The Waterloo Region’s exploration of light rail transit provides an excellent case study and example of some of the challenges that exist with Ontario's current Municipal Conflict of Interest Act ("Act"). 

On June 15, 2011, the Council for the Regional Municipality of Waterloo voted 9-2 to build an $818-million light rail transit system, the largest public works project ever undertaken by the Region.  When it is finally built in approximately 2017, it will run 19 kilometres between Conestoga Mall in Waterloo and Fairview Park Mall in Kitchener.  

The ultimate decision to construct a light rail transit system was only arrived at after years of debate.  All levels of regional government – both upper-tier and lower-tier municipalities – voted on the project in some capacity.  

It was during these debates that several regional councillors as well as councillors for the Cities of Kitchener and Waterloo declared conflicts of interest.  In total, four out of sixteen regional councillors declared conflicts, five out of ten City of Kitchener councillors declared conflicts and five out of eight City of Waterloo councillors declared conflicts. In other words, more than 40% of the relevant councillors declared conflicts and were unable to vote on this important issue.  

The councillors’ reasons for declaring conflicts ranged from owning property near the proposed rail line to being an employee of one of the local universities which might benefit from the creation of a light rail transit system what would be accessible on or near campus.  

The large number of councillors declaring that they had a conflict of interest highlights a problem with the present legislation: it is not entirely clear when a councillor or school trustee has a conflict of interest and there is no independent, third party to proactively adjudicate whether or not a conflict exists.  

Legislative Context

According to the Act, there are two types of conflicts: (1) a direct pecuniary interest; and, (2) an indirect pecuniary interest.  The term “pecuniary” is not defined in the Act, though the term generally means “consisting of or pertaining to money”.  As well, the terms “direct” and “indirect” are not defined.  

A direct pecuniary interest arises where a councillor or school trustee stands to gain or lose a monetary or financial interest as a result of voting on a particular question. 

With respect to an indirect pecuniary interest, section 2 of the Act states that a councillor or school trustee has an indirect pecuniary interest if they, or their nominee:  

  1. are a shareholder in, or a director or senior officer of, a corporation that does not offer its securities to the public that has a pecuniary interest in a matter;
  2. have a controlling interest in, or are a director or senior officer of, a corporation that offers its securities to the public that has a pecuniary interest in a matter;
  3. are a member of a body that has a pecuniary interest in a matter; or,
  4. are a partner of a person or is in the employment of a person or body that has a pecuniary interest in the matter.

Therefore, if a councillor or school trustee’s employer has a pecuniary interest in a matter, that councillor or school trustee would have an indirect pecuniary interest and should declare a conflict of interest pursuant to section 2 of the Act.

Section 3 of the Act further expands potential conflicts.  It states that a pecuniary interest, direct or indirect, of a parent, spouse or child of the councillor or school trustee shall, if known to the councillor or school trustee, be deemed to be also the pecuniary interest of that councillor or school trustee.  

There are several exceptions under the Act.  Section 4 states that the Act does not apply to a pecuniary interest in any matter that a councillor or school trustee may have:  

  1. as a user of any public utility service supplied by the municipality or a local board;
  2. by reason of having an interest in farm lands that are exempted from taxation for certain expenditures under the Assessment Act;
  3. by reason of having a pecuniary interest which is an interest in common with electors generally; or,
  4. by reason only of an interest which is so remote or insignificant in its nature that it cannot reasonably be regarded as likely to influence the councillor or school trustee.  

[Please note: this is not the entire list of exceptions under s. 4 of the Act.]

It is not entirely clear, however, as to when these exceptions would apply, as each situation is very fact specific.

For example, “interest in common with electors generally” is defined by the Act to mean “a pecuniary interest in common with the electors within the area of jurisdiction and, where the matter under consideration affects only part of the area of jurisdiction, means a pecuniary interest in common with the electors within that part”.  Would light rail transit fall under that definition?  Granted, it will not affect the entire Region, but as its proposed route is 19 kilometres long, it would affect a fair portion.  Did some of the councillors who declared conflicts merely have an “interest in common with electors generally”?  

This is often an issue that school trustees with children attending one of the school board’s schools must consider when the school board is deciding whether or not to offer programming or services for some students that, if absent, would otherwise create an expense for the school trustee.  

Case Law

In Re Ennismore (Township), the municipality had undertaken water and sewer needs studies in a certain area.  Subsequently, the Township brought an application under the Act to determine whether or not a member of council with a commercial establishment in the study area could participate in the decision to build a water supply system within that area of the municipality.  The fact that the council member had a commercial establishment in the study area did not make his pecuniary interest different in kind from the other affected electors.  Therefore, the Court ruled that the member was not prohibited from participating in and voting upon any questions concerning servicing within the study area.

Whitley v. Schnurr addresses the issue of when a councillor or school trustee’s interest is so “remote or insignificant in its nature that it cannot reasonably be regarded as likely to influence the member” In that case, the municipal council was dealing with an application by a local university for an Official Plan Amendment (“OPA”).  The councillor in question was one of 5,000 employees of the university.  If approved, the OPA would benefit the university’s heritage trust fund.  Although the councillor conceded that, as an employee, he had an indirect pecuniary interest in the university’s application, he was successful in arguing that his vote on the university’s application for an OPA would not reasonably have been regarded as being influenced by his status as an employee.  His interest was held to be remote and insignificant.

Penalties

If a judge determines that a councillor or school trustee has contravened the Act, the judge, according to subsection 10(1) of the Act:  

  1. shall declare the seat vacant; and,
  2. may disqualify him/her from office for seven years thereafter; and,
  3. may, where the contravention has resulted in personal financial gain, require the individual to make restitution to the party suffering the loss, or, where such party is not readily ascertainable, to the municipality.  

Therefore, if a councillor or school trustee fails to declare a conflict, beyond the public humiliation of being found to have contravened the Act, they could lose their seat and be disqualified from seeking elected office for the next seven years.  This penalty is considered sufficiently significant that many councillors and school trustees would rather declare a conflict than potentially be challenged for violating the Act.

Conflicts in Practice

Currently, if a municipal councillor or school trustee believes he or she might have a conflict in relation to a particular matter, they must retain a lawyer (usually at their cost) and seek a legal opinion as to whether or not they have a conflict. The municipality and school board will not provide a legal opinion to individual councillors or school trusteesbecause they represent the council or school board as a whole.

Unless there is an obvious conflict of interest (or lack thereof), any legal opinion received by a councillor or school trustee is likely to contain caveats and equivocations, as nothing is ever certain.  The risk of not declaring a conflict and being found to have violated the Act is so great that it will always be easier to declare a conflict.  Moreover, if a councillor or school trustee does not declare a conflict of interest and is challenged, even if they are ultimately found to have not violated the Act, they will still likely have legal costs and the humiliation of being accused of a conflict of interest.  

Without an ability to proactively determine whether or not one has a conflict, very few councillors or school trustees would ever be willing to take the risk.  The result is that councillors and school trustees fail to participate in significant decisions being made by their councils and school boards.  

Potential Solution

Several municipal councils in Ontario have called upon the provincial government to create a municipal conflict of interest commissioner who would consider potential conflicts and render a binding and final decision on them.  

Unlike federal or Ontario politicians, municipal councillors and school trustees do not have an officer they can approach to rule on potential conflict cases. They only know for sure if they have a conflict when someone challenges them in Court.  As discussed above, that forces councillors and school trustees to declare conflicts even in cases where any actual conflict is questionable.  If there was a commissioner who could decide these matters in advance, then once the commissioner made a determination, there would be no question as to whether or not a councillor or school trustee had a conflict and no need for anyone to challenge the councillor or school trustee in Court.  It would provide a degree of certainty for municipal councillors and school trustees, which is presently absent.  Such a process would also, hopefully, allow more councillors and school trustees to participate in debates and decisions.

Conclusion

In many situations, it is not entirely clear whether or not a councillor or school trustee has a conflict of interest, as each situation is very fact specific.  The only way to pro-actively address that situation is to create a municipal conflict of interest commissioner, as discussed above.  Otherwise, councillors and school trustees will typically choose to declare a conflict, for fear of being challenged if they do not, even if their potential conflict is questionable.  Where possible, councillors and school trustees should be permitted to debate the issues and represent their constituents, not sit on the sidelines.