Court File and Parties

COURT FILE NO.: CV-23-91823 DATE: 2023/06/26 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CITY OF OTTAWA, Applicant AND: MICHAEL FOBERT, ANGELA MERTES, EMELINE THERMIDOR and HILDEGARD HENDERSON, Respondents

BEFORE: Regional Senior Justice Calum MacLeod

COUNSEL: Samantha Montreuil, for the Applicant Leonard Levencrown, for the Respondent

HEARD: April 20, 2023

Decision and Reasons

[1] City of Ottawa has appointed an interim board of directors to govern Coopérative d’habitation Voisins Inc. (“the Co-op”). The City has the statutory power to do so under the Housing Services Act, 2011 [1] (“the Act”) under certain circumstances. The Respondents, who were elected members of the board of the Co-op refuse to recognize the City’s authority as they do not agree that statutory preconditions were met.

[2] The City seeks an order preventing the Respondents from impeding the work of the interim board and requiring the Respondents to deliver property and records of the Co-op to the City’s nominees. The question is whether the City had the authority to step in as it did.

[3] For the reasons that follow, I find that the City had the power it purported to exercise. There will be a Declaration that the directors appointed by the City are the legally constituted Board of Directors of the Co-op. There will be a mandatory order requiring the Respondents, as former directors, to deliver all records and property of the Co-op to the new administration pending the election of a new board.

Background and Statutory Framework

[4] The Housing Services Act, 2011 is the statutory framework for subsidized public housing. Under the Act, funds are disbursed by the province through designated Service Managers who, in turn, enter into funding agreements with Housing Providers subject to certain statutory conditions.

[5] Under s. 83 and 85 of the Act, there are circumstances in which the Service Manager is empowered to remove and replace the directors of a Housing Provider. The purpose of this legislation is the proper administration of housing subsidies or “rent geared to income” and not the government of housing co-operatives but, in some instances these purposes intersect. [2]

[6] In Ottawa, the City is the Service Manager. The Co-op is a housing co-operative incorporated under the Co-operative Corporations Act [3] (the C.C.A.) and is also a Housing Provider under the Act because it receives funding for the provision of subsidized housing and is party to a Housing Provider Service Agreement. On February 22, 2023, the City took steps under the Act to remove the members of the board of directors of the Co-op and to appoint a new board.

[7] The reason for the City’s intervention was a dispute within the Co-op as to who were the legally elected directors and a failure by the Co-op to resolve the situation. As a consequence, in the view of the City, there was a failure of governance, failure to manage the affairs of the corporation and inability to pay obligations as they fell due. The latter was because the bank, not knowing which board had proper authority and who were the proper signing officers, could not release funds and because the City believed the rents were not being collected or were being diverted.

[8] The Respondents are members of a board of directors that was duly elected and was responsible for the management of the Co-op until November 27, 2022. For simplicity I will refer to the board on which they served as “Board No. 1”.

[9] In early 2022, a dispute erupted within the board over alleged conflict of interest. This resulted in the departure of one of the board members, the resignation of the property manager, calls for an investigation and concerns about confidentiality.

[10] A meeting of the members of the Co-op was convened on October 30, 2022 and continued on November 6, 2022. At that meeting a vote was taken to dissolve the board and hold a new election. An election was held on November 27, 2022 and resulted in the election of new directors. I will refer to the Board elected on November 27, 2022 as Board No. 2. The members of Board No. 1 regarded the purported dissolution of the board and the purported election as contrary to the governing provisions of the CCA and the by-laws of the Co-op, both of which contain notice requirements and other technical aspects of a properly called duly sanctioned meeting and election.

[11] As a consequence, although some members of the board resigned, the remaining members of Board No. 1 refused to recognize the result and continued to assert that Board No. 1 was the lawfully elected board. This created a stand off in which there were two boards of directors each purporting to be the governing body of the Co-op. The members of Board No. 1 took or retained possession of the Co-op’s computers and records and refused to turn them over to Board No. 2. Both boards purported to designate signing officers and to authorize expenditures. Moreover, Board No. 2 did not recognize a new property manager which had been appointed by Board No 1 on November 1, 2022. Consequently, there were issues about the receipt and deposit of rents.

[12] The dispute between the two boards and the purported appointment of conflicting signing officers resulted in the Co-op’s banker freezing the bank account. At that point, in the City’s view, there was a failure of governance in the Co-op and an inability of the corporation to meet its obligations as they fell due. Certain bills and invoices from vendors and suppliers as well as obligations to staff members were not met or paid due to the freezing of the bank account and the lack of authorized signing officers.

[13] According to the affidavit evidence, the City sought solutions. The City suggested a new election, negotiation between the legal counsel for each board or joint action by the two boards. None of this was successful. Moreover, neither Board No. 1 nor Board No. 2 took steps to resolve the situation. There was no legal proceeding taken by either Board to validate or invalidate the results of the election and no attempt to call a meeting of the members to ratify the election or to hold a new election. No member of the Co-op or of either board has brought an application for a court supervised election under the C.C.A.

[14] The City was faced with a Housing Provider that had competing boards of directors, a property manager which, in the view of the City, was not certified to administer the Housing Provider Service Agreement and was not recognized by Board No. 2. It was not possible to verify if all fees and rents were being collected and the bank account of the Co-op was frozen by the bank.

[15] On January 6, 2023, the City notified the members of both boards that the situation could constitute a “triggering event” under the Act and the City would have to act. Both boards apparently retained legal counsel. The Respondents accuse the City of favouritism, bias and improperly meddling in the affairs of the Co-op. Those allegations are not supported by the evidence before me, but in any event, nothing was done to resolve the governance issue and the Co-op continued in a state of paralysis.

[16] On February 3, 2023, the City sent a notice of triggering event based on the inability of the Co-op to meet its obligations as they fell due. The City also proposed solutions referred to above such as joint action by the two boards or a new election. The Respondents refused as they believed that the members of Board No. 2 had been involved in improper dealing with the former property manager and with the City. At that point, it appears that Board No. 1 attempted to open a new bank account.

[17] On February 22, 2023, the City gave notice that it was exercising its powers under the Act. The City advised that it was removing all directors from both boards, was appointing a board of 5 nominees of the City to stabilize the affairs of the Co-op and would call a meeting of the members to elect a new board.

[18] The Respondents have refused to recognize the steps taken by the City and have refused to co-operate by turning over property and records. Locks were changed on the Co-op office, the property manager appointed by Board No. 1 refused to cooperate with the City or with Board No. 3. Subsequently, Board No. 3 dismissed the property manager and took control of the bank account. The bank has recognized the City appointed board but the Respondents do not. That is the purpose of this application.

Analysis and Decision

[19] It should be very clear that the court has not been asked to resolve the dispute between Board No. 1 and Board No. 2. Whether or not the purported election of Board No. 2 was a valid election and whether or not the allegations of conflict of interest made by members of Board No. 1 were justified, is not the issue. The members of Board No. 2 are not parties to this proceeding and this is not a proceeding under the C.C.A.

[20] For purposes of this application, I am prepared to assume that Board No. 1 was acting in good faith and I am prepared to assume there was a basis for Board No. 1 to dispute the legitimacy of the new board. I note however that many of the members of the Co-op appear to have opposed the refusal of Board No. 1 to recognize that the board had been dissolved and they refused to recognize the new property manager. There were reports of harassment, vandalism and abuse.

[21] I reject the notion that it was for the bank or the City to resolve the dispute by siding with Board No. 1. It would have been for the members of the Co-op to legally resolve the governance dispute either by calling a new general meeting and conducting a new election or by bringing an application under the C.C.A. Neither the bank nor the City as Service Manager have the duty or the authority to arbitrate this question. Whether or not the bank should have frozen the account is also not before the court. The bank is not a party and no one sought an order against the bank.

[22] It is entirely legitimate for a Service Manger, faced with a Housing Provider whose bank account has been frozen and which has been paralyzed by an internal governance dispute, to take steps permitted under the Act.

[23] The only issues raised by the Respondents are whether the City acted in good faith and whether or not the City complied with the statutory requirements.

[24] As noted above, the Respondents make allegations that the City was aligned with the board member accused of conflict of interest and with the former property manager. The evidence before the court does not substantiate this allegation. Nor does the evidence support the allegation that the City somehow manufactured the grounds for intervention by exaggerating the severity of the situation. It is quite clear that faced with competing boards issuing competing directives, a property manager appointed by one board who was not recognized by the other or by many of the members and inability to determine whether rent and subsidies were properly accounted for, the City had a duty to Act.

[25] The Respondents argue that s. 90 of the Act permits a Service Manager to exercise the remedies provided in s. 85 of the Act only if it has first given the Housing Provider notice specifying the triggering event and giving the Housing Provider at least 60 days to rectify it. The City had advised on January 6, that the situation “could constitute a triggering event”, it gave notice of a triggering event on February 3 and it exercised its powers on February 22, 2023. Sixty days had not elapsed between February 3, 2023 and February 22, 2023 or even between January 6, 2023 and February 22.

[26] There are two answers to this. Firstly, the bank account was frozen in early December of 2022 and the City had been attempting to mediate a solution between the competing boards during that entire time. The Co-op had been in a state of chaos since November of 2022 and had been unable to resolve the governance question. If anything, the situation had deteriorated. There is no reason to think that either Board No. 1 or Board No. 2 or the members of the Co-op would have resolved the issue had there been an extra month given before the City took action.

[27] Section 90 (5) of the Act provides exceptions to the notice provisions set out in s. 90 (1) and (2). In the circumstances outlined in subsection (5) the Service Manger may act immediately. One of those circumstances is if the “housing provider is unable to pay its debts as they come due”. This is the subsection relied upon by the City. I find that this was literally the case. The bank account was frozen. There were competing boards of directors. There was a property manager recognized by only some of the members and who was untrained and uncertified. There were rents that may have been unpaid or diverted to a new bank account. There were unpaid invoices.

[28] In addition to intervention without 60 days notice if the Housing Provider is not meeting its financial obligations as they fall due, s. 90 (5) allows similar intervention if there is danger to the health or safety of residents of a housing project, misuse of the assets of the project or a failure of quorum on the board for more than 90 days. While the City does not assert than any of these apply, these other provisions of the subsection show the overall intent of the legislation. Where there is a significant failure of a Housing Provider to meet its most basic obligations, the Service Manager has the power and the duty to intervene.

[29] I do not accept the thesis advanced by the Respondents that the inability to pay its debts as they came due was a short term minor technical problem. The evidence does not support the allegation that the City improperly relied on the frozen bank account to intervene prematurely. Due to the failure of governance at the Co-op which had persisted since November and due to the failure of the Co-op to resolve the situation, it had become unable to discharge its responsibilities.

[30] I find that the City appropriately exercised its powers under the Act. Whether Board No. 1 or Board No. 2 was the duly elected board no longer matters. The City has dissolved them both and replaced them with a new interim board. Board No. 3 appointed by the City in its capacity as Service Manager is the legally appointed board and has the authority to act as such until new elections are held.

Conclusion and Order

[31] It follows that the Respondents must cooperate with the new board, must turn over the records and property of the Co-op as directed and must cease efforts to obstruct the work of the Board or its property manager.

[32] I have signed the draft order proposed by the City.

Mr. Justice C. MacLeod Date: June 26, 2023

Footnotes

[1] Housing Services Act, 2011, S.O. 2011, c. 6, Sched. 1 [2] See MacKenzie v. Ottawa Community Housing Corporation, 2023 ONCA 43, at paras 7-9 for a review of the purpose and mechanism of the Act. [3] Co-operative Corporations Act, R.S.O. 1990, c. C.35