Annapolis Valley First Nations Band v. Toney, 2004 FC 1728

Date: 20041213

Docket: T-1947-03

Citation: 2004 FC 1728

BETWEEN:                                                                           

                                    ANNAPOLIS VALLEY FIRST NATIONS BAND

                                                                                                                                            Applicant

                                                                           and

                                                            LAWRENCE TONEY

                                                                                                                                        Respondent

                                                        REASONS FOR ORDER

KELEN J:

[1]                This is an application for judicial review of a decision of an Adjudicator appointed under the Canada Labour Code, R.S.C 1985, c. L-2dated April 29, 2003 in which the Adjudicator concluded that the respondent had been constructively dismissed by the applicant. The Adjudicator held that a First Nations Chief did not breach his fiduciary duty by awarding himself a five-year employment contract at the end of his elected term.

FACTS

[2]                The applicant, Annapolis Valley First Nations Band (the "Band"), occupies a reserve in Cambridge, Nova Scotia. The Band is governed by a Chief and two Councillors (the "Council") who are elected every two years. In November 1999, the respondent, Lawrence Toney, was elected as Chief of the Band, and Murray Copage and Marilyn Toney were elected as Councillors.

[3]                As a result of an agreement between the Band and the province of Nova Scotia in the mid-1990s, the Band established a Gaming Commission for the purpose of licensing and regulating gaming activities, such as video gaming machines on reserve lands.

[4]                In August 2001, near the end of their term in office, the respondent Chief and his two Councillors, Mr. Copage and Ms. Toney, awarded themselves five-year employment contracts with the Council as Gaming Commissioners. The contracts stipulated that they would work full-time and would receive a salary of 2.5% of the gross gaming income, payable on a monthly basis. To       understand the approximate amounts involved, the record shows that the gaming revenue in 2001 was approximately $1.4 million. Accordingly, each employment contract would pay an annual salary of approximately $35,000.

[5]                The contracts of all three Council members were accepted and ratified on August 14, 2001 by a Band Council Resolution signed by the respondent and Marilyn Toney.

[6]                Although the contracts and Resolution were signed in August 2001, it would appear that the decision to hire the respondent and Mr. Copage was made sometime in early 2000 at a Council meeting. The parties testified before the Adjudicator that, in an effort to avoid a conflict of interest, each Council member left the room when their employment contract was being discussed by Council. Accordingly, when it came time to discuss the respondent's contract, he left the room and Ms. Toney and Mr. Copage discussed his employment contract in his absence.

[7]                It appears from the record that the respondent began to receive payments as a Gaming Commissioner in January 2000.

[8]                In February 2000, the Council obtained two legal opinions regarding how it should proceed when approving employment contracts for individuals who are also members of Council. The first opinion dated February 2, 2000 stated that there was nothing preventing the individual from voting on an issue in which he had an interest. The second opinion dated February 16, 2000 stated that the individual should disclose his interest, leave the room when the discussion and vote is to take place and should not sign the Resolution or contracts resulting from the discussion or vote.

[9]                In November 2001, an election was held and the respondent and Mr. Copage were not returned to office. In January 2002, the new Band Chief discontinued payments under the contracts. In his view, the contracts were not legally binding because the employees were in a position of conflict when they awarded themselves the contracts and because they should not have been collecting a salary as employees of the Gaming Commission when they were already being paid as Council members. In his affidavit, the Band Chief states that the current members of the Gaming Commission do not receive remuneration.

[10]            On April 16, 2002, the respondent filed a complaint with Human Resources Development Canada indicating that his employer had been withholding his salary since "Jan 02". In his complaint form, the respondent also noted that his employment had commenced in January 2000 and that he was continuing to perform his employment duties.

[11]            Human Resources Development Canada referred the dispute to an Adjudicator pursuant to section 242 of the Canada Labour Code.

THE ADJUDICATOR'S DECISION

[12]            The Adjudicator conducted a three day hearing, and decided that the respondent had not breached his fiduciary duty for the following reasons:

1.          the respondent had removed himself from the Council discussions involving his contract, in accordance with the advice contained in the first legal opinion;

2.          the Band had posted a notice for three months in the Band Office advertising the job, but no one in the Band applied for the job and the job needed to be filled;

3.          the Adjudicator could not find "that there was a stench of dishonesty, deceit or constructive fraud which could lead to the conclusion that there had been a breach of fiduciary duty"; and

4.          it was not improper for the respondent to have signed the Band Council Resolution authorizing his own contract because there was no one else that could do so, and the    respondent was following the advice of the first legal opinion (the second legal opinion said that a Chief or Councillor should not sign a Band Council Resolution or contracts in which they had an interest).

[13]            The reasons of the Adjudicator with respect to breach of fiduciary duty are at paragraphs 24 to 27 of his decision:

¶ 24          I am satisfied from the evidence that the complainants did remove themselves from the room when their contracts were being discussed and that they did not participate in the discussion. In doing so, the complainants were following the legal opinion they had received from Garth Gordon, Q.C. and obviously they relied on that opinion.

¶ 25          Also, having regard to the fact that the notice seeking applications to the Gaming Commission had been posted in the Band office and having regard to the fact that no one applied for the position is significant.

¶ 26          In removing themselves from the discussions involving their contracts the complainants acted properly, having regard to all of the circumstances.

¶ 27          As stated by Romilly J. (the reasoning of which I adopt), I cannot find that there was a "stench of dishonesty", deceit or constructive fraud which could lead to the conclusion that there had been a breach of fiduciary duty.

[14]            Since the Adjudicator decided that the respondent had not breached his fiduciary duty and that his contract was properly authorized, the Adjudicator concluded that the respondent had been constructively dismissed.

[15]            At a subsequent hearing to determine the amount of compensation for constructive dismissal during the relevant period (January 2002 to April 2003), the Adjudicator awarded the respondent $26,800.

[16]            At the subsequent hearing before the Adjudicator the Band also raised a procedural issue. The Band argued that the respondent had not filed his complaint with Human Resources Development Canada within the 90 day period prescribed by subsection 240(2) of the Canada Labour Code which states that:

[17]            The Adjudicator decided that although the Band had withheld monthly payments after      January 1, 2002, it was not until some time later that the respondent realized that he was not ever going to get paid. The Adjudicator found that the respondent filed a complaint under the Canada Labour Code within 90 days of realizing that he had been dismissed. At the Court hearing, I stated that this finding was reasonably open to the Adjudicator so that the Court would not intervene on this basis.

ISSUES

1.          What is the appropriate standard of review?

2.          Was the Adjudicator's conclusion that there had been no breach of fiduciary duty patently unreasonable?           

ANALYSIS

Issue No. 1

What is the appropriate standard of review?

[18]            The appropriate standard of review must be determined by reference to the functional and pragmatic approach as described in Dr. Q. v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226.

[19]            The first factor to consider is the presence or absence of a privative clause or statutory right of appeal. The Canada Labour Code contains the following privative clause applicable to the decision under review:

This is a strong privative clause and militates in favour of a great degree of deference.

[20]            The second factor is whether the decision-making body has greater expertise than the reviewing court with respect to the question under review. The Canada Labour Code is silent as to the qualifications required of an adjudicator, except that the adjudicator must be a person that the Minister considers appropriate. In the present case, the Adjudicator is a retired Provincial Court Judge. As such, the Court has the same expertise in interpreting principles of fiduciary obligations as the Adjudicator. This factor militates in favour of less deference.

[21]            The third factor involves a consideration of the purpose of the Act, as well as the particular provisions at issue. The object of Part III of the Canada Labour Code is to provide minimum standards for individual workers and to provide mechanisms for efficient resolution of disputes arising from its provisions. This factor militates in favour of a degree of deference.

[22]            The fourth factor is the nature of the problem in question. In the present case, the primary issue is whether the Adjudicator applied the correct legal principles for breach of fiduciary duty. As this is a question of law, it militates in favour of less deference.

[23]            Balancing these factors, the appropriate standard of review is patently unreasonable. While some factors militate towards less deference, the privative clause must be given substantial weight. Accordingly, the Court should not interfere with an adjudicator's decision unless it is patently unreasonable.

[24]            This conclusion is consistent with several Supreme Court of Canada cases dealing with labour decisions and strong privative clauses. See Toronto Board of Education v. Ontario Secondary School Teachers' Federation, District 15, [1997] 1 S.C.R. 487; Canada Safeway Ltd. v. Retail, Wholesale and Department Store Union, Local 454, [1998] 1 S.C.R. 1079; Canadian Broadcasting Corp. v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157 at para. 29:

...where the tribunal whose decision is under review is protected by a broad privative clause, its decision is subject to review on a standard of patent unreasonableness...so long as the tribunal has not committed a jurisdictional error.

In Canada Safeway, supra, the Supreme Court found that a labour board made a patently unreasonable error of law in defining the change in a claimant's working conditions as a constructive layoff, per Cory and McLachlin JJ. (as the Chief Justice then was) at para. 70:

We have concluded that the Board made a patently unreasonable error of law in defining the change in Ms. Hardy's working conditions as a constructive layoff.

That case is analogous to the one at bar because the issue is whether the Adjudicator made a patently unreasonable error in understanding the law of fiduciary duty.

[25]            A patently unreasonable decision is one that is clearly irrational, clearly wrong or not in accordance with reason. See Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247. This is a stringent standard not easily met. However, the Court has a duty to protect parties from a decision that is patently unreasonable.

Issue No. 2

Was the Adjudicator's conclusion that there had been no breach of fiduciary duty patently unreasonable?       

[26]            After careful review of the Adjudicator's reasons, the Court has no alternative but to conclude that the decision must be set aside because it contains three patently unreasonable errors with respect to whether there was a breach of fiduciary duty by the respondent Chief.

First Error - Applied the wrong legal test for breach of fiduciary duty

[27]            The Adjudicator committed a patently unreasonable error when he concluded that the respondent had not breached his fiduciary obligations because his actions did not reveal a "stench of dishonesty, deceit or constructive fraud". While dishonesty may be an indicator of a breach of fiduciary obligations, it is not a prerequisite or a necessary element. Accordingly, the Adjudicator applied the wrong legal test for fiduciary duty by requiring that there be an element of dishonesty.

[28]            The concept of fiduciary duty has its roots in the law of trusts. Its purpose was to ensure that a trustee with control of a beneficiary's property placed the interests of the beneficiary ahead of his or her own interests. While fiduciary obligations have now expanded beyond the law of trusts, the basic principles remain the same. A fiduciary relationship is one in which the fiduciary has the power to make choices which unilaterally affect the interests of a beneficiary and the beneficiary is particularly vulnerable to the fiduciary. See Frame v. Smith, [1987] 2 S.C.R. 99. It is as a result of this vulnerability, and the corresponding power of the fiduciary, that the fiduciary has a duty of utmost good faith to act in the best interests of the beneficiary and to avoid a conflict of interest.

[29]            When considering whether a fiduciary has breached his obligations, the central inquiry is not whether the fiduciary has been dishonest or acted in a fraudulent manner, but whether he has acted in the best interests of the beneficiary and without conflict of interest. In Canadian Aero Service Ltd. v. O'Malley (1973), 40 D.L.R. (3d) 371, the Supreme Court of Canada adopted the following passage from the House of Lords at paragraph 28:

In my view, the respondents were in a fiduciary position and their liability to account does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those to whom he is bound to protect.

[30]            In the present case, the Adjudicator's primary focus should have been on whether the      respondent acted in the best interest of the Band and avoided a conflict of interest, not on whether there was a "stench of dishonesty, deceit or constructive fraud." In relying solely on the latter criteria, the Adjudicator committed a patently unreasonable error. This patently unreasonable error of law is not unlike the error of law in Canada Safeway, supra, and warrants similar judicial intervention.

[31]            Had the Adjudicator properly focused his inquiry on whether the respondent acted in the best interest of the Band, it is clear that his conclusion would have been markedly different. The respondent Chief and the two Councillors awarded themselves five-year, lucrative employment contracts near the end of their two year term in office. They were fiduciaries and they had a duty to avoid placing themselves in a position of conflict. While conflict of interest rules must be relaxed in small Bands where relatives of the Chief and Councillors will necessarily be involved in Band business, this does not permit the Chief and Council members to award themselves substantial benefits to the detriment of the Band. I note that the British Columbia Supreme Court came to a similar conclusion in Williams Lake Indian Band v. Abbey, [1992] 4 C.N.L.R. 21 in which a Chief was found to have breached her fiduciary duties by participating in decisions which conferred direct benefits upon her.

Second Error - Relied on procedural safeguards and legal advice to excuse breach of                              fiduciary duty

[32]            The Adjudicator relied on the fact that the respondent had removed himself from the discussions involving his contract in accordance with the first legal opinion. The Adjudicator was of the view that by following this procedure, the respondent had acted properly in the circumstances.

[33]            Procedural safeguards, such as the one relied on by the respondent, are established to ensure that fiduciaries are not involved in decisions in which they have a personal interest. The rationale is that if the fiduciary is removed from the decision-making process, then the remaining "unbiased" fiduciaries will be able to make a decision that accords with the best interest of the beneficiary. The difficulty in the present case is that all the fiduciaries (the respondent, Mr. Copage and Ms. Toney) had an interest in the contracts. Although Mr. Copage and Ms. Toney may not have had a direct interest in the respondent's contract, it was in their best interest to award the respondent a favourable contract so that he would reciprocate on the same terms. Accordingly, it made no difference whether the respondent left the room when his contract was being discussed, since all of the Council      members were tainted by self-interest. Moreover, the respondent put himself in a direct position of conflict when he signed the Band Council Resolution accepting and ratifying his own employment contract.

[34]            The Adjudicator committed a patently unreasonable error by assuming that because the respondent had followed a procedural safeguard, he had acted properly and was not in breach of his fiduciary obligations. While procedural safeguards reduce the incidents of conflict, the mere fact that a procedure has been instituted and followed does not mean that a breach of fiduciary duty has not occurred. Procedural safeguards are simply tools that help a fiduciary avoid breaching his obligations and their effectiveness will depend on the particular circumstances of the case. In the case at bar, the respondent and his two Councillors ridiculed the procedural safeguard. The Adjudicator     misunderstood the purpose of procedural safeguards. He inferred that compliance with a procedural safeguard was tantamount to compliance with fiduciary obligations. This is clearly wrong.

[35]            I note that it makes no difference that the procedure followed by the respondent was recommended by legal counsel. A fiduciary cannot claim to be absolved of liability simply because he was following the advice of a lawyer. In any event, in this case, the respondent received two legal opinions, yet chose to follow the less onerous of the two. In fairness to both legal opinions, it does not appear that the legal counsel rendering the opinions were fully informed about the facts in this case. If they were, these opinions probably would have advised the Chief and his two Councillors that it would be a breach of their fiduciary duty if they awarded themselves five-year employment contracts toward the end of their term in office.

Third Error - Relied on the notice advertising the job to excuse breach of fiduciary duty

[36]            In support of his conclusion that there was no breach of fiduciary duty, the Adjudicator relied on the notice posted in the Band office for three months advertising the job which the respondent and his two Councillors awarded themselves. The Adjudicator stated at paragraph 25:

Also, having regard to the fact that the notice seeking applications to the Gaming Commission has been posted in the Board office and having regard to the fact that no one applied for the position is significant.

[37]            The affidavit evidence of the current Chief, filed in support of this application for judicial review, and which was not cross-examined, states at paragraphs 20 to 23 that:

1.          no copy of the notice was presented to the Adjudicator (as evidence that the notice existed);

2.          the notice did not advertise that the position was for pay;

3.          there was no evidence that any member of the Band saw the notice (or had any other information about the employment opportunity on the reserve); and,

4.          there was no evidence that the Council or Chief made any effort to bring the notice (if it existed) to the attention of any members of the Band.

[38]            The evidence is that historically the gaming commissioners were not paid any salary, except in one instance during the term of the previous Council. The evidence of the current Chief was that the current gaming commissioners are not paid a salary for doing the job.

[39]            The Adjudicator, in relying upon the notice, omitted three important facts:

1.          the notice did not advertise any salary for the jobs;

2.          based on past practice, it would be reasonable for Band members to assume that the jobs did not pay a salary; and

3.          there was no evidence that any member of the Band saw the notice, knew that the jobs were available and that the jobs paid a salary.

[40]            The Court would expect many Band members to have applied for a remunerative position on the reserve if they had proper notice of the position. Accordingly, the Court concludes that the Adjudicator made a patently unreasonable assumption of fact that the jobs were advertised, and that no one on the reserve was interested in the job. It would be surprising if many Band members would not want a $35,000 job inspecting gaming video terminals on the reserve where they live.

DISPOSITION

[41]            For these reasons, the Court will allow this application, set aside the decision of the Adjudicator dated April 29, 2003 and remit the matter back to the Adjudicator with directions that the Adjudicator find, on the evidence before him, that the respondent breached his fiduciary duty as Chief of the Band.

COSTS

[42]            At the conclusion of the hearing, both parties advised the Court that in the circumstances of this case, they would make no submissions requesting legal costs. The Court agrees that the circumstances of this case do not warrant any award of costs.

                                        "Michael A. Kelen"                                                                                                     _______________________________

             JUDGE

OTTAWA, Ontario

December 13, 2004

                                                             FEDERAL COURT

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                               T-1947-03

STYLE OF CAUSE: Annapolis Valley First Nations Band v. Lawrence Toney

PLACE OF HEARING:         Halifax, Nova Scotia

DATE OF HEARING:           November 16, 2004

REASONS FOR ORDER:    THE HONOURABLE MR. JUSTICE KELEN

DATED:                                  December 13, 2004

APPEARANCES:

Peter Nathanson                                                                                                     FOR APPLICANT

Thomas MacEwan                                                                                             FOR RESPONDENT

Donald Urquhart

SOLICITORS OF RECORD:

Forse Nathanson                                                                                                     FOR APPLICANT

Kentville, NS

Muttart Tufts Dewolfe & Coyle                                                                          FOR RESPONDENT

Kentville, NS

                         FEDERAL COURT

                                                          Date: 20041213

                                                     Docket: T-1947-03

BETWEEN:

ANNAPOLIS VALLEY FIRST NATIONS BAND

Applicant

and    

LAWRENCE TONEY

Respondent

        REASONS FOR ORDER