Date: 20090316
Docket: T-1075-08
Citation: 2009 FC 265
Ottawa, Ontario, March
16, 2009
PRESENT: The Honourable Madam Justice Heneghan
BETWEEN:
STEPHEN
ZOLOTOW
Plaintiff
and
THE
ATTORNEY GENERAL OF CANADA
Defendant
REASONS FOR JUDGMENT AND JUDGMENT
Introduction
[1]
The
Attorney General of Canada (the “Defendant”) appeals from the Order of
Prothonotary Milczynski dated November 27, 2008. In that Order, the
Prothonotary dismissed the Defendant’s motion to strike the Statement of Claim
issued by Mr. Stephen Zolotow (the Plaintiff”) on July 11, 2008. The appeal is
taken pursuant to Rule 51 of the Federal Courts Rules, SOR/98-106 (the
“Rules”).
Background
[2]
The
Plaintiff commenced an action relating to the recovery of diamonds that were
taken from him in April, 2000, allegedly pursuant to the Customs Act, R.S.C.
1985, c. 1 (2nd Supp.), (the “Customs Act”). On November 22, 2005,
he commenced an action in the Ontario Superior Court in cause number 05-CV-300923-PD-3.
The Defendant moved to dismiss the action pursuant to the provisions of the Courts
of Justice Act, R.S.O. 1990, c. C-43.
[3]
Mr.
Justice Jarvis of the Ontario Superior Court declined to strike out the action
on the grounds of lack of jurisdiction, but in the exercise of his discretion,
he ordered that the action be stayed on the grounds that the Federal Court of
Canada is the preferred jurisdiction to adjudicate the Plaintiff’s claim.
[4]
The
Plaintiff appealed to the Court of Appeal for Ontario in cause number
C47248. By an endorsement dated March 6, 2008, the Ontario Court of Appeal
dismissed the appeal, on the grounds that the Motions Judge had properly
exercised his discretion to stay the action, in finding that the Federal Court
“is the Court of preferred jurisdiction” for the disposition of the Plaintiff’s
claim.
[5]
On
July 11, 2008, the Plaintiff commenced his action in this Court seeking the
following relief:
a. an order that
the Attorney General of Canada return Mr. Zolotow’s 20 cut diamonds to him;
b. in the
alternative, an accounting for and payment of all proceeds received on the sale
of the diamonds;
c. pre-judgment
interest to the date of judgment;
d. post-judgment
interest;
e. costs of this
claim with all applicable taxes thereon; and
f.
such
further and other relief as this Honourable Court deems just.
[6]
The
allegations about the circumstances of the Plaintiff’s loss of possession of
his diamonds is set out in the following paragraphs of the Statement of Claim
that was issued in the Federal Court:
4. Mr. Zolotow owns 20 cut
diamonds (diamonds).
5. Mr. Zolotow had his diamonds
in Toronto, Ontario, Canada in May 1993. Mr. Zolotow rented
a safety deposit box at the branch of the Canadian Imperial Bank of Commerce
located at 135
St. Clair Avenue West
in Toronto, Ontario, Canada. Mr. Zolotow stored his
diamonds in the safety deposit box from about May 11, 1993 until about April
13, 2000.
7. When he arrived at the
airport, Mr. Zolotow went to clear United States Customs.
8. United States Customs took Mr.
Zolotow’s diamonds from him. United States Customs gave Mr. Zolotow a receipt
for his diamonds.
9. Mr. Zolotow petitioned United
States Customs to give his diamonds back to him. United States Customs refused.
Instead, United States Customs gave Mr. Zolotow’s diamonds to the Royal
Canadian Mounted Police.
10. On or about April 19, 2000, the
Royal Canadian Mounted Police had Mr. Zolotow’s diamonds appraised. The
appraiser estimated that the replacement cost of the diamonds was $885,900.00.
11. In or about March 2002, the
Royal Canadian Mounted Police gave Mr. Zolotow’s diamonds to Canada Customs and
Revenue Agency.
12. On or about October 12, 2001,
Mr. Zolotow asked Canada Customs and Revenue Agency to return his diamonds to
him. Canada Customs and Revenue Agency refused.
[7]
By
Notice of Motion dated October 28, 2008, the Defendant moved to strike out the
Plaintiff’s Statement of Claim. Several grounds were advanced in the Notice of
Motion, as follows:
1. Res judicata in the
form of issue estoppel. The allegations in the statement of claim
conflict with the decision of the Superior Court of Justice in the identical
case which determined that the matter is an appeal from a seizure under the Customs
Act and that the Act’s provisions apply. Mr. Justice Jarvis’ ruling
is binding on the plaintiff;
2. By ignoring the ruling and forcing
the defendant to re-argue a merit less issue, the claim is scandalous,
vexatious and an abuse of process;
3. The time limits in the Act
bar the claim. As an appeal it is time-barred by section 135(a) and, as a cause
of action, by section 106(2);
4. The Crown is immune from in
rem proceedings against its property;
5. Rules 221(1), (a), (c) and
(f);
[8]
In
her Order dismissing the Defendant’s Notice of Motion, the Prothonotary noted
that the application of the time limitation contained in the Customs Act
depends upon whether a “seizure” was made under that statute.
[9]
She
said the following:
There must have been a seizure under the Customs
Act. Mr. Zolotow submits that the seizure by U.S. Customs officials and the
subsequent hand-off of the diamonds (which he claims were brought into Canada over 6 years before) to the
Royal Canadian Mounted Police, which in turn gave the diamonds to Canada
Customs and Revenue Agency (now the Canadian Revenue Agency) does not
constitute a seizure under the Customs Act. It is Mr. Zolotow who is, in
effect arguing that the purported seizure was time-barred, and the Act cannot
govern his property.
[10]
The
Prothonotary said that she was not satisfied that it “was plain and obvious or
without doubt” the Plaintiff’s claim cannot succeed.
[11]
The
Prothonotary dismissed the Defendant’s arguments that the Plaintiff’s action
should be dismissed on the basis of issue estoppel and abuse processes arising
from the earlier Order made by the Ontario Superior Court and the Ontario Court
of Appeal on May 5, 2007 and March 6, 2008, respectively. She determined that,
contrary to the submissions of the Defendant, the Ontario Courts had not
decided that the seizure of the Plaintiff’s diamonds in April, 2000 was a
“seizure” within the scope of the Customs Act. Rather, she found that the key
issue addressed before the Ontario Courts was that of jurisdiction. She quoted
the following passage from the endorsement of the Ontario Court of Appeal:
…even if he [Mr. Zolotow] is correct in
his assertion that the action constitutes a common law property claim, and not
a claim subject to the Customs Act, the jurisdictional issue
remains an open question for determination. It is agreed that both the
Superior Court of Justice and the Federal Court have jurisdiction over a common
law action in detinue against the Federal Crown. In circumstances of concurrent
jurisdiction, s. 106 of the Courts of Justice Act gives the motion judge
the discretion to determine the preferred forum.
Here, the motion judge exercised this discretion
upon proper principles to draw the conclusion that the preferred jurisdiction
for Mr. Zolotow to advance his claim in relation to his property was the
Federal Court.
The motion judge observed that the Notice
of Seizure was evidence that the seizure took place, purportedly at least,
under the authority of the Customs Act. Indeed Mr. Zolotow challenged
that Notice of Seizure, albeit belatedly, under the procedure in the Customs
Act.
Against that background, the motion judge
recognized, correctly in our view, that the determination of the pivotal
issue of the jurisdiction of the Customs Act, - regardless of whether or
not it is held that the Customs Act applies – will involve some
examination of the provisions of the Act and related jurisprudence (emphasis
in the original)
[12]
In
his Notice of Motion filed on January 22, 2009, the Defendant sets out several
grounds of appeal as follows:
1. The Prothonotary’s exercise of
discretion, involving an issue vital to the disposition of the case, is wrong
in principle and in its appreciation of an important fact. The errors prevented
her from properly exercising her discretion;
2. Prothonotary Milczinski failed
to find that it is plain and obvious that the claim cannot succeed because of
the limitation periods in the Customs Act (“Act”) at sections
106(2) and 135(1) and also because the defendant is immune from the claim for
the return of the plaintiff’s diamonds;
3. The Prothonotary erred when
she failed to find as a fact before her, and to follow Justice Jarvis of the
Ontario Superior Court who found that the plaintiff’s diamonds were seized
under the Act and that the case is a claim for their return. She
misinterpreted the Act in failing to find that sections 106(2) and
135(1) are limitation periods that bar the claim for the return of diamonds
seized under the Act. Prothonotary Milczinski failed to decide it is
plain and obvious that because the case is a self-described claim for the
return of diamonds seized under the Act it is time-barred by these
sections.
4. Prothonotary Milczinski
further erred in law in considering that there is an issue whether a seizure
which might be found at trial to have occurred outside of the six year time
limit for seizures, in section 113 of the Act, will thereby escape the limitation
periods particularly in section 106(2) time-barring the bringing of actions
such as this. She erred in not ruling that the claim is an appeal on the merits
of the seizure, i.e., whether it was out-of-time, and therefore specifically
caught by s. 106(2).
5. Prothonotary Milczinski erred
in law when she did not rule that since the diamonds were seized under the Act,
claims for their return were subject to section 106(2) regardless of whether
the seizure was subsequently found, on an appeal under the statute, to be
out-of-time under section 113, or is overturned or disallowed on any other
ground.
6. The Prothonotary failed to
find as issue estopped the fact of a customs seizure and that the claim
is an appeal from the seizure and failed in law to apply Crown immunity which
protects the diamonds in the defendant’s hands and misinterpreted sections 106,
110, 113, 129 and 135 of the Act; and
7. The claim cannot succeed
because it is a collateral attack on the defendant’s decision to seize the
diamonds. In addition, a civil claim under section 17 of the Federal Courts
Act challenging an illegal or unauthorized administrative action cannot
proceed. The issue of legality must proceed by judicial review.
8. Federal Courts Rule 51(1) and
such other grounds as the Court may admit. (emphasis in the original)
[13]
The
Defendant stated that the following documentary evidence would be used upon the
hearing of this Notice of Motion:
1. Notice of Motion before the
Prothonotary dated October 28, 2008,
2. Order of Prothonotary
Milczynski, dated November 27, 2008,
3. Copy of Affidavit of Kathy
Rush dated March 17, 2006,
4. Statement of Claim in this
Court issued July 11, 2008,
5. Statement of Defence in this
Court issued August 27, 2008,
6. Statement of Claim in the Ontario
Superior Court of Justice issued November 22, 2005,
7. Reasons for Decision of
Jarvis, J., Ontario Superior Court of Justice issued May 11, 2007 and
8.
Endorsement
of the Court of Appeal for Ontario issued
March 6, 2008.
[14]
The
Defendant submits, generally, that the Prothonotary erred by failing to apply the
Customs Act and as a result, erred in failing to find that a seizure had been
effected. He further argues that the Prothonotary erred by failing to
acknowledge the legal consequences of a seizure under the Act, that is
the transfer of title in the diamonds to the Crown in Right of Canada.
[15]
The
Defendant argues that the Prothonotary erred by failing to recognize, pursuant
to the decision of Mr. Justice Jarvis of the Ontario Superior Court, affirmed
by the Ontario Court of Appeal, that issue estoppel applies to the Plaintiff’s
claim.
[16]
As
well, the Defendant submits that the Prothonotary erred by failing to follow
the teaching of the Federal Court of Appeal in Canada v. Grenier, [2006]
2 F.C.R. 287 (F.C.A.), as discussed in the recent decision of the Ontario Court
of Appeal in TeleZone Inc. v. Canada (Attorney General), [2008] O.J. No.
5291, 2008 ONCA 892.
[17]
The
Defendant argues that the Plaintiff, in his action, is attempting to make a
collateral attack on an administrative process for which a remedy lies under
the Federal Courts Act, R.S.C. 1985, c. F-7 section 18, not by way of
action pursuant to section 17.
Discussion and
Disposition
[18]
The
standard of review applicable to an appeal from the decision of a prothonotary
was restated by the Federal Court of Appeal in its decision in Merck &
Co. v. Apotex Inc. (2003), 24 C.P.R. (4th) 240 where the Court
concluded that a decision that can be either interlocutory or final depending
on the result is vital to the final disposition of the case and subject to
review on appeal on a de novo basis. That standard will be applied here.
[19]
The
Defendant seeks to strike out the Plaintiff’s Statement of Claim. The test for
striking out a statement of claim was addressed by the Supreme Court of Canada
in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 where the Court said
that the test in Canada to strike out pleadings is whether it is plain and
obvious that the claim discloses no reasonable cause of action.
[20]
In
the earlier decisions of Operation Dismantle Inc. v. The Queen, [1985] 1
S.C.R. 441 and Attorney General of Canada v. Inuit Tapirisat of Canada,
[1980] 2 S.C.R. 735 the Supreme Court of Canada said that “plain and obvious”
means that the case is beyond doubt.
[21]
In
the present case, the Defendant is essentially challenging the jurisdiction of
the Federal Court to adjudicate the Plaintiff’s claim. He argues that the
Plaintiff was first required to seek judicial review of the decision to seize
his property, relying in this regard upon the decision in Grenier. He
also submits that the issue of the validity of the seizure has already been
determined by the Ontario Superior Court in the ruling of Mr. Justice Jarvis.
[22]
The
application of Grenier to the present case is not “plain and obvious”
and “beyond doubt”. The factual allegation raised by the Plaintiff in his
Statement of Claim is that the diamonds were not seized, within the meaning of
the Customs Act. That is a justiciable issue that can be determined only upon a
full evidentiary basis. That basis is not yet before the Court.
[23]
The
issue of the validity of the seizure has not been determined as a result of the
proceedings in the Ontario Superior Court or before the Ontario Court of
Appeal. The Defendant is misreading the rulings delivered by those Courts. All
that was decided in the Ontario Superior Court was the recognition of
jurisdiction in the Federal Court to entertain the Plaintiff’s claim. For its
part, the Ontario Court of Appeal found that the trial judge had properly
exercised his discretion to defer to the jurisdiction of the Federal Court.
[24]
The Defendant has failed to show that the
Plaintiff’s claim is “beyond doubt” and that it is plain and obvious that it is
doomed to fail. Accordingly, the appeal is dismissed with costs to the
Plaintiff.
[25]
If the parties cannot agree on costs, brief
submissions in writing not to exceed five (5) pages may be made on or before
March 31, 2009.
JUDGMENT
THIS COURT
ORDERS AND ADJUDGES that the appeal is
dismissed with costs to the Plaintiff. If the parties cannot agree on costs,
their brief submissions can be made on or before March 31, 2009.
“E. Heneghan”
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