ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 06-CV-321998 PD3
DATE: 2013/07/29

BETWEEN:

Infinium Capital Corporation

Plaintiff
(Defendant by Counterclaim)

– and –

AB2000 Software Corporation, Alexandre Bevziouk

Defendants
(Plaintiffs by Counterclaim)

Catherine Powell and Daniel Stern, for the Plaintiff (Defendant by Counterclaim)

J. Gardner Hodder and Stefan A. De Smit, for the Defendants (Plaintiffs by Counterclaim)

HEARD: June 10-14, 17-18, 2013

A.J. O’MARRA J.:

[1] Alexandre Bevziouk, and his company AB2000 Software Corporation brought an action by counterclaim against Infinium Capital Corporation (Infinium) seeking damages for breach of contract and wrongful dismissal after Alexandre Bevziouk’s relationship as a software developer with Infinium was terminated October 2, 2006.

[2] Originally, after Bevziouk’s termination Infinium commenced an action against Bevziouk and AB2000 Software, and others for misuse of its confidential information, copyright infringement and breach of contract. In November 2007 Infinium sought and obtained an injunction on consent that required Bevziouk to return to Infinium all of Infinium’s software in his possession and to remove certain content from a website he maintained in which Infinium had a proprietary interest. In April 2013 Infinium discontinued its action against Bevziouk and AB2000. Alexandre Bevziouk has continued his action for breach of contract and wrongful dismissal.

Background

[3] Infinium Capital Corporation, (Infinium) a securities trading company, was started by Alan Grujic and Sergei Tchetvertnykh in 2002. Infinium was engaged in proprietary capital trading, that is, its traders traded the capital of the firm. In addition to traders using standard trading strategies and techniques, Infinium began to develop electronic trading strategies, or algorithmic trading capacity for inter-listed arbitrage.

[4] Alan Grujic and Sergei Tchetvertnykh both had Engineering and Masters of Business Degrees as well as many years’ experience in financial securities industry internationally. Grujic worked with Toronto Dominion Bank with its trading group as a trader and trading floor manager in Canada, Toronto, London and Tokyo. Tchetvertnykh worked with Credit Suisse First Boston on Wall Street and in Ukraine heading up its investment banking division in Kiev. In Toronto and London he worked with Merrill-Lynch specializing in international mergers and acquisitions. Later, after working as the director of Private Equity for an Investment Fund he returned to Merrill-Lynch to establish a technology group.

[5] Mr. Bevziouk’s education was in robotic engineering and computer sciences. He obtained a Master’s Degree from Kiev University and worked as a software developer in Ukraine for 6-7 years. He immigrated to Canada in 1995 and continued to work in the field of software development.

[6] In 2003 Infinium retained the services of Alexandre Bevziouk as a software developer to help Infinium develop its electronic trading platform. Mr. Tchetvertnykh and Mr. Bevziuok had known each other during university in Kiev. Mr. Tchetvertnykh approached Mr. Bevziouk to help them build an electronic trading platform. Mr. Bevziouk was highly regarded as a software developer. He continued to provide software solutions on a part-time basis to Infinium while working as a software developer and chief technical officer (CTO) for CDP Communications. In 2004 Mr. Bevziouk left CDP Communications to work full-time at Infinium.

[7] On March 30, 2004, Mr. Bevziouk through his company, AB2000, entered into a Service Agreement (SA#1) to “develop, implement and test various trading systems, strategies and analytics that are expected to earn profits from daily trading in equity securities using the company’s capital and execution platforms”. The agreement between AB2000 Software (the Contractor), described as an “equity trading strategist”, which it was not, and Infinium, was signed personally by Mr. Bevziouk. Sergei Tchetvertnykh testified that they had created a template contract for the trading staff they had been retaining and the same form was used to retain Mr. Bevziouk to head up its technology section. Mr Bevziouk testified he always regarded the agreement as being between him and Infinium.

[8] The agreement provided the following compensation for Bevziouk’s services: a) the greater of 50% of AB2000’s net monthly trading profit or $12,700. payable monthly; b) discretionary bonus, paid, if any, at the end of the calendar year; and, c) a stock option of the right to purchase up to 5% of voting shares, following a 3 year vesting period and during the next 2 years for consideration equal to the book value as of the date of purchase. Mr. Bevziuok was given the title of Chief Technology Officer (CTO) and the position entailed the implement of trading strategies and ideas through software programme development, as well as the hiring, training and supervision of the technical support employees of Infinium.

[9] In the summer of 2005, Infinium deployed its proprietary algorithmic trading platform using an application called the MD server (market data server). It was the basis of Infinium becoming a high frequency trader. The trading platform allowed it to make thousands of trades a day based on the trading strategies programmed to respond instantly to the market data, such as inter-listed arbitrage, by taking advantage instantly of price anomalies in different markets. High frequency traders can gather and interpret market data and buy and sell in response instantly. By late fall 2005 the programme was fully operational and producing considerable profits for Infinium from its inter-listed arbitrage trading.

[10] In October 2005 Mr. Bevziouk sought to revise his compensation package. He negotiated it with Mr. Tchetvertnykh. He declined to purchase 1% of the shares available to him for $40,000. and instead agreed to sell his 5% interest for $50,000. payable to him personally. It was done so he could offset a capital loss because of a voided share value he had incurred when he left CDP.

[11] On December 1, 2005, Mr. Bevziouk executed a Rights Purchase Agreement with respect to the 5% of shares for $50,000 and a Mutual Release as between Alexandre Bevziouk and Infinium. Further, he executed another Mutual Release with respect to the 2004 Service Agreement (SA#1) between AB2000 Software, which he signed Alexandre Bevziouk, President and Infinium.

[12] Another Service Agreement (SA#2) with a revised compensation package was presented in December 2005 but not executed until March 10, 2006. When it was signed it was backdated to December 1, 2005. Mr. Bevziouk had requested a delay in its execution in order for him to review it with a lawyer. On December 11, 2005 he sent the following email to Alan Grujic:

Can we postpone making a final decision regarding my compensation for several weeks? I am just not quite comfortable with my current choice and would like to seek legal advice regarding two options we have been considering.

[13] All of the e-mail traffic between Bevziouk, Tchetvertnykh and Grujic about re-negotiating the Service Agreement submitted in evidence dealt only with the issues of base compensation and bonuses. There is no mention of compensation being sought for commissions from net trading profits. The lack of such recorded inquiries is of some significance in the discussion later about Bevziouk’s claim for trading profits. The first time the issue was raised was in his counterclaim against Infinium.

[14] Notwithstanding having executed SA#2 March 10, 2006, which increased his base monthly salary by 15% and a stipulation of discretionary bonuses “paid, if any, quarterly”, Mr. Bevziouk immediately sought to further revise the terms of his compensation. In an email the next day he wrote to Alan Grujic:

Alan, as you know I signed a contract yesterday knowing that in its current form it is bias and it is not balanced in terms of reflecting both sides interests equally. Actually my lawyer in oral conversation suggested not to sign it at all. But Sergei was “heavily” on my back pushing me to sign it and he was not willing to take any compromises. You know that I cannot defend my interests that well, so I just gave up and signed the paper without being agreed with the document.

However after our yesterday’s phone chat I thought thoroughly about the situation I am in now and would like to share my opinion with you. Alan, you mentioned that with new compensation in place I doubled my earnings in a year and this is quite unusual in standard situation. Well, I am here almost for two years (one year and eleven months to be precise) so it is two year progress. Also at my previous place I started with 60K and in two years I was making 120 (with bonuses) and it was related to my contribution to CDP’s success.

During one of our previous conversations we were talking about changes in my compensation schema and you told that it would be close too (sic) 300K guaranteed and Sergei kind of agreed with that (well, in the contract he twisted the situation his way). So “almost 300K” (would come from 175K base plus 25K quarterly. But actually I ended up with the agreement of 175K plus undefined discretionary bonus with two years vesting period on unknown portion of it plus a bunch of limitations. I believe that this is not right and I am going to ask Sergei and you to consider amendment the contract to reflect my interests in a different way than it is stated now.

[15] On a number of occasions during 2006 the MD server, the principal trading platform for the algorithmic trading would not open at the start of a trading day or indicate a system error. However, Mr. Bevziouk was able to correct it within minutes without revealing to the other technical support staff how he had accomplished it.

[16] In September, 2006 Mr. Bevziouk went on vacation. Mr. Tchetvertnykh, with Mr. Grujic’s agreement, directed another senior programmer, Alexey Zubko to check the source code of the MD server application. Mr. Tchetvertnykh had become suspicious of Mr. Bevziouk. He claimed to have overheard an earlier conversation between Mr. Bevziouk and an unknown person on a commuter train in which Mr. Bevziouk said he had stolen all of the software worth $25 million. In combination with the number of instances when the system would not start without Mr. Bevziouk’s involvement and his many absences or late arrival to work they wanted the system investigated. (Exhibit No. 45)

[17] Mr. Zubko, on looking for the source code for the MD server application, Infinium’s main trading platform for algorithmic trading, found it missing. It was not in the SourceSafe, a repository for tracking time changes in the code. It had been replaced by a compressed zip file that had been password protected by Mr. Bevziouk. Another Infinium programmer was given the task of cracking the zip file password, which took several hours. It was found that unless there was a date change at the end of the month, which was unknown to anyone at Infinium, the application would not start, again without showing any system error. In the absence of Mr. Bevziouk, it could not have been started without the expenditure of considerable time by a programmer to crack the zip file. At a minimum, it would have caused significant trading delay and loss to Infinium.

[18] On October 2, 2006 Infinium terminated the Service Agreement #2 of 2005 citing Alexandre Bevziouk’s theft of Infinium’s proprietary software relating to its principal trading platform the MD server and by him having inserted what was characterized as a malicious code into the MD server.

Position of the Parties

[19] Alexandre Bevziouk claims that he was an employee of Infinium and not a contractor, terminated without cause and thereby entitled to receive unpaid commissions as provided for in the Service Agreements, calculated on the basis of net algorithmic trading profits realized by Infinium during the term of both agreements, as well as further damages.

[20] Infinium’s position is as follows:

1. Mr. Bevziouk was either an independent contractor or, in the alternative, a dependant contractor, not an employee.

2. Mr. Bevziouk has no cause of action under the Service Agreement dated March 30th, 2004 (SA#1) which was subject to the Mutual Release signed by him and superseded by the Service Agreement dated December 1, 2005 (SA#2).

3. Mr. Bevziouk’s relationship with Infinium under the terms of the 2005 Service Agreement (SA#2) was terminated with just cause as a result of his misconduct.

4. In the alternative, if the 2005 Service Agreement (SA#2) was terminated without cause and Bevziouk was entitled to notice, his damages are limited to reasonable notice as recognized under common law.

5. Mr. Bevziouk is not entitled to receive commissions calculated on the basis of trading profits earned through the use of software for algorithmic trading.

Issues

[21] In considering whether there was a breach of contract and/or the wrongful dismissal of Alexandre Bevziouk as claimed, I consider the following questions:

1. Was Alexandre Bevziouk an employee of Infinium or a contractor providing service pursuant to Service Agreements?

2. Is Alexandre Bevziouk/AB2000 Software Corporation entitled to make any claim pursuant to the Service Agreement (SA#1) executed March 30, 2004?

3. Is Alexandre Bevziouk/AB2000 entitled to “commissions” pursuant to the terms of the Service Agreements?

4. Was Alexandre Bevziouk’s relationship with Infinium under the 2005 Service Agreement terminated with or without just cause?

Issues Analysis

1. Employee v. independent/dependent contractor

[22] Alexandre Bevziouk and AB2000 Software have the onus to demonstrate that Alexandre Bevziouk was an employee and not an independent or dependent contractor.

[23] In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, 2001 S.C.C. 59 the Supreme Court on reviewing a number of tests used to determine whether a person is an employee or contractor observed that there is no single conclusive test which can be universally applied. What must always occur is a search for the total relationship of the parties. The central question is “whether the person who has been engaged to perform the services is performing them as a person in business on his own account.” The court cited a non-exhaustive list of factors which could be taken into consideration in the determination:

• The level of control the employer has over the worker’s activities

• Whether the worker provides his or her own equipment

• Whether the worker hires his or her own helpers

• The degree of financial risk taken by the worker

• The degree of responsibility for investment and management held by the worker, and

• The worker’s opportunity for profit and the performance of his or her tasks

[24] The court concluded that there is no set formula as to the application of such factors and the relative weight of each factor will depend on the particular facts and circumstances of the case.

[25] The Service Agreements which set out the relationship of Bevziouk to Infinium Capital Corporation were both addressed to AB2000 Software Corporation, care of Alex Bevziouk, President and signed by Alex Bevziouk. The March 30, 2004 Service Agreement (SA#1) opens with the following recital:

This service agreement (“CONTRACT”) confirms our mutual understanding and agreement regarding the scope and terms of the retention of AB2000 Software Corporation (“the contractor”) as an equity trading strategist for Infinium Capital Corporation (“Infinium” or the “Company”).

[26] Similarly, the opening paragraph to the Service Agreement dated December 1, 2005 (SA#2) states:

We are very pleased to enter into a services agreement with AB2000 Software Corporation (“the Contractor”) as an equity trading strategist (“the Contract”) for Infinium Capital Corporation…your signature in the space provided indicates your acceptance of our offer on these terms and conditions.

[27] Although the agreements indicate that AB2000 is being contracted as an equity trading strategist both Mr. Bevziouk and the principals of Infinium, Alan Grujic and Sergei Tchetvertnykh agree that the purpose of the contract was to retain the services of Mr. Bevziouk to create software solutions to implement trading strategies, specifically for algorithmic trading. To that end Mr. Bevziouk was given the title of Chief Technology Officer and put in charge of the software developers.

[28] In addition to working as the head of technology and part of the management structure counsel for Mr. Bevziouk points to the additional indicia that would suggest Mr. Bevziouk was an employee and should be considered as such. Both “Service Agreements” conclude with the following statement above Mr. Bevziouk’s signature:

I have been given a copy of this employment agreement. I have read, understand and hereby accept its terms and conditions. I acknowledge that this constitutes my entire agreement with the company. (Emphasis added)

[29] The statement would appear to describe an acceptance of an employer/employee relationship.

[30] Although Mr. Bevziouk initially denied having had a performance review during the term of his relationship with Infinium, an Employee Review document, dated July 28, 2006 for Mr. Bevziouk was tendered in evidence. Further indicia of the relationship, Mr. Bevziuok and his dependents were permitted to participate in Infinium’s employee benefits package.

[31] In a letter written by Alan Grujic on behalf of Mr. Bevziouk to assist him with sponsoring his in-laws immigration to Canada (Exhibit No. 33) he said the following:

This letter is to confirm that Mr. Alex Bevziouk has been employed with Infinium Capital Corporation in the capacity as the Chief Technology Officer since April 2004. (Emphasis added)

[32] During the course of re-negotiating the second agreement (SA#2) e-mails were frequently exchanged between Mr. Bevziuok and the principals, Grujic and Tchetvertynkh. In an e-mail dated July 28, 2005 from Sergei Tchetvertnykh to Alex Bevziouk, he described Mr. Bevziouk as a “valuable employee”. (Exhibit No. 49).

[33] In the organizational chart for Infinium Capital Corporation (ICC) Mr. Bevziouk is described as the Head of Technology and as one of its executives. (Exhibit Nos. 90 and 91)

[34] On the other hand, Mr. Bevziouk requested that the agreement be between AB2000 and Infinium so his compensation for services could be paid to the corporation in order to benefit from certain tax advantages.

[35] On balance however, I am satisfied that Mr. Bevziouk, as part of the management structure, being subject to an employee performance review and stated relationship as referenced by Infinium’s principals in letters and e-mails he was an employee and entitled to reasonable notice upon termination, unless termination was for just cause.

[36] In finding him to have been an employee there is no basis to consider whether by the same indicia of “minimum economic dependency” he was a dependant contractor, a category, which arises only as a “carve out” from the non-employment contractor category. (See McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916.)

2. Is Alexandre Bevziouk/AB2000 Software Corporation entitled to make any claim pursuant to the service agreement executed March 30, 2004?

[37] On December 1, 2005 Mr. Bevziouk executed a Mutual Release with respect to the March 30th, 2004 Service Agreement (SA#1) in which it states:

…Alex Bevziouk hereby remises, releases and forever discharges the corporation and its affiliates, shareholders, officers, directors, successors and assigns (“the Corporation or Releasees”) and the corporation hereby remises, releases and forever discharges Alex Bevziuok and his respective heirs, successors and assigns (“the Alex Bevziuok Releasees”), of and from any and all actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, claims and demands whatsoever with which the respective release in party now has or hereafter can, shall or may have against the respective party being released for or by reason of or in any way arising out of any cause, matter, fact or circumstance related or referable to or connected to the agreement or the transactions contemplated thereby.

[38] In addition to signing the Mutual Release with respect to the Service Agreement (SA#1) Mr. Bevziouk also executed the Rights Purchase Agreement to sell the 5% shares interest in the March 30th, 2004 Service Agreement (SA#1) for $50,000. He executed a similar Mutual Release with respect to the Rights Purchase Agreement dated December 1, 2005.

[39] Mr. Bevziouk testified that the documents were not explained to him by Mr. Tchetvertnykh who provided them to him and he did not understand them. He testified that he felt bullied and intimidated into signing the documents by Mr. Tchetvertnykh.

[40] I do not accept Mr. Bevziouk’s evidence in either regard. He had signed a Mutual Release with respect to his former employer, CDP Communications when he left its employ to work at Infinium. Further, there was evidence he had the opportunity to consult with a lawyer before he executed the documents.

[41] He acknowledged that the Mutual Release with respect to the Rights Purchase Agreement would result in him receiving $50,000 and that the Mutual Release with respect to the Service Agreement meant that his relationship with Infinium would be governed by the second agreement which he continued to negotiate. He requested that the payment be made to him personally in order that he may benefit by the offset to his voided share value at CDP Communication. He requested a deferral of the execution of the Service Agreement (SA#2). He asked to have it delayed to obtain legal advice. His evidence that he did not like the advice of the lawyer not only rang hollow but contradicted his e-mail to Mr. Grujic the day after signing the agreement in which he stated he did so against his lawyer’s advice all of which contradicts his assertion that he was bullied into executing the documentation by Sergei Tchetvertnykh.

[42] Even though the relationship between Alexandre Bevziouk and Sergei Tchetvertnykh had become strained because of his many requests for greater compensation, Mr. Bevziouk was not hesitant in putting his views and/or concerns in email communications to Alan Grujic, the other principal of Infinium.

[43] He understood that the Mutual Release would terminate the terms of the March 30th, 2004 Service Agreement (SA#1). He initiated the re-negotiation. He had the benefit of reviewing the documents with a solicitor. Mr. Bevziouk is bound by the prohibition of making any claims or taking any proceedings under the Agreement, (SA#1).

3. Is Alexandre Bevziouk entitled to “commission” pursuant to the 2005 service agreement?

[44] The Service Agreement (SA#2) stipulated the following with respect to services and compensation:

Services

Notwithstanding other responsibilities you may be asked to perform during the term of the contract, you undertake to develop, implement and test various trading systems, strategies and analytics that are expected to earn profits from daily trading in equity securities using the company’s capital and execution platforms. You will apply your own discretion with respect to the ultimate trading strategies developed fully or in part by your trading systems. You are required to comply with order entry, capital limit monitoring and all other trading and financial control policies and procedures established by the company. The company will provide to you such training as may be necessary for you to properly provide the services under this service agreement.

Compensation

Compensation for your services would consist of the following:

a) Payout: in determination of your monthly payout, the company will assess its monthly trading profit earned from trading utilizing strategies developed and personally supervised by you, less deductions applicable to your trading, including execution, clearing and capital costs, if any. Your individual compensation target is set to 10% (ten per cent) of the monthly net trading profit attributable to your trading or $14,583.33, whichever is greater. Payment will be made in the month immediately following the applicable trading month.

b) Discretionary bonus, paid, if any, quarterly. Restricted component of the discretionary bonus, if any, shall be vested in two years from the date granted.

c) Right to participate in the employee equity benefits program when it will be established with a purpose to provide select employees with an option to purchase equity linked securities issued by the company prior to its public offering. You (sic) individual limit of participation will be equal to the sum of all discretionary bonuses, cash and restricted, granted during the term of your full time engagement with the company prior to the offering.

d) Reimbursement of reasonable out of pocket expenses incurred in connection with this agreement, on approved basis.

[45] Mr. Bevziouk asserts that he should be entitled to 10% commission of all the net trading profits for algorithmic trading because he developed the program which permitted the strategies to be implemented. He maintains that in addition to making requests for bonuses, as set out in various emails tendered in evidence he verbally requested a number of times of Mr. Tchetvertnykh for payment of commissions, but was rebuffed by him. I do not accept Mr. Bevziouk’s evidence that he made verbal requests for commission compensation. All of Mr. Bevziouk’s communications, by way of e-mails tendered in evidence concerned annual compensation and bonuses. None of the communications reflect requests for compensation by way of commissions.

[46] He was not entitled to trading profits even by the terms of the Service Agreement. The Agreement stated that in determining his monthly payout the company would assess its “monthly trading profit earned from trading utilizing strategies developed and personally supervised by you, less deductions applicable to your trading, including executions, clearing and capital costs, if any”. Moreover, it stated his individual compensation target was set to 10% of the monthly net trading profit attributable “to your trading” or $14,583.33, whichever is greater.

[47] Mr. Tchetvertnykh testified that the compensation by way of net trading profits was part of the template agreement for the benefit of the traders. Each trader was responsible for trading losses and as a result the traders had to provide a deposit to cover any losses, which Mr. Bevziouk did not provide. Mr. Bevziouk confirmed in evidence that his principal responsibility for Infinium was developing trading software. He supervised the team of software developers and worked with them on various projects. It was the traders and strategists who provided him with the strategies for which he was to design software to execute the trading ideas. The traders and strategists came to him to resolve any technical difficulties they had with the programs.

[48] Mr. Bevziouk did not testify to any instance in which he designed or devised a trading strategy. I accept the evidence of Mr. Tchetvertnykh and Mr. Grujic that it was they and other traders who provided ideas and strategies to Mr. Bevziouk to implement the necessary computer code in order to execute their ideas. Mr. Bevziouk provided support to strategists and traders working at Infinium. There is no evidence to suggest otherwise.

[49] I accept the evidence of Mr. Tchetvertnykh that Mr. Bevziouk was persistent in seeking an enhanced compensation package, but that he never raised compensation through commissions for net trading profits. He was not a trader. He did not supervise traders. He did not create the strategies or come up with the ideas that were programmed by him or the other software developers on staff. He knew he was not entitled to commissions from net trading profits.

[50] It is clear that Infinium used a template agreement for both traders and Mr. Bevziouk’s services. Mr. Bevziouk was retained to provide software development. He was not a trader. He was not registered or qualified to be a trader. In this regard, I accept the evidence of Mr. Lawrence Boyce, an expert in the administration and application of security laws of Ontario from his experience as a past Director of Investigative Services and Compliance for the Toronto Stock Exchange (TSX), Director of Sales Compliance and Registrar for the Investment Dealers Association of Canada (IDA), and Vice-president of Business Conduct Compliance with the Investment Industry Regulatory Organization of Canada (IIROC). In reviewing Mr. Bevziouk’s activities involving the programming of algorithmic trading, he concluded that he did not have any qualifications to trade on Infinium’s behalf under the rules of the TSX, the IDA/IIROC and the Universal Market Integrity Rules (UMRI).

[51] Mr. Bevziouk did not develop trading strategies, he did not supervise trading, he did not do any trading and he was not a registered qualified trader. Had he done so, not only he, but Infinium as well, would have been in violation of the Securities Act, its Regulations, and the various securities regulators.

[52] There was no reference to any interest in commission payments during the negotiation of the 2005 Service Agreement and in the exchange of e-mails in which he sought clarification of his bonuses and vesting interests. I conclude that Mr. Bevziuok did not seek to claim commission payments during the currency of either of the 2004 or 2005 Service Agreements and his testimony suggesting otherwise was an attempt to mislead the court.

[53] The Service Agreement with respect to compensation by way of either 10% of net trading profits or stipulated monthly compensation is not ambiguous in term of the criteria that would have been necessary for him to meet in order to receive commission compensation. Those criteria were neither met nor could they be by Mr. Bevziouk as a software developer.

[54] I agree with the submission made by counsel for Infinium that Mr. Bevziouk cannot be awarded something to which he was not entitled to, for which he did not expect, or ask for during his tenure at Infinium.

4. Was Alexandre Bevziouk’s tenure at Infinium terminated with or without just cause?

[55] The 2005 Service Agreement (SA#2) contained the following termination clause:

This agreement may be terminated:

a) by the company, without cause, at any time upon providing you with the total unpaid compensation to which you are entitled, including the accrued share of the current month’s compensation, in lieu of notice. It is agreed that such payment will be in complete satisfaction of all common-law and statutory obligations;

b) by you, upon giving the company not less than four (4) weeks notice in writing;

c) by either party at any time, by mutual written consent of the parties; or

d) by either party at any time for cause, without notice.

[56] In this instance, the burden is with Infinium to establish that it had cause to terminate the agreement and their relationship without notice to Bevziouk. An employer may dismiss an employee at any time without warning and without notice or compensation in lieu of notice, provided the employer proves there was just cause to do so. (See Fanous v. Total Credit Recovery Ltd., [2006] O.J. No. 3036)

[57] During late 2005 and into 2006, a period during which Mr. Bevziouk was negotiating his compensation package with Infinium, from time to time at the start of business the MD server (market data server), Infinium’s principal trading platform, would not start or display a system error. Only Mr. Bevziuok could correct the difficulty and he could do so within a brief period of time. He would not disclose to the other software developers the steps he had taken to rectify the difficulty.

[58] As noted above, in September 2006, when Mr. Bevziuok was on vacation it was discovered that he had removed the MD server source code which prevented the other software developers at Infinium from accessing the program. Mr. Alexey Zubko was asked to examine the system because of the unexplained MD server fail to start occurrences and the disappearance of the MD server source file. It was discovered that the administrator, Alex Bevziuok deleted the MD server source files in January 2006 and inserted a compressed zip file password locked version with the name MD server in May 2006. The zip file was locked, which prevented the other developers access to examine its contents. A second password was required which was unknown to any of the software developers. Any failure to start the main trading platform, thereby delaying Infinium from trading, put Infinium at financial risk, as well as created the potential of destabilizing the securities market because of the high volume of trades involved. Further, it put Infinium at risk with respect to the securities markets regulators.

[59] Christopher Stoute, retired Professor Emeritus with Ryerson University, Faculty of Electrical and Computer Engineering, an expert with respect to computer hardware and software design testified as to his review of Infinium’s operating systems and electronic data files for the material time leading to Bevziouk’s dismissal. He concluded that Mr. Bevziouk was responsible for inserting an unneeded code into the MD server which provided no useful purpose to Infinium.

[60] In his report Professor Stoute stated the following:

In the author’s opinion the malicious code plays no beneficial role in the operation of the MD server…the malicious code was only effective when the MD server application was being loaded into the server’s memory to enable it to run and play its essential role of Infinium’s trading system.

The malicious code imbedded within the MD server code would conduct its specific validation and verification procedures. During these procedures the malicious code checks to ensure the existence of the file labeled “send.exe” as well as the current calendar month. When the month was beyond a number set within the malicious code routine, or if the send.exe file was absent in the operational system resources, the MD server loading procedure stopped after a short delay with no error message displayed: no guidance offered to the server’s operators regarding the malfunction. At this point the MD server application would be effectively useless to Infinium. The securities trading system was not operational.

[61] Professor Stoute noted that the malicious code would have no effect on the MD server application when it was in operation, however, the code could and did abort the MD server application from launching successfully during startup loading operations on multiple occasions. The failure to launch the MD server application as a result was under Mr. Bevziouk’s secret control.

[62] Counsel for Mr. Bevziouk suggested that he had inserted the code as a security feature to prevent theft of Infinium’s operating software at the request of the principals of Infinium. It is important to note that Mr. Grujic and Mr. Tchetvertnykh had no knowledge of the code or procedure instituted by Mr. Bevziouk. Indeed, no one at Infinium, other than Mr. Bevziuok was aware that the inserted password protected zip file and code existed or the effect it would have. Professor Stoute was of the view that any suggested theft deterrence was nil. Moreover, Mr. Bevziouk, having compressed the source code in a locked zip file, made it more easily stolen because the MD server was then in one file, rather than being spread out amongst tens of files in an uncompressed source code version. As he stated in his report: “Stealing of a complete MD server application stored in one zip file, in the author’s opinion clearly facilitates theft”.

[63] I accept Professor Stoute’s evidence that the code inserted by Mr. Bevziouk severely and secretly compromised Infinium’s MD server application. It enabled Mr. Bevziouk to stop the MD server application from loading and running. It was inserted for one purpose, to provide Alex Bevziuok complete control over the loading of the system. It was a malicious code of no benefit to Infinium, but with great potential of causing serious disruption to the securities trading operations of Infinium.

[64] Professor Stoute’s view, from his review of the electronic data, was that Mr. Bevziouk inserted the malicious code into the MD server application sometime in late 2005 or early 2006. I bear in mind that Mr. Bevziuok inserted the malicious code during the period of time he was actively renegotiating his compensation with Infinium. Even after signing the Service Agreement (SA#2) in March 2006 he expressed repeatedly his discontentment with his level of compensation in light of his own perceived importance to Infinium’s trading successes. Inserting a malicious code to either prove his continued importance to Infinium or to sabotage Infinium’s trading platform, irremediably undermined the relationship and trust necessary in the employment relationship thereby providing just cause for termination.

[65] Once Infinium discovered the malicious code further investigation revealed that Mr. Bevziouk had engaged in a number of activities in contravention of his agreements with Infinium that as well were sufficient to warrant a loss of trust and confidence by the employer. He had actively sought to form a proprietary trading partnership with other companies that would have been in competition with Infinium, using the software programs developed for Infinium. Ominously, in February 2006 he wrote an e-mail to Mr. Tchetvertnykh that Infinium would be at a disadvantage if someone were to deploy a trading platform such as the one Infinium was using – “Sergey, it is not on (sic) your interest to have a similar solution used somewhere else – your money making machine will suffer a significant setback.” In the context of his outside activities and his quest for greater compensation it appears to have been a taunting threat. (Exhibit No. 56)

[66] In Cariboo Press (1969) Ltd. v. O’Connor, 1996 1553 (BC CA), [1996] B.C.J. No. 275 at para. 19 McEachern C.J.B.C. for the BC Court of Appeal citing Gurry’s Breach of Confidence, Oxford: Clarendon Press, 1984 at 179 observed that an employee must not compete with his employer during the subsistence of the employment relationship”, an absolute, or almost absolute prohibition. To do so would constitute a breach of the duty of loyalty and fidelity expected of an employee. In Connolly v. General Motors of Canada Ltd., [1993] O.J. No. 2811 at para. 20 Ferguson J. in a wrongful dismissal case observed that a single incident of an employee’s disloyalty and infidelity can be sufficient to warrant a loss of trust and confidence by the employer justifying dismissal for cause.

[67] In April 2006 Mr. Bevziouk registered the website www.feedhandler.net for the purpose of marketing what he said was AB2000 software, designed to enable would-be competitors of Infinium to engage in algorithmic trading.

[68] In June 2006 Mr. Bevziouk attended a conference in New York City for the purpose of attracting investors and potential customers of AB2000 through Feedhandler. (Exhibit Nos. 57, 58, 59)

[69] In September 2006 Mr. Bevziouk entered into negotiations with ORC Software for the purposes of ascertaining whether he could launch an algorithmic trading platform that would eventually be in competition with Infinium. (Exhibit No. 60)

[70] Indeed, many of his meetings and conversations with representatives of these other companies took place during his working hours at Infinium, and during the time he was trying to increase his compensation from Infinium. (Exhibit Nos. 54 and 55)

[71] Mr. Bevziouk was also in contravention of the nondisclosure of confidential information conditions of the 2005 Service Agreement (SA#2). Mr. Bevziouk had never constructed a trading platform before working at Infinium. After Infinium had successfully deployed its algorithmic trading strategies Mr. Bevziouk sought to compete against Infinium in seeking to establish a proprietary trading partnership with others using information developed at Infinium. Mr. Bevziouk was under a duty to protect Infinium’s confidential information. His work product belonged to Infinium.

[72] Mr. Bevziouk also violated a number of the “Acceptable Use Policy Document” required of all Infinium staff to follow. It set out a number of prohibited uses of information resources, such as:

a) stealing or copying of electronic files without permission…

e) performing activities intending to circumvent security or access controls of any organization, including the possession or use of hardware or software tools intended to defeat copy protection, discover passwords, identify security vulnerabilities, decrypt encrypted files, or compromise information security by any other means.

f) writing, copying, executing, or attempting to introduce any computer code design to self replicate, damage, or otherwise hinder the performance of or access to any corporate computer, network, or information…

i) promotion or maintaining a personal or private business, or using corporate information resources for personal gain…

m) disclosing any corporate information that is not otherwise public.

[73] Mr. Bevziouk breached a number of these policies by his conduct. Within a few days of his termination on October 2, 2006, in a recorded conversation with Mr. Grujic he acknowledged his malfeasance:

Alan (AG): …I have tried to give you the benefit of the doubt but the evidence is overwhelming. I know you put malicious code in our software, I know you set up a website to try to sell our code, I know you told someone you were stealing and Sergei overheard you. And now we are investigating you because we think you are trying to sell our code to Questrade.

Alex (AB): Alan I swear on my child’s life I never tried to use your trading software. Only my data parcel.

AG: What about the other stuff?

AB: OK it is true, but the code changes made the software impossible to steal. This is what you wanted isn’t it.

AG: No Alex, I didn’t want you to make the code so it would blow up on us if we didn’t do what you wanted. And what gives you a right to sell our software on your website.

AB: You know I was never comfortable with not owning the code I wrote. I believe it is the reason for your success and my creativity so I felt I had rights to it.

AG: Alex, we were always clear we would not hire someone to produce a code we did not own. You know this and furthermore it is common business practice. Alex, you cannot steal my ideas - the design was not even your idea. Even if it had been, can you imagine if you hired an architect or a contractor to design you a house and then even though you paid them they decided that because they liked what they made they would keep it. Or an even better example is a painter you hire to paint you a painting.

AB: You are right, I am a bastard. I made a mistake and overestimated how good my code was but no one was interested in buying it….

[74] His self-interested actions were premised on his misguided view that it was his code and that he was the reason for the success of the company. In effect, if he was not going to get the compensation he believed due to him he would find it elsewhere at the expense of Infinium.

[75] I am satisfied that Mr. Bevziouk, by removing the source code, inserting a malicious code in the MD server to have control over the main trading platform of Infinium, by secretly attempting to compete against Infinium, by attempting to use confidential information to his advantage and by breaching a variety of Infinium’s policies, any one of which provided sufficient just cause for Infinium to lose trust and confidence in him and to terminate its relationship with him without notice.

[76] In the result, Alexandre Bevziouk’s/AB2000 Software Corporation action against Infinium Capital Corporation (now Galiam Securities Canada Corp.) for breach of contract and wrongful dismissal is dismissed with costs to Infinium.

[77] If the parties are unable to agree as between themselves as to costs they may make written submissions no more than four pages in length within 15 days of the release of this judgment.

A.J. O’Marra J.

Released: July 29, 2013

COURT FILE NO.: 06-CV-321998 PD3
DATE: 2013/07/29

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Infinium Capital Corporation

Plaintiff
(Defendant by Counterclaim)

– and –

AB2000 Software Corporation, Alexandre Bevziouk

Defendants
(Plaintiffs by Counterclaim)

REASONS FOR JUDGMENT

A.J. O’Marra J.

Released: July 29, 2013