Court File and Parties

COURT FILE NO.: CV-12-446566 MOTION HEARD: November 18, 2015 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2209726 ONTARIO INC. cob as CV ENERGY AND WATER TECHNOLOGIES and HENRY CHU, plaintiffs

v

TYSON MAINTENANCE SERVICES INC.; TYSON ENVIRONMENTAL INC.; TREVOR G. HODGKINSON, also known as TREVOR HODGKINSON; BARRY WALKER; ECOLIGHT LED SYSTEMS, LLC; ECOLIGHT INTERNATIONAL, LLC; ALAN G. FICKETT, also known as ALAN FICKETT; AARON T. MORRISON, also known as AARON MORRISON; KSH STAFFING SOLUTIONS INC.; and TRICIA S. MIGUS, also known as TRICIA MIGUS, defendants

BEFORE: Master Lou Ann M. Pope

COUNSEL: Sonja Turajlich, Bisceglia & Associates, counsel for the plaintiffs Fax: 905-695-5201

Derek Ketelaars, Bernard B. Gasee, counsel for the defendants, Ecolight Led Systems, LLC, Ecolight International, LLC, Alan G. Fickett, also known as Alan Fickett, and Aaron T. Morrison, also known as Aaron Morrison Fax: 416-363-0252

REASONS FOR DECISION

[1] The issues to be determined on this motion are whether the defendants, Alan G. Fickett, also known as Alan Fickett, and Aaron T. Morrison, also known as Aaron Morrison, are required to answer questions improperly refused, and questions taken under advisement at their examinations for discovery.

[2] The plaintiffs’ motion was withdrawn against defendants, KSH Staffing Solutions Inc., Tricia S. Migus, also known as Tricia Migus, and on consent against Barry Walker.

[3] Subsequent to the hearing of this motion, by my Order dated January 19, 2016, the statement of defence of the defendants, Tyson Maintenance Services Inc., Tyson Environmental Inc., and Trevor G. Hodgkinson, also known as Trevor Hodgkinson, was struck out and these defendants were noted in default.

Background Facts

[4] The pleadings set out the following facts.

[5] The plaintiff, Henry Chu (“Chu”) and the defendant, Trevor Hodgkinson (“Hodgkinson”) met in 2008. Over the following year, Hodgkinson told Chu that he had extensive experience in the water and energy technologies industry and he had potential to grow a lucrative business in water and energy technologies with Chu’s financial assistance.

[6] Two years earlier in 2006, Hodgkinson and the defendant, Barry Walker (“Walker”), had incorporated the defendant, Tyson Maintenance Services Inc. (“Tyson Maintenance”), a company that was involved in rebuilding and repairing jump motors used for conveyor belts at places such as supermarkets and airports. Hodgkinson was also an officer and director of the defendant, Tyson Environmental Inc. (“Tyson Environmental”) which was involved in the sale of LED lighting and liquid filtering products.

[7] Discussions between Chu and Hodgkinson culminated in the incorporation of the plaintiff, 2209726 Ontario Inc., which carries on business as CV Energy and Water Technologies (“CV Energy”), on June 18, 2009. CV Energy sold LED lighting products and water technologies that were developed by Hodgkinson.

[8] The plaintiffs allege that in June 2010, unknown to Chu, Hodgkinson incorporated the defendants, Ecolight LED Systems, LLC and Ecolight International, LLC (“Ecolight defendants/companies”) along with the defendants, Allan Fickett (“Fickett”) and Aaron Morrison (“Morrison”).

[9] The essence of the plaintiffs’ claim is that Hodgkinson made misrepresentations to Chu in order to get Chu’s money and inventory. To do so, Hodgkinson convinced Chu to go into business with him which led to the incorporation of CV Energy. Hodgkinson then incorporated the Ecolight companies and using a flow-through type scheme, Hodgkinson funnelled the plaintiffs’ money and inventory through the Tyson companies to the Ecolight companies when the inventory was sold by Ecolight. The plaintiffs allege that the monies given to Hodgkinson were loans and the inventory belonged to CV Energy for which payment was never made.

[10] It is also alleged that Hodgkinson is related to all the corporate defendants in the capacity of officer, director or manager. The defendant, Tricia Migus (“Migus”), is an officer and director of the defendant, KSH Staffing Solutions Inc. It is alleged that Migus and Hodgkinson were involved in a personal relationship and that Chu loaned Hodgkinson money to help Migus when she was having financial difficulties.

[11] The Tyson companies are no longer in operation.

[12] In this action the plaintiffs seek payment of several alleged unpaid loans made to Hodgkinson and/or the Tyson companies. The plaintiffs also seek payment for inventory allegedly purchased by the defendants, or any of them, from the plaintiff, 2209726 Ontario Inc. The plaintiffs also seek damages based on allegations of oppression and unfair prejudicial conduct under the Business Corporations Act, R.S.O. 1990, c. B.16.

[13] Morrison and Fickett personally deny having had any dealings with Chu in his personal capacity. The Ecolight companies deny having purchased any goods or borrowing any money from Chu in his personal capacity or CV Energy. They further deny all allegations in the statement of claim including having had any contractual or business relationship with the plaintiffs. They further plead that the alleged loans were not made payable to any of the Ecolight defendants, nor did any of them receive directly or indirectly any of the monies in issue.

Plaintiffs’ Motion

[14] The plaintiffs filed affidavits sworn by Chu and Cameron Weale (“Weale”).

[15] The following is a summary of Weale’s evidence.

[16] He was an employee and accounts manager of Tyson Maintenance and Hodgkinson from May 2008 to August 2011. Chu made loans to Hodgkinson and his companies at Hodgkinson’s request. As evidence of that statement he attached copies of numerous cheques all payable to Tyson Maintenance or Tyson Services with the payee being 2063722 Ontario Limited o/a C.I. Group. That numbered company is not a party to this proceeding.

[17] In addition, Weale’s evidence includes a list he prepared in or about January 2011 of some “loans or advances” made to Hodgkinson from the plaintiffs or from companies related to or controlled by the plaintiffs. The list also shows payments made by Hodgkinson to the Ecolight defendants using the funds advanced by the plaintiffs. Weale obtained this information by reference to bank records of Tyson Maintenance when he was still an employee of that company.

[18] Hodgkinson used the plaintiffs’ inventory to make sales through Ecolight. He attaches some 90 pages of photocopies of Ecolight invoices, packing slips and product order forms. Notably, many of the Purolator bills of lading show Tyson Maintenance as sender, Ecolight as receiver and the description box marked as “LED Lights,” “LED Luminaries” and “LED Bulbs”. In addition, many of the bills of lading to Ecolight show Alan Fickett in the box entitled “contact name”.

[19] Weale’s evidence also includes a spreadsheet he prepared of CV Energy’s inventory that was sold by Hodgkinson through Tyson Maintenance. To his knowledge, CV Energy was not paid for this inventory.

Applicable Law

[20] Rule 31.06(1) of the Rules of Civil Procedure provides that a person examined for discovery shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action.

[21] It is well-settled law that relevance is determined by the allegations made in the pleadings such that the scope of discovery is defined by the pleadings. Thus, discovery questions must be relevant to the issues as defined by the pleadings. (Ontario v. Rothmans Inc., 2011 ONSC 2504)

[22] Rule 25.06 of the Rules of Civil Procedure provides that every pleading shall contain a concise statement of the material facts on which the party relies for the claim.

Refusals of Aaron Morrison

[23] Morrison was examined for discovery on June 27, 2013 in his personal capacity and on behalf of both Ecolight companies. The questions he refused to answer are set out in the refusals chart at Tab A of the plaintiffs’ motion record which I will now address.

Refusal 25, Question 41, Page 168

[24] Morrison refused to produce a list of suppliers for the Ecolight companies from commencement of operations in January 2010 (commencement of Ecolight companies) to December 2011 on the grounds of lack of relevance.

[25] This question relates to the issue of CV Energy’s inventory and the allegations that the defendants were involved in a scheme to sell the inventory, retain the profits and not pay the plaintiffs. Paragraphs 12 through 22 of the statement of claim sets out the material facts and allegations relating to the inventory issue. The essence of the allegation is that the defendants misrepresented to Chu that they would purchase CV Energy’s inventory, sell it at a profit and the plaintiff would benefit from the sales.

[26] In my view, the documents sought are relevant to the material issue of CV Energy’s inventory and the alleged non-payment. This is clearly pled in the statement of claim as set out above. Further, my finding of relevance is also supported by the fact of the inter-relationships between the parties given Hodgkinson’s status in all the companies, which was pled in paragraph 3 of the statement of claim. Lastly, Weale’s evidence as summarized above, which was filed in support of this motion, is particularly probative of the inventory issue.

[27] For those reasons, this question was improperly refused and shall be answered.

Refusal 27, Question 220, Page 47

[28] Morrison refused to produce documents relating to any financing that was obtained from private lenders or banks to start-up the Ecolight businesses on the grounds of lack of relevance.

[29] This question relates to the allegations regarding the unpaid loans. The plaintiffs seek the relief of a tracing order in the statement of claim to allow them to follow the loans and assets. In paragraph 11 it is pled that Hodgkinson diverted the loans to himself and the defendants, or any of them. Paragraph 17 pleads that the defendants were “funnels” for the loans. Further, paragraph 3 pleads the inter-relationship among the parties given Hodgkinson’s status. However, it was not pled in the statement of claim that the Ecolight companies used monies obtained directly or indirectly from the plaintiffs to start up those companies.

[30] For the above reasons, I find that the said allegations are sufficiently pled and the proper relief was sought to support the request made. In my view, the plaintiffs were not required to plead specifically that the Ecolight companies used the loan monies to start up the businesses. It is sufficient to plead that there were loans made by and to whom and that the monies were diverted to the defendants who benefited from the sale, accompanied by the relief for a tracing order.

[31] I find therefore that this question is relevant to a material issue raised in the statement of claim being that of the loans and whether the loan monies were diverted to the defendants who were all inter-related given Hogkinson’s status with all the corporate parties. In support of those allegations, the plaintiffs sought a tracing order.

[32] For those reasons, this question shall be answered.

Refusal 9, Question 219, Page 47

[33] Morrison refused to produce accounts receivable lists for the two Ecolight corporate defendants from January 2010 to December 2011 on the grounds of lack of relevance.

[34] It is reasonable to assume that a list of accounts receivable will merely set out the name of the customer and the amount owing. There is no evidence that the list will show what inventory was sold by the Ecolight companies and what inventory was the property of CV Energy.

[35] For those reasons, I find that this question is not relevant.

Refusal 8, Question 330, Page 74

[36] Morrison refused to produce all the monthly bank statements, including cancelled cheques, for the two Ecolight corporate defendants from January 2010 to December 2011 on the grounds of lack of relevance.

[37] This question relates to the allegations regarding the unpaid loans. Paragraphs 29 to 31 above set out the basis for my finding of relevancy regarding the financing documents for the Ecolight corporate defendants. The plaintiffs adduced evidence from Weale who attested to the fact that Hodgkinson made payments to the Ecolight companies using the funds advanced by the plaintiffs, including dates and amounts, which were obtained from Tyson Maintenance bank records accessible to him while he was employed by that company. Weale was not cross-examined by the defendants on his evidence.

[38] For the above reasons, I find that this question is relevant to the issue of the alleged loans and the tracing to the Ecolight defendants. Therefore this question shall be answered. The defendants raised the issue of redacting the bank statements if they were found to be relevant. Without any specific and valid reason to redact the statements, I am not prepared to make such an order. If an issue arises regarding specific entries in the bank statements at the time of production, a motion may be brought.

Refusals 1, 2, 3, 4, 5, Questions 275, 276, 368, 370, 371, Pages 61 and 84

[39] Morrison refused to answer questions regarding the corporate records of the Ecolight corporate defendants on the grounds of lack of relevance. The particular records are shareholders agreements, resolutions, percentage of shares, the amount Morrison paid for shares in the two corporate defendants and a third Ecolight company, which is not a named defendant.

[40] It is my view that these documents are not logically probative of any of the material facts as pled or any of the issues raised in the pleadings. It is possible that the records sought may disclose, for example, the number of shares Morrison was issued in each company and the amount of any monies he contributed; however, I am not persuaded that this information will substantiate any of the facts pled or the issues of tracing of the loans and inventory.

[41] For those reasons, these questions are not relevant and need not be answered.

Refusal 9, Question 165, Page 35

[42] Morrison refused to undertake to look for any notes or documents he may have regarding a plan for LED lighting on the grounds of lack of relevancy.

[43] It is alleged in the statement of claim that the plaintiffs’ money was used by the Ecolight companies, through Hodgkinson, for purposes that benefitted these defendants. Given the tracing remedy sought, the plaintiffs asked questions that relate to monies that may have been used, for example, to start up the Ecolight companies.

[44] Morrison’s testimony on cross-examination was that he had a prior relationship with Chu in which they discussed the LED lighting business in late 2008 or 2009. Morrison testified that he worked in the sales and marketing area, and prior to his last meeting with Chu, he put together a sales and marketing plan for LED lighting and made some initial contacts; however, Chu advised him that the LED business was two years away from having products available for sale.

[45] There is also evidence that in June 2010, Hodgkinson incorporated the two Ecolight corporate defendants to conduct LED lighting business.

[46] Although Morrison’s evidence on cross-examination establishes a link between he and Chu that relates to the LED lighting business prior to incorporation of the Ecolight companies by Hodgkinson, in my view, any documents Morrison may have regarding his sales and marketing plan for LED lighting are not probative to any material fact pled or any issue in the proceeding. In other words, I am not persuaded of the plaintiffs’ argument that the subject documents are relevant to the allegation that the plaintiffs’ money was used by the Ecolight defendant, through Hodgkinson, to start up the Ecolight corporations.

[47] For the above reasons, this question is not relevant and need not be answered.

Refusal 25, Question 324, Page 73

[48] Morrison refused to answer whether there are any minutes of meetings between him, Hodgkinson and Fickett regarding the two Ecolight companies from January 2010 to December 2011 based on the grounds of lack of relevance.

[49] The plaintiffs submit that this question is limited to the three parties and limited in time. They are not seeking minutes of the corporations’ meetings.

[50] Paragraph 3 of the statement of claim pleads the status of Morrison, Hodgkinson and Fickett relative to the corporate parties herein. In addition, given my reasons set out above in paragraphs 29 to 31, 37 and 38, I find that this question is relevant to the issues and therefore shall be answered.

Refusals of Aaron Fickett

[51] Fickett was examined for discovery on October 1, 2012 in his personal capacity. The questions he refused to answer are set out in the refusals chart at Tab A of the plaintiffs’ motion record which I will now address.

Refusal 13, Question 115, Page 27

[52] Fickett refused to answer how much money he put into Ecolight on the grounds of lack of relevance.

[53] For the same reasons as given in paragraphs 29 to 31 above, I find that this question is relevant and shall be answered.

Summary

[54] Regarding Morrison’s refusals: Refusal 25, question 41 is relevant; Refusal 27, Question 220 is relevant; Refusal 9, Question 219 is not relevant; Refusal 8, Question 330 is relevant; Refusals 1, 2, 3, 4, 5, Questions 275, 276, 368, 370, 371 are not relevant; Refusal 10, Question 165 is not relevant; Refusal 25, Question 324 is relevant.

[55] Regarding Fickett’s refusals, Refusal 13, Question 115 is relevant.

Costs

Given the divided result, each party shall bear its own costs.

_ (original signed) __ Master Lou Ann M. Pope

Released: April 18, 2016