On November 29, 2024, the Court of King’s Bench of Manitoba in WSIB Investments (Infrastructure) Pooled Fund Trust v. Plenary Group (Canada) Ltd., awarded over $259 million to the plaintiffs (an employee pension fund and injured workers fund). The defendant, a public infrastructure developer, was found to have breached its fiduciary duty to the funds by selling en masse its entire business and prepaying its long-term loans. Ultimately, the Court held that collective actions of jointly controlled fiduciaries, corporate entities, and individuals can result in joint liability where all are held to account, regardless of whether it is through breach of fiduciary duty, knowing assistance or knowing receipt.
The plaintiffs involved were WSIB Investments (Infrastructure) Pooled Fund Trust (owned by the Workplace Safety and Insurance Board of Ontario) and 1697125 Ontario Inc. (owned by the Colleges of Applied Arts and Technology Pension Plan). In order to meet their payment obligations to their beneficiaries, the plans partnered with the defendant, Plenary Group, in 2010 to invest in P3s – public infrastructure projects. Under their partnership, the plaintiffs were limited partners, contributing a predetermined amount of capital and the Plenary Group, as general partner, would borrow money from the plaintiffs for its related entities to invest into P3 projects.
The dispute arose when the Plenary Group sold its business in 2020 and terminated its 10-year old partnership with the plaintiffs. To facilitate this sale, the Plenary Group arranged to have all loans with the plaintiffs repaid based on a provision in the loan agreements that allegedly allowed them to do as such so long as it was accompanied by five days’ notice. In response, the plaintiffs claimed that the surprise sale breached both its partnership with the plaintiffs and the fiduciary duties that the Plenary Group owed to them.
The trial judge, siding with the plaintiffs, held that the partnership agreements did not permit prepayment of “loans en masse for reasons unconnected to the loan itself or the project it funds.” The trial judge found that the repayment was contrary to the essence of the arrangement between the plaintiffs and defendant developer which was intended to be an exclusive, long-term investment partnership, providing reliable equity funding and long-term stable cashflows for the plaintiffs.
The Plenary Group was also held to have “expressly” undertook fiduciary duties to the plaintiffs in their partnership and the en masse prepayments represented a breach of such duties. Further to this finding, the Plenary Group’s entities, officers, and directors were found liable for knowingly assisting in the breaches of fiduciary duty and in knowing receipt for receiving and profiting from the portion of the proceeds from the sale transaction. The trial judge agreed that disgorgement was the appropriate remedy calculated exclusively by reference to the defendants’ wrongful gain, irrespective of whether it corresponds to damage suffered by the plaintiffs.
The court reiterated that disgorgement may be directed to either or both of the following purposes:
- A prophylactic purpose, where a fiduciary appropriated any benefit or gain received where there existed a conflict of personal interest in fiduciary duty, or significant possibility of such conflict: the object is to deter fiduciary faithlessness and preserve the integrity of the fiduciary relationships.
- A restitutionary purpose: to restore the beneficiary profit which properly belongs to the beneficiary, but which was wrongfully appropriated by the fiduciary in breach of the fiduciary’s duty.
Ultimately, the Court ordered a disgorgement of $259,990,657 representing a portion of the proceeds from the sale of the Plenary Group and also granted to the plaintiffs a constructive trust for this amount.
Takeaway
While not squarely a fraud case, this decision is an important reminder of the fiduciary duties owed by general partners to their limited partners and the consequences that arise when general partners and their related entities opt to elevate their own interests over those of their limited partners. It also demonstrates the power of disgorgement as a remedy for this type of misconduct.