Bank of Montreal v. Cochrane, 2011 ABQB 259

Court of Queen ’ s Bench of Alberta Citation: Bank of Montreal v. Cochrane, 2011 ABQB 259 Date: 20110413 Docket: 0901 07347 Registry: Calgary Between: Bank of Montreal Plaintiff - and - Kenneth Robert Cochrane et al Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C. A. Kent ________________________________________________________ [ 1 ] In this action, BMO has sued hundreds of people with respect to mortgages which BMO says were fraudulently obtained. Among those sued are several lawyers who had been retained by BMO to place the mortgages.

BMO says that the lawyers were negligent or in breach of their fiduciary duty to the bank. In addition to this action, BMO commenced individual foreclosure actions involving the same mortgages that are at the root of this claim. As noted by BMO in its brief, the Statements of Claim with respect to ten properties on Grandview Avenue originally named the lawyers as well. However, the lawyers were removed by way of amendments. Likewise, there are also certain actions in which straw buyers named lawyers by third party claims, but no judgments were obtained in

respect of such claims. Some of the foreclosure actions have been completed in the sense that BMO obtained orders for sale of the property to third parties, vesting orders and deficiency judgments for any amount that remained owing. The lawyers argue that BMO is not able to maintain this action against them in relation to the properties where judgment has been obtained because the claims are res judicata or an abuse of process. It was agreed that this application would proceed on the basis of the claims against two of the lawyers.

All of the other lawyers have agreed to be bound by the decision in these two cases. Other non-lawyer parties have brought similar applications. Those applications will be decided after this application. Those non-lawyer parties are not bound by this decision unless they agree to be bound. [ 2 ] It is necessary to understand the structure of the present claim because it informs the issues in this application. The claim is divided into fourteen groups. Each group is named after one or more of the alleged central participants. In each group, a number of people are identified including one or more lawyers.

For each group, there is an appendix which identifies the properties related to the group, the mortgagor, the lawyer, the amount advanced and the loss to BMO. [ 3 ] Each of the lawyers has been sued for each of the properties against which there was a mortgage where that lawyer was the lawyer for BMO.

The specific breaches of duty which BMO alleges against the lawyers in the various groups are: - a failure to notify BMO and obtain its consent to act for the vendor; - a failure to advise BMO that the transaction was a skip transfer; - a failure to notify BMO that the price identified in the purchase contract was different than the price in the Transfer of Land; - a failure to notify BMO that third parties were receiving the proceeds of sale; - a failure to ensure that the mortgages complied with Alberta regulations. [ 4 ] The lawyers say that at the time of the foreclosure actions, BMO knew enough about the extent of the fraud and the relationship amongst members of various groups, both within the group and with other groups.

Counsel for the lawyers prepared a

summary of the foreclosure claim for each property at issue in this application comparing it with the claim against the lawyers in this action. Most of the foreclosure orders and deficiency judgments were entered after May, 2009. That date is significant, the lawyers argue, because an affidavit of Paul Hitchcock, used to support the applications for Norwich Pharmacal orders granted by me in 2009 and early 2010, sets out many details of the fraud, the relationships within and amongst groups and the role of the lawyers. There are a few foreclosure actions where judgment was entered before May, 2009.

The lawyers say that with respect to those actions, BMO still had sufficient knowledge of the scope and nature of the fraud based upon the evidence of Mr. Hitchcock in his affidavit where he says that BMO started investigating the fraud by July, 2007. [ 5 ] The chart comparing the foreclosure actions with this action shows that for many mortgages, the amount claimed in this action is more than the deficiency judgment. Sometimes the amount is smaller, sometimes it is larger.

There are mortgages where the amount claimed in this action is not known. [ 6 ] The characterization of this claim and the law on res judicata by the counsel for the lawyers and counsel for BMO differ dramatically. The lawyers see this action as simply an amalgamation of many mortgage claims, some of which have already been adjudicated and therefore barred by the flexible and expansive application of the principles of the two arms of res judicata . The lawyers say that BMO’s approach to that same law is mechanistic and technical, not in keeping with the purposes of the law.

BMO says that this action is completely different than the foreclosure actions, not only because of what is claimed and who are defendants but also because of the magnitude of the claim and the need for extraordinary remedies when this claim was first advanced. Res Judicata - General Principles [ 7 ] Res judicata has two arms: issue estoppel and cause of action estoppel. Although they are rooted in the common law, they are like equitable doctrines because the concepts of fairness, equity and justice are central to their application. The Lawyers

[8] The lawyers argue that a judge has significant discretion in applying the principles that make up each arm. In Ontario v.National Hard Chrome Plating Co., [1996] O. J. No. 93 (Ont. Ct. J. (Gen. Div.)), Day, J said the following at para.12: The test for res judicata is a flexible one and the court can use its discretion to determine whether, in the circumstances of the case, therelief sought is a process abusive of the court.

Even if the court determines that the factual circumstances are not a matter of res judicatain the strict sense of the term, but the court finds that the second action is an attempt to reopen indirectly what the court has already dealtwith in the disposition of the first action, the court should strike out the second action. [9] The lawyers also say that the foreclosure claim, and the fraud and breach of fiduciary duty claims emanate from the sametransaction. It is a single transaction which is at the root of the damages suffered. This is as in 420093 B.C. Ltd. v.

Bank of Montreal(1996), (AB CA), 174 A.R. 214 (C.A.) where the bank successfully argued that claims of breach of contract, breachof fiduciary duty and fraud claimed by the debtor against the bank were res judicata because they ought to have been made in the debtaction previously brought by the bank against the debtor. The Bank [10] BMO says that the foreclosure actions and this action are claims that are entirely different. To include what essentially is afraud action in a foreclosure action would turn the system upside down.

The foreclosure procedure is intended to be a reasonablysummary procedure to permit a mortgagee to recover its security whereas this action, founded in fraud, is much more complex. [11] For example, BMO argues, how would the bank have obtained Norwich Pharmacal orders or Mareva injunctions in thecontext of the individual foreclosure actions?

How would the bank have been able to maintain the secrecy necessarily incidental to thepurposes of Norwich Pharmacal orders in a process that is otherwise intended to be dealt with summarily. [12] Turning to a comparison of the pleadings, BMO says that the issues in each foreclosure claim were breach of contract andmisrepresentation against the mortgagor. Those causes of action are not contained in this action and BMO is not asking to enforce anysecurity. The claims here against the lawyers are negligence and breach of fiduciary duty.

BMO says that the losses claimed against thelawyers are different because the actual loss to the bank on each property cannot be crystallized until the property is resold. So, the claimagainst the lawyers may be more than that against the judgment obtained against the mortgagor because that judgment may have beenobtained before the property was sold. [13] BMO also questions the approach of the lawyers. If the lawyers successfully argue that they should have been part of theforeclosure actions, are they saying that everyone now a party to this claim should have been a party to each foreclosure action?

If that iswhat the bank had done, the likely result would have been that the actions would all have been consolidated with the result that the bankwould not have been able to realize quickly upon its security. [14] In response to the lawyers’ general arguments on the plea of res judicata, BMO says that the discretion given judges whenconsidering a plea of res judicata is to choose not to strike out a claim even in circumstances where the requirements of a res judicataplea have been met. [15] In Brewers’ Distributor Ltd. v. 1145127 Alberta Ltd., 2007 ABQB 493, the Court considered an application to strike a claimas an abuse of process.

Bensler, J. said the following at para. 8: ... a Court should not exercise its discretion under Rule 129(1)(

d) where questions of general importance or serious issues of law areraised, unless the matter is entirely clear: Cerny v. Canadian Industries Ltd. Et. al., (AB CA), [1972] 6 W. W. R. 88 at95 (Alta C.A.). [16] Not only does this show that discretion is intended to preserve a claim otherwise likely to be struck rather than to override therequirements of a res judicata plea to strike the claim, it confirms that it must be plain that the claim should be struck, not an appropriateaction where the law may be in a state of flux as argued by the lawyers.

[17] BMO says that while suing the same person twice for the same claim may be prohibited, suing different people in differentactions for different claims is not. In Calmonton Investments Ltd.v.

Tangye (1988), 1988 ABCA 206 , 87 A.R. 22 at para. 44(C.A.), Côté J.A. has made it clear that a plaintiff is entitled to sue different defendants on different causes of action at different times: Nor is there any general rule that different causes of action against different people merge into one judgment against one of those people.Apart from joint debts or joint tortfeasors or those alternately liable, a plaintiff may sue and take judgment at different times againstdifferent persons liable. [...] That too is done all the time. [Citations omitted] Issue Estoppel [18] The test for issue estoppel has three parts.

The first is that there must be a final decision of a court. Both sides agree that thedeficiency judgments in the various foreclosure actions are final decisions. Secondly, the parties to the prior action and the current actionmust be the same parties or their privies. The third requirement, generally speaking, is that the issues must be the same. The lawyers andBMO disagree on what exactly that means.

The Lawyers [19] Dealing first with the issue of parties, the lawyers argue either that the lawyers were the privies of the mortgagors who werethe only parties in the foreclosure actions or that the law is flexible enough to do away with this requirement on these particular facts. [20] The lawyers say that the way to look at the question of parties is to determine who could have had a participatory interest inthe outcome. In National Hard Chrome Plating, the Court noted that a privy is someone who has a participatory interest.

In determiningwhether a party has a participatory interest “... the courts have held that the essential question to be determined is whether the outcome ofthe action could affect the liability of such parties”: para. 24. Here, the lawyers had a participatory interest in the following way. BMOonly sued the mortgagor in the foreclosure action. The mortgagor is the most vulnerable party, least likely to be able to marshal theresources to defend against the action or, more likely, challenge the bank on such things as the appraisal.

BMO was able to maximize itsjudgment because of the minimal interference of the mortgagors. The lawyers had an interest in minimizing the deficiency judgmentwhich they may have been able to do if they had been parties to the foreclosure action. In this way they were privies to the defendants inthe foreclosure actions. [21] In the alternative, the lawyers argue that the law in this area is in a state of flux. The facts in this case permit me to make asmall adjustment to the three-part test by eliminating the need to find that the lawyers are privies. In Toronto (City) v.

C.U.P.E., Local79, 2003 SCC 63, [2003] 3 S.C.R. 77 an employee of the city had been convicted of sexual assault. He was fired. He grieved histermination. His criminal conviction was entered in evidence. The employee testified that he did not commit the sexual assault. Anarbitrator found that the employee’s evidence rebutted the presumption raised by the criminal conviction and held that the employee hadbeen dismissed without cause. One of the arguments made by the city was that the doctrine of issue estoppel applied to the issue of theemployee’s criminal conviction.

One of the questions was whether the requirement of mutuality of parties meant that issue estoppelcould not apply. Arbour, J., writing for the majority of the Court, noted that the requirement of mutuality “... has been largely abandonedin the United States and has been the subject of much academic and judicial debate there as well as in the United Kingdom and, to someextent, in this country”: para. 23. She then examines that debate in the context of an

article by Professor Garry D. Watson, “Duplicative Litigation: Issue Estoppel, Abuse of Process and the Death of Mutuality” (1990), 69 Can. Bar Rev. 623 at 648-651. Professor Watsondeals first with the mutuality requirement when issue estoppel is used defensively: The defensive use of non-mutual issue estoppel is straight forward.

If P, having litigated an issue with D1 and lost, subsequently sues D2raising the same issue, D2 can rely defensively on the issue estoppel arising from the former action, unless the first action did notprovide a full and fair opportunity to litigate or other factors make it unfair or unwise to permit preclusion. The rationale is that P shouldnot be allowed to relitigate an issue already lost by simply changing defendants... [at 631, quoted in C.U.P.E. at para. 26.]

[22] Professor Watson then discusses the relaxation of the requirement when issue estoppel is used offensively. The example heuses is of a single event disaster like an airline crash. If P1 litigates and wins on the point of negligence in the operation of the aircraft,then P2 through Pn need not relitigate the negligence issue in subsequent actions. He acknowledges that there are difficulties withoffensive use of non-mutual estoppel. Defensive use reduces litigation; offensive use may encourage P2- Pn not to join in the first action,thereby potentially causing a multitude of litigation.

Moreover it may be unfair to a defendant who had for example not vigorouslydefended the first action because of the amount of money at stake in the first action or where the second action offers the defendantprocedural advantages that make success in the action more likely. [23] Arbour, J. then says at para. 29: What emerges from the American experience with the abandonment of mutuality is a twofold concern: (1) the application of the estoppelmust be sufficiently principled and predictable to promote efficiency; and (2) it must contain sufficient flexibility to prevent unfairness. [24] Continuing on in the same paragraph to deal with the facts before her, she says: In my view, this is what the doctrine of abuse of process offers, particularly, as here, where the issue involves a conviction in a criminalcourt for a serious crime.

In a case such as this one, the true concerns are not primarily related to mutuality. The true concerns, wellreflected in the reasons of the Court of Appeal, are with the integrity and the coherence of the administration of justice.

This will often bethe case when the estoppel originates from a finding made in a criminal case where many of the traditional concerns related to mutualitylose their significance. [25] Finally, she concludes at para. 32: As the present case illustrates, the primary concerns here are about the integrity of the criminal process and the increased authority of acriminal verdict, rather than some of the more traditional issue estoppel concerns that focus on the interests of the parties, such as costsand multiple “vexation.” For these reasons, I see no need to reverse or relax the long-standing application of the mutuality requirement inthis case and I would conclude that issue estoppel has no application. [26] The lawyers argue that C.U.P.E is authority for the proposition that relaxation of the mutuality requirement is possible in theright case.

The C.U.P.E. case simply was not the right case. This case is. Here, they say, there is a party who sued in the foreclosureactions, was successful against the mortgagors and obtained judgment. BMO should be precluded from relitigating against another party.The fact which is significant is that in the first litigation the bank was successful. They have judgment. The Court should have no interestin hearing BMO’s claim which it has already decided in BMO’s favour. The lawyers say that there can only be two reasons why BMOwould commence a second action.

One would be to find someone with deeper pockets who can pay the judgment. The other would be topunish the lawyers for what the bank believes is their wrongdoing. Neither of those reasons is appropriate to allow relitigation. [27] The third part of the test for issue estoppel is that the issues must be the same. The lawyers acknowledge that the claimsagainst the lawyers - negligence and breach of fiduciary duty - are not the same as against the mortgagors. However, BMO knew aboutthe involvement of all the parties because of their investigations. Those claims could and should have been raised in the first action.

InArgentia Beach (Summer Village) v. Warshawski (1991), 1991 ABCA 322 , 120 A.R. 27(C.A.), Côté J.A. said for aunanimous Court that “[r]es judicata is not limited to what was argued and decided in the previous suit. It extends to what reasonablyshould then have been raised”: para. 4. The lawyers point to what they say are the fundamental claims in the two actions. The mortgagesare the same, the amounts advanced are the same so that it is clear that the subject matter is the same. The claim in each is simply aclaim for the loss suffered by BMO because the mortgage went into default.

The Bank [28] BMO argues that the second requirement for the application of issue estoppel - the same parties or their privies - is absent. Aprivy may arise by blood, title or interest: Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No.2), [1967] 1 A.C. 853 (H.L.). Only interest isrelevant in this case. BMO says that the lawyers cannot show that there was a sufficient connection between them and the mortgagors sothat a decision against the mortgagors should bind the lawyers.

[29] In Bank of Montreal v. Mitchell (1997), (ON SC), 143 D.L.R. (4th) 697 (Ont. Ct. J. (Gen. Div.), aff’d (ON CA), 151 D.L.R. (4th) 574 (Ont. C.A.), a group of Lloyd’s Names were sued in Ontario by the banks as a resultof letters of credit that the bank had issued in favour of Lloyds. Lloyd’s had sued on the letters of credit in an English action against thebanks and received judgment. The banks brought a

summary judgment application in the Ontario action, pleading in part that the issue ofwhether Lloyd’s was entitled to payment on the letters of credit was res judicata. The Names argued that fraud was pleaded in theEnglish action. The Court noted that the banks would have had little evidence to offer about the fraud allegations in the English action.That evidence would have been available to the Names. One of the issue that the Court was required to address was whether the Nameshad a privity of interest with the banks.

Farley, J. found that the Names knew about the English proceedings, had a sufficient interest inthose original proceedings to intervene to address the fraud issue but chose to stand by and have the battle fought by another party. Inthose circumstances, he found sufficient privity of interest. The banks were successful in their plea of res judicata. BMO argues that thelawyers are not privies of the mortgagors. They were retained by the mortgagors and the bank to secure the loan. The lawyers and themortgagors have different interests. The lawyers​ interest was simply to secure the loan.

They were not otherwise interested in the loan. Inresponse to the lawyers​ argument based upon Ontario v. National Hard Chrome Plating Co., the bank indicates that at para. 23 of thedecision the Court notes that while the parties need not be identical, they need to be “... not different in substance.” [30] In terms of the American relaxation of the requirement for mutuality, BMO says that in Danyluk v.

Ainsworth TechnologiesInc., 2001 SCC 44, [2001] 2 S.C.R. 460, Binnie, J., writing for the Court, noted, at para. 59 that if there was no requirement ofmutuality, “...a stranger to the earlier proceeding could insist that a party thereto be bound in subsequent litigation by the findings in theearlier litigation even though the stranger, who became a party only to the subsequent litigation, would not be. [Citation omitted.]” [31] BMO argues that even if the Court accepts that in some cases, mutuality is not required, this is not the case to waive itsrequirement.

To do so would mean that BMO would have had to do several things in each of the foreclosure actions, including adding allof the conspirators behind each mortgagor, plead the conspiracy, sue the parties to whom funds have been traced and name the lawyerinvolved in each action. Rather than having one large action as there is now, there would be about 200 large actions. Moreover, BMOsays that the mortgage foreclosure actions were commenced over time as defaults occurred.

BMO says that the full extent of the fraud isnot even known at this time so to expect it to have sued the lawyers in the foreclosure actions was not possible. Finally, BMO says thatforeclosure actions are intended to provide a secured lender with rapid access to its security. That could not have been done if thelawyers had been added to those actions. [32] The third requirement is that it must be the same issue being claimed. BMO argues that that does not include issues that oughtto have been before the courts.

In Danyluk an employee brought a claim to an Employment Standards officer, claiming that she had notbeen paid wages and commissions. The employment standards officer sought a reply from the company. He did not provide thatresponse to the employee. The officer denied the claim for commissions but allowed the claim for wages. The employee commenced acivil claim for $300,000 which included the claim for commissions. The Supreme Court allowed an appeal against a decision striking theclaim. Binnie J. began within the general proposition that a multiplicity of litigation is to be avoided.

At para. 18, Binnie J. said that [t]helaw rightly seeks finality to litigation. To advance that objective, it requires litigants to put their best foot forward to establish the truth oftheir allegations when first called upon to do so. A litigant, to use the vernacular, is only entitled to one bite at the cherry. The bank saysthat at para. 24, Binnie J. makes it clear that the requirement that it must be the same issue in both claims is narrowly construed.Accordingly, it is necessary to quote extensively from that paragraph: Issue estoppel was more particularly defined by Middleton J.

A. of the Ontario Court of Appeal in McIntosh v. Parent, (ON CA), [1924] 4 D. L. R. 420, at p. 422: When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies. Any right,question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as ananswer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause ofaction.

The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as thejudgment remains. [Emphasis in Danyluk] This statement was adopted by Laskin J. (later C. J.), dissenting in Angle, supra, at pp. 267-268. This description of the issues subject toestoppel (“[a]ny right, question or fact distinctly put in issue and directly determined”) is more stringent than the formulation in some ofthe older cases for cause of action estoppel (e.g., “all matters which were, or might properly have been, brought into litigation”, Farwell,supra, at p. 558).

Dickson J. (later C.J.), speaking for the majority in Angle, supra, at p. 255, subscribed to the more stringent definitionfor the purpose of issue estoppel. “It will not suffice” he said, “if the question arose collaterally or incidentally in the earlier proceedingsor is one which must be inferred by argument from the judgment.” The question out of which the estoppel is said to arise must have been“fundamental to the decision arrived at” in the earlier proceeding.

In other words, as discussed below, the estoppel extends to the materialfacts and the conclusions of law or of mixed fact and law (“the questions”) that were necessarily (even if not explicitly) determined in theearlier proceedings.

[ 33 ] And at para. 54, Binnie J. said the following: Issue estoppel simply means that once a material fact such as a valid employment contract is found to exist (or not to exist) by a court or tribunal of competent jurisdiction, whether on the basis of evidence or admissions, the same issue cannot be relitigated in subsequent proceedings between the same parties.

The estoppel, in other words, extends to the issues of fact, law, and mixed fact and law that are necessarily bound up with the determination of that “issue” in the prior proceeding. [ 34 ] In terms of the process to analyze an application, Binnie J. set out a two-step process. The first is to determine whether the prerequisites to apply issue estoppel have been met, and if so, to determine if as a matter of discretion, issue estoppel ought to be applied. In the context of following that analysis, Binnie J. said that the rules “...should not be mechanically applied.

The underlying purpose is to balance the public interest in the finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case”: para. 33. [ 35 ] In Danyluk , Binnie J. found the conditions for issue estoppel were met. However, it exercised its discretion not to apply the doctrine because of the unfairness of the proceedings before the employment standards officer. [ 36 ] In 574095 Alberta Ltd. v.

Hamilton Brothers Exploration Co. 2003 ABCA 34 , 320 A.R. 351, Wittmann, J.A. (as he then was) stated that the correct test is the broader test set forth by the majority in Angle as articulated by the Court in Danyluk .

He then cites commentary from Lange, The Doctrine of Res Judicata in Canada (Toronto: Butterworths, 2000) at 42-43: [For the same question test] the nature of the question includes what was "directly in question" and what was "necessarily presumed, “or to use the wording of Sutherland, J. from Re Agil Holdings Ltd. (1985) 32 A.C.W.S. (2d) 259 (Ont H.C.) at p.61, what has been decided "expressly or by necessary implication.” What comprises the subject matter fundamental to the question is, therefore, a twofold investigation to determine the nature of the question.

Firstly, it comprises the express question that was actually decided ...

Secondly, it comprises the latent structure support in the express question by virtue of an implied, inferred, or assumed recognition of that structure. [ 37 ] Wittmann, J.A. then summarizes the state of the law in Canada at para. 47: It is clear that the law in Canada has embraced a test for issue estoppel that goes beyond the questions “distinctly put in issue and directly answered” and also includes “the material facts and the conclusions of law or of mixed fact and law (‘the question’) that were necessarily (even if not explicitly) determined in the earlier proceedings”: Binnie, J. at para. [24] of Danyluk ; Lange at p. 41. [ 38 ] BMO argues that the issues in this action are distinctly different than those in the foreclosure actions.

In the foreclosure action the issues were whether there was a contract, whether it was breached and what damages were suffered. It characterizes the issues in this action as more complex: how properties were identified for inclusion in the scheme, the legitimacy of the purchase agreements, how straw buyers were located and induced to participate, what employment and financial documents were falsified, what involvement in BMO Lenders were there, the legitimacy and destination of skim money and the involvement of each defendant in each of these activities.

Dealing specifically with the claim against the lawyers, the issue to be decided in this action are the determination of the standard of care owed by the lawyers to BMO, whether that standard was breached and whether the lawyers breached their fiduciary duty to BMO. Residual Exercise of Discretion

[39] Both sides argue that this is a case where I am able to exercise my discretion, in the case of the lawyers, even if the strictrequirements of issue estoppel have not be met and, in the case of BMO, even if they have been. Cause of Action Estoppel [40] This arm of res judicata also has three part test. The first two - finality of the judgment and the mutuality of parties - are thesame. The parties arguments on mutuality of parties is the same. The third element is that the cause of action must be the same. Thelawyers acknowledge that this is a more difficult test for them to meet.

They liken this to the situation in Malcolm v. Carr (1997), 1997ABCA 202 , 200 A.R. 53 (C.A.) where the Court of Appeal dealt with a claim brought by a person injured in a car accident. Herinsurer had previously brought a claim in Small Claims Court for the property damage. The insurer had received judgment. The Courtsaid at para. 2: “A plaintiff is supposed to claim all the damages or relief arising from one cause of action in one suit.

If she getsjudgment, she cannot later sue for the rest.” In that case, the second action was struck. [41] BMO argues that if the causes of action are separate and distinct, then cause of action estoppel is not available: Grandview v.Doering, (SCC), [1976] 2 S.C.R. 621. Although the mortgage is a common fact, the causes of action in the foreclosureaction and this action are separate and distinct.

Abuse of Process [42] The lawyers argue that striking out the claims on the basis of an abuse of process relies on the same policy reasons as resjudicata, but does not have the same requirements as contained in a plea of res judicata. It gives the Court a residual discretion to strike aclaim where continuing the claim would bring the administration of justice into disrepute, where the claim means an unwarranted use ofcourt resources or it places an unnecessary burden on litigants. Here, BMO’s wrong has already been addressed in the judgments itobtained in the foreclosure actions.

It should not be permitted to obtain multiple judgments and then choose which one it wishes tocollect upon. [43] BMO says that alleging abuse of process is a serious allegation. It is intended to be used to ensure that there is a properadministration of justice.

In C.U.P.E., at para. 35, Arbour J. noted that the kind of language used by judges when considering abuse ofprocess include “proceedings unfair to the point that they are contrary to the interests of justice”, “oppressive treatment”, “oppressive andvexatious”, “violate the fundamental principles of justice underlying the community’s sense of fair play and decency”. At para. 37, shesaid: ...

Canadian courts have applied the doctrine of abuse of process to preclude relitigation in circumstances where the strict requirements ofissue estoppel (typically the privity/mutuality requirements) are not met, but where allowing the litigation to proceed would nonethelessviolate such principles as judicial economy, consistency, finality and the integrity of the administration of justice. [44] BMO argues that the lawyers have all of the procedural rights in this action including issuing third party notices against themortgagors to recover from them.

In reply, the lawyers say that the mortgagors could quite properly respond that there is already ajudgment against them. Analysis [45] I first must deal with the state of BMO’s knowledge at the time the foreclosure actions were commenced. If the bank did nothave enough knowledge of the lawyers’ involvement when the actions were commenced, then the bank could not be faulted for notincluding them as parties. That would be a circumstance where use of my discretion to permit an action to proceed would be appropriateeven if the claim is, in law, res judicata. I heard the Norwich Pharmacal applications.

I am satisfied that BMO knew as much as itneeded to know about the lawyers’ involvement by the time Mr. Hitchcock swore his affidavit in May, 2009. The matter is less clear forthose actions commenced prior to that time. [46] Turning to the doctrine of issue estoppel, as indicated above, both sides agree that with respect to the actions at issue, thedeficiency judgment is a final determination of the issue so that the first part of the test for application of the doctrine has been met.

[ 47 ] The second part of the test for the application of issue estoppel is that the issues must be the same. I turn to the articulation of the law by Wittmann, J.A. where he says that this includes not only questions put directly in issue, but material facts and conclusions of law or mixed fact and law... “that were necessarily (even if not explicitly) determined in the earlier proceedings.” [ 48 ] In each foreclosure action, the court found the mortgage was in default - a finding of mixed fact and law. It then determined the value of the security - a finding of fact.

Finally, it found the amount left owing to the bank for which it issued a judgment - a finding of fact. If the lawyers had been defendants in the foreclosure actions, and if the bank had proven negligence or breach of fiduciary duty, the mathematical process for quantifying the damages would have been the same as set out. [ 49 ] This analysis makes it appear as if the test as articulated by Wittmann, J.A. has been met. However, it has not. There are some findings of fact, law and mixed fact and law that were made in the foreclosure action.

But it cannot be the case that if you can parse the first action and find specific facts or conclusions that will necessarily be addressed in the second action, the requirement for issue estoppel has been satisfied. Leaving aside the claim for breach of fiduciary duty, the issues in the negligence claim are different, most importantly when dealing with causation. Earlier in this judgment, I set out the specific allegations against the lawyers. Even if those allegations are proven, BMO must prove that the breaches caused it damage.

Would the bank still have granted the mortgages had they been provided with the information it now says it ought to have had? What relationship is there between any negligence by the lawyers and the alleged bank employee fraudsters? [ 50 ] In Danyluk , Binnie, J. uses the word “material”. The purpose of issue estoppel is to prevent relitigation for reasons of efficiency and to prevent inconsistent results. In this case efficiency was achieved by the

summary foreclosure process used by the bank to enforce its security. Efficiency is not on the side of the lawyers particularly given the potentially complex causation issue. The only potentially inconsistent result if this action proceeds against the lawyers is a determination that the amount of the deficiency judgment is different. However, BMO will need to prove its damages against the lawyers. The result may be different but not necessarily inconsistent. [ 51 ] The final part of the test is a question of parties. The traditional application of the test requires mutuality of parties or their privies.

In the context of this action in relation to the foreclosure actions, the lawyers are not privies of the mortgagors. [ 52 ] The only basis on these facts where there may be privity would be by interest. I compare this to the facts in Mitchell . There, the Names knew about the English action and had evidence to offer about the fraud which they wanted to plead in the Ontario action. I agree that they had a sufficient interest that they ought to have taken

part in the English action. Here, even if the lawyers knew about the foreclosure proceedings, the only possible interest identified is an interest in keeping the amount of the deficiency judgment as low as possible. Looking at the foreclosure action from the outside, how would those lawyers have known of that interest, since the pleadings did not disclose their potential liability? Taking the approach applied in Mitchell , I could not have found that lawyers should have intervened in the foreclosure actions.

That tells me that there is not sufficient connection between the lawyers and the mortgagors to find the lawyers privies of the mortgagors. [ 53 ] That takes me to the question of whether this is a case where it would be appropriate to relax the mutuality requirements. I do not find that Justice Arbour in Toronto (City) v. C.U.P.E Local 49 necessarily rejected the notion of defensive non-mutuality. Rather, Justice Arbour was dealing with a case where the primary concern was the integrity of the criminal justice system, much different than the case before me.

I have considered the reasoning of Professor Watson in his description of the defensive use of issue estoppel. He says that P should not be able to relitigate against D2 an issue it has lost against D1. Here the facts are even stronger since the bank won against D1, the mortgagor. These may be the facts where mutuality is not required. Given my findings above, I need not decide. [ 54 ] I agree with BMO that a plea of cause of action estoppel is not available to the lawyers.

The causes of action are not the same. [ 55 ] For the reasons that I set out below dealing with the abuse of process argument, I do not think that this is an appropriate case to exercise my discretion to strike even through the strict requirements for issue estoppel or cause of action estoppel have not been met.

[ 56 ] I turn next to the argument that this action is an abuse of process. The lawyers say that I should strike this action against them even if the requirements for issue estoppel and cause of action estoppel have not been met. It is true that the bank already has judgment against the mortgagors. However, had the lawyers been parties to the foreclosure action and had either negligence or breach of fiduciary duty been proven and causally linked to BMO’s damages, the lawyers would have been liable for damages that likely would have been assessed in an amount equal to or near the deficiency judgment.

In my view, there is no prejudice to the lawyers. Rather than litigating earlier, they are litigating now. [ 57 ] The application by the lawyers is dismissed. Heard on the 25 th and 26 th days of February, 2011. Dated at the City of Calgary, Alberta this 13 th day of April, 2011. C.A. Kent J.C.Q.B.A. Appearances: Munaf Mohamed and Christine Plante Bennett Jones LLP for the Respondent Robert Armstrong and Gavin Price Jensen Shawa Solomon Duguid Hawkes LLP for the Defendants