ADAG Corporation Canada Ltd. Appellant (Defendant (Plaintiff by Counterclaim)) v. Geschlossene Grundstücksgesellschaft GGG 10, 2021 SKCA 74

Court of Appeal for Saskatchewan Docket: CACV3511 Citation: ADAG Corporation Canada Ltd. v SaskEnergy Incorporated,2021 SKCA 74Date: 2021-05-11Between:ADAG Corporation Canada Ltd.Appellant (Defendant (Plaintiff by Counterclaim))AndGeschlossene Grundstücksgesellschaft GGG 10Appellant (Plaintiff by Counterclaim)AndSaskEnergy IncorporatedRespondent (Plaintiff (Defendant by Counterclaim))Before: Whitmore, Schwann and Tholl JJ.A.Disposition: Appeal dismissedWritten reasons by: The Honourable Mr. Justice ThollIn concurrence: The Honourable Mr.

Justice Whitmore The Honourable Madam Justice SchwannOn appeal from: 2019 SKQB 263, ReginaAppeal heard: October 13, 2020Counsel: Bradley Berg, Peter Bergbusch, Q.C., and Grace Smith for the Appellants Shaunt Parthev, Q.C., and Jodi Wildeman, Q.C., for the Respondent Tholl J.A. I. Introduction [1] This appeal involves the enforceability of an option to purchase for an office building that was leased by SaskEnergyIncorporated [SaskEnergy]. A

schedule to the lease agreement granted SaskEnergy the right to purchase the building for a fixed price.When it attempted to exercise that option, the owner of the building asserted that it was not enforceable without the approval of its limitedpartners. Litigation ensued.

While SaskEnergy was successful at trial (SaskEnergy Incorporated v ADAG Corporation Canada Ltd., 2015SKQB 143, 475 Sask R 65 [SaskEnergy 1]), that result was overturned on appeal and the matter was remitted to the Court of Queen’sBench for a determination of issues that had not been decided at trial (ADAG Corporation Canada Ltd. v SaskEnergy Incorporated, 2018SKCA 14, [2018] 4 WWR 436, leave to appeal to SCC refused, [ADAG CA]). [2] SaskEnergy prevailed again at the Court of Queen’s Bench and the option to purchase was found to be enforceable:SaskEnergy Incorporated v ADAG Corporation Canada Ltd., 2019 SKQB 263 [SaskEnergy 2].

The appellants have appealed thatdecision. They assert the trial judge erred with regard to his identification and application of the principles related to ratification andestoppel by election within the context of The Partnership Act, RSS 1978, c P-3 [Act]. [3] For the reasons that follow, the appeal should be dismissed. II. Background A. General overview [4] The complex background of this matter has been extensively canvassed in the previously published judgments. Acomprehensive review of the facts is found at paragraphs 2 to 6 and 15 to 51 of ADAG CA. That

summary of the facts will not be repeatedbut is incorporated into this judgment. As such, I will provide only a brief background for the purposes of context and then refer to thedetails as necessary in my analysis. [5] ADAG Corporation Canada Ltd. [ADAG] is the general partner of a German limited partnership, GeschlosseneGrundstücksgesellschaft GGG 10 [GGG 10]. The partnership was formed for the purposes of acquiring an existing office tower [Building]located on the corner of Victoria Avenue and Broad Street in Regina, Saskatchewan. The Building was purchased in 1991.

As requiredunder s. 55 of the Act, the certificate of title was issued in ADAG’s name. The 1,200 limited partners of GGG 10 are German residentswho acquired an interest in the partnership as an investment vehicle. The Building is the only asset of any consequence for GGG 10. Aterm in GGG 10’s partnership agreement stipulates that a two-thirds majority vote of the limited partners is required to approve the sale ofthe Building. [6] SaskEnergy is a Crown corporation that is primarily involved in the distribution of natural gas throughout Saskatchewan.

In1999 and into 2000, it was seeking to consolidate its dispersed office space and to that end requested proposals from the marketplace.ADAG’s main tenant was planning to vacate the Building, so it sought to lease it to SaskEnergy. The parties reached an agreement and, on

July 25, 2000, ADAG granted SaskEnergy a long-term lease for the Building. Concurrently, ADAG and SaskEnergy executed a

schedule to the lease that created five possible purchase options for SaskEnergy in relation to the Building. Two of the options explicitly required a two-thirds approval by the limited partners whereas the other three were not conditional on such approval. At no point was a vote held by the limited partners to approve any of the options to purchase. [ 7 ] On August 25, 2011, SaskEnergy gave notice that it intended to exercise one of the unconditional options to purchase. At the time, the value of the Building greatly exceeded the option price.

In response, ADAG contended that the sale of the Building required the approval of two-thirds of the 1,200 limited partners of GGG 10, which would not be forthcoming, and asserted the option to purchase was unenforceable. SaskEnergy initiated an action against ADAG and GGG 10 for breach of contract and sought specific performance in relation to the purchase of the Building along with other monetary remedies. The parties were unable to resolve their differences and the matter proceeded to trial. B. Relevant portions of the Act [ 8 ] The following provisions of the Act are relevant to this matter:

Interpretation 2 In this Act : … (d) “firm” is the collective name for persons who have entered into partnership with one another; (e) “firm name” means the name under which a firm carries on business … . …

Part I Nature of Partnership

Interpretation 6 Persons who have entered into partnerships with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm name.

Relations of Partners to Persons Dealing with Them Power to bind firm 7 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member, bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.

Partners bound by acts of firm 8

An act or instrument relating to the business of the firm and done or executed in the firm name or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners; but this

section does not affect any general rule of law relating to the execution of deeds, instruments or documents affecting land or negotiable instruments. … Notice that firm not bound by acts of partner 10 If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement. … Liability of firm for wrongs 12 Where by a wrongful act or omission of a partner acting in the ordinary course of the business of the firm, or with the authority of his copartners, loss or injury is caused to any person not being a partner in the firm or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act. …

Part II Limited Partnerships Application of Act to limited partnerships

49 The provisions of this Act shall in the case of limited partnerships be read subject to this Part. Limited partnership 50

(1) A limited partnership may, subject to this Part, be formed to carry on any business that a partnership without limited partners may carry on.

(2) A limited partnership shall consist of: (

a) one or more persons who are general partners; and (

b) one or more persons who are limited partners.

(3) Notwithstanding

section 4 of The Companies Act , there may be any number of limited partners in a limited partnership. … Contribution by limited partner 54

(1) A limited partner may contribute money and other property to the limited partnership, but not services.

(2) A limited partner’s interest in the limited partnership is personal property. General partners to be registered as owners of interests in land 55 The interest of the limited partnership in any real property shall be registered in the land titles office in the names of the general partners only. Rights, etc., of general partners 56 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 … . …

PART V General Rules of common law and equity 111 The rules of common law and equity applicable to partnerships continue in force except to the extent that they are inconsistent with the express provisions of this Act . C. First decision of the Court of Queen’s Bench [ 9 ] The trial commenced on October 6, 2014, and concluded on October 20, 2014. The trial judge heard testimony from seven witnesses for SaskEnergy and six witnesses on behalf of the appellants. Voluminous documents were filed, mainly by consent.

While numerous arguments were made by each party, the key issues were SaskEnergy’s knowledge of the two-thirds purchase approval requirement and the effect of that requirement on its ability to unconditionally exercise the option to purchase the Building. [ 10 ] After setting out the facts in detail, and describing the key documents, the trial judge noted the applicable principles of contract

interpretation and turned to the substantive analysis. He first considered, and rejected, SaskEnergy’s argument that the indefeasibility of title and certain principles, as codified in The Land Titles Act, 2000 , SS 2000, c L-5.1 , precluded the appellants from refusing to honor the option to purchase. The trial judge moved on to consider the

interpretation of the lease and

schedule in the context of the Act . In doing so, he found that SaskEnergy reasonably believed ADAG had the authority to enter into the unconditional option to purchase. The trial judge further determined that ss. 7 , 8 and 10 of the Act did not assist the appellants. He also addressed several other issues that are not directly relevant to the appeal at hand. In the end, he found the option to purchase to be enforceable and granted judgment in favour of SaskEnergy. Specific performance was ordered requiring ADAG to transfer the Building in accordance with the terms of the option to purchase.

Because SaskEnergy had continued to make lease payments and occupy the Building after it unsuccessfully tendered the purchase price, the trial judge granted leave to the parties to return the matter to him if they were unable to agree on the consequential adjustments that would be required. [ 11 ] The parties could not agree on all of the adjustments so they returned to court on June 9, 2016. Each party filed affidavit evidence, with one witness from each side being subject to cross-examination on that evidence.

On August 19, 2016, the trial judge provided supplementary reasons that adjusted the purchase price for several factors. [ 12 ] The appellants appealed the whole of the judgment.

D. Appeal from the first decision of the Court of Queen’s Bench [13] The appeal came before this Court and a decision was rendered on February 23, 2018, partially allowing the appellants’ appeal.Speaking for the Court, Jackson J.A. began her analysis by addressing the overarching question of whether ADAG had the authority tobind the limited partners to the option to purchase when ss. 7, 8 and 10 of the Act are properly applied. In doing so, she examined theprinciples related to agency, partnership law and statutory

interpretation. [14] As a bottom-line, Jackson J.A. determined the trial judge erred in his

interpretation and application of the Act. She found thatADAG did not have actual, apparent or implied authority to bind GGG 10 to the option to purchase without the approval of two-thirds ofthe limited partners and that SaskEnergy had notice and knowledge of this restriction at the time it entered into the lease. As a result, theoption to purchase was unenforceable at the outset. However, the trial judge had not addressed whether it was enforceable because of thedoctrines of ratification or estoppel by election, so the matter was remitted to the Court of Queen’s Bench to address those issues.

Theremainder of ADAG CA addressed arguments related to The Land Titles Act, 2000, specific performance and adjustments to the purchaseprice. [15] The formal judgment remitted the matter to the Court of Queen’s Bench with the following relevant directions: 2. The matter is remitted to the Trial Judge to determine the remaining issues raised by SaskEnergy Incorporated in its Amended Reply,specifically whether the Appellants are estopped from asserting that they are not bound by the unconditional options to purchase, based onthe doctrines of acquiescence, ratification, and approbation and reprobation. E.

Second decision of the Court of Queen’s Bench [16] As a result of this Court’s direction from the first appeal, the trial was reconvened for further argument. No additional evidencewas adduced. The two main issues were (

a) whether GGG 10 had ratified ADAG’s actions and (

b) whether GGG 10 was estopped fromdenying the validity of the option to purchase by reason of election. Pivotal to both of these issues was whether the limited partners ofGGG 10 had, at some point, obtained knowledge that ADAG had exceeded its authority.

The appellants additionally asserted thatSaskEnergy was precluded from raising these issues because of its failure to take steps to obtain the consent of the limited partners. [17] Both parties spent considerable time arguing whether the contract was a bilateral or a unilateral contract, so the trial judgeanalyzed that issue extensively and concluded that it was a bilateral contract. However, as he observed, not much turned on thatdetermination.

Neither party has raised this issue on appeal. [18] Turning to the issue of ratification, the trial judge noted that the decision in ADAG CA determined that SaskEnergy hadknowledge that an unconditional option to purchase was beyond the authority of ADAG and, as such, was not binding on GGG 10. In lightof this finding, SaskEnergy argued that it could still be enforced because GGG 10 had ratified the actions taken by ADAG in entering intothe option.

The appellants contended SaskEnergy could not succeed in this argument mainly because it could not prove that the limitedpartners of GGG 10 had any knowledge that ADAG had exceeded its authority. Without knowledge, they submitted, there could be noratification. Each party also raised several subsidiary issues to its main point. [19] The trial judge quoted from a large portion of SaskEnergy’s brief of law regarding the law related to ratification.

This excerptincluded references to Gerald Fridman, Canadian Agency Law, 2d ed (Markham, Ont: LexisNexis Canada, 2012) at §2.9; CrownManufacturers Ltd. v Texas Refinery Corp. of Canada Ltd. (1984), (SK CA), 31 Sask R 266 (WL) (QB) at paras 55–56[Crown Manufacturers]; Great Northern Grain Terminals Ltd. v Axley Agricultural Installations Ltd. (1990), 1990 ABCA 252 ,109 AR 16 (CA); John Ziner Lumber Ltd. v Kotov (2000), (ON CA), 137 OAC 177 (CA) at para 29 [John Ziner];Community Savings Credit Union v U.A., Local 324, 2002 BCCA 214 at para 31, 167 BCAC 252 [Community Savings]; and Firth vStaines, [1897] 2 QB 70 at 75 [Firth].

In its brief, SaskEnergy summarized the principles related to ratification as follows: (

a) Ratification is a question of fact; (

b) The party claiming ratification has the burden of proving it; (

c) The agent whose act is sought to be ratified must have purported to act for the principal; (

d) When the unauthorized act occurred, the agent must have had a competent principal; (

e) At the time of ratification, the principal must have been legally capable of performing the act; (

f) A principal can ratify an agent’s actions either expressly or by implication; (

g) Where ratification is by implication, based upon either the principal’s clear adoptive acts or their acquiescence, then it can only occurwhere the principal has full knowledge of the character of the unauthorized act; (

h) The principal does not have to intend to ratify the agent’s unauthorized act; (

i) The principal ratifies by their unilateral act or acquiescence and no consideration is required; (

j) Where a principal receives a benefit from an agent’s unauthorized act that it has knowledge of, then a principal is required to eitherreturn the benefits received or if not, it should be implied that the principal has ratified the unauthorized actions; (

k) A principal cannot ratify or adopt some of the agent’s acts while repudiating others; and (

l) If a principal with knowledge of the unauthorized act continues to be silent and/or delays in repudiating the unauthorized act, then thiscan amount to ratification.

[20] The trial judge also quoted from the appellants’ brief of law, noting that their characterization of the law did not varysubstantially from that of SaskEnergy. It appears that he accepted the 12 principles posited by SaskEnergy in its brief. [21] With regard to the law related to estoppel by election, the trial judge referenced Coward v Kramer Ltd., 2018 SKCA 63[Coward]; Charter Building Company v 1540857 Ontario Inc., 2011 ONCA 487, 336 DLR (4th) 471 [Charter Bld.]; and Motor Oil Hellas(Corinth) Refineries S.A. v Shipping Corporation of India, [1990] 1 Lloyd’s Rep 391 (HL).

The trial judge adopted SaskEnergy’ssummary of the required steps – as set out in Coward – for estoppel by election to operate (SaskEnergy 2 at para 73): (

a) Party A has two alternative and inconsistent courses of action in relation to a contract; (

b) Party A makes an election as to which course of action to follow; (

c) Party A then conducts itself to cause Party B to believe it has elected one course of action and rejected the alternative and inconsistentcourse of action; (

d) As a result, Party A is estopped from subsequently adopting the rejected course of action. [22] The trial judge also instructed himself, relying on Coward and Charter Bld., that the party propounding estoppel by election isnot required to demonstrate that it has acted to its detriment. [23] Next, the trial judge addressed the argument that SaskEnergy was precluded from invoking ratification and estoppel byelection. He set out the appellants’ position in detail on this issue. In

summary, they argued the Court of Appeal, in ADAG CA, haddetermined SaskEnergy had notice and knowledge of the restriction; and, therefore, it was required to do something more in order to bindGGG 10 in light of s. 7 and s. 10 of the Act. However, the trial judge determined that the ruling in ADAG CA, and the associated sectionsof the Act, did not preclude the application of the two doctrines for events that arose after the lease and options to purchase had beenentered into in 2000.

He determined that this Court had clearly left the door open for SaskEnergy to raise ratification and estoppel byelection based on events subsequent to the date the lease and the options to purchase were executed. [24] The trial judge turned to an analysis of the fundamental issue of whether knowledge that ADAG had exceeded its authoritycould be visited upon the limited partners. There was no evidence that any of the individual limited partners had any actual knowledge ofADAG’s actions so he turned to the issue of constructive knowledge.

He noted the burden of proof in this regard rested with SaskEnergy.After stating that there was no compelling case authority setting out a basis for analyzing whether such knowledge existed, the trial judgeturned to an examination of the law of principal and agent to assist in his analysis. He referred to Francis B. Tiffany, Handbook of the Lawof Principal and Agent (St.

Paul, Minn: West Publishing Co, 1903) at 1-2 and 10-11 (HeinOnline), and then made some generalobservations about the differences between a principal and agent relationship versus the relationship of a general partner to limitedpartners, stating as follows (SaskEnergy 2): [87] The rules and laws around principal and agent were developed in a time that did not have instantaneous communication. Principal andagent were in business as a team.

The principal may have actively engaged in the business along with the agent or, perhaps, may havesimply been the guiding mind providing instructions to the agent. [88] The agent carried out strategies and actions directed by the principal and it owed a duty of loyalty to act in the principal’s bestinterests. The principal knew what its business was and knew what it wanted the agent to do. A limited partnership’s situation iscompletely different. [89] A limited partnership is not a paradigm where the limited partners are active in business or even providing strategy to the agent.

Alimited partnership is an investment vehicle. [90] The limited partners invest their money and hope that the agent (general partner) carries out the goals of the Limited Partnershipsuccessfully. Typically, the limited partners will, from time to time, receive reports from the agent as to how well the agent is doing ontheir behalf.

To the extent limited partners have knowledge, it is provided to them from their agent; they are otherwise passive. [25] The trial judge referred to the discussion of the status of limited partners found in Kucor Construction & Developments &Associates v Canada Life Assurance Company (1998), (ON CA), 41 OR (3d) 577 (CA) at 589, and concluded asfollows: [92] As a result of the complete non-involvement by the limited partners in the day-to-day operation of the Limited Partnership, it issomewhat paradoxical to look to the limited partners of GGG 10 having knowledge that its agent, ADAG, exceeded its authority. [93] The limited partners’ role is such that they have no knowledge other than that which ADAG provides them.

SaskEnergy is alive tothis problem and seeks to impress knowledge upon the limited partners using one or more of three methods. [26] The three routes available to establish constructive knowledge of the limited partners were examined by the trial judge. Thefirst path was imputation of knowledge through the Regina law firm that acted for ADAG and, at least nominally, GGG 10.

The trialjudge noted these solicitors were well aware of the unconditional options to purchase; but, because none of them had testified, the lawfirm’s level of knowledge regarding the restrictions in the limited partnership agreement, along with any communication by ADAG aboutwhether the problem had been addressed, was unknown. The extent of their retainer was similarly unknown. As a result, he determinedknowledge could not be established through this route. [27] The second potential way to affix the limited partners with knowledge was through the knowledge of Klaus Schneider.

Whenthe lease and options to purchase were executed, GGG 10 had only two partners. The limited partner was Mr. Schneider’s firm,Hottenbacher und Schneider, and the general partner was ADAG. Mr. Schneider was the trustee for the limited partners of GGG 10 andheld their units in trust for them. This arrangement continued until 2003 when Mr. Schneider declared bankruptcy. SaskEnergy arguedthat, because there were only two partners, Mr. Schneider must have known that ADAG had exceeded its authority in granting theunconditional options to purchase. The trial judge rejected this contention because Mr.

Schneider did not testify and there was no evidence

that he was aware of ADAG’s departure from the restriction that governed GGG 10. He was unable to conclude that Mr. Schneider had the full knowledge required in order for GGG 10 to have ratified ADAG’s unauthorized actions. [ 28 ] The third possibility was through the knowledge of Elmar Wessels. The trial judge had earlier found that Mr. Wessels, a lawyer with a German law firm, was the trustee of the limited partners of GGG 10, at least by June of 2008.

The trial judge recapped his earlier findings, and supplemented them as follows: [109] It is worthwhile to revisit [ SaskEnergy 1’s ] review of this particular chapter, starting at paragraph 64: [64] By June 2008 Mr. Bodon had been replaced as president of ADAG by Larry Lazelle. In June 2008 Mr. Lazelle received a letter from the German law firm of Wessels & Ely addressed to himself and Dr. Aszmann (T-94). The letter set out as follows: Re: GGG 10 Lease SaskEnergy Dear Dr. Aszmann and Mr.

Lazelle As the Trustee for the Limited Partners in GGG 10 it’s my obligation to see that the Interests of the Limited Partners are maintained. On that matter, I recently reviewed the SaskEnergy Lease Agreement. I find

Schedule “H” of the Agreement very disturbing and does not comply with the requirements of the Limited Partners. Further I question the validly of the

Schedule H since the beneficial owners of the building, the Limited Partners, were not properly informed of these detrimental options. There is no objection being made that SaskEnergy has a Right of First Refusal or that SaskEnergy would be able to exercise a Purchase Option. However no sale can occur unless the price reflects fair market value and has the approval of at least two thirds of the Limited Partners. Of the five options in

Schedule “H” only two, the so called Conditional Options, require the approval of the Limited Partners, all five must. Further the persons who were directly involved in the lease negotiations were informed that under no conditions could the building be sold without the approval of the Limited Partners. Therefore

Schedule “H” is not in compliance to the terms of the Limited Partnership and is not acceptable. Under normal lease agreements where there are purchase options, if the tenant exercises an option to purchase, the owner retains rights to assure a fair transaction. This must be [ sic ] case with SaskEnergy.

Schedule “H” gives SaskEnergy the unconditionally [ sic ] option to purchase the SaskEnergy Building at the end of each lease term (2021) for $18,900,000. There is no price adjustment / escalation clause recognizing appreciating values throughout the lease period. This price (established in 2001) is well below market value and would be challenged by the Limited Partners in the event SaskEnergy elects to purchase the building at this price.

Schedule “H” has stripped the Limited Partners of their privileged right of ownership, the ability to liquidate their investment at a fair market value (and the expectation of profit) and given that these options stay with the building, the building is not marketable. Through this

schedule SaskEnergy has become the owner with full control of the asset and the opportunity to realize a profit yet without any ownership risk. All risk is with the Limited Partners, that is unacceptable and must be immediately resolved. Otherwise legal action will need to be taken in order to protect the Limited Partners’ Investment. Please keep me current with your progress. Respectfully, Elmar Wessels Attorney at Law [65] Mr. Wessels did not testify at the trial. Dr.

Aszmann said he understood the letter was written because there were some complaints from members of the Limited Partnership about the absence of land titles registration. [66] It is useful to note, at this point, that Mr. Wessels was not only a trustee for the limited partners in GGG 10, he was also a partner with Dr. Aszmann in ADL, an investment company that provided investor services to the Limited Partnership. Dr. Aszmann confirmed at trial that Mr.

Wessels provides legal advice to ADL and does not charge a fee for service for his advice, but instead receives profits from ADL. [67] There are a number of unanswered questions surrounding Mr. Wessels’ correspondence. It is not known who instructed Mr. Wessels to review the OTP [option to purchase] or when he was instructed to do so or why he was instructed to do so. Further, it is not known who provided Mr. Wessels with the information he had about what took place in the negotiations. [68] What we do know is that Dr. Aszmann did not reply in writing to Mr. Wessels’ letter. Mr.

Lazelle thought it appropriate to send a copy of the letter to SaskEnergy. [69] SaskEnergy responded in July 2008 to ADAG indicating that it had no doubt as to the validity of the Lease and OTP. Notwithstanding the legal action threatened in T-94, no legal action was taken against SaskEnergy at that time. This was, however, the first time the issue of authority to enter the OTP was raised. [110] The letter clearly indicates that Mr. Wessels had full and complete knowledge of the departure by ADAG of its authority under the rules of GGG 10.

Legal action was threatened, but nothing happened. [111] The court did not hear from Mr. Wessels at trial. What we do know is that as trustee for the 1,200 limited partners, he was aware of what ADAG had done, with possible financial implications for the limited partners. All we know is that he did nothing, although we do not know why. [ 29 ] After setting out the parties’ arguments regarding whether constructive knowledge could be visited on the limited partners through Mr. Wessels, the trial judge examined Seidel v Kerr , 2003 ABCA 267 , [2004] 1 WWR 53 [ Seidel ], and BC Retail Partners

(Boitanio Mall) Ltd. v Overwaitea Food Group, 2015 BCSC 404, 53 RPR (5th) 238 [Boitanio Mall]. At the same time, he also furtherexamined the trust agreement, stating as follows: [127] … Although I rejected SaskEnergy’s argument respecting Klaus Schneider, there are other provisions in the trust agreement thatground an argument that the trustee is the operating mind of the limited partners. Exhibit D-12 provides in part: § 1 Trust Order …

(4) Beneficiary irrevocably authorizes Trustee to accept in its name services from the tax authority. … § 2 Partner Certificate and Voting …

(3) Trustee is entitled to participate in its own name but for account of other Beneficiaries in the Partnership. …

(6) Trustee is authorized to act also in other business areas as trustee.

(7) Beneficiary is always subject of rights and duties under the trust. Beneficiary bears legally and economically the rights and obligationsunder the agreements entered into in its name. Trustee acts exclusively for account and risk of Beneficiary. Beneficiary may givedirectives regarding the realization and exploitation opportunities in the market.

The Beneficiaries themselves shall resolve in the Partners’Meeting on the contractual structure of the trust and the lease contract as well as give Trustee directives for the creation and structure ofthe lease relationship. [128] Although the trust agreement does not use the terminology “operating mind”, such provisions are arguably consistent with thatstatus.

There are a number of cases which reinforce the proposition being advanced by SaskEnergy that the trustee’s knowledge, asevidenced by the 2008 letter, serves to cast an obligation on the trustee to repudiate the actions of ADAG. [30] The trial judge reviewed John Ziner; Community Savings; Robert v Montreal Trust Company, (1918) (SCC),56 SCR 342; Great West Farms Ltd. v Hansberger, (SK CA), [1924] 1 DLR 185 (Sask CA); and G.H.L. Fridman, TheLaw of Agency, 6th ed (Toronto: Butterworths, 1990) at 93, for the purpose of further examining the effect of Mr.

Wessels’s knowledge.Applying these authorities, he found the limited partners had the required knowledge through this third route. The trial judge concluded asfollows: [133] Respectfully, the weight of the authorities directs the court to focus on the knowledge and inaction of the trustee, Mr. Wessels, andto visit the same upon the limited partners. [134] Another consideration which impels me to adopt SaskEnergy’s reasoning is the commercial anomaly that will result if I do not. [135] In the Limited Partnership, the limited partners have a passive role.

The likelihood of them ever having direct knowledge ofanything other than their financial return is remote. As a result, unless I employ a method of visiting knowledge on the limited partners,the result is a legal conundrum. [136] Unless the court is able to impress upon the limited partners the knowledge that ADAG had exceeded its authority, then ADAGmay choose to exceed its authority when it is convenient.

If market conditions unfold in such a way that ADAG realizes it has made thewrong decision, then it can always invoke the rules of the Limited Partnership to set aside the agreement it entered into on the basis that ithad exceeded its authority as general partner. [137] Without the ability to visit knowledge on the limited partners and thus underpin the doctrines of ratification and estoppel byelection, ADAG is able to enter into contracts and essentially abrogate same as it sees fit. [138] This is not a result businesspeople would regard as consonant with a logical and equitable legal landscape.

Conclusion [139] Therefore, I agree with SaskEnergy that I must impress upon the limited partners of GGG 10 the knowledge that ADAG hadexceeded its authority. That impressed knowledge accrues to the limited partners by reason of the knowledge of Mr. Wessels, trustee forthe Limited Partnership. [140] In the face of that knowledge, the limited partners continued to treat what ADAG had done as not only enforceable but a resultbeneficial to the Limited Partnership. Similarly, the conduct of the Limited Partnership demonstrates an election to treat ADAG’s actionsas lawful.

SaskEnergy has made out both ratification and estoppel by election. [141] The OTP is enforceable. I leave it to the parties to agree on the next step to complete the transfer and payment of the purchase price.I will remain seized with any debates surrounding same unless usurped by the Court of Appeal. [31] The appellants have appealed from this decision.

III. Issues [32] This appeal is focused on the actions of the parties after the lease and the

schedule containing the options to purchase had beenentered into. The following issues arise: (

a) Did the trial judge err by determining the doctrines of ratification and estoppel by election were available to SaskEnergy inlight of the provisions of the Act and this Court’s previous findings regarding SaskEnergy’s knowledge? (

b) Can knowledge of ADAG’s unauthorized acts be imputed to its limited partners? (

c) Did the trial judge apply the incorrect test for ratification and further err by disregarding evidence of repudiation? (

d) Did the trial judge apply the incorrect test for estoppel by election and further err by disregarding evidence of repudiation? IV. Analysis A. Availability of ratification and estoppel by election [33] SaskEnergy had both notice and knowledge that ADAG, as the general partner, was restricted from entering into theunconditional options to purchase without the approval of two-thirds of the limited partners. In ADAG CA, Jackson J.A. stated thefollowing regarding this issue: [144] This is clear evidence that SaskEnergy had notice.

While ADAG did not give SaskEnergy a copy of the LP Agreement, therestriction in the LP Agreement was formally drawn to SaskEnergy’s attention in writing twice, and in oral communications on successiveoccasions, which support a conclusion that SaskEnergy had notice, and knew, of the restriction. … [148] Nonetheless, I respectfully conclude the trial judge erred by holding (at para 129) that if “SaskEnergy reasonably believed ADAGhad the power to enter into the Lease and OTP” (para 129) the firm was bound under s. 10. This is an error of law.

Applying s. 10,properly construed, the partners agreed to restrict ADAG’s power to sell the Property and SaskEnergy had notice of that restriction. Thisalso means that SaskEnergy cannot rely on its assertion of ADAG’s implied, or indeed, apparent authority. [34] The appellants assert that a party who is aware of a general partner’s lack of authority is precluded from invoking ratification orestoppel by election. They contend that permitting SaskEnergy to invoke these doctrines would effectively override the Act.

Theappellants submit s. 7 and s. 10 of the Act provide a complete bar to SaskEnergy’s arguments in this appeal. SaskEnergy responds byarguing that its own knowledge is irrelevant to the application of ratification or estoppel by election. It submits these two doctrines areavailable in the circumstances at hand and do not circumvent the Act. [35] In order to properly analyze this argument, an overview of the requirements of ratification and estoppel by election is required. 1.

Overview of ratification and estoppel by election [36] Ratification occurs when an agent enters into a commitment without their principal’s authority, but the principal thereafterundertakes some action to ratify the agreement and thereby signifies they will be bound by it. It provides antecedent authority to anexisting contract. The basic requirements for ratification are as follows: (

a) the agent purported to act for the principal when the agent did the unauthorized act; (

b) when the unauthorized act occurred, the agent had a competent principal; (

c) the principal was legally capable of completing the act at the time of ratification; (

d) the principal had full knowledge of all the essential facts, including the character of the act to be adopted at the time ofratification; and (

e) ratification must be evidenced by clear adoptive acts by the principal or acquiescence equivalent thereto. See Firth; Thompson v Lynne, (SK CA), [1921] 60 DLR 339 (Sask SC); Crown Manufacturing; John Ziner; andCommunity Savings. [37] In the related doctrine of estoppel by election, when a party is presented with two mutually exclusive courses of action,choosing one option has the effect of waiving rights in relation to the other inconsistent option.

If the electing party subsequently conductsitself in a manner to cause the other party to believe it has elected one course of action and rejected the other, the first party is estoppedfrom resorting to the alternative that had been rejected. This is common law estoppel. The doctrine of equitable estoppel is described laterin this judgment. See Freyberg v Fletcher Challenge Oil & Gas Inc., 2005 ABCA 46, 252 DLR (4th) 365, leave to appeal to SCC refused,; Charter Bld.; and Coward. [38] A requirement of knowledge by the ratifying or electing party is a common element to both doctrines.

I will return to thisprerequisite in more detail later in this judgment.

2. Analysis of the availability of ratification or estoppel by election [39] The appellants’ argument that SaskEnergy’s knowledge combined with s. 7 and s. 10 of the Act preclude the application ofratification or estoppel by election requires an

interpretation of the relevant portions of the Act. This is a question of law that attracts thestandard of review of correctness: Canadian National Railway Company v Canada (Attorney General), 2014 SCC 40 at para 33, [2014] 2SCR 135. [40] The modern approach applied to statutory

interpretation is that set out in Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 SCR 27. This involves a purposive analysis, having regard for the legislative scheme and the intention of the Legislature.Section 2-10(1) of The Legislation Act, SS 2019, c L-10.2, requires the words of an enactment to be “read in their entire context, and intheir grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of the Legislature”.See also Farm Credit Canada v Gustafson, 2021 SKCA 38. [41] In ADAG CA, Jackson J.A. carefully examined the history of the Act and the

interpretation of the relevant provisions. There isno utility in retracing those same steps. Once again, I will simply incorporate large swaths of that decision into this judgment and haverelied on paragraphs 64 to 76 in particular to provide the context for the

interpretation of the relevant sections of the Act. [42] The appellants assert that the doctrines of ratification and estoppel by election cannot apply because neither the common lawnor equity can override a statute. Of course, that assertion is correct and non-contentious: Elias v Duerksen, (SK CA),[1930] 4 DLR 677 (Sask SC) at para 15, and Melfort Credit Union v Wall (1993), (SK KB), 114 Sask R 40(QB) at paras 55–66.

However, as I will develop below, it is my view that the application of the doctrines at stake are not precluded by theAct. [43] One of the main purposes of the Act is to govern the relationships among partners and with third parties. However, it is evidentfrom s. 111 that the Legislature did not intend that the Act would provide an entire code and eliminate the application of common law orequitable doctrines. To the contrary, s. 111 states, “[t]he rules of common law and equity applicable to partnerships continue in forceexcept to the extent that they are inconsistent with the express provisions of this Act”.

Thus, if the doctrines conflict with s. 7 and s. 10 ofthe Act, they are inapplicable. Coming at this proposition from the other direction, if ratification and estoppel by election are notinconsistent with s. 7 and s. 10, a party is not precluded by the Act from attempting to rely on those two doctrines. [44] An examination of s. 7 and s. 10 of the Act does not reveal any express limitation on a party who contracts with a partnershipfrom establishing that an initially non-binding contract has become binding on the parties because of the application of ratification orestoppel by election.

Section 7 of the Act states that every act of a partner binds the remaining partners unless the partner does not havethe required authority and the person that the unempowered partner is dealing with knows they do not have that authority.

Section 10 ofthe Act states that no act of a partner in contravention of a restriction imposed on that partner is binding on the partnership with respect topersons who have notice of the restriction. The application of these two sections relies on knowledge by or notice to the party external tothe partnership. SaskEnergy had the required notice and knowledge. This prevented the limited partners of GGG 10 from being bound bythe options to purchase at the outset. However, I cannot read the two sections so broadly as to foreclose such a contract from subsequentlybeing enforceable at any point or for any reason.

The protection provided by s. 7 and s. 10 of the Act remains intact unless a properlyauthorized partner takes steps or, having become aware of the unauthorized act, neglects to take the necessary steps that result in thecontract becoming binding. [45] The focus of s. 7 and s. 10 – knowledge and notice – is on the conduct of the principal, agent and third party prior to enteringinto the impugned contract, whereas ratification and estoppel by election examines the after the fact conduct to determine whether theprincipal subsequently adopted the previously unauthorized acts, thus making the contract enforceable.

Care must be taken not to conflatethese two concepts. Professor Fridman in Canadian Agency Law, 3d ed (Toronto: LexisNexis, 2017) [Canadian Agency Law], discussesthis distinction at §2.11, as follows: §2.11 … Ratification by the principal means that the principal agrees with the performance of the action undertaken by the previouslyunauthorized agent. When this occurs, the ratification relates back, and the previously unappointed agent is treated as having beenauthorized at the time the act in question was performed. Ratification, therefore, is as Lord Sterndale described in Koenigsblatt v.

Sweet[[1923] 2 Ch 314 at 325], “equivalent to an antecedent authority”. (Footnotes omitted) [46] The appellants have not provided any case authority that stands for the proposition that ratification and estoppel by election areprecluded by s. 7 or s. 10, or their equivalent in other jurisdictions. The doctrines in question are the same ones that the common lawfrequently applies in a classic agent–principal context, which is the area of the law in which the principles of ratification and estoppel byelection have developed.

The availability of the two doctrines for the matter at hand is consistent with academic commentary and caselaw, which indicate that ratification applies in the partnership context. Professor Fridman, in Canadian Agency Law, succinctly states, “apreviously unauthorized act by a partner may be ratified ex post facto …” (at §12.3).

I can see no principled reason why a principal in adifferent type of agent–principal relationship would be bound by a ratification or estoppel by election but a partner with the appropriateauthority within a partnership could never ratify the unauthorized actions of another partner or make the requisite election. [47] In light of the express direction provided by s. 111 of the Act, the relatively narrow focus of s. 7 and s. 10 of the Act, and thebroad applicability of ratification and estoppel by election to agent–principal relationships, it is my view that s. 7 and s. 10 cannot be readas effectively precluding a third party from relying on the two doctrines in question.

Ratification and estoppel by election are rules that areapplicable to relationships akin to that of agent–principal, at common law or equity, and are available in the context at hand. This groundof appeal has no merit. B. Ratification [48] The appellants assert the trial judge applied the wrong test when he analyzed the doctrine of ratification. They agree that there

is no dispute with regard to the first three conditions for ratification: that ADAG purported to act for GGG 10, that the limited partners arecompetent principals and that the limited partners are legally capable of completing the act of ratification. However, they argue that thetrial judge erred by finding that less than full knowledge of all of the essential facts, including the character of the act to be adopted at thetime of ratification, was required by the limited partners and that constructive knowledge would suffice. They further contend that therewere no clear adoptive acts or acquiescence evidencing ratification and point to Mr. Wessels’s letter as

an act of repudiation. [49] SaskEnergy submits that evidence of direct personal knowledge is not required and that imputed or constructive knowledge issufficient. It argues that a finding of constructive knowledge was supported by the evidence, particularly the evidence regardingMr. Wessels’s involvement. It says that the actions, and inactions, of the limited partners demonstrated they decided not to repudiate thelease that contained the unconditional options to purchase and thereby adopted those options. 1.

Knowledge of the limited partners of GGG 10 [50] The trial judge found there was no evidence that any of the 1,200 limited partners in GGG 10 had any direct, personalknowledge of the existence of the unconditional options to purchase or any direct, personal knowledge that ADAG had exceeded itsauthority in this regard.

However, he determined that such knowledge was not required because constructive knowledge was sufficient.The issues at stake in this appeal are whether, at some point after the lease was executed, the limited partners of GGG 10 had the requisiteknowledge that ADAG had exceeded its authority by agreeing to the unconditional options to purchase and whether GGG 10 elected toadopt the previously unauthorized act or acquiesced to it. Such knowledge is a necessary precondition to a successful assertion ofratification.

Both parties agree that the limited partners, as principals, needed to have “full knowledge of the facts” in order for SaskEnergyto be successful with its ratification argument. However, they disagree as to what that means. The appellants argue that it must be actualknowledge, not constructive knowledge. SaskEnergy asserts that imputation of knowledge is available to satisfy the test. The question tobe addressed is whether personal, direct knowledge is required or whether constructive knowledge will suffice in the context of a limitedpartnership.

This is a question of law subject to review on the correctness standard. [51] Neither party has provided any direct authority on the issue of whether limited partners can be deemed to have the knowledgeof the general partner. This issue was raised in Empire Life Insurance Company v Krystal Holdings Inc. (2008), (ONSC), 53 BLR (4th) 234 (Ont Sup Ct J), leave to appeal to SCC refused, , and 337965 British Columbia Ltd. v TackamaForest Products Ltd. (1992), (BC CA), 91 DLR (4th) 129 (BCCA), leave to appeal to SCC refused, [1993] 1 SCR v,but not decided.

As such, an examination of the agent–principal relationship provides a focal point from which to commence the requiredanalysis. [52] In a standard agency arrangement, the knowledge gained by an agent through notice or through the course of their duties isautomatically imputed to the principal: Mah v Wawanesa Mutual Insurance Company, 2013 ABCA 363 at para 13, 92 Alta LR (5th) 46.This has long been the law in Canada: see, for example, Whitney v Great Northern Insurance Co. (1917), (AB CA), 10Alta LR 292 (CA), aff’d (SCC), [1918] 57 SCR 543, and Equinav Financial Corporation v Roesslein Estate, 2020 SKCA69 at para 43, 449 DLR (4th) 620.

It is presumed that the agent will communicate their knowledge to the principal because they must doso in order to fulfill their duties as an agent: Durbin v Monserat Investments Ltd. (1978), (ON CA), 87 DLR (3d) 593(WL) (Ont CA) at para 8.

As set out in s. 7 of the Act, every partner is an agent of the firm and an agent of the other partners. [53] In a partnership, the knowledge of one partner is generally imputed to all other partners of the firm based on these same notionsof the law of agency combined with the fiduciary obligations owed amongst the partners: Cameron Harvey and Darcy MacPherson,Agency and Partnership Law Primer (Toronto: Thomson Reuters, 2016) at 202, and Coopers & Lybrand Chartered Accountants vDockrill (1994), 1994 NSCA 26 , 111 DLR (4th) 62 (WL) (NSCA) at para 14.

However, the application of this concept becomessignificantly more nuanced when the partnership is structured as a limited partnership. [54] SaskEnergy argues that ADAG had a fiduciary obligation to inform the limited partners of the existence of the unconditionaloptions to purchase. The inevitable outcome of this argument would be the imputation of all of ADAG’s pertinent knowledge to the 1,200limited partners in the same manner, and for the same rationale, as that of a regular partnership.

It is worth reiterating at this point thatthere was no evidence that ADAG ever told the limited partners of its unauthorized act or of the existence of the unconditional options topurchase prior to SaskEnergy seeking to exercise its option to purchase in 2011. There is no evidence that the limited partners gainedinformation through this route.

In my view, automatic imputation from the general partner to the limited partners cannot be presumed. [55] By its very nature, a limited partnership restricts the ability of a limited partner to be involved in the day-to-day business of thefirm and have knowledge of its dealings:

Part II of the Act; Halsbury’s Laws of Canada (online), Partnerships, “Limited Partnerships:General” (X.1) at HPJ-69 “Overview” (2017 Reissue). A limited partner has “no implied authority to bind the firm” and their co-partners:Roderick Banks, Lindley & Banks on Partnership, 20th ed (London: Sweet & Maxwell, 2017) at 28-07. A limited partner is akin to aninvestor and is required to take a passive role. If a limited partner takes

part in the control of the business, they can lose their liabilityprotection. The position occupied by such a person is well-described by Harvison-Young J. in Belzberg Technologies Inc. v ITG CanadaCorp., (Ont Sup Ct J) [Belzberg]: [18] As with a general partnership, a limited partnership is not an entity distinct from its general partner. Mr. Justice Farley addressed thisissue in Lehndorff General Partner Ltd. (Re) (1993), 9 B.L.R. (2d) 275, 17 C.B.R. (3d) 24 (Ont. Gen. Div.) and again in Covia CanadaPartnership Corp. v. PWA Corp. (1993), (ON SC), 105 D.L.R. (4th) 60 (Ont. Gen.

Div.) where his reasons wereadopted by the Court of Appeal (1993), (ON CA), 106 D.L.R. (4th) 608 (Ont. C.A.). In both cases, his Honour heldthat a limited partnership is not a separate legal entity. Rather, a limited partnership is a “vehicle for the passive investment by limitedpartners.” In Lehndorff, Justice Farley also explains that the role of the general partner is to actively operate the business of the limitedpartnership. The role of the limited partners in the operations of the business, on the other hand, is necessarily passive to maintain limitedliability protection.

The result is that the limited partners leave the running of the business to the general partner and it is the generalpartner who is responsible for the care, custody and the maintenance of the property, assets and undertakings of the limited partnership. [56] The necessary passivity of limited partners is further described in Halsbury’s Laws of Canada (online), Partnerships, “LimitedPartnerships: Limited and General Partners” (X.3) at HPJ-72 “Differences between limited and general partners” (2017 Reissue):

Differences between limited and general partners. Although a limited partnership is a partnership, and the partnerships legislation,which governs general partnerships, would apply to it unless its provisions are inconsistent with those of the limited partnershipsprovisions, it is important to be aware that in a general partnership all of the partners are liable for the obligations of the partnership,whereas in a limited partnership the general partner is fully liable for partnership obligations, with the financial exposure of limitedpartners being limited to their contributions to the partnership.

Further, in a general partnership any partner can conduct the usual businessof the partnership, whereas in a limited partnership the limited partners are passive and the general partner manages and controls thebusiness of the partnership. The limited partnership has a special category of partner, whose obligation to the partnership is restricted tothe contribution of its capital. Limited partnerships legislation routinely restricts a limited partner from active participation in the businessaffairs of the partnership, in return for which he or she is given limited liability.

Involvement by a limited partner in the business of thepartnership may result in the loss of limited liability by that partner.

Moreover, as a consequence of the management and control of thefirm being the exclusive responsibility of the general partner, it is through the general partner that a limited partnership acquires andconveys title to real property. [57] In Canadian Home Publishers (General Partner of) v Parker, 2019 ONCA 314 at para 25, 433 DLR (4th) 430, leave to appealto SCC refused, , Nordheimer J.A. described limited partners in the following terms: [25] Moreover, a limited partner is expressly not in the same position as a partner in an ordinary partnership.

A limited partner enjoysprotection from the liabilities of the limited partnership, unlike a partner in an ordinary partnership. In return for that protection, thelimited partner is restricted to the receipt of two things under the LPA [Limited Partnerships Act, RSO 1990, c L. 16]: one is their share ofthe profits and the other is the return of their contribution (see LPA, s. 11). A limited partner has no broader right to participate in theupside of the limited partnership, just as the limited partner has no broader obligation to suffer or contribute in the downside.

Thatconclusion is consistent with the approach set out in Lehndorff General Partner Ltd. (Re), (1993), 9 B.L.R. (2d) 275, where Farley J. said,at para. 17: The limited partnership is an investment vehicle for passive investment by limited partners … Limited partners had no liability to thecreditors of the partnership’s business; the limited partners’ financial exposure is limited to their contribution. The limited partners do nothave any “independent” ownership rights in the property of the limited partnership.

The entitlement of the limited partners is limited totheir contribution plus any profits thereon, after satisfaction of claims of the creditors. [58] The contrast between the general partner’s full involvement in the usual business of the partnership and the limited partner’slack of participation in the business suggests that imputing the knowledge of a general partner to a limited partner is not appropriate.Additionally, the unlimited liability of a principal for the acts of their agent – of which the unlimited liability of one partner for the acts ofanother partner in a regular partnership is a subset – provides the general justification for automatically imputing knowledge to a principalor all regular partners.

That rationale does not extend to limited partners, who only place their capital contribution at risk. [59] The rule that fixes a principal with the knowledge of their agent, or all partners with the knowledge of every other partner, doesnot fit very comfortably with the circumstances of a general partner and limited partners. In a standard agent–principal relationship, or in aregular partnership, the principal, or other partners, are entitled to and may take an active role within the relationship, whereas a limitedpartner is prohibited from doing so. They are required to be passive.

As a result, liability is markedly different. Because of thesedifferences, it is my opinion that the knowledge of a general partner should not automatically be imputed to limited partners. [60] Despite this distinction, it must be remembered that a limited partnership is not two separate entities or silos consisting of thegeneral partner in one compartment and the limited partners in another. A limited partnership is one partnership, albeit consisting of bothtypes of partners: Belzberg at paras 17–20.

As a result, it seems illogical to completely segregate the knowledge of one part of thepartnership from the knowledge of the other. Additionally, because limited partners are, by definition, not permitted to be involved in thebusiness of the partnership, it is logical that something less than actual, direct knowledge by the limited partners is required to satisfy theknowledge condition for ratification.

In my opinion, there is room for constructive knowledge that may be proven through circumstantialevidence. [61] In my view, the requirement for the limited partners to have full knowledge of all the essential facts, including the character ofthe act to be adopted at the time of ratification, requires the source of the imputation of the knowledge to have been fully aware of therelevant facts regarding the unconditional options to purchase that had been entered into by ADAG contrary to the restriction in thepartnership agreement.

After making that determination, it would then be appropriate to analyze whether that knowledge should beimputed to the limited partners. Such a determination would be heavily dependent on the circumstances. This is what the trial judge did. Ican see no error in his approach and cannot give effect to the appellants’ arguments that only actual knowledge by the limited partnerswould suffice.

This leads to an examination of the routes to knowledge that SaskEnergy put in front of the trial judge. [62] As noted above, SaskEnergy asserted that, aside from any imputation from ADAG, knowledge could be found for the limitedpartners in three ways. The trial judge rejected two of those paths, Mr. Schneider and the Regina solicitors, but accepted the third,Mr. Wessels. The appellants argue the trial judge erred by finding constructive knowledge through Mr. Wessels. SaskEnergy submits thetrial judge did not err in using Mr.

Wessels to impute the knowledge of the unauthorized act to the limited partners, but further argues thathe erred by not also finding knowledge through the other two possible routes or a combination of all three. Although SaskEnergy did notcross-appeal, it argued this same point at trial and is entitled to seek to have the judgment sustained on this basis: R v Paterson, 2021SKCA 13 at para 34. I will examine each of these three potential avenues for error. A finding that such knowledge existed is a question offact subject to the standard of palpable and overriding error. a.

Imputation of knowledge from Klaus Schneider [63] From 1992 to 2003, GGG 10 was structured in a manner whereby all of the units of the 1,200 limited partners were held by atrustee, Mr. Schneider. In 2003, the structure changed when Mr. Schneider declared bankruptcy and the units of the limited partners weretransferred into their personal names. There was no evidence that Mr. Schneider was aware of ADAG’s departure from the restriction thatgoverned GGG 10. The trial judge was unable to conclude that Mr. Schneider had the knowledge required for ratification.

This is afinding of fact subject to review on the palpable and overriding error standard. No such error is revealed. Knowledge cannot be imputedthrough Mr. Schneider.

b. Imputation of knowledge from the Regina solicitors [64] A Regina law firm represented ADAG for the purposes of putting together the lease agreement and its schedules, including theoptions to purchase. The trial judge found the solicitors also represented GGG 10 “at least nominally” (at para 94). [65] The knowledge of a solicitor is often visited upon a client: Bhatnager v Canada (Minister of Employment & Immigration), (SCC), [1990] 2 SCR 217 at 226. However, for this principal to apply, there must be evidence of what the solicitorknew.

Here, while the law firm was extensively involved in the transaction, the trial judge concluded there was no evidence regarding thelaw firm’s knowledge of the restrictions in the limited partnership agreement or of any communication by ADAG to the solicitors aboutwhether this issue had been addressed. There was no evidence the solicitors communicated with any of the limited partners of GGG 10.There was only evidence of the solicitors’ communication with ADAG.

The extent of their retainer was similarly unknown. [66] The trial judge found the evidence did not establish that the law firm had the requisite knowledge or that it communicated anysuch information to the limited partners. This is a finding of fact, which is well-grounded in the evidence, or the absence thereof. There isno palpable or overriding error to be found in this determination. Given these findings, it cannot be said that the solicitors had fullknowledge of all of the essential facts.

As such, the knowledge of the solicitors could not be a source from which to impute the requisiteknowledge to the limited partners. c. Imputation of knowledge from Elmar Wessels i. Mr. Wessels’s actual knowledge [67] As demonstrated by his June 2008 letter, Mr. Wessels was fully aware of all of the essential facts after reviewing the lease andthe

schedule containing the options to purchase. There was no evidentiary problem with respect to his knowledge as there was forMr. Schneider and the Regina solicitors. He knew that ADAG had entered into the lease and, in contravention of the partnershipagreement, had agreed to options to purchase for the Building that did not require the approval of two-thirds of the limited partners.Mr. Wessels also knew that SaskEnergy had been informed of the restriction on the sale of the Building during negotiations and had takenthe position that the unconditional options to purchase were enforceable.

There can be no doubt that Mr. Wessels had the full knowledgerequired to make a decision to ratify the options to purchase. The issue is whether the trial judge erred in impressing the limited partnersof GGG 10 with that knowledge. ii. Mr. Wessels’s role [68] The appellants argue that Mr. Wessels was not the trustee of the limited partners and should not have been considered so by thetrial judge. They argue he made a palpable and overriding error in determining that Mr. Wessels took over the role of trustee fromMr. Schneider. SaskEnergy says Mr.

Wessels did become the new trustee, although it was clear he did not take over the exact role filledby Mr. Schneider. It says the trial judge was aware that their roles were not identical and was entitled to find that Mr. Wessels was thetrustee for the limited partners. [69] The responsibilities of Mr. Wessels were never made completely clear during the trial. He is a German lawyer. The June 2008letter to ADAG was sent on his law firm’s letterhead and signed by Mr. Wessels as “Attorney at Law”. He was also one of two partners inADL, with Dr. Ulrich Aszmann being the other.

ADL is a German corporation that provided services to ADAG in its dealings with thelimited partners in Germany. Although his June 2008 letter was sent to ADAG, it was promptly forwarded to SaskEnergy by ADAG. [70] The opening sentence in Mr. Wessels’s June 2008 letter stated, “As the Trustee for the Limited Partners in GGG 10 it’s myobligation to see that the Interests of the Limited Partners are maintained”. The body of the letter then clearly sets out his extensiveknowledge of the issues. Mr.

Wessels closed his letter by stating, “All risk is with the Limited Partners, that is unacceptable and must beimmediately resolved. Otherwise legal action will need to be taken in order to protect the Limited Partners’ Investment. Please keep mecurrent with your progress”. [71] Mr. Wessels had also registered an interest against the title to the Building on February 25, 2008, as “Elmar Wessels, holdingan interest as trustee for the beneficial owner [GGG 10]”. [72] When the June 2008 letter was sent by ADAG to a vice president at SaskEnergy, Mr.

Lazelle, then president of ADAG, wrotethe following in the cover email: As you know the building is owned by a German Limited Partnership with ADAG acting as the Canadian General Partner. In Germany itis common for Limited Partners to appoint a Trustee to oversee the Limited Partnership’s interests (foreign) and communicate such to theGP (ADAG). On that note I have received a letter from the Trustee, Mr. Wessels, a lawyer in Wiesbaden (which I will forward to you),expressing his concern and objection to the Options to Purchase the building as provided in the Lease Agreement with SaskEnergy.

He hasinstructed ADAG to resolve. I recognize that a resolution is only possible if there is a benefit to all parties. I would like to initiate discussions on that basis. [73] SaskEnergy replied by letter stating, inter alia, that ADAG had the authority to enter into the options and that they wereenforceable. Although this assertion by SaskEnergy was incorrect, as found by this Court in ADAG CA, SaskEnergy’s knowledge has nobearing on Mr. Wessels’s role. SaskEnergy clearly communicated that it would vigorously defend any action that sought to alter the termsof the lease, including the options to purchase. Mr.

Wessels received a copy of this response letter from SaskEnergy. [74] Dr. Aszmann, the president of ADAG at the time of the trial, provided lengthy testimony during cross-examination regardingthe circumstances surrounding the writing of Mr. Wessels’s June 2008 letter. However, his testimony did not shed any particular light onthe reason the letter was sent or provide much information about Mr. Wessels’s role.

[ 75 ] Mr. Wessels did not testify at trial, so the only other clues as to the nature of his role as trustee are found in documents, filed as Exhibits D-12 and D-31. The document filed as Exhibit D-12 was the trust agreement in relation to Mr. Schneider. The important portions of that document are excerpted earlier in this judgment, at paragraph 29. Following the bankruptcy of Mr.

Schneider, the units in the limited partnership were transferred to the 1,200 individual limited partners. [ 76 ] Exhibit D-31 is an amendment to the GGG 10 partnership agreement, under which it was recognized that a new trustee was appointed by resolution of the limited partners in 2003. It was signed June 15, 2011. The pertinent portions of that document are as follows: 1.

Limited Partners, Exclusion of the Trustee In 2003 the Trustee of GGG 10 gave notice to terminate his Trustee’s participation for good reason (bankruptcy) according to section 13(3) and transferred the corporate interest held in trust by this time on a pro rata basis to his present Trustors as defined in section 3(1); with the legal consequence that each Trustor hereby became a direct Limited Partner in GGG 10. … 3.

Advisory Board (§11) An Advisory Board with three to five members has been established in 1993 with the aim to represent essential interests of the Limited Partners (former Trustors) and to advise and control the Management of GGG 10. 4. Trustee for purpose of security and payment (§11) A new Trustee exclusively for the purpose of GGG 10’s security and payment was appointed in 2003 by Resolution of the Limited Partners. [ 77 ] The parties agree the new trustee referenced in Exhibit D-31 was Mr. Wessels. There was no evidence as to the proper

interpretation of Exhibit D-31 or what was meant by the language describing the role of the trustee as “exclusively for the purpose of GGG 10’s security and payment”. [ 78 ] None of the other evidence illuminated the details of Mr. Wessels’s actual responsibilities, the steps he took or the information he communicated. With this evidentiary backdrop, the trial judge had to determine the scope of Mr. Wessels’s role. [ 79 ] In my view, the trial judge’s determination that Mr. Wessels was a trustee in relation to the limited partners of GGG 10 cannot be disturbed on appeal.

While the evidence of his role was sparse, it was sufficient to make this finding. There was no evidence adduced at trial that indicated Exhibit D-12 did not remain in force, with the modifications set out in Exhibit D-31. It is clear that the new trustee was not fulfilling all of the roles of the former trustee because the former trustee had held all of the units of the limited partnership in trust, whereas the new trustee did not.

While the appellants assert that the trial judge committed a palpable and overriding error in referring to Exhibit D-12 as if it were still in effect, it is my view that the trial judge cannot be said to have committed such an error. In light of Exhibit D-31, and the dearth of evidence as to whether Exhibit D-12 remained partially in force, the trial judge was entitled to infer that it remained partially operative. [ 80 ] It is undisputable that Mr.

Wessels was a trustee of some kind in relation to the limited partners, and had been appointed by them to that position in 2003, but the scope of his obligations were uncertain. However, his role as trustee was significant enough that he, as a lawyer and trustee, had reviewed the lease and schedules, formed specific opinions about a significant problem, registered an interest against the title to the Building and was contemplating legal action on behalf of the limited partners in 2008.

The trial judge was faced with evidence of a lawyer asserting he was the trustee and that it was his obligation to see that the rights of the limited partners were protected, while threatening ADAG with litigation if the matter was not resolved. At the same time, ADAG communicated to SaskEnergy that Mr. Wessels was, “as is common in Germany”, acting as a trustee to oversee the limited partners’ interests. At the time, ADAG did not dispute that notion and, instead, through its email, added legitimacy to Mr. Wessels’s claim to be the trustee.

The limited documentary evidence is strongly indicative of the fact a trustee had been appointed. In the face of this evidence, I cannot find that the trial judge committed a palpable and overriding error by determining that Mr. Wessels was the trustee for the limited partners regarding their interests related to the lease, the options to purchase and the Building. iii. Imputation of knowledge from a trustee to a beneficiary [ 81 ] The appellants contend the trial judge erred in law by determining that the knowledge of a trustee can be imputed to a beneficiary. As they did at trial, they rely on Seidel .

That case involved an application for an oppression remedy in the context of allegations that one of the shareholders and directors of a corporation had, without authorization, given loans to other companies he controlled and wrongfully transferred funds to himself and his companies under the guise of management fees. One of the shareholders, Mr. Seidel, made an application on behalf of himself and his children, who were also shareholders. Mr. Seidel had held the shares in trust for his children for most of the relevant period.

At the Court of Queen’s Bench level, the application on behalf of the children was barred on the basis of a limitation period after the trustee father’s knowledge was imputed to the beneficiary children. In reversing this determination on appeal, and sending the matter back to the trial court, Wittmann J.A. stated the following: [62] The trial judge cited no authority, and the parties were unable to provide any, for the proposition that the trustee’s knowledge is imputed to the beneficiaries.

The Limitation of Actions Act [RSA 1980, c L-15 (repealed)] does not contain provisions applicable to trustees purporting to act as claimant. I know of no such doctrine which would impute knowledge, particularly in a case such as this when the [ Business Corporations Act , RSA 2000, c B-9 ] permits an oppression action to be brought by a beneficial owner. Also, this is not a case where the trustee is bringing the action on behalf of beneficiaries. The beneficiaries were always plaintiffs asserting their claims in that capacity. [63] There was no evidence as to when the Seidel children discovered the claim.

A limitation period argument remains available as a

defence. The issue of onus does not appear to have been decided by the trial judge. [64] In the absence of any doctrine imputing knowledge to the beneficiaries, the limitation period applicable to the Seidel children must be determined according to their knowledge. If no evidence is led on this issue, the onus may be relevant. [ 82 ] Seidel was decided in the context of a preliminary application to determine whether a limitation period prevented an oppression application being made by a trustee on behalf of beneficiaries.

The Alberta Court of Appeal does not appear to have definitively decided the issue regarding imputation of knowledge. In my view, this case does not stand for the proposition that knowledge of a trustee can never be imputed to a beneficiary. [ 83 ] As did the trial judge, SaskEnergy relies on Boitanio Mall , where the British Columbia Supreme Court found that the trustee’s knowledge of a restrictive covenant could be imputed to the beneficiary.

While the British Columbia Supreme Court did not cite any cases in support of its imputation of the trustee’s knowledge to the beneficiary, the following passages indicate that the decision was based on the application of agency law and property law: [104] Even if as a “bare trustee” BC Retail’s knowledge might not be imputed to [the petitioners] – a proposition that I do not accept given the provisions of s. 29(1) and (2) of the Land Title Act [RSBC 1996, c 250 ] – the Declaration of Trust and Agency Agreement imposed positive responsibilities upon BC Retail as [the petitioners’] nominee that preclude BC Retail from being considered as a mere “bare trustee”. [105] I accordingly see no reason in this case to depart from the principle of agency law that the knowledge of the agent is imputed to the principal.

BC Retail’s actual knowledge of the existence of the Restrictive Covenant must accordingly be imputed to [the petitioners]. See: Principles of Property Law , 6th ed, Ziff, B. 2014 (Carswell) [ Ziff ] at page 471. [ 84 ] The appellants point to differences between a trustee–beneficiary relationship and an agent–principal relationship that they submit supports their contention that the knowledge of a trustee cannot be imputed to a beneficiary. They offer the following academic commentary from Donovan W.M.

Waters, Water’s Law of Trusts in Canada , 4th ed (Toronto: Carswell, 2012) in support of this submission: “The agent acts within the scope of the principal’s grant of authority, and when dealing with third parties the agent is effectively a conduit whereby his principal and the third party are put in direct relations.

The express trustee, on the other hand, is not an agent of the settlor nor of the beneficiary” (at 3.III.A.1). [ 85 ] On this same point, and with further reliance on Water’s Law of Trusts in Canada , the appellants argue that, unlike in an agent–principal relationship, a trustee has no obligation to communicate information to beneficiaries. They contend that a duty to disclose trust information only arises when a beneficiary requests it.

They assert that the two types of relationships are distinct and cannot be conflated. [ 86 ] In response, SaskEnergy argues that the generalized statements from Water’s Law of Trust in Canada , relied upon by the appellants, do not reflect a trustee’s significant disclosure obligations with respect to the proprietary interests of beneficiaries. They mainly rely on Boretta Estate v McRory , 2014 ABQB 498 , 32 BLR (5th) 281 [ Boretta Estate ], and Valard Construction Ltd. v Bird Construction Company , 2018 SCC 8 , [2018] 1 SCR 224, for this proposition.

At paragraph 64 of Boretta Estate , Hall J. wrote, “The trustee must act solely in the best interests of the beneficiary. … The trustee has a duty to inform beneficiaries of any event which may put the trust properties at risk” (emphasis in original). In my view, that is an accurate statement of the law and is applicable to the current circumstances. [ 87 ] Mr.

Wessels, a lawyer who was the trustee for the limited partners, had knowledge that the general partner had acted outside of its authority and violated the partnership agreement and, as a result, the entire investment of the limited partners, valued around $50 million, had been placed at significant risk. Mr. Wessels had taken steps to review the circumstances and relevant documentation and had informed himself of the problem. After doing so, he demanded that the matter be resolved, threatening litigation if it were not. He received a forceful and negative response from SaskEnergy in reply to his letter.

It strains credulity to suggest that a lawyer who is a trustee in such a position would not be required to provide such critical information to the limited partners. I am not prepared to find that a trustee in these circumstances would not be required to disclose this type of fundamental information to the limited partners. Applying this framework, the knowledge of the trustee in this matter can be imputed to the limited partners. The limited partners can be fixed with full knowledge of the true state of affairs regarding ADAG’s actions and the options to purchase.

I can find no error in the trial judge’s conclusion that Mr. Wessels’s knowledge should be imputed to the limited partners of GGG 10. 2. Adoption of the unauthorized act [ 88 ] The trial judge determined th

[…]