Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether All-Fab validly exercised its call option under the partnership agreement to purchase KenCo’s units.

• Primary legal issue involved whether All-Fab was required to use the power of attorney provision to complete the transaction when KenCo refused.

• KenCo argued that failure to use the power and tender funds invalidated the call option and revived its own put option rights.

• The irrevocable power of attorney in article 4.20(g) was deemed a "power of attorney with an interest" but its use was held to be optional.

• The valuation date significantly impacted unit value—approximately $1 million—creating opposing interests tied to notice timing.

• The Court of Appeal upheld the application judge’s finding that All-Fab’s call notice was valid, and dismissed the appeal with costs.

Facts of the case

10008480 Manitoba Ltd. (KenCo), a limited partner in All-Fab Building Components LP (All-Fab), held partnership units through its principal, Kenneth Friesen, who was employed by All-Fab until his termination without cause on July 7, 2021. Under the limited partnership agreement dated August 31, 2019, Friesen’s termination triggered All-Fab’s irrevocable call option to purchase KenCo’s partnership units.

On November 5, 2021, All-Fab issued a call notice to KenCo pursuant to article 4.19, initiating the purchase of KenCo’s units. All-Fab provided documents to close the transaction under article 4.20. KenCo, however, rejected the transaction, expressing dissatisfaction with the valuation and settlement documents, and refused to proceed. As a result, All-Fab did not tender funds on the closing date, considering it futile.

KenCo later attempted to exercise its own put option on February 1, 2022, claiming All-Fab’s failure to complete the transaction invalidated the earlier call. However, the application judge found All-Fab had already validly exercised its call option and that the put option was no longer available under the agreement.

Key contractual provisions and policy terms

Articles 4.19 and 4.20 of the partnership agreement governed the mechanics of exercising the call and put options. Article 4.20(g) contained an irrevocable power of attorney clause, appointing the general partner as attorney for KenCo to execute closing documents if KenCo failed or refused to do so. Article 7.3 required the general partner to act in the best interests of the partnership, with care and good faith.

The Court found that article 4.20(g) created a “power of attorney with an interest,” a legal construct that allows the donee (All-Fab) to act in its own interest to complete a transaction when the donor (KenCo) defaults. Nonetheless, the Court concluded that the use of this power was optional, not mandatory. The agreement's language and legal principles supported the interpretation that All-Fab was permitted—but not obligated—to act on KenCo’s behalf.

Outcome of the decisions

The application judge held that All-Fab’s call notice was valid and that it was not required to tender funds when KenCo had already refused to close. On appeal, KenCo argued that All-Fab’s failure to use the power of attorney invalidated its call option. The Manitoba Court of Appeal disagreed, holding that the power was discretionary and that All-Fab had validly waived its use by relying on KenCo’s refusal.

While the Court of Appeal acknowledged that the application judge had erred in his understanding of the legal principles surrounding powers of attorney with an interest, it concluded the error was not material. Applying the correct legal principles would have led to the same outcome: All-Fab’s call option remained valid. The appeal was dismissed, and tariff costs were awarded to All-Fab. No specific monetary amount for damages or costs is stated in the appellate decision.