ONTARIO COURT OF JUSTICE
DATE: 2021 11 21 COURT FILE No.: Sudbury 20-1738
IN THE MATTER OF an application by the Attorney General for Ontario for forfeiture of proceeds of crime, pursuant to section 462.37(1) of the Criminal Code.
AND IN THE MATTER OF an application by the Attorney General for Ontario for a fine in lieu of forfeiture, pursuant to s. 462.37(3) of the Criminal Code in an amount equivalent to the value of any property that is proceeds of crime but cannot be made subject to a forfeiture order.
AND IN THE MATTER OF a claim by any third party with a valid legal interest under section 462.41(3) of the Criminal Code.
BETWEEN:
HER MAJESTY THE QUEEN Applicant
— AND —
KAREN CADY Respondent
— AND —
MICHAEL CADY Respondent
— AND —
COMPUTERSHARE TRUST COMPANY OF CANADA Interested Party
— AND —
TD AUTO FINANCE (CANADA) INC. Interested Party
Before: Justice M. B. Carnegie
Heard on: April 14, June 22 and 30, July 16, September 3, 2021
Reasons for Judgment released on: November 21, 2021
Counsel: Carolyn Hackett.................................................................................. counsel for the Crown Denis Michel............................................................. counsel for the accused Karen Cady Chris Wardrop............................................... civil counsel for co-accused Michael Cady Glenn Sandberg.................................... criminal counsel for co-accused Michael Cady Christopher J. Staples......... counsel for Computershare Trust Company of Canada Melinda Vine.................................................. counsel for TD Auto Finance (Canada) Inc.
Forfeiture Hearing Rulings: ss. 462.37(1) and 462.37(3)
Carnegie J.:
[1] This matter relates to a forfeiture hearing held respecting a finding of guilt for fraud over $5000 and possession of a forged document, contrary to ss. 380(1)(a) and 368(1)(d) of the Criminal Code. As a result of these findings of guilt on April 14, 2021 respecting Karen Cady, designated offences pursuant to s. 462.3(1), the Crown seeks forfeiture of seized and restrained property which constitute proceeds of crime pursuant to s. 462.37(1), namely the remaining real property and an outstanding motor vehicle not yet dealt with. It also seeks a fine in lieu of forfeiture in an amount equivalent to the value of any property that is proceeds of crime that cannot be made subject to a forfeiture order, pursuant to s. 462.37(3).
[2] On July 16, 2021, I made a forfeiture order pursuant to s. 462.37(1) respecting proceeds of crime – namely, a 2019 Ram Durango motor vehicle. Upon the consent of the Crown and an interested third party, Scotia Dealer Advantage Inc., no position taken by Michael Cady, this property was forfeited to the Crown to be liquidated with 72% of the net proceeds of sale going to the third party and the remainder to the victim, Henninger’s Diesel Ltd., to be applied to the anticipated restitution order. Since then, this property was sold and the net sale proceeds amount to $45,721.45 [$12,802.01 of which is forfeited to the Crown to be applied to the restitution order subsequently made pursuant to s. 462.49(2)].
[3] On July 16, 2021, I made a further forfeiture order pursuant to s. 462.37(1) respecting additional proceeds of crime, including: (1) a 2017 Splash+Superflex boat with 2017 Mercury motor and 2017 Shorelander trailer; (2) a 2017 Kawasaki Ultra LX Jet Ski and 2017 Easy WCI boat trailer; (3) a 2010 Ford Edge motor vehicle; (4) a 2017 CHER 39K Recreational Trailer; (5) a Backhoe; (6) $1,000 seized from Karen Cady upon arrest; and (7) $140 seized from 65 Hinds Road at time of search. Michael Cady took no position with respect to this order, despite his spousal interest and/or listed ownership of items (2), (4), and (5). No third-party interest was claimed after s. 462.41(1) notice was provided. Since then, this property (proceeds of crime) has been sold amounting to $75,697.65. [1] Pursuant to s. 462.49(2), the Crown will apply the proceeds of sale for this property to the restitution order subsequently granted on September 3, 2021.
[4] Therefore, the total sum of the July 16, 2021 forfeiture order net proceeds, applicable to the restitution order made on September 3, 2021, is $89,639.66.
[5] On September 3, 2021, Ms. Karen Cady was sentenced to 4 years imprisonment with respect to her fraudulent misconduct perpetrated upon Henninger’s Diesel Ltd. (hereinafter, “Henninger”). In addition, a restitution order totaling $1,017,703.27 was made, pursuant to s. 738 of the Criminal Code, in relation to the total loss alongside a s. 380.2 prohibition order for 10 years and a s. 743.21(1) communication prohibition.
[6] Mr. Michael Cady’s criminal matters are before the Superior Court of Justice pending trial. For purposes of these remaining applications, he has, through counsel, conceded the Crown’s s. 467.37(1) forfeiture application. He is the sole title holder of the real property, 65 Hinds Road, Wahnapitae, Ontario (jointly owned on purchase on February 10, 2016 but transferred to him in March, 2018). He is a joint owner of a 2016 Jeep Cherokee.
[7] Pursuant to s. 462.41(3), Computershare Trust Company of Canada (hereinafter, “Computershare”) identifies as an interested third party respecting the restrained real property owned by Karen Cady’s spouse, Michael Cady, known as 65 Hinds Road, Wahnapitae, Ontario. Computershare holds a first mortgage over the property with a balance, as of June 2, 2021, of $178, 653.91. The Crown contends that proceeds of crime were applied towards the acquisition of this property as well as used to service subsequent mortgage payments until charges were laid and the property was restrained by Superior Court order. Computershare seeks restoration of this property to satisfy its outstanding interest with any remaining funds to then be forwarded to the Crown under forfeiture.
[8] A further interested third party is TD Auto Finance (Canada) Inc. (hereinafter, “TD Auto Finance”) who hold a registered PPSA lien on the seized 2016 Jeep Cherokee motor vehicle. The Crown contends that proceeds of crime were used to purchase this motor vehicle – applied to a down payment and subsequent loan payments until it was seized by police upon Ms. Karen Cady’s arrest. TD Auto Finance seeks restoration of this property to satisfy its outstanding interest, any remaining funds to then be forwarded to the Crown under forfeiture.
[9] After, and only after, the Crown’s s. 462.37(1) application is determined, can I assess its fine in lieu of forfeiture application pursuant to s. 462.37(3). The fine in lieu of forfeiture application cannot be determined in advance of the forfeiture application because it must be assessed only against the remaining proceeds of crime that cannot be made subject to a forfeiture order. Hence, it must only apply to the identified outstanding proceeds of crime that has not already been attributed for forfeiture purposes. That is why I have reserved the s. 462.37(3) order to this stage of the proceedings. [2]
Factual Background
[10] The factual foundation for this forfeiture application is founded in Ms. Karen Cady’s Agreed Statement of Facts dated April 14, 2021 as well as the affidavits filed as part of applicant and interested third party application records, inclusive of affidavits from OPP Cst Ian Wright, Senior Manager, Servicing Operations, Kimberly Hellam from MCAP Service Corporation (who administers mortgages on behalf of Computershare), and Group Manager Darryl Shelly with TD Auto Finance.
[11] On April 14, 2021, Respondent Karen Cady pled guilty to designated offences under s. 462.3(1) of the Criminal Code. In summary, between January 1, 2015 and June 26, 2019, she defrauded Henninger [3] of $1,017,703.27. She was employed throughout that time as Henninger’s bookkeeper and found herself in a unique position to divert funds into established personal accounts for that purpose. Before her fraudulent behaviour was discovered, she left Henninger and, in so doing, trained her replacement in such a fashion that permitted this fraud to briefly continue.
[12] In June of 2014 Ms. Cady was hired for temporary employment with Henninger. She was transferred over to payroll work given her skillset in January 2015 and in June of that year took over as the company’s sole bookkeeper – a position she maintained until June of 2019. Within Henninger, access to company financial accounts were restricted to her and the owner. Within a short period of time, Ms. Cady gained the trust and confidence of Henninger’s owner and she began abusing that trust almost immediately. The manner of Ms. Cady’s deceit bore a level of sophistication. Over 4 ½ years, she defrauded Henninger using three principal methods: altering business cheques to transfer intended payments from clients to her own personal account; disguising Electronic Fund Transfers so that client payments and credits were directed to her own personal account; and diverting client funds intended for her employer to her own person account.
[13] In July 2019, Ms. Cady left Henninger to pursue other opportunities, namely ownership of a hair salon. Her replacement ultimately became aware of her suspect dealings when vendors began requesting to use their accumulated credits after her departure. Henninger’s records reflected that these credits had already been spent – records crafted by Ms. Cady. When it was discovered that the electronic transfers associated to the payment of those credits did not match their clients’ accounts, but instead were all going to the same account (Ms. Cady’s), an audit of transfers to this account revealed hundreds of thousands of dollars in transfers to this then unknown account. The fraud now discovered, police were notified.
[14] While employed at Henninger, Ms. Cady lived a lifestyle reflective of her ill-gotten gains. She routinely vacationed abroad, bought trailers, snow machines, four wheeled sport vehicles, a Jeep, a truck, a boat and a home at 65 Hinds Road in Wahnapitae, Ontario. Ms. Cady dispersed all the required funds for these purchases from the same personally controlled bank account, associated with the Henninger fraud related activity. She was the sole account holder from July 29, 2015 until February 10, 2016 when her husband was then added to the account.
[15] Much of the proceeds of the fraud is unavailable for forfeiture – it has largely been spent, withdrawn in cash not located or transferred to other parties, her husband included.
[16] On May 21, 2020, police seized offence related proceeds of crime, including: (1) 7 vehicles, including: (a) a 2016 Jeep Cherokee (for which the $10,000 down payment and the subsequent 81 bi-weekly financing payments where paid from proceeds of crime for this $47,653.38 vehicle); (b) a 2017 Splash+Superflex boat, 2017 Mercury motor and 2017 Shorelander trailer (purchased for $39,002.87 from proceeds of crime); (c) a 2017 Kawasaki Jet Ski and 2017 Easy WCI boat trailer (purchased for $16,691.70 with proceeds of crime); (d) a 2010 Ford Edge motor vehicle (purchased for $9,625.15 with proceeds of crime); (e) a 2017 Cher 39K Recreational Travel Trailer (purchased for $5,924.48, after trade in, with proceeds of crime). The 2012 trade-in trailer, purchased for $14,338.22 after another trade-in, had also been with proceeds of crime. That 2008 trade-in trailer had been purchased by Ms. Cady’s husband in 2016 for $26,000, again from proceeds of crime; (f) a 2019 Ram Durango motor vehicle (purchased for $76,502.33 with a trade-in and financed). The $10,000 deposit and subsequent financing payments were paid from proceeds of crime. The trade-in 2014 Ram 1500 motor vehicle had its lien of $26,324.96 paid for from proceeds of crime; and (g) a backhoe; (2) $1,140 in cash; and (3) a restrained initially jointly owned property at 65 Hinds Road, Wahnapitae, Ontario, by order of the Superior Court of Justice, which was purchased for $148,000, of which the $18,222 down payment and various subsequent mortgage payments were paid from proceeds of crime.
[17] With respect to the restrained real property, 65 Hinds Road, Wahanpitae, Ontario, Computershare now holds a first mortgage as a secured creditor. When it was originally purchased by both Karen and Michael Cady on February 10, 2016, a down payment of $18,222 was made entirely from proceeds of crime. The original mortgage was held by the Canadian Western Trust Company and was serviced with $26,137.92 in mortgage payments, all from proceeds of crime. In March of 2018, Karen Cady transferred title to Michael Cady for $2.00. On March 16, 2018, Michael Cady charged this property for five years, securing a principal sum of $188,000 at a 3.94% per annum interest rate. At that time, the real property was appraised at $235,000. Monthly payments were set at $928.81 – sustained until restraint through proceeds of crime using Ms. Cady’s subject bank account. Computershare received $24,959.40 in mortgage payments since, all from proceedings of crime. As of June 2, 2021, the balance was $178,653.91. [4] There is no reason to believe, nor evidence to suspect that Computershare was ever aware of the criminal activities of Ms. Cady or the suspect nature of the funds used for mortgage payments or the history of like funds used to purchase this property and pay mortgages upon it up until March 16, 2018. It claims that the total proceeds of crime that can be directly traced to the property is $60,442.40.
[18] With respect to the seized personal property, a 2016 Jeep Cherokee, TD Auto Finance is a secured creditor having perfected its financial interest through registration with the Personal Property Security Act (Ontario) on May 2, 2021, almost a year after this motor vehicle was seized by police on May 21, 2020 as part of their investigative efforts. On October 24, 2016, Karen Cady purchased this motor vehicle with TD Auto Finance advancing $41,870.41 after a down payment of $10,000 was made. TD Auto Finance received $26,088.48 in payments since. Both the down payment and the subsequent loan payments were from proceeds of crime. As of December 31, 2020, TD Auto Finance is still owed $14,165.69. As of June 15, 2021, the ‘Black Book’ value of this motor vehicle is $16,450. [5]
Legal Framework for s. 462.37(1) Forfeiture Application and Analysis
[19] As noted by the Supreme Court in R v Lavigne, 2006 SCC 10, Parliament’s intention in enacting forfeiture provisions was to “give teeth to the general sentencing provisions.” The objective of forfeiture is to “deprive the offender … of the proceeds of their crime.” [6] Section 462.37 falls under Part XII.2 of the Criminal Code which, as noted in Lavigne, represented a paradigm shift towards a “property driven” focus – focusing on the proceeds of crime as opposed to the offender. Indeed, the court noted Parliament’s intention: “Not only must the act itself be punished, but it must not benefit the offender. Parliament’s purpose in doing this is to ensure that crime does not pay.” The objective of these provisions is to “deal with the proceeds of crime separately from, and in addition to, the punishment for committing the crime.” [7]
[20] In R v Sankar, 2012 ONSC 1498, Durno J. outlined the process to be followed when interested third parties contest the Crown’s efforts at forfeiture. The process, which forms part of the forfeiture application, was helpfully summarised as follows: (1) The first step in a Crown’s forfeiture application is the Crown establishing the criteria for forfeiture under s. 462.37 on a balance of probabilities. (2) If the Crown meets its onus, notice is given to person(s) who appear to have an interest in the property. If anyone responds to the notice seeking the return of property, the judge may hear them and determine whether the disputed property should be returned to the person with the interest. At this stage there is an onus on the person claiming an interest to establish the criteria noted in s. 462.41 on a balance of probabilities. (3) If the person claiming an interest satisfies the judge with regard to the criteria, the judge has discretion whether to return the property. In exercising his or her discretion, the sentencing judge must consider all the circumstances and determine whether all, part or none of the property should be returned considering the equities of the situation. (4) Where the judge orders property returned, the remainder of the property, if any, is forfeited to the Crown pursuant to s. 462.37(1). [8]
[21] With respect to the starting point, on a s. 462.37(1) forfeiture application, the onus is on the Crown, on a balance of probabilities, to establish that the property is proceeds of crime and that the designated offence (here, fraud and possession of forged documents) was committed in relation to the property the Crown seeks forfeited. [9] On the basis of my findings of guilt in reliance upon the Agreed Statement of Fact, [10] the Crown has satisfied me on a balance of probabilities that at least a portion of the property’s value in dispute here derives from proceeds of crime. The funds used to obtain both the subject real property, 65 Hinds Road, Wahnapitae, Ontario and the personal property, a 2016 Jeep Cherokee, were acquired through the commission of designated offences. That these properties were financed by the interested third parties (Computershare and TD Auto Finance) presents the complicating feature as not all of the value of the property is attributable to proceeds of crime. However, having been acquired using proceeds of crime (through down payments and subsequent mortgage/loan payments), the subject property maintains its encumbered status regardless of whether it changes form. [11] Indeed, as noted in Lavigne: There is thus a wide range of property that could be proceeds of crime. Such property may consist of real rights or personal rights, or corporeal property. Forfeiture may apply to the original property, or property acquired in exchange for or by conversion of the original property. It could also apply to a right in a portion of property. The link between the property or right and the designated offence need not be direct. It is enough that the offence be committed “in relation to” the property or the right. [12] [emphasis added]
[22] The Crown having satisfied me that this property, even a portion of it, was acquired from proceeds of crime, which, itself, was acquired through or in relation to the commission of designated offences, I must, pursuant to s. 462.37(1), order that the property be forfeited to the Crown to be disposed of as the Attorney General directs or “otherwise dealt with in accordance with the law.” Forfeiture applies to any property that meets the statutory criteria “regardless of whether it is subject to seizure or restraint order.” [13] But, before making any forfeiture order, I must consider the positions of the responding interested parties in keeping with s. 462.41.
[23] Section 462.41 grants me discretion to order forfeiture of proceeds of crime to the Crown or to return “all, part or none of the property” to another party after considering all of the circumstances and the equities of the situation. [14] Here, the onus is on the interested parties to establish the criteria noted in s. 462.41(3), on a balance of probabilities: (1) that they are not charged with, or were convicted of, a designated offence; (2) that they did not acquire title to or a right of possession of that property from a person charged or convicted of a designated offence 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; (3) that they are the lawful owner or are lawfully entitled to possession of any property or any part thereof that would otherwise be forfeited; and (4) that they appear innocent of any complicity in a designated offence or any collusion in relation to such an offence.
[24] In addition to this statutory criteria, Molloy J. in R v 1431633 Ontario Inc., 2010 ONSC 266 determined that s. 462.42 (applications made subsequent to 462.37(1) forfeiture orders) necessitated additional criteria which was, persuasively, adopted to apply to the s. 462.41 criteria by Durno J. in Sankar as follows: (1) that [the interested party] has a valid interest in the property that went beyond the interest of a general creditor; and (2) the nature and extent of the claim. Accordingly, the last component the person claiming an interest must establish was that it is appropriate for his or her interest to take priority over the forfeiture order. [15]
[25] Here, neither the Crown nor the Respondents contest that the interested parties have met their onus. I agree. Having reviewed the materials filed with supporting affidavits and exhibits, I am satisfied that both Computershare and TD Auto Finance have met their statutory burden for s. 462.41(3) consideration, and neither is a general creditor. They were innocent third parties who conducted themselves according to industry standards unaware (and not negligent or wilfully blind) of the designated offences which sourced the funds which enabled their financing arrangements. Whether the nature and extent of their claims make them appropriate to prioritize their interest over forfeiture to the Crown is the outstanding issue.
[26] As referenced, these interested parties are both “corollary victims” to the designated offences committed by the Respondent, Karen Cady. There is no evidence before me suggestive that they knew or were reckless respecting Ms. Cady’s criminal activities or the source of funds from Ms. Cady or her husband. In good faith, they were providing their mortgage and/or financing services without reason for concern or knowing the risk involved. Indeed, Computershare advanced mortgage financing not to Ms. Cady but to her husband, the Respondent Michael Cady. As was the case with Henninger, they now find themselves innocently at loss due to Ms. Cady’s criminal actions. Of course, balanced against this status is the purpose of the Criminal Code’s forfeiture regime – to ensure that crime does not pay for the offender and that illegally obtained property is returned to the victim of the designated offence. I must, therefore, keep in mind any benefit to Ms. Cady by this court’s order as offenders are not meant, where possible, to benefit from the disposition of proceeds of crime which may include lessening their financial indirect financial debts.
[27] Here, the limited funds available through forfeiture pale in comparison to Henninger’s outstanding loss. As Durno J. noted in Sankar, when forfeiture of property is lower than the value of a significant fraud it is not a “windfall” for a victim to be awarded forfeiture pursuant to s. 462.37, even in the face of third-party claims. [16]
[28] How to assess all of the circumstances and the equities of the situation once an interested third party qualifies under s. 462.41 is the remaining task. As highlighted by Durno J. in Sankar, I must consider the purpose of the Criminal Code forfeiture (to ensure that crime does not pay for the offender that that illegally obtained property is returned to the victim of the designated offence), the actions of the innocent parties (as ‘corollary victims’), and the impact on the offender (what impact or benefit would the disposition have on the offender, since they are not meant to benefit from the disposition of proceeds of crime). [17] The Crown emphasizes in submissions the reality that awarding the interested third parties the complete recovery of their financial interest in effect benefits the offender by alleviating her debt to a secured creditor. Computershare responds with our Court of Appeal’s relevant assessment in R v Wilson: Where relief from forfeiture is granted to a third party under s. 462.42, the offender may profit from his or her crime to the extent of the relief allowed to the third party. For example, in the present case, if the relief sought by the appellants had been granted, the Hibberts would have profited from Mr. Hibbert's crime in that a debt of about $17,500 owed by them to the appellants would have been paid from the proceeds of Mr. Hibbert's crime. In exercising the discretion conferred by s. 462.42 the trial judge must decide whether the innocent third party should suffer so that the goal of divesting the offender of his or her ill-gotten gains can be achieved; or whether that goal should be tempered so as to permit vindication of the innocent third party's legitimate interest in the forfeited property. R. v. Tatarchuk, 4 Alta. L.R. (3d) 300, [1993] 1 W.W.R. 349, provides an example of a case where the balance favoured the third party, a victim of the very crime which gave rise to the forfeiture order. [18] [emphasis added] Applying this logic, Molloy J. in 1431633 Ontario Inc. observed that: “[t]he purpose of the legislation is to ensure that crime does not pay. It is not the purpose of the legislation, nor is it consistent with that purpose, to punish independent third parties who have contributed to the value of the property without recompense.” [19]
(i) Computershare’s claim
[29] Computershare is a secured creditor in the first position as against this real property and, therefore, has a valid interest beyond that of a general creditor. It seeks to preclude forfeiture to the extent of its interest in this real property. As I have found, that much of the equity in this real property is attributable to innocent mortgage financing is immaterial to its classification as proceedings of crime, pursuant to s. 462.37(1). The real property was acquired and maintained by funds itself acquired through the commission of a designated offence. Nevertheless, I have discretion to order all, part or none of this property’s equity to be forfeited to the Crown or returned to Computershare after considering all of the circumstances and the equities of the situation.
[30] Computershare’s conduct as a ‘corollary victim’ to Ms. Cady’s fraud is beyond reproach. I have no evidence suggesting that it could have known of the risk that manifested. As suggested by Computershare, when assessing the equities clearly Henninger was in a better position to prevent the loss, or some part of the loss, resulting from Ms. Cady’s designated offending conduct. I note that Computershare was dealing with Respondent, Michael Cady, exclusively when the mortgage was negotiated, further separating them from possibly appreciating the risk. Of course, by transferring the property to this Respondent when it was first purchased using Ms. Cady’s ill-gotten gains, and maintaining it after financing with these gains was all part of this fraudulent narrative – a scheme that does not merit benefit from satisfaction of a civil debt.
[31] Awarding the entirety of its financial interest to Computershare would benefit the Respondents, and in particular Ms. Cady, by lessening their financial debt to a secured creditor at the expense of Henninger. When faced with such a stark clash of statutory and equitable interests, mindful of the ‘tempering impulse’ enunciated in Wilson, I find that a balancing of the interests of the competing parties is most appropriate.
[32] As of June 2, 2021, Computershare holds a first mortgage over this real property with a balance of $178, 653.91. At a minimum, it seeks to recover that financial interest. While I completely understand their position, I find that awarding this total would collaterally benefit the offender, Ms. Cady. In all of the circumstances, I am persuaded that this is an appropriate case to exercise my s. 463.41 discretion and order some of the funds returned to this interested third party, but the equities involved and the purpose of this statutory regime militate against complete recovery. In recognition of Computershare’s clean hands which, nevertheless, were exposed to risk, a risk that it reasonably tried to mitigate, it ought to be award the lion’s share of equity in 65 Hinds Road, Wahanpitae, Ontario up to approximately 90 per cent of its financial interest. While it may seem artificial, particularly when Ms. Cady faces a substantive restitution order already, this statutory regime cannot bear this offender benefitting completely from the removal of a financial debt to a mortgagor. Obviously, Respondent Michael Cady will also be available for financial recovery from Computershare.
[33] The real property, 65 Hinds Road, Wahanpitae, Ontario will be forfeited to the Crown to be liquidated pursuant to s. 462.37(1). Computershare will be entitled to $160,000 of the proceedings of that sale (amounting to just under 90 per cent of its financial interest). The remaining proceeds shall be forfeited to the Crown and applied to the restitution order made on September 3, 2021, pursuant to statute.
(ii) TD Auto Finance’s claim
[34] TD Auto Finance holds a registered PPSA lien on the seized 2016 Jeep Cherokee motor vehicle which was purchased and maintained (through loan payments) using proceedings of crime attributable to a designated offence. Therefore, this property is properly defined as proceedings of crime and must be forfeited to the Crown pursuant s. 462.37(1), subject to my discretion under s. 462.41 to permit relief to interested third parties. They are a secured creditor and seek a return of this seized property to satisfy their outstanding financial interest.
[35] Unlike Computershare, TD Auto Finance’s creditor interest was only secured almost a year after the subject property was seized by police. Molloy J. dealt with an imperfect (or late) security interest in 1431633 Ontario Inc. and utilized the court’s discretion to, nevertheless, recognize the interested third party’s as meriting relief under s. 462.41. [20] I agree. I find her reasoning respecting discretionary acknowledgment for forfeiture relief persuasive as there is both no policy basis for the Crown to take priority over interested third parties who have proven a legitimate interest “that attaches to the property itself” and there is no prejudice caused by TD Auto Finance’s delayed PPSA registration.
[36] Much like Computershare, there is also no evidence to suggest TD Auto Finance stands in a position other than an innocent third party, or ‘corollary victim’. TD Auto Finance conducted itself pursuant to industry standards, there being no available means to assess this risk as party of their lending practice (e.g. there is no accepted practice to research the legitimacy of client source funding). While directly dealing with Ms. Cady, the perpetrator of the qualifying designated offence, I am satisfied on this evidentiary record that TD Auto Finance innocently advanced financing unaware of the associated risk. In default of the loan, which crystallized upon police seizure of the property, TD Auto Finance was lawfully entitled to possession subject to a determination of this application. None of this is contested by the Crown. Therefore, I am persuaded that this is an appropriate case to exercise my discretion and order “all” or “part” of the motor vehicle’s equity to be returned to TD Auto Finance. The quantum of that relief in the circumstances of this case and the equities which present must now be assessed.
[37] TD Auto Finance asserts that exercising discretion in their favour would not benefit the offender in any way. It also cites Sankar, 1431633 Ontario Inc. and other analogous authorities where courts have returned the entire secured financial interest to third parties. First, as already noted, I do not agree that Ms. Cady will not benefit from this requested relief from forfeiture. Relief of this civil liability is a legitimate benefit to this offender and comes at the expense of restitution relief for Henninger. Moreover, the direct dealings engaged in with this offender put them in a greater position to militate their loss than, for example, Computershare who was dealing with a spouse. This slightly tilts the comparative equitable balance but, naturally, Henninger was still in an overall better position to prevent the loss than TD Auto Finance found itself in.
[38] In recognition of TD Auto Finance’s ‘corollary victim’ status, while I am not persuaded that all of their financial interest should be satisfied by this order, I am prepared to balance the competing interests and order that $12,000 (or just under 85 per cent of its financial interest - $14,165.69) be returned to TD Auto Finance upon liquidation of the subject 2016 Jeep Cherokee motor vehicle. [21] Any remaining proceeds shall be forfeited to the Crown and applied to the restitution order made on September 3, 2021, pursuant to statute. This order, I believe, balances the need to satisfy a legitimate financial interest from an innocent third party without completely absolving the offender of responsibility for their financial debts at the expense of Henninger.
Legal Framework for s. 462.37(3) Application and Analysis
[39] Forfeiture of proceeds of crime is not always available as they may have been “used, transferred or transformed, or may simply be impossible to find.” [22] Therefore, to ensure that there is no indirect benefit to offenders, Parliament enabled the court to impose a fine instead of forfeiture of the proceeds of crime.
[40] Counsel for Ms. Cady has asked me to consider her capacity to pay a fine in lieu of forfeiture after she has been released from custody. While, superficially, it may seem unrealistic to impose a substantive financial penalty upon a newly released offender (or, indeed, contrary to rehabilitation efforts), it is not. I am bound by Lavigne’s clear instruction with respect to s. 462.37(3) orders: “the discretion granted under that provision is limited and the ability to pay may not be taken into consideration either in the decision to impose the fine or in the determination of the amount of the fine.” [23] That court asked and answered the obvious question: If the proceeds of crime has been spent is that a ground for being exempt from the fine in lieu of forfeiture order? No. Otherwise, this would incentivize offenders to “quickly squander the proceeds of crime.” But the court went even further. Inability to pay a fine was not a ground for reducing the amount of the fine because to do so would incentivize criminal organizations to engage the poor knowing that court’s would show clemency. [24] The only areas where the court’s limited discretion may be engaged is where an offender played a minor role in the scheme and did not personally benefit from the fraud, or where a fraud was an isolated act and constituted a de minimis crime committed by a sole offender. As I have already found, nether scenarios apply here.
Quantum of the Fine in Lieu
[41] The quantum of the fine in lieu must be assessed. Section 462.37(3) makes it clear that the quantum of the fine will be “equal to the value of the property or the part of or interest in the property” lost. In R v Schoer, 2019 ONCA 105, our Court of Appeal made it clear that the amount of the fine in lieu must be proportionately equal to the value of the property that was possessed or controlled by the offender, not the value of the benefit received by her. [25]
[42] Ms. Karen Cady agreed, through her plea and the agreed statement of facts, that she was in possession and control of $1,017,703.27, the total loss to Henninger. She does not fall into any of the common law exceptions as discussed in Lavigne. Therefore, my limited discretion to decline to make a fine in lieu of forfeiture order is not engaged. As outlined in s. 462.37(3), the quantum of the order must be equal to the total amount of the proceeds of crime possessed and controlled by Ms. Cady, less the value of any property ordered forfeited pursuant to s. 462.37(1), as above. As indicated, with respect to the two forfeiture orders made on July 12, 2021, the Crown is now in receipt of $89,639.66 of proceedings from the sale of property and seizure of funds. Therefore, the quantum of the fine in lieu of forfeiture shall be $928,063.61. [26]
Time to pay the fine
[43] A further factor for consideration is how much time should be granted to pay the imposed fine. As suggested in R v Chung, 2021 ONCA 188, the Court of Appeal justified the giving of time to pay as a: …means of allowing the offender to arrange his or her affairs so as to realize on existing assets and pay the fine. This includes offenders who are able to recall proceeds of crime they have put into the hands of third parties. In other cases, an offender may have dissipated the proceeds and not have assets, but it is not unreasonable to require offenders to compensate for their use of proceeds of crime by requiring them to make payment over time from superfluous income. [27]
[44] Contrary to the submissions of counsel, failure to make timely repayment pursuant to a s. 462.37(3) order is not a default custodial sentence. It is not a modern ‘debtor’s prison’ provision and ought not be so considered as part of my time to pay balancing consideration. When the sum of the loss, as here, is significant and the realistic financial means of an offender in the future is modest, an offender may apply for additional time to pay and the assessment process at a committal hearing takes into account whether failure to discharge the fine is the result of refusal to pay without reasonable excuse. Genuine future impecuniosity may be a reasonable excuse justifying declining a warrant of committal. [28] In any event, I must balance the time provided to discharge the fine with the legislative purpose – to ensure that crime is not made to pay and promoting compensation to victims.
[45] I have reviewed various precedents to inform my determination of time to pay a fine in lieu of forfeiture order. [29] As noted in R v Dhanaswar, [2014] OJ No 6388 (SCJ), a $2.3 million fine in lieu of forfeiture order was made relative to an employment related breach of trust case. That court faced the discrepancy between the Crown’s request for 2 years to pay and the defence request for 20 years. That court was provided with little information respecting what had happened to the proceeds (not unlike here) and found that the fraud was motivated by greed. Ducharme J. ordered a 6 year period to pay noting that acceding to the 20 year requested period would render the s. 462.37(3) “toothless”. [30] Here, the Crown seeks a 5 year period of time whereby the defence seeks an unspecified substantially longer period to “realistically” permit repayment. Paraphrasing the words of the offender to her pre-sentence reporter, it will take the rest of her life to pay back this loss. However, that presumes that she is incapable of collecting redistributed proceeds, generally conceded in the agreed statement of facts as relevant to some of the proceeds, or is not capable of earning substantive income in the future despite her meaningful work history. She is not now nor approaching retirement age and her s. 380.2 prohibition does not impact her capacity to be gainfully employed – as evident from her post Henninger employment efforts in an entirely different field. Tailored to this offender and considering the extent and duration of her breach of trust, I find that a period of 8 years to pay this fine in lieu of forfeiture order, from the date of her release from prison, will appropriately incentivize compensation efforts.
Quantum of imprisonment in default of fine payment
[46] Finally, consideration of the quantum of the term of imprisonment in the event that fine payment is not made within the time permitted is necessary. Section 462.37(4) outlines the ranges of custodial time, in addition to the original offence sentence, that may be imposed. For fines between $250K - $1 million, as here (given the quantum of the remaining loss after s. 462.37(1) forfeiture has been deducted), s. 462.37(4)(a)(vi) provides for a range of not less than 3 years and not more than 5 years imprisonment.
[47] The Crown seeks 4 ½ years imprisonment should the fine not be discharged in the time allotted. Without specific reference being made, the defence unquestionably would seek the minimum available custodial period. Having considered comparable precedents respecting fine in lieu of forfeiture orders, [31] the extent and nature of this breach of trust, the prison sentence already imposed and the demonstrated employment capacity of this offender, I am satisfied that a period of 4 years imprisonment [32] in default of this s. 463.37(3) order would, again, incentivize compensation efforts.
Conclusion
[48] Both the real and personal property subject to this application will be forfeited to the Crown, subject to my discretion to order some of that property’s value be returned to interested third parties. Computershare will be entitled to $160,000 from the proceedings of sale of 65 Hinds Road, Wahanpitae, Ontario. TD Auto Finance will be entitled to $12,000 from the proceedings of sale of the 2016 Jeep Cherokee motor vehicle.
[49] I invite the Crown and interested third parties to forward an agreed upon draft order consistent with these reasons for my review and approval.
[50] Finally, having considered the Crown’s request under s. 462.37(3), I order that Ms. Cady pay a fine in lieu of forfeiture amounting to $928,063.61. She will have 8 years to pay that fine order, subject to a 4 year period of imprisonment should she default.
Released: November 21, 2021 Signed: Justice M. B. Carnegie
[1] As reported by the Crown on September 3, 2021, net sale proceedings since the July 16, 2021 forfeiture order: (1) $31, 121.45; (2) $10,221.45; (3) $2,166.65; (4) $28,421.45; (5) $3,766.65. [2] An application for fine in lieu of forfeiture in fraud prosecutions should, as here, be separate from and in addition to any consideration of sentence for the commission of the offence. See R v Lavigne, 2006 SCC 10 at paras 25-26; R v Dwyer, 2013 ONCA 34 at para 18. [3] Henninger is a small company from Sudbury, Ontario which, as of 2019, employed approximately 10 people. It’s primary focus was selling new and rebuilt engines used in underground mining operations. In the relevant timeframe, Henninger had approximately 30 to 40 regular vendors. It used both a standard and credit payment system to administer its accounts. [4] See Computershare affidavit of Kimberley Hellam, paras 2-6; Crown affidavit of Cst. Wright at paras 13-15, 31, 58, 59. [5] Crown affidavit of Cst. Wright at paras 18, 37, 38; TD Auto Finance affidavit of Shelly at para 6, 13. [6] Lavigne, supra, at para 16. [7] Ibid, at paras 8, 10, 16, 26, 31; see also R v Angelis, 2016 ONCA 675 at para 32, leaving to appeal to SCC refused. [8] R v Sankar, 2012 ONSC 1498 at para 22. [9] R v Wilson, [1993] OJ No 2523 (CA) at p 5. [10] An Agreed Statement of Fact, pursuant to s. 655 of the Criminal Code, constitutes proof of its contents for purposes of a ss. 462.39(1) and (3) applications. See R v Sankar, 2011 ONSC 2294 at paras 17-19. [11] Sankar, 2012 ONSC 1498 at para 103; Lavigne, supra, at para 13. [12] Lavigne, supra, at para 13. [13] R v Schoer, 2019 ONCA 105 at para 88; Lavigne, supra, at para 14. [14] Sankar, 2012 ONSC 1498 at para 22. [15] R v 1431633 Ontario Inc., 2010 ONSC 266, adapted by Sankar, 2012 ONSC 1498 at paras 9-10. [16] Sankar, supra, at para 140. [17] Ibid, at paras 139-144. [18] R v Wilson, [1993] OJ No 2523 (CA) at p 8. [19] 1431633 Ontario Inc., supra, at para 70. [20] 1431633 Ontario Inc., supra, at paras 5-6, 24, 71, 77. [21] This sum is contingent upon net proceedings from sale. If less than $12,000 is procured, the entirety of the procured sum shall be advanced to TD Auto Finance. [22] Sankar, supra at para 18. [23] Lavigne, supra, at para 1, 30-31; R v Rafilovich, 2019 SCC 51 at para 33. See also Angelis where the OCA found inappropriate the sentencing justice’s consideration of a fine in lieu of over $1 million because of the crushing effect on future prospects for rehabilitation. [24] Ibid, at para 30. [25] R v Schoer, 2019 ONCA 105. See also: Lavigne at para 34, R v Chung, 2021 ONCA 188 at para 101. [26] See s. 734.7 of the Criminal Code. Naturally, the Crown’s net proceedings from the sale of 65 Hinds Road, Wahanpitae, Ontario and the 2016 Jeep Cherokee motor vehicle shall be applied against Ms. Cady’s restitution order and, in effect, shall also reduce the outstanding fine in lieu of forfeiture obligation. [27] Chung, supra, at para 159. [28] Chung, supra, at para 160; see also: Lavigne, supra, at para 36. [29] A variety of comparable precedents include: Angelis, supra (after a prison sentence of 4 years, 3 months was imposed, a fine in lieu of forfeiture of just over $1 million attracted 10 yrs to pay with 10 years jail in default), R v Pavao, 2018 ONSC 4889 (after a prison sentence of 5 years was imposed, a fine in lieu of $1.1 million attracted 8 years to pay (inclusive of jail term) without reference to the default jail term), R v Adams (after a prison sentence of 5 ½ years was imposed, a fine in lieu of $1.6 million attracted 6 years to pay with 6 years jail in default), and R v Dieckmann, 2014 ONSC 717 (after a prison sentence of 4 years was imposed, a fine in lieu of almost $1.3 million attracted 1 year to pay with 5 years jail in default); R v Khatchatourov, 2012 ONSC 3511 (after a prison sentence of 4 years was imposed, a fine in lieu of almost $425K attracted a 4 year time to pay with 18 months jail in default); Schoer, supra (after a prison sentence of 4 years was upheld on appeal, a fine in lieu of just over $400K imposed on appeal attracted 6 years to pay with 3 years jail in default). [30] R v Dhanaswar, [2014] OJ No 6388 (SCJ) at para 53. [31] See note 29. [32] If relevant, this term will be consecutive to any other term of imprisonment the offender may be serving.