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PARTNERSHIPS - Relations of partners to one another - Expulsion of a partner

Wednesday, May 24, 2017 @ 9:21 AM  


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Appeal by the defendants from summary judgment awarding the plaintiffs damages for breach of contract. The individual plaintiff was a chartered accountant. From 1992 until 2014, the individual plaintiff, through his professional corporation, was a partner at the defendant national accounting and advisory firm and its predecessors. The partnership agreement provided for the timing and the terms of departure for each partner. For the individual plaintiff, his compulsory retirement date was Jan. 1, 2019. The partnership agreement also provided a process to request the resignation of a partner before the compulsory retirement date. The Policy Board could give notice to a partner to resign, and the partner was deemed to have resigned, if it determined that it was not in the best interests of the partnership for the partner to remain (Requested Resignation provision). In 2014, the plaintiff was called into a meeting with two other partners. He was told to retire because it was “over partnered.” He was also told that the decision to require him to retire had nothing to do with his performance or conduct. In addition, he was informed that the CEO had the absolute right to require a partner to retire and that the CEO required him to retire by the end of the year. The defendant later invoked the Requested Resignation provision of the partnership agreement as a ground to justify requiring the plaintiff to retire early. The plaintiffs brought an action against the defendant alleging that the individual plaintiff's forced retirement breached the terms of the partnership agreement. The plaintiffs were granted summary judgment and awarded damages. The judge found that the individual plaintiff’s expulsion did not comply with the language of the partnership agreement and that there was no evidence that the Policy Board independently decided that to expel the individual plaintiff was in the best interests of the partnership, and that it did not act in good faith. The judge then awarded the plaintiffs both expectation and aggravated damages, totalling $1,394,937. The defendant appealed both the finding of liability and the damages awarded, arguing that the judge erred in relying too heavily on the common law of partnerships, in awarding expectation damages, by failing to reduce damages for failure to mitigate and in awarding aggravated damages.

HELD: Appeal dismissed. Section 45 of the Partnership Act imported the common law rules into the analysis of a partnership agreement. The requested resignation provision of the partnership agreement must be interpreted in light of the partners’ duty of utmost good faith. The defendant breached the Requested Resignation provision of the partnership agreement. There was no evidentiary basis to conclude that it was in the best interest of the partnership to request the plaintiff’s retirement. Secondly, it was clear from the evidence, that the decision to expel the individual plaintiff was not made by the Policy Board as required by the provision, but by the CEO. While damages were generally not available to a partner who had been wrongfully expelled, reinstatement, in this case, was unrealistic. It was open to the judge to accept the plaintiff’s uncontradicted evidence of his damages. Aggravated damages were available, as the intangible harm from a bad faith expulsion was reasonably foreseeable and flowed from the breach of the duty of good faith.

Tim Ludwig Professional Corp. v. BDO Canada LLP [2017] O.J. No. 1865, Ontario Court of Appeal, G.R. Strathy C.J.O., K.M. Weiler and M.L. Benotto JJ.A., April 12, 2017. Digest No. TLD-May222017005