NEWMARKET

COURT FILE NO.: CV-14-118114-00

DATE: 20140912

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Sridhar Reddy Methuku

Applicant

– and –

Dave Barrow

Respondent

John Mascarin and Jody Johnson, for the Applicant

Charles Loopstra and Daron Earthy, for the Respondent

HEARD: September 5, 2014

REASONS

edwards J.:

Overview

[1] Municipal politicians are often called upon to deal with the grassroots issues which concern the day to day lives of local residents. These same politicians are required to maintain the highest of standards when it comes to situations when they may find themselves in a possible conflict of interest. While most municipal politicians undoubtedly know when they may be in a potential or real conflict of interest, the Municipal Conflict of Interest Act, R.S.O. 1990 c. M.50 (“the MCIA”), and specifically section 5(1) thereof, makes clear that elected representatives must refrain from participating in the discussion of, and voting on matters in which they could be influenced because the matter might impact their personal financial interests.

[2] The issue which this court is called upon is to determine whether or not the respondent Dave Barrow, the present Mayor of the Town of Richmond Hill (“The Town”), failed to disclose a pecuniary interest necessitating his removal from office when he voted on a motion that he “personally repay the Town $10,800 for the over-expenditure in the Engagement and Marketing Account…”

The Facts

[3] The applicant, Sridhar Methuku, is both a resident of the Town as well as a candidate for the position of mayor in the upcoming municipal election scheduled for the fall of 2014. The applicant filed his nomination papers as a candidate for the Office of Mayor on February 7, 2014 and commenced this application on March 11, 2014.

[4] The respondent, Dave Barrow, is the Mayor of the Town and has occupied this position since 2006. The respondent’s involvement in municipal politics dates back to 1978 when he first served as a ward counsellor for the Town. Like the applicant, the respondent is also a candidate for the position of mayor in the fall election.

[5] In his position as mayor, the respondent like all other members of council, has taken the mandatory declaration of office which provides in part:

I will disclose any pecuniary interest, direct or indirect, in accordance with the Municipal Conflict of Interest Act.

[6] There is no dispute between the parties that the respondent is obliged, both by the aforesaid declaration as well as the provisions of the MCIA, to declare all pecuniary interests that he has in any matter before council or a committee of council, and that in addition to such declaration he would be obliged to refrain from discussing, speaking to and voting on any matters in which he had a pecuniary interest. In point of fact the respondent had, on a number of occasions prior to the occasion in question, declared pecuniary interests in various matters and thus fulfilled his obligations under the MCIA.

[7] On April 11, 2013, the Town’s Budget Committee of the Whole of the met to approve the 2013 draft operating budget of the Town and forwarded it for consideration by council on April 15, 2013. Amongst the various items that were referenced in the 2013 Draft Operating Budget, was reference to the approved budget for 2012 for the Engagement and Marketing Account (“The Account”), an item involving $84,300.

[8] At the meeting on April 11, 2013 one of the Town counsellors, Counsellor Perrelli, presented a motion (“The Motion”) to amend the main motion which provided:

That the Mayor personally repay the Town $10,800 for the over-expenditure in the Engagement and Marketing Account…

[9] There is no evidence to support any suggestion that the respondent misappropriated funds from the Account, nor that any funds were used from this Account for personal purposes.

[10] Counsellor Perrelli, like the applicant and the respondent, is also a candidate for the position of mayor in the upcoming elections.

[11] When the motion was brought by Counsellor Perrelli, the minutes of the meeting make clear that the respondent did not declare any conflict of interest and in fact stated:

…I don’t sense that I am personally responsible for the use of all of those funds. I do all that on behalf of all members of council and all members of council have participated in the events that we sponsored. So I certainly can’t support this.

[12] A recorded vote was taken on the motion and the respondent voted to defeat it.

[13] It is important to note as a factual matter that in regard to the question of whether or not the Engagement and Marketing Account was over budget, this court had the affidavit evidence of Dean Miller who is the Commissioner of Corporate and Financial Services at the Town of Richmond Hill. One of Mr. Miller’s responsibilities includes the overall functional, operational and budget management for the Corporate and Financial Services Department, which includes all of the expenditures for the mayor and council offices. Mr. Miller’s affidavit was not challenged by the applicant in cross-examination. With respect to the issue of the alleged over expenditure Mr. Miller states in his affidavit:

On November 25, 2012, at a regular meeting I had with the Mayor to review the expenditures and status of the Mayor and Council Offices budget, the Mayor indicated to me that he had two expenditure requests that had not been anticipated and that would significantly exceed the budget allocation for the Engagement and Marketing Account. Since it was the nearing the end of the fiscal year for budget purposes, and it was likely the Engagement and Marketing Account would go over budget, he sought my advice with respect to further expenditures in relation to the budget.

The two significant expenditures he sought my advice on were:

a) A request by Counsellor Beros for reimbursement in the amount of $5,011 for tote bags that had been purchased and distributed by the Richmond Road Watch Committee at the Richmond Hill Santa Claus parade that month; and

b) A request from the Richmond Hill Pipe Band for forgiveness of rental fees for the use of the Town’s facilities in the amount of $2,433. Since the Town did not have a forgiveness policy for facility rentals, any forgiveness for this rental fee would have to be allocated to another Town account.

I agreed with the Mayor to review the Mayor and Council Offices budget to see if these requests could be accommodated and if the Engagement and Marketing Account could go over budget by approximately $10,000.

As Commissioner, I have authority pursuant to section 8.2 of the Financial Control By-law to re-allocate up to 2% of the total Corporate and Financial Services budget totalling $18,805,800, so long as the total expenditures in the department does not exceed the budgeted amount. In this case, I exercised my authority to exceed the sub-sub-allocation to the Engagement and Marketing Account because the total amount within the Corporate and Financial Services budget, as well as the total amount within Mayor and Council Offices budget, was under budget in amounts greater than the overage anticipated.

On January 29, 2013, I confirmed to the Mayor that both requests had been successfully accommodated within the Mayor and Council Offices budget and that an overage over budget or approximately $10,000 was not an issue.

[14] A review of the aforementioned paragraphs from Mr. Miller’s affidavit makes it quite clear that in fact the alleged over expenditure in the Account had been accommodated within the mayor’s budget, and there was therefore in fact no over expenditure for which the mayor, or anyone else, could be held responsible.

Position of the Applicant

[15] Counsel for the applicant seeks a declaration that the respondent was in a conflict of interest when he spoke to the motion and did not declare any conflict of interest. In the event this court were to find that the mayor failed to comply with his obligations under section 5(1) of the MCIA, then counsel for the applicant seeks a declaration that the mayor’s seat in the Town of Richmond Hill should be declared vacant and that the respondent should be disqualified from seeking office for a period of up to seven years. As well, counsel for the applicant seeks an order requiring the respondent to make restitution to the Town in the amount of $10,800.

[16] While Section 5(1) of the MCIA requires someone like the respondent to declare “any pecuniary interest” “in any matter”, pecuniary interest is not defined. Counsel for the applicant argues that pecuniary interest has been interpreted as one generally involving money or a financial interest, see Tuchenhagen v. Mondoux, 2011 ONSC 5398 at para. 31. It is further argued that the matter to be discussed or voted upon need only have the potential to affect a pecuniary interest of the member in order for the member to then be in contravention of section 5 of the MCIA, see Greene v. Borins, (1985) 1985 2137 (ON SC), 28 M.P.L.R. 251 at para. 42.

[17] On the facts before this court counsel for the applicant stressed that this court does not need to concern itself with whether or not the underlying motion had, or could have any legal validity. In other words, it makes no matter whether or not the Town had any legal basis to order the respondent to make restitution of the alleged $10,800 expenditure. It also made no matter whether in fact there had been an over expenditure. In essence, it is argued the evidence of Mr. Miller is of no concern to this court’s ultimate decision. Fundamentally, counsel for the applicant argues that where there was the potential for the respondent to be required to make restitution, then the mayor had an obligation to declare the conflict of interest and not to speak to the motion.

Position of the Respondent

[18] Counsel for the respondent raises a number of issues in response to the application, the first of which engages a discussion of whether or not this application is barred by the limitation period set forth in section 9(1) of the MCIA. If this court comes to the conclusion that the limitation period does not apply, then counsel for the applicant argues that the provisions of section 5 of the MCIA do not apply, and that the exceptions set forth in section 4(h) and 4(k) of the MCIA do apply. Finally, counsel for the respondent argues that even if the exceptions set forth in section 4(h) and (k) of the MCIA do not apply, that the respondent in fact did not violate section 5 of the MCIA.

The Limitation Period

[19] Dealing first of all with the issue of whether or not this application is barred by the limitation period set forth in section 9(1) of the MCIA, this court is required to engage in an examination of whether or not the application was brought within six weeks after the fact comes to an electors knowledge that a member may have contravened section 5 of the MCIA. As to when the limitation period begins to run, Gilmore J. in Hervey v. Morris, 2013 13654 (ONSC), held that the onus of demonstrating a contravention of the limitation set forth in section 9 was on the respondent to demonstrate on a balance of probabilities, that the applicant had some knowledge which would lead someone like the applicant to believe that a breach of the MCIA had occurred.

[20] It is clear that the purpose of section 9 of the MCIA is, as Gilmore J. indicated in Hervey, to impose a strict time limit so as to protect elected officials and ensure that applications like the one before the court is brought on a timely basis.

[21] In this case the application concerns a vote that occurred on April 11, 2013. The application was not commenced until almost one year later, March 11, 2014. The applicant’s evidence is that he only became aware of the potential issue engaging the question of whether or not the respondent was in a conflict when he read an article which had been posted on the website of an organization known as the Richmond Hill Watchdog Committee. The article was posted on the Watchdog Committee website on February 23, 2014, and the applicant says that he read the article on February 24, 2014. As previously noted, the applicant is a candidate for election in the forthcoming Richmond Hill municipal election and had filed his nomination papers on February 7, 2014.

[22] The applicant, according to evidence elicited through his cross-examination, had been attending council and/or committee meetings and reading the minutes published on the Town’s website since 2011. The applicant is a well-educated individual, having a Masters in Computer Science from Boston University. A thorough review of the cross-examination transcript of the applicant leaves this court with the impression that he had a relatively poor memory for many of the issues for which he was cross-examined, yet had no doubt that the date when he first became aware of the issue that now engages this court was when he read the Watchdog Committee article on February 24, 2014.

[23] While the timing of the applicant’s filing of his election materials in early February and the ultimate discovery of the respondent’s potential conflict is very suspicious, I am not satisfied that the respondent has satisfied the onus of establishing on a balance of probabilities that the applicant knew of the issue which would engage section 5 of the MCIA at any earlier time period than what he has testified to; i.e. February 24, 2014.

Does the Exception Set Forth in Section 4(h) or Section 4(k) of the MCIA Apply to the Respondent’s Alleged Pecuniary Interest?

[24] The MCIA provides at section 4(h) as follows:

Where s. 5 does not apply

4. Section 5 does not apply to a pecuniary interest in any matter that a member may have,

(h)…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; 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.

[25] Counsel for the respondent argues that the only basis for the proposition inherent in the motion that the respondent “repay” any amount to the Town is based on the fact that the mayor had authority for approving expenses to be paid from the Account. It is argued that because the alleged pecuniary interest of the respondent in the motion arose only by reason of the respondent’s position being the mayor, that section 4(h) of the MCIA applies.

[26] The provisions of section 4(h) are to provide an exemption to the requirements of section 5 of the MCIA in situations where a pecuniary interest arises solely from the member being appointed by his or her council as a member of a board, commission or other body.

[27] In Blythe v. Northumberland, 1990 6752 (ON SC), [1990] O.J. No. 2166 at para. 38, Crossland J. adopted the “common sense” interpretation of section 4(h) set forth in Makuch in Canadian Municipal and Planning Law at page 3l2 as follows:

Further it is to be noted that the Municipal Conflict of Interest Act 1983, section 4(h), an exception to the conflict rules is made in the case of interests arising solely from being appointed by council as a member of a board, commission or other body. Makuch in Canadian Municipal and Planning Law, supra at page 312, referred to this exception as “common sense” and further stated:

Such interests in body, public duties similar to those of the member as a counsellor or board member in any conflict must

be accepted since private or personal interests are not involved.

Accordingly, I am of the opinion that the three members of council who also served on the Board of Health do not have a conflict of interest in voting on the by-laws in question.

[28] I agree with the position of counsel for the applicant that it was not the respondent’s position on the Budget Committee that gave rise to the pecuniary interest. The fact that the respondent was sitting as a member of the Budget Committee of the whole of the Town of Richmond Hill does not engage the provisions of section 4(h) of the MCIA.

[29] As to the application of section 4(k), it cannot be said that if the Town of Richmond Hill had the authority to order the respondent to make restitution of $10,800, that such an amount was so “remote or insignificant” in its nature that it could not reasonably be regarded as likely to influence the member. In my view, neither section 4(h) or 4(k) provides any assistance to the respondent in this matter.

Did the Respondent Violate Section 5 of the MCIA?

[30] The purpose of section 5 of the MCIA is to ensure there is transparency in the municipal decision-making process. Part of what makes a democracy work is the knowledge that the electorate can rely on its decision-makers to make decisions uninfluenced by their own self-interest or pecuniary interest.

[31] The determination of whether section 5 of the MCIA has been violated engages a fundamental question as to whether or not the matter to be voted upon had the potential to affect the pecuniary interest of the member. See Greene v. Borins, (1985) 28 M.P.L.R. 51 [251] at para. 42.

[32] The definition of the term “matter” has been the subject matter of a recent decision of the Divisional Court in Magder v. Ford, 2013 ONSC 263. In that regard, the Divisional Court stated:

While we agree with the application judge that the MCIA can apply to Code matters, it does so only if the member has a direct or indirect ‘pecuniary interest’ in the matter before Council. Therefore, to determine whether there has been a contravention of s. 5(1), one must begin with an inquiry into the matter before Council.

In our view, it is not correct, as the respondent argues and the application judge appears to have accepted (Reasons at para. 15), that a member is precluded from speaking whenever a Code violation is before the Council, just because Council has the power to impose a financial penalty. The pecuniary interest of the member must be a real one. Unless the report of the Integrity Commissioner recommends an economic sanction, or if there is some real likelihood that a financial penalty is contemplated, the member is not precluded from speaking to a report on his conduct. There is no reason to preclude a member from speaking to a report recommending a reprimand or requesting an apology. Given the importance of procedural fairness and especially the right to be heard, the individual should not be precluded from speaking, absent a real financial interest that has crystallized.

Moreover, since a pecuniary interest results in a prohibition against participation in a public meeting which, if not obeyed, attracts a severe penalty, it is appropriate to strictly interpret the pecuniary interest threshold.

[33] When the respondent spoke to the motion and ultimately voted against the motion did the respondent have, to use the words of the Divisional Court in Magda, supra, a pecuniary interest that was “real”. The answer to this question must flow from an analysis of whether the Budget Committee, and by implication the Town, had the jurisdiction or power to order the respondent to make restitution or re-pay the over expenditure in the Account.

[34] Factually, the affidavit of Mr. Miller makes clear that there was no over expenditure in the Account. However, my analysis of whether the committee or the Town had the power implicit in the motion to order restitution will assume that in fact the Account had been overspent.

[35] A Municipality is a creature of statute and it can only exercise those powers conferred on it by statute. It is conceded by Mr. Loopstra, counsel for the respondent, that the Municipal Act has, in its most recent iteration, broadened the powers of a Municipality. Nonetheless, the powers of a Municipality must be found within the statute.

[36] Mr. Mascarin, counsel for the applicant, argues that the broad powers conferred upon a Municipality by the Municipal Act to govern its own affairs does not preclude a Municipal council from seeking financial redress and to look after the financial management of the Municipality. Amongst the enhanced powers found in the Municipal Act is the power provided by section 9 which provides:

A Municipality has the capacity rights, powers and privileges of a natural person for the purpose of exercising its authority under this or any other Act.

Mr. Mascarin argues that with this enhanced power a Municipality, on facts similar to those before the court could, like any natural person, recover any over-payment. The difficulty with this argument, however, lies in the fact that a natural person can only sue where he or she has a legal cause of action. I fail to see where such a legal cause of action arises on the facts before this court.

[37] Mr. Mascarin argues that section 11(2) of the Municipal Act, and specifically subsection 3, allows a Municipality to pass by-laws respecting the “financial management of the Municipality and its local boards”. There is no by-law in the Town of Richmond Hill that would authorize the Town and any of its officials to seek restitution or reimbursement for any over expenditure within a Town budgeted item. I was not directed to any similar authority, of any Municipality within the Province of Ontario, where any Municipality had passed a by-law that would allow for a Municipality to seek restitution or reimbursement in a similar situation. This is not a situation where a Municipality is seeking repayment of personal expenses that a counsellor or Mayor may have improperly charged to his or her expense account. Such a factual situation may result in an entirely different disposition. What is sought in this case is for an elected official to bear personal responsibility for an alleged over expenditure within a budget, albeit an over expenditure for which the elected official derived no personal benefit.

[38] While there may be many members of society who would see it as a positive development where a politician could be held responsible for spending in excess of a budgeted item, such responsibility can only flow where there is statutory authority to do so. There is no statutory authority from my review of the Municipal Act, even with its enhanced powers, that would allow a Municipality to seek restitution or reimbursement in a situation like the one before this court.

[39] If, as I have found the Town did not have the authority to order the respondent to repay or make restitution for an overpayment in the Account, what then is the implication with respect to the respondent having spoken to and voted on the motion? The answer to this question can be found in the decision of the Divisional Court in Magder, where at paragraph 72 the court stated:

Given that the imposition of the financial sanction under Decision CC 52.1 was a nullity because council did not have the jurisdiction to impose such a penalty, Mr. Ford had no pecuniary interest in the matter on which he voted at council on February 7, 2012 – namely, the revocation of the Decision CC 52.1.

[40] The motion that was before the Budget Committee on April 11, 2013 was a motion that sought to impose personal responsibility on the respondent for repayment/restitution. The motion sought to impose a penalty on the respondent where the committee and the Town ultimately would have had no power to force the respondent to make such repayment or restitution. The motion was ultra vires the committee. The committee, and ultimately the Town, would never have had jurisdiction to impose the penalty that essentially was being sought as against the respondent.

[41] Counsel for the applicant argues that the requirements of section 5(1) of the MCIA apply in respect of “any matter” in which a council member has any pecuniary interest where the member “is present at a meeting of the council…at which the matter is the subject of consideration”. Counsel for the applicant then suggests that the position of the respondent would lead to an unworkable result if “any matter” were to be read down as meaning any “valid matter” or “authorized matter”.

[42] Mr. Mascarin’s argument with respect to the implications of the respondent’s argument concerning the vires of the committee’s motion was addressed by Mr. Mascarin in an article entitled Eyes Wide Shut – Wilful Blindness and a Conflict of Fordian Proportions, [2013] 6 D.M.P.L. (2d) January 2013. At page 11 of his critique of the decision of Hackland J. in Magder v. Ford, Mr. Mascarin states:

The requirements under subsection 5(1) of the MCIA apply in respect of “any matter” in which a council member has any pecuniary interest where the member “is present at a meeting of the council...at which the matter is the subject of consideration.” It would lead to an unworkable result if “any matter” were to be read down as meaning any “valid matter” or “authorized matter” (or some other similar term). This would lead to uncertainty as to the application of the statue. First, it would put a member of council in the position that he or she would have to make a legal determination that a matter before council was “legally valid”. Second, it would erode the policy basis of the prohibition by potentially allowing council members to sometimes address a matter in which they have a pecuniary interest if the matter is somehow legally questionable. Third, it would create confusion and chaos with respect to the application of any order under the MCIA if a subsequent court challenge invalidates a by-law, resolution or other municipal action.

[43] Politicians, and municipal politicians in particular, make decisions every day. Politicians are in the business of making decisions. As members of society we expect that our legal representatives will make informed and correct decisions. One of the decisions that a politician, like the respondent has to make, in situations like the one which the respondent was confronted with, is whether or not he has a real pecuniary interest in the matter that might be discussed by council. On the facts before this court I have determined that the committee, and ultimately the Town, would not have had any legal authority to require the respondent to make restitution or repayment. As such, the respondent did not have a pecuniary interest that was a real one.

[44] If, however, to address the concerns of Mr. Mascarin that there could be chaos created by the final disposition I have adopted in this matter, such chaos is fundamentally addressed by reason of the fact that someone like the respondent will have to make the fundamental decision when confronted with a potential conflict as to whether or not his pecuniary interest is real. If a municipal politician makes the wrong judgment call and it is ultimately found to be a matter in which the municipal politician did in fact have a pecuniary interest, and that the pecuniary interest was a real one and thereafter proceeded to speak to and vote on a motion, then the municipal politician in that situation has made the wrong choice and the wrong decision. In that situation the municipal politician, absent the saving provisions of section 10(2) of the MCIA, would likely result in the position of the hypothetical politician having his or her position declared vacant, and ultimately an inability to run in any future elections for seven years.

[45] When the respondent spoke to this matter and indicated that he did not feel that he was personally responsible for the funds, and that he was speaking on behalf of “all members of council”, the respondent made a decision that he did not have a personal pecuniary interest that was a real one. If the facts were different and the committee and/or the Town had the power prescribed to require someone like the respondent to repay personal expenses for which there had been an over expenditure and thereafter chose to speak to and vote on such a motion the decision of this court would, in all likelihood, be quite different.

[46] The purpose of the MCIA, and specifically section 5, is to ensure that municipal politicians who find themselves in a potential conflict of interest declare that conflict so that society will know the decisions made by those elected to high office, and in whom the electorate can expect the highest of standards, will be held accountable in situations where there has been a failure to comply with section 5(1).

[47] The applicant stated when cross-examined on his affidavit that the respondent broke the law and he had to be held accountable for breaking the law. He was specifically asked during the course of his cross-examination what his position was in the event this court decided that counsel did not have the authority to order the Mayor to pay back $10,800 for the alleged over expenditure. The applicant’s response to this very specific question was as follows:

The thing is, the Mayor broke the law. He has to be held accountable. That’s all.

[48] The respondent did not break the law because he did not have any real financial interest in the matter that was before the committee. The committee and the Town never had the authority to order restitution or repayment of the $10,800. The motion that was put before the committee was a motion moved by one of the respondent’s political rivals who is now seeking the Mayor’s seat in the forthcoming political municipal election. The motion had as its sole purpose, the creation of an appearance of impropriety on the part of the respondent. The motion if approved would have been a nullity, and as such in accordance with the determination of the Divisional Court in Magder, the respondent did not contravene section 5 of the MCIA by speaking and voting on the matter.

[49] As I have found that section 5 of the MCIA had not been violated by the respondent, it is not necessary to deal with the saving provisions of section 10(2) of the MCIA.

[50] As to the question of costs, if counsel for the parties cannot agree on costs I will receive written submissions limited to three pages in length, to be received within 10 days from the date of receipt of these reasons.

Justice M.L. Edwards

Released: September 12, 2014