Supreme Court Judgments

Supreme Court of Canada

Hawrelak v. City of Edmonton, [1976] 1 S.C.R. 387

Date: 1975-03-07

William Hawrelak (Defendant) Appellant;

and

The City of Edmonton (Plaintiff) Respondent.

1974: March 27, 28; 1975: March 7.

Present: Laskin C.J. and Judson, Spence, Dickson and de Grandpré JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Municipal law—Mayor of city a major shareholder in building company—Shares sold at enhanced value after adoption by city of replotting programme—Mayor involved in certain land transactions—City’s claim to recover gain made upon sale of shares dismissed.

The appellant was elected mayor of the respondent city on October 16, 1963. At that time he was a major shareholder in a company (Sun-Alta Builders Ltd.) which had acquired lands in an area that was annexed to the city in 1961. While he was mayor the appellant was involved in certain transactions, one of which was between Sun-Alta and the city and involved a consent by Sun-Alta to replotting and an agreement to sell some of its land to the city. That transaction cost the appellant his office as mayor as a result of disqualification proceedings taken against him under provincial legislation.

Another transaction involved an attempt by the Chrysler Corporation to acquire certain land owned by the city and to have it rezoned to suit Chrysler’s intended use. In order to tempt the city to this end, Chrysler acquired certain lands adjacent to those owned by Sun‑Alta, for the purpose of exchanging them for the city’s land. The appellant favoured the exchange and, moreover, gave advice to Chrysler on a fresh presentation of its proposal to the city after its first approach had been rebuffed. The transaction came to nought when the city refused to pass the required rezoning by-law, but, thereafter, the city, being desirous of acquiring the Chrysler lands in order to advance its proposed replotting programme, purchased the land from Chrysler. The appellant took no part in the arrangements for the purchase. The city proceeded to adopt the replotting programme at a City Council meeting on November 23, 1964. The appellant did not vote on the question.

[Page 388]

Shortly after the adoption of the replotting programme by the city, the appellant sold his shares in Sun-Alta at a considerable profit over his small original cost. The city sued the appellant for the profits which he thus obtained and for damages. At trial, the city was awarded $72,197. On appeal, the Appellate Division dismissed the appellant’s appeal and allowed the city’s counter-appeal, so that judgment against the appellant was increased to $80,117. The appellant then appealed to this Court.

Held (Dickson and de Grandpré JJ. dissenting): The appeal should be allowed.

Per Laskin C.J. and Judson J.: There was no statutory basis for the city’s claim to recover the gain which the appellant made upon the sale of his Sun-Alta shares, and there was no ground upon which the city could support it under the principles, which it invoked governing the duty of fiduciaries or persons of like character to account for profits made through improper use of position. On the facts of the case, the city’s recovery under the judgments below sounded more in simple unjust enrichment than in accountability for breach of fiduciary duty, and there was no basis for the city’s claim for recovery even in that aspect. The appellant was not unjustly enriched at the city’s expense.

Per Laskin C.J. and Judson and Spence JJ.: The replotting was part of a development which had become the firm policy of the municipality prior to the time the appellant became mayor. That policy had been carried so far as to obtain from Sun-Alta and others their approval of the replotting and their agreement to convey lands making such replotting possible at a price which was a mere fraction of the value of those lands. The proposal for the exchange with the Chrysler Corporation would have made that replotting easier, or caused it to be carried out sooner. Any part the appellant played in furthering that exchange came to naught and the Chrysler lands were purchased by the city after it had full knowledge of the appellant’s interest in the Sun-Alta lands adjacent thereto and without the city being in any way forced to carry out the purchase. The respondent simply failed to make out a case to fall within the Regal (Hastings), Ltd. line of authorities.

Moreover, even if the appellant by his actions had placed himself in the position where he was required to disgorge a profit, the respondent had not proved that the appellant made any profit as a result of his actions or position.

[Page 389]

Per Dickson and de Grandpré JJ., dissenting: At all material times, as found by the Courts below, the appellant had a conflict of interest—(a) his important shareholdings in a company standing to benefit from a replot; (b) his duty to the population of the city, a duty which required that all decisions relating to the replot be taken objectively. The appellant failed to respect his duty to the population.

The concurrent findings of the Courts below that at the time City Council adopted the replotting programme all members of Council were not aware of the appellant’s interest in the Sun-Alta lands involved in the replot was based on the evidence and should not be disturbed. Also, on the question of profit, the concurrent findings of the Courts below against the appellant should not be disturbed.

[Toronto v. Bowes (1854), 4 Gr. 489, aff’d. 6 Gr. 1, aff’d. 11 Moo. P.C. 463, 14 E.R. 770; Regal (Hastings), Ltd. v. Gulliver et al., [1942] 1 All E.R. 378; Reading v. The King, [1948] 2 K.B. 268, distinguished; Midcon Oil and Gas Ltd. v. New British Dominion Oil Co. Ltd., [1958] S.C.R. 314; Peso Silver Mines Ltd. (N.P.L.) v. Cropper, [1966] S.C.R. 673, referred to]

APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], dismissing an appeal from a judgment of Kirby J. Appeal allowed, Dickson and de Grandpré JJ. dissenting.

B.J. MacKinnon, Q.C., and J.E. Sexton, for the defendant, appellant.

W.A. McGillivray, Q.C., and J.W. Rose, for the plaintiff, respondent.

Judson J. concurred with the judgment delivered by

THE CHIEF JUSTICE—I agree with my brother Spence that this appeal should be allowed and the action dismissed for the reasons he has given. There is, however, another feature of this litigation with which I wish to deal and which equally, if not more emphatically, justifies dismissal of the action. The claim of the city is to recover the gain which the appellant Hawrelak made upon the sale of his shares in Sun-Alta Builders Limited. There is no statutory basis for the claim, and I am unable

[Page 390]

to see how the city can support it under the principles, which it invoked, governing the duty of fiduciaries or persons of like character to account for profits made through improper use of position. In short, assuming that the value of Hawrelak’s shares in Sun-Alta rose as a result of the city’s development or replotting programme respecting the area in which Sun-Alta owned land, there is not, in my opinion, any title in the city in the present case to capture that enhanced value for itself, any more than it could recover from any other owner in the area the increase in value of his land, realized upon a sale thereof, brought about by the municipality’s development scheme.

The basis upon which the Courts below held that Hawrelak must account and pay over to the city his gain on the sale of his shares was that while he was mayor he was involved in certain transactions, one between Sun-Alta and the city and a second between Chrysler Corporation and the city, which led to the adoption of a replotting programme by the city, with the consequent enhancement of the value of his shares in Sun-Alta, shares which he sold soon after at a considerable profit over his small original cost.

The transaction between Sun-Alta and the city, formalized on March 12, 1964, and involving a consent to replotting and an agreement to sell land to the city at a price which yielded no profit to Sun-Alta, cost the appellant his office as mayor as a result of disqualification proceedings taken against him under provincial legislation. The Alberta Appellate Division, in its reasons herein, stated that Hawrelak’s ouster from office was because he was a party to a contract with the city under which money was payable or under which he had a pecuniary interest. That interest was his major shareholding in Sun-Alta which held an option on land in an area that had been annexed to the city and was marked for replotting.

The Chrysler transaction involved an attempt by Chrysler to acquire certain land owned by the city

[Page 391]

and to have it rezoned to suit Chrysler’s intended use. In order to tempt the city to this end, Chrysler acquired the so-called market garden lands, adjacent to those owned by Sun-Alta, for the purpose of exchanging them for the city’s land. Hawrelak was not alone in favouring the exchange but, of course, his interest in Sun-Alta would make his position suspect. Moreover, he had given advice to Chrysler on a fresh presentation of its proposal to the city after its first approach had been rebuffed. The Chrysler transaction came to nought when the city refused to pass the required rezoning by-law, but, thereafter, the city, being desirous of acquiring the market garden lands in order to advance its proposed replotting programme, purchased the land from Chrysler. Hawrelak took no part in the arrangements for the purchase and the trial judge noted that the city did not stand to lose on that purchase. The city was then in possession of all the facts bearing on Sun-Alta’s interest in land in the area of the proposed replotting and of Hawrelak’s interest in Sun-Alta. Having that full knowledge, it proceeded to adopt the replotting programme at a City Council meeting on November 23, 1964. Hawrelak did not vote on the question and it is not suggested that he influenced adoption of the scheme by Council. Indeed relator proceedings to oust him from office were imminent and were formally launched some three weeks later.

Apart from other considerations touching its claim herein, I fail to see how the Chrysler matter could be an element in the city’s claim to take Hawrelak’s gain on the sale of his Sun-Alta shares. My brother Spence has dealt so completely with this aspect of the litigation as to make any further observations by me superfluous. The gravamen of the case for the city lies, in my view, in the Sun-Alta transaction with the city, as finally concluded on March 12, 1964 (although initiated before Hawrelak’s election as mayor on October 16, 1963) and in the subsequent adoption by the city of its replotting scheme.

[Page 392]

The case law upon which the respondent city has relied and which the Courts below applied, such as Toronto v. Bowes[2], are cases in which the faithless fiduciary, where he was obliged to account for a gain, had profited out of a transaction, whether secretly or otherwise, with his principal, or had taken for himself property or a business opportunity which, because of his position in the organization, he had intercepted against the interest of or without the principal’s concurrence which would have to be based upon a full disclosure of the facts. Thus, in Toronto v. Bowes, supra, a mayor had secretly arranged to purchase at a discount debentures of the city authorized under a by-law which he actively supported. In like cases, whether involving interception and capture of corporate opportunities, as in Canadian Aero Service Ltd. v. O’Malley[3], or involving even more blatant faithlessness, as in Zwicker v. Stanbury[4], there is no difficulty in finding accountability for the gain, whether or not the deprived corporation or principal proves any loss. The present case would fall within this line of authority if there was any gain involved in the agreement of March 12, 1964, between Sun‑Alta and the city.

That, however, is not this case. Hawrelak, as a principal shareholder of Sun-Alta, made no gain out of any transaction between Sun-Alta and the city, unless it can be said that because the replotting programme enhanced the value of his shares and it was a programme to which he lent his support as mayor while not disclosing his interest in the affected land, he must account to the city for the enhanced value of his shares, although the adoption of the replotting scheme was the city’s unilateral legislative act, done with full knowledge of all the facts.

Counsel for the city conceded that it would have gone ahead with the replotting scheme in any event. It was, moreover, also part of his submission that there was no accretion in value of the lands in

[Page 393]

the affected area until there was an assurance that the replot was going to proceed, and he asserted that this was after the city purchased the market garden lands on November 12, 1964. His position appeared to be that this no more bars the city’s claim than a corporation’s claim would be barred against a faithless director who used his position to take a business opportunity that was open to the corporation but which it was unable to acquire. The analogy is misleading on at least two counts. First, if the corporation had by proper resolution released the business opportunity, there having been full disclosure, there could be no liability. Here the city acted, not through Hawrelak (who was in any event merely one voice in a chorus of elected representatives) but in proper form and upon full knowledge, and there is no suggestion that its adoption of the replotting scheme was impeachable for want of good faith or otherwise. Second, the line of authority relied upon by the city respecting the obligation to account for gains concerned situations where there was an actual or notional deprivation of a benefit, and not, as here, where it was the city which, in the exercise of a public function, acted for the public advantage, as it saw it, and incidentally added value to private holdings.

On the facts of this case, the city’s recovery under the judgments below sounds more in simple unjust enrichment than in accountability for breach of fiduciary duty, and I see no basis for the city’s claim for recovery even in that aspect. Hawrelak was not unjustly enriched at the city’s expense. There may be ways in which a municipality may capture all or part of the increase in the value of private holdings brought about by its exercise of its public functions, as, for example, by expropriation or by some form of special assessment but not, in my view, by direct action for its recovery (unless, of course, authorized by legislation).

[Page 394]

There may be a dilemma for a municipality, which has in mind a redevelopment scheme which, if approved, will enhance the value of land in which Council members, directly or indirectly, have an interest. The dilemma, whether to go ahead with the scheme, seen as a public advantage, or to drop it, does not arise, however, if Council members declare their interest and refrain from voting. If they do not, they risk disqualification. The question of good faith of the Council in its enactment of by-laws may become material to their validity, but where the Council knows the facts and, as here, the one interested party, has refrained from voting, I can find no basis upon which the municipality can support a claim to recover that party’s ensuing gain.

I would allow the appeal as proposed by my brother Spence.

Judson J. concurred with the judgment delivered by

SPENCE J.—This is an appeal from the judgment of the Appellate Division of the Supreme Court of Alberta, pronounced on November 23, 1972. The respondent, the City of Edmonton, had sued the appellant, William Hawrelak, for profits which he had obtained upon the sale of certain shares in the Sun-Alta Builders Limited and for damages. By the judgment of Kirby J., of the Supreme Court of Alberta, pronounced on February 24, 1972, the respondent City of Edmonton was awarded the sum of $72,197. Both the present appellant and the present respondent appealed from that judgment to the Appellate Division. By its judgment aforesaid, the appeal of the appellant William Hawrelak was dismissed and the counter-appeal of the respondent City of Edmonton was allowed, so that the judgment against the appellant was increased to the sum of $80,117.

I find it necessary, in order to outline my opinion upon this appeal, to give a somewhat lengthly and detailed review of the circumstances. In the year 1960, the appellant was a private citizen in the City of Edmonton and negotiated for an option

[Page 395]

to purchase approximately 67 acres of land in the Town of Beverly, which was immediately to the north-east of the City of Edmonton. This option was assigned by the appellant to a company known as Zeiter Homes Limited in which the appellant held 40 per cent of the shares. The option as executed, from the owner George Gordon Davidson to Zeiter Homes Limited was dated February 3, 1961, and granted an option to purchase the said acreage for the sum of $125,000. Zeiter Homes Limited later changed its corporate name to Sun-Alta Builders Limited. In August of 1962 Sun-Alta Builders exercised its option and acquired the said lands. The reason for this purchase may be gleaned from a report to the Edmonton City Council, dated November 23, 1964, by the City Commissioners, which report cites in some detail the history of the land dealings of the preceding years.

On p. 5 of that report it is said:

On November 27th, 1961, the Commissioners placed a plan before Council covering the unsubdivided areas in the North East section of the City (including the area that was annexed to the City on December 31st, 1961), on which was indicated the Planning Department’s recommendation for the chronological development of the area, the said plan suggesting that the Rundle Heights area be developed during the years 1963-1965. Since 1961 development in the North East of the City has been carried out in conformity with the suggested plan of development so that today the Rundle Heights area is the only large district proposed for 1963-1965 development that has not yet been replotted and served with utilities.

The annexation of the lands in the Town of Beverly, including the 67 acres to which reference thereto has been made, was carried out on December 31, 1961, and, as the City Commissioners pointed out, development had proceeded in that area ever since, so that the Rundle Heights area which included inter alia the 67 acres, was the only large district proposed for redevelopment which had not been replotted by 1964. The city, in proceeding with its plans for that development by August of 1963, had progressed to the stage where it had negotiated for the purchase of lands for parks, school sites and like uses in the Rundle Heights from one Samuel Belzberg and from Sun-

[Page 396]

Alta Builders Limited. The purchase of such lands was carried out at the price of $600 per acre. By exercise of the option first referred to the appellant Hawrelak had paid $125,000 for 67 acres so $600 per acre would seem to be a very low price. This was explained by the appellant and other witnesses as being the result of the city’s demand so that the city would proceed with the redevelopment of the Rundle Heights area. Although the arrangement for the purchase of Sun-Alta Builders Limited lands was all settled by August of 1963, the actual contract whereby Sun-Alta agreed to convey the lands and also to consent to the replotting of the area, is dated March 12, 1964. I shall refer hereafter to the executions thereof. On October 16, 1963, the appellant was elected to the office of mayor of the City of Edmonton.

The Chrysler Corporation desired to obtain from the City of Edmonton lands which the city owned at the corner of 142nd Street and 111th Avenue so that it might at some time thereafter construct on the said land a retail automobile distributor building. The Chrysler Corporation, however, were not prepared to commence the building immediately upon acquiring the said lands and it was the city’s policy that a commitment to commence a building within six months after acquirement must be demanded from any purchaser of lands from the city. That commitment could not be extended for more than 12 months. When the City of Edmonton held fast to its policy of demanding such a building commitment, the Chrysler Corporation refused to make such an agreement and Donald Crawshaw, a real estate agent with Hoosan and Company Realtors, conceived the device of having the Chrysler Corporation acquire other lands which the City of Edmonton desired to obtain and then exchanging those lands for the city’s lot at 142nd Street and 111th Avenue, thereby avoiding the requirement of a building commitment. Crawshaw obtained information as to various properties which the city desired to obtain for its development schemes and settled on one piece of land which, throughout the course of this litigation, has been referred to as the market garden lands. Those lands were in the Rundle Heights area and were, in fact, immediately adjacent to the lands owned by Sun-Alta Build-

[Page 397]

ers Limited. Chrysler Corporation took an option on those lands for the sum of $92,000 and offered to exchange them for the city’s building lot, putting a valuation of only $69,960 on the lands and paying the balance of some $48,000 in cash. J.R. Warner, head of the Land Department of the City of Edmonton, in a memorandum to the City Commissioners dated October 10, 1963, outlined this transaction in exact detail. It was significant that it hinged on two particular conditions. Firstly, that no building commitment would be required from the Chrysler Corporation as to the city-owned lot, and secondly, that the city-owned lot would have to be rezoned to permit a retail automobile dealership with outside vehicle display. This report was in the hands of Mr. D.B. Menzies, the Chairman of the City Commissioners, until it was made the subject of a report to council on November 12, 1963. It will be noted that between the date of Warner’s report and this last report to Council, the appellant had been elected mayor of the city and, as such, became a member of the City Commissioners. The report dated November 12, of course, stressed the fact that the acquirement of the market garden lands would make possible the registering of a new residential subdivision plan and make available badly needed property for the two school boards and for park lands. The appellant William Hawrelak signed that report. The appellant testified that he did not then, or for many months thereafter, know that the market garden lands which it was proposed that the city should acquire in exchange for its lot at 142nd Street and 111th Avenue, were immediately adjacent to the Sun-Alta Builders Limited lands and that therefore the development plot would eventually include the latter land. There has been much debate on the appellant’s knowledge, or lack of knowledge, of this fact for reasons which I shall give in detail later. I am of the opinion that that is unimportant. I repeat here that the proposal for the replotting of the Sun-Alta and Belzberg lands had been settled in August of 1963, and that it had been arranged at that time that Sun-Alta would convey some acres of its lands to the city for $600 per acre. That was, of course, months before the appellant was elected mayor. At the meeting of November 12, 1963, the exchange was approved in principle.

[Page 398]

The appellant was not present at that meeting. The City Council, however, on December 19, 1963, refused the redevelopment permit for the city-owned land. On December 30, 1963, the appellant conferred with Mr. Cameron Steer, who was then acting as the solicitor for the Chrysler Corporation, and with Mr. Crawshaw the realtor, and advised them that when the matter came back to Council, they should make a more attractive presentation of their proposal. This advice was followed by the representatives of Chrysler Corporation and on January 27, 1964, at a subsequent meeting of Council, the redevelopment plan was approved. The appellant was present at that meeting. Two days later, on January 29, the Chrysler Corporation exercised its option to obtain title to the market garden lands.

As I have pointed out, more than the redevelopment permit was necessary before Chrysler Corporation could erect on the city lot a retail automobile distributors building. A rezoning was required. That rezoning was the subject of By-law 2512 which came before Council of the City of Edmonton and received two readings. Opposition to such rezoning, however, gathered weight. Local residents objected to the intrusion into a residential area of a commercial building and the Alberta Teachers Association, which owned and occupied a nearby building, was most adamant in its opposition. The matter was referred back to the By-law Committee again and it was considered by the By-law Committee on June 18, 1964, and referred back to Council without recommendation. At a meeting of the City Council held on June 29, 1964, the City Commissioners submitted a long and detailed report dealing with the exchange and included a chronological report. At the meeting considering both By-law 2512 as to the rezoning of the city lot at 142nd Street and 111th Avenue and the proposed replot of the Rundle Heights area, the minutes noted that Mayor Hawrelak stated that he was a director of Sun-Alta Builders who owned land in the proposed replot. He did not vote

[Page 399]

in regard to this matter. By-law 2512 was not read a third time and, therefore, of course, was not enacted. Later it was struck off the agenda and filed. The device conceived by Mr. Crawshaw, therefore, had failed and at this point the city was left the owner of the lot at 142nd Street and 111th Avenue, and the Chrysler Corporation Limited was the owner of the market garden lands. The possibility that the transaction would fail to get Council support had been considered and the By-law Committee had requested that the city solicitor report on the legal position of the city in reference to the Chrysler Corporation in such event. The city solicitor made such a report under date of June 22, 1964. Two paragraphs of that report read:

Should Bylaw No. 2512 not be read a third time and finally passed I can see no means by which the City can be required in law to make Lot 1 available as a new car dealership site because of the express statement of the applicant company that it cannot agree to bind itself to act by changing its Development Permit into a Building Permit and by building on the site within 18 months or less after 28th January, 1964.

It follows, of course, that if for these reasons the Chrysler Corporation cannot proceed on Lot 1, it has no obligation to make available to the City all or any part of the parcel of 11.2 acres in the former Town of Beverly that the City wishes to buy for schoool and park purposes. It delivered, in trust, to the City Land Department on April 9th, 1964, the transfer for this land but the City has taken no steps to register the transfer.

Therefore, as of the date of the meeting of Council on June 29th, the members of Council knew that the city, in the opinion of its solicitor, would not make itself liable to the Chrysler Corporation for damages if it failed to carry out the proposed

[Page 400]

exchange. Three days after the date of that report, i.e., on June 25, 1964, the city solicitor wrote to Messrs. Milner, Steer and Company, solicitors for Chrysler. That letter is of some considerable interest and I quote it in full:

Dear Mr. Steer:

Speaking as a member of the Municipal Planning Commission which supported the proposal to create a C-2 site at the South West corner of 142nd Street and 111th Avenue, I am hopeful that the zoning will take place. However as City Solicitor, I am concerned as to whether if, for any reasons, the Chrysler development at the above site is now allowed, the parcel of 11.2 acres now owned by your client and located in the former Town of Beverly will be available to the City. As you know, the City wishes to buy this 11.2 acres for school and park purposes and if the site cannot be bought the proposed subdivision plan for the area may be delayed.

We discussed this matter on Thursday, June 25th and you indicated to me that you thought it probable that the Chrysler Corporation would be prepared to sell the 11.2 acres to the City whether or not the West Glenora parcel became available to your clients for development. If it is possible I would very much like to know by the afternoon of Monday, June 29th, just what is the position of Chrysler respecting the 11.2 acres that the City wishes to purchase should the proposed exchange involving the West Glenora property be frustrated for any reason.

It elicited a reply, dated June 29, the very date of the meeting at which the exchange had been effectively refused. I quote the operative paragraph of that reply:

Chrysler Canada Ltd. has now given us instructions as to its wishes in the eventuality that this land exchange should not be completed. Speaking without prejudice to whatever rights Chrysler Canada Ltd. has or may have the Company has instructed us to advise that its sole and only purpose in acquiring the land it now holds in Beverley was for the purpose of this land exchange. Accordingly, should the exchange not be completed the Company wants to and will turn this Beverley land over to the City of Edmonton at the Company’s cost plus its expenses including solicitor’s fees.

[Page 401]

The later letter from Messrs. Milner, Steer to the Mayor and Commissioners of the City of Edmonton, dated July 21st, included the paragraph:

The result of Council’s decision is that Chrysler has put out the money necessary to purchase the Beverly land and has incurred expenses in so doing and the Company is of the view that the City should now take the Beverly lands and reimburse the Company for these expenditures.

The expenditures were set out in detail in that letter, totalling $94,702.15, and throughout the litigation it has been said that the city, when they acted on that letter and did acquire the Beverly lands, were doing so as a result of a moral, if not a legal, liability. In my view the documents exhibit the complete fallacy of that position. The city solicitor had made a report prior to the breakdown of the exchange, that the city was under no legal liability to the Chrysler Corporation. Three days later the city solicitor had written to the solicitors for the Chrysler Corporation stressing that the city desired the very lands which were the subject of the exchange and which adjoined immediately the Sun-Alta Builders Limited lands. On the very day when the city council with complete knowledge of the fact that the market garden lands adjoined the Sun-Alta Builders Limited lands refused to carry out the exchange, the solicitor for the Chrysler Corporation informed the city solicitor that the Chrysler Corporation were ready to convey to the city the market garden lands at Chrysler Corporation’s exact cost. To put it shortly, the subsequent completion of that deal whereby the city acquired these market garden lands was not the result of any feeling that the city had at least a moral responsibility to the Chrysler Corporation, but was an ordinary step in obtaining the lands which the city had needed since the year 1961, and which the city had been moving steadily toward acquiring for instance, by in August 1963, having obtained Belzberg’s and Sun-Alta’s consent to this very replotting and to agreeing to convey some acres of these lands at the ridiculous price of $600 per acre.

[Page 402]

I return to that transaction whereby Sun-Alta Builders Limited consented to the replotting and agreed to convey lands to the City of Edmonton at the rate of $600 per acre. As I have already said, the agreement had been made firmly in August of 1963. Mr. Zeiter, the appellant’s fellow shareholder in Sun-Alta Builders Limited, testified that in early 1963 the company received from the city a plan of how the replot would deal with the lands of Sun-Alta and that at that time he was told by the city officials that his company would have to sell part of the land to the city for parks and they were offering $500 per acre. In view of the cost to him of the lands to which I have already referred, he regarded that valuation as foolish, and after conferring with Mr. Belzberg, they had agreed to accept $600 per acre. At trial Exhibit 44 was produced. It was a plan dated July 1963 showing the replotting of the Sun-Alta lands. At trial Exhibit 46 was produced being written notes made by Mr. Clarke of the Edmonton Land Department, dated August 1, 1963, outlining his conference with Mr. Zeiter, and which included the reference, inter alia, to the $600 per acre for a total of $9,350 for lands which would have to be conveyed to the city and a compensation which was described as being for “under allocation” at $6,666 per acre.

Mr. Zeiter testified that that concluded his negotiation with the city and nothing more occurred until February or early March, when he received from the city for execution an agreement between the City of Edmonton on the first part, and George Gordon Davidson, the vendor of the lands to Sun-Alta of the second part, and the said Sun-Alta Builders Limited of the third part. At that time the appellant was absent in Hawaii and Mr. Zeiter testified he telephoned to the appellant and asked whether he, Zeiter, should execute on behalf of the company, but that the appellant insisted that the document await his personal execution so that there could be no allegation that he, the appellant, was attempting in any way to hide his connection with Sun-Alta Builders Limited and

[Page 403]

ownership of the land in question. The appellant then executed the document under date of March 12, 1964. The appellant testified that many months later the document came on his desk in the mayor’s office for his execution as mayor, and that he directed that the document be returned to the municipal officer and that it be brought into Council so again his, the appellant’s position, could be clearly revealed. The appellant then left the city and during his absence, and without any instructions from him, so the appellant testified, the document was executed on behalf of the city by William Mitchell, the acting mayor. This circumstance gave rise to the action of R. ex rel. Anderson v. Hawrelak which was an action by a ratepayer to declare the appellant be disqualified from holding office.

Under s. 97 of the City Act of the Province of Alberta a person who is a party to a subsisting contract with the city was not eligible to be elected mayor or member of the Council, or entitled to sit on or vote thereon and by s. 98 1(a) (1) that prohibition extended to persons who hold more than 25 per cent of the issued stock of a corporation. Since the document was actually executed after the appellant became mayor, the appellant was disqualified by the judgment of McLaurin C.J.T.D. and that disqualification was affirmed by the judgment of the Appellate Division[5]. An appeal to this Court was dismissed[6]. That result seems to be quite in accordance with the provisions of the statute which I have cited, but in my view it has no relevance to the present action which is based solely on a claim for the profits which it was alleged the appellant made through his action as mayor. Kirby J., in his judgment after trial of the action, would appear to have based his finding that the appellant made profits from his dealings as mayor upon two matters. Firstly, the one to which I have last referred, that is, the agreement of March 12, 1964, and secondly, upon the mayor’s action in joining the report of November 12, 1963, in favour of the exchange of the market garden lands for the city lot and the subsequent dealership in reference thereto. As to the first of the matters,

[Page 404]

I have already pointed out that in my view it has been quite conclusively proved that the whole transaction had been completed in August of 1963, much before the appellant became mayor and that, despite the fact that the actual document was only executed on March 12, 1964, and such execution was sufficient to disqualify the appellant, certainly no action of the appellant in reference to that agreement could be found to justify the allegation that he had made profits as a result of his office as mayor.

As to the second of the incidents, the situation is somewhat more complicated. It will be remembered that the appellant only became mayor by election on October 16, 1963, and this report of November 12, 1963, was less than a month after that. The basis for the report had been Mr. Warner’s submission to the City Commissioners, which was dated October 10, 1963, and according to the evidence given by the appellant, that submission had been kept by Mr. Menzies, the Chairman of the City Commissioners, until November 12, 1963, when he prepared his report of that date. All members of the Commission signed that report, i.e., the appellant and Messrs. Menzies, Tweddle and Hamilton. At the meeting of Council of November 12, 1963, the appellant was not present. The appellant was, however, present at a meeting on December 19, 1963. The report of the Development Appeal Board in reference to the lot at 142nd Street and 111th Avenue, that is, the exchange, was referred back to the Commissioners for further negotiations and report. It was following this meeting that the appellant discussed the matter with Mr. Steer and Mr. Crawshaw.

I have referred already to the question as to whether, at this time, the appellant knew that the market garden lands which it was proposed should be exchanged for the city lot, were immediately adjacent to the lands of Sun-Alta Builders Limited. Whether or not the appellant had that information, the appellant certainly knew of the proposed replotting of the lands in the Rundle Heights area, and knew that it had been proposed

[Page 405]

from 1961 on that Sun-Alta lands in Rundle Heights were to be replotted, not to benefit Sun‑Alta Builders Limited, but as part of the settled redevelopment policy of the city in that area. Certainly replotting would benefit Sun-Alta Builders Limited. It was recognition of that fact which alone moved Sun-Alta Builders Limited to agree, in October 1963, to sell some of its lands to the city for the ridiculous price of $600 per acre. Replotting would equally benefit Belzberg and replotting would benefit the City of Edmonton for, as the report of November 12, 1963, pointed out, by that means the city would obtain needed land for schools and parks. It was, therefore, quite proper in my view for the appellant as mayor to suggest to the Chrysler Corporation representatives a most efficient way to present their proposal, a proposal, the acceptance of which would benefit all parties. One further fact should be mentioned here. The appellant was elected mayor on October 16, 1963, and immediately thereafter, on October 24, 1963, the appellant addressed a letter to the members of the City Council of Edmonton, Alberta, which read in part:

In view of my position as Mayor of this City, I should like to inform Council about some of the companies in which I have an interest, that may be or are doing business with the City as permitted by the City Act. These are:—

Prairie Rose Mfg. Co. Ltd.
Independent Wholesale Ltd.
Durethane Industries Ltd.
Sun-Alta Builders Ltd.

This letter the appellant testified he read at the first meeting of Council over which he presided as mayor. Some members of the Council remembered hearing it, some did not. It is true that the letter refers to Sun-Alta Builders Limited, but does not detail the lands owned by that company. It has been given in evidence by the appellant and not denied that all the officers of the corporation concerned with these matters knew where Sun-Alta Builders Limited lands were situated and knew that they were immediately adjacent to the market garden lands and, of course, no other situation is possible because these same officers were throughout dealing with a replotting of these

[Page 406]

very lands. It is almost impossible to believe that such information was not also in the minds of the members of the Council. Whether it was or not prior to June 29, 1964, it certainly was on that date when the appellant made a statement to Council outlining his interest in Sun-Alta Builders Limited, and that Sun-Alta Builders Limited lands were immediately adjacent to the market garden lands. Whether it was due to this revelation or not, City Council refused to carry out the exchange with Chrysler Corporation. It is true that subsequently the City of Edmonton purchased those market garden lands from the Chrysler Corporation, but the city did so when it had been informed by its solicitor that it was under no liability to carry out that transaction and after the city solicitor had expressed the desire of the city to acquire those lands. It is common ground that in the subsequent negotiation with the Chrysler Corporation, the appellant took no part whatsoever and surely, therefore, the short answer to the allegation that the appellant profited in this matter from his position as mayor, is that whatever his actions had been to further the exchange came to naught, and that if the city did subsequently acquire the market garden lands and long afterwards, on November 23, 1964, did institute the replotting of those lands, and the Sun-Alta Builders lands amongst others, it did so in consideration not of any action of the then mayor in furthering the exchange which would have made such a course possible, but rather in carrying out the policy which had been the city’s policy since 1961.

Applying Toronto v. Bowles[7], I accept the position at trial and in the Appellate Division that the appellant as mayor was in a position where he could not make any profit as a result of such position or his actions in office and I liken the appellant’s position there to the various trustees and corporate officers with whom the Courts have

[Page 407]

dealt in a long series of decisions. It is not my purpose to review that long series of decisions at the present time. Such a task has been performed on various occasions, but I wish to cite and adopt what was said by Lord Russell of Killowen in Regal (Hastings), Ltd. v. Gulliver et al.[8], at p. 389:

In the result, I am of opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that office, are accountable for the profits which they have made out of them.

That statement was quoted and adopted in this Court by Locke J. in Midcon Oil and Gas Ltd. v. New British Dominion Oil Company Ltd.[9], at p. 327, when Locke J. said, having quoted the above statement:

The authorities as to the liability of those acting in various fiduciary capacities were examined at length in the judgments delivered in that case. The above quotations, however, summarizes the ground upon which the judgment proceeded.

Again, in Peso Silver Mines Ltd. (N.P.L.) v. Cropper[10], Cartwright J., as he then was, giving the judgment for the Court, quoted Lord Russell of Killowen and stated that Locke J. had found such quotation summarized the law upon the subject. Applying then, such law, I am of the opinion that it has never been shown that the mayor made any profits “by reason and only by reason of the fact” that he was such mayor in that he did certain acts in attempting furtherance of an exchange which would have made it easier to carry out the replotting of the lands which included those of Sun-Alta Builders Limited. I am also of the opinion that the appellant was not within the rule stated by Denning J., as he then was, in Reading v.

[Page 408]

The King[11], at p. 275:

In my judgment, it is a principle of law that if a servant, in violation of his duty of honesty and good faith, takes advantage of his service to make a profit for himself, in this sense, that the assets of which he has control, or the facilities which he enjoys, or the position which he occupies, are the real cause of his obtaining the money, as distinct from being the mere opportunity for getting it, that is to say, if they play the predominant part in his obtaining the money, then he is accountable for it to the master.

To summarize at the risk of repetition, this replotting was part of a development which had become the firm policy of the municipality from 1960 or 1961, or prior to the time the appellant became mayor. That policy has been carried so far as to obtain from Sun-Alta Builders Limited and others their approval of the replotting and their agreement to convey lands making such replotting possible at a price which was a mere fraction of the value of those lands. The proposal for the exchange with the Chrysler Corporation would have made that replotting easier, or caused it to be carried out sooner. Any part the appellant played in furthering that exchange came to naught and the market garden lands were purchased by the city after it had full knowledge of the appellant’s interest in the Sun-Alta lands adjacent thereto and without the city being in any way forced to carry out the purchase. In my view the respondent simply failed to make out a case to fall within the Regal (Hastings), Ltd. line of authorities.

This view really disposes of the case, but I am of the opinion that even if I were in error and it could be said that the appellant, by some use of his position, did put himself in a position where he could profit, then all the appellant can be compelled to do is to disgorge that profit and the problem becomes what profit did the appellant make as a result of his position or his use of that position. Surely the measure would be the difference in the value of the shares in Sun-Alta Builders Limited resulting in the increase of the value of the assets of that company between the date when

[Page 409]

the appellant became Mayor of Edmonton, October 16, 1963, and the date when the replotting was carried out, or at any rate fairly determined upon November 23, 1964.

The respondent was in the position of plaintiff and as such, was charged with the duty of proving its claim. The appellant adduced no evidence as to the value of Sun-Alta Builders lands on either occasion. Rather the respondent sought to establish its claim by showing the sale price which the appellant received for his shares in Sun-Alta Builders Limited and deducting therefrom the very small cost of the purchase of its shares years before. In the view of the Appellate Division, such a course was justified because of the difficulty of proving the exact measure of the problem: Smith C.J.A. citing Mayne on Damages, and Bowen L.J. in Ratcliffe v. Evans[12], at p. 532. The difficulty of applying such formula in the present situation is that its use implies that the whole increase in the value of the Sun-Alta Builders lands occurred because of the replotting and because of the actions of the appellant. The appellant, on the other hand, adduced cogent evidence of the value of those lands, not when purchased under an option settled in late 1960 and finalized by an agreement on February 3, 1961, but by offer to purchase made to Sun-Alta Builders Limited in the summer of the year 1963. This evidence was given by Roy Fletcher who identified the proposed purchaser for whom he was acting. His evidence was that he had offered $275,000 for the Sun-Alta Builders Limited lands. Smith C.J.A. refers to that evidence but adds: “But that this offer was conditional upon a replot being accomplished seems obvious”. As I have said, the only person who gave evidence in reference to this offer was the agent making the offer, Roy Fletcher, and he testified as follows:

Q. Now Mr. Fletcher, was there any requirement in that offer as to the replot being completed before the offer could be accepted?

[Page 410]

A. No, sir. We were to purchase the raw land at that price, and we were to take the place as the negotiators with the City. In other words, we were to take their place in dealing with the City on the replot, and there was specific reasons for this.

Q. And what were those reasons?

A. Well, the bottom land was—the City wanted it for future park, but within that bottom land there was still a fair amount of gravel. We thought that we may be able to salvage some of our costs by hanging on to that land and getting all of the gravel deposits out of it that were possible to reduce the cost of our top land.

Q. And can you tell me if these negotiations broke down before or after the defendant Hawrelak was elected Mayor?

A. I think the final negotiations I had with Mr. Hawrelak, and the Zeiter boys were in September of ’63.

Of course, the offer was on the basis that the lands were going to be replotted. The proposed purchaser intended that houses should be built on the lots outlined in such replotting and then sold. No purchaser was ever interested in buying these lands as mere vacant and unused farm lands. But definitely, it was to be the purchaser’s duty to negotiate with the city for the replotting. As I have already pointed out, such replotting would appear to have been inevitable. So I think it must be taken as proof by the defence that a month before the appellant became mayor of the city, these lands were worth $275,000 or at least that amount less a $15,000 commission, because the deal with Fletcher’s principals fell through only because those principals were demanding that the proposed vendor, i.e., Sun-Alta, should pay the commission. Evidence was also adduced from Ernest Zeiter, the appellant’s fellow shareholder in Sun-Alta Builders Limited and the purchaser from the appellant of his shares in Sun-Alta as to the method whereby he fixed the sum of $96,000 which he paid to the appellant for those shares. Zeiter testified that he was prepared to take the figure of $260,000 i.e., Fletcher’s net offer, add to it about $60,000 that the company had by way of surplus, and deducting the various liabilities, he found that the appellant’s 40 per cent of the company was worth about

[Page 411]

$89,000. He rounded this out to $90,000. Zeiter also testified that he did not have available $90,000 in cash and so he and the appellant agreed that the latter would accept a total of $96,000 in the form of three different assets. A formal agreement was made up to carry this into effect. That agreement was produced at trial as Exhibit No. 32. The three items which made up the total of $96,000 were firstly, a small apartment property known as Rio Plaza and entered as value $37,500. Secondly, Zeiter would build for the purchaser a garage adjacent to the Prairie Road Manufacturing Company Limited at an estimated cost of $37,500. Thirdly, the balance of the $21,000 would be paid by Zeiter to the appellant over two years, but if Zeiter elected to construct a certain motor hotel, then the $21,000 should be only payable out of the last advance on such building. It is therefore apparent that the $96,000 purchase price was founded on a valuation of the lands based on an offer made before the appellant became mayor and, in addition, was only a rough approximation subject to subsequent variation in the value of the different assets which went into the total of the purchase price. It must, moreover, be remembered that the respondent itself had given the very best evidence of the value of these Sun-Alta lands prior to the appellant having been elected mayor, for in August of 1963, when the city officials were negotiating with the Sun-Alta Builders Limited and with Belzberg for the approval of the replot and the conveyance to it of certain lands necessary for park purposes, although the city only offered $600 per acre for the lands it was entitled to take under the replot, it offered a basic $6,666 per acre for what was described as “under allocation”. Although it is realized that that was for a very small acreage, it does indicate a value so far in excess of those upon which even the sale of the appellant’s shares to his co‑shareholders was based that it effectively refutes any allegation that the appellant made a profit as a result of his position or actions as mayor. For this reason, I am not ready to hold that even if the appellant by his actions had placed himself in the position where he was required to disgorge a profit, that the respondent has proved

[Page 412]

that the appellant made any profit as a result of his actions or position.

For these reasons I would allow the appeal with costs throughout and would dismiss the action.

The judgment of Dickson and de Grandpré JJ. was delivered by

DE GRANDPRE J. (dissenting)—Appellant is asking this Court to set aside the unanimous views of the Courts below that between October 16, 1963, and late fall of 1964, he acted in such a way while mayor of the city respondent that he must remit to the latter the sum of $80,117, namely the profit made by him as major shareholder of Sun-Alta Builders Limited, a corporation which had entered into a real estate transaction with the city during that period.

At the outset, it must be recalled that this transaction gave rise to proceedings in disqualification pursuant to the provisions of The City Act, R.S.A. 1955, c. 42, proceedings which were decided against appellant: vide (1965), 53 W.W.R. 257 and [1966] S.C.R. v. Appellant does not suggest, and quite rightly so, that the proceedings in disqualification constitute a bar to the present suit; the common law remedy was not displaced by the statutory provision. Bowes v. City of Toronto[13], at p. 112.

It is worth mentioning in limine that appellant was not a stranger to the political life of the city, having been its mayor from 1951 until the fall of 1959, at which time he resigned following an enquiry into municipal affairs.

The evidence has been reviewed at great length by the Courts below and particularly by the trial judge. Inasmuch as both judgments have now been

[Page 413]

reported at [1972] 2 W.W.R. 561 and [1973] 1 W.W.R. 179, it will be sufficient to mention here only those facts that have a more direct relationship with my conclusion.

The problem has its origin in the decision of the Provincial Health Department that no further extensions of the sewerage system of the Town of Beverly would be authorized. This decision eventually brought the Town of Beverly to approach the city on amalgamation. The net result was that the Town of Beverly was annexed on December 30, 1961. This annexation obviously focussed the development of the city in that direction with the result that additional land had to be acquired for schools and park purposes and that the entire area had to be replotted. On his part, appellant had, at the end of 1959 or in the early part of 1960, obtained an option on a piece of land in Beverly from one Davidson, option which he transferred to a company successively called Royal Park Investments Limited, Zeiter Homes Limited and Sun-Alta Builders Limited when he bacame interested therein, not later than in July 1960. His investment was $80 in exchange for which he got 40 per cent of the common shares, plus voting rights equal to those of Erwin and Willie Zeiter, the two other major shareholders of the company.

The option now held by Sun-Alta was finally exercised in August 1962, the price being $125,000 paid $30,000 cash, the balance payable in five equal consecutive annual payments of $19,000 from 1963 to 1967.

The land required for schools and park purposes belonged in part to one Herman Graff and one Sylvester Olynych and is referred to in the evidence as the market garden lands. Its owners wanted too high a price in the eyes of Mr. Menzies, a commissioner of the city, and a way was sought by him to obtain it for what, in his opinion, was the true value, namely a sum in the neighbourhood of $65,000. At this juncture enters into the picture the Chrysler Corporation which wanted to purchase from the city a corner lot in the West Glenora section of Edmonton, to be used for a purpose which was then prohibited by the existing zoning by-laws. Menzies and Chrysler hit

[Page 414]

upon a plan whereby the latter would purchase the market garden lands at the price fixed by its owners and would afterwards exchange these lands for the West Glenora lot then belonging to the city, provided

(a) the zoning by-law would be modified;

(b) the delay within which building had to be started on the West Glenora lot would be extended to suit the need of Chrysler.

In the months, if not the weeks, that preceded the electoral campaign of appellant that eventually led to his election as mayor on October 16, 1963, negotiations took place between Chrysler and Menzies to set up the complicated arrangements summarized in the preceding paragraph and which is worth repeating here:

(a) Chrysler would purchase the market garden land for the price of $92,500;

(b) the city would modify the zoning by-law applicable to the lot in West Glenora and would extend the delay within which a building would have to be erected thereon;

(c) Chrysler and the city would thereupon exchange the market garden land purchased by the former and West Glenora lot belonging to the latter.

If all of the foregoing had been completed prior to appellant’s election, the matter would have ended there. Unfortunately for him, it was still alive on the night of his election. On November 12, 1963, appellant affixed his signature to a report addressed to the aldermen of the City of Edmonton, summarizing the foregoing and containing the following relevant paragraphs:

Recently, however, the agent again approached the City to see if the City would trade some land the Company thought it might be acquiring in East Beverly, and which the City requires for schools and parks, for the site on 142nd Street, the Company to make up the difference in the respective values of the different properties.

In the opinion of the Commissioners and of the Land Superintendent the property in Beverly is worth $69,960 so that a cash payment to the City of $48,087 would have to be made by the Company.

[Page 415]

The Company would expect, if Council agrees to the exchange, to be relieved of a building commitment and would like Council’s assurance that the land will accommodate the building they propose. This could be accomplished by their obtaining a development permit which would have to be granted on a renewable basis.

The acquiring of the Beverly property would make possible the registering of a new residential subdivision plan and would make available badly needed property for the two School Boards as well as providing some Park Land for Beverly residents. It would also put the 142 Street land on the tax roll.

Your Commissioners accordingly recommend that they be authorized to consummate the sale under the conditions noted above.

Thus, it is clear that the scheme recommended above was tied to the general replot of the Beverly area. It is also obvious that this replot would benefit the land owners of that district whose properties would become serviced and thus would increase in value. The Courts below have on these two points made concurrent findings which are amply supported by the evidence.

In the months that followed, appellant continued to take an active interest in this entire question notwithstanding the concurrent existence of his personal interest and of his duties to the population as mayor. The following concurrent findings of facts are worth underlining:

1) the recommendation of November 13 quoted above was not accepted by Council and appellant made suggestions to Chrysler representatives “for a better presentation of the proposal to Council, which resulted in the application for the permit being granted”;

2) on February 14, 1964, appellant signed as mayor an agreement of the city with Berjoe Limited and Pasadena Development Corporation Ltd. by which these two companies consented to the replot which was part and parcel of the scheme outlined above;

3) on June 18, 1964, the mayor actively “supports the recommendations of the City Commissioners that the City agree to an exchange of the market garden land which the City

[Page 416]

required for the purpose of the replot for certain land which Chrysler Corporation desired to acquire in Edmonton”.

There is no doubt that all of these findings are supported by the evidence.

It is interesting to note that on June 18, 1964, in a document entitled “Chronological Report” submitted by the City Commissioners to the Bylaws Committee re the West Glenora Lot, the following sentence is to be found:

The City requires this land for School and Park purposes in East Beverly, and wishes to incorporate it into a replot that is presently being negotiated for all the land lying east of 36th Street to the River, and south of 118th Avenue.

(The italics are mine.)

In his factum, appellant submitted as his first point:

That the Appellant had no private or conflicting interest in the exchange of land between the Respondent and Chrysler Corporation nor in the acquisition by the Respondent of land in the Rundle Heights area of the City of Edmonton where such land was acquired or to be acquired from owners other than Sun-Alta Builders Ltd., a company in which the Appellant was a shareholder.

This submission was abandoned by his counsel in open Court.

In my view, the other points raised by appellant must all be examined in the light of the findings below that at all material times appellant had a conflict of interest. After a thorough examination of the relevant authorities, the trial judge summarized in the following words the law applicable to this matter:

From the foregoing decisions the following aspects of the rule governing the conduct of a person in a fiduciary position were enunciated and applied:

1. A member of a Municipal Council is an agent or trustee accountable to the Municipality whose affairs he administers, and accordingly his duties are of a fiduciary nature.

2. No-one entrusted with duties of a fiduciary nature may enter into any transaction in which his personal

[Page 417]

interest is or may be in conflict with the interests of his principal.

3. It is immaterial to the application of the rule whether the principal did or did not suffer any injury by reason of the dealing of the agent.

4. It is immaterial to the application of the rule whether or not the agent or trustee acted in good faith.

5. Any gain or advantage arising out of such a transaction must be considered as accruing to the principal.

This enunciation of the basic principles applicable to our case was accepted by the Court of Appeal and I have no hesitation to accept it as my own. In matters municipal, these principles are found more particularly in Bowes v. The City of Toronto, the judgments of the various Courts being found respectively in 4 Gr. 489; 6 Gr. 1; 11 Moo. P.C. 463, 14 E.R. 770.

For nearly one hundred and twenty-five years, the law has stood thus and I see no reason to dilute it as we enter the last quarter of the 20th century. Indeed, there is every reason to reaffirm it in all respects and even to give it further strength. At the time, the population of Toronto was very small compared to that of respondent and the complexities of modern urban administration were obviously unknown. Accordingly, the possibility of misdemeanours by public officials remaining undetected was considerably less than it is today. It follows that the vigilance of the Courts must be more active and more exacting than ever.

Confidence in our institutions is at a low ebb. This statement is not very original but unfortunately is unchallengeable. Many factors have brought about this crisis and unconscionable conduct by public officials is only part of the story. Still, if we are to regain some of the lost ground, we have to start somewhere. To reaffirm the requirements of highest public morality in elected officials is a major step in that direction. To speak of civil liberties is very hollow indeed if these liberties are not founded on the rock of absolutely unimpeachable conduct on the part of those who have been entrusted with the administration of the public domain.

[Page 418]

The foregoing, of course, does not mean that appellant must become a sacrificial lamb if otherwise his conduct is above reproach when examined in the light of the relevant principles. Such an examination has been conducted in depth by the Courts below and appellant has been found wanting. Inasmuch as in my view, the Alberta Courts have correctly instructed themselves as to the law and inasmuch as they have made concurrent findings of fact, I do not see any reason for this Court to come to a different conclusion.

Three points were argued before this Court and for each statement I will use the phraseology to be found in appellant’s factum:

I The Respondent failed to establish that the Appellant in selling his shares for a price greater than he had paid for them did so by reason of the fact, and only because of the fact that he was the Mayor of the Respondent corporation and in the course of the execution of that office and that the increase in the price at which the shares were sold resulted therefrom.

In support of this proposition, appellant quotes the following extract from the decision of the House of Lords in Regal (Hastings), Ltd. v. Gulliver[14], where Lord Russell of Killowen, at p. 149, states:

In the result, I am of the opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that office, are accountable for the profits which they have made out of them.

Reference is also made to the decisions of this Court in Midcon Oil & Gas Ltd. v. New British Dominion Oil Co. Ltd.[15], especially at p. 327, as well as in Peso Silver Mines Ltd. (N.P.L.) v. Cropper[16]. In my view, the decisions relied upon by appellant have no application here. Particularly the two decisions of our Court must be distinguished

[Page 419]

(a) the factual situation was such that it cannot be equated to that prevailing in our case;

(b) in both these decisions, plaintiffs had failed in the Courts below and this Court examined the problem in the light of such concurrent findings.

Here, the question to be determined is not whether the shares held by appellant in Sun-Alta were obtained by reason and only by reason of the fact that he was mayor of Edmonton. That problem does not arise here because in fact the shares had been obtained long before October 16, 1963. What is really at stake in the present suit is the relation of appellant to two conflicting interests, namely

(a) his important shareholdings in a company standing to benefit from a replot;

(b) his duty to the population of Edmonton, duty which required that all decisions relating to the replot be taken objectively.

To the situation could be applied the dictum of Idington J. (with whom the Chief Justice and Duff J. concurred) pronounced in 1907 in a very different context but very much to the point. I refer to Rountree v. The Sydney Land and Loan Company[17], at p. 619:

When a man occupies any position of trust and it so happens as it sometimes almost unavoidably does that he is made to appear as acting where his duty and his interest conflict he should as he regards his own honour, to say nothing of the law, see that his conduct in the premises is thoroughly well understood by those entitled to know and that he, if acting, is but obeying their command and desires and not his own mere volition.

In other words, what is at stake in the present matter is the obligation for appellant, at all relevant times, to deal with the subject-matter (borrowing an expression from the taxation field) “at arm’s length”; the concurrent findings of the

[Page 420]

Courts below make it clear that appellant was not in that position and this in itself is sufficient to create his liability to account.

It should not be forgotten that in the present situation, it is not possible to establish in black and white what would have happened if appellant had not put himself in that position of conflict. The city respondent, however, does not have the burden of showing what might have happened because such a burden, if it were to be imposed on the city, would render impossible any recourse in cases of conflict. It is no answer to the action to say that the city was bound to develop in the direction of Beverly; this admitted fact does not modify the basic principle that the population was entitled to an objective consideration of this development, a duty which appellant did not respect. Hence his liability.

II In the event that the Respondents have met the test set out in 2 above the Respondent’s senior officers and employees were fully aware of the Appellant’s interest in Sun-Alta Builders Ltd. and that Sun-Alta Builders Ltd. owned land in the Rundle Heights area of the City of Edmonton. The Appellant declared his interest to the Council of the City of Edmonton and the Council of the City of Edmonton were fully aware of the Appellant’s interest at the time they approved and consented to the replot of the Rundle Heights subdivision, on which motion the Appellant declared his interest and did not vote. The Respondents are thereby precluded from claiming the “profit”, if any, arising therefrom.

The short answer to this argument is that the Courts below have made concurrent findings that in fact all the members of the City Council were not aware of appellant’s interest in the matter. On this point, the trial judge expresses himself as follows:

While Mayor Hawrelak disclosed his interest in Sun-Alta in his letter of October the 24th, 1963, three Aldermen were not aware that he had an interest in the Sun-Alta lands involved in the replot until his statement to that effect to Council on June 29th, 1964, and that statement was made only as a result of a specific question being asked Mayor Hawrelak by Alderman Leger.

[Page 421]

This statement was accepted by the Court of Appeal. There is no doubt that this finding is based on the evidence and should not be disturbed.

As a matter of fact, the letter of October 24, 1963, upon which appellant relies could well be interpreted in a way contrary to appellant’s contention. This letter reads:

THE CITY OF EDMONTON

Office of
the Mayor
Wm. Hawrelak
Edmonton                                                                                                        October 24th, 1963.

Alberta

Members of City Council
City Hall,
Edmonton, Alberta.

Ladies & Gentlemen:

In view of my position as Mayor of this City, I should like to inform Council about some of the companies in which I have an interest, that may be or are doing business with the City as permitted by the City Act. These are:—

Prairie Rose Mfg. Co. Ltd.
Independent Wholesale Ltd.
Durethane Industries Ltd.
Sun-Alta Builders Ltd.

As reported in the Press last July with respect to the development of the Garneau area, I indicated at that time that if the land was assembled in Block 163, and if the City approved the development, Eastern investors would be prepared to finance it. These two conditions having been complied with I now wish to inform you that as of August 31st, 1963, I hold a share interest in Garneau Development Ltd. which has acquired the rights to the land in Block 163 in the Garneau area and that there will be negotiations with the City for acquisition of the lane in that block.

Yours sincerely,

                                                                                               (signed) Wm. Hawrelak

                                                                                                       Wm. Hawrelak,

                                                                                                               Mayor.

It is to be noted that the last paragraph gives detailed information about a particular holding of appellant. It would have been very simple for him

[Page 422]

to make the same type of written disclosure in connection with the property held by Sun-Alta Builders Ltd., especially if we take in consideration the fact established by him in his examination for discovery that in the months that preceded his election on October 16, 1963, he discussed the matter of replotting in the Beverly area with Mr. Menzies.

Quite apart from this finding of fact against appellant, it is my view that in law the knowledge of the situation by senior officers and employees of the city respondent is not an answer to the action. On this point, reference may be had to the judgment of the Privy Council in Bowes v. The City of Toronto[18], where Lord Justice Knight Bruce, at p. 792, says:

The secrecy and disingenuousness with which the Appellant conducted himself do not improve his case, especially as, if he had, on the 28th of June, disclosed the true state of things to the Council, its other members might have taken a different course from that in fact taken by them (a point as to which it can be scarcely necessary to refer, particularly to the evidence of Joshua Beard, Tully, and Samuel Thompson). But we do not say, that had the Appellant, on the 28th of June, made a full communication to the Council, and nevertheless its members had acted as they did act, that would have prevented the success against him of a suit on behalf of the inhabitants, which in effect and substance this suit still is.

A few years before; in 1854, the House of Lords had, in a matter arising under company law, asserted the same principle. I refer to Aberdeen Railway Co. v. Blaikie Brothers[19], where the conflict of interest of the Chairman of the board was known at least to the engineers of the railway company. At p. 316, the Lord Chancellor had this to say:

His duty to the company imposed on him the obligation of obtaining these iron chairs at the lowest possible price. His personal interest would lead him in an entirely opposite direction—would induce him to fix the price as high as possible. This is the very evil against which the rule in question is directed; and I see nothing whatever to prevent its application here. I observe that Lord Fullerton seemed to doubt whether the rule would apply,

[Page 423]

where the party, whose act or contract is called in question, is only one of a body of directors, not a sole trustee or manager. But with all deference, this appears to me to make no difference. It was Mr. Blaikie’s duty to give to his codirectors, and through them to the company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty. And whether he was the sole director, or only one of many, can make no difference in principle.

As to the question of profit, appellant expresses his point as follows:

III The Appellant did not make the profit as a result of any action after he became Mayor of the Respondent but because the value of his shares in Sun-Alta Builders Ltd. and the Rundle Heights land owned by Sun-Alta Builders Ltd. had appreciated in value prior to the Appellant being in a fiduciary position towards the Respondent and the Appellant is therefore not accountable in law for such profit or appreciation that occurred prior to his election as Mayor.

To arrive at their conclusion, the Courts below have examined the evidence and have found against appellant. I see no reason to disturb their concurrent findings.

One factor that was considered is that appellant who in 1960 had invested $80 in the company that eventually became Sun-Alta Builders Ltd., sold his shares after the adoption of the replot for $95,000. It was perfectly reasonable for the Courts below to come to the conclusion that the major cause for this tremendous increase was the replot.

Another way of reaching the same conclusion was to look at the financial statements of Sun‑Alta for the relevant periods. At the end of April 1961, the surplus was $16,609.48; at the end of April 1963, the surplus was $40,358.79; at the end of April 1964, the surplus was $39,508.52. (The financial statements for 1962 are missing). In the

[Page 424]

light of the foregoing, it was certainly open to the Courts below to come to the conclusion that for the surplus to jump from that last-mentioned figure to a figure in excess of $200,000 in the weeks that followed, there must have been a major cause, which cause must have been the replot.

Before this Court, much emphasis has been put upon the evidence of one Roy Fletcher who allegedly would have been ready to pay $275,000 for the land prior to the appellant being elected mayor. A short answer to that submission is that it was obviously not believed by the Courts below, a conclusion which I am inclined to share considering

(a) that the deal fell through because Fletcher and Sun-Alta could not agree on the last $15,000;

(b) that the replot at that time was still very much in the future;

(c) that the replot was bound to cause a substantial increase in value;

(d) that even with the replot decided and with the consequent increase in value, the property was sold in 1965 for $280,000.

Quite apart from the findings of the Courts below, it is quite clear that in a matter of this type, it is not always easy to determine to the last cent the amount of the profit. This is not the work of our Court and I cannot do any better on this point than to adopt the following extract from the reasons of Smith C.J.A., supra, at p. 188:

In Toronto Hockey Club Ltd. v. Arena Gardens of Toronto Ltd., [1926] 4 D.L.R. 1, Warrington L.J., for the Judicial Committee of the Privy Council, said at p. 4:

The amount of damages in such a case as the present [referring to the case in which the statement was made] cannot be ascertained by any precise means, it must be more or less guess-work.

Nevertheless their Lordships upheld the award of damages as it was ‘in their Lordships’ opinion, impos-

[Page 425]

sible to say that they [the trial judge and the Court of Appeal] were wrong in the course they took’.

For these reasons, I would affirm the judgments below and dismiss the appeal, the whole with costs.

Appeal allowed with costs, DICKSON and DE GRANDPRE JJ. dissenting.

Solicitors for the defendant, appellant: Wood, Moir, Hyde & Ross, Edmonton.

Solicitors for the plaintiff, respondent: Fenerty, McGillivray, Robertson, Prowse, Brennan, Fraser, Bell & Hatch, Calgary.