IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Rossner v. Nystrom, |
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2019 BCSC 583 |
Date: 20190416
Docket: 54573
Registry: Vernon
Between:
Trevor Rossner and Rose Rossner
Plaintiffs
And
Gary Nystrom and Shannon Nystrom
Defendants
Before: The Honourable Mr. Justice Marchand
Reasons for Judgment
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Counsel for the Plaintiffs: |
M.S. Dugas |
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Counsel for the Defendants: |
B.R. Hankins |
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Place and Date of Hearing: |
Kelowna, B.C. March 28, 2019 |
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Place and Date of Judgment: |
Vernon, B.C. April 16, 2019 |
[1] There is nothing more frustrating in civil litigation than obtaining a hollow judgment. It is natural in such circumstances for the “successful” party to search for an alternative way to make good their loss. And so it is for the plaintiffs in this case, Trevor and Rose Rossner.
[2] In 2014, the Rossners contracted Momentum Designs Ltd. (“Momentum”) to construct a custom home for them in Coldstream. Unfortunately, the construction did not go well. In 2016, Momentum sued the Rossners and the Rossners counterclaimed against Momentum.
[3] Soon after the commencement of the litigation, Momentum ceased operations. On July 10, 2017, the Rossners sought judgment against Momentum by way of summary trial. Momentum did not appear at the hearing and the Rossners obtained judgment. The Rossners have had no success collecting on their judgment.
[4] On December 8, 2017, the Rossners commenced this action against Shannon and Gary Nystrom. Ms. Nystrom was the sole director and Mr. Nystrom was a key employee of Momentum. To pierce the corporate veil, the Rossners allege that the Nystroms committed various forms of fraud.
[5] The Nystroms have applied to strike the Rossners’ claim on the basis that it is res judicata or, in the alternative, an abuse of process.
[6] The Rossners say that res judicata does not apply to their present action because the parties and causes of action are different. In the alternative, the Rossners say it would be manifestly unfair for the court to dismiss their present action on the basis of res judicata and submit that the court should exercise its discretion against doing so.
[7] The Rossners also say that they are not re-litigating issues and there is nothing abusive about their present action.
[8] In summarizing the relevant background, I rely heavily on an Agreed Statement of Facts submitted by the parties for the purposes of this application.
[9] The Rossners own property at 8776 Cortland Place in Coldstream (the “property”). In 2014, the Rossners contracted with Momentum (the “contract”) to construct a custom home on the property (the “home”). Construction commenced in 2015 and continued in 2016.
[10] In or about February 2016, a dispute arose between the Rossners and Momentum with respect to the construction of the home and the contract. The dispute involved the following issues and allegations:
1. What amounts, if any, remained payable by the Rossners to Momentum for the construction of the home pursuant to the contract;
2. What amounts were payable by the Rossners to Momentum for extra work that Momentum alleged it had undertaken in relation to the construction of the home;
3. The status of payments already made by the Rossners to Momentum pursuant to the contract; and
4. Whether Momentum was current with its payment obligations in relation to sub-trades and suppliers that were involved in the construction of the home.
[11] In a letter to Momentum dated February 28, 2016, previous counsel for the Rossners detailed the basic facts about the construction of the home and identified a number of the issues that had arisen, including issues with respect to liens filed by various sub-trades against the property. In this letter, previous counsel stated:
On behalf of the Rossners, we demand that Momentum pay the lien claimants and have the liens discharged forthwith or I expect to receive instructions to commence litigation against Momentum for damages and against Shannon Nystrom as the director of Momentum for breach of trust.
[12] On March 21, 2016, Momentum filed two claims of lien against the property under the Builders Lien Act, S.B.C. 1997 c. 45 in the amounts of $71,500 and $70,309.67.
[13] On May 9, 2016, Momentum filed a notice of civil claim seeking judgment against the Rossners for payment of money allegedly owed under the contract and for extra work that Momentum alleged had been undertaken (the “original action”).
[14] On June 2, 2016, the Rossners filed a response to civil claim and a counterclaim in the original action (the “counterclaim”).
[15] By June 2, 2016, the Rossners:
1. Were aware there was a dispute over what, if any, amounts remained payable by the Rossners to Momentum;
2. Were aware several builders liens had been registered against title to the property for work that had been done on the property by sub-trades that Momentum had failed to pay;
3. Were aware the sub-trade liens had been registered against the property for invoices that became due and payable around the same time that Mr. Nystrom had sworn statutory declarations indicating that payment of the sub-trades (with the exception of one sub-trade) was current and there were no outstanding invoices;
4. Were aware the total sum of the amounts alleged to be outstanding in the sub-trade liens was in excess of what the Rossners believed remained payable to Momentum under the terms of the contract; and
5. Were suspicious about whether the funds that had been paid to date to Momentum pursuant to the contract had been utilized by Momentum for the purposes of constructing the home or for some other purpose.
[16] The Rossners’ counterclaim made allegations with respect to the amounts paid and payable to Momentum, the quality of the work provided by Momentum, and set-offs for penalties the Rossners alleged they were entitled to claim in relation to construction delays. The counterclaim pleaded breach of contract and negligence. The counterclaim did not allege fraud.
[17] On or about May 31, 2016, Momentum ceased operations.
[18] On or about October 20, 2016, Ms. Nystrom was assigned into bankruptcy. Ms. Nystrom’s statement of liabilities in her assignment into bankruptcy listed potential damages owing to the Rossners as a contingent liability.
[19] On July 10, 2017, the Rossners sought judgment against Momentum in the original action by way of summary trial. Momentum did not appear at the summary trial and the Rossners were self-represented. During the summary trial, the Rossners brought the following allegations to the attention of the summary trial judge:
1. Mr. Nystrom had signed a statutory declaration which contained false statements;
2. The amounts alleged to be outstanding in the liens exceeded what the Rossners believed remained payable to Momentum under the terms of the contract; and
3. Momentum (Mr. Nystrom) provided fabricated change orders in relation to the construction of the home.
[20] On July 10, 2017, the summary trial judge granted judgment in favour of the Rossners. Specifically, the summary trial judge dismissed the original action and awarded the damages sought by the Rossners in the counterclaim, in full.
[21] On or about July 21, 2017, Ms. Nystrom was discharged from bankruptcy.
[22] On December 8, 2017, the Rossners commenced this action against the Nystroms personally seeking damages arising out of the construction of the home and the contract. The Rossners were not aware of any new facts at the time they commenced this action.
[23] In their notice of civil claim, the Rossners allege that Momentum was a “shell corporation” used by the Nystroms to defraud them. The Rossners rely on the same alleged shortcomings in the construction of their home as set out in their earlier counterclaim. In addition, in their notice of civil claim, the Rossners allege the Nystroms:
1. Prepared fraudulent change orders in relation to work already covered by the contract and attempted to intimidate and coerce the Rossners into accepting changes to the contract;
2. Filed fraudulent builders liens against the title;
3. Fraudulently created invoices and charges for work not performed;
4. Fraudulently provided statutory declarations to obtain funds from the Rossners;
5. Conspired to receive and divert the Rossners’ funds for their own benefit;
6. Wrongfully and fraudulently misappropriated the Rossners’ funds and converted them for their own benefit;
7. Were unjustly enriched;
8. Breached fiduciary duties; and
9. Committed breach of trust.
[24] On January 24, 2018, the Rossners filed a notice of claim in Small Claims Court against their previous counsel. Amongst other things, the Rossners allege their previous counsel was negligent for failing to “follow through with what he said he would do”, namely not naming Ms. Nystrom in the original action “for breach of trust”.
[25] The legal principles underlying the Nystroms’ application are not in dispute.
[26] In Erschbamer v. Wallster, 2013 BCCA 76, the Court of Appeal succinctly explained the general principles of res judicata at para. 12:
[12] The general principles of the doctrine of res judicata were reviewed by this Court relatively recently in Cliffs Over Maple Bay. The doctrine has two aspects, issue estoppel and cause of action estoppel. In brief terms, issue estoppel prevents a litigant from raising an issue that has already been decided in a previous proceeding. Cause of action estoppel prevents a litigant from pursuing a matter that was or should have been the subject of a previous proceeding…
[27] In Cliffs Over Maple Bay (Re), 2011 BCCA 180, the Court noted that the policy objectives underlying res judicata are generally well known. At para. 25, the Court cited the following passage from the authors of Spencer Bower and Turner, The Doctrine of Res Judicata (4th ed., 2009):
Two policies support the doctrine of res judicata estoppel: the interest of the community in the termination of disputes and the finality and conclusiveness of judicial decisions; and the interest of an individual in being protected from repeated suits and prosecutions for the same cause. Maugham L.C. said:
The doctrine of estoppel is one founded on considerations of justice and good sense. If an issue has been distinctly raised and decided in an action, in which the parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.
[28] At para. 26, the Court went on to emphasize, however, that there is balance to be struck:
[26] Appellate courts in Canada have emphasized that the importance of finality and the principle that a party should not be ‘twice vexed’ (bis vixari) for the same cause, must be balanced against the other “fundamental principle” (see Hoque at para. 21) that courts are reluctant to deprive litigants of the right to have their cases decided on the merits: see Toronto (City) v. Canadian Union of Public Employees, Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 55; Revane v. Homersham 2006 BCCA 8, 53 B.C.L.R. (4th) 76 (C.A.) at paras. 16-7; Lange at 7-8.
[29] In this case, the Nystroms submit that both aspects of res judicata (issue estoppel and cause of action estoppel) arise on their application. I will therefore outline the requirements of each below. As will be seen, each aspect of res judicata overlaps but has slightly different requirements.
[30] In Cliffs Over Maple Bay, the Court set out the test for issue estoppel at para. 31:
[31] Turning then to issue estoppel, I note the three traditional “tests” adopted by the Supreme Court of Canada in Angle, namely:
(1) that the same question has been decided;
(2) that the judicial decision which is said to create the estoppel was final; and,
(3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised, or their privies. ... [At 254…]
There is also the well-known formulation of issue estoppel given by Middleton J.A. in McIntosh v. Parent [1924] 4 D.L.R. 420 (Ont. C.A.):
When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies. Any right, question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as an answer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause of action. The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as the judgment remains. [At 422…]
[Emphasis added by the Court in Cliffs Over Maple Bay.]
[31] At para. 32, the Court noted that the words “directly determined” have “not been construed as strictly as one might expect.” More specifically, citing Binnie J. in Danyluk v. Ainsworth Technologies Ltd., 2001 SCC 44, the Court noted that issue estoppel applies “to the issues of fact, law, and mixed fact and law that are necessarily bound up with the determination of that ‘issue’ in the prior proceeding”. The Court then went on to cite with approval the following passage from Lord Shaw in Hoystead v. Taxation Commissioner [1926] A.C. 155 (J.C.P.C.):
…Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.
…
[32] In the book by D. J. Lange, The Doctrine of Res Judicata in Canada, 4th ed. (Markham: LexisNexis: 2015) the author addresses what amounts to “the same question” at 27:
...
† The question to be decided in the second proceeding must be the same question that has been decided in the first proceeding.
† The question decided in the first proceeding, governing the same question test in the second proceeding, must be fundamental to the decision in the first proceeding, not collateral to the decision.
† The question decided in the first proceeding, governing the same question test in the second proceeding, includes all the subject matter encompassing the question whether decided expressly or by necessary logical consequence.
† If the question has been decided in the first proceeding, the same question cannot be relitigated in a second proceeding based on a separate and distinct cause of action.
[33] This court has cited the same passage from earlier editions of D. J. Lange’s text: see for example Bence v. Okanagan-Similkameen (Regional District), 2002 BCSC 1622 at para. 27; Samaroo v. Canada Revenue Agency, 2016 BCSC 531 at para. 108; Drein v. Puleos, 2016 BCSC 593 at para. 13.
[34] In Giles v. Westminster Savings Credit Union, 2006 BCSC 1600, Sigurdson J. reviewed the question of who is a “privy”:
[44] First of all, as to the third ground, who is a privy?
[45] In The Doctrine of Res Judicata in Canada, 2d ed., supra, the author describes what a privy is at p. 77:
A privy of a party has been variously defined in issue estoppel cases. Before a person can be a privy of a party, there must be community or privity of interest between them, or a unity of interest between them. They cannot be different in substance. Privity can be one of blood, title, or interest. A person who is privy in interest to a party in an action and has notice of that action is equally bound by the findings in that action. A privy is a person who has a right to participate with a party in the proceeding or who has a participatory interest in its outcome. A person who has no right to participate as a party in a proceeding lacks a due process requirement to make a finding of privity of interest. To determine whether a person has a participatory interest in the outcome of the proceeding is to determine whether the outcome could affect the liability of that person. Privity requires parallel interest in the merits of the proceeding, not simply a financial interest in the result. However, a non-party who enters into a formal agreement with a party in a proceeding for disposing of the proceeds is a privy of that party and bound by the first proceeding.
[35] In Delane Industry Co. Ltd. v. Atkinson, 2017 BCCA 79, at para. 25, the Court held that a director and officer of a company is a “privy” to the company for the purposes of issue estoppel.
[36] In Cliffs Over Maple Bay, the Court set out the test for cause of action estoppel at para. 28:
[28] … The traditional criteria for cause of action estoppel, confirmed in Canada in Angle, supra, were summarized by Chief Justice Hewak in Bjarnarson v. Manitoba (1987) 38 D.L.R. (4th) 32 (Man. Q.B.) at 34, aff’d. (1987) 45 D.L.R. (4th) 766 (Man. C.A.), as taken from Grandview v. Doering [1976] 2 S.C.R. 621:
1. There must be a final decision of a court of competent jurisdiction in the prior action [the requirement of “finality”];
2. The parties to the subsequent litigation must have been parties to or in privy with the parties to the prior action [the requirement of “mutuality”];
3. The cause of action and the prior action must not be separate and distinct; and
4. The basis of the cause of action and the subsequent action was argued or could have been argued in the prior action if the parties had exercised reasonable diligence. [At para. 6...]
It is perhaps unnecessary to state that the doctrine contemplates two “causes” – the first having ended in a final judgment that bars a “second claim for the same cause”: see Mohl v. University of British Columbia, 2006 BCCA 70 at paras. 23-4. In this context, “cause of action” does not refer to the name or classification given to the wrong or remedy, but to a factual situation which entitles one to a remedy: see also Lange at 147; Comeau v. Breau (1994) 145 N.B.R. (2d) 329 (C.A.) at para. 18; and Letang v. Cooper [1965] 1 Q.B. 222 (C.A.) at 242-43.
[Emphasis added by the Court in Cliffs Over Maple Bay.]
[37] The first two criteria in cause of action estoppel match the last two criteria of issue estoppel as set out by the Court at para. 31 of its decision.
[38] In Grant McLeod Contracting Ltd. v. Forestech Industries Ltd., 2008 BCSC 756, Josephson J. examined the third criteria, in particular what constitutes a “cause of action” and how one cause of action can be distinguished from another:
[22] In the issue estoppel case of Danyluk v. Ainsworth Technologies
Inc., [2001] 2 S.C.R. 460, Binnie J. for the Court provided the following definition of “cause of action” at ¶54:
A cause of action has traditionally been defined as comprising every fact which it would be necessary for the plaintiff to prove, if disputed, in order to support his or her right to the judgment of the court: Poucher v. Wilkins (1915), 33 O.L.R. 125 (C.A.). Establishing each such fact (sometimes referred to as material facts) constitutes a precondition to success. It is apparent that different causes of action may have one or more material facts in common.
…
[24] In Schrer v. Price Waterhouse, [1985] O.J. No. 881 (H.C.J.) (QL) Sutherland J. attempted to distinguish the same cause of action from a separate and distinct cause of action in the context of cause of action estoppel. At ¶72 Sutherland J. stated:
That certainly does not mean that parties should have to join in one action all causes of action that they may have against one another, or risk being met with the defence of res judicata. …
…
[27] In Greymac Properties Inc. v. Feldman (1990) 1 O.R. (3d) 686 at 691-92 (Gen. Div.), Lane J. emphasized the independent nature of a separate and distinct cause of action:
In my view, none of the cases relied on by the respondent goes so far as to suggest that a litigant cannot raise a separate and distinct cause of action in a litigation because he might have done so on the occasion of an earlier litigation on a different issue. There is a large and important difference between, on the one hand, a defence which is intimately related to the issues in the earlier litigation and, on the other hand, a separate litigation against a party to the earlier litigation, a claim which stands on its own separate set of facts and could have been brought at any time without reference to the issues in the earlier action.
[28] According to Lange at p. 140-44 the question to ask is: “Are the facts upon which the defendant was found liable to the plaintiff in the first action substantially the same and in issue in the second action”? Where the facts are the same and the causes of action are the same, although different legal descriptions are used in the two actions, the second action is barred.
[39] The fourth criteria requires parties to use “reasonable diligence” to bring forward points that could have been argued in the prior action. In Cliffs Over Maple Bay, at para. 27 the Court adopted the following from the decision of Lord Denning, M.R. in Fidelitas Shipping Co., Ltd. v. V/O Exportchleb, [1965] 2 All E.R. 4 (C.A.):
… The rule then is that each party must use reasonable diligence to bring forward every point which he thinks would help him. If he omits to raise any particular point, from negligence, inadvertence, or even accident (which would or might have decided the issue in his favour), he may find himself shut out from raising that point again, at any rate in any case where the self-same issue arises in the same or subsequent proceedings. ... But this again is not an inflexible rule. It can be departed from in special circumstances. ...
[40] In Grant McLeod Contracting Ltd. at para. 40, Josephson J. held that the question is not just whether the basis of the cause of action was or could, with reasonable diligence, have been argued in the prior action but whether the party “should” have raised it. Josephson J. then adopted following factors to consider in determining whether a matter should have been raised in the prior action:
1. whether the proceeding constitutes a collateral attack on the earlier findings;
2. whether it simply asserts a new legal conception of facts previously litigated;
3. whether it relies on "new" evidence that could have been discovered in the earlier proceeding with reasonable diligence;
4. whether the two proceedings relate to separate and distinct causes of action; and
5. whether, in all the circumstances, the second proceeding constitutes an abuse of process.
[41] Even where the criteria for res judicata have been made out, the court retains a residual discretion not to apply it if doing so would cause unfairness. In Tylon Steepe Homes Ltd. v. Pont, 2011 BCSC 385, Ballance J. put it this way at para. 54:
[54] Generally speaking, the authorities require fastidious adherence to the constituent elements of res judicata in order to permit its application. However, even where the requisite ingredients are present, the court retains a residual discretion to decline to apply it if doing so would cause unfairness in the particular case: Danyluk at para. 33; British Columbia (Minister of Forests) v. Bugbusters Pest Management Inc. (1998), 159 D.L.R. (4th) 50 (C.A.). As Finch J.A. (now the Chief Justice) emphasized at para. 32 in Bugbusters, the doctrine “inevitably calls upon the exercise of a judicial discretion to achieve fairness according to the circumstances of each case”.
[42] Nevertheless, the discretion not to apply res judicata is “very limited” and is limited to “special circumstances…which would include fraud, misconduct, or the discovery of decisive fresh evidence that could not have been adduced at the earlier proceeding by the exercise of reasonable diligence…”: Cliffs Over Maple Bay at paras. 43-44.
[43] Rule 9-5(1)(d) of the Supreme Court Rules empowers the court to strike out pleadings, in whole or in part, that are an abuse of process. Abuse of process is a broad and flexible doctrine that permits the court to prevent unfairness and oppressive treatment in the context of civil actions. Only egregious conduct will engage the doctrine. The proceedings must be so unfair that they are contrary to the interests of justice and would bring the administration of justice into disrepute: Hare v. Lit, 2013 BCSC 33 at para. 24.
[44] Where the technical requirements of res judicata are not met, the doctrine of abuse of process may be invoked to prevent the re-litigation of matters: Petrelli v. Lindell Beach Holiday Resort Ltd., 2011 BCCA 367 at para. 70; Erschbamer v. Wallster, 2013 BCCA 76 at para. 29.
[45] The doctrine of abuse of process to prevent re-litigation rests on the same policy grounds as res judicata, namely that there needs to be an end to litigation and that parties should not be “vexed” twice by the same cause. Additional policy grounds include preserving court and litigant resources and upholding the integrity of the legal system by avoiding inconsistent results: Tylon at para. 38 and Petrelli at paras. 70-72.
[46] The focus of the doctrine of abuse of process is on the integrity of the adjudicative process, not the motive or status of the parties: Petrelli at para. 70.
[47] A party seeking to invoke the doctrine of abuse of process bears a heavy onus and must show that abuse is plain and obvious: Hare at para. 25.
[48] The Rossners acknowledge that the judgment they obtained in the original action on July 10, 2017 was final. They also acknowledge that they have discovered no new facts to support the present action and that they could have made the present claims in the original action. They submit, however, that issue estoppel does not arise because the Nystroms were neither parties nor privies to the original action and a number of different questions arise in the present action.
[49] While the Nystroms were clearly not parties to the original action, in my view, for the purposes of this application, they must be considered privies. As the sole director of Momentum, Ms. Nystrom was clearly a privy: Delane Industry Co. Ltd. at para. 25. The situation with Mr. Nystrom is not as clear. He was not technically an “officer” of Momentum but identified himself as the “Controller” and was very closely involved in Momentum’s operations. Any murkiness about Mr. Nystrom’s status as a privy is, however, resolved by the pleadings.
[50] In their notice of civil claim, the Rossners essentially allege that Momentum was a sham and the alter ego of the Nystroms. The Rossners go so far as to specifically refer to the Nystroms as Momentum throughout the notice of civil claim and allege that the contract was really with the Nystroms. While aspects of the Rossners’ pleading may be conceptually problematic, they simply cannot have it both ways. They cannot allege in the notice of civil claim that the Nystroms and Momentum are one and the same but submit, for the purposes of this application, otherwise. On the pleadings as filed, I must consider Mr. Nystrom to be a privy of Momentum.
[51] With respect to whether the “same question” was decided in the original action, the parties focussed their submissions on the issue of fraud so I will do the same.
[52] The very same factual matrix underlies both the counterclaim in the original action and the various claims in the present action.
[53] To succeed in the counterclaim, the Rossners had to establish the scope of work under the contract, how much of that work was completed, the quality of that work and how much they paid for it. The Rossners did not have to establish that the Nystroms intentionally falsified change orders and liens. In their counterclaim, they did not even allege that had occurred.
[54] To succeed in the present action, the Rossners will have to establish the same terms of contract, status of payments, and status and quality of work as they did in the original action. Nevertheless, the present action will turn on a question that was not fundamental to the original action, namely the question of the Nystroms’ alleged fraud.
[55] For these reasons, in my view, the Nystroms have not established issue estoppel.
[56] The first two criteria of cause of action estoppel are present. The Rossners obtained a final judgment in the original action and, for the reasons I have given, the Nystroms must be considered privies for the purposes of this application.
[57] On the materials before me, I have to conclude that the fourth criteria is also present.
[58] With reasonable diligence, the Rossners could have included all of the claims in their notice of claim in their counterclaim in the original action. In fact, their previous counsel specifically threatened to do so – at least as against Ms. Nystrom. Further, in my view, the Rossners should have included all of the claims in their notice of civil claim in their counterclaim in the original action. Before obtaining judgment, they knew all of the material facts, that Momentum had ceased operations and that Ms. Nystrom had made an assignment into bankruptcy. They had to foresee the distinct likelihood of a hollow judgment.
[59] Further, the Rossners have offered no good reason for failing to make the decision to add the Nystroms as parties and allege fraud prior to seeking judgment against Momentum. For example, they have not raised concerns about the possibility of a special costs award against them for making unfounded allegations of fraud or dishonesty: Mayer v. Osborne Contracting Ltd., 2011 BCSC 914 at para. 11. In any event, any such concerns have not inhibited them from pursuing the present action.
[60] With respect to the third criteria, whether the present cause of action is “separate and distinct”, I have concluded that it is. Again, I will focus, as the parties did, on the Rossners’ allegations of fraud.
[61] As Binnie J. noted in the excerpt from Danyluk cited by Josephson J. in Grant McLeod Contracting Ltd., “[a] cause of action has traditionally been defined as comprising every fact which it would be necessary for the plaintiff to prove” and “different causes of action may have one or more material facts in common.” In my respectful view, the present action is comprised of many of the same material facts as the counterclaim in the original action but has an additional material fact that was not at issue, and which the summary trial judge was not required to adjudicate, namely fraud.
[62] For these reasons, in my view, the Nystroms have not established cause of action estoppel.
[63] Having found that neither branch of res judicata has been established, I am not called on to consider exercising my residual discretion.
[64] The Nystroms rely heavily on the decision of our Court of Appeal in H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256 in support of their submission that the Rossners’ present action is an abuse of process.
[65] In H.Y. Louie, the plaintiff sued the defendant for breaching contracts to provide goods and services. The defendant consented to judgments in favour of the plaintiff. The defendant then declared bankruptcy. To circumvent the bankruptcy, the plaintiff subsequently applied for and obtained a declaration in the same proceeding that the consent judgments were judgments for “debts or liabilities resulting from obtaining property or services by false pretences”. A majority of the Court set aside the declaration, finding that the cause of action arising from the plaintiff’s original claims was merged in the consent judgment. The majority characterized the plaintiff’s application for the declaration as an abuse of process.
[66] Respectfully, in my view, H.Y. Louie does not assist the Nystroms.
[67] In its reasons for judgment at para. 65, the majority relied on the following passage from K.R. Handley, The Doctrine of Res Judicata, 3d ed. (London: Butterworths, 1996) at 221:
Res judicata has a twofold operation. It estops the parties to a decision from afterwards controverting any issue thereby decided and it bars the party who has obtained relief from seeking it again. This distinction was explained by Diplock LJ in [Thoday v. Thoday, [1964] P. 181 (C.A.)]:
... cause of action estoppel ... prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the parties. If the cause of action was determined to exist i.e. judgment was given upon it, it is said to be merged in the judgment ... If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam.
The rule as to merger may be stated as follows: any person in whose favour an English judicial tribunal of competent jurisdiction has pronounced a final judgment, civil or criminal, is precluded from afterwards recovering before any English tribunal a second judgment against the same party on the same cause of action, or a second conviction for the same offence. A plea of this nature ... is distinguishable from res judicata estoppel in two respects: in the first place, the latter prohibits contradiction, the former reassertion; secondly, that which must not be controverted, in cases of estoppel, is the proposition of law, or finding [of] fact, declared by, or necessarily involved in, the res judicata, whereas, in cases of former recovery what is not allowed is a second action for the relief previously granted.
[Emphasis added by the Court in H.Y. Louie.]
[68] This passage appears to limit the concept of merger to situations where a party seeks to recover “a second judgment against the same party on the same cause of action”. In H.Y. Louie, the majority held that the plaintiff was precluded from re-characterizing the very judgments it had obtained by consent. That is clearly not the situation before me. For the reasons I have expressed, the Rossners are advancing a new and distinct cause of cause of action. In my view, merger does not arise.
[69] Returning to the general principles I have outlined regarding abuse of process, I consider this case to be close to the line that distinguishes claims that are an abuse of the court’s process from those that are not.
[70] On the one hand, the Rossners knew all of the material facts that support the present action before they obtained judgment in the original action. They knew Momentum had ceased operations. They knew Ms. Nystrom had made an assignment into bankruptcy. They had to be aware of the distinct possibility of a hollow judgment. They have offered no explanation as to why they did not follow through on the threats of their previous counsel to sue Ms. Nystrom personally. If the present action proceeds, the court could ultimately make findings that are inconsistent with the findings underlying the judgment obtained after summary trial. Scarce judicial resources will have been wasted by virtue of the summary trial. If the Rossners’ present action is permitted to proceed, other parties may choose a similar path in similar circumstances in the future, potentially leading to a greater waste of scarce resources.
[71] On the other hand, fraud is a very serious matter and the court should be reluctant to deprive the Rossners of an opportunity to have the present action determined on the merits. Likewise, if the Nystroms have engaged in fraud, the court should be reluctant to allow them to escape such conduct. Further, the Nystroms were not called upon to defend the counterclaim in the original action. As a result, they will not be “vexed” twice if the present claim proceeds. With respect to judicial resources, the summary trial was not contested so any potential waste would be minimal. The heaviest loss associated with any duplication of effort clearly rests with the Rossners, not the Nystroms or the court. Finally, any inconsistent findings will easily be understood to be a function of the original claim being determined without the participation of Momentum and the present action being contested. In these circumstances, any undermining of the integrity of the judicial process by reason of inconsistent findings will be minimal.
[72] Given that there are compelling factors in both directions, I am unable to conclude that the circumstances are so unfair, oppressive or egregious that I ought to strike the Rossners’ present action for being an abuse of the court’s process.
[73] The Nystroms’ application to strike the Rossners’ present action is dismissed. Costs will be in the cause.
“L.S. Marchand J.”
MARCHAND J.