|
Criminal - Property Forfeiture. R. v. Travelers Insurance Company of Canada
In R. v. Travelers Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal allowed a Criminal Code property forfeiture appeal by an insurance company against the Crown, here alleging a restitutionary/constructive trust claims by subrogation [under CCC 462.37(2.01)]..
Here the court distinguishes between the Criminal Code property forfeiture status of an insurer between 'ordinary creditor' and 'victim':[34] Travelers submits that the application judge erred in failing to recognize that it was a victim and not an ordinary creditor and that with respect to the amounts paid to Xpertdoc, it had a claim for unjust enrichment and the requisite constructive interest in the property forfeited in the amount of $270,550. It argues that the relevant amount in which it has a constructive property interest is the amount that should have been and was not paid as restitution by the sentencing judge because of the Crown’s erroneous omissions. While she alluded to the admitted and erroneous omission of Travelers’s Xpertdoc claim by the Crown, Travelers submits that the application judge erred by concluding that it had no claim for unjust enrichment.
[35] The Crown submits that Travelers has no claim for unjust enrichment in respect of the forfeited proceeds. Rather, it submits that its claim for relief from forfeiture is effectively a claim for restitution that cannot be recovered under the relief from forfeiture provisions of the Criminal Code.
[36] As I explain in greater detail below, the application judge’s conclusions are the product of a cascade of analytical errors: 1) the application judge erred in failing to give effect to her various factual findings about the Crown’s erroneous omissions and the likelihood of restitution to Travelers for the Xpertdoc claim; 2) the failure to give effect to her factual findings led her to erroneously divorce what happened before the sentencing judge from her consideration of Travelers’s application; 3) she also failed to consider whether Travelers could have an interest in the property forfeited to the Crown by way of constructive trust that goes beyond the direct transfer of property to the offender; 4) as a result, she concluded that, apart from the ransom payment, Travelers was an ordinary creditor without an interest in the forfeited property; and 5) she concluded that it would therefore be inappropriate for her to exercise her discretion to grant relief from forfeiture.
[37] The application judge correctly recognized Travelers’s position for the purpose of obtaining relief from forfeiture of the ransom payment. Having paid out Xpertdoc’s losses, Travelers stepped into the shoes of its insured and was entitled to seek compensation for its subrogated claim as a victim of the offences: R. v. Popert, 2010 ONCA 89, 258 O.A.C. 163; Somersall v. Friedman, 2002 SCC 59, [2002] 3 S.C.R. 109, at para. 50. However, with respect to the balance of Travelers’s claim, the application judge misapplied the test for ordering relief from forfeiture under s. 462.42 by finding that Travelers did not discharge its onus that it “has a valid interest in the property that goes beyond the interest of a general creditor and that the nature and extent of that claim has been proven” and that it would be “appropriate in the circumstances for [Travelers’s] interest to take priority over the [f]orfeiture [o]rder”: 1431633 Ontario Inc., at para. 26 [emphasis added].
[38] Because of her mischaracterization of Travelers as an ordinary creditor for the balance of its claim, the sentencing judge too narrowly construed Travelers’s “interest in property forfeited” for the purposes of s. 426.42(1) as only an interest in the funds that were paid as ransom to Mr. Vachon-Desjardins. She failed to consider whether the circumstances of the Crown’s erroneous omissions and the likelihood of restitution to Travelers gave rise to a claim for unjust enrichment supporting a constructive trust over the proceeds in the amount of the Xpertdoc claim in the circumstances of this case.
[39] Further, because of her mischaracterization of Travelers as an ordinary creditor, in considering whether to exercise her discretion, the application judge erred by relying on inapplicable policy concerns that payment out of Travelers’s subrogated claims from the forfeited proceeds of crime would benefit the offender, as expressed in Lumen Inc. v. Canada (Attorney General) (1997), 1997 CanLII 10717 (QC CA), 151 D.L.R. (4th) 661 (Que. C.A.), leave to appeal refused [1997] C.S.C.R. No. 448 and other cases. The Court of Appeal of Quebec noted in Lumen, at p. 665, that ordinary creditors do not as a general rule have an enforceable interest in any particular assets of debtors.
[40] However, the present case does not involve a third-party debt, the payment of which would benefit Mr. Vachon-Desjardins because the proceeds of crime would pay down or extinguish his debt. Rather, this is compensation to the victim of the very crime which gave rise to the forfeiture order: R. v. Tatarchuk, 1992 CanLII 6161 (AB KB), [1993] 133 A.R. 6 (Alta. Q.B.), at para. 5. As the Alberta Court of Queen’s Bench noted in Tatarchuk, at para. 5: “Payment of proceeds of crime to one of the victims of the crimes cannot in any fashion be seen as benefitting the wrongdoer.” Further, to the extent there is any indirect benefit to the wrongdoer from ordering relief from forfeiture, it must be balanced against the victim’s legitimate interests in the property: see Wilson v. R., 1993 CanLII 8665 (ON CA), [1994] 15 O.R. (3d) 645 (C.A.), at p. 657; Connolly NLCA, at para. 38.
[41] As a result of the application judge’s analytical errors, I would accord no deference to her dismissal of the balance of Travelers’s Xpertdoc claim and undertake afresh the required analysis of whether Travelers is entitled to relief from forfeiture. . R. v. Travelers Insurance Company of Canada
In R. v. Travelers Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal allowed a Criminal Code property forfeiture appeal by an insurance company against the Crown, here alleging subrogated restitutionary/constructive trust claims [under CCC 462.37(2.01)].
Here the court canvasses these infrequently-used procedures:[1] The appellant, Travelers Insurance Company of Canada (“Travelers”), challenges the application judge’s dismissal of part of its subrogated claim for payment from proceeds of crime that were forfeited to the Crown under s. 462.37(2.01) of the Criminal Code, R.S.C. 1985, c. C-46.
[2] This appeal turns on the question of whether, in the particular and narrow circumstances of this case, Travelers has an interest in property by way of a constructive trust that should have been paid as restitution to its insured that was a victim of a crime but was instead forfeited in error to the Crown.
[3] Sections 462.42(1) and 462.42(4) of the Criminal Code together provide that “[a]ny person who claims an interest in property that is forfeited” as proceeds of crime to the Crown may seek an order “declaring that the interest of the applicant is not affected by the forfeiture and declaring the nature and extent of the interest.” Here, if Travelers has the requisite “interest in property that is forfeited”, it would be entitled to payment of its subrogated claim from the funds forfeited to the Crown under s. 462.37(2.01).
[4] Travelers paid out two insureds under their respective insurance policies for losses suffered as a result of a large-scale cyber-fraud operation. Specifically, under the cyber-fraud insurance policies it had issued, Travelers paid out over $250,000 to its insured, Technologies Xpertdoc Inc. (“Xpertdoc”), and about $1 million to its insured, Robert Thibert Inc. (“Thibert”).
[5] The person behind the operation, Mr. Sébastien Vachon-Desjardins, pleaded guilty to various counts related to the ransomware attacks by which he gained control over the victims’ data, holding the data until he was paid a ransom in Bitcoin. He cooperated with the police, identifying the victims of his frauds, including Travelers’s two insureds. He consented to restitution of the claims of all his victims.
[6] Travelers participated in the process to obtain restitution of the amounts paid to its two insureds in the sentencing proceedings against Mr. Vachon-Desjardins. Certain of Mr. Vachon-Desjardins’s property (including what was at the time several million dollars’ worth of Bitcoin and several hundred thousand dollars in cash) was seized by the RCMP in January 2021. For the purpose of making a claim for restitution before the sentencing judge, Travelers provided information to support restitution for its two subrogated claims (the “Thibert claim” and the “Xpertdoc claim”). No issue was taken with Travelers’s subrogated claims. Travelers understood that the Crown would put its subrogated claims before the sentencing judge.
....
(a) General principles of equity and relevant statutory provisions
[29] To place Travelers’s appeal in the proper context, it is helpful to start with a review of the forfeiture provisions under the Criminal Code.
[30] Sections 462.37(1), 462.37(2.01), and 462.38(2) are the forfeiture provisions that permit the court to order, on application by the Attorney General, that any property that is proceeds of crime obtained through the commission of a designated offence (including the ones in issue here) be forfeited to the Crown “to be disposed of as the Attorney General directs or otherwise dealt with in accordance with the law.” In this case, the forfeiture order was made under s. 462.37(2.01), and, unlike a forfeiture order under s. 462.38, Travelers had no right to appeal from that order: Criminal Code, s. 462.44.
[31] Section 462.41(1) requires that, before making a forfeiture order in relation to any property, “a court shall require notice in accordance with subsection (2) to be given to and may hear any person who, in the opinion of the court, appears to have a valid interest in the property.” In complying with this requirement, the court must rely on the assistance of the Crown, as the party seeking forfeiture, to identify possible interested parties, and it is the responsibility of the Crown to provide the court with the necessary information to permit the judge to make the appropriate orders under s. 462.41(4): Connolly NLCA, at paras. 12-14.
[32] Section 462.42 sets out the relief from forfeiture provisions. Section 462.42(1) allows any person[2] “who claims an interest in property that is forfeited” to the Crown to apply for an order under s. 462.42(4). Section 462.42(4) allows a judge to order relief from forfeiture. Under s. 462.42(4), the judge hearing the application “may make an order declaring that the interest of the applicant is not affected by the forfeiture and declaring the nature and extent of the interest.” Before making such an order, however, the application judge must be satisfied that the applicant has established, among other requirements, that they have a valid interest in the property that goes beyond the interest of a general or an ordinary creditor and that it is appropriate in the circumstances for their interest to take priority over the forfeiture order: see Criminal Code, s. 462.41(1); 1431633 Ontario Inc. v. Canada (Attorney General), 2010 ONSC 266, 250 C.C.C. (3d) 354, at para. 26. If the application judge grants the order, the Attorney General “shall”, following the expiry of the appeal period or the determination of an appeal under s. 462.42(5), upon application pursuant to s. 462.42(6) by the person who obtained the order, return the property to that person or remit an amount equal to the value of the interest to them.
[33] Relief from forfeiture is discretionary. Accordingly, it is important not to take a narrow view of the rules and procedures in the Criminal Code concerning the forfeiture of proceeds of crime: Chun v. R., 2015 QCCA 590, per Kasirer J.A. (as he then was), at fn. 12. Courts considering an application for relief from forfeiture must not lose sight of the rationale behind the scheme and the effect of forfeiture on innocent third parties with a legitimate interest in the forfeited property: R. v. 170888 Canada Ltée, 1999 CanLII 13794 (QC CA), [1999] 174 D.L.R. (4th) 340, at pp. 347-48 (Que. C.A.). As the Court of Appeal of Quebec, per Fish J.A. (as he then was), further observed in 170888 Canada Ltée, at p. 349:An important objective of that scheme is to afford a meaningful recourse to innocent third parties whose property rights are affected by an order of forfeiture under s. 462.37 - not ultimately, in the civil courts, but rather immediately, before a court of criminal jurisdiction and within the framework of the forfeiture scheme itself.
|
