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The Law of Partnership

The requirements for establishing a partnership are set out in Blue Line Hockey Acquisition Co., Inc. v. Orca Bay Hockey Limited Partnership, 2008 BCSC 27 at paras. 35-56, afFd 2009 BCCA 34

I have quoted extensively from the judgement as it is an excellent summary of the law arising out of the battle for ownership of the Vancouver Canucks

The Requirements of Partnership and Joint Venture

1. The Characteristics of a Partnership

[35] The law does not permit partners to take advantage of one another. At common law, partnership is a presumptively fiduciary relationship. While a partnership exists, the law imposes on its members the duty of utmost loyalty with respect to the business and assets of the partnership. In addition to the duties existing at common law, partners in this province are required by statute to act with “utmost fairness and good faith” toward one another (Partnership Act, R.S.B.C. 1996, c. 348, s. 22(1)).
[36] However, the law requires cogent evidence establishing the presence of the prerequisites of partnership before it will impose these onerous duties.
[37] A partnership exists only if:
a) There is a valid contract of partnership; and
b) The members of the partnership are
(i) carrying on business;
(ii) in common; and
(iii) with a view to profit.

(a) The contractual requirement

[38] Partnership is defined in s. 2 of the Partnership Act as the “relation which subsists between persons carrying on business in common with a view to profit”. While the statute does not mention contract, the existence of a contractual foundation of partnership is essential:
Partnership, although often called a contract, is more accurately described as a relationship resulting from contract. This was made clear in the original statutory definition introduced into the House of Lords but not, ultimately, in the Act [of 1890] itself. Nevertheless, the origin of the relationship in an agreement, whether express or implied, was clearly established before the Act and may legitimately be inferred from its provisions.
(R.C. l’Anson Banks, Lindley & Banks on Partnership, 18th ed. (London: Sweet & Maxwell, 2002) [Lindley & Banks] at para. 2-13) (Emphasis in the original)

[39] Whether oral or written, there must be a completed agreement before a partnership will be found to exist. In the case of Porter v. Armstrong, [1926] S.C.R. 328, 2 D.L.R. 340 [Porter] at para. 3, the court said the following:
Partnership, it is needless to say, does not arise from ownership in common, or from joint ownership. Partnership arises from contract, evidenced either by express declaration or by conduct signifying the same thing. It is not sufficient there should be community of interest; there must be contract. (Emphasis added)

[40] Partnerships arise from contract, and it follows that the contract underlying a partnership must meet all of the prerequisites of a contract. Those prerequisites are the following:
a) An offer containing all of the essential terms, and an acceptance of the offer (that is, a meeting of the minds or consensus ad idem);
b) Certainty of the agreed terms;
c) Consideration; and
d) The intention to create legal relations.
(see Whistler Mountain Ski Corporation v. Projex Management Ltd. (1994), 90 B.C.L.R. (2d) 283 at para. 41, [1994] B.C.J. No. 282 (QL) (B.C.C.A.))

[41] In Surerus Construction and Development Ltd. v. Rudiger (2000) BCSC 1746, 11 B.L.R. (3d) 21 [Surerus], Wilson J., citing Porter and other cases applying its principles, stated the following at para. 14:
As “partnership arises from contract”, it is necessary that there be certainty of the essential terms for there to be a binding contract.

[42] In Surerus, Wilson J. concluded there was no contract of partnership because some of the essential terms were missing. Whether the contract is written or oral, said Wilson J., there must be consensus as to the contract’s essential terms. Even though the parties may have considered themselves to be partners and held themselves out as partners, Wilson J. held at para. 33 that the alleged contract of partnership failed for lack of certainty:
In conclusion, notwithstanding the fact that both Mr. Surerus and Mr. Rudiger considered themselves to be partners, held themselves out as such, and acted accordingly, there is not sufficient certainty in the terms of any agreement to enable a determination of the basis upon which a partnership was to be established, or conducted. The court may imply terms in order to give an agreement business efficacy. However, before the court can do so, there must be agreement on the essential terms of the contract.

[43] Milroy v. Klapstein, 2003 ABQB 871, 24 Alta. L.R. (4th) 349 addressed the question of whether two real estate developers had entered into a partnership to acquire and develop certain properties. Slatter J. concluded that no partnership had been formed. While there was agreement between the partners as to the first phase of the undertaking — the acquisition of the lands — there was no agreement as to the decision-making process for the second phase — the preparation of a master development plan. Further, the agreement concerning the final phase (the actual development of the properties) was too vague to be enforceable. At para. 24, the court said:
All contracts, including partnership agreements and joint ventures, must be sufficiently precise to be enforceable. The identification of the exact terms upon which final agreement must be reached varies from contract to contract. A partnership agreement contemplates a long-term business arrangement between the partners; it is obviously impossible to anticipate and agree on every business decision that will ever be made. Therefore with a partnership agreement, what must be agreed to are the essential terms of the partnership per se: the identity of the partners, the fact that there is to be a partnership, the business of the partnership, and usually some of the essential financial terms. (Emphasis added)

[44] Where the parties have not entered into a written partnership agreement, there must be other evidence of their intention to be bound as partners. In Cullen v. Minister of National Revenue, [1985] 2 C.T.C. 2059, 85 D.T.C. 409 (T.C.C.) [Cullen] the court said the following at p. 2064:
… [T]he courts must be careful not to attribute to the parties intentions which they never had and which are not supported by the evidence. … The fact that the appellant and his wife describe themselves as partners is not conclusive…. In cases such as the case at bar where no written partnership agreement exists the intention of the parties may be ascertained from their conduct, the mode in which they have dealt with each other, and the mode in which each has, with the knowledge of the other, dealt with other people. …
(see also: Chung v. Hoy (1994), 19 C.L.R. (2d) 297(B.C.S.C.) at paras. 45-46; Surerus at para. 13).

[45] In Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367 [Backman], the court observed that a pragmatic approach must be taken when determining whether the ingredients of partnership are present. The existence of a contract of partnership was not an issue in the case, however. The parties had entered into a written partnership agreement and clearly intended to create a partnership.
[46] The role of the parties’ intentions in determining whether a partnership exists was discussed by the court in Backman at para. 25:
As adopted in Continental Bank, supra, at para. 23, and stated in Lindley & Banks on Partnership, supra, at p. 73: “in determining the existence of a partnership … regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case”. In other words, to ascertain the existence of a partnership the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit.

(b) The Statutory Ingredients of Partnership

(i) Carrying on Business

[47] “Business” is defined in most provincial legislation governing partnerships (except in British Columbia, which has no definition) as “every trade, occupation and profession”. In Backman at para. 19, the court referred with approval to two existing legal definitions. The first is contained in Black’s Law Dictionary (6th ed. 1990): “To hold one’s self out to others as engaged in the selling of goods or services.” The second, noted the court (citing Gordon v. The Queen, [1961] S.C.R. 592):
… [R]equires at least three elements to be present: (1) the occupation of time, attention and labour; (2) the incurring of liabilities to other persons; and (3) the purpose of a livelihood or profit. …

[48] The court in Backman went on to observe that a valid partnership does not require the creation of a new business, or anything more than a single transaction. Further, the partnership need not necessarily hold meetings, enter into new transactions or make decisions.
[49] However, the business must be “carried out”. The parties involved must do more than simply agree to carry out a business; they must in fact carry it out. As noted in Lindley & Banks at para. 2-15, “it is the carrying on of a business, not a mere agreement to carry it on, which is the test of partnership.”
[50] Whether parties have begun to carry on the business of the partnership depends largely on the true characterization of the partnership’s objective or enterprise. That principle was emphasized by the English House of Lords in Khan v. Miah, [2001] 1 All E.R. 20 H.L. [Khan], a case in which the parties agreed to start a restaurant in partnership. The plaintiff provided the capital. The defendants, who were experienced in the restaurant business, were to operate the restaurant. The plaintiff invested substantial capital to purchase and renovate the premises. A matter of weeks before the restaurant opened, the parties had a falling out and parted ways. The defendants opened the restaurant and operated it on their own.
[51] The Court of Appeal held that no partnership had been created because the restaurant had not begun operating when the parties parted ways. The House of Lords disagreed, concluding that the Court of Appeal had characterized too narrowly the nature of the partnership’s enterprise. The parties, said the court, did not agree to operate an existing restaurant. They agreed to find suitable premises, renovate them and then open a restaurant.
[52] The question, said the court in Khan at p. 24, is the true scope of the venture in question:
… The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. …

[53] That approach was endorsed by our Court of Appeal in Scragg v. Lotzkar, 2005 BCCA 596. Ryan J.A. said the following at para. 34:
The real question is whether it can be said … that the partnership’s enterprise had commenced. That is, had the parties done enough to be found to have commenced the joint enterprise in which they had agreed to engage. (Emphasis added)

(ii) Carrying on the business “in common”

[54] It is not sufficient that the business of the partnership be carried out. It must be carried out in common. As observed by the court in Backman at para. 21, partnerships are created by contract and the common purpose of the partnership will usually be found in the partnership agreement setting out the respective rights and obligations of the partners.
[55] A relevant consideration in determining whether the business is being carried out in common is the authority of any one partner to bind the partnership. The fact that the management of a partnership rests with a single partner may not undermine the legal status of the partnership, so long as the arrangement is the subject of agreement by all partners: Backman at para. 21.
(iii) Carrying on business “with a view to profit”

[56] The enterprise must be created or operated with the expectation by the partners of receiving a profit. Whether there exists a “view to profit” depends upon the intentions of the parties entering into the alleged partnership and the nature of the enterprise itself. Profit need not be the overriding intention. It is sufficient to demonstrate that the enterprise has an ancillary or secondary profit-making purpose: Backman at para. 22.
2. The Characteristics of a Joint Venture

[57] The ingredients of a joint venture are the following:
a) As is the case with partnerships, the joint venture must have a contractual basis; and
b) There must be:
(i) a contribution of money, property, effort, knowledge or other asset to a common undertaking;
(ii) a joint property interest in the subject matter of the venture, which is usually a single or ad hoc undertaking;
(iii) a right of mutual control or management of the venture;
(iv) an expectation of profit and the right to participate in the profits;
(Canlan Investment Corp. v. Gettling (1997), 37 B.C.L.R. (3d) 140, 95 B.C.A.C. 16 [Canlan (B.C.C.A)])

[58] As with a partnership, a joint venture is founded on a contract between the parties. In Central Mortgage & Housing Corp. v. Graham (1973), 43 D.L.R. (3d) 686, 13 N.S.R. (2d) 183 (N.S.T.D.) [Central Mortgage], the court cited Williston on Contracts, 3rd ed. (1959) at p. 706:
…. A joint venture is an association of persons, natural or corporate, who agree by contract to engage in some common, usually ad hoc undertaking for joint profit by combining their respective resources, without, however, forming a partnership in the legal sense (of creating that status) or corporation… (Emphasis added)

[59] Central Mortgage has been followed in this province. In Canlan Investment Corp. v. Gettling, [1996] B.C.J. 1803 (QL) (B.C.S.C.) aff’d, (1997), 37 B.C.L.R. (3d) 140 (B.C.C.A.) [Canlan], Tysoe J. (as he then was) accepted as a correct proposition of law that a joint venture must have a contractual basis. The facts of the case are as follows. One of the parties to the dispute owned land in the Township of Langley suitable for the construction of an ice rink. The other party had experience in operating ice rinks and had the necessary capital on hand. The two responded to a proposal by the Township to construct an ice rink. Their proposal was accepted by the Township, and the parties then began negotiating a formal agreement to govern their venture. They agreed on most essential terms, but could not agree on the handling of a tax issue arising from the ownership structure they intended to use. Their relationship broke down. One of the parties sued, claiming the parties had entered into a joint venture.
[60] Mr. Justice Tysoe concluded at para. 56 that while the parties had agreed to work together toward the objective of the joint venture, they did not “manifest an intention to be legally bound”.
[61] The joint venture in Canlan was the building and operating of the ice rink, which was to be governed by a shareholder agreement, rather than the acquisition of the opportunity to do so. Because the parties did not ultimately come to an agreement on all of the terms of the shareholder agreement, no joint venture had been created.
[62] The decision of Tysoe J. was upheld on appeal (see Canlan (B.C.C.A.)). Goldie J.A., writing for the court, said the following at para. 35:
While a joint venture may take many forms and may be described in many ways, I am of the view that for legal consequences to arise as between the co-adventurers on the ground their association has become a joint venture there must be a contractual underpinning of some description.

[63] The existence of a contractual underpinning was also the issue in the recent case of Zynik Capital Corp. v. Faris, 2007 BCSC 527 [Zynik], the facts of which bear resemblance to those in the present case. Zynik and Intergulf, an investment company, agreed to jointly pursue an opportunity to purchase the Versatile Shipyards. The parties signed a memorandum of understanding describing the basic terms of the venture pending the execution of a formal agreement.
[64] The memorandum specified a date on which the joint venture would end if the acquisition did not occur. Negotiations ensued with the bank holding security over the property. Intergulf took responsibility for finalizing the negotiations. A few days before the closing date, a dispute arose between the parties and Intergulf decided to acquire the property for itself. However, Intergulf failed to close the transaction and the bank sold the property to a third party.
[65] Zynik sued, claiming that Intergulf breached its obligations arising from the joint venture allegedly created by the memorandum. Tysoe J. held that the joint venture described in the memorandum was not a binding contract for two reasons:
a) First, the parties had not agreed on the price they would pay for the asset, and had not even agreed on a maximum price they would be willing to bid for the asset; and
b) Second, even if the price had been agreed, Intergulf would not have been bound because it had reserved the right to conduct due diligence on the property. By implication, Intergulf would not have been bound to proceed with the transaction if it was dissatisfied with the results of its due diligence.

[66] Because the parties had failed to agree on essential terms, their arrangement amounted to an agreement to agree, which is not enforceable. Tysoe J. referred to the leading English case of May v. Butcher v. The King, (1929), [1934] 2 K.B. 17 (H.L.) at p. 21:
To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties.

[67] In summary, while the constituent ingredients of a partnership differ slightly from that of a joint venture, both require as their foundation a binding contract among the partners or joint venturers which contains all of the essential terms of the agreement between the parties.

B. Duties arising from Partnerships and Joint Venture Agreements

[68] As noted earlier, partnerships are presumptively fiduciary relationships at common law. Section 22 of the Partnership Act imposes on partners the additional duties of utmost fairness and good faith in their conduct toward one another.
[69] By contrast, judicial opinion is divided on the issue of whether joint venture agreements presumptively create fiduciary relationships. (Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142, 167 D.L.R. (4th) 577 [Cadbury Schweppes]; Visagie v. TVX Gold Inc. (2000), 187 D.L.R. (4th) 193, 132 O.A.C. 231 [Visagie]).
[70] Parties enter into joint venture agreements in circumstances that vary greatly. They are sometimes concluded by experienced businessmen with similar expertise and equal bargaining power acting at arm’s length in a commercial transaction. Other joint venture agreements are concluded in circumstances where one of the parties is particularly vulnerable to the unilateral power or discretion of another (or others). The question is whether the prohibition against self-dealing should be applied to both situations.
[71] The reasons of Sopinka J. in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, 61 D.L.R. (4th) 14 continue to be regarded as the touchstone on the limited role of fiduciary duties in relationships between arm’s length commercial parties. Mr. Justice Sopinka said the following at p. 595:
The consequences attendant on a finding of a fiduciary relationship and its breach have resulted in judicial reluctance to do so except where the application of this “blunt tool of equity” is really necessary. It is rare that it is required in the context of an arm’s length commercial transaction. …
… In my opinion, equity’s blunt tool must be reserved for situations that are truly in need of the special protection that equity affords.

[72] It is the nature of the relationship, not the specific category of actor involved, which gives rise to fiduciary duties. Sopinka J. adopted at p. 599 the characteristics of a fiduciary relationship described by Wilson J. in Frame v. Smith, [1987] 2 S.C.R. 99 at para. 40, 42 D.L.R. (4th) 81 [Frame]:
1) The fiduciary has scope for the exercise of some discretion or power.
2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[73] Sopinka J. made two further cautionary statements. First, self-dealing, of itself, cannot create fiduciary duties. Only where a fiduciary duty exists do the equitable rules about self-dealing apply. Second, the fact that confidential information is obtained and misused cannot itself create a fiduciary obligation. The exchange of confidential information and restrictions on its use may be incidents of a fiduciary relationship but are not constituent elements of the relationship.
[74] Visagie concerned a joint venture in which the plaintiffs disclosed commercially valuable information to the defendants about a potential mine site in Greece. The information was protected by a written confidentiality agreement. Ultimately, the Greek government decided not to sell the mine privately. The joint venture agreement was terminated as a result. Thereafter, the defendants successfully bid on the mine in a public offering and developed a lucrative gold mine. The plaintiffs sued for breach of fiduciary duty a breach of confidence.
[75] The trial judge, Feldman J. (as she then was), relied on the decision of Wonsch Construction Co. v. National Bank of Canada (1990), 75 D.L.R. (4th) 732, 42 O.A.C. 195 [Wonsch] to conclude that the parties owed one another fiduciary duties as a result of the joint venture. She also concluded, on the basis of Wonsch, that the fiduciary duties extended beyond the termination of the joint venture agreement and prohibited the defendants from competing for the mine site.
[76] On appeal, the court unanimously concluded the trial judge erred in holding that the joint venture gave rise to fiduciary duties and that those duties survived the termination of the joint venture. Charron J.A. (as she then was) observed that any duties owed by parties to one another during the life of a joint venture agreement, and following its termination, arose from the terms of the agreement itself and not from any fiduciary obligation imposed by law. Charron J.A. in Visagie said the following at para. 25:
The Supreme Court of Canada in Cadbury Schweppes, supra, makes it clear that fiduciary obligations are seldom present in a commercial context between parties acting at arm’s length. Binnie J., in writing for the Court, quoted at pp. 163-164 the following from Frame v. Smith, [1987] 2 S.C.R. 99:
Because of the requirement of vulnerability of the beneficiary at the hands of the fiduciary, fiduciary obligations are seldom present in the dealings of experienced businessmen of similar bargaining strength acting at arm’s length…. The law takes the position that such individuals are perfectly capable of agreeing as to the scope of the discretion or power to be exercised, i.e., any “vulnerability” could have been prevented through the more prudent exercise of their bargaining power and the remedies for the wrongful exercise or abuse of that discretion or power, namely damages, are adequate in such a case.

[77] Since Visagie there has been increasing judicial reluctance to accept the proposition that fiduciary obligations presumptively arise from joint ventures. In Chitel v. Bank of Montreal (2002), 26 B.L.R. (3d) 83, 45 E.T.R. (2d) 167 (Ont. S.C.J.), Boyko J. comprehensively reviewed the case law and concluded as follows at para. 167:
Although some cases support the proposition that a joint venture agreement automatically creates fiduciary obligations, the more compelling line of cases require a case specific approach to determining fiduciary duty.
(see also: Canadian Southern Petroleum v. Amoco Canada Petroleum, 2001 ABQB 803, 97 Alta. L.R. (3d) 123).