HIGHLIGHTS
* A Justice of the Supreme Court of British Columbia has conducted an in-depth review of the law concerning the formation of partnerships in relation to a proposed partnership to finance and develop an Abbotsford, British Columbia farm for the purpose of growing medical marijuana. The Court concluded that although the parties intended to enter into a written partnership or joint venture agreement, they had not reached a consensus with respect to the essential terms of the agreement, including when it would commence, their respective roles and responsibilities, how revenue and expenses would be accounted for and how they would share profit and losses. Although there had been discussions, they never actually commenced carrying on any business. A Vancouver businessman who had proposed a partnership to the owners of a small Abbotsford farm in financial difficulty, was granted judgment for funds he had advanced to pay down the farmer's mortgage but not for funds expended to improve the land for marijuana production. The farmers' actions for breach of fiduciary duty and breach a duty of good faith, as well as damages resulting from their loss of their farm in a foreclosure action were dismissed. (Ficocelli v. Henderson, CALN/2017-032, [2016] B.C.J. No. 2600, British Columbia Supreme Court)
NEW CASE LAW
Ficocelli v. Henderson;
Full text: [2016] B.C.J. No. 2600;
British Columbia Supreme Court,
W.J. Harris J.,
December 7, 2016.
Partnerships -- Proof of Essential Elements of the Partnership Agreement.
Michael Ficocelli ("Ficocelli") sued Brian and Nancy Henderson (the "Hendersons") for monies he paid on a mortgage against the Hendersons' farmland, and with respect to expenses he incurred improving buildings and the Hendersons' land to accommodate a proposed legal marijuana grow operation.
The Hendersons counterclaimed against Ficocelli, for breach of an alleged partnership agreement and for breach of alleged fiduciary duties and a duty of good faith.
In October of 2012, Ficocelli placed an advertisement on craigslist seeking a partner to develop a rural property. Ficocelli was a Vancouver businessman who owned an autobody shop and had a marijuana dispensary. Ficocelli was interested in locating rural properties which could be leased to marijuana growers for the purpose of supplying his business.
The Hendersons owned and resided on a 10 acre parcel in Abbotsford.
The Hendersons responded to Ficocelli's advertisement. The Hendersons were in difficult financial circumstances. The property was subject to a $525,000.00 mortgage with payments of $4,311.00 per month, interest only. The mortgage was to mature January 1, 2013. Their property was listed for sale for $997,000.00. It was a term of the mortgage that the property would be listed for sale at 5% below the appraised value.
A number of e-mails and draft agreements were exchanged between Ficocelli and the Hendersons which proposed a partnership between them and which involved cleaning up the property and leasing a barn on the property to designated marijuana growers and leasing out the house and outbuildings on the property for additional income.
No agreements were signed.
When the mortgage came due in January of 2013, Ficocelli paid $10,696.00 in arrears and began paying monthly payments. A 3 month extension was negotiated. A Self- Counsel Press form of partnership agreement was partially completed but never signed.
Ficocelli made 2 offers to purchase the property which were not accepted. A joint venture was proposed pursuant to which Ficocelli would be added as an owner of the property. Ficocelli paid $315,000.00 to the mortgage lender on April 23, 2013. The Hendersons signed a "guarantee" pursuant to which these funds would be paid back to Ficocelli or discounted from the purchase price, if Ficocelli purchased the property.
When the Hendersons did not complete the work to prepare the property for growing medical marijuana, Ficocelli hired labourers to do so. A joint venture agreement was discussed but not was agreed to. Ficocelli made further offers to purchase which were not accepted. On November 15, 2013, the mortgage lender refused to renew the mortgage. In 2015 the property was sold through foreclosure proceedings to a third party for $1,053,888.00.
The Court considered the following issues:
- Was there a partnership between Ficocelli and the Hendersons? If so, did the Hendersons repudiate the partnership?
- Did Ficocelli owe a fiduciary duty or a duty in good faith to the Hendersons? If so, did Ficocelli breach the duty and did the Hendersons fail to mitigate their loss with respect to any breach?
- Was Ficocelli entitled to recover monies paid on the mortgage in the sum of $315,000.00 and the monthly mortgage payments? Was Ficocelli entitled to recover monies paid to improve the Hendersons' property for the proposed marijuana grow op.
Decision: Harris, J. [at para. 172 and 173] granted Ficocelli judgment for the $315,000.00 he paid as well as payments he had made on the Hendersons' mortgage. Ficocelli's claims for unjust enrichment with respect to expenses incurred in cleaning up the property and preparing it for growing marijuana were dismissed. The Hendersons' damage claims were dismissed.
Harris, J. considered the following issues:
1. Partnership:
Harris, J. reviewed the law with respect to the formation and repudiation of partnerships at para. 82 to 96, quoting passages from Red Burrito Ltd. v. Hussain, 2007 BCSC 1277; Blue Line Hockey Acquisition Co. Inc. v. Orca Bay Hockey Limited Partnership, 2008 BCSC 27; Surerus Construction and Development Ltd. v. Rudiger, 2000 BCSC 1746; Cullen v. M.N.R., [1985] 2 C.T.C. 2059; Scragg v. Lotzkar, 2005 BCCA 596; Jacobs v. Yehia, 2014 BCSC 845; and Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367.
Citing Blue Line [at para. 83] Harris, J. stated:
[83] The law requires cogent evidence establishing the presence of the prerequisites of partnership before imposing the fiduciary duties on partners that flow from partnership. A partnership only exists if there is a valid contract of partnership and the members of the partnership are carrying on business; in common; and with a view to profit...
and also stated, at para. 84 that before a partnership will be found to exist, the following prerequisites must be established:
- An offer containing all of the essential terms, and an acceptance of the offer (that is, a meeting of the minds or consensus ad idem);
- Certainty of the agreed terms;
- Consideration; and
- The intention to create legal relations.
Harris, J. observed [at para. 86] that "While the contract need not be in writing, there must be consensus as to the contract's essential terms. Even though parties may have considered themselves to be partners and held themselves out as partners...there must be certainty with respect to the terms of the partnership.
Harris, J. concluded that parties to a partnership must do more than simply agree to carry on a business. They must actually commence carrying on a business, relying on Scragg and Jacobs [at para. 88, 89 and 90].
Relying on Jacobs [at para. 95], Harris, J. observed that there must be cogent evidence to establish the existence of a partnership.
After considering the evidence in some detail [at para. 100 to 142], Harris, J. concluded that a valid partnership had not been established, stating, at para. 140:
[140] ...Although the parties intended to have a written agreement between them, they could not agree on the terms of a written partnership or joint venture agreement. Further, I am unable to find from their oral communications and conduct, considered separately or together, that there was sufficient clarity as to the essential terms of a partnership: its commencement date; their respective roles and responsibilities; how revenue and expenses would be accounted for; and how they would share profits and losses. They had not agreed on the business terms that would need to be settled...
Harris, J. concluded that there was no agreement which obliged Ficocelli to continue to make payments under the mortgage [at para. 145].
Harris, J. also rejected the Hendersons' argument that Ficocelli did not owe them independent fiduciary obligations [at para. 151 and 152], and that if Ficocelli did owe them these obligations, he had not breached them [at para. 153 to 154].
Harris, J. also concluded that the Hendersons had failed to establish Ficocelli was dishonest or had breached a duty of good faith in his dealings with them [at para. 164].
2. Did the Hendersons breach their obligation to repay the $315,000.00 advance?
Harris, J. concluded [at para. 165 to 167] that the Hendersons had breached their obligation under the April 21, 2013 agreement with Ficocelli to repay the $315,000.00 he had advanced to pay down their mortgage.
3. Unjust enrichment
Harris, J. reviewed the law with respect to unjust enrichment at para. 96 to 99.
At para. 169 to 170 she concluded, relying on Pettkus v. Becker, [1980] 2 S.C.R. 834 (SCC), that the Hendersons were obliged to repay the amounts Ficocelli had paid on their mortgage.
At para. 171, however, she concluded that Ficocelli was not entitled to judgment for the amounts he had expended to provide electrical services, fencing, and labour to the land to improve it in anticipation of the marijuana production venture which did not proceed. These expenses did not improve the value of the Hendersons' property, and the Hendersons were not enriched by these expenditures.
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