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B.C. Court of Appeal Reverses Lower Court Decision Upholding on Election of Directors

In Bhandal v. Khalsa Diwan Society of Victoria (decided in 2014), the British Columbia Court of Appeal unanimously upheld the validity of an election of directors at a Sikh society, reversing the contrary decision of the lower court. The Court of Appeal interpreted the constitution and by-laws of the Society as a type of contract and found that the admission of members did not contravene the provisions of the constating documents.

1. Facts

There was a long-standing dispute between two rival groups within the Khalsa Diwan Society of Victoria, which the courts described as the traditionalists and the moderates.

As a result of past court intervention, the established procedure was that a membership list be compiled for voting purposes. Potential applicants for membership had to submit signed membership applications in person or through a family member occupying the same residence during the permitted membership-drive periods. An independent returning officer presided over the election committee to receive the membership applications.

A representative from each rival faction served on the election committee. Unless both representatives initialed a membership application, it was invalid.

In the impugned election, the traditionalists and the moderates each put forward a slate of candidates. Votes were cast by 2,312 members. The traditionalists won with a margin of victory of between 3% to 6.5%.

The moderates brought proceedings to contest the outcome.

The chambers judge in the Supreme Court of British Columbia, Macaulay, J., ordered the election of directors set aside on the basis of the following irregularities:

● the improper delegation of the executive committee's power to admit new members; and

● the enrollment of members up to and including the day of the vote.

The B.C. Court of Appeal, however, reversed the lower court decision and upheld the validity of the election.

2. Rulings

The Court of Appeal held that by-laws of a society are essentially contractual in nature. The Court of Appeal interpreted the by-laws differently than had the trial judge. The Court of Appeal applied a standard of correctness, meaning that it could reverse the decision of the trial judge if the appeal court came to a different interpretation of the by-laws.

In contrast to the chambers judge, the Court of Appeal found that the by-laws permitted the delegation of power to accept new members to a committee. This practice of using a bipartisan committee had been followed for many years without any indication that it infringed the by-laws. Indeed, the practice had long received judicial sanction. Similarly, in contrast to the chambers judge, the Court of Appeal found that neither the by-laws of the society nor the governing legislation imposed a cut-off date for membership and voter enrolment. Finally, the Court of Appeal found that there was no irregularity that was calculated to affect the outcome of the election.

Therefore, the Court of Appeal reversed the decision of the chambers judge. The election outcome stood.

3. Key Observations

Since the Court of Appeal decision in Bhandal, the Supreme Court of Canada has reversed the traditional view that the interpretation of contracts is a matter of law and, therefore, that the standard of review is correctness. Today, the general rule is that contract interpretation (except in the case of standard-form contracts such as insurance policies) is a question of mixed fact and law, meaning that an appeal court can only reverse the decision of a trial court on a matter of contract interpretation if the trial court has made a palpable and overriding error or there is an extricable principle on which the trial court has erred.

Therefore, if a case were to arise today where the trial court interprets the constating documents in one way, it is not entirely clear whether an appeal court would apply a standard of review of correctness or palpable and overriding error. In many respects, the interpretation of constating documents such as articles, letters patent, constitutions and by-laws does not rely much on the factual background or matrix at the time of formation. Also, the members at the time of formation do not usually remain constant. New members are admitted, who can be expected to read the words of the constating documents but know little or nothing of the factual matrix in which each constating document was created. Some members at the formation stage will cease being members at some future point. A good argument can, therefore, be made that in most cases (especially in those not-for-profit organizations with a large membership base), the constating documents should be carry great weight and the original factual matrix little or no weight. In these circumstances, the standard of review should remain correctness (as applied in Bhandal) and not palpable and overriding error.

It remains to be seen whether another case in which the appeal court interprets the society's constating documents differently than the trial court would come to the same result as in Bhandal.

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