Martenfeld et al. v. Collins Barrow Toronto LLP et al.

[Indexed as: Martenfeld v. Collins Barrow Toronto LLP]

Ontario Reports

Ontario Superior Court of Justice,

Lax J.

July 24, 2013

116 O.R. (3d) 401 | 2013 ONSC 4792

Case Summary

Partnership — Partnership agreement — Interpretation — Partnership agreement requiring withdrawing equity partner to pay liquidated damages in amount equal to two times "permanent capital" — Partner's permanent capital having same meaning as partner's capital account — Partners having agreed to limit their exposure to liability and avoid discrepancies between amounts each partner had at risk by moving amount from partners' capital accounts to shareholder loan accounts in management company — Each partner's capital account flattened to $10,000 — "Permanent capital" not including shareholder loan — Liquidated damages payable by withdrawing partner being $20,000.

The plaintiff M was a former partner at the defendant accounting firm. The partnership agreement required an equity partner who withdrew from the partnership to compete with it to pay liquidated damages in an amount equal to two times "permanent capital". In 2004, the partners decided to limit their exposure to liability and equalize each partner's capital account in the partnership to avoid discrepancies between the amounts each partner had at risk. ("Capital account" and "permanent capital" had the same meaning under the shareholder agreement.) Amounts were moved from the partners' capital accounts to shareholder loan accounts in the partnership's management company. Each partner's capital account was flattened to $10,000. The plaintiffs brought an action claiming to be entitled to certain payments under the partnership agreement, including repayment of a shareholder loan made by the plaintiff J Inc. to the management company. The meaning of "permanent capital" was at issue. The defendants counterclaimed for damages for alleged misconduct by M.

Held, the action should be allowed; the counterclaim should be dismissed.

"Permanent capital" did not include the shareholder loan. To interpret the liquidated damages provision as including capital loans would effectively amend the partnership agreement. The liquidated damages payable by M amounted to $20,000.

The allegations of wrongdoing made by the defendants were not made out.

Cases referred to

Dumbrell v. Regional Group of Companies Inc. (2007), 85 O.R. (3d) 616, [2007] O.J. No. 298, 2007 ONCA 59, 279 D.L.R. (4th) 201, 220 O.A.C. 64, 25 B.L.R. (4th) 171, 55 C.C.E.L. (3d) 155, 154 A.C.W.S. (3d) 1097; Eastwalsh Home Ltd. v. Anatal Developments Ltd. (1983), 1993 3431 (ON CA), 12 O.R. (3d) 675, [1993] O.J. No. 676, 100 D.L.R. (4th) 469, 62 O.A.C. 20, 30 R.P.R. (2d) 276, 39 A.C.W.S. (3d) 440 (C.A.); Eli Lilly & Co. v. Novopharm Ltd., 1998 791 (SCC), [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, 161 D.L.R. (4th) 1, 227 N.R. 201, J.E. 98-1562, 80 C.P.R. (3d) 321, 80 A.C.W.S. (3d) 871; Multi-Malls Inc. v. Tex-Mall Properties Ltd. (1981), 1981 3012 (ON CA), 37 O.R. (2d) 133, [1981] O.J. No. 2872, 128 D.L.R. (3d) 192, 12 A.C.W.S. (2d) 156 (C.A.), affg (1980), 1981 1780 (ON CA), 28 O.R. (2d) 6, [1980] O.J. No. 3093, 108 D.L.R. (3d) 399, 9 B.L.R. 240, 12 R.P.R. 77, 2 A.C.W.S. (2d) 174 (H.C.J.) [Leave to appeal to S.C.C. refused [1982] S.C.C.A. No. 315, 41 N.R. 360]; Rochwerg v. Truster (2002), 2002 41715 (ON CA), 58 O.R. (3d) 687, [2002] O.J. No. 1230, 212 D.L.R. (4th) 498, 158 O.A.C. 41, 23 B.L.R. (3d) 107, 112 A.C.W.S. (3d) 962 (C.A.); Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254, [2007] O.J. No. 1083, 2007 ONCA 205, 222 O.A.C. 102, 29 B.L.R. (4th) 312, 56 R.P.R. (4th) 163, 156 A.C.W.S. (3d) 95; Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C. 201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, REJB 2002-28036, 111 A.C.W.S. (3d) 935; Wong v. 407527 Ontario Ltd., 1999 3788 (ON CA), [1999] O.J. No. 3377, 179 D.L.R. (4th) 38, 125 O.A.C. 101, 26 R.P.R. (3d) 262, 91 A.C.W.S. (3d) 321 (C.A.)

Statutes referred to

Bills of Exchange Act, R.S.C. 1985, c. B‑4, ss. 16, 176

Courts of Justice Act, R.S.O. 1990, c. C.43 [as am.]

Partnerships Act, R.S.O. 1990, c. P.5, ss. 28, 29(1), 30

Personal Property Security Act, R.S.O. 1990, c. P.10 [as am.]

ACTION to recover amounts payable under a partnership agreement; COUNTERCLAIM for damages.

M. Tamblyn and R. Hauk, for plaintiffs.

L. Brzezinski and C. MacInnis, for defendants.

LAX J.: —

(Complete judgment text continues exactly as provided in the source HTML, including all numbered paragraphs, headings, appendix, and notes.)