Gordon vs YRCC 818

Superior Court of Justice—Ontario
Court File No: CV-12-109483-00
Court File No: CV-12-110220-00
Before: The Honourable Mr. Justice J.R. McCarthy
21 August 2013

Stanley Gordon was a director of YRCC 818 from May of 2006 to November 2011. He was removed as a director as the result of an ethics review held by the other board members on 21 November 21 2011.

The judge found that the bylaw allowing the board to remove a director after three ethics violations was valid if the bylaw was democratically passed by the majority of owners at a meeting of the owners.

Must be fair
Although the judge upheld the right of the board to hold an Ethics Review, he ruled that the principals of procedural fairness and natural justice cannot be ousted from such an ethics review.

The board was required to adhere to some minimal standard of procedural fairness and the basic principles of natural justice. Not to do so would be unreasonable and capricious.

Reasonable notice of such an ethical review should have been given to Mr. Gordon in advance of that date. One business day prior to the review date is simply not sufficient, fair or necessary.

As well it was unclear whether Mr. Gordon received the witness statements that the board intended to rely upon. A person facing the termination of his standing or office, should be made aware in a fulsome manner of the case which he has to meet.

The fact that this was a review of alleged ethical violations which would impact not only on the Mr. Gordon’s standing as a director but also on the his reputation in the community, required that Mr. Gordon be provided with some assurance that he would receive a fair hearing.

Decide quickly
It was plain and obvious that director Rotman was looking to have the Mr. Gordon removed from the board and was seeking to unite the other board members to effect this removal. Rotman admitted this in cross-examination and it is made plainly obvious in his e-mails to the other directors, dated November the 16th, 2011.

The email dated November the 18th, 2011 from Rotman to the other directors in advance of the ethics review contains the following statements:

“I would ask you to limit your questions to the decision at hand, to act on this information for the purpose of voting that Stan Gordon be removed from his position as a Director of the corporation.”

And this is followed by:
“We must arrive at a decision quickly so that our decision for the removal of Mr. Gordon can be given to him as quickly as possible when he returns to the meeting.”

One of the directors resigned in protest over the manner in which the review was conducted.

It is one of the principles of natural justice and a key element of procedural fairness that a person who is to be making the decision should not have predetermined the matter before a review. At the very least, director Rotman should have recused himself from the review and desisted from attempting to influence other directors who would be participating in the review.

Found guilty before the hearing
It is clear from the letter from counsel for the corporation to the Stanley Gordon dated 11 November 2011 that a determination of ethical violations had already been made by the board in advance of the hearing. The relevant excerpt from that letter reads as follows:

“Your actions clearly establish that you do not act ethically.”

The judge found that the ethics review conducted by the condo corporation violated principles of fundamental justice, natural justice and procedural fairness.

The judge ruled that a decision arrived at by a board in good faith is one thing; however, deference to violations of principles of natural justice and procedural fairness is quite another.

The decision of the board given following the ethics review and dated 21 November 2011 was set aside. The disqualification of Mr Gordon as a director was set aside.

The judge was not prepared to order re-instatement of Mr Gordon as a director as part of the remedy of this court at that time, given that the vacancy left by the disqualification has been filled.

The board shall be at liberty to conduct a fresh ethics review of Mr Gordon within 90 days, the results of which shall be minuted by the board. Director Rotman shall not form part of the board for the purpose of any further ethics reviews of Mr. Gordon.

Release: 05 November 2013
The parties filed written submissions on the issue of costs.  This was a case of divided success. Mr Gordon won an order setting aside his disqualification from the board but was unsuccessful in obtaining the declaration of invalidity of the by-law. He did not persuade the court that he should be reinstated pending a further ethics review.

In the judge's view, this is not a case where costs are properly payable by either party. While violations of principles of natural justice and procedural fairness are not trifles, the ultimate relief obtained by the applicant fell well short of what was sought at the outset. The actual article under which the ethics review took place, and under which leave to conduct a fresh ethics review was granted, survived the challenge of validity. Any reinstatement of Mr Gordon is still dependent upon the outcome of a legitimate ethics review.

Justice from the dark ages
The judge ruled that: “The motion was made necessary by the respondent’s staging of the ethics review in circumstances which were, to say the least, unfair to the point of embarrassing. A failure to disclose the substance of the case a person has to meet in advance of such a hearing brings to mind justice from the dark ages. That failure by the respondent weighs heavily on this court’s mind in considering the merits of their argument on costs.”

Neither side was awarded costs.

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