Canada: Corporation Formed To Claim Oppression Not A "Complainant" Under Section 250(E) Of The CNCA

Last Updated: October 19 2018
Article by Cynthia Spry

In a recent decision of the Ontario Superior Court of Justice, the court found that a corporation without share capital, apparently incorporated for the purpose of commencing the litigation, after the majority of the events in question, was not a "proper person" to claim oppression within the meaning of section 250(e) of the Canada Not-for-profit Corporations Act (the "CNCA").

Background: In 2014, the CHS faced a serious financial challenge that required it to review its operations and corporate governance. Among other things, the CHS took a number of steps to address the inconsistent approach to membership that had developed in the past. These steps included adopting a new membership policy, and adopting a new by-law (which was approved by special resolution of the members of the CHS at the 2016 annual general meeting).

As a result of the new by-law, all members (lifetime and annual) were required to renew their memberships on an annual basis. Very few members apart from the Board of Directors applied for membership. The Board rejected the applications that were received on the basis that they did not demonstrate a connection to the CHS or support its Vision and Mission (as required by the 2016 by-law). Accordingly, the only applications accepted by the Board were those of the Board members themselves.

The Campaign commenced an application alleging that, among other things, such conduct was oppressive, unfairly prejudicial, and unfairly disregarded the rights of members or former members of CHS, under section 253 of the CNCA. Two individual applicants were subsequently added to the proceedings.

The Ruling: The court held that the Campaign was not a "complainant" within the meaning of section 250(e) of the CNCA for three principal reasons. First, because the Campaign had never been a member of the CHS, nor had it ever applied for membership in the CHS, it lacked a private right to claim a breach of its reasonable expectations regarding a right that had been infringed. Second, if it was not necessary to establish a private right, it was not necessary to grant the Campaign standing because the individual applicants asserted the same claims. Third, there were significant difficulties with the Campaign's assertion that it represented former members.

The court held that:

  • the directors of a not-for-profit corporation are not responsible to the members of such a corporation in the same manner as the shareholders of a for-profit corporation;
  • the role of a member of a not-for-profit corporation is limited to approving the annual financial statements and the auditor, and to electing the directors on an annual basis;
  • it is questionable whether the directors of a not-for-profit corporation owe any fiduciary duties to the members of the corporation;
  • the Board 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 restrict the provision of services to a narrow segment of the community served by the corporation; 
  • accordingly, the members of a not-for-profit corporation do not have a formal consultative function or authority in relation to proposed policies of the corporation. Any consultative role depends entirely on a discretionary decision of the board of directors.

The court was not persuaded that the Board could not provide proper services to the culturally Deaf, or to the larger Deaf and hard of hearing community in the absence of broad representation among the membership of the CHS.

The court found that there was serious reason to doubt that the actions of the Board could be characterized as oppressive, unfairly prejudicial, or unfairly disregarding of the interests of the former members of the CHS. Their expectations were not reasonable.

The court also found there were significant problems with the Campaign's purported authority to represent former member of the CHS: there was no evidence that the members of the Campaign were representative of the various segments of the Deaf and hard of hearing community; the vast majority of the broader Deaf and hard of hearing community had never been members of the CHS; and, there was no evidence that the broader community sought the relief claimed in the application.

The court also stayed the claims of the individual applicants in favour of arbitration, because these were fundamentally issues between individuals alleging that they continued to be members of the CHS and the Board, regarding the manner in which the CHS carries on its business. These issues were subject to arbitration under the dispute resolution provisions of the CHS by-law.

The court awarded costs against the Campaign and the individual applicants.

The Takeaway: This is the first reported decision on the question of whether the applicant is a "proper person" as contemplated by section 250(e) of the CNCA, for the purpose of claiming oppression under section 253. The decision emphasizes key differences between the corporate governance structures of not-for-profit versus for-profit corporations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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