A recent decision of the Ontario Court of Appeal has brought some certainty to a concept that the Condo Group at Miller Thomson has been using for quite some time. Over the last few years, we have been including in our by-laws a provision that empowers the board of directors to hold an ethics review of a board member and disqualify that member where the board finds he or she has violated of the corporation’s code of ethics. The Ontario Court of Appeal has now confirmed that such a provision is reasonable and consistent with theCondominium Act, 1998.
Under the Act, the owners have the right to remove a board member, prior to the end of his or her term, by requisitioning a meeting and obtaining approval for the board member’s removal from 51% of the owners of all units. Prior to this recent decision, however, it was unclear whether a democratically enacted by-law can create additional remedies to deal with an unethical director.
Since the 1998 Act became effective in 2001, we have taken the position that a unit owner meeting to vote on the removal of a condominium director is not the only way to remove an unethical director before the end of his or her term. Accordingly, we have included a provision in our by-laws, which requires all board members to sign a code of ethics as a qualification for board membership and non compliance with it as a ground for disqualification from board membership. Where a director breaches the code of ethics, the remaining board member may hold an ethics review and remove the director, in which case the director is deemed to have resigned.
A by-law of this nature was recently challenged by a board member who was removed from the board after having been found to have breached the corporation’s code of ethics. The director was accused of assaulting the president of the board, making disparaging remarks about members of the board and property management in public, misused his position on the board, and instigated conflict. He sought his reinstatement to the board on the grounds that the ethics review provision in the by-law was unreasonable and “inconsistent with the democratic principles of condominium governance reflected in the Act as a whole”.
The by-law provided that if a board member was “called” to respond on questions of his behaviour, he would have the right to a “hearing” with the board. The court found that the by-law was consistent with the Act and reasonable, as it was approved by a majority of all unit owners, including the director who was now challenging the by-law. Although the court had concerns with the manner in which the ethics review was conducted, it refused to reinstate the member to the board. The court provided the board with an opportunity to hold another ethics review.
The important aspect of this case is that the court found that section 56(1)(a) of the Act allows a corporation to include in its by-laws the right to have a board member removed from his or her position by an action of the board. No discussion in the decision took place as to whether a hearing or review process must be provided for in the by-law, but the case confirms that it is not the sole prerogative of the owners to remove a board member from his/her membership on the board.