Court File and Parties

Citation: PIXIU SOLUTIONS INC. v. CANADIAN GENERAL-TOWER LIMITED et al, 2016 ONSC 906 Court File No.: C-1178-14 Date: 2016-02-04 Superior Court of Justice - Ontario

Re: PIXIU SOLUTIONS INC., Plaintiff And: CANADIAN GENERAL-TOWER LIMITED, CGT SHANGHAI TRADING CO. LTD. and CGT CHANGSHU LTD., Defendants

Before: The Honourable Mr. Justice D.A. Broad

Counsel: John D. Campbell, for the Plaintiff James H. Bennett, for the Defendant CGT Shanghai Trading Co. Ltd. Ross F. Earnshaw, for the Defendant CGT Changshu Ltd.

Heard: January 22, 2016

Endorsement

[1] I was appointed by Regional Senior Justice Turnbull on October 19, 2015 pursuant to rule 37.15 to hear all motions in this proceeding and in a related proceeding in file number C-661-13 involving Pixiu Solutions Inc. (“Pixiu”) as plaintiff and Canadian General-Tower Limited (“CGT”) as Defendant. CGT Shanghai Trading Co. Ltd., properly named Canadian-General Tower (Shanghai) Trading Co. Ltd. (Shanghai) and CGT Changshu Co. Ltd. (“Changshu”) are subsidiaries of CGT incorporated in 2006 and 2011 respectively pursuant to the laws of China. Neither Shanghai nor Changshu are parties to the action in file C-661-13.

Background

[2] (Pixiu”) is in the business of recycling vinyl out of a facility located at Brantford Ontario. The defendant (“CGT”) manufactures a variety of vinyl products such as automotive trim, swimming pool liners and roofing membranes. It has a manufacturing facility at Cambridge, Ontario.

[3] Pursuant to a series of contracts CGT sold to Pixiu scraps, seconds and obsolete vinyl material (“surplus material”) to Pixiu.

[4] A new five year supply agreement between Pixiu and CGT was entered into on December 21, 2011 (the “supply agreement”). The term of the supply agreement was stated to be from January 1, 2012 to December 31, 2016. Following a change in control of CGT the new shareholders of CGT took the position that the supply agreement was not exclusive in the sense of requiring CGT to sell all of its surplus material to Pixiu. In or about April 2013 CGT stopped shipping all of its surplus material to Pixiu.

[5] Pixiu took the position that the supply agreement was exclusive and by Statement of Claim issued May 10, 2013 at Toronto (the “first action”), it brought an action against CGT for breach of the supply agreement claiming damages in the sum of $20 million, punitive damages of $1 million and aggravated damages of $1 million as well as an interim and interlocutory injunction restraining CGT from selling the surplus material to Pixui’s customers, interfering with its relationship with its customers, and from shipping surplus material to anyone other than the plaintiff.

[6] Pixiu brought a motion for an interlocutory injunction which was scheduled to be argued on July 15, 2013. On that day Madame Justice Wilson made an order, on consent, that there be an expedited trial at Kitchener “on the liability issues” with the “damages issues” to be determined at a later date, if necessary. The Kitchener file number for the first action is C-661-13.

[7] The trial on the “liability issues” in the first action was heard by Justice Sloan on September 26 and 27 and November 26, 2013. Justice Sloan released his reasons for decision on December 10, 2013 (the “Sloan Reasons”).

[8] Justice Sloan found for Pixiu and made a declaration that “CGT has breached the supply agreement by withholding [material described in Schedule “A” to the supply agreement] from Pixiu and by selling Schedule “A” material to other companies.”

[9] Justice Sloan ordered further that “there shall be a trial of an issue to determine the amount of Pixiu’s damages suffered as a result of any CGT breaches of the supply agreement dated January 1, 2013 and judgment for those damages.”

[10] Following release of the Sloan Reasons Pixiu asserted that it was seeking damages in the first action (file C-661-13) in relation to surplus materials produced in China by Shanghai and/or Changshu. CGT took the position that damages for product produced in China could not be sought in the first action.

[11] On December 16, 2014 Pixiu issued a new Statement of Claim in this action, file C-1178-14 (the “second action”) against CGT, Shanghai and Changshu claiming damages in the sum of $10 million, alleging that the supply agreement was signed by CGT “on behalf of itself and the other defendants [Shanghai and Changshu]” and that it applied to the worldwide output of CGT and its subsidiaries. Pixiu pleaded in the second action that “in the event it is determined that the trial of the issue ordered by Mr. Justice Sloan [in the first action file C-661-13] does not include the plaintiff’s damages suffered in relation to scraps and seconds produced by the defendants in China, the plaintiff seeks those damages in this action [i.e. the second action file C-1178-14].”

[12] Changshu and Shanghai have each brought a motion to dismiss or permanently stay the second action against them on the basis that the Ontario court does not have jurisdiction. Each of the motions is supported an affidavit of Donqing Yu, a resident of China. He holds the titles of Vice-President and General Manager of Changshu and General Manager of Shanghai.

Nature of the Motion

[13] The plaintiff has brought a motion for the following relief:

(a) that Craig Richardson, the chairman and a director of CGT, and chairman, a director and legal representative of Changshu and Shanghai, be examined as a witness on Shanghai’s and Changshu’s pending motions pursuant to rule 39.03;

(b) that Marc Campanelli, a former director of operations of CGT, be examined as a witness on a pending motions pursuant to rule 39.03;

(c) in the alternative to (a) and (b), that Adam Peaker, a director of each of CGT, Chnagshu and Shanghai, and Winston Chong, the President and director of CGT and a director of each of Changshu and Shanghai, be examined as witnesses on the pending motions pursuant to rule 39.03; and

(d) that Donqing Yu be cross-examined on his affidavits by videoconference or similar electronic means.

[14] The parties have agreed that Donqing Yu will be cross-examined on his affidavits by videoconference, with the details to be worked out by counsel.

[15] The plaintiff, during submissions, withdrew its request to examine Marc Campanelli as he is no longer employed by or associated with any of the defendants. Counsel for the plaintiff requested the substitution of Winston Chong for Mr. Campanelli and limited his request to examining one witness (other than Mr. Yu) on the pending motions pursuant to rule 39.03, with Mr. Chong being the primary target, in light of his positions with all three defendants and the fact that he is the person to whom Mr. Yu reports.

Analysis

[16] Rule 39.03 provides that a person may be examined as a witness before the hearing of a pending motion for the purpose of having a transcript of his or her evidence available for use at the hearing.

[17] The opposing party may move to quash a summons served on a witness pursuant to rule 39.03. In this case the parties agree that service of a summons is not necessary. The matter comes before me, as the rule 37.15 judge, essentially as a motion for directions.

[18] The principles that apply to the question of whether a summons served on a witness pursuant to rule 39.03 should be quashed were summarized by Perrell, J. in the case of Abou-Elmaati v. Canada (Attorney-General) 2013 ONSC 3176 (S.C.J.) at paras. 61-68, and were recently adopted by the Divisional Court in the case of PowerServe Inc. v. Ontario College of Trades, 2015 ONSC 857 (Div. Ct.) at para. 15, as follows:

The case law establishes that where a party serves a summons to examine a witness for a pending motion or application, an opposing party may move to quash the summons for the examination of the witness on the ground that the evidence sought is not relevant to the application or motion or that the examination or the underlying proceeding would amount to an abuse of process...

If the summons to the witness is challenged, the party seeking the examination should be prepared to show that the evidence is relevant to the pending application or motion and that the party to be examined is in a position to provide the evidence...

If the party seeking the examination cannot satisfy the relevancy and evidentiary screening, then the summons is regarded as a fishing expedition and an abuse of process...Similarly, if the examination is being used for an ulterior or improper purpose, or if the process is itself an abuse, it will be set aside on that ground...

An examination is improper if the purpose of the examination is to prematurely inquire into a party's defences or otherwise commence the discovery process...

In considering whether to strike a summons to a witness, the court will consider the nature and grounds for the application to determine what are the issues for which the examination is in aid...

Once the party seeking to conduct the examination shows that the proposed examination is about an issue relevant to the pending application and that the party to be examined is in a position to offer possibly relevant evidence, it is not necessary for the party to go further and show that the proposed examination will provide evidence helpful to that party's cause...

If the evidence would be possibly relevant to the issues, the burden is on the party challenging the summons to show that the examination or the underlying application is an abuse of process...

In considering whether to quash a summons, the court may consider the merits of the underlying proceeding

[19] It is apparent that Justice Perrell in Abou-Elmaati and the Divisional Court in PowerServe used the terms “relevant” and “possibly relevant” interchangeably. The parties on this motion agree that the threshold for relevancy for the purposes of rule 39.03 is a low one.

[20] Changshu and Shanghai each base their motion challenging the jurisdiction of the Ontario Court on the question of jurisdiction simpliciter and not on the doctrine of forum non conveniens. The Supreme Court of Canada in the case of Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572 laid down a two-stage framework for the determination of questions of jurisdiction. The first step is to determine whether the court should assume jurisdiction. The plaintiff bears the onus of prima facie establishing jurisdiction simpliciter by showing that a “presumptive connecting factor” exists to establish a real and substantial connection with the Province of Ontario. The presumptive connecting factors that prima facie allow a court to assume jurisdiction simpliciter are:

(a) the defendant is domiciled or resident in the province;

(b) the defendant carries on business in the province;

(c) where the cause of action sounds in tort, the tort was committed in the province; and

(d) the contract connected with the dispute was made in the province.

(see Van Breda at para. 90)

[21] The list of presumptive connecting factors is not exhaustive and courts may, over time, identify additional presumptive factors (see Van Breda at para. 100).

[22] The presumption with respect to a factor is not irrebuttable and the defendant might argue that a given connection is inappropriate in the circumstances of the case. In such a case the defendant will bear the burden of negating the presumptive effect of the factor and convincing the court that the proposed assumption of jurisdiction would be inappropriate (see Van Breda at paras. 81 and 100).

[23] If the court concludes that it lacks jurisdiction because none of the presumptive connecting factors exist or because the presumption of jurisdiction that flows from one of those factors has been rebutted, it must dismiss or stay the action, subject to the possible application of the “forum of necessity” doctrine. If jurisdiction is established, the claim may proceed, subject to the court’s discretion to stay the proceedings on the basis of the doctrine of forum non conveniens.

[24] Counsel for each of Changshu and Shanghai undertook, on behalf of their respective clients, that that they will not argue forum non conveniens at the hearing of their jurisdiction motions, particularly since CGT, a corporation domiciled in Ontario, is a defendant and it would therefore be inappropriate to argue forum non conveniens if jurisdiction simpliciter is established,

[25] Counsel for Pixiu acknowledged that the first three presumptive connecting factors, namely, the defendants being domiciled or resident in Ontario, the defendants carrying on business in Ontario and a tort being committed in Ontario, have no application. However, he argues that the fourth presumptive connecting factor, namely a contract connected with the dispute having been made in the province, is present. Pixiu argues that the supply agreement between it and CGT was made in Ontario and is a “contract connected with the dispute”.

[26] Counsel for Shanghai argued that it is implicit in the reasoning of the Supreme Court of Canada in Van Breda that for the fourth presumptive connecting factor to be present the contract must be between the parties, that is, between the plaintiff and the out of the jurisdiction defendants.

[27] I disagree.

[28] The Supreme Court of Canada in Van Breda did not frame the fourth presumptive connecting factor so as to require the defendants to be parties to the agreement. In any event Pixiu has pleaded that CGT entered into the supply agreement “on behalf of” Shanghai and Changshu, that is as their agent, which would make them parties to it.

[29] Counsel for Shanghai argues that, insofar as his client is concerned, the plaintiff has not shown the minimal threshold of relevance required to support an examination of a non-party pursuant to rule 39.03. He argues that the evidence that Shanghai is a trading company, and not a manufacturing company, and therefore does not produce any materials which would potentially be covered by the supply agreement, is uncontradicted.

[30] As indicated above, the threshold for relevancy is a low one, characterized as “possibly relevant”. Although the corporate filings which point to Shanghai being a trading company only and not a manufacturer would seem to seriously weaken the plaintiff’s case against it, the Statement of Claim does allege that that supply agreement was made by CGT on Shanghai’s behalf. Although the merits of the underlying action can be considered on this motion, in my view the argument based on the point that Shanghai is a trading company only and not a manufacturer is better advanced on the jurisdiction motion itself on the issue of whether the presumptive effect of the fourth factor can be negated by showing it to be weak or tenuous.

[31] Without deciding the issue, the apparent existence of the fourth presumptive connecting factor would prima facie establish jurisdiction simpliciter. The issue on the argument of the jurisdiction motion will therefore largely centre on whether Shanghai and Changshu are able to negate the presumptive effect of the factor and convince the court that the proposed assumption of jurisdiction would be inappropriate.

[32] Although it is hard to see that an examination under rule 39.03 would be necessary to establish the existence of the fourth presumptive connecting factor, in my view it is appropriate to permit Pixiu to conduct the examination of Mr. Chong with respect to matters which may serve to counter the arguments of Shanghai and Changshu that the proposed assumption of jurisdiction would be inappropriate on the basis that the presumptive effect of fourth factor is negated.

[33] The scope of the examination conducted by Pixiu of Mr. Chong must be limited to the issues which are pertinent to the jurisdiction motion and must not prematurely inquire into the defences of Shanghai and Changshu or otherwise commence the discovery process. Since I am seized of all motions in respect of this action and file C-661-13 pursuant to rule 37.15, if there is any difficulty with the scope of the questioning on the examination, the parties may move before me for directions or rulings on issues arising on the examination.

Disposition

[34] For the reasons set forth above, it is ordered that:

(a) The plaintiff may cross-examine Donqing Yu on his affidavits filed on behalf of Shanghai and Changshu by videoconference, with the arrangements to be worked out by counsel;

(b) The plaintiff may examine Winston Chong pursuant to rule 39.03 on issues which are pertinent to the pending jurisdiction motions brought by Shanghai and Changshu;

(c) Any party may move before me for further directions or rulings arising from the said examinations.

[35] If the parties cannot agree on costs, the plaintiff may make written submissions as to costs within 21 days of the release of this endorsement. The defendants Shanghai and Changshu have 14 days after receipt of the plaintiff’s submissions to respond and the plaintiff has 7 days thereafter to deliver any reply submissions. The initial submissions of the plaintiff and the submissions of the said defendants shall not exceed 5 double-spaced typed pages, exclusive of Bills of Costs or Costs Outlines. The plaintiff’s reply submissions, if any, shall not exceed three such pages. All such written submissions are to be forwarded to me at my chambers at 85 Frederick Street, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D.A. Broad J.

Date: February 4, 2016