Casual legal: Municipal Councillors as Corporate Directors

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated. 

By Lauren Chalaturnyk 

Reynolds Mirth Richards Farmer LLP 

Alberta Municipalities Casual Legal Service Provider  

Many municipalities are involved in regional services commissions or controlled corporations, which engage unique duties for councillors or representatives that sit on the boards for these entities. These are referred to as fiduciary duties.  

When a municipal councillor or representative is nominated or appointed to a separate corporate entity, such as a regional services commission, in addition to their general duties as councillors to the municipality, they also owe a high degree of care and loyalty to the separate corporate entity. In practice, this means that councillors, when exercising their duty as a director of a commission or controlled corporation, must:  

• Act with honesty and good faith;
• Exercise the care, diligence and skill of a reasonable person in similar circumstances;
• Not use their powers for an improper purpose;
• Not abuse positions for personal benefit;
• Avoid conflicts of interest, except with corporation’s knowledge and consent;
• Maintain and protect the confidentiality of corporate information;
• Oversee the corporation’s operations and remain informed about decisions and issues impacting the corporation;
• Attend meetings whenever possible;
• Be familiar with corporation’s purpose, articles of incorporation, bylaws, policies, and financial affairs;
• Obtain professional advice, where necessary; and
• Not improperly delegate powers.  

A director’s failure to discharge their fiduciary duties can attract personal liability, as such a failure can create loss or damage to the corporation. Generally, though, where a director is found to have acted in good faith, with an honestly held belief that their decision was reasonable and appropriate, and the director is acting within the scope of their authority, they will be protected from liability.   

In certain circumstances, a councillor’s duties to the municipality may be in conflict or may be inconsistent with their duties as a director to a corporation. In those cases, courts have typically understood that directors who are appointed or nominated in these circumstances are acting in accordance with their fiduciary duties despite potentially competing interests. That said, councillors should always remain mindful of their obligations to the municipality and to the corporation when serving in both functions. When in doubt, it is always prudent to obtain professional advice to determine the best course of action. 

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1.800.661.7673 or email casuallegal [at] abmunis.ca (casuallegal[at]abmunis[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] abmunis.ca (riskcontrol[at]abmunis[dot]ca), or call 310.MUNI (6864) to speak to Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.