Hertz v Kille, 2023 SKCA 3

Court of Appeal for Saskatchewan Docket: CACV4031 Citation: Hertz v Kille , 2023 SKCA 3 Date: 2023-01-05 Between: Gregory Hertz Appellant (Plaintiff/Respondent) And Albina Kille Respondent (Defendant/Applicant) Before: Caldwell, Schwann and Barrington-Foote JJ.A. Disposition: Appeal allowed Written reasons by: The Court On appeal from: QBG 942 of 2020, Saskatoon Appeal heard: December 8, 2022 Counsel: Scott R.

Spencer for the Appellant Grant Scharfstein, K.C., and Lauren Scharfstein for the Respondent The Court [ 1 ] Gregory Hertz appeals from the Court of Queen’s Bench Chambers decision that struck his statement of claim against Albina Kille by reason that the causes of action pleaded in contract and unjust enrichment were barred under the doctrine of res judicata (Rules 7- 9(2)(

b) and (

e) of The Queen’s Bench Rules ) and his claim for punitive damages did not disclose a reasonable cause of action (Rule 7-9(2) (a)). See Hertz v Kille (25 May 2022) Saskatoon, QBG 942 of 2020 (Sask QB) [ Strike Decision ]. [ 2 ] At the root of his various claims against Ms. Kille, Mr. Hertz asserts that he has a contractual or equitable interest in Hertz Northern Bus

(2006) Ltd. [Corporation] or its business under oral and written agreements dating from 2016 and before [Alleged Agreements]. While he no longer claims an interest in the Corporation’s shares, he maintains that he has an interest in the proceeds of their sale and in the net profits of the Corporation earned prior to its sale. Mr. Hertz pleaded these and other claims under a statement of claim filed in QBG 1763 of 2018 (Saskatoon) [2018 Action].

It set out causes of action in contract, breach of fiduciary duty and unjust enrichment, and for oppression under The Business Corporations Act , RSS 1978, c B-10 [ SBCA ], claiming various forms of relief, including a declaration of entitlement to “a 50% beneficial interest”, and general as well as punitive damages. [ 3 ] Ms. Kille, who was the sole shareholder of the Corporation, agreed to sell her interest in it to a third party in 2019. Around that time, Mr.

Hertz applied in the 2018 Action for an order granting him access to the financial records of the Corporation as a “complainant” under the SBCA , as well as for orders setting aside the sale, constraining Ms. Kille in the management of the business and affairs of the Corporation, for the Corporation to pay him $10,000 monthly, and for continued use of a corporate vehicle, all on the basis that, as “a beneficial holder of shares in [the Corporation]”, he had been oppressed by Ms.

Kille and the Corporation (see Hertz v Kille (13 May 2019) Saskatoon, QBG 1763 of 2018 (Sask QB) at para 2 [ Oppression Decision ], per Hildebrandt J.). [ 4 ] After that application had been heard, while the matter was under reserve, Ms. Kille and Mr. Hertz negotiated and entered into an agreement to permit the closing of the sale of the shares, free of the claims under the 2018 Action [Settlement Agreement]. That agreement addressed, among other things, the distribution of the proceeds of sale as between them, allowing for payments of 20% of the net sale proceeds to each upon the closing of the sale: 4.

Upon completion of the sale of the Corporation to [the third party], and within 3 business days of the net sale proceeds being available for distribution, Albina [Ms. Kille] shall cause to be paid to Greg [Mr. Hertz] the sum of one hundred thousand ($100,000 . 00) dollars from the net sale proceeds for his sole use. … 6.

Upon completion of the sale of the Corporation to [the third party], and within 30 business days of the net sale proceeds being available for distribution, Albina shall cause to be paid to Greg an amount equal to twenty (20%) percent of the net sale proceeds, inclusive of the payment described in paragraph 4 above, for his sole use. [ 5 ] The Settlement Agreement also anticipated that Hildebrandt J. would decide whether Mr. Hertz was entitled to more or less than a 20% interest in the Corporation, which would, in turn, determine whether he was entitled to more than 20% of the net sale proceeds: 8.

In the event a final Court decision in the oppression application brought by Greg in Q.B. Action No. 1763 of 2018, Judicial Centre of Saskatoon (the “Action”), grants to Greg a legal or equitable interest in the Corporation in excess of twenty (20%) percent, Albina shall cause to be paid to Greg an amount required to bring payment to Greg up to an amount equal to the interest awarded by the Court (less the twenty (20%) percent already received. 9.

In the event a final Court decision in the Action grants to Greg a legal or equitable interest in the Corporation of less than twenty (20%) percent, Greg will not be required to repay to Albina any portion of the twenty (20%) percent he has received. 10. In the event a final Court decision in the Action, grants to Greg a legal or equitable interest in the Corporation in excess of eighty (80%) percent, Albina will not be required to repay to Greg any portion of the twenty (20%) percent she has already received.

[6] In her decision, Hildebrandt J. did not decide whether Mr. Hertz had a legal or beneficial interest in the Corporation. Shedetermined only that Mr. Hertz had not established a prima facie case that he is a complainant within the meaning of the SBCA, and shetherefore dismissed his application for injunctive relief under that statute. As noted in the Oppression Decision, the term complainantincludes, among other things, a current or former “registered holder or beneficial owner … of a security of a corporation or any of itsaffiliates” (SBCA, s. 231(b)).

Notably, Hildebrandt J. declined to interpret the Alleged Agreements: [35] In the current case, without the agreements established as valid, the assertion that Mr. Hertz is a complainant within the meaningof the Act is weak. The requirement that one be a complainant is fundamental to a claim of oppression. Indeed, before any assessmentcould possibly be made of what his reasonable expectations may have been, and whether there is any likelihood that they have beenviolated, the issue of whether Mr. Hertz is a complainant must be concluded. [36] Yet Mr.

Hertz seeks, along with corporate records, continuation of his salary and use of the company vehicle on an interim basis.He does so while also alleging financial difficulty and effectively acknowledging, by the Notice of Application, that such funds would beused to finance the litigation against the defendants. As the risk of Mr.

Hertz not being successful in this action is real, it does not seemfair and just to this court to award such interim relief when the defendants, if successful at trial, would have little hope of recovery. [37] There are indeed questions on the discrete issues concerning the execution and validity of the alleged agreements, but whethersuch amount to a serious issue to be tried in the context of justifying interim relief is not so clear.

This court is of the view that, followingthe principles of Mosaic [2011 SKCA 120], as recognized in Devonian [2012 SKCA 64], this is a situation where there is either anexception, such that the strong prima facie case standard must be met, or the overall framework of this particular case and the integralconsiderations of justice and equity militate against the granting of interim relief. [38] The plaintiff’s application is therefore dismissed. There will be no order as to costs. [7] Furthermore, before she issued her judgment, Mr. Hertz provided Hildebrandt J. with a copy of an agreement betweenMs.

Kille, himself, the Corporation and the purchaser of Ms. Kille’s shares. After reviewing that document, Hildebrandt J. closed herreasons for judgment with the following paragraph: [39] As previously noted, the parties subsequently reached an agreement with [the third-party purchaser] for the sale of Hertz 2006,which was drawn to my attention after my decision on the application had been formulated. By para 4 of that agreement Mr. Hertzundertook to amend his pleadings to replace any reference therein to a claim of an ownership interest in Hertz 2006, instead claiming analleged entitlement solely from Ms.

Kille to the consideration paid by [the third-party purchaser] to Ms. Kille. As such may be consideredas effectively taking the matter outside of the operation of s. 234 the Act, this decision may well be moot. [8] The document to which Hildebrandt J. referred is entitled Release Indemnity and Compromise Agreement, paragraph 4 ofwhich states: 4.

At first the practicable opportunity following the execution of this Agreement, Hertz will inform the Court of Queen’s Bench ofthe existence of this Agreement and file a copy hereof, and shall amend his pleadings to replace any reference in those pleadings to anyclaim to an ownership interest in Hertz of in [sic] the Shares, with a claim instead to an alleged entitlement (solely from Kille) to theconsideration paid by [the third-party purchaser] to Kille. [9] In due course, the share sale closed. Mr. Hertz then applied for an order requiring Ms.

Kille to pay him 20% of the net saleproceeds and for an order permitting him to pursue to trial a claim for an additional 30%. That application was adjourned after Ms. Kille’slawyers delivered to Mr. Hertz’s lawyers 20% of the sale proceeds that were then releasable. Those funds were transferred on the trustcondition that Mr. Hertz file a discontinuance of the 2018 Action before any use was made of them. When he declined to file adiscontinuance in the 2018 Action, Ms. Kille applied for an order requiring Mr.

Hertz to do so or to set aside the Settlement Agreement onthe basis that there had been no consensus ad idem. Mr. Hertz then applied, pursuant to The Enforcement of Money Judgments Act, SS2010, c E-9.22 [EMJA], for an order requiring Ms. Kille to hold the sale proceeds in trust. These applications all came before Bardai J.,who ordered Ms. Kille to pay 20% of the sale proceeds to Mr. Hertz, ordered him to discontinue the 2018 Action upon receipt of thatpayment, and dismissed the EMJA application (see Hertz v Kille, 2020 SKQB 331 [Settlement Decision]).

In specific terms, Bardai J.made the following orders under the Settlement Decision: [63] I order that: 1. Albina pay or cause to be paid to Greg 20% of the net sale proceeds received in connection with the [sale] transaction less amountsdisbursed to Greg to date. 2. If the parties are unable to agree on what 20% of the net sale proceeds are or how they should be calculated, the parties have leaveto bring an application before me to determine the matter. I will remain seized with such an application. 3.

Upon payment by Albina to Greg of 20% of the net sale proceeds from the [sale] transaction, Greg shall discontinue the action. 3. [sic] The application for relief under The Enforcement of Money Judgments Act is dismissed. 4. Albina shall be entitled to one set of costs calculated based on Column 3. [10] But, after Bardai J. had heard the applications and before he made the foregoing orders, Mr. Hertz filed another statement ofclaim (QBG 942 of 2020 (Saskatoon) [2020 Action]).

It was also based on the Alleged Agreements, pleading causes of action in contractand unjust enrichment and claiming punitive damages as against Ms. Kille. Ms. Kille thereafter applied to have the new statement of claimstruck as an abuse of process and as disclosing no reasonable cause of action pursuant to Rule 7-9 of The Queen’s Bench Rules or to havethe claims summarily decided pursuant to Rule 7-2. To be clear, Ms.

Kille does not dispute that the discontinuance of an action “may notbe raised as a defence to any subsequent action for the same or substantially the same claim” (Rule 4-49(5) of The Queen’s Bench Rules);that is, she does not assert that the discontinuance of the 2018 Action precluded Mr. Hertz from bringing the 2020 Action (see NationalTrust Co. Ltd. v Mead, (SCC), [1990] 2 SCR 410). She applied to have the 2020 statement of claim struck as an abuse of

the court process for other reasons. [11] In the Strike Decision, which is the decision at issue in this appeal, the Chambers judge found that Bardai J. had made a finaland binding determination that the Settlement Agreement had replaced the Alleged Agreements. The Chambers judge’s finding followedfrom paragraph 56 of the Settlement Decision, where Bardai J. wrote: [56] Finally, it should be noted that considerable evidence was adduced in respect of previous agreements between the parties datingback to the creation of [the Corporation].

Whatever those agreements were or might have been does not matter as they were replaced bythe Settlement Agreement agreed to by the parties. [12] Relying on the second sentence in paragraph 56 of the Settlement Decision, the Chambers judge struck the claim in contractand, later, the constructive trust claim in the 2020 Action, writing: [13] Justice Bardai has determined, though, that the 2016 agreement has been replaced, which means that no claim based on the 2016agreement can succeed.

That agreement has no force or effect. [14] In short, Justice Bardai has determined the breach of contract claim by determining that the foundation for the claim – the 2016agreement – is not actionable. Accordingly, the claim for breach of contract is res judicata, as described in the law cited by both Mr. Hertzand Ms. Kille. It has been determined previously by this court in proceedings between these parties.

Furthermore, since the claim forbreach of contract already has been determined by the court, pursuing the same claim in this action is an abuse of process, and is frivolousand vexatious, as described in the law cited by the parties. … [19] The claim of constructive trust arises from the claim of unjust enrichment. Mr. Hertz’s claim of unjust enrichment includes theallegation that Ms. Kille had no lawful or juristic basis for keeping the funds that he alleges should be paid to him.

Proving a lack oflawful or juristic basis is necessary to proving unjust enrichment. [20] In his decision, however, Justice Bardai has determined that Ms. Kille had a lawful and juristic reason for keeping those funds. Hehas ruled that her doing so flows from the Settlement Agreement – that in keeping those funds she is doing what the parties agreed to inthe Settlement Agreement. The Settlement Agreement provided a lawful and juristic reason. Therefore, Ms.

Kille’s retention of the fundsis not a matter of unjust enrichment. [21] Thus, the claim of unjust enrichment in this action also has been determined by Justice Bardai. As with the claim of breach ofcontract, it must be dismissed as an abuse of process, and as being frivolous and vexatious. [13] Lastly, the Chambers judge struck the claim for punitive damages under Rule 7-9(2)(

a) because, with the contract and unjustenrichment claims struck, there were no remaining causes of action pleaded and a claim for punitive damages is legally dependent uponthe pleading of a separate, independent cause of action. Mr. Hertz does not argue that it was an error to strike the punitive damages claim. [14] In this appeal, Mr.

Hertz asserts that the Chambers judge incorrectly held that the contract and unjust enrichment claims wereres judicata because he misapprehended paragraph 56 of the Settlement Decision as determining that the Alleged Agreements were of noforce and effect, thereby disposing of the basis for the same or similar claims in the 2020 Action. Mr. Hertz says that paragraph 56 isobiter dicta or simply “reasoning”, is unrelated to the orders Bardai J. granted and, therefore, did not finally determine his claims in the2018 Action and was otherwise not binding on the Chambers judge in the 2020 Action.

He submits that none of Hildebrandt J., Bardai J.and the Chambers judge ruled on the validity or enforceability of the Alleged Agreements. Framed in this way, a single question lays atthe root of this appeal, namely: Did the Chambers judge misinterpret the Settlement Decision as disposing of the claims Mr. Hertz made inthe 2020 Action? [15] The parties in this appeal made lengthy arguments about their differing, subjective views as to the meaning of paragraph 56 ofthe Settlement Decision. However, the

interpretation of a judicial decision or court order is not governed by the subjective understandingsof the parties (Campbell v Campbell, 2016 SKCA 39, 476 Sask R 185 [Campbell]). An issue as to whether a court decision has beenproperly interpreted by a judge gives rise to a question of law (see Beauharnois Election Case (Loy v Poirier) (1902), (SCC), 32 SCR 111; R v Telmosse, (SCC), [1945] 1 DLR 779 (SCC); Pratt v Johnson, (SCC), [1959]SCR 102 [Pratt]; and Letter Carrier’s Union of Canada v Canadian Union of Postal Workers, (SCC), [1975] 1 SCR178). Speaking for the majority of the Supreme Court in an appeal that concerned the

interpretation of a prior court decision where aquestion of res judicata had arisen in a subsequent proceeding, Locke J. wrote in Pratt (at 116–118): The judgment of Graham J., which has been affirmed by the Court of Appeal, proceeds on the view that Johanna Johnson was bound by anagreement not to revoke her will as contained in the joint will and that while this, of course, did not prevent her later will revoking theformer one, her executor under the later will holds all her property in trust for the five beneficiaries named in the former will.

In both Courts below, it was assumed that the question which Graham J. was called upon to decide, was res judicata by reason of thejudgment of Brown C.J.K.B. and that the task of the Court was simply to interpret that judgment. With the greatest respect I think that thiswas a misconception. When a plea of res judicata is raised, to decide what questions of law and fact were determined in the earlier judgment the Court is entitledto look not only at the formal judgment but at the reasons and the pleadings.

The cases dealing with this question are collected inHalsbury, 3rd ed., vol. 15, pp. 184, 207 and 208; and I think it necessary to refer only to the following passage in the judgment of theCourt of Appeal delivered by Slesser L.J. and concurred in by Clauson L.J. and du Parcq L.J. in Marginson v. Blackburn Borough Council,[1939] 2 KB 426 at 437: In our view, however, Lewis J. was entitled to have regard to the reasons given by the learned county court judge, and we have nothesitated to avail ourselves of that assistance.

We are dealing here not so much with what has been called estoppel by record, but with thebroader rule of evidence which prohibits the reassertion of a cause of action which has been litigated to a finish-estoppel by res judicata. In

such a case the question arises, what was the question of law or fact which was decided? And for this purpose, it may be vital in many cases to consider the actual history of the proceedings. Thus, in In re Graydon , on a question whether a judgment of the county court constituted an estoppel, Vaughan Williams J. refers to an inference to be drawn from the observations of the learned county court judge when asked for leave to appeal; and in Ord v. Ord , also on a question of res judicata, references to proceedings before the judge were considered by Lush J.

But, even if there were no authority to show that this had in fact been done, we can see in principle no objection, when the question before the Court is what was actually decided at an earlier trial, to have recourse to that information which is to be derived from reading a record of the proceedings. [ 16 ] Echoing Pratt , Ottenbreit J.A. wrote in Campbell that “the correct approach to interpreting the provisions of a court order is to examine the pleadings of the action in which it is made, the language of the order itself, and the circumstances in which the order was granted” (at para 15; see also Onion Lake Cree Nation v Stick , 2020 SKCA 101 at para 57 , [2021] 2 WWR 614). [ 17 ] When the

interpretation of the Settlement Decision is approached in this manner, we find that Bardai J. could not have decided that the Alleged Agreements had been superseded by the Settlement Agreement with the legal consequences being that they were of “no force or effect” and, therefore, that “no claim based on the 2016 agreement can succeed” ( Strike Decision at para 13). Accordingly, we respectfully conclude that the Chambers judge erred in his

interpretation of the Settlement Decision . [ 18 ] To explain our

interpretation, we begin by remarking that the meaning the Chambers judge attributed to the second sentence in paragraph 56 of the Settlement Agreement was open to him, but only if the latter part of its language is considered in isolation: “Whatever those agreements were or might have been does not matter as they were replaced by the Settlement Agreement agreed to by the parties”. However, the first part of the second sentence supports the conclusion that Bardai J. did not purport to interpret the Alleged Agreements or to have ruled on their validity or enforceability.

Rather, the language he used in that paragraph suggests that he discarded them as irrelevant to the issues he had to decide. [ 19 ] That is a telling omission for purposes of our analysis for several reasons. The Alleged Agreements and the Settlement Agreement each have a very different scope. Among other things, the Alleged Agreements each speak to the interests purportedly held by Mr. Hertz and Ms. Kille in the Corporation, even though Mr. Hertz is not a registered shareholder.

The 2013 and 2016 Alleged Agreements, to which the Corporation is a party, address various matters relating to the governance and management of the Corporation and provide for the division of corporate profits. The 2016 Alleged Agreement deals with what happens if either party receives an offer to buy the Corporation’s business, and it contains a shotgun-buy-sell provision, affording each party the opportunity to acquire all of that business. The 2013 Alleged Agreement contains a right of first refusal in relation to offers received by either Ms. Kille or Mr.

Hertz for their shares in the Corporation. [ 20 ] On the other hand, the Settlement Agreement is only between Ms. Kille and Mr. Hertz; it refers to Mr. Hertz’s agreement to sign the Release Indemnity and Compromise Agreement in favour of the third-party purchaser so as to facilitate the closing of the sale of Ms. Kille’s shares; and it records the parties’ agreement as to how the net sale proceeds will be distributed as between them. The Settlement Agreement also speaks about the anticipated result of Mr.

Hertz’s “oppression application” and three of its clauses address the division of the sale proceeds in the event “a final Court decision in the Action grants to [Mr. Hertz] a legal or equitable interest in the Corporation” of less than 20%, more than 20%, or more than 80%. [ 21 ] These differences would clearly have been relevant to the interpretive question that the Chambers judge found had been determined by Bardai J. in paragraph 56 of the Settlement Decision . So too is the fact that the Settlement Agreement does not refer to the Alleged Agreements at all.

Moreover, the Settlement Agreement does not contain an entire agreement clause that either confirms that the parties intended that it supersede or terminate the Alleged Agreements or that it, together with the Alleged Agreements, would constitute the entire agreement between the parties.

Nor does it contain a release of any claims that may have existed as a result of purported breaches of the Alleged Agreements, including as to the sharing of corporate profits. [ 22 ] In a similar vein, we note that in paragraph 56 of the Settlement Decision , Bardai J. commented that “considerable evidence was adduced in respect of previous agreements between the parties …”.

However, when interpreting the Settlement Agreement under the approach set forth in Sattva Capital Corp. v Creston Moly Corp. , 2014 SCC 53 , [2014] 2 SCR 633, Bardai J. did not identify any of this body of evidence about the Alleged Agreements as forming part of the surrounding circumstances that he decided were relevant to discerning the meaning of the Settlement Agreement ( Settlement Decision at para 23 ).

The fact that the Alleged Agreements were not included in this factual matrix also confirms that Bardai J. did not address the question of whether the Settlement Agreement had superseded the Alleged Agreements – other than to the extent necessary to decide the issues placed before him – or whether it precluded claims arising from their alleged breach. [ 23 ] When Bardai J.’s full reasons are interpreted in this light, we see that they address only the two, narrow issues the parties had put before him, namely, whether the Settlement Agreement required: (

a) Ms. Kille to pay Mr. Hertz 20% of the net sale proceeds; and (

b) Mr. Hertz to discontinue the 2018 Action upon receipt of that payment. Put another way, it is plain to us that Bardai J. interpreted only part of the Settlement Agreement and left the

interpretation of the remainder of it, and of the Alleged Agreements, to another day, following the judicial adage to “only decide that which was put before the court”. As such, questions as to whether the Settlement Agreement has superseded the Alleged Agreements or whether it precludes claims arising from their alleged breach are not res judicata . [ 24 ] For these reasons, we respectfully find that the Chambers judge erred when he concluded that the Alleged Agreements were of no force or effect by reason of the Settlement Decision .

We allow the appeal and set aside the Strike Decision , with costs on Column IV to Mr. Hertz. We remit to the Court of King’s Bench for determination Ms. Kille’s applications to strike the statement of claim in the 2020 Action pursuant to Rule 7-9(2) and, in the alternative, for

summary judgment pursuant to Rule 7-2, leaving the issue in each case as to whether it can be decided summarily despite the conflicting evidence, or whether a trial is necessary, to the judge hearing that application. “Caldwell J.A.” Caldwell J.A. “Schwann J.A.” Schwann J.A. “Barrington-Foote J.A.”

Barrington-Foote J.A.