COURT OF APPEAL FOR ONTARIO
DATE: 20000210
DOCKET: C32919
COURT OF APPEAL FOR ONTARIO
ABELLA, CHARRON and MacPHERSON JJ.A.
B E T W E E N :
THE REGIONAL MUNICIPALITY OF PEEL
Applicant
(Respondent in Appeal)
Brian G. Morgan and
Frederick L. Myers,
for the appellant
- and -
GREATER TORONTO AIRPORTS AUTHORITY
Respondent
(Appellant in Appeal)
Thomas R. Lederer and
Chris Barnett,
for the respondent
- and -
LOUIS PARSONS
Intervener
(Respondent in Appeal)
James E. Lewis,
for the intervener
Heard: January 11, 2000
On appeal from the decision of Mr. Justice Cullity dated
September 24, 1999
CHARRON J.A.:
1. Overview
[1] The Board of Directors of the appellant, the Greater Toronto
Airports Authority (the “GTAA”), decided that Louis Parsons, a
nominee of the respondent Regional Municipality of Peel (“Peel”),
was not qualified to be a member and director of the GTAA. Peel
brought an application pursuant to Rule 14.05(3)(d), seeking a
declaration that the Board’s decision contravened the GTAA’s by-
laws. Mr. Parsons was granted leave to intervene on the
application.
[2] Cullity J. allowed the application. In a judgment, dated
September 24, 1999 and reported at (1999), 5 M.P.L.R. (3d) 101
(Ont. S.C.J.), the court declared that the Board’s decision
contravened the GTAA’s General Operating By-law (“the By-law”)
and that the Board was obligated to appoint Mr. Parsons as a
member and director of the GTAA. The GTAA appeals from this
judgment.
[3] Cullity J. made a thorough review of the facts in his
judgment. None of those facts are in issue on this appeal. The
parties are divided, rather, on what inferences those facts were
capable of supporting. Cullity J. held that the facts could not
reasonably support the Board’s decision. I agree with that
conclusion.
2. The Facts
[4] I will only review those facts that are necessary to
understand this appeal. Reference can be made to Cullity J.’s
reported judgment for a more complete review.
[5] The GTAA is a non-profit corporation that operates Pearson
Airport. The persons who serve as its members and directors are
nominated by various outside bodies, including the regional
municipalities of the Greater Toronto Area and the federal and
provincial governments. The nominees are then appointed by the
Board of Directors if the Board determines that they meet the
qualifications in the By-law.
[6] Mr. Parsons was nominated by Peel. At its meeting on May 12,
1998, the Board decided that Mr. Parsons did not meet the
conflict of interest requirements of the By-law for appointment
as a member and director. This decision was based on the
conclusion reached by a majority of the members of the Board that
Mr. Parsons, if appointed, would not at all times act in the best
interests of the GTAA. The Board therefore did not appoint Mr.
Parsons and Peel’s prior nominee, Anne Edgar, remained on the
Board pursuant to the By-law.
[7] In arriving at the conclusion that Mr. Parsons would not at
all times act in the best interests of the GTAA, the Board relied
firstly, on reports of what transpired during the course of an
interview with Mr. Parsons held on May 4, 1998 before two members
of the Board, and, secondly, on the contents of a letter dated
May 11, 1998 written by Mr. Parsons and sent to the Chairman of
the Board.
[8] The two Board members who conducted the interview, Mr. Dimma
and Mr. Butt, concluded that Mr. Parsons would not at all times
act in the best interests of the GTAA based on the fact that Mr.
Parsons, several times during the course of the interview,
refused to state unequivocally that he would do so. Rather, in
answer to several specific questions, he responded that he would
want to know all the facts before stating his position on any
issue.
[9] Following the interview, Mr. Parsons was informed that a
recommendation was being made to the Board that his nomination be
rejected on the basis that he would not always act in the best
interests of the GTAA and was therefore in a conflict of
interest. He was asked to state unequivocally that he intended to
exercise his powers and duties as a director with a view to the
best interests of the GTAA. Mr. Parsons did so by letter dated
May 11, 1998.
[10] In his May 11 letter, Mr. Parsons also commented that in his
interview “there had been no suggestions of a conflict of
interest or any questions raised that would indicate that I would
not be in a position to act in the best interests of the GTAA in
all matters.” The Board was advised by Mr. Dimma that this latter
statement was untrue. The Board therefore reached the conclusion
that Mr. Parsons was lying in his letter and that, consequently,
his statement that he would always act in the best interests of
the GTAA was not credible.
3. The Issues
[11] A number of matters are no longer in issue on this appeal.
For the purposes of this appeal, the parties do not dispute the
following conclusions of fact and law made by the applications
judge:
- the application can be determined on the basis of the
material before the court without a trial;
- under the provisions of the By-law, it was open to the
Board to inquire into whether a nominee, if appointed,
would act solely in the best interests of the GTAA, and
to disqualify a nominee on the basis that he would not;
- in order to succeed, it was incumbent upon the applicant,
Peel, to demonstrate that no Board of Directors, acting
reasonably in the exercise of its business judgment, could
have made the decision on the basis of the evidence before
it; and
- given the anticipatory nature of the decision to reject a
nominee on the basis that he would not act in the best
interests of the GTAA, the Board’s decision could only
be said to fall within the range of reasonableness if it
was based on “clear and not ambiguous evidence.”
[12] The evidence demonstrates that the Board purported to act in
accordance with this latter stringent test when it made the
decision to reject Mr. Parsons’ nomination and that it did so on
the advice of its legal counsel. All counsel on the appeal are in
agreement that, given the scope of the Board’s limited authority
to screen nominees under the By-law and the anticipatory nature
of the decision, this test is the appropriate one in the
particular circumstances of this case. Given the parties’
agreement as to the narrow scope of the Board’s authority to
reject Mr. Parsons’ nomination under the By-law, it is not
necessary for this court to decide whether the applications judge
was correct in finding that the Board’s decision was entitled to
the same degree of deference as it generally would with respect
to decisions made in the management of the company’s affairs. See
Maple Leaf Foods Inc. v. Schneider Corp. (1998), 1998 5121 (ON CA), 42 O.R. (3d) 177
(C.A.) for an application of what has been referred to by the
parties as the “business judgment rule”. In this case, it is
agreed that any rejection of Mr. Parsons’ nomination that was
based on evidence falling short of the “clear and not ambiguous”
test would fall beyond the scope of the Board’s authority under
the By-law.
[13] The applications judge held that the evidentiary basis
before the Board could not reasonably support its decision. More
specifically, he held that no board of directors acting
reasonably in the exercise of its business judgment could have
decided that the evidence satisfied the stringent test propounded
by counsel.
[14] In light of his decision on this issue, the applications
judge held that it was not necessary to decide whether the Board
breached a duty to observe the requisite standards of procedural
fairness in reaching its decision. Nonetheless, he held that, if
it were necessary to decide this issue, he would conclude that
procedural fairness required that Mr. Parsons be given a
reasonable opportunity to be heard and that Mr. Parsons was not
given this opportunity.
[15] The GTAA contends that the applications judge erred in
finding, firstly, that the Board’s decision could not be
supported on the evidence and, secondly, that the decision
breached the rules of procedural fairness.
[16] The first issue to be decided on this appeal is whether the
Board could reasonably conclude that it had clear and unambiguous
evidence that Mr. Parsons would not act at all times in the best
interests of the GTAA. In my view, it could not and the
applications judge was correct in so concluding.
[17] In light of my decision on this issue, I do not find it
necessary to deal with the question of procedural fairness and,
consequently, I will make no comment on this second issue.
4. The Evidentiary Basis in Support of the Board’s Decision
[18] The applications judge extensively reviewed the evidentiary
basis for the Board’s decision at pp.127-32 of his judgment. In
dealing firstly with the interview, the applications judge stated
that “the thrust of … [the] criticism on the conflict of interest
issue was that Mr. Parsons refused to give a direct answer to the
question where his loyalties would lie, that he said that it
would depend on the circumstances and that he saw a
responsibility both to the [GTAA] and to the body that nominated
him.” Cullity J. then concluded as follows:
Ignoring the references to extraneous
matters and, for the moment, the attack that was
subsequently made on Mr. Parsons’ credibility, I
cannot accept that the criticisms made of his
cautious responses to the questions relating to
directors’ accountability, responsibility or
loyalty could reasonably support a decision that
there was a sufficiently high degree of
probability that he would not always act in the
best interests of the respondent [GTAA] to
justify anticipatory revocation or
disqualification.
[19] In dealing next with the Board’s conclusion that Mr.
Parsons’ account in his May 11 letter of what took place at the
interview was untruthful, the applications judge held that this
conclusion could not “possibly be justified on the basis of the
evidence.” The applications judge found “it quite extraordinary,
as well as very regrettable” that the Board was prepared to
impugn Mr. Parsons’ credibility solely on the basis of the May 11
letter without seeking further clarification. In his view, the
Board’s conclusion with respect to Mr. Parsons’ credibility “was
unwarranted and unreasonable.”
[20] Finally, the applications judge concluded as follows:
A decision to set aside the decision of the
board does, of course, require more than the Court’s
disagreement with it. The applicant must demonstrate
that it was not open to the board, acting reasonably,
to reach such a decision. The evidence on which the
board acted must be so deficient and inadequate as to
justify a conclusion that no board of directors acting
reasonably in the exercise of its business judgment,
could have decided that it satisfied the stringent
test propounded by the respondent’s corporate counsel.
On the facts of this case, I believe that a conclusion
that the decision of the board was not valid is required.
[21] The appellant takes the position that the Board could
reasonably conclude, based on the interview, that Mr. Parsons
would not at all times act in the best interests of the GTAA.
Counsel for the appellant conceded, however, that any concerns
the Board may have had arising from the interview would have been
adequately answered by the May 11 letter, had this letter been
accepted by the Board as truthful. Hence, the reasonableness of
the Board’s conclusion that the letter was not credible becomes
pivotal in the determination of this appeal.
[22] The GTAA submits that the applications judge, although
correct in his statement of the test, did not in substance apply
the test he articulated. The GTAA submits that the applications
judge effectively applied a different test, “namely whether the
Board’s assessment of the evidence before it was less reasonable
than the Court’s alternative assessment of the evidence.” In
support of this submission, the appellant relies mainly on the
applications judge’s treatment of the May 11 letter.
[23] The appellant notes firstly that, at one point in his
judgment, Cullity J. stated as follows:
An inference that, in his letter to
Mr. Butt of May 11, Mr. Parsons intended to deny
that the question of his future motivation as a
director had been discussed is, in my judgment,
far less reasonable than a conclusion that he
simply did not relate the allegation of a conflict
of interest to that question.
The appellant submits that this statement demonstrates that the
applications judge was in effect substituting his own view for
that of the Board.
[24] Secondly, the appellant argues that the applications judge’s
conclusion on the meaning of the May 11 letter is inconsistent
with Mr. Parsons’ own interpretation of the letter and,
consequently, demonstrates that he misapprehended the evidence on
this crucial point. The appellant submits that the applications
judge focussed on the word “position” in the May 11 letter and
concluded that Mr. Parsons was in effect stating in the letter
that there was no question at the interview that he would not be
in a “position” to act in the best interests of the GTAA. This
latter statement would be truthful given the fact that no
questions were raised about Mr. Parsons holding any position with
Peel that would give rise to a duty that would conflict with his
position on the Board, if appointed. However, the appellant
states that Mr. Parsons’ explanation of the letter was different.
The appellant notes that, in his affidavits and cross-
examination, Mr. Parsons stated that there were no “questions
raised” that he would not be in a position to act always in the
best interest of the GTAA and submits that he thereby inferred
that no discussion had taken place about his duty to act in the
best interest of the GTAA, a proposition that was incorrect.
[25] I see no merit to this argument. It is based on an improper
dissecting of the applications judge’s reasons. It is clear from
the reasons as a whole that the applications judge applied the
test that he articulated. Further, the applications judge’s
conclusions on the May 11 letter are not inconsistent with Mr.
Parsons’ own evidence as contended. In my view, the appellant’s
argument on this point amounts to a distinction without a
difference.
[26] In my view, the applications judge was correct in finding
that the Board’s decision could not be supported by the evidence.
Since it is conceded that, absent the finding on the conflict of
interest question, there was no basis for rejecting Mr. Parsons’
nomination, the applications judge was also correct in allowing
Peel’s application and declaring that the Board’s decision
contravened the GTAA By-law. The formal judgment also includes an
order that the Board was obliged to appoint Mr. Parsons as a
member and director of the GTAA. It would appear from the
judgment (at p.134) and from the materials filed by Mr. Parsons
that this order was made pursuant to Mr. Parsons’ request. No
issue was raised on appeal with respect to Mr. Parsons’
entitlement to seek this relief on his own application. I
therefore see no basis to interfere with that part of the order.
[27] For these reasons, I would dismiss the appeal with costs.
(signed) "Louise Charron J.A."
(signed) "I agree R. S. Abella J.A."
(signed) "I agree J. C. MacPherson J.A."
RELEASED: February 10, 2000