Court File and Parties

COURT FILE NO.: CV-23-706709-00CL DATE: 20240410 SUPERIOR COURT OF JUSTICE – ONTARIO COMMERCIAL LIST

RE: GREG ANTHONY, GLEN ANTHONY, 2309138 ONTARIO INC., ANNE ANTHONY, JOHN ANTHONY and GARY ANTHONY Applicants

AND:

BINSCARTH HOLDINGS GP INC., BINSCARTH HOLDINGS L.P. and GRANT ANTHONY Respondents

BEFORE: Wilton-Siegel J.

COUNSEL: Mark Wainberg, for the Applicants Eric Brousseau & Gordon Vance, for the Respondents

HEARD: January 17, 2024

Reasons for Judgment

[1] In this Application, the Applicants seek a declaration that that they are entitled to receive from Binscarth Holdings L.P. (the “Partnership”) payment of 100% of the Applicants’ proportionate share of the net income of the Partnership on an annual basis by way of a cash distribution, retroactive to January 1, 2016. In the alternative, the Applicants seek a declaration that they are entitled to a cash distribution in the amount of 53.53% of their proportionate share of the net income of the Partnership on an annual basis, retroactive to that date.

Background

[2] The Applicants are each limited partners of the Partnership.

[3] The Applicants are children of Frank Anthony (“Frank”) and Jine Anthony (“Jine”). Frank and Jine had nine natural-born children and three adopted children. Two of the children are deceased and two others were removed as beneficiaries prior to 2011.

[4] The Partnership was established as a limited partnership by Frank and Jine in December 2011. At present, there are 19 entities with interests in the Partnership. This includes children, grandchildren and corporations controlled by those children and grandchildren.

[5] The general partner of the Partnership is Binscarth Holdings GP Inc. (“Binscarth Inc.”), an Ontario corporation.

[6] All of the shares of Binscarth Inc. are owned by the Anthony Control Trust (the “Trust”). The Trust was established by Frank and Jine on December 23, 2011. The beneficiaries of the Trust pursuant to the Deed of Trust are the nine children of Frank and Jine and any issue of them or of the late Garth Anthony. The Applicants are included within the class of beneficiaries. The only assets of the Trust are the shares of Binscarth Inc.

[7] Article 21 of the Deed of Trust contains the following provisions regarding the purpose of the Trust:

21. The Purpose of the Trust is to create a means for holding the shares of Binscarth Holdings GP Inc., which shares represent the indirect control of Binscarth Holdings L.P. and the underlying real estate of such partnership, for the benefit of the Beneficiaries. The Trustees may, in accordance with the terms of this Deed, dispose of any or all of the shares of Binscarth Holdings GP Inc., if in their opinion such disposition is in the best interests of the Beneficiaries. The Trustees, however, shall not be compelled by any Beneficiary or by any court to dispose of any of such shares because of their yield or the lack of diversification in the Trust Fund or for any other reason whatsoever.

[8] The initial trustees of the Trust were Frank, Jine and Grant Anthony (“Grant”), a son of Frank and Jine and brother of the Applicants. By virtue of his position as the sole remaining trustee of the Trust, Grant is the sole director and officer of Binscarth Inc. Accordingly, Grant is also the directing mind of the Partnership. In these Reasons for Judgment, Grant, Binscarth Inc. and the Partnership are collectively referred to as the “Respondents”.

[9] Frank and Jine established the Partnership to acquire and hold three properties owned by them. Grant was not involved in the formation of the Trust, the Partnership or 186 Ontario (defined below). Between 2011 and 2014, when Frank died, Frank controlled the Partnership. Thereafter, Grant became actively involved, although Jine was also involved until her death in March 2018. Since then, Grant has controlled the Partnership.

[10] The Partnership is governed by a limited partnership agreement dated December 14, 2011 as amended in January 2012 and September 2020 (collectively, the “LPA”). The current limited partnership agreement is the Second Amended and Restated Limited Partnership Agreement dated September 4, 2020. The parties have advised that there have been no changes of relevance for this proceeding since the First Amended and Restated Limited Partnership Agreement dated January 1, 2012.

[11] At the time of the formation of the Partnership, all of the assets of a prior Anthony family trust, the Anthony Family (2009) Trust, were contributed to the Partnership in return for limited partnership interests. The limited partnership interests held by the Anthony Family (2009) Trust were subsequently transferred by the Anthony Family (2009) Trust, by way of capital distributions, to certain beneficiaries of the Anthony Family (2009) Trust upon the agreement of the beneficiaries to become limited partners of the Partnership subject to the terms of the LPA.

[12] In this regard, in or around December 12, 2011, all of the Applicants, or the shareholders of 2309138 Ontario Inc. in the case of that corporation, received independent legal advice regarding the transaction by which the Partnership acquired the assets of the Anthony Family (2009) Trust and the wind-up and distribution of the assets of the Anthony Family (2009) Trust, and regarding their rights, obligations and liabilities pursuant to the LPA. Certificates of independent legal advice (collectively, the “Certificates of Independent Legal Advice”) signed by the appliable solicitor and each of the Applicants were provided by each of the Applicants to Binscarth Inc., among others.

[13] 1862438 Ontario Inc. (“186 Ontario”) is an Ontario corporation of which Grant is the sole director, officer and shareholder. It provides management services to the Partnership pursuant to a management agreement dated January 1, 2012.

[14] As of December 31, 2022, the total amount of the capital accounts of all of the limited partners of the Partnership, as reflected in the financial statements of the Partnership, was $103,670,356, of which the Applicants’ share was $45,588,004.

Applicable Provisions of the LPA

[15] The following provisions of the LPA are relevant for the issues on this Application.

[16] Article 3.1 sets out the purpose of the LPA as follows:

The Partnership has been formed for the purpose of holding and managing all of the assets of the Family Trust, to make and manage Eligible Investments, to dispose of such assets and Eligible Investments and to engage in all activities related thereto.

[17] For this purpose, “Eligible Investments” is defined in Article 1.1 to be:

… any investments in real estate in Canada, the United States of America, the United Kingdom, Australia and Brazil, including (i) investments in businesses that include, as a material asset of the business, the ownership of real estate and (ii) the financing of real estate transactions by other persons, and such other specific assets as are contributed to the Partnership by the Initial Limited Partner.

[18] Articles 4.1 and 4.2 address future investments of the Partnership:

4.1 Subject to Section 4.2 hereof, the General Partner shall have the exclusive authority to cause the Partnership to make Eligible Investments and Temporary Investments.

4.2 Without the consent of the Limited Partners, given by Special Resolution, the Partnership shall not make investments other than Eligible Investments and Temporary Investments.

[19] Article 5 addresses the capital of the Partnership, of which the following provisions are relevant:

5.1 The Interest of each of the Limited Partners shall be as set forth in Schedule “A” hereto. In the event that any Limited Partner transfers any or all of his, her or its Interest in accordance with this Agreement, Schedule “A” hereto shall be updated by the General Partner to reflect such adjustments and the General Partner shall notify each Limited Partner of each adjustment on no less than an annual basis.

5.2 No Limited Partner shall have the right to withdraw, or call for the withdrawal of, any or all of its capital or to receive any distribution from the Partnership, except as expressly provided in this Agreement.

5.3 No interest shall be paid to any Partner on any amount that it has contributed to the Partnership or any other amount, except as expressly provided in this Agreement.

5.4 Except as otherwise described in Section 12.2 or as required by law, no Partner shall be obligated to contribute capital to the Partnership following the initial contribution of assets by the Initial Limited Partner; provided, however, that a Partner shall be permitted to contribute capital to the Partnership, which capital shall be reflected in such Partner’s capital account. For the avoidance of doubt, such capital contributions, if any, shall have no effect on such Partner’s Percentage Interest.

[20] Article 6.1 addresses the interests of the limited partners in the Partnership:

6.1(a) The rights, obligations and interest of the Limited Partners in the Partnership shall be represented by “Interests”. Each Interest of a Limited Partner represents a share of the aggregate Interest of all the Limited Partners (in their capacities as such) in the Partnership as determined pursuant to this Agreement. The Limited Partners shall have the right to receive distributions in respect of their Interests only as expressly provided for in this Agreement.

6.1(b) Subject to the provisions of the Act, and except as otherwise provided herein, each Limited Partner shall be entitled to the same rights and be subject to the same obligations as any other Limited Partner and no Limited Partner shall be entitled to any privilege, priority or preference in relation to any other Limited Partner.

[21] Article 7 addresses the capital accounts of each limited partner as follows:

7.1(a) An individual capital account (a “Capital Account”) shall be maintained for each Limited Partner and the General Partner shall, on receipt of an amount in respect of a capital contribution by a Limited Partner, credit the Capital Account of such Limited Partner with such amount. The General Partner shall also credit to the Capital Account of each Limited Partner the amount of all Net Income allocated to such Limited Partner and shall debit the Capital Account of such Limited Partner with the amount of all Net Losses allocated to such Limited Partner and the amount of any funds and the fair market value of any assets distributed from time to time by the Partnership to such Limited Partner. A Limited Partner’s interest in the Partnership shall not terminate by reason of there being a negative or nil balance in the Limited Partner’s Capital Account. No Limited Partner shall be responsible for any losses of any other Partner, nor share in the income or, if applicable, allocation of tax deductible expenses attributable to any other Limited Partner. No Limited Partner shall be entitled to withdraw any part of its original capital contribution, if any, or to receive any distribution except as provided in this Agreement and except as permitted by law.

7.2 No Limited Partner shall be entitled to interest on the amount of its capital contribution, if any, to the Partnership.

7.3 The income and capital gains of the Partnership for tax purposes for a Fiscal Year shall be allocated by the General Partner, acting reasonably, to the Partners in a manner consistent with the distributions made in respect thereof pursuant to Article 8, whether or not the recipient is a Partner of the Partnership at the end of the Fiscal Year. Any loss or capital loss of the Partnership for tax purposes for a Fiscal Year shall be allocated to the Partners on the basis such loss has been determined by the General Partner, acting reasonably, to have been borne by them.

7.4 Each Partner shall prepare and file such documents as may be required to be prepared and filed under the Tax Act and other similar legislation to which the Partner may be subject and shall include in its computation of income the income or loss of the Partnership for tax purposes as may be determined and allocated to it pursuant to this Article 7.

[22] Article 8 addresses distributions by the Partnership. It includes the following provisions respecting discretionary distributions and distributions to cover the tax liabilities of the limited partners arising on the allocation of the income and capital gains of the Partnership to them pursuant to Article 7.3:

8.1(a) The General Partner may cause the Partnership to make distributions of cash, assets and securities to the Limited Partners on an annual basis at any time and from time to time in the General Partner’s sole discretion (a “Discretionary Distribution”).

8.1(b) In addition to the Discretionary Distributions set out at Section 8.1(a), in the event Partnership income allocated to a Limited Partner pursuant to Article 7 hereof in a calendar year exceeds the amount of Discretionary Distributions received by such Limited Partner in such calendar year, then in the following calendar year the General Partner shall cause the Partnership to make distributions of cash to the Limited Partners in an amount needed to provide such Limited Partners with sufficient funds to pay taxes payable by such Limited Partners on the amount by which Partnership income allocated to such Limited Partner exceeds the amount of Discretionary Distributions received by such Limited Partner. Such distribution shall be made by April 25 of each year in respect of the taxes payable for the prior calendar year. The taxes payable by such Limited Partners shall be calculated by the General Partner in its sole discretion by assuming the applicability of the highest combined effective marginal federal and provincial income tax rates applicable to an individual resident in the Province of Ontario, Canada.

[23] The powers of Binscarth Inc., as the general partner of the Partnership, are set out in Article 10. The following provisions, together with the provisions of Article 8.1(a), demonstrate that the LPA gives Binscarth Inc. the power to manage and to make all decisions of the Partnership regarding, among other things, cash distributions and the acquisition of new properties:

(a) to enter into, perform and carry out contracts of any kind necessary to, in connection with, or incidental to the accomplishment of the purposes of the Partnership, including the Management Agreement, or any successor agreement thereto, …

(b) to manage the Partnership on a day-to-day basis, …;

(c) to make all decisions and to execute and carry out all agreements on behalf of the Partnership involving matters or transactions in furtherance of, in connection with or ancillary to the activities of the Partnership;

(f) to borrow money, to provide guarantees and to grant mortgages, pledges, charges, assignments, hypothecs, and any other kinds of security interests in any or all of the assets (including real property) or undertaking of the Partnership, including for the purpose of paying Partnership Expenses and the Management Fee; …

(j) to make or incur and to pay expenses on behalf of the Partnership as it considers appropriate;

(k) to pay all debts, liabilities and obligations owed by the Partnership;

(l) to decide in its sole and absolute discretion, but subject to Article 8, any time when assets of the Partnership shall be distributed to the Partners and the amount of any such distribution;

(m) to manage, administer, conserve, develop, operate, exchange and dispose of any and all properties or assets of the Partnership, and in general to engage in any and all phases of activities of the Partnership;

(t) to enter into any other agreement contemplated by this Agreement; and

(u) generally to perform all such other acts it considers necessary or desirable in connection with the activities and affairs of the Partnership or to carry out the intent and purpose of this Agreement.

The Issues in this Proceeding

[24] In accordance with the LPA, the Partnership maintains a capital account for each limited partner pursuant to Article 7.1(a) of the LPA. The capital accounts aggregate: (1) each limited partner’s initial capital contribution, which arose in 2011 when the Partnership was formed and the Anthony Family (2009) Trust was wound up; (2) a subsequent capital contribution allocated to each limited partner on the sale of a property at 61 Binscarth Road (the “Home”) to the Partnership; and (3) the net income allocated to each limited partner annually; less (4) distributions including distributions made to each limited partner annually to cover tax liabilities, as discussed below.

[25] Since the inception of the Partnership, all of the net income (as defined in the LPA) of the Partnership has been credited annually to the capital accounts of the limited partners pursuant to Article 7.1(a) of the LPA and the income and capital gains of the Partnership for tax purposes have been allocated to the limited partners of the Partnership pursuant to Article 7.3.

[26] However, with one exception, there have been no distributions to the limited partners apart from the annual distributions made pursuant to Article 8.1(b) to enable the limited partners to pay the income tax payable in respect of the income of the Partnership allocated to them pursuant to Article 7.3.

[27] The Applicants seek alternative relief as follows:

1. A declaration that they are entitled to receive from the Partnership 100% of their proportionate shares of the net income (including capital gains) of the Partnership on an annual basis, retroactive to January 1, 2016, in lieu of accruals to their capital accounts with the Partnership, notwithstanding Articles 5.2, 7.1(a) and 8.1(b) of the LPA; or

2. A declaration that the words in Article 8.1(b) of the Partnership - “the highest combined effective marginal federal and provincial income tax rates applicable to an individual resident in the Province of Ontario, Canada” - mean “53.53%” for the years 2016 to 2023; and a declaration that the Applicants are entitled to receive payment of 53.53% of their proportionate shares of the net income (including capital gains) of the Partnership on an annual basis, retroactive to January 1, 2016.

Analysis and Conclusions

[28] The Applicants’ principal argument, which is the basis for the first form of relief sought, is that Binscarth Inc., as the general partner of the Partnership, is required, on an annual basis, to distribute all of the net income of the Partnership to the limited partners. They base this argument on the provisions of s. 11(1) of the Limited Partnerships Act, R.S.O. 1990, c. L.16 (the “Act”). The Applicants also argue that the provisions of s. 1(1) of the Accumulations Act, R.S.O. 1990, c.A-5 supports such relief. The Applicants further argue that Article 8.1(b) of the LPA supports the second, alternative form of relief sought on this Application. I will address each of these arguments after first considering certain preliminary objections raised by the Respondents.

Preliminary Objections of the Respondents

[29] The Respondents argue that this Application should be dismissed in its entirety on a number of different grounds which I will address in turn.

[30] First, the Respondents argue that the doctrine of estoppel by representation applies. The Respondents argue that they have acted on a representation of acceptance of the terms of the LPA, implied by the Applicants’ execution of the Certificates of Independent Legal Advice and their execution of the LPA. The existence of any alleged implied representation is related to the issue of whether the Applicants have waived their rights which is addressed below. For present purposes, however, there is no demonstration of any detriment to the Respondents as a result of any such alleged implied representation. In the absence of any such detriment, the Respondents cannot rely on this doctrine.

[31] Second, the Respondents argue that the doctrine of estoppel by convention applies. They argue that all of the parties have conducted themselves in accordance with, and in reliance on, a shared assumption of fact or law that the LPA complies with the Act and that it would govern the parties’ relationship.

[32] The existence of any shared assumption is also related to the issue of whether the Applicants have waived their rights. For present purposes, however, I do not think that the Respondents have established that it would be unjust or unfair to permit a subset of the limited partners to resile from the alleged shared assumption. I note that, apart from Grant, none of the other limited partners opposes the Application; they have not appeared in this proceeding. Nor is there any evidence that Binscarth Inc. would be prejudiced or that Grant would be prejudiced, in his capacity as a limited partner, by any such action. While it would appear that Grant might be prejudiced insofar as the management fee payable to the manager, 1862438 Ontario Inc., would be reduced, that corporation is not a party to these proceedings. Accordingly, the Respondents also cannot rely on this doctrine.

[33] Third, the Respondents argue that the doctrine of laches is a defence to the Application. Whether or not the delay in bringing the Application was reasonable, however, the Respondents have failed to demonstrate any prejudice that has resulted from the alleged delay. There is no evidence that somehow “disassembling” the Partnership today will entail prejudice that would have been avoided if the LPA had not been signed in 2011 or if the Application had been brought at that time, as the Respondents argue. If it had not been to the advantage of the limited partners including Grant to grow the original assets in the Partnership rather than distributing the profits, I am certain that Grant would have caused the Partnership to distribute its net income annually through his control of Binscarth Inc. Accordingly, this argument based on laches is also denied.

[34] Fourth, the Respondents submit that this Application is statute-barred under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched B and is not saved by s. 16(1)(a) as the relief sought includes consequential relief. They also argue that the Applicants have waived their right to assert their claims in this Application. As the application of the Limitations Act, 2002 and the doctrine of waiver differ depending upon the particular claims of the Applicants, I will address these arguments below.

The Argument Based on s. 11(1) of the Limited Partnerships Act

[35] The Applicants’ principal argument is that s.11(1) of the Act requires that the Partnership distribute the profits of the Partnership in each year in their entirety to the limited partners. I will address this argument after first addressing the Respondents’ arguments that this claim is barred by the provisions of the Limitations Act, 2002 and/or the application of the doctrine of waiver.

The Limitations Act and Waiver Issues

[36] As mentioned, the Respondents submit that this Application is statute-barred under s. 4 of the Limitations Act, 2002. They say the Respondents had knowledge of all the relevant facts upon which they base their claim in December 2011 when they signed the Certificates of Independent Legal Advice and the LPA. They suggest that the Applicants needed no further information in order to assert this claim. As a related matter, the Respondents also argue that each of the limited partners waived their rights to challenge the legality of the LPA by signing the Certificates of Independent Legal Advice and acceding to the LPA.

[37] The Applicants say effectively that they did not realize that the provisions of Article 7.1(a) of the LPA contravened the Act until they became aware of the fact that Binscarth Inc. had limited cash distributions to the limited partners to the amounts required to be distributed under Article 8.1(b) of the LPA. They say that their understanding of this practice prompted their review of the provisions of the LPA which, in turn, lead to the discovery of their claim.

[38] Insofar as the Applicants’ argument based on their interpretation of s.11(1) of the Act is that the provisions of the LPA are in conflict with the Act, I agree with the Respondents that the Applicants’ claim is barred by s. 4 of the Limitations Act, 2002 and that the Respondents waived their right to assert this claim in executing the Certificates of Independent Legal Advice and acceding to the LPA.

[39] In 2011 or 2012 at the time that they executed the LPA, the Applicants had before them both a copy of the LPA and the Act. In addition, they had the benefit of independent legal advice. Accordingly, they had all of the information necessary to assert their claim that the provisions of the LPA contravened s.11(1) of the Act as they interpreted it. It was not necessary to know that Binscarth Inc. was not distributing, or would not be distributing, the net profits of the Partnership to assert such claim. For the purpose of s. 5(1)(a) of the Limitations Act, 2002, on the basis of the Applicants’ interpretation of s.11(1) of the Act, the injury, loss or damage suffered by the Applicants took the form of a deprivation of a right pursuant to the LPA to an annual distribution of the profits of the Partnership. On this basis, the injury, loss or damage occurred upon the Applicants’ accession to the LPA.

[40] However, as discussed below, the Applicants’ alternative version of this argument is that the LPA fails to include a specific provision mandating the distribution of profits. This version of the Applicant’s claim is based on the actions of Binscarth Inc., as general partner. Because Binscarth Inc. could have distributed all of the net income of the Partnership even in the absence of any provision mandating such a distribution policy, this version of the Applicants’ claim could only arise upon knowledge of the distribution practice of the general partner. As is discussed in detail below, this did not occur until after the order of Koehnen J. dated December 14, 2020 (the “Koehnen Order”) which mandated the provision of copies of the Partnership financial statements to the limited partners.

[41] As the Application was commenced on April 22, 2022, that is, within the two-year limited period in s.4 running from the date of the Koehnen Order, I conclude that this version of the Applicants’ claim is respect of the application of s. 11(1) of the Act is not statute-barred. For the same reason, I conclude that the respondents did not waive their right to assert this version of their claim in executing the Certificates of Independent Legal Advice and acceding to the LPA.

[42] Given the foregoing, I conclude that the Applicants’ cause of action based on s.11(1) of the Act is not statue-barred nor was it waived for the reason that the Applicants did not have full knowledge of their right to assert this claim until they began receiving the Partnership’s financial statements. In any event, however, the issue would appear to be moot in view of the conclusion below regarding the merits of the Applicants’ claim based on this provision of the Act.

The Applicants’ Argument Based on s. 11(1) of the Act

[43] The Respondents note that nothing in the LPA mandates any distribution of the net profits of the Partnership other than the distributions required in Article 8.1(b) and that, to the contrary, subject to the requirements in Article 8.1(b), the LPA gives Binscarth Inc. absolute discretion to determine if, when, and in what amount distributions shall be made to the limited partners.

[44] The Applicants do not dispute that the LPA operates in the manner described by the Respondents. They say, however, that such provisions contravene s. 11(1) of the Act. They say that “any provisions of the [LPA] which disentitle the limited partners to receive (or which leave it to the discretion of [Binscarth Inc., as the general partner,] to pay or not to pay) their proportionate shares of the profits of the Partnership, are superseded by the provisions of the Act and are of no effect to the extent that they conflict with the Act.”

[45] Section 11(1) of the Act provides as follows:

11 (1) A limited partner has, subject to this Act, the right,

(a) to a share of the profits or other compensation by way of income; and

(b) to have the limited partner’s contribution to the limited partnership returned.

[46] The Applicants’ position is based on their interpretation of the words “[a] limited partner has … the right ... to a share of the profits…”. The Applicants suggest that these words are synonymous with “[a] limited partner has, …the right ... to a distribution of the limited partner’s share of the profits…”.

[47] I do not agree with this interpretation of s. 11(1) of the Act. In my view, s.11(1) mandates only that any profits be credited to the limited partners’ capital accounts. It does not require a cash distribution of those profits as the Applicants suggest. Accordingly, I am of the view that the LPA does not contravene the Act. This conclusion is based on the following considerations.

[48] First, s. 11(1) of the Act provides only that a limited partner has a right to a share of the profits. This requirement that a limited partner receive the limited partner’s share of the profits is fully satisfied by crediting the limited partner’s share of net income to the limited partner’s capital account.

[49] Second, where distributions are contemplated under the Act, the Act specifically refers to payments to limited partners. In particular, section 11(2) of the Act specifically addresses payments of a limited partner’s share of the profits. The language of “payment” is entirely absent from s. 11(1).

[50] Third, in s. 24, the Act contemplates the existence of accumulated profits in the capital accounts of limited partners at the time of dissolution of a limited partnership. There is no basis for the Applicants’ restricted reading of this provision to profits earned during the stub period since the last fiscal year end of the Partnership.

[51] Fourth, the Applicants’ interpretation of s.11(1) of the Act is in direct conflict with, and fails to take into consideration, the provisions of Article 10(l) and 8.1(a) of the LPA cited above. Those provisions expressly grant Binscarth Inc., as general partner, the absolute discretion to determine when, and in what amount, any assets of the Partnership shall be distributed.

[52] Fifth, the Applicants’ position also contradicts the provisions of the LPA which contemplate further investment of the Partnership. Such investment would not be possible if all income of the Partnership were required to be distributed annually.

[53] Sixth, as the Applicants note in parenthesis in expressing their position, their alternative version of this argument is not that the LPA is in direct conflict with the Act but rather that it fails to include a specific provision mandating the distribution of profits that the Applicants implicitly consider necessary to comply with the Act. However, if it had been the intention of the Legislature to require that limited partnerships governed by the Act include a specific provision in the limited partnership agreement by which they are formed, the Act would have made such a requirement express. It would not have left such a requirement to be implied. There is however no such requirement in the Act.

[54] Lastly, the Applicants are unable to provide any case law that supports their interpretation of s. 11(1) of the Act. The Applicants rely on the dicta of Nordheimer J. in Canadian Home Publishers Inc. v. Parker, 2019 ONCA 314, at para. 25. However, that statement does no more than restate the provisions of s. 11(1). It does not address distributions of the annual profits of a limited partnership. Nor is that decision directed in any manner to such distributions.

[55] I note that, in connection with this submission, the Applicants suggest that the scheme of the Act indicates an intention on the part of the Legislature to prohibit contracting out of the provisions of the Act. While I do not agree with this blanket assertion, it is not necessary to address this argument given the conclusion above that the LPA does not contravene, or is otherwise in conflict with, the Act.

The Argument Based on s. 1 of the Accumulations Act

[56] The Applicants’ second submission is that the withholding of income from the limited partners violates s. 1(1) of the Accumulations Act.

[57] Section 1(1) of the Accumulations Act provides as follows:

1 (1) No disposition of any real or personal property shall direct the income thereof to be wholly or partially accumulated for any longer than one of the following terms:

1. The life of the grantor.

2. Twenty-one years from the date of making an inter vivos disposition.

3. The duration of the minority or respective minorities of any person or persons living or conceived but not born at the date of making an inter vivos disposition.

4. Twenty-one years from the death of the grantor, settlor or testator.

5. The duration of the minority or respective minorities of any person or persons living or conceived but not born at the death of the grantor, settlor or testator.

6. The duration of the minority or respective minorities of any person or persons who, under the instrument directing the accumulations, would, for the time being, if of full age, be entitled to the income directed to be accumulated.

[58] Section 1(2) of the Accumulations Act provides that “[t]he restrictions imposed by subsection (1) apply in relation to a power to accumulate income whether or not there is a duty to exercise that power…” In addition, section 1(3) of the statute provides that “[t]he restrictions imposed by subsection (1) apply to every disposition of real or personal property …”

[59] The Applicants argue that the effect of Articles 7.1(a), 8.1(a) and 8.1(b) of the LPA is that “they purport to authorize the Partnership to accumulate income for an unspecified period of time which could exceed all six of the accumulation periods authorized by s. 1(1).” They suggest that, where an accumulation is directed that is contrary to the Accumulations Act, such direction is null and void and the income from the property so directed to be accumulated shall go to the persons who would have been entitled thereto if the accumulation had not been so directed, which they say are the limited partners of the Partnership in this case.

[60] I do not accept that the Accumulations Act applies to the Partnership in this case for the following reasons.

[61] The Applicants’ argument proceeds on the basis that the transaction in 2011 by which the Anthony Family (2009) Trust exchanged its properties for limited partnership units in the Partnership constituted a “disposition” pursuant to which the Partnership was directed to accumulate the income of such acquired property. I do not think that either element of this provision is demonstrated in the present case for the following reasons.

[62] First, the nature of the disposition to which the Accumulations Act applies is informed by the language of item 1-6 of s. 1(1). These provisions refer to an “inter vivos disposition” and to dispositions made by a “grantor”, a “settlor” or a “testator”.

[63] In the present case, the transfer of property alleged to be a “disposition” caught by the Accumulations Act is the exchange of property for limited partnership interests in the Partnership between the Anthony Family (2009) Trust and the Partnership. Such transaction did not involve a “settlor” or a “testator”. Nor was it an “inter vivos disposition” insofar as an “inter vivos” disposition is a transfer of property made by an individual during the lifetime of that individual. In this case, the transfer was made by a family trust, rather than by any individual.

[64] Collectively, the provisions suggest that the dispositions to which the Accumulations Act applies are limited to unilateral dispositions rather than dispositions involving consideration such as, in the present case, consideration in the form of limited partnership interests. On this basis, I conclude that the Anthony Family (2009) Trust would not be a “grantor” for the purposes of the Accumulations Act. More generally, to the extent the Accumulations Act is intended to be restricted to inter vivos dispositions and other unilateral dispositions by a settlor, testator or grantor, the transfer of property by the Anthony Family (2009) Trust to the Partnership did not give rise to a “disposition” for the purposes of s.1(1) of the Accumulations Act.

[65] I would also note that, consistent with the analysis above, as the Applicants acknowledge, the cases on this provision are limited to testamentary or similar dispositions of property. There is no reported case that applies the provisions of this statute to a limited partnership.

[66] Second, insofar as the transaction between the Anthony Family (2009) Trust and the Partnership can be characterized as a “disposition” to which the Accumulation Act could potentially apply, the disposition by the Anthony Family (2009) Trust did not direct the income from the assets transferred to the Partnership to be “wholly or partially accumulated” for any period of time. In addition, to the extent it is relevant, the LPA does not direct Binscarth Inc., as the general partner, to accumulate the income of the property transferred to the Partnership by the Anthony Family (2009) Trust, but rather gives it the power to manage the Partnership in its sole discretion. To the extent that the income from such assets was accumulated by the Partnership, that occurred by virtue of the exercise of the discretion granted to Binscarth Inc. in the LPA to manage and make all decisions regarding the Partnership.

[67] Lastly, there is an important difference between the disposition of real or personal property, particularly in a testamentary or estate context, to which the Accumulation Act is directed, and the present circumstances. In the present case each of the Applicants, on becoming limited partners of the Partnership, agreed to the provisions of the LPA. Their agreement included the provisions of the LPA respecting the power of Binscarth Inc., as the general partner of the Partnership, to determine if and when cash or other distributions of Partnership property are to be made. In short, the Applicants have agreed to the potential accumulation of income of the Partnership.

[68] There are two aspects of the Applicants’ accession to the LPA that are also relevant for this argument. First, by virtue of their agreement to the provisions of the LPA, it is the Applicants rather than the Anthony Family (2009) Trust that granted the discretion to Binscarth Inc. to withhold distributions. Even if the Applicants’ agreement to such discretion can be construed as the grant of a power to accumulate (which for clarity I do not find), the Applicants did not grant such discretion in respect of any “disposition” by the Applicants. Second, and alternatively, by their accession to the LPA, the limited partners, including the Applicants, have waived the right to assert any right they might otherwise have under s.1(1) of the Accumulation Act. In this regard, there is nothing in that statute that prevents a party from waiving the party’s rights under the statute.

The Argument Based on Article 8.1(b) of the LPA

[69] The Applicants’ last, and alternative, argument is that Article 8.1(b) of the LPA requires the Partnership to distribute 53.53% (being the highest combined effective marginal federal and provincial tax rates applicable to an Ontario resident) of all income of the Partnership in each year. The Partnership has instead distributed 53.53% of the taxable amount of income according to its characterization as income, dividend income or capital gains. I will address this argument after first addressing the Respondents’ argument that the Applicants are also barred by the provisions of the Limitations Act, 2002 from raising this argument.

The Limitations Act and Waiver Issues

[70] The evidence before the Court is that the Applicants did not learn of the manner of calculation of the distributions made pursuant to Article 8.1(b) until the cross-examination of the LPA’s accountant, Gordon Welton, on March 3, 2022. They say that they could not have learned of this claim without such information. The Respondents argue that the Applicants ought reasonably to have known of the calculation of the distribution amounts based on the T5013 slips that the Applicants received annually for their tax returns.

[71] Effectively, the Respondents suggest that any Applicant, acting reasonably, could have learned of Welton’s manner of calculation of the distributions by comparing the total amount of the cash distributions that the Applicant received in any year with the total amount of tax payable by such Applicant as a result of the income allocation to such Applicant for that year. I think it is unreasonable to effectively impose this calculation obligation on the Applicants.

[72] The T5013 slips did segregate each type of income allocated to each of the Applicants in order that income could be taxed at the appropriate marginal rate. However, the mere fact that income was segregated is not, by itself, sufficient to reveal the manner of calculation of the total distribution to the Applicants – that is, to indicate whether or not the total distribution to a limited partner was 53.53% of the total income allocated to that limited partner. Nor is knowledge of the content of the boxes for which income or other data is reported on a T5013 slip sufficient to permit that calculation. In order to understand the manner of calculation of the distributions with any certainty, it was necessary to know a limited partner’s share of the total income of the Partnership. This was not provided to the Applicants until after the order of Koehnen J. dated December 14, 2020 which, as mentioned, mandated the provision of copies of the Partnership financial statements to the limited partners.

[73] Accordingly, as the Application was commenced on April 22, 2022, that is, within the two-year limitation period in s. 4 of the Limitation Act, 2002, I conclude that the Applicants’ claim in respect of the manner of calculation of the distributions pursuant to Article 8.1(b) of the LPA is not statute-barred. Nor was it waived by the Applicants’ execution of the Certificates of Independent Legal Advice and their accession to the LPA, for the reason that the Applicants did not have full knowledge of their right to assert this claim until they began receiving the Partnership financial statements.

The Applicants’ Argument Based on Article 8.1(b) of the LPA

[74] The Applicants base their argument entirely on the last sentence of Article 8.1(b) which they say does not distinguish between the three categories of income which attract income tax at different rates. However, the Respondents’ argument fails to take into account the clearly expressed purpose of Article 8.1(b) which is found in the first sentence of that provision and which reads as follows:

… in the event Partnership Income allocated to a Limited Partner pursuant to Article 7 hereof in a calendar year exceeds the amount of Discretionary Distributions received by such Limited Partner in such calendar year, then in the following calendar year the General Partner shall cause the Partnership to make distributions of cash to the Limited Partners in an amount needed to provide such Limited Partners with sufficient funds to pay taxes payable by such Limited Partners on the amount by which Partnership income allocated to such Limited Partner exceeds the amount of Discretionary Distributions received by such Limited Partner. [Emphasis added.]

[75] Read as a whole, I think it is clear that the purpose of Article 8.1(b) is to ensure that the limited partners do not pay any tax on the income of the Partnership that is allocated to them by the Partnership pursuant to Article 7.3 and the provisions of the Income Tax Act.

[76] In particular, there is no support for the Applicants’ suggestion that Article 8.1(b) was intended to be a means of ensuring that the limited partners received at least some distributions annually. In this regard, it should be noted that such a mechanism would be inherently unfair as between the limited partners for the reason that the income retained by the limited partners under this scheme would vary considerably depending upon the entity receiving the distributions and the highest marginal combined tax rate applicable to such entity.

[77] For the same reason, it is necessary to apply the same rate to the distributions to all of the limited partners notwithstanding the fact that the amounts, if any, retained by the limited partners will differ depending upon their province of residence. Differential deductions at the level of the Partnership would result in an effective benefit within the Partnership to those limited partners who bear higher combined marginal tax rates.

[78] Accordingly, the Applicants’ request for a declaration based on their interpretation of the provisions of Article 8.1(b) of the LPA is also dismissed.

Conclusion

[79] For the foregoing reasons, the Application is denied in its entirety.

[80] If the parties are unable to agree on costs of this Application, they will have thirty days from the date of these Reasons for Judgment to deliver costs submissions, not exceeding five pages in length, accompanied by a Costs Outline in accordance with the Rules of Civil Procedure.

Wilton-Siegel J. Date: April 10, 2024