COURT FILE NO.: CV-20-455-00
DATE: 2022 11 30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DAVID BACCHUS
N. Groot and A. Ferguson, for the Plaintiff
Plaintiff
- and -
SARA LORRAINE MUNN, JOHN DOE, JANE DOE, and DOE CORPORATIONS
H.C. Cohen, for the Defendant S.L. Munn
Defendants
HEARD: November 14, 2022
REASONS FOR DECISION
LEMAY J
[1] This is an ongoing action that I have been case managing for approximately two years. The Plaintiff and Defendant were in a relationship of some nature. The parties agree that, at the beginning of the relationship, the Defendant was providing sexual services for payment to the Plaintiff. The Defendant says that the relationship never changed. The Plaintiff says that it did change and that the parties were planning a life together until the Defendant defrauded the Plaintiff of significant sums of money. The main action is an action by the Plaintiff to recover monies from the Defendant. It is set for trial in September of 2023.
[2] The Plaintiff has commenced two additional actions, both alleging that monies transferred by the Defendant were fraudulent conveyances and that third parties knowingly received these fraudulent conveyances. One action, which is not the subject of this motion, has been brought against a sometime boyfriend of the Defendant, Madison Pleasant. The second action was originally brought against the Plaintiff and her current counsel, Mr. Cohen. I will refer to that action as the Fraudulent Conveyance action.
[3] After some discussion both with the Court and between the parties, the Fraudulent Conveyance action was discontinued against Mr. Cohen and his firm. However, the Plaintiff seeks to maintain the Fraudulent Conveyance action against the Defendant but agrees that it should be stayed pending the outcome of the trial on the main action.
[4] The Defendant disagrees. She has brought a motion to have the Fraudulent Conveyance action dismissed on the basis that it is either an abuse of process, or the Fraudulent Conveyance action is res judicata.
[5] For the reasons that follow, the Defendant’s motion is dismissed. However, the interests of justice require that the Fraudulent Conveyance action be stayed pending the outcome of the main action.
Background
a) The Parties and the Relationship
[6] I have detailed the relationship of the parties in previous reasons (see 2020 ONSC 6548), but will set out the key points below.
[7] The Plaintiff is a businessman in his late 50’s. He was separated from his wife for a period of time, but they have reconciled. He was in a relationship with the Defendant both before and during part of the time when he was separated from his wife.
[8] The Defendant is a woman in her early 30’s who worked in the sex trade industry for a period of approximately ten years, commencing in 2009. She was in a relationship with the Plaintiff. The nature of that relationship is a matter that is subject to litigation, as is the date that the relationship started.
[9] It is clear, however, that there were substantial transfers of funds from the Plaintiff to the Defendant starting in at least 2017. In 2017, the Defendant (who lived in Hamilton) bought a house in Stoney Creek that was to be built by 2020. There is a dispute between the parties as to whether the Plaintiff was also supposed to go on title for this property.
[10] The relationship between the parties continued into 2019. In 2019, the Plaintiff was under the impression that the Defendant had taken a contract with Carnival Cruise Lines and was not in the country. There is no real dispute that the relationship came to an end in the fall of 2019 when the Plaintiff discovered that the Defendant was still living full-time in the Hamilton area and had not taken a contract with Carnival Cruise Lines.
[11] Shortly thereafter, the Plaintiff commenced the main action. It is an action for, inter alia, the return of significant sums of money from the Defendant.
b) Litigation History
[12] The litigation commenced with the Plaintiff bringing a Mareva injunction, which was heard on an urgent and ex parte basis by Bielby J. A temporary Order was issued by Bielby J. on June 3rd, 2020.
[13] The materials were served on the Defendant, and the matter returned before Bielby J. on June 18th, 2020. A decision was released by Bielby J. on June 24th, 2020 dissolving the Mareva injunction. The Plaintiff was also not successful in obtaining a Norwich order. However, Bielby J. ordered production of certain documents.
[14] After Bielby J. issued his decision dissolving the Mareva injunction, the Plaintiff brought a motion to set that decision aside and reinstate the Mareva injunction. That motion was heard by me on August 12th, 2020. The issue of whether the transfer of monies from the Defendant to Mr. Cohen’s firm was raised in that hearing, although my endorsement from August 12th, 2020 indicated that the Plaintiff is not pursuing those issues.
[15] At the conclusion of the hearing on August 12th, 2020, I made a series of Orders that were mostly on consent. The only order that was not on consent was an order in respect of whether Mr. Groot, counsel for the Plaintiff, could contact the Defendant’s real estate solicitor.
[16] Since August 12th, 2020, the matter has been being case-managed and a series of decisions on various pre-trial motions have been issued. The parties have been moving towards a trial, and a pre-trial was originally scheduled for June 6th, 2022. That pre-trial was adjourned in part because of the Fraudulent Conveyance claim.
c) The Fraudulent Conveyance Claim
[17] The parties had been directed to serve and file pre-trial briefs in advance of the pre-trial on June 6th, 2022. It was supposed to be a lengthy and in-person pre-trial. That date needed to be briefly postponed as a result of a lengthy criminal matter that I was engaged in.
[18] In any event, I received a letter from Mr. Cohen on June 6th, 2022 advising me that there were issues to be resolved before we could reschedule the judicial pre-trial. One of those issues related to the Fraudulent Conveyance action. In the course of reviewing the Plaintiff’s mediation brief, Mr. Cohen discovered that a claim had been issued against, inter alia, himself and his firm but had not yet been served.
[19] The Fraudulent Conveyance action (Court File No. CV-22-681041) made claims against both the Defendant and her counsel. In essence, the claim was that the $115,000.00 retainer that the Defendant transferred to Mr. Cohen’s firm was a fraudulent conveyance. The action also claimed “knowing receipt” on the part of Mr. Cohen and his firm.
[20] The Fraudulent Conveyance action was originally commenced in Toronto. On consent, and with the approval of Ricchetti R.S.J., I ordered that the Fraudulent Conveyance action be transferred to Brampton, and I assumed case management responsibility over it.
[21] A further case conference was held on June 24th, 2022. At point, counsel for the Plaintiff suggested that the action could simply be held in abeyance pending the outcome of the trial in the main action. Counsel for the Defendant stated that it could not be held in abeyance as the fact that the action had been brought against the Defendant and her counsel put counsel in a potential conflict of interest.
[22] The Plaintiff was directed to serve the action. The Defendant (and Mr. Cohen’s office) were advised to outline their position on whether they were consenting to a stay or moving for a dismissal within fifteen days thereafter. That deadline was extended until the next case conference on July 25th, 2022.
[23] At the case conference on July 25th, 2022, counsel for the Plaintiff advised that he was discontinuing the action as against Mr. Cohen and his firm. As of August 10th, 2022, the discontinuance was registered on the Court file. The Plaintiff has agreed not to pursue this action further against them.
[24] At the same time, an action has been commenced against Madison Pleasant. I understand that this action also advances a claim of fraudulent conveyance. I also understand that this action has been stayed pending the outcome of the main action.
Positions of the Parties and Issues
[25] The Defendant alleges that the issue of whether the transfer of funds to Mr. Cohen’s law firm is a fraudulent conveyance was dealt with in the course of the motion before me on August 12th, 2022 and the fraudulent conveyance claim is, therefore, res judicata and subject to cause of action estoppel. In the alternative, the Defendant alleges that it would be an abuse of process to allow the Plaintiff to bring the Fraudulent Conveyance action as the Plaintiff is “resurrecting” arguments in multiple proceedings from the same factual matrix. The Defendant also alleges that there is a risk of double recovery if the Plaintiff is able to advance both claims.
[26] The Defendant is seeking to dismiss the Plaintiff’s claim under both Rule 25.11(c) and Rule 21.01(3)(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Under the former Rule, the Defendant argues that the action is an abuse of process. Under the latter Rule, the Defendant argues that there is another proceeding pending between the parties in Ontario.
[27] The Plaintiff opposes these arguments. The Plaintiff argues that the main action is distinct from the Fraudulent Conveyance action. The Plaintiff also argues that any concerns about double recovery are eliminated because the Plaintiff is prepared to temporarily stay the Fraudulent Conveyance action while the Court determines the outcome of the main action. The Plaintiff rejects the Defendant’s assertions that this matter is res judicata or that the Defendant is engaged in an abuse of process.
[28] Based on the positions of the parties, the issues that I must resolve are:
a) Is the Fraudulent Conveyance claim res judicata?
b) Is the Fraudulent Conveyance claim an abuse of process?
c) Should the Fraudulent Conveyance claim be dismissed because there is another proceeding pending in Ontario?
Issue #1- Is the Fraudulent Conveyance Claim Res Judicata?
[29] No.
[30] In support of the Defendant’s position that the Plaintiff’s fraudulent conveyance claim is res judicata, the Defendant relies on the Plaintiff’s submissions before me on August 12th, 2020. The transcript of the hearing shows that the issue of the transfer to Mr. Cohen was discussed at length during the course of that hearing.
[31] However, as I outlined at paragraph 15, the parties essentially consented to a series of orders on August 12th, 2022. As a result, I didn’t decide anything that day. Even if I had decided issues that day, I was disposing of a preliminary motion that requested a Mareva injunction and/or a Norwich order. Those proceedings are not final dispositions of a case.
[32] Res judicata, or cause of action estoppel, was recently described by the Court of Appeal in Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141. The four criteria were listed by the Court as follows:
[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.]
[33] All four of these criteria must be satisfied for res judicata to apply. The Defendant argues that the fact that my August 12th, 2020 endorsement says that the Plaintiff is not pursuing the fraudulent conveyance satisfies the first criteria. I reject this argument.
[34] As I have noted above, my August 12th, 2020 endorsement made no findings about the merits of the Fraudulent Conveyance claim and made no orders in respect of it. More generally, my August 12th, 2020 endorsement was directed at memorializing the outcome of various requests for production and preservation orders. Those are, by their very nature, not final orders. As a result, there is no final order of this Court (or any court of competent jurisdiction) disposing of any of the Plaintiff’s claims and the Defendant’s argument on res judicata fails.
Issue #2- Is The Fraudulent Conveyance Claim an Abuse of Process?
[35] No.
[36] The leading case on abuse of process is the Supreme Court’s decision in Toronto (City) v. C.U.P.E. Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77. In that decision, Arbour J. stated (at para. 37):
37 In the context that interests us here, the doctrine of abuse of process engages “the inherent power of the court to prevent the misuse of its procedure, in a way that would . . . bring the administration of justice into disrepute” (Canam Enterprises Inc. v. Coles (2000), 2000 CanLII 8514 (ON CA), 51 O.R. (3d) 481 (C.A.), at para. 55, per Goudge J.A., dissenting (approved [2002] 3 S.C.R. 307, 2002 SCC 63)). Goudge J.A. expanded on that concept in the following terms at paras. 55-56:
The doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel. See House of Spring Gardens Ltd. v. Waite, [1990] 3 W.L.R. 347 at p. 358, [1990] 2 All E.R. 990 (C.A.).
One circumstance in which abuse of process has been applied is where the litigation before the court is found to be in essence an attempt to relitigate a claim which the court has already determined. [Emphasis added.]
As Goudge J.A.’s comments indicate, Canadian courts have applied the doctrine of abuse of process to preclude relitigation in circumstances where the strict requirements of issue estoppel (typically the privity/mutuality requirements) 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.
[37] The Defendant argues that there are two reasons why the Plaintiff’s claim should be struck under Rule 25.11(c). First, the Defendant argues that the Plaintiff is resurrecting arguments that the Court heard more than two years ago. In support of that submission, the Defendant relies on the decision in Carbone v. DeGroote, 2018 ONSC 109. In that decision, Sanfilippo J. noted (at para. 35) that the two actions arose “from the same facts and seek similar, identical or duplicative relief.”
[38] In this case, the Fraudulent Conveyance action does not seek identical relief. Specifically, a judgment in the Fraudulent Conveyance action would survive a bankruptcy proceeding, whereas a judgment in the main action might not. This is one of the key reasons that the Plaintiff has brought the Fraudulent Conveyance action. On this basis, I reject the Defendant’s assertion that the actions fall within Sanfilippo J.’s comments.
[39] Second, the Defendant argues that the Plaintiff is seeking double recovery by bringing two actions. In my view, there is a risk that the Plaintiff might obtain double recovery by bringing both actions. However, that risk can be ameliorated by imposing terms on the continuation of the Plaintiff’s Fraudulent Conveyance action once the main action is completed. It would be unfair to preclude the Plaintiff from maintaining the Fraudulent Conveyance action because the Plaintiff would lose the ability to obtain a judgment from the Court that would survive bankruptcy. It would not be manifestly unfair to require the Defendant to defend this action at some point in the future.
[40] I do not share the Defendant’s concern that adopting a “wait and see” approach by staying the Fraudulent Conveyance action would be a waste of judicial resources. I am of the view that the opposite would be the case. Adding the issues in the Fraudulent Conveyance action to the main action would make the main action more complicated. Further, if the Plaintiff cannot succeed in the main action, then he cannot succeed in the Fraudulent Conveyance action either. As a result, there is the potential that staying the Fraudulent Conveyance action would make the determination of all of the issues between the parties more efficient.
[41] For these reasons, I conclude that proceeding with this action would not be an abuse of process.
[42] In deciding this issue, I also note that there does not appear to be any Limitations Act, 2002, S.O. 2002 c. 24, Sched. B. As a result, it would have been open for the Plaintiff to seek to add the claims encompassed in the Fraudulent Conveyance action to the main action at the time that he brought the Fraudulent Conveyance claim. The test for amending a statement of claim is low, as set out in Rule 26.01 of the Rules. This is another factor in support of my conclusion that the Defendant is not entitled to a dismissal of the Fraudulent Conveyance action at this stage.
Issue #3- Should the Fraudulent Conveyance Claim be Dismissed Under Rule 21?
[43] No. However, it should be stayed pending the outcome of the main action.
[44] The test for whether an action should be stayed under Rule 21.01(3)(c) is set out in Birdseye Security Inc. v. Milosevic, 2020 ONCA 355 at para. 15. The Court stated:
[15] The determination of whether a stay of proceedings should be granted because another proceeding is pending between the same parties involves an exercise of discretion, taking into consideration the circumstances of the particular case. The moving party must demonstrate that the continuation of the action would cause it substantial prejudice or injustice (beyond inconvenience and expense) because it would be oppressive or vexatious or would otherwise be an abuse of the process of the court, and that the stay would not cause an injustice to the responding party: Farris v. Staubach Ontario Inc. (2004), 2004 CanLII 11325 (ON SC), 32 C.C.E.L. (3d) 265 (Ont. S.C.), at para. 15. Factors relevant to prejudice include: the likelihood and effect of the two matters proceeding in tandem, the possibility and effect of different results, the potential for double recovery, and the effect of possible delay: Farris, at para. 16.
[45] In this case, it is not at all clear to me how it would be vexatious for the Defendant to have to defend the Fraudulent Conveyance action. If the monies that she received were gifts or payments, then that action will never arise. If, on the other hand, the monies she received from the Plaintiff were loans, then there may be merit to the Fraudulent Conveyance action.
[46] Given that, in some circumstances, there might be merit to the Fraudulent Conveyance action, it would be prejudicial to the Plaintiff to dismiss the action or stay it permanently. If that were done, the Plaintiff might never be able to obtain relief that he is otherwise entitled to.
[47] However, there are risks in having the Fraudulent Conveyance action proceed in tandem with the main action. The biggest of those risks is the potential for double recovery. This risk arises because the statement of claim in the Fraudulent Conveyance action claims monies that are also claimed in the main action.
[48] In all of our discussions of this issue, counsel for the Plaintiff has acknowledged that his client’s potential success in the Fraudulent Conveyance claim is dependent on the outcome of the main action. If that action is dismissed, then the Fraudulent Conveyance claim cannot succeed either. As a result, counsel has been of the view that the Fraudulent Conveyance action should be stayed pending the outcome of the main action.
[49] Given the concerns I described in paragraph 47, there is another reason why the Fraudulent Conveyance action should be stayed pending the outcome of the main action. The Defendant has legitimate concerns that, as pled, the Fraudulent Conveyance action could result in double recovery. There is one total amount that has been claimed by the Plaintiff. That amount should not change even if there are two separate actions to collect the amount.
[50] The best way to ensure that there is no double recovery in this case is to stay the Fraudulent Conveyance action until such time as the main action is disposed of. If there is any basis to the Fraudulent Conveyance action it can then proceed at that time. Further judicial directions will likely be required if the Fraudulent Conveyance action proceeds and, as the case management judge, I will provide those directions if necessary.
Conclusion and Costs
[51] For the foregoing reasons, the Defendant’s motion to strike the Plaintiff’s fraudulent conveyance claim against her is dismissed.
[52] However, the Fraudulent Conveyance action is stayed until the conclusion of the main action. Once a decision is reached in the main action, the parties (and the Court) will be in a better position to determine whether there is any potential merit to the Fraudulent Conveyance action. At that time, either party may bring a motion to the Court to either have the action finally dismissed or to have the stay lifted.
[53] The parties are encouraged to agree on the costs of this motion. Failing agreement, the Plaintiff shall have until December 9th, 2022 to serve and file costs submissions of no more than two (2) single-spaced pages, exclusive of bills of costs, case-law and offers to settle.
[54] The Defendant shall have until December 19th, 2022 to serve and file costs submissions of no more than two (2) single-spaced pages, exclusive of bills of costs, case-law and offers to settle.
[55] There shall be no reply submissions without my leave and the deadlines for costs submissions may not be extended, even on consent, without my leave. In the event that I do not receive costs submissions in accordance with the timetable set out above, then there shall be no costs of this motion.
LEMAY J
Released: November 30, 2022