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No Oppression in Disbursement of Hospital Foundation's Funds

In its 2011 decision in Thiessen v. Borden Hospital Foundation Inc., the Saskatchewan Court of Queen's Bench was asked to find that the disbursement of about $306,000 in Foundation funds for the construction of an additional 10-bed care home in Borden, Saskatchewan breached the duties of the Foundation's directors and was oppressive. Justice Acton held otherwise, dismissed the application and held the applicant liable to pay the Foundation's costs of the application on a solicitor/client basis. This case highlights the perils that a dissenting director faces when asking a court to subvert the will of the majority.

1. Facts

Borden Hospital Foundation Inc. is a charitable corporation incorporated under the The Non-profit Corporations Act of Saskatchewan. The applicant, Glen Thiessen, was a member of the board of directors.

In November 2010, a majority of the board of the Foundation passed a motion authorizing the payment of about $306,000 to a third party for the construction of an additional 10-bed care home in Borden, Saskatchewan. The board consulted with the Saskatoon District Health Board (SDHB) before passing the authorizing resolution.

Five months later, at which point the funds had been disbursed by the Foundation and the care home partially completed, the applicant commenced his application to set aside the board resolution, on the basis that it breached the duties of the Foundation's directors and was oppressive to the applicant.

2. Ruling

Justice Acton found no evidence to support the application and dismissed it with costs. Indeed, he found that the evidence established that the board of the Foundation acted in a responsible and appropriate manner based on the board's mandate and its consultation with SDHB before the decision to pass the authorizing resolution.

Acton, J. also found that the applicant had not acted in good faith in waiting five months, when monies were already spent, before commencing his application. There was no reason why his application could not have been made immediately after the resolution was passed.

As to costs, Justice Acton stated that the funds spent by the Foundation and its directors in defending the application were public funds which were collected for expenditure in providing health care or health care facilities in the region or personal funds of individuals supporting their community. In either event, he found it inappropriate that these funds had to be spent to defend the application and, therefore, awarded the Foundation and the respondent directors their costs on a solicitor/client basis (which is equivalent to substantial indemnity costs in Ontario).

3. Key Observations

The court was right to use its power to impose costs to place the financial burden of this meritless application on the dissenting board member who brought it. In democratic institutions, the will of the majority must prevail. A party on the losing side in the boardroom cannot in effect appeal the majority's decision to the courts. While not calling it by name, in effect, the court in Thiessen invoked the business judgment rule. The majority was entitled to carry out its mandate. That the board also consulted more widely with the SDHB provided additional support for the court's finding that the action of the board was reasonable, businesslike and appropriate.

Furthermore, once a board has rendered its decision and it has been carried out, it is too late to seek to reverse it. At some point, there is a need for finality in decision-making. Asking for repayment of the funds after they had been spent, or seeking to impose personal liability for repayment on the other board members, is completely untenable and a costs sanction that makes the corporation and its directors substantially whole was the appropriate remedy.

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