Court File and Parties

CITATION: PIXIU SOLUTIONS INC. v. CANADIAN GENERAL-TOWER LIMITED, 2016 ONSC 842

COURT FILE NO.: C-661-13

DATE: 2016-02-18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PIXIU SOLUTIONS INC., Plaintiff

AND:

CANADIAN GENERAL-TOWER LIMITED, Defendant

BEFORE: The Honourable Mr. Justice D.A. Broad

COUNSEL: John D. Campbell, for the Plaintiff

Michael Bordin, for the Defendant

HEARD: January 20 and 21, 2016

Corrected ENDORSEMENT

Corrected decision: The text of the original endorsement released February 4, 2016 was corrected on February 18, 2016 and the description of the corrections is appended.

[1] I was appointed by Regional Senior Justice Turnbull on October 19, 2015 pursuant to Rule 37.15 to hear all motions in this proceeding and in a related proceeding in file number C-1178-14 involving the same two parties as plaintiff and defendant respectively, together with two additional named defendants CGT Shanghai Trading Co. Ltd. and CGT Changshu Co. Ltd.

Background

[2] The plaintiff (Pixiu”) is in the business of recycling vinyl out of a facility located at Brantford, Ontario. The defendant (“CGT”) manufactures a variety of vinyl products such as automotive trim, swimming pool liners and roofing membranes. It has a manufacturing facility at Cambridge, Ontario.

[3] Pixiu is controlled by Jan Chaplin. Her family previously owned CGT. Ms. Chaplin was the president and CEO of CGT from 2001 to December 2009. Pursuant to a series of contracts CGT sold to Pixiu scraps, seconds and obsolete vinyl material (“surplus material”) to Pixiu.

[4] In December, 2009, following a family disagreement, Ms. Chaplin’s brother Rick Chaplin replaced her as president and CEO of CGT. Subsequently there were prolonged negotiations between Ms. Chaplin and her family respecting her severance from CGT and other matters. A new supply agreement between CGT and Pixiu with respect to surplus material was part of those negotiations.

[5] A new five year supply agreement between Pixiu and CGT was ultimately entered into on December 21, 2011 (the “supply agreement”). The term of the supply agreement was stated to be from January 1, 2012 to December 31, 2016. The Chaplin family subsequently sold CGT. The new shareholders of CGT took the position that the supply agreement was not exclusive in the sense of requiring CGT to sell all of its surplus material to Pixiu. In or about April 2013 CGT stopped shipping all of its surplus material to Pixiu.

[6] Pixiu took the position that the supply agreement was exclusive and by Statement of Claim issued May 10, 2013 at Toronto, it brought an action against CGT for breach of the supply agreement claiming damages in the sum of $20 million, punitive damages of $1 million and aggravated damages of $1 million as well as an interim and interlocutory injunction restraining CGT from selling the surplus material to Pixui’s customers, interfering with its relationship with its customers, and from shipping surplus material to anyone other than the plaintiff.

[7] Pixiu brought a motion for an interlocutory injunction which was scheduled to be argued on July 15, 2013. On that day Madame Justice Wilson made an order, on consent, that there be an expedited trial at Kitchener “on the liability issues” with the “damages issues” to be determined at a later date, if necessary.

[8] The trial on the “liability issues” was heard by Justice Sloan on September 26 and 27 and November 26, 2013. No affidavits of documents were exchanged by the parties and no examinations for discovery were conducted prior to the expedited trial on the “liability issues.” Justice Sloan released his reasons for decision on December 10, 2013 (the “Sloan Reasons”).

[9] Justice Sloan found for Pixiu and made a declaration that “CGT has breached the supply agreement by withholding [material described in Schedule “A” to the supply agreement] from Pixiu and by selling Schedule “A” material to other companies.”

[10] Justice Sloan ordered further that “there shall be a trial of an issue to determine the amount of Pixiu’s damages suffered as a result of any CGT breaches of the supply agreement dated January 1, 2013 and judgment for those damages.” He also ordered that the parties exchange affidavits of documents and conduct examinations for discovery with respect to the assessment of Pixiu’s damages.

[11] Following release of the Sloan Reasons Pixiu asserted that it was seeking damages in this action in relation to surplus materials that have been produced in China by CGT Shanghai Trading Co. Ltd. (“Shanghai”) and CGT Changshu Co. Ltd. (“Changshu’). Shanghai and Changshu are subsidiaries of CGT. CGT took the position that damages for product produced in China could not be sought in this action.

[12] On December 16, 2014 Pixiu issued a new claim in file C-1178-14 (the “New Claim”) against CGT, Shanghai and Changshu claiming damages in the sum of $10 million, alleging that the supply agreement was signed “on behalf of itself and the other defendants” and that it applied to the worldwide output of CGT and its subsidiaries. Pixiu pleaded in the New Claim that “in the event it is determined that the trial of the issue ordered by Mr. Justice Sloan [in this action C-661-13] does not include the plaintiff’s damages suffered in relation to scraps and seconds produced by the defendants in China, the plaintiff seeks those damages in this action.”

[13] On December 22, 2014 CGT brought a motion for summary judgment fixing the damages payable by it to Pixiu in the amount of $237,273.19 plus pre-judgment interest pursuant to the Courts of Justice Act. That motion has not, as yet, been heard.

[14] On June 22, 2015 CGT’s Director of Operations Marc Campanelli was examined for discovery in this action. Mr. Campanelli refused to answer 27 questions, the majority on the basis that they related to Pixiu’s claim for damages related to surplus material produced in China and the United States and that the claim for such damages represented an abuse of process.

Nature of the Motions

[15] Pixiu brought a motion on September 1, 2015 for an order that Mr. Campanelli answer certain undertakings given on his examination for discovery, that he answer the questions refused on his examination for discovery and that he re-attend to answer questions arising out of his undertakings and refusals.

[16] CGT brought a motion on September 9, 2015 for a declaration that CGT’s claim for damages relating to product produced in China is an abuse of process and is barred.

[17] At the conclusion of the argument of the motions the parties, by agreement, were able to narrow the focus of the discovery questions in issue to a list which would depend upon the Court’s finding on what the parties characterized as the “threshold issue”, namely whether Pixiu should be entitled to maintain its claim for damages in this action in relation to surplus material produced in China (“China damages”). The list of outstanding questions was marked as Exhibit 1 on the motions. The parties agreed that if the court rules that Pixiu is entitled to maintain its claim for China damages, the outstanding questions listed on Exhibit 1 must be answered by Mr. Campanelli, and if the court rules that Pixiu is barred from maintaining its claim for China damages in this action, such questions need not be answered.

Positions of the Parties

(a) Position of Pixiu

[18] Pixiu submits as follows:

(a) Pixiu was not in a position at the trial of the liability issues before Justice Sloan to identify all of the instances in which CGT had breached the supply agreement by not shipping relevant material to Pixiu. Accordingly, the judgment specifically directed that Pixiu recover damages for “any of the defendant’s breaches of the Supply Agreement since January 1, 2013”;

(b) the geographic scope of the supply agreement was not raised as an issue in the pleadings and was not an issue at the trial;

(c) production of material in China was specifically discussed as part of the negotiations leading up to the supply agreement. Ms. Chaplin’s uncontradicted evidence is that China production was agreed to be part of the supply agreement;

(d) the China plant only became operational in 2013, shortly before the trial;

(e) at the time the action was commenced and at the time of trial Pixiu was unaware of any breaches of the supply agreement in respect of surplus material produced in China;

(f) the main issue at the trial of the liability issues was whether the supply agreement was exclusive, that is, whether it obliged CGT to supply all of its surplus material to Pixiu during the term of the supply agreement;

(g) CGT has good-faith obligations to cooperate to achieve the ends of the supply agreement and CGT is therefore obliged to cause its wholly owned subsidiaries to comply with the supply agreement. CGT cannot avoid its contractual responsibilities simply by doing business through wholly owned subsidiaries;

(h) the discovery questions in dispute are all relevant to the damage claim and are also relevant to the interpretation of the supply agreement. The judge trying the trial of the damages issues will need to interpret the agreement in order to resolve the issue of whether it applies to material produced in China. The underlying factual matrix is relevant to the interpretation of the supply agreement as is the post-contractual conduct of the parties. Accordingly, questions about U.S. and China sales before the agreement was signed in December, 2011 and after it was signed up to the time it was breached in 2013 are relevant;

(i) a refusals motion or a preliminary motion is not the appropriate place to determine the substantial issues in an action. A party should have a reasonable opportunity to lay the evidentiary foundation for its legal arguments in order that the trial judge may fairly decide the substantial issues;

(j) the test for “cause of action estoppel,” the doctrine upon which CGT relies in support of its argument that Pixiu may not pursue its claim for China damages in this action, is not so broad as to apply to all possible claims that could have been raised. It applies to claims the party had the opportunity to raise and should have raised in the previous proceeding;

(k) it is unreasonable to suggest that Pixiu should have presented its claim to China damages before Justice Sloan. Pixiu had no knowledge of the material from China that had not been shipped to Pixiu and there is not been any documentary or oral discovery;

(l) cause of action estoppel is primarily focused on fairness to the parties. Where one party is contending that the other party should have raised an issue in a prior proceeding, the court should closely examine the facts to determine if there has in fact been any unfairness;

(m) the applicability of the supply agreement to China sales was not an issue before Justice Sloan. The disputed questions relate to damages, an issue that has not been decided;

(n) the abuse of process doctrine is discretionary and is a tool to achieve justice, not a weapon to cause injustice. It would be unjust to prevent the plaintiff from ever having an opportunity to have its claim for China damages decided on the merits.

Position of CGT

[19] CGT submits as follows:

(a) Pixiu did not assert in its Statement of Claim in this proceeding that the reach of the supply agreement extended to product produced in China by Changshu or Shanghai, or by any party;

(b) by the terms of the supply agreement, the parties are precluded from relying upon negotiations, representations, commitments or the like to alter its terms;

(c) at the trial of the liability issues Pixiu was required to prove the breach of the supply agreement and did so by pleading and presenting a breach of contract case that was limited to breaches that occurred between March or April, 2013 and July 15, 2013 in respect of sales of surplus product from its facility in Cambridge to purchasers other than Pixiu;

(d) no evidence was led in trial with respect to whether production from China was included in the supply agreement or whether Changshu and Shanghai were party to the supply agreement;

(e) Justice Sloan considered the evidence led at trial and found that, notwithstanding that the word “exclusive” does not appear in the supply agreement, the parties, by their actions, treated it as exclusive from 2006 through 2013;

(f) based on the claim as pleaded and the evidence led by the plaintiff Justice Sloan declared that CGT had breached the supply agreement by withholding and selling scrap and second materials to other companies;

(g) there was no finding at the trial of the liability issues that the supply agreement was to include product produced in China, including product produced by Changshu and Shanghai;

(h) the evidence of Ms. Chaplin that China production was agreed to be part of the supply agreement is not uncontradicted. Management of Changshu was never advised that the seconds and scraps from its production were to be sold to Pixiu or any related entities. If such advice had been given, Changshu management would have advised that this could not be done without a written contract properly executed in accordance with Chinese law and never at less than commercial prices. The evidence shows that Rick Chaplin did not agree with Jan Chaplin’s assertion that the rights to scrap and seconds from China had been awarded to Pixiu. Although there were communications between Jan Chaplin and Rick Chaplin respecting the possible future negotiation of an agreement relating to product produced by CGT’s subsidiary’s in China, no such agreement was negotiated or finalized;

(i) Pixiu’s attempt to seek damages for product produced out of China is barred by cause of action estoppel because, in order to do so, Pixiu must establish liability under the terms of the supply agreement. In order to support liability, the trial judge must interpret the supply agreement. The issue of liability in the interpretation of the supply agreement was determined by Justice Sloan, whose decision is final;

(j) Jan Chaplin attempted to negotiate the inclusion of product from China into the supply agreement but it was not so included, as indicated by the exchange of emails appended to the affidavit material;

(k) Pixiu, through Ms. Chaplin, has been aware since early 2012 that Changshu and Shanghai were not named parties and signatories to the supply agreement, the supply agreement did not expressly extend to scrap and seconds produced in China, and there was no agreement between the parties addressing the scrap and seconds produced in China;

(l) Pixiu has, at all material times, been aware of its alleged claim to damages for scraps and seconds produced in China but failed to plead those allegations or seek a determination of these issues on the liability trial and is now attempting to advance a modified legal theory on liability based on facts that were known to it and which should have been pleaded and advanced at the liability trial;

(m) apart from the analysis based upon cause of action estoppel, being an aspect of the doctrine of res judicata, it is an abuse of process for Pixiu to attempt to reopen the issue of liability in the interpretation of the contract. The determination of exclusivity of the supply agreement and the interpretation of the agreement has already been made based on the underlying factual record presented at trial. If Pixiu had pleaded in raised the issue of product produced in China in the initial liability trial there would have been additional evidence with respect to sales to Pixiu and the exclusivity of those sales. This additional evidence may well have affected the outcome of the trial;

(n) relitigating the issue of the meaning of the contract will require evidence to be called with respect to the intentions of the parties and the conduct of the parties which will result in duplication of evidence between the two trials. This could result in conflicting findings of fact and interpretations of the supply agreement. The potential for conflicting decisions and findings could bring the administration of justice into disrepute;

(o) allowing a party to litigate issues of liability in stages violates the principles of judicial economy and finality;

(p) it would be manifestly unfair to CGT to permit Pixiu to simply prove damages for scraps and seconds from China without a trial on liability for such damages, particularly where Pixiu seeks to impose liability on CGT for product produced by distinct corporate entities.

Analysis

[20] CGT, in support of its motion for a declaration that Pixiu’s claim for China damages is an abuse of process and is barred, relies upon rule 21.01(3)(d) of the Rules of Civil Procedure which reads as follows:

(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 the process of the court,

and the judge may make an order or grant judgment accordingly.

[21] CGT also relies upon the court’s inherent jurisdiction to control its own process to prevent an abuse of process, or to apply the doctrine of res judicata.

[22] In considering the jurisdiction of the court to grant the relief sought by CGT sub-rules 1.04 (1), which provides that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits, and 1.04(2), which provides that, where matters are not provided for in these rules, the practice shall be determined by an analogy to them, are pertinent.

[23] It is evident from the facta and submissions of the parties that they do not disagree with respect to the basic principles applying to cause of action estoppel as an aspect of res judicata. In the case of Erschbamer v. Wallster 2013 BCCA 76 (B.C.C.A.) Justice Tysoe of the British Columbia Court of Appeal, on behalf of the court, stated at para. 12:

The doctrine [of res judicata] 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. If the technical requirements of issue estoppel or cause of action estoppel are not met, it may be possible to invoke the doctrine of abuse of process to prevent relitigation of matters.

[24] It is noted that CGT relies upon cause of action estoppel, not issue estoppel, in support of its argument that Pixiu is barred from pursuing its claim for China damages by the doctrine of res judicata.

[25] The principle of cause of action estoppel derives from the seminal case of Henderson v. Henderson (1843), 3 Hare 100, 67 E.R. 313 (Eng. V.-C.) which stated as follows at 319:

In trying this question, I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.

[26] As confirmed by Justice Tysoe in Erschbamer at para. 14, this language from Henderson has been somewhat narrowed by the decision in Hoque v. Montreal Trust Co. of Canada, 1997 NSCA 153, 162 N.S.R. (2d) 321 (N.S. C.A.), where Mr. Justice Cromwell stated that the doctrine should apply to "issues which the parties had the opportunity to raise and, in all the circumstances, should have raised" (para. 37).

[27] Justice Tysoe, at para. 15, also confirmed the requirements of cause of action estoppel derived from Doering v. Grandview (Town) (1975), 1975 CanLII 16 (SCC), [1976] 2 S.C.R. 621 (S.C.C.), as summarized in Bjarnarson v. Manitoba (1987), 1987 CanLII 993 (MB KB), 38 D.L.R. (4th) 32 (Man. Q.B.), at 34, aff'd (1987), 1987 CanLII 5396 (MB CA), 45 D.L.R. (4th) 766 (Man. C.A.)) as follows:

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 in 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.

[28] In the case of Comeau v. Breau 1994 CanLII 4469 (NB CA), 145 N.B.R. (2d) 329 (N.B. C.A.) Ryan, J.A., on behalf of the Court, stated, with reference to the fourth requirement of cause of action estoppel, namely reasonable diligence to pursue the entire claim, that “a plaintiff must advance all reasonable theories and particulars in the first suit” and that a litigant must persuade the court that the new facts could not have been ascertained by reasonable diligence.

[29] In applying these principles to the present case, it is useful to start with the order of Justice Wilson bifurcating the issues of liability and damages.

[30] It is noted that, pursuant to rule 6.1.01, separate hearings on the issues of liability and damages can only be ordered by the court with the consent of the parties. The order of Justice Wilson therefore reflected an agreement reached between the parties. It is evident from the order that the agreement was reached in order to resolve Pixiu’s motion for injunctive relief. For example, para. 4 of the order provided for the resumption of shipments by CGT to Pixiu of surplus material until the trial or further order of the court.

[31] Para. 2 of Justice Wilson’s order, reflecting the agreement of the parties, provided as follows:

THIS COURT ORDERS THAT this action proceed to trial on the liability issues on an expedited basis at the sittings in Kitchener commencing September 16, 2013. The damages issues will be determined at a later date if necessary.

[32] It is evident from the terms of the consent order that the parties intended there to be a clear separation between “the liability issues” and “the damages issues” (both expressed in the plural). This means that all of the “liability issues” were intended to be determined in the first trial, with all of the “damages issues” to be determined later, but only “if necessary.”

[33] Although the order provided that the trial on the liability issues should proceed on an expedited basis, the order itself did not dispense with the exchange of affidavits of documents or examinations for discovery. If affidavits of documents were not exchanged and examinations for discovery not conducted, presumably this was with the mutual consent of the parties, not pursuant to the order of Justice Wilson.

[34] In my view, at the trial of the liability issues it was incumbent on Pixiu, who, as the plaintiff, bore the onus of establishing CGT’s liability, that is “to advance all reasonable theories and particulars” (in the words of Ryan, J.A. in Comeau) that would give rise to liability on the part of CGT.

[35] “Liability” means legal responsibility for one's acts or omissions. In the context of this case any liability of CGT could be founded only upon the supply agreement, and it was therefore incumbent upon Pixiu to plead and lead evidence with respect to any reasonable theory that would establish legal responsibility of CGT for its acts or omissions in breach of the supply agreement. Moreover, the onus is on Pixiu to persuade this court that the new facts or new theory of liability giving rise to China damages could not have been ascertained by reasonable diligence.

[36] Jan Chaplin, in her affidavit filed in response to CGT’s motion, does not demonstrate that the new facts or new theory of liability relating to China damages could not have been ascertained by reasonable diligence. Indeed, the evidence is to the contrary. At para. 2 of her affidavit she confirmed that she was the president and CEO of CGT from 2001 until she was terminated in December 2009. At para. 4 she deposed that negotiations leading to the supply agreement took place over many months, as it was connected to a larger negotiation over her severance. At para. 5 she deposed that during the period that the supply agreement was being negotiated, CGT was planning to construct a plant in China and she wanted the agreement to cover production from CGT’s plant in China. She said that it was something that she discussed with her brother Rick. At para. 6 she deposed that she had an email exchange with Rick on November 1, 2011 with respect to the issue, and that subsequently Rick “confirmed that sub and second material from the China plant, whenever it became operational, would be covered by the Supply Agreement.”

[37] Ms. Chaplin did not depose that during negotiation of the supply agreement she had no knowledge that the plant that CGT was planning to establish in China would be operated by a separate subsidiary corporation incorporated under Chinese law. Similarly she did not depose that she was unaware of the incorporation of Changshu and Shanghai prior to commencement of this action, or prior to the trial before Justice Sloan.

[38] At para. 8 of her affidavit Ms. Chaplin states “I understand from various ex CGT employees, and I verily believe, that CGT’s China plant became operational in the summer of 2013, a few months before the trial before Mr. Justice Sloan.” She does not state when she was informed of these facts and in particular, that the information did not come to her attention prior to commencement of the action or prior to the trial before Justice Sloan.

[39] The theory advanced by Pixiu to establish liability of CGT in relation to China damages in the new action is stated at para. 5 of the Statement of Claim in file C-1178-14 as follows:

By agreement signed on December 21, 2011 (the “Supply Agreement”) Canadian General, on behalf of itself and the other defendants, agreed to sell all of its seconds and scraps to the plaintiff for the prices set forth in the Supply Agreement. The Supply Agreement applies to the worldwide output of Canadian General and its subsidiaries.

[40] This theory of liability was not pleaded in this action, nor was evidence led at the trial of the liability issues in support of it. In my view, Pixiu has not satisfied the onus on it to persuade the court that this theory of liability, and the facts in support of it, could not have been ascertained prior to the trial before Justice Sloan with reasonable diligence.

[41] Pixiu argues that it could not have been in the position to plead a breach or breaches on the part of CGT giving rise to China damages prior to the trial because it was not in position to know whether or not there had been such a breach.

[42] The difficulty with this submission is that there is no evidence to support it. As indicated, in applying the principle of cause of action estoppel, the onus is on Pixiu to persuade the court that the new facts and the new theory of liability could not have been ascertained by the exercise of due diligence. Ms. Chaplin, in her affidavit, as indicated above, confirmed that she knew of the plans for the China plant during the negotiation of the supply agreement. She also deposed that she had been assured by Rick that the supply agreement extended to surplus material produced by the China plant. She did not say that she was unaware of any breach by CGT or its Chinese subsidiaries of the supply agreement by selling surplus material to other parties.

[43] Moreover, as indicated above, the parties agreed to clearly separate “the liability issues” from “the damages issues” and to conduct separate trials in respect of them. The trial of “the liability issues” would, in my view, comprise a determination of all reasonable theories giving rise to legal responsibility on the part of CGT pursuant to the supply agreement. The trial of “the damages issues,” would be limited to a determination of what amount of money would be required to put Pixiu in the same position it would have been had CGT performed its obligations under the supply agreement. (see Horning v. Dan Keller Construction Equipment [1944] O.J. No. 176 (C.A.) at para. 40 and Hav-A-Kar Leasing Ltd. v. Vekselshtein 2012 ONCA 826, 2012 ONCA 826 (C.A.) at para. 49).

[44] The questions of whether CGT failed perform its obligations under the supply agreement and in what respects was, by the terms of the consent order of Justice Wilson, to be determined at the first trial.

[45] The allegation by Pixiu that it should be entitled to seek China damages at the damages phase of the proceeding will, by necessity, involve the advancement of a new theory of liability in that trial. This new theory is, at least in part, expressed in Pixiu’s Factum at para. 18 where it is stated “CGT has good faith obligations to cooperate to achieve the ends of the Supply Agreement. Pixiu contends that CGT is obliged to cause its wholly owned subsidiaries to comply with the Supply Agreement. Pixiu submits that CGT cannot avoid its contractual responsibilities simply by doing business through wholly owned subsidiaries.” In my view, this is not an argument on the question of damages, being a determination of the amount of compensation to be awarded to Pixiu, but rather is an argument advancing a new theory of legal responsibility on the part of CGT.

[46] At paragraph 26 of the Pixiu Factum it is stated that the disputed questions on discovery are relevant to the interpretation of the supply agreement. Pixiu asserts that the trial judge at the damages trial would need to interpret the agreement in order to resolve the issue of whether the supply agreement applies to material from the U.S. and China. It says that the underlying factual matrix is relevant, as is the post-contract conduct of the parties, to this issue.

[47] In my view these are questions and inquiries which go to the “liability issues” and not to the “damages issues”.

[48] Justice Sloan carried out an examination of the factual matrix surrounding the formation of the supply agreement as well as an examination of the post-contract conduct of the parties, both of which informed his interpretation of the supply agreement. Pixiu now seeks to reopen or augment the evidence relating to the factual matrix and the post-contract conduct of the parties at the trial on the damages issues.

[49] To permit Pixiu to do this would be manifestly unfair to CGT. Justice Sloan determined that the parties intended the supply agreement to be exclusive, based largely on his findings related to the factual matrix at the time of the formation of the agreement and his findings with respect to the post-contract conduct of the parties, supported by the evidence before him. The only evidence led at the trial before Justice Sloan related to the production and sale of surplus materials by CGT from its operation in Cambridge.

[50] CGT will be precluded from disputing Justice Sloan’s finding that the supply agreement was intended to be exclusive at the trial of the damages issues, notwithstanding the potential for an altered factual matrix and an altered version of the post-contract conduct of the parties based upon new evidence related to the China operation of one or both of CGT’s subsidiaries. The possibility that Justice Sloan may have reached a different conclusion respecting the exclusivity of the supply agreement, had evidence been introduced at the first trial with respect to the China operation, cannot be discounted.

[51] The parties, by their consent to the order Justice Wilson, intended a complete separation of “the liability issues” from the “damages issues”. They did not contemplate Pixiu being permitted to advance new theories of liability at the trial of the damages issues.

[52] In my view the fact that para. 2 of the order of Justice Sloan provides that there be a trial of an issue “to determine the amount of the plaintiff’s damages suffered as a result of any of the defendant’s breaches of the Supply Agreement since January 1, 2013.” (emphasis added) does not change the analysis. This provision of the order must be viewed in context. The evidence led before Justice Sloan related to material produced in CGT’s Cambridge operation. Justice Sloan could not have had within his contemplation any possible “breaches” arising from the China operation as no evidence relating to the China operation was led.

[53] For these reasons I find that the doctrine of res judicata applies, and in particular, cause of action estoppel, so as to preclude Pixiu from advancing its claim for damages related to the production and sale of surplus materials from China.

[54] Even if I am wrong in holding that the technical requirements of cause of action estoppel have been met, I find that the doctrine of abuse of process nevertheless applies to bar Pixiu’s claim for damages in this action.

[55] In the case of Toronto (City) v. CUPE, Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77 (S.C.C.) Arbour, J., for the majority, at para. 37, observed that Canadian courts have applied the doctrine of abuse of process to preclude re-litigation in circumstances where the strict requirements of issue estoppel are not met but where allowing the litigation to proceed would nonetheless violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice.

[56] At paragraph 43 of CUPE, Justice Arbour noted that in all of its applications, the primary focus of the doctrine of abuse of process is the integrity of the adjudicative functions of the Courts, and that the focus is less on the interest of parties and more on the integrity of judicial decision-making as a branch of the administration of justice.

[57] In my view, the attempt of Pixiu to litigate additional liability issues in the trial of the damages issues, following the order of Justice Wilson bifurcating and separating those issues, does violate the principles of judicial economy, consistency, finality and the integrity of the administration of justice.

Disposition

[58] For the reasons set forth above the motion of CGT is allowed and it is declared that the claim of Pixiu in this action for entitlement to damages in respect of product produced in China by CGT Shanghai Trading Co. Ltd. and/or CGT Changshu Co. Ltd. or otherwise is an abuse of process and is barred.

[59] In respect of the undertakings and refusals at issue, the parties have agreed that CGT would provide a more responsive answer to the undertaking in question #30, and that CGT would provide answers to questions #36, #30 and #44. The remaining questions have either been answered or depended upon the outcome of CGT’s motion and, given the outcome, are not required to be answered.

[60] If the parties cannot agree on costs, the defendant may make written submissions as to costs within 21 days of the release of this endorsement. The plaintiff has 14 days after receipt of the defendant’s submissions to respond and the defendant has 7 days thereafter to deliver any reply submissions. The initial submissions of the defendant and the submissions of the plaintiff shall not exceed 5 double-spaced typed pages, exclusive of Bills of Costs or Costs Outlines. The defendant’s reply submissions, if any, shall not exceed three such pages. All such written submissions are to be forwarded to me at my chambers at 85 Frederick Street, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D.A. Broad J.

Date: February 18, 2016

Appendix

February 18, 2016:

i) Para. 12, second sentence, was corrected to read “Pixiu pleaded in the new Claim…”

ii) Para. 15 was corrected to read “Pixiu brought a motion September 1, 2015…”

iii) Para. 16 should properly read “CGT brought a motion on September 9, 2015…”

February 18, 2016:

Paragraph 59 was deleted and replaced with the following:

[59] In respect of the undertakings and refusals at issue, the parties have agreed that CGT would provide a more responsive answer to the undertaking in question #30, and that CGT would provide answers to questions #36, #30 and #44. The remaining questions have either been answered or depended upon the outcome of CGT’s motion and, given the outcome, are not required to be answered.