Blue Line Hockey Acquisition v Orca Bay Hockey: A Shutout for Partnerships
Attention all hockey fans! The British Columbia Court of Appeal (“BCCA”) recently released a decision involving the Vancouver Canucks, a team in the National Hockey League. Blue Line Hockey Acquisition Co, Inc v Orca Bay Hockey Limited Partnership, 2009 BCCA 34, looks at the nature of a partnership in the context of one’s purchase of the Vancouver Canucks.
In November 2003, three Vancouver businessmen – Francesco Aquilini, Tom Gaglardi and Ryan Beedie – began working together to potentially purchase 50% of the Vancouver Canucks hockey team through a future “tax-effective entity”, negotiating with Mr. McCaw, who represented the vendor. By March 2004, Aquilini withdrew from the group, while the remaining two businessmen, Gaglardi and Beedie, continued to negotiate with McCaw, expressing interest in purchasing 100% of the Vancouver Canucks, as well as their hockey arena, the General Motors Place.
Six months later, Gaglardi and Beedie had presented a “final” proposal to the vendor. However, at this point, Aquilini also began negotiating individually with McCaw and within days, reached an agreement to purchase a 50% interest in the Vancouver Canucks and the General Motors Place, with an option to purchase the remaining 50% interest at a later date. Gaglardi and Beedie claim that Aquilini breached a fiduciary duty owed to them as partners by either appropriating a business opportunity belonging to the partnership, or by wrongfully competing against them for the objective of the partnership.
Legal Principles and Judicial History
Ten years ago, there would be no issue as to whether or not a partnership exists in this situation. Back then, it was the “carrying on of a business, not a mere agreement to carry it on” which constituted the test for a partnership. Now, however, more recent case law allows for the possibility of a “pursuit partnership” which calls for the duty of utmost good faith to arise, even when “trading” may not have yet commenced. In situations, such as the one at hand, the plaintiffs argue that the pursuit partnership was formed initially, even though the actual “acquisition partnership,” which would have likely been a limited partnership, had not yet come into existence since the parties had not agreed on the format of the ultimate transaction.
At trial, the judge found that there was no partnership in these circumstances since the men had only agreed informally to “work toward the formal arrangement”, hence there was no duties of good faith or loyalty. Nor did the judge find that a joint venture had existed. Despite this, even if there were a partnership or a joint venture in these circumstances, the judge found that when Aquilini withdrew from the relationship in March he was allowed to compete against the two other businessmen, as there had been “no maturing business opportunity” existing by the time he departed from the group.
Among other reasons, the plaintiffs argued at the Court of Appeal that the trial judge misconstrued the nature of the common venture and misapprehended the evidence as to the nature of the common venture, which lead to err in law in her determination of the agreement that constituted the partnership. They also claimed that the judge erred in law regarding the essential terms of the partnership contract and in holding that even if the men were partners, Aquilini owed no fiduciary duties to the other two men following his departure from the group, as well as misconstruing and overlooking key relevant evidence.
In looking at the facts of the case, it was found that none of the three businessmen had the authority to bind the others in any transaction. All proposals would be in the form of expressions of interest and a consensus among the three men was required before any proposal could form the basis of a binding agreement. Further, the upper limit of the price each was willing to pay was not discussed, nor were the terms they were ultimately prepared to accept. Finally, the group agreed that even once the transaction was formed, each member could decide whether or not to proceed and was permitted to seek the approval of his family as to whether to go forward with the transaction or not. Any member was free to leave the group at any time.
The BCCA Decision
The BCCA dismissed the plaintiffs appeal, holding that no partnership had been created. While the Court found that the trial judge did not always clearly distinguish the concepts of a “pursuit” versus an “acquisition” partnership, the Court held that according there was simply not enough evidence to establish a “pursuit partnership.” The Court acknowledged that recent case law has broadened the meaning of “carrying on business”; however, this cannot be interpreted as eliminating the basis of a partnership, specifically the “subjective intention to carry on business in common with a view to profit.”
Here, there was no intention either by written evidence or the conduct of the parties to carry on business in common with a view to profit. They had a “loose understanding” of what the others wished and did not commit to anything other than the payment of their lawyer’s fees. Further, there was no actual offer for the purchase of the Canucks, only “expressions of interest” and no promise to be held jointly liable for obligations that may arise relating to the acquisition. Further, there was no suggestion that Aquilini was bound to continue on as a member once he left the group, and each individual was able to pursue his own interest.
Finally, the men were experienced businessmen who had experience with partnerships and partnership agreements, as well legal advice and there was no evidence that a fiduciary relationship was created as they had no discussed or assumed that any of them would act in each other’s best interests. As stated by the trial judge, Wedge J., “the law does not discourage the pursuit of self-interest in most commercial dealings. Whether an individual owes a duty of loyalty or good faith to another depends on the nature of the particular relationship in issue.”
While the decision came as a relief to the Aquilini family, should the case eventually be heard by the Supreme Court of Canada, it may serve as an opportunity for the court to further clarify the law surrounding partnerships and their corresponding obligations. For now, however, the law regarding partnerships stands for situations of this nature. As Newbury J.A stated for the BCCA:
The parties in this case were experienced businessmen who were familiar with partnerships and partnership agreements. They had legal advice at the outset of their relationship. There was no evidence that they discussed or assumed that each of them would act in the others’ best interests, nor did any confer a discretion on another to act for him, thus becoming vulnerable to that other’s discretion. None was empowered to bind the others in their negotiations. In short, the facts as found by the trial judge do not establish any of the usual hallmarks either of a partnership or of a fiduciary relationship generally. (para 58)