Recent Aquilini Canucks Acquisition Decision: Partnership on Thin Ice 

publication 

May 2009 - (Business in Vancouver)

Business in Vancouver
In its recent decision in Blue Line Hockey Acquisition Co., Inc. v. Orca Bay Hockey Limited Partnership, the BC Court of Appeal affirmed the highly publicized trial decision that the arrangements among Francesco Aquilini, Ryan Beedie and Thomas Gaglardi to acquire the Vancouver Canucks did not constitute a partnership or a joint venture. From a legal perspective, the significance of that finding was that Aquilini did not owe a fiduciary duty to Beedie and Gaglardi in relation to this business opportunity. Importantly though, the court's decision was highly dependent upon its findings as to certain key facts which, if found differently, could have yielded a dramatically different outcome. 

The Court of Appeal provided an instructive, although not definitive, overview of the ingredients of a partnership, and the rights and obligations of parties to an informal business arrangement. Businesspersons who intend to work in any sort of co-operative arrangement to achieve a business objective need to pay attention to this decision if they wish to avoid the enormous personal and financial costs suffered by these three. 

Case summary

The Court of Appeal held that the parties had not created a partnership. Among other things, the court found that they had not agreed upon important terms such as the transaction price or precisely who the participants to the actual transaction would be. The court also referred to the failure of Beedie and Gaglardi to object to Aquilini's withdrawal, and their subsequent refusal to allow him to rejoin them, as indicia of the absence of a partnership. Because the court concluded that there was no partnership, the parties had no fiduciary obligations, the "corporate opportunity rule" did not apply and Aquilini was free to act on his own. 

The decision did not address the question of whether a fiduciary duty may be owed in a relationship that is less than a partnership such as a joint venture. However, based on the trial judge's review of the law, it would be reasonable to conclude that fiduciary duties could also arise in the context of a less formal relationship. 

Key implications

It is important to recognize, depending on the particular circumstances, even an undocumented or informal business relationship has the potential to trigger a wide range of obligations, which might or might not be intended. In this instance, three experienced businessmen appear to have had fundamentally different understandings of their relationship and of their respective obligations. 

To determine whether a relationship will give rise to fiduciary obligations, the court will look to the parties' conduct to glean their intention to carry on business with a view to common profit and whether they had actually conducted such business. In all cases, depending on the vagaries of a few key findings of fact, the legal implications can be drastically different. 

The court confirmed that fiduciary duties generally arise on account of the parties' 
  • ability to exercise discretion in a way that affects and binds the others;
  • reasonable expectations, based on their mutual understanding, that the exercise of discretion will be done in the other's best interests;
  • ability to exercise power or to make decisions unilaterally; and
  • the particular vulnerability on the part of affected people to the exercise of unilateral power.
Fiduciary duties arise in the context of a partnership because each partner is an agent of the others for the purposes of dealing with the partnership's business, and is capable, at least ostensibly in dealing with third parties, of unilaterally binding the others.

Dos and don'ts of working with others 

A word of caution is appropriate in that the court's determination of whether fiduciary duties are owed will depend upon its findings in relation to key facts. It is not necessary to have a written agreement in order to create a partnership. To avoid inadvertently entering into a partnership, you may want to consider the following: 
  • stop short of reaching agreement on essential terms of the arrangement;
  • carefully set out each party's expectations, rights and obligations;
  • refrain from committing money, property or other assets to the arrangement;
  • make it clear that the parties can withdraw at any time;
  • avoid actually undertaking business in the enterprise;
  • do not expressly or implicitly, for example, by acquiescence, confer authority upon the others such that they acquire actual or ostensible power to bind all members of the group; and
  • specify the ownership of studies, reports, business plans, strategic analyses or other valuable information created in the pursuit of business opportunities in order to avoid disputes over the use that information for purposes that do not benefit the group.
When embarking upon a business relationship, consider all aspects and agree upon its nature early. In this case, even if the parties did not want to create a partnership to pursue a common business objective, they could easily have avoided the problem by entering into a "standstill" agreement, in which they each agreed to pursue the opportunity exclusively with the others or not at all. 


Contributions to this article were made by Erica Weiss, an articled student at Lang Michener .
 
This article appeared in the May 5-11, 2009 issue of Business in Vancouver .