Avoiding Conflicts of Interest: Guidance from the Courts for New Council Members

Authors: Robert Tyler, Danielle Dubois

Municipalities across Manitoba will welcome new mayors, reeves and councillors this year. Winnipeg Beach, Dunnotar and Victoria Beach had their elections on July 27. All others will follow on October 24.

Council members are expected to attend regular and special meetings, committee and board meetings, and other public meetings and functions. Most of these commitments are in the evening, as council members often balance their new roles along with full-time employment, other community engagements and family life.

With these full plates comes the responsibility that council members abide by conflict of interest laws. Manitoba courts have made it very clear that council members are bestowed with a high standard of trust when exercising their public duties.

What are conflicts of interest?

Broadly speaking, a conflict of interest may arise when a council member’s personal interests conflict with the public interest or the council member’s duties as a public official. The appearance or the perception of a conflict must also be avoided.

In addition to the common law requirements of public officials, The Municipal Council Conflict of Interest Act (“MCCIA”) addresses conflicts that may arise due to pecuniary (financial) interests in Manitoba. All council members must disclose matters in which they might have a direct or indirect financial interest. The MCCIA also requires council members to file a “statement of assets and interests” with their municipality every year.

If a court determines that a council member has violated the MCCIA, he or she may be disqualified from serving on council and may be required to make restitution (payments) to any person or the municipality affected by the improper financial gain.

Neurenberg  v. The R.M. of Lac du Bonnet, 2017 MBQB 138, 2018 MBCA 9

In the recent case of Neurenberg, the plaintiff, Mr. Neurenberg, owned land in the Rural Municipality of Lac du Bonnet, upon which a drain was located. In 2008, the R.M. and Mr. Neurenberg agreed that the R.M. would take ownership of the drain and an adjacent strip of land.

Mr. Neurenberg argued that the R.M. had also agreed to install water and sewer services. Specifically, he contended that Mr. Sikora, an R.M. councillor at the time, had personally promised that the water and sewer services would be constructed.

The R.M. hired Mr. Sikora’s business, Sikora Contracting Limited (“SCL”), to do the excavation work on the drain. Mr. Sikora was the principal of SCL, and in fact operated the equipment to enlarge the drain.

Was there a conflict of interest?

 The Queen’s Bench and Court of Appeal agreed that no conflict of interest occurred.

The Court of Appeal noted that, when the R.M. was discussing and voting on awarding the drainage contract, Mr. Sikora had followed the required procedures. He disclosed his interest in SCL, he withdrew from the meeting, and he did not participate in the discussion or vote on the resolution to award the contract. This was consistent with the requirements of section 5(1) of the MCCIA.

Arbez v. Johnson, 1998 CarswellMan 234, [1998] 8 W.W.R. 505 (MBCA)

Twenty years earlier, the Manitoba courts concluded differently in the case of Arbez v. Johnson. Mr. Arbez contended that Ms. Johnson, a councillor in the Rural Municipality of Taché, had violated the conflict of interest provisions of the MCCIA.

In addition to being an elected councillor, Ms. Johnson also owned and operated a convenience store called Chez Heather in the Village of Lorette. Mr. Arbez was the managing director of Chez Arbez, which operated a grocery store (an IGA). This IGA and Chez Heather were the only two locations in Lorette that were then authorized to sell Lotto 6/49 tickets.

The IGA was located adjacent to land owned by the Municipality. Chez Arbez had a right of first refusal to purchase this land from the Municipality. Chez Arbez hoped to purchase this land and use it for additional parking.

Mr. Arbez’s lawyer wrote to council, formally advising it of Chez Arbez’s intention to make an offer to purchase the land, and asking that Ms. Johnson absent herself from any council meetings or voting on this matter. Mr. Arbez argued that Ms. Johnson would benefit financially if parking at the IGA continued to be an issue, as customers would instead visit Chez Heather – with its ample parking – to purchase lottery tickets.

Ms. Johnson, however, did not follow the required procedure by recusing herself as Mr. Sikora did in the more recent case. She participated in the discussion at council, and voted against the sale. The resolution passed, however.

Was there a conflict of interest?

The Court of Queen’s Bench judge ruled in Ms. Johnson’s favour, concluding that, because the actual value of Ms. Johnson’s pecuniary interest in the land sale was not more than $500, no conflict of interest had occurred. The judge also took into account Ms. Johnson’s stated reasons for voting as she did.

The Manitoba Court of Appeal overruled the Queen’s Bench judge. The Court of Appeal emphasized that the test for a conflict of interest is objective, and that the Queen’s Bench judge should not have considered Ms. Johnson’s personal explanations for her participation and voting.

Furthermore, the Court of Appeal concluded that the Queen’s Bench judge had incorrectly interpreted the MCCIA. The $500 threshold applies only to cases in which a conflict of interest is presumed (based on the criteria in section 4(4) of the MCCIA). Where an actual conflict exists, the test is different.

That test is articulated at section 4(5)(a). A councillor need only have a pecuniary interest that exceeds that of an ordinary resident. The Court had “no difficulty” concluding that Ms. Johnson’s pecuniary interests were different from those of other members of the public.

Considered objectively, the sale of land to the IGA had an adverse impact on Chez Heather. The Court concluded:

Those in public office must not use their respective positions to their personal pecuniary advantage. The high standard of trust which is bestowed upon those exercising a public duty is identified in the Act and must be enforced by the courts.

Ms. Johnson was found to have violated the MCCIA and her seat on council was declared vacant.

Other considerations from the common law

The MCCIA requires councillors to be conscientious of their interests outside of their elected roles. In addition to these rules from the legislation, the common law also guides what is required of councillors.

For example, the tort of misfeasance in public office is not articulated in the MCCIA, but is prohibited by the common law. That is, it is judge-made law that is enforceable just as statutes are. This tort is also referred to as “abuse of power” or “abuse of public authority.”

As these names suggest, misfeasance in public office constitutes a misuse of that office. We will leave addressing that topic to another day. It is but another example of how councillors, with their very full plates, must be mindful of the higher standards of trust imposed upon them.

This article first appeared in Municipal Leader, a publication of the Association of Manitoba Municipalities. 

Robert Tyler is a partner with the law firm MLT Aikins LLP and practises in the area of municipal law. 

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.