Reset Electronics Inc. Hydro One Networks Inc., 2022 ONSC 6849

COURT FILE NO.: 13-58119

DATE: 2022/12/07

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RESET ELECTRONICS INC.

Plaintiff

– and –

HYDRO ONE NETWORKS INC.

Defendant

Charles Gibson and Lucas Cutler for the plaintiff

Reeva Finkel, Ines Ferreira, and Alex Fernet Brochu for the defendant

HEARD: March 22 to 25 and 28 to 31, 2022; April 1, 4 to 8, 11 to 13, and 19 to 22, 2022; and June 9, 2022

REASONS FOR JUDGMENT

Justice Sally Gomery

[1] In late 2007, the Ontario Power Authority launched the first of two province-wide incentive programs for customers who replaced their existing fluorescent lighting with more energy efficient components. The programs were administered by local distribution companies such as Hydro One Networks Inc. (“Hydro One”). Patrick Whittaker, the owner of Reset Electronics Inc. (“Reset”), saw an opportunity.

[2] In April 2008, Reset acquired the exclusive right to distribute electrical components to retrofit existing lighting in Ontario. These components (the “EcoPower T5 kits”) were manufactured by a company in Hong Kong, and offered a less expensive and time-consuming way to upgrade existing fixtures. Reset’s agreement with EcoPower required it to purchase an annual quota of kits. Whittaker and three partners invested funds to cover the costs of the initial inventory.

[3] Unfortunately, Reset’s business did not fare well over the next few years. In 2009, Whittaker’s partners in the EcoPower venture dropped out, resulting in litigation over product inventory. After the litigation was settled, Reset’s bank called in its loan and Reset had to obtain new financing in 2010. Reset resumed selling the EcoPower T5 kits in mid-2011. In late 2012, however, its banks again called in their loans and the company went into receivership. Reset began this lawsuit in 2013.

[4] Reset blames the failure of its business on Hydro One. It alleges that its president, Whittaker, received assurances in 2009 that customers who retrofitted their lighting systems using the EcoPower T5 kits would be eligible for rebates. Hydro One failed to approve applications by Reset’s customers in a timely way, however. Reset alleges that its business suffered as a result, and it lost millions of dollars of potential sales. It says that Hydro One rebate program managers were biased against Reset and the EcoPower T5 kits and raised unfounded safety concerns about their use in early 2012. Hydro One knew that Reset was in financial difficulty and relying on timely approvals but did not change its position until Whittaker complained to the provincial ombudsman. Reset alleges that, but for Hydro One’s acts and omissions, it would have avoided bankruptcy and prospered.

[5] Reset seeks over $20,000,000 in damages from Hydro One. Its claim is founded alternatively on negligence or negligent misrepresentation, breach of contract, misfeasance in public office, or tortious interference with contractual relations. Hydro One maintains that it owed no duty of care to Reset, had no contract with it, and did nothing unlawful that interfered with its business or constituted misfeasance. Beyond this, it says that Reset has not proved that it caused the damages claimed by Reset.

[6] For the reasons that follow, I find that Reset has not proved any cause of action against Hydro One. I furthermore find that it has not established that its business losses were due to anything the defendant did or did not do. The action is accordingly dismissed.

FINDINGS OF FACT

Evidence at trial

[7] The trial lasted 22 days. Reset called four ordinary witnesses: Patrick Whittaker, Reset’s president; Wade Kosowan, a former investor in Reset’s lighting venture; Glen Camus, a former installer of the EcoPower T5 kits; and Peter Azzie, a former re-distributor. Hydro One called seven ordinary witnesses: four current or former Hydro One employees (Charles Coimbra, Thomas Semler, David Forgione, and Maria Pavlakos (formerly Konidis)); Luke Bond, a former Ontario Power Authority employee;[^1] John Haralovich, an accountant who reviewed Reset’s finances and business for its lenders in 2010 and again in 2012; and Gus Spiliopoulos, an RBC account executive. Both parties also each called expert evidence from electrical experts (Dr. Reza Iravani for Reset and Arend Koert for Hydro One) and business valuators (Adam Nihmey for Reset and Greg McAvoy for Hydro One).

[8] In addition to testimonial evidence, the parties filed thousands of documents in evidence, as well as transcripts and physical exhibits.

[9] Although I will be commenting on the reliability of witnesses’ testimony as I review it, I should state, at the outset, that I did not find Whittaker to be a credible witness. This is important because he was Reset’s chief witness. As will be apparent from my review of the evidence, Whittaker was not forthright with his former business partners or the banks that lent Reset money, and he generated inaccurate or misleading reports about Reset’s business performance. He was also not forthright with the court. Whittaker gave evasive answers to many questions; he contradicted himself; he was argumentative; and he did not concede some facts that he obviously should have conceded. As a result, where Whittaker’s evidence conflicted with that of another witness, I generally preferred the evidence of that other witness. Where Whittaker’s evidence was not substantiated by other evidence, I treated it cautiously.

Reset’s history prior to 2008

[10] Whittaker qualified as a chartered accountant in 1994 after obtaining a degree and working at KPMG LLP for six years. He was then hired as the Chief Financial Officer of Wackid Radio, a company that sold consumer electronics at retail stores and electronic components to the federal government. In 1999, Whittaker left Wackid Radio and incorporated Reset. In addition to being its sole shareholder, he was also the company’s Chief Executive Officer and Chief Financial Officer. Three other Wackid employees followed him and began working for Reset. One of them, Tim Tanguay, became Reset’s comptroller in March 2000.

[11] From 1999 to 2005, 80% of Reset’s sales were to the federal government, with whom it had a standing offer agreement. Another 15% of its sales were to high-tech companies. Based on the company’s 2007 unaudited annual financial statements, Reset was profitable, recording gross sales of over $4,000,000 that year and net income before tax of $51,000. Whittaker produced a draft report by a private research company identifying Reset as a leader in the delivery of electronic components in Ottawa and valuing the company at $4,000,000 around that time. I place no weight on this draft report, because there is no reliable evidence about how it was generated.

[12] Whittaker owned a second company, Cash Flow Lighting Inc. (“Cash Flow”), which shared rent on the premises from which Reset was operating. Cash Flow later took over the lease and sublet the premises to Reset.

The OPA rebate program

[13] The OPA rebate program was originally known as the Electricity Retrofit Incentive Program (ERIP).[^2] It was replaced by the Save on Energy Retrofit Program (SERP) in 2011. Both ERIP and SERP came under the umbrella of OPA conservation and demand management (CDM) initiatives administered by local utility distribution companies (LDCs).

ERIP

[14] ERIP’s stated objective was “to leverage energy conservation and load management opportunities undertaken within existing buildings within the commercial, industrial, institutional and agribusiness sectors”. Criteria to qualify for an ERIP rebate were set out in the ERIP Prescriptive Project Application Guideline and an application form.

[15] As admitted by Whittaker in cross-examination, the only persons eligible to apply for an ERIP rebate were customers of a participating LDC. Applicants could seek rebates for prescriptive projects — rebates offered “for predefined technologies on a per unit or performance basis” — or for custom projects, which would be assessed on a case-by-case basis.

[16] An application for a rebate for prescriptive project under the ERIP consisted of two parts: a project Application and an application worksheet. A completed application and worksheet, as well as any required supporting documentation, comprised the final Incentive Agreement between the LDC and the customer.

[17] Under ERIP, an LDC customer could apply for a prescriptive incentive after purchasing and installing eligible equipment. Alternatively, a customer could request pre-approval prior to purchase and installation. In either case, the LDC would pay an incentive only once the equipment had been purchased, installed, and verified. An applicant had to submit invoices indicating model numbers and quantities along with proof of payment prior to receiving a rebate.

[18] In order to qualify for an ERIP rebate, all products used in a project had to meet applicable standards and safety and regulatory requirements including, but not limited to, CSA/UL/cUL.[^3] There were other criteria specific to T5 lighting systems.

[19] The Guideline stated that each LDC’s incentive budget was limited. This left open the possibility that an applicant whose project would otherwise qualify might not receive a rebate, if an LDC’s budget was exhausted.

[20] Claims forms had to be mailed within 30 days of installation and in any event by no later than December 31, 2010. Applications were subject to pre-screening to confirm that the applicant had provided all required information and documentation. Applications that did not meet the criteria set out in the Guideline would be returned to the applicant. Applications that passed the pre-screening would undergo a detailed screening. Priority would be given to applications submitted first and those involving a project that would be in-service sooner.

[21] The ERIP application form recited the terms of the Incentive Payment Agreement between the LDC and the customer applying for a rebate. The terms specified, among other things, that:

• The applicant must provide evidence of implementation and completion of the project, and any other evidence that the LDC might require, before an incentive would be payable.
• The LDC had “the right in its absolute discretion to decide whether or not to accept or approve the evidence” submitted by the customer.
• The LDC also had “the right in its absolute discretion to determine the maximum amount of the incentive”, which would be payable within 30 days after the project was completed, provided that the applicant fulfilled the conditions of the Agreement.
• The applicant was not entitled to assign “its entire interest in this Agreement or any portion thereof without the prior written consent” of the LDC.

[22] The agreement also included the following term:

The Prescriptive Project Application Guideline/Custom Project Application Guideline … the Worksheet … and this Agreement constitutes the entire agreement between the parties with respect to the subject matter and supersedes all prior agreements, negotiations, discussions, representations, warranties and understandings, whether written or oral. …

[23] Both the application for pre-approval or the application for payment of the incentive had to be signed and dated by the customer. Each stated that “Incentive payment will be made to Applicant ONLY”. An optional field was provided for “Project Contact Information” if the customer wanted a vendor or other third party to be the main point of contact for the purpose of processing an application or pre-approval.

SERP

[24] The SERP was introduced on January 1st, 2011. The Participant Agreement was more detailed than the ERIP Incentive Payment Agreement, and customers could be represented by an applicant representative, such as a contractor. As under ERIP, however, the SERP agreement was between the LDC’s customer (referred to as the Applicant or the Participant) and the LDC. Payment of any rebate was made to the customer; and the LDC retained the absolute discretion to decide whether or not to accept or approve evidence submitted with the application. Near the top of the SERP application, the following statement appeared in capitalized, bolded print: THIS APPLICATION MAY BE REJECTED BY YOUR LDC FOR ANY REASON.

[25] SERP ushered in some changes. First, customers were required to get pre-approval for every project. Second, customers had more time (90 days after project completion) to provide evidence that they had paid for the project. The LDC likewise had 90 days, from project completion, to pay any rebate it approved. There was no deadline, either in the Participant Agreement or in any other document, for an LDC to pre-approve a project.

[26] Like the Incentive Agreement under ERIP, the SERP Participant Agreement had a whole agreement clause. The assignment clause had been modified, and now read as follows:

ASSIGNMENT: This Agreement will enure to the benefit and be binding upon the parties and their respective successors and assigns. This Agreement will not be assigned to another person other than an affiliate except with the prior written consent of the LDC, which consent may not be unreasonably withheld or delayed.

[27] There was also a new provision at s. 17:

THIRD PARTY BENEFICIARIES: Except as provided in Sections 6, 9, 11, and 19, this Agreement is solely for the benefit of: (a) the LDC, and its successors and assigns, with respect to the obligations of the Participant under this Agreement, and (b) the Participant, and its successors and permitted assigns, with respect to the obligations of the LDC under this Agreement; and this Agreement will not be deemed to confer upon or give to any other person any claim or other right or remedy.

Reset’s launch of the EcoPower lighting venture

[28] Beginning in 2007, Whittaker began to look for new customers for Reset. He explained at trial that the high- tech sector in Ottawa was being displaced by the photonics industry. He became interested in energy saving electronics after a meeting with John Baird, who was then a federal member of Parliament. The federal government wanted to phase out T12 fluorescent lighting installed on the ceilings of commercial, industrial, and retail buildings.[^4] T12 lamps are not very energy efficient and generate a lot of heat, which increases air conditioning needs. T12 fluorescent lamps also contain mercury, making them an environmental hazard when discarded. They are no longer manufactured in Canada or imported here, although they are still legal for use.

[29] Following his meeting with Baird, Whittaker searched for more energy efficient products that would replace T12 lamps. A T5 fluorescent lamp and electronic ballast require less power to deliver light than a T12 lamp, and the light’s output diminishes more slowly over time. T5 lamps and T12 lamps are not, however, interchangeable. In addition to being slimmer than a T12 lamp, a T5 lamp is 2” shorter and the pins at the end are different.

[30] The standard way to replace a T12 lamp with a T5 lamp would involve de-installing the fixture that houses the T12 lamp by disconnecting the wires that extend from the breaker panel to the coaxial cable at the back of the fixture, removing the ceiling tile around it, and discarding it. A new fixture that would accommodate a T5 lamp would then need to be installed, and new ceiling tile would have to be put in since such a fixture would be smaller than the fixture it replaced. This process would cost around $300 including labour, according to Whittaker.

[31] Whittaker was therefore excited to learn about EcoPower T5 kits. They offered a “fixture-in-fixture” solution that allowed customers to install T5 lamps and electronic ballasts into existing T12 ceiling fixtures. This would take only a few minutes and would cost about $50 to $60 per unit, before taking into account any incentive under the OPA rebate program. A customer would save labour costs associated with removing the existing T12 fixture from the ceiling and replacing it with a new, smaller fixture. Because a T5 lamp generates about the same light as two T12 lamps, and each lamp uses 60% less energy, a customer would save on their electricity bills after the retrofit.

[32] Whittaker believed he could market the EcoPower T5 kits on the basis that they would pay for themselves. An initial hurdle was that the kits were not ULC or CSA approved for safe use in Canada. Reset worked with the manufacturer in Hong Kong to obtain these certifications and to ensure that the product could be installed in accordance with standards set by the Electrical Safety Authority (ESA). Whittaker visited the EcoPower plant in Hong Kong three times to confirm that quality standards were met. He also negotiated with EcoPower over distribution rights.

[33] On April 2, 2008, Reset and EcoPower entered into a distribution agreement. Reset acquired exclusive distribution rights for Ontario and general distribution rights for North America. The agreement had a one-year term, which would renew automatically if the parties fulfilled all of their obligations under the agreement. Reset undertook to order 50,000 EcoPower products during each of the first two years of the agreement.

[34] On April 9, 2008, Reset purchased $103,658 USD of EcoPower products. A minimum order of 10,000 units was required. As the master distributor, Reset was carrying inventory not only for its own sales but for sales through redistributors throughout Ontario. Whittaker acknowledged in cross-examination that this commitment gave rise to risk.

[35] Whittaker testified that, before he signed the EcoPower agreement, he received a verbal confirmation from Mario Chiarelli, an OPA representative that, if the EcoPower T5 kits were certified to Canadian regulatory standards, they would be an eligible technology under the ERIP. He said that he therefore believed, before signing the distribution agreement on Reset’s behalf, that lighting retrofits using the kits could qualify for a rebate.

[36] Whittaker’s evidence about the timing of his discussion with the OPA did not hold up in cross-examination. He admitted that he met with Chiarelli in August, not April, 2008, as borne out in an email he sent to Chiarelli in April 2009, and as he acknowledged during his 2017 examination for discovery.

[37] Whittaker also admitted in cross-examination that he did not advise Hydro One that Reset was entering into a distribution contract with EcoPower. When asked whether Hydro One ever gave Reset any business advice, he did not answer the question but instead said that he relied on representations by the OPA that the rebate program was a province-wide program, and that the EcoPower T5 kits would be eligible components.

[38] In August 2008, Reset received its first container of EcoPower T5 kits. A second container arrived in November 2008. Based on Whittaker’s evidence, Reset spent over $500,000 in 2008 securing the distribution rights for the EcoPower T5 kits, buying the minimum inventory, paying for shipping and duties, and doing some initial marketing.

The initial investment in the EcoPower lighting venture

[39] Funding for the EcoPower venture was raised through investment by Whittaker and three partners: Christos Anastasiou, Bill Conlon, and Wade Kosowan. Whittaker’s promises to the other three investors, and what they actually got, were unclear.

[40] On May 1st, 2008, 2171592 Ontario Inc. was incorporated. The directors were Whittaker, Anastasiou, Conlon, and Kosowan. The company’s registered address was Reset’s address. According to Whittaker, the numbered company was to be operated as Reset Green and would be the corporate vehicle for the EcoPower lighting venture.

[41] In examination in chief, Whittaker testified that Kosowan invested in the Reset Green venture in March 2008, in return for which he was to get $1 per unit sold. Anastasiou and Conlon got the same $1 royalty deal. The EcoPower inventory was stored in Toronto at a warehouse operated by Kosowan’s company Low Risk Logistics (“Low Risk”). Kosowan sold the EcoPower T5 kits as an exclusive sub-distributor across most of Ontario and and shipped inventory for Reset’s clients in Ottawa. Anastasiou had a marketing company, Publissimo, which was expected to provide marketing materials.

[42] At trial, Kosowan’s evidence about the basic understanding between the four investors supported some of Whittaker’s account. He testified that they each agreed to contribute $50,000 for the first purchase and importation of EcoPower products into Canada. Like Whittaker, he said that Anastasiou would provide promotional materials and Low Risk would provide logistical support. Kosowan understood that the EcoPower inventory was being purchased through Reset, and that Reset Green was being set up as the distribution arm across Canada and, eventually, all of North America. Kosowan, Whittaker, and Conlon eventually each invested another $100,000 to purchase more inventory and to support projected sales.

[43] When asked how he expected to make money on his investment in the EcoPower lighting venture, Kosowan testified that he was a partner in Reset Green, which would get a royalty for every product sold. He and the partners expected to sell $20,000 to $30,000 in products each month. Kosowan was also buying distribution rights to some territories in Ontario from Reset at a wholesale price, which he could then resell to salespeople. Finally, his company Low Risk would be paid for its services.

[44] Conlon and Anastasiou were not called as witnesses at trial.

[45] Whittaker suggested at trial that the Reset Green concept did not pan out because the investors were unable to negotiate specific terms before they dissolved their partners. The evidence at trial showed, however, that even the basic theoretical arrangement that he described was not respected:

• It is unclear whether Whittaker invested any of his own funds or whether the investment he made was equal to the investments made by the other investors. According to a document entitled “Investment by four project partners” that he prepared in 2009, “Reset/Whittaker” invested just over $152,000 in the EcoPower venture. In cross-examination, Whittaker admitted that he was unable to produce any documents showing that he personally invested any money. Whittaker then said that his investment was made through Reset but did not disclose how much of it consisted of actual funds and how much consisted of services.
• The money invested by the other partners was not all deposited, as one might have expected, in 2171592 Ontario Inc., the company created as a vehicle for the lighting venture. Only Anastasiou’s $50,000, and a portion of Conlon’s investment, were paid into that company’s account. Kosowan paid money directly to Reset, as did Whittaker (assuming he contributed any funds personally at all).
• All money invested eventually ended up in Reset’s account. In September 2009, Whittaker directed the bank that held 2171592 Ontario Inc.’s account to close it. By this time, a total of two cheques had been drawn on the account: one to the lawyer who incorporated Reset Green, and one for the balance of funds, payable to Reset. The account was therefore empty. Whittaker testified that all four investors agreed to the transfer of money to Reset, but admitted that he had no evidence of this in writing.
• Reset had legal title to all of the EcoPower inventory purchased pursuant to the distributorship agreement.
• 2171592 Ontario Inc. never carried on any business. No shareholder agreement was ever signed, no shares were ever issued, and no by-laws were enacted. No draft agreements were produced at trial.
• There is no evidence that any of the investors were paid any royalties on sales of the EcoPower T5 kits, or other EcoPower products.

[46] In short, the EcoPower lighting venture was operated legally and functionally by Reset. At trial, Whittaker stated unequivocally that Reset owned “everything”. He could not explain, however, how Reset Green was supposed to generate revenue, or why investors would advance funds if they had no security or agreement allowing them to recover their money or any assurance that they would make any return on their investment.

Reset’s activities from 2008 to 2010

[47] As of early January 2009, Whittaker believed that Reset was ready to begin selling the EcoPower T5 kits across Ontario. It had already made some sales in Ottawa. According to Whittaker, none of the Ottawa customers’ applications for a rebate to Hydro Ottawa had been refused. He testified that he decided to focus on customers serviced by Hydro One, whose territory covers non-urban areas, because it was easier to approach and market to owners of small enterprises in rural communities.

[48] At first, Whittaker denied that Reset had made any sales to Hydro One customers prior to 2009. He later claimed that Reset began having issues with Hydro One in 2008, after a Home Hardware store’s application for a rebate was delayed for many months. He ultimately contended that Hydro One was not processing applications by Reset’s customers from late 2008 to July 2009.

[49] In early 2009, Hydro One undertook a review of technologies that would be considered for incentives under the ERIP. The manager of Hydro One’s CDM operations at the time was Thomas Semler. Semler has been a certified engineering technologist since 1985. He worked at Brampton Hydro from 1991 to 1997, then left to work for four years at Osram Sylvania, a lighting manufacturer. Semler rejoined Brampton Hydro in 2001, which was acquired by Hydro One a short time later.

[50] Semler testified that, from 2009 to 2012, Hydro One ran ten to twenty programs to encourage its users to conserve energy and to reduce their electrical bills. These programs were overseen by Semler’s CDM group. Applications for ERIP incentives were screened by a first approver, at the time Maria Konidis, a conservation analyst. Konidis dealt directly with customers and applicant representatives. Semler was a second approver.

[51] Semler testified that, when he first came across an EcoPower T5 kit in March 2009, he hired Marbek Resource Consultants Ltd. to assess it. The T5 fixture-in-fixture technology was new to him, even though he had been in the lighting business for 25 years. Marbek was retained from time to time by Hydro One to assist with custom applications. The prescriptive track for T5 products eligible under ERIP contemplated T5 units with separate ballasts, whereas the EcoPower product had an electronic ballast incorporated into an adapter unit. Semler wanted to make sure that the EcoPower T5 kits would save energy and were otherwise appropriate.

[52] On February 20, 2009, at Semler’s direction, Konidis wrote to McGinn, an EcoPower reseller, to tell him that she was reviewing the EcoPower T5 kits with the program manager (Semler) and the OPA. Semler asked his assistant, Paola Silli, to contact Marbek. In her April 6, 2009, email to Marbek, she asked four questions:

a) Is the fixture in fixture solution considered good lighting practice? If yes, why?

b) If not, are there some exceptions (e.g. instances where we are given details about ballast and the lamp model, and when these models are well known)?

c) Are these proven technologies?

d) Is there any problem with voltage (or problems with the old fixture) when going to this retrofit kit solution?

[53] Reviewing this email at trial, Semler said that Silli had not accurately captured his concern about voltage inputs, as she was not an electrician or engineer but an MBA whose first language was not English. I do not find that anything turns on this.

[54] In his examination in chief, Semler said that he talked to BC Hydro while awaiting Marbek’s response to Silli’s email. Semler testified that BC Hydro told him that it had been issuing incentives for projects using EcoPower T5 kits, but its feedback was inconclusive. In cross-examination, he said this discussion took place after he got its report. Again, nothing turns on this. Semler said that he also talked to other LDCs, which were generally unaware of the product.

[55] On May 22, 2009, Semler had received Marbek’s report. Marbek pointed out that the existing T12 fixture is modified when the EcoPower T5 kit is installed, because the existing ballast is removed and discarded. Although the EcoPower T5 kits were CSA/UCL certified, the new fixture that was created when it was used —consisting of the original T12 fixture, with an EcoPower adapter containing an electronic ballast, and a T5 lamp — had not been certified. Also, because the T12 fixture had been modified, this would void the manufacturer’s warranty for it.

[56] Semler testified that Marbek’s observations raised no red flags with respect to the EcoPower T5 kits. The fixture-in-fixture solution met minimum requirements, it saved energy, and the light output was adequate. Semler was not concerned about a potential loss of certification, as this did not raise a safety concern.

[57] Semler exchanged some emails with Marbek after reviewing its report. He raised questions that Silli had not included in the mandate letter, but did not receive any further feedback that alarmed him.

[58] On July 9, 2009, Konidis sent an email to Conlon stating that “after a thorough investigation, the T5 ‘fixture in a fixture’ retrofit kits will be recognized, and eligible for an incentive under the 2009 ERIP Prescriptive measures list.” She apologized for the delay in Hydro One’s investigation and said that it would “now proceed with the applications that have been submitted with this technology”. At trial, Semler denied seeing or approving Konidis’ July 9 email before it was sent, and pointed out that Konidis had no substantive role in product review. According to Whittaker, however, he relied on the email as an assurance that no issues with the EcoPower T5 kits would be raised by Hydro One going forward.

[59] Although he relied on the July 9 email, Whittaker also testified that Hydro One’s investigation of the EcoPower T5 kits, through its commissioning of the Marbek Report, hurt Reset’s business. The delay in processing incentive applications while Semler was waiting for Marbek’s feedback inhibited marketing efforts and even caused one re-seller, McGinn, to abandon his efforts to sell the kits. He testified that Reset was positioned to make substantial sales of EcoPower T5 kits in 2009, for example to local school boards. Whittaker also acknowledged, however, that Reset was having trouble convincing some clients, such as Home Hardware, to accept its pricing unless he offered volume discounts.

[60] Kosowan recalled that Toys R Us was interested in re-lamping their warehouse, but did not want to proceed with EcoPower T5 kits without assurance they could move forward with the product. He eventually completed a large project for the company, billing hundreds of thousands of dollars, using another manufacturers’ product. This evidence was somewhat vague, and not supported by any contemporaneous documents. It did not establish that delays in Hydro One’s approval of the kits in 2009 caused Toys R Us to look elsewhere. Kosowan did not, in fact, have any direct information or insight about delays caused by Hydro One. He never dealt directly with it or submitted an application on behalf of a customer.

[61] Reset did not produce a single email from a customer or prospective customer stating that they would not proceed with a project using EcoPower products because they had no assurance that they would get a rebate from Hydro One. No customer or prospective customer was called by Reset to testify at trial.

[62] Reset produced email correspondence between McGinn, Whittaker, and Konidis in 2009, in which McGinn expressed frustration that Hydro One was not approving rebates for EcoPower products even though other LDCs were doing so. McGinn was also not called as a witness, so his statements in the emails were not tested in cross-examination. The emails prove only that McGinn told Whittaker that his customers were having difficulty getting rebates from Hydro One. They do not prove that these problems actually existed, the cause of any delays, or the extent to which they impacted Reset’s business.

Whittaker’s falling-out with other investors

[63] In 2009, Whittaker’s three investors dropped out, one by one.

[64] On January 5 and 6, 2009, Whittaker sent Anastasiou questioning his commitment to the Reset Green project. In his response the next day, Anastasiou said that the investors’ plan had been to bring in EcoPower stock, sell it, and then use the profits to repay the investors for their investment and to grow Reset Green. He expressed concern that Reset had not sold the inventory that it had purchased from EcoPower the year before. Anastasiou asked for an accounting of the money he and other partners had invested, noting that he had never seen a monthly bank statement for either Reset or Reset Green. He said he did not have any further money to invest in required start-up costs and told Whittaker that, unless he saw a plan for the way forward, he expected the other investors to buy out his share and pay his company Publissimo’s outstanding invoices.

[65] When asked about these emails in cross-examination, Whittaker denied that Anastasiou correctly described the initial business plan. He admitted, however, that he never showed Anastasiou bank statements for either Reset or Reset Green. He testified that he saw no point in disclosing the Reset Green statements because there were only four transactions: two deposits and two withdrawals. He denied that Anastasiou had any right to see Reset’s bank records, even though his $50,000 had been transferred to the company.

[66] A short time after the email exchange between Whittaker and Anastasiou, Reset agreed to repay Anastasiou’s $50,000 investment as well as outstanding invoices of $27,657.65 issued by Publissimo for marketing services it had provided. Whittaker testified that this money was repaid in installment, and that he, Conlon, and Kosowan agreed to the buy out Anastasiou’s share.

[67] Conlon demanded the return of his $150,000 investment in April 2009. This resulted in litigation, the details of which were not disclosed at trial. According to Whittaker, the litigation was settled with Conlon foregoing any money he had invested in Reset or Reset Green. As already mentioned, Conlon did not testify.

[68] In June 2009, problems arose with Kosowan. In June 2009, he barred Reset’s access to the EcoPower inventory in Low Risk’s warehouse in Toronto and stopped responding to Whittaker’s messages. When Whittaker visited the warehouse find out what was going on, he discovered that the inventory had been moved to Winnipeg.

[69] On November 9, 2009, Reset sued Kosowan and Low Risk. Whittaker also filed a police complaint against Kosowan in November 2009, alleging that he had stolen from Reset. The police told him that they would not take any action as this appeared to be a civil dispute.

[70] In Reset’s lawsuit against Kosowan, it sought either the return of Reset’s inventory or $1,000,000 in damages, plus $100,000 in punitive damages. The deal described in Reset’s statement of claim in the Kosowan action is different than the arrangement described by Whittaker in his testimony at trial in this action, and the statement of defence mentions issues between the investors that he did not mention in his evidence in chief.

[71] In its statement of claim in the Kosowan action, Reset alleged, as he did in this case, that Whittaker and the three other investors agreed to invest $50,000 apiece to purchase EcoPowerT5 lighting products, which was later increased to $150,000 each. He asserted, however, that ownership in the units was always intended to vest in Reset. The lawsuit further alleged that Reset would be entitled to 35% of the profits for the sale of the products to compensate it for its role in ordering them, having them delivered to Canada, and their distribution in North America. Only the remaining profits would be split equally between the four individual investors.

[72] Kosowan and Low Risk contradicted these allegations in their statement of defence. They denied that Reset was entitled to 35% of the profits of sales, alleging that that Reset was instead entitled to receive $1 per product sold to compensate it for its role in ordering inventory. They also alleged that, when Reset signed the distribution agreement with Ecopower, it did so for the benefit of Reset Green and that, as a result, the inventory belonged to Reset Green.

[73] Kosowan and Low Risk also alleged in their defence that Whittaker had not contributed his share of the investment in the EcoPower lighting venture, while Kosowan had advanced about $250,000 in total. This was in addition to a further $30,000 that Kosowan alleged he deposited into Reset Green’s bank account in November 2008. According to Kosowan and Low Risk, neither Reset nor Whittaker had accounted for any of these funds.

[74] At the trial of this action, Whittaker effectively acknowledged that Kosowan had contributed about $250,000 in Reset Green. This admission is significant as it contradicts both the document that Whittaker drafted on the investment in the EcoPower lighting venture in the first year, and Whittaker’s evidence in chief. Whittaker also acknowledged that he did not contribute any further amounts after the first $50,000 (assuming, in fact, that he fronted this money) because he had already paid for expenses on his credit card and otherwise contributed his fair share to the venture.

[75] I have reviewed some of the allegations in Reset’s claim against Kosowan and Low Risk because they illustrate how Whittaker’s description of events has changed over time, and how in some instances during the trial itself. I conclude that he was an unreliable business partner who made questionable if not outright false allegations in a civil suit. This necessarily informs my appreciation of his evidence on other points.

[76] The allegations in the Reset/Kosowan litigation also affect my appreciate of Kosowan’s testimony in this action. In chief, Kosowan stated or implied that the Reset Green venture fell apart only because Hydro One failed to process applications in 2009, and he made light of the failure of the four investors to agree on the terms of their deal. In cross-examination, Kosowan was confronted with the allegations made in defence of Reset’s 2009 lawsuit. In trying to justify the change in his position at the trial of this action, Kosowan said that he believed the allegations in the statement of defence were true at the time, but that he later realized they were in error.

[77] I conclude that Kosowan’s evidence could not be relied upon. Presumably Kosowan’s recollection of events in 2008 and 2009 was better in early 2010 than it is now, twelve or more years later. Kosowan’s assertion that he was misinformed at the time is implausible. Alternative explanations are that Kosowan’s allegations in defence of Reset’s 2009 actions were deliberately untruthful, or that he was trying, through his testimony in this action, to assist Whittaker for some undisclosed reason. Whatever the explanation for the divergence between his position in 2009 and his position now, he did not come across as a credible witness.

[78] The Kosowan action was settled in May 2010. The defendants retained about $175,000 worth of EcoPower inventory and Reset recovered the rest, which had a cost value of about $225,000. Reset paid legal fees of $140,000, to which Kosowan contributed $10,000. Around the same time, Conlon agreed to recover his investment from the inventory that Kosowan retained.

[79] As a result of the dispute with Kosowan and Low Risk, Reset did not have access to its inventory of EcoPower T5 kits from June 2009 to May 2010. Reset could not buy more inventory because it was deeply in debt to its bank at the time, RBC, and could not borrow more money to finance further purchases. Its insurance claim for the value of the inventory was denied because it had failed to advise its insurer that it was being stored offsite.

[80] In cross-examination, Whittaker admitted that Kosowan never indicated that he absconded with the EcoPower inventory because of anything that Hydro One did. He also admitted that Hydro One was not responsible for Reset’s lack of insurance coverage and that, had its insurance claim been successful, he could have replaced the inventory.

The termination of Reset’s relationship with RBC and the review of its finances in 2010

[81] Reset’s financing first became an issue in early 2010. On September 23, 2009, RBC had granted Reset a $750,000 line of credit. A few months later, on January 28, 2010, RBC notified Reset that it would have to obtain alternative financing and demanded that Reset repay its outstanding loan in full by April 28, 2010.

[82] According to Whittaker, legacy business with the federal government and lighting sales in Ottawa did well beginning in late 2008. This was not reflected in Reset’s unaudited financial statements. The company’s year end was November 20. It recorded net income of less than $10,000 in its unaudited 2008 financial statements. Whittaker attributed the weak result that year primarily to the cost of acquiring the EcoPower inventory, despite the cash injected into the business by Anastasiou, Conlon, and Kosowan. At year end November 20, 2009, Reset recorded a net loss of almost $339,000. According to Whittaker, the negative result reflected Kosowan’s misappropriation of inventory with an ascribed value of $410,000. He downplayed Reset’s inability to continue to sell EcoPower T5 kits after Kosowan blocked its access to them and then removed them entirely.

[83] In its January 28, 2010, notice letter, RBC expressed its concerns not only about Reset’s failure to repay its loans but also about the lack of information and monthly reports it had been receiving from Whittaker:

As you are aware, the Bank has been patient in allowing the Company same time to attempt to resolve as current legal disputes. The Bank however has become increasingly concerned that several recent attempts to hold direct telephone conversations to address some of its concerns have been ignored by you. While you have been sending periodic updates as to the status of the Company's on-going litigation, these updates are insufficient and lack enough information for the Bank to properly assess its credit risk and assess the prognosis of the on-going litigation. For the Bank to properly assess its risk, the Bank requires direct discussion. In light of the fact you are not responding to the Bank's requests for direct discussions, we are unable to assess our risk. Furthermore, the Company has not been providing is monthly reporting in a timely manner which also hinders the Bank from properly assessing its risk.

[84] In cross-examination, Whittaker did not dispute any of the statements in this passage, although he emphasized that he was busy with the Kosowan litigation at the time and, later, with obtaining new sources of financing.

[85] After the bank granted a series of extensions, Reset and RBC entered into a Forbearance Agreement on June 17, 2010. Gus Spiliopoulos was the manager of RBC’s special loans group at the time. At trial, he testified that Whittaker initially refused to enter into an agreement but relented after RBC issued a formal demand for payment accompanied by a notice of intention to enforce its security on June 4, 2010.

[86] At this point, Reset owed RBC roughly $761,000. According to Whittaker’s reports at the time, however, the company had a margining deficit of only $37,000, which Spiliopoulos did not consider significant. He therefore instructed that Reset should continue to have access to a line of credit of $750,000 during the term of the Forbearance Agreement.

[87] On June 20, 2010, Spiliopoulos noticed that Reset was depositing funds to its account with cheques issued by Cash Flow Lighting, its sister company. He was concerned that Reset’s receivables were being directed to Cash Flow. He was also concerned about a lack of detailed financial reporting. He testified that he spoke to Whittaker on June 21, and they agreed that the bank would appoint KPMG to review Reset’s financial and business affairs.

[88] RBC retained KPMG on June 24, 2010. Whittaker admitted in cross-examination that he and, by extension, Reset, were aware of the terms of this retainer although he could not recall if he consented to KPMG’s involvement. He refused to admit that, had he refused to do so, RBC could have terminated the Forbearance Agreement. This was another example of Whittaker refusing to make an obvious and sensible admission.

[89] The KPMG partner involved in the Reset mandate was John Haralovich. Haralovich is a licensed insolvency trustee, chartered accountant, a certified management accountant, and a fraud investigator. He worked at KPMG from 1997 to July 2011, and BDO Dunwoody from August 2011 to April 2016. He now works for another accounting firm, MNP LLP. Haralovich did not know Whittaker or Reset prior to KPMG’s retainer for RBC in June 2010.

[90] Haralovich is an experienced accountant with a long history of investigating companies in financial difficulty. His testimony at trial was even-handed and meticulous, and supported by contemporaneous documents. He admitted when he did not recall particular events and was careful to admit the limits of his knowledge. I have no reason to doubt his objectivity. He stood up well in cross-examination. I accordingly give Haralovich’s evidence about his findings with respect to Reset’s finances, hi investigation of Reset, and his interactions with Whittaker and Reset’s comptroller, Tim Tanguay, considerable weight. Where his account contradicted that of Whittaker, I prefer Haralovich’s account.

[91] On June 28, 2010, Whittaker asked to delay a meeting scheduled by Haralovich. He said he did not have enough time to collect the information that Haralovich wanted to review and that his wife had health issues. Whittaker did not say how much more time he needed. Haralovich testified that he did not think that Whittaker’s excuses were valid because Tanguay should have been able to produce the information and attend the meeting in Whittaker’s stead. He nonetheless agreed to postpone the meeting for three days, until July 5.

[92] Following the meeting that took place that day, Haralovich’s office wrote to Whittaker, saying that he had failed to produce financial information and records to RBC and KPMG in a timely way. Nine categories of records were listed. Shown this on July 8, 2010, letter, Whittaker admitted that it was largely accurate. He justified this by saying that his focus was not on reporting to RBC, but building his business, attending to a large project at the Canadian Tire Centre, and getting new financing.

[93] The July 8 letter advised Whittaker that he must produce the missing records and information by 4:00 p.m. the next day, failing which RBC would terminate the Forbearance Agreement, triggering immediate repayment of Reset’s loan. Despite Whittaker’s admission at trial that he had not provided the requested documents earlier, he reacted angrily to it, at the time. In an email sent to RBC the same day, Whittaker wrote that he had “been working around the clock to provide you with the requested information” and could not understand how the letter could be accepted by him “without insult”. After a further exchange of emails, in which KPMG stood firm, Whittaker said that Haralovich would have the missing information that day. He admitted in cross-examination, however, that he never produced everything that Haralovich requested.

[94] A few days later, Reset was advised that RBC had terminated the Forbearance Agreement and put a hold on its accounts except for the purpose of deposits. This decision was based on Whittaker’s continued failure to produce all requested records, and on Reset’s misrepresentation of its margining deficit. As already mentioned, Reset told RBC in May 2010 that it was about $38,000 but, based on KPMG’s review, it was over $253,000. Whittaker did not recall if he responded to this letter.

[95] Haralovich provided RBC with a report dated July 13, 2010. Although it was marked as a draft, Haralovich testified that there were no further versions. KPMG’s report was delivered the same day that the June Forbearance Agreement was set to end. Spiliopoulos testified that it raised serious concerns about the reliability of Reset’s financial reporting.

[96] First, Reset’s Balance Sheet and Income Statement for the period ended May 20, 2010, which Whittaker had prepared, misrepresented the company’s accounts receivable. It listed a fictitious government receivable from the “Ontario Supreme Court” of $224,000. Whittaker explained at trial that this was the value of the inventory that Whittaker expected Reset to recover from Kosowan, and that he told RBC that he listed it as an accounts receivable because he did not know how else to describe it. The list of accounts receivable also included insurance proceeds that Reset expected to receive (but ultimately did not).

[97] In cross-examination, defence counsel referred Whittaker to the terms of Reset’s line of credit agreement with RBC. Reset could not borrow more than the aggregate of 75% of good accounts receivable, 90% of good government accounts receivable, and 25% of the “lesser of cost or net realizable value of unencumbered inventory. Whittaker was asked whether he tried to mislead RBC by misstating accounts receivable to suggest that Reset had billed for more work than it had actually done, and that it has a large receivable from a government entity. He denied this. He could not explain, however, why he would have listed a receivable from the “Ontario Supreme Court” as opposed to Kosowan and Low Risk.

[98] Second, Haralovich’s report said that he had been unable to reconcile changes in Reset’s accounts receivable from November 2009 to May 20, 2010. For example, there was roughly about $330,000 in accounts receivable in March that inexplicably disappeared on the April 2010 balance sheet, even though less than $80,000 had been deposited in Reset’s RBC account. He suspected that the changes related to sales that did not exist or that the proceeds of sales had been deposited to another bank.

[99] Another observation in the draft KPMG report was that it was impossible to reconcile GST that Reset had reported to Revenue Canada for the periods ending December 2009 and March 2010 with the sales reported monthly by the company.

[100] Haralovich also testified at trial that he was also concerned that some of Reset’s inventory might have been moved to Whittaker’s other company, Cash Flow Lighting and sold. RBC had no security interest in Cash Flow. Spiliopoulos would later testify that he was concerned about Reset’s inventory for another reason. Whittaker had told RBC that it had a value of $615,000, but an appraisal done at the bank’s direction set the value at $75,000.

[101] In cross-examination, Whittaker insisted that he explained the discrepancies mentioned in Haralovich’s report to RBC. I do not believe this. Haralovich’s evidence was straightforward, detailed, and credible. In his draft report, he said that Reset had not been able to explain the reasons for the reduction of accounts receivable and the other problems noted. There is no reason to think this was untrue. I also have no reason to second-guess Spiliopoulos’ evidence.

[102] Whittaker acknowledged in cross-examination that Reset’s monthly statements did not comply with generally accepted accounting principles (GAAP), even though he is a chartered accountant. Under Reset’s credit agreement with RBC, any departure from GAAP or use of differential reporting was only permitted with prior written consent from the bank, which Reset never obtained or sought to obtain. Whittaker denied that he misled RBC. This is implausible. I find that, at best, he used creative accounting so that RBC would not call in its loans.

[103] In his July 2010 draft report, Haralovich concluded that RBC could suffer a shortfall of $100,000 to $395,000 on its loans to Reset, in addition to costs of recovery. On July 13, 2010, RBC’s lawyer wrote to Whittaker, saying that Reset had failed to provide adequate and timely financial reporting and the bank had been made aware of significant issues. After some further discussions, RBC required Reset to repay all amounts owed by July 23, 2010.

[104] Unbeknownst to Whittaker at the time, Spiliopoulos executed an affidavit on July 28, 2010, in support of an urgent application for a receivership order. He testified that he did this because he thought RBC would need to get the order to protect the assets subject to its security. The bank relented because Whittaker persuaded Spiliopoulos that Reset was likely to get financing from other banks, allowing it to pay its debt to RBC.

[105] In cross-examination, Whittaker initially denied that the allegations in Spiliopoulos’ July 28, 2010, affidavit. In particular, he denied Spiliopoulos’ allegation that Reset had comingled its assets with those of Cash Flow. His evidence on this point was not reassuring. Whittaker admitted that Cash Flow hired installers to work on projects for Reset. An account receivable from Cash Flow was “mistakenly” listed on Reset’s books. There were deposits from Cash Flow to Reset in May 2010, including a cheque for $58,000. Whittaker testified that Reset did business through Cash Flow to avoid taxes and potential liability. There is no way to verify how much money from Reset’s projects was deposited in Cash Flow’s accounts, because Reset never produced any records regarding Cash Flow to RBC or KPMG, nor did it file such records in evidence at the trial in this action.

[106] Haralovich admitted in cross-examination that he was not certain he had asked for records relating to Cash Flow, and that he had no evidence that inventory was moved off site or that money was deposited to another account. These were just hypotheses. It remains, however, that Reset has not provided any records that would address the issues raised by Haralovich in his July 2010 report. Whittaker did not explain, for example, the variances in the accounts receivable from late 2009 to May 2010.

[107] Whittaker admitted that, as alleged by Spiliopoulos, he had stopped submitting monthly reports to RBC in June 2010, even though he was required to do so under the Forbearance Agreement. He testified that he did not think he needed to do this since he was switching banks. Whittaker denied Spiliopoulos’ allegation that he was refusing to cooperate with RBC and KPMG. On the evidence, I find that he did not cooperate.

[108] In late August or early September 2010, Reset obtained new financing from CIBC and the Business Development Bank of Canada (BDC). CIBC agreed to extend a $550,000 line of credit and BDC granted Reset a $200,000 loan. These new loans allowed Reset to repay its outstanding debt to RBC, which then totalled about $683,000, or about $70,000 less than in June 2010.

[109] Reset argued, at trial, that its ability to get new financing shows that the company was in sound financial shape in the summer of 2010. This assumes that CIBC and BDC had an accurate picture of Reset’s business. Based on the discrepancies in Reset’s reporting to that point, and further problems that surfaced in 2012, I do not accept that the new loans are particularly relevant to assessing the company’s prospects at that point.

[110] Whittaker testified that he remained confident about the future of the EcoPower lighting venture in late 2010. Reset had completed its retrofit of one level of the Canadian Tire Centre in the summer of 2010, for which it was paid over $187,000. Although the ERIP program had only been funded by the government for three years and so was set to expire shortly, he relied on a December 8, 2009, letter to the OPA posted on the Ontario Ministry of the Environment and Infrastructure website. In this letter, the Ministry confirmed that funding would remain in place, and in fact increase, for CDM incentive programs through to the end of 2010. This reassured Whittaker that the EcoPower lighting venture remained a sound business proposition.

[111] In an email to CIBC on November 17, 2010, Whittaker painted a glowing picture of Reset’s future while explaining why there had been a shortfall in the company’s accounts the day before:

We have landed many large contracts for lighting and we have completed payment this week for the next container that is pre-sold. We will now be reducing our line of credit at a fast pace and revolving it with Government year end orders. There is a small OD this morning which will be covered by today's deposits. Did not get a chance to deposit the cheques yesterday as I was at clients.

[112] Reset’s unaudited financial statements for the year ending November 20, 2010 showed a year over year increase in gross revenues from $3,700,000 o $4,000,000, and net income at $375,000. This net income, however, included $224,000 for the ascribed value of returned EcoPower inventory.

Reset’s dealings with Hydro One under the SERP program in 2011

[113] On December 14, 2010, Reset entered into a further exclusive distributorship agreement with EcoPower. It gave Reset exclusive distribution rights across Canada and non-exclusive rights in the United States. Under the 2011 agreement, Reset’s yearly quota was USD $1.8 million, and it was required to pay USD $130,000 in January 2011 for the contract to be effective.

[114] Up to that point, Reset had sold or distributed EcoPower products in Ontario, British Columbia, and Manitoba. Whittaker testified that there might also have been some sales in Quebec. This was contradicted by his evidence on discovery, where he admitted that “I had discussions in Quebec but did not do anything in Quebec”. When confronted with the transcript, Whittaker acknowledged that his earlier evidence was accurate but attempted to equivocate based on the meaning of “distributed”. His testimony at discovery was unequivocal.

[115] Past sales in Western Canada had been made to resellers working under Kosowan. Whittaker initially refused to admit that Reset made no further sales in Manitoba or British Columbia after his relationship with Kosowan deteriorated in mid-2009. He was again confronted with his discovery transcript, where he had testified that he lost the business opportunity and business stream that he had in those two provinces as a result of the falling out with Kosowan, and that he made no attempt to re-enter those markets. Whittaker eventually admitted that Reset made no further sales in B.C. or Manitoba after June 2009, and had no resellers in place, or incentive programs in place, in those provinces.

[116] The terms of CIBC’s credit facility to Reset in January 2011 are unclear. Reset produced only an unsigned, draft credit agreement, which Whittaker refused to acknowledge contained the final term of the agreement. In any event, based on the draft agreement, CIBC had by that time increased its line of credit to Reset to $750,000.

[117] On January 18, 2011, Reset ordered for $138,320 USD of EcoPower Products. It did so even though the OPA had not yet decided on the rebates that would be available under the new SERP program. Whittaker testified that Reset paid this amount over time, and admitted that this affected the company’s cash flow. Despite this, Reset ordered another $201,460 USD of EcoPower products in March 2011.

[118] Shortly after it placed these orders, Reset learned that the SERP rebate for T5 retrofits would initially be up to $50 per fixture, but that this would be reduced to $25 per fixture effective July 1, 2011. This became relevant in late June 2011. I will review the evidence on this event in some detail, since it again shows why I have concluded that Whittaker is not a reliable witness.

[119] In 2011, most applications for preapprovals and incentives at Hydro One were being reviewed by David Forgione. Forgione had a Bachelor of Science and a Masters of Environmental Science. He joined the CDM group at Hydro One in October 2010 as a Conservation Analyst. He left Hydro One in 2014 to work for the OPA.

[120] In 2011, Forgione reported to Semler, who became involved in the review process if an application was complex. During this period, Semler also had to approve the payment of all incentives.

[121] According to Forgione about 30% to 40% of preapproval applications received by Hydro One did not result in any incentive being paid. The customer might not be a Hydro One customer; they may have completed the project before they applied; they might not have provided all required information; or they might abandon the application.

[122] On June 29, 2011, Forgione sent eight identical emails to Whittaker and/or Reset’s customers about projects that were awaiting preapproval from Hydro One. Forgione acknowledged receipt of each application but said that he could not complete his review until he received revised worksheets that included a T5 ballast model number. Both the ERIP and SERP worksheets required that customers applying for rebates for installation of T5 fixtures provide “Model # Lamp/Ballast”.

[123] Whittaker testified that he phoned Forgione when he received or became aware of the emails. According to Whittaker, Forgione told him, without further explanation, that projects using the EcoPowerT5 kits no longer qualified for rebates from Hydro One.

[124] I find Whittaker’s testimony on this point implausible. Forgione had no recollection of a call with him that dau. He testified that he did not know who Whittaker or Reset were, prior to this date. There is no evidence whatsoever that he had any hostility towards them or, for that matter, that he was not competent at his job at Hydro One. Had Whittaker called, Forgione testified that he would have simply told him to provide the missing ballast numbers. In cross-examination, Whittaker admitted that he never made any effort to do this.

[125] Assuming that Whittaker phoned Forgione, I do not believe that Forgione told him that all projects using the EcoPower T5 kits were ineligible. Two days earlier, he had approved six applications from Reset customers for such projects, all of which had been submitted a day or two earlier.[^5] Whittaker conceded in cross-examination that other applications from Reset customers had been preapproved by Hydro One prior to late June 2012.

[126] In cross-examining Forgione, Reset’s lawyer attempted to elicit an admission that the missing ballast number information had in fact been provided with the applications mentioned in Forgione’s June 29 emails. The worksheets that defence counsel relied on were incomplete and undated. I do not see why Forgione would misrepresent to applicants that information was missing if it was in fact included. In any event, if that were the case, the simplest and fastest solution to the misunderstanding would have been for Whittaker to submit the information again.

[127] Instead, the same day, Whittaker emailed acquaintances in the provincial Ministry of Infrastructure and the Ministry of the Environment. His email stated:

I spoke directly to David Forgione and he is indicating that the T5 lighting fixture that we are recommending does not qualify for Hydro One rebates. The fixture/ballast being recommended has been approved by Hydro One and other LDCs in the past. It has never been rejected by any LDC. The OPA has confirmed in our meetings with them that it does qualify and as such we have been promoting the same fixtures for years.

David Forgione is indicating that each LDC decides on which fixture qualifies for a rebate and the OPA does not have jurisdiction on it.

We need this resolved.

[128] Aside from his description of a call to Forgione, which I have determined was likely inaccurate, Whittaker’s email to the ministries contained two further untruths. First, as just mentioned, Hydro One had recently preapproved projects using the EcoPower T5 kits. Second, Whittaker knew that each LDC made its own determination about the eligibility of products for the rebate program. This was explicitly stated on CDM program documentation. Furthermore, on October 7, 2009, Luke Bond, an ERIP program manager at the OPA, sent Whittaker an email saying that the OPA did not “endorse, vet or approve any specific product or manufacturer”. After receiving this email, Whittaker sought confirmation that the EcoPower T5 kits were eligible technology for all LDCs, Bill Wylie, Bond’s boss, wrote to him:

The way the program is delivered is that the participating LDCs are permitted to make individual determinations on product eligibility on a case by case basis. As such, it is possible that your product may not be eligible through all LDCs — we would not necessarily know of the determinations made by an LDC in this regard.

[129] In cross-examination, Whittaker disagreed that the OPA’s position was accurately set out in Wylie’s October 2009 email but could not explain why.

[130] Whittaker’s complaints to ministry officials bore immediate fruit. Tamar Heisler, Whittaker’s contact at the Ministry of Energy, directed a senior official at Hydro One to “take care” of the problem. In her response to Whittaker the next day, she said that she had escalated Reset’s complaint “to the highest possible authority”. Heisler noted that she could “not guarantee that because a technology qualified in years past that it still qualifies today but if the OPA has told you recently that the technology qualifies then I think that’s something you can count on”. What the OPA had told Reset, in fact, was exactly the opposite.

[131] Later that same day, Semler went to see Forgione to find out what he had done to cause two provincial minister’s offices to contact him. He instructed Forgione to pre-approve all applications submitted by Reset’s customers immediately.

[132] So that is what Forgione did. On June 30, he emailed Whittaker to tell him that Hydro One was pre-approving its eight outstanding applications immediately so that Reset’s customers would qualify for the higher level of rebate available up to July 1st, 2011, even though the missing ballast model number information had still not been provided.

[133] In addition to illustrating Whittaker’s willingness to fudge facts in order to achieve his goals, this episode contradicts Reset’s allegation that Hydro One was consistently slow at processing preapprovals. As of June 29, 2011, Forgione had already preapproved a batch of applications from Reset’s customers filed only days earlier. The applications at issue in his June 29 emails had likewise just been submitted.

[134] Whittaker denied that he was concerned about the July 1st deadline for the higher incentive rate. According to him, a lower rebate rate would not prevent Reset from being able to effectively market the EcoPower T5 kits and make a healthy profit. I do not believe Whittaker’s evidence on this issue. The large number of applications for preapproval in late June, and Whittaker’s emails to ministry officials to get them to intervene, show that he was anxious to ensure that Reset’s projects qualified for the higher incentive level. Whittaker had also advocated for a higher incentive rate in earlier correspondence. I infer that, despite his assertion to the contrary, the lower incentive level could significantly affect Reset’s marketing efforts and, as shall be seen further below, its bottom line.

[135] On July 28, 2011, Reset’s line of credit with CIBC was temporarily increased to $950,000. According to Whittaker, this increase was required because Reset was beginning to do installations of projects that Hydro One had just preapproved, and it had to order more inventory as a result.

[136] In the months that followed, Hydro One’s processing time for SERP applications slowed. Forgione and Semler both testified this was due to the roll-out of a province-wide online portal for SERP applications in 2011. The portal was full of glitches, and cumbersome for both the reviewer and the applicant. It required users to navigate through up to thirty screens. As a result, it could take weeks for Hydro One to review an application.

[137] Forgione testified that he sometimes felt overwhelmed during this period, given the volume of applications and the portal issues. In mid-2011, Hydro One began a procurement process to hire a contractor to assist with the applications. This would result in the involvement of Willis Energy Group in the application process early in 2012.

[138] Whittaker, Tanguay, and Forgione exchanged numerous emails in late 2011 about the progress of applications for preapproval for EcoPower T5 kit projects and incentive payments to Reset’s customers. Forgione advised that there was a significant backlog he was working through. Given the volume, in October Forgione anticipated that a further delay of six to eight weeks before applicants would receive rebate cheques. He told Whittaker that he would be back in touch over the next few weeks if he required any information with respect to specific applications.

[139] Whittaker’s testimony implied that, in late 2011, many if not most of his customers waited months for rebate cheques after obtaining preapproval from Hydro One and completing their projects. Based on the evidence submitted, this is an exaggeration.

[140] Reviewing the SERP application records produced, three of Reset’s customers waited longer than 90 days to get rebate cheques after submitting all of the required paperwork in the second half of 2011. Ritchie Feed and Seed waited five months (May 18 to October 10, 2011); R & L Auto waited four months (November 7, 2011 to March 9, 2012); and Crystal Chrysler just over three (December 21, 2011 to March 9, 2012).[^6] Other Hydro One customers cited by Reset as victims of long delay during this period (Jardins Bellerive, 7581696 Canada Inc., Carlsbad Variety) received cheques in within a day or two of submitting their completed applications. Others had to wait a few weeks or, in two cases, over two months.

[141] At around this same time, some Reset customers began submitting letters with their rebate applications directing that their incentives be paid to Reset. As Whittaker admitted in cross-examination, these customers did not seek Hydro One’s prior authorization to assign their rights under the Participant Agreement. He offered two justifications for this. First, he said that Hydro One’s failure to object to assignment letters submitted to it constituted consent. Second, he argued that, had Hydro One’s consent to assignment been sought, it could not have been reasonably withheld.

[142] As these letters suggest, Reset’s customers were not being charged for all project work before applying for a rebate, despite certifying to the contrary. In cross-examination, Whittaker acknowledged that Reset sometimes allowed its customers to pay only part of its invoice pending receipt of the incentive. Whittaker tried to justify the false certifications by saying that customers had paid everything they were required to pay at the time. This was pure sophistry. Reset’s practice was simply an end run around the program’s rule requiring that customers pay all project costs before receiving a rebate.

[143] This was not the first time that applications on behalf of Reset’s customers had contained inaccurate information. In 2010, some applications falsely reported project costs. Reset had a practice at that tie of sometimes issuing invoices to customers for amounts greater than they actually paid, without indicating any discount on the invoice. When the customer paid the bill, Reset would send them back a cheque for a portion of it. Reset eventually stopped giving customers discounts not reflected on invoices because Hydro Ottawa told it to stop.

[144] Reset’s deferral of full payment when it completed projects made it particularly vulnerable to any delay in processing rebate applications. Reset in fact ran the risk of never getting paid, because an LDC might run out of rebate funds or decide that a particular technology was ineligible before a rebate was approved. Reset’s billing practices show why Whittaker was so anxious to push applications for preapproval through in late June 2011, when higher incentive levels were still available.

Reset’s dealings with Hydro One in 2012

[145] In early January 2012, a new manager at Hydro One, Charles Coimbra, became concerned about possible safety issues in connection with EcoPower T5 kits. Coimbra was hired for a new position. He and Semler had worked together at Osram Sylvania. Coimbra reported to Semler and replaced him as the second approver for SERP applications. Konidis moved to another position in the CDM department. Forgione remained and began reporting to Coimbra but gained the ability to approve incentive payments up to a certain limit without Coimbra or Semler signing off.

[146] Coimbra has a bachelor’s degree in applied design and a diploma in electronic engineering technology. He worked for Osram Sylvania, a lighting manufacturer, for 17 years before joining Hydro One on December 23, 2011, as a senior strategy and conservation specialist. He participated in CSA subcommittees beginning in 2005. These subcommittees worked on electrical safety standards for products and components, typically meeting at least semi-annually. Other committee members represented the Canadian Safety Authority (CSA) and Electrical Safety Authority (ESA), utilities, manufacturers, and members of the general public.

[147] Coimbra testified that, a few weeks after he joined Hydro One, he came across paperwork about the EcoPower T5 kits. He had never seen a product like them before. On January 6, 2012, he sent an email to Semler and Forgione, attaching a CSA technical information letter relating to retrofitting LED lights. He testified that he did this because, to his knowledge, there were no CSA standards that addressed fluorescent retrofit kits. The EcoPower T5 kit resembled LED fixture-in-fixture solutions, which had been the subject of CSA safety concerns, even though they were ULC approved. For Coimbra, the method of connection was a possible concern, not the type of lamp involved.

[148] Semler testified that he understood the basis for Coimbra’s concern when he got his email. The CSA technical letter that Coimbra had sent was issued after Marbek prepared its report on the EcoPower T5 kits. Semler told Coimbra to investigate and to keep him informed. He was subsequently copied on some of Coimbra’s emails to the CSA and ESA, and got updates from him.

[149] Coimbra found a 2009 installation manual for the EcoPower T5 kits online. The manual warned that, if you re-lamped using a T12 or T8 lamp after retrofitting a fixture with a kit, this could cause a shock or explosion. A 2010 installation manual likewise stated: “DO NOT replace retrofit kit with the originally intended lamp(s) unless a re-installation has been carried out by a licensed electrician. IMPROPER RE-INSTALLATION MAY CAUSE RISK OF FIRE OR RISK OF SHOCK.”

[150] Based on the sample product that Coimbra had, there was nothing to prevent someone from removing a T5 lamp from a retrofitted T12 fixture and replacing it with a T12 lamp. T5 fluorescent lamps were not readily available at a retail level in Ontario in early 2012. They were mostly used in industrial or commercial settings. T12s remained much more common, T8s slightly less so. In Coimbra’s experience, lamp replacement is commonly done by cleaning staff, some of whom do not speak English as their first language. He was concerned about a person up on a ladder changing a light, and being startled by a spark or shock, perhaps causing them to lose their balance and falling ten or twenty feet.

[151] Coimbra took two immediate steps. First, he asked Forgione to find out how many applications had been filed for fixture-in-fixture products. This was not confined to EcoPower products. Forgione told Coimbra on January 29, 2012, that eight applications for projects using the EcoPower T5 kits had “unfortunately” resulted in incentives being paid. Forgione testified that he used this adverb either because he was embarrassed at having initially underestimated the number, or he was sensitive to Coimbra’s safety concerns.

[152] Second, on January 27 and again on January 31, 2012, Coimbra sent separate emails to his contacts at the CSA and ESA regarding potential concerns about the EcoPower T5 kits. He wrote:

I have now also seen a similar type of retrofit product that utilizes a T5 fluorescent lamps and driver in a single unit and similarly utilizes the fixtures existing sockets for connecting to the circuit. My concern is safety, what happens when someone removes the retrofitted lamp and reinstalls a standard fluorescent lamp connecting it directly to 120V or 347V? Please let me know what your position is on this matter, as usual, time is of a concern.

[153] In cross-examination, Coimbra admitted that EcoPower T5 adapters do not contain drivers, as suggested in his January 27 email, but electronic ballasts. He agreed that there was a quick disconnect on this type of ballast but stated that this did not alleviate the concern about a potential shock during mis-lamping.

[154] A CSA representative, Dejan Lenasi, responded promptly to this email, in a way that indicated that Coimbra’s safety concerns were not ill-founded. She said that, while the CSA may have certified the component elements of the EcoPower T5 kits, this did not mean that the ESA would accept their incorporation into an existing T12 fixture. Lenasi said that the CSA was considering updating its requirements and expected a new technical letter to be issued with respect to LED lamps and T5 fixtures in June 2012. CSA was prepared to accept the technology, but would add restrictions and conditions to their use.

[155] Coimbra forwarded Lenasi’s position to Semler and told him he would keep pressing the ESA for their reaction. That same day, the ESA representative whom he had contacted, Tatjana Dinic, responded to his earlier email. She advised that she had discussed the issue with her technical team and would share further information with him when she received it.

[156] On February 14, 2012, Coimbra sent a further email to Lenasi asking: “For the time being, what do I tell my customers that are requesting that I fund retrofits with these types of products? I have a lot of these requests in my system and need to do something with them very shortly”. Coimbra testified that most of these requests involved LED projects. Lenasi responded, unhelpfully, that Coimbra would “need to comply with current requirements”. When Coimbra asked whether EcoPower T5 kits would meet those requirements, Lenasi replied that, based on the manual he had sent, they would not. He said that the kit could be CSA/ULC certified as a component, but rejected by the ESA or other regulatory authorities as a product that was not suitable or safe for a particular application. Coimbra forwarded this email to Semler and Forgione.

[157] On February 13, 2012, Whittaker sent an email to Konidis about the delay in approvals from Hydro One. He stated that some of the pending approvals were for payment, and some were for pre-approval “from Aug and Sept of 2010”. It is unclear what projects Whittaker was referring to since the evidence does not include any applications for preapproval from Reset customers that were pending from 2010 in early 2012. In any event, Konidis said that she expected that Whittaker would be hearing from Coimbra or Semler.

[158] On February 17, 2012, Coimbra wrote to Whittaker to advise him that the delays in processing some applications were due to the safety concerns. He said that Hydro One was waiting for an official response from the ESA and CSA and would advise him as soon as they received them. Coimbra testified that he would have made this decision with Semler. They both denied that they were singling out EcoPower products.

[159] In response to Coimbra’s February 17 email, Whittaker replied:

OPA has vetted our T5 fixtures in the past. They are ULC approved to be installed into an existing ULC or CSA approved fixture. Following the ULC approved manufacturers installation procedures ensures the new fixture is safe. Retrofit kits are common and accepted practices and as such they have been included on the prescriptive list. Furthermore, applications that were preapproved with the specs were completed based on the preapproval which is a binding commitment to pay the incentive upon completion of install.

[160] At trial, Coimbra challenged the assertions in this email. He said that OPA cannot “vet” fixtures, there was no binding agreement formed based on preapproval, and Hydro One’s relationship is with its customers, not installers. Based on the evidence, Coimbra was correct on each of these points.

[161] On February 22, 2012, Dinic told Coimbra to say that she did not have anything further to share with him from the ESA yet. She suggested that Hydro One require retrofitted installations to be inspected, and asked for further information on the products, including warning labels. Coimbra testified that he understood from this that the ESA, like Hydro One, was still looking for answers.

[162] Willis Energy Services had by this time been hired by Hydro One to assist with processing SERP applications. Willis would do the first review of applications and recommend whether projects should be preapproved. Forgione would then do his own cursory review of the application, a quality control check. He would either follow Willis’ recommendation or follow up with them to get more information.

[163] On February 27, 2012, at the direction of Coimbra or Semler, Forgione instructed Willis that all applications currently in the system from Reset had been placed on hold. He said that Whittaker and Tanguay had been informed of this. Forgione stated that Hydro One had been informed of “safety issues related to the technology being installed” and were awaiting direction from the ESA and CSA before proceeding with any further reviews or approvals. He added that the issue was confined to “LED retrofit tubes and T5 fixture-in-fixture retrofit kits” (which would include the EcoPower T5 kits).

[164] On March 1, 2012, Whittaker advised Coimbra that delays on Hydro One’s part were causing financial stress for Reset. In an email, Whittaker said that Reset had purchased over $1 million in inventory to complete the projects that it anticipated completing in the first quarter of 2012. Whittaker’s email asserted that, “to date, we have not been able to install one new fixture as no rebates have been preapproved”.

[165] Semler testified that he and Coimbra discussed the issue. Coimbra did not yet have a definitive answer from the CSA and ESA. Customers who had been preapproved and had completed projects were waiting to receive their incentives. Semler and Coimbra jointly decided that Hydro One would issue rebates for these projects (assuming the applications were in order). They thought there was a safety risk, though, and that any planned projects should be paused until Hydro One completed its investigation.

[166] Coimbra advised Whittaker the next day by email that incentive cheques had been issued on ten applications by Reset customers, or they were being processed for payment. There were nine pending applications that had been approved to proceed and were awaiting post-project submissions before an incentive was paid. Any applications that have not already been preapproved to proceed, however, “will remain that way until we have a ruling from either the ESA or CSA on this matter”.

[167] Over the next few weeks, Whittaker sought to persuade Coimbra that the EcoPower T5 kits were safe and that the suspension of preapprovals for projects using them should be lifted. He emphasized that the kits were ULC approved and that there were warnings stamped on the products. He offered to provide an ESA inspection certificate once installations were complete, and pressed Coimbra for a timeline for Hydro One’s decision. Whittaker said he had many customers anxiously awaiting Hydro One’s approval and asserted that “nothing has changed in the ESA, CSA, or the ULC guidelines since we started to install these fixtures across North America years ago”. Coimbra testified at trial that he did not agree with this statement. Although the kits complied with CSA guidelines when the product was certified, the CSA’s more recent technical letter raised concerns that had not been addressed.

[168] Coimbra’s position did not immediately change, even after his CSA and ESA contacts concluded, in late March, that the EcoPower T5 kits appeared safe “if used as per their intended application by following the manufacturer requirements and affixing the warnings required”. Coimbra testified that he continued to be concerned about “mis-lamping”, that is, someone trying to re-install a T12 lamp into a retrofitted fixture.

[169] On April 12, 2012, Reset filed a complaint against Hydro One with the Ombudsman Office. It complained about the delays in preapprovals, and Hydro One’s refusal to pay incentives directly to Reset rather than to its customers.

[170] Semler was notified of the complaint on April 26, 2012. Two weeks later, on May 9, 2012, Hydro One advised Whittaker they would resume pre-approving projects using the EcoPower T5 kits, but that ESA inspection certificates would be required before incentives would be approved. This was what Whittaker had proposed about six weeks earlier. Coimbra testified that he had not accepted this proposal earlier because he thought that the CSA would be issuing an updated technical letter in June. By early May, however, he had learned that the CSA would not publish an official position for months. He thought it was unreasonable to require customers to wait this long. He accordingly compromised by requiring an ESA certificate on installations using the EcoPower T5 kits.

[171] On May 10, 2012, Forgione instructed Willis to give high priority to Reset’s pending applications. On May 16, 2012, Willis advised Reset and three of its clients with pending applications that their projects were preapproved.

[172] Semler testified about the information he provided to the Ombudsman in May through July 2014 in the context of its investigation.

[173] The Ombudsman’s investigation was formally discontinued on October 30, 2012. He provided an explanation for delays in preapprovals for five Reset projects. Based on his analysis, there were no applications that were delayed for any length of time due to the suspension in March and April 2012. There were two applications in respect of which Hydro One’s review had been delayed before this period, but this was due to problems with the provincial portal.

[174] There was a great deal of evidence at trial about Hydro One’s investigation of the EcoPower T5 kits from January to May 2012. I have not mentioned all of the correspondence between Hydro One, the CSA and the ESA, or all of Coimbra and Semler’s evidence about their discussions during this period. Fundamentally, what I must determine is whether the evidence shows that Coimbra and Semler raised legitimate safety concerns. I will consider this further when I assess the expert evidence on this issue.

Reset’s further financial difficulties and insolvency

[175] Reset was once again in financial difficulty in early 2012. Its credit facilities with CIBC were transferred to special loans on February 23, 2012. On May 22, 2012, CIBC retained BDO Dunwoody to investigate Reset’s finances. The next day, CIBC demanded repayment of its $948,968 operating loan.

[176] By coincidence, John Haralovich, the person who had reviewed Reset’s financial situation for KPMG in 2010, had by 2012 moved to BDO. He issued a report on June 8, 2012, and was later appointed as Reset’s receiver.

[177] Despite forbearance agreements with CIBC in June and October 2012, Reset was not able to meaningfully reduce its debt to the bank. The recitals in the June Forbearance Agreement stated that Reset owed CIBC over $950,000. By October, the principal amount owing on the operating loan was $842,068. On November 5, 2012, BDC issued demand letters for repayment of the balance of its loan to Reset, which stood at $167,500.

[178] On December 7, 2012, Reset went into receivership. BDO was appointed as receiver. In February 2013, BDO took possession of Reset’s inventory and other assets. Reset at this point owed $800,000 to CIBC and just under $350,000 to unsecured creditors.

[179] Whittaker and Haralovich gave starkly different accounts about the issues that led CIBC to call in its loan and later put it into receivership.

[180] According to Whittaker, CIBC became concerned about Reset’s solvency when Hydro One advised that it would not process any further preapprovals for EcoPower projects due to safety concerns. He testified that he had a close relationship with his bankers, letting them know about supply arrangements and ongoing projects. CIBC offered Reset the June 2012 forbearance agreement to give it an opportunity to make sales after the suspension was lifted. Reset in fact succeeded in reducing its indebtedness to CIBC from June to October 2012 by about $106,000, although it also accumulated interest, monitoring costs, and fees, bringing the total amount due to $865,000. He blamed CIBC’s decision to assign Reset into bankruptcy on Hydro One’s continued failure to preapprove its customers’ projects and cut rebate cheques after June 2012.

[181] Haralovich had a different perspective. He was frustrated by Reset’s refusal to provide requested information. He asked Tanguay for the company’s general ledger on June 6, 2012. Whittaker did not deny that a general ledger was not provided but contended, at trial, that Reset did not need to comply with this request because BDO had access to its books. He later justified the failure to produce the general ledger based on its size, which he said made it impossible to send by email. Curiously, he did not mention this technological issue in the emails he exchanged with Haralovich at the time.

[182] Although he had not obtained all of the requested information and records, Haralovich wasted no time in advising CIBC of his significant concerns based on the financial reporting he had seen. At trial, he admitted that he prepared his report very quickly. I infer that his concern was heightened based on his experience with Reset and Whittaker in 2010.

[183] In a June 8, 2012, letter to the bank, Haralovich said he had compared Reset’s balance sheets on November 20, 2011, December 20, 2011, and June 6, 2012, and was particularly troubled by three things:

(1) Reset’s accounts receivables in December 2011 were reported at $909,372. On June 6, 2012, they were $84,860, or $842,512 less. This dramatic reduction in accounts receivable was not evidenced by this same amount of money deposited to Reset’s bank account at CIBC. There had only been deposits of $150,000 in this period. This led Haralovich to conclude that Reset had overstated its accounts receivables in late 2011 by about $675,000.

(2) Reset’s financial statements listed work in progress in the amount of $566,129. Based on Haralovich’s preliminary review, this figure did not actually represent work in progress but the value of quotations for potential work provided to various customers. He concluded that, since “there has been no supply of inventory or labour, this work in progress should not be considered an asset and it has no realizable value”. Haralovich noted that the two people who prepared these monthly reports (Whittaker and Tanguay) were accountants who “would be aware that there is no CICA handbook section that would allow for such quotations to be recognized as an asset of any classification”.

(3) In December 2010, Reset paid EcoPower $130,000 in execution of its distribution agreement. This payment was identified in the company’s financial statements as “prepaid supply”, but EcoPower was not required to apply it to orders over time. The payment was therefore an expense that should have been applied to the cost of sales in 2010.

[184] Haralovich expressed the view that CIBC could hope to recover “$0 to $100,000” on its loans. At trial, he described the bank’s prospect of recovery as “dismal”. He cast doubt on the sales figures in Reset’s annual statements, saying that he suspected that revenue of $4.2 million in 2011 “does not properly reflect the actual sales for the Company when you consider the false reporting of accounts receivable and the Company's decision not to provide detailed accounting information.” Haralovich added:

The conduct of the owner and staff of the Company is very concerning and in particular their refusal to provide reliable and accurate financial and accounting information. This makes it difficult to provide any recommendations that would allow the Company to continue without putting measures in place that would make the day-to-day operations of the Company require the approval of a Monitor. In the event the Bank was not prepared to enter into any form of a forbearance agreement, the anticipated loss to the Bank would be significant. The current margin deficit is $600,000 and until this amount is recovered, the Company should not be entitled to normal operating provisions with the Bank.

[185] At trial, Whittaker said he did not see this letter until 2018 and denied that Haralovich had mentioned his stated concerns to him. He did not, however, persuasively contradict the letter’s substance. He conceded that quotations for work to be performed were not receivables. He did not concede that work in progress should not be considered an asset, even though Reset would have no right to be compensated for any work it did in preparation for installs, unless and until a customer actually agreed to proceed with a project. He expressed the belief that more than $150,000 had been deposited in Reset’s CIBC account during the relevant period, but could not produce anything to contradict the figures cited by Haralovich.

[186] I have no reason to think that Haralovich’s numbers were inaccurate or that his concerns were unfounded. Based on his evidence, and the report he prepared in 2012, I conclude that Whittaker significantly overstated Reset’s accounts receivable and work in progress in 2011-12, and otherwise prepared financial reports that did not comply with GAAP. I accept Haralovich’s evidence that the company’s monthly statements were calculated to mislead the company’s lenders, given that Whittaker was a chartered accountant.

[187] Despite the issues identified in BDO’s report, CIBC did not call in its loan for several months. In October 2012, Haralovich advised Tanguay and Whittaker that he was worried about a potential CRA audit as he could not reconcile the HST filing to Reset’s general ledger and could not recommend any further extension of the Forbearance Agreement. Whittaker told him that Hydro One was to blame for the company’s financial woes. It is apparent, based on the emails exchanged around this time that Haralovich continued to press for information that Reset had not provided. In November 2012, CIBC noted that there had not been a significant deposit into Reset’s accounts for over a month. He asked how this was possible given cash flow projections that money would be paid. Whittaker acknowledged that the projections were based on “anticipated installations” and customers paying on time. This echoes Reset’s earlier position that quotations for prospective contracts should be treated as work in progress, a position I reject.

[188] At trial, Whittaker produced a list of lighting projects that could not be undertaken before Reset went into receivership. This list includes seven projects that were preapproved by Hydro One or another LDC. I have three observations about this list. First, there was no guarantee that any of Reset’s potential customers would proceed with projects even if they got preapproval. As already noted, in May 2012, Hydro One inquired about various projects for Reset customers that it had preapproved months earlier but in respect of which no application for a rebate had been received. Glenn Camus, an EcoPower T5 kit reseller, estimated that about 25% of customers to whom Reset provided quotations went forward with projects. Second, the existence of any pending projects is not automatically attributable to Hydro One. This would only be the case if I found that Reset’s receivership was attributable to its actions or omissions. Third, the value of the rebates associated with these projects is modest, from which I infer that the project values were small.

[189] Peter Azzie, a salesperson who worked for Reset for a few months in 2012, testified that he became involved in the EcoPower lighting venture some time after May. He received training and saw an installation underway at a building owned by the Township of North Dundas in July 2012, after which Whittaker asked him to head up sales across North America. He said that he had recruited and trained a sales team by the end of November.

[190] Azzie’s evidence was not very helpful. It established, at best, that Reset had some capacity to sell EcoPower T5 kits in late 2012. Azzie said that he closed sales for various customers but did not know anything about the incentive process or whether Hydro One refused to process any applications while he was involved in the company.

[191] After Reset went into receivership in December 2012, Whittaker declared personal bankruptcy a month later. Reset was assigned into bankruptcy in March 2013, from which it did not emerge until April 2016. Whittaker testified that lost everything, including the equity in his house, when the company went into receivership. His marriage failed and everything he had worked for since high school and university was gone. He blames Hydro One for all of these losses.

[192] On June 28, 2013, Reset and Whittaker issued a Notice of Action against the OPA and Hydro One. It later discontinued the action against the OPA.

Reset’s claim in negligence and negligent misrepresentation

Did Hydro One owe Reset a duty of care?

[193] Reset relies on Granitile Inc v Canada, [1998] OJ No 5028 (ONSC) for the broad proposition that “a distributor is owed a duty of care by the government, or a body administering a government program”.[^7] Granitile is factually distinguishable from the case at bar. Since it was decided, moreover, the Supreme Court of Canada has clarified the proper approach to establish a duty of care. This approach mandates a robust analysis of the particular relationship at issue in each case; Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63 (“Livent”), at para. 24. The Court cautioned that courts should not simply assume that a duty of care exists because pre-Livent case law involved similar parties. If a duty of care has not already recognized in a way that satisfies the more rigorous, post-Livent approach, then the court must conduct its own analysis of proximity and reasonable foreseeability.

[194] I must accordingly determine whether such a duty of care exists, based on the guidance provided by the Supreme Court of Canada and the Ontario Court of Appeal.

[195] In Livent, at para. 29, the Supreme Court set out what a plaintiff must prove to establish a defendant’s duty of care in an action for pure economic loss:

To determine whether the “‘close and direct’ relationship which is the hallmark of the common law duty of care” exists, courts must examine all relevant “factors arising from the relationship between the plaintiff and the defendant”. While these factors are diverse and depend on the circumstances of each case, this Court has maintained that they include “expectations, representations, reliance, and the property or other interests involved” as well as any statutory obligations. [Citations omitted. Emphasis in original.]

[196] In Charlesfort Developments Ltd. V. Ottawa (City), 2021 ONCA 410, at para. 31, the Ontario Court of Appeal clarified that “a relationship of proximity is formed when the defendant undertakes to provide a representation or service to the plaintiff in circumstances that invite reasonable reliance, as the defendant becomes obligated to take reasonable care and the plaintiff has a right to rely on the defendant’s undertaking to do so”. The Court has repeatedly emphasized that undertakings are not to be treated as given “at large”. A court must instead consider whether an undertaking was made to the plaintiff and, if so, for what purpose: 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, at paras. 35, 38; Charlesfort at para. 37. Reliance that exceeds the purpose of a defendant's undertaking is not reasonable and is not foreseeable: Maple Leaf, at para. 35.

[197] At para. 71 of its Fresh as Amended Statement of Claim, Reset alleges that:

The Defendant owed a duty of care to Reset as a result of the Defendant making various representations directly to Reset concerning what Reset could expect if it decided to market, distribute and install T5 Product to clients/applicants in the ERIP and the SERP. The Defendant also owed a duty of care to Reset as a result of Reset being a registered Applicant Representative, member and participant in the ERIP and the SERP, as well as being a marketer, supplier and installer of T5 Product which qualified for incentives under the ERIP and the SERP.

[198] Reset referred again to the first alleged basis of a duty of care — Hydro One’s alleged representations — in its written submissions at the end of the trial. It argued that the rebate program’s terms created “a positive obligation for the LDC to pay the incentive within 90 days after confirming that the paperwork for a completed project is in order”.

[199] As the Court of Appeal has made clear, an implicit undertaking is generally insufficient. Unilateral reliance is not enough to give rise to a relationship of proximity. A defendant must manifest an intention to induce a plaintiff to rely on its representations, or deliberately solicit its involvement: Charlesfort, at para. 47.

[200] There is no evidence that Hydro One ever manifested any intention to induce Reset to rely on its representations about the eligibility of the EcoPower T5 kits or how fast it would process applications under the CDM programs. Reset does not allege, nor is there any evidence, that Hydro One ever deliberately solicited the involvement of Reset in the rebate program.

[201] The evidence instead shows the contrary, particularly in the context of SERP. Section 17 of SERP Participant Agreement stated that the Agreement was for the sole benefit of LDCs, Participants, and their permitted assigns. It hammered this point home by adding that the Agreement “will not be deemed to confer upon or give to any other person any claim or other right or remedy.”

[202] With respect to ERIP, Reset relies on Konidis’ July 9, 2009, email to Conlon, in which she said that the EcoPower T5 kits would be “recognized, and eligible for an incentive under the 2009 ERIP Prescriptive measures list.” She apologized for the delay in Hydro One’s investigation and said that it would “now proceed with the applications that have been submitted with this technology”. This email was not addressed or copied to Reset or anyone with a Reset address. Konidis’ testimony showed she did not understand his role or his relationship to the company. She was unaware that delays would have an impact on resellers since incentives were paid to customers.

[203] Beyond this, her statement was limited, at most, to the program in the last five months of 2009. Whittaker testified that he interpreted the email to understand that it would “always continue to allow us to be able to sell our T5 fixture in Hydro One territory without any further delays”. This was not a reasonable interpretation. Even Whittaker conceded, in cross-examination, that he may have misunderstood the email’s implication.

[204] Reset also relies on an August 31, 2009, email from Konidis to McGinn, where she acknowledged the earlier delay in an application process as Hydro One finished its investigation of the EcoPower T5 kits. Konidis wrote that “Going forward there will not be this delay in the process as long as the proper documentation has been submitted”. This was not, I find, a binding undertaking giving rise to a legal duty on Hydro One’s part. This statement could not be taken to imply that Hydro One renounced its discretion to refuse incentives or to revisit the eligibility of the kits for incentives, as confirmed by the OPA’s emails to Whittaker a few months later. It is also relevant that this email was sent to McGinn rather than Reset.

[205] Finally, Reset relies on the apologies made by various Hydro One employees for delays in the approval process. Saying “I’m sorry” does not always acknowledge wrongdoing. It may be an expression of general sympathy, a courtesy recognizing that someone was inconvenienced. Saying “I’m sorry” does not constitute an undertaking that similar problems will not arise again in the future.

[206] The second alleged basis of a duty of care — Reset’s role in the rebate program — was mentioned in its oral submissions at the end of the trial. Reset argued that the program was reliant on the involvement of suppliers of components like itself. This argument does not assist the plaintiff, as it is premised on an implicit undertaking or undertaking at large that the Supreme Court and Ontario Court of Appeal have cautioned against.

[207] In its Fresh as Amended Statement of Claim, Reset further alleges that Hydro One owed it a duty of care “as a result of Reset being a registered Applicant Representative, member and participant in the ERIP and the SERP”. Reset was not, however, a Participant in either program, as that term was defined. It was at best a customer representative in the context of SERP. As already noted, section 17 of the SERP Participant Agreement stated that the rebate program was solely for the benefits of LDCs, their customers, and the latter’s “successors and permitted assigns”. As Whittaker admitted at trial, Reset never explicitly sought Hydro One’s consent to an assignment of its clients’ rights to Reset. I reject its argument that this status should be recognized ex post facto. The reality is that Reset was not a “permitted assign” and the SERP Participant Agreement therefore excludes any claim by it to any program benefit.

[208] I conclude that I cannot find a relationship of proximity between the parties that would give rise to a duty of care to Reset on the part of Hydro One.

[209] There is a further obstacle to Reset’s argument that Hydro One owed it a duty of care. Even if Hydro One had made an undertaking about the eligibility of the EcoPower T5 kits for incentives or processing times, it would not have been reasonably foreseeable that Reset would rely on it, because Hydro One retained an absolute discretion to deny approval of any rebate payment, and, as will be discussed further below, was not bound to preapprove projects within any prescribed deadline.

[210] The SERP application stated, in bold, capitalized font, that the application “MAY BE REJECTED BY YOUR LDC FOR ANY REASON”. Program materials mentioned that an LDC might exhaust its budget for incentive payments. Beyond this, Whittaker was specifically warned by the OPA in the ERIP era that each LDC had the power to make its own determination about what products qualified for rebates, and could change its mind, without notice, about what technology qualified. In October 2009, Reset sought confirmation that retrofit projects using the EcoPower T5 kits would be eligible for rebates. On October 8, 2009, the OPA sent Whittaker an email confirming that Reset’s product was “an eligible technology under the retrofit guidelines”, but reminded him that it did not endorse, vet, or approve specific products, and that there was no obligation to give notice to customers (or anyone else) of program changes. In a further email on October 22, 2009, the OPA reminded Reset that LDCs make individual determinations on product eligibility based on OPA eligibility criteria, independent of the OPA.

[211] The threshold for proving reasonable reliance is high: Charlesfort, at para. 51. In pure economic loss claims, the plaintiff must prove that the defendant’s inducement caused it to forego other, more lucrative course of action available to it: Maple Leaf, at para. 33.

[212] Whittaker signed Reset’s first distribution agreement with EcoPower in 2008 without getting any assurances about their eligibility under ERIP from Hydro One, or even letting Hydro One know that it was going to invest in the EcoPower T5 kits. In fact, I have found that Reset committed to purchase EcoPower inventory before it even got any assurances from the OPA. It entered into the subsequent distribution agreement with EcoPower in December 2010, increasing its financial commitment, after the OPA had announced that ERIP would be replaced but before the details of SERP were announced.

[213] In its closing submissions, Reset contended that it increased its line of credit with RBC and CIBC at various times, in reliance on Hydro One’s representations. There is no credible evidence to support this argument.

[214] The Supreme Court in Maple Leaf warned against finding a duty of care in circumstances analogous to this case. The plaintiff class in Maple Leaf were required by their franchise agreement with their franchisor, Mr. Sub, to purchase ready‑to‑eat meats produced exclusively by Maple Leaf, but they had no contract with Maple Leaf. At para. 90, the Supreme Court held that the representative class member was:

a commercial actor whose vulnerability was entirely the product of its choice to enter into that arrangement, and whose choice substantially informed the expectations of that relationship to which the proximity analysis must have regard. To allow the appellant to circumvent the strictures of that contractual relationship by alleging a duty of care in tort in a manner that undermines and even contradicts those strictures (in that the proposed duty would impose an obligation to supply upon Maple Leaf Foods whereas its agreement with Mr. Sub imposed no such obligation) would not only undermine the stability of such arrangements, but also of the appellant’s particular arrangement, which was predicated upon an exclusive source of supply.

[215] Similarly, in the case at bar, Reset is a commercial actor that chose to enter into contracts with its customers assuming they would be eligible for and receive rebates from Hydro One. It took enormous risks, both in choosing to invest heavily in the EcoPower T5 technology and in structuring its contracts with customers so that Reset depended on incentives being paid in a timely way or at all. These choices did not entitle Reset to obtain benefits offered by Hydro One exclusively for the benefit of its customers, or to claim damages from Hydro One if those benefits did not materialize as expected.

[216] Finally, Reset argues that Hydro One knew that Reset was suffering financially due to delays in processing applications in early 2012. Whittaker sent Hydro One an email on March 1, 2012, saying that Reset had purchased over $1,000,000 in inventory and the suspension of preapprovals was causing it “significant financial stress”. Reset complains that Hydro One’s failure to lift the suspension shows a callous disregard for the company’s fate. But this is not an argument for imposing a duty of care, absent a relationship of proximity and reasonable reliance.

[217] I conclude that Hydro One did not owe Reset a duty of care, without needing to explore whether there are policy reasons to decline to impose one.

If Hydro One had a duty of care towards Reset, did it breach it?

[218] Reset alleged that Hydro One was negligent in two ways: it unreasonably delayed or suspended its approval of applications based on the EcoPower T5 kits in early 2009 and again in early 2012, and it did not process applications in a timely way at any point during the ERIP and SERP programs.

[219] Since I have already found that Hydro One did not owe Reset a duty of care, it is not strictly necessary for me to consider this issue. It is in fact difficult to do so, as the scope of any duty of care is ambiguous. As the trier of fact, however, I am uniquely positioned to make relevant findings of fact based on the evidence heard. I will therefore consider whether Reset has proved the acts and omissions that found its claim in negligence.

Did Hydro One raise unfounded safety concerns?

[220] Reset argues that Hydro One had no legitimate concern about safety risks in connection with the EcoPower T5 kits, given that they were CSA and UCL certified. It contends that Hydro One’s misgivings about the kits were based on ignorance about the technology, resistance to innovation, and a bias against Reset. Hydro One should not have delayed consideration of applications by Reset’s customers in early 2009 while getting the Marbek report. It should have instead raised any concerns with Whittaker so he could address them. In 2012, Coimbra and Semler were confused or ill-informed about the EcoPower T5 kits or actively hostile towards them. Hydro One’s decision in May 2012 to begin processing and approving applications from its customers, after the Ombudsman got involved, shows that they never had a good faith concern. Whittaker questioned their motives, pointing out that they had previously worked for a manufacturer of LED and other conventional lighting components.

[221] Reset called Dr. Reza Iravani, a PhD in electrical engineering, as an expert witness. The gist of his evidence was that a CSA or ULC certification means that a product is certified for installation, and that Hydro One’s apparent concerns about the risk of re-lamping or mis-lamping — that is, a consumer attempting to re-insert a T12 lamp into a T12 fixture that had been retrofitted using an EcoPower T5 kit — were exaggerated or misplaced. He testified that he would expect custodial staff to turn off the electricity to a fixture before changing a worn-out lamp, and that the warning labels on the EcoPower T5 kits would prevent them from attempting to reinstall a T12 lamp into it. Dr. Iravani criticized Hydro One for raising safety concerns about the kits that was premised on misuse by the end user.

[222] In cross-examination, Dr. Iravani conceded that it would be easier for someone replacing a lamp on the ceiling to do it with the electricity on, so that they could see which specific lamps needed to be replaced. He said that this was possible but would be like “committing suicide” since these are industrial lights. (In re-direct, he qualified this by saying that any shock that someone might get while mis-lamping would be only momentary, because the circuit breaker would prevent prolonged exposure.) Dr. Iravani testified that he expected only “qualified personnel” to be involved in this process.

[223] Arend Koert, an engineer with Kinectrics Inc., was called by Hydro One to provide expert evidence on potential safety issues arising from the use of the EcoPower T5 kits. Koert is an electrical engineer. He worked in South Africa before joining Kinectrics in May 2009.

[224] Kinectrics was formerly part of Hydro Ontario, from which Hydro One was spun off. Koert never worked for Hydro One but acknowledged that Kinectrics has done some work for them, and that at one point may have had a close working relationship with them that has since diminished over time. Kinectrics has over 500 employees, and its total billings to Hydro One make up only about 3% of its revenues. In my view, there is no indication that Koert or Kinectrics are biased in favour of Hydro One.

[225] In his reports and testimony at trial, Koert addressed the scenario of “an unqualified end-user removing the retrofit product (EcoPower T5 Adapter or T8 LED lamp) from the energized luminaire and inserting the wrong product.” This could happen if a user did not have other T5 lamps on hand, or if they were dissatisfied with the light produced by the T5 lamps after retrofitting. He also expressed the view that a user might prefer to work with T12 lamps, because T5 lamps are smaller and therefore harder to remove and insert. Koert denied that CSA certification eliminates any safety hazard, as it is hard to regulate improper use.

[226] In Koert’s opinion, there would be a high risk of shock or electrocution associated with the removal of the T5 adapter that is part of the EcoPower T5 kit, and insertion of a T12 or T8 fluorescent lamp or re-insertion of the adapter. In his view, the grounding wire on the EcoPower T5 product did not make it difficult to remove, and someone could insert a T12 lamp in the fixture without first removing the wire. He also pointed out that it was not unusual for an end user to change a lamp while the lights are on, and that users are more familiar with T12 fluorescent bulbs because they have been on the market for a long time.

[227] I found Koert’s evidence to be somewhat more persuasive than that of Dr. Iravani, who sometimes focussed on pedantic details. In the end, however, they both acknowledged a risk of shock if someone inserted a T12 lamp into a T12 fixture that had been retrofitted using an EcoPower T5 kit. This risk was in fact mentioned in all versions of the kits’ user manual produced at trial, which also mentioned the risk of fire. Koert and Dr. Iravani disagreed about how likely it was that shocking would occur and what might happen if it did. This is less an issue of expert evidence and more an issue of practical common sense.

[228] In my view, it is distinctly possible that small and medium size business owners, the majority of Reset’s customers, would not go to the trouble and expense of hiring “qualified personnel” every time they had to replace a burned-out bulb on a warehouse or store ceiling. I find it entirely foreseeable that a person replacing one or two burned out lamps on such a high ceiling would find it much easier to do this with the surrounding lights on. I furthermore have no trouble imagining that a custodian or business owner, accustomed to using T12 lamps over many years, might have an inventory on hand and a comfort level with them even after retrofitting their lighting with EcoPower T5 kits, and might attempt to install the old bulbs in the T12 fixtures. This gives rise to the possibility that they would be shocked while removing the T5 lamp and EcoPower adapter. Even if this shock was transient, it could pose a danger to someone standing on a ladder.

[229] Coimbra raised these same concerns, both in early 2012 and at trial. He conceded that the EcoPower T5 kits complied with the CSA technical standards then in place. This was, however, a new product that raised concerns that the CSA had not anticipated. I agree with Coimbra that regulatory agencies are neither infallible nor omniscient. I also agree with him that the CSA’s February 16, 2012, email implicitly acknowledged that it might have overlooked a mis-lamping hazard when it certified the kits.

[230] Semler had less familiarity with and memory of communications between Hydro One, Reset, the ESA, and the CSA in the first few months of 2012. This is not at all surprising, since he delegated the day-to-day aspects of this file to Coimbra. Despite this, Semler was a solid witness. He admitted when he did not remember specific details or when a question fell outside the scope of his knowledge. He generally did not argue in cross-examination or answer evasively. He was defensive with respect to one issue: Konidis’ July 2009 email to Conlon. I have already concluded that this email did not constitute an undertaking by Hydro One to Reset or that, if it did, it prevented Hydro One from reassessing its past acceptance of projects using the EcoPower T5 kits.

[231] Reset has not established that anyone at Hydro One was hostile to EcoPower products, either because they were predisposed towards LED technology and manufacturers or resented Whittaker’s complaints to government contacts in June 2009. Coimbra and Semler denied any bias. They each worked for Osram Sylvania before joining Hydro One, but I accept their evidence that they did not act out of any loyalty towards their former employers who competed with EcoPower. I also accept Semler’s denial that he thought Whittaker was a “thorn in the side” of Hydro One, given the number of CDM programs run by Hydro One and the volume of applications they dealt with overall.

[232] Coimbra and Semler were credible witnesses whose evidence withstood vigorous cross-examination. Coimbra, in particular, was an effective witness. He considered questions before answering. He qualified his answers appropriately and without descending into pedantry. He made appropriate concessions. His explanations for his decisions made sense. He successfully defended his views during rigorous cross-examination.

[233] Both Coimbra and Semler testified that they had a responsibility to Hydro One customers to identify and address safety issues. Coimbra’s contacts at the CSA and ESA did not dismiss the safety concerns he raised as baseless or ill-informed. A post-installation ESA inspection did not allay these concerns because it would not prevent a safety hazard if the end-user tried to re-insert a T12 without regard to the precautions set out in the installation manual and the warning labels.

[234] Events after Hydro One lifted the suspension on approvals of EcoPower T5 kit installations showed that others shared Coimbra’s concerns. In late July 2012, the ESA published a notice on its website regarding retrofit kits for tubular fluorescent luminaires such as the EcoPower T5 kits.[^8] The notice emphasized the need for warning labels and an ESA inspection due to the potential for short-circuiting during later mis-lamping with a T12. Some time later, Leviton, the largest global manufacturer of fixtures such as T12s, issued a notice regarding the use of tubular LED lamps. Leviton expressed concern with the Type B retrofit kits, even though they were UL certified and had warning labels, due to the potential for shocks and fires. Finally, in December 2015, the OPA notified LDCs that Type B linear replacement lamps (such as the EcoPower T5 kits) should not be eligible for any incentives. As result, as of 2016, the CDM lighting incentives were only available for new T5 fixtures, as opposed to retrofits that resulted in T5 fluorescent lamps being installed in T12 fixtures.

[235] Reset contended that, in raising safety issues, Coimbra relied on a CSA technical letter that did not deal with components like the EcoPower T5 kits. Coimbra explained that this letter was nonetheless relevant because the safety hazards mentioned in the letter could arise, by analogy, when the kits were used. Although he did not know about the Marbek Report, I accept his evidence that having it would not have satisfied his concerns, based on the more recent CSA technical letter.

[236] Reset suggested that Coimbra failed to get documentation and product samples from Reset or EcoPower to give to his CSA and ESA contacts but instead relied on limited information and old installation manuals he found online. I agree that, ideally, Coimbra would have had current manuals. He gave a reasonable explanation for his actions, however. He was alarmed by the fact that Hydro One had already preapproved some retrofit lighting projects without considering all potential safety risks, but was also aware that “time is of a concern”. After his initial exchanges with the CSA and the ESA, he continued to follow up, conscious that Hydro One’s customers were waiting for their applications to be processed.

[237] Finally, Reset argues that Hydro One’s decision to continue preapproving projects using the EcoPower T5 kits, after the Ombudsman became involved in May 2012, fatally undermines their evidence that they had any legitimate safety concerns, as does Hydro One’s failure to send a warning letter to customers who had already used the kits. Coimbra and Semler testified that, by early May 2012, they realized that the CSA would not issue new guidelines until late 2012 or early 2013. With the benefit of discussions they had had by that time with the CSA and ESA, they decided that the safety risks to end-users could be addressed through existing warning labels and ESA inspections of completed projects.

[238] I do not accept Semler’s evidence that the decision to lift the suspension on further preapprovals had nothing to do with the Ombudsman’s investigation. This is simply implausible. Post-installation ESA inspections did not prevent mis-lamping by a customer later down the road. In cross-examination, Semler admitted that the primary purpose of an ESA inspection certificate was to cover off any risk for Hydro One.

[239] It does not follow from this, however, that Coimbra and Semler never had legitimate safety concerns. I have already found them to be credible witnesses. I believe their evidence that they lifted the suspension despite these concerns, based on feedback from the CSA and ESA as well as the pressure created by the complaint to the Ombudsman. They both expected that the CSA would eventually weigh in with formal technical guidelines on this type of electrical component but were not willing to make their customers wait any longer.

[240] I conclude that Hydro One’s decision to delay or suspend consideration of applications by Reset’s customers in 2009 and 2012 was based on legitimate safety concerns.

Did Hydro One generally fail to process applications in a timely way?

[241] There are two problems with Reset’s argument on this point. First, most of the delay at issue concerned applications for preapprovals. LDCs were not required to process preapprovals within any specific deadline, and Reset has not proved that Hydro One fell below an established standard in the way it handled these applications. Second, I find that Reset has significantly exaggerated the extent of Hydro One’s delays in processing both preapprovals and incentive applications.

[242] In the first half of 2009, Hydro One delayed any consideration of projects using the EcoPower T5 kits while Semler satisfied himself, with Marbek’s assistance, that they should be eligible for incentives. Whittaker and Kosowan both testified that their sales efforts were frustrated by this delay. Their complaints were vague, however, and not backed up by reliable evidence about delays to specific projects. There is no credible evidence that Hydro One delayed its consideration of EcoPower projects during the ERIP era after it obtained the Marbek report.

[243] With respect to the SERP era, Whittaker acknowledged in cross-examinations that LDCs were not bound to preapprove projects within a certain timetable under the Participant Agreement. He argued that the Participant Agreement did not apply to the preapproval process but ultimately acknowledged that there was no prescribed timeline for preapproval anywhere in the CDM program documentation.

[244] Reset argued that Hydro One delays were nonetheless unreasonable but did not produce anything other than anecdotal evidence to support this argument. There was no comparative analysis of processing times by various LDCs, or any reliable evidence that Hydro One’s process was slower than average. Whittaker testified that Hydro Ottawa’s process was much faster, but I found his evidence generally unreliable. None of Reset’s other witnesses dealt directly with LDCs. Coimbra testified that the two-month delay caused by the suspension of Hydro One’s approval of the EcoPower T5 kits in early 2012 was not extraordinary, in his experience.

[245] A careful review of the evidence shows that delays in the approval process in files that Reset complained about were often not attributable solely to Hydro One.

[246] For example, Whittaker testified that the preapproval and rebate approval process for a project by Lannin Lumber took almost a year. The application for preapproval was submitted on August 8, 2011, and an incentive was not approved until July 27, 2012. What Whittaker did not mention was that most of this delay occurred during the preapproval process, which was prolonged, in part, because the worksheet that had originally been submitted for the Lannin Lumber project was deficient. Once a corrected worksheet was submitted, Hydro One preapproved the project within 90 days. When Lannin Lumber finished its lighting project and submitted a rebate application on June 11, 2012, payment was approved roughly six weeks later, on July 27, 2012.

[247] In all, Reset alleged that there were seventeen projects impacted in 2011 and 2012 due to Hydro One’s failure to process its customers’ applications in a timely way. Based on the documentation submitted at trial, Hydro One preapproved thirteen of these seventeen projects within 90 days of submission (or resubmission) of the required application materials. There were four projects where Hydro One did not preapprove projects within 90 days. The delay in three of these cases was due to Hydro One’s suspension of preapprovals of EcoPower T5 retrofits. The delay in the preapproval of the other project was likely due to the processing delays mentioned caused by the new online platform implemented for SERP mid to late 2011.

[248] Under the SERP Participant Agreement, LDCs were expected to approve incentive payments within 90 days. On the record before me, Hydro One did not respect this timeline with respect to three of Reset’s projects during this period: Ritchie Feed & Seed, Crystal Chrysler, and R & L Auto. The delays to approve payment ranged from just over three months to five months. These delays were not due to the suspension of preapprovals for EcoPower projects beginning late February 2012. One of the payments was issued in October 2011 and the other two a few days after the suspension was announced.

[249] As already mentioned, Reset has not provided any evidence showing that Hydro One’s delays in these three files was inconsistent with the performance of other LDCs. It instead focused instead on a negligent misrepresentation claim.

[250] Whittaker testified that Forgione repeatedly told him in late 2011 that outstanding rebate cheques would be sent to customers by year end. The language that Forgione actually used in his emails was more careful. When Whittaker sent him an email on October 3, 2011, asking whether Hydro One had an internal policy on the delay for approving rebates once a customer had submitted all supporting documentation, Forgione responded: “I have only recently begun to review payment applications. As such, there is a significant backlog, which I am working through sequentially. If further information is required, you can expect to hear from me within the next few weeks.” On October 6, 2011, after advising Whittaker that he was having trouble reconciling some of the information submitted by Reset’s customers, Forgione wrote: “As mentioned in previous email we have recently begun reviewing ERIP applications for payment. The first batch was completed on the first of this month. Given the volume of applications to review, I anticipate a payment review timeline of 6- 8 weeks before cheques are received by the applicants.” In a December 1, 2011, email to Tanguay, Forgione apologized for the delay in reviewing an application and added “The remainder are in my queue to review and I am hoping to pay them out this year”.

[251] None of these emails contained an unequivocal commitment to send rebate cheques or complete preapprovals by the end of 2011.

[252] During this same period, Hydro One and Reset exchanged many other emails. In them, Hydro One sought further information about projects, or Reset corrected or added information in applications. Contrary to Reset’s allegations, this shows that Hydro One was dedicating considerable effort to processing applications for preapprovals and rebates, and that some of the delays were due to deficiencies in the materials submitted by Reset or its customers.

[253] I conclude that Reset has not proved negligent acts or omissions by Hydro One, even assuming a hypothetical duty of care.

If Hydro One was negligent, did this cause damages claimed by Reset?

[254] Since I have determined that Hydro One did not owe Reset a duty of care and did not engage in the acts and omissions it alleges, Hydro One has no liability in negligence for any damages Reset incurred due to delays in processing rebate claims submitted by Reset’s customers. I will nonetheless consider if Reset has proved a causal connection between its alleged losses and such delays, based on my assessment of the evidence at trial.

Losses in 2009 and 2010

[255] I find that Reset’s sales efforts in 2009 and 2010 were frustrated not due to any delays by Hydro One, but because of other factors, including the falling out between the EcoPower investors; Kosowan’s removal of inventory; ensuing litigation between Reset, Kosowan, and Low Risk; and RBC’s decision to call in its loans.

[256] Reset blames Hydro One for the abandonment of the lighting venture by Anastasiou and Conlon in 2009, and Kosowan’s subsequent decision to abscond with the inventory. In his testimony, Whittaker suggested that Anastasiou and Conlon pulled out because the company’s early marketing efforts were stymied by Hydro One’s refusal to approve any rebates. According to Whittaker, Kosowan had about $250,000 invested in the EcoPower venture, but could not sell its inventory because Hydro One was not approving rebates. Kosowan therefore chose to move to Manitoba and British Columbia, to sell the EcoPower T5 kits there.

[257] There is no evidence that Anastasiou or Conlon abandoned the lighting project because of the problems that Reset’s customers were allegedly having with Hydro One. Neither testified. Based on the emails exchanged between Anastasiou and Whittaker in early January 2009, their departure from the EcoPower project preceded any issue with Hydro One. There is likewise no reliable evidence that Conlon’s dissatisfaction with his investment was based on delays or problems caused by Hydro One.

[258] Based on the evidence I do accept, I could infer that Whittaker’s partners were unhappy about their failure to reach an agreement on the terms of their investment and were concerned about his failure to disclose what had happened to their money. I do not need to reach any conclusion on this issue, however. I only need to find, as I have, that Reset has not proved that Anastasiou and Conlon left due to anything Hydro One did or did not do.

[259] Reset has likewise not established that Kosowan appropriated the EcoPower inventory because of anything that Hydro One did or did not do. This was the main driver of Reset’s difficulties during this period. As Whittaker admitted at discovery, Reset’s lack of access to the inventory from June 2009 to May 2010 resulted in key employees leaving and financial losses. In its statement of claim in its lawsuit against Kosowan in November 2009, Reset alleged that:

The Defendants are aware that the continued financial viability of Reset is dependent on Reset’s ability to fill orders for the T5 lighting units from its own customers as well as its various distributors across North America. In the event that Reset is unable to fulfill these orders with the EcoPower inventory in the possession and control of the `Defendants, then Reset will not be able to meet its ongoing financial obligations.

[260] A project for Capital Sports Properties provides a concrete example of the impact of Kosowan’s removal of the inventory. In October 2009, Reset assisted Capital Sports in applying for preapproval, from Hydro Ottawa, of a project to convert all T12 fixtures on the ground level of the Canadian Tire Centre in Ottawa to T5 lighting using the EcoPower T5 kits. This was a huge project for Reset. Hydro Ottawa preapproved the project, but no work could begin until the Kosowan lawsuit was settled and Reset regained possession of some EcoPower inventory. As a result, the Canadian Tire Centre lighting retrofit did not start until June 1, 2010, and Reset’s invoice for almost $187,000 for its work was not paid until July 8, 2010. None of this had anything to do with Hydro One.

[261] Whittaker admitted at trial that Kosowan took about eleven people with him, including McGinn. Reset also lost John Grammatikakis, its chief operating officer, in 2009, and Steve Lavoie, who dealt with Reset’s account with the federal government. Lavoie and Grammatikakis opened competing businesses using their customer and supplier contacts. Whittaker admitted that, prior to their departure, up to 90% of Reset’s business consisted of sales to the federal government.

[262] Another contributing factor to Reset’s financial issues during this period was the denial by Reset’s insurer of its insurance claim. This again had nothing to do with Hydro One.

[263] In cross-examination, Whittaker initially denied that Reset was “financially strapped” prior to May 2010. He was then confronted with his evidence at his examination for discovery, where he said exactly the opposite. Whittaker attempted, unsuccessfully, to explain away this contradiction. At discovery, he had admitted that Reset’s employees left because of the loss of Reset’s inventory, and this resulted in poor financial results for the company. This makes sense. After further cross-examination Whittaker finally conceded that Reset was in financial difficulty from November 2009 to May 2010.

[264] Reset’s marketing strategies in 2010 show that it was struggling. It offered significant discounts in Fall 2010. For instance, Reset offered to do lighting upgrades to 417 Suzuki, a car dealership, for free. In a letter it sent to the dealership on September 18, 2010, it said it would refund it all invoiced amounts not covered by the ERIP rebate “based on the volume and the assistance by staff at 417 Suzuki”. Whittaker admitted in cross-examination that this assistance amounted to moving cars out of the showroom so that Reset would have access to the light fixtures. A similar deal was offered to a local furniture store and a property developer. The only compensation that Reset received for its services, under such arrangements, was the CDM incentive. This undercuts Whittaker’s evidence about the high margins that Reset could obtain on sales of EcoPower products. It also undercuts his assertion that customers did not proceed with lighting projects with Reset because of bad word of mouth associated with Hydro One delays. Some of the potential customers to whom Reset offered this deal elected not proceed, even though the retrofitting would have cost them nothing.

Losses in 2011 and 2012

[265] Reset alleges that the delay in Hydro One’s approvals between Fall 2011 and May 2012 caused it to become insolvent. As admitted by Reset, however, its credit facilities with CIBC were transferred to special loans on February 23, 2012. It was therefore in significant financial difficulty prior to safety concerns raised by Hydro One about the EcoPower technology and its suspension of further approvals of projects using this technology as of February 27, 2012.

[266] I am not persuaded that any acts or omissions by Hydro One caused Reset to lose prospective sales. As already mentioned, it called no customer representative witnesses or witnesses from potential customers who decided not to proceed with projects using EcoPower T5 kits due to delays in obtaining rebates.

[267] Glenn Camus, a lighting installer and reseller of the EcoPower T5 kits, swore an affidavit that there were delays in June 2011 getting pre-approvals, but eventually they were all processed by June 30, 2011. He was doing well at that point, with many clients getting installations completed in July and August. He stated that he ran into problems in the Fall of 2011, because Hydro One “was not paying incentives for the work completed and they stopped processing applications for pre-approval”. He slowed down his sales efforts in January 2012 and stopped completely by March 2012, “when it became clear that Hydro One was not going to approve any further projects”.

[268] In cross-examination, however, Camus could not contradict Hydro One’s evidence that there were only six preapproval applications from Reset’s customers from June 30 to December 31, 2011, and four were preapproved within weeks of submissions. He said he did not recall any of these details, which were handled by Reset’s office. He was not an applicant on any SERP applications. He testified in chief that there was a delay in preapproving work for a school board, but he had no evidence to contradict documents produced by Hydro One showing that the application as submitted in April 2012 and approved a month later.

[269] I conclude that Camus’ evidence was based on a general impression or recollection of what occurred in 2011 and 2012, which was not actually consistent with the evidence.

[270] Whittaker mentioned various potential projects that did not materialize but offered few specific details about the correlation between Hydro One’s failings and Reset’s failure to secure lighting contracts. He admitted that Reset failed to obtain some lucrative contracts for reasons that had nothing at all to do with Hydro One. For example, he produced emails from May and June 2011 about a possible lighting upgrade to all CIBC facilities across Canada using EcoPower T5 kits. He admitted, however, that CIBC ultimately decide that it wanted to install brand new fixtures, rather than retrofits, for aesthetic reasons. Whittaker also testified that Capital Sports Properties planned lighting upgrades to other floors of the Canadian Tire Centre after Reset completed the first floor in June 2011. It does not appear that this happened. Capital Sports’ failure to proceed with other projects involving Reset clearly had nothing to do with Hydro One, since it was a Hydro Ottawa customer.

[271] Whittaker mentioned three clients who were affected by delays in Hydro One’s processing in early 2012 and from whom Reset expected to get much more work. These were Russell Foodland, which was a Sobeys affiliate; a school board; and a lumber store affiliated with BMR/Home Hardware. According to Whittaker, the projects affected by the delays were pilot projects. Reset’s clients liked the EcoPower lighting but were disappointed by Reset’s broken assurances about the timing of preapprovals and rebates.

[272] Given the general unreliability of Whittaker’s evidence, and because no customer representatives corroborated this evidence, I am unable to conclude that the delays prevented these customers from giving Reset further contracts. It is telling that, in Reset’s 2011 financial results, Whittaker characterized quotations given to potential customers as “work in progress”. He evidently took a very optimistic view of Reset’s prospects and blamed others when these prospects did not pan out.

[273] As already mentioned, Reset’s billing arrangements with its customers made it particularly vulnerable to delays in processing rebate payments. This was a choice that Reset made, as a commercial enterprise.

[274] Finally, it is implausible that Reset’s frustrations with Hydro One were sufficient to topple a company that ostensibly had $4,000,000 in annual revenues. Reset did little business with Hydro One’s customers relative to its sales to customers of other LDCs. Reset produced a print-out showing all SERP applications submitted by is customers in 2011 and 2012. The total value of all incentives paid over two years was $518,000 on projects costing customers almost $920,000. The vast majority of these incentives, totaling almost $415,000, were paid to 55 Hydro Ottawa customers. Only eighteen rebates, with a total value of $$85,665, were paid to Hydro One customers.

[275] As already mentioned, Reset identified only seventeen specific projects impacted by Hydro One’s failure to process preapprovals and incentive payments in a timely way. Based on the evidence filed, there were only seven instances where it took Hydro One more than 90 days to either preapprove or cut a rebate cheque once the proper paperwork was submitted. The total value of the incentives ultimately paid on these projects was under $40,000. This was about 8% of the total incentives paid to Reset’s customers across Ontario over this period.

[276] Reset argues, of course, that it could have done much more business with Hydro One customers if it had not been affected by negative word of mouth as a result of delayed approvals of projects using EcoPower T5 kits. There is little evidence of this beyond Whittaker’s testimony, which I have found unreliable.

[277] Reset’s alleged losses are also premised on Whittaker’s evidence about how much revenue the company was generating to lighting sales prior to its bankruptcy. He testified that, by 2011-12, 50% of Reset’s sales were from its lighting business. Reset’s financial records do not, however, show what portion of revenue came from Reset’s legacy business (sales to the federal government) and what portion came from other business activities. Again, given Whittaker’s lack of credibility, I do not accept his evidence about the make up of Reset’s revenues.

[278] I also cannot rely on Reset’s financial records. The 2011- and 2012-year end financial statements were prepared by Whittaker without any external review. The financial statements in earlier years were prepared by an external accountant, but unaudited. They accordingly reflected information that Whittaker provided. Tim Tanguay, Reset’s comptroller from 2000 on, could have possibly provided some insight. But, like other potential witnesses, Tanguay was not called by Reset to give evidence.

[279] In 2010 and again in 2012, the outside examiner retained by Reset’s banks to assess the company’s financial records concluded that they contained significant discrepancies. In preparing Reset’s monthly financial statements, Whittaker falsely reported accounts receivable and work in progress, among other things. This misreporting consistently resulted in an inflated portrait of the company’s performance.

[280] Reset called Adam Nihmey, a chartered business evaluator and chartered financial analyst, as an expert. He expressed the view that Reset would not have had any financial issues with its lenders if Hydro One had not acted negligently. On his analysis, Reset lost $13,731,000 in profits as a result of Hydro One’s actions.

[281] I did not find Nihmey’s evidence persuasive.

[282] Nihmey had no choice but to rely on Reset’s own financial data to assess its potential profits. Since I have found that data to be fundamentally unreliable, I cannot rely on projections based on it. I also question some of Nihmey’s other assumptions, which went beyond the scope of his expertise. He testified, for example, that competition for lighting retrofit work from LED products would not affect Reset’s prospects, because the EcoPower T5 “fixture-in-fixture” solution was simpler and less expensive to install, but provided similar energy and cost savings. Nihmey did not have any experience, training, or knowledge that would allow him, in my view, to assess this issue. As seen on the evidence in this case, some potential customers declined to proceed with EcoPower projects even when Reset effectively offered to do them for free. Some, such as CIBC, decided to go with another solution for aesthetic reasons. Although Nihmey applied a risk adjustment to account for potential competition from LED suppliers, I conclude that his assessment of this risk was speculative.

[283] In my view, Nihmey also failed to take into account other factors that led Reset’s lenders to call in their loans. These factors were set out in Haralovich’s reports to RBC in 2010, and to CIBC in 2012. In his reply report, Nihmey relied on the fact that Reset’s annual financial statements up to 2010 were reviewed by an independent accounting firm, and that CIBC and BDC would have conducted due diligence before extending credit to Reset in 2010. He also took the position that Reset’s sales quotes for lighting projects, and opportunities identified by Whittaker, would have allowed it to prosper, but for the delays in Hydro One’s approval processes.

[284] In cross-examination, Nihmey acknowledged that he got the bulk of the information on which his report was based on Reset’s records, which had been created, for the most part, by Whittaker. He assumed this information was accurate and complete. I have already made findings to the contrary. Nihmey acknowledged that he did not have any discussions with CIBC or RBC to confirm that Whittaker had given them accurate information when they increased Reset’s line of credit from time to time. He relied instead on Whittaker’s contemporaneous emails. He expressed the erroneous belief that some of Reset’s financial statement were audited, but had to concede, once he was shown the review engagements for 2007, 2008, 2009, and 2010, that the accountants who prepared them relied on information provided by Reset. He agreed that the financial statements did not distinguish between revenues from the legacy business and revenues from the lighting business, with the result that Nihmey had to rely on Whittaker’s statements about the respective contributions of these revenue streams.

[285] Nihmey was asked factual inaccuracies in his first report, and assumptions that had been contradicted at trial. He admitted that he was provided with no information about the allegations in Reset’s litigation with Low Risk, or about Reset Green, when he wrote that report. When he wrote his first report, he did not know about the departure of key employees in late 2009, or that Anastasiou was reimbursed for his investment. He was not advised that Reset did not have insurance coverage for the inventory appropriated by Kosowan in 2009. Astoundingly, he said he did not know that Reset had no access to the EcoPower inventory for almost a year, from June 2009 to May 2010, or that Kosowan left with twelve resellers. He did not know that Reset signed the 2011 EcoPower distribution agreement, which required the payment of USD $130,000, before the details of the new SERP program were published.

[286] Nihmey was also unaware, prior to his cross-examination, that Reset had offered significant discounts or refunds to some customers. He acknowledged that this would affect the costs of its sales or expense. He testified that he would defer to an accountant as to whether it was appropriate to record the pre-discounted value of sales as gross revenues, as Reset had done. He initially demurred as to whether it was appropriate accounting practice to include project work on quotations as “work in progress”, but later agreed with BDO’s assessment on this point. He agreed that overstating accounts receivable by $675,000 would be substantial.

[287] Confronted with the gaps in the information that informed his opinion, Nihmey was often defensive. He sometimes refused to make concessions that he should have made, as a neutral expert. Even after being forced to acknowledge that some of the information he had received from Reset was incomplete or flawed, he maintained that he could rely on it because he had tested it through an audit of sales revenue. He came across as an advocate rather than an independent and objective witness.

[288] Hydro One called Greg McEvoy, a CPA specializing in forensic accounting as well as a business evaluator and fraud examiner, as an expert witness. He produced two reports, one of which responded to Nihmey’s report. Assuming that Hydro One was liable for any losses incurred by Reset, he expressed the opinion that the company’s lost profit was $47,000 (if the period of loss was confined to September 1, 2011 to December 7, 2012) or $162,000 (if the period was extended to December 7, 2015).

[289] McEvoy noted that he was unable to distinguish between Reset’s legacy business and lighting business. This made it difficult to understand and analyze the company’s historic performance. He more generally doubted the accuracy of the financial information provided by Reset, given the issues identified by KPMG in 2010. Even assuming that Reset’s annual financial statements were accurate, Reset’s net income over time was always relatively modest, ranging from a high of $88,000 in 2006 to a low of minus $7,700 in 2011. The company was highly leveraged with a sizeable debt to equity ratio, averaging roughly 6.5 times the industry average.

[290] Based on KPMG’s finding that Reset had outstanding loans well in excess what they could borrow in 2010, he was of the view that Reset was on the brink of serious financial difficulty at the time. McEvoy testified that the discounts that Reset offered to its customers had an impact on the company’s cash flow and falsely inflated its sales, consistent with BDO’s findings in 2012. After reviewing the chronology of events from that date forward, he was of the view that there were many factors that led to Reset’s failure and its receivership.

[291] By the time McEvoy prepared his second report, he had obtained a copy of the BDO report drafted by Haralovich in 2012. It reinforced his impression that there were material misstatements in Reset’s finances over a long period of time. He did not have other records that he considered relevant, such as records from Cash Flow Lighting.

[292] McEvoy was cross-examined at some length. He conceded that he had misinterpreted a statement in Nihmey’s report that led him to overstate the cost of Reset’s sales. He acknowledged that he would need to adjust his calculations as a result. McEvoy pointed out, however, that the error did not mean that Reset necessarily could have sold more profit. He also observed that Nihmey’s report assumed that Reset could sell all of the EcoPower inventory it purchased. McEvoy’s calculation was based on the market for lighting fixtures and Reset’s share of that market. I prefer McEvoy’s evidence on this issue, since Reset had not historically sold all of its EcoPower inventory, with the possible exception of mid-2011.

[293] McEvoy agreed that it was possible that more T5 retrofits would have been done after 2012 if Reset had stayed in the market. The total market for this work would therefore have been larger and, assuming Reset had held onto its 70% market share, its revenues would have been larger. On the other hand, if the market had grown, Reset may have faced competition. In that case, Reset’s share might have been lower. But McEvoy admitted that this was speculation on his part. He agreed that a company which is first to market may have a competitive advantage, and that LED lighting was more expensive to install than the EcoPower T5 kits.

[294] I found McEvoy’s evidence to be more persuasive than that of Nihmey. His account of the relevant facts was more thorough and relied much less on information provided by Whittaker. He was more open to consider challenges to his opinion and was better at justifying his conclusions.

[295] As a result, had I found Hydro One responsible for Reset’s losses, I would have limited damages awarded to the lost profits calculated in McEvoy’s report.

Reset’s claim for breach of contract

[296] In its closing arguments, Reset contended that it had an implied contract with Hydro One, because it had provided services for which it expected to be paid and Hydro One took advantage of those services. It argued that, without distributors and manufacturers supplying more energy efficient lighting, Hydro One would not have been able to achieve the objectives of the ERIP and SERP programs.

[297] I conclude that Reset has not proved any claim for breach of contract. The argument that Reset presented at the end of the trial on this issue was not pleaded in its Fresh as Amended Statement of Claim dated January 1st, 2022, and is not supported by the evidence, in particular the CDM program documentation.

[298] Customers of Hydro One who applied for incentives under ERIP and SEP were required to enter into a contract with it. The participant agreements between LDCs and their customers specifically excluded any remedy for a third party. Reset was not a party to this agreement. The benefits that customers received could also not be assigned without Hydro One’s prior written authorization. None of Reset’s customers ever requested such authorization. I reject Reset’s arguments as to why this should be overlooked.

[299] Reset cannot establish that it expected to obtain a benefit based on an implicit contract with Hydro One, when the services it provided to its customers were premised on a program that explicitly excluded any obligation to a third party on the party of Hydro One. I furthermore do not accept Reset’s argument that its participation in the lighting retrofit market constituted a service provided to Hydro One. There is no evidence that ERIP and SERP would have failed absent Reset’s entry into the market.

Reset’s claim for tortious interference with economic relations

[300] To succeed in a claim for tortious interference with economic relationships, Reset had to prove that Hydro One intended to injure Reset’s economic relations; that the interference was by illegal or unlawful means; and that Reset suffered economic harm or loss as a result: Grand Financial Management Inc. v. Solemio Transportation Inc., 2016, ONCA 175, at para. 62. Reset has not satisfied the first and second elements of this test. There is no credible evidence that Hydro One intentionally injured Reset’s relationships with its customers or potential customers, or that it engaged in illegal or unlawful means to further this goal. This claim is accordingly rejected.

Reset’s claim for misfeasance in public office

[301] Reset alleges that Hydro One and/or its employees were public officials exercising a public function mandated by the Ontario government, and that, in this capacity, they deliberated engaged in an unlawful act.

I do not find that either Hydro One or its employees acted in an unlawful way or with malice and bad faith, as required to prove a misfeasance claim, per Odhavji Estate v. Woodhouse, 2003 SCC 69, at para. 23. I accordingly do not need to determine if Hydro One and individuals such as Semler, Coimbra, and Forgione held public office or exercised public functions when they managed the ERIP and SERP programs.

Limitations

[302] Reset claims damages based on events as early as 2009 but did not begin this action until 2013. Given my other conclusions, I do not need to deal with this issue. I find for the record that Whittaker would have been aware of the alleged financial impact of Hydro One’s delay in approving customer applications by no later than mid to late 2009. There is no evidence of any reason why it would have been inappropriate for Reset to have sued Hydro One at that time.

Punitive damages

[303] Had Reset established an entitlement to lost profits, I would have denied its claim for punitive damages, as there was no evidence that Hydro One engaged in high-handed or oppressive conduct that would merit such an award.

DISPOSITION

[304] Reset’s action is dismissed.

[305] If the parties are unable to agree on costs, they shall each file cost submissions directed to my attention by no later than January 3, 2023. Each submission shall not exceed five pages in length and shall attach a costs outline and any relevant documents.

Justice Sally Gomery

Released: December 7, 2022

COURT FILE NO.: 13-58119

DATE: December 7, 2022

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RESET ELECTRONICS INC.

Plaintiff

– and –

HYDRO ONE NETWORKS INC.

Defendant

REASONS FOR JUDGMENT

Justice Sally Gomery

Released: December 7, 2022

[^1]: The Ontario Power Authority (OPA) has since merged with the Independent Electricity System Operator and now operates as the IESO. I will refer to it as the OPA since that was how it was known at the time relevant to this litigation. [^2]: I have reluctantly adopted these and other acronyms that figured repeatedly in the evidence at trial. [^3]: CSA (Canadian Standards Association) and UL (Underwriters’ Laboratories) are organizations that set standards for various types of products, including electrical components. CSA and UL certify when a manufacturer’s product has been evaluated as meeting those standards. A cUL stamp indicates that a component sold in Canada meets UL standards. [^4]: To clarify, a “lamp” is what is commonly referred to as a lightbulb and a fixture is synonymous with a lampholder. The “T” prefix in T5 and T12 stands for “tubular”, because that is the shape of the lamp (or bulb). The number that follows is the diameter of the lamp in eighths of an inch. A T12 lamp is 1.5” in diameter, whereas a T5 is 5/8” in diameter. [^5]: Exhibit D at trial listed these applications, the date they were submitted and approved, the expected project completion indicated on the applications (all October 31, 2011 except for one that was expected to be completed on September 30, 2011). The chart also indicated that, as of May 12, 2012, none of these customers had submitted invoices showing that the projects had been done and seeking rebates. The chart is hyperlinked to emails from Hydro One to Reset asking about these applications. There is no evidence that Reset’s customers actually proceeded with these projects. This again shows that Reset’s expectations about work that would come its way did not always pan out, for reasons totally unconnected to Hydro One. [^6]: Crystal Chrysler submitted its application for a rebate on November 7, but was told by Hydro One that it had to submit further information on December 1. Crystal Chrysler responded on December 21. [^7]: This judgment was set aside ten years later, but on the basis of fraud, not any error of law by the trial judge: R v Granitile Inc, 2008 CanLII 63568 (ON SC), [2008] OJ No 4934. (ONSC). [^8]: Coimbra was involved in the subcommittee that wrote this notice, but there is no credible evidence that he directed this effort, which involved representatives from other LDCs and the OPA.