Court File No. CV-17-574061
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MIDNIGHT CAPITAL CORP., SCOTT KEEVIL and FIRE LAKE RESOURCES INC.
Plaintiffs
and
NIO-STAR CORP.
Defendant
STATEMENT OF DEFENCE
1. The defendant, Nio-Star Corp. (“Nio-Star” or the “Company”) admits the allegations
contained in paragraphs 4 (first two sentences ), 5 (except for the first and second sentences), 6
(last sentence) and 14 (first, second, and last sentences) of the Statement of Claim.
2. The defendant denies the allegations contained in paragraphs 5 (except for the first and
second sentences), 7-13, 14 (third sentence), and 15-18 of the Statement of Claim, and denies that
the plaintiff is entitled to the relief sought at paragraph 1 of the Statement of Claim.
3. The defendant has no knowledge or insufficient knowledge in respect of the allegations
contained in paragraphs 2, 3, 4 (third sentence) and 6 (first two sentences) of the Statement of
Claim.
I. Overview
4. This action is a flawed attempt to disguise statute-barred claims for the repayment of
undocumented ‘obligations’ as oppression.
5. In the course of their involvement with Nio-Star, the plaintiffs participated in a conspiracy
of self-dealing by misappropriating corporate property, issuing shares to themselves and related
parties for little or no consideration, awarding themselves favourable contracts, and extracting
non-commercial fees for services which were often not performed, all while grossly mismanaging
the defendant’s affairs. As part of this pattern of self-dealing, the plaintiffs then purported to loan
or advance funds back to the Company on non-commercial terms, creating the alleged liabilities
which now form the basis of their action.
6. Despite being unable, or unwilling, to support their claims, the plaintiffs seek recovery of
amounts that, if they were owing at all, would have been due and owing long before two years in
advance of the commencement of this action. These claims are clearly statute-barred.
7. The plaintiffs’ improper actions have caused the defendant to suffer significant and
irreparable harm, rendering it unable to fund or complete necessary operations and exploration or
raise much needed capital. The plaintiffs’ claims ought to be dismissed.
II. The Parties
8. Nio-Star is a junior exploration mining company with properties in Northern Ontario. In
particular, Nio-Star is the owner of certain mining claims in the Chewett and Collins Townships of
the Porcupine Mining District (the “Mining Claims”). The Mining Claims are believed to contain a
large concentration of niobium, a metal used in advanced technological applications. All of the
issued and outstanding shares in Nio-Star are owned by Sarissa Resources Inc. (“Sarissa”), a
publicly traded Nevada corporation.
9. The plaintiff Scott Keevil (“Keevil”) is the former Chief Executive Officer of, as well as a
former director of, each of Sarissa and Nio-Star. Keevil is also the sole director and officer of the
plaintiffs Fire Lake Resources Inc. (“Fire Lake”) and Midnight Capital Corp. (“Midnight
Capital”), both of which are Ontario companies.
10. Sabine Frisch (“Frisch”) is Keevil’s common law spouse and/or girlfriend, and is a director
of Chapleau Birch Holdings Ltd. (“Chapleau Birch”) and 1777370 Ontario Inc. (“1777370”).
Chapleau Birch and 1777370 have, along with Northern Rock Works Ltd. (“Northern Rock
Works”), Andrew Currah a.k.a. Drew Currah (“Drew”) and Penny Currah (“Penny”), commenced
a claim against Nio-Star in the Ontario Superior Court of Justice bearing Court File. No.
CV-17-572571 (the “Currah Action”). In the Currah Action, Nio-Star has commenced a
counterclaim against Keevil, Midnight Capital, Fire Lake, Northern Rock Works, Chapleau Birch,
1777370, Drew, Penny, Lucas Currah, Frisch, Benedetto Fuschino, 2254022 Ontario Ltd., and
Larry Salo. The claim and counterclaim in the Currah Action concern similar facts and
transactions to those giving rise to this claim, and the claim seeks similar relief to that sought by
the plaintiffs in the within action.
III. Mismanagement of Nio-Star by Drew and Keevil
11. From 2007 to 2016 (the “Relevant Time”), Nio-Star was under the management and
control of Keevil and Drew (the “Directing Minds”). During the Relevant Time, the Directing
Minds used Penny, Frisch and related companies and entities as proxies for their influence in, and
control over, Nio-Star and Sarissa.
12. Drew was at all times a directing mind, insider and de facto officer of Nio-Star (he is
referred to in the Financial Statements of Nio-Star as the “General Manager” of the Company), and
appointed Keevil as his representative in the management of Nio-Star.
13. During the Relevant Time, Nio-Star’s management engaged in a series of insider
transactions designed solely or mainly to enrich certain insiders of Nio-Star and Sarissa, including
the plaintiffs. The Directing Minds awarded themselves huge “consulting” fees totalling $540,000
per year (for part time work), without proper corporate oversight, at a time when Nio-Star had very
limited funds and was not generating any revenue. These consulting fees would have constituted
approximately 95% of Nio-Star’s expenses in 2013 had they been paid in full for the whole year.
In total, the Directing Minds paid themselves, or related persons or entities, at least $2,061,265
throughout the Relevant Time, while the Company was making no revenue.
14. At the same time that the Directing Minds were causing the Company to pay them
consulting fees, they were, either themselves or through related entities, purporting to loan or
advance the Company money at unreasonable interest rates and on terms favourable to the lender,
without proper or any documentation.
15. During the Relevant Time, the Directing Minds caused shares of Sarissa – as a proxy for
Nio-Star – to be issued to themselves, or to entities owned or controlled by themselves, at rates
well below market price for the shares, and then improperly traded those shares in the public
markets (either themselves or through related parties) without disclosing their insider status.
16. Finally, the Directing Minds appropriated the assets of Nio-Star for themselves or related
companies, contrary to their fiduciary duties to the Company. In particular, the Directing Minds,
inter alia:
a) Are wrongfully controlling (and refusing to provide Nio-Star with access to) valuable
mining core samples from the Mining Claims, which are being held by Chapleau Birch at a
facility in Northern Ontario (the “Core Samples”); and
b) Transferred an option to purchase a valuable net smelter royalty in relation to the Mining
Claims from Sarissa to 3Dogz NSR Ltd, a corporation owned and/or controlled by Penny,
for no consideration and without properly documenting the transaction or the reasons for it.
17. During the Relevant Time, the Directing Minds failed to maintain proper books and
records for Nio-Star and, in particular, failed to properly document related party payments or loans
– including unsubstantiated withdrawals by the Directing Minds and related parties – and the
reasons for such payments or loans. As a result, the Company’s financial statements are unreliable
and do not reflect the Company’s actual financial position or its obligations through the Relevant
Time.
IV. Nio-Star’s New Management Assumes Control over the Business
18. In or about September 2014, Daniel Byrnes (“Byrnes”) was appointed as Sarissa’s
President and interim CFO. Keevil remained CEO of Sarissa and Nio-Star and the Directing Minds
maintained control over the Company’s books and records. In or about July 2016, Byrnes and Otto
Pichler became directors and officers of Nio-Star. As Byrnes came to take on a greater role in
Nio-Star, he became increasingly concerned about the state of the Company, the lack of progress
in developing the Mining Claims, and about the activities of the Directing Minds. Keevil was
terminated from Nio-Star and as CEO of Sarissa in September 2016, and resigned as a director of
Sarissa in March 2017.
19. To the knowledge of Nio-Star’s current management, Nio-Star’s legitimate commercial
activities through most of the Relevant Time were focused on the development of the Mining
Claims. Nio-Star’s current management has relatively little information about certain of
Nio-Star’s activities through the Relevant Time, although such information is within the
knowledge of Keevil.
20. Contrary to the allegations at paragraphs 16-17 of the Statement of Claim, Nio-Star denies
that the potential transaction with Indo Global Exchange(s) Pte Ltd. was:
a) Entered into to defeat or hinder any creditors of Nio-Star (including the plaintiffs, whose
status as creditors is denied); or
b) A fraudulent conveyance within the meaning of the Fraudulent Conveyances Act, R.S.O.
1990, c. F29 or otherwise.
21. In any event, the proposed transaction with Indo Global Exchange(s) Pte Ltd. did not
proceed because of the actions of the plaintiffs. None of the plaintiffs would have suffered any
harm had this transaction proceeded, and none have suffered any of the harm referenced in the
Statement of Claim.
V. Improper Actions by the Plaintiffs and Other Related Parties
22. Commencing in or about early 2016, Byrnes started making demands of the Directing
Minds to, inter alia, substantiate amounts that they alleged were owing, provide access to books
and records for the Company, and provide access to the Core Samples in order for Nio-Star to
perform necessary work and testing.
23. Prior to the discovery of the misconduct described herein, Byrnes and/or counsel to
Nio-Star repeatedly advised the Directing Minds and/or their counsel that Nio-Star was willing to
make payment on any legitimate invoices or amounts owing (subject to setting off such amounts
against other amounts owed to Nio-Star), but that Nio-Star was not willing to do so unless
purported claims for payment were substantiated and documented. In response to these inquiries,
Keevil, Drew and Penny refused to provide the requested documentation while repeatedly
demanding payment.
b) Improper Payments from Nio-Star to the Plaintiffs or Related Parties
24. Since assuming control over the business of Nio-Star, the Company’s new management
has discovered significant payments to the plaintiffs and related parties by Nio-Star which total
approximately $1.25 million. Specifically:
a) Between 2009 and 2013, at least $110,500 was paid to Keevil and Drew jointly;
b) Between 2009 and 2015, at least $140,400 was paid to Chapleau Birch; and
c) Between 2008 and 2015, at least $1,002,120.17 was paid to Keevil, Frisch, or Fire Lake.
25. No accounting of those payments has been provided to the Company. Nio-Star pleads that
amounts paid to the plaintiffs and/or to their family member or related parties were paid
improperly and without any corresponding services being provided by the payees.
Notwithstanding any offers made in prior correspondence (which were made prior to Nio-Star’s
discovery of the extent of the plaintiffs’ self-dealing), Nio-Star is no longer willing to pay the
plaintiffs any amount, as it is the plaintiffs who are required to repay substantial sums to Nio-Star.
c) Improper Share Issuances from Sarissa
26. The plaintiffs caused Sarissa to issue 31,708,136 shares to Keevil with a further 89,892,080
shares issued to Frisch at below market value, for no or inadequate consideration, and without
properly documenting the share issuances or the reasons for those issuances.
27. No explanation for these share issuances has been provided to the Company. Nio-Star
pleads that these shares were issued improperly and without any corresponding services being
provided by Sarissa and/or Nio-Star.
d) Illegal Private Placement
28. In or about 2011, the Directing Minds caused Shining Tree Resources Corp. (“Shining
Tree”), a subsidiary of Sarissa and a related company to Nio-Star, to raise at least $227,617
through a purported private placement. No record of any monies raised through this private
placement appears on the books and records of Sarissa, Nio-Star, or Shining Tree, and no shares
were ever issued to any of the investors who purported to subscribe to that private placement. The
Directing Minds’ actions in respect of this private placement caused them to breach their fiduciary
duties, put Sarissa, Shining Tree and Nio-Star at serious risk, and adversely impacted these
companies’ reputations with investors and ability to raise further capital.
VI. No Amounts Owing to the Plaintiffs
a) No Alleged Advances to Nio-Star by Keevil or Midnight Capital
29. Nio-Star denies the allegation in paragraphs 9-10 of the Statement of Claim that Keevil
and/or Midnight Capital made any advances to Nio-Star or made purchases using their own funds
to acquire supplies and services for Nio-Star, and puts the plaintiffs to the strict proof of these
allegations. In the alternative, Keevil and Midnight Capital (either directly or indirectly, through
payments or the issuance of shares to themselves or related parties) have already been fully and
fairly compensated for any services provided or payments or advances made. In the further
alternative, the values of the allegedly outstanding obligations set out in paragraphs 9-10 of the
Statement of Claim are exaggerated or inaccurate.
30. In the further alternative, if Keevil and/or Midnight Capital did make any such advances or
payments, which is denied, then the terms of the advances or payments and their repayment were
commercially unreasonable and were the product of self-dealing that was not properly disclosed to
or approved by the Board of Directors of Nio-Star.
31. Nio-Star expressly denies that it ever acknowledged any amounts as owing to Keevil or
Midnight Capital and puts the plaintiffs to strict proof of these allegations. Any purported
acknowledgement by Nio-Star was either: a) made while the Directing Minds controlled Nio-Star,
and is therefore an example of the continuing self-dealing and breaches of fiduciary duty by the
Directing Minds; or b) induced by misrepresentations made by the Directing Minds to the
Company about the legitimacy and quantum of the amounts purportedly owing.
b) No Amounts Owing to Fire Lake
32. At paragraphs 7-8 of the Statement of Claim, the plaintiffs allege that Fire Lake provided
services to Nio-Star, and seek payment of amounts allegedly owing for services rendered.
Nio-Star denies that Fire Lake ever provided it with any services, and puts Fire Lake to strict proof
of this allegation. In the alternative, Fire Lake (either directly or indirectly through payments or
the issuances of shares to Keevil or related parties) has already been fully and fairly compensated
for any services, payments or advances it may have provided. In the further alternative, the value
of the allegedly outstanding obligations set out in paragraph 8 of the Statement of Claim is
exaggerated or inaccurate.
33. No further payments are owed to Fire Lake pursuant to the July 1, 2011 Business
Development Services Agreement (the “Consulting Agreement”) or otherwise. The Consulting
Agreement is the product of self-dealing between the Directing Minds and Fire Lake and is void in
its entirety.
34. Further, the terms of the Consulting Agreement were commercially unreasonable and
constituted a breach of the fiduciary duty owed by Keevil to Nio-Star. In particular, consulting
fees purportedly owed under the Consulting Agreement – $300,000 per year for no more than 80
hours of service per month – were excessive and would have constituted approximately 53% of the
Company’s total expenses in 2013, when it was generating no revenue and had significant
exploration obligations. The Directing Minds also caused Nio-Star to enter into a nearly identical
Consulting Agreement with Northern Rock Works Ltd. which contemplated payment of $240,000
per year for no more than 80 hours of service per month.
35. Nio-Star expressly denies that it ever acknowledged any amounts are owing to Fire Lake
or represented that repayment was made at a future time, and puts the plaintiffs to strict proof of
these allegations. Any purported acknowledgement by Nio-Star was either: a) made while the
Directing Minds controlled Nio-Star, and therefore an example of the continuing self-dealing and
breaches of fiduciary duty by the Directing Minds; or b) induced by misrepresentations made by
the Directing Minds to the Company about the legitimacy and quantum of the amounts purportedly
owing.
VII. No Unjust Enrichment
36. Nio-Star has not been enriched by any of the amounts it is alleged to have received in the
Statement of Claim. None of the plaintiffs have been deprived through the course of any affiliation
they had with or services that they provided to Nio-Star. To the contrary, the plaintiffs have
enjoyed substantial and improper benefits by virtue of their misconduct as set out herein.
37. If any deprivation was suffered (which is denied) by any of the plaintiffs, Nio-Star denies
that it has realized any benefit that corresponds to any such deprivation. To the contrary, Nio-Star
has suffered substantial losses as a result of the acts and omissions of the plaintiffs as set out
herein.
38. In the alternative, if any benefits were received (which is denied), the defendant has a
juristic reason for any such benefits.
VIII. No Oppression
39. At no time were any of the plaintiffs a proper complainant pursuant to the Business
Corporations Act, R.S.O. 1990 c. B.16 ( “OBCA”), and none have standing to bring a claim under
section 248 of the OBCA. In particular, none of the plaintiffs is a “creditor” pursuant to the
OBCA.
40. At all material times, Nio-Star has been an early stage mining exploration company with no
revenue stream. In the circumstances it was not reasonable for the plaintiffs to expect that Nio-Star
would reimburse them for or repay the excessive amounts that they purport to have expended on
Nio-Star’s behalf. It was further not within the plaintiffs’ reasonable expectations that Nio-Star’s
management would pay invoices or reimburse expenses which were not properly documented, or
which were the product of self-dealing or breaches of fiduciary duty.
41. In the alternative, Nio-Star has never taken any corporate action that impacted the
plaintiffs’ rights or expectations as an unsecured creditor, or any action that was oppressive,
unfairly prejudicial or unfairly disregarded any rights that the plaintiffs’ had as creditors (which
are denied). The allegations of oppression are a bald and improper attempt to turn a collection
action into an oppression action.
42. In the alternative, if the conduct of the defendant was oppressive (which is denied), then the
remedies sought by the plaintiffs are improper and are not required to remedy the alleged
oppression. None of the alleged oppressive conduct relates to the remedies sought in paragraphs 1
(g), 1(h), 1(i), 1(j), or 1(k) of the Statement of Claim. None of the plaintiffs are currently, and were
never intended to be, an owner of or a shareholder in Nio-Star, and are not entitled to any issuance
of shares in Nio-Star or security interest in any other assets or undertakings of Nio-Star.
IX. The Action is Statute-Barred
43. Nio-Star pleads and relies upon the provisions of the Limitations Act, 2002, S.O. 2002, c.
24, s.B (the “Limitations Act”). The plaintiffs discovered the material facts relevant to their claim
more than two years before the Notice of Action was issued on April 26, 2017. In the alternative,
the material facts upon which the claim is based were discoverable with the exercise of reasonable
diligence more than two years before April 26, 2017. In particular:
a) Each of the payments alleged in paragraphs 9 and 10 of the Statement of Claim (which are
denied) were made more than two years prior to the issuance of the Notice of Action. The
claim for each of those payments is barred by the application of the Limitations Act;
b) If, as alleged in paragraph 14 of the Statement of Claim, the Consulting Agreement was
terminated on July 1, 2013, any claim for damages pursuant to the terms of that agreement
or its breach is barred by the operation of the Limitations Act;
c) The Consulting Agreement provided that Nio-Star would pay fees due under the contract
“in twelve (12) monthly payments in advance, within four (4) business days from the
beginning of each month of each fiscal year”. The claim for any payment due under the
Consulting Agreement became statute-barred two years following the original date that
such payment was due. In this case, each and every such claim for payment is barred by the
operation of the Limitations Act; and
d) If any other amounts were owed to Fire Lake in respect of services purportedly rendered by
Fire Lake, which is denied, any such amounts became due and owing more than two years
prior to the issuance of the Notice of Action. The claim for payment for any such services is
barred by the application of the Limitations Act.
X. Damages and Set-off
44. The plaintiffs have suffered no damages. In the alternative, if the plaintiffs have suffered
damages that are the responsibility of Nio-Star, which is denied, the damages alleged are excessive
and too remote to be recoverable at law.
45. As set out above, the plaintiffs (or any one of them) received consideration in the form of
cash, shares and other assets that exceed the damages claimed in this action. Those amounts were
improperly paid to the plaintiffs and/or to companies related to them and constitute improper
self-dealing. In its Counterclaim in the Currah Action, Nio-Star seeks damages from Keevil for
negligence, conspiracy, breach of fiduciary duty, conversion, and unjust enrichment, and from
Midnight Capital and Fire Lake for conspiracy, conversion, and unjust enrichment. Nio-Star is
entitled to set off the amounts owing to it against any amount that this Honourable Court finds the
plaintiffs owe to it, either in this action or in the counterclaim in the Currah Action.
46. Nio-Star is entitled to repayment of any and all amounts improperly paid to the plaintiffs or
related companies, and requests an accounting of all amounts earned by the plaintiffs from any
services provided to Nio-Star or Sarissa.
47. The defendant asks that this action be dismissed with costs.
