Fiduciary Responsibilities of Municipal Councillors Serving as Directors

Presented by:

Calgary Regional Partnership:

Fiduciary Responsibilities of Municipal

Councillors Serving as Directors

2014

dking@brownleelaw.com 403-260-1472

Derek J. King, Partner

Overview

Purpose is to explain the: •  Fiduciary relationship of CRP and its Directors

•  Role as a CRP Director versus Role as an Elected Official

•  Consequences (and personal risks) of breaching fiduciary duties

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Overview

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A.  Fiduciary  Du/es   B.  Role  as  CRP  Directors  

C.  Role  as  Municipal  Councillors   D.  Dual  Roles  

E.  Personal  Liability  of  Directors  

F.  Management  Strategies  

PART A

Fiduciary Duties

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A.  Fiduciary Duties 1. Terms

The person owing the duty Fiduciary

Beneficiary  The person or entity to whom the duty is owed

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A.  Fiduciary Duties 2. When does a duty arise?

Fiduciary Duty arises where the:

Ø  Fiduciary has scope for the exercise of some discretion or power

Ø  Fiduciary can unilaterally exercise its power or discretion so as to affect the beneficiary’s legal or practical interests

Ø  Beneficiary is vulnerable to or at the mercy of the fiduciary holding the discretion or power

(Frame v Smith, [1987] 2 SCR 99)  

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A.  Fiduciary Duties 3. What does the duty require?

Fiduciary Duty Requires One:

Ø  To act honestly and in good faith

Ø  To act with the same degree and skill as an ordinary person (objective standard)

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A.  Fiduciary Duties 3. What does the duty require?

Fiduciary Duty Requires:

Ø  Avoiding conflicts of interest

Ø  Acting in the best interest of your Entity

Ø  Making decisions in accordance with legislation and the best interests of your Entity

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A.  Fiduciary Duties 3. What does the duty require?

Case law : Peoples Department Stores Inc (Trustee of) v Wise, 2004 SCC 68

The   statutory   fiduciary   duty   requires   directors   and   officers   to   act  honestly   and   in   good   faith   vis-­‐à-­‐vis   the   corpora/on.   They   must  respect  the  trust  and  confidence  that  have  been  reposed  in  them  to  manage  the  assets  of  the  corpora/on  in  pursuit  of  the  realiza/on  of  the  objects  of  the  corpora/on.  They  must  avoid  conflicts  of  interest  with  the  corpora/on.  They  must  avoid  abusing  their  posi/on  to  gain  personal   benefit.   They   must   maintain   the   confiden/ality   of  informa/on   they  acquire  by  virtue  of   their  posi/on.    Directors  and  officers  must  serve  the  corpora/on  selflessly,  honestly  and  loyally…  

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A.  Fiduciary Duties 4. For Profit vs Non-Profit

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For Profit vs Non-Profit

Ø  Different governing legislation including:

Ø  Alberta Business Corporations Act, Alberta Societies Act, Part 9 Companies under the Companies Act …

Ø  The wording in the legislation varies. Some statutes are silent on standards of care (like Part 9 Companies) but Courts have imposed standards of care on Directors where statutes do not.

Ø  Duties are serious – whether for profit or non-profit

A.  Fiduciary Duties 5. Summary

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Fiduciary Duty

Highest Standard of Care in law

Must act in the best interests of the Entity

Must act in an honest, loyal and faithful manner

PART B

Role as CRP Directors

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B. Role as CRP Directors 1. What is the CRP?

The Calgary Regional Partnership (CRP):

Ø  Part 9 (non-profit) corporation

Ø  The CRP is separate legal entity governed by the Board of Directors:

Ø  CRP has its own mandate

Ø  Reference:

Ø  http://calgaryregion.ca/dam/Website/reports/General/Agendas-and-minutes/2014-Board-of-Directors-agenda-and-meeting-minutes/2014-agenda/Board-of-Directors-handbook/Board-of-Directors-Handbook.pdf

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B. Role as CRP Directors 2. The CRP Mandate (CRP Handbook)

CRP Mandate:

Ø  As an independent legal entity, CRP has its own purpose and objectives

Ø  Affects a wide range of geography and multiple aspects of municipal affairs

Ø  The CRP’s mandate can and does overlap with those of other municipalities and organizations

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B. Role as CRP Directors 3. The Mandate of the CRP Board of Directors

(CRP Handbook)

CRP Board of Directors:

•  The Board is responsible under the Companies Act (Alberta) for the overall governance of the CRP

•  The Board is ultimately accountable for and has authority over the CRP’s resources and activities

•  Certain meeting requirements

•  Responsible for hiring and directing the CRP’s Executive Director

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B. Role as CRP Directors 3. The Mandate of the CRP Board of Directors

(CRP Handbook)

Role as a Director:

•  Tasks:

•  High level governance decisions for the CRP

•  Strategic and business decisions and the overall guidance of the CRP towards its long term goals

•  Responsible to the CRP as a Whole:

•  As a Director you are required to act in the best interests of the region as a whole

•  No Delegation of Authority

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B. Role as CRP Directors 4. Duties (CRP Handbook)

Duties as a Director:

•  Duty of Honesty

•  Duty of Care

•  Duty of Loyalty

•  Duty of Obedience

•  Duty to Exercise Power and Promote CRP

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FIDUCIARY DUTY

PART C

Role as Municipal Councillors

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C. Role as Municipal Councillors 1. Municipal Councillors

Elected Officials:

Ø  The relationship between a municipality and its councillors is unique:

Ø  Distinct from an employer-employee relationship

Ø  Distinct from the relationship between a private corporation and its directors

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to consider and promote the welfare and interests of the

municipality as a whole

C. Role as Municipal Councillors 2. Section 153 of the Municipal Government Act

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C. Role as Municipal Councillors 2. Section 153 of the Municipal Government Act

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to participate in Council meetings, Committee

meetings and meetings of other bodies to which they are appointed by

Council

C. Role as Municipal Councillors 2. Section 153 of the Municipal Government Act

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to keep in confidence matters discussed in private at Council or Committee Meetings

C. Role as Municipal Councillors 3. Councillors Duties

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Fiduciary Duty

Must act exclusively for

the Municipality

Must not profit at the expense of

the Municipality

Must avoid conflicts of duty

and interest

C. Role as Municipal Councillors 4. Breach of Councillor Duties

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“The need to maintain integrity in public office is of paramount importance and requires that elected officials be held to a very high objective standard of care.”

Calgary Roman Catholic Separate School District No. 1 v. O'Malley, 2007 ABQB 57

PART D

Dual Roles

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D. Dual Roles 1. The Issue

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Director Duty to CRP

Councillor Duty to the

Municipality

D. Dual Roles 2. Conflicting Duties

•  The Councillor-Director has statutory obligations to the municipality imposed by the Municipal Government Act

•  The Councillor-Director also owes a fiduciary duty to the CRP

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While sitting on the Board of the CRP, this duty requires the

Councillor-Director to act in the best interests of the CRP.

D. Dual Roles 3. Municipal Interests are Subordinate

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•  When acting as a Director of CRP (vs acting as a councillor):

•  Act in the best interests of CRP

•  Where the best interests of the municipality conflict with the best interests of the CRP, the Councillor-Director must put the interest of the CRP first

•  This may mean:

•  Voting against or refraining from voting in favour of the interest of the municipality

D. Dual Roles 4. Confidentiality

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The Councillor-Director must not disclose any information to the

municipality which is received as a Director of CRP which is

determined to be of a confidential nature

D. Dual Roles 5. Summary

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Director Duty to CRP

Councillor Duty to the

Municipality

PART E Personal Liability of

Directors

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E. Personal Liability of Directors 1. Protection of Directors

•  Directors are not separate legal Entities. They cause the Entities to take action. The actions are of the Entities

•  Generally, Directors will not be held personally liable for any act or omission which is done in good faith while carrying out their duties or exercising their legitimate powers as a Director

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E. Personal Liability of Directors 2. Limits of Liability Protection

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Ultra Vires (Out of scope)

•  Director acts outside the scope of his/her duties, obligations and legitimate boundaries of authority, or willfully fails to fulfill them  

Fiduciary Duty •  Director fails to discharge his/her fiduciary duty

E. Personal Liability of Directors 2. Limits of Liability Protection

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Bad Faith •  Director acts in bad faith  

Gross Negligence

•  Likely no protection for defamation, dishonesty, gross negligence or willful misconduct because out of the scope of duties

E. Personal Liability of Directors 2. Limits of Liability Protection

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Dual Loyalty

•  Individuals acting as a director of one entity and who are a fiduciary of another entity (as another director or a councillor), have been found to be personally liable for losses for breaching fiduciary duties  

Dual Loyalty

•  In numerous court decisions, if a parent company incurs a loss due to director’s actions on a subsidiary company, that director is personally responsible

PART F Management Strategies

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F. Management Strategies

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Conflict  of  Interest  Policies    

Confiden2ality  Policies    

F. Management Strategies

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Train  and  Educate  Both  Directors  and  Municipal  Members    

Regular  Communica2on  

QUESTIONS?

Derek J. King dking@brownleelaw.com

403-260-1472

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