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LIMITED PARTNERSHIPS - Formation - Ability to sue

Tuesday, June 08, 2021 @ 6:13 AM  


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Appeal by the Balcom and Madden defendants from dismissal of their application for relief in respect of a derivative action on behalf of a limited partnership. Asher Place Senior Residency Limited Partnership was a limited partnership created under the Partnership Act. Madden Holdings was the general partner. The Balcoms were the controlling shareholders and principals of Madden. The other partners were Class A limited partners with Madden as the Class B limited partner, holding 3,942 Class B partnership units in trust for its Class B shareholders. The plaintiffs were a Class A limited partner and a Class B shareholder in Madden. They obtained leave to commence a derivative action on behalf of Asher Place against the general partner. Madden took the position that Asher was not a legal person and therefore could not be a proper plaintiff. Madden submitted that the derivative action was void ab initio or a nullity. Madden submitted that any derivative action could only be brought in the name of and by the general partner, namely Madden. The application judge refused the relief sought, citing the rule in Foss v. Harbottle as authorizing a derivative action on behalf of a limited partnership. The appellants appealed.

HELD: Appeal dismissed. Where partners in a limited partnership alleged that a wrong was committed by the general partner, a common law derivative action was available and should be brought in the name of and on behalf of the limited partnership. Although a limited partnership was no more a legal entity than an ordinary general partnership, it was clear that a general partnership could sue or be sued in its own name under Rule 20-1(1). There was no reason in principle why Rule 20-1(1) did not apply to limited partnerships. The Rule’s requirement that two or more persons claiming entitlement as partners was satisfied by holding a beneficial interest. In any event, the result was not dependent upon the applicability of Rule 20-1(1), as the Watson case clearly provided that a limited partner may advance a derivative claim in the name of and on behalf of a limited partnership against the general partner alleged to have wronged the partnership. There was no merit to the suggestion that such an action could only be brought by the general partner, as it defied common sense where the general partner was the alleged wrongdoer.

Asher Place Senior Residency Limited Partnership v. Balcom, [2021] B.C.J. No. 824, British Columbia Court of Appeal, D.C. Harris, G. Dickson and P.G. Voith JJ.A., April 22, 2021. Digest No. TLD-June72021006