Appeal to Members to Resolve Problem of Rival Boards

Croatian Peasant Party of Ontario v. Zorkin (decided 1981) involved warring factions within a not-for-profit corporation, each of which had called meetings to pass by-laws and elect directors, resulting in total confusion. The Ontario Supreme Court held that the only way to resolve the governance issues was to hold a court-ordered meeting of members at which the board of directors would be elected and a set of by-laws would be confirmed.

1. Facts

The Croatian Peasant Party of Ontario was a corporation without share capital formed under the Ontario Corporations Act (Act). It provided information and education to Croatians in Canada and the US on a non-profit basis and owned real property and other assets throughout Canada. Its board of directors was called the supreme committee.

Starting in 1980, a serious ideological disagreement arose among the leadership of the corporation. Some, including the petitioner Zorkin, were of the view that the principal focus of the corporation should be to develop the identity of Croatians in Canada, with less attention focused on the problems in the homeland. Others, led by Dr. Krnjevic, believed that the primary thrust of all Croatian Peasant Parties in the world was to fight for the homeland in Croatia.

A convention was called by Dr. Krnjevic in Windsor, Ontario. This convention purported to adopt a set of historical by-laws dating from 1933 and 1938, rather than the 1961 by-laws previously in force and purported to remove all of the directors on the board and elect a new slate of directors and officers.

2. Ruling

Justice Gray found that the Windsor convention was invalidly called in accordance with the then prevailing by-laws and, accordingly, that all the business purported to be transacted at the convention was invalid. Therefore, the board of directors of the corporation had no authority.

As a result, there was left the question of which set of executives of the corporation was the real set. There was a legitimate dispute as to the authority to act as the corporation. The resulting confusion was genuine. Members of the corporation sincerely disagreed on who should have authority to call a meeting.

Justice Gray held that this is the type of case where the court can assist by being the authority that orders the meeting to be called. He ordered that the business to be conducted at the meeting would include the following:

● The first matter is the election of the chair of the meeting.

● Who will comprise the supreme committee (or board).

● Which set of by-laws governs the corporation.

● Which newspaper is the valid "Croatian Voice" newspaper of the corporation.

● Which group has authority to bring legal action in the name of the corporation and to retain solicitors for the litigation.

3. Key Observation

In resolving the governance imbroglio in this case, the court returned to first principles: the best way to resolve an internal governance dispute is to let the members decide which set of by-laws govern and who makes up the board. It is intolerable to have two rival factions purporting to govern the same corporation.

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