2013 ONSC 4792, 2013 ONSC 4792

Martenfeld et al. v. Collins Barrow Toronto LLP et al. [Indexed as: Martenfeld v. Collins Barrow Toronto LLP] Ontario Reports Ontario Superior Court of Justice, Lax J. July 24, 2013 116 O.R. (3d) 401 | 2013 ONSC 4792 Case

Summary Partnership — Partnership agreement —

Interpretation — Partnership agreement requiring withdrawing equity partner to payliquidated damages in amount equal to two times "permanent capital" — Partner's permanent capital having same meaning aspartner's capital account — Partners having agreed to limit their exposure to liability and avoid discrepancies between amountseach partner had at risk by moving amount from partners' capital accounts to shareholder loan accounts in managementcompany — Each partner's capital account flattened to $10,000 — "Permanent capital" not including shareholder loan —Liquidated damages payable by withdrawing partner being $20,000.

The plaintiff M was a former partner at the defendant accounting firm. The partnership agreement required an equity partner whowithdrew from the partnership to compete with it to pay liquidated damages in an amount equal to two times "permanent capital".

In2004, the partners decided to limit their exposure to liability and equalize each partner's capital account in the partnership to avoiddiscrepancies between the amounts each partner had at risk. ("Capital account" and "permanent capital" had the same meaning under theshareholder agreement.) Amounts were moved from the partners' capital accounts to shareholder loan accounts in the partnership'smanagement company. Each partner's capital account was flattened to $10,000.

The plaintiffs brought an action claiming to be entitled tocertain payments under the partnership agreement, including repayment of a shareholder loan made by the plaintiff J Inc. to themanagement company. The meaning of "permanent capital" was at issue. The defendants counterclaimed for damages for allegedmisconduct by M. Held, the action should be allowed; the counterclaim should be dismissed. "Permanent capital" did not include the shareholder loan. To interpret the liquidated damages provision as including capital loans wouldeffectively amend the partnership agreement.

The liquidated damages payable by M amounted to $20,000. The allegations of wrongdoing made by the defendants were not made out. Cases referred to Dumbrell v. Regional Group of Companies Inc. (2007), 85 O.R. (3d) 616, [2007] O.J. No. 298, 2007 ONCA 59, 279 D.L.R. (4th) 201,220 O.A.C. 64, 25 B.L.R. (4th) 171, 55 C.C.E.L. (3d) 155, 154 A.C.W.S. (3d) 1097; Eastwalsh Home Ltd. v. Anatal Developments Ltd.(1983), (ON CA), 12 O.R. (3d) 675, [1993] O.J. No. 676, 100 D.L.R. (4th) 469, 62 O.A.C. 20, 30 R.P.R. (2d) 276, 39A.C.W.S. (3d) 440 (C.A.); Eli Lilly & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129, [1998] S.C.J.

No. 59, 161D.L.R. (4th) 1, 227 N.R. 201, J.E. 98-1562, 80 C.P.R. (3d) 321, 80 A.C.W.S. (3d) 871; Multi-Malls Inc. v. Tex-Mall Properties Ltd.(1981), (ON CA), 37 O.R. (2d) 133, [1981] O.J. No. 2872, 128 D.L.R. (3d) 192, 12 A.C.W.S. (2d) 156 (C.A.), affg(1980), (ON CA), 28 O.R. (2d) 6, [1980] O.J. No. 3093, 108 D.L.R. (3d) 399, 9 B.L.R. 240, 12 R.P.R. 77, 2A.C.W.S. (2d) 174 (H.C.J.) [Leave to appeal to S.C.C. refused [1982] S.C.C.A. No. 315, 41 N.R. 360n]; Rochwerg v. Truster (2002), (ON CA), 58 O.R. (3d) 687, [2002] O.J.

No. 1230, 212 D.L.R. (4th) 498, 158 O.A.C. 41, 23 B.L.R. (3d) 107, 112A.C.W.S. (3d) 962 (C.A.); [page402] Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254, [2007]O.J. No. 1083, 2007 ONCA 205, 222 O.A.C. 102, 29 B.L.R. (4th) 312, 56 R.P.R. (4th) 163, 156 A.C.W.S. (3d) 95; Whiten v. PilotInsurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C.201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, REJB 2002-28036, 111 A.C.W.S. (3d) 935; Wong v. 407527 OntarioLtd., (ON CA), [1999] O.J.

No. 3377, 179 D.L.R. (4th) 38, 125 O.A.C. 101, 26 R.P.R. (3d) 262, 91 A.C.W.S. (3d)

321 (C.A.) Statutes referred to Bills of Exchange Act , R.S.C. 1985, c. B-4, ss. 16, 176 Courts of Justice Act , R.S.O. 1990, c. C.43 [as am.] Partnerships Act , R.S.O. 1990, c. P.5, ss. 28, 29(1) , 30 Personal Property Security Act , R.S.O. 1990, c. P.10 [as am.] ACTION to recover amounts payable under a partnership agreement; COUNTERCLAIM for damages. M. Tamblyn and R. Hauk , for plaintiffs. L. Brzezinski and C. MacInnis , for defendants.

LAX J. : — Overview [ 1 ] The plaintiff Marvin Martenfeld is a chartered accountant and a former partner at the defendant accounting firm, Collins Barrow Toronto LLP. 1 Martenfeld withdrew from the partnership to join a competitor.

This triggered a provision in the partnership agreement that obliges a withdrawing equity partner to pay as "a genuine pre-estimate of liquidated damages" an amount equal to two times "permanent capital". 2 [ 2 ] The defendant Collins Barrow Toronto Inc. is the management company of the partnership. 3 Its shareholders are corporations owned and controlled directly or indirectly by persons related to each of the partners. The plaintiff Jekel Enterprises Inc. ("Jekel") is a company owned by Martenfeld's wife. Jekel was a shareholder in the management company.

Schedules "D" to the partnership agreement incorporate promissory notes of the management company in favour of each of the related corporations on account of loans made by Jekel (the "Jekel loan") and the other shareholders. [page403] [ 3 ] The plaintiffs claim to be entitled to payments under the partnership agreement, including repayment of the Jekel loan. [ 4 ] It is not in dispute that under the partnership agreement, Martenfeld was entitled to withdraw and compete.

The consequences of doing so were twofold: (1) loss of retirement benefits; and (2) payment of liquidated damages of two times permanent capital. [ 5 ] The liquidated damages provision provides in abbreviated form: 11.2.2 Any Equity Partner who withdraws from the Partnership and competes with the Partnership . . . agrees to pay the Partnership, as a genuine pre-estimate of liquidated damages, and not a penalty, an amount equal to two times his or her then Permanent Capital . . . and agrees that any balance in his or her Capital Account, if any, as well as any capital loans . . . will constitute a down-payment that may be retained by (or paid by the Corporation to) the Partnership by way of set-off to be applied against any amounts owing in respect of this obligation[.] 4 [ 6 ] The parties disagree as to the meaning of "permanent capital".

In particular, they disagree about whether the Jekel loan is available to be set off against the liquidated damages otherwise payable. The plaintiffs' position is that the amount shown on the financial statement of CBT Inc. as a shareholders' loan from CBT Inc. to Jekel does not form part of permanent capital and is not available to be set off against the liquidated damages. The defendants take the opposite position. This is the main issue in dispute. Its resolution depends upon the correct

interpretation of the partnership agreement. This will determine if the liquidated damages to be paid by Martenfeld are $20,000 (two times $10,000) as he claims or $320,988 (two times $160,494) as the defendants claim. [ 7 ] A secondary issue is whether there was misconduct or wrongdoing on the part of Martenfeld, his former partners or both, and the financial consequences, if any, that flow from this. Martenfeld's Withdrawal from CBT LLP [ 8 ] For many years, Martenfeld has practised as a chartered accountant, initially within large accounting practices and later with the defendant partnership.

Prior to 1990, he was at the chartered accounting firm known as Laventhol & Horwath, where he worked with Sheldon Carr, Enzo Testa, Harry Blum and Michael Allen. At that time, Martenfeld, Testa and Carr [page404] were partners of Laventhol and Horwath, while Blum and Allen were employees. Subsequently, they became partners and parties to the partnership

agreement. [ 9 ] On June 30, 2009, Martenfeld delivered written notice of his withdrawal from the partnership. His withdrawal was accepted and the parties agreed to a departure date of August 31, 2009. On September 1, 2009, Martenfeld joined the professional accounting firm of Meyers Norris Penny LLP ("MNP"). [ 10 ] The parties met on July 13 and 16, 2009 in an effort to resolve issues relating to Martenfeld's departure and later exchanged written offers. Nothing came of this, largely due to the parties' diverging opinions on the meaning of permanent capital.

Martenfeld sought an orderly transition, but this did not occur. Blum began to question whether Martenfeld was fulfilling his professional and contractual obligations to CBT LLP and ultimately concluded that he was not. This resulted in the partnership taking steps that had the effect of expelling Martenfeld from the partnership. [ 11 ] On August 15, 2009, his remote computer access to his client files was terminated. Within days of his scheduled departure, his Blackberry service was terminated and wiped clean of data, resulting in the loss of contact information and treasured family photographs.

His card access to the office was disabled. Initially, the partnership agreed to leave Martenfeld's e-mail address and voice message with his new contact information active for a few months, but they did not do this. Clients who wished to retain his services were unable to reach him. He was unable to solicit clients to his new firm as he was entitled to do under the partnership agreement. [ 12 ] Initially, Martenfeld sought to resolve this dispute by way of arbitration in accordance with the mandatory arbitration provision in s. 16 of the partnership agreement.

He served the defendants with a notice of arbitration dated October 1, 2009. This route was thwarted when the partnership took the position that their dispute was governed by a 2009 partnership agreement, which does not have a defined term, "permanent capital". It maintained this position throughout the pre-trial process for three and a half years. Less than two weeks before trial, the defendants withdrew from this position and the trial proceeded on the basis that the 2004 partnership agreement applied to this dispute.

Despite the many years that Martenfeld, Blum and others had worked together successfully as professionals and business partners, his withdrawal from the partnership was extremely unpleasant and resulted in acrimonious litigation that culminated in this trial. [page405] Background The formation of Collins Barrow Toronto LLP [ 13 ] After Laventhol & Horwath merged its practice with Price Waterhouse, Martenfeld, Carr and Testa withdrew from that partnership and in or about 1992, they merged their practices with others and carried on business as Daren, Martenfeld, Carr and Company.

Soon after, Blum was hired and he became a partner in 1995. In or about 1996, Daren, Martenfeld, Carr and Company dissolved their partnership and formed three separate groups that would practise jointly pursuant to a cost sharing arrangement under the firm name of Daren, Martenfeld, Carr, Testa and Company (later known as DMCT, LLP). Martenfeld, Carr and Blum formed one of the groups and carried on business as MCB & Company LLP.

The second group consisted of Testa and Cary Heller and the third group comprised Michael Daren, Robbie Rotin and Philip Wiener. [ 14 ] In 2003, Testa and Heller merged their practice with Martenfeld, Carr and Blum. Phillip Wiener also became a partner in DMCT, LLP. In 2008, the partners joined the Collins Barrow franchise of accounting firms and the accounting practice changed its name to Collins Barrow Toronto LLP. [ 15 ] From 2003 to 2005, Martenfeld and Carr were members of the firm's executive committee and Martenfeld served as managing partner.

Beginning in 2006, the members of the executive committee were Blum, Testa, Allen and Octavia Cabral. Cabral joined the accounting practice as a student in 1993, became a partner of Martenfeld, Carr and Blum (then, MCB & Company LLP) in 2000 and a member of the executive committee of DMCT, LLP in 2005. [ 16 ] Blum was the principal witness for the defendants at trial. Testa, Allen, Heller, Cabral and Carr also testified on behalf of the defendants. Carr retired as an equity partner in or about 2010, but continues his accounting practice on a contract with the partnership.

Blum is an influential member of the executive committee and became the managing partner of CBT LLP in 2008. The formation of Collins Barrow Toronto Inc. [ 17 ] At the time that Martenfeld, Carr and Blum merged their practices to carry on business as MCB & Company LLP, that is, in or around 1996, they incorporated a management company to provide administrative and management services to the professional accounting practice and to allow the partners to engage [page406] in income-splitting with related persons, typically spouses or family members.

Jekel was incorporated around this time. [ 18 ] As Testa and Heller, and later Allen, Cabral and others, became partners, similar entities were incorporated, which, like Jekel, became shareholders in the management company. At the time that the partnership agreement was entered into, the management company of the partnership was DMCT Consultants Inc. The name changed to DMCT Transaction Services and finally to Collins Barrow Toronto Inc. The amended and restated partnership agreement [ 19 ] Sometime in 2003, the partners decided to formalize their arrangements by entering into a written partnership agreement.

This was likely precipitated by Testa and Heller rejoining the partnership. While all of the partners were involved in its preparation, Testa and Blum had primary responsibility. Blum engaged a friend who was a lawyer at Stikeman Elliott LLP to advise on the terms, take instructions and draft the agreement. [ 20 ] No witness had a precise recollection of signing the partnership agreement, but I find that it was executed by the ten partners of DMCT, LLP at different times during the month of June 2004. It was effective as of January 1, 2004. The signatories were Michael

Allen, Harry Blum, Octavio Cabral, Sheldon Carr, Bill Erb (a non-equity partner), Cary Heller, Marvin Martenfeld, Richard Sanders, Enzo Testa and Phillip Wiener. The promissory notes annexed as Schedules "D" were executed at the same time. There is consistent evidence that the partners discussed the agreement in several meetings, prepared several drafts and that it took several months to finalize. [ 21 ] The parties appear to agree that the principles of contractual

interpretation establish that the subjective intention of the parties with respect to the purpose of the liquidated damages provision is not to be considered in interpreting the agreement. Nonetheless, the defendants adduced viva voce evidence from Blum, Testa, Allen, Heller and Cabral on this issue. Each testified that s. 11.2.2 was intended to create a significant disincentive for partners to withdraw and compete and that this was necessary to pay for the damages caused by a withdrawing partner, including long-term lease commitments, salary and overhead costs and bank liability.

The defendants characterize this as part of the factual matrix. As I will later explain, it is my view that this evidence is totally subjective and self-serving and I do not find it necessary to resort to it as an aid in the

interpretation of the agreement. [page407] Re-characterization of partners' capital [ 22 ] At a partners' meeting held on November 10, 2004 (that is, after the partnership agreement was executed), the partners decided to convert some capital in the partnership into their capital loan accounts. The main purpose was to limit the partners' exposure to liability and to provide protection to the partners from potential creditors in the event of a "disaster". Cabral testified that due to legislative changes introduced in early 2005, the partners' exposure became a concern.

A secondary reason was to equalize each partner's capital account to avoid discrepancies between the amounts each of the partners had at risk. This was of particular concern to Testa, whose capital account at the beginning of the 2004 fiscal year as shown in the partnership's statements for that year was the highest of any partner at $138,754.

In contrast, the amount in Carr's capital account was $367 and Martenfeld's capital account had a negative balance of ($367). [ 23 ] Through a series of journal entries that were implemented in early 2005 retroactively to December 31, 2004, amounts were moved from the partners' capital accounts in the partnership to the shareholder loan accounts in the management company with the result that each of the partner's capital accounts was flattened to $10,000.

Thereafter, the financial statements of the partnership (the "LLP statements") show the year-end balance in the capital account of each partner as $10,000. 5 [ 24 ] The financial statements of the management company (the "Inc. statements") for the same period, that is, beginning with year-end December 31, 2004, record the specific amount of each of the shareholder loans as "Loans Payable to Shareholders" or "Loans Payable to Related Parties".

At the end of each fiscal year, the partners reconciled their capital accounts to the agreed $10,000 level by transferring any excess amount to the shareholder loan accounts or through a cash distribution to the partners. [ 25 ] After the re-characterization of partners' capital, the partnership filed tax returns based on the information contained in the LLP statements, including the amount of the capital account for each partner as $10,000.

The management company filed tax returns based on the Inc. statements, including the amount specified for each of the shareholder loans payable to the [page408] related corporations. The related corporations of each partner recorded the amount of their respective shareholder loan to the management company in their respective financial statements and accounted for that amount in their corporate tax returns.

Capital equalization schedules [ 26 ] At a regular partners' meeting held in the first 90 to 120 days of each fiscal year, the partners approved the financial statements for the preceding fiscal year and at the same time reviewed and approved a capital equalization schedule. It is the defendants' position that it is this

schedule that sets out the proper amount of each partners' capital account and the amount of capital required (if any) for each partner for the next fiscal year. [ 27 ] The DMCT capital equalization

schedule as at December 31, 2003 included a column headed, "2004 Permanent Capital". Thereafter, this heading was replaced with a new heading, "Anchor Capital Required". Cabral, who was responsible for the preparation of the year-end financial statements and capital equalization schedules from and after the 2004 year-end, testified that he changed the heading description.

Blum and Cabral each testified that the term "anchor capital" that appears on the capital equalization schedules, and the term "permanent capital" that is defined in the partnership agreement, are one and the same. 2007 proposed amendments [ 28 ] In anticipation of a partners' meeting on November 13, 2007, the executive committee circulated a black-lined version of the partnership agreement with a number of changes, including a change that deleted the definition of permanent capital and included a definition of "capital loan" to mean the shareholder loans from related corporations.

The language of s. 11.2.2 was changed to read: . . . an amount equal to two times his or her then Permanent Capital Capital Account and Capital Loan calculated at the end of the fiscal year preceding the date of withdrawal[.] [ 29 ] The defendants' witnesses testified that the changes were intended to "clean up" or "clarify" the language to give effect to the parties' intentions. Martenfeld testified that these amendments were voted down at a partners' meeting, but the evidence does not support this.

Martenfeld has likely confused this with a petition signed by five partners that was presented to the executive committee some months earlier concerning the terms and [page409] powers of the executive committee. It is unclear why the proposed amendments were not pursued. What is clear is that the proposed amendments were never approved. At the time of Martenfeld's departure, the 2004 partnership agreement continued to govern the rights and obligations of the partners.

Position of the Parties [ 30 ] The plaintiffs do not dispute that a partner who withdraws from the partnership to compete is obligated to pay liquidated damages of two times permanent capital. The plaintiffs take the position that Martenfeld's permanent capital as defined by the partnership agreement is the amount of $10,000 as shown on the statement of partners' capital accounts in the December 31, 2009 financial statements of CBT

LLP. They submit that the liquidated damages amount of two times permanent capital is therefore twice this amount, or $20,000. [31] Further, it is their position that the shareholder loan from Jekel to the management company does not form part of permanent capitaland is to be paid out to a withdrawing equity partner together with dividends and management fees owed to Jekel; Martenfeld's pro-ratedshare of profit for 2009; and permanent capital of $10,000 in accordance with ss. 4.7 and 11.5.

As to the amount of the Jekel loan, theyrely on the CBT Inc. statement as at June 2009 showing the Jekel loan amount as $198,450. In the alternative, they rely on the December 31, 2009 statement showing the Jekel loan amount as $176,201.6 [32] Taking into account the payment of liquidated damages ($20,000), the plaintiffs say that under the terms of the partnershipagreement, they are owed the net sum of $266,664.25.

Further, the plaintiffs claim damages for alleged misconduct on the part of theexecutive committee ($129,492) and also seek an award of punitive damages arising from alleged scandalous conduct of the executivecommittee in the weeks leading to Martenfeld's departure and in the conduct of this litigation. [33] The defendants agree that Martenfeld's obligation to pay two times permanent capital arises from the 2004 partnership agreement inview of his departure to a competitor.

They take the position that in order to quantify this amount, the court does not look to the financialstatements, but rather to the amount [page410] shown as "anchor capital" on the capital equalization statement anchored to December 31,2008 for 2009. This amount is $160,494, which is doubled to produce a liquidated damages amount of $320,988. [34] It is the defendants' position that the partnership did not intend the shareholder loans to be repaid, but instead treated these debts aspartnership capital.

Thus, a central issue in dispute is whether or not under the terms of the 2004 partnership agreement, a shareholderloan forms part of permanent capital.

It is the defendants' position that the Jekel loan amount of $176,201 as well as the amount shownon the financial statement of CBT LLP as permanent capital ($10,000) is available to be set off against the amount of liquidated damages, producing a net amount of $134,787 payable by Martenfeld as liquidated damages.7 [35] The defendants take the position that in any event, Martenfeld is not entitled to any payments to which he would otherwise beentitled as a withdrawing equity partner as he did not meet his fiduciary obligations to his partners once he had accepted an offer fromMNP.

They allege that Martenfeld was deliberately unproductive in the month before his departure. They advance a counterclaimseeking, inter alia, damages of $186,719 for "suppressed work-in-progress" ("suppressed WIP") or, in the alternative, disgorgement ofprofits earned at MNP of $138,462. They seek further damages of approximately $450,000 for alleged misconduct. Principles of

Interpretation [36] The competing claims with respect to the payment of liquidated damages depend, in the first place, on the correct

interpretation ofthe partnership agreement. The general principles of

interpretation that are applied to commercial agreements have been reviewed in anumber of cases, including Eli Lilly & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, atparas. 54-56, and more recently, in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254, [2007]O.J. No. 1083, 2007 ONCA 205, at para. 24. See, also, Dumbrell v. Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616, [2007] O.J. No. 298 (C.A.), at paras. 53-56. [37] While stated in slightly different ways, the goal of

interpretation of contracts is to determine the intention of the parties [page411]with reference to the words used in drafting the document, possibly read in light of the surrounding circumstances prevalent at the time.Evidence of one party's subjective intention is irrelevant. Extrinsic evidence need not be considered at all when the document is clear andunambiguous on its face. It should be presumed that the parties intended the legal consequences of their words. This makes it possible tointerpret a plainly worded document in accordance with the true contractual intent of the parties and not by the intent they ascribe to itwith hindsight once differences have arisen.

Interpretation of the Partnership Agreement [38] In order to quantify the liquidated damages to be paid by Martenfeld, it is first necessary to determine the meaning of permanentcapital. [39] The partnership agreement defines permanent capital as follows: "Permanent Capital" in respect of an Equity Partner in a Fiscal Year means the lowest level of capital required of such Equity Partner atany time during such Fiscal Year, and which amount may not be reduced at any time during such Fiscal Year, as determined at thebeginning of each Fiscal Year for each Equity Partner by Special Resolution. [40] "Capital account" means each partner's capital account as maintained pursuant to s. 9.2.

Section 9.2 provides in part: Each Equity Partner's Capital Account in a Fiscal Year shall consist of his or her Permanent Capital for such fiscal year[.] [41] Thus, a partner's capital account is, by definition, a partner's permanent capital. They are one and the same. [42] It is apparent that neither the

definitions of permanent capital nor capital account nor s. 9.2 makes any reference to a shareholderloan, capital loan, the management company or the related corporations. Instead, permanent capital is defined as amounts required of anequity partner and not amounts loaned to the management company by a related person, such as Jekel. [43] Further, the partnership agreement in ss. 4.7 and 11 draws a distinction between the permanent capital of an equity partner andcapital loans due to an equity partner or a related person.

Upon the withdrawal of an equity partner, these sections create separate anddistinct obligations: (1) the partnership is required to repay the equity partner's permanent capital; and (2) the management companymust redeem the shares and repay capital loans "on the same basis", namely, over 24 months.

[ 44 ] A similar distinction is drawn in s. 11.2.2 between the balance in the capital account and capital loans.

Section 11.2.2 [page412] provides that any balance in the capital account as well as any capital loans will constitute a down payment that may be retained by the partnership to be set off against the obligation to pay liquidated damages of two times permanent capital.

Otherwise, the capital loan is to be repaid in accordance with s. 4.7 and permanent capital is to be paid out in accordance with s. 11.5. [ 45 ] The defendants point out that the definition of "permanent capital" includes the requirement that the amount be "determined at the beginning of each Fiscal Year for each Equity Partner by Special Resolution". There is no evidence that the partnership ever formally passed any special resolutions.

However, at the beginning of each fiscal year, the balance in each partners' capital account of $10,000 and the anchor capital for each partner were approved at a partners' meeting. If this is to be taken as equivalent to the passage of a special resolution, it does not assist either party's position. [ 46 ] The term "anchor capital" appears only in the capital equalization schedules from and after year-end 2004. "Anchor capital" is not a term used in the partnership agreement or in the financial statements. The only document that reflects the partners' capital accounts in the partnership are the LLP statements.

Since 2004, these have consistently recorded the amount in the capital account of each partner as $10,000. The partners deliberately fixed their capital accounts at $10,000 to minimize risk and to increase their net income through income-splitting. Having benefitted from this structure, it is disingenuous for the defendants to now assert that this was an "artificial" structure. [ 47 ] I agree with the defendants that the financial picture of the accounting practice is found in the group financial statements. These are the combined statements of the accounting practice and the management company.

However, this has no bearing on the obligations of a withdrawing equity partner to pay liquidated damages and the obligations of the partnership and management company to pay out amounts owing to the equity partner. These obligations are found in the partnership agreement. [ 48 ] To interpret the liquidated damages provision of two times permanent capital as including capital loans would effectively amend the partnership agreement in the very manner that the executive committee proposed in 2007 but did not implement.

Section 17.1 provides that the agreement may only be amended by written agreement approved by special resolution. The defendants rely entirely on extrinsic oral evidence from Blum and others to contradict the plain language of the [page413] agreement despite a comprehensive entire agreement clause in s. 17.3 that "supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties". [ 49 ] I find that permanent capital does not include the Jekel loan. The amount of permanent capital in Martenfeld's capital account at the relevant time was $10,000.

The liquidated damages payable by Martenfeld is two times this amount, or $20,000. Payments to Martenfeld [ 50 ]

Section 11.5(

a) provides for the payment of the amount, if any, of permanent capital standing to the credit of the partner as at the end of the fiscal year immediately preceding his departure date. This amount is $10,000 as recorded on the CBT LLP financial statement as at December 31, 2009.

Martenfeld is entitled to be paid this amount. [ 51 ] Martenfeld also claims to be entitled to his draw for the month of August 2009 ($5,876) and his share of profits for the first eight months in 2009 ($33,500) based on his pro-rated share of net income ($125,651) less draws taken of $92,151. 8 I agree with the defendants that if Martenfeld is awarded his draw for the month of August, this amount will have to be deducted in determining the amount of net income to which he is entitled. Therefore, for simplicity, I award only the amount claimed for net income, namely, $33,500. The total award is $43,500.

This is subject to the set-off amount of $20,000 for liquidated damages producing a net amount of $23,500 payable to Martenfeld. Repayment of the Jekel Loan [ 52 ] In conjunction with the 2004 partnership agreement, DMCT Consultants Inc., executed documents described as promissory notes in favour of each of the related corporations.

These were attached as Schedules "D" to the partnership agreement and included a promissory note, dated June 1, 2004, in favour of Jekel in the amount of $269,841 that was supported by a general security agreement over the management company's assets registered pursuant to the Personal Property Security Act , R.S.O. 1990, c. P.10. [ 53 ] The note provides in part: FOR VALUE RECEIVED, DMCT Consultants Inc. (the "Borrower") . . .

PROMISES TO PAY to or to the order of Jekel Enterprises Ltd. (the "Lender") . . . the [page414] principal amount of $269,841 on such date as may be determined by DMCT, LLP . . . or . . . on such earlier date as may be provided in the LLP Agreement, in any case, without interest. Amounts due under this Note may at the Borrower's option be paid over to the Partnership on account of monies owing to DMCT, LLP by the Lender or persons related to the Lender under

Section 11.2.2 of the Partnership Agreement. [ 54 ] The defendants point to various attributes of the promissory note and submit that it is unenforceable as it does not meet the definition of a promissory note or bill of exchange under the Bills of Exchange Act , R.S.C. 1985, c. B-4, ss. 16 and 176 . I agree that the debt is not a negotiable instrument, nor was it likely intended to be, but it is clearly evidence of a debt. For many years, it has been shown as a debt on the financial statements of the management company.

While the amount owing on the loan stands, in part, as security for a withdrawing partner's obligation to pay the liquidated damages, the partnership agreement provides that it is to be paid out once the liquidated damages have been satisfied.

Section 4.7 provides for repayment over 24 months following the redemption of shares. Jekel's shares were redeemed by CBT Inc. on or about April 19, 2010, effective August 31, 2009, making the Jekel loan due and payable in 24 monthly instalments. [ 55 ] The principal amount of the Jekel loan fluctuated from year to year. The amount shown on the June 30, 2009 financial statements of

CBT Inc. is $198,450. The amount declined to $176,201 as at December 31, 2009, although no management fees or dividends were paidto Jekel or Martenfeld in this period. I direct the parties to attempt to agree on the amount of the loan as at August 31, 2009 as this is therelevant date for determining the amount of the loan. Failing agreement within 30 days, I fix the amount as $198,450, this being theclosest date to the departure date under the agreement.

Additional Payments [56] The partnership agreement provides in ss. 4.7 and 11.5 that a withdrawing equity partner shall receive "such dividends as may bedetermined by the Directors of the Corporation" and that "after the distribution of such dividends, if any", the corporation shall redeemthe shareholder's shares for the redemption price. While dividends are within the discretion of the board of directors, the board had anobligation to exercise this discretion fairly and with an even hand as the shares provided to the related corporations carried identicalrights.

The partnership [page415] was obliged to pay dividends declared up to the date of Martenfeld's departure prior to redeemingJekel's shares. [57] Jekel is therefore entitled to its pro-rated share of undistributed retained earnings of CBT Inc. as at August 31, 2009. I direct theparties to attempt to agree on this amount. Failing agreement within 30 days, I fix the amount as $35,557 in accordance with the plaintiffs' calculation.9 There are also management fees due to Jekel for the month of August 2009 of $3,281.25. [58] In

summary, and subject to the parties agreeing within 30 days on different amounts for the Jekel loan and Jekel's share ofundistributed retained earnings, I award the plaintiffs the amount of $260,788.25 as follows: Executive Committee Misconduct [59] It is well recognized that partners owe fiduciary duties to one another, including duties of disclosure of all things affecting thepartnership, and a duty to account for any benefits derived from transactions concerning the partnership: Partnerships Act, R.S.O. 1990,c. P.5, ss. 28, 29(1),

Section 13.2 of the partnership agreement provides that a partner will devote substantially his or her full time andattention to the partnership business. Martenfeld advances claims for his proportionate share of undisclosed directors' fees earned byBlum and undisclosed business income earned by Testa. [60] Rochwerg v. Truster (2002), (ON CA), 58 O.R. (3d) 687, [2002] O.J. No. 1230 (C.A.) is the governingauthority on the duties of partners to account to one another. In that case, Rochwerg, a partner of a chartered accountancy firm, became adirector of two related corporations who were clients of the firm.

He disclosed his directorships to his partners, but did not tell them thatas a director, he was entitled to certain shares and stock options. The court held that the shares and stock options formed part of his[page416] compensation as a director and constituted benefits that he was obliged to disclose under s. 28 of the Partnerships Act and forwhich he was required to account under s. 29(1).

In that case, Rochwerg became a director because of his role as the main partner contactwith the companies who became clients of the firm from its inception. [61] In this case, the partnership did not have a formal policy regarding income earned from directorships or active income earnedoutside the partnership.

However, there was an understanding, at least among members of the executive committee, that so long as thefirm was not responsible for D&O insurance or other costs associated with being a director, a partner was entitled to keep the funds thatwere earned as a director. [62] All members of the executive committee were aware that Blum was a director of two companies that were referred to at trial as PureNickel and First Metal. Neither was a client of the firm. There is no evidence that this interfered with his duties to his partners or thefirm.

Blum was not only managing partner from 2008, but he was also one of the more profitable members of the partnership. As well,sitting on boards was perceived to have a business advantage for the firm in terms of marketing opportunities. While it would have beenpreferable if Mr. Blum had formally disclosed these commitments to all partners at a partners' meeting, it was disclosed to all membersof the executive committee who effectively approved this arrangement on their behalf. Disclosure was also made on the firm's websiteand with modest effort, Martenfeld could have learned about this.

While the duties to disclose and to account are strict ones, I find thisclaim, amounting to $3,866, to be without merit. [63] I hold a similar view with respect to Martenfeld's claim to be entitled to a share of Testa's investment in a hotel in Sudbury. This is asubstantial claim of $96,250, but I find that this was a passive investment with no duty to disclose or account. There is no evidence thatTesta failed to meet his obligations to give substantially his full time and attention to the partnership as required by s. 13.2.

In myopinion, but for the acrimony of this litigation, these claims would never have been advanced. I am of the same opinion regarding thecounterclaim to which I turn next. Defendants' Counterclaim [64] The defendants claim to be entitled to damages arising from Martenfeld's alleged misconduct as described below.

[ 65 ] First, the defendants allege that Martenfeld was deliberately unproductive in the period leading up to his withdrawal in [page417] order to avoid paying the partnership for work in progress, or WIP.

They advance a claim for "suppressed WIP" in the amount of $186,719 or, in the alternative, disgorgement of profits in the amount of $138,462. 10 [ 66 ] Second, they allege that Martenfeld forwarded confidential and proprietary information regarding a partnership client, Rondo Group ("Rondo"), to his new firm, MNP, and also forwarded leads for potential clients to Paul Dunnett of MNP in June 2009, although he was still a partner at CBT LLP. [ 67 ] Third, they allege that during the month of August 2009, Martenfeld allowed himself to be represented as a partner of MNP on two proposals and attended a client meeting on one of them, although he was still a partner at CBT LLP. 11 [ 68 ] Fourth, the defendants claim damages in the amount of $400,000 for loss of opportunity to pursue an action against Melford International Terminal Inc. ("Melford"). [ 69 ] Finally, the defendants claim to be entitled to the amount of $43,250 as its share of revenue earned by Martenfeld in 2005 arising from Martenfeld's investment in Lees Avenue, a limited partnership investment that he made in 1983. [ 70 ] I address each of these claims below.

Productivity/suppressed WIP/disgorgement of profits 12 [ 71 ] Pursuant to s. 11.2.2, a withdrawing partner is entitled to solicit clients of the firm, but must purchase the WIP and accounts receivable ("AR") of any "transferred clients", defined as a client who uses the services of the former partner within 12 months at his or her new firm. It is not disputed that Martenfeld brought transferred clients to MNP and delivered invoices to them of approximately $375,000 in the first 12 months.

However, there is no evidence that Martenfeld intentionally suppressed the amount of his WIP in order to avoid paying for this. In fact, in an August 6, 2009 offer to his partners, Martenfeld offered to bill out his WIP and purchase his AR prior to his departure date. He also provided the defendants with a proposed list of "transferred clients". The partnership provided no response. [ 72 ] I find that the main reason for Martenfeld's diminished productivity in 2009 was the loss of two key clients, representing [page418] approximately 50 per cent of his billings.

His diminished productivity is also explained by the loss of billings in July and August from Rondo (discussed below), as it was involved in a shareholders' dispute. Ordinarily, this work would have been completed during the summer months. Martenfeld met with the executive committee to review in detail his billings and proposed write-offs and write-downs on a client-by-client basis. Blum and other members of the executive committee did not take issue with this at the time.

As well, it is only a matter of common sense that Martenfeld's attention would be focused on billing out WIP and ensuring that clients would be properly serviced both before and after his departure.

It is evident from a comparison of the June 30, 2009 and August 31, 2009 key management data reports that Martenfeld did exactly as he said he would and billed out his WIP. [ 73 ] While partners owe each other duties of loyalty, good faith and must disclose matters affecting their partnership as discussed above, there is no provision in the Partnerships Act , at common law, or in the partnership agreement that requires a partner to maintain a certain level of productivity in any given period or entitles the partnership to impose consequences for diminished productivity.

There is no evidence that Martenfeld transferred any WIP to MNP and it is apparent that the partnership made the election to bill out the WIP that remained. Neither Martenfeld nor MNP was asked to purchase it. [ 74 ] I conclude that the WIP suppression claim has no evidentiary support and the calculation of damages is theoretical and unproven. At trial, the defendants abandoned their claim that Martenfeld failed to purchase the AR of transferred clients. [ 75 ] The alternative claim for disgorgement of profits is equally deficient.

For one thing, the calculation is based in part on estimated billings that Martenfeld hoped to achieve at MNP, but never did. The calculation takes no account of the overhead and costs MNP would have incurred in performing the work that was the subject of the revenue generated by Martenfeld's "transferred clients" and is flawed on this account. More significantly, Martenfeld's departure is governed by the provisions of the partnership agreement. He was not subject to a non-solicitation or non-competition provision.

He owed no obligations to CBT LLP or CBT Inc. with respect to income earned by him after he ceased to be a partner. Breach of confidence [ 76 ] The defendants advanced no monetary claim under this head of damages, but I review the evidence that bears on it below. [page419] (

i) Rondo Group [ 77 ] CBT LLP had provided accounting services to Rondo for many years and Martenfeld was the partner on the account. The accounting work for this client was normally begun in June following its May 31 year-end. In view of a shareholders' dispute in the spring of 2009, no work could be undertaken to prepare the 2009 financial statements. David Burn, the lawyer for the dissident shareholder, testified that his client wouldn't co-operate to permit this work to begin.

Nonetheless, he had asked Martenfeld to prepare budgets for several options regarding scope of work. [ 78 ] By mid-August 2009, it was apparent that no work would be undertaken prior to Martenfeld's departure. Ali Sewani ("Sewani"), the company president, corroborated Martenfeld's evidence that this is when he first learned about Martenfeld's planned departure. Sewani confirmed that Martenfeld offered him the choice of leaving the work with CBT LLP and proposed three managers who had worked on the account and were familiar with it.

Sewani testified that while he was deciding how to proceed, he received a call from someone at CBT LLP, possibly Cabral, who "said something I didn't like". The inference is that he made negative comments about Martenfeld or his work. A few days later, Sewani called Martenfeld to tell him that Rondo would be moving the work to MNP. It was in this context that Martenfeld forwarded the Rondo budgets to the managing partner at MNP with a view to determining the firm's capacity to perform this

work. (ii) Client leads [79] Martenfeld agreed in cross-examination that in June 2009, he referred a potential client to Paul Dunnett at MNP. He testified thatbefore doing this, he first canvassed each of his Toronto partners as well as the firm's national coordinator about whether Collins Barrowhad the expertise to perform the work.

His evidence was uncontradicted and I accept it. [80] I find that Martenfeld committed no wrongdoing in either of the above two matters. (iii) Eurofase and AP Plasman [81] I have a different view with respect to Martenfeld's conduct in connection with Eurofase and AP Plasman in August 2009. Neitherwas a client of CBT LLP and neither became a client of MNP, but Martenfeld was held out as a partner of MNP on proposals to thesecorporations. Dunnett and Martenfeld each testified that the proposals were prepared by a marketing [page420] individual at MNPwithout their knowledge.

Nonetheless, neither did anything to correct this. Moreover, at Dunnett's request, Martenfeld and Dunnett metwith the company acquiring AP Plasman on August 20, 2009. [82] While one can understand Martenfeld's desire to build new client relationships, this kind of conduct cannot be condoned asMartenfeld was a partner of CBT LLP at the time. In the end, no harm resulted, but this was a lapse in judgment on Martenfeld's part andshould never have happened. Martenfeld acknowledged in his evidence that this was a mistake.

Melford [83] Martenfeld's conduct with respect to Melford is very problematic and equally deserving of censure. However, the defendants havenot established any loss of opportunity damages that arise as a consequence. Although Martenfeld's conduct was wrong, neither the factsnor the law support the claim that is advanced. [84] First, the facts. Pursuant to a retainer letter with DMCT, LLP dated January 16, 2006, Martenfeld provided consulting services toMelford, which was attempting to secure funding for the construction of a deep-water container terminal near the Strait of Canso in NovaScotia.

Martenfeld played some role in assisting Melford obtain financing, although the extent of his involvement is disputed. What isclear is that as a result of the relationship he developed with Melford while a partner at DMCT, LLP, Martenfeld entered intonegotiations with the principals of Melford to become its chief financial officer and vice-president with a lucrative salary and generousstock options. [85] The defendants take the position that a binding agreement was concluded between Martenfeld and Melford.

At the time, Martenfeldmay have also believed this as he commenced an action for breach of contract on March 25, 2008 against Melford and the threeprincipals, Paul Martin, Robert Stevens and Hugh Lynch. Almost immediately after the action was commenced, Martenfeld had sobersecond thoughts and instructed his lawyer to terminate the action. None of this was disclosed to his partners who learned about thelawsuit after Melford was served with the claim and Paul Martin called Blum threatening to add DMCT, LLP as third parties if the actionwas not dismissed.

When confronted by Cabral, Martenfeld refused to provide the partnership with a copy of the statement of claim,claiming the matter was "personal", but the following day, he informed Cabral that the action had been dismissed. Martenfeld [page421]ultimately obtained an order dismissing the Melford claim on April 21, 2008. [86] Then there is the curious business of the Melford invoices. The facts strongly suggest that Martenfeld was being deceptive with hispartners as well as with a client of the firm and I reject his evidence that he had no knowledge of the duplicative invoices.

I find thatMartenfeld directed the preparation of an invoice dated November 22, 2007 in the amount of $133,030 that was sent to Melford. I acceptthe evidence of Ms. Slaney, the firm's long-time comptroller, that this invoice was "irregular" and prepared outside of the partnership'saccounting system.

Subsequently, Martenfeld directed the preparation of a second invoice also dated November 22, 2007 for $57,505 as well as a February 15, 2008 invoice for $75,575, together totalling $133,080.13 I find that these invoices were prepared to create theimpression that WIP was being converted into AR, but were never sent to Melford. In or about January 2008, Melford was planning topay the outstanding invoice dated November 22, 2007, but at a meeting with Martenfeld on January 17, 2008, Martenfeld asked Melfordnot to settle this account.

Some three weeks later, on February 5, 2008, Martenfeld demanded payment of this invoice, threatening legalaction for the unpaid account. Six weeks later, he sued his client. [87] I agree with the defendants that all of the evidence leads to the conclusion that Martenfeld was attempting to deceive his partnersand conceal his activities with respect to the Melford invoices, the Melford contract and the Melford action in breach of his common lawand statutory duties.

However, I do not agree that these acts and omissions, which I condemn in the strongest terms, can possibly giverise to a claim for loss of opportunity. [88] The written submissions of the defendants correctly set out the law. Courts have awarded damages for the lost opportunity to pursuea cause of action or a commercial opportunity caused by a defendant's negligence or breach of contract: Multi-Malls Inc. v. Tex-MallProperties Ltd. (1980), (ON CA), 28 O.R. (2d) 6, [1980] O.J. No. 3093 (H.C.J.), affd (1981), (ONCA), 37 O.R. (2d) 133, [1981] O.J. No. 2872 (C.A.), leave to appeal to S.C.C. refused [1982] S.C.C.A.

No. 315, 41 N.R. 360n;Eastwalsh Home Ltd. v. Anatal Developments Ltd. (1993), (ON CA), 12 O.R. (3d) 675, [1993] O.J. No. 676 (C.A.);Wong v. 407527 Ontario Ltd., (ON CA), [1999] O.J. No. 3377, 179 D.L.R. (4th) 38 (C.A.). [page422] [89] In such an action, the burden lies on the plaintiff to prove that the breach caused the loss. The court will then assess the plaintiff'schance of obtaining a benefit if the contract had been performed or the action pursued.

A greater likelihood of success increases the valueof the chance and the amount of recovery. [90] In this case, the defendants take the position that Martenfeld's lawsuit against Melford had a 20 per cent chance of succeeding, butMartenfeld "unilaterally terminated this action without first providing the defendants an opportunity to pursue it and deprived thedefendants of the benefit of this bargain". I find this to be a ridiculous submission. First, the evidentiary record does not provide any basis

for assessing the likelihood of success of the action. But, assuming I were to find, despite the flimsy record, that Martenfeld would ultimately have succeeded in proving to a court that Melford breached an agreement with him, I can think of no reason why the defendants would be entitled to the benefit of that bargain. Lees Avenue [ 91 ] In 1983, Martenfeld was a limited partner investor in a multi-unit residential building, or MURB, at 190 Lees Avenue in Ottawa.

Some two decades later, commencing in 2003 and continuing in 2004, Martenfeld was involved in negotiations with the largest unit holder and in a court application in 2005 that ultimately resulted in a successful resolution of the issues affecting the Unit A shareholders and the sale of the property. As a result, the shareholders voted to give Martenfeld a priority distribution of $50,000 from the proceeds of sale in order to reward his efforts.

The defendants claim a pro rata share relying on s. 29(1) of the Partnerships Act . [ 92 ] There is no evidence that this was anything other than a passive investment made many years earlier. I find that Martenfeld was under no obligation to disclose the payment he received as the distribution was a one-time payment on a passive investment.

While Martenfeld devoted some time to the negotiations that led to the eventual sale of Lees Avenue (every e-mail, letter and meeting that occurred over this two-year period is recounted in paras. 143 to 149 of the defendants' written submissions), there is no evidence that Martenfeld failed to devote "substantially his full time and attention to the firm" as required by s. 13.2 of the partnership agreement. In fact, Martenfeld was a member of the executive committee and managing partner and was also a significant revenue producer during this period. There is no merit to this claim. [page423] Conclusion [ 93 ] In

summary, the plaintiffs' claim succeeds and the counterclaim is dismissed. I award the plaintiffs damages in the amount of $260,788.25 together with prejudgment interest and costs. This is not a case for punitive damages as I am not persuaded that the defendants' actions and omissions rise to the level described in Whiten v. Pilot Insurance Co. , [2002] 1 S.C.R. 595 , [2002] S.C.J. No. 19 , 2002 SCC 18 , at paras. 36-45 .

However, the defendants' conduct is a factor that can be considered in awarding costs. [ 94 ] The parties' written submissions and damages calculations each refer to s. 17.14 of the partnership agreement and the definition of "prescribed rate" in s. 1 as the basis for calculating prejudgment interest. If the parties are unable to agree within 30 days on the calculation of prejudgment interest on this basis, it will be calculated in accordance with the Courts of Justice Act , R.S.O. 1990, c. C.43.

If the parties do not agree on the amount of prejudgment interest calculated in accordance with the Courts of Justice Act , they are to submit their respective calculations in accordance with the

schedule set out below for the exchange of costs submissions. [ 95 ] I encourage the parties to try to settle the costs of the action. If they cannot, the plaintiffs are to serve and file written costs submissions together with a bill of costs by August 6, 2013, and the defendants are to serve and file responding written submissions by August 19, 2013. The costs submissions are not to exceed five pages. Action allowed; counterclaim dismissed. Appendix "A" Selected Excerpts from Amended and Restated Partnership Agreement January 1, 2004

ARTICLE 1

DEFINITIONS "Capital Account" shall mean each Partner's capital account as maintained pursuant to

Section 9.2. "Equity Partner" means a Partner who has an interest in the profits and losses of the Partnership as well as an interest in the capital (i.e. equity) of the Partnership and whose name is set out in

Schedule "A" attached hereto, together with those persons who become Equity Partners pursuant to the provisions of this Agreement from time to time, excluding an ex-Partner. [page424] "Partner" shall mean each individual executing this agreement as an Equity or Non-Equity Partner or subsequently admitted as an Equity or a Non-Equity Partner from time to time, in all cases other than an Expelled Partner, a Deceased Partner, a Retired Partner, a Disabled Partner or a Withdrawn Partner.

"Permanent Capital" in respect of an Equity Partner in a Fiscal Year, means the lowest level of capital required of such Equity Partner at any time during such Fiscal Year, and which amount may not be reduced at any time during such Fiscal Year, as determined at the beginning of each Fiscal Year for each Equity Partner by Special Resolution.

"Prescribed Rate" means, at any time, the per annum rate of interest quoted, published and commonly known as the "prime rate" of the Canadian Imperial Bank of Commerce ("CIBC") which CIBC establishes at its main office in Toronto, Ontario as the reference rate of interest in order to determine interest rates for loans in Canadian dollars to Canadian borrowers, adjusted automatically with each quoted or published change in such rate, all without the necessity of any notice to any Person. "Withdrawal" shall mean the withdrawal of a Partner pursuant to

Section 11.1, other than by reason of Expulsion, death, retirement or

disability, and "Withdrawing" or "Withdrawn" shall have a similar meaning. . . . . .

ARTICLE 4 MANAGEMENT OF THE PARTNERSHIP

Section 4.3 Shares and Loan Capital of the Corporation. Each Equity Partner (or a Related Person) (each of them, a "Shareholder") shall subscribe at a price per Share for that number and class of Shares of the Corporation as determined from time to time by Special Resolution. If the Equity Partner does not subscribe himself or herself, the Related Person shall execute and deliver an agreement in the form of

Schedule "C". . . . . . Each Equity Partner or Related Person shall also provide non-interest bearing loans to the Corporation in amounts as determined from time to time by Special Resolution and in connection therewith shall execute and deliver an agreement in the form of

Schedule "D".

Section 4.7 Redemption of Shares; Repayment of Capital Loans. Upon an Equity Partner ceasing to be an Equity Partner, the Corporation may, subject to applicable law, distribute to the related Shareholders such dividends as may be determined by the Board of Directors of the Corporation. After the distribution of such dividends, if any, the Corporation shall, subject to the applicable law, redeem the related Shareholder's Shares for the stated redemption price thereof specified in the Corporation's articles.

Any capital loans due to the Equity Partner or a Related Person by the Corporation shall be repayable over twenty-four months following the redemption of the Shares on the same basis as the Equity Partner's Permanent Capital of the Partnership as contemplated in

Section 11.5, mutatis mutandis, for greater certainty subject to the set-off or similar rights set out in Sections 11.2.2 and 11.5. [page425] . . . . .

ARTICLE 9 CAPITAL ACCOUNTS

Section 9.1 Capital of the Partnership. The paid-up capital of the Partnership shall consist of the Permanent Capital contributions made by the Equity Partners as determined by Special Resolution from time to time, including upon admission to the Partnership. An Equity Partner will be notified of his or her required paid-up capital contribution and this required paid-up capital must be injected into the Partnership within 30 days of the date of notification of the paid-up capital requirement from the Partnership or as agreed by the Partnership (by Special Resolution, excluding the applicable Partner).

Section 9.2 Capital Account. An individual Capital Account shall be established and maintained for each Equity Partner. Each Equity Partner's Capital Account in a Fiscal Year shall consist of his or her Permanent Capital for such Fiscal Year and (

a) shall be increased by the Equity Partner's allocable share of income allocated pursuant to this Partnership Agreement, and (

b) shall be decreased by (

i) all amounts distributed to that Equity Partner and (ii) that Equity Partner's allocable share of losses allocated pursuant to this Partnership Agreement. Income and losses of the Partnership shall be calculated in accordance with Canadian generally accepted accounting principles on an accrual basis; provided that the value of the work in progress of the Partnership shall be equal to the amount that is anticipated will eventually be billed by the Partnership for such work in progress less a reasonable allowance for uncollectible amounts as determined by Special Resolution from time to time.

ARTICLE 10 SHARING OF DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES . . . . . 10.2.2 In addition, the net income (or loss) of the Partnership, as determined for accounting purposes, shall be adjusted in order to determine the income (or loss) of the Partnership for the purposes of the Income Tax Act . The net income (or loss) of the Partnership and the income (or loss) of the Partnership for the purposes of the Income Tax Act shall be included as a tax reconciliation that will be attached as a

schedule to the financial statements of the Partnership.

ARTICLE 11 WITHDRAWAL OF PARTNERS

Section 11.1 Withdrawal of a Partner A Partner may withdraw from the Partnership at any time upon giving (4) months notice in writing . . . and shall cease to be a Partner

upon the expiry of the Notice Period.

Section 11.2 Purchase Obligations 11.2.2 Any Equity Partner who withdraws from the Partnership and competes with the Partnership within the meaning of

Section 11.2.1, [page426] agrees to pay the Partnership, as a genuine pre-estimate of liquidated damages, and not a penalty, an amount equal to two times his or her then Permanent Capital (as paid-up or required to be paid-up) and agrees that any balance in his or her Capital Account, if any, as well as any capital loans made as contemplated in

Section 4.7, will constitute a down-payment that may be retained by (or paid by the Corporation to) the Partnership by way of set-off to be applied against any amounts owing in respect of this obligation. Any balance owing to the Partnership in respect of such obligation shall be paid by the Withdrawing Partner in equal monthly instalments over a three (3) year period after the Departure Date, together with interest calculated at the Prescribed Rate plus 1% (provided that, in the event of any payment default, all remaining unpaid amounts shall immediately be due and payable, with interest). Any balance of the Capital Account owing to the Partner shall be paid out as contemplated in

Section 11.5 and any balance of any capital loans made as contemplated in

Section 4.7 shall be paid out as contemplated therein. The Withdrawing Partner shall be entitled to solicit Clients with whom he or she has had an ongoing professional relationship while at the Partnership (but not others), and shall also be obliged to buy the work-in-progress and accounts receivable (which shall be assigned) of any and all Transferred Clients as per

Section 11.3, payable over a six (6) month period in equal monthly instalments according to an amortization

schedule which calculates interest on the outstanding amount at the Prescribed Amount plus 1% (provided that, in the event of any payment default, all remaining unpaid amounts shall immediately be due and payable, with interest).

Section 11.3 New Partners. Notwithstanding

Section 11.2.2, where the Withdrawing Partner has been an Equity Partner for less than two (2) full (but not necessarily calendar) years prior to the Departure Date, and was recruited from outside the Partnership's employ at any time within three (3) full (but not necessarily calendar) years preceding the Departure Date (a "New Partner"), the Permanent Capital-related payment obligation set out in

Section 11.2.2 above will be prorated based on the period within which such Partner has been an Equity Partner, and due over the same period at the same interest rate. For greater certainty, such a New Partner withdrawing after 15 months as an Equity Partner would be liable for 15/36ths of the full Permanent Capital-related payment obligation, while, for a withdrawal after 24 months, 100% of the full Permanent Capital-related payment obligation set out in

Section 11.2.2 above would be due. In addition, any such New Partner will be liable for 100% of the fair value (as agreed or arbitrated, as the case may be) of work-in-progress and accounts receivable (which shall be assigned), in respect of all Transferred Clients, payable over a six (6) month period in equal monthly instalments according to an amortization

schedule which calculates interest on the outstanding amount at the Prescribed Amount plus 1% (provided that, in the event of any payment default, all remaining unpaid amounts shall immediately be due and payable, with interest).

Section 11.4 Books and Records of Transferred Clients. Upon the Partnership receiving the written consent of a Transferred Client, the Partnership shall provide to the Withdrawing Partner a copy of any or all books and records in respect of the Transferred Client at the Withdrawing Partner's expense. [page427]

Section 11.5 Payments to Withdrawing Equity Partner. Any Withdrawing Partner who was an Equity Partner shall, for greater certainty subject to the set-off or similar rights set forth in

Section 11.2.2 or elsewhere in this

Section 11.5, be entitled to receive an amount equal to the aggregate of: (

a) the amount, if any, of Permanent Capital standing to the credit in the Capital Account of the Withdrawing Partner, if any, as at the end of the Fiscal Year of the Partnership immediately preceding his or her Departure Date; (

b) the amount, if any, of dividends declared on his or her Shares and the redemption amount thereof, pursuant to

Section 4.7, subject to declaration by the Board of Directors of the Corporation of any dividends and subject to any applicable solvency restrictions[.] . . . . . The amount, if any, referred to in (

a) above shall be paid by the Partnership to the Withdrawing Partner in twenty-four (24) equal monthly instalments, without interest, the first instalment to be paid on the last Business Day of the first full month after the Departure Date. It is acknowledged that a determination of the amount, if any, due to the Withdrawing Partner may not be finalized prior to the payment of the first instalment. Accordingly, an estimate of the amount due may be made by the Partnership and subsequently adjusted when the amount due under

Section 11.5 has been finalized.

ARTICLE 12 CONSEQUENCES OF VIOLATION OF COVENANTS

Section 12.1 Consequences of Violations of Covenants.

If a Partner, ex-Partner or Principal breaches any provision of this Partnership Agreement (a "Breaching Party"), then, in addition to all other rights and remedies available to the Partnership, the Breaching Party shall be liable to the Partnership and each other Partner, ex- Partner and Principal for all costs and liabilities that the Partnership or such Partner, ex-Partner or Principal may incur as a result of such breach, including reasonable legal fees incurred in connection with the breach and in connection with recovery of damages from the Breaching Party.

The Partnership may apply any amounts otherwise payable to the Breaching Party to satisfy any claims it may have against the Breaching Party.

ARTICLE 13 PROFESSIONAL CONDUCT . . . . .

Section 13.2 Time Devoted to Partnership Business. Each Partner agrees that he or she is willing to devote substantially his or her full time and attention to the Partnership's Business while a Partner.

Section 13.3 Confidentiality of Partnership Information. Each Partner and ex-Partner agrees to maintain all information with respect to the Partnership and the Corporation in confidence, and agrees not to use or disclose any information, trade secrets, processes or confidences of the Partnership or the Corporation except for the purposes of their businesses. . . . . . [page428]

ARTICLE 16 ARBITRATION . . . . .

Section 16.2 Arbitration. Except as is expressly provided in this Agreement, if the applicable Persons involved in the Dispute do not reach a solution pursuant to

Section 16.1 within a period of fifteen

(15) Business Days following the first notice of the Dispute by any applicable Person to the others, then upon written notice by any applicable Person to the other applicable Persons involved in the Dispute, such Dispute shall be finally settled by arbitration in accordance with the provisions of the Arbitration Act (Ontario) (the "Arbitration Act"), except as varied or excluded by this Agreement.

ARTICLE 17 GENERAL PROVISIONS

Section 17.1 Amendment. pThis Agreement may only be amended, supplemented or otherwise modified by written agreement approved by Special Resolution. . . . . .

Section 17.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. There are no representations, warranties, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the parties in connection with the subject matter of this Agreement except as specifically set forth herein, and none of the parties has relied or is relying on any other information, discussion or understanding in entering into this Agreement. . . . . .

Section 17.14 Interest. Any interest payable hereunder shall be calculated, accrue and compound on a monthly basis. All computations of interest shall be made by taking into account the actual number of days occurring in the period for which such interest is payable and on the basis of a year of 365 or 366 days, as the case may be.

For purposes of disclosure pursuant to the Interest Act (Canada) , each of the parties hereto acknowledges that the yearly rate of interest to which any rate of interest payable under this Agreement, which is to be calculated on any basis other than a full calendar year, is equivalent may be determined by multiplying such rate by a fraction, the numerator of which is the number of days in the calendar year in which the period for which interest at such rate is payable or compounded ends and the denominator of which is the number of days comprising such other basis. Notes 1 "CBT LLP" or "the partnership".

2 Amended and restated partnership agreement, January 1, 2004:

Article 1,

Definitions; and

Article 11, Withdrawal of Partners, s. 11.2.2. 3 "CBT Inc." or the "management company". 4 The full text of relevant provisions of the partnership agreement is attached as Appendix "A". 5 Financial statements, DMCT, LLP, statement of partners' capital accounts, years ended December 31, 2004, 2005, 2006, 2007; and for Collins Barrow Toronto LLP, years ended December 31, 2008 and 2009. 6 Collins Barrow Toronto Inc. financial statements for the six months ended June 30, 2009, note 5, "Loans Payable to Shareholders"; Collins Barrow Toronto Inc. financial statements for the year ended December 31, 2009, note 4, "Loans Payable to Related Parties". 7 Note 4, CBT Inc. financial statement for the year ended December 31, 2009. 8 Exhibit 8. 9 Exhibit 8, item no. 3. 10 Exhibit 12. 11 No damages are claimed for the second and third matters. 12 Exhibit 12. 13 There is a small discrepancy of $50 between the first November 22, 2007 invoice and the combined total of the two subsequent invoices.

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