Byers et al. v. KPMG Inc. in its capacity as Court-appointed receiver and Manager of CanEnerco Limited and in its capacity as Trustee of the Estate of CanEnerco Limited under the [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) [Indexed as: Byers v. CanEnerco Ltd.]
61 O.R. (3d) 467
[2002] O.J. No. 2344
Docket No. C37498
Court of Appeal for Ontario,
Carthy, Laskin and Gillese JJ.A.
June 18, 2002*
[* Note: This judgment was recently brought to the attention of the editors.]
Partnership -- Limited partnership -- Dissolution -- Priority of payment -- Unequivocal language must be used in partnership agreement in order to oust priority provisions of s. 24 of Limited Partnerships Act -- Limited partnership agreement did not use word "priority" and did not address issue of priority in clear language -- Priority scheme prescribed by s. 24 not ousted -- Limited Partnerships Act, R.S.O. 1990, c. L.16, s. 24.
The appellant appealed a judgment which determined that the assets of a limited partnership were to be distributed, on dissolution, in accordance with s. 24 of the Limited Partnerships Act. The appellant sought to have the proceeds of sale allocated in accordance with the percentage interests of the partners rather than pro rata on the basis of contributions, and submitted that Article 12 of the limited partnership agreement, dealing with distribution of the partnership, supplanted the provisions of s. 24 of the Act. [page468]
Held, the appeal should be dismissed.
Section 24 of the Act provides that the Act has no application where the partnership agreement provides otherwise. In order to oust the legislative provisions respecting priority of payment on dissolution of a partnership, unequivocal language must be used. Article 12 did not use the word "priority" and did not address the issue of priority in clear language. The language of s. 24 did not oust the priority scheme prescribed by s. 24 of the Act.
APPEAL from a judgment of Farley J. (2001), 2001 28275 (ON SC), 30 C.B.R. (4th) 195 (S.C.J.) determining that the assets of a partnership were to be distributed on dissolution in accordance with s. 24 of the Limited Partnerships Act, R.S.O. 1990, c. L.16.
Cases referred to Sun Life Assurance Co. of Canada v. Royal Bank of Canada, [1995] O.J. No. 3622 (Quicklaw) (Gen. Div.) Statutes referred to Limited Partnerships Act, R.S.O. 1990, c. L.16, s. 24
M.J. Dermer, for appellant. Christopher A. Lewis and Joni M. Dobson, for respondents.
The judgment of the court was delivered by
[1] GILLESE J.A.: -- This is an appeal from the judgment of Farley J. dated December 1, 2001, in which he determined that the assets of the Bentpath East Limited Partnership were to be distributed, on dissolution, in accordance with s. 24 of the Limited Partnerships Act, R.S.O. 1990, c. L.16.
[2] KPMG Inc., in its capacity as court appointed receiver and manager of CanEnerco Limited and in its capacity as trustee of the estate of CanEnerco Limited seeks, in this appeal, to have the proceeds of sale allocated in accordance with the percentage interests of the partners rather than pro rata on the basis of contributions.
[3] The contributions of the limited partners to the partnership are not in dispute. They are as follows:
Pro-Rata Portion
Byers - Limited Partner $1,510,892.00 70.186 % Weatherstone - Limited Partner $ 321,117.00 14.917 % CanEnerco Limited - Limited Partner $ 320,680.00 14.897 % Langs - Limited Partner $ 0.00 0 %
Total $2,152,689.00 100.0 %
[4] If assets are distributed in accordance with percentage interests, as is argued by the appellant, CanEnerco is entitled [page469] to 62.5 per cent of the assets on dissolution in its capacity as General Partner.
[5] Section 24 of the Limited Partnerships Act, supra, provides:
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:
To limited partners in respect of their share of the profits and other compensation by way of income on account of their contributions.
To limited partners in respect of their contributions.
To general partners other than for capital and profits.
To general partners in respect of profits.
To general partners in respect of capital.
(Emphasis added)
[6] Based on the wording of s. 24 of the Limited Partnerships Act -- that the Act has no application where the partnership agreement provides otherwise -- the appellant argues that the provisions of Article 12 of the limited partnership agreement supplant the provisions of s. 24 of the Act.
[7] Article 12 of the limited partnership agreement, as amended, reads as follows:
Dissolution of the Partnership
The partnership shall be dissolved upon the direction in writing of all of the partners; upon the dissolution, bankruptcy, insolvency or winding up of the General Partner or upon Court order.
The partnership may also be dissolved upon the resolution of a majority of the partners who together hold an interest of at least 50 percent of the partnership.
The partnership shall not come to an end by reason of the death of, dissolution, bankruptcy or insolvency of any limited partner, or by the transfer of any interest in the partnership.
Upon the dissolution of the partnership the General Partner shall sell or otherwise dispose of the partnership's assets; shall pay or provide for the payment of all of the debts and liabilities of the partnership; and shall distribute the remaining assets of the partnership in accordance with the interest of the partners.
Except upon dissolution of the partnership, no partner shall request any return of its contribution to the partnership.
(Emphasis added)
[8] When interpreting similar language dealing with priorities under the personal property security legislation, Winkler J. had [page470] this to say in Sun Life Assurance Co. of Canada v. Royal Bank of Canada, [1995] O.J. No. 3622 (Quicklaw) (Gen. Div.) at para. 23:
The PPSA provides a registration regime, the purpose of which is to impart order and certainty to commerce. To the extent that s. 38 of the act provides an exception to this, it must be applied by the courts cautiously. Although the waiver of priority may, on the plain wording of the section, be contained in the "security agreement or otherwise", it must, nevertheless, be in clear and unequivocal terms. Hence the words of the section that ". . . such subordination is effective according to its terms." Waiver requires that there be full knowledge of the circumstances and the unequivocal intention to relinquish the right to be relied upon. See Federal Business Development Bank v. Steinbock Development Corp. Ltd. (1993), 42 A.R. 231 (C.A.).
[9] Similar considerations apply when considering Article 12. Waiver of priority may be contained in the partnership agreement but, in order to oust the legislative provisions respecting priority of payment on dissolution of a partnership, unequivocal language must be used.
[10] Article 12 does not use the word "priority" nor does it address the issue of priority in clear language. In fact, absent reference to s. 24 of the Limited Partnerships Act, Article 12 creates ambiguity about priority. Are contributions to be paid out and the remaining assets, if any, to be distributed in accordance with interests? Or, are assets to be distributed without regard to contributions?
[11] In my view, the language of Article 12 does not oust the priority scheme prescribed by s. 24 of the Limited Partnerships Act. Rather, Article 12 sets out the method of distribution without resolving the matter of priority, leaving the matter of priority to be governed by s. 24 of the Limited Partnerships Act.
[12] Accordingly, the appeal is dismissed with costs, fixed in the amount agreed upon by the parties, namely, $15,000.
Appeal dismissed.