The Corporation of the City of Peterborough v. Kawartha Native Housing Society Incorporated et al.

[Indexed as: Peterborough (City) v. Kawartha Native Housing Society Inc.]

99 O.R. (3d) 573

Court of Appeal for Ontario,

Blair J.A. (In Chambers)

December 3, 2009

Corporations -- Not-for-profit corporations -- Receivership -- Counsel -- Motion judge holding that boards of directors of two not-for-profit corporations did not have legal right to retain counsel after receivership appointment without leave of court or approval of receiver -- Corporations appealing -- Boards having right to retain counsel on behalf of corporations for appeal -- Reasonable fees and legal expenses of counsel to be paid out of corporations' assets.

The appellants, two not-for-profit corporations, appealed an order that their boards of directors did not have the legal right to retain counsel in a receivership after the receivership appointment without leave of the court or the approval of the receiver. The Court of Appeal was asked to determine whether the boards could retain counsel on behalf of the appellants for the appeal.

Held, the question should be answered affirmatively.

The boards' ability to pursue the important issues that were raised on the appeal would be hollow if they were not in a position to retain and pay legal counsel. The reasonable legal fees and expenses of counsel were to be paid out of the appellants' assets.

MOTION to determine whether the appellants were entitled to retain counsel for the appeal.

Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(2) [as am.]

Vilko Zbogar and Frank Bennett, for defendants (appellants) moving parties. Alan Barber, for plaintiff/respondent City of Peterborough. L. Viet Nguyen, for receiver Mintz & Partners Limited. [page574]

[1] Endorsement of BLAIR J.A. (In Chambers): -- This is a robustly contested receivership arising out of the management and operation of two related not-for-profit Aboriginal social housing corporations that provide housing and related services to 131 Aboriginal families in Peterborough. The decision under appeal concerns the right of the boards of directors of the corporations to retain legal counsel in the receivership and, if they have that right, how the legal fees are to be funded. The motion judge concluded that the boards did not have the legal right to retain counsel after the receivership appointment without leave of the court or the approval of the receiver. The corporations have appealed that order.

[2] I am satisfied that the above issue and other related issues regarding the ability of directors of not-for-profit corporations that are raised on the appeal are important, in some respects difficult, and in some respects novel (there appear, for example, to be no authorities dealing with the residual powers, if any, left to the boards of not-for-profit non-share capital corporations that find themselves in receivership).

[3] Because of the nature of the order below, there is uncertainty as to whether the boards may even retain counsel on behalf of the corporations for this appeal, much less how those legal fees would be funded. Hence, I am asked to make an order resolving these issues, for purposes of the appeal.

[4] Subsection 134(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 permits a court to which an appeal is taken to "make any interim order that is considered just to prevent prejudice to a party pending appeal".

[5] Here, the boards' ability to pursue the important issues that are raised on the appeal would be hollow in the extreme if they are not in a position to retain and properly pay legal counsel. The appeal cannot be effectively prepared, presented and argued on behalf of the corporations without the benefit of counsel.

[6] Accordingly, I have no hesitation in directing and ordering that the appellants may be represented by counsel on the appeal and that the boards are entitled on their behalf to retain counsel for purposes of the appeal.

[7] The respondent City and the receiver do not object to the above order, but argue that the legal fees should not be paid out of the receivership funds. They argue (1) that the appellants have not shown they do not have the means to retain counsel themselves; (2) that there is insufficient cash flow in the receivership to pay the fees; and (3) that the wording of the operating agreements that govern the social-housing scheme do not permit it. [page575]

[8] I am not persuaded by those arguments. The latter issue is one of the main issues raised on the appeal itself. The evidence of Mr. Dufresne, one of the directors, is clear that the directors have access to no other funds or assets other than the corporations' assets themselves. While it appears true that the corporations are operating in a deficit position, that deficit has been steadily decreasing. There are still operating funds available.

[9] Accordingly, an order will go as follows: (1) The corporations are entitled to retain counsel for purposes of the appeal and the boards are entitled to retain counsel on their behalf for that purpose; (2) the reasonable legal fees and expenses of counsel so retained are to be paid out of the corporations' assets, after assessment; and (3) the time to perfect the appeal is extended to March 5, 2010.

[10] The appellants are entitled to their costs of this motion, payable out of the corporations assets under the control of the receiver and fixed in the amount of $5,000, all inclusive. The amount is to be paid to Orkin Barristers.

Order accordingly.