In Toronto Humane Society v. Milne (a 2001 decision), the Ontario Superior Court of Justice ordered a meeting of members to be postponed even though it had been properly called. The meeting, called for the purpose of electing a new board of directors, had been called with the minimum amount of required notice and deprived the members of an opportunity to consider an alternative slate.
The Toronto Humane Society had a board of directors divided into two factions: the Milne faction of four directors and the Reid faction of seven directors.
In her capacity as vice-president, Joan Milne called an annual meeting on the technically correct bare minimum amount of notice required under the society's by-laws. The meeting was called to remove all of the directors who were identified with the opposing Reid faction before the expiration of their terms of office and replace them with nominees of the Milne faction. In effect, there was a fight over control of the board.
With notice, a general proxy was sent to members that only permitted a vote in favour of the proposed removal resolution and the Milne slate of replacement directors. The members of the Reid faction and certain staff of the society did not receive the notice or proxy. The Reid faction had only two days to put forward an alternative slate of nominees for the board.
Mr. Bruce Reid and the society brought an application to restrain the holding of the annual meeting.
Justice Mesbur of the Ontario Superior Court of Justice held that the deficiencies in the proxy materials, their distribution to only some of the members and the lack of effective time for a response combined to make the notice of meeting defective. In particular, the notice was delivered on such short notice that it effectively precluded members from making alternative nominations for membership on the board. That the notice of meeting technically complied with the society's by-laws did not prevent the court from exercising its equitable jurisdiction to postpone a validly called meeting.
Accordingly, the court saw postponing the meeting for almost six weeks as striking the necessary balance between the need to elect a board and the need to do so with procedural and apparent fairness. Justice Mesbur required 34 days' notice of the meeting and that all members receive identical material.
3. Key Observations
The chief difficulty with the court's intervention in this case is that it creates uncertainty regarding whether parties can rely on the rules for meetings as set out in the by-laws. Even if the rules are clear and there is compliance, a court can exercise its overriding power to postpone the meeting and allow the parties more time to put together a slate of candidates for the board.
The court could have, instead, found the notice and proxy non-compliant. A proxy which does not afford voters a choice is inherently flawed. A notice of meeting that is not sent to all members is also non-compliant. Information sent to members that is insufficient to permit a member from coming to a reasoned decision as to whether to support the proposal submitted to the meeting results in a defective notice. The case could have been decided on any of these grounds, rather than on the court's equitable power to alter the rules and extend the amount of notice required.
Nevertheless, the result in Milne is that, particularly when there is a resolution to remove and replace a sitting director or to nominate a replacement slate of directors, mere technical compliance with the by-laws may not be sufficient. If the notice is challenged, the court will test whether the meeting would deprive members of an opportunity to put forward alternate nominees to the board. Not-for-profit corporations that are susceptible to having contested board elections would do well to build in adequate processes for the nomination of candidates and ensure the dissemination of unbiased information on all slates of candidates to all members.