ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 10-50242
DATE: 2014/15/01

BETWEEN:

JOHN SHANNON

Plaintiff

– and –

YOU I LABS INC. and JASON FLICK

Defendants

Paul K. Lepsoe/Michael Beeson, for the Plaintiff

Stephen J. Maddex, for the Defendants

HEARD AT OTTAWA: November 29, 2013

REASONS FOR JUDGMENT

Kane J.

[1] The plaintiff in this motion seeks an order:

(a) to amend his statement of claim to include an alternative claim for oppression pursuant to s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the “CBCA”);

(b) to compel the defendants to answer three undertakings from examination for discovery;

(c) to compel the defendants to produce the following documents:

(i) all bank records in 2008 and 2009 of the defendant corporation (“You”);

(ii) salary paid to Jason Flick, Steven Russell and Andrew Emond by the You and Flick Software Inc. (“Software”) between June 30, 2008 and June 30, 2010;

(iii) invoices to and from You between June 30, 2008 and June 30, 2010, and

(iv) copies of any debt or equity financing obtained by You from June 30, 2008 to date.

BACKGROUND

[2] Mr. Shannon commenced this action by statement of claim in January, 2011. He alleges he was retained by oral contract as a consultant by one or both of the defendants in July, 2008 to develop the business of one or both defendants (the “Contract”).

[3] Mr. Shannon alleges that this oral contract was made on July 15, 2008 with Jason Flick and Tyler Nelson. Pursuant thereto, he was to be paid for consulting services at the rate of $150 per hour and was granted a right to purchase shares of You for nominal consideration. The defendants deny such Contract, including Mr. Shannon’s right to purchase or his purchase of shares in You.

[4] Mr. Shannon alleges he performed services pursuant to the Contract for the benefit of one or both defendants between June and December, 2008 entitling him to payment in the amount of $60,500. Pursuant to the Contract, such indebtedness was not payable until You received new financing, which allegedly occurred in April, 2010. The defendants deny these allegations.

[5] Mr. Shannon alleges he provided further consulting services to the defendants during the period of February to September, 2009 with a value of at least $20,000. The defendants deny this allegation.

[6] Mr. Shannon states that the above indebtedness in the amounts of $60,500 and $20,000 was not paid to him.

[7] Mr. Shannon alleges that pursuant to the Contract, he purchased 1,200,000 common shares of You for $1 on July 15, 2008. He states that such shares are currently worth in excess of $200,000. The defendants deny this allegation. On the discovery examinations in this action, Jason Flick was shown a draft or internal financial statement of You which apparently indicates that Mr. Shannon owns 8.9 % of the shares of You.

[8] Mr. Shannon alleges that between January, 2009 and April, 2010, the defendants eliminated his shares in You from the books of that corporation thereby unjustly enriching the defendants to his detriment. The defendants deny this allegation.

[9] Mr. Shannon claims damages for breach of contract in the amount of $280,000. Alternatively, he seeks damages in the same amount for unjust enrichment or quantum merit.

[10] Mr. Shannon waved the quantum of his claim in excess of $100,000 and commenced this simplified action under Rule 76 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[11] The defendants filed their statement of defence in April, 2011.

[12] The parties agree they made no discovery plan as required under R. 29.1. Non-compliance of this joint obligation should not be used to defeat a remedy otherwise available.

[13] Prior to discoveries, the parties exchanged a list of documents. Mr. Shannon expressed concern about the lack of documents to be produced by You and provided a list of documents he required. These included:

(a) any correspondence between any officer, director or shareholder of You regarding the contract, billings and shareholdings of the plaintiff;

(b) the financial statements of You for the years 2008, 2009 and 2010 up to the financing by OCE; and

(c) financial and business records related to the OCE financing.

[14] Examinations for discovery occurred in February, 2013 during which the defendants gave several undertakings.

[15] After the defendants’ examination, Mr. Shannon on May 28, 2013 again stated that the following documents must be produced, including:

(a) the bank records of You for the financial years 2008 and 2009 ending June 30, 2010;

(b) salary records from You and Software reflecting the payment of salary to Stuart Russell, Andrew Emmons, Tyler Nelson, Jason Flick Steve Hulaj, Don Liberty and Paul Roscoe;

(c) all invoices issued and received by You during the financial years 2008 and 2009;

(d) the corporate minute book of You, including resolutions and share subscription agreements; and

(e) all records of You reflecting revenue, debt, equity, government or other financing received by the company from inception to date including individuals, customers, creditors, OCE, NCR, SR&ED, EDC and BDC.

[16] In response to the above request, You indicated on May 28, 2013 that it would attempt to produce some additional documentation. The defendants suggested setting the action down for trial as all that remained was to answer the undertakings and produce some documents. I take that comment regarding document production to include the above requested documents.

[17] On July 12, 2013, this action was set down for trial. The parties on September 16, 2013, agreed however that each may bring a motion related to disclosure and undertakings. You objected to additional document production as the action had been set down for trial.

[18] On October 21, 2013, Jason Flick stated that the salary being paid by You to himself and Tyler Nelson should be halted to bring the corporation to zero overhead.

[19] Director resolutions of You include the following:

(a) June 30, 2009 - approving payment of accrued salaries to Andrew Emmons and Stuart Russell;

(b) April 14, 2010 - approving debenture financing with OCE of some $500,000; and

(c) May 25, 2011- approving a loan agreement between You and BDC in the amount of $500,000.

[20] Software entered into a consulting agreement with and agreed to provide consulting services to Flick Mobile Inc. on June 16, 2008. Jason Flick executed that agreement as president of each corporation.

ANALYSIS

Oppression Claim

[21] Mr. Shannon either is or is not a shareholder of You. If he continues to be a shareholder, it is unlikely he can sue a non-public corporation to recover the value of his shares, which is $40,000 of this claim. If he never was a shareholder of You, that may negatively impact his claim to this $40,000.

[22] If Mr. Shannon is or was a shareholder of You, he fits within the definition of complainant in s. 238 of the CBCA and is entitled to bring an oppression claim under s. 241.

[23] Alternatively, Mr. Shannon argues that his claim for a debt owing qualifies him as holder of a debt obligation, as the holder of security under s. 2 of the CBCA and as a complainant under sections 238 and 241 of the CBCA to seek an oppression remedy.

[24] I disagree that the alleged debt qualifies based on the following definitions in s. 2 of the CBCA:

“debt obligation” means a bond, debenture, note or other evidence of indebtedness or guarantee of a corporation, whether secured or unsecured;

“security” means a share of any class or series of shares or a debt obligation of a corporation and includes a certificate evidencing such a share or debt obligation; (emphasis added)

[25] No evidence from You of the $60,000 debt has been presented on this motion. The plaintiff does not qualify as a debt holder.

[26] No authority was presented that an oppression claim may be included in an R. 76 simplified action. Mr. Shannon in argument stated that a claimant in a simplified action may not request a declaration, such as Mr. Shannon being the owner of shares in You.

[27] Rule 76.01 excludes but two types of actions, namely construction liens and class actions. Absent specific authority, I am not prepared to hold that an oppression claim cannot be included in a R. 76 simplified action.

[28] An oppression remedy is broad in nature and can include an award of damages for oppressive conduct: Waxman v. Waxman, 2002 49644 (ON SC), 25 B.L.R. (3d) 1 (Ont. S.C.) at para. 523. There is sufficient specificity pled as to the narrow conduct complained of and the time frame involved. The allegation is that Mr. Shannon owned shares in You and the defendants failed to issue his shares or removed him as a shareholder from the share registry and records of You.

[29] The draft statement of claim as presented is approved.

SOFTWARE

[30] The action is against You and Jason Flick. Software is not a defendant. The amended statement of claim does not commence action against Software. This action contains no claim or allegations of wrongdoing against Software. Mr. Shannon alleges the Contract was with one or both defendants, not with Software. Who Software employed or contracted with is not an issue in this action.

[31] If Software paid expenses of You and thereafter got reimbursed by You, those remain expenses of and payments by You which it can account for, if relevant.

[32] Production via affiliated corporations and from the directing mind of two corporations is qualified by the opening phrase in R. 30.02(4). It must be relevant. Payments or salary records belonging to Software are not relevant.

[33] No document production from Software is ordered other than direct payments to or invoices from Software to You for the fiscal years of You, ending in 2008, 2009, 2010 and 2011.

UNDERTAKINGS

[34] Mr. Shannon’s position is that his $60,000 invoices for consulting services in 2009 were never paid while employees and other consultants of You were paid. The defendants allege that You had no money and but for brief periods, paid no one. The statement of claim does not seek to set aside payments by You to others as fraudulent or preferred transactions.

[35] As determined, payments by Software to its employees and its contractors, other than You, are not relevant.

[36] The answer provided to question 210 is insufficient as it has been restricted to salary. Payments similar to or in substitute of salary may have occurred. The defendants are to provide the plaintiff with the amount of, the reason and the dates of any payments by You to Tyler Nelson for the financial years of You ending June 2008, to June 2012.

[37] The answer to questions 213 to 215 is inadequate as expressed above in relation to Tyler Nelson. The defendants are to advise of any money paid by You to Andrew Emmons, the reason for such payments, the dates and amounts thereof for the financial years of You ending in June 2008 until June 2012.

[38] Financial statements of You have been provided for the fiscal year 2010. Any audited or internal or unaudited annual financial statements of You are to be provided to the plaintiff for its fiscal years ending in June 2008, 2009, and 2011.

DOCUMENT PRODUCTION

[39] Mr. Shannon has sought document production before, during and after the examination for discovery. The defendants are ordered to produce only the following which meet the test of relevancy, namely:

(a) The monthly bank statements of You for its fiscal year ending June, 2009 and June, 2010;

(b) Any records of You evidencing any payment by it to Jason Flick, and Stewart Russell for You’s fiscal year ending June, 2008 to June, 2012. This is not limited to salary. The defendants on examination stated these individuals worked for You for no consideration.

(c) Records of You consisting of:

(i) invoices issued by You to Software,

(ii) invoices from You for product or services sold, and

(iii) invoices from Software, Jason Flick, Tyler Nelson, Andrew Emmons and Stewart Russell to You

for the fiscal year end of You in June, 2009 and June, 2010. Production beyond this is too broad.

(d) All documents related to debt or equity financing received is too broad. The defendants shall produce copies of any revenue, debt, equity government financing or investment received by You and consisting of letters of commitment to You, copies of the final financing agreement, loan or investment agreement, the amount and date of advancement to or investment in You, for its fiscal year ending June, 2009 until June 30, 2011 as the defendants allege that compensation to employees and contractors was conditional upon You obtaining financing or investment at specified levels which makes this disclosure relevant.

[40] The defendants shall within 14 days from today serve and file any amended statement of defence to the amended statement of claim.

[41] Whether Mr. Shannon became the owner of shares in You and if so, whether the defendants failed to record him as a shareholder or removed him as shareholder are all matters within the knowledge of the defendants. Presumably the plaintiff questioned the defendants as to such issues. There shall be no further discovery of either party as to such issues in this simplified action.

[42] Short written submissions as to the cost of this motion are to be received from the plaintiff within 20 days and the defendants within 20 days thereafter if required.

Kane J.

Released: January 15, 2014

ONTARIO
SUPERIOR COURT OF JUSTICE

B E T W E E N:

JOHN SHANNON

Plaintiff

– and –

YOU I LABS INC. and JASON FLICK

Defendants

REASONS FOR JUDGMENT

Kane J.

Released: January 15, 2014