Court approved payment of proceeds from seized asset before it was ruled proceeds of crime

The Attorney General cannot enter into a settlement and pay out money from a police-seized asset unless the asset has first been determined by a court to be the proceeds of crime, the Ontario Court of Appeal has found.

When he died, Michael Norwood was awaiting trial on drug-related criminal offences. The charges stemmed from a major drug trafficking investigation dubbed Project Bartlow, which led to the arrests of 29 people, including Hells Angels members and two Correctional Service Canada officers.

The investigation also led to the seizure of two properties owned by Norwood: a strip club called the Silver Dollar, and the Ottawa home he had owned since 1993. The property was later sold with Norwood’s consent and the proceeds were paid into Canada’s Seized Property Management Directorate.

After Norwood’s death, Canada terminated the forfeiture proceedings. But before the money could be returned to the estate, the Attorney General of Ontario initiated its own forfeiture proceedings, under the Civil Remedies Act.

Norwood’s mother Rosa then claimed a financial interest in the sold house. Rosa said she had given her son $138,000 in the mid-1990s, which he had used to renovate and create an apartment for her to live in.

Ontario moved for approval of a proposed settlement with Rosa, worth $120,000 and pursuant to s. 18.1 of the Act. Norwood’s estate and a company he controlled prior to his death, 947014 Ontario Inc., opposed the motion. The estate argued that, by hearing the motion before it could challenge the forfeiture proceedings, the court was effectively depriving it of a defence to the forfeiture.

But the motion Judge, Superior Court Justice Charles Hackland, granted an order approving Rosa’s settlement. The estate and 947014 Ontario Inc. appealed.

The appellants argued Justice Hackland erred in approving the settlement agreement before Ontario’s forfeiture claim was judicially determined successful.

“If the police seize some money that they say or think are proceeds of crime, the Attorney General shouldn't be able to give that money to anybody until after a court finds that it is proceeds of crime,” says Geoffrey Adair, founding partner of Adair Goldblatt Bieber LLP, who acted for the appellants.

In a decision released Tuesday, Court of Appeal Justices Grant Huscroft, David Paciocco and Mahmud Jamal found that the “so-called ‘settlement’” was not a settlement in the meaning of the Civil Remedies Act and could not be subject to judicial approval under s. 18.1.

The Canadian Constitution Foundation was an intervenor in the appeal. Jessica Kuredjian, a litigator at Cassels Brock and Blackwell LLP and counsel for the CCF, said the organization got involved to ensure the statutory limits in Ontario's Civil Remedies Act were respected.

"Civil forfeiture is an extremely powerful tool in the government's toolbox," she says. "And because of the power of that tool, there need to be clear direction on how it can be applied. Civil forfeiture does not just apply to criminals, it can also be used to take the assets of individuals who have never been charged, or even suspected, of a crime."

"This case is just one example of how far the government is willing to go to expand their power to seize private property."

Writing for the panel, Justice Paciocco said the outcome would have been different had Justice Hackland determined the proceeds from the sale of the house were “proceeds and/or instruments of unlawful activity” and “forfeiture was not clearly contrary to the interests of justice.”

That finding would have given Ontario a “higher right” to the property “to the exclusion of all others,” said Paciocco. Ontario and Rosa then could have entered into an agreement resolving her property interests.

“Put simply, absent a finding of unlawful activity, there was no “settlement in relation to a proceeding under [the] Act” between Ontario and Rosa for the motion judge to approve” he said.