Tuesday, October 4, 2011

Common Law Agency Duties and the Mississauga Inquiry

Hazel McCallion

Agency Duties at Common Law (Mississauga Inquiry)

Ontario Real Estate Source

By Brian Madigan LL.B.

The Mississauga Judicial Inquiry into the conduct of the Mayor Hazel McCallion released its report on 3 October 2011.

The Commissioner, Mr. Justice Cunningham concluded that the mayor had both a real and apparent conflict of interest in the dealings with a hotel real estate development in which her son had an equity interest.

There was some saving grace in that the Commissioner found no breach under the Municipal Conflict of Interest Act. Mr. Justice Cunningham went on to make recommendations concerning that Act to the Province. The Commissioner would like to see the Act strengthened and broadened.

Nevertheless, the inquiry focussed upon the obligations at common law. While the Act only deals with specific pecuniary interests, the common law deals with non-pecuniary interests as well. It may also extend to the interests of close family members and not merely the elected official themselves.

In L’Abbe v. Blind River (1904), the High Court of Ontario stated:

“There may be a direct monetary interest, or an interest capable of being measured pecuniarily, and in such case that a bias exists is presumed. But there may also be substantial interest other than pecuniary, and then the question arises, on all the circumstances, as to whether there is a real likelihood of bias - a reasonable probability that the interested person is likely to be biased with regard to the matter at hand.”

A conflict of interest may be real or apparent.

There are three prerequisites for a real conflict of interest:

1)     the existence of a private interest,
2)     that is known to the public office holder,
3)     that has a nexus with his or her public duties and responsibilities that is sufficient to influence those duties and responsibilities.

An apparent conflict of interest arises when a reasonably well-informed person, could reasonably conclude, as a result of surrounding circumstances, that the public official must have known about the connection of his or her involvement with the matter of private interest.

Agency Obligations at Common Law

The law of agency developed thousands of years ago and eventually found its way into the common law in England. There are some fundamental and basic principles which include the obligation of the agent to offer to the principal:

1) disclosure,
2) competence,
3) obedience,
4) accounting,
5) confidentiality, and
6) loyalty.

1) Disclosure. The agent is under an obligation to keep the principal informed and to disclose any material and relevant matters to the principal.

2) Competence. The agent is under an obligation to be competent in his profession, and to inform the principal that there are matters beyond the agent’s expertise.

3) Obedience. The agent is subservient to the interests of the principal. The agent is to follow the reasonable and lawful directions of the principal, carrying out the principal’s instructions. The agent is to act in the principal’s best interests and not his own.

4) Accounting. The agent is to account for monies received and disbursed. Payments of any kind or nature, direct or indirect are all for the benefit of the principal. Funds are received as a fiduciary, and are to be disclosed and remitted in full to the principal. The agent is the intermediary between the principal and third parties. The agent is not a third party contractor but rather the person who brings the principal and third parties into a contractual relationship.

5) Confidentiality. The agent is to maintain the privacy of the principal and matters that are of a private nature are to remain in confidence. Information provided to an agent is received in a fiduciary capacity and is not to be disclosed without authorization by the principal.

6) Loyalty. An agent is to offer loyalty to the principal. Once engaged in a fiduciary capacity, the agent must place the interests of the principal above his own, must not entertain the interest of others, including himself above that of his principal.

Each of these duties are separate and distinct obligations and vary somewhat in their application and interpretation depending on the nature of the agent’s profession and the actual agency agreement.

Common agency arrangements today include attorneys, trustees, solicitors, barristers, doctors, accountants, financial agents and real estate agents. However, they also apply to those politicians who hold public office. And, the same common law fiduciary agency duties apply to them as well.

You can easily appreciate how the common law duty in respect to “conflict of interest” grew out of loyalty, disclosure, obedience and accounting.  All those in an agency relationship are subject to the common law. These are important matters and should not be discounted.

Statutory obligations are in addition to the fundamental common law duties. The mayor has noted her compliance with the statute but failed to appreciate the underlying obligations at common law.

Professionals in the real estate industry would be well-advised to adhere to those principles in addition to their statutory requirements.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888