Docket: CACV2102 The Director under The Seizure of Criminal Property Act, 2009 Appellant (Applicant) - v. -, 2012 SKCA 44

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 44 Date: 20120410 Between: Docket: CACV2102 The Director under The Seizure of Criminal Property Act, 2009 Appellant (Applicant) - and - David Wayne Mihalyko and Chief of Police of Regina Police Services Respondents (Respondents) Coram: Cameron, Vancise and Richards JJ.A. Counsel: James G. Fitz-Gerald for the Appellant Bradley D. Tilling for David Wayne Mihalyko D. Neil Robertson, Q.C. for Chief of Police of Regina Police Services

Appeal: From: 2011 SKQB 170 Heard: December 6, 2011 Disposition: Appeal allowed Written Reasons: April 10, 2012 By: The Honourable Mr. Justice Vancise In Concurrence: The Honourable Mr. Justice Cameron The Honourable Mr. Justice Richards Vancise J.A. I. Introduction [ 1 ] The Director under The Seizure of Criminal Property Act, 2009 , S.S. 2009, c. S-46.002 (the “ Act ”) appeals a decision of the Court of Queen’s Bench dismissing his application for forfeiture to the Crown of a 1998 Chevrolet Blazer and a Samsung cell phone as instruments of unlawful activity. This appeal concerns only the forfeiture of the Blazer. [ 2 ] The issue is narrow and centers on or revolves around an

interpretation of s. 7(1) of the Act , that is, whether it “clearly would not be in the interests of justice” that the property which was an instrument of unlawful activity be forfeited to the Crown. [ 3 ] For the reasons that follow, I conclude that the chambers judge erred in finding that the proposed seizure was not in the interests of justice and ordering the Blazer be returned to the respondent Mihalyko. II.

Facts [ 4 ] The facts are not in dispute but, as will be seen, are not the best facts to base an order for forfeiture of assets that are an instrument of unlawful activity. [ 5 ] On September 19, 2010, David Mihalyko, the respondent, was broke and had no gas in his truck but had some Oxycontin tablets which had been legally prescribed for him as a result of an injury he suffered to his foot.

On that night, he decided to drive to the “stroll,” an area frequented by prostitutes and drug addicts to sell some Oxycontin, a prescription drug commonly known as the poor man’s heroine. [ 6 ] On arriving at the stroll, he asked a woman, who he assumed was a prostitute, if she knew anyone who was “looking to buy oxy 80’s.” She asked if he had a phone number and he informed her that his name was Dave and his phone number was 551-2828.

The person he assumed was a prostitute was in fact an undercover police officer who was working the stroll on a “solicitor John operation.” Her supervisor decided to do a “buy bust” operation and she called the number given to her by Dave and agreed to buy two tabs of Oxycontin for $60. [ 7 ] The respondent drove back to the stroll and sold two tablets of Oxycontin 80 to the undercover police officer for $60. He immediately drove to a gas station where he put $63 worth of gas in his truck.

He was arrested almost immediately and charged with trafficking in a controlled substance contrary to s. 5(1) of the Controlled Drugs and Substances Act , S.C. 1996, c. 19. The Blazer and cell phone were seized when he was arrested and have remained in the possession of the Crown since. [ 8 ] The respondent pled guilty to the charge of trafficking in a controlled substance and received a conditional sentence of nine months. He concedes that the Blazer and cell phone are “instruments of unlawful activity.”

III. Issue [ 9 ] The sole issue on this appeal is whether it clearly would not be in the interests of justice that the property which was an instrument of unlawful activity be forfeited to the Crown. To that end, I must interpret s. 7(1) of the Act and the phrase “clearly would not be in the interests of justice.” For ease of reference, the

section states as follows: 7(1) Subject to

section 8, and unless it clearly would not be in the interests of justice, the court shall make an order forfeiting property to the Crown if the court finds that the property is proceeds of unlawful activity or an instrument of unlawful activity. IV. The Decision of the Court of Queen’s Bench [ 10 ] The chambers judge noted that there had been no judicial

interpretation of s. 7(1) of the Act in this province. There have been a number of cases where the Director has seized the property of an accused but this is the first time that the seizure has been contested. The Chief of Police in his factum noted that there had been at least ten seizures and forfeitures in the City of Regina alone since 2010.

This is the first time however that an owner of seized property contested the seizure of his property. [ 11 ] The chambers judge stated that proportionality and fairness are the dominant considerations in deciding whether forfeiture is in the interests of justice and that the interests of the state are to be balanced against the interests of the respondent. [ 12 ] He identified the issue as whether the seizure of the vehicle is proportionate to the offence. [ 13 ] He found the vehicle was valued at between $4,750 and $7,500 and that the respondent was a person of modest means.

After a review of the evidence, he found the respondent was not a regular trafficker of Oxycontin and that the transaction was of isolated incidents brought on by his impecuniosity. In the chambers judge’s opinion, the seizure and potential forfeiture was “significant and disproportionate to the offence of illegally selling two Oxycontin tablets for $60.00.” [ 14 ] He therefore concluded that “the proposed seizure of the Blazer is not in the interests of justice” and ordered it be returned to the respondent. No one seriously questioned the seizure of the cell phone and he ordered that the cell phone be forfeited.

V. Analysis [ 15 ] The Director identifies the issues on the appeal as follows: (

a) The chambers judge erred in failing to find that the respondent had the onus or burden to establish that the forfeiture was not “clearly” in the interests of justice and further erred in failing to find that the respondent had failed to meet the onus; (

b) The chambers judge failed to properly consider the relevant factors required to satisfy the criteria for a finding that forfeiture was not clearly in the interests of justice; and (

c) The chambers judge failed to consider the public interest in deciding whether the forfeiture was “clearly” in the interests of justice. [ 16 ] The Chief of Police joined the Director in support of the application to approve the seizure and forfeiture and to set aside the decision of the chambers judge. [ 17 ] The purpose of the Act is to discourage unlawful activity and to compensate the victims of crime. This purpose is accomplished by the use of civil forfeiture of property gained by or used in unlawful activity.

The proceeds from the sale of the forfeited property are then used to provide compensation to victims and to recover the costs incurred in the seizure. (Saskatchewan, Legislative Assembly, Debates and Proceedings ( Hansard ), No. 18A (25 November 2008) at 1837) [ 18 ] These purposes were accepted as legitimate by the Supreme Court of Canada in Chatterjee v. Ontario (Attorney General) , 2009 SCC 19 , [2009] 1 S.C.R. 624 when considering the constitutionality of the Ontario Civil Remedies Act, 2001 , S.O. 2001, c. 28 (“ CRA ”) on which the Saskatchewan legislation is modeled. Binnie J. stated:

[4] Moreover, the CRA method of attack on crime is to authorize in rem forfeiture of its proceeds and differs from both the traditional criminal law which ordinarily couples a prohibition with a penalty (see Reference re Firearms Act (Can.) , 2000 SCC 31 , [2000] 1 S.C.R. 783) and criminal procedure which in general refers to the means by which an allegation of a particular criminal offence is proven against a particular offender.

The appellant's answer, however, is that the effect of the CRA in rem remedy just adds to the penalties available in the criminal process, and as such the CRA invalidly interferes with the sentencing regime established by Parliament. It is true that forfeiture may have de facto punitive effects in some cases, but its dominant purpose is to make crime in general unprofitable, to capture resources tainted by crime so as to make them unavailable to fund future crime and to help compensate private individuals and public institutions for the costs of past crime. These are valid provincial objects.

There is no operational conflict between the forfeiture provisions of the Criminal Code , R.S.C. 1985, c. C-46, and the CRA . It cannot reasonably be said that the CRA amounts to colourable criminal legislation. Accordingly, I would dismiss the appeal. … [23] In essence, therefore, the CRA creates a property-based authority to seize money and other things shown on a balance of probabilities to be tainted by crime and thereafter to allocate the proceeds to compensating victims of and remedying the societal effects of criminality.

The practical (and intended) effect is also to take the profit out of crime and to deter its present and would-be perpetrators. A.

Onus and Burden of Proof [ 19 ] The Director argues that the chambers judge failed to decide who bears the onus or burden to establish that it clearly would not be in the interests of justice to permit the forfeiture of the respondent’s property. [ 20 ] The chambers judge referred to the question of onus in para. 14 of his decision by stating that the Director argued that after the property has been shown to be an instrument of unlawful activity, the onus of proving that it would not be in the interests of justice to grant forfeiture rests with the owner.

Unfortunately, the chambers judge did not address or return to the issue. [ 21 ] It is however implicit that having accepted that the property was an instrument of unlawful activity the chambers judge accepted the onus had shifted to the respondent and, in the end, found the respondent had satisfied the onus required pursuant to s. 7(1) of the Act . The question of onus was considered in Ontario (Attorney General) v. 1140 Aubin Road (Windsor) , 2011 ONCA 363 , 333 D.L.R. (4th) 326 (“ McDougall ” ) when considering the “legitimate owner exception” under the CRA .

Doherty J.A. stated at para. 58 that “[t]he statute is crystal clear.

The party relying on the ‘legitimate owner’ exception bears the burden of proving that the exception applies.” That analysis, in my opinion, is equally applicable to the onus required of a claimant to an exemption pursuant to s. 7(1). [ 22 ] Similarly here, once the property has been found to be either proceeds of unlawful activity or an instrument of unlawful activity, the party relying on the exception that it clearly would not be in the interests of justice to make the order for forfeiture bears the burden of proving that the exception under s. 7(1) applies.

This is consistent with the general presumption in the construction of statutes that the person seeking the benefit of an exception bears the onus of establishing that exception.

See: Ruth Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham: LexisNexis, 2008) at p. 483. [ 23 ] In my opinion, a finding that the burden shifts to the owner or rests with the owner after the Director has established the criteria entitling him to an order for forfeiture to prove the exemption on a balance of probabilities is also consistent with judgments dealing with similar legislation in Ontario (see: McDougall, supra at paras. 16-18) and Alberta (see: Alberta (Minister of Justice and Attorney General) v.

Sykes , 2011 ABCA 191 , 334 D.L.R. (4th) 193 at para. 46 ). [ 24 ] The issue is therefore reduced to whether the chambers judge was correct in finding that the proposed seizure clearly would not be in the interests of justice. B. Interests of Justice Analysis [ 25 ] The reasons given by the chambers judge for finding that it “would not be in the interests of justice” to allow the forfeiture are as follows: (

a) the respondent purchased the 13-year-old Blazer for $7,500 in March of 2010. The value of the Blazer, at the time of the seizure, on a wholesale basis was between $1,650 and $4,750 but the chambers judge accepted the value on the basis of the bill of sale of some $7,500. He noted, however, that nothing turned on the difference; (

b) he obtained the Oxycontin from a prescription he received from his doctor due to an injury to his foot; (

c) he was broke and sold two pills for $60 and used the proceeds to buy gas; (

d) this was an isolated incident; and, (

e) he had a criminal record with some 31 convictions but only one was for possession of a controlled substance which occurred in 1986. [ 26 ] The chambers judge found that there was no evidence to support the Director’s claim that the respondent was a regular trafficker in

Oxycontin. He found as a fact that the sale was an isolated incident. The Director filed affidavit evidence from a number of policeofficers involved in the enforcement of the laws against trafficking in controlled substances linking prostitution to drug use and to anincrease in crime. The area where the sale was made is a high crime area in the City of Regina and the trafficking in controlledsubstances leads to an increase in the crime rate.

The Director also filed evidence concerning the familiarity of the respondent with thejargon used by him in dealing with the undercover police officer to establish that he was involved in a dial a dope drug operation. In theend, the chambers judge rejected that suggestion. [27] The chambers judge, in refusing the order for forfeiture, correctly found that each case must be decided on its own merits and facts,in other words, on a case-by-case basis. He also found that proportionality and fairness are the dominant considerations.

As will beseen, this is clearly one of the factors but not the only factor that must be taken into account in deciding whether something is clearly inthe interests of justice. The chambers judge stated that the interests of the respondent must be balanced against the interests of the stateor society but he did not appear to take into account the interests of the state or society or the public in deciding the issue of whether ornot the forfeiture would clearly not be in the interests of justice. [28] Doherty J.A. in McDougall, supra dealt with the

interpretation of the “interests of justice exception” in the following way: [84] I agree with the application judge that the "interests of justice" exception to forfeiture operates where the Crown has otherwiseshown that the property is subject to forfeiture and the respondent has not brought herself within the "legitimate owner" exception.

The"interests of justice" exception to forfeiture recognizes that, given the very broad definition of "proceeds of unlawful activity" and thenarrow exception to forfeiture carved out by the definition of "legitimate owner", there will be cases that fall within the scope of theforfeiture power where, on any reasonable view, forfeiture would be a draconian and unjust result.

The Legislature, rather thanattempting to identify with specificity factors that would justify granting relief from forfeiture, used the broad phrase "interests of justice"and left it to the court on a case-by-case basis to determine when forfeiture was "clearly not in the interests of justice". He went on to state: [85] I do accept counsel for the AG's contention that s. 3(1) does not contemplate that the question of forfeiture will be decided basedon a mere balancing of the pros and cons of making a forfeiture order. The word "clearly" modifies the phrase "interests of justice" andmust be given some meaning.

I think the word "clearly" speaks to the cogency of the claim advanced for relief from forfeiture. The partyseeking relief must demonstrate that, in the circumstances, the forfeiture order would be a manifestly harsh and inequitable result. [29] Thus, the “interests of justice” determination is not just a balancing of the pros and cons of making the order of forfeiture. It ismore than that.

The word “clearly” must, as Doherty J.A. stated, be given some meaning and I am inclined to his opinion that theapplicant or party seeking the leave must demonstrate that in the circumstances of each case before the court that the forfeiture would bea “manifestly harsh and inequitable result.” [30] The application of the word “clearly” qualifies the interests of justice test and must modify the standard.

It means that the personseeking the exemption must demonstrate that the forfeiture would be draconian and unjust or manifestly harsh. [31] In deciding the issue in McDougall, Doherty J.A. analogized the discretion to refuse forfeiture with relief from forfeiture as a civilremedy. [32] He noted that the relief from forfeiture is discretionary and fact specific and referred specifically to Saskatchewan River BungalowsLtd. v. Maritime Life Assurance Co., (SCC), [1994] 2 S.C.R. 490.

He noted that the power is predicated on theexistence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visitsan inequitable consequence on the party that has breached the contract. While not a perfect analogy, it does in fact provide a structuralbasis on which to proceed.

It is a relief which is granted sparingly and is fact specific. [33] In Saskatchewan River Bungalows Ltd., Major J. identified factors relevant to the exercise of the power to grant relief againstforfeiture as follows, at p. 504: … The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches,and the disparity between the value of the property forfeited and the damage caused by the breach. … [34] In considering whether or not to grant relief from the forfeiture pursuant to s. 7(1), it is necessary to consider all factors that arerelevant to the interests of justice.

Those factors, as identified by Doherty J.A. in McDougall, include the conduct of the party whoseproperty is the subject of the forfeiture application; the value of the party’s interest in the property compared to the value of the property

that is tainted by the unlawful activity; and, the interplay between the purposes of the legislation and the exercise of the interests of justice discretion. [ 35 ] Having generally set out the factors to be taken into account in determining whether or not it is clearly in the interests of justice that the order of forfeiture not be made, one must decide whether the respondent satisfied the burden that the result would be draconian and unjust or manifestly harsh on a balance of probabilities. [ 36 ] Having regard for this analysis, it does not appear that the chambers judge referred to or applied these factors.

He noted the attempt by the Director to tie the respondent to the drug trade but found that the evidence was speculative. In the end, the chambers judge was satisfied that the respondent was not a party to a dial a dope drug operation and that the sale of Oxycontin to the undercover police officer was an isolated incident and that the respondent was not a regular trafficker in Oxycontin. [ 37 ] There is a paucity of evidence presented by the respondent to demonstrate that the forfeiture was manifestly harsh, unjust or inequitable.

There is no evidence that the vehicle was needed by the respondent in his employment or that he needed the vehicle to drive his mother to her employment. This is even more evident when I note that his mother purchased her own vehicle some three weeks after the seizure in order to travel to and from work. The only evidence of any effect on him is that he lost the Blazer which he contends has a value much higher than the profit he made from the unlawful activity of trafficking in a controlled substance.

The respondent’s principal argument is that the value of the property subject to the seizure and forfeiture is disproportionate to the value of the transaction consisting of the offence. His submission ignores completely the public interest. [ 38 ] The chambers judge found that proportionality and fairness were the dominant considerations and that there was a need to balance the interests of the respondent and those of other affected parties. [ 39 ] Unfortunately, the chambers judge did not balance the interests of the respondent with those of other parties.

While he referred to the evidence of the Director attempting to link the respondent to the drug trade, he did not take into account the interests of the state or of the general public. He did not consider the evidence about the harmful effects of prostitution and the drug trade on the general population in Regina North Central. [ 40 ] There was no discussion of the interests of society that would be furthered by forfeiture.

Indeed, it appears that the chambers judge engaged in a mathematical analysis to determine the interests of justice. [ 41 ] In my opinion, he did not take into account the relevant factors in deciding the issue. He decided that the value of the property, the Blazer, at between $4,750 and $7,500 was significant and disproportionate to the offence of selling two pills for $60. What was required, however, was a broader analysis that considered the benefit to society in the reduction of crime by reducing the profit motive and the compensation of victims.

First, the chambers judge did not analyze whether the seizure was “clearly” not in the interests of justice having regard to either of the factors identified in McDougall, supra . If one examines this analysis through the lens of McDougall , it will be seen that the respondent was guilty of the crime of trafficking. He pled guilty in the face of overwhelming evidence. Second, it was necessary to determine the value of the respondent’s interests in the property compared to the property tainted by the criminal activity.

It was wholly tainted by being used to transport and facilitate the offence of trafficking in a controlled substance.

The analysis done by the chambers judge was to compare the respondent’s interest in the property seized to the value of the criminal enterprise, a mathematical approach to decide the issue, which is inappropriate. [ 42 ] Finally, the chambers judge did not analyze the seizure having regard for the need for general deterrence and the need to remove profit from crime to compensate the victims of crime and to recover the costs incurred in the seizure and to reduce the extent of criminal activity in the area affected.

Notwithstanding that the chambers judge found that this was an isolated incident, there was uncontradicted evidence from the police officers of the harm done to the community by reason of the interplay between prostitution, drug activity and general crime in Regina North Central. [ 43 ] At first blush, the value of the Blazer may be excessive compared to the value of the drug sold but that is not all that must be considered. The competing value is that of society from the harm that results from trafficking in controlled substances.

The chambers judge failed to consider the not inconsiderable amount of evidence filed by the Director concerning the effect of such criminal activity in the area. He also failed to note the lack of evidence of any hardship on the respondent as a result of the loss of the Blazer beyond its value. As was noted, he contended that he needed the Blazer to drive his mother to and from work but that turned out to be false given that she bought her own car some three weeks after the seizure of the Blazer.

VI. Conclusion [ 44 ] For all these reasons, I am of the opinion that the chambers judge erred in finding that the forfeiture of the Blazer to the Crown clearly would not be in the best interests of justice. As noted, the respondent failed to demonstrate that taking all the relevant facts into consideration the forfeiture would be draconian and unjust or manifestly harsh. [ 45 ] The respondent is entitled to costs in the amount of $2,500 pursuant to the agreement of the parties and the order granting leave to appeal. [ 46 ] For all these reasons, the appeal is allowed.

DATED at the City of Regina, in the Province of Saskatchewan, this 10th day of April, A.D. 2012. “Cameron J.A.” for Vancise J.A. I concur “Cameron J.A.” Cameron J.A. I concur “Richards J.A.” Richards J.A.