To read the complete decision:
What follows are the most relevant excerpts. This decision of the Ontario Divisional Court makes it clear that City Council does not have the authority to reimburse City Councillors for expenses incurred outside their capacity of being City Councillors.
In response to this decision Toronto City Council:
1. In direct violation of the court order, City Council paid the expenses of these two Councillors; and
Apparently, City Council is of the opinion that the law does not apply to its actions.
Read the excerpts of the decision yourself. What do you think?
CITATION: Holyday v. City of Toronto, 2010 ONSC 3355
DIVISIONAL COURT FILE NO.: 37/10
SUPERIOR COURT OF JUSTICE
McCOMBS, SWINTON and WILTON-SIEGEL JJ.
B E T W E E N :
– and –
CITY OF TORONTO, SANDRA BUSSIN, ADRIAN HEAPS and GIORGIO MAMMOLITI
– and –
TORONTO PARTY FOR A BETTER CITY
)) )) )) )) ))))))))))))
George Rust-D’Eye and Raivo Uukkivi, for the Applicant
Alan Lenczner Q.C. and Emily Graham, for the Respondents City of Toronto, Sandra Bussin and Adrian Heaps
Peter R. Greene and Michael I. Binetti, for the Respondent Giorgio Mammoliti
Murray Maltz, for the Intervenor Toronto Party for a Better City
HEARD at Toronto: May 17, 2010
 The applicant, Douglas Holyday, is a member of the Toronto City Council. He has brought this application for judicial review to challenge four resolutions of the City Council, confirmed by by-law, approving the expenditure of city funds to reimburse legal expenses of three members of City Council. At issue is the City’s authority to reimburse city councillors for legal expenses incurred in relation to compliance audits of campaign finances and defamation actions.
 One of the by-laws authorizes reimbursement to Councillors Adrian Heaps and Giorgio Mammoliti for their legal expenses arising out of requests by electors for compliance audits. The second relates to Mr. Heaps’ expenses in defending a defamation action, and the third relates to Councillor Sandra Bussin’s expenses in pursuing a defamation action.
Is the by-law relating to the compliance audit expenses ultra vires the City of Toronto?
 The provisions of COTA must be considered to determine whether the City had the authority to make the impugned payments. Subsection 1(1) of COTA states that the City of Toronto “exists for the purpose of providing good government with respect to matters within its jurisdiction”.
 Section 2 states that the purpose of the Act is “to create a framework of broad powers for the City”, balancing the interests of the Province and the City and recognizing that the City must be able to do specified things in order to provide good government. The section sets out a list of things that the City must be able to do in order to provide good government. The first item is to “determine what is in the public interest for the City”.
 Subsection 6(1) is of particular importance, as it provides for a broad interpretation of the City’s powers:
The powers of the City under this or any other Act shall be interpreted broadly so as to confer broad authority on the City to enable the City to govern its affairs as it considers appropriate and to enhance the City’s ability to respond to municipal issues.
 This conferral of broad powers is consistent with the current jurisprudence of the Supreme Court of Canada dealing with the interpretation of municipal powers. The Court has adopted a generous approach to interpretation of those powers (114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), 2001 SCC 40 (CanLII),  2 S.C.R. 241 at paras. 23 and 26). A court’s approach should be deferential. In applying a general provision allowing a municipality to act to secure peace, order, good government, health, and general welfare within its territory, the Supreme Court asked whether the enacted provisions regulating the use of pesticides “have a reasonable connection to the municipality’s permissible objectives” (at para. 26).
 The City relies on s. 83(1) of COTA in support of its by-law to reimburse the legal expenses related to the compliance audits. That provision is found in Part III of the Act, which sets out the general powers of the City and includes matters such as highways, transportation, culture, parks and recreation, and licences, among others.
 Section 83 is one of three sections found under the heading “Economic Development”. Subsection 82(1) prohibits the City from assisting any manufacturing business or other industrial or commercial enterprise through the granting of bonuses for that purpose. Section 83 is a general power to make grants, while s. 84 deals with small business counselling and programs.
 Section 83 states, in part:
83(1) Despite any provision of this or any other Act relating to the giving of grants or aid by the City, subject to section 82, the City may make grants, on such terms as to security and otherwise as the council considers appropriate, to any person, group or body, including a fund, within or outside the boundaries of the City for any purpose that council considers to be in the interests of the City.
(2) The power to make a grant includes the power,
(a) to guarantee a loan and to make a grant by way of loan and to charge interest on the loan;
(b) to sell or lease land for nominal consideration or to make a grant of land;
(c) to provide for the use by any person of land owned or occupied by the City upon such terms as may be fixed by council;
(d) to provide for the use of officers, employees or agents of the City by any person, upon such terms as may be fixed by council;
(e) to sell, lease or otherwise dispose of at a nominal price, or make a grant of, any personal property of the City or to provide for the use of the personal property on such terms as may be fixed by council; and
(f) to make donations of foodstuffs and merchandise purchased by the City for that purpose.
 The applicant argues that s. 83 does not confer the power to pay the expenses of the compliance audits because of the specific provisions in the Act governing the payment of the expenses of city councillors. Part VI of COTA deals with Practices and Procedures. Sections 222 and 223 explicitly deal with remuneration and expenses.
 Subsection 222(2) deals with the expenses of members of city council and reads:
222(2) Despite any Act, the City may only pay the expenses of the members of city council or of a local board of the City, of the officers and employees of the City and of the officers and employees of the local board if the expenses are of those persons in their capacity as members, officers or employees and if,
(a) the expenses are actually incurred; or
(b) the expenses are, in lieu of the expenses actually incurred, a reasonable estimate, in the opinion of the council or local board, of the actual expenses that would be incurred.
 Section 223 requires an annual report from the treasurer to city council itemizing remuneration and expenses paid in the previous years to
(a) each member of council in respect of his or her services as a member of the council or any other body, including a local board, to which the member has been appointed by council or on which the member holds office by virtue of being a member of council;
(b) each member of council in respect of his or her services as an officer or employee of the City or as an officer or employee of another body described in clause (a); and
(c) each person, other than a member of council, appointed by the City to serve as a member of any body, including a local board, in respect of his or her services as a member of the body.
 The applicant argues that the City can only reimburse councillors for expenses incurred in the performance of their duties as councillors because of s. 222(2). Even if there is a general grant power in s. 83, he argues that power must be interpreted in light of the specific provision with its limitations on reimbursement. Therefore, the City cannot reimburse councillors for expenses related to compliance audits, as such audits deal with their conduct during an election campaign, before they were councillors.
 The applicant relies on three cases in which the courts have held that a municipality can only reimburse a councillor or officer for expenses incurred in their capacity as councillors or officers. In Rawana v. Sarnia (City) 1996 CanLII 8201 (ON S.C.), (1996), 30 O.R. (3d) 85 (Gen. Div.), MacFarland J. (as she then was) relied on s. 243(1) of the Municipal Act, R.S.O. 1990, c. M.45, a section similar to s. 222(2) of COTA. She held that the provision allowed reimbursement of legal costs incurred by councillors where the expenses were incurred while they acted in their capacity as members of council. However, the municipality had no authority to reimburse a councillor for expenses incurred while acting in a personal capacity (at p. 89).
 In that case, the councillor had been charged with a criminal offense after he attempted to enforce payment of a personal debt owing to him. He argued that he was only charged because he was a member of city council. Nevertheless, MacFarland J. held that he was not entitled to be indemnified for his legal costs, as he was not acting in an official capacity when he attempted to obtain repayment of the loan. This decision was upheld by the Court of Appeal (reflex, (1997), 35 O.R. (3d) 640).
 Subsequently, in Santa v. Thunder Bay (City) 2003 CanLII 21828 (ON S.C.), (2003), 66 O.R. (3d) 434 (S.C.), Pierce J. considered s. 279(1) of the Municipal Act, 2001, S.O. 2001, c. 25, which deals with the power of a municipality to act as an insurer. It permits the municipality to pay damages or costs awarded against employees or members for expenses incurred by them arising out of acts or omissions done in their capacity as employees or members. Pierce J. concluded that the municipality had no power to reimburse the legal costs of a councillor arising from a compliance audit and a subsequent court application (see para. 54). This decision was upheld by the Court of Appeal ((2004), 49 M.P.L.R. (3d) 290).
 The most recent case is Harding v. Fraser 2006 CanLII 21784 (ON S.C.), (2006), 81 O.R. (3d) 708 (S.C.), again a decision of Pierce J. In this case, the municipality sought to pay the legal expenses of the reeve, which were incurred in bringing an application under the Municipal Conflict of Interest Act, R.S.O. 1990, c. M.50 to determine whether a member of council had a conflict of interest. Only an elector could bring such an application, and therefore, the municipality had no standing to do so. The municipality sought to rely on s. 107 of the Municipal Act, 2001, a grant power similar to s. 83 of COTA, in order to pay the reeve’s legal expenses. However, the Court held that the City of Thunder Bay could not rely on that provision, because the municipal council had no authority to reimburse the reeve for legal expenses incurred outside the exercise of her office (at para. 34).
 Again, the decision was upheld by the Court of Appeal 2007 ONCA 235 (CanLII), (2007 ONCA 235, 33 M.P.L.R. (4th) 76). The Court of Appeal observed that s. 107(1), as well as s. 444 of the Municipal Act, 2001, must be interpreted in light of the Santa decision, which held that “a municipality could only reimburse a member of council if it was for activity carried out in the course of the member’s office” (at para. 4).
 The City seeks to distinguish these cases on the basis that ss. 83 and 222(2) of COTA are not incompatible and can be read together as part of a comprehensive code governing the City’s ability to make grants or reimbursements. Counsel argues that the payments for the compliance audits are expressly permitted under s. 83, the general grant-making power. As the objects of COTA are to provide good government to the City of Toronto, this by-law is justified, because it removes barriers that prevent candidates of integrity, but modest means, from running for municipal office.
 Counsel seeks to distinguish Santa, supra on the basis that no reference had been made to the jurisprudence requiring a generous interpretation of municipal powers. However, I note that this approach to interpretation was expressly discussed in Harding, supra.
 The problem with the City’s argument is that it ignores the wording and context of s. 83, as well as the words and purpose of s. 222(2). Subsection 222(2) expressly states that it applies “despite any Act” and states that the City may “only” pay expenses for councillors if the expenses were incurred in their capacity as members. The three cases discussed above, which each dealt with councillors’ or officers’ expenses incurred outside their capacity as councillor or officer, suggest that s. 222(2) and its equivalent in the Municipal Act, 2001 were meant to limit the circumstances in which councillors can seek reimbursement from a municipality’s funds. They cannot seek reimbursement for expenses unrelated to their activities and duties as councillors.
 The City relies on s. 83, the general grant power. However, that provision is found under the heading “Economic Development”. While s. 70 of the Legislation Act, 2006, S.O. 2006, c. 21, Sch. F states that headings are inserted in a statute for convenience or reference only and do not form part of it, courts have used headings in the interpretation of a statutory provision (see Ruth Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham: LexisNexis, 2008) at pp. 392-397).
 As well, the context in which a provision is found can assist in its interpretation. Here, the purpose of s. 83 is seen from the sections preceding and following it, which deal with grants to business and commercial ventures.
 The City relied on Fourth Generation Realty Corp. v. Ottawa (City), 2005 CanLII 16568 (ON C.A.), 2005 CanLII 16568 (Ont. C.A.), submitting that this case shows the importance of a broad and purposive approach to the interpretation of a municipality’s powers. In that case, the Court of Appeal interpreted the power to make grants found in s. 107(1) of the Municipal Act, 2001, holding that the provision permitted the City of Ottawa to grant tax relief to non-commercial property owners who had experienced an increase in their 2003 property taxes. Like s. 83 of COTA, s. 107(1) is found under a heading related to economic development services.
 The Court of Appeal observed that the language of s. 107(1) is very broad (at para. 31), and the City has the power to make grants if there is a reasonable connection with the municipality’s permitted objectives (at para. 33). The Court described a “grant” as in essence, “the giving of a benefit, including money, from a fund” (at para. 55). In the Ottawa case, the City provided a one-time payment to residential taxpayers from a fund created by a reduction in municipal expenditures, a decision that was held to be reasonably connected with the City’s permitted objectives.
 I note that in the Ottawa case, the by-law contained a preamble stating that it was designed to provide grants to non-commercial homeowners facing unexpected and significant tax increases. The Court of Appeal concluded that the by-law was in the interests of the community, as the evidence demonstrated that the City was facing a tax revolt because of increases in property taxes, and it had to deal with an explosive situation (at para. 34). Therefore, the Court was satisfied that the by-law served a municipal purpose.
 In the present case, there is no indication in the report preceding the adoption of the by-law or in the by-law itself suggesting that City Council was relying on s. 83 of COTA. While City Council has the power to make grants where there is a reasonable connection to the municipality’s permitted objectives, there is no indication that council determined that reimbursement of two councillors’ expenses for compliance audits relating to their election campaign finances was in the interests of the City. It is not evident on the face of the by-law that this is the case, as there is no preamble, as in the Ottawa case.
 In materials filed for this application, the City included an expert opinion from Dr. Meyer Siemiatycki, a professor in the Department of Politics and Public Administration at Ryerson University, opining (at paras. 4 and 5 of his affidavit):
Without the possibility of reimbursement by the City, the possibility of being exposed to significant legal and accountants’ fees deters candidates of integrity, but of modest means, from running for municipal office.
Attracting candidates to run for municipal office, including immigrants, minorities, women and others of modest means, is in the public interest because it promotes political inclusivity in municipal politics and protects the overall democratic integrity of municipal elections.
 While this may be true, there is nothing in the by-law itself or in the report leading up to it indicating that Council was motivated by a concern for access to the political process for persons of modest means. Nor is there any consideration of whether such a payment is appropriate when it is grossed up and treated as a taxable benefit. Finally, I note that throughout the reports and proceedings leading up to the passage of the by-law, the word “reimbursement” predominates, rather than the term “grant”.
 Even if s. 83 might in some circumstances be available to permit grants to counsellors, it has not been demonstrated with respect to these payments that there is a reasonable connection between the payments to these two counsellors and permitted municipal objectives. Therefore, the by-law is not authorized under s. 83.
 Given the wording of s. 222(2) and the jurisprudence interpreting the comparable provision in the Municipal Act, I conclude that the City did not have jurisdiction to pass the by-law relating to reimbursement of the compliance audit expenses. Therefore, the by-law is void to the extent that it approves these payments and should be quashed.
 Given the invalidity of the by-law, there is no limitation period that bars this application for judicial review to quash the by-law.