155569 Canada Ltd. v. 248524 Alberta Ltd. et al., (2000) 255 A.R. 1 (CA)

• Judge: Irving, O'Leary and Russell, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: February 02, 2000
• Citations: (2000), 255 A.R. 1 (CA)

155569 Can. Ltd. v. 248524 Alta. Ltd. (2000), 255 A.R. 1 (CA);

    220 W.A.C. 1

MLB headnote and full text

Temp. Cite: [2000] A.R. TBEd. FE.067

155569 Canada Limited (plaintiff/respondent) v. 248524 Alberta Ltd. (defendant/appellant)

248524 Alberta Ltd. (plaintiff by counterclaim/appellant) v. Eli Adler and Eli Adler through or in the name of D.F.C. Diversified Financial Corp., Canpro Investments Ltd., 155569 Canada Limited, Trans America Investments Ltd., Ellis Developments Ltd., Samuel Shapiro, Darene Investments Ltd. and Cambridge Builders Inc. (defendants by counterclaim/respondents)

155569 Canada Limited (applicant/respondent) v. 248524 Alberta Ltd. (respondent/appellant)

(9503-0804-AC)

155569 Canada Limited (plaintiff/respondent) v. 248524 Alberta Ltd. (defendant/appellant) and Village Tree Mall Limited Partnership, Lorne Warneke, William Otto, Jack Reid, Thomas Duckworth (respondents/appellants)

(9603-0557-AC)

155569 Canada Limited (respondent) v. Village Tree Mall Limited Partnership, Lorne Warneke, William Otto, Jack Reid, Thomas Duckworth (appellants) and 248524 Alberta Ltd. (defendant/not a party to appeal)

(9603-0577-AC)

Indexed As: 155569 Canada Ltd. v. 248524 Alberta Ltd. et al.

Alberta Court of Appeal

Irving, O'Leary and Russell, JJ.A.

February 2, 2000.

Summary:

Ellis Developments and Darene Invest­ments (the developers) built a shopping mall. The developers created a limited partnership to raise money for the project and to own and operate the mall. The developers sold their interest in the mall to the partnership. The purchase price was paid by the sale of 120 limited partnership units and a $10 million mortgage back to the developers. The developers formed 248524 to be the general partner of the partnership. The de­velopers each owned 50% of the shares of 248524. Adler, the owner of Ellis, and Shapiro, the owner of Darene, were directors of 248524. The partnership gave the devel­opers a general assignment of rents and leases. Adler was the managing officer of 248524. The developers assigned the mort­gage to third parties. Subsequently, the developers were placed into receivership. Adler petitioned for bankruptcy and resigned as a director of 248524. The receivers became the directors of 248524. Adler remained a limited partner. The assignees of the mortgage started foreclosure proceedings. Trans-America, a company controlled by Adler, negotiated the purchase of the secur­ity for $7,500,000. Trans-America assigned its rights to 155569, a company controlled by Azrieli. 155569 commenced foreclosure proceedings against 248524. 248524 con­tested its obligation to pay the mortgage and counterclaimed for damages, claiming mis­representation, breach of fiduciary obliga­tions, fraud and conspiracy.

The Alberta Court of Queen's Bench, in a decision reported 170 A.R. 183, allowed the foreclosure action and granted judgment against 248524 for the deficiency. The court dismissed 248524's counterclaim. The court ordered Ellis and Darene to transfer their shares in 248524 to a successor manager. Subsequently, 155569 sought to add the limited partnership to the judgment roll as a defendant and judgment debtor. 155569 also sought to have the court direct 248524 to provide information about the limited part­ners who had contributed to the funding of the lawsuit.

The Alberta Court of Queen's Bench, in a decision reported 192 A.R. 116, allowed the motion. 248524 appealed both decisions.

The Alberta Court of Appeal dismissed the appeals.

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - Ellis Developments and Darene Investments (the developers), con­trolled by Adler and Shapiro respectively, created a limited partnership to finance a mall development - The developers sold their interest to 248524, the general partner of the limited partnership, and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - Adler and Shapiro were directors of 248524 and Adler was the managing officer - The Alberta Court of Appeal rejected 248524's argument that Adler and Shapiro caused the developers and 248524 to breach their fiduciary obligations and the offering memorandum by financing the purchase with a vendor take-back mort­gage - The developers owed a duty to the partnership to act in good faith, but not a fiduciary duty - 248524 owed a fiduciary duty to the partnership in a conflict of interest situation - However, the vendor take-back mortgage was not contrary to the offering memorandum or the partner­ship's best interests - See paragraphs 85 to 117.

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - Ellis Developments and Darene Investments (the developers), con­trolled by Adler and Shapiro respectively, created a limited partnership to finance a mall development - The developers sold their interest to 248524, the general partner of the limited partnership, and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - Adler and Shapiro were directors of 248524 and Adler was the managing officer - Adler had finan­cial problems and was replaced as the managing officer of the general partner - He remained a limited partner - Adler, through his com­pany Trans-America, nego­tiated a settle­ment whereby the assignees of the mort­gage would sell their security for $7,500,000 - Trans-America assigned its rights to 155569 - The Alberta Court of Appeal affirmed that Adler did not owe a fiduciary duty when he negotiated to pur­chase the security - Further, 155569 did not acquire the mortgage and the securities in a manner giving rise to a constructive trust - See paragraphs 151 to 166.

Limitation of Actions - Topic 3011

Actions in tort - General principles - When time begins to run - Attribution of knowledge - Ellis Developments and Darene Investments (the developers), con­trolled by Adler and Shapiro respectively, created a limited partnership to finance a mall development - The developers sold their interest to 248524, the general partner of the limited partnership, and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - At the time of the initial distribu­tion, Adler and Shapiro were directors of 248524 and Adler was the managing officer - 155569, the eventual mortgagee by assignment, sought foreclos­ure - In February 1989, 248524, under the man­agement of a receiver, counterclaimed, alleging fraud, misrepresentation and breach of fiduciary obligations in the initial distribution - The Alberta Court of Appeal held that 248524's claim on behalf of the partnership was statute barred because the partnership knew of the real distribution by December 1982 - The court held that ss. 40 and 41 of the Limi­tation of Actions Act respecting trusts did not apply - See paragraphs 141 to 150.

Limitation of Actions - Topic 6021

Trusts - Actions against trustee - General -[See Limitation of Actions - Topic 3011 ].

Mortgages - Topic 5561

Mortgage actions - Foreclosure and sale - Parties - A mortgagee commenced a fore­closure action against a limited partnership - The trial judge held that the limited partnership could not be named as a de­fendant in the action because of s. 51 of the Land Titles Act and s. 54(3) of the Partnership Act - The Alberta Court of Appeal held that the trial judge erred - Section 51 prohibited the notation of ben­eficial interests under a trust for purposes of the land registration system - Section 54(3) only referred to the form of register­ing limited partnership land - The court stated that neither provision dealt expressly with the parties to be named in foreclosure proceedings and they did not preclude naming the partnership as a defendant where it was known to be the property's beneficial owner - Rule 80 of the Rules of Court permitted proceedings to be brought by or against partners in the name of the partnership - See paragraphs 52 to 60.

Mortgages - Topic 5561

Mortgage actions - Foreclosure and sale - Parties - A mortgagee commenced a fore­closure action against a limited partnership - The general partner of the partnership counterclaimed against the mortgagee and others - The Alberta Court of Appeal held that the general partner of the limited partnership could bring and defend a claim in its own name, pursuant to rule 43 of the Rules of Court, where it was an express bare trustee of the partnership property - Therefore, the trial judge did not err in allowing the general partner to defend the claims and bring the counterclaim in its own name as trustee of the limited part­nership - See paragraphs 61 to 72.

Partnership - Topic 3904

Relations between partners and third parties - Actions against partners - Gen­eral partnership v. limited partnership - A mortgagee held a mortgage on a limited partnership's property - The mortgagee sued the general partner of the partnership for foreclosure and obtained a Rice Order permitting it to purchase the mortgaged property and awarding a deficiency judg­ment against the general partner - Subsequently, the mortgagee sought to add the limited partnership to the judgment roll as a defendant and judgment debtor - The trial judge allowed the motion - The gen­eral partner had acted throughout on the partnership's behalf and was a trustee for the limited partnership - The limited part­nership was the real defendant and no interests were prejudiced by the substitu­tion of the limited partnership for the general partnership - The Alberta Court of Appeal affirmed the decision - See para­graphs 186 to 197.

Partnership - Topic 3904

Relations between partners and third parties - Actions against partners - Gen­eral partnership v. limited partnership - [See both Mortgages - Topic 5561 ].

Partnership - Topic 3926

Relations between partners and third parties - Legal action by limited partner­ship or partners - Developers created a limited partnership to finance a mall de­velopment - The developers sold their interest to a general partner of the limited partnership (248524) and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - 155569, the eventual mortgagee by assignment, sought foreclos­ure - 248524 counterclaimed, alleging, inter alia, mis­representa­tion and fraud in the initial distribution - The Alberta Court of Appeal held that 248524 did not have status to bring claims on behalf of the individual limited partners - However, 248524 could bring claims on behalf of the limited part­nership (but not the partners) related to alleged wrongs concerning the partner­ship's property - See paragraphs 73 to 84.

Partnership - Topic 3926

Relations between partners and third parties - Legal action by limited partner­ship or partners - [See Limitation of Actions - Topic 3011 ].

Partnership - Topic 5010

Relations between partners - General - Business dealings by limited partner with partnership - Ellis Development and another developer created a limited part­nership to finance a mall development - The developers sold their interest to 248524, the general partner of the limited partnership, and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - Ellis was a limited partner - The Alberta Court of Appeal rejected 248524's argument that Ellis breached s. 59 of the Partnership Act by holding security on partnership property - Ellis was not trying to defeat the inter­ests of third party creditors or other limited partners - The limited partners were aware of the take-back mortgage and consented to it - The purpose of the mortgage was to assist the limited partnership to purchase the mall and the terms were favourable to the limited partnership - See paragraphs 175 to 181.

Partnership - Topic 5010

Relations between partners - General - Business dealings by limited partner with partnership - [See second Equity - Topic 3607 ].

Partnership - Topic 5070

Relations between partners - Partnership property - Transfer - Limited partnership - Two developers created a limited part­nership to finance a mall development - The developers sold their interest to 248524, the general partner of the limited partnership, and were paid through the sale of 120 limited partner­ship units and a $10 million take-back mort­gage - The devel­opers subsequently assigned the mortgage as security for a bank loan - The Alberta Court of Appeal rejected 248524's argu­ment that the developers breached s. 55(d) of the Partnership Act by assigning the mortgage - There was nothing to indicate that the developers used the loan other than for a partnership purpose - The de­velopers were not prohibited from taking the mortgage since they were not trustees of the property - 248524 as the general partner was an express trustee as it held title to the mortgaged lands - See para­graphs 169 to 174.

Partnership - Topic 5164

Relations between partners - Fiduciary duties - General partners to limited part­ners - [See first Equity - Topic 3607 ].

Partnership - Topic 5166

Relations between partners - Fiduciary duties - Between limited partners - [See second Equity - Topic 3607 ].

Practice - Topic 180

Persons who can sue and be sued - Part­nerships - Limited partnerships - [See both Mortgages - Topic 5561 and first Partnership - Topic 3904 ].

Practice - Topic 182

Persons who can sue and be sued - Part­nerships - Action by - In whose name - [See second Mortgages - Topic 5561 ].

Practice - Topic 186

Persons who can sue and be sued - Part­nerships - Action against - In firm name - [See both Mortgages - Topic 5561 ].

Practice - Topic 9012

Appeals - Restrictions on argument on appeal - Issues or points not previously raised - A mortgagee com­menced a fore­closure action against a limited part­nership - The general partner of the part­nership counterclaimed against the mort­gagee and others - The trial judge allowed the fore­closure action and dis­missed the counter­claim - The general partner appealed and sought to raise new issues on appeal - The Alberta Court of Appeal allowed the gen­eral part­ner to raise the new issues where the relevant evidence was before the court and the issues involved questions of law - See para­graphs 167 to 168.

Trusts - Topic 2310

Constructive trusts - Circumstances when not imposed - [See second Equity - Topic 3607 ].

Trusts - Topic 2344

Constructive trusts - Basis for imposition - Breach of confidence or fiduciary rela­tionship - [See second Equity - Topic 3607 ].

Trusts - Topic 2346

Constructive trusts - Basis for imposition - Unjust enrichment - [See second Equity - Topic 3607 ].

Cases Noticed:

Kucor Construction & Developments & Associates v. Canada Life Assurance Co. et al. (1998), 114 O.A.C. 201; 167 D.L.R.(4th) 272 (C.A.), refd to. [para. 55].

Sorrel 1985 Limited Partnership v. Sorrel Resources Ltd. et al. (1992), 130 A.R. 231 (Q.B. Master), refd to. [para. 57].

Street (Suzanne) Properties Ltd. v. Man­hold Development Corp. et al. (1998), 106 O.A.C. 311; 37 O.R.(3d) 797 (C.A.), refd to. [para. 63].

De Foras, Re (1958), 15 D.L.R.(2d) 758 (Alta. C.A.), refd to. [para. 64].

Foss v. Harbottle (1843), 2 Hare 461; 67 E.R. 189, refd to. [para. 67].

Covia Canada Partnership Corp. v. PWA Corp. (1993), 105 D.L.R.(4th) 60 (Ont. Gen. Div.), affd. (1993), 106 D.L.R.(4th) 608 (Ont. C.A.), refd to. [para. 67].

Watson et al. v. Imperial Financial Ser­vices Ltd. et al. (1994), 40 B.C.A.C. 174; 65 W.A.C. 174; 111 D.L.R.(4th) 643 (C.A.), refd to. [para. 67].

Goodfellow v. Knight and Knight (1977), 5 A.R. 573; 2 Alta. L.R.(2d) 17 (T.D.), refd to. [para. 69].

Belmont Finance Corp. v. Williams Furni­ture Ltd., [1979] 1 Ch. 250 (C.A.), refd to. [para. 83].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57; 61 D.L.R.(4th) 14, refd to. [para. 89].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84; 42 D.L.R.(4th) 81, refd to. [para. 90].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 90].

Ironside et al. v. Smith (1998), 223 A.R. 379; 183 W.A.C. 379 (C.A.), refd to. [para. 91].

Litwin Construction (1973) Ltd. v. Pan (1989), 52 D.L.R.(4th) 459 (B.C.C.A.), refd to. [para. 92].

Huber (J.A.) Holdings Ltd. v. Davidge et al. (1992), 128 A.R. 268 (Q.B.), refd to. [para. 93].

Air Canada v. M & L Travel Ltd., Martin and Vaillant, [1993] 3 S.C.R. 787; 159 N.R. 1; 67 O.A.C. 1, refd to. [para. 129].

Royal Bank v. Rizkalla (1984), 50 C.P.C. 292 (B.C.S.C.), refd to. [para. 136].

98956 Investments Ltd. (Receivership) v. Fidelity Trust Co. (1988), 89 A.R. 151 (C.A.), refd to. [para. 139].

Angeletakis v. Thymaras (1989), 95 A.R. 81; 65 Alta. L.R.(2d) 345 (Q.B.), refd to. [para. 147].

Soars v. Ashwell, [1893] 2 Q.B. 390 (C.A.), refd to. [para. 147].

Scorgie v. Scorgie et al. (1994), 164 A.R. 12, supplementary reasons (1995), 167 A.R. 254 (Q.B.), affd. (1997), 200 A.R. 165; 146 W.A.C. 165 (C.A.), refd to. [para. 149].

Kingsberry Properties (Bankrupt), Re (1997), 51 O.T.C. 252 (Gen. Div. Bktcy.), affd. [1998] O.A.C. Uned. 116 (C.A.), refd to. [para. 154].

Lehndorff General Partners Ltd., Re (1993), 17 C.B.R.(3d) 24 (Ont. Gen. Div.), refd to. [para. 154].

Skolny v. Richter (1910), 124 N.Y. Supp. 152 (C.A.), refd to. [para. 155].

Canadian Aero Services Ltd. v. O'Malley et al., [1974] S.C.R. 592, refd to. [para. 157].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384, refd to. [para. 162].

Soulos v. Korkontzilas et al., [1997] 2 S.C.R. 217; 212 N.R. 1; 100 O.A.C. 241; 146 D.L.R.(4th) 214, refd to. [para. 162].

Farm Credit Corp. v. Lacombe Nurseries Ltd. et al. (1992), 125 A.R. 17; 14 W.A.C. 17 (C.A.), leave to appeal ref­used (1993), 152 N.R. 98; 145 A.R. 103; 55 W.A.C. 103 (S.C.C.), refd to. [para. 167].

Gray v. Richford (1878), 2 S.C.R. 431, refd to. [para. 167].

Calmonton Investments Ltd. v. Tangye (1988), 87 A.R. 22 (C.A.), refd to. [para. 167].

Central and Eastern Trust Co. v. Irving Oil Ltd. and Stonehouse Motel and Restaur­ant Ltd., [1980] 2 S.C.R. 29; 31 N.R. 593; 39 N.S.R.(2d) 541; 71 A.P.R. 541, refd to. [para. 177].

Hughes v. Dash (1962), 309 F.2d 1 (5th Cir.), refd to. [para. 178].

A.T.E. Financial Services Inc. v. Corson (1970), 268 A.2d 73 (N.J. Sup. Ct.), refd to. [para. 178].

Munster v. Cox (1885), 10 App. Cas. 680 (H.L.), refd to. [para. 190].

Statutes Noticed:

Land Titles Act, R.S.A. 1980, c. L-5, sect. 51 [para. 53].

Limitation of Actions Act, R.S.A. 1980, c. L-15, sect. 40, sect. 41 [para. 145].

Partnership Act, R.S.A. 1980, c. P-2, sect. 54(3) [para. 54]; sect. 55(d) [para. 169]; sect. 59 [para. 175].

Rules of Court (Alta.), rule 43 [para. 61]; rule 80 [para. 57].

Authors and Works Noticed:

Black's Law Dictionary (6th Ed. 1990) [para. 188].

Di Castri, Registration of Title to Land (1987) (Loose Leaf Ed.), vol. 2, p. 13-66 [para. 138].

Hamilton, R.W., Corporate General Part­ners of Limited Partnership (1997), 1 J. Small & Emerging Bus. L. 73, p. 74 [para. 114].

Hepburn, L.R., and Strain, W.J., Limited Partnerships (1983) (Loose Leaf Ed.), pp. 4-10, 4-11, 4-12, 4-13 [para. 176]; 4-34 [para. 179].

Price, F.C., and Trussler, M.J., Mortgage Actions in Alberta (1985), p. 63 [para. 188].

Stevenson, W.A., and Côté, J.E., Alberta Civil Procedure Handbook (1999), p. 49 [para. 69].

Counsel:

M.J. McCabe and D.R. Cranston, for the respondent, 155569 Canada Limited;

D.G. Ingram, Q.C., and R.J. Young, for the appellants, 248524 Alberta Ltd. and Village Tree Limited Partnership;

E. Adler, the respondent in person;

B.R. Crump, for the appellants, Warneke, Otto, Reid and Duckworth.

These appeals were heard on January 26, 1998, by Irving, O'Leary and Russell, JJ.A., of the Alberta Court of Appeal.

The following memorandum of judgment was filed by the court at Edmonton, Alberta, on February 2, 2000.