Date: 19980211
Docket: T-2327-97
BETWEEN:
ALEC CHINGEE, SHARON SOLONAS,
TANIA SOLONAS, ELIZABETH SOLONAS,
and PATRICK PRINCE in their capacity as Chief
and Councillors of the McLeod Lake Indian Band,
Plaintiffs,
- and -
HARRY CHINGEE, VICTOR CHINGEE, GILBERT CHINGEE,
THE MINISTER OF INDIAN AND NORTHERN AFFAIRS,
and THE ATTORNEY GENERAL OF CANADA,
Defendants.
REASONS FOR ORDER
MR. JOHN A. HARGRAVE,
PROTHONOTARY
[1] The Plaintiffs' motion, giving rise to these reasons, seeks a direction that the Court-appointed receiver-manager of the McLeod Lake Indian Band (the "Band") and Duz Cho Logging Limited ("Duz Cho") be directed to undertake a forensic audit of the financial affairs of the Band and of Duz Cho, the Band's logging enterprise. I have denied the application for the reasons which follow.
BACKGROUND
[2] This litigation began as an application for judicial review of an October 19, 1997 election for Chief and Councillors of the Band. In November of 1997 the Court, on the motion of the individual Respondents, who are now Defendants, appointed Arthur Anderson Inc. as receiver-manger to look after the affairs of the Band and of Duz Cho. In December of 1997 the Court ordered that the judicial review proceeding go forward as an action. Pursuant to the Order the Plaintiffs filed a statement of claim 24 December, 1997 which was followed by the defence and counterclaim of the individual Defendants on 8 January, 1998 and by the defence of the Crown on 28 January, 1998. Finally, the Plaintiffs' defence to counterclaim was filed 29 January, 1998.
[3] Backing up a little, in November of 1997 a chartered general accountant employed from time to time by the Band swore an affidavit to the effect that there were irregularities in the Band's bookkeeping. This evidence, in part, formed the basis for the appointment of the receiver-manager. Subsequently, on 1 December, 1997, the receiver-manager prepared a report which was filed with the Court 5 February, 1998. Arthur Anderson Inc., in their report, comment on and appear to have resolved some of the alleged problems relating to the financial management of the Band and of Duz Cho, including some accounting irregularities. However the receiver-manager points out that it has limited its investigation to a preliminary review, for its instructions do not include a mandate to conduct a forensic audit or other similar review of past financial transactions. The Plaintiffs now bring the present motion to have the scope of the terms of reference of Arthur Anderson Inc. enlarged to include just such an audit of past financial transactions.
ANALYSIS
[4] The statement of claim and the counterclaim are central to my decision. The statement of claim is brief and to the point. It sets out that the Plaintiffs were elected as Chief and Councillors of the Band in October of 1997. The Plaintiffs then gave the Defendants, Harry Chingee and Victor Chingee, notice that they were no longer the Chief and Councillor of the Band. The statement of claim sets out that the third individual Defendant, Gilbert Chingee, had had his position as Band Manager terminated by the previous Band Council in about June of 1997: that termination was again made by the Plaintiffs following the election. The statement of claim then sets out that the individual Defendants have refused to give up office and that the Crown have refused to recognize the Plaintiffs, or anyone, as Chief and Councillors of the Band.
[5] The substantial portion of the Plaintiffs' claim for relief seeks first, a declaration that the October 1997 election was valid; second, that the Minister of Indian Affairs and Northern Development recognizes the Plaintiffs as Chief and Band Councillors; and third that the individual Defendants be restrained from acting as Chief, Councillor and Band Manager.
[6] The counterclaim of the Defendants begins with the assertion that the Defendants remain Chief, Councillor and Band Manager, although they concede that the Plaintiff, Elizabeth Solonas, might also be a Councillor. The counterclaim goes on to assert that the October election was held in order to forestall the completion of an audit of the Band and of Duz Cho, which was being undertaken by Harry Chingee and Victor Chingee, as Chief and Councillor on behalf of the Band. As a result, so goes the counterclaim, the individual Defendants, obtained the Court appointment of the receiver-manager. As relief the individual Defendants seek a declaration that the October 1997 election was invalid and that they are, respectively, Chief, Councillor and Band Manager. They also seek various heads of damages, including for abuse of process and as to the cost of the receiver-manager, together with injunctive relief restraining the Plaintiffs from holding themselves out as Chief and Councillors.
[7] In short, the Plaintiffs and the individual Defendants look for a declaration as to the validity of the October 1997 election, together with related injunctive, declaratory and some monetary relief.
[8] The particular circumstances giving rise to the present motion involve the affidavit of Ms. Kerry Buxton, a chartered general accountant who, for ten months in 1994 and 1995, was comptroller of Duz Cho and who subsequently gratuitously gave advice to the Band's bookkeepers. For a brief period from 25 September, 1997, until mid or late October, Ms. Buxton was employed by the Band to perform an internal audit of the Band and of Duz Cho. Her "preliminary impression", after reviewing the Band's books, as of the date of her first of two affidavits sworn 6 November, 1997, was "... that there are some considerable irregularities in the Band's bookkeeping and accounting practices." (para. 5). In a 5 November, 1997 unsolicited letter, addressed to the Court, but appearing in the 6 November affidavit in support of the motion to have a receiver appointed, she recommends "... a full operational audit especially in regards to Duz Cho Logging Limited and the McLeod Lake social assistance programs.". However she clearly points out that her review has not been exhaustive nor is it intended to show fraud or criminal intent.
[9] I will not go into the irregularities referred to by Ms. Buxton in detail, however they include irregularities in ownership of logging equipment, in distribution of social assistance, housing and welfare funds, in advances to employees and contractors of Duz Cho, in accounting entries and in the transfer of funds. Some of Ms. Buxton's comments are pointed at various of the Plaintiffs.
[10] Most recently, as I have said, Arthur Anderson Inc. filed its 1 December, 1997 report to the Court on 5 February, 1998. While it is primarily a report on the receivership of the Band and of Duz Cho and is not a forensic audit it does, in some instances, lay to rest allegations in Ms. Buxton's affidavit material.
[11] At this point both the Plaintiffs and the individual Defendants would like a forensic audit. The Plaintiffs submit it might best be done by Arthur Anderson Inc., who is now familiar with the affairs of the Band and of Duz Cho. The individual Defendants are concerned that Arthur Anderson Inc., whom they were instrumental in appointing as receiver-manager, is biased against them. The individual Defendants make allegations against Arthur Anderson Inc. which are not material. Counsel for Arthur Anderson Inc., quite properly, refuses, unless requested by the Court, to be drawn into this morass. I agree.
[12] Counsel for the Crown takes a practical approach. The Crown's concern is the orderly and proper disbursement of federal money. The Crown will likely do its own audit, at least so far as it has an interest in the handling and disposition of funds supplied to the Band through the Department of Indian Affairs and Northern Development. The result of such an audit would not be directly available to the Plaintiffs and the individual Defendants, unless so ordered by the Court. Alternately, if the Court were to order a complete forensic audit, it might well be that the Crown's audit could be expanded, with the Crown, at least in the first instance, paying for an audit of their interests and the Band paying the balance.
[13] Counsel for the Crown goes on to raise a pertinent and very practical point: while an audit might sort out allegations of wrongdoing or of financial mismanagement, which appear in affidavit material, he asks just what an audit has got to do with the narrow issue facing the Court, the validity of the election.
[14] The appointment of the receiver-manager is peripheral to the issue of the validity of the election. When it is just and necessary in order to preserve or protect property for the benefit of the persons having an interest in it, the Court may appoint a receiver-manager to look after the affairs of enterprises, including Indian Bands. That was the case here, the receiver-manager apparently being appointed because neither set of Chiefs and Band Councillors were able to act effectively. Such an appointment invariably involves accounting, including an analysis of past accounting as in the present situation. The appointment of Arthur Anderson Inc. as receiver-manager is to run until either the Court revokes the appointment or until the issue between the parties is resolved by trial. Management by a receiver and an accountant is a necessary aspect of the present situation, but it is not the issue between the parties. However, by the present emphasis on accounting, the parties may have lost sight of their original objectives and have thus allowed the action to become an exercise in refuting allegations made in affidavits which have no bearing on the issue the action is to resolve.
[15] The issue is, in simplest terms, the propriety of the October 1997 election. Pertinent to this issue will be the election procedure customarily followed by the Band. A forensic audit, of past dealings of the Band and of Duz Cho, might vent some hostility, or point to some wrongdoing, but would be completely irrelevant and of no help either to the parties or to the Court in determining the claim and counterclaim. Such an audit would only add to the Band's expenses and could well prolong this litigation.
CONCLUSION
[16] My initial reaction on reading the motion and the material filed by the Plaintiffs and the individual Defendants was that an audit of the financial affairs of the Band and of Duz Cho might aid in resolving differences between factions and allow the Band members to get on with more productive endeavours. But on hearing submissions and on considering the motion in the context of the pleadings, I now realize that to allow the motion would be wrong for two reasons, first as a matter of law and second as a practical matter.
[17] First, a forensic audit of financial affairs has, as I say, no bearing on the issue which the Court must decide, being whether the Band election was effective, so as to install the Plaintiffs as Chief and Councillors, or invalid, leaving the individual Defendants as Chief, Councillor and Band Manager.
[18] Second, any resolution of differences between the Plaintiffs and the individual Defendants and their factions must, to be effective, be an internal resolution, not one imposed by way of an audit which at least one side might feel was improperly accomplished.
[19] Despite good argument by counsel for the Plaintiffs and the individual Defendants, I favour the view of counsel for the Crown. An audit has no bearing on the claim and counterclaim. The motion is dismissed.
(Sgd.) "John A. Hargrave"
Prothonotary
Vancouver, British Columbia
11 February, 1998
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| COURT NO.: T-2327-97 |
| STYLE OF CAUSE: ALEC CHINGEE, SHARON SOLONAS, TANIA SOLONAS, ELIZABETH SOLONAS, and PATRICK PRINCE in their capacity as Chief and Councillors of the |
| McLeod Lake Indian Band, |
Plaintiffs,
- and -
| HARRY CHINGEE, VICTOR CHINGEE, GILBERT CHINGEE, THE MINISTER OF INDIAN AND NORTHERN AFFAIRS, and THE ATTORNEY GENERAL OF CANADA, |
Defendants.
PLACE OF HEARING: Vancouver, BC
DATE OF HEARING: February 9, 1998
REASONS FOR ORDER OF THE COURT BY: Mr. John A. Hargrave, Prothonotary
DATED: February 11, 1998
APPEARANCES:
| Mr. Robert Lonergan for Plaintiff |
| Mr. Stan Ashcroft for Defendant |
| Mr. Gerald Donegan for the Minister and the Attorney General of Canada |
| Ms. Laura Donaldson for the Receiver-manager |
SOLICITORS OF RECORD:
Mr. Robert Lonergan for Plaintiff
| Mr. Stan Ashcroft for Defendant |
| Ms. Laura Donaldson for the Receiver-manager |
Mr. Gerald Donegan for the Minister and the Attorney General of Canada