In The Campaign for the Inclusion of People who are Deaf and Hard of Hearing v. Canadian Hearing Society (released September 2018), Justice Wilton-Siegel of the Ontario Superior Court of Justice refused to find that the corporate applicant was a proper person to bring oppression proceedings against a federally incorporated charitable society and stayed the application of the individual applicants in favour of arbitration.
The Canadian Hearing Society (CHS) is a registered charity founded in 1940 and was continued under the Canada Not-for-profit Corporations Act. It provides various services and programs to all members of the Deaf and hard of hearing community in Canada.
In 2014, CHS faced serious financial challenges that required it to review its operations and corporate governance. Among other things, it took steps to address the inconsistent approach to the admission of members that had developed in the past.
In a series of separate steps, membership criteria were set out and applied, lifetime members were collapsed into annual members and members were invited to re-apply for admission (requiring payment of a $25 annual membership fee and acceptance by the board). Of the 340 lifetime members, only 19 applied for membership. The board rejected all 19 applications and decided instead to adopt a de facto closed membership (in which the only members were the directors themselves). Later, the by-laws were amended to formally adopt a closed membership.
The Campaign was incorporated to challenge the actions taken by the board, seeking to reinstate the lifetime and annual members. Two individual applicants, both former members of CHS, later joined the application. CHS sought to have the application dismissed before a hearing on the merits, on the basis that the Campaign was not a complainant under the CNCA and that the individual applicants, while complainants, were bound by the terms of an arbitration clause in the by-laws to arbitrate their dispute with CHS.
Justice Wilton-Siegel agreed with CHS on both points and ordered costs against each of the applicants.
The Campaign had never been a member of CHS. Nor had it ever applied for membership. It therefore lacked a private right entitling it to assert a claim for oppression. Justice Wilton-Siegel refused to find that the Campaign was nevertheless a proper person to advance the oppression claim, for three principal reasons:
● The Campaign had no reasonable expectation in its own right that has been frustrated by the actions of the CHS board.
● Granting the Campaign status as a complainant was unnecessary given that the individual co-applicants were asserting the direct infringement of their personal rights and reasonable expectations as members of CHS.
● It was difficult to square the Campaign's assertion that it represents the former annual and lifetime members of CHS with the evidence. The former annual members had not come forward individually. Only two of the 340 former lifetime members had come forward. There was no evidence that any of these former members objected to the board's decisions or were truly concerned about the lapse of their memberships.
Accordingly, the court held that the Campaign was not a complainant for purposes of the CNCA and therefore lacked standing to bring the application.
(b) Agreement to Arbitrate
The by-laws of CHS included a provision requiring that all disputes between the members and directors be submitted to final and binding arbitration. The by-law provision had been approved by the directors, and members by special resolution. The predecessor by-laws also provided for mandatory arbitration.
Wilton-Siegel J. held that the law is well established that parties can agree to adjudicate oppression claims by way of arbitration. That CHS was a charity did not change the analysis. The inherent jurisdiction of the courts in respect of charities applies where charitable funds are misapplied by directors but does not extend to matters of corporate governance, such as membership in the corporation. He found that there was no need, and no room, for an additional and overriding inherent jurisdiction of the courts to address disputes regarding corporate governance of a not-for-profit ("NFP") corporation.
Wilton-Siegel J. dismissed the Campaign's argument that it should not bear any costs because it represents a marginalized group and the issues are novel, stating:
There is no reason why charitable funds should be diverted to pay for the judicial resolution of an unmeritorious claim of standing.
3. Key Observations
This is an important ruling involving the internal governance of a major Canadian charity.
The case confirms that the board of an NFP corporation is not responsible to members to the same extent that a board of a for-profit corporation is responsible to shareholders. The board of a charitable corporation has a responsibility to ensure that the corporation fulfills its charitable purposes and that the membership does not impose its own priorities over the stated purposes of the corporation or tries to restrict the provision of services to a narrow segment of the community served by the corporation.
The role of a member of an NFP corporation is limited to approving the annual financial statements, appointing the auditor and electing the board of directors on an annual basis. It is questionable whether the board of an NFP corporation owes any fiduciary duty to the members.