Molchan v. Omega oil and Gas Ltd.

Molchan v. Omega oil and Gas Ltd.
Collection
Supreme Court Judgments
Date
1988-02-25
Report
[1988] 1 SCR 348
Case number
19687
Judges
Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Lamer, Antonio; Wilson, Bertha
On appeal from
Alberta
Subjects
Contract
Courts
Notes
SCC Case Information: 19687
Decision Content
molchan v. omega oil and gas ltd., [1988] 1 S.C.R. 348
Myron L. Molchan Appellant
v.
Omega Oil and Gas Ltd., Omega Oil & Gas Ltd. carrying on business pursuant to the Limited Partnership Omega Oil and Gas Fund 1, Omega Hydrocarbons Ltd. and Thomas Jack Hall (otherwise known as Thomas J. Hall and Jack Hall) Respondents
indexed as: molchan v. omega oil and gas ltd.
File No.: 19687.
1987: October 23; 1988: February 25.
Present: Beetz, Estey, McIntyre, Lamer and Wilson JJ.
on appeal from the court of appeal for alberta
Partnership ‑‑ Relationship between general and limited partners ‑‑ Partnership's capital exhausted and certain operations ceased ‑‑ General Partner buying partnership's non‑producing lands in return for common shares in parent company ‑‑ Lands in turn sold to parent company ‑‑ Whether or not general partner in breach of statutory duty not to do any act making it impossible to carry on the ordinary business of the limited partnership ‑‑ Whether or not General Partner in breach of fiduciary duty to Limited Partner ‑‑ Partnership Act, R.S.A. 1980, c. P‑2, s. 55(b).
Courts ‑‑ Appellate court jurisdiction ‑‑ Whether or not appellate court's powers of review properly exercised ‑‑ Judicature Act, R.S.A. 1980, c. J‑1, s. 3 ‑‑ Alberta Rules of Court, Rules 505, 518.
Omega Oil and Gas Fund 1 was a limited partnership consisting of 60 units with a 70 per cent interest in the partnership, and respondent Omega Oil and Gas Ltd. was a general partner with a 30 per cent interest in the partnership. When the partnership had exhausted all its apparent sources of capital for the partnership and discontinued drilling operations, the General Partner offered to purchase the Limited Partners' units with common shares in its parent company, Omega Hydrocarbons Ltd. A direct form of buy‑out was precluded by tax considerations. The General Partner then sold all the non‑producing lands of the partnership to Hydrocarbons and the proceeds were applied to the reduction of bank debt. No issue was raised as to the adequacy of such price. The partnership retained certain lands.
The appellant rejected the offer to purchase and commenced an action. The case was ordered to proceed on the issue of liability only, with an accounting to be held by subsequent trial if the plaintiff were successful on the issue of liability. At the trial as to liability, it was found that (1) the sale of the non‑producing lands breached the Partnership Act; (2) the partnership continued to subsist; (3) Hydrocarbons and the General Partner were de facto one entity; and (4) Hydrocarbons acquired the non‑producing lands knowing that the transfer was in breach of the Act. An accounting was ordered. The Alberta Court of Appeal did not directly reverse the finding that sale of these lands breached the Partnership Act but rather considered the fiduciary duty arising in the operation of the Limited Partnership. It dismissed appellant's claim for the return of the non‑producing lands to the General Partner.
Held (Wilson J. dissenting): The appeal should be dismissed.
Per Beetz, Estey, McIntyre and Lamer JJ.: The plaintiff can only complain of the General Partner's sale of assets if the partnership agreement was breached or if the sale contravened a statute or some rule of common law.
The partnership is still in existence and is in receipt of oil and gas revenue. Neither the producing lands nor an interest in lands were conveyed away or otherwise disposed of by the General Partner. The disposition of the non‑producing properties, by itself, did not make it impossible to carry on the ordinary business of the partnership and the announcement of present plans not to drill was not by itself conclusive evidence of the impossibility of conducting the ordinary business of the partnership. Section 55(b) of the Partnership Act does not require that all facets of the ordinary business of the partnership be rendered impossible but rather refers to a substantial portion of its ordinary business.
The condition prescribed in s. 55(b) has, by necessary implication, not been met. The ongoing income of the partnership from oil and gas properties, the ownership of interests in oil and gas properties, and the ownership of capped gas wells must form a part of the expression "operating oil, gas and other mineral properties and interests" used in the limited partnership agreement in defining the objects and the undertaking of the partnership.
The partnership agreement, while granting power of sale to the General Partner, contained no express term whereunder the General Partner could sell partnership assets to itself. Special provisions in the partnership agreement recognize that the General Partner may carry on transactions with the partnership or otherwise which may conflict with the interests of the partnership and the other partners.
The highest status of the General Partner under the limited partnership is assumed to be that of a trustee holding the properties of the partnership on behalf of all other partners. A purchase of trust property by a trustee is voidable within a reasonable time at the instance of any beneficiary. This rule as applied to corporate fiduciaries, however, is subject to exceptions when those to whom the duty is owed have agreed to such exceptions or have consented to a sale of assets to the fiduciary with full knowledge of that sale. Further, in certain special circumstances a court of equity may approve a sale of trust assets to a trustee and there was no justification for a denial of that approval if sought. Canadian courts have indicated ex post facto approval of sales to a trustee will be given in exceptional circumstances.
Respondent owed appellant a fiduciary duty but that duty was not breached by the sale of the non‑producing lands. There was no evidence or finding of bad faith or of any attempt to pay inadequate compensation. The sale was in the partnership's best interest, given its strained financial situation, and the partnership agreement provided the General Partner with power to dispose of properties at its discretion.
At the time of its approval of this sale the Court of Appeal was not in a position that it had no alternative but to approve. The Court of Appeal by dismissing appellant's action thereby denied his claim for an order directing the return of the non‑producing lands to the General Partner. It therefore necessarily determined that the sale breached no fiduciary duty arising in the respondent General Partner in favour of the appellant, or at least did not do so in the special relationships here existing between the parties. Assuming such transfer requires judicial approval, it follows that the retrospectivity of that approval would not, in the Court of Appeal's view, be a bar.
Per Wilson J. (dissenting): The trial judge found on the evidence that the sale of the non‑producing lands of the partnership made it impossible to carry on the ordinary business of the partnership as reflected in its constitutive documents. Where a trial judge makes a finding of fact based in part on the credibility of witnesses, an appeal court should not overturn that finding unless it can be shown that the finding was "palpably wrong". The Court of Appeal did not expressly overturn the trial judge's finding. Even if it could be said that it did so impliedly by dismissing the appellant's action, it did so without identifying any palpable error. The trial judge was entitled to make the finding he did on the evidence and, having made a finding of liability, made a valid order for accounts and inquiries pursuant to the Partnership Act and the Alberta Rules of Court.
The Court of Appeal, having found no error by the trial judge, in effect conducted a trial de novo on the issue of breach of fiduciary duty, a matter not canvassed at all by the trial judge. Finding no breach, it dismissed the appellant's action. Accordingly, after succeeding at trial the appellant found himself out of court, not because the Court of Appeal found the trial judge erred in finding liability for breach of the Partnership Act, but because the Court of Appeal could find no liability for breach of fiduciary duty.
The Partnership Act gives limited partners broad rights of account and information when circumstances, such as a breach of s. 55(b) of the Act, render it just and reasonable. It is not necessary to seek a dissolution. An accounting without a dissolution is appropriate where, as in this case, the propriety of a specific transaction only is attacked. The partners can then sue for an accounting to obtain whatever benefit is due to them as a result of that transaction. The trial judge's order was also a reasonable exercise of the trial judge's discretion to direct accounts or inquiries under the Alberta Rules of Court.
On the issue of breach of fiduciary duty the sale by the General Partner of the non‑producing lands of the partnership to itself, without the consent of all the Limited Partners, is a classic breach. The fiduciary must not sell to himself or herself property which rightly belongs to the cestui que trust. Any such sale is voidable at the instance of the limited partners even if the General Partner acted in good faith and paid a fair consideration for the property. It would take the clearest of language in the constitutive documents of the partnership to permit such a sale and no such language is present. The partnership agreement did not go so far as to permit the sale of partnership assets by the General Partner to itself.
This was not an appropriate case for ex post facto court approval. Respondent could not show that the sale of the property was necessary, that no other purchaser was forthcoming or was likely to come forward within a reasonable time and that its offer in the circumstances was a favourable one. The onus of establishing this was on the respondents and not on the appellant to show prejudice from the sale of the partnership's non‑producing assets. Moreover, it was an almost impossible onus for the respondents to meet having regard to the trial judge's finding that the sale violated s. 55(b) of the Partnership Act. Indeed, if the trial judge is correct and his finding in that regard has not been reversed, the jurisdiction of a court to give retrospective approval to such a sale may be a matter of considerable doubt.
Cases Cited
By Estey J.
Referred to: Lumley v. Wagner (1852), 1 De G. M. & G. 604, 42 E.R. 687; Lumley v. Gye (1853), 2 El. & Bl. 216, 118 E.R. 749; Ex P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385; Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461; Holder v. Holder, [1968] Ch. 353; Regal (Hastings), Ltd. v. Gulliver, [1942] 1 All E.R. 378; Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 60 D.L.R. (3d) 658; Midcon Oil & Gas Ltd. v. New British Dominion Oil Co., [1958] S.C.R. 314; In re Baskerville Estate, [1946] 3 W.W.R. 347; Re Courtney and Mackie (1972), 23 D.L.R. (3d) 564; Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801; Farmer v. Dean (1863), 32 Beav. 327, 55 E.R. 128; Tennant v. Trenchard (1869), 4 Ch. App. 537.
By Wilson J. (dissenting)
Stein v. The Ship "Kathy K", [1976] 2 S.C.R. 802; Métivier v. Cadorette, [1977] 1 S.C.R. 371; Jaegli Enterprises Ltd. v. Taylor, [1981] 2 S.C.R. 2; Doerner v. Bliss & Laughlin Industries Inc., [1980] 2 S.C.R. 865; Schreiber Brothers Ltd. v. Currie Products Ltd., [1980] 2 S.C.R. 78; Lewis v. Todd, [1980] 2 S.C.R. 694; Wire Rope Industries of Canada (1966) Ltd. v. B.C. Marine Shipbuilders Ltd., [1981] 1 S.C.R. 363; Lensen v. Lensen, [1987] 2 S.C.R. 672; Colberg v. Braunberger's Estate (1978), 12 A.R. 183; Carter v. Ferguson, [1943] 2 W.W.R. 38; Clarke v. Gerbrandt (1984), 34 Alta. L.R. (2d) 289; Angus v. City of Edmonton (1977), 3 A.R. 116; Ex. P. James (1803), 8 Ves. Jun. 337, 32 E.R. 385; Aberdeen Railway Co. v. Blaikie Brothers (1854), 1 Macq. 461; Act Oils Ltd. v. Pacific Petroleums Ltd. (1975), 60 D.L.R. (3d) 658; Malone's Guardian Ad Litem v. Malone, 73 S.W.2d 38 (1934); Honeywell v. Dominick, 76 S.E.2d 59 (1953); Clay v. Thomas, 198 S.W. 762 (1917); Morse v. Hill, 136 Mass. 60 (1883); Farley v. Davis, 116 P.2d 263 (1941); Campbell v. Walker (1800), 5 Ves. Jun. 678, 31 E.R. 801; Farmer v. Dean (1863), 32 Beav. 327, 55 E.R. 128; Tennant v. Trenchard (1869), 4 Ch. App. 537; Holder v. Holder, [1968] Ch. 353; Re Courtney and Mackie (1972), 23 D.L.R. (3d) 564; Re Mitchell Estates (1956), 19 W.W.R. 86; Re Nathanson (1971), 18 D.L.R. (3d) 495.
Statutes and Regulations Cited
Alberta Rules of Court, ss. 418, 505, 518.
Judicature Act, R.S.A. 1980, c. J‑1, s. 3.
Partnership Act, R.S.A. 1980, c. P‑2, ss. 55(b), 57(b).
Authors Cited
Halsbury's Laws of England, vol. 48, 4th ed. London: Butterworths, 1984.
Lindley, Nathaniel Lindley, Baron. Lindley on Partnership, 14th ed. By Ernest H. Scamell and R. C. I'Anson Banks. London: Sweet & Maxwell, 1979.
Practice Direction, [1975] 1 All E.R. 255.
Scott, Austin Wakeman. Law of Trusts, vol. 2A, 4th ed. By Austin Wakeman Scott and William Franklin Fratcher. Boston: Little, Brown & Co., 1987.
Shorter Oxford English Dictionary, 3rd ed., "Possible". Oxford: Clarendon Press, 1959.
Snell, Edmund Henry Turner. The Principles of Equity, 27th ed. By Robert Megarry and P. V. Baker. London: Sweet & Maxwell, 1973.
Waters, D. W. M. Law of Trusts in Canada. Toronto: Carswells, 1974.
APPEAL from a judgment of the Alberta Court of Appeal (1985), 63 A.R. 369, 40 Alta. L.R. (2d) 251, allowing an appeal from a judgment of Shannon J., [1984] 3 W.W.R. 246, 51 A.R. 54, 30 Alta. L.R. (2d) 161, on the issue of liability. Appeal dismissed, Wilson J. dissenting.
Marvin V. McDill, Q.C., and Leslie L. Fryers, for the appellant.
Gerard C. Hawco and Randall Block, for the respondents.
The judgment of Beetz, Estey, McIntyre and Lamer JJ. was delivered by
1. Estey J.‑‑This appeal raises issues under the law related to limited partnerships in the Province of Alberta and most particularly the conduct of certain oil and gas development operations pursuant to a limited partnership agreement between the parties to this appeal and others. The limited partnership consists of 60 units, originally held by a group of Limited Partners, which represent in all a 70 per cent interest in the partnership, and a General Partner (the respondent Omega Oil and Gas Ltd.) which owns 30 per cent of the partnership. By the time these proceedings were commenced the parent company of the General Partner (Omega Hydrocarbons Ltd.) had bought 59 of the 60 limited partner units leaving the plaintiff as the only continuing "outside" Limited Partner. The plaintiff holds one of the 60 units.
2. The statement of facts recited by the trial judge and added to but not rejected by the Court of Appeal reveals that after a general discussion between the General Partner and the Limited Partners, the General Partner considered what might be done to improve the position of the Limited Partners who were seeking some realization on their interest units. At that time the partnership had expended all the moneys advanced to its capital account by the Limited Partners, had expended all the moneys borrowed by the partnership from the bank and from Hydrocarbons, and there were no other apparent sources of capital for the partnership. Accordingly, drilling operations were discontinued. The direct solution to the problem of the Limited Partners would have been to have Hydrocarbons reacquire the assets of the partnership so as to return to the Limited Partners on a cessation of the partnership some part at least of the moneys paid into the venture by those partners. It is said in the judgment of the Court of Appeal, and no issue was taken before this Court by any counsel, that tax implications for the Limited Partners were unfavourable and accordingly this direct route could not be followed.
3. As a result it was apparently agreed between some of the Limited Partners and the General Partner that Hydrocarbons would make an offer to purchase the units held in the partnership by the Limited Partners. Accordingly an offer was made for the purchase of those units by the delivery to the unitholders of common shares in Hydrocarbons for each of the 60 units. This offer was accepted by the holders of 59 of the 60 units, the one rejection coming from the appellant. According to his evidence, the appellant rejected the offer from Hydrocarbons because the conversion rate on the market for the offered shares was too low and therefore did not equal his view of the value of his unit. The Limited Partners had contributed $25,000 to the capital of the partnership for each unit. At the time of the share exchange the shares had a market value of approximately $25,120 for each unit. At the time of trial the market value was approximately $130,000. Apparently no issue was taken by the appellant at that time as to the illegality of such an offer by Hydrocarbons. Thereafter, on August 18, 1981 the General Partner sold to Hydrocarbons all the non‑producing lands of the partnership for $315,581 which was applied to the reduction of bank debt. The price was established by independent valuation and no issue is raised in these proceedings as to the adequacy of such price. The partnership retained certain lands.
4. The appellant in the rather lengthy amended statement of claim asked the Court to restore all the mineral properties which had been, at the time of the formation of the partnership, assigned to the General Partner on behalf of the partnership; for an order that all benefits received by Hydrocarbons from lands surrounding the partnership lands be held in trust for the appellant, that Hydrocarbons account to the appellant for all revenues received on the partnership account after May 15, 1981, and that the General Partner distribute to the appellant his share of revenues received by the partnership; for damages; and finally for "an order requiring the defendants [respondents] to specifically perform their duties and obligations pursuant to Fund 1 (the partnership agreement)". It is noted that the appellant in his statement of claim does not ask either for a dissolution of the partnership or for an order reversing the purchase by Hydrocarbons of the 59 units held by the other Limited Partners.
5. In response to these pleadings and the record established at a trial of the issue of liability only, the learned trial judge set out the following issue at the outset of his reasons for judgment:
What are the rights of a Limited Partner when the limited partnership has been effectively terminated in these circumstances:
(a) the assets of the limited partnership were sold and transferred by the General Partner without his consent;
(b) all of the other partners concurred in the transaction and exchanged their interests for shares of the company that purchased the assets; and
(c) the General Partner contends that the transactions were in the best interests of all interested parties due to the financial inability of the limited partnership to carry on its normal business.
6. While the issue is framed essentially in the form of a finding, the judgment does not go on to make precise or express findings with reference to the opening expression "the limited partnership has been effectively terminated". The trial proceeded solely on the issue of liability pursuant to a pre‑trial order, and the question of an accounting was left to a subsequent trial if liability be found in the defendants or any of them. The trial judge reached the following conclusions with reference to liability:
1. The sale by the General Partner of the non‑producing lands was in breach of s. 55(b) of the Partnership Act;
2. The partnership though inactive is still in existence;
3. The parent and subsidiary, Omega Hydrocarbons and Omega O&G (the General Partner), were de facto one and the same entity so that the parent, Hydrocarbons, was "the de facto General Partner";
4. Hydrocarbons acquired the non‑producing lands knowing that their transfer was in breach of the Partnership Act.
7. The question ultimately answered by the trial judge was that the respondent had, by the sale of certain non‑producing lands of the partnership, made it "impossible to carry on the ordinary business of the limited partnership" and this amounted to a violation of s. 55(b) of the Partnership Act.
8. The trial judge thereupon ordered an accounting pursuant to s. 57 of the Partnership Act and Rule 418 of the Alberta Rules of Court against all the defendants and directed the taking of accounts with reference to profits, losses and revenues received as a result of partnership operations as follows:
(1) All profits realized by Omega Hydrocarbons Ltd. from the non‑producing lands since the date of their acquisition;
(2) The losses, if any, which resulted from a failure on the part of the defendants to exercise option rights or participation rights with respect to the original Fund lands, option lands, lands adjacent and contiguous, and lands defined in contractual areas of mutual interest;
(3) Gross and net revenues received from oil and gas wells during the currency of the Fund;
(4) The number and value of shut‑in gas wells belonging to the Fund;
(5) All deposits and withdrawals from the Bank account of the Fund . . . .
An accounting was also directed with respect to:
(6) The adequacy of the evaluations provided by Supplementary Land Services and the D & S Group as a basis for the shares for units exchange and the transfer of the non‑producing lands of the Fund.
9. As noted above no issue was taken in the pleadings with respect to the purchase by Hydrocarbons of the 59 units held by all Limited Partners other than the plaintiff who rejected the offer. No finding was made in any of the courts below that Hydrocarbons could not in law acquire the units held by the Limited Partners in the partnership or that the exchange of 59 of those units for issued and outstanding shares of Hydrocarbons was unlawful or should or could be set aside. Accordingly, it is difficult to find any root in the facts or in the applicable law for the first part of accounting no. 6 directed by the trial judge.
10. The plaintiff can complain of the sale of assets made by the General Partner only if the partnership agreement has been breached or if the sale was in contravention of a statute or some rule of the common law. Before dealing with the issue arising under s. 55(b) of the Partnership Act, certain parts of the partnership agreement should be examined.
11. Article XII of the partnership agreement provides in part as follows:
The General Partner is hereby vested with the power to manage the affairs of the Partnership, to acquire or sell or otherwise dispose of on behalf of such Partnership oil, gas or mineral properties or other interests upon such terms as it shall deem advisable ... to execute and deliver, and to receive or pay the consideration for, all deeds and assignments of properties or other interests transferred or acquired by the Partnership . . . . [Emphasis added.]
The Offering Circular distributed in the course of the formation of the partnership provided that the General Partner "reserves the right to add and/or delete or substitute a prospect at its discretion without the approval of the Limited Partners". The provisions in Article XII of the agreement appear to include a broader power of sale than even that described in the Offering Circular.
12. Under Article XV the General Partner has the power to terminate the partnership. The Article provides in part:
... unless on or before [December 31, 2009] the General Partner shall declare the Partnership to be terminated ... on the date set forth in such Declaration of Termination . . . .
This is followed by Article XVI which provides in part:
The General Partner shall be in charge of and direct such termination and dissolution. Before making any distributions, the General Partner may sell or convey any of the Partnership properties to third parties on such terms as it may deem advisable. [Emphasis added.]
If this sale of the non‑producing lands is tantamount to a termination as the trial judge has effectively found, it is surprising that the appellant has not asked for a judicial dissolution of the partnership which in his pleadings he has not done. It is perhaps equally surprising that the respondent in the face of these difficulties did not exercise the power of termination. On the contrary, the appellant, by his pleading, insists upon a continuance of the partnership under the partnership agreement and for that purpose that the lands of the partnership heretofore transferred by the General Partner to Hydrocarbons be restored to the partnership. An order is sought by the appellant "... requiring the defendants to specifically perform his duties and obligations pursuant to Fund 1 [the partnership]". This type of order as far back as Lumley v. Wagner (1852), 1 De G. M. & G. 604, 42 E.R. 687, and Lumley v. Gye (1853), 2 El. & Bl. 216, 118 E.R. 749, the courts have declined to grant.
The Issue Arising under s. 55(b), the Partnership Act
Section 55(b) of the Partnership Act provides as follows:
55 A general partner in a limited partnership has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership without limited partners except that, without the written consent to or ratification of the specific act by all the limited partners, a general partner has no authority to
...
(b) do any act which makes it impossible to carry on the ordinary business of the limited partnership. . . .
13. The trial judge found that the sale of the non‑producing lands violated the statute and that:
Omega Hydrocarbons Ltd. acquired the non‑producing lands of the limited partnership with full knowledge that such a transfer was in breach of The Partnership Act and that it rendered the partnership incapable of carrying on its ordinary business as specified in the prospectus, the partnership agreement, and the certificate of partnership. In such circumstances it holds such properties in trust for the limited partnership.
The trial judge did not find that this sale and transfer to Hydrocarbons was rendered invalid by reason of any breach of a trust or fiduciary duty owed by the General Partner to the partnership and specifically to the appellant.
14. The Court of Appeal, however, did not in so many words reverse the conclusion of the trial court that the sale of these lands breached s. 55(b) of the Partnership Act but took as its starting point and as the central issue in the appeal "... the nature and extent of the fiduciary duty that arises in the operation of the drilling fund in the circumstances . . . ." The essential facts on the s. 55(b) issue may be briefly stated. The partnership successfully drilled oil and gas wells and some of the latter were capped for lack of market. All this activity was duly reported by the General Partner to all unit holders in the limited partnership including the appellant in eleven reports. After the partnership had expended its capital and all the funds it could borrow and after Hydrocarbons had purchased all the interests of the Limited Partners except the appellant's, the General Partner sold a block of non‑producing lands to Hydrocarbons. As a result of this and other arrangements, the indebtedness of the partnership was substantially retired and drilling operations came to a halt. Both courts are in agreement that the partnership is extant but no drilling activity is underway and indeed in the words of the President of the General Partner, there would never be drilling "ever again".
15. There is no evidence that the partnership is without any interest in lands. Indeed, as already observed, it is clear that there are producing lands or interests in producing lands and capped gas wells in the partnership. There is nothing in the record to indicate that these producing lands or interests in lands have been conveyed away or otherwise disposed of by the General Partner. The partnership must have continued to hold oil and gas lands or interests in such lands. If this were not so it would not have been necessary to describe the lands being sold as "non‑producing lands".
16. Article III sets out the objects and business of the partnership according to the Articles of Limited Partnership:
CHARACTER AND BUSINESS PURPOSE
The purposes for which said Limited Partnership has been created are to acquire, develop and operate oil, gas and other mineral properties and interests located within Canada, including, but not limited to, evaluation of properties (including seismic operations thereon), the purchase, sale and exploitation of real property, oil, gas and mineral leasehold estates, royalties, mineral interest, production payments, and overriding royalty interests, including the power to engage in such operations by itself, in association with others, or as a limited partner in other partnerships (to the extent permitted by law) and to take such actions which may be incidental to the aforesaid general purposes as the General Partner may see fit . . . .
17. On the record established at trial the appellant did not discharge any onus which may have arisen in him to demonstrate the allegation with reference to s. 55(b) on a balance of probabilities or indeed on almost any other variant of the ordinary civil onus. It will be seen that there are many branches of the business of the partnership in addition to the drilling operations discussed by the witness Hall (President of the General Partner). The Offering Circular described the limited partnership as being "formed for the purpose of acquiring, exploring and developing oil and gas properties in Canada". The Certificate of Partnership provides in part as follows:
The Partnership is formed for the purpose of acquiring, developing and operating oil, gas and other mineral properties and interests located within the Dominion of Canada.
18. The statement of Mr. Hall mentioned above with reference to the discontinuance of drilling may or may not entitle the appellant to apply for a dissolution of the partnership under the statute or for some other remedy or relief but it is by no means, at least taken by itself, proof that the main purpose for which the partnership was established cannot possibly be carried on in the future.
19. It is thus clear from exhibits and scattered testimony that the partnership is still in existence and indeed is in receipt of oil and gas revenue presumably from interests in lands acquired or drilled alone or in association with other entities. The record is silent as to what is done with these funds but there has apparently been no distribution of any earning accumulations to date. The record is also silent as to what revenues are now flowing into the partnership from its interest in oil and gas lands. Neither counsel for the appellant nor for the respondent could assist the Court as to the present level of earnings or as to what disposition was being made of these accumulating earnings. The last financial statements reveal that substantial moneys, variously described as revenue or earnings, were received by the partnership in the fiscal year 1980. The gross revenue of the Fund during the last two years prior to trial was as follows:
20. 1979: $183,915
21. 1980: $672,345
There is nothing in the record to indicate that the producing lands or interest in lands have been conveyed away or otherwise disposed of by the General Partner. Again neither counsel was able to assist the Court in describing the state of affairs of the partnership in respect of land holdings. All parties were in agreement that the partnership was still in existence.
22. There was no evidence that the disposition, by itself, of the non‑producing properties has made it impossible to carry on the ordinary business of the partnership. Indeed the accumulations which are apparently continuing from prior drilling activities will produce funds which could be used to finance additional drilling or participation in ventures with others. The receipt of royalties and other forms of income from interests in oil and gas properties is, of course, part of the announced purposes of the limited partnership. In my view, the announcement of present plans not to drill is not by itself conclusive evidence of impossibility of conducting the ordinary business of the partnership which is the requirement of s. 55.
23. There are two questions of interpretation to be settled. Does the subsection require that all facets of the ordinary business of the partnership be rendered impossible? The second question is the plain meaning of the phrase "makes it impossible to carry on". The plan of the statute is to establish a code for the formation, operation and dissolution of partnerships for the conduct of enterprises generally. By its nature such a statute is entitled to attract a beneficial interpretation by the courts. Where the partners are free to enter into an agreement according a power of termination to the General Partner, as is the case here, it is difficult to interpret s. 55 as prohibiting such a clause or as requiring the partnership to carry on a temporary or otherwise improvident undertaking in order to demonstrate that the standards of s. 55(b) have not been infringed. At its highest, s. 55(b) cannot be read as prohibiting a termination clause but rather as permitting the partnership to conduct some substantial and significant part of its undertaking without violating s. 55(b), unless termination has occurred. Reference to the ordinary business of the organization may be fairly read as referring to a substantial portion but not necessarily every single facet, however small, of its ordinary business.
24. Applied in its simplest form, the language of s. 55(b), namely "do any act which makes it impossible to carry on the ordinary business of the limited partnership" must, as indicated in the Oxford Dictionary, mean "not possible to carry on such business". See the Shorter Oxford English Dictionary (1959), p. 969. In my view no significant part of the ordinary business of the partnership became "impossible" on the sale of the non‑producing assets. The sale of the producing assets of the partnership by the General Partner would have been more likely to have contributed to a breach of s. 55(b).
25. The appellant is, of course, free to move under ss. 38 and 57(c) of the Alberta legislation or otherwise for termination of the partnership and for an accounting of assets and income and for the distribution of net assets as realized in the liquidation process. This the appellant has not sought to do. In all of this the onus is upon the appellant as plaintiff to show that such a condition has resulted. The learned trial judge did not indicate the basis upon which s. 55 has been violated or the evidence which has demonstrated the "impossibility" to the level required in civil proceedings. It may be that the trial court found that the cessation of the drilling activity "makes it impossible to carry on the ordinary business of the limited partnership". The omission of this link in the reasoning of the learned trial judge in disposing of the s. 55(b) issue overlooks all the other continuing activities of the partnership embraced in its ordinary business.
26. The Court of Appeal, on the other hand, by necessary implication has found that the condition prescribed in s. 55(b) has not been met. With respect I agree with this conclusion.
27. The ongoing income of the partnership from oil and gas properties, the ownership of interests in oil and gas properties, and the ownership of capped gas wells must surely form a part of the expression "operating oil, gas and other mineral properties and interests" used in the limited partnership agreement in defining the objects and the undertaking of the partnership.
28. The Court of Appeal, in dismissing the appellant's action, has by necessary implication, left the appellant to its own resources as to whether or not in these circumstances he should move for a termination or dissolution of the partnership in order to retrieve all or part of his capital investment from the liquidation process.
Breach of Fiduciary Duty on Sale of Partnership Lands
29. The Court of Appeal considered that the central issue arising in this appeal "deals with the nature and extent of the fiduciary duty that arises in the operation of the [partnership]" in the circumstances here existing.
30. That the General Partner has the power of sale of the assets of the partnership has already been discussed above and is undoubted. Furthermore, there is no issue as to the valuation placed on these lands by independent valuers. The question arises, however, as to whether in these circumstances the General Partner can sell the non‑producing lands to its parent company which, by an undisturbed finding by the trial court, is one and the same legal entity for these purposes as the General Partner. Put in its essential terms, can the General Partner sell these lands to itself?
31. The second question is whether or not judicial approval of such a sale can be granted after the sale has been completed. This question is discussed later.
32. The Court of Appeal has dealt in great detail with the operations undertaken by the partnership with respect to the "five prospects" assigned to the partnership on its formation. After a thorough and detailed examination of the "prospects" and the transactions of the partnership, one by one, the Court of Appeal found several mistakes or errors in an evaluation report which resulted in a restoration to the partnership by the consent of all parties of several parcels of land in one or more of the "prospects". This reduced the price payable on the sale of these lands by the purchaser. The dismissal of the action by the Court of Appeal necessarily means that the Court of Appeal found no breach of a fiduciary duty by the General Partner in connection with the sale of the non‑producing lands. As to the adequacy of the sale price (to which the only objection taken in the extensive amended statement of claim was that the evaluation report should have been updated for the three months before closing), it might be observed that the evidence before the courts below included that of the President of the General Partner who stated that there was no ready market for these lands.
33. With respect I accept the analysis by the appellate court and the conclusions drawn therefrom including the admission on the record before the courts below made on behalf of the respondent that the valuation of the four parcels of the Provost property required the removal of these lands from the transaction and a reduction of the price payable. The learned trial judge makes no finding of any breach of fiduciary duty and indeed makes no special reference to the fact of sale by the General Partner to its parent company, the price payable on such sale, or the question of retrospective judicial approval by reason of a breach of a fiduciary duty.
34. The partnership agreement, while granting power of sale to the General Partner, contains no express term whereunder the General Partner may sell partnership assets to itself. There are, however, special if not unusual provisions in the partnership agreement which recognize that the General Partner may carry on transactions with the partnership or otherwise which may conflict with the interests of the partnership and the other partners. There is a finding in the Court of Appeal that the appellant was fully aware