BC Court of Appeal Decision on Non-Profit Boards

Trent Ernst, Editor
 
A recent BC Court of Appeal decision is making it harder for city councilors to sit on not-for-profit society boards.
 
That doesn’t sit very well with Jerrilyn Schembri. Schembri is a former member of the Tumbler Ridge Municipal Council currently serving as Area E representative for the Pearce River Regional District. She is also a member of the Union of BC Municipalities (UBCM) and the North Peace Local Government Association (NCLGA). 
 
“It is very common for members of Council or Regional districts to be appointed to community groups on behalf of their local government,” says Schembri. “They are often appointed because the local government is providing funding to these groups. The ruling places local government leaders in conflict on budget decisions related to these societies or boards.”
This is especially problematic in small towns like Tumbler Ridge, says Schembri. “In small communities, the people who run for office are often the people who get involved, who volunteer for non-profit societies and sit on boards. They are often the most knowledgeable and most actively involved, and they are being pushed out of the equation. I suspect there will be lots of local government members who will question whether they should be involved, which will be harmful to the societies.”
 
The decision came in reference to the case Schlenker v. Torgrimson. The Court of Appeals declared that two elected officials were in a conflict of interest contrary to the Community Charter when they voted to grant funds to non-profit societies of which they were directors. 
 
Originally, the BC Supreme Court found that “no pecuniary or non-pecuniary conflict of interest existed in this situation, as the elected officials had received no personal or financial benefit from the funds provided to the non-profits societies, and because the purposes of the non-profit societies were related to the objectives of the local government,” writes Francesca Marzari in a letter explaining the decision. “Nevertheless, the Court of Appeal found that the elected officials’ role as directors of the societies, in and of itself, gave rise to a fiduciary duty to the societies, and that in matters relating to funding, the directors’ financial interests were allied with the societies’ interest as a matter of law. As a result, the Court found that the nature of the conflict was a pecuniary one.”
 
In making the decision, the Court exercised its discretion to make a declaratory order on the conflict issue to clarify the law that, as local elected officials, directors of non-profit societies are in a conflict of interest when they vote or participate in matters related to the society, and that that conflict is pecuniary when the local government matter relates to money or financial benefits. This means that in any and all situations where local elected officials participate or vote on matters that relate to societies of which they are directors “will be considered pecuniary in nature, and therefore a disqualifying conflict of interest, for directors of non-profit societies even when there is no financial benefit anticipated or provided to the director; an indirect pecuniary interest will be inferred as a matter of law.”
 
While most local governments are taking a “wait and see” approach to how this will play out, in Prince George, a city councilor resigned as director for the Canada Winter Games Host Society. Prince George Mayor Shari Green says that the judge might not have considered all the unintended consequences, and that the city will do what it can to overturn the most recent decision. 
 
For instance, Municipal Library Boards. Are these considered non-profit societies? If so, then it creates a real pickle for municipalities, as legally, the District is obligated to have a councilor sit on the board. This new ruling could mean that they are required by law to both sit on and not sit on the library board. 
 
Head Librarian Paula Coutts says the District is currently seeking legal council on the matter. “It’s really a grey area,” she says. “I understand the issue. If you are a councilor and you belong to a club, there’s a chance you’re going to lean towards funding that club as opposed to another.”
 
Ultimately, Coutts believes this is a non-issue, but she’s quick to point out she’s not a lawyer. “It’s going to take a while for this to play out. The UBCM is taking a look at this. For councilors, it’s a matter of using common sense. You’re always able to opt out and step out of the room if they perceive a conflict of interest.”
 
But if the legislation stands? Coutts is worries that it will mean a mass exodus from non-profit society boards. “If that happens, everything just shuts down.”