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Obsessing About Elections

In his 2014 decision in Hunjan v. Singh, Justice Sproat of the Ontario Superior Court of Justice wisely points out that often too much time, effort and expense is devoted to fighting over the validity of meetings of members and the validity of elections. The time, effort and resources are generally better spent on building a solid foundation for future meetings and elections, rather than contesting results of the past.

1. Facts

Nanasar Satsang Sabha of Ontario was a charitable corporation incorporated under Part III of the Ontario Corporations Act. It operated a Sikh temple in Brampton.

Since its incorporation 20 years earlier, the corporation had never held a meeting of members. Litigation ensued with the result that, in February 2014, the court ordered the directors to hold an annual meeting, which was held on August 30, 2014. But this did not stop the litigation.

Eventually, the insurgents (the applicant members in the litigation) and incumbents (the then-current members of the board) reached an agreement (in the form of a consent order) in which the board would consist of three new directors: one selected by the insurgents, one selected by the incumbents and the third drawn at random by the judge from names dropped into a box. The pivotal third director was a nominee of the insurgents.

2. Ruling

The incumbents then sought to resile from the consent order that, as it turned out, handed control of the corporation to the insurgents. But a deal is a deal, and it is manifestly unfair to agree to a process and then resile from it only when you draw the short straw.

3. Key Observations

The most instructive part of Justice Sproat's reasons relates to the focus on meetings to be held in the future rather than on those of the past.

As observed by Sproat, J., if parties litigate about the validity of a past election, there are two possible results: either the meeting will be held to be valid; or it will be found to be invalid. In the latter case, huge legal costs will be incurred, and further additional amounts will be spent on holding a new meeting. Meanwhile, there will be delay and stress for everyone. Focusing on the past and litigation to uphold the validity of a past meeting may prove to be a waste of time and money. Instead, the warring factions should co-operate on agreeing to procedures for holding a new meeting.

This is generally wise advice indeed.

Where there is a contested meeting or election, the first priority is to ensure that there is certainty about who is in provisional control of the corporation. The corporation needs stability and must, at all costs, avoid the chaos of dueling boards, each claiming to have authority.

Assuming there is sufficient stability to have a legitimate board, a majority of the board can provide instructions on behalf of the corporation.

The second priority is for the rival factions to work toward a fair and transparent process - in particular for the admission of new members. Many battles are fought in the courts at tremendous expense because the losing side in an election complains that the winning side stacked the membership unfairly or, perhaps, more unfairly than the losing side.

The key to avoiding these interminable arguments is to enlist a neutral party to assist with the process of registering new members, which must be in conformity with the by-laws of the corporation. Each faction must have equal representation in overseeing the process. For example, a representative from each faction should initial each application for membership during any membership drive in advance of an election. Cut-off dates for the admission of new members must be strictly observed.

While there are no sure-fire ways to avoid disputes over contested elections, adoption of a fair and transparent process under neutral supervision goes far to reduce the bases for challenge and ease the court's task if there is a challenge. Conversely, a failure to adhere to basic norms of fairness and transparency will encourage a challenge by the losing side and evoke some sympathy from the court. As in Hunjan, the winning side's victory may be pyrrhic. A second election in accordance with rules more acceptable to the court may be ordered.

Whatever the results in one election, they can always be erased by holding a fresh election. A fresh election can be called by:

● the board;

● generally, by 5% of the membership; or

● the court.

Notice of a fresh meeting generally needs only 21 days. This timeframe is far shorter than the times it takes to contest past elections in the courts.

If there are still disputes about the list of members that cannot be resolved by the neutral party and the representatives of each faction, a more limited application may be made to the court to resolve the dispute (or to an arbitrator if the by-laws so provide). In many cases, the magnitude of the dispute is such that it has no practical effect on the outcome of the vote.

If there is insufficient time before the meeting to resolve these types of individual cases, the votes from disputed members can be recorded on a provisional basis. If they have no bearing on the outcome, the dispute stops there. If the disputed votes do prove to have a pivotal bearing on the outcome, then the court can ultimately rule on the validity of the provisional votes or on any other votes cast in the election.

Battles for control of not-for-profit corporations should take place at the ballot box, not in the courtrooms of the nation. Rival factions must accept that the majority rules in corporate law. Regardless of the results of past elections, any or all directors in office can still be replaced by a majority at a new meeting convened in about six weeks. Therefore, the focus should generally be forward-looking, not litigating the past.

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