Attorney General of Ontario v. 947014 Ontario Inc. & Michael Norwood (Estate), 2020 ONSC 2945

COURT FILE NO: CV-19-00079327-0000 DATE: 20200511 SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN

Attorney General of Ontario, Applicant/Responding Party

AND

947014 Ontario Incorporated, Respondent/Moving Party

AND

Michael Norwood (Estate of), Respondent

BEFORE: The Honourable Justice Charles T. Hackland

COUNSEL: Lisa Will and Fariya Walji, for the Attorney General of Ontario Erica Tanny and Shira Brass for the Respondent (Moving Party) 947014 Ontario Inc.

HEARD: January 17, 2020

Endorsement

Background

[1] This motion arises in a forfeiture proceeding under Ontario’s Civil Remedies Act (“the Act”). The late Michael Norwood died in October 2017. At the time of his death he was awaiting trial on drug trafficking charges. Subsequent to his arrest and prior to his death, his residence was sold, as was his business, known as the “Silver Dollar Club” which he controlled through a numbered company 947014 Ontario Inc. (“the corporation”).

[2] The net proceeds of the sale of the residence ($146,225) and of the business ($840,216) have been paid into court pursuant to a Preservation Order under the Act, made by this court on October 22, 2019.

[3] The purpose of the Act is to provide civil remedies that will assist in “preventing persons who engage in unlawful activities and others from keeping property that was acquired as a result of unlawful activities”, (s.1(a)). In this proceeding the Attorney General alleges and will be required to prove, on a civil burden of proof, that the late Mr. Norwood’s residence and/or his corporation’s nightclub property were proceeds and/or instruments of unlawful activity, namely drug trafficking and possession of proceeds of crime.

Issues

[4] In this motion the corporation seeks an order from the court releasing the sum of $210,000 from the corporate funds currently under interim preservation. These funds would be utilized for legal fees and disbursements incurred and to be incurred in defence of the forfeiture application. In addition, the corporation seeks an order converting this application to an action, and certain procedural directions in reference to such an action.

Analysis

[5] Legal expenses are specifically addressed under the Act and under certain regulations. Section 5 of the Act states:

5(1) Subject to the regulations made under this Act, a person who claims an interest in property that is subject to an interlocutory order made under section 4 may make a motion to the Superior Court of Justice “for an order directing that reasonable legal expenses incurred by the person be paid out of the property”. (underlining added)

[6] Furthermore, under Ontario Regulation 91/02 the maximum allowable amount of legal expenses under section 3(1) of the Regulation is the lesser of either:

a) 15% of the value of the property; and

b) The amount that would be paid for legal services under a Legal Aid certificate in connection with a civil matter, as calculated under the General Ontario Regulations 107/99 made under the Legal Services Act, 1998.

[7] As noted, the corporation seeks the initial release of $210,000 which it proposes to set against accruing legal fees, HST and “agency disbursements” as follows:

a) $126,000 - legal fees;

b) $16,384 - HST (13%); and

c) $67,583 - “agency disbursements”.

[8] The corporation submits that the quantum of the requested payment conforms to the Act’s 15% formula for legal expenses. I would note that 15% of the sum standing in court from the sale of the corporation’s property (15% of $840216) is $126,032, which is the sum the corporation claims for legal fees.

[9] The attorney general takes the position that the Act speaks of “reasonable legal expenses incurred” and that should be understood to include not only fees but also disbursements and HST. Accordingly, the 15% formula in the Act would contemplate a maximum payment of approximately $126,000, not the amount of $210,000 sought by the corporation. Further, the Attorney General submits that the Act does not allow for an up-front lump sum retainer in as much as section 5(1) of the Act refers to legal expenses incurred.

[10] I am of the opinion that the Attorney General’s submissions are correct. The Act specifically refers to legal expenses incurred. On the plain and ordinary meaning of these terms, the reasonable legal expenses to be incurred in future are not eligible for payment under section 5(1) of the Act. Retainers for contingent legal expenses not yet incurred are not contemplated by the Act. Moreover, disbursements to be incurred in future fall within the well understood concept of legal expenses and fall within the 15% cap in Regulation 91/02. I would also note that in this case the claim for “agency disbursements” of $67,583 is simply an estimate of what an expert’s report might cost, if one were needed. This claim is entirely speculative at this point.

[11] The case law supports the proposition that the Act caps the disbursement of legal expenses to the lesser of 15% of the value of the property or the amount which would be paid under a Legal Aid certificate.

[12] However, there is recognition that the Legal Aid tariff is very restrictive in the amounts allowed for fees and, as the corporation points out in its factum, legal aid certificates are not currently granted for civil proceedings.

[13] The courts have resorted to allowing payment utilizing the 15% cap when the application of the Legal Aid tariff created difficulties or uncertainty. In (Ontario) Attorney General v. 104,877 in U.S. currency (in rem), 2014 ONSC 5688 Justice Chapnik utilized the 15% cap to authorize payment to cover an accountant’s invoice for an expert’s report and some of the legal fees incurred. However, the court limited the legal fees to the amount permitted by the cap after payment of the experts account. This case illustrates that while the court has a discretion to allow fees in reference to the cap, such fees inclusive of disbursements (such as experts reports) and any fees previously allowed, must not exceed 15% of the value of the property. Moreover, fees and disbursements must have been already incurred and not simply contemplated.

[14] In summary, the corporation’s claim for a retainer of $210,000 to be paid from the funds standing in court under the Preservation Order is dismissed, without prejudice to its entitlement to present an account for legal expenses incurred.

Conversion of the Application to an Action

[15] Section 3(2) of the Act provides that the Attorney General may commence a forfeiture proceeding by “action or application”. In this case the proceeding was commenced by way of application. This is a matter within the Attorney General’s discretion and contrary to the corporation’s submission, does displace the presumption in Rule 14.02 of the Rules of Civil Procedure that “Every proceeding in the court shall be by action…”

[16] The corporation seeks an order converting the application into an action. This is the type of relief normally sought at the hearing of an application, when a full record is before the court. I do however acknowledge that the court does have jurisdiction to deal with such a motion on an interlocutory basis, see Przysuski v. City Optical Holdings Inc., 2013 ONSC 570.

[17] The corporation submits that this matter is of considerable complexity and given Mr. Norwood’s death and the resultant absence of any adjudication on the criminal charges, it will be challenging to acquire an adequate evidentiary record to permit the respondent estate and the corporation to defend the matter. It is pointed out that the estate trustee is a professional unconnected with the underlying events and the relevant facts will need to be brought to light through the Attorney Generals productions, such that production and discovery of documents will inevitably be required.

[18] The Attorney General responds that the straight forward issue in this proceeding is whether the proceeds of the two properties in question are proceeds of unlawful activity. The case will not turn on whether or not Mr. Norwood could have been convicted of the alleged drug trafficking.

[19] Counsel advise that eight volumes of documents were filed with the court in support of the interlocutory Preservation Order, which ultimately proceeded on consent.

[20] In any event, this proceeding is at a very early stage. The Attorney General has not yet filed the required application record. It is therefore not clear what the factual and evidentiary issues will actually be. It may be that this proceeding will ultimately require the trial of certain issues. Every effort will be made in case management to narrow such issues. It remains to be seen what affidavit evidence the Attorney General will put forward. Cross examinations are to be expected.

[21] I am of the opinion that it is premature to consider whether this application should be converted to an action. The Attorney General should proceed in a timely fashion to serve their application record. In the circumstances of the current pandemic, I am reluctant to set specific timelines. Importantly, Rule 14.05 governing applications has recently been amended to provide the court with enhanced powers of adjudication and case management similar to Rule 20 governing summary judgements. The case management process should also be allowed to take its course and a timetable and procedural orders can be established in that context.

[22] The motion to convert this application to an action is dismissed without prejudice to a possible future consideration of this relief.

Other Creditors

[23] At the return of this motion, counsel for one J.K. addressed the court to explain that his client was the holder of a court judgement in the sum of $125,000 against the corporation. This was the result of a of an action arising from J.K. being shot at the corporation’s Silver Dollar Club premises. Counsel advised that he had the consent of the Attorney General to have this judgement paid out of the funds under preservation. Counsel for the Attorney General confirmed their consent to this payment. Counsel for the corporation took the position that all potential creditors should be given notice before the court authorized any requested payments. There was said to be a CRA tax liability of $162,818. Counsel for J.K. provided correspondence establishing that CRA had been notified of his clients request for payment of his judgement.

[24] The total funds currently held by the Accountant of the Superior Court under the Preservation Order approximate $990,000, an amount well in excess of the total claims of any known creditors. I exercised my discretion to authorize payment of J.K.’s judgement.

Costs

[25] In the exercise of my discretion, there will be no costs of this motion.

Date: May 11, 2020 Justice Charles T. Hackland

Released: May 11, 2020