Backman v. R., 99 DTC 5602, [1999] 4 CTC 177 (FCA), aff'd 2001 DTC 5149 (SCC)

Rothstein J.A.:

Issue

The broad question in this appeal from the Tax Court of Canada (Rip J.T.C.C.) is whether the appellant is entitled to claim his proportionate share of certain “partnership” losses for his 1988 taxation year. The answer to this question depends upon whether the appellant’s relationship with others when the losses arose was as a partner in a partnership.

Proceedings Leading to the Appeal

By notice of reassessment dated August 10, 1993, the Minister of National Revenue (Minister) disallowed the partnership losses claimed by the appellant. The appellant filed a Notice of Objection but the Minister confirmed the reassessment on November 23, 1994. The appellant appealed to the Tax Court of Canada.

Before the Tax Court, the Minister challenged the entitlement of the appellant to deduct the partnership losses on five grounds, four of which the learned Tax Court Judge, in very comprehensive reasons, did not accept. First, the learned Judge found the transactions entered into by the appellant were not a sham. He also found the building, the sale of which gave rise to a portion of the losses the appellant wished to claim, had originally been acquired some years earlier by the partnership for the purpose of gaining or producing income and that the property was therefore depreciable property for the purposes of paragraph 13(21)(b) and subsection 20(16) of the income Tax Act [1] and paragraph 1102(1)(c) of the Regulations which permit the claiming of a terminal loss on the disposition of depreciable property. Third, the Tax Court Judge rejected the Minister’s submissions that the transactions were legally ineffective. Fourth, he found that subsections 245(1) and 55(1), pertaining to the artificial creation of losses, did not apply to the transactions in question.

The Income Tax Act, supra, does not provide a definition of “partnership”, nor is there federal partnership legislation analogous to that for cor- porations under the Canada Business Corporations Act - [2] Judge Rip considered the definition of partnership in the common law provinces, namely, “the relationship that subsists between persons carrying on business in common with a view to profit”. [3] In Texas, where the partnership was registered, the definition of partnership “is an association of two or more persons to carry on as co-owners of a business for profit”. [4] The learned Judge concluded:

There is no significant difference in the definition of a partnership contained in these Texas statutes and the various provincial statutes: all require a relationship or an association between persons carrying on activity with a view to or for profit.

The learned Judge found that the appellant and the others with whom he had a relationship were not carrying on business in common with a view to profit and that therefore, there was no partnership. Because the relationship was not one of partnership, he found that the appellant was not entitled to deduct losses under section 96 of the Income Tax Act, which deals with taxation in relation to partnerships, in computing his 1988 taxable income. The appellant’s appeal was dismissed.

The only issue in this Court is whether the appellant was a partner in a partnership. If so, he may claim the losses in question; if not, the appellant may not deduct losses under section 96 of the Income Tax Act. The Minister did not cross-appeal or argue any of the grounds rejected by the learned Tax Court Judge.

Facts

In 1985, a limited partnership was created by U.S. residents under the laws of Texas, called, “The Commons at Turtle Creek Ltd.” (Commons). The limited and general partners were not Canadians (the Americans). The Commons acquired land and constructed an apartment building on the land (the Dallas Apartment Complex). The land cost was US$2,027,361 and the construction cost was US$6,696,021. In August 1988, the fair market value of the land was appraised at US$1,600,000 and the building at US$3,400,000.

The appellant is a lawyer in a large Calgary law office. In the summer of 1988, the appellant and one of his law partners ascertained from a real estate agent that for US$180,000, through a series of transactions, they could acquire and realize the losses arising from the difference between the original cost in 1985 and the August 1988 market value of the Dallas Apartment Complex which they could then use as deductions in computing their Canadian taxable income.

In order to secure the losses, the appellant and thirty-four other Canadians (his law partners and some other persons) and an Alberta corporation (all, the Canadians), arranged to become assignees of the interests of the original U.S. partners in the Commons. The Canadians paid the U.S. partners US$140,000 for assignments of their interests, US$4,000 in respect of certain legal fees, and US$36,000 in commission to the agent.

A series of transactions took place on August 29, 1988 which were intended to secure the losses to the Canadians all according to a predetermined closing agenda:

1) 2:40 p.m. The Commons granted an option to acquire the Dallas Apartment Complex to a new limited partnership, the Commons XXII Limited (Commons XXII) consisting of the same U.S. limited partners as the Commons and a new U.S. general partner.

2) 2:40 p.m. The Commons XXII granted an option to the Commons to acquire the Dallas Apartment Complex for US$10,600,000. This option was to expire on December 1, 1991 or earlier if the Commons XXII sold the Dallas Apartment Complex to another party.

3) 2:58 to 4:21 p.m. A series of amendments to the Commons partnership agreement and assignments providing for the reaffirmation of the Commons as a continuing partnership, and the staggered assignment of the partnership interests of the Americans to the Canadians, resulting in the admission of the Canadians to the Commons and the withdrawal of the Americans from the Commons.

4) 4:24 p.m. Purchase by the Commons of an interest in an oil and gas property in Canada for Cdn$5,000.

5) 4:41 p.m. Commons XXII exercised its option to acquire the Dallas Apartment Complex from the Commons.

6) 4:46 to 4:51 p.m. Dallas Apartment Complex and all other assets of the Commons (other than the Canadian oil and gas property) transferred from the Commons to Commons XXII by general warranty deed, blanket conveyance, bill of sale and assignment, and assignment of leases.

The transactions were intended to result in:

1) the Canadians becoming partners (99.97% general partnership interests and .03% limited partnership interest) in the ongoing Commons limited partnership by assignment of partnership interests from the Americans for a total cost of US$180,000.

2) disposition of the Dallas Apartment Complex by the Commons resulting in the acquisition and realization of accounting losses to the Canadians which the Canadians could then use as deductions in computing their Canadian taxable income for 1988 under section 96 of the Income Tax Act;

3) acquisition of a one percent interest in a Canadian oil and gas property at a cost of Cdn$5,000.

In the 1988 taxation year, the Tax Court Judge found that each of the Canadians was allocated his proportionate percentage of the following amounts arising from the sale of the Dallas Apartment Complex by the Commons and in respect of the Canadian oil and gas property. In the appellant’s case, this was 2.60156 percent of the following amounts.

(Canadian dollars)

	Partnership
	Gross Amount
Terminal Loss - Dallas Apartment Complex	$5,869,631.00
Operating Losses - Dallas Apartment Complex	53,176.00
Operating Losses - Canadian Oil and Gas Property	240.00
Total Business Loss	$5,923,047.00
Additions to Cumulative Canadian Oil and Gas
Property Expense	4,000.00
Additions to Class 41 Assets (not eligible for invest
ment tax credits)	1,000.00
Capital Loss on Sale of Land (Component of the
Dallas Apartment Complex)	561,676.00
Capital Gain on Foreign Exchange on Repayment of
Debt	$ 845,032.00

Analysis

I. Was Profit Sharing an Ancillary Purpose?

(i) The Principle Enunciated in Continental Bank

As indicated, the learned Tax Court Judge found that the relationship subsisting between the Canadians was not that of carrying on business in common with a view to profit and therefore, they were not in a partnership with respect to the ownership of the Dallas Apartment Complex and not entitled to deduct losses under section 96 of the Income Tax Act.

There is no doubt that the objective of the series of transactions entered into by the appellant and the Commons was to dispose of the Dallas Apartment Complex and acquire and realize losses that would be deductible for Canadian income tax purposes. However, that does not negate the possibility that carrying on business in common with a view to profit may be an ancillary purpose. In Continental Bank of Canada v. /?. [5] , Bastarache J., speaking for a unanimous court on this point, although in dissent in the result, stated at paragraph 43:

Simply because the parties had the overriding intention of creating a partnership for one purpose does not, however, negate the fact that profit-making and profit- sharing was an ancillary purpose. This is sufficient to satisfy the definition in s. 2 of the Partnerships Act in the circumstances of this case. At pp. 10-11, Lindley & Banks on Partnership makes the following observation:

if a partnership is formed with some other predominant motive [other than the acquisition of profit], e.g.., tax avoidance, but there is also a real, albeit ancillary, profit element, it may be permissible to infer that the business is being carried on “with a view of profit.” If, however, it could be shown that the sole reason for the creation of a partnership was to give a particular partner the “benefit” of, say, a tax loss, when there was no contemplation in the parties’ minds that a profit ... would have derived from carrying on the relevant business, the partnership could not in any real sense be said to have been formed “with a view of profit”.

The first question is whether, once the Canadians became members of the Commons, there was any business being carried on with a view to profit which was ancillary to their tax minimization objective.

(H) The Dallas Apartment Complex

In Continental Bank of Canada, the reassessed taxpayer was a member of the partnership for only three days, during which profit was earned and $130,726 was distributed to the taxpayer. As stated by Bastarache J. at paragraph 44:

This is not a case where the disentitlement of one partner to a share of the profits was agreed to by the parties; nor is it a case where no profits were anticipated during the term of a partner’s involvement. During the period in which Leasing and the Bank were partners in the business, the Partnership earned a profit from its leasing operations and that profit was distributed at year end.

Here, once the Canadians acquired their interests in the Commons, the Dallas Apartment Complex was owned for only minutes before it was disposed of in accordance with the option granted to the Commons XXII and according to the predetermined closing agenda. No profit generated by the Dallas Apartment Complex on August 29, 1988 or at any other time was earned by the Canadians and thus no distribution of any profit took place to the appellant. Unlike the facts in Continental Bank of Canada, with respect to the Dallas Apartment Complex, no profits were anticipated for the short period between the time the Canadians acquired their interests in the Commons and the disposition of the Dallas Apartment Complex.

The facts of the case at the bar are clearly different from those in Continental Bank of Canada. Indeed the facts are exactly those which Bastarache J. sought to distinguish in Continental Bank of Canada. Here, there was an agreement that the Canadians would not share in the profit of the Dallas Apartment Complex. No profit was anticipated during the term of the Canadians’ involvement with the Dallas Apartment Complex. In the few moments the Canadians became members of the Commons and up to the time the Dallas Apartment Complex was disposed of, the Canadians were not carrying on the business of the Dallas Apartment Complex with a view to profit.

(iii) The Option to Re-acquire the Dallas Apartment Complex

There is no explanation in the evidence of the reason for the Commons XXII granting an option to the Commons to acquire the Dallas Apartment Complex for US$10,600,000 up to December 1, 1991. The price is more than double the fair market value on August 29, 1988 and there was no restriction on the Commons XXII from selling the Dallas Apartment Complex to any other purchaser for any price while the option was outstanding. In an opinion from the Texas firm of Johnson, Bromberg & Leeds dated January 20, 1989, pertaining to the possible liability for U.S. income tax by the Canadians, the following assumption is set forth:

(2) The only assets of the Partnership are the Oil Properties and the Second Option, and the Partnership will not exercise, sell or otherwise dispose of the Second Option (other than upon its expiration in accordance with its terms) and the Partnership will not maintain an office or other fixed place of business in the United States or actively manage its properties or otherwise conduct business in the United States.

There is no evidence that this assumption was mistaken. The only inference to be drawn is that the Canadians did not have the intention of exercising the option for the Dallas Apartment Complex.

(iv) Foreign Exchange Gain

The Minister reassessed the Canadians for a foreign exchange gain with respect to the August 29, 1988 transactions. The appellant says the Minister is treating the Canadians as partners for purposes of the foreign exchange gain but not for purposes of the losses claimed by them. [6] The Tax Court Judge found that, “There is no evidence the Canadians considered a foreign exchange gain when they entered into this venture”. The foreign exchange gain was not profit from the carrying on of a business. It could not be as the Dallas Apartment Complex was not involved in foreign exchange transactions. The Commons and the Canadians were not in the foreign exchange business. The foreign exchange gain was incidental to the disposition of the Dallas Apartment Complex and is not evidence of the carrying on of a business in common with a view to profit.

(v) The Oil and Gas Property

With respect to the Canadian oil and gas property, the learned Tax Court Judge found that the appellant could not rely on this investment to support the argument that he and the other Canadians were carrying on business in common with a view to profit. He found that the appellant and the Canadi- ans intended nothing other than to obtain a tax loss. At page 34 of his reasons, he states:

There is no question in my mind that the appellant and the other Canadians entered into the Turtle Creek Series of Transactions to acquire a potential tax loss. This was their sole purpose.

He determined that the oil and gas investment was only “window dressing”. At page 36 of his reasons, he states:

In the appeal at bar, as well, neither the appellant nor any of the Canadians intended anything other than to obtain a tax loss for the venture. The purchases of the Canadian Oil and Gas Property and the Montana Condominium were nothing more than window dressing. Their expectation of income from these two properties was minimal, never even approaching the amount of the loss that they hoped to deduct from their income. The relationship subsisting between the Canadians was not that of carrying on business in common with a view to profit. The Canadians were not associated to carry on a business for profit.

What the Canadians acquired for $5,000 was a one percent working interest in certain petroleum and natural gas rights and the tangibles and the miscellaneous interests. There is no other evidence of any type of involvement with the oil and gas investment by the Canadians. Indeed, in the fall of 1988, the property was flooded and eventually was shut in. No profit was ever earned by the Canadians from this investment. There was vague oral evidence from the appellant that the Canadians expected to earn a profit of $1,000 to $1,500 per year from the oil and gas investment:

[The appellant:] Well, Allan Ross and myself were the ones that spoke to one of our other colleagues, Adrian Phillips, who had a company, which I believe was called Hydrostatic Resources or a name to that effect. It owns oil and gas interests. We were generally advised that there was a producing well. The price of oil and gas properties generally is determined based on the income from the well, so the income from the well probably would have been in the order of $1,000 to $1,500 a year and that would have derived the $5,000 purchase price.

Q. And that was what you reasonably expected is $1,000?

A. Probably in the order of 1,000 to $1,500.

There were no financial statements or other financial documentation pertaining to the oil and gas investment. In view of the Tax Court Judge’s opinion that acquiring a tax loss was the sole purpose of the Canadians and that the oil and gas property was “window dressing”, it is obvious he did not accept this as evidence of the carrying on of a business in common with a view to profit.

However, even if this may be evidence of an intention for profit, it is not evidence that the Canadians were carrying on a business with respect to the oil and gas investment. It is well established that the mere co-ownership of property is not, on its own, evidence of carrying on of a business. [7] Here, the evidence is that there was a company operating the property. The appellant did not remember the name of the company. The company was not one of the Canadians associated with the appellant in the Commons. I think the appellant would have to have introduced some further evidence to support the suggestion that the investment of $5,000 for a one percent working interest in the oil and gas property constituted the carrying on by the Canadians of a business in common with a view to profit. Indeed, although the oil and gas property was raised in oral argument, in his memorandum of fact and law, the appellant did not advance the oil and gas investment as evidence that the definition of partnership was met by the Canadians.

(vi) The Montana Condominium

The Montana Condominium was acquired on December 29, 1989, almost one and a half years after the relevant transactions. There is little evidence relative to it other than it never earned a profit and that its appraised value in 1996 exceeded its acquisition cost. There is no evidence of any intention by the Canadians, in 1988, when they entered the Commons, to acquire the Montana Condominium or to carry it on as a business with a view to profit. The relevance of the Montana Condominium for purposes of determining whether, in 1988, the Canadians were partners in a partnership is not evident. As with the oil and gas interest, the appellant’s written memorandum does not include an argument based on the Montana Condominium as evidence of an ancillary profit element at the relevant time.

(vii) The Documents

There is no doubt that a series of documents were carefully prepared with the intention that the Commons should continue as a limited partnership and that the Canadians should become general and limited partners in it. Having regard to the documents alone, one would conclude that the Canadians succeeded.

However, the facts are that there was no business carried on by the Commons after the Canadians took up their assignments. Unlike Continental Bank of Canada, there were no profits generated or distributed to the Canadians. In Continental Bank of Canada, Bastarache J. noted that parties may enter into a partnership for a single transaction. However, there must still be compliance with the definition of partnership. At page 6518 he states:

As long as the parties do not create what amounts to an empty shell, that does not in fact carry on business, the fact that the partnership was created for a single transaction is of no consequence

Similarly, as long as the definition in s. 2 of the Partnership Act is satisfied, a person is permitted to create a partnership for the purpose of using s. 97(2) of the Income Tax Act. It is recognized that the definition of a partnership requires that business actually be carried on and that there is no such requirement for a corporation. However, that does not detract from the principle that a person should be permitted to create a partnership for a single transaction.

In the case at bar, insofar as the Canadians’ involvement was concerned, the Commons was an empty shell that did not actually carry on business. Once the Canadians became members of the Commons, all that transpired was a series of transactions leading to the disposition of the Dallas Apartment Complex and the acquisition of the Canadian oil and gas property. As already determined, they did not carry on a business in common with a view to profit in respect of either the Dallas Apartment Complex or the oil and gas property.

In Continental Bank of Canada, Bastarache J. instructs that the existence of a partnership is dependent on the facts and circumstances of each particular case. At page 317 he states:

The existence of a partnership is dependent on the facts and circumstances of each particular case. It is also determined by what the parties actually intended. As stated in Lindley &. Banks on Partnership (17th ed., 1995), at p. 73:

In determining the existence of a partnership ... regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case.

In A.E. Lepage v. Kamex Developments Ltd., supra, Blair J.A. found that whether or not a partnership exists “depends on their intention as disclosed by all the facts of the case” [8] . In this case, whether a partnership exists cannot be determined by exclusive reference to the documents. All the facts must be considered and when they are, it is apparent that the definition of partnership was not satisfied. [9]

(viii) Conclusion as to Whether Profit Sharing was an Ancillary Purpose

1 conclude that when they were members of the Commons, neither the Dallas Apartment Complex nor the oil and gas investment were businesses being carried on for profit by the Canadians. Accordingly, unlike the facts in Continental Bank of Canada, there was “no real, albeit ancillary profit element” to permit the inference that a business was being carried on with a view to profit in order to satisfy the definition of partnership.

2. Were the Canadians Partners by Reason of Assignment of Partnership Interests in the Commons?

Does the “no ancillary profit sharing purpose” conclusion inevitably mean that the Canadians were not in partnership after they acquired their interests in the Commons? The Canadians were assignees of partnership interests. The respondent concedes that the Commons was a valid limited partnership prior to the Canadians acquiring their interests. Could the assignment of partnership interests in the Commons to the Canadians constitute them as partners in a partnership even though their association did not meet the definition of partnership?

(i) The Expert Evidence

In evidence before the learned Tax Court Judge was the December 10, 1996 opinion of Alan R. Bromberg, Professor of Law at Southern Methodist University and counsel to the firm of Jenkins & Gilchrist. Among other qualifications, Professor Bromberg is the author of texts and articles on partnership and wrote substantial parts of the Texas partnership statutes. With respect to the Commons, Professor Bromberg was of the opinion that under Texas law, the Commons was a valid partnership when the Canadians entered and that they became partners in the Commons. At paragraphs 3.15 and 4 of his opinion, he states:

3.15 A limited partnership is created by compliance with statute TUPA s. 3. Once validly created, the Commons remained in existence and valid as a limited partnership despite changes in its operations, members or stated business until dissolved, wound up and terminated. TUPA s.30, TULPA 25(a). See Alan R. Bromberg, Partnership Dissolution: Causes, Consequences and Cures, 43 Texas Law Review 631, 640-644 (1965). Dissolution did not occur in the course of the situation.

4. Conclusion Since all of the described steps were authorized and none of them dissolved the partnership: (1) the Commons is a valid partnership at the time the Canadian residents acquired their interests; (2) the Canadian residents became partners in the Commons. This conclusion is based on the assumptions and subject to the limitations described in Part V below.

(ii) The Conclusion of the Trial Judge

The learned Trial Judge rejected Professor Bromberg’s opinion. At page 36 of his reasons he states:

I find the Canadians were not partners with respect to ownership of the Dallas Apartment Complex. My conclusion is not in accord with Professor Bromberg’s opinion. However, nowhere in his opinion does Professor Bromberg consider whether the Canadians were carrying on “a business for profit”. The Federal Court of Appeal has held that, in Canada, carrying on business with a view to profit is an important element in determining whether a person qualifies as a partner. Absent this element, there is no partnership for the purposes of the Act.

The learned Tax Court Judge found that the taking of assignments of partnership interests did not assist the Canadians. The fact that the Commons was a limited partnership and that there was technical compliance with the requirements of the applicable Texas statute could not overcome the fact that the definition of partnership was not satisfied. At page 37 he states:

It was argued by appellant’s counsel that the Canadians, unlike the taxpayers in Continental Bank, did not create the partnership but acquired interests in an existing partnership. This distinction does not assist the appellant. Even though the Commons was a limited partnership and the Canadians followed the requirements of the applicable statute in acquiring the partnership interests, there did not subsist between the Canadians a relationship for carrying on a business with a view to profit, the definition of partnership. The relationship must exist between partners whether they create a new partnership or they are admitted to an existing partnership. It does not matter if the partners are limited partners or if they are general partners.

(iii) The Opposing Views

The crux of this issue is whether, when the Canadians took assignments of interests in the Commons, they became partners in the Commons. Professor Bromberg says the carrying on of business for profit is irrelevant as there was no dissolution and winding-up. The learned Trial Judge was of the opinion that the Canadians did not become partners in the Commons because they were not carrying on business for profit, a requirement of the definition of partnership.

(iv) The Relevant Law

The Commons was a limited partnership registered in Texas. The applicable law is that of the State of Texas. In Spire Freezers Ltd. v. R., Court File A-899-97 F.C.A. May 25, 1999, [reported, [1999] 3 C.T.C. 476 (Fed. C.A.)] Linden JA. for the majority wrote at paragraph 19 of his reasons:

Since the Income Tax Act does not define partnership, the law of the jurisdiction involved is the basis on which any claim of partnership must be founded. In that case, the jurisdiction was California.

Robertson JA., at paragraph 20 of his reasons in dissent, refers to the decision of the Tax Court Judge to the same effect:

The Tax Court Judge acknowledged that the creation and dissolution of the partnership had to be determined by reference to California law.

See also Couzin, “The Law of Partnership and The Taxation of Partners” in Partnership Taxation (Insight Press, 1989) at page 1 and Dale v. R. (1997), 97 D.T.C. 5252 (Fed. C.A.), at 5255 (Per Robertson J.A).. It is therefore necessary to determine the question of whether the Canadians were partners in the Commons according to the law of Texas.

(v) Evidence of Texas Law

Professor Bromberg’s opinion is that there was no dissolution of the Commons and as all documentary and procedural requirements were met, the Canadians became partners in the Commons. On the question of compliance with the definition of partnership and whether compliance is necessary in Texas for a person to be considered a partner, there is little evidence. Professor Bromberg does not address the issue in his main opinion. It appears the issue came up between counsel and by letter dated January 8, 1997, appellant’s counsel wrote respondent’s counsel advising:

You had asked me to enquire of Mr. Bromberg whether, in formulating his opinion, he considered whether the partnership had a reasonable expectation of profit. Mr. Bromberg advises that he did not put his mind to the question because this was not a relevant consideration in arriving at his opinion.

It is not entirely clear why Professor Bromberg considered the business for profit test to be irrelevant. One possibility is that in his view, it simply is not a requirement that limited partnerships meet the definition of partnership in the Texas Uniform Partnership Act. A second is that compliance with the definition is required upon creation of a limited partnership but not thereafter on a continuous basis. If so, persons may become partners by admission or the taking of assignments from former partners even if they are not carrying on business in common for profit. A third is that the facts pertaining to the issue were not placed before Professor Bromberg when he formulated his opinion. There may be other reasons why Professor Bromberg did not consider the issue relevant.

However, the case before this Court turns on this very issue. Even in Canadian law, resolution of the issue is not obvious. The Trial Judge in this case came to the conclusion that compliance with the definition was a requirement. In Central Supply Co. (1972) Ltd. v. R., [1995] 2 C.T.C. 2320 (T.C.C.), Bell J. came to the opposite conclusion.

I am unable to say, from the evidence of Texas law in the record before this Court, whether compliance with the definition of partnership in the Texas Uniform Partnership Act was or was not a requirement when the Canadians took assignments of interests in the Commons. Even if Professor Bromberg’s opinion could be construed to the effect that compliance with the definition was not a requirement under Texas law, the explanation provided is far from sufficient for the opinion to be accorded significant weight.

I acknowledge Professor Bromberg’s reference in his main opinion to provisions of the Texas Uniform Partnership Act and Texas Uniform Limited Partnership Act which support his conclusion that once created, a limited partnership remains in existence despite changes in its operation, members or stated business until dissolved, wound-up, and terminated. However, what we have here is something different than a change of operation, membership or stated business. In the case at bar, we have an unusual situation, persons purporting to become general and limited partners but not carrying on as co-owners of a business for profit. Therefore, it is a legitimate inquiry as to whether under Texas law, a new person may become a general or limited partner and whether a limited partnership continues to exist when there is noncompliance by the new persons with the definition of partner- ship. The answer to this question may be implicit in Professor Bromberg’s opinion. However, for this Court to accept that Texas law does not require compliance with the definition of partnership in the circumstances of this case, obliges the expert to provide more than has been provided here. I think the words of Mahoney J.A. in R. v. Capitol Life Insurance €0. [10] are apt in these circumstances:

...the witness in that case [Westgate v. Harris, [1929] 4 D.L.R. 643 (Ont. C.A.)], in the course of oral examination, expressed a conclusion without reasons or authority supporting it. In context, the court has said no more than what is straight law: the weight to be given expert evidence is a matter for the trier of fact and an expert’s conclusion which is not appropriately explained and supported may properly be given no weight at all. A lawyer’s bare opinion, without supporting and explanatory references to legislation and decisions, is no more likely to prove foreign law to the satisfaction of the Court than, for example, the bare opinion of a land appraiser, without reference to comparable properties and transactions, will satisfy it as to the value of a parcel of land.

On the basis of the evidence of Texas law provided by Professor Bromberg, I am not prepared to conclude that Texas law does or does not recognize that a previously valid limited partnership in which general and limited partnership interests have been assigned to persons who are not carrying on as co-owners of a business for profit continues as a partnership, or that the assignees have become partners.

(vi) Application of Canadian Law in Lieu of Proof

Where foreign law is relevant to a case, it is a question of fact which must be specifically pleaded and proved to the satisfaction of the Court. [11] Professor J.-G. Castel has summarized the effect of the failure of a party to establish foreign law as a fact before the Court:

If foreign law is not pleaded and proved or is insufficiently proved, it is assumed to be the same as the lex fori. This seems to include statutes as well as the law established by judicial decision. [12]

Professor Castel acknowledges that some Canadian courts have been reluctant to apply the presumption that the law of the foreign jurisdiction is the same as that of the forum, where the law of the forum is a statute. [13] However in “Mercury Bell” (The) v. Amosin, [14] Marceau J.A. held that the salient distinction is not whether the law of the forum is statutory or common law:

What has appeared constant to me, however, in reading the cases, is the reluctance of the judges to dispose of litigation involving foreign people and foreign law on the basis of provisions of our legislation peculiar to local situations or linked to local conditions or establishing regulatory requirements. Such reluctance recognizes a distinction between substantive provisions of a general character and others of a localized or regulatory character; this distinction, a distinction, formally endorsed I think by Cartwright J. in the two passages I have just quoted, is wholly rational which is more than can be said of a simple division between common law and statute law J 5 [15] [emphasis added]

In a separate concurring opinion, Hugessen J.A. observed that even at the time when the preponderance of English law was judge-made, it was doubtful that it would have been argued that a statute of general application should not come within the rule of presumption:

My second observation relates to the suggestion, in some of the authorities, that the application of the /ex fori is limited to the common law as settled by judicial decisions and excludes all statutory provisions. Here again I think the expressions of the rule have been coloured by the historical context and go back to a time when the great body of English law was judge-made; statutes were creatures of exception, outside the general body of the law. Even at that time, however, 1 doubt that it would seriously have been argued that a statute of general application such as, for example, the Bills of Exchange Act should be overlooked, so as to oblige the court to search in the obscurities of history to determine the state of the law prior to its enactment. The proper expression of the rule, as it seems to me, is that the court will apply only those parts of the lex fori which form part of the general law of the country. [16]

I think that legislation with respect to partnerships is such an example of statutory law of general application. There is nothing intrinsically local or particular with respect to partnerships, and there is considerable uniformity in this area of law across jurisdictions.

Here, the relevant Canadian law is the law of Alberta, specifically the Alberta Partnership Act, supra. Alberta is the province in which the appel- lant works and resides and in which the Commons was registered as a limited partnership [17] .

(vii) Does the definition apply to limited partnerships?

As I previously indicated on the issue of compliance with the statutory definition, the jurisprudence in the Tax Court is divided. In this case, the Trial Judge found that compliance with the definition was necessary in order for a partnership to exist. In Central Supply Co. (1972) Ltd., Bell J. came to the opposite conclusion:

Counsel for the respondent admitted the validity of the partnerships at the outset. There is no pleading and he made no submission to the effect that they had ceased to exist yet he argued that the appellants could not become partners because there was no longer a possibility of profit when they arrived on the scene. The appellants did not form the partnerships. They complied with the statutory requirements to become members thereof at a later date. How can a person be said to be unable to become a member of an extant partnership when that person did everything required by the very legislation by virtue of which it was created, in order to become a member? With respect to the reference to Lindley, supra, it is my view that the words quoted must be read in the context of the limited partnership provisions of the Partnership Act of Alberta and in the context of a specific provision in the Act allocating deductible expenses to a taxpayer who is a member of a partnership at the end of its fiscal period and in the context of the use of such partnerships as funding vehicles created pursuant to government incentives in the oil and gas business. I [18]

Part 2 of the Alberta Partnership Act is entitled “Limited Partnerships”. Section 48 provides:

This Act shall, in the case of limited partnerships, be read subject to this Part.

I read section 48 to say that the entire Partnership Act applies to limited partnerships but other provisions of the Act will be read subject to Part 2. In other words, other provisions of the Partnership Act will apply to limited partnerships but may be displaced or modified by provisions in Part 2.

Is there anything in Part 2 that displaces or modifies the definition of partnership in section I of the Act? I would first observe that section 1 of the Act precedes Part 1 Ordinary Partnerships, Part 2 Limited Partnerships, and Part 3 General. I infer that the intention of the legislature was that the definition apply to all parts of the Act and all partnerships.

Specific provisions in Part 2 also lead to the conclusion that the definition applies to limited partnerships. Subsection 50(1) provides that a limited partnership may be formed to carry on any business that an ordinary partnership may carry on.

A limited partnership may, subject to this Part, be formed to carry on any business that a partnership without limited partners may carry on.

It is thus explicit that a limited partnership may be formed to carry on a business. There is no indication that a limited partnership may be formed for any other reason.

Subsection 51(1) provides that a limited partnership is formed when a certificate substantially complying with subsection 51(2) is filed with and recorded by the Registrar. Paragraphs 51 (2)(b) and (h) provide:

A certificate shall be signed by all the persons desiring to form a limited partnership and shall state

(b) the character of the business,

(h) the share of the profits or other compensation by way of income which each limited partner is entitled to by reason of his contribution.

Again, the legislation providing for the certificate anticipates that the limited partnership will carry on a business and that the limited partnership will produce profits or other compensation by way of income. These are conditions that are consistent with the definition of partnership.

Under section 63, a limited partner loses his limited liability if he takes part in the control of the business. In Central Supply Co. (1972) Ltd., supra, it was argued that this section implies that a limited partner is not expected to carry on business in the sense required by the definition of partnership in the Act. I do not agree. Section 63 provides:

A limited partner does not become liable as a general partner unless, in addition to exercising his rights and powers as a limited partner, he takes part in the control of the business.

In the ordinary case, a limited partnership will consist of a general partner that will control the business and limited partners who will have made financial or other contributions but who will not be actively involved in the business. However, that obviously does not mean that the limited partner ship is not carrying on a business. The business is being carried on in common by all the partners, but is controlled by the general partner.

Having regard to the application of section 1 to the entire Act and the provisions in Part 2 which refer to the carrying on of business and the sharing of profits by way of income, I conclude that the definition of partnership and, in particular, the requirement that a relationship subsist between persons carrying on a business in common with a view to profit, applies to limited partnerships.

(viii) Does the Taking of Assignments Obviate the Need to Comply With the Definition ?

Does the fact that persons purport to become partners by way of assignment of partnership interests in a previously existing valid limited partnership mean that there need not be compliance with the definition? I do not think so. Any other conclusion would result in the inconsistency that a newly created limited partnership must comply with the definition, while a previously created valid limited partnership that no longer has the attributes of the definition need not comply. I am unable to rationalize that inconsistency. Of course, the requirement to comply with the definition does not mean that a limited partnership loses its character as a partnership because of periodic or short-term losses. The definition looks to whether the business is being carried on with a view to profit and as long as there is such view to profit [19] , the definition is satisfied.

The situation was expressly dealt with in Lindley & Banks, 16th edition, at paragraph 2.05:

However, it is apprehended that if any “partner” entered the partnership solely with a view to being credited with a tax loss (or, formerly, a capital allowance), and it was contemplated from the outset that, whilst he remained a member of the firm, no profits (in the sense of net gains) would be derived from carrying on its business, he could not be said to have the requisite “view of profit” to qualify as a partner.

This passage addresses the facts of the case before this Court. The appellant entered the Commons, according to the learned trial judge, solely with a view to acquiring a tax loss. Accordingly, he would not qualify as a partner.

In paragraph 2.05 of Lindley & Banks 17th edition, the words used by the author quoted above have been changed:

If, however, it could be shown that the sole reason for the creation of a partnership was to give a particular partner the “benefit” of, say, a tax loss, when there was no contemplation in the parties’ minds that a profit (in the sense outlined above) would be derived from carrying on the relevant business, the partnership could not in any real sense be said to have been formed “with a view of profit”.

The appellant says the change in wording between the 16th and 17th editions is significant, because it focuses on the creation of a partnership rather than the entry of a partner into a partnership and that the requirement to comply with the definition is confined to the creation of the partnerships. With respect, I think the import of the words in the 17th edition is the same as in the 16th edition. This passage appears to in Part One under the title “The Nature of Partnership”. It is dealing with partnerships in general. While the reference in the 17th edition is to the creation of a partnership, when considering partnerships generally, the entry of new persons and the departure of existing partners will be considered to constitute the creation of a new partnership, provided of course, that the requisite components of the definition of partnership are satisfied. At paragraph 3.04 of Lindley & Banks, 17th edition, the following is stated:

Lord Lindley stated the orthodox legal view as follows:

The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities.

I think the words at paragraph 2.05 of the 17th edition of Lindley & Banks must be read in this context. I do not consider that the statement of the law in the 16th edition has been modified in the 17th edition.

The limited partnership provisions of the Act do provide for the assignability of limited partnership interests and the substitution of limited partners. (Section 65.) However, I do not read these provisions as giving the limited partnership some type of existence independent of the requirement to comply with the definition of partnership.

I see nothing in the limited partnership provisions of Part 2 that renders the definition of partnership inapplicable to limited partnerships or that sug- gest that compliance with the definition is only applicable when a new limited partnership is created but not when partnership interests are subsequently acquired.

Conclusion

Although the Canadians purported to become general partners in the Commons, they were not in a relationship of carrying on a business in common with a view to profit. Accordingly, they did not become general partners in the Commons. Section 66 of the Alberta Partnership Act provides that a limited partnership is dissolved with the retirement of a general partner unless the business is continued by the remaining general partners. Section 66 contemplates that there be remaining general partners to continue the business. Section 66 provides:

The retirement, death or mental incompetence of a general partner dissolves a limited partnership unless the business is continued by the remaining general partners

(a) pursuant to a right to do so stated in the certificate, or

(b) with the consent of all the remaining partners.

When the Americans assigned their interests in the Commons to the Canadians and withdrew from the Commons, there was no remaining general partner to continue any business of the Commons. What occurred here was the dissolution of the Commons with the withdrawal of the Americans as general partners. At that point, the Commons became nothing more than a collection of co-owners of property.

I conclude that the appellant was not a partner in a partnership when the Commons disposed of the Dallas Apartment Complex. The appeal will be dismissed with costs.

Appeal dismissed.