{"id":51989,"date":"2026-06-18T11:16:44","date_gmt":"2026-06-18T15:16:44","guid":{"rendered":"https:\/\/www.millerthomson.com\/?p=51989"},"modified":"2026-06-18T11:16:47","modified_gmt":"2026-06-18T15:16:47","slug":"cause-of-action-estoppel-in-canada-what-the-supreme-courts-patrick-street-decision-means-for-litigants","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/commercial-litigation\/cause-of-action-estoppel-in-canada-what-the-supreme-courts-patrick-street-decision-means-for-litigants\/","title":{"rendered":"Cause of action estoppel in Canada: What the Supreme Court’s Patrick Street decision means for litigants"},"content":{"rendered":"\n

In the modern world of complex court proceedings, especially those that involve multiple parties, a variety of issues, and discrete court applications that form part of a larger dispute, it can be easy for litigants to lose sight of the need to put their best foot forward and advance all of the arguments available to them. As the Supreme Court of Canada (\u201cSCC<\/strong>\u201d) has recently confirmed, the failure to do so can have dire consequences.<\/p>\n\n\n\n

Estoppel, which derives, in part, from a 16th<\/sup> century Anglo-French term meaning to \u201cstop, bar, hinder<\/em>\u201d, is a branch of the common law doctrine of res judicata that bars a party from relitigating a claim already decided by a competent court. The term estoppel itself comes from a 16th century Anglo-French word meaning to “stop, bar, hinder”, and once it applies, the door is firmly shut.<\/p>\n\n\n\n

In a recent 6-3 split decision, the Supreme Court of Canada (SCC) discussed the relevant principles, legal test, and implications of the doctrine of cause of action estoppel. The case Patrick Street Holdings Ltd. v. 11368 NL Inc<\/a>. <\/em>[Patrick Street<\/em><\/strong>], arose from a real estate power of sale dispute in Newfoundland, but its implications extend well beyond the facts. For litigants and their counsel, the decision is a reminder that putting your best foot forward the first time is not just good strategy. Under Canadian law, failing to do so may be fatal to your claim.<\/p>\n\n\n\n

A. Background: A mortgage default, unpaid creditors and a multi-million dollar dispute<\/h2>\n\n\n\n

The case before the Court in Patrick Street <\/em>involved related applications arising from the distribution of proceeds from the sale of an encumbered property.<\/p>\n\n\n\n

The Respondent, 11368 NL Inc. (\u201c11368<\/strong>\u201d), owned property in a real estate development located in St. John\u2019s, Newfoundland. The property was subject to multiple mortgages and claims.<\/p>\n\n\n\n

In 2016, 11368 defaulted on one of the mortgages, which was held by the Appellant, Patrick Street Holdings Limited (\u201cPatrick Street<\/strong>\u201d). As a result of the default, Patrick Street commenced power of sale proceedings over the property, which were briefly suspended when 11368 agreed to provide Patrick Street with a new collateral mortgage of $4 million on the same property.<\/p>\n\n\n\n

Shortly afterward, Patrick Street reactivated its power of sale proceedings under the defaulted mortgage and purchased the property. Patrick Street prepared an accounting of the sale, which included allocations to pay out several mortgages held by itself or its affiliates, including its $4 million collateral mortgage, and five directions to pay. According to Patrick Street\u2019s accounting, there were insufficient funds to pay out the remaining claims that ranked after the $4 million mortgage.<\/p>\n\n\n\n

B. Previous decisions: How the case travelled through the courts, and why it ended up at the SCC<\/h2>\n\n\n\n

In 2016, two of the unpaid claimants brought applications challenging Patrick Street\u2019s accounting and sought orders directing Patrick Street to pay out their claims (the \u201c2016 Applications<\/strong>\u201d). 11368 was also named in the 2016 Applications.<\/p>\n\n\n\n

The application judge reviewed Patrick Street\u2019s accounting and reduced or excluded a number of Patrick Street\u2019s claims, including five directions to pay and the $4 million collateral mortgage. In the result, the judge granted the 2016 Applications and ordered Patrick Street to pay out the applicants\u2019 claims.<\/p>\n\n\n\n

Patrick Street appealed this decision. However, it was ultimately dismissed by the Newfoundland and Labrador Court of Appeal (\u201cNLCA<\/strong>\u201d).<\/p>\n\n\n\n

Then, in 2019, 11368 filed an application seeking an order to be paid the residue of the proceeds from the sale of the property (the \u201c2019 Application<\/strong>\u201d). In response, Patrick Street argued that:<\/p>\n\n\n\n

    \n
  1. although the $4 million collateral mortgage had been disallowed from its accounting in the decisions with respect to the 2016 Applications, it remained a valid and enforceable contract between Patrick Street and 11368; and<\/li>\n\n\n\n
  2. although they were both named respondents, the 2016 Applications did not address the substantive issues as between Patrick Street and 11368.<\/li>\n<\/ol>\n\n\n\n

    The same application judge heard the 2019 Application. The judge rejected Patrick Street\u2019s arguments, relying on his decision in the 2016 Applications, and ordered that the residue of the sale proceeds be paid to 11368.<\/p>\n\n\n\n

    Patrick Street appealed this decision; however, it was upheld by the NLCA on the basis that the doctrines of res judicata <\/em>and abuse of process by relitigation applied so as to bar Patrick Street from relitigating its claim with respect to the $4 million collateral mortgage.<\/p>\n\n\n\n

    Patrick Street then appealed to the SCC.<\/p>\n\n\n\n

    SCC decision<\/h3>\n\n\n\n

    The SCC delivered a 6 to 3 split decision. The majority (per Wagner CJ) held that Patrick Street\u2019s appeal should be dismissed. The dissenting decisions of Martin and Karakatsanis JJ, and Cote J, held that the appeal ought to be allowed and the matter remitted back for a hearing of Patrick Street\u2019s claim on its merits.<\/p>\n\n\n\n

    In the majority\u2019s decision (Rowe, Kasirer, Jamal, O\u2019Bonsawin and Moreau JJ concurring), the Chief Justice began by discussing in detail the history of cause of action estoppel. As part of this discussion he noted, among other things, that:<\/p>\n\n\n\n