In Smith v. Toronto Police Assn. (decided in 2008), the Ontario Court of Appeal held that a regulation of the Toronto Police Association was properly characterized as a by-law under the Ontario Corporations Act and, since it had not been amended in accordance with the governing legislation or the by-laws of the association, the purported dissolution of the Legal Assistance Plan Board of the association by simple resolution of the association's board of directors was a nullity.
The Toronto Police Association was a corporation without share capital incorporated under Part III of the Ontario Corporations Act.
In 1991, its members adopted a Legal Assistance Plan to provide financial assistance to members of the association who incurred legal expenses in criminal or civil proceedings relating to the performance of their duties. The Plan was funded by special assessments from the members.
The Plan had been created under a so-called regulation of the association. The regulation provided that the Plan be governed by a Plan board which consists of five members selected by the Chief Stewards and Stewards every two years.
However, in early 2007, the board of directors of the association passed a resolution purporting to dissolve the Plan board and purporting that the Directors of the association assume the duties of the Plan board on a temporary basis.
The constating documents of the association were called the "constitution", which included those matters normally found in the organizing by-laws of non-share capital corporations, such as the requirements for membership, the roles and responsibilities of the officers and committees, the procedure for calling meetings of members and directors and the process by which members may be disciplined. The constitution also included seven regulations dealing with discrete areas of the association's activities, of which the regulation governing the Plan and the Plan board was one.
The Ontario Court of Appeal observed, correctly, that the OCA provides for the making of by-laws but not regulations. The court held that the regulation establishing the Plan and Plan board had the same legal status and effect as a by-law. The letters patent, which set out the authority of the association's Directors to make, amend, vary and repeal by-laws, used the terms "by-law" and "regulation" interchangeably.
When the regulation was initially introduced, it was accepted by the members at a general meeting. On five occasions, the regulation was amended. Each time the changes were approved or adopted by the members. There was nothing in the constitution to suggest that regulations had a different legal status than a by-law.
As the court further observed, the OCA confers on the directors the power to pass by-laws relating to various enumerated matters, including by-laws to regulate the conduct of the affairs of the corporation. A by-law passed by the directors, or any amendment of an existing by-law, is to be approved by the members of the corporation. A by-law or an amendment thereto passed by the directors is only effective until confirmed at the next annual meeting of members. The OCA requires the approval of members for by-laws and amendments to by-laws.
In this case, the court was satisfied that the board was not acting according to the authority conferred by the OCA when it passed the resolution to dissolve the Plan board and assume, on a temporary basis, its duties. The Directors intended to dissolve the Plan board by their own resolution - and with nothing more.
The court also found that the resolution of the Directors purporting to dissolve the Plan board did not conform to the provisions of the letters patent for amending regulations.
Accordingly, the court affirmed that the Directors did not have the authority to enact the resolution purporting to dissolve the Plan board.
3. Key Observations
The enduring significance of the Court of Appeal decision in Smith v. Toronto Police Assn. is two-fold.
First, the court correctly characterized the relevant governing document in this case (regulation 7 which dealt with the Legal Assistance Plan) as a by-law. This characterization was based on two factors. The OCA only provides for by-laws, not regulations. Second, the association's letters patent treated the by-laws and regulations interchangeably. Had the letters patent or by-laws purported to treat regulations differently than by-laws, it is not clear what the court would have said. If a regulation or policy regulates the activities or affairs of the corporation, it may be a by-law by another name and therefore require board and membership approval to have continuing legal effect.
Second, the court found that, if there is no evident intention by the board to submit a by-law amendment to the members for confirmation in accordance with the OCA, then no effect will be given to the initial board resolution. The court reads into the OCA a requirement that, for a by-law amendment made by the board to have immediate effect, the board must intend to seek confirmation of the resolution at the next annual meeting of the members. If there is no such intention, the board resolution will have no effect.
The rules governing the process for amending or repealing by-laws do not depend on what labels the corporation uses for its corporate documents. Here, the Toronto Police Assn. used the labels "constitution", "by-laws" and "regulations". However, they were all properly characterized by the Court of Appeal as by-laws, regardless of the label attached to the document.