Freedman v. Freedman Holdings Inc. et al, 2024 ONSC 1730

COURT FILE NO.: CV-23-92273 DATE: 2024/03/22

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Jonathan Ben-Choreen Freedman, Applicant – and – Freedman Holdings Inc. and Equity Management International Limited, Respondents

Counsel: Alyssa Tomkins and James Plotkin, for the Applicant Catherine Francis, for the Respondents

HEARD: January 24, 2024

REASONS FOR DECISION

R. SMITH J.

Overview

1The Applicant, Jonathan Ben-Choreen Freedman (“Jonathan”) has brought an application to set aside the arbitration award of the Honourable Frank J.C. Newbould (“Newbould”) dated March 23, 2023 (the “Jurisdiction Decision”). Jonathan submits that Newbould breached his right to procedural fairness when he applied the doctrine of res judicata to prevent him from pleading a limitation defence to the particularized counterclaim for damages of $22,777,700 for negligence and breach of fiduciary duty.

2Jonathan refers to the particularized counterclaim as a new “Loss of Opportunity Claim” and not as particulars of the previously pleaded negligence and breach of fiduciary duty claim. Newbould held that Jonathan was barred from advancing a limitation defence to the counterclaim for damages for negligence and breach of fiduciary duty based on the doctrine res judicata. The previous Arbitrator, James Chadwick (“Chadwick”), had held that Jonathan was barred from advancing a limitation defence to the same, but unparticularized counterclaim, based on the doctrine of laches. Chadwick’s decision was upheld by Kane J. and the Court of Appeal for Ontario denied leave to appeal.

3The Respondents, Freedman Holdings Inc. and Equity Management International Limited (together “FHI”) submit that Newbould did not breach Jonathan’s right to procedural fairness as he was given proper notice of the arbitration, was treated fairly throughout, was given an opportunity to present evidence, make submissions, to bring his own motion for particulars, and an opportunity to respond to FHI’s case. FHI also submits that Newbould did not err in deciding that Jonathan was barred from advancing a limitation defence in its counterclaim based on the doctrine of res judicata. Further, they submit that Jonathan is really seeking to appeal Newbould’s arbitration decision which is prohibited by the parties’ arbitration agreement. As a result, FHI argues that this application to set aside Newbould’s Jurisdiction Decision should be dismissed.

Issues

4The following issues must be decided:

a. Did Newbould breach Jonathan’s right to procedural fairness or did he make a substantial legal decision when he applied the doctrine of res judicata to prevent Jonathan from pleading a limitation defence to the particularized counterclaim for damages for negligence and breach of fiduciary duty?

b. Should Newbould’s cost award be set aside?

Factual Background

5FHI is a real estate holding company that owns assets in and around Ottawa. Its directors are Jonathan and his three siblings (“Siblings”). Johnathan was FHI’s former President and CEO. On May 7, 2007, the Siblings terminated Jonathan’s employment with FHI. Johnathan then commenced an arbitration proceeding seeking relief for wrongful dismissal on June 7, 2007. A fresh notice of arbitration was issued by Jonathan dated March 2, 2009.

6On March 31, 2009, FHI counterclaimed for the following relief:

a) an accounting of all expenses charged by Jonathan to FHI throughout his tenure as President of FHI and repayment of all amounts found to have been improperly charged to FHI;

b) repayment of funds diverted from FHI to an entity or project known as “Shoresh” which was Jonathan’s personal matter;

c) an accounting of other monies owing by Jonathan to Freedman Holdings Inc. and/or Equity Management International Limited; and,

d) damages for negligence and breach of fiduciary duty in connection with the management of FHI prior to May 6, 2007.

7In August 2009, FHI brought a motion for summary dismissal of Jonathan’s claims other than his wrongful dismissal claim. Jonathan delivered a responding affidavit and a cross-motion. On December 14, 2009, the motion and cross-motion were heard by Chadwick, who dismissed all of Jonathan’s claims other than his claim for wrongful dismissal and a retroactive pay increase.

8The arbitration was delayed for several years while Jonathan pursued multiple avenues to remove the Siblings as directors of FHI. Following the dismissal of all court proceedings, FHI was in a position to proceed with the arbitration.

9Jonathan objected to the parameters of the arbitration and brought a motion before Chadwick. Chadwick issued a ruling on January 4, 2016, defining the remaining issues in the arbitration including the damages for Jonathan’s negligence and breach of fiduciary duty in connection with his management of FHI prior to May 3, 2007.

10Examinations for discovery were commenced in March 2016. On June 20, 2017, Chadwick ordered Jonathan to produce documents and attend for the completion of his examination for discovery, which was completed on July 11, 2017 and July 21, 2017.

11On September 8, 2017, Chadwick advised that he would be retiring. FHI then brought a motion to dismiss Jonathan’s claims and sought partial summary judgment on its counterclaim. On December 4, 2017, Jonathan served a responding cross-motion for partial summary judgment on his claim and sought a dismissal of the counterclaim. Jonathan argued that the Respondents had failed to meet their burden of proof and that their counterclaims were statute barred.

12The hearing proceeded before Chadwick on December 19, 2017 and December 20, 2017. The parties each delivered written submissions on the issue of whether FHI’s counterclaim was statute barred.

13Chadwick issued an arbitral award on April 30, 2018, dismissing all of Jonathan’s claims, granting partial judgment on the counterclaim, declaring that the counterclaim was not statute barred, and ordering Jonathan to provide an accounting. Chadwick’s 2018 award did not restrict FHI’s counterclaim for damages for negligence and breach of fiduciary duty.

14Jonathan filed an application in the Superior Court of Justice to set aside Chadwick’s 2018 award. He alleged that Chadwick had breached his right to procedural fairness and acted in excess of jurisdiction. FHI brought a cross-application to enforce the 2018 award. Jonathan was ordered to deliver a “Statement of Issues” articulating his complaints. The parties exchanged factums.

15Kane J. heard the application to set aside Chadwick’s award and the enforcement application on April 24, 2019. On May 5, 2020, Kane J. dismissed Jonathan’s application to set aside Chadwick’s award and granted judgment enforcing the 2018 award.

16On July 31, 2020, Jonathan brought a motion for leave to appeal Kane J.’s decision to the Court of Appeal for Ontario. On December 17, 2020, the Court of Appeal for Ontario dismissed Jonathan’s motion for leave to appeal Kane J.’s decision.

17The parties agreed to appoint Newbould to replace Chadwick as the arbitrator. Jonathan took the position that the only remaining issue for determination in the arbitration was the accounting and that all claims for damages for his negligence and breach of fiduciary duty were statute barred, even though Chadwick had explicitly ruled that these claims were not statute barred.

18On September 30, 2020, Jonathan delivered a motion record seeking an order that Newbould’s jurisdiction was limited to conducting the accounting ordered by Chadwick. In the alternative, Jonathan sought a declaration that FHI’s counterclaim did not disclose a reasonable cause of action for negligence or breach of fiduciary duty and that any amendment to plead material facts supporting such claims was statute barred. In the alternative, Jonathan sought particulars of the allegations of negligence and breach of fiduciary duty in the cross-claim.

19The parties presented written and oral arguments on the motion before Newbould which was heard on March 13, 2023. Newbould issued his Jurisdiction Decision on March 23, 2023 and his cost award on April 20, 2023. Newbould held that the doctrine of res judicata applied which prevented Jonathan from arguing a limitation defence to FHI’s counterclaim for damages for negligence and breach of fiduciary duty.

20After the cost award was issued, Jonathan asked Newbould to reconsider his decision. On April 28, 2023, Newbould issued his post award decision, stating that he did not agree that his 2023 jurisdiction award contained any oversight leading to any injustice.

21On May 29, 2023, Jonathan commenced this application to set aside Newbould’s Jurisdiction Decision, more than 60 days after Newbould’s 2023 jurisdiction award but within 30 days after the dismissal of his request for reconsideration.

Analysis

Issue #1 - Did Newbould breach Jonathan’s right to procedural fairness or did he make a substantial legal decision when he applied the doctrine of res judicata to prevent Jonathan from relying on a limitation defence to FHI’s particularized counterclaim for damages for negligence and breach of fiduciary duty?

22Jonathan brings this application to set aside Newbould’s award under ss. 46, 15, and 19 of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”). Newbould held that Jonathan could not raise a limitation defence to FHI’s counterclaim for damages for negligence and breach of fiduciary duty in his management of FHI prior to May 6, 2007 because the same issue had been previously decided by Chadwick, his decision was final and it involved the same parties. As a result, Newbould held that this issue was res judicata.

23Section 46(1)(6) of the Act reads as follows:

Setting aside award

46 (1) On a party’s application, the court may set aside an award on any of the following grounds:

6. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.

24None of the items listed in s. 46(1)6 of the Act apply to the procedure followed by Newbould in conducting the arbitration hearing. Jonathan agreed to the appointment of Newbould as the arbitrator, he had notice of the hearing, he was given an opportunity to present his case and permitted to bring a motion to prevent the arbitrator from proceeding with the counterclaim by FHI for damages for negligence and breach of fiduciary duty, alleging they were statute barred.

25Jonathan was allowed to file an extensive motion record, he cross-examined Jacob on his affidavit, and he was given the opportunity to make submissions and to respond to FHI’s submissions. Jonathan does not allege that he was not treated unequally or unfairly by Newbould during the hearing. Jonathan simply disagrees with Newbould’s decision holding that the doctrine of res judicata applied, which prevented Jonathan from relying on a possible limitation defence to FHI’s counterclaim for damages for negligence and breach of fiduciary duty.

26Section 15(1) of the Act allows a court to remove an arbitrator if they do not conduct the arbitration in accordance with s. 19 (equality and fairness) and reads as follows:

Removal of arbitrator by court

15 (1) The court may remove an arbitrator on a party’s application under subsection 13 (6) (challenge) or may do so on a party’s application if the arbitrator becomes unable to perform his or her functions, commits a corrupt or fraudulent act, delays unduly in conducting the arbitration or does not conduct it in accordance with section 19 (equality and fairness).

27Section 19(1) of the Act reads as follows:

Equality and fairness

19 (1) In an arbitration, the parties shall be treated equally and fairly.

28Jonathan does not seek an order removing Newbould as the arbitrator and in fact he agrees that Newbould should proceed to conduct the balance of the arbitration. He only seeks to set aside Newbould’s decision preventing him from raising a limitation defence to FHI’s recently particularized claim for damages for negligence and breach of fiduciary duty. Jonathan does not argue that he has been treated unfairly by Newbould in the conduct of the arbitration, but only seeks to overturn Newbould’s decision applying res judicata.

29Jonathan’s reliance on s. 15(1) of the Act to set aside Newbould’s award is based on the same argument as ss. 19(1) and 46(1)6, namely that he was denied procedural fairness as a result of Newbould’s decision applying the legal doctrine of res judicata to prevent him from relying on a limitation defence. The only difference between s. 46(1)6 and ss. 15(1) and 19(1) requiring procedural fairness is that the latter two sections are not subject to a 30-day limitation period to move or set aside the award.

30Jonathan also brought a motion before Kane J. to set aside Chadwick’s 2018 award which held that Jonathan could not rely on a limitation defence to FHI’s counterclaims. Kane J. refused to set aside Chadwick’s decision and the Court of Appeal for Ontario denied Jonathan’s application for leave to appeal.

31At para. 38 of his decision, Newbould reviewed Chadwick’s reasons for refusing to allow Jonathan to rely on a limitation defence to the counterclaim. Chadwick found that “Jonathan has been less than forthright in providing information that would assist FHI and Equity in pursuing their counterclaim against him. He has been evasive in his responses on examinations for discovery, cross-examinations on affidavits. He has refused to produce relevant documents. His conduct has delayed the arbitration.”

32Chadwick decided that because Jonathan caused the delay and based on the doctrine of laches, Jonathan was prevented from relying on a limitation defence to FHI’s counterclaim, which included a claim for damages for Jonathan’s negligence and breach of fiduciary duty in his management of FHI before May 6, 2007.

33Chadwick’s decision is final because Kane J. refused to set it aside and leave to appeal was denied by the Court of Appeal for Ontario. At para. 39 of his Jurisdiction Decision, Newbould found that Chadwick was concerned with “Jonathan not being forthright and delaying the arbitration at the cost of thousands of dollars to FHI in defending the litigation he caused…. are equally applicable for the claim for damages for negligence and breach of fiduciary duty”.

34At para. 40 of the Jurisdiction Decision, Newbould held that he was satisfied that “Chadwick dealt fully with the limitations argument of Jonathan raised in December 2017 and that the decision is binding on Jonathan now and cannot be reopened. It is res judicata.”

35The test for applying issue estoppel or res judicata was outlined by the Supreme Court of Canada in Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at para. 25, as follows:

a) that the same question has been decided;

b) that the judicial decision which is said to create the estoppel was final; and

c) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.

36Jonathan agrees that the second and third criteria to apply res judicata as set out in Danyluk apply; namely that Chadwick’s decision was final and involved the same persons. However, Jonathan submits that the “same question” was not decided, because Chadwick did not have the particularized claim for damages of $22,777,700 for negligence and breach of fiduciary duty before him. Jonathan argues that Chadwick only prevented him from arguing a limitation defence to the counterclaim for damages for an accounting which were in the $200,000 to $300,000 range.

37Jonathan submits that FHI has raised a new claim for “Loss of Opportunity” which he argues is not the “same question” decided by Chadwick. FHI had previously crossclaimed for unparticularized damages caused by Jonathan’s negligence and breach of fiduciary duty prior to May 6, 2007. Jonathan sought further particulars of this crossclaim in the Jurisdiction motion before Newbould.

38In response to Jonathan’s motion for particulars, Newbould ordered FHI to provide particulars of Jonathan’s alleged negligence and breach of fiduciary duty by way of an amendment to FHI’s crossclaim. This was not a new cause of action but rather particulars of the same claim outlined in FHI’s crossclaim made in 2009. Newbould acted within his jurisdiction to order further particulars as Jonathan requested.

39Jonathan argues that the non-particularized crossclaim seeking damages for Jonathan’s negligence and breach of fiduciary duty did not amount to pleading a cause of action. He argues that it was procedurally unfair to deprive him of a possible limitation defence to a different claim. Jonathan had notice since 2009 that FHI was seeking damages caused by his negligence and breach of fiduciary duty before May 6, 2007. Chadwick described Jonathan as being evasive in his responses on examinations for discovery and cross-examinations. He also found that Jonathan refused to provide relevant documents and delayed the arbitration. In addition, Jonathan did not bring a motion for particulars of the negligence and breach of fiduciary crossclaim for many years until his motion before Newbould in 2023.

40Jonathan is seeking to overturn Newbould’s ruling that Chadwick had already decided that he was not able to rely on the limitation defence to the counterclaim. Chadwick’s decision was upheld by the Court of Appeal for Ontario and this ruling included all of the claims listed in the counterclaim and not just the accounting.

41In Aquanta Group Inc. v. Lightbox Enterprises Ltd., 2023 ONSC 971, J.T. Akbarali J. held that when the court is asked to review an arbitration decision, its role is a narrow one. Section 46(1)6 of the Act does not create a right of appeal or a review on the correctness or reasonableness of the arbitrator’s decision.

42At para. 17 of Aquanta Group Inc., the court stated that s. 46(1)6 is not concerned with the substance of the parties’ dispute but concerned with the requirement of procedural fairness.

43Jonathan argues that Newbould erred in his application of the legal doctrine of issue estoppel or res judicata and as a result, submits that his decision was procedurally unfair. Jonathan was given proper notice and the opportunity to present evidence, to fully argue and present written submissions on the issue of whether Chadwick’s decision was binding in the continuation of the arbitration by Newbould. Jonathan disagrees with the substance of Newbould’s decision that the limitation issue was res judicata. Jonathan does not allege that he was treated in a procedurally unfair manner or that he was not given the opportunity to fully argue his case. Rather, he disagrees with the correctness of Newbould’s decision in circumstances where the parties’ arbitration agreement provided that neither party had a right of appeal on any basis.

44Newbould has treated the parties equally and fairly at the hearing. Both parties were given the time to state their case and to make submissions. Newbould also considered a request to reconsider his decision. In fact, the parties both agree that Newbould should not be removed and should continue to complete the arbitration. Jonathan does not argue that Newbould treated him with procedural unfairness in the conduct of the arbitration hearing but rather alleges that Newbould erred in finding that Chadwick’s decision preventing him from raising a limitation defence to the counterclaim was res judicata. Jonathan alleges that Newbould erred in applying the legal doctrine of res judicata which resulted in procedural unfairness to him.

45Jonathan claims that Newbould’s decision barring him from raising a limitation defence deprived him of his right to be heard and to respond fully to the cross-claim.

46The legal doctrine of res judicata stands for the principle that once a question or issue has been finally decided by a competent authority, it cannot be relitigated if it involves the same parties and the same subject matter. It is a form of estoppel which in its application bars any party from re-litigating such matter. The doctrine is based on the broad principles of public policy that all litigation should have an end, and that no party should be forced to litigate the same matter more than once.

47In St. Lewis v. Rancourt, 2012 ONSC 2519, 110 O.R. (3d) 751, the court quoted from Sopinka on The Law of Evidence in Canada, who stated that that the principle of res judicata, although often referred to as a rule of substantive law, is better viewed as a rule of evidence. This is because the party against whom the issue was decided is estopped from proffering evidence to contradict the result.

48Res judicata can be said to impinge on the fundamental right of a person to access the courts. It can also be said to create a competing right by ensuring that a party is not forced to relitigate a matter more than once. Further, the application of res judicata has a direct impact on the existence of an action as it has the immediate effect of ending the proceeding. This rule of evidence is equally affected by whether litigation is in progress and is not independent of the existence of an issue. On the contrary, res judicata can only be applied if there is litigation in progress and whether a specific question or issue existed in prior proceedings involving the same parties. These points support the position that res judicata is substantive in nature.

49In the present case, the parties signed an agreement which established a dispute resolution procedure which states at cl. 10.3(i) that any award or procedural decision shall be final and binding to the parties. It does not allow for appeals, nor does it allow for appeals on questions of law.

50It is therefore unnecessary to determine whether Newbould’s findings were questions of law, rather than questions of mixed fact and law, or whether Newbould fell into an error of law thus breaching procedural fairness, as was the case in the decision Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861, 24 C.L.R. (5th) 195, leave to appeal refused, 2024 CarswellOnt 163, 2024 CarswellOnt 164.

51The question to be answered is whether the procedure followed by Newbould in making the res judicata decision was fair. This entails the parties’ right to present their case equally and fairly, and the arbitrator’s duty to provide sufficient reasons.

52Lastly, as noted in Highbury Estates Inc. v. Bre-Ex Limited, 2015 ONSC 4966, s. 46(1)6 of the Act does not provide for a substantive review of the decision reached by the arbitrator. Jonathan’s factum relates to the fairness of Newbould’s decision and not the fairness of the process which led to the decision; it essentially argues how the arbitrator misapplied the legal doctrine of res judicata. This is substantive in nature and does not trigger intervention pursuant to the provision of s. 46(1)6 of the Act.

53Newbould’s decision to apply the doctrine of res judicata to prevent Jonathan from advancing a limitation defence to the claim for damages for negligence and breach of fiduciary duty is a substantive legal decision. Newbould treated Jonathan with procedural fairness in the conduct of the arbitration hearing. Jonathan seeks to overturn Newbould’s decision because he made an error of law in applying res judicata which he submits was procedurally unfair.

54The parties’ arbitration agreement does not provide for any appeal and the parties chose arbitration as a quick and final procedure. Newbould’s decision applying res judicata was fair and his legal decision is not subject to review by the court for legal correctness. The same issue was decided by Chadwick, namely whether Jonathan could use a limitation defence to FHI’s counterclaim. The counterclaim contained a non-particularized claim for damages for negligence and breach of fiduciary duty. Jonathan never sought particulars and as such, the particularized counterclaim did not raise a new issue as Jonathan claims but rather contained particulars of the same existing counterclaim.

55For the above reasons, I am satisfied that Newbould’s decision applying res judicata was substantive in nature and did not breach Jonathan’s right to procedural fairness as protected in ss. 46(1)6, 15(1), or 19(1) of the Act. Jonathan is seeking to appeal Newbould’s ruling which is not permitted by the parties’ arbitration agreement.

Disposition

56For the above reasons, the application to set aside Newbould’s Jurisdiction award is dismissed. Given my decision, it is not necessary to decide the issue of the costs awarded by Newbould.

57The parties may make brief submissions on costs of this application within 10 days.