Bank of Montreal v. Ross, 2011 NSSC 359

SUPREME COURT OF NOVA SCOTIA Citation: Bank of Montreal v. Ross, 2011 NSSC 359 Date:

(20111006) Docket: Hfx. No. 332478 Registry: Halifax Between: Bank of Montreal Plaintiff v. Jack Raymond Ross and Shelly Ann Ross Defendants Judge: The Honourable Justice Arthur J. LeBlanc Heard: May 4, 2011, in Halifax, Nova Scotia Written Decision: October 6, 2011 Counsel: Alexander S. Beveridge, Q.C. and Ben Durnford, for the plaintiff Chris Robinson, for the defendants By the Court : [ 1 ] The plaintiff moves for an order, pursuant to Rules 13.03, 13.04 and 88.03, for

summary judgment on pleadings and/or evidence, as well as for an order, pursuant to Rule 20.07, for judgment on admission of fact. [ 2 ] The defendants move for an order, pursuant to Rule 37.01, consolidating the plaintiff’s action against them with the plaintiff’s action against a related corporate defendant. The defendants further move for an order, pursuant to Rule 20.02, withdrawing an admission, and for an order, pursuant to Rule 83.02, amending their Notice of Defence. These motions were heard together.

Background [ 3 ] The plaintiff, Bank of Montreal (“BMO”), extended an operating credit facility to Sportsclick Inc. (“Sportsclick”). Sportsclick is incorporated pursuant to the laws of Alberta, but formerly carried on business in Nova Scotia, selling and distributing sports merchandise. The defendant, Jack Raymond Ross, is the President, CEO and Director of Sportsclick.

[ 4 ] Sportsclick became indebted to BMO for approximately $800,000 plus interest. This debt is secured by a security agreement under the Personal Property Security Act, SNS 1995-96, c 13 , and by security pursuant to s 427 of the Bank Act, SC 1991, c 46 . [4] [ 5 ] BMO also obtained personal guarantees from the defendants, as well as from Daniel and Pauline Rossignol, who were involved in a predecessor business of Sportsclick.

The defendants’ personal guarantees exceeded $1,300,000. [ 6 ] On July 20, 2009, BMO filed a Notice of Action for Debt and Statement of Claim against Sportsclick (Hfx No. 314220, “Sportsclick Action”).

On July 14, 2010, BMO filed the same against the defendants (Hfx No. 332478, “Ross Action”), and on July 16, 2010 against the Rossignols (Hfx No. 332476, “Rossignol Action”). [ 7 ] By agreement of the parties in the Rossignol Action, this Court entered judgment, dated October 5, 2010, against Daniel Rossignol in the amount of $1,036,632.10, inclusive of interest and costs; the Court dismissed the claim against Pauline Rossignol. [7] [ 8 ] The motions that are before me concern the Sportsclick Action and the Ross Action. The defendants seek to withdraw an admission and to amend their statement of defence.

The defendants also seek to consolidate the Sportsclick Action and the Ross Action. BMO seeks

summary judgment and a dismissal of the defendants’ statement of defence. [ 9 ] In order to appreciate the parties’ arguments on these motions, it is helpful to have a chronology of the events that led up to BMO initiating the Sportsclick and Ross Actions: October 27, 2006: Jack Ross provides BMO with a personal guarantee, on behalf of Sportsclick’s predecessor, limited to $200,000 plus interest and costs. March 7, 2007: Jack Ross provides BMO with a personal guarantee, on behalf of Sportsclick’s predecessor, limited to $1,117,000 plus interest and costs.

March 13, 2007: Jack and Shelly Ross provide BMO with a personal guarantee, on behalf of Sportsclick’s predecessor, limited to $100,000 plus interest and costs. March 14, 2007: BMO extends an operating credit facility to Sportsclick with a limit of $1,000,000. July 2008: Sportsclick acquires its predecessor along with its credit facilities and debt obligations. July 08-June 09: Sportsclick uses its credit, at times operating beyond the authorized limit. Sportsclick enters negotiations with BMO regarding its credit, and simultaneously seeks other financial backing.

Spring 2009: Sportsclick acquires Southprint Corporation (“Southprint”), which becomes its US subsidiary. June 2009: Sportsclick deposits $600,000 in its BMO account that was obtained from private placements of its stock and the proposed acquisition of Greenswan Capital Corporation, which company had cash reserves. BMO freezes Sportsclick’s account and caps its credit. June 16, 2009: BMO rejects alternative financing arrangements proposed by Sportsclick. BMO threatens to issue a formal demand for repayment if Sportsclick does not consent to allowing E&Y to review its operations and financial circumstances.

Sportsclick consents to a review by E&Y.

June 26, 2009: BMO issues a demand letter to Sportsclick for repayment of its debt, and notifies Sportsclick of its intention to enforce security. June 29, 2009: Sportsclick asks BMO for a forbearance agreement to allow a potential buyer of Sportsclick to conduct due diligence June 30, 2009: BMO suspends its demand letter for an unspecified period of time to allow the buyer to conduct due diligence. July 3, 2009: BMO informs Sportsclick that it will be re-issuing its demand letter on July 6, 2009.

July 6, 2009: BMO issues a new demand letter to Sportsclick for repayment of its debt, and notifies Sportsclick of its intention to enforce security. July 6, 2009: BMO issues demand letters to the defendants to enforce the various personal guarantees. July 7, 2009: The potential buyer signs a draft letter of intent with Sportsclick. BMO refuses to enter into further negotiations with Sportsclick. July 13, 2009: The potential buyer withdraws the letter of intent on the basis he has not had sufficient time to complete due diligence.

July 14, 2009: BMO successfully brings an ex parte motion, pursuant to s 47(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B- 3 , to appoint Ernst & Young (“E&Y”) as an interim receiver on a “proceed and protect” basis. Counsel for Sportsclick receives 2 hours notice of this motion, and appears, without instructions, on a watching brief only. Neither Sportsclick nor the defendants appeal this order. July 17, 2009: BMO appoints E&Y as its private receiver pursuant to its general security.

E&Y informs Jack Ross and Stephen Patterson, marketing officer of Sportsclick, that E&Y were now the shareholders of Southprint and instructs them to have no further contact with Southprint. July 18, 2009: E&Y removes Jack Ross as a signatory on Southprint’s bank accounts. July 20, 2009 BMO commences the Sportsclick Action, which includes a claim for the appointment of a receiver. July 24, 2009: The interim receiver order is extended indefinitely by Order of the Registrar in Bankruptcy. Neither Sportsclick or the defendants challenge this order.

September 2009: E&Y, as private receiver, sells all of Sportsclick’s personal property, with the exception of the subsidiary shares of Southprint and Kelbel Inc (“Kelbel”), realizing approximately $250,000. October 9, 2009: BMO successfully brings an inter partes motion, pursuant to the Judicature Act and the Nova Scotia Civil Procedure Rules, to have E&Y installed as a court-appointed receiver. The defendants and Sportsclick receive notice, but do not oppose this motion. Neither takes steps to appeal this order. Fall, 2009: E&Y, as court-appointed receiver, sells all shares in Sportsclick subsidiary Southprint.

November 10, 2009: E&Y applies for court approval of the Southprint sale. Sportsclick receives notice and opposes this application.

November 12, 2009: Court approval of the Southprint sale. Sportsclick does not appeal this order. March/April 2010: E&Y, as court-appointed receiver, sells all shares in Sportsclick subsidiary KelBel. May 2010: E&Y applies for court approval of the KelBel sale. Sportsclick receives notice and opposes this application. June 8, 2010: Court approval of the KelBel sale. Sportsclick does not appeal this order. July 14, 2010: BMO commences the Ross Action. September 24, 2010: Sportsclick files a defence and counterclaim. November 9, 2010: Sportsclick files an amended defence and counterclaim in the Sportsclick Action. February 18, 2011: BMO files its notice of motion seeking

summary judgment. April 26, 2011: The defendants request that an unfiled motion to consolidate be heard prior to BMO’s

summary judgment motion. This request is opposed by BMO. April 27, 2011: The parties participate in a conference call during which I grant the defendants’ request to have their motion to consolidate heard at the same time as BMO’s

summary judgment motion, and for an abridgment of time to file their Motion materials. [ 10 ] Prior to the hearing, BMO consented to the defendants’ consolidation motion on the grounds that it would not prejudice its

summary judgment motion. [ 11 ] At the hearing of these motions, the defendants sought to amend their pleadings in two ways: 1) by withdrawing an admission that they say resulted from a typographical error, and 2) by incorporating paragraphs from the statement of defence in the Sportsclick Action into the statement of defence in the Ross Action. The defendants did not file a Notice of Motion, and instead argued that this relief could be granted as part of the motion for consolidation. [ 12 ] BMO consented to the defendants’ withdrawal of an admission, but contested the incorporation of 50 new paragraphs into the defendants’ statement of defence. BMO also consented to limiting its

summary judgment argument to res judicata , issue estoppel, estoppel by conduct, and abuse of process. Issues [ 13 ] There are three groups of issues raised on these motions: 1) Are the defendants required to bring a motion to amend their pleadings that is separate from their consolidation motion? If so, should the Court grant an abridgment of time to allow such a motion to be made? If the Court grants an abridgment, should the defendants’ motion to amend be granted?

2) Should the defendants’ consolidation motion be granted? If so, what impact does consolidation have on BMO’s

summaryjudgment motion? 3) Should BMO be granted

summary judgment because of res judicata, issue estoppel, estoppel by conduct, or abuse of process? Analysis Amendment and Consolidation [14] The procedural actions of the defendants on these motions have been irregular. The defendants brought their motion forconsolidation late. [15] The defendants filed no materials to support their motion to withdraw an admission and amend their pleadings. Instead, thedefendants made this request in what appears to be a reply affidavit to BMO’s

summary judgment motion, which was sworn and filed onApril 26, 2011. [16] I agree with the defendants’ submission that Rule 37.06(

c) permits a motions judge, who grants consolidation, to givedirections on any necessary amendments. However, I also agree with the submission of BMO that it is the moving party’s responsibilityto clarify, in their motion materials, how consolidation will impact the pleadings. Nonetheless, I am prepared to exercise my discretionto abridge the time required to bring a motion to amend pleadings. It is in the interests of justice to allow the defendants to make thismotion.

Furthermore, BMO will not suffer any prejudice. [17] If the Sportsclick action and Ross action are consolidated as a single proceeding, which the defendants did request, theamalgamation of the two statements of defence would have the effect of incorporating paragraphs 5-55 of Sportsclick action Statement ofDefence into the consolidated Statement of Defence. It is also clear to me that the admission the defendants seek to withdraw resultedfrom a typographical error.

The defendants’ Statement of Defence reads: This party admits the facts stated in the statement of claim as follows: paragraphs 1-5 and 6-10 inclusive. If the defendants intended to admit to all the allegations, they would have written “paragraphs 1-10 inclusive”. [18] Amendments to pleadings will generally be granted unless the moving party is acting in bad faith or doing so will prejudicethe respondent (Global Petroleum Corp v. Point Tupper Terminals Co. (1998), 1998 NSCA 174 , 170 NSR (2d) 367 (CA)).

Iam satisfied that the defendants are simply acting to correct a typographical error, that they are not acting in bad faith, and that BMO willnot suffer any prejudice from allowing this error to be rectified. I would grant the defendants’ motion to withdraw their admission toparagraph 6 of BMO’s statement of claim against them, that is, the admission that Sportsclick had defaulted on its obligations to BMOpursuant to its credit facilities. [19] Rule 37.01 provides a motions judge discretion to consolidate two actions into a single proceeding.

Rule 37.02 reads: [20] A judge may order consolidation of proceedings if the proceedings to be consolidated are of the same kind, that is to say,actions, applications, applications for judicial review, or appeals, and one of the following conditions is met: (

a) a common question of law or fact arises in the proceedings; (

b) a same ground of judicial review or appeal is advanced in the applications for judicial review or appeals and the ground involves thesame or similar decision-makers;

(

c) claims, grounds, or defences in the actions or applications involve the same transaction, occurrence, or series of transactions oroccurrences; (

d) consolidation is, otherwise, in the interests of the parties. [21] In this case, the proceedings the defendants seek to consolidate are of the same kind—they are both actions. Additionally,both the Sportsclick action and the Ross action arise out of the same “transaction, occurrence, or series of transactions or occurrences.” [22] In Comeau v. Ballam Insurance Services Ltd., 2010 NSSC 404, this Court held that case law under the previous consolidationRule remained relevant under the current Rule. In Stone v.

Raniere (1992), (NS SC), 117 NSR (2d) 194 at para 10(TD), Saunders J (as he then was) cited Re Hillcrest Housing Ltd and Clans Ltd. (1986), (PE SCTD), 56 Nfld & PEIR237 at 247 (PEISC) as authority for six factors to be considered on a consolidation motion: (1) the general convenience and expense; (2) whether a jury notice is involved; (3) how far the actions have progressed; (4) whether the plaintiffs have separate solicitors; (5) actions should not be consolidated where matters relevant in one action have arisen subsequent to the commencement of theother, and the actions have proceeded to a considerable extent; and (6) where consolidation is otherwise proper, the fact that on discovery questions would be unobjectionable in one action which mightbe privileged in the other action is not a sufficient reason for refusing an order consolidating the actions. [23] In this case, both the Sportsclick action and the Ross action have progressed to a similar stage.

BMO has the same solicitorsin each action, and the defendants in each action are represented by the same solicitor. The same witnesses will likely testify in bothactions, so general convenience and expense supports consolidation. Further, the result in the Sportsclick action will dispose, to a greatextent, the Ross action. There are no significant barriers to consolidation. [24] In my view, this is an appropriate case for consolidation. The Sportsclick action and the Ross action should proceed as asingle action. For the purposes of BMO’s

summary judgment motion, this means that paragraphs 5-55 of the statement of defence in theSportsclick action are incorporated into the Statement of Defence in the Ross action.

Summary Judgment on Pleadings [25] Prior to the hearing, BMO added abuse of process, Rule 88, as a ground for their motion, and I accepted this addition. At thehearing, as part of the preliminary discussions regarding amendment and consolidation, BMO agreed to limit its argument on

summaryjudgment to the claims of res judicata, issue estoppel, cause of action estoppel, and abuse of process. This allowed the hearing date to besaved, and argument to proceed, without a complete ruling on the impact of consolidation. BMO reserved its right to bring a subsequentsummary judgment motion, post-consolidation, if it was of the view that the consolidated pleadings were clearly unsustainable for otherreasons, such as disclosing no cause of action. It was on this basis that the

summary judgment motion proceeded. [26]

Summary judgment on pleadings is governed by Rule 13.03, which reads: 13.03 -

Summary judgment on pleadings

(1) A judge must set aside a statement of claim, or a statement of defence, that is deficient in any of the following ways: (

a) it discloses no cause of action or basis for a defence or contest; (

b) it makes a claim based on a cause of action in the exclusive jurisdiction of another court; (

c) it otherwise makes a claim, or sets up a defence or ground of contest, that is clearly unsustainable when the pleading is read on itsown.

(2) The judge must grant

summary judgment of one of the following kinds, when a pleading is set aside in the following circumstances: (

a) judgment for the plaintiff, when the statement of defence is set aside wholly; (

b) dismissal of the proceeding, when the statement of claim is set aside wholly; (

c) allowance of a claim, when all parts of the statement of defence pertaining to the claim are set aside; (

d) dismissal of a claim, when all parts of the statement of claim that pertain to the claim are set aside.

(3) A motion for

summary judgment on the pleadings must be determined only on the pleadings, and no affidavit may be filed insupport of or opposition to the motion.

(4) A judge who hears a motion for

summary judgment on pleadings may adjourn the motion until after the judge hears a motion for anamendment to the pleadings.

(5) A judge who hears a motion for

summary judgment on pleadings, and who is satisfied on both of the following, may determine aquestion of law: (

a) the allegations of material fact in the pleadings sought to be set aside provide, if assumed to be true, the entire facts necessary forthe determination; (

b) the outcome of the motion depends entirely on the answer to the question. [27] The test on a motion to strike remains the same under the new Rules (Body Shop Canada Ltd. v. Dawn Carson EnterprisesLtd., 2010 NSSC 25). The test is whether assuming that the facts as stated in the Statement of Defence can be proven, is it “plain andobvious” that the defendants’ Defence and Counterclaim is “certain to fail” or “absolutely unsustainable” (Hunt v. Carey Canada Inc., (SCC), [1990] 2 SCR 959; Cape Breton (Regional Municipality) v.

Nova Scotia (Attorney General), 2009 NSCA 44). [28] The basis for the defendants’ defence is that BMO wrongly prevented Sportsclick from obtaining financing and improperlyinstigated receivership proceedings. The defendants submit that this caused the deficiency for which BMO seeks to enforce itsguarantees. The defendants further submit that their guarantee cannot be called upon until after Sportsclick’s obligations to BMO aredetermined. [29] BMO contends that these attacks on the appointment of a receiver are barred by res judicata and estoppel by conduct. BMO

submits that this case is analogous to Bank of Montreal v. Tassone, [1998] OJ No 4040 (Ont Gen Div), aff’d (ONCA), [1999] OJ No 1935 (Ont CA) [Tassone], where the Court granted

summary judgment in similar circumstances. BMO contends thatthe defendants have not pled a breach of the underlying contract guarantee. BMO further contends that in debtor/creditor cases, nofiduciary or tortuous duties of care apply and there is no requirement of good faith. [30] The defendants contend that their defence is not res judicata. The defendants cite Royal Bank v. W. Got & Associates ElectricLtd., (SCC), [1999] 3 SCR 408 [Got] for the proposition res judicata is not available in these circumstances where thebank has misled the Court in obtaining a receivership order.

The defendants submit that BMO misled the Court in obtaining the interimreceivership order. The defendants contend that banks do owe a duty of good faith to creditors. The defendants further contend thatBMO did alter the contract by increasing the amount of risk the defendants, as guarantors, were exposed to. [31] In my view, the defendants’ pleadings do not disclose any basis for their defence and counterclaim even when, as is the casein

summary judgment on pleadings motions, all the pleadings are accepted as proven. [32] In Tassone, the Bank issued a demand on the debtor and its guarantors for repayment. On short notice, the Bank brought amotion for a court-appointed receiver. Counsel for the debtor attended, as did a representative of the guarantors. The motions judgerefused an adjournment request, and ordered that a receiver be appointed. Neither the debtor nor the guarantors took any steps to appealor set aside the receivership order. [33] When the Bank moved for

summary judgment against the guarantors, the guarantors countered that the Bank had reneged onan agreement with the debtor, and that this reneging should absolve them from their guarantees. In finding that the guarantors wereestopped from making this argument, Farley J. held, at para 6: The Guarantors submit that the down-sizing renege would discharge them according to Bank of Montreal v.

Wilder (1986), (SCC), 32 D.L.R. (4th) 9 (S.C.C.) which provides that any material variation in the terms of a contract between the creditor and theprincipal debtor to the prejudice of the guarantors will discharge the guarantors. However this renege defence is one that is derivativefrom Novacor (that is it is not a qua guarantee defence) which would be able to take advantage of the renege itself in its defence.

Putanother way, the Guarantors here are not trying to take advantage of an agreement between the Bank and Novacor which affected themas Guarantors but rather they claim that a breach by the Bank affecting Novacor's rights also affects them qua Guarantors. In my viewthis was a defence open to Novacor to defend against the appointment the Receiver. If the Guarantors were then privy in interest withNovacor at that time, then they would be subject to the effects of res judicata and estoppel by conduct. See Bank of Montreal v. Mitchell(1997), (ON SC), 143 D.L.R. (4th) 697 (Ont. Gen.

Div. [Commercial List]) at page 732-42, affirmed (1997), (ON CA), 151 D.L.R. (4th) 574 (Ont. C.A.). It seems to me that when the Guarantors are advancing defences which arecoincident with the defences of Novacor they should be bound by the (unappealed or otherwise dealt with) decision which is final andbinding as against Novacor if there are otherwise caught by res judicata or issue estoppel since they are privy in interest in those aspectsto Novacor.

In that regard, Tony was the conduit for the Guarantors and he was aware of the receivership motion as he participated in itand knew that the order appointing the Receiver had been made. It would be inappropriate in those circumstances to allow theGuarantors to stand by and now launch a defence based upon the Receiver's appointment. [34] In Got, the Supreme Court of Canada held that a debtor was not estopped from defending and counterclaiming on the basisthat a receivership order was improperly obtained by the creditor.

There, the bank sought what was effectively both a preservation andrealization order on the same day that it issued its demand for repayment. In addition to providing insufficient notice, the Bank misledthe Court: The two most serious errors in the affidavit were the suggestion that the bank had reason to believe that Got would move the inventoryand the failure to disclose that the bank had already secured its financial position… (Got at 415). The Court concluded that had the bank given proper notice and not misled the Court, the receivership order would not have beengranted.

On this basis, the Court found that the defendants’ defence and counterclaim was not estopped. [35] These cases are reconcilable. Tassone stands for the proposition that a guarantor who fails to challenge a receivership orderagainst a debtor is estopped from later making arguments that could have been made by the debtor; the guarantor and the debtor areprivies and res judicata applies.

Got stands for the proposition that where a creditor obtains a receivership by misleading the Court, thecreditor will not be allowed to rely on the equitable remedy of res judicata to estop a defence or counterclaim that could have been raisedby the debtor. Got is an exception to the proposition in Tassone; the two decisions are not inconsistent, and both remain good law. [36] The defendants submit that Got applies because BMO provided inadequate notice of its ex parte interim receiver motion andmisled the Court on the following points:

1) that BMO had lost confidence in Sportsclick management; 2) that BMO had not received any funds on deposit since May 5, 2009; 3) that BMO had “discovered” that Sportsclick had other operating bank accounts at HSBC Bank of Canada; 4) that BMO stated that Sportsclicks assets were mainly of accounts receivable and other movable inventory; and 5) that BMO stated Sportsclick was not agreeable to the appointment of an informal monitor.

These claims are found in paragraphs 49-49d of the Sportsclick Action statement of defence. [37] These are all allegations of what was said to the Court when an interim receiver order was sought. The defendants have notpled how these allegations were material misstatements. Even if I accept that these statements are pled to be misleading, I am notconvinced that they are sufficient to bring this case within the exception in Got.

In Got, the Court found the bank’s conduct wasreprehensible: on insufficient notice, the bank presented a false sense of urgency and failed to inform the Court of its secured creditorstatus. In this case, BMO’s allegedly misleading statements do not rise to that level. [38] It is trite law that res judicata applies to causes or issues that could have been raised in a prior proceeding, by a party or itsprivy, but were not raised (Henderson v. Henderson (1843), 3 Hare 100, [1815-1865] 67 All ER 319).

One aspect of the doctrine of resjudicata that was not discussed by the parties is the requirement that the previous decision must have been a final determination of theissue or cause that forms the basis for the claim of res judicata. In Tassone and Got, the impugned previous order was a finalreceivership order. In this case, the previous order was an interim receivership order, which is not final. [39] In these circumstances, I question whether res judicata can apply.

Also, since the interim order was awarded on an ex partemotion, for which Sportsclick and the defendants received only minimal notice, and for which their counsel attended only on a watchingbrief basis, I question whether either Sportsclick or the defendants were a party to the interim order proceeding; this is also a prerequisitefor res judicata to apply. [40] BMO also alleged estoppel by conduct. In Scotsburn Co-operative Services Ltd v.

WT Goodwin Ltd., (SCC),[1985] 1 SCR 54 at para 26, the Supreme Court of Canada adopted the following definition of estoppel by conduct from Spencer Bowerand Turner, The Law Relating to Estoppel by Representation (3rd ed 1977), p. 4: ...where one person ("the representor") has made a representation to another person ("the representee") in words or by acts or conduct, or(being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive), and with theresult, of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in anylitigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, orattempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at theproper time, and in the proper manner, objects thereto. [41] I am not convinced that estoppel by conduct applies in the circumstances of this case.

Neither Sportsclick nor the defendantswere obligated to attend and make submissions at the various receivership stages. Further, it cannot be said that BMO relied on thedefendants’ silence. Therefore, estoppel by conduct does not apply. [42] This does not mean that the Court can accept the conduct of Sportsclick and the defendants in these proceedings. WhileSportsclick and the defendants received minimal notice of the ex parte motion for an interim receiver order, they were represented bycounsel at the hearing on a watching brief.

If Sportsclick and the defendants were concerned with the representations made by BMO onthat motion, they could and should have challenged the interim receiver order. Instead, Sportsclick and the defendants did nothing. [43] Sportsclick and the defendants had notice of all the subsequent steps up to and including the appointment of the permanentreceiver. They could and should have challenged the appointment of E&Y as a private receiver, the removal of Jack Ross as a signatory

on Southprint’s bank accounts, the indefinite extension of the interim receiver order, the sale of Sportsclick’s personal property, and the appointment of a permanent receiver. Instead, Sportsclick and the defendants stood by and watched. [ 44 ] Sportsclick only began to act when E&Y sought court approval for the sale of Sportsclick’s subsidiaries.

Sportsclick opposed these sales, but did not appeal the Court’s approval. [ 45 ] BMO submits that it would be an abuse of process to allow the defendants to now make allegations that they could and should have made at a much earlier date. [ 46 ] Abuse of process is governed by Rule 88, which codifies the common law doctrine of abuse of process. The relevant parts of Rule 88 read as follows: 88.01 - Scope of Rule 88

(1) These Rules do not diminish the inherent authority of a judge to control an abuse of the court’s processes.

(2) This Rule does not limit the varieties of conduct that may amount to an abuse or the remedies that may be provided in response to an abuse.

(3) This Rule provides procedure for controlling abuse. 88.03 - Unsustainable pleading

(1) It is not an abuse of process to make a claim, or raise a defence or ground of contest, that may on the pleadings alone be unsustainable, and such a claim, defence, or ground may be challenged under Rule 13 -

Summary Judgment.

(2) A party or the prothonotary may make a motion to strike a pleading on the basis that it amounts to an abuse of process. [ 47 ] Rule 88 recognizes the inherent jurisdiction of this Court to prevent the misuse of its procedure where such use would be contrary to the interests of justice, that is, where the use would be abusive. [ 48 ] In Toronto (City) v. CUPE, Local 79 , 2003 SCC 63 , [2003] 3 SCR 77 [CUPE] , the Supreme Court of Canada held that the doctrine of abuse of process could be used to bar the relitigation of an issue where the strict formalities of res judicata were not satisfied.

The Court recognized that there may be situations where preventing relitigation would impeach the integrity of the judicial system; for example, if the initial proceeding was “too minor to generate a full and robust response, while the subsequent stakes [are] considerable” it may be in the interests of justice to have a full adjudication ( CUPE at para 53). [ 49 ] In Saulnier v.

Bain , 2009 NSCA 51 at para 7 , 277 NSR (2d) 30 , the Court of Appeal expounded on this issue and held: When an issue has been the subject of previous adjudication or when a party had the opportunity to raise an issue in a previous action and, in all the circumstances, should have raised that issue, it cannot be the subject of another action. [ 50 ] Both Sportsclick and the defendants had the ability to appeal the interim receiver order had they truly thought that BMO misrepresented the facts to the Court. The stakes were of such a magnitude that a full and robust response was warranted.

If they had challenged the interim receiver order, Sportsclick and the defendants could have argued that BMO misrepresented the facts, and they could also have argued that BMO acted unreasonably and in bad faith by calling in the loan and by not allowing sufficient time for repayment upon issuance of the formal demand.

[ 51 ] Sportsclick and the defendants had notice and the ability to challenge all subsequent steps making similar arguments, and to appeal any contrary orders. Nonetheless, Sportsclick and the defendants stood by and watched, even though the circumstances required action. In my view, it would be an abuse of process to allow the defendants to now, at the eleventh hour, emerge from the weeds and make arguments that they should, in all the circumstances, have made many, many months ago. [ 52 ] Rule 88.02 governs the various remedies that a judge may use to control an abuse of process.

In these circumstances, the appropriate remedy is to strike all aspects of the defendants’ pleadings that impugn the appointment and actions of an interim, private, or permanent receiver, as well as all aspects of the defendants’ pleadings that impugn the reasonableness of BMO’s actions in calling in the debt. Conclusion [ 53 ] The defendants’ motion to amend their pleadings is granted. The defendants’ motion to consolidate, the Sportsclick and Ross actions, is also granted. [ 54 ] BMO’s motion for

summary judgment on pleadings is granted. It would be an abuse of process to allow the defendants to make arguments that they could and should have raised during much, much earlier proceedings. I would strike all aspects of the defendants’ pleadings that impugn the appointment and actions of an interim, private, or permanent receiver, as well as all aspects of the defendants’ pleadings that impugn the reasonableness of BMO’s actions in calling in the debt. [ 55 ] If the parties are unable to agree on the issue of costs, they shall submit their written positions to the Court no later than October 28, 2011. LeBlanc, J.