Simkeslak Investments Limited et al. v. Kolter Yonge LP Limited et al.

[Indexed as: Simkeslak Investments Ltd. v. Kolter Yonge LP Ltd.]

Ontario Reports

Court of Appeal for Ontario,

R.P. Armstrong, LaForme and Hoy JJ.A.

February 25, 2013

114 O.R. (3d) 588 | 2013 ONCA 116

Case Summary

Fiduciaries — Duties — Parties entering into limited partnership to develop particular property — Defendant not breaching fiduciary duty to plaintiff when it accepted plaintiff's offer to sell its interest in partnership without disclosing that it had accepted third party's offer to purchase 100 per cent interest in property — Defendant's negotiations with third party taking place at time when both limited partners were acting in their own self-interest with knowledge that partnership was coming to end — Presumption that each partner had duty to act in best interests of other being rebutted.

The plaintiffs and the defendant each held a 50 per cent interest in a limited partnership that was formed to develop a particular property. Their relationship soured. As a first step in an anticipated multi-step transaction that would result in a third party acquiring a 100 per cent interest in the property, the plaintiffs offered to sell their interest in the limited partnership to the defendant, which had a right of first refusal under the partnership agreement. The defendant met with another third party, B, and negotiated an agreement to sell the property to B, conditional upon the defendant's acquisition of the plaintiffs' limited partnership interest. The defendant accepted the plaintiffs' offer and completed the purchase without disclosing its arrangement with B. The limited partnership was dissolved, and the defendant sold the property to B at a profit. The plaintiffs sued the defendant for breach of fiduciary duty and breach of the terms of the limited partnership agreement. The motion judge granted summary judgment dismissing the action. The plaintiffs appealed.

Held, the appeal should be dismissed.

There was no basis for interfering with the motion judge's finding that the defendant's negotiations with B took place at a time when the limited partners were clearly acting in their own self-interest with the knowledge that the partnership was coming to an end and with the expectation that the other partner would act in its own self-interest. The presumption that the limited partners had a duty to act in the other's best interests was rebutted. Furthermore, the motion judge did not err in finding that the defendant did not breach the limited partnership agreement by selling the property to B without the plaintiffs' consent.

Cases referred to

Aronowicz v. Emtwo Properties Inc. (2010), 98 O.R. (3d) 641, [2010] O.J. No. 475, 2010 ONCA 96, 258 O.A.C. 222, 64 B.L.R. (4th) 163, 316 D.L.R. (4th) 621; Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, [1994] S.C.J. No. 84, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, J.E. 94-1560, 49 B.C.A.C. 1, 97 B.C.L.R. (2d) 1, 16 B.L.R. (2d) 1, 6 C.C.L.S. 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 D.T.C. 5135, 5 E.T.R. (2d) 1, 50 A.C.W.S. (3d) 469 [page589]

APPEAL from the order of Hainey J., [2011] O.J. No. 5598, 2011 ONSC 7134 (S.C.J.) granting summary judgment dismissing an action.

David P. McCutcheon and Jeremy Millard, for appellants.

Fred Myers and Lauren Butti, for respondents.

[1] Endorsement BY THE COURT: -- The appellants appeal the motion judge's order granting summary judgment dismissing their claim against the respondent, Kolter Yonge LP Limited ("Kolter").

[2] The facts are significant. Briefly, they are as follows.

[3] A limited partnership was formed to develop the property located at the southeast corner of Yonge and Bloor streets in Toronto. The appellants held the Class A units of the limited partnership, and, through them, a 50 per cent interest in the limited partnership. Kolter held the Class B units, and, through them, the remaining 50 per cent interest in the limited partnership.

[4] The development did not proceed as quickly as hoped, and the relationship between the appellants and Kolter soured. Twice, the appellants and Kolter each offered to buy the other's interest. These offers were rejected. The appellants also rejected Kolter's proposal that they sell the property on the open market. The appellants wanted to proceed independently of Kolter.

[5] The appellants approached a third party, Bazis International Inc., about acquiring their 50 per cent interest in the partnership, but Bazis was only interested in purchasing a 100 per cent interest in the property.

[6] The appellants had a tactical advantage. Significantly, they (but not Kolter) would shortly have the right to trigger a "shotgun" buy/sell provision under the limited partnership agreement requiring Kolter to either sell its interest to the appellants or purchase the appellants' interests at a price specified by the appellants.

[7] The appellants engaged in negotiations with another third party -- Cityzen Development Group -- with a view to concluding a multi-step transaction, utilizing the shotgun provision if necessary, that would result in Cityzen acquiring a 100 per cent interest in the property. If Cityzen was able to acquire Kolter's interest in the limited partnership below a specified price, the appellants would be entitled to a further payment from Cityzen. The appellants did not disclose their arrangement with Cityzen to Kolter.

[8] At the time that the appellants were negotiating with Cityzen, Bazis approached them, again expressing interest in [page590] acquiring the property. The appellants rebuffed Bazis and their spokesman advised that they expected to shortly have a committed deal but that, "if such does not materialize, I would be prepared to give you the exclusive option to purchase the development at a price of $90 per square foot . . .".

[9] As a "first step" in the proposed transaction with Cityzen, the appellants again offered to sell their interest in the limited partnership to Kolter, which had a right of first refusal under the limited partnership agreement, at a price that valued the property at $80 per square foot.

[10] After receiving the appellant's offer, Kolter met with Bazis. Kolter negotiated an agreement to sell the property to Bazis at a price of $90 per square foot, conditional upon Kolter's acquisition of the appellants' limited partnership interests. Kolter accepted the appellants' offer and completed the purchase of the appellants' limited partnership interests without disclosing its arrangement with Bazis to the appellants. At closing, the parties exchanged mutual releases. The limited partnership was dissolved. Thereafter, Kolter sold the property to Bazis at a profit.

[11] The appellants sought summary judgment, arguing that Kolter (1) breached its fiduciary duty by failing to disclose its arrangement with Bazis and account for the profits from that transaction, and (2) breached the terms of the limited partnership agreement by completing the sale to Bazis without their consent.

[12] The motion judge concluded that, while there was a per se fiduciary relationship between the parties because they were partners, in the circumstances Kolter was not required to disclose its arrangement with Bazis or share the profits derived from its transaction with Bazis. The appellants take issue with this determination.

[13] The motion judge found, at para. 65, that Kolter's negotiations with Bazis took place "when the parties were clearly acting in their own self-interest with the knowledge that the partnership was coming to an end and with the expectation that the other partner would act in its own self-interest". There is no basis for interfering with this pivotal finding.

[14] The motion judge concluded that this court's reasoning in Aronowicz v. Emtwo Properties Inc. (2010), 98 O.R. (3d) 641, [2010] O.J. No. 475, 2010 ONCA 96 was applicable.

[15] We agree with this, and his conclusion that in the circumstances the actions of Kolter did not constitute a breach of fiduciary duty.

[16] Not all actions taken by a person in a per se fiduciary relationship -- that is, in a category of relationship in which a [page591] fiduciary relationship has been traditionally recognized -- attract a fiduciary obligation. The presumption that in a per se fiduciary relationship one party has a duty to act in the best interests of the other is rebuttable: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, [1994] S.C.J. No. 84, paras. 31 and 124. That presumption was rebutted in this case. We do not give effect to the appellants' first ground of appeal.

[17] Nor are we persuaded by the appellants' argument that Kolter breached the limited partnership agreement by selling the property to Bazis without their consent.

[18] Section 6.08(d) of the limited partnership agreement, relied on by the appellants, provides:

No General Partner shall . . .

(d) save as permitted by section 6.02.01 cause the Limited Partnership to sell or otherwise dispose of the Property or any part thereof without the prior approval of the Limited Partnership expressed by a Special Resolution[.]

[19] The appellants argue that, because Kolter was also a general partner of the limited partnership, this section prohibited Kolter from selling the property to Bazis after Kolter acquired the appellants' partnership interest.

[20] The section speaks to the general partner causing the limited partnership to sell the property. Its clear intent is to provide some constraints on the authority of the general partner to deal with the limited partnership's only asset while the partnership was subsisting. At the time of the sale, the limited partnership had been dissolved. Kolter, and not the limited partnership, sold the property.

[21] The appellants also argue that Kolter breached s. 6.03 of the limited partnership agreement, which obligates the general partner to act in good faith and in the best interests of the limited partnership in managing and operating the limited partnership. In responding to the appellants' offer, Kolter was not acting qua general partner, managing and operating the limited partnership.

[22] As the appellants did not prevail on either of the above issues, it is unnecessary for us to address their argument that the release they signed was ineffective because of Kotler's breaches of its fiduciary duty and contractual obligations.

[23] This appeal is accordingly dismissed. The respondent shall be entitled to its costs in the agreed upon amount of $25,000, inclusive of disbursements and applicable taxes.

Appeal dismissed.

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