Limited partners beware, general partners’ continued delight: Ontario Court of Appeal

The limited partners appealed the lower court decision, reiterating their argument that they were entitled, on an annual basis, to a distribution of the net income of the partnership. The limited partners once again based their argument on s. 11(1) of the Limited Partnerships Act, which states:

The Court of Appeal ultimately upheld the Superior Court decision on the same grounds. Particularly, the Court of Appeal focused on two key findings.

Firstly, the plain wording of s. 11(1) of the Act did not support the limited partners’ position. In agreement with the Superior Court, the Court of Appeal held that “saying that a limited partner is entitled to a ‘share’ of the profits is not the same thing as saying that a limited partner is entitled to payment of that share.” Similar to the Superior Court, the Appeal Court found support for this holding in the fact that the Act makes other express references to the term “payment” — choice of wording that the legislature did not use in s. 11(1). If the legislature had intended for s. 11(1) to require distributions, it would have used the same phrasing. Secondly, the limited partners’ position was in direct conflict with the limited partnership agreement, which granted the general partner the sole discretion to make cash distributions. The Court of Appeal held that the limited partners entered into the agreement willingly, and thus they could not rely on an interpretation of the Act that would lead to a result that was fundamentally inconsistent from the agreement.

The recent Court of Appeal decision in Anthony confirms that limited partners and general partners alike should remain cognizant of the following: