15 Church Street];

b. They misunderstood why a commercial mortgage might require a personal guarantee;

c. They misunderstood the rate of interest being charged by FirstOntario;

d. How collateral mortgages operate and are registered on title;

e. The amount of money advanced under the mortgages; and

f. Why the mortgage funds were advanced.

[155] No explanation was provided by the Crown when they abruptly abandoned their objection to FirstOntario's mortgage interest being paid out. Ms. Healey, during questions raised by myself during her cross-examination of Vincent DeRosa, conceded one of the reasons the Crown decided not to proceed further against FirstOntario was because of a misunderstanding, by the Crown, of what a collateral security mortgage was. Mr. Wilson argued the fact the Crowns at the forfeiture hearing did not understand the nature of a collateral mortgage is irrelevant to the court's determination as to whether a costs award should be made. He referred to the collateral mortgage issue as a "red herring". In my view, this misunderstanding demonstrates a level of incompetence and negligence that I found to be shocking and inexcusable having regard to the legal and factual issues to be determined during the forfeiture hearing. This misunderstanding existed during the two applications before Justice Mulligan and clearly led the Crown to oppose FirstOntario's mortgage interest being paid out if the property was sold.

[156] Mr. Wilson submitted FirstOntario "misapprehends the nature of the forfeiture proceedings" when it argues the Crown "abandoned its forfeiture against FirstOntario only after FirstOntario had incurred significant costs." With respect I do not find that FirstOntario misapprehended the nature of the forfeiture proceedings. The Crown brought a forfeiture application in respect of 1 Big Bay Point Road, Barrie and it was the Crown's position that the property was "offence-related" property and should therefore by forfeited in its entirety. The forfeiture application was subject to third party interests under s. 19(3) but it was the Crown's intention to argue even if the third parties appeared to be innocent of complicity or collusion the property should still be forfeited and not returned to the third party owner, Fercan or the person lawfully entitled to possession, FirstOntario, the mortgagee. Mr. Criminski's submissions, both written and oral, clearly understood the nature of the forfeiture proceedings. The Crown intended to deny FirstOntario its mortgage interest in the property.

[157] It is my view the Crown's conduct in failing to properly assess whether there was any evidence of complicity or collusion in respect of FirstOntario in relation to the grow operations forced FirstOntario to become a party to the forfeiture proceeding under s. 19(3). I find FirstOntario had no other choice but to become involved in the Crown's forfeiture hearing in the Ontario Court of Justice in order to protect and preserve their mortgage interest. FirstOntario attempted to have their mortgage interest paid out from the sale of the property by bringing an application before Justice Mulligan. They provided the Crown all of the documentation necessary to demonstrate they were an innocent third party. The Crown prevented this from occurring as a result of their not having reviewed any of the documentation in their possession, which clearly demonstrated FirstOntario's mortgage was bona fide and they were an innocent third party. I do not agree with Mr. Wilson's position that FirstOntario's involvement in the forfeiture hearing was voluntary.

[158] The hearing contemplated by s. 20(4) of the CDSA is an application brought by the interested party and the onus would clearly be on the applicant to demonstrate no complicity or collusion. Further, the interested party under s. 20(4) must prove the added requirement they "exercised all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an unlawful act…" The Crown's refusal to review the documentation provided by FirstOntario, which clearly demonstrated FirstOntario was an innocent third party, prior to the second hearing before Justice Mulligan and their insistence FirstOntario must wait to bring a s. 20(4) application amounted, in my opinion, to a "marked and unacceptable departure from the reasonable standard expected of the Crown."

[159] If Crown policy directs a Crown to assess the evidence relating to a charge to determine whether there is a reasonable prospect of conviction before proceeding with a prosecution, it follows before proceeding with a forfeiture hearing the Crown should be required to assess whether there is any evidence the third parties are complicit or in collusion with those involved in the illegal activity. The Crown's refusal and failure to conduct that assessment, particularly where the police did not have reasonable and probable grounds to charge the third parties, in my view is a "marked and unacceptable departure from the reasonable standard expected of the Crown." I do not agree with the Crown's submission this only amounts to an "error of judgment" on the part of the forfeiture Crowns.

[160] Consequently, on the totality of the evidence and materials before me it is my decision there has been a "marked and unacceptable departure from the reasonable standard expected of the Crown" and while a costs award in a criminal matter is rare, the unique circumstances of this case require costs to be awarded.

Other Exceptional Circumstances

[161] As referred to above a further basis upon which to make a costs award in a criminal proceeding is in other exceptional circumstances where "fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation". See Tiffin, supra. As a result of my findings respecting Crown misconduct in the commencing of the forfeiture applications respecting Fercan, GRVN and FirstOntario, it is my view that I do not need to address this issue. Suffice it to say, the refusal and failure of the Crown to conduct any assessment of whether there was any evidence of complicity or collusion respecting the third parties could very well amount to exceptional circumstances. Particularly where, despite three police investigations, there was not even sufficient evidence to satisfy the test of "reasonable and probable grounds" to lay charges. The Applicants argued the conduct of the Crown in proceeding with restraint and forfeiture applications in the face of circumstances which demonstrated the lack of any evidence of complicity and collusion amounted to an abuse of the court's process.

Costs to Be Awarded

[162] Submissions were not made as to what the costs award should be and a date needs to be set for submissions by all parties on this issue.

Released: June 25, 2014

Signed: "Justice Peter C. West"