Disqualifying a Director Who Has Violated the Directors’ Code of Ethics

A condo corporation found itself in court (Gordon v. YRCC No. 818) after the Board had disqualified one of the directors on the basis that he had breached the Directors’ Code of Ethics. The Corporation’s By-law No. 9 provided that a director could be disqualified and deemed to have resigned if he/she violated the Code of Ethics on three occasions (after the violations were established by an ethics review by the other Board members).

Mr. Gordon, the disqualified director, claimed that those provisions of By-law No. 9 were invalid as (i) they were unreasonable and thus contrary to section 56(i) of the Condominium Act and (ii) they were inconsistent with the democratic principles of the Act. The Court rejected both of these claims.

Mr. Gordon had also applied for an order that he be reinstated as a Board member even though the vacancy resulting from his disqualification had been filled. While the trial judge concluded that the manner in which the ethics review had been carried out violated the principles of natural justice and procedural fairness (Mr. Gordon was not given adequate notice of the ethics review and the substance of the case against him), the trial judge was not prepared to make his own decision as to whether Mr. Gordon had violated the Code of Ethics. No details were provided in the case decision about the nature of  the violations.  Instead, the Board was given 90 days to conduct a proper fresh ethics review, failing which Mr. Gordon could then apply to the Court for reinstatement.  After the Board conducted a fresh ethics review it once again came to the conclusion that Mr. Gordon was disqualified as a result of the violations of the Code of Ethics.

Mr. Gordon’s appeal was unsuccessful as the Court of Appeal agreed with the findings and decision of the trial court judge and awarded costs to the condo corporation in the amount of $8500.

In order for a Board to remove a director who has breached the Directors’ Code of Ethics:

1. The Corporation should have a by-law in place that specifically  disqualifies a director for violating the Code of Ethics; and
2. In the event there is a violation of the Code of Ethics, Board members should be consulting legal counsel to ensure that the proper procedures are followed to validly remove a director.

Corporations that do not have a Directors’ Code of Ethics should adopt one.