Court of Appeal for Ontario

Date: 20230919 Docket: COA-22-CV-0474

Before: Fairburn A.C.J.O., Feldman and Sossin JJ.A.

Between:

Zach Justein & Joseph Weinberg Applicants (Respondents in Appeal)

And

DeFi Technologies Inc. Respondent (Appellant)

Counsel: Kevin Richard, for the appellant Gabriel Latner and Martyn Siek, for the respondents

Heard: September 11, 2023

On appeal from the order of Justice Andra Pollak of the Superior Court of Justice, dated December 13, 2022.

Reasons for Decision

[1] On November 17, 2020, the appellant’s Board of Directors unanimously approved a resolution recognizing one of the respondents, Joseph Weinberg, as an advisor to DeFi and approving the grant of 750,000 share options to him. The resolution further authorized and directed any officer of the appellant to take such steps as necessary to carry out the resolution’s terms. The stock option grant was publicly announced the next day. Some time later, Mr. Weinberg was advised by in-house counsel of DeFi that the option plan had been approved at DeFi’s annual general meeting. The option grant was also noted in DeFi’s public filings with the Ontario Securities Commission.

[2] Mr. Weinberg was assisted in his advisor role by the other respondent, Zach Justein. The respondents therefore agreed between themselves how to split the options.

[3] On September 3, 2021, the respondents attempted to exercise 367,500 options, but were advised by counsel to the appellant that the option grant had been cancelled because the respondents had not met the requirements of DeFi’s Stock Option Plan, specifically, they were not “consultants” within the meaning of the Plan. Having received that news, no attempts were made by the respondents to exercise the remaining 382,500 options.

[4] The respondents on appeal brought an application to seek damages for deliberate breach of option agreements under either contract law or as an oppression remedy under the Business Corporations Act, R.S.O. 1990, c. B. 16, s. 248 (OBCA), granting them a total of 750,000 options (the “Option Agreements.”)

[5] The application judge concluded that the power rested with the Board to determine optionee eligibility. She found that the board resolution made the respondents eligible optionees, approved the grant of options, and recognized Mr. Weinberg as an advisor. Importantly, there was no board resolution cancelling the option agreements. Nor was there a board resolution determining that the respondents were not eligible optionees.

[6] In addition, the application judge determined that it could not have been a reasonable expectation that the agreement reached would have been unenforceable if DeFi’s management simply decided that the respondents were not consultants. Accordingly, as it relates to the oppression remedy, the respondents’ reasonable expectations were that they would receive the 750,000 options. The application judge found that this reasonable expectation was not met.

[7] She found that the appropriate remedy for breach of contract and for the oppression remedy would be to put the respondents into the same position they would have been in if the appellant had allowed them to exercise the options. Accordingly, the application judge awarded 750,000 options based on a price that was the mean of what the options were worth at the highest and lowest price during the period between when the respondents attempted to exercise the options and the date when the options would have expired.

[8] The parties agree that despite the potential application, or part application, of s. 255 of the OBCA, this court should hear and determine this appeal because the claim was also brought as breach of contract, invoking s. 6(2) of the Courts of Justice Act, R.S.O. 1990 c. C.43. We agree and on that basis we take jurisdiction.

[9] The appellant raises three broad grounds of appeal.

[10] First, the appellant argues that the application judge erred by failing to make a finding of fact as to whether the respondent was an eligible optionee in the appellant’s options plan. In our view, the application judge did not need to resolve this issue. As she said at paras. 26-27 of her reasons:

I find that the Board did pass the resolution, which approved the grant of options, and recognized that Mr. Weinberg was an advisor (and therefore an eligible optionee). The power to administer the Option Plan and determine optionee eligibility is vested in the Board and not in the [appellant]’s management. There is no Board resolution cancelling the Option Agreements. There is no evidence of any board resolution subsequently determining that the [respondents] were not eligible.

All of the above submissions by DeFi do not alter the fact that the stock options were granted by the Board who had the authority to do so and decided that all of the required conditions were met. On this basis, I do not accept this submission of DeFi.

[11] In our view, this passage from the application judge’s decision demonstrates her common sense approach to the matter. It was for the Board to decide who was eligible to receive options. In this instance, the Board clearly determined that the respondents were eligible in accordance with the resolution.

[12] We reject the suggestion that the application judge’s reasoning on this point is inadequate.

[13] Second, the appellant argues that the application judge erred in considering the oppression remedy, specifically, whether there existed a reasonable expectation that the respondents would be able to exercise 750,000 options. The appellant argues that the respondents provided no services in exchange for those options and that the application judge failed to take this into account. We do not agree.

[14] As the application judge found, the respondents met their burden of proof that the appellant corporation acted in a manner that defeated their reasonable expectations that they would receive 750,000 options as advisors to the company. There was no evidence to suggest that the respondents walked away from their responsibilities as advisors. While there was conflicting evidence about how much the respondents did or did not do for the company, the fact that they remained in an advisory role (whether they were utilized or not) was unchallenged at the application.

[15] Third, the appellant argues that the reasons for the damages award are inadequate. That inadequacy is said to arise from a failure to make the necessary findings of fact to allow for a calculation of damages.

[16] We see no inadequacy in the reasoning on damages. The application judge asked the parties to endeavour to quantify the damages. They returned to the application judge with five potential options for calculating what the options would have been worth if the appellant had allowed their exercise when requested or up to when the option agreements would have terminated. The one with which the application judge agreed was “the exercise value of the options at the average (mean) of the highest and lowest price during the Period.” She cannot now be faulted for choosing an option that was jointly suggested to her by the parties as a means by which to calculate damages.

[17] In addition, the appellant argues that the respondents should not have been entitled to damages beyond the value of the 367,500 options for which they initially provided notice. This is because the respondents failed to provide notice that they were exercising the balance of the options.

[18] This argument must also fail because, as the application judge said at para. 37, the appellant had already cancelled the agreement at the point that they now say that the respondent should have exercised the options:

The [respondents] were not able to attempt to exercise their options after the [appellant] cancelled the Agreements. They were therefore not able to tender.

[19] In our view, the application judge did not err in coming to the conclusion that, in essence, the respondents were unable to exercise the options in accordance with the plan after the plan had been repudiated.

[20] The appeal is dismissed. Costs payable to the respondent in the agreed upon amount of $8,100, which we understand takes into account a prior costs award made by this court.

“Fairburn A.C.J.O.”

“K. Feldman J.A.”

“L. Sossin J.A.”