2020 QCCA 767, 2020 QCCA 767

Summit-Tech Multimedia Communications inc. c. 6725392 Canada inc. 2020 QCCA 767 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-028187-193 (500-11-051743-165) DATE: June 10, 2020 CORAM: THE HONOURABLE MANON SAVARD, J.A. CLAUDINE ROY, J.A. STÉPHANE SANSFAÇON, J.A. SUMMIT-TECH MULTIMEDIA COMMUNICATIONS INC. APPELLANT – Defendant v. 6725392 CANADA INC.

PAVEL PAVLOV RESPONDENTS – Plaintiffs JUDGMENT [ 1 ] Summit-tech Multimedia Communications Inc. (“Summit”) appeals from two judgments rendered by the Superior Court, district of Montreal (the Honourable Madam Justice Marie-Anne Paquette). [1] The first judgment maintained an objection to the filing of documents of the Société de l’assurance automobile du Québec (“SAAQ”). [2] The second judgment granted Mr. Pavlov relief as a result of the oppressive conduct of Summit and ordered the latter to pay Mr.

Pavlov the greater of two amounts: the fair value as at the date of the judgment of the $500,000 worth of shares promised on December 31, 2014 or $432,080 (plus taxes, interest and the additional indemnity), representing the value of unpaid services. [ 2 ] For the following reasons, the Court allows the appeal in part, for the sole purpose of replacing paragraphs 90 and 93 of the judgment by the following: [90] APPOINTS MNP, Richter or RCGT, at Mr.

Pavel Pavlov’s choice, as independent valuator to establish the fair value as at the date of the present judgment, without a minority discount, of shares of Summit-Tech Multimedia Communications Inc. that were worth $429,000 on December 31, 2014 ( the Promised Shares ); […] [93] ORDERS Summit-Tech Multimedia Communications Inc. to pay to Mr. Pavel Pavlov, within thirty (30) days of the receipt of the report of the independent valuator, the greater of the two following amounts: 93.1. The current value of the Promised Shares; and 93.2.

The outstanding amount of the Unpaid Services ($432,080), plus interest and the additional indemnity provided for in

article 1619 of the Civil Code of Quebec as at May 1, 2013; The Judgment [ 3 ] Mr. Pavlov, both directly and through his company 6725392 Canada inc. (“672”), provided computer programming services to Summit between April 2006 and April 2015. The dispute arose because 672 was not paid for the services rendered by Mr. Pavlov between July 1, 2009 and April 1, 2013. [ 4 ] The explanations of Mr. Pavlov and those of Summit as to why these services were rendered and not paid for over such a long period of time were irreconcilable and the judge accepted Mr.

Pavlov’s version: Summit had promised to issue him company shares in compensation for the services rendered during that period. [ 5 ] She evaluated the quantum of the services rendered: 12,577 hours at a rate of $40 per hour, for a total of $503,080, from which she subtracted $71,000 paid as advances to Mr. Pavlov in December 2014 and February 2015, which left an amount of $432,080 due to 672.

[ 6 ] Considering that the issuance of shares would likely result in an escalation of conflicts and proceedings between the parties, particularly due to Summit’s obstructive approach against the claim, she decided to award a monetary remedy corresponding to the greater of (1) the value of the shares at the moment of the judgment and (2) the amount equal to the balance owing on the unpaid services.

The grounds of Appeal [ 7 ] Summit identifies four grounds of appeal: • an improper exercise of discretion by maintaining an objection to the production of SAAQ documents; • an error in law by conflating the claim of Mr. Pavlov with that of 672; • an error in law in finding that 672’s claim was not prescribed; • palpable and overriding errors of fact caused by the consideration of the evidence through a distorting lens. The SAAQ Documents [ 8 ] Following a motorcycle accident in January 2009, Mr.

Pavlov received payments from the SAAQ throughout the period in dispute, notably an income replacement indemnity, even though he returned to work a few months after the accident. At the time of the accident, Summit was paying 672 for the services rendered by Mr. Pavlov. The latter is and was the president and sole shareholder of 672. [ 9 ] Summit wanted to introduce documents from Mr.

Pavlov’s file at the SAAQ which it considered relevant for three reasons: (1) the documents would have served to explain why 672 did not submit invoices to Summit during the period; (2) they would show the hourly rate and the number of hours worked declared by Mr. Pavlov to the SAAQ in order to receive his income replacement indemnity; and (3) the evidence would have shed light on Mr. Pavlov’s credibility. [ 10 ] The judge considered the evidence irrelevant to solve the issue relating to Summit’s obligation to pay the amounts it owed to either Mr.

Pavlov or 672, since this obligation existed regardless of the indemnities paid by the SAAQ. She also considered that this evidence was unnecessary to evaluate Mr. Pavlov’s credibility or to support Summit’s argument that this was the reason why Mr. Pavlov had not submitted invoices for his services during the disputed period, since Mr. Pavlov had made an admission in the file to the effect that he had received indemnification from the SAAQ during that period. [ 11 ] The judge ruled on the objection during the trial. At that stage, the evidence should have been considered relevant.

Nonetheless, the Court considers that this error was not overriding. [ 12 ] Considering Mr. Pavlov’s admission to the effect that he had received indemnification from the SAAQ until at least 2013 while working, the judge was able to take this situation into account to evaluate Mr. Pavlov’s credibility. The documents would not have explained why he or 672 had not submitted invoices to Summit during this period. [ 13 ] As to what hours and hourly rate Mr.

Pavlov declared to the SAAQ, one could probably assume that he did not declare a $40 per hour rate since, at the time of the accident, 672 was being paid $25 an hour. The evaluation of the adequate oppression remedy was based on other considerations: (1) a document emanating from Summit, prepared six months before the services were rendered, calculating an hourly rate of $32.50, (2) the contemporaneous statements made by Mr.

Di Giovanni, Summit’s representative, to the effect that the unpaid services had an approximate value of $400,000 considering the partial payment of $150,000 that had already been authorized, and

(3) Mr. Di Giovanni’s acknowledgment that the value of the unpaid services was close to 5% of the share capital of Summit, therefore close to $500,000. To this, we can add the promise made to Mr. Pavlov that he would be paid at the hourly rate applicable at the moment of payment and the fact that he was earning $40 per hour as of April 2013. [ 14 ] This ground of appeal is therefore ill-founded. Confusion between the claim of Mr. Pavlov and that of 672 [ 15 ] Secondly, Summit argues that the judge erred in law by conflating the claim of Mr. Pavlov with that of 672.

It claims that this caused a number of errors: (1) she should have concluded that Mr. Pavlov did not have a right to make a claim for unpaid services since the services were rendered by 672; he only had a claim regarding the promise made by Mr. Di Giovanni; and (2) stock options, not shares, were offered to Mr. Pavlov, and a potential beneficiary of stock options should not have been granted an oppression remedy. Furthermore, these stock options were offered because Mr.

Pavlov was a valued employee, not because of unpaid services by 672. [ 16 ] A careful reading of the judgment shows that the judge fully realized the difference between Mr. Pavlov and 672. She did not conflate the two claims. [ 17 ] The application’s main conclusion was to declare Mr. Pavlov and 672 shareholders of equity shares in Summit worth $503,080. The judge only granted a remedy to Mr. Pavlov, thus indicating she realised the difference between the two.

It is only subsidiarily that 672 asked to be paid for the services. [ 18 ] The judge granted the oppression remedy but considered that issuing shares would only create further conflicts between the parties. She referred expressly to s. 241(3) (

d) and (

j) of the

Canada Business Corporations Act [3] to support her choice of remedy:

241 […]

(3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing, […] (

d) an order directing an issue or exchange of securities; […] (

j) an order compensating an aggrieved person; […] 241 […]

(3) Le tribunal peut, en donnant suite aux demandes visées au présent article, rendre les ordonnances provisoires ou définitives qu’il estime pertinentes pour, notamment : […]

d) prescrire l’émission ou l’échange de valeurs mobilières; […]

j) indemniser les personnes qui ont subi un préjudice; […] [ 19 ] The remedy she considered appropriate was an order to compensate the aggrieved person, Mr. Pavlov. The fact that she based the order on the greater of the value of the promised shares or the outstanding amount owed for the unpaid services is not indicative of a confusion on her part of the claims of Mr. Pavlov and 672. [ 20 ] We would also add that Summit paid an advance (a cheque for $65,000 and a deposit of $6,000 for furniture) to Mr. Pavlov himself and not to 672. Although Mr.

Di Giovanni claims it was an advance on its debt to 672, clearly the judge did not find his testimony credible. [ 21 ] As to whether stock options or shares were offered and whether these were offered for past services or in recognition of the employee’s value, these are questions of fact. The judge had to weigh contradictory testimony and make a decision. Summit claimed it had offered stock options solely in recognition of Mr. Pavlov’s value to the company; the judge rejected this contention and preferred the evidence offered by Mr. Pavlov. From the transcripts of the conversations between Mr. Pavlov and Mr.

Di Giovanni, the judge could conclude that shares were promised, not stock options, and that they were offered for the unpaid services. Summit shows no palpable and overriding error in these findings of fact. [ 22 ] The second ground of appeal is ill-founded. 672’s Claim [ 23 ] Thirdly, Summit argues that 672’s claim was prescribed. Since the judge only granted Mr. Pavlov’s claim, there is no need to analyze this argument. Errors of Fact [ 24 ] Finally, Summit argues that the judge committed other palpable and overriding errors of fact, having analyzed the claim through “a distorting lens”.

These so-called errors, except for one, have already been discussed in the analysis of the second ground of appeal. [ 25 ] One error that justifies the Court’s intervention is the calculation of the compensation to be paid to Mr. Pavel. Summit rightfully argues that the conclusions of the judgment are contradictory in that they value the shares at an amount of $500,000, yet assign a different amount of $432,080 to the money owed for the unpaid services, while linking both amounts to the same source. [ 26 ] The trial judge found that in December 2014, Mr.

Di Giovanni had estimated the value of the shares to be issued to Mr. Pavlov at $500,000, based on the rounded-up value of the unpaid services. She also found that Mr.

Pavlov had received, as advances, a cheque of $65,000 on December 24, 2014 and a $6,000 deposit on furniture on February 14, 2015. [ 27 ] When the judge determined that the proper remedy was the greater of two amounts (either the current value of the promised shares or the value of the unpaid services), she should have deducted the amount of the advances received ($71,000) from the value of the promised shares, just like she did with the compensation equivalent to the value of the unpaid services. When Mr.

Pavlov asked for and received these advances, he gave up his right to receive shares in a proportion equivalent to the amount received. [ 28 ] Furthermore, since the judge ordered the payment of a compensation equivalent to the unpaid services to Mr.

Pavlov, and not to 672, she should not have ordered the payment of taxes on this amount. [ 29 ] Therefore, in the conclusions of her judgment, the judge should have appointed an independent valuator to establish the value, as at the date of the judgment, of shares of Summit that were worth $429,000 ($500,000 - $71,000) on December 31, 2014, and she should have ordered Summit to pay Mr.

Pavlov the greater of that value or the amount still owing for the unpaid services ($432,080) with interest and the additional indemnity, but without taxes. [ 30 ] Paragraphs 90 and 93 of the judgment should be modified accordingly.

[ 31 ] Finally, Mr. Pavlov recognized at the hearing that his client might have to reimburse indemnities should the SAAQ consider that the income replacement indemnities he received have to be reimbursed following execution of this judgment. It will be up to the parties to do the follow-up, if required. FOR THESE REASONS, THE COURT: [ 32 ] ALLOWS the appeal solely to REPLACE paragraphs 90 and 93 of the judgment rendered on February 18, 2019 by the following: [90] APPOINTS MNP, Richter or RCGT, at Mr.

Pavel Pavlov’s choice, as independent valuator to establish the fair value as at the date of the present judgment, without a minority discount, of shares of Summit-Tech Multimedia Communications Inc. that were worth $429,000 on December 31, 2014 ( the Promised Shares ); […] [93] ORDERS Summit-Tech Multimedia Communications Inc. to pay to Mr. Pavel Pavlov, within thirty (30) days of the receipt of the report of the independent valuator, the greater of the two following amounts: 93.1. The current value of the Promised Shares; and 93.2.

The outstanding amount of the Unpaid Services ($432,080), plus interest and the additional indemnity provided for in

article 1619 of the Civil Code of Quebec as at May 1, 2013); [ 33 ] With costs on appeal. MANON SAVARD, J.A. CLAUDINE ROY, J.A. STÉPHANE SANSFAÇON, J.A. Mtre Max R. Bernard Mtre Geneviève Claveau Mrs Geneviève Gaudet, articling student LCM AVOCATS INC. For the Appellant Mtre Jonathan Feingold ROBINSON SHEPPARD SHAPIRO For the Respondents Date of hearing: May 29, 2020