In Whittall v. Vancouver Lawn Tennis & Badminton Club (decided in 2005), the British Columbia Court of Appeal reconciled the apparent inconsistency between a life membership and the ability of the voting members of the corporation to unilaterally vary the conditions of membership. In effect, the status of a life member is subject to the right of the members of the corporation to vary membership classes or groups - including requiring members who were formerly exempt from paying dues to start paying annual dues.
The Vancouver Lawn Tennis & Badminton Club was incorporated under the British Columbia Societies Act in 1941. Initially, there was only one class of member. However, over the years, there had been a steady change in the numbers and characteristics of the various classes of membership (including the addition, elimination and consolidation of various classes).
Mr. William Whittall had been a member of the club for over 50 years and held numerous positions in the club, including serving on the board for seven years and as president for one year. He became a life member in 1988.
According to the by-laws, a life member was a person recommended by the board who had attained the age of 65 years and completed 30 consecutive years as a voting member with credit given for absence due to war service. A life member was exempt from payment of dues. In exchange, he ceased to be a voting member and was required to surrender his shares in a related company.
Over the 20 years from 1980 to 2000, the number of life members relative to dues-paying members increased. The number of life members grew from 47 in 1985 to 243 in 2000. The club projected 440 life members by 2010. The board feared that, with more life members using club services without charge, the club would be forced to raise initiation fees and thus hinder attracting new members.
Accordingly, a resolution was proposed to the following effect:
● Subject to an exception for members who had reached 80 years of age and were grandfathered (which represented 78 of the 243 life members at that time), life members gradually pay dues up to 30% of those paid by other members of the club.
● There would be a gradual increase in the qualifying age for life members from age 65 to 70.
The resolution was passed with the approval of 81.6% of the votes cast. Life members were non-voting and, therefore, could not vote on the resolution.
Whittall challenged the validity of resolution in court. The chambers judge dismissed Whittall's claims for breach of contract and unfair prejudice. Whittall then appealed the judgment to the British Columbia Court of Appeal.
In essence, the appeal raised the issue of whether voting members of a society can unilaterally pass a by-law that imposes on a class of members who had previously relinquished their voting rights voluntarily in exchange for dues-free status.
3. Rulings of the Court of Appeal
(a) Unfair Prejudice
The Court of Appeal found that the rise in non-dues paying members had been an issue plaguing the club for 20 years. By the time the resolution was voted on, there were 243 non-dues paying members, an exceptional number permitted to use the club's facilities without payment. The court found that it was unreasonable to expect the dues-paying members to continue to carry that burden.
The club could have taken several courses to remedy the situation. It chose to amend its by-laws to require the non-voting life members to pay a small portion of the dues. When Whittall surrendered his vote in favour of dues-free status, he must have understood that the club by-laws permitted amendments from time to time and that he might one day face a change.
The court stated that its conclusion that amendment was not unfairly prejudicial to Whittall would likely have been different had the board passed a resolution requiring life members to pay as much or more than the voting members. But, at most, life members had to pay only 30% of the dues payable by voting members.
(b) Breach of Contract
With respect to the claim for breach of contract, the court accepted that the relationship between a society and its members is contractual in nature, and that the by-laws of voluntary associations constitute contractual obligations as between the members and the society. However, members enter into their contractual relationship on the understanding that the relationship will be regulated by the constitution and by-laws as agreed upon from time to time by the requisite majority of the voting members. It is therefore an overriding term of every contract between a society and its members that the terms of the relationship are subject to amendment in accordance with any future by-laws adopted by the members.
4. Key Observations
The court's reasoning in Whittall is unassailable. A life membership is created under the by-laws and, therefore, without more, can be amended by amending the by-laws.
Under the Canada Not-for-profit Corporations Act, classes of members would be provided for in the articles of incorporation, not the by-laws. Depending on the nature of the change and the content of the class rights, a special class vote might be required to amend the rights, privileges, restrictions and conditions attaching to a class of life members. However, subject to complying with the separate class vote requirements of the CNCA, the result in Whittall would likely be the same had the club been incorporated under the CNCA.
Under the CNCA, it is possible to protect the rights of a class of members. If the rights are not protected under the CNCA or the articles, then Whittall is a compelling authority in support of the right of voting members to unilaterally change the dues-free status of the non-voting class.