In Justein v. DeFi Technologies Inc.,1 the Court of Appeal for Ontario recently dismissed an appeal in a dispute over the issuance of options to advisors of the appellant, DeFi Technologies Inc. (“DeFi”). The respondent advisors were successful on their application before Justice Pollak, who awarded them 750,000 options as a remedy for oppression and breach of contract. As detailed below, the Court of Appeal upheld Justice Pollak's decision, finding that the advisors held reasonable expectations that they would receive the options granted to them by the board, notwithstanding that DeFi's management later claimed that they did not meet the definition of “consultants” set out in the company's stock option plan.
Court of Appeal Decision
On appeal, DeFi argued that Justice Pollak erred in failing to make a finding of fact as to whether the advisors were eligible optionees pursuant to the option plan. Further, DeFi argued that the application judge erred in her application of the oppression remedy, in particular her assessment of whether the advisors held a reasonable expectation that they would be able to exercise the options where (DeFi alleged) they had provided no services to the company. DeFi also took issue with the remedy awarded to the consultants, which was a grant of options based on a mean price between when the applicants attempted to exercise the options and the date when the options would have expired under the initial grant.
The Court of Appeal rejected DeFi's arguments, finding that Justice Pollak had applied a “common sense approach to the matter” and relied on the fact that DeFi's board had passed a resolution granting the impugned options to the advisors (and there was no evidence of a subsequent resolution determining that they were not eligible). Further, the Court of Appeal held that, although there was conflicting evidence about the extent of services the advisors provided to DeFi, it was undisputed that they remained in an advisory role at the relevant time. On the issue of damages, the Court of Appeal held that it was not open to the appellant to criticize the remedy awarded by Justice Pollak, as it was one of five proposals jointly submitted by the parties to calculate the value of the options.
Key Takeaway
Shareholders and other stakeholders enter into relationships with corporations based on certain expectations they are entitled to rely on, provided that their expectations are reasonable. In this case, the Court addressed the formation of those expectations in a practical manner: the board created reasonable expectations that the advisors could exercise the options granted to them, and management could not unilaterally revoke the grant in the circumstances.
Footnote
1. Justein v DeFi Technologies Inc., 2023 ONCA 615.
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