ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-10254-00CL
DATE: 20140430
BETWEEN:
RONEN BENIN
Plaintiff
– and –
DRAWSPLASH INC., HYUNBIN LEE and GARY RODRIGUES
Defendants
Gary Luftspring, Allan Sternberg and Andrea J. Sanche, for the Plaintiff
Jayson Thomas and Jennifer Thomas, for the Defendants
HEARD: April 15, 16 and 17, 2014
Penny J.
JUDGMENT
The Action
[1] This is an action for specific performance of an alleged oral agreement to grant the plaintiff 10% of the shares of DrawSplash Inc. The agreement is pleaded in paragraph 24 statement of claim, which reads:
In or about the latter part of May, 2013, Benin, Lee and Rodrigues concluded a new agreement in respect of Benin’s equity position in DrawSplash Inc. The terms of this agreement granted Benin a 10% shareholding interest in DrawSplash to be distributed as follows:
(a) 3% shareholding interest in DrawSplash immediately;
(b) a further 3% shareholding interest in DrawSplash on January 1, 2014;
(c) an additional 2% shareholding interest in thought DrawSplash upon an Exit; and
(d) a bonus of an additional 2% shareholding interest in DrawSplash if the company’s valuation at Exit exceeded $50,000,000.00.
[2] In the alternative, the plaintiff alleges that his termination from employment with DrawSplash and other acts of the defendants constitute oppression under s. 248 of the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16
Background
[3] Ronen Benin and Hyunbin Lee became friends while living in residence at Western. They later lived together in a rented student house. Lee and Gary Rodrigues were also friends. While they were undergraduates, Lee and Rodrigues started a T-shirt printing business together called the London Print Company. All three were business students interested in entrepreneurial ventures.
[4] Benin pursued several entrepreneurial ventures prior to the events giving rise to this litigation. His most recent enterprise, Coached, involving a mobile application whereby customers could be coached by professional athletes. This business venture resulted in disputes with his business partners and, by the end of 2012, was winding down.
[5] Meanwhile, Lee and Rodrigues came up with the idea of an interactive internet platform for the sale of branded school apparel. They eventually liquidated London Print Company and devoted their efforts and capital to this new internet venture. DrawSplash Inc. was incorporated for that purpose. A web designer, Justin Lee, was hired to build the platform. DrawSplash could not afford Justin Lee’s fees so Lee and Rodrigues granted Justin Lee 10% of the DrawSplash shares in exchange for his work.
[6] By December 2012, all three had graduated from Western. Benin was out of work and without a project. Lee and Rodrigues were busy trying to get DrawSplash off the ground.
[7] Benin expressed interest in helping out. Through his own projects, he had acquired a number of contacts and some experience in drafting business plans and “pitch decks” (PowerPoint presentations to potential investors). Lee and Rodrigues thought they could use his assistance and hired him, initially for a month, at a salary of $2,500.
[8] Both Lee and Rodrigues testified that they had reservations about bringing Benin into DrawSplash. First, they were friends and were concerned about the coexistence of friendship and business/employment. They were also aware that Benin had had significant conflicts with his cofounders at Coached. Nevertheless, they felt Benin had a good attitude, was humble and wanted to add value to their enterprise. Benin told them that the minute he was a burden, they could remove him at any point.
[9] After the first month, Lee and Rodrigues decided to hire Benin on a more permanent footing and to continue the salary of $2,500 per month. Benin first raised the issue of equity in January 2013. Both Lee and Rodrigues said no but that maybe they could discuss it again in the future.
The First Discussions of Equity
[10] Benin raised the issue of equity again in April 2013 and the parties had a more serious discussion about it. On April 7, 2013, Rodrigues wrote up a short memo, which was signed by all three. The memo reads:
3% upon year end 2013
3% upon year end 2014 (divisible monthly upon early exit)
2% bonus upon exit if milestones are met comprised of
1% 1. 7 universities/5 private schools/10 professional schools upon first year-end
1% 2. 25 universities/colleges in second year
2% exit valuation of 60 million reached
Cap of 10%
[11] The parties’ evidence diverges on the status of this document. Benin maintains that it was an agreement but that its terms were unacceptable to him and he never intended to be bound by it. In particular, Benin wanted at least some of his equity immediately and felt that the milestones were not fair or reasonable in his circumstances. It is not the agreement on which Benin is suing in this case.
[12] Lee and Rodrigues maintain that this document was not an enforceable agreement. They were aware that Benin did not want to wait for his equity and that the milestones did not make sense to him. It was, however, what they were prepared to consider at that stage. According to Lee and Rodrigues, this document was simply a memorandum of where they had gotten to in their negotiations at that point in time. In other words, both Lee and Rodrigues maintain that Benin was to have no equity interest before January 1, 2014 so that Benin could prove his worth before receiving any interest in the company.
[13] There is some evidence of further handwritten amendments on another copy of this document (Exhibit A Tab 4). Benin, however, testified that he had never seen the document before this litigation. Neither Lee nor Rodrigues could recall when, or in what circumstances, these handwritten notes were placed on the second copy. It is, for these reasons, of limited evidentiary value.
The Alleged Oral Contract
[14] All three parties testified that there were continuing discussions about the possibility of equity for Benin throughout the month of April. Benin says that the parties continued to negotiate and that, in late April, they reached a final oral agreement, confirmed with a handshake, on the terms now pleaded in paragraph 24 of the statement of claim.
[15] Lee and Rodrigues say this agreement never happened. Their evidence is that it was always their position that Benin would have to prove himself and to earn equity by working for the company throughout 2013. This was in part because Benin was new to the operation and partly because they knew he had problems with his partners in prior ventures. They agree that negotiations continued in April but say that no agreement was ever concluded. Discussions, they say, petered out inconclusively around the end of April. Everyone ‘went back to work.’
[16] Lee and Rodrigues testified that during May, their relations with Benin soured. They found him difficult, moody and argumentative. By the beginning of June, they decided he was not a good fit. After Benin recovered from appendicitis in early June, they let him go. There was, they say, never an agreement to give Benin equity in DrawSplash. It remained nothing more than a possibility. Their offer of equity at the end of 2013 if Benin worked out and proved his worth was, they say, never accepted.
Analysis
Was There an Agreement?
[17] No legal system enforces all promises. Every definition of contract includes an element of enforceability. In Canadian law, the criteria for the enforceability of a bargain are: offer; acceptance; and consideration.
[18] Our theory of contract is an objective one. It is not merely subjective concurrence which is required but an outward manifestation of assent by each party sufficient to induce reasonable reliance in each other. There must be found, on the evidence, a mutual, objective intention to create binding legal relations.
[19] When negotiations cease to have the character of negotiations and acquire the character of an agreed exchange is often difficult to determine. The parties’ own conduct is often the source of the difficulty because, generally speaking, parties to a negotiation are seeking the greatest possible commitment from the other in exchange for the least possible commitment from themselves.
[20] The resolution of these questions requires a consideration of all of the circumstances including prior dealings, industry practice and subsequent conduct. The reasonableness of the parties’ expectations, informed by these factors, it is also a highly relevant consideration.
[21] Finally, there are the related problems of indefiniteness and incompleteness. If the court cannot attribute a definite meaning to the words used in an agreement, there can be no enforceable contract even though the steps necessary to conclude an agreement appeared to have been taken. Similarly, if all material terms have not been resolved by the parties, the court cannot later write in the omitted elements for them.
[22] In my view, no agreement was ever concluded. In particular, I find on the evidence that the oral agreement pleaded by Benin in paragraph 24 of the statement of claim was never made. I base this conclusion on the following findings of fact.
[23] The founders, Lee and Rodrigues, had worked together since 2009, first on London Print Company and then on transitioning that business into the web-based virtual store concept for which DrawSplash was created.
[24] Lee and Rodrigues needed Justin Lee to design and build the web platform that was required. Justin Lee was a skilled web designer who had his own business. He was expensive and DrawSplash had no money. Without the web platform, DrawSplash was nothing. Accordingly, Lee and Rodrigues agreed with Justin Lee that he would build the necessary platform without monetary compensation in exchange for a 10% share of DrawSplash. Justin Lee did not and was not going to have any ongoing managerial functions in the company.
[25] Benin was a different case. Benin was brought in to help with day-to-day management. There was a lot to do. He had skills and experience that Lee and Rodrigues did not have but his role was not critical to the success of the company in the same way that Justin Lee’s expertise was. Whether Lee and Rodrigues could actually work with Benin over the long-term and whether Benin could prove that he added material value were important and unknown considerations, in spite of the fact that they were all friends.
[26] In addition, Lee and Rodrigues were aware that Benin’s prior ventures had not only failed but that Benin had run into problems with his partners in at least one of these ventures. This led to an understandably cautious approach to entering into a business relationship with Benin, notwithstanding, again, that he was their friend.
[27] Benin demanded equity almost immediately after he started working for DrawSplash. Lee and Rodrigues said no. I accept their evidence that they were concerned about bringing Benin in as a shareholder until they knew they wanted to work with him and he proved his worth – in any event not before the end of December 2013.
[28] Benin raised the matter again in April, around the time he obtained an “offer” from one of his contacts, Mr. Hastings. I pause here to say that this “offer” was not really an offer at all – it was at best a proposal to explore making an offer. In addition, it was an offer to acquire DrawSplash for shares of Hastings’s private, unlisted company, Rebellion. Although the shares offered supposedly had a value of $5 million, there was no evidence of any backup for this. Essentially, for Lee and Rodrigues to sell DrawSplash in exchange for Rebellion shares, they would have been exchanging shares in their own nascent idea (which they at least knew something about) for shares in someone else’s nascent idea (which they knew very little about). As Lee said, only one of the reasons that they did not pursue the Hastings offer was because they felt DrawSplash had more financial potential than Hastings allowed.
[29] Benin was unable to identify the date or day of the week on which the alleged agreement was reached. The statement of claim pleads that it was both in early June and in late May, although Benin’s unambiguous evidence at trial was that the alleged agreement was reached in late April.
[30] Benin also conceded on discovery that there was no expectation that he would put any capital into DrawSplash in exchange for his shares. His entitlement, if any, was to be based on his work for the company. Lee and Rodrigues had staked their net gain from London Print Company (about $20,000) on DrawSplash. And, unlike the case of Justin Lee, Benin was paid for his work for DrawSplash at the rate of $2,500 per month.
[31] Most importantly, however, my conclusion is based on the fact that there is absolutely no contemporaneous documentary evidence of an agreement of the kind alleged by Benin. All the parties agree that an equity deal with Benin would have been an important step in their relationship. While prior discussions were written down at least conceptually, and in one case actually signed, there was no document in late April, or at all, confirming the alleged new equity deal. There is, indeed, not even an allegation of such a deal (with two limited exceptions which I will deal with below) prior to Benin issuing his statement of claim in September 2013.
[32] I find this lack of any documentary confirmation, or even e-mail, from Benin to Lee and Rodrigues entirely inconsistent with both the importance of the alleged agreement to the parties and with the parties’ past practice. The lack of any documentation is also inconsistent with Benin’s admittedly strong and insistent desire both to acquire equity in DrawSplash and to reduce his alleged deal to writing. Benin admitted during his evidence that he is the sort of person who likes to pin things down – to get things documented. Indeed, Benin’s principal role with DrawSplash to that point had been to draft documents, provide input into written proposals and presentations and to provide input into written communications with third parties such as banks and potential investors.
[33] The lack of any documentation, assuming there was some agreement, is also inconsistent with Lee’s evidence that he also wanted to make sure that whatever they agreed to with Benin was carefully laid out so as to avoid misunderstandings in the future.
[34] Benin tried to explain his failure to confirm the deal in writing immediately by saying that, while he wanted to get the lawyers to put something in writing right away, Lee and Rodrigues wanted to wait. He said, in effect, we agreed as best friends we would put something down, but never got around to it.
[35] I do not accept this explanation. It does not explain why Benin could not have sent a simple e-mail confirming the terms to Lee and Rodrigues. In my view, if Benin had concluded an agreement for equity on the terms alleged, he would have been the first to document it somehow - if not formally with “legal documents” from a lawyer, then at least by a memorandum of agreement, or even e-mail, containing the basic points, as they were later pleaded in paragraph 24 of his statement of claim. This is what the parties had done previously during their equity negotiations. In this case however, there simply was no document.
[36] There is of course no legal requirement that to be enforceable contract must be in writing. However, the onus of proving the contract was made is on the propounder. In this case, a good deal turns on credibility. In all the circumstances, I find Benin’s claim of an oral agreement lacks credibility. I therefore do not accept his evidence on this issue.
[37] I conclude, from the lack of any written confirmation, either:
(a) there was no such agreement at all; or
(b) the nature of any further discussions was sufficiently tenuous or uncertain that Benin, rather than risk an explicit repudiation of his bid for shares at the end of April 2013, decided to bide his time and see whether things might work out in the future.
I find there was no meeting of the minds with the common intention of creating binding legal relations.
[38] The closest thing to a contemporaneous written record of Benin’s status is an e-mail from Rodrigues to Todd Bennett (the company’s lawyer and a friend of Benin’s) of April 29, 2013 in which he said:
We need to prepare for our two newest equity owners. Ronen and Justin. Justin owns 10% of the company, and Ronan will own 3% at the end of 2013.
[39] Mr. Sternberg argues that this statement shows that a deal had been reached and that Benin was thought by Lee and Rodrigues to be a shareholder. I cannot agree. In my view, this message to Bennett, and the use of the future tense “will own…at the end of 2013” for Benin’s position and the present tense “owns” for Justin Lee’s, is entirely consistent with Lee and Rodrigues’s evidence that Benin was a friend who they were helping out by offering him employment, that they hoped he would work out over the long term but that, until they had sufficient time to assess his worth, i.e., to the end of 2013, they were not prepared to give him any equity.
[40] All parties agree that after the end of April, there was no further discussion at all about Benin’s equity until after his termination. This too, in my opinion, is more consistent with the position of Lee and Rodrigues. If the deal alleged by Benin had been reached, it makes no sense that such an important development would simply not come up for almost a month and a half, given the parties’ close living and working relationship.
[41] Benin also points to an e-mail he sent to Bennett on June 4, shortly before his termination. The email concerns the status of his prior venture, Coachd. Benin testified that, shortly before sending this e-mail, he had seen a message from Rodrigues from which he inferred that one of the DrawSplash mentors thought Benin was merely a “sales representative.” According to Benin, this reference concerned him, as he felt he was an equity owner. Realizing that there was nothing in writing about his equity position, Benin says he felt threatened and went “on the defensive.” So, in a postscript to the otherwise unrelated Bennett e-mail, he wrote:
PS: Gary Hyunbin and I have settled on a verbal agreement as to my equity position. We’ll get something down in writing in the next month. I’d be glad to share details.
[42] That Benin felt the need for defensive measures is, in my view, entirely consistent with Lee and Rodrigues’s evidence that the relationship had soured by the beginning of June and that Benin felt exposed with no clear resolution of his equity status.
[43] Even more telling is the fact that Benin sent this e-mail, not to Lee or Rodrigues to remind them that he was in fact a shareholder in the company, but in a post script to his friend Bennett, the company’s lawyer. The only reasonable inference to draw from this e-mail is that Benin, rather than put the cat among the pigeons and risk immediate repudiation by Lee and Rodrigues of his claim to shareholder status, thought it better to “soft lob” his position on equity to the company’s lawyer, a person who was: a) his friend and confidente; and b) in no position to disagree with him.
[44] The plaintiff also points to a nondisclosure agreement which he was asked to sign in April 2013. While that agreement has nothing to do with equity explicitly, it contemplates, as consideration for the agreement, that Benin would be an employee until April 30, 2014.
[45] The plaintiff argues that the request for the nondisclosure agreement and the offer of continued employment embedded within it is consistent with the parties having reached the equity deal he alleges.
[46] I am unable to agree with that submission. Lee gave evidence that the triggering event for the nondisclosure agreement was Benin’s revelation that he had gone for drinks at a conference with an employee of a competitor and had been talking about DrawSplash’s business plan. While the incident is not denied by Benin and there is some documentary support for this assertion, it is not central to my conclusion.
[47] In my view, the existence of the nondisclosure agreement is simply irrelevant to the question of whether Benin concluded an agreement for equity. Benin was already on an employment contract for an indefinite term. The confirmation of his employment, therefore, neither supports nor detracts from the issue of whether he had an equity deal. It simply has, in my opinion, nothing to do with the matter.
[48] The suggestion of a fixed term for his employment embedded in this nondisclosure agreement may have given rise to a claim for damages for wrongful dismissal but that is not the route Benin chose to pursue.
[49] Thus, I find the alleged oral agreement has not been proved and, accordingly, the claim for specific performance of that agreement is dismissed. In light of this conclusion it is not necessary to address the issues of incompleteness and uncertainty.
The Oppression Claim
[50] The plaintiff makes a claim, in the alternative, under s. 248 of OBCA for the oppression remedy.
[51] In essence, the plaintiff argues that his termination, without cause, in the face of the offer or potential to earn equity in DrawSplash was oppressive and warrants the exercise of the remedial powers granted under s. 248.
[52] It is well-established that oppression is an equitable remedy which seeks to ensure fairness. Oppression is fact specific. What is just and equitable must be judged by the reasonable expectations of the stakeholders in the context and with regard to the relationships in play. In assessing a claim for oppression, two questions must be answered: 1) does the evidence support the reasonable expectations of the claimant; and 2) does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression” “unfair prejudice” or “unfair disregard” of relevant interests.
[53] The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. In the context of whether it would be just and equitable to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue and the entire context, including the fact that there may be conflicting claims and expectations.
[54] As described by Blair J. (as he then was) in Naneff v. ConCrete Holdings Ltd. (1993), 11 B.L.R. (2d) 218, in normal circumstances, the wrongful dismissal of an employee would not provide the plaintiff with standing to seek an oppression remedy. It is only where the interests of the employee are integrally intertwined with his interests as a shareholder, officer and director and where the dismissal was part of a pattern of conduct designed to exclude the plaintiff from any active role in the business that the dismissal could properly be considered as an act of oppression.
[55] The plaintiff argues that the so-called “souring” of the relationship and concerns over Benin’s performance were “trumped up” to deny his reasonable expectation of earning “sweat equity” in DrawSplash.
[56] I do not accept this argument. In my view, the reason for putting the grant of equity off to the end of the year was to enable Lee and Rodrigues to assess Benin’s suitability and fit – did they want to bring them into the fold? The whole point of this exercise would have been defeated if Lee and Rodrigues could not decide, during that time, that Benin was not a good fit and to let him go.
[57] Lee and Rodrigues had no obligation to grant Benin equity short of an agreement to do so. With no agreement, Benin had no reasonable expectation. Further, if Lee and Rodrigues had no obligation to grant Benin equity, they had no need to “trump up” reasons to terminate Benin’s employment.
[58] In my view, Benin did not have a reasonable expectation of an interest in DrawSplash sufficient to warrant the exercise of the court’s power under s. 248. Benin was not a shareholder, officer or director. At best, had he stuck it out and proved himself, he might have become a shareholder. Nor, in my view, can the conduct of Lee and Rodrigues be regarded as unfairly prejudicial to or to have unfairly disregarded Benin’s interests. This case involves the “normal circumstance” of the dismissal of an employee which does not provide the plaintiff with standing to seek an oppression remedy. Accordingly, his claim to the oppression remedy is dismissed.
Costs
[59] I encourage the parties to seek an accommodation on costs. In the absence of an agreement, if the defendants wish to seek costs, they shall file a brief written submission (no more than three typed double-spaced pages) together with a Bill of Costs and any supporting material within two weeks of the release of these Reasons. The plaintiff may reply to any request for costs by filing a brief written submission (subject to the same page limit) within a further one week.
Penny J.
Released: April 30, 2014
COURT FILE NO.: CV-13-10254-00CL
DATE: 20140429
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
RONEN BENIN
Plaintiff
– and –
DRAWSPLASH INC., HYUNBIN LEE and GARY RODRIGUES
Defendants
JUDGMENT
Penny J.
Released: April 30, 2014