Court File and Parties

CITATION: Partners in Psychiatry v. Canadian Psychiatric Association, 2011 ONCA 109

DATE: 20110209

DOCKET: C52722

COURT OF APPEAL FOR ONTARIO

Armstrong, Epstein and Karakatsanis JJ.A.

BETWEEN

Partners in Psychiatry

Applicant (Appellant)

and

Canadian Psychiatric Association

Respondent (Respondent in Appeal)

Counsel: Brendan Van Niejenhuis and Justin Safayeni, for the appellant Terry D. McEwan, for the respondent

Heard: January 24, 2011

On appeal from the judgment of Justice Kevin W. Whitaker of the Superior Court of Justice, dated August 26, 2010.

ENDORSEMENT

[1] This is an appeal from a decision on a Rule 14 application declaring that a partnership did not exist between the parties under the Partnerships Act, R.S.O. 1990, c.P.5. The appellant seeks a declaration that a partnership existed and an order that it is entitled to distribution of the partnership assets of goodwill and intellectual property.

[2] The parties agree that the definition of a legal partnership is a (i) business, (ii) carried on in common, (iii) with a view to a profit: see the Partnerships Act, s. 2; Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367, at para. 18; Continental Bank Leasing Corp. v. Canada, 1998 CanLII 794 (SCC), [1998] 2 S.C.R. 298, at para. 22. The parties concede that the project was a business. There was no dispute that they intended that revenue exceed expenses. At issue in the application was whether the business was conducted in common and with a view to sharing profits.

[3] As the Supreme Court of Canada stated in Backman, at para. 25: “[T]o ascertain the existence of a partnership the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit.”

[4] The application judge referred to the leading cases for the proposition that he was required to consider the express language of the partnership agreement in the context of all of the circumstances. However, he did not advert to the legal definition of partnership and he did not analyze the provisions of the agreements and the circumstances in relation to the legal elements of the test for partnership. By failing to do so, he erred in law.

[5] Instead of considering whether the evidence established a business carried on in common with a view to profit, the application judge listed partnership indicia that he found were absent in this case. Relying upon the absence of those indicia, and evidence that the appellant’s invoices to the project for labour and costs included some margin for profit and GST, which was “typically not part of a partnership arrangement”, he concluded there was no partnership. Instead, he found that the relationship between the parties was one of independent contractors.

[6] Given the application judge’s failure to consider the provisions of the agreement and all the circumstances in relation to the legal elements of the test for partnership, his findings of mixed fact and law do not attract deference. This court is in a position to reach its own conclusion applying the correct legal test.

[7] The respondent’s executive director testified that the respondent conducted business with the appellant to develop and deliver continuing professional development programs, under the name “CPA CPD Institute” with a view to a profit. The “partnership agreements” provided for shared responsibilities for program fund-raising, content development, program materials and on-site execution of all programming for the CPA CPD Institute. The revenue was to be collected by the respondent and kept in a separate account entitled the CPA CPD Institute. Expenses paid by each party were to be invoiced to the CPA CPD Institute. Both parties were required to approve any changes to the estimated revenues and costs and each party was entitled to an equal sharing of profits as management fees after expenses were paid. The parties’ course of conduct was consistent with the terms of the agreements. A reconciliation for the special account showed that each party submitted expenses and received half the profits as management fees.

[8] We are satisfied, on this record, that the parties were carrying on a business, in common, with a view to profit. Both parties contributed money, knowledge and skill to the CPA CPD Institute; they exercised mutual control of various aspects of the CPA CPD Institute’s business and operations; and they shared the profits: see Backman, at para. 21 and Continental Bank, at para. 24.

[9] We are satisfied that the absence of some common partnership indicia and the other circumstances relied upon by the respondent are not determinative given the totality of the circumstances. While the CPA CPD Institute’s account was operated by the respondent, the respondent was the accredited party for providing the continuing professional development and the account was subject to the partnership agreement. While the respondent did not submit a formal “invoice” to the account, the reconciliation of the account recorded all expenses paid by the respondent and all management fees paid out to the respondent as well as to the appellant. While half the profits were paid out as a “management fee”, both parties took their share of the profit by way of “management fee”, a defined term in the agreement. With respect to the testimony that the appellant’s invoices for expenses included a margin for “overhead and profit”, it appears that both parties were entitled to invoice for costs that reflected their contribution, which often included time and overhead. The failure to address the issue of liability for losses in the agreement did not arise given that most of the significant revenue from sponsors was known when the individual agreements were signed. In any event, the failure to address the issue of liability for losses and the mark-up for GST are not sufficiently compelling given the relationship as a whole - the express terms of the agreement, the admissions of the respondent, and the conduct reflected in the ‘reconciliation’ of the special account for the CPA CPD Institute.

[10] As a result, the appellant is entitled to a declaration that the parties were in a partnership. However, further evidence is required for a determination on the issue of the partnership assets and their value.

[11] The appeal is allowed, the decision is set aside, including the costs award, and there shall be a declaration of a partnership between the parties. The partnership dissolved as of December 31, 2009.

[12] The matter is remitted to the Superior Court of Justice for a trial of an issue, to determine the value of the goodwill and whether the name CPA CPD Institute and the logo were assets of the partnership, and if so their value. Depending on the result of the aforesaid the appropriate order shall be made by the trial judge concerning the payment of the value to the relevant party or parties. The trial judge shall determine the costs for the proceedings below.

[13] Costs of this appeal to the appellant, fixed in the amount of $20,000, inclusive of disbursements and applicable taxes.

“Armstrong J.A.”

“Epstein J.A.”

“Karakatsanis J.A.”