



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Schlenker v. Torgrimson,









2013 BCCA 9




Date: 20130111

Docket: CA039685

Between:

Norbert Fred
Schlenker, Ted Bartrim,
Alison Mary Cunningham, Harold Derek Hill,
Malcolm George Legg, Dietrich Luth,
Victoria Linda Mihalyi and Mark Lyster Toole

Appellants

(Petitioners)

And

Christine
Torgrimson and George Ehring

Respondents

(Respondents)






Before:



The Honourable Mr. Justice Donald





The Honourable Madam Justice Newbury





The Honourable Mr. Justice Hinkson




On appeal from: Supreme
Court of British Columbia, January 13, 2012
(
Schlenker v. Torgrimson
, 2012 BCSC 41, Victoria Docket 11-4036)




Counsel for the Appellants:



L. J. Alexander and
  A. L. Faulkner-Killam





Counsel for the Respondents:



F. V. Marzari





Place and Date of Hearing:



Victoria, British
  Columbia

November 26, 2012





Place and Date of Judgment:



Vancouver, British
  Columbia

January 11, 2013









Written Reasons by:





The Honourable Mr. Justice Donald





Concurred in by:





The Honourable Madam Justice Newbury

The Honourable Mr. Justice Hinkson








Reasons for Judgment of the Honourable
Mr. Justice Donald:

[1]

Elected officials must avoid conflicts of interest.  The question on
appeal is whether the respondents were in a conflict when they voted to award
two service contracts to societies of which they were directors.  In the words
of s. 101(1) of the
Community Charter
, S.B.C. 2003, c. 26, did they have
a direct or indirect pecuniary interest in the matter[s]?

[2]

The chambers judge found they did not have such an interest because they
derived no personal financial benefit from the contracts.

[3]

With respect, I disagree with the judges opinion.  His view of the
matter comes from too narrow a construction of the enactment.  In my judgment,
the pecuniary interest of the respondents lies in the fulfillment of their fiduciary
obligation to their societies.  When they voted for the expenditure of public
money on the two contracts, which master were they serving, the public or the
societies?  In these circumstances, a reasonable, fair-minded member of the
public might well wonder who got the better bargain.

[4]

The respondents brought preliminary motions to quash the appeal for
mootness and lack of standing of the appellants to maintain the appeal.  I
would not accede to either motion.

[5]

The penalty for conflict is disqualification until the next election. 
While disqualification from office is in this case no longer a practical remedy
because of the passage of time, the issues on appeal affect the public interest
generally and should be decided.  On the standing motion, fewer than ten
electors, the minimum number required to support a petition alleging a conflict
of interest, participated in the appeal.  The petition, however, was brought by
the requisite number of electors.  There is no rule requiring the same number
to bring a valid appeal.

[6]

I would allow the appeal and declare that the respondents violated the
Community
Charter
.

Factual Background

[7]

In November 2008, the respondents were elected as trustees for the Salt
Spring Island Local Trust Area.  They, and a resident from another Gulf Island,
comprised the Local Trust Committee (LTC) for Salt Spring Island.  An LTC is a
statutory corporation within the scheme of the
Islands Trust Act
,
R.S.B.C. 1996, c. 239, having local government responsibility for land use
planning and regulation for the particular island in question.

[8]

The respondents were active in environmental issues: the respondent
Torgrimson with the Water Council, and the respondent Ehring with the Climate
Action Council.  Both unincorporated bodies received funds from the LTC for
various activities associated with their environmental causes.  No issue is
taken with the LTC resolutions authorizing those expenditures.

[9]

On 20 April 2011, the respondents, along with three others, incorporated
the Salt Spring Island Water Council Society.  On 4 July 2011, the respondents,
with three others, incorporated the Salt Spring Island Climate Action Council
Society.  The respondents were directors of the Societies at the material time.

[10]

The appellants are Salt Spring Island electors who brought a petition
contesting the behaviour of the respondents in respect of two resolutions of
the LTC authorizing payments to the Societies for services related to their
fields of interest.  The chambers judge summarized the events in this way (2012
BCSC 41):

[16]      The incident that was the catalyst for the petition
against Ms. Torgrimson and Mr. Ehring occurred on September 1, 2011.  The
LTC held a meeting at which Ms. Torgrimson and Mr. Ehring were present along
with the third trustee, Ms. Malcolmson.

[17]      At the time of the vote on September 1, 2011, both
respondent trustees were directors of the newly incorporated Water Council
Society.

[18]      On September 1, 2011, Ms. Torgrimson moved and
voted in favour of a resolution to dedicate $4,000 to fund a project by which
the Water Council Society would organize and run a workshop to raise awareness
of water issues on Salt Spring Island.  Mr. Ehring was present and voted in
favour of the resolution as did the third trustee.

[19]      During the discussion and eventual vote on the
matter, neither Ms. Torgrimson nor Mr. Ehring disclosed that they were now
directors of the newly incorporated societies.

* * *

[23]      There was another
meeting of the LTC on October 6, 2011.  Again Ms. Torgrimson and Mr. Ehring
were present with the third trustee.  At this time Ms. Torgrimson made a motion
to dedicate $4,000 to the Climate Action Society for the purpose of providing a
progress report on greenhouse gases.  Again, there was no mention that both
respondents are directors of the Climate Action Society.  As on September 1,
2011, the motion was not on the agenda.  Given the similar conduct of the
respondents on October 6, 2011, whatever decision I make with respect to what
occurred September 1, 2011, would be the same decision for the October 6, 2011,
transaction.

[11]

At the hearing of the petition, no contract for services in relation to
either expenditure had been executed.  However, counsel agreed:

That the Court of Appeal panel be
advised at the hearing of the appeal that the Court below accepted that the
resolutions in question would lead to the contracts being let, and the money
actually expended, which is in fact what happened.

[12]

The appellants filed a motion to adduce new evidence relating to the
contracts.  This was in response to the respondents argument that there was no
evidence before the chambers judge that any money changed hands.  The evidence
is new in the sense that it arose after the hearing.  It supports the
appellants contention that the transactions were for service contracts and were
paid for.  Given the agreed statement above, I see no need to consider other
details of the new evidence.

[13]

The hearing of the petition occurred on the eve of the election in
November 2011 at the expiry of the respondents terms of office.  As will be
seen, the conflict legislation provides disqualification from office until the
next election as its primary remedy.  The respondents did not run again in
November 2011 and say they have no intention of standing for office in the
future.

Decision Under Appeal

[14]

The chambers judge dismissed the petition on the ground that the
evidence did not disclose a personal pecuniary interest.  He found that the
respondents duties as directors of the Societies failed to satisfy this test. 
After reviewing case law, he ruled as follows:

[39]      In this case, the petitioners invite the court to
draw the inference that these trustees have an indirect pecuniary interest
based upon the fact of their being directors
simpliciter
.

[40]      I am not satisfied this is an appropriate inference
to be drawn given the courts comments in
Fairbrass BCCA
[
Fairbrass
v. Hansma
, 2010 BCCA 319, 5 B.C.L.R. (5th) 349].  Granted, directors are
the operating minds of a society.  However, the society exists as a separate
legal person from the individuals who in this case work for no remuneration to
guide it.

[41]      In my opinion,
Fairbrass BCCA
supports the
respondents position: the fact that they are directors of societies that
received the funds, in the absence of sufficient evidence to establish a
personal pecuniary interest between themselves and the societies, does not
permit the inference to be drawn that they have an indirect pecuniary interest
in the dedication of funds to the societies.

[42]      Again, as I decided in the Hendren judgment [
Schlenker
v. Hendren
(18 November 2011), Victoria 11-4036 (S.C.)], the law in British
Columbia cannot be read in the spirit of the Ontario legislation.  The Ontario
statute raised by counsel for the petitioners, the
Municipal Conflict of
Interest Act
, R.S.O. 1990, Chapter M.50, ss. 2(a)(iii), 4(k), and 5, sets a
low threshold for indirect pecuniary interest.  It includes within the category
of indirect pecuniary interest situations where an individual is a member of a
body that in turn has a pecuniary interest in the matter (s. 2(a)(iii)).

[43]      I am satisfied that in British Columbia,
disqualification on the grounds of indirect pecuniary interest requires
evidence sufficient that there can be a readily recognizable pecuniary
incentive to vote other than for planning reasons.  (See
Re McCaghren and
Lindsay
(1983), 144 D.L.R. (3d) 503 at 510 (Alta. C.A.).) In our
circumstances, reason to vote without conflict would not be for planning but
for public education on water issues.

[44]      Moreover, even though the society depends to a
certain extent on grants it receives from the LTC, as well as other sources, to
advance its goals and objectives and to assist in the viability of the society,
I do not conclude that Ms. Torgrimson and Mr. Ehring had an indirect pecuniary
interest in the issue that was before the LTC on September 1, 2011.  The
petitioners need not show an actual pecuniary interest being affected, yet
there still must be evidence of the potential to affect the members financial
interest.  (See [
Mondoux v. Tuchenhagen
, 2010 ONSC 6536, 79 M.P.L.R. (4th)
1], para. 46; and
Tolnai v. Downey
(2003), 40 M.P.L.R. (3d) 243 (Ont.
Sup. Ct.) at para. 25.)  Therefore, the fact that the respondents are directors
is not sufficient to establish an indirect pecuniary interest.

[45]      I am fully cognizant of the classic statement made
by the court in
Re Moll and Fisher et al
. (1979), 96 D.L.R. (3d) 506 at
509, 23 O.R. (2d) 609 (H.C.), that no man can serve two masters, and that the
conflict of interest rules and enactments recognize that even if elected
officials are well-meaning, their judgment may be impaired when their personal
financial interests are affected.  Yet I underline that it is personal
economic self-interest that must be in conflict with the officials public
duty.  While the vote on September 1, 2011, would provide the Water Council
Society with funds to set up a workshop in order to pursue its objectives and
educate the community with respect to water issues, the evidence does not
establish that the grants had the potential to affect the personal financial
interests of Ms. Torgrimson or Mr. Ehring.  Indeed, there is possibly less
pecuniary connection between a non-profit society and its directors as private
individuals than there was between the mayor and his sons in
Fairbrass
.

[46]      Given the totality of the evidence, I am not able
to conclude that the petitioners have established that Ms. Torgrimson and Mr.
Ehring had an indirect personal pecuniary interest when they voted for the
dedication of money to the Water Council Society on September 1, 2011.

[47]      As a result, where the
petition seeks a declaration that Ms. Torgrimson and Mr. Ehring have violated
s. 101 and s. 107 of the
Community Charter
because of a failure to disclose
a direct or indirect pecuniary interest, the petition is dismissed.

Relevant Enactments

[15]

The relevant sections of the legislation are as follows:

Community Charter
,
S.B.C. 2003, c. 26 

100 (1) ...

(2)        If a
council member attending a meeting considers that he or she is not entitled to
participate in the discussion of a matter, or to vote on a question in respect
of a matter, because the member has

(a)  a direct or
indirect pecuniary interest in the matter, ...

the member must declare this and
state in general terms the reason why the member considers this to be the case.

(3)        After
making a declaration under subsection (2), the council member must not do
anything referred to in section 101 (2) [
restrictions on participation
].

* * *

101 (1) This
section applies if a council member has a direct or indirect pecuniary interest
in a matter, whether or not the member has made a declaration under section
100.

(2)        The council member
must not

(a)     remain
or attend at any part of a meeting referred to in section 100 (1) during which
the matter is under consideration,

(b)     participate
in any discussion of the matter at such a meeting,

(c)     vote
on a question in respect of the matter at such a meeting, or

(d)     attempt
in any way, whether before, during or after such a meeting, to influence the
voting on any question in respect of the matter.

(3)        A
person who contravenes this section is disqualified from holding an office
described in, and for the period established by, section 110 (2), unless the
contravention was done inadvertently or because of an error in judgment made in
good faith.

* * *

111 (1) If it
appears that a person is disqualified under section 110 and is continuing to
act in office,

(a)     10 or
more electors of the municipality, ...

may apply to the Supreme Court for
an order under this section.

* * *

(4)        An
application under this section may only be made within 45 days after the
alleged basis of the disqualification comes to the attention of

(a)     any of
the electors bringing the application, in the case of an application under
subsection (1) (a), ...

(6)        On the
hearing of the application, the court may declare

...

(b)     that
the person is disqualified from holding office, ...

* * *

191 (1) A council
member who votes for a bylaw or resolution authorizing the expenditure,
investment or other use of money contrary to this Act or the
Local
Government Act
is personally liable to the municipality for the amount.

* * *

(4)        Money
owed to a municipality under this section may be recovered for the municipality
by

...

(b)     an elector or taxpayer of the
municipality, ...

Society Act
,
R.S.B.C. 1996, c. 433 

24 (1)   The
members of a society may, in accordance with the bylaws, nominate, elect or
appoint directors.

(2)        Subject
to this Act and the constitution and bylaws of the society, the directors

(a)     must
manage, or supervise the management of, the affairs of the society, and

(b)     may
exercise all of the powers of the society.

* * *

25 (1)   A director of a society must

(a)     act
honestly and in good faith and in the best interests of the society, and

(b)     exercise
the care, diligence and skill of a reasonably prudent person,

in exercising the powers and
performing the functions as a director.

(2)        The requirements
of this section are in addition to, and not in derogation of, an enactment or
rule of law or equity relating to the duties or liabilities of directors of a
society.

* * *

27        A
director of a society who is, directly or indirectly, interested in a proposed
contract or transaction with the society must disclose fully and promptly the
nature and extent of the interest to each of the other directors.

28  (1) ....

(2)        Unless the bylaws otherwise
provide, a director referred to in section 27 must not be counted in the quorum
at a meeting of the directors at which the proposed contract or transaction is
approved.

Business Corporations
Act
, S.B.C. 2002, c. 57 

1  (1)    In
this Act:

* * *

company means

(a)     a
corporation, recognized as a company under this Act or a former
Companies
Act
, that has not, since the corporations most recent recognition or
restoration as a company, ceased to be a company

* * *

corporation
means a company, a body corporate, a body politic and corporate, an
incorporated association or a society, however and wherever incorporated, but
does not include a municipality or a corporation sole;

* * *

136 (1) The
directors of a company must, subject to this Act, the regulations and the
memorandum and articles of the company, manage or supervise the management of
the business and affairs of the company.

* * *

142 (1) A
director or officer of a company, when exercising the powers and performing the
functions of a director or officer of the company, as the case may be, must

(a)     act honestly and in good
faith with a view to the best interests of the company, ...

Canada Business
Corporations Act
, R.S.C. 1985, c. C-44 

102. (1)  Subject to any unanimous shareholder agreement, the
directors shall manage, or supervise the management of, the business and
affairs of a corporation.

* * *

122. (1)  Every director and officer of a corporation in
exercising their powers and discharging their duties shall

(a)     act honestly and in good
faith with a view to the best interests of the corporation; ...

Issues

[16]

I will discuss the following issues:

1.       Standing:  Can less than ten
electors bring a valid appeal from dismissal of a conflict of interest petition
under the
Community Charter
?

2.       Mootness:  Is the case moot
and if it is should it nevertheless be decided?

3.       Statutory
interpretation of the phrase a direct or indirect pecuniary interest in the
matter:  Is it limited to personal financial gain of the councillor or does it
extend to a non-profit society of which the councillor is a director?

Discussion

Standing

[17]

The petition in this case was brought by 15 electors, more than the
minimum number (10) prescribed by s. 111(1)(a) of the
Community Charter
. 
The respondents contest the validity of the appeal on the basis that the eight
appellants lacked standing as they form a group less than the requisite
number.

[18]

This argument has no support in the legislation.  The respondents argue
for a restriction on the right to appeal yet there is nothing in the
Community
Charter
or related enactments which extends the minimum requirement in s.
111(1)(a) to an appeal.

[19]

The jurisdiction of the Court is set out in the
Court of Appeal Act
,
R.S.B.C. 1996, c. 77:

6 (1)     An appeal lies to the court

(a)     from
an order of the Supreme Court or an order of a judge of that court, and

(b)     in any
matter where jurisdiction is given to it under an enactment of British Columbia
or Canada.

(2)        If another enactment of British
Columbia or Canada provides that there is no appeal, or a limited right of
appeal, from an order referred to in subsection (1), that enactment prevails.

[20]

Each petitioner must join with at least nine others to launch a valid
petition.  Once they have done so, each becomes a party to the proceeding.  Their
status as a party remains throughout the proceeding and enables them to invoke
the jurisdiction of this Court whether or not the original petitioning group
remains intact.  It would, in my opinion, take very specific language in the
relevant legislation to restrict access to this Court in the manner suggested
by the respondents.

[21]

I would not give effect to the preliminary objection based on standing.

Mootness

[22]

The respondents other preliminary objection is that there is no
practical purpose to be served by deciding the appeal.  Since the respondents
did not run in the 2011 election, the primary remedy for voting while in a
conflict of interest, namely, disqualification from office until the next
election, has no application; all that is left is a declaratory remedy, a
purely academic exercise which this Court should not engage in.  The
respondents submit that the problem will probably come up again and can and
should be decided on a live issue rather than on a moot case.

[23]

The appellants respond in several ways.  First, they say that there is a
practical remedy available in that this Court could order the respondents to
repay the money for the contracts under s. 191 of the
Community Charter
. 
Second, the Court could order the respondents disqualified from holding office
for a period running from the date of the Courts judgment to the next
election.  Third, the prayer for relief in the petition expressly sought a
declaration as a remedy and nothing that has transpired since has affected the
soundness of that remedy.  Fourth, even if s. 191 is not available and it is
seen that there is no practical sanction against the respondents, there is
nevertheless a strong public interest in settling the law on the substantive
issue in the case.

[24]

I do not find it necessary to deal with the appellants first two
points.  In my opinion, the third and fourth points meet the mootness
objection.

[25]

The events giving rise to the dispute occurred within a short time of
the November 2011 election.  The respondents terms of office were about to
expire when they voted to approve the expenditures in question.  The
Community
Charter
prescribes a 45-day limit to bring a conflict challenge by way of
petition.  Since the procedures must be taken in such a compressed timeframe
and the terms of office can be shorter than the time it takes for a case to
make its way through to an appeal, it will often be difficult to apply the
disqualification sanction if it is not ordered at first instance.  Timing was
one of the factors that influenced this Court in
Fairbrass v. Hansma
,
2010 BCCA 319, to proceed with the appeal despite the lapse of the
disqualification period:

[9]        Section 110(2) referred to in s. 101(3) sets the
period of disqualification as commencing at the time of the contravention of s.
101 and ending on the date of the next general local election.

[10]      The potential period of
disqualification in this case has long since lapsed, there having been a
general local election in November 2008.  Nonetheless, the petitioners brought
the petition promptly.  It raises a serious issue which was considered by the
Supreme Court of British Columbia.  Were we to refuse to hear the appeal as
moot, it would be a rare case that could be advanced through the court process,
given the election cycle in municipal governance.  The issue in this case is
serious, the allegations are of consequence, in particular to the respondent,
and the issue has the potential to arise again in another guise.  Upon these
considerations we determined this appeal should be resolved on its merits.

[26]

The first two orders sought in the amended petition are expressed in
this way:

1.         A
declaration that Trustee Christine Torgrimson, Trustee George Ehring ... have
failed to disclose a direct, or indirect, pecuniary conflict of interest
contrary to section 101
and section 107
of the
Community Charter,

SBC 2003, c 26
;

2.         A declaration that Trustee
Christine Torgrimson, Trustee George Ehring ... have attended a meeting,
participated in discussions, attempted to influence voting, and voted on a
question contrary to section 101
and section 107
of the
Community
Charter
.

[27]

No objection could have been taken to the petition had it claimed only a
declaration as relief.  Rule 20-4 of the
Supreme Court Civil Rules
provides:

(1)        A proceeding is not open to
objection on the ground that only a declaratory order is sought, and the court
may make binding declarations of right whether or not consequential relief is
or could be claimed.

[28]

This appears to be a case of first impression.  None of the authorities
cited to us deals squarely with the position of a councillor voting on a money
resolution authorizing payment to a non-profit society of which the councillor
is a director.

[29]

Finally, and regardless of whether the case is moot, a resolution of the
issue will have practical utility.  As counsel for the appellants explained,
elected officials often seek legal guidance on whether they are in a conflict
of interest.  If they act on such advice, they have available to them a good
faith defence under s. 101(3) of the
Community Charter
:

(3)        A person who contravenes this
section is disqualified from holding an office described in, and for the period
established by, section 110 (2), unless the contravention was done
inadvertently or because of an error in judgment made in good faith.

[30]

So the respondents are concerned that unless the decision under appeal
is reviewed, it will remain the basis of legal advice to councillors throughout
the province and because of the good-faith defence, no one will be motivated to
challenge their conduct.  The argument is that if the decision is wrong and
left uncorrected, it will have a deleterious long-term effect.

[31]

I agree with this argument.  I am not satisfied the case is moot, but
even if it is, it falls within the class of cases that should be decided in the
public interest.

Construction of the Phrase a direct or indirect pecuniary interest
in the matter

[32]

As mentioned, my principal difference of opinion with the judge is in
what I consider to be his too narrow construction of the phrase a direct or
indirect pecuniary interest.

[33]

By limiting the interest to personal financial gain, the chambers
judges interpretation missed an indirect interest, pecuniary in nature, in the
fulfillment of the respondents fiduciary duty as directors.  The result of
applying that narrow interpretation to the facts was to defeat the purpose and
object of the conflict of interest legislation.

[34]

The object of the legislation is to prevent elected officials from
having divided loyalties in deciding how to spend the publics money.  Ones
own financial advantage can be a powerful motive for putting the public
interest second but the same could also be said for the advancement of the
cause of the non-profit entity, especially by committed believers in the cause,
like the respondents, who as directors were under a legal obligation to put the
entity first.

Liberal vs. Strict Interpretation

[35]

My starting point in the interpretive process is to recall the directive
in the
Interpretation Act
, R.S.B.C. 1996, c. 238:

8          Every enactment must be
construed as being remedial, and must be given such fair, large and liberal
construction and interpretation as best ensures the attainment of its objects.

[36]

I then move to the classic statement of the modern principle
enunciated by Elmer Driedger in the second edition of
Construction of
Statutes
and adopted by the Supreme Court of Canada in
Rizzo & Rizzo
Shoes Ltd. (Re)
, [1998] 1 S.C.R. 27:

[21]      Although much has been written about the
interpretation of legislation (see, e.g., Ruth Sullivan,
Statutory
Interpretation
(1997); Ruth Sullivan,
Driedger on the Construction of
Statutes
(3rd ed. 1994) (hereinafter 
Construction of Statutes
);
Pierre-André Côté,
The Interpretation of Legislation in Canada
(2nd ed.
1991)), Elmer Driedger in
Construction of Statutes
(2nd ed. 1983) best
encapsulates the approach upon which I prefer to rely.  He recognizes that
statutory interpretation cannot be founded on the wording of the legislation
alone.  At p. 87 he states:

Today there is only one principle or approach,
namely, the words of an Act are to be read in their entire context and in their
grammatical and ordinary sense harmoniously with the scheme of the Act, the
object of the Act, and the intention of Parliament.

[37]

The context of the questioned phrase can be seen from its placement in
Part 4 of the
Community Charter
entitled Public Participation and
Council Accountability and Division 6 of that Part, entitled Conflict of
Interest.  The phrase appears in that part of the
Community Charter
addressing the problem of divided loyalties, particularly in money matters.

[38]

The purpose of such legislation was eloquently described by Robins J.
(later J.A.) speaking for the Ontario Divisional Court in
Re Moll and Fisher
(1979), 96 D.L.R. (3d) 506 at 509:

This enactment, like all conflict-of-interest
rules, is based on the moral principle, long embodied in our jurisprudence,
that no man can serve two masters.  It recognizes the fact that the judgment of
even the most well-meaning men and women may be impaired when their personal
financial interests are affected.  Public office is a trust conferred by public
authority for public purpose.  And the Act, by its broad proscription, enjoins
holders of public offices within its ambit from any participation in matters in
which their economic self-interest may be in conflict with their public duty. 
The publics confidence in its elected representatives demands no less.


Legislation of
this nature must, it is clear, be construed broadly and in a manner consistent
with its purpose
.

[Emphasis
added.]

[39]

In
The Queen v. Wheeler
, [1979] 2 S.C.R. 650, the Court referred
to the New Brunswick equivalent of s. 8 of our
Interpretation Act
,
quoted earlier, in adopting at 659 a broad approach to the interpretation of
the conflict provision involved in that case.

[40]

In
Old St. Boniface Residents Assn. Inc. v. Winnipeg (City)
,
[1990] 3 S.C.R. 1170, Sopinka J. commented generally on conflict of interest
legislation for local government at 1196-97:

I would distinguish between a case of partiality
by reason of pre-judgment on the one hand and by reason of personal interest on
the other.  It is apparent from the facts of this case, for example, that some
degree of pre-judgment is inherent in the role of a councillor.  That is not
the case in respect of interest.  There is nothing inherent in the hybrid
functions, political, legislative or otherwise, of municipal councillors that
would make it mandatory or desirable to excuse them from the requirement that
they refrain from dealing with matters in respect of which they have a personal
or other interest.
It is not part of the job description that municipal
councillors be personally interested in matters that come before them beyond
the interest that they have in common with the other citizens in the
municipality.  Where such an interest is found, both at common law and by
statute, a member of Council is disqualified if the interest is so related to
the exercise of public duty that a reasonably well-informed person would
conclude that the interest might influence the exercise of that duty.  This is
commonly referred to as a conflict of interest
.  See
Re Blustein and
Borough of North York
, [1967] 1 O.R. 604 (H.C.);
Re Moll and Fisher
(1979), 23 O.R. (2d) 609 (Div. Ct.);
Committee for Justice and Liberty v.
National Energy Board
, [[1978] 1 S.C.R. 369]; and
Valente v. The Queen
,
[1985] 2 S.C.R. 673.

Statutory provisions in various provincial
Municipal Acts tend to parallel the common law but typically provide a
definition of the kind of interest which will give rise to a conflict of
interest.  See
Blustein
and
Moll
,
supra
.

[Emphasis
added.]

[41]

I think a reasonably well-informed elector on Salt Spring Island would
conclude that the respondents interest as directors would influence their
decision to authorize and pay for contracts with their Societies.  The
respondents themselves initiated the resolutions that directly benefitted their
Societies, and then voted in favour of those resolutions, without disclosing
that they were directors of the very Societies that were obtaining the benefit.

[42]

If, in the present case, the chambers judge approached the
interpretation narrowly because of the penalties for engaging in a conflict, he
erred in my opinion.  In
Tuchenhagen v. Mondoux
, 2011 ONSC 5398, 107
O.R. (3d) 675, the Divisional Court held:

[26]      The
MCIA
[
Municipal Conflict of Interest
Act
] s. 10 does provide for the penalties to be imposed if a member of
council is found to have breached the legislation.  The seat of the member is
to be declared vacant, he or she may be disqualified from being a member for a
period of time not exceeding seven years and, where the contravention has
resulted in financial gain, ordered to pay restitution.  As such,
the
MCIA
is penal in nature. This does not mean that it should be interpreted narrowly,
in favour of the member, in case of ambiguity.  Even with penal statutes, the
real intention of the legislature must be sought, and the meaning compatible
with its goals applied (see:
R. v. Hasselwander
, [1993] 2 S.C.R. 398 at
para. 30 as referred to in
Ruffolo v. Jackson
, [2010] O.J. No. 2840
(C.A.) at para. 9)
.

[Emphasis
added.]

Directors Duties

[43]

In most cases of conflict of interest, the conflict examined is between
the personal interests of the individual and his or her duty to the corporate
entity.  At bar, the question is whether the respondents took on conflicting
responsibilities as local councillors and Society directors such that they
could not participate in decisions awarding contracts to the Societies.

[44]

There is little difference in the duties of a director of a business
corporation and a society.

[45]

Directors of societies have a fiduciary duty of loyalty to act honestly
and in good faith and in the best interests of the society: s. 25(1)(a) of the
Society Act
.  This fiduciary duty is the same duty that directors owe to
corporations under the
Business Corporations Act
at s. 142(1)(a), which
provides that directors of a
company
(defined as a corporation
recognized as a company under that Act), when exercising the powers and
performing the functions of a director of the company
must act honestly and
in good faith with a view to the best interests of the company
, as well as
the federal
Canada Business Corporations Act
under s. 122(1)(a), which
provides that every director of a corporation in exercising their powers and
discharging their duties
shall act honestly and in good faith with a view to
the best interests of the corporation
.  Therefore, case law relating to the
fiduciary duty of directors of corporations is analogous to the fiduciary duty
of directors of societies.

[46]

As the Supreme Court of Canada noted in
Peoples Department Stores
Inc. (Trustee of) v. Wise
, 2004 SCC 68, [2004] 3 S.C.R. 461, the duty of
loyalty imposes several duties on directors:

[35]      The statutory fiduciary
duty requires directors and officers to act honestly and in good faith
vis-à-vis
the corporation.  They must respect the trust and confidence that have been
reposed in them to manage the assets of the corporation in pursuit of the
realization of the objects of the corporation.  They must avoid conflicts of
interest with the corporation.  They must avoid abusing their position to gain
personal benefit.  They must maintain the confidentiality of information they
acquire by virtue of their position.  Directors and officers must serve the
corporation selflessly, honestly and loyally: see K. P. McGuinness,
The
Law and Practice of Canadian Business Corporations
(1999), at p. 715.

[47]

In
Alberta v. Elder Advocates of Alberta Society
, 2011 SCC 24,
[2011] 2 S.C.R. 261, Chief Justice McLachlin, for the Court, wrote of the
fiduciary principle in general as follows:

[43]      The
duty is one of utmost loyalty to the beneficiary.  As Finn states, the
fiduciary principles function 
is not to mediate between interests
. It
is to secure the paramountcy of
one sides
interests . . . . The
beneficiarys interests are to be protected. This is achieved through a regime
designed to secure loyal service of those interests (P. D. Finn, The
Fiduciary Principle, in T. G. Youdan, ed.,
Equity, Fiduciaries and Trusts
(1989), 1, at p. 27 (underlining added [by McLachlin C.J.]); see also [
Hodgkinson
v. Simms
, [1994] 3 S.C.R. 377], at p. 468,
per
Sopinka J. and
McLachlin J. (as she then was), dissenting).

[Emphasis
in text.]

[48]

The case of
Wheeler
involved a mayor and a business corporation
but the following remarks at 659-60 I think are apposite:

A director
, and particularly one who is also a
president,
owes a continuous, day-to-day duty to the legal entity, the
company
, as well as to the shareholders,
to prosecute the companys
affairs in an efficient, profitable, and entirely lawful manner
. Applying
the broad principle enunciated by Duff C.J. in [
J.B. Arthur Angrignon v. J.
Arsène Bonnier
, [1935] S.C.R. 38],
such an officer is most certainly
interested in his company entering into profitable contracts
. In a
service company or in the construction business, that may well be his only real
interest in conducting the affairs of the company.

* * *

It should not, however, be assumed that the Legislature
has thereby expressed an intention to reduce the meaning and application of the
expression indirect interest
.  It is unrealistic to believe that as a
general principle of human conduct a director or officer of a contracting
company does not have at least an indirect interest in the companys
contracts.  On the facts before this Court, the provision has an even clearer
impact.
A director or officer of a construction company or of a service
company must, in ordinary parlance and understanding, have an interest, albeit
indirect, in the welfare of the company as it relates to or results from
contracts
.

[Emphasis
added.]

Pecuniary Interest

[49]

In several ways in the course of these reasons, I have endeavoured to
make the point that so long as the matter involves the expenditure of public
funds and the respondents have an interest in the matter which a
well-informed elector would conclude conflicts with their duty as councillors,
it makes no difference that they put no money into their own pockets.

[50]

As directors of the Societies, the respondents were under a fiduciary
duty to put the Societys interests first.  Directors of societies, by virtue
of their position, have an indirect interest in any contract a society is
awarded.  When the respondents moved and voted in favour of resolutions that
benefitted their Societies through the granting of contracts, arguably
contracts the Societies might not have been awarded had the councillors not
also been directors, their duties as directors to put the Societys interests
first were in direct conflict with their duties as councillors to put the
publics interests first.  These circumstances encompass the mischief the
legislation was aimed at, namely, a conflict of interest in deciding money
resolutions.  The public is disadvantaged by the conflict, whether the
respondents derived any personal gain or not, because the public did not have
the undivided loyalty of their elected officials.

Case Law

[51]

This Court has twice considered pecuniary interest conflict.  In
Fairbrass
,
the Mayor of Spallumcheen voted on a bylaw to amend the Official Community Plan
allegedly to the potential benefit of his two sons.  In
King v. Nanaimo
(City)
, 2001 BCCA 610, 94 B.C.L.R. (3d) 51, a city councillor voted in
favour of matters benefitting his largest campaign contributor.  This Court
upheld the dismissal of the petition in
Fairbrass
and reversed the
finding of pecuniary conflict in
King
.

[52]

The decisions have a common rationale.  The proof requirement
establishing a link between the matter voted on and a pecuniary interest of the
councillor was lacking in each case.

[53]

In
King
, Mr. Justice Esson, for the Court, wrote:

[12]      That conclusion, in my respectful view, is wrong in
law.
What was prohibited by s. 201(5) is participation in the discussion or
vote on a question in respect of ... a matter in which the member has a direct
or indirect pecuniary interest.
  The matter (or matters) in respect of
which questions arose before Council were, in this case, the various
applications by Northridge Village and its associates.
Nothing in the facts
established in this proceeding could justify the conclusion that Mr. King had a
pecuniary interest, direct or indirect, in any of those matters.  The mere fact
that Northridge made campaign contributions could not, in and of itself,
establish any such interest.  There could, of course, be circumstances in which
the contribution and the matter could be so linked as to justify a conclusion
that the contribution created a pecuniary interest in the matter
.  Indeed,
the learned chambers judge took note of an example of such a situation when he
said in his reasons:

There is no evidence of a direct
pecuniary interest in the sense that he agreed to vote for these projects in
return for their campaign contribution of $1,000.00.

[13]
It would not be useful to speculate as to what
circumstances could create an indirect pecuniary interest
.  It is enough to
say that the mere fact of the applicant having made a campaign contribution is
not enough.  In the absence of any factual basis for finding that Mr. King had
a pecuniary interest in the matter, the finding based on s. 201(5) is wrong in
law and must be set aside.

[Emphasis
added.]

[54]

Madam Justice Saunders gave the judgment of the Court in
Fairbrass
and wrote:

[21]      I see no error in the approach of the judge to the
petition before him. In the circumstances disclosed to him in the evidence, the
case fell to be resolved by considering whether there could be enhancement of
the respondents financial position directly, or through the fact his sons
owned adjacent property. The judge recognized the sons had a direct pecuniary
interest because the proposal would make it easier for them to sub-divide their
property.
There were, then, only two questions: did the respondent have a
direct interest, and did the sons direct interest create such potential for
enhancement of the respondents financial circumstances as to be a pecuniary
interest that was indirect
.

[22]
The proposition that the person asserting a fact
has the burden of proving it, is fundamental. Here the petitioners alleged a
pecuniary interest, either direct or indirect. Yet they adduced no evidence to
the effect that the bylaw, were it to pass, would make the respondents four
acre but still un-subdividable property more valuable. Whether the change in
set-back requirements would have this effect is speculation
. So too, as the
judge said, is the possibility of the respondent acquiring land, thereby to
sub-divide the property. Even more speculative is the possibility of accretion
making the four acre parcel more valuable now.

[Emphasis
added.]

[55]

In the present case, however, proof of a pecuniary conflict does not
depend on a remote and tenuous connection as in
King
or on speculation
like
Fairbrass
, but on the solid footing of a fiduciary duty as
discussed.

[56]

It was contended by the petitioners in
Fairbrass
that the filial
relationship between the father and the sons was enough to establish an
indirect interest.  That proposition was rejected at both levels as an
unsupported inference.  I see no parallel to the case at bar.  Parents may or
may not be concerned with the business affairs of their children; it all
depends on the facts of each case.  But there is no doubt about the duty of a
director in fostering the business of his or her society; it inheres in the
nature of the relationship.

[57]

When, at para. 41 of his reasons, the chambers judge requires some
personal pecuniary benefit to flow to the respondents from their societies
before declaring a conflict, he in my opinion erred in principle and in law by
misconstruing the effect of
Fairbrass
.

Remedies

[58]

As mentioned, the declaratory order should be made because of the public
importance of the issue.  But the appellants also ask for an order pursuant to
s. 191(1) of the
Community Charter
requiring the respondents to
repay the money expended on the contracts.

[59]

In my opinion, s. 191(1) has no application to this case.  As I
read the provision, it addresses itself to the subject matter of the
expenditure rather than to the qualification of the councillor voting on the
expenditure.  The phrase contrary to this Act or the
Local Government Act

refers to the expenditure, investment or other use of money, not to the
council member who casts the vote.  The focus is on the impropriety of the
expenditure.

[60]

Thus, s. 191(1) is placed in a separate part of the
Community
Charter
under Part 6  Financial Management, Division 5  Restrictions on
Use of Municipal Funds, apart from those provisions dealing with improper
voting by council members who are disqualified by reason of conflict of
interest.

[61]

It is not alleged in this case that the projects covered by the
contracts let by the LTC were in themselves improper subjects for expenditure. 
The attack was directed at the respondents conflict of interest.  There is,
therefore, no basis for an order of repayment under s. 191(1).

Conclusion

[62]

For these reasons, I would allow the appeal and declare that the
respondents voted on questions contrary to s. 101 of the
Community Charter
.

The Honourable Mr. Justice Donald

I agree:

The
Honourable Madam Justice Newbury

I agree:

The
Honourable Mr. Justice Hinkson


