Molchan v. Omega Oil and Gas Ltd., [1988] 1 S.C.R. 348

molchan v. omega oil and gas ltd., [1988] 1 S.C.R. 348

Myron L. Molchan Appellant

v.

Omega Oil and Gas Ltd., Omega Oil & Gas Ltd. carrying on business pursuant to the Limited Partnership Omega Oil and Gas Fund 1, Omega Hydrocarbons Ltd. and Thomas Jack Hall (otherwise known as Thomas J. Hall and Jack Hall) Respondents

indexed as: molchan v. omega oil and gas ltd.

File No.: 19687.

1987: October 23; 1988: February 25.

Present: Beetz, Estey, McIntyre, Lamer and Wilson JJ.

on appeal from the court of appeal for alberta

Partnership ‑‑ Relationship between general and limited partners ‑‑ Partnership's capital exhausted and certain operations ceased ‑‑ General Partner buying partnership's non‑producing lands in return for common shares in parent company ‑‑ Lands in turn sold to parent company ‑‑ Whether or not general partner in breach of statutory duty not to do any act making it impossible to carry on the ordinary business of the limited partnership ‑‑ Whether or not General Partner in breach of fiduciary duty to Limited Partner ‑‑ Partnership Act, R.S.A. 1980, c. P‑2, s. 55(b).

Courts ‑‑ Appellate court jurisdiction ‑‑ Whether or not appellate court's powers of review properly exercised ‑‑ Judicature Act, R.S.A. 1980, c. J‑1, s. 3 ‑‑ Alberta Rules of Court, Rules 505, 518.

Omega Oil and Gas Fund 1 was a limited partnership consisting of 60 units with a 70 per cent interest in the partnership, and respondent Omega Oil and Gas Ltd. was a general partner with a 30 per cent interest in the partnership. When the partnership had exhausted all its apparent sources of capital for the partnership and discontinued drilling operations, the General Partner offered to purchase the Limited Partners' units with common shares in its parent company, Omega Hydrocarbons Ltd. A direct form of buy‑out was precluded by tax considerations. The General Partner then sold all the non‑producing lands of the partnership to Hydrocarbons and the proceeds were applied to the reduction of bank debt. No issue was raised as to the adequacy of such price. The partnership retained certain lands.

The appellant rejected the offer to purchase and commenced an action. The case was ordered to proceed on the issue of liability only, with an accounting to be held by subsequent trial if the plaintiff were successful on the issue of liability. At the trial as to liability, it was found that (1) the sale of the non‑producing lands breached the Partnership Act; (2) the partnership continued to subsist; (3) Hydrocarbons and the General Partner were de facto one entity; and (4) Hydrocarbons acquired the non‑producing lands knowing that the transfer was in breach of the Act. An accounting was ordered. The Alberta Court of Appeal did not directly reverse the finding that sale of these lands breached the Partnership Act but rather considered the fiduciary duty arising in the operation of the Limited Partnership. It dismissed appellant's claim for the return of the non‑producing lands to the General Partner.

Held (Wilson J. dissenting): The appeal should be dismissed.

Per Beetz, Estey, McIntyre and Lamer JJ.: The plaintiff can only complain of the General Partner's sale of assets if the partnership agreement was breached or if the sale contravened a statute or some rule of common law.

The partnership is still in existence and is in receipt of oil and gas revenue. Neither the producing lands nor an interest in lands were conveyed away or otherwise disposed of by the General Partner. The disposition of the non‑producing properties, by itself, did not make it impossible to carry on the ordinary business of the partnership and the announcement of present plans not to drill was not by itself conclusive evidence of the impossibility of conducting the ordinary business of the partnership. Section 55(b) of the Partnership Act does not require that all facets of the ordinary business of the partnership be rendered impossible but rather refers to a substantial portion of its ordinary business.

The condition prescribed in s. 55(b) has, by necessary implication, not been met. The ongoing income of the partnership from oil and gas properties, the ownership of interests in oil and gas properties, and the ownership of capped gas wells must form a part of the expression "operating oil, gas and other mineral properties and interests" used in the limited partnership agreement in defining the objects and the undertaking of the partnership.

The partnership agreement, while granting power of sale to the General Partner, contained no express term whereunder the General Partner could sell partnership assets to itself. Special provisions in the partnership agreement recognize that the General Partner may carry on transactions with the partnership or otherwise which may conflict with the interests of the partnership and the other partners.

The highest status of the General Partner under the limited partnership is assumed to be that of a trustee holding the properties of the partnership on behalf of all other partners. A purchase of trust property by a trustee is voidable within a reasonable time at the instance of any beneficiary. This rule as applied to corporate fiduciaries, however, is subject to exceptions when those to whom the duty is owed have agreed to such exceptions or have consented to a sale of assets to the fiduciary with full knowledge of that sale. Further, in certain special circumstances a court of equity may approve a sale of trust assets to a trustee and there was no justification for a denial of that approval if sought. Canadian courts have indicated ex post facto approval of sales to a trustee will be given in exceptional circumstances.

Respondent owed appellant a fiduciary duty but that duty was not breached by the sale of the non‑producing lands. There was no evidence or finding of bad faith or of any attempt to pay inadequate compensation. The sale was in the partnership's best interest, given its strained financial situation, and the partnership agreement provided the General Partner with power to dispose of properties at its discretion.

At the time of its approval of this sale the Court of Appeal was not in a position that it had no alternative but to approve. The Court of Appeal by dismissing appellant's action thereby denied his claim for an order directing the return of the non‑producing lands to the General Partner. It therefore necessarily determined that the sale breached no fiduciary duty arising in the respondent General Partner in favour of the appellant, or at least did not do so in the special relationships here existing between the parties. Assuming such transfer requires judicial approval, it follows that the retrospectivity of that approval would not, in the Court of Appeal's view, be a bar.

Per Wilson J. (dissenting): The trial judge found on the evidence that the sale of the non‑producing lands of the partnership made it impossible to carry on the ordinary business of the partnership as reflected in its constitutive documents. Where a trial judge makes a finding of fact based in part on the credibility of witnesses, an appeal court should not overturn that finding unless it can be shown that the finding was "palpably wrong". The Court of Appeal did not expressly overturn the trial judge's finding. Even if it could be said that it did so impliedly by dismissing the appellant's action, it did so without identifying any palpable error. The trial judge was entitled to make the finding he did on the evidence and, having made a finding of liability, made a valid order for accounts and inquiries pursuant to the Partnership Act and the Alberta Rules of Court.

The Court of Appeal, having found no error by the trial judge, in effect conducted a trial de novo on the issue of breach of fiduciary duty, a matter not canvassed at all by the trial judge. Finding no breach, it dismissed the appellant's action. Accordingly, after succeeding at trial the appellant found himself out of court, not because the Court of Appeal found the trial judge erred in finding liability for breach of the Partnership Act, but because the Court of Appeal could find no liability for breach of fiduciary duty.

The Partnership Act gives limited partners broad rights of account and information when circumstances, such as a breach of s. 55(b) of the Act, render it just and reasonable. It is not necessary to seek a dissolution. An accounting without a dissolution is appropriate where, as in this case, the propriety of a specific transaction only is attacked. The partners can then sue for an accounting to obtain whatever benefit is due to them as a result of that transaction. The trial judge's order was also a reasonable exercise of the trial judge's discretion to direct accounts or inquiries under the Alberta Rules of Court.

On the issue of breach of fiduciary duty the sale by the General Partner of the non‑producing lands of the partnership to itself, without the consent of all the Limited Partners, is a classic breach. The fiduciary must not sell to himself or herself property which rightly belongs to the cestui que trust. Any such sale is voidable at the instance of the limited partners even if the General Partner acted in good faith and paid a fair consideration for the property. It would take the clearest of language in the constitutive documents of the partnership to permit such a sale and no such language is present. The partnership agreement did not go so far as to permit the sale of partnership assets by the General Partner to itself.

This was not an appropriate case for ex post facto court approval. Respondent could not show that the sale of the property was necessary, that no other purchaser was forthcoming or was likely to come forward within a reasonable time and that its offer in the circumstances was a favourable one. The onus of establishing this was on the respondents and not on the appellant to show prejudice from the sale of the partnership's non‑producing assets. Moreover, it was an almost impossible onus for the respondents to meet having regard to the trial judge's finding that the sale violated s. 55(b) of the Partnership Act. Indeed, if the trial judge is correct and his finding in that regard has not been reversed, the jurisdiction of a court to give retrospective approval to such a sale may be a matter of considerable doubt.

Cases Cited

By Estey J.

Referred to: Lumley v. Wagner (1852), 1 De G. M. & G. 604, 42 E.R. 687; Lumley v. Gye (1853), 2 El. & Bl. 216, 118 E.R. 749; Ex P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385; Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461; Holder v. Holder, [1968] Ch. 353; Regal (Hastings), Ltd. v. Gulliver, [1942] 1 All E.R. 378; Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 1975 1011 (AB SCAD), 60 D.L.R. (3d) 658; Midcon Oil & Gas Ltd. v. New British Dominion Oil Co., 1958 42 (SCC), [1958] S.C.R. 314; In re Baskerville Estate, 1946 122 (SK KB), [1946] 3 W.W.R. 347; Re Courtney and Mackie (1972), 1972 837 (SK QB), 23 D.L.R. (3d) 564; Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801; Farmer v. Dean (1863), 32 Beav. 327, 55 E.R. 128; Tennant v. Trenchard (1869), 4 Ch. App. 537.

By Wilson J. (dissenting)

Stein v. The Ship "Kathy K", 1975 146 (SCC), [1976] 2 S.C.R. 802; Métivier v. Cadorette, 1975 2 (SCC), [1977] 1 S.C.R. 371; Jaegli Enterprises Ltd. v. Taylor, 1981 26 (SCC), [1981] 2 S.C.R. 2; Doerner v. Bliss & Laughlin Industries Inc., 1980 50 (SCC), [1980] 2 S.C.R. 865; Schreiber Brothers Ltd. v. Currie Products Ltd., 1980 11 (SCC), [1980] 2 S.C.R. 78; Lewis v. Todd, 1980 20 (SCC), [1980] 2 S.C.R. 694; Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., 1981 182 (SCC), [1981] 1 S.C.R. 363; Lensen v. Lensen, 1987 4 (SCC), [1987] 2 S.C.R. 672; Colberg v. Braunberger's Estate (1978), 1978 ALTASCAD 307, 12 A.R. 183; Carter v. Ferguson, 1943 463 (AB SCAD), [1943] 2 W.W.R. 38; Clarke v. Gerbrandt (1984), 1984 ABCA 305, 34 Alta. L.R. (2d) 289; Angus v. City of Edmonton (1977), 1977 ALTASCAD 61, 3 A.R. 116; Ex. P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385; Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461; Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 1975 1011 (AB SCAD), 60 D.L.R. (3d) 658; Malone's Guardian Ad Litem v. Malone, 73 S.W.2d 38 (1934); Honeywell v. Dominick, 76 S.E.2d 59 (1953); Clay v. Thomas, 198 S.W. 762 (1917); Morse v. Hill, 136 Mass. 60 (1883); Farley v. Davis, 116 P.2d 263 (1941); Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801; Farmer v. Dean (1863), 32 Beav. 327, 55 E.R. 128; Tennant v. Trenchard (1869), 4 Ch. App. 537; Holder v. Holder, [1968] Ch. 353; Re Courtney and Mackie (1972), 1972 837 (SK QB), 23 D.L.R. (3d) 564; Re Mitchell Estates (1956), 1956 181 (SK QB), 19 W.W.R. 86; Re Nathanson (1971), 1971 1079 (NS SC), 18 D.L.R. (3d) 495.

Statutes and Regulations Cited

Alberta Rules of Court, ss. 418, 505, 518.

Judicature Act, R.S.A. 1980, c. J‑1, s. 3.

Partnership Act, R.S.A. 1980, c. P‑2, ss. 55(b), 57(b).

Authors Cited

Halsbury's Laws of England, vol. 48, 4th ed. London: Butterworths, 1984.

Lindley, Nathaniel Lindley, Baron. Lindley on Partnership, 14th ed. By Ernest H. Scamell and R. C. I'Anson Banks. London: Sweet & Maxwell, 1979.

Practice Direction, [1975] 1 All E.R. 255.

Scott, Austin Wakeman. Law of Trusts, vol. 2A, 4th ed. By Austin Wakeman Scott and William Franklin Fratcher. Boston: Little, Brown & Co., 1987.

Shorter Oxford English Dictionary, 3rd ed., "Possible". Oxford: Clarendon Press, 1959.

Snell, Edmund Henry Turner. The Principles of Equity, 27th ed. By Robert Megarry and P. V. Baker. London: Sweet & Maxwell, 1973.

Waters, D. W. M. Law of Trusts in Canada. Toronto: Carswells, 1974.

APPEAL from a judgment of the Alberta Court of Appeal (1985), 1985 ABCA 202, 63 A.R. 369, 40 Alta. L.R. (2d) 251, allowing an appeal from a judgment of Shannon J., 1984 1143 (AB QB), [1984] 3 W.W.R. 246, 51 A.R. 54, 30 Alta. L.R. (2d) 161, on the issue of liability. Appeal dismissed, Wilson J. dissenting.

Marvin V. McDill, Q.C., and Leslie L. Fryers, for the appellant.

Gerard C. Hawco and Randall Block, for the respondents.

The judgment of Beetz, Estey, McIntyre and Lamer JJ. was delivered by

1. Estey J.‑‑This appeal raises issues under the law related to limited partnerships in the Province of Alberta and most particularly the conduct of certain oil and gas development operations pursuant to a limited partnership agreement between the parties to this appeal and others. The limited partnership consists of 60 units, originally held by a group of Limited Partners, which represent in all a 70 per cent interest in the partnership, and a General Partner (the respondent Omega Oil and Gas Ltd.) which owns 30 per cent of the partnership. By the time these proceedings were commenced the parent company of the General Partner (Omega Hydrocarbons Ltd.) had bought 59 of the 60 limited partner units leaving the plaintiff as the only continuing "outside" Limited Partner. The plaintiff holds one of the 60 units.

2. The statement of facts recited by the trial judge and added to but not rejected by the Court of Appeal reveals that after a general discussion between the General Partner and the Limited Partners, the General Partner considered what might be done to improve the position of the Limited Partners who were seeking some realization on their interest units. At that time the partnership had expended all the moneys advanced to its capital account by the Limited Partners, had expended all the moneys borrowed by the partnership from the bank and from Hydrocarbons, and there were no other apparent sources of capital for the partnership. Accordingly, drilling operations were discontinued. The direct solution to the problem of the Limited Partners would have been to have Hydrocarbons reacquire the assets of the partnership so as to return to the Limited Partners on a cessation of the partnership some part at least of the moneys paid into the venture by those partners. It is said in the judgment of the Court of Appeal, and no issue was taken before this Court by any counsel, that tax implications for the Limited Partners were unfavourable and accordingly this direct route could not be followed.

3. As a result it was apparently agreed between some of the Limited Partners and the General Partner that Hydrocarbons would make an offer to purchase the units held in the partnership by the Limited Partners. Accordingly an offer was made for the purchase of those units by the delivery to the unitholders of common shares in Hydrocarbons for each of the 60 units. This offer was accepted by the holders of 59 of the 60 units, the one rejection coming from the appellant. According to his evidence, the appellant rejected the offer from Hydrocarbons because the conversion rate on the market for the offered shares was too low and therefore did not equal his view of the value of his unit. The Limited Partners had contributed $25,000 to the capital of the partnership for each unit. At the time of the share exchange the shares had a market value of approximately $25,120 for each unit. At the time of trial the market value was approximately $130,000. Apparently no issue was taken by the appellant at that time as to the illegality of such an offer by Hydrocarbons. Thereafter, on August 18, 1981 the General Partner sold to Hydrocarbons all the non‑producing lands of the partnership for $315,581 which was applied to the reduction of bank debt. The price was established by independent valuation and no issue is raised in these proceedings as to the adequacy of such price. The partnership retained certain lands.

4. The appellant in the rather lengthy amended statement of claim asked the Court to restore all the mineral properties which had been, at the time of the formation of the partnership, assigned to the General Partner on behalf of the partnership; for an order that all benefits received by Hydrocarbons from lands surrounding the partnership lands be held in trust for the appellant, that Hydrocarbons account to the appellant for all revenues received on the partnership account after May 15, 1981, and that the General Partner distribute to the appellant his share of revenues received by the partnership; for damages; and finally for "an order requiring the defendants [respondents] to specifically perform their duties and obligations pursuant to Fund 1 (the partnership agreement)". It is noted that the appellant in his statement of claim does not ask either for a dissolution of the partnership or for an order reversing the purchase by Hydrocarbons of the 59 units held by the other Limited Partners.

5. In response to these pleadings and the record established at a trial of the issue of liability only, the learned trial judge set out the following issue at the outset of his reasons for judgment:

What are the rights of a Limited Partner when the limited partnership has been effectively terminated in these circumstances:

(a) the assets of the limited partnership were sold and transferred by the General Partner without his consent;

(b) all of the other partners concurred in the transaction and exchanged their interests for shares of the company that purchased the assets; and

(c) the General Partner contends that the transactions were in the best interests of all interested parties due to the financial inability of the limited partnership to carry on its normal business.

6. While the issue is framed essentially in the form of a finding, the judgment does not go on to make precise or express findings with reference to the opening expression "the limited partnership has been effectively terminated". The trial proceeded solely on the issue of liability pursuant to a pre‑trial order, and the question of an accounting was left to a subsequent trial if liability be found in the defendants or any of them. The trial judge reached the following conclusions with reference to liability:

7. The sale by the General Partner of the non‑producing lands was in breach of s. 55(b) of the Partnership Act;

8. The partnership though inactive is still in existence;

9. The parent and subsidiary, Omega Hydrocarbons and Omega O&G (the General Partner), were de facto one and the same entity so that the parent, Hydrocarbons, was "the de facto General Partner";

10. Hydrocarbons acquired the non‑producing lands knowing that their transfer was in breach of the Partnership Act.

11. The question ultimately answered by the trial judge was that the respondent had, by the sale of certain non‑producing lands of the partnership, made it "impossible to carry on the ordinary business of the limited partnership" and this amounted to a violation of s. 55(b) of the Partnership Act.

12. The trial judge thereupon ordered an accounting pursuant to s. 57 of the Partnership Act and Rule 418 of the Alberta Rules of Court against all the defendants and directed the taking of accounts with reference to profits, losses and revenues received as a result of partnership operations as follows:

(1) All profits realized by Omega Hydrocarbons Ltd. from the non‑producing lands since the date of their acquisition;

(2) The losses, if any, which resulted from a failure on the part of the defendants to exercise option rights or participation rights with respect to the original Fund lands, option lands, lands adjacent and contiguous, and lands defined in contractual areas of mutual interest;

(3) Gross and net revenues received from oil and gas wells during the currency of the Fund;

(4) The number and value of shut‑in gas wells belonging to the Fund;

(5) All deposits and withdrawals from the Bank account of the Fund . . . .

An accounting was also directed with respect to:

(6) The adequacy of the evaluations provided by Supplementary Land Services and the D & S Group as a basis for the shares for units exchange and the transfer of the non‑producing lands of the Fund.

9. As noted above no issue was taken in the pleadings with respect to the purchase by Hydrocarbons of the 59 units held by all Limited Partners other than the plaintiff who rejected the offer. No finding was made in any of the courts below that Hydrocarbons could not in law acquire the units held by the Limited Partners in the partnership or that the exchange of 59 of those units for issued and outstanding shares of Hydrocarbons was unlawful or should or could be set aside. Accordingly, it is difficult to find any root in the facts or in the applicable law for the first part of accounting no. 6 directed by the trial judge.

10. The plaintiff can complain of the sale of assets made by the General Partner only if the partnership agreement has been breached or if the sale was in contravention of a statute or some rule of the common law. Before dealing with the issue arising under s. 55(b) of the Partnership Act, certain parts of the partnership agreement should be examined.

11. Article XII of the partnership agreement provides in part as follows:

The General Partner is hereby vested with the power to manage the affairs of the Partnership, to acquire or sell or otherwise dispose of on behalf of such Partnership oil, gas or mineral properties or other interests upon such terms as it shall deem advisable ... to execute and deliver, and to receive or pay the consideration for, all deeds and assignments of properties or other interests transferred or acquired by the Partnership . . . . [Emphasis added.]

The Offering Circular distributed in the course of the formation of the partnership provided that the General Partner "reserves the right to add and/or delete or substitute a prospect at its discretion without the approval of the Limited Partners". The provisions in Article XII of the agreement appear to include a broader power of sale than even that described in the Offering Circular.

12. Under Article XV the General Partner has the power to terminate the partnership. The Article provides in part:

... unless on or before [December 31, 2009] the General Partner shall declare the Partnership to be terminated ... on the date set forth in such Declaration of Termination . . . .

This is followed by Article XVI which provides in part:

The General Partner shall be in charge of and direct such termination and dissolution. Before making any distributions, the General Partner may sell or convey any of the Partnership properties to third parties on such terms as it may deem advisable. [Emphasis added.]

If this sale of the non‑producing lands is tantamount to a termination as the trial judge has effectively found, it is surprising that the appellant has not asked for a judicial dissolution of the partnership which in his pleadings he has not done. It is perhaps equally surprising that the respondent in the face of these difficulties did not exercise the power of termination. On the contrary, the appellant, by his pleading, insists upon a continuance of the partnership under the partnership agreement and for that purpose that the lands of the partnership heretofore transferred by the General Partner to Hydrocarbons be restored to the partnership. An order is sought by the appellant "... requiring the defendants to specifically perform his duties and obligations pursuant to Fund 1 [the partnership]". This type of order as far back as Lumley v. Wagner (1852), 1 De G. M. & G. 604, 42 E.R. 687, and Lumley v. Gye (1853), 2 El. & Bl. 216, 118 E.R. 749, the courts have declined to grant.

The Issue Arising under s. 55(b), the Partnership Act

Section 55(b) of the Partnership Act provides as follows:

55 A general partner in a limited partnership has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership without limited partners except that, without the written consent to or ratification of the specific act by all the limited partners, a general partner has no authority to

(b) do any act which makes it impossible to carry on the ordinary business of the limited partnership. . . .

13. The trial judge found that the sale of the non‑producing lands violated the statute and that:

Omega Hydrocarbons Ltd. acquired the non‑producing lands of the limited partnership with full knowledge that such a transfer was in breach of The Partnership Act and that it rendered the partnership incapable of carrying on its ordinary business as specified in the prospectus, the partnership agreement, and the certificate of partnership. In such circumstances it holds such properties in trust for the limited partnership.

The trial judge did not find that this sale and transfer to Hydrocarbons was rendered invalid by reason of any breach of a trust or fiduciary duty owed by the General Partner to the partnership and specifically to the appellant.

14. The Court of Appeal, however, did not in so many words reverse the conclusion of the trial court that the sale of these lands breached s. 55(b) of the Partnership Act but took as its starting point and as the central issue in the appeal "... the nature and extent of the fiduciary duty that arises in the operation of the drilling fund in the circumstances . . . ." The essential facts on the s. 55(b) issue may be briefly stated. The partnership successfully drilled oil and gas wells and some of the latter were capped for lack of market. All this activity was duly reported by the General Partner to all unit holders in the limited partnership including the appellant in eleven reports. After the partnership had expended its capital and all the funds it could borrow and after Hydrocarbons had purchased all the interests of the Limited Partners except the appellant's, the General Partner sold a block of non‑producing lands to Hydrocarbons. As a result of this and other arrangements, the indebtedness of the partnership was substantially retired and drilling operations came to a halt. Both courts are in agreement that the partnership is extant but no drilling activity is underway and indeed in the words of the President of the General Partner, there would never be drilling "ever again".

15. There is no evidence that the partnership is without any interest in lands. Indeed, as already observed, it is clear that there are producing lands or interests in producing lands and capped gas wells in the partnership. There is nothing in the record to indicate that these producing lands or interests in lands have been conveyed away or otherwise disposed of by the General Partner. The partnership must have continued to hold oil and gas lands or interests in such lands. If this were not so it would not have been necessary to describe the lands being sold as "non‑producing lands".

16. Article III sets out the objects and business of the partnership according to the Articles of Limited Partnership:

CHARACTER AND BUSINESS PURPOSE

The purposes for which said Limited Partnership has been created are to acquire, develop and operate oil, gas and other mineral properties and interests located within Canada, including, but not limited to, evaluation of properties (including seismic operations thereon), the purchase, sale and exploitation of real property, oil, gas and mineral leasehold estates, royalties, mineral interest, production payments, and overriding royalty interests, including the power to engage in such operations by itself, in association with others, or as a limited partner in other partnerships (to the extent permitted by law) and to take such actions which may be incidental to the aforesaid general purposes as the General Partner may see fit . . . .

17. On the record established at trial the appellant did not discharge any onus which may have arisen in him to demonstrate the allegation with reference to s. 55(b) on a balance of probabilities or indeed on almost any other variant of the ordinary civil onus. It will be seen that there are many branches of the business of the partnership in addition to the drilling operations discussed by the witness Hall (President of the General Partner). The Offering Circular described the limited partnership as being "formed for the purpose of acquiring, exploring and developing oil and gas properties in Canada". The Certificate of Partnership provides in part as follows:

The Partnership is formed for the purpose of acquiring, developing and operating oil, gas and other mineral properties and interests located within the Dominion of Canada.

18. The statement of Mr. Hall mentioned above with reference to the discontinuance of drilling may or may not entitle the appellant to apply for a dissolution of the partnership under the statute or for some other remedy or relief but it is by no means, at least taken by itself, proof that the main purpose for which the partnership was established cannot possibly be carried on in the future.

19. It is thus clear from exhibits and scattered testimony that the partnership is still in existence and indeed is in receipt of oil and gas revenue presumably from interests in lands acquired or drilled alone or in association with other entities. The record is silent as to what is done with these funds but there has apparently been no distribution of any earning accumulations to date. The record is also silent as to what revenues are now flowing into the partnership from its interest in oil and gas lands. Neither counsel for the appellant nor for the respondent could assist the Court as to the present level of earnings or as to what disposition was being made of these accumulating earnings. The last financial statements reveal that substantial moneys, variously described as revenue or earnings, were received by the partnership in the fiscal year 1980. The gross revenue of the Fund during the last two years prior to trial was as follows:

20. 1979: $183,915

21. 1980: $672,345

There is nothing in the record to indicate that the producing lands or interest in lands have been conveyed away or otherwise disposed of by the General Partner. Again neither counsel was able to assist the Court in describing the state of affairs of the partnership in respect of land holdings. All parties were in agreement that the partnership was still in existence.

22. There was no evidence that the disposition, by itself, of the non‑producing properties has made it impossible to carry on the ordinary business of the partnership. Indeed the accumulations which are apparently continuing from prior drilling activities will produce funds which could be used to finance additional drilling or participation in ventures with others. The receipt of royalties and other forms of income from interests in oil and gas properties is, of course, part of the announced purposes of the limited partnership. In my view, the announcement of present plans not to drill is not by itself conclusive evidence of impossibility of conducting the ordinary business of the partnership which is the requirement of s. 55.

23. There are two questions of interpretation to be settled. Does the subsection require that all facets of the ordinary business of the partnership be rendered impossible? The second question is the plain meaning of the phrase "makes it impossible to carry on". The plan of the statute is to establish a code for the formation, operation and dissolution of partnerships for the conduct of enterprises generally. By its nature such a statute is entitled to attract a beneficial interpretation by the courts. Where the partners are free to enter into an agreement according a power of termination to the General Partner, as is the case here, it is difficult to interpret s. 55 as prohibiting such a clause or as requiring the partnership to carry on a temporary or otherwise improvident undertaking in order to demonstrate that the standards of s. 55(b) have not been infringed. At its highest, s. 55(b) cannot be read as prohibiting a termination clause but rather as permitting the partnership to conduct some substantial and significant part of its undertaking without violating s. 55(b), unless termination has occurred. Reference to the ordinary business of the organization may be fairly read as referring to a substantial portion but not necessarily every single facet, however small, of its ordinary business.

24. Applied in its simplest form, the language of s. 55(b), namely "do any act which makes it impossible to carry on the ordinary business of the limited partnership" must, as indicated in the Oxford Dictionary, mean "not possible to carry on such business". See the Shorter Oxford English Dictionary (1959), p. 969. In my view no significant part of the ordinary business of the partnership became "impossible" on the sale of the non‑producing assets. The sale of the producing assets of the partnership by the General Partner would have been more likely to have contributed to a breach of s. 55(b).

25. The appellant is, of course, free to move under ss. 38 and 57(c) of the Alberta legislation or otherwise for termination of the partnership and for an accounting of assets and income and for the distribution of net assets as realized in the liquidation process. This the appellant has not sought to do. In all of this the onus is upon the appellant as plaintiff to show that such a condition has resulted. The learned trial judge did not indicate the basis upon which s. 55 has been violated or the evidence which has demonstrated the "impossibility" to the level required in civil proceedings. It may be that the trial court found that the cessation of the drilling activity "makes it impossible to carry on the ordinary business of the limited partnership". The omission of this link in the reasoning of the learned trial judge in disposing of the s. 55(b) issue overlooks all the other continuing activities of the partnership embraced in its ordinary business.

26. The Court of Appeal, on the other hand, by necessary implication has found that the condition prescribed in s. 55(b) has not been met. With respect I agree with this conclusion.

27. The ongoing income of the partnership from oil and gas properties, the ownership of interests in oil and gas properties, and the ownership of capped gas wells must surely form a part of the expression "operating oil, gas and other mineral properties and interests" used in the limited partnership agreement in defining the objects and the undertaking of the partnership.

28. The Court of Appeal, in dismissing the appellant's action, has by necessary implication, left the appellant to its own resources as to whether or not in these circumstances he should move for a termination or dissolution of the partnership in order to retrieve all or part of his capital investment from the liquidation process.

Breach of Fiduciary Duty on Sale of Partnership Lands

29. The Court of Appeal considered that the central issue arising in this appeal "deals with the nature and extent of the fiduciary duty that arises in the operation of the [partnership]" in the circumstances here existing.

30. That the General Partner has the power of sale of the assets of the partnership has already been discussed above and is undoubted. Furthermore, there is no issue as to the valuation placed on these lands by independent valuers. The question arises, however, as to whether in these circumstances the General Partner can sell the non‑producing lands to its parent company which, by an undisturbed finding by the trial court, is one and the same legal entity for these purposes as the General Partner. Put in its essential terms, can the General Partner sell these lands to itself?

31. The second question is whether or not judicial approval of such a sale can be granted after the sale has been completed. This question is discussed later.

32. The Court of Appeal has dealt in great detail with the operations undertaken by the partnership with respect to the "five prospects" assigned to the partnership on its formation. After a thorough and detailed examination of the "prospects" and the transactions of the partnership, one by one, the Court of Appeal found several mistakes or errors in an evaluation report which resulted in a restoration to the partnership by the consent of all parties of several parcels of land in one or more of the "prospects". This reduced the price payable on the sale of these lands by the purchaser. The dismissal of the action by the Court of Appeal necessarily means that the Court of Appeal found no breach of a fiduciary duty by the General Partner in connection with the sale of the non‑producing lands. As to the adequacy of the sale price (to which the only objection taken in the extensive amended statement of claim was that the evaluation report should have been updated for the three months before closing), it might be observed that the evidence before the courts below included that of the President of the General Partner who stated that there was no ready market for these lands.

33. With respect I accept the analysis by the appellate court and the conclusions drawn therefrom including the admission on the record before the courts below made on behalf of the respondent that the valuation of the four parcels of the Provost property required the removal of these lands from the transaction and a reduction of the price payable. The learned trial judge makes no finding of any breach of fiduciary duty and indeed makes no special reference to the fact of sale by the General Partner to its parent company, the price payable on such sale, or the question of retrospective judicial approval by reason of a breach of a fiduciary duty.

34. The partnership agreement, while granting power of sale to the General Partner, contains no express term whereunder the General Partner may sell partnership assets to itself. There are, however, special if not unusual provisions in the partnership agreement which recognize that the General Partner may carry on transactions with the partnership or otherwise which may conflict with the interests of the partnership and the other partners. There is a finding in the Court of Appeal that the appellant was fully aware of the terms of the partnership agreement, including their application in the special circumstances existing in the oil exploration and development business. The partnership agreement which was signed by the appellant included several very particular and perhaps unusual provisions relating to the role and authority of the General Partner.

35. Article X provides in part as follows:

CONFLICT OF INTEREST

The General Partner is presently engaged in and intends to continue in the oil and gas business and will have to divide its time between the program for the Partnership properties and in its other operations in which the Partnership will not have an interest. During the life of the Limited Partnership, the General Partner shall have the right to act as partner or joint venturer with other oil companies and private or public investors in other ventures formed to search for oil and gas. The General Partner's action in connection with the foregoing shall be deemed not to be a conflict of interest with respect to this Limited Partnership or its operations or its Limited Partners. If the General Partner determines that this Limited Partnership should participate in any prospect to an extent of less than 100% of the Working Interest, the General Partner may dispose of the balance of the interest by sale of such interest to other partnerships or entities managed by the General Partner or retain the balance of such interest for its own account. In any such event, any affiliated partnership or entity shall pay for its share of the acquisition, drilling and completion costs of any wells on not more favourable terms than those borne by the Partnership. The General Partner may sell a portion of prospects in which the Limited Partner is a participant to unaffiliated parties, thus benefiting the General Partner and not the Limited Partners. [Emphasis added.]

Article XII provides in part as follows:

... it is understood and agreed that the General Partner is engaged, and intends to continue, in the oil and gas business and must necessarily divide its time between this and other programs, and that the General Partner may, during the life of this Partnership, acquire oil and gas interests and not offer the same to his Partnership.

Article XIV provides in part as follows:

The General Partner shall never be liable to the Partnership or Limited Partners, or any of them, for any acts done or omitted to be done in good faith in the performance of any of the provisions of this Agreement.

These Articles bring into focus some of the actions of the General Partner here.

36. For these purposes I assume the highest status of the General Partner under the limited partnership, namely that of a trustee holding the properties of the partnership on behalf of all other partners. The general rule is that a trustee may not purchase trust property, whether or not the sale is made honestly, at a fair price, and in good faith (Ex P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385; Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461). In Snell's Principles of Equity (27th ed. 1973), p. 239, it is pointed out that the true rule is not that a trustee may not purchase trust property; it is that a purchase of trust property by a trustee is voidable within a reasonable time at the instance of any beneficiary. (See Holder v. Holder, [1968] Ch. 353 (per Danckwerts L.J. at p. 398).) Similarly, the rule as applied to corporate fiduciaries is subject to exceptions when those to whom the duty is owed have agreed to such exceptions or have consented to a sale of assets to the fiduciary with full knowledge of that sale. In Regal (Hastings), Ltd. v. Gulliver, [1942] 1 All E.R. 378, Viscount Sankey states at p. 383:

In these circumstances, and bearing in mind that this evidence was accepted, it is clear that he took the shares with the full knowledge and consent of Regal and that he is not liable to account for profits made on their sale. The appeal against the decision in his favour should be dismissed.

37. In Canada, Sinclair J.A., in Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 1975 1011 (AB SCAD), 60 D.L.R. (3d) 658, recognizes limits to the strict application of the general principle in the following terms at p. 674:

To summarize, it seems beyond question that a trustee must not sell property to himself, whether or not he makes a profit, except under the most stringent of conditions. The rule equally applies to sales to persons, to firms or to companies in which the trustee is interested. These general principles are accepted by both sides, provided, of course, that the arrangement or relationship in existence between the parties is such that they ought to apply.

The nub of the problem concerns the nature of that relationship. [Emphasis added.]

The importance of the terms of agreement was emphasized by this Court in Midcon Oil & Gas Ltd. v. New British Dominion Oil Co., 1958 42 (SCC), [1958] S.C.R. 314, by Locke J. at p. 327.

38. Scott on Trusts (4th ed. 1987), at p. 339, states that in certain special circumstances a court of equity may approve a sale of trust assets to a trustee:

Not only may the court authorize a sale of trust property to the trustee personally, but after such a sale has taken place the court may approve the sale, if it still appears that the sale is for the best interest of the trust estate [Honeywell v. Dominick, 223 S.C. 365, 76 S.E. 2d 59 (1953)].

It would seem, however, that where the sale was made without the authorization of the court, the court will not later approve it if at the time when such approval is asked the property has so increased in value that at that time the sale does not appear to be advantageous to the trust estate.

The record on this appeal reveals no justification for a denial of approval by a court if sought. Canadian courts have indicated ex post facto approval of sales to a trustee will be given in exceptional circumstances in analogous proceedings.

39. In In re Baskerville Estate, 1946 122 (SK KB), [1946] 3 W.W.R. 347, Taylor J. at p. 347 states:

In my view the power to confirm must be exercised only when there is a corresponding power to refuse to sanction the sale, and here, the executors having already taken an irrevocable act, they cannot escape the responsibility thereof by an order confirming the sale.

The power on originating notice is to sanction a proposed sale, and does not include consideration of an alleged breach of trust.

In Re Courtney and Mackie (1972), 1972 837 (SK QB), 23 D.L.R. (3d) 564, Disbery J. states at p. 566:

Except in exceptional circumstances the application to approve a sale should be made at a time when the Court is free to either approve or refuse to approve. The Court should be asked to approve a proposed sale or a sale made subject to the obtaining of the Court's approval thereto; and on the hearing of such applications all interested non‑concurring parties would have an opportunity to be heard. [Underlining added.]

In the event the court there declined to grant ex post facto approval because of the serious intervening lapse of time. On this appeal the sale of the non‑producing lands back to Hydrocarbons is not an irrevocable act and the Court of Appeal was not faced with a fait accompli which was immune from possible judicial intervention.

40. In England there is a line of cases in which the courts have approved the sale before it was made: (Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801; Farmer v. Dean (1863), 32 Beav. 327, 55 E.R. 128, and Tennant v. Trenchard (1869), 4 Ch. App. 537). A 1975 Practice Direction, [1975] 1 All E.R. 255, allows Masters to make an order "approving purchases of trust property of any description by executors, administrators or trustees, but only in clear cases". There is nothing in principle to deny the authority of a court to approve of such sales of trust property where the court is free in the circumstances either to approve or to deny approval according to the special circumstances existing in each case.

41. The Court of Appeal in Holder v. Holder, supra, refused to set aside a purchase by a beneficiary who had been appointed executor and trustee (with two others) of a will but who renounced the position and played no real part in the administration of the estate. Danckwerts L.J. states at p. 399:

... the plaintiff is claiming equitable relief against Victor, who is the legal owner of the farms and is in occupation of them. He has paid what was a good price at the time of the sale. Much hardship would be caused to Victor if the transaction was set aside now ....

Sachs L.J. states at pp. 402‑3:

Thus the rigidity of the shackles imposed by the rule [i.e. that trustees not purchase trust property] on the discretion of the court may perhaps before long be reconsidered as the courts tend to lean more and more against such rigidity of rules as can cause patent injustice . . . .

42. On the facts before the Court on this appeal, and applying the law thereto as examined shortly above, I conclude that the General Partner owes a fiduciary duty to Molchan, the one remaining Limited Partner, but in the circumstances of this case there is no breach of that duty in the sale of non‑producing lands because:

i.there is no evidence of bad faith of the General Partner and neither Shannon J. nor Prowse J.A. made any such finding;

ii. there has been no attempt by the appellant to demonstrate that Hydrocarbons paid an inadequate consideration for the non‑producing lands;

iii. the General Partner's assertion that the sale was in the best interests of the partnership is supported by evidence at trial which indicates the strained financial circumstances of the partnership and the difficulty of selling the lands to third parties because of the encumbrances upon the lands; and

iv. the terms of the agreement, of which Molchan was fully aware, provided the General Partner with the power to dispose of properties at its discretion.

43. In the peculiar circumstances existing here I conclude that at the time of its approval of this sale the Court of Appeal was not in a position that it had no alternative but to approve. There is no evidence of subsequent disposition by the transferee of the lands in question. Nor indeed is there any evidence of any significant alteration of market price of the non‑producing lands. In my opinion it will, indeed, be a rare case where approval will be given to a sale of trust assets by a trustee to himself. The circumstances of this case are such, however, that approval should be given. The general partnership agreement gives extraordinary powers to the general partner which are of such nature as to put this case on the footing of one where a specific consent has been given by the cestui que trust to the sale.

44. It may not be without relevance that the appellant stated that he rejected the offer of purchase of his unit only because in his view the conversion rate on the shares being issued to him did not equal his view of the value of his unit. Had the appellant accepted the share for unit exchange offered by Hydrocarbons, his original investment of $25,000 would have been worth approximately $130,000 at the time of trial.

45. The Court of Appeal by dismissing the action of the appellant thereby denied the claim by the appellant for an order directing the return of the non‑producing lands to the General Partner. The Court of Appeal therefore necessarily determined that the sale breached no fiduciary duty arising in the respondent General Partner in favour of the appellant, or at least did not do so in the special relationships here existing between the parties. Assuming such transfer requires judicial approval (see Snell's Principles of Equity, supra, at p. 290, and Halsbury's Laws of England, vol. 48, 4th ed., para. 808, p. 436) one must necessarily conclude that the retrospectivity of that approval would not, in the view of the Court of Appeal, be a bar. With respect I agree with these conclusions.

46. For all these reasons, I would dismiss the appeal with costs in this Court to the respondents.

The following are the reasons delivered by

47. Wilson J. (dissenting)‑‑I have had the benefit of the reasons for judgment of my colleague, Justice Estey, but find myself unable to agree with his conclusions. The appeal raises a variety of issues relating to the respective rights and duties of limited and general partners in the Province of Alberta and to the role of appellate courts when a trial judge has made a finding of liability based on a breach of the governing statute and followed it with an order for an accounting. The case has had a somewhat peculiar procedural history. I set out the relevant facts.

I The Facts

48. The limited partnership consisted originally of 60 units held by a group of limited partners (of whom the appellant was one) and representing a 70 per cent interest in the partnership. The General Partner, the respondent Omega Oil and Gas Ltd. ("Omega"), owned the remaining 30 per cent interest. The partnership, known as Omega Oil and Gas Fund 1, was formed in February 1978 "for the purpose of acquiring, developing and operating oil, gas and other mineral properties and interests located within the Dominion of Canada". The fund operated with mixed results until November 1980. It acquired mineral properties, developed and continues to operate some revenue‑producing oil wells, and discovered gas wells which, according to the evidence, were uneconomic to operate because of market conditions. By the autumn of 1980 the money invested by the partners was exhausted and the partnership was heavily in debt to the Toronto‑Dominion Bank and to Omega Hydrocarbons Ltd., Omega's parent company. The respondent Hall was president of both Omega and Hydrocarbons.

49. With no further capital available to the partnership drilling operations were discontinued and a group of the Limited Partners approached Hall to discuss how they might realize their partnership interests. One obvious method would have been to have Hydrocarbons reacquire the assets of the partnership so as to return to the Limited Partners on a dissolution some part at least of the moneys paid into the venture by those partners. The Court of Appeal found, and it was not disputed before this Court, that this solution was rejected because of the unfavourable tax implications for the Limited Partners.

50. It was then agreed between some of the Limited Partners and the General Partner that Hydrocarbons would make an offer to purchase the limited partners' units. This was done. Hydrocarbons offered to purchase the units in exchange for common shares in Hydrocarbons. The offer was accepted by the holders of 59 of the 60 units, the one rejection coming from the appellant. The appellant testified that he rejected the offer because the conversion rate on the market for the Hydrocarbons shares was too low and what was offered did not, in his view, equate the value of his unit. The Limited Partners had contributed $25,000 to the capital of the partnership for each unit. At the time of the offer the Hydrocarbons shares had a market value of approximately $25,120 for each unit. By the time of trial their market value was approximately $130,000. No issue was taken by the appellant at that time as to the legality or otherwise of the Hydrocarbons offer.

51. On August 18, 1981 Hall in his capacity as president and director of Hydrocarbons made an offer to Omega to purchase all the non‑producing lands of the partnership for $315,581. The offer was accepted by Hall in his capacity as president and director of Omega. The price was established by independent valuation and the proceeds were applied to the reduction of the bank debt. The sale is attacked by the plaintiff and its propriety is the main issue on this appeal. The partnership retained the oil wells which were already in production as well as the uneconomic gas wells.

II The Procedural History

52. The appellant commenced an action on November 5, 1982 alleging, inter alia, that:

(1) following the sale of the non‑producing lands to Hydrocarbons the Fund ceased all exploratory activity, thereby breaching the Partnership Act, R.S.A. 1980, c. P‑2 and the terms of the Limited Partnership Agreement;

(2) Hydrocarbons had, subsequent to the sale, carried out its own successful drilling program on the sold‑off lands and on lands "contiguous and adjacent" to them which ought to have been acquired for the Fund;

(3) confidential information relating to prospects held by the Fund had been improperly passed on to Hydrocarbons;

(4) the evaluation of the non‑producing lands was "improper and out‑dated";

(5) on a number of occasions the General Partner had not done all that it could and should have done to acquire and develop prospects for the Fund;

(6) in the above particulars, and in its general failure to maintain the Fund in operation, the General Partner had breached its fiduciary obligations to the limited partners.

The appellant claimed the following relief:

(a) a declaration that the sale of the non‑producing lands to Hydrocarbons...is in breach of the terms of the Certificate of Limited Partnership; the Articles of Limited Partnership, the Partnership Act, the Securities Act or any combination of the foregoing and an order setting aside the sale and restoring all prospects to the Fund;

(c) an order declaring that all benefits received by [Hydrocarbons]... from the lands transferred...as well as benefits received from contiguous and adjacent lands are held in trust for the Fund and the plaintiff and an order requiring [Hydrocarbons]...and the General Partner to account to the plaintiff with respect to all revenues received subsequent to May 15, 1981 to the date of trial;

(d) ...an order requiring the corporate Defendants...or either of them to distribute to the plaintiff his pro rata share of revenues received from the lands herein described pursuant to the provisions of Fund 1;

(e) in the alternative, general damages against the corporate defendants in the sum of $500,000 jointly and severally;

(f) a declaration that the personal defendant is in breach of the fiduciary duty owed to the defendant General Partner and damages against the personal defendant in the sum of $50,000.00;

53. On September 22, 1983 Sulatycky J., in Chambers, ordered that the case should proceed on the issue of liability only, "an accounting to be held by subsequent trial in the event that the plaintiff is successful on the issue of liability". The trial as to liability took place before Shannon J. and occupied five days (1984 1143 (AB QB), [1984] 3 W.W.R. 246, 51 A.R. 54, 30 Alta. L.R. (2d) 161). The judge reached four conclusions:

(1) The sale of the non‑producing lands breached s. 55(b) of the Partnership Act, supra. It reads as follows:

55 A general partner in a limited partnership has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership without limited partners except that, without the written consent to or ratification of the specific act by all the limited partners, a general partner has no authority to

(b) do any act which makes it impossible to carry on the ordinary business of the limited partnership....

Shannon J. found that the sale of the non‑producing lands of the partnership made it impossible to carry on the ordinary business of the partnership as reflected in its constitutive documents.

(2) The partnership, though inactive, was still in existence. It had never been formally dissolved due to the dispute as to the validity of the sale of the non‑producing lands and the uncertainty as to the outcome of the litigation.

(3) Hydrocarbons and the General Partner were de facto one and the same entity so that the parent Hydrocarbons was "the de facto General Partner".

(4) Hydrocarbons acquired the non‑producing lands of the limited partnership with full knowledge that such a transfer was in breach of the Partnership Act and that it rendered the partnership incapable of carrying on its ordinary business as specified in the prospectus, the Partnership Agreement, and the Certificate of Partnership. In such circumstances Hydrocarbons holds such properties in trust for the limited partnership.

54. Consequent on these findings Shannon J. ordered an accounting under s. 57(b) of the Partnership Act and "necessary inquiries" under Rule 418 of the Alberta Rules of Court. Section 57(b) reads as follows:

57 A limited partner has the same right as has a general partner

(b) to be given, on demand, true and full information of all things affecting the limited partnership, and to be given a formal account of partnership affairs whenever circumstances render it just and reasonable....

Rule 418 of the Alberta Rules of Court provides:

418. The court may at any stage in an action direct that necessary accounts or inquiries be taken or made.

The order was framed as follows:

As against all of the defendants, this court directs the following accounts and inquiries:

(1) All profits realized by Omega Hydrocarbons Ltd. from the non‑producing lands since the date of their acquisition;

(2) The losses, if any, which resulted from a failure on the part of the defendants to exercise option rights or participation rights with respect to the original Fund lands, option lands, lands adjacent and contiguous, and lands defined in contractual areas of mutual interest;

(3) Gross and net revenues received from oil and gas wells during the currency of the Fund;

(4) The number and value of shut‑in gas wells belonging to the Fund;

(5) All deposits and withdrawals from the Bank account of the Fund; and

(6) The adequacy of the evaluations provided by Supplementary Land Services and the D & S Group as a basis for the shares for units exchange and the transfer of the non‑producing lands of the Fund.

The parties may apply for modification or clarification of the foregoing directions from time to time.

55. The defendants appealed both the order for the accounting and "the whole of the judgment" of Shannon J. The Alberta Court of Appeal ((1985), 1985 ABCA 202, 63 A.R. 369, 40 Alta. L.R. (2d) 251 [hereinafter cited to 63 A.R.]), per Prowse J.A., did not deal with the question whether the Partnership Act had been breached which was, of course, the basic finding of the trial judge. After listing the six areas of inquiry ordered by the trial judge, Prowse J.A. stated at p. 372:

It follows from this statement that the trial judge did not limit the remedy he proposed to damages arising from a breach of s. 55 of the Partnership Act. He did not however set out the breaches he had in mind in assessing the damages under (2) and one is left with the impression that he found breach or breaches on the part of Hall and Omega in acting in circumstances in which a conflict of interest arose.

This was Prowse J.A.'s only reference to s. 55 of the Partnership Act. I am accordingly unable to agree with my colleague that the Court of Appeal impliedly overturned the finding of breach of the statute. If one can read anything into the passage quoted above, it seems to be that the Court of Appeal accepted the trial judge's finding that the Partnership Act had been breached but felt that the inquiries he ordered went beyond those appropriate for such a breach. The Court concluded, therefore, that the trial judge must have found breaches of fiduciary duty in addition to breach of the statute. As a consequence almost the entire judgment of the Court of Appeal is devoted to an analysis of the nature of the fiduciary duty owed by partners to each other, culminating in the conclusion that there was no breach of fiduciary duty by the General Partner on the facts of this case. The Court of Appeal then dismissed Molchan's action in its entirety (save for the correction of minor errors in transferring some producing lands along with the non‑producing lands) without ever having addressed its mind to the basis of liability found by the trial judge and the remedies appropriate to that breach. The Court of Appeal, in effect, conducted a trial de novo on the issue of breach of fiduciary duty, an issue not canvassed at all by the trial judge. Shannon J. found as a fact that the ordinary business of the partnership could no longer be carried on once the non‑producing lands were sold off. Section 55(b) of the Partnership Act was accordingly violated. The Court of Appeal did not even discuss, let alone reverse, that finding. My colleague has found, however, a reversal "by necessary implication" by virtue of the Court of Appeal's dismissal of Molchan's action in its entirety.

III The Jurisdiction of the Court of Appeal

56. In my view, the correct approach for this Court to take in such unusual circumstances is to reinstate the order of the trial judge. I say this for two reasons. First, as noted above, the trial judge's finding of a breach of the Partnership Act was not impugned at all in the Court of Appeal. While that Court has broad powers when a judgment is appealed to it, it cannot fail to address the central issue remitted to it. In this case it did exactly that. Moreover, it acted as a court of first instance on an entirely different issue from the one dealt with by the trial judge and quashed the trial judge's order on the basis of its determination of that issue.

57. Second, even if my colleague, Estey J., is correct in concluding that the Court of Appeal impliedly reversed the trial judge's finding of fact, that implied reversal, it seems to me, was an improper exercise of the Court of Appeal's powers of review. I reach this conclusion on a consideration of three factors, namely:

(a) the scope of the Court of Appeal's powers of review;

(b) the nature of the finding of breach of statute by the trial judge;

(c) the propriety of the order for an accounting and inquiries following the finding of the breach.

(a) The Scope of Appellate Review

58. The Court of Appeal for Alberta enjoys a broad jurisdiction. The Judicature Act, R.S.A. 1980, c. J‑1, s. 3, states:

3 The Court of Appeal

(a) has all the jurisdiction and powers possessed by the Supreme Court of the Northwest Territories en banc immediately before the Court's organization, and

(b) has jurisdiction and power, subject to the Rules of Court, to hear and determine

(i) all applications for new trials,

(ii) all questions or issues of law,

(iii) all questions or points in civil or criminal cases,

(iv) all appeals or motions in the nature of appeals respecting a judgment, order or decision of

(A) a judge of the Court of Queen's Bench, or

(B) a judge of a court of inferior jurisdiction when an appeal is given by any other Act,

59. The provisions of the Judicature Act are supplemented by the Alberta Rules of Court, in particular Rules 505 and 518, which read:

60. (1) Except as otherwise provided, an appeal lies to the court from the whole or any part of any judgment, order, direction or finding of a judge sitting in court or the verdict or finding of a jury or from the judgment, order or direction of a judge sitting in chambers.

61. The court may:

(a) direct amendment of any proceeding before it;

(b) receive further evidence either by oral examination, by affidavit, upon commission or otherwise;

(c) draw inferences of fact;

(d) direct a new trial;

(e) give any judgment and make any order which ought to have been made and make such further or other order as the case may require;

(f) make such order as to costs as to it seems just but where the court is equally divided, the costs shall follow the event of the appeal.

60. These broad powers must, however, be read in light of the principles guiding appellate review as laid down by this Court. In particular it has been said on a number of occasions that where a trial judge makes a finding of fact based on the credibility of witnesses, an appeal court should not overturn that finding unless it can be shown that the finding was "palpably wrong": Stein v. The Ship "Kathy K", 1975 146 (SCC), [1976] 2 S.C.R. 802. This principle has been frequently reaffirmed by this Court: see Métivier v. Cadorette, 1975 2 (SCC), [1977] 1 S.C.R. 371; Jaegli Enterprises Ltd. v. Taylor, 1981 26 (SCC), [1981] 2 S.C.R. 2; Doerner v. Bliss & Laughlin Industries Inc., 1980 50 (SCC), [1980] 2 S.C.R. 865; Schreiber Brothers Ltd. v. Currie Products Ltd., 1980 11 (SCC), [1980] 2 S.C.R. 78; Lewis v. Todd, 1980 20 (SCC), [1980] 2 S.C.R. 694; and Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., 1981 182 (SCC), [1981] 1 S.C.R. 363. It was most recently applied in relation to the powers of the Saskatchewan Court of Appeal, which possesses by statute a jurisdiction comparable to that of Alberta. In Lensen v. Lensen, 1987 4 (SCC), [1987] 2 S.C.R. 672, Chief Justice Dickson stated at p. 683:

It is a well‑established principle that findings of fact made at trial based on the credibility of witnesses are not to be reversed on appeal unless it can be established that the trial judge made some "palpable and overriding error which affected his assessment of the facts". . . .

61. The Alberta Court of Appeal has itself applied this restriction on a number of occasions. In Colberg v. Braunberger's Estate (1978), 1978 ALTASCAD 307, 12 A.R. 183, Moir J.A. said at p. 190:

In my respectful opinion the learned trial judge could have found that there was an acceptance of the appellant's offer by the respondent. He did not do so. Rather, he chose to accept the evidence given by the respondent in chief. He heard the witness. It was for the trial judge to decide if he accepted the whole of the respondent's evidence, part of it, or none of it. Clearly he accepted the respondent's evidence in chief only.

The question is are we entitled to reverse that finding when there is evidence to support that finding? As I read the authorities, particularly the Supreme Court of Canada in Stein v. The Ship "Kathy K" (1975), 1975 146 (SCC), 6 N.R. 359; [1976] 2 S.C.R. 802, we can only do so if the learned trial judge was "palpably wrong". I do not think that he was, particularly in the light of the whole of the cross examination. The learned trial judge had an advantage that we can never have. He saw and heard the respondent give the evidence. I am not prepared to say that he lost the advantage by making the finding he made.

Similar cautionary comments may be found in Carter v. Ferguson, 1943 463 (AB SCAD), [1943] 2 W.W.R. 38 (Alta. C.A.); Clarke v. Gerbrandt (1984), 1984 ABCA 305, 34 Alta. L.R. (2d) 289 (C.A.), and Angus v. City of Edmonton (1977), 1977 ALTASCAD 61, 3 A.R. 116 (C.A.) In the last two decisions the Court of Appeal did overturn the findings of a trial judge, but in Clarke on the ground that there was no evidence at all to support the finding and in Angus on the ground that the finding was based on expert evidence where credibility was not a factor. Such circumstances constitute exceptions to the general rule requiring palpable and overriding error.

(b) The Trial Judge's Finding of Breach

62. Applying this principle to the present case, it seems to me that the Court of Appeal, if it did impliedly overturn the trial judge's finding, did so without identifying any palpable error. Whether or not the acts of the General Partner were such as to make it "impossible to carry on the ordinary business of the limited partnership" is primarily an issue of fact. While it is true that the trial judge must examine the constitutive documents of the partnership in order to discern what its ordinary business is, this was a perfectly straightforward task in this case. The ordinary business of the partnership was the purpose for which it was created. Once the trial judge has decided what the partnership's ordinary business is, he must then determine on the basis of the evidence whether that business can any longer be carried on. Shannon J. found that it could not. He was obviously influenced to this conclusion by the testimony of the defendant Hall to the effect that no further land acquisition, exploration or drilling would ever take place. The business of the partnership was therefore reduced from exploration, acquisition, development and production to production from the currently producing mines only. Moreover, the evidence persuaded the trial judge that this was not just a temporary measure, a short‑term response to a changing business climate; it was a firm and unequivocal decision for the future. The General Partner's conduct in attempting to terminate the partnership by buying out all the Limited Partners and then selling off all the lands which had been acquired for purposes of future exploration and development, when taken together with Hall's evidence that there would never be any more drilling, convinced the trial judge that there was no possibility of the partnership business continuing. This was a finding he was fully entitled to make on the evidence. If the Court of Appeal did in fact reverse that finding, it did so without identifying any palpable error on the part of the trial judge. It acted in contravention of well‑established principles of appellate review.

63. My colleague has reviewed the finding of the trial judge and concluded that s. 55(b) of the Partnership Act is not breached if "some substantial and significant part" of the partnership business can still be carried on. The partnership, in his view, does not need to be involved at all times in every facet of its business operation. It is enough, he suggests, that it can continue to be involved in production from its currently producing mines. I agree that it may be a matter of degree although this is easier to argue in the case of a corporation with a wide range of objects than it is in the case of a partnership formed for a specific purpose. Moreover, it seems to me that where the evidence clearly indicates that there is no intention ever to reinstate any of the other facets of the ordinary business of the partnership, the trial judge was entitled to make the finding he did. There was evidence to support it. This Court should not "second guess" him, particularly if, as I believe to be the case, the Court of Appeal did not see fit to do so.

(c) The Order for an Accounting and Inquiries

64. Accepting then that the trial judge's finding of liability should stand, was his order for an accounting and inquiries appropriate? The Court of Appeal clearly thought that it was not, but that it would have been appropriate if the trial judge had found liability based on breach of fiduciary duty. Item two seemed to the Court of Appeal to point directly to breach of fiduciary duty. I wonder if the Court is correct in this. It must be recalled that the Chambers Judge had ordered a trial as to liability only, to be followed by an accounting. This was the process in which the trial judge was engaged. He fully intended that, following the accounting, he would proceed to the assessment of damages. In other words, the accounting and inquiries were to disclose the possible heads of damage flowing from the breach of the Partnership Act and the quantum arising under these heads. In his view, the ordinary business of the partnership could no longer be carried on due to the conduct of the General Partner and he had to determine what loss had been suffered by the plaintiff as a consequence of the unlawful termination of the partnership business. In order to do this he had to inquire into the past profitability of the business, assuming it was properly managed, as a guide to its financial prospects for the future.

65. The trial judge started from the proposition that the sale of the non‑producing lands was an unlawful act and that it was known to Hydrocarbons at the time of the sale that it was an unlawful act. He concluded that in these circumstances Hydrocarbons held the non‑producing lands on a constructive trust for the partnership. Having so concluded, he then ordered the accounting and inquiries to see what loss the plaintiff had suffered not only by virtue of the unlawful sale but also by virtue of the termination of the partnership business which flowed from it. The trial judge did not discuss whether the breach of the statute also constituted in the circumstances of this case a breach of fiduciary duty. Any sale which made it impossible for the ordinary business of the partnership to be carried would obviously be a violation of the Act. A sale by the General Partner to itself might in addition (subject to the general law and the provisions of the partnership agreement) be a breach of fiduciary duty. The trial judge did not make this finding. He found liability only on the basis of breach of the statute.

66. Does it make any difference to the assessment of damages whether the sale of the non‑producing lands which, in effect, brought the partnership business to an end, constituted only a breach of the Partnership Act or a breach of fiduciary duty as well because of the fact that the sale was made to the General Partner? If the trial judge is correct that a sale made to a transferee who knows that the sale is in breach of the Act results in the transferee's holding the lands on a constructive trust for the partnership, then it probably makes little difference. If, however, as the Court of Appeal appears to assume, a breach of s. 55(b) of the Partnership Act would give rise only to a claim for damages, it may indeed make a difference. I question, however, whether it makes any difference to the plaintiff's right to an accounting and inquiries into the circumstances surrounding the respondent's dealing with the properties and assets of the partnership and this is what we are dealing with. This is as far as the trial judge had gone when the respondents instituted their appeal. It is an interesting question whether, if the inquiries disclosed breach of fiduciary duty, relief could be awarded on that basis. But that is not before us. The assessment of damages has not yet taken place. The course being followed by the trial judge was frustrated by the respondent's appeal and the Court of Appeal's dismissal of the appellant's entire case. After succeeding at trial the appellant finds himself out of court, not because the Court of Appeal found the trial judge was wrong in finding liability for breach of the Partnership Act, but because the Court of Appeal could find no liability for breach of fiduciary duty.

67. While the Partnership Act contains no specific remedies for breach of its limited partnership provisions, s. 57(b) does give Limited Partners broad rights of account and information:

57 A limited partner has the same right as has a general partner

(b) to be given, on demand, true and full information of all things affecting the limited partnership, and to be given a formal account of partnership affairs whenever circumstances render it just and reasonable, and . . . .

While I would not wish to attempt an exhaustive definition of "just and reasonable circumstances", it seems to me that breach of s. 55(b) would certainly be such a circumstance. Section 55(b) confers on the General Partner the duty to refrain from doing any act which makes it impossible to carry on the ordinary business of the partnership. It confers a special duty on one type of partner in addition to the other duties all partners have at common law, in equity, and by statute. I see no reason why such a statutory duty should not be enforced in the same way as these others. Section 80 of the Act provides:

80 The rules of equity and of common law applicable to partnership continue in force except where they are inconsistent with the express provisions of this Act.

It is trite law that where one partner breaches one of the many duties it owes to another the law will impose a constructive trust on any property affected and will grant the injured party the right to a full accounting of all necessary aspects of the partnership: see Lindley on Partnership (14th ed. 1979), p. 553. Such an accounting need not be accompanied by a dissolution and the General Partner has not sought to dissolve the partnership pursuant to its power to do so under Articles XV and XVI of the Partnership Agreement. In Lindley, supra, the author states at p. 556:

It was formerly considered that no account between partners could be taken in equity, save with a view to a dissolution, and a bill praying an account but not a dissolution has been held bad on demurrer. But this rule has been gradually relaxed; for it has been felt that more injustice frequently arose from the refusal of the court to do less than complete justice, than could have arisen from interfering to no greater extent than was desired by the suitor aggrieved.

The old rule, therefore, that a decree for an account between partners will not be made save with a view to the final determination of all questions and cross‑claims between them, and to a dissolution of the partnership, must be regarded as considerably relaxed, although it is still applicable where there is no sufficient reason for departing from it.

Lindley then goes on to discuss the situations in which an accounting without a dissolution is appropriate and one of them is where the propriety of a specific transaction only is attacked, as in this case. The partners can then sue for an accounting to obtain whatever benefit is due to them as a result of that transaction. This is what the appellant did.

68. I believe also that Shannon J.'s order can be upheld as a reasonable exercise of the trial judge's discretion under the Alberta Rules of Court. Rule 418 confers a very broad discretionary power by which a trial judge may order "accounts and inquiries" at "any stage in an action". The Alberta courts have not generally limited the discretion of a trial judge in applying this Rule of Court and the decision of the Court of Appeal in this case does not do so. Moreover, the order itself authorizes an application for modification or clarification of its provisions. This would have been open to the respondents.

IV Conclusions

(1) The trial judge made a valid finding of fact on the evidence that it was impossible for the partnership to carry on its ordinary business and that s. 55(b) of the Partnership Act had accordingly been breached.

(2) That finding of fact was not interfered with by the Court of Appeal. That Court did not address the issue of breach of the Act at all and certainly found no "palpable and overriding error" by the trial judge. The finding should therefore not be interfered with by this Court.

(3) The trial judge, having made a valid finding of liability, made a valid order for accounts and inquiries pursuant to the Partnership Act and the Alberta Rules of Court.

V Disposition

69. In light of these conclusions I would allow the appeal, set aside the judgment of the Court of Appeal, and remit the matter back to the trial judge so that damages, if any, may be assessed following the accounting and inquiries. I would do this without prejudice to the rights of the respondents to apply to the trial judge for modification or clarification of his order for an accounting and inquiries if so advised. I would award the appellant his costs both here and in the court below.

VI Breach of Fiduciary Duty

70. In light of my disposition of this appeal as outlined above it is perhaps unnecessary for me to address the issue dealt with by the Court of Appeal, namely whether the General Partner breached its fiduciary duty to the plaintiff apart from its breach of s. 55(b) of the Partnership Act. The Court of Appeal found no such breach. With respect, I take a different view and, were it necessary to do so, I would reverse the Court of Appeal on this issue also.

71. It is my view that the sale by the General Partner of the non‑producing lands of the partnership to itself, without the consent of all the Limited Partners, is a classic breach of fiduciary duty. I agree with Estey J. that one of the cardinal rules to be observed by one who stands in a fiduciary position‑‑be it trustee, partner or director‑‑is that the fiduciary must not sell to himself or herself property which rightly belongs to the cestui que trust‑‑be it beneficiary, partnership or corporation (Ex P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385 (Ch.); Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461). In Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 1975 1011 (AB SCAD), 60 D.L.R. (3d) 658 (Alta. C.A.), Sinclair J.A. said at p. 674:

To summarize, it seems beyond question that a trustee must not sell property to himself, whether or not he makes a profit, except under the most stringent of conditions. The rule equally applies to sales to persons, to firms or to companies in which the trustee is interested.

Any such sale is voidable at the instance of the limited partners even if the General Partner acted in good faith and paid a fair consideration for the property. It would take the clearest of language in the constitutive documents of the partnership to permit such a sale and, in my opinion, no such language is present. I agree with my colleague that the partnership agreement gives the General Partner the power to acquire and dispose of partnership lands and that it contemplates and authorizes the General Partner to be in a conflict of interest position vis‑à‑vis the partnership in conducting its own business. It does not, however, go so far as to permit the sale of partnership assets by the General Partner to itself. The Court of Appeal was, in my view, in error in thinking that it did.

72. My colleague, however, has discussed the possibility of this Court's giving ex post facto judicial approval to the sale made in breach of the General Partner's fiduciary duty. The respondents submitted that this was in fact what the Court of Appeal did. If this is, indeed, what the Court of Appeal did, it certainly gave no hint of it in its reasons and it seems quite inconsistent with its conclusion that the respondents committed no breach of fiduciary duty. Why would court approval be needed in those circumstances?

73. In any event, I do not believe that this is an appropriate case for ex post facto court approval. Such approval is only given in very exceptional circumstances. My colleague relies on various American authorities cited in Scott on Trusts, vol. 2A (4th ed. 1987), at p. 339, where it is stated:

Not only may the court authorize a sale of trust property to the trustee personally, but after such a sale has taken place the court may approve the sale, if it still appears that the sale is for the best interest of the trust estate.

However, the cases cited by Scott demonstrate that the courts require compelling evidence not only that the sale is the best bargain for the estate but also that there are exceptional circumstances. In Malone's Guardian Ad Litem v. Malone, 73 S.W.2d 38 (Ky. 1934), for example, a scheme to sell part of an estate to the executrix was instigated and brought to fruition by a beneficiary who subsequently became insane. Moreover, the sale was for the purpose of disencumbering the beneficiary's land from a mortgage on it. These circumstances permitted Richardson J. to conclude that the trustee (p. 41):

...has not trafficked in the estate for her own emolument nor has she designedly acquired an interest opposite the devisees . . . . She has merely perfected his own plan, formulated by him when of sound mind. The unusual and peculiar facts herein and the necessities of equity clearly take this case out of the general rule that a trustee cannot buy from himself the trust property . . . .

74. Similarly unusual circumstances prevailed in Honeywell v. Dominick, 76 S.E.2d 59 (S.C. 1953), where the sale of property relieved the estate of a considerable financial burden and the only "objections" came from beneficiaries not yet born. These potential beneficiaries were represented by a third party who attempted to evade a contract he had signed to buy the land by impugning the transaction by which the vendor had acquired it over a decade before.

75. There are many other cases in which U.S. courts have refused retrospective approval: see Clay v. Thomas, 198 S.W. 762 (Ky. 1917); Morse v. Hill, 136 Mass. 60 (1883). Indeed, some of the cases cited in Scott, supra, do not support his general proposition: see Farley v. Davis, 116 P.2d 263 (Wash. 1941), where the purchaser was held not to be a trustee.

76. English and Canadian courts have, if anything, applied an even stricter test for ex post facto approval. While the prohibition against purchase may be avoided by a court order (Halsbury's Laws of England, vol. 48, 4th ed., p. 436), the cases reveal that this order must be sought prior to the sale: Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801, per Lord Arden, M.R. at p. 681 Ves. Jun., 802 E.R.; Farmer v. Dean (1863), 32 Beav 327, 55 E.R. 128; Tennant v. Trenchard (1869), 4 Ch. App. 537. Only in Holder v. Holder, [1968] Ch. 353 (C.A.), described in Halsbury's, supra, at p. 437 as a unique case, was ex post facto approval given by an English court. But in that case there was such a degree of involvement in the sale by the beneficiary that the court considered that he "must be taken to have acquiesced in or to have confirmed the sale and cannot now claim to have the sale set aside", per Danckwerts L.J. at p. 399.

77. Canadian courts have also applied a very strict test. Indeed, I have found no case in which retrospective approval was granted. The decision of Disbery J. in Re Courtney and Mackie (1972), 1972 837 (SK QB), 23 D.L.R. (3d) 564 (Sask. Q.B.), cited by my colleague, does not assist the respondents here. The power to grant approval was conferred by statute in that case but the court nevertheless refused retrospective endorsement, holding that the application to the court should have been made prior to the sale. Disbery J. stated at p. 566:

Except in exceptional circumstances the application to approve a sale should be made at a time when the Court is free to either approve or refuse to approve. The Court should be asked to approve a proposed sale or a sale made subject to the obtaining of the court's approval thereto; and on the hearing of such applications all interested non‑concurring parties would have an opportunity to be heard. This application is an attempt to obtain ex post facto approval for a sale . . . . I decline in the circumstances of this case to give such ex post facto approval . . . . [Emphasis in original.]

78. Similarly, in Re Mitchell Estates (1956), 1956 181 (SK QB), 19 W.W.R. 86 (Sask. Q.B.), a case which predated the statute considered in Re Courtney, supra, Thomson J. stated at p. 89:

I recognize that there may be cases in which it would be to the advantage of an estate to permit an executor or administrator to purchase property of the estate but those are special cases and prima facie no sale of estate property to the executor or administrator by which the estate is being administered can be treated as a good and valid sale unless all those entitled to share in the distribution of the estate consent thereto or unless the sale is first approved by a court of competent jurisdiction . . . . [Emphasis added.]

In Re Mitchell one of the next‑of‑kin had not consented to the sale of property of the estate to the administrator of the estate nor had the administrator attained prior court approval. However, Thomson J. made an order permitting the administrator to apply for ex post facto court approval. He said at p. 89:

In this case the respondent Helen E. Falconer has refused to consent to the sale. Unless, therefore, the appellant can obtain an order of the Court of Queen's Bench approving the sale of the land to her, she would prima facie have to account on the basis that there had been no sale of the land to her. Among other things, that would mean that she would have to account for the rents and profits since she assumed the administration of the estate.

In this case, however, the appellant has evidently assumed that she had the right to take over the land and I am of the opinion that in fairness to her she should have an opportunity of applying to the Court of Queen's Bench for an order determining what right, if any, she has in the said land or alternatively for an order approving the sale thereof to her.

I can find no record of such an application having been made.

79. Even were this Court to entertain an application for ex post facto approval, the circumstances of this case surely do not warrant the grant of such an order. An applicant for prospective court approval of a sale must show that a sale of the property was necessary, that no other purchaser was forthcoming or was likely to come forward within a reasonable time and that his offer in the circumstances was a favourable one: see Waters, Law of Trusts in Canada, at p. 630. For a case in which this stringent onus was met, see Re Nathanson (1971), 1971 1079 (NS SC), 18 D.L.R. (3d) 495 (N.S.S.C.) It certainly cannot be met by the respondents in this case. And the burden is on the respondents to show that the sale meets this stringent onus and not, as my colleague suggests, on the appellant to show prejudice to him. Moreover, it seems to me to be an almost impossible onus for the respondents to meet having regard to the trial judge's finding that the sale violated s. 55(b) of the Partnership Act. Indeed, if the trial judge is correct, and (as already pointed out) his finding in that regard has not been reversed, the jurisdiction of a court to approve such a sale may, to say the least, be a matter of considerable doubt.

80. I see no ground, therefore, on which this Court could approve the sale by the General Partner of the non‑producing lands of the partnership to itself if such an application were to be made. I should add that the trial judge was, through his order for an accounting and inquiries, attempting to obtain information which might shed some light on the state of the partnership accounts and assets and the circumstances surrounding the sale. There is certainly a dearth of information in the record as my colleague has pointed out. The procedure followed by the respondents in this case has, however, successfully frustrated the trial judge's efforts. If they are now seeking the Court's approval to the sale, I do not think the Court is in a position to give it.

81. For these reasons also I would dispose of the appeal as previously indicated.

82. Appeal dismissed with costs, Wilson J. dissenting.

Solicitors for the appellant: Ballem, McDill & MacInnes, Calgary.

Solicitors for the respondents: Howard, Mackie, Calgary.