Delta Hotel, Whistler: Court of Appeal confirms damage award favoring limited partners

Citation: Village Gate Resorts Ltd. v. Moore et al

Date: 19991022

  1999 BCCA 626

Docket:

CA025509

Registry: Vancouver

COURT OF APPEAL FOR BRITISH COLUMBIA

ORAL REASONS FOR JUDGMENT
Before:
The Honourable Mr. Justice Lambert

October 22, 1999

The Honourable Madam Justice Rowles  
The Honourable Mr. Justice Braidwood

Vancouver, B.C.

   
 
BETWEEN:

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, AUSTERVILLE PROPERTIES LTD., WILLIAM ROBINSON, AMELIA MAINARDI, DOUGLAS ALLEN, JACK RIDLEY, PETER R. KEARNEY, TERRY LAMB, EDWARD G. BYRD, MRS. ROY CARROLL, DONALD CARR, BORDON 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 COCKROFT, 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, PHILLIP KUEBER, LOUIS METZNER, B. JUSTICE, ZALICK PERLER, ROBERT SIMMNS, 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, 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)

 

W.B. McAllister, Q.C.

appearing for the Appellant

D.G. Rae and A.D. Borrell

appearing for the Respondents

[1] BRAIDWOOD J.A.: This appeal involves the proper principles to be applied when calculating the damages suffered by a party by reason of the wrongful granting of an injunction. In this case, the appellant Village Gate Resorts Ltd. was granted injunctions on 24 May 1989 and 12 July 1995 to prevent the respondents from dissolving a limited partnership. At each application for an injunction, the appellant gave an undertaking as to damages. When the litigation between the two parties concluded in 1997, it was determined that the granting of the injunctions was inappropriate.

[2] The issue before this Court is whether the trial judge properly assessed the damages incurred by the respondents by reason of the injunctions.

FACTS

[3] An entity known as Whistler Mountain Inn Limited Partnership was formed in 1980 as part of a financing package to build and operate Phase 1 of what is now known as the Delta Whistler Resort. Phase 1 is comprised of 163 guest rooms that are registered in the Land Title Office as strata lots. The original developer leased those rooms to the general partner, Village Gate Resources Ltd., the appellant in this case. The lots, together with the limited partnership interest, were then marketed. A purchaser obtained a fee simple in a hotel room subject to a long-term lease in favour of the general partner. A purchaser also obtained as an interest in the limited partnership through which the profits of operating the hotel were distributed. The limited partnership agreement provided for management fees to be paid to the general partner.

[4] Less than half the strata lots were sold and the developer continued to hold the rest. In 1988, Phase 2 was constructed and contained 126 rooms. The two phases are operated as one hotel although Phase 2 was not a partnership asset.

[5] In 1989, B.P.Y.A. 138 Holdings Ltd. acquired the interests of the developer in the hotel. That company thereupon became the owner of all of the rooms in Phase 2, approximately 55 percent of the rooms in Phase 1, certain retail and other space in the hotel complex, and the shares of the appellant Village Gate Resorts Ltd.

[6] Upon acquisition of the hotel by B.P.Y.A. 138 Holdings Ltd., the limited partners convened a meeting for the purpose of winding up the partnership. The appellant then commenced Action No. C891212 seeking inter alia a finding that the general partner was not in breach under the Limited Partnership Agreement as well as an interlocutory injunction restraining the limited partners from proceeding with the meeting. An injunction was granted by the Supreme Court of British Columbia on 24 May 1989.

[7] From the time of its taking over ownership of the hotel, B.P.Y.A. 138 Holdings Ltd. continued a practice that had already been put into place by the previous owner. That practice was to deposit all revenues from Phases 1 and 2 of the hotel into bank accounts and to pay all expenses of the hotel from those bank accounts. Subsequently, financial statements were produced that determined the respective interests of the partnership and the Phase 2 holdings of B.P.Y.A. 138 Holdings Ltd. in the monies in the accounts.

[8] The Partnership Agreement provided that the assets of the partnership were to be held by Village Gate Resorts Ltd. in trust. However, given that the hotel was operated as a single entity, the appellant did not attempt to maintain the partnership funds in a separate trust account. Ultimately, this practice was found to be a material breach of the Limited Partnership Agreement. The Chambers judge, hearing this matter in 1995, did not order dissolution of the partnership but vacated the injunction.

[9] The respondent limited partners immediately requisitioned another meeting for the purpose of dissolving the limited partnership. The appellant then devised a method of separating partnership funds from the funds of the hotel and maintaining them in a separate account. It put this system into operation and then applied for another injunction to prevent the second meeting from proceeding. The Chambers judge granted that injunction on 12 July 1995.

[10] Ultimately, both judgments were appealed to the Court of Appeal. This Court found, in essence, that the breach of trust committed by the appellant could not be cured and discharged the second injunction: Village Gate Resorts Ltd. v. Moore (1997), 47 B.C.L.R. (3d) 153 (C.A.). The limited partners thereupon convened a meeting and on 16 November 1997 voted to dissolve the limited partnership.

[11] A hearing was then held to determine the damages suffered by the respondents because of the injunctions.

PROPER APPROACH TO MEASURING DAMAGES

[12] I am of the opinion that the trial judge correctly stated the principles to be applied. I agree with the reasons for judgment found in paragraphs 6 and 7 which read as follows:

The principle to be applied in the assessment of damages for an injunction mistakenly granted is as stated by the defendant. As described in textbooks, the damages are limited to those losses which are the natural consequence of the injunction of which the party obtaining the injunction has notice at the time (Halsbury's Laws of England, 4th ed.(reissue), v. 24 (London: Butterworths, 1991) at para. 987; Kerr & Paterson, Kerr on Injunctions, 6th ed. (London: Sweet & Maxwell, 1927) at 667). These principles are fixed and clear according to Lord Diplock who said in Hoffmann-La Roche v. Secretary of State for Trade & Industry, [1975] A.C. 295 at 361(H.L.):

... if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction: see Smith v. Day (1982) 21 Ch.D. 421, per Brett L.J., at p. 427.

The few cases on this point were carefully considered by Spencer, J. in Fletton Ltd. v. Peat Marwick Ltd., supra. at 310-312. He cited the following passage from Smith v. Day (1882), 21 Ch.D. 421 at 428 (C.A.):

If damages are granted at all, I think the Court would never go beyond what would be given if there were an analogous contract with or duty to the opposite party. The rules as to damages are shewn in Hadley v. Baxendale [9 Ex. 341]. If the injunction had been obtained fraudulently or maliciously, the Court, I think, would act by analogy to the rule in the case of fraudulent or malicious breach of contract, and not confine itself to proximate damages, but give exemplary damages. In the present case there is no ground for alleging fraud or malice. The case then is to be governed by analogy to the ordinary breach of a contract or duty, and in such a case the damages to be allowed are the proximate and natural damages arising from such a breach, unless as in Hadley v. Baxendale, notice had been given to the opposite party, of there being some particular contract which would be affected by the breach.

 

In Fletton Ltd. v. Peat Marwick Ltd., supra., the court awarded as damages the continuing costs of preserving certain washer units because of the injunction, costs that would not otherwise have been incurred if the injunction had not been given and if the defendants had been allowed to go ahead with plans to destroy the units. These included storage, insurance, and lost interest costs.

 

I also refer to the judgment of Spencer J. in Fletton Ltd. v. Peat Marwick Ltd.(1986), 7 B.C.L.R. (2d) 307 (S.C.), mentioned by the trial judge as well as the English Court of Appeal decision in Cheltenham & Gloucester Building Society v. Ricketts, [1993] 4 All E.R. 276. I also agree that since the proceeding is of an equitable nature, the principle adopted must be fair and reasonable in all of the circumstances rather than a slavish application of the rule to be applied: Air Express Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. (1979-1981), 146 C.L.R. 249 at 261 (Aust.H.C.).

[13] The appellant argued at paragraph 19 of its factum that the learned trial judge erred as follows:

It is submitted that the profit earned by the Plaintiff from the management fees which would not have been paid had the partnership been dissolved is not the proper measure of damages. The proper measure of damages is the amount lost by the Defendants as a result of the injunction, not the amount gained by the Plaintiff. The two are not the same. The changed circumstances following the dissolution of partnership must be taken into account. [Emphasis in original]

 

In other words, the appellant argues that the learned trial judge assessed damages according to the law of restitution, not the law of contract. Paragraph 22 of the appellant's factum states as follows:

It is submitted that in order to determine the damage or loss suffered by the Defendants as a result of the continuation of the limited partnership, the Court must compare the circumstances as they would have existed had the limited partnership been dissolved with the circumstances which actually existed as a result of its continuation.

 

[14] I am of the opinion, in the very peculiar circumstances of this case, that the learned trial judge did not make the error stated in the appellant's factum.

 (More)

Delta Hotel, Whistler: Court awards limited partners $3,385,000 in damages from breach of trust

 The Delta Hotel and Village Suites, Whistler, BC

                                                Date:  19990125
Docket: C953819
Registry: Vancouver



IN THE SUPREME COURT OF BRITISH COLUMBIA




BETWEEN:


VILLAGE GATE RESORTS LTD.


PLAINTIFF
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, AUSTERVILLE 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 COCKROFT,
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
Docket: C891212
Registry: Vancouver
BETWEEN:
VILLAGE GATE RESORTS LTD.

PLAINTIFF
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, AUSTERVILLE 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 COCKROFT,
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, 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
AND:

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

DEFENDANTS BY COUNTERCLAIM


REASONS FOR JUDGMENT

OF THE

HONOURABLE MADAM JUSTICE DILLON



Counsel for the Plaintiff:
and BPYA 138 Holdings Ltd. W.B. McAllister, Q.C.

Counsel for certain
defendant limited partners: D. Rae, Q.C.

Counsel for certain
defendant limited partners: A. Borrell


Place and Dates of Hearing: Vancouver, B.C.
October 19, 1998
November 30, 1998


[1] This is an inquiry into whether the defendant limited
partners have sustained any damage and, if so, the amount of
such damage, by reason of the injunctions granted and the
undertakings given by the plaintiff on May 24, 1989 and July
12, 1995. The inquiry was ordered on March 13, 1998 following
lengthy proceedings at trial in 1995 and an appeal in 1997.

Factual Background

[2] The inquiry arises from injunctions that were granted to
prevent certain limited partners from holding an extraordinary
meeting of the partnership to consider a resolution for
dissolution of the partnership. The plaintiff obtained an
interim injunction to prevent dissolution of the partnership on
March 16, 1989, which became an interlocutory injunction on May
24, 1989. Following a lengthy trial in 1995, the British
Columbia Supreme Court ordered the first injunction to be set
aside, amongst other decisions made. When certain limited
partners again attempted to hold an extraordinary meeting to
dissolve the partnership, the plaintiffs obtained a second
injunction to restrain dissolution of the partnership. The
matter went to appeal. The British Columbia Court of Appeal
found the plaintiff to be in breach of trust by co-mingling
partnership trust revenues with plaintiff's funds, to be in
default of duty in the effective borrowing of partnership funds
for the plaintiff's benefit and the benefit of its operating
group, and to be in default of duty in the granting of a
floating charge over partnership assets as security for loans
made by the plaintiff's affiliated companies (Village Gate
Resorts Ltd. v. Moore (1997), 47 B.C.L.R. (3d) 153 at 173
(B.C.C.A.)). The Court of Appeal also set aside the second
injunction which then allowed the limited partners to proceed
with the extraordinary general meeting. In November 1997, the
partners resolved to dissolve the partnership and place it in
receivership.

The Measure of Damage at Law

[3] The plaintiff and the defendant disagreed on the
appropriate measure of damage pursuant to an undertaking for
damages given in support of an injunction. The plaintiff said
that the measure of damage was as in tort so that the
defendants would be entitled to be placed in the position that
they would have been if the injunction had not been granted.
This principle arises in the law of negligence so that the pre-
negligence situation is restored. The plaintiff argued that
since the effect of the injunction here was to retain the
status quo, what would have happened was a change of
circumstance, particularly, the partnership would have been
dissolved at an extraordinary meeting. It said that the
defendants had the burden of proving what the changed
circumstance would have been, what their changed financial
circumstance would likely have been, and what their financial
circumstance actually was. The damages was the assessment of
the difference between their actual and likely financial
situations. The plaintiff went on to say that there was no
such evidence before the court so that the defendants failed to
prove any damage. No authority was cited for the application
of this principle to the measurement of damage following an
undertaking for damages on an injunction.

[4] The defendants submitted that the measure of damage was
such loss as was the natural consequence of the injunction or
such damages as naturally flowed from the injunction based upon
an analogy with contract law (Islands Trust v. Pinchin Holdings
Ltd. (1980), 25 B.C.L.R. 150 (B.C.S.C.); Fletton Ltd. v. Peat
Marwick Ltd. (1986), 7 B.C.L.R.(2d) 307 (B.C.S.C.)). The
natural consequence of the injunction was the continued payment
of management fees to the plaintiff pursuant to the partnership
agreement in an amount that exceeded the cost of providing
those services. The converse consideration would be: what
would be the measure of damage if the partnership was found to
have been improperly dissolved. The plaintiff would then have
been entitled to the management fees that it would have earned
minus expenses to earn those fees. While it appeared at first
that the defendant also argued that the measure of damage could
be determined by assessment based upon the breach of trust,
this was clarified to be useful by analogy only.

[5] I have not been asked and I am not assessing damages for
breach of trust or default of duty under the partnership
agreement as these are damages flowing from the litigation
itself. My sole task is the assessment of damages arising from
the injunctions. The equitable nature of this remedy is,
however, readily apparent (see Air Express Ltd. v. Ansett
Transport Industries (Operations) Pty. Ltd., [1979-1981] 146
C.L.R. 249 at 261 (Aust.H.C.)).

 

 (More)

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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Delta Hotel, Whistler: Court finds trust breached but rules against dissollution of partnership

 

Date of Release: May 26, 1995                      No. C891212

                                            Vancouver Registry

IN THE SUPREME COURT OF BRITISH COLUMBIA

BETWEEN:                           )

                                  )

Village Gate Resorts Ltd.           )

                                  )

                                  )

                   PLAINTIFF     )        REASONS FOR JUDGMENT

                                  )

AND:                               )

                                  )         OF THE HONOURABLE

Andrew Moore, Thomas Morrison,      )       

Rolf Gillardon, et. al.         )

                                 )         MR. JUSTICE LOWRY

                   DEFENDANTS         )                                                                       )      

AND:                               )     

                                  )

Barbican Properties Inc., et. al.     )

                                 )

                  DEFENDANTS BY        )

                  COUNTERCLAIM

                       

Counsel for the Plaintiff and                                       

BPYA 138 Holdings Ltd., both               

Defendants by counterclaim:          William B. McAllister Q.C.

                                               Brenda J. Brown           

Counsel for certain of the                                            

Defendants:                                     Douglas G.S. Rae          

                                              Thomas R. Manson          

                                            Andrew D. Borrell         

Counsel for Barbican Properties    

Inc., Defendant by counterclaim:        George K. MacIntosh Q.C.


                                                Lisa A. Warren            

                                                             

Heard at Vancouver:          April 25-28, May 2-3, 9-13, 16-19,                                  24-27,and 31, September 12-16, 19-20,

                           December 12-14, 1994, February 8-9,

                                21-24, 27-28, March 1-4, 1995.       


                            (41 days)


1              This action arises out of an attempt that was made six years ago to dissolve a limited partnership. Some of the limited partners sought a dissolution on the ground that the general partner was in default of its obligations under the partnership agreement in respect of a particular transaction because it had failed to act honestly, in good faith, and in the best interests of the limited partners. The partnership agreement provides that the limited partners may, by extraordinary resolution, dissolve the partnership if the general partner is in default of its contractual obligations in a material way. On the application of the general partner, the court enjoined the limited partners from passing a resolution to dissolve pending a trial to determine their right to do so. Since then the partnership has continued to operate; the determination to be made was for a time mutually put to one side. Now, at what has been a long and, regrettably, disjointed trial, a broad range of disputed allegations are made against the general partner and the corporate entities by which it has at various times been controlled from 1982 to the present. They are allegations of breaches of statutory, contractual, and equitable duties owed to the limited partners which are said to entitle them to the relief sought: a dissolution, an accounting, and damages.

2              The central question is whether a case for a dissolution now has been made out.    

       THE PARTNERSHIP AND THE CASE FOR ITS DISSOLUTION

3              The Whistler Mountain Inn Limited Partnership was formed to operate the first of two phases of the Delta Mountain Inn hotel complex which is located in what has become a world class ski resort area. The first phase, an eight story tower, opened in 1982; the second, a low rise adjacent building, in 1987. The two phases are operated by the same manager, Delta Hotels Ltd. ("Delta"), as one hotel employing a common infrastructure.

4              Phase I is subdivided into 166 strata lots all of which are guest rooms save for three that are food and beverage facilities (the "FBT" space). The limited partners are the owners of the guest or sleeping room lots. The lots are leased to the general partner for the benefit of the partnership on a long term basis to be used for the operation of a hotel business for profit. About 48% of the lots are held by 82 partners. The balance are held by one partner, BPYA 138 Ltd. ("BPYA"), which is a part of a large corporate conglomerate based in Hongkong known as the Lai Sun Group. BPYA is also the owner of Phase II, the retail store space in the hotel, and, the FBT space.

5              The general partner is Village Gate Resorts Ltd. ("Resorts"). It is a wholly owned subsidiary of BPYA. Resorts contracts with Delta for the management of the entire hotel complex.

6              The development of the complex began in 1980. Phase I was built and the strata lots were promoted and sold by the developer through various affiliated companies (the "Maple Leaf" companies) which owned and controlled the general partner until 1985. The project was financed by the Royal Bank and the provincial government. By 1985 the developer had run out of money. Barbican Properties Inc., through companies it held (the "Barbican" companies), acquired the developer's position. It built Phase II. It controlled the general partner from 1985 until early 1989 when its interests were sold to the Lai Sun Group (i.e., BPYA). That sale is the transaction that led to the attempt by some of the limited partners to dissolve the partnership by extraordinary resolution six years ago.

7              In late 1989, the Lai Sun Group purchased 49.9% of Delta Hotels.

8              There are a series of lengthy, convoluted agreements that bear on the interest held by each of the limited partners some aspects of which would tax the comprehension of even the most knowledgable commercial solicitor. The partnership agreement contains the following clause pertaining to dissolution (7.17):

     The Limited Partners may by Extraordinary Resolution: ...

b) dissolve the Partnership; ...

provided that the powers ... referred to herein shall not be exercised without the express consent of the General Partner unless the General Partner is in default in a material way hereunder ...

9              During both the Barbican and the Lai Sun periods, Resorts has had no employees. It was operated from 1985 to 1989 out of Barbican's offices by employees of Barbican and from 1989 to the present it has been operated by employees of companies in the Lai Sun Group. Those who were primarily responsible for discharging its obligations as the general partner in the Barbican period were the president and controller of Barbican: Alvin Poettcker and John Brown. They have been replaced in the Lai Sun period by a senior administrator for some of the Lai Sun Companies operated out of the group's Vancouver office and the controller for those companies: Kraven Tam and Timothy Koo.    

10             The Delta Mountain Inn is now said to be a twelve million dollar per year business with the partnership's share of gross revenues being five and a half million dollars annually. Resorts is currently realizing an annual profit derived from its management fee of about $450,000. But many, if not most, of the individuals who hold 48% of the strata lots in Phase I regard their purchase as a very unsatisfactory investment. They bought what was promoted as an interest in a first class hotel with a personal use component. They invested at or near the height of the real estate market at Whistler, lured by optimistic projections of operating profits that would offset the cost of financing and, for many, considerable tax advantages that might be taken. The market deteriorated dramatically in the early 80's, however, and the anticipated level of profit did not materialize. Indeed, there was no distribution to the partnership at all until 1987. There has been virtually no prospect of selling Phase I lots individually without accepting very substantial losses. In addition, some of the limited partners consider themselves the victims of broken promises they attribute to the developer with respect to opportunities they were to be given to participate in Phase II and in respect of the personal use of their strata lot units in particular.   

The Position Taken by Those Who Seek to Dissolve

11             Most, but not all, of the 82 limited partners who hold 48% of the strata lots in Phase I (seven of which have testified at the trial) join in seeking to have the partnership dissolved. They contend that there has been a long history of misconduct attributable to the general partner and to its owning and controlling affiliates.

12             In the Maple Leaf period from 1982 to 1985, they say that, contrary to the partnership agreement, Resorts was insolvent and, contractually, that served to terminate the partnership more than ten years ago such that, although it has continued to operate, it is now to be dissolved.

13             As to the Barbican period, they say the interests of the limited partners were ignored and the powers of the general partner were wrongly used in respect of the acquisition of the Maple Leaf position, the development of Phase II, and the ultimate sale to the Lai Sun Group, all to the benefit of Barbican's shareholders. They say in addition that the general partner failed to keep accurate financial records of their personal use charges.

14             Then, in the Lai Sun period, they say the hotel has been operated without regard to the obligations of the general partner to the partnership and that has been accentuated by the conflict of interests inherent in the ownership structure. They say the trust obligations associated with the partnership's assets have been ignored; the general partner's allocation of operational costs has been contrary to the interests of the limited partners; the interest acquired by the Lai Sun Group in Delta was not disclosed to the partnership; and the general partner's compliance with certain partnership resolutions has been refused.

15             With respect to the obligations said to have been breached in their case against Resorts, these partners rely on the trust provision and several other specific provisions of the partnership agreement. They rely as well on what they maintain is the broad fiduciary obligation borne by a general partner to act in the best interests of the limited partnership. The obligation is codified in s. 22 of the Partnership Act, R.S.B.C. 1979, c. 312 and it was expressly incorporated in the partnership agreement (5.05):

     The General Partner covenants that it will exercise the powers and discharge its duties under this Agreement honestly, in good faith, and in the best interests of the Limited Partners and exercise the care, diligence and skill of a reasonably prudent person.

It is, they say, an obligation with which a general partner is always burdened subject only to the extent its duty may be modified by the partnership agreement: 337965 B.C. Ltd. v. Tackama Forest Products Ltd. (1992), 67 B.C.L.R. (2d) 1 (C.A.). They cite the following from R.C.I. Banks, Lindley & Banks on Partnership, 16th. ed., (Sweet & Maxwell: London, 1990) (pp. 410 and 412.) concerning the meaning of good faith in respect of partnerships generally:

Perhaps the most fundamental obligation which the law imposes on a partner is the duty to display complete good faith towards his co-partners in all partnership dealings and transactions.

                  . . .

Good faith requires that a partner shall not obtain a private advantage at the expense of the firm. He is bound in all transactions affecting the partnership, to do his best for the common body, and to share with his co-partners any benefit which he may have been able to obtain from other people and in which the firm is in honour and conscience entitled to participate.

They add that the obligation carries with it a specific duty which is codified in s. 58 of the Act to disclose true and full information of all things affecting the limited partnership.

16             It is then their contention that Resorts has been, and continues to be, materially in default of the contractual, equitable, and statutory obligations of the general partner such that they are entitled to dissolve the partnership.

17             Their case against Barbican and BPYA is advanced in the alternative. They first contend that, by virtue of their control of Resorts, Barbican and then BPYA were the de facto general partners and owed the same fiduciary obligation as Resorts. The limited partners are precluded from participating in the management of the partnership's business and have been vulnerable to the power Barbican and BPYA have exercised through Resorts. Support for the existence of a direct fiduciary duty is said to be found primarily in the recent decision of the Supreme Court of Canada in Hodgkinson v. Simms (1994), 117 D.L.R. (4th) 161. On this basis Barbican and BPYA are said to be liable to account for the general partner's breached obligations.

18             It is then contended that, in any event, Barbican and BPYA knowingly participated in breaches of fiduciary duties attributed to Resorts and can be held liable to the limited partners. The contention is that the equitable principle stated in Barnes v. Addy (1874), 9 Ch. App. 244, that those who become constructive trustees as recipients of property they know to be impressed with a trust -- those who knowingly become implicated in a breach -- may be held liable to the same extent as the trustee, is as applicable to a breach of a fiduciary duty as it is to a breach of trust: MacMillan Bloedel Ltd. v. Binstead et al. (1983), 22 B.L.R. 255 at 286 (B.C.S.C.). The basic test for the imposition of liability is said to have been stated in Air Canada v. M & L Travel Ltd., [1993] 3 S.C.R. 787 at 808:

Whether personal liability is imposed on a stranger to a trust depends on the basic question of whether the stranger's conscience is sufficiently affected to justify imposition of personal liability.

On this basis it is said that, by virtue of their exclusive control over Resorts, first Barbican and then BPYA have been implicated, indirectly, in the breaches of duty attributed to the general partner and have incurred liability to the limited partners in the result.

19             The limited partners who join in the action seek first a declaration of material default on the part of Resorts and then a dissolution either by extraordinary resolution (in respect of which the partnership agreement limits BPYA, in the circumstances now prevailing, to 20% of the vote) or by court order as provided by s. 38 of the Act. Further, they seek an accounting from 1985 to date against Resorts, Barbican, and BPYA. No action is taken against the Maple Leaf companies but these partners seek to recover from Resorts the profits derived from the management fees it received for the past ten years.

The Position of Resorts and Its Affiliates

20             Put most simply, Resorts, Barbican, and BPYA take the position that the allegations made are not supported by the evidence and that no duty owed, statutory, contractual, or equitable has been breached by the general partner. They maintain that those who controlled the general partner could not have any liability to the limited partners in any event. They say these limited partners are frustrated over what have turned out to be very poor investments and, having concluded that the dissolution of the partnership is now their best recourse, they have used this action as a platform to search for grounds whereby they can transfer at least some of their misfortune to others. Emphasis is attached to the fact that these partners have amended their pleadings many times in what is said to have been an attempt to find a basis for the relief they seek. They sought to amend at trial, more than once, even after they had closed their case. Some amendments were allowed and led to adjournments that are in part the reason for the disjointed nature of the trial. Their case has been characterized as a moving target on which it has been difficult to focus. Both Barbican and BPYA maintain that as these partners have finally put their pleaded case it cannot succeed. They maintain that, in the periods during which they have controlled Resorts, the obligations of the general partner have been properly discharged.

                          THE ISSUES

21             The issues as argued can be broadly stated as follows:

    

1) Has the general partner breached any of

its obligations to the limited partners and is

it in breach now?

          

    

2) If so, do any breaches attributable to the

general partner, viewed separately or

together, constitute a default in a           

material way as that term is employed in the

partnership agreement?

3) Have the companies by which the general

partner was controlled from time to time

incurred liability to the limited partners by

virtue of any breach of the general partner's

obligations?

4) Should an order for dissolution of the

partnership be made?

5) What, if any, accounting should be ordered?

         

22             Throughout the trial, and particularly in argument, importance has been attached to the way in which the case against the general partner and those by which it has been controlled has been framed on the pleadings as finally amended. It is therefore essential that I make reference to the pleadings but I wish to say at the outset that the deficiencies that become evident are in no way a product of deficient drafting. Quite to the contrary, they are a reflection of nothing other than the inventive approach counsel have taken, on the evidence adduced in the course of the trial, in attempting to build a case for dissolution.

23             With this in mind, I proceed to consider the alleged wrongful conduct attributed to Resorts, Barbican, and BPYA in respect of each of the three controlling periods. I then consider whether there is any default attributable to the general partner which can be said to be material. Thereafter I determine whether the partnership should be dissolved and assess what if any other relief those who seek a dissolution are otherwise entitled to against Resorts, Barbican, or BPYA.

24             I endeavour to address each allegation argued, regardless of the pleadings, except where I consider the evidence sufficiently unsatisfactory to permit a proper adjudication.

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Delta Hotel, Whistler: Court refuses to dismiss suit by investors against Barbican

Date of Release: July 20, 1994                     No. C89l2l2

                                            Vancouver Registry

IN THE SUPREME COURT OF BRITISH COLUMBIA

BETWEEN:                           )

                                  )

VILLAGE GATE RESORTS LTD.          )

                                  )

                   PLAINTIFF      )       REASONS FOR JUDGMENT

                                  )

AND:                               )

                                  )       

ANDREW MOORE, et al, and WHISTLER ) ON AN APPLICATION FOR NON-SUIT MOUNTAIN INN, LIMITED PARTNERSHIP    )     

                                  )

                   DEFENDANTS     )

                                  )         OF THE HONOURABLE

AND:                               )

                                  )

BARBICAN PROPERTIES INC., ET. AL. )

                                  )         MR. JUSTICE LOWRY

                   DEFENDANTS BY )

                   COUNTERCLAIM )

Counsel for Village Gate Resorts Ltd.     W.B. McAllister, Q.C.

and B.P.Y.A. l38 Holdings Ltd.:                  Brenda Brown

Counsel for the Defendants:                          D.G.S. Rae

                                                   T.R. Manson

                                                    A. Borrell

Counsel for Barbican Properties Inc.:    George Macintosh, Q.C.

                                                   Lisa Warren

Heard at Vancouver, B.C.:              May 26, July l3-l4, l994

     After four weeks of trial, an application to dismiss the action against it is brought by Barbican Properties Inc. which is sued by a number of people (the "investors") who purchased interests in a limited partnership as part of the acquisition of strata lot units in a hotel complex at Whistler Mountain. The general partner, Village Gate Resorts ("Resorts"), operates the hotel, or better, engages an agent to do so, for the benefit of the partnership. Resorts was, for a period of years, owned by Barbican through an intermediary company. It had then no employees and was managed by the officers of Barbican. The investors maintain that Resorts breached both contractual, statutory, and fiduciary duties owed to them for which it must account before, during, and after Barbican's ownership. They contend that Barbican is also liable to account because it knowingly participated in Resorts' breaches and benefited in the result. For the limited purpose of this application only, Barbican accepts that Resorts breached fiduciary duties, but says that the investors' case, which is now closed, is devoid of any evidence upon which, as a matter of law, it could be held liable as a participant. This is then a "no evidence" motion for non-suit. The investors say it is ill-founded both procedurally and substantively.


     The issues are two: Is there some evidence that supports all of the requisite elements of any pleaded case against Barbican? If not, is there any reason the action against it should not be dismissed now?

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