Attorney General of Canada on behalf of Her Majesty the Queen in Right of Canada Appellant (Plaintiff) v. Merchant Law Group LLP, 2017 SKCA 62

Court of Appeal for Saskatchewan Docket: CACV2860 Citation: Canada (Attorney General) v Merchant Law Group LLP , 2017 SKCA 62 Date: 2017-08-09 Between: Attorney General of Canada on behalf of Her Majesty the Queen in Right of Canada Appellant (Plaintiff) And Merchant Law Group LLP Respondent (Defendant) Before: Ottenbreit, Whitmore and Ryan-Froslie JJ.A. Disposition: Appeal allowed Written reasons by: The Honourable Madam Justice Ryan-Froslie In concurrence: The Honourable Mr. Justice Ottenbreit The Honourable Mr.

Justice Whitmore On Appeal From: 2016 SKQB 25 , Regina Appeal Heard: October 4, 2016 Counsel: Mitchell Taylor, Q.C., Kelly Keenan, Karen Jones and Courtenay Landsiedel for the Appellant Gordon Kuski, Q.C., and Holli Kuski Bassett for the Respondent Ryan-Froslie J.A. I. Introduction [ 1 ] This appeal arises out of Her Majesty the Queen in Right of Canada’s agreement to pay Merchant Law Group [MLG] $25 to $40 million in legal fees and disbursements for work done in advancing Indian Residential School claims between 1997 and 2005.

The agreement formed part of the Indian Residential Schools Settlement Agreement [IRSSA]. Her Majesty the Queen in Right of Canada [Canada] alleges its contract with MLG was based on fraudulent misrepresentations made by Anthony Merchant, Q.C., founder and senior partner of MLG, to Canada’s negotiating agent, The Honourable Frank Iacobucci, Q.C. On January 27, 2015, Canada commenced action against MLG claiming damages for fraud, deceit and fraudulent misrepresentation.

In response, MLG brought an application pursuant to Rule 7-9 of The Queen’s Bench Rules to strike Canada’s statement of claim on the bases it disclosed no reasonable cause of action, was scandalous, vexatious and was an abuse of process. [ 2 ] The Chambers judge who heard the application agreed with MLG’s position and struck Canada’s statement of claim in its entirety. Canada now appeals that decision: Canada (Attorney General) v Merchant Law Group , 2016 SKQB 25 [ Chambers Decision ]. [ 3 ] For the reasons set out herein, I would allow the appeal. II.

Background [ 4 ] A brief history of events leading up to the issuing of the statement of claim is required to provide the necessary context for this appeal. [ 5 ] Between 1997 and 2005, MLG initiated actions against Canada on behalf of Indian Residential School survivors on both an individual and a class basis. [ 6 ] In 2005, Canada appointed Mr. Iacobucci to act as its agent in negotiating a settlement of those and similar claims initiated by other law firms across Canada.

Negotiations took place between August and November 2005 and included discussions with respect to the payment of legal fees and disbursements incurred by the law firms advancing the Indian Residential School claims. During those negotiations, Mr. Iacobucci asked Mr. Merchant about the amount of fees and disbursements MLG had incurred and the number of retainer agreements it had acquired. Mr. Merchant allegedly represented that MLG had approximately $80 million in unbilled time and 7,000 to 8,000 retainer agreements (statement of claim at para 11). [ 7 ] Mr. Iacobucci had serious concerns about the information Mr.

Merchant had provided and therefore required a process by which MLG’s claim for fees could be verified. Accordingly, Canada and MLG negotiated a verification agreement (statement of claim at para 12). [ 8 ] An agreement in principle [AIP] settling the Indian Residential School claims and a verification agreement with respect to MLG’s legal fees were signed on November 20, 2005. In the verification agreement, MLG agreed to provide to Canada its “dockets, computer records of Work in Progress and any other evidence” relevant to its claim for legal fees.

If Canada and MLG could not agree on the amount of fees to be paid, the matter was to be determined by arbitration but that amount was to “ in no event be more than $40 million or less than $25 million ” ( Chambers Decision at para 8, emphasis added).

[ 9 ] The terms of the verification agreement, except the requirement for arbitration, were incorporated into the IRSSA by virtue of

Article 13.08(2). The arbitration provision was changed so that Justice Ball or, if he was unavailable another justice of the Court of Queen’s Bench for Saskatchewan, would determine what fees were to be paid if Canada and MLG could not agree on the amount. The IRSSA was signed by all parties on May 8, 2006. [ 10 ] The IRSSA, including the provisions relating to legal fees, was approved by Ball J. on December 15, 2006: Sparvier v Canada (Attorney General) , 2006 SKQB 533 , 290 Sask R 111 [ Ball Decision ]. Canada appealed a portion of that judgment, which found MLG’s fees to be “fair and reasonable”.

On March 30, 2007, this Court dismissed that appeal: Canada (Attorney General) v Sparvier , 2007 SKCA 37 , [2007] 7 WWR 682 [ Sparvier Appeal ]. [ 11 ] On July 2, 2008, Gabrielson J. of the Court of Queen’s Bench determined MLG was entitled to $25 million in fees without verification and ordered Canada to pay that amount to MLG.

Justice Gabrielson also ordered that the verification process must be completed: Fontaine v Canada (Attorney General) , 2008 SKQB 271 , 321 Sask R 285 [ Gabrielson Decision ]. [ 12 ] On August 15, 2013, following a series of court applications, MLG provided Canada with the last of its billing records and retainer agreements as required by the verification process. [ 13 ] Canada had asked Deloitte, an accounting firm, to review MLG’s billing records and retainer agreements and advise of any irregularities.

On January 8, 2014, Canada received Deloitte’s report, which indicated MLG’s billing records were replete with allegedly illegitimate time entries and excessive disbursements. As a result of that report, Canada commenced the legal action in issue against MLG.

For ease of reference, a copy of Canada’s statement of claim is attached as Appendix A to this judgment. [ 14 ] For clarity, references in this judgment to “the fee agreement”, “the MLG fee agreement” or “the fee provision” are a reference to Canada’s agreement to pay MLG fees that shall in no event be more than $40 million or less than $25 million with any amount greater than $25 million to be subject to verification. III. Issues [ 15 ] The issues raised by this appeal may be summarized as follows: (

a) Did the Chambers judge err in finding Canada’s statement of claim disclosed no reasonable cause of action? (Rule 7-9(2)(a)) (

b) If the statement of claim did not disclose a reasonable cause of action, did the Chambers judge err in refusing to allow Canada to amend the statement of claim to address any defects? (

c) Did the Chambers judge err in concluding Canada’s claim should be struck as frivolous and vexatious? (Rule 7-9(2)(b)) and (

d) Did the Chambers judge err in concluding Canada’s claim should be struck as an abuse of process? (Rule 7-9(2)(e)) [ 16 ] Given that issues (

a) and (

b) overlap, I will deal with those issues together. IV. Analysis A. Did the Chambers judge err in finding Canada’s statement of claim disclosed no reasonable cause of action? (Rule 7-9(2)(a)) B. If the statement of claim did not disclose a reasonable cause of action, did the Chambers judge err in refusing to allow Canada to amend the statement of claim to address any defects? [ 17 ] The standard of review to be applied by this Court when reviewing the Chambers judge’s decision with respect to whether Canada’s statement of claim disclosed a reasonable cause of action is correctness: R.L.T.V.

Investments Inc. v Saskatchewan Telecommunications , 2009 SKCA 83 at para 17 , 331 Sask R 78; and Hope v Gourlay , 2015 SKCA 27 at para 16 , 384 DLR (4th) 235 [ Hope ]. [ 18 ] Chief Justice McLachlin, writing for the Supreme Court of Canada, in R v Imperial Tobacco Canada Ltd. , 2011 SCC 42 , [2011] 3 SCR 45 set out the principles governing such applications: (

a) it is incumbent on a plaintiff to clearly plead the facts upon which it relies in making its claim (para 22); (

b) such applications proceed on the basis that the facts pled are true, “unless they are manifestly incapable of being proven” (paras 22 and 23); (

c) a claim will only be struck if it is plain and obvious it discloses no reasonable cause of action, that is, it has no reasonable prospect of success (para 17); and (d) “[t]he law is not static and unchanging”, thus, the approach taken in applications to strike “must be generous and err on the side of permitting a novel but arguable claim to proceed” (para 21).

See also Sagon v Royal Bank of Canada (1992), (SK CA), 105 Sask R 133 (CA) at para 16 [Sagon]; and Filson vCanada (Attorney General), 2015 SKCA 80 at para 19, 388 DLR (4th) 66 [Filson]. [19] In deciding an application to strike a claim on the basis it discloses no reasonable cause of action, a judge is limited toconsidering only the statement of claim, any document referred to therein, and any response to a request for particulars (Sagon at para 16;Filson at para 20).

A judge is not permitted to consider affidavit or other extraneous evidence. [20] In arriving at his decision, the Chambers judge properly confined his analysis to Canada’s statement of claim, the AIP, theverification agreement, and the IRSSA, as well as the three Court decisions referred to in the statement of claim: the Ball Decision, theSparvier Appeal, and the Gabrielson Decision [collectively, the Prior Decisions]. [21] While Canada’s statement of claim alleges fraud, deceit and fraudulent misrepresentation, it is properly viewed as beinggrounded in the tort of deceit.

To plead that tort, Canada needed to set out facts that, if proven, would establish the following essentialelements of the tort as set out in Bruno Appliance and Furniture, Inc. v Hryniak, 2014 SCC 8 at para 21, [2014] 1 SCR 126, namely, that:(

i) MLG made a false representation; (ii) MLG knew the representation was false or made it recklessly not knowing whether it was trueor false; (iii) the false representation caused or induced Canada to act (reliance); and (iv) Canada suffered loss as a result (damages). [22] MLG accepted Canada had successfully pled the first two elements of the tort but argued Canada had failed to properly pleadreliance and damages. The Chambers judge agreed with MLG’s position. Accordingly, I will consider each of those elements – relianceand damages – in turn. 1.

Reliance [23] The Chambers judge understood that it was not necessary for Canada to plead Mr. Merchant’s misrepresentations were thesole inducement for Canada to enter the fee agreement, only that they were a material factor in Canada’s decision: see C.R.F. HoldingsLtd. v Fundy Chemical International Ltd., (BC CA), [1982] 2 WWR 385 (BCCA) at 391 [C.R.F.]. [24] The Chambers judge also recognized that reliance is a subjective matter, which in this case would depend on the mindset ofMr. Iacobucci.

The Chambers judge also clearly understood that reliance can be established either through direct evidence or byinference based on the evidence as a whole. [25] The Chambers judge’s conclusions with respect to Canada’s failure to plead reliance can be found at paragraphs 58–65 of hisjudgment. By way of

summary, the Chambers judge found Canada had not properly pled reliance because paragraphs 11 and 12 of thestatement of claim read together with the verification agreement are fundamentally inconsistent with the allegation that Mr. Iacobucci,Canada’s agent, had relied on Mr. Merchant’s alleged misrepresentations when entering into the fee agreement. In the Chambers judge’swords: [59] … The meaning of these paragraphs is clear. They say, at a bare minimum, that Mr. Iacobucci did not know whether he couldrely on MLG, and for that reason, Canada did not do so. Rather, Mr.

Iacobucci “required that there be a process” to verify MLG’s claimfor fees. … [26] In my respectful view, the Chambers judge erred in his conclusion. In order to strike Canada’s statement of claim on the basisit disclosed no reasonable cause of action, it had to be “plain and obvious” reliance could not be established on the facts as pled.

Toarrive at that conclusion, the Chambers judge had to assume the facts set out in Canada’s statement of claim were true. [27] The Prior Decisions interpreted the MLG fee agreement to mean Canada had agreed to pay a minimum of $25 million toMLG and that $25 million was not subject to verification (Ball Decision at para 36; Sparvier Appeal; Gabrielson Decision at para 60).What paragraphs 11 and 12 of Canada’s statement of claim say, at a minimum, is that faced with Mr. Merchant’s representations,Mr. Iacobucci could not be certain those representations were accurate. That does not, however, mean Mr.

Iacobucci did not to someextent rely on those representations when entering into the fee agreement. Paragraphs 11 and 12 should be read together withparagraphs 13–17 and paragraphs 37 and 65(a), which collectively form the basis for Canada’s plea of reliance. [28] Within weeks of Mr. Merchant’s representations, the AIP was signed. It provided Canada would pay MLG a minimum fee of$25 million and capped the maximum fee payable at $40 million. On the same day, the verification agreement was also signed. It can beinferred from the pleadings that Canada (Mr.

Iacobucci) had to rely on something to arrive at those agreements. Presumably the figuresused were not pulled out of thin air and thus those figures may bear some relationship to the representations made by Mr. Merchant.Those representations may also have contributed to the creation of a level of comfort such that Canada was prepared to agree to thefigures set out in the AIP and the verification agreement. Moreover, paragraph 60 of the Gabrielson Decision held the fee of $25 millionhad to be paid by Canada to MLG without verification.

The Chambers judge did not appreciate the requirement for verification, whichunderpinned his reason for finding Canada had not and could not plead reliance, did not extend to either the minimum fee of $25 millionor the range of fees, being $25 million to $40 million. [29] In paragraph 65 of the statement of claim, Canada asserts it would not have agreed to the MLG fee agreement if it had knownthe “truth”.

In the circumstances, it is open to Canada to establish reliance on MLG’s representations with respect to the identified keyelements of the fee agreement, without contradicting the findings of fact in the Prior Decisions relating to the need for verification. Inshort, the presence of the verification agreement does not factually prevent a trial judge from finding reliance.

Whether there wasreliance and, if so, whether such reliance was sufficient to establish the tort of deceit is best left to the determination of a trial judge. [30] Further, as mentioned earlier in these reasons, reliance on MLG’s alleged misrepresentations need not be the sole reasonCanada entered into the fee agreement. It is only necessary that those misrepresentations were a material factor in Canada’s decision toenter into the agreement. As the Chambers judge himself noted, the fact Mr. Iacobucci had “serious concerns” about what Mr. Merchantwas telling him does not necessarily lead to the conclusion Mr.

Iacobucci had failed to rely on those statements in a material way. As thisCourt indicated in the Sparvier Appeal, the MLG fee agreement represented a compromise that allowed the IRSSA to proceed. None of

the Prior Decisions considered or determined what a reasonable fee would be once all the facts were known. [ 31 ] The Chambers judge went on to conclude at paragraph 62 of his judgment that Canada was not misled by and did not rely on the “illegitimate time entries, the excessive disbursement entries, the KPMG Report, or MLG’s representations about that report” when it agreed to the fee arrangements because none of those things were known to Canada at the time. [ 32 ] While the illegitimate time entries and excessive disbursement records were not revealed until after the fee provision had been negotiated and agreed to, and so could not have directly influenced Canada when entering that agreement, the statement of claim read as a whole asserts those entries and records were fabricated to support Mr.

Merchant’s alleged fraudulent misrepresentation as to the amount of MLG’s outstanding fees. For example, at paragraph 20 of its statement of claim, Canada asserts the following: Unknown to Canada at the time, once settlement of the IRS Litigation had become a reasonable prospect in the summer of 2005, MLG began entering huge amounts of purportedly billable time into its billing database that it would later claim reflected work actually completed by lawyers on IRS Litigation. (See also paragraphs 21–24 of the statement of claim.) [ 33 ] Canada further contends it pled reliance in paragraphs 37 and 65(

a) of the statement of claim. For ease of reference, I will reproduce those paragraphs here: 37. While Canada never conceded that amounts set out in the KPMG Report were legitimate, Canada had been unable to verify MLG’s billing records and therefore did not know about the Illegitimate Time Entries and Excessive Disbursement Entries. Canada urged the Courts to certify the actions as class proceedings and approve the settlement on the basis that the Verification Agreement would ascertain whether MLG’s claim for fees and disbursements was reasonable. … 65. Canada has suffered losses and aggravated damages from the Wrongful Acts by: (

a) agreeing in the Agreement in Principle and Settlement Agreement to pay MLG between $25 million and $40 million when Canada would not have agreed to those terms had it known the truth about the Illegitimate Time Entries and Excessive Disbursement Records ; … (Emphasis added) [ 34 ] In my view, these paragraphs read in the context of the statement of claim as a whole properly plead reliance.

Paragraph 65 of the statement of claim clearly asserts Canada would not have agreed to the MLG fees had it known the truth. [ 35 ] Because reliance was properly pled, it is unnecessary for this Court to deal with the Chambers judge’s refusal to allow Canada to amend its statement of claim. I would note, however, while the decision to allow amendment of a pleading is discretionary, such amendments should generally be allowed so that individuals are not deprived of the opportunity to have their cases adjudicated in a court of law.

This Court has repeatedly stated that a Chambers judge should only refuse to amend pleadings where the proposed amended pleadings could be struck pursuant to Rule 7-9 (formerly Rule 173): Rekken Estate v Saskatchewan (Health Region #1) , 2015 SKCA 36 at para 9 , 384 DLR (4th) 174 [ Rekken ]; Boart Longyear Inc. v Mudjatik Enterprises Inc. , 2016 SKCA 22 at para 24 , [2016] 5 WWR 40 [ Boart ]. 2. Damages [ 36 ] Canada’s claim for damages is set out at the end of its statement of claim: WHEREFORE, Canada claims as follows:

a) general damages;

b) special damages, including but not limited to: (i) $25 million in compensation for the payment made to MLG, plus interest since the date of payment; (ii) costs on a full indemnity basis for all previous court proceedings that were premised on, or concerned with, the fees and disbursements owing to MLG under clause 13.08(2) of the Settlement Agreement;

c) punitive damages;

d) aggravated damages;

e) a declaration that on account of the wrongful and reprehensible conduct of MLG, it is not entitled to any payment on a quantum meriut basis for legal fees or disbursements for IRS Litigation;

f) prejudgment interest;

g) costs of this proceeding on a solicitor-client basis; and

h) such further or other relief as to this court may seem just.

[37] The Chambers judge concluded Canada had failed to plead sufficient facts to establish any loss as a result of Canada’sreliance on MLG’s alleged misrepresentations. The Chambers judge’s conclusion on this point was grounded in the Ball Decision, whichhad determined the MLG fee provisions were “fair and reasonable”, despite concerns being raised as to the reliability of MLG’srepresentations. That decision was affirmed by this Court. Thus, the Chambers judge reasoned Canada could not now claim the fee of$25 million was “unfair or unreasonable”.

The Chambers judge’s conclusions are found at paragraphs 67–69 of the Chambers Decision.For clarity, I will repeat them here: [67] In my view, Canada has also failed to plead material facts which support its claim that it suffered damages. Canada pled that itsuffered damages by agreeing to pay and paying $25 million dollars. However, it also pled that Ball J. – who had and continues to havethe authority pursuant to the IRSSA to decide what MLG should be paid – found that the $25 million fee was fair and reasonable.

He didso despite finding only that MLG spent “substantial” time, and despite his stated concerns as to the reliability of MLG’s representations. [68] Ball J.’s decision in relation to this issue, and that of the Court of Appeal, are res judicata, and as such, subject to issue estoppel.Canada did not suggest otherwise.

It did not take issue with Ball J.’s conclusion, or suggest that he or the Court of Appeal would havereached a different conclusion if they had known what Canada now knows. [69] That being so, how could Canada now prove, or properly stated in the context of this application, what facts have been pledwhich support the claim, that Canada suffered damages? The alleged misrepresentations in this case might be compared to fraud on asale of property, where the measure of damages is the difference between the purchase price and the actual value at the time of sale: see,for example, Parna.

If that is so, Canada – which is in no position to and has never attempted to unravel the settlement – must prove, andmust accordingly plead material facts, which could support a finding that it paid too much. It has instead, as it must, pled facts whichconfirm that the $25 million fee is fair and reasonable based on the applicable legal test. [38] Canada argues the Chambers judge erred in his conclusion with respect to its claim for damages because the Ball Decision isnot determinative of whether Canada has suffered loss.

This is so because Canada’s action is based on the tort of deceit, which was notargued or considered by Ball J. when he approved the IRSSA. Moreover, Canada contends its damages are not limited to the return ofthe $25 million paid to MLG but also include consequential loss (costs pertaining to court proceedings and verification) and a claim forpunitive and aggravated damages. [39] In my view, Canada’s position has merit. First, Canada’s claim for damages is grounded in tort, not contract.

It is based on theallegation that MLG wrongfully induced Canada to agree to the fee arrangement by fraudulently misrepresenting the number of retaineragreements MLG had and the work it had done with respect to the Indian Residential School claims. That Canada can pursue a remedy intort versus contract was clearly established by the Supreme Court of Canada in BG Checo International Ltd. v British Columbia Hydroand Power Authority, (SCC), [1993] 1 SCR 12 [BG Checo] at 26: In our view, the general rule emerging from this Court’s decision in Central Trust Co. v.

Rafuse, (SCC), [1986] 2 S.C.R.147, is that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except wherethe contract indicates that the parties intended to limit or negative the right to sue in tort. … [40] In BG Checo, La Forest J. and McLachlin J. (as she then was), writing for the majority, described the measure of damages incontract and for the tort of negligent misrepresentation in these terms (at 37): Contract: the plaintiff is to be put in the position it would have been in had the contract been performed as agreed.

Tort: the plaintiff is to be put in the position it would have been in had the misrepresentation not been made. [41] While the quantity of damages in concurrent tort and contract cases is often the same, the majority in BG Checo explainedthere can be differences: In the situation of concurrency, the main reason to expect a difference between tort and contract damages is the exclusion of thebargain elements in standard tort compensation. In the terminology of L. L. Fuller and W. R.

Purdue, as set out in their article,“The Reliance Interest in Contract Damages” (1936-37), 46 Yale L.J. 52 and 373, contract is normally concerned with“expectation” damages while tort is concerned with “reliance” damages. The denial of “expectation” or “loss of bargain” damages ina misrepresentation case like the present will occur when it is concluded, for example, that but for the misrepresentation, no contractwould have been entered at all; this was the situation that the Court found in Rainbow Industrial Caterers Ltd. v. Canadian NationalRailway Co., (SCC), [1991] 3 S.C.R. 3.

The Rainbow assessment of damages can obviously lead to a different quantumof damages because this method frees the parties from the burden or benefit of the rest of their bargain. The assessment of damages in aRainbow situation could be lower or higher than the contract damages depending on whether the contract was a good or badbargain; see D. W. McLauchlan, “Assessment of Damages for Misrepresentations Inducing Contracts” (1987), 6 Otago L. Rev.370, at pp. 375–78. We note that a tendency towards similar damages in tort and contract can be identified even in Rainbow situations;see J.

Blom, “Remedies in Tort and Contract: Where is the Difference?” in J. Berryman, ed., Remedies: Issues and Perspectives (1991),395, at pp. 401–2. This is not a case like Rainbow. Here the evidence at trial concerning Checo’s desire to break into the B.C. market already provides solidsupport for the conclusion reached by the Court of Appeal.

On the basis of that evidence, and in light of the absence in the trial judge’sreasons of a clear conclusion as to what Checo would have done had the misrepresentation not been made, the Court of Appeal was inour view justified in making its own finding that Checo would have entered the contract in any event, albeit at a higher bid. Thisconclusion having been reached, one would expect that the quantum of damages in tort and contract would be similar because theelements of the bargain unrelated to the misrepresentation are reintroduced.

This means not giving the plaintiff compensation for anylosses not related to the misrepresentation, but resulting from such factors as the plaintiff’s own poor performance, or market or otherforces that are a normal part of business transactions. In tort, Checo is entitled to be compensated for all reasonably foreseeable loss caused by the tort. The Court of Appeal was of the viewthat Checo, had it known the true facts (i.e., had the tort not been committed) would have increased its bid by an amount equal to the cost

of the extra work made necessary by the improperly cleared work site plus profit and overhead. Such loss was not too remote, beingreasonably foreseeable. But to compensate only for the direct costs of clearing is to suggest that the only tort was the failure to clear. Thereal fault is that Hydro misrepresented the situation and Checo may have relied on that representation in performing its other obligationsunder the contract.

For example, having to devote its resources to that extra work might have prevented Checo from meeting its originalschedule, thereby resulting in Checo incurring acceleration costs in order to meet the contract completion date. Such costs would alsoarguably be reasonably foreseeable.

In our view, the matter should be referred back to the trial division for determination of whether anysuch indirect losses were the foreseeable results of the misrepresentation. [Underline emphasis in original, bold emphasis added, at 40–42] [42] Second, of significance to the analysis in this case is that Ball J.’s conclusion that the $25 million fee was “fair andreasonable” was made in a very different context than that required to assess Canada’s damages in the tort action.

Justice Ball wasdealing with the question of whether the IRSSA – a class action settlement agreement – should be approved as required by s. 38 of TheClass Actions Act, SS 2001, c C-12.01. MLG’s fee agreement formed part of the IRSSA. Moreover, s. 41(2) of The Class Actions Actrequires court approval of fees and disbursements paid to legal counsel.

The test for approving a class action settlement is whether it isfair and reasonable and in the best interests of the class as a whole: Driediger v Ashley Furniture Industries Inc., 2010 SKQB 437 atpara 11, [2011] 8 WWR 804; Jeffery v Nortel Networks, 2007 BCSC 69 at para 17, 68 BCLR (4th) 317; and Baxter v Canada (AttorneyGeneral) (2006), (ON SC), 83 OR (3d) 481 (Sup Ct) at para 9.

On the other hand, in a tort action based on deceit,the focus is on returning the plaintiff to the position he or she would have been in had the fraudulent misrepresentation not been made.Justice Ball was not asked to determine whether MLG had misrepresented the number of retainer agreements it had, the disbursements ithad paid, or the time it had spent on the Indian Residential School claims. Nor was he asked to determine whether MLG would bejustified in claiming $25 to $40 million in fees if MLG had committed the tort of deceit.

Rather, his analysis was limited to a broadoverview of the “reasonableness and fairness” of MLG’s fees based on the class’s best interests. That analysis was underpinned by ageneral acceptance of the fees as portrayed by MLG. [43] Third, while Ball J. had to consider MLG’s fee agreement as part of his analysis, his decision was premised on the existenceof a valid contract between Canada and MLG untainted by fraud or misrepresentation. Indeed, Canada and MLG both supported theapproval of the IRSSA including the provisions relating to MLG’s legal fees.

Canada and MLG, however, had “differentunderstandings” of what the fee provisions meant and, accordingly, Ball J. was called upon to interpret the agreement (Ball Decision atparas 27–29). The main source of contention (though not the only one) was what portion of the fees agreed to were subject toverification. Justice Ball found the agreement was not ambiguous and that the requirement of verification was to apply only to the feesclaimed by MLG in excess of $25 million. That

interpretation is not challenged by Canada’s action. [44] Fourth, Ball J. then went on to determine whether the fee agreement should be approved. He described that task as follows: [43] … The Court must decide whether the fee arrangements, which are part of the overall settlement, are “fair and reasonable.” Thismeans that counsel are entitled to a fair fee which may include a premium for the risk undertaken and the result achieved.

It also meanshowever, that the fees must not bring about a settlement that is in the interests of the lawyers, but not in the best interests of theclass members as a whole. (Emphasis added) It is clear Ball J.’s focus when addressing MLG’s fees was on the best interests of the class. [45] Canada’s interest did not figure into Ball J.’s analysis. In assessing whether MLG’s fee agreement was fair and reasonable,Ball J. took into account a number of factors: (

i) time expended; (ii) complexity of the action; (iii) the degree of responsibility assumedby MLG; (iv) the monetary value of the claim to the class; (

v) the importance of the action; (vi) the degree of skill and competencedemonstrated by MLG; (vii) the results achieved; (viii) the ability of the class members to pay the fee; and (ix) the class’s expectationsas to the amount of the fees. These considerations are the same as those generally used to assess a lawyer’s remuneration on a quantummeruit basis: Zipchen v Bainbridge, 2008 SKCA 87 at para 90, [2008] 12 WWR 397.

For Ball J., the most important of these factors wasthe amount of money involved and the results achieved. [46] Justice Ball concluded the time spent by MLG on the residential school litigation was “substantial” (Ball Decision at para 57)and that the fees payable to MLG would “fairly compare to fees payable to other counsel” involved in advancing the Indian ResidentialSchool claims.

He based that finding on the number of retainer agreements MLG had, which he found to be 4,823 (Ball Decision atpara 51). [47] While the assessment done by Ball J. will be similar to the assessment of damages conducted by a trial judge charged withdetermining Canada’s loss, if any, the analysis employed will not be identical. Justice Ball did not have sufficient evidence to properlyconsider the number of claimants represented by MLG, the number of retainer agreements MLG had, or the time expended by MLG onIndian Residential School claims.

Justice Ball understood those matters would be addressed through the verification process (BallDecision at para 57). On the other hand, central to Canada’s claim for damages are the very matters Ball J. identified as being things forwhich he did not have sufficient evidence. Presumably, given the disclosure that has now been received by Canada, a trial judge wouldhave evidence with respect to those matters.

Whether that additional evidence would affect the assessment of what is “fair andreasonable” remuneration is a question best left to the trial judge. [48] Finally, it is also significant that Canada’s request for damages is not limited to the $25 million paid to MLG – it also includesclaims for consequential loss (indemnity for costs incurred with respect to the court proceedings, which would include the verificationprocess). The Chambers judge did not consider whether those claims could constitute loss suffered by Canada as a result of its relianceon MLG’s alleged misrepresentations.

His failure to consider that was an error. The Chambers judge may have been led into that error byCanada’s assertion that if it was not able to claim the $25 million paid to MLG, it would not proceed with its action. However, whetherCanada would proceed with its action or not was irrelevant to the analysis of whether Canada had pled a reasonable cause of action.What was relevant is whether Canada had pled loss that could be established.

[49] Consequential loss arising as a result of a fraudulent misrepresentation has been granted in a number of cases. In C.R.F.,Craig J.A., writing for the Court, stated at 393: The cases dealing with deceit state that generally the measure of damages is the price paid for the property less the actual value. The caseusually cited as authority for this proposition is McConnel v. Wright … a decision of the English Court of Appeal, which was cited withapproval by the Supreme Court of Canada in Hepting v. Schaaf … and this court in Zorzi v. Barker ….

The statement that the normalmeasure of damages in a deceit action is the price paid for the property less the actual value might appear to preclude a consideration ofconsequential loss.

I think that the Hepting case and the Zorzi case do not preclude us from holding that consequential loss may bea proper consideration in awarding damages for deceit relating to the sale of land and that, on principle, consequential loss maybe a proper consideration in such a case. … [Emphasis added] See also: Siametis v Trojan Horse (Burlington) Inc. (1979), (ON CA), 104 DLR (3d) 556 (Ont H Ct J), aff’d (1981), (ON CA), 123 DLR (3d) 767n (Ont CA); Sevidal v Chopra (1987), (ON SC), 64 OR (2d) 169 (OntH Ct J).

Based on these authorities, Canada’s damages may not be limited to the difference between what MLG should have been paidfor its services using a quantum meruit analysis and the $25 million Canada actually paid to MLG for those services. Canada’s loss mayarguably include damages for consequential loss. [50] Moreover, because Canada’s action is grounded in the tort of deceit, it can successfully result in a punitive award even ifCanada’s loss is nominal. As noted in Peter T.

Burns, Q.C., and Joost Blom, Q.C., Economic Interests in Canadian Tort Law (Markham:LexisNexis, 2009) at 452 [Economic Interests]: Punitive damages are routinely awarded for intentional torts, including deceit, conspiracy, inducing breach of contract, and unlawfulinterference with economic relations. … [51] In Hill v Church of Scientology of Toronto, (SCC), [1995] 2 SCR 1130 [Hill], the majority stated: 196 Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handedthat it offends the court’s sense of decency.

Punitive damages bear no relation to what the plaintiff should receive by way ofcompensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury orjudge expresses its outrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrentto the defendant and to others from acting in this manner.

It is important to emphasize that punitive damages should only be awarded inthose circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal ofpunishment and deterrence. [52] Justice Ball’s conclusion that the MLG fee agreement was “fair and reasonable” would not impact the availability of apunitive damage award.

This is so because punitive damages are premised on punishment and deterrence of the offender as well asdenunciation of the action, not compensation of the victim (see Hill, Whiten v Pilot Insurance Co., 2002 SCC 18 at paras 36 and 68,[2002] 1 SCR 595). Thus, even if Canada’s loss is nominal, the ability to award punitive damages would remain. [53] In

summary, in my view, the Chambers judge erred in finding Canada had not properly pled loss as a result of reliance onMLG’s alleged fraudulent misrepresentations. [54] Canada had requested that it be allowed to amend its claim for damages if that claim was found deficient. Given this Court’sconclusions, it is not necessary to address Canada’s amendment request. C.

Did the Chambers judge err in concluding Canada’s claim should bestruck as frivolous and vexatious? (Rule 7-9(2)(b)) [55] The standard of review to be applied to the Chambers judge’s decision that Canada’s statement of claim is scandalous andvexatious is correctness: see Hope at para 16; Mann v Hawkins, 2011 SKCA 146 at para 23, 385 Sask R 59; and Bigstone v St.

Pierre,2011 SKCA 34 at para 14, [2011] 5 WWR 594. [56] Striking a statement of claim on the basis it is frivolous, vexatious or an abuse of the court’s process engages totally differentconsiderations than an application to strike a pleading as disclosing no reasonable cause of action. Determining that an action isfrivolous, vexatious or an abuse of process by necessity involves an assessment of the merits of the claim and sometimes the motives ofthe claimant in bringing it.

As such, evidence extraneous to the statement of claim or other pleadings may be considered. [57] In Sagon, Sherstobitoff J.A. discussed the basis for striking a claim as being frivolous or vexatious: [18] Striking out an entire claim on the ground that it is frivolous, vexatious or an abuse of process of the court is based on an entirelydifferent footing. Instead of considering merely the adequacy of the pleadings to support a reasonable cause of action, it may involve anassessment of the merits of the claim, and the motives of the plaintiff in bringing it.

Evidence other than the pleadings is admissible.Success on such an application will normally result in dismissal of the action, with the result that the rule of res judicata will likely applyto any subsequent efforts to bring new actions based on the same facts. Odgers on Pleadings and Practice, 20th Ed. says at pp. 153–154: If, in all the circumstances of the case, it is obvious that the claim or defence is devoid of all merit or cannot possibly succeed, anorder may be made. But it is a jurisdiction which ought to be very sparingly exercised, and only in very exceptional cases.

Itsexercise would not be justified merely because the story told in the pleadings is highly improbable, and one which it is difficult tobelieve could be proved [footnotes omitted by in original]. [Emphasis added]

An action that is totally without merit may fairly be described as frivolous or vexatious. [58] Where a claim or matter is res judicata (finally determined in a prior proceeding), it may be struck as being frivolous orvexatious: Royal Bank of Canada v Kadziolka (1999), (SK CA), 172 Sask R 216 (CA) at para 25; Salasel vCuthbertson, 2015 ONCA 115 at para 8, 381 DLR (4th) 632; and T & D Roofing Ltd. v Canadian Imperial Bank of Commerce, (SK KB), [1993] 7 WWR 766 (Sask QB) at para 6. [59] The Chambers judge struck Canada’s statement of claim as being frivolous and vexatious because in his view the claim was“estopped” (already determined) by the Ball Decision, the Sparvier Appeal, and the Gabrielson Decision, all of which had determinedMLG was entitled to $25 million in fees “no matter what” the outcome of the verification process (Chambers Decision at para 90; seealso paras 95–96).

This conclusion amounted to a finding of issue estoppel, which forms a part of the doctrine of res judicata. [60] The doctrine of res judicata has been described as having two distinct aspects – cause of action estoppel and issue estoppel.Cause of action estoppel bars the rehearing of a cause (claim) that has been decided or could have been decided in a prior proceedinginvolving the same parties or their privies.

Issue estoppel, on the other hand, applies where the cause of action may be different but anissue (the finding of a material fact or mixed fact and law) was decided or could have been decided in a prior proceeding between thesame parties or their privies. [61] In Angle v M.N.R., (SCC), [1975] 2 SCR 248 at 253–254 [Angle], Dickson J. (as he then was), writing forthe majority, described cause of action estoppel and issue estoppel in these terms: In earlier times res judicata in its operation as estoppel was referred to as estoppel by record, that is to say, estoppel by the written recordof a court of record, but now the generic term more frequently found is estoppel per rem judicatam.

This form of estoppel, as DiplockL.J. said in Thoday v. Thoday, [[1964] P. 181], at p. 198, has two species. The first, “cause of action estoppel”, precludes a person frombringing an action against another when that same cause of action has been determined in earlier proceedings by a court of competentjurisdiction. … The second species of estoppel per rem judicatam is known as “issue estoppel”, a phrase coined by Higgins J. of theHigh Court of Australia in Hoystead v.

Federal Commissioner of Taxation [(1921), (UK JCPC), 29 CLR 537], atp. 561: I fully recognize the distinction between the doctrine of res judicata where another action is brought for the same cause of action as hasbeen the subject of previous adjudication, and the doctrine of estoppel where, the cause of action being different, some point or issue offact has already been decided (I may call it “issue-estoppel”). Lord Guest in Carl Zeiss Stiftung v.

Rayner & Keeler Ltd. (No. 2), [[1967] 1 AC 853], at p. 935, defined the requirements of issueestoppel as: … (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and,(3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which theestoppel is raised or their privies … . [Emphasis added] [62] The Chambers judge found Canada’s action to be frivolous and vexatious on the basis of issue estoppel. [63] The requirements necessary to establish issue estoppel were set out by Dickson J. in Angle at 254, and may be summarized asfollows: (

a) the same question has been decided in a prior proceeding; (

b) the decision creating the estoppel was final in nature; and (

c) the parties to that decision (or their privies) are the same as the parties (or their privies) in the proceeding where estoppel isbeing raised. This test was repeated with approval by the Supreme Court in Danyluk v Ainsworth Technologies Inc., 2001 SCC 44 at para 25, [2001] 2SCR 460 [Danyluk]. [64] The Chambers judge correctly identified this test in his reasons for judgment.

Canada, however, contends he erred in theapplication of the test in that the first requirement for establishing issue estoppel – that Canada’s action raises a question alreadydetermined in the three prior proceedings – was not met in the circumstances of this case. [65] In Angle, Dickson J. discussed what is meant by the requirement that the same question must have been decided in earlierproceedings: Is the question to be decided in these proceedings, namely the indebtedness of Mrs. Angle to Transworld Explorations Limited, the sameas was contested in the earlier proceedings? If it is not, there is no estoppel.

It will not suffice if the question arose collaterally orincidentally in the earlier proceedings or is one which must be inferred by argument from the judgment. That is plain from the words ofDe Grey C.J. in the Duchess of Kingston’s case [(1776), 20 St Tr 355, 538n], quoted by Lord Selborne L.J. in R. v. Hutchings [(1881), 6QBD 300], at p. 304, and by Lord Radcliffe in Society of Medical Officers of Health v. Hope, [[1960] AC 551]. The question out ofwhich the estoppel is said to arise must have been “fundamental to the decision arrived at” in the earlier proceedings: per Lord Shaw inHoystead v.

Commissioner of Taxation, [ (UK JCPC), [1926] AC 155]. The authors of Spencer Bower and Turner,Doctrine of Res Judicata, 2nd ed. pp. 181, 182, quoted by Megarry J. in Spens v. I.R.C., [[1970] 3 All ER 295], at p. 301, set forth inthese words the nature of the enquiry which must be made:

… whether the determination on which it is sought to found the estoppel is “so fundamental” to the substantive decision that thelatter cannot stand without the former. Nothing less than this will do. [Italic emphasis in original, bold emphasis added, at 254–255] [66] In the appeal at hand, the Chambers judge recognized the Prior Decisions were not concerned with an allegation of deceit butrather dealt with approval and

interpretation of a class action settlement. That alone, however, would not be determinative of whetherissue estoppel applies in this case. As the Chambers judge correctly pointed out at paragraph 84 of his judgment, “[i]ssue estoppel is notcause of action estoppel. It extends to conclusions of fact and mixed fact and law that were necessarily determined in the earlierproceedings.

It bars re-litigation of conclusions of that kind regardless of differences in the causes of action”. [67] As noted above, the Chambers judge concluded that a certain finding of fact in the Ball Decision, the Sparvier Appeal, andthe Gabrielson Decision is determinative of Canada’s claim, namely, that MLG was entitled to $25 million “no matter what” theoutcome of the verification process. The Chambers judge found the judges who made the Prior Decisions “were alive to the fact thatMLG may have misrepresented the facts” (Chambers Decision at para 92).

Despite that, the courts in all three decisions decided Canadawas obligated to pay $25 million to MLG regardless of the outcome of the verification process. The Chambers judge quotedRichards J.A. (as he then was) who at paragraph 33 of the Sparvier Appeal stated the MLG fee provisions were the “rationalcompromise” Canada had reached to address its “concerns about the integrity” of MLG’s representations. In the words of the Chambersjudge, “Canada knew something might be amiss.

The verification process was designed to generate exactly the information Canada nowrelies on to found a claim to recover the legal fees it agreed to pay regardless of what that process might disclose” (Chambers Decision atpara 94). [68] On that basis, the Chambers judge found the

interpretation given to the IRSSA and the verification agreement in the PriorDecisions engaged the doctrine of issue estoppel: [95] … It has been finally determined that MLG was entitled to be paid $25 million, regardless of the outcome of the verificationprocess. Those decisions mean that MLG was entitled to that amount even if the verification process disclosed that MLG had made falserepresentations.

There is no basis to find that MLG shall “in no event” receive less than $25 million means “in no event except in theevent the amount verified differs from the amount represented”. [69] Implicit in the Chambers judge’s decision is that MLG’s fee agreement would stand even if there had been fraud. With duerespect, I cannot agree with that proposition. [70] In my view, the Chambers judge erred because the question as identified is not “so fundamental to the substantive decision”that the latter cannot stand with the former.

Let me explain. [71] First, the fact the Ball Decision, the Sparvier Appeal, and the Gabrielson Decision interpreted the MLG fee agreement tomean Canada had agreed to pay MLG $25 million “no matter the outcome” of the verification process cannot be viewed ascountenancing fraud. As stated by Fitzpatrick C.J. in Scheuerman v Scheuerman (1916), (SCC), 52 SCR 625 at 627, arepresentor “is not entitled to come into court and ask to be relieved of the consequences of his actions done with intent to violate the law…”. Courts will not overlook fraud.

The three Prior Decisions did not consider the issue of fraud or its effect on the fee provisions inissue. [72] Second, if there was fraud, Canada would have the right to rescind the IRSSA. Canada, however, has elected not to do that.Instead, it has chosen to seek damages against MLG based on the tort of deceit. In Bruce MacDougall, Misrepresentation (Toronto:LexisNexis, 2016) at 399–400, the author describes the remedies available for fraudulent misrepresentation in these terms: … Damages are a remedy separate from rescission for fraudulent misrepresentation and they are independently available.

They are aseparate cause of action. Where an individual had been induced to enter into a contract as a result of a fraudulent misrepresentation bythe other contracting party, the claimant can rescind the contract, or claim damages if there is loss, or both. Damages may, therefore, beavailable where the contract cannot be or is not rescinded. … The question of whether there has been a fraudulent misrepresentation, which has resulted in damages, is far different from the questionsof contractual

interpretation and approval of the class action settlement that were the subject of the three Prior Decisions. [73] Third, while fraud can be waived, such a waiver must be clear, unequivocal and informed. Economic Interests describes howfraud may be waived in these terms (at 72): A claim in fraud, like any other private right, can be waived, but anything short of a clear, express waiver is unlikely to do. In particular,it is very difficult to argue that the victim of fraud has impliedly given up the claim for the sole reason that he or she proceeded with thetransaction after having learned of the fraud.

There may be all kinds of reasons why the plaintiff does not want to back out, even if it islegally possible to rescind the contract. There may be effects on business relationships or reputation that make rescission unattractive, theright to rescind may be unclear, or the plaintiff may simply be content to proceed and rely on a right to damages, which the plaintiff isfree to do as long as it does not constitute an unreasonable failure to mitigate losses. [74] While Canada agreed to pay a minimum of $25 million to MLG, that compromise was achieved to allow the IRSSA toproceed.

The verification agreement cannot be seen as essentially a contract that waives Canada’s rights if fraud is later discovered.Moreover, at the time Canada entered the MLG fee agreement, it did not have all the necessary information to make an informed waiver.Canada only became fully-informed through the verification process. Furthermore, the MLG fee agreement makes no mention of fraud,nor does it contain the type of language necessary to waive fraud. [75] Fourth, Canada’s claim does not require the MLG fee agreement to be interpreted in a manner different from that determinedby the Prior Decisions.

Canada’s claim is in tort. It is premised on the allegation Canada would not have entered into the fee agreementit did with MLG but for Mr. Merchant’s alleged fraudulent misrepresentations. The determination in the Prior Decisions that Canada had

to pay MLG $25 million “no matter the outcome” of the verification process was premised on the existence of a valid fee agreementuntainted by fraud. The underlying basis for that fee agreement is now being challenged by Canada’s legal action. [76] Fifth, as the Chambers judge acknowledged, Canada’s allegations of deceit have never been considered on their merits. [77] In

summary, the Chambers judge erred in concluding issue estoppel applied in the circumstances of this case because thequestion identified by the Chambers judge as constituting issue estoppel is not determinative of the issues raised by Canada’s action. [78] Even if the question identified by the Chambers judge could ground a finding of issue estoppel, that would not bring an end tothe inquiry.

If issue estoppel is established, the Court must go on to determine whether “as a matter of discretion” it ought to be applied.Binnie J. stated the following in Danyluk: 33 The rules governing issue estoppel should not be mechanically applied.

The underlying purpose is to balance the public interest inthe finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case. (There are correspondingprivate interests.) The first step is to determine whether the moving party (in this case the respondent) has established thepreconditions to the operation of issue estoppel set out by Dickson J. in Angle, supra. If successful, the court must still determinewhether, as a matter of discretion, issue estoppel ought to be applied: British Columbia (Minister of Forests) v.

Bugbusters PestManagement Inc. (1998), (BC CA), 50 B.C.L.R. (3d) 1 (C.A.), at para. 32; Schweneke v. Ontario (2000), (ON CA), 47 O.R. (3d) 97 (C.A.), at paras. 38-39; Braithwaite v. Nova Scotia Public Service Long Term Disability PlanTrust Fund (1999), 1999 NSCA 77 , 176 N.S.R. (2d) 173 (C.A.), at para. 56. [Italic emphasis in original, bold emphasis added] [79] Justice Binnie went on to describe this discretion as a very limited one.

In doing so, he quoted, with approval, Finch J.A.’scomments in British Columbia (Minister of Forests) v Bugbusters Pest Management Inc. (1998), (BC CA), 159 DLR(4th) 50 (BCCA) at para 32, and the Ontario Court of Appeal decision in Schweneke v Ontario (2000), (ON CA), 47OR (3d) 97 (CA) at para 38: 63 In Bugbusters, supra, Finch J.A. (now C.J.B.C.) observed, at para. 32: It must always be remembered that although the three requirements for issue estoppel must be satisfied before it can apply, the fact thatthey may be satisfied does not automatically give rise to its application.

Issue estoppel is an equitable doctrine, and as can be seen fromthe cases, is closely related to abuse of process. The doctrine of issue estoppel is designed as an implement of justice, and aprotection against injustice. It inevitably calls upon the exercise of a judicial discretion to achieve fairness according to thecircumstances of each case. Apart from noting parenthetically that estoppel per rem judicatem is generally considered a common law doctrine (unlike promissoryestoppel which is clearly equitable in origin), I think this is a correct statement of the law.

Finch J.A.’s dictum was adopted and appliedby the Ontario Court of Appeal in Schweneke, supra, at paras. 38 and 43: The discretion to refuse to give effect to issue estoppel becomes relevant only where the three prerequisites to the operation of thedoctrine exist. … The exercise of the discretion is necessarily case specific and depends on the entirety of the circumstances.

Inexercising the discretion the court must ask — is there something in the circumstances of this case such that the usual operationof the doctrine of issue estoppel would work an injustice? … [Emphasis added] [80] In Insurance Company of the State of Pennsylvania v Global Aerospace, Inc., 2010 SKCA 96, [2010] 10 WWR 426[Aerospace], Cameron J.A. of this Court described the discretion in these terms: [83] That such discretion exists is beyond doubt, though it is “very limited” in relation to issue estoppel in the context of aprior decision of a court: General Motors of Canada v. Naken, (SCC), [1983] 1 S.C.R. 72.

In that case Estey J., whodelivered the judgment of the Court, observed at p. 101 that “such a discretion must be very limited in application”, noting that the fact“harsh results follow the application of the doctrine has not deterred its application by the courts.” This provides some insight into justhow limited this discretion is in relation to issue estoppel in the context of court proceedings. [84] The discretion is broader in relation to a prior decision of a tribunal rather than a court, as explained in Danyluk v. AinsworthTechnologies Inc., supra, but that is beside the point here.

Nevertheless, Danyluk remains instructive.

In delivering the judgment of theCourt, Justice Binnie observed at para. 67 that “the objective is to ensure that the operation of issue estoppel promotes the orderlyadministration of justice but not at the cost of real injustice in the particular case.” This is instructive of the proper exercise of thediscretion, even when it is very limited, for this posits a discretion controlled by the prescribed standard of “real injustice in theparticular case”. [Emphasis added] [81] It is clear that in exercising the discretion a court must ask if there is something in the circumstances of the case that wouldresult in an injustice if the doctrine of issue estoppel were applied.

In making that determination, the list of factors to be considered “isopen”; although Binnie J.’s comments at paragraph 67 of Danyluk indicate they include “many of the same factors” listed in R vConsolidated Maybrun Mines Ltd., (SCC), [1998] 1 SCR 706 [Maybrun], in connection with the rule against collateralattack and that a “similarly helpful list” was proposed by Laskin J.A. in Minott v O’Shanter Development Co. (1999), (ON CA), 168 DLR (4th) 270 (Ont CA) [Minott].

[82] Maybrun dealt with a decision emanating from an administrative tribunal and, accordingly, the factors listed there are notapplicable to this appeal. In Minott, however, the Ontario Court of Appeal dealt with the exercise of the discretion in the context of civillitigation. Justice Laskin, writing for the Court, stated the following: [50] Issue estoppel is a rule of public policy and, as a rule of public policy, it seeks to balance the public interest in the finalityof litigation with the private interest in achieving justice between litigants.

Sometimes these two interests will be in conflict, or, atleast there will be tension between them. Judicial discretion is required to achieve practical justice without undermining the principles onwhich issue estoppel is founded. Issue estoppel should be applied flexibly where an unyielding application of it would be unfair toa party who is precluded from relitigating an issue. [51] That the courts have always exercised this discretion is apparent from the authorities.

For example, courts have refused to applyissue estoppel in “special circumstances”, which include a change in the law or the availability of further relevant material. If thedecision of a court on a point of law in an earlier proceeding is shown to be wrong by a later judicial decision, issue estoppel willnot prevent relitigating that issue in subsequent proceedings. It would be unfair to do otherwise. [Emphasis added] [83] The Chambers judge concluded that applying the doctrine of issue estoppel would not result in an injustice because (

i) Canadawas well aware of the possibility there had been misrepresentations, yet still agreed to pay $25 million; (ii) Canada had the opportunityon three prior occasions to address the issue of fraud, and chose not to do so; (iii) the courts on three prior occasions, knowing of themisrepresentation and false records, confirmed the $25 million fee must be paid, regardless of the outcome of the verification process;(iv) the $25 million fee has been found to be “fair and reasonable”; and (

v) the settlement has been implemented for the benefit ofthousands of claimants (Chambers Decision at para 100). [84] Canada contends the Chambers judge erred in exercising his discretion because he did not consider “all relevant factors”, gave“insufficient weight to relevant considerations”, and made a decision that was “so clearly wrong that it amounts to an injustice”. Inparticular, Canada submits the Chambers judge failed to consider the most critical factor, namely, whether in the circumstances of thiscase the application of issue estoppel would work an injustice.

Canada submits it would because it prevents Canada from pursuing aclaim of fraud. [85] In my view, Canada’s submissions have merit in that the Chambers judge failed to consider the factors relevant to a claim ofinjustice. Rather, he focused on matters relevant to the question of whether estoppel had been established. As stated by Binnie J. inDanyluk, it is “an error of principle not to address the factors for and against the exercise of the discretion” (at para 66). [86] For clarity, I will briefly address the factors the Chambers judge did rely on.

First, being aware of the “possibility” ofmisrepresentation is not synonymous with a knowledge of fraud. Misrepresentations can be innocent, negligent or fraudulent. Theramifications of an innocent or, indeed, negligent misrepresentation are far different than the ramifications of a fraudulent one. [87] Second, Canada did not have the opportunity in the prior proceedings to raise the issue of fraud. As the Chambers judgehimself noted, Canada did not have the information that allegedly establishes fraud when those applications were being dealt with.

I willaddress this matter more fully when dealing with the issue of abuse of process. [88] Third, the fact the $25 million fee has been found to be fair and reasonable for the purposes of approving the class actionsettlement is irrelevant to the interest of justice question; as is the fact the IRSSA has been implemented for the benefit of thousands ofclaimants. The IRSSA will not be affected by Canada’s action. [89] I turn now to the question of what a court should consider when deciding whether to exercise its discretion not to apply thedoctrine of issue estoppel.

As pointed out earlier in these reasons, the discretion is a very limited one. There is, however, some guidancefrom the Supreme Court on how it should be exercised that is particularly relevant to this case. In Toronto (City) v C.U.P.E., Local 79,2003 SCC 63, [2003] 3 SCR 77 [Toronto City], Arbour J., writing for the majority, stated: 52 In contrast, proper review by way of appeal increases confidence in the ultimate result and affirms both the authority of theprocess as well as the finality of the result.

It is therefore apparent that from the system’s point of view, relitigation carries seriousdetrimental effects and should be avoided unless the circumstances dictate that relitigation is in fact necessary to enhance thecredibility and the effectiveness of the adjudicative process as a whole.

There may be instances where relitigation will enhance,rather than impeach, the integrity of the judicial system, for example: (1) when the first proceeding is tainted by fraud ordishonesty; (2) when fresh, new evidence, previously unavailable, conclusively impeaches the original results; or (3) whenfairness dictates that the original result should not be binding in the new context.

This was stated unequivocally by this Court inDanyluk, supra, at para. 80. 53 The discretionary factors that apply to prevent the doctrine of issue estoppel from operating in an unjust or unfair way are equallyavailable to prevent the doctrine of abuse of process from achieving a similar undesirable result.

There are many circumstances inwhich the bar against relitigation, either through the doctrine of res judicata or that of abuse of process, would create unfairness.If, for instance, the stakes in the original proceeding were too minor to generate a full and robust response, while the subsequentstakes were considerable, fairness would dictate that the administration of justice would be better served by permitting thesecond proceeding to go forward than by insisting that finality should prevail.

An inadequate incentive to defend, the discovery ofnew evidence in appropriate circumstances, or a tainted original process may all overcome the interest in maintaining the finalityof the original decision (Danyluk, supra, at para. 51; Franco [(2001), (ON CA), 53 OR (3d) 391], at para. 55). [Emphasis added] [90] Key to the exercise of the discretion in this case is Canada’s allegation of fraud – fraud that was allegedly discovered after thePrior Decisions had been made and that had been perpetrated both at the time the verification agreement was entered into and when theapplication to approve the IRSSA and other subsequent applications relating thereto were made.

[91] Where a prior judgment is based on fraud, an application to set aside that judgment may be made. In this case, that wouldinclude setting aside approval of the IRSSA. Canada, however, has no desire to set aside the IRSSA: what it seeks, and what it is entitledto seek if fraud is established, is damages against MLG. [92] Donald J.

Lange in The Doctrine of Res Judicata in Canada, 4th ed (Markham: LexisNexis, 2015) at 275 [The Doctrine of ResJudicata], states the following: The discovery of fraud in a proceeding is the discovery of new evidence after the judgment has been pronounced in the proceeding. …Proving fraud in the first proceeding has always deprived a litigant of the estoppel effect of an entered judgment. … (at 275) [93] The Doctrine of Res Judicata goes on to state that “fraud has been described as an exception of special circumstances [to resjudicata]”, and cites, as authority for that proposition, St.

Denis v North Himsworth (Township) (1985), (ON SC), 50OR (2d) 482 (Div Ct) at 491; Johnston v Barkley (1905), 10 OLR 724 (Div Ct) at 728–729; and Hamada v Northguard Mortgage Corp.(1985), (BC SC), 67 BCLR 115 (SC) at 121 [Hamada]. (Reservations about Hamada were voiced by HardingeL.J.S.C., sitting as a local judge of the Supreme Court, in Bank of British Columbia v Singh (1987), (BC SC), 17BCLR (2d) 256 (SC) at 265.) [94] The Doctrine of Res Judicata then continues: … A second proceeding, which seeks to relitigate the subject matter of the first proceeding based on fraud, will be confronted with theestoppel effect of the first proceeding.

To obviate this effect, the litigant may plead the special circumstances of fraud in order torelitigate the subject matter of the first proceeding. (at 276) [95] In my view, the Chambers judge failed to consider the effect of the alleged fraud on the integrity of the justice system.

In 100Main Street East Ltd. v Sakas, (1975), (ON CA), 58 DLR (3d) 161 (Ont CA), Estey J.A. (as he then was) stated the“process appears to be one of balancing the need for the Courts to protect the integrity of their process against fraudulent practices beforethe Court, on the one hand, against the practical requirement of certainty and finality in litigation on the other” (at 165).

Further,Estey J.A. noted “the principle of law preserving the sanctity of the principle of res judicata must give way to the principle recognizingthe right and duty of the Court to protect its own processes so as to ensure that litigants do not profit from their improper conduct” (at171). [96] Justice Hallett’s comments in Sun Alliance Insurance Co. v Thompson (1981), (NS SC), 56 NSR (2d) 619(WL) (SC), are apropos.

In dealing with an application to dismiss an action on the grounds of res judicata where fraud was alleged, hestated the following: “It is in the public interest that persons not be able to benefit from fraud and this principle must takeprecedence over the doctrine of res judicata” (emphasis added, at para 17). [97] In my view, the circumstances of the case under appeal weighed in favour of the exercise of discretion not to apply thedoctrine of issue estoppel, so that Canada’s allegation of fraud could be heard and adjudicated in the interests of justice. D.

Did the Chambers judge err in concluding Canada’s claim should bestruck as an abuse of process? (Rule 7-9(2)(e)) [98] The Chambers judge’s conclusion that Canada’s action was an abuse of process rested on two bases: (

i) the application of thedoctrine of issue estoppel, and (ii) a broader aspect of the doctrine of abuse of process, which can prevent relitigation even when the strictrequirements of the doctrine of issue estoppel have not been met. [99] As indicated earlier in these reasons, the Chambers judge erred in his application of the doctrine of issue estoppel to thecircumstances of this case.

Thus, the only remaining issue, with respect to abuse of process, is whether the Chambers judge erred inconcluding Canada’s claim constituted an abuse of process, even though issue estoppel did not apply. [100] There is no set test for determining whether something amounts to an abuse of process.

Such determinations involve theexercise of discretion and, accordingly, the standard of review to be applied by this Court is one of deference: Huerto v Salte, 2015SKCA 21 at para 3, 457 Sask R 14; Gonzalez v Gonzalez, 2016 BCCA 376 at para 16, 91 BCLR (5th) 221; Hozaima v Perry, 2010MBCA 21 at para 17, [2010] 4 WWR 389; and Burcevski v Ambrozic, 2011 ABCA 178 at paras 8–9, [2011] 9 WWR 120. [101] The doctrine of abuse of process engages a court’s inherent power to prevent the misuse of judicial proceedings.

In Bear vMerck Frosst Canada & Co., 2011 SKCA 152, 345 DLR (4th) 152 [Bear], Richards J.A. (as he then was) described the doctrine asfollows: [36] The doctrine of abuse of process reflects the inherent power of a judge to prevent an abuse of his or her court’s authority. It is aflexible concept not restricted by the requirements of issue estoppel, such as those relating to privity.

The doctrine can be engaged by avariety of circumstances including what might be called those concerning the “re-litigation” of issues or claims. [102] Dissenting in Canam Enterprises Inc. v Coles (2000), (ON CA), 194 DLR (4th) 648 (Ont CA) [CanamEnterprises], but approved at 2002 SCC 63, [2002] 3 SCR 307, Goudge J.A. described the doctrine in these terms: [55] The doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way thatwould be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice intodisrepute.

It is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel. See House of Spring

Gardens Ltd. v.

Waite, [1990] 3 W.L.R. 347 at p. 358, [1990] 2 All E.R. 990 (C.A.). [56] One circumstance in which abuse of process has been applied is where the litigation before the court is found to be in essence anattempt to relitigate a claim which the court has already determined. … [103] Abuse of process has been invoked to preclude relitigation in situations where the strict requirements of the doctrine of issueestoppel do not apply: Toronto City at para 37, Bear, and Canam Enterprises. [104] In Toronto City, Arbour J. stated the following: 42 The attraction of the doctrine of abuse of process is that it is unencumbered by the specific requirements of res judicata whileoffering the discretion to prevent relitigation, essentially for the purpose of preserving the integrity of the court’s process. (SeeDoherty J.A.’s reasons, at para. 65; see also Demeter [(1983), (ON SC), 150 DLR (3d) 249 (Ont HC), aff’d (1984), (ON CA), 13 DLR (4th) 318 (Ont CA)], at p. 264, and Hunter, [[1982] AC 529], at p. 536.) [105] At the heart of the concept of abuse of process is the need to maintain the integrity of the adjudicative process.

In the context ofrelitigation, that is where the court’s focus should lie, rather than on the motives or status of the parties. Arbour J. noted the following inToronto City: 51 Rather than focus on the motive or status of the parties, the doctrine of abuse of process concentrates on the integrity of theadjudicative process. Three preliminary observations are useful in that respect. First, there can be no assumption that relitigation willyield a more accurate result than the original proceeding.

Second, if the same result is reached in the subsequent proceeding, therelitigation will prove to have been a waste of judicial resources as well as an unnecessary expense for the parties and possibly anadditional hardship for some witnesses.

Finally, if the result in the subsequent proceeding is different from the conclusion reached in thefirst on the very same issue, the inconsistency, in and of itself, will undermine the credibility of the entire judicial process, therebydiminishing its authority, its credibility and its aim of finality. [106] Abuse of process can also bar relitigation where an issue could have been raised by the parties in a prior proceeding: Rivet vBritish Columbia, 2007 BCSC 731 at para 82.

This principle was recognized by the Supreme Court of Canada in Town of Grandview vDoering, (SCC), [1976] 2 SCR 621 at 634 and 638–639 [Doering], where the Court cited with approval the followingprinciple from Henderson v Henderson (1843), 67 ER 313 at 319: In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject oflitigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forwardtheir whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation inrespect of [a] matter which might have been brought forward as part of the subject in contest, but which was not brought forward, onlybecause they have, from negligence, inadvertence, or even accident, omitted part of their case.

The plea of res judicata applies, except inspecial cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment,but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might havebrought forward at the time. This principle has been applied by appellate courts (either as a broader

interpretation of issue estoppel or a more general principle of resjudicata) in a number of cases, including, for example, the following: Canadian Imperial Bank of Commerce v Sylvester, 2002 SKCA 52at para 11, [2002] 7 WWR 212; Hoque v Montreal Trust Co. of Canada, 1997 NSCA 153 at para 38, 162 NSR (2d) 321; and Hill v Hill,2016 ABCA 49 at paras 27–28, 395 DLR (4th) 1. [107] Justice Arbour’s comments in Toronto City, quoted earlier in these reasons, bear repeating here: 53 The discretionary factors that apply to prevent the doctrine of issue estoppel from operating in an unjust or unfair way are equallyavailable to prevent the doctrine of abuse of process from achieving a similar undesirable result.

There are many circumstances in whichthe bar against relitigation, either through the doctrine of res judicata or that of abuse of process, would create unfairness. If, for instance,the stakes in the original proceeding were too minor to generate a full and robust response, while the subsequent stakes wereconsiderable, fairness would dictate that the administration of justice would be better served by permitting the second proceeding to goforward than by insisting that finality should prevail.

An inadequate incentive to defend, the discovery of new evidence in appropriatecircumstances, or a tainted original process may all overcome the interest in maintaining the finality of the original decision (Danyluk,supra, at para. 51; Franco [(2001), (ON CA), 53 OR (3d) 391], at para. 55). [Emphasis added] [108] In my view, these comments are dispositive of Canada’s ground of appeal with respect to abuse of process. The Chambers judgefailed to consider the matters referred to by Arbour J. when determining Canada’s action constituted an abuse of process.

Of particularimportance in the context of this appeal was the “new evidence” acquired through the verification process, which raised the question offraud in a concrete way, the fact Canada’s allegations of fraud were not and could not have been properly addressed in the earlierproceedings, and the fact that Canada’s allegations of fraud have never received a full and robust hearing.

Let me elaborate. [109] First, it appears Canada did not have “evidence” to support an allegation of fraud until after the verification process had beencompleted, which was well after the AIP, the verification agreement and the IRSSA had been entered into and the three prior courtproceedings had been heard and the judgments relating thereto had been rendered. Thus, Canada could not have established fraud inthose proceedings even if it had been raised. More importantly, all of the prior proceedings related to a class action against Canada fordamages.

In such proceedings, the court could not address Canada’s claim for damages against MLG for the tort of deceit. [110] Second, Canada went as far as it could in the earlier proceedings in terms of raising its concerns with respect to the allegedmisrepresentations. Those concerns related to how the fee provisions were to be interpreted and, more particularly, what the verificationprocess applied to. The Prior Decisions’

interpretation of the fee agreement is not in issue.

[ 111 ] Finally, Canada’s action raises serious allegations that require a full hearing in the interests of justice. If the allegations are well- founded, Canada (which represents the people) is entitled to appropriate compensation. If the allegations are not well-founded, MLG deserves the opportunity to be vindicated. Allowing the action to proceed will not, in any way, undermine the IRSSA; nor will it in any way undermine the Prior Decisions. [ 112 ] In my view, the Chambers judge erred in finding Canada’s statement of claim should be struck as an abuse of process. V.

Conclusion [ 113 ] The appeal is allowed and the Chambers judge’s decision is set aside. MLG shall pay to Canada the costs of the within appeal assessed in the usual way. “Ryan-Froslie J.A.” Ryan-Froslie J.A. I concur. “Ryan-Froslie J.A.” for Ottenbreit J.A. I concur. “Whitmore J.A.” Whitmore J.A.