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Do Conflict of Interest Rules Extend to Family Members?

In Fairbrass v. Hansma (decided in 2010), the British Columbia Court of Appeal held that the conflict of interest provisions of municipal legislation did not extend to the immediate family of the mayor of Spallumcheen.

1. Facts

Mr. Hansma was the mayor of the township of Spallumcheen, BC. His two sons were co-owners of a parcel of land that was approximately 10 acres in size. The property was zoned for a minimum lot size of 75 acres, meaning that the parcel was non-conforming and could not be subdivided.

In 2008, the township tabled a by-law that would amend its official community plan to, among other things, rezone certain areas as small holding, which permitted subdivision of the land. As a result of the rezoning, the 10-acre parcel held by the mayor's sons could potentially be subdivided into as many as four lots consisting of a minimum of 2.5 acres each.

The mayor sought a legal opinion on whether he had a conflict of interest and should recuse himself from further discussions about the proposed amendments. The mayor's lawyer opined, in part, as follows:

● Since the amendments to the official plan did not actually change the zoning of any properties, it was not until an actual zoning application was made that the issue of conflict would arise.

● Any benefit that the mayor's sons might gain from the proposed changes to the official plan would be too remote to constitute a benefit to the mayor. The sons would still have to go through rezoning and subdivision applications, and the outcome of those applications would be uncertain.

● The mayor's relationship with his sons did not constitute a conflict because there was no intertwining of the mayor's commercial or business interests with those of his sons, and there was no evidence that he would derive a pecuniary benefit if his sons were able to subdivide their property.

● There was no conflict because a significant proportion of the property in the township would be affected by the proposed changes. So, the mayor's interests were essentially in common with the community as a whole.

After receiving this legal opinion, the mayor decided that it would not be a conflict of interest if he participated in the process concerning the proposed changes to the official plan. Despite his participation, the bylaw was defeated at third reading.

Nevertheless, 39 electors within the township took exception to the mayor's participation in the proposed amendment of the official plan and sought to have the mayor removed from office due to conflict.

2. Rulings

The British Columbia Court of Appeal recognized that the provisions of the applicable municipal legislation are intended to enhance and protect the integrity of local government. However, the criteria for disqualification are determinate: the ground of disqualification is restricted to a person holding a pecuniary interest in the matter under consideration, whether direct or indirect.

The sons had a direct pecuniary interest, because the proposed amendment to the official plan would have made it easier for them to subdivide their 10-acre property. The court confirmed that the direct interest of the sons did not, without more, create a direct or indirect pecuniary interest for the mayor. Accordingly, the court held that there was no basis for removing the mayor from office.

3. Key Observations

While Fairbrass v. Hansma is a case involving an alleged conflict of interest of a municipal officer, it is still instructive on the scope of other conflict of interest regimes - such as those applicable to directors and officers of not-for-profit corporations and perhaps those applicable to directors and officers of charitable corporations.

As in the case of municipal corporations, conflict of interest regimes under corporate and charity law should be determinate rather than amorphous. Bright-line rules are needed so that directors and officers can easily determine when a conflict of interest or duty legally requires disclosure and abstention from voting. If the mayor had personally held the 10-acre parcel, the situation would have been materially different. He would have had a direct or indirect pecuniary interest in the by-law amendment.

However, it makes all the difference that his sons held the 10-acre parcel and would benefit just like any other property owners in the township under the proposed amendment to the plan. The sons were not conflicted, because they did not hold municipal office. The mayor's pecuniary interest does not extend to treat the pecuniary interests of his sons as his own interest.

Without this line, it would be difficult to delimit conflict rules. How far would they extend to capture benefits received by family members? Would parents, uncles, aunts, cousins be included? Why stop there? Why not include even more remote relatives? Perhaps close friends or business associates would also be included.

The office-holder may not even be aware of the pecuniary interests of all of his relatives and friends and have no realistic way of determining whether any decision before him engages a remote conflict. A wide, amorphous conflict rule would make routine decision-making fraught with unknown peril.

It is submitted that a conflict of interest rule that is limited to capturing direct or indirect pecuniary interests reflects good policy - including for directors and officers of charities and other not-for-profit corporations. It strikes the proper balance between a determinate rule that the director or officer can apply in practice and an indeterminate rule, the bounds of which cannot be known.

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