You may recall a case from last summer where a board of directors disqualified one of the directors for violating the condominium’s by-law, which included a Code of Ethics. The lower Court found that the condominium’s by-law permitted the board to disqualify the director. Although the Judge found that the disqualified director had not been given proper notice of the review by the board prior to his disqualification, the Judge was not prepared to order the board to re-instate him since the vacancy created by his disqualification had been filled. Instead, the Judge ordered that the board was at liberty to conduct a fresh ethics review within 90 days, failing which the disqualified director could move for re-instatement to the board.
The board conducted a fresh review and concluded that the disqualified director had violated the Code of Ethics and was still disqualified. The disqualified director appealed to the Court of Appeal. He argued that the by-law permitting the board to determine if he had violated the Code of Ethics was inconsistent with the Condominium Act, 1998, and unreasonable. He also argued that the Judge erred by not re-instating him.
The Court of Appeal upheld the lower court’s decision. The Court of Appeal found that a by-law permitting a board of directors to disqualify a director for violations of the Code of Ethics was not inconsistent with the Act or unreasonable. Interestingly, the court said: While there are other procedures that could have been adopted to determine whether or not a director has violated the Directors’ Code of Ethics, we are not persuaded that permitting a board to make that determination is unreasonable.” While the Court did not identify any “other procedures”, it would, in my opinion, likely include a vote of the owners or a review by a third party (assuming the procedure was set out in the by-law). The Court of Appeal also noted that the director could stand for re-election since the by-law did not prohibit such. The condominium was awarded costs of $8,500.00.
This decision is significant for condominiums in Ontario as it confirms that a director may be removed by the other directors, without a vote of the owners, if a by-law permits such. Previously, many people believed that a director could only be removed by a majority of the owners at a duly called meeting. Many condominiums may wish to create a new by-law to add a Code of Ethics and disqualification procedure for directors who breach it.