SUPERIOR COURT OF JUSTICE – ONTARIO
COURT FILE NO.: CV-14-1094-00
DATE: 2014-10-02
RE: Business Development Bank of Canada v. Her Majesty the Queen and Tan Tien Nguyen
BEFORE: M. J. Donohue, J.
COUNSEL:
Mr. I. Klaiman, for the Applicant
Mr. M. McEachren, for the Respondent, Queen, and Mr. W. Morris for the Respondent, Nguyen
E N D O R S E M E N T
OVERVIEW
[1] The Business Development Bank of Canada (“the Bank”) brings an application seeking to vary a Restraint Order so it may proceed with the enforcement of a collateral mortgage against Tan Tien Nguyen. In the alternative, if the court determines the Restraint Order is no longer in effect, the Bank seeks an order that the Forfeiture Order be suspended to the extent that the Bank can take possession pursuant to the Collateral Mortgage.
[2] The critical issue before me is what happens to a Restraint Order made pursuant to s. 462.33 of the Criminal Code when an order of forfeiture is made pursuant to s. 16(1) of the Controlled Drugs and Substances Act (“CDSA”), and then that order of forfeiture is subsequently appealed?
[3] Is the Restraint Order still in effect?
[4] If not, what remedy can the Bank seek to enforce its collateral mortgage?
[5] For the following reasons, I am granting the application to permit the Bank to enforce the collateral mortgage.
THE BACKGROUND
[6] The facts are not in dispute.
[7] The respondent, Mr. Nguyen, is the owner of the property at 1000 Dundas Street East, Mississauga, (“the Dundas Property”).
[8] On October 9, 2001, the Bank advanced a loan to Mr. Nguyen in the principal amount of $550,000. As security for the loan, Mr. Nguyen executed and delivered a collateral mortgage against the Dundas Property, in favour of the Bank. The mortgage was registered on title on October 26, 2001.
[9] A number of years later, Mr. Nguyen was charged criminally with a number of offences. Upon application by the Attorney General, Justice McMahon granted a Restraint Order in respect of the Dundas Property pursuant to s. 462.33 of the Criminal Code, R.S.C. 1985, c. C-46 (“the Restraint Order”), on October 5, 2009.
[10] The Crown registered the Restraint Order on title to the Dundas Property on October 22, 2009. The parcel register notes the restrictions order: “No person shall dispose of or otherwise deal with the property or any interest as per court order.”
[11] On February 1, 2013, Mr. Nguyen was convicted of the offences that gave rise to the potential forfeiture of the property to the Crown.
[12] By letter dated March 14, 2013, the Crown delivered its Notice of Application seeking an order pursuant to s. 16 of the Controlled Drugs and Substances Act, S.C. 1996, c. 19. They sought an order for the forfeiture of the Dundas Property as an offence related property.
[13] The Crown’s letter specified that, assuming the forfeiture order was granted, the Bank could apply within 30 days for relief from forfeiture in respect of its collateral mortgage. Further, the letter stated that if relief from forfeiture order was granted, “the Seized Property Management Directorate of Public Works and Government Services Canada will either:
(1) “pay out your client the value of their declared interest in the property; or
(2) return the property to your client if the property continues to be in default.”
[14] On March 25, 2013, the Bank made a demand on Mr. Nguyen under his loan obligations.
[15] Mr. Nguyen filed a Notice of Appeal on September 23, 2013, appealing his convictions.
[16] On November 26, 2013, Justice Ricchetti heard the forfeiture application and made a forfeiture order of the Dundas property pursuant to s. 16(1) of the CDSA (“the Forfeiture Order”).
[17] On the same day as the Forfeiture Order, Mr. Nguyen filed an Amended Notice of Appeal under s. 22 of the CDSA appealing the Forfeiture Order.
[18] In a written endorsement, Justice J. A. MacPherson, of the Ontario Court of Appeal, stayed all Forfeiture Orders pending the hearing of the appeal.
[19] As of March 28, 2013, the mortgage was in default.
[20] By February 20, 2014, Mr. Nguyen owed approximately $162,766.02 to the Bank under the mortgage.
[21] Mr. Nguyen also owes taxes of at least $131,124.82 on the Dundas Property to the City of Mississauga.
THE POSITIONS OF THE PARTIES
[22] The Bank submits that the Restraint Order is still in effect, and it should be varied so that the Bank may proceed with the enforcement of the collateral mortgage. In the alternative, it seeks a declaration that the forfeiture order is now suspended and that the bank is at liberty to enforce its collateral mortgage.
[23] The Crown’s position is that the Restraint Order continues to govern the Dundas Property. The Crown agrees that a Restraint Order remains in effect until a forfeiture order is made; however, a forfeiture order is suspended pending an appeal. Further, the forfeiture order is unenforceable until 30 days have passed pursuant to s. 22 of the CDSA. Accordingly, the Crown argues that the Restraint Order remains in effect as a default, as nothing has triggered its demise. The Crown consents, on that basis, to the application by the Bank to amend the Restraint Order.
[24] Mr. Nguyen takes the position that the Bank is estopped from enforcing its collateral mortgage. He claims his property rights under the Bill of Rights are offended by the legislation. He argues that as the Forfeiture Order was made, albeit is suspended, the Restraint Order is no longer in effect.
[25] Mr. Nguyen argues that even if the Restraint Order is in effect, the Court of Appeal is currently seized of any request to vary it. Lastly, Mr. Nguyen submits the Bank failed to proceed under s. 19 of the CDSA (Controlled Drugs and Substances Act, S.C. 1996, c. 19) with regards to the forfeiture application hearing.
ANALYSIS
(1) The Purpose of a Restraint Order and a Forfeiture Order
[26] The Crown seeks a forfeiture order to hurt the criminal’s pocketbook. The Court of Appeal in Wilson v R. (1993), 1993 8665 (ON CA), 15 O.R. (3rd) 464, [1993] O.J. No. 2523 (ONCA), at para. 9 stated, “It is intended to give effect to the age old adage that crime does not pay.”
[27] The court is granted powers in a restraining order for the Crown to ‘“seize and freeze” tangible and intangible property that may be subject to forfeiture Wilson v R. ibid, para. 11.
[28] It is the defendant’s part of the property or their interest therein that is subject to potential forfeiture. The case of R. v. Am Stat [2011] O.J. No. 6197, at para. 42, cited Scotia Mortgage Corp. v. Leung 2006 BCSC 846, [2006] B.C.J. No. 1223 (B.C.S.C.) describing the legislative scheme of the CDSA as follows; “The obvious legislative goal is to forfeit only the interests of the offender and not those of the innocent third party.”
[29] Restraint orders were intended to prevent the dissipation of such property pending the disposition of criminal charges and potential forfeiture orders.
[30] A restraint order prohibits the accused from dealing with or disposing of any interest in the property. They are so restrained, as the Crown, upon conviction, intends to seek a court order for the forfeiture of the property to the Crown.
[31] Neither restraint orders nor forfeiture orders are intended to harm innocent third parties, such as the applicant Bank in this case.
[32] To that end the orders allow amendments to the restraint order, as circumstances change.
[33] In this case, Justice McMahon’s restraint order ordered “no person shall dispose of or otherwise deal with the Property”. His order recognized an exception that, “Any financial institution as defined by the Bank Act, 1991, c. 46, as amended, may take possession, repair and sell the Property pursuant to the rights assigned to it under any charge, mortgage or encumbrance that was registered prior to the date of this Order.”
[34] Paragraph 4 of his order states in particular, “Nothing in this Order detracts from the rights of a bone fide secured creditor exercising its right in relation to the Property before the registration of this Order, and the creditor meets its burden under s. 462.41 of the Criminal Code on a pre-forfeiture restoration application or its burden under s. 462.42 of the Criminal Code on a post-forfeiture relief application.”
[35] Similarly, s. 20 of the CDSA allows innocent third party applicants, such as the Bank, to seek an order from a judge declaring the interest of the applicant not affected by the forfeiture.
[36] In this case the Crown recognizes the Bank’s interest as being legitimate and does not require the Bank to pursue these s. 20 remedies.
(2) Is the Restraint Order Still in Effect?
[37] The Restraint Order was made pursuant to s. 462.33 of the Criminal Code. According to ss. 462.33(10) of the Criminal Code, a Restraint Order made under s. 462.33 remains in effect until one of the following triggers:
(a) it is revoked or varied under ss. 462.34(4) or revoked under para. 462.43(a);
(b) it ceases to be in force under s. 462.35; or
(c) an order of forfeiture or restoration of the property is made under ss. 462.37(1) or (2.01), 462.38(2) or 462.41(3) or any other provision of this or any other Act of Parliament. [Emphasis added]
[38] While there was an order of forfeiture by Justice Ricchetti, on November 26, 2013, it was not enforceable, and is stayed.
[39] The Crown argues that as the forfeiture order was not enforceable that the restraint order remains in place.
[40] The defence argues that because the forfeiture order was made the restraint order is no longer in effect.
[41] I am persuaded that the restraint order is no longer in effect once the forfeiture order was made, even though the forfeiture order was promptly appealed and stayed. I rely on the decision of R. v. Clymore (B.C.C.A.) 1992 314 (BC CA), [1992] B.C.J. No. 1588, 15 B.C.A.C. 218 where the Court found that a restraint order is no longer in force after an order of forfeiture is made, even though that Order was under appeal.
[42] The Forfeiture Order in this case was made pursuant to ss. 16(1) of the CDSA.
[43] Section 16(1) of the CDSA is subject to s. 22 of the CDSA, which provides that notwithstanding anything in the CDSA, the operation of an order is suspended pending:
(a) any application made in respect of the property under any of those provisions or any other provision of this or any other Act of Parliament that provides for restoration or forfeiture of the property; or
(b) any appeal taken from an order of forfeiture or restoration in respect of the property,
and the property shall not be disposed of or otherwise dealt with until thirty days have expired after an order is made under any of those provisions. [Emphasis added.]
[44] The Restraint Order ceases by operation of the Forfeiture Order being made. The property may not be disposed of, however, by virtue of s. 22 of the CDSA, pending appeal.
[45] Nonetheless, the effect of s. 22 can only apply to the interest which the accused holds in the property.
[46] In any event, even if I had determined that the Restraint Order remained in effect, by the terms of the Restraint Order, the Bank would have and is entitled to proceed to enforce its mortgage remedies, as the evidence clearly shows this was a bona fide mortgage made prior to the Restraint Order and the bank is an innocent lender.
(3) What is the Bank to Do with the Equity of the Property?
[47] If, by the operation of law under the legitimate rights of the mortgagee, the property must be sold by power of sale, it is only the equity in the property that is subject to Crown forfeiture. If the accused’s appeal is successful, the equity is returned.
[48] Although no case law was suggested to me by counsel on this point, this application raises the novel question of what is to be done with the proceeds sought for forfeiture after a non-state actor, in this case the Bank, exercises a power of sale. If there is equity left from the sale of the proceeds after the mortgage and property tax arrears are satisfied, the ownership of the remaining proceeds would be at issue.
[49] Until the Appeal is resolved, both the Crown and the Accused have an interest in those proceeds. In this case those proceeds would be in the hands of the bank. The bank would have an obligation to the accused as per the Mortgages Act to account for the proceeds of the sale. As the Crown has an interest they shall also be entitled to an accounting from the sale of the premises.
[50] What then is to be done with the proceeds of the remaining equity, if any from the time a sale of the property takes place until the Court of Appeal renders a ruling?
[51] As the Bank claims no interest to the net balance of proceeds, after payment of its indebtedness under the mortgage and all other prior encumbrances on title, such as outstanding property taxes, I order the Bank to pay the proceeds into court to the credit of the action. Any rights of accounting, which the accused or the Crown have, survive any such payment into court.
(4) Does the Bank have Standing?
[52] Mr. Nguyen argues, “the applicant lacks standing to bring this proceeding because it did not appear at the forfeiture application hearing, and did not make an application as required by s. 20 of the CDSA to restore its claim to an interest in the Dundas Property.” Mr. Nguyen suggests that the Bank is now barred from doing so.
[53] Mr. Nguyen states that ss. 19 and 20 of the CDSA set out an exhaustive code for how an interested party may seek relief from a pending forfeiture order.
[54] The Crown confirms that they do not dispute the Bank’s interest and did not wish or require the Bank’s attendance at the forfeiture hearing.
[55] With regards to the forfeiture application hearing, I hold the applicant was not required to appear at the forfeiture application hearing nor were they required to make an application pursuant to s. 20 of the CDSA.
[56] The Crown had advised the applicant Bank that there was no need to attend. The Crown advised that if the Bank chose not to attend they would be apprised in writing of the outcome of the proceedings. The Crown advised that if a forfeiture order was granted then the Bank would have 30 days thereafter to apply for an order declaring their interest in the property. The Crown was essentially acknowledging the Bank’s interest in the property.
[57] These sections of the CDSA are intended to allow for arguments against the Crown from seizing what belongs, in law, to another. Where, as here, the Crown acknowledges the claim of the Bank, there is nothing in these sections that then abrogates the Bank’s rights as against Mr. Nguyen.
[58] In this case, the forfeiture order was granted but immediately appealed and stayed. There was no need for the Bank to apply within 30 days under s. 20 of the CDSA when the forfeiture order was stayed and when the Crown acknowledged their interest.
[59] I find this argument has no merit.
[60] Mr. Nguyen further argues that permitting the Bank to enforce it mortgage remedies, when he himself cannot obtain refinancing and exercise his rights under the Mortgages Act to pay out the collateral mortgage offends his rights under the Canadian Bill of Rights. He argues that his s. 1(a) rights, to enjoyment of property and not to be deprived thereof except by due process of law, are being infringed.
[61] This argument is premised on his statement that, “Mr. Nguyen cannot deal with the Dundas Property until the criminal proceeding is finally disposed of.” His evidence was that, “If not for the Restraining Order and subsequent Forfeiture Order, I would have tried to obtain refinancing and exercise my rights under the Mortgages Act to pay out the Collateral Mortgage.”
[62] A similar argument was made and dismissed by the Ontario Court of Appeal in R. v Montague, 2014 ONCA 439 at para 63-65, relying on the Supreme Court of Canada in Authorson v. Canada (Attorney General), 2003 SCC 39 with regard to whether property could be expropriated by legislation.
[63] In the circumstances of this case, the accused still has his rights to put the mortgage in good standing by paying the arrears to the Bank. He has failed to do so. The Bank security is deteriorating daily as interest mounts and taxes remain outstanding. There is no credible argument why the Bank should be forced to suffer when it had nothing to do with the circumstances in which the accused now finds himself.
[64] Mr. Nguyen, finally argued, that only the Court of Appeal could deal with the Forfeiture Order.
[65] The Court of Appeal is only dealing with the matters vis-à-vis Mr. Nguyen and the Crown, however.
[66] The Bank in this case is dealing with its contractual rights regarding its own interest in the property which is unaffected by the outcome of the appeal either for the conviction or the forfeiture.
[67] This falls plainly within the jurisdiction of the Superior Court to manage such rights under the Mortgages Act.
(5) What remedy can the Bank seek so that it can enforce its collateral remedies?
[68] It is undisputed that the Bank is an innocent third party creditor that has no involvement with the criminal proceedings against Mr. Nguyen.
[69] The Restraint Order had contemplated that the Bank may need to seek action and an amendment of the order in the event of a default.
[70] The Restraining Order, however, has been supplanted by the Forfeiture order which is now stayed.
[71] It is appropriate for the Bank to seek permission of the Court, on notice to the Attorney General of Canada and the accused, as they have done, for an order allowing them to pursue their rights under the Mortgages Act.
[72] The Bank, as an acknowledged innocent third party, a bone fide secured creditor, whose mortgage payments have long been in arrears, is entitled to its remedies under the Mortgages Act.
ORDER
[73] Accordingly, based on the foregoing, the court grants the relief sought, such that the Bank may take possession of, repair, sell or otherwise deal with the Dundas Property pursuant to its collateral mortgage. Subject to further order of this court, the net proceeds of sale shall be paid into court and any rights of accounting which the accused or Crown have against the Bank survive such payment into court.
COSTS
[74] If the parties are unable to agree, the Applicant may file written submissions of three pages or less plus any costs outlines within 15 days; the respondents may file similar submissions within 15 days thereafter; the applicant may file any reply submissions, if required, within five days thereafter.
M. J. Donohue, J.
DATE: October 02, 2014
COURT FILE NO.: CV-14-1094-00
DATE: 2014-10-02
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Business Development Bank of Canada v. Her Majesty the Queen and Tan Tien Nguyen
BEFORE: M.J. Donohue, J.
COUNSEL: Mr. I. Klaiman, for the Applicant
Mr. M. McEachren, for the Respondent, Queen, and Mr. W. Morris for the Respondent, Nguyen
ENDORSEMENT
M.J. Donohue, J.
DATE: October 02, 2014