CITATION: EnerNorth Industries Inc. (Re), 2009 ONCA 536 |
Date: 20090703 |
Docket: C49062 and C49072 |
COURT OF APPEAL FOR ONTARIO |
Simmons, Blair and Juriansz JJ.A. |
In the Matter of EnerNorth Industries Inc. |
Douglas G. Garbig, for the appellants Fieldstone Traders Limited, Milton Klyman, Hagen Gocht, 1420041 Ontario Inc., Trigel Energy Inc., Reid Hill Enterprises Ltd., Richard Barrer, Hurricane Management Ltd, and Les’s Mechanical Service Ltd. Paul D. Guy, for the appellants Sandra J. Hall and James C. Cassina |
Matthew I. Milne-Smith and Shelby Z. Austin, for the respondent Oakwell Engineering Limited |
Heard: January 28, 2009 |
On appeal from the order of Justice Colin L. Campbell of the Superior Court of Justice dated June 25, 2008 with reasons reported at (2009), 92 O.R. (3d) 392. |
R.A. Blair J.A.: |
[1] EnerNorth
Industries Inc. is bankrupt. Its various creditors are squabbling amongst
themselves over the amount owing to one of them, Oakwell Engineering Limited. To
sort this out, the appellant creditors sought to obtain an order under s.
135(5) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”),
entitling them to challenge and determine the validity of the proof of claim
filed by Oakwell. That proof of claim is founded upon a judgment rendered
in
[2] Justice
Colin Campbell dismissed the creditors’ motion on res judicata and
issue estoppel grounds, holding that the very issue they wished to have determined
had already been decided in the proceedings before the courts in
The Genesis of the Problem
[3] EnerNorth
and Oakwell were parties to a joint venture agreement concerning the construction
and operation of two power plants in the State of
[4] The Project did not develop according to plan and various disputes arose between the parties. The disputes were ultimately resolved in December 1998, by way of a Settlement Agreement in which EnerNorth agreed to buy out Oakwell’s interest in the Project Company. In exchange, EnerNorth was to pay Oakwell:
(1) 1.85 million EnerNorth shares, in lieu of payment of approximately US$3 million;
(2) US$2.79 million, payable within 30 days after successful financing of the Project (“Financial Closure”); and
(3) a royalty equivalent to 6.25% of the actual cash flow of the Project Company for the first five years of its commercial operation, according to a formula set out in the Settlement Agreement.
[5] Under
the Settlement Agreement, both parties agreed to do all things necessary
to give effect to the agreement. They also agreed that any disputes would
be governed by
[6] EnerNorth did not achieve Financial Closure. Although it transferred the 1.85 million shares to Oakwell, it never paid Oakwell either the $2.79 million or the 6.25% annual royalty.
[7] EnerNorth’s inability to realize Financial Closure and to make the payments under the Settlement Agreement was attributable to the fact that EnerNorth – perhaps in recognition of its inability to complete the Project – sold its interest in the Project Company (including the newly-acquired Oakwell portion) to another group of companies known as The VBC Group, in August 2000. I will refer to the August 2000 Agreement between EnerNorth and the VBC Group as “the VBC Agreement”. Although Oakwell had been aware of VBC’s interest in the Project, it was initially unaware of the VBC Agreement. When it discovered what had occurred, it protested to VBC and entered into negotiations with VBC directly, arguing that EnerNorth and VBC were not entitled to exclude it completely from the Project under Indian law because of its position as Original Promoter of the Project.
[8] These
negotiations led to a series of agreements between Oakwell and the VBC Group
(including the Project Company) on July 4, 2001. Principal amongst these
was a Technology Transfer, Collaboration and Licence Agreement (“the Licence
Agreement”) pursuant to which the Project Company was to pay Oakwell “technical
fees” totalling US$6 million “in acknowledgement of the technical services
and know-how provided and to be provided by [Oakwell] since 1995” and for
the granting of a certain licence. Of the $6 million, $2 million was to
become payable on registration of the Licence Agreement with the Reserve
Bank of
[9] It
is the payments made, or to be made, under this Licence Agreement, and how
they were treated before the
[10] In
August 2002, Oakwell sued EnerNorth in
[11] Before
this Court, Oakwell insists that any payments received, or to be received,
by it under the Licence Agreement are separate and apart from its claim against
EnerNorth arising out of the Settlement Agreement and that this issue has
already been determined in its favour in the
[12] Before returning to this debate, I turn briefly to a history of the legal proceedings between EnerNorth and Oakwell, and a history of the bankruptcy proceedings involving the appellant creditors.
[13] Oakwell
succeeded in the
[14] In
the
[15] EnerNorth’s defence – as set out in its pleadings and in its opening and closing submissions at trial – was to argue:
(a) that the Settlement Agreement had been frustrated as a result of a reduction in tariffs imposed by the Indian Government and reducing the amounts payable to the Project Company, thus rendering Financial Closure impossible and the performance of the Project economically non-viable;
(b) if the Settlement Agreement had not been frustrated, that EnerNorth had not breached or repudiated it; and that,
(c) even if EnerNorth had breached or repudiated the Settlement Agreement, Oakwell had suffered no damages because Oakwell had mitigated its losses by entering into the Licence Agreement with VBC – any past or future payments received from VBC under the Licence Agreement would have to be set-off against any payments payable by EnerNorth under the Settlement Agreement (the “mitigation/set-off issue”).
[16] In addition, EnerNorth counterclaimed that Oakwell had breached the Settlement Agreement by entering into the Licence Agreement with VBC, in effect selling the same interest in the Project to VBC that was to be relinquished to EnerNorth as part of the Settlement Agreement. Accordingly, EnerNorth sought an order requiring Oakwell to disgorge any and all “shares, monies or other benefits” received, or to be received in the future, under the Licence Agreement.
[17] With
the exception of two voluntary credits offered by Oakwell, the
[18] The trial judge ordered that EnerNorth pay to Oakwell:
(1) US$2.79 million (less the sums of US$790,000 and US$350,000) in relation to the failure to achieve Financial Closure; and
(2) US$2,560,210 in damages in respect of the 6.25% annual royalty under the Settlement Agreement.
[19] He also ordered that EnerNorth’s counterclaim be dismissed.
[20] EnerNorth unsuccessfully argued the same issues in its appeal before the Singapore Court of Appeal, including the mitigation/set-off issue. In its written appeal case brief, it contended that, “If [EnerNorth] did repudiate the Settlement Agreement on or before 10 August 2000, Oakwell mitigated its losses.” The appeal case argued:
One of [the] ways that Oakwell agreed to receive the Royalty under … the Settlement Agreement was by entering into an agreement directly with the Project Company [i.e., the Licence Agreement with VBC] whereby the company would pay Oakwell “as technical or consultancy fees” an amount equal to the Royalty. One of the agreements Oakwell entered into on 4 July 2001 was an agreement with the Project Company whereby Oakwell would receive a lump sum as a “Technical Fee”. Accordingly, Oakwell contracted directly with the Project Company for the very thing it had agreed to accept from the Project Company under the Settlement Agreement.
Therefore, even if [EnerNorth] had breached the Settlement Agreement on 10 August 2000, in respect of the Royalty, Oakwell had fully mitigated its losses by directly entering into the very contract with the Project Company that under the Settlement Agreement it had agreed to accept as payment for the Royalty.
…
Oakwell, in other words, had a duty to mitigate its (claimed) losses arising out of [EnerNorth’s] repudiation of the Settlement Agreement (if indeed that is what [EnerNorth] did) and Oakwell did in fact mitigate its losses by conveying the interests it had relinquished to [EnerNorth] under the Settlement Agreement to VBC for valuable consideration. Therefore, the Court erred by awarding damages to Oakwell in these circumstances and in effect gave Oakwell double recovery.
[Emphasis added.]
[21] The
appeal was dismissed, without reasons: Oakwell Engineering Limited v.
Energy Power Systems Limited (27 April 2004), CA129/2003/Y (Sing.
[22] EnerNorth
did not pay the
[23] One of the bases advanced in support of this argument was that the judgment permitted double recovery since Oakwell was allowed to retain the remaining US$1,650,000 of the $2 million to be paid to it by VBC under the Licence Agreement (after credit of $350,000) without having to deduct that amount from the damages awarded. As Mr. Cassina – the then Chairman of EnerNorth – said in an affidavit, “Oakwell, in effect, got to have its cake and eat it too” at the expense of EnerNorth.
[24] Justice
Day rejected EnerNorth’s arguments and ordered that the
[25] On March 20, 2007, EnerNorth filed an assignment in bankruptcy. RSM Richter Inc. (“Richter”) was appointed trustee in bankruptcy the following day.
[26] Oakwell’s
claim in the bankruptcy is for CDN$6,807,130.43. It is based entirely upon
the
[27] The appellants, Ms. Hall and Mr. Cassina, are minor creditors of EnerNorth. They are its former President and Chairman, respectively. Ms. Hall has filed a proof of claim in the amount of $20,142.38, for outstanding salary, vacation pay and directors’ fees. Mr. Cassina’s claim is for $73,222.06 for outstanding consulting and directors’ fees.
[28] At
the first meeting of creditors, Ms. Hall raised the issue of whether Oakwell’s
claim should be reduced by a further US$1,650,000 allegedly received from
VBC under the Licence Agreement following the date of the
[29] Richter made enquiries about these allegations, and concluded that it had not been provided with any confirmable information that would warrant reducing Oakwell’s proof of claim. Accordingly, it proposed to admit Oakwell’s proof of claim in full.
[30] Ms.
Hall and Mr. Cassina moved before the Bankruptcy Court for an order pursuant
to s. 135(5) of the BIA challenging the proof of claim filed by Oakwell. They
were supported by a companion motion filed on behalf of the appellant group
of creditors. Oakwell brought a cross-motion to dismiss these motions on
the ground that the issue of whether the Licence Agreement payments had to
be set-off against any payments made to Oakwell under the Settlement Agreement
had already been finally determined in the
[31] Justice Campbell granted the cross-motion, and dismissed the appellants’ motion. The appeal is from that order.
[32] Oakwell moved to quash the appeals on the ground that leave to appeal is required under s. 193 of the BIA and leave had not been sought.
[33] Section 193 states:
Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:
a) if the point at issue involves future rights;
b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;
c) if the property involved in the appeal exceeds in value ten thousand dollars;
d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims exceed five hundred dollars; and
e) in any other case by leave of a judge of the Court of Appeal.
[34] We dismissed the motion to quash after argument of the motion. Given the reach of the appellants’ position that s. 135(5) applicants have an “unqualified right” to attack the validity of any judgment issued by a court of competent jurisdiction in a hearing under that section, the implications of the appeal are widespread and the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings: s. 193(b). Even if that were not the case, however, we were satisfied that the property involved in the appeal exceeds $10,000 in value. The test for the value of property involved in the appeal is the amount of the loss or gain which the granting or refusal of the claimed right would entail: Orpen v. Roberts, [1925] S.C.R. 364, at p. 367; Fallis v. United Fuel Investments Limited, [1962] S.C.R. 771, at p. 774. Here, the loss or gain to Oakwell or to the creditors, in terms of the quantum of Oakwell’s claim in the bankruptcy, is in the millions of dollars.
[35] The appellants raise three issues on the appeal:
(1) Do the appellants, as creditors, have “an unqualified right” under s. 135(5) of the BIA to challenge Oakwell’s proof of claim?
(2) Does the existence of a judgment granted against a bankrupt prior to bankruptcy displace the ability of creditors under s. 135(5) to challenge a proof of claim filed on the basis of that judgment?
(3) If a s. 135(5) hearing could be denied on the basis of the doctrine of res judicata, does res judicata or issue estoppel apply in the circumstances of this case?
[36] I shall deal with the first and second issues together.
[37] Section 135 of the BIA deals with a trustee’s examination, acceptance or disallowance of proofs of claim filed by creditors in bankruptcy proceedings. Subsection 135(1) provides that the trustee is to examine proofs of claim or of security and the grounds therefore and “may require further evidence in support of the claim or security.” Subsection 135(2) deals with the right of the trustee to disallow a claim, and subsections 135(3) and (4) provide for notice of that determination and for finality and conclusiveness of that decision subject to an appeal from the trustee’s decision. Subsection 135(5) states:
Expunge or reduce a proof
135(5) The court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of the debtor if the trustee declines to interfere in the matter.
[38] The appellants’ argument that they have “an unqualified right” to challenge Oakwell’s proof of claim under s. 135(5) is based on the unsupported theory that the only precondition to a creditor being entitled to a hearing under s. 135(5) is that the trustee must have declined to interfere in the matter. I do not read the provision in such a restricted manner. Their premise that the Singapore judgment cannot “displace” their “unqualified” right, is founded on quite old English authority which – if it ever stood for the proposition advanced – should no longer be followed, in my view.
[39] In
the first of these decisions, Re Fraser; Ex parte Central Bank of
As a matter of law the judgment, therefore, stands as a good judgment against John Fraser, and it cannot be questioned by him in any Court, except the Court of Bankruptcy. … The mere fact that there is a judgment for the debt does not prevent the registrar from saying that there is no good petitioning creditor’s debt. The Court of Bankruptcy can go behind the judgment, and can inquire whether, notwithstanding the judgment, there was a good debt. In so doing, the Court of Bankruptcy does not set aside the judgment. If I may use the expression, the Court goes round the judgment, and inquires into the subject-matter. … The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.
[40] Lord Justice Kay concurred, at pp. 637-638, saying:
It is old law in bankruptcy that, neither upon an attempt to prove a debt, nor upon a petition for an adjudication of bankruptcy or a receiving order against a debtor, is a judgment against him for the debt conclusive. … Can this judgment be treated as conclusive in bankruptcy because the debtor has unsuccessfully attempted to set it aside? I think not, and I cannot see how the matter is any more res judicata because there has been an unsuccessful appeal to this Court. I agree in all that the Master of the Rolls has said on this point.
[41] Later,
in Re Van Laun; Ex parte Chatterton, [1907] 2 K.B. 23 (
[I]f a judgment had been obtained upon the covenant, it is competent and it is the duty of the Court of Bankruptcy to go behind the judgment, to open the judgment and to say, “That is the judgment, but the creditor can only prove for the amount which is justly and truly due upon it.”
[42] In language adopted by the Master of the Rolls, the trial judge in Re Van Laun had said, at [1907] 1 K.B. 155, at pp. 162-163:
The trustee’s right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him, can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him.
[43] While I accept the first statement of Cozens-Hardy M.R. cited above, with respect to those eminent jurists, I disagree with the balance of their sweeping statements. They cast the net of the trustee’s ability to assess a proof of claim based upon the judgment of a court of competent jurisdiction, and the court’s ability to expunge or reduce such a proof, too broadly.
[44] Lord Esher M.R., himself, suggested as much in an earlier decision, Re Flateau; Ex parte Scotch Whisky Distillers, Limited, [1888] 22 Q.B. 83 (C.A.), at p. 85. In that case, the bankruptcy was based upon a judgment debt which was under appeal. The registrar in bankruptcy refused to adjourn the bankruptcy petition pending the outcome of the appeal. His decision was affirmed by the Court of Appeal. On the issue of the right to re-try the issues in Bankruptcy Court, Lord Esher M.R. said, on that occasion (at p. 85):
It is not necessary now to repeat that, when an issue has been determined in any other court, if evidence is brought before the Court of Bankruptcy of circumstances tending to shew that there has been fraud, or collusion, or miscarriage of justice, the Court of Bankruptcy has power to go behind the judgment and to inquire into the validity of the debt. But that the Court of Bankruptcy is bound in every case as a matter of course to go behind a judgment is a preposterous proposition. [Emphasis added.]
[45] In the same decision, Lopes L.J. was equally succinct, at p. 87:
It has been argued that the registrar was bound to hear evidence upon issues which had been already tried by a judge and jury, and that he had no discretion in the matter. In my opinion such a contention cannot be for a moment maintained. Proceedings in bankruptcy are already scandalously long; if this contention were well founded they would be almost interminable. [Emphasis added.]
[46] In other decisions, English authorities have distinguished Re Fraser and its progeny on the basis that it involved a default judgment where there had been no determination of the claim on the merits: see e.g. Re a Debtor (1915), 113 Law Times 704 (K.B.), at p. 705. I note as well, that Re Van Laun involved a default judgment.
[47] In Re Canada Asian Centre Developments Inc. (2003), 39 C.B.R. (4th) 35 (B.C.S.C.), at para. 26, Burnyeat J. drew the same distinction, noting that the comments of Cozens-Hardy M.R. in Re Van Laun were obiter. Lord Justice Fry made the point in Re Flateau, at p. 86, as well:
It is true that in some cases the Court of Bankruptcy has gone behind a judgment, when it has been obtained by fraud, collusion, or mistake. But this power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a Court.
[48] I see no basis for holding that an applicant pursuant to s. 135(5) of the BIA should have “an unqualified” right to challenge the validity of a judgment debt that is based on a decision of a court of competent jurisdiction on the merits of the claim or that res judicata should not apply, where appropriate, in such circumstances. Take, for example, the case of a debtor with $10 million in assets and judgment debts spread amongst five creditors of $5 million each. Suppose that each $5 million judgment debt resulted from lengthy and costly litigation from trial, through intermediate appeal to the Supreme Court of Canada and that the debtor has failed at each stage. As EnerNorth did here, the debtor makes an assignment in bankruptcy following its last loss in the highest court. It surely contravenes every imaginable principle of judicial economy, finality and fairness to say that the Bankruptcy Court can now, indiscriminately, re-open each hotly contested dispute in order to satisfy itself, in its own mind, that “there really is a debt due to the … creditor” (Re Fraser) or that “the debt on which the proof is founded is a real debt” (Van Laun). I do not accept such a proposition.
[49] I agree that the trustee’s power to allow or disallow a proof of claim, and the court’s power to expunge or reduce it on an application under s. 135(5) of the BIA is wide. However, to say that the attacking creditor or debtor has an “unqualified” right to challenge the proof of claim where the claim is based upon a valid and enforceable judgment that is no longer subject to appeal is going too far. The appellant’s submission goes beyond the proposition that a judgment creditor is precluded from making a “double recovery”, that is, that the Bankruptcy Court may examine whether the amount claimed in the proof of claim is the true amount remaining to be paid under the judgment. The Bankruptcy Court may make such an enquiry. But, in the absence of fraud, collusion or some legitimate concern that there has been a genuine miscarriage of justice, a judgment of a court of competent jurisdiction should almost invariably satisfy a trustee or a court regarding the legitimacy of a claim under s. 135 if, in awarding the judgment, the court has considered the merits of the claim: see Re Canada Asian Centre Developments Inc., as cited in Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, The 2009 Annotated Bankruptcy and Insolvency Act (Toronto: Thomson Carswell, 2008), at G§67.1.
[50] The central issue on this appeal is whether Ms. Hall, Mr. Cassina, and the appellant group of creditors are precluded by the doctrine of res judicata from advancing their contention that Oakwell’s proof of claim must be expunged or reduced by reason of the mitigation/set-off issue. Like the application judge, I have concluded that they are.
[51] As
the application judge noted, the appellants’
essential submission is that Oakwell’s proof of claim, based on the
[52] Whether res judicata applies is a question of law. What is determined in a legal proceeding and whether res judicata applies in the circumstances are essentially legal decisions, attracting little, if any, deference. The standard of review on this issue is therefore correctness.
[53] The doctrine of res judicata is a common law doctrine that prevents the re-litigation of issues already decided. It is founded on two central policy concerns: finality (it is in the interest of the public that an end be put to litigation); and fairness (no one should be twice vexed by the same cause). The doctrine is part of the general law of estoppel and is said to have two central branches, namely, “cause of action estoppel” and “issue estoppel.”
[54] Cause
of action estoppel refers to the determination of the cause or causes of
action before the court. The applicable form of res judicata in this
case, however, is issue estoppel. Issue estoppel prevents a litigant from
re-litigating an issue that has been clearly decided by a court of competent
jurisdiction in a previous proceeding between the same parties or their privies
even if the new litigation involves a different cause of action. As the
Supreme Court of
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.
[55] Canadian authorities confirm that res judicata may apply in bankruptcy proceedings, including those involving the establishment of a proof of claim. In Chaban v. Chaban (Trustee of) (1999), 172 D.L.R. (4th) 312, the Saskatchewan Court of Appeal held that a trustee in bankruptcy was not permitted to resort to its power under s. 135(2) to disallow a claim (by the debtor’s father/mortgagee) that had already been determined in the father’s favour in previous proceedings. Speaking for the Court, Chief Justice Bayda said, at para. 31:
Section 135(2) is an empowering provision. But the power vested in the trustee is not absolute. … In my respectful view, the power cannot be invoked where to do so results in the reliance upon a procedure that conflicts with the procedure prescribed by a subsisting order of a superior court. Parliament did not intend s. 135(2) to be used by a trustee in those cases where to do so would amount to a collateral attack upon a subsisting order of a superior court or where it would amount to something akin to an abuse of process. [Emphasis added.]
[56] A Bankruptcy Court, acting under s. 135(5), is in no different a position than a trustee in bankruptcy in such circumstances.
[57] Other Canadian decisions have also held that res judicata applies in bankruptcy proceedings. In Re Arnco Business Services Ltd. (1983), 38 C.P.C. 226 (Ont. H.C.J.), for example, judgment creditors petitioned for a receiving order and the debtor defended on the basis that the judgment underlying the claim that he was bankrupt should be set aside. Gray J. refused, holding (amongst other things) that “the principle of res judicata can be raised as a bar to a subsequent bankruptcy proceeding” (p. 235). If res judicata may be raised as a bar to the bankruptcy proceeding itself, it can be raised – where appropriate – in answer to a plea that a proof of claim should be disallowed, expunged, or reduced: see also Gibson Mining Co. v. Hartin, [1940] 2 D.L.R. 605 (B.C.C.A.); Re Grossman (1998), 222 A.R. 139 (Q.B.).
[58] Here,
the question is whether res judicata applies to preclude the appellants
from asserting in the bankruptcy proceedings that monies received by Oakwell
under the Licence Agreement, post-Singapore judgment, are to be set-off against
monies owing by EnerNorth to Oakwell on the judgment awarding damages for
breach of the Settlement Agreement, thus reducing or eliminating the Oakwell
proof of claim in the bankruptcy. For that to be the case, the same issue
must have been decided by a court of competent jurisdiction in a prior proceeding
involving the same parties or their privies. The decision must have been
final, fundamental in the sense that it was not collateral to the first proceeding,
and made on the merits: see Carl Zeiss Stiftung v. Rayner & Keeler
Ltd. (No. 2), [1967] A.C. 853 (H.L.), at p. 935; Angle v.
[59] Two
of these requirements call for consideration. First, did the
(i) Whether the
[60] For res judicata or issue estoppel to apply, the previous proceedings must have involved the same parties or their privies. Although Ms. Hall and Mr. Cassina were the President and Chairman of EnerNorth, respectively, at the time of the Singapore proceedings – indeed, Mr. Cassina was a witness for EnerNorth in the proceedings – the appellant group of creditors argues that its members were in no way involved, nor could they have been. One of the criteria for the application of res judicata has accordingly not been met, they say.
[61] I
do not accept this argument. While there is little authority directly on
point, I am satisfied that Ms. Hall, Mr. Cassina, and the appellant group
of creditors are all “privies” of EnerNorth for the purposes of the s. 135
hearing analysis. As officers of EnerNorth, Ms. Hall and Mr. Cassina were
clearly aligned with its interests in the
[62] Gillese J. went on to observe, at p. 526, that:
Privies within the context of the doctrine of res judicata means a situation where there is a sufficient degree of identification between two persons to make it just to hold that the decision to which one was a party should be binding in the proceedings to which the other is a party.[1]
[63] The
appellant creditors as a class fall within this description. For purposes
of the bankruptcy proceedings, the Trustee stands in the shoes of EnerNorth,
and for purposes of the proposed s. 135(5) hearing, the creditors in effect
stand in the shoes of the Trustee, because they seek to have the court do
what the Trustee has declined to do. They are
“identified” with EnerNorth for purposes of the comparison between the
[64] I conclude, therefore, that Ms. Hall, Mr. Cassina, and the appellant group of creditors are all “privies” of EnerNorth for purposes of the res judicata analysis in the s. 135(5) context.
[65] The application judge concluded, at para. 22, that the appellants “seek to litigate precisely the issue that was before the Singapore Court, namely the entitlement of Oakwell to receive funds from VBC and at the same time pursue its entitlement under the Settlement Agreement against EnerNorth.” In his view, “[t]he fact that the precise amount was not dealt with in the Singapore trial, apart from the concession in respect of $350,000, [did] not invalidate Oakwell’s entitlement under the judgment against EnerNorth.” To permit the s. 135 challenge to proceed would therefore violate the principles of res judicata.
[66] I agree.
[67] The
appellants submit that the mitigation/set-off issue was not determined in
the
[68] There is no doubt the mitigation/set-off issue was squarely before the trial judge. It was raised in both the defence and counterclaim. It was the subject of evidence. It was argued in EnerNorth’s written submissions at the opening and the close of trial. But was it decided? That question is somewhat more difficult to answer.
[69] It
is true that the
[70] Read as a whole, the trial judge’s reasons – and, more importantly, the judgment he rendered – reveal that he rejected the mitigation/set-off argument. The judgment rendered does not make sense unless premised on the rejection of EnerNorth’s arguments by way of defence and counterclaim, in their entirety.
[71] For example, at para. 69, the trial judge stated that “[Oakwell’s] claim against the VBC Group was to be settled by the payment of the sum of US$2 million in respect of past technical services and any ongoing technical services and advice, if required, which [Oakwell] rendered for the benefit of the Project Company since 1995”. It necessarily follows that he accepted Oakwell’s position that the Licence Agreement and the Settlement Agreement dealt with different matters – that is to say, Oakwell had not mitigated its losses by entering into the Licence Agreement with VBC. This conclusion is reinforced by the trial judge’s rejection of EnerNorth’s counterclaim that any monies or benefits received by Oakwell from VBC under the Licence Agreement had to be disgorged to EnerNorth.
[72] Moreover, I cannot accept the appellants’ contention, based on the $350,000 reduction in damages, that the mitigation/set-off argument was decided in their favour. If EnerNorth’s mitigation/set-off argument had actually been accepted, the judgment would not have required EnerNorth to pay – as it does – damages “less the sums of US$790,000 and US$350,000”. The judgment would have provided for payment of damages less any monies or benefits received or to be received by Oakwell under the Licence Agreement. It did not. Viewed in this way, the judgment rendered is consistent only with the trial judge having rejected EnerNorth’s submissions on the mitigation/set-off issue that were clearly put before him.
[73] I realize that the $350,000 deduction is at odds with the rejection of EnerNorth’s position. However, I do not view it as either an acceptance of EnerNorth’s mitigation/set-off position (for the reasons outlined above) or an indication that he was only dealing with payments already received by Oakwell from VBC and leaving the issue of what was to be done with future payments to a future determination.
[74] As I read the judgment, the trial judge simply reduced the amount of the award by the two conceded amounts because Oakwell had voluntarily agreed to those reductions. The trial judge made no finding that Oakwell was obliged to make the deduction or that any amounts received under the Licence Agreement should be set-off and, as I have explained, his judgment as a whole is incompatible with such a conclusion. His judgment is very full and thorough. In my view, it makes no sense for him to have rejected EnerNorth’s defence and dismissed its counterclaim – both of which he did – without also rejecting the mitigation/set-off argument. I am not convinced that he left open to future proceedings the resolution of whether the bulk of the monies that were the subject of the debate (the US$1,650,000 and US$4 million) were to be set-off against the Settlement Agreement damages and/or disgorged.
[75] In
the end, I am satisfied that the mitigation/set-off issue was both fully
argued and determined in the
[76] For the foregoing reasons, I would dismiss the appeal.
[77] Oakwell is entitled to its costs of the appeal, payable jointly and severally by all appellants, and fixed in the amount of $13,500.00 inclusive of fees, disbursements and GST.
“R.A. Blair J.A.”
“I agree Janet Simmons J.A.”
“I agree R.G. Juriansz J.A.”
RELEASED: July 03, 2009
[1] This statement, as she indicated, is adopted from Las Vegas Strip Ltd. v. Toronto (City) (1996), 30 O.R. (3d) 286 (Sharpe J.), aff’d (1997), 32 O.R. (3d) 651 (C.A.).