Case: National Industries Inc. v. Kirkwood, 2023 ONCA 63 (CanLII)
Keywords: res judicata, issue estoppel, and abuse of process; Toronto (City) v. CUPE., Local 79, 2003 SCC 63
The Appellants, National Industries Inc. and its subsidiary, National Steel Car Limited, decide to build a new plant in Alabama. (See para. 2). Several years later, the Appellants’ principal is indicted on securities fraud offences in connection with the operation of the project. The charges are settled by payment of $22M, which the Appellants fund. (See para. 3).
The Appellants then seek indemnification for the settlement payment pursuant to its Directors and Officers liability insurance policy with the Respondent insurer. (See para. 4). The Respondent insurer denies approximately $17M of the Appellants’ claims citing non-disclosure of material risks. (See para. 4).
The Appellants issue a Notice of Action, alleging the non-disclosure only occurred because of the Respondents’ negligence and breach of fiduciary duty. (See para. 5). The Appellants then bring a Motion to Amend their pleadings pursuant to Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, alleging further negligence from 2008-2009. The Motion is denied; the Case Management Master finds the proposed amendments constitute new causes of action outside the applicable limitation period. (See para. 6). That decision is upheld on appeal. (See paras. 9-10).
The Appellants next file a Response to a Request for Particulars from the Respondent and a Reply that includes the allegations of negligence from 2008-2009. The Respondents bring a Motion to Strike these materials, pursuant to Rule 21, on the basis of re judicata, issue estoppel, and abuse of process. The Motion is granted by an Associate Justice (Myers, J.) The Court of Appeal (Paciocco, Harvison Young, and Thorburn, JJ.A.) denies the Appellants’ appeal. (See para. 1).
An interesting question arising from this matter is whether the “re-litigation doctrines” (i.e. res judicata, issue estoppel, and abuse of process) apply in the context of an Associate Justice hearing a Motion to Strike.
The Appellants argued that there was no precedent supporting an Associate Justice’s use of the re-litigation doctrines so the Court of Appeal resolved that key question “as a matter of principle”. (See para. 20). To do this, the Court of Appeal referred to Arbour J.’s description of the re-litigation doctrines in Toronto (City) v. CUPE., Local 79, 2003 SCC 63 at para. 23:
Issue estoppel is a branch of res judicata (the other branch being cause of action estoppel), which precludes the relitigation of issues previously decided in court in another proceeding. For issue estoppel to be successfully invoked, three preconditions must be met: (1) the issue must be the same as the one decided in the prior decision; (2) the prior judicial decision must have been final; and (3) the parties to both proceedings must be the same, or their privies. [Emphasis in original, citations omitted]. (See para. 21).
The Court of Appeal examined the second element of the test, which is about the kinds of decision that can trigger the application of re-litigation doctrines. For the Court, “prior judicial decisions” would include the scenario in this case – an Associate Justice applying the doctrines to bar re-litigation of the “fundamental holding” of the Case Management Master’s decision, in the circumstance where she acted within her jurisdiction as a court of competent jurisdiction. (See paras. 22, 31). As stated by the Court of Appeal, “[t]o suggest that re-litigation doctrines cannot be applied to decisions of an associate justice would make many applications before associate justices pointless”. (See para. 22).
Importantly, the Court of Appeal made no distinction between the powers of an Associate Justice and those of a s. 96 Judge – an issue which is currently before the Supreme Court of Canada by way of an Application for Leave to Appeal. (See Agrium Inc. v. Orbis Engineering Field Services LTD., et al. SCC#: 40402).
With respect to the application of re-litigation doctrines generally, the Court of Appeal noted that the “flexibility and purpose” of such doctrines support their application by an Associate Justice; that nothing precludes their application by an Associate Justice to prevent “unfair re-litigation or re-litigation that damages the repute of the administration of justice”. (See para. 24).
Indeed, the Court of Appeal agreed with Myers J. that the re-litigation doctrines must apply to pleadings motions because “[i]f parties could disregard pleadings rulings in the expectation that they can be re‑litigated later, it would unsettle the efficient and fair administration of justice and render pleadings rulings and appeals from those rulings pointless.” (See para. 26).
Would permitting Associate Judges to use re-litigation doctrines in pleadings motions interfere with the “almost inviolable right of trial judges to determine the scope of the pleadings”? According to the Court of Appeal, the answer to this question is “no”. Although trial judges have the clear authority to make appropriate determinations related to the scope of pleadings, there is “no need to wait until the evidence at trial to resolve the scope of the pleading, and every reason why this should not be done”. (See para. 28).
Counsel for the Applicants: Jerome Morse, David Trafford (Morse Shannon LLP, Toronto) and Earl Cherniak, K.C. (Lerners LLP, Toronto)
Counsel for the Respondent: Robert Traves and Natalie Kolos (BLG, Toronto)