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Estoppel - Cause of Action Estoppel (2). Patrick Street Holdings Ltd. v. 11368 NL Inc.
In Patrick Street Holdings Ltd. v. 11368 NL Inc. (SCC, 2026) the Supreme Court of Canada considered 'cause of action estoppel'.
The court considers broadly the law of 'cause of action estoppel' - it's history and current state, the role of discretion in the doctrine, and it's further application to defences:(1) Governing Principles
[66] The seminal case on cause of action estoppel is the English decision of Henderson v. Henderson (1843), 3 Hare 100, 67 E.R. 313. In an oft-cited passage, Vice Chancellor Wigram of the English Court of Chancery explained that:... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case . . . The plea of res judicata applies, except in special 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 the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time. (Emphasis added; p. 319.) This description of res judicata — as barring the relitigation of points raised in a prior proceeding, along with points that the parties might have raised had they exercised reasonable diligence — formed the basis of the doctrine of cause of action estoppel when it was first applied by this Court in Farwell v. The Queen (1894), 1894 CanLII 72 (SCC), 22 S.C.R. 553, at p. 558:Where the parties (themselves or privies) are the same, and the cause of action is the same, the estoppel extends to all matters which were, or might properly have been, brought into litigation. [Emphasis added.] [67] The leading authority from this Court on cause of action estoppel is the case of Grandview. In 1969, Arthur Doering sued the City of Grandview in nuisance. In this first action, Mr. Doering alleged that the municipality’s replacement of a dam raised river water levels, causing the river to flood his land. Mr. Doering was unsuccessful in this action. Nine months later, he commenced a new action in nuisance, alleging that the dam caused his land to become saturated with water through an underground aquifer. This theory was based on an expert opinion Mr. Doering sought after the dismissal of the first action.
[68] Writing for a majority of this Court, Justice Ritchie held that Mr. Doering’s second claim was barred by cause of action estoppel. Justice Ritchie concluded that the facts Mr. Doering alleged as constituting the tortious conduct in the second action existed when the first action went to trial. The only change between the first and second action was the expert opinion about the flow of water from the dam through the aquifer. However, Justice Ritchie found that the aquifer theory of liability properly belonged to the first action. Justice Ritchie drew on several English authorities in reaching this conclusion, ultimately endorsing the rule in Henderson that cause of action estoppel applies not only to matters which were brought forward in the prior proceeding, but also to matters which properly belonged to that proceeding (see Henderson; New Brunswick Ry.; Phosphate Sewage Company v. Molleson (1879), 4 App. Cas. 801 (H.L.); Fidelitas Shipping Co., Ltd. v. V/O Exportchleb, [1965] 2 All E.R. 4 (C.A.)).
[69] The rule flowing from Grandview is that cause of action estoppel bars the relitigation of a cause of action that is not separate and distinct from one raised in a prior proceeding. The estoppel bars both matters raised in the prior proceeding and matters that properly formed part of the proceeding and which the parties might have brought forward at the time had they exercised reasonable diligence. The breadth of cause of action estoppel reflects that the doctrine is geared toward preventing litigation in installments (Lederman, Fuerst and Stewart, at ¶19.116).
[70] With these principles in mind, I turn now to the relevant considerations when determining whether litigation of a matter is barred by cause of action estoppel. This Court’s decision in Grandview did not formalize a test, but courts interpreting the decision have gleaned four requirements from Justice Ritchie’s analysis (Bjarnarson v. Government of Manitoba (1987), 1987 CanLII 993 (MB QB), 38 D.L.R. (4th) 32 (Man. K.B.), at p. 34; see also Glenko Enterprises Ltd. v. Keller, 2008 MBCA 24, 290 D.L.R. (4th) 712; Cliffs Over Maple Bay Investments Ltd., Re, 2011 BCCA 180, 17 B.C.L.R. (5th) 60; Kasperson v. Halifax (Regional Municipality), 2012 NSCA 110, 357 D.L.R. (4th) 275; Furlong v. Avalon Bookkeeping Services Ltd., 2004 NLCA 46, 243 D.L.R. (4th) 153; Sherwood Steel Ltd. v. Odyssey Construction Inc., 2014 ABCA 320, 5 Alta. L.R. (6th) 268; Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141, 457 D.L.R. (4th) 530). As outlined in Lederman, Fuerst and Stewart, at ¶19.116, the four requirements for establishing cause of action estoppel are:There is a final decision of a court of competent jurisdiction in a prior action;
The parties to the subsequent litigation were parties to, or in privy with the parties to the prior action;
The cause of action in the prior action is not separate and distinct; and
The basis of the cause of action and the subsequent action were argued or could have been argued in the prior action, if the parties had exercised reasonable diligence. The first and second prongs of the test are common to cause of action estoppel and issue estoppel and have thus been addressed in other jurisprudence of this Court (see Toronto (City); Danyluk; Angle). The latter two prongs merit additional explanation.
(a) Defining a “Cause of Action”
[71] A cause of action has been variously defined as a set of facts that provides the basis for an action or as a factual situation entitling a person to relief (Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94, at para. 27, citing Letang v. Cooper, [1964] 2 All E.R. 929 (C.A.); Cahoon v. Franks, 1967 CanLII 77 (SCC), [1967] S.C.R. 455, at p. 459; Air Canada v. McDonnell Douglas Corp., 1989 CanLII 54 (SCC), [1989] 1 S.C.R. 1554, at p. 1564). In Danyluk, this Court defined a cause of action as “every fact which it would be necessary for the plaintiff to prove, if disputed, in order to support his or her right to the judgment of the court” (para. 54, citing Poucher v. Wilkins (1915), 1915 CanLII 514 (ON CA), 33 O.L.R. 125 (C.A.)).
[72] Thus, determining whether a cause of action raised in a prior proceeding is “separate and distinct” necessarily requires an assessment and comparison of the facts in the first action and the subsequent action, given that these facts “form the ‘cause’ of the ‘action’” (Sherwood Steel Ltd., at para. 23, citing Madill v. Alexander Consulting Group Ltd., 1999 ABCA 231, 176 D.L.R. (4th) 309, at para. 27).
[73] Cause of action estoppel bars subsequent proceedings covering the same subject matter and arising out of the same relationship between the parties, even if the subsequent action is based on a different legal description or conception of the issues (Air Palace Co., Ltd. v. Rotor Maxx Support Limited, 2023 BCCA 393, 488 D.L.R. (4th) 110, at para. 27, citing Lehndorff Management Ltd. v. L.R.S. Development Enterprises Ltd. (1980), 1980 CanLII 393 (BC CA), 19 B.C.L.R. 59 (C.A.); Berthin v. Berthin, 2018 BCCA 177, 13 B.C.L.R. (6th) 350, at para. 9). Cause of action estoppel can arise anytime a substantive claim is granted or refused (Handley, at p. 98).
[74] The basis of a cause of action can be understood as the theory that explains how the cause of action — that is, the set of facts — entitles a party to relief (Lederman, Fuerst and Stewart, at ¶19.120; see also Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354, 145 O.R. (3d) 759). In this way, cause of action estoppel furthers the principle of finality by ensuring that all legal theories arising out of the same facts are put forward in one proceeding. Any theory that properly belonged to the first action and that was or could, with reasonable diligence, have been raised at that point is captured by cause of action estoppel (Lederman, Fuerst and Stewart, at ¶19.116).
[75] As the fourth prong of the test was initially conceptualized, cause of action estoppel would bar the relitigation of any matters that were raised or could have been raised with reasonable diligence in the prior proceeding. Generally, courts have applied this prong of the test as written (see, e.g., Cliffs Over Maple Bay; Avalon; Glenko Enterprises Ltd.; Sherwood Steel Ltd.). However, in Hoque, Justice Cromwell (as he then was) suggested that the word “could” was too broad, writing that “[t]he better principle is that those issues which the parties had the opportunity to raise and, in all the circumstances, should have raised, will be barred” (para. 37 (emphasis in original)).
[76] In my respectful view, the reasonable diligence qualifier is sufficient to ensure that litigants are not held to an unrealistic standard and ultimately barred from raising an argument in a second proceeding that they could not have reasonably been expected to raise in the prior proceeding. For example, as I explain below, the reasonable diligence qualifier will preclude the application of cause of action estoppel where circumstances such as fraud, dishonesty, or the discovery of new evidence explain why a party did not raise a matter in a first proceeding.
[77] In summary, then, the test for cause of action estoppel is as follows:(a) There is a final decision of a court of competent jurisdiction in the prior action;
(b) The parties to the subsequent litigation were parties to or in privy with parties to the prior action;
(c) The cause of action in the prior action is not separate and distinct; and
(d) The basis of the cause of action and the subsequent action was argued or could have been argued in the prior action if the parties had exercised reasonable diligence. (b) Discretion
[78] In cases where a party has established all elements of the test for applying cause of action estoppel, there remains the question of whether a court has discretion to decline to apply the doctrine. In the court below, Justice Butler held that there is discretion to not apply cause of action estoppel (para. 122). Justice O’Brien, concurring in the result, was more equivocal about the existence of discretion, but concluded regardless that this case did not present an appropriate context in which to exercise it (paras. 370-73).
[79] As I alluded to above, the fourth prong of the test for cause of action estoppel guards against the application of the doctrine in cases where a party could not reasonably have advanced a particular theory, for instance, because new evidence did not exist or could not reasonably have been discovered at the time of the first proceeding. With that said, I accept that courts maintain a narrow discretion to decline to apply cause of action estoppel where the formal prerequisites are made out but where applying it would nonetheless cause an injustice.
[80] Res judicata is meant to “promot[e] the orderly administration of justice but not at the cost of real injustice in the particular case” (Danyluk, at para. 67). With this in mind, this Court has previously addressed the circumstances in which, notwithstanding that the preconditions to apply issue estoppel are made out, the doctrine should not be applied. In Danyluk, this Court cautioned against applying issue estoppel “mechanically”, explaining that the underlying purpose of the doctrine is to “balance the public interest in the finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case” (para. 33). To this end, this Court held that issue estoppel requires a two-step analysis: first, a court must ask whether the test for issue estoppel is satisfied, and then it must assess whether the estoppel ought to apply (see para. 33). This Court went on to set out a non-exhaustive series of factors governing the exercise of discretion as it applies to issue estoppel where the prior decision was made by an administrative tribunal (see para. 67 et seq.).
[81] This Court’s jurisprudence does not provide as clear an answer to the question of whether there is a discretion to not apply cause of action estoppel in the context of court proceedings. In Grandview, Justice Ritchie cited a passage from New Brunswick Ry., at pp. 20-21, explaining when “exceptional circumstances” may warrant not applying cause of action estoppel (p. 639):In my view not all estoppels are “odious”; but the adjective might well be applicable if a defendant, particularly if he is sued for a small sum in a country distant from his own, is held to be estopped not merely in respect of the actual judgment obtained against him, but from defending himself against a claim for a much larger sum on the ground that one of the issues in the first action (issues which he never saw, though they were doubtless filed) had decided as a matter of inference his only defence in the second action. On the facts of Grandview, Justice Ritchie held that there were no “exceptional circumstances” because the question of whether the City of Grandview’s maintenance of the dam caused flooding on Mr. Doering’s land was “thoroughly explored” in the first proceeding (p. 639).
[82] While this passage from Grandview would seem to support the existence of discretion to not apply cause of action estoppel, Justice Ritchie did not specify whether the circumstances identified by the House of Lords in New Brunswick Ry. represented a situation where cause of action estoppel did not apply by virtue of the exercise of discretion, or where it did not apply because its prerequisites were simply not made out.
[83] Several appellate courts have interpreted Grandview as supporting the latter possibility (see, e.g., John Doe v. Roman Catholic Episcopal Corp. of St. John’s, 2013 NLCA 62, 343 Nfld. & P.E.I.R. 68, at para. 56; Avalon, at paras. 40-44). To the description of “exceptional circumstances” in Grandview that justify not applying cause of action estoppel, these courts have added situations where fraud or dishonesty tainted the first proceeding, or where new evidence was discovered following the first proceeding (John Doe, at para. 52; see also Canam Enterprises Inc., at para. 33). However, these courts explained that these considerations were not exceptions to cause of action estoppel and instead “define[d] the parameters for its operation” (John Doe, at para. 56). In other words, cause of action estoppel simply does not apply in these circumstances — not because a judge has exercised discretion to not apply the doctrine, but because the doctrine’s prerequisites are not made out.
[84] In addition to Grandview, this Court’s decision in General Motors of Canada Ltd. v. Naken, 1983 CanLII 19 (SCC), [1983] 1 S.C.R. 72, at p. 101, rendered almost a decade later, is often cited as an authority for the existence of discretion. In Danyluk, Justice Binnie relied on the decision to conclude that there was “no doubt” that discretion existed to not apply issue estoppel (para. 62). Ultimately, though, Naken was not a case about issue estoppel or cause of action estoppel. The question on appeal was whether an action against a car manufacturer could proceed as a class action under the rules of practice in place at that time for the Supreme Court of Ontario. Discussing the implications of allowing the action to proceed as a class action, this Court remarked on the possibility that res judicata could be raised to affect the rights of other individuals who sustained injuries from the car in question. In this context, this Court stated that “there is a discretion in the courts where the defence of res judicata is raised”, but it cautioned that such discretion was “very limited in application” (p. 101 (emphasis added)).
[85] Some appellate and trial courts have since relied on Naken and Danyluk for the proposition that there is discretion to decline to apply cause of action estoppel (David v. Loblaw Companies Limited, 2025 ONCA 830, at para. 33, fn. 8, and paras. 45 and 53; Glenko Enterprises Ltd., at para. 52; Grant McLeod Contracting Ltd. v. Forestech Industries Ltd., 2008 BCSC 756, 294 D.L.R. (4th) 290, at para. 56; M. Saarnok-Vuus, Executrix of the will of J.L. Saarnok v. G. Neufeld, 2003 BCSC 937, at para. 29).
[86] In the years after Grandview and Naken were decided, trial and appellate courts formalized a test for cause of action estoppel. As discussed above, the fourth prong of this test asks whether a party should have argued the basis for a cause of action at the first proceeding. In my view, this prong of the test guards against the application of cause of action estoppel in circumstances like those identified by appellate courts — that is, where the first proceeding was tainted by fraud or dishonesty, or where new evidence was discovered after the first proceeding. These are non-exhaustive examples of situations where the fourth prong of the test for cause of action estoppel may not be met.
[87] With that being said, I accept that courts maintain a limited discretion to decline to apply cause of action estoppel where the preconditions to apply the doctrine are met but where applying it would nonetheless cause an injustice. For instance, it might be appropriate to decline to apply cause of action estoppel if the stakes in the first proceeding were “too minor to generate a full and robust response” (Toronto (City), at para. 53). It might also be appropriate to decline to apply estoppel where procedural unfairness tainted the first proceeding (Avalon, at para. 42).
[88] My colleague Justice Côté points to the importance of exercising caution when applying res judicata in the context of applications. I agree that prudence may be required where the decision said to give rise to res judicata was rendered in the context of summary procedures. Courts must exercise caution to ensure that parties had a full opportunity to argue the issues in the prior proceeding. Particular caution may be required where the initial application addressed only a discrete element of a larger dispute, or where a matter was not within the contemplation of the parties at the time of the initial application. These situations may present appropriate cases for courts to exercise discretion to decline to apply estoppel if the preconditions to apply the doctrine are otherwise made out. Ultimately, courts are well suited to recognize other situations where it may be appropriate to exercise discretion and decline to apply the doctrine.
[89] As this Court observed in Naken, the discretion to decline to apply res judicata is “limited in application” (p. 101). To this, I would add that the discretion to decline to apply cause of action estoppel should be exercised only exceptionally and is narrower than the discretion to decline to apply issue estoppel. This is justified for two reasons. First, the considerations that might justify exercising the discretion to decline to apply issue estoppel are often captured by the fourth prong of the test for cause of action estoppel, leaving only narrow circumstances where the preconditions to apply cause of action estoppel are met but where applying the doctrine would nevertheless be unjust. Indeed, the test for issue estoppel does not incorporate a similar consideration. Second, cause of action estoppel is a more encompassing doctrine than issue estoppel because it precludes the relitigation of an entire cause of action instead of a single issue. For this reason, greater harm is done to the public policy principles of fairness and finality that underlie res judicata when a court permits the relitigation of a cause of action, as opposed to a single issue.
[90] To be clear, my comments above centre on the applicability of cause of action estoppel in the context of court proceedings. As this Court recognized in Danyluk, the operation of res judicata in the administrative context differs from its operation in the context of court proceedings because of the “enormous range and diversity of the structures, mandates and procedures of administrative decision makers” (para. 62). Accordingly, Danyluk recognized that the discretion to decline to apply issue estoppel is “necessarily broader” when the proceeding giving rise to the estoppel is administrative, and it outlined a series of factors to guide the exercise of discretion.
[91] In this case, cause of action estoppel arises in the context of two interrelated sets of court proceedings. In the absence of a relevant factual backdrop like that which existed in Danyluk, this is not an appropriate case in which to consider how the exercise of discretion to decline to apply cause of action estoppel operates in the administrative context.
(c) Reciprocity
[92] Despite what the name “cause of action estoppel” suggests, the doctrine applies equally to the party defending against an action as it does to the party advancing it. Put differently, cause of action estoppel can apply to bar either a claim or a defence from being raised in a subsequent proceeding where it was raised or could have been raised in the prior proceeding.
[93] Support for the reciprocal nature of cause of action estoppel is long-standing and well-founded. In Fidelitas, an English decision this Court referenced affirmatively in Grandview, the Court of Appeal described cause of action estoppel in terms that make this clear:... there may be several points available which go to aid one party or the other in his efforts to secure a determination of the issue in his favour. The rule then is that each party must use reasonable diligence to bring forward every point which he thinks would help him. If he omits to raise any particular point . . . he may find himself shut out from raising that point again, at any rate in any case where the self-same issue rises in the same or subsequent proceedings. [Emphasis added; p. 9.] [94] The reciprocity of cause of action estoppel is also uncontroversial in Canadian authorities. Justice Cromwell described cause of action estoppel as requiring parties to “bring forward all of the claims and defences with respect to the cause of action at issue” (Hoque, at para. 21 (emphasis added)). Similarly, in 420093 B.C. Ltd. v. Bank of Montreal, 1995 ABCA 328, 128 D.L.R. (4th) 488, at p. 494, the Alberta Court of Appeal explained that cause of action estoppel “applies equally to a defendant who must put forward all defences which will defeat the plaintiffs action, and the defendant who does not will be debarred from raising them subsequently” (see also Hall v. Hall and Hall’s Feed & Grain Ltd. (1958), 1958 CanLII 271 (AB SCAD), 15 D.L.R. (2d) 638 (Alta. C.A.), at p. 645; Erschbamer v. Wallster, 2013 BCCA 76, 356 D.L.R. (4th) 634, at para. 16).
[95] Accordingly, under the fourth prong of the test, a plaintiff or applicant who does not raise all theories arising from the cause of action — that is, the set of facts — that it should have in order to demonstrate its entitlement to relief may be estopped from raising them in a subsequent proceeding. There is a reciprocal obligation on a defendant or responding party, who may be barred by cause of action estoppel where that party fails in the first proceeding to raise all theories that could defeat the plaintiff or applicant’s claim.
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[103] The third requirement to establish cause of action estoppel is that the cause of action in the prior proceeding not be separate and distinct from the cause of action in the subsequent proceeding. Recall that a cause of action is a set of facts providing the basis for an action, or a factual situation entitling a person to relief. Cause of action estoppel applies where the subsequent action arises out of the same relationship between the parties and the same subject matter as the initial litigation.
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