Delta Hotel, Whistler: Court of Appeal confirms general partner breached trust by using money for its own purposes; rules limited partner investors may proceed with resolution to dissolve partnership

 

           Date: 19971107
Docket: CA020472, CA020533
CA020794
Registry: Vancouver



COURT OF APPEAL FOR BRITISH COLUMBIA


BETWEEN: No. CA020472

VILLAGE GATE RESORTS LTD.

PLAINTIFF
(APPELLANT)
AND:

ANDREW MOORE, THOMAS MORRISON, ROLF GILLARDON,
FRANCIS CHANG, SAITOH HOLDINGS LTD., DONALD J.
EGGERTSON, MR. AND MRS. R. LEMP, TUDOR SALES
LTD., PATRICK ROBINSON, NORTHSHORE CREDIT UNION,
AUSTEVILLE PROPERTIES LTD., WILLIAM ROBINSON,
AMELIA MAINARDI, DOUGLAS ALLEN, JACK RIDLEY,
PETER R. KEARNEY, TERRY LAMB, EDWARD G. BYRD,
MRS. ROY CARROLL, DONALD CARR, GORDON UGGLA,
DAVID DANSKIN, ALICE-MARIE MAUGHAN, ARTHUR
GRIFFITHS, FRANK MOSER, MR. AND MRS. MAURICE LE
GALLAIS, DAVID CHAN, IVY CHAN, CALVIN EDWARDH,
JAMES PERKINS, LYNDA BURROUGH, GERALD TRODDEN,
ORVILLE WRIGHT, DORIS BURROUGH, HARRY NATAROS,
DOUGLAS BRAWN, HELEN JENKINS, JOHN FLEMING
SQUAMISH MUSIC LTD., KATRIN ANN TURU, NORMA
LOUGHEED, CHARLES B. STEWART, EDDISON SINANAN,
JAMES BULLARD, ALLAN TONE, WILLIAM LOUGHEED,
DESMOND COCKCROFT, IAN ELLIOTT, MR. AND MRS.
DONALD STEWART, KENNETH STEVENSON, GEOFFREY G.
COLESHILL, FRANK KAPLAN, DAVID SPICER, HECTOR
G.N. FRITH, JOHN ROSS, GRAHAM C. MORLEY, DAVID
WILLIAMS, UTA WILLIAMS, THOMAS BRENEMAN, PHILIP
KUEBER, LOUIS METZNER, B. JUSTICE, ZALICK
PERLER, ROBERT SIMMONS, DAVID GALPIN, HOWARD
FENSTER, CLARK MACDONALD, ROBERT L. WAY, ANGELYN
CHAN, JEFFREY WERRY, ROBERT F. EDWARDS, CYRIL
CHAN, NIZARALI DAMJI, REG G. HUMPHREYS, WALTER
R. LAYZELL, BARRY DOWNS, ALISTAIR I. MUNRO, AVCO
FINANCIAL SERVICES, RICHARD ARCHAMBAULT

DEFENDANTS
(RESPONDENTS)
AND:





B.P.Y.A. 138 HOLDINGS LTD., carrying on
business as WHISTLER MOUNTAIN INN,
LIMITED PARTNERSHIP, and the said Partnership,
WHISTLER MOUNTAIN INN, LIMITED PARTNERSHIP

DEFENDANTS
(APPELLANTS)

AND:
BARBICAN PROPERTIES INC., AVON HOLDINGS LTD.,
ANDREW McLAREN, NINA MOSER,
KEICHIRO OISHI and JANE ROBINSON

DEFENDANTS BY COUNTERCLAIM
(RESPONDENTS)

- AND -

BETWEEN: No. CA020533

VILLAGE GATE RESORTS LTD.

PLAINTIFF
(RESPONDENT)
AND:

ANDREW MOORE, THOMAS MORRISON, ROLF GILLARDON,
FRANCIS CHANG, SAITOH HOLDINGS LTD., DONALD J.
EGGERTSON, MR. AND MRS. R. LEMP, TUDOR SALES
LTD., PATRICK ROBINSON, NORTHSHORE CREDIT UNION,
AUSTEVILLE PROPERTIES LTD., WILLIAM ROBINSON,
AMELIA MAINARDI, DOUGLAS ALLEN, JACK RIDLEY,
PETER R. KEARNEY, TERRY LAMB, EDWARD G. BYRD,
MRS. ROY CARROLL, DONALD CARR, GORDON UGGLA,
DAVID DANSKIN, ALICE-MARIE MAUGHAN, ARTHUR
GRIFFITHS, FRANK MOSER, MR. AND MRS. MAURICE LE
GALLAIS, DAVID CHAN, IVY CHAN, CALVIN EDWARDH,
JAMES PERKINS, LYNDA BURROUGH, GERALD TRODDEN,
ORVILLE WRIGHT, DORIS BURROUGH, HARRY NATAROS,
DOUGLAS BRAWN, HELEN JENKINS, JOHN FLEMING
SQUAMISH MUSIC LTD., KATRIN ANN TURU, NORMA
LOUGHEED, CHARLES B. STEWART, EDDISON SINANAN,
JAMES BULLARD, ALLAN TONE, WILLIAM LOUGHEED,
DESMOND COCKCROFT, IAN ELLIOTT, MR. AND MRS.
DONALD STEWART, KENNETH STEVENSON, GEOFFREY G.
COLESHILL, FRANK KAPLAN, DAVID SPICER, HECTOR
G.N. FRITH, JOHN ROSS, GRAHAM C. MORLEY, DAVID
WILLIAMS, UTA WILLIAMS, THOMAS BRENEMAN, PHILIP
KUEBER, LOUIS METZNER, B. JUSTICE, ZALICK
PERLER, ROBERT SIMMONS, DAVID GALPIN, HOWARD
FENSTER, CLARK MACDONALD, ROBERT L. WAY, ANGELYN
CHAN, JEFFREY WERRY, ROBERT F. EDWARDS, CYRIL
CHAN, NIZARALI DAMJI, REG G. HUMPHREYS, WALTER
R. LAYZELL, BARRY DOWNS, ALISTAIR I. MUNRO, AVCO
FINANCIAL SERVICES, RICHARD ARCHAMBAULT

DEFENDANTS
(APPELLANTS)
AND:

B.P.Y.A. 138 HOLDINGS LTD., carrying on
business as WHISTLER MOUNTAIN INN,
LIMITED PARTNERSHIP, and the said Partnership,
WHISTLER MOUNTAIN INN, LIMITED PARTNERSHIP

DEFENDANTS
(RESPONDENTS)
AND:

BARBICAN PROPERTIES INC. and
AVON HOLDINGS LTD.

DEFENDANTS BY COUNTERCLAIM
(RESPONDENTS)
AND:

ANDREW McLAREN, NINA MOSER,
KEICHIRO OISHI and JANE ROBINSON

DEFENDANTS BY COUNTERCLAIM
(APPELLANTS)

- AND -

BETWEEN: No. CA020794

VILLAGE GATE RESORTS LTD.

PLAINTIFF
(RESPONDENT)
AND:

ANDREW MOORE, THOMAS MORRISON, ROLF GILLARDON,
FRANCIS CHANG, SAITOH HOLDINGS LTD., DONALD J.
EGGERTSON, MR. AND MRS. R. LEMP, TUDOR SALES
LTD., PATRICK ROBINSON, NORTHSHORE CREDIT UNION,
AUSTEVILLE PROPERTIES LTD., WILLIAM ROBINSON,
AMELIA MAINARDI, DOUGLAS ALLEN, JACK RIDLEY,
PETER R. KEARNEY, TERRY LAMB, EDWARD G. BYRD,
MRS. ROY CARROLL, DONALD CARR, GORDON UGGLA,
DAVID DANSKIN, ALICE-MARIE MAUGHAN, ARTHUR
GRIFFITHS, FRANK MOSER, MR. AND MRS. MAURICE LE
GALLAIS, DAVID CHAN, IVY CHAN, CALVIN EDWARDH,
JAMES PERKINS, LYNDA BURROUGH, GERALD TRODDEN,
ORVILLE WRIGHT, DORIS BURROUGH, HARRY NATAROS,
DOUGLAS BRAWN, HELEN JENKINS, JOHN FLEMING
SQUAMISH MUSIC LTD., KATRIN ANN TURU, NORMA
LOUGHEED, CHARLES B. STEWART, EDDISON SINANAN,
JAMES BULLARD, ALLAN TONE, WILLIAM LOUGHEED,
DESMOND COCKCROFT, IAN ELLIOTT, MR. AND MRS.
DONALD STEWART, KENNETH STEVENSON, GEOFFREY G.
COLESHILL, FRANK KAPLAN, DAVID SPICER, HECTOR
G.N. FRITH, JOHN ROSS, GRAHAM C. MORLEY, DAVID
WILLIAMS, UTA WILLIAMS, THOMAS BRENEMAN, LOUIS
METZNER, B. JUSTICE, ZALICK PERLER, ROBERT
SIMMONS, DAVID GALPIN, HOWARD FENSTER, CLARK
MACDONALD, ROBERT L. WAY, ANGELYN CHAN, JEFFREY
WERRY, ROBERT F. EDWARDS, CYRIL CHAN, NIZARALI
DAMJI, WALTER R. LAYZELL, BARRY DOWNS, ALISTAIR
I. MUNRO, RICHARD ARCHAMBAULT, B.P.Y.A. 138
HOLDINGS LTD., AVON HOLDINGS LTD., ANDREW
McLAREN, NINA MOSER, KEICHIRO OISHI, JANE
ROBINSON, carrying on business as WHISTLER
MOUNTAIN INN, LIMITED PARTNERSHIP, and the said
Partnership, WHISTLER MOUNTAIN INN, LIMITED
PARTNERSHIP

DEFENDANTS
(APPELLANTS)



Before: The Honourable Mr. Justice Cumming
The Honourable Madam Justice Newbury
The Honourable Madam Justice Huddart



W.B. McAllister, Q.C. Counsel for Village Gate Resorts
and B.P.Y.A. 138 Holdings Ltd.

D.G.S. Rae, Q.C.
W.S. Martin and A.D. Borrell Counsel for Moore et al.

Place and Dates of Hearing Vancouver, British Columbia
October 6-8, 1997

Place and Date of Judgment Vancouver, British Columbia
November 7, 1997


Written Reasons by:
The Honourable Madam Justice Newbury

Concurred in by:
The Honourable Mr. Justice Cumming
The Honourable Madam Justice Huddart


Reasons for Judgment of the Honourable Madam Justice Newbury:


[1] For some years, limited partnerships have been a popular
vehicle for investment by individuals in real estate and other
ventures in British Columbia. For investors, this vehicle
combines the advantages of direct ownership of the assets of
the business (and thus the deductibility of associated costs
and expenses for income tax purposes) and the protection of
limited liability. From the point of view of project
developers, the fact that limited partners are precluded from
participation in the management of the partnership's business
promises an attractive measure of independence. By using a
separate corporation to act as general partner, developers may
also be immunized from personal liability for partnership debts
and losses.

[2] Not surprisingly, however, there are "downsides" to these
advantages. Having given up the right to participate in the
partnership's business and having limited scope to monitor the
general partner's activities, limited partners may encounter
considerable difficulty in enforcing that partner's
obligations, and may be unable ultimately to bring the
arrangement to an end, despite the supposedly consensual nature
of a partnership. A general partner, on the other hand, is not
truly free to conduct the business as it wishes. It can find
itself subjected to various fiduciary obligations that are not
explicitly stated in any document and that do not sit
comfortably with the commercial context in which developers and
business managers usually operate. All of these difficulties
have arisen, in spades, in this case.

FACTUAL BACKGROUND

[3] The Whistler Mountain Inn, Limited Partnership was
established in 1980 as a vehicle for the financing and
operation of the first tower, or "Phase I", of the Mountain Inn
at Whistler, British Columbia. The original developer of the
project entered into a lease with the General Partner, Village
Gate Resorts Ltd. ("Resorts"), in respect of the rooms
constituting Phase I, then stratified the 163 rooms (as well as
other facilities) and offered them for sale. Ultimately, about
48 per cent of the units were sold to outside investors. As a
condition of becoming a limited partner, each investor assumed
the lessor's obligations under the lease in respect of the
unit(s) purchased by him or her. Thus the lease effectively
became several separate leases, defined in the Partnership
Agreement as the "Strata Lot Leases".

[4] Beginning in 1988, a second tower, or Phase II, was
constructed and brought on-stream. Although the two phases are
operated as one hotel by Delta Hotels Ltd. pursuant to a
management agreement with Resorts, Phase II is not associated
with the Partnership. Instead, that part of the hotel
operation is owned by B.P.Y.A. 138 Holdings Ltd. ("BPYA"), a
company incorporated for this purpose by the "Lai Sun group",
an offshore conglomerate. That group, which has a significant
shareholding in Delta Hotels Ltd., also controls the General
Partner and has done so since 1989, when it acquired the
interest of the "Barbican group" therein. That group in turn
had acquired control in 1985 from the original developer, the
"Maple Leaf" group, when the latter experienced serious
financial difficulties.

[5] The hotel has been operated with some success in recent
years, but unhappy differences began to arise in 1988, when the
Limited Partners were not given the opportunity to participate
in the transaction by which the Lai Sun group acquired its
interest in the hotel. Many of the Limited Partners embarked
on an attempt to bring the Partnership to an end, contrary to
Resorts' wishes. Under clause 7.17 of the Partnership
Agreement (relevant clauses are reproduced in Appendix A to
these reasons), the Limited Partners may by Extraordinary
Resolution dissolve the Partnership without the General
Partner's consent if the latter is "in default in a material
way hereunder." In March 1989, a meeting of Limited Partners
was called for the purpose of voting on a resolution to
dissolve the Partnership pursuant to this clause, based on
various allegations of default on Resorts' part. However, the
Supreme Court granted Resorts an injunction prohibiting any
action in furtherance of dissolution pending the trial of
whether the General Partner was in fact in default in a
material way.

[6] Several years of legal wrangling followed, culminating in
a 41-day trial beginning in April 1994 and ending in March
1995. At the close of his lengthy reasons, the trial judge
made this disposition:
There will be a declaration that Village Gate
Resorts Ltd. has been, since February 1989, and
continues to be, in default of its obligations under
the Partnership agreement in a material way: since
1989 it has wrongly mixed funds which, as general
partner, it has held in trust for the Whistler
Mountain Inn Limited Partnership with other funds and
wrongly represented such to be assets of which it is
the beneficial owner; since June 1994, it has wrongly
refused to comply with the Partnership's resolutions
requiring a disclosure of assets pledged and a
declaration of assets held in trust.

The order granted in March 1989 enjoining the
limited partners in the Whistler Mountain Inn Limited
Partnership from resolving by special resolution to
dissolve the Partnership will be set aside upon the
entry of an order giving effect to this disposition.
[paras. 157-58]

At the same time, the Court declined to grant a decree of
judicial dissolution of the Partnership pursuant to s. 38 of
the Partnership Act, R.S.B.C. 1996, c. 348.

[7] Armed with the declaration that Resorts had been in
default of its obligations "in a material way", the defendant
Dr. Moore and other like-minded Limited Partners (whom I will
refer to as the "Defendants") called another meeting of the
Limited Partners for July 14, 1995 in order to propose the
dissolution of the Partnership. Again, however, the General
Partner commenced proceedings in Supreme Court. It alleged
that by implementing new accounting procedures for the hotel,
it had remedied the default(s) that had been found by the trial
judge. Thus it sought a fresh injunction restraining the
Defendants from seeking the dissolution of the Partnership
pending trial. The application came before the trial judge
sitting in Chambers. On July 12, 1995, he granted the interim
injunction, reasoning as follows:
If there is now no default there is no basis for a
vote and no meeting for that purpose can properly be
convened. Should there be a serious question of
whether trust funds are now being properly segregated
from other funds and should it be determined they are
not, it would, it appears to me, be open to the court
to order a dissolution if such appeared to be
warranted in the circumstances. The question is one
that I would expect could be addressed summarily in
short order if the limited partners have reason to
pursue it.

Given the history of this litigation, the steps
the general partner has taken, and the absence of any
disclosed complaint with what has been done, I
consider the limited partners should be enjoined from
voting to dissolve now as they were six years ago. I
would add that an injunction is being granted on the
basis that it is the default pertaining to the
separation of trust monies that is the basis for the
limited partners convening an extraordinary meeting
to dissolve. [paras. 7-8]

[8] The trial judgment and the granting of the second
injunction give rise to three appeals and one cross-appeal in
this Court. First, the General Partner appeals in no. CA020472
from the trial judgment dated May 26, 1995 and seeks a
declaration that its co-mingling of funds held on trust for the
Partnership did not constitute a breach of its obligations
under the Partnership Agreement. Further, Resorts contends
that the parties to the Agreement never intended that revenues
received by Resorts in respect of Phase I would be segregated
from the revenues generated by other parts of the hotel
operation. Thus it asks the Court to imply a term of the
Agreement to the effect that "Partnership funds may be co-
mingled with other hotel funds." The Defendants cross-appeal
in no. CA020472 and appeal in no. CA020533 on the grounds that
the trial judge should have found material defaults on the part
of the General Partner in addition to those he did find; that
because Resorts was allegedly insolvent between mid-1982 and
1985, the Partnership dissolved "automatically" at that time;
and that in any event, the Court below erred in declining to
order the judicial dissolution of the Partnership. The
Defendants also seek an accounting in respect of the costs and
expenses associated with complementary rooms in the hotel
during the "Lai Sun period".

[9] Finally, the Defendants appeal from the granting of the
interim injunction in July 1995 on two main bases - first, that
on a true construction of the Partnership Agreement, the
"default in a material way" necessary to found a resolution for
dissolution need not be continuing or subsisting at the time
the resolution is passed; and alternatively, that the trial
judge failed to consider the principles properly applicable to
the granting of injunctive relief. Instead, they say, he
permanently changed the substantive rights of the Defendants,
placing them:
. . . in a potentially recurring circle in which they
seek to dissolve the Partnership based upon material
defaults, [the General Partner] takes steps which it
alleges cures the default, [the General Partner]
obtains an injunction based on allegations that the
default has been cured, an eventual finding that the
default continues and then further attempts to
dissolve the Partnership, restarting the circle.

[10] As will be seen below, I agree that the injunction must be
set aside on both these grounds and that the Limited Partners
must be permitted to vote on the Extraordinary Resolution
proposed by the Defendants. I turn first, however, to an
analysis of the question of the General Partner's insolvency,
since prima facie at least, that circumstance may lead to the
automatic termination of the Partnership without the necessity
of a resolution or vote.

 

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