R. v. Sheldon, 2011 ONCJ 566

COURT FILE No.: Dufferin County (Central West Region) DATE: 2011·10·26 Citation: R. v. Sheldon , 2011 ONCJ 566 ONTARIO COURT OF JUSTICE BETWEEN: HER MAJESTY THE QUEEN Applicant — AND — SHANE SHELDON AND LORRAINE MAE SHELDON Respondents Before Justice Douglas B. Maund Heard on August 4 th , 2011 and September 16 th , 2011 Reasons for Judgment released on October 26, 2011 J. Heiberg and B. Neil .................................................................................... for the Federal Crown S.

Krys ........................................................................... for the Respondent Lorraine Mae Sheldon R U L I N G Maund, J.: [ 1 ] This proceeding is an application on behalf of the Attorney General of Canada for forfeiture of offence-related property pursuant to

Section 16 of the Controlled Drugs and Substances Act (“The CDSA”). [ 2 ] Lorraine Mae Sheldon participated in the hearing of this Application on August 4 th and September 16 th , 2011 and was represented by counsel. The other Respondent, Shane Sheldon, did not take

part in this proceeding. Shane Sheldon had proper notice of this Application and was represented by counsel, Mr. Christie, when the date for this hearing was set. At the commencement of this hearing Mr. Christie did not appear with Shane Sheldon who was still serving a term of incarceration on August 4 th . The Court was subsequently advised by counsel for Lorraine Mae Sheldon, Mr. Krys, that he was advised by Mr. Christie that neither he nor Shane Sheldon would be participating.

Shane Sheldon did not subsequently attend this proceeding. [ 3 ] On the second day of the hearing, September 16 th , 2011, the Court was advised that Shane Sheldon had been released from custody. He was paged by the Court and did not appear. The Court was further advised that the common-law spouse of Mr. Sheldon, Bonnie Grey was the only other known adult resident at the residence in question. Ms. Grey was paged at the commencement of both hearing dates and did not appear to take

part in the Application at any time. T H E I S S U E S [ 4 ] At the outset counsel on behalf of Lorraine Mae Sheldon conceded that the residential property at 224 Victoria Street in Shelburne was “offence-related property” as defined in

Section 2 of the CDSA. Counsel for the Crown conceded in argument that there is no indication that Lorraine Mae Sheldon was ever complicit or in collusion with her son, Shane Sheldon at any time with respect to his illegal dealings in cocaine from the residence. There was no suggestion that Mrs. Sheldon had any knowledge of this or any other illegal activity on the part of her son in connection with her house. Indeed she testified that she would have forced him and his family out of the house if she ever had any indication that he was dealing in illegal drugs. [ 5 ] The Crown therefore concedes that Mrs. Sheldon is “innocent of any complicity (in the offence) or of any collusion in

relation to such an offence” as referred to in Section 19(3) of the CDSA. Despite being the registered and apparent lawful owner of the property and her lack of complicity, the Crown argues that Mrs. Sheldon is not entitled to relief under that section. The theory of the Crown is that Shane Sheldon was in fact the “beneficial owner” of the residence. The Court must also consider whether

section 19.1(4) of the CDSA has legal relevance to these facts

SUMMARY OF THE FACTS [ 6 ] On May 5, 2011, Shane Sheldon was found guilty on three counts of trafficking cocaine and one count of possession of cocaine for the purpose of trafficking contrary to Sections 5(1) and 5(2) respectively of the Controlled Drugs and Substances Act. The factual foundation for the findings of guilt on those offences was set out in the admitted facts submitted to the Court which are contained in the transcript of the proceedings in Exhibit ‘1”.

Shane Sheldon participated in a series of transactions wherein he supplied cocaine to an undercover police officer in the spring of 2010 in the Town of Shelburne. According to the agreed facts, as well as the evidence of the undercover officer, Detective Nathan Moyle, five of these illegal transactions occurred on or inside the residence occupied by Mr. Sheldon and his wife and children at 224 Victoria Street, Shelburne, Ontario. [ 7 ] On July 6 th , 2010, members of combined police forces executed a search warrant at 224 Victoria Street in Shelburne.

The police executed the warrant and seized a quantity of drugs which included quantities of cocaine and marijuana as well as paraphernalia which is often associated with the trafficking of illicit drugs including digital scales, debts lists and packaging with drug residue. [ 8 ] The evidence of the undercover officer was that on the date of his last transaction with Mr. Sheldon on June 9 th , 2010, he spoke generally with Mr. Sheldon about housing prices in Shelburne and area.

He testified that this conversation was consistent with his cover story that he had moved to the Shelburne area to look for work and wanted to live in a small town atmosphere. Detective Moyle told Mr. Sheldon that he thought that his residence was a nice home and asked him if he owned the house. His recollection was that Mr. Sheldon told him that it was technically his mother’s house but she had not been able to afford the mortgage payments so he took them over. The officer indicated that they did not get into specifics as to what Mr. Sheldon meant. He added that Mr.

Sheldon said he had paid down the mortgage on the house by one-half and had lived there for approximately ten years. Detective Doyle subsequently acknowledged that his notes with respect to this conversation were made sometime later that evening when he met with his handler and were not verbatim. Essentially he believed that Mr. Sheldon implied that he was the defacto owner of the residence. [ 9 ] Shane Sheldon was subsequently sentenced by this Court pursuant to his pleas of guilty. [ 10 ] The registered owner of 224 Victoria Street in Shelburne is Lorraine Mae Sheldon, the mother of Shane Sheldon. Mrs.

Sheldon purchased the property in 1999 for the sum of $110,000.00 according to registered Land Registry documents. The Honourable Justice R.G. Thomas of the Superior Court of Justice ordered that the property be restrained on October 6 th , 2010. The Restraint Order was registered on title to the property on March 14 th , 2011. [ 11 ] The Respondent, Lorraine Mae Sheldon testified over the course of two days. She is fifty-nine (59) years old and has been unemployed since being laid off by Chrysler Canada. Mrs. Sheldon is substantially disabled and in poor health.

Her disabilities include nerve damage to her leg from a surgical procedure twenty years ago as well as osteoarthritis which causes pain in her hips and knees. She had substantial difficulty walking into the courtroom and sitting comfortably during her testimony. [ 12 ] As already noted in the preliminary facts, Mrs. Sheldon purchased the residence at 224 Victoria Street in Shelburne in 1999 and since that time she has maintained a first mortgage with the Royal Bank of Canada which is still outstanding. The balance owing is approximately $55,000.00. Mrs.

Sheldon indicated that she lived for approximately one or one and a half years at the house on her own before moving out. In her evidence-in-chief she testified that she was unable to look after the house properly as a single disabled woman and she also found the front steps difficult to navigate. However her intention was to continue to own the home as an investment. The Respondent is of limited means and this residence was and is her only investment of any value. [ 13 ] Her intention when she moved from the property was to rent it for a period of time and possibly sell it in the future.

It was on that basis she said that she rented the house to her son Shane Sheldon to occupy it with his common-law spouse, Bonnie Grey and their children. The original informal arrangement was that Shane was to pay an amount sufficient to pay her mortgage and she would be responsible for the taxes and insurance as well as major repairs.

[ 14 ] Mrs. Sheldon indicated in her evidence-in-chief that she paid her son some of the cost of roofing repairs on the property. In any event, Shane Sheldon never paid the taxes or insurance on the home. This answer was later qualified when she acknowledged that Shane paid, at some point, the tax amount part of the blended mortgage payment. [ 15 ] She believed such payments were rent for the occupancy by her son and his family on the property. These varied during the time that they lived there.

Despite what may have been the original arrangement Shane Sheldon subsequently did not pay the entire mortgage payment and was often well short of this amount. Usually payments from her son were paid to her in cash which she deposited into her bank for the automatic withdrawal of the mortgage. [ 16 ] Mrs. Sheldon brought her Royal Bank statements for the period commencing October 1999 with some gaps in the history. She attempted to highlight the amounts which she believes reflect the monies paid to her by her son.

Mortgage payments in the early years were made once per month and then became twice per month when her deduction schedules were changed by the bank. These statements were entered into evidence as Exhibits “2a”, “2b” and “2c”. [ 17 ] The witness testified that the payments from Shane Sheldon were interrupted from time to time when her son and his family encountered financial difficulties. This put her account into overdraft but she permitted them to catch up later when they were able to do so. Some arrears remained outstanding altogether and were forgiven.

She did not want to add to the distress of her son’s family. [ 18 ] In the event that her son and his family had decided to move, Mrs. Sheldon indicated that her intention would have been to continue renting the property or possibly to sell it. She, in fact, very nearly sold the property around the time that Mrs. Grey lost her job but decided that she would not compel the family to leave the house in those circumstances. [ 19 ] During most of the time that her son lived at the home, she understood that he was fully employed as an insulation installer.

While she was aware of his financial difficulties, she had no knowledge of the drug dealings on his part. She testified unequivocally that she would have evicted Shane Sheldon if she had any information about his illegal activities. [ 20 ] Mrs. Sheldon testified that while she permitted her son and his family to remain in the residence, she never believed that her son was the owner of this property. This simply did not occur to her. She wanted to provide a secure home for her grandchildren. But she never anticipated there would be any circumstances when the property would be eventually sold to her son.

She did not believe that Shane would ever be in a position to purchase the property from her. [ 21 ] On cross-examination Mrs. Sheldon indicated that the rental arrangements were informal. She reiterated that as she was unable to occupy the home and her son and his family had financial problems, she rented the house to them to help them out. If they were behind in the payments she generally ended up covering what they were unable to pay from her own resources. Sometimes she borrowed money or used her line of credit.

Contrary to her evidence-in-chief, the witness indicated on cross-examination that initially her son had paid the full amount of the mortgage payment which included the tax component. It was some time into their occupancy that she changed her practice and began paying taxes directly to the Town of Shelburne. The witness expressed confusion about these arrangements. [ 22 ] On the issue of repairs, Lorraine Mae Sheldon testified on cross-examination that her son paid for some of the repairs and she contributed money toward their cost. One example was tiling repairs at the home.

Her son paid for minor alterations to the home such as painting and tearing down the deck. Counsel reviewed the bank statements with Mrs. Sheldon extensively. The witness referred to a number of occasions during the history of her mortgage account when she was left in an overdraft position. She indicated that after 2000 she herself was experiencing financial difficulties waiting for insurance benefits to be paid. Mrs. Sheldon also sustained several serious operations during the period after 1999 and suffered and continues to suffer from depression.

Accordingly her recollection about her financial arrangements was not entirely clear. [ 23 ] Mrs. Sheldon reiterated that she had moved out of the house because of a concern about the basement stairs which lacked a handrail. She also had difficulty with the cement front steps and the height of the banister. [ 24 ] The witness acknowledged that when she renegotiated her mortgage with the bank in 2004 and 2008 she did not mention a rental arrangement on her application. However, she stated that she may have mentioned to the bank officer that her son was staying on

the property and making some payments to her. The fact that she was a party to what the bank would call an “owner occupied mortgage” did not have any significance to her. In any event she was certain that she told the bank that her son was living there. She did not perceive the payments from her son as income. Nor did Mrs. Sheldon indicate this as income on her tax returns. She says that she asked her accountant or tax preparer whether she needed to disclose this as income on her return and was told she did not need to do so. Mrs.

Sheldon also testified that she did not declare the municipal property tax for tax purposes. It was unclear whether she understood that she had that option. [ 25 ] When asked by the Crown whether accelerated mortgage arrangements made financial sense Mrs. Sheldon testified that she felt that the bank were the experts and she simply followed their direction in that regard. In any event, she continued to suffer from depression and did not give these and other arrangements involving the mortgage a great deal of thought at the time. [ 26 ] In

summary the position of Lorraine Mae Sheldon was that she tolerated this flexible and disorganized financial arrangement with her son to permit his family to remain in the house. She had no intention or sense that he was or might be considered the owner of this residence. In her words “I kept the house. The house isn’t his.” [ 27 ] Lorraine Mae Sheldon presented during her evidence as an unsophisticated person who was both disorganized and demoralized in attempting to explain her financial dealings as the owner of this property.

The arrangements with her son, Shane Sheldon, were informal to the point where she tolerated his sporadic and inconsistent payments. Ms. Sheldon stressed that she was coping during this decade with a series of severe medical issues and operations as well as depression. Despite this, she recognized and maintained her responsibility to keep the mortgage, taxes and insurance paid monthly. However she barely managed to cover these costs from her own resources and whatever payments were received from her son month by month. [ 28 ] Mrs.

Sheldon had no understanding of certain financial concepts put to her on cross-examination by the Crown such as the nature of accelerated mortgages and her income tax options in dealing with this property. She was a completely unsophisticated in relation to her affairs. [ 29 ] Finally the Crown introduced into evidence the income tax records of Shane Sheldon for the period from 2003 to 2009. Exhibit “5” includes only partial copies of the returns filed by Mr. Sheldon for those years. It appears that he claimed the municipal property taxes at the Victoria Street residence for the 2007 and 2008 taxation years.

A N A L Y S I S [ 30 ] I will first deal with the potential impact upon

section 19.1(4) of the CDSA which reads as follows: “

(4) Where all or part of the property that would otherwise be forfeited under Subsection 16(1) or 17(2) is a dwelling-house, when making a decision under Subsection (3), the court shall also consider (

a) the impact of an order of forfeiture on any member of the immediate family of the person charged with or convicted of the offence, if the dwelling-house was the member’s principal residence at the time the charge was laid and continues to be the member’s principal residence; and (

b) whether the member referred to in paragraph (

a) appears innocent of any complicity in the offence or of any collusion in relation to the offence, 2001, c.

32, 2.53” [ 31 ] This

section relates to forfeiture of a dwelling house. At all relevant times, it was the principal residence of Shane Sheldon, his common-law spouse, Bonnie Grey and their children. Neither Ms. Grey nor Mr. Sheldon took

part in this Application, as I have noted. It was not the actual principal residence of Lorraine Mae Sheldon at the time of the offences and is not at present. Mrs. Sheldon has resided in rental accommodation since her son first occupied the home. [ 32 ] “Principal residence” is not defined in the CDSA. In my view, the term must refer to the fact of actual and primary residence. Lorraine Mae Sheldon never occupied the property or intended to do so at that time and after the charges were laid. As such I cannot find that she is entitled to the benefit of

Section 19.1(4) in relation to forfeiture. “Principal residence” must be given its ordinary meaning. [ 33 ] The main issue to be determined is whether Mrs. Sheldon is the “lawful owner” of the residence and entitled to relief from forfeiture pursuant to Section 19(3) of the CDSA which reads as follows: “

(3) Where a court is satisfied that any person, other than

a) a person who was charged with a designated substance offence, or

b) a person who acquired title to or a right of possession of the property from a person referred to in paragraph (

a) under circumstances that give rise to a reasonable inference that the title or right was transferred for the purpose of avoiding the forfeiture of the property, is the lawful owner or is lawfully entitled to possession of any property or any part of any property that would otherwise be forfeited pursuant to an order made under subsection 16(1) or 17(2) and that the person appears innocent of any complicity in an offence referred to in paragraph (

a) or of any collusion in relation to such an offence, the court may order that the property or part be returned to that person.” [ 34 ] As already noted and the Crown concedes, Lorraine Mae Sheldon is innocent of any complicity in these offences. [ 35 ] The Crown was unable to assist the Court in argument to fully understand their legal theory that Shane Sheldon was “beneficial owner” of the property. The Court was referred to the concept of “beneficial ownership”, as it is understood in statutes such as The Income Tax Act (Ontario) . The term “beneficial owner” does not appear in the CDSA. The potential application of this term does not appear to be a matter of

interpretation of provincial or federal tax statute. Rather what the Crown appears to argue in support of their theory is the common law concept of constructive or equitable trust. Black’s Law Dictionary (5 th Edition) defines beneficial owner in this way: “Term applied most commonly to cestui que trust who enjoys ownership of the trust or estate in equity, but not legal title which remains in trustee or personal representative. Equitable as contrasted with legal owner. One who does not have title to property but has rights in the property which are the normal incident of owning the property.

The persons for whom a trustee holds title to property are the beneficial owners of the property, and the trustee has a fiduciary responsibility to them.” [ 36 ] The argument by the Crown appears to be a novel one. I have been unable to find, nor have I been referred to any caselaw on point in relation to the forfeiture provisions of the CDSA. Nor was I referred by counsel to any civil authority. Absent case authority, I am left to consider the concept of beneficial ownership as it is understood in the common law.

While forfeiture of offence- related property is presumptive pursuant to the forfeiture sections of the CDSA, Lorraine Mae Sheldon as the purchaser and registered owner is prima facie the lawful owner of this property. Only persuasive and compelling evidence would persuade the Court that she is not the lawful owner. Her registration on title announces her lawful ownership of the property.

The question then becomes whether there is any evidence which might establish that Shane Sheldon would be entitled to claim a common law interest in the property in constructive trust or from a resulting or equitable trust of some nature.

[ 37 ] The arrangement whereby Mrs. Sheldon permitted her son and his family was motivated by her concern for his family. It was not a formal financial arrangement. While she referred to it as a rental, the arrangement lacked the formality of a tenancy. The payments varied and for some periods were never made at all. Mrs. Sheldon never pressed for arrears due to concern for her grandchildren and the health of Mrs. Grey. After the first year or so, such payments as were received were not sufficient to even cover the costs of the mortgage.

They were clearly low and appear well below normal occupancy rent which might be expected for such a residence. Payment for taxes, insurance and payment over the entire term of occupancy were substantially paid by Mrs. Sheldon despite some payments by Shane Sheldon which did cover taxes during some periods. [ 38 ] Having reviewed the evidence, I cannot agree that Shane Sheldon’s contributions to the maintenance of this property would allow him to successfully claim a common law interest by way of trust. The occupancy value to Mr. Sheldon and his family significantly exceeded any contributions he may have made.

Nor was there any understanding or agreement from which the son might understand he was to become the ultimate owner. [ 39 ] The Crown argues that the disorganization of Mrs. Sheldon in her records and tax and mortgage dealings supports their submission. I respectfully disagree. She was, as I have noted, entirely unsophisticated and in ill health during much of this period. Lorraine Mae Sheldon may have had no understanding of what an owner occupied mortgage might be but believes she told the bank her son lived there and paid her some money.

Nor does the fact that she did not use her severance to pay down her mortgage or the fact that she passively agreed to accelerated mortgage payments as proposed by the bank support the theory of the Crown. I mean no disrespect to Mrs. Sheldon when I say that I believe that this lady would have signed, without inquiry, any document presented to her by her bank when she renewed her mortgage. [ 40 ] Mrs. Sheldon also did not report the monies paid by her son as income on her income tax. Given the informality of the arrangement, she did not consider it rental income.

In any event, she says she informed her accountant about this. She also did not claim the benefit of municipal taxes in her tax return. I am unclear what, if any, tax advice Mrs. Sheldon received in these matters. But none of her actions indicate to this Court that she had divested her ownership rights of this property to her son. [ 41 ] The Crown submits that the failure of Shane Sheldon to appear and to take

part in this hearing must lead to an adverse inference in relation to the position of his mother. I make no such inference. The interests of Lorraine Mae Sheldon and Shane Sheldon are not the same. It is entirely speculative whether Shane Sheldon might or might not have supported his mother’s position if he had attended and given evidence. [ 42 ] The Crown also submits that the fact that Shane Sheldon apparently claimed the municipal taxes on his income tax for two years when he occupied the house supports the position that he was beneficial owner. I have no evidence of why Mr.

Sheldon chose to submit his tax filing in that way or whether he had any advice before doing so. His unilateral decision to do so does not support whether he might be entitled to claim a trust interest in this property. [ 43 ] Finally, I will deal with the statement attributed to Shane Sheldon by the undercover officer. The statement was not verbatim but Detective Moyle was left with the impression that Mr. Sheldon considered himself to be the owner.

Whatever words may have been said by Shane Sheldon, I am not prepared to accept as reliable words which might equally have been empty bragging by this drug dealer to a customer. The undercover officer was trying to impress the dealer in his assumed role. The drug dealer may have had his own reasons for trying to impress his customer. I simply cannot find that there was anything cogent or reliable in this verbal exchange during a drug deal which supports the position of the Applicant. Even if Shane Sheldon had such a belief, I find it completely unsupported by the evidence.

C O N C L U S I O N [ 44 ] Assuming, without necessarily finding, that the Crown’s theory that beneficial ownership might succeed in displacing the status of a party as a “lawful owner” as described in the CDSA, this Court would only be so persuaded by clear evidence. None of the evidence before me is persuasive that Shane Sheldon had any interest as a beneficial owner of the property at 224 Victoria Street in Shelburne. Lorraine Mae Sheldon is the lawful owner and the sole party entitled to the rights of ownership. [ 45 ] Lorraine Mae Sheldon is an entirely innocent party.

I cannot imagine that the forfeiture provisions of the CDSA were intended by Parliament to deprive a disabled woman of limited means of her only asset on uncertain and unproven facts such as these. To so find, in my view, would be manifestly unjust. Section 19(3) of the CDSA is discretionary. In the circumstances, the only equitable and fair disposition is to order that all of the property be returned to Lorraine Mae Sheldon. She is entitled to relief from forfeiture under that subsection. [ 46 ] This Court Orders that:

a) While the property located at 224 Victoria Street, Shelburne, Ontario would otherwise be forfeited pursuant to Section 16(1) of the Controlled Drugs and Substances Act, the said property shall be returned to Lorraine Mae Sheldon;

b) The restraint order of the Superior Court of Justice dated October 6 th , 2010 is vacated and shall be removed from title to the property;

c) Either the Crown or the Respondents may apply to this Court for directions concerning this order, if required, on seven days notice. Released: October 26 th , 2011 _________________________________ Justice Douglas B. Maund