



COURT OF APPEAL FOR ONTARIO

CITATION: Baylin Technologies Inc. v.
    Gelerman, 2021 ONCA 45

DATE: 20210126

DOCKET: C68066

Doherty, Nordheimer and Harvison
    Young JJ.A.

BETWEEN

Baylin
    Technologies Inc. and 2385796 Ontario Inc.

Applicants (Appellants)

and

David
    Gelerman

Respondent (Respondent)

AND BETWEEN

Spacebridge
    Inc., Advantech AMT Corp., Advantech Wireless Do Brasil Produtos de Telecomunicações
    Ltda., Advantech Wireless (EMEA) Ltds. and David Gelerman

Applicants (Respondents)

and

Baylin
    Technologies Inc.
, Advantech Wireless Technologies
    Inc. (formerly Baylin Technologies Holdings Canada Inc.), Advantech Wireless
    Technologies (USA) Inc. (formerly Baylin Technologies (USA) Inc.), Advantech
    Wireless Technologies (EMEA) Limited (formerly Baylin Technologies (EMEA) Limited),
2385796 Ontario Inc.
, Jeffrey Royer, Randy Dewey, Janice Davis, Barry
    Reiter, Donald Simmonds, Harold Wolkin, David Saska and Davies Ward Philips
    & Vineberg LLP

Respondents (
Appellants
)

Steve J. Tenai and Miranda Spence, for
    the appellants

Jason Wadden and Jesse-Ross Cohen, for
    the respondents

Linda Plumpton, James Gotowiec and
    Adrienne Oake for the intervener, Toronto Stock Exchange

Susan Kushneryk and Eric Morgan for the
    intervener, The Canadian Coalition for Good Governance

Heard: December 17, 2020 by
    video conference

On appeal from the orders of Justice Laurence
    A. Pattillo of the Superior Court of Justice dated January 23, 2020, with
    reasons reported at 2020 ONSC 404.

Nordheimer J.A.:

A.

Overview

[1]

The appellants, Baylin Technologies Inc. and
    2385796 Ontario Inc. ("2385796"), brought an application before the
    Ontario Superior Court of Justice (Commercial List). They sought an order
    requiring David Gelerman to tender his resignation as a director of Baylin, as
    required under Baylins majority voting policy, along with other declaratory
    relief.

[2]

Prior to the appellants application, David Gelerman
    and the corporate respondents had brought an application seeking a declaration
    that Gelerman was not required to tender his resignation because of alleged
    oppressive conduct by the appellants and others, and for an order directing the
    release of certain shares held by Spacebridges lawyers, as trustees, for
    consulting fees pursuant to a consulting agreement between Baylin and
    Spacebridge (the Consulting Agreement).

[3]

The applications were heard together on October
    29, 2019 and decided in a single set of reasons released on January 23, 2020.
[1]

B.

Background

(1)

The Asset Purchase Agreement

[4]

Pursuant to an asset purchase agreement in
    January 2018 (the APA), Baylin acquired from Spacebridge and its affiliates
    the undertaking and assets of Spacebridges satellite and radio frequency,
    terrestrial microwave and antenna equipment and services business. Gelerman was
    the founder of Spacebridge and its President and CEO.

[5]

Negotiations over the APA lasted several months
    following the signing of a non-binding indication of interest between Baylin
    and Spacebridge at the end of August 2017. As part of the indication of
    interest, a support letter was delivered by 2385796 (Baylins majority shareholder)
    to Baylin in early August 2017 stating that it would be prepared to support the
    proposed transaction between Baylin and Spacebridge (formerly called Advantech
    Wireless Inc.). The indication of interest provided for Gelerman to serve in a
    senior consulting role reporting directly to Baylins President and CEO.

[6]

The APA was eventually negotiated and signed on
    January 17, 2018. Paragraph 4.16 of the APA is of particular relevance to the
    issues raised. It reads, in part:

Gelerman Director Nomination

(a) Subject to Gelerman meeting, at all
    applicable times, the requirements of the TSX and Applicable Laws, Baylin
    shall:

(i) following the Closing Date request of its
    board of directors to appoint Gelerman to such board of directors, to hold such
    position until the first annual general meeting of holders of Baylin Common
    Shares that occurs following the Closing; and

(ii) at each of the 2018 and 2019 annual
    general meetings of holders of Baylin Common Shares, Baylin shall nominate
    Gelerman for election to its board of directors and shall honestly and in good
    faith, subject to Applicable Law, assist Gelerman to obtain the votes necessary
    to secure membership on the board of directors of Baylin

(2)

The Consulting Agreement

[7]

It was a condition to the closing of the APA that
    Baylin enter into the Consulting Agreement with Spacebridge. The Consulting
    Agreement provided for consulting services to be provided by David Gelerman, in
    his capacity as Chief Technology Officer, and Stella Gelerman, in her capacity
    as Special Advisor, to Baylin or its affiliates for a term ending on December
    31, 2019. The Consulting Agreement provided for annual payments of $1.25
    million for an aggregate fee over the two-year term of the Consulting Agreement
    of $2.5 million, paid equally in cash and Baylin shares.

[8]

More specifically, the Consulting Agreement
    provided for the payment of the consulting fees as follows:

Base Fee
.
    Baylin shall pay to the Consultant a fee of $1,250,000 (Canadian Dollars) per
    annum for the duration of the Term (the 
Fee
) in respect of the
    Consulting Services. The Fee shall be paid as follows:

(a) by delivery to, or to the direction of,
    the Consultant on the final business day of each March, June, September and
    December that occurs in the 24 month period following the Effective Date, the
    sum of $156,250; and

(b) by delivery to Davies Ward Phillips &
    Vineberg LLP (
DWPV
), as trustee for the Consultant, on the Effective
    Date, such number of common shares in the capital of Baylin (the 
Baylin Common
    Shares
) as is equal to:

(1) one million two hundred and fifty thousand
    dollars ($1,250,000); divided by,

(2) the volume weighted average price of the
    Baylin Common Shares traded on the facilities of the Toronto Stock Exchange
    during the five (5) trading day period ending on the last trading day prior to
    the Effective Date,

which shares shall be held by DWPV and
    released to the Consultant in accordance with Section 3.2.

[9]

Section 3.2 of the Consulting Agreement provided
    as follows:

Restricted Shares
. On the date hereof, Baylin shall deliver the Baylin Common Shares
    referred to in Section 3.1(b) in eight (8) equal parts, each part to be issued
    on a separate share certificate. The eight (8) share certificates shall be
    released by DWPV and delivered to the Consultant, as to one certificate in each
    instance, at each of the Effective Date and thereafter on the final business
    day of each March, June, September and December that occurs in the 20 month
    period following the Effective Date.

(3)

Majority Voting Policy

[10]

Baylin was listed on the Toronto Stock Exchange
    (TSX). The TSX maintains rules for listed companies, which are set out in the
    TSX Company Manual (TSX Manual). Issuers such as Baylin must comply with the
    TSX Manual in order to maintain their listing on the TSX.

[11]

The TSX first proposed adding a majority voting
    requirement to the TSX Manual in September 2011. The effect of a majority
    voting requirement is that it requires a person, who has been elected as a
    director, to nonetheless submit his/her resignation, if s/he does not receive
    50%+1 of the total votes cast. As further explained below, this requirement was
    necessary to avoid the effects of the plurality voting requirements that are
    currently contained in corporate statutes, such as the
Business
    Corporations Act
, R.S.O. 1990, c. B.16 (
OBCA
).

[12]

The stated rationale for the addition of a
    majority voting requirement was, in part, that majority voting policies
    support good governance by providing a meaningful way for security holders to
    hold directors accountable and remove underperforming or unqualified
    directors.
[2]
At the time, the TSX did not propose to make majority voting mandatory. In
    October 2012, the TSX issued a Notice of Approval for the amendments. The
    amendments became effective on December 31, 2012.

[13]

Subsequently, the TSX decided that it would make
    the majority voting requirement mandatory for issuers that did not have a
    majority shareholder. The TSX issued a Notice of Approval for the mandatory Majority
    Voting Requirement in February 2014. The amendment became effective on June 30,
    2014. Section 461.3 of the TSX Manual requires every issuer to adopt a majority
    voting policy that provides, in part:

a) any director must immediately tender his or
    her resignation to the board of directors if he or she is not elected by at
    least a majority (50% +1 vote) of the votes cast with respect to his or her
    election;

b) the board shall determine whether or not to
    accept the resignation within 90 days after the date of the relevant security holders
    meeting. The board shall accept the resignation absent exceptional
    circumstances;

[14]

The exception for exceptional circumstances is
    an issue in this appeal. As part of its process for implementing mandatory
    majority voting, the TSX had attempted to provide some guidance on what would
    constitute exceptional circumstances. For example, the TSX Staff noted in a
    2017 Staff Notice that they would contact an issuer to discuss the exceptional
    circumstances that are present when a board determines to reject a directors
    resignation. The TSX said that each situation would be reviewed on a
    case-by-case basis, taking into account the unique factors applicable to each
    issuer. The 2017 Staff Notice stated that exceptional circumstances would be
    expected to meet a high threshold. It provided some examples of what might meet
    that threshold. One of the examples was that an issuer would not be compliant with
     commercial agreements regarding the composition of the Board as a result of
    accepting the Subject Directors resignation. However, the 2017 Staff Notice
    did not require issuers to incorporate any or all of the listed circumstances
    into their own policies.

[15]

As a result of another acquisition made by
    Baylin in June 2018, which was after the Spacebridge acquisition, Baylin ceased
    to have a majority shareholder. It was therefore required to adopt a Majority
    Voting Policy in order to comply with the TSX rules.

[16]

Baylins majority voting policy was unanimously
    approved by Baylins Board of Directors in mid-March 2019. David Gelerman was a
    director of Baylin and voted in favour of the policy. Baylins majority voting
    policy states that, [i]f a director receives more withheld votes than for
    votes at any shareholders meeting where shareholders vote on the uncontested election
    of directors, the director must immediately submit to the Board his or her
    resignation, to take effect upon acceptance by the Board.

[17]

In terms of exceptional circumstances for not
    accepting a directors resignation, the Baylin majority voting policy said:

In determining whether to accept the
    resignation, the Board will consider various matters including, but limited to,
    if: (I) acceptance of the resignation would result In the Company not being
    compliant with its Articles, By-laws, and securities law requirements regarding
    the composition of the Board; (II) the resigning director is a key member of an
    established, active special committee which has a defined term or mandate and
    accepting the resignation of such director would jeopardize the achievement of
    the special committee's mandate; or (III) majority voting was used for a
    purpose inconsistent with the policy objectives of the Toronto Stock Exchange.

[18]

It will be noted that the Baylin majority voting
    policy did not expressly include non-compliance with commercial agreements
    regarding the composition of the Board as an exception to its policy.

(4)

The 2019 Annual General Meeting

[19]

As time passed after the completion of the APA,
    difficulties arose between Gelerman and Jeffrey Royer. Royer was the Chairman
    of the Board of Baylin. He was also the sole director and officer of the
    appellant, 2385796, Baylin's largest shareholder.

[20]

On March 23, 2019, as part of its obligation to
    assist Gelerman to continue as a director in accordance with the APA, as noted
    above, Baylins Lead Director and Chair of its Corporate Governance and
    Compensation Committee, wrote to Gelerman on behalf of that committee. The
    letter notified Gelerman that pursuant to the APA, he would be nominated for
    election at the 2019 Annual General Meeting (scheduled for May 14, 2019). However,
    the letter further notified Gelerman that 2385796 did not intend to vote in
    favour of his re-election and, without that support, it was not expected that
    Gelerman would be re-elected. The letter further suggested that Gelerman may
    choose to contact 2385796 Ontario Inc. (via Jeff Royer) to discuss that
    shareholders concerns with your continuing as a director for the ensuing
    year. Gelerman says that he never received the letter that was sent by email.
    As a consequence, he did not respond to the letter.

[21]

Gelerman did not make any effort to contact
    Royer, or any other director, to discuss the election or ask for any
    assistance. Royers evidence was that, given that lack of communication, he decided
    that 2385796 would not vote in favour of Gelermans re-election as a director
    of Baylin.

[22]

At the Annual General Meeting, Gelerman only
    received approximately 29% of the eligible votes for his re-election. 2385796,
    and other shareholders, withheld their votes relative to Gelermans election.
    Gelerman did not submit his resignation as required by Baylins majority voting
    policy. Consequently, Baylins Board never considered whether it would accept
    the resignation.

[23]

Instead, the two applications I mentioned at the
    outset were commenced.

(5)

The claim for set-off

[24]

An additional issue arises. Pursuant to section
    8.1 of the APA, Spacebridge agreed to indemnify Baylin and its affiliates from
    all damages arising from any incorrect representation in the APA. Indemnity
    claims seeking damages in the millions of dollars have been made by Baylin
    against Spacebridge. Under section 8.8 of the APA, Baylin may set-off any
    indemnification amount to which it may be entitled under the APA against
    "amounts otherwise payable by Baylin to Spacebridge.

[25]

On May 8, 2019, Baylin wrote to Spacebridge and
    gave notice pursuant to section 8.8 of the APA of its intention to exercise the
    right of set-off for certain indemnity claims against any amounts payable under
    the Consulting Agreement. Those indemnity claims are the subject of separate
    proceedings between the parties.

C.

THE DECISION BELOW

[26]

The application judge found that Baylins
    majority voting policy did not comply with the TSX majority voting requirement.
    He also found that the policy had been introduced for reasons other than
    compliance with the TSX requirement. The application judge found that the
    Baylin majority voting policy did not comply with the TSX majority voting
    policy in three respects. He said, at para. 39:

The Policy is not, however, the Majority
    Voting Requirement required by the TSX or even "substantially" the
    Majority Voting Requirement required by the TSX. It differs in three material
    respects: 1) The TSX Requirement refers to the majority of votes cast at the
    meeting whereas the Policy is not based on votes cast but rather on
    "withheld votes"; 2) the TSX Requirement does not limit what may
    constitute "Exceptional Circumstances" which the board must find to
    not accept the resignation and allow the director to continue whereas the
    Policy restricts the Board's determination of Exceptional Circumstances to
    consideration of three circumstances only; and 3) as will be seen, in
    restricting the Exceptional Circumstances to the three enumerated
    circumstances, the Policy excludes the TSX's specific example of exceptional
    circumstances concerning "commercial agreements regarding the composition
    of the Board".

[27]

The application judge then considered the
    oppression remedy under s. 248 of the
OBCA
. He found that the evidence
    established that, among other things, both Spacebridge and Gelerman had an
    expectation arising from the background leading up to the APA, and the terms of
    the APA itself, that Gelerman would be a director of Baylin for the two-year
    period. The application judge also found that they had a reasonable expectation
    that Baylin would act honestly and in good faith in assisting Gelerman to be
    elected to the Baylin Board for the two years in issue.

[28]

The application judge went on to find that Baylin's
    actions in presenting the majority voting policy to the Board at the March 13,
    2019 meeting, on the basis that the Policy was required by the TSX, was not
    accurate. Indeed, he found that it was misleading and false. The application
    judge also found it to be a breach of Gelerman's reasonable expectations as a
    director and that it was oppressive, unfairly prejudicial to, and disregarded Gelermans
    role as a director. The application judge also found that the majority voting policy
    was very clearly not the TSX's Majority Voting Requirement.

[29]

The application judge went further and concluded
    that he was satisfied that the reason the majority voting policy was drafted in
    the manner it was, was to enable the removal of Gelerman as a director of
    Baylin.

[30]

As a consequence of his conclusions, the
    application judge set aside the majority voting policy.

[31]

On the issue of set-off, the application judge
    found that the indemnification clause in section 8.8 of the APA applied to any amounts
    otherwise payable" by Baylin to the Spacebridge Group arising from the
    transaction, including amounts payable under the Consulting Agreement.

[32]

However, the application judge also found that,
    in respect of the share portion of the consulting fee under the Consulting
    Agreement, once the shares were delivered to Davies Ward Philips & Vineberg
    (DWPV) in trust, that portion of the fee was paid by Baylin. Since the shares
    had been paid, in the view of the application judge, they were not amounts
    otherwise payable and, thus, were not amounts subject to set-off.

D.

Analysis

(1)

Mootness

[33]

Before turning to the issues raised, I must
    address the submission of Gelerman that this matter is moot because he remained
    a director of Baylin for the time he claimed he was entitled to while these
    proceedings were underway.

[34]

I do not accept that the issues raised in this
    case are now moot because of that passage of time. The application judge did
    not simply determine that Gelerman was entitled to remain as a director of
    Baylin. He also held that Baylins majority voting policy was flawed, and he
    set it aside. That latter determination remains binding on Baylin. Unless
    reversed, Baylin will have to design a new majority voting policy, because the
    rules of the TSX require it to have such a policy. Baylins rights are
    therefore still affected by the decision:
Mental Health Centre
    Penetanguishene v. Ontario
, 2010 ONCA 197, 260 O.A.C. 125, at para. 35.

[35]

In addition, there is a recognized exception to
    the strict application of the mootness principle in cases which raise an issue
    of public importance regarding which a resolution is in the public interest:
Borowski
    v. Canada (Attorney General)
, [1989] 1 S.C.R. 342, at p. 361. The
    submissions of the interveners in this case satisfy me that there are matters
    of public importance involved in this case and that their resolution will be in
    the public interest as they will assist corporate governance of public
    companies in Ontario generally.

(2)

The Majority Voting Policy

[36]

The parties are agreed on one point and that is
    that the application judge erred in his conclusion regarding the effect of
    votes withheld in the election of a director under a majority voting policy. The
    application judge held that votes withheld are not votes cast and therefore do
    not count in the election results. In reaching this conclusion, the application
    judge misunderstood the TSX policy. The TSX policy is clear that votes withheld
    are votes against a director. To conclude otherwise would mean that any
    director who received even a single vote in favour would have achieved more
    than 50%+1 of the votes cast. Indeed, in the single favourable vote scenario,
    the director would have received 100% of the votes cast, if the application
    judges interpretation were to be accepted.

[37]

The approach taken by the TSX, of considering
    withheld votes as votes against for the purposes of a majority voting policy,
    was necessary to avoid the effects of the plurality voting requirements that
    are currently contained in statutes, such as the
OBCA
, that govern the
    election of directors. Under plurality voting, shareholders must either vote
    for a director or they must withhold their vote.
[3]
A withheld vote has no effect under the statute. It is as if the vote was not
    cast. Consequently, under the prevailing statute, a director is elected if only
    one vote is cast for that director, regardless of the number of withheld votes.

[38]

The purpose behind adopting a majority voting
    policy for publicly traded companies was to provide a meaningful way for
    security holders to hold directors accountable and remove underperforming or
    unqualified directors.
[4]
In order to accomplish that purpose, the majority voting policy was designed to
    consider votes withheld as votes against a director. If that then resulted in
    the director receiving less than 50%+1 of the votes cast, the policy required
    that director, although technically elected under the statute, to tender
    his/her resignation. The Board of Directors was then required to accept that
    resignation, absent exceptional circumstances.

[39]

The application judges misunderstanding of this
    central aspect of the TSX majority voting policy infected his approach to, and
    view of, the Baylin majority voting policy. That error led to another. The
    application judge went on to conclude that the Baylin voting majority policy also
    did not comply with the TSX policy because the Baylin policy stipulated only three
    situations that would constitute exceptional circumstances.

[40]

Again, the application judge misunderstood the
    requirements of the TSX majority voting policy. The TSX policy provides that,
    in a situation where a director is required to tender his resignation, that
    resignation must be accepted by the Board of Directors, absent exceptional
    circumstances. The TSX policy does not stipulate what will, or will not, constitute
    exceptional circumstances. Rather, the TSX policy left the determination of
    exceptional circumstances to be dealt with on a case-by-case basis. Indeed, it
    is the practice of the TSX to review any corporations invocation of
    exceptional circumstances as justifying its refusal to accept a directors
    resignation.

[41]

However, in order to assist its members in
    applying the TSX majority voting policy, the TSX provided some examples of
    circumstances that might constitute exceptional circumstances, and thus justify
    the refusal by a Board of Directors to accept a directors resignation. The
    2017 TSX Staff Notice said, on this subject:

Examples of exceptional circumstances may
    include:

 the issuer would not be compliant with
    corporate or securities law requirements, applicable regulations or commercial
    agreements regarding the composition of the Board as a result of accepting the
    Subject Director's resignation;

 the Subject Director is a key member of an
    established, active Special Committee which has a defined term or mandate (such
    as a strategic review) and accepting the resignation of such Subject Director
    would jeopardize the achievement of the Special Committee's mandate; or

 majority voting was used for a purpose
    inconsistent with the policy objectives of the Majority Voting Requirement.

[42]

Two things are clear from this Notice. One is
    that there is no requirement for a majority voting policy to delineate what
    will, or will not, constitute exceptional circumstances. The other is that the
    TSX was providing examples of circumstances that may constitute exceptional
    circumstances. Whether those circumstances, or any others, would in fact
    constitute exceptional circumstances was to be determined on the particular
    facts of any given case.

[43]

All of that said, there is nothing in the TSX
    policy that precludes a corporation from stipulating, in advance, what it will
    consider as exceptional circumstances. Indeed, the intervener,
The Canadian Coalition for Good Governance
, submits that the narrower the exceptional circumstances exception
    is made in any given policy, the more it promotes the purpose of such policies,
    which is to hold directors accountable to shareholders. Whether any stipulated
    exceptional circumstance would be accepted by the TSX will, of course, have to
    await a review at the time that the exceptional circumstance is invoked. However,
    advanced warning of what a corporation would accept as exceptional
    circumstances will benefit individual directors in knowing where they stand in
    terms of compliance with the policy.

[44]

The application judge erred in finding that
    Baylins adoption of specified exceptional circumstances in some fashion
    constituted a violation of, or unacceptable departure from, the TSX majority
    voting policy. In fact, Baylins adoption of those specified exceptional
    circumstances advanced the purpose that underlies majority voting policies. It
    also, as I have said, gave fair notice to directors as to what Baylin would
    consider exceptional circumstances should the issue arise.

[45]

The application judge also found that the Baylin
    majority voting policy did not meet the requirements of the TSX majority voting
    policy because the Baylin policy did not contain the exception regarding
    commercial agreements regarding the composition of the Board. This critique
    of the Baylin policy suffers from the same error that I just set out regarding the
    application judges approach to the exceptional circumstances category
    generally. Baylin was not required by the TSX voting majority policy to include
    commercial agreements as an exceptional circumstance.

[46]

It follows from all of the above that the
    application judge erred in concluding that the Baylin majority voting policy
    did not comply with the TSX policy on majority voting. The opposite conclusion,
    that the Baylin policy was compliant, is the only one that can be properly drawn
    from the record.

(3)

Oppression

[47]

The application judge moved from his conclusions
    regarding the Baylin majority voting policy to the issue of oppression. He
    concluded that both Gelerman and Spacebridge had a reasonable expectation that
    Gelerman would be a director for the two-year period of the earn-out. He then
    concluded that Baylins actions in adopting the majority voting policy were
    misleading and false and that the policy was drafted for the purpose of
    removing Gelerman as a director.

[48]

The application judges finding regarding the
    reasonable expectations of Gelerman and Spacebridge are findings of fact that
    are entitled to deference from this court. They may only be interfered with if
    a palpable and overriding error is demonstrated.

[49]

In my view, Baylin has demonstrated such an
    error. I begin with the fact that reasonable expectations are to be viewed on
    an objective, not subjective, basis. As the Supreme Court of Canada said in
BCE
    Inc. v. 1976 Debentureholders
, 2008 SCC 69, [2008] 3 S.C.R. 560, at para.
    62:

As denoted by "reasonable", the
    concept of reasonable expectations is objective and contextual. The actual
    expectation of a particular stakeholder is not conclusive. In the context of
    whether it would be "just and equitable" to grant a remedy, the
    question is whether the expectation is reasonable having regard to the facts of
    the specific case, the relationships at issue, and the entire context,
    including the fact that there may be conflicting claims and expectations.

[50]

I do not quarrel with the finding that Gelerman might
    himself have believed that he would remain a director for the two-year period.
    However, that expectation was not objectively reasonable, at least not by the
    time of the 2019 Annual General Meeting. I say that for two main reasons.

[51]

First, Gelerman knew that Royer had control over
    2385796, which was the majority shareholder of Baylin at the time that he
    entered into the APA. Gelerman did not have any undertaking from Royer, or from
    2385796, to support him as a director. As observed in
BCE Inc.
, at
    para. 78, one of the factors to be considered in determining whether an expectation
    is objectively reasonable is whether the claimant could have taken steps to
    protect itself against the prejudice it claims to have suffered. Gelerman
    could have negotiated for a commitment from Baylin, and its majority
    shareholder, as part of the APA, that he would be a director for the two-year
    period, but he did not. In fact, such a commitment was requested during the
    negotiation of the APA but was expressly rejected. All that Gelerman obtained,
    as part of the APA, was an undertaking by Baylin that it would nominate
    Gelerman for election to its shareholders and would honestly and in good faith
    assist Gelerman to obtain the votes necessary for election. I would add that
    the APA was negotiated between the parties, all of whom were represented by
    experienced lawyers. As a general proposition, it will be difficult for a party
    to advance that it had a reasonable expectation regarding a particular result
    that is above and beyond that for which the party negotiated:
Casurina
    Limited Partnership v. Rio Algom Ltd.

(2004), 181 O.A.C. 19, at
    para. 26.

[52]

With respect to the latter promise of good faith,
    Royer had obligations in his position as an officer of the majority shareholder
    that were separate and apart from his obligations as Chairman of Baylin.
    Indeed, it would have been improper for Royer to act in a manner contrary to
    the interests of the majority shareholder in order to further the interests of
    Baylin. Gelerman knew, or should have known, that Royer was obliged to act as
    he thought best in exercising his duties as the sole officer and director of
    the majority shareholder.

[53]

Second, Gelerman had been warned by Baylin that
    he did not have the support of Royer for election at the 2019 Annual General
    Meeting. He was urged to seek out Royer and have a discussion with him about the
    problems between them before the vote was held. Gelerman made no effort to do
    so. While Gelerman maintains that he did not receive the letter which contained
    this warning, it is difficult to foist any blame onto Baylin for that failure. I
    would add that it is somewhat telling, on this point, that there was a
    follow-up letter sent by Baylin on this issue that Gelerman also did not
    respond to.

[54]

In any event, it is hard to believe that, even
    without this warning, Gelerman would have been unaware of Royers attitude
    towards him, and the problem that it posed for his position as a director,
    given what had transpired at different Board meetings prior to the 2019 Annual
    General Meeting, much of which is set out in Gelermans own affidavit. I note that
    the application judge found as a fact that Royer had a general dislike for
    Gelermans approach to being a director. The potential impact of that fact, in
    terms of him continuing as a director, could not have been lost on Gelerman.

[55]

The application judge moved from his findings
    about reasonable expectations to his conclusion that Baylin acted oppressively
    against Spacebridge and Gelerman. However, his oppression conclusion appears to
    be based entirely on the adoption of the majority voting policy. The errors
    that the application judge made respecting the majority voting policy, as I
    have detailed above, clearly drove his conclusion regarding what he saw as
    oppressive conduct.

[56]

On the subject of oppressive conduct, and the majority
    voting policy, the application judge made certain additional findings that are
    problematic. One is that the application judge drew an adverse inference
    against Baylin because it did not reveal the legal advice that it had received
    regarding the presentation and passage of the majority voting policy. The legal
    advice that Baylin received was clearly privileged, as the application judge
    acknowledged. It is difficult to rationalize that fact with the criticism that
    the application judge leveled against Baylin, on more than one occasion in his
    reasons, for its failure to reveal legal advice that it was entitled to keep
    privileged. There is also no evidence that Gelerman ever asked what legal
    advice had been received, at the time that the matter came before the Board of
    Directors. Indeed, there is no evidence that Gelerman asked any questions about
    the background to the policy at the Board meeting, when he voted in favour of
    the majority voting policy.

[57]

The application judge also concluded that the
    majority voting policy was passed for the purpose of removing Gelerman as a
    director. However, the basis for this conclusion is the application judges
    erroneous understanding of the background to, and need for, the majority voting
    policy. While the application judge acknowledged that Baylin was required to
    implement a majority voting policy, he does not appear to have given any weight
    to that fact in his analysis. Rather, in his oppression analysis, the
    application judge repeated his error about votes withheld not being votes
    against. He also relied on the absence of the commercial agreement exception as
    an exceptional circumstance which repeated his misunderstanding of the policy
    requirements respecting exceptional circumstances.

[58]

Finally, the application judge found that the
    Baylin majority voting policy was contrary to the TSXs Majority Voting
    Requirement. In fact, the Baylin majority voting policy complied with the TSX
    requirement. The application judges conclusion that the Baylin policy is
    oppressive and unfairly prejudicial and unfairly disregards both Gelermans and
    Spacebridges reasonable expectations arises from his misunderstanding of the
    policy. It is a conclusion that is fundamentally flawed and cannot stand. It
    also led to a palpable and overriding error respecting his finding of oppression.

(4)

Set-off

[59]

As explained above, the set-off issue arises
    from a combination of the APA and the Consulting Agreement. Baylin has asserted
    claims for indemnity against Spacebridge in the millions of dollars. Those
    claims are being contested in separate proceedings. At the same time, Baylin
    was obliged to pay Gelerman, and his wife, $2.5 million over two years pursuant
    to the Consulting Agreement. Baylin claims the right to set-off its indemnity
    claims against the amounts that had not as yet been paid, under the Consulting
    Agreement, when it gave notice of its indemnity claims. It did so on May 8,
    2019. More specifically, Baylin claims the right to set-off its claims against
    the five share certificates that had been delivered to DWPV, but which had not,
    as of that time, been released to Gelerman and his wife.

[60]

As noted above, $1.25 million of the consulting
    fees were to be paid by way of eight share certificates that were delivered to DWPV
    and to be released by them in quarterly installments. The dates of the installments
    were March, June, September and December in each of 2018 and 2019. The share
    certificates for March, June and September 2018 were released. The share
    certificates for December 2018 and March 2019 were not released, apparently
    because DWPV required the consent of Baylin to do so and that consent was not
    forthcoming, the reason for which is not entirely clear. Once Baylin gave
    notice of its set-off claim in May 2019, none of the June, September and
    December 2019 share certificates were released.

[61]

On this issue, the application judge found, at
    para. 67, that:

Based on the above wording and having regard
    to the wording of para. 8.8 together with the entire APA and the other agreements
    forming part of the purchaser and sale transaction, I am satisfied that the
    right to set-off is not limited to amounts payable under the APA but rather
    encompasses any "amounts otherwise payable" by Baylin to the
    Spacebridge Group arising from the transaction. That would include amounts
    payable under the Consulting Agreement.

[62]

I agree with the application judges conclusion on
    this point. The words amounts otherwise payable are clearly broad enough to
    capture payments due under the Consulting Agreement.

[63]

However, the application judge went on to
    conclude that delivery of the share certificates to DWPV constituted payment by
    Baylin of the amounts due under the Consulting Agreement and, thus, those
    amounts were no longer amounts otherwise payable to which the indemnity claim
    could attach.

[64]

I do not agree with the application judges
    conclusion in this regard. The amounts due under the Consulting Agreement were
    not paid by Baylin simply by delivering the share certificates to DWPV. The
    whole structure of the Consulting Agreement was that the amounts due under it
    were to be paid out over a two-year period. The share certificates were
    delivered at the outset, but were not to be released by DWPV until the
    quarterly dates arrived, as I have explained above. Consistent with the
    structure and intent of the Consulting Agreement, the amounts payable under it
    were not paid until the share certificates were released. That has not happened
    with respect to the five share certificates held by DWPV. The amounts represented
    by those share certificates have not been paid as a consequence and, thus,
    those amounts remain payable.

[65]

The difficulty that is then presented is whether
    Baylins claim for amounts under the indemnity agreement can be set-off against
    the claim by Gelerman for delivery of the share certificates under the
    Consulting Agreement. Unfortunately, there does not appear to be any relevant
    caselaw that deals with the issue of whether share certificates can be the
    subject of a set-off claim in circumstances similar to those presented in this
    appeal.

[66]

I begin by noting that in
Telford v. Holt
,
    [1987] 2 S.C.R. 193, Wilson J. confirmed, at p. 204, that legal set-off
    requires mutual debts. Similarly, Wilson J. held, at p. 206, that equitable
    set-off is only available in respect of money sums. These observations have
    been noted with approval in the few cases that actually deal with non-monetary
    claims, including
Dresser Industries Inc. v. Vos
(1985), 60 A.R. 226
    (Master), a case cited in argument by the respondent.

[67]

If Baylin was asserting legal or equitable
    set-off, it does not appear that such a right could be maintained since the
    concepts of debt and money sums do not appear to be broad enough to include
    share certificates or the shares themselves. While shares represent intangible
    property with value, as Kevin McGuinness concludes in
Canadian Business
    Corporations Law,
3rd ed. (Toronto: Butterworths, 2017), at §18.388,
    shares of a corporation do not themselves constitute debt obligations owed to
    the shareholder. The relationship between the corporation and the shareholder
    is not one of debtor/creditor. He also concludes, at §18.42, that shares are
    not a sum of money. I am prepared to accept, for the purposes of this appeal,
    that those conclusions are correct.

[68]

However, Baylin does not assert legal or
    equitable set-off. Rather, it asserts a contractual right of set-off arising
    from section 8.8 of the APA. Contractual rights of set-off are not limited by
    the requirements of debts and money sums. On this point, Kelly Palmer, in
The
    Law of Set-Off in Canada

(Aurora: Canada Law Book, 1993), at p.
    263, notes that the normal rules of set-off such as mutuality, liquid debts and
    connected debts do not apply and that the parties are free to contract for
    whatever result they wish. He concludes that agreements to set-off which
    would, aside from the agreement, not be granted relief due to the absence of
    the requirements of set-off, will be upheld.

[69]

This view, that the technical requirements of
    legal and equitable set-off do not apply to contractual set-off, finds support
    in certain comments of the Supreme Court of Canada in
Caisse populaire
    Desjardins de l'Est de Drummond v. Canada
,

2009 SCC 29, [2009] 2
    S.C.R. 94. Although the primary issue in that case was whether the agreement
    between the parties constituted a security interest for purposes of s. 244(1.3)
    of the
Income Tax Act
, Rothstein J., at para. 22, commented on
    contractual compensation or set-off, stating:

Contractual compensation achieves a similar
    goal to legal compensation or legal or equitable set-off, the discharge of
    mutual debts. However, contractual compensation achieves this goal through
    mutual consent.
It provides the contracting parties with a self-help remedy
    that avoids the technical requirements of legal compensation or legal or
    equitable set-off:
see J.-L. Baudouin and P.-G. Jobin, Les obligations (5th
    ed. 1998), at para. 981, and K. R. Palmer,
The Law of Set-Off in Canada

(1993),

at pp. 263-64. Both a contract providing for a right of
    compensation in Quebec and a contract providing for a right of set-off in the
    common law provinces are to be interpreted by a court in a manner that gives
    effect to the intentions of the parties as reflected in the words of the
    contract. [Emphasis added.]

[70]

I see no reason in principle why the money sum
    rule should be treated any differently from other technical legal or equitable
    set-off requirements such as mutuality, liquid debts and connected debts, none
    of which apparently apply in the contractual set-off context. Accordingly, in
    my view, the parties to a contract are free to contract for the set-off of
    moneys worth or property. Put simply, a contract can override legal and
    equitable set-off principles.

[71]

The question then is whether section 8.8 of the
    APA accomplishes that result. I believe that it does. The principles of
    contractual interpretation are well-known. They were recently summarized by the
    Supreme Court of Canada in

Resolute FP Canada Inc. v. Ontario (Attorney
    General)
,
2019 SCC 60, 444 D.L.R. (4th) 77, at para. 74:

This Court has described the object of
    contractual interpretation as being to ascertain the objective intentions of
    the parties (
Sattva
, at para. 55). It has also described the object of
    contractual interpretation as discerning the parties reasonable expectations
    with respect to the meaning of a contractual provision (
Ledcor
, at
    para. 65). In meeting these objects, the Court has signalled a shift away from
    an approach to contractual interpretation that is dominated by technical rules
    of construction to one that is instead rooted in practical[ities and]
    common-sense (
Sattva
, at para. 47). This requires courts to read a
    contract as a whole, giving the words used their ordinary and grammatical
    meaning, consistent with the surrounding circumstances known to the parties at
    the time of formation of the contract (
ibid
.).

[72]

Section 3.1 of the Consulting Agreement clearly
    indicates that the Baylin common shares form part of the consideration for the
    consulting services. The Baylin common shares are ascribed a value that
    comprises part of the total annual compensation. They represent, in the
    ordinary sense of the words, amounts that are payable under the Consulting
    Agreement. That conclusion is consistent with the conclusion reached by the
    application judge (with which I agree) regarding the meaning of the words amounts
    otherwise payable under section 8.8 of the APA.

[73]

Considering the ordinary meaning of the words of
    the agreements in context, the common-sense interpretation of the provisions
    requires the release of each individual share certificate on a particular date
    to represent an actual payment to the respondent in consideration of the
    services that have been performed. That means that Baylin should have been
    permitted to set-off the share certificates that had not been released, representing
    amounts not yet paid but due, following Baylins notice of its
    indemnification claims at the time of the application.

E.

CONCLUSION

[74]

The appeal is allowed, the orders below are set
    aside, and in their place, orders are granted:

a.

declaring that Baylin's majority voting policy
    is in accordance with the TSX's majority voting requirement and that Baylin's
    majority voting policy remains in force;

b.

declaring that Gelerman was required to have
    submitted his resignation to the Baylin board for consideration following the
    2019 Annual General Meeting;

c.

that the remaining share certificates shall not
    be released from trust, pending the determination of Baylin's indemnity claims
    against Spacebridge, the consent of the parties, or further order of the Superior
    Court of Justice.

[75]

The appellants are entitled to their costs of
    the appeal fixed in the agreed amount of $25
,000
inclusive of disbursements and HST. If the parties cannot agree on
    the disposition of the costs below, they may make written submissions on that
    issue. The appellants shall file their written submissions within 10 days of
    the release of these reasons and the respondents shall file their submissions
    within 10 days thereafter. Each sides submissions shall be limited to five
    pages (excluding bills of costs) and no reply submissions shall be filed.

Released: January 26, 2021 DD

I.V.B.
    Nordheimer J.A.

I
    agree. Doherty J.A.

I
    agree. Harvison Young J.A.





[1]
While the issue was not raised before us, I note that appeals from
    orders made under the
Business
    Corporations Act
, R.S.O. 1990, c. B.16 lie to the Divisional Court: s.
    255. However, since relief beyond the parameters of the
Business
    Corporations Act
was sought and determined in the orders below, this court
    has jurisdiction to hear the appeal:
Courts of Justice Act
, R.S.O. 1990,
    c. C.43, s. 6(2).



[2]
Ontario Securities Commission, TSX Request for Comment, Amendments
    to Part IV of the TSX Company Manual in
OSC
    Bulletin
, 34:36 (September 9, 2011), 34 OSCB 9500, p. 9502



[3]

See, for example, s. 27 of the General regulation under the
OBCA
, R.R.O. 1990,
    Reg. 62, which states: A form of proxy shall provide a means for the
    shareholder to specify that the shares registered in the shareholders name
    shall be voted or withheld from voting in respect of the appointment of an
    auditor, the remuneration of the auditor or the election of directors.



[4]
Ontario Securities Commission, TSX Request for Comment, Amendments
    to Part IV of the TSX Company Manual in
OSC
    Bulletin
, 34:36 (September 9, 2011), 34 OSCB 9500, p. 9502


