On May 8, 2026, the Supreme Court of Canada (the Court) released its judgment on Patrick Street Holdings Ltd. v. 11368 NL Inc.[1] It confirms that the doctrine of res judicata bars parties from relitigating matters by advancing new arguments based on issues that have already been decided, and clarifies the elements of cause of action estoppel. The majority found that res judicata (specifically, cause of action estoppel) applied. Two dissenting opinions across various issues would not have applied the doctrine.
The majority held that a party is obligated to plead or raise res judicata at the first reasonable opportunity to do so, but a party’s pleading does not need to specifically refer to that term. A party may rely on res judicata so long as it pleads the material facts giving rise to a claim of estoppel. Justice Martin (in dissent) would have held that it was possible for res judicata to be raised for the first time on appeal.
Further, the majority also clarified the elements of cause of action estoppel, which had not previously been addressed by the Court. The test for cause of action estoppel can now clearly be stated as follows:
- There is a final decision of a court of competent jurisdiction in the prior action;
- The parties to the subsequent litigation were parties to or in privy with 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 was argued or could have been argued in the prior action if the parties had exercised reasonable diligence.
The takeaway is that a party is obligated to raise all legal theories arising out of the same facts that could be raised at that point, with reasonable diligence, or risk the basis of the cause of action or defence being barred by cause of action estoppel.
Background
The respondent, 11368 NL Inc. (11368) owned property in the Kenmount Terrace real estate development (the Property) encumbered by several mortgages and claims, including those held by the appellant, Patrick Street Holdings Ltd. (Patrick Street), J-3 Consulting and Excavating Ltd. (J-3), John Cook (Cook) and Deanna Cheeke (Cheeke).
Patrick Street or its affiliates held other encumbrances over the Property including five directions to pay totaling over CA$1.1 million. Among these encumbrances included a mortgage granted by 11368 to provide collateral security in the amount of CA$1.875 million. In early 2016, 11368 defaulted on this mortgage and Patrick Street commenced power of sale proceedings. It suspended these proceedings under an agreement pursuant to which 11368 would provide a collateral mortgage of up to CA$4 million on the Property to secure another mortgage over other properties. Weeks later, Patrick Street reactivated the power of sale proceedings and purchased the Property.
As mortgagee, Patrick Street prepared an accounting of the sale with allocations to pay out several of the mortgages it or its affiliates held on the Property, including the CA$4 million mortgage and its directions to pay. This resulted in insufficient proceeds to pay out the other encumbrance claims.
Lower court decisions
The 2017 Decision and 2019 Appeal[2]
In 2016, J-3 and Cook commenced applications challenging the accounting and seeking orders for payment of their claims. The application judge reviewed the validity, the value and the priority of the claims Patrick Street included and excluded from its accounting. The application judge excluded the directions to pay and the CA$4 million mortgage. Patrick Street had failed to complete an analysis of the amount owing under the mortgage since the mortgage acted as collateral security for up to CA$4 million, and therefore could not pay itself from the sale proceeds. Subsequently, there were sufficient funds to pay out J-3 and Cook. The Newfoundland and Labrador Court of Appeal affirmed the application judge’s decision.[3]
The 11368 Application[4]
Following the 2019 appeal, 11368 filed an interlocutory application in the same action as the 2017 decision, requesting an order for Patrick Street to pay Cheeke the amount owing under her mortgage, and for an order for the residue of the sale proceeds. 11368 produced the 2017 decision on Patrick Street’s accounting in support of its application. Patrick Street acknowledged that the CA$4 million mortgage had been disallowed but argued that there remained a valid contract between itself and 11368, and further that the 2017 decision and the 2019 appeal did not deal with matters between Patrick Street and 11368. The applications judge reaffirmed his conclusions in the 2017 decision and granted 11368’s application.
Court of Appeal of Newfoundland and Labrador[5]
Patrick Street appealed, arguing that the CA$4 million mortgage should be paid from the sale proceeds on the basis that the power of sale constituted a “legal action” as defined in the mortgage document, which constituted a default and rendered the entire amount immediately payable. Patrick Street relied on unchallenged affidavit evidence before the applications judge in 2016 that demonstrated that the outstanding amount owed by 11368 was in excess of CA$4 million.
The majority of the Court of Appeal dismissed the appeal. In separate reasons, the majority held that 11368 had properly pleaded and raised cause of action estoppel and issue estoppel before the application judge, and that the doctrines of res judicata and abuse of process by relitigating applied to prevent Patrick Street from rearguing its claim. The dissenting justice held that 11368 could not raise res judicata for the first time on appeal and neither applied in this case.
Issues on appeal[6]
On appeal, the Court considered whether Patrick Street was barred from relitigating its claim for entitlement to payment from sale proceeds under the CA$4 million mortgage. The Court considered the following questions:
- Did 11368 properly plead res judicata in 2019?
- Did 11368 properly raise res judicata before the application judge in 2019?
- Was Patrick Street barred by cause of action estoppel, issue estoppel or abuse of process by relitigating?
Supreme Court of Canada decision
The Court affirmed the Court of Appeal’s decision and dismissed Patrick Street’s appeal.
Chief Justice Wagner, writing for the majority, held that 11368 satisfied its obligation to plead and raise res judicata in its 2019 application, and during submissions before the application judge.[7] Cause of action estoppel prevented Patrick Street from challenging the application judge’s decision on its accounting by raising a new argument to support its claim for entitlement to payment. The cause of action in the 2016 proceedings concerned the validity, value and priority of the encumbrances on the Property, which was the same cause of action at issue in 11368’s application.
Doctrine of res judicata
The doctrine of res judicata provides that a dispute that has been decided finally between parties is not subject to relitigation by those parties. The doctrine is based on two overarching public policy principles: a litigant’s interests in fairness, and society’s interest in the conclusion of disputes and the finality of judicial decisions.
There are two branches of res judicata: cause of action estoppel which bars relitigation of a cause of action by either party, and issue estoppel which precludes a litigant from rearguing an issue that was fundamental to the decision arrived at in a prior proceeding.
Obligation to plead and raise res judicata
The threshold consideration was whether 11368 pleaded and raised res judicata. This analysis involved assessing whether 11368 pleaded the necessary facts in the written submission to support the claim of res judicata.[8]
The majority explained that determining whether a matter has been properly pleaded is a functional approach. A party does not need to explicitly reference the term res judicata, but it must plead the material facts giving rise to a claim of estoppel such that the opposing party is on notice of such a claim.
The obligation to plead res judicata is one which arises when there is a reasonable opportunity to do so. In the case of a defendant or a respondent, this usually arises when they receive the pleadings from the other party. However, a plaintiff or applicant may not be aware of the other party’s arguments and whether res judicata will be raised. In these cases, the question will be whether the plaintiff or applicant raised res judicata at the earliest opportunity.
The Court stated that, as a matter of evidence, parties pleading res judicata should put the preceding decision and any pleadings exchanged before the court in the subsequent proceeding in which res judicata will be raised. Both may be relevant indicia of the subject matter of the decision and may assist in determining the nature of the cause of action for the purposes of cause of action estoppel. The fact that a party has put in the prior judgment or pleadings may also support a conclusion that a party pleaded res judicata.[9]
In this case, 11368 pleaded the material facts in support of its claim of res judicata. 11368 reproduced the application judge’s decision on Patrick Street’s accounting, pleaded that Patrick Street’s appeal had been dismissed, and included both the 2017 decision and 2019 appeal. It did not matter (to the majority) that 11368 did not specifically reference res judicata in its pleadings.
The majority also rejected Patrick Street’s argument that 11368 raised res judicata for the first time on appeal. Rather, it raised res judicata in its oral submissions in its 2019 application several times.
Cause of action estoppel
Having concluded that 11368 pleaded and raised res judicata at first instance, the majority assessed whether Patrick Street was barred by res judicata. The Court agreed with the Court of Appeal that cause of action estoppel applied.
Cause of action estoppel bars subsequent proceedings from “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.” The four elements of cause of action estoppel are:[10]
- 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.
As the majority explained, while the first and second prongs of the test are common to cause of action estoppel and issue estoppel and have been addressed in other jurisprudence of this Court (see Toronto (City); Danyluk; Angle), the latter two prongs warranted further explanation, as the Court had not adjudicated on these parts of the test.
With respect to the third and fourth elements, the Court explained the definition of a “cause of action.” A cause of action is “a set of facts that provides the basis for an action or as a factual situation entitling a person to relief.” Determining whether a cause of action raised in the prior action is separate and distinct requires assessing and comparing the facts in the first action and subsequent action.[11]
A cause of action is distinct from its basis, that is, the theory that explains how the cause of action entitles a party to relief.[12] Importantly, the majority held that any legal theory that properly belonged to the first proceeding that was or could, with reasonable diligence, have been raised at that point is captured by cause of action estoppel. The qualifier “with reasonable diligence” guards against situations where a party could not reasonably have advanced a particular theory when, for example, a party discovers new evidence that did not previously exist or could not be discovered at that time, or when there was fraud or dishonesty.
The majority (as well as the dissents) acknowledged that there is discretion to decline to apply cause of action estoppel when the formal prerequisites are made out and applying res judicata would cause an injustice.[13] It may be appropriate for a court to exercise its discretion when, for example, the stakes in the first proceedings were too minor to generate a full and robust response or when the first proceeding was tainted by procedural unfairness. The majority declined to exercise such discretion (whereas the dissenting judges would have exercised such discretion).
Finally, the Court explained that cause of action estoppel is reciprocal. That is, it applies to bar claims or defences from being raised in a subsequent proceeding when it was or could have been raised in a prior proceeding.[14]
As applied to the facts of this case, the majority was satisfied that the elements of cause of action estoppel were satisfied. The first element was uncontroverted due to the 2017 decision and 2019 appeal. The second element was met because 11368 and Patrick Street were both respondents to the 2016 application, while Patrick Street was a respondent to 11368’s application. The positions (i.e., roles) of the parties were irrelevant as long as they were both parties to the prior and subsequent proceedings.[15]
On the third element, the majority rejected Patrick Street’s argument that the causes of action in the two sets of proceedings were not the same. The proceedings in 2016 and 2019 both required judicial determinations as to the validity, value and priority of the encumbrances on the Property. Patrick Street was required to establish the same material facts to defend against the claims in both sets of applications, specifically, that it was entitled to be paid out of the sale proceeds for the CA$4 million mortgage.[16]
Finally, the fourth element was met because Patrick Street’s argument that the CA$4 million mortgage was due and payable as a result of 11368’s default through the power of sale proceedings should have been advanced in the 2016 applications. Both the text of the mortgage document and the unchallenged affidavit evidence were before the application judge. Its argument was not advanced to support a new cause of action; rather, it was a different theory that was properly part of the 2016 proceedings.[17]
Dissents
There were two dissenting opinions in this decision. Justice Martin, writing for herself and Justice Karakatsanis, would have considered the issue of whether 11368 was permitted to raise res judicata for the first time on appeal. Justice Martin held that 11368 did not raise res judicata at first instance, but properly raised res judicata on appeal. However, she would have exercised discretion to allow Patrick Street’s claim to proceed on its merits because Patrick Street had no reason to foresee that the 2016 applications would be completely dispositive of its claim for entitlement to its CA$4 million mortgage, or would permanently disqualify that claim.
Justice Côté, in separate dissenting reasons, held that 11368 failed to raise res judicata at the earliest opportunity and that res judicata cannot be raised for the first time on appeal. Further, even if the elements of cause of action estoppel had been met, she would have exercised her discretion to allow Patrick Street’s appeal based on the lack of clarity as to what was decided in the two proceedings and her concern that 11368 would receive a windfall.
Key takeaways
This Court’s decision provides clarity on the doctrine of res judicata and cause of action estoppel. There are several key takeaways from the Court’s decision.
First, to properly plead res judicata, a party is not required to expressly reference the term. It is sufficient to plead the material facts which would give rise to a claim for res judicata. As a matter of evidence, parties should put forward the underlying judgments and pleadings, which are indicia of a claim for res judicata.
Second, a party seeking to rely on res judicata should raise it as soon as there is a reasonable opportunity to do so. For defendants or respondents, the first opportunity to do so is likely when they receive the pleadings from the other party. For plaintiffs and applicants, who may not be aware of the legal theories the other party may advance, or in situations where only one set of pleadings is exchanged before a hearing, a reasonable opportunity may be at the hearing itself.
Third, the Court has provided an explanation of the third and fourth elements of the elements of cause of action estoppel. Determining whether a cause of action is “separate and distinct” between two proceedings requires an assessment and comparison of the facts in those proceedings. This is because a “cause of action” is a set of facts which provides the basis for an action or entitles a party to relief. A “cause of action” is distinct from its basis, or the legal theories of liability arising from the facts.
With respect to the fourth element, parties to legal proceedings should put forward all legal theories supported by the material facts at first instance, or as soon as reasonably possible. This is because the fourth element requires a party to exercise “reasonable diligence.” If a basis for a cause of action could have been argued in a prior proceeding, it will likely be barred under cause of action estoppel. However, a party is not expected to advance an argument it could not have reasonably expected. The “reasonable diligence” standard will preclude the application of cause of action estoppel in circumstances such as fraud, dishonesty, or the discovery of new evidence which would explain why a matter was not raised at first instance. The Court has made it clear that cause of action estoppel applies to both theories of liability and theories of defence.
For more information on this topic, please contact the authors Chloe Snider and Janson Fu. The authors would like to thank Ananya Kakkar, summer student, for her assistance in preparing this article.
[1] Patrick Street Holdings Ltd. v. 11368 NL Inc., 2026 SCC 15 [Patrick Street].
[2] Cook v. Patrick Street Holdings Ltd., 2017 NLTD(G) 167.
[3] Patrick Street Holdings Ltd. v. Cook, 2019 NLCA 69.
[4] Cook v. Patrick Street Holdings Ltd., 2020 NLSC 99.
[5] Patrick Street Holdings Limited v. 11368 NL Inc, 2024 NLCA 11.
[6] Patrick Street, supra note 1 at para 31.
[7] Ibid at para 5.
[8] Ibid at para 45.
[9] Ibid at para 53.
[10] Ibid at paras 70, 77.
[11] Ibid at paras 71-72.
[12] Ibid at para 74.
[13] Ibid at para 87.
[14] Ibid at para 95.
[15] Ibid at paras 96-102.
[16] Ibid at paras 115-120.
[17] Ibid at paras 124-128.
