CITATION: Husar Estate v. P. & M. Construction Limited, 2007 ONCA 191
DATE: 20070320
DOCKET: C43349
COURT OF APPEAL FOR ONTARIO
FELDMAN, CRONK and BLAIR JJ.A.
B E T W E E N :
HELEN HUSAR, executrix and trustee under the Last Will and Testament of JOSEPH HUSAR, deceased, and JOHN MASSARELLI
Vicki A. Coristine and Paul A. Dineen, for the appellants (respondents by cross-appeal), P. & M. Construction Limited and Felice Marignani
Plaintiffs/Respondents/ Appellant by Cross-appeal
Mark E. Joseph, for the respondent (appellant by cross-appeal), Helen Husar, executrix and trustee under the Last Will and Testament of Joseph Husar, deceased
- and -
P. & M. CONSTRUCTION LIMITED, FELICE MARIGNANI and EMILIO MAGNANELLI
Corey D. Steinberg, for the respondent (respondent by cross-appeal), John Massarelli
Defendants/Appellants/ Respondents by Cross-appeal
Heard: November 6 and 7, 2006
On appeal and cross-appeal from the judgment of Justice Paul Rouleau of the Superior Court of Justice dated March 7, 2005, with reasons reported at [2005] O.J. No. 795.
CRONK J.A.:
I. Introduction
[1] This litigation concerns a failed business partnership formed in the early 1970s by two friends, Joseph Husar and Felice Marignani, for the purpose of purchasing land and developing a subdivision of residential building lots for resale. The central issue concerns the entitlement of Husar to demand an accounting of partnership profits eigh-teen years after the effective collapse of the partnership.
[2] The trial judge found that Husar, by his conduct, both proposed and agreed to the dissolution of the partnership by January 1981. He held that Marignani owed Husar the duties of a fiduciary, including the duty to account, and that Husar was entitled to an accounting of partnership profits as at the partnership dissolution date. In the trial judge’s view, Husar lacked the information necessary to determine whether he had a cause of action against Marignani when the partnership was terminated. Consequently, Husar’s entitlement to an accounting of profits as at January 1981 was not barred by laches or acquiescence, notwithstanding his significant delay in advancing a claim against Marignani. In contrast, because of the 1981 dissolution of the partnership, the trial judge also concluded that Husar was not entitled to share in any post-dissolution partnership profits.
[3] In the result, the trial judge held that Marignani and P & M Construction Limited (“P & M”), a company controlled by Marignani, were liable to Husar and John Massarelli, an assignee of part of Husar’s interest in the partnership, for their share of partnership profits accrued as at January 30, 1981 – the date of the dissolution of the partnership. The trial judge also awarded Husar and Massarelli prejudgment interest and costs of the trial.
[4] Marignani and P & M appeal on various grounds from the trial judge’s liability holding, his assessment of damages and his awards of prejudgment interest and costs. On behalf of Husar, who died in July 2000,[^1] Husar’s estate cross-appeals from the trial judge’s decision that Husar and Massarelli were not entitled to recover any post-dissolution partnership profits, from the rate of prejudgment interest awarded by the trial judge, and from the quantum of the trial judge’s costs award.
[5] For the reasons that follow, I conclude that the trial judge erred by holding that Husar and Massarelli are entitled to an accounting of partnership profits as at January 30, 1981. Given Husar’s conduct, including his extraordinary and unreasonable delay in seeking redress against Marignani and P & M, it is my opinion that the doctrine of laches defeats Husar’s and Massarelli’s right to insist on an accounting at this late date. Accordingly, I would allow the appeal and dismiss the action against Marignani and P & M. It follows that I would also dismiss the cross-appeal in its entirety.
II. Facts
[6] In approximately 1972, Husar and Marignani agreed to purchase a parcel of land in Port Colborne, Ontario (the “Property”) for the sum of $63,500. They intended to subdivide the Property into residential building lots for resale. Husar, a real estate agent, introduced Marignani to the Property while it was subject to a real estate listing. To avoid the payment of real estate commission on the purchase, Husar and Marignani acquired the Property after the expiry of the listing agreement and arranged for title to be registered in the name of Emilio Magnanelli, a friend of Marignani.
[7] To document their bargain, the parties entered into a written agreement in February 1972 (the “1972 Agreement”), which provided: (i) Magnanelli held the Property in trust as partnership property for Marignani and Husar; (ii) Marignani would pay the downpayment on the Property; (iii) Marignani would be paid “all of the moneys expended for the purchase of the [Property] out of profits realized from the sale of the [Property]”; (iv) all other expenditures would be borne equally by Marignani and Husar; and (v) nothing would be done to the Property without Marignani’s and Husar’s concurrence.
[8] In accordance with the 1972 Agreement, Marignani paid a $15,000 downpayment on the Property. The balance of the purchase price, in the sum of $48,500, was raised by mortgage financing.
[9] About two years later, in May 1974, Husar sold one-half of his interest in the partnership to another friend, John Massarelli, in exchange for $57,500 and the assump-tion by Massarelli of liability for one-quarter of the amount then outstanding on the mortgage on the Property. The funds paid by Massarelli were retained by Husar for his own use.
[10] The parties dispute whether Marignani was informed of this transaction. How-ever, it is uncontested that his consent to the sale and the involvement of Massarelli was neither sought nor provided.
[11] The development of the Property proceeded in stages. The costs of Phase I, which involved the creation of nineteen residential building lots, were substantial. Marignani’s expenditures for this Phase appear to have been in the approximate amount of $353,000. For his part, by June 1978, Husar had contributed only the aggregate amount of $26,600 to the expenses of the partnership. Contrary to his obligations under the 1972 Agree-ment, he made no other payments at any time concerning the costs of the development project.
[12] As the costs of the development mounted, Husar acknowledged that he was unable to pay his share of the expenses. In about 1980, he told Marignani that he “should do what he want[ed]” with the Property. It appears that Husar did not inform Massarelli of this statement to Marignani.
[13] Marignani took Husar’s statement to mean that Husar was ending his involvement in the partnership and that he was turning the entire venture, including the Property, over to Marignani. As a result, on January 30, 1981, Marignani arranged for title to the Property to be transferred from Magnanelli to P & M. No consideration was paid to Husar in respect of this transfer; nor did he seek any, although he was aware of the conveyance.
[14] In the years that followed, Marignani and Husar remained friends and continued to see each other socially. To Husar’s knowledge, Marignani proceeded with the development of the Property, at Marignani’s sole expense and without Husar’s further involvement.
[15] By the end of 1987, fifteen Phase I building lots had been sold at a price of about $15,000 per lot. Marignani built houses on the remaining unsold four lots, and operated them as rental properties. Phase II of the development was undertaken in the mid- to late-1980s. As occurred with Phase I, some of the Phase II lots were sold, while others became rental properties that were operated by Marignani or P & M. None of the sale proceeds or rental revenues from the development was paid to Husar or Massarelli.
[16] From 1981 onwards, Husar had no involvement with the partnership. He appeared to have ‘washed his hands’ of any participation in, or obligation in respect of, the partnership and the development of the Property. For his part, Massarelli had no dealings of any kind with Marignani or P & M. Indeed, he met Marignani only once, at a social function.
[17] In 1998, at the urging of Massarelli, Husar asked Marignani for an accounting of the profits from the sale or the rental of the lots. Husar and Marignani exchanged oral offers regarding the proposed transfer of some of the building lots to Husar, but no transfer occurred.
[18] In January 1999, when the accounting requested by Husar was not forthcoming, Husar and Massarelli sued Marignani, P & M and Magnanelli, claiming various declar-atory relief, damages in the amount of $3.5 million for alleged breach of trust and fiduciary duty, and $1 million in punitive damages.
[19] The positions of the parties in the litigation were starkly divided. Husar and Massarelli maintained that the partnership between Husar and Marignani was “valid and subsisting” and that it had not been terminated prior to Husar’s death in 2000. They alleged that the Property was partnership property and that, by virtue of the 1981 transfer of the Property to P & M, each of Marignani, P & M and Magnanelli were in breach of trust and fiduciary duty, with the result that they were “liable to account for all dealings with the Property” from the date of its acquisition in 1972.
[20] The appellants Marignani and P & M, together with Magnanelli, denied any breach of trust or duty on their part. They alleged that Husar breached the 1972 Agree-ment and abandoned the partnership prior to the transfer of the Property to P & M. In the alternative, they claimed that if a valid agreement between Husar and Marignani was found to be in effect, an accounting of the entire partnership venture should be ordered.
[21] The action was tried in the fall of 2004 before Rouleau J. of the Superior Court of Justice, as he then was. He accepted that the 1972 Agreement established a partnership between Husar and Marignani concerning the purchase and development of the Property. However, he found that Marignani and Massarelli were not partners and that Husar’s dealings with Marignani bound Massarelli, with whom Husar had a separate relationship.
[22] As relevant to these proceedings, the trial judge’s key findings include the following:
(i) contrary to Husar’s contention, the 1972 Agreement had not been amended to relieve Husar from his obligation to pay fifty per cent of the expenditures regarding the Property;
(ii) Husar’s statement to Marignani that he “should do as he want[ed] with the land” amounted to a proposal, which was accepted by Marignani and which bound Massarelli, that the Partnership be dissolved;
(iii) when Husar made this statement to Marignani, he “did not have sufficient information regarding the financial situation of the partnership to have acted in a knowing manner”;
(iv) although Husar was aware of it, he did not object to the 1981 transfer of the Property from Magnanelli to P & M. This transfer marked the dissolution of the partnership by mutual agreement;
(v) Marignani did not pay Husar for this “acquisition of the partnership assets”. Nor did Husar seek an accounting from Marignani when the partnership was dissolved;
(vi) Marignani honestly believed in 1981 and thereafter that the partnership was not “profitable”. He regularly told Husar that there had been “no profit” and that the part-nership had “no value”;
(vii) in fact, when the partnership was dissolved on January 31, 1981, it had a “net positive value”, after all expen-ditures, of $74,235.97;
(viii) Marignani was in a fiduciary position towards Husar and owed him a duty to account for partnership assets that he acquired upon the dissolution of the partnership;
(ix) by proposing an end to the partnership, Husar did not abandon his right to share in partnership profits accrued as at the date of the dissolution of the partnership, although he had no right to share in any post-dissolution profits;
(x) Marignani failed both to maintain separate books of account for the partnership and to account to Husar for partnership profits accrued as at the date of the dis-solution of the partnership; and
(xi) Husar was unaware in 1981 of facts sufficient to lead a reasonable person to believe that he had a possible claim against Marignani. Accordingly, the action commenced by him in 1999 was not barred either by laches or ac-quiescence.
[23] By judgment dated March 7, 2005, the trial judge held that Marignani and P & M were liable to each of Husar and Massarelli in the sum of $37,117.99 on account of partnership profits accrued as at January 30, 1981, the date of the partnership dissolution. The trial judge also awarded Husar and Massarelli prejudgment interest at the rate of five per cent per annum, commencing on January 30, 1981, and their costs of the action, fixed in the total amount of $120,000.
III. Issues
[24] I would frame the issues on appeal in this fashion:
(1) Did the trial judge err by basing his liability holding on a theory that was neither pleaded nor addressed by the parties at trial?
(2) Did the trial judge err by holding that the doctrine of laches or acquiescence did not apply to bar Husar’s and Massarelli’s entitlement to share in partnership profits as at the date of the dissolution of the partnership?
(3) Did the trial judge err by failing to consider the effect of the Limitations Act, R.S.O. 1990, c. L.15?
(4) Did the trial judge err in his assessment of damages?
(5) Did the trial judge err in his approach to prejudgment interest?
(6) Did the trial judge err by awarding Husar and Massar-elli their costs of the action?
[25] There are three issues on the cross-appeal:
(1) Did the trial judge err by concluding that Husar and Massarelli were not entitled to invoke s. 42 of the Partnerships Act, R.S.O. 1990, c. P.5, thereby pre-cluding them from electing to receive either their share of the post-dissolution profits of the partnership or interest at the rate of five per cent per annum on their share of the assets of the partnership?
(2) Did the trial judge err by failing to award Husar and Massarelli compounded prejudgment interest?
(3) Did the trial judge err by awarding costs to Husar and Massarelli in the amount of $120,000?
IV. Analysis
A. Appeal
[26] Of the grounds of appeal raised by Marignani and P & M, I address two main issues in these reasons. First, I am satisfied that the appellants had adequate notice of the theory of liability that grounded the trial judge’s liability holding. Accordingly, I would reject their contention that they were deprived of trial fairness. Second, I am also persuaded that the trial judge erred by concluding that laches did not defeat any entitle-ment of Husar and Massarelli to an accounting of partnership profits as at the date of the dissolution of the partnership. I turn first to the issue of the trial judge’s liability holding.
(1) Foundation of Liability Holding
[27] The trial judge’s liability holding rested on his findings that the partnership was dissolved by mutual agreement on January 30, 1981 – the date on which title to the Property was transferred to P & M – and that Husar and Massarelli were entitled to an accounting of partnership profits accrued as at that date. The appellants argue that these findings reflect a theory of liability that was neither pleaded nor addressed by the parties at trial. Rather, they submit that it was introduced for the first time in the trial judge’s reasons for judgment, with the result that they were taken by surprise, prejudiced in their defence of the case, and denied the opportunity to know the case they had to meet.
[28] For three reasons, I would reject these submissions. First, in my view, the basis of liability articulated by the trial judge was encompassed by the pleadings.
[29] In their amended statement of claim, Husar and Massarelli did not allege that the partnership had been dissolved, by mutual agreement or otherwise, at any time. To the contrary, as I have already indicated, they maintained in their pleading and throughout the trial that the partnership had never been terminated prior to Husar’s death. Their claim for relief was based on the assertions that (i) the Property was acquired as partnership property for Husar and Marignani; (ii) the Property was transferred by Magnanelli to P & M, at Marignani’s instigation, in January 1981; (iii) this transfer constituted a breach of trust and, accordingly, Marignani, P & M and Magnanelli were “liable to account for all dealings with the Property” from the date of its acquisition in 1972; and (iv) Marignani and P & M had breached their fiduciary duties to Husar and Massarelli in unspecified ways. I note that Husar and Massarelli did not initially assert fraud against the appellants. This claim was not made until the end of trial, when Husar and Massarelli were permitted to amend their pleading to include this allegation.
[30] However, the issue of whether the partnership was terminated by 1981, and the consequences thereof, if any, arose squarely on the appellants’ own pleading. In their amended statement of defence, Marignani and P & M did not dispute the existence of the partnership. Nor did they deny that the Property was transferred to P & M in January 1981. Rather, as I have said, they denied any breach of trust or duty by them. They alleged that Husar himself had breached the 1972 Agreement and had abandoned the partnership by failing to contribute his share of the expenses of the development project as required by the 1972 Agreement, thereby justifying the subsequent transfer of the Property to P & M without compensation to Husar. They also pleaded, essentially in the alternative, that if a valid contract was found to be in effect, “then there should be an accounting of the entire venture which gives value to the defendant Marignani’s work and his personal investment”.
[31] Thus, on the case as pleaded, especially by the appellants, the termination of the partnership by 1981 – occasioned either by Marignani’s and P & M’s alleged breach of trust and fiduciary duty, or by Husar’s alleged breach of the 1972 Agreement and abandonment of the partnership before the transfer of the Property to P & M – was in issue. Either theory, if accepted by the trial judge, could lead to a finding that the partnership was dissolved by January 1981. In particular, the appellants’ amended pleading made this potential outcome a real possibility.
[32] Moreover, the remedy of an accounting was sought by both sides, albeit for the currency of the entire relationship between Husar and Marignani. In support of this claimed relief, the parties joined issue in their pleadings on Husar’s and Marignani’s conduct in relation to the partnership, and its consequences.
[33] This is not a case, therefore, where the dissolution of the partnership by 1981 was not on the parties’ ‘radar’ prior to trial. If it was not, the pleadings dictated that it should have been. From the close of pleadings, the appellants’ primary defence was that the partnership, in effect, ended by January 1981 due to Husar’s conduct.
[34] Second, the premise of the partnership’s termination by 1981 was also supported by Marignani’s evidence at trial. He testified that Husar “[gave] up his share” in 1980 or 1981, and that “at that point” Husar “was no longer in” and “[gave] up his interest”. Moreover, on discovery, Magnanelli said that when Husar told him “do what you want to do with the land”, Husar “want[ed] to give up his partnership”.
[35] Third, contrary to Marignani’s and P & M’s contention before this court, the issue of the termination of the partnership in 1980 or 1981 – and the consequences thereof – was addressed by the parties in their final arguments at trial.
[36] Both sides filed written submissions with the trial judge at the conclusion of the trial. In their submissions, Marignani and P & M stressed that, because Husar “did not have the money to follow through with the [development] plan” for the Property, he left Marignani “on his own to carry on as he saw fit”, with the alleged result that “there was no partnership” and Marignani became the “sole beneficial owner of the lands” and “could in fact do what he wanted with the lands”. They argued:
[A]t some point in or around late 1980 or early 1981, Joseph Husar abandoned [the Partnership] and ceased to have any involvement. After that point, Mr. Marignani no longer asked Husar to contribute to the costs and acted upon the reasonable belief that the lands were his to do with as he saw fit. [Emphasis added.]
[37] And further:
It is the Defendants’ submission that when Mr. Husar walked away from [the Partnership] Mr. Magnanelli’s duties as trustee ceased. Once there was no partnership, Magnanelli… transferred the [Property] to its beneficial owner [P & M].
It is therefore, the Defendants’ submission that Mr. Marig-nani’s obligations are to be determined solely by the law of partnership as Mr. Marignani was never a trustee. And, further, that the partnership, and hence, those duties and obligations, came to an end by late 1980 or early 1981 as a result of the breach of the partnership agreement and/or abandonment thereof by Joseph Husar, both expressly and impliedly. [Emphasis added.]
[38] As is apparent from these statements, at the end of trial the appellants maintained their position that the termination of the partnership in late 1980 or 1981 and the alleged consequential termination of Marignani’s obligations to Husar fully justified (i) the transfer of the Property to P & M without compensation to Husar, and (ii) the denial of any relief against the appellants.
[39] The appellants also urged the trial judge to apply the principles of partnership law, rather than the law of trusts, to the determination of the rights and obligations of the parties. Upon the application of these principles, and on the appellants’ own theory of the case, it was open to the trial judge to determine whether the partnership had been dissolved and, if so, the manner and timing of its dissolution.
[40] In addition, in their original final submissions, Husar and Massarelli acknow-ledged, and attempted to counter, Marignani’s claim that the partnership had ended in 1980 or 1981. Furthermore, in their written “reply final argument” at trial, Husar and Massarelli again addressed the proposition that the partnership ended in 1981, stating in part:
But the simple fact is that even if [Husar] and [Marignani] did not come to an agreement as to changing the equal sharing of finances, then one has to ask did the partnership end. If it did, assuming in 1981 or at any time thereafter, the result and obligations of the defendants would be the same.
[41] After the release of the trial judge’s reasons for judgment dated March 7, 2005, Marignani and P & M maintained that they were taken by surprise and prejudiced by the trial judge’s findings that the partnership was dissolved in January 1981 and that a duty to account arose as at that date. In his reasons dated September 14, 2005 concerning his costs award, the trial judge addressed this claim directly:
[9] In the alternative, the defendants submit that although the plaintiffs were successful, they were unsuccessful in respect of the bulk of the claims advanced. The judgment ultimately granted was awarded on a basis quite different from the plaintiffs’ major thrust at trial. …The defendants further take the position that the basis of my judgment, being that the partnership ended in 1981 and that it should be valued as at that date, was never advanced by the plaintiffs. The defendants contend that they were not given an opportunity to make submissions on this point prior to judgment.
[42] Later in the same reasons, the trial judge said:
DEFENDANTS’ ALLEGATION THAT THEY HAD NO OPPORTUNITY TO ADDRESS THE VALUE OF THE PARTNERSHIP AS AT [1981]
[28] The defendants have suggested that my finding that the partnership ended on January 30, [1981] and that there was a duty to account as of that date came as a surprise to them, that this possibility had never been raised by the plaintiffs or the court and that they had no opportunity to address it in final argument. This is not correct. The defendants took the position that the plaintiffs abandoned their interest in or about 1981 and that it was valueless at that time. In their final submissions the defendants addressed pre and post 1981 revenues and expenditures for the project in an attempt to show it had no value in 1981 and at the time of trial. Although the possibility that the defendants had a duty to account to the plaintiffs for the value of the partnership as at January 1981 was not vigorously pursued by either party, it was always a possible outcome. It had been raised in conferences I held with counsel in the course of trial and again prior to final submissions. The plaintiffs addressed this possibility in their reply submissions. [Emphasis added.]
[29] While there were no doubt strategic reasons for the plaintiffs and defendants making limited submissions on this point, the issue was always present and there was ample opportunity to address it in final submissions.
[43] Tellingly, the appellants do not dispute the trial judge’s statements, quoted above, that the issue of the dissolution of the partnership and the potential consequences thereof were discussed in mid-trial conferences and, again, prior to final argument.
[44] In all the circumstances, therefore, I conclude that the challenged findings of the trial judge arose directly from the appellants’ own pleading and from the evidence and the final submissions of the parties at trial. These factors distinguish this case from that category of cases, relied upon by Marignani and P & M, in which the theory of liability ultimately relied upon by the trial judge was not pleaded or developed and addressed at trial: see for example, Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 1998 6879 (ON CA), 41 O.R. (3d) 528 (C.A.) at 533-34, leave to appeal to S.C.C. refused, [1999] S.C.C.A. No. 253; Rodaro v. Royal Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74 (C.A.) at 93-94; Grass (Litigation Guardian of) v. Women’s College Hospital (2005), 2005 11387 (ON CA), 75 O.R. (3d) 85 (C.A.) at 99-101, leave to appeal to S.C.C. refused, [2005] S.C.C.A. No. 310; TSP-Intl. Ltd. v. Mills (2006), 2006 22468 (ON CA), 81 O.R. (3d) 266 (C.A.) at paras. 29-35.
(2) Application of the Doctrine of Laches
[45] In M. (K.) v. M. (H.), 1992 31 (SCC), [1992] 3 S.C.R. 6 at para. 98, La Forest J., writing for the majority of the Supreme Court of Canada, endorsed the following description of the doctrine of laches, set out in R.P. Meagher, W.M.C. Gummow and J.R.F. Lehane, Equity Doctrines and Remedies (Sydney: Butterworths, 1984) at 755:
It is a defence which requires that a defendant can success-fully resist an equitable (although not a legal) claim made against him if he can demonstrate that the plaintiff, by delaying the institution or prosecution of his case, has either (a) acquiesced in the defendant’s conduct or (b) caused the defendant to alter his position in reasonable reliance on the plaintiff’s acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb[.]
[46] Justice La Forest pointed out that delay alone is insufficient to trigger laches. As he explained at para. 98: “Rather, the doctrine considers whether the delay of the plaintiff constitutes acquiescence or results in circumstances that make the prosecution of the action unreasonable. Ultimately, laches must be resolved as a matter of justice as between the parties, as is the case with any equitable doctrine.”
[47] In this case, the trial judge considered and rejected the appellants’ argument that Husar’s and Massarelli’s entitlement to an accounting was defeated by laches or acquies-cence. He reasoned, in part, as follows:
[58] Even if I were to find that Husar’s statement [that Marignani “should do what he want[ed]” with the Property reflected a decision to abandon his interest, Husar did not have sufficient information regarding the financial situation of the partnership to have acted in a knowing manner. Husar would have made the decision based on Marignani’s representation that the partnership had no value. This representation by Marignani was not correct. In the circum-stances of this case it would be inequitable to allow Marig-nani, who stood in a fiduciary relationship to Husar, to acquire the partnership property at an undervalue thereby profiting from his erroneous statement as to the partnership’s value.
[87] The present case is not one of unexplained delay by the plaintiffs. Husar would not be concerned with the continuing development of the land as he advised Marignani to do what he wanted with the land. With respect to the failure to provide an accounting Husar was advised repeatedly by Marignani that the development had not generated a profit. Husar trusted Marignani and likely accepted his statement. Husar may well also have been concerned that if he challenged Marignani or insisted on an accounting he may be called upon to pay for the deficit that Marignani said had been run up by the partnership. There was no evidence led that in January 1981 or thereafter [that] Husar was provided with sufficient information to allow him to know or understand the financial situation of the project.
[89] I find that in the circumstances of this case Husar was not aware of facts sufficient to lead a reasonable person to believe he had a possible claim.
[Citations omitted and emphasis added.]
[48] Marignani and P & M submit that these pivotal findings are tainted by reversible error. With respect, I agree for several reasons.
[49] First, although the trial judge found in para. 58 and elsewhere in his reasons that Marignani represented to Husar that the partnership had “no value”, he also held throughout his reasons, including in para. 87 set out above, that Husar was “advised repeatedly by Marignani that the development had not generated a profit”. In the trial judge’s view, these representations and the fact that, by January 1981, Husar was signif-icantly in arrears in making his contribution to the expenses of the partnership, explained why Husar did not seek an accounting from Marignani when the partnership was dissolved.
[50] It appears that the trial judge regarded the “value” and the “profitability” of the partnership as interchangeable concepts in this case. For example, in addition to his comments in paras. 58 and 87 of his reasons, above-quoted, he also stated in para. 92:
[92] In the circumstances of this case I do not believe anything turns on the fact that the period for which an accounting was demanded was broader than the period for which they were entitled to an accounting. With respect to the delay in bringing the claim, it has been explained. The plaintiffs were not sophisticated businessmen and they considered Marignani to be a dependable, honest and knowledgeable manager of the project. Husar would not see the need to look behind his assurances to the effect that there had been no profit made. Had Husar understood that the project may have had value and that he had a right to receive an accounting as of the date of transfer in January 1981, he likely would have insisted on it. [Emphasis added.]
[51] Significantly, the trial judge expressly found that if Husar had understood in January 1981 that “the project may have had value”, and that he had a right to an accounting, he “likely would have insisted on it”.
[52] In my view, a representation that the partnership was not “profitable” as at January 1981 is not a representation that the partnership had “no value” at that date. I agree with the appellants’ submission that the critical question was whether Husar knew or, viewed objectively, could have known upon reasonable inquiry that his partnership interest had some potential worth in 1981 and, hence, that he had a possible claim against Marignani when he triggered the dissolution of the partnership.
[53] The fact that Husar may not have known in January 1981, with certainty, whether he had a meritorious claim for an accounting against Marignani, or the amount of his claim, are not decisive of whether he knew or reasonably could have known that he had a potential claim against Marignani as at that date. Awareness by Husar of a possible claim against Marignani did not require knowledge of whether the partnership was “profitable” in a technical or accounting sense. Knowledge of the existence of a potential cause of action for an accounting is not predicated on knowledge of whether the accounting, if granted, will ultimately prove to be financially beneficial to the claimant.
[54] On the trial judge’s findings as a whole, it seems clear that a reasonable person in Husar’s position in January 1981 would have known that Husar’s interest in the part-nership had potential “value”. The Property, a twenty-four acre parcel of land, was the partnership’s principal asset. The trial judge found that Husar sold one-half of his interest in the Property to Massarelli in 1974 for $57,500 – more than twice Husar’s total financial investment in the development project. Husar was aware in early 1981 that Marignani had proceeded with the development of the Property, that building lots were available for sale, that some lots had been sold commencing in 1980 at a sale price of $15,000 per lot, and that Marignani had built houses on other lots for rental purposes.
[55] These facts undercut the trial judge’s conclusions that Husar did not appreciate in 1981 that his partnership interest might have had “value”, that when Husar disassociated himself from the Partnership, he “did not have sufficient information regarding the financial situation of the partnership to have acted in a knowing manner,” and that Husar “was not aware of facts sufficient to lead a reasonable person to believe he had a possible claim”.
[56] Moreover, it appears to have been uncontested at trial that, prior to his request in 1998 for an accounting, Husar never sought access to those records of the partnership as existed. Specifically, there is no suggestion that he did so in 1981 when he divorced himself from the partnership. In my view, it is not open to Husar to rely on an alleged lack of knowledge in 1981 of the financial affairs of the partnership as justification for his delay in advancing a claim against Marignani when, on reasonable diligence, information regarding the worth of his partnership interest in 1981 might have been forthcoming.
[57] Second, and importantly, the trial judge held: “There was no evidence led that in January 1981 or thereafter [that] Husar was provided with sufficient information to allow him to know or understand the financial situation of the project.”
[58] But Husar and Massarelli were the plaintiffs at trial. They bore the evidentiary onus to establish that Husar lacked sufficient knowledge of the affairs of the partnership to appreciate that he was entitled to demand an accounting from his partner when he chose to terminate the partnership.
[59] On this record, it does not appear that any evidence was led at trial by Husar or Massarelli regarding Husar’s state of mind or the extent of his knowledge about the circumstances of the partnership when he precipitated the dissolution of the partnership. Simply put, there was no evidence at trial from Husar and Massarelli to support the finding that Husar lacked the requisite knowledge in 1981, or at any time thereafter prior to 1998 when he first requested an accounting, to initiate a claim for an accounting against Marignani and P & M. Nor, as I have stated, was there evidence on behalf of Husar and Massarelli that Husar made inquiries about the financial status of the partnership or the development project when he told Marignani that he “should do what he want[ed]” with the Property.
[60] Third, the trial judge accepted Massarelli’s evidence that Husar told him that the development project was advancing and that the “payout” would be when the project was completed. Massarelli testified that Husar repeatedly told him, “When the subdivision is finished, whatever is half of whatever, that will be our bread and butter” and “whenever we finish, whatever, the profit will come after”. Massarelli’s evidence of these state-ments by Husar, at least some of which appear to have been made after 1981, does not support the contention that Husar believed the partnership to be valueless, or that he was unaware that he had a claim against Marignani in respect of the development project. To the contrary, they suggest that Husar was waiting deliberately until the development of the Property was complete before seeking a “payout”.
[61] Given these defects in the trial judge’s reasoning, the issue is whether his holding that laches did not apply to bar recovery by Husar of a share of the partnership profits as at the date of the partnership dissolution, is sustainable. Respectfully, I conclude that it is not. I say this for the following reasons.
[62] There is no dispute that laches can operate as a complete bar to relief in equity. In R. C. I’Anson Banks, ed. Lindley & Banks on Partnership, 18th ed. (London: Sweet & Maxwell, 2002) at 23-18 and 23-20, the author states:
A partner may, on normal principles, be precluded from obtaining equitable relief by reason of laches or acquiescence. Laches…presupposes not only the passage of time, but also the existence of circumstances which render it inequitable to afford a claimant the relief which he seeks. Similarly in the case of acquiescence. [Footnotes omitted and emphasis added.]
Questions of laches and/or acquiescence frequently arise where a person has agreed to enter into partnership but has, in effect, hung back in order to see whether participation in the venture is worthwhile. Lord Lindley explained:
“The doctrine of laches is of great importance where persons have agreed to become partners, and one of them has unfairly left the other to do all the work, and then, there being a profit, comes forward and claims a share of it. In such cases as these, the [claimant’s] conduct lays him open to the remark that nothing would have been heard of him had the joint adventure ended in loss instead of gain; and a court will not aid those who can be shown to have remained quiet in the hope of being able to evade responsibility in case of loss, but of being able to claim a share of gain in case of ultimate success.”
[Italicized emphasis in original, underlining added and footnotes omitted.]
[63] The trial judge was alive to these principles. He indicated in his reasons that if he had not found that the partnership had ended in 1981, “laches may well have applied to bar the plaintiff from recovering any profits made by the defendants after 1981”, given the alteration by Marignani thereafter of his position in respect of the partnership and Husar’s delay in raising any objection to Marignani’s actions.
[64] However, the trial judge also concluded that: “The situation respecting profits accrued by January 30, 1981 is, however, quite different.” He based this conclusion on two factors: first, on his view that this was not a case of “unexplained delay” by Husar and Massarelli, for the reasons set out in para. 87 of his reasons for judgment, quoted in para. 47 of these reasons. I take this finding by the trial judge to mean that Husar’s delay was reasonable in the circumstances. Second, the trial judge relied on the fact that Husar remained liable for his share of partnership expenses until January 1981, with the result that it was open to Marignani until that date to hold Husar to his financial obligations and his potential liability under the 1972 Agreement.
[65] I have already concluded that the trial judge’s reasoning in support of his holding that this was not a case of “unexplained delay” was flawed. In my opinion, Husar’s delay in advancing a claim in respect of the partnership was unreasonable. The following factors compel this conclusion.
[66] First, the trial judge implicitly held in his reasons for judgment dated March 7, 2005 that Husar’s and Massarelli’s cause of action arose on January 30, 1981 when the partnership was dissolved. In his reasons dated May 13, 2005 concerning prejudgment interest, the trial judge expressly stated his view that a cause of action arose and that Marignani had a fiduciary duty to account to Husar as at January 30, 1981.
[67] This holding was based on the trial judge’s finding that Husar had agreed to the dissolution of the partnership by January 1981. Indeed, on the trial judge’s findings, Husar’s own actions precipitated the breakup of the partnership at a time when he was indebted to Marignani for his share of the expenses of the partnership that exceeded $26,600. The trial judge also found that Husar knew that he was not Marignani’s partner after January 1981 but that he made no demand for an accounting of partnership assets until 1998. To the contrary, when the ownership of the Property passed to P & M, Husar essentially stood by, knowing that his interest in the Property was being transferred, and yet did nothing.
[68] Second, the trial judge also held that no fraud had been established at trial against Marignani or P & M. He found that Marignani acted under the honest belief that the partnership had ended in 1981, that it had not been “profitable” and that he owed nothing to Husar. The trial judge thus rejected Husar’s and Massarelli’s contentions that Marignani acted fraudulently, dishonestly, or with any intent to mislead. In his reasons dated September 14, 2005, the trial judge confirmed his finding that Marignani did not act in bad faith.
[69] Third, Husar made a relatively small financial investment in the partnership from which he substantially profited within about two years of the formation of the partner-ship, by selling one-half of his partnership interest to Massarelli for more than twice his initial investment. He kept these sale proceeds for his own use, and neither sought nor obtained Marignani’s consent to the conveyance to Massarelli.
[70] Fourth, in contrast to Husar’s minor financial investment, Marignani alone paid for and developed the Property prior to and after 1981, investing funds for that purpose with Husar’s knowledge and without his assistance. At a time when it was clear that Husar was either unable or unwilling to contribute his share of the expenses of the partnership, as he was obliged to do, Husar simply walked away from the partnership, leaving Marignani with the sole responsibility to complete the development of the Property, at an eventual cost that the trial judge described as in the “millions”.
[71] Fifth, Husar took no action to settle the accounts of the partnership for eighteen years although, as I have already stated, he knew or upon reasonable inquiry could have known that his interest in the partnership potentially had “value” in 1981. He repeatedly told Massarelli, apparently before and after 1981, that the “payout” would occur when the development of the Property was complete. He then waited for almost two decades before demanding an accounting.
[72] In the end, Husar, a real estate agent of some experience, stood by while Marig-nani expended most of the funds required for the development of the Property, Phase I of which was well underway by 1981. He allowed Marignani to bear all the risk and to assume sole financial responsibility for the development, including for that part of the project carried out by 1981. He took virtually no steps to become engaged in or to advance the interests of the partnership. He took no action to seek redress against Marignani until he requested an accounting in 1998 and commenced legal proceedings in 1999.
[73] Given these facts, I am compelled to conclude that while Husar’s delay, by itself, did not trigger the application of laches, his entire course of conduct rendered the prosecution in 1999 of an action for equitable relief unreasonable and unjust. To paraphrase Lindley’s words, above-quoted, nothing would have been heard from Husar had the joint adventure ended in loss instead of gain. This case is precisely the type of situation in which the courts will avoid injustice by declining to grant equitable relief on the basis of the claimant’s conduct, including unreasonable delay, and the lapse of time. Accordingly, in my view, laches applies to defeat Husar’s claims against the appellants.
[74] Necessarily, Massarelli’s claims against the appellants must also fail. The trial judge found that Massarelli was not Marignani’s partner, that Marignani was entitled to deal exclusively with Husar, that Husar’s actions and representations to Marignani bound Massarelli, and that Husar and Massarelli were equal partners in respect of Husar’s half interest in the partnership. These findings are not challenged by Massarelli, who acknowledged before this court that Husar’s conduct was binding on him. As a result, whatever remedies may otherwise be available to Massarelli, if any, his action against the appellants must be dismissed.
(3) Other Grounds of Appeal
[75] Because I have concluded that Husar’s and Massarelli’s action fails on the basis of laches, it is unnecessary to address the remaining grounds of appeal raised by Marignani and P & M.
B. Cross-Appeal
[76] Since the issues on the cross-appeal depend on the success of Husar’s and Massarelli’s action, which I conclude must be dismissed, the issues raised on the cross-appeal are moot. I note that, as a result, these reasons do not address the issue of the legal effect of Husar’s failure to live up to his partnership obligations.
V. Disposition
[77] For the reasons given, I would allow the appeal, set aside the trial judgment and substitute in its stead an order dismissing the action. I would dismiss the cross-appeal in its entirety.
[78] The appellants seek their costs of these proceedings and of the trial on the substantial indemnity scale. They also seek an order requiring counsel for Husar to pay personally certain disbursements incurred by them in these proceedings. Having considered the oral and written costs submissions of the parties and the circumstances of this case, I would decline both requests. The appellants are entitled to their costs of the appeal and the cross-appeal on the partial indemnity scale, fixed in the total amount of $25,000, inclusive of disbursements and GST. They are also entitled to their costs of the trial on the partial indemnity scale, fixed in the total amount of $85,000, inclusive of disbursements and GST.
RELEASED:
“KNF” “E.A. Cronk J.A.”
“MAR 20 2007” “I agree K. Feldman J.A.”
“I agree R.A. Blair J.A.”
[^1]: After Husar’s death, his estate and Massarelli continued the litigation. I refer to Husar and his estate, collectively, as “Husar” in these reasons.