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Procurement Perspectives: Conflict of interest declarations mandatory for all corporations

Stephen Bauld
Procurement Perspectives: Conflict of interest declarations mandatory for all corporations

In practice, most municipal council meetings begin with routine declarations of interest involving any member and each relevant agenda item.

A similar approach is usually followed at board meetings of business corporations. Subsection 132(4) of the Ontario Business Corporations Act (OBCA) sets out the following special rule where contract or transaction is of a kind that does not require board of director approval:

“Despite subsections (2) and (3), where subsections (1) applies to a director or officer in respect of a material contract or transaction or proposed material or transaction that, in the ordinary course of the corporation’s business, would not require approval by the directors or shareholders, the director or officer shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his or her interest forthwith after the director or officer becomes aware of the contract or transaction or proposed contract or transaction.”

Subsection 132(5) imposes a clear ban on any director participating in the deliberative process relating to the approval of a contract in which he or she has a conflict of interest:

“A director referred to in subsection (1) shall not attend any part of a meeting of directors during which the contract or transaction is discussed and shall not vote on any resolution to approve the contract or transaction unless the contract or transaction is, one relating primarily to his or her remuneration as a director of the corporation or an affiliate; one for indemnity or insurance under section 136; or one with an affiliate.”

The foregoing provisions are sufficiently broad to cover both overt and hidden conflicts of interest. As a precedent for a modern municipal by-law, they are deficient in that they do not extend to consultants.

Since municipalities depend so heavily on consultants’ advice these days, it would be advantageous to expand the scope of the requirements to consultants.

However, in practice, most municipal standard form consultancy contracts now impose fairly detailed disclosure obligations in relation to conflict of interest.

Subsections 132(5.1), (5.2) and (8) of the OBCA deal respectively with the approval of a contract where no quorum exists by reason of the number of directors tainted by a conflict; and the possibility of shareholder approval, (as for instance where all directors are so tainted) are probably not germane to the municipal context.

Corresponding provisions to these sections are found in section 7 of the Municipal Conflict of Interest Act.

Subsection 132(6) of the OBCA, which provides for continuing disclosure obligations would quite probably be a relevant precedent for any municipal by-law dealing with conflict of interest. It reads:

“For purposes of this section, a general notice to the directors by a director or officer disclosing that he or she is a director or officer of or has a material interest in a person, or that there has been a material change in the director’s or officer’s interest in the person, and is to be regarded as interested in any contract made or any transaction entered into with that person, is sufficient disclosure of interest in relation to any such contract or transaction.”

It is remarkable to note that the Municipal Act, 2001 had no provisions corresponding to subsections 132(7) and (9) of the OBCA.

It may well be that municipalities doubt their authority to enact a provision along the lines of subsection 132(9) — although it may be possible to obtain relief in equity against any contract entered into in conflict of interest.

It is less easy to understand why no comparable provision was inserted in the Municipal Act, 2001 itself. Somewhat more limited protection (in the case of a councillor conflict) is provided under section 12 of the MCIA.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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