



COURT OF APPEAL FOR ONTARIO

CITATION:  Gordon v. York Region Condominium Corporation No.
    818, 2014 ONCA 549

DATE: 20140721

DOCKET: C57685

Hoy A.C.J.O., Gillese and Lauwers JJ.A.

BETWEEN

Stanley Gordon

Applicant (Appellant)

and

York Region Condominium Corporation No. 818, Ed
    Rotman, Ahsan Zaiyouna, Harold Davis, Eugene Katz and Manfred Kapp

Respondents (Respondents)

Michael J. Campbell, for the appellant

Benjamin J. Rutherford, for the respondents

Heard:  July 15, 2014

On appeal from the judgment of Justice J. R. McCarthy of
    the Superior Court of Justice, dated August 21, 2013.

ENDORSEMENT

[1]

The appellant, Stanley Gordon, appeals the August 21, 2013 judgment of
    the application judge, which (i) set aside the November 21, 2011 decision of
    the board of directors of York Region Condominium Corporation No. 818 (the
    Condo) disqualifying him as a director pursuant to the Condos By-law No. 9
    for violations of the Directors Code of Ethics during his term of office; and
    (ii) made provision for the conduct of a fresh ethics review by the board of
    the appellant.

[2]

The application judge concluded that while By-law No. 9 permitted the
    board to disqualify a director who violated the Directors Code of Ethics, the
    manner in which the Board had done so violated principles of natural justice
    and procedural fairness. Among other things, the appellant was not given
    reasonable notice of the ethical review. The boards decision could accordingly
    not stand.

[3]

However, the application judge was not prepared to order re-instatement
    of the appellant as a director at that time: the vacancy left by his
    disqualification had been filled. While there was a significant evidentiary
    record before the application judge detailing the appellants alleged ethical
    violations, the application judge declined to make findings as to whether the
    appellant had violated the Directors Code of Ethics. He ordered that the board
    was at liberty to conduct a fresh ethics review of the appellant within 90
    days, failing which the appellant could move for re-instatement as a director
    or for such other remedy as he may request. The application judge directed that
    the one director, whom he had found was looking to have the appellant removed
    from the board, not participate in the fresh ethics review. The application
    judge remained seized in the event that either party wished to seek further
    directions from the court following the ethics review or the expiration of the
    time period set out for the ethics review.

[4]

Counsel advise that a fresh ethics review was conducted, as ordered by
    the application judge, and that the appellant was disqualified on that review.

[5]

The appellant advances three arguments on appeal, the first two
    relating to the validity of By-Law No. 9, and the third the appropriateness of
    the remedy.

[6]

First, he argues that the provisions of By-law No. 9 permitting the
    board to determine whether a director has violated the Directors Code of
    Ethics are contrary to s. 56(6) of the
Condominium Act, 1998
,
S.O. 1998, c. 19, (the Act), which
    requires that by-laws be reasonable. Therefore, the appellant argues, the
    directors could not properly have made By-Law No. 9 under s. 56(1)(a) of the
    Act, and it should accordingly be declared invalid. Second, and in the
    alternative, he argues that such provisions are inconsistent with the
    democratic principles of condominium governance reflected in the Act as a whole,
    and in that manner contrary to a second requirement of s. 56(6) of the Act,
    namely that by-laws be consistent with the Act. Third, he argues that the
    application judge in any event erred by not immediately re-instating him. The
    appellant seeks an order declaring the provisions of By-law No. 9 unreasonable
    or inconsistent with the Act and therefore invalid and re-instating him as a
    director.

[7]

The respondent Condo argues that the application judge correctly
    concluded that By-law No. 9 permitted the board to disqualify the appellant for
    violations of the Directors Code of Ethics, and that his decision not to
    immediately reinstate the appellant was an appropriate exercise of the
    application judges discretion. The respondent also argues that the issue of the
    appellants reinstatement is moot: the appellants term as a director would
    have ended in or about June, 2014.

[8]

For the reasons that follow, we conclude that the application judge
    correctly found that By-law No. 9 is valid and permits the board to disqualify
    a director for violations of the Directors Code of Ethics, that there is no
    basis for this court to interfere with the application judges discretionary
    decision to defer reinstatement of the appellant, and that the issue of
    reinstatement is, as the respondent argues, in any event now moot. We note that
    under the respondents by-laws, the appellant is at liberty to stand for
    re-election. And under those by-laws, violations of the Directors Code of
    Ethics during his prior term, in the absence of a criminal conviction, are not
    a basis for disqualifying him if re-elected. We accordingly dismiss this
    appeal.

Is By-Law No. 9 Valid?

(a) Relevant provisions of the Act and By-law No. 9

[9]

The relevant provisions of the Act are as follows:

33.(1) Subject to subsection 51(8), a
    director, other than a director on the first board, may be removed before the
    expiration of the directors term of office by a vote
of the owners at a
    meeting duly called for the purpose where the owners
of more
    than 50 per cent of all of the units in the corporation vote in favour of
    removal.



56. (1) The board may, by resolution, make,
    amend, or repeal by-laws,
not
    contrary to this Act
or to the declaration,

(a) to govern the number, qualification, nomination,
    election, resignation, removal, term or office and remuneration of the
    directors, subject to subsection (2)
[1]
;



(6) The by-laws shall be reasonable and consistent with this
    Act and the declaration.



[10]

Article
    6.03 (c)(x) of By-law No. 9 provides for the disqualification and deemed
    resignation of directors:

c) A director shall cease to be qualified to
    be a director of the Corporation and shall be deemed to have resigned from the
    Board of Directors of the Corporation, if the director:



(x) violates the Directors Code of Ethics on three (3) occasions
    over the course of the directors term, unless determined otherwise by a court.

For the purposes of this section, a violation of the Directors Code
    of Ethics will be established if:

(a) another director on the board notifies
    the Corporation, in writing, of the violation (the Code of Ethics Violation),
    upon which the matter shall be added as the first agenda item to the very next
    meeting of the board and shall be identified in the agenda as the Ethics
    Review. The procedure to be used for the Ethics Review shall be the same
    procedure used by the board to decide all Corporation matters except, to ensure
    fairness, the director named in the Code of Ethics Violation shall be allowed
    to address the board at the meeting, but shall not vote nor be present when the
    board votes on the matter; and,

(b) the majority of the remaining directors
    on the board, present at the meeting during the Ethics Review, determine that a
    Code of Ethics Violation has occurred. The decision rendered at the conclusion
    of the Ethics Review shall be duly minuted in the Corporations records. If it
    is determined at the end of the Ethics Review that a Code of Ethics Violation
    has occurred and constitutes the subject directors third (3rd) violation, then
    prior to concluding the Ethics Review, the subject director shall provide, in
    writing, his/her immediate resignation from the board, failing which it shall
    be deemed to have been provided and duly noted within the minutes as such.

[11]

The
    appellant signed the Directors Code of Ethics.

(b)  Are the provisions of
    By-law No. 9 permitting the board to determine whether or not a director has
    violated the Directors Code of Ethics unreasonable?

[12]

The
    appellant argues that it is not reasonable for a board of directors to determine
    whether or not a fellow board member has violated the Directors Code of
    Ethics. He says that such a determination should be made by an independent
    third party.

[13]

While
    there are other procedures that could have been adopted to determine whether or
    not a director has violated the Directors Code of Ethics, we are not persuaded
    that permitting a board to make that determination is unreasonable.

(c)  Are the provisions of
    By-law No. 9 permitting the board to disqualify a director for violations of
    the Directors Code of Ethics inconsistent with the Act because they offend
    democratic principles of governance enshrined in the Act?

[14]

We
    note that, on appeal, the appellant concedes that s. 33(1) is not exhaustive
    and does not limit the ability of the board to make by-laws governing the
    qualification, resignation and removal of directors pursuant to s. 56(1)(a). He
    does not argue that the provisions at issue are contrary to a specific section
    of the Act. Rather, he refers to principles of democratic governance which he
    says are established by the Act, as a whole.

[15]

In
    our view there is simply no merit to the appellants argument that the
    provisions of By-law No. 9 at issue are inconsistent with the democratic
    principles of the Act and therefore invalid.

[16]

Section
    56(1) specifically contemplates the enactment of by-laws dealing with
    qualification, resignation and removal of directors. By-law No. 9 was passed by
    a vote of the owners of a majority of the units in the Condo, including the
    appellant, and the directors who were accorded the power under By-law No. 9 to
    determine whether one of their members had violated the Directors Code of
    Ethics were elected by the unit-holders.  To the extent that the Act enshrines
    democratic principles, they have been respected.

Did the application judge err by not
    immediately re-instating the appellant? Is this issue moot?

[17]

The
    appellants application was commenced under s. 134(3) of the Act, which reads:

134. (3) On an application, the court may,
    subject to subsection (4)
[2]
,

(a) grant the order applied for;

(b) require the persons named in the order
    to pay,

(i) the damages
    incurred by the applicant as a result of the acts of non-compliance, and

(ii) the costs
    incurred by the applicant in obtaining the order; or

(c)
grant such other relief as
    is fair and equitable in the circumstances.
[Emphasis
    added.]

[18]

As
    the application judge observed, the vacancy created by the appellants
    disqualification had been filled.  Reinstating the appellant would have
    required an order against someone who was not before the court. The remedy
    crafted by the application judge left open the possibility of re-instatement in
    the near future, presumably when notice to the person potentially affected
    would have been given. The application judge also remained seized, to
    facilitate the process he had ordered.

[19]

In
    our view, there is no basis on which to interfere with the application judges
    exercise of discretion under s. 134(3).  On the contrary, it appears to be
    eminently fair and equitable in the circumstances.

[20]

Further,
    we agree that the issue of reinstatement is now moot. As noted above, the
    appellants term of office has now expired.  And, as also noted above, the
    appellant is at liberty to stand for re-election.

Disposition

[21]

This
    appeal is accordingly dismissed with costs to the Condo fixed at $8,500,
    inclusive of disbursements and HST.

Alexandra
    Hoy A.C.J.O.

E.E.
    Gillese J.A.

P.
    Lauwers J.A.





[1]

Section 56(2) relates to remuneration of directors and is not
    relevant on this appeal.



[2]
Section 134(4) relates to the termination of a lease, and is not relevant here.


