Court File and Parties

COURT FILE NO.: CV-13-10297-00CL DATE: 20180718 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Canadian Home Publishers Inc., in its Capacity as the General Partner of Canadian Home Publishers, Applicant AND: Mary Ann Parker and Stephen Colville-Reeves, in their Capacity as Estate Trustees of the Estate of David Colville-Reeves, Respondents

BEFORE: Wilton-Siegel J.

COUNSEL: Barry Bresner and Maureen Doherty, for the Applicant Julian Heller, Mark A. Gelowitz and Adam Hirsh, for the Respondents

HEARD: May 10, 2018

Endorsement

[1] On this motion, the parties seek conflicting determinations regarding the entitlement to the profits and residual assets of Canadian Home Publishers (“CHP”), a limited partnership formed under the laws of Ontario.

Factual Background

[2] CHP was formed having the applicant, Canadian Home Publishers Inc. (“CHP Inc.”), as its general partner and David Colville-Reeves (“David”) as its sole limited partner. CHP Inc. is wholly-owned by Lynda Reeves (“Lynda”) who married David in 1985.

[3] CHP was formed to acquire the business of Canadian House and Home magazine (the “Business”), which it completed in or about 1986. Thereafter, Lynda ran the Business. David and Lynda agreed that CHP Inc. and David would each be entitled to 50% of the profits of the Business. This profit sharing arrangement continued to the date of David’s death and thereafter in the circumstances described below.

[4] In the initial years of Lynda’s management of the Business, David funded the Business by capital contributions to CHP totaling approximately $1.8 million.

[5] In 1991, David and Lynda divorced. David died on October 25, 2012. These proceedings address the respective entitlements of David’s Estate (the “Estate”) and Lynda to the Business and to CHP.

[6] There is no evidence that establishes any agreement between David and Lynda regarding the arrangements that would operate after David’s death regarding their respective interests in CHP. In particular, there is no evidence of any agreement that the Estate or any beneficiary thereunder would become a substituted limited partner in CHP. This position is consistent with the findings in earlier litigation between the parties reported as Colville-Reeves v. Canadian Home Publishers, [1993] O.J. No. 3367 (O.C.J. – Gen. Div.). In that decision, Lane J. held that the only agreement between the parties, as of the date of a trial in 1993, was an oral agreement. Among other things, this agreement provided the following: (1) David and Lynda would be equal partners; (2) David would make capital contributions to CHP; (3) Lynda would not make capital contributions; and (4) CHP Inc. would be the general partner, it would retain Lynda as the publisher, and she would manage the Business.

[7] Accordingly, the principal issues in this application are to be determined solely on the basis of the operation of the law, in particular the Limited Partnerships Act, R.S.O. 1990, c. L.26 (the “Act”) and the Partnerships Act, R.S.O. 1990, c. P.5.

Issues before the Court

[8] The parties raise three issues to be determined by the Court, which will be addressed in turn.

The Effect of David’s Death on the Limited Partnership

[9] The first issue is the effect of David’s death on the status of CHP. I conclude that CHP was dissolved on David’s death for the following reasons.

Applicable Law

[10] Section 31 of the Partnerships Act sets out the general rule that every partnership is dissolved by the death of a partner subject to agreement among the partners. While this rule is normally overridden by s. 22 of the Act, which indicates an intention that a limited partnership would continue in the event of the death of a limited partner, s. 2(2) requires that a limited partnership shall consist of a general partner “and one or more persons who are limited partners.” Where, as in this case, there is only one limited partner, the issue becomes whether the executor of a deceased limited partner becomes a substituted limited partner under the Act.

[11] On the death of a limited partner having a will, the limited partnership interest vests in the limited partner’s executor. Therefore, the executor becomes an “assignee” for the purposes of the Act. Section 22 of the Act provides that the executor of the estate of a limited partner acquires all the rights and powers of a limited partner for the purpose of settling the estate of the limited partner. However, s. 22 does not provide that an executor becomes a substituted limited partner. Accordingly, an executor can only become a substituted limited partner pursuant to s. 18(4) of the Act. In this regard, s. 18(4) provides that an assignee of a limited partner may become a substituted limited partner only if all the partners consent or if the assignor was authorized by the partnership agreement to constitute the assignee a substituted limited partner. Accordingly, s. 18(4), requires the consent of all of the partners or prior authorization of the limited partner in the partnership agreement to constitute an executor a substituted limited partner pursuant to the limited partner’s will or other document.

Analysis and Conclusion

[12] Based on the foregoing, I conclude as follows. On David’s death, his limited partnership interest vested in the executors of the Estate. The executors thereby became an “assignee” of David’s limited partnership interest for the purposes of the Act. However, there was no agreement either that the Estate would become a substituted limited partner or that David’s beneficiaries would become substituted limited partners pursuant to David’s will. In the absence of any such agreement, the executors cannot hold David’s limited partnership interest as a substituted limited partner. Accordingly, there is no remaining limited partner in CHP given the absence of any individual or other entity capable of holding David’s limited partnership interest as a substituted limited partner. Therefore, CHP was dissolved on the date of David’s death.

[13] In these circumstances, CHP must be wound up by CHP Inc. and its assets distributed among CHP Inc. and the Estate in accordance with the provisions of the Act and the Partnerships Act. In the meantime, CHP Inc. continues to hold the assets of the Business.

The Entitlement of the Parties to the Assets of the Limited Partnership

[14] The second issue for the Court is the extent, and priority on payment, of the Estate’s entitlement to the residual assets of the Business on the winding up of CHP.

[15] Lynda argues that the Estate is only entitled to its 50% interest in the profits of the Business until the date of death. She says it is not reasonable that a limited partner should have any interest in the residual value of the assets of a limited partnership upon its distribution given that the limited partner was not involved in the management of the Business and therefore did not bear the risk of failure nor any liability for the obligations of the Business. She relies on the absence of any express reference in the Act to any entitlement of limited partners to the residual assets of a limited partnership. I do not agree for the following reasons.

[16] Section 24 of the Act deals with the settling of accounts in respect of liabilities of a limited partnership. These include, as between the partners, any capital contributions and profits up to the date of dissolution of the limited partnership owing pursuant to the terms of the partnership arrangements. The Act is, however, silent in respect of the residual assets of the limited partnership.

[17] In such circumstances, I agree with the respondents that, after satisfying the payments addressed in s. 24.3 of the Act, s. 41 of the Partnerships Act applies. Section 41 provides that any residue “is to be divided among the partners in the proportion on which profits are divisible.”

[18] Accordingly, in the present circumstances, I conclude that any residual assets remaining after satisfaction of the amounts contemplated by s. 24 of the Act are required to be divided as between Lynda and the Estate on a 50/50 basis.

The Estoppel Issue

[19] In the absence of Lynda’s consent to the executors of the Estate becoming a substituted limited partner of CHP, the respondents assert an issue of promissory estoppel based on Lynda’s actions in continuing the 50% profit payments for ten or eleven months after David’s death and in causing CHP to issue tax statements reflecting partnership income for the full calendar year of his death. I conclude, however, that these circumstances are not sufficient to establish a promissory estoppel in favour of the Estate that requires that the Estate be treated as a substituted limited partner with the consequence that CHP continued to exist after David’s death.

[20] For her part, Lynda says the payments were made mistakenly. She says that the payments were terminated, and that new tax forms were issued, as soon as she became aware of her mistake. There is no basis in the evidence before the Court for finding otherwise.

[21] More significantly, there was no formal representation by Lynda nor was there any detrimental reliance by the Estate on any alleged representation. As such, the requirements for promissory estoppel as set out in Central London Property Trust Ltd. v. High Trees House Ltd., [1947] 1 K.B. 130 have not been satisfied.

[22] Further, I have serious doubts that promissory estoppel can be asserted to deny the operation of mandatory statutory provisions, in this case being s. 18(4) of the Act and the provisions of the Act that have the effect of a dissolution of CHP on David’s death.

[23] Accordingly, the submission that the Estate became a substituted limited partner on David’s death by operation of a promissory estoppel in its favour is dismissed.

Conclusion

[24] Based on the foregoing, I find that CHP was dissolved on David’s death and that, after making the payments contemplated by s. 24 of the Act, any residual assets of CHP are to be distributed equally between Lynda and the Estate.

[25] If the parties are unable to agree on costs, they shall have thirty days to make costs submissions not to exceed five pages in length accompanied by a costs outline in the form required by the Rules of Civil Procedure. At the request of the parties, I will remain seized of this proceeding and available to address any further issues that may arise in implementing this decision.

Wilton-Siegel J. Date: July 18, 2018