Labourview Co-Operative Homes Inc. v. Chatham-Kent
Labourview Co-Operative Homes Inc. and Krista Burk,
The Corporation of the Municipality of Chatham-Kent
and Horwath Orenstein Inc., in its capacity as
receiver and manager of Labourview Co-Operative Homes
 O.J. No. 3166
228 O.A.C. 65
37 M.P.L.R. (4th) 156
58 R.P.R. (4th) 220
2007 CarswellOnt 5105
Court File No. 135/07
Ontario Superior Court of Justice
Divisional Court - Toronto, Ontario
G.D. Lane, J.R.R. Jennings and J.H. Brockenshire JJ.
Heard: May 28, 2007.
Judgment: August 13, 2007.
Administrative law -- Judicial review and statutory appeal -- When available -- Error of law -- Remedies -- Application by the applicant co-operative corporation and its president for an order discharging the receiver appointed over it by the respondent allowed -- Appointment was quashed -- Receiver was appointed because of the corporation's accumulated deficit -- Respondent erred in law when it made the appointment because it did not make proper inquiries into whether the accumulated deficit was excessive, having regard to the normal practices of similar housing providers.
Real property law -- Co-operatives, housing -- Application by the applicant co-operative corporation and its president for an order discharging the receiver appointed over it by the respondent allowed -- Appointment was quashed -- Receiver was appointed because of the corporation's accumulated deficit -- Respondent erred in law when it made the appointment because it did not make proper inquiries into whether the accumulated deficit was excessive, having regard to the normal practices of similar housing providers.
Application by the applicants Labourview Co-Operative Homes Inc. and Burk for judicial review of an order of the respondent Corporation of the Municipality of Chatham-Kent, made pursuant to the Social Housing Reform Act, 2000, to appoint a receiver and manager of Labourview -- Applicants sought a declaration that the appointment was not justified and wanted to discharge the receiver -- Labourview was a non-profit housing co-operative and Burk was its president and a member of its board -- Its occupants were persons of low or modest income -- Receiver was appointed as Labourview was not being managed properly and it had a large and growing deficit in its capital reserve account -- HELD: Application allowed -- There was no dispute that Labourview had an accumulated deficit -- One of the prerequisites for the appointment of a receiver under the Act was whether the accumulated deficit was material and excessive having regard to the normal practices of similar housing providers -- Chatham-Kent did not make proper inquiries into the normal practices of similar housing providers to make this determination -- It adopted an overly narrow interpretation of who were similar providers as it only looked at the one other co-operative in its area and since it only looked in its area it erred in law -- No triggering event occurred to require the appointment and Chatham-Kent had no jurisdiction to intervene in the management of Labourview -- Appointment of the receiver was quashed -- Declaration was granted that the appointment was not justified and the receiver was discharged.
Statutes, Regulations and Rules Cited:
Social Housing Reform Act, 2000, S.O. 2000, c. 27, s. 116
Raj Anand and Paul D. Guy, for the Applicants.
Raymond G. Colautti, for the Respondents.
The following judgment was delivered by
1 THE COURT:-- This is an application by way of judicial review for orders quashing the decision made by the Corporation of the Municipality of Chatham-Kent (Chatham-Kent) pursuant to s. 116 of the Social Housing Reform Act, 2000, S.O. 2000 c. 27 (SHRA) to appoint Horwath Orenstein Inc. (the Receiver) as receiver and manager of Labourview Co-Operative Homes Inc. (Labourview); a declaration that a receiver or receiver and manager over Labourview was not justified under the SHRA; and an order discharging the receiver.
2 We were advised that the SHRA is relatively new legislation, devolving responsibility for social housing programs from the provincial to the municipal level in Ontario, and that no judicial decisions under the enforcement provisions of the new statute have as yet been made, so that the decision herein may be of some precedential value.
BACKGROUND - RE STATUTE
3 The SHRA is a comprehensive statute, 181 sections in length, passed, per s. 1, to "provide for the efficient and effective administration of housing programs by service managers." Service managers, per s. 4, are municipalities, social services administration boards etc., designated by regulation. Chatham-Kent was designated as a service manager. The SHRA contemplated, under s. 10, the transfer from the Ontario Housing Corporation or the Government of Ontario of the responsibility for administering and funding prescribed housing programs to service managers. The service manager may, per s. 15 appoint an administrator, and authorize its administrator to perform some or all of the duties or exercise some or all of the powers of the service manager under the Act. Part six of the SHRA deals with transferring housing programs to service managers, including details of the controls over housing providers and their operations, and the obligations of service managers to make subsidy payments to housing providers. Included in this section is administrative authority to oversee the operations of housing providers, including the sections involved in this application to this court, under the heading of Enforcement, in sections 115 to 121, both inclusive.
BACKGROUND - LABOURVIEW CO-OP AND CHATHAM-KENT
4 Labourview is a non-profit housing co-operative under the Co-operative Corporations Act, R.S.O. 1990 c. C.35 as amended. It owns and operates a 45 unit apartment building in Chatham, Ontario. All of the occupants are persons of low or modest income. Twenty-seven of the 45 units are rented on a rent geared to income basis and the remaining 18 units are rented at market rates. The occupants of Labourview comprise the co-op's membership, which elects the five person volunteer board of directors which is responsible for supervising the management of the co-op's affairs. The applicant Krista Burk is a board member and currently serves as Labourview's president.
5 Chatham-Kent's social housing portfolio was devolved to Chatham-Kent in 2002. It is made up of Labourview and one other co-op, Clairvue, and 15 private non-profit housing developments.
6 It was obvious to us that from the point of view of Chatham-Kent, Labourview Co-op was a problem. The affidavits and reports of Chatham-Kent indicated the board of the co-op was not very active, the board committees were "dysfunctional", there were bookkeeping problems and operational problems, there were a number of vacancies in the co-op, and the co-op board did not seem to be anxious to follow the advice and later the directions of Chatham-Kent. More serious, from the point of view of Chatham-Kent, was a large and growing deficit in the capital reserve account. That was the reason cited for the decision complained of by the applicants, the appointment of a receiver.
7 Ms. Wilkins was the decision maker on behalf of Chatham-Kent re the appointment of a receiver. She had detailed in her cross-examination (Tab 32, Applicant's Compendium) that she had worked some 15 years for the municipality in various positions, and at the relevant time had the title of Director of Social Housing. That was regarded as a part of the Health and Family Services Department of the municipality and she reported to the general manager of that department. She had been appointed as an administrator under the SHRA by Chatham-Kent. When notices of triggering events were issued by Ms. Wilkins she indicated she had consulted with her supervisor and advised the municipal council, but in her mind the responsibility for the decisions rested with her, although subject to the approval of her manager, with municipal council being advised for information only. In this application, no issue was raised as to the authority of Ms. Wilkins, so that we can take it, for the purposes here, that she was duly and properly authorized to do what she did.
8 In January of 2004, Chatham-Kent carried out an operational review of Labourview, which pointed out the accumulating deficit. On April 23, 2004, Chatham-Kent delivered a notice of triggering event under s. 115 citing sections 115(1) and 115(10). Section 115(1) simply speaks of the housing provider contravening the Act or Regulations, and we understood the "contravention" was of a "no deficit policy" of the provincial government. No great reliance was placed upon this as a triggering event. Section 115(10) provides that a triggering event occurs if "the housing provider incurs an accumulated deficit that is material and excessive, having regard to the normal practices of similar housing providers." Labourview sought advice from the Co-operative Housing Federation of Canada, which made recommendations, including cleaning up the operations of Labourview and seeking an increase in subsidies. In January 2005 Chatham-Kent retained a consultant to monitor and encourage Labourview to work on its problems. On March 7, 2005, without withdrawing the previous notice, Chatham-Kent served a further notice of triggering event. The accompanying letter noted that Labourview had not adopted an appropriate action plan to address the accumulating deficit, which had gone up from $162,360.00 to $180,790.00 in the past year. Ms. Wilkins, Chatham-Kent's consultant, and a Co-operative Housing Federation's representative all met with Labourview's board. The provincial ministry, that had been advised, also did a review. Despite all of this, Labourview did not make the deficit go away, and in fact it grew by $15,000.00 in the next year. By September of 2006, the previous property manager for Labourview had departed, tenders were called for a new one, and Chatham-Kent "directed" Labourview to hire Marwick Property Management, the lowest bidder. Labourview indicated it much preferred Home Starts Inc., as being experienced in managing co-ops, which Marwick was not, and refused to hire Marwick.
9 Ms. Wilkins, for all of the operational problems cited over the past years, plus indications the deficit was still growing, plus the refusal of Labourview to hire Marwick as directed, and feeling the requirements under the Act had been met, appointed the receiver as of October 5, 2006. The receiver took over management of Labourview. The appointment was intended to be temporary, and in fact at the time of the hearing before us, it was anticipated it would end very shortly. We were advised that although the receiver had made a number of administrative improvements, the receiver was unable to make any changes that would of themselves substantially reduce the deficit. He did not disagree with the advisors of Labourview, who said that the deficit was the direct result of governmental subsidies which were too small, and that governmental changes which increased the subsidies would over time eliminate the deficit.
THE ENFORCEMENT PROVISIONS
10 The enforcement provisions under the Act require firstly, per s. 115, that a "triggering event" take place. Thirteen such events are listed in the section. If a triggering event occurs, the service manager may exercise one or more of a list of remedies, which per s. 116, "must be reasonable in the circumstances." Nine such remedies are listed, including as number five appointing a receiver, and as number six seeking the appointment by the Superior Court of Justice of a receiver. Limitations and controls on the imposition of enforcement procedures are laid out in sections 117 through section 121. Section 120 provides specifically that a service manager shall not appoint a receiver, or even seek the appointment of a receiver unless,
a) a significant financial or other event has resulted in, or in the opinion of the service manager is likely to result in the housing provider being unable to pay its debts as they become due;
b) the operation by the housing provider of the housing project has resulted in or, in the opinion of the service manager, is likely to result in
i) significant physical deterioration of the housing project or its contents, or
ii) significant danger to the health or safety of the occupants of the housing project; or
c) in the opinion of the service manager, there is or is likely to be a misuse of the assets of the housing provider, including a misuse for personal gain by a director, employee, member or agent of the housing provider.
11 Section 115 includes as number 10 in the list of triggering events, "the housing provider incurs an accumulated deficit that is material and excessive having regard to the normal practices of similar housing providers." This was the only triggering event relied upon by Ms. Wilkins in her decision to appoint a receiver. In her affidavit (Tab 16, Compendium of Applicants, paragraphs 65-71) Ms. Wilkins sets out her reasons for the appointment of a receiver. She makes no mention of comparison of the Labourview accumulated deficit with "similar housing providers." It appears that she relied upon the Ministry of Municipal Affairs and Housing (MMAH) guidelines as to "projects in difficulty", and "support and recommendation" from staff people at MMAH without any knowledge of what was happening to other co-ops in the province. In her cross-examination (Tab 32, Applicants' Compendium, questions 46-91) she confirms that the only comparison she made was of the housing providers "within her purview" which meant only one other co-op - Clairvue - which had a gross deficit that was considerably less than Labourview's. Affidavits and reports of experts referred to by the applicants indicated that deficits were referred to on a per unit basis, rather than a gross basis, that the deficit for Clairvue rose much more rapidly than that of Labourview in the 2004-2006 period, that no receiver was appointed for Clairvue, and further, that such deficits were a common problem of co-ops in slow market areas of the province, which was being dealt with by a change in the funding formula in 2005. See the affidavit of Diane Miles, Tab 4, Applicants' Compendium, paragraph 25.
12 Further, Ms. Wilkins referred to the deficit as the total of $163,222.00 plus the capital reserve deficiency of $146,881.00. In fact these two numbers are simply the two sides of a double-entry bookkeeping system so that the deficit would be only $163,222.00. In paragraph six of Ms. Wilkins' affidavit of April 4, 2007 (Tab 47, Applicants' Compendium) she admits that she simply made a mistake in that calculation.
POSITION OF THE APPLICANTS
13 The applicants point to three pre-conditions to the appointment of a receiver under the statute, in a situation like this. These are:
1. An accumulated deficit that is "material and excessive having regard to the normal practices of similar housing providers" (s. 115.10);
2. An inability to "pay its debt as they become due" or face "significant physical deterioration" (s. 120(1)(a) and (b)(i));
3. The receivership must be "reasonable in the circumstances". (s. 116(1))
14 The position of the applicants is that the standard of review in relation to the purported satisfaction of those three statutory pre-conditions is "correctness." Further, if Chatham-Kent misinterpreted any of the three statutory pre-conditions, then it acted without jurisdiction.
15 Further, the applicants argue that Chatham-Kent did not make its decision in a procedurally fair manner.
16 The argument of the applicants in favour of the correctness standard relies upon Pushpanathan v. Canada (Minister of Citizenship and Immigration)  1 S.C.R. 982, which lays down the four factors to be considered. Here, there was no privative clause, the argument was that Ms. Wilkins did not demonstrate, per the evidence, an expertise in interpreting this particular statute, or the issues raised in determining whether a triggering event had occurred, that would be greater than this court; and the purpose of the legislation as a whole was, as stated, to provide for the efficient and effective administration of housing programs, which, it was submitted, would include respecting and facilitating the democratic functioning of co-op housing. In this context Ryegate (Tecumseh) Co-operative Homes Inc. v. Stallard (2000), 194 D.L.R. (4th) 363 (Ont. Div. Ct.) was cited, where A. Campbell J. said there is:
A general judicial recognition that the consensual and communitarian nature of the cooperative organization commands deference from the courts in any attempt to substitute the view of the court for the democratically governed view of the cooperative and its members.
The nature of the question in issue was whether the pre-conditions laid out in the statute for the exercise of the power to appoint a receiver had been met. That was characterized as a question of law, leading to the position that the standard was correctness. The argument was that on the facts presented, the decision reached was not correct.
17 The argument in relation to procedural fairness was that the appointment of a receiver completely disempowered Labourview's democratically elected board of directors and prevented Labourview's members from governing themselves cooperatively. The guidelines of MMAH called for service managers to work in conjunction with co-ops in financial trouble. The argument was that did not happen here, with the expert Chatham-Kent hired simply telling the co-op she was going to analyze the co-op financials with the co-op not having an opportunity to participate. Further, when Chatham-Kent's own consultant recommended that it "absorb" the accumulated deficit, Chatham-Kent ignored that and appointed the receiver in any event without any warning to the co-op. This, it is argued, is a further basis to quash the decision.
THE POSITION OF CHATHAM-KENT
18 Chatham-Kent's position is that generally, Labourview was and had been for some time in administrative and financial trouble, was not taking sufficient or any steps to correct the problems, and that the appointment of the receiver, while not solving the deficit problem did make a number of improvements, and in his final report made a number of useful recommendations which would be of great assistance to Labourview. On the particular issues before the court, the position was that Chatham-Kent clearly had statutory power to appoint a receiver, the standard of review of that decision would be one of patent unreasonableness, and Chatham-Kent did not breach that standard.
19 In support of the position that the relevant standard is patent unreasonableness, reliance was placed upon Baker v. Canada (Minister of Citizenship and Immigration)  2 S.C.R. 817, paragraphs 52 to 56. That case applied the Pushpanathan rules to discretionary administrative decisions, particularly to granting an exemption from deportation upon humanitarian and compassionate considerations.
20 Reliance was also placed upon Nanaimo (City) v. Rascal Trucking Ltd.  1 S.C.R. 342, paragraph 28, which indicated that the "pragmatic and functional" approach to the standards of review applicable to administrative tribunals should apply to municipalities. Paragraph 35 was also referred to, which stated, after concluding that Nanaimo acted within its jurisdiction, that the decisions of municipalities should be reviewed upon a deferential standard.
21 Applying the patently unreasonable standard to the facts here, the argument advanced was that notice had been given that a triggering event had occurred, and the service manager then had a discretion as to the choice of remedies, which discretion was to be exercised if "in the opinion of the service manager" certain factors were present. In the respondent's factum, at paragraph 133, a list of 13 reasons is given as to why the municipality appointed a receiver. However, nothing in the list addresses the comparison with the normal practice of similar housing providers, a key element in finding that a "triggering event" had occurred.
22 Alternately, Chatham-Kent argued that the receiver took possession of the co-op on consent of the co-op board, there were good reasons for Chatham-Kent being concerned about the finances and inattentiveness of the directors of the co-op, the appointment of the receiver was beneficial, and there were reasons to conclude that the board of directors was not the real party behind the initiation and prosecution of the application, but rather the Co-operative Housing Federation of Canada was the real applicant.
DISCUSSION AND CONCLUSION
23 Firstly, it must be borne in mind, in interpreting the SHRA that s. 10 of the Interpretation Act, R.S.O. 1990, c. I.11 directly applies. It provides that:
Every Act shall be deemed to be remedial, whether its immediate purport is to direct the doing of any thing that the Legislature deems to be for the public good or to prevent or punish the doing of any thing that it deems to be contrary to the public good, and shall accordingly receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit.
Section 1 of the SHRA states:
The purpose of the Act is to provide for the efficient and effective administration of housing programs by service managers.
Housing programs are social programs, intended to generally assist society in the province, by providing financial and material assistance to the housing needs of the disadvantaged. The enforcement provisions of the SHRA must be interpreted so as to best ensure the objects of the Act. In the present case, it must also be remembered hat the applicant is a non-profit housing co-operative, democratically operated by its members who, largely, are its tenants. It is not a mere agency of the municipality and its decisions must be given some deference by the municipality for this reason, a deference markedly absent from the evidence before us.
24 The structure of the enforcement provisions of the SHRA first establishes, by s. 115, what are the conditions under which the municipality may act to interfere with the operations of the applicant as a housing provider. Unless one of these 13 "Triggering Events" has occurred, the municipality has no jurisdiction to undertake any of the remedial powers set out in s. 116. Three of these clauses, subsections 115(9), (10) and (11), require a comparison of the events in question with the "normal practices of similar housing providers." The particular subsection 115(10), on which the municipality relied, is one of these. The deficit must be shown to be not only "material", but also "excessive having regard to the normal practices of similar housing providers."
25 Section 116, headed Remedies, provides that:
If a triggering event occurs, the service manager may exercise one or more of the following remedies and the remedy must be reasonable in the circumstances:
26 The initial words in s. 116 "If a triggering event occurs, the service manager may ... ." reinforces the understanding from s. 115 that it confers jurisdiction to interfere with the management of the co-operative only if there has been a triggering event. It also adds an important requirement: "... the remedy must be reasonable in the circumstances."
27 Section 117 qualifies s. 116 by providing that a remedy shall not be exercised unless written notice is given to the housing provider specifying the particulars of the triggering event, what the housing provider must do or not do to cure the situation and the period within which the housing provider must comply with the notice, which shall be at least 60 days from the date of notice.
28 In our view, this is all consistent with the purpose of the Act - assisting and educating housing providers, rather than limiting or punishing them.
29 In this case, there was no dispute but that Labourview had an accumulated deficit. There was dispute over the definition used by Chatham-Kent of "material" but there was no dispute that the accumulated deficit was well above any accounting definition of materiality.
30 The real issue in this case was whether the accumulated deficit was excessive, having regard to the normal practices of similar housing providers. The evidence before us was that Ms. Wilkins did not inquire as to the "normal practices of similar housing providers." The only other co-operative she knew anything about was the one other co-operative in Chatham-Kent, and there is no evidence that she looked to its "normal practices" in determining whether Labourview had suffered a triggering event. Instead of examining other similar providers, she adopted an overly narrow interpretation of who were "similar providers", saying on examination that she looked only in Chatham-Kent. The SHRA does not so restrict the review required, and she erred in law in so doing.
31 The evidence was that municipalities throughout Ontario that did not have rising rental rates had co-operatives which were suffering deficits. The entitlement structure for subsidies assumed that rents would rise. There were no provisions to allow those co-operatives extra subsidies to cover rising costs, when their rental incomes did not increase.
32 The evidence was that the information as to similar providers would have been easily available from Windsor and London, as well as other municipalities. The evidence shows that other co-operatives had problems similar to Labourview. The evidence also showed that a number of them were able to reduce their accumulated deficits because their subsidies had been negotiated upwards.
33 In fact, the evidence was that Chatham-Kent's own consultant recommended that Chatham-Kent "absorb" the accumulated deficit of Labourview, before the appointment of the receiver. Apparently later, when it became clear that inadequate subsidies, and a market that did not accept rent increases, rather than mismanagement, were at the root of the increasing deficit, this earlier recommendation was revisited.
34 In short, Chatham-Kent not having provided any evidence to the contrary, I accept that the evidence would have shown, had Ms. Wilkins gathered and analyzed it, that the deficit of Labourview was not excessive having regard to the normal practices of similar housing providers.
35 In Nanaimo (City) v. Rascal Trucking Ltd., supra, at para. 29, Major J. for the court, observed that the municipal council had to apply principles of statutory interpretation in order to answer the legal question of the scope of its authority. He said:
On such questions, municipalities do not possess any greater institutional competence or expertise than the courts so as to warrant a heightened degree of deference on review. The test on jurisdiction and questions of law is correctness.
36 In United Taxi Drivers' Fellowship of Southern Alberta v. Calgary (City),  1 S.C.R. 485, Bastarache J. for the court, at para. 5 quoted Nanaimo (City) v. Rascal Trucking Ltd. on an issue of jurisdiction and continued by saying:
There is no need to engage in the pragmatic and functional approach in a review for vires; such an inquiry is only required when a municipality's adjudicative or policy making function is being exercised.
37 In Lord's Day Alliance of Canada v. Regional Municipality of Peel (1982), 38 O.R. (2d) 755 (C.A.) MacKinnon A.C.J.O. (as he then was) affirmed the following statement of Middleton J.A. in Re Howard and City of Toronto 61 O.L.R. 563:
Certain elementary principles must be kept in mind when dealing with questions such as those here raised. A municipal council is a legislative body having a very limited and delegated jurisdiction. Within the limits of its delegated jurisdiction, and subject to the terms of the delegation, its power is plenary and absolute and in no way subject to criticism or investigation by the courts. When the municipal council goes beyond its limited jurisdiction or seeks to ignore conditions precedent to the exercise of the power that has been conferred upon it, it is the duty of the courts to interfere and quash the [municipality's decision] for illegality. [Emphasis added].
38 For these reasons, we conclude that, no "triggering event" having occurred, Chatham-Kent had no jurisdiction to intervene in the management of the Labourview Co-operative, and its decision to do so must be quashed. In view of this decision, it is not necessary to consider the other grounds raised by the applicants, based on whether the receivership was a reasonable response to the facts, and whether the rules of procedural fairness were breached.
39 We grant the application for judicial review, and as requested grant an order:
i) quashing the decision made by Chatham-Kent to appoint the receiver over Labourview pursuant to s. 116(1) of the SHRA;
ii) declaring that a receiver or receiver and manager over Labourview is not justified under the SHRA and discharging the receiver.
40 Costs had not been agreed upon. If costs cannot be resolved, brief submissions in writing should be made within 30 days.
G.D. LANE J.
J.R.R. JENNINGS J.
J.H. BROCKENSHIRE J.