Court File and Parties

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

Date: 2015-01-21

Ontario Court of Justice

Between:

Her Majesty the Queen

— and —

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

Applicants

— and —

Her Majesty the Queen

Respondent

Before

Justice Peter C. West

Oral Submissions Respecting Quantum of Costs Award: October 23, 2014

Ruling given: January 21, 2015

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] On June 25, 2014, I determined there was a "marked and unacceptable departure from the reasonable standards expected of the prosecution" and awarded costs. In paragraphs 4 to 36 of my ruling, I set out the factual background of this matter and adopted the findings of fact set out in my reasons for judgment dismissing the Crown's forfeiture application. The issue of quantum of costs had not been argued as part of the costs application. A schedule for the filing of written submissions was established and October 23, 2014 was set for oral submissions by counsel.

[4] I reserved judgment after hearing counsel's oral submissions until January 21, 2015. I want to express my appreciation to all counsel involved in the costs application and the determination of quantum for their thorough and comprehensive written and oral submissions.

Factual Background

[5] In paragraphs 4 to 36 of my ruling awarding costs I set out the factual background of this matter and adopted the findings of fact set out in my reasons for judgment dismissing the Crown's forfeiture application.

[6] There was some confusion on the part of the Crown in his written submissions concerning my findings of fact respecting the Crown's conduct on the forfeiture application which amounted to a "marked and unacceptable departure from the reasonable standards expected of the prosecution." I am setting out below my findings in order to prevent any further confusion or misunderstanding.

Crown's Conduct – Findings of Fact

a. The original position taken by the Crown, in respect of the procedure to be followed during the forfeiture hearing (see paragraphs 106 to 111 of my Ruling on Application for Costs, June 25, 2014), was not supported by binding authority from the Ontario Court of Appeal in R. v. Wilson. It was the Crown's position at the commencement of the proceedings the forfeiture hearing was a two-stage proceeding and the third parties had no standing on the issue of whether the property was "offence-related" property.

b. The Crown took the position there was no requirement for the Crown to provide appropriate full disclosure of the evidence relating to the two grow operations to the third party owner (Fercan) or person lawfully entitled to possession (FirstOntario), even though such disclosure would have been in the possession of the accused persons charged with the designated substance offences (see paragraph 112 of my Ruling on Application for Costs, June 25, 2014).

c. The Crown further took the position there was no obligation for the Crown to disclose any evidence in their possession relating to the third parties' complicity or collusion (see paragraph 113 of my Ruling on Application for Costs, June 25, 2014).

d. The positions taken by the Crown at the commencement of the forfeiture hearing reflected an intransigent, "hardball" attitude which continued throughout the forfeiture hearing (see paragraph 112 of my Ruling on Application for Costs, June 25, 2014).

e. 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 was my view the "hardball" attitude of the Crown during the forfeiture hearing provided 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. The Crown's decision to commence restraint and forfeiture applications was unfounded as there was no evidence, either direct or circumstantial, of complicity or compliance on the part of Fercan, GRVN or FirstOntario. Further, with the knowledge the police were unable to form reasonable and probable grounds to charge any of the corporations or the individual owners with designated substance offences (see paragraphs 119, 122 to 130, 141 to 147 of my Ruling on Application for Costs, June 25, 2014), despite three separate extensive police investigations, I found the actions of the Crown amount to a "marked and unacceptable departure from the reasonable standards expected of the prosecution."

f. 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. The Crown had a responsibility of assessing whether there was any evidence of complicity or collusion by a potentially innocent third party owner, who was never charged with the underlying designated substance offences, prior to commencing the forfeiture application. On February 6, 2013, after 31 days of the forfeiture hearing, Ms. Healey indicated there was a continuing Crown obligation to assess the evidence on an on-going basis and advised the court the Crown was no longer opposed to FirstOntario being paid its mortgage and interest. This assessment was after FirstOntario had called its evidence, all of which was contained in the materials provided to the Crown in July 2012 in response to the June 2012 Production Order and in FirstOntario's materials filed with their August 2012 application, before Justice Mulligan (Ont. Superior Ct.), to vary the restraint order to allow the property to be sold and FirstOntario's mortgage and interest to be paid. The Crown admitted they had not reviewed any of this material until October or November 2013, despite advising Justice Mulligan, in two hearings, the Crown had "serious concerns" regarding FirstOntario's complicity and collusion with the designated substance offences (see paragraphs 120, 131, 142, and 144 of my Ruling on Application for Costs, June 25, 2014).

g. The Crown did not lead any evidence from which reasonable inferences could be drawn to support the third parties knew of the criminal activities of those involved in the grow operations or were wilfully blind concerning those activities. The Crown's arguments on complicity and collusion never amounted to anything more than conjecture and speculation. In my view, the Crown's failure to assess the lack of evidence respecting the third parties' complicity or collusion was significantly more serious than "an error in judgment" as argued by the Crown on the costs application; rather this failure, in my view, amounted to a "marked and unacceptable departure from the reasonable standards expected of the prosecution." This is particularly so when the Crown was dealing with potentially innocent third parties (see paragraphs 120, 129, 149-150 and 159 of my Ruling on Application for Costs, June 25, 2014).

h. The Crown led a great deal of evidence from individuals who were tenants at the former Molson Brewery, many who worked at the premises on a daily basis and some who slept in the building. All of these witnesses were completely unaware of the existence of the two marihuana grow operations, which the Crown described repeatedly as the "largest grow-ops in the history of Canada." Witnesses called by Fercan on the forfeiture hearing had been interviewed after the discovery of the grow-ops by the police and their evidence completely discounted the Crown theory that the size and magnitude of the grow-ops led to the irresistible inference the owner of Fercan had to know of the grow-ops existence or was wilfully blind as to their existence. The Crown's position was wholly and completely unsupported by the evidence in the possession of the Crown and was not based on any proper or thorough review of the witnesses' statements. Finally, the Crown called Michael Dicicco, who was involved with the grow operations daily, yet they did not ask him whether he talked to Vincent DeRosa about the marihuana grow operations or if he overheard Vincent DeRosa talking about the grow-ops or if he ever saw Vincent DeRosa in the areas of the grow-ops. (see Reasons for Judgment, September 11, 2013 and paragraph 124 to 127 of my Ruling on Application for Costs).

i. The characterization by the Crown, in submissions before Justice Mulligan during the application by Fercan to vary the Restraint Order to allow the 1 Big Bay Point property to be sold so that FirstOntario's mortgage could be sold, of having "serious concerns" about whether FirstOntario was complicit or in collusion with the grow operations was based on no evidence and upon a significant and complete misunderstanding of standard mortgage financing generally and collateral mortgages in particular. Further, during the second application to vary the Restraint Order, brought by FirstOntario, the Crown referred Justice Mulligan to his earlier finding that the Crown had a prima facie case and therefore he could not vary the Restraint Order. I found the failure of the Crown to review and assess the documentary and affidavit evidence provided by FirstOntario prior to the commencement of the forfeiture hearing was a "marked and unacceptable departure from the reasonable standards expected of the prosecution." The Crown had no evidence to support their submissions to Justice Mulligan, which was clearly demonstrated by their abandoning their application for forfeiture of FirstOntario's interest (see paragraphs154 to 157 of my Ruling on Application for Costs, June 25, 2014). Further, it is my view the submissions made by the Crown to Justice Mulligan were misleading given their complete misunderstanding of general mortgage law and the fact they had not reviewed and assessed the material provided by FirstOntario.

Position of the Parties

[7] It is argued by the Applicants that the principles emanating from the jurisprudence justify an award of costs on a substantial indemnity basis. The Applicants make reference to the civil costs regime as providing guidance to the awarding of costs and have provided a number of criminal cases where costs have been ordered on a substantial indemnity basis.

[8] Mr. Wilson, on behalf of the Crown, submits the civil costs regime should only apply to criminal matters by way of analogy, if at all. It is his position costs should be awarded on a partial indemnity basis, which translates to about two-thirds of the "reasonable" costs. It was also Mr. Wilson's position certain costs in the Applicant's billings should not be part of the total amount used to determine "reasonable" costs, i.e., the costs of the applications before Justice Mulligan in the Superior Court; or costs where there was a duplication of services.

Analysis

[9] It was agreed by all counsel costs against the Crown in criminal matters are exercised rarely and are an exceptional remedy. I have found the Crown's conduct in commencing the forfeiture application and their intransigent, "hardball" attitude throughout the proceedings amounted to a "marked and unacceptable departure from the reasonable standards expected of the prosecution" or, as expressed in other cases, "Crown misconduct." Consequently, I must now determine the quantum of costs to be awarded the Applicants.

[10] There are a number of general principles, which can be gleaned from the cases dealing with costs in criminal matters. First, substantial indemnity is not the starting point for criminal costs. As reflected by Justice LaForme (as he then was) in R. v. Foster:

The Crown relied on authorities such as R. v. Cole and R. v. Lauzon, which respectively decided that costs are only allowable for those additional expenses that directly flow from the conduct of the prosecutor, and the requirement that there be a causal connection between the breach and costs. While such cases are useful reference sources, they do not represent binding rules. It must be the instance that each case must be decided on its own unique facts; especially given the range of purposes for awarding costs. [Emphasis added]

[11] In R. v. Trask, the Supreme Court of Canada held that the intent of the Criminal Code provisions dealing with costs on summary conviction appeals was to provide judges with broad discretion. The court held there were no absolute rules governing costs in summary conviction appeals and rejected arguments that costs should be awarded to all successful accused appellants or that solicitor-client costs (costs on a substantial indemnity basis) should follow where there has been a Charter violation.

[12] It is clear from the cases, costs in a criminal matter, when they are ordered, have been awarded on a partial indemnity basis to a substantial indemnity basis. There are no absolute rules and as indicated by Justice LaForme depend upon the specific unique facts involved.

[13] It was Mr. Wilson's submission the "starting point" or "benchmark" in criminal costs is partial indemnity. He finds support for this in R. v. Ciarniello, where Justice Sharpe, for the court, held:

…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.

[14] The Applicant argues because of the Crown's misconduct in this case costs should be awarded on a substantial indemnity basis; given any costs incurred resulted from the Crown's decision to proceed with a forfeiture hearing in respect of property owned by potentially innocent third parties without having conducted any assessment of whether any evidence existed relating to the third parties' complicity or collusion.

[15] I agree with Mr. Wilson that courts which have awarded costs in criminal matters have tended to quantify costs on a "reasonableness" basis. In R. v. M.(B.), Fuerst J. found the Crown's conduct – which included proceeding with charges against a young person despite the lack of identification evidence and "fail[ing] to engage in a rational assessment of the facts" – met the test for costs. Justice Fuerst articulated the following approach to quantum:

The Ontario Court of Appeal has held that in fixing costs in civil cases, a judge should determine that the costs claimed have been reasonably incurred, and reflect what is proper and appropriate in the circumstances given the complexity and significance of the proceedings: see Murano v. Bank of Montreal et al., 41 O.R. (3d) 222. Further, as the Court pointed out in Clement, 166 C.C.C. (3d) 219 (Ont. C.A.), an award of costs in a criminal case requires payment out of the public coffers. I agree with the submission that I should assess the reasonableness of the costs claimed.

[16] In R. v. Balemba, an "innocent bystander" mortgage holder sought "full indemnity costs plus disbursements and GST totalling $43,389.83." Gilmore J. held "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" and she awarded $20,000. No explanation was provided by Gilmore J. for how she arrived at a costs award which was less than partial indemnity. It is important to note that Justice Gilmore did not find the Crown misconduct rose to the level of a "marked and unacceptable departure of the reasonable standards expected of the prosecution." She awarded costs based on the "quasi-civil aspects of the case," the fact that the mortgage holder was an innocent bystander and on the inherent jurisdiction of the Superior Court. She found "the Crown should not be able to rely on the traditional criminal law costs test to shield itself from the unexplained delay, mismanagement and misdirection that occurred." I have found the Crown's conduct in the instant case did meet the criminal costs test and consequently, Balemba has no applicability to the facts here.

[17] A further principle or consideration which applies to a costs award in a criminal matter is that the costs award must be made from public funds (see R. v. Clements and R. v. M. (B.), supra). I must be mindful of the duplication of services by counsel for the Applicants, positions taken by counsel which had the effect of extending the proceedings, or applications brought by a party which were without merit. In my view, these considerations are part of the reasonableness assessment in the fixing of a quantum of costs in a criminal matter. In R. v. Huard, Thomas J. held "The costs to be paid come from the public purse. Care must be taken not to view the respondent as a limitless 'deep pocket.'"

[18] A further consideration in assessing an appropriate costs award relates to the court's denunciation of the Crown misconduct. In the recent case of R. v. Singh, Skarica J. held the following:

Criminal cost awards, especially regarding Crown misconduct or an unacceptable degree of negligence respecting non-disclosure, that amounts to a marked and unacceptable departure from the reasonable standards expected of the prosecution, accordingly, consist of two essential components: (1) a compensatory element and (2) an effective remedy enabling the court to control its process and intended (emphasis added) as a means of disciplining and discouraging flagrant and unjustified incidents of non-disclosure—see also R. v. Leduc, [2003] O.J. No. 2974 (C.A.) at paragraphs 157-160 and R. v. Costa [2006] O.J. No. 5558 (S.C.J.) at para. 89.

[19] Libman J. in R. v. Pinnacle Transport Ltd., in circumstances where the police misled a judicial officer in respect of information contained in a search warrant, held "the court has a duty, in my respectful opinion, to denounce in the clearest of terms such misconduct, which has led to breaches of the defendants' rights under the Charter of Rights. Anything less would be to countenance the disrepute which has been done to the administration of justice"

[20] In R. v. Foster, LaForme J. held "the ordering of costs has several aspects to it including compensation, and an intention to discipline and discourage flagrant and unjustified conduct that gives rise to a Charter breach."

[21] Often the issue of denunciation and deterrence in awarding costs in criminal matters refers to circumstances where the Crown misconduct relates to breaches of Charter rights of an accused, particularly in failing to provide proper disclosure at trial, which often significantly impairs the accused's right to make full answer and defence (see Vancouver (City) v. Ward). In the instant case, the Crown misconduct did not involve breaches of Charter rights to the innocent third parties given they were corporate entities.

[22] However, in respect of FirstOntario, I have found the Crown misled Justice Mulligan during the two applications to vary the Restraint Order by implying during the first hearing the Crown had a prima facie case against FirstOntario respecting complicity and collusion and in the second hearing actually drawing Justice Mulligan's attention to his previous ruling, when the Crown had a fundamental misunderstanding concerning mortgage law and had not begun to review and assess the documentation respecting FirstOntario. It is my view had the Crown reviewed and assessed the documentation provided by FirstOntario they would have consented to the application to vary the Restraint Order respecting the property at 1 Big Bay Point and FirstOntario would not have been forced to take part in the forfeiture hearing to protect their mortgage and interest.

[23] FirstOntario attempted to alleviate and prevent any costs by joining the first application to vary the Restraint Order brought by Fercan to allow the property to be sold so that FirstOntario's mortgage interest could be paid. FirstOntario then brought their own application to vary the Restraint Order to allow the property to be sold and have their mortgage paid. The Crown resisted both of these applications. As I found, FirstOntario was forced by the Crown's position to take part in the Crown's forfeiture application as a "third person lawfully entitled to possession."

[24] At the outset of the forfeiture hearing the Applicants, Fercan and GRVN, took the position they were not conceding the properties were "offence-related" in respect of the designated substances. It is my view, as I expressed in my forfeiture judgment, this position likely played some part in extending the length of the hearing. There is also no doubt in my mind that the intransigent, hardball attitude of the prosecutors played a significant role in the ultimate length of the forfeiture hearing. The Crown initially provided no disclosure to the innocent third parties but finally relented, three weeks before the forfeiture hearing commenced, by providing an external hard-drive of disclosure. Additional disclosure was a frequent circumstance throughout the course of the hearing. It is my view this hardball attitude and approach by the Crown resulted in a significant number of additional hours of preparation, which is reflected in the Bill of Costs provided.

[25] Fercan and GRVN also challenged the constitutionality of the forfeiture provisions in the CDSA and, in the alternative, argued I did not have jurisdiction to preside over a forfeiture hearing pursuant to s. 16 of the CDSA because I was not a Superior Court judge. I dismissed all of these pretrial motions and it is my view any fees generated by these motions should not be part of the costs award.

[26] An important consideration in determining the appropriate quantum for a criminal costs award is the proportionality as between the property interest of the third party and the fees generated in attempting to protect that interest. As I have indicated, I was not aware the residual value in 1408 Rainbow Valley Road, Phelpston, owned by GRVN, was only $20,136.39. During the forfeiture hearing, from materials filed, it appeared Fercan and Vincent DeRosa were represented by Greenspan, Humphrey Lavine and GRVN and Nicolas DeRosa were represented by Friedman and Associates. I expressed during oral submissions, both on the application for costs and during the hearing to determine the quantum of costs to be awarded, I was of the view it would be unconscionable and unacceptable to award costs to counsel for GRVN, given the principle of proportionality in costs awards. To expend approximately $560,000.00 in legal fees to prevent the forfeiture by the Crown of approximately $20,000.00 does not, in my view, accord with common sense. Further, I am of the opinion the public would be shocked and enraged if I were to make a costs award out of public funds in those circumstances.

[27] During the course of the proceedings it became clear both firms were representing each of the corporate third parties (Fercan and GRVN) and their principals interchangeably. I was advised by Mr. Bakos and Mr. Greenspan the bulk of the preparation of the defence case involved the examination of the late Crown disclosure by both Ms. Lutes and Mr. Bakos. Mr. Greenspan conceded during oral submissions there was a duplication of services (as found by Justice Fuerst in M. (B.)) between himself and Mr. Friedman and it might be appropriate to reduce the global fees of the two firms where there was duplication. I agree with Mr. Greenspan that there was a duplication of services as it was not necessary to have two senior counsel present each and every day of the forfeiture hearing.

[28] Mr. Greenspan provided me with an accounting of the fees generated in respect of the pretrial applications brought by the defence should I determine it was appropriate to excise those fees from the Bill of Costs. I am unable to discern what hours of preparation and attendances in court Mr. Friedman's firm was involved in respecting these pretrial motions given there are no details provided in the Bill of Costs.

[29] I am of the view any fees generated during the two applications before Justice Mulligan, by either Fercan or FirstOntario, are not properly before me as I do not have jurisdiction to award costs respecting hearings which took place in the Superior Court before Justice Mulligan. A costs application would more properly be brought before Justice Mulligan. I am aware, after the Crown abandoned forfeiture respecting FirstOntario's interest, there were proceedings before Justice Mulligan, brought by FirstOntario, with the Crown consenting, for the sale of the property at 1 Big Bay Point so that FirstOntario's mortgage and interest could be paid out. Fercan opposed the sale of the property and FirstOntario generated fees as a result. I am of the opinion those costs must be sought by FirstOntario through an application before Justice Mulligan.

[30] In the Bill of Costs filed by Mr. Greenspan's firm there are several pages of dockets commencing in October 2010, which relate to the Restraint Order obtained by the Crown in respect of the two properties. The first appearance on the Crown's forfeiture application does not occur until June 9, 2011. It is my view these fees should be excluded from the Bill of Costs when determining the appropriate quantum for a costs award. I am similarly unable to discern what fees were generated by Mr. Friedman's firm prior to the commencement of the forfeiture hearing at the end of August 2012 because not details were provided in the Bill of Costs.

[31] I am also of the view any fees generated after my ruling on September 11, 2013 dismissing the Crown's forfeiture application should not be part of this costs application. All of the Applicants provided a Bill of Costs for the fees and disbursements generated in bringing the costs application It is my view these fees are not generated as a result of the Crown conduct that amounts to a marked and unacceptable departure of the reasonable standards expected of the prosecution and are not properly part of my decision on June 25, 2014 to award costs for the Crown conduct in bringing the forfeiture application and their conduct throughout the proceedings.

[32] After amending Mr. Greenspan's Bill of Costs, as reflected above, the remaining total for his firm's fees, on behalf of Fercan, is $497,772.00. The disbursements are $15,583.95.

[33] As I have indicated above, Mr. Friedman's firm has not provided detailed dockets for the fees generated during the Crown's forfeiture application; rather, there is a one page summary of fee items and the number of hours per lawyer spent on each general item heading. It is impossible to determine if any of the fees generated occurred prior to the first appearance on the Crown's forfeiture application or after my ruling on September 11, 2013. Further, I am not able to determine what costs were incurred by Mr. Friedman's firm respecting the pretrial motions brought by the defence at the outset of the forfeiture hearing. Mr. Friedman did not provide those total hours to me as Mr. Greenspan did. Given the submissions of Mr. Greenspan and Mr. Bakos respecting duplication of services, the fees generated by Mr. Bakos for reviewing disclosure, preparation for the hearings and his attendance at the hearings are what I intend to consider as "reasonable" in determining an appropriate quantum. His fees for those services total $91,825.00. I am unable to determine what fees were generated by Mr. Bakos respecting work done prior to the Crown commencing the forfeiture application, the pretrial motions and any work done after my judgment on September 11, 2013.

[34] Prior to hearing those submissions respecting Mr. Bakos' involvement in reviewing the late disclosure and preparing for the hearing, work which was utilized by Mr. Greenspan as lead counsel, I had intended to disallow all of the Friedman firm's Bill of Costs given the principle of proportionality. However, as I indicated, it was clear during the forfeiture hearing Mr. Bakos and Ms. Lutes were the lawyers sifting through the external hard-drive disclosure and creating summaries, which were utilized by Mr. Greenspan during his cross-examination of witnesses called by the Crown. This late and extensive preparation was directly related to the Crown's "hardball" attitude described above. Consequently, I am prepared to include Mr. Bakos' fees, as set out above, with the fees generated by Mr. Greenspan's firm. This amount totals $589,597.00. I am also prepared to include the disbursements generated by the Friedman firm of $11,370.11, which makes the total disbursements of $26,954.00. Therefore, the total fees and disbursements on behalf of Fercan and GRVN are approximately $616,550.00.

[35] Mr. Criminisi, for FirstOntario, provided dockets for all of his firm's fees and disbursements, which were generated as a result of proceedings dealing with the return of FirstOntario's mortgage and interest. Mr. Criminisi has separated out FirstOntario's legal costs on a stage-by-stage basis. As set out by Mr. Criminisi, the total fees relating to the forfeiture proceedings in the Ontario Court of Justice before me amount to approximately $245,000.00 with disbursements of $52,347.76. The total fees and disbursement of FirstOntario are approximately 297,347.00.

[36] Consequently, I find the "reasonable" costs of the innocent third parties respecting their fees and disbursements on the Crown's application for forfeiture are:

1. Fercan and GRVN: Fees: $589,597.00 & Disbursements: $26,954.00

2. FirstOntario: Fees: $245,000.00 & Disbursements: $52,347.76

Basis upon which the Quantum of Reasonable Costs is to be Determined

[37] The Criminal Code does not include any criteria for assessing costs awards. There is statutory authority in the Criminal Code for granting costs by a summary conviction appeal court – s. 826 of the Criminal Code. The appeal court acting under s. 826 may "make any order with respect to costs that it considers just and reasonable."

[38] This section was considered by the Ontario Court of Appeal in R. v. Garcia, where Doherty J. held:

The cases in which costs have been awarded against the Crown in summary conviction appeal proceedings fall into two broad categories. The first, and by far the largest, category consists of cases where the conduct of the prosecution is said to merit sanction in the form of an award of costs against the Crown. The second category consists of cases where there is no Crown misconduct, but 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: R. v. Trask, [1987] 2 S.C.R. 304, 37 C.C.C. (3d) 92 at 94-95 (S.C.C.); R. v. Gagnon, 147 C.C.C. (3d) 184 at 190 (Que. C.A.); R. v. Veri, [2000] O.J. No. 384 (C.A.).

[39] Section 482 of the Criminal Code provides power for courts to make rules; however, the Criminal Proceedings Rules of the Superior Court of Justice and the Ontario Court of Justice Criminal Proceedings Rules do not include any criteria for assessing costs awards.

[40] It would appear from the caselaw the starting point of a criminal costs award is partial indemnity. The quantum increases depending upon the actual conduct engaged in by the Crown. The more serious the Crown misconduct the more likely the costs award will approach costs on a substantial indemnity basis.

[41] In R. v. Robinson, the principle governing the unusual nature of awarding costs in a criminal matter is articulated:

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.

It is important to note however, the forfeiture application brought by the Crown in this case was not in respect of property owned by accused persons convicted of a designated substance offence. The owners of the properties, Fercan and GRVN, and the individuals who owned those corporations had never been charged with any offences relating to the marihuana grow operations. Further, the person lawfully entitled to possession of the property, FirstOntario, the mortgage holder, was also never charged with any offences relating to the marihuana grow operations. Here the Crown stood to gain a significant benefit (over $7 million) as a result of the forfeiture application if it was successful. It is important to note the Crown also took the position the property should be forfeited notwithstanding it was determined at the conclusion of the hearing there was no evidence of complicity or collusion on the part of the third party owners or third party person lawfully entitled to possession.

[42] Justice Sharp's comments in R. v. 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.

[43] I recognize Fercan, GRVN and FirstOntario are not persons with Charter rights; however, this does not obviate the Crown's responsibility to deal fairly, diligently and promptly with a potentially innocent third party. It is my view the Crown has a responsibility to pay "greater heed to [a] bystanders' [property] rights." As reflected in R. v. 1431633 Ontario Inc., Molloy J., 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.

[44] The Applicants submitted the policy directive of the Crown assessing whether there is reasonable prospect of conviction before proceeding with a trial 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. It was their position they had no obligation or responsibility to determine whether there was any evidence of complicity or collusion on the part of the "innocent third parties" As I have already indicated, with respect to Fercan and GRVN, the evidence in the possession of the Crown overwhelmingly demonstrated a lack of complicity or collusion. The same observation applies to the evidence in the possession of the Crown respecting FirstOntario.

[45] As I have already held, 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, referred to above, in my determination of the Crown's conduct towards FirstOntario, as well as Fercan and GRVN, which I find amounted to a "marked and unacceptable departure from the reasonable standards expected of the prosecution."

[46] It is my view FirstOntario's costs should be awarded on a substantial indemnity basis having regard to my findings of fact set out in paragraph 6 above. The principles applied in civil matters, although not wholly transferable to criminal matters, can be of assistance by way of analogy. In civil matters, substantial indemnity costs are appropriate where a party to the litigation has behaved in an abusive manner, brought proceedings wholly devoid of merit and whether the conduct of any party tended to shorten or lengthen unnecessarily the duration of the proceeding or whether any step in the proceeding was improper, vexatious or unnecessary. In criminal matters, as argued by Mr. Wilson, "the common law tends to treat costs as compensatory, in that there must be a 'causal connection' between the costs claimed and the impugned conduct of the Crown." There can be no doubt FirstOntario's costs were caused entirely by what I have found to be serious Crown misconduct.

[47] As I expressed in my Ruling on the Cost Application, dated June 25, 2014, at paragraph 141, "the Crown's conduct respecting FirstOntario is more egregious than its conduct towards Fercan and GRVN." The Crown's failure and refusal to properly examine, review and assess FirstOntario's mortgage interest to determine if FirstOntario was a bona fide mortgagee and innocent third party clearly amounts to a "marked and unacceptable departure from the reasonable standards expected of the prosecution." I find the Crown misled Justice Mulligan by implying they had a prima facie case of complicity and collusion against FirstOntario when they had no evidence to support such a submission. This is a serious breach of the Crown's obligations and responsibilities to the Court. I further find the Crown's position towards FirstOntario was taken as a direct result of their complete misunderstanding concerning standard mortgage financing generally and collateral mortgages in particular.

[48] Consequently, I award costs for fees and disbursements related to the Crown's forfeiture application to FirstOntario in the amount of $297,347.00 plus H.S.T., if that is an appropriate amount to include. This amount is to be paid in 30 days.

[49] It is my opinion the costs I have determined to be "reasonable" for Fercan and GRVN should be reduced to some degree because of my finding that Fercan and GRVN did not concede that the properties in question were "offence-related" property, where that admission was the only reasonable one on the evidence. It is my view, this position resulted in additional court time, as it necessitated the Crown calling additional evidence it did not need to call. I am also aware; however, of my finding that the Crown decided to commence what can only be viewed as a "meritless" forfeiture application given there was no evidence of complicity or collusion on the part of Vincent DeRosa or Fercan or Nicola DeRosa or GRVN and the Crown's knowledge the police were never able to form reasonable and probable grounds to lay designated substance offences against any of those persons. This conduct, in my view, was a "marked and unacceptable departure from the reasonable standards expected of the prosecution."

[50] Consequently, I award costs for fees and disbursements related to the Crown's forfeiture application to Fercan and GRVN in the amount of $570,000.00 plus H.S.T., if that is an appropriate amount to include. This amount is to be paid in 30 days.

Released: January 21, 2015

Signed: "Justice Peter C. West"