Date: 20131107 Docket: 11/95 Citation: Guardian Insurance Company of Canada v. Roman Catholic Episcopal Corp. of St. John's , 2013 NLCA 62 This matter is subject to an order that any information that could disclose the identity of the Second Respondent shall not be published in any document or broadcast in any way, manner or form whatsoever IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: GUARDIAN INSURANCE COMPANY OF CANADA APPELLANT AND: ROMAN CATHOLIC EPISCOPAL CORPORATION OF ST.

JOHN’S FIRST RESPONDENT AND: JOHN DOE – HGM#1 (a pseudonym) SECOND RESPONDENT Coram: Green C.J.N.L., Welsh and Harrington JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 200901T4501 Appeal Heard: September 13, 2012 Judgment Rendered: November 7, 2013 Reasons for Judgment by Green C.J.N.L. Concurred in by Harrington J.A. Dissenting Reasons by Welsh J.A.

Counsel for the Appellant: Philip Buckingham and Jennifer Lundrigan Counsel for the First Respondent: Thomas J.

O’Reilly, Q.C. and Denis Fleming Counsel for the Second Respondent: No Appearance Green C.J.N.L.: [1] This appeal engages questions relating to the scope and application of the judicial discretion not to apply the doctrine of resjudicata when new evidence has been subsequently discovered that entirely changes an aspect of the original case. [2] I have concluded that the trial judge erred in principle when he decided that the judicial discretion that is designed to allow acourt to decide not to apply the res judicata doctrine in special circumstances could, instead, be used to apply the doctrinenotwithstanding the fact that new evidence existed that would have changed the result of the original decision and could not, withreasonable diligence, have been discovered before that decision was made. [3] The result of this determination is that the appeal should be allowed and a declaration made that the appellant insurancecompany is not barred by either res judicata or abuse of process from defending the respondent’s third party claim for indemnity on theground that the respondent knew that one of its priests was sexually abusing boys and failed to disclose this fact to its insurer, therebymaterially affecting the risk being insured. [4] What follows are my reasons for this conclusion.

Background (

a) The 1989 Proceeding [5] In 1989, John Doe, a minor suing under a pseudonym, filed a claim in the Supreme Court, Trial Division (the “1989Proceeding”) against Alphonsus Penney, the Roman Catholic Archbishop of the Archdiocese of St. John’s in the Province ofNewfoundland and Labrador (“Archbishop Penney”) and the Roman Catholic Episcopal Corporation of St. John’s (“RCEC”), amongstothers, claiming damages for sexual abuse by James Hickey, a Roman Catholic priest during the period from 1982 to 1988.

Thestatement of claim alleged, amongst other things, that Archbishop Penney and RCEC knew or ought to have known of Father Hickey’sactivities and propensities. Father Hickey subsequently passed away before the matter was ready for trial. (

b) The Original Third Party Claim [6] Archbishop Penney and RCEC made a third party claim against Guardian Insurance Company of Canada (“Guardian”)claiming (

i) indemnification under a policy of insurance covering the period from 1982 to October 1, 1985 in respect of any liabilitywhich they might incur in favour of John Doe, and (ii) a declaration that Guardian was obligated to defend them with respect to the 1989Proceeding. [7] Guardian, while admitting the existence of the insurance policy and that it contained an obligation to indemnify and defend,denied liability on the grounds, amongst other things, that Archbishop Penney or RCEC either knew or ought to have known of theactions and propensities of Father Hickey with respect to sexual misconduct and that they failed to communicate this knowledge toGuardian, thereby constituting a “fundamental breach” of their obligations under the policy, relieving Guardian of its obligations toindemnify or defend. [8] Prior to the filing of the third party claim, a report had been prepared and published, following an inquiry commissioned by theRCEC (the “Winter Commission”) relating to sexual abuse of children by members of the clergy.

As described by the trial judge in thecurrent proceeding (2011 NLTD 150 , 2011 NLTD(G) 150, 315 Nfld. & P.E.I.R. 179): [8] … One of the conclusions of that Commission was that RCEC and those in authority in the Archdiocese were indeed aware ofallegations of sexual abuse by James Hickey prior to this having become public knowledge and that such knowledge was had as far backas 1975.

Furthermore, a conclusion reached was that RCEC had failed to respond appropriately at the time. [9] The Winter Commission report did not identify the names of the persons who it concluded had notified the Church hierarchyof the alleged abuse.

Guardian instructed its counsel to investigate the extent of the knowledge, if any, that Archbishop Penney andRCEC may have had with respect to the activities of Father Hickey with a view of obtaining the evidence necessary to defend the thirdparty claim. [10] Following an extensive investigation and inquiries, including examination for discovery of Archbishop Penney and BishopLahey, Vicar-General at the time, both of whom denied any knowledge of any improper sexual activity by Father Hickey, Guardian’scounsel came to the conclusion that there was no “credible, probative or admissible evidence that would allow with any certainty themaintenance of the defence” that Guardian had filed to the Third Party claim. (

c) The 1992 Consent Order [11] As a result of this conclusion, on September 21, 1992, the day scheduled for the trial of the third party issues, Guardianconsented to judgment (the “1992 Consent Order”) being entered against it in respect of the Third Party Claim in the following terms: IT IS ORDERED THAT:

1. … Guardian … indemnify … Alphonsus Penney and [RCEC] in accordance with the terms and conditions of the policies of insurance issued by it to [RCEC] in respect of assaults allegedly committed against [John Doe] by … James J. Hickey during the period 1982 to October 1, 1985; 2. ….

AND IT IS ALSO ORDERED THAT: 3. … Guardian … defend in the name of and on behalf of … Alphonsus Penney and … [RCEC] the within action brought by [John Doe] … against [Archbishop Penney] and [RCEC] 4. … [ 12 ] Of note is that the order to indemnify and defend did not contain a general declaration interpreting the language of the applicable policy or defining the scope and application of the policy generally; rather it was limited to indemnification and defence of one claim of one specific individual covering a specific time period. [ 13 ] In accordance with the 1992 Consent Order, Guardian proceeded to represent Archbishop Penney and RCEC with respect to John Doe’s claims and eventually settled them in 1997 at or around the same time as a number of other similar claims were resolved. (

d) Subsequently Resolved Cases [ 14 ] During the time between the entry of the 1992 Consent Order and the settlement of the 1989 Proceeding in 1997, other persons claiming they were abused by Father Hickey commenced actions against Archbishop Penney and RCEC. [1] In all of these, RCEC and Archbishop Penney issued third party notices to Guardian, in essentially the same terms as they did in the 1989 Proceeding, seeking an order that Guardian indemnify and defend them. [ 15 ] Notably, they did not plead in any of those third party claims that, by virtue of the 1992 Consent Order, Guardian had admitted liability generally to defend or indemnify with respect to any other similar claims that may be subsequently be made.

Nor did they plead that the issue of the obligation of Guardian to indemnify and defend now rested, not on a cause of action in contract, but on the 1992 Consent Order itself, i.e. the issue of the obligation to defend and indemnify for all similar actions had been decided for all time; in other words it was res judicata .

If, indeed, the 1992 Consent Order had settled the issue in respect of all subsequent similar proceedings, RCEC’s cause of action for indemnity and defence would have been based on the order itself (the cause of action having been merged in the judgment), not an individual claim under the insurance contract. [ 16 ] In all of these cases, Guardian filed a defence to the third party claims in essentially the form that it filed in the 1989 Proceeding.

Subsequent to denying the third party claims Guardian filed a Notice of Change of Solicitors taking over the defence of Archbishop Penney and RCEC in respect of those cases. Unlike the 1989 Proceeding, however, no consent order was entered in which Guardian was ordered to indemnify Archbishop Penney and RCEC or to defend them in those proceedings. [ 17 ] Guardian proceeded to represent RCEC and Archbishop Penney in the proceedings and ultimately resolved those claims at or around the time it resolved the 1989 Proceeding (the “Subsequently Resolved cases”).

The resolutions were formally effected by the plaintiffs filing notices of discontinuance, in 1997, against the defendants. The discontinuances were expressed to be filed and effective “without Minutes of Settlement”. (

e) New Information [ 18 ] Subsequent to the making of the 1992 Consent Order, and in some cases before taking over the defence of some of the Subsequently Resolved Cases (the ones commenced in 1993), Guardian became aware of additional information that on its face raised questions relating to the nature and extent of knowledge that Archbishop Penney and other officials in the Church and RCEC had had about possible improper sexual activity of Father Hickey. It came from three sources: (

i) T.C. provided an affidavit that he had been sexually assaulted by Father Hickey in 1973 and 1974 and as a result spoke to three priests about it and ultimately told Monsignor Morrissey, the Vicar-General, about it, but nothing was done about the allegation (the “T.C Allegations”); (ii) Father R.

McIntyre provided an affidavit that he had been told about an incident of sexual abuse by Father Hickey and that father McIntyre reported it to Monsignor Morrissey (the “McIntyre Allegations”); (iii) At an examination for discovery, one R.J.B., a seminarian posted in Rushoon where Father Hickey had been posted as parish priest, stated that he was aware that sexual activity was ongoing between Father Hickey and boys in the parish. He said he met Archbishop Penney and told him that Hickey was sexually abusing boys (the “R.J.B. Allegations”).

As found by the trial judge “such evidence obviously contradicts the evidence given by Archbishop Penney in his own discovery prior to [the 1992 Consent Order]”. [ 19 ] Following becoming aware of this information, Guardian continued to represent Penney and RCEC in the 1989 Proceeding and in the Subsequently Resolved Cases up to and including their resolution by the plaintiff filing discontinuances of each of the proceedings. (

f) The 2009 Proceeding [ 20 ] In 2009, another plaintiff, also using a pseudonym, sued RCEC alleging sexual abuse by Father Hickey and that Archbishop Penney and RCEC knew or ought to have known of Father Hickey’s propensities and activities. RCEC filed a defence in which, amongst other things, it denied that it or Archbishop Penney knew or ought to have known of these things.

[ 21 ] RCEC third-partied Guardian claiming that it had a duty to defend RCEC with respect to the claim. As in the Subsequently Resolved Cases, RCEC did not plead the 1992 Consent Order as constituting the cause of action for indemnity or defence, but asserted a contractual cause of action based on the terms of the relevant insurance policy. [ 22 ] Guardian responded, claiming that the actions were not covered by the policy and that Father Hickey’s improper sexual activities and propensities were known to RCEC.

Pleading the doctrine of utmost good faith on the part of insureds in their dealings with insurers with respect to matters pertaining to the risk to be insured, Guardian claimed that the policy was void as a result of material non- disclosure of the knowledge it had regarding Father Hickey “as well as other clergy” at the time of entering into the policy or at the time of subsequent renewals. [ 23 ] RCEC filed a Reply to Guardian’s defence in which it specifically raised the issue of res judicata as a result of the 1992 Consent Order.

It also alleged that subsequent to the making of the 1992 Consent Order Guardian “assumed the RCEC’s defence and indemnified the RCEC in [the Subsequently Resolved Cases] in which damages were similarly claimed against [RCEC] in respect of sexual assaults by James Hickey occurring during the policy period.” The Current Application Under Appeal [ 24 ] RCEC then applied under rule 17 of the Rules of the Supreme Court, 1986 ( the

summary judgment rule), for orders that (

i) pursuant to rule 17.02(k), the defence of Guardian be “struck out on the grounds that the defences therein pleaded are res judicata” ; (ii) pursuant to rule 17.02(b) “judgment be entered in favour of [RCEC] against [Guardian] in respect of the declaratory relief therein sought”; and (iii) costs on a solicitor-and-own-client basis. [ 25 ] In support of the application, RCEC relied on the existence of the 1992 Consent Order and asserted that Guardian’s defence was essentially the same as that pleaded in the 1989 Proceeding and that Guardian was now estopped from relying on that defence.

With respect to Guardian’s additional plea, which had not been raised in the defence in the 1989 Proceeding, that certain exclusions under the policy applied, RCEC asserted that Guardian had the opportunity to plead these matters and was now estopped from pleading them in the current action. [ 26 ] RCEC also referred to the Subsequently Resolved Cases and asserted that those claims involved similar claims for sexual assaults by Father Hickey.

It did not assert, however, any prejudice suffered by it by reason of the fact that Guardian had undertaken the defence of those claims, nor did it assert that it had relied on Guardian’s actions in respect of the Subsequently Resolved Cases relating to any belief it may have had that Guardian was thereby giving up any possible similar defences in respect of any other claims that might subsequently be made. [ 27 ] The only affidavit evidence presented dealing with this point came from the former counsel for Guardian, who deposed that following the filing of the 1992 Consent Order, he was instructed by Guardian to defend RCEC and Archbishop Penney specifically with respect to the Subsequently Resolved Cases as well as some others.

Pursuant to those instructions, he took steps to become counsel of record. [ 28 ] No evidence was presented as to any discussions or communications between Guardian or its counsel, and RCEC or its counsel, respecting the new information or any undertakings or representations made by Guardian as to whether its agreement with the 1992 Consent Order or its taking over the defences of the other claims constituted an undertaking to defend only those specific claims or to defend any and all similarly-based claims that would thereafter be made. [ 29 ] In response to RCEC’s application, Guardian relied on the new information asserting that, if res judicata applied, the discovery of that new information constituted a special circumstance entitling the Court to exercise its discretion to allow Guardian’s defence to proceed. [ 30 ] With the consent of the parties, the applications judge converted the rule 17 application into a

summary trial application under rule 17A because he felt that the extent of the relief claimed could not be granted under rule 17. By converting the matter to an application under rule 17A, he felt he could decide the merits of the case even though there was a genuine issue for trial, if on the record he could find the facts necessary to decide the appropriate questions of fact or law. [ 31 ] The trial judge also allowed RCEC to raise abuse of process as an alternative to its argument based on res judicata even though it had not been pleaded in the written application.

The Trial Judge’s Decision , 2011 NLTD(G) 150 [ 32 ] The trial judge accepted that there were two forms of res judicata and analyzed the case in terms of both cause of action estoppel and issue estoppel. He also acknowledged that even if either cause of action estoppel or issue estoppel applied, the court must consider, further, whether special circumstances existed that would nevertheless make it in the interests of justice not to apply the doctrine (paragraph 37). [ 33 ] He concluded that: 1.

Both cause of action estoppel and issue estoppel applied to the circumstances of the case (paragraphs 39-57 and 58-68); 2. “Special circumstances” that would justify not applying either cause of action estoppel or issue estoppel “include the discovery of new evidence subsequent to the earlier judgment or order” (paragraph 37); 3. The T.C. Allegations and McIntyre Allegations were reasonably discoverable by Guardian prior to entry of the 1992 Consent Order and therefore could not be considered new evidence that could constitute special circumstances (paragraphs 71 and 81); 4. The R.J.B.

Allegations were not reasonably discoverable and that they “would amount to the type of new evidence that

could qualify as supporting the existence of special circumstances” (paragraphs 72 and 82); [ 34 ] Only the third of these findings has been appealed. It can be taken as a given for the purposes of this appeal, therefore, that: a. Res judicata in at least one of its forms prima facie applies to the current proceeding; b. There was new evidence (the R.J.B.

Allegations) available since the entry of the 1992 Order that was capable of constituting “special circumstances” that would ordinarily be sufficient to justify not applying the doctrine. [ 35 ] Notwithstanding these conclusions, however, the trial judge purported to exercise the discretion he felt he had and barred Guardian from relying on the new evidence for the purposes of its defence.

From that he concluded that Guardian’s defence to the third party claim should be struck out and a declaration granted that Guardian is required to defend RCEC and indemnify it in accordance with the policy. [ 36 ] He reasoned as follows: [79] … where the result in the prior proceeding was obtained by fraud or dishonesty, when new evidence comes to light that could not have reasonably have been discovered in the earlier proceeding and where fairness dictates that the original result should not be binding, it is open to the court to conclude that the application of res judicata in those circumstances would be contrary to the interests of justice . … [82] … I am satisfied that the evidence of [R.J.B.], obtained on August 31, 1993 during the time Guardian was undertaking its defence of RCEC, can be considered as the type of new evidence that could ground a decision of this court not to apply res judicata .

Such evidence in my view places Guardian in a position where it would now have an arguable case as regards the issue of good faith and the obligation on the part of RCEC and its officials. [83] That being said, I cannot ignore the circumstances subsequent to that evidence becoming known to Guardian in the exercise of my discretion here.

While I find Guardian’s actions in continuing to defend all of the claims against RCEC that had been commenced prior to the date of the consent judgment is not of any significant consequence in my assessment of fairness and justice, I find otherwise as regards the undertaking of the defence of RCEC to one or more claims commenced after the discovery of [R.J.B.] as did occur here. [84] Guardian’s counsel submits that the events occurring after the consent judgment are not material to my decision here.

While I accept that this is true as regards the first step in the test for applying the doctrine of res judicata , in considering the second part of the test, as assessment of justice and fairness, I am of the view that what transpired after the consent judgment cannot be ignored. As stated earlier, my task here ultimately is balancing appropriately the objectives of finality and fairness.

In doing so in these circumstances, it is impossible for me to disregard the continued willingness of Guardian to defend RCEC particularly as regards an action or actions commenced after [R.J.B.’s] evidence became known . [85] Balancing the interests involved, I find that it would not be unjust in these circumstances to apply the doctrine of res judicata as regards the present application. What is the difference between the new cause or causes of action that were commenced after Guardian had learned of [R.J.B.’s] evidence in the 1990’s and the present cause of action ?

To me there can really be no distinction and it appears that, for whatever reason, Guardian has determined that, as regards this matter, it now wishes to relitigate the question of its obligation to RCEC pursuant to the insurance contract in place. [86] Taking all of what I have stated above, I have come to the conclusion that Guardian has not established special circumstances that would justify a finding that to apply res judicata here would be contrary to the interests of justice.

While I must admit that this result does not rest fully satisfactorily with me , balancing the relevant factors as I have leads me to the conclusion that justice and fairness dictates that RCEC should succeed in its application to have the doctrine of res judicata applied. (Emphasis added.) [ 37 ] As a result of this conclusion, the trial judge did not consider it necessary to decide whether the doctrine of abuse of process by relitigation should be applied. Issues on Appeal [ 38 ] On this appeal, Guardian challenged: (

i) the judge’s conclusion that the T.C. Allegations and McIntyre Allegations did not constitute new evidence; (ii) the judge’s failure, having found that the R.J.B.

Allegations were capable of constituting new evidence, to conclude that the existence of that evidence in itself amounted to an exception to the application of res judicata ; (iii) the manner in which the judge’s application of the “special circumstances” exception to the doctrine of res judicata was used to apply the doctrine rather than provide an exception to it and in so doing not concluding that the duty of material disclosure by RCEC to Guardian, stemming from the duty uberrimae fide , should have led to the conclusion that special circumstances existed justifying the non-application of the doctrine. [ 39 ] Also engaged on this appeal is RCEC’s alternative submission that even if special circumstances exist to justify not applying the doctrine of res judicata , Guardian should nevertheless be barred from relying on the new evidence by virtue of the operation of the doctrine of abuse of process.

Analysis

(

a) Principles [40] The policies underlying the res judicata doctrine are the promotion of finality of litigation and the prevention of a multiplicityor fragmentation of proceedings so that “[a] person should only be vexed once in the same cause”: Danyluk v. Ainsworth TechnologiesInc., 2001 SCC 44, [2001] 2 S.C.R. 460 per Binnie J. at para. 18; Quinlan v. Newfoundland (Minister of Natural Resources) (2000), 2000NFCA 49 , 192 Nfld. & P.E.I.R. 144 (NFCA), per Green J.A. at para. 6. In Penner v.

Niagara (Regional Police ServicesBoard), 2013 SCC 19, Cromwell and Karakatsanis JJ., writing for the majority, elaborated on the rationale as follows: [28] Relitigation of an issue wastes resources, makes it risky for parties to rely on the results of prior litigation, unfairly exposes partiesto additional costs, raises the spectre of inconsistent adjudicative determinations and, where the initial decision maker is in theadministrative law field, may undermine the legislature’s intent in setting up the administrative regime.

For these reasons, the law hasadopted a number of doctrines to limit relitigation. [41] In deciding whether a discretion not to apply the res judicata doctrine should be exercised, the potential promotion or hinderingof these policies of putting an end to litigation and prevention of unnecessary harassment of individuals through multiple litigationshould be taken into account in deciding whether to exercise the discretion. [42] It is generally recognized that there are two species of res judicata, or estoppel by record: cause of action estoppel and issueestoppel: Angle v.

Minister of National Revenue, (SCC), [1975] 2 S.C.R. 248, per Dickson J. at p. 254. For the formercategory, the cause of action in the prior proceeding must be the same (i.e. not “separate and distinct”) from the cause of action in thecurrent proceeding: Grandview (Town) v. Doering , (SCC), [1976] 2 S.C.R. 621 per Ritchie J. at p. 65; Furlong v.Avalon Bookkeeping Services Ltd., 2004 NLCA 46; 239 Nfld. & P.E.I.R. 197 per Roberts J.A. at para. 17.

If the facts relied on to supportthe cause of action in the prior proceeding constitute substantially the same facts supporting the cause of action in the current proceeding,the causes of action will be regarded as the same (i.e. not separate and distinct) for the purposes of cause of action estoppel, even thoughthe actual relief sought in the two proceedings is not the same. See Donald J.

Lange, The Doctrine of Res Judicata in Canada, 3d ed.(Markham, ON: Lexis Nexis, 2010), pp. 147-151 and cases there cited. [43] For issue estoppel, on the other hand, the causes of action need not be the same but an issue or question fundamental to thedisposition of the previous litigation must be at issue again in the current litigation: Angle, per Dickson J. at p. 255; Quinlan at paragraph7; Furlong at paragraph 16. [44] Where cause of action estoppel is established, the party seeking to relitigate will, subject to limited exceptions, be barred fromretrying the cause of action or any claim or argument which could have been made in the prior action had the party exercised reasonablediligence.

Where issue estoppel is established, the party seeking to relitigate will, subject to limited exceptions, be barred fromchallenging the “material facts and the conclusions of law or of mixed fact and law … that were necessarily (even if not explicitly)determined in the earlier proceedings”: see Danyluk, per Binnie J. at paragraph 24. [45] With respect to issue estoppel, two sub-categories have been distinguished, at least with respect to the exercise of the discretionnot to apply the doctrine of res judicata.

The first relates to a situation where the original final decision and the current matter bothinvolve court proceedings (to borrow Donald Lange’s terminology, a “court-to-court proceeding”). The second is where the firstproceeding is a tribunal proceeding and the second is a court proceeding (a “tribunal-to-court proceeding”). [46] Because the principles with respect to the operation of exceptions to the doctrine may operate differently depending on whethercause of action estoppel or issue estoppel applies, it is important to determine which category governs the current case.

The trial judgeheld that both categories were applicable. However, as Roberts J.A. observed in Furlong at paragraph 50, “issue estoppel is only relevantwhere the cause of action in the second action is different from the one in the first”. [47] Accordingly, notwithstanding the fact that the trial judge’s finding in this regard has not been appealed, it is necessary, for aproper analysis of the remaining issues, to determine whether this is a case of cause of action estoppel or issue estoppel.

In my view, ifthe doctrine of res judicata has any application (and as I have said the parties concede its application and the correctness of this has notbeen challenged on appeal) this is a case of issue estoppel. [48] In both cases, RCEC has sought indemnity pursuant to the same policy of insurance and in both cases one of the defences raisedby Guardian was that RCEC knew or ought to have known of Father Hickey’s sexual propensities and should have informed Guardian ofthis fact as part of their duty of good faith to disclose information that was material to Guardian’s risk.

That said, a cause of action forindemnity does not arise in the abstract, but in a fact-specific context as a result of a specific claim by a specific claimant. [49] The cause of action in the first case was a claim for indemnification and defence of a particular lawsuit by a particular plaintiffin relation to specific alleged sexual misconduct. The cause of action in the current proceeding, while based on the same policy andraising the almost identical issues, is not the same cause of action.

It is a cause of action for indemnification and defence of a completely“separate and distinct” lawsuit by another plaintiff in relation to separate sexual misconduct occurring at different times and places.While certain issues (coverage under the policy and whether RCEC knew of Father Hickey’s propensities) were the same, those issueswere clearly being raised in relation to two separate and distinct causes of action (for indemnity and defence in respect of differentclaims). [50] This argument was raised by counsel for Guardian on the application but was rejected by the trial judge (paragraphs 49-53).With respect, the judge is wrong on this point.

What was effectively resolved by the 1992 Consent Order was (

i) the policy by its termsapplied to the claim against RCEC for which RCEC was claiming indemnification and defence; and (ii) there was insufficient evidenceat that time to establish Guardian’s defence that the policy was void because RCEC knew or ought to have known of Father Hickey’ssexual propensities.

Those issues, having been decided against Guardian by virtue of the 1992 Consent Order, in the context of oneindemnity/defence cause of action, can be said to bind Guardian in the context of the separate and distinct indemnity/defence cause ofaction in the current proceeding, unless an applicable exception applies. [51] Accordingly, I will approach the analysis of the issues in this case on the basis that what is at issue here is whether an exception

to issue estoppel applies. (

b) New Evidence as a Specific Exception to Res Judicata [52] It is generally recognized that there are limited exceptions to the application of res judicata once its constituent elements havebeen established. For example, where the first decision was obtained by fraud, this will not be a bar to relitigation.

Similarly, thediscovery of new evidence that, with reasonable diligence, could not have been discovered prior to the original decision and which, had itbeen considered, could have changed the outcome of the original decision, has always been a recognized category of exception to theapplication of the res judicata doctrine: Doering, per Ritchie J. at pp. 637-639; Quinlan, para. 6; Janes v. Deer Lake (Town) (1975), (NL CA), 130 Nfld. & P.E.I.R. 176 (NFCA), per Cameron J.A. at para. 3; Furlong, per Roberts J.A. at paras. 13, 15.

Thisexception is directly in issue on this appeal. [53] The rationale behind the new evidence exception is that the policies underlying the application of res judicata have much lessstrength where newly discovered evidence affecting the result exists. If subsequent to the original judgment, new evidence, notpreviously discoverable, is unearthed and that evidence calls into question the evidentiary basis of the earlier decision, the effectivenessand fairness of the system will be called into question because it appears that it operated on a false evidentiary premise.

Finality as apolicy behind not reopening a case loses its resonance when it results in compounding error. The earlier false evidentiary premiseexplains why, if the case is retried, there may be inconsistent results and, in a sense, justifies a second proceeding.

Protestations by theother party about the unfairness of being dragged back into court lose strength when it is shown that the previous decision is not soundlygrounded in truth. [54] The formulation of the res judicata rule itself contemplates its non-application to situations where new evidence which couldnot with reasonable diligence have been discovered at or before the original decision would change the whole aspect of the case. [55] Consider the seminal case of Henderson v. Henderson (1843), 3 Hare 100; 67 E.R. 313.

Vice Chancellor Wigram stated the“rule” as follows at p. 115: … where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requiresthe parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same partiesto open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, butwhich was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.

Theplea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to forman opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties,exercising reasonable diligence, might have brought forward at the time. (Emphasis added.) [56] In a sense, therefore, the new evidence concept is not an “exception” to the res judicata rule at all. It in fact defines theparameters for its operation.

This approach is also recognized in the Supreme Court’s decision in Doering, which involved an attempt torelitigate a claim for water damage involving a new theory as to how the water damage occurred based on the opinion of a soils expertthat had been obtained subsequent to the first trial.

There, Ritchie J., writing for the majority, referred without disapproval to thestatement by Vice Chancellor Wigram in Henderson, quoted above, and noted that nothing had changed between the bringing of the firstaction and the second one except that the claimant had received advice from a soil expert who had expounded a new theory. [57] Observing that “[s]uch an expert could probably have been consulted before the first action, and if he had been then the matterwould no doubt have been put in issue at that time”, Ritchie J. quoted from the opinion of Lord Cairns in Phosphate Sewage Co. v.Molleson (1879), 4 App.

Cas. 801 at pp. 814-815: As I understand the law with regard to res judicata, it is not the case, and it would be intolerable if it were the case, that a party who hasbeen unsuccessful in a litigation can be allowed to re-open that litigation merely by saying, that since the former litigation, there isanother fact going exactly in the same direction with the facts stated before, leading up to the same relief which I asked for before, but itbeing in addition to the facts that I mentioned, it ought now to be allowed to be the foundation of a new litigation and I should be allowedto commence a new litigation merely upon the allegation of this additional fact.

My Lords, the only way in which that could possibly beadmitted would be if the litigant were permitted to say, I will shew you that this is a fact which entirely changes the aspect of the case,and I will shew you further that it was not, and could not by reasonable diligence have been, ascertained by me before. (Emphasis added.) [58] The same approach is evident in the decision of this Court in Quinlan: [6] … Subject to the restrictive rules respecting reopening a case on the grounds of mistake or fraud or to allow the reception of newevidence, a litigant ought not to be able to retry a cause of action, or to claim any relief flowing therefrom, that has already been litigated… (Emphasis added.) [59] In other words, the doctrine of res judicata does not apply where it is alleged and established that the new action is based onnew information that could not with reasonable diligence have been discovered earlier and that the information is of such a nature that itwould “entirely change the aspect of the case.” [60] The discovery of new information of the character described is therefore in a special category of reasons for not applying resjudicata: its existence means that the policies underlying the doctrine are not offended.

Indeed, there is an inherent fairness in allowingrelitigation in such circumstances.

[61] This last point is reinforced when one considers that the discovery of game-changing new evidence figures prominently in anumber of circumstances justifying reinstituting or continuing litigation. It also provided the basis for relitigation under the oldprocedure of an application to set aside a judgment and to order a new trial: Varette v. Sainsbury, (SCC), [1928] S.C.R.72; Walsh, Admx. v. Hannon (1927), 12 Nfld. L.R. 39; Brophy v. Collins (1954), (NL CA), 34 M.P.R. 280 (S.C.N.).

It,further, allows an appellate court, upon reception of fresh evidence on appeal, to order a new trial or deciding the appeal on the basis ofthe augmented record: Penford v. Taylor (1964), (NL CA), 49 M.P.R. 325 (NFCA); Sparkes-Morgan v. Webb, 2001NFCA 55, 205 Nfld. & P.E.I.R. 344; Humby v. Newfoundland and Labrador Housing Corporation, 2013 NLCA 4, 331 Nfld. & P.E.I.R.190 (“Humby 1”). [62] In other words, the discovery of new evidence is a recognized reason for allowing relitigation in a variety of circumstancesnotwithstanding the general policy of supporting the integrity of existing judgments.

All of these circumstances address the same pointunderlying the rationale for the doctrine of res judicata and its scope. [63] I conclude therefore, that the doctrine of res judicata is not intended to apply where it is alleged and established that the newmatter is based on new information that could not with reasonable diligence have been discovered earlier and that the information is ofsuch a nature that it would entirely change the aspect of the case. (

c) The “Fairness” Exception [64] Apart from the fraud and new evidence exceptions to the application of res judicata identified above, the cases also refer toanother exception to the application of issue estoppel: a party will be allowed to relitigate an issue where “fairness dictates that theoriginal result should not be binding in the new context” (Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, perArbour J. at para. 52, citing Danyluk). This exception was also considered in Penner.

There, Cromwell and Karakatsanis JJ observedthat issue estoppel: [29] … balances judicial finality and economy and other considerations of fairness to the parties. It holds that a party may not relitigatean issue that was finally decided in prior judicial proceedings between the same parties of those who stand in their place. However, evenif these elements are present, the court retains the discretion to not apply issue estoppel when its application would work an injustice. (Emphasis added.) [65] Two points should be made about this passage.

First, the italicized statement was made in the context of a case involvingtribunal-to-court issue estoppel. It has been suggested, however, that the discretion not to apply issue estoppel may be more attenuated inthe case of court-to-court estoppel: Danyluk, per Binnie J. at paragraph 62; Furlong, per Roberts J.A. at paragraph 41. [66] The trial judge did not differentiate between the circumstances where the discretion not to apply res judicata should beexercised in court-to-court, as opposed to tribunal-to-court, situations.

In doing so, he referred to statements concerning the exercise ofdiscretion in Danyluk as well as certain obiter comments in Toronto. Danyluk involved a tribunal-to-court situation, as did Penner.Toronto was concerned primarily with the doctrine of abuse of process.

None of these cases explicitly dealt with how the discretion wasto be exercised in court-to-court situations. [67] Indeed, in Danyluk, Binnie J., for the majority, observed that “the discretion is necessarily broader in relation to the priordecisions of administrative tribunals because of the enormous range and diversity of the structures, mandates and procedures ofadministrative decision-makers.” (paragraph 62).

Later, in listing the factors that the Court should take into account in deciding whetherto exercise the discretion not to apply res judicata (the wording of the statute relating to the administrative decision-maker; the purposeof the legislation; the availability of an alternative administrative appeal or review; safeguards available to the parties in theadministrative procedure; the expertise of the administrative decision-maker; and the circumstances giving rise to the prior administrativeproceedings), his focus was clearly on matters that related to the prior administrative proceeding and whether, in light of those factors,application of res judicata would undermine its policy basis.

Those factors have no relevance to a discretion not to apply res judicata ina court-to-court situation. [68] The same approach appears to be reflected in the manner in which the Court analyzed the scope of the discretion in Penner. Cromwell and Karakatsanis JJ. described the “residual discretion” applicable to issue estoppel in the context of tribunal-to-courtproceedings: [31] Issue estoppel with its residual discretion, applies to administrative tribunal decisions. The legal framework governing theexercise of this discretion is set out in Danyluk.

In our view, this framework has not been overtaken by this Court’s subsequentjurisprudence. The discretion requires the courts to take into account the range and diversity of structures, mandates and procedures ofadministrative decision makers however, the discretion must not be exercised so as to, in effect, sanction collateral attack, or to underminethe integrity of the administrative scheme. As highlighted in this Court’s jurisprudence, particularly since Dunsmuir v.

New Brunswick,2008 SCC 9, [2008] 1 S.C.R. 190, legislation establishing administrative tribunals reflects the policy choices of the legislators andadministrative decision making must be treated with respect by the courts … [69] It cannot be said, therefore, that Danyluk or Penner speak in any meaningful way to the nature of the discretion to be exercisedin the court-to-court circumstance. [70] Nevertheless, the trial judge purported to apply the Danyluk discussion of discretion to the court-to-court situation he wasfacing. [71] The second point arising from the passage in Penner quoted above is that the residual discretion is one “to not apply issueestoppel”.

The trial judge, however, appears to have asserted a discretion to apply issue estoppel even where one of the other categoriesof exception is satisfied. He asserted a broad discretion to apply or not apply the doctrine based on an overriding notion of fairness: [76] As held in Danyluk at paragraph 81, balancing these two policy concerns [previously identified as finality and fairness] requires the

Court to stand back and to take into account the entirety of the circumstances whether the application of res judicata would work aninjustice. [72] The judge also referred to the observation by Arbour J in Toronto, in the context of a discussion of abuse of process, that certaincircumstances would justify allowing relitigation of an issue where to do so would enhance the adjudicative process as a whole: [52] … from the system’s point of view, relitigation carries serious detrimental effects and should be avoided unless the circumstancesdictate that relitigation is in fact necessary to enhance the credibility and the effectiveness of the adjudicative process as a whole.

Theremay be instances where relitigation may enhance, rather than impeach, the integrity of the judicial system, for example: (1) where thefirst proceeding is tainted by fraud or dishonesty, (2) when fresh, new evidence, previously unavailable, conclusively impeaches theoriginal results; or (3) when fairness dictates that the original result should not be binding in the new context. (Emphasis added.) [73] Two points are to be noted about this passage. First, as in Toronto, the discussion is in relation to circumstances that wouldallow relitigation.

Secondly, the three categories were expressed disjunctively – any one of them could be considered as a justificationfor allowing relitigation.

It was not being suggested that one category could be set off against another in some overall balancing exercise.Rather, the third (fairness) category seems particularly relevant to resolving the additional conundrum of whether to apply res judicatawhere the first decision-maker is not a court and cannot, by its nature, be said to have decided the issue in a way that a court would havedone – the very issue that was engaged in Danyluk. [74] The trial judge, however, appears to have interpreted the passage from Toronto as recognizing a discretion to deny relitigation,even though one of the other categories were satisfied, where, in the opinion of the court, the third (overall fairness) categoryoverbalanced the other applicable categories, instead of operating as an additional circumstance to allow relitigation where the other twocategories justifying the non-application of res judicata (fraud and new evidence) were not engaged. [75] This is apparent from his

summary at paragraph 79 of his judgment: [79] … [i] where the result in the earlier proceeding was obtained by fraud or dishonesty, [ii] when new evidence comes to light thatcould not reasonably have been discovered in the earlier proceeding and [iii] where fairness dictates that the original result should not bebinding, it is open for a court to conclude that the application of res judicata in those circumstances would be contrary to the interests ofjustice. (Emphasis added.) [76] This formulation generally tracks the exposition in Toronto with one important exception: the judge expressed the threecategories conjunctively rather than disjunctively.

Read literally, it meant that the discretion not to apply res judicata when it wouldotherwise be applicable could only be exercised when all three factors were satisfied. Thus, even if fraud or new evidence weresubsequently discovered, but the court was not satisfied that overall fairness also dictated not applying res judicata, it shouldnevertheless be applied.

The trial judge was therefore in error when he suggested that one category could be set off against another insome overall balancing exercise. [77] The judge went on to take this erroneous approach, as evidenced from the quotations from paragraphs 82-86 of his judgmentreproduced earlier. He considered subsequent events, in particular the fact that Guardian had agreed to defend and settle other specificclaims after knowing about the R.J.B. Allegations and concluded that “[b]alancing the interests involved, … it would not be unjust inthese full circumstances to apply the doctrine of res judicata” (paragraph 85).

He cited no authority that asserted a jurisdiction toexercise a discretion to apply the doctrine of res judicata notwithstanding the fact that new evidence existed. That is understandable. Counsel on this appeal were unable to show that any such authority exists.

Certainly, there is no basis for applying the discretiondiscussed in Danyluk to a court-to-court situation and the judge’s analysis of Toronto is based on a misapprehension as to what it says. [78] The closest counsel for RCEC can come to suggest authority to support application of a discretion to apply res judicata in acourt-to-court situation is the decision of the Ontario Court of Appeal in Smith Estate v. National Money Mart Co., 2008 ONCA 746, 303D.L.R. (4th) 175.

This case dealt with whether a party could rely on res judicata where between the time of the first decision and thesecond case the law had changed. The Court described its previous decision in Minott v. O’Shanter Development Co. (1999), (ON CA), 42 O.R. (3d) 321 (C.A.), as well as the British Columbia Court of Appeal in Hockin v.

Bank of British Columbia (1995), (BC CA), 123 D.L.R. (4th) 538 (B.C.C.A.) as not establishing “an iron-clad guarantee that a litigant who hasfought an issue and lost will always be accorded the benefit of a change in the law” (paragraph 42). (Minott and Hockin were alsodistinguished on the basis that the loss of the right to relitigate because of a change of the law in Smith was “considerably less serious”than in Hockin). [79] The Court concluded that the loss of the benefit to the appellants of the change in the law as a result of subsequent SupremeCourt of Canada decisions was outweighed by the adverse consequences to the respondents of revisiting the issue “at this late stage ofthe proceedings” (after having had fought a challenge to the court’s jurisdiction on other points all the way to the Supreme Court ofCanada, fought and won a contested motion for certification of the class action, incurred substantial disbursements and set the matterdown for trial, all in reliance on the ruling in the original proceeding).

In those circumstances, the Court allowed res judicata to continueto apply. [80] Smith does not explicitly address the question as to whether a court may exercise a discretion nevertheless to apply res judicataeven if new evidence has been discovered.

At most, it could be said that by referring to the discretion discussed in Danyluk withoutdrawing a distinction between tribunal-to-court and court-to-court situations, and by not automatically accepting a change in the law as aseparate category justifying the non-application of res judicata, the Court was inferentially affirming the use of a general fairnessdiscretion in a court-to-court situation that could result in another category of special case (discovery of new evidence) also being dealtwith in the same way.

[81] I do not accept that Smith can be carried so far. It was dealing with a different situation (subsequent change in the law) that wasnot traditionally regarded as an established exception to the application of res judicata.

In fact, there is some dispute on the authorities asto the extent to which a change in the law is a factor that would even, in principle, warrant a court not to apply res judicata. (See Lange,The Doctrine of Res Judicata in Canada, pp. 257- 265 and cases there cited.) The policy issues underlining whether this should berecognized as a potential exception are different. [82] Mention should also be made of the earlier decision of the Ontario Court of Appeal in Tsaoussis (Litigation Guardian of) v.Baetz (1998), (ON CA), 112 O.A.C. 78 (C.A.); leave to appeal to S.C.C. refused [1998] S.C.C.A. No. 518.

That casedealt with an application under the Ontario rules of court to set aside a court order approving an infant settlement on the ground of factsarising or discovered after it had been made. The Court of Appeal held that the application could not succeed because the evidenceeventually generated by further medical assessments could have been available by the exercise of reasonable diligence prior to the orderapproving the settlement (paragraph 46).

However, Doherty J.A., writing for the Court, observed in obiter that if the hurdle of showingthat the new evidence could not have been earlier discoverable by the exercise of due diligence is cleared (which it was not in that case): [44] … the court will go on to evaluate other factors such as the cogency of the new evidence, any delay in moving to set aside theprevious judgment, any difficulty in re-litigating the new issues and any prejudice to other parties or persons who may have acted inreliance on the judgment. [83] The first factor articulated by Doherty J.A. (the cogency of the new evidence) relates to the recognized requirement that thenature of the new evidence must be such that it “entirely changes the aspect of the case”.

However, it could be argued that the fact thathe mentions other factors, essentially relating to prejudice to the other party if the matter were to be relitigated on the new evidence,recognizes, like an expansive reading of Smith Estate, a limited discretion to allow res judicata to apply even in the face of new evidencethat could not have been discovered by the exercise of reasonable diligence and that entirely changes the aspect of the case. [84] Even if one could reason by analogy from Smith Estate and were prepared to accept the obiter statements in Tsaoussis,however, any discretion to apply res judicata would be limited to circumstances where significant prejudice to the party facingrelitigation has been established.

It would take something of an extraordinary nature pointing in the other direction to trump the already-existing basis to exercise a discretion not to apply the doctrine.

That situation does not in any event apply here because I have concludedthat, for the reasons given later, no prejudice has been established in this case. [85] In light of the foregoing analysis, I conclude that while there is a general discretion not to apply res judicata after consideringgeneral notions of fairness, it does not empower the court to apply res judicata where the existence of new evidence that was notdiscoverable by reasonable diligence before the first decision and which would entirely change the aspect of the case is discovered.

Thereason is that the new evidence circumstance in itself is designed to achieve fairness in the application or non-application of the doctrine. [86] In the end, whether one describes the new evidence category as defining the parameters of the res judicata doctrine, or as anexception to it, or even as a factor that in itself provides the justification for the exercise of discretion not to apply the doctrine, the resultis essentially the same: the existence of the new evidence should disable the application of res judicata because the existence of newevidence that undermines the integrity of the original judgment is in itself a compelling reason for not applying the res judicata doctrine. (

d) The Nature of the New Evidence [87] The further question that must be answered whenever new evidence is proffered as a response to a submission that res judicataapplies is: what type of evidence will satisfy the Court that res judicata should not be applied in a given case? From the jurisprudence, itappears it must possess two essential characteristics. First, it must not have been discoverable with reasonable diligence prior to the firstdecision being rendered.

Secondly, the evidence must be of such significance that it would have the effect of changing the result in thefirst decision. [88] With respect to the second criterion, there is some disagreement in the case law as to how the significance of the evidence isdescribed. In Doering, the phrase “entirely changes the aspect of the case” was used. In Varette v. Sainsbury, a case involving newevidence as a justification for ordering a new trial, the test was expressed as being “practically conclusive” (p. 76) or such as would“conclusively establish” the case (p. 77). Penford v. Taylor and Brophy v.

Collins have also enunciated a “practically conclusive”standard. In Toronto, Arbour J. described the standard as “conclusively impeaches the original results.” The predominant descriptor ofthe test appears to be “practically conclusive.” See, Lange, The Doctrine of Res Judicata in Canada, p. 287. [89] But what does “practically conclusive” mean in a concrete case? It certainly would mean more than merely allowing the newevidence to be weighed in the balance with contrary evidence submitted at the first trial. In Walsh, Admx. v.

Hannon, Warren J. describedthe situation thus at p. 43: It must further be shown that the evidence available might prove the decision given erroneous and that its absence might cause amiscarriage of justice. … [T]here must be more than oath against oath in the event of a new trial … (Emphasis added.) [90] That said, if the test is limited to a situation where there can be no evidence submitted at the first trial that is contradictory of thenew evidence, there would be virtually no situation where the exception would ever apply.

The emphasis on “practically” in the standardmeans, in my view, that the new evidence must be of such significance that it calls into serious doubt the integrity of the originalevidence, if any, such that to overlook the new evidence would undermine confidence in the adjudicative process. In other words, in thelanguage chosen by Lord Cairns in the Phosphate Sewage case, the new evidence “entirely changes the aspect of the case”. I note thatmy colleague Welsh J.A. also interprets “practically conclusive” in line with Lord Cairns’ formulation (paragraph 180). (

e) Conclusions Regarding the Applicable Principles [91] It follows from the foregoing that in my view: (

i) the existence of new evidence that entirely changes the aspect of the earlier

case and was not discoverable with reasonable diligence before the earlier decision is a recognized stand-alone category of justificationfor not applying the doctrine of res judicata in court-to-court situations involving issue estoppel; and (ii) except perhaps in the mostextraordinary of circumstances involving significant prejudice, there does not exist a discretion in the court, once it finds thatappropriately qualified new evidence exists, nevertheless to apply res judicata. [92] No case was cited to support the exercise of a discretion to apply the doctrine in the face of the existence of new evidence thatwould normally justify not applying it.

Even if the decision in Smith Estate v.

National Money Mart Co., discussed earlier, can beinterpreted to recognize inferentially a residual discretion to apply res judicata in the face of new evidence, the discretion would onlyexist ‒ extrapolating from the circumstances of that case ‒ where there has been long delay between the first case and the bringing of thesecond action and there has been significant prejudice to the other party that has occurred in the meantime. [93] If a court were to allow the doctrine of res judicata to bar relitigating an issue in a subsequent case even though new evidenceexisted, anomalous situations could result.

Take this case. The existence of knowledge on the part of RCEC and Archbishop Penney ofFather Hickey’s propensities is relevant to the main action as well as the third party issue between RCEC and Guardian. The claimanthas asserted that RCEC and Archbishop Penney knew of Father Hickey’s propensities and did nothing about that knowledge. RCEC hasdenied this. In the third party proceeding Guardian has also asserted that RCEC had the same knowledge and RCEC has denied it. [94] The R.J.B. Allegations now throw into question whether RCEC can maintain its denial.

If Guardian is barred from litigating inthe third party claim whether RCEC had the requisite knowledge and it proceeds to defend the main action on the merits, it willnevertheless be able – indeed it will have the duty – to defend RCEC’s denial of knowledge against the R.P. Allegations and any otherevidence on the point the claimant presents even though it believes, based on the R.J.B. Allegations, that such knowledge existed.

If theclaimant is successful against RCEC on this point, Guardian will have to indemnify RCEC (subject to other possible defences) againstthe claim in a situation where the establishment of that very fact of knowledge would under normal circumstances enable Guardian toavoid an obligation to indemnify. In one circumstance (the main action), the existence of knowledge is at play and in the other (the thirdparty proceeding) it is not. This does nothing to enhance the image of the administration of justice. Considerations Applicable to this Case (

a) Did the Trial Judge err in concluding that the evidence of T.C. and Father McIntyre did not constitute new evidence (TheFirst Issue on Appeal)? [95] The trial judge held that the T.C. and McIntyre Allegations were reasonably discoverable by Guardian prior to entry of the 1992Consent Order and therefore could not be considered new evidence that would justify not applying res judicata. [96] This conclusion is a conclusion of mixed fact and law because it involves the application of the legal test for reasonably diligentdiscoverability to the facts.

The standard of review in such a circumstance is one of palpable and overriding error. There is no extricablequestion of law involved here that would call for application of a correctness standard of appellate review. [97] Counsel for Guardian submits that the trial judge in effect applied too rigid a standard of reasonably diligent discoverabilitywhen assessing the efforts undertaken by Guardian’s counsel to determine whether there was any credible evidence existing prior to the1992 Consent Order demonstrating that RCEC or Archbishop Penney knew of Father Hickey’s proclivities.

Counsel says that inconcluding that “more could reasonably have been done” the judge assessed the reasonableness of the investigation of Guardian and itscounsel with the benefit of hindsight and not with the level of knowledge and circumstances as they existed prior to entry of the 1992Consent Order. [98] It is true that the judge, in dealing with this issue, made reference to the affidavit evidence of T.C. and Father McIntyre as filedin the current matter but he did so to determine whether this level of information could have been reasonably discoverable at an earlierdate.

He concluded: [81] … I also accept that with some further investigation, reasonably undertaken, more evidence of knowledge on the part of RCECcould well have surfaced at that time. I accept the submission of RCEC that the identity of T.C. was discoverable and, had he beenquestioned at that time, the involvement of Father McIntyre would likely have been learned. While I am satisfied that generally whatGuardian did at the time prior to the consent judgment amounted to a diligent investigation, I am not fully able to conclude in thesecircumstances that the evidence of T.C. and Father McIntyre was not discoverable.

In other words, more could reasonably have beendone to obtain the information Guardian presently has in this regard. (Underlining added.) [99] Counsel also submits, relying on Sun Alliance Insurance Co. v. Thompson, (1981), (NS SC), 56 N.S.R. (2d)619 and 420746 B.C. Ltd. v.

Misley, (1998), (BC CA), 157 D.L.R. (4th) 273 (B.C.C.A.), that given the importance ofsworn evidence in the proper operation of our justice system, “in accepting and relying on the sworn evidence of RCEC and its officials,which at the time of the entry of the [1992] Consent Order was uncontradicted, Guardian acted reasonably.” In other words, faced withthis uncontradicted evidence, it was not reasonable to expect Guardian to take the extraordinary steps of further investigation that thejudge seemed to postulate as being necessary to satisfy the reasonable diligence standard. [100] In Sun Alliance, the information subsequently discovered demonstrated potential fraud in the utterance of the previously swornstatement denying involvement in arson.

Fraud was regarded as a justification in itself for not applying res judicata. The court did notaddress at all whether there was anything else the insurance company could have done to discover the fraud before judgment in the firstproceeding. [101] In Misley, evidence was obtained subsequent to entry of judgment that ureaformadahyde foam insulation was present in thesubject residence and the vendor had been told of it by a plumber, contrary to the warranty given by the vendor and the vendor’s denialof any knowledge of its presence.

The Court of Appeal held that, even though the purchaser knew on the eve of the trial that the plumberhad worked on the building (and presumably could have inquired of him as to his knowledge of the presence of UFFI if he could have

been located), reliance on the vendor’s assertion that she did not know of the presence of UFFI, coupled with the fact that the purchaser was not able to locate the plumber until seven of eight months after the trial, amounted to reasonable diligence, justifying reception of the evidence at the second trial. [ 102 ] Neither of these cases helps Guardian here.

At most, they stand for the proposition that reliance at the time of the original trial on assertions subsequently proven to be false can be considered, in the context of all other relevant circumstances, in determining whether the party seeking to rely on the new evidence acted with reasonable diligence when it did not discover the new evidence earlier. [ 103 ] Here it is clear that the judge was alive to the fact that RCEC officials and Archbishop Penney had stated under oath in examination for discovery prior to entry of the 1992 Consent Order that they did not know of Father Hickey’s activities.

It is apparent that the judge considered the degree of limited information Guardian had at the critical time and concluded that that was enough, notwithstanding RCEC’s and Archbishop Penney’s denials, to have enabled Guardian, with reasonable diligence, to have discovered the additional evidence by further inquiries.

While I might not, sitting as the trial judge, have assessed the evidence with such strictness, I cannot conclude that there was not a sufficient basis for the judge to reach the conclusions and draw the inferences that he did. [ 104 ] Accordingly, the judge did not commit a palpable and overriding error in reaching his conclusion that the evidence of T.C. and Father McIntyre was potentially discoverable with reasonable diligence on the part of Guardian. (

b) Did the Trial Judge err in not concluding that the existence of new evidence in itself was sufficient to amount to an exception to the application of the doctrine of res judicata ? (The Second Issue on Appeal) [ 105 ] Counsel for Guardian submits that, having concluded that new evidence meeting the qualifying criteria existed, the trial judge erred in not concluding that that, in itself, justified the non-application of res judicata.

For the reasons outlined above, I agree with that submission. [ 106 ] One of the responses of RCEC to Guardian’s argument on this ground of appeal was to submit that the R.J.B.’s Allegations did not in fact constitute new evidence at all. It advances this argument on two fronts. It submits that: (

i) on the record, R.J.B.’s evidence was in fact discoverable with reasonable diligence prior to the entry of the 1992 Consent Order; and (ii) the judge did not apply the proper test for determining what constitutes new evidence, by concluding that the evidence provided Guardian with “an arguable case” for establishing RCEC’s knowledge rather than a “conclusive” one. [ 107 ] These assertions involve the arguments that the judge committed errors of fact in his treatment of the evidence of R.J.B. and of law in his application of the test for determining whether information qualifies as new evidence.

It is not open to RCEC to do so because they have not cross-appealed these findings. This is not a situation, like RCEC’s argument based on abuse of process by relitigation (discussed below), where RCEC is attempting to support a trial decision for reasons other than those given by the judge while at the same time not alleging any errors by the trial judge. In the current situation, to achieve its ends, RCEC must effectively mount an attack on the correctness of legal and, factual findings of the trial judge. To do that, it should appeal them: Humby1 at paragraphs 42-44; Humby v.

Newfoundland and Labrador Housing Corporation , 2013 NLCA 7 ( “Humby 2” ) at paras. 36-37; and rule 57.09(1)(

b) of the Rules of the Supreme Court, 1986 . It has not done so. Accordingly, to the extent that the trial judge’s conclusions amount to findings that the R.J.B. Allegations constitute new evidence, they are determinative for the purpose of this appeal. [ 108 ] In any event, I would observe that even if RCEC’s challenge to the judge’s finding that the R.J.B. Allegations were not discoverable were cognizable on this appeal, the judge made a clear finding of fact that R.J.B.’s evidence was “unknown for certain” by Guardian prior to the entry of the 1992 Consent Order (paragraph 72).

There was evidence from which he could have drawn that conclusion. There was accordingly no palpable and overriding error in his treatment of the evidence on this point. [ 109 ] That said, the question whether the judge actually decided that the R.J.B. Allegations constitute new evidence and applied the correct test in so doing still remains. This question arises because of the language chosen by the judge to describe his conclusion on this issue is imprecise.

He stated: [72] What I do find was unknown by Guardian for certain at the time of the consent judgment was the information provided by [R.J.B.] in August 1993 concerning his disclosure to Archbishop Penney. That evidence is significant as, unlike Monsignor Morrissey who is not able to be questioned by Mr. Adams due to his being deceased, Archbishop Penney had been discovered and had denied any knowledge or recollection of disclosures about sexual misconduct of James Hickey.

That evidence of Archbishop Penney, along with what other information Guardian was aware of at the time of the consent judgment, obviously played a significant role in Guardian’s actions in September 1992.

As such, I am satisfied that this would amount to the type of new evidence that could qualify as supporting the existence of special circumstances. ... [82] … I am satisfied that the evidence of [R.J.B], obtained on August 31, 1993 during the time that Guardian was undertaking its defence of RCEC, can be considered as the type of new evidence that could ground a decision by this Court not to apply res judicata .

Such evidence in my view places Guardian in a position where it would now have an arguable case as regards the issue of good faith and the obligation on the part of RCEC and its officials. (Emphasis added.) [ 110 ] Can it be said that the trial judge, in using language like “could qualify”, “can be considered” and “arguable case”, was actually deciding that the test for new evidence had been met, or was he merely making a tentative diagnosis and discussing the matter only from a theoretical perspective? [ 111 ] When his language is considered in the context of the structure and content of his reasons as a whole, I am satisfied that he was purporting to decide that as a matter of law the R.J.B.

Allegations constituted new evidence as discussed in the applicable case law. Firstly, he cited cases that asserted that, to justify not applying res judicata , the new evidence must be “decisive” (paragraph 70) or

“entirely [change] the aspect of the case” (paragraph 78). In my view he was purporting to apply the correct test. Secondly, it is clear from the fact that he went on to consider whether other discretionary factors nevertheless justified applying res judicata that he must have concluded that new evidence meeting what he believed to be the applicable test existed; otherwise, he would not have needed to consider such other factors. If the information did not constitute new evidence, that would have been the end of the matter. [ 112 ] In any event, I am satisfied that the nature of the R.J.B.

Allegations meets the standard, as enunciated in the Phosphate Sewage case and adopted in Doering , of entirely changing the aspect of the case. It is true that they exist in contradiction of discovery evidence of Archbishop Penney, who denied being told about Father Hickey’s activities (“I have no recollection of somebody coming to me and specifically raising that type of an issue and, if they did, again, you know, there was certainly no mention of sexual abuse”) – and in that sense there is a potential for “oath against oath” ( Walsh, Admx. v. Hannon ) if the matter were to be retried.

Nevertheless, it cannot be said that the existence of the R.J.B. evidence did not change that aspect of the case in a fundamental way, given the centrality of the evidence to the issues at stake and given the fact that it was the very absence of that type of evidence that caused Guardian to consent to judgment in the 1989 Proceeding on the basis that “no credible, probative or admissible evidence” existed. [ 113 ] Although the doctrine of res judicata can apply to consent judgments as well as to judgments following a full trial, the fact that the order in issue in this case was entered by consent without adjudication on the issue of knowledge is nevertheless relevant in the current context.

The rationale for recognizing the new evidence exception as a justification for not applying res judicata , is that it “impeaches the original results” ( Toronto , per Arbour J. at paragraph 52). The “result” is the decision that has been reached. In the case of judgment following trial, the new evidence must impeach the trial result, i.e. the adjudication on the evidence that is arrived at. In the case of a consent order, however, the result is the consent underlying the judgment. That is what the evidence relates to – the decision not to contest liability on the insurance policy.

Thus, the new evidence must be directed at impeaching the consent that resulted in the order. The consent is analogous to the adjudication on the evidence that results in a judgment following trial.

Thus, this is in reality not a situation of “oath against oath”; all that was necessary here to entirely change the aspect of the case was the existence of some credible evidence (and it has not been suggested that R.J.B.’s evidence was not credible) that could form the basis of a defence to the third party proceeding and thus not result in Guardian consenting to judgment. [ 114 ] Viewed from this perspective, there can be little doubt that in view of the defence that it had raised to the third party proceeding, if Guardian had had access to the new evidence prior to agreeing to abandon its defence in that proceeding, it would not have agreed to the entry of the 1992 Consent Order and instead would likely have litigated the issue of insurance coverage rather than to concede that there was “no credible evidence” to support the allegation of prior Church knowledge. [ 115 ] Having concluded therefore that the judge decided that the R.J.B.

Allegations met the test for the existence of new evidence and that there is no basis for overturning that finding, it is now necessary to consider whether the judge was correct as a matter of law in applying other considerations as a means of justifying disregarding the existence of that new evidence and nevertheless applying res judicata . [ 116 ] Given my previous analysis of the applicable principles, I must conclude that the trial judge erred in law in deciding that he had a discretion to continue to apply res judicata even though new evidence existed.

His conclusion is not supported by Danyluk or Penner, which dealt with a tribunal-to-court situation, nor by Toronto , which he misinterpreted. Nor is it supported by any other authority. (

c) Did the Trial Judge err in purporting to exercise his discretion in a manner so as to apply the doctrine of res judicata rather than to create an exception to it (The Third Issue on Appeal)? [ 117 ] Even if there is a residual discretion to apply res judicata in the face of the new evidence, I am nevertheless satisfied that the judge erred in principle in the manner in which he exercised his discretion in this case. [ 118 ] What appears to have influenced the trial judge to conclude that res judicata should nevertheless apply is the fact that Guardian defended and ultimately settled the Subsequently Resolved Cases after it had become aware of the R.J.B.

Allegations. In conducting what he called “an assessment of justice and fairness”, he stated that “it is impossible for me to disregard the continued willingness of Guardian to defend …, particularly as regards an action or actions commenced after [R.J.B.’s] evidence became known” (paragraph 84). He then stated that it would not be “unjust” to apply res judicata . The only reason he gave is as follows: [85] … What is the difference between the new cause or causes of action that were commenced after Guardian had learned of [R.P.’s] evidence in the 1990’s and the present cause of action?

To me there can really be no distinction and it appears that, for whatever reason, Guardian had determined that, as regards this matter, it now wishes to relitigate the question of its obligation … [ 119 ] A number of observations can be made about this. First, with respect to the comment that the settled cases contained “no distinction” from the current case, there is, in fact one very important distinction: none of the other cases involved a consent order in which Guardian was ordered to defend and indemnify.

The judge’s failure to acknowledge this indicates he was effectively undertaking a res judicata analysis involving the Subsequently Resolved Cases and the current one, in addition to the analysis between the case involving the 1992 Consent Order and the current case, which was the issue in question. [ 120 ] Secondly, although he does not say explicitly why it was “impossible … to disregard” the continued willingness of Guardian to defend the other cases, it seems a fair inference that the judge considered the actions of Guardian in this regard as an undertaking or representation that Guardian was prepared not to raise the issue of RECEC’s knowledge again as a defence to any third party claim. [ 121 ] Finally, the judge appears to rely on the fact that Guardian wanted to “relitigate” its obligation to defend as being an inappropriate position for Guardian to take. [ 122 ] In my view, none of these reasons justifies the exercise of discretion (assuming a residual discretion exists) in the way it was exercised.

In so doing the judge considered irrelevant factors and disregarded relevant ones. [ 123 ] In relying on the fact that there was “no distinction” between the settled cases and the current case, the judge seems to be effectively applying a kind of first level res judicata analysis to the Subsequently Resolved Cases. A comparison in this regard is in fact

not warranted. The true comparison is between the original case and the current case. The fact that Guardian acted and settled the othercases does not involve, unlike the original case, the submission by Guardian to an order that it is bound to defend and indemnify. Byapproaching it as he did, the trial judge elevated the participation of Guardian in the settlements to the status of a previous judgment thatin itself can result in the application of the res judicata doctrine.

This is clearly an error in the way the discretionary exception is to beapplied. [124] The fact of undertaking the defence and settling of the Subsequently Resolved case is in itself a neutral circumstance. It is notpossible to draw from that simple fact alone the inference that Guardian was acknowledging an obligation in all other cases that they hada duty to defend and indemnify. An insurance company, or any litigant for that matter, may settle a particular case and pay somethingtowards a claim for any number of reasons other than acknowledgement of liability.

For example, it may be considered the commerciallyprudent thing to settle on a cost-benefit analysis regard

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