Superior Court of Justice – Ontario

Court File No.: CV-14-506958; CV-14-506961; CV-14-507531; CV-14-507534; CV-14-517499; CV-14-517502; CV-14-517504; CV-14-517508

Date: 2019-11-15

Parties

Between:

Tom Leduc, Geoffrey Banks, Jon Gillan, Doug Fisher, Larry Parent, Art Wright, Ron Lambert, and Chris Lilly, in their capacities as Trustees of the International Brotherhood of Electrical Workers, Local 1739 Members Benefit Trust and the International Brotherhood of Electrical Workers, Local 1739 Market Recovery Trust

Applicants

– and –

International Brotherhood of Electrical Workers, First District – Canada and International Brotherhood of Electrical Workers, Local 353

Respondents

Counsel

Lorne Richmond, Simon Archer and Daniel Sheppard, for the Applicants Leduc et al. and Dorgan et al.

Daniel Shields and Brandin O’Connor, for the Respondents International Brotherhood of Electrical Workers, First District – Canada, and William Daniels

Susan Ursel and Katy O’Rourke, for the Respondents IBEW Local 353 and Robert White et al.

Heard: June 18 and 9, 2019

Before: Schabas J.

Reasons for Judgment

INTRODUCTION

[1] In January 2010, the International President of the International Brotherhood of Electrical Workers (the “IBEW” or “International”) ordered two local unions just outside Toronto, Locals 1739 (Barrie) and Local 894 (Oshawa) (the “Former Locals”), to merge with the larger Toronto union, Local 353. The Former Locals objected, and litigation ensued before the Ontario Labour Relations Board (the “OLRB” or the “Board”) and the Divisional Court. Ultimately, the objections failed and, as of June 30, 2012, Locals 1739 and 894 ceased to exist as they became part of Local 353. All assets of the Former Locals were to be transferred into Local 353, and approximately $2.5 million was transferred at the time of the merger.

[2] However, the Former Locals had established separate trusts and building corporations to hold certain funds and assets for the benefit of their members which, it is argued, are not assets of the Former Locals and therefore should not be transferred to Local 353. Rather, the trustees and directors of these trusts and corporations, who were members of the executive boards or officers of the Former Locals (referred to in these Reasons as the “applicants”), argue that the entities should be wound up and the funds should be distributed in accordance with trust declarations and corporate bylaws which were created or amended during the litigation contesting the merger. Those declarations and bylaws provide that the funds be distributed pro rata to the individual members of the Former Locals at the time of the merger. International and Local 353 object to such a distribution, arguing that these involve assets of the Former Locals and that the steps taken to isolate them from the locals and provide for pro rata distribution were not authorized by International, are contrary to the IBEW Constitution, and are therefore null and void. They also argue, among other things, that the applicants’ actions were in breach of their duties to the IBEW, including fiduciary duties.

[3] There are eight applications before me. The trustees and directors of the trusts and building corporations in issue have brought applications for declarations that the assets are not union assets and may be distributed to former members of the Former Locals. Local 353 and its executive, and the IBEW, have brought their own applications for declarations that the assets are not independent of the Former Locals, and since the Former Locals have now ceased to exist and have merged into Local 353, the assets should be transferred to Local 353. International and Local 353 also seek specific orders that their individual applicants can bring these proceedings. The matter has proceeded treating the trustees and directors of the trusts and building corporations in issue as the applicants.

[4] In my view, and for the reasons that follow, the funds in question constitute union assets held for the benefit of the Former Locals, but not the individual members. The trustees and directors took improper and unauthorized steps in an attempt to alienate these funds from the IBEW. These steps were taken without the knowledge and approval of International in an attempt to avoid the consequences of the merger order, were inconsistent with the IBEW Constitution, and were in breach of the applicants’ duties as executives or officers of the Former Locals. The funds were intended to be used for the benefit of the collective membership to support the work of the unions and provide benefits to all members of the locals as the membership may exist from time to time. They were not intended to provide a personal financial benefit, or windfall, to individuals who happen to be members at a certain point in time. Such an outcome would be inconsistent with the collective enterprise of unions and contrary to a century of jurisprudence which has repeatedly rejected such attempts to alienate union funds to benefit individual members. The funds should be transferred to Local 353 so that they can be used as they were intended, fulfilling the same objectives for which they were accumulated and as they had been used prior to the merger.

BACKGROUND

The Merger and OLRB Proceedings

[5] On January 8, 2010 the International President of the IBEW ordered the merger of Locals 894 and 1739 into Local 353. The power to make such an order is found in the IBEW Constitution in Article XIII, which provides:

Sec. 3. The I.P. [International President] has the right and the power to merge or amalgamate L.U.’s [Local Unions] in any community or section where the facts, developments or conditions – in the judgment of the I.P. – warrant such action, also to decide the terms or details of any merger or amalgamation when the L.U.’s involved cannot or do not agree.

[6] At the time, Local 1739 had 245 members and Local 894 had 630 members. Local 353, on the other hand, had over 8,000 members. The reasons for the merger included the disparity in the ratio of members to the general population in each geographical area, the failure of the Former Locals to organize new members, and demands placed on the IBEW by large contractors seeking member crew mobility within the jurisdictions of Locals 353, 894, and 1739. Those jurisdictions included the City of Toronto and the large urban and suburban population around Toronto. The order to merge the locals was signed by the International President, on the recommendation of the then-First Vice-President (Canada) of International, Phil Flemming, and an independent Ontario-based labour relations expert, Tim Armstrong.

[7] In his letter of January 8, 2010, the International President ordered, among other things, that “all records, funds and other property” of Locals 894 and 1739 be transferred to Local 353. The letter also provided specific direction regarding the area offices, representation on the Local 353 Executive Board, and some of the Former Locals’ funds, but otherwise stated that “[a]ll records, funds and other property of Local Unions 894 and 1739 should be transferred to Local Union 353 with the exception of the seals of Local Unions 894 and 1739, which should be destroyed.”

[8] In a follow-up letter dated January 26, 2010, the International President provided further direction on a number of points involving the merger and transitional issues, including stabilization procedures, the future appointment of trustees of pension and health and welfare plans, and the maintenance and use of properties, offices and funds. This letter reiterated that “[a]ll property of Local Unions 894 and 1739 will be transferred to Local Union 353” and “[a]ll funds, books, records and assets of Local Unions 894 and 1739 are to be transferred to Local Union 353”, all of which was to occur by February 12, 2010.

[9] The Former Locals filed an application before the OLRB challenging the merger order under sections 147-149 of the Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A (the “LRA”), on the basis that there was no “just cause” to merge the locals. The merger was suspended pending the OLRB’s decision, allowing the Former Locals to continue to operate independently.

[10] The proceedings before the OLRB took time. Almost two years later, on December 19, 2011, the OLRB found that there was just cause for major structural changes to the Former Locals, and for a merger. It its decision (found at 2011 CanLII 81685 (ON LRB)), the OLRB observed at para. 235:

I conclude that the International Union had just cause to take action with respect to the structure and quite possibly the existence of the Local Unions. It was confronted with two local unions that were content with the status quo simply because it provided enough work opportunities for its existing members and that could not or would not respond to the challenges that faced them. [emphasis added]

[11] However, the Board delayed a final decision in order to allow the Former Locals, Local 353 and International to attempt to resolve the details of those changes. The OLRB was critical of the fact that International had failed to address, and had not given “much thought”, to the benefit funds or the “trust funds and how to deal with those funds during the process of a merger”, and directed International to meet with the local unions to address those issues before making any final orders. Those discussions failed and so the OLRB imposed conditions in decisions dated May 2, June 25, and June 28, 2012

[12] In its June 25, 2012 decision (2012 CanLII 35867 (ON LRB)), the OLRB stated, at paras. 23-24:

The Board finds that the order of the International Brotherhood of Electrical Workers to merge Local 1739 and Local 894 with Local 353 was undertaken with just cause. The Board declares that International Brotherhood of Electrical Workers Local 353 has, effective June 30, 2012, acquired all of the rights, privileges and duties under the Act of International Brotherhood of Electrical Workers Local 1739 and of International Brotherhood of Electrical Workers Local 894.

The terms of the merger are those set out in the letter of Mr. Edwin Hill in letters dated January 8, 2010 and January 26, 2010 subject to the changes and other orders set out below.

[13] The merger was effective June 30, 2012, and the OLRB orders were registered in the Superior Court on July 13, 2012. The merger order provides that Local 353 acquired all of the rights, privileges and duties of the Former Locals under the Labour Relations Act, 1995, and that all funds, books, records and assets of the Former Locals were to be transferred to Local 353.

[14] The Former Locals sought judicial review of the OLRB’s decisions. On April 9, 2014, the Divisional Court dismissed the application, finding that “extensive and detailed reasoning” supported the OLRB’s determination that there was just cause for the merger, and that “[i]ndeed the applicants had little to say about the decision to merge the locals other than it was not necessary and they did not agree”: International Brotherhood of Electrical Workers, Local 894 v. International Brotherhood of Electrical Workers, First District, Canada, 2014 ONSC 1997 (Div. Ct.) at para. 35.

Union Structure: The IBEW Constitution and Local Unions

[15] The IBEW represents workers across North America. Its Constitution provides that the IBEW “shall consist of an unlimited number of local unions acknowledging its jurisdiction and subject to its laws and usages.” The Constitution sets out the powers, duties and structure of International and its locals, including local funds. The Constitution regulates the conduct and duties of officers of International and of each local union. A member of a local union is a member of International. Accordingly, all members of the IBEW, and in particular the officers of its locals, are bound by the Constitution. This is consistent with the Supreme Court of Canada decision in Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5, [2010] 1 S.C.R. 132, at para. 149: “…The relationship between a union member and his or her union is contractual in nature, with both the union and the member agreeing to be bound by the terms of the union constitution.”

[16] Local unions obtain charters from the IBEW which form the basis of their existence and authority. The charters state that the locals have “all powers delegated by the Constitution.” The Constitution is the sole source of authority of the Local Unions. Each local has an elected executive, which is bound by the local’s bylaws as well as the IBEW Constitution, which is paramount. The Constitution also imposes specific duties on officers of local unions. The President of a local union may be held personally liable and subject to penalty for a failure to carry out the responsibilities and duties imposed by the Constitution.

[17] Under the IBEW Constitution, local union bylaws, amendments, rules and agreements are subject to the approval of the International President; otherwise they are null and void.

[18] The bylaws of Locals 894 and 1739 confirm that their jurisdiction and the authority of their bylaws are subject to the International Constitution and the approval of the International President. Where there is ambiguity or doubt, the IBEW Constitution prevails. The Former Locals’ bylaws also specified that their officers shall perform their duties in a manner which is “not in conflict with the Constitution.”

[19] Article XVIII of the Constitution has specific provisions restricting the use of funds and property of union locals to valid union purposes. These provide as follows:

Sec. 5. The funds and property of a L.U. shall be used only for such purposes as are approved by the I.P. or as are specified in this Constitution and as may be necessary to transact, properly manage and conduct its business.

Sec. 6. The funds and property cannot be divided among the members individually, except in the form of such benefits as may be provided by the L.U. after approval of the I.P. [emphasis added]

Sec. 7. The funds and property are for the legitimate purposes of the L.U. while five (5) members remain therein. Should a L.U. finally dissolve, its charter, books, papers and funds shall at once be forwarded to the I.S.T. [International Secretary-Treasurer].

[20] Accordingly, pursuant to the Constitution and the bylaws of the Former Locals, the purposes for which the funds and property of a local union shall be used are only those that are approved by the International President, those that are specified in the Constitution, and those that are necessary to transact, properly manage and conduct the business of a local union. The Constitution is explicit that the funds and property of a local union cannot be divided among individual members, except in the form of benefits provided by the local union after approval of the International President.

[21] The Former Locals each had bylaws which were consistent with Article XVIII. For example, one of the bylaws provided that “[t]he funds of this Local Union are for the legitimate expenses required in its conduct and maintenance and shall not be diverted therefrom. Disbursements shall be made in accordance with Article XVIII of the IBEW Constitution and these bylaws.”

Assets of the Former Locals: Trusts and Building Corporations

[22] Local unions often hold assets through trusts and building corporations. This enables them to own land and overcome limitations on their legal capacity in commercial contexts (see, e.g., Rights of Labour Act, R.S.O. 1990, c. R.33), and are a common way for unions to organize and direct funds to be used for certain purposes. Such trusts and building corporations are legal devices used to further the purposes of the local union. The trustees and directors are, as in this case, drawn from the executive boards and officers of the local unions, who are bound by the locals’ bylaws and the IBEW Constitution.

[23] Locals 894 and 1739 established trusts and building corporations to further their collective purposes.

[24] Each local had a “market recovery” trust or fund, also known as “stabilization funds”, which were funded through members’ compensation, negotiated by the union and contained in collective agreements. The Former Locals designated a certain percentage of hourly compensation towards the establishment and support of such funds. These funds are used to subsidize projects where union contractors are competing for work with non-union contractors who have lower labour costs. A union contractor may apply to the local for the fund to provide a wage subsidy in order to make a more competitive bid, increasing job opportunities for local members. As the applicants put it, “[t]he purpose of a market recovery trust is to assist the members of a local to obtain work and protect and expand the share of organized labour within the local’s territory, but not elsewhere.”

[25] Local 1739 had operated its market recovery fund pursuant to a trust agreement since 2006. The trustees of the trust are the elected members of the Local 1739 executive board. Local 894 also had a market recovery fund; however, it only adopted a formal trust document in December 2011, long after the merger was ordered, but while the merger was still suspended pending the outcome of the OLRB proceedings discussed below. The officers of Local 894 became the trustees.

[26] Local 894 had a training and education fund which was placed in a formal trust in January 2012. This fund provided support for job and educational training of members, and was funded from members’ compensation as well. Again, the officers of Local 894 became the trustees of the fund.

[27] Local 1739 had a Members Benefit Trust, also set up in 2006, which provided members with emergency health and welfare and related benefits. As with the market recovery trust, the elected members of Local 1739’s executive board are the trustees.

[28] Local 894’s training and education fund, and Local 1739’s Members Benefit Trust, were also funded by union dues and through collective agreements with employers.

[29] The purpose of each trust was limited to its specific objectives, to ensure that funds were used for the benefit of the members of the Former Locals for those purposes.

[30] The Former Locals each had building corporations, without share capital, established under the Corporations Act, R.S.O. 1990, c. C.38, through which they held title to the union halls operated by them, as well as bank accounts for maintaining the buildings. These too were funded from union dues. The directors of the corporations were the officers or elected members of the executive of each Former Local. They were corporations that had as their objects the promotion of “the interests and well-being of the members…in good standing from time to time….”

[31] Local 353 has similar funds and structures. It has what it calls a “Master Trust” which provides a range of benefits, including health and welfare benefits. It also has education and market recovery funds, which are not held in trusts, but serve similar purposes, and it has a building corporation.

[32] As noted, the funds for the various trusts, funds and building corporations come from union dues and wages pursuant to the applicable collective agreements. The local union collects these funds from its members or employers to be used for the benefit of the membership as it exists from time to time. The funds are not obtained or held for specific individual members, but are provided by the locals to be used by the trusts and corporations for collective purposes. The membership of each local is always in flux, but funds do not come and go as members join or leave the local.

The Former Locals’ Changes to the Funds, Trusts and Building Corporations

[33] Prior to December 2011, Local 1739’s trust documents provided that in the event of the termination of the trusts, the assets were to be distributed “to Local 1739 but not the individual members of Local 1739.” This is consistent with sections 5 and 6 of Article XVIII of the Constitution, which state that funds and property are to be used for the “legitimate purposes” of the local, and that “funds and property cannot be divided among the members individually, except in the form of such benefits as may be provided by the L.U. after approval of the I.P.” In December 2011, however, Local 1739’s trust documents were amended to provide that if Local 1739 no longer existed as an independent local then the assets would be distributed “on a pro rata basis to each person who was a member of Local 1739 in the month prior” to when it ceased to exist.

[34] Local 894’s trusts, which were established by Local 894 in December 2011 and January 2012, contained termination provisions identical to those in the amended trust documents for Local 1739.

[35] The building corporations for the Former Locals each amended their bylaws in December 2011 and January 2012 to achieve the same result. Their amended bylaws provided that if the corporation was to be wound up, then the remaining assets were to be distributed on pro rata basis to each person who was a member of the corporation in the month preceding the wind up, rather than be transferred to “one or more corporations…with objects similar to those of the Corporation.”

[36] The evidence is clear that the creation of the Local 894 trusts, and the amendments to the Local 1739 trusts and the building corporations’ bylaws, were part of the resistance by the Former Locals to the proposed merger. As the Former Locals bluntly put it in their factum, these steps were taken “out of concern about the confiscation of members’ property in the event of a merger.”

[37] All of these steps were taken approximately two years after the January 2010 merger order of the International President, and some of the steps were taken even after the OLRB decision of December 19, 2011, which found just cause for significant structural changes and made the merger inevitable.

[38] In the case of Local 894, the creation of the Training and Education Trust was approved by the executive board on January 17, 2012, and the creation of its Stabilization and Market Recovery Trust was approved by the membership, on the recommendation of the executive board, in December 2011. The individual settlors of the trusts were the officers of Local 894. Local 894 did not inform International of these steps or seek approval for them from International, as required by the IBEW Constitution.

[39] Similarly, the changes to Local 1739’s trusts were not disclosed to International and were in violation of the terms of the trust agreements which prohibited amendments to them “while Local 1739 is under Supervision or Trusteeship of the International Union”, which included a merger order based on the definitions in the agreements. These changes were approved by the trustees who were also officers of Local 1739, and who were bound to act in accordance with the Constitution.

[40] The amendments to the building corporation bylaws were approved by the directors, who were also officers of the Former Locals. They were purportedly confirmed by membership votes conducted after the OLRB decision of December 19, 2011. The bylaw amendments provided that in the event of a merger (or trusteeship) of the Local, the directors would become a trustee board beyond the authority of International and be required to distribute the assets among the individuals who happened to be members of the Former Locals in the month prior to the merger.

[41] The actions of the Former Locals were intended to isolate assets of the Former Locals to prevent them from being transferred or merged into Local 353. As noted, none of these steps were disclosed to, or approved by, the International President, or International, and only began to come to light near the conclusion of the OLRB proceedings, on or after May 2, 2012.

The OLRB Decisions and the Former Locals’ Assets

[42] In its first decision released on December 19, 2011, the OLRB addressed the trust funds in its Order, indicating its expectation that the stabilization or market recovery funds would be combined, stating, at para. 258(i):

The Board finds that the International Union had just cause to make significant and substantial structural changes to the two Local Unions. At the very least, this would mean a single source of decision making about key issues of the operation of the allocation of work opportunities through the administration of the hiring hall, organizing non-IBEW electricians and operating the stabilization or market recovery funds.

[43] Further, in its directions to the parties to attempt to resolve details of the changes, the Board identified changes to the health and welfare trust funds as a specific topic for discussion. The Board also noted earlier in its decision that issues needed to be addressed regarding trust funds generally.

[44] In its decision of May 2, 2012 (2012 CanLII 23140 (ON LRB)), the Board noted that the Former Locals acknowledged that the merger of the stabilization funds “had to be the result”, stating at paras. 48-49:

The two Local Unions stated that they recognize that the IBEW Constitution requires that the business manager of the local union control the Stabilization Fund and the Market Recovery Fund. In the proposed merger with other local unions they agreed to wind up the Stabilization Funds and transfer the assets to their preferred partners’ Stabilization Fund. The written submissions contained no proposal with respect to the merger of Stabilization Funds with Local 353. In argument the two Local Unions indicated they acknowledged that had to be the result, but wanted certain restrictions on the use of the stabilization Funds because they did not trust Local 353. This is not a reason make or to refuse to make any orders. I conclude that the proposals made by Local 353, with some modification, are reasonable and appropriate.

It is appropriate to order that all members of Local 353 on and after June 30, 2012 make the same contributions to the Stabilization Fund and Market Recovery Fund of Local 353. Local 353 proposes that “any assets currently in the stabilization or market recovery funds of the two Local Unions will be used in the former areas of the two Local Unions”. That seems to me entirely appropriate.

[45] Although the Board went on to make specific orders to give effect to this conclusion, the Board also stated, at para. 11, that it had “no authority to make orders about the governance of a Trust Fund”. However, as the trustees of Local 894’s Welfare Trust Fund and Pension Fund (which are not the subject of this application) had intervened in the OLRB proceeding, the Board stated that it “had authority to order them to do things.” The Board notes that counsel before it “did not dwell” on the issue of the Board’s authority over trust funds and the parties seemed to agree that the issues now before the Court could not be addressed by the OLRB, other than to the extent the Board commented on how it expected the market recovery funds to be merged which, presumably, would also be its view of the other funds.

[46] In its decision of June 25, 2012, the Board concluded, at paras. 4-5, that it “does not have the jurisdiction to order the building corporations to do or refrain from doing anything.” While the Board recognized that building corporations are “typically used as the alter egos or bare trustees of a local union to enable it to own land or to overcome the limitations of the Rights of Labour Act in commercial or proprietary contexts… they are not local unions, parent unions or elected or appointed officials of a local trade union. Hence sections 147 and 149 [of the Labour Relations Act, 1995] do not apply to them directly.”

[47] The Board commented on the failure of the Former Locals to disclose the amendments to the building corporation bylaws, describing their conduct as “less than forthright in their applications to the Board”. The Board noted that throughout the OLRB proceedings resisting the merger, the Former Unions had “never suggested that it was anything other than a full merger of the three local unions.” As to the amendments themselves, the Board observed that they appeared “simply to be an attempt to place one asset of the local union (as distinct from its members) beyond the reach of the International Union and of the Act.” The Board also noted that whether these steps were appropriate or lawful, and specifically whether they were “contrary to the obligations as between the International Union and the Local Union or its members”, were “interesting legal questions”, but that the “appropriate forum in which to determine them is the Superior Court of Justice.” (paras. 6, 9 and 12)

[48] Hence this application.

Current Status

[49] The applicants take the position that because the Former Locals no longer exist, the remaining assets of the trusts and corporations, which are now all held in liquid securities, should be distributed pro rata to those individuals who were members at the time the merger took effect which, of course, includes the applicants. I am told by counsel that the amount at stake is approximately $5 million which, if the applicants were to prevail, would provide about $4700 to each eligible former member of Local 1739 and $5600 to each eligible former member of Local 894.

[50] The merger has otherwise been implemented. The Former Locals ceased to exist and their members became members of Local 353. Hiring hall lists and rules were integrated. The members of Local 353 include former members of the Former Locals, who, since the merger, have been entitled to the benefit of Local 353’s funds, addressing market recovery, health and welfare and education, even though the funds from the Former Locals’ similar funds have not been transferred to Local 353. Local 353 has therefore used funds collected from its members prior to the merger for the benefit of members from the Former Locals, but has not been able to access the funds collected by the Former Locals for that purpose. This includes the stabilization and market recovery funds which the Board specifically addressed in its May 2, 2012 decision, quoted above, noting that the Former Locals’ funds would be used in the former areas. Despite the Board’s comments, these funds have not been merged and, as counsel for Local 353 put it, Local 353 has been providing benefits to the Former Locals’ members “on credit.”

ISSUES

[51] The issue in these applications is whether the Former Locals’ trust funds and building corporation funds belong to the consolidated Local 353, or whether those funds should be distributed to those individuals who comprised the membership of the Former Locals at a point-in-time just before the merger.

[52] The applicants submit that the documents governing the assets are valid, including the amendments in 2011 and early 2012, and so the funds should be distributed pro rata to former members of the Former Locals in accordance with the trust and corporate documents. They argue that these assets are not assets of the Former Locals, were not included in the merger order, and that trust and corporate law prevail.

[53] The respondents, International and Local 353, disagree, and argue that the funds and assets are indeed assets of the Former Locals which must now be assets of Local 353. In particular, they submit that:

(i) the creation of the trusts by Local 894, the amendments to the trusts by Local 1739, and the amendments to the building corporations by both Locals, are contrary to the IBEW Constitution, void ab initio and null and void;

(ii) the applicants’ attempts to alienate the assets of the trusts and building corporations from the Former Locals’ were in breach of their fiduciary obligations such that it is appropriate to impose a constructive trust or, in the alternative, a resulting trust in favour of Local 353;

(iii) Local 353 is the successor to the Former Locals under the trust agreements and building corporation bylaws, such that Local 353 and its officers have acquired all of the rights, privileges and duties in relation to those assets; and

(iv) the amendments to the building corporation bylaws were contrary to their Letters Patent and ss. 129, 131(1) and/or 132 of the Corporations Act.

ANALYSIS

Context

[54] The parties agree that this case must be considered in the overall context of labour relations and the role of trade unions. Indeed, counsel for the applicants emphasized the particularly important role of trade unions in the construction industry, which includes the IBEW, in providing security and benefits to members. The courts have recognized this as well. In Garcia v. Labourers’ International Union of North America, Local 1059, 2015 ONCA 230, 125 O.R. (3d) 1, a case which dealt with a “turf war” between rival unions, Lauwers J.A. stated, at paras. 4-6:

As aptly noted by the application judge, an understanding of the context of this case – the Ontario construction industry – is necessary to resolve the issues raised at trial and now on appeal. In Arlington Crane Service Ltd. v. Ontario (Minister of Labour), (1988) 1988 CanLII 4802 (ON SC), 67 O.R. (2d) 225 (H.C.J.), Henry J. made a number of apposite observations about the unique nature of the construction industry. In particular, at p. 234, he contrasted the episodic and erratic nature of employment in the construction industry with the long-term employment typical in other industrial contexts:

There is no opportunity for the kind of tenured status which employees enjoy under most collective agreements outside of the construction industry. As well, there is no basis for the kind of enduring association which a group of employees can develop in an industrial bargaining unit. Any one job for the construction worker is usually short and fleeting, and he must be prepared to be highly mobile, shifting from project to project across a wide geographic area.

Labour law in Ontario has adapted to the structure of the construction industry, as shown by the numerous provisions of the Labour Relations Act, 1995, S.O. 1995, c. 1, Schedule A (“LRA”), devoted especially to the industry. In particular, as described by Henry J. at pp. 234-35 of Arlington Crane, the unique nature of construction work has led to an equally unique form of union organization in the industry:

Since the relationship between employer and employee in construction is typically episodic rather than enduring in character, a special form of union organization has emerged to fill this vacuum. The major craft specialties have all developed their own trade unions; the union is the body with which the individual tradesman tends to have the most salient relationship in the industry … the union collects and administers the funds for the worker's vacation pay, health and welfare benefits, and retirement pensions (with the money coming from the numerous contractors for whom the tradesman may have worked during the year, at a defined contribution level for each hour worked).[emphasis added]

[55] This context also includes the role of larger, merged or international unions that can provide resources, bargaining strength and benefits that small unions or individual locals cannot support, especially in the context of a rapidly changing economy: see e.g., Michael MacNeil, Michael Lynk & Peter Engelman, Trade Union Law in Canada, (Toronto: Thomson Reuters, 2018) at p. 5-44, para. 5.860. And while the Labour Relations Act, 1995 provides protection for the autonomy of local unions which may, as here, be resistant to change, by requiring “just cause” for interference with a local union, the Board has determined that there was such just cause for the merger of the Former Locals with Local 353.

[56] A further aspect of the labour relations context is the primacy of collective rights over individual rights. As the Saskatchewan Labour Relations Board stated in CUPE Local 600-5 v. CUPE Sask. Div., [1997] Sask. LRBR 179, at p. 187:

We do not think there is any general principle which suggests that the assets of a trade union or of a local union “belong” to the individual members of the organization in a proprietary sense. The funds which are accumulated over time represent contributions of previous members, as well as those presently there, and must be seen as funds belonging to the organization, not to individuals.

[57] Similarly, this court in Garcia v. MacKinnnon, 2014 ONSC 4410, 100 E.T.R. (3d) 184, aff’d in Garcia v. Labourers’ International Union of North America, Local 1059, cited above, rejected a claim by a former member who had been expelled from the union for either coverage by, or reimbursement of, dues he had contributed towards, a benefit trust. Mitchell J. stated at paras. 95 and 148:

Group insurance is predicated on premiums being paid by each individual comprising the group for the benefit of the group, not the individual. When individuals cease employment (in the case of non-unionized employment) or cease to be union members (in the case of unionized employment), they are no longer members of the “group” and are no longer covered by group insurance. Any contributions made or premiums paid to that date are non-refundable to the individual; rather, fund the future benefits and claims of the balance of the individuals comprising the group. Membership in the group is fluid and evolving.

Union membership has its privileges and with it corresponding obligations. Rules attach to union membership. The collective interests of the membership as a whole are paramount. [emphasis added]

Separate Trusts and Corporations or Union Assets?

[58] The applicants’ position, nevertheless, is that the funds from the trusts and building corporations are not union assets. In support of their position, they point to the OLRB’s finding that it could not order the transfer of assets in the trusts and building corporations to suggest that those assets are not the property of the Former Locals, and must therefore be distributed in accordance with their governing documents which, of course, were drafted or amended in 2011 and 2012, to provide specifically for pro rata distribution to avoid a transfer to Local 353.

[59] In my view, this submission does not address the real question before me. The OLRB’s conclusion that it could not make orders affecting the trusts and corporations is a decision about its jurisdiction, not about the propriety or legality of what the applicants and Former Locals did to prevent the funds from being merged with Local 353. Indeed, the OLRB commented negatively about their actions. Unions commonly move funds to, and hold assets in, trusts and corporations controlled by them to facilitate commercial arrangements and provide protection from third party liability for the benefit of the members. The question is whether the steps taken here, by attempting to put assets out of reach of the union so that the trustees and directors could effect pro rata distribution to particular individuals, including themselves, was lawful and should be upheld.

[60] It is not, therefore, a simple matter of saying trust and corporate law prevail. The actions in issue were taken by the applicants, who were trustees and directors of the trusts and corporations by virtue of their positions in the Former Locals. The entities were established as vehicles for the locals to hold property and administer funds for valid, collective union purposes. They are very much part of the administrative apparatus of the locals in carrying out their functions on behalf of their members. The funds supporting these trusts and corporations came from the Former Locals and were generated through their collective agreements. They cannot be seen as anything other than as “creatures” of the locals and must be viewed as assets of the Former Locals and not independent of them. In a similar context, this was also the conclusion of the Court of Appeal in McCauley v. Fitzsimmons, (1998), 1998 CanLII 6410 (ON CA), 112 O.A.C. 293, at paras. 29 and 38, in finding that a fund administered by trustees of a local union was “a creature” of the local union, and that the trustees of the fund could not “be considered independent in any sense of the word and were controlled and guided by the decisions of Local 113.”

[61] Similarly, in Local 213, Electrical Workers Welfare and Pension Plans (Trustee of), (1981), 1981 CanLII 638 (BC SC), 27 B.C.L.R. 369, (S.C.), aff’d (1982), 1982 CanLII 442 (BC CA), 36 B.C.L.R. 233 (C.A.), Taylor J. rejected the claim that a trustee who ceased to be an officer of the local could still be a trustee, finding that the trust was part of the administrative apparatus of the local and was not independent of it, stating:

34. The use of such expressions as “trust” and “trustee” cannot, I think, assist in answering this critical question by introducing a suggestion of independence or autonomy unless that suggestion is supported in the contractual arrangements themselves. The fact that people occupy the position of trustees does not make them necessarily independent, as opposed to being the agents, delegates or representatives of others. The trustees under the deed here in question hold funds for which the local has bargained and for which, I conclude, the local must bear responsibility within the union organization. The fact that only some of the members of the local are to benefit from these funds, and that some persons not members of the local also are to benefit from them, do not seem to me to change the status of the funds as funds of the local, generated by it through its agreements with employers, and for which the local has responsibility on behalf of the union.

35. …I have concluded that the trustees must be regarded as persons carrying out duties of the local itself, and thus as officers of the local, albeit officers elected by one class only of its members.

36. …The initial trustees and the local, in entering into the trust deed of 1969, must be taken to have done so subject to the by-laws and the constitution. I think it impossible that, by executing a document described as a deed of trust, they could thereby effectively relieve themselves of any of their obligations under the charter and by-laws while dealing with union business. Insofar as an express power is needed for the petitioner’s replacement as a trustee, that power is here to be found in the disciplinary powers of the Trial Board over union members. [emphasis added]

[62] The British Columbia Court of Appeal dismissed the appeal referring, at para. 23, to what it called “the doubtful invocation of the provisions of the Trustee Act”.

[63] In my view, therefore, the trusts and building corporations cannot be separated from the Former Locals and the IBEW. Their assets come from dues collected by the Former Locals pursuant to collective agreements that were negotiated by them as IBEW locals, with assistance from International. Those funds and assets were to be used by the Former Locals for collective union purposes, in accordance with the IBEW Constitution.

[64] Nor do the cases relied on by the applicants provide support for their position that trust and corporate law should prevail. In Provincial Plasterers' Benefit Trust Fund (Board of Trustees) v. Provincial Plasterers' Benefit Trust Fund (1990), 1990 CanLII 6897 (ON SC), 71 O.R. (2d) 558 (H.C.J.), the Court was dealing with trust funds to provide benefits to a union local that had shrunk in membership and had effectively ceased to exist. On an application by the trustees for direction, Osborne J. rejected the submission that the fund should go to the original members of the local, or to the employers who had contributed to it; rather, he had regard to the purpose of the fund in concluding that it should be merged with the fund of the union local which most of the former members joined, stating, at p. 570:

If the purposes of the trust failed in law as of the time of the departure of the majority of the members of Local 117, the surplus should be distributed to the benefit of the relevant employees at the time of such failure. There were, however, lingering Local 117 members who retained coverage under the plan up to the 1980 merger of Locals 117 and 48 with Local 598. Given that most of these members subsequently obtained coverage under the Local 598 fund, and given the fact that the terms of the trust deed provide that on termination of the trust surplus assets are to be applied to "additional benefits in such manner as will ... best effectuate the purpose of the Trust Fund", it seems to me that the trustees must be directed to use their power under art. 4.05 to merge the trust fund with that of Local 598 and to transfer administration of the trust to the trustees of the Local 598 fund.[emphasis added]

[65] Provincial Plasterers, and the additional cases cited on this point by the applicants, Thompson v. Smith, [1999] A.J. No. 1726 (Q.B.), and Newfoundland and Labrador Development Trades Council Insured Plan Trust Fund (Re) (2001), 200 Nfld. &P.E.I.R. 1 (S.C. (T.D.)), merely stand for the proposition that, absent any challenge to the validity of trust documents, they must be applied, as they were in those cases.

[66] Similarly, the applicants’ submission respecting the building corporations is that the amended bylaws were duly authorized by the directors and confirmed by the members, and must be followed. They point to the “default rule” in s. 132(5) of the Corporations Act, which provides that in the absence of any other rule in its bylaws, “upon the dissolution of the corporation, the whole of its remaining property shall be distributed equally among the members or, if the letters patent, supplementary letters patent or by-laws so provide, among the members of a class or classes of members.”

[67] But the question here is whether the bylaws of the building corporations permitting pro rata distribution, like the trust provisions to similar effect, were validly enacted. The applicants’ position that this is simply a case about applying trust and corporate law ignores the important labour relations context and highlights the contradictory nature of their argument. For example, in their factum the applicants state that they took the steps in late 2011 and early 2012 to keep the assets away from the union because they were concerned about “confiscation of members’ property in the event of a merger” and so that they could manage the assets “in trust for the benefit of the … members.”[emphasis added] Elsewhere, however, they acknowledge that the trusts and corporations were established to use the assets for the purposes authorized by the trust instruments and corporation bylaws, which were for collective union purposes. The actions taken by the applicants defeat those purposes, as they lead to a distribution to individual members or, as they put it, to “have the resulting assets returned to the members who created and funded the assets in the first place.” But this is not what will happen, as the funds will only go to some members who happen to have held that status at a particular time and which, it is worth noting, include the individual applicants. Using the words of the applicants, it is more accurate to say that it is they who are attempting to “confiscate” union property.

[68] Further, such a distribution is prohibited by the IBEW Constitution. Yet in their Reply factum the applicants claim to be conducting themselves “exactly as IBEW trustees ought to when disputes over disposition of assets arise.” This is clearly not the case, as I address below.

Application of the IBEW Constitution

[69] As discussed above, the IBEW Constitution establishes a comprehensive regime governing all aspects of local union activity, including the use of local union funds. It is intended to ensure accountability and oversight of local unions by the parent, International, in order to prevent unauthorized use of funds, or the spending of funds which are not consistent with collective union objectives. The supremacy of the Constitution and its binding effect on local unions is clearly set out in Article I, Section 3:

This Constitution, and all acts and proceedings which, in the future and in due course may be enacted, shall be absolutely binding on all L.U.’s officers and members.

[70] The Constitution is explicit that local unions only have the powers delegated to them by the Constitution. All local union bylaws, amendments, rules, and agreements are to be approved by the International President. As the Constitution states:

Article XV, Sec. 6. L.U.’s are empowered to make their own bylaws and rules, but these shall in no way conflict with this Constitution. Where any doubt appears, this Constitution shall be supreme. All bylaws, amendments and rules, all agreements, jurisdiction, etc., of any kind or nature, shall be submitted to the I.P. for approval. No L.U. shall put into effect any bylaw, amendment, rule or agreement of any kind without first securing such approval. All these shall be null and void without I.P. approval. The I.P. has the right to correct any bylaws, amendments, rules or agreements to confirm to this Constitution and the policies of the I.B.E.W. Bylaw amendments shall be submitted to the I.V.P. of that district, who will forward them to the I.P. with his recommendations. The number of copies of agreements, and the method of their submissions, shall be determined by the I.P. [emphasis added]

[71] The Constitution also specifically addresses funds and property of local unions in Article XVIII, sections 5, 6 and 7, quoted earlier.

[72] It is well accepted in Canadian law that union actions taken without authority are null and void. In Orchard v. Tunney, 1957 CanLII 57 (SCC), [1957] S.C.R. 436, the Supreme Court of Canada held that acts of a union taken without authority are ultra vires and therefore null and void. The Court of Appeal took a similar view in Astgen v. Smith, 1969 CanLII 488 (ON CA), [1970] 1 O.R. 129. In Bimson v. Johnston, 1957 CanLII 131 (ON SC), [1957] O.R. 519 (S.C.), aff’d 1958 CanLII 345 (ON CA), 12 D.L.R. (2d) 379 (C.A.), and Bell (President, Telecommunications Workers Union) v. Stang, 2006 BCSC 998 at para 36, the courts have expressly held that actions taken contrary to a union constitution are null and void.

[73] Attempts to distinguish a local union and its property from that of a parent, or International union, in circumstances similar to those in this case have been repeatedly rejected. Over one hundred years ago, in Grand Council Provincial Workmen’s Assn. v. McPherson, (1912), 1912 CanLII 450 (NS CA), 46 N.S.R. 417, aff’d (1914) 1914 CanLII 70 (SCC), 50 S.C.R. 157, leave to appeal to Privy Council refused, August 4, 1914, the Nova Scotia Supreme Court rejected an attempt by a union local to alienate its assets as that local did not want to merge with a different union. At first instance, Graham E.J. stated:

I have already quoted from the Constitution extracts which show that such lodge is absolutely a subordinate lodge as the name imports. It is not an independent existence. It is altogether subject to the Association acting through the Grand Council. It is an agency of the Association and cannot exist separate from it. The members of the lodges are members of the Association and the members of one lodge participate in the benefits and share the burdens of other lodges through the action of the Grand Council acting for all.

[74] On appeal, Russell J. stated, at para. 9:

For the reasons given in the judgment appealed from I have no doubt whatever that the proceedings taken were wholly ultra vires and void, that the property, both real and personal, was impressed with a trust for the benefit not only of the lodge in which it was vested but for that of the members of the association at large.

[75] In the Supreme Court of Canada Duff J. (as he then was) put it succinctly:

…the incorporation of the Grand Council and of the individual lodges is merely for the purpose of machinery. The incorporated subordinate lodge as a corporate body has its powers limited by the objects of the incorporation, the grand object being to serve the purposes of the subordinate lodge itself as a member of the order. Any attempt to deal with the property of the lodge inconsistently with this object is in my judgment ultra vires. The transaction in question was, as regards the incorporated body, an ultra vires transaction.

[76] In Ontario, the courts have considered similar situations. Over half a century ago, in Raymond v. Doherty et al., 1962 CanLII 222 (ON SC), [1962] O.R. 929 (H.C.J.), aff’d 1965 CanLII 325 (ON CA), [1965] 1 O.R. 593 (C.A.), defecting members of an IBEW local put assets of the local into a trust fund out of reach of International. The defecting members were the trustees. The steps were taken, as here, without the knowledge or approval of International. When the scheme was exposed, all of the officers of the local were suspended and new ones appointed. Eventually, International dissolved the local and it ceased to exist. It was not disputed that International could take these steps under the Constitution. However, the defecting members asserted that upon dissolution of the local the converted funds became the subject of a resulting trust in favour of the members who contributed the funds. The trial judge, Thompson J., rejected the defendants’ argument, stating:

Undoubtedly, the International constitution is aimed at complete supervisory control of all locals by the International executive, including command over its funds and property. Nowhere is there any indication of any intended return of contributions made by the members, except by way of such benefits as are prescribed. The property rights of the local unions are wholly subordinate to those of the International as an entity. The constitution is binding on all members and each, upon admission, is obligated to advance the interests of the International organization ….

It is sufficient to state, for the purposes of the determination of such issues, that the defendants have unlawfully converted the funds and securities named to their own use and have illegally detained the books and records of Local Union No. 788 of the I.B.E.W. in their possession. [emphasis added]

[77] The Court of Appeal for Ontario upheld the trial decision, noting that the Constitution provided that funds and property of a union local may only be used for purposes approved by the International President or as specified in the Constitution.

[78] More recently, in United Food and Commercial Workers, Local 1252 v. Cashin (1996), 1996 CanLII 11537 (NL SC), 149 Nfld. & P.E.I.R. 112, the Newfoundland Courts considered a similar attempt to move funds out of a local into a different fund away from the grasp of the international union. The Court noted, at para. 180, that the transfer of funds was “done with the intent to remove control” from the international union, but “[h]owever well-intentioned that might be” the Court concluded that “it was not a proper transfer of these funds and should be re-scinded.” After citing the Nova Scotia case from 1912 (Grand Council Provincial Workmen’s Association v. McPherson), the Court stated, at para. 183, that the creation of the trust “was simply a vehicle … for the purposes of putting the insurance claim funds out of the reach of the plaintiff in the event of a trusteeship by the UFCW international union.” It went on to conclude that the transactions involving the funds were void and should be returned to the international union.

[79] As with Raymond v. Doherty in Ontario, Cashin was also upheld by the Court of Appeal in Newfoundland: United Food and Commercial Workers, Local 1252 v. Cashin, 2002 NFCA 48, 216 Nfld. & P.E.I.R. 41.

[80] Raymond v. Doherty and Cashin dealt with attempts to use trusts to separate funds from the local’s assets. There are cases to similar effect involving locals attempting to move assets to corporations to avoid the consequences of a reorganization by the parent union, in contravention of the Constitution. This arose in United Brotherhood of Carpenters and Joiners of America, Local 1338 v. Bradley (1999), 1999 CanLII 35046 (PE SCTD), 174 Nfld. & P.E.I.R. 104, which had a similar constitutional structure. As the court noted at para. 46:

The Charter of Local 1338 is the legal instrument which gave "a body of qualified Work-men", the right to form a local of the UBC, subject to the UBC's Constitution which is an integral and inseparable part of Local 1338's legal status. A local union enjoys no independent legal status; Local 1338 could have no existence other than as local of the UBC. [citations omitted]

[81] Facing a similar prohibition on dividing property among individual members, the Court stated, at para. 49:

Since it is constitutionally impossible for Local 1338's property to become divisible amongst its members, neither Bradley, nor any other individual former or current member of Local 1338 can legally maintain any claim to it or any divided part of it. Under the UBC's Constitution, the rights of those members was limited to the enjoyment of Local 1338's property while the local subsisted and they remained members. For this reason, any claim advanced by Bradley in the statement of defence and counterclaim that he or any other individual member of Local 1338 acquired any divisible interest in Local 1338's property is bound to fail.

[82] To similar effect is Lakeman and Barret v. Bruce, 1949 CanLII 244 (BC CA), [1949] 3 D.L.R. 527, in which the British Columbia Court of Appeal held in the context of an injunction application that even where a majority of members approve, there was a strong prima facie case against the transfer of funds to a breakaway union where the constitution of the national union provided that funds and other property of the local union “shall remain the property of the Local for all legitimate purposes…”

[83] In my view, following the unbroken line of cases referred to above, the creation of the Local 894 trusts and the amendments to the Local 1739 trusts were void ab initio and are null and void. The evidence of the applicants is very clear that the steps they took were taken by them arising from their positions as executives of those locals and in that capacity. Local 1739 chose to amend its trust documents, and Local 894 chose to create trusts. These steps were taken without the knowledge or approval of International and the International President, for the improper and unauthorized purpose of alienating funds from the Former Locals and the IBEW, contrary to the union Constitution. Providing for pro rata distribution among individuals was also in contravention of the Constitution and ultra vires the Former Locals.

[84] Further, as noted earlier, Local 1739 was also prohibited from amending the terms of its trusts while it was under supervision and trusteeship, which arose following the merger order in January 2010.

[85] The building corporations, like the trusts, are creatures of the union and must be subject to overriding union objectives and principles, as set out in the Constitution. As Desroches J. held in Bradley, since it was “constitutionally impossible” for the local’s property to become divisible amongst its members, any steps to give effect to such an outcome are not valid. To similar effect is the decision of the New Brunswick Court of Appeal in LeBlanc v. Canadian Union of Public Employees, Local 558, 2016 NBCA 11, 447 N.B.R. (2d) 356, in which it held that a transfer of funds out of a union to benefit individual members in a new association would also be invalid. Further, the amending bylaws purport to put the boards beyond the authority and control of the IBEW. This too is inconsistent with the Constitution as it is an attempt to remove assets from the locals contrary to Article XVIII.

[86] Trade unions at their core are collective enterprises, intended to provide collective benefits. As stated in Garcia, “the collective interests of the membership as a whole are paramount.” The Constitution of the IBEW reflects that purpose. The actions of the Former Locals in attempting to benefit certain identifiable individual members of those Locals is inconsistent with the Constitution and the collective purpose of trade unions. The applicants’ actions put the individual interests of some members ahead of the collective interests of all the members and provides a windfall to those who happened to be members of the Former Locals at a specific point in time, yet those same members have benefitted from similar, existing assets of Local 353, without contribution by them. To permit the result sought by the applicants would be antithetical to the collective interests of the union, and is contrary to the Constitution.

[87] In reaching this conclusion, I have considered the argument of the Former Locals that the IBEW Constitution does not specifically address the use of trusts or corporations by locals in holding assets. This, they say, supports their position that trust and corporate law apply rather than the obligations of the Constitution. However, the Constitution does in fact make direct reference to trusts in requiring that the business manager of each local “serve as a trustee on all trust funds of the Local Union provided for in collective bargaining agreements.” In my view, this confirms the point that trusts and corporations are well-accepted parts of the union apparatus, created by actions of locals with the approval of International and the International President in accordance with the Constitution. The trustees have duties to the beneficiaries who are the members of the union from time to time, and the context is that of a collective asset to be used for collective purposes, not, as the Constitution makes clear, for the benefit of some individual union members.

[88] The applicants also submit that the Constitution should not be enforced based on the doctrine of unconscionability. They note that union constitutions are contracts of adhesion formed in circumstances of unequal power which, they argue, is magnified in the construction industry where the unions themselves supply workers to job sites – making it necessary for individuals to agree to the terms of the Constitution to gain access to work.

[89] While the Supreme Court noted in Berry v. Pulley, 2002 SCC 40, [2002] 2 S.C.R. 493, that union constitutions are contracts of adhesion which are indicative of an inequality of bargaining power, that case dealt with the relationship between individuals and the union, not between a local and the parent union. In the context of a parent-local dispute, it has been held that the normal rules of contractual interpretation apply to a union constitution, and that courts should “search for an interpretation from the whole of the contract that advances the intent of the parties when they signed the agreement”: Adi v. Datta, 2011 ONSC 2496 at para. 40.

[90] On this issue, the applicants argue that since the term “local union assets and property” is not defined in the Constitution, it is therefore ambiguous and should be interpreted contra proferentem, or against International, to not include assets held in trusts or corporations. However, considering the context and the purposes of the assets in issue, I see no ambiguity which would give rise to the application of the contra proferentem principle.

[91] Further, even accepting (which I do not) that there was inequality of bargaining power, and accepting for the moment that this application is brought by individuals (albeit on behalf of the members of the two Former Locals), a provision that prohibits pro rata distribution to the members can hardly be said to be unfair having regard to the purpose of the fund or corporation, especially in the context of the collective enterprise of a continuing merged union.

[92] In Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 93 O.R. (3d) 1 (C.A.), the Court of Appeal observed at para. 45, that “the test for unconscionability…involves more than a finding of inequality of bargaining power between the parties to a contract”. It requires a “two-part analysis -- a finding of inequality of bargaining power and a finding that the terms of an agreement have a high degree of unfairness.” In my view there is no unfairness, let alone a “high degree of unfairness”, in requiring funds collected from union members for specific purposes to continue to be used for those purposes. Indeed, it would be unfair to the members of the merged Local 353 not to have those funds provided to it to be used for the benefit of its members which includes members of the Former Locals. As noted above, this is what the OLRB expected and commented on as being “entirely appropriate.”

[93] It cannot be said that International has taken undue advantage of its position. It is a core tenet of the collective purpose of unions to ensure that funds are used for the purposes for which they were intended, for the benefit of the collective membership as it exists from time to time, and not for specific individuals. The unwavering case law reviewed above makes this conclusion very clear.

Breach of Fiduciary Duty and Constructive Trust

[94] The actions of the individual applicants in amending or creating the trusts and building corporations to alienate the assets from the locals also constituted breaches of their fiduciary obligations as executive members and officers of the Former Locals. It is “well-established in the jurisprudence that officers of a union occupy a fiduciary position with respect to the union and its members”: St. Denis v. Manoni, 2011 ONSC 3308, 96 C.C.E.L. (3d) 242 at para 75. In Canadian Union of Public Employees and Martell v Deveau et al., [1977] N.S.J. No. 450 at paras. 11-12, the Nova Scotia Court of Appeal held that the fiduciary duty extended to the entire union, not just to the local and its members, and found that the officers of the local union were acting in breach of their fiduciary duty in attempting to distribute funds to the members in the face of a prohibition on such a distribution in the union constitution.

[95] Other courts have made similar findings. In Cashin, the Newfoundland courts held that officers of a union have a duty to safeguard the property and assets and ensure that they “were used solely for the purposes set forth in the plaintiff's constitution.” Their fiduciary duty includes a duty of loyalty, good faith and avoidance of conflict of interest: Cashin, at paras. 294-295.

[96] In this case the executive board members of the Former Locals were, by virtue of their positions in the union locals, trustees and directors of the trusts and building corporations. In that capacity, they were to show loyalty and act in good faith in upholding the purposes of the trusts and corporations, to act consistently with the IBEW Constitution, and not to act in their self-interest or to be in a conflict of interest. In my view, their actions in attempting to alienate the assets from the IBEW, and their proposal to distribute the assets pro rata to certain individual members, is a clear breach of these obligations.

[97] Further, the applicants, as members of the Former Locals at the time of the merger, stood to gain personally from a distribution to members. Their conduct smacks of self-interest. The applicants created, or amended, their trust and corporate entities without notice to the IBEW, and never sought approval for their actions, as required by the Constitution. This was, of course, because their actions would not have been permitted as they clearly violated the union Constitution.

[98] Favouring themselves and others who were members of the Former Locals at the time of the merger is not consistent with the purposes of the entities or the applicants’ duties. The obligations of the trustees and directors must continue to be defined by the purposes of the trusts and corporations, for the benefit of the members as they may exist from time to time, and not at a specific, artificially fixed date. It is contrary to the collective enterprise of the IBEW that, upon a merger in which the members of the Former Locals continue to be members of the IBEW in a different local, from which they will receive similar benefits, that those members should obtain a windfall and not have those funds pooled with the new merged Local 353 where they can be used for the purposes for which they were collected. As in the Provincial Plasterers case, quoted earlier, these assets should be transferred to Local 353 to “best effectuate the purpose of the Trust fund.”

[99] As the actions taken constitute a breach of fiduciary duty by the applicants, I agree with International and Local 353 that the alternative remedy of imposing a constructive trust is available. To the extent that the current trust and corporate documents have placed the assets out of reach of Local 353 and the IBEW, this was due to wrongful actions by the trustees and directors, and they should not be permitted to retain control of those assets.

[100] As McLachlin J., as she then was, stated for a majority of the Supreme Court in Soulos v. Korkontzilas, 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217 at para. 14, the constructive trust remedy is not limited to circumstances of unjust enrichment, but may also “apply absent an established loss to condemn a wrongful act and maintain the integrity of the relationships of trust which underlie many of our industries and institutions.” She reviewed the history of the constructive trust remedy finding, at para. 17, that it is used to “hold persons in different situations to high standards of trust and probity and prevent them from retaining property which in ‘good conscience’ they should not be permitted to retain.” At paras. 33-34 McLachlin J. specifically addressed application of the doctrine to breach of fiduciary duty:

Good conscience addresses not only fairness between the parties before the court, but the larger public concern of the courts to maintain the integrity of institutions like fiduciary relationships which the courts of equity supervised. As La Forest J. states in Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at p. 453:

The law of fiduciary duties has always contained within it an element of deterrence. This can be seen as early as Keech in the passage cited supra; see also Canadian Aero, supra, at pp. 607 and 610; Canson, supra, at p. 547, per McLachlin J. In this way the law is able to monitor a given relationship society views as socially useful while avoiding the necessity of formal regulation that may tend to hamper its social utility.

The constructive trust imposed for breach of fiduciary relationship thus serves not only to do the justice between the parties that good conscience requires, but to hold fiduciaries and people in positions of trust to the high standards of trust and probity that commercial and other social institutions require if they are to function effectively.

It thus emerges that a constructive trust may be imposed where good conscience so requires. The inquiry into good conscience is informed by the situations where constructive trusts have been recognized in the past. It is also informed by the dual reasons for which constructive trusts have traditionally been imposed: to do justice between the parties and to maintain the integrity of institutions dependent on trust-like relationships. Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or unjust effect on the defendant or third parties, matters which equity has always taken into account. Equitable remedies are flexible; their award is based on what is just in all the circumstances of the case. [emphasis added]

[101] In Soulos, at para. 45, McLachlin J. set out the four conditions that must be met for the imposition of a constructive trust:

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and;

(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case….

[102] Here the conditions for imposing a constructive trust are met. First, the applicants’ fiduciary duties create an equitable obligation in relation to the assets. Second, the fiduciaries have attempted to divert the assets to themselves and a distinct group of members, acting out of self-interest contrary to their obligations to the IBEW and the Constitution, and contrary to the purposes for which the funds were collected. Third, International and Local 353 have a legitimate reason for seeking the constructive trust remedy, which is to ensure that locals and their officers abide by the IBEW Constitution and manage union assets consistent with the collective purposes set out in the Constitution. The lengthy body of case law reviewed earlier clearly demonstrates the importance of ensuring that union funds are used for union purposes and not diverted to individuals who happened to be members at a particular given time. Fourth, there is no injustice in imposing a constructive trust here. To the contrary, the individuals who would obtain the windfall from pro rata distribution will have lost nothing, as they have continued to enjoy the benefits of such trusts as members of Local 353. Indeed, having the funds of the Former Locals merged with Local 353’s funds will cure the unfairness that the members of the Former Locals are benefitting from contributions to Local 353 prior to the merger, without having contributed their fair share as well.

[103] The case for a constructive trust is therefore established. The trustees and directors acted wrongfully, in breach of their fiduciary obligations in attempting to alienate the funds from the IBEW, and they would be unjustly enriched by the windfall that would flow to them and a limited group of members of the Former Locals from pro rata distribution.

Successor Rights

[104] Another, and alternative, basis on which I would come to the same result is that, pursuant to the merger order, the Former Locals have ceased to exist and been merged into Local 353. This included a merger of all assets, including assets held in trusts and corporations. In its June 25, 2012 decision, the OLRB made the following findings:

23. The Board finds that the order of the International Brotherhood of Electrical Workers to merge Local 1739 and Local 894 with Local 353 was undertaken with just cause. The Board declares that the International Brotherhood of Electrical Workers Local 353 has, effective June 30, 2012, acquired all of the rights, privileges and duties under the Act of International Brotherhood of Electrical Workers Local 1739 and of International Brotherhood of Electrical Workers Local 894.

24. The terms of the merger are those set out in the letter of Mr. Edwin Hill in letters dated January 8, 2010 and January 26, 2010 subject to the changes and other orders set out below.

[105] Pursuant to the Constitution, Article XIII, section 3, the President’s January 8, 2010 order provided that “effective February 1, 2010, Local Unions 894 and 1739 be merged into Local Union 353.” The merger order contained additional details on how to effect the merger forthwith:

As of February 1, 2010, the membership of Local Unions 894 and 1739 should be transferred to Local Union 353 on Group Transfer Form 294. All records, funds and other property of Local Unions 894 and 1739 should be transferred to Local Union 353 with the exception of the seals of Local Unions 894 and 1739, which should be destroyed.

Also effective February 1, 2010, the International Representative you assign is to contact each of the financial institutions in which Local Union 894’s and 1739’s funds are currently being held and to arrange for the transfer of those funds to Local 353. Each financial institution should be instructed not to honor any requests by Local Union 894 or Local Union 1739 or their officers to withdraw local union funds. You should also collect from the officers and employees of Local Union 894 and Local Union 1739 any local union credit cards that may exist, and arrange to transfer to Local Union 353 the property, books, records and other assets of Local Union 894 and Local Union 1739. [emphasis added]

[106] Although the effective date of the merger was delayed first to February 12, 2010 and then by the OLRB proceedings, the Board gave effect to the order and noted that s. 68 of the Labour Relations Act, 1995 provides that the Board may make a declaration that a merged or successor union has “acquired the rights, privileges and duties of its predecessor”. The Board did precisely this in its June 25, 2012 decision, quoted above. Accordingly, pursuant to s. 68(3), Local 353 is “conclusively presumed to have acquired the rights, privileges and duties” of the Former Locals, “whether under a collective agreement or otherwise….”

[107] The Former Locals recognized this in the OLRB proceedings in discussing the merger of the stabilization funds, where the Board noted in its May 2, 2012 decision that “the two Local Unions indicated they acknowledged that had to be the result….” Yet, as has been reviewed, the Former Locals nevertheless attempted to move assets held through the trusts and building corporations “beyond the reach of International and of the Act”. In not disclosing the steps they had taken, the Former Locals’ conduct “speaks for itself”, the Board noted, concluding that they “were being less than forthright in their applications to the Board.” [June 25, 2012 decision, paras. 12 and 6.] As reviewed above, the unauthorized actions which were beyond the statutory jurisdiction of the OLRB, were done expressly to frustrate the merger order. However, while such improper actions may be beyond the reach of the OLRB, they are not beyond the reach of the Court.

[108] The applicants have acknowledged on these applications that the Former Locals ceased to exist on June 30, 2012. They were merged into Local 353 and therefore “Local 353” should be read in place of the Former Locals on all governing documents, including the governing documents of the trusts and building corporations. As Board Vice-Chair David A. McKee stated in his June 25, 2012 decision, at para. 10, “it would appear to me that wherever the phrase ‘Local 1739’ [and by implication Local 894] appears in the Building Bylaws…on or after June 30, 2012, the rights, privileges and duties that arise from that reference would adhere to Local 353.”

[109] As there is no longer any Local 894 or Local 1739, the consequence of the merger order is that Local 353 must be read in their place in the governing documents of the trusts and building corporations. This is consistent with the merger order, the OLRB’s decisions, and the IBEW Constitution.

[110] This also means that the applicants’ are no longer able to do what they seek the Court declare they have the right to do, as they no longer hold office as trustees of the trusts or as directors of the building corporations. Those positions are to be held by the business manager and individuals holding executive positions in the local unions, and as those locals have merged with Local 353, the trustees and directors must now be elected from Local 353. As the Local 213 decision, referred to above, holds, the trustees and directors are, in that capacity, now carrying out duties of Local 353.

[111] Each of the Trusts, as amended, provides that if legal proceedings are commenced within thirty (30) days of the imposition of a “Trusteeship”, which would include the merger order, the current trustees shall continue until such time as the Trusteeship has been withdrawn, new elections of Executive Board members have taken place, “or the proceedings that were commenced are finally concluded, including any applications for judicial review and appeals therefrom or until a court or tribunal of competent jurisdiction rules otherwise and all applications for judicial review and appeals there from are finally and conclusively determined.”

[112] The application for judicial review of the OLRB proceedings concluded on April 9, 2014, and the Former Locals did not appeal. Accordingly, the tenure of the trustees has expired. As Local 353 is the successor to Local 894 and Local 1739, new trustees and directors must be appointed by Local 353.

[113] Article 27 of each building corporation provided for a Trustee Board which could not be removed until the trusteeship ended when, like the trusts, a new Board could be elected by the members. It also provided that the Board could direct a wind-up and pro rata distribution if approved by the members. These provisions were created by the corporations’ boards in December 2011 and January 2012 in, as the OLRB said, “an attempt to place one asset of the local union (as distinct from its members) beyond the reach of the International union and of the Act.” While I have found, above, that Article 27 is null and void, if that finding is incorrect I would now read “Local 353” and the members of Local 353 in place of the Former Locals which have ceased to exist.

Resulting Trust

[114] Local 353 also makes the alternative argument that the trusts at issue are non-charitable purpose trusts, and not trusts for the benefit of individual members of the Former Locals. As such, they submit the trusts are invalid since, pursuant to s. 16 of the Perpetuities Act, R.S.O. 1990, c. P.9, a non-charitable purpose trust must be for a “specific non-charitable purpose”. In this case Local 353 submits that the Former Locals’ trusts are too vague to satisfy the requirements of the Perpetuities Act, and are therefore void which means, it is argued, there should be a resulting trust back to the settlors – the Former Locals, which are now replaced by Local 353.

[115] There is language in each of the trusts similar to that found in trusts that were found invalid for lack of precision and specificity by Horkins J. in Dionisio v. Mancinelli, [2004] O.J. No. 4354, 12 E.T.R. (3d) 296 at paras. 37-45. However, the trusts in issue here do state a general object which was absent in Dionisio. The market stabilization trusts have a stated purpose of “assisting…in obtaining, protecting, and expanding the share of organized labour of the construction marketplace…” The other trusts contain general purpose language, such as “providing funds and programs for training, retraining, upgrading and improving the skills and education of members…”, or for the “purposes of providing benefits…” for “health and welfare.”

[116] In my view the Former Locals’ trusts are more like the trust considered by Bowman T.C.J. in Labourer's International Union of North America, Local 527, Members' Training Trust Fund v. Canada (Minister of National Revenue - M.N.R.) (1992), 1992 CanLII 15311 (TCC), 47 E.T.R. 29 at p. 4, in which the trust had a stated purpose “to provide funds for the establishment of a Training Programme in order to retrain, upgrade and improve the skills of Employees”. Like Bowman T.C.J, therefore, and assuming the trusts are non-charitable purpose trusts, I find that there is sufficient specificity of objects such that the trusts are not void on this basis and I reject the argument that there should be a resulting trust back to the settlors.

The Building Corporations

[117] There is one other basis on which I would find that the building corporation assets should be transferred to Local 353 and not be distributed to individual members. The Letters Patent of each corporation provide that they were established by the Former Locals to “generally promote the interest and well-being of the members in good standing from time to time” (Local 894) and to “promote and foster the interest and well-being of the Members of the Electrician’s Local 1739”. The Letters Patent also provide that the corporation was to be “carried on without the purpose of gain for its members” and, in the case of Local 894, “any profits or other accretions to the Corporation shall be used in promoting its objects.” Local 1739’s Letters Patent provided that upon dissolution the property “shall be distributed or disposed of to Charitable Organizations, the objects of which are beneficial to the Community.”

[118] Neither corporations’ Letters Patent provide for distribution to the membership; quite the contrary. Consequently, pursuant to s. 129 of the Corporations Act, the bylaws passed by the Former Locals to provide for such distribution are contrary to the Letters Patent, are ultra vires the directors and are null and void. Further, s. 132 of the Corporations Act does not assist the applicants, as that would only permit distribution among members, or a class of members, in the absence of a bylaw dealing with dissolution of the corporation.

[119] I also note that there is some question as to whether the changes in the bylaws were properly approved by the membership. There appear to be deficiencies in notice to the members of each of the Former Locals. In any event, the need for approval, which would have been initiated by the applicants as executives of the Former Locals, simply highlights the lack of independence of the building corporations from the locals, and the misconduct of the executive in seeking to have the members effect changes to assets contrary to the IBEW Constitution.

REMEDY/CONCLUSION

[120] Having found that the amendments to its trusts and building corporation by Local 1739, and the steps taken to create trusts and amend its building corporation by Local 894, are null and void, it follows that the applications by the applicants who seek to make pro rata distribution to members of the Former Locals should be dismissed, and the applications by the individuals representing the members of International and Local 353 should be allowed. Accordingly, I make the following orders and declarations in the applications bearing court file numbers CV-14-517499, 517502, 517504 and 517508:

(a) pursuant to Rule 12.08 of the Rules of Civil Procedure, Robert White, Jeffrey Irons, William Acorn, Jan De Jong, Stephen Belanger, Les Carbonaro, Jodi Hill, Martin Kearney, Gary Majesky, Howard McFadden, Ronald White and Steven Martin, are authorized to bring proceedings on behalf of and for the benefit of all members of Local 353;

(b) pursuant to Rule 12.08 of the Rules of Civil Procedure, William Daniels, is authorized to bring proceedings on behalf of and for the benefit of all members of the International Brotherhood of Electrical Workers, First District, Canada;

(c) the trust agreements and building corporation bylaws of Local 894, and the amendments to the trust agreements and building corporation bylaws of Local 1739 are null and void and of no effect;

(d) the trusts and building corporations are not independent of the Former Locals and are therefore the property of Local 353, as successor to the Former Locals;

(e) the applicants have committed breaches of trust and breaches of fiduciary duty owed to the International Union and Local 353;

(f) the assets of the trusts and building corporations are the property of Local 353;

(g) all references to the Former Locals in the trust and building corporation bylaws shall now refer to Local 353, as successor to the Former Locals;

(h) the applicants have ceased to hold the offices of trustees of the trusts and as directors of the building corporations, and are removed from those positions, and the trustees of the trusts and directors of the building corporations are now the executive board members and the business manager of Local 353, as the successor to the Former Locals; and

(i) to the extent necessary to give effect to this Order, the applicants shall provide all reasonable assistance in effecting the transfer of the assets of the trusts and building corporations to the executive board members and business manager of Local 353 as trustees of the trusts and directors of the building corporations, or to Local 353, as successor to the Former Locals.

[121] If any further orders or declarations are needed to give effect to these Reasons, counsel may contact me to address them.

[122] If the parties cannot agree on costs, they may make brief written submissions to me, no longer than 5 pages, double-spaced, not including supporting records. International and Local 353, as the successful parties, shall provide submissions within 4 weeks of the release of these Reasons and the Former Locals shall provide responding submissions 2 weeks later.

Schabas J.

Released: November 15, 2019