CONDOCENTRIC: Secret Commissions

Following the ACMO/CCI conference last fall, there was much discussion about “secret commissions” including, for example, whether ACMO Associates could invite property managers to ACMO sponsored events (which practice is currently encouraged).

The offence in question is set out in section 426(1) of the Criminal Code which provides as follows:

426. (1) Every one commits an offence who

1. corruptly
   1. gives, offers or agrees to give or offer to an agent, or
   2. being an agent, demands, accepts or offers or agrees to accept from any person, any reward, advantage or benefit of any kind as consideration for doing or forbearing to do, or for having done or forborne to do, any act relating to the affairs or business of his principal or for showing or forbearing to show favour or disfavour to any person with relation to the affairs or business of his principal.

Property managers, as agents for condominium corporations, should be cognizant of this offence. Condominium corporations should also be cognizant of the potential for conflict of interest.

In the 1992 Supreme Court of Canada case of R. v. Kelly, the Court inquired into the application of this section.

The facts of that case are as follows: a financial planner, Kelly, had persuaded a property development company, Qualico, to give his company the exclusive rights to sell MURBs developed by Qualico. In particular, Kelly influenced his clients into investing in MURBs developed by Qualico, and Kelly received a commission from Qualico for each MURB sold. Kelly did not disclose his arrangement with Qualico to his clients, or at least did not do so in any meaningful way. Prior to his agreement with Qualico, Kelly had not recommended MURBs to his clients, and subsequent to his agreement with Qualico, Kelly did not recommend MURBs to his clients until Qualico had some to sell.

In Kelly, the Supreme Court set out three elements to the actus reus ("wrongful act") of the offence and, for each element, the requisite mens rea ("guilty mind") that must be established. The elements of the offence (that must be proven beyond a reasonable doubt) are as follows:

1. (a) Actus Reus: existence of agency relationship (b) Mens Rea: agent must be aware of the agency relationship;
2. (a) Actus Reus: the accepting by an agent of a benefit as consideration for doing or forebearing to do any act in relation to the affairs of the agent's principal (b) Mens Rea: agent must knowingly accept benefit as consideration for an act to be undertaken in relation to the affairs of the principal;
3. (a) Actus Reus: failure by the agent to make adequate and timely disclosure of the source, amount and nature of the benefit (b) Mens Rea: must be aware of the extent of the disclosure to the principal or the lack thereof.

From Kelly, it appears that the acceptance of a commission must be done in relation to a specific transaction, or at least for the express purpose of furthering the commission. Cory J., writing for the majority of the Supreme Court, states at paragraph 40: "Thus, it is clear from the inherent nature of commissions and from Kelly's actions that Kelly knowingly accepted the Qualico payments as consideration for influencing his principals (that is to say his clients) to purchase MURBs."

Let me pose two hypothetical situations to suggest a possible way the Kelly decision might be distinguished:

Situation I: A manufacturer of widgets says to a property manager: "I will take you out to dinner, and in return you will recommend to the condominium corporation for whom you act as agent that they should buy my widgets." If the property manager does just that, doesn't tell the condominium corporation about the dinner, and the condominium corporation buys the widgets, the property manager has, arguably, committed an offence.

Situation II: Now imagine a property manager is taken out for dinner by a manufacturer of widgets who the manager already knows, during which they may talk "shop". Some time later, the manager's condominium corporation decides it needs widgets. The property manager tells his Board: "I know someone who makes widgets, why don't you consider buying your widgets from him?" And, in addition, the prudent property manager will also refer other widget manufacturers to the condominium corporation.

In the second scenario, arguably, a charge under section 426 should fail because the property manager did not knowingly accept the dinner as consideration for influencing the condominium corporation to buy its widgets from the widget manufacturer.

From “Common Elements" Winter 2005

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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