R. v. Magda

R. v. Magda Collection Decisions of the Court of Appeal Date 2006-11-01 Docket numbers C42338 Judges Feldman, Kathryn N.; Simmons, Janet M.; Blair, Robert Ashley Subject Criminal Decision Content DATE: 20061101 DOCKET: C42338 COURT OF APPEAL FOR ONTARIO FELDMAN, SIMMONS and BLAIR JJ.A. B E T W E E N : HER MAJESTY THE QUEEN Appellant James Palangio for the appellant - and - LUCY MAGDA and STANLEY MAGDA Applicants No one appearing for Lucy Magda and Stanley Magda Peter Mahoney for the respondents Burgoyne Holdings Inc. and the St. Catharines Standard - and - Burgoyne Holdings Inc., The St Catharines Standard (A Division of Osprey Media Group Inc.), and KPMG LLP Third Parties/Respondents on appeal Debra Haak for the respondent KPMG LLP Heard: April 28, 2006 On appeal from the order of Justice Don J. Taliano of the Superior Court of Justice dated August 3, 2004, with reasons reported at [2004] O.J. No. 3246, granting costs of a motion for production of third party records to the third party respondents against the Crown. Feldman J.A.: [1] This appeal is another in a series of recent cases that raise the question of the extent of the jurisdiction of a criminal court to award costs against the Crown. [2] Prior to Lucy Magda’s decision to enter a plea of guilty to two counts of theft for embezzling over $2.2 million from her employer (the third party St. Catharines Standard newspaper), [1] she and her husband, Stanley Magda, brought an expansive motion for the production of financial records from the third parties, the former owner of the paper, the current owner and the accountants. That motion was defended in large part by the third parties themselves, represented by their own counsel, and was eventually dismissed by the trial judge. The third parties asked for costs of the motion to be awarded against the Magdas, but because the Magdas were unable to pay any costs, the third parties asked that the Crown be made responsible for half of the award. The trial judge made that order, from which the Crown appeals to this court. Factual Background [3] Lucy Magda was the manager of classified accounting at the St. Catharines Standard newspaper from the 1970s until her dismissal in April 1997. As manager of the department, it was her role to receive and record payments from customers who placed classified ads and to prepare the daily bank deposits. She was a trusted employee of the Burgoyne family that owned the newspaper until they sold it to Southam Inc. in 1996. It turned out that over a 30-year period, Ms Magda had been stealing significant amounts of the classified ad revenues by intercepting cheques as they were received and using the cheques to replace cash which she retained and never deposited in the company account. As part of the scheme to conceal the fraud, she removed matching invoices from the paper’s records and maintained them in her desk, along with adding machine tapes that detailed her transactions. When she felt enough time had passed, she sent these records to the basement for shredding. Unbeknownst to her, however, the newspaper had discontinued its shredding program as a cost-cutting measure; therefore, when suspicion arose about some classified ad revenue discrepancies in 1997, these records were discovered and used to explain and prove her fraud. [4] When search warrants were executed at the Magdas’ home and banks, the authorities found over 1000 garments bags containing designer clothing worth over $500,000, most of which still had price tags on, approximately 800 pairs of ladies’ shoes in their boxes, over $50,000 in jewelry with price tags on, large quantities of collector plates, crystal, artwork, perfume and make-up supplies, several bank accounts containing over $500,000 in deposits and three safety deposit boxes with cash, jewelry, and gold coins and wafers. [5] The consequences of this huge fraud were far-reaching. The Burgoyne family sold the newspaper for 4 to 5 million dollars less than its true value, had the actual classified ad revenues been known. Staff at the paper had been laid off or had their salaries reduced because of the paper’s financial difficulties. The city itself suffered because the Burgoyne family had always been generous in funding charitable projects. [6] The Magdas were each represented in the criminal proceedings by counsel appointed by the court under a Rowbotham order, based on this court’s decision in R. v. Rowbotham (1988), 41 C.C.C. (3d) 1. Counsels’ accounts were paid by the Crown but at legal aid rates. Prior to trial, defense counsel launched a motion seeking very widespread production of financial documents from the third parties, the original owner of the newspaper, the current owner and their accountants, including monthly bank statements, deposit slips, lists of employees and their contact information, financial statements, working papers and correspondence. [7] In response to the motion, the third parties filed a comprehensive brief setting out details of how the crime was carried out along with supporting documentation. They objected to producing all of the documentation requested on the basis of privacy concerns. The purpose of the brief was to show that the balance of what was requested was unnecessary and therefore irrelevant. The Crown also led viva voce evidence elaborating on the brief filed by the third parties and explaining its position that the privacy rights of the third parties would be compromised by the type of production sought by the Magdas. [8] The court held a four-day hearing on the motion, after which the Magdas abandoned their request with respect to the accountants, but required the court to rule on the motion as it affected the other two third parties. The trial judge concluded that the evidence filed by the third parties made it clear that the motion was unnecessary. This was because there had already been disclosure of the necessary documents by the Crown as well as substantial production in the context of a civil action that had been brought by the two owners against the Magdas. Second, the records now being sought were highly confidential and private and had no bearing on the issues before the court. Most significantly, the reason the further records were not relevant for the Magdas’ purposes was that the monies stolen by Lucy Magda had been diverted from the newspaper’s revenues before they were ever accounted for in the financial records. The trial judge therefore observed that the financial status of the paper had nothing to do with the charges. The trial judge concluded that the motion was a fishing expedition, and a tactic to try to get the prosecution withdrawn by the parties that had been victimized. [9] Ultimately, the court ordered some minimal further production which the third parties did not oppose. However, the financial cost to the third parties to have their solicitors respond to the motion was substantial: $22,703.67 for the owners, and $23,724.23 for the accountants. The trial judge found both those bills to be reasonable. [10] The third parties sought an order for reimbursement of these costs, first from the Magdas, but because the Magdas were judgment proof, either from Legal Aid, charged as a disbursement of counsel, or from the Crown. [11] In considering the request the trial judge made three findings of fact: (1) the third parties voluntarily disclosed everything that was logically relevant and only resisted the excessive demands; (2) the Crown was free from criticism and had produced everything in its possession that was logically relevant; and (3) both Burgoyne and the newspaper had already suffered significant losses as a result of Lucy Magda’s actions. In that context, he concluded that the Magdas should bear the costs of the motion, and made an order to that effect. [12] As there was no authority to order Legal Aid to pay costs ordered as a disbursement, the court declined to make such an order. However, the trial judge found that the extensive material prepared by the third parties in response to the motion had relieved the Crown of its costly burden of defending the motion and, in effect, had shifted that burden to the third parties. Relying on the case of R. v. Law Office of Simon Rosenfeld, [2003] O.J. No. 834 (S.C.J.), the trial judge ordered the Crown to contribute half the costs incurred by each of the third parties with a right to recover from the Magdas. The Issue · What is the court’s jurisdiction on the trial of an indictable offence to order that the Crown pay the costs of proceedings for the production of third party records? Analysis [13] The Crown submits that the only statutory authority for a court to award costs in a criminal matter is in ss. 809(1) and 826 of the Criminal Code, which pertain only to summary conviction matters. The only common law or inherent jurisdiction to award costs against the Crown arises in the very narrow and limited circumstances where there has been Crown misconduct or the breach of a Charter right such as failure to make proper disclosure under Stinchcombe principles.[2] The trial judge in this case acknowledged that he could not justify an order on either of those grounds. [14] In R. v. Garcia (2005), 194 C.C.C. (3d) 361, this court discussed the two broad categories of circumstances when costs have been awarded against the Crown in summary conviction appeal proceedings under the court’s statutory jurisdiction. One is where there is Crown misconduct. The other is where: “other exceptional circumstances exist such that fairness requires that the individual litigant not carry the financial burden flowing from his or her involvement in the litigation” (para. 13). For example, a costs award may be appropriate when the prosecution is a test case that transcends the particular circumstances of the accused and the accused’s personal interest in the outcome of the appeal is minimal. [15] In the context of the indictable offence of manslaughter in R. v. Curragh Inc. (1997), 113 C.C.C. (3d) 481, the Supreme Court of Canada awarded costs incurred by the accused in both the original and the new trial to be paid by the Crown. The new trial was ordered on appeal based on a finding of reasonable apprehension of bias on the part of the trial judge. In making the costs order, the court characterized the problems that caused the costly delays in the case as “systemic” and referred to the circumstances as “unique”. [16] This court recently reviewed the limit of the court’s non-statutory jurisdiction to award costs in the case of R. v. Chapman (2006), 78 O.R. (3d) 778. Factually, that case also involved an application by the accused for third party records. The records belonged to the Children’s Aid Society and, as in this case, the motion was dismissed. The trial judge granted the third party Children’s Aid Society’s request that its costs be paid by the accused. On the appeal, the Criminal Lawyers’ Association as intervenor, supported the position of the accused that the court had no jurisdiction to make a costs order against an accused. [17] In Chapman, the court allowed the appeal and set aside the award of costs against the accused. The court pointed out that there is no statutory authority to make a costs order in indictable offences or treason, and stated: [15]…to the extent that a Superior Court may have inherent jurisdiction to make a costs order in a criminal matter against an accused person, the Crown concedes, and I agree, that the trial judge erred by departing from the general principles governing the making of such an award, thereby fashioning a legal standard that makes it easier to obtain a costs award against an accused person than it is to obtain a costs award against the Crown. [16] In this respect I observe that the jurisdiction in issue is not a broad discretionary jurisdiction, but rather is based on the inherent jurisdiction of the court to control its own process. In Attorney-General of Quebec et al. v. Cronier (1981), 63 C.C.C. (2d) 437 (Que. C.A.), L’Heureux-Dubé J.A. described that jurisdiction as follows, at pp. 449 and 451: [TRANSLATION] A superior court has the power to maintain its authority and to control its procedure so as to put justice in order and efficiently. That this implies sometimes ordering one of the parties and even lawyers to pay the costs of a proceeding in cases of the abuse or of the frivolity of proceedings, of misconduct or dishonesty or of taken for some other ulterior motive, is a recognized principle. But the conditions for the exercise of this inherent power must exist. … In my view, nothing in the present case authorized the Superior Court Judge to order the appellants to pay costs by virtue of his inherent powers of control and supervision. On the one hand, the Judge cannot authorize himself to do indirectly what the Canadian criminal law does not expressly authorize him to do, in the present case, the ordering to pay costs with respect to extraordinary remedies in criminal matters. In the absence of reprehensible conduct by the appellants, or a serious affront to the authority of the Court or of a serious interference with the administration of justice, which is not the present case, the imposition of costs on appellants in the context of the present debate is in no way justified. [17] In this case, by rejecting fault or some form of conduct requiring censure as at least an element of what is necessary to justify a costs award in a criminal matter, the trial judge erred in principle. Therefore, the costs order cannot stand on the basis on which it was made. [18] It is clear that the Quebec Court of Appeal in Cronier, followed by this court in Chapman, considered Crown misconduct or a serious interference with the authority of the court or with the administration of justice to be an essential prerequisite for a trial judge to make an order of costs against the Crown. As there was neither Crown misconduct nor extraordinary circumstances amounting to an interference with the authority of the court or with the administration of justice in this case, the court is bound by its existing jurisprudence to allow the appeal, unless the issue were to be reconsidered by a five-judge panel of the court. [19] In those circumstances, counsel were invited, together with counsel in another case where a related issue was raised, to reargue the case before a five-judge panel of this court. Such a panel would have been free to consider whether there are other categories of circumstances, such as where a third party victim has incurred costs in order to protect its privacy interest in documents sought by an accused in a criminal case, where the costs incurred by that party could be ordered payable by the Crown. The parties were reluctant to take the opportunity to reargue the case. In those circumstances, we are bound by the earlier decision of this court in Chapman and must set aside the costs award against the Crown. [20] Before leaving the analysis however, I wish to comment on three further issues in the context of this appeal. The first is the trial judge’s reliance on the Rosenfeld case. In Rosenfeld, the Crown had seized numerous documents from the home of the accused, a lawyer. Before any of the documents could be used by the Crown in the prosecution, issues of solicitor-client privilege had to be determined. For that purpose, the Court ordered that a referee be appointed to review the documents. The court also ordered that the cost of the procedure was a cost of prosecution and must be borne by the Crown. [21] That situation is substantially different from the case at bar where it is the accused who sought the production of third party records. They were not documents required by the Crown for the prosecution. Had those records been in the possession of the Crown and not disclosed as a matter of Crown misconduct, then that would be a different rationale for an award of costs against the Crown, as a Charter breach. [22] Second, since the argument of this appeal, two cases were decided, one by the British Columbia Court of Appeal and one by the Ontario Court of Justice, dealing with whether the costs of an order for the production of documents in the possession of a third party unconnected with the proceeding, should be borne by the Crown under either s. 18 of the Mutual Legal Assistance in Criminal Matters Act R.S.C. 1985, c. 30 (4th Supp.) or under s. 487.012 of the Criminal Code. [23] In Canada (A.G.) v. Pacific International Securities Inc. (2006), 209 C.C.C. (3d) 390 (B.C.C.A.), New York authorities requested production of documents from a securities dealer in B.C. in connection with a prosecution in New York. The request was made under the Mutual Legal Assistance statute, court orders were obtained and the dealer produced the documents. However, subsequent orders became very onerous and costly for the securities dealer to comply with and a request was made for the costs of compliance, such as wages paid to employees who worked on fulfilling the requests, to be borne by the Crown. [24] The majority of the Court of Appeal found that the Superior Court judge had erred in making an order for costs against the Crown. The court held that the legislation constitutes a complete code that does not provide for Crown reimbursement of the expenses of compliance. As the Act is in the nature of a criminal statute, the normal restrictions on costs awards against the Crown apply. [25] In Tele-Mobile Co. v. Ontario, [2006] O.J. No. 2589 (Ont. Ct. J.), an order was made under s. 487.012 of the Criminal Code requiring Telus to produce phone records in connection with a murder investigation by the Ontario Provincial Police. Telus sought an order for reasonable compensation to help defray the costs of complying with the order. This was effectively a test case, as Telus would be the subject of numerous orders of this kind because it is in the telecommunications business. Although the court was sympathetic to the position of Telus, it held that there was no statutory authority to make a compensation order. Under s. 487.015 a court can grant an exemption to a person named in such an order if it would be unreasonable in the particular circumstances to require compliance; but on the facts of that case, the court was unable to find that those circumstances existed. As an addendum to its reasons, the court suggested that Parliament might consider a scheme for reasonable compensation to third parties who are ordered to produce documents to assist with criminal investigations. [26] In written submissions made following the release of Pacific International and Telus, the Crown argued that these two decisions support its position on the appeal. The third parties submitted that the two cases were distinguishable from the case at bar because they involved statutory jurisdiction, while in this case the court was being asked to exercise its inherent or common law jurisdiction to control its own process. The basis of the argument for the award in this case was that the third parties effectively fulfilled a Crown obligation to oppose the O’Connor motion,[3] and in that way the Crown delegated its obligation to them. The costs were incurred by the third parties fulfilling the Crown’s obligation in the prosecution. These arguments are similar to those made and rejected in Pacific International and Telus as a basis to interpret the relevant legislative provisions to allow a court to order compensation. If the argument were accepted in this case, that would broaden the basis on which costs orders could be made against the Crown beyond the current scope set out in Chapman. [27] One or both of Pacific International or Telus may be appealed further, giving the Supreme Court of Canada the opportunity to address the issue. [28] Finally, in their factum, the third parties raised as an “additional issue” an argument that the costs award should be viewed as a remedy under s. 24 of the Charter. The essence of the argument is that it was only because defence counsel was funded by a Rowbotham order and was not subject to the financial strictures that would have been imposed by Legal Aid, that counsel was able to bring the ill-conceived O’Connor motion. That motion amounted to an attack on the Charter privacy rights of the third parties, which attack was funded by the Crown and constituted a “re-victimization” of the third parties after the initial crime. [29] I cannot give effect to this argument. First, it was not made at the trial and was not the basis upon which the trial judge made the order under appeal. Second, the tactics of defence counsel cannot be laid at the feet of the Crown because of the particular circumstances of the Rowbotham order. The Crown is merely providing the funds to pay for the services of defence counsel in the particular circumstances of this case, but of course, the Crown has no involvement in the conduct of the case for the defence. Result [30] In the result, I would allow the appeal and set aside the order that the Crown must contribute one half of the costs award made in favour of the third parties against the Magdas. Signed: “K. Feldman J.A.” “I agree Janet Simmons J.A.” “I agree R. A. Blair J.A.” RELEASED: “KNF” November 1, 2006 [1] The charges were then withdrawn against Stanley Magda. [2] R. v. 974649 Ontario Inc. (2001), 159 C.C.C. (3d) 321 (S.C.C.) [3] The procedure for this type of motion was set out by the Supreme Court of Canada in R. v. O’Connor (1995), 103 C.C.C. (3d) 1.