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,