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Drug-Related Seizure of Property Amounts to “Lien”; Mortgage in Default

In the case of CIBC v. Allen, CIBC had agreed pursuant to a credit agreement to provide Allen with a revolving line of credit which was secured by a mortgage/charge. The mortgage was duly registered; it provided that on default, both principal and interest were due and CIBC would be entitled to quiet possession of Allen’s property.
 
However, Allen was subsequently charged with unlawfully producing marijuana on his property, which was a criminal offence under the Controlled Drugs and Substances Act. Based on a judge’s finding that there were reasonable grounds to believe that a forfeiture order could be made, the Crown seized Allen’s property in accordance with the authority granted to it under the Act. The resulting Restraint Order prohibited any disposal or dealing with the property, except as ordered by the court. However, an express exception to the Order provided that “[a]ny financial institution … may take possession, repair and sell the property pursuant to the rights assigned to it under any charge, mortgage or encumbrance that was registered prior to date of this order.” Under this provision, CIBC was obliged to provide a full accounting to the Crown in connection with any proceeds arising from the sale.
 
CIBC claimed that the registration of the Restraint Order amounted to a “default” of the mortgage by Allen, and that it was therefore entitled to possession and to take steps under its power of sale.  CIBC pointed to the fact that the mortgage’s standard charge terms define “default” to include “any lien or notice of lien” registered against the property without CIBC’s prior written consent. Furthermore, “lien” was defined as “any mortgage, charge, lien, assignment, security interest, execution, attachment or other encumbrance (whether given by statute or otherwise).”
 
CIBC, relying on the assertion that the Restraint Order amounted to a “lien” which in turn amounted to a default under the standard charge terms, brought a motion for summary judgment for possession, and for the money due under the mortgage.
 
The court observed that the forfeiture provisions in the Controlled Drugs and Substances Act are punitive and deterrent, and are intended to deprive an accused person of specific crime-related property. Conceptually, the effect of a restraint order is to freeze property, to place it under the legal and actual control of the criminal justice system, and to render the person in possession to be a mere caretaker or administrator.  Such orders have been held to amount to a “seizure” within the meaning of s. 8 of the Charter (which protects citizens against unreasonable search and seizure).
 
By extension, the court held that the Restraint Order against Allen’s land amounted to an “encumbrance” within the meaning of “lien” as defined by the mortgage’s standard charge terms. Moreover, this lien attached to the property in the same manner that it would attach to the proceeds of sale if CIBC were to take steps to sell it.  The mortgage was accordingly in default, and CIBC was entitled to summary judgment. See CIBC v. Allen, 2012 (ONSC).