COURT OF APPEAL FOR ONTARIO DATE: 20210305 DOCKET: C67664 & C67726

Pepall, Benotto and Coroza JJ.A.

BETWEEN

Mary Arlene Dosen and Rudolf Dosen Plaintiffs

and

Meloche Monnex Financial Services Inc. (c.o.b. as Security National Insurance Company) and Venmar Ventilation ULC Defendants (Respondent)

and

Fasco Motors Limited, Von Weise of Canada Company and Regal-Beloit Corporation Third Parties (Appellants)

COUNSEL: J. Thomas Curry, Scott Rollwagen and Sarah Bittman, for the appellants M. Gosia Bawolska and Kara L. Denny, for the respondent

Heard: September 24, 2020 by video conference

On appeal from the order of Justice Kim Carpenter-Gunn of the Superior Court of Justice, dated October 30, 2019.

Coroza J.A.:

I. OVERVIEW

[1] On August 26, 2013, a fire broke out in the home of Mary Arlene and Rudolf Dosen (the “Dosens”) in Ancaster, Ontario, causing significant damage. The Dosens allege that the fire originated in a heat recovery ventilation unit (“HRV”) in their home. HRVs are designed to bring fresh outside air inside a building while expelling stale indoor air. The HRV contains a motor which powers the blower assembly inside the unit. The Dosens allege that the respondent, Venmar Ventilation ULC (“Venmar”), manufactured the HRV, and the appellants (“Fasco”), manufactured the motor.

[2] On July 9, 2015, the Dosens commenced an action against Venmar (the “Main Action”), claiming that Venmar was liable for manufacturing and distributing a defective HRV that caused the fire.

[3] On July 19, 2016, Venmar issued a third-party claim against Fasco for contribution and indemnity for any damages for which Venmar might be found liable to the Dosens in the Main Action. In response, Fasco issued statements of defence to the Dosens’ claim and to Venmar’s third-party claim on May 1, 2017.

[4] A companion action was commenced on August 14, 2015, by the Dosens’ insurer against both Venmar and Fasco for losses arising under a subrogated insurance policy due to the fire (the “Companion Action”). Fasco issued a statement of defence to this claim and a crossclaim against Venmar on February 4, 2016. On June 14, 2017, Venmar also issued a statement of defence and crossclaim for contribution and indemnity against Fasco.

[5] Fasco’s defences are substantially the same, with respect to Venmar’s third-party claim and crossclaim for contribution and indemnity in the Main Action and Companion Action, respectively (collectively, the “Ontario Actions”). Fasco’s pleadings allege that even if the fire originated in a motor it manufactured, contained within the HRV, the fire was nonetheless caused by Venmar’s negligence in the assembly, testing, and use of certain components in the HRV, and in Venmar’s failure to adequately warn the Dosens and other customers about the danger of the HRV. Fasco also argues that it used a standard form contract in supplying motors to Venmar, which provided for its indemnification in the event of litigation.

[6] The trial of the Ontario Actions was scheduled to begin on November 18, 2019. However, on October 4, 2019, Venmar brought a motion under r. 21.01(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike Fasco’s defences to Venmar’s claims for contribution and indemnity on the basis of res judicata and abuse of process. Specifically, Venmar argued that the Quebec Superior Court and Quebec Court of Appeal had already decided the legal and factual issues between Venmar and Fasco, in earlier proceedings. Those proceedings related to a house fire, involving a Venmar HRV and a Fasco motor, in Quebec City, on April 11, 2007.

[7] The motion judge heard Venmar’s motion on October 28 and 29, 2019, three weeks before the scheduled start of trial, and struck Fasco’s statement of defence to Venmar’s third-party claim in the Main Action based on res judicata and abuse of process. She also ordered that her decision be applied to the Companion Action, such that Fasco’s defence to Venmar’s crossclaim for contribution and indemnity was also struck.

[8] Fasco now appeals the motion judge’s decision to strike its pleadings. For the reasons that follow, I would allow Fasco’s appeal.

II. BACKGROUND

(1) The 2007 Fire and Quebec Litigation

[9] In 2014 and 2016, the Quebec Superior Court and Quebec Court of Appeal rendered judgments concerning a house fire that occurred in Quebec City on April 11, 2007 (the “Quebec Actions”). The source of the fire was traced to a HRV installed in the home. The homeowners’ insurer, Desjardins, sued both Venmar and Fasco for $86,000. At trial, Fasco focused their defence on a single issue – whether the fire was caused by a failure of the motor it manufactured or whether it was caused by a failure of another component of the HRV that was selected and installed by Venmar.

[10] On July 22, 2014, the trial judge found that the fire was caused by a failure of the motor and concluded that Fasco was 100 percent liable for the plaintiff’s damages.

[11] Fasco appealed this decision to the Quebec Court of Appeal, on the basis that Venmar should have been found entirely liable due to its failure to obtain adequate protection for the motor and its failure to adequately warn customers. On November 25, 2016, the court dismissed Fasco’s appeal. However, the court found that the trial judge erred because—based on his finding that both Venmar and Fasco failed to rebut the presumption of liability for a safety defect under Quebec law—he should have found them jointly liable before proceeding to apportion liability between them. Notwithstanding this error, the court found no basis to interfere with the trial judge’s conclusion that Fasco was 100 percent liable for the fire.

(2) The Motion Judge’s Decision

[12] Following the parties’ submissions, the motion judge in this case gave oral reasons. She held that, in light of the judgments in the Quebec Actions, Fasco’s defences to Venmar’s claims for contribution and indemnity in the Ontario Actions should be struck on the basis of cause of action estoppel, issue estoppel and abuse of process.

(a) Res Judicata – Cause of Action Estoppel

[13] The motion judge applied the test for cause of action estoppel set out recently by this court in The Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354, 145 O.R. (3d) 759, leave to appeal refused, [2019] S.C.C.A. No. 284. She stated:

There is a specific test that has to be met to establish this type of estoppel and it has four requirements to it as follows:

There is a final decision of a court of competent jurisdiction in a prior action. This is conceded by the responding parties and is not at issue here;

The second requirement is the parties to the subsequent litigation were parties to, or in privy with the parties to the prior action;

The third requirement, the cause of action in the prior action is not separate and distinct and;

Fourthly, the basis of the cause of the action and the subsequent action was argued or could have been argued in the prior action, if the parties had exercised reasonable diligence. [Emphasis in original.]

[14] No issue is taken with the motion judge’s findings that the first two requirements were satisfied. With respect to the third requirement, the motion judge noted that the term “cause of action” refers to a factual situation which entitles one to a remedy. Accordingly, the pertinent question at this step was whether the facts that formed the basis for the apportionment of liability in the Quebec Actions were substantially the same as those forming the basis for assessing Venmar’s claims for contribution and indemnity in the Ontario Actions. The motion judge answered this question in the affirmative.

[15] More specifically, the motion judge found that the factual findings in the Quebec Actions “are almost identical to the observations of the experts and witnesses in the present case” and that the apportionment of liability in the Quebec Actions would thus be the same in the Ontario Actions. She held:

In [the Quebec Actions], in determining fault, the court focused on what component of the HRV was responsible for the outbreak of the fire, which party was responsible for the design of the HRV, and the steps taken by Venmar and Fasco to notify each other and end-users of the potential danger.

The court finds that these are the same issues an Ontario court would be analyzing in this trial, if it were to make its own determination of fault between Venmar and Fasco.

[16] With respect to the fourth requirement, the motion judge found that any arguments in relation to contribution and indemnity between the parties, such as the contractual defence that Fasco sought to raise in the Ontario Actions, could have been raised in the Quebec Actions if Fasco had exercised reasonable diligence. She found that Fasco failed to raise such arguments in the Quebec Actions for tactical reasons. She concluded that “[a]ll aspects related to the respective fault of the parties properly belonged to the matters” in the Quebec Actions and that Fasco could not now raise these arguments in the Ontario Actions.

(b) Res Judicata – Issue Estoppel

[17] The motion judge held that if she was wrong in her finding that res judicata applied under the doctrine of cause of action estoppel, then issue estoppel applied, and prevented Fasco from re-litigating certain findings of fact and issues of mixed fact and law that already had been determined in the prior proceedings.

[18] She relied on the test from the Supreme Court of Canada’s decision in Danyluk v. Ainsworth Technologies Inc, 2001 SCC 44, [2001] 2 S.C.R. 460, which includes three preconditions for the application of issue estoppel. The motion judge stated:

The preconditions are: (1) that the same question has been decided; (2) that the judicial decision which is said to create estoppel was final - that has been conceded here and is not an issue and; (3) that the parties to the judicial decision or their privies were the same persons as to the parties to the proceedings in which the estoppel was raised.

[19] The motion judge listed a number of issues of fact and mixed fact and law that, in her view, were determined by and fundamental to the decisions of the Quebec courts.

1. That Fasco bears 100% of the fault for the overheating of the HRV’s motor and failure of the motor’s thermal protection;
2. That the learned intermediary r[u]le does not apply to relieve Fasco of liability;
3. It was possible for Fasco to discover the safety defect in the thermal protector at the time that it was manufactured;
4. That Venmar could not have expected that the motor would overheat and catch fire at the end of its life;
5. Fasco did not fully apprise Venmar of the dangers of the motor and lastly;
6. Venmar did not know as much as Fasco about motors and their components.

[20] The motion judge held that the issue of the respective fault of Venmar and Fasco was finally decided in the Quebec Actions. She found that “the same questions that will need to be asked in these proceedings have already been asked and answered in [the Quebec Actions]”.

[21] Finally, the motion judge held that there was no reason to exercise her discretion to decline to apply issue estoppel. She noted that there was no assertion that the court proceedings in Quebec were unfair, and the fact that issues were decided under Quebec law was irrelevant to the issue of fairness in applying issue estoppel to findings of fact, because the burden of proof for a finding of fact is the same in Quebec and Ontario.

(c) Abuse of Process

[22] The motion judge then considered the doctrine of abuse of process in the event that she was wrong in her holdings on cause of action estoppel and issue estoppel. The motion judge identified that the doctrine of abuse of process can apply where the requirements of res judicata are not met, but where the litigation would violate “the principle of judicial economy, consistency, finality, and integrity of the administration of justice”.

[23] The motion judge held that Fasco was attempting to raise defences to issues that had already been determined in Quebec while relying on almost identical facts. Additionally, she held that Fasco chose not to raise a contractual defence in the earlier proceedings, and this was not a case where the defence was based on new evidence that could not have been discovered with reasonable diligence in the prior proceeding. In her view, Fasco should not be permitted a second chance to defend itself on the same issues. The pleadings were an abuse of process. These reasons, and the motion judge’s observation that the proceedings in the Quebec action were not unfair, also informed her decision not to exercise her residual discretion to decline to apply the doctrine of abuse of process.

III. GROUNDS OF APPEAL

[24] Fasco advances several grounds of appeal, which can be organized under the following headings:

i) Did the motion judge apply the correct test under r. 21.01(3)(d)?

ii) Did the motion judge err in striking Fasco’s defences on the basis of cause of action estoppel:

a. because the cause of action in the Quebec Actions was separate and distinct from the cause of action in the Ontario Actions; or

b. because she erred in finding that the contractual argument Fasco sought to raise in the Ontario Actions properly belonged to the Quebec Actions?

iii) Did the motion judge err in striking Fasco’s defences on the basis of issue estoppel?

iv) Did the motion judge err in striking Fasco’s defences on the basis of abuse of process?

v) Did the motion judge err by not exercising her residual discretion to decline to apply the doctrines of res judicata or issue estoppel?

IV. REVIEW OF GENERAL PRINCIPLES

[25] I will briefly review several legal principles that were referred to by the parties in their written and oral argument to give context to the issues Fasco raises on this appeal.

(1) Rule 21.01(3)(d)

[26] Rule 21.01(3)(d) provides:

21.01(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,

(d) the action is frivolous or vexatious or is otherwise an abuse of process of the court

[27] When a party moves under r. 21.01(3)(d) to strike pleadings on the basis of res judicata or abuse of process, it bears the onus of satisfying the “plain and obvious” test. This test is more commonly applied under r. 21.01(1)(b) to strike out claims that disclose no reasonable cause of action, following the Supreme Court’s decision in Hunt v. T&N plc, [1990] 2 S.C.R. 959. However, this court has affirmed that the same test also applies under r. 21.01(3)(d). In Simone Estate v. Cheifetz, 2005 ONCA 794, 201 O.A.C. 120 (C.A.), at paras. 24-25, this court noted that on a r. 21 motion to strike pleadings on the basis of issue estoppel and abuse of process, the moving party “bears a heavy onus and must establish that it is ‘plain, obvious and beyond doubt’ that the plea could not succeed”. In Waterloo (City) v. Wolfraim, 2007 ONCA 732, 287 D.L.R. (4th) 65, at para. 3, this court re-iterated that “[a] court should invoke its authority to stay an action for abuse of process only in the clearest of cases”. Similarly, in Salasel v. Cuthbertson, 2015 ONCA 115, 124 O.R. (3d) 401, at para. 8, this court held that “[a] court only invokes its authority under rule 21.01(3)(d) … in the clearest of cases” (emphasis added). [1]

[28] Extrinsic evidence is permitted on a motion under r. 21.01(3)(d), and a motion judge may make factual determinations, including with respect to whether the facts in an underlying action were already litigated in earlier proceedings: Aba-Alkhail v. University of Ottawa, 2013 ONCA 633, 311 O.A.C. 89, at paras. 13-14, leave to appeal refused, [2013] S.C.C.A. No. 491. The rule requires a motion judge to take “a hard look at the factual background, and especially the position and conduct of the parties”: Salasel, at para. 9.

[29] To summarize, Venmar had the onus of proving that it was plain and obvious that Fasco’s defences to Venmar’s claim for contribution and indemnity could not succeed, due to the application of res judicata or abuse of process.

(2) Res Judicata

[30] The law recognizes a number of doctrines to prevent the abuse of the decision-making process. One of the doctrines is res judicata. In Danyluk, Binnie J. described the doctrine, at para. 18, as follows:

The law rightly seeks a finality to litigation. To advance that objective, it requires litigants to put their best foot forward to establish the truth of their allegations when first called upon to do so. A litigant, to use the vernacular, is only entitled to one bite at the cherry…. An issue, once decided, should not generally be re-litigated to the benefit of the losing party and the harassment of the winner. A person should only be vexed once in the same cause. Duplicative litigation, potential inconsistent results, undue costs, and inconclusive proceedings are to be avoided.

[31] Res judicata has two main branches: cause of action estoppel and issue estoppel. Cause of action estoppel prohibits a litigant from bringing an action against another party when that same cause of action has been determined in earlier proceedings by a court of competent jurisdiction. Cause of action estoppel also prevents a party from re-litigating a claim that could have been raised in an earlier proceeding.

[32] Issue estoppel is narrower. It applies to prohibit the re-litigation of an issue that has already been decided in an earlier proceeding, even where the cause of action is different in the two proceedings.

[33] The overall goal of the doctrine of res judicata, and therefore of both cause of action estoppel and issue estoppel, is judicial finality: Minott v. O’Shanter Development Co. (1999), 42 O.R. (3d) 321 (C.A.), at paras. 16-17; Hoque v. Montreal Trust Co. of Canada, 1997 NSCA 153, 162 N.S.R. (2d) 321, leave to appeal refused, [1997] S.C.C.A. No. 656.

(3) Abuse of Process

[34] The re-litigation of issues that have been before the courts in a previous proceeding may create an abuse of process. That is because re-litigation carries serious detrimental effects and should be avoided unless the circumstances dictate that re-litigation is in fact necessary to enhance the credibility and the effectiveness of the adjudicative process as a whole: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 52.

[35] The law seeks to avoid re-litigation primarily for two reasons: first, to prevent overlap and wasting judicial resources; and second, to avoid the risk of inconsistent findings: C.U.P.E., at para. 51; Donald J. Lange, The Doctrine of Res Judicata in Canada, 4th ed. (Markham: LexisNexis Canada Inc., 2015), at pp. 217-18.

(4) Residual Discretion

[36] A court may decline to apply res judicata or abuse of process where its application would work an injustice. This might occur where the first proceeding denied a party a full and fair hearing, even though that party exercised reasonable diligence. Additionally, even if the first proceeding was conducted with scrupulous fairness, it might still be unfair to use the results of the first proceeding to preclude re-litigation of an issue.

[37] It may be appropriate to exercise discretion to decline to apply the abuse of process doctrine when (1) the first proceeding is tainted by fraud or dishonesty, (2) fresh, new evidence, previously unavailable, conclusively impeaches the original results, or (3) fairness dictates that the original result should not be binding in the new context: Catalyst, at para. 68. The list of relevant factors to this discretion is not closed. The discretionary factors for whether to decline to apply the abuse of process doctrine may also apply in the context of deciding whether to apply the doctrine of res judicata.

(5) Standard of Review

[38] This court owes deference to the motion judge’s application of the tests for issue estoppel, cause of action estoppel, and abuse of process and should intervene only if the motion judge misdirected herself, came to a decision that is so clearly wrong as to be an injustice, or gave no or insufficient weight to relevant considerations: Catalyst, at para. 24.

V. DISCUSSION

(i) Did the motion judge apply the correct test under r. 21.01(3)(d)?

[39] Fasco’s first submission is that the motion judge did not apply the correct test; rather she applied an unprecedented approach to the r. 21.01(3)(d) motion. Instead of determining whether it was plain and obvious that Fasco’s pleadings in response to Venmar’s claims were barred by res judicata or as an abuse of process, the motion judge effectively treated the motion as one for summary judgment. Fasco submits that she made “significant inferential leaps on a paper record”, including making findings of fact that the circumstances of the Quebec fire were the same as the Ontario fire. These findings of fact could have only been made after a trial.

[40] Venmar argues that the trial judge did not err in deciding the motion on a paper record and that she properly considered the extrinsic evidence in the form of affidavits filed by both parties as permitted by r. 21.01(3)(d). The motion judge quite properly determined that the defences raised by Fasco had previously been litigated and decided by a court of competent jurisdiction based on the unchallenged evidentiary record before her.

[41] I agree with the appellants that the motion judge did not identify or apply the correct test for striking a pleading pursuant to r. 21.01(3)(d).

[42] As will be evident from my discussion of the other grounds of appeal, it is clear that the motion judge did not apply this test. Put differently, as I discuss below, this was not “the clearest of cases” as required by the governing case law.

(ii) Did the motion judge err by applying cause of action estoppel?

[43] Fasco submits that the motion judge erred in her analysis of the third and fourth requirements of the test for cause of action estoppel. With respect to the third requirement, Fasco argues that because the Quebec Actions and Ontario Actions involve two different fires, six years apart, it was not plain and obvious that the cause of action for contribution and indemnity in the two proceedings is the same. It argues that the motion judge misconceived what it means for two causes of action to be separate and distinct because cause of action estoppel operates only where two cases arise out of the same factual foundation. The two fires were separate events.

[44] Venmar argues that cause of action estoppel can be applied to two separate fires which arise from the very same conduct and the motion judge was entitled to examine the evidence to find that the two fires involved an identical cause of action. The motion judge considered evidence of the design of the HRV, the design of the motor, the manufacturing relationship between the parties, Venmar’s knowledge of the danger, and the failure of the motor and found that the relevant fact situation in the Quebec Actions was identical in the Ontario Actions.

[45] While I acknowledge that there was evidence before the motion judge that the HRV and the motor in both fires bore similarities, I respectfully disagree with the motion judge’s decision to strike Fasco’s defences to Venmar’s claims on the basis of cause of action estoppel. Venmar’s claims against Fasco for contribution and indemnity will require an assessment of Venmar’s and Fasco’s comparative fault. It is not plain and obvious that the facts that would form the basis for the apportionment of liability between Venmar and Fasco in the Ontario Actions are substantially the same as they were in the Quebec Actions.

[46] For example, Venmar may be found liable to the Dosens or their insurer in the Ontario Actions on a basis that was not considered and that could not have been fully considered in the Quebec Actions. In the Main Action, the Dosens’ pleadings allege that Venmar was aware of defects in the HRVs since early 2007 and failed to take “any proactive measures to mitigate risk of fire in the intervening period”. Similarly, the insurer’s pleadings in the Companion Action allege that Venmar “failed to properly warn consumers … that the HRV and/or Motor, or components thereof, was prone to fail”. These arguments were not considered in the Quebec Actions. An Ontario court presented with these arguments would have to consider evidence of Venmar’s knowledge of the risk and efforts to mitigate risk, including during a period of time subsequent to the Quebec Actions that could not have been considered by the Quebec courts. Its determination could impact Venmar’s and Fasco’s relative fault.

[47] In addition, it bears noting that the earlier fire occurred shortly after Venmar commenced a Canada-wide Safety Upgrade Program to warn customers of the issue with the HRV and to offer an after-market fix. While it may not have been reasonable to expect, in 2007, that this program would reach the homeowner in Quebec, by 2013, Venmar had known about the issue for over six years. Ultimately, this will be a matter for trial. However, this indicates that it was not plain and obvious that the factual basis for assessing Venmar’s potential liability for failing to warn its customers was the same in 2007 and in 2013. Since Venmar’s potential liability in this regard forms part of the basis for assessing its claims for contribution and indemnity in the Ontario Actions, I conclude that it was not plain and obvious that the cause of action in the Quebec Actions and Ontario Actions is the same.

[48] In oral submissions, Fasco advanced a further argument, concerning the nature of a claim for contribution and indemnity, to explain why the third requirement of cause of action estoppel was not satisfied. According to Fasco, this court’s decision in Placzek v. Green, 2009 ONCA 83, 245 O.A.C. 220, established that the basis for a claim of contribution and indemnity is the failure of a concurrent tortfeasor to pay its share of the injured party’s damages, before the contribution and indemnity claimant is found liable to the injured party. Drawing on this decision, Fasco claims that the basis for Venmar’s claims of contribution and indemnity does not simply lie in Fasco’s alleged wrongdoing, related to, for example, its design of the motor. Rather, it argues that Venmar’s claims for contribution and indemnity depend on Fasco’s failure to pay for its share of the damages related to the fire in Ontario before Venmar is found liable in relation to this fire.

[49] Of course, Fasco’s failure to pay its share of damages related to a fire that broke out in 2013 could not have been the basis for a claim for contribution and indemnity against Fasco at the time of the Quebec Actions. Therefore, Fasco says, a claim for contribution and indemnity for damages arising in 2007 is necessarily separate and distinct from a claim for contribution and indemnity based on events arising in 2013—and this means the causes of actions in the two sets of proceedings cannot be the same.

[50] Without commenting upon the ultimate strength of this submission, I find that it is at least arguable, and reinforces my conclusion that it was not plain and obvious that the cause of action in the Quebec Actions is the same as in the Ontario Actions.

[51] The motion judge’s error with respect to the third requirement of cause of action estoppel is sufficient to dispose of this appeal since, as explained below, the same error carried over into her analysis of issue estoppel and abuse of process. Nevertheless, I will also consider Fasco’s argument that the motion judge erred with respect to the fourth requirement of cause of action estoppel, when she held that Fasco’s contractual indemnity defence should have been argued in the Quebec Actions. The motion judge’s ruling effectively precludes Fasco from raising the terms of any contract that allocates risk between it and Venmar.

[52] I conclude that the motion judge erred in her analysis of the fourth requirement of cause of action estoppel. It was not plain and obvious that Fasco should have advanced an argument based on contractual indemnity in the Quebec Actions.

[53] An unchallenged affidavit from Fasco’s appeal counsel in the Quebec Actions was before the motion judge. It made three significant points.

[54] First, whether there was a contract between Fasco and Venmar that governed allocation of fault was not argued in the Quebec Actions. [2] Second, given the modest amount of the claim in the Quebec Actions, Fasco chose to focus its defence on a narrow issue of causation. Raising contractual issues would not have been proportional to the claim (which was for an amount of $86,000, with a $13,000 deductible). Third, the decision not to raise contractual issues was based in part on the law governing manufacturer liability in Quebec. In connection with this latter point, I note that a court requires expert evidence to decide issues involving the content of foreign law: Das v. George Weston Limited, 2018 ONCA 1053, 43 E.T.R. (4th) 173, at para. 67, leave to appeal refused, [2019] S.C.C.A. No. 69. There was no expert evidence on the content of Quebec law before the motion judge, only the unchallenged affidavit that stated that Fasco’s decision to focus its defence on a single issue was informed by the nature of Quebec law. The motion judge did not consider the absence of expert evidence on Quebec law in reaching the conclusion that Fasco would simply have to live with the tactical decisions it made in the Quebec Actions.

[55] Leaving aside the fact that a much larger sum of money is at stake in the Ontario Actions, the issue of contribution and indemnity, and the effect of any contract, is now squarely before the Ontario court. Venmar has brought the issue of the contract with Fasco into focus, since its third-party claim alleges that it may be entitled to indemnity from Fasco on account of breach of contract. It is not plain and obvious that Fasco should be precluded from now raising its contractual argument.

[56] I would give effect to this ground of appeal. The motion judge erred in striking Fasco’s defences based on cause of action estoppel.

(iii) Did the motion judge err in striking Fasco’s defences on the basis of issue estoppel?

[57] The motion judge held that if she was wrong in her conclusion that cause of action estoppel applied, then issue estoppel should be invoked to strike Fasco’s pleadings. Fasco argues that the motion judge erred with respect to the first precondition for issue estoppel, concerning whether the same question (or issue) raised in the Ontario Actions has been decided in the Quebec Actions.

[58] Since the relief Venmar sought on its r. 21.01(3)(d) motion was to strike the entirety of Fasco’s defences to Venmar’s claims for contribution and indemnity, the real issue for the motion judge, in considering the first precondition, was whether it was plain and obvious that the question of the parties’ relative fault that was determined in the Quebec Actions was the same as the question at issue between Venmar and Fasco in the Ontario Actions.

[59] The “same question” test was described by Goudge J.A. in Heynen v. Frito Lay Canada Ltd. (1999), 45 O.R. (3d) 776 (C.A.), at para. 20, as follows:

Although at a high level of generalization, two proceedings might seem to address the same question, this requirement of issue estoppel is met only if on careful analysis of the relevant facts and applicable law the answer to the specific question in the earlier proceeding can be said to determine the issue in the subsequent proceeding.

[60] In light of my conclusion regarding the cause of action estoppel issue, it was not plain and obvious that Venmar satisfied the same question test. Again, it is at least arguable that the factual foundation for Venmar’s claims of contribution and indemnity was altered in the years following the fire at issue in the Quebec Actions. Accordingly, I would also give effect to this ground of appeal.

[61] As noted above, the motion judge appeared to generally consider which aspects of the Quebec litigation would raise an issue estoppel. It was not necessary for the motion judge to take this approach. She found that Fasco was precluded from re-litigating specific facts—for example, that Venmar did not know as much as Fasco about motors and their components. However, this was not at issue on the motion to determine if Fasco’s pleadings should be struck in their entirety. The result of the motion judge’s findings could have only been to strike the portion of Fasco’s defences that sought to put that fact back in issue in the Ontario litigation.

[62] The motion judge erred in striking Fasco’s pleadings in their entirety on the basis of issue estoppel. I note that this does not foreclose an argument that issue estoppel may apply to certain factual determinations made in the Quebec Actions. However, since the question of whether or not issue estoppel applied to any specific factual determination made in the Quebec Actions, was not at issue in the motion, it should be deferred until the trial of the Ontario Actions. The judge hearing the matter will be in a better position to define the factual issues in respect of which issue estoppel may apply.

(iv) Did the motion judge err in striking Fasco’s defences on the basis of abuse of process?

[63] The motion judge found that the doctrine of abuse of process also applied to bar Fasco’s defences. I agree with Fasco that the motion judge’s findings of abuse are tethered to her finding that cause of action estoppel barred Fasco’s pleadings. The core of the motion judge’s reasons on abuse of process was that “Fasco is attempting to raise defences which have already been determined in [the Quebec Actions] on the basis of almost identical facts”.

[64] Accordingly, for the reasons noted above in relation to cause of action estoppel, it was not plain and obvious that Fasco’s pleadings were abusive. I would give effect to this ground of appeal.

(v) Did the motion judge err in declining to exercise her residual discretion to refuse to strike Fasco’s pleadings?

[65] Finally, Fasco argues that the motion judge should have exercised her residual discretion to decline to apply res judicata and abuse of process.

[66] Venmar responds that this residual discretion is rarely exercised in the court-to-court context and that the motion judge specifically found that the Quebec proceedings were fair. Since there was no unfairness in the Quebec proceedings, the motion judge correctly refused to exercise her residual discretion and allowed Venmar’s motion.

[67] Since I have concluded that the motion judge erred by applying res judicata and abuse of process to strike Fasco’s pleadings, it is not necessary to consider if the motion judge also erred by refusing to exercise her discretion to not apply these doctrines. That said, I agree with Venmar’s submission that if the preconditions for applying these doctrines were satisfied, the motion judge’s residual discretion would have been “very limited” since the first proceeding giving rise to the estoppel was a court proceeding: Danyluk, at para. 62. It seems to me that Fasco faced an uphill climb in advancing the argument that the motion judge should exercise her discretion to refuse to strike its pleadings.

[68] Furthermore, though it is not necessary to address this ground of appeal, I wish to offer some remarks concerning the timeliness of Venmar’s r. 21.01(3)(d) motion, since it was addressed by the parties in oral argument, and is relevant to the issue of the motion judge’s residual discretion.

[69] Rule 21.02 provides that “A motion under rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs”. The motion judge did not reference this rule but stated that while she did not condone the lateness of Venmar’s motion, the fact it was brought late did not detract from its merits.

[70] Without determining that the motion judge erred in the exercise of her discretion, I note that, in the circumstances, the timing of Venmar’s motion should have pulled her towards exercising her discretion to not hear Venmar’s motion in the first place, or to exercise her residual discretion to not grant the relief that Venmar sought. Venmar’s motion was contemplated in the summer of 2019, but was not brought until October 4, 2019, and it was heard just three weeks before trial.

[71] Case law is clear that delay in bringing a motion under r. 21.01, including r. 21.01(3)(d), can be a sufficient ground to dismiss the motion. In Fleet Street Financial Corp. v. Levinson, [2003] O.T.C. 94 (S.C.), Rouleau J. (as he then was), stated, at para. 16:

The obligation to act promptly is clear and the failure to bring a rule 21.01 motion promptly can, in the appropriate circumstances, be the basis for the judge exercising his discretion pursuant to rule 21.01 not to grant the relief sought.

[72] What constitutes “appropriate circumstances” to dismiss a r. 21.01 motion for delay partly depends on what effect the motion will have on trial efficiency.

[73] For example, in Hill v. Hamilton-Wentworth Regional Police Services Board (2003), 64 O.R. (3d) 28 (S.C.), leave to appeal refused, [2003] O.J. No. 1820 (Div. Ct.), a motion under r. 21.01(3)(d) was brought “years after the litigation commenced, all examinations for discovery have been completed, and a fixed trial date has been set”: at para. 45. There was no justification for the delay. The motion judge also noted that the issues to be dealt with on the motion would also arise with respect to some of the moving parties’ other claims at trial. Accordingly, dealing with the issues before the trial would “risk compromising the record at this late stage in the proceedings” and “not enhance trial efficiency”: at para. 48. On that basis, the motion was dismissed for delay.

[74] Similarly, in this case, the benefits of hearing and resolving Venmar’s r. 21.01(3)(d) motion, in terms of judicial economy or trial efficiency, were marginal. It appears that much of the same evidence and similar issues will nonetheless be considered at trial. For example, even if Fasco’s defences were properly struck because the issue of Fasco and Venmar’s relative fault was finally determined in the Quebec Actions, a judge in the Ontario Actions would nonetheless have to hear issues concerning Venmar’s potential liability for failure to warn or negligence in assembly or testing of the HRV, in relation to the Dosens and their insurer’s claims. The motion judge should have considered this fact and looked at the litigation as a whole. In my opinion, it should have weighed heavily in the analysis as to whether the discretion to dismiss the motion or to refuse to apply the doctrines should been exercised.

VI. CONCLUSION

[75] In conclusion, the motion judge erred by not applying the plain and obvious test to determine whether the cause of action in the Quebec Actions was separate and distinct from the cause of action in the Ontario Actions, whether Fasco should have raised any contractual defences in the Quebec Actions, whether the principle of issue estoppel applied to strike Fasco’s pleadings in their entirety, and whether Fasco’s pleadings were an abuse of process.

[76] For these reasons, I would allow the appeal. I would award Fasco its costs of the appeal in the agreed amount of $35,000, inclusive of disbursements and applicable taxes.

Released: March 5, 2021 “S.E.P.” “S. Coroza J.A.” “I agree. S.E. Pepall J.A.” “I agree. M.L. Benotto J.A.”

[1] Other provincial appellate courts have held that the plain and obvious test applies on a motion to strike pleadings on the basis of cause of action estoppel, issue estoppel or abuse of process: World Wide Treasure Adventures Inc. v. Trivia Games Inc. (1996), 17 B.C.L.R. (3d) 187 (C.A.), at para. 39; Mohl v. University of British Columbia, 2006 BCCA 70, 52 B.C.L.R. (4th) 89, at paras. 41-42; and Hozaima v. Perry, 2010 MBCA 21, 251 Man. R. (2d) 148, at para. 44.

[2] During oral argument before this court, Fasco’s counsel confirmed that neither party raised contribution and indemnity in the Quebec Actions.