



COURT OF APPEAL FOR ONTARIO

CITATION: AB2000 Software Corporation v. Infinium Capital
    Corporation, 2015 ONCA 829

DATE: 20151202

DOCKET: C57543

Cronk, Lauwers and van Rensburg JJ.A.

BETWEEN

AB2000 Software Corporation, Alexandre Bevziouk

Appellants

(Plaintiffs by Counterclaim)

and

Infinium Capital Corporation

Respondent

(Defendant to the Counterclaim)

Alexandre Bevziouk, acting in person

Daniel J. Stern, for the respondent

Heard: September 2, 2015

On appeal from the judgment of Justice Alfred J. OMarra
    of the Superior Court of Justice, dated July 29, 2013, and from his costs
    endorsement, dated October 24, 2013, with reasons reported at 2013 ONSC 5022
    and 2013 ONSC 6616.

van Rensburg J.A.:

A.

Overview

[1]

This is an appeal from the dismissal of the appellants counterclaim
    against the respondent. The appellants assert that the trial judge erred in concluding
    that the contract governing the relationship between the parties had been
    terminated for cause and in rejecting the appellants claims for commissions
    and other compensation. The appellants also seek leave to appeal the costs
    awarded against them in favour of the respondent.

[2]

For the reasons that follow, I would allow the appeal in part with
    respect to the unpaid salary and bonuses, and would allow the costs appeal in
    part. I would dismiss the appeal on all remaining issues.

B.

Facts

[3]

In March 2004, the appellant Alexandre Bevziouk was hired as the Chief
    Technology Officer (CTO) for the respondent Infinium Capital Corporation
    (Infinium). Infinium was founded in 2002 as a securities trading company
    engaged in proprietary capital trading. While employed elsewhere full-time, Mr. Bevziouk,
    working as a software developer, had helped Infinium to develop its electronic
    trading platform in 2003. After he was hired as CTO, Mr. Bevziouk developed,
    installed, and operated an algorithmic trading system for inter-listed arbitrage
    (the algo-trading system) for Infinium.

[4]

There were two consecutive service agreements entered into between
    Infinium and Mr. Bevziouks corporation, AB2000 Software Corporation (AB2000
    Software). The service agreements provided for the terms and conditions of the
    work to be performed by Mr. Bevziouk, and his compensation.

[5]

The first service agreement was dated March 30, 2004. In March 2006, the
    parties executed a mutual release of their obligations under that agreement and
    entered into a second agreement with somewhat different terms, including an
    increase in the monthly payment to AB2000 Software, and eliminating Mr. Bevziouks
    stock option (for which Infinium paid him $50,000). The second service
    agreement, which was backdated to December 1, 2005, was in effect when Mr.
    Bevziouks services were terminated.

[6]

On October 2, 2006, Infinium terminated the service agreement for cause,
    alleging that Mr. Bevziouk was competing with it and taking steps to sabotage the
    algo-trading system. Shortly thereafter, Infinium commenced a legal action
    against Mr. Bevziouk, his company and other defendants, for damages and other
    relief, including injunctive relief that was granted on consent. The appellants
    counterclaimed in the action, asserting a claim for unpaid compensation under
    the service agreement and damages for wrongful dismissal.

[7]

The main action was discontinued against the other defendants in
    September 2012. A few weeks before the trial of the counterclaim, the main
    action was discontinued on consent against the appellants, with costs to be
    determined by the trial judge.

C.

The Trial Decision

[8]

The trial judge dismissed the counterclaim. He rejected the claim that
    AB2000 Software was owed commissions, salary and bonuses under the service
    agreement. He concluded that Infiniums concerns about competition and sabotage
    were well-founded and that the termination of Mr. Bevziouks services was for
    just cause. The trial judge awarded costs of the action to Infinium in the sum
    of $260,599.38, payable by both appellants.

D.

The Appeal

[9]

The appellants appeal the judgment dismissing their claim, and seek
    leave to appeal the costs award against them. The appellants raise three issues
    on appeal. First, they contend that the trial judge erred in his interpretation
    of the service agreement with respect to compensation. Mr. Bevziouk asserts
    that he was entitled to receive three types of compensation that had been
    earned at the time of termination but not paid: commissions on trades made by
    Infinium traders using the algo-trading system he had developed, salary for the
    last month before his termination, and bonuses (which were paid but not in the
    amounts claimed by Mr. Bevziouk).

[10]

Second,
    the appellants contend that the trial judge erred in finding that the service
    agreement was terminated for just cause.

[11]

Third,
    the appellants seek leave to appeal the costs award, asserting that it was an
    error in principle for the trial judge to award Infinium costs for a claim that
    it withdrew on the eve of trial and, further, that the costs award is excessive.

[12]

Infinium
    asserts that there was no error on the part of the trial judge, and that all the
    findings now challenged by the appellants, which were findings of fact, were
    amply supported by the evidence. Further, the trial judges costs award reflects
    a proper exercise of his discretion having regard to, among other things, the
    fact that Infinium bettered its offer to settle at trial.

E.

Analysis

(1)

The Service Agreement

[13]

The
    service agreement in force at the time of termination, under the heading
    Compensation, provided the following with respect to monthly payments and
    bonus:

a) Pay-out:

In determination of your monthly pay-out, the Company will
    assess its monthly trading profit earned from trading utilizing strategies
    developed and personally supervised by you, less deductions applicable to your
    trading, including execution, clearing and capital costs, if any. Your
    individual compensation target is set to 10% (ten per cent) of the monthly net
    trading profit attributable to your trading or $14,583.33, whichever is
    greater. Payment will be made in the month immediately following the applicable
    trading month.

b) Discretionary Bonus, paid, if any, quarterly. Restricted
    component of the Discretionary Bonus, if any, shall be vested in two years from
    the date granted.

[14]

During
    the course of his employment, Mr. Bevziouk received a monthly payment, which at
    the time of his dismissal was $14,583.33. While employed pursuant to the second
    service agreement, he also received two bonuses of $12,500, for the first two
    quarters of 2006.

(2)

Claim for Commissions

[15]

By
    far the most significant aspect of the appellants claim at trial was the claim
    for commissions. The algo-trading system developed by Mr. Bevziouk was deployed
    in 2005. He asserted a claim for a 10% commission on all the trading profits
    generated by the algo-trading platform from January to September 2006, in the amount
    of $686,801.25. He relied on the terms of the service agreement as expressly
    providing for the payment of commissions. Mr. Bevziouk maintained that the
    algo-trading platform he developed realised considerable profits for Infinium,
    resulting in increased earnings from $6.8 million to over $100 million annually.
    Mr. Bevziouk expected to receive commissions from Infiniums profitability
    based upon his contributions.

[16]

The
    claim for commissions was rejected by the trial judge. His conclusion that
    there was no contractual right to the payment of commissions was fully
    supported by the evidence. First, the wording of the agreement with respect to
    commissions does not fit with the role of Mr. Bevziouk within Infiniums organization.
    He was a software developer, not a securities trader. The trial judge accepted
    the evidence of Infiniums principals that the pay out wording in the service
    agreement was based on a template used by Infinium for contracts with its
    strategists and traders, and that Infinium never intended to compensate AB2000
    Software by payment of commissions.

[17]

The
    trial judge also accepted the opinion of an expert in the administration and
    application of securities law and regulation in Ontario that Mr. Bevziouk could
    not have been a trader as understood in the terms of the service agreement,
    because he was not qualified or registered as such under the applicable
    regulations.

[18]

Further,
    no commissions were ever paid under either service agreement. Although Mr.
    Bevziouk was persistent in seeking enhanced compensation in his emails with Infiniums
    principals, he focused on the question of bonus and salary, and never raised
    the issue of commissions. The trial judge specifically rejected Mr. Bevziouks
    testimony at trial that he had made verbal requests for commissions as
    inconsistent with these email exchanges. Rather, he found that the claim for
    commissions was first asserted in the appellants counterclaim.

[19]

Under
    the terms of the service agreement, Mr. Bevziouk would only have been entitled
    to commissions on trades utilizing strategies he had developed and personally
    supervised. However, Mr. Bevziouk had never devised a trading strategy or supervised
    its use. As the trial judge observed, the traders and strategists provided Mr.
    Bevziouk with the strategies for which he was to design software to execute the
    trading ideas.

[20]

In
    all the circumstances, I see no error in the trial judges rejection of the
    appellants claim for commissions. To the contrary, I agree with it.

[21]

The
    trial judge did not address in any detail the appellants claims for unpaid
    salary and bonuses, which were admittedly a very small portion of the $12
    million in damages claimed by them at trial. He simply concluded that Infinium had
    not breached its contract with the appellants. I turn now to those claims.

(3)

Claim for Unpaid Salary

[22]

The
    service agreement was terminated on October 2, 2006. Infinium did not make the
    monthly payment of $14,583.33 to AB2000 Software for September 2006. At trial, Infinium
    explained that it withheld payment as a set-off against the damages it believed
    that it had suffered as a result of the appellants conduct in the context of
    the law suit it was contemplating, and that Mr. Bevziouk had not in fact
    performed any duties and had not delivered anything that month. As Sergei Tchetvertnykh,
    a principal of Infinium, explained: our original decision to go and sue him
    for damages was, in our mind, much greater than the sum that we owed him for
    September.

[23]

I
    agree with the appellants that there was no basis for Infinium to withhold the
    monthly payment for September 2006, which covered a period before the service
    agreement was terminated. While the appellants failure to perform may have
    justified Infiniums termination of the service agreement, it is not a
    reasonable interpretation of the agreement that Infinium was entitled to
    withhold payment. Further, Infinium discontinued its claim against the
    appellants and is therefore not entitled to a set-off for Septembers
    salary.  AB2000 Software therefore is entitled to the sum of $14,583.33
    for the month of September 2006, plus prejudgment interest on that amount.

(4)

Claim for Unpaid Bonuses

[24]

The
    service agreement provided for the payment of a quarterly bonus as follows: Discretionary
    Bonus, paid, if any, quarterly. Restricted component of the Discretionary
    Bonus, if any, shall be vested in two years from the date granted.

[25]

For
    each of the first two quarters of 2006, Infinium advised Mr. Bevziouk that he
    had earned a quarterly bonus of $25,000. However, Infinium withheld one half of
    the amount, paying the total sum of $25,000 in two instalments of $12,500. The
    appellants contend that they are entitled to the sum of $25,000 for the first
    two quarters of 2006 (the balance that was withheld), as well as the sum of
    $25,000 for a bonus that was declared for the third quarter of 2006 but never
    paid.

[26]

Infinium
    contends that the bonus was discretionary and based on satisfactory performance,
    and that the appellants have no right to challenge the amounts that were paid
    or withheld.

[27]

The
    trial judge did not specifically deal with the bonus issue.

[28]

The
    evidentiary record discloses that Infinium declared the appellants entitlement
    to a $25,000 bonus in each of the first two quarters of 2006. The explanation
    for withholding the bonus was that Mr. Bevziouk would be participating in a
    long term incentive plan as a result of which half of the bonus was
    restricted and would be paid subject to satisfactory performance two years
    later. There was, however, no agreement by the appellants to participate in
    such a plan. In any event, Infinium admitted at trial that no other employee
    participated in this plan and that no plan was ever formalized. In these
    circumstances, although the bonus was discretionary, once declared, there was
    no basis for Infinium to impose unilateral terms on its payment. AB2000
    Software is therefore entitled to the sum of $25,000, plus prejudgment
    interest.

[29]

The
    appellants claim entitlement to a bonus for the third quarter of 2006 on the
    basis that a bonus was declared for that quarter but not paid. The appellants
    rely on an email dated July 18, 2006 where Mr. Tchetvertnykh says that
    Mr. Bevziouk would definitely get the bonus
this
quarter, but
    that he could not sign off on it at that moment because Infinium had not
    completed its mid-year reviews. Infinium argues that this email referred to the
    bonus for the second quarter, which was in fact paid to the appellants.

[30]

I
    agree with Infiniums contention that this email clearly refers to the bonus
    for the second quarter of 2006. Mr. Bevziouk admitted this interpretation of
    the email in his cross-examination at trial. The record discloses no evidence
    that Infinium ever declared a bonus for the third quarter; indeed, having
    regard to the concerns about Mr. Bevziouks conduct at that time, it would be
    surprising if Infinium had decided to pay him a bonus for the third quarter of
    2006.

[31]

Accordingly,
    I would reject the appellants claim for a 2006 third quarter bonus.

(5)

Cause for Termination

[32]

The
    appellants contend that the trial judge erred in concluding that Infinium had
    just cause for termination of the service agreement. The trial judge found that
    Mr. Bevziouk had taken various steps in an effort to control access to the
    algo-trading system and to compete with Infinium. Mr. Bevziouk acknowledged
    that he removed the source code from the server and inserted a password
    protected zip file. He also acknowledged inserting extra code into the server code
    to prevent it from loading. The effect of these steps was that Mr. Bevziouk had
    complete control over the algo-trading system, and that, without his
    intervention, the system would not work.

[33]

The
    trial judge considered and rejected Mr. Bevziouks contention that there was a
bona
    fide
security reason for the actions he had taken. He accepted the
    evidence of Infiniums expert witness that the insertion of the code did not
    provide any theft deterrence, and that its only purpose was to permit Mr. Bevziouk
    to have complete control over the loading of the system, with no benefit to
    Infinium. He also accepted that the code, or malware, had the potential to
    cause serious disruption to Infiniums securities trading operations.

[34]

Further,
    there was overwhelming evidence at trial that Mr. Bevziouk, while engaged by
    Infinium under the terms of the service agreement, was attempting to promote
    certain software that would enable Infiniums competitors to engage in
    algorithmic trading. The fact that his negotiations with third parties did not
    bear fruit is irrelevant.

[35]

The
    trial judge did not err in concluding that Mr. Bevziouks employment was
    terminated for cause. This finding was amply supported by the evidence at
    trial.

(6)

Costs of the Proceedings

[36]

The
    appellants seek leave to appeal the trial judges award of costs in favour of
    Infinium in the sum of $260,599.38.

[37]

Infinium,
    having been successful at trial in defending the counterclaim, sought costs of the
    proceedings in the sum of $299,499.35. This amount was comprised of its costs
    from the commencement of the counterclaim until May 14, 2013 on a partial
    indemnity basis and thereafter on a substantial indemnity scale. The claim for
    substantial indemnity costs after May 14, 2013 was based on the conduct of the
    appellants and their counsel, and also on the fact that, on May 30, 2013,
    shortly before the trial, Infinium had served an offer to settle the
    counterclaim by payment of the sum of $105,000, plus costs. In the alternative,
    Infinium sought partial indemnity costs of $260,599.38 for the entire
    proceedings. This is the amount that was awarded by the trial judge.

[38]

The
    appellants submit that the trial judge erred in principle in making a costs
    award that effectively allowed Infinium its costs of pursuing the main action,
    which was discontinued before trial of the counterclaim. Given that Infinium discontinued
    the main action two months before trial, there should have been no costs
    ordered to either side. Alternatively, the appellants contend that the costs award
    was grossly disproportionate having regard to the fact that the trial lasted
    only six days.

[39]

Leave
    to appeal costs is granted sparingly. Further, this court will interfere with a
    discretionary award of costs only where there has been an error in principle or
    the costs award is plainly wrong:
Hamilton v. Open Window Bakery Ltd.
,
    2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27. For reasons I will explain, I
    conclude that the test for leave is met in this case. On the merits, I would
    allow the costs appeal in part, based on what I view as the trial judges error
    in principle in dealing with Infiniums offer to settle.

[40]

The
    trial judge concluded that, where a defendant in an action that is dismissed at
    trial made an offer to settle pursuant to r. 49 of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194, a bonus in the form of substantial
    indemnity costs to the defendant is appropriate following the date the offer to
    settle was served. However, in this case, he found that any bonus increase to
    costs as result of the Rule 49 offer being beaten in result will be offset by
    costs thrown away by the plaintiff by counterclaim. Ultimately, he appears to
    have accepted that Infinium would have been entitled to the costs claimed of
    $299,499.35 (which included substantial indemnity costs from the date of its
    offer), but awarded instead costs on a partial indemnity basis throughout, in
    the amount of $260,599.38. The difference, the sum of $38,899.97, represents a
    discount of Infiniums costs to recognize that the appellants would have been
    entitled to a set-off of some costs for their defence of the main action that
    was discontinued.

[41]

The first problem with this approach is that no bonus for Infinium
    bettering at trial its offer to settle the counterclaim
was warranted. Rule 49.10 provides that
where a plaintiff offers
    to settle and obtains a judgment at least as favourable as its offer to settle,
    the plaintiff is entitled to substantial indemnity costs from the date of the
    offer, unless a court orders otherwise. However, as this court explained in
St.
    Elizabeth Home Society v. Hamilton (City),
2010 ONCA 280, 319 D.L.R. (4th)
    74, at para. 90, there is no corresponding provision entitling a defendant to
    substantial indemnity costs where it makes an offer to settle that is greater
    than the amount ultimately awarded. Costs on a substantial indemnity basis
    will only be warranted where the trial judge finds that the behaviour of the
    plaintiff was so egregious as to deserve a sanction:
Clarington
    (Municipality) v. Blue Circle Canada Inc.
, 2009 ONCA 722, 312 D.L.R.
    (4th) 278, at para. 40;
St. Elizabeth Home Society
, at para. 92.

[42]

In
    this case, the trial judge explicitly concluded that the conduct of the
    appellants at trial was not vexatious and that it did not unnecessarily
    lengthen the proceedings. He specifically refused Infiniums request for
    substantial indemnity costs based on the appellants conduct. Consequently,
    costs on a substantial indemnity basis were never available to Infinium, and
    the trial judge erred in finding that they were. Infinium, as the successful
    party in the defence of the counterclaim, was entitled to its costs on a
    partial indemnity basis.

[43]

The
    trial judge ought to have considered separately the question of the appellants
    costs of defending the discontinued main action, and whether the appellants were
    entitled to set-off those costs against any costs of the counterclaim. Having
    defended the main action up to only weeks before trial, the appellants would
    reasonably have expected an award of costs for their defence of the main action.
    As I have said, the main action was discontinued on consent, with costs of that
    action to be determined by the judge presiding at the trial of the
    counterclaim.

[44]

Unfortunately,
    the appellants did not provide the trial judge with a bill of costs for the
    defence of the main action. They simply took the position in their costs
    submissions that there should be a complete set-off of costs up to the time the
    main action was discontinued, except for an additional amount of $5,000 for the
    appellants costs in preparing to defend a contempt motion that was never
    argued. In awarding Infinium the amount it claimed for partial indemnity costs,
    when he was of the view that Infinium was entitled to substantial indemnity
    costs from the date of its offer to settle, the trial judge in effect fixed the
    appellants costs thrown away in defending the main action (which would include
    the motion costs claimed) at $38,899.97, which is the difference between the
    two costs amounts claimed by Infinium.

[45]

I
    would not interfere with the trial judges set-off of $38,899.97 on account of
    the appellants costs of defending the main action as against Infiniums costs
    of the counterclaim proceeding. The appellants did not present a bill of costs,
    and there were numerous overlapping issues between the main action and the
    appellants counterclaim. Accordingly, on the available record, the set-off
    amount cannot be considered unreasonable.

[46]

As for the appellants argument that the costs award was excessive,
    apart from the error noted above, I see no error in principle that would
    justify any further reduction in the costs awarded to Infinium. While the costs
    award is significant, the trial judge considered the complexity of the issues
    in the action, and the fact that the proceedings were outstanding for some six
    years. The award, in my view, is not plainly wrong.

[47]

Finally,
    I have considered whether the appellants partial success on appeal justifies a
    reduction of the costs awarded at trial. The central issues in these
    proceedings concerned the claims for commission and whether Mr. Bevziouk had
    been terminated for cause. On the disposition of the appeal that I propose, the
    appellants have achieved only partial success, with respect to their
    compensation claim and costs. This, in my view, is not a sufficient reason to further
    reduce the costs ordered by the trial judge.

F.

disposition

[48]

Accordingly,
    I would allow the appeal in part. I would set aside the judgment of the trial
    judge dismissing the counterclaim, and grant judgment to the appellants in the
    sum of $39,583.33 (comprised of unpaid salary and bonuses), plus applicable prejudgment
    interest under the
Courts of Justice Act
, R.S.O. 1990, c. C.43. I
    would vary the trial judges costs award by substituting an order for costs in
    favour of Infinium in the sum of $221,699.41 ($260,599.38 - $38,899.97).
    Infinium has asked that any amounts awarded to the appellants on this appeal be
    set off against the trial costs they are required to pay, and I would so order.

G.

COSTS ON APPEAL

[49]

As
    success was divided on the main appeal and the costs appeal, I would order no
    costs in this court.

Released: (E.A.C.) December 2, 2015

K. van Rensburg J.A.

I agree E.A. Cronk
    J.A.

I agree P. Lauwers
    J.A.


