Issue link: https://read.uberflip.com/i/55013
Applying this framework, the Court of Appeal noted that the first step was to identify the reasonable ex- pectation held by the plaintiffs which Spielo allegedly breached. It noted that the plaintiff employees held the reasonable expectation that they would not be forced to sell their shares back to Spielo unless their employment was terminated for reasons tied to the employment relationship. The Court of Appeal then considered whether this reasonably held expecta- tion had been breached. It upheld the trial judge's finding that there was no evidence to support the notion that the plaintiffs' employment had been ter- minated for the purpose of reclaiming their shares and depriving them of the opportunity to obtain fair market value for their shares in the subsequent sale of the company. At paragraphs 62 and 63, the Court of Appeal held: ... The long and the short of it is, the trial judge found that there was no evidence to support the al- legation that the appellants' employment was termi- nated because Spielo wanted to reap the benefit of the full capital gain to be realized because of a pos- sible or anticipated sale to a third party. ... Everything Spielo and Mr. Manship did was in furtherance of valid corporate objectives. There is no evidence of either [defendant] engaging in opportunistic behaviour. It was further noted by the court that the trial judge's conclusion that both plaintiffs were dismissed for proper business reasons related to the poor perfor- mance of the On-Line Division of Spielo with respect to which they were responsible. The Court of Appeal also confirmed that the law does not recognize the existence of a pre-contractual duty to bargain in good faith, stating at paragraph 34: "In the end, there is simply no support for the proposi- tion that Canadian law has recognized a generalized duty to bargain in good faith, and nothing said by this Court ... suggests otherwise". Claims for negligent misrepresentation which had been based upon alleged promises made by Spielo's principal shareholder that he would arrange for Doucet's increased shareholdings in Spielo and that both plaintiffs would eventually realize fair market value for all their Spielo shares were also dismissed. The Court of Appeal upheld the finding of the trial judge that there was no evidence of any such alleged representations and further noted that the claim lacked a legal foundation as the relevant SSAs effectively precluded the making of the very representation alleged by the plaintiffs. Although the Court of Appeal reduced the award of costs granted to the defendants at trial from $838,490.62 to $745,325 plus reasonable disbursements, it observed that this remains the highest cost award to be issued by a New Bruns- wick court. The Court of Appeal commented that the substantial award of costs was warranted, in part, based upon the unnecessarily complex man- ner in which the litigation was presented and pur- sued by the plaintiffs as well as the plaintiffs' un- founded allegations that the defendants had failed to make sufficient documentary disclosure. As not- ed by the Court of Appeal: "There is not a scintilla of evidence on the record before us to support the allegation of deliberate non-disclosure". This decision demonstrates that disappointed ex- pectations, alone, will not be sufficient to found al- legations of oppression. Rather, compelling evidence of "opportunistic", "oppressive", or "unfairly preju- dicial" conduct which breaches the reasonably held expectations of shareholders will be required. The decision also demonstrates the benefit of well crafted subscription agreements when conferring shareholder benefits upon employees which preserve an employ- er's rights pursuant to the employment relationship. Spielo is also definitive with respect to any lingering suggestion that a pre-contractual duty to bargain in good faith exists. Although the Court of Appeal not- ed that the law should not remain impervious to cases where a party fails to disclose pertinent and material information or enters into negotiations with no inten- tion of concluding a contract because of an ulterior motive, it has clearly stated that a generalized pre- contractual duty to bargain in good faith is not rec- ognized. Moreover, the decision signals that substan- tial costs will be awarded in cases where unfounded claims are pursued in an unnecessarily complicated manner accompanied by unsubstantiated allegations of deliberate failure to make proper disclosure. The plaintiffs have recently applied for leave to appeal to the Supreme Court of Canada which ap- plication is pending. Spielo Manufacturing Incorpor- ated et al. was represented by Gordon Petrie, Q.C., Catherine Lahey and Clarence Bennett of Stewart McKelvey. Catherine Lahey Saint John, NB 506.632.8307 clahey@stewartmckelvey.com DOING BUSINESS IN ATLANTIC CANADA FALL 2011 3