Court File and Parties
COURT FILE NO.: CV-16-1570-00 DATE: 2017 07 21 SUPERIOR COURT OF JUSTICE - ONTARIO
Falcon Lumber Limited Plaintiff
AND
2480375 Ontario Inc., carrying on business as “GN Mouldings and Doors”, Muhammad Asjid Iqbal, GN Trim and Doors LTD., a.k.a “GN Trim and Doors Ltd., a.k.a. “GN Trim & Door Ltd,”, Surinder P. Lotey a.k.a. “Paul Lotey” Defendants
BEFORE: Barnes J.
COUNSEL: R. Linton, Counsel for the Plaintiff A. Minkin, Counsel for the Defendants, GN Trim and Doors Ltd. a.k.a. “GN Trim & Doors Ltd.” and Surinder P. Lotey a.k.a. “Paul Lotey”
HEARD: March 24, 2017
ENDORSEMENT
INTRODUCTION
[1] Falcon Lumber Limited, the Plaintiff, has commenced an action against 248-0375 Ontario Inc., carrying on business as “GN Mouldings and Doors,” Muhammad Asjid Iqbal, GN Trim and Doors Ltd., also known as “GN Trim & Door Ltd” and Surinder P. Lotey also known as “Paul Loytey” (collectively, the “Defendants”).
[2] The Plaintiff seeks an order directing the Defendants GN Trim and Doors Limited., also known as “GN Trim & Door Ltd” and Surinder P. Lotey also known as “Paul Loytey” to fully disclose certain documents. Co-Defendants 248-0375 Ontario Inc., carrying on business as “GN Mouldings and Doors” and Muhammad Asjid Iqbal are not parties to this motion.
[3] Upon reading the material filed and hearing the submissions of counsel, I order the Defendants GN Trim and Doors Ltd. (“GN Trim”) and Paul Lotey to produce full disclosure of the last 24 months of their business records, corporate records and financial information, including the last 24 months of financial statements; the last 12 months back statements with cancelled cheques; and payroll ledger for the prior 24 months. They shall also produce a full and complete affidavit of documents.
[4] The Defendants GN Trim and Paul Lotey shall comply with this Order within 40 days.
BACKGROUND FACTS
[5] According to the pleadings, the Plaintiff contracted with the Defendants to supply lumber and building materials. The Plaintiff received purchase orders from the Defendants and supplied lumber and other building materials to the Defendants. The Plaintiff invoiced the Defendants for the materials at the cost of $131,748.17. The Plaintiff has delivered the goods and to date has not been paid.
[6] The purchase invoices were issued to the Defendant GN Trim and Doors Ltd. The business address of GN Trim is 115 Healey Road, Bolton, Ontario. Defendant Paul Lotey is the principal officer and director of GN Trim and Doors Limited. He is the main shareholder. Co-Defendant 2480375 Ontario Inc. carries on business under the firm name and style of “GN Mouldings and Doors” and has the same business address as GN Trim Co-Defendant Muhammad Asjid Iqbal is the principal officer and director of 2480375 Ontario Inc.
[7] The Defendants explain that 2480375 Ontario Inc. was incorporated to purchase assets from GN Trim, however Mohamed Iqbal decided against the purchase.
POSITION OF THE PARTIES
[8] The Plaintiff submit that the Defendants do not deny that the Plaintiff’s goods were delivered and received at the business address of GN Trim. The Statement of Defence refers to a proposed asset purchase between GN Trim and 2480375 Ontario Inc.; however, no documents, emails, or correspondence of any kind relating to this asset purchase were in the Defendants’ Affidavit of Documents.
[9] The Plaintiff explains that the documents are requested in order to discover who among the Defendants has deprived the Plaintiff of the goods without compensation and has taken an unjust benefit of the Plaintiff’s goods. Without the documents the Plaintiff asserts it cannot discover the potential impact of this on the proceedings.
[10] The crux of the Plaintiff’s argument is that the Defendants colluded to obtain and retain the benefit of the Plaintiff’s goods and it is an unjust enrichment to allow the Defendants to obtain the benefit of the goods without paying for them. The Plaintiff submits that the documents are relevant to the issue of why the money has not been paid, who may have obtained the benefit from the transaction and whether there is any financial relationship between the Defendants.
[11] The Defendants oppose the Plaintiff’s motion. The Defendants submit that there is no dispute that there was an agreement between the Plaintiff and GN Trim for the delivery of the goods. There is no dispute that the goods were delivered. This is a collection case. The collection of money GN Trim owes to the Plaintiff. There is no agreement between the Plaintiff and Paul Lotey. Therefore, all the documents sought are not relevant and should not be disclosed.
ANALYSIS
[12] A document “relevant to any matter in issue” must be disclosed unless it is protected by a privilege recognized in law: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 30.02. The issue of relevance is determined in relation to how an issue is framed in the pleadings.
[13] A non-exhaustive list of the issues raised by the pleadings in this action includes:
- Was there a contract between the parties for the supply of the goods?;
- Were the goods delivered by the Plaintiff in accordance with the contract?;
- Which Defendant(s) received the goods?;
- Which Defendant(s) was responsible for paying the Plaintiff for the delivery of the goods?;
- Was the Plaintiff paid for the delivery of the goods?;
- Did the Defendants collude to deprive the Plaintiff of payment for the goods?;
- Did the Defendant(s) receive a corresponding benefit from the delivery of the goods?;
- If the Defendant(s) received a benefit, which Defendant(s) received the corresponding benefit?; and
- Which Defendant(s) was unjustly enriched by receiving the benefit?
[14] The pleadings determine the nature of the issues in an action. Issues 1 to 5 indicate that this is a collection action as suggested by the Defendants. Issues 6 to 9 indicate this action is also about unjust enrichment and raise considerations of whether the corporate veil of GN Trim should be pierced in order to sue its alter ego Paul Lotey for GN Trim’s actions.
[15] In the Statement of Defense, the Defendants dispute the amount owing, concede that all of the purchase orders and invoices issued by the Plaintiff were issued to GN Moulding and Doors Inc., and argue that Paul Lotey is not liable for the actions and debts of GN Trim.
[16] Counsel for the Defendants submits that the Defendants concede that GN Trim contracted with the Plaintiff, that the Plaintiff delivered the goods and that GN Trim received the goods. Counsel for the Plaintiff implicitly seems to agree with this submission. I conclude that the pleadings do not support the submissions of Counsel on this point. Counsel did not indicate and there is no evidence that the pleadings have been amended to support the implicit agreement of Counsel.
[17] The Statement of Claim is drafted broadly to include all the Defendants as possible recipients of the goods and thus jointly or severally liable for the Plaintiff’s losses. The Statement of Defense disputes the amount claimed and with the exception of a concession that purchase invoices were received by GN Trim, the Statement of Defense does not include a concession that any of the Defendants received the goods from the Plaintiff.
[18] The implicit agreement between Counsel eliminates issues 1 to 5 as described. Even if I were to accept this implicit agreement, it is of no consequence in resolving the question of the relevance of the requested disclosure to the issues of unjust enrichment and piercing the corporate veil.
[19] This inexplicit agreement by the parties suggest that the contract was between GN Trim and the Plaintiff. This leads to a conclusion that the goods were delivered to GN Trim. GN Trim did not pay. Under that factual matrix this is a contract between two corporate entities: GN Trim and Falcon Lumber Limited. The other Defendants will thus be irrelevant to the action. In addition, the Defendant Paul Lotey is not liable for GN Trim’s actions because GN Trim is a separate legal entity from Mr. Paul Lotey. This separate legal status creates a corporate veil for GN Trim and Paul Lotey can only be held liable for the actions of the corporation if the Plaintiff can pierce the corporate veil. This can only occur under very limited circumstances: see Gregorio v. Intrans-Corp. et al., 1994 ONCA 2241, 18 O.R. (3d) 527 (C.A.).
[20] These limited circumstances include instances where the corporation has been incorporated for some illegal and fraudulent purpose or where the purpose of the Corporation is to insulate the shareholder from improper or illegal conduct etc.: 642947 Ontario Limited. v Fleischer et al., 2001 ONCA 8623, 56 O.R. (3d) 417 (C.A.). Therefore, in order to pierce the corporate veil two criteria must be satisfied: 1) the person behind the Corporation must have complete control over the subject Corporation; and 2) the subject Corporation must an instrument of fraud or a mechanism designed to shield the person behind the Corporation from liability for illegal action: Transamerica Life Insurance Company of Canada v. Canada Life Assurance Company et al., 1996 ONSC 7979, 28 O.R. (3d) 423 (S.C.), aff’d [1997] O.J. No 3754 (C.A.).
[21] The cumulative effect of facts previously described and the following additional facts raise the issue of whether the Transamerica factors for piercing the corporate veil are present in this case:
- When the Plaintiff made a demand for payment, it was informed that GH Trim and Doors Ltd. was no longer operating;
- The Plaintiff determined that the phone number and email of GH Trim and Doors Ltd were still operational;
- 2480375 Ontario Inc. carrying on business as ”GN Mouldings and Doors” has the same business address as the said defunct GH Trim and Doors Ltd;
- The Co-Defendant Paul Lotey and Co-Defendant Mohammed Asjid Iqbal had an agreement for the sale of the assets of GH Trim and Doors Ltd.; and
- Co-Defendant 2480375 Ontario Inc. also carrying on business as “GM Mouldings and Doors” was incorporated for that purpose. The agreement was later cancelled.
[22] Thus the documents sought by the Plaintiff are relevant to the issues raised by the action. The documents can help discover why the amount claimed has not been paid, who may have obtained the benefit arising from the failure to pay, whether there is any financial relationship between the Defendants and the nature of any financial relationships. All of these items are relevant to the issue of unjust enrichment and whether the corporate veil can be pierced in this action.
[23] Therefore, the Defendants GN Trim and Doors Limited, also known as “GN Trim & Door Ltd” and Surinder P. Lotey also known as “Paul Loytey” shall comply with the Order previously described.
[24] This action is currently subject to a litigation timetable. Should this endorsement warrant a change in the litigation timetable, the parties shall submit a new joint litigation timetable for consideration by the court within 20 days. Should the parties be unable to agree on a joint new litigation timetable, each party shall submit their own recommended litigation timetable to the court within 20 days.
[25] Should the parties been unable to agree on costs, each party shall submit a two page cost outline to the court within 15 days.