A member of the Lower Kootenay Indian Band sued five individual band councilors, alleging they had breached their fiduciary duties to the band. The five councillors had attended a band council meeting and purported to authorize a “retroactive honorarium” payment to themselves amounting to $5,000 each. The source of the funds was $125,000 compensation paid to the band from the regional district for the use of a road that crossed the band's reserve lands.
A chambers judge dismissed the plaintiff’s claim by way of summary trial.
Court of Appeal's decision
The Court of Appeal noted that the onus to prove a breach of fiduciary duty rests on the plaintiff. However, once a prima facie conflict of interest has been demonstrated the onus generally shifts to the defendant (in this case, the band councillors) to show that he or she is acting in the best interests of the plaintiff (in this case, the band).
Fiduciaries are not allowed to put themselves in a position where their interests and fiduciary duties conflict, nor are they entitled to make a profit “unless otherwise expressly provided”. In this case, payment of the retroactive honorarium was not expressly provided for or authorized. The band did not have a financial administration bylaw or a constitution at the material time, which otherwise might have provided such authority. There was also no evidence that a band council resolution had been passed authorizing the payment or that a bulletin had been posted to advise band members of the payment of the retroactive honorarium.
Furthermore, the payment could not be authorized as it was contrary section 2(3) of the Indian Act, which requires the consent of the majority of the band electors to be obtained before a power conferred on the band is exercised. There was no evidence that the band consented to the granting of the retroactive honorarium.
The defendants argued that the band council was acting in accordance with the customs and practices of prior band councils. Council never consulted band members in advance of considering honoraria, travel expenses and possible "catch up payments" and discussions of these only occurred at the band council level. However, even assuming the doctrine of ostensible authority applied here, there was no evidence that the band (as opposed to council) had a custom or practice representing or holding out that council members could depart from a previously set honorarium to grant themselves a significant bonus from band revenues, such as occurred here.
Under the strictest approach to the no conflict rule, the subjective motivations of the fiduciary (in this case, the band council), the absence of actual harm to the beneficiary (in this case, the band) and even whether the fiduciary in fact profited would be irrelevant to determining whether fiduciary duties were breached. Further, even under a more flexible approach towards conflicts, in this case, payment of the retroactive honorarium was clearly to the detriment of the band. $25,000 had been removed from band funds and was allocated to the individual defendants, thereby conferring a clear and significant personal benefit to them, and them only.
The Court of Appeal held that the individual band councillors breached their fiduciary duties to the band and were ordered to repay the retroactive honorarium. The plaintiff's claim for punitive damages against the councillors was remitted to the court below if the plaintiff wishes to pursue it.