COURT FILE NO.: CV-05-0766-00

DATE: June 10, 2014

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

495793 ONTARIO LTD. c.o.b. as CENTRAL AUTO PARTS and RICK MERCURI

Plaintiffs

• and -

FRANK BARCLAY and CITY OF THUNDER BAY POLICE SERVICES BOARD

Defendants

HEARD: February 3-7; 10-14; 18-21; 24-28; March 3-7;10-14; 17; 19-20, 2014

at Thunder Bay, Ontario

Regional Senior Justice H.M. Pierce

Reasons for Judgment

Introduction

[1] On an April morning in 1999, eleven police officers, headed by the Thunder Bay Police, arrived at the premises of Central Auto Parts in Thunder Bay to execute a search warrant. The lead investigator was the defendant, Frank Barclay.

[2] The police closed the business, sent the staff home, and commenced their search for stolen cars and parts under the inquisitive eyes of the local press. Shortly after the police arrived, Rick Mercuri, one of the owners of Central, spoke to his lawyer, then accompanied the police to the police station where he gave a voluntary, videotaped statement. After the statement, the police and Mr. Mercuri returned to the Central Auto Parts facility where the search continued until about 9 p.m. The fact of the search and the allegation that the police believed there were stolen cars and parts on the premises were widely reported by the local press. About a month later, Rick Mercuri was charged with ten counts of possession of stolen property contrary to the Criminal Code. An eleventh charge of possession of stolen property was added later. The fact that charges had been laid was also reported in the press.

[3] By the time submissions were made, the preliminary hearing had spanned 15 months. Mr. Mercuri was committed for trial on all counts in November, 2001.

[4] Despite the committal for trial, the Crown did not present its indictment until March, 2002.

[5] Trial began in the Superior Court in September, 2003. The defence moved, pursuant to the Charter of Rights and Freedoms, to exclude evidence obtained pursuant to the search warrant. The defence also challenged the voluntariness of the statement made by Mr. Mercuri. After hearing about twelve days of evidence on the defence motions, the court released its decision in June, 2004.

[6] The Crown moved, pursuant to s. 37 of the Canada Evidence Act, R.S.C. 1985, c. C-5, for an order that it not be required to reveal the location of any confidential vehicle identification numbers (“VIN”). In January, 2005, the Crown’s s. 37 motion was heard and dismissed. The Crown was ordered to disclose to the defence the location of the confidential VINs. Crown counsel assigned to the file, Mr. Peter Hurrell, withdrew six charges at that time because there was no reasonable prospect of conviction. He explained that he reached this conclusion because evidence from Rick Mercuri could be true: that he had no satisfactory reason to believe the property was stolen. Mr. Hurrell added that there came a point when he no longer believed he could prove guilty knowledge on certain counts and withdrew the charges.

[7] Before trial continued in June, 2005, the Crown withdrew two more counts. The defence moved for a directed verdict on the three remaining counts. The defence motion was granted on two counts; after hearing argument, the court dismissed the remaining count. Some six years after the charges were laid, and $268,937 in legal fees had been paid, the matter came to an end. News of the acquittal was published in the local press.

[8] The plaintiffs say that the police conduct of the investigation was negligent.

[9] The plaintiffs contend that the police were ignorant of auto recycling industry practice, discounted innocent explanations offered by the accused, and disregarded changes in the law removing the presumption of guilt in relation to alteration of VINs.

[10] The plaintiffs also contend that the information provided to the Justice of the Peace who granted the search warrant was misleading and deficient, and that police tested airbags seized without legal authority, which resulted in their destruction. The plaintiffs complain that goods seized were lost or damaged through neglect, resulting in a decrease in value of the plaintiffs’ property.

[11] Consequently, the plaintiffs claim damages for legal fees expended in the defence of the criminal charges; for the value of lost or damaged goods held by the police; for non-pecuniary damages and for loss of business income as a result of the charges being laid and publicized.

[12] The defendants deny they are liable to the plaintiffs for damages. They submit they had reasonable and probable grounds to arrest Mr. Mercuri and to carry on the prosecution of the charges to trial. The defendants say that the police conducted themselves as reasonable officers would in like circumstances. They say that if there was negligence, it lies with the Ontario Provincial Police officers who advised them, for whom they are not vicariously liable.

[13] Despite the defendants’ position, the lead investigator conceded that the police destroyed air bags without lawful authority; lost certain property in police custody; and stored other property of the plaintiffs in such a manner that it was destroyed or its value was diminished. The value of these losses is agreed at $70,000.

The Law

[14] At the heart of the plaintiffs’ claim is the question of whether the police could prove that Rick Mercuri knew that the car parts and vehicles in his possession were stolen and whether their investigation was conducted with this in mind.

[15] The definition of the offence of possession of stolen property can be found at s. 354 of the Criminal Code R.S.C. 1985, c. C - 46. The general offence section, s. 354(1) states:

Every one commits an offence who has in his possession any property or thing or any proceeds of any property or thing knowing that all or part of the property or thing or of the proceeds was obtained by or derived directly or indirectly from

(a) the commission in Canada of an offence punishable by indictment; or

(b) an act or omission anywhere that, if it had occurred in Canada, would have constituted an offence punishable by indictment.

[16] A key element of this definition is that the person who possesses stolen goods must know they are stolen. Possession without knowledge that the goods are stolen does not constitute an offence in Canadian law.

[17] Section 354(2) sets out an evidentiary presumption concerning motor vehicle parts. It provides:

In proceedings in respect of an offence under subsection (1), evidence that a person has in his possession a motor vehicle the vehicle identification number of which has been wholly or partially removed or obliterated or a part of a motor vehicle being a part bearing a vehicle identification number that has been wholly or partially removed or obliterated is, in the absence of any evidence to the contrary, proof that the motor vehicle or part, as the case may be, was obtained, and that such person had the motor vehicle or part, as the case may be, in his possession knowing that it was obtained,

(a) by the commission in Canada of an offence punishable by indictment; or

(b) by an act or omission anywhere that, if it had occurred in Canada, would have constituted an offence punishable by indictment.

[18] The Criminal Code clarifies in s. 354(3) that:

For the purposes of subsection (2), “vehicle identification number” means any number or other mark placed on a motor vehicle for the purpose of distinguishing the motor vehicle from other similar motor vehicles.

[19] The definition of “motor vehicle” is found at s. 2 of the Criminal Code. It states that a motor vehicle:

…means a vehicle that is drawn, propelled or driven by any means other than muscular power, but does not include railway equipment.

[20] Thus, the cab of a pick-up truck, by itself, is not a motor vehicle.

[21] As I will explain, rather than clarifying matters in this case, this definition, as understood by the police, muddied the waters. The evidence discloses a fundamental difference of opinion between automotive recyclers and the police about what is a VIN; what parts of a vehicle constitute a motor vehicle; what parts contain a VIN; and the legitimate reasons in the industry for transferring a VIN.

[22] In 1983, the Ontario Court of Appeal decided the case of Boyle and the Queen, 1983 CanLII 1804 (ON CA), 5 C.C.C. (3d) 193; 41 O.R. (2d) 713. In Boyle, the court struck down the presumption of guilty knowledge as being unconstitutional (para. 60), but left intact the doctrine of recent possession in relation to possession of stolen goods. At para. 61, the court concluded:

Since, as I have held, the presumption is valid that a motor vehicle, the vehicle identification number of which has been removed or obliterated, has been obtained by an indictable offence, that presumption together with other evidence that shows that the indictable offence by which the vehicle was obtained was “recently” committed, e.g., that the vehicle or part had been “recently” manufactured, may give rise to the doctrine of recent possession and the inference of guilty knowledge arising therefrom. Guilty knowledge, apart altogether from any inference arising from possession of goods “recently stolen” may, of course, be proved by inferences from other circumstances, such as the giving of inconsistent accounts by the accused as to how he came by the property, the purchase of the property at an unreasonably low price, or the surreptitious manner in which the transaction by which the accused acquired the property took place, and an infinite variety of other circumstances. For example, the possession of several motor vehicles the vehicle identification numbers of which were obliterated might very well support an inference of guilty knowledge on the basis of the improbability of a person innocently acquiring a number of motor vehicles, the vehicle identification numbers of which had been obliterated….

[23] Since Boyle was decided, the police have no longer been able to rely on the presumption of guilty knowledge by a person in possession of a stolen motor vehicle with a VIN that was wholly or partially removed or obliterated. Since then, the police have been required to prove guilty knowledge directly or by inference.

[24] In order to make an arrest, a police officer must have reasonable and probable grounds that are justifiable from an objective point of view. In other words, “a reasonable person, standing in the shoes of the police officer, would have believed that reasonable and probable grounds existed to make the arrest.” It is not sufficient that the officer subjectively believed that he or she had such grounds. See: Lloyd v. Toronto (City) Police Services Board, [2003] O.J. No. 83 (S.C.J.) at para. 43.

[25] Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41; [2007] 3 S.C.R. 129 is the leading case on negligent investigation by police officers. Mr. Hill was arrested on ten counts of robbery. By trial, one count remained. He was tried based on eyewitness identification, and wrongly convicted. On appeal, a re-trial was ordered at which Hill was acquitted. By that time, he had spent twenty months in jail. Mr. Hill commenced a civil suit against the police, alleging they had negligently investigated his case.

[26] A majority of the Supreme Court of Canada held that police officers owe a duty of care to those they are investigating based on the proximity between the police and the person being investigated and the reasonable foreseeability of harm. In doing so, the court affirmed that police are not immune from the tort of negligence. The court specifically recognized the tort of negligent investigation. The court held that the standard of care by which police investigations is measured is that of a reasonable police officer in like circumstances at the time the decision was made (paras. 67 and 73).

[27] The court explained that the conduct of a reasonable police officer may vary depending on the stage of the investigation and the legal considerations. At para. 68, the court described this

continuum of the standard of care:

A number of considerations support the conclusion that the standard of care is that of a reasonable police officer in all the circumstances. First, the standard of a reasonable police officer in all the circumstances provides a flexible overarching standard that covers all aspects of investigatory police work and appropriately reflects its realities. The particular conduct required is informed by the stage of the investigation and applicable legal considerations. At the outset of an investigation, the police may have little more than hearsay, suspicion and a hunch. What is required is that they act as a reasonable investigating officer would in those circumstances. Later, in laying charges, the standard is informed by the legal requirement of reasonable and probable grounds to believe the suspect is guilty; since the law requires such grounds, a police officer acting reasonably in the circumstances would insist on them. The reasonable officer standard entails no conflict between criminal standards [reference omitted]. Rather, it incorporates them, in the same way it incorporates an appropriate degree of judicial discretion, denies liability for minor errors or mistakes and rejects liability by hindsight. In all these ways, it reflects the realities of police work.

[28] The court held that in evaluating the standard of care to which police officers are subject, the court should recognize that discretion is an inherent part of police investigation. The police are not to be held to a standard of perfection (para.73). Rather, because of the importance of police work, the standard is to be applied with flexibility. Officers will not breach the standard if they make minor errors or errors in judgment.

[29] The court rejected the argument that police exercise a quasi-judicial role when deciding whether to open or close an investigation. At paras. 49-50, the court described police as being primarily responsible to gather and evaluate evidence, not to make judgments about the guilt or innocence of an accused before proceeding with charges. The role of police is contrasted with that of the prosecutor, whose role is to consider whether the evidence gathered by police will support a conviction, and to evaluate evidence in accordance with legal standards. Defence counsel and judges are also responsible to make legal judgments.

[30] The defendants argue that the fact that Mr. Mercuri was committed to trial at the preliminary inquiry is strong evidence that the police had reasonable grounds for arrest. I do not agree. In my view, the police cannot hide behind a committal for trial to suggest that their investigation was not negligent.

[31] In Hill, there was a committal to trial after a preliminary hearing. The standard for committal to trial at the preliminary inquiry is very low: whether there is any evidence upon which a reasonable jury properly instructed could convict (United States of America v. Shephard 1976 CanLII 8 (SCC), [1977] 2 S.C.R. 1067 at p. 1080; 70 D.L.R. (3d) 136). The preliminary inquiry judge is not permitted to weigh evidence or assess credibility. Often the defence does not call evidence. The focus at the preliminary inquiry is not the quality of the police investigation as it is in a tort case.

[32] Nor can the police shift the onus onto the Crown once the police have laid charges. In McTaggart v. Ontario, [2000] O.J. No. 4766, a case about malicious prosecution, the court considered the duty of police to make disclosure. The court adopted with approval extracts from the Report of the Attorney General’s Advisory Committee on Charge Screening, Disclosure and Resolution Discussions, 1993 (The Martin Report). At para. 68 of the decision, the court cited p. 167 of the Martin Report as follows:

It is well settled and accepted by all, including the police, that the police, although operating independently of Crown counsel, have a duty to disclose to Crown counsel all relevant information uncovered during the investigation of a crime, including information which assists the accused. This principle has for some time been well recognized and put into practice by police forces across the province….

The pre-existing duty on the part of the police to provide full disclosure to Crown counsel is as important as it is uncontroversial. In most circumstances, the police are the principal source of all information that subsequently becomes evidence in a criminal prosecution. The police, as the investigative arm of the state, have the primary responsibility for acquiring such evidence. However, it is Crown counsel who must conduct the prosecution. Crown counsel cannot do so effectively or responsibly without being apprised of all that is relevant. Material that assists an accused may be particularly important, as Crown counsel must prepare to deal with such material in court. Alternatively, material favourable to the accused may lead Crown counsel to withdraw the charge, or require further investigation. Police disclosure to the Crown is also important in that it allows Crown counsel to discharge his or her constitutional obligation to then disclose all relevant information to the accused.

[33] As was apparent in this case, the police collected evidence and charged Mr. Mercuri. Crown counsel’s ability to evaluate the merits of the charges was limited by the information the police gave him. The police are obliged to present the full facts to the prosecutor. As we shall see, Crown counsel assigned to the case became more dubious about the merits of the charges the more he learned about the case.

[34] In a British case, Dumbell v. Roberts, [1944] 1 All E.R. 326, as quoted at para. 44 of Lloyd, the court observed that police ought to “be quick to see the possibility of crime, but equally they ought to be anxious to avoid mistaking the innocent for the guilty.”

[35] In determining whether they have reasonable grounds for arrest, police officers have a duty to be “observant, receptive and open-minded and to notice any relevant circumstance which points either way, either to innocence or to guilt.” See Lloyd, para. 44.

[36] In a claim for negligent police investigation, the plaintiffs must prove that the police breached the duty of care owed to them and that they suffered compensable damage which is causally connected to the breach.

Expert Evidence on the Standard of Care

[37] The plaintiffs called one expert on the standard of care, Mr. Jeff Davis, an experienced officer who worked in the Commercial Auto Crime Bureau of the Peel Regional Police from 1994 until his retirement in 2010. Since that time, he has done consulting work examining vehicles for insurers to ensure that all VINs are matching and authentic. Mr. Davis has examined vehicles at the Adesa Auto Auction since 1996 to identify problematic VINs. In addition, he is a Subject Matter Expert with the National White Collar Crime Center at Glen Allen, Virginia, U.S.A. where he has lectured on VIN cloning and title fraud. Mr. Davis is an agent for the Insurance Bureau of Canada for repatriating and/or re-vinning stolen vehicles. He is a life-time member of the International Association of Auto Theft Investigators after holding executive and director positions in that organization for many years. Mr. Davis was qualified to give expert evidence on auto theft investigation issues.

[38] The defendants did not offer expert evidence on the standard of care for police investigations. They argue that the test for standard of care in negligent investigations has been met by Mr. Davis’ testimony that the police already had evidence of possession of stolen property prior to the search warrant, giving them grounds to arrest Mr. Mercuri.

[39] I do not agree. The trial judge is not bound to blindly accept expert evidence with which she takes issue; indeed, it would be dangerous to do so. As with the evidence of lay witnesses, the trial judge must weigh opinion evidence to determine its probity. The trier of fact is entitled to accept some, none, or all of the opinion evidence tendered at trial.

[40] The evidence of Mr. Davis was of limited use for several reasons. He joined in the preparation of the expert report but was not the primary author. Because the primary author was ill and not able to testify at trial, Mr. Davis presented the findings that he joined in. Unfortunately, there were a number of police reports and documents that he did not receive before forming his opinion. Therefore, he was unable to review all documented police activity. The scope of his opinion was limited as a result.

[41] Second, there were certain aspects of his opinion that did not find their way into the report served on the defendants. These were ruled inadmissible at trial.

[42] Third, some of Mr. Davis’ evidence was contradictory. For example, he testified that the police had grounds to arrest Mr. Mercuri but he also said that he saw no evidence that Mr. Mercuri had knowledge that parts in his possession were stolen. Without proof that Mercuri knew that parts in his possession were stolen, the police could not reasonably have concluded there were grounds to arrest Mr. Mercuri.

[43] Fourth, Mr. Davis’ evidence was incomplete. He made no comment on police conduct as it related to industry practice; in fact, nothing in his background suggests that he is familiar with the auto recycling industry. As well, he made little or no comment on police failure to investigate innocent explanations and disclose them to the Crown, or on their interpretation of applicable law.

[44] More worrisome is an impression that Mr. Davis left that he did not understand his role as an expert testifying about the issues in this case. He was clearly knowledgeable about auto theft policing. However, an expert witness requires not only experience in the field but also a perspective that distance from the field can bring. When an expert identifies too closely with the field of endeavour, he may lose his capacity to evaluate performance critically. He becomes an actor in the case, rather than a theatre critic. When this occurs, the value of his testimony to the court diminishes.

[45] For these reasons, I attach little weight to the testimony of Mr. Davis about the standard of care.

[46] For centuries the courts have ruled on the reasonableness of the conduct of the police. Some examples of negligence are detailed in the jurisprudence concerning negligent police investigation.. While the court’s oversight is often exercised in the context of criminal law, I am of the view that the court may not necessarily need expert evidence to reach conclusions about whether an investigation was negligent. In my view, this is such a case. In certain instances, police conduct was egregious: for example, the failure to document and investigate innocent explanations and the wanton destruction of the plaintiffs` property without legal authority. Repeatedly, the lead investigator, Officer Barclay, conceded that the investigation was deficient. He even apologized to Mr. Mercuri during the course of the trial for errors in the investigation.

Police Discipline History

[47] The plaintiffs argue that the defendants were negligent in that they did not disclose Officer Kleinsteiber’s discipline history in the criminal proceedings. His discipline history as a police officer was not known to the Crown during the criminal trial. The plaintiffs concede, however, that in 1999, the law was unsettled on the Crown’s obligation to do so pursuant to disclosure obligations set out in R. v. Stinchcombe, 1991 CanLII 45 (SCC), [1991] 3 S.C.R. 326.

[48] The matter was not laid to rest until the Supreme Court of Canada ruled in 2007 that police have a duty to disclose serious misconduct by police officers upon an O’Connor application being granted. See R. v. McNeil, 2009 SCC 3; [2009] 1 S.C.R. 66.

[49] In my view, Officer Kleinsteiber’s discipline history was not relevant to the question of whether this police investigation was conducted negligently. Criminal charges against him were dismissed and the Police Services Act charges against him had no bearing on his performance in this case.

Was the Police Investigation Negligent?

[50] The court should avoid second-guessing police decisions from the comfortable retrospective of a decade or more. Nevertheless, it is the court’s obligation to oversee the duty of care that police have to those being investigated, as in this case.

[51] I have concluded that the police did not meet the standard of care set out in Hill, in the following respects:

(a) they failed to familiarize themselves with the auto recycling industry practice;

(b) they failed to understand the purpose or the scope of the Criminal Code or the case law relevant to their investigation;

(c) they failed to consider, document, investigate and disclose innocent explanations or indicia of innocence; and

(d) they failed to secure and preserve the plaintiffs’ property.

[52] The nature of the defendants’ negligence will be considered in more detail below.

Failure to Familiarize Themselves with the Auto Recycling Industry

[53] Based on reports from confidential informants, the Thunder Bay police embarked on an investigation into stolen auto parts early in 1997. The police were suspicious that stolen car parts from Quebec were being sold by Central Auto Parts and another auto recycler. The police believed there was a connection between Rick Mercuri and an individual named Gilles Joly, whom Mr. Mercuri described as a broker in used parts and vehicle sales.

[54] Mr. Joly had been doing business with Thunder Bay auto recyclers for at least nine years by the time of the police search at Central Auto Parts. He worked with auto parts recyclers throughout Canada. If Central had parts to sell, it would ship them with Joly, or Joly would bring Central parts it purchased. This method of doing business predated computerized communications in the auto recycling industry.

[55] Neither Joly nor Mercuri had criminal records at the time of the investigation. Charges laid against Joly in Thunder Bay were ultimately withdrawn.

[56] The lead investigator, Frank Barclay, was an experienced officer with a background in intelligence. By the time he arrested Mr. Mercuri, he had been on the force for twenty-two years. However, he had no training in auto theft. The only Thunder Bay officer with auto theft training was Bill Fuhrman, who was assigned to the investigation, along with others. At the outset, Officer Fuhrman was asked to identify vehicles connected with Central Auto Parts for further investigation.

[57] Recognizing his limited background in auto theft, Officer Barclay recommended to his superiors that Thunder Bay seek assistance from the Ontario Provincial Police auto theft unit. An officer from the OPP auto theft unit arrived to assist Thunder Bay police; when his performance was unsatisfactory, he was sent back.

[58] In late March or early April of 1999, Officer George Kleinsteiber of the auto theft unit took an interest in the Thunder Bay investigation. He was friends with Fuhrman and offered to help. The Central Auto Parts case was not his sole assignment at the time. Officers Douglas Cousens and Malcolm Barber of the provincial auto theft team also became involved in the investigation as auto theft examiners. The auto theft examiners came and went as their other assignments dictated.

[59] Although he was the lead investigator, Officer Barclay deferred to Officer Kleinsteiber in technical matters involved in the investigation. He stated that it didn’t occur to him to question Kleinsteiber’s judgment. This is not the first time the courts have seen unquestioning acceptance of individuals who profess to have expertise in a certain subject.

[60] Officer Kleinsteiber enjoyed the deference paid to him by his fellow officers and he was not inclined to question his own judgment. Unfortunately, despite their training, the auto theft examiners were unfamiliar with the auto recycling industry. They didn’t know what they didn’t know, but believed what they knew was correct. This led the officers to misinterpret some of the crucial evidence underpinning the investigation, with unfortunate results.

[61] Had the officers been better acquainted with industry practice, they would have recognized that uncertainty in the enforcement community might constitute “evidence to the contrary” as contemplated by s. 354 (2) of the Criminal Code.

[62] The first area of misunderstanding related to VIN plates.

[63] Each vehicle is marked by the manufacturer with a unique public VIN. The VIN is stamped on a metal plate. In domestic models, the VIN plate is affixed to the dashboard near the windshield on the driver’s side of the vehicle. The 17 numbers and letters that make up the VIN are a coded reference to the vehicle’s features. I will refer to the numbers and letters as characters.

[64] Exhibit 7 describes the purpose of each character of the VIN. The first character identifies the region of the world in which the vehicle was manufactured. The second character in combination with the first tells the country of manufacture. Character #3 describes what kind of vehicle has been manufactured: a car, truck, bus, etc. Characters 4-8 describe the vehicle, such as the model, engine type, and body style. The codes for these characters vary by manufacturer.

[65] Character #9 is a VIN check digit that does not indicate anything about the vehicle itself. Characters 10-17 are vehicle descriptors. Character #10 indicates the model year of the vehicle. Characters 11-17 indicate unique information about the particular vehicle, such as the vehicle assembly plant, extra options on the vehicle, production sequence number, and other information that varies from one manufacturer to another.

[66] Exhibit 16 notes that with domestic vehicles, “VIN codes pertain only to the original engine that was installed in the vehicle.”

[67] At the time of the investigation, it was the practice in the auto recycling industry to keep the original VIN with the rolling chassis in which the engine was placed. This was done for very practical reasons. When a vehicle was rebuilt, a mechanic repairing the vehicle would use the VIN to access information about the vehicle. Thus, information about the heart of the vehicle, the engine, remained available to the mechanic even if cosmetic changes were made to the exterior of the vehicle: for example, when a damaged cab was replaced with a new one. Officer Barclay testified that he found this explanation entertaining; that he preferred the advice given by the auto theft examiners.

[68] Rick Mercuri testified that when he purchased vehicles from auto auctions in western Canada, the auction house stripped the VIN off the cab before releasing it. When he told Officer Hobbs this during his statement, Hobbs thought Mercuri was talking about licence plates. Hobbs believed VINs could not be stripped, but he equivocated, saying, “I’m not the expert.”

[69] In fact, Officer Hobbs was mistaken in his recollection that Mercuri talked about licence plates in his statement; a review of the statement shows that Mr. Mercuri specified VIN plates. Unfortunately, Officer Hobbs took the lead in taking a statement from Mr. Mercuri, despite having no knowledge of the auto recycling industry.

[70] Officer Barclay noted in his report prepared following the search (exhibit 149) that Officer Kleinsteiber summarized part of his conversation with Mr. Mercuri as follows:

Rick [Mercuri] stated he didn’t know it was illegal to remove a VIN from one vehicle and put it on another. He put forward the name, “Randy” at MTO as someone who is involved in the “Branding” program who was aware of what Central was doing. Rick rationalized if Randy didn’t see anything wrong why should he?

[71] Mr. Mercuri’s reference to the Ministry of Transportation should have alerted the police about the ways VIN transfers were done in the industry.

[72] In the fall of 1999, after charges were laid, Officer Barclay contacted Officer Kleinsteiber to ask about the availability of legitimate vehicle cabs without VINs. Officer Barclay noted in his report (exhibit 167) that Officer Kleinsteiber, in his position as auto theft examiner, would say at court “there is no legitimate source for vehicle cabs without VIN identification.” Officer Kleinsteiber was not correct.

[73] Officer Barclay should have been aware of the western practice of stripping VINs from cabs. His file contained two letters from the Salvage Division of Saskatchewan Government Insurance dated April 25 and 28, 2000 which he agreed were part of his investigation. These letters (exhibit 176A) confirm that it was the practice in Saskatchewan to strip VINs from the dashboard of all dismantled vehicles before releasing them. The correspondence confirms that any truck cabs released by Saskatchewan Government Insurance did not have VINs on them.

[74] Long-time auto-body repair man, John Wieckowski, testified at the trial. He was licensed in the late 1960s. He has run his own auto-body shop in Thunder Bay for many years. Although he was not qualified as an expert witness, the breadth of his knowledge and experience would justify such a qualification.

[75] Mr. Wieckowski explained that he would throw away the VIN that came with the replacement cab as it had no value because it contained incorrect information about the vehicle. He stated that if the replacement VIN was used by the mechanic or owner to order new parts, he would get wrong parts because the replacement VIN bore no relation to the original engine.

[76] Tony Provenzano is the owner of another Thunder Bay auto parts recycler whom the police also charged. Mr. Provenzano testified that in 1999, when his company purchased a cab or dashboard from another recycler, it did not come with a VIN; he said he would not have expected one. He stated that his company didn’t require labels or VIN plates because they had no value to his company: he had the original VIN plate from the original vehicle. He added that if the replacement cab or dashboard arrived with a VIN plate, they would have discarded the plate.

[77] In 1999, the Ministry of Transportation’s branding program was not in place so a serial number on a part or invoice made no difference in the industry. Instead, an invoice for a part Provenzano’s company bought or sold might contain a stock number but no VIN. He added that cabs and dashboards didn’t come with VINs.

[78] Mr. Edward Wiersema was trained in auto-body repairs in 1980 and has been a partner in an insurance appraisal company for many years. He estimated that he has examined 30,000 vehicles during his career. Like the plaintiffs’ other witnesses, he testified that in 1999, the original VIN was reinstalled in a replacement cab so that it stayed with the original chassis. It could be installed using rivets or glue. He stated that the rolling chassis is the vehicle unless it is branded as irreparable. Mr. Wiersema also testified that in 1999, cab shells came from the manufacturer without paint and with no VIN, so there was no option but to use the original VIN when repairing the vehicle.

[79] Local auto-body men and mechanics believed that keeping the original VIN with the original rolling chassis meant that the consumer was less likely to be deceived by the appearance of a rebuilt vehicle. For example, if a 1995 truck chassis was refitted with a 1997 cab and the original 1995 VIN was installed in the cab, the owner would know that the engine was from 1995 and not 1997. As well, having a VIN that matching the original engine assists dealerships in honouring warrantees from a particular model year.

[80] Interestingly, Officer Cousens from the auto theft team testified that the criminal element would steal vehicles and re-vin them in order to commit insurance fraud. If his evidence is accepted, it adds credence to the industry practice of transferring the original VIN from a rolling chassis to a replacement cab. The original vehicle remains identifiable. Officer Cousens said he was not aware that it was industry practice to remove the VIN before shipping.

[81] Officer Kleinsteiber agreed that a cab is not a motor vehicle. Despite the rational and consistent practice in the industry of transferring original VINs to replacement cabs, Officer Kleinsteiber insisted that placing an original VIN from an existing chassis on a replacement cab is against the law. He explained that this destroys the integrity of the truck by changing the original “birth mark” on the vehicle. He did not explain what happens when a truck cab arrives at a recycling yard without a VIN.

[82] Officer Kleinsteiber took the same view when he inspected a cowl cut that welded the original VIN to the body at the firewall. He said this practice was deceptive because the purpose was to hide the true identity of the vehicle. His view cannot be reconciled with the fact that the original VIN was not altered in any way, a requisite element of the Criminal Code offence.

[83] Vehicles are also equipped with confidential VINs, the location of which is known only to manufacturers and to specialist law enforcement officers, such as the auto theft examiners. Although Officer Barclay was the lead investigator, he did not know the location of confidential VINs. He agreed that the public is not meant to know the location of the confidential VINs. Officer Barber testified that there were no confidential VINs on truck cabs in any event.

[84] In cross-examination, Officer Barclay agreed that the police could not determine whether a truck cab had been “sanitized.” He also conceded that if a truck cab arrived in Mr. Mercuri’s yard without a VIN, or even if there was a VIN, Mr. Mercuri would be unable to compare the public VIN with the confidential VIN to determine whether the vehicle was stolen because the location of the confidential VIN is secret. Officer Barclay agreed that Mr. Mercuri would have to call in an auto theft examiner to check each vehicle for conflicting public and secret VINs. Officer Barclay also conceded in cross-examination that taking a VIN off a rolling chassis and putting it on a rebuilt cab does not constitute obliterating the VIN.

[85] The police considered the secret VINs a mechanism for determining whether a vehicle is stolen: if the secret VIN doesn’t match the public VIN on the dashboard, the vehicle may be stolen. However, it begs the question: if members of the public cannot locate the secret VIN, how can they determine whether the vehicle or parts were stolen? And how can the police prove knowledge that the vehicle is stolen?

[86] When the court ordered the Crown to disclose to Mr. Mercuri the location of the confidential VINs on the vehicles involved in the charges, the Crown withdrew the charges, rather than disclose the location of these confidential numbers.

[87] A second area of police misunderstanding related to rosette rivets.

[88] Officer Kleinsteiber testified that rosette rivets were created by General Motors and adopted by Ford to secure VINs on the dashboard of their vehicles. See, for example, exhibit 6A. These are tiny decorative rivets installed during manufacture. They contain no vehicle identification information. They are simply a fastener.

[89] Rosette rivets could be special-ordered by the public in 1999 but they were quite expensive. When it was necessary to remove and re-install a VIN plate, some local repair facilities simply pried the VIN plate up, severing the shaft of the rivet but retaining the decorative head. The VIN plate with the rivet heads still in place were glued onto the dash when a replacement cab was installed. In other instances, body men such as Mr. Wieckowski, used ordinary rivets to fasten the VIN plate to the cab.

[90] The police misunderstood the various means of fastening VIN plates to a dashboard, including gluing them with rosette rivets intact. Officer Kleinsteiber testified that he had never seen glue used until he came to Thunder Bay. He said that gluing the VIN plate destroyed the integrity of the vehicle.

[91] The auto theft examiners were entrenched in the view that gluing VIN plates with rivet heads intact was intended to deceive the police, even though a rivet contains no identifying information related to the vehicle. Officer Kleinsteiber insisted that rosette rivets were a detection tool for law enforcement. He believed they were used to divert police attention from the reattachment of the VIN plate. Of the rosette rivets he stated, “Once it was attached to the dash, the plate is there for life.” He did not seem to consider that by his own evidence, these rivets were not universally used by auto manufacturers.

[92] The officers refused to believe that gluing a VIN plate was simply a means of securing it, particularly if the mechanic couldn’t use a screwdriver close to the windshield.

[93] The officers insisted that the mere presence of rivet heads on a VIN plate that had been glued to the dashboard constituted tampering with the VIN plate. Officer Barclay stated, “My position is that altering the rivet is to alter the serial number.”

[94] Of course, this makes no sense. The police substituted form for substance. There are no numbers on the rivets. The officers also believed that gluing VIN plates down is not legitimate, even if the numbers had not been interfered with. This position is also unreasonable and not sustainable at law.

[95] A third area of misunderstanding related to certification labels.

[96] Domestic vehicles are equipped with certification labels, usually found on the driver’s door or the adjacent pillar. These labels are made of mylar plastic and are glued to the door at the factory. The labels contain VINs for the vehicle and other details such as tire size, manufacturer, and recommended pressure, paint codes, gross vehicle weights and other information.

[97] Mr. Wieckowski testified that new replacement doors don’t have certification labels. This makes sense because a certification label relates to vehicle features and performance. The label is meaningless if does not correspond with features of a particular vehicle. Mr. Wieckowski added that he has seen certification labels damaged by chemical washes, rubbing, or with peeling corners.

[98] If a used driver’s door was installed to replace a damaged door, the local auto recycling industry removed the original door label by careful application of a heat gun. The certification label from the original damaged door would be re-glued on the replacement door. In that way, the information pertaining to the original vehicle would remain with the original vehicle, even if the driver’s door had been changed. Mr. Provenzano also testified that his firm removed certification labels with a heat gun in order to transfer them to a replacement door.

[99] Mr. Wiersema characterized the certification label on the door as the “birth certificate for the whole vehicle.” He has seen certification labels fall off with poor glue and age, painted over, scratched by seatbelts, or simply illegible with wear and tear. He described certification labels being removed from an original damaged door using a heat gun and re-glued into place on the replacement door.

[100] Mr. Wiersema testified that if a certification label from a used replacement door was left in place, and was relied on to order parts for the vehicle, it would convey wrong information. Generally, certification labels from used doors were removed in order to prime the door for painting or so the original certification label could be re-installed on the driver’s door. He also stated that a new door would arrive primed but not painted and without a certification label. In his view, damage to a label was not significant.

[101] Officer Kleinsteiber testified that he expected to see certification labels on the driver’s car door inventory stored in Central’s yard. He stated that transferring a certification label to a replacement door is also contrary to the Criminal Code. Officer Cousens took the view that a certification label was the same as a VIN.

[102] A fourth area of misunderstanding related to glove box labels.

[103] Mr. Wieckowski testified that a mylar label is affixed with glue inside the glove box of vehicles. It also contains information relevant to the vehicle performance. It was the practice locally to remove these labels from a damaged glove box and re-glue them into a replacement glove box. In that way, the original information remained with the vehicle even if the glove box was changed.

[104] Mr. Wieckowski testified that if he could not install the original glove box into a vehicle he repaired, he would transfer the label from the original glove box into a new box so that it contained the valuable information about the parts in the vehicle. He discarded the labels that did not relate to the original components of the vehicle under repair. He emphasized that the information on the original label was crucial to the car and it was important to keep the original information with the vehicle as much as possible. It was his view that a person involved in illegal activity would not take the time to carefully transfer these labels using a heat gun. He said that the labels would rip or distort if the label was not skilfully removed by heating it.

[105] Officer Barclay and another officer took a sworn statement (exhibit 170) from an employee of Central Auto Parts, Phillip Dumoulin, before they charged Mr. Mercuri. Mr. Dumoulin described the industry practice for transferring VIN plates and certification labels. Officer Barclay testified that he considered Dumoulin to be truthful. He also conceded in cross-examination that this degree of cooperation by Mr. Mercuri - making his employee available to the police - was probably not consistent with a guilty mind. However, Officer Barclay ignored Dumoulin’s evidence of industry practice.

[106] Later, Mr. Dumoulin created a video for defence counsel to illustrate how certification labels were removed by a heat gun and re-applied to a rebuilt vehicle. His evidence was substantially the same as Mr. Wieckowski’s. At this trial, he identified certification labels on Ford and Chevrolet trucks that were peeling. He also testified that he chiseled the VIN plate free of the dashboard, usually severing the rosette rivets in the process. The VIN plate from the original vehicle with rivet heads intact would then be glued onto the dashboard of the repaired vehicle.

[107] The consequences of the police not being aware of industry practice can be seen in the conclusions they reached about the vehicles they examined. A number of charges were laid as a result.

[108] Lead investigator, Officer Barclay did not know what the industry practice was with respect to dealing with parts without public VINs. The failure of the lead investigator to understand industry practice meant that he was unable to evaluate information received from the auto theft examiners.

[109] Officer Cousens testified that he was not aware of the industry practice to remove the original VIN on a cab before shipping. He stated he would take issue with this practice. This seems odd because the focus of the investigation was truck cabs and components.

[110] Cousens examined two vehicles in the course of the investigation. The first, a 1997 Chevrolet Silverado truck belonging to Mr. Coccimiglio, (exhibit 23) contained matching public and confidential VINs. It was missing a certification label on the door. Officer Cousens agreed there could be an innocent explanation for the missing label. In any event, a certification label is not a VIN. Officer Barclay testified there were no invoicing issues with respect to this vehicle.

[111] Because the VIN plate on the dashboard was glued on, Officer Cousens concluded this was an effort to try to mask the identity of the vehicle. He stated, “It screamed stolen property.” This was despite the fact that the numbers for the anti-lock brake sensor, the electronic control module and other components were appropriate. He added that the VIN on the cab was not factory-installed; if the original cab was legitimate, there would be no reason to take the VIN off it. He could not have considered that he was looking at a replacement cab. His conclusion that the vehicle was stolen was not objectively reasonable. Apart from these issues, even if the vehicle had been stolen, the police failed to consider whether Mr. Mercuri knew it was stolen.

[112] The defence took issue with contradictions in invoices supplied by Mr. Mercuri in this case. These included invoicing with respect to the Coccimiglio, De Luca, and Bonnet cabs. However, in cross-examination, Officer Barclay agreed that there were no issues with invoices concerning these vehicles.

[113] Officer Cousens assisted Officer Fuhrman in examining a 1996 Yukon belonging to Mr. Bonnet.

[114] The vehicle was purchased as salvage because of damage to the body. They found that the public VIN, certification label and the confidential VINs all matched. The anti-lock brakes and transmission bar codes were appropriate. The officers concluded that the rolling chassis was from the salvage but that the cab originated from an unknown source because the VIN plate was not attached at the factory; instead it was secured by glue. Officer Cousens stated, “Someone glued the VIN in place to conceal the identity of the cab. If it’s not stolen, there is no reason to remove it.” He communicated his conclusions to Officers Barclay, Kleinsteiber and Fuhrman. This is another instance of Officer Cousens misunderstanding that he was dealing with a replacement cab. His conclusion was not objectively reasonable. Apart from these issues, the police failed to consider whether there was evidence that Mercuri knew the vehicle was stolen.

[115] The Crown Attorney withdrew these two counts in June, 2005.

[116] The auto theft examiners took the position that any attempt to remove certification labels would result in the destruction of the label, with zebra striping or “void” markings coming through. Officer Barber testified that he was not aware it was possible to transfer a certification label from the driver’s door to a replacement door by using a heat gun. He believed that any effort to remove the label would destroy it. He was also not aware that glove box labels could be transferred in a similar manner. Officer Kleinsteiber stated that he expected to see certification labels on doors.

[117] The auto theft examiners took the position that when a label was moved from one part to another, it was “counterfeit,” by which they meant, “not original to the vehicle.” The use of this term suggested that the practice was illegal, which it was not. It was certainly confusing and misleading to Officer Barclay who was told that if investigators were able to remove the labels without destroying them, they must be fake. In cross-examination, he agreed that the auto theft examiners were incorrect, but he said he believed them at the time.

[118] Ignorance of industry practice led to a charge concerning the De Luca vehicle. The police identified a 1995 Chevrolet pick-up truck for investigation before searching Central’s yard. The original cab had been extensively damaged. The vehicle was classified by an insurance appraiser and released to an Edmonton auction house where Central acquired it as the successful bidder. The purchase price was $10,031.25. The invoicing proving its provenance contained a VIN for the wrecked vehicle.

[119] Unfortunately, Officer Barclay misread the tow charges as the purchase price on the invoice and noted in the information to obtain a search warrant that the salvage vehicle had been purchased for $1,067.33. Officer Barclay apologized for this error at trial.

[120] Central then sold the salvage truck to Mr. De Luca for $11,500. Mr. De Luca also purchased a cab without a VIN and a door without a certification label from Central. Mr. De Luca made all the repairs himself. He asked Mr. Mercuri how to transfer the certification label to the new door and Mr. Mercury told him.

[121] None of the repair work on the De Luca vehicle was done by Central. The VIN from the original salvaged vehicle with rosette rivet heads was glued to the dashboard of the replacement cab. The certification label was missing from the door. The glove box contained a label matching the original VIN. Nevertheless, the police concluded that the glove box label was “counterfeit.” They also concluded the vehicle was “not legitimate, and in all likelihood is comprised of stolen component parts.” This conclusion was included in the information to obtain placed before the Justice of the Peace.

[122] The police did not ask Mr. Mercuri for his records relating to this vehicle. They had no other evidence that any part relating to this vehicle was stolen, let alone that Mr. Mercuri had any knowledge of it. He was charged with possession of stolen property on the strength of a glued down VIN and a missing certification label on a vehicle his company did not repair. The officers’ conclusion based on this evidence was not objectively reasonable. There was no evidence that Mr. Mercuri knew the vehicle was stolen. In fact, it was not.

[123] The Crown Attorney withdrew this charge in June of 2005, after the prosecution had been ordered to disclose the location of confidential VINs.

[124] In Count #4, Mr. Mercuri was charged with possession of a stolen 1998 Chevrolet truck, knowing that it was obtained by crime. This vehicle came to the attention of Officer Kleinsteiber on the day of the search. The fire wall on the vehicle was cut out and the vehicle was in the process of being repaired at Central’s garage. Officer Barclay conceded there were no invoicing issues with this vehicle.

[125] The Crown brief states succinctly that, in company with Officers Barber and Fuhrman, Officer Kleinsteiber examined the vehicle. They determined that the cab had all of its identifiers removed and the identity of a salvaged vehicle applied. The brief also describes the body shop manager at InterCity Ford, Randy Sundell, stating that the public VIN and a portion of the dash were removed from a salvaged vehicle and placed on a green cab which had no VIN plate.

[126] Mr. Mercuri pondered the best way of dealing with VINs when vehicles were rebuilt. He spoke to the Winnipeg police about replacing VINs and was told “We don’t replace VINs like you do.” He and Mr. Sundell decided they would weld the cowl containing the original VIN to the replacement cab that had no VIN. This was a labour-intensive and costly way to try to satisfy the police that the VIN plate has not been disturbed.

[127] Unfortunately, the auto theft examiners did not recognize this procedure for what it was: an attempt to satisfy police objections about removal of a VIN plate. In cross-examination, Officer Barclay conceded that by instructing Mr. Sundell to do a cowl cut to avoid moving the original VIN, Mr. Mercuri was attempting to comply with the law and not break it.

[128] Mr. Mercuri testified that the officers saw the rolling chassis and cab (without windshield) when it was being repaired. He was asked what was done to the corner of the cowl where the VIN was attached. He advised that the vehicle had been repaired at InterCity Ford where the original VIN plate on the cowl was attached. He provided Mr. Sundell’s name.

[129] When Officer Kleinsteiber examined the vehicle, he discovered that the public VIN matched two confidential VINs. These numbers also matched the VIN for the salvage vehicle on the insurer’s disposition of salvage report. Nevertheless, Officer Kleinsteiber concluded that Mr. Mercuri was guilty of an offence. His conclusion was driven by the officer’s misunderstanding of industry practice and the purpose for the law. It was not objectively reasonable. There was no evidence that Mr. Mercuri believed the vehicle was stolen, and indeed it was not.

[130] The Crown withdrew this charge in June, 2005.

[131] Vehicle parts such as air bags and electronic control modules are usually manufactured with paper bar code labels on them. These are not unique identifiers. They are not VINs. In cross-examination Officer Barclay agreed that there is no VIN on an air bag.

[132] Officer Barclay stated in cross-examination that it never occurred to him to question the auto theft examiners’ position that paper labels could not be removed. He said it was not in his mind that paper labels might fall off. However, he acknowledged that it is not against the law to remove a bar code from a vehicle part.

[133] The officers’ unfamiliarity with the industry’s numbering on parts led to a major miscommunication between Mr. Mercuri and Officers Hobbs and Walsh when they took Mercuri’s statement on the day of the search. Mr. Mercuri stated that the officers were talking about serial numbers on parts and confusing them with a VIN. Mr. Mercuri stated, “We don’t talk about serial numbers on parts. Whether it is a serial number or a part number, there is only one VIN on a vehicle.” Mr. Mercuri stated and I accept that he did not realize at the time of his statement that the police were talking about something completely different than he was. This accounts for his responses during the statement that are not in keeping with the evidence arising from the search.

[134] At best, police could only verify the parts make-up of a particular vehicle by securing a “build sheet” from the manufacturer. A build sheet lists what kind of components went into a particular vehicle. The police were not always able to get this information. With respect to an electronic control module, Officer Fuhrman applied a mechanic’s diagnostic tool to the bar code to investigate its origins. The police did not have this diagnostic tool; Officer Barclay stated he did not believe that Central would have this equipment either.

[135] There is certainly no reason to expect that a citizen who was not in law enforcement could access component information in order to determine whether vehicle parts were stolen. In speaking with Mr. Mercuri about bar codes on air bags, and in his testimony, Officer Kleinsteiber confused the term, “serial number” with “component number.”

[136] Nevertheless, Officer Kleinsteiber testified that the manufacturer puts paper bar code labels on a vehicle part for life. He testified that he had never seen these labels detach. He believed that removal of bar code labels on component parts was done to mask the true identity of a vehicle. He believed this was a badge of theft, even though there was no unique identifier in the bar code for component parts. It seemed that if the part was not original to a vehicle, the police were unable to distinguish a legitimate replacement part from a stolen one. They concluded that if they could not prove the origin of a part, it must be stolen.

[137] However, it was just as likely that a component part had been replaced. A good example is air bag identification: inventory clerks at Central peeled off air bag labels from time to time in order to enter the particulars from the label into the computerized inventory and tag it accordingly.

[138] Officer Kelinsteiber concluded that because parts in Central’s inventory were tagged with stock numbers but not bar code labels, they were stolen. This was not objectively reasonable. He also believed that the absence of decorative secondary labels placed on the body of vehicles was suspicious. There is no basis in law or industry practice for such conclusions.

[139] Nevertheless, Officer Kleinsteiber seized a quantity of parts: eight airbags; two electronic control modules, a transmission, a Vortec engine, body parts for a Camry, body parts for a Stealth, and a red driver’s door with black trim. Officer Kleinsteiber believed that any parts that came “from the east,” by which he meant Quebec, were stolen. However, Officer Barclay identified no doctored invoices relating to these seizures.

[140] Officer Kleinsteiber told Mr. Mercuri that the identification numbers were ground off the Vortec engine but would not show him where.

[141] The police did not have objectively reasonable grounds for the charge that these assorted parts were stolen. This count was dismissed at trial without calling on the defence.

[142] Officer Kleinsteiber believed that any change in the appearance of a vehicle was suspicious and done for the purpose of evading police detection. For example, police examined the Bonnet truck in relation to the build sheet and determined that the original vehicle had “Dutch” rear doors that opened in the centre. The vehicle they examined had a different style of drop down rear door. He did not seem to recognize that damaged Dutch doors had simply been replaced with a different style of door.

[143] The officers’ lack of industry understanding left them unable to distinguish between legitimate industry practice and criminal activity. For example, Officer Barclay testified that the absence of a vehicle ownership manual was a badge of theft. Mr. Provenzano testified that he never expected to get ownership manuals; that manuals could be ordered from the dealer.

[144] The police believed that storing used auto parts on racks indicated that they were stolen. The auto theft examiners told Officer Barclay so. He conceded that this bizarre suggestion, included in the information to obtain a search warrant, was incorrect. He added that he was embarrassed in the criminal trial by this assertion.

[145] The auto recycling industry developed the abbreviation, “COR,” which is a short form for “cash on return.” CORs are parts, such as a blocks, alternators, starters, radiators, transmissions, etc. that can be rebuilt or re-manufactured. When a customer returns a defective part to the vendor, he is given a credit against the cost of the new part he purchases. The COR is then sold to a recycler that rebuilds such parts. If the part is not returned, the customer is charged the full amount.

[146] Both Mr. Mercuri and Mr. Provenzano gave this explanation of industry practice which accorded with a glossary of automotive terms available from the internet and filed at trial. Yet the police seemed unaware of this practice. Their lack of knowledge led to them to misunderstand why Mr. Mercuri stored damaged engines and transmissions as CORs for sale to a recycler.

[147] Mr. Mercuri was charged with possession of two stolen Windstar motors and one transmission. Officer Barber investigated this charge. Mr. Mercuri told him that several vehicles were damaged in a train derailment. Arrangements were made by a Ford agent, Mr. Grieves, and Mr. Mercuri’s father to have the vehicles crushed at Central’s yard, so that they would not find their way onto the market. The crushing of the vehicles was done under the supervision of the Ford agent. Once the crushing was completed to his satisfaction, the destroyed vehicles were loaded onto transport trucks bound for Winnipeg where they would be further processed. Central was to be paid the scrap value of the vehicles as payment for the crushing.

[148] In the process of loading, assorted parts fell off the load and littered the Central yard where the crushing had taken place. The truckers did not want loose parts that might fall off their load in transit.

[149] Among the parts were two Windstar motors and one transmission. They were tagged and stored on the Central premises, apparently without any objection by anyone concerned with the crushing. Mr. Mercuri told Officer Barber that these were CORs that would be exchanged for cash. It was evident to Barber that the engines and transmission were damaged. He accepted that these parts came from the train derailment. He stated that he believed that other engines and transmissions from the crushing had been sold. There was no evidence to support his conclusion. It was not objectively reasonable. It was simply tunnel vision.

[150] Officer Barber stated that the police checked and concluded that the parts they seized were not stolen. Nevertheless, they could not understand why Mr. Mercuri had them on the premises. They did not recognize they were being retained as CORs.

[151] Amazingly, Mr. Mercuri was charged with possession of stolen goods in relation to the engines and the transmission, even though the police knew that his father had made arrangements to have the vehicles crushed and even though the police knew that the parts were not stolen. It could not be said, in these circumstances, that the police had even subjective grounds to believe that an offence had been committed in order to lay a charge, let alone objective grounds.

[152] The police persisted in the prosecution of this charge until it was dismissed by way of a directed verdict in 2005.

[153] The Ministry of Transportation introduced a branding program for rebuilt vehicles in July of 1998. However, the program was not fully implemented until 2003, when it became mandatory. Once implemented, this program required a full listing of component parts when a vehicle was rebuilt, and their origins, so that the Ministry of Transportation could certify the vehicle as rebuilt. Gerald Chartier, an experienced accident appraiser, testified that the purpose of the branding program was to ensure that rebuilt vehicles were safe and to keep stolen parts out of rebuilt vehicles. However, he said that he didn’t see how an auto recycler could have complied with the program until it was fully implemented.

[154] The police seemed unaware of the status of this program in 1999. The evidence in this trial also shows that the police and the Ministry of Transportation were at odds about the process for re-vinning vehicles and that there was certainly confusion about what steps to take.

[155] Exhibit 168 is Officer Barclay’s report about a visit Officers Boyes and Walsh made to Raymond Lepage, an enforcement officer for the Ministry of Transportation. The visit took place in June, 1999, before the preliminary inquiry. Mr. Lepage told the officers that branding was new legislation in the last year and he was confused about VINs being switched on vehicles. In cross-examination, Officer Barclay agreed that the uncertainty in the enforcement community might constitute “evidence to the contrary” as contemplated by s. 354(2) of the Criminal Code.

Failure to Understand the Law Relevant to Their Investigation

[156] The law is the foundation for any police investigation. When the police do not understand what must be proven to make out an offence, their investigation begins on shaky ground.

[157] The offence described in s. 354(1) of the Criminal Code contains two requirements: that a person has stolen goods in his or her possession; and that the person knows they were stolen.

[158] As indicated above, subsection 354(2) established a presumption that a person knew he had a stolen vehicle or part in his possession if its VIN or a part that carries a VIN was wholly or partially removed or obliterated. This presumption was struck down by the Ontario Court of Appeal in Boyle. Although the Criminal Code section was not revised after 1983 when Boyle was decided, the police could no longer rely on the presumption of knowledge set out in the section.

[159] Officer Barclay, the lead investigator, testified that when he started the investigation in 1997, he was not aware that the presumption of knowledge had been struck down. He disputed Officer Kleinsteiber’s statement that the Thunder Bay police were not aware that they had to prove the person charged had a guilty mind. He agreed that Kleinsteiber discussed it with him.

[160] Officer Barclay testified that the police proved knowledge on Mr. Mercuri’s part. He insisted that knowledge could be proven based on the totality of the evidence even though he conceded in cross-examination that the police must prove knowledge in each individual charge.

[161] Officer Hobbs also admitted that he was not aware that the presumption had been struck down at the time of the investigation. When he took Mr. Mercuri’s statement on the day that Central was searched, he advised Mercuri that the law presumed a person in possession of stolen auto parts knew they were stolen if VINs were missing or tampered with. He made no mention of knowledge or of evidence to the contrary as elements of the offence.

[162] Although some police witnesses testified that they knew after Boyle that they had to prove knowledge on the part of a person alleged to be in possession of stolen vehicles or parts, they did not conduct the investigation as though they were aware of that change in the law. A key document is exhibit 97. It is a follow-up request from the Crown to the police after Crown counsel vetted the police briefs on the first ten charges against Mr. Mercuri. Repeatedly Crown counsel reminded the police that they must prove knowledge. For example:

Re: #4961266: Is there any information to support the allegation that this was a stolen vehicle, other than that V.I.N. was tampered with? Section 354 (2) is an evidentiary aid only. Is there any other possible explanation that could establish "evidence to the contrary”? Contrary to what is stated in this brief, section 354 (2) does not create an offence itself, but is simply an evidentiary aid.

[163] Crown counsel makes a similar observation concerning four other counts. On yet another count concerning a stolen van from New York, Crown counsel queried whether Mr. Mercuri’s statement or some other evidence indicated that Mercuri knew the van was stolen.

[164] Mr. Mercuri was charged with possession of stolen property in relation to a Cadillac passenger car owned by Mr. Mercuri’s father. Officer Kleinsteiber testified that this vehicle was targeted in the investigation because it was expensive and he believed it was built with stolen parts. He did not say why he held that belief.

[165] On the day the search warrant was executed, Domenic Mercuri’s Cadillac was not on Central’s premises and therefore not within the scope of the search warrant. Nevertheless, Pino, Rick Mercuri’s brother, brought the vehicle to Central’s yard that day so that the police could examine it. This was not the act of a guilty mind.

[166] Mr. Mercuri testified that Officer Kleinsteiber made no notes of their conversation about the Cadillac. He offered to provide his paperwork showing the vehicle’s history but he stated that Officer Kleinsteiber wasn’t interested. Certainly there is no reference in the Crown brief to any paperwork the police seized concerning the vehicle. Officer Barclay agreed there were no invoicing issues with the Cadillac.

[167] The vehicle’s history was that it suffered collision damage. An insurance broker sold it, with appropriate documentation, to an Edmonton salvage yard. Mr. Mercuri stated that his father liked Cadillacs and so he purchased it as a surprise, intending to repair it. A bill of sale from the salvage yard confirms the transaction and the price. The vehicle sustained front and rear damage. Using the Hollander computer system to search other auto recyclers’ inventories for used auto parts, Mr. Mercuri ordered tail lights and a trunk lid from an Ontario auto recycler, Locke’s. Mr. Mercuri had a way bill, purchase order, and Locke’s invoice in his file. The purchase price included tax.

[168] A front end cowl cut including the fire wall, suspension and motor were ordered for the vehicle. As well, a trunk, bumper, cross member and 2 seats were replaced. These parts were sourced from Pièces D’Auto M.A.N.O. Enr. in Quebec; an invoice in that name confirms the date of purchase and that the parts were purchased for $6,420, inclusive of tax. No identification numbers are shown on the invoice. There is no evidence that parts were not purchased at market value.

[169] Mr. Mercuri advised Officer Kleinsteiber that the replacement engine was sourced in Quebec, by which, Kleinsteiber said, “I believed he meant it was stolen.” He found that the VIN on the windshield matched the VIN on the certification label on the driver`s door. However he decided that the glove box label was “counterfeit” as it was not original to the vehicle. A glove box label is not a VIN.

[170] Mr. Mercuri advised Officer Kleinsteiber that the front end repair was done by a mechanic named Zuke at InterCity Ford. A cowl cut did not prove to be necessary. However, Officer Kleinsteiber concluded that a cowl cut had been done on the vehicle. When Mr. Mercuri challenged him to show where, he couldn’t. When they looked at the repairs to the trunk, Officer Kleinsteiber believed the repairs were done on the right side, whereas Mr. Mercuri advised him they were on the left. Mr. Mercuri decided that the officer didn’t know what he was talking about.

[171] The Crown brief does not indicate that Mr. Zuke was contacted about his work. It does not suggest how Mr. Mercuri would know the location of the confidential VINs.

[172] The Crown brief does not make reference to a VIN being obliterated. It merely says that Officer Kleinsteiber could not find the confidential VINs in the Cadillac. The officer determined that the front body and engine had their identification removed. There is no indication in the brief that these parts bear VINs.

[173] This is not an offence known to law. The Criminal Code specifies that it is an offence to possess a motor vehicle with the VIN wholly or partially removed or a part of a motor vehicle being a part bearing a vehicle identification number that has been wholly or partially removed or obliterated. The charge was not objectively reasonable.

[174] The Crown Attorney withdrew this charge before the trial in June, 2005.

[175] In Count # 11, Mr. Mercuri was charged with possession of a stolen electronic control module. This is a computer component. There is no evidence that this component bears a vehicle identification number. Nevertheless, Officer Kleinsteiber testified that any component part that can be traced back to the vehicle engages s. 354(2).

[176] In my view, this extends the reach of the section beyond what was intended by Parliament. In order to know whether a vehicle is stolen, an individual would have to do a mechanical audit of the vehicle’s component parts and compare it to a manufacturer’s build sheet for the vehicle to determine whether it was stolen. As we know from this investigation, not even the auto theft examiners were always able to complete exhaustive investigations on vehicles when they couldn’t get build sheets from the manufacturer.

[177] The path leading to the laying of count #11 is a tortured and confusing one. Officer Barclay agreed that there were no invoicing issues with respect to this count.

[178] In 1994, a Jeep Cherokee was stolen in Saskatchewan and subsequently burned. The Saskatoon police photographed the vehicle and reported that the VIN plate had been removed.

[179] Central Auto Parts purchased the vehicle with an appropriate invoice after it was declared to be salvage, and ordered a new interior for the vehicle. Some of the parts for the rebuild were purchased from a Quebec supplier on December 20, 1994. During this investigation five years later, the address on the invoice proved to be a vacant apartment and not an auto parts recycler.

[180] Police were advised that the vehicle from which the parts were sold to Central was stolen on December 5, 1994. Officer Barclay agreed that he couldn’t explain why Mr. Mercuri should be suspicious on the basis of the invoice that arrived with the parts. The invoice contained a VIN. Barclay agreed that, unlike this invoice, he almost never saw invoices from Quebec auto recyclers that included either VINs or the last six digits of the VIN.

[181] In the course of rebuilding the vehicle, Mr. Mercuri located the original VIN plate in the back seat of the vehicle, along with a screw driver. He reattached the plate in the process of rebuilding it. Officer Barclay agreed that it was not probative of guilty knowledge for Mr. Mercuri to reattach the VIN in these circumstances.

[182] The VIN plate was glued to the dash and was misaligned. As a result of the plate being misaligned, it came to the attention of the Winnipeg police. At the request of the Winnipeg police, Mr. Mercuri provided them with all of the invoices for purchase and repair of the salvaged vehicle, to which the police took no objection. The Winnipeg police made no complaint that the vehicle contained stolen parts.

[183] The Winnipeg police re-vinned the vehicle by placing a new VIN on the door, even though the VIN plate they removed was original to the vehicle. If the purpose of s. 354(2) of the Criminal Code is, as Officer Barclay said, to prevent thieves from disguising the identity of vehicles, then re-installing the original VIN plate does not disguise a vehicle’s identity.

[184] In preparing the information to obtain affidavit for this investigation in 1999, Officer Kleinsteiber advised Officer Barclay that, based on the photographs of the burned vehicle, it was his opinion that the VIN was visible on the burned dashboard and was destroyed by fire. He also told Barclay that the VIN plate on the vehicle was counterfeit. Officer Kleinsteiber’s conclusion is not credible. A 1997 report from the Saskatoon police who investigated confirmed that the VIN plate had been removed before the fire. There was nothing on the dashboard for Officer Kleinsteiber to see in the photographs of the burned vehicle.

[185] Officer Barclay stated and I accept that he relied on Kleinsteiber’s advice as an expert auto theft examiner and included it in the information to obtain a search warrant. At this trial, Kleinsteiber contradicted Barclay, saying that Officer Barclay was confused, that the VIN plate was not visible in the photos, and that he did not say that the VIN plate was counterfeit.

[186] The vehicle was subsequently sold by Central to Mr. Tsekouris. A couple of years later, in the course of a different investigation, police officers noted that the VIN plate for the Tsekouris vehicle was not original. They were obviously looking at the new VIN plate the Winnipeg police attached to the door. This revinning caused the Thunder Bay police so much confusion that they charged Mr. Tsekouris with operating a vehicle without displaying a public VIN! It is an indication that law enforcement personnel did not then agree on when a vehicle should be revinned or the proper means for doing so. In this instance, one police force did not recognize when another police force had revinned the vehicle.

[187] The Tsekouris vehicle was targeted in this investigation. The auto examiners requested a build sheet for the vehicle from the manufacturer. The manufacturer advised that the electronic control module would have a part number label affixed to it, similar to those found on air bags. The part number facilitates recalls from the manufacturer. Officer Kleinsteiber testified that if a label is missing, further investigation is warranted, pursuant to the Criminal Code. He took this position even though the label on the electronic control module is not a VIN.

[188] After receiving the build sheet, the auto theft examiners concluded that the Tsekouris vehicle contained a stolen part. There is no indication from the police investigation of how Mr. Mercuri might be aware that it did. There is no indication that the vehicle was missing a VIN.

[189] There are no objectively reasonable grounds to believe that Mr. Mercuri knew that he had possession of a stolen electronic control module and therefore committed an offence. He stated and the police observed when they searched Central’s premises, Central had 75 – 100 of these parts in stock. Nevertheless, Mr. Mercuri was charged with the offence.

[190] The Crown withdrew the charge in June, 2005.

[191] In this case, the police paid lip service to the requirement to prove Mr. Mercuri knew that vehicles or parts in his possession were stolen. They did not evaluate the evidence they collected with proof of his knowledge in mind. They did not appear to turn their minds to the provision in s. 354(2) of the Code that “evidence to the contrary” provides a defence to possession of a motor vehicle with a VIN that is wholly or partially removed or obliterated. The failure to understand the law relevant to their investigation does not meet the standard of care for a police officer in the circumstances.

Failure to Consider, Document, Investigate and Disclose Innocent Explanations or Indicia of Innocence

[192] Officers Barclay, Kleinsteiber and Fuhrman agreed that it is the duty of police officers to investigate exculpatory evidence. This duty is expressed in the Code of Conduct for police officers in O. Reg. 268/10 to The Police Services Act. Section 2(1)(c)(vii) of the regulation considers neglect of duty. It states, neglect of duty occurs when an officer

fails to report anything that he or she knows concerning a criminal or other charge, or fails to disclose any evidence that he or she, or any person within his or her knowledge, can give for or against any prisoner or defendant.

[193] I find that the duty of a reasonable officer in the circumstances of this case was to investigate exculpatory evidence and to document and disclose any such evidence to other members of the investigating team, and to Crown counsel so that counsel could make disclosure to the accused.

[194] A reasonable officer will investigate with an open mind, in order to avoid prosecuting innocent individuals, and risking wrongful convictions. Yet the officers seemed to start from the premise that Mr. Mercuri was guilty of possession of stolen goods based on his commercial contacts with Gilles Joly. It was a case of guilt by association.

[195] In particular, Officer Kleinsteiber believed that auto parts sourced in Quebec were stolen. The police entered the investigation persuaded that because Mr. Mercuri purchased vehicles and parts from Quebec, the parts were stolen and that fact was known to him. For example, the police believed that Central’s system of tagging parts by the notation, “Rick,” was a device to identify parts sourced in Quebec. There is no evidence they questioned Mr. Mercuri about the tagging system. Mr. Mercuri explained that the “Rick” notation on stock tags designated parts that had not come via an insurance contract. He said that the origin of the part is indicated on the stock tag.

[196] The officers’ tunnel vision permeated the investigation. It permeated the advice that the auto theft examiners gave to Officer Barclay, upon which he relied.

[197] A couple of transactions persuaded the police that Central Auto Parts was a source of stolen vehicles in Thunder Bay. The first dealt with a vehicle owned by Mr. Owen. Thunder Bay Police Officer Klaus Larsen received information from the OPP auto theft unit that the Owen vehicle was stolen. An examination of the secondary VIN confirmed there was a problem. Investigation showed that Mr. Owen acquired the vehicle from Mr. Delben at Lakeview Auto Sales. Mr. Delben told police he had purchased the vehicle from Central Auto Parts.

[198] Documentary evidence showed that Central purchased the vehicle from Quebec Auto Auction for $7,276 and flipped it the same day to Delben at Lakeview for $8,000. In cross-examination, Officer Larsen agreed that the vehicle was not stolen but that it contained stolen parts. He also agreed that Central didn’t put stolen parts in it. In fact, he conceded that Central had acquired the Owen vehicle legitimately.

[199] In cross-examination about this transaction, Officer Barclay reluctantly agreed that there might be an error if Mercuri sold the salvage to Delben and Delben rebuilt the vehicle. But, Barclay added, to his mind, there was very little difference: Delben and Mercuri were linked. It is apparent from the early stages that the police were not prepared to investigate Mr. Mercuri with an open mind.

[200] The defence also took issue with contradictions in invoicing produced during this proceeding, following examinations for discovery. In my view, production of these invoices post-dates the investigation and is not relevant to the issue of whether the police investigation was negligent.

[201] The second transaction that was problematic from the police point of view involved P.A.T. Auto Parts, a Quebec firm. In 1997, Mr. Mercuri contracted with P.A.T. to buy two tractor-trailer loads of truck cabs. None of the cabs had VINs. These cabs were not for delivery to Central Auto Parts. Instead, they were re-sold to a Manitoba auto parts recycler, and shipped directly from Quebec to Manitoba. Mr. Mercuri simply acted as a broker for the sale. It is true that one tractor trailer stopped at Central Auto Parts briefly to unload something else, but the cabs were not unloaded.

[202] The Manitoba recycler then sold the cabs to an American concern. Sometime later, American authorities concluded that these cabs were stolen. Central Auto Parts ultimately reimbursed the Manitoba recycler for its costs and legal fees and then sued the Quebec supplier, P.A.T.

[203] Officer Kashuba with the Winnipeg police, alerted Officer Barclay in November, 1998 about the stolen cabs. Barclay was aware that Kashuba provided Central’s lawyer with an affidavit in support of Central’s law suit against PA.T. Kashuba told Barclay that Central had repaid the Winnipeg supplier some $60,000 but Barclay did not know whether Central launched a civil suit against P.A.T.

[204] The court record in Thunder Bay proves that early in 1999, Central Auto Parts sued and got judgment against P.A.T. for the value of the stolen parts. This was on Mr. Mercuri’s mind when he gave a statement to the police. It is apparent from his responses to the police questions that he believed the police were investigating the P.A.T. transaction. He readily agreed that the parts had been sourced in Quebec, had been purchased by Central, and he now knew they were stolen.

[205] In their investigation, the police concluded the P.A.T. transaction was evidence that Mr. Mercuri was knowingly dealing in stolen auto parts. In taking Mercuri’s statement, Officer Hobbs said to him, “Show us the stolen parts.” While the miscommunication between the police and Mr. Mercuri was understandable in light of Mercuri’s statement, and certainly fueled the search at Central, it would not have led to charges had the police considered all the facts. Officer Barclay commented, “I believe they should have asked [Mr. Mercuri] why he thought it was stolen.”

[206] Officer Kleinsteiber testified that he was not aware that Central had made restitution to its Winnipeg customer for the parts purchased from P.A.T. or that Central sued P.A.T. for selling it stolen goods. He had never heard of an auto theft investigator offering an affidavit in support of an auto parts recycler in a civil suit, as occurred in the P.A.T. litigation. He said he was unaware that Mercuri had an “excuse” for buying stolen parts from Quebec. He added that he would have expected Officer Barclay to draw it to his attention. If he had been aware of it, he would have further investigated to determine whether Mr. Mercuri had knowingly sold stolen parts. This is an example of a failure to communicate an innocent explanation to other members of the investigation.

[207] Officer Barclay became aware that Central had sued P.A.T., but he did not grasp the significance of the law suit. Mr. Mercuri testified that Officer Barclay seized his whole file on P.A.T. including Justice Kurisko’s reasons for judgment.

[208] Kleinsteiber and Barclay testified that it was virtually unknown for a dealer in stolen goods to resort to the courts for restitution, as Mr. Mercuri did. Officer Barclay stated he did not know that he could search the court record to confirm what Mr. Mercuri told him: that Central Auto Parts got judgment against P.A.T. about two weeks before the police executed their search warrant. Had Barclay examined Mercuri’s P.A.T. file or the court record, he would have seen that it corroborated Mr. Mercuri’s innocent explanation. This would have cast Mr. Mercuri in a whole different light.

[209] Mr. Mercuri testified that before dealing with a new supplier he sought references from other established and reputable auto recyclers that the yard was trustworthy. Prior to dealing with P.A.T. Auto Parts, he flew to Montreal and met with the owner of the recycling yard, attended at the yard and met the staff. This was an example of due diligence. He concluded that P.A.T. was a legitimate auto recycler.

[210] After encountering problems with truck cabs sourced from P.A.T., Mr. Mercuri instructed his staff not to buy cabs from Quebec yards anymore; not to purchase parts in bulk without the approval of one of the Mercuri family and then only to purchase from reputable companies with which they had previously dealt. As well, he directed his staff to ensure there was a detailed paper trail for all cabs, including salvage disposition documents from a reliable source such as an insurer or an auction house.

[211] The last Quebec invoice in Central’s files was dated July 10, 1998. There is no evidence that Central sourced cabs from Quebec after that time. Nevertheless, the police did not seem to have considered either the explanation of due diligence or the hiatus in Quebec purchases as “evidence to the contrary”. Nor did they consider whether parts pointed out in Central’s inventory as potentially stolen were purchased after the P.A.T. transaction, when Mercuri should have been on notice of the difficulty with certain Quebec suppliers. Officer Hobbs conceded he didn’t ask Mr. Mercuri when the parts were acquired.

[212] When Officer Hobbs was asked what more he expected Mr. Mercuri to do to avoid stolen auto parts, he stated that he should inspect every part that came on Central’s property. In a recycling operation with between 100,000-200,000 unbolted parts and 700-1,000 vehicles on almost 10 acres of property, this was a very unrealistic expectation.

[213] Officer Barclay was not as rigid as Officer Hobbs: in cross-examination he agreed that Mr. Mercuri’s statement that he doesn’t review each part coming into the business as being an innocent explanation.

[214] Officer Kleinsteiber agreed that the motivation to buy stolen goods was economic because they could be purchased under value. He stated that a person would be “stupid” to pay full value for stolen goods. Officer Hobbs also agreed that stolen goods are usually purchased for less than fair market value, that it didn’t make sense to buy them at market value. Yet the officers did not seem to consider whether Mr. Mercuri was paying fair market value for the parts that were the subject of their investigation. Officer Hobbs agreed this would have been a good inquiry to make. With the exception of the transaction involving a New York van, about which I will say more, there was no evidence over the course of the investigation that any vehicles or parts were purchased under value.

[215] Invoices to Central show the company paid tax on their purchases. The police did not seem to consider whether auto thieves were likely to pay tax on stolen goods.

[216] Apart from whether parts or vehicles were purchased at fair market value, the police did not seem to consider whether goods they believed to be stolen were re-sold promptly in order to make a profit. In fact, some parts or vehicles remained in the Central yard for months or even years. Had the police considered whether goods were dealt with in a commercially viable way, that is, to produce a profit, they might have taken caution in laying some of the charges they did.

[217] The police theorized that the motive for sourcing stolen parts from Quebec was financial, but, having seized Central’s records, they should have seen that Quebec suppliers formed a small part of Central’s business. Officer Barclay admitted that over the four years leading to the charges, Quebec purchases formed only about 5% of Central’s purchases.

[218] Officer Kleinsteiber stated that with most other investigations he had done, it was difficult to assess whether fair market value had been paid because typically purchases were made by cash. That was not the case here.

[219] The police failed to consider that it was the practice of Central Auto Parts to require invoices for the parts they purchased and to pay those invoices by cheque, noting the cheque number on the invoice. Central’s bookkeeper handled the accounting. Thus, there was a paper trail for all transactions. There was only one instance in which an invoice from a Quebec source was marked as being paid by cash, and I conclude this entry was in error. The undated invoice from Pièces D’Auto at exhibit 41 is for $2,675. The notation on it says “pay cash,” not “paid cash.” I accept Mr. Mercuri’s explanation that it would be impractical to pay a Quebec supplier that amount of money by cash.

[220] It did not seem to occur to the police that this method of invoicing and processing payments might well be a sign of legitimate commercial enterprise. A recycler wishing to hide the source of stolen vehicles or parts would not likely be as scrupulous about its bookkeeping. Mr. Mercuri stated that he told Officers Hobbs and Kleinsteiber that he had a paper trail for the parts on site. He told Hobbs that he could check the information on the part tag against information on the computer to establish the paper trail but Hobbs didn’t follow up. He added that neither officer seemed interested in his information about the paper trail. Central’s bookkeeper was not questioned.

[221] There were other examples of tunnel vision. Officer Cousens examined Mr. Bonnet’s Yukon truck. He was suspicious that the cab had been painted in order to disguise the origin of the vehicle even though the VINs on the vehicle matched. When confronted with the proposition that the owner might want his re-built truck to be the same colour throughout, he agreed that painting a rebuilt vehicle was equally consistent with innocence as with guilt. Nevertheless, the paint job was the basis for his conclusion to the other officers that the vehicle was stolen. This conclusion was not objectively reasonable.

[222] There was tunnel vision with respect to a New York van. Mr. Mercuri testified that on February 17, 1999, he was approached by two men who had a child with them. They told him their identification and belongings had been stolen and they wished to sell their Ford van in order to raise funds for return airfare to their home in New York. Mr. Mercuri viewed their proposition with suspicion as they could not produce ownership for the van. The van was slightly damaged, which reduced its market value.

[223] Mr. Mercuri felt sorry for the men but told them he would not pay them for the van, which had New York licence plates on it, until they produced the ownership documents.

[224] Officer Stein from the Thunder Bay police was known to Mr. Mercuri and happened to be at Central Auto Parts on personal business when the van arrived. Mr. Mercuri explained the situation to the officer and asked him to check police records to see whether the van had been reported stolen. Stein did so, as his notes from that day reflect. The officer advised Mr. Mercuri that there was no record that the van had been reported stolen either in Canada or in the United States; however, he advised Mercuri not to be in a hurry to get rid of the vehicle because it often happened that reports of vehicle thefts were not immediately logged onto either country’s computer system. Officer Stein was correct. He documented this exchange in his police notebook, representing the conduct of a reasonable officer at the time.

[225] Mr. Mercuri took Stein’s advice. He retained the van. It was still in Central’s yard when the police executed their search warrant on April 22, 1999. Had Mr. Mercuri been interested in securing a profit from the van, one might have expected that he would have sold it in the two months before the police search.

[226] Mr. Mercuri gave the men two thousand dollars to get home but told them he would not pay them the rest of their money, some $8,000, without proper documentation. Central Auto Parts receipt book shows that he paid them $2,000 on account on February 17, 1999. The vehicle was not entered into Central’s garage register, required to be kept under the Motor Vehicle Dealers Act, R.S.O. 1990, c. M.42. The garage register is kept as a condition of Central’s registration with the Ontario Motor Vehicle Industry Council. The Council requires detailed record keeping of all transactions. The records are to be held available for police inspection and for periodic audits conducted by the Council.

[227] Mr. Mercuri testified that the failure to keep these records would mean losing the dealer’s licence issued by the Council, with the consequence that Central could not legally sell used cars in Ontario. The significance of the van not being entered in the garage registry was that Mr. Mercuri did not consider that it could be sold. The police did not seem to consider Central’s participation in the OMVIC program and its compliance with its regulations as a badge of a legitimate commercial operation.

[228] Interestingly, Officer Hobbs considered that the van was sold under value; however he did not make mention in his notes of the amount paid for it as one might have expected if it was an important detail. This was the only time that the police seemed to consider fair market value of a vehicle in Mr. Mercuri’s possession.

[229] In executing the search warrant, Mr. Mercuri told Officer Hobbs that he had asked Officer Stein to check whether the vehicle was stolen and that he did so. I accept his testimony on this point. It constituted an innocent explanation and is corroborated by Officer Stein’s notes made at the time and his “will-say” eventually produced in May of 2005. Mr. Mercuri had every reason to offer this explanation at the time. In a memorandum to the Crown Attorney six years after the search, (exhibit 14) Officer Hobbs advised the Crown Attorney that he didn’t recall Mercuri telling him that Stein had run the plate. He conceded there was nothing in his notes about it. This is another important detail missing from the officer’s notes.

[230] Officer Hobbs testified during examination-in-chief that he had a notebook with him and he made notes contemporaneously during the search. In cross-examination, Officer Hobbs stated that he made a note regarding the New York van at the time but made no other notes until the end of the day. Given the brevity of his report in exhibit 111, which was based on his notes, I conclude that there were few notes taken contemporaneously with the search. If Officer Hobbs made notes, they were so cursory as to have been devoid of any significant details.

[231] Mr. Mercuri does not recall seeing a notebook in Hobbs’ hand, nor does he recall any of the other officers with one. The search proceeded for about twelve hours and involved a detailed search in a cluttered environment in an industry with which Hobbs was not familiar. Conspicuous by its absence is any conversation with Mr. Mercuri suggestive of an innocent explanation. This failure of note-taking is consistent with the tunnel vision that affected the police on this investigation.

[232] Officer Hobbs made no note in his notebook of Mr. Mercuri’s explanation about the van, even though it exonerated Mercuri. He made no note of anything that warranted follow-up investigation. Officer Barclay testified that neither Hobbs nor any other police office told him that Mercuri asked Stein to check the licence plate on the van to see if it was stolen. Barclay added that when he heard Hobbs saying that an officer had checked the licence plate on the van, he believed he was referring to an officer involved with the search that day. Officer Barclay stated and I find that had he known an officer had checked the van’s status prior to the search, he would have considered that significant to the investigation and recorded it.

[233] During this trial, Officer Hobbs stated that he didn’t recall Mercuri stating that Officer Stein had checked the licence plate on the van. No “will-say” statement was obtained from Officer Stein until some six years later, after Mr. Mercuri gave this explanation in a voir dire on December 13, 2004. It was only then obtained at the direction of Crown counsel prosecuting the case. Officer Hobbs was negligent. He failed to record the innocent explanation, failed to follow-up by asking Officer Stein about the explanation, and failed to report it to the lead investigator. As a consequence, there was no appropriate disclosure to Crown counsel.

[234] Officer Hobbs testified at the civil trial some 15 years after the search that he was aware of this explanation. If so, I conclude that he was reminded of the explanation as a result of the civil suit. Officer Barclay testified that he was “blind-sided” by Mr. Mercuri’s innocent explanation on the voir dire that he asked Stein to check the licence plate. I find that the first time Officer Barclay heard this explanation was when Mr. Mercuri testified about it during the criminal voir dire in 2004.

[235] In cross-examination at this trial, Officer Hobbs agreed that Stein checked to see whether the van was stolen on February 17^th, just as Mr. Mercuri had said. He agreed that the vehicle was reported stolen in New York on February 12^th, but it was not recorded as stolen in New York police records until February 19^th, 1999. Thus, Officer Hobbs’ assertion to the Crown prosecutor that if Stein had checked to see if the van was stolen, he would have determined, like Hobbs, that the van was stolen, was incorrect. Officer Hobbs did not look at when the fact of the theft was recorded by New York police.

[236] It is evident from what Officer Hobbs failed to note and remember, follow-up, and communicate to Officer Barclay, that leaving note-taking to the end of a day is a dangerous practice. When the police conducted their search in 1999, they could not have foreseen that the case would not come to trial until 2005, much less that the civil suit against them would not be heard until 2014. Nevertheless, the fallibility of memory is another reason for complete and contemporaneous note-taking.

[237] Officer Barclay testified that he wrote up his notes after the search based on the exhibits they seized. While there may be instances in which the exigencies of investigations require note-taking to be deferred, this was not such a case. The officers had the Central Auto Parts premises under their control; the search was proceeding in a measured fashion with no safety issues for the officers; and Rick Mercuri and his family showed every sign of being cooperative.

[238] For many years, the police notebook has been a necessary and valuable tool in police investigations. Complete and contemporaneous note-taking was the bedrock of police investigations at the time of this investigation and remains so today. An officer’s notes and reports based on the notes form one of the means of sharing knowledge with other officers. They also provide disclosure to the Crown and thence to accused persons, as mandated in Stinchcombe.

[239] The standard of care at the time of this investigation, as demonstrated by Officer Stein’s note-taking, was to document significant police activity day by day. Officer Hobbs failed to record in his notebook the innocent explanation Mercuri gave and report it to the lead investigator. The explanation did not, accordingly, form part of Crown disclosure to the defence. His omission on that occasion fell below the standard of care of a reasonable officer in the circumstances. His failure to document an innocent explanation was the result of tunnel vision. He believed that Mr. Mercuri was guilty of an offence even when evidence was at hand to exonerate him. Unfortunately, it led to Mr. Mercuri being charged with possession of the stolen van, even though there was an official police record that Mr. Mercuri asked Officer Stein to investigate whether the van was stolen.

[240] In order to make an arrest, a police officer must have reasonable and probable grounds that are justifiable from an objective point of view. It is not reasonable that the police ignore an innocent explanation when it is tendered, as Officer Hobbs did, and then argue that they had subjective and objective grounds to make an arrest.

[241] Officer Barclay testified that if he had known that Mercuri asked Stein to check the status of the vehicle on the day it came into Central’s yard, he probably would not have laid the charge.

[242] The charge of possession of the stolen van was dismissed by a directed verdict on June 8, 2005.

[243] Another example of the failure to document, investigate and report an innocent explanation occurred in connection with count #3, alleging that Mr. Mercuri had in his possession a stolen Evinrude motor.

[244] On the day of the search, the police located an old Evinrude motor on the Central premises. In response to Officer Hobbs’ inquiry, Mr. Mercuri related that the motor was located, along with other personal belongings, inside a van that Central purchased from Intercity Appraisals in May, 1998. When the van arrived at Central’s yard, Mr. Mercuri discovered some personal possessions in it. It was his experience that owners often came back to claim their personal possessions so Mr. Mercuri sought instructions from personnel at Intercity Appraisals. He was advised that the contents were not being claimed. Nevertheless, he boxed up the possessions and stored them on the Central premises. When the vehicle was being prepared for sale, the old outboard motor was discovered under the sink in the van. It, too, was stored at Central.

[245] The documentation with respect to Central’s purchase of the van containing the Evinrude motor was available at Central but the police did not ask for it. If they had, they would have realized that Mercuri had the motor in his possession for almost a year and made no apparent effort to sell it. The age of the motor and Mercuri’s apparent delay in selling it should have given the police pause before laying a charge.

[246] Mr. Mercuri testified that he explained to Officer Hobbs during the search how he acquired the motor, and I find that he did. As with the New York van, he had no reason not to because the explanation exonerated him. I also accept Mr. Mercuri’s evidence that Hobbs made no note of the conversation in a notebook. In cross-examination, Officer Hobbs stated that he didn’t recall a conversation with Mr. Mercuri about the outboard motor.

[247] The documentary record shows that the first time Crown counsel became aware of this innocent explanation was when Mr. Mercuri testified about it on the voir dire in December of 2004. Crown counsel sought information about Mercuri’s explanation from Officer Hobbs in 2005, in preparation for trial. Officer Hobbs replied:

With respect to the outboard motor I think that I would have noted a long-winded explanation like that and followed that information up to see if it was accurate. This is the first I have heard of this. I believe that the outboard was sitting in the back with a bunch of car motors and was seized by someone other than me.

[248] Having made no notes of the explanation given by Mr. Mercuri, Officer Hobbs could not have reported it to the lead investigator or to the prosecutor for follow-up. Nor could the explanation have formed part of Crown disclosure to Mr. Mercuri’s defence counsel. Officer Hobbs’ conduct fell below the standard of care of a reasonable officer in the circumstances. His omission deprived the police of objectively reasonable grounds to charge Mercuri with an offence. Unfortunately, Mr. Mercuri was charged as a consequence.

[249] A hand-written notation on the original indictment reads “Proceed unless the defendant’s silly story is verified.” There is no evidence who made this notation. In cross-examination, Officer Barclay conceded that the police had no evidence that Mr. Mercuri knew the outboard motor was stolen at the time the charge was laid. He agreed this was a deficiency in the investigation.

[250] The arrest of Mercuri in these circumstances was not objectively reasonable. The sole ground for arresting Mr. Mercuri was that the Evinrude motor found on Central’s property was stolen. There was no evidence that Mr. Mercuri knew it was stolen.

[251] Crown counsel withdrew the Evinrude motor charge on June 6, 2005.

[252] Mr. Mercuri was also charged with possession of a stolen Sea-doo which was found at the Central Auto Parts yard when the police conducted their search. There is no question that the machine was stolen. The plate containing the serial number had been removed from the machine.

[253] In walking about the Central yard during the search, Officer Hobbs asked Mr. Mercuri about the machine; he replied that it had been dropped off by a friend, Louis Rosin, who operated A & A Towing. Mr. Mercuri told Hobbs that he wasn’t present when the machine was delivered. Officer Kleinsteiber testified that he would have interviewed the person who left the Sea-doo to see if that person had a similar story. In other words, further investigation was warranted.

[254] In this trial, Mr. Mercuri stated that Rosin reported that the Sea-doo was owned by Rob McCallom, but acknowledged that he didn’t know if he told Officer Hobbs that. He also stated it had been in Central’s yard for about 1 ½ years before the search; Rosin had asked him to hold it until a trailer could be found for it.

[255] At the time of the search, Officer Hobbs made no note of Mercuri’s explanation, which would have warranted further investigation. This was negligent. Hobbs also didn’t recall his conversation with Mercuri about the Seadoo.

[256] Mr. Rosin testified that the police never asked him about the Sea-doo. If Mr. Mercuri’s motivation was to sell the Sea-doo for profit, the police seem not to have considered that it had been sitting in Central’s yard a very long time.

[257] In April, 2005, Crown counsel asked Officer Hobbs to respond to Mr. Mercuri’s innocent explanation given at the December, 2004 voir dire. Hobbs replied:

As far as the Sea-doo is concerned, I did not have a conversation with Mercuri about this item. I surely would have remembered Rob McCallom being mentioned as he was a victim of a homicide in 1997.

[258] I conclude that Officer Hobbs’ memory about this and other charges was not as good as he believed it to be.

[259] Mr. Rosin’s testimony corroborated Mr. Mercuri’s account: that his towing company dropped the Sea-doo off at Central because Central had secure storage that Rosin did not. Rosin said the machine sat in the Central compound for so long because he forgot about it. Officer Hobbs’ failure to record Mr. Mercuri’s innocent explanation and communicate it to the lead investigator so that it might be further investigated and included in disclosure to Crown counsel did not meet the standard of care of a reasonable officer at the time. This failure led to Mr. Mercuri being charged with possession of the stolen Sea-doo.

[260] Officer Barclay candidly admitted that he was not aware that any officer ever asked Mr. Mercuri if he noticed the plate containing the serial number was missing from the Sea-doo. He stated, “I accept there was a deficiency in the investigation.” The arrest of Mercuri in these circumstances was not objectively reasonable. The sole ground for arresting Mr. Mercuri was that the Sea-doo found on Central’s property was stolen.

[261] The Crown prosecutor withdrew this charge after the pre-trial motions concluded.

Failure to Secure and Preserve the Plaintiffs’ Property

[262] There is no real issue in this trial that the defendants had a duty to secure and preserve the property they seized and that they failed to do so, which resulted in loss or damage. A 1998 Chevrolet, a 1996 Cadillac and miscellaneous fenders and other parts were stored in an open police compound exposed to the elements for six years with a diminution in value that would have been foreseeable at the time of storage. Officer Barclay testified that engines were stored indoors in a cage on police premises but that the cage was close to the door so that the engines were exposed to the elements every time the door opened.

[263] Certain property, such as guns and clips belonging to the Mercuri family were not returned after trial. No charges were laid in relation to the gun seizures.

[264] In another instance, air bags owned by Central were seized. Without having a warrant for testing or destroying them, Officer Fuhrman blew up each of the air bags, ostensibly to look for secondary identifiers inside them. Officer Cousens testified that the auto theft examiners were not sure whether the inside of the air bags contained vehicle identifiers. He said “We were experimenting.”

[265] Officer Barclay testified that he was unaware his colleague failed to apply for a general warrant in order to do so. I accept his statement. Nevertheless, Office Fuhrman, as an experienced police officer, should have been aware of the need for such a warrant. The failure to obtain the necessary warrant was negligent.

[266] The agreed damages for the air bags alone are $5,000. It is a mystery why, having exploded one air bag and finding no identifier within, Officer Fuhrman continued to blow up the rest. The defendants breached their duty of care to the plaintiffs when they failed to preserve their property.

Who Was in Charge of the Investigation?

[267] An issue arises when considering liability: who was in charge of the investigation? The defence argues that the Thunder Bay Police Services Board is not vicariously liable for the actions of the OPP auto theft team in this investigation.

[268] The evidence indicates that the initiative for the investigation came from the Thunder Bay Police Service. In this case, the Ontario Provincial Police are not defendants. The lead investigator, Frank Barclay, was a member of the Thunder Bay police force. He answered to superiors in the Thunder Bay Police Service who approved the continuation of the investigation in the early days. Officer Barclay prepared and swore the affidavit for the search warrant, assembled a task force to conduct the investigation, conducted the search, seized and documented exhibits, prepared the Crown brief, met with Crown counsel and testified at trial.

[269] Officer Barclay recognized that his task force needed more expertise and obtained it from the provincial auto theft team. This was, at first blush, a reasonable step. However, the Thunder Bay police were not well-served by the auto theft examiners for the reasons I have stated.

[270] The auto theft examiners came and went as the investigation required. They left the overall investigation to the local police. In one instance, Barclay sent an auto theft examiner home when he was not performing up to Barclay’s standards. Officer Barclay directed the investigation from start to finish. Officer Kleinsteiber testified that the auto theft examiners did the more technical work and left the Thunder Bay police to collect evidence that Mr. Mercuri had knowledge that the parts or vehicles were stolen. This evidence was not challenged. I conclude that the Thunder Bay Police Service was in charge of the investigation that led to charges being laid against Mr. Mercuri.

Vicarious Liability

[271] The defence denies that it was negligent but argues in the alternative, that it was not vicariously liable for any negligence of the Ontario Provincial Police officers in this case. It relies on the difference in wording between ss. 49 and 50 of the Police Services Act, R.S.O. 1990, c. P.15. as it read at the time of the investigation. The defence argues that the Act narrows the scope of the board’s responsibility for torts of officers to those employed by the Thunder Bay Police Services Board. Counsel did not refer to any case law on the point.

[272] In view of the findings I have made, this argument is academic. The Thunder Bay police were in charge of proving that Mr. Mercuri had knowledge of stolen goods. They did not do so. The Thunder Bay police were negligent in a variety of ways as detailed above that are not dependent on the auto theft examiners. Under s. 50 of the Police Services Act, the Thunder Bay Police Services Board is liable for the negligence of its members.

Damages

[273] As I have noted, counsel agreed that the damages for destruction or diminution in value of the plaintiffs’ property while in police custody is $70,000. They also agreed that Rick Mercuri paid $268,937.62 in legal fees to defend the criminal charges against him.

[274] The defence argues that the amount claimed for legal fees should be reduced by 25% to reflect the refusal of the court to quash the search warrant in the criminal proceedings. I do not agree. There is no evidence that the motion to quash the search warrant was unreasonable. Officer Barclay acknowledged certain errors in the information to obtain affidavit. Having charged Mr. Mercuri with criminal offences, the police cannot complain when he takes all reasonable steps to defend himself in the prosecution they initiated.

[275] The defence also submits that the plaintiffs cannot recover for economic loss if the harm flows from media reports in connection with the case; the defence contends that the media coverage is unrelated to any consideration of a negligent investigation. In response to a question from the court about how the press became aware of the search at Central Auto Parts, Officer Barclay stated that the press picked it up from a police scanner that was not encoded. Even if this answer was correct, it is disingenuous.

[276] The press interest in the Central Auto Parts case was not limited to information obtained from a police scanner. Press coverage immediately following the search indicated that the police executed a search warrant at the premises of Central Auto Parts on Fortune Street, seized various vehicles and parts for examination, and advised that the next step would be to identify the vehicle owners. The article concluded, “Police wouldn’t release any further information.” It is evident from this brief article that the police gave an interview to the press during or immediately after the search.

[277] It got worse.

[278] The prominent coverage in the Thunder Bay Chronicle Journal of May 26, 1999 and in other media establishes that the Thunder Bay Police Service advertised this investigation to the press. The headline reads “ Charges laid in auto scam. Investigation not over yet, says Thunder Bay police chief.” The article is accompanied by a photo of Officer Hobbs with an impounded vehicle. The article announcing that Mr. Mercuri was charged is instructive. It states:

A probe that led to the arrest of a Thunder Bay auto supplies dealer is being hailed by the city’s police chief as “a major breakthrough in the war against the stolen auto and auto parts industry.”

Chief Leo Toneguzzi made the pronouncement Tuesday at a news conference where he discussed possible Thunder Bay links to an operation suspected of using stolen parts and vehicle identification numbers from wrecked autos to create highly marketable used automobiles for sale.

A 31 year old co-owner of a local auto supply business has been charged with 10 counts of possession of stolen property.

And, police disclosed Tuesday, more than $500,000 in vehicles and auto parts have been seized. “Our investigation has revealed that the majority of the vehicles and vehicle parts were altered or in the process of being altered to conceal their identity,” said Toneguzzi.

He said the probe “has only scratched the surface” of illegal trade in stolen auto parts and vehicles, adding an officer is working full-time investigating the local salvage industry.

The Ontario Provincial Police auto theft team, the Insurance Crime Prevention Bureau, Canada Customs and the Criminal Intelligence Service of Ontario are co-operating in the local probe and related matters in other jurisdictions.

Toneguzzi said investigators have dealt with agencies in four provinces and New York State. Most of the vehicles suspected of being rebuilt and sold in the operation are trucks and sport utility vehicles.

However, a viewing Tuesday of vehicles seized included a Cadillac, at least one other sedan and a white van with its New York license plates still attached.

The Thunder Bay man’s arrest follows the execution of a search warrant at Central Auto Parts, on Fortune Street, on April 22. Another local auto supply business was searched last week.

Toneguzzi said police have worked the case since receiving a variety of tips more than two years ago.

Det. S. Sgt. Keith Hobbs said some people have bought used vehicles that contained stolen parts.

He said they can have their vehicles “legitimized” by, among other things, replacing the stolen parts.

Rick Mercuri of Anten Street is to make his next court appearance on July 9. He is not in custody.

[279] Other publications were to the same effect. Coverage continued as the legal proceedings played out. The charges involving Central were linked to charges against another local auto recycler, T & T Auto Supply. Even the headlines accompanying the announcement of Mr. Mercuri’s acquittal had a sting: “Chop shop case flops,” and “Auto shop owners off the hook.” The implication was that Mr. Mercuri was operating a “chop shop” and was guilty even though the charges had not been proven.

[280] I conclude that the police courted the local press over this story, convening press conferences and showing off seized vehicles. It does not now lie in the mouth of the police to blame the press for damage to Central’s business when the police provided the story.

[281] The court must consider the quantum of income Central Auto Parts lost as a result of the prosecution. The parties’ experts agree that the business suffered a loss of income as a result of the charges. For the most part, they do not differ on how damages should be quantified. However, they disagree on the length of time for which the income loss was suffered. Interestingly, when the loss is projected, there is not a great difference in the experts’ opinions about the amount of income lost.

[282] The experts concur that the period from 1990-1998 was a time of significant growth for Central Auto Parts. In 1994, Central expanded its building capacity from 2,000 to 10,000 square feet. It also installed the Hollander System which is a computer data base that allows auto recyclers to keep track of inventory. By 1999, there were approximately 2,000-3,000 auto recyclers in Canada and the United States on the Hollander System.

[283] In 1995, Central subscribed to the Electronic Data Exchange Network (“EDEN”), which connects the recyclers who use the Hollander System. This network allowed Central to search other recyclers’ inventories for parts and permitted other recyclers to search Central’s inventory. These improvements had a significant impact on Central’s profitability.

[284] Central began purchasing salvage vehicles from Dominion of Canada late in 1994 and in September, 1995, Central secured a similar contract from Wawanesa.

[285] The plaintiff`s expert, Ms. Donna Bain Smith calculated that the gross profit (the amount of sales less the cost of sales) between 1990-1998 was 12.8% annually. However, from 1994-1998, annual gross profits averaged a more modest 7.84% yearly.

[286] In the first instance, the experts agree that Central’s expansion prior to the charges led to increased revenues. However, they do not agree on the duration of the growth.

[287] Ms. Bain Smith is a chartered accountant with certifications in investigative forensic accountancy and business valuation. She testified that the losses sustained by Central Auto Parts as a result of the criminal prosecution ranged between $1,162,138 - $1,553,338 between May 1, 1999 and September 30, 2008. These losses include legal fees paid. The range is based on four different scenarios.

[288] The defendants’ expert, Ms. Sheri Gallant, is a certified management accountant who is a partner in a firm of forensic accountants. She concluded that the plaintiffs suffered an economic loss of $403,748 - $422,725 (including legal fees) for the period 1999-2000. When a carry forward for legal fees is considered, Ms. Gallant projected the total losses to be $405,353.

[289] I do not accept the defence position that economic losses for Central Auto Parts were limited to 1999 and 2000. Central’s fiscal year runs from October 1 - September 30. When the fiscal year is considered in relation to the start of adverse publicity around April 22, 1999, Ms. Gallant allowed for economic losses for 17 months. However, Central’s balance sheets show that the full financial impact of the charges was not immediately felt upon the laying of charges. Rather the laying of charges was like an earthquake for Central, with a tsunami to follow later.

[290] In my view, Ms. Gallant’s conclusion ignores several important consequences of the prosecution. The payment of legal fees did not end in 2000; in fact, the fees were just beginning. In 2000, $21,105 was paid for legal fees but the balance, $247,832.62, was paid between 2003 and 2006.

[291] The designation, “professional fees,” likely encompasses more than legal fees; however, the evidence about the cost of legal fees and the increased need for accounting services is telling. Central’s records indicate that annual professional fees ranged from nil to $15,212 in the period 1990-1998. In 2003, professional fees were $124,184; in 2004, $90,836; in 2005, $97,714; and $37,987 in 2006. It was only after that time that professional fees dropped to their previously reasonable level, in the range of a few thousand dollars annually.

[292] Central’s accountant, Mr. Costanzo, is a chartered accountant. He testified that the company experienced a cash flow crisis when it was required to pay legal fees to defend Mr. Mercuri. In 1998, just prior to the prosecution, Central enjoyed an equity position of $300,000 (the amount by which assets exceeded liabilities). By 2005, Central fell to a deficit position of -$17,000 (the amount by which liabilities exceeded assets). He stated this was due mainly to legal costs.

[293] The balance sheet for Central’s income or loss before taxes between 1990-1998 shows fluctuating annual profits from a low of $7,765 to a high of $76,749. However in the period 1999-2009, for the first time, Central records losses in five out of eleven years. The losses range from a low of $17,032 to a high of $142,327 in 2003. The profit range for the same period is between a low of $8,000 to a high of $75,184 in 2008 when Central started to make a financial recovery. Most of the profits for this period were substantially lower than $75,000.

[294] Ms. Bain Smith testified that inventory is significant to the company’s ability to sell and therefore generate cash flow. If inventory is reduced, so, too, is cash flow. In Central’s case, the company’s inventory peaked in 2000, then declined steadily until 2007 when the inventory began to rise again. Historically, Central’s line of credit was used to fund inventory purchases. The bank cancelled Central’s line of credit in 2003, compromising its ability to purchase inventory. The bank also increased Central’s interest rate on borrowing and demanded review financial statements from the accountant, increasing Central’s accounting costs.

[295] Ms. Bain Smith testified that from 2003-2007, Central was selling current purchases and digging into inventory in order to pay debt. Shareholders’ equity also declined after 1998 until 2008 when there was notable improvement.

[296] Second, Ms. Gallant does not comment on the cash flow crisis precipitated by the charges, its duration or the consequences for the business. Mr. Costanzo testified that congenial financing arrangements with the bank dried up once the charges were laid. The cost of Central’s line of credit and annual credit review increased substantially. The bank also demanded financial reports on a monthly basis. It wanted more security from Central, demanding that the owners inject more capital into the business. Mr. Costanzo stated that Rick Mercuri’s parents, also owners in Central, sold their apartment building at a time that was not advantageous, simply to raise capital to keep Central going. This occurred in 2003. Rick Mercuri stated that he and his brother sold their personal vehicles and used operating cash to pay legal fees. When Central explored financing with another bank, it found that the new bank made similar demands.

[297] Mr. Costanzo stated that the bank became more demanding with respect to Central’s financial reports. Of necessity, his role changed from making an annual visit to finalize year-end statements to that of in-house accountant, visiting on a regular basis. During the period of the prosecution, he provided accounting supervision and participated in the hiring of the bookkeeper, in order to satisfy the bank.

[298] Third, the defence analysis of income loss does not consider the impact that the distraction of a major legal case over a period of six years would have on a small family business. Ms. Gallant conceded in cross-examination that six years is a long time to have charges outstanding. She also agreed that, but for the charges, Mr. Mercuri would have had more time available to devote to business.

[299] Rick Mercuri was in attendance for many days at the preliminary inquiry, pretrial motions and trial. Disclosure was extensive. Educating counsel on the business practices in the auto recycling industry, taking advice and giving instructions drew Rick Mercuri away from the business for significant periods of time. He estimated that he worked two months out of twelve on his defence over five years that the case proceeded. I accept Mr. Mercuri’s evidence in this regard. He also testified that his father, Dominic Mercuri, another principal in Central, was with him throughout. Mr. Dominic Mercuri was in daily attendance during the seven weeks of this case.

[300] Fourth, not only was Rick Mercuri distracted by legal proceedings, but he was unable to pursue new initiatives to support the growth and profitability of Central during the criminal prosecution. Ms. Gallant concluded that because she had not seen any documentation to suggest that Central had been successful in partnering with other auto recyclers, it was not clear that Central would have been successful in forming a recyclers’ network or that insurance companies would have used it. Her opinion begs the question: who would the insurers have used? Although insurers used auto auctions to a degree, their enthusiasm for this approach was tempered by the cost of shipping salvage, which ate into profit margins. Dominion’s advice to Central in 2004 that it was terminating its contract and going to a more centralized approach suggests that Rick Mercuri’s initiative to form alliances with other auto recyclers was the correct approach.

[301] Ms. Gallant’s conclusion that no partnerships were formed ignores the relationship that Central built with Action Auto Parts of Winnipeg and the towing services Central provided to its competitor, Impact Auto from the 1990s through to 2003. In cross-examination, Ms. Gallant agreed that, all things being equal, new business initiatives were likely to produce growth. She admitted that Central’s business doubled in the years 1993-1998 as a result of significant infrastructure improvements. She also acknowledged that a person under a cloud would not likely be able to pursue new business initiatives. Ms. Gallant was not aware of Mr. Mercuri’s evidence that no one wanted to partner with Central when the charges were outstanding. I accept his evidence on this point. I find that it is probable that Central’s ability to take new initiatives to increase its profitability was limited by the outstanding charges.

[302] I find that before the criminal charges, Mr. Mercuri was interested in developing Central’s business by dealing in heavy equipment and recreational vehicle sales, pursuing new insurance contracts, selling after-market parts and developing partnerships with other auto recyclers. Ms. Bain Smith testified that between 1997-2007 the American market showed a 4.1% growth in the sale of after-market auto parts.

[303] Central’s business history in the decade before the charges were laid was one of innovation and investment. There was significant growth and healthy profit margins. This trend ended abruptly once the charges were laid.

[304] Fifth, Ms. Gallant’s opinion minimizes the duration and effect of negative publicity on business in a small city. Ms. Gallant agreed that negative publicity had a negative effect on business and Mr. Mercuri’s personal reputation; however, she limited the effect to two years. In my view, her conclusion is arbitrary and not in keeping with the reality of negative publicity that continued over a period of at least five years. As the news reports indicate, innuendo followed his acquittal.

[305] Mr. Mercuri testified that after the charges, customers would frequently raise concerns that they might be sold stolen car parts. Officer Hobbs was reported as saying that owners of vehicles containing stolen parts would have to replace them in order to have their vehicles “legitimized.” Mr. Mercuri stated that customer concerns were expressed not only when there was negative publicity about Central, but also when there was publicity about a competitor, T & T Auto Supply, charged with the same offences. The two companies were linked together in the press reports.

[306] Sixth, although Ms. Gallant’s analysis considers the cost for wages at Central, she does not comment on the reduction in staff at Central following the charges or its implications. At the time of the charges, Mr. Mercuri testified that Central employed 14 staff, including his family members. Mr. Costanzo testified that Central cut back on staff after the charges in order to reduce costs. He added that the business couldn’t afford to pay wages to stock parts in the warehouse, noting that Central should have 15-16 staff but now has 12-13. He also stated that Central has experienced a turn-over in mechanics because it can’t attract and retain skilled staff while paying wages at the low end of the scale.

[307] Ms. Gallant did not consider whether a reduction in staff may lead to a reduction in profits. Ms. Bain Smith testified that the financial statements show a decline in wages and benefits as a percentage of net operating revenue suggesting that Central was doing more with less staff. Auto recycling is a labour-intensive business. It is probable that a reduction in staff would lead to a reduction in profit.

[308] Seventh, Ms. Gallant concluded that Central would have less access to damaged vehicles because Dominion of Canada decided to go to a more centralized approach in dealing with its salvage. While this was the excuse offered to terminate the Central contract in 2004, I find that the triggering event to terminate Central’s contract was the charges.

[309] Dominion’s letter dated October 17, 2000 states, in part:

We have deferred our final decision with regards to the handling of salvage vehicles in the Thunder Bay area until such time as the courts have resolved the criminal charges laid against your company and others. The decision(s) of the court could have an impact on how we dispose of salvage in the Thunder Bay area. We would ask you to keep us apprised of any developments.

[310] At that time, Dominion converted Central’s contract to month-to-month instead of yearly. It was clear that Dominion was uncomfortable with the taint of illegality that hung over Central at that time. I find that Dominion’s reluctance to deal with Central stemmed from the charges.

[311] Ms. Gallant concluded that the loss of the Dominion contract for salvage reduced the plaintiffs’ claim for lost income. I do not agree. I find that the termination of Dominion’s contract with Central is directly attributable to the laying of charges and that it resulted in lost income for Central. Unfortunately, in analyzing the cars and parts revenue per vehicle purchased (Schedule 7), Ms. Gallant does not include 2004, the year Dominion terminated Central’s contract, nor the following years.

[312] Ms. Gallant noted that the revenues per car sold decreased in 1999 and 2000 and continued at a lower rate until 2004. She concluded that the loss in revenue per car was the result of Central purchasing older or more damaged cars. There is no evidence to support this conclusion. She appears not to have considered an alternate explanation: that cars were being sold at a lower rate simply to raise cash to address the cash flow crisis. In view of Mr. Costanzo’s evidence, I find this explanation more likely.

[313] Like Ms. Bain Smith, Ms. Gallant looked for developments in the market place to explain a loss in income. She concluded that the reduction in provincial car accidents accounted for a loss of salvage available to auto recyclers and thus a loss in profits. In cross-examination, she reluctantly conceded that although the average rate of car accidents declined from 2004 to 2008, the number of actual collisions was still greater than the number of collisions in 1999. She conceded there was no overall decrease in the actual number of collisions.

[314] Neither party advanced definitive evidence that Central’s profits were impacted materially by the effects of branding rebuilt vehicles, environmental regulation or on-line sales.

[315] Mr. Costanzo testified that before the criminal charges, Central would retain scrap metal and sell it when the price was high. However, because of the cash flow crisis triggered by the charges, he stated that Central would sell scrap metal even if the price was low, simply to get the cash it needed to stay afloat. Central’s financial records show a flat rate price per pound over a period of years, rather than the actual price paid.

[316] Ms. Gallant could not get data on the price fluctuations in scrap steel. Instead, she considered Statistics Canada`s price index for primary metal products and fabricated metal products in evaluating this claim. In cross-examination, she agreed that both these categories of manufactured steel contain a labour component, unlike scrap steel. When asked by the court how Statistics Canada defined either primary metal products or fabricated metal products, she could not do so. I find that no conclusions can be drawn about scrap steel revenues upon this evidence.

[317] In my view, the true measure of Central’s income loss includes the profits that would have been made had the taint of criminal proceedings not intervened. This includes the probability of continued growth based on earlier improvements in infrastructure and technology, on improved communications and good relationships in the business community, and on a sound foundation of equity in the company.

[318] I accept as probable the assumptions underpinning the analysis of Ms. Bain Smith:

• that customers were not coming in as much following the laying of charges;

• that Central was preparing to pay legal fees;

• that, had the charges not intervened, Central would have continued to build relationships with other recyclers and pursue new markets such as after-market parts;

• that Central would have continued to use the EDEN system to advantage;

• that the charges meant that the Mercuris had reduced time to devote to business; and

• that after the charges were laid, Central reduced its prices in order to sell parts.

[319] In my view, the analysis supporting Ms. Bain Smith’s second scenario is the most probable conclusion about losses sustained by Central because it includes a consideration of all revenues for the period, not just cars and parts revenues. She concluded there was a net operating loss of 7.8% from May, 1999 to 2004 and at 2% thereafter until September 30, 2008 when Central’s financial position recovered. This assumption accounts for the continuation of the Dominion contract until 2004, and allows for continued networking with other auto parts recyclers, but recognizes that Central’s dramatic growth in the years before the charges would not likely have continued at the same pace. The growth rate of 2% is in keeping with the average inflation rate for that period as agreed by both experts.

[320] Under this scenario, the net operating income for the period May 1, 1999- September 30, 2008 that would have been earned was projected at $3,944,200. From this figure, actual net operating income earned of $2,902,021 was subtracted, leaving a loss of income of $1,042,179.

[321] The plaintiffs claim general damages of $200,000 for depression, loss of reputation, and humiliation, suffered by Rick Mercuri as a consequence of the defendants’ negligent investigation.

[322] The defendants submit that if Mr. Mercuri suffered a loss of reputation and emotional upset, it was attributable to media coverage. The defendants submit that if Mr. Mercuri has a claim, it lies in defamation under the Libel and Slander Act, R.S.O. 1990, c. L.12. They argue that because Mr. Mercuri did not plead defamation and has not served the requisite notice under s. 5(1) of the Act, or commenced an action within the time limited set out in s. 6 of the Act, the claim is statute barred.

[323] In Young v. Bella, 2006 SCC 3, [2006] 1 S.C.R. 108, the court dealt with a claim in negligence against a professor who erroneously concluded that the plaintiff was a child molester without discussing the matter with her. Further, the professor conveyed her conclusion to other university professors, the police, and other social workers in the community, with the result that her reputation in the academic and social services community was damaged. The action was pleaded in negligence. The defendants argued that the claim was really for defamation.

[324] The Supreme Court disagreed, observing at para 56:

We cannot accept the respondents’ argument. The possibility of suing in defamation does not negate the availability of a cause of action in negligence where the necessary elements are made out.… There is no reason in principle why negligence actions should not be allowed to proceed where (a) proximity and foreseeability have been established, and (b) the damages cover more than just harm to the plaintiff’s reputation (i.e. where there are further damages arising from the defendant’s negligence)[citation omitted].

[325] The court distinguished the cases cited by the defence noting that unlike in Young, there was no pre-existing relationship between the parties that gave rise to a duty of care. In Hill, the court found that police owed a duty of care to the persons being investigated. That duty of care also exists in this case.

[326] In my view, this case accords with the principles set out in Young. As in Young, the foundation of this action is in negligence. It is not “an action for defamation dressed up as a negligence action” (para. 55). The action is more broadly framed. The police had a duty of care to Mr. Mercuri. The objections based on the limitations in the Libel and Slander Act are therefore without foundation.

[327] Alternatively, the defendants submit that if there is liability, the amount of general damages should mirror the loss period: if Ms. Gallant’s loss period is accepted, the damages should be in the range of $25,000 - $50,000.

[328] There is little case law on damages of this nature. In Young, the Supreme Court declined to interfere with the jury’s award of $430,000 for non-pecuniary damages.

[329] In Lahaie v. Canada (Attorney General) 2008 CanLII 68124 (ON SC), [2008] O.J. No. 5276; 303 D.L.R. (4^th) 213 (Sup. Ct.), the plaintiff sued for breach of his Charter right to be free of unreasonable search and seizure. The law was in a state of uncertainty at the time, but this was not brought to the attention of the Justice of the Peace who issued the search warrant. The RCMP searched Lahaie’s Canadian business in 1998 and his customs broker in 1999, seized the inventory and put him out of business. Following the search, the RCMP issued press releases and gave interviews to the press, identifying Lahaie’s business.

[330] The plaintiff and his business were charged with criminal and regulatory offences twice in 1999. As a result of the charges, Lahaie was barred entry into the United States and his American business also failed. He declared personal bankruptcy in 2000. The charges were withdrawn in 2001, and the seized equipment was returned and sold at diminished value. Damages of $100,000 were awarded for breach of Charter rights.

[331] Although the cause of action in this case differs from Lahaie, the cause and effect of an ill-conceived police investigation are striking. In this case, the criminal proceedings continued over a period of six years. Consequent losses to the business and legal fees are dealt with separately. Nevertheless, there is also a human cost to Mr. Mercuri in terms of his loss of reputation and emotional upset that fall under the heading of non-pecuniary damages.

[332] Mr. Mercuri was drawn away from his business pursuits and had to sell his vehicle. He felt humiliated. He worried about his aging father’s health. He felt that no one would trust him again. He remarked, “It takes a toll on you.” Mr. Mercuri stated that he had worked hard to establish a reputation over the years. He and his family were shocked. He was worried about his family, his business, about his employees and their families. He felt that his parents suffered the brunt of it, but his children also had issues at school arising from the case.

[333] Mr. Mercuri commented that he felt that every question from a customer - Am I going to have problems with this part? Are the cops going to seize it? – was like a punch in the face. He lived under a cloud in a small city for six years until the charges were dismissed. Even the acquittal did not produce vindication: doubt in the community still lingers.

[334] Having regard for the fact that charges hung over his head for six years, I award non-pecuniary damages of $200,000.

Summary

I assess damages in favour of the plaintiffs as follows:

• loss of business income $1,042,179.00

• legal fees $ 268,937.62

• agreed damages $ 70,000.00

• non-pecuniary damages $ 200,000.00

• Total $1,581,116.62

[335] Judgment shall issue in favour of the plaintiffs accordingly. The plaintiffs are also entitled to prejudgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43.

Costs

[336] If the parties cannot agree on costs, either party may apply to the trial coordinator within thirty days of the release of these reasons for an appointment to argue costs, failing which, costs will be deemed to be settled.

“original signed by RSJ H. M. Pierce”

Regional Senior Justice H.M. Pierce

Released: June 10, 2014

COURT FILE NO.: CV-05-0766-00

DATE: June 10, 2014

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

495793 ONTARIO LTD. c.o.b. as CENTRAL AUTO PARTS and RICK MERCURI

Plaintiffs

• and –

FRANK BARCLAY and CITY OF THUNDER BAY POLICE SERVICES BOARD

Defendants

REASONS FOR JUDGMENT

Pierce, RSJ

Released: June 10, 2014

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