



COURT OF APPEAL
    FOR ONTARIO

CITATION: Canadian Home Publishers Inc. v. Parker, 2019 ONCA
    314

DATE: 20190424

DOCKET: C65782

Feldman, Pepall and Nordheimer JJ.A.

BETWEEN

Canadian Home Publishers
    Inc., in its capacity as the General Partner of Canadian Home Publishers

Applicant (Appellant)

and

Mary Ann Parker and
    Stephen Colville-Reeves, in their capacity as Estate Trustees of the Estate of
    David Colville-Reeves

Respondents (Respondents)

Matthew Gottlieb and Ryann Atkins, for the appellant

Mark Gelowitz, Adam Hirsh and Julian Heller, for the
    respondents

Heard: March 18, 2019

On appeal from the judgment of Justice Herman
    Wilton-Siegel of the Superior Court of Justice, dated July 18, 2018, with
    reasons reported at 2018 ONSC 4427.

Nordheimer J.A.:

[1]

The appellant appeals from the judgment of the application judge that dissolved
    Canadian Home Publishers as a limited partnership, as a consequence of the
    death of its sole limited partner, David Colville-Reeves, and awarded Davids
    Estate a 50% share in the value of the residual assets of the partnership.

[2]

For the purpose of the appeal, the appellant accepts that the
    application judge was correct in finding that the limited partnership was dissolved
    upon Davids death. The only issue is whether the application judge was correct
    in finding that any residual assets, remaining after distribution of the
    amounts contemplated by s. 24 of the
Limited Partnerships Act
, R.S.O.
    1990, c. L. 16 (
LPA
), were to be divided equally between David, as
    the sole limited partner, and the appellant, Canadian Home Publishers Inc., as
    the sole general partner.

[3]

For the reasons that follow, I would allow the appeal. The application
    judge erred in finding that David, as a limited partner, was entitled to share
    equally in the residual assets of the limited partnership in the absence of an
    agreement to that effect. The application judges finding was contrary to the
    scheme of the
LPA
and the underlying nature of limited partnerships.

Background

[4]

In 1985, Canadian Home Publishers was formed as a limited partnership,
    with Canadian Home Publishers Inc., a corporation wholly owned by Lynda Reeves,
    as the sole general partner, and David Colville-Reeves as the sole limited partner.
    Lynda and David were married at the time. They became interested in acquiring
Canadian
    House and Home
, a magazine, so that Lynda could run it as her own business
    and David could make use of its tax losses.

[5]

There was no written limited partnership agreement. While drafts of a
    limited partnership agreement were prepared, a written agreement was never
    executed by both parties. The structuring of the acquisition of the magazine,
    and the structure of its business as a limited partnership, were handled
    entirely by David and his team of legal and financial advisors, with a view to
    maximizing the tax benefits to David. Lynda did not receive any independent
    legal or financial advice regarding the acquisition of the magazine, or the
    structuring of the business as a limited partnership. David invested $1.8
    million to acquire the magazine. Lynda did not make any capital contribution to
    the partnership or to the acquisition of the magazine.

[6]

It was understood between Lynda and David that they would share equally
    in the profits of the magazine. There was, however, no agreement, written or
    oral, as to what would happen on Davids death.

[7]

Lynda and David divorced in 1991. Various disputes arose between the two.
    In 1993, David brought an application seeking, amongst other relief, an order:
    (i) removing Canadian Home Publishers Inc. as general partner; (ii) authorizing
    David to remove his capital from the partnership; and (iii) declaring that
    David was entitled to compensation for the interest paid on loans that he took
    to make his capital contribution to the partnership.

[8]

That application was heard, and ultimately dismissed, by Lane J.:
Colville-Reeves v. Canadian Home Publishers
, [1993] O.J. No. 3367 (Gen.
    Div.), affd [1996] O.J. No. 3675 (C.A.). In the course of his reasons, Lane J.
    said, at para. 7:

I am satisfied on the evidence that the parties came to an oral
    agreement the essential particulars of which were as follows.

1. They would acquire the magazine
    jointly in a transaction structured in the manner most beneficial to David from
    a tax viewpoint.

2. They would, after the third
    party investor dropped out, be equal partners.

3. David would make capital
    contributions to the limited partnership.

4. Lynda would make no capital
    contributions to the limited partnership.

5. Lynda's company, [Canadian Home
    Publishers Inc.] would be the general partner and would retain Lynda as
    publisher. She would manage the business.

[9]

The issues between Lynda and David remained but the litigation relating
    to the partnership fell into abeyance. The magazine became financially
    successful and it appears David was content to receive his 50% of the net
    profits. By the date of his death, David had received in excess of $26 million.
    The magazine itself was valued, at one point for sale purposes, in excess of
    $50 million. The litigation remained in abeyance from 2004 until after Davids
    death on October 25, 2012, when the respondents obtained orders to continue the
    existing litigation. Once it was apparent that Davids Estate would be pursuing
    the old litigation, this application was brought as an initial step to define
    the rights of the parties. In particular, the appellant sought a declaration
    that Canadian Home Publishers had been dissolved as a limited partnership upon
    Davids death and that the interest of Davids Estate in Canadian Home
    Publishers was limited to payments in respect of Davids share of profits to
    the date of his death and repayment of his remaining capital contribution to Canadian
    Home Publishers. In effect, the appellant sought a declaration that Davids
    Estate did not have any interest in the residual value of Canadian Home
    Publishers upon dissolution of the limited partnership.

The decision below

[10]

The application
    judge made two findings. The first finding was that on Davids death, there was
    no longer a limited partner for the limited partnership and thus the limited
    partnership was dissolved. As a consequence, the general partner, Canadian Home
    Publishers Inc., had to wind up the limited partnership, Canadian Home
    Publishers, and distribute its assets: at paras. 12-13. This finding is not the
    subject of this appeal.

[11]

The second finding was that any residual assets remaining, after distribution
    of the amounts contemplated by s. 24 of the
LPA,
were to be divided as
    between Canadian Home Publishers Inc. and Davids Estate on a 50/50 basis: at
    paras. 16-18.

[12]

In
    reaching this conclusion, the application judge held that, while s. 24 of the
LPA
provided for the distribution of capital contributions and profits on
    dissolution of the limited partnership, the
LPA
was silent in respect
    of the distribution of the residual assets of the limited partnership.
Section 24 of the
LPA
reads:

In settling accounts
    after the dissolution of a limited partnership, the liabilities of the limited
    partnership to creditors, except to limited partners on account of their
    contributions and to general partners, shall be paid first, and then, unless
    the partnership agreement or a subsequent agreement provides otherwise, shall
    be paid in the following order:

1. To
    limited partners in respect of their share of the profits and other
    compensation by way of income on account of their contributions.

2. To
    limited partners in respect of their contributions.

3. To
    general partners other than for capital and profits.

4. To
    general partners in respect of profits.

5. To
    general partners in respect of capital.

[13]

As
    a consequence, the application judge found that there was a gap in the
LPA
.
    He turned to the
Partnerships Act
, R.S.O. 1990, c. P.5 to fill that
    gap, since the
Partnerships Act
is applicable to all partnerships,
    including limited partnerships. In particular, the application judge referred
    to s. 44 of the
Partnerships Act
that provides that the ultimate
    residue, if any, of a partnership is to be divided among the partners in the
    proportion in which profits are divisible. Section 44 reads:

In settling accounts between the partners after a dissolution of partnership,
    the following rules shall, subject to any agreement, be observed:

1. Losses, including
    losses and deficiencies of capital, are to be paid first out of profits, next
    out of capital, and lastly, if necessary, by the partners individually in the
    proportion in which they were entitled to share profits, but a partner is not
    required to pay any loss arising from a liability for which the partner is not
    liable under subsection 10 (2).

2. The assets of the
    firm, including the sums, if any, contributed by the partners to make up losses
    or deficiencies of capital, are to be applied in the following manner and
    order,

(a) in paying the debts
    and liabilities of the firm to persons who are not partners therein;

(b) in paying to each
    partner rateably what is due from the firm to him or her for advances as
    distinguished from capital;

(c) in paying to each
    partner rateably what is due from the firm to him or her in respect of capital.

3.
After making the payments required by paragraph 2, the ultimate
    residue, if any, is to be divided among the partners in the proportion in which
    profits are divisible.

[Emphasis added.]

[14]


On this basis, the application judge concluded that the residue
    should be divided 50/50, consistent with Lynda and Davids agreement to share
    equally in the profits of the limited partnership.


Analysis

[15]

Before
    I begin my analysis, I note that the parties appear to be in agreement that the
    standard of review applicable in this case is one of correctness since the question
    posed for determination is a question of law. I agree that correctness is the
    proper standard of review since the question turns on the interpretation of a
    statute:
Heritage Capital Corp. v. Equitable Trust Co.
, 2016 SCC 19,
    [2016] 1 S.C.R. 306, at para. 23;
Canadian National Railway v. Canada
    (Attorney General)
, 2014 SCC 40, [2014] 2 S.C.R. 135, at para. 33.

[16]

In
    my view, the application judge erred in his conclusion that David, as the
    limited partner, was entitled to share equally with the appellant, the general
    partner, in the ultimate residual assets remaining upon dissolution of the
    limited partnership and payment of amounts specified in s. 24 of the
LPA
.
    More specifically, he erred in importing into the
LPA
the residual
    distribution provision found in s. 44 of the
Partnerships Act
. There is
    no gap in the
LPA
that requires reference to the
Partnerships Act
to be filled.

[17]

At
    the risk of stating the obvious, limited partnerships are different from
    ordinary partnerships. Their structure is different, as a limited partnership
    must have at least one general partner and at least one limited partner:
LPA
,
    s. 2(2). Further, the
LPA
expressly sets out the rights and
    obligations of general partners and of limited partners.

[18]

More
    specifically, on that latter point, to fully understand the differences between
    limited partnerships and ordinary partnerships, it is important to have
    reference to the provisions of the
LPA
that establish the structure of
    a limited partnership and define the roles played by the general partner and
    the limited partner in it. A review of these provisions illustrates that
    general partners and limited partners have fundamentally different rights and
    obligations within the limited partnership under the
LPA
.

[19]

First,
    with respect to the general partner, s. 8 of the
LPA
states:

A general partner in a limited partnership has all the rights
    and powers and is subject to all the restrictions and liabilities of a partner
    in a partnership without limited partners

Thus, the general partner has all the rights and obligations
    of a partner in an ordinary partnership, subject to some statutory enumerated
    exceptions. Notably, there is no corresponding provision in the
LPA
conferring
    the same general rights and obligations upon the limited partner.

[20]

The
LPA
then proceeds to expressly define the rights and the obligations of a limited
    partner. In particular, s. 9 of the
LPA
significantly limits the
    obligations of a limited partner:

Subject to this Act, a limited partner is not liable for the
    obligations of the limited partnership except in respect of the value of money
    and other property the limited partner contributes or agrees to contribute to
    the limited partnership, as stated in the record of limited partners.

This is the defining feature of a limited partnership:
    except as otherwise contemplated by the
LPA
, the limited partners
    liability is limited to the extent of their capital contribution to the
    partnership: Alison Manzer,
A Practical Guide to Canadian Partnership Law,
loose-leaf,
    (Toronto: Thompson Reuters, 2017), at paras. 9.560 to 9.580.

[21]

The
    limited liability of the limited partner is premised on their status as a
    passive investor in the partnership business. In this vein, s. 13(1) of the
LPA
provides:

A limited partner is not
    liable as a general partner unless, in addition to exercising rights and powers
    as a limited partner, the limited partner takes part in the control of the
    business.

[22]

The
LPA
then sets out the extent of the limited partners entitlements. Section 11 provides
    that a limited partner is entitled to a share of the profits of the limited
    partnership and to the return of the limited partners contribution to the
    limited partnership. Further, s. 15(1) provides that a limited partner has the
    right to demand and receive the return of the limited partners contribution,
    upon the dissolution of the limited partnership, subject to certain exceptions.

[23]

The
LPA
does address the priority for payments arising on the dissolution of the
    limited partnership. I repeat s. 24 of the
LPA
for ease of reference:

In settling accounts
    after the dissolution of a limited partnership, the liabilities of the limited
    partnership to creditors, except to limited partners on account of their
    contributions and to general partners, shall be paid first, and then, unless
    the partnership agreement or a subsequent agreement provides otherwise, shall
    be paid in the following order:

1. To limited partners
    in respect of their share of the profits and other compensation by way of
    income on account of their contributions.

2. To limited partners
    in respect of their contributions.

3. To general partners
    other than for capital and profits.

4. To general partners
    in respect of profits.

5. To general partners
    in respect of capital.

The respondents conceded, at the hearing, that they
    were not taking the position that there was any agreement providing otherwise, as
    contemplated by s. 24.

[24]

On a
    plain reading of the
LPA
, a limited partner has very strict and
    defined rights and obligations. Those defined rights and obligations do not
    include the right to participate in the residual value of the partnership on
    dissolution.  Had it been the intent of the Legislature to accord that right to
    limited partners, presumably the
LPA
would have so provided.

[25]

Moreover,
    a limited partner is expressly not in the same position as a partner in an
    ordinary partnership. A limited partner enjoys protection from the liabilities
    of the limited partnership, unlike a partner in an ordinary partnership. In
    return for that protection, the limited partner is restricted to the receipt of
    two things under the
LPA
: one is their share of the profits and the
    other is the return of their contribution (see
LPA
, s. 11). A limited
    partner has no broader right to participate in the upside of the limited
    partnership, just as the limited partner has no broader obligation to suffer or
    contribute in the downside. That conclusion is consistent with the approach set
    out in
Lehndorff General Partner Ltd. (Re),
(1993), 9 B.L.R. (2d) 275,
    where Farley J. said, at para. 17:

The limited partnership is an investment vehicle for passive investment
    by limited partnersLimited partners had no liability to the creditors of the
    partnerships business; the limited partners financial exposure is limited to
    their contribution. The limited partners do not have any
    "independent" ownership rights in the property of the limited
    partnership.
The entitlement of the limited partners is
    limited to their contribution plus any profits thereon, after satisfaction of
    claims of the creditors
. [Emphasis added.]

[26]

Given
    the inherent purpose behind the structure of a limited partnership, there was
    no need to have recourse to s. 44 of the
Partnership Act
to resolve
    the issue presented by this case. The clear effect of the
LPA
is to
    give to the general partner all rights to any residue that may exist after
    dissolution. That conclusion is consistent with the broad rights and
    obligations that the general partner enjoys. It is consistent with the plain
    wording of s. 8 of the
LPA
, which provides the general partner with
    all the rights and obligations of a partner in an ordinary partnership. It is
    also consistent with the limited rights and obligations of a limited partner as
    set out in the
LPA
. With respect, the contrary conclusion reached by
    the application judge does not sit comfortably with the inherent structure of a
    limited partnership under the
LPA
.

[27]

Finally,
    I would also note that, even if one could find a proper route to have recourse
    to s. 44 of the
Partnership Act
, it would seem to follow that only the
    general partner constitutes a partner in an ordinary partnership for the
    purposes of the
Partnership Act
, given the context in which it arises
    and the express statutory limitations on a limited partner. Thus, only the
    general partner would have rights to the residue under that section.

[28]

Accordingly,
    the respondents are not entitled to a 50% share in the residual assets of the
    limited partnership.

Conclusion

[29]

I
    would allow the appeal, set aside paragraph 2 of the judgment, and in its place
    grant judgment declaring that the respondents have no interest in the residual
    assets of the limited partnership, Canadian Home Publishers, with costs of the
    appeal to the appellant fixed in the agreed amount of $35,000, inclusive of
    disbursements and HST.

I.V.B.
    Nordheimer J.A.
I agree. K. Feldman J.A.
I agree. S.E. Pepall J.A.


