COURT OF APPEAL FOR BRITISH COLUMBIA  
Citation:  
McKnight v. Hutchison,  
2022 BCCA 27  
Date: 20220127  
Docket: CA46222  
Between:  
Donald Dale McKnight  
Respondent  
(Plaintiff)  
And  
John Michael Hutchison and 574316 B.C. Ltd.  
Appellants  
(Defendants)  
Before:  
The Honourable Mr. Justice Goepel  
The Honourable Mr. Justice Butler  
The Honourable Mr. Justice Voith  
On appeal from: An order of the Supreme Court of British Columbia, dated June 12,  
2019 (McKnight v. Hutchison, 2019 BCSC 944, Victoria Docket S063172).  
The Appellant, appearing in person:  
Counsel for the Respondent:  
Place and Date of Hearing:  
J.M. Hutchison, Q.C.  
A.M. Gunn, Q.C.  
Vancouver, British Columbia  
September 10, 2021  
Written Submissions Received:  
Place and Date of Judgment:  
October 4, 22, and 28, 2021  
November 3, 5, 8, 12, and 22, 2021  
Vancouver, British Columbia  
January 27, 2022  
Written Reasons by:  
The Honourable Mr. Justice Goepel  
Concurred in by:  
The Honourable Mr. Justice Butler  
The Honourable Mr. Justice Voith  
McKnight v. Hutchison  
Page 2  
Summary:  
Mr. Hutchison’s appeal arises from two orders of Chief Justice Hinkson. The  
underlying dispute, spanning over two decades, involves the dissolution of a law firm  
partnership in 1999 resulting from Mr. McKnight’s discovery of secret profits withheld  
from the partnership by Mr. Hutchison. Mr. Hutchison alleges multiple grounds of  
appeal that can be summarized as alleging error in (1) ordering him to pay roughly  
$476,000 as equitable compensation to the partnership for the secret profits; (2) by  
not allowing certain expenditures to be credited toward him; (3) in ordering him to  
pay the partnership for certain work in progress performed before the dissolution of  
the partnership but not billed; (4) by allowing the conversion claim of $32,255.56; (5)  
for awarding $150,000 in punitive damages.  
Held: Appeal allowed in part. The remedy for the secret profits was dealt with in a  
prior action, and thus the order for equitable compensation is set aside. Other than  
$5,903.03, in relation to accounting charges there was no discernable error in the  
Chief Justice’s findings in respect of the expenses for which Mr. Hutchison seeks  
reimbursement. Likewise, there was no error in the amount determined to be  
unbilled work in progress. There are errors in the conversion award and a revision of  
the award to $21,427.02 is appropriate. Finally, the punitive damage award is not  
commensurate with the conduct for such an award, and an award of $50,000 is  
appropriate.  
McKnight v. Hutchison  
Page 3  
Table of Contents  
INTRODUCTION ....................................................................................................... 4  
LEGAL FRAMEWORK THE WINDING UP OF A PARTNERSHIP......................... 5  
BACKGROUND......................................................................................................... 7  
A. Operation of the Partnership ........................................................................... 7  
B. The First Action............................................................................................... 7  
C. The First Trial.................................................................................................. 9  
D. The First Appeal............................................................................................ 15  
E. The Second Action........................................................................................ 16  
F. The Second Trial........................................................................................... 18  
G. The Second Appeal....................................................................................... 23  
H. The Third Trial............................................................................................... 24  
ON APPEAL............................................................................................................ 28  
DISCUSSION........................................................................................................... 30  
A. Overview.......................................................................................................... 30  
B. Time to Appeal................................................................................................. 30  
C. Equitable Compensation for Secret Profits ...................................................... 35  
D. Partnership Expenses...................................................................................... 42  
i. Overview........................................................................................................ 42  
ii. Storage Charges........................................................................................... 42  
iii. Bank Loan .................................................................................................... 44  
iv. Accounting Charges..................................................................................... 45  
E. Unbilled Work................................................................................................... 47  
F. Punitive Damages............................................................................................ 50  
G. McKnight Failure to Account............................................................................ 54  
H. Conversion....................................................................................................... 55  
i. $3,363.66 To Pay Personal Accounting Fees................................................ 56  
ii. Legal Fees $1,160/Unknown Purpose $6,304.88 ......................................... 57  
I. Interest .............................................................................................................. 59  
FINAL ACCOUNTING............................................................................................. 60  
A. Mr. Hutchison................................................................................................ 61  
B. Mr. McKnight................................................................................................. 61  
C. Reconciliation................................................................................................ 62  
FURTHER SUBMISSIONS...................................................................................... 62  
SUMMARY .............................................................................................................. 62  
McKnight v. Hutchison  
Page 4  
Reasons for Judgment of the Honourable Mr. Justice Goepel:  
INTRODUCTION  
[1]  
Donald McKnight and Michael Hutchison, together with Robert Smith,  
became partners in the practice of law in Victoria on February 1, 1990. Mr. Smith  
withdrew from the partnership on August 31, 1994. Mr. McKnight and Mr. Hutchison  
dissolved the practice on November 8, 1999, after Mr. McKnight discovered  
evidence which led him to believe that Mr. Hutchison had received money from  
clients of the firm which he did not report as partnership income (the “Secret  
Profits”). Twenty-two years later, the affairs of the partnership have yet to be  
finalized.  
[2]  
The litigation arising from the dissolution of the firm has been Dickensian in  
scope. It has sparked two actions, three trials, three appeals and numerous  
applications. There have been 22 written judgments, together with two registrar’s  
reports and a special referee’s report. Justice Grist has written five decisions, Justice  
Halfyard, four decisions, Chief Justice Hinkson, four decisions, and Master Bouck,  
five decisions. Other than the initial trial before Justice Grist, the parties have been  
self-represented throughout, save and except on the appeals, in which Mr. McKnight  
has been represented by outside counsel. The parties have spent more than 100  
days in court.  
[3]  
Due to the number of judgments, it is necessary to refer to them by the name  
of the individual judges. This appeal arises out of two decisions of Chief Justice  
Hinkson. Those decisions are indexed at 2015 BCSC 1886 (“Hinkson #1”) and 2019  
BCSC 944 (“Hinkson #3”). Mr. Hutchison has raised numerous grounds of appeal.  
The most significant concern an order that he pay the partnership $476,258.59,  
together with interest from November 8, 1999, as his share of the Secret Profits, and  
that he shall pay directly to Mr. McKnight punitive damages in the sum of $150,000.  
Two of the other grounds of appeal concern decisions made in Hinkson #1. In  
regards to those grounds, Mr. McKnight submits that Mr. Hutchison did not appeal  
Hinkson #1 and that it is too late for him to now raise those issues.  
 
McKnight v. Hutchison  
Page 5  
[4]  
The backdrop of this litigation is the dissolution and winding up of a  
partnership. To give context to many of the issues raised in the litigation it is  
necessary to first explain the legal framework that governs the dissolution and  
winding up of a partnership. I will then turn to the history of this dispute. While much  
of that history has already been set out in great detail in the various judgments that  
have gone before, it will unfortunately be necessary to repeat much of that history  
because the outcome of this appeal in part turns on what issues were before which  
judges, when, and to what extent it was open to Chief Justice Hinkson to make  
certain of the orders he did. I will next review the judgments under appeal and then  
consider and resolve the numerous grounds of appeal. Finally, I will complete the  
final accounting necessary to wind-up the partnership.  
LEGAL FRAMEWORK THE WINDING UP OF A PARTNERSHIP  
[5]  
A dissolved partnership must be wound up. The winding up of a partnership is  
subject to the provisions of the Partnership Act, R.S.B.C. 1996 c. 348 (the “Act”).  
The principles governing the winding up of a partnership are explained in detail in  
chapter 25 of the authoritative partnership text R.C. I’Anson Banks, Lindley & Banks  
on Partnership, 20th ed. (London: Sweet & Maxwell, 2017) (LB”).  
[6]  
Section 41(1) of the Act, sets out that the rights and obligations of the  
partners continue despite the dissolution so far as may be necessary to wind up the  
affairs of the partnership, and to complete transactions begun but unfinished at the  
time of the dissolution, but not otherwise.  
[7]  
Before the winding up of a partnership can be concluded, it is necessary to  
complete the partnership accounts by incorporating any adjustments which may be  
required to reflect the respective rights, entitlements and obligations of each partner.  
(LB 2546).  
[8]  
The rules which govern the final settlement of a partnership account and  
dissolution are found in s. 47 the Act:  
47 Subject to any agreement, in settling accounts between the partners after  
a dissolution of partnership, the following rules must be observed:  
 
McKnight v. Hutchison  
(a) losses, including losses and deficiencies of capital, must be paid  
Page 6  
first out of profits, next out of capital, and lastly, if necessary, by the  
partners individually in the proportion in which they were entitled to  
share profits;  
(b) the assets of the firm, including the sums, if any, contributed by the  
partners to make up losses or deficiencies of capital, must be applied  
in the following manner and order:  
(i) in paying the debts and liabilities of the firm to persons who  
are not partners;  
(ii) in paying to each partner rateably what is due from the firm  
to that partner for advances as distinguished from capital;  
(iii) in paying to each partner rateably what is due from the firm  
to that partner in respect of capital;  
(iv) the ultimate residue, if any, must be divided among the  
partners in the proportion in which profits are divisible.  
[9]  
Section 47(b) of the Act requires the partners to proceed through each of the  
four stages in turn, and to identify whether there is a deficiency of assets at any of  
the first three stages. If there is, that deficiency must be treated as a loss and borne  
by the partners as such. If there is a deficiency at stage one, the overall loss formed  
by the partners will be that amount together with any sums that would be otherwise  
payable to them at stages two and three. If the insufficiency occurs at stage two, the  
loss will comprise of that amount together with any sum otherwise payable at stage  
three. (LB 2548).  
[10] Partners must share any loss in the same manner in which they share profits.  
Where the partners have contributed capital in unequal amounts, but share profits  
and loss equally, any loss of capital must be shared equally, in the same way as any  
other loss (LB 2551).  
[11] All of the above are necessary steps to complete the winding up. It is only  
after the individual partner’s respective rights, entitlements and obligations are  
determined that the accounting can be finalized and the court can determine  
whether any amounts are due from one partner to the other (LB 23120).  
McKnight v. Hutchison  
Page 7  
BACKGROUND  
A. Operation of the Partnership  
[12] In the early years of the partnership, profits were not equally divided between  
the partners. In the first year of the partnership, the division between Mr. Hutchison,  
Mr. McKnight and Mr. Smith was 45-25-30. This division continued until Mr. Smith’s  
withdrawal from the partnership on August 31, 1994. Income thereafter was divided  
on a 60-40 basis in Mr. Hutchison’s favour until the year end January 31, 1997.  
Thereafter, the profit division between Mr. Hutchison and Mr. McKnight was on a 50-  
50 basis.  
[13] Similarly, the partnership capital accounts were not maintained on an equal  
basis. For example, at the end of the partnership’s first fiscal year, January 31, 1991,  
Mr. Hutchison’s capital account was $244,911, while Mr. McKnight’s capital account  
was but $27,915. At the time of the dissolution of the partnership, before the Secret  
Profits were taken into account, Mr. Hutchison’s capital account was $437,987, while  
Mr. McKnight’s capital account was $63,414.  
B. The First Action  
[14] Mr. McKnight commenced an action against Mr. Hutchison on April 27, 2000  
(Action #002093, Victoria Registry) (the “First Action”). The main thrust of the First  
Action was the Secret Profits. In his statement of claim, Mr. McKnight alleged that  
Mr. Hutchison had received money and other benefits from clients which he failed to  
report as partnership income or property, in breach of the partnership agreement. He  
alleged the diversion of the profits was a breach of Mr. Hutchison’s fiduciary duty. He  
pled the conduct of Mr. Hutchison was morally reprehensible and committed with  
callous disregard for the plaintiff in respect of which conduct Mr. McKnight claimed  
punitive damages. In his prayer for relief, Mr. McKnight sought:  
a) an accounting of all Secret Profits received by the defendant and payment  
by the defendant of all sums due on the accounting, with interest at the rates  
determined under the partnership agreement;  
     
McKnight v. Hutchison  
Page 8  
b) a declaration that the defendant holds all Secret Profits received in trust for  
the partnership;  
c) an order enjoining the use or disposal or alternatively, an order for the  
retention and preservation of all Secret Profits, including shares and monies  
already received or to be received by the defendant prior to trial, pursuant to  
Rules 45 and 46 of the Rules of Court;  
d) damages; and  
e) punitive damages.  
[15] In the statement of claim Mr. McKnight did not seek a personal judgment in  
his favour.  
[16] In his defence, Mr. Hutchison pled that it was a term or practice of the  
partnership that partners of the law firm were not required and did not need to  
account to the other partners for any monies paid or benefits provided to them for  
acting as director of a company or society, trustee, executor or for their involvement  
with other boards, commissions, or institutions. He pled in particular paragraph 2.8  
of the parties’ partnership agreement that provided:  
Partners may conduct business, other than the practice of law, upon notice to  
the other partners, and receive remuneration separately therefrom, provided  
that such activity shall not compromise the practice of law within the  
partnership by the partner or of the partnership, and provided further that  
such activity shall not prevent the full contribution of such partner to the  
business of the partnership. Without limiting the generality of the foregoing,  
such activities may include:  
a) holding of share interest in operating companies;  
b) holding of directorships of corporate boards or other institutions;  
c) acting as executor of an estate, except in circumstances where the  
appointment has occurred by reason of succeeding another partner or  
previous partner due to membership in the partnership;  
d) holding and administering private investments; or  
e) providing legal or other business services to family members or to  
family businesses.  
McKnight v. Hutchison  
Page 9  
[17] Mr. Hutchison filed a counterclaim. The counterclaim included the following in  
its prayer for relief:  
1) The assistance of the court, where necessary, to wind up the business and  
affairs of the partnership, and to direct the order of the retirement of the  
liabilities of the partnership from partnership receipts;  
2) An accounting;  
3) An order fixing and adjusting the capital accounts of the partners to their  
proper amounts and proportions;  
4) …  
5) …  
6) An order requiring the plaintiff to pay to and indemnify the defendant his  
portion of the liabilities to the firm paid, since the dissolution of the firm, by the  
defendant.  
C. The First Trial  
[18] The first trial was heard by Justice Grist. It commenced on February 11, 2002  
and lasted some 19 days. On September 27, 2002, he released his reasons for  
judgment. Those reasons are indexed at 2002 BCSC 1373 (“Grist #1”).  
[19] Justice Grist concluded that Mr. Hutchison had not satisfied his obligation to  
make full disclosure to his partner of matters affecting the partnership. He declared  
that money received by Mr. Hutchison from six different sources was partnership  
income and ordered the defendant to account for the money received from those six  
sources. Justice Grist held that the remedy for these breaches of partnership  
obligation was to require the earnings to be accounted for as partnership income  
and dealt with in accordance with the terms of the partnership agreement applicable  
at the times the payments were received (para. 67). If the parties were unable to  
agree as to amounts, there was to be a reference to the registrar.  
 
McKnight v. Hutchison  
Page 10  
[20] Justice Grist made no finding that the conduct of Mr. Hutchison was morally  
reprehensible or committed with callous disregard for the plaintiff. He did not order  
punitive damages. He did not order Mr. Hutchison to hold the Secret Profits in trust  
for the partnership, or pay the Secret Profits to the partnership.  
[21] Justice Grist recognized that a determination of what may follow from any  
imbalance in the capital accounts would require completion of the accounting of the  
funds retained by Mr. Hutchison personally, and which would now be accounted for  
as firm revenues (para. 70).  
[22] The order of Justice Grist was settled. It set out that the earnings from certain  
specific sources were partnership income. It also included the following provisions:  
3. The defendant shall account for the earnings from the sources indicated in  
paragraphs 1(a) through (f) of this Order as partnership income and that  
partnership income shall be dealt with in accordance with the terms of the  
partnership agreement applicable at the times the payments were or are  
received.  
6. There shall be an accounting in respect of funds retained by the Defendant  
personally, including rentals from the Winnipeg condominium, and that the  
accounting shall be in such form as may be agreed to or, if the parties cannot  
agree, by reference to the Registrar who shall prepare a report and  
recommendation to the court.  
7. The parties shall be at liberty to apply in respect to further terms of  
reference for the accounting and in respect of issues relating to their capital  
accounts.  
[23] On October 25, 2002, Mr. Hutchison filed an appeal (the First Appeal). The  
First Appeal was held in abeyance while matters continued before Justice Grist.  
[24] The accounting took place before Registrar Bouck (as she then was). It  
commenced on February 10, 2003 and took place over the course of six days.  
Registrar Bouck made the following recommendations:  
1) Pursuant to para. 6 of the Order, the defendant account as partnership  
income those earnings and/or funds retained by the defendant from the  
McKnight v. Hutchison  
Page 11  
sources indicated in paras. 1(a) through (f) of the order. The total amount  
of funds or earnings is calculated at:  
(i) pre-dissolution: $777,803.42  
(ii) post-dissolution $85,580.68  
TOTAL: $863,384.10.  
2) A determination of how this income should be dealt with under the  
partnership agreement and/or issues relating to capital accounts is left to  
the parties, or to a further direction of the court.  
[25] The parties then appeared again before Justice Grist on the question of  
certification of the registrar’s recommendations. This hearing lasted four days in April  
2004. On September 13, 2004, Justice Grist released his reasons. They are indexed  
at 2004 BCSC 1184 (“Grist #3). Justice Grist, with some small adjustments,  
accepted the registrar’s recommendations. He found the Secret Profits to be  
$853,634.10. He held that Mr. Hutchison must account for fees of $773,303.42  
arising pre-dissolution, and $72,291.66 post-dissolution, being a total of  
$845,595.08. An additional $8039.02 of interest was considered to be a partnership  
interest, as yet undistributed between the partners.  
[26]  
In Grist #3, with the consent of the parties, Justice Grist appointed an  
accountant, Mr. Jackson, whose firm had been involved in the presentation of the  
partnership accounts for a number of years before dissolution, as a special referee.  
His terms of reference were to determine the parties’ revised capital accounts at  
dissolution, after taking into account the monies that should have been received by  
the partnership and treating the defendant’s receipt of these funds as drawings  
taken from partnership assets.  
[27] As between partners, there is a fiduciary duty to account for profits arising out  
of partnership business. Where one partner agrees to an equal division of profits  
with the other, he is entitled to have that agreement fulfilled, including an accounting  
McKnight v. Hutchison  
Page 12  
for any secret profits which the other partner attempted to pocket for himself. But the  
claiming partner is not entitled to the entire profit for himself to the exclusion of the  
dishonest or dishonourable partner. Rather, the profit becomes a partnership asset  
shareable between the partners in accordance with their agreement. The partner  
who earned the secret profit does not forfeit his entitlement to share in the profit:  
Olson v. Gullo, (1994) 17 O.R. (3d) 790 (C.A.), leave to appeal ref'd [1994] 3 S.C.R.  
xi [Olson]; Rochwerg v. Truster, (2002) 58 O.R. (3d) 687 (C.A.); MacDonald Estate  
v. Martin (1994) 95 Man. R. (2d) 123 (C.A.). In Olson, Morden A.C.J.O. at 802  
explained the rationale as follows:  
I do not, however, think that it can accurately be said that the defaulting  
partner does profit from his wrong when he receives his pre-ordained share  
of the profit. With respect to this share, the partner's conduct in the impugned  
transaction does not involve any breach of duty. Under the terms of the  
relationship, with respect to this share, it was expected that the partner would  
act in his own interest. To the extent that there is a dilemma, I resolve the  
issue, in accordance with what I consider to be the more appropriate  
principles and authorities, against the forfeiture of the wrongdoing partner's  
interest in the profit.  
[28] In the circumstances of this case, given the uneven division of profits that  
existed throughout much of the partnership, the parties’ individual entitlement to the  
Secret Profits per the calculations of the special referee are as follows:  
a) Hutchison: $424,462;  
b) McKnight: $350,372;  
c) Smith: $70,762.  
[29] The special referee submitted his report to the court on February 25, 2005. As  
directed by Justice Grist, the special referee recalculated the partnerscapital  
accounts to reflect the Secret Profits as partnership income that had been withdrawn  
by Mr. Hutchison. These changes had the effect of altering the partnerscapital  
accounts on a year-to-year basis. The special referee also recalculated interest  
credits to the partners based on their annual revised capital account balances.  
McKnight v. Hutchison  
Page 13  
[30] The special referee concluded the revised partnership capital accounts as of  
November 8, 1999 were:  
a) Mr. Hutchison: ($50,615.00);  
b) Mr. McKnight: $473,252.00; and  
c) Mr. Smith: $78,764.00.  
[31] Mr. McKnight’s new capital account of $473,252.00 was made up of his  
original capital account of $63,414, his $350,372 share of the Secret profits and an  
interest adjustment of $59,466. Mr. Hutchison’s revised capital account of  
($50,615.00) reflected that his deemed drawings of the Secret Profits had  
completely drained his exiting capital account ($437,987.00) and his share of the  
Secret profits ($424,462.00) leaving him with a negative balance in his capital  
account.  
[32] I would at this point note, because it will later become a matter of some  
import, that if Justice Grist had ordered Mr. Hutchison to repay the Secret Profits, his  
capital account would have increased to approximately $1,000,000 (his pre-existing  
capital account, his undrawn share of the secret profit and an interest adjustment),  
while Mr. McKnight’s account would be unchanged from the calculations made by  
the special referee. The reason for this is that if Mr. Hutchison had been ordered to  
pay back the Secret Profits to the partnership, Mr. Hutchison’s deemed drawings  
would have to be reversed and his pre-existing capital account would have remained  
intact.  
[33] On June 7, 2005, the parties again appeared before Justice Grist. At the  
hearing, Mr. McKnight brought three applications. The first was for acceptance and  
certification of the special referee’s report, the second was for an order under Rule  
18(6), dismissing all or part of the defendant’s counterclaim, and the third was for  
judgment under Rule 18(1) in favour of Mr. McKnight in the amount of $523,867,  
being the difference between the deficit balance in the defendant’s capital account  
and the credit to the plaintiff in his.  
McKnight v. Hutchison  
Page 14  
[34] Justice Grist released his reasons on the applications on February 27, 2006.  
Those reasons are indexed at 2006 BCSC 322 (“Grist #4”). Justice Grist found that  
the special referee’s report was in accordance with the instructions that he had  
given. He certified the report and held that it accorded with the terms of reference,  
adjusting the firm capital accounts to show the parties’ capital accounts to the date  
of dissolution, taking into account the sums the defendant wrongfully retained.  
[35] Justice Grist dismissed the plaintiff’s application for summary judgment in the  
sum of $523,867 on the ground that it was premature and could only be granted  
after all proper adjustments were made on a winding up of the partnership. He found  
that the special referee’s report did not entitle the plaintiff to personal judgment to  
equalize any disparity of the capital accounts without first settling a winding up of the  
partnership. He noted that the plaintiff’s claim for relief did not ask for personal  
judgment against the defendant on the winding up of the partnership, which he  
presumed was the ultimate objective of the action.  
[36] With respect to the plaintiff’s application to dismiss the counterclaim in whole  
or in part, Justice Grist dismissed the claims for relief described in paragraphs 4 and  
6 of the prayer for relief in the counterclaim, but allowed the remaining claims to  
stand. He held that the remainder of the counterclaim raised one or more triable  
issues on the merits, including the defendant’s alleged payments of partnership  
expenses. He rejected the plaintiff’s argument that the defendant’s failure to bill and  
collect client accounts with due diligence, negatived his entitlement to any credit or  
set off for payments of firm liabilities that he may have made after dissolution. He  
noted there was substance to Mr. Hutchison’s position that he had satisfied firm  
liabilities at dissolution, and those advances by Mr. Hutchison had to be taken into  
account in the final winding up. Justice Grist’s conclusions are consistent with the  
legal framework set out at paras. 511 above.  
[37] On July 14, 2006, Mr. McKnight commenced a second action against the  
defendant and 574316 B.C. Ltd., a company Mr. Hutchison owns and controls.  
(Action No. 063172, Victoria Registry) (the Second Action). The thrust of the  
McKnight v. Hutchison  
Page 15  
Second Action, the details of which are set out below, concerns events that took  
place subsequent to the November 8, 1999 dissolution of the partnership.  
[38] On March 2, 2009, the plaintiff applied to Justice Halfyard, who had been  
appointed to case manage the Second Action, for an order to dismiss the  
defendant’s counterclaim in the First Action. Justice Halfyard acceded to the  
application. He found that the pleadings in the new action seemed suitable for  
resolving all essential issues which remained outstanding between the parties,  
including those set out in the original counterclaim. He concluded that in the  
somewhat unusual circumstances of this case, that the interests of justice favoured  
the dismissal of the counterclaim. Justice Halfyard’s reasons are indexed at 2009  
BCSC 347 (Halfyard #2).  
[39] On May 25, 2010, Mr. McKnight applied to Justice Grist for an order  
confirming that the First Action had concluded. Justice Grist took note that  
Justice Halfyard had dismissed the counterclaim. He held that as the plaintiff did not  
advance any further claims under the First Action, that the counterclaim had been  
dismissed and that the First Action was at an end. A formal order entered following  
the application includes the following:  
THIS COURT DECLARES that:  
1.  
This action has concluded.  
[40] Justice Grist’s reasons are indexed at 2011 BCSC 642 (“Grist #5).  
D. The First Appeal  
[41] On October 25, 2002, shortly after the release of the reasons in Grist #1,  
Mr. Hutchison filed a notice of appeal (the First Appeal). On January 17, 2003, the  
matter came before Justice Prowse in Court of Appeal chambers, who noted that  
proceedings in the Supreme Court were still ongoing. She opined that the appeal  
should not be heard until all outstanding matters between the parties were resolved  
in the Supreme Court. Factums were filed in the summer of 2003.  
 
McKnight v. Hutchison  
Page 16  
[42] Thereafter, the appeal languished while proceedings continued in the First  
Action and Second Action. Subsequent to Justice Grist’s reasons in Grist #5  
declaring that the First Action had concluded, the parties agreed that the First  
Appeal ought to proceed before the commencement of the trial in the Second Action.  
[43] The First Appeal was ultimately heard on May 21 and 22, 2013.  
Mr. Hutchison raised several grounds of appeal, all ultimately going to the question  
as to whether Justice Grist had erred in ordering that he account for the Secret  
Profits. In reasons dated July 25, 2013, this Court dismissed the First Appeal with  
reasons indexed at 2013 BCCA 340.  
[44] On the First Appeal, Mr. McKnight did not cross-appeal. He did not seek  
punitive damages. He did not challenge Justice Grist’s remedy. Indeed, in his  
factum, he argued that the accounting ordered by Justice Grist was the proper  
remedy for the breach.  
E. The Second Action  
[45] The Second Action was commenced on July 14, 2006. In the Second Action,  
Mr. McKnight claims a further accounting, dissolution and winding up of the  
partnership, and personal judgment against Mr. Hutchison for the amount required to  
pay any deficiencies remaining in his capital account with full interest after  
dissolution and winding up. The pleadings include allegations that Mr. Hutchison  
failed to make reasonable efforts to recover accounts receivable or to render  
accounts for work in progress. Also named as a defendant in the second action was  
574316 B.C. Ltd. a company incorporated by Mr. Hutchison to process amounts  
recovered for work performed prior to the dissolution of the partnership.  
[46] In the first statement of claim filed in the Second Action, Mr. McKnight alleged  
that certain actions of Mr. Hutchison were malicious, high-handed, and  
reprehensible, and called for an award of punitive damages. The particulars alleged  
concerned events that post dated the dissolution of the partnership. In the statement  
of claim, there was no allegation concerning Mr. Hutchison’s failure to pay to  
Mr. McKnight his rightful and proper share of the Secret Profits. Similarly, there was  
 
McKnight v. Hutchison  
Page 17  
no allegation that Mr. Hutchison had converted to his own use the plaintiff’s share of  
the Secret Profits.  
[47] Justice Halfyard, in the course of case managing the Second Action, heard  
numerous applications in the proceedings. One of the most contentious was in  
relation to an application brought by Mr. McKnight for the appointment of a receiver.  
The application lasted six days. In reasons released on January 13, 2011 and  
indexed at 2011 BCSC 36, Justice Halfyard refused the appointment of a receiver  
(Halfyard #3). In the course of his reasons he made several findings critical of  
Mr. Hutchison, including the following:  
1) Mr. Hutchison had failed to bill his clients for a substantial part of his work  
in progress as it existed at the time the parties ended their partnership;  
2) Mr. Hutchison had failed to make reasonable efforts to collect accounts  
receivable relating to work that he performed for clients of the former  
partnership before dissolution;  
3) Mr. Hutchison had on at least three occasions received payment for work  
performed before dissolution of the partnership but had failed to credit these  
payments to the former partnership;  
4) Mr. Hutchison had unreasonably failed to comply with the plaintiff’s request  
for disclosure and production of documents and information;  
5) Several false statements made by Mr. Hutchison in the course of the  
proceedings and his failure to disclose certain material facts demonstrated a  
high degree of carelessness on his part and called into question the reliability  
of some of his statements made in letters to the plaintiff and on his  
examination for discovery; and  
6) Mr. Hutchison on at least one occasion misused partnership money.  
Justice Halfyard was unable to resolve disputes in the evidence on whether there  
had been other misappropriation of partnership income.  
McKnight v. Hutchison  
Page 18  
[48] In the end result, Justice Halfyard determined that the appointment of a  
receiver would add unnecessary and expensive complexity to the action. He did  
order that Mr. Hutchison and his company be restrained from disposing of or dealing  
with any partnership property pending trial. He also ordered that Mr. Hutchison  
should forthwith deliver up to Mr. McKnight all monies in his possession or control  
which consists of partnership income, which Mr. McKnight should hold in trust  
pending trial of the action or further order of the court. Similarly, in the event that  
further partnership income was received by Mr. Hutchison or the defendant company  
in the future, it would immediately be delivered to Mr. McKnight to be held in trust.  
F. The Second Trial  
[49] The second trial was heard by Chief Justice Hinkson. It commenced on May  
25, 2015, and lasted some 15 days. The reasons for judgment were released on  
October 16, 2015 (“Hinkson #1”). Supplemental reasons for judgment after the  
receipt of written submissions were released on January 29, 2016: 2016 BCSC 137  
(“Hinkson #2”).  
[50] The Chief Justice commenced his reasons by summarizing the issues before  
him:  
[3]  
The plaintiff seeks a variety of orders against the defendants which  
can be summarized as follows:  
a) A decree to dissolve the partnership and wind it up;  
b) Payment by the personal defendant of his capital account  
deficit in the amount of $50,615.00, and payment of the  
plaintiff’s capital accounts by the defendants in the event that  
there are insufficient funds on the winding up of the  
partnership;  
c) An order enjoining the defendants from using or disposing  
of any remaining assets of the partnership;  
d) An order that the personal defendant account to the  
partnership for the net fee revenues received from certain  
clients of the partnership from November 8, 1999, to the date  
that the partnership is wound up;  
e) The appointment of a receiver to inventory and dispose of  
assets, among other things, and the allocation of monies by  
the receiver;  
 
McKnight v. Hutchison  
f) An order that the personal defendant reimburse the  
Page 19  
partnership US $50,000 in respect of a trust deficiency; and  
g) Damages, punitive damages, and special costs.  
[4]  
In his statement of defence, the personal defendant denies any  
deliberate wrongdoing in failing to report income as being partnership income  
and denies the plaintiff's allegation that he has failed to make reasonable  
efforts to render bills or to collect accounts receivable.  
[5]  
The personal defendant contends that as the partnership was  
terminated in 1999, an order to wind the partnership up is unnecessary. He  
also alleges that he has paid the far greater share of partnership debts after  
November 8, 1999, for which he claims a set off. The personal defendant  
says that he has accounted to the plaintiff for all partnership money that he  
has received and paid since November 8, 1999. The personal defendant also  
alleges that the plaintiff has failed to diligently pursue accounts receivable  
and work in progress, which the personal defendant says was a joint and  
equal obligation.  
[6]  
Finally, the defendants contend that the report of a special referee  
appointed to determine the capital accounts of the partners as of the date of  
the dissolution of the partnership, by order of and certified by this Court,  
requires recalculation and hence, reconsideration by the special referee.  
[51] The Chief Justice next reviewed in some detail the background events and  
the various previous proceedings (paras. 730).  
[52] The Chief Justice then turned to discuss the issues before him. He referenced  
the plaintiff’s request in the statement of claim for a decree that the continuing  
partnership had been dissolved, and an order that the affairs of the continuing  
partnership be wound up. The Chief Justice held that the partnership had terminated  
on November 8, 1999, and that in the circumstances, a decree that the partnership  
be dissolved is unnecessary. He did agree, however, that there ought to be an order  
winding up the affairs of the partnership following the settlement of the partnership  
accounts and affairs (para. 34).  
[53] The Chief Justice next considered the partners’ capital accounts and  
Mr. McKnight ‘s submissions that Mr. Hutchison pay his capital account deficit in the  
amount of $50,615 into court to the credit of the continuing partnership and that, in  
the event there were insufficient monies remaining upon the final dissolution of the  
McKnight v. Hutchison  
Page 20  
continuing partnership to pay his capital account in full, he be awarded judgment for  
any balance owing on his capital account plus interest.  
[54] The Chief Justice held that Mr. Hutchison should pay his capital account  
deficit to the partnership. In this regard, he said:  
[40] Despite this failure, it is my view that the personal defendant cannot re-  
litigate the value of the capital accounts of the partners as of the date of the  
dissolution of the partnership. This matter was determined by the special  
referee, whose report was certified by Grist J., and the personal defendant’s  
appeal of that certification was dismissed as abandoned by Madam Justice  
Bennett in reasons for judgment indexed at 2012 BCCA 264. I consider that  
the matter is res judicata. I order that the personal defendant should pay his  
capital account deficit to the partnership.  
[41] As the partnership agreement required the annual determination of each  
partner’s capital account ratio, the personal defendant’s failure to rectify his  
capital account once the special referee determined his deficit position  
entitles the partnership to interest on his deficit. I order that the personal  
defendant pay to the credit of the partnership the amount of his deficit of  
$50,615.00 together with interest pursuant to the Court Order Interest Act,  
R.S.B.C. 1996, c. 79, from February 28, 2006, until that payment is made.  
[55] The Chief Justice rejected Mr. McKnight’s contention that, in the event there  
were insufficient monies remaining upon winding up the partnership to pay the  
capital account of the plaintiff in full, the defendant should pay the balance owing on  
the plaintiff’s capital account. In this regard, he said:  
[43] I am not persuaded that the plaintiff is entitled to this relief. Both he and  
the personal defendant created the disastrous financial situation in which they  
found themselves in 1999 by overdrawing their monthly draws, failing to  
properly service their bank loans, and failing to generate sufficient income to  
warrant their draws and expenditures.  
[44] The plaintiff’s claim for payment of his capital account by the defendants,  
with interest, is dismissed. The personal defendant must account to the  
partnership for the deficit in his capital account, but given the financial  
difficulties experienced by the partnership before its dissolution, and the  
plaintiff’s overdrawing on monthly draw payments, the plaintiff’s capital  
account may well have been unrecoverable, and this difficulty should not be  
visited upon the defendants in the manner sought by the plaintiff. In my view,  
that result is one of the risks that the partners in this case courted, and it  
should not be the responsibility of only one of the partners.  
[56] The Chief Justice then turned to the accounting and allocation of partnership  
assets. First, he referenced s. 47 of the Act, and then held pursuant to that section,  
McKnight v. Hutchison  
Page 21  
that the assets must be applied first to pay third party obligations; second, to  
indemnify a partner for advances; third, to balance capital accounts; and ultimately  
divide any residue or provide for contribution to any loss proportionally.  
[57] Next the Chief Justice considered the allegations that Mr. Hutchison had  
failed post-dissolution to bill or collect outstanding work (para. 4889). He concluded  
he was unable on the evidence to determine the amounts that should have been  
billed but were not, or the amounts that were billed and not collected. He referred  
that and certain other matters to the registrar. In that regard he directed the registrar  
to determine the following at para. 161:  
a)  
To determine the amounts that the personal defendant should have  
billed for work performed prior to the dissolution of the partnership, but did  
not;  
b)  
To determine the amounts that the personal defendant did bill for work  
performed prior to the dissolution of the partnership, including, but not limited  
to, client file nos. 12407, 12294, 12358, 12296, 12431, and 12314;  
c)  
If the personal defendant is unable or unwilling to tender evidence as  
to his recovery of any amount billed for work performed prior to the  
dissolution of the partnership, I direct that the Registrar find that the recovery  
occurred. If the personal defendant is unable or unwilling to tender evidence  
as to his use of any funds recovered for partnership expenses, I direct that  
the Registrar find that such expenditures did not occur;  
d)  
To determine the value of the partnership assets taken by both the  
plaintiff and the personal defendant, as of the date of dissolution of the  
partnership;  
e)  
To determine the calculation of the plaintiff’s recovery of any amount  
billed for work performed prior to the dissolution of the partnership, other than  
those already determined by Grist J. and the plaintiff’s use of those assets;  
f)  
To determine what amounts, if any were paid by the plaintiff for  
partnership obligations following the dissolution of the partnership;  
g) If the plaintiff is unable or unwilling to tender evidence as to his  
recovery of any amount billed for work performed prior to the dissolution of  
the partnership, I direct that the Registrar find that the recovery occurred. If  
the plaintiff is unable or unwilling to tender evidence as to his use of any  
funds recovered for partnership expenses, I direct that the Registrar shall find  
that such expenditures did not occur.  
[58] The Chief Justice did find that there was one account in the amount of  
$15,699.60 that was rendered after it became time barred. He ordered that  
Mr. Hutchison repay this amount to the partnership.  
McKnight v. Hutchison  
Page 22  
[59] The Chief Justice then turned to allegations concerning work done post  
dissolution for ongoing clients and goodwill. He found that Mr. Hutchison owed  
nothing to the plaintiff for the work performed on such files after the dissolution of the  
partnership and dismissed the plaintiff’s claim for damages for the loss of goodwill.  
[60] The next issue concerned a cheque for $50,000 USD that had been paid into  
the firm’s trust account to finance a client’s investment opportunity. Before the  
cheque cleared, Mr. Hutchison issued a cheque from the partnership’s pool trust  
account for that amount in order to save the investment opportunity. The original  
cheque subsequently bounced and, despite the institution of legal proceedings, the  
funds were never recovered. Ultimately, Mr. Hutchison personally reimbursed the  
trust account and claimed he was entitled to be reimbursed for this expense. The  
Chief Justice rejected this position and held that Mr. McKnight bore no responsibility  
to the personal defendant for any portion of this expense (paras. 102107).  
[61] The Chief Justice then turned to Mr. Hutchison’s claim for other expenses  
which he submitted he had paid on behalf of the partnership. His net claim for  
advances was $773,187. The Chief Justice reviewed the expenses in detail. He  
ultimately concluded that the partnership owed Mr. Hutchison $377,375.51. The  
Chief Justice adjourned the claim for certain accounting expenses pending  
determination of the registrar (paras. 108137).  
[62] The Chief Justice then wrote in some detail about the legal principles  
governing damages for breach of fiduciary duty (paras. 138148) and punitive  
damages (paras. 149153). He held that he would make no finding in regards to  
either of those matters until receiving the registrar’s report. Similarly, he held it was  
premature for him to resolve the claim for costs, again preferring to await the report  
of the registrar.  
[63] The Chief Justice dismissed the claim against the corporate defendant, but  
ordered any funds in its possession be paid into Mr. McKnight’s trust account. He  
further ordered that Mr. Hutchison would be personally responsible for all fees  
associated with the creation and maintenance of the corporate defendant.  
McKnight v. Hutchison  
Page 23  
[64] Mr. Hutchison subsequently sought reconsideration of certain parts of the  
reasons. In particular in this regard, he challenged the Chief Justice’s refusal to  
credit Mr. Hutchison for the monies he had paid to cover the bank overdraft, and his  
failure to accept a portion of the defendant’s claim for storage costs. In Hinkson #2,  
the Chief Justice refused to reconsider his reasons in relation to either of these  
matters.  
G. The Second Appeal  
[65] Following the release of Hinkson #1 on October 16, 2015, Mr. McKnight on  
November 12, 2015, filed a notice of appeal (the Second Appeal). Mr. McKnight filed  
his factum on February 9, 2016. Mr. Hutchison’s responsive factum was filed March  
10, 2016, with Mr. McKnight’s reply filed March 17, 2016.  
[66] In his factum, Mr. McKnight alleged the Chief Justice had made some 16  
errors. The most significant error was that the Chief Justice erred by not requiring  
Mr. Hutchison to equalize his capital account. The thrust of the submission was that  
to order Mr. Hutchison to pay his capital deficit, but not order him to pay the more  
than $423,000 necessary to equal his capital account with that of the appellant’s  
capital account was irreconcilable. In his factum, Mr. McKnight stated that in the First  
Action he had elected to pursue an accounting instead of suing for damages for the  
Secret Profits.  
[67] Subsequent to the filing of factums, the parties agreed to hold the Second  
Appeal in abeyance pending completion of the balance of the trial of the Second  
Action. Pursuant to a consent order dated October 17, 2017, all proceedings in the  
Second Appeal were stayed until 60 days after final disposition of the Second  
Action.  
[68] On August 9, 2021, Mr. McKnight filed a notice of abandonment of the  
Second Appeal.  
 
McKnight v. Hutchison  
Page 24  
H. The Third Trial  
[69] In advance of the third trial, Master Bouck over 10 days heard the reference  
directed by the Chief Justice. She released her report and recommendations on May  
30, 2018.  
[70] The third trial, which was in fact a continuation of the second trial,  
commenced on January 28, 2019, and lasted some six days. The reasons were  
released on June 12, 2019 (“Hinkson #3”). In advance of the third trial, Mr. McKnight  
on December 11, 2018, filed his Further Further Further Further Amended  
Statement of Claim (the “Final Pleading”). Pursuant to paragraph 59 (e) of that  
pleading, Mr. McKnight claimed damages for losses suffered by the continued  
partnership as a result of Mr. Hutchison’s failure to pay the plaintiff his rightful and  
proper share of the Secret Profits. He further alleged that the taking of the Secret  
Profits was conduct committed with callous disregard for the plaintiff in respect of  
which he claimed punitive damages. His new pleadings also made claims of  
conversion against Mr. Hutchison. In his response, Mr. Hutchison alleged that,  
pursuant to the orders of Justice Grist, he had accounted for the Secret Profits and  
the new allegations made in the Final Pleading were res judicata.  
[71] In the introduction to his reasons, which he entitled Supplementary Reasons  
for Judgment, the Chief Justice described the present allegations as follows:  
[3]  
Litigation between the parties ensued and has dragged on to the  
present. At this stage of the litigation, the plaintiff seeks equitable  
compensation for the defendant’s alleged breach of fiduciary duties, damages  
for alleged conversion, as well as punitive damages. He also seeks an order  
that any awards made be reduced by any amounts that he is found to owe  
the partnership, after taking into account advances made by the plaintiff for  
the benefit of the partnership, including payments of interest on the U.S.  
dollar (“USD”) loan and income tax paid on monies held in trust for the  
partnership. In addition, Mr. McKnight seeks an order that the defendants  
may set off certain expenses, specified in paragraph 12 of my order entered  
on September 12, 2016.  
[72] The Chief Justice again reviewed in detail the history of the litigation and  
summarized the various findings he had made at the second trial (paras. 534). He  
then reviewed the report of the master, which had been done following the second  
 
McKnight v. Hutchison  
Page 25  
trial, and accepted her findings with respect to directions (9) b, c, and f (paras. 35–  
59).  
[73] A question the master did not determine was the amount that Mr. Hutchison  
should have billed for work performed prior to the dissolution of the partnership. The  
Chief Justice then undertook that task, which required the examination of more than  
60 accounts, and ultimately concluded that the amount of fees and disbursements  
that should have been billed was the sum of $88,472.05. He recognized that not all  
of the billings would have been recovered and accordingly applied a discount of 20  
percent, which left the sum for which the defendant must reimburse the partnership  
for unbilled work in progress and disbursements to be $65,196.50 (paras. 60157).  
[74] The judge then summarized at para. 158, the answers to the matters referred  
to the registrar:  
a)  
The amount that Mr. Hutchison should have billed for work performed  
prior to the dissolution of the firm is $88,472.05 (direction 9(a)).  
b) The amount that Mr. Hutchison did bill for work performed prior to the  
dissolution of the partnership is $238,629.32 (direction 9(b)).  
c)  
Direction 9(c) is satisfied.  
d)  
Direction 9(d) is also satisfied, as the parties reached a settlement  
during the Registrar’s hearing with respect to the value of the partnership  
assets taken by each of them at the date of the dissolution of the partnership.  
e)  
The amount that Mr. McKnight recovered from work completed before  
dissolution is $123,436.40 (direction 9(e)).  
f) The amount that Mr. McKnight paid for partnership obligations  
following the dissolution of the partnership is $108,404.82  
g) Direction 9(g) is satisfied.  
[75] The judge next turned to the issue of damages for breach of fiduciary duty. In  
this regard, he noted that Mr. McKnight was seeking equitable compensation for  
Mr. Hutchison’s breaches, which caused a loss to the partnership, and for failing to  
pay the plaintiff the Secret Profits. The judge assessed the compensation as follows  
(at para. 164):  
a) $476,258.59 share of Secret Profits; and  
McKnight v. Hutchison  
Page 26  
b) $88,472.05 in damages for the amount the personal defendant should  
have billed in fees and disbursements but did not.  
[76] The award of $476,258.59 was determined by setting off from the Secret  
Profits determined by Justice Grist, $853,634.10, the $377,375.51 that  
Mr. Hutchison was found in Hinkson #1 to be owed for advances made to the  
partnership ($853,634.10 - $377,375.51= $476,258.59).  
[77] The parties agreed that the damage award of $88,472.05 must be reduced to  
$65,196.50 to conform to the Chief Justice’s finding. The entered order reflected this  
change.  
[78] The Chief Justice then turned to the tort of conversion. He accepted  
Mr. Hutchison had wrongly paid to himself certain sums from the partnership and  
awarded under this head $32,255.66.  
[79] Next, the Chief Justice turned to the issue of punitive damages. He referred to  
Huff v. Price (1988), 25 B.C.L.R. (2d) 364 (S.C.), aff’d (1990) 76 D.L.R. (4th) 138  
(B.C.C.A.) [Huff] in which Mr. Justice Taylor, as he was then, awarded punitive  
damages of $150,000 against an accountant engaged in stock promotion who had  
breached his fiduciary duty to an investor. He concluded that a punitive damage  
award of $150,000 was also appropriate in this case. He reasoned as follows:  
[177] The conduct of the personal defendant before and after the  
dissolution of the partnership has been reprehensible. It is hard to envisage  
how one partner could take such advantage of another, and the scope of the  
secret profits withheld by the personal defendant cannot be overstated.  
Caught out in this nefarious conduct, the personal defendant failed to do what  
he said he would, and what he was obliged to do: submit accounts for work  
done for the partnership. Since then he has been at considerable pains to  
delay his judgment day, withholding information from the plaintiff and  
dragging the litigation out to lengths that cannot be condoned.  
[178] I have previously criticized the plaintiff who has failed to approach the  
litigation in a manner that might have ended it much sooner, but the sad fact  
is that the plaintiff was greatly wronged by the personal defendant, and is  
entitled to damages for the wrongs done to him.  
[179] Despite the passage of time since it was decided, I find that the upper end of  
the range of punitive damages awarded in Huff is a suitable award for the conduct  
McKnight v. Hutchison  
Page 27  
that the personal defendant engaged in, and I award to the plaintiff in this case the  
sum of $150,000 for punitive damages.  
[80] The judge then went on to make certain interest awards. He summarized his  
findings at para. 186:  
a)  
Pursuant to Grist J.’s finding that Mr. Hutchison must account for his  
secret profits, the amount Mr. Hutchison owes the partnership is  
$476,258.59.  
b)  
Mr. Hutchison should have billed $88,472.05 for work performed prior  
to the dissolution of the firm. By failing to bill this work, and delaying in  
collecting the accounts he did bill, he breached his fiduciary duties to the  
partnership.  
c)  
Mr. Hutchison is liable under the tort of conversion for the wrongful  
interference of Mr. McKnight’s funds. Mr. Hutchison must pay $32,255.66  
plus the consequential loss of these funds to the partnership.  
d)  
I award to the plaintiff in this case the sum of $150,000 for punitive  
damages.  
e) With respect to interest:  
i. For the amount withheld from the partnership, net of the set off that I  
determined, the interest will run from the date of the termination of the  
partnership that I have determined; November 8, 1999;  
ii. On the fees and disbursements that I have determined should have  
been billed and collected, but were not, the interest will run from May  
8, 2000, which is six months following the termination of the  
partnership;  
iii. The plaintiff’s claim for conversion was not pleaded until December  
11, 2018. In the result, interest will not run on this head of damages  
until the date that the claim was made; and  
iv. On the punitive damages award, interest will run on this award  
from November 8, 2009.  
[81] Following the release of Hinkson #3, the parties made written submissions on  
the question of costs. The Chief Justice concluded that although Mr. McKnight did  
not enjoy the recovery of all of the claims he advanced, he did achieve substantial  
success in the case, entitling him to an order for costs. He refused Mr. McKnight’s  
request for special costs or costs at Scale C and ordered the plaintiff’s costs be paid  
at Scale B. The cost reasons are indexed at 2019 BCSC 1405 (“Hinkson #4”).  
[82] Subsequent to the hearing of this appeal, the division became aware of a  
consent order of August 30, 2019 that provided that the monies Mr. McKnight held in  
McKnight v. Hutchison  
Page 28  
trust for the partnership be released to Mr. McKnight in partial satisfaction of his  
capital account. The division requested counsel to advise what amounts had been  
paid to Mr. McKnight under this order, and what was the current balance of  
Mr. McKnight’s capital account in light of the monies paid out of trust under that  
order.  
[83] There appears to be a small disagreement between the parties as to the  
amount paid. Mr. Hutchison, in his memorandum, advised that the sum of  
$178,545.14 was paid under the order leaving a capital account balance for  
Mr. McKnight of $294,706.86. Mr. McKnight’s figures were slightly different. They  
indicated a payment of $178,393.63, leaving a capital account balance of  
$294,858.37. The difference is but $151.51. As the amount of the payment is a  
matter of record, I am confident the parties will be able to resolve the difference. In  
the interim, I will operate on the basis that the correct number is that set by  
Mr. McKnight and his present capital account balance is $294,858.37.  
ON APPEAL  
[84] Mr. Hutchison alleges the following nine errors:  
1) The learned trial judge erred in mixed fact and law in dismissing the claim  
of the appellant for the off-site storage charges for files of the partnership  
paid by the appellant to Access Records, and for the related costs, totalling at  
the time of trial $61,029.91, which costs are ongoing. (Storage Charges)  
2) The learned trial judge erred in mixed fact and law in dismissing the claim  
of the appellant for the sum of $100,000.00 paid in respect of partnership  
bank loan obligations, for the purposes of meeting a trust account deficiency.  
(Bank Loan)  
3) The learned trial judge erred in failing to adjudicate the claim of the  
appellant for payment of accounting charges on behalf of the partnership.  
(Accounting Charges)  
4) The learned trial judge erred in mixed fact and law in ordering the appellant  
to pay to the partnership the sum of $476,258.59. (Equitable Compensation  
for Secret Profits)  
5) The learned trial judge erred in fact in assessing damages payable by the  
appellant to the partnership in the amount of $88,472.05 in respect of work  
performed before the dissolution of the partnership but not billed. (Unbilled  
Work).  
 
McKnight v. Hutchison  
6) The learned trial judge erred in fact in asserting that the sum of  
Page 29  
$377,375.51 was owed by the appellant to the partnership.  
7) The learned trial judge erred in fact and law in finding that the respondent  
paid the sum of $108,404.82 on behalf of the partnership, and not  
determining that all of the said funds were paid from partnership monies not  
personally by the respondent. Further, the learned trial judge erred in failing  
to determine that of the said sum of $108,404.82, the amount of $28,917.75  
were partnership trust monies paid by the respondent for his own expenses,  
not for partnership expenses, and failing to require the respondent to pay the  
said sum together with interest to the partnership. (McKnight Failure to  
Account)  
8) The learned trial judge erred in fact and in law in finding the appellant liable  
in conversion for the sum of $32,255.66. (Conversion)  
9) The learned trial judge erred in fact and in law in ordering the appellant to  
pay punitive damages to the respondent, or, in the alternative, in awarding an  
excessive amount of such damages. (Punitive Damages)  
[85] In response, Mr. McKnight submits that the issues on appeal can be  
organized in five categories, albeit certain of the issues overlap:  
1. The first category embraces issues that are time-barred and are not  
properly before this court. (Issues 1 & 2)  
2. The second category embraces issues that were previously adjudicated  
and are therefore res judicata. As these issues are no longer live in the  
litigation, the appeal in respect of them should be dismissed. (Issue 3).  
3. The third category embraces issues on which the Chief Justice misspoke  
and on which the entered Order made the necessary correction. Since an  
appeal is from the Order rather than the reasons, no appealable point arises  
on these issues. (Issues 5 & 6)  
4. The fourth category embraces issues involving pure questions of fact.  
Mr. Hutchison has not established reversible error on any of these issues and  
the appeal in respect of them should be dismissed. (Issues 4, 5, 6, 7, & 8)  
5. The fifth and final category embraces issues involving pure or mixed  
questions of law. Mr. Hutchison has not established reversible error on any of  
these issues and the appeal in respect of them should be dismissed. (Issues  
4, 8, & 9)  
[86] Mr. McKnight does acknowledge, in regard to the third ground of appeal, that  
Chief Justice Hinkson overlooked certain amounts paid by Mr. Hutchison for  
accounting services to the partnership. He submits that amount has not been  
McKnight v. Hutchison  
Page 30  
determined and should be the subject of a referral to the registrar of the Supreme  
Court.  
[87] In regard to the 6th ground of appeal, it is common ground that the Chief  
Justice at para. 31 of Hinkson #3 misspoke when he asserted that Mr. Hutchison  
owed the partnership $377,375.51, when in fact that sum was owed to Mr. Hutchison  
for advances he had made to cover partnership expenses. That error was captured  
and corrected in the entered order. As an appeal is from the entered order, rather  
the reasons for judgment, no appeal arises from the error in the reasons and nothing  
further need be said about this alleged error.  
DISCUSSION  
A. Overview  
[88] Before turning to the individual grounds of appeal, it is important to return to  
the legal framework discussed at the commencement of these reasons. The focus of  
this litigation is the winding up of the partnership. Winding up requires the  
determination of the respective rights, entitlements and obligations of each partner,  
which in turn requires the court to resolve numerous individual issues, several of  
which remain contested in this appeal. The resolution of the individual issues in turn  
allows the court to determine the amounts that each partner is owed and to the  
extent there is a shortfall, the amounts that may be due from one partner to the  
other. The determination of that amount is the ultimate question for resolution.  
[89] In the discussion section, I will deal with each of the individual grounds of  
appeal. This in turn will lead to findings as to the amounts of money that each  
partner is owed by the partnership, the money available to pay those amounts, and if  
there is a loss, how that loss should be assessed.  
B. Time to Appeal  
[90] Before considering the individual grounds of appeal, it is first necessary to  
determine whether it is open to Mr. Hutchison on this appeal to challenge findings  
made in Hinkson #1 and Hinkson #2. It is Mr. McKnight’s position that  
     
McKnight v. Hutchison  
Page 31  
Mr. Hutchison’s failure to file a notice of appeal or cross appeal after the release of  
either of those decisions bars him from raising matters decided in those decisions in  
this appeal. Mr. Hutchison submits otherwise. He says in the unique circumstances  
of this case the time to appeal did not commence to run until the pronouncement of  
Hinkson #3. Alternatively, if the division determines the time to appeal matters  
arising in Hinkson #1 had expired prior to filing his notice of appeal, he applies to  
extend the time to appeal.  
[91] Section 14(1) of the Court of Appeal Act, RSBC 1996 c. 77 [Court of Appeal  
Act], sets out the time limit in which an appeal must be brought. The section reads:  
14 (1) The time limit for bringing an appeal or an application for leave to  
appeal is  
(a) 30 days, commencing on the day after the order appealed from is  
pronounced,  
[92] The question in this case is, given the multiple decisions, did Mr. Hutchison’s  
right to appeal matters arising in Hinkson #1 and #2 remained extant,  
notwithstanding that he did not file a notice of appeal until after the release of the  
reasons in Hinkson #3.  
[93] To put this issue in context, it is important to note that in Hinkson #1 all issues  
were raised and argued. The Chief Justice in preparing his reasons came to the  
conclusion that he needed to refer certain matters to the registrar for assessment. In  
Hinkson #1, he discussed in some detail the law concerning fiduciary duty and  
punitive damages, but decided that both of those issues should be deferred pending  
receipt of the report from the registrar.  
[94] In the result, the Chief Justice decided certain of the issues before him, but  
the others were held in abeyance and only dealt with in Hinkson #3. Hinkson #3 was  
released on June 12, 2019, and Mr. Hutchison’s notice of appeal was filed on July  
11, 2019. The notice of appeal made reference to certain of the matters decided in  
Hinkson #1:  
Matters in issue at the trial of the action not adjudicated be determined, that  
the order disallowing claimed advances by the appellant be set aside and that  
McKnight v. Hutchison  
Page 32  
the claimed advances be allowed, that the finding of breach of fiduciary duty  
by the appellant be set aside, and the order for damages in respect thereof  
be set aside, and that the awarded punitive damages be set aside, or, in the  
alternative, be reduced.  
[95] Mr. Hutchison filed his original factum on October 10, 2019. He raised as  
grounds of appeal certain matters contained in Hinkson #1. Mr. McKnight did not,  
upon receipt of either the notice of appeal or factum, challenge Mr. Hutchison’s right  
to appeal those matters. He first questioned Mr. Hutchison’s right to appeal matters  
found in Hinkson #1 in the factum that he filed on September 1, 2021, some nine  
days prior to the hearing of the appeal.  
[96] I should note at this stage that Mr. McKnight of course did appeal Hinkson #1.  
The fact that he did so is, however, not determinative as to whether or not  
Mr. Hutchison was required to file a notice of appeal or cross-appeal if he wished to  
challenge any of the findings. Similarly, the fact that the parties entered an order  
subsequent to the release of Hinkson #1 is of no import. The order was not entered  
until September 2016. This was almost a year after the release of Hinkson #1.  
[97] While the parties have cited numerous cases in regards to this issue, those  
cases are not, from my reading of them, determinative. The authorities have dealt  
with two situations. The first is the case of a split trial, while the second concerns  
situations in which there remain after the pronouncement of the judgment, ancillary  
matters that require further adjudication.  
[98] The Supreme Court Civil Rules authorize split trials. Rule 12-5(67) reads as  
follows:  
(67) The court may order that one or more questions of fact or law arising in  
an action be tried and determined before the others.  
[99] The classic example of a split trial is when an order is made to determine  
liability in advance of damages. In those circumstances, the time to appeal the  
liability decision begins to run on pronouncement of the liability judgment  
notwithstanding that the damage assessment has yet to occur: Radke v. S.(M.)  
(Guardian ad litem of) 2006 BCCA 12; Le Soleil Hospitality Inc. v. Louie, 2008 BCCA  
McKnight v. Hutchison  
Page 33  
142. In Radke, a consent order directed that liability be tried separately and in  
advance of damages. In Le Soleil Hospitality, the trial judge directed that the trial  
would be held in three separate installments.  
[100] This case was not a split trial. The judge did not order that certain questions  
of fact or law be decided and determined before others. The parties at trial led  
evidence and made submissions on all issues. The judge, having reserved  
judgment, subsequently determined that he required the assistance of the registrar  
before he could complete the proceedings. The split trial cases are distinguishable  
from this case.  
[101] This case is one in which the judge did not deal with all the issues in his initial  
reasons. If all that remains after the initial reasons are ancillary matters, the time  
limit begins to run from pronouncement of the initial reasons. Justice Donald  
summarized the governing authorities in Romfo v. 1216393 Ontario, Inc., 2008  
BCCA 106:  
[22]  
The time limit for bringing an appeal is provided for in section 14(1) of  
the Court of Appeal Act, the relevant portion of which reads:  
14 (1) The time limit for bringing an appeal or an application for leave to  
appeal is  
(a) 30 days, commencing on the day after the order appealed from is  
pronounced, ...  
[23]  
The meaning of this provision was discussed by Mr. Justice  
Cumming, in chambers, in Burlington Northern Railroad Co. v. Baseline  
Industries Ltd. (1992), 15 B.C.A.C. 172, 20 C.P.C. (3d) 90. He said:  
[16] I recognize that there are decisions of this court related to the  
calculation of the time for appeal where written reasons are given.  
Those cases, however, relate to circumstances in which judgment has  
been reserved and the question relates to the dates upon which  
notice of the reasons for judgment can be said to have been given to  
counsel. It is clear from those decisions that the date of filing of the  
reasons for judgment is the date from which the time commences to  
run. However, it is equally clear that communication of the judgment is  
the key factor to be considered. As stated by Mr. Justice Macfarlane  
in Lloyd, DeBeck & Partners Ltd. v. Cumis Life Insurance Co. (1984),  
51 B.C.L.R. 168 (C.A.), at p. 171:  
McKnight v. Hutchison  
The essence of that reasoning is that the judgment is not  
Page 34  
pronounced until the judge has communicated his judgment to  
the parties.  
[17] It is equally the case that even where ancillary matters may be  
dealt with subsequent in time to the pronouncement of the order, the  
time for appealing from the order is the time when the order is  
pronounced. Thus in Baart v. Kumar (1983), 46 B.C.L.R. 166 (C.A.)  
Mr. Justice Hutcheon stated, at p. 169:  
The word "pronounced" in s. 14(1)(a) should be given the  
same meaning that it had in s. 15(2). Notwithstanding that  
there may be incidental matters such as prejudgment interest  
or costs to be settled before the formal judgment is perfected,  
the time limit for bringing an appeal against an order made on  
a major issue such as liability or damages runs from the  
making of that order. I find nothing impractical or harsh in this  
result, since the Court of Appeal has the power to extend that  
time in a proper case.  
[Emphasis added.]  
[102] The corollary to the proposition that if all that remains after the initial reasons  
are ancillary matters, the time limit begins to run from pronouncement of the initial  
reasons, is that if matters of substance remain outstanding after the pronouncement  
of the initial reasons, the time to appeal does not begin to run until after judgment is  
pronounced on those matters. In this case, what remained outstanding after the  
release of Hinkson #1 were not merely ancillary matters. There were fundamental  
issues in the lawsuit concerning Mr. Hutchison’s obligation to account, fiduciary duty  
and punitive damages. Until the decision on those matters was communicated to the  
parties, the time to appeal did not commence.  
[103] If the Chief Justice had delivered but one set of reasons, Mr. Hutchison would  
be entitled to appeal all matters. I do not see why, in the circumstances of this case,  
it should be different. Until all substantive matters were adjudicated, Mr. Hutchison  
would not know whether or not it was in his interest to appeal. The parties’  
agreement to stay the Second Appeal until 60 days after final disposition of the  
Second Action clearly recognized that important matters remained outstanding.  
Indeed, the importance of the remaining issues is made obvious by the parties’  
reaction to them. Mr. McKnight appealed the original reasons alleging some 16  
separate errors, but, having had significant success in the second set of reasons,  
McKnight v. Hutchison  
Page 35  
abandoned his appeal. Mr. Hutchison’s reaction was the opposite. He had been  
relatively content with the first set of reasons, but appealed when the second set of  
reasons, which were much less favourable to him, were released.  
[104] In the circumstances of this case, I find the time to appeal did not begin to run  
until the release of Hinkson #3. Accordingly, I would dismiss the preliminary  
objection that this Court cannot consider on this appeal issues that arise from  
Hinkson #1 and #2.  
C. Equitable Compensation for Secret Profits  
[105] The most contentious issue on the appeal is the order that Mr. Hutchison  
should pay to the partnership $476,258.59 in equitable compensation for the Secret  
Profits. Although not spelled out in the reasons, the sum of $476,258.59 was clearly  
arrived at by setting off against the Secret Profits determined by Justice Grist  
($853,634.10), the amount that Mr. Hutchison was found in Hinkson #1 to be owed  
for advances made to the partnership ($377,375.51). Mr. Hutchison challenges the  
order. He submits the remedy for the Secret Profits was determined by Justice Grist,  
and it was not open to the Chief Justice to make the order that he did.  
[106] Determination of this issue requires examining the issues that were raised in  
the First Action. The First Action is reviewed in detail at paras. 1240 of these  
reasons. In the First Action, Mr. McKnight sought an accounting of the Secret Profits  
and an order that Mr. Hutchison pay all sums due on the accounting. Alternatively,  
he sought a declaration that Mr. Hutchison held the Secret Profits in trust for the  
partnership.  
[107] Justice Grist did not grant those remedies. Rather, he held that Mr. Hutchison  
had to account for the earnings as partnership income, and the income would be  
dealt with in accordance with the terms of the partnership agreement. Mr. Jackson  
was appointed special referee to determine the parties’ revised capital accounts  
after taking into account the Secret Profits that should have been received by the  
partnership and treating the defendant’s receipt of the funds as drawings taken from  
partnership assets.  
 
McKnight v. Hutchison  
Page 36  
[108] The special referee concluded the revised partnership capital accounts as of  
November 8, 1999 were:  
a) Mr. Hutchison: $50,615.00;  
b) Mr. McKnight: $473,252.00; and  
c) Mr. Smith: $78,764.00.  
[109] As set out at para. 31 of these reasons, the new capital accounts took into  
account the partners’ original capital accounts and their respective share of the  
Secret Profits. As noted at para. 32 of these reasons, if Justice Grist had ordered  
Mr. Hutchison to repay the Secret Profits, his capital account would have increased  
to approximately $1,000,000, while Mr. McKnight’s account would be unchanged  
from the calculations made by the special referee.  
[110] Mr. McKnight subsequently applied for acceptance and certification of the  
special referee’s report. In Grist #4, Justice Grist found the special referee’s report  
was in accordance with the instructions he had given, and certified the special  
referee’s report.  
[111] Mr. McKnight at the time also sought summary judgment in the sum of  
$523,867, being the difference between the deficit balance in the defendant’s capital  
account, and that credit balance in his own. Justice Grist dismissed that application  
on the grounds it was premature and could only be granted after all proper  
adjustments were made on a winding up of the partnership. This would include  
determination of the amounts owed to Mr. Hutchison for advances.  
[112] I stop here to note Mr. McKnight’s application for summary judgment was,  
with respect, entirely misconceived. In the course of the winding up, Mr. McKnight is  
not entitled to have Mr. Hutchison make whole his capital account. As set out in the  
legal framework at the commencement of these reasons, if, at the end of an  
accounting there is a deficiency of assets, that deficiency is treated as a loss, and  
must be borne by the partners’ equally. In this case, if, at the end of the accounting,  
McKnight v. Hutchison  
Page 37  
the only deficiency would be the balance of Mr. McKnight’s capital account of  
$473,252.00, that deficiency would be shared equally between Mr. McKnight and  
Mr. Hutchison. Each would be responsible for one half of the deficiency, being  
$238,126.00 ($476,252.00 divided by two). Mr. Hutchison would, in that scenario,  
have to pay that sum to the partnership, and the sum in turn would be paid to  
Mr. McKnight, thus leaving both Mr. McKnight and Mr. Hutchison with unrecoverable  
capital accounts of $238,126.00.  
[113] Mr. McKnight did not appeal Justice Grist’s decision. Indeed, in his factum in  
the First Appeal, he argued the accounting ordered by Justice Grist was the proper  
remedy for the breach. In his factum in the Second Appeal he stated he had elected  
to pursue an accounting as opposed to a claim for damages.  
[114] In Hinkson #1, Mr. Hutchison attempted to relitigate the value of the capital  
accounts. Justice Hinkson held he could not. He found the matter had been  
determined by the special referee and the issue was res judicata. In that regard, he  
said:  
[40]  
Despite this failure, it is my view that the personal defendant cannot  
re-litigate the value of the capital accounts of the partners as of the date of  
the dissolution of the partnership. This matter was determined by the special  
referee, whose report was certified by Grist J., and the personal defendant's  
appeal of that certification was dismissed as abandoned by Madam Justice  
Bennett in reasons for judgment indexed at 2012 BCCA 264. I consider that  
the matter is res judicata. I order that the personal defendant should pay his  
capital account deficit to the partnership.  
[115] In Hinkson #1, Mr. McKnight again sought an order that if there were  
insufficient monies remaining from the winding up of the partnership to pay his  
capital account in full, Mr. Hutchison should pay the balance owing on his capital  
account. Justice Hinkson rejected that submission. In that regard, he said:  
[43]  
I am not persuaded that the plaintiff is entitled to this relief. Both he  
and the personal defendant created the disastrous financial situation in which  
they found themselves in 1999 by overdrawing their monthly draws, failing to  
properly service their bank loans, and failing to generate sufficient income to  
warrant their draws and expenditures.  
McKnight v. Hutchison  
[44] The plaintiff's claim for payment of his capital account by the  
Page 38  
defendants, with interest, is dismissed. The personal defendant must account  
to the partnership for the deficit in his capital account, but given the financial  
difficulties experienced by the partnership before its dissolution, and the  
plaintiff's overdrawing on monthly draw payments, the plaintiff's capital  
account may well have been unrecoverable, and this difficulty should not be  
visited upon the defendants in the manner sought by the plaintiff. In my view,  
that result is one of the risks that the partners in this case courted, and it  
should not be the responsibility of only one of the partners.  
[116] The judge’s refusal in Hinkson #1 to order repayment of Mr. McKnight’s  
capital account was a major issue in the Second Appeal. In his factum, Mr. McKnight  
acknowledged that when he learned of the Secret Profits, he elected to make a  
claim for a share of those profits by bringing an action for an accounting as opposed  
to suing for damages.  
[117] Mr. McKnight’s application for an order that, in the event there were  
insufficient monies remaining upon the final dissolution of the continuing partnership  
to pay his capital account in full, he be awarded judgment for any balance owing on  
his capital account plus interest was, with respect, also misconceived. The shortfall  
in his capital account did not arise from the Secret Profits. The source of the shortfall  
as noted by the Chief Justice were the financial difficulties experienced by the  
partnership before its dissolution. To the extent Mr. McKnight suffers a shortfall in his  
capital account, the remedy is a matter to be resolved in the final stage of the  
winding up accounting.  
[118] In Hinkson #1, the trial judge discussed at some length damages for breach  
of fiduciary duty. He described the plaintiff’s claim as follows:  
[143] The plaintiff contends that the personal defendant failed to bill his  
clients for a substantial part of his work in progress as at November 8, 1999,  
and failed to make reasonable efforts to collect the bills that he did render to  
clients of the former partnership. The plaintiff also alleges that since  
November 8, 1999, the personal defendant has rendered bills for some of the  
work he performed for clients of the partnership before November 8, 1999,  
and has received payment for such work, but has wrongly failed to credit the  
partnership for that work or has failed to credit the partnership for the  
payments he received for that work. I have dealt with these allegations  
above.  
McKnight v. Hutchison  
Page 39  
[144] The plaintiff also contends that he is entitled to damages due to the  
personal defendant's failure to comply with court orders and requests for  
disclosure and production of documents and information and to disclose and  
produce all documents and information relating to his claim of set off. He also  
alleges that the personal defendant gave false or inadequate statements.  
Those allegations were consistent with the pleadings as they then existed. The claim  
for breach of fiduciary duty did not include any claims arising from the Secret Profits.  
[119] It was only on December 11, 2018, just prior to the commencement of the  
third trial, that Mr. McKnight amended his pleadings to claim damages for losses  
suffered as a result of Mr. Hutchison’s failure to pay the plaintiff his rightful and  
proper share of the Secret Profits. In Hinkson #3, the claim for damages for breach  
of fiduciary duty was now described as follows:  
[159] Mr. McKnight seeks equitable compensation for Mr. Hutchison’s  
breaches of fiduciary duty. Specifically, for neglecting, failing, or delaying  
billing his WIP, which caused losses to the partnership, and for failing to pay  
the plaintiff the “secret profits”.  
[162] In addition to these breaches, the plaintiff claims damages for various  
breaches by the defendant of his fiduciary duties to the partnership.  
Specifically, for the losses occasioned to the partnership as a result of the  
personal defendant’s neglect, failure, or delay in billing his work-in-progress  
and the amount that the personal defendant ought to have paid to the plaintiff  
from the secret profits determined by Grist J….  
[120] After describing the claim, the Chief Justice then went on to say:  
[163] The plaintiff contends that the partnership should be granted equitable  
compensation for the personal defendant’s breach of fiduciary duty, and I  
agree.  
[164] I assess that compensation as follows:  
a)  
$476,258.59 share of secret profits; and…  
[121] In making this award, the Chief Justice appears to have overlooked the  
impact of the order on the certified capital accounts and his finding in Hinkson #1,  
that the certification of the capital accounts was res judicata. The certified capital  
accounts were premised on the Secret Profits being assigned to Mr. Hutchison as  
draws. If Mr. Hutchison must pay the Secret Profits back to the firm, his capital  
McKnight v. Hutchison  
Page 40  
account would have to be recalculated. As noted in para. 32 above, that  
recalculation would increase Mr. Hutchison’s capital account to approximately $1  
million, more than double that of Mr. McKnight whose capital account would be  
unchanged from the calculations made by the special referee.  
[122] Mr. McKnight argues that the certification of the special referee’s report is not  
an impediment to the award of equitable compensation. He submits that no judge  
has ordered the partnership be wound up on the basis of the certified capital  
accounts and there is nothing to prevent the capital accounts now being readjusted  
to take into account the order for equitable compensation.  
[123] With respect, that submission mischaracterizes the remedy granted in the  
First Action. The determination of the capital accounts was a necessary step in the  
winding up. Justice Grist, when he certified the capital accounts, recognized that  
there may be further issues to be resolved which could affect the ultimate equities  
between the parties (Grist #4 at para. 9). Indeed, the entire Second Action was  
dedicated to resolving those issues. What was resolved in the First Action was the  
capital accounts. The certification of the special referee’s report was intended to  
conclusively fix the amounts of those accounts to bind the parties going forward.  
Mr. McKnight’s various attempts to obtain a judgment against Mr. Hutchison were  
premised on the certified accounts. The Chief Justice finding in Hinkson #1 that the  
capital accounts were res judicata and could not be revisited is fatal to the award of  
equitable compensation.  
[124] While it might have been open to Justice Grist to order Mr. Hutchison repay  
the Secret Profits to the firm, he chose a different remedy. Mr. McKnight did not  
appeal that decision and indeed, argued in the First Appeal that the accounting  
ordered by Justice Grist was the proper remedy for the breach.  
[125] A litigant must bring all available arguments and evidence it wishes to  
advance to the original hearing of an issue. If a litigant fails to do so, the general rule  
is that it is not permitted to come back another time to revisit the issue.  
McKnight v. Hutchison  
Page 41  
[126] The concept of issue estoppel was explained by the Supreme Court of  
Canada in Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, and held at  
paras. 18, 24:  
18  
The law rightly seeks a finality to litigation. To advance that objective,  
it requires litigants to put their best foot forward to establish the truth of their  
allegations when first called upon to do so. A litigant, to use the vernacular, is  
only entitled to one bite at the cherry. … An issue, once decided, should not  
generally be re-litigated to the benefit of the losing party and the harassment  
of the winner. A person should only be vexed once in the same cause.  
Duplicative litigation, potential inconsistent results, undue costs, and  
inconclusive proceedings are to be avoided.  
24  
… The question out of which the estoppel is said to arise must have  
been “fundamental to the decision arrived at” in the earlier proceeding. In  
other words, as discussed below, the estoppel extends to the material facts  
and the conclusions of law or of mixed fact and law (“the questions”) that  
were necessarily (even if not explicitly) determined in the earlier proceedings.  
[127] The remedy for the Secret Profits was decided by Justice Grist in the First  
Action. It could not be re-visited in the Second Action. It was not open to the Chief  
Justice in the Second Action to adopt a different remedy. I would allow this ground of  
appeal and set aside the order that Mr. Hutchison pay to the partnership the sum of  
$476,258.59.  
[128] While that is sufficient to deal with this ground of appeal, I would add that if it  
had been open to the Chief Justice to order that Mr. Hutchison repay the Secret  
Profits, it was an error to do so by way of set off. At this stage of the of the winding  
up process, advances a partner made to the partnership should not be intermingled  
with capital accounts. This follows from the provisions of s. 47 of the Act that directs  
that advances are paid in priority to capital accounts. Later in the process after all  
the individual accounts are settled, if there is a shortfall, such a set off may occur in  
the final step of the winding up. At this stage, had it been appropriate to order  
repayment of the Secret Profits, they should have been ordered to be repaid in full.  
This in turn would have led to Mr. Hutchison’s capital account being replenished to  
take into account the payment and left untouched the amounts that Mr. Hutchison  
was entitled to recover for advances he had made to the partnership.  
McKnight v. Hutchison  
D. Partnership Expenses  
i. Overview  
Page 42  
[129] At the second trial, Mr. Hutchison sought to be reimbursed for payments he  
made on behalf of the partnership from his own resources. His claim for advances  
totalled $742,437.72. In Hinkson #1, the Chief Justice dealt with these claims at  
paras. 108137. After reviewing the expenses in detail, he concluded that the  
partnership owed Mr. Hutchison $377,375.51.  
[130] Mr. Hutchison now challenges the dismissal of his claim for certain off-site  
storage charges, certain monies paid in respect of a partnership bank loan, and the  
Chief Justice’s failure to adjudicate the claim for payment of certain accounting  
charges. These items form Mr. Hutchison’s first, second, and third ground of appeal.  
[131] In response, Mr. McKnight submits that the appeal of the storage charge and  
bank interest are without merit and should be dismissed. He agrees the judge  
overlooked the accounting charges, and submits that matter should be submitted to  
the registrar for determination. I will deal with each ground in turn.  
ii. Storage Charges  
[132] There were three components to Mr. Hutchison’s claim to set off the costs of  
storage against his obligations to the partnership:  
(a) October Mansion: an offsite storage facility in Victoria that had been  
leased by various iterations of the partnership originally founded by Gilbert J.  
Smith in the 1950s. Mr. Hutchison sought to offset $7,318.94 in storage  
expenses with October Mansion.  
(b) The Broughton Basement: when the parties moved their firm to 823  
Broughton Street, Victoria, in 1993, they rented an unoccupied space located  
in the basement of the building for storage. Mr. Hutchison sought to offset  
$9,800 in storage expenses with the Broughton Basement.  
(c) Access Records & Media Management: another offsite storage facility in  
Victoria to which in 2003 Mr. Hutchison moved various client files and other  
contents in previously stored at October Mansion after the latter space was to  
be transitioned to residential suites. Mr. Hutchison sought to offset  
$59,168.29 in monthly storage costs, a further $4,277.53 in “start up costs”,  
and a further $1,104.35 paid to access files with Access Records.  
     
McKnight v. Hutchison  
Page 43  
[133] The Chief Justice allowed Mr. Hutchison to offset the full storage costs of the  
October Mansion and the Broughton Basement. He denied the Access Records  
claim.  
[134] Evidence at trial disclosed that 716 boxes of material had been moved from  
October Mansion to Access Records in 2003. At trial, Mr. McKnight advanced three  
grounds for resisting Mr. Hutchison’s argument that the Access Records storage  
costs should be offset against his obligations to the partnership. First, Mr. McKnight  
maintained that once the partnership files moved from October Mansion to Access  
Records in 2003, he had no access to them. Second, Mr. McKnight asserted that the  
bulk of the material being stored related not to the parties’ law partnership, but to  
Mr. Hutchison and his successor partnership. He submitted that many of the items  
stored were dated or were not partnership files, and could simply have been  
destroyed. He submitted the burden of proving the necessity of storing all of the  
materials relocated to Access Records rested on Mr. Hutchison and that burden had  
not been discharged. Third, Mr. McKnight resisted the Access Records set off claim  
on the grounds that the expense was a business expense to which Mr. Hutchison  
and his current partnership would have been credited for income tax purposes.  
[135] In dealing with the storage claim, the Chief Justice said as follows:  
[113] The personal defendant also claims a set off for the cost of storage at  
the October Mansion. It was at this facility that many of the records that  
remain the subject of controversy in these proceedings were stored. It is my  
view that it would have been foolhardy for the personal defendant to dispose  
of these records until this litigation concluded, and I allow the entire cost of  
this expense as a set off against the personal defendant's obligations to the  
partnership.  
[117] Items 9, 10, and 11 relate to the cost of storage of file materials to  
permit the personal defendant to access them during the litigation between  
the parties. I make no finding as to whether these expenses might be  
recoverable as costs in the action. I find that they cannot be claimed as a set  
off against the personal defendant's obligations to the partnership.  
[136] Following receipt of the reasons, Mr. Hutchison sought reconsideration of the  
rejection of the Access storage fees. The Chief Justice rejected the request. In that  
regard, in Hinkson #2, he said:  
McKnight v. Hutchison  
Page 44  
[9]  
At para. 117 of my reasons for judgment I considered the defendants'  
claim for a set off for the cost of storage of file materials to permit the  
personal defendant to access them during the litigation between the parties. I  
made no finding as to whether these expenses might be recoverable as costs  
in the action, but found that they could not be claimed as a set off against the  
personal defendant's obligations to the partnership.  
[10]  
The defendants contend that my characterization of the items  
discussed in para. 117 is mistaken. I did not consider the claims for storage  
to be proper advances made by the defendants on behalf of the partnership  
and have concluded that the defendants' submissions regarding this  
paragraph amount to no more than an attempt to reargue a matter that was  
argued at trial. Such a submission is not permitted even if a trial is  
reopened: Moradkhan v. Modifi, 2013 BCCA 132 at para. 31.  
[137] On the appeal, Mr. Hutchison again seeks to recover the expenses incurred  
for storage at Access Records. He puts particular emphasis on the Chief Justice’s  
comments at para. 113 of Hinkson #1 that “it would have been foolhardy for the  
personal defendant to dispose of these records until this litigation concluded”.  
Mr. Hutchison submits that the amounts paid up to the date of the trial were in  
excess of $60,000 and continue to accrue.  
[138] The Chief Justice was clearly aware of the basis of the storage record claim.  
He allowed certain storage fees but not others. When he was asked to reconsider  
the decision, he again refused the Access Records fees. The question as to whether  
the Access Records fees were an appropriate deduction is a question of fact to be  
reviewed on a standard of palpable and overriding error. No such error has been  
shown. I would not accede to this ground of appeal.  
iii. Bank Loan  
[139] The circumstances giving rise to this issue was that Mr. Hutchison received  
an uncertified cheque from a third party for a firm’s client. That cheque was  
deposited in the firm’s trust account, and before it cleared, a firm’s trust account  
cheque was issued to the firm’s client. The original cheque did not clear, and the  
funds were never recovered. Mr. Hutchison ultimately obtained a bank loan for  
$149,166.70 to cover firm expenses. $100,000 of this amount was used to  
reimburse the partnership for the losses caused by the uncertified cheque. Justice  
Hinkson held that the $100,000 was not reimbursable. In that regard, he said:  
 
McKnight v. Hutchison  
[123] Insofar as the claim for set off of the $149,166.70 partnership bank  
Page 45  
loan is concerned, $100,000 of this amount was ultimately used to finance  
repayment of the US $50,000 improperly advanced by the personal  
defendant, and I will not permit that portion of that loan to be set off against  
the personal defendant's obligations to the partnership. I accept that the  
balance was probably used by the personal defendant to service partnership  
obligations, and will permit that part of the loan payments to be used by the  
personal defendant to set off his other obligations to the partnership.  
[140] On the appeal, Mr. Hutchison submits that the evidence does not support a  
conclusion that this indebtedness arose because of conduct outside the practice of  
the business of the partnership. He submits that in order for the trial judge to have  
been correct, it would require that any mistake made by a partner, as distinct from  
deliberate misconduct, would make that partner liable separately from his  
partnership. He submits that is not the law.  
[141] I can find no error in the Chief Justice conclusion that Mr. Hutchison is not  
entitled to recover the $100,000. While at first instance there is no limitation from  
firm liability and each partner potentially has the power to expose the full worth of  
every other partner, the Chief Justice’s finding that the use of trust funds by the  
personal defendant could not be seen in any way to be the ordinary and proper  
conduct of the business of the partnership is unassailable. While Mr. Hutchison may  
not have intended by his conduct to cause the firm to suffer a loss, his conduct  
clearly caused the loss. He cannot expect in such circumstances that Mr. McKnight  
would share in the loss. Mr. Hutchison caused the loss and is responsible for the  
financial consequences. I would not accede to this ground of appeal.  
iv. Accounting Charges  
[142] Mr. Hutchison sought reimbursement for various accounting charges paid to  
Trenholm Jackson Eade. In Hinkson #1, the Chief Justice explained there were two  
sets of accounts rendered by Trenholm Jackson Eade:  
[118] Although he used partnership monies to satisfy the accounting  
charges of Trenholme Jackson Eade, the personal defendant has included  
these payments as a set off. As I have directed a reference to the Registrar to  
determine what was received and spent from partnership assets, I have  
concluded that the personal defendant cannot claim this amount as a set off,  
 
McKnight v. Hutchison  
Page 46  
and anticipate that it will be addressed by the Registrar when the reference I  
have directed takes place. This claim for set off is therefore dismissed.  
[119] The defendants have also claimed a further set off for fees paid to  
Trenholme Jackson Eade for accounting charges to the corporate defendant,  
and for the cost of corporate legal accounts and annual filings and records for  
the corporate defendant. I am not persuaded that the creation and  
maintenance of the corporate defendant was necessary for reasons other  
than those attributable to the personal defendant’s efforts to enjoy what were  
found to be secret profits, and I reject the claims listed as 12, 13, and 14 for  
set off.  
In Hinkson #1, the Chief Justice went on to discuss the accounting charges further at  
paras. 137 and 165:  
[137] The claim for the accounting charges of Trenholme Jackson Eade are  
adjourned pending the determination of the Registrar. The remainder of the  
requested expenses for set off are dismissed.  
[165] The accounting charges of Trenholme Jackson Eade are dismissed  
pending the determination of the Registrar. The remainder of the requested  
expenses for set off were not allowed.  
[143] In Hinkson #2, the Chief Justice acknowledged that paras. 137 and 165 were  
inconsistent and required clarification. In that regard, he said:  
[13] While it was my intention for para. 137 to address the claim described  
in para. 118, and for para. 165 to address the claim set out in para. 119, I  
accept that I was not as clear as I had hoped to be in my treatment of these  
two claims. I trust that these supplemental reasons for judgment will clarify  
what I had intended with respect to the accounting charges of Trenholme  
Jackson Eade.  
[144] In the subsequent hearing before the registrar, Mr. Hutchison provided  
evidence of $5903.03 in accounting charges to the partnership that he had  
personally paid. Mr. Hutchison was not challenged on those expenses, and the  
registrar implicitly appears to have accepted those expenses as claimed. When the  
matter returned before the Chief Justice, however, the accounting charges were  
overlooked and the Chief Justice made no specific findings concerning them.  
[145] In his submissions on the appeal, Mr. McKnight acknowledges that the  
accounting expenses were overlooked, and suggests they should be the subject of a  
McKnight v. Hutchison  
Page 47  
referral to the registrar. With respect, in this case, there have already been too many  
referrals to the registrar. Given the lack of challenge to Mr. Hutchison’s claim, I am  
prepared to allow, as additional expenses, the sum of $5,903.03.  
[146] In his factum, Mr. Hutchison indicates that he intended to seek leave on the  
appeal to enter into evidence additional payments, totalling a further $4,907.47. In  
my respectful view, it is too late to add evidence to this case. I would not allow that  
part of the claim.  
E. Unbilled Work  
[147] A major issue in the Second Action was Mr. Hutchison’s alleged failure to bill  
his outstanding work in progress as at the date of the dissolution of the partnership.  
Mr. Hutchison’s failure to bill his outstanding work in progress figured prominently in  
the application before Justice Halfyard for the appointment of a receiver. Although  
Justice Halfyard ultimately determined that the appointment of a receiver was not  
necessary, he found Mr. Hutchison had failed to bill his clients for a substantial part  
of his work in progress as it existed at the time that the parties ended their  
partnership practice together (Halfyard #3 at para. 49).  
[148] In Hinkson #1 the Chief Justice reviewed the allegations concerning the  
failure to bill work in progress at paras. 5089. In his review of the issue, he noted  
the history of the personal defendant’s billing and collection practice involved a  
consistent practice of writing down the value of his work in progress and writing off  
considerable portions of his billed accounts after they were recorded. He rejected  
the submission that Mr. Hutchison should indemnify the partnership for all work in  
progress recorded at the time of dissolution. In this regard he said:  
[80]  
Finally, the plaintiff argued that the personal defendant should  
indemnify the partnership for all work in progress recorded by November 8,  
1999, and all accounts rendered by the personal defendant after the  
dissolution of the partnership. I find that this submission is representative of  
the plaintiff’s approach to this litigation. It is a grasping and unreasonable  
attempt to maximize whatever he might claim, and ignores the reality of the  
personal defendant’s practise of recording time and billings that offered no  
real prospect of recovery. The plaintiff was well aware of this reality during  
the existence of his partnership with the personal defendant and could not  
 
McKnight v. Hutchison  
reasonably have expected the recovery of all recorded time and billings by  
Page 48  
the personal defendant.  
[149] While rejecting the proposition Mr. Hutchison should indemnify the  
partnership for all work in progress, the Chief Justice found that some amounts  
should have been billed but were not. He held he was unable to determine those  
amounts and ordered a reference to the registrar to determine the amounts that  
Mr. Hutchison should have billed for work performed prior to the dissolution of the  
partnership but did not.  
[150] As noted by the Chief Justice in Hinkson #3, Master Bouck in her report did  
not determine the amounts that the personal defendant should have billed for work  
performed prior to the dissolution of the partnership. In that regard he said:  
[39]  
Unfortunately, the Master did not determine the amounts that the  
personal defendant should have billed for work performed prior to the  
dissolution of the partnership, as set out in direction 9(a). On this aspect of  
the reference, she reported only that:  
[63]  
Accordingly, subject to the trial judge’s findings with respect to  
the personal defendant’s obligations as a fiduciary in his billing  
practices, I recommend to the court that the amount the personal  
defendant should have billed in fees is at minimum $10,829.39 and at  
maximum $112,093.50.  
[64]  
In addition, the court might include the anticipated billing of file  
6393 ($7,181.25 in fees and $1,078.36 in disbursements) in this  
aspect of the parties’ final accounting.  
[151] In the result, it became necessary for the Chief Justice to determine what  
should have been billed by the individual defendant. He made those findings at  
paras. 60158 of Hinkson #3.  
[152] The Chief Justice started his discussion by pointing out that the determination  
of the appropriate account to be rendered by a lawyer is more a matter of discretion  
than an accounting exercise. He noted there may be circumstances in which lawyers  
must consider reducing their accounts despite recorded time. He also recognized  
Mr. Hutchison’s evidence that it was his invariable practice to write off some or all of  
his recorded time for some matters and some clients. He found that not all of his  
recorded time and disbursements recorded in the partnership accounting was  
McKnight v. Hutchison  
Page 49  
expected to be billed and that each of the parties could exercise some discretion as  
to when and how much the partnership’s clients would be billed.  
[153] To carry out his task, the Chief Justice had to review approximately 120  
individual files. Mr. McKnight’s position was that the amounts that should have been  
billed by Mr. Hutchison, but were not, amounted to $112,093.50 in fees and  
$13,051.82 in disbursements, for a total of $125,145.32.  
[154] The Chief Justice reviewed all of the individual files and dealt with each of  
them on a summary basis. He ultimately concluded that the fees and disbursements  
that should have been billed in the sum of $88,472.05 (para. 155). He went on to  
find that of the files Mr. Hutchison should have been billed, he was satisfied that not  
all the bills would have realistically been recovered and a 20% discount should be  
applied to the amounts that should have been billed. This left the sum for which the  
defendant must reimburse the partnership for unbilled work in progress and  
disbursements at $65,196.50.  
[155] Mr. Hutchison now challenges that amount. He submits his not billing the  
work in progress was consistent with his past practices. Further, he submits the  
evidence supports that only $21,335.78 should have been billed, and applying the  
20% discount of the trial judge that should be further reduced to $17,068.63. Further,  
he says that the trial judge failed to provide reasons for his various findings that the  
accounts should have been billed.  
[156] With respect, I do not agree. Mr. Hutchison bore the burden of establishing  
why it was appropriate for him not to bill any specific account. The Chief Justice  
gave detailed reasons for rejecting Mr. Hutchison’s explanations. He explained his  
findings and the pathways that led into his conclusions. An evidentiary foundation  
exists for the amounts awarded. Mr. Hutchison has not shown any errors in the Chief  
Justice’s analysis. I would not accede to this ground of appeal. Pursuant to the  
judge’s finding, Mr. Hutchison must account for unbilled fees and disbursements of  
$65,196.50.  
McKnight v. Hutchison  
Page 50  
F. Punitive Damages  
[157] In Hinkson #3, the Chief Justice commenced his discussion on punitive  
damages by quoting Justice Binnie in Whiten v. Pilot Insurance Co., 2002 SCC 18:  
[173] In Whiten v. Pilot Insurance Co., 2002 SCC 18, Mr. Justice Binnie  
discussed the purpose of punitive damages at para. 36:  
Punitive damages are awarded against a defendant in exceptional  
cases for "malicious, oppressive and high-handed" misconduct that  
"offends the court's sense of decency": Hill v. Church of Scientology of  
Toronto, [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the  
award to misconduct that represents a marked departure from  
ordinary standards of decent behaviour. Because their objective is to  
punish the defendant rather than compensate a plaintiff (whose just  
compensation will already have been assessed), punitive damages  
straddle the frontier between civil law (compensation) and criminal law  
(punishment).  
[158] The Chief Justice then quoted from the trial decision in Huff, in which the trial  
judge awarded punitive damages of $150,000 to one client and $100,000 to another  
against an investment adviser who had committed gross breaches of trust in frauds  
against his clients.  
[159] The Chief Justice then turned to the facts of this case and said:  
[177] The conduct of the personal defendant before and after the  
dissolution of the partnership has been reprehensible. It is hard to envisage  
how one partner could take such advantage of another, and the scope of the  
secret profits withheld by the personal defendant cannot be overstated.  
Caught out in this nefarious conduct, the personal defendant failed to do what  
he said he would, and what he was obliged to do: submit accounts for work  
done for the partnership. Since then he has been at considerable pains to  
delay his judgment day, withholding information from the plaintiff and  
dragging the litigation out to lengths that cannot be condoned.  
[178] I have previously criticized the plaintiff who has failed to approach the  
litigation in a manner that might have ended it much sooner, but the sad fact  
is that the plaintiff was greatly wronged by the personal defendant, and is  
entitled to damages for the wrongs done to him.  
[160] The Chief Justice concluded that the upper end of the range of punitive  
damages awarded in Huff was a suitable award for the conduct that Mr. Hutchison  
had engaged in and awarded Mr. McKnight $150,000 for punitive damages.  
 
McKnight v. Hutchison  
Page 51  
[161] Whiten remains the seminal authority. In Ojanen v. Acumen Law Corporation,  
2021 BCCA 189, this Court summarized the governing principles:  
[77]  
The three objectives of punitive damages are retribution, deterrence,  
and denunciation. Punitive damages awards should be approached with  
caution and restraint and resorted to only in exceptional  
circumstances: Whiten at para. 69. Punitive damages awards are rational  
only when compensatory damages do not adequately achieve the objectives  
of retribution, deterrence, and denunciation: Performance Industries Ltd. v.  
Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 at para. 87.  
[78]  
In Whiten at para. 94, the Court set out the factors that should be  
taken into account when considering an award for punitive damages. The  
factors include:  
a) Punitive damages are the exception rather than the rule, imposed  
only if there has been high-handed, malicious, arbitrary, or highly  
reprehensible misconduct that departs to a marked degree from  
ordinary standards of decent behaviour;  
b) Punitive damages are generally awarded only where the  
misconduct would otherwise be unpunished or where other penalties  
are unlikely to achieve the objectives of retribution, deterrence, and  
denunciation;  
c) Punitive damages are awarded only if compensatory damages  
(which to some extent are punitive in nature) are  
insufficient to accomplish these objectives, and the amount  
awarded is no greater than necessary to rationally  
accomplish their purpose;  
d) The purpose of punitive damages is not to compensate the plaintiff,  
but to give a defendant his or her just desert (retribution), to deter the  
defendant and others from similar misconduct in the future  
(deterrence), and to mark the community's collective condemnation  
(denunciation) of what has happened;  
e) Punitive damages should be assessed in an amount reasonably  
proportionate to the harm caused, the degree of the misconduct, the  
plaintiff's relative vulnerability, and any advantage or profit gained by  
the defendant, having regard to any other fines or penalties suffered  
by the defendant; and  
f) Moderate awards of punitive damages, which inevitably carry a  
stigma in the broader community, are generally sufficient.  
[162] There are, with respect, three errors in the Chief Justice’s punitive damages  
analysis. At para. 178, the Chief Justice says the plaintiff was greatly wronged by the  
personal defendant, and is entitled to damages for the wrongs done to him. This  
finding is contrary to the principle that the purpose of punitive damages is not to  
compensate the plaintiff, but to punish the defendant, deter the defendant and others  
McKnight v. Hutchison  
Page 52  
from similar conduct, and mark the community’s collective condemnation of what  
has happened.  
[163] The second error concerns reliance of the decision in Huff. Huff predated  
Whiten by some six years. The case concerned gross breaches of an investment  
advisor in handling the investments of his clients. Further, and importantly, on  
appeal, the awards of punitive damages were reduced to $20,000 for each client.  
[164] Huff is clearly distinguishable on its facts from this case. In Huff, the  
investment advisor systematically defrauded his clients through acts of deceit and  
forgery, misapplication of their funds and theft of their stock certificates. There was  
no possible justification for his actions. In this case, Mr. Hutchison’s position  
throughout has been that the terms of the partnership agreement entitled him to  
retain the Secret Profits. Although his position was rejected in the First Action,  
Justice Grist made no findings that the conduct of Mr. Hutchison was morally  
reprehensible or committed with callous disregard for the plaintiff. Notwithstanding  
the plea for punitive damages, he did not find Mr. Hutchison’s conduct represented a  
marked departure from ordinary standards of decent behaviour.  
[165] This takes us to the third error in the Chief Justice’s analysis. It is clear from  
his reasons that he considered the taking of the Secret Profits conduct worthy of  
denunciation. There are two problems with taking the Secret Profits into account in  
the punitive damage award.  
[166] The first is that the Secret Profits were the foundation of the First Action. In  
the First Action, Mr. McKnight pled the conduct of Mr. Hutchison was morally  
reprehensible and committed with callous disregard for the plaintiff for which he  
claimed an award for punitive damages. Justice Grist, however, made no such  
award, and Mr. McKnight did not appeal his failure to do so.  
[167] When the Second Action was commenced, the claim for punitive damages  
was limited to Mr. Hutchison’s post-dissolution conduct. It did not include the Secret  
Profits. In the Second Action, Mr. McKnight only sought punitive damages for the  
McKnight v. Hutchison  
Page 53  
taking of the Secret Profits when he filed the Final Pleading on December 11, 2018,  
long after the second trial, and shortly prior to commencement of the third trial on  
January 28, 2019. As with the claim for equitable compensation, the remedy for the  
Secret Profits was decided by Justice Grist in the First Action and could not be  
revisited under the guise of punitive damages in the Second Action. It was not open  
to the Chief Justice in the Second Action to consider the Secret Profits in his award  
of punitive damages.  
[168] The second problem is closely related to the first. The Chief Justice did not  
hear the First Action. He was, with respect, not in a position to determine whether  
the taking of the Secret Profits was high-handed, malicious, arbitrary, or highly  
reprehensible misconduct that departs to a marked degree from ordinary standards  
of decent behaviour. Justice Grist, who heard the First Action, made no such finding.  
Such a conclusion does not automatically follow from a finding that the taking of the  
Secret Profits was a breach of fiduciary duty. Mr. Hutchison’s position throughout  
was that, under the terms of the partnership agreement, he did not need to account  
to his partners for any monies paid or benefits provided for acting as director of a  
company or society, trustee, executor or for their involvement with other boards,  
commissions, or institutions. As noted by MacEachern C.J.S.C. (as he was then) in  
Davis v. Ouellette, (1981) 27 BC.L.R 162 (S.C.) at 174 mala fides is not an essential  
ingredient to an action for breach of fiduciary duty.  
[169] In the circumstances, the award of punitive damages of $150,000 must be set  
aside. That leaves open, however, whether an award for punitive damages can  
properly be based on Mr. Hutchison’s conduct subsequent to the dissolution of the  
partnership. This conduct was clearly condemned by the Chief Justice. In that regard  
he said:  
[177] …Caught out in this nefarious conduct, the personal defendant failed to  
do what he said he would, and what he was obliged to do: submit accounts  
for work done for the partnership. Since then he has been at considerable  
pains to delay his judgment day, withholding information from the plaintiff and  
dragging the litigation out to lengths that cannot be condoned.  
McKnight v. Hutchison  
Page 54  
[170] Mr. Hutchison is both a lawyer and a fiduciary. His post-dissolution conduct  
represented a marked departure from ordinary standards of decent behaviour and  
provides the evidentiary foundation for an award of punitive damages. Absent an  
award of punitive damages, his misconduct would otherwise go unpunished. The  
accounting does not achieve the objectives of retribution, deterrence, and  
denunciation.  
[171] In regard to quantum, the authorities make clear that moderate awards of  
punitive damages, which inevitably carry a stigma in the broader community, are  
generally sufficient. This is particularly so when the award is made against a  
practising lawyer for conduct in litigation.  
[172] I would vary the award of punitive damages and substitute an award of  
$50,000.  
G. McKnight Failure to Account  
[173] From the parties’ submissions, it appears to be common ground that,  
subsequent to the dissolution of the firm, Mr. McKnight took some $30,860.49 from  
partnership revenues and repaid but $1,942.76 of this amount, leaving a balance of  
$28,917.73 not reimbursed to the partnership. Mr. Hutchison said it was an error for  
the trial judge to fail to require that Mr. McKnight account for these funds together  
with interest as part of this determination of the amounts to be accounted for  
between the partners for the purpose of the wind up of the partnership. Mr. McKnight  
does not deny the need to account to the partnership for those monies. Indeed, in  
his prayer for relief in the Final Pleadings he acknowledges that the amounts he  
owes the partnership must be taken into account, but says this issue was not before  
the Chief Justice and need not be considered in the context of this appeal.  
[174] I agree that the failure of the Chief Justice to deal specifically with this sum  
was not an error in the context of the issues he was called upon to decide. It is,  
however, a number of import in regard to the final accounting, an issue to which I will  
return once the individual grounds of appeal have been considered.  
 
McKnight v. Hutchison  
Page 55  
H. Conversion  
[175] The conversion claim was first raised in the Final Pleading. Paragraph 62 of  
those pleadings sets out particulars of the conversion claim.  
[176] The Chief Justice dealt with the conversion claim at paras. 166172 of  
Hinkson #3. He found various payments totalling $32,255.66 were wrongly made  
from partnership funds and that Mr. Hutchison must repay that sum plus interest to  
the partnership.  
[177] The appellant, on appeal, submits that a segment of the conversion claim  
concerns items previously accounted for as part the Secret Profits. He submits that  
he has already accounted for these funds and that the order of the trial judge would  
constitute a double payment.  
[178] The appellant further submits that, in regard to certain payments, there was  
no evidence that he, in fact, had received the money. In this regard, the appellant  
submits that the trial judge misinterpreted a passage from the reasons in Halfyard  
#3.  
[179] Paragraphs 62(ao) of the Final Pleading set out the particulars of the  
conversion claim. The claims at paras. ak involve $8,426.10 for seven interest  
payments on the loan to address the trust fund deficiency discussed at paras. 136–  
138, $9,000 paid for the defendant’s legal fees, and $4,000 for accounting fees.  
Those expenditures took place between December 1999 and April 2002. The  
evidence supports that those funds were paid from partnership accounts to cover  
personal expenses of Mr. Hutchison. I would not accede to the appeal in regards to  
those items.  
[180] The balance of the conversion claim, however, is more problematic. As set  
out in the Final Pleading, it consists of the following particulars:  
l) On May 30, 2003, $3,363.66 to pay personal accounting fees;  
 
McKnight v. Hutchison  
Page 56  
m) On a date unknown, but after November 8, 1999, $1,160 to pay his new  
firm for legal fees for services rendered to the corporate defendant; and  
o) On or about one or more dates unknown, but after November 8, 1999,  
$6,304.88 for a purpose unknown to the plaintiff. I will deal with each of those  
claims in turn.  
i. $3,363.66 To Pay Personal Accounting Fees  
[181] This claim relates to a dividend in the amount of $3,363.66 that Mr. Hutchison  
received from one of his clients following release of the reasons in Grist #1. The  
dividend came to light in the course of the reference conducted before Registrar  
Bouck in 2003.The evidence before Registrar Bouck was that Mr. Hutchison signed  
over the full amount of the dividend to his accounting firm, which applied the funds to  
an account issued to the numbered company.  
[182] In Halfyard #3, Justice Halfyard described the transaction as follows:  
[122] The order pronounced by Mr. Justice Grist in the first action on  
September 27, 2002, included the order that “further payments attributable to  
the shares in the company controlled by the T. Family Trust will be treated as  
partnership revenue” (see paragraph 5 of the order, which was entered  
February 3, 2003). During his cross examination on the hearing before  
Registrar Bouck in 2003, the defendant disclosed that a dividend of  
$3,363.66 was received by the company which is the present corporate  
defendant, in 2003. It was shown that the defendant signed over this cheque  
to Mr. Eade’s accounting firm, to pay for accounting services rendered to the  
(now defendant) company. That cheque represented “partnership revenue”  
within Grist J.’s order, and should have been held in trust by the defendant. In  
my view, his actions amounted to a misappropriation of those funds.  
[183] With respect, Justice Halfyard’s conclusion that Mr. Hutchison’s actions  
amounted to a misappropriation of those funds overlooks the manner in which  
Justice Grist dealt with this transaction. In Grist #3, the dividend was included in and  
formed part of $72,291.66 of the Secret Profits that the court found was received  
after dissolution of the partnership. Those fees became part of the special referee’s  
report, and in the context of that report, were assigned to Mr. Hutchison with the  
subsequent reduction of his capital account. Mr. Hutchison has therefore already  
 
McKnight v. Hutchison  
Page 57  
accounted for those funds, and it would be double accounting for them to be  
included in the conversion claim.  
ii. Legal Fees $1,160/Unknown Purpose $6,304.88  
[184] I will deal with these items together, as they arise from the same evidentiary  
foundation. These claims can also be traced back to the decision in Halfyard #3. In  
2007, Mr. Hutchison received two further dividends totaling $29,681.38. Those funds  
were clearly partnership income for which Mr. Hutchison must account.  
Mr. McKnight swore an affidavit on July 26, 2010 in which he alleged certain  
expenses had been paid from those funds. Justice Halfyard set out the facts  
deposed to in the affidavit:  
[126] The facts deposed to by the plaintiff in his affidavit No. 6 sworn  
July 26, 2010, include the following (my summarizing):  
a) The $29,681.38 in question was not paid to Trenholme  
Jackson Eade in trust for the defendant company, but was  
paid directly to Mr. Hutchison.  
b) Mr. Hutchison rendered two bills for legal services to the  
defendant company, in the amounts of $2,397.06 and $1,160,  
and paid both of those accounts from the funds in question.  
c) Mr. Hutchison made payments to Trenholme & Company  
for accounting services rendered to the defendant company, in  
the amounts of $2,500, $5,764.55 and $4,462.50, and  
Mr. Hutchison paid those amounts out of the partnership  
money in question.  
d) Mr. Hutchison made payments to Trenholme & Company  
on a bill (for $7,975.35) owed by the plaintiff to Trenholme &  
Company, in the amounts of $1,847.15 on May 11, 2010, and  
$1,138.59 on May 26, 2010 (which left a balance owing of  
$4,989.61 on the plaintiff’s debt).  
e) Mr. Hutchison paid the account of the special referee  
(Mr. Jackson) owed by Smith Hutchison in the amount of  
$7,425.80, for the work done in preparing the special referee  
report.  
f)  
Mr. Hutchison has paid out of that partnership income  
($29,681.38) $3,557.06 to himself for legal services and has  
paid Trenholme & Company $12,727.05 for accounting  
services rendered to the defendant company, (making a total  
 
McKnight v. Hutchison  
of $16,284.11); and has paid $2,985.74 on the plaintiff’s debt  
Page 58  
to Trenholme & Company.  
g) All of the payments made by the defendant out of the  
funds in question were made without the plaintiff’s knowledge.  
At para. 128 of his reasons, Justice Halfyard analyzed the result if Mr. McKnight’s  
affidavit was accurate:  
[128] If Mr. Hutchison made the payments deposed to by the plaintiff, he  
could only properly anticipate the plaintiff’s agreement to the payment of the  
special referee’s account ($7,425.80), the payment of the plaintiff’s  
accounting bill in the amount of $7,975.35, and an equivalent amount  
($7,975.35) to be paid on the accounting bills of the defendant company. If  
only those payments had been made, the sum of $6,304.88 would be left in  
trust. The statement issued by Trenholme & Company shows that as at  
October 31, 2008, the balance of the funds was $5,971.47. But if the two  
payments were made in May 2010 on the plaintiff’s accounts ($2,985.74),  
that sum would now have to be deducted from that amount. If the plaintiff’s  
evidence as summarized in paragraph [126] hereof is correct, there has been  
significant misappropriation of partnership income.  
[185] As can be seen by paras. 126 and 128, they include reference at para. 126  
(b) to the $1,160 allegedly paid for legal services, and in para. 128 that if the  
payments have been made as set out in Mr. McKnight’s affidavit, $6,304.88 would  
be left in trust.  
[186] The difficulty is that Mr. Hutchison swore an affidavit in the same proceeding  
alleging different facts. Justice Halfyard referenced that affidavit at para. 129:  
[129] In his affidavit sworn October 21, 2010, Mr. Hutchison deposed (in  
paragraphs 11 to 13) to the following facts:  
a) The only money he has paid out of the $29,681.38 was  
$2,397.06, which was used to pay his account for services, on  
December 13, 2007.  
b) After payment of the said account, the amount of  
$27,284.32 remained in trust, and he is still holding that  
amount in trust.  
c) He paid the accounting bills rendered to the defendant  
company, with his own money.  
[187] Justice Halfyard recognized that there was an obvious conflict between the  
evidence of the plaintiff and the evidence of the defendant on the issues of what  
McKnight v. Hutchison  
Page 59  
payment had been made out of the $29,681.38. He found at para. 131 that he was  
unable to resolve this conflict on the affidavit evidence.  
[188] Subsequent evidence, however, established that, as set out in  
Mr. Hutchison’s affidavit referenced at para. 129 of Halfyard #3, that of the  
$29,681.38, $27,284.32 remained in trust, and those funds were ultimately paid over  
to Mr. McKnight’s trust account.  
[189] Given the above, there is no evidentiary support for the $1,160 or $6,304.88  
conversion claim.  
[190] In summary, therefore, I would allow the appeal in regards to the conversion  
claim by reducing the conversion claim from $32,255.56 to $21,427.02 ($32,255.56 -  
$3,363.66 - $1,160 - $6,304.88= $21,427.02).  
I. Interest  
[191] The Chief Justice made various interest awards on the amounts he found that  
Mr. Hutchison owed to the partnership. He implicitly also acknowledged that  
Mr. Hutchison was owed interest in relation to the payments he had made on behalf  
of the partnership from his own resources.  
[192] In the circumstances of this accounting, it was not appropriate to order  
interest on any of the individual amounts that have been determined. The main  
purpose of this action was to wind up the partnership. This required determination of  
the rights and obligations of the partners. At all times the individual partners were  
“under water” in the sense that they were owed more money than the partnership  
had to pay them. As will be set out below, as a result of the accounting, one partner  
owes money to the other. Interest is properly payable on that amount. I would set  
aside the interest awards made by the Chief Justice other than the interest award on  
punitive damages.  
 
McKnight v. Hutchison  
Page 60  
FINAL ACCOUNTING  
[193] The purpose of the Second Action was to wind up the partnership. The legal  
framework to wind up a partnership was set out at the commencement of these  
reasons at paras. 5 11. Before the winding up of the partnership could be  
concluded, it was necessary to complete the partnership accounts by incorporating  
any adjustments which may be required to reflect the respective rights, account  
entitlements and obligations of each partner. The focus of the litigation has been the  
finalization of the necessary adjustments.  
[194] The proceedings have now reached the stage that the partnership can be  
wound up. All necessary adjustments have been made. The parties’ creditors have  
been paid. The partnership has dispersed all its assets and the individual partner’s  
respective rights, entitlements and obligations have been determined. The  
accounting can now be finalized and the court can determine whether any amounts  
are due from one partner to the other. Both parties have claims against the  
partnership, but there are no remaining funds to pay those claims. The only  
remaining issue is how the loss is to be distributed between them.  
[195] In his submission, Mr. McKnight submits that once the remaining amounts in  
dispute have been determined, the parties’ final position should be determined by a  
special referee appointed under the Supreme Court Civil Rules and who will report  
to the Supreme Court of British Columbia.  
[196] With respect, I do not believe such a step is necessary. To quote the words of  
Justice Southin in Interclaim Holdings Ltd. v. Down, 2002 BCCA 632 at para. 27,  
“these litigants have taken unto themselves, from the pool of judicial resources  
available in this province, more than can be said to be their fair share.” There is no  
need to return this matter to the Supreme Court. Section 9 of the Court of Appeal Act  
authorizes this Court to make any order that could have been made or given by the  
court or tribunal appealed from. As a result of the appeal, the amounts owed to and  
owing by the parties are now known. This Court is perfectly capable of carrying out  
the accounting exercise necessary to finalize this matter.  
 
McKnight v. Hutchison  
Page 61  
[197] The final accounting is not complicated. Section 47 of the Act governs the  
final settlement of the partnership accounts. Losses, including losses and  
deficiencies of capital must, if necessary, be paid by the partners individually in the  
proportion to which they are entitled to share profits. In this case, profits were shared  
equally, and so must be the loss.  
[198] The parties’ respective financial position is as follows.  
A. Mr. Hutchison  
[199] The Chief Justice concluded that Mr. Hutchison was owed $377,375.51. To  
that sum must be added $5,903.03, representing the claim for accounting charges.  
The total therefore owing to Mr. Hutchison is $383,278.54 ($377,375.51 +  
$5,903.03).  
[200] From that sum must be subtracted the following amounts:  
a) $50,615 (capital account deficit);  
b) $15,699.60 (untaxed account);  
c) $65,196.50 (unbilled fees and disbursements); and  
d) $21,427.02 (conversion claim).  
The above amounts total $152,938.12. Subtracting that from the $383,278.54 owed  
to Mr. Hutchison leaves a balance owing to Mr. Hutchison of $230,340.42.  
B. Mr. McKnight  
[201] Mr. McKnight’s capital account balance following receipt of the payment of  
$178,393.63, subsequent to the consent order of August 2019 is $294,858.37. From  
that must be subtracted the $28,917.73 Mr. McKnight has acknowledged for which  
he must account. In the result, Mr. McKnight is owed $265,940.64.  
   
McKnight v. Hutchison  
Page 62  
C. Reconciliation  
[202] Taking the amounts owed to Mr. McKnight and the amounts owed to  
Mr. Hutchison, the partnership’s total loss is $496,281.06 ($265,940.64 +  
$230,340.42). That loss must be divided equally with the result that each partner is  
responsible for $248,140.53. To equalize the respective losses, Mr. Hutchison must  
pay to Mr. McKnight the sum of $17,800.11. In the result, Mr. McKnight is entitled to  
judgment against Mr. Hutchison in that amount together with interest on that amount  
from November 8, 1999 being the date of dissolution of the partnership.  
[203] While the said sum may appear small, what must not be lost sight of is the  
winding up of the partnership involved more than the issue of the Secret Profits. As  
has been detailed, Mr. Hutchison from his personal funds paid $383,278.54 in  
partnership expenses. Further, Mr. McKnight, in addition to the $17,800.11  
judgment, has already received advances of $207,311.36.  
FURTHER SUBMISSIONS  
[204] I am aware that the final accounting has been conducted without the benefit  
of submissions from the parties. If either party takes issue with the accounting, they  
are at liberty to file written submissions within two weeks of the release of these  
reasons. Such submissions should be limited to ten pages in length. Any reply  
submissions must be filed within seven days thereafter. Any reply submissions  
should not exceed five pages.  
[205] In addition, I would request the parties file written submissions, again not  
exceeding ten pages in length, in regard to the costs of the trial and the appeal.  
Those submissions are also to be filed within two weeks of the release of these  
reasons within any reply submissions to be filed within seven days thereafter. Any  
reply submissions should not exceed five pages.  
SUMMARY  
[206] In summary therefore, I would allow the appeal as set out above. I would  
make the following orders:  
     
McKnight v. Hutchison  
Page 63  
a) The award for equitable compensation of $476,258.59 is set aside;  
b) Mr. Hutchison’s claim for expenses is increased by $5,903.  
c) The punitive damage award is reduced to $50,000.  
d) The conversion claim is reduced to $21,427.02.  
e) The interest awards other than the interest award on punitive damages  
are set aside.  
f) Mr. McKnight is entitled to judgment against Mr. Hutchison in the sum of  
$17,800.11 plus prejudgment interest from November 8, 1999.  
[207] The final order governing disposition of the appeal will be held in abeyance  
pending receipt and consideration of the requested written submissions.  
The Honourable Mr. Justice Goepel”  
I AGREE:  
The Honourable Mr. Justice Butler”  
I AGREE:  
The Honourable Mr. Justice Voith”  


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission