COURT FILE NO.: CV-21-00657403-0000
DATE: 20220608
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Binscarth Holdings LP, Toronto West Medical Centre Inc., Credit Valley Professional Building Inc., 2794071 Ontario Inc. and 1995 Billy Mitchell Blvd. Inc.
Proposed Plaintiffs
– and –
Grant Anthony, Binscarth Holdings GP Inc., 1862438 Ontario Inc., 975393 Ontario Inc. and Laura Colligan
Proposed Defendants
Mark Wainberg, for the Moving Parties
Scott C. Hutchison, Daniella Murynka, Eric Brousseau and Gordon Vance, for the Responding Parties
HEARD: March 29, 2022
J. steele J.
[1] This is a motion for an Order granting leave to the Moving Parties to commence a derivative/representative action in the names of and on behalf of Binscarth Holdings L.P. (“Binscarth Limited Partnership” or “Limited Partnership”), Toronto West Medical Centre Inc. (“Toronto West”), Credit Valley Professional Building Inc. (“Credit Valley”), 2794071 Ontario Inc. (“279 Ontario”) and 1995 Billy Mitchell Blvd. Inc. (“Billy Mitchell”) against Grant Anthony (“Grant”), Binscarth Holdings GP Inc. (“Binscarth General Partner” or “General Partner”), 1862438 Ontario Inc. (“186 Ontario”), 975393 Ontario Inc. (“975 Ontario”) and Laura Colligan (“Colligan”).
[2] The Moving Parties are Greg Anthony, Glen Anthony, Gary Anthony, Anne Anthony, John Anthony, and Guy Anthony (the “Anthony Six”). They are all limited partners of the Binscarth Limited Partnership. Together, they hold 54.5% of the Binscarth Limited Partnership shares. Grant, directly or indirectly, owns 27% of the Binscarth Limited Partnership shares.
[3] For the reasons set out below, the Moving Parties are granted leave to bring the derivative action on behalf of the Limited Partnership as against Grant and the Binscarth General Partner. The Moving Parties are denied leave to bring the derivative action on behalf of the Limited Partnership as against Colligan, 186 Ontario, and 975 Ontario. The Moving Parties are denied leave to bring a derivative action on behalf of Toronto West, Credit Valley, Billy Mitchell and 279 Ontario.
[4] I set out below a diagram of the Binscarth Limited Partnership structure and its holdings.
Anthony Control Trust – Grant sole trustee
100 %
Binscarth General Partner
Binscarth Limited Partnership
100 %
1191373 Ontario Inc. 100%
100%
Toronto West
100% 2794071 Ontario Inc.
100%
Credit Valley Billy Mitchell
Background
[5] Frank Anthony (“Frank”) and Jine Anthony (“Jine”) had 9 children and adopted 3 children. Two of the 12 children are deceased. Of the 10 remaining children, six of them are the Moving Parties in this matter.
The Binscarth Limited Partnership
[6] Binscarth Limited Partnership was formed as a limited partnership under the laws of the Province of Ontario on December 14, 2011 by filing a declaration under the Ontario Limited Partnerships Act, R.S.O. 1990, c. L.16 establishing the partnership as a limited partnership.
[7] Binscarth General Partner is the limited partnership’s general partner and is therefore responsible for managing the Binscarth Limited Partnership and its portfolio of assets. Grant is Binscarth General Partner’s sole director.
[8] The Anthony Control Trust, which was established on December 23, 2011, holds 100% of the shares of Binscarth General Partner. Accordingly, the Anthony Control Trust controls the limited partnership. Grant and his parents, Frank and Jine, were the initial three trustees of the Anthony Control Trust. Frank and Jine are both now deceased. Grant is the sole trustee of the Anthony Control Trust. The beneficiaries of the Anthony Control Trust are Greg Anthony, Grant, Guy Anthony, Gary Anthony, Gia Anthony, Glen Anthony, Garren Anthony, Anne Coughlin, John Thomas and their issue, and any issue of the late Garth Anthony.
[9] The limited partners of the Binscarth Limited Partnership are family members of the Anthony family, including the Anthony Six.
[10] The Binscarth Limited Partnership holds 100% of the shares of 1191373 Ontario Inc. (“119 Ontario”), which in turn holds 100% of the shares of 279 Ontario. 119 Ontario is a bare trustee corporation. The Binscarth Limited Partnership also holds 100% of the shares of Toronto West, which in turn holds 100% of the shares of Billy Mitchell and 100% of the shares of Credit Valley.
[11] Directly or indirectly the Binscarth Limited Partnership holds the Anthony family’s assets, which were bequeathed from Frank and Jine, and continue to be invested and grown through the structure Frank established during his lifetime. The Binscarth Limited Partnership owns approximately 3.2 million square feet of commercial real estate worth over $200 million.
[12] Grant is the sole director and officer of Toronto West, Credit Valley, 119 Ontario and 279 Ontario. Grant is the sole director of Billy Mitchell.
Other parties
[13] The proposed defendant, 186 Ontario, is a private corporation set up by Grant and his father to oversee and manage the Binscarth Limited Partnership. It provides management services to the Binscarth Limited Partnership pursuant to a management agreement dated January 1, 2012 (the “Management Agreement”). Grant is the sole director, officer and shareholder of 186 Ontario.
[14] The proposed defendant, 975 Ontario, is a private corporation. Grant is the sole director, officer and shareholder of 975 Ontario. Grant’s evidence is that 975 Ontario has no relationship to the Binscarth Limited Partnership or to any of the other proposed corporate parties.
61 Binscarth Road
[15] 61 Binscarth Road, Toronto (“61 Binscarth”) had been purchased by Frank and Jine in 1973 as a matrimonial home. In 2015, 61 Binscarth was transferred to the Jine Anthony Family Residence Trust. It was subsequently purchased by the Binscarth Limited Partnership from the Jine Anthony Family Residence Trust.
[16] Grant has resided in the home at 61 Binscarth Road since May 2018. There is conflicting evidence as to the state of this home. However, it is clear that it is a grand home. The house is approximately 18,000 square feet and has nine bedrooms. It is located in Toronto’s posh Rosedale neighbourhood. The house was listed (unsuccessfully) for sale at $18 million in 2018.
[17] The defendant Laura Colligan is a real estate broker, who was initially retained to list 61 Binscarth for sale. She was subsequently hired by Grant as a project manager to oversee renovations to 61 Binscarth.
The Limited Partnership Agreement
[18] The Binscarth Limited Partnership is governed by a Limited Partnership Agreement (“Binscarth LPA” or “LPA”), which provides:
a. The partnership was formed for the purpose of holding and managing all of the assets of the Family Trust, to make and manage eligible investments, to dispose of such assets and eligible investments and to engage in all activities related thereto.
b. The General Partner has almost complete discretion with respect to the management and investment activities of the Limited Partnership.
c. The General Partner has exclusive control over the management and operation of the Limited Partnership.
d. Limited partners have no right to participate in management decisions
e. The LPA provides for annual distributions to the limited partners to cover income taxes. Any other distributions are at the General Partner’s sole discretion. Limited partners are not entitled to any distributions beyond those provided for in the LPA.
f. The LPA requires a 75% majority to make major corporate changes.
g. The General Partner is required to exercise its powers and discharge its duties under the LPA honestly, in good faith and in the best interests of the Limited Partnership, as a fiduciary and is required to exercise the care, diligence and skill that a reasonable investment manager would exercise in comparable circumstances and as would the director of a company in comparable circumstances.
[19] When the Binscarth Limited Partnership was established, each of the limited partners, including each of the Anthony Six, received independent legal advice about the structure and the limits on their rights.
[20] When Frank established the structure, he did so with two objectives:
a. Avoid taxes; and
b. Grow the business.
[21] The business has grown significantly.
Proceedings
[22] Following the motion, I asked the parties whether notice had been provided to the limited partners of the Binscarth Limited Partnership, other than the Anthony Six. When the parties responded that notice of the motion had not been served on the other limited partners, I asked the parties to return on April 19, 2022 to make submissions regarding whether notice ought to have been provided to the other limited partners.
[23] I subsequently requested further written submissions on the issue of whether leave to bring a derivative action could be granted against defendants who may be jointly liable for participating in alleged breaches of fiduciary duty or other torts alleged to have been committed by the general partner.
Issue
[24] The issue on this motion is whether the court should grant leave to the Moving Parties to commence a derivative action in the name of and on behalf of the Binscarth Limited Partnership, 279 Ontario, Toronto West, Credit Valley and/or Billy Mitchell.
Analysis
[25] As set out above, the Moving Parties seek leave to commence a derivative action in the name of and on behalf of the proposed plaintiffs, against the proposed defendants. If given leave, they state that the relief they would seek includes:
a. Occupation rent for 61 Binscarth;
b. Sale of 61 Binscarth;
c. Damages for the 61 Binscarth renovations;
d. Accounting of Grant’s and Colligan’s remuneration and judgment for overpayments;
e. Equitable tracing of Grant’s loan proceeds, constructive and resulting trusts;
f. Accounting and judgment re: Grant’s loans; and,
g. An order authorizing the moving parties to control the conduct of the derivative action.
[26] The essence of the moving parties’ allegation is that Grant has used his absolute control of the family structure for his personal gain. Among other things, they allege that he has taken corporate opportunities and profited through his personal company instead of the Limited Partnership and has been overpaid in management fees. Grant’s position is that certain of Frank and Jine’s other children are unhappy with the structure their parents created and that the Anthony Six’s true motivation is to increase their annual distributions from the Binscarth Limited Partnership.
[27] The Moving Parties wish to commence a derivative action on behalf of the Binscarth Limited Partnership to compel the responding parties to compensate the Limited Partnership for the moneys which they allege were misappropriated from the Limited Partnership and for the alleged uncompensated use of the Limited Partnership’s property by Grant and Colligan for their personal benefit.
Derivative Action on Behalf of the Limited Partnership
[28] Before delving into the applicable law, I set out briefly the governance structure of limited partnerships for context.
[29] The governance structure for a limited partnership is established in accordance with the regime set out under the Limited Partnerships Act. Section 8 of the Limited Partnerships Act provides that a general partner has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership subject to certain limitations. For example, a general partner may not do any act in contravention of the partnership agreement or consent to a judgment against the limited partnership. There is at least one limited partner in a limited partnership. The limited partners have limited liability and are not liable as a general partner unless the limited partner takes part in the control of the business (sections 9 and 13, Limited Partnerships Act).
[30] The Binscarth LPA is the agreement that governs the Limited Partnership. As stated above, all the Binscarth limited partners signed on to the terms of the LPA and had independent legal advice. Under the LPA, the General Partner is vested with the exclusive power to manage and operate the partnership. The Binscarth LPA contemplates that material changes may be made to the LPA provided that a special resolution approving the material change has been passed. For a special resolution to pass, a 75% majority of the limited partners (by percentage interest) is required.
[31] The Binscarth LPA also provides that the Binscarth General Partner, as a fiduciary, is required to discharge its duties under the LPA honestly and in the best interests of the partnership. It provides that the general partner may be liable to the limited partnership or limited partners in circumstances of fraud, wilful misconduct or gross negligence, or violation of laws.
[32] The structure of a limited partnership is such that a derivative action by the limited partners is somewhat counter-intuitive. Limited partners are passive partners in the business. The general partner runs the business. Where there are legal actions to be pursued by the partnership, the general partner has the reins. Further, where limited partners are unhappy with the general partner, the recourse would generally be an action by the limited partners against the general partner. However, as I discuss below, there is common law to support a derivative action on behalf of the limited partnership as against the general partner in narrow circumstances.
No Statutory Right
[33] Turning first to the Binscarth Limited Partnership, there is no right under the Limited Partnerships Act for a limited partner to commence a derivative action. Under corporate law in Ontario, a complainant may apply for leave to commence a derivative action under subsection 246(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). The OBCA does not create a similar right in respect of a limited partnership. There is no statutory regime under which limited partners may launch a derivative action on behalf of the limited partnership.
[34] The Moving Parties point to Rule 8.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. There is no question that this Rule permits proceedings against a partnership, including a limited partnership, to be commenced using the firm name of the partnership. However, this does not address the underlying issue. A partnership is not a legal entity, unlike a corporation. For a corporation, there is the OBCA that sets out a statutory regime for derivative actions on behalf of “complainants.” For a limited partnership to commence an action, generally it would be the general partner, as the party that is generally vested with the management and operation of the partnership, that would commence an action.
The Common Law
[35] The statutory regime in the OBCA for derivative actions was an advancement of the common law exception to the rule in Foss v. Harbottle (1843), 67 E.R. 189 (Eng. V.-C.). The rule in Foss v. Harbottle prevents shareholders from suing a third party where their shares have lost value due to a wrong done to the corporation. That is, the party harmed, the company, is the proper plaintiff. As described by the Court of Appeal in Tran v. Bloorston Farms Ltd., 2020 ONCA 440, 151 O.R. (3d) 563, at para. 1:
The rule in Foss v. Harbottle (1843), 67 E.R. 189, 2 Hare 461 (U.K. (H.L.)) prevents shareholders from suing for a loss in the value of their shares brought about by a wrong done to the corporation. The rule, which is well-entrenched in Canadian law, is a consequence of the separate legal personality of the corporation. Just as shareholders (subject to limited exceptions) cannot be sued for acts, debts, defaults or obligations of the corporation, only corporation has a cause of action for wrongs done to it.
[36] A corporate derivative action is effectively an exception to the rule in Foss v. Harbottle, which has been codified: Rea v. Wildeboer, 2015 ONCA 373 at paras 17, 18. The common law developed some narrow exceptions to the rule in Foss v. Harbottle, pursuant to which a minority shareholder could pursue a claim that properly belonged to the company. At common law a derivative action is an exception to the rule in Foss v. Harbottle. The common law recognizes the following as circumstances where the court may permit a minority shareholder to pursue a proceeding in the name of the wronged entity: (1) the act constitutes a fraud against the minority where the wrongdoers are in control of the company; (2) the act was ultra vires the company or illegal; and (3) a resolution which requires a qualified majority was passed by a simple majority: Garvie v. Axmith, 1961 154 (ON SC), 1961 CarswellOnt 187 (Ontario High Court of Justice), [1962] O.R. 65, at para. 17.
[37] The responding parties take the position that the rule in Foss v. Harbottle does not apply to limited partnerships. This is because a limited partnership is not a distinct legal entity, unlike a corporation. They argue that the Moving Parties cannot in law pursue their claims by way of derivative action.
[38] However, the case law suggests that the rule in Foss v. Harbottle may apply to partnerships in limited instances. In 872928 Ontario Ltd. v. Gallery Pictures Inc., 1990 6871 (ON SC), [1990] O.J. No. 1743, a case concerning Rule 8.01 of the Rules of Civil Procedure and its applicability to limited partnerships, Granger J. quoted from Lee v. Block Estates Ltd., [1984] B.C.J. No. 2828, at para. 15:
13 In Lee Block Estates Ltd., (1984), 1984 679 (BC SC), 50 B.C.L.R. 289, [1984] 3 W.W.R. 118 (S.C.) McEachern C.J.S.C. stated at p. 140 W.W.R.:
Counsel for Block relies upon the first rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189, which is well described by Jenkins L.J. in Edward v. Halliwell, [1950] 2 All E.R. 1064 at 1066 (C.A.), as follows:
“The rule in Foss v. Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself.”
The above establishes that the rule in Foss v. Harbottle applies in a proper case not just to corporations but also to associations of persons such as trade unions, and there are many American authorities which hold that the principle also applies to partnerships: Bell Sound Studios Inc. v. Enneagram Productions Co. (1962), 234 N.Y.S. (2d) 12, 36 Misc. (2d) 879; Blattberg v. Weiss (1969), 306 N.Y.S. (2d) 88, 61 Misc. (2d) 564 (S.C.); Klein v. Weiss (1978), 395 A. (2d) 126, 284 Md. 36; and Kramer v. McDonald’s System Inc. (1979), 396 N.E. (2d) 504, 33 Ill. Dec. 115, 77 Ill. (2d) 323, rehearing denied 30th November 1979 (S.C.).
Notwithstanding what McKay J. said about common law derivative rights in corporate matters in Shield Dev. Co. v. Snyder, 1975 1589 (BC SC), [1976] 3 W.W.R. 44 (B.C.S.C.), the absence from the Partnership Act of any provisions similar to s. 225 [am 1980, c. 50, s. 21] of the Company Act, R.S.B.C. 1979, c. 59, leaves the common law rules stated in Foss v. Harbottle, supra, applicable in proper circumstances in partnership matters. [emphasis added]
[39] It seems clear that as a starting point, in “proper circumstances” the common law rule in Foss v. Harbottle may apply in partnership matters.
[40] There are not many cases where the court has addressed this issue in the context of a limited partnership. It is far from clear what are “proper circumstances in partnership matters” justifying the application of the common law rule stated in Foss v. Harbottle and, by extension, the common law exceptions to the rule where appropriate.
[41] The Moving Parties rely on Covia Canada Partnership Corp. v. PWA Corp., 1993 9429 (Ont. S.C.) as authority in Ontario for the application of the rule in Foss v. Harbottle to a limited partnership. In that case, Farley J. determined that the limited partner’s action was derivative and dismissed that action. There was another parallel claim by the limited partnership. Farley J. was of the view that the limited partner’s claim should be subsumed in the parallel limited partnership claim – a “practical consolidation” of the two actions. In my view Covia is of limited application to the current matter for the following reasons: (i) in Covia there were only two limited partners, both of which were companies and both of which were involved in the litigation; and (ii) Farley J. noted that under the contractual arrangement of the limited partnership agreement the parties “implicitly recognize that their limited partnership should be governed by the rule in Foss v. Harbottle.” There was no evidence of any such implicit recognition in the Binscarth LPA, which is the governing document for the Binscarth Limited Partnership.
[42] The cases where limited partners have been permitted to commence a derivative action on behalf of the limited partnership are from British Columbia: Watson v. Imperial Financial Services Ltd., 1994 3292 (B.C.C.A.) and Asher Place Senior Residency Limited Partnership v. Balcom, 2021 BCCA 162. The responding parties argue that this court ought not follow these cases.
[43] In Watson, the British Columbia Court of Appeal determined that the rule in Foss v. Harbottle applied in the context of limited partners seeking to bring a derivative action. In that case the derivative action was to be brought on behalf of all of the limited partners of the partnership (para. 7).
[44] The other British Columbia case, Asher Place, simply follows Watson for the proposition that “where partners in a limited partnership allege that a wrong has been committed by the general partner, a common law derivative action is available and should be brought in the name of and on behalf of the limited partnership” (para. 19).
[45] Asher Place and Watson, British Columbia cases, are not binding on this court. However, they are persuasive.
[46] I agree that in appropriate circumstances limited partners could be permitted to sue the general partner on behalf of the limited partnership. My view is that there are very limited circumstances where this is appropriate. There are certainly efficiencies to be gained from having one action. Further I agree that where there is alleged wrongdoing against the limited partnership by the general partner, the limited partners’ recourse may be to bring a derivative action on behalf of the limited partnership. Clearly a general partner of a limited partnership will not commence an action by the limited partnership to sue itself. As stated in Asher Place, at para. 32, “where the wrong is alleged to have been committed by the general partner, an exception to the rule in Foss v. Harbottle may permit a limited partner to advance the claim against the general partner in the name of and on behalf of the limited partnership.”
[47] As this is a case where the proposed derivative action by the Moving Parties is against the Binscarth General Partner, among others, it may be the narrow type of circumstance where limited partners are permitted to bring a common law derivative action on behalf of the limited partnership.
Common Law Exceptions
[48] As set out above, limited partners will have to turn to the common law exceptions to the rule in Foss v. Harbottle: (1) the act constitutes a fraud against the minority and the wrongdoers are in control of the company; (2) the act was ultra vires of the company or illegal; and (3) a resolution which requires a qualified majority was passed by a simple majority: Garvie v. Axmith.
[49] Based on the record before me and the submissions of the parties, the only exception that may apply in this case is the fraud exception. As set out in Asher, the fraud exception “permits a minority party to bring a derivative action to redress a fraud, such as a breach of fiduciary obligation, where the alleged wrongdoer is in control of the company.” [emphasis added]
[50] In Asher the British Columbia Court of Appeal stated that the purpose of the fraud exception was to avoid a “wrongdoer suing itself.” The court stated, at paras. 43, 44:
The suggestions that, procedurally, the general partner must bring a derivative action on behalf of the partnership makes no sense in circumstances in which the general partner is the alleged wrongdoer. That issue is precisely the one the fraud exception to the rule in Foss v. Harbottle is designed to address. Even though, as a general rule, the general partner has exclusive authority to act on behalf of the limited partnership, that authority cannot extend to derivative actions in which the general partner is alleged to have committed a wrong against the partnership. The fraud exception is intended to avoid a wrongdoer suing itself. …
It follows that there is nothing inherently erroneous in a judge authorizing a derivative action brought by a limited partner in the name of and on behalf of a limited partnership. To the contrary, that is the form of order and proceeding that should be used when a limited partner alleges wrongs against the limited partnership committed by the general partner, and a judge is persuaded that the action falls within the fraud exception to the rule in Foss v. Harbottle.
[51] The responding parties submit that the fraud exception is narrow and would not permit the Anthony Six to commence derivative claims on behalf of the limited partnership against Grant personally, or against Colligan, 186 Ontario or 975 Ontario. As indicated above, I asked the parties to provide additional submissions on this issue. I agree with the responding parties that the narrow fraud exception would not permit the Anthony Six to commence a derivative claim against Colligan, 186 Ontario, or 975 Ontario. Neither Laura nor 975 Ontario has any affiliation with the Binscarth Limited Partnership. As set out in Asher, at para. 45, the fraud exception to the rule in Foss v. Harbottle “applies where the alleged wrongdoer controls the injured entity” (emphasis added). The common law exception requires that there be (1) a fraud on the minority, and (2) the wrongdoers are in control of the company: Garvie v. Axmith, at para 17, 18. 186 Ontario, 975 Ontario and Colligan have no legal or de facto control over the Binscarth Limited Partnership.
[52] I am satisfied that the fraud exception could apply to permit the Anthony Six to commence a derivative claim against the General Partner and Grant. The Binscarth Limited Partnership is directly controlled by the General Partner. Grant, as the sole director of the General Partner and the sole trustee of the Anthony Control Trust (the sole shareholder of the General Partner), controls the General Partner. Under section 12.4 of the Binscarth LPA, the General Partner, the Manager (186 Ontario) and any of their shareholders, directors, officers, partners, employees or agents may be liable for a material breach of the partnership agreement or breach of the fiduciary duty owed to the partnership by any such person. The Anthony Six allege that there has been a breach of fiduciary duty by the General Partner and Grant. As stated by the Ontario Court of Appeal in Extreme Venture Partners Fund I LP v. Varma, 2021 ONCA 853, at para. 96, “it would be an anomalous result if the law offered no remedy for the breach of a director’s fiduciary duty in circumstances where the limited partnership suffered the resulting loss.”
Should leave be granted for the Moving Parties to bring a derivative action on behalf of the Limited Partnership against the General Partner and Grant?
[53] The responding parties argue that the Moving Parties do not meet the test for leave. At common law the Moving Parties must satisfy the court that (a) the majority has refused to pursue the proposed action, (b) the action has been brought in good faith, and (c) the action is both reasonable and prudent and in the limited partnership’s interest: Smyth et al. v. Howard et al., 2022 ONSC 170 at paras. 22, 24.
[54] The responding parties argue that the Anthony Six are not moving in good faith as that term is understood in the jurisprudence and that the action is not in the Binscarth Limited Partnership’s interest.
[55] Although the Anthony Six hold approximately 54% of the interest in the Binscarth Limited Partnership, it is managed and operated by the General Partner which, as discussed above, would not be inclined to bring an action against itself or its sole director. Accordingly, it is fair to assume that the “majority” would not pursue this action.
i. Good Faith
[56] For the test of “good faith”, Nicholson J., in Hevey v. Wonderland Commercial et al., 2021 ONSC 540, 154 O.R. (3d) 86, at para. 49, adopted the following analysis set out in paragraphs 29-33 of the British Columbia Court of Appeal’s recent decision in 2538520 Ontario Ltd. v. Eastern Platinum Limited, 2020 BCCA 313, [2020] B.C.J. No. 1820:
The requirement that the complainant be acting in good faith focuses on the primary purpose for the bringing of the derivative action. The primary purpose must be to benefit the company. The onus is on the applicant to provide evidence proving this question of fact: Jordan Enterprises Ltd. v. Barker, 2015 BCSC 559 at paras. 27-30.
The good faith requirement is a separate requirement that must be established by the complainant based on evidence. It cannot simply be presumed, even where the claim can be said to be in the best interests of the company: Discovery Enterprises Inc. v. Ebco Industries Ltd. (1997), 1997 4375 (BC SC), 40 B.C.L.R. (3d) at paras. 117-118 (S.C.) [Discovery Enterprises (S.C.)]; aff’d (1998), 1998 7049 (BC CA), 50 B.C.L.R. (3d) 195 at para. 5 (C.A.) [Discovery Enterprises (C.A.)].
The evidence that may be considered by the court in determining the good faith requirement includes the applicant’s stated belief in the merits of the proposed action. If this evidence is accepted by the court, it is a prima facie indication of good faith, but it is not necessarily determinative: Jordan Enterprises at para. 29; Discovery Enterprises (S.C.) at para. 117. The court must also consider evidence that indicates the applicant has ulterior motives, including considering any existing disputes between the parties. [page 98]
A conclusion that there is an absence of “good faith” simply means that the applicant has not met the onus of showing that the primary purpose of the action is to benefit the company. There is no requirement that the respondent show the applicant is acting in bad faith.
A finding of good faith, or of a failure to prove good faith, is a finding of fact in the purview of the trial judge, typically based on inferences drawn from the record, and the appeal court will not interfere absent a palpable and overriding error. Housen v. Nikolaisen, 2002 SCC 33 at para. 10; Discovery Enterprises (C.A.) at para. 7.
[57] The responding parties argue that the Anthony Six are motivated by a desire to extract greater returns for themselves from the Limited Partnership and by a general feeling of unfairness with respect to the structure of the business established by Frank and Jine. However, if the proposed derivative action succeeds, any monetary remedy would be paid to the Binscarth Limited Partnership, not the individual limited partners. It would not change the distribution structure of the Binscarth Limited Partnership set out in the LPA.
[58] At this stage, the court must be satisfied that the Moving Parties have a strong prima facie case. In paragraph 3 of Glen Anthony’s supplemental affidavit, sworn December 11, 2021, he describes the primary issue on this motion as “Grant’s habitual abuse of his position to confer financial and house benefits on himself and Laura Colligan, to the detriment of the Partnership.” His affidavit alleges, among other things, that Grant has occupied 61 Binscarth (beneficially owned by the Limited Partnership) for approximately three years without payment of rent or occupation rent to the Limited Partnership. Glen’s affidavit further alleges that Grant and the General Partner have caused the Limited Partnership to make improvident loans to Grant’s personal company, at lower interest rates and on more favourable terms than could have been obtained from arm’s length lenders. He further states: “This motion is not about our parents’ wills or trusts. What we are challenging is Grant’s habitual abuse of the powers conferred upon him by our parents.”
[59] Based on the record before me, I am satisfied that the Anthony Six have a strong prima facie case and seek to bring the action in good faith.
ii. Interests of the Limited Partnership
[60] The responding parties argue that the proposed derivative action is representative in nature. If the Moving Parties are given leave, the Anthony Six will represent Binscarth Limited Partnership in the proposed proceeding.
[61] As noted above, the Moving Parties seek leave to bring a derivative action, without notice to or participation of the other relatively small number of limited partners of the Binscarth Limited Partnership. This is not a situation where the other limited partners are unknown.
[62] Unlike Covia, where both limited partners were involved, and Watson, where the derivative action was to be brought on behalf of all of the limited partners, in this case there are other limited partners who are not party to this motion, and were not served with notice of the motion: 1862889 Ontario Corp. (Tiere Sharma), 1862902 Ontario Corp. (Tova Edge), 1864340 Ontario Corp. (Austin Anthony, Forrest Anthony), 1864351 Ontario Corp. (Poet Anthony, Sterling Anthony), Jordan Samuel, Justin Alexander, Jada Bloom, and Jakobi Anthony.
[63] The parties indicated that as the other limited partners are all family members or companies held by family members, the other limited partners are aware of this motion. There is evidence in the record that shows that some or all of the non-moving limited partners are aware of the motion. For example, Tiere Sharma and Tova Edge are Grant’s children. The Court can infer that they are aware of the motion. Further, Glen Anthony was asked on cross-examination, “I’m right that you approached other limited partners and asked them if they wanted to participate, correct?” to which he replied, “Yes.”
[64] However, the responding parties submit that a relevant consideration is whether the non-participating limited partners of the Binscarth Limited Partnership support or oppose the motion. They state that they sought to explore this issue at examination and the question was refused. The responding parties argue that an inference may be made that the non-participating limited partners do not support the motion and they oppose the proposed litigation on behalf of the limited partnership. Based on the record before me, including the additional submissions made on the notice issue, I find that this is an appropriate adverse inference drawn against parties saddled with the onus of proving the other limited partners were on board. However, in a business held directly or indirectly by family members where there are allegations of breaches of fiduciary duty by one family member made by other family members, it would not be surprising to see loyalties based on family units.
[65] In my view it would have been preferable for notice of the motion to have been provided to all limited partners of the Binscarth Limited Partnership. However, I am satisfied that all the limited partners are aware of the motion, and both parties were of the view that the court could decide the motion without requiring service in light of this fact. To be clear, if the action is commenced, notice must be served on all the limited partners.
[66] Although some of the limited partners of the Binscarth Limited Partnership may not be in favour of the proposed litigation, I cannot conclude on the record before me that the proposed litigation is in not in the Binscarth Limited Partnership’s best interests. As stated above, there are most likely family unit divisions that have arisen given all the facts in this case. If certain of the allegations are substantiated, there would likely be damages owing to the Binscarth Limited Partnership.
Derivative Action on behalf of Toronto West, Credit Valley, Billy Mitchell and 279 Ontario
[67] With regard to the Anthony Six’s request to bring a derivative action on behalf of the underlying corporate entities (Toronto West, Credit Valley, Billy Mitchell and 279 Ontario), the responding parties argue that the Anthony Six did not provide submissions on how they may be “complainants” under section 245 of the Ontario OBCA for a derivative action. The Moving Parties submit that they ought to be granted the status of “complainants” in respect of Toronto West, Credit Valley and 279 Ontario because they collectively own 54.5% of the limited partnership units of the Limited Partnership, which owns (directly or indirectly) the other entities. However, it is unclear what losses, if any, these separate entities have purportedly suffered. In my view, the Moving Parties have not established that they are proper persons to bring a derivative action under the OBCA. Further, there is no evidence that it would be in the best interests of these companies that the proposed action be brought on their behalf. Accordingly, leave to bring a derivative action on behalf of these entities is denied.
Disposition and Costs
[68] The Moving Parties are granted leave to bring a derivative action on behalf of the Binscarth Limited Partnership as against the Binscarth General Partner and Grant.
[69] The Moving Parties are denied leave to bring a derivative action on behalf of the Binscarth Limited Partnership as against Colligan, 186 Ontario and 975 Ontario.
[70] The Moving Parties are denied leave to bring a derivative action on behalf of Toronto West, Credit Valley, Billy Mitchell and 279 Ontario.
[71] As success was divided on this motion, no costs shall be awarded.
J. Steele J.
Released: June 8, 2022
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Binscarth Holdings LP, Toronto West Medical Centre Inc., Credit Valley Professional Building Inc., 2794071 Ontario Inc. and 1995 Billy Mitchell Blvd. Inc.
Proposed Plaintiffs
– and –
Grant Anthony, Binscarth Holdings GP Inc., 1862438 Ontario Inc., 975393 Ontario Inc. and Laura Colligan
Proposed Defendants
REASONS FOR JUDGMENT
J. Steele J.
Released: June 8, 2022