Understanding the Municipal Conflict of Interest Act

Another of the Acts that direct municipal governance is the Municipal Conflict of Interest Act. While considerably shorter than the previously-discussed Municipal Act – eight pages, 15 sections and less than 3,500 words – it is of perhaps equal importance. While it may seem vague to outsiders, it was written to clearly identify the nature of a conflict in black and white.

The Act allows no grey areas: there are no “perceived” conflicts in law, only clearly defined legal ones. This is obviously intended by the stringent wording that lays out what construes a conflict of interest.

This clarity absolves everyone of trying to second guess the intention of the Act, or trying to interpret degrees of conflict.

As lawyer Stephen D”Agostino writes,

The Municipal Conflict of Interest Act (“Act”) places a significant burden and risk upon local representatives. The standard of care in the Act is greater than that placed on elected representatives at the federal and provincial levels. Since its original proclamation in 1972, the Act has been tested in the Courts on numerous occasions. Often, the context for the dispute involves circumstances outside of the Act; the remedies of the Act providing a convenient arsenal for strategic advantage… The Act follows a simple model. Generally, if there is a “matter” before Council that touches on the councillor’s “direct or indirect pecuniary interest”, then there is a duty on the councillor to refrain from participating in the decision-making process related to the matter. Unfortunately, when dealing with conflict matters, this simple framework has been complicated by statutory exceptions, inclusions, and judicial interpretations.

There are two kinds of interest in the Act: direct and indirect. While direct conflict is not clearly defined, indirect is:

Indirect pecuniary interest
2. For the purposes of this Act, a member has an indirect pecuniary interest in any matter in which the council or local board, as the case may be, is concerned, if,
(a) the member or his or her nominee,
(i) is a shareholder in, or a director or senior officer of, a corporation that does not offer its securities to the public,
(ii) has a controlling interest in or is a director or senior officer of, a corporation that offers its securities to the public, or
(iii) is a member of a body, that has a pecuniary interest in the matter; or
(b) the member is a partner of a person or is in the employment of a person or body that has a pecuniary interest in the matter. R.S.O. 1990, c. M.50, s. 2.

Further, the Act defines ‘controlling interest’:

“controlling interest” means the interest that a person has in a corporation when the person beneficially owns, directly or indirectly, or exercises control or direction over, equity shares of the corporation carrying more than 10 per cent of the voting rights attached to all equity shares of the corporation for the time being outstanding;

For comparison, the Manitoba Municipal Conflict of Interest Act does define a direct interest as:

“direct pecuniary interest” includes a fee, commission or other compensation paid or payable to any person for representing the interests of another person or a corporation, partnership, or organization in a matter;

This can reasonably be seen as appropriate for Ontario. There are other approaches to direct and indirect interest in different provinces. There are exceptions, however, such as those for issues that are common to all taxpayers, such as utility services or an “interest in common with electors generally”:

Where s. 5 does not apply
4. Section 5 does not apply to a pecuniary interest in any matter that a member may have,
(a) as a user of any public utility service supplied to the member by the municipality or local board in like manner and subject to the like conditions as are applicable in the case of persons who are not members;
(b) by reason of the member being entitled to receive on terms common to other persons any service or commodity or any subsidy, loan or other such benefit offered by the municipality or local board;
(c) by reason of the member purchasing or owning a debenture of the municipality or local board;
(d) by reason of the member having made a deposit with the municipality or local board, the whole or part of which is or may be returnable to the member in like manner as such a deposit is or may be returnable to all other electors;
(e) by reason of having an interest in any property affected by a work under the Drainage Act or by a work under a regulation made under Part XII of the Municipal Act, 2001 or Part IX of the City of Toronto Act, 2006, as the case may be, relating to local improvements;
(f) by reason of having an interest in farm lands that are exempted from taxation for certain expenditures under the Assessment Act;
(g) by reason of the member being eligible for election or appointment to fill a vacancy, office or position in the council or local board when the council or local board is empowered or required by any general or special Act to fill such vacancy, office or position;
(h) by reason only of the member being a director or senior officer of a corporation incorporated for the purpose of carrying on business for and on behalf of the municipality or local board or by reason only of the member being a member of a board, commission, or other body as an appointee of a council or local board;
(i) in respect of an allowance for attendance at meetings, or any other allowance, honorarium, remuneration, salary or benefit to which the member may be entitled by reason of being a member or as a member of a volunteer fire brigade, as the case may be;
(j) by reason of the member having a pecuniary interest which is an interest in common with electors generally; or
(k) by reason only of an interest of the member which is so remote or insignificant in its nature that it cannot reasonably be regarded as likely to influence the member.

D’agostino notes that, as defined by the Act, interest is a purely financial (pecuniary) reference, not a social or a wider genetic one:

The Courts have considered pecuniary interest on a number of occasions and have determined that it means a financial interest. However, it does not matter if the effect on the councillor’s interest is positive or negative as long as there is an effect. In determining what amounts to a pecuniary interest, the Courts have looked for a connection between the matter and the individual’s pecuniary interest. For example, a zoning approval including the councillor’s land would directly affect the councillor’s pecuniary interest.

W. P. Rosenfeld writes,

The basic principle exists to prevent the councillor from serving, or appearing to serve, two masters at the same time. Only those interests which will affect his judgment, or appear to do so, should fall within the prohibition. But when this conclusion has been reached, the difficulties presented in attempting to delimit those interests which an individual may not possess remain unsolved.

Interest is limited in its reach within a family. It affects the member of council or board, reaches to their parents, spouse and children but not beyond:

Interest of certain persons deemed that of member
3. For the purposes of this Act, the pecuniary interest, direct or indirect, of a parent or the spouse or any child of the member shall, if known to the member, be deemed to be also the pecuniary interest of the member

Like with federal tax acts, other relatives, such as grandparents, siblings, uncles, aunts, nephews and nieces do not fall within the Act. They and their businesses do not cause a conflict of interest. Nor do friends or business acquaintances. Doing business with industries and commercial enterprises within the community is not a conflict and would probably fall under the “interest in common with electors generally” condition, above.

Again, the Act is very clear: only the pecuniary interest of self or direct familial relationships (parents, partner, children) constitute a conflict. D’agostino adds:

The Act specifically provides that an indirect pecuniary interest exists where the councillor (remembering that the councillor’s interest includes parent, partner, and child) is a shareholder, director, or officer of a corporation, or is a member of body that has a direct pecuniary interest in the matter.

There are no penalties for anyone who failed to disclose potential conflicts to the member of council. The Act relies on the council member’s knowledge of that conflict, not on anyone’s disclosure. In fact, not knowing of the potential conflict is a reasonable defence.

When a member recognizes a pecuniary conflict, he or she must not participate in the discussions or vote:

When present at meeting at which matter considered
5. (1) Where a member, either on his or her own behalf or while acting for, by, with or through another, has any pecuniary interest, direct or indirect, in any matter and is present at a meeting of the council or local board at which the matter is the subject of consideration, the member,
(a) shall, prior to any consideration of the matter at the meeting, disclose the interest and the general nature thereof;
(b) shall not take part in the discussion of, or vote on any question in respect of the matter; and
(c) shall not attempt in any way whether before, during or after the meeting to influence the voting on any such question.

If a conflict is believed to have occurred, the Act also states it is a matter for the courts, not the police, to determine whether the Act was breached:

Who may try alleged contravention of s. 5 (1-3)
8. The question of whether or not a member has contravened subsection 5 (1), (2) or (3) may be tried and determined by a judge.
Who may apply to judge
9. (1) Subject to subsection (3), an elector may, within six weeks after the fact comes to his or her knowledge that a member may have contravened subsection 5 (1), (2) or (3), apply to the judge for a determination of the question of whether the member has contravened subsection 5 (1), (2) or (3).

Unlike a complaint file to the police, which can remain anonymous until after the investigation (when an FOI can be filed to obtain the names of complainants), filing a court challenge is a public act; the accuser becomes the defendant in the court case. This was the situation in 2012 when Toronto’s Mayor Ford was accused of conflict by Toronto resident Paul Magder.

If a judge determines that a violation occurred under the terms of the Act, he or she can apply two penalties as laid out in the Act, but shall apply the first:

Power of judge to declare seat vacant, disqualify member and require restitution
10. (1) Subject to subsection (2), where the judge determines that a member or a former member while he or she was a member has contravened subsection 5 (1), (2) or (3), the judge,
(a) shall, in the case of a member, declare the seat of the member vacant; and
(b) may disqualify the member or former member from being a member during a period thereafter of not more than seven years; and
(c) may, where the contravention has resulted in personal financial gain, require the member or former member to make restitution to the party suffering the loss, or, where such party is not readily ascertainable, to the municipality or local board of which he or she is a member or former member.

There is always the opportunity for the member to appeal, should the judge decide a violation took place. This is what happened in the case of Mayor Rob Ford, earlier this year. Magder initially won and a judge ordered Ford be removed from office, however the mayor won an appeal and was able to stay.

Should, however, the judge determine the accused did not violate the Act, it contains a clause to allow the municipality to pay any and all legal costs involved in the judicial process:

Insurance
14. (1) Despite section 279 of the Municipal Act, 2001 or section 218 of the City of Toronto Act, 2006, as the case may be, the council of every municipality may at any time pass by-laws,
(a) for contracting for insurance;
(b) despite the Insurance Act, to enable the municipality to act as an insurer; and
(c) for exchanging with other municipalities in Ontario reciprocal contracts of indemnity or inter-insurance in accordance with Part XIII of the Insurance Act,
to protect a member of the council or of any local board thereof who has been found not to have contravened section 5, against any costs or expenses incurred by the member as a result of a proceeding brought under this Act, and for paying on behalf of or reimbursing the member for any such costs or expenses.

Finally, the judge has leeway in determining whether any violation was intended:

Saving by reason of inadvertence or error
(2) Where the judge determines that a member or a former member while he or she was a member has contravened subsection 5 (1), (2) or (3), if the judge finds that the contravention was committed through inadvertence or by reason of an error in judgment, the member is not subject to having his or her seat declared vacant and the member or former member is not subject to being disqualified as a member, as provided by subsection (1).

D’Agostino adds:

Even the most careful councillor is likely to face  allegations of conflict over time. However, if the councillor undertakes a program of due diligence and documented compliance, the chances of success in Court will be significantly improved.

Some believe the Act needs improvement and a wider reach to be more effective. Judge Douglas Cunningham, heading the inquiry into the charge of conflict for Mayor Hazel McCallion, made eight recommendations for changes, including:

 • Clarify the scope of the act, including adding a statement that “the interests of spouses, parents, children, siblings, and other relatives are deemed also to be the interests of the member.” During the inquiry, the mayor testified that her son’s role had no influence on her view of the project. “I would have given the same attention to the project from a person not related to me at all,” she said.
 •  Reach beyond “pecuniary interest,” in defining what constitutes a conflict. Cunningham suggests the term should be replaced more broadly with “private interest.” At present the Act requires council members to refrain from lobbying for or voting on only issues in which they or a relative has a financial interest.