Canada: Oppression Remedy: Business Realities, Not Just "Narrow Legalities"

In Pereira v. TYLT Technologies Inc.,¹ the appellant, Jaden Pereira ("Pereira"), successfully appealed a decision of Justice Valente of the Ontario Superior Court of Justice dismissing his application under the oppression remedy provisions of the Canada Business Corporations Act.² Pereira was fired from the corporate respondent, TYLT Technologies Inc. ("TYLTGO"), removed as a director, and forced to sell his unvested shares. Justice Valente dismissed the application, finding that Pereira did not have a reasonable expectation that his position with TYLTGO would continue indefinitely. The Court of Appeal for Ontario allowed the appeal and remitted the matter back to the Superior Court of Justice to be determined at a trial. Key to the Court of Appeal's analysis was its finding that the application judge took an overly narrow view of Pereira's reasonable expectations—focusing unduly on the documentary evidence—without considering other relevant circumstances, like Pereira's role in founding the company.

Application Decision

Pereira was the founder of TYLTGO and a majority shareholder. When the individual respondent, Aaron Paul ("Paul") joined, he received just over 40% of the company's shares. Shortly thereafter, the parties reincorporated the company federally and implemented a new shareholder agreement, employment agreements with termination clauses, and a stock restriction agreement contemplating a three-year vesting period. The stock restriction agreement gave TYLTGO the right to buy unvested shares for $0.0001 per share in the case of a "triggering event," including shareholder termination "for any reason, whether with or without cause." Pereira testified that he received verbal assurances from Paul that he would never be terminated, and that the agreement was made to instill confidence in prospective investors. Later, a significant investor appointed a representative to the board as a condition of his investment in the company. Some allegations of mismanagement arose, and Paul replaced Pereira as CEO. Pereira took a short leave of absence, and upon his return, Paul and the new director voted to terminate his employment and purchased his unvested shares at a fraction of their true value.

Justice Valente dismissed the application, focusing primarily on whether Pereira had established that his alleged verbal agreement superseded the strict terms of the legally binding stock restriction agreement.

Key Takeaways from the Court of Appeal Decision

The Court of Appeal for Ontario allowed the appeal, finding that Justice Valente erred in neglecting to consider Pereira's expectations as a founder of a small company, the circumstances leading to his termination, and whether his conduct justified termination as part of the inquiry of whether it was fair and reasonable. In determining what reasonable expectations existed, the Court of Appeal relied on the seminal BCE decision in confirming that courts must look at business realities and not just at "narrow legalities." In this way, oppressive conduct does not need to be strictly unlawful, because the remedy focuses "on concepts of fairness and equity rather than on legal rights."

Footnotes

1. 2023 ONCA 682.

2. RSC 1985, c C-44, s 241.

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