COURT FILE NO.: 13-CV-488349
DATE: January 17, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WILLIAM J. SOLLOWAY
Applicant
– and –
KLONDEX MINES LTD.
Respondent
Lorne S. Silver and Colin Pendrith for the Applicant
Young Park and John Zeruceilli for the Respondent
APPLICATION under Rules 14.05(3)(d) and (h) of the Rules of Civil Procedure
HEARD: January 9, 2014
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION AND OVERVIEW
[1] In this Application, William J. Solloway seeks a determination of his rights under a Release and Settlement Agreement made with the respondent, Klondex Mines Ltd. The Release and Settlement Agreement was made in Ontario, and it is expressed to be governed by Ontario law.
[2] Klondex Mines, however, disputes that Ontario has jurisdiction simpliciter to decide the Application, and it submits that, in any event, Ontario is not forum conveniens for Mr. Solloway’s Application to interpret the Release and Settlement Agreement. Klondex Mines says that the interpretation of this agreement is bound up with other disputes and the interpretation of other documents. It says that all these disputes will have to be resolved in the State of Nevada or in the province of British Columbia in litigation that is forthcoming but not yet commenced.
[3] Thus, Klondex Mines moves to have the Ontario Application stayed. If the Ontario Application is not stayed, it asks that the Application be converted into an action.
[4] For the reasons that follow, I shall stay the Application, but on terms that: (a) the stay shall be automatically lifted if Klondex Mines and Klondex Gold does not commence an action against Mr. Solloway in British Columbia or in Nevada within 60 days of the release of these Reasons for Decision; and (b) the stay shall become permanent, if Klondex Mines and Klondex Gold commences an action in British Columbia or Nevada within 60 days of the release of these Reasons for Decision. If the stay is automatically lifted, there shall be a case conference to schedule the hearing of the Application or to schedule a motion to have the Application converted into an action.
B. FACTUAL BACKGROUND
[5] Klondex Mines is a public mining company incorporated under the laws of British Columbia with a head office in Vancouver. Its common shares are listed on the Toronto Stock Exchange, in Ontario. Its board meetings and its annual shareholders’ meeting have been held at the office of a law firm in Toronto.
[6] Klondex Mines owns Klondex Gold & Silver Mining Company (“Klondex Gold”), which is incorporated under the laws of the State of Nevada with offices located in Nevada. Klondex Gold has explored and developed the Fire Creek gold property in Nevada.
[7] The Applicant Mr. Solloway is a lawyer who has been involved with Klondex Mines for over thirty years. He was a director and senior officer of Klondex Mines and of Klondex Gold from June 1997 to June 2012. Most recently, until June 27, 2012, he was the President and a director of Klondex Gold and until June 28, 2012, he was Chairman of the Board of Klondex Mines. He lives in in Delray Beach, Florida but has worked mainly in New York City. He was often in Toronto for the business affairs of Klondex Mines and Klondex Gold.
[8] On January 4, 2010, Mr. Solloway signed an Employment Agreement with Klondex Mines and Klondex Gold. He was hired as President and CEO of Klondex Mines and President of Klondex Gold. The Employment Agreement is governed by the law of British Columbia.
[9] Section 4.1 of the Employment Agreement requires Mr. Solloway to faithfully serve Klondex Mines and Klondex Gold. He is prohibited from having other business interests except as disclosed to the Board of Directors. Section 4.2 states:
[Mr. Solloway] will not directly or indirectly carry on or engage in any other business or occupation or become a director, officer, employee, consultant, financier, or agent or hold any position or office with any other corporation, firm or person other than with the Company [Klondex Gold] or Klondex [Klondex Mines] except as disclosed by the Executive [Mr. Solloway] to the Board in writing, and only to the extent that those activities do not significantly interfere with the performance of the Executive’s responsibilities to the Company and Klondex in accordance with this Agreement.
[10] As part of his remuneration, from time to time, Mr. Solloway received options to purchase common shares pursuant to the Klondex Mines 2008 Share Option Plan as amended on July 5, 2010. The Stock Option Plan is governed by the law of British Columbia. In 2008, Mr. Solloway received 475,000 options with an exercise price of $0.86. In 2009, he received 450,000 options with an exercise price of $1.00. In 2010, he received 334,454 options with an exercise price of $1.25 and 354,000 options with an exercise price of $1.35. In 2011, he received 100,000 options with an exercise price of $2.53. I understand that currently all of these options would be worth exercising.
[11] In addition to the Options described above, in February 2010, Klondex Mines granted Mr. Solloway 40,546 options at an exercise price of $1.25, and in May 2010, it granted him 632,000 options at an exercise price of $1.35. These options represented approximately 7.5% of all outstanding common shares. These options are described as the “Excess Options,” because they exceeded the 5% cap set out section 2.6 of the Stock Option Plan.
[12] Section 3.9 of the Stock Option Plan provides for termination of the option rights. If this clause is operational - and that is the critical disputed issue - Mr. Solloway’s options are no longer extant. For present purposes, the section to note is 3.9 (c), which states:
3.9 No Option may be exercised after the Participant has left the employ/office…
(c) in the case of an Optionee who is an Employee…being dismissed from employment or service for cause…such Optionee’s Options, whether vested or not vested at the date of dismissal will immediately terminate without the right to exercise same.”
[13] In June 2011, there was a proxy fight before Klondex Mines’ annual meeting of shareholders in Toronto. The proxy fight was initiated by the K2 Principal Fund L.P., Klondex Mines’ largest shareholder. To settle the proxy fight, the K2 Principal Fund (a dissident shareholder), Andre Douchane, Chad Williams, and Warren Moysey (three dissident nominees), Robin Goad, and Blane Wilson and Mr. Solloway (three management nominees) entered into a settlement agreement (the “K2 Settlement Agreement”) to cease all proxy solicitation in advance of the annual shareholders’ meeting. This agreement is governed by the law of Ontario. It was signed in Toronto, Ontario.
[14] Under the K2 Settlement Agreement, which is dated June 30, 2011, there was to be a new Board comprised of three management nominees and three dissident nominees, who were to be nominated by K2 Principal Fund. There was to be a seventh member mutually agreed upon by the parties to the agreement. Under the K2 Settlement Agreement, Mr. Solloway stepped down as President and CEO of Klondex Mines, but he remained as Chairman of the Board for a period of 12 months, expiring at the next annual meeting of shareholders, which was to be held in June 2012. He remained a president, director, and employee of Klondex Gold.
[15] Meanwhile, on July 29, 2011, Klondex Mines cancelled the Excess Options at the request of the Toronto Stock Exchange for non-compliance with regulatory requirements. Klondex Mines had issued too many options.
[16] The cancellation of the Excess Options lead to negotiations between Mr. Solloway and Klondex Mines about restoring to him this employee benefit that he retroactively had lost, and on September 28, 2011, Klondex Mines and Mr. Solloway signed the Release & Settlement Agreement. This agreement is governed by the laws of Ontario.
[17] It is necessary to understand the circumstances and the apparent purposes of the Release & Settlement Agreement. In September 2011, Mr. Solloway was, colloquially speaking, “on the bubble” of having a future with Klondex Mines and Klondex Gold, but he was holding options that would terminate if he was no longer an employee. He had also recently surrendered his so-called excess options that had been awarded to him as remuneration for his employment. The main purpose of the Release & Settlement Agreement was to make secure the value of the remaining options that Mr. Solloway had earned.
[18] The preamble to the Release and Settlement Agreement referred to the Employment Agreement; the K2 Settlement Agreement; and the Stock Option Plan.
[19] Sections 2.1 and 2.2 of the Release and Settlement Agreement provide, among other things, that: (a) none of the Options would be cancelled unless required by a securities regulatory authority or the TSX; and (b) all of the Options would continue in full force and effect for the duration of their term, notwithstanding that Mr. Solloway may no longer be an officer, director, or employee of Klondex Mines.
[20] The Release and Settlement Agreement contains the following warranty and representation from Mr. Solloway found in sections 4.3 and 4.4, which state:
4.3 In consideration of the signing of this Agreement with respect to the Excess Options and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Klondex, on behalf of itself and any associated, affiliated and subsidiary corporations, does hereby release and forever discharge Solloway from all actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, claims and demands whatsoever that Klondex or associated, affiliated or subsidiary corporations now have or hereafter can, shall or may have against Solloway for or by reason of or in any way arising out of any cause, matter or thing relating to Solloway's tenure as an officer and/or director of Klondex, its associated, affiliated and subsidiary corporations existing up to the present time, provided that, this release shall not apply in respect of any conduct whereby Solloway had been grossly negligent, exercised bad faith, acted fraudulently or engaged in wilful misconduct or criminal activity in the course of the performance of his duties as a director or officer of Klondex.
4.4 Solloway represents and warrants that, to the best of his knowledge, he has not been grossly negligent, exercised bad faith, acted fraudulently or engaged in wilful misconduct or criminal activity in the course of the performance of his duties as a director or officer of Klondex. Based solely on such representation by Solloway, Klondex confirms that it has no current intention of pursuing any claims against Solloway.
[21] The Release and Settlement Agreement contains the following entire agreement clause:
This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter herein and cancels and supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended or modified in any way except by written instrument signed by the parties hereto.
[22] Pausing here, it is also necessary to understand that around the time of the signing of the Release and Settlement Agreement in September 2011 – and the precise time may become a significant point of controversy – Klondex Mines alleges that Mr. Solloway and others including employees Blane Wilson, Doug Carter, Brandy Mothershead, and Rick Magness were conspiring to appropriate a business opportunity of Klondex Mines.
[23] Apart from these alleged clandestine activities, nothing significant seems to have occurred between September 2011 and June 2012, the time for the next annual meeting of the shareholders.
[24] On June 27, 2012, Mr. Solloway stepped down as President of Klondex Gold.
[25] On June 28, 2012, Klondex Mines held its annual meeting of shareholders in Toronto. K2 Principal’s slate of 7 directors was elected. Mr. Solloway was not re-elected.
[26] At the 2012 annual meeting, William Matlack was elected a director of Klondex Mines, and he became the interim CEO and President and interim President of Klondex Gold from July 16, 2012 to September 2012. At the request of the Board, Mr. Matlack conducted an investigation into the past management of Klondex Mines and Klondex Gold.
[27] While the investigation was ongoing, on December 3, 2012, Mr. Solloway commenced an action against Klondex Mines in the British Columbia Small Claims Court for $7,730.97 as reimbursement for expenses incurred as a former director and Officer of Klondex Mines.
[28] Meanwhile, as a result of Mr. Matlack’s investigation, Klondex Mines alleges that it discovered that in September 2011, without disclosure to the Board of Klondex Mines, Mr. Solloway had directed the creation of Northern Nevada Mining & Milling Services LLC for the purpose of renovating a mill owned by Royal Standard Minerals Inc. located in Manhattan, Nevada.
[29] Based on what it says it now knows, Klondex Mines alleges that Mr. Solloway directed employees of Klondex Mines and Klondex Gold resident in Nevada; namely: Blane Wilson, Doug Carter, Brandy Mothershead, and Rick Magness to advance the project on company time. It is alleged that in December, 2011, Blane Wilson, then the president of Klondex Mines, was authorized to initiate discussions with Royal Standard, but Mr. Solloway signed the resolution without disclosing his and Mr. Wilson’s on-going involvement with Northern Nevada Mining. Klondex Mines alleges that as part of a cover up of the Northern Nevada Mining scheme, Mr. Solloway signed a letter addressed to Mr. Carter that was fraudulently backdated purporting to authorize Mr. Carter to engage in outside consulting activities.
[30] As a result of the investigation, Klondex Mines alleges further that Mr. Solloway misappropriated company funds for personal expenses, including vacation travel, household utility expenses, household food, entertainment, living expenses of every sort including the expense of a personal assistant who cooked, cleaned, and provisioned Mr. Solloway’s New York City residence.
[31] By January 2013, the Board of Klondex Mines determined that there were grounds to retroactively terminate Mr. Solloway as an employee. On January 8, 2013, Klondex Mines and Klondex Gold notified Mr. Solloway that he was being retroactively terminated for cause effective June 27, 2012.
[32] Jorge Avelino, Klondex Mines’ CFO wrote Mr. Solloway and stated that the grounds of termination included: (a) charging for personal expenses; (b) financing and controlling Northern Nevada Mining; and (c) covering up the Northern Nevada scheme. Mr. Avelino advised that Mr. Solloway was not entitled to any severance payments and that his stock options have been forfeited. He demanded that Mr. Solloway immediately return over $10,000.00 worth of computers, iPads, and camera equipment and approximately $9,000 in gold coins owned by Klondex Gold.
[33] Mr. Solloway denies the allegations made by Klondex Mines, but in any event, he states that the Release and Settlement Agreement precludes the cancellation of the Options even if the allegations made by Klondex Mines were true.
[34] Following this retroactive termination of his employment and declaration that his options had been terminated, Mr. Solloway brought an Application in Ontario just against Klondex Mines for a determination of rights pursuant to the Release and Settlement Agreement. He says that the discrete question is whether the Release and Settlement Agreement precludes any cancellation of the Options. Mr. Solloway asserts that in no circumstances can the options now be cancelled.
[35] In the motion now before the court, Klondex Mines seeks to have Mr. Solloway’s Application stayed on the grounds that Ontario does not have jurisdiction simpliciter or on the grounds that Ontario is forum non conveniens.
[36] In the run up to the motion, Mr. Solloway was cross-examined, and in his cross-examination, he refused to answer questions about his alleged wrongdoings associated with Northern Nevada Mining & Milling Services LLC and his alleged misappropriation of Klondex Mine’s funds for personal expenses. Mr. Solloway’s position is that while these questions might be relevant to un-commenced litigation between the parties, the only issue before the court is the matter of the interpretation of the Release and Settlement Agreement. It is his position that although he has denied the allegations of wrongdoing, the truth or falsity of these allegations has nothing to do with the matter before the court.
[37] Mr. Solloway submits that the proper interpretation of the Release and Settlement Agreement is that he has the right to exercise the Options even if Klondex’s allegations of wrongdoing are true.
C. DISCUSSION AND ANALYSIS
[38] Klondex Mines submits that Mr. Soloway’s application should be stayed because: (1) Ontario does not have jurisdiction simpliciter, which is a matter of law; and (2) Ontario is not the convenient forum for the determination of the application, which is a matter of judicial discretion having regard to a variety of facts that may guide the exercise of the court’s discretion. See Lixo Investments v. Gowling Lafleur, Henderson, Poitras, [2013] O.J. No. 3534 (S.C.J.).
[39] The test for whether an Ontario court has jurisdiction simpliciter is whether there is a real and substantial connection between the matter, the parties, and Ontario: Van Breda v. Village Resorts Ltd., supra; Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.). Forum non conveniens only comes into play when jurisdiction is established; it has no relevance to the jurisdictional analysis itself: Village Resorts Ltd. v. Van Breda, 2012 SCC 17 at para. 101, affg. 2010 ONCA 84, [2010] O.J. No. 402 (Ont. C.A.), affg. 2008 32309 (ON SC), [2008] O.J. No. 2624 (S.C.J.); Lixo Investments v. Gowling Lafleur, Henderson, Poitras, supra.
[40] The Club Resort Ltd. v. Van Breda analytical framework begins by identifying circumstances where a court may presumptively assume jurisdiction on the basis of a real and substantial connection with the plaintiff’s or applicant’s litigation and then the defendant or respondent can be rebutted by the defendant through evidence that the connection is weak.
[41] One of the presumptive factors is a contract made in the jurisdiction. The Release and the Settlement Agreement is a contract made in Ontario, and in the case at bar, Klondex Mines attempts to rebut that presumptive factor by arguing that the Release and Settlement Agreement will be set aside on the grounds of fraud or because of the breach of warranty and, therefore, the dispute between the parties will have no connection with Ontario. Further, it argues that the dispute is about the right to exercise the Options and the outcome of that dispute will be determined by the interpretation of British Columbia contracts.
[42] In my opinion, Klondex Mines arguments about jurisdiction simpliciter do not succeed. The Release and Settlement Agreement is a presumptive factor demonstrating a real and substantial connection between Ontario and the dispute between the parties. Apart from the fact that it remains to be determined whether this agreement will be rescinded or vitiated in the future, that the agreement may be set aside in the future, does not disconnect its connection to Ontario today. I conclude that Ontario has a real and substantial connection and there is jurisdiction simpliciter.
[43] I turn now to the matter of whether Ontario is forum non conveniens. Courts have developed a list of facts that may be considered in determining the most appropriate forum for the action or application including: (a) the location of the majority of the parties; (b) the location of the key witnesses and evidence; (c) contractual provisions that specify applicable law or accord jurisdiction; (d) the avoidance of multiplicity of proceedings; (e) the applicable law and its weight in comparison to the factual questions to be decided; (f) geographical factors suggesting the natural forum; and (g) whether declining jurisdiction would deprive the plaintiff of a legitimate juridical advantage in the domestic court.
[44] These factors are not exhaustive, and the weight to be given any factor is a matter of the exercise of the court’s discretion, which is guided by three principles: Young v. Tyco International of Canada Ltd. (2008), 2008 ONCA 709, 92 O.R. (3d) 161 (C.A.). First, the threshold for displacing the plaintiff’s choice is high, and the existence of a more appropriate forum must be clearly demonstrated: Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897. Second, the court should consider and balance the efficiency and convenience of a particular forum with the fairness and justice of that choice to the parties: Hunt v. T&N plc, [1993] 4 S.C.R. 289; Antares Shipping Corp. v. Capricorn (The), [1977] 2 S.C.R. 422. Third, because a forum non conveniens motion is brought early in the proceeding, the court should adopt a cautious approach to fact-finding particularly with respect to matters that are at the heart of the lawsuit; the assessment of the factors should be based on the plaintiff’s claim if it has a reasonable basis in the record: Young v. Tyco International of Canada Ltd., supra.
[45] In the case at bar, but for one major analytical problem, I would conclude that Ontario is an appropriate forum and I would exercise the court’s discretion and dismiss Klondex Mines’ motion. But for this analytical problem, I would permit the application to proceed, and I would permit the court to determine later whether the application should be converted into an action in Ontario.
[46] The problematic analytical matter is that there are more claims and disputes between Mr. Solloway and Klondex Mines and Klondex Gold to be litigated. The resolution of these disputes, might involve a substantive defence, a counterclaim, or a setoff that together or separately may be an answer to Mr. Solloway’s Application. There is also the prospect that Mr. Solloway may up the ante by expanding his claim to exercise the options to a fulsome wrongful dismissal action, because it seems arguable that Mr. Solloway has not received his exit package or golden parachute for the termination of his employment. Mr. Solloway refused to answer questions about this prospect during his cross-examination.
[47] The analytical problem is that having regard to the traditional list of factors set out above, the natural and convenient forum for Klondex Mines’ and Klondex Gold’s inevitable claims against Mr. Solloway and any additional claims by Mr. Solloway is not Ontario. Mr. Solloway seems to know this as evidenced by his small claims court action in British Columbia.
[48] At the moment, the only litigation before the court in Ontario is Mr. Solloway’s Application. If that Application is not stayed, then Klondex Mines and Klondex Gold will inevitably be suing Mr. Solloway for breach of his employment contract, for breach of the Release and Settlement Agreement, for breach of fiduciary duty, and for conspiracy. They have not yet done so because they do not wish to be taken to have attorned to the jurisdiction of the Ontario court. And Klondex Mines and Klondex Gold are stymied in commencing an action in British Columbia because they may need to advance their claims by way of defence to the Ontario Application if the Ontario Application is not stayed. If the Ontario Application proceeds, Klondex Mines could and would assert as a defence or counterclaim to Mr. Solloway’s Application his alleged wrongdoings as an officer and employee of the British Columbia corporation.
[49] The analytical problem, however, remains that if one analyzes the factors about a convenient forum just in the context of Mr. Solloway’s Application, Ontario is forum conveniens but Ontario becomes forum non conveniens for resolving the omnibus and interrelated disputes between the parties if those claims were advanced in Ontario.
[50] By way of illustration of the analytical problem, the location of the key witnesses and evidence changes radically if the dispute is not just about the interpretation of the Release and Settlement Agreement but is about the defence that Mr. Solloway breached the warranty in the agreement by his allegedly clandestine breach of fiduciary duty in Nevada.
[51] Mr. Solloway protests that Klondex Mines is high jacking his Application, which is a neat and free-standing interpretative matter that can be decided regardless of whatever suits Klondex Mines and Klondex Gold may bring against him.
[52] The problem with that protest is twofold. First, Mr. Solloway may own his own claims but he does not own or control how his opponent may defend those claims be it by defence, setoff, or counterclaim. Second, if Mr. Solloway does not want his application to be associated with Klondex Mines defence to it, he is facilitating a multiplicity of proceedings and a multiplicity of proceedings is to be avoided
[53] The horns of dilemma for the court, however, is that Klondex Mines and Klondex Gold has yet to commence proceedings against Mr. Solloway in Ontario or anywhere else.
[54] In my opinion, the answer to this dilemma is to stay temporarily the Ontario action for sixty days to permit Klondex Mines and Klondex Gold to commence an action in British Columbia or Nevada. If they bring an action the stay will become permanent. If they do not bring an action, then the stay should automatically be lifted.
D. CONCLUSION
[55] For the above reasons, the Application is stayed, but on terms that: (a) the stay shall be automatically lifted if Klondex Mines and Klondex Gold does not commence an action against Mr. Solloway in British Columbia or in Nevada within 60 days of the release of these Reasons for Decision; and (b) the stay shall become permanent, if Klondex Mines and Klondex Gold commences an action in British Columbia or Nevada within 60 days of the release of these Reasons for Decision.
[56] If the stay is automatically lifted, there shall be a case conference to schedule the hearing of the Application or to schedule a motion to have the Application converted into an action.
[57] Order accordingly.
[58] If the parties cannot agree about the costs of this motion, they may make submissions in writing beginning with Klondex Mines submissions within 20 days of the release of these Reasons for Decision followed by Mr. Solloway’s submissions within a further 20 days.
Perell, J.
Released: January 17, 2014
COURT FILE NO.: 13-CV-488349
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WILLIAM J. SOLLOWAY
Plaintiff
‑ and ‑
KLONDEX MINES LTD.
Defendant
REASONS FOR DECISION
Perell, J.
Released: January 17, 2014.