Marshall v. MMV Financial Inc.

Ontario Reports

Court of Appeal for Ontario,

Sharpe, Rouleau and Pepall JJ.A.

March 28, 2013

115 O.R. (3d) 201 | 2013 ONCA 188

Case Summary

Corporations — Oppression — Remedies — Appellant seeking to exercise share options under respondent's employee stock option plan — Appellant required to execute assumption agreement acknowledging receipt and review of shareholders' agreement as pre-condition to issuance of shares — Respondent refusing to provide him with shareholders' agreement — Application judge finding that respondent's actions were oppressive and ordering it to provide appellant with shareholders' agreement — Application judge erring in permitting respondent to redact list of shareholders contained in Schedule A to agreement — Schedule A containing more information than shareholders' identities and appellant entitled to see entire agreement.

The appellant sought to exercise share options under the respondent's employee stock option plan. As a pre-condition to the issuance of shares, he was required to execute an assumption agreement acknowledging receipt and review of the respondent's shareholders' agreement. The respondent refused to provide him with the shareholders' agreement and insisted that he execute the assumption agreement without seeing the shareholders' agreement. On an application by the appellant under s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, the application judge found that the respondent's actions in requiring the appellant to sign a false declaration were oppressive and ordered the respondent to allow the appellant to review the shareholders' agreement. However, the application judge permitted the respondent to redact the list of shareholders contained in Schedule A to the shareholders' agreement. The appellant appealed.

Held, the appeal should be allowed. [page202]

Having ordered that the appellant be permitted to review the shareholders' agreement prior to exercising his options, it was unjust for the application judge to compel him to decide whether to exercise those options without seeing the whole of the agreement. Schedule A was referred to in the body of the shareholders' agreement and formed an integral part of that agreement. The number of shares on Schedule A differed from the number of common and preference shares reflected in the respondent's affidavit evidence. The shareholders' agreement contained restrictions on transfer, and described numerous classes of shares. Schedule A described the numbers, holders and classes of shares that ranked ahead of the common shares the appellant would receive. It would be unjust to compel the appellant to decide whether to exercise his options without having access to that information. The application judge's order was based on the false premise that Schedule A disclosed the identities of shareholders and nothing more.

Cases referred to

Bank Leu AG v. Gaming Lottery Corp., 2003 28360 (ON CA), [2003] O.J. No. 3213, 231 D.L.R. (4th) 251, 175 O.A.C. 143, 37 B.L.R. (3d) 1, 124 A.C.W.S. (3d) 679 (C.A.); Kopij v. Toronto (Metropolitan), [1999] O.J. No. 239, 85 A.C.W.S. (3d) 763 (C.A.); Sidaplex-Plastic Suppliers, Inc. v. Elta Group Inc. (1998), 1998 5847 (ON CA), 40 O.R. (3d) 563, [1998] O.J. No. 2910, 162 D.L.R. (4th) 367, 111 O.A.C. 106, 43 B.L.R. (2d) 155, 81 A.C.W.S. (3d) 59 (C.A.)

Statutes referred to

Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 241 [as am.]

APPEAL from the order of McEwen J., [2013] O.J. No. 466, 2013 ONSC 777 (S.C.J.) permitting the respondent to redact part of the shareholders' agreement before the appellant reviewed it.

Chris Marshall, in person.

Daniel Chitiz and Erica Young, for respondent.

The judgment of the court was delivered by

PEPALL J.A.: —

Background

[1] The appellant was the general counsel of the respondent from 2007 until he was dismissed in 2011. Following his dismissal, he sought to exercise share options under the respondent's employee stock option plan.

[2] As a pre-condition to the issuance of shares, the appellant was required to execute an assumption agreement in which he acknowledged receipt and review of, and agreed to be bound by, the respondent's shareholders' agreement. He was also required to execute a power of attorney granting his voting rights to the respondent's president and CEO. [page203]

[3] On becoming a shareholder, the appellant could only transfer his shares in accordance with the terms of the shareholders' agreement, the power of attorney, the respondent's constating documents and the law.

[4] The respondent refused to provide the shareholders' agreement to the appellant, and insisted that the appellant execute the assumption agreement without seeing the shareholders' agreement.

The Application

[5] The appellant brought an application for oppression pursuant to s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"). He also sought an updated accounting of corporate changes and distributions to shareholders.

[6] The central question before the application judge was whether the respondent's actions in requiring the appellant to sign a false declaration were oppressive and unfairly disregarded the appellant's interests.

Order Dated July 26, 2012

[7] The application judge found the respondent's conduct to be oppressive. As a remedy, on July 26, 2012, the application judge ordered that the appellant was to be permitted to review the shareholders' agreement prior to exercising his options and signing the assumption agreement. The application judge agreed with the respondent's request that the respondent be permitted to redact the list of shareholders contained in Schedule "A" to the shareholders' agreement. He also ordered that the appellant be restrained from disclosing any of the terms and conditions of the shareholders' agreement to any third party other than as may be permitted under the shareholders' agreement.

[8] On the issue of the request for an accounting of corporate changes and distributions, the application judge noted that, at the hearing, the respondent had advised that no distributions had been made since October 7, 2011. The respondent was ordered to confirm this fact to the appellant.

[9] As the appellant enjoyed greater success than the respondent, the respondent was ordered to pay the appellant $1,000 in costs. The application judge invited the parties to speak to him if they could not agree on the execution of the order.

Variation Motion

[10] The respondent provided the shareholders' agreement to the appellant, without Schedule "A". The appellant then brought a motion before the application judge. He sought a [page204] reconsideration and variation of the July 26, 2012 order. He argued that it was apparent from a review of the shareholders' agreement that Schedule "A" contained information that was relevant to the valuation of shares, and was not simply a list of shareholders, as was described in the respondent's affidavit filed on the original application. The appellant accordingly sought production of Schedule "A".

Order Dated February 4, 2013

[11] The application judge reviewed both the shareholders' agreement and Schedule "A" in camera. By order dated February 4, 2013, he dismissed the appellant's request and ordered costs of $5,730.13 in favour of the respondent. He noted that his previous order had remedied the oppressive conduct in issue, and that the appellant had only provided bald allegations in support of his relevance argument.

The Appeals

[12] The appellant appeals both the July 26, 2012 and February 4, 2013 orders. At the outset, I would observe that once oppression has been found, a court has a broad discretion to fashion an appropriate remedy and an appellate court has a limited power of review. Therefore, an "appellate court is entitled to interfere only where it is established that the court at first instance has erred in principle or its decision is otherwise unjust". See Bank Leu AG v. Gaming Lottery Corp., 2003 28360 (ON CA), [2003] O.J. No. 3213, 175 O.A.C. 143 (C.A.), at para. 74, citing Sidaplex-Plastic Suppliers, Inc. v. Elta Group Inc. (1998), 1998 5847 (ON CA), 40 O.R. (3d) 563, [1998] O.J. No. 2910, 162 D.L.R. (4th) 367 (C.A.), at para. 4.

[13] The appellant raises three arguments in his appeals of the two orders.

[14] The appellant's first argument is that the application judge erred in ordering any redaction from the shareholders' agreement in the initial order. With respect to the second order, he submits that the application judge erred in refusing to vary his order once it became evident that Schedule "A" contained more than the list of shareholders, as represented by the respondent. Because these two submissions share a common foundation, it is appropriate to consider them together. Like the application judge, this court reviewed both the shareholders' agreement and Schedule "A" in camera.

[15] In his order of July 26, 2012, the application judge ordered that the appellant be permitted to review the shareholders' agreement prior to exercising his options. Having made that determination, in my view, it is unjust to compel the appellant to [page205] decide whether to exercise these options without seeing the whole of the agreement. I reach this conclusion for the following reasons.

[16] First, the appellant is required to sign an assumption agreement in which he must acknowledge that he has received, reviewed and will be bound by the shareholders' agreement. Schedule "A" is referred to in the body of the shareholders' agreement and forms an integral part of that agreement.

[17] Second, the number of shares on Schedule "A" differs from the number of common and preference shares reflected in the affidavit evidence of the respondent.

[18] Third, the shareholders' agreement contains restrictions on transfer, and describes numerous classes of shares. Schedule "A" describes the numbers, holders and classes of shares that rank ahead of the common shares the appellant would receive. In my view, it would be unjust to compel the appellant to decide whether to exercise his options without having access to this information.

[19] Lastly, as is evident from para. 22 of the application judge's July 26, 2012 reasons, relying on the respondent's affidavit, his first order was based on the false premise that Schedule "A" disclosed the identities of the shareholders in the company and nothing more. This was not the case. Moreover, page one of the shareholders' agreement already identified many of the shareholders. The respondent's request for confidentiality was baldly asserted and lacked any foundation in fact.

[20] For all of these reasons, I would allow the appeals and order the respondent to deliver a copy of Schedule "A" to the shareholders' agreement to the appellant, subject to the same restraint on disclosure imposed by the application judge. Thereafter, the appellant shall be entitled in his discretion to exercise his options within 30 days. The respondent is also ordered to forthwith provide to the appellant particulars of any shareholder distributions made since October 7, 2011 or, failing same, written confirmation that there have been no such distributions.

[21] Turning to the appellant's second argument, he submits that the application judge erred in failing to order an update of any corporate changes made by the respondent since the appellant sought to exercise his options. In my view, based on the evidence before the application judge, it was open to him to make the order he did. There is no basis on which to interfere with the exercise of his discretion in that regard.

[22] Third, the appellant seeks to appeal the cost awards made by the application judge in each of the two orders appealed from. [page206]

[23] As he was largely successful on both appeals, the costs awards below are varied in any event, based on the general principle that a successful appellant is awarded the costs below and of the appeal: see Kopij v. Toronto (Metropolitan), [1999] O.J. No. 239, 85 A.C.W.S. (3d) 763 (C.A.). Costs of the application and the motion are fixed in the aggregate amount of $7,500, inclusive of disbursements and applicable taxes. Costs of the appeal are fixed in the amount of $7,500, inclusive of disbursements and applicable taxes. The respondent therefore is to pay the appellant $15,000 in total on account of costs.

Appeal allowed.

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