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Digest of the Week - Cause or Good Faith Required for Expulsion

Digest of the Week - Cause or Good Faith Required for Expulsion

Can't expel partner without cause or good faith

Tim Ludwig Professional Corp. v. BDO Canada LLP
2016 CarswellOnt 5362
Ontario Superior Court of Justice

Business associations --- Creation and organization of business associations — Partnerships — Relationship between partners — Membership — Introduction and expulsion

Plaintiff was forced to retire from accounting partnership — Reason given for expulsion was general economic conditions — Plaintiff brought motion for summary judgment allowing action for damages for breach of contract and breach of partnership agreement — Motion granted; action allowed — Plaintiff awarded damages of $1,294,937 for lost profits and retirement benefits, and $100,000 for aggravated damages for embarrassment and harm to reputation — Power of expulsion is expropriatory in nature and will always be construed strictly — Policy board of partnership acted to expel plaintiff at dictation of CEO and essentially abdicated its power of expulsion, or at least acquiesced in usurpation of that power by parties disentitled to wield it — Partners in firm are fiduciaries inter se and fiduciary who delegates or acts under dictation plainly fails to exercise discretion entrusted to him — Policy board did not make valid determination within meaning of partnership agreement as determination to expel had already been made in advance of its meeting — Discretion to expel partner must be exercised rationally and in good faith and not arbitrarily or capriciously — There was no evidence that policy board notified plaintiff in advance of its meeting that it would be deciding whether or not to compel plaintiff to resign and plaintiff was not afforded express opportunity to be heard by board — In absence of cause, good faith on part of expelling partners is sine qua non.

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