The Superior Court’s decision in Town of Elliot Lake v. Pearce is a reminder that where a matter before council could financially benefit a not-for-profit organization, Councillors directing or sitting on the board of that organization have an indirect pecuniary interest that must be declared.
The decision considered whether Elliot Lake Councillor Ed Pearce contravened the Municipal Conflict of Interest Act (MCIA) by arguing in closed session that the municipality should honour its $30,000.00 debt to Elliot Lake’s non-profit business development corporation. The Councillor was a director and board member of that non-profit.
Councillor breached Act by arguing Town should repay non-profit
Section 2 of the MCIA provides that a councillor who is a shareholder, director, or senior officer of a private corporation has the same pecuniary interest in any matter as the corporation itself. A pecuniary interest is anything that increases the overall wealth of the corporation. That includes avoiding a loss. As director of the non-profit, Councillor Pearce had an indirect pecuniary interest in the debt repayment. The size of the debt was irrelevant to whether the pecuniary interest existed.
Section 5 provides that where a member has any pecuniary interest (direct or indirect) in a matter being considered at a meeting of council, they must disclose the interest before the matter is discussed, not take part in the discussion or vote about the matter, and not attempt to influence the vote in any way. The Court found that the Councillor had not declared his indirect pecuniary interest in the debt issue and had participated in the debate. His breach of section 5 was not excused by the fact that he may have been acting in good faith, as the MCIA does not consider motive in determining if a breach occurred.
$30,000 debt “not insignificant” to non-profit
Councillor Pearce argued that he was protected by section 4(k) of the Act, which provides that a councillor need not declare a conflict where the pecuniary interest is so remote or insignificant that it cannot reasonably be regarded as likely to influence them. But the Court found that $30,000.00 is not an insignificant amount of money, and in an earlier decision the Court had found even a $300.00 profit was not insignificant. The fact that the debt was owed to the non-profit and not the Councillor was not relevant to the consideration as it is the significance to the entity that is owed the debt that is relevant.
On the issue of penalty, the Court noted it had wide discretion due to recent amendments to the MCIA. Although the Court found that the Councillor had ignored legal training about his obligation to declare his interest in the non-profit, he had apologized, and ultimately his contravention was at the “absolute lowest level” of severity. The Court concluded that a judicial reprimand was an adequate punishment.
This decision should not discourage councillors from getting involved with non-profit organizations. They must simply be aware that in the eyes of the MCIA, there is no distinction between for- and not-for-profit corporations. Directors and officers of a non-profit must treat its pecuniary interests as their own and seek the advice of the Integrity Commissioner when in doubt about whether a conflict exists.
The Court’s decision has not been reported online. Please contact us to request a copy.