IN THE PROVINCIAL COURT OF BRITISH COLUMBIA

[1]           The Claimant Sasko Despotovski brings this claim against the Defendants seeking to enforce an agreement he made with the Defendant Abattis Bioceuticals Corp. (the Corporate Defendant) on February 17, 2011.  That agreement provided for the settlement of a claim or claims that the Claimant had against the Corporate Defendant arising out of services that the Claimant had performed for the Corporate Defendant either as an employee or as a consultant (the parties disagree on what the nature of that relationship was).

[2]           The parties agree that they entered into a written agreement that ended this relationship and that purported to settle any claims that the Claimant had against the Corporate Defendant, but they disagree on what the Claimant was entitled to under the terms of that agreement.  It is the position of the Claimant that he was entitled to a payment of $55,000, but that of that amount, he was only paid, at most, $10,675 ($5,000 in cash and $5,675 from the sale proceeds of some common shares in the Corporate Defendant that he was given.)  He alleges that he is owed an amount well above the $25,000 that this court is empowered to award to him, but abandons his claim to any excess of that amount.

[3]           The Defendants filed a Reply that alleged a number of defences, most of which were not pursued at trial.  The Reply alleges that Mike Withrow was not a party to the agreement of February 17, 2011 and is therefore not personally liable under the agreement.  This defence was successfully advanced at trial.  The Reply also alleges (a) that the agreement of February 17, 2011 was made by the former CEO of the Corporate Defendant without proper authority, (b) that the Claimant misrepresented himself in some unlawful fashion, and (c) that the Claimant was working with another company to “extort money from” the Defendants.  None of these defences were advanced at the trial of this matter.

[4]           Though not pled in their Reply, the Defendants now take the position that under the agreement of February 17, 2011, the Claimant was entitled to be paid the amount agreed to in the agreement in the form of common shares in the Corporate Defendant, which he received.  The Corporate Defendant argues that it has complied with the agreement and that it does not owe any more to the Claimant.  It asks for dismissal of the Claim.

[5]           The Claimant also sued the Defendant Mike Withrow, who is the current Chief Executive Officer (CEO) of the Defendant. Mr. Withrow was not a party to the agreement of February 17, 2011 and he did not become the CEO of the Corporate Defendant until February 1, 2011.  The Claimant said that he sued Mr. Withrow personally because he alleged that Mr. Withrow was acting in bad faith and was frustrating resolution of the Claim.  In his Notice of Claim, he alleges that “management” (presumably Mr. Withrow) “has since resorted to delay tactics and avoidance”.  At the trial of this matter I granted a motion to dismiss the claim against Mr. Withrow because the evidence presented by the Claimant disclosed no cause of action against Mr. Withrow.  I will elaborate on that ruling in these reasons.

[6]           The trial of this matter was scheduled for three days.  The Claimant had previously indicated (in an addendum to his trial statement filed on June 26, 2014) that he would be calling nine witnesses.  The Defendants informed the court at different times that one or two witnesses would be called to support their case.  However at trial the Claimant was the only witness to testify.  He did not call any other witnesses and the Defendant did not call any witnesses.  The evidence and submissions were completed by the end of the morning of the first day scheduled for trial.  Following is a summary of the evidence, the applicable law, the position of the parties, and my reasons for making the order now made.

[7]           At the time that the Claimant and the Corporate Defendant entered into their working relationship, the Corporate Defendant was a fledgling company and had not yet become the publicly traded corporation that it is today.  It was then known as Abattis Biotex Corp.  (A corporate name search shows that on September 11, 2012, the Corporate Defendant changed its name to Abattis Bioceuticals Corp.)

[8]           On April 1, 2009, the parties entered into a written agreement entitled “Executive Consulting and Non-Competition Agreement”.  The Claimant testified that he was hired by the Corporate Defendant to be its Vice-President of Research, while the Defendants say, in their closing submission, that the Claimant was a consultant. Interestingly, Clause 1 of that agreement is entitled “Employment” and begins with the phrase:  “The Company agrees to employ the [Claimant] in a consulting capacity and the [Claimant] agrees to be employed by the Company as a Consultant…”  Whatever the precise nature of this relationship was, the parties later agreed that it was one over which the Employment Standards Branch of the BC Ministry of Labour had jurisdiction.  The relationship ended sometime in April of 2010.

[9]           In its first year, the relationship between the Claimant and the Corporate Defendant soured.  Lengthy written communication passed between the Claimant and the Corporate Defendant’s CEO at the time, Mr. Gil Schneider, and both sides made offers to one another to settle any and all claims that the Claimant had against the Corporate Defendant. In a written communication dated April 13, 2010, Mr. Schneider, on behalf of the Corporate Defendant, offered to settle the claim by giving the Claimant 100,000 shares in the Corporate Defendant, which were said to have a deemed value of 25 cents per share.  The Claimant, in a written response (dated April 12, 2010, but which references Mr. Schneider’s “earlier” communication of April 13, 2010), said that he was willing to accept a cash settlement of $65,000 plus some unquantified expenses.  In his evidence, he testified that these expenses would have added a further sum of perhaps as much as $15,000 for a total claim of $80,000.

[10]        On May 15, 2010, the Claimant submitted a complaint to the Employment Standards Branch of the Ministry of Labour.  In the complaint, he alleged that the Corporate Defendant owed him a total of $138,015.28.  The dispute was resolved (or so the parties thought) by two written agreements, signed on February 17, 2011.  In one agreement, prepared on the letterhead of the Employment Standards Branch, the Corporate Defendant was to pay the Claimant the sum of $20,000.  This sum has been paid.

[11]        The Claimant says that the second agreement was prepared by the Corporate Defendant and this was not disputed in submissions by the Defendants.  It was signed on behalf of the Corporate Defendant by Gil Schneider.  Counsel for the Defendants notes that the agreement was not prepared by a lawyer, and it is not drafted in the clearest of terms.  It is the interpretation of this agreement that is now at the heart of this litigation.

[12]        The agreement begins with mention of a payment to the Claimant by the Corporate Defendant that is in addition to the payment set out in the agreement made on the letterhead of the Employment Standards branch.  Paragraph 1.1 of the agreement reads as follows:

[13]        This clause quantifies the value of what it was agreed that the Claimant was owed as being precisely $55,000 (Canadian funds).  It also clearly stated that this amount was in addition to the $20,000 paid pursuant to the agreement negotiated by the Employment Standards Branch.  It contemplated that, to pay this amount, the Claimant would be issued shares in the Corporate Defendant.  Clause 1.2 contemplated that those shares would be sold at some point in future.  Under clause 1.2, if the sale of those shares netted an amount in excess of $55,000, that excess would be refunded to the Corporate Defendant. Clause 1.2 did not specifically address what would happen if the sale of the shares fetched sale proceeds of less than $55,000.

[14]        Clause 1.2 set out some of the mechanics of how the shares referred to in clause 1.1 would be issued, and on what terms they could be sold.  This clause reads as follows:

[15]        The Claimant alleged in his evidence that the shares were not issued until March 1, 2011, more than 8 days after “the above date” (presumably February 17, 2011). However the share certificate was forwarded to the Employment Standards Branch by February 25, 2011, and the evidence satisfies me that the Corporate Defendant met this deadline.

[16]        The Claimant did not deposit the shares with a legal firm approved of by the Corporate Defendant.  His evidence was that he contacted the Corporate Defendant to ask which law firms it would approve of holding on to the shares.  According to his evidence, it was the Corporate Defendant who frustrated the Claimant’s compliance with this clause.  Counsel for the Defendants argues that I should not accept this evidence because the Claimant did not tender any of the email supporting this assertion into evidence.  The Defendants did not call any evidence to dispute this and nothing in the Reply filed by the Defendants suggests that this was in issue.  I find no basis to disbelieve the Claimant’s sworn testimony on this issue.

[17]        Clause 1.3 provides that:

[18]        The Claimant agrees that when he sold the shares, he did so without the direction, knowledge or approval of the Corporate Defendant.  He alleges that he was allowed to do so under the terms of the agreement because the agreement set out certain time frames for things to happen and that the sold the shares after the clause requiring the Corporate Defendant’s approval had expired.  It would not be reasonable for the Claimant to be expected to hold the shares in perpetuity, and the agreement addressed this concern by providing a “specified time frame” that is mentioned in clause 1.4. That clause reads as follows:

[19]        The only “specified time frame” mentioned in the agreement appears in clause 2.1, which provides that the agreement “is to be exercised within 180 days” of February 17, 2011 (i.e. no later than August 17, 2011.) Although clause 1.4 contemplated this time frame being extended by negotiation, no such negotiation ever took place.  When the deadline came and went, the Claimant understood that he was no longer bound to seek the approval of the Defendants to sell his shares.  He also understood that he was free to pursue his legal remedies to collect the outstanding balance (which is acknowledged in clause 1.1 to be precisely $55,000.) The use of the phrase “if the cash equivalent is not obtained” supports the Claimant’s understanding that the agreement intended for the Claimant to receive $55,000 from the sale of his shares and contradicts the assertion of the Defendants that all that the Claimant was entitled to was the common shares, regardless of what their value turned out to be.

[20]        Although paragraph (a) of clause 1.4 refers to the agreement being “voided” if the cash equivalent was not obtained by the Claimant, Counsel for the Defendants states in his submissions that his clients are not asking that the agreement be voided. Similarly, the Claimant is not seeking to relitigate the issue of what is owing to him by the Corporate Defendant.  He is content with the quantification of what is owing to him at $55,000.  Accordingly, the only issue is whether or not that payment has been satisfied by the issuance of common shares, as the Defendants assert, or whether the Claimant is entitled to the difference between the money he received ($10,675) and the money he was owed ($55,000).

[21]        The Claimant subsequently sold his shares in the Corporate Defendant.  This occurred after the “specified period” of 180 days passed.  He testified that he received $5,675 for the shares.  Counsel for the Defendants argues that the Claimant should be disbelieved on this point because he has not tendered any documentary evidence of the sale.  I accept the Claimant’s evidence that this was all he received for the sale of the shares.  Firstly, this was the only evidence presented at trial on the point.  Secondly, the Defendants have not suggested, in their Reply, that this would be in issue.  The Reply only alleged that the previous CEO, Mr. Schneider, did not have the authority to sign the agreement of February 17, 2011, as well as other positions that were not advanced at trial.  The evidence shows that the Claimant offered to provide the Corporate Defendant with verification of this, and apparently the Corporate Defendant was not concerned about this enough to take him up on his offer.

[22]        The Defendants’ position that all the Claimant was entitled to under the agreement was the common shares is not consistent with the parties’ subsequent conduct.  According to an email sent by the Claimant to Mike Withrow dated October 11, 2011, the Claimant states:

[23]        According to this evidence, which is not disputed, the Corporate Defendant made a further payment to the Claimant of $5,000 on August 23, 2011, in addition to giving him the shares.  This $5,000 plus the $20,000 paid pursuant to the Employment Standards Branch agreement adds up to the $25,000 referred to in the email of October 11^th.  This conduct of the subsequent payment of $5,000 from the Corporate Defendant to the Claimant is inconsistent with any intention or understanding on the part of the Corporate Defendant that it had fulfilled its obligation to the Claimant by giving him the 200,000 common shares.

[24]        The Claimant asks for judgement against the Corporate Defendant in the sum of $25,000, which is the maximum amount that this court has jurisdiction to award.  He argues that under the written agreement made with the Corporate Defendant on February 17, 2011, it was agreed that the outstanding amount owing to him was $55,000.  From that amount he has only been paid $10,675: $5,675 from the sale of the common shares, and $5,000 from the August 23, 2011 payment from the Corporate Defendant.  This leaves a balance owing to him of $44,325, and he is prepared to abandon the portion of that amount that is in excess of $25,000.

[25]        The Claimant argues that the agreement contemplated that the Corporate Defendant could defer paying him what he was owed, pending the sale of the common shares he was given under the agreement, provided that this sale took place within the “specified time frame” of 180 days.  When that time frame expired, the Claimant was allowed under clause 1.4 of the agreement to pursue collection of the “outstanding balance” as that term is defined in clause 1.1, ($55,000, no less, no more) which he is doing by this lawsuit.

[26]        The Corporate Defendant argues that the agreement clearly provides that all it was obliged to do was to issue the common shares to the Claimant, which it did.  The shares had a “deemed value” of $55,000.  The Corporate Defendant says that it did not warrant that the shares would have any specific value and that it is not responsible for any shortfall in the value of the shares.

[27]        The Corporate Defendant also argues that the Claimant has breached the contract by not depositing the shares with a law firm that it approved of, and by not getting its approval prior to selling the shares.  The Defendants’ Closing Submissions do not expressly address whether the breach of this provision of the contract is so fundamental as to entitle the Corporate Defendant to void the contract, as opposed to simply having a remedy in damages for any loss flowing from the Claimant’s alleged breach of this term.

[28]        The Corporate Defendant argues that the Claimant must have known that, by the use of the term “deemed value” in prior communications between the parties, the agreement did not mean that the shares it was giving to the Claimant would actually be worth $55,000.  It also argues that since the parties had previously discussed settlement for $65,000 plus outstanding expenses, it is unlikely that the parties would have negotiated a settlement agreement that netted the Claimant the greater amount of $75,000 (i.e. the $20,000 he received from the Employment Standards Branch agreement and $55,000 in the disputed agreement.)

[29]        The Corporate Defendant also argues that the subsequent conduct of the parties suggests that the parties did not agree that the Claimant would receive $55,000 in its settlement agreement with the Corporate Defendant.  It cites a number of arguments in support of this including the following:

[30]        Counsel for the Defendant has provided a number of useful authorities on the question of interpretation of disputed contracts.  From the cases provided, the following principles emerge:

[31]        I would also mention the principle of construction of contracts which provides that in cases of ambiguity, language should always be construed against the grantor or promisor under the contract.  This is often referred to as the conta proferentem rule. In Arthur Anderson Inc. v. Toronto Dominion Bank (1994) 1994 CanLII 729 (ON CA), 17 O.R. (3d) 363, Justice Abella, then a member of the Ontario Court of Appeal, explained the rationale for the rule as follows:

[32]        The law requires that, in interpreting the agreement that is at the center of this dispute, the words used in the agreement must be given their ordinary and grammatical meanings and the contract must be read as a whole.  In applying these principles to a consideration of this agreement, the agreement begins with a commitment by the Corporate Defendant to pay the precise sum of $55,000 in Canadian dollars to the Claimant.  The next subject addressed is the manner of the payment.  The parties agree that the payment of $55,000 can be made from the sale of common shares in the company.  The issuance of the shares to the Claimant was intended, according to the words used in the contract, to be a means of payment of no more and no less than $55,000.  The use of the phrases “no less” and “no more” conveys an intention of the parties that it is this precise sum that was to be received by the Claimant.

[33]        The agreement expressly provides that if the Claimant sold the shares for more than $55,000, any excess funds were to be returned to the Corporate Defendant. Counsel for the Defendants argues that the absence of any provision as to what would happen if the sale proceeds were less than $55,000 means that this was the Claimant’s problem.  Such a construction is not reasonable for a number of reasons.  Firstly, the possibility that the shares could be worth less than $55,000 is inconsistent with the very first statement in the contract, contained under the heading “amount of payment”.  This statement provided not only that the Corporate Defendant was to pay the Claimant no more than $55,000, but also “no less” than $55,000.  If the contract is to be interpreted in such a manner that would allow the Claimant to sell the common shares for less, without any remedy to recover the balance, this would contradict the very first statement in the agreement and make the inclusion of the phrase “no less” meaningless.

[34]        The construction urged by the Defendants suggests an unconscionable and unprincipled result.  It would allow for an unbalanced bargain in the Corporate Defendant’s favour, since it had the most knowledge and control over the value of its shares and the terms under which the Defendant could sell his common shares.  While parties are free to enter into such bargains, such an intention must be clear from the words used in the contract.  This is not the case here.  The Corporate Defendant advocates for an interpretation such that if the shares resulted in a profit, that profit went to the Corporate Defendant, but if the shares were valueless, the Claimant ate that loss.  For the Corporate Defendant to intend such a result would speak poorly as to its integrity.  A party cannot take advantage of and benefit from a state of affairs produced by its own wrong, and for the Corporate Defendant to intend such an unbalanced result, without making its intention clear to the Claimant that he was accepting this risk, would be morally wrong.  Such an interpretation would also be inconsistent with the use of the phrase “no less” in clause 1.1.

[35]        The interpretation urged by the Defendants is also inconsistent with the requirement for the Claimant to get the approval of the Defendants for any sale of the shares.  One rationale for requiring such approval would be to prevent the Claimant for selling the shares at too low a price. But this would only matter to the Corporate Defendant if it was on the hook for any shortfall in the proceeds of sale from the shares. If such a shortfall was intended to be the Claimant’s problem, then there would be no need for this clause or for clause 1.3.

[36]        Clause 1.4 also supports the interpretation preferred by the Claimant.  It provides that if “the cash equivalent is not obtained”, the Claimant could pursue other legal remedies.  This clause makes it clear that it was the intention of the parties that the Claimant should receive “the cash equivalent” of the sum of $55,000, no less, no more, and that it was not contemplated that he would eat the difference between whatever was netted on the sale of the shares and the sum of $55,000, but rather than he would have a remedy if this occurred.

[37]        In clause 1.4, the parties agreed that “the common shares are to be converted into the payable cash currency within a specified time frame.”  The payable cash currency is clearly a reference to the sum of $55,000, no less, no more.  This is the amount that the Corporate Defendant agreed to pay in Clause 1.1. It is the only dollar figure referred to in the agreement.  The only “specified time frame” mentioned in the agreement is 180 days from the date of execution of the agreement mentioned in clause 2.1.  That time frame came and went without any sale of the shares and without any payment of the sum of $55,000 to the Claimant.

[38]        The Defendants assert that because the sale of the shares was made without their knowledge and approval, the Claimant cannot sue for any shortfall.  There are two problems with this argument.  Firstly, the parties did not intend for the shares to be held by the Claimant forever.  A reasonable time had to be set for him to be paid what was owed to him.  This reasonable time was agreed in clause 2.1 to be 180 days.  When that time passed, clause 1.4 provided that the Claimant was free to seek other remedies including suing for the shares.  The sale of the shares did not breach the agreement because the 180 day period had expired and was not extended by further agreement of the parties.

[39]        Even if this conclusion was incorrect, the failure of the Claimant to get the approval of the Corporate Defendant was not at the heart of the contract.  At most, the breach of this term would only entitle the Corporate Defendant to damages flowing from the breach.  For example, if there was evidence showing that the Claimant sold the shares at an undervalued price, the Corporate Defendant might be entitled to a credit of the difference in value between the true value of the shares and the amount the Claimant sold them for.  No evidence was presented by the Defendant as to what the shares were worth when sold by the Claimant, and therefore no evidence has been presented to establish such loss.

[40]        I am unable to agree with the argument that the previous discussions about what a fair settlement might be should be used to interpret or supersede the terms of the agreement reached on February 17, 2011.  The terms of that agreement make it clear that the parties agreed that the amount outstanding to the Claimant was $55,000, no less, no more.  There is no ambiguity about this term.  While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words used in the agreement.

[41]        I am also unable to agree that the subsequent conduct of the parties supports the contention that the parties agreed that the Claimant was to receive the common shares (and any sale proceeds therefrom to a maximum value of $55,000) and nothing more.  If that was true, there would be no reason for the Corporate Defendant to pay the sum of $5000 to the Claimant in August of 2011.  The Corporate Defendant’s own actions fly in the face of the interpretation of the agreement that it advocates.

[42]        For the foregoing reasons I am satisfied that the proper construction of the agreement of February 17, 2011 is that the Claimant was to receive from the Defendant the sum of $55,000, no more, no less.  For a period of 180 days the Claimant was entitled to hold common shares in the Corporate Defendant and to attempt to obtain all or part of the money that was due to him by selling those shares in accordance with the agreement.  If this did not occur within 180 days, as subsequently unfolded, he was entitled to take other remedies for collection of that amount.  He never agreed to take the common shares in full settlement of the claim and the agreement of February 17, 2011 never stated that this was what the parties agreed or provided for such an outcome.

[43]        Accordingly, for these reasons I find that the Claimant is entitled to judgement against the Corporate Defendant for the sum of $25,000 plus costs.

[44]        At the conclusion of the Claimant’s case, I granted an application made by Defendant’s counsel, to dismiss the claim against the Defendant Mike Withrow.  I held that the evidence disclosed in the case for the Claimant did not establish any cause of action against Mr. Withrow.

[45]        Mr. Withrow became CEO of the Corporate Defendant.  He was not a party to the agreement that is at the center of this dispute.  The most that can be said is that it was negotiated on his watch.  He had been CEO of the company for 17 days, but the agreement was executed on behalf of the Corporate Defendant by his predecessor, Mr. Schnieder.

[46]        The Claimant argued that Mr. Withrow should also have judgement entered against him because he is an officer of the corporation and because he frustrated the settlement of this claim.  Neither of these grounds is sufficient to rest liability on Mr. Withrow.  The debt owed to the Claimant is owed by the Corporate Defendant, not by Mr. Withrow personally, and he has not been shown to have committed any fraudulent or tortious act.

[47]        As a general rule, officers and directors of a corporation are not personally responsible for debts of the corporation, and in fact one of the purposes of incorporation is to shield the individual officers, employees and shareholders from personal liability for corporate debts in the absence of personal guarantees.  The law in this regard is summarized in the Supreme Court of Canada’s decision in Atco Ltd. v Calgary Power 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557 at pages 561-2, and in the BC Supreme Court decision of Best News Enterprises Corp. v. Tai Li Enterprises Ltd. 2003 BCSC 460 at paragraph [17].

[48]        There are a number of exceptions to this rule. If the evidence showed that Mr. Withrow somehow acted fraudulently in connection with this agreement, if he had committed a tort, or if he did something in connection with this contract separate and apart from his role of acting for the corporation, then some consideration could be given to the claim against him.  The Claimant did not present evidence of any of this. Accordingly, it is appropriate that the action against Mr. Withrow be dismissed under Rule 7(14)(i).

[49]        The Small Claims Act and Rules restrict the court’s power to award costs. Section 19 of the Act allows costs to be awarded in accordance with the Rules, but prohibits the court from awarding the costs of solicitor or client’s fees.  Rule 20(2) sets out the presumption that the successful party is entitled to costs unless a judge or registrar orders otherwise.  In this case the Claimant is entitled to recover from the Defendant its filing and service fees claimed for a total of $256.  The Claimant has not asked for any other additional costs.

[50]        Counsel for the Defendant asks for an order that Mr. Withrow be awarded costs pursuant to Rule 20(5) of the Small Claims Rules.  That subsection allows a judge the discretion to order costs of up to 10% of the amount claimed if the party took a claim to trial with no reasonable basis for success.  It is a discretionary order and a judge can use his or her discretion to refuse such costs.

[51]        For the foregoing reasons, the Claimant Sasko Despotovski shall have judgement against the Defendant for the sum of $25,000 plus costs in the amount of $256.

[52]        The Claim against Mike Withrow is dismissed, without any order for costs.  The application brought by Mike Withrow for costs against the Claimant under Rule 20 (5) of the Small Claims Rules is denied.