O’Brien v. Blue Heron Co-Operative Homes Inc., 2015 ONSC 2929
COURT FILE NO.: CV-14-62229
DATE: 2015/05/05
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Stephen O’Brien, Applicant
and
Blue Heron Co-Operative Homes Inc., Respondent
BEFORE: Mr. Justice Douglas Rutherford
COUNSEL: The Applicant in person
The Respondent by its authorized representative, Ms. Michelle Bainbridge
HEARD: March 3, 2015
ENDORSEMENT
[1] The applicant, Stephen O’Brien, has been a member of Blue Heron Co-Operative Homes Inc. (Blue Heron, or the Co-Op) since November 2009. Blue Heron is a not-for-profit housing co-operative incorporated under the Co-Operative Corporations Act, R.S.O. 1990 CHAPTER C.35, as amended (“CCA”). It opened in 2006 and comprises 58 apartments and 25 townhouses located in Kanata. At any given time, about 115-120 Co-Op members (residents over 16 years old) as well as children live there. Blue Heron was funded under the Canada-Ontario Affordable Housing Program and a City of Ottawa initiative, “Action Ottawa.” Approximately 70% of the Co-Op’s units are subsidized, either under the Below-Market-Rent or Rent-Geared-to-Income programs. Mr. O’Brien himself resides in a subsidized unit, as his income is derived from ODSP benefits.
[2] The land on which Blue Heron was built is owned by neighboring St. John’s Anglican Church. The Co-Op is under a land-lease arrangement with St. John’s and the Parish of March in the Anglican Diocese of Ottawa, and is run by a seven-person Board of Directors, six of whom are Co-Op members. The seventh is appointed by the Church as per the land-lease.
[3] Mr. O’Brien applies to the Court for an order under s. 146 of the “CCA” appointing an inspector to investigate the affairs and management of the Co-Op and make a report to the Court. He also seeks an order under s. 178 compelling the Co-Op, its directors, officers and employees to comply with certain provisions of the “CCA” and its own by-laws, and specifies several provisions with which he seeks a compliance order.
[4] In an opening overview in his Factum, Mr. O’Brien provides his perspective on the setting in which his Application is brought. He says at paragraphs 3-5,
Co-op residents are not tenants, condo owners, congregants, or members of exclusive or public clubs. They have no financial stake in where they live. Some members pay market rent; many live in subsidized housing. Co-Ops have a disparate membership including the disadvantaged or vulnerable. More than any group listed above, Co-Op residents are at the mercy of those entrusted with the proper governance and management of their homes.
While members have contractual, property, statutory and internal rights, enforcing those rights is not easy. Once labelled an activist, one learns that the cooperative principle of participatory democracy is illusory. Anyone who tries to effect change is ostracized as a problem child. The attitude of Co-Op “loyalists” is summed up by the vacuous remark, “If you don’t like it here, move!” That solves nothing.
Housing co-ops can best be seen as a cross between Animal Farm and Lord of the Flies. Control often does not rest with Members but with a Board of Directors, managers, cliques, and union-style housing sector groups. Co-Ops are also dominated by rank favouritism, endemic factionalism, overarching self-interest and an “Us vs. Them” mentality. At times, they eerily resemble a cult.
[5] Mr. O’Brien’s complaints, accompanied by a brief of 124 documentary exhibits, paint what he says is a picture on ongoing mismanagement, bad management and failure to comply with procedural provisions found in the “CCA” and the Co-Op’s by-laws as to how such a co-operative corporation should carry on. His complaints include
a) failure to keep election ballots for seven days in order to allow a recount should ten percent of the members requisition one,
b) failure to enact a more comprehensive by-law to specify whether or how serving a partial term as a director plays in to the “no more than two consecutive terms” restriction,
c) unauthorized entries into member’s units in an effort to ascertain the source of a false fire alarm,
d) ignorance of the Co-Op’s by-law provisions and codes of conduct,
e) failure to adopt proper business practices to reduce rental arrears, and disrespectful and rude behavior on occasion by certain directors.
This list is illustrative but not exhaustive of his complaints.
[6] The provisions of the “CCA” under which the applicant asks me to issue orders are
- (1) Upon application by a member of a co-operative, the court, if satisfied that the application is made in good faith and that it appears to be in the interests of the co-operative … to do so, may make an order, upon such terms as to the costs of the investigation or audit or otherwise as to the court seems fit, appointing an inspector to investigate the affairs and management of the co-operative … and to audit the accounts and records of the co-operative …
(7) The inspector shall make a report to the court and shall forward a copy of the report to the co-operative and … the person who made the application …
178 Where a co-operative or a director, officer or employee of a co-operative does not comply with any provision of this Act or the articles or the by-laws of the co-operative, the Superintendent or a member or a creditor of the co-operative, despite the imposition of any penalty in respect of such non-compliance and in addition to any other rights the Superintendent, member or creditor may have, may apply to the court for an order directing the co-operative, director, officer or employee, as the case may be, to comply with such provision, and upon an application the court may make such order or such other order as the court thinks fit.
[7] Section 148 of the “CCA” also empowers the Superintendent of Financial Services, appointed under the Financial Services Commission of Ontario Act, 1997 (FSCO), to appoint an inspector to investigate and report on the affairs and management of a co-operative if 10 per cent of its members request it and show circumstances suggesting fraud or dishonesty.
[8] Mr. O’Brien filed a complaint with FSCO in late 2012 citing many of the same complaints as here, and asked for an investigation. The FSCO declined to appoint an inspector to investigate, albeit observing that “…it appears that you and members of the Board also have some differences in opinions on certain issues.” The FSCO also noted that “In some instances, it was acknowledged that a by-law/rule may have been incorrectly applied or needed to be enhanced and measures were taken to correct the situation.”
[9] While I appreciate that the scope of an FSCO Superintendent appointed investigation may have a more “fraud” focused mandate than what could be the focus of an investigation ordered under s. 146, both investigatory mandates contemplate audits and appear aimed primarily at financial mismanagement.
[10] I asked Mr. O’Brien what sort of person I might contemplate appointing as an “inspector” (un-defined in the “CCA”) to investigate the affairs and management of the Blue Heron, what would be the focus and scope of the investigation, what would be the budget, and who would pay the costs. His only answer was the he assumed my order would go to the FSCO Superintendent who would then allocate and deploy the necessary resources and personnel.
[11] I pressed Mr. O’Brien to give me the hard facts of any specific complaint of mis-management, malfeasance or non-compliance with statutory or by-law non-compliance that would warrant court intervention and could be ameliorated by a specific order of the court. He was unable to move from the generic complaint that the Directors didn’t seem to feel accountable and were generally unknowledgeable of and disinterested in abiding by the rules set out in the “CCA” and the Co-Op’s by-laws. His general complaint theme was that the Board of Directors were just not concerned to “do what was right” and were too often inclined to follow the suggested course of actions of Blue Heron’s only management employee, the coordinator, Ms. Michelle Bainbridge. Mr. O’Brien himself has been a candidate to serve on the Blue Heron Board of Directors on four occasions but was never elected by the membership, notwithstanding his assertion that there has been a high turn-over of Directors in the past few years.
[12] Ms. Bainbridge, the Co-Op’s employee and coordinator, appeared on the Application as the authorized representative of Blue Heron. With her was the Vice-Chair of the Board of Directors. After inquiring into and verifying her authority to represent the Co-Op, and recognizing that the responding materials filed included her affidavits, and ascertaining that Mr. O’Brien did not object, I granted Ms. Bainbridge leave to represent Blue Heron on the hearing of the Application.
[13] Ms. Bainbridge pointed to her written materials filed and made a number of submissions as to the operation of Blue Heron. She pointed out that as an employee and coordinator, she has no decision-making authority, and that the elected Board, which meets every two weeks, holds that operational authority. She noted that new Directors are given a governance review orientation upon being elected, including learning how to be a director and what the authority of the Board is. They are equipped with the by-laws and the written policies of the Co-Op and generally become more and more familiar with these tools as they gain experience. She noted that the Directors are volunteers and that perfection in the Board’s operation is not always attainable.
[14] Ms. Bainbridge conceded that from time to time, procedural errors or deviation from by-laws have occurred but that, as in the case of retaining ballots for possible recounts, such errors have been corrected. As for the Co-Op’s approach to evictions and rental arrears, she explained that Blue Heron’s relationship with its Anglican Church landlord infuses the corporation with a compassionate approach to members in difficult circumstances. She noted that even under the current evictions policy plan, developed in 2008, an attempt is made to work out a payment plan with a tenant with rental arrears problems. In recent years, the Co-Op’s rental arrears have been reduced by about 50%. Delays of up to eight months in enforcing evictions are being reduced significantly since eviction law reform a year ago. These reforms have enabled cooperative tribunals to deal with eviction applications more efficiently.
[15] Ms. Bainbridge also pointed to audit evidence that showed no indication of fiscal mal-administration. In its report to the Board dated January 20, 2014, Collins Barrow, Chartered Accountants wrote,
Testing during our audit did not reveal any illegal, improper or questionable payments or acts, nor any acts committed with the intent to deceive, involving either misappropriation of assets or misrepresentation of assets or misrepresentation of financial information.
[16] As pointed out in paragraph 2 above, Blue Heron was funded under the Canada-Ontario Affordable Housing Program and a City of Ottawa initiative, “Action Ottawa.” Ms. Bainbridge explained that notwithstanding a supportive tenancy agreement with the Anglican Church and the special funding arrangement, the Co-Op has had to get used to living with a deficit budget and is constantly in need of further grant money in order to be able to operate its subsidized, rent-geared-to-income housing program. Notwithstanding this financial-base difficulty, the Program Manager of the Affordable Housing Unit of Ottawa’s Housing Services Branch said in a February 18, 2015, letter to Blue Heron,
… in June 2009 the Housing Services Branch, after discussions with the Cooperative, recommended to City Council that an additional grant of $82,502 be provided to assist with operational sustainability as the Cooperative had not received the same level of capital support that similar developments received subsequently from the Affordable Housing Program.
Since Blue Heron’s completion and occupancy, the Cooperative has met its reporting requirements with the City each year under the AHP and the rent supplement agreement.
Many of the challenges faced by Blue Heron are typical of housing cooperatives under similar programs and agreements, and we will continue to work with the Cooperative to help resolve any operating issues they may encounter.
[17] Generally, Ms. Bainbridge defended the Co-Op and the members who served on its Board from time to time as conscientious lay people doing the best they could in difficult circumstances. She did not accept the accusations from Mr. O’Brien of cronyism, government by clique, or intentional deviation from policies and by-laws. She pointed to a recent decision of the Board, advocated by Mr. O’Brien, and against her own view, to have the Co-Op withdraw from membership in a sector association of co-ops, the object of which was to lobby for and seek increased public sector funding and conditions for local co-ops. She acknowledged that there were significant costs to belonging to such sector associations but also felt that there were countervailing benefits that militated in favour of association membership. The decision of the Board to withdraw from the sector association as advocated strongly by Mr. O’Brien, was evidence, in Ms. Bainbridge’s submission, that the Co-Op was not “dominated by rank favouritism, endemic factionalism, overarching self-interest and an ‘Us vs. Them’ mentality,” as asserted by Mr. O’Brien
[18] I have reviewed the materials filed and the submissions made and have reached the conclusion that there is no sufficient basis to warrant my ordering the appointment of an inspector to investigate the affairs and management of Blue Heron. There is nothing to indicate that there is any need to further audit the accounts and records of the Co-Op. The rather scathing accusations levelled by Mr. O’Brien against the Co-Op management generally and against certain named and un-named members who have served on its Board, including Board coordinator Bainbridge are, in my view, the expressions of a somewhat disaffected member who has studied the by-laws and written policies assiduously and seized all available opportunities to point to any perceived lapse or error as evidence of a conspiracy to dominate those who for some reason are out of favour or otherwise marginalized. Failures to abide by clear directions in by-laws or written policy appear to have been addressed and corrected by the Co-Op.
[19] In my view, short of substantial evidence of intentional malfeasance or serious and continued mismanagement by the Directors of a co-op under the “CCA”, a court of civil jurisdiction should be loath to intervene in a “CCA” co-op’s internal management and appoint an inspector to investigate and report to the Directors on the co-op’s affairs, accounts or management. The FSCO already declined Mr. O’Brien’s request to intervene, and Mr. O’Brien’s assumption that in the event that I ordered an investigation, the FSCO would assume the resource burden of undertaking it, is simply unrealistic speculation. Even if warranted, just how a qualified inspector would otherwise be selected and paid to investigate and report, was not a matter for which Mr. O’Brien was able to offer any practical advice.
[20] Before completing the preparation of this Endorsement, but after having reviewed the materials and having concluded that the Application could not succeed, I received a letter from Mr. O’Brien dated April 2, 2015. It was sent by email to the trial coordinator for my attention. It advised that the Annual General Meeting of Blue Heron had been held on March 29, 2015 and Mr. O’Brien was wondering how certain developments might affect my pending decision. His letter read in part,
…some relief I sought pertaining to the requested conditions of holding the AGM are obviously now moot. Additionally, as a result of the Board elections, other relief is similarly moot.
Two of four directors who I sought to be removed from the Board, T.G. and C.P., did not run again for election. A.S. was not up for re-election and remains on the Board.
However, I won election and am now a director. On Monday, C.G. and I had a long discussion and she stated that she has no problem working with me on the Board. So, there are no issues with us.
As I am now a director, I am in a better position to seek the changes that formed the basis for the Application. However, while your decision is pending, I cannot really raise any of these issues with the Board.
The new Board met on Monday and the Application hearing was on the agenda. I advised directors and Michelle Bainbridge that I would be bringing these matters to your attention. Obviously, I told them that I know I am in a conflict of interest in any Board discussions on the case. How the new Board chooses to address these submissions will be their decision. They will then instruct Ms. Bainbridge on how to proceed.
Another option I presented was to abandon the Application, but there are still live issues to the case. Therefore, my position is that, pending a contrary decision from you, abandonment of the Application is not something I wish to pursue.
[21] These new developments not only give me no cause to reconsider the decision I had already reached in this matter, they tend to undermine to some considerable extent the postulated “illusory nature of the cooperative principle of participatory democracy” which was part of the foundation on which Mr. O’Brien mounted his complaints. Given Mr. O’Brien’s decision not to abandon his Application notwithstanding the new developments he reported, judgment will issue dismissing the Application.
[22] I see no reason not to invoke the normal rule that an order of costs follows the event, that is, the successful party is entitled to some costs relief as against the unsuccessful party. In his Notice of Application, Mr. O’Brien sought “costs for routine disbursements and any other costs as the Court sees fit.” No specific quantification of his costs was brought to my attention. In its Respondent’s Record, Blue Heron sought costs incurred in preparing for the hearing of the Application. A detailed schedule of the hours spent in preparation, much like a lawyer’s time docket, was filed together with details of the actual disbursements. Ms. Bainbridge accounted for 39 hours of her own work and indicated that, reduced to an hourly wage, she was paid at the rate of $25.11 per hour. Actual disbursements, mainly filing fees and costs, of $153.89 were shown. The total actual expense to Blue Heron in having its only employee assemble and file the Responding Record was therefore $1,133.18. I see no reason not to award costs in that amount to be paid by Mr. O’Brien to Blue Heron. Indeed, critical of the Co-Op’s failure to adopt proper business practices to reduce rental arrears, I think Mr. O’Brien would expect that proper business practice would dictate that Blue Heron should seek and recover such costs as might be appropriate in the circumstances.
[23] In conclusion then, this Application is dismissed with costs payable by Mr. O’Brien to Blue Heron in the amount of $1,113.18. Mr. O’Brien will have three months in which to pay this award of costs following which it will bear interest at the rates prevailing under the Courts of Justice Act.
Judgment accordingly.
Rutherford J.
Date: Tuesday May 5, 2015
O’Brien v. Blue Heron Co-Operative Homes Inc., 2015 ONSC 2929
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Stephen O’Brien, Applicant
AND
Blue Heron Co-Operative Homes Inc., Respondent
BEFORE: Mr. Justice Douglas Rutherford
APPEARANCES: The Applicant in person
The Respondent by its authorized representative, Ms. Michelle Bainbridge
ENDORSEMENT
Rutherford J.
Released: May 5, 2015