DATE: 20100301 |
DOCKET: C49763 |
COURT OF APPEAL FOR ONTARIO |
O’Connor A.C.J.O., Juriansz and Rouleau JJ.A. |
BETWEEN |
William Link |
Plaintiff (Respondent) |
and |
Venture Steel Inc. and Ruben Rivas |
Defendants (Appellant) AND BETWEEN Venture Steel Inc. and 1452938 Ontario Limited, carrying on business under the firm name and style of Venture Steel, and the said Venture Steel Plaintiffs by Counterclaim and William Link Defendant by Counterclaim |
James Zibarras and Kevin Toyne, for the appellant |
Alan Lenczner, Q.C., and Dena Varah, for the respondent |
Heard: October 29, 2009 |
On appeal from the judgment of Justice Randall S. Echlin of the Superior Court of Justice dated November 14, 2008, with reasons reported at (2008), 70 C.C.E.L. (3d) 114. |
[1] This appeal raises issues about the adequacy of pleadings, the interpretation of a shareholders’ agreement, and an employee’s duty to mitigate damages after a wrongful dismissal.
[2] In the fall of 1996, the respondent, William Link (“Link”), became involved in setting up the appellant corporation, Venture Steel Inc. (“Venture”). Venture employed Link in a sales capacity. In the ensuing years, the company prospered. By early 2005, Venture’s sales had grown to over $335 million. By this time, Link was the Vice-President of Sales.
[3] On February 21, 2005, Venture purported to dismiss Link for cause. Venture made many serious allegations against Link, including that he drank to excess, was dishonest, took secret profits and stole from the company.
[4] Over time, including at the trial, Venture withdrew all but two its allegations of just cause for dismissing Link. The trial judge, rejecting the two remaining allegations, held that Venture did not have cause to terminate Link’s employment. He awarded Link damages in lieu of reasonable notice. The trial judge fixed the period of reasonable notice at 12 months.
[5] Venture does not appeal the trial judge’s determination that it did not have cause to terminate Link’s employment.
[6] In June 2004, Ruben Rivas (“Rivas”), who controlled Venture, entered into a shareholders’ agreement with Link and five other executives of Venture (collectively, the “management shareholders”) pursuant to which Link received 90,000 common shares of Venture (the “Shareholders’ Agreement”). This number of shares constituted nine per cent of the issued common shares. Venture was also a party to the Shareholders’ Agreement.[1]
[7] Section 3.4 of the Shareholders’ Agreement provides that if Rivas receives an offer that he wishes to accept from a third party to purchase all or a majority of his shares, then the management shareholders[2] have piggyback rights. Under this section, Rivas is required to give the management shareholders written notice of the offer. Those shareholders then have the right to require that their shares be sold to the prospective purchaser in the same proportion as Rivas’ shares are sold and on the same terms and conditions.
[8] Section 3.6(1) of the Shareholders’ Agreement provides that following the occurrence of a “terminating event”, Rivas has an irrevocable option to acquire all of the management shareholder’s common shares and each management shareholder has an irrevocable option to sell them (the “purchase option”). A terminating event is defined to include Venture terminating the employment of a management shareholder, both with and without cause. The purchase option is exercisable at any time within 90 days following the terminating event.
[9] Section 3.6(2)(a) provides that where the terminating event is termination with cause, the total aggregate purchase price for the management shareholder’s shares shall be one dollar. Section 3.6(2)(b) provides that if the termination is without cause, the purchase price of Link’s shares is 100 per cent of the net book value of his shares. The section also provides that 50 per cent of the amount owing is to be paid within 30 days of the date of termination and the remaining 50 per cent is to be paid within seven months.
[10] Section 3.6(3) provides that if Rivas sells all or a majority of his shares within six months of Rivas exercising the purchase option under s. 3.6(1), the management shareholder shall be entitled to receive consideration as if he had continued to own his shares at the time Rivas’ shares are sold.
[11] Section 3.6(2)(c) limits a management shareholder’s entitlement under s. 3.6. Section 3.6(2)(c) provides that if a management shareholder is in breach of the non-competition and non-solicitation provisions in the Shareholders’ Agreement, he shall not be entitled to any payments under s. 3.6 for his shares. The non-competition and non-solicitation provisions are found in ss. 5.1 and 5.2, respectively, of the Shareholders’ Agreement.
[12] On July 15, 2004, Link entered into an option agreement with Venture pursuant to which Venture granted Link an option to purchase nine Class B preferred shares (the “Option Agreement”). The Class B preferred shares represent the retained earnings of Venture from 1997 to June 2004. Section 2(2) of the Option Agreement provides that Link could only exercise the option after July 15, 2009. Section 2(3)(c) provides that Link would have no rights as a shareholder in respect of the Class B preferred shares, including no rights to receive dividends, until the option was exercised and the shares were issued.
[13] On February 21, 2005, Venture terminated Link’s employment purportedly with cause.
[14] On May 17, 2005, Rivas wrote to Link indicating that pursuant to s. 3.6(1) of the Shareholders’ Agreement, he was exercising the option to buy Link’s shares “through the Corporation [Venture]”. The letter stated that in view of the fact that it was the corporation’s position that Link was terminated with cause, the purchase price of the shares was one dollar. By letter dated May 19, 2005, Link’s counsel responded indicating that Link disputed the valuation of his shares and that he objected “to any purchase or redemption of his shares at that value [one dollar] and [did] not render or relinquish his shares”.
[15] On June 3, 2005, Link commenced this action claiming, inter alia, that he had been dismissed without cause and notice. On August 23, 2005, Link delivered an amended statement of claim.
[16] By resolution dated October 28, 2005, the directors of Venture resolved that the corporation purchase for cancellation Link’s 90,000 common shares at the aggregate purchase price of one dollar. It was resolved that Link’s shares were cancelled effective as of May 17, 2005.
[17] At the time of the trial of this action, October 2008, neither Rivas nor Venture had paid Link any money for his common shares – not even the one dollar proposed in the letter of May 17, 2005. Moreover, Link was not offered the amount that would have been owed had he been terminated without cause in accordance with s. 3.6(2)(b) of the Shareholders’ Agreement.
[18] Rivas testified that some time after Link was dismissed, he received a dividend of $1.3 million on his common shares. Venture did not pay Link a dividend at that time.
[19] On April 30, 2006, Royal Laser Corporation (“Royal Laser”) purchased Venture for $43.5 million less certain adjustments and payments. The terms of the sale were set out in a share purchase agreement (the “Share Purchase Agreement”). The selling shareholders included Rivas, his numbered company, and two management shareholders. The selling shareholders purported to sell all of the outstanding shares of Venture. The Share Purchase Agreement also stipulated that the Class B options were to be redeemed or repurchased before the closing of the sale.
[20] Link was not a party to the Share Purchase Agreement and was not given notice of the sale pursuant to the Shareholders’ Agreement. He only learned of the terms of the sale after it was completed through “public releases”.
[21] During the 12 months after he had been dismissed, Link did not search for employment. He testified that he waited for 12 months because he did not wish to risk breaching the non-competition and non-solicitation provisions of the Shareholders’ Agreement. Link testified he was concerned that if he found employment with a business that competed with Venture before then, Venture would use this fact to argue that he should not receive the value of his shareholdings.
[22] In August 2006, Link found employment with Precision Metal Processing 2005 Inc. as a Vice-President of Sales and Purchasing.
[23] In his action against Venture, Link sought damages for wrongful dismissal and the value of his shares of Venture.
[24] The trial judge found that Venture dismissed Link without cause. He fixed the period of reasonable notice at 12 months and awarded Link payment in lieu of such notice. The trial judge also awarded Link damages for the loss of benefits for one year and for unpaid business expenses.
[25] On the issue of mitigation, the trial judge held that the burden of proof was on Venture to establish that Link had failed to take reasonable steps to find employment and that had he taken such steps, he would have been expected to secure a comparable position reasonably adapted to his abilities, thereby minimizing the damages sustained. Because Venture did not lead any evidence of comparable employment within or outside the steel industry, the trial judge found that Venture had not met the onus of establishing that Link had failed to mitigate his damages.
[26] As to Link’s common shares, the trial judge found that the actions purported to be taken by Rivas’ letter of May 17, 2005, were of no legal effect. The trial judge added that Venture did not at anytime attempt to purchase Link’s shares at net book value. He also found that Link’s employment did not come to an end until February 20, 2006, when the applicable period of reasonable notice expired. As such, the trial judge held that Link still owned his common shares on April 30, 2006 and, as a shareholder of Venture, Link would have been entitled to participate in the sale of Venture to Royal Laser pursuant to s. 3.4 of the Shareholders’ Agreement.
[27] The trial judge held that Link was entitled to nine per cent of the purchase price after deductions[3], which was calculated to equal $3,246,824.97, plus pre-judgment interest.
[28] The trial judge found that a dividend was paid on the Class B preferred shares in the amount of $2,549,019.61 and that Link was entitled to nine per cent of that amount. Link was awarded $229,411.76 plus pre-judgment interest.
[29] Finally, the trial judge awarded Link $533,549.30 plus pre-judgment interest for damages for the value of the shares covered by the Option Agreement. At trial, Venture agreed that this amount was owed.
[30] Venture argues the trial judge erred:
a) in ordering Venture to pay Link an amount equal to nine per cent of the proceeds from the sale of Venture to Royal Laser for his commons shares;
b) in ordering Venture to pay Link an amount equal to nine per cent of the total dividend paid out on the Class B preferred shares; and
c) in failing to reduce Link’s wrongful dismissal damages for his failure to mitigate.
[31] Venture also argues that if this court does not interfere with the trial judge’s finding that Link was a shareholder on April 30, 2006, this court should order a new trial to determine if Link breached his non-competition and non-solicitation obligations when he obtained employment in August 2006.
[32] Venture argues that the trial judge made three errors relating to the award of damages in relation to Link’s common shares: first, he erred in granting relief that was not pleaded; second, he erred in finding that Link was still a shareholder on April 30, 2006; and third, he erred in awarding damages against Venture under s. 3.4 of the Shareholders’ Agreement.
[33] Venture submits that Link did not plead that he was entitled to the relief the trial judge granted, which was an amount equal to nine per cent of the proceeds from the sale of Venture to Royal Laser. Venture also argues that Link did not plead the facts that underlie the trial judge’s award. Those facts are that Rivas’ letter of May 17, 2005, had no legal effect and that Link continued to own his common shares on April 30, 2006.
[34] In addition, it is Venture’s position that Link’s pleadings were inconsistent with the relief granted by the trial judge. In his amended statement of claim, Link claimed he was entitled to payment of the net book value of his shares pursuant to s. 3.6(2)(b) of the Shareholders’ Agreement. This claim, Venture argues, was premised on the notion that Link could not have still been a shareholder at the time of the pleadings and, as such, it was not contemplated that Link would be entitled to any portion of the sale proceeds on April 30, 2006.
[35] It is well accepted that the parties to an action are entitled to have a resolution of their differences based on the pleadings. The trial judge cannot make a finding of liability and award damages against a defendant on a basis not pleaded in the statement of claim because it deprives the defendant of the opportunity to address that issue: Kalkinis (Litigation guardian of) v. Allstate Insurance Co. of Canada (1998), 41 O.R. (3d) 528 (C.A.), leave to appeal to S.C.C. refused, [1999] S.C.C.A. No. 253.
[36] I would not interfere with the trial judge’s award in relation to Link’s common shares on the basis of the inadequacy of Link’s pleadings. In my view, the basis of liability on which the trial judge made the award can be supported by the pleadings, albeit with a generous and liberal interpretation of those pleadings. In this case, a generous and liberal interpretation of the pleadings is appropriate. Venture conducted the trial with the evident understanding that Link was claiming an amount equal to nine per cent of the sale proceeds for his common shares. Venture was not misled and no unfairness resulted from Link’s general pleadings.
[37] Link started this action by statement of claim issued on June 3, 2005. He delivered an amended statement of claim on August 23, 2005. His amended statement of claim pleaded that he owned nine per cent of the common shares of Venture and referred to the Shareholders’ Agreement. Link pleaded that Venture wrongfully alleged that his termination was for cause and that, as a result, the defendants (at the time Rivas and Venture) had sought to deprive him of the value of his shareholdings under the Shareholders’ Agreement. The amended statement of claim set out ss. 3.6(1) and (2) of the Shareholders’ Agreement and pleaded that as Link was terminated without cause, he was entitled to the payments under s. 3.6(2)(b).
[38] Further, in para. 16 of the amended statement of claim, Link stated that despite requests, he, “as [a] shareholder”, had been denied access to Venture’s financial statements. In para. 31, Link claimed, inter alia, damages based on the value of his shares under the Shareholders’ Agreement.
[39] At the time of the amended statement of claim, August 2005, Rivas had not entered into an agreement to sell his shares of Venture to Royal Laser. Thus, while the statement of claim pleaded that Link was entitled to damages for the value of his shares under the Shareholders’ Agreement, at the time the only provision under that agreement that would have been available to determine the purchase price of the shares was s. 3.6(2). The statement of claim did not refer to either ss. 3.6(3) or 3.4 which are the sections that would have triggered a valuation based on a percentage of sale proceeds in the event Rivas sold all or a majority of his shares.
[40] On January 3, 2007, Venture and Rivas filed a joint amended amended statement of defence and counterclaim. By this time, the sale of Royal Laser had been completed. In that pleading, Venture maintained its position that Link had been dismissed for cause and sought rescission of the Shareholders’ Agreement or, alternatively, a declaration that the Shareholders’ Agreement was void ab initio. Venture pleaded further or in the alternative, that by the letter of May 17, 2005, Rivas exercised his option to purchase Link’s shares at a price of one dollar and that Link had wrongfully refused to deliver those shares.
[41] Link filed an amended amended reply and statement of defence to counterclaim on January 25, 2007 (the “reply”). In para. 14, Link denied that any notice provided by Venture served to exercise its option to acquire Link’s shares. Link pleaded that as he was terminated without cause, the purchase price was not, as asserted by Venture, one dollar. The reply did not mention the sale of Venture to Royal Laser or the effect that sale might have on the value of Link’s shares.
[42] Read generously, the pleadings include the two critical matters that underlie Link’s claim that he was entitled to an amount equal to nine per cent of the sale proceeds. The first is that Link was still a shareholder on April 30, 2006. In para. 15 of the amended statement of claim, Link pleaded that the defendants sought to deprive him of the rightful value of his shareholdings under the Shareholders’ Agreement, albeit at the time he was referring to the value pursuant to s. 3.6(2) of that agreement. In para. 16, Link asserted that he was denied the production of the financial statements “as [a] shareholder”.
[43] In para. 14 of the reply, Link denied that any notice provided by Venture served to exercise Venture’s option to acquire Link’s shares. Venture argues that the option to acquire Link’s shares was Rivas’ and not Venture’s. However, in purporting to exercise his option on May 17, 2005, Rivas said he was purchasing Link’s shares “through the Corporation” – that being Venture. Thus, while para. 14 of the reply may be somewhat unclear, it is obvious that Link was asserting that as of January 2007, his shares had not been acquired and he was still a shareholder.
[44] Link’s claim for an amount equal to nine per cent of the proceeds from the sale of Venture also depended on Venture being liable pursuant to s. 3.4 of the Shareholders’ Agreement. Venture argues that this was an entirely new unpleaded claim and that the pleadings could not support a finding of liability on this basis.
[45] I disagree. The second critical matter included in the pleadings is that Link was claiming the value of his shares pursuant to the Shareholders’ Agreement. This claim is made in para. 31 of the amended statement of claim. As I said above, Link’s pleadings are sufficient to include a claim that he was still a shareholder at the time of the sale and that his shares had not been acquired. Although the pleadings do not make specific reference to the sale or to s. 3.4 of the Shareholders’ Agreement, the pleadings, in my view, were sufficient in general terms to put Venture on notice that Link was asserting a claim for the full value of his shares under the Shareholders’ Agreement.
[46] The question then becomes whether Venture was misled or prejudiced as a result of what were very general pleadings. Put another way, did Venture know that Link was pursuing a claim to entitlement to an amount equal to a portion of the sale proceeds?
[47] An examination of the pre-trial proceedings and the trial record indicates there can be no question that Venture was fully aware that Link was pursuing a claim based on the proceeds of the sale to Royal Laser.
[48] As early as May 19, 2005, Link’s counsel put Venture on notice that Link took the position that he had not relinquished his shares. Link never changed this position and the reply reinforced it. Prior to trial, Venture produced the Share Purchase Agreement. During the opening submissions by Link’s counsel at trial, the Share Purchase Agreement was entered as an exhibit by agreement of counsel.
[49] In his opening at trial, Link’s counsel made it clear that Link was claiming he was entitled to participate in the proceeds of the sale to Royal Laser. He filed the Shareholders’ Agreement as an exhibit and he referred the trial judge to a number of the provisions. He specifically referred to para. 3.4 (the piggyback rights) and said:
… we now get to 3.4 which the title captures it, piggyback rights on the sale of shares, if Rivas receives an offer from a third party to purchase all or a majority of the shares, then everybody else can piggyback and have that purchaser buy theirs as well. And that’s what happened here. [Emphasis added.]
[50] After entering the Share Purchase Agreement as an exhibit, Link’s counsel reviewed the terms in some detail and indicated that Link was entitled to nine per cent of the sale proceeds which, after some deductions, he calculated to be $3,291,825.[4] At different points in his opening, Link’s counsel referred to ss. 3.4 and 3.6(3). Both sections entitled Link to participate in the proceeds of the sale. Suffice it to say, counsel left no doubt he was claiming an amount equal to nine per cent of the sale proceeds.
[51] Counsel for Venture then made his opening. Not only did he not object to Link’s claim that he should be awarded a portion of the sale proceeds because it had not been pleaded, he joined issue on that claim. He indicated that his position was that Link was only entitled to one dollar, but if the court found he was dismissed without cause, he should receive only the net book value under s. 3.6(2)(b) of the Shareholders’ Agreement. He acknowledged that his position, which would result in an award to Link of approximately $697,000, was significantly different than Link’s position. He said that Link could not recover the higher amount because he was no longer a shareholder at the time of the sale. He summarized as follows:
And that really in a nutshell is the first issue, which is, were Mr. Link’s shares bought back. And we say, yes, they were, he no longer has them, he [no] longer had them at the time of sale and his claim for a 9 per cent interest in the sale price cannot succeed. [Emphasis added.]
[52] Venture’s counsel added that if he was unsuccessful in showing that Link was not entitled to participate in the sale proceeds, he would show that Link’s nine per cent was worth only $2.4 million, rather than the approximately $3.2 million claimed. The trial judge noted there was an $800,000 difference between the parties’ positions.
[53] During the trial, both sides asked questions addressing the issue of whether Link still owned his shares on April 30, 2006. In his examination-in-chief of Mr. Rivas, Venture’s counsel entered as an exhibit a document detailing the disposition of the sale proceeds from the April 30, 2006, sale and asked questions about the amount a different nine per cent shareholder had received. The above lines of questions could only have been relevant to Link’s claim that he was entitled to a share of the sale proceeds.
[54] In these circumstances, I am satisfied that the claim as pleaded was sufficient and that no trial unfairness resulted from the way in which it was pleaded.
[55] As an alternative, Venture argues that even if Link adequately pleaded his claim to a portion of the sale proceeds, the trial judge erred in concluding that Link was still a shareholder on April 30, 2006. The crux of this argument is that Rivas’ letter of May 17, 2005, constituted a valid exercise of Rivas’ option to buy Link’s shares under s. 3.6(1) of the Shareholders’ Agreement. Section 3.6(2), Venture submits, constitutes a separate step which sets the purchase price for the shares depending on whether or not an employee is terminated with or without cause. The shares are purchased and the option is exercised under s. 3.6(1) regardless of what price is proposed. As such, it is Venture’s position that the fact that Rivas proposed to pay one dollar in his letter exercising the option, rather than the net book value to which Link was entitled, does not alter the legal result that Rivas had acquired Link’s shares.
[56] I do not accept this argument. In my view, the price at which the option is exercised is a critical part of the exercise of the option. Neither Rivas nor Venture ever attempted to purchase Link’s shares at a price other than one dollar. The letter of May 17, 2005, is clear – Link would be paid one dollar. It was never paid. The letter does not address the alternative scenario of Link being dismissed without cause. Link did not accept the one dollar and did not render or relinquish his shares. In the ensuing 11 months prior to the sale to Royal Laser, neither Rivas nor Venture took the position that if it turned out that Link had been terminated without cause, he would be paid the price set out in s. 3.6(2)(b) for his shares. I am satisfied that the letter of May 17, 2005, did not constitute a valid purchase of Link’s shares.
[57] Venture’s resolution of October 28, 2005, which purported to purchase Link’s shares for cancellation effective May 17, 2005, was also for a price of one dollar. It too was ineffective.
[58] In these circumstances, I am satisfied that the trial judge did not err in concluding that Link’s shares had not been purchased and that he remained a shareholder on April 30, 2006.
[59] Venture argues that the trial judge erred in awarding damages to Link under ss. 3.4 of the Shareholders’ Agreement. Venture submits that the trial judge ignored the pre-conditions to Link having an entitlement set out in s. 3.4. Section 3.4 requires that Rivas give Link written notice of a pending sale. Venture notes that at trial, neither Link nor Rivas were asked whether Rivas had given Link the required notice. Venture also argues that, in any event, Link is only entitled to relief under s. 3.4 against Rivas and/or the other selling shareholders, but not Venture. Venture, it submits, was not a party to the Share Purchase Agreement and did not receive any of the proceeds of the sale. It was the asset being sold rather than one of the vendors who benefited from the sale.
[60] I do not accept these arguments. The trial judge concluded that Link owned his shares as of April 30, 2006, and would have been entitled to participate in the sale of Venture pursuant to s. 3.4 of the Shareholders’ Agreement.
[61] The trial judge did not explain what led him to conclude Venture was liable pursuant to s. 3.4, however, I am satisfied that there is a sound basis for that finding.
[62] Venture was a party to the Shareholders’ Agreement. Venture was also integrally involved in the events that led to Link being denied the opportunity to participate in the sale proceeds in breach of s. 3.4 of the Shareholders’ Agreement. In the Share Purchase Agreement, Rivas and the other selling shareholders represented that they were selling all of the outstanding shares of Venture. It is obvious they took the position that Link was no longer a shareholder and was therefore not entitled to notice of the sale under s. 3.4 of the Shareholders’ Agreement, nor was he entitled to participate in the sale proceeds.
[63] Rivas and the other selling shareholders could not have excluded Link from the sale proceeds but for the wrongful actions of Venture. Venture wrongfully terminated Link for causes that were held to be unfounded. Doing so allowed Rivas to claim to purchase Link’s common shares for one dollar. In his letter of May 17, 2005, Rivas purported to purchase the shares “through the Corporation”. The directors of Venture followed up by passing the resolution of October 28, 2005, purporting to purchase for cancellation Link’s shares as of May 17, 2005, for one dollar. This resolution was legally ineffective, but enabled Rivas and the other selling shareholders to take the position in the Share Purchase Agreement that they were selling all of the shares of Venture.
[64] Given that Link was still a shareholder on April 30, 2006, he was entitled to receive notice of the sale and to require that his shares be purchased pursuant to s. 3.4 of the Shareholders’ Agreement. Venture was a party to the Shareholders’ Agreement. Venture’s wrongful actions towards Link led to Link being deprived of the opportunity to participate in the proceeds of the sale to Royal Laser.[5]
[65] I see no error in the trial judge’s conclusion that Venture was liable to Link for the value of his common shares based on the sale to Royal Laser. I would, however, add to the trial judge’s order that Link be required to surrender his common shares to Venture upon payment of the damages awarded in respect of those shares.
[66] Given my conclusion that the trial judge did not err in finding that Link continued to own his shares of Venture at the time of the sale on April 30, 2006, I do not find it necessary to address Venture’s argument that the trial judge erred in concluding that Link was not terminated until February 21, 2006. The trial judge’s conclusion in that regard would only be relevant if Link’s shares had been legally acquired before April 30, 2006.
[67] The trial judge awarded Link $229,411.76 representing nine per cent of the total dividend paid out on the Class B preferred shares. Venture argues that the trial judge erred in making this award for two reasons: first, Link was not entitled to exercise his option to purchase the Class B preferred shares until after July 15, 2009, and until that option was exercised, Link had no right to any dividends on the Class B shares; and second, in any event, Link did not plead that he was entitled to the dividend awarded.
[68] I agree that the trial judge erred in awarding nine per cent of a dividend paid on the Class B preferred shares. As Venture points out, Link’s interest in the Class B shares was an option to purchase. The Option Agreement specifically provides that Link would have no rights to receive dividends until the option was exercised. The option could only be exercised by Link after July 15, 2009.
[69] While there was evidence that Rivas received a dividend during the period that Link still owned his common shares, it is not clear on what shares this dividend was issued. Rivas testified that the dividend was issued on his common shares; however, I note that s. 2.4 of the Shareholders’ Agreement provides that the common shareholders will not receive any dividends or other consideration on their shares until all preferred shares of Venture have been repurchased or otherwise cancelled. From examining the Share Purchase Agreement it appears that immediately prior to the sale to Royal Laser there were outstanding preferred shares. In the end, I am unable to determine what happened with respect to the dividend other than that Link was not entitled to a dividend on his Class B share option.
[70] In these circumstances there is not sufficient evidence to support the award of damages to Link in respect of the dividend payment. Accordingly, I would set aside the trial judge’s award in this respect.
[71] Venture argues that the trial judge erred in failing to reduce the damages he awarded to Link for wrongful dismissal as a result of Link’s failure to mitigate those damages. The trial judge allowed Link damages for a 12-month notice period without deduction. Link testified and the trial judge found that Link took no steps to look for another position until after February 21, 2006 – one year after his dismissal. Link testified that he did not take any steps because he was concerned about violating the non-competition and non-solicitation provisions of the Shareholders’ Agreement and jeopardizing his claim for the value of his share of Venture. These provisions prohibit Link from competing or soliciting while he is a shareholder of Venture and for periods of 12 and 18 months, respectively, after he is no longer a shareholder.
[72] Link was eventually employed in August 2006.
[73] In concluding that he should not make a deduction from the award of damages for pay in lieu of notice and benefits, the trial judge had regard to the relevant authorities and legal principles. He pointed out that there was an onus on Venture to establish that Link failed to take reasonable steps to mitigate his damages and that had he done so, he would have been expected to secure a comparable position reasonably adapted to his abilities. Because Venture did not lead any evidence about the availability of suitable employment, the trial judge concluded that Venture had not met the second prong of the test set out above.
[74] In my view, this conclusion was open to the trial judge and I would not give effect to this ground of appeal.
[75] Venture argues that if the trial judge’s finding that Link was still a shareholder on April 30, 2006, is not set aside, this court should order a new trial to address whether Venture is entitled to a set-off from the damages award because of what it alleges was Link’s breach of his non-competition, and potentially non-solicitation, obligations. The thrust of this argument is that if this court holds that Link was still a shareholder in August 2006, he breached the non-competition clause by accepting employment with Venture’s competitor. As this set-off argument was not addressed at trial, Venture argues that this court should order a new trial.
[76] I do not accept this argument. It was Venture’s position throughout the trial that Link was terminated with cause and that Link had ceased being a shareholder as of May 17, 2005. The trial judge rejected both positions.
[77] Venture’s set-off argument appears to be an attempt to take advantage of its own wrongdoings. The argument depends on a finding that Venture terminated Link without cause and breached the Shareholders’ Agreement. It also ties into the fact that Link did not sell his shares at the time of the sale to Royal Laser as he was entitled to do under s. 3.4 of the Shareholders’ Agreement. While Link continued to be a shareholder in August 2006 when he took employment, a court might be reluctant to enforce the non-competition clause in light of the positions that Venture had wrongfully asserted in the previous 18 months.
[78] That said, I do not find it necessary to determine the merits of the set-off argument or to remit it for a new trial. The set-off argument was available to Venture at trial. Venture was aware at the time of trial that Link was asserting that he continued to be a shareholder of Venture after April 30, 2006. Venture also knew at trial that Link had obtained employment with Precision Metals in August 2006. The implications were clear. If Link succeeded in his argument, it was open to Venture to argue as an alternative position that Link, in taking his new employment, had breached the non-competition and perhaps the non-solicitation provisions in the Shareholders’ Agreement, thereby entitling Venture to a set-off for any damages it sustained.
[79] Venture did not take this position at trial and I do not accept that at this stage it is entitled to have a new trial to address this issue.
[80] In the result, I would allow the appeal with respect to that part of the judgment relating to the dividend payment. In all other respects the appeal is dismissed. I would order the appellant to pay the respondent’s costs of the appeal fixed in the amount of $15,000, inclusive of GST and disbursements.
RELEASED: “DOC” “MAR 1 2010”
“D. O’Connor A.C.J.O.”
I agree R.G. Juriansz J.A.”
I agree Paul Rouleau J.A.”
[1] The Schedule to the Shareholders’ Agreement incorrectly shows that Link received 90 out of the total of 1,000 issued common shares. Nothing turns on this discrepancy.
[2] This provision refers to the voting shareholders which include the management shareholders.
[3] In accordance with the Share Purchase Agreement, the purchase price after deductions was $36,075,833.00.
[4] Counsel also referred to this amount earlier in his opening.
[5] I note that the same conclusion would be reached if the offer to purchase fell under s. 3.5. Section 3.5 provides that if all of the voting shareholders receive a bona fide offer from a third party, which voting shareholders holding more than 50 per cent of the issued and outstanding common shares wish to accept, the majority may by written notice require all other common shareholders to sell their shares at the same price, terms and conditions as specified in the offer.