Do the Technical Requirements of Meetings Apply Equally to NFP Corporations?

In Lee v. Lee's Benevolent Assn. of Ontario (decided in 2004), Justice Nordheimer of the Ontario Superior Court of Justice stated, in the context of a disputed election of directors at a meeting of members of a not-for-profit (NFP) corporation incorporated under the Ontario Corporations Act, that NFP organizations should not be required to adhere rigorously to all of the technical requirements of corporate procedure for their meetings, so long as the basic process is fair. On appeal, the Ontario Divisional Court affirmed the trial court's decision but neither embraced or refuted Justice Nordheimer's statement about the standard applicable to meetings of NFP organizations.

1. Facts

In Lee, the applicants sought an order declaring the election of the directors of Lee's Benevolent Association of Ontario null and void. The applicants alleged that there were irregularities in the conduct of the election of directors which invalidated the election. As a result of the election, 23 of the 25 incumbent directors were re-elected and two new directors were elected.

The by-laws did not permit advance voting. Rather, each member who wished to vote in the election must either have been present or represented by proxy at the meeting. However, there was evidence that some votes may have been cast in advance of the election date. The chairperson could not say how many votes were cast in advance of the meeting, other than to indicate very few.

A total of 180 ballots were cast in the election.

2. Rulings

Justice Nordheimer found that there was an irregularity in the election. However, a mere irregularity is insufficient to invalidate an election. To set aside the results of the election, there must also be evidence that the election was adversely affected by the technical irregularity.

In this case, he found that there was no evidence to indicate that:

● any member who might have voted in advance was not entitled to vote;

● any votes so cast did not reflect the wishes of the voters just because they were not present at the actual meeting; or

● any of the 180 voters (other than the applicants) or any other members of the association were unhappy with the results of the vote.

Justice Nordheimer went on to make the following statements:

(1) Non-profit organizations should not be required to adhere rigorously to all of the technical requirements of corporate procedure for their meetings, as long as the basic process is fair.

(2) A court should not be too quick to grant relief in such circumstances that may only serve to encourage a disgruntled member of such an organization to seek such relief.

(3) Absent some demonstrated evidence that any irregularities went to the heart of the electoral process or lead to a result which did not reflect the wishes of the majority, the court should be loathe to interfere in the internal workings of such groups.

The applicants appealed to the Ontario Divisional Court. In six short paragraphs, the Divisional Court dismissed the appeal. In doing so, the Divisional Court adopted Justice's Nordheimer's third statement above. The Divisional Court did not comment on the first two statements, however. The second statement is uncontroversial and has been frequently reiterated in the case law, including in the Supreme Court of Canada's decision in Hofer v. Lakeside Colony. The Divisional Court cannot be taken to have either accepted or rejected Nordheimer, J.'s first statement. The Divisional Court simply found that the third statement was sufficient to dispose of the appeal.

3. Key Observations

Lee is a good illustration of the exercise of judicial discretion in setting aside an election due to an irregularity. Advance voting in the election was not permitted under the association's by-laws and was, therefore, found to be an irregularity. However, finding an irregularity is only the first step in the analysis. The issue then becomes whether there is convincing evidence that the irregularity went to the heart of the electoral process or affected the expression of the majority will. In Lee, the courts were satisfied that the irregularities in advance voting did not strike at the heart of the electoral process or affect the expression of majority will.

It is likely that Justice Nordheimer's second statement (that courts should not be too quick to grant relief or encourage disgruntled members from seeking relief) is also an accurate statement of legal principle. However, his first statement (implying that more forgiving standards may apply to the meetings of non-profit organizations) is more controversial. That the Ontario Divisional Court recited the statement but chose not to comment on it may create a weak inference that the appeal court did not accept the statement. It is submitted that no such inference should be made. Having found that there was no evidence that the irregularity affected the outcome of the election, the Divisional Court was entitled to concur in the third statement (no effect on outcome) and abstain from commenting on the broader statement (that different standards apply to the meetings of NFP organizations).

On a careful reading of the Divisional Court decision, the first statement of Justice Nordheimer remains uncontradicted. Therefore, as long as their basic process is fair, not all of the technical requirements of corporate meetings will apply with equal rigour to NFP organizations.

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