Governance

July 19, 2017 Published by Toronto and Area Chapter - By Warren Kleiner, François Bourgault

Burn After Reading

From the Summer 2017 issue of the CCI Toronto Condovoice Magazine.

Condominium boards routinely handle sensitive information. Whether arising from an owner's request to access the records of the corporation or a desire to promote board transparency, board members face the predicament of discharging their statutory obligations while also protecting confidentiality. We set about answering the not-so-simple question: what can the board disclose?

Understanding Confidentiality

Board members are responsible for managing the affairs of the corporation on behalf of the owners, and will inevitably be privy to sensitive information regarding the corporation, its owners, residents and employees. Section 37 of the Condominium Act (the "Act") requires that directors act in good faith and in the best interests of the corporation. Although the Act does not specifically state that board members are subject to confidentiality, it is quite clear that this obligation flows from their duties.

At common law, confidentiality arises when circumstances suggest that a reasonable person would expect that the information will be held in confidence. Not all information is, therefore, confidential. Although there is no simple rule to identify confidential information, courts generally look at the quality of the confidence, namely whether the information is public property and/ or public knowledge. Other factors considered by the courts include the relationship of the parties, the subject matter of the information, the likelihood that disclosure will harm or injure the corporation, and the expectations of the parties. In most cases, confidential information will be private as opposed to publicly available information.

The duty of confidentiality generally requires that board members not reveal information learned in their capacity as directors. This encompasses all material information about the board and the corporation's activities, including deliberations of board members and statements made by board members. The rationale behind this is two-fold. First, board members should feel that they are able to speak freely in deliberations about the corporation's business with the expectation that their discussions will not be revealed to others. Second, the board confidentiality safeguards the privacy of owners, residents and employees who may be the subject of discussions during any given meeting or discussion of the board of directors.

In accordance with the Act, matters pertaining to specific owners, insurance investigations, litigation involving the corporation and communications from a unit owner to the board should be presumed to be confidential.

Records of the Corporation

The duty to maintain board confidentiality is not absolute. Subject to certain exceptions, owners are entitled to access most records of the corporation for purposes "reasonably related" to the purposes of the Act.

Section 55 of the Act sets out certain records that must be maintained by a corporation, such as financial records, minutes of board and owners' meetings and copies of all contracts, and gives owners the right to examine and obtain copies of these records. Exceptions to what owners have the right to do are outlined in subsection 55(4) of the Act and they include records relating to employees of the corporation (but not employment contracts), records relating to actual or pending litigation or insurance investigations involving the corporation, and records relating to specific units or unit owners.

Some corporations have adopted the restrictive view that section 55 lists exactly what forms part of the records of the corporation and what records owners have the right to examine. Other corporations take the view that all documents form part of the "records" of the corporation, and that subsection 55(4) provides the only exceptions as to what the unit owners may examine. The Courts have stated that the affairs of the corporation are intended to be an open book for owners and that the term "records" should be given an open and inclusive interpretation. Owners should be afforded with broad and liberal access to material documentation reasonably related to the affairs of the corporation, subject to the exceptions set out in subsection 55(4) of the Act. Board members should know that there is generally little in the files of a corporation that will be exempted from the right of inspection by unit owners. While a corporation may restrict access in the case of a legitimate claim of privilege or confidentiality, this power should be exercised judiciously only when the circumstances are such that disclosure is clearly not in the best interest of the corporation.

A breach of confidence may expose a board member to liability and potential damages. This can be the case whether or not the disclosure results in a loss or injury to the corporation. Board members should also be aware that they may not entitled to indemnification by the corporation if, pursuant to section 38(2) of the Act, liability is related to a breach of their duty to act honestly and in good faith.

Best Practices for Board Members

How can board members preserve confidentiality and also maintain good communication with owners and residents? Here are some helpful guidelines.

• Owners' communications to the board and/or management are not confidential vis-a-vis the board. Communications from an owner to one board member or management may be disclosed to other board members.
• Information regarding units and owners with limited exceptions should always be treated as confidential. However, boards are legally obligated to disclose the list of registered unit owners and their addresses for service to an owner who requests the list.
• Communications between the board and the corporation's solicitor are generally subject to solicitor-client privilege. Any correspondence or document prepared in contemplation of litigation or mediation and arbitration, is also privileged and confidential. Such communication may not be accessed by an owner.
• An owner's right to the records does not entitle him or her to an investigation or to demand responses from directors, officers or managers. Although good governance dictates that boards communicate with their owners and in most cases should provide timely answers to appropriate requests for information, the Act gives owners the right to examine the records, not the right to make written interrogatories and expect timely answers.
• Section 55(3) of the Act authorizes owners to inspect the corporation's records "for all purposes reasonably related to the purposes of this Act." Therefore, in appropriate circumstances, corporations are entitled to ask an owner the reason for the request.
• Since committee members are not board members, they do not have any greater right to information than any other owner in the corporation, subject only to the board's ability to disclose particular information to committee members to help the committee carry out its obligations. Committee members should not be given any personal information of owners or residents without their permission. It is also a good idea to require committee members to sign a code of ethics form and/or a confidentiality agreement.
• Aside from obtaining copies of the declaration, by-laws and rules, tenants do not have the right to the records of the Corporation and should only be provided with information that is required in relation to the tenant's residency such as information about the use of facilities and information that is required for safety and security purposes.
• The duty of confidentiality does not prevent a board member from disclosing confidential board information to his/ her lawyer. In this case, confidentiality is preserved through the solicitor-client privilege.
• While board members may discuss confidential information outside of the boardroom, it is critical that such discussions remain private and extreme care should be taken. No discussion should ever take place in a public setting.
• Board members should be careful when discussing confidential matters via email. The use of technology carries with it the additional risks of inadvertent disclosure. Always think twice before pressing "Reply All" and be cognizant of who may have access to your emails. Emails may be subject to disclosure in a court proceeding so care should always be taken with what is said in an email.
• Minutes of board meetings are records of the corporation and may be accessed by owners. In our experience, however, many boards include more detail in their minutes than required. The minutes do not have to include detailed discussions on any given matter. They should include the motion made, the names of those who proposed and seconded the motion, and whether the motion was approved or defeated. Information pertaining to particular units or owners, employees of the corporation or relating to actual or pending litigation or insurance investigations should be removed or blacked out from the minutes.
• One common method is for the corporation to maintain two sets of board minutes. One for the board's use, and one for owners to examine with all confidential information removed or blacked out.
• Board members often raise concerns about compliance with the Personal Information Protect and Electronic Documents Act ("PIPEDA"). PIPEDA is a federal statute that regulates the collection, use and disclosure of personal information. It applies to most organizations that engage in commercial activities. It is not clear that condominium corporations and board members are subject to PIPEDA. Their activities are driven by statute and are intended for the benefits of owners, not for commercial purposes. Nevertheless, a condominium corporation should, as a matter of prudence and good governance, follow the guidelines of PIPEDA, to protect the personal information of owners and residents.
• All contracts entered into on behalf of the corporation are to be made available for examination by owners who so request them pursuant to section 55 of the Act.
• It is unclear if documents not mentioned in section 55, such as tenders, bids and similar documents, form part of the records of the corporation. Many corporations take the position that these documents do not form part of the records and only the executed contract is a record of the corporation. However, in these circumstances, the corporation's solicitor should be consulted.
• It is recommended that all board members sign and comply with a Directors' Code of Ethics which clarifies the conduct expected of board members. The by-laws of a corporation may provide that compliance with the Directors' Code of Ethics is a minimum qualification for being a board member.

Board members must always act in the best interest of the corporation. A single member's failure to maintain confidentiality could expose the corporation to liability. There may be times when a request is made by an owner for particular records and it is not clear whether the board can disclose the records requested. When in doubt it is best to obtain legal advice.