Developments GP Inc., 2023 ONSC 5099
COURT FILE NO.: CV-21-00663825-00CL
DATE: 20230918
ONTARIO SUPERIOR COURT OF JUSTICE (COMMECIAL LIST)
BETWEEN:
TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCED FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC., 2830068 ONTARIO INC., GTA-MIXED USE DEVELOPMENTS L.P., MIXED-USE DEVELOPMENTS (ONTARIO) L.P., and WASAGA DEVELOPMENTS AND INFRASTRUCTURE 2021 L.P.
Plaintiffs
– and –
GTA MIXED-USE DEVELOPMENTS GP INC., MIXED-USE DEVELOPMENTS (ONTARIO) GP INC., WASAGA DEVELOPMENTS AND
INFRASTRUCTURE GP INC. and
U DEVELOPMENTS INC.
Defendants (Plaintiffs by Counterclaim)
– and –
TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCE FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC. and 2830068 ONTARIO INC.
(Defendants by Counterclaim)
Chris Naudie, Lauren Tomasich, Graham Buitenhuis and Jayne Cooke, for the Plaintiffs and the Defendants by Counterclaim
Simon Bieber, Cameron Rempel and Emma Parry, for the Defendants and Plaintiffs by Counterclaim
HEARD: April 24, 25, 26, 27, 28, May 1, 2 and July 13, 2023 (and intra-trial case conferences on May 30 and June 9, 2023 re: stipulation)
TRIAL REASONS FOR JUDGMENT
kimmel j.
Table of Contents
The Parties and the Dispute. 4
Issues to be Decided. 5
Summary of Outcome. 6
Factual Overview.. 6
Ongoing Demands for Production and Disclosure and Related Court Orders. 15
Analysis of Issues. 17
Were the March 25, 2021 Capital Calls Made by the Original General Partners Valid?. 17
(a) Were the Management Agreements Authorized and Approved by the Limited Partners? 18
(b) Were the Preconditions to Making the Capital Calls Satisfied?. 24
Were the Tridelta April 8, 2021 Special Resolutions Validly Passed?. 25
(a) Were the Tridelta Funds in Default of the Capital Calls on April 8, 2021?. 26
(b) Were the Original General Partners in Default of their Obligations Under the Limited Partnership Agreements or of their Fiduciary Duties?. 27
(i) Failure to Provide Access to and Disclosure of Records, Documents, and Information 27
(ii) Unapproved Engagement of a Non-Arm’s Length Affiliate. 30
(iii) Failure to Attempt to Borrow Necessary Funds from Reputable Financial Institution Prior to Making Capital Calls. 30
(iv) Co-mingling of Limited Partnership Funds. 31
(v) Failure to Safekeep the Assets of the Limited Partnerships. 32
(vi) Failure to Deliver Timely Financial and Other Reporting. 34
(vii) Failure to Hold Annual Meetings. 36
(viii) Mismanagement of the Limited Partnerships. 37
(ix) Irreparable Breakdown in Trust Between the Original General Partners and the Limited Partners. 39
(x) Funding of this Litigation with the Limited Partnerships’ Funds. 42
(c) Are the Plaintiffs Estopped from Relying on the April 8, 2021 Special Resolutions? 43
Did the Original General Partners Validly Repeal or Rescind the Special Resolutions by Their Own GP Resolutions on April 24, 2021. 43
Were the Original General Partners Validly Removed as such Effective on May 10, 2021 by Operation of Article 8.10 of the Limited Partnership Agreements?. 44
Were the Tridelta General Partners Validly Appointed by the Appointing Resolutions on May 12, 45
Does the Court Have Any Discretion Not to Uphold and Confirm the Special Resolutions and Appointing Resolutions?. 45
Alleged Bad Faith or Ulterior Motives of the Plaintiffs. 46
The “Trip Wire” Defence. 46
Breakdown in Trust and Confidence is a Two-Way Street 47
Counterclaims. 48
Final Disposition and Costs. 49
The Parties and the Dispute
[1] Over the course of this eight-day trial (and two intervening case conferences after the evidence and before the closing submissions at which directions were provided concerning a stipulation regarding additional evidence) the court heard the testimony of five witnesses and admitted 229 Exhibits into evidence. This trial concerns a corporate governance dispute that came to a head in April and May of 2021 when the plaintiffs issued special resolutions removing and replacing the general partners of three limited partnerships that own three real estate development projects through shareholdings in single purpose holding companies.
[2] Tridelta Investment Counsel Inc. (“Tridelta”) is the manager and trustee of and Tridelta Fixed Income Fund and Tridelta High Income Balanced Fund (together, the “Tridelta Funds” or “Limited Partners”). The Tridelta Funds hold 99% of the limited partnership units of the three limited partnerships in issue (GTA Mixed-Use Developments L.P. (“GTA LP”), Mixed-Use Developments (Ontario) L.P. (“Mixed-Use LP”), and Wasaga Developments and Infrastructure 2021 L.P. (“Wasaga LP”) (collectively the “Limited Partnerships”). The Limited Partners voted by special resolution to remove the defendants GTA Mixed-Use Developments GP Inc., Mixed-Use Developments (Ontario) GP Inc., and Wasaga Developments and Infrastructure GP Inc. (collectively the “Original General Partners”) as the general partners of the Limited Partnerships. The plaintiffs 2830063 Ontario Inc., 2830064 Ontario Inc., and 2830068 Ontario Inc. are the “Tridelta General Partners” that the Limited Partners voted by special resolution to replace the Original General Partners.
[3] The parties disagree about whether the Tridelta General Partners or the Original General Partners are currently the general partners of the Limited Partnerships. This depends upon whether the Tridelta Funds validly passed special resolutions removing and replacing the Original General Partners.
[4] The relationship between Tridelta and the principal of the Original General Partners, Mohammad Mahdi Tajbakhsh, dates back to 2017 when Mr. Tajbakhsh was first introduced to Edward Jong (then a Vice-President and portfolio manager at Tridelta) by Asif Khan. At that time, Mr. Khan was affiliated with Datacore Fund Services Inc. (“Datacore”), the fund administrator for the Tridelta Funds and a service provider for an affiliate of the Original General Partners, U Developments Inc. (“UDEV”). Mr. Khan was also the chairman of UDEV at that time. This introduction eventually led to the Tridelta Funds subscribing for units in the Limited Partnerships between April 2017 and January 2018. The last (third amended) version of the Limited Partnership Agreements for each of the Limited Partnerships was signed in January 2018 (collectively, the “Limited Partnership Agreements”).
[5] Mr. Tajbakhsh is the sole officer, director, and equity shareholder of UDEV, a real estate development and management company. UDEV is the controlling shareholder of the Original General Partners. Mr. Tajbakhsh caused the Original General Partners to enter into management agreements dated February 1, 2018 with UDEV in respect of each of the Limited Partnerships (the “Management Agreements”). The Original General Partners assert that the execution of the Management Agreements was authorized by resolutions for each Limited Partnership dated January 1, 2018 (the “General Authorizing Resolutions”). Mr. Tajbakhsh signed the Management Agreements for all parties.
[6] The plaintiffs dispute the validity of the Management Agreements, asserting that they were required to be specifically authorized by special resolutions of the Limited Partners because UDEV is an affiliate of the Original General Partners. The plaintiffs also dispute whether UDEV actually provided partnership management services to the Limited Partnerships and/or property management services to the single purpose project companies (the “Project Companies”) corresponding with the real estate development project that each Limited Partnership is invested in (the “Projects”).
[7] The relationship between Tridelta and Mr. Tajbakhsh soured when Mr. Jong was terminated from his position with the Tridelta in 2018 as a result of alleged unauthorized investments made by him, including the investments held by the Tridelta Funds in each of the Limited Partnerships (and flowing through to the Projects, through the Limited Partnerships’ shares in the Project Companies).
[8] The question of whether Mr. Jong had the requisite approval from Tridelta’s Investment Committee to cause the Tridelta Funds to subscribe for units in the Limited Partnerships and invest in the Projects is not directly relevant to the issues that must be decided in this action. That question is the subject of another proceeding between Mr. Jong and Tridelta. To the extent relevant for purposes of this proceeding, I find that Mr. Jong held himself out to Mr. Tajbakhsh to have the authority to authorize and cause the Tridelta Funds to invest in the Limited Partnerships and that he had the ostensible authority to do so.
Issues to be Decided
[9] The outcome of this action turns on the determination of the following issues:
a. Did the Original General Partners validly issue notices of capital call to each of the Tridelta Funds in respect of the Limited Partnerships on March 25, 2021 (the “Capital Calls”), demanding payment on or before April 8, 2021 of outstanding amounts claimed to be owing to UDEV under the Management Agreements (“UDEV Demands”)?
b. Did the Tridelta Funds validly issue special resolutions on April 8, 2021 with respect to each of the Limited Partnerships giving notice of defaults by the Original General Partners under the Limited Partnership Agreements (the “Special Resolutions”)?
c. Did the Original General Partners validly repeal or rescind the Special Resolutions by their own special resolutions delivered on April 24, 2021 (the “GP Resolutions”)
d. Were the Original General Partners validly removed as such on May 10, 2021 upon failing to remedy the defaults identified in the Special Resolutions within 30 days, by operation of Article 8.10 of the Limited Partnership Agreements?
e. Were the Tridelta General Partners validly appointed as such by special resolutions issued by the Tridelta Funds on May 12, 2021 (the “Appointing Resolutions”)?
f. Does the court have any discretion not to uphold and confirm the Special Resolutions and Appointing Resolutions if they were validly passed?
[10] Although the parties were able to reach agreement on many facts and key documents and events, they disagree about the amounts claimed by UDEV to be owing under the Management Agreements that were the subject of the Capital Calls and about the alleged defaults that were the subject of the Special Resolutions. These factual disputes are also relevant to the counterclaim which was focused on the amounts claimed to be owing to UDEV under the Management Agreements for services said to have been rendered until March 2021.
[11] The issues in the counterclaim are largely dependent upon the defendants prevailing in their position that the UDEV Demands and the Capital Calls by the Original General Partners were valid, and that the Special Resolutions and Appointing Resolutions passed by the Tridelta Funds were invalid.
[12] The parties accuse each other of ulterior motives and of various misconduct in the lead up to, and during, this action.
Summary of Outcome
[13] For the reasons that follow, the relief sought in the Statement of Claim is granted and the counterclaim is dismissed.
Factual Overview
[14] There are many uncontested facts that are detailed in the Agreed Statement of Facts marked as trial Exhibit 1 and the Joint Chronology of Key Events and Cast of Characters marked as trial Exhibit 2. This section of the reasons outlines some pertinent and less controversial facts that provide useful context for the analysis, all of which are found to be true and accurate.
[15] The disputed facts and findings dependent upon them will be addressed as they arise in the context of the analysis of the issues. The specific provisions of the relevant contracts will also be addressed as they arise in the course of the analysis of the issues to be decided. Both Mr. Jong and Mr. Tajbakhsh testified that they expected and understood that the terms of the Limited Partnership Agreements would be abided.
[16] Tridelta manages the Tridelta Funds and acts as trustee of those funds on behalf of public investors. It is a regulated public investment vehicle and owes fiduciary duties to its public investors.
[17] Mr. Tajbakhsh is an experienced real estate developer. Mr. Jong held himself out to be a senior executive with authority to make discretionary investments on behalf of the Tridelta Funds, including investments in the Limited Partnerships. He maintains to this day that he had this authority, and he claims to have been forced by Tridelta’s Chief Executive Officer to sign an acknowledgement on March 29, 2018 stating that he made the investments in the Limited Partnerships without the awareness or approval of the Tridelta Investment Committee.
[18] Mr. Jong was the only person with whom Mr. Tajbakhsh interacted at Tridelta from the time they were introduced in 2017 until March 2018 when Mr. Jong was initially suspended and later terminated from his employment with Tridelta.
[19] Edward Rechtshaffen is the Chief Executive Officer of Tridelta and a principal of the Tridelta Funds. He is also the sole officer and director of the Tridelta General Partners.
[20] The Tridelta Funds, as Limited Partners, subscribed for non-equity units in each Limited Partnership. The initial subscription was in April 2017. Tridelta subscribed for units in each of the Limited Partnerships over the remainder of 2017 and into early 2018, culminating with a second tranche investment in the Mixed-Use LP in January 2018. In total, Tridelta invested approximately CAD $25.5 million (CAD $16 million and USD $7 million) in the Limited Partnerships, as follows:
a. The Tridelta Funds own 80,000 units of GTA LP, representing an $8 million CAD investment. Alongside the Tridelta Funds, the other limited partners of GTA LP are GTA Mixed-Use Developments GP Inc. and U Real Estate Group Inc., which own 1 Series 2 unit and 10,000 Series 2 units, respectively.
b. The Tridelta Funds own 70,182 units of Mixed-Use LP, representing an approximately $7 million USD investment. Alongside the Tridelta Funds, the other limited partners of Mixed-Use LP are Mixed-Use Developments (Ontario) GP Inc. and U Real Estate Group Inc., which own 1 Series B and 10,000 Series B units, respectively.
c. The Tridelta Funds own 80,000 units of Wasaga LP, representing an $8 million CAD investment. Alongside the Tridelta Funds, the other limited partners of Wasaga LP are Wasaga Developments and Infrastructure GP Inc. and U Real Estate Group Inc., which own 1 Series 2 and 10,000 Series 2 units, respectively.
[21] U Real Estate Group Inc. is controlled by Mr. Tajbakhsh and is an affiliate of UDEV. Neither that company nor the Original General Partners that own units in the Limited Partnerships made any material capital contributions to the Limited Partnerships in the form of cash. U Real Estate Group Inc. claims to have contributed goodwill for the non-voting partnership units that it was granted.
[22] The Projects are owned and managed by the Project Companies. Mr. Tajbakhsh is the sole director and officer of each Project Company. Each Limited Partnership holds special non-voting shares in the Project Company corresponding with the real estate development project that each Limited Partnership is invested in, as follows:
a. In the case of GTA LP, 320 Bronte Road (project company 320 Bronte Road Inc.)[^1];
b. In the case of Mixed-Use LP, 253 Queen Street (project company 253 Queen Street Inc.); and
c. In the case of Mixed-Use LP and Wasaga LP, 27 Harwood Avenue (project company 27 Harwood Avenue Inc.).
[23] The value of the special shares in the Project Companies held by the Limited Partnerships is tied to the underlying economic prospects of each of the real estate development Projects. None of them have reached the construction stage of development.
[24] Mr. Tajbakhsh directly or indirectly controls each of the Original General Partners, UDEV, U Real Estate Group, and each of the Project Companies.
[25] Pursuant to the terms of their investments, the Tridelta Funds are entitled to the payment from the Limited Partnerships of a 4.75% per annum, priority capped, profit participation based, indicative return in the net profits of each corresponding Project, if any. The per annum return is paid in Series 5 units or Series D units in the case of Mixed-Use LP. Both Series 4 and Series 5 units and Series C and D units are redeemable at Project Completion, a term defined in the Limited Partnership Agreements that is tied to the completion of the underlying real estate development Projects. The Tridelta Funds are also entitled to the return of their principal upon Project Completion.
[26] Tridelta published promotional materials describing its investments in the Limited Partnerships as part of their “Top 10 Holdings” in both their Fixed Income Fund and High Income Balanced Fund, as at June and December 2017.
[27] MNP LLP (“MNP”) prepared the 2017 audited financial statements for the Tridelta Funds. The investments in the Limited Partnerships were first discussed in the audit reports released on March 29, 2018.
[28] These financial statements raised some red flags for Tridelta. In an email to Mr. Jong on March 30, 2018, Mr. Rechtshaffen stated as follows:
Further to our discussion last night, we are conducting an investigation into the LP investments in the Tridelta Fixed Income fund and Tridelta High Income Balanced fund following review of the 2017 audit by MNP. In particular, the audit raised concerns about the viability of the private debt associated with U Developments all of which are projects under the Chairmanship of Asif Khan who is one of your personal friends. I also understand that there are additional projects affiliated with Mr. Khan in which the fund has invested in 2018.
We will be reviewing these investments over the coming days and seeking information to determine:
• The soundness of those investments;
• Whether there were any breaches of our policies and proper investment practice associated with these investments; and
• What steps need to be taken, if any, to unwind these investments.
[29] Two points were flagged in a follow up email from MNP dated March 31, 2018 regarding these audit reports, that:
a. The auditors at that time had identified a connection between Datacore (a service provider to Tridelta) and UDEV. They understood Asif Khan to be the chairman and director, but not an officer or an employee, of UDEV. They understood that UDEV was involved in the management of the Limited Partnerships. They believed Mr. Khan’s spouse was a majority shareholder, chair and the Chief Operating Officer of Datacore, but that Mr. Khan himself was not an officer or an employee of Datacore.
b. While their audit did not suggest any impairment to Tridelta’s investments in the Limited Partnerships as at December 31, 2017, they had indicated in their report that the manager of the Tridelta Funds should monitor the reports from the Limited Partnerships to assess their investment value and, if possible, get the audited financial statements from the Limited Partnerships in advance of the funds financial statements deadline for the 2018 fiscal year.
[30] Mr. Tajbakhsh met Mr. Rechtshaffen for the first time on April 2, 2018 after Mr. Jong had been suspended. Mr. Tajbakhsh arrived at the April 2, 2018 meeting unaware of what had transpired at Tridelta over the preceding days. Mr. Rechtshaffen took contemporaneous notes of the meeting which he testified about at trial, acknowledging that Mr. Tajbakhsh provided certain information about the Projects at the meeting, including:
a. the properties’ acquisition cost;
b. the nature of the mortgages registered against the properties, including the identity of the lenders;
c. the identity of the Limited Partnerships’ auditors, Yale & Partners LLP (“Yale PGC”);
d. that money had been set aside to fund development costs beyond the money needed to acquire the properties;
e. that the purchase of the Brampton Property was approximately 45 days from closing pursuant to a binding contract (about which he wrote: “Need to Stop Deal”); and
f. that additional funding was needed for development of the Projects beyond the properties’ acquisition costs, to pay the expenses of maintaining and developing the properties.
[31] The day after the meeting, on April 3, 2018, Mr. Rechtshaffen emailed Nurhan Aycan at Gowling WLG, counsel for the Limited Partnerships at the time, threatening to seek injunctive relief against UDEV if the Original General Partners did not agree to renegotiate all of the relevant agreements to allow Tridelta to exit the investments.
[32] Mr. Tajbakhsh met with Mr. Rechtshaffen again on April 13, 2018 at the Gowling WLG office. Tridelta continued to express a desire to get its investments out of the Limited Partnerships at this meeting. At the end of the meeting, Mr. Rechtshaffen asked Mr. Tajbakhsh to provide Tridelta with appraisal reports for the development properties. Mr. Tajbakhsh agreed and retained Cushman & Wakefield LLP, which estimated 6-8 weeks to complete the appraisals. As of April 13, 2018, Yale PGC was preparing the Limited Partnerships’ audited financial statements.
[33] On June 7, 2018, Mr. Rechtshaffen advised Mr. Tajbakhsh in an email that he wanted to meet the next week to review the Limited Partnerships’ financial statements (which Yale PGC had not yet completed) and advised again that Tridelta's “preferred goal” was to extract its investments.
[34] On June 25, 2018, Mr. Tajbakhsh discovered that Mr. Zeiler from Tridelta had called Yale PGC to ask questions about the Partnerships and the ongoing audit. Mr. Zeiler testified that Yale PGC confirmed during this discussion that they were working to complete the audit.
[35] Mr. Tajbakhsh sent Mr. Rechtshaffen the 2017 audited financial statements for each of the Limited Partnerships on June 28, 2018 and Cushman & Wakefield’s appraisal reports for each of the Project Companies on June 29, 2018, both immediately upon his receipt of those materials. Mr. Rechtshaffen stated in an internal email on June 29, 2018 that the appraisal reports provided “a real depth of understanding of what we have actually invested in”.
[36] In the meantime, Paul Simon was hired by Tridelta to replace Mr. Jong. At his first meeting with Mr. Tajbakhsh on July 19, 2018 Mr. Simon requested various documents and information about the Limited Partnerships, including the Limited Partnership Agreements, the subscription and redemption agreements, and unit certificates. These documents had been previously provided to Datacore (acting as administrative agent for Tridelta) and to MNP (Tridelta’s auditors) and/or through Mr. Jong, but further copies of these documents were sent to Tridelta by Gowling WLG on July 31, 2018 among other Limited Partnership documents.
[37] Mr. Simon asked for further documents on August 3, 2018. Mr. Tajbakhsh was out of the country and was not able to respond by Mr. Simon’s requested deadline of August 7, 2018. This led to a demand for further documents on August 24, 2018.
[38] On September 21, 2018, Gowling WLG provided Tridelta with documents entitled annual reports for each of the Limited Partnerships up to September 2018. The plaintiffs did not accept that these contained sufficient information regarding the Limited Partnerships and/or Projects to constitute proper annual reports. By the fall of 2018, the parties were at an impasse regarding the production of further documents requested by Tridelta. The Original General Partners maintained that these documents either had already been provided or did not exist.
[39] Following a court application commenced by Tridelta in late November 2018, and a production order made by Penny J. on May 27, 2019 that was not settled until September 27, 2019 (the “Production Order”), and while the appeal of the Production Order was pending:
a. On June 14, 2019, the Original General Partners provided Tridelta with the Administrative Services Agreement between each Limited Partnership and Datacore (the “Administrative Services Agreements”), the Management Agreements between the Original General Partners and UDEV, the unaudited 2017 financial statements of 320 Bronte Road Inc., and the articles of amendment for each of the Project Companies.
b. On July 11, 2019, the Original General Partners provided Tridelta with the 2018 Annual and Semi-Annual Reports for each of the Limited Partnerships and advised that the financial statements for the Limited Partnerships had not yet been finalized.
c. On August 30, 2019, the Original General Partners provided Tridelta with the 2018 audited financial statements for each of the Limited Partnerships upon their completion by Yale PGC.
d. On December 6, 2019, the Original General Partners provided Tridelta with the 2018 financial statements for each of the Project Companies upon their completion by Yale PGC.
[40] The appeal of the Production Order (which was only in relation to production requests made on the eve of the hearing of the Production motion) was dismissed by the Court of Appeal on May 11, 2020, after which:
a. On August 31, 2020, Tridelta served a contempt motion;
b. On September 11, 2020, Tridelta received the 2019 and 2020 Semi-Annual Reports, the 2019 Annual Reports, and the 2019 audited financial statements for each Limited Partnership.
c. On October 5, 2020, Tridelta received a brief of documents containing 2018 and 2019 Supplementary Semi-Annual Reports and Annual Reports for each Limited Partnership, 2020 Supplementary Annual Reports for each Limited Partnership and information packages related to the Project Companies.
d. On November 9, 2020, the contempt motion was dismissed on consent.
e. On November 16, 2020, Tridelta sought to exercise its inspection rights, and eventually arrangements were made for the inspection by Mr. Simon to take place at the offices of new counsel for the defendants (or some of them) on February 11, 2021.
f. On November 30, 2020, Tridelta received the Project Companies’ 2019 financial statements.
g. Prior to the inspection, on January 19, 2021, a letter was sent to counsel for the defendants indicating the 27 categories of documents that were requested to be made available at the inspection.
h. The binders of documents produced for inspection did not contain development or construction-related documents for the Projects because those were deemed by the Original General Partners to be Project Company documents, not records of the Limited Partnerships themselves.
i. On February 22, 2021, a letter was sent to counsel for the defendants identifying deficiencies in the documents produced for inspection and demanding the production of further documents in respect of the Limited Partnerships, the Project Companies, and UDEV by February 26, 2021.
[41] It is against this backdrop that the following steps were, or were not, taken that are the primary focus of the corporate governance dispute in this proceeding:
a. The Original General Partners did not respond to the February 22, 2021 “deficiency letter”.
b. On March 25, 2021, Mr. Tajbakhsh caused UDEV to issue demands for amounts claimed to be owing to it under its Management Agreements (the “UDEV Demands”). Under the terms of the Management Agreements, UDEV claims to be owed annual fees of $120,000 by GTA LP and $150,000 each by Mixed-Use LP and Wasaga LP, plus reimbursement for expenses. No amounts had ever been requested or paid under the Management Agreements up to this point. According to UDEV, the Limited Partnerships owed it the following amounts as of March 25, 2021:
i. $417,987 by GTA LP;
ii. $370,600.45 by Mixed-Use LP; and
iii. $374,764 by Wasaga LP for fees due under the Management Agreements and reimbursement of expenses primarily associated with audits and financial reporting from 2018–2021.
c. On March 25, 2021, Mr. Tajbakhsh caused the Original General Partners to issue a Capital Call to each of the Tridelta Funds, attaching the corresponding UDEV Demands. The Capital Calls were said to be for the purpose of raising funds to pay for the UDEV Demands. The call date of the Capital Calls was April 8, 2021.
d. The Limited Partnerships had no funds to pay UDEV. No monies had been advanced by the Tridelta Funds since January 2018. According to the Original General Partners and Mr. Tajbakhsh, all of the monies advanced by the Tridelta Funds to the Limited Partnerships were invested in the Project Companies and used to acquire and develop the Projects[^2] or had been used for other purposes associated with the Projects.
e. On March 29, 2021, the Original General Partners advised Tridelta that the Royal Bank of Canada (“RBC”) had terminated its banking relationship with each of the General Partners. Mr. Tajbakhsh testified that he had established this banking relationship so that it could eventually be used for project financing.
f. According to Mr. Tajbakhsh, he was first advised by RBC that it was terminating its banking relationship with the Original General Partners in the first half of March 2021 as a result of an anonymous package received by RBC accusing the Original General Partners of stealing money from the investors in the Limited Partnerships and indicating that there were outstanding criminal proceedings against Mr. Tajbakhsh (the “Anonymous Package”). Mr. Tajbakhsh says he called to speak to the bank manager about this on March 16, 2021 after receiving three identical letters from RBC terminating the banking relationship with each Original General Partner. He no longer has a copy of these letters from RBC and has no notes of the conversation he had with the RBC bank manager, nor does he recall the name of the RBC bank manager or which RBC branch he worked at.
g. There is no evidence that any efforts were made on behalf of the Limited Partnerships to obtain financing from RBC at any time before the banking relationship was terminated, or from RBC or any other recognized financial institution after that.
h. On April 8, 2021, the Tridelta Funds issued three Special Resolutions giving notice of eleven alleged defaults by the Original General Partners under the Limited Partnership Agreements and affording the Original General Partners a 30-day period (that expired on Saturday May 8, 2021) within which to remedy the defaults.
i. On April 8, 2021, the Original General Partners paid their Capital Call amounts (which were nominal) through the RBC bank accounts.
j. On April 12, 2021, the Original General Partners sent each Limited Partner a Capital Call Default Notice declaring them to be Defaulting Limited Partners under the Limited Partnership Agreement.
k. On April 24, 2021, the Original General Partners issued the GP Resolutions declaring the Tridelta Special Resolutions to be void and rescinding them.
l. On May 12, 2021, the Tridelta Funds issued the Appointing Resolutions confirming the removal of the Original General Partners effective that day and appointing the Tridelta General Partners.
m. On May 18, 2021, the Tridelta Funds issued further special resolutions declaring the Management Agreements with UDEV to be of no force or effect, and the Tridelta General Partners sent notices to UDEV terminating its services under the Management Agreements (the “Management Termination Resolutions”).
n. The Tridelta General Partners filed Declaration Form 3s with the Ontario Ministry of Government and Consumer Services on May 20, 2021 declaring themselves to be the general partners of the Limited Partnerships. The Original General Partners filed Declaration Form 3s with the Ontario Ministry of Government and Consumer Services on August 9, 2021 declaring themselves to be the general partners of the Limited Partnerships.
Ongoing Demands for Production and Disclosure and Related Court Orders
[42] Much of the other events that transpired after the February 11, 2021 inspection and February 22, 2021 deficiency letter are in dispute. The defendants have consistently maintained that they will not voluntarily disclose information about the Project Companies, which has been an ongoing point of contention.
[43] Tridelta learned in July 2021 about a proposed sale of the property at 320-350 Bronte Road, Bronte Road Inc.’s sole asset. An initial objection by the Tridelta Funds to that sale led to that property being taken off the market, but it was eventually sold by Bronte Road Inc. in an off-market transaction to an arm’s length entity on December 24, 2021 for $16.5 million. At the time the property was sold it had not received zoning approval, although the defendants maintain that it had progressed to a point that it made sense to sell it.
[44] Part of the sale proceeds were used to pay out a $2.2 million second mortgage in favour of U Real Estate, another related company controlled by Mr. Tajbakhsh. Once all of the mortgages were discharged, the plaintiffs calculate that there would only be $2.2 million in net sale proceeds remaining. GTA LP invested $7 million in this Project Company. If $2.2 million is all that remains of the equity in this property then it appears to have been sold at a $4.8 million loss. To date, there has been no accounting in respect of this sale or of the net sale proceeds and no distribution has been made from the Project Company that owned Bronte Road Inc. to GTA LP.
[45] Following the commencement of this proceeding, the plaintiffs discovered a new charge and security placed on title to the property at 27, 29, and 31 Harwood Avenue South owned by the Project Company, 27 Harwood Avenue Inc. on August 18, 2022 after the property received zoning and by-law approval. This mortgage was for $1.5 million. The original investment in 27 Harwood Avenue Inc. for the purchase of the property was $4.7 million. No disclosure has been provided about what the second mortgage was used for.
[46] The plaintiffs continued to ask for production and disclosure at the Project Company level and the defendants continued to resist it. Some Project Company level production was ordered by Penny J. in his May 27, 2019 Production Order.
[47] Both before and after this proceeding was commenced on June 10, 2021, the parties continued to disagree about production and disclosure issues. Beyond the production issues, there were other interlocutory disputes. An interlocutory motion by the defendants seeking to consolidate this action with an action in Brampton relating to one of the Project Companies and an interlocutory motion by the plaintiffs seeking an injunction and certificate of pending litigation (in respect of the non-party Project Companies and their properties) were both dismissed with costs.
[48] The defendants rely upon certain findings in the October 28, 2022 reasons of Cavanagh J. (see TriDelta Investment Counsel Inc. v. GTA Mixed-Use Developments GP Inc., 2022 ONSC 6106) on the dismissal of the motion seeking an injunction and certificate of pending litigation:
a. In this proceeding, “the Tridelta parties do not make a claim for a permanent injunction prohibiting or restraining the defendants or Project Companies or Mr. Tajbakhsh from dealing with the [development properties] in any way, including by raising money to fund the development of the Properties through mortgage financing or even selling the [development properties]” (para. 50).
b. “The distinction between the Project Companies and the General Partners is not artificial, as the Tridelta parties contend. The Project Companies are legal entities which are separate from the General Partners” (para. 51).
c. With reference to Tridelta’s request for certificates of pending litigation: “The Tridelta parties seek a remedy that the law does not allow them where the Limited Partnerships are shareholders of the Project Companies. They have failed to show that there is a triable issue in respect of the interest claimed to the [development properties] based on a constructive trust” (para. 68).
[49] For different purposes, both sides rely upon the court’s findings in the April 6, 2022 decision of Penny J. on the consolidation motion, at para. 5:
In 2018, Tridelta sought to obtain greater information and transparency about its investment in these limited partnerships. There were disagreements arising out of Tridelta’s inquiries which blossomed into litigation. There is now an irreparable breakdown of trust between Tridelta management and Mr. Tajbakhsh over the operations of the limited partnerships.
[50] The plaintiffs also rely upon the Court of Appeal’s findings in its decision dated May 11, 2020 (see TriDelta Investment Counsel Inc. v. GT Mixed-Use Developments GP Inc., 2020 ONCA 294, 151 O.R. (3d) 33) dismissing the appeal of the May 27, 2019 Production Order of Penny J. At para. 20, the Court of Appeal states:
Obviously, Tridelta wants the information to which it is entitled under the Act on an ongoing basis. As long as the partnership operates, there is no reason to think that Tridelta will not require the information to which it is entitled. There is no point in making Tridelta return to the court on an annual, or worse yet semi-annual, basis to make repeated applications for the same relief.
[51] Although reference has been made to the endorsement of Dietrich J. following a case conference held on September 21, 2020 to schedule the plaintiffs’ contempt motion regarding the alleged non-compliance with the May 27, 2019 Penny Order upheld by the Court of Appeal on May 11, 2020, there is disagreement about whether there was a complete enough record before the court for any findings to have been made. It is not necessary for purposes of this decision to rely upon this particular endorsement or findings, nor to determine whether they can or should be construed as prior findings of contempt. As noted previously, the contempt motion was eventually adjourned on consent.
Analysis of Issues
[52] The issues to be decided are outlined in general terms earlier in these reasons. There are sub-issues that will be identified and considered within the analysis of each issue.
Were the March 25, 2021 Capital Calls Made by the Original General Partners Valid?
[53] After a lengthy period of frustration on both sides regarding documents and information sought by Tridelta between the spring of 2018 and the spring of 2021 that involved:
a. an application for production, a Production Order, an appeal, a Contempt Motion;
b. the production of 2018 and 2019 financial statements, original and Supplementary Annual and Semi-Annual Reports for the Limited Partnerships for 2018 and 2019, the 2020 Semi-Annual Reports for the Limited Partnerships and the 2018 and 2019 financial statements of the Project Companies as well as Project Company Information packages; and
c. an eventual attendance for inspection of partnership documents that resulted in a letter dated February 22, 2021 setting out a list of deficiencies and requests by Tridelta for further documentation and information, particularly with respect to the Project Companies,
UDEV, under the direction of Mr. Tajbakhsh, made the UDEV Demands. The UDEV Demands included the annual management fees for 2018, 2019, 2020 payable under the Management Agreements. The Capital Calls were made to cover the UDEV Demands.
[54] Mr Tajbakhsh testified that the management fees were needed by UDEV to cover the professional accounting fees for the preparation of the financial statements and other financial reporting that had been provided to date. He testified that UDEV was not prepared to continue to prepare reports and incur accounting and professional fees on behalf of the Limited Partnerships without being paid the fees and expenses provided for under the Management Agreements.
[55] Mr. Tajbakhsh then caused the Original General Partners to issue the Capital Calls under Article 4.6 of the Limited Partnership Agreements to each of the Tridelta Funds (and other limited partners) on March 25, 2021, requesting payment on or before April 8, 2021 of the UDEV Demands.
[56] The plaintiffs contend that Mr. Tajbakhsh caused UDEV to issue the UDEV Demands as part of his ongoing efforts to avoid and obfuscate production and disclosure about the Projects and the accounting for funds invested in the Project Companies. The validity of these Capital Calls is challenged by the plaintiffs on two primary grounds[^3]:
a. First, that the Management Agreements entered into between the General Partners and their affiliate, UDEV, were not duly authorized and approved because no special resolution was passed by the Limited Partners approving the Management Agreements as required by Article 8.9 of the Limited Partnership Agreements. Thus, the UDEV Demands for payment under those Management Agreements could not form the basis of a valid Capital Call under the Limited Partnership Agreements; and
b. Second, that the Original General Partners did not satisfy the preconditions under the Limited Partnership Agreements before making the Capital Calls, in that they failed to seek reasonable external funding before issuing the Capital Calls pursuant to Article 4.3(i) of the Limited Partnership Agreements.
(a) Were the Management Agreements Authorized and Approved by the Limited Partners?
[57] The terms of the Limited Partnership agreements are for all intents and purposes identical, at least insofar as any that are relevant to the issues to be decided in this proceeding. UDEV and the Original General Partners are all controlled by Mr. Tajbakhsh and are affiliates. This is not disputed.
[58] Article 8.9 of the Limited Partnership Agreements provides as follows with respect to the retainer of an affiliate of the General Partners:
The General Partner may employ or retain Affiliates on behalf of the Partnership to provide goods or services to the Partnership, provided that same has been approved by a resolution passed by a majority of the Limited Partners at Arm’s Length to the party providing such goods and services and provided such services are charged to the Partnership in a manner in which, and at a cost to the Partnership not greater than the cost which such services would be charged to the Partnership by Arm's-Length parties providing similar services. The General Partner represents, warrants and covenants to the Limited Partners that all such services shall be charged to the Partnership in a manner in which, and at a cost to the Partnership not greater than, the cost which such services would be charged to the Partnership by Arm's-Length parties providing similar services.
[59] The General Authorizing Resolutions dated January 1, 2018 were signed by Mr. Jong on behalf of the Tridelta Funds in respect of each of the Limited Partnership Agreements (the third amended forms of which were also finalized that same month). These authorized and approved the execution, delivery, and performance by the Original General Partners of all other agreements, documents, certificates, and instruments contemplated by the Limited Partnership Agreements in their third amended form.
[60] The defendants contend that entering into an agreement to retain an “Affiliate” of the General Partners to perform services (which might include management services) was contemplated by Article 8.9 of the Limited Partnership Agreements.
[61] In Schedule C to the Limited Partnership Agreements the following agreements are defined and expressly contemplated:
a. “Administrative Services Agreement” is defined to mean the administrative services agreement dated as of May 25, 2017, between the Limited Partnership and Datacore, an affiliate of UDEV.
b. “Project Development Agreement” is defined to mean the project development agreement to be entered into between the project company to be formed upon commencement of a project and UDEV, or its affiliate.
c. “Management Agreement” is defined to mean the Partnership Management Agreement dated as of June 7, 2017, between the Limited Partnership and the General Partner.
d. “Shareholders Agreement” is defined to mean the Shareholders Agreement to be entered into on or about June 2017, among UDEV and the other shareholders signatory thereto from time to time, and the General Partner governing the rights of the shareholders of the General Partner.
[62] Notably, the defined term “Management Agreement” in Schedule C to the Limited Partnership Agreements is an agreement between the General Partners and the Limited Partnerships. It is not defined as the Management Agreement later entered into between the General Partners, on behalf of the Limited Partnerships, and UDEV that resulted in the UDEV Demands.
[63] The Limited Partnership Agreements did expressly contemplate Project Development Agreements between UDEV and the Project Companies whose payment obligations the Limited Partnerships agreed pursuant to Article 6.2 to guarantee. Article 6.2 also makes specific reference to the various defined agreements and provides that the General Partners shall be reimbursed for expenses incurred in connection with the preparation of these Agreements for the development of each Project and for their own expenses and professional fees incurred in carrying out their duties under the Limited Partnership Agreements.
[64] It is not commercially reasonable, logical, or consistent with the full context of these agreements to interpret the previously signed General Authorizing Resolutions as providing the requisite approval for any agreement that the General Partner might later enter into with an Affiliate. That would essentially render the requirement for a special resolution for agreements with Affiliates meaningless if the General Authorizing Resolution that had already been signed would serve that purpose not only for the specific agreements mentioned, but for any other agreements that might be entered into with Affiliates.
[65] Rather, a commercially reasonable and consistent construction of the words of the Limited Partnership Agreements and the General Authorizing Resolutions is that they constitute the approval of only those agreements expressly referred to in the Limited Partnership Agreements that were being drafted and executed at around the same time, in January 2018.
[66] When interpreting contracts, courts are to have regard to the surrounding circumstances known to the parties at the time of contracting: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, at para. 47. A commercial contract should be interpreted in accordance with sound commercial principles and good business sense, and without commercial absurdity: Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24; Scanlon v. Castlepoint Development Corp. (1992), 11 O.R. (3d) 744 (C.A.), at para. 88; Kentucky Fried Chicken Canada v. Scott's Food Services Inc. (1998), 114 O.A.C. 357 (C.A.), at para. 27; RBC Dominion Securities Inc. v. Crew Gold Corporation, 2017 ONCA 648, 73 B.L.R. (5th) 173, at paras. 45; 2484234 Ontario Inc. v. Hanley Park Developments Inc., 2020 ONCA 273, 150 O.R. (3d) 481, at para. 64.
[67] Following this approach, I find that the Management Agreements between the Original General Partners and UDEV were not expressly contemplated or provided for in the Limited Partnership Agreements and would thus not have been authorized by the General Authorizing Resolution. There was no specific special resolution dealing with these Management Agreements.
[68] Both Mr. Tajbakhsh and Mr. Jong (who was Tridelta’s representative involved at the time of the execution of the Limited Partnership Agreements) testified that it was always contemplated that UDEV, a known affiliate of the General Partners, would manage the Projects.
[69] The plaintiffs objected to much of the evidence from Mr. Tajbakhsh about the contract negotiations and discussions with Mr. Jong before the contracts were signed. However, to the extent corroborated by Mr. Jong (and he was asked about only very discrete aspects of it), and to the extent it reflects the “common” understanding of the parties, it may properly form part of the factual matrix that the court considers in the broader context of trying to interpret the various and related, contemporaneous agreements harmoniously. See Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 74 B.L.R. (4th) 161, at para. 16.
[70] In this case, the Limited Partnership Agreements did expressly contemplate UDEV’s involvement in the Projects, by reference to the Project Development Agreement that, if entered into would have been authorized by the General Authorizing Resolutions. Consistent with this, according to Mr. Tajbakhsh, UDEV was engaged by the Project Companies in connection with the development of the Projects.
[71] The existence and involvement of UDEV was not hidden from Tridelta. To the contrary, UDEV is mentioned in the marketing materials, the contact email address for Mr. Tajbakhsh and in the financial statements.
[72] It is not UDEV’s involvement generally in the development and management of the Projects that is the problem here. It is that the Original General Partners entered into Management Agreements with UDEV in respect of the Limited Partnerships that were not expressly contemplated by the Limited Partnership Agreements and were not duly approved, unlike other agreements that were duly approved by the General Authorizing Resolution such as the Project Development Agreements.
[73] If demands for payment by UDEV or its affiliate had been made under the Project Development Agreements, those demands might have been appropriately passed on to the Limited Partners as Capital Calls since they had guaranteed those payments under Article 6.2 of the Limited Partnership Agreements. However, that is not what transpired. Those agreements have not been produced, and the Capital Calls were not predicated on them.
[74] It is not unduly technical (as the defendants suggest) to read and apply the words of the written Limited Partnership Agreements to the agreements that were expressly identified by the Limited Partnership Agreements, such as those identified in Schedule C that were all drafted by counsel for the General Partners and signed by Mr. Tajbakhsh.
[75] The Management Agreements dated February 1, 2018 and entered into between the General Partners and their affiliate UDEV were not themselves expressly contemplated by the Limited Partnership Agreements and were not duly authorized and approved by the Limited Partners as required by Article 8.9 of the Limited Partnership Agreements, either by the General Authorizing Resolutions or otherwise.
[76] The fact that copies of the Management Agreements by which the General Partners purported to retain UDEV to manage the Limited Partnerships were deposited with Datacore (administrative agent for both UDEV and Tridelta) and accessible by Tridelta and its auditors, MNP, cannot render an unauthorized agreement to have been authorized when a special resolution is required.
[77] The General Partners did not have the right to request payment from the Limited Partners by Capital Calls for amounts claimed by UDEV under those Management Agreements without the Limited Partners having authorized and approved those Management Agreements by special resolutions.
[78] Article 4.6 of each Limited Partnership Agreement permits the General Partner to request a Capital Call for contributions from the Limited Partners in their proportionate shares (the “Call Amount”) if the General Partner has reasonable grounds for believing that any of a Partnership Insolvency, a Budget Deficit, a Take-Out Financing Default, or working capital for the Business is required (each a “Default Event”) and is likely to take place unless capital is contributed to the Partnership in accordance with Sections 4.6 or 4.7. The General Partner can also make a Capital Call if capital contributions are required in order to pay expenses related to the Business … for the purpose of avoiding a Default Event.
[79] A demand for payment of expenses related to the Business presupposes that they are legitimate and authorized Business expenses. However, the UDEV Demands were made under an agreement that was not authorized and approved by the Limited Partners under Article 8.9 of the Limited Partnership Agreements. The management fees said to be payable under those agreements were not recorded as liabilities or expenses in the financial statements of the Limited Partnerships.
[80] Furthermore, there is no evidence that the Capital Calls were for the purpose of avoiding a Default Event, as they are required to be under Article 4.6. UDEV entered into Management Agreements with the General Partners for annual fees, which have not been tied to any specific expenses related to the Partnerships’ business (of acquiring, developing and managing real estate development projects). The fact that UDEV decided, after more than three years of not being paid anything, to demand all of the past fees, does not amount to a potential “Default Event” under the Limited Partnership Agreements that needs to be avoided.
[81] The lack of support or particulars for the “work” and the three-year delay in issuing any invoices or making any requests for payment of fees said to be owing under the Management Agreements also calls into question whether any work was actually done under the Management Agreements, as opposed to under UDEV’s agreements with the Project Companies, for example.
[82] The best that Mr. Tajbakhsh could offer in his trial testimony was only his very high level assertions that UDEV staff spent approximately 162 hours per month on average providing services to the Limited Partnerships pursuant to the Management Agreements. This evidence, provided reluctantly and only at trial, is a bald assertion woefully lacking in particularity or any corroboration.
[83] The Original General Partners have steadfastly refused to provide any accounting for work said to have been undertaken by them or by UDEV or other affiliates in connection with the Limited Partnerships or the Projects, through invoices or accounting or banking records to demonstrate flow of funds, and have refused to provide any detailed description of work and corresponding fees, except in the most high-level and general terms. That leads to an inference that this production and disclosure would not support what Mr. Tajbakhsh has said. When one does not disclose relevant documents, one may be taken to be hiding relevant information that could harm that party’s case. See Belovich v. Steiner, 2013 ONSC 4401, at para. 4.
[84] While UDEV likely did provide services in support of the Projects, the evidence does not establish what services were provided, to which entities, pursuant to which agreements, for what purposes or over what time. The mere fact that it was no secret that UDEV was involved in the Projects does not corroborate that the work was done pursuant to the Management Agreements.
[85] This lack of clarity around what UDEV was doing is compounded by the unaccounted for $4.8 million in cash originally invested in the Limited Partnerships by the Tridelta Funds. According to the financial statements, some of these funds were transferred to an unidentified affiliate of the General Partners for an unspecified purpose. Mr. Tajbakhsh says these transferred funds were used (or are being held) for partnership purposes, but has provided no particulars about which entity they were provided to (UDEV or another affiliate) or what these funds were used for.
[86] That leaves open the possibility that some of those funds have already been paid to UDEV for its fees under the Management Agreements. Or it leaves open the possibility that amounts have already been paid to UDEV under the Project Development Agreements. In that situation, there would need to be some accounting and reconciliation done at the level of both the Limited Partnerships and the Project Companies to ensure that UDEV is not being paid twice for the same work.
[87] Although estoppel is pleaded and relied upon by the defendants/plaintiffs by counterclaim regarding the involvement of UDEV in the Project management, the submissions blur the distinction between the different agreements.
[88] There is a lack of precision in the evidence about what management services were being provided to the Project Companies as opposed to the Limited Partnerships (if any) pursuant to which agreements, and nothing close to the level of clarity that would be needed for an estoppel to be raised against the enforcement of the strict requirements of the Limited Partnership Agreements for an authorizing resolution. See Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, 163 O.R. (3d) 398, at para. 21. Where the estoppel is said to arise by silence or inaction (here the omission to mention that the Management Agreements between the General Partners and their affiliate UDEV had not been duly authorized by a special resolution), that can only be considered a representation if a legal duty is owed to make disclosure of the omitted point. See Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at para. 76. No such duty exists here.
[89] Nor can the requisite intention to affect an existing legal relationship (under the Limited Partnership Agreements), or the requisite detrimental reliance, for promissory estoppel be established in this case. Both Mr. Tajbakhsh and Mr. Jong testified that they understood and expected that the Original General Partners would abide by the terms of the Limited Partnership Agreements, this requirement for separate approval of contracts with affiliates being one such term.
[90] If invoices had been rendered throughout that made it clear that it was UDEV, rather than the General Partners themselves, that was managing the Limited Partnerships, and those invoices had not been objected to, the estoppel argument that the defendants have sought to raise might have had more traction. Once again, that is not this case. The only invoices from UDEV that were identified in the record dating back to 2018 were not provided to the plaintiffs until the Capital Calls were made in 2021 when the parties had essentially reached a standoff on the production and disclosure issues after years of litigation.
[91] The Capital Calls corresponding with the UDEV Demands under the Management Agreements were not for valid, authorized and approved Business expenses of the Limited Partnerships. They were thus invalid.
(b) Were the Preconditions to Making the Capital Calls Satisfied?
[92] Even if the Management Agreements had been validly authorized and approved (or the plaintiffs were estopped from strictly enforcing that requirement under the Limited Partnership Agreements and/or the Capital Calls could be said to have been for legitimate Business expenses of the Limited Partnerships), there are still preconditions to making Capital Calls that must be satisfied. Article 4.3(i) of the Limited Partnership Agreements sets out the requirements for the funding of expenses of the Partnership:
The Partnership shall fund all of its expenses and liabilities from its own cash on hand and other assets, If the Partnership requires additional funds for any Permitted Purpose [defined in Schedule C to be “to satisfy present and future costs, expenses and liabilities of the Partnership for which the Partnership is liable”], the Partnership shall obtain such funds (i) first, to the greatest extent possible, by borrowing from a reputable financial institution in accordance with Section 4.4, and (ii) second, to the extent possible, pursuant to a Capital Call in accordance with Section 4.6.
[93] The General Partners acknowledge that they made no attempts whatsoever to borrow the funds to pay the UDEV Demands from a reputable financial institution in accordance with s. 4.4 of the Limited Partnership Agreement (dealing with bank financing). The Capital Call was only to be the second source of funding.
[94] The defendants response to this failure to meet the precondition for making the Capital Calls is that it was impractical or impossible to do so and that was because of Tridelta. Mr. Tajbakhsh says that there was no point in attempting to borrow funds from a reputable financial institution because, just prior to making the Capital Calls, he had been advised by RBC, the bank that he had intended to use for financing, that they were terminating their relationship with the General Partners (in whose names the accounts had been opened) as a result of the Anonymous Package. The defendants had, but no longer have, copies of the correspondence from RBC about this Anonymous Package, and were unable to identify the bank employee or branch to which it was sent. There is thus nothing to corroborate Mr. Tajbakhsh’s testimony about this Anonymous Package.
[95] Mr. Tajbakhsh believes Tridelta sent the Anonymous Package, or caused someone else to do so, but he admits he has no proof of this. Tridelta denies sending any such letter.
[96] Without any corroborating evidence that the letter even existed, and without the identity of the bank manager or the bank branch from which some corroboration might be provided of the reason for RBC having terminated its banking relationship with the General Partners, the court cannot place any reliance upon the alleged Anonymous Package or Mr. Tajbakhsh’s theory about who sent it. It is entirely speculative. If the General Partners wanted to rely on this Anonymous Package to justify their failure to seek bank financing they had the onus of proving it. They have not done so.
[97] That leaves the General Partners without justification or excuse for not having at least attempted to approach any reputable financial institution for a loan to fund expenses of the Limited Partnerships, whether it be RBC or another financial institution.
[98] In the absence of satisfactory proof of a justification, excuse or explanation for not having first even attempted to borrow funds from a reputable financial institution “to satisfy present and future costs, expenses and liabilities of the Partnership,” the Capital Calls were made prematurely, without satisfying the requirement under Article 4.3(i) of the Limited Partnership Agreements, and were therefore invalid for this reason as well.
Were the Tridelta April 8, 2021 Special Resolutions Validly Passed?
[99] The defendants challenge the validity of the Tridelta Special Resolutions removing the Original General Partners on the following grounds, that:
a. the Tridelta Funds were “Non-Paying Partners” and “Defaulting Limited Partners” within the meaning of Article 4.8(a) of the Limited Partnership Agreements (for having failed to respond to the Capital Calls) and therefore not permitted to vote or make any decision under the Limited Partnership Agreements on April 8, 2021 by virtue of Article 4.8(b) ;
b. the Original General Partners were not in default of the performance of their obligations under the Limited Partnership Agreements or their fiduciary duties as alleged, and the grounds upon which the Special Resolutions were predicated were not valid; and
c. the plaintiffs are estopped from relying upon the April 8, 2021 Special Resolutions for the removal of the Original General Partners because they said in the course of this litigation that they were not relying on those resolutions for that purpose.
(a) Were the Tridelta Funds in Default of the Capital Calls on April 8, 2021?
[100] Article 4.8(b) of the Limited Partnership Agreements provides that:
Whenever the vote, consent or decision of the Limited Partners is required or permitted pursuant to this Agreement, any Defaulting Limited Partner shall not be entitled to participate in such vote, consent, or decision, and such vote, consent or decision shall be made as if such Defaulting Limited Partner were not a Limited Partner, unless and until such time as the Capital Call Default has been fully cured. Notwithstanding this prohibition, any such vote, consent or decision shall be binding upon such Defaulting Limited Partner.
[101] For the reasons detailed in the preceding section of this decision, the Capital Calls have been held not to have been validly made. Therefore, the Tridelta Funds were not “Non-Paying Partners” or “Defaulting Limited Partners” within the meaning of Article 4.8(a).
[102] Further, even if the Capital Calls had been valid, the call date was April 8, 2021, so technically the Tridelta Funds were not in default of the Capital Calls on that day when the Special Resolutions were passed.
[103] The Tridelta Funds were therefore not precluded from voting or making any decision under the Limited Partnership Agreements on April 8, 2021 by virtue of Article 4.8(b).
[104] The removal and replacement of general partners requires a special resolution by virtue of Article 12.14 (c) of the Limited Partnership Agreements. There is no dispute that the Tridelta Funds hold more than sufficient votes to pass a special resolution (which required 75% approval of Unitholders). The Tridelta Funds contributed 99% of the capital of the Limited Partnerships, and hold 99% of the units and votes of the Limited Partnerships. The Limited Partnership Agreements allow for resolutions to be in writing as the Special Resolutions were. I find that the Special Resolutions complied with Articles 12.13 and 12.14 of the Limited Partnership Agreements.
(b) Were the Original General Partners in Default of their Obligations Under the Limited Partnership Agreements or of their Fiduciary Duties?
[105] Article 8.10 of the Limited Partnership Agreements provides that the General Partner may be removed and a replacement general partner appointed by Special Resolution in certain prescribed events and:
… In addition, the General Partner may be removed and a substitute general partner appointed by Special Resolution in the event of the default by the General Partner in the performance of its obligations under this Agreement, which default remains unremedied for a period in excess of thirty (30) days after the Limited Partners have given written notice of such default to the General Partner following passage of a Special Resolution to consider such default and authorize such notice.
[106] In the Special Resolutions, the Tridelta Funds identify thirteen specific defaults in the performance of the duties of the Original General Partners. The Tridelta Funds gave written notice to the Original General Partners of the alleged defaults on April 8, 2021 when the Special Resolutions were passed.
[107] The position of the Tridelta Funds is that only one of those defaults must be established for the Special Resolutions to be valid. They have provided a chart attached at Schedule “C” to their closing submissions of seven of the alleged defaults which they say are based on admitted or uncontested facts.[^4] Their closing submissions ultimately focused on ten of the alleged defaults and those are the ones that will be addressed herein.
[108] Each of the alleged defaults will be addressed in turn, with a focus on the status of the defaults as of April 8, 2021. There is a related question about whether a default that was not “curable” as of April 8, 2021 can be relied upon, and that will be addressed in the context of the discussion of the various alleged defaults, where applicable.
(i) Failure to Provide Access to and Disclosure of Records, Documents, and Information
[109] The Tridelta Funds assert that the Original General Partners have repeatedly refused and opposed requests for access to and disclosure of documents and information related to the business of the Partnership — documents that the Funds are plainly entitled to as limited partners. They maintain that, as a result, the Original General Partners have committed defaults of its fiduciary duty, its general duty of care, and its other duties under Articles 7.1 (“Books and Records”) and 8.4 (“Standard of Care”) of the Limited Partnership Agreement and subsections 10(a) and (b) and 12(2)(a) of the Limited Partnerships Act, R.S.O. 1990, c. L.16 (the “Act”).
[110] There is a long history of requests for documents, applications, motions, and materials eventually being produced. It may be that the production of the requested documents was not timely in the three year period prior to April 8, 2021, but the defendants maintain that as of the date of the Special Resolutions on April 8, 2021 they had complied with all orders for production and all of their production, disclosure, and inspection obligations, the most recent having been the inspection that took place on February 11, 2021.
[111] The essence of the defendants’ position is that prior defaults had already been remedied by the time of the Special Resolutions, and the final demand made by the Tridelta Funds on February 22, 2021 was a new request for documents that had either already been produced, did not exist, or belonged to the Project Companies and thus could not be produced.
[112] The defendants rely upon the decision of Penny J. in 2019 which determined that past transgressions with respect to requested production and disclosure had by that time been remedied by the production of specific documents that the General Partners had (such as the Annual and Semi-Annual Reports and financial statements that had been prepared). In this regard, it is acknowledged that by April 8, 2021, all such formal reports that were due had been produced. The 2020 Annual Report would have been due within the 30-day cure period following the April 8, 2021 notices of default, and it was not produced. There is no evidence that it was even being worked on at the time. However, the defendants are correct that technically they were not in default of the delivery of that or any other required report under the Limited Partnership Agreements on April 8, 2021.
[113] In terms of the Project Company documents, much reliance is placed by the defendants on the decision of Cavanaugh J. dated October 28, 2022. Cavanaugh J. declined to make an injunction order or grant a certificate of pending litigation relying upon the corporate separateness of those companies who are not parties to this proceeding. Mr. Tajbakhsh took this literally. In their closing submissions, the defendants reiterate that: “TriDelta refuses to accept that the Project Companies are different legal entities than the General Partners, with a different role within the investment structure and a different suite of documents within its possession.”
[114] However, the corporate separateness does not relieve the Original General Partners from the production of documents and records that they had access to and could and should have obtained on behalf of the Limited Partnerships that are the shareholders of the Project Companies (under the Ontario Business Corporations Act, R.S.O. c. B-16, (the “OBCA”), at s. 145(1). Further, as the Court of Appeal said when the appeal from the Production Order of Penny J. was dismissed (at para. 18), “Section 10 [of the Limited Partnerships Act] gives limited partners very broad rights to information ‘concerning all matters affecting the limited partnership.’” The Court of Appeal found it was open to Penny J. to determine the means by which the required disclosure was made and upheld his direction that information pertaining to the Project Companies be produced such as their financial statements and that documents prepared on a recurring basis should be produced on a recurring basis.
[115] The plaintiffs maintain that UDEV clearly has always had access to and/or possession of all of the documents relating to the Projects in its various roles with the Original General Partners, the Limited Partnerships and/or the Project Companies. Access to documents and information was not the issue. The Original General Partners had the right to ask for documents and information about the investments by the Limited Partnerships in the Project Companies. Mr. Tajbakhsh is the principal of both the Original General Partners and UDEV. It may be artificial to suggest that he should ask himself for the documents, but he clearly had the right and ability to do so and to provide them to the Limited Partners.
[116] A heightened level of distrust developed between Mr. Tajbakhsh and Tridelta after Mr. Jong left, which was incited by Tridelta’s initial assumption that Mr. Tajbakhsh had conspired with Mr. Jong with respect to the Tridelta Funds’ (allegedly unauthorized) investments in the Limited Partnerships. Tridelta approached these investments initially on the basis that they were part of a scheme that Mr. Tajbakhsh was involved in with Mr. Jong. The Tridelta Funds made it clear that they were seeking to exit these investments and made various threats in furtherance of that objective.
[117] It was not borne out on the evidence that Mr. Tajbakhsh was involved in any scheme with Mr. Jong. However, the plaintiffs’ position in this litigation is not dependent on that being established. Nor is their motivation and desire to exit the Limited Partnerships relevant to what the court is ultimately concerned with in this case, which is whether the April 8 and May 12, 2021 resolutions passed by the Tridelta Funds in their capacity as Limited Partners were valid and should be affirmed and given effect by the court.
[118] Mr. Tajbakhsh’s increasing unwillingness to co-operate with Tridelta’s many demands for documents and information from any of the companies that he controlled, whether it be the Original General Partners or the Project Companies or UDEV, after Mr. Jong was terminated was, at least in part, a reaction to Tridelta’s aggressive stance and stated desire to exit the investments in the Limited Partnerships. This is not an excuse for what was a failure by the Original General Partners to meet their production and disclosure obligations to the Limited Partners concerning all matters affecting the Limited Partnerships (discussed above), but it does provide some context for Mr. Tajbakhsh’ reluctance to do so. He did eventually provide documents, but often late and as time passed only when the court ordered production. That said, by April 8, 2021 that which had been ordered to be produced had been produced, to the extent it existed.
[119] Ultimately, the “admission” that the plaintiffs rely upon in connection with this alleged default is that: Mr. Tajbakhsh admitted on discovery that he has never provided Tridelta with the opportunity to review the general ledger, the bank statements, or the financial records of the Limited Partnerships beyond the annual reports and financial statements.
[120] That remained true at trial. I agree with the plaintiffs that is, in and of itself, a breach of the General Partners’ duties. Article 7.1 of the Limited Partnership Agreements required the General Partners to keep applicable books of account and records reflecting the assets, liabilities, revenue, and expenditures of the Limited Partnerships. The General Partners owed a general duty of honesty and good faith under Article 8.4 which required them to respect the rights of the Limited Partners under both the Limited Partnership Agreements and the Act. These include the rights to inspection and production of documents and information about the Limited Partnerships under s. 10(a) and (b) of the Act and to examine the state and progress of the Limited Partnerships’ business under s. 12(2)(a) of the Act. This would include access to general ledgers, bank statements and financial records.
[121] The obligation of the Original General Partners to prepare and produce Semi-Annual and Annual Reports and financial statements for the Limited Partners (pursuant to Articles 7.2 and 7.3 of the Limited Partnership Agreements) did not supplant the basic rights of the Limited Partners to information and documents.
[122] Disclosure of records and documents is a fundamental right of an investor. The Tridelta Funds should not have had to go through the efforts that they did to obtain what was eventually produced, nor should they have been denied access to basic financial records of the Limited Partnerships, including general ledgers and bank statements. The Original General Partners had, as of April 8, 2021, failed to facilitate access to and disclosure of the books and records of the Limited Partnerships in breach of Article 7.1 of the Limited Partnership Agreements and ss. 10 and 12(2) of the Act.
[123] This is default by the Original General Partners sufficient to support the validity of the Special Resolutions pursuant to Article 8.10 of the Limited Partnership Agreements.
(ii) Unapproved Engagement of a Non-Arm’s Length Affiliate
[124] It has already been established earlier in these reasons that the Management Agreements entered into by the Original General Partners with their affiliate UDEV were not approved by a special resolution of a majority of arm’s length Limited Partners as was required under Article 8.9 of the Limited Partnership Agreements.
[125] It has been determined that the General Authorizing Resolutions did not apply to these Management Agreements. This is another default that supports the finding that the Special Resolutions were validly passed pursuant to Article 8.10 of the Limited Partnership Agreements.
(iii) Failure to Attempt to Borrow Necessary Funds from Reputable Financial Institution Prior to Making Capital Calls
[126] It is admitted that no attempt was made to secure reasonable outside financing before the Original General Partners issued their Capital Calls, contrary to their obligation to first do so under Article 4.3(i) of the Limited Partnership Agreements.
[127] This is another default that supports the finding that the Special Resolutions were validly passed pursuant to Article 8.10 of the Limited Partnership Agreements.
(iv) Co-mingling of Limited Partnership Funds
[128] Article 8.8(c) of the Limited Partnership Agreements expressly restricted the Original General Partners from co-mingling the funds of the Limited Partnerships with the funds of the Original General Partners or their affiliates or any third party. In other words, the funds of the Limited Partnerships had to be maintained in separate bank accounts designated for the exclusive use and benefit of the Limited Partnerships.
[129] The only bank accounts that held any of the funds recorded on the financial statements of both the Original General Partners and the Limited Partnerships were the RBC bank accounts in the names of the Original General Partners. The Original General Partners never opened bank accounts in the names of the Limited Partnerships.
[130] Mr. Tajbakhsh admits that these bank accounts were used by and for the benefit of the Original General Partners, to purchase GICs in their names,[^5] to transfer (or loan) funds to other parties including an unnamed affiliated,[^6] and to pay the expenses of the Original General Partners. In other words, the Original General Partners engaged in their own transactions in the same bank accounts where the transactions on behalf of the Limited Partnerships were conducted.
[131] Mr. Tajbakhsh testified that the only funds deposited in these RBC accounts were Limited Partnership funds, and regardless of the intervening transactions involving the Original General Partners and their affiliates, those funds were ultimately used for the benefit of the Limited Partnerships. However, Mr. Tajbakhsh refused to provide copies of the bank statements for these accounts, so his assertions could not be verified. The court cannot simply accept his word for this, without some corroboration. His evidence was evasive and inconsistent with the financial statements that were only reluctantly produced, and is not reliable on this point.
[132] It was suggested by the defendants that these be characterized as “in trust” accounts for the Limited Partnerships. If this were a finding that the Original General Partners wanted the court to make, some evidence beyond Mr. Tajbakhsh’s mere assertion of it would have been required, particularly in the face of how these were recorded on the financial statements of the Original General Partners.
[133] The evidence establishes that there was, at some point after the Limited Partnership Agreements were signed, a co-mingling of funds of the Limited Partnerships (advanced by the Tridelta Funds) with funds recorded as belonging to the Original General Partners or their affiliates, in breach of Article 8.8(c) of the Limited Partnership Agreements.
[134] The Original General Partners argue that as of April 8, 2021 this default did not and could not have subsisted because the Limited Partnerships’ financial statements disclose that after 2019 they had no cash, and no new funding had been provided since then. They therefore argue that there was nothing to “co-mingle” in the RBC bank accounts, which had for all intents and purposes been closed by April 8, 2021.
[135] The fact remains, however, that as of April 8, 2021, no separate bank account had ever been opened in the name of the Limited Partnerships and there had been a co-mingling of funds of the Limited Partnerships and the Original General Partners (which was a breach). The problem had not been remedied by April 8, 2021, it had simply temporarily suspended because all of the Limited Partnerships’ funds had been disbursed out of the accounts. While this is a somewhat technical breach, this co-mingling of funds created the circumstances upon which the misuse of (or failure to safekeep) funds of the Limited Partnerships is predicated, discussed in the next section of this decision. This highlights why the prohibition against co-mingling of funds is important to adhere to, even if seemingly technical.
[136] This is another default that supports the finding that the Special Resolutions were validly passed pursuant to Article 8.10 of the Limited Partnership Agreements.
(v) Failure to Safekeep the Assets of the Limited Partnerships
[137] Article 8.5 of the Limited Partnership Agreements makes the Original General Partners responsible for the safekeeping and use of all funds and assets of the Limited Partnerships. It requires the Original General Partners not to employ or permit another to employ the funds or assets of the Limited Partnerships except for the exclusive benefit of the Limited Partnerships. The plaintiffs allege that, contrary to this, the Original General Partners or their affiliates entered into undocumented loans and transactions with the Limited Partnerships involving Limited Partnership funds.
[138] At times, this alleged breach was blurred with the prior alleged breach of co-mingling of funds, but there is a distinction. This alleged breach involves how the funds that were originally deposited into the bank accounts of the Limited Partnerships were used (or mis-used).
[139] The financial statements of the Original General Partners were initially produced with redactions. Once the redactions were removed, it became apparent that not all of the funds advanced by the Tridelta Funds to the Limited Partnerships were used by the Limited Partnerships to invest in the Project Companies. The financial statements indicate that substantial sums were transferred between the Original General Partners and undisclosed affiliates.
[140] The records (including financial statements) show that the Original General Partners:
a. Made short-term investments in 2018 of approximately $1 million (which earned interest, the recipients of which Mr. Tajbakhsh was not able to identify);
b. Received loans recorded on the 2019 financial statements from the Limited Partnerships of approximately $2.4 million in the aggregate; and
c. Made loans recorded on their 2019 financial statements of approximately $1.1 million in the aggregate to an affiliate after the short-term investments were liquidated.
None of this is indicated to be “in trust” for the Limited Partnerships.
[141] The Original General Partners refused to produce any of the RBC banking records that might have shed some light on the flow of funds through the bank accounts said to have been operated for the benefit of the Limited Partnerships. The Original General Partners eventually blamed that on the termination of the RBC banking relationship, although even that would not prevent a former bank customer from gaining access to its banking records.
[142] The defendants argue that it is sufficient for Mr. Tajbakhsh to say that all of these funds were used for the benefit of the Limited Partnerships, in that they were being used for the benefit of the Project Companies and being kept for the Project Companies, and that the plaintiffs have not established otherwise.
[143] None of the banking or accounting records, nor any agreements, have been produced to substantiate what is essentially a “trust me” defence to the allegation that funds were deployed for uses and benefits other than the Limited Partnerships. As noted previously, when one does not disclose relevant documents, one may be taken to be hiding relevant information that could harm that party’s case. See Belovich, at para. 4. Also as noted previously, the court is not prepared to accept Mr. Tajbakhsh’s evidence on this point without some corroboration.
[144] Even at the trial, the defendants were not prepared to disclose who the affiliates were that were paid funds from these bank accounts or what the funds were used for. If the defendants wanted to rely on the assertion that the payments out of the RBC bank accounts to affiliates of the General Partners were for the benefit of the Limited Partnerships it was made clear to them by the court during the trial (cross examination of Mr. Tajbakhsh and objections raised to certain questions regarding these particulars) that they would need to provide further particulars and support for this contention. They did not do so to the court’s satisfaction.
[145] Part of the explanation that Mr. Tajbakhsh offered was that $2.4 million in loans to the General Partners that were recorded on the financial statements were actually non-cash accounting entries to reflect an oral agreement made with Mr. Jong that the Original General Partners would take on the responsibility to pay the operating expenses of the Limited Partnerships (contrary to Article 4.3 of the Limited Partnership Agreements requiring the Limited Partnerships to fund all expenses and liabilities from their own cash) so as to maintain a base net asset value or “NAV” of $100 at the Limited Partnership for Tridelta’s reporting purposes, on the understanding that these “loans” would be reimbursed by the Original General Partners when the Projects were completed.
[146] This arrangement was undocumented and was not substantiated through other evidence at trial. The court would have expected it to have been directly confirmed by Mr. Jong that he had requested this arrangement be put in place, since he was the alleged mastermind of the arrangement. Mr. Jong was shown notes 3 and 10 in the 2017 financial statements said by the Original General Partners to reflect this arrangement, and he appeared in his evidence in-chief to have understood the concept, but he was not asked directly about whether he had made such an arrangement with Mr. Tajbakhsh in this case. In cross-examination, he testified that he had not seen the financial statements before trial and that he would have expected an arrangement like this to have been documented. Furthermore, the notes in the 2017 financial statements were removed in the later years when the majority of the transactions occurred.
[147] Mr. Simon testified that this arrangement made no commercial sense as the expenses would eventually have to be recorded at the Limited Partnership level and could be used to offset any tax burden. Nor was there any evidence about where the Original General Partners would obtain the funds to repay these loans when the time came. In all of these circumstances, the court cannot place any weight on this explanation or justification for the use of Limited Partnership funds. It is complicated and contrary to the direct requirements of Article 4.3 of the Limited Partnership Agreements.
[148] Finally, I reject the suggestion that the court has already ruled on this arrangement by virtue of a passing reference by Penny J. in his reasons in the May 29, 2019 Production Order. At that time, the court was simply addressing the issue of the non-existence of any written loan agreements reflecting these transactions and was not making a finding about the underlying arrangement.
[149] The limited financial records that were produced leads to the inference that funds of the Limited Partnerships were not used for the exclusive benefit of the Limited Partnerships, in breach of Article 8.5 of the Limited Partnership Agreements. The defendants have failed to rebut this inference with any satisfactory explanation or independent corroboration.
[150] This is another default that supports the finding that the Special Resolutions were validly passed pursuant to Article 8.10 of the Limited Partnership Agreements.
(vi) Failure to Deliver Timely Financial and Other Reporting
[151] Article 7.2 of the Limited Partnership Agreements states:
In respect of each Fiscal Year of the Partnership, the General Partner shall, at the expense of the Partnership, send or cause to be sent to each Limited Partner within one hundred (100) days following the end of each Fiscal Year of the Partnership an annual report containing:
a) the Accountant’s report on the audited financial statements of the Partnership;
b) a balance sheet for the Partnership as at the end of the immediately preceding Fiscal Year;
c) income or loss statement;
d) statement of cash flows;
e) a statement of changes in each Partner's capital account for that Fiscal Year, including a report on the income/loss allocated to each Limited Partner, and the contributions and distributions, if any, from or to the Limited Partners; and
f) such other information as, in the reasonable opinion of the General Partner, is material to the operations of the Partnership or required by applicable law.
[152] Article 7.3 of the Limited Partnership Agreements require that “[t]he General Partner shall, at the expense of the Partnership, prepare and send or cause to be sent to each Limited Partner within sixty (60) days following the end of each semi-annual calendar period a report on the material operations of the Partnership, if any, and such other matters as may be required by applicable law.”
[153] There was a lot of evidence about the delays in the delivery of these Annual and Semi-Annual Reports and the financial statements of the Limited Partnerships. They were unquestionably not delivered on time. However, by April 8, 2021, all Annual and Semi-Annual Reports and financial statements for the Limited Partnerships for 2018, 2019, and 2020 that were due had been delivered, and supplementary reports had been delivered as well. The Annual Reports and financial statements for the Limited Partnerships for 2020 were not yet due.
[154] The Annual Reports for 2020 would have been due during the 30 day cure period (on April 10, 2021). They were not delivered during that time frame. However, based on the state of affairs on April 8, 2021 when the Special Resolutions were passed, the Original General Partners were not then in breach of any of their express reporting obligations under Articles 7.2 and 7.3 of the Limited Partnership Agreements.
[155] Accordingly, this alleged default relating to the failure to deliver Annual and Semi-Annual Reports and financial statements for the Limited Partnerships is not relied upon to support the court’s conclusion that the Special Resolutions were valid.
(vii) Failure to Hold Annual Meetings
[156] Article 12.1(b) of the Limited Partnership Agreements required the Original General Partners to convene an annual meeting of the Limited Partners within one hundred and eighty (180) days of the end of each Fiscal Year, such period representing the period for delivery of the financial statements plus the maximum notice period in respect of the meeting. The General Partners did not ever convene an annual meeting of the Limited Partnerships.
[157] Mr. Tajbakhsh testified that this requirement was waived by Mr. Jong. Mr. Jong was not asked to confirm this when he was called as a witness by the defendants. In any event, Mr. Jong was terminated in March 2018 so that does not explain why no annual meetings were convened after that.
[158] The defendants argue that the Tridelta Funds are estopped from complaining about this because they did not complain at the time that the annual meetings should have been held (180 days after the end of each prior fiscal year, 2017, 2018, and 2019). It was suggested that, if the Tridelta Funds had complained, the Original General Partners would have convened annual meetings for those prior years (and presumably would have prepared the financial statements of the Limited Partnerships for those meetings in a timely manner), and that without timely complaints, they would have then been unable to do so due to the passage of time with each new year.
[159] The Tridelta Funds raised concerns about this “estoppel” defence which was not pleaded. It is not necessary for me to decide whether that defence to the alleged defaults is available. As a matter of contract interpretation and not as a matter of estoppel, the defendants essentially seek to prevent Tridelta Funds from relying upon prior year’s annual requirements and limiting them to enforcement of only the most recent year’s. For this type of recurring obligation and default, it would defeat (or render meaningless) Article 8.10’s provision of 30 days to remedy a default to allow the annual defaults to accumulate without complaint and then rely upon the historic defaults.
[160] While the notice of default might have led the Original General Partners to call (not necessarily hold) annual general meetings for 2020 during the 30-day period (since it was within the 180 day period from the Fiscal Year of the Limited Partnerships), there was no breach as of April 8, 2021 for failing to call the 2020 annual meeting since the 180 days for the 2020 fiscal year did not expire until after the cure period ended. It is the recurring nature of these particular obligations on an annual basis that gives rise to the opportunity to remedy prior year’s defaults through compliance with the current year’s obligation.
[161] This alleged default relating to the failure to call annual meetings of the Limited Partnerships is not relied upon to support the court’s conclusion that the Special Resolutions were valid.
[162] This interpretation of the Limited Partnership Agreements does not mean that “incurable” defaults cannot ever be relied upon for purposes of the Special Resolutions to terminate the Original General Partners. There may be circumstances in which a prior breach that is incurable could still constitute grounds for default and termination of a general partner. For example, an unauthorized transaction may not be reversible vis-à-vis a third party and thus not “curable” within the 30 days but could still be a default that is relied upon to terminate a general partner. Another example is the earlier default discussed of failing to seek out reasonable external financing before making a Capital Call. This was technically “incurable” as of April 8, 2021 (the Capital Calls having already been made) but is nonetheless one of the defaults that supported the Special Resolutions in this case.
(viii) Mismanagement of the Limited Partnerships
[163] Article 2.1 of the Limited Partnership Agreements specifies the purpose for which the Limited Partnerships were formed to be: (i) acquiring real estate development projects in the Province of Ontario; and (ii) operating and managing the Business and otherwise maximizing the profit of the Business. The Partnership may also engage in such other necessary or related activities as the General Partner deems advisable in order to carry on the principal business of the Partnership. The “Business” is defined in Schedule C to the Limited Partnership Agreements to mean “the development, marketing, sales and management of real estate projects in the Province of Ontario.”
[164] The plaintiffs prepared a chart of the status of each of the Projects, which demonstrates that none of them have moved past the land acquisition and initial development stages. Mr. Tajbakhsh testified in general terms about work that has been done by UDEV with the municipalities and professionals to ready the Projects for development. They are in various stages of pre-construction development approval. There have been no final approvals and no construction at any of the sites. One of the Projects, owned by 320 Bronte Street Inc., was sold in December 2021. The net sale proceeds have yet to be accounted for.
[165] The plaintiffs say that this is mismanagement given that the Tridelta Funds were supposed to be paid their equity and participation entitlements as Series 1 and Series 4 Unitholders in priority to the holders of other series upon Project Completion. Project Completion was anticipated to be on or about December 31, 2022 but could be extended by the Original General Partners to a date not exceeding December 31, 2023.
[166] Ultimately, because of the manner in which the Projects were controlled, the plaintiffs argued that the Original General Partners should have retracted their shares from the Project Companies when the Projects were not progressing. The defendants argue that the Original General Partners did not have the right to do so under the Articles of Incorporation of the Project Companies and that it was clearly contemplated that the monies would continue to be invested until the Projects were completed.
[167] Mr. Tajbakhsh testified that it was never expected that the Projects would be completed by the specified outside date and that it was anticipated there would be extensions, something he claims to have discussed with Mr. Jong. Mr. Jong was not asked to corroborate this when he testified. In cross-examination, he confirmed that he understood that the Original General Partners were bound by the express terms of the Limited Partnership Agreements. He also confirmed that the terms of the Limited Partnership Agreements contemplated an outside date for completion of the Projects of December 31, 2023.
[168] The defendants counter that this understanding or expectation that Mr. Tajbakhsh testified to contradicts the express terms of the Limited Partnership Agreements, including the entire agreement clause at Article 18.6, and constitutes inadmissible parole evidence. I agree. The parole evidence rule precludes the use of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 59. The defendants have not identified any contractual term in the Limited Partnership Agreements that is open to interpretation, and certainly not these.
[169] The plaintiffs have also raised concerns about whether the Original General Partners operated and managed the Business of the Limited Partnerships in a manner that maximized the profit of the Business. These concerns are largely based on complaints about the leveraging of the properties by the Project Companies (including some in favour of affiliates of the Original General Partners). Specifically, after paying approximately $30 million to acquire properties across the three Projects, a total of $27 million in mortgages were taken out, roughly 90% of the collective purchase prices.
[170] However, the evidence about this has not been sufficiently developed for the court to find at this time, on a balance of probabilities, that this level of leveraging on property acquisitions by the Project Companies constitutes a failure by the General Partners to operate the Business of the Limited Partnerships in a manner that maximized the profit of the Business. In addition to the concern that this all occurred downstream at the Project Company level, expert evidence would likely be required about, for example, the reasonable time (during the pandemic) for the development of real estate projects in Ontario and/or reasonable leveraging of commercial real estate investments and/or when and how they might be expected to become profitable. Further expert appraisal and other evidence about the circumstances and price obtained on the sale of the property owned by Bronte Road Inc. might also be required.
[171] The court is sympathetic to the plaintiffs’ concerns about the status of the Projects and the manner in which they have been managed and the disclosure that has been provided about them. However, these concerns do not amount to a breach of Article 2.1 of the Limited Partnership Agreements:
a. Despite these concerns and the apparent delays (some of which could be attributed to this and earlier litigation), the evidence is that the Original General Partners did (through the Project Companies) acquire real estate development projects in the Province of Ontario.
b. No development timelines were specified or guaranteed under the Limited Partnership Agreements. Although there was an indication that the Tridelta Funds would be repaid their principal plus anticipated interest by an outside date of December 31, 2023, the question of repayment of the Tridelta Funds is not directly in issue in this proceeding. That repayment date has not yet occurred.
[172] Another identified concern relates back to an issue raised earlier in these reasons about the defendants’ refusal to identify the ultimate recipient(s) of the approximately $4.8 million in funding provided by the Tridelta Funds that was not used to invest in the Project Companies. Nor have any banking records or other financial documents been produced that might disclose what was done with these funds, although Mr. Tajbakhsh maintains that they were used and/or are being kept for the Projects. Whatever may have happened to these funds, their disbursement left the Limited Partnerships with no liquid capital to cover the anticipated expenses and liabilities of the Limited Partnerships (e.g., for any existing contracts that required the payment of annual fees, such as the alleged Management Agreements, or for the cost of financial and other reporting specifically required under the Limited Partnership Agreements).
[173] This is relied upon by the plaintiffs as a further example of financial and general mismanagement by the Original General Partners. However, it is essentially a repeat of the breaches of Article 8.5 of the Limited Partnership Agreements and is more appropriately addressed there.
[174] The lack of transparency and accountability for what has (or has not) been done to advance the Projects and/or to manage the cash flow, while valid concerns, do not come within Article 2.1 of the Limited Partnership Agreements. Article 2.1 is directed to the Business of the Limited Partnerships in the broader sense, and there has been no suggestion that the Original General Partners were carrying on any business other than “the development, marketing, sales and management of real estate projects in the Province of Ontario”.
[175] Accordingly, this alleged default relating to the alleged mismanagement of the Limited Partnerships is not relied upon to support the court’s conclusion that the Special Resolutions were valid.
(ix) Irreparable Breakdown in Trust Between the Original General Partners and the Limited Partners
[176] The parties disagree about whether a breakdown in trust between the Original General Partners and the Tridelta Funds, which are majority Limited Partners, amounts to a default that can be relied upon to support of the Special Resolutions. The plaintiffs do not need to establish this as there are plenty of other defaults that the court has found did exist as of April 8, 2021 when the Special Resolutions were passed.
[177] Penny J. found in the earlier consolidation motion reasons (at Tridelta Investment Counsel Inc. v. GTA Mixed-Use Developments GP Inc., 2022 ONSC 2121, at para. 5) that “[t]here is now an irreparable breakdown of trust between Tridelta management and Mr. Tajbakhsh over the operation of the limited partnerships.” Undoubtedly that was so and remains so today. However, that is not determinative of the issue in this case, as the plaintiffs contend. That earlier decision did not address the question of whether that breakdown of trust existed on April 8, 2021 when the Special Resolutions were signed nor did it address the specific requirements for a finding of a breach of duty as is alleged. That still needs to be determined by the court if a breakdown in trust is to be considered among the defaults that support the Special Resolutions terminating the Original General Partners.
[178] Arguably, the considerations that arise in this context are the same as would be considered in determining whether the Original General Partners breached their general duty under Article 8.4 of the Limited Partnership Agreements to exercise the powers and discharge its duties honestly, in good faith, and in the best interest of the Limited Partners and the Limited Partnership and to exercise the care, diligence and skill of a reasonably prudent person performing comparable duties. However, the focus of the submissions was on this overarching breakdown of trust and confidence that gives rise to a breach of duty that occurred outside of the Limited Partnership Agreements. The parties devoted a significant portion of their written and oral closing submissions at trial to this.
[179] The plaintiffs place particular reliance upon the decision of Koehnen J. in which this court found: “[m]ore general breaches of fiduciary duty would also disqualify a general partner from acting quite apart from the specific terms of the Limited Partnership Agreement.” See Tridelta Financial Partners Inc. v. Zephyr Abl Ser-A 4.875% Jan 25, 2021 GP INC, 2020 ONSC 5211 at para. 43, observing that:
Courts have recognized that a general loss of trust and confidence in a general partner constitutes a material default under a limited partnership agreement which gives the limited partners the right to terminate the general partner.[^7]
[180] In Zephyr, the court relied upon the decision in Village Gate Resorts Ltd v. Moore (1997), 47 B.C.L.R. (3d) 153 (C.A.), wherein the British Columbia Court of Appeal concluded, at para. 34, despite the absence of a specific provision allowing the termination of a general partner for loss of trust and confidence, that “[i]t was surely the intention of the draftsman of the Agreement that the Limited Partners could take action to bring the relationship to an end where that trust and confidence have fallen away.”
[181] These cases establish that a loss of trust and confidence can be a basis for removal of a general partner separate and apart from specific breaches of the Limited Partnership Agreements. It will be case specific. Where, as here (and in Zephyr), there are established breaches of specific provisions of the Limited Partnership Agreements, they may add to the loss of trust and confidence. While decided in the different context of a dissolution of a partnership, PWA Corp. v. Gemini Group Anotmated Distribution Systems Inc. (1993), 101 D.L.R. (4th) 15 (Ont. Gen. Div.) makes the equally important point, at para. 184, that a “serious departure from the proper conduct or management of the enterprise’s affairs” is required in order to substantiate an allegation of loss of trust.
[182] The defendants rely on the PWA case as well regarding the requirements for establishing a loss of trust and confidence (at para. 183):
Such an assertion must not spring from dissatisfaction at being outvoted in business affairs of what is called the policy of the company. Indeed there is very little evidence that the plaintiff’s representatives on the General Partner were outvoted in the development of the policy of the partnership. In asserting whether or not the alleged loss of confidence is justified, a court must examine whether there is a valid basis to establish a lack of probity, good faith or other improper conduct on the part of the other partners. Indeed, there must be a serious departure from the proper conduct or management of the enterprise’s affairs: Loch v. Blackwood Ltd., [1924] A.C. 783 at p. 796, [1924] 3 W.W.R. 216, and Re R.J. Jowsey Mining Co. (1969), 6 D.L.R. (3d) 97 at p. 106, [1969] 2 O.R. 549 (C.A.). [Emphasis added.]
[183] What the court is looking for to establish an alleged loss of confidence and irreparable breakdown in the relationship between the Limited Partners and the Original General Partners is “a lack of probity, good faith or other improper conduct.” This alleged breach of duty has a number of components as at April 8, 2021, many of which overlap with the breaches of specific sections of the Limited Partnership Agreements:
a. General lack of disclosure and transparency about the ultimate investments — the Project Companies — from which the Original General Partners could have compelled production on behalf of the Limited Partnerships that were the shareholders of those OBCA companies. Yet, the Original General Partners resisted doing so on the basis that this disclosure was not expressly provided for under the Limited Partnership Agreements;
b. General failure to account for the ultimate use of the funds invested by the Tridelta Funds in the Limited Partnerships, not all of which were used by the Limited Partnerships to invest in the Project Companies;
c. Inherent conflicts in other transactions involving affiliates and a lack of transparency around those, such as:
i. Engaging a non-arm’s length affiliate, UDEV, under Management Agreements with significant fixed annual management fees without an authorizing resolution;
ii. Loans and other payments to affiliates reflected on the unredacted financial statements; and
iii. Mortgage financing for the Bronte Road property of $2.2 million having been provided by an affiliate of the Original General Partner (albeit not discovered until the subsequent closing of the sale of that property).
[184] It is the cumulative effect of the specific breaches, the multitude of related-party transactions, and the overarching lack of transparency and disclosure in this case that is alleged to constitute a sufficiently serious departure from the proper conduct or management of the affairs of the Limited Partnerships as of April 8, 2021 for the Tridelta Funds to have lost confidence in the Original General Partners.
[185] The Tridelta Funds clearly had, subjectively, lost their trust and confidence in the Original General Partners. However, that does not necessarily lead to a finding that the conduct of the Original General Partners lacked probity, good faith or was improper at a level that supports the removal of the Original General Partners.
[186] The difficulty is that, unlike in Zephyr, there is no specific evidence of use of partnership funds for personal expenses and there is no precedent for this finding simply based on an accumulation of other established defaults that do not involve conduct tantamount to fraud.[^8] The plaintiffs say that the only reason they do not have this proof is because the defendants resisted making disclosure at every turn. That may be so, but the court is reluctant to find a lack of probity, good faith or improper conduct based on an adverse inference, especially when it is not necessary because there is more than ample support for the court’s conclusion that the Special Resolutions were valid based on other established defaults.
(x) Funding of this Litigation with the Limited Partnerships’ Funds
[187] One of the stated breaches of duty in the Special Resolutions was that the General Partners had used the Limited Partnership's funds to fund their legal fight against the Tridelta Funds, contrary to Article 6.2 of the Limited Partnership Agreements dealing with the reimbursement of expenses. The plaintiffs have no direct evidence of this, although they question how the Original General Partners are funding their defence and counterclaim.
[188] It was suggested in closing that these concerns may be raised again when it comes time to deal with the costs of this action since there has been some indication from the defendants and plaintiffs by counterclaim that there is an outside source of funding for the litigation costs. However, this is no longer relied upon as one of the defaults in support of the Special Resolutions given the absence of evidentiary support.
(c) Are the Plaintiffs Estopped from Relying on the April 8, 2021 Special Resolutions?
[189] Even if the Capital Calls were not valid (so the Tridelta Funds were not in default) and even if the Original General Partners were in default of the Limited Partnership Agreements on at least some of the alleged grounds, the defendants argue that the plaintiffs are estopped from relying upon the April 8, 2021 Special Resolutions for the removal of the Original General Partners. This estoppel was not pleaded and is based on a discovery answer given about the April 8, 2021 Special Resolutions and the trial testimony of the Tridelta CEO Ted Rechtshaffen.
[190] On the first point, the discovery answer (from counsel) that was given was that it would not be the plaintiffs’ position at trial that the April 8, 2021 Special Resolutions had the effect of removing the Original General Partners as of April 8, 2021. Their position is that the Special Resolutions had the effect of removing the Original General Partners after the 30 day cure period expired (the first business day thereafter being May 10, 2021) and the defaults had not been cured. There is nothing inconsistent between the trial position and what was said on discovery.
[191] The defendants also seek to rely on Mr. Rechtshaffen’s response to a question in cross-examination when asked if it was the May 12, 2021 resolutions that removed the Original General Partners and he responded in the affirmative. This is a question for the court and not for Mr. Rechtshaffen. His response to this question does not preclude the court from concluding that the April 8, 2021 Special Resolutions were valid and giving them whatever legal effect that finding may have.
[192] The plaintiffs are not estopped from relying on the April 8, 2021 Special Resolutions. There was no promise or representation made by the plaintiffs that they would not do so, and no admission that the April 8, 2021 Special Resolutions would or would not have the effect of removing the Original General Partners if any of the established defaults remained 30 days after they were passed.
Did the Original General Partners Validly Repeal or Rescind the Special Resolutions by Their Own GP Resolutions on April 24, 2021
[193] The validity of the GP Resolutions is dependent upon the court finding in favour of the Original General Partners’ position that the Capital Calls were valid and the Tridelta Funds were in breach of their obligations for failing to provide the requested capital.
[194] For reasons outlined earlier in this decision, the court did not find in favour of this position of the Original General Partners and found that the Capital Calls were not validly made.
[195] Accordingly, the April 24, 2021 GP Resolutions were not validly made and the Special Resolutions were not repealed or rescinded.
Were the Original General Partners Validly Removed as such Effective on May 10, 2021 by Operation of Article 8.10 of the Limited Partnership Agreements?
[196] None of the defaults by the Original General Partners that the Court has found to have existed on April 8, 2021 when the Special Resolutions were passed were remedied within 30 days. As of May 8, 2021,
a. The Original General Partners still had not established that they created and maintained, nor had they provided, the complete books of accounts and records of the Limited Partnerships, including general ledgers and bank statements, in breach of Article 7.1;
b. UDEV still purported to be operating under unauthorized Management Agreements with the General Partners, contrary to Article 8.9;
c. The Original General Partners still had made no efforts to obtain reasonable outside financing to fund the obligations that were the subject of the Capital Calls, in breach of Article 4.3(i), nor had they taken any steps to secure an alternative banking relationship after RBC terminated the pre-existing relationship; and
d. The Original General Partners still had not provided any bank statements or other documents to trace and account for the use of the funds of the Limited Partnerships to establish that the funds have been used only for the benefit of the Limited Partnerships, in breach of Article 8.5 and the general duty of care.
[197] The Special Resolutions passed on April 8, 2021 resolved that (1) the Limited Partners had considered the defaults by the Original General Partners in the performance of their obligations under the Limited Partnership Agreements and authorized giving them written notice of such defaults pursuant to Article 8.10 of the Limited Partnership Agreement, and (2) that if any such defaults remained unremedied for a period in excess of thirty (30) days after written notice was given, the Original General Partners would be removed and the Tridelta General Partners would be appointed as substitute general partner.
[198] Under Article 8.10 of the Limited Partnership Agreements,
[T]he General Partner may be removed and a substitute general partner appointed by Special Resolution in the event of the default by the General Partner in the performance of its obligations under this Agreement, which default remains unremedied for a period in excess of thirty (30) days after the Limited Partners have given written notice of such default to the General Partner following passage of a Special Resolution to consider such default and authorize such notice.
[199] The Appointing Resolutions confirmed this.
[200] Accordingly, the Original General Partners were removed effective May 10, 2021 by virtue of the April 8, 2021 Special Resolutions and the May 12, 2021 Appointing Resolutions, by operation of Article 8.10 of the Limited Partnership Agreements.
Were the Tridelta General Partners Validly Appointed by the Appointing Resolutions on May 12,
[201] The validity of the appointments of the Tridelta General Partners under the May 12, 2021 Appointing Resolutions passed by the Tridelta Funds is dictated by the court’s findings that the April 8, 2021 Special Resolutions were valid and that defaults identified in those Special Resolutions remained uncured after 30 days. Given those findings, it follows that the May 12, 2021 Appointing Resolutions were valid.
Does the Court Have Any Discretion Not to Uphold and Confirm the Special Resolutions and Appointing Resolutions?
[202] The defendants ask the court to exercise its discretion not to affirm and uphold the Special Resolutions and Appointing Resolutions.
[203] As a threshold matter, the plaintiffs contend that the court does not have any discretion. Once the resolutions are found to have been validly made in accordance with the terms of the Limited Partnership Agreements, the plaintiffs say the court must uphold them without regard to any extraneous considerations. For this, they rely on various authorities, including Zephyr and Village Gate discussed earlier, as well as:
a. In Naramalta Development Corp v. Therapy General Partner Ltd., 2010 BCSC 590, 67 C.B.R. (5th) 298, the court considered a contested application relating to the removal of a general partner. The court recognized the outcome of the vote, concluding (at para. 115) that “the number of votes against [the former general partner] speaks for itself” and “an exercise of democracy ... ought to govern the outcome.” Moreover, the court held that “the last thing” that the court should do is override the vote and “force” the partners to take back the former general partner that they do not want to manage their investments.
b. In Neural Capital GP, LLC v. 1156062 BC Ltd., 2019 BCSC 2180, a limited partner sought the removal of a general partner for a default under an LPA, namely failure to attend meetings. The court indicated (at paras. 4–5) that its role was limited to assessing whether the limited partners had “validly passed an extraordinary resolution” and “whether [the limited partners] had duly satisfied the conditions precedent to the passing of such resolution” under the limited partnership agreement. See also Stone Graphic Publications v. Stone Graphics Inc., 1995 CanLII 685 (B.C.S.C.).
c. In oral closing submissions, reference was also made to the case of Rogers v. Rogers Communications Inc., 2021 BCSC 2184. In that case, the argument made (at para. 196) was that the relevant statute “recognizes and gives legal effect to the principle that if a sufficient majority of shareholders support a course of action, they should be able to act quickly and decisively without the expense and delay of a meeting. Neither the Board nor management should be able to interfere with the will of an overwhelming majority of a company’s shareholders.” The court went on (at para. 197) to state that: “I appreciate RCI’s concerns about this process being subject to the ‘whim’ of the RCT. However, the substantial majority of voting control held by the RCT is not a secret and I find it difficult to understand that any stakeholder could think otherwise and not appreciate that the RCT could, if it chose, exercise that voting control, if it saw fit.”
[204] Having found that the General Partners were in default and the voting requirements were met, the court should respect the outcome of the Special Resolutions.
[205] Even if the court did have the discretion not to do so, the arguments that the defendants have raised in favour of the court exercising such discretion are not compelling, for the reasons discussed below.
Alleged Bad Faith or Ulterior Motives of the Plaintiffs
[206] The first argument is one of bad faith: That the Tridelta Funds passed these resolutions for the improper purpose of facilitating their goal of exiting from their investments in the Limited Partnerships.
[207] As stated earlier in these reasons, the motives of the Tridelta Funds are not relevant to the exercise of their right to remove and replace the Original General Partners if validly executed as it was here.
[208] The defaults that the court has found to support the Special Resolutions were of the Original General Partners’ own making. The defendants suggest that some of the defaults were caused or created by Tridelta, such as the loss of the banking relationship and the Annual and Semi-Annual Reports and financial statements, but those were not relied upon by the court in the finding that the Special Resolutions were supported by other defaults.
The “Trip Wire” Defence
[209] The second argument is tied to what has been referred to by both parties as the “trip wire” defence. Mr. Tajbakhsh raised a concern that the removal and replacement of the Original General Partners was going to cause defaults under existing mortgages on the remaining Project properties which could lead to the loan repayment being accelerated. The court was asked to consider this prejudice and potential for detrimental financial consequences for the Project Companies and certain guarantors (at various times indicated to be the Original General Partners themselves and/or other affiliated companies) as a reason not to uphold the Special Resolutions and Appointing Resolutions. The defendants were unable to substantiate any of their allegations in respect of this “trip wire” defence, despite having been given the opportunity to do so during and even after the trial evidence had concluded on May 2, 2023.
[210] Two weeks after the trial concluded, Mr. Tajbakhsh recanted his evidence after having obtained the relevant mortgage documents and admitted that there was no guarantee from the Original General Partners. In fact, subsequently produced documents did not disclose the existence of any guarantees for the vendor take-back mortgage on 253 Queen Street East.[^9]
[211] The plaintiffs argue that Mr. Tajbakhsh’s inability to substantiate this defence undermines his credibility more generally. It certainly did not help his credibility, although this case has been decided based on the strength of the evidence presented and not on the basis that Mr. Tajbakhsh cannot be believed on any point of his testimony. The court was not persuaded of the existence of a potential “trip wire” based on Mr. Tajbakhsh’s testimony. His evidence on its own did not line up with other evidence and he was ultimately unable or unwilling to corroborate what he said with testimony from other witnesses (such as Mr. Jong) or with any contemporaneous documents.
Breakdown in Trust and Confidence is a Two-Way Street
[212] In the alternative, the defendants argue that even if the Special Resolutions removing the Original General Partners are confirmed and upheld, the court should not affirm the appointment of the Tridelta General Partners in their place. They argue that the irreparable breakdown in trust that Penny J. found existed in his reasons on the consolidation motion will give rise to all of the same problems if the Tridelta General Partners become fiduciaries to the Limited Partners, which include UDEV and the Original General Partners themselves.
[213] This was not pleaded and the plaintiffs initially objected to it on that basis. That is a problem for the defendants. However, the concern is not valid on its merits. The loss of trust and confidence in the Original General Partners is, insofar as this decision goes, a direct result of their defaults under the Limited Partnership Agreements, both historical and subsisting as of April 8, 2021. It does not follow that just because they breached their duties that the Tridelta General Partners will as well. The Tridelta General Partners have fiduciary duties and will be expected to fulfill them.
[214] The defendants argue that the Tridelta General Partners have admitted that they will breach their fiduciary duties to the Limited Partners because of their stated primary objective of protecting the Tridelta investors. There may be a problem if the parties to whom fiduciary duties are owed have conflicting interests. However, there is no reason to assume that those interests will be in conflict. If a conflict arises, the Tridelta General Partners may find themselves in a dilemma, but it is not for the court to presume that this will arise or how it will be handled.
[215] The Tridelta General Partners are on notice that they will be held to task by UDEV and the General Partners. If they have concerns about their ability to fulfill their duties to both the Limited Partners and their own public investors then they may be well advised to consider addressing this before it becomes a problem. That will be a matter for the Tridelta General Partners and/or the Limited Partners to decide.
Counterclaims
[216] The counterclaim for damages relating to the amounts claimed to be owing up to the date of the UDEV Demands under the Management Agreements entered into with the Original General Partners cannot succeed having regard to the court’s earlier findings in this decision about these agreements. The plaintiffs were not party to and did not authorize or approve those agreements. UDEV is not an innocent third party without notice of the requirement for a special resolution of the Limited Partners. The rights and obligations between UDEV and the Original General Partners under the Management Agreements are not the subject of this proceeding. Nor have the Original General Partners established that that they have incurred any costs or expenses for which they are entitled to compensation under the terms of Articles 6.2 or 8.7 of the Limited Partnership Agreements.
[217] In the absence of any accounting of the funds out of the RBC bank accounts of the Original General Partners, including the $4.8 million, and because of the refusal to provide any accounting or disclosure from UDEV or to disclose which affiliate of the Original General Partners the funds were transferred to, the court has no way of ascertaining whether UDEV received any of those funds and, if so, in what capacity and for what purpose. UDEV has not provided sufficient particulars of what it claims to have done for the Limited Partnerships under the Management Agreements (as distinct from what it may have done for the Project Companies under the Project Development Agreements, for example). There is not enough evidence to make out a claim that the Limited Partners have been unjustly enriched. Even if there were evidence of unjust enrichment, it would then have to be shown to have benefited the plaintiffs as well for this counterclaim to succeed. None of the elements of the unjust enrichment claims against the plaintiffs have been proven on a balance of probabilities. See Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at paras. 36–45.
[218] The validity of the Management Termination Resolutions issued by the Tridelta Funds depends upon proof of the alleged defaults by UDEV under the Management Agreements. This might have been relevant to the counterclaim if there had been a claim for continued payment of the annual fees under those Management Agreements, but the counterclaim is only for the fees that were the subject of the UDEV Demands made prior to the Management Termination Resolutions. That said, for all intents and purposes, UDEV has not continued to act as the manager of the Limited Partnerships since then. The Management Agreements are de facto at an end, irrespective of whether the Management Termination Resolutions were justified on the basis of the alleged defaults at the time or not.
[219] The counterclaims for defamation have not been proven.
[220] The assertion that the plaintiffs were responsible for the Anonymous Package sent to RBC has not been proven.
[221] The Declaration Form 3 filings made by the Tridelta General Partners with the Ministry regarding the termination and replacement of the general partners of the Limited Partnerships were not defamatory. They were an accurate reflection of the resolutions that had been passed by the Limited Partners and now affirmed and upheld by this court.
[222] No emphasis was placed during the trial or closing submissions on the allegation that defamatory statements were made by the plaintiffs to Cushman & Wakefield when communicating with them about the sale of the Bronte Road property that the plaintiffs objected to. In any event, those statements did nothing more than set out the plaintiffs’ position in this proceeding and that does not amount to defamation.
[223] The counterclaims are dismissed.
Final Disposition and Costs
[224] For the foregoing reasons, the relief sought by the plaintiffs is granted and the counterclaims are dismissed.
[225] Specifically, this court makes the following orders:
a. declaring that Tridelta General Partners were appointed as the general partners of the Limited Partnerships, respectively, as of May 10, 2021 pursuant to Special Resolutions duly and validly passed under the provisions of the Limited Partnership Agreements by the Limited Partners (the Tridelta Funds) on April 8 and May 12, 2021;
b. declaring that the Original General Partners were removed as the general partners of the Limited Partnerships, respectively, as of May 10, 2021;
c. declaring that the Original General Partners ceased to have any rights in connection with the Limited Partnerships as of May 10, 2021;
d. directing the Original General Partners to deliver all of the books, records, accounts, and assets of the Limited Partnerships to the Tridelta General Partners;
e. directing the Original General Partners to cease representing and asserting to counter-parties of the Limited Partnerships and other third parties that they continue to act as general partners of the Limited Partnerships;
f. directing the Original General Partners to provide an accounting of any payments or funds that they have received from the Limited Partnerships after April 8, 2021;
g. declaring that the Capital Calls issued by the Original General Partners are invalid and therefore the Tridelta Funds are not Defaulting Limited Partners under the Limited Partnership Agreements;
h. declaring that the GP Resolutions issued by the Original General Partners, which purport to repeal the Special Resolutions, are invalid; and
i. declaring that the Management Agreements between the General Partners and UDEV were not duly authorized and, in any event, whatever management services UDEV was providing to the Limited Partnerships came to an end as of May 10, 2021 when the Original General Partners were replaced and UDEV ceased providing management services.
[226] The court did not hear submissions about the plaintiffs’ request for an order directing the Original General Partners to return any payments or funds that they have received from the Limited Partnerships after May 10, 2021, or, in the alternative, an order for damages equivalent to any such amounts paid and received. If the accounting (which has been ordered, above) for any such payments or funds received by the Original General Partners from the Limited Partnerships after May 10, 2021 does not satisfactorily demonstrate those receipts to be reimbursements for costs and expenses incurred on behalf of and for the benefit of the Limited Partnerships, or if they are challenged for any other reason, then the parties shall arrange a case conference before me (of no less than one hour) to address any issues arising from the accounting that has been ordered.
[227] The parties asked to make submissions on costs after the outcome of the trial was known. They agreed to exchange their bills of costs by July 27, 2023, and the court assumes they have done so. Now that the outcome is known, the court asks that the parties try to reach an agreement on costs by October 16, 2023, failing which a case conference (of a minimum of 30 minutes) may be scheduled with me through the Commercial List Scheduling office. At the case conference, further directions will be provided regarding the timing and form of any cost submissions that the court may permit the parties to make. If any issues other than costs are expected to be addressed at the case conference, additional time should be booked.
[228]
[229] This decision and the orders and directions contained in it shall have the immediate effect of a court order without the necessity of a formal order being taken out. If any party wishes to take out a formal order, they may do so by following the procedure under r. 59.
Kimmel J.
Released: September 18, 2023
Developments GP Inc., 2023 ONSC 5099
COURT FILE NO.: CV-21-00663825-00CL
DATE: 20230918
ONTARIO
SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)
BETWEEN:
TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCED FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC., 2830068 ONTARIO INC., GTA-MIXED USE DEVELOPMENTS L.P., MIXED-USE DEVELOPMENTS (ONTARIO) L.P., and WASAGA DEVELOPMENTS AND INFRASTRUCTURE 2021 L.P.
Plaintiffs
Plaintiffs
– and –
GTA MIXED-USE DEVELOPMENTS GP INC., MIXED-USE DEVELOPMENTS (ONTARIO) GP INC., WASAGA DEVELOPMENTS AND
INFRASTRUCTURE GP INC. and
U DEVELOPMENTS INC.
Defendants
(Plaintiffs by Counterclaim)
Defendants (Plaintiffs by Counterclaim)
– and –
TRIDELTA INVESTMENT COUNSEL INC., TRIDELTA FIXED INCOME FUND, TRIDELTA HIGH INCOME BALANCE FUND, 2830063 ONTARIO INC., 2830064 ONTARIO INC. and 2830068 ONTARIO INC.
(Defendants by Counterclaim)
TRIAL REASONS FOR JUDGMENT
Kimmel J.
Released: September 18, 2023
[^1]: 320 Bronte Road Inc. sold its property in December 2021 and is currently in the process of winding-up its operations. To date, there has been no accounting or distribution of the net proceeds of this sale. [^2]: The plaintiffs contend that the Original General Partners have not accounted for $4.8 million of the total amounts advanced by the Tridelta Funds to the Limited Partnerships. This $4.8 million was not invested by the Limited Partnerships in the acquisition of special shares in the Project Companies, those investments having totaled only approximately $20.7 million. The Limited Partnerships’ financial statements showed $4.8 million in cash in 2017 but not in later years. The allegedly “unaccounted for” $4.8 million was the subject of an interim ruling during the trial which permitted the plaintiffs to make reference to it only in relation to the alleged defaults of the Original General Partners that were relied upon in connection with the Special Resolutions when they were passed, and not as an independent new default. [^3]: The plaintiffs also allege that UDEV is in breach of its obligations under the Management Agreements which, in addition to disentitling it to the amounts claimed by it in the counterclaim, would be a further ground for finding that the Capital Calls based on the UDEV Demands were not valid. This challenge is addressed in connection with the discussion later in these reasons regarding the validity of the Management Termination Resolutions, which ultimately is not being decided at this time. [^4]: This chart was also part of their opening submissions at the trial and was marked for identification purposes as Trial Exhibit F. [^5]: The 2018 financial statements of the Original General Partners indicate that they purchased short-term investments of approximately $1 million in total, in their own names. [^6]: The 2019 financial statements of the Original General Partners indicate that they loaned approximately $1.1 million in the aggregate to an affiliate. [^7]: This earlier case involved different investments made by Mr. Jong on behalf of Tridelta before he was terminated. [^8]: That is not to say that the law could not be extended to cover such circumstances, but it is not necessary to do so for the plaintiffs to succeed in this case. [^9]: This was addressed in a stipulation and documents produced before the closing arguments that were marked as trial exhibits.