Court File and Parties

COURT FILE NO.: CV-15-11221-00CL COURT FILE NO.: CV-16-11347-00CL DATE: 20170328 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: CENTOCO HOLDINGS LIMITED and KS CENTOCO LTD., Plaintiffs/Moving Parties AND: MAGNA INTERNATIONAL INC., MST AUTOMOTIVE INC., MST AUTOMOTIVE OF AMERICA INC., ACTS-ADVANCED CAR TECHNOLOGY SYSTEMS GmbH & CO. KG, TRW INC. and TRW AUTOMOTIVE SAFETY SYSTEMS GmbH, Defendants/Responding Parties

RE: MAGNA INTERNATIONAL INC., Plaintiff AND: CENTOCO HOLDINGS LIMITED and KS CENTOCO LTD., Defendants

AND RE: CENTOCO HOLDINGS LIMITED and KS CENTOCO LTD., Plaintiffs by Counterclaim AND: MAGNA INTERNATIONAL INC., JOHN BRIAN COLBURN and VINCENT J. GALIFI, Defendants by Counterclaim

BEFORE: HAINEY J.

COUNSEL: W.A. Derry Millar and William v. Sasso, for the Plaintiffs/Moving Parties Centoco Holdings Limited and KS Centoco Ltd. John Chapman and Caleb Edwards, for the Defendants/Responding Parties Magna International Inc., MST Automotive Inc., MST Automotive of America Inc., and ACTS-Advanced Car Technology Systems GmbH & Co. KG, and Defendants by Counterclaim John Brian Colburn and Vincent Galifi Katherine Menear, for the Defendants/Responding Parties TRW Inc. and TRW Automotive Safety Systems GmbH

HEARD: March 23, 2017

Endorsement

[1] Centoco Holdings Limited and KS Centoco Ltd. (“Centoco”) have brought two motions in these related proceedings: (1) In the winding up action, Centoco moves for an order compelling the attendance of Donald Walker as Magna International Inc.’s (“Magna”) representative on its examination for discovery; and (2) In the main action, Centoco moves for an order compelling Magna to provide answers to questions that were refused on the examination for discovery of Brian Colburn, Magna’s representative on its examination for discovery.

Motion to Compel

[2] Magna has not yet been examined for discovery in the winding up action. Centoco has chosen Mr. Walker, who is Magna’s Chief Executive Officer, pursuant to Rule 31.03(2) of the Rules of Civil Procedure, to be examined. Centoco submits that it has the prima facie right to examine Mr. Walker because he is the representative of its choice. Centoco further submits that Magna has not presented any evidence of undue oppression, inconvenience or prejudice in producing Mr. Walker to be examined. Mr. Sasso, who represents Centoco, only requires a one-day examination of Mr. Walker. He has offered to provide Mr. Walker with copies of all of the documents he plans to ask him about as well as a general outline of the subjects he intends to examine him on in advance of the examination.

[3] Magna takes the position that the proposed examination of Mr. Walker is abusive because Centoco has already had extensive discovery of Magna in the main action. Mr. Chapman, on behalf of Magna, submits that essentially the same factual allegations are made by Centoco in the winding up action. Further, Magna submits that Centoco has already examined Mr. Colburn and Mr. Galifi in their personal capacities in the winding up action.

[4] Mr. Chapman submits that the two actions are “functionally one proceeding” and, therefore, further discovery of Mr. Walker is not necessary.

[5] The issues in both proceedings arise from a binding letter of intent (“BLI”) entered into by Magna and Centoco in 1994 to pursue their future business interests in the manufacture and sale of steering wheels and airbag units in North America exclusively with each other. Centoco alleges that Magna breached the BLI because it failed to develop the airbag business in North America exclusively for the joint venture. Instead, Centoco alleges that Magna pursued this market alone and with TRW Inc. (“TRW”), a defendant in the main action. According to Centoco, Magna sold its interest in the airbag and steering wheel business to TRW for $566 million in 1996.

[6] Centoco wants to examine Mr. Walker because he was instrumental in the decision to sell Magna’s interest in the airbag and steering wheel business to TRW. According to Centoco, Mr. Walker was the person most directly involved in Magna’s strategic planning regarding its steering wheel and airbag business and its efforts to develop opportunities pursuant to the BLI.

[7] Mr. Sasso has set out certain of the areas he wishes to pursue on Mr. Walker’s examination at para. 17 of his factum. In my view these are relevant and proper inquiries in light of the issues raised in the winding up action.

[8] The legal principles that apply to whether Mr. Walker should be ordered to attend as Magna’s representative on its examination for discovery are succinctly set out by Master Sprout in Nemni v. BCE Inc., 2011 ONSC 6196.

[9] I have applied these principles to Centoco’s motion. I have concluded as follows:

(a) Mr. Walker has sufficient knowledge of the matters at issue. (b) Mr. Walker had direct involvement in Magna’s alleged acts and omissions as they relate to the issues in the winding up action. (c) Mr. Walker can properly inform himself. I consider it significant that Mr. Sasso has agreed to provide Mr. Walker with the documents he plans to examine him on and to identify, in a general way, the issues he will cover during his examination. This will significantly reduce the amount of preparation time required by Mr. Walker and will narrow the scope of his examination. (d) There is no evidence of undue oppression, inconvenience or prejudice for the proposed one-day examination of Mr. Walker. (e) The answers already given by Mr. Galifi and Mr. Colburn in their personal capacities are not binding upon Magna. They do not constitute Magna’s examination for discovery evidence in the winding up action.

[10] In conclusion, for these reasons, I am not persuaded that I should interfere with Centoco’s prima facie right to examine Mr. Walker on behalf of Magna.

[11] Centoco’s motion is, therefore, granted. Mr. Walker shall be produced for a one-day examination. Mr. Sasso shall identify the documents he intends to examine Mr. Walker on and provide a general outline of the issues he intends to examine upon at least 30 days prior to the examination. If any problems arise with respect to Mr. Walker’s examination, counsel may attend a 9:30 a.m. appointment with me to resolve the issues.

Refusals Motion

[12] Centoco seeks to compel answers to the following two general categories of outstanding questions:

(1) Questions and requests for production of documents related to the Airbag Business carried on by Magna and its subsidiaries through the interiors and seating business/program, including the profits associated with the Directed Source Mark-Ups; and (2) Questions related to additional documents that were produced by Magna in July 2015.

First Category of Questions

[13] Mr. Chapman submits that the first category of questions and requests for documents are not relevant to the pleadings because no material facts have been pleaded by Centoco with respect to these issues. Further, he submits that the document production requests are so extensive that it will take many months, cost millions of dollars and likely result in an adjournment of the trial currently scheduled to commence on October 30, 2017.

[14] Mr. Millar, on behalf of Centoco, submits that one of the main issues in this litigation is whether Magna carried on the airbag business in breach of the BLI. According to him, Centoco alleges that Magna carried on the airbag business in breach of the BLI by installing and selling airbags purchased from third parties into components and interiors that Magna sold to original equipment manufacturers (“OEMs”). Magna generated profits from these sales that are referred to as Directed Source Mark-Ups. Centoco claims that under the terms of the BLI it is entitled to a percentage of all Directed Source Mark-Ups earned by Magna during the years that the BLI was in force.

[15] Mr. Millar submits that Magna has not produced any documents to show how many airbags it installed into the components and interiors it assembled and sold to OEMs or provided any information about the profits it earned from Directed Source Mark-Ups. He maintains that this is relevant information to the issues in the main action.

[16] Although Mr. Chapman submits that Magna’s interior and seating business/program does not constitute “Airbag Business” pursuant to the BLI, Mr. Millar submits that Magna thought that it might constitute “Airbag Business” when it referred to this business in its subsidiary, Intier’s, 2004 Annual Report as follows:

Although we believe we are not currently carrying on airbag business in North America in a manner that would cause Magna to violate its covenant described above, it is possible that Centoco Holdings Limited may disagree, or that our business in the future could be restricted by Magna’s covenant, in either case in a manner which may be materially detrimental to us.

[17] This statement in Intier’s Annual Report appears to me to be a recognition by Magna, in 2004, that Centoco might be entitled to a percentage of the Directed Source Mark-Ups under the BLI.

[18] Further, in my view, questions related to Magna’s business of integrating safety components, including airbags, as part of Magna’s interior and component programs are relevant to the issues pleaded in Centoco’s Fresh Statement of Claim summarized at para. 22 of Mr. Millar’s factum. These questions relate to Centoco’s basic allegation that Magna was unjustly enriched by its exploitation of the market for steering wheels and airbags in North America without regard to and in violation of Centoco’s rights under the BLI. For this reason, I do not accept Mr. Chapman’s submission that these questions are not relevant to the pleadings.

[19] I have, therefore, concluded that the information sought by Centoco under this first category of questions should be provided by Magna. However, proportionality requires that the inquiry should be significantly narrowed so that it will not result in the extensive, time consuming and expensive production efforts described in the supplemental affidavit of Margaret Sims sworn March 20, 2017. As I indicated to counsel during the argument of this motion, I am not prepared to make an order requiring production of documents and information by Magna that will result in an adjournment of the scheduled trial in October.

[20] Mr. Millar indicated that he would be prepared to narrow his request for this information. In my view this would be appropriate. Accordingly, I direct that Mr. Millar and Mr. Chapman meet and attempt to significantly narrow the scope of Centoco’s request for information with respect to these issues so that Centoco can obtain sufficient discovery without requiring Magna to engage in unreasonable efforts to obtain the information. Once they have done so they are to provide me with a draft order for the production of this information by Magna that will not jeopardize the scheduled trial date. If there are areas of disagreement I will decide the scope of production required at a 9:30 a.m. attendance.

Second Category of Questions

[21] Magna produced 557 documents in July 2015 following Mr. Colburn’s examination for discovery. Magna agreed that Centoco could provide written questions in respect of these documents. Magna has answered all of Centoco’s questions about these documents except for four of the documents which Magna maintains are not new documents.

[22] Mr. Millar submits that Ms. Sims, who represents Magna, agreed that Mr. Millar could deliver questions in writing relating to all 557 “additional” documents that were produced in July 2015. He submits that this is what her e-mail message to him dated May 6, 2016 says. Mr. Chapman submits that Magna only agreed to answer questions related to any “new” documents among the 557 documents that were produced.

[23] In my view, because Magna decided to produce an additional 557 documents in July 2015, after Mr. Colburn’s examination for discovery, Centoco should be permitted to ask relevant questions relating to all of these documents. This includes duplicate copies of documents. Magna determined that an additional 557 documents should be produced in July 2015. Presumably this was because Magna’s counsel believed these documents had not yet been produced and considered them to be relevant to the matters in issue. These additional productions triggered discovery rights on the part of Centoco in respect of all of the additional documents that were produced.

[24] My conclusion is further supported by the wording of Ms. Sims’ e-mail message to Mr. Millar dated May 6, 2016, in which she stated as follows:

I confirm that you will provide written questions with respect to undertakings and additional documents by June 30, 2016. (emphasis added)

[25] Ms. Sims did not specify that she would only entertain questions with respect to “new documents”. I interpret her e-mail message to refer to all 557 additional documents.

[26] For these reasons, Magna is ordered to provide answers to questions 1-4 in Schedule “A” of Centoco’s Notice of Motion.

Further and Better Affidavit of Documents

[27] Centoco requests an order requiring Magna to provide a Further and Better Affidavit of Documents. In my view it would be premature to make such an order while there are outstanding issues regarding production of the first category of questions. Once these production and discovery issues have been determined I will consider whether I should order Magna to serve a Further and Better Affidavit of Documents. This aspect of Centoco’s motion is adjourned to a later date.

Conclusion

[28] Centoco’s motions are granted for the reasons and upon the terms set out above.

Costs

[29] If the parties cannot settle the costs of these motions they may provide brief written submissions to me of not more than three pages with costs outlines within 30 days.

[30] I thank counsel for the professional and efficient manner in which they conducted these motions.

HAINEY J. Date: March 28, 2017