Ontario CA Upholds Order Dissolving Partnership

The Court of Appeal for Ontario released its decision on April 8, 2010, on Ellerforth Investments Ltd. v. Typhon Group Ltd., 2010 ONCA 275. The court rejected the appeal from Typhon Group against Ellerforth Investments from an order dissolving a partnership under the provisions of the Partnerships Act.

Ellerforth Investments, a company owned by several retired doctors, entered into a partnership in 1983 to jointly hold a property on which they had earlier built a medical clinic from which to practise. The partnership was formed with the laboratory, which also operated out of the building. The laboratory's partnership interest was subsequently transferred twice, and ultimately held by Typhon Group, a real estate holding company.

The clinic, having outgrown the building, decided to move to a new location and Ellerforth was unable to secure a new tenant without significant renovation to the building. On the advice of real estate experts, the Ellerforth doctors believed that the only way to recover their interest in their investment was to sell. Typhon wanted to hold the partnership property indefinitely. The partnership agreement provided no exit mechanism, and Ellerforth's partner refused to sell the property, sell its interest, or buy out Ellerforth's interest.

On September 9, 2009, Justice Katherine Swinton of the Ontario Superior Court of Justice granted Ellerforth's application to dissolve the partnership and ordered that the property be sold. She included in the decision that the parties no longer share the mutual trust and confidence necessary to continue the partnership.

Typhon appealed the decision, arguing that the application judge misapplied the test for equitable dissolution and misapprehended the material facts. Typhon contended that Ellerforth had fallen short of its legal obligations (as set out by Justice John Ground in the Landford Greens Ltd. v. 746370 Ontario Inc. case) to find a replacement tenant; and that evidence before Justice Swinton had shown that Ellerforth, as managing partner, had not made any meaningful efforts to find one. 

The appellant also argued that the written partnership agreement between the parties explicitly provided that Typhon could withhold its consent to a sale of the property and that it could do so “unreasonably and arbitrarily.” The partnership agreement further provided that “... each partner expressly waives any rights that it might otherwise have to ... petition for a partition of the Partnership's assets” [i.e. the property].

The Court of Appeal rejected the appeal, and ordered the sale of the building.

Adrian Lang and Melissa Hogg of Stikeman Elliott LLP acted for the respondent Ellerforth Investments.

Arie Gaertner of Miller, Canfield, Paddock and Stone, P.L.C. acted for the appellant Typhon Group.