In Polish Alliance of Canada v. Polish Assn. of Toronto Ltd. (released May 2014), Justice Myers of the Ontario Superior Court of Justice recognized and gave effect to the economic rights of members of the branch of a non-charitable cultural corporation.
In Polish Alliance, the issue was who beneficially owns the clubhouse of a branch of the Polish Alliance of Canada (the "Branch") and contiguous lands? This property was said to be perhaps worth over $50 million. Title to the property was registered in the name of the corporate defendant, Polish Association of Toronto Limited (the "Registered Owner").
Complicating matters, in 1973, a corporation was formed under what is now Part III of the Ontario Corporations Act (the "OCA"). The corporation also bore the name, Polish Alliance of Canada ("PAC") (which was identical to that of the pre-existing unincorporated association). The corporation, PAC, also claimed beneficial ownership of the property.
In the course of his ruling in favour of the members of the Branch, Justice Myers drew a critical distinction between the "chapter model" of an unincorporated association and its polar opposite, the "association model". Under the chapter model, a branch has no independent identity from the parent corporation (which consists of a unitary whole). An association model organization is analogous to a federation of partly self-governing states united under a central government (in which the branches consist of independent parts). In either case, since a branch is not an incorporated association, it is not a legal entity and cannot purchase or hold property in its own name. However, internally, parties are free to organize themselves contractually as they wish, i.e., adopting a chapter model or an association model.
Here, the Branch was found to be an independent part of PAC. While not a legal entity (i.e., externally), as between the parties (i.e., internally), the Branch was recognized as distinct. It can lend and borrow to the parent, manage property interests delegated to it and exercise the rights of a branch under the PAC constitution.
What was particularly germane in this case was who provided the money used for the purchase and upkeep of the property. The judge found that all of the money came from members of the Branch. Absent evidence to the contrary (which the court found had not been presented), the presumption of a resulting trust applies to the property. Accordingly, the law presumes that the Registered Owner holds the property in trust for the funders (i.e., the members of the Branch from time to time).
With respect to the corporation's claim to beneficial ownership of the property, the court found that there was no indication of any notice being provided to members of the Branch that could form the basis of a finding that they knowingly and unanimously ceded beneficial ownership of the property to the corporation, PAC. Indeed, the court found that there was no evidence that the members at large of the Branch knew that PAC had been formed as a corporation. There was also no transfer of title to the property to the corporation.
Finally, the court addressed the issue of the purported withdrawal of the Branch from PAC corporation. He cited as a general rule that a branch may not disaffiliate without the unanimous consent of its members, unless its rules provide otherwise. Proper notice must be given to all members of the branch at the time.
3. Key Observations
There are few cases in Canada that address the status and legal rights of unincorporated organizations and unincorporated branches and chapters of non-for-profit corporations. Nor is there any legislation. Polish Alliance makes a significant contribution to the state of the common law in Canada.
Polish Alliance may be cited in support of the following nascent legal principles:
- Neither a branch nor a chapter has a separate legal existence and, therefore, for example, as an unincorporated association, it cannot acquire or hold title to property. Title to property of a branch, chapter or unincorporated association can only be acquired and held in trust for its members from time to time.
- However, a branch may or may not be recognized and treated, as an internal matter, as a separate independent entity, capable of borrowing and lending to the parent organization of which it is a part, managing property delegated to it and exercise the rights of a branch recognized under the parent's constating documents.
- Whether an unincorporated branch is treated, internally, as having an independent identity or, instead, as having no identity independent from that of its parent organization is a matter of private ordering. Parties are free to choose between the chapter model (no independent identity) at one end of the spectrum and the association model (internally recognized independent identity from the parent) at the other end.
- Members from time to time of an independent branch (as opposed to the branch itself) may enjoy beneficial ownership of property. A resulting trust is presumed in favour of those who fund the acquisition and upkeep of the property. The resulting trust may only be rebutted with cogent evidence.
- Members of an unincorporated branch, chapter or association may only cede property interests knowingly and unanimously (unless otherwise agreed).
- Likewise, a branch may only disassociate from a parent organization if the members for the time being unanimously agree or the rule otherwise provide.
- Incorporation of the parent organization does not result in a change of status of an independent branch nor does it result in a change of ownership of branch property, which remains beneficially owned by members from time to time of the branch.