The Effects of Forfeiture on Third Parties
Kevin E. Davis*
has
Canada’s
federal
government
recently
expanded the scope of its criminal forfeiture legislation to
include property that represents proceeds of crime,
property that represents instruments of crime, as well as
property that is owned or controlled by a terrorist group.
Meanwhile, provincial governments in Ontario and
Alberta have enacted novel legislation providing for so-
called civil forfeiture. These developments suggest that
Canadian
increasingly
interested in pursuing property, as opposed to people,
associated with criminal activity.
lawmakers
have
become
This article is concerned with how forfeiture affects
the interests of parties who are not suspected of being
complicit in the criminal activity that has motivated the
forfeiture (“third parties”). Third parties include original
owners or transferees of property subject to forfeiture as
well as holders of security interests therein. Both the
federal and provincial regimes grant judges-and, in
some cases,
the executive-remarkable amounts of
discretion over whether and how to protect the interests
of third parties. This article argues that this discretion
creates undesirable legal uncertainty. It goes on to suggest
ways in which legislation can be reformed, and judicial
discretion structured,
that the burden of
achieving the public goals that motivate forfeiture does
not fall disproportionately upon third parties.
to ensure
Le gouvemement f&ldral du Canada a r6cemment
&tendu la porte de sa legislation sur la confiscation de
biens en mati~re criminelle pour y inclure notamment les
biens issus do crime, les biens ayant servi comme
instruments du crime, et les biens poss&t6s ou contr6l6s
par un groupe terroriste. En parall~le, les gouvemements
‘Ontario et de l’Alberta ont mis en
provinciaux de
la soi-disant
vigueur de nouvelles
confiscation de biens civilso. Ces developpenents
sugg rent que les l6gislateurs canadiens deviennent de
plus en plus int~ress6s A pourchasser les biens, plut8t que
les personnes, associs A r activitd criminelle.
lois permettant
Cet article 6tudie comment la confiscation des biens
peut affecter les int6rts de parties qui ne sont pas
l’activit6 criminelle
soupconndes de complicitd avec
justifiant la confiscation (Kies tierso), ce qui inclut les
propri6taires, les titulaires, et les d6tenteurs d’int&6rts sur
les biens faisant l’objet d’une telle mesure. Les r6gimes
provinciaux et fieraux accordent tons deux aux juges –
et dans certains cas, A l’ex6cutif –
un large pouvoir
discr6tionnaire quant 6 la pertinence et la mani~re de
prot6ger les int&s des tiers. Cet article tend A d6montrer
que cette discretion crde une
juridique
inddsirable. L’auteur sugg~re des avenues par lesquelles
legislation pourrait dtre r~form6e et la discr6tion
la
judiciaire structurde, afin d’dviter que
l’atteinte des
objectifs publics justifiant
la confiscation de biens
n’impose un fardeau disproportionn6 aux tiers.
incertitude
” Faculty of Law, University of Toronto. E-mail: k.davis@utoronto.ca. I am grateful to Tony
Duggan, John Corelli, two anonymous reviewers, and the staff of the McGill Law Journal for helpful
comments on previous drafts. Andrea Leong provided excellent research assistance. All errors remain
my own.
McGill Law Journal 2003
Revue de droit de McGill 2003
To be cited as: (2003) 48 McGill L.J. 183
Mode de r6fdrence : (2003) 48 R.D. McGill 183
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[Vol. 48
Introduction
1. The Circumstances in which a Forfeiture Order Can Be Made
A. Proceeds of Crime
B. Instruments of Crime
C. Property Owned or Controlled by a Terrorist Group
II. Potential Effects on Third Parties
A. Are the Interests of Third Parties Affected by Forfeiture?
B. What Types of Third Parties Might Be Affected?
C. Relief from Forfeiture
D.
Imposing a Personal Obligation in Lieu of Forfeiture
Ill. The Problems with Unfettered Discretion
IV. Structuring Judicial Discretion: Why Should the Property
of Innocent Third Parties Ever Be Subject to Forfeiture?
A. Preventing Unjust Enrichment
B. Deterring Dealings with Criminals
C. Preventing Property from Being Used to Commit Crime
D. Compensating Victims of Crime
E Financing Law Enforcement
V. Legal Implications
A. Protecting the Rights of Investors Who Have Taken
Reasonable Precautions
B. Clarifying the Rights of Third Parties Who Have Not
Invested in the Property
C. Clarifying the Rights of Investors Who Have Not Taken
Reasonable Precautions
D. Facilitating the Imposition of Personal Obligations in
Lieu of Forfeiture of Proceeds of Crime
E. Ensuring that Third Parties Have Notice
Conclusion
185
186
186
191
193
193
194
195
197
205
206
207
209
211
212
213
216
217
217
219
220
220
223
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K DAVIS – THE EFFECTS OF FORFEITURE ON THIRD PARTIES
185
Introduction
In recent years, law enforcement agencies around the world have become
increasingly interested in pursuing property, as opposed to people, associated with
criminal activity.’ Canadian law enforcement agencies are no exception to this trend,
as evidenced most recently by the federal government’s decision to expand the scope
of its forfeiture legislation and the Ontario and Alberta governments’ pathbreaking
decisions to enact their own legislation providing for so-called civil forfeiture.
There has been considerable debate in Canada and elsewhere about the merits of
forfeiture legislation! Much of that debate focusses on the effect of forfeiture on
people who have committed, or at least are suspected of committing, criminal activity.
This article, however, is concerned with a different topic, namely, the potential impact
of forfeiture legislation on parties not suspected of being complicit in (i.e., capable of
being charged as parties to) the criminal activity that has motivated the forfeiture
(“third parties”).
Issues of this sort are bound to arise in connection with the application of
forfeiture legislation. Suppose, for example, that an automobile is used to commit a
crime. As we will see, both federal and provincial law, at least in Ontario, allow the
government to apply to have the car forfeited as an instrument of crime. But what if
the offender borrowed the automobile from someone else (with or without their
consent)? Or what if he leased it? What if the car is subject to a security interest in
favour of the bank? Or what if it is jointly owned by the offender and his spouse?
Alternatively, imagine that the car was either bought or leased with the proceeds of a
crime. Should the lessor’s interest be affected by the forfeiture? What if the car is
subsequently sold or given to a bank as collateral for a loan?
Any workable forfeiture regime must provide some mechanism for determining
how forfeiture will affect the interests of the third parties involved in each of these
cases, and no assessment of the merits of any given regime can be complete unless it
takes that mechanism into account. Surprisingly, however, in Canada at least, there
has been relatively little analysis of those effects in the secondary literature
Guy Stessens, Money Laundering: A New International Law Enforcement Model (New York:
Cambridge University Press, 2000) at 4-5; R.T. Naylor, “Washout: A Critique of Follow-the-Money
Methods in Crime Control Policy” (1999) 32 Crime, L. & Soc. Change 1.
2 See e.g. Naylor, ibid.; Michelle Gallant, “Money Laundering, Criminal Assets and the 1998
Proposed Reforms” (1999) 6 Journal of Financial Crime 323 at 327, 330; Karen Selick, “Ontario
Wants to Put Grab on Property Rights” The National Post (7 December 2000) C19 [Selick, “Property
Rights”]; Karen Selick, “Go Ahead, Make Our Day” The Globe and Mail (10 January 2001) A15
[Selick, “Go Ahead”].
For discussions focussing on other jurisdictions see Stessens, supra note 1 at 33-42, 76-79; Kelly
Rees, “Confiscating the Proceeds of Crime: The Effect on Legitimate Creditors and Bona Fide Third
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This article provides a review and critique of Canadian law concerning the effects
of forfeiture on third parties. On the assumption that this area of the law will be
relatively unfamiliar to most readers, Part I provides a fairly detailed discussion of the
various circumstances in which a forfeiture order can be made under federal law and
the provincial legislation recently enacted in Ontario and Alberta. Part II discusses the
potential impact of forfeiture on third parties, taking into account the statutory
provisions designed to protect third parties and the manner in which they have been
interpreted by the courts. Part III focusses on the disadvantages associated with the
most striking feature of the law in this area: the fact that current law gives judges and,
in some cases, the executive, a great deal of discretion as to whether, or to what
extent, to protect third parties, even innocent ones, from forfeiture. Part IV discusses
how various policy considerations might inform the formulation of rules or guidelines
designed to resolve the uncertainty that currently plagues this area of the law. In light
of that discussion, Part V provides suggestions for reform of both Canada’s forfeiture
legislation and judicial practice.
I. The Circumstances in which a Forfeiture Order Can Be Made
Canadian law permits forfeiture orders to be made in respect of three broad
classes of property: proceeds of crime, instruments of crime, and property owned or
controlled by terrorist groups. The provisions that apply to each of these classes of
property are discussed below.
A. Proceeds of Crime
* Criminal Code
At the federal level, the general provisions concerning forfeiture of proceeds of
crime are contained in Part XII.2 of the Criminal Code.’ Section 462.37 of the
Criminal Code now permits a court imposing sentence for just about any indictable
offence created by federal legislation (a “designated offence”) to order that property
that constitutes proceeds of crime be forfeited.” (Previously this power was only
available in respect of a more limited set of offences.) Proceeds of crime are defined
Parties” (1996) 11 J.I.B.L. 351; Michael F. Zeldin & Roger G. Weiner, “Innocent Third Parties and
Their Rights in Forfeiture Proceedings” (1991) 28 Am. Crim. L. Rev. 843; David R. Fine & Raymond
P. Pepe, “Bennis v. Michigan and Innocent Owners In Civil Forfeiture: Balancing Legitimate Goals
With Due Process And Reasonable Expectations” (1997) 5 Geo. Mason L. Rev. 595; Stefan D.
Cassella, “The Uniform Innocent Owner Defense to Civil Asset Forfeiture: The Civil Asset Forfeiture
Reform Act of 2000 Creates a Uniform Innocent Owner Defense to Most Civil Forfeiture Cases Filed
by the Federal Government” (2000) 89 Ky. L.J. 653.
4 R.S.C. 1985, c. C-46, ss. 462.3-462.5.
‘Ibid., s. 462.37.
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as “any property, benefit or advantage” that is “obtained or derived directly or
indirectly as a result of’ the commission of the relevant offence.” This definition is
obviously intended to include not only the original property derived from the
commission of an offence, but also property into which the original property can be
traced.7
Part XII.2 of the Criminal Code provides for the forfeiture of proceeds of crime
that both do and do not relate to the offence for which the offender is being
sentenced.! In the former case, the court is required to make a forfeiture order once it
is satisfied on the balance of probabilities that the property constitutes proceeds of
crime and relates to the offence in question In making this determination, the court is
permitted to infer that property was derived from the commission of an offence where
the value of all of the offender’s property after the commission of an offence exceeds
the value before the commission of the offence and where the offender’s income from
sources other than designated offences cannot reasonably account for the difference.”
The code also permits a court to make a forfeiture order in respect of property that is
not necessarily derived from the offence for which the offender is being sentenced. So
long as the court is satisfied beyond a reasonable doubt that the property is the
proceeds of crime, it may make a forfeiture order in respect of the property, even if
the evidence is not sufficient to establish that the property relates to the offence for
which the offender is being sentenced.”
6 Ibid., s. 462.3(1).
Some aspects of this definition are unclear. For example, it is unclear whether the definition of
proceeds of crime includes the profit gained by a person convicted of an indictable offence from the
creation of a work based on the offence. In 1997, the federal govenment introduced legislation that
would have included these profits in the Criminal Code (Bill C-220, An Act to amend the Criminal
Code and the Copyright Act (profit from authorship respecting a crime), 1st Sess., 36th Parl., 1997).
In 1998, however, the Senate recommended that the bill not proceed. For further discussion of the
definitional issues that surround proceeds of crime, see David J. Fried, “Rationalizing Criminal
Forfeiture” (1988) 79 J. Crim. L. & Criminology 328 at 375-80; Stessens, supra note I at 52-55.
‘ Criminal Code, supra note 4, ss. 462.3-462.5. In cases where an accused has died or absconded, a
forfeiture order may be made where proceedings in respect of an enterprise crime offence relating to
the property have commenced and the court is satisfied beyond a reasonable doubt that the property is
proceeds of crime (ibid., s. 462.38(2)). It is unclear whether the court must be satisfied that the
property relates to the offence charged on the balance of probabilities or beyond a reasonable doubt.
9 Ibid., s. 462.37(1).
“Ibid., s. 462.39.
Ibid., s. 462.37(2).
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* Remedies for Organized Crime and Other Unlawful Activities Act
(Ontario)
In December 2001, the Ontario legislature enacted the Remedies for Organized
Crime and Other Unlawful Activities Act, 2001.”2 This pathbreaking piece of
legislation permits Ontario’s attorney general to initiate judicial proceedings to obtain
orders forfeiting proceeds of “unlawful activity”. The term “unlawful activity” is
defined as an act or omission that constitutes an offence under either federal,
provincial, or territorial legislation in Canada, or “is an offence under an Act or
jurisdiction outside Canada, if a similar act or omission would be an offence under an
Act of Canada or Ontario if it were committed in Ontario… “”
The Ontario forfeiture legislation differs from the federal proceeds of crime
legislation in four main respects. First, because of the breadth of the definition of the
term “unlawful activity”, the Ontario legislation applies to proceeds of crime derived
from a much larger set of predicate offences.
Second, the Ontario legislation and the federal Criminal Code provisions differ in
respect of the applicable standard of proof. One way or another, the federal provisions
require that the commission of the predicate offence be proven beyond a reasonable
doubt.” By contrast, in proceedings under the Ontario legislation, relevant facts need
only be established on the balance of probabilities.” It is also significant that although
conviction is deemed proof that a person has committed an offence, for the purposes
of the Ontario legislation an offence may be found to have been committed even if no
person was ever charged with the offence or a person was charged and the charge was
either withdrawn, stayed, or an acquittal was entered.”‘
A third difference between the federal and the Ontario legislation lies in the
amount of discretion conferred upon the judge seized with the issue of whether to
grant a forfeiture order. Whereas the federal legislation requires a forfeiture order to
be made in respect of proceeds of crime derived from a designated offence for which
an accused has been convicted, the Ontario legislation provides that even if all of the
12 S.O. 2001, c. 28 [Organized Crime Act].
I Ibid., s. 2.
‘ Recall that federal law permits forfeiture of proceeds of crimes whether or not the offender has
been convicted of the predicate offence. In cases where the offender has been convicted of the
predicate offence, the general principle that the existence of all essential elements of criminal offences
must be proven beyond a reasonable doubt (R. v. Whyte, [1988] 2 S.C.R. 3 at 15-17, 29 B.C.L.R. (2d)
273) guarantees the result described in the text. In cases where the offender has not been convicted of
the predicate offence the Criminal Code provides that the court must be satisfied beyond a reasonable
doubt that the property is the proceeds of crime (supra note 4, s. 462.37(2)). This provision clearly
implies that the court must be satisfied beyond a reasonable doubt that the predicate offence has been
committed.
‘ Organized Crime Act, supra note 12, s. 16.
“‘Ibid., s. 17(2).
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statutory preconditions to making a forfeiture order have been satisfied, a forfeiture
order need not be made “where it would clearly not be in the interests of justice.”‘7
A fourth difference is that while the Ontario legislation contains a fifteen-year
limitation period (measured from the date at which the proceeds were generated),’8
there is no limitation period applicable to forfeiture proceedings under the Criminal
Code.
Prohibiting Profiting from Recounting Crimes Act (Ontario)
In 1994, Ontario enacted legislation that permitted the government to confiscate
money paid to a person accused or convicted of a crime in exchange for either
providing information about a crime or the use of documents or things related to a
crime.'” This type of legislation is sometimes referred to as “Son of Sam” legislation
in reference to legislation first enacted by New York State in order to prevent David
Berkowitz, a notorious serial killer known as “Son of Sam”, from profiting by selling
the story of his crimes while the families of his victims went uncompensated.’0 Money
obtained by the government pursuant to these statutes is typically held in trust for
purposes that include compensating victims of crime.’
Ontario recently repealed its original “Son of Sam” statute and replaced it with
the Prohibiting Profiting Act.” The new statute contains two main operative
provisions. First, it provides that a court may order that any money or other
consideration that is to be paid to a person convicted or charged with designated
offences, or their agent, pursuant to a contract for the use of recollections, documents,
or other things that relate to the relevant offence (“contract for recounting crime”)
must be paid instead to the Crown in right of Ontario. 3 Second, the statute provides
that the court may make an order forfeiting any property that constitutes proceeds of a
contract for recounting crime.’
“Ibid., ss. 3, 8.
“Ibid., s. 3(5).
“Victims’ Right to Proceeds of Crime Act, 1994, S.O. 1994, c. 39 [Victims’ Right Act], as rep. by
Prohibiting Profiting from Recounting Crimes Act, S.O. 2002, c. 2 (not in operation), s. 17
[Prohibiting Profiting Act].
20 Yitschak Keren-Paz, A Notoriety-Based Justification for the “Son of Sam” Legislation (LL.M.
Thesis, University of Toronto, 1998) [unpublished] at 1.
21 See e.g. Victims’Right Act, supra note 19, s. 3(1).
22Prohibiting Profiting Act, supra note 19, repealing Victims’Right Act, supra note 19.
23 Prohibiting Profiting Act, ibid. s. 4(l)(a). The designated offences are, essentially, serious violent
crimes, sexual assaults, and serious property offences (as defined by regulation) (ibid., s. 2).
24 Ibid., s. 4(1)(b).
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* Victims Restitution and Compensation Payment Act (Alberta)
In November 2001, the government of Alberta enacted its own civil forfeiture
legislation, the Victims Restitution and Compensation Payment Act,’ which contains
three distinct parts.
In most key respects, Part 1 of the Victims Restitution Act resembles the portions of
the Ontario Organized Crime Act concerned with proceeds of crime. First, the facts that
must be established to support a “property disposal order” (the term used to denote a
forfeiture order) need only be determined on the balance of probabilities’ Second, it is
unnecessary to prove that any person has been convicted of an offence in order to
establish that property has been “acquired by illegal means” (the main prerequisite to
making a property disposal order).27 Third, the court making a property disposal order
has considerable discretion over whether to order forfeiture.” The most significant
difference between Part 1 of the Victims Restitution Act and the comparable portions of
the Organized Crime Act is that the Alberta legislation applies to property derived from
a narrower set of predicate offences. Like both the federal and the Ontario legislation,
the Alberta legislation applies to property acquired or derived, directly or indirectly,
from contraventions of, or offences under, the Criminal Code and the Controlled Drugs
and Substances Act.29 Unlike the Ontario legislation, however, the Alberta legislation
only applies to property derived from other violations of federal or provincial legislation
that are specified by regulation.’ Another interesting feature of the Alberta legislation is
that it does not appear to contain a limitation period.
Parts 2 and 3 of the Victims Restitution Act contain novel provisions that are only
triggered once an offender has been convicted of an offence under the Criminal
Code.” Part 2 allows an Alberta court to take various steps after making a “restitution
order” in favour of a victim of crime pursuant to section 738 or 739 of the Criminal
Code.2 Although this part of the Victims Restitution Act does not provide for forfeiture
per se, it does permit the court to make orders—“restitution payment orders”-against
property of the offender that may be functionally equivalent to certain types of
forfeiture” Specifically, the Victims Restitution Act permits the court to order either
25 S.A. 2001, c. V-3.5 (not in operation) [Victims Restitution Act].
26 Ibid., s. 14.
27Ibid., s. 13(4).
2 Ibid., s. 14(b) (providing that the court “may” grant a property disposal order).
29S.C. 1996, c. 19.
30 Victims Restitution Act, supra note 25, s. 1(2).
32Ibid., s. 20(1)(f).
Ibid., ss. 20-30, 31-45.
Ibid., s. 27.
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that property of an offender be transferred directly to a victim or that the property be
disposed of and the proceeds distributed to the victim.”
Part 3 of the Victims Restitution Act is even more interesting in this respect. That
part contains provisions permitting a sentencing court that has not made a restitution
order pursuant to the Criminal Code but that has determined “the amount of gain
made or the value of property acquired by the offender by virtue of carrying out the
illegal act” to make a “compensation order” in favour of the Crown.” A compensation
order requires the offender to pay an amount up to the previously determined value of
the offender’s proceeds of crime to the Crown. 6 A compensation order may be
enforced by a direction to dispose of the property of an offender and pay the proceeds
to the Crown.”
B. Instruments of Crime
9 Criminal Code: General Provisions
The general provisions concerning forfeiture of offence-related property are
contained in Part XV of the Criminal Code.” The term “offence-related property” is
defined to include, essentially, any property in respect of which an indictable offence
is committed, or which is used, or intended to be used, to commit an indictable
offence under the Criminal Code.” As with the provisions governing forfeiture of
proceeds of crime, the Criminal Code contemplates the forfeiture of offence-related
property that both does and does not relate to the offence for which the offender is
being sentenced. ‘ In the former case, the court is required to make a forfeiture order
once it is satisfied, on the balance of probabilities, that the property constitutes
offence-related property and relates to the offence in question.” In the latter case, the
court is simply permitted to make a forfeiture order once it is satisfied, beyond a
reasonable doubt, that the property constitutes offence-related property.” One
difference between proceedings concerning forfeiture of proceeds of crime and those
Ibid., ss. 27(b)-(d).
‘ Ibid., s. 32.
Ibid.
“Ibid., s. 39(l).
38Supra note 4, ss. 483-492.2.
3 Ibid, s. 2.
In cases where an accused has died or absconded, a forfeiture order may be made where
proceedings in respect of a criminal organization offence relating to the property have commenced
and the court is satisfied beyond a reasonable doubt that the property is offence-related property (ibid.,
s. 490.2(2)). As in section 462.38, it is unclear whether the court must be satisfied that the property
relates to the offence charged on the balance of probabilities or beyond a reasonable doubt.
“Ibid., s. 490.1(1).
41 Ibid., s. 490.1 (2).
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concerning forfeiture of offence-related property is that the latter need not be part of
the sentencing of an offender.
0 Criminal Code: Instruments of Terrorism
As part of its package of anti-terrorist legislation, the federal government has
added a provision to the Criminal Code that requires the Federal Court, upon the
application of the attorney general, to order forfeiture of “property that has been or
will be used, in whole or in part, to facilitate or carry out a terrorist activity.” The
principal difference between the general provisions dealing with forfeiture of offence-
related property and the provision dealing with instruments of terrorism is that the
latter requires a forfeiture order to be made once a judge is satisfied, on the balance of
probabilities, that the relevant conditions have been fulfilled.” There is no requirement
that anyone connected with the property be convicted of any offence. Consequently,
whereas under the general provisions much of the factual underpinning for a
forfeiture order typically must be established beyond a reasonable doubt, the
provision focussed on instruments of terrorism permits all of the relevant facts to be
proven on the balance of probabilities.
* Organized Crime Act
In addition to providing for forfeiture of proceeds of unlawful activity, the Ontario
legislation also provides for forfeiture of “instrument[s] of unlawful activity”.” This
term is defined to mean “property that is likely to be used to engage in unlawful
activity that, in turn, would be likely to or is intended to result in the acquisition of
other property or in serious bodily harm to any person.” By its terms, this definition
is wholly prospective in orientation. In other words, it does not necessarily capture
property that has previously been used to engage in the relevant types of unlawful
activity. The Organized Crime Act goes on to provide, however, that property that has
previously been used to engage in unlawful activity is considered, at least in the
absence of evidence to the contrary, likely to be used that way in the future as well.”
The conditions under which instruments of unlawful activity can be forfeited are
virtually identical to the conditions under which proceeds of unlawful activity can be
forfeited. This also means that the differences between federal and provincial law
,” Subsection 462.37(1) of the Criminal Code (ibid.) specifies that a forfeiture order must be made
by “the court imposing sentence on the offender”, whereas subsection 490.1(1) simply refers to “the
court”.
“Ibid., s. 83.14, as am. by S.C. 2001, c. 41, s. 4.
41 Ibid., s. 83.14(5).
Organized Crime Act, supra note 12, s. 8(1)
Ibid., s. 7(1).
,Ibid., s. 7(2).
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concerning forfeiture of instruments of crime are similar to the differences that arise in
connection with forfeiture of proceeds of crime. Specifically, because the term
“unlawful activity” is broadly defined,’ the provincial legislation covers a broader range
of predicate offences than the federal provisions. In addition, the provincial legislation
only requires findings on a balance of probabilities rather than beyond a reasonable
doubt.’ Finally, the provincial legislation is more flexible because it permits a judge to
refrain from making a forfeiture order “where it would clearly not be in the interests of
the Ontario provisions dealing with
justice.”‘ One curious difference between
instruments as opposed to proceeds of unlawful activity is that there is no limitation
period for proceedings in respect of instruments of unlawful activity.”2
C. Property Owned or Controlled by a Terrorist Group
The forfeiture power added to the Criminal Code by the federal government’s
anti-terrorism package does not only apply to instruments of terrorist activity, it also
applies to any “property owned or controlled by or on behalf of a terrorist group … ”
In many cases, it will be reasonable to presume that such property has been, or is
intended to be, used to carry out criminal activity, and to that extent this provision
covers property already subject to forfeiture under other legislative provisions as an
instrument of crime. In principle, however, property owned or controlled by a terrorist
group need not qualify as an instrument of crime nor, for that matter, as proceeds of
crime. To the extent that it covers such property, this provision has to be distinguished
from those concerning both instruments and proceeds of crime. This point aside, the
circumstances in which property owned or controlled by a terrorist group can be
forfeited are the same as those in which instruments of terrorist activity can be
forfeited.
II. Potential Effects on Third Parties
The first section in this part analyzes whether forfeiture orders made pursuant to
the provisions outlined above can affect the interests of third parties. The second
section identifies the types of third parties that might be affected. The third and fourth
sections discuss two mechanisms that a court might employ to avoid such effects,
namely, providing relief from forfeiture and imposing some sort of personal
obligation (e.g., a fine) in lieu of forfeiture.
‘9 Ibid., s. 7(1).
SI Ibid., s. 16.
52 Ibid., s. 8(l).
,’ Ibid., s. 8(5).
,Supra note 4, s. 83.14(1)(a).
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A. Are the Interests of Third Parties Affected by Forfeiture?
The Criminal Code does not contain any language to the effect that only the
offender’s interest in proceeds of crime or instruments of crime may be forfeited. In
fact, the code’s definitions of property subject to forfeiture make no reference
whatsoever to the identity of the property’s owner. Thus, a literal reading of the code
suggests that so long as it satisfies the applicable conditions, property in which a third
party holds an interest is subject to forfeiture. Moreover, the code contains explicit
provisions permitting, but not requiring, the court to grant certain third parties relief
from forfeiture.’ These provisions, which are discussed in greater detail below, clearly
contemplate a valid forfeiture order being made in respect of property in which third
parties have an interest; otherwise, they would be superfluous. Thus at first glance, the
statutory scheme appears to be sufficiently clear to override any presumption that
these provisions ought to be construed so as to avoid permitting property to be taken
away without compensation (assuming that this presumption applies in the context of
forfeiture legislation).”
There is, however, one potential source of ambiguity in the Criminal Code’s
provisions concerning forfeitures of proceeds of crime. Subsection 462.37(3) permits
a fine to be imposed in lieu of forfeiture where proceeds of crime that should be the
subject of a forfeiture order “cannot be made subject to such an order … ” The code
goes on to state that this circumstance may arise when the property “has been
transferred to a third party … “” Based on this language, one might argue that
proceeds of crime that have been transferred to a third party are not available for
forfeiture unless the transfer is set aside.’ This argument, however, was rejected by
the British Columbia Court of Appeal in R. v. Rosenblum”‘ where the court held that
merely transferring property to a third party does not preclude the making of a
forfeiture order. The court suggested that a transfer to a third party would only
preclude the making of a forfeiture order in a limited set of cases, such as where
property has been transferred to a third party who cannot be located and who cannot,
therefore, be served with the notice that is a prerequisite to certain types of forfeiture
orders.’ The clear implication of the British Columbia court’s decision is that a
Ibid., ss. 462.34(4), 462.41(3), 462.42,490.4(3), 490.5.
Attorney-General v. De Keyser’s Royal Hotel Ltd., [1920] A.C. 508 (H.L.), [1920] All E.R. 80;
Manitoba Fisheries Ltd. v. Canada (1978), [1979] 1 S.C.R. 101, 88 D.L.R. (3d) 462.
Criminal Code, supra note 4, s. 462.37(3).
57 Ibid.
” The Ontario Court of Appeal obliquely referred to-but ultimately ignored–this argument in
Wilson v. R. (1993), 15 O.R. (3d) 645, 25 C.R. (4th) 239 (C.A.) [Wilson cited to O.R.] (“[i]n that case
the assigned funds would have been transferred to a third party and therefore not available for
forfeiture” at 652).
9 R. v. Rosenblum (1998), 167 D.L.R. (4th) 639, 130 C.C.C. (3d) 481 (B.C.C.A.).
‘0 Ibid. at paras. 33-35. The notice requirements referred to can be found in the Criminal Code,
supra note 4, ss. 462.41(1), 490.4(1).
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forfeiture order under the Criminal Code affects a third party’s interest in proceeds of
crime in exactly the same way as such an order affects the interests of an offender.
The situation is similar under the Ontario Organized Crime Act and Part 1 of the
Alberta Victims Restitution Act. There is nothing in either of these acts to suggest that
their forfeiture provisions only apply to property owned by a person who has
committed, or is likely to commit, an unlawful activity. Moreover, both pieces of
legislation contain provisions designed to protect the interests of third parties who
would otherwise be prejudiced by the making of a forfeiture order.” Interestingly,
however, the Victims Restitution Act only provides for the enforcement of restitution
orders and compensation payment orders made under Parts 2 and 3 against “property
of the offender” or “money of the offender”, suggesting that the interests of third
parties are not affected by these orders.2
The Prohibiting Profiting Act is relatively clear in this respect as it expressly
provides that the proceeds of a contract for recounting crime can be ordered to be paid
to the Crown where money or other consideration is to be paid to an “agent” of the
charged or convicted person.” The term “agent” is defined to include a person who
has been assigned rights under a contract for recounting crime by the charged or
convicted person.” It is important to note, however, that the term “assigned” is not
defined in the statute and so it is unclear whether a person who merely obtains a
security interest in rights under a contract for recounting crime will qualify as an
agent, particularly if the security interest does not technically involve a transfer of
title.’ Again, these provisions seem sufficiently clear to rebut any presumption against
interference with property rights.
B. What Types of Third Parties Might Be Affected?
A forfeiture order can affect third party interests acquired either before, after, or at
the same time that the property becomes subject to forfeiture. Consider, for example,
a situation in which an automobile owned by A is used by B as an instrument of crime
and then is eventually transferred to C. In principle, the automobile can be declared
” Organized Crime Act, supra note 12, ss. 3(3), 8(3); Victims Restitution Act, supra note 25, ss. 15,
18(l)(a), 27(2)(c), 39(2)(c).
Victims Restitution Act, ibid., ss. 39(1)(a)-(c).
“Prohibiting Profiting Act, supra note 19, s. 7(1).
64 The definition of an agent also includes a personal representative, a corporation with which the
person has a substantial connection, and a spouse, former spouse, same-sex partner, former same-sex
partner, or other relative of a clarged or convicted person, but does not include agents of people who
fall into any of these categories (ibid., s. 2(b)).
63 This issue does not appeaj to have been judicially considered. For a discussion of whether
assignments by way of security are captured by the term “assignment” as it is used in federal
intellectual property legislation, see Roderick J. Wood,
‘The Nature and Definition of Federal
Security Interests” (2001) 34 Can. Bus. L. J. 65 at 101-106.
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forfeit any time after B’s intervention, to the prejudice of either A or C (or
conceivably both). Similarly, imagine if an automobile owned by A is stolen by B-
thereupon becoming proceeds of crime-and then transferred to C. In principle, the
automobile can be forfeited
these
circumstances, a restitution order in favour of A is the more likely outcome.” Finally,
consider a scenario in which A takes a security interest over B’s present and after-
acquired property, and then B acquires property (e.g., a cheque) that qualifies as
proceeds of crime (simultaneously becoming subject to A’s security interest) and
subsequently transfers that property to C. Again, depending upon the exact timing, a
forfeiture order could serve to negate the interests of either A or C.
the Crown, although
in practice,
to
in
There is a wide range of third parties that can be affected by a forfeiture order.
The most obvious examples are third parties who hold some sort of legally cognizable
interest in the property subject to forfeiture. Consider, for example, the case where a
forfeiture order is made in respect of a matrimonial home that is jointly owned by an
offender and his or her spouse. Alternatively, imagine the case of a forfeiture order
made in respect of a car that has been leased or borrowed by an offender. Perhaps
most realistically of all, consider the possibility that either the home or the car will be
subject to some sort of security interest. A similar range of third parties may be
affected by an order made under Ontario’s “Son of Sam” legislation in respect of a
right of payment.
Another important category of third parties comprises those with defective legal
interests in property subject to forfeiture. These parties are most likely to appear in
cases involving proceeds of crime where the victim of the crime can trump the third
party’s claim to the proceeds by virtue of either the common law rule of nemo dat
quod non habet (“he who.hath not cannot give”) or some sort of equitable proprietary
claim.’ The nemo dat rule, however, is subject to important exceptions in favour of
good faith purchasers for value without notice in cases involving currency; negotiable
instruments; sales by sellers with voidable title; sales by sellers, buyers, or factors in
possession; and situations in which the true owner is estopped from denying the
authority of the intermediate transferor.” Moreover, equitable proprietary claims are
‘ See Criminal Code, supra note 4, s. 740 (in circumstances where both a restitution order and
forfeiture order can be made, the restitution order is to be made first).
67 The nemo dat rule is merely a priority rule and so will not be of assistance to a victim who does
not hold a legally cognizable interest that can be followed or traced into the property in question. In
some such situations, however, the victim may still be able to obtain a remedial constructive trust over
the proceeds of the crime. See Hong Kong (A.G.) v. Reid, [1994] 1 A.C. 324, [19941 1 All E.R. I
(P.C.) (principal granted constructive trust over bribe paid to agent). Compare Rosenfeldt v. Olson
(1986), 25 D.L.R. (4th) 472, [1986] 3 W.W.R. 403 (B.C.C.A.). See generally Lord Goff of Chieveley
& Gareth Jones, The Law of Restitution, 5th ed. (London: Sweet & Maxwell, 1998) at 84-91, 811-13.
” For a brief discussion, see Marjorie Lynne Benson & Marie-Ann Bowden, Understanding
Property: A Guide to Canada’s Property Law (Scarborough: Carswell, 1997) at 50-53. For a detailed
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generally ineffective against persons who can raise equitable defences such as good
faith purchase for value without notice or change of position.” Consequently, the
category of third parties with defective interests is likely to comprise parties who
either do not qualify as good faith purchasers for value or have obtained proceeds of
theft as opposed to proceeds of fraud. (Victims of theft can take advantage of the
nemo dat rule but victims of fraud cannot because fraud typically renders a
transaction voidable and thus triggers the exception for sales by sellers with voidable
tite.)’
Finally, forfeiture also has the potential to affect the interests of third parties who
have economic, but not legal, interests in property. The most important examples of
third parties of this sort are unsecured creditors and their representatives (e.g., trustees
in bankruptcy). Although unsecured creditors have no legal interests in the property of
their debtor, they clearly have economic interests in the sense that they may suffer
prejudice if their debtor’s property is forfeited.”
Because of the range of different types of third parties who may be affected by an
order of forfeiture, the term “third party”, in the discussion that follows, will be
defined broadly to include any third party with an economic interest in the property
subject to forfeiture.
C. Relief from Forfeiture
Each of the statutory regimes discussed in Part I provides some sort of scheme
under which a court may grant certain third parties what I will call “relief’ from
forfeiture. There are, however, subtle differences between each of these schemes
concerning matters such as the notice that third parties are entitled to receive prior to
the making of a forfeiture order, whether relief can be granted after a forfeiture order
discussion of English law on this topic, which is very similar to Canadian law, see Roy Goode,
Commercial Law, 2nd ed. (London: Penguin Books, 1995) at 450-482,495, 539-44.
“Goff & Jones, supra note 67 at 818-28, 843. For a recent discussion of the scope of certain types
of equitable proprietary claims in the Canadian context, see Citadel General Assurance v. Lloyds
Bank Canada, [1997] 3 S.C.R. 805, 152 D.LR. (4th) 411.
” For cases supporting the proposition that fraud renders a transaction voidable, see R. v. Canadian
Imperial Bank of Commerce (2000), 51 O.R. (3d) 257, 151 C.C.C. (3d) 439 (C.A.) [CIBC cited to
O.R.]; White v. Garden (1851), 10 C.B. 919, 138 E.R. 364; Babcock v. Lawson (1879), 4 Q.B.D. 394,
41 Law Times Reports 252. On the other hand, there is authority for the proposition that if the effect
of a fraud is to induce a “fundamental” mistake, the resulting contract will be void rather than
voidable, meaning that the victim will retain tide and be entitled to recover the property. See Cundy v.
Lindsay (1878), 3 A.C. 459 (H.L.), [1974-80] All E.R. Rep. 1149. For a case applying the nemo dat
rule in favour of a victim of theft, see Cuff-Waldron Manufacturing Co. v. Heald, [1930] 3 D.L.R.
901, 24 Sask. L.R. 441 (C.A.).
7′ Compare R. v. Zlatic, [1993] 2 S.C.R. 29, 100 D.L.R. (4th) 642, McLachlin J. (suggesting that
unsecured creditors hold a “pecuniary interest” in the property of their debtor).
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has been made, which third parties are eligible for relief, and the amount of discretion
possessed by the trial judge in determining whether to provide relief.
0 Criminal Code: General Provisions
At a purely procedural level, one of the most noteworthy features of the Criminal
Code’s general provisions concerning forfeiture of proceeds and instruments of crime
is that before a forfeiture order can be made, notice must be provided to “any person
who, in the opinion of the court, appears to have a valid interest in the property.”’72 This
important procedural right safeguards third parties’ substantive rights to relief from
forfeiture.
As far as those substantive rights are concerned, we can begin with the Criminal
Code provisions that allow a court to make an order requiring that property of an
offender that would otherwise be forfeited, or in the case of proceeds of crime,
property that has been seized or detained pending forfeiture, be restored to an
innocent third party.” Specifically, this sort of restoration order may be made where
the third party (1) is not charged with, and has not been convicted of, a designated
offence; (2) is not a person who “acquired title to or a right of possession of [the]
property … 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”; (3) is
innocent of complicity in or collusion in relation to a predicate offence that was
committed in relation to the property forfeited; and (4) is the lawful owner or is
lawfully entitled to possession of the property. Similar provisions also permit the
court to grant an innocent third party relief from an order of forfeiture that has already
been made, provided they apply for such relief within thirty days of the forfeiture
order.”
72 Criminal Code, supra note 4, ss. 462.41(1), 490.4(1).
Ibid., ss. 462.41(3), 490.4(3). Third parties can also obtain relief by demonstrating that property
that has been seized or detained pending forfeiture is no longer required for the purposes of forfeiture,
for the purpose of any investigation, or as evidence in any proceeding. In this case the court is
required to return the property to “the lawful owner or the person who is lawfully entitled to its
possession … ” if that person is known (ibid., s. 462.43(l)(c)(ii)). The court has no discretion in this
respect and need not be satisfied that the lawful owner is innocent in any way.
‘4Ibid., ss. 462.34(4)(b), 462.34(6)(a)(ii), 462.41(3), 490.4(3).
” Ibid., ss. 462.42,490.5. These provisions define the class of protected third party individuals in a
slightly different way from the provisions that govern restoration of property to third parties prior to
forfeiture. First, in the case of parties seeking relief from forfeiture of both proceeds of crime and
offence-related property, the third party need not establish that she or he has never been charged with
or convicted of a predicate offence. Instead, she or he need only demonstrate that she or he has never
been charged with or convicted of a predicate offence in relation to the property that has been
forfeited (ibid., ss. 462.42(1), 490.5(l)). Second, in the case of parties seeking relief from forfeiture of
offence-related property, the third party must, in addition to the other conditions referred to above,
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It is worth noting that these provisions obviously do not protect all “third parties”
as that term is being used in this article. The mere fact that a person has not been
convicted of an offence will not necessarily permit them to claim innocence for the
purposes of these provisions. Moreover, the references to a “lawful owner” 6 and to a
person who is “lawfully entitled to possession of the property” seem to exclude third
parties who do not hold legally cognizable interests in the property subject to
forfeiture.”
Another interesting feature of these provisions is the fact that they are permissive
rather than mandatory. In other words, the court has broad discretion over whether to
return property to a third party, even if the third party demonstrates that they are
innocent and are the lawful owners of the property. The only general constraint that
the appellate courts have imposed on the exercise of this discretion is that it must be
done in “a judicial manner which respects the intent of the legislation governing
criminal proceeds: preventing a delinquent from enjoying the fruits of his crimes.”
The breadth of the court’s discretion in respect of forfeiture of property in which
third parties have an interest is illustrated by the Ontario Court of Appeal’s decision in
R. v. Canadian Imperial Bank of Commerce.” That case arose in connection with the
sentencing of one Mr. Obront, who was charged and convicted of fraud in relation to a
gemstone telemarketing scheme. The trial judge made a forfeiture order in respect of
various assets,
the account of a company named Royal
International Collectibles (“RIC”). The funds were ostensibly subject to a security
interest held by the bank at which the account was located, the Canadian Imperial
Bank of Commerce (“CIBC”).
including funds in
Prior to the making of the forfeiture order, CIBC argued that the funds should be
returned to it, apparently relying upon subsection 462.41(3) of the Criminal Code.
The trial judge rejected CIBC’s claim, however, on the basis that RIC could not have
transferred an interest in the funds in the account to CIBC because those funds were
proceeds of crime.’ On appeal, the Crown noted that according to the Personal
Property Security Ac?2 a debtor must have rights in property before a security interest
establish that she or he “exercised all reasonable care to be satisfied that the property was not likely to
have been used in connection with the commission of an unlawful act” by the person to whom the
applicant gave possession or from whom she or he obtained possession or a security interest (ibid.,
s. 490.5(4)(b)).
76 Ibid., ss. 462.34(4)(c), 462.41(3), 490.4(3).
77 Ibid.
“‘ Lumen Inc. v. Canada (A.G.) (1997), 151 D.L.R. (4th) 661, 119 C.C.C. (3d) 91 (Qc. C.A.)
(ordinary creditors do not have an enforceable interest in the proceeds of crime subject to forfeiture).
9 Villeneuve v. Canada (A.G.) (1999), 140 C.C.C. (3d) 564 at 575 (Qc. C.A.). See also Wilson,
supra note 58 at 655-56.
“CIBC, supra note 70.
“Ibid. at 258.
R.S.O. 1990, c. P-10.
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can attach to that property and a security interest must attach to property before it can
be effective as against third parties. The thrust of the Crown’s argument was that
because RIC obtained the funds in the account through fraud, it never had an interest
in those funds and so CIBC could not have obtained a valid security interest in the
property. Of course, without a valid interest in the property, CIBC was not entitled to
relief from forfeiture.”
The Ontario Court of Appeal rejected the Crown’s argument and held that the trial
judge erred in concluding that RIC never had an interest in the funds. According to
the appellate court, RIC’s title was voidable rather than void ab initio. As a result, the
bank’s security interest attached to the funds in the account. Nevertheless, the
members of the Court of Appeal unanimously dismissed the appeal on the grounds
that they were entitled to exercise the discretion that the trial judge was authorized to
exercise under section 462.41 of the Criminal Code. The court declined to exercise
that discretion in favour of the bank, stating:
Although we are satisfied that the bank has a security interest in all the moneys
in the account pursuant to its security agreement, we would not exercise the
court’s discretion in favour of the bank in these circumstances in respect of any
of the [proceeds of crime). Those moneys are identifiable proceeds of crime
which should be returned to the victims,”
No further explanation was provided. As a result, this case illustrates both the breadth
of the discretion enjoyed by courts in deciding whether to grant third parties relief
from forfeiture and the reluctance of appellate courts to provide guidance on how that
discretion ought to be exercised.
* Criminal Code: Provisions Concerning Instruments of Terrorism
and Property Owned or Controlled by a Terrorist Group
The provisions of the Criminal Code concerned specifically with forfeiture of
property connected to terrorist activity and terrorist groups contain their own scheme for
protecting third parties-one that is considerably less complicated
than the one
connected to the other forfeiture provisions of the Criminal Code. The scheme has two
components. First, it provides that a judge shall order that a third party’s interest in
property is not affected by a forfeiture order if the third party can establish that he or she
“has exercised reasonable care to ensure that the property would not be used to facilitate
or carry out terrorist activity, and is not a member of a terrorist group … “‘ It is important
to note that this language is mandatory rather than permissive. It is also worth noting that
while this provision refers to third parties with “an interest in property [subject to
8 CIBC, supra note 70 at 259.
lbid. at 261.
“Criminal Code, supra note 4, s. 83.14(8).
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K DAVIS – THE EFFECTS OF FORFEITURE ON THIRD PARTIES
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forfeiture],’
economic rather than legal.
it is unclear whether this language embraces interests that are purely
The second component of the protective scheme attached to the terrorism-specific
forfeiture provisions is much more open-ended and permissive. Subsection 83.14(9)
of the Criminal Code requires a judge charged with deciding whether to make a
forfeiture order in respect of a “dwelling-house” to “consider”:
(a) the impact of an order of forfeiture on any member of the immediate family
of the person who owns or controls the dwelling-house, if the dwelling-
house was the member’s principal residence at the time the dwelling-house
was ordered restrained or at the time the forfeiture application was made
and continues to be the member’s principal residence; and
(b) whether the member appears innocent of any complicity or collusion in the
terrorist activity.”
Since it is far from clear what it means to “consider” these factors, this provision gives
judges significant discretion over whether to make an order of forfeiture in respect of
a “dwelling-house” in which a third party has an interest.
Like the Criminal Code’s general forfeiture provisions, the terrorism-specific
provisions permit third parties to claim protection from the effects of a forfeiture order
either before or after such an order has been made. The ability to move to set aside a
forfeiture order that has already been made, however, can only be exercised by a third
party who did not receive notice of the application for a forfeiture order, and then only
within sixty days of the making of the order.’ Oddly, the court appears to have discretion
over whether to provide third parties who do not own or control the property in issue
with notice that an application for forfeiture has been made under this provision.”
0 Organized Crime Act
Ontario’s Organized Crime Act contains separate provisions designed to provide
protection from forfeiture for third parties with interests in each of proceeds and
instruments of unlawful activity. Unlike the federal legislation, however, the Ontario
statute only provides for relief for third parties who are parties to the proceedings in
which a forfeiture order is being sought. There is no provision for reversal of the
effects of a forfeiture order that has already been made and it is unclear what sort of
notice affected third parties are entitled to receive in respect of proceedings under the
act.
Ibid.
s Ibid., s. 83.14(9).
“Ibid., s. 83.14(10).
“See ibid., s. 83.14(7) (using the word “may” rather than “shall”).
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Leaving aside these procedural matters, the provision designed
to confer
protection against forfeiture of proceeds of unlawful activity covers “legitimate
owners.”‘ A “legitimate owner” is defined as someone who did not acquire the
property as a result of his or her own unlawful activity and is, essentially, either a
victim of the unlawful activity or a purchaser for (fair) value without notice, or a
transferee from such a victim or purchaser,” Meanwhile, the provisions that limit the
scope for forfeiture of instruments of unlawful activity apply to “responsible
owners”.” A “responsible owner” is defined as
a person with an interest in the property who has done all that can reasonably
be done to prevent the property from being used to engage in unlawful activity,
including,
(a) promptly notifying appropriate law enforcement agencies whenever
the person knows or ought to know that the property has been or is
likely to be used to engage in unlawful activity, and
refusing or withdrawing any permission that the person has authority
to give and that the person knows or ought to know has facilitated or
is likely to facilitate the property being used to engage in unlawful
activity ..?
(b)
Like the third party protection scheme associated with the general forfeiture
provisions of the Criminal Code, the Ontario legislation gives the court discretion
over whether to provide relief from forfeiture. Where a court finds that a person is
either a legitimate owner or a responsible owner, “except where it would clearly not
be in the interests of justice,” the court is required to make “such order as it considers
necessary to protect … [that person’s] interest in the property”‘
‘0 Organized Crime Act, supra note 12, s. 3(3).
9′ Section 2 of the Organized Crime Act (ibid., s. 2), provides:
“legitimate owner” means, with respect to property that is proceeds of unlawful
activity, a person who did not, directly or indirectly, acquire the property as a result of
unlawful activity committed by the person, and who,
(a) was the rightful owner of the property before the unlawful activity occurred and
was deprived of possession or control of the property by means of the unlawful
activity,
(b) acquired the property for fair value after the unlawful activity occurred and did
not know and could not reasonably have known at the time of the acquisition
that the property was proceeds of unlawful activity, or
(c) acquired the property from a person mentioned in clause (a) or (b) …
,9′ Ibid., s. 8(3).
9’ Ibid., s. 7(l).
9Ibid., ss. 3(3), 8(3).
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* Recounting Crimes Act
As previously mentioned, the Recounting Crimes Act effectively provides for two
forms of forfeiture: (1) an order requiring money payable under a contract to be paid
to the Crown, and (2) an order forfeiting proceeds of a contract for recounting crime.”‘
Strangely, the statute only contains a scheme for protecting third parties from the
effects of the second type of order. The court’s authority to order forfeiture is limited
by a provision that requires the court to make “such order as it considers necessary” to
protect the proprietary interests of a party to the proceeding who proves that “he, she,
or it is a legitimate owner of the property.’ A “legitimate owner of the property” is
defined, essentially, as a purchaser for fair value without notice or a transferee of such
a person. ‘ There is no comparable provision, however, that would protect an assignee
of a right to payment under a contract for recounting crime from being prejudiced by
an order requiring that the payment be made to the Crown. As with the Organized
Crime Act, this statute only provides for relief for third parties who are parties to the
original proceedings, and it is unclear what sort of notice affected third parties are
entitled to receive in respect of those proceedings.
* Other Ontario Legislation
As noted above, neither the Organized Crime Act nor the Prohibiting Profiting
Act makes any explicit provision for relief from forfeiture after a forfeiture order has
been made. Third parties who find themselves in such a situation may, however, be
able to obtain relief under one of at least two other pieces of legislation: the Fines and
Forfeitures Acte8 or the Escheats Act.”
The Fines and Forfeitures Act provides for relief in terms that are similar to the
other federal and provincial legislation canvassed above. Section 6 of the act provides
that in cases involving forfeiture of personal property, a third party can “apply for an
order declaring the person’s interest in the property immediately before forfeiture””
within sixty days of the date of forfeiture. The court is required to grant the order once
it is satisfied that the third party not only had an interest in the property but also
“exercised reasonable care with respect to the person given possession of the property
so as to be satisfied that the person was not likely to use the property contrary to any
Prohibiting Profiting Act, supra note 19, ss. 4(l)(a)-(b).
Ibid., s. 4(3).
9 To be more precise, the legislation refers to a person who “acquired the property for fair value and
did not know and could not reasonably have known at the time of the acquisition that the property
was proceeds of a contract for recounting crime” (ibid., s. 2).
“R.S.O. 1990, c. F-13, s. 6.
R.S.O. 1990, c. E-20.
‘ Fines and Forfeitures Act, supra note 98, s. 6(1).
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Act of the Legislature … “”‘ Once the order has been granted, the lieutenant governor
in council is authorized to provide whatever relief he or she sees fit.’ 2
By contrast, the Escheats Act is more broadly worded. Section 3 of the act
permits the lieutenant governor in council to transfer forfeited property “to any person
for the purpose of transferring or restoring it to a person having a legal or moral claim
upon the person to whom it had belonged … .’. Section 5 of the act permits the
government to waive its right to forfeited property and release the property to the
person who would have been entitled to it but for the forfeiture upon whatever terms
the government deems proper.” The Escheats Act differs from the Fines and
Forfeitures Act in that the former does not contain any limitation period for seeking
relief from forfeiture, is not limited to forfeitures of personal property, and does not
specify that the claimant must have taken reasonable care. A common feature of both
statutes, however, is that they confer apparently unfettered discretion upon the
lieutenant governor in council to determine whether, and to what to extent, relief from
forfeiture ought to be granted.
0 Victims Restitution and Compensation Payment Act (Alberta)
The provisions of Alberta’s Victims Restitution Act designed to protect third
parties from forfeiture are distinguished by their extreme flexibility. The relevant
provisions are spread across a number of sections of the act, but the two key
provisions apply to property disposal orders made under Part 1 of the Victims
Restitution Act. One of those provisions, section 15, gives the court broad discretion
to return property acquired by illegal means, or its proceeds, to third parties. In order
to qualify for protection under this provision, the parties must establish that they were
not complicit in the illegal activity and, if their interest was acquired after the property
was acquired by illegal means, that they “did not know and would not reasonably be
expected to know””5 that it had been so acquired.” The second key provision is
paragraph 18(1)(a), which contains more general language. That provision permits the
court to protect third parties with “bona fide intervening or other legal or equitable
interests” in property in any manner it sees fit.'” The general language of paragraph
18(1)(a) is mirrored in paragraphs 27(2)(c) and 39(2)(c), which are concerned with
restitution payment orders and compensation orders, respectively. As previously
mentioned, however, those orders should arguably have no impact on third parties
Ibid., s. 6(3)(b).
o2 Ibid., s. 7(3).
” Escheats Act, supra note 99, s. 3.
“4 Ibid, s. 5.
05 Victims Restitution Act, supra note 25, s. 13(1 )(b)(iii).
” Ibid.,s. 15.
,0 Ibid., s. 18(l)(a).
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who hold legally cognizable interests since they are limited in scope to the “property
of the offender”.
D. Imposing a Personal Obligation in Lieu of Forfeiture
0 Criminal Code
In cases involving proceeds of crime, but not instruments of crime, the Criminal
Code provides for the imposition of a fine in lieu of a forfeiture order. This provision
forms an important alternative to the forfeiture provisions discussed above because
fines have a much less significant impact upon third parties. In fact, they are only
likely to affect the interests of third parties who do not hold legally cognizable interests
in any property of the offender, such as unsecured creditors.
The option of imposing a fine in lieu of a forfeiture order is available where the
court is satisfied that a forfeiture order should be made in respect of property of an
offender that cannot be made the subject of such an order. The code suggests that this
will be the case where the property
(a) cannot, on the exercise of due diligence, be located,
(b) has been transferred to a third party,
(c) is located outside Canada,
(d) has been substantially diminished in value or rendered worthless, or
(e) has been commingled with other property that cannot be divided without
difficulty… ‘0’
In these cases, the court may order payment of a fine equal to the value of the
property that cannot be made the subject of an order of forfeiture.'” Where such a fine
is imposed, the court must provide that in default of payment a sentence of
imprisonment shall be imposed. The terms of such imprisonment are listed in the
Criminal Code and vary according to the amount of the fine.”‘
There is relatively little caselaw discussing the manner in which courts should
exercise their discretion to order payment of a fine in lieu of forfeiture. In fact, in
certain respects the cases on point are contradictory.”‘ For instance, there is
conflicting authority on the question of whether the accused’s ability to pay the fine is
‘”‘ Criminal Code, supra note 4, s. 462.37(3).
10 Ibid.
“o Ibid., ss. 462.37(4)(a)-(e).
.. For a discussion of several general principles, see R. v. Gagnon (1993), 139 A.R. 264, 80 C.C.C.
(3d) 508 (Q.B.).
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a relevant consideration.”2 In addition, as noted above, it is unclear whether the mere
fact that property has been transferred to a third party means that a forfeiture order
“cannot be made”, thereby requiring the court to consider imposing a fine in lieu of
forfeiture.
0 Victims Restitution and Compensation Payment Act (Alberta)
Part 3 of the Victims Restitution Act permits the court, upon the application of the
minister, to make a compensation order in favour of the Crown, provided that the
offender’s trial involved a judicial determination of the value of the related proceeds
of crime.” It is unclear, however, whether a compensation order can be ordered in
addition to or only in lieu of a fine or forfeiture ordered under the Criminal Code or
Part 1 of the Victims Restitution Act.
III. The Problems with Unfettered Discretion
It should be clear from the above that both federal and provincial laws provide
judges and, in some cases, the executive, with considerable flexibility in determining
whether or not to protect third parties’ interests in proceeds of crime from forfeiture.
There are certainly some advantages to having a regime that provides this kind of
flexibility. As in other contexts, building flexibility into the law of forfeiture allows
judges and other officials to make rulings that respond appropriately to factors that
would not have been taken into account by a strict rule drafted in advance. Flexibility
is desirable in situations in which it is difficult for lawmakers to identify all potentially
relevant factors in advance, and so there is a significant risk that an inflexible rule will
lead to undesirable outcomes.'”
There are, however, several disadvantages associated with laws that provide this
kind of flexibility, particularly in relation to property rights. First, to the extent that
flexibility increases the number of factors that might be taken into account by a decision
maker in any given case, it tends to increase the cost of proceedings. This is because
parties will have an incentive to adduce evidence and make arguments concerning every
potentially relevant factor.”‘
Providing decision makers with flexibility is also undesirable if, as in the present
context, it is unclear how that flexibility will be used, thus giving rise to uncertainty.
Legal uncertainty of this kind is problematic because parties will inevitably err when
.. Compare R. v. Garoufalis (1998), 131 Man. R. (2d) 231, 131 C.C.C. (3d) 242 (C.A.) (ability to
pay is irrelevant at paras. 19-20); R. v. Savard (1998), 126 C.C.C. (3d) 562 (Qc. C.A.) (ability to pay
must be taken into account).
“‘ Victims Restitution Act, supra note 25, s. 32.
“4 Louis Kaplow, “Rules Versus Standards: An Economic Analysis” (1992) 42 Duke L.J. 557.
‘ Ibid. at 588-95 (discussing the effects of complexity on litigation costs).
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guessing at the risk of forfeiture associated with their property. This means that some
property owners will overestimate the risk of forfeiture associated with certain pieces
of property and consequently refrain from making efficient investments in purchasing
the property or enhancing their enjoyment thereof (e.g., by improving the property).
Correlatively, some property owners will underestimate
the risk of forfeiture
associated with their property and make excessive investments in purchasing or
attempting to enhance their enjoyment of the property. It is worth noting that
according to this logic, uncertainty is more problematic for third parties who are
purchasers for value than for those who are donees. Similarly, certainty is particularly
important where the third party has the ability and incentive to invest in improving the
property and less important in other cases, such as where the third party merely has a
security interest in the property or where the property is of a kind that does not permit
improvement by investment.
Arguably, legal uncertainty is also problematic to the extent that it increases the
volume of litigation. The received wisdom among law and economics scholars is that
the likelihood of parties settling their disputes out of court decreases to the extent that
litigants are likely to disagree about the probable outcome of litigation; legal uncertainty
tends to increase the likelihood of such disagreement. “6 In the present context, this
implies that uncertainty about whether the court will permit forfeiture in respect of
property owned by third parties reduces the likelihood of property owners and the
Crown settling their disputes without going to trial. “7 Many would view this as an
undesirable outcome.’
IV Structuring Discretion: Why Should the Property of Innocent
Third Parties Ever be Subject to Forfeiture?
According to the analysis set out in the previous section, the primary justification
for giving judges or other officials flexibility in deciding whether to forfeit property
owned by third parties only applies to the extent that it is difficult to identify in
advance what factors should play a role in deciding those cases. Where, however, it is
possible to identify the relevant factors, lawmakers should do so at the earliest possible
116 Richard A. Posner, “An Economic Approach to Legal Procedure and Judicial Administration”
(1973) 2 J. Legal Stud. 399 at 423-26; George L. Priest & Benjamin Klein, “The Selection of
Disputes for Litigation” (1984) 13 J. Legal Stud. 1 at 9-17.
“7 It may not, however, be safe to presume that settlement is feasible in these contexts, even if the
law is perfectly certain. In cases where the attorney general seeks forfeiture of an indivisible piece of
property, the Crown may not have the authority to accept anything other than the property in question
as consideration for relinquishing its right to seek a forfeiture order. On the other hand, in such cases
it might still be possible for the owner to sell the property and then negotiate with the Crown over the
division of the proceeds. If settlement is not feasible, the effects of legal uncertainty on the volume of
litigation are ambiguous.
“‘ Compare Owen M. Fiss, “Against Settlement” (1984) 93 Yale L.J. 1073.
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opportunity in order to mitigate the adverse effects associated with creating uncertainty
about proprietary rights.
The balance of this article is designed to stimulate the process of clarifying the
law in this area by outlining the public policies that might be furthered by allowing
for forfeiture of property in which a third party has an interest. Before turning to a
detailed analysis of whether, and in what circumstances, forfeiture of property owned
by third parties might further public goals, however, it is important to question
whether it is ever appropriate to sacrifice the property rights of an individual citizen to
further public purposes.
It is frequently argued that as a matter of distributive justice, the burden of
achieving public goals should be borne by society as a whole rather than a small
subset of its members.”‘ If one accepts this as a blanket proposition, then it is easy to
conclude that the law should never permit the property of innocent third parties to be
forfeited. The proposition that it is unjust for innocent third parties ever to be exposed
to the risk of forfeiture may not, however, be universally accepted. Some might argue,
for example, that property owners assume the risk of forfeiture when they acquire
their property.’ Alternatively, it may be argued that it is fair for certain property
owners to bear disproportionate burdens, at least in the short run, in order to promote
an ethic of social responsibility.’ Finally, even if one accepts the proposition that
innocent third parties should not bear a disproportionate portion of the burden of
achieving public purposes, it is still necessary to define the term “innocent”.
For any or all of these reasons, one might reasonably conclude that there are
certain circumstances in which permitting the property of third parties to be forfeited
can be justified. Therefore, the following sections will examine various policies-
preventing unjust enrichment of offenders, deterring dealings with criminals,
preventing property from being used to commit crime, compensating victims of
crime, and financing law enforcement-that ought to be considered in determining
whether to permit such forfeiture. The analysis is, however, premised upon the
assumption that in the absence of any overriding policy considerations, the interest in
distributive justice should prevail. This effectively means that there should be a
presumption against permitting a forfeiture order to impair the interests of third
parties-a view that, not coincidentally, is broadly consistent with the common
.. For an example of a judicial statement to this effect, see Armstrong v. United States, 364 U.S. 40
at 49, 80 S. Ct. 1563 (1960), Black J.
“0 For similar arguments presented in the course of analyzing the compatibility of “regulatory”
takings with the U.S. Constitution, see Frank Michelman, “The Common Law Baseline and
Restitution for the Lost Commons: A Reply to Professor Epstein” (1997) 64 U. Chicago L. Rev. 57.
2′ A similar argument is made by Hanoch Dagan in an attempt to justify certain types
of uncompensated takings. See Hanoch Dagan, “Takings and Distributive Justice” (1999) 85
Va. L. Rev. 741.
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law’s traditional hostility toward allowing state interference with the property rights
of its citizenry.
A. Preventing Unjust Enrichment
The most frequently mentioned rationale for seeking forfeiture of proceeds of
crime-but not instruments of crime-is to deprive offenders of the benefits of their
crime. For the sake of convenience, I will refer to this rationale as the “preventing unjust
enrichment” rationale, recognizing that this use of the term “unjust enrichment” may or
may not be consistent with its usage in other contexts. ’22
At first glance, it may be difficult to see how depriving third parties of their
interests in property can prevent the unjust enrichment of an offender. In fact,
however, there are two ways in which such a forfeiture might help to achieve this
objective. The first was noted by Locke J. in the Supreme Court of Canada’s decision
in Industrial Acceptance Corp. Ltd. v. Canada.’23 In that case, Locke J. seemed to
argue that forfeiture of property owned by an innocent third party “is an added
punishment to the offender” because it gives the third party a cause of action against
the offender.'” Thus, forfeiting the property of a third party might indirectly reduce
the benefit that an offender receives from the proceeds of crime.
One weakness in this argument is that it must be qualified to reflect the fact that
the state’s interest in preventing offenders from profiting from their crimes is only
served-at least directly-by forfeiting property of third parties in cases where the
third party will have a viable cause of action against the offender. This condition,
however, will not always be satisfied. For example, the offender may be judgement-
proof, making it pointless for the third party to take any steps to sue the offender.
‘” There is room for debate over whether an offender is unjustly enriched in the sense that this term is
used in private law. There is also some room for debate over the appropriate measure of the enrichment
and whether the current definition of proceeds of crime is appropriate or should be modified to allow
for deduction of the offender’s expenses. Neither of these points is relevant to the current discussion,
which essentially presumes that an offender is, from a moral perspective, unjustly enriched to the extent
that he or she obtains an interest in proceeds of crime (as currently defined) and which focusses on
whether forfeiting the interest of a third party can serve to prevent such enrichment.
..3 [1953] 2 S.C.R. 273, [1953] 4 D.L.R. 369 [Industrial Acceptance cited to S.C.R.]. See also
Wilson, supra note 58.
142 Industrial Acceptance, ibid. at 281. Locke J. stated (ibid.):
While, in my opinion, it is really aside from the point, the provision for the forfeiture is
an added punishment to the offender, whether the vehicle be owned by him or by some
other person who, as in the present case, is entirely free of any complicity in the matter.
In the latter case, it can scarcely be suggested that it would be an answer to a
demand by the owner upon the offender for the return of his motor car that it had been
taken from his possession by the Crown and became forfeited under the provisions of
s.21.
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Consider, for example, Wilson v. R., where the Ontario Court of Appeal had to
determine whether to allow the lawyers who had acted for the offenders during their
criminal prosecution to recover fees for their services from funds that had been
assigned to them after being seized but before being determined to be proceeds of
crime. The court denied relief from forfeiture in order to ensure that the offenders did
not profit from their crimes by being allowed to satisfy their indebtedness to counsel
from proceeds of crime. The court did not, however, consider whether the offenders
were judgement-proof. If they had been judgment-proof, denying the lawyers relief
from forfeiture would serve little purpose because although it would technically
expose the offenders to liability to their former counsel, that liability would be
rendered practically meaningless because it could never be realized.
There is, also a second, more fundamental weakness in the argument that the
interests of third parties need to be extinguished in order to prevent unjust enrichment
of an offender. If the state’s objective is to expose an offender to civil liability based
on the value of property owned by a third party, the state should simply impose a
personal obligation by fining the offender an appropriate amount. This would
obviously serve the purpose of precluding unjust enrichment at least as well as
ordering forfeiture of the actual proceeds of crime. In fact, imposing a fine would do
an even better job of preventing unjust enrichment, particularly in cases where the
proceeds of crime have been disposed of in such a way that they cannot be traced to
any of the offender’s current property. The imposition of a fine would also help to
avoid the costly exercise of tracing proceeds through various forms of property. Most
importantly for present purposes, imposing a fine would avoid prejudicing third
parties by exposing them to the risk that the value of their claim against the offender
will be lower than the value of the property forfeited.”6 In fact, if claims arising from
fines of this sort are subordinated to the claims of an offender’s other creditors, then
the goal of preventing an offender’s unjust enrichment can be achieved without
harming even the offender’s unsecured creditors.
Finally, I suggested above that there are two ways in which ordering forfeiture
against a third party might further the state’s interest in preventing wrongdoers from
being unjustly enriched. As discussed, the first method involves giving the third party
a cause of action against the wrongdoer. The second method is relevant in situations
where the wrongdoer derives a certain measure of satisfaction from the third party’s
possession of the property. The most obvious examples are cases in which the third
party is a close relative of the wrongdoer. In these cases, forfeiting the third party’s
interest in the property may serve the goal of preventing unjust enrichment of the
wrongdoer, whether or not the third party brings a cause of action against the
wrongdoer. This argument is still only compelling, however, in cases where the
wrongdoer is insolvent. In other cases, as argued above, the goal of preventing unjust
Wilson, supra note 58.
26 Fried, supra note 7 at 343; Stessens, supra note I at 37, 48-49.
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enrichment can generally be achieved more directly by imposing a personal
obligation upon the wrongdoer.
it encourages
B. Deterring Dealings with Criminals
It is sometimes argued that exposing property owned by third parties to forfeiture
is justifiable because
those parties to take precautions against
transacting with criminals.”‘ The United States Supreme Court has repeatedly referred
to this argument in upholding forfeitures of property owned by innocent third
parties.’ 8 Some commentators have questioned the wisdom of this policy, however, on
the grounds that cutting “known” criminals off from commercial and familial
relationships can be viewed as a form of disproportionate punishment and an
impediment to their rehabilitation.’9 Concern has also been raised about the fact that
forfeiture provides a very blunt instrument for deterrence. This is particularly true of
forfeiture of the instruments of crime, because the value of those instruments to their
owner need not be related in any way to either the benefit that they derived from their
dealings with criminals or the resulting harm to society. Finally, it is important to keep
in mind the distinction between deterrence and fairness. The fact that a given
forfeiture can be justified on deterrence grounds does not necessarily mean that it can
be defended
to the
wrongfulness of the property owner’s conduct.
in the sense of being proportional
in terms of fairness,
Notwithstanding the above, in many respects deterrence provides a stronger
justification for forfeiting a third party’s property than does the objective of
preventing unjust enrichment. Unlike unjust enrichment, the deterrence rationale
justifies using forfeiture to extinguish third parties’ interests in both proceeds of crime
and instruments of crime, since both types of forfeiture will deter certain-though
perhaps slightly different-types of dealings with criminals. The deterrence argument
is also distinguishable from the unjust enrichment argument in that the former applies
even where it is feasible to impose a personal obligation in lieu of forfeiture.
Moreover, deterrence, as a justification for forfeiture, has particular force in cases
where the third party will not have a viable cause of action against the offender; if
27 See Fried, ibid. at 350-52 (discussing the U.S. Comprehensive Forfeiture Act of 1984, 18
U.S.C.S. 1961 (2003) (Lexis)). This argument is also consistent, at least to the extent that it applies
to third parties who knowingly deal with criminals, with the terms of the Criminal Code’s provisions
concerning money laundering. Those provisions essentially make it an offence to deal knowingly with
proceeds of crime. See Criminal Code, supra note 4, s. 462.31.
“28 See e.g. Bennis v. Michigan, 516 U.S. 442, 116 S. Ct. 994 (1996) (wife’s interest in car subject to
forfeiture where husband unlawfully used car to engage in sexual activity with a prostitute); Calero-
Toledo v. Pearson Yacht Leasing, 416 U.S. 663, 94 S. Ct. 2080 (1974) [Calero-Toledo cited to U.S.]
(innocent owner’s interest in yacht subject to forfeiture where marijuana-possibly only one
cigarette-was found on board while yacht was leased to others).
29 Fried, supra note 7 at 387, 426-27.
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property owners know that forfeiture will be ordered in such circumstances, they will
have a particularly strong incentive to avoid dealing with criminals.
Although the deterrence argument applies in a broad range of circumstances, it
does not apply with full force in cases where the third party has taken reasonable
precautions to avoid dealing with proceeds of crime.” Thus, even if one accepts the
notion that Canada’s forfeiture provisions are designed to achieve this form of
deterrence, it is still possible to argue that property owned by third parties should not
be forfeited where the owner has taken reasonable precautions to avoid illicit dealings.
C. Preventing Property from Being Used to Commit Crime
Both federal and provincial legislation dealing with forfeiture of instruments of
crime explicitly extend to property that is likely to be used in the future to engage in
criminal activity.’ The obvious implication is that the purpose of these provisions is
to prevent property from being used to commit crime.
Often there will be no need to interfere with the interest of a third party in order to
prevent property from being used to commit crime. For example, if a potential
instrument of crime is being leased to a prospective offender, then restoring the
instrument to the lessor should be sufficient for preventive purposes. It is not difficult,
however, to imagine situations in which a third party has a type of interest in an asset
that does not allow it to prevent the asset from being used to commit crime. In fact,
this is a distinct possibility whenever the third party holds any sort of inherently non-
possessory interest in the property at issue-for example, the position of a lender with
a security interest in a potential instrument of crime. It is also quite possible that, in
some of these cases, temporary seizure of the property at issue will not be practicable
and so forfeiture will be the only viable option. Even in these cases, however, it is
difficult to see why compensation cannot be provided to a third party whose interests
are affected by the forfeiture.
The only type of case in which compensating third parties seems inconsistent
with the objective of preventing property from being used to commit crime is where
any property held by the third party is likely to be used to commit crime. This
problem might arise where the third party is extremely vulnerable to the influence of a
, See e.g. Calero-Toledo, supra note 128 at 689-90:
tlIt would be difficult to reject the constitutional claim of an owner … who proved not
only that he was uninvolved in and unaware of the wrongful activity, but also that he
had done all that reasonably could be expected to prevent the proscribed use of his
property; for, in that circumstance, it would be difficult to conclude that forfeiture
served legitimate purposes and was not unduly oppressive.
See Criminal Code, supra note 4, s. 2 (“‘offence-related property’ means any property … (c) that
is intended for use … “[emphasis added]); Organized Crime Act, supra note 12, s. 7(1) (“‘instrument
of unlawful activity’ means property that is likely to be used … ” [emphasis added]).
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potential offender (e.g., a spouse). Otherwise, the state’s legitimate interest in
preventing property from being used to commit crime does not appear to support
allowing forfeiture to affect the rights of third parties without compensation.
D. Compensating Victims of Crime
In some cases, property that is forfeited to the Crown under the Criminal Code
provisions concerning proceeds of crime is earmarked for transfer to victims of the
crime that gave rise to the proceeds.3 Similarly, the Criminal Code provision aimed at
instruments of terrorism and property owned or controlled by a terrorist group
specifically provides that forfeited property may be used “to compensate victims of
terrorist activities and to fund anti-terrorist initiatives … “”‘ The situation is similar at
the provincial level-funds obtained by the Crown in right of Ontario under the
Organized Crime Act and the Prohibiting Profiting Act must be placed in a special
purpose account that can be used (among other things) to fund payments to victims of
crime.”‘ Similarly, money paid to the Crown under Alberta’s Victims Restitution Act is
to be used “for the benefit of or in relation to a victims program that, in the opinion of
the Minister, provides assistance to persons suffering loss arising out of illegal acts
that are the same as or similar in nature to the illegal act in respect of which the
payment was made to the Crown'”‘ The existence of these provisions suggests that,
to some extent, forfeiture of property owned by third parties not only serves to further
the various public purposes identified in the preceding sections but also serves the
purpose of providing compensation to victims of crime.'” This is desirable not only
132 The Criminal Code provides that forfeited proceeds of crime may be “disposed of as the
Attorney General directs or otherwise dealt with in accordance with the law.” Criminal Code, supra
note 4, ss. 462.37(1), 462.38(2). See e.g. CIBC, supra note 70 (where the proceeds in issue were
funds fraudulently obtained from various private individuals and the court gave the impression that, if
forfeited, the funds would be returned to the victims).
” Criminal Code, ibid., s. 83.14(5.1).
‘ Organized Crime Act, supra note 12, s. 6(l); Prohibiting Profiting Act, supra note 19, s. 9.
‘3’ ictims Restitution Act, supra note 25, s. 44(1). The act goes on to state in section 45:
If, in respect of an illegal act, money is paid under this Act to the Crown for the
purposes of being used under this Division but, in the opinion of the Minister,
(a) it is not possible or reasonably practicable to make a grant in accordance with
section 44, or
(b) the money or the circumstances in respect of which the money was paid are not
dealt with under an order made under section 44(2),
that money is to be paid by the Crown into the Victims of Crime Fund to be used under
the Victims of Crime Act.
” This is listed as one of the express purposes of Ontario’s Organized Crime Act (supra note 12,
s. 1) and Prohibiting Profiting Act (supra note 19, s. 1).
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because it may be fair to victims, but also because it gives victims an incentive to
encourage authorities to pursue criminals.’ 7
Determining when the public interest in providing compensation to victims
should trump the interests of third parties is a difficult question because in these
settings at least four distinct factors come into play. ‘ First is the notion that where the
courts are forced to allocate a loss between parties, the loss should be allocated to the
person who is at greater fault, where fault is defined as failing to take appropriate
steps to prevent the conflict.’ 3 An intuitively appealing variation on this theme is the
idea that losses should be allocated in proportion to fault. ”
A second factor is the public interest in encouraging potential victims of crime to
take precautions against being victimized. In some contexts, victims are in a good
position either to prevent a crime from being committed or to minimize the losses that
result from the crime. Giving a third party’s claim priority over that of the victim in
these cases would encourage potential victims to take precautions; the greater the
proportion of the loss that victims are required to bear, the stronger their incentive to
take precautions.’
A third factor that courts might wish to consider when determining the effects of
a forfeiture order on third parties is the appeal of minimizing the total loss that will be
suffered by the parties to the dispute. In order to achieve this objective in disputes
between victims and third parties, the courts should allocate the property in question
to whichever party is likely to suffer greater harm if deprived of the property. In many
cases, this analysis will lead to indeterminate results because there is no reason to
presume that the parties attach different values to the property in question. In some
cases, however, parties may have different valuations because, for example, one party
has become emotionally attached to the property or, if we accept the idea that wealth
typically has diminishing marginal utility, because the property represents a relatively
significant proportion of one party’s wealth.
“‘ Omri Ben-Shahar, “Property Rights in Stolen Goods: An Economic Analysis” (University of
Michigan Law School John M. Olin Center for Law and Economics Discussion Paper 1999-015) at 22,
online: University of Michigan Law School
Analysis” at 3, online:
.. See generally Menachem Mautner, “‘The Eternal Triangles of the Law’: Toward a Theory of
Priorities in Conflicts Involving Remote Parties” (1991) 90 Mich. L. Rev. 95.
“9 Ibid. at 106.
“, See Ingram v. Little (1960), [1961] 1 Q.B. 31 at 73-74, [1960] 3 All E.R. 332 (C.A.), Devlin LJ.,
dissenting. Waddams has proposed a further variation on this approach that would define losses
narrowly to include out-of-pocket expenses but exclude lost expectations (and apparently, lost
opportunities). See S.M. Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999)
at para. 306.
‘ Ben-Shahar, supra note 137 at 24-25; Ben-Shahar & Harel, supra note 137 at 10ff.
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A fourth factor is that it might be desirable to achieve a form of corrective justice
by reversing the impact of the wrongful act upon the pre-existing set of entitlements.
This is easiest to achieve in cases where the third party has not made any investment
(defined broadly to include virtually any change in a party’s economic position) in
reliance on their entitlement to the property in question. In that case, compensating
victims with forfeited property gives both victims and third parties entitlements
similar to those that they had prior to the wrongful act. This result is impossible to
achieve, however, in cases where the third party has made an investment in the
property subject to forfeiture. In that case, making a forfeiture order in order to
compensate the victim may indeed return the victim to a position similar to the one
they were in prior to the wrongful act, but will leave the third party worse off to the
extent of their investment. Achieving this kind of corrective justice is also difficult in
cases where the property has changed in value since the time of the wrongful act.
The first factor mentioned above weighs heavily in favour of giving third parties
priority over victims in cases where the third parties have taken all reasonable
precautions to avoid dealing in proceeds of crime and where the victims have not
taken reasonable precautions against loss. The second factor weighs in favour of third
parties in any cases in which the victims have not taken reasonable precautions. Both
factors support protecting third parties who obtain their interests in forfeitable
property in good faith. They also might support drawing a distinction between victims
of fraud and victims of theft on the grounds that victims of fraud can often readily
protect themselves from being defrauded by either independently verifying or refusing
to rely upon potential misrepresentations. ‘ The third factor implies that forfeiture orders
should not take priority over the claims of relatively poor individuals to relatively
valuable pieces of property, or over the claims of individuals to property that may have
significant sentimental value.’ 3 The fourth factor weighs against forfeiture in cases
,2 See also Kevin Davis, “Licensing Lies: Merger Clauses, The Parol Evidence Rule and Pre-
(1999) 33 Val. U.L. Rev. 485 (suggesting that recipients of
Contractual Misrepresentations”
representations made by agents of an organization are relatively well placed to protect themselves
against fraud).
“‘ Mautner claims that this factor also justifies protecting purchasers for value. He states that “the
need criterion would mandate giving priority to that competing party likely to suffer the greater loss if
the other party prevails” (Mautner, supra note 138 at 106). He then goes on to claim that in the case of
a purchaser for value this criterion is satisfied because “[bly parting with actual value, the second-in-
time party would equalize the losses likely to be suffered by him if the first-in-time party prevails to
the losses the first-in-time party will likely suffer if the second-in-time party prevails” (ibid. at 120).
On its face this argument is puzzling because there seems to be little reason to presume that a
purchaser for value values property more highly than a donee. In other words, the loss that a second-
in-time party would suffer if the other party prevailed should not be calculated by reference to the
amount that such a party paid for the property, but rather by reference to the amount that the second-
in-time party could receive if it were to sell the property. Mautner’s position can, however, be
defended by reference to the fourth factor listed above, namely, the desirability of reversing the effects
of the wrongful act.
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where the third party is a purchaser for value–though value in this context need not
mean adequate value–or, more generally, has changed their position in reliance on their
entitlement to the property.'”
It should be recalled that, as a matter of civil law, a third party’s interest in
property is likely to be defective when he or she either holds an interest in proceeds of
theft or, for some reason, does not qualify as a good faith purchaser for value.
Therefore, the cumulative effect of the arguments set out above is that it will often be
possible to justify using forfeiture as a means of providing compensation for victims
when a third party’s interest in the forfeitable property is already defective.
far less emphasis
E. Financing Law Enforcement
A final policy consideration that appears to have motivated at least some
governments to enact forfeiture legislation is the desire to obtain property that can be
used to generate funds to support law enforcement activities. Although this objective
those of preventing unjust enrichment and
receives
compensating victims of crime, it is obviously one of the objectives that modern
through forfeiture legislation. For instance,
legislators have sought
generally speaking, property forfeited under the Criminal Code is placed under the
control of the relevant attorney general or solicitor general rather than simply being
forfeited to the Crown.”‘ In addition, the forfeiture provision introduced in the federal
government’s anti-terrorism legislation specifically provides that forfeited property
may be used to fund anti-terrorist initiatives.'” Similarly, Ontario’s Organized Crime
Act provides that in addition to being used to compensate victims of crime, or to
compensate the Crown or a municipality for various expenses or losses incurred as a
than
to achieve
” This definition of a purchaser for value is consistent with Anglo-Canadian common law. See
Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548, [1992] 4 All E.R. 512 (H.L.), Goff L.J. (where
the defence of bona fide purchase for value is raised, “no inquiry is made (in most cases) into the
adequacy of the consideration” at 581). Interestingly, American law on this point appears to be
different. See Mautner, supra note 139 (under the traditional [American] rules of equity a person must
provide present and adequate value in order to qualify as a good faith purchaser for value at 110-11).
For a discussion of the change in position defence as it relates to the Anglo-Canadian definition of a
purchaser for value, see Jonathan Dawe, “The Change of Position Defence in Restitution” (1994) 52
U.T. Fac. L. Rev. 275.
1’ See Criminal Code, supra note 4, ss. 83.14(5), 462.37(1), 462.43, 490(9), 490.2(4), 491.1.
Pursuant to section 734.4 of the Criminal Code, fines imposed in lieu of forfeiture are generally, like
other fines, simply forfeited to the Crown in right of the province in which the fine was imposed. At
least one province, British Columbia, has enacted legislation that requires such fines to be placed in
an account controlled by the attorney general together with the proceeds of forfeited property. See
SpecialAccounts Appropriation and Control Act, R.S.B.C. 1996, c. 436, s. 7.
‘* Criminal Code, ibid., s. 83.14(5.1).
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result of unlawful activity, funds paid to the Crown under the act may be used “to
prevent unlawful activities that result in victimization.””
The legitimacy of using forfeiture to finance law enforcement has been hotly
debated. Several commentators have argued that giving law enforcement officials a
share of forfeited assets detracts from their incentive to act in the public interest.’8 The
most frequently voiced concern is that police decisions on how to allocate resources
may be skewed in favour of investigating lucrative crimes such as drug trafficking and
money laundering as opposed to violent crimes.’ 9 Even if one believes, however, that
it is appropriate to use forfeiture to finance law enforcement, it nonetheless seems
difficult to justify imposing the burden of providing that financing disproportionately
upon innocent parties who happen to have received proceeds or instruments of crime.
V. Legal Implications
As outlined in Parts I and II, both federal and, to a lesser extent, provincial
legislation grant courts fairly broad discretion regarding the protection of third parties
from forfeiture of property tainted by its association with criminal activity. Part lII
argued that the breadth of that discretion and the uncertainty surrounding the manner
in which it will be exercised are problematic. Having identified in Part IV a number of
policy considerations that ought to bear upon decisions about whether to forfeit
property in which third parties have an interest, we can now turn to the question of
how those policy considerations ought to inform legal doctrine.
A. Protecting the Rights of Investors Who Have Taken Reasonable
Precautions
The case for clarifying the law in this area is strongest in relation to third parties
whose decisions about whether to invest in acquiring or improving property are liable
to be influenced by the contents of the applicable legal regime. These “investors” will
include third parties who may either (1) acquire an interest in forfeitable property in
exchange for valuable consideration (thus excluding donees and some creditors), or
(2) devote resources to enhancing their enjoyment of forfeitable property (thus
potentially including donees but excluding creditors and owners of property such as
passive financial instruments). These requirements will typically exclude unsecured
creditors because, unless they have extracted some sort of negative pledge from their
debtor, it will be difficult for them to establish that they extended credit in reliance on
,,’ Organized Crime Act, supra note 12, s. 6(3).
141 Fried, supra note 7 at 365; Selick, “Property Rights”, supra note 2; Selick, “Go Ahead”, supra
note 2; Stessens, supra note I at 58; Naylor, supra note I at 44-45.
“9 See Eric Blumenson & Eva Nilsen, “Policing for Profit: The Drug War’s Hidden Economic
Agenda” (1998) 65 U. Chicago L. Rev. 35; Brent D. Mast, Bruce L. Benson & David W. Rasmussen,
“Entrepreneurial Police and Drug Enforcement Policy” (2000) 104 Public Choice 285.
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any sort of legal entitlement to any portion of their debtor’s property. Similar
arguments might be made about creditors who obtain security interests in a very
broadly defined class of property (e.g., in “all of the debtor’s present and after-
acquired property”). In most cases, however, it will be fairly easy to determine
whether any given third party qualifies as an investor.
Part IV set out a number of arguments against forfeiting the interests of investors
who have taken reasonable steps to avoid dealing in illicit property. To recapitulate,
forfeiting property owned by these types of third parties cannot be justified as a means
of deterring them from dealing with criminals because, by definition, those parties
have taken reasonable steps to avoid such dealings. It is also impossible to justify
forfeiting the property of investors as a means of preventing wrongdoers from being
unjustly enriched because imposing a fine or entering a judgment in lieu of forfeiture
would serve the same purpose without prejudice to third parties. (I argue below that
the legislature should be encouraged to amend forfeiture legislation to the extent that
it does not currently permit such orders to be made.)
The situation is somewhat more complicated when forfeiture is motivated by the
desire to compensate identifiable victims of crime. In these cases, providing relief
from forfeiture is consistent with the idea that the law should create incentives for
potential victims to avoid being victimized and attempt to reinstate the pattern of
entitlements disrupted by the criminal action. On the other hand, depending on the
circumstances, forfeiting property owned by investors may or may not be consistent
with the objectives of allocating losses in accordance with relative fault or minimizing
the loss caused by crime. So, for example, in a case like CIBC, one might argue that
even if the bank took reasonable precautions to avoid dealing in illicit property,
forfeiture of its collateral can be justified as a means of compensating the relatively
poor victims and thereby minimizing the total losses suffered as a result of the
offender’s actions. On the other hand, if the victims have been at least marginally less
careful than the bank, one might argue that the loss should not be allocated to the
bank, either on the ground that loss allocation should be based on relative fault or with
a view to creating incentives for other victims to take precautions.
The Criminal Code provisions concerning forfeiture of proceeds of crime and
instruments of crime (i.e., “offence-related property”)”‘ as well as Alberta’s Victims
Restitution Act can easily be interpreted
in a manner compatible with these
prescriptions. Ideally, a leading appellate court would simply state that, other than in
exceptional circumstances, a court should not make a forfeiture order (or property
disposal order, as the case may be) that prejudices the interests of an investor who has
taken reasonable precautions. In legal terms, this would largely be accomplished by
stating that third parties should be given the benefit of the defences of good faith
purchaser for value and change in position.
“o Criminal Code, supra note 4, s. 2.
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K DAVIS – THE EFFECTS OF FORFEITURE ON THIRD PARTIES
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Ontario’s legislation concerning forfeiture of proceeds of either unlawful activity
or a contract for recounting crime is less compatible with these prescriptions. On the
positive side, both the Organized Crime Act and the Prohibiting Profiting Act provide
protection from forfeiture to third parties who acquire property for fair value without
notice, “except where it would clearly not be in the interests of justice … ‘” While
these provisions seem appropriate, it is unclear why they draw such a sharp distinction
between purchasers who provide fair value and all other investors. Judges appear to
have no discretion whatsoever to refrain from ordering forfeiture in respect of
property owned by a person who has not provided fair value. This may permit
injustice in cases where the third party has provided some value or has invested in
improving the property, especially if the property has not been derived from an
identifiable victim.
Each of the
two Ontario statutes also contains unique deficiencies. The
Prohibiting Profiting Act is problematic because it appears to provide no mechanism
whatsoever for protecting an assignee of a contract for recounting crime from an
order making the money or other consideration payable under the contract payable to
the Crown. As a result, even an assignee who provides valuable consideration in
return for an interest in a contract that, without their knowledge, qualifies as a contract
for recounting crime, can see their interest extinguished by an order under the
Prohibiting Profiting Act. As for the Organized Crime Act, the principal concern is
that in order to qualify as a responsible owner, and thereby be protected from
forfeiture of an instrument of unlawful activity, a person must have withdrawn
permission “that the person knows or ought to know has facilitated or is likely to
facilitate the property being used to engage in unlawful activity … ‘”‘n This provision
that the third party
take reasonable
arguably goes beyond merely requiring
precautions, especially if the term “facilitate” is interpreted broadly.
B. Clarifying the Rights of Third Parties Who Have Not Invested in
the Property
There is a less pressing need for legal certainty in cases where a third party has
not invested in either acquiring or enhancing their enjoyment of the property subject
to forfeiture. For all the reasons given in the preceding section, however, there is still
little justification for ordering forfeiture in these cases if a third party has taken
reasonable steps to avoid dealing in illicit property.
There are, however, two sets of cases in which the interests of a third party who
has not made any investment in the forfeitable property will typically be less
important
deserving of protection than
those of other third parties. First, an
“‘ Organized Crime Act, supra note 12, ss. 3(3), 8(3); Prohibiting Profiting Act, supra note 19,
s. 4(3).
52 Organized Crime Act, ibid., s. 7(1).
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transferred property. Consequently,
subcategory of parties who do not qualify as potential investors are beneficiaries of
gratuitous transfers from offenders. These types of transfers are often made because
the transferor derives some kind of satisfaction from the third party remaining in
possession of the
these circumstances,
forfeiting the third party’s interest can be justified as a means of preventing unjust
enrichment. Second, in cases involving proceeds of crime derived from identifiable
victims, forfeiting property in which a third party has not made an investment is
consistent with the notion of minimizing the effect of a wrongful act on the parties’
pre-existing entitlements. This point may have little significance for the law of
forfeiture, however, since in cases of this sort the nemo dat rule will often subordinate
a third party’s interest in the property to that of the victim.
in
C. Clarifying the Rights of Investors Who Have Not Taken
Reasonable Precautions
People who invest in property in circumstances where they know or ought to
know that it qualifies either as proceeds of crime or as an instrument of crime have a
significantly weaker claim to protection from forfeiture than do other investors. Even
investors with notice, however, can argue that it is inappropriate to punish them for the
sake of deterrence, either on the grounds that deterring dealings with criminals is not a
legitimate public purpose, or that forfeiture does not achieve an appropriate level of
deterrence, or that, notwithstanding the deterrent effects of forfeiture, it is unfair. To
the extent that the forfeited property is to be used to compensate victims of crime,
purchasers might argue that forfeiture is inappropriate because the victim failed to
take appropriate precautions or that the purchaser values the property more highly
than the victim. Whether or not courts accept any of these arguments, it would be
helpful for them to clarify the law on point. Moreover, whatever rules are established,
they should take into account, in at least a rough way, factors such as what sort of
precautions were taken by the parties (i.e., victims and third parties) and what value
the parties place on the property at issue.
D. Facilitating the Imposition of Personal Obligations in Lieu of
Forfeiture of Proceeds of Crime
One of the most important-though far from original-points made above is that
forfeiting a third party’s interest in property is not typically required to prevent
offenders from profiting from crime because the same objective can be achieved by
imposing a personal obligation in lieu of forfeiture. In many circumstances, ordering
forfeiture of the proceeds of crime is the most convenient way of proceeding because
it obviates the need to assign a value to the proceeds, a task that is fraught with
difficulty since property values are often quite subjective and tend to vary over time.
The thrust of the preceding analysis, however, is that in some cases forfeiture would
cause unacceptable prejudice to the interests of third parties. In those cases,
notwithstanding the administrative considerations that favour forfeiture, it seems
preferable to substitute some form of personal obligation for a forfeiture order.
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K. DAVIS – THE EFFECTS OF FORFEITURE ON THIRD PARTIES
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Both the Criminal Code and provincial civil forfeiture
legislation require
amendment in order to facilitate the imposition of personal obligations of this sort.
The shortcomings of the Criminal Code provisions dealing with fines in lieu of
forfeiture were pointed out by Doherty J.A. in Wilson, Doherty J.A. observed that
under the current provisions of the Criminal Code, once an offender has been
sentenced the court has no power to adjust the offender’s fine to reflect property that
has been restored to a third party. Thus, relieving a third party from forfeiture after the
offender has been sentenced will tend to allow offenders to benefit from their
crimes.”‘ This point was significant in Wilson because, in that case, the application for
relief from forfeiture was brought only after a forfeiture order had been made in
respect of the funds. Doherty J.A. pointed out that granting the lawyers relief from
forfeiture at that stage would benefit the offenders by allowing them to satisfy their
debt to their lawyers out of proceeds of crime.”
Justice Doherty’s point is well taken. Under current law, granting a third party
relief from forfeiture after the offender has been sentenced may bring the interests of
the third party into conflict with the state’s interest in preventing the offender from
profiting from his or her crime. This suggests that it may be appropriate for
Parliament to amend the Criminal Code to allow at least the fine part of an offender’s
sentence to be adjusted for some period of time after it is initially fixed to reflect
benefits that the offender might receive when third parties are granted post-sentencing
relief against forfeiture of proceeds of crime.
One objection to this proposal might be that it will tend to unduly delay completion
of the process of punishing an offender. This concern seems misplaced in the present
context, however, because the extent of the delay will be minimal. Indeed, the Criminal
Code provides that third parties must apply for relief from forfeiture of proceeds of
crime within thirty days of the forfeiture and that the date fixed for a hearing must be
within thirty days of the application. ” An additional point to keep in mind is that
although there may be some drawbacks associated with delaying the process of settling
an offender’s fine, there are also certain advantages. As Stessens observes, while
proceedings to fix an offender’s term of imprisonment often need to be conducted
expeditiously, particularly when the offender is in custody, it is not always possible to
assess the value of proceeds of crime, or other potentially relevant factors such as the
availability of assets, in a short period of time.”‘ Thus, Canada’s federal government
might profit from following the example of European countries that permit proceedings
to determine the civil consequences of a criminal conviction to be postponed until six
months or even up to two years after the offender has been convicted.’ 7 Alternatively, the
‘5’ Wilson, supra note 58 at 655, 659-60.
Ibid. at 657-58.
… Criminal Code, supra note 4, ss. 462.42(1)-(2), 490.5(1)-(2).
‘ Stessens, supra note 1 at 4243.
” Ibid (discussing English and Dutch law).
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problem might be resolved through the enactment of provincial legislation similar to
Part 3 of the Victims Restitution Act so long as the courts are given an extended period of
time within which to make a “compensation order”.’.
Moving to the provincial context, it is unfortunate that neither the Organized Crime
Act, the Prohibiting Profiting Act, nor the Victims Restitution Act provides for the
imposition of purely personal liability in lieu of civil forfeiture (Part 3 of the Victims
Restitution Act only permits a compensation order to be made after an offender has been
convicted). All three pieces of legislation could be improved significantly by adding
provisions that allow courts to enter a civil judgement in an amount equivalent to the
value of property that would ordinarily be subject to civil forfeiture.” As it stands, the
legislation forces courts to choose between pursuing the public interest in depriving
offenders of the benefits of crime and the interests of third parties.
Unfortunately, the existence of both federal and provincial legislation that separately
provide for the creation of both personal and proprietary obligations in response to a
particular transaction gives rise to the possibility of a form of civil double jeopardy. In
other words, it is possible that a fine or a civil judgement awarded under one piece of
legislation will be combined with, rather than be used to replace, a forfeiture order under
another piece of legislation. For instance, it is not immediately obvious that imposing a
fine in lieu of forfeiture under the Criminal Code precludes ordering forfeiture under
either the Ontario or Alberta statutes considered above. Permitting the Ontario or the
Alberta courts to grant the Crown an in personam claim in respect of proceeds of crime
would only increase the range of potential problems by permitting forfeiture orders
under federal legislation to be combined with civil judgements in respect of the same
transaction issued under provincial law. It should not be difficult, however, to fashion
either legislative or judicial solutions to this problem.”‘
One final point is worth noting in relation to the imposition of personal
obligations in lieu of forfeiture. It would be useful to amend both federal and
provincial legislation to provide that in personam claims created in lieu of forfeiture
rank behind all other claims in the distribution of the property of an offender amongst
his, her, or its creditors. This will further reduce the adverse impact on third parties of
pursuing the objective of preventing unjust enrichment.
“‘ Supra note 25, ss. 31-45. The Alberta legislation does not clearly specify the time period within
which a compensation order must be made.
“‘ For an example of a civil forfeiture scheme that contains provisions of this sort, see New York
Civil Practice Law and Rules (NY CPLR) (West Group 2001), s. 1311. It is difficult to see how the
addition of such provisions would undermine the constitutionality of the legislation, although
providing for imprisonment of people who default in payment of the fine might.
” See e.g. Criminal Code, supra note 4, s. 740 (which directs courts to respond in a way that is
“appropriate in the circumstances” to potential conflicts between restitution orders and forfeiture
orders made under the Criminal Code).
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E. Ensuring that Third Parties Have Notice
For the reasons given above, I believe that many third parties ought to be given
significant substantive rights to relief from forfeiture. Forfeiture orders under both the
federal and provincial legislation, however, typically cannot be overturned more than
thirty or sixty days after being made.6 (subject, in the case of forfeitures ordered
under Ontario law, to being reversed by the executive under the Escheats Act). 2 This
aspect of the respective regimes is probably a reasonable method of ensuring finality
but serves to place a premium on third parties’ ability to exercise their substantive
rights either before or very shortly after the forfeiture order is made. In other words,
in order for third parties to exercise their substantive rights effectively they must be
given adequate notice of, and opportunity to participate in, forfeiture proceedings.'”
Yet neither the Criminal Code’s provisions concerning forfeiture of property owned
or controlled by terrorist groups nor Ontario’s Organized Crime Act, its Prohibiting
Profiting Act, and Alberta’s Victims Restitution Act guarantee that third parties will
receive such notice. At a minimum, those pieces of legislation should be amended to
provide that notice of forfeiture proceedings must be given to any person who appears
to have a valid interest in the relevant property.
Conclusion
As the focus of penal law enforcement efforts expands to include property, it
becomes increasingly important to understand as many aspects as possible of the
relationship between penal law and property rights. To date, discussion of this issue
has focussed on the impact of forfeiture legislation on the property rights of offenders
and suspected offenders. It is now clear, however, that, at least under Canadian law,
forfeiture can also interfere with the property rights of third parties. The purpose of
this article has been to identify the circumstances in which this sort of interference
might occur and to analyze if and when it should be tolerated.
To a certain extent, these issues can and should be resolved by adapting and
extending familiar legal concepts-such as fair notice, the imposition of fines in lieu
of forfeiture, and the defences of good faith purchaser for value and change in
position-to fit the present context. Some situations will admittedly, however, involve
conflicting policy considerations. While the analysis set out above does not provide
… See ibid., ss. 462.42(1), 490.5(1) (third parties must apply for relief from forfeiture within 30
days of the forfeiture); ibid,, s. 83.14(10) (third parties who did not receive notice of an order to forfeit
an instrument of terrorism or property owned or controlled by a terrorist group can only apply for
relief within 60 days); Fines and Forfeitures Act, supra note 98, s. 6(2) (application by claimant of an
interest in forfeited property must be made within 60 days of the date of forfeiture).
.6 Escheats Act, supra note 99.
“” For an illustration of this point, see Re Norris, [2001] 1 W.L.R. 1388, [2001] 3 All E.R. 961,
2001 UKHL 34.
224
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any definite answer to the question of how situations of conflicting policy ought to be
resolved, it does emphasize the importance of providing legal clarity (whatever the
substantive law may be) in order to avoid the overriding undesirable effects of legal
uncertainty.
