Court of Appeal for Ontario

Date: November 30, 2017 Docket: C63201

Justices: Sharpe, Benotto and Roberts JJ.A.

Between

Reuven Soraya Applicant (Respondent in Appeal)

and

Claron Technology Inc. Respondent (Appellant in Appeal)

Counsel

Robert Cohen and Christopher Selby, for the appellant

John Adair, for the respondent

Heard and released orally: November 29, 2017

On appeal from the judgment of Justice Glenn A. Hainey of the Superior Court of Justice, dated November 14, 2016.

Reasons for Decision

Overview

[1] This appeal involves the claim of the respondent employee under his employment contract that included stock options. The application judge found that the Lexmark sale of part of the appellant's business amounted to the sale of "all or substantially all of the assets of the Company" constituting a "triggering event" that caused the respondent's remaining 20,000 unvested options to vest under the appellant's Option Plan.

[2] The appellant raises five grounds of appeal.

Ground 1: Entitlement to the Option Plan

Did the application judge err in finding that the respondent was entitled to the benefit of the appellant's Option Plan?

[3] The appellant contends that as the respondent did not receive a copy of the Option Plan when he was hired and did not obtain a copy until after the sale alleged to constitute a triggering event, he is not entitled to benefit from it.

[4] We disagree. This was a factual issue to be determined by the application judge. When he was hired, although he was not given a copy, the respondent was told that the appellant had a "great stock option plan". That indicated that an Option Plan did in fact exist. The position taken by the appellant with respect to the respondent following the Lexmark sale was completely inconsistent with the contention that the Option Plan did not form part of the appellant's employment contract. The appellant dealt with both the respondent and other employees on the basis that the provisions of the Option Plan governed and it was only after this litigation commenced that it took the position vis-à-vis the respondent that it was a non-binding draft. There was ample evidence to support the application judge's finding that the Option Plan was binding on the company.

Ground 2: Triggering Event

Did the application judge err in finding that there was a "triggering event" and in rejecting the appellant's Board's determination that the sale to Lexmark did not constitute a "triggering event"?

[5] The appellant submits that the Lexmark transaction was not a "triggering event" under the Option Plan for two reasons.

Subsection A: Sale of Substantially All Assets

[6] First, the appellant argues that the sale to Lexmark was not a sale of "all or substantially all of the assets of the Company".

[7] We agree with the respondent that this was a factual question and that there was ample evidence to support the application judge's finding that the sale to Lexmark represented 87 to 89% of the value of the appellant's assets and therefore amounted to a triggering event. The respondent's evidence as to the value of the assets sold was supported by the only expert witness called on the point. Both Gatti and Doron, the co-CEOs and beneficial owners of Claron, had previously made statements giving the remaining part of Claron a value consistent with the expert's opinion.

Subsection B: Board Discretion and Good Faith

[8] Second, the appellant argues that the application judge erred by failing to apply terms in the Option Plan making the determinations of the Board "final, conclusive and binding" and "not subject to any dispute by any participant". In our view, the application judge properly applied the decision of this Court in Marshall v. Bernard Place Corp., [2002] OJ No 463 (C.A.), holding that sole discretion clauses of this nature do not confer absolute discretion but rather must be exercised honestly and in good faith. The only members of the Board were Gatti and Doron. The application judge found that they would personally benefit from rejecting the respondent's contention that a triggering event had occurred and that their determination that there had not been a triggering event was not made in good faith. Again, that finding was plainly open to the application judge on this record.

Ground 3: Exercise of Options

Did the application judge err in failing to find that the respondent did not properly exercise his options?

[9] The appellant submits that the respondent failed to exercise his options in the required manner. When the appellant's counsel provided notice that he was exercising his options, the required payment was not made. Payment was eventually made, but the appellant argues that there were "strings attached" as the letter enclosing payment specified that if the appellant cashed the cheque, it would be taken to have accepted the respondent's position that all 40,000 shares had vested.

[10] We do not agree that by taking this position, the respondent imposed an improper condition on the payment. He was simply making clear the consequences of accepting the payment.

[11] The appellant now concedes that as the respondent made the payment prior to the expiry of the notice period ordered by the application judge, the options had not expired.

[12] The application judge did not err with respect to the alternate ground on this issue, namely, that if necessary, he would grant relief from forfeiture. We agree with the respondent that the assertion that this remedy is unavailable because the respondent did not strictly comply with the terms of the Option Plan is inconsistent with the legal basis for the remedy, namely to relieve a party from strict compliance.

Ground 4: Duty to Mitigate

Did the application judge err in finding that the appellant had discharged his duty to mitigate his claim for wrongful dismissal?

[13] The appellant contends that the respondent should have mitigated his damages by accepting employment with Lexmark. Gatti had dismissed the respondent and had questioned his integrity. Gatti became a senior officer in the company in which the respondent would have been employed. In these circumstances, it was open to the application judge to conclude that it was reasonable for the respondent not to seek employment with Lexmark.

Ground 5: Purchase Through Holding Company

Did the application judge err in requiring the appellant to purchase the respondent's options through Claron Holdings Inc., a non-party?

[14] The appellant had purchased the options of the other employee option holders through Claron Holdings Inc. so that the employees' gains would be considered capital gains for income tax purposes. In a supplementary endorsement settling the terms of the judgment, the application judge required the appellant to acquire the respondent's options through Claron Holdings Inc. The appellant argues that the application judge erred by making an order on an issue that was not pleaded and against a non-party.

[15] We disagree. Doron and Gatti, who beneficially owned and controlled the appellant, chose to use Claron Holdings Inc. as a vehicle to satisfy the appellant's obligations under the Option Plan when dealing with its other employees and there was no reason to treat the respondent differently. There was evidence from which the application judge was entitled to infer that Doron and Gatti were the beneficial owners of and controlled Claron Holdings Inc. The application judge did not err in holding that their conduct amounted to oppression under the Ontario Business Corporations Act R.S.O. 1990, c. B.16.

Disposition

[16] Accordingly, the appeal is dismissed with costs to the respondent fixed at $25,000 inclusive of taxes and disbursements.

"Robert J. Sharpe J.A."

"M.L. Benotto J.A."

"L.B. Roberts J.A."