Go to Top

Coordinating Criminal and Civil Justice as a Means of Recovery for Fraud Victims – Part II

Back in March 2014, we published a blog post titled Coordinating Criminal and Civil Justice as a Means of Recovery for Fraud Victims. In May 2015, our post was republished by the Association of Certified Forensic Investigators of Canada (“ACFI”). The blog post was also the subject of a presentation at an ACFI annual fraud conference.

In the original post and conference presentation, our focus was on advising fraud victims or their representatives, that Canada has a two-tier justice system, and that when it comes to fraud recovery, notwithstanding the criminal justice system is publicly funded, it is at best a secondary system when it comes to victim recovery. That initial post then went on to compare the steps taken in a civil prosecution with the steps taken in a criminal investigation – many of which are the same. The headings were:

Perceptions of the Criminal Justice System

Setting Objectives

Evaluating the Cost and Return on Investment of Civil Tracing

Coordinating and Comparing Civil and Criminal Prosecutions

  1. The Investigation
  2. Instigation of the Process: Civil Claims versus Criminal Charges
  3. Civil Discovery versus Crown Disclosure
  4. Civil versus Criminal Trials
  5. Civil Recovery Orders versus Criminal Sentences

Criminal Charges as Leverage for Restitution

The blog and presentation were well-received both by fraud victims and those attending the ACFI conference as helpful for understanding the process by which civil and criminal litigation unfold, and how the two processes may be coordinated. Since then, we have published many blogs on why the criminal justice system should not be relied upon by fraud victims. For example, reference can be made to our recent series of blogs: Why the Criminal Process is Secondary in Fraud Recovery, Part 1, Part 2, and Part 3.

This blog was prompted by comment of our 2014 blog post on coordinating civil and criminal processes for fraud victims being mentioned by the Court in an abuse of process motion brought by a couple of lawyers-turned-rogues. The full decision is reported at R. v. Walton, 2019 ONSC 928. The criminal court summarized the fraud case against the lawyers in the following terms:

The Waltons are both Toronto lawyers and real estate developers. Dr. Bernstein is the founder of a number of diet and health clinics. He became an investor, together with the Waltons, in a portfolio of 31 Toronto properties. Each individual real estate development project or property was held by a separate corporation. The corporations were jointly owned by Dr. Bernstein and the Waltons. The total amount eventually invested by Dr. Bernstein (through his investment corporations) in these real estate development companies was about $110 million.

Dr. Bernstein was not actively involved in the real estate projects. The Waltons were the active partners, responsible through their company Rose and Thistle Group Ltd. (hereinafter, Rose and Thistle) for the day to day operation of the real estate developments. Disputes between Dr. Bernstein and the Waltons led to civil litigation. That civil litigation eventually led to the present criminal proceedings, which the Waltons now seek to stay as an abuse of process.

The Walton case is helpful as it validates why we suggest to fraud victims that the criminal justice system is secondary in the fraud recovery process, and that, where possible, it is to the benefit of fraud victims to prosecute their civil case before making a criminal complaint.

The Chronology of the Walton Civil and Criminal Litigation

Much of the following chronology is taken word-for-word from the above-noted criminal court’s decision. Where we have edited that decision, it is to place the facts in chronological order.

On October 4, 2013, civil litigation began with an application brought in the Commercial List by Dr. Bernstein’s investment corporations (the “Oppression Application”). The Oppression Application sought “oppression” remedies pursuant to s.161 of the Ontario Business Corporation Act. Justice Newbould made a finding of “oppression” and held that Dr. Bernstein was “entitled to an investigation of the affairs of the owner corporations”. He made an order appointing Schonfeld Inc. “as an inspector of those [owner] corporations to investigate and report to the Court” and he made a further order “restraining” the Waltons in various ways. See: DBDC Spadina Ltd. et al v. Norma Walton et al, 2013 ONSC 6251.

On November 5, 2013, Newbould J. granted a further motion brought by Dr. Bernstein seeking to appoint Schonfeld Inc. to also be the Receiver Manager of the 31 real estate development companies owned jointly by Dr. Bernstein and the Waltons, pursuant to s.101 of the Courts of Justice Act and s.248 of the Ontario Business Corporations Act. Newbould J. made a number of important findings based on the Inspector’s initial reports and the affidavit evidence filed on the motion (emphasis added).

In her affidavit of October 31, 2013, Ms. Walton admits that the $2.1 million was “diverted” and used outside the 31 projects. She admits it should not have been done without Dr. Bernstein’s consent. She offers excuses that do not justify what she did. What happened here, not to put too fine a point on it, was theft.

[…]

There would be no reasons for Rose and Thistle to transfer funds […] to pay personal expenses of Ms. Walton for her residence. Again, it has all the appearances of another case of theft.

See: R. v. Walton, 2019 ONSC 928 at para 9.

On May 26, 2014, the Court of Appeal dismissed an appeal brought by the Waltons from Newbould J.’s decision appointing Schofeld Inc. as Receiver Manager. The Court (Doherty, Simmons and Tulloch JJ.A.) stated the following:

[…Ms. Walton] says that the application judge mischaracterized her conduct in relation to two of the properties as “theft” or “having the appearance of theft”. Ms. Walton submits that this characterization led the application judge to the “overkill” remedy of a Receiver Manager. […] We see no misapprehension of the relevant evidence. Indeed the evidence relating to the conduct of the inspectorship was unchallenged. Nor can we characterize the application judge’s assessment of that evidence as unreasonable. […] We also do not accept that the application judge’s use of the word “theft” is necessarily a mischaracterization of some of the conduct of Ms. Walton.

However, even if the word “theft” is considered inappropriate given its criminal connotation, Ms. Waltons’ own affidavit acknowledges a knowing misappropriation of funds in respect of at least one property. Whatever one might choose to call that conduct, it provided powerful evidence that Dr. Bernstein’s interests in the property were being unfairly prejudiced by the conduct of the Waltons. The application judge’s use of the word “theft” does not, in our view, taint his factual findings or the manner in which he exercised his discretion.

See: R. v. Walton, 2019 ONSC 928 at para 11.

On July 10, 2014, Dr. Bernstein and his civil litigation lawyers advised the Walton’s lawyers that they were in the process of retaining a private investigator. The civil lawyers also advised that they had not reported the matter to the police. These disclosures in early July 2014 were made in response to questions from Ms. Walton as to whether Dr. Bernstein had “hired a private investigator in this litigation” and whether his accountants had “been in contact with the police”.

On August 12, 2014, in the civil litigation, Justice Brown made a number of findings in written reasons:

  1. “the Waltons misused and misappropriated most of the funds advanced to them, diverting some of the funds to their own personal benefit and the benefit of their… companies”;
  2. a “net transfer” of $23.6 million had occurred, from the real estate companies that Dr. Bernstein had invested in to the Waltons’ Rose and Thistle company, and that the transfer of “some or all of the amounts” occurred “in almost all cases… almost immediately”. Further net transfers of $25.4 million then occurred from Rose and Thistle to other companies owned by the Waltons in which Dr. Bernstein had no interest. These transfers, according to Brown J., “constituted breaches of the agreements” between the Waltons and Dr. Bernstein “which [agreements] required that… the funds advanced [to the real estate companies]… be used only to purchase, renovate and refinance the specific property owned by” the particular real estate company;
  3. one can only conclude from the refusal of the Waltons over the past nine months to provide back-up for the Rose and Thistle invoices – both to the Inspector and to their own cost consultants – that back-up for the full amount of those invoices simply does not exist;
  4. I do not accept Ms. Walton’s continued protestations that she had a complete lack of knowledge that funds… had been misappropriated to the use of Walton and her companies. The voluminous evidence placed before me on this motion leads me to have absolutely no doubt that Norma Walton not only knew, in detail, what was taking place with the transfer of funds… but that those transfers took place at the direction of… Norma Walton… and she knowingly misappropriated some of the proceeds… to her own personal use and the use of companies which she owned, but in which Dr. Bernstein had no ownership interest;
  5. In short, the Waltons defrauded Dr. Bernstein;

 

See: DBDC Spadina Ltd. et al v. Norma Walton et al, 2014 ONSC 4644.

Thereafter in 2014, Dr. Bernstein’s civil litigation lawyers retained a private investigator who, by no coincidence, was a former Toronto commercial crimes police officer. Thomas Hartford, the private investigator, prepared a report for his client, Dr. Bernstein, concerning the Waltons. Hartford then met with the Toronto police on October 28 and December 1, 2014.

In late 2014, Brown J. was appointed to the Court of Appeal. Thereafter, the civil litigation continued before Newbould J on the Commercial Court list.

On May 22, 2015, a formal criminal complaint was made on behalf of Dr. Bernstein at an “intake meeting” with the police. Dr. Bernstein’s civil litigation lawyers attended on behalf of Dr. Bernstein, together with the private investigator, Mr. Hartford. The formal complaint included the expert forensic accounting reports prepared for and used in the civil litigation. Dr. Bernstein advised the police that the civil litigation was ongoing. The investigative report of Mr. Hartford contained verbatim some of the facts set out in the decisions of Newbould J. and Brown J. in the civil court proceedings.

On June 18, 2015, a month after the “intake meeting”, a Toronto Police financial crimes investigator was assigned Dr. Bernstein’s criminal complaint. Police investigators conducted a 10-month pre-charge investigation that included:

  • reviewing the apparently substantial file material that had been provided by Dr. Bernstein’s representatives;
  • speaking to the lawyers involved in the civil litigation, attending at their offices, making inquiries clarifying many detailed factual issues, and reviewing additional documents from their file;
  • conferring a number of times with Dr. Bernstein’s accountant and with the civil court appointed Inspector Receiver Manager about their investigations and their forensic accounting work, and asking detailed questions about various transactions set out in the documents;
  • obtaining transcripts from the civil proceedings with Crown counsel’s assistance;
  • receiving copies of Dr. Bernstein’s affidavits and that of his accountant from his counsel in the civil proceedings, together with their voluminous documentary attachments.

These investigation steps were taken in consultation with Crown counsel.

On September 17, 2015, the Court of Appeal had dismissed the Waltons’ appeal from Justice Brown’s August 2014 decision. The Court stated the following in a brief endorsement:

The motions judge correctly articulated the applicable legal principles in respect of constructive trusts. He imposed them based on the conduct of the Waltons and their companies, namely, their fraud, deceit and misappropriation of the Bernstein applicants’ funds for their own personal use and in contravention of their agreements.

See: DBDC Spadina Ltd. v. Walton, 2015 ONCA 624.

On November 22, 2015, Dr. Bernstein amended his originating civil court application in order to allege fraud for the first time in the civil proceedings. This was understandable as when the original process began, Dr. Bernstein did not know where his money had gone – he only knew at the time that the Waltons were not being transparent with him, and feeling oppressed, he brought an oppression application.

On April 14, 2016, at a meeting in chambers with Newbould J. in the civil proceedings, counsel for the Waltons advised Newbould J. that criminal proceedings were about to commence. The motion for judgment for a declaration of civil fraud and quantifying damages, together with a number of other motions, were all scheduled to be heard by Newbould J. in the Commercial List on June 3, 2016. In other words, just like the police were aware of the ongoing civil litigation, the civil judges were aware that a criminal complaint had been made. The civil proceedings was not stayed because a complaint had been made to the police.

On April 25 and 26, 2016, criminal charges were laid. The Waltons were released on bail on consent on the same day that they surrendered. In a factum prepared as part of the Waltons’ efforts to resist the motion for judgment scheduled for June 3, 2016, in the civil case, counsel for the Waltons made the following allegations:

“At this point in time, it appears that the police investigation lacks any independent and separate allegations of fraud. It indeed appears that the criminal charges and allegations utilize the work product generated by the civil matter without much more. Large volumes of materials were provided to the police by [civil counsel] including document packages that may violate the deemed undertaking rule… There is a potential abuse of process where civil counsel motivate the police to bolster their position in the civil litigation… In the instant case, the complaint to police was tactfully delayed, following the Waltons’ compulsion to submit to oral discovery and disclosure obligations. [This is unfair as] there is no principle against self-incrimination in a civil proceedings”.

The Waltons were considering two possible remedies in the civil proceedings:

  1. a stay of the civil proceedings, pending conclusion of the criminal proceedings; and
  2. an abuse of process application in the civil proceedings based on an allegation that Dr. Bernstein and his counsel had initiated the criminal complaint in order to further the civil case.

At the hearing in the civil litigation, however, the Waltons did not advance these issues. Rather, the Bernstein corporate applicants sought judgment in the amounts of $66.9 million and $22.6 million against the Waltons and their companies and sought a finding of fraud against the Waltons that would survive bankruptcy. The Walton Respondents brought a counter-application seeking various remedies against Dr. Bernstein and the real estate companies and, in particular, a trial of the fraud issue alleged by Dr. Bernstein. In other words, the Bernstein action had been brought on a summary judgment basis, relying on affidavits, transcripts and documents as opposed to real-time witness evidence.

On September 23, 2016, Newbould J. released his Reasons for Decision in the civil litigation. In relation to the Waltons’ request for a trial of the fraud issue, Newbould J. held:

The request by the Waltons for a trial on the fraud issue appears rooted in the fact that they have now been charged criminally with fraud… They contend that a finding of that nature could cause serious prejudice and unfairness in the criminal matter, especially having regard to the potential to prejudice a potential jury… There is no motion to stay the civil proceedings. The issue is whether, as asserted by the [Bernstein] applicants, there is enough evidence on the record or previous findings made in these proceedings justifying a declaration of fraud that would survive any bankruptcy of the Waltons. If there is not, a trial will be required.

See: R. v. Walton, 2019 ONSC 928 at para 28.

Newbould J. proceeded to analyse the various issues that the Waltons wished to contest at a trial in relation to the issue of fraud. He concluded that they were all res judicata, having been determined by Brown J. in his August 12, 2014 Reasons.

Newbould J. then set out the elements of the tort of civil fraud and false representation, applied the findings made by Brown J. to those elements, and concluded (at paras. 32 and 35 supra):

The evidence establishes clearly that the Waltons committed the tort of civil fraud and false representation that caused Dr. Bernstein to invest his funds into the [real estate development] companies. His damage claim is the unrecovered amount of $66.95 million. The [Bernstein] applicants are entitled to judgement against the Waltons… in that amount plus interest… As the liability of the Waltons arose from their fraud while acting in a fiduciary duty to Dr. Bernstein, it is appropriate and is declared that their liability to the applicants for $66.95 million plus interest will survive any bankruptcy of the Waltons.

See: DBDC Spadina Ltd. et al v. Norma Walton et al, 2016 ONSC 6018.

During the summer of 2016, while the civil litigation was proceeding to a conclusion, the criminal proceedings moved through their initial disclosure stages. The first three waves of disclosure were received by the defence on May 24, June 14, and September 26 of 2016. Dr. Bernstein gave a sworn videotaped statement to the police on September 28, 2016. Civil counsel attended with Dr. Bernstein for his KGB statement given to police. This was five months after the charges were laid and five days after Newbould J. gave his above Reasons finding civil fraud.

On January 10 and July 27 of 2017, the Crown provided further waves of disclosure to the defence in the criminal proceedings. The Crown advised Mr. Cohen, counsel for the Waltons, that:

In every criminal prosecution, the Crown has an ongoing obligation to assess reasonable prospect of conviction at all stages of the prosecution. The Crown is in the process of reviewing all of the evidence in this case and/or the public interest in proceeding with a criminal prosecution.

During our review of the matter, we would be happy to consider any information you may wish to provide us which bears on whether there exists a reasonable prospect of conviction and whether continuing the prosecution is in the public interest, either in writing or during an in person meeting.

On August 29, 2017, counsel for the Waltons sent a 24-page written submission to the Crown. This submission did not sway the view of the Crown that not only were the Walton’s liable for civil fraud, but that it was in the public interest to prosecute them for criminal fraud.

On February 18, 2018, the Deputy Attorney General preferred a direct Indictment charging the Waltons with essentially the same four counts of fraud and theft that the police had alleged in the original Information filed on April 25, 2016.

 

On November 26, 2018, the Waltons filed a 70-page factum in the criminal courts to support an abuse of process application. The Waltons alleged:

  1. violations of the protections provided in 7, 11(c), and 13 of the Charter of Rights being the use of “compelled self-incrimination … testimony given in civil proceedings”. This ground was inter-twined to some extent with two related issues:
    1. the spirit, if not the letter, of the “deemed or implied undertaking” rule relating to compelled civil discoveries may have been violated; and
    2. the admissibility of Inspectors’ reports;
  1. “coordination of civil and criminal proceedings” in the sense that the Crown, the police, and Dr. Bernstein’s civil counsel had “coordinated the civil and criminal proceedings in a way that used the criminal proceedings to increase Dr. Bernstein’s chances of getting a judgement in the civil matter”. This ground was also framed as “using the criminal court to collect a civil debt”, relying on Dr. Bernstein’s refusal to reach a civil settlement with the Waltons and on the timing of the criminal complaint. This broad argument was inter-twined with narrower allegations that the police had not carried out an “independent investigation”, as illustrations or manifestations of the improper coordination between the civil and criminal proceedings and the improper use of the criminal process in order to collect a civil debt.

 

It is this allegation that a fraud victim’s interest in coordinating civil recovery with a criminal complaint that has caught our interest as it is an issue most fraud victims raise during intake meetings when having their case assessed. This was the first case that we are aware of that addressed whether such coordination could be considered an abuse of process.

The Test for Abuse of Process

The criminal court held that the common law abuse of process doctrine does apply to criminal proceedings but “only in the clearest of cases”, and only where the particular prosecutorial conduct was held to “violate those fundamental principles of justice which underlie the community’s sense of fair play and decency”. Applications for abuse of process requires “conspicuous evidence of improper motives or of bad faith or of an act so wrong that it violates the conscience of the community, such that it would genuinely be unfair and indecent to proceed”.

The test used to determine whether a stay of proceedings is warranted consists of three requirements:

  1. there must be prejudice to the accused’s right to a fair trial or the integrity of the justice system that “will be manifested, perpetuated or aggravated through the conduct of the trial, or by its outcome”;
  2. there must be no alternative remedy capable of redressing the prejudice; and
  3. where there is still uncertainty over whether a stay is warranted, the court is required to balance the interests in favour of granting a stay, such as denouncing misconduct and preserving the integrity of the justice system, against “the interest that society has in having a final decision on the merits”.

Argument No. 1: Compelled Self-incrimination, Testimony given in the Civil Proceedings, and the Rules of Civil Procedure’s Deemed Undertaking Rule

The criminal court held that should the Crown attempt to tender any self-incriminating evidence, there are well-known evidence law protection procedures available to the Waltons at trial to respond to this. In other words, the criminal court stated that the Walton’s abuse of process application was unnecessary because there were effective lesser remedies available. The criminal court in the Walton case found that the Crown’s intention was not to use the Waltons’ prior evidence from the civil proceedings as part of the Crown’s case in chief. Rather, the Crown’s intention was to use the Walton’s prior evidence given in the civil proceedings in order to impeach the Waltons during cross-examination if the Waltons testified at the criminal trial, and if their evidence was materially different than in their civil proceedings.

The criminal court referred to the Supreme Court’s most recent decision concerning Charter protections against self-incrimination in R. v. Nedelcu (2012), 2012 SCC 59 (CanLII), 290 C.C.C. (3d) 153 at paras. 9-11, 16, 23 and 25 (S.C.C.), where the court held that:

“Incriminating evidence” does “not include evidence from the prior proceeding that the Crown wished to use for the sole purpose of impeaching the witness’ testimony at the subsequent proceeding”.

In R. v. Nedelcu, the accused’s prior testimony was given on discoveries in a civil action. It was held to be “compelled” because the Rules of Civil Procedure “compel a defendant in a civil action to be examined for discovery”. R. v. Nedelcu also confirmed the longstanding principle, first stated in R. v. Dubois (1985), 1985 CanLII 10 (SCC), 22 C.C.C. (3d) 513 (S.C.C.), that:

“The time for determining whether the evidence given at the prior proceeding may properly be characterized as ‘incriminating evidence’ is the time when the Crown seeks to use it at the subsequent hearing”. In other words, this entire issue is premature at best.

The criminal court in the Walton case held that there was a live issue as to whether the Waltons’ prior evidence in the civil proceedings is subject to the principle that emerged from R. v. Henry (2005), 2005 SCC 76 (CanLII), 202 C.C.C. (3d) 449 at paras. 43, 47, and 60 (S.C.C.). In that case, the unanimous court held (per Binnie J.) that:

Section 13 [of the Charter] is not available to an accused who chooses to testify”, that s.13 does not apply to “prior volunteered testimony”, and that accused persons “who testify at their first trial and then volunteer inconsistent testimony at the retrial” are not protected by s.13.

The criminal court in the Walton case further held that the common law implied undertaking rule relating to civil discoveries, now codified in Rule 30.1, was not violated in this case. That Rule applies to evidence and documents obtained by discovery (unlike this case where there were no discoveries) and, in any event, Rule 30.1 expressly exempts evidence “filed with the court” and evidence used “to impeach the testimony of a witness in another proceeding”. For all three of these reasons, there can be no suggestion of any violation of the deemed or implied undertaking rule. See: Juman v. Doucette, 2008 SCC 8 (CanLII), [2008] 1 S.C.R. 157; S.C. v. N.S. (2017), 141 O.R. (3d) 145 (Div. Ct.); R. v. Thornton, 2016 ONCA 562 (CanLII); R. v. Prosa, [2015] O.J. No. 7134 (S.C.J.). The criminal court thus dismissed Argument No. 1 of the Waltons’ application.

Argument No. 2: Coordination of Civil and Criminal Proceedings

The allegation that the Crown and the police and Dr. Bernstein’s civil counsel improperly coordinated their efforts and used the criminal process to further the civil litigation was the real substance of the Waltons’ abuse of process application. It occupied the great majority of oral argument and it was the main focus of the factum of the Waltons.

This argument had a number of different but related aspects as follows: it began with the assertion set out in Ms. Walton’s affidavit in support of the abuse of process application that she made efforts to reach a settlement with Dr. Bernstein between October and December of 2013, after the civil litigation began, but that Dr. Bernstein declined a generous settlement offer and told her in a January 2014 telephone call that he wanted to see her “bankrupt and in jail.”

It was then alleged that Dr. Bernstein and his civil lawyers retained the private investigator Hartford who began liaising with the Toronto police in late 2014, and that the police did not conduct an independent investigation but simply adopted Hartford’s report and the materials provided by Inspector Schonfeld and the civil lawyers. The Waltons also alleged that various acts of improper coordination between the Crown, such as the Crown’s failure to disclose police notes prior to the June 2016 hearing before Newbould J. and the further delay of the police taking a sworn statement from Dr. Bernstein until after Newbould J. had delivered final judgement to Dr. Bernstein in September 2016. The Waltons alleged that these coordinated steps were taken for the improper purpose of manipulating the criminal process, furthering the civil litigation, and assisting in the ultimate goal of collecting a civil debt.

The criminal court held that the Waltons’ argument had the following flaws or defects:

  1. there was no evidence that Dr. Bernstein ever threatened to involve the police and the criminal courts unless Ms. Walton settled the civil litigation on his terms. Indeed, it was Ms. Walton who initiated and pursued the settlement discussions. There was nothing in the facts of this case that would bring it within the old line of authority holding that it is an abuse of process “if criminal proceedings are commenced solely for the purpose of collecting a civil debt,” See: v. Leroux (1928), 1928 CanLII 455 (ON CA), 50 C.C.C. 52 (Ont. C.A.); R. v. Leclair (1956), 1956 CanLII 526 (ON CA), 115 C.C.C. 297 (Ont. C.A.);  R. v. Laird (1983), 1983 CanLII 3087 (ON SC), 4 C.C.C. (3d) 92 (Ont. H.C.J.); R. v. Waugh (1985), 1985 CanLII 3557 (NS CA), 21 C.C.C. (3d) 80 (N.S.C.A.);

 

  1. the modern authorities concerning this form of abuse of process hold that even when the complainant is improperly motivated and threatens resort to the criminal courts in order to collect a civil debt, this will not amount to an abuse of process if the police and Crown are not implicated in the misconduct and if “charges were laid after an independent investigation and decision by the authorities”;

 

  1. the timing of the formal criminal complaint (and various related steps), about a year and a half after the civil litigation began, was logical and understandable. The fact that the civil law firm retained the private investigator Hartford in and around July 2014, the fact that Hartford began meeting with the Toronto police in October and December 2014, and the fact that the Toronto police began receiving materials from Hartford for the purpose of “intake of criminal complaint” at the time of these initial meetings does not suggest any impropriety, let alone the kind of sinister and speculative impropriety suggested by the Waltons. Given the known facts in the record, the timing of the steps taken by Dr. Bernstein’s representatives, presumably after legal advice and some oversight from his civil counsel, were entirely logical;

 

  1. what is most significant about the timing of the above developments in the case during 2014 is that damaging findings about the Waltons’ conduct had already been made by various branches and members of the judiciary. It was only through the civil litigation, with its appointment of an Inspector, that facts began to emerge suggesting “theft”, the “appearance … of theft,” “knowing misappropriation”, and “fraud.” It was hardly surprising that Dr. Bernstein and his civil lawyers, upon receiving the above findings and judgements, would retain Hartford and then approach the police. There is certainly nothing improper about taking these steps, reporting an alleged crime to the appropriate authorities on instructions from a client complainant;

 

  1. The Walton’s argument concerning the above steps involves a great deal of speculation about improper contacts, collaboration, and motivation. While it is understandable that the Waltons do not wish to acknowledge the facts as found in the civil courts, because they want to challenge them by way of an improper “collateral attack”, to ignore the facts and instead rely on speculation, is not helpful when alleging abuse of process and seeking an evidentiary hearing.

The criminal court went on to quote Justice Callaghan, as he then was, in Laird, at page 96:

Civil proceedings and criminal proceedings often go hand in hand when a charge of fraud is in issue. Such concurrence of proceedings, however, is not essential to the integrity of the criminal proceedings. In order to conclude that the criminal process is being used for the proscribed purpose, evidence of either an implied or express threat is usually present. In this case there is no evidence from which one could infer that the resort to the criminal jurisdiction was for the purpose of collecting a civil debt. In these circumstances I am of the view that the provincial court judge erred in law when he invoked, or purported to invoke, the doctrine of abuse of process and quashed the proceedings.

See: R. v. Walton, 2019 ONSC 928 at paras. 85-86.

Likewise, in the Waltons’ case, there was no evidence and no offer of proof that Dr. Bernstein ever expressly or implicitly threatened the Waltons with criminal prosecution unless they paid him a sum of money that he required in order to settle the civil proceedings. Dr. Bernstein simply rejected Ms. Waltons’ best offer to settle and made an angry statement about wanting to see her “bankrupt and in jail.”

Furthermore, there was no evidence that Dr. Bernstein or his civil counsel ever made a demand for some kind of civil settlement, before going to the police in late October 2014. Finally, there was no evidence of any threat to go to the police, absent a suitable civil settlement. On this record, there was simply no evidence and no offer of proof that the complaint made to the police by Dr. Bernstein’s representatives was “solely for the purpose of collecting a civil debt.” On the contrary, the natural inference was that the complaint to the police was driven by the judicial findings and the facts that emerged from the civil litigation.

The criminal court further held that even if there was evidence that Dr. Bernstein was improperly motivated, the modern law is to the effect that there is no abuse of process if the police and Crown are not implicated in the complainant’s improper demands and, instead, proceed with their own independent investigation and assessment of the appropriateness of criminal charges. Provided that “charges were laid after an independent investigation and decision by the authorities,” any antecedent improper motivation by the complainant is effectively cleansed or, at least, is not determinative of an abuse of process.

With respect to the police investigation in the Walton case, the criminal court held that it inevitably relied to a significant extent on the work product that had emerged from the civil litigation. This is how Dr. Bernstein had discovered the alleged “theft” and “fraud” and it is simply common sense that he and his representatives would rely on this material as evidence of the alleged crime which they were reporting to the police.

As to whether the police made an “independent decision” to lay criminal charges in May 2016, their notes and reports indicate that they were diligent, thorough, and cautious. The police took steps to secure relevant documents through proper legal processes, took legal advice from the Crown when appropriate, and took the necessary time to review the voluminous existing record and to ask detailed follow-up questions. The criminal court was satisfied that there was an independent police investigation. In terms of the decision to charge the Waltons, it was apparent that the police did not simply adopt and copy Mr. Hartford’s initial report and complaint on behalf of Dr. Bernstein, contrary to the submission repeatedly made by Mr. Cohen.

The criminal court went on to conclude that the evidentiary record indicates that the alleged “theft” and “fraud” came to light through the civil litigation process, it was identified as such by the judiciary, and the civil lawyers then took steps on behalf of their client to make a criminal complaint. After a thorough investigation, the police laid criminal charges, the Crown then reviewed the evidence and decided to prosecute. Indeed, it would have been inappropriate if Dr. Bernstein had rushed into making precipitous criminal allegations and had reported them to the police before he had the facts.

What the Criminal Court in the Walton Case did not Identify: The Cost to Fraud Victims to Fund Civil Litigation Before they have the Grounds for a Criminal Complaint

As mentioned above, our March 2014 blog post Coordinating Criminal and Civil Justice as a Means of Recovery for Fraud Victims was focused on advising fraud victims that Canada has a two-tiered justice system, and that when it comes to fraud recovery, notwithstanding that the criminal justice system is publicly-funded, it is at best a secondary system. Fraud victims typically view retribution as important, but secondary to their recovery interests. Similarly, fraud victims consider the Crown’s objective of general deterrence as secondary to their private recovery interest. The problem in Canada is the cost to obtain recovery in the civil system, and how ineffective criminal restitution orders are. It is for that reason we will leave Criminal Charges as Leverage for Restitution for a separate blog post.

What was not discussed in the Walton’s criminal abuse of case is the cost to Dr. Bernstein to investigate his case to a standard where it was appropriate for him to make a criminal allegation and report it to the police. Many fraud victims that we deal with have reported their loss to police, and have been told that their complaint lacks the evidence for the police to intake their complaint. Many fraud victims are told to consult with civil counsel, and then find that they cannot afford the type of civil litigation that Dr. Bernstein invested in to obtain the evidence required to catch the interest of the police to even open a file.

What was also not discussed in the Walton’s criminal abuse of case is whether Dr. Bernstein criminal complaint resulted in any advantage to him. It appears that Dr. Bernstein made his criminal complaint because he wanted to see the Walton’s punished, and for general and specific deterrence purposes – so that the Walton’s would not do it to anyone else. There is no mention in this decision of Dr. Bernstein seeking a restitution order. Indeed, considering that he had a civil judgment, it would not appear to be necessary. In other words, Dr. Bernstein bore the cost of having his civil counsel assist him make a criminal complaint without economic incentive.

In our March 2014 blog post, we compared the steps taken in a civil prosecution with the steps taken in a criminal investigation – many of which are the same. The headings were:

Perceptions of the Criminal Justice System

Setting Objectives

Evaluating the Cost and Return on Investment of Civil Tracing

Coordinating and Comparing Civil and Criminal Prosecutions

  1. The Investigation
  2. Instigation of the Process: Civil Claims versus Criminal Charges
  3. Civil Discovery versus Crown Disclosure
  4. Civil versus Criminal Trials
  5. Civil Recovery Orders versus Criminal Sentences

What this blog post has done is applied those general concepts to the facts of a large-scale fraud, and explained a precedent that fraud victims can rely on when faced with a rogue’s allegations of abuse of process – that the victim is using the criminal process to “collect a debt.”

Our next blog will delve deeper into how the Crown’s use of restitution payments in the pre-trial phase of criminal litigation to further the public interest of saving court time and expense, saves the victims from the effect of the Court’s Charter litigation rulings, and in some cases assists victims in their recovery efforts. Restitution, at any point, also reflects rehabilitation of the rogue.

Inquiries

At Investigation Counsel PC, we investigate and litigate fraud recovery cases. If you discover you are a victim of fraud, contact us to have your case assessed and a strategy for recovery mapped out before contacting police or alerting the fraudster. We also promote victim advocacy and academic discussion through various private and public professional associations and organizations. If you have an interest in the topics discussed herein, we welcome your inquiries.

Norman Groot

About Norman Groot

Based on my police experience and my experience thereafter as a litigator, I have joined forces with other lawyers with police experience and created the law firm Investigation Counsel Professional Corporation.

Leave a Reply

Your email address will not be published. Required fields are marked *

Call Now Button