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June 24, 2020 - By Victor Yee

Automatic Removal Of Directors: Failure To Complete CAO Training Or Failure To Comply With Director Disclosure Obligations

On June 24th 2020, the Ontario Court of Appeal overturned a lower court’s decision and ruled that City of Toronto councillor James (“Jim”) Karygiannis could not be granted judicial relief from the automatic forfeiture of his council seat, due to his failure to comply with campaign spending laws under the Municipal Elections Act.

This case, Karygiannis v. Toronto (City), 2020 ONCA 411 (“Karygiannis”), regarding the election of municipal councillors to the 3rd level government, has interesting implications on elections in what is commonly called the 4th level of government; namely, the Board of Directors of a condominium corporation. 

Particularly, this Court of Appeal case makes it clear that under the relatively new automatic disqualification provisions of the Condominium Act, which were enacted by the Protecting Condominium Owners Act, 2015, S.O. 2015, c. 28 (“Bill 106” or the “PCOA”), a Board member is automatically removed from the Board if they fail to complete the mandatory CAO directors training within 6 months or if they fail to comply with their mandatory disclosure requirements as a candidate.

Since those automatic disqualification provisions came into force on November 1st 2017, our firm has received many inquiries from concerned unit owners and Board members about whether the harsh penalty of automatic removal from the Board is, in fact, automatic.  Since the PCOA was enacted, it has not been uncommon for a director to be removed or disqualified from the Board, due to their failure to complete the mandatory training courses, offered online by the Condominium Authority of Ontario (the “CAO”), within 6 months of their election or appointment to the Board.

The Ontario Court of Appeal’s ruling in Karygiannis has now made it even more clear that such disqualifications from a condominium Board of Directors are, indeed, automatic.

Automatic Removal from the Board for Failing to Complete Training or Disclose Information

Pursuant to Section 29(2)(e) of the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”), “a person immediately ceases to be a director if, […] the person has not completed the prescribed training within the prescribed time”.  Pursuant to Section 11.7(4) of O. Reg. 48/01 (the “General Regulation”) to the Act, a director must complete mandatory CAO training within 6 months of the day that the director was elected or appointed to the Board.

Pursuant to Section 29(2)(f) of the Act, “a person immediately ceases to be a director if, […] the person has not complied with the prescribed disclosure obligations within the prescribed time”.  Pursuant to Section 11.6 of the General Regulation, a candidate for the Board must disclose certain information about themselves to the owners, primarily so that the owners can consider such information in deciding whether to vote for that candidate.  If applicable, this prescribed information can be disclosed by the candidate in advance of the election (e.g. by submitting a completed director’s disclosure form in response to the Notice of Preliminary Meeting, so that the form is included in the Notice of AGM package to all owners) or at the election meeting itself (either verbally or in writing, typically during the candidate speeches portion of the AGM).  If the candidate fails to do so either before the election or at the election itself, then even if that candidate is elected onto the Board, that candidate is automatically disqualified upon election and thus removed from the Board.

There is no explicit process set out under the Act, allowing for an automatically removed or disqualified director to be re-instated onto the Board if, for example, the director then completes their CAO training online on the day after the 6-month period had expired – even if the director’s failure to complete their CAO training was inadvertent or the director was unaware of such a legal requirement.  If the Board has not yet lost quorum, then the remaining Board members can appoint that disqualified director back onto the Board until the next AGM, at which the appointed director will need to seek re-election again; or the disqualified director could simply run for election again at the next AGM.

Relief from Forfeiture of Board Position

Under Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”), a court has the power to “grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just”.  This overarching power to relieve against penalties and forfeitures is also part of the Superior Court’s inherent jurisdiction to dispense justice fairly in each circumstance.

There has been some debate in the condominium law industry about whether Section 98 of the CJA could be of assistance here to re-instate directors who were automatically removed or disqualified under Section 29 of the Act. 

This debate was especially heightened by Councillor Jim Karygiannis’ initial win at the Ontario Superior Court of Justice on November 25th 2019, when he successfully sought relief from forfeiture of his Council seat under Section 98 of the CJA.

Councillor Jim Karygiannis Seeks Relief from the Courts

Without diving into the finer details of municipal election law and campaign finance accounting, the Councillor was found to have triggered Section 88.23 of the Municipal Elections Act, 1996, S.O. 1996, c. 32 (the “MEA”) by filing a Financial Statement that demonstrated, on its face, that he exceeded the campaign finance limits under the MEA.  Under Section 88.23(2) of the MEA, the automatic penalty incurred is that “the candidate forfeits any office to which he or she was elected and the office is deemed to be vacant; and until the next regular election has taken place, the candidate is ineligible to be elected or appointed to any office to which this Act applies”.

The Councillor applied to the Ontario Superior Court of Justice for relief from this automatic penalty, relying on the court’s power to grant relief from forfeiture under Section 98 of the CJA.

The Superior Court judge ruled in the Councillor's favour, finding that the error on the Financial Statement was “made inadvertently” and “there was no attempt to hide the expense” that put Mr. Karygiannis off-side the MEA’s campaign finance limits.

However, on June 24th 2020, the Ontario Court of Appeal ruled that Section 98 of the CJA could not apply here, since Section 88.23 of the MEA clearly stipulated an explicit, automatic statutory penalty; namely, the forfeiture of office.

At paragraphs 116 and 117 of the Ontario Court of Appeal’s decision, the Court held:

“[116]   The penalty imposed pursuant to s. 88.23 may be harsh in some cases but forfeiture is clearly what the legislators intended. […]

[117]   Granting relief from forfeiture would amount to rewriting or repealing the statute, revoking the very consequence for breach of the statute that the legislature prescribed.”

As such, the Ontario Court of Appeal overturned the Superior Court’s relief from forfeiture and declared that the Councillor had forfeited his office under Section 88.23(2) of the MEA.

Takeaways for Condominiums

Similarly, under the Condominium Act, the Ontario legislature clearly intended to automatically remove and disqualify certain individuals from serving on their condominium’s Board of Directors if they failed to comply with the mandatory CAO training and/or director disclosure obligations.  The use of the word “immediately” in Section 29(2) of the Act signifies that the province’s elected lawmakers intended for such forfeiture of a Board position to be automatic; and the PCOA did not add into the Act any re-instatement process or any statutory clause permitting the director to apply to the courts for relief from the immediate penalties of Section 29(2) of the Act.

The overall legislative intent of the PCOA, as evidenced in the very name of Bill 106 itself, was, among other things, to protect condominium owners from an unscrupulous or uneducated Board of Directors.  By automatically removing a Board member who either failed to properly disclose a conflict-of-interest or failed to complete the online CAO directors training, the PCOA provided a quick, efficient, and automatically immediate way to protect condominium owners – without forcing the owners to go to court every single time a Board member failed to complete their CAO training or comply with their disclosure obligations.  By making the removal from the Board immediate, the PCOA also helps protect against an unscrupulous or uneducated Board member from dragging out the court process while they empty out the condominium’s coffers or they obtusely misspend the condominium’s finances.

Accordingly, as has been our position all along, the immediate disqualification provisions under Section 29 of the Act are, for better or worse, indeed automatic – and the courts do not have the power under Section 98 of the CJA to relieve against a condominium director’s forfeiture of their Board position.

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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