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Ontario v Norwood Estate: In Rem Property Interests Not Subject to Settlement

10 minute read

The Civil Remedies Act (the “CRA”) is a little-known piece of legislation which enables the Attorney General of Ontario (“Ontario”) to commence proceedings for the forfeiture of private property linked to unlawful activity. However, one provision of the CRA introduced in 2018 - s. 18.1 – also allows the court to “approve a settlement in relation to a proceeding under this Act” on a motion by a party.

In Ontario (Attorney General) v Norwood Estate, 2021 ONCA 493 (“Norwood Estate”), where Ontario brought a motion for court approval of a settlement with a third party, the Ontario Court of Appeal determined that s. 18.1 of the CRA only relates to the in rem property interests being litigated in the underlying forfeiture proceedings.[1] In other words, absent a resolution which could determine all the in rem rights of parties to the proceedings, the court could not approve a settlement under s. 18.1.

Background

Norwood is factually complex but ultimately revolved around the proceeds of the sale of a property located at 11 Cassone Court, Ottawa (the “Cassone Court” property), which was previously owned by Michael Norwood (“Michael”).

In 2015, Michael was arrested on drug-related charges and the Attorney General of Canada (“Canada”) began forfeiture proceedings against the Cassone Court property pursuant to s. 17 of the Controlled Drugs and Substances Act and the ss. 462.38(2) and 490(9) of the Criminal Code.[2] Subsequently, Michael and Canada agreed that the Cassone Court property would be sold. The sale proceeds were paid into Canada’s Seized Property Management Directorate.[3]

However, in October 2015, prior to the sale of the Cassone Court property, Michael executed a promissory note in favour of his mother, Rosa Norwood (“Rosa”) in the amount of $138,000. Rosa claimed that the promissory note retroactively evidenced an informal agreement between herself and Michael, dating back to the mid-1990s, through which she provided her son with $138,000.[4]

Michael died in October, 2017. In February, 2019, Canada secured an order terminating its forfeiture proceedings and ordering the remaining proceeds of sale of the Cassone Court property, approximately $145,000 plus interest, to Michael’s Estate.[5]

However, before these remaining proceedings could be paid to the Estate, Ontario began proceedings pursuant to the CRA for forfeiture of the remaining proceeds of sale. In the same month, Rosa’s counsel wrote to Ontario to advance Rosa’s $138,000 claim against the proceeds of sale from the Cassone Court property.[6]

In April 2020, Ontario made an offer to settle Rosa’s claimed interest in the forfeiture proceedings by payment of $120,000 from the proceeds of sale of the Cassone property, which Rosa accepted.[7] In May 2020, Ontario brought a motion under s. 18.1 of the CRA for approval of its proposed settlement with Rosa. The Estate opposed the motion, arguing that, by hearing the motion before the Estate could challenge the forfeiture proceedings, the court would effectively deprive the Estate of a defence in those proceedings.[8]

The motion judge granted Ontario’s motion and issued an order approving the “settlement” between Ontario and Rosa. The Estate appealed.

The Appeal

On appeal, the Estate advanced three grounds, only one of which was ultimately considered by the Court of Appeal. The main argument which was considered in Norwood was whether the motion judge erred in law in determining that the approval of a settlement under s. 18.1 of the CRA did not require prior determination that the funds seized were the proceeds of unlawful activity.

The Court of Appeal agreed with the Estate and found that it did. Specifically, the court found that the agreement between Ontario and Rosa was not a “settlement in relation to a proceeding” under the CRA and therefore not properly subject to judicial approval.

The Purpose of the CRA

The court first examined the purpose and scheme of the CRA. From its examination, the court found that “until forfeiture occurs and the consequential transfer of property from the owner to the Crown has taken place, Ontario’s rights in the subject property do not materialize, nor are the rights of others expunged.”[9] In other words, the CRA “empowers a court to eradicate a citizen’s lawful interest” through forfeiture, but “only after making a finding that Ontario has established the requisite link between the property and unlawful activity.”[10]

The court also noted that proceedings under the CRA are in rem and not in personam,[11] meaning that proceedings under the CRA are “engaged to settle title to property that is allegedly linked to unlawful activity” and not proceedings “conducted to resolve disputes between individuals about their relative rights”[12].

An Analysis of s. 18.1 of the CRA and in rem Property Rights

The court performed a thorough statutory interpretation exercise of s. 18.1, which provides:

Settlements

18.1 (1) Despite anything to the contrary in this Act, the court may approve a settlement in relation to a proceeding under this Act, on the motion or application of the Attorney General or of any other party to the proceeding with the Attorney General’s consent. 2018, c. 17, Sched. 6, s. 1.

Forfeiture

(2) For greater certainty, the power to approve a settlement under subsection (1) includes a power to approve a settlement that provides for the full or partial forfeiture of the property that is the subject of the proceeding. 2018, c. 17, Sched. 6, s. 1.

Payments in lieu

(3) For greater certainty, the power to approve a settlement under subsection (1) includes a power to approve a settlement that provides for payment of a monetary amount instead of the full or partial forfeiture of the property that is the subject of the proceeding. 2020, c. 11, Sched. 3, s. 14.

Ultimately, the court found regarding the interpretation of s. 18.1:

When the words “a settlement in relation to a proceeding under this Act” are read in this context, it is clear that they describe a settlement that relates to the in rem interests in the property being litigated in the proceedings… In my view, to constitute a “settlement” relating to the in rem interests in the property, an agreement must resolve the in rem rights in the subject property. In other words, it must be capable of settling, to the exclusion of all others, the rights of the parties before the approving judge.[13]

As a result, the court found that the agreement between Ontario and Rosa could not resolve the in rem rights in the subject property, namely the remaining proceeds of $145,000.[14] While the agreement might settle their personal dispute relating to ownership of the Cassone Court property, the agreement was incapable of resolving the Estate’s in rem rights to that property.[15] Since Ontario had not established that the proceeds of sale were subject to forfeiture as the proceeds and/or instruments of unlawful activity, it never acquired a higher claim to the in rem rights in that property than all non-parties to its agreement with Rosa. Thus, Ontario’s agreement with Rosa was not a “settlement in relation to a proceeding under this Act” within the meaning of s. 18.1(1).[16]

Against Ontario’s objections, the court held that this “in rem settlement interpretation” of s. 18.1 was consistent with the legislative scheme and object and intention of parliament.[17] The court then allowed the appeal and set aside the motion judge’s order approving the “settlement” between Ontario and Rosa.

The court noted however, that:

Things would be different, however, if before approving the agreement the motion judge had made a finding that the proceeds of sale of the Cassone Court property were proceeds and/or instruments of unlawful activity and that forfeiture was clearly not contrary to the interests of justice. Had that determination been made…Ontario would have had a claim to the subject property to the exclusion of all others, including the Estate. Since, in this scenario, only Ontario and Rosa would have had outstanding claims to the Cassone Court property, they could have agreed to settle the in rem interests in that property.[18]

At the same time, the court rejected Ontario’s argument that this in rem settlement interpretation necessarily required judicial determination on unlawful activity. The court noted that if Ontario wanted to release seized property to a claimant, it could also simply withdraw the forfeiture proceedings pursuant to s. 1.7 of the CRA.[19]

Conclusion

The Court of Appeal provided a thorough analysis of s. 18.1 of the CRA in Norwood, which remains the highest and only appellate authority on this provision so far. Section 18.1 remains an intriguing provision, but one which now limits the ability of judges to approve settlements of property when the property is subject to a yet-incomplete forfeiture proceeding. While this may protect the interests of the owners of the property subject to the forfeiture proceedings, it will also reduce the ability of the government and other parties to enter into settlement agreements.

However, the court’s interpretation of in rem settlement rights also leads to several other questions which may need to be answered in the future: What is the practical purpose of s. 18.1 in the CRA if Ontario is forced to withdraw forfeiture proceedings or win its case in a hearing before a judge prior to entering into a settlement with a party? Will interested parties who are not the owners of the property subject to forfeiture proceedings be able to directly participate in the forfeiture proceedings? Even if all parties consent to a settlement prior to the final determination on a forfeiture hearing, will the court be able to approve the settlement under s. 18.1?

Norwood remains a complex and interesting decision, and one which will hopefully only lead to more judicial discussion on the CRA.

[1] Norwood, at para 6.

[2] Norwood, at para 11.

[3] Norwood, at para 14.

[4] Norwood, at paras 11-12.

[5] Norwood, at para 16.

[6] Norwood, at paras 17-18.

[7] Norwood, at para 20.

[8] Norwood, at paras 21-22.

[9] Norwood, at para 34.

[10] Norwood, at para 91.

[11] Norwood, at para 54.

[12] Norwood, at para 75.

[13] Norwood, at para 75.

[14] Norwood, at para 76.

[15] Norwood, at para 76.

[16] Norwood, at para 118.

[17] Norwood, at para 109.

[18] Norwood, at para 7.

[19] Norwood, at para 106.

Lucy Sun

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