Court of Appeal for Ontario
Date: 2025-04-25
Docket: COA-24-CV-0768
Coram: Zarnett, Sossin and Copeland JJ.A.
Between:
Nutrition Guidance Services Inc., Dr. Earl Schwartz, Rosie Schwartz, and Dr. Earl Schwartz Professional Corporation
Plaintiffs (Appellants)
and
Dr. Martin Schwartz and Susan Schwartz
Defendants (Respondents)
Appearances:
Jordan Goldblatt and Rachel Allen, for the appellants
Robert B. Macdonald and Teodora Obradovic, for the respondents
Heard: March 21, 2025
On appeal from the judgment of Justice R. Lee Akazaki of the Superior Court of Justice, dated July 2, 2024, with reasons reported at 2024 ONSC 3760.
Copeland J.A.:
Background and Facts
[1] The appellant Nutrition Guidance Services Inc. (“NGSI”) and the respondents own a building on St. Clair Avenue West in Toronto (the “Property” or the “building”). Earl Schwartz and Martin Schwartz are brothers. Rosie Schwartz and Susan Schwartz are their respective wives. [1] Rosie Schwartz controls NGSI.
[2] The Property is a small medical office building. Earl and Martin are doctors, and Rosie is a dietician. With the exception of Susan Schwartz, who holds a 5 percent share in the Property, the building has been owner-occupied at cost for use as a medical centre since 1979. NGSI and Martin were initially minority owners of the property, each holding a 20 percent interest. Other healthcare professionals or their holding companies held the other 60 percent. Over time, other owners left the building and their interests were transferred to NGSI, Martin, Susan, and Earl. [2] NGSI now holds a 75 percent interest in the property, while the respondents hold 25 percent. The parties who held ownership interests in the Property at various times shared the expenses, including equipment leases, utilities, and staff. They also collected rent from tenants to whom unused space in the building was rented from time to time. The building operated at a loss and the owners funded the operating deficit as required.
[3] The relationship between Earl and Martin broke down. In 2006, Martin moved out of the building and refused to pay a share of the expenses. Earl sent Martin annual financial statements. Martin did not pay any of the requested amounts after his departure.
[4] The appellants commenced their claim in April 2021. The appellants alleged that the Property was held as an asset of a partnership. They alleged that service of the claim was notice of dissolution of the partnership under s. 32(c) of the Partnerships Act, R.S.O. 1990, c. P.5. They obtained an appraisal of the Property stating that its value was $2 million in October 2021. The appellants sought a declaration that the ownership of the Property was a partnership, an order under s. 35(1)(f) of the Partnerships Act dissolving the partnership, and an order directing the respondents to sell their interest in the Property to the appellants for $500,000 (i.e., 25 percent of the value in the appellants’ 2021 appraisal). In addition, the appellants sought reimbursement for 25 percent of expenses they paid to maintain the Property after Martin’s departure in 2006, as well as punitive damages.
[5] The respondents’ statement of defence and counterclaim denied that the Property was held in a partnership. They pleaded that the Property was held as a tenancy in common. They believe the Property is worth much more than the $2 million appraisal obtained by the appellants. The respondents sought sale of the Property on the open market, pursuant to the Partition Act, R.S.O. 1990, c. P.4. The respondents agreed that they owed 25 percent of the expenses associated with ownership, although there was disagreement about the amount of the unpaid expenses.
[6] Both sides brought motions for summary judgment before the motion judge. The primary issue on the motions was whether the Property was held in a partnership or as a tenancy in common, and whether a sale should be ordered under the Partition Act. In addition, the motion judge considered the appellants’ claims for $56,422 for expenses they paid to maintain the Property and punitive damages.
[7] The motion judge rejected the appellants’ claim that the Property was held in a partnership and found that NGSI and the respondents were simply co-owners as tenants in common.
[8] The motion judge ordered a sale of the Property under the Partition Act. He ordered that the respondents should have the first opportunity to sell the property at its highest market value. He dispensed with the consent of the appellants to complete the sale for 90 days. He also ordered that the respondents retain and instruct the real estate lawyer to act on the sale. The order for sale was stayed pending appeal by order of Sossin J.A. on August 23, 2024: 2024 ONCA 636.
[9] The motion judge also ordered the respondents to pay the appellants $56,422 for expenses incurred by the appellants to maintain the Property. The motion judge rejected the appellants’ claim for punitive damages, both because he rejected their partnership claim, and because the failure of the respondents to pay expenses to maintain the Property did not provide a basis to order punitive damages.
Issues on Appeal
[10] The appellants appeal from the motion judge’s order, raising three grounds of appeal:
- The motion judge erred in dismissing the appellants’ claim that the Property was an asset of a partnership;
- The motion judge erred in dispensing with the appellants’ consent to the sale of the Property; and
- The motion judge erred in fixing costs of the motion.
[11] I would allow the appeal in part. The motion judge made no error in finding that the appellants failed to establish that the Property was held in a partnership, and in ordering the sale of the Property under the Partition Act. However, the motion judge erred in dispensing with the appellants’ consent to the sale. I would deny leave to appeal the costs order.
(1) The motion judge did not err in finding that the appellants failed to establish that the Property was held in a partnership
[12] The appellants argue that the motion judge erred in dismissing their claim that the Property was an asset of a partnership. The appellants accept that the motion judge correctly stated the law applicable to determining whether a partnership exists. However, they argue that the motion judge erred in his application of the law and made palpable and overriding factual errors. In particular, the appellants argue that the motion judge erred in focusing on whether the parties had a medical business in common; they argue the asserted partnership was a commercial real estate venture. The appellants argue that the motion judge conflated the business and view to a profit branches of the analysis. They argue that the motion judge erred in his consideration of the view to a profit branch of the analysis by reasoning that although a partnership does not have to turn a profit, a common element of a for-profit business is that if the business “has low prospects of ever turning a profit, the rational businessperson will close shop.” The appellants argue that this is inconsistent with the recognition in Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367, at para. 23, that an ancillary profit-making purpose is sufficient.
[13] I see no error in the motion judge’s finding that the record did not support a finding that the Property was held in a partnership.
[14] The motion judge correctly stated the requirements for the existence of a partnership. The three essential ingredients of a partnership are (1) a business, (2) carried on in common, and (3) with a view to profit: Backman, at para. 18; Partnerships Act, s. 2.
[15] The question of whether a partnership exists turns on the intentions of the parties as determined by the totality of the circumstances. The Supreme Court provided the following guidance for assessing whether a partnership exists, in Backman, at paras. 25-26:
… to 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.
Courts must be pragmatic in their approach to the three essential ingredients of partnership. Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all the surrounding circumstances. That the alleged partnership must be considered in the totality of the circumstances prevents the mechanical application of a checklist or a test with more precisely defined parameters.
[16] A written agreement is not essential to find that a partnership exists, but the presence or absence of a written agreement “setting out the respective rights and obligations” of the parties as partners is a significant consideration: Backman, at para. 21.
[17] Section 3(1) of the Partnerships Act provides the following important interpretative guidance for considering whether a partnership exists in these kinds of circumstances:
3 In determining whether a partnership does or does not exist, regard shall be had to the following rules:
- Joint tenancy, tenancy in common, joint property, common property, or part ownership does not itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
[18] This court considered s. 3(1) of the Partnerships Act in A.E. LePage Ltd. v. Kamex Developments Ltd. et al., 78 D.L.R. (3d) 223, 16 O.R. (2d) 193. The court described the impact of s. 3(1) as follows, at pp. 224-225:
The mere fact that property is owned in common and that profits are derived therefrom does not itself constitute co-owners as partners….
Whether or not the position of co-owners becomes that of partners depends on their intention disclosed by all the facts of the case. It is necessary to determine whether the intention of the co-owners was to “carry on a business” or simply to provide by an agreement for the regulation of their rights and obligations as co-owners of a property.
This court’s holding in LePage is consistent with the Supreme Court decision in Backman.
[19] I am not persuaded that the motion judge erred in his application of the law. The question of whether the record supported a finding that a partnership existed is a factual one: Continental Bank Leasing Corp. v. Canada, para 23, per Bastarache J., dissenting, but not on this issue. In assessing whether a partnership existed, the motion judge properly turned his mind to the totality of the circumstances: Backman, at paras. 25-26. I see no palpable and overriding error in the motion judge’s factual findings on the partnership issue. His factual findings are entitled to deference.
[20] The motion judge summarized the evidence about the ownership and operations of the Property over time. He noted that there was no written agreement among the owners at any time. On the business branch of the partnership analysis, he considered and rejected the existence of a medical partnership, because there was no evidence to support that the parties were ever in a medical partnership. He then considered whether the parties operated the building in partnership. He accepted that operation of the building could come within the concept of a business as that term was used in Backman. He noted that it was difficult to separate the concept of a business from the requirement of a view to a profit. Based on the record before him, he found that the operation of the building did not satisfy the business requirement. With the minor exceptions of occasional tenants who were not owners, the only “customers” were the owners. The owners contributed funds to a bank account operating as a float to meet expenses. The building always operated at a loss. The motion judge found that the rent from the occasional tenants “could not have been meant to put the accounts into the black.” While the owners shared the expenses of running the building as an office, the motion judge was not satisfied that the operation of the building was a business.
[21] The motion judge found that the requirement that a business be carried on “in common” was also not satisfied. He found that there was a common intention to carry on (separate) medical practices without paying commercial rent. But this was not carrying on a business in common. He considered the fact that the various owners over time bought into the building expecting that an increase in the value of the building would offset the ongoing operating losses. But he found that this factor was insufficient in the totality of the circumstances to distinguish this case from ordinary ownership and to establish a partnership relationship.
[22] The motion judge found that the requirement of a view to a profit was also not satisfied. He acknowledged that a partnership does not have to actually turn a profit to satisfy the view to a profit requirement. But he found that the evidence that the building always operated at a loss confirmed that there was never an intention to make money from the Property separate from its value as a real estate investment (i.e., its value on ultimate sale).
[23] Finally, the motion judge considered the manner in which the Property was acquired. He recognized that, pursuant to s. 22 of the Partnerships Act, property bought with money belonging to the partnership is deemed to be an asset of the partnership. He observed that, had the Property been purchased from a common pool of funds, it could have provided evidence that the Property was acquired as partnership property. Examining the evidence of transfers of the Property over time, the motion judge concluded: “None of the transactions tracked in the evidence exhibited any purchase by a pool of funds contributed by the parties. Rather, the current owners acquired their shares as separate owners.”
[24] In my view, the substance of the motion judge’s analysis properly considered whether the three aspects of a partnership were established by considering the objective, documentary evidence, and the surrounding facts – the totality of the circumstances – in accordance with Backman.
[25] I do not agree with the appellants that the motion judge’s consideration of whether there was a medical partnership shows error. In that portion of the reasons, he considered and ruled out one possible business – a medical partnership – as underlying the partnership. Immediately after considering and rejecting the existence of a medical partnership, the motion judge stated: “the issue here was whether the parties operated the building in partnership.” He considered and rejected that argument based on the totality of the circumstances.
[26] I would also reject the appellants’ argument that the trial judge “conflated” the business and view to a profit branches of the analysis. The Supreme Court recognized in Backman, at para. 26, that the analysis does not operate as a checklist and must consider the totality of the circumstances. The branches of the test are not water-tight compartments.
[27] Finally, I would reject the appellants’ argument that the motion judge erred in his consideration of the view to a profit branch of the analysis. The motion judge’s comments about the fact that the building operated at a loss over a long period of time and the relevance of its low prospects of ever turning a profit were factual issues he was entitled to consider in assessing whether the totality of the circumstances supported the existence of a partnership (in particular, as relevant to whether there was a view to a profit). These aspects of the reasons do not show palpable and overriding error. The motion judge did not fail to consider whether there was an intention to profit from the ultimate sale of the building. He addressed this issue elsewhere in his reasons. But he found that in all of the circumstances, it was not a factor that was sufficient to establish the existence of a partnership.
[28] The appellants asserted the existence of a partnership. It was their burden to establish that a partnership existed. While it would have been possible to set up a relationship among the parties in respect of the Property as a partnership, I see no error in the motion judge’s conclusion that the evidence was insufficient to show that the parties here actually did so. The evidence was insufficient to lift the relationship in this case beyond the presumption in s. 3(1) of the Partnerships Act that co-ownership does not, of itself, create a partnership.
[29] I would add that nothing in the record shows that the parties ever turned their minds to the multiple responsibilities that would have existed among them if a partnership existed. The fact that they did not is a further indication that no partnership was contemplated.
[30] I do not attempt a comprehensive list of responsibilities inherent in a partnership relationship, but significant responsibilities include: a fiduciary relationship between the partners, creating duties of loyalty, utmost good faith, and avoidance of conflict and self-interest; joint liability of partners for all debts and obligations of the partnership; the ability of one partner acting in the ordinary course of business to bind the partnership; and vicarious liability for the acts of other partners acting in the ordinary course of business: Rochwerg v. Truster, para 36; Partnerships Act, ss. 6, 7, 10, 11.
[31] The appellants’ claim seeks to assert one right of partnership – remedies upon dissolution – without regard for the many responsibilities which would have accompanied a partnership if one had existed.
[32] In sum, I see no legal error or palpable and overriding factual error in the motion judge’s conclusion that the appellants failed to establish that the Property was held as an asset of a partnership.
(2) The motion judge erred in dispensing with the appellants’ consent to the sale
[33] The appellants argue, in the alternative, that if the motion judge did not err in ordering a sale under the Partition Act, he erred in dispensing with the appellants’ consent to the sale of the Property, effectively cutting them out of participation in the sale process. The appellants argue that the motion judge erred in dispensing with their consent to the sale for three reasons: (1) it was procedurally unfair because no party requested that relief and the motion judge did not hear submissions on the issue; (2) the record did not support granting that relief; and (3) the motion judge’s reasons for granting that relief were insufficient.
[34] The respondents concede that they did not request an order from the motion judge dispensing with the appellants’ consent to the sale. They accept that it would have been preferable if the motion judge had heard submissions on the issue of dispensing with the appellants’ consent to the sale. However, they argue that, as a practical matter, a sale transaction could not have closed without consent from the appellants.
[35] I disagree with the respondents’ interpretation of the motion judge’s order. The order is clear that the motion judge intended to and did order that for a sale within 90 days of the order, the respondents could conduct the sale alone and the appellants’ consent was not required to complete the sale. Paragraph 6 of the order provides that the respondents “shall have the first opportunity to sell the Property” within a period of 90 days from the date of the order, and that “the consent of the [appellants] to complete the sale is dispensed with” during the 90 day period (emphasis added). Paragraph 7 of the order provides that the respondents “shall retain and instruct the real estate counsel acting on any sale.” Paragraph 9 of the order provides that if the Property is not sold within 90 days after the order, the parties may seek further direction of the court.
[36] While the order provided that in the event the sale was not completed in 90 days, some further direction may be given, it gave the respondents sole control of the sale and dispensed with the appellants’ consent to complete the sale, if the sale was completed within 90 days of the order. Whether the respondents would have run into difficulty on the ground actually closing the sale does not change the effect of the order.
[37] I agree with the appellants that the motion judge erred in dispensing with the appellants’ consent to the sale. The error has two aspects, one of procedural fairness and the other of substance.
[38] First, it was procedurally unfair for the motion judge to dispense with the appellants’ consent to the sale because no party sought that relief before him. In particular, in neither their statement of defence and counterclaim nor their notice of motion seeking summary judgment did the respondents seek an order dispensing with the appellants’ consent to the sale.
[39] Because no party sought an order dispensing with the appellants’ consent to the sale, no submissions were made on the issue before the motion judge. The motion judge should have put the parties on notice that he was considering dispensing with the appellants’ consent to the sale and given them an opportunity to make submissions on the issue. It was procedurally unfair to make the order without doing so.
[40] Second, the record does not support the making of an order dispensing with the appellants’ consent to the sale of the Property.
[41] A court may dispense with a co-owner’s consent to a sale if the co-owner is withholding consent unreasonably: Miller v. Miller, 2016 ONSC 3027, paras 37-43; Katal v. Khurshid, 2017 ONSC 3412, para 6.
[42] Although the appellants asserted the claim the Property was held in a partnership and opposed a sale under the Partition Act, the record does not support the conclusion that, faced with a court order of a sale of the Property under the Partition Act, the appellants would attempt to frustrate the sale of the property on the open market or unreasonably withhold consent to the sale. The appellants are 75% owners of the Property. Their right to be involved in the sale ought not to have been removed in the absence of evidence that they would unreasonably withhold consent.
[43] It is not necessary to address the appellants’ argument about insufficiency of the motion judge’s reasons on this issue.
[44] The parties differ on the appropriate remedy for this error. The appellants ask this court to direct a reference to an associate judge of the Superior Court for sale of the Property, pursuant to rule 66.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The respondents argue that the matter should be remitted to the motion judge to set the terms for the reference.
[45] In my view it would be impractical and inefficient to return this matter to the motion judge to order the reference to an associate judge for sale of the Property. This court is equally well-placed to make that order and the terms of such an order are provided for by rule 66.02 and form 66A.
[46] I would direct a reference for sale of the Property to an associate judge of the Superior Court assigned by the Toronto Regional Senior Justice. Pursuant to rule 66.02, the terms of the order are those set out in form 66A. For greater certainty I would add the following: the associate judge may make any necessary directions to determine the procedure for the sale and to effect the sale; and any party to this proceeding may make offers to purchase the Property in the process supervised by the associate judge.
(3) There is no basis to interfere with the costs order
[47] The appellants seek leave to appeal the motion judge’s costs order in the amount of $43,647. They argue that the costs order did not take into account the divided success because the respondents were ordered to pay $56,422 for their share of expenses paid by the appellants to maintain the property.
[48] Leave to appeal costs is sparingly granted, recognizing that the fixing of costs is highly discretionary and that trial and motion judges are best positioned to assess costs, taking into account the dynamics of a case: Canadian Tire Corporation, Limited v. Eaton Equipment Ltd., 2024 ONCA 95, para 13. An appellate court may set aside a trial or motion judge’s costs award only if the judge made an error in principle or if the costs award is plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, para 27.
[49] I see no error in the motion judge’s exercise of discretion in awarding costs. The appellants’ success on the expenses issue does not render the motion judge’s costs award unreasonable. The expenses issue was a minor part of the litigation. The central issue was whether the parties held the Property in a partnership or as tenants in common and whether it should be sold under the Partition Act. The respondents were successful on that issue. The trial judge did not fail to consider the success of the appellants on the expenses issue. He began his costs reasons by referring to the respondents’ success on “the main issue” in the motions, clearly adverting to the fact that the sale was not the only issue in the motions. The quantum of costs awarded was reasonable. As the motion judge noted, the respondents’ partial indemnity costs were significantly less than those of the appellants.
[50] I would deny leave to appeal costs.
Disposition
[51] I would allow the appeal in part, and set aside paragraphs 6 to 9 of the motion judge’s order. In their place, I would substitute orders as outlined at paragraph 46 above.
[52] The parties are encouraged to reach an agreement on costs of the appeal. If they are unable to do so, they may file written submissions limited to three pages, plus a costs outline. The appellants’ submissions shall be filed within 10 days of the release of these reasons. The respondents’ submissions shall be filed within 10 days of the filing of the appellants’ submissions.
Released: April 25, 2025
“B.Z.”
“J. Copeland J.A.”
“I agree. B. Zarnett J.A.”
“I agree. Sossin J.A.”
[1] To avoid confusion, I refer to the parties by their first names.
[2] In 2019, Earl transferred his shares to NSGI.