The Canada Not-for-profit Corporations Act permits a corporation, or any director or member of the corporation, to apply to court to determine any controversy with respect to an election or appointment of a director. (The Act also allows an application in respect of the election or appointment of a public accountant, but this would rarely arise and will be ignored for the purpose of this article.) Applications to court involving the election of directors may determine who controls the corporation and, therefore, are much more likely to arise in litigation.
The powers of the court under the Act are open-ended. The court can make any order that it thinks fit, including an order:
● determining the voting rights of members and of persons claiming to hold memberships;
● declaring the result of a disputed election;
● requiring a new election, including the appointment of interim directors for the management of the activities and affairs of the corporation until a new election is held; and
● restraining a director whose election is challenged from acting, pending determination of the dispute.
In a Saskatchewan case, Kroczynski v. Regina Soccer Assn., the court held that, to set aside an election, the court must be satisfied that the following criteria are met:
● there were irregularities in the election process; and
● those irregularities were calculated to affect the outcome of the election.
The evidence that may be relevant on an application to set aside an election includes evidence:
● relating to the casting of ballots;
● showing irregularities in the nomination process which result in the exclusion of a qualified candidate;
● indicating that qualified voters were misled as to their ability to vote and did not receive adequate notice of the election;
● proving bribery, threats or similar activity; or
● showing that a candidate's campaign was fundamentally disrupted by those organizing the election.
In Ray v. Morin, a case where it was impossible to establish a valid membership list with the desired degree of certainty, the same court required a new membership list to be prepared by a committee composed of two members.
In general, not-for-profit corporations that wish to avoid expensive court challenges over election results need to observe the following guidelines:
● ensure that the conditions of membership are clearly set out in the by-laws. In particular, the rules on whether and, if so, precisely when a membership begins and ends must be ascertainable from the by-laws and be easily administered;
● administer the admission criteria and procedure fairly. Ideally, the board appoints a membership committee comprised of fair and independent members to apply the admission standards or, in organizations with a limited membership, the board admits each member individually. It helps enormously if the personal integrity of the committee members is beyond reproach;
● avoid creating a situation that encourages stacking of memberships. For example, if the only criterion for membership is payment of lifetime or annual dues and the amounts are set too low, factions will be encouraged to stack the memberships, with each member paying the least amount possible or, often, one individual paying for multiple memberships (including family and friends). Often, organizations with significant revenues and assets can be taken over by new members whose only loyalty is to a faction leader, not to the corporation itself. In such cases the dues paid by newly recruited members are trivial in comparison to the organization's total revenues and assets; and
● in all things, be fair. Give fair notice of the meeting and the business to be conducted at the meeting. Solicit proxies fairly. Campaign fairly. A court is more likely to find in favour of members who can be seen to have engaged in an open and democratic process than a faction which bends the rules and fails to follow the dictates of fair play in an effort to win at all costs.
● for the good of the organization, look to win fairly at the ballot box, not in a court room.