Introductory Thoughts
In January 2020, the Court of Appeal for Ontario released its judgment in Aga v Ethiopian Orthodox Tewahedo Church of Canada ("Aga"). This decision considers whether the written constitution and by-laws of a voluntary religious corporation form the basis of a contract between the membership of the church and the charity itself. Ontario's appellate court found a contractual relationship exists between the charity and its membership and, on this basis, found that the charity had violated the expelled members' legal rights. After summarizing the case, this article identifies key operational issues that charities and non-profits should consider.
The Court of Appeal Decision
The parties to this dispute were the Ethiopian Orthodox Tewahedo Church of Canada, St. Mary Cathedral (the "Church") and five former members of the Church's congregation (the "Members"). The Church is a Canadian registered charity and incorporated as a non-share capital corporation under the Corporations Act of Ontario. Until they were expelled from the Church's membership on May 24, 2017, each Member was a longstanding member of the Church, having submitted a membership application in which they each committed to make monthly contributions to the Church. The Members made their monthly contributions as it had pledged to do. During the course of their membership, the Members were involved in leading an committee that investigated various internal Church issues pursuant to the procedures outlined in the Church's written constitution and by-laws (the "Governing Documents").
After they were expelled from membership, the Members initiated a claim against the Church seeking a declaration that the decision to expel them was null and void on the basis that the Church did not follow the disciplinary procedures that were outlined in the Governing Documents and, in failing to do so, had violated the Members' rights to natural justice and freedom of religion under the Canadian Charter of Rights and Freedoms. The Church responded by bringing a motion to dismiss the claim, taking the position that the Members did not have any underlying contractual right - or other legal right - that could be adjudicated and enforced by the court.
The motion judge found in favour of the Church and dismissed the Members' claim. Specifically, she found that neither the Church's written constitution nor its by-laws constituted a contract between the Church and the Members and, therefore, the Members did not have standing to bring a claim for the court's review of their expulsion. In support of her finding, the motion judge cited Justice Rowe in Highwood Congregation of Jehovah's Witnesses (Judicial Committee) v Wall ("Wall"), when he stated that as a general principle there needs to be an underlying legal right that has been violated in order for the court to undertake a judicial review of a voluntary association's internal decisions. The Members appealed the decision of the motion judge to the Court of Appeal.
On appeal, the central issues were:
- When are the rights and obligations of members of a voluntary association contractual?
- If there was a contract between the Church and the Members, does the contract provide a process for expulsion from the congregation? If so, were any contractual provisions breached when the Members were expelled?
The Members asserted that the motion judge erred by failing to consider the fact that the Church had neglected to follow its internal disciplinary procedures established by the Governing Documents. It was also asserted that the motion judge had erred in finding that a formal contractual relationship did not exist between the Church and the Members.
In determining whether the Court had jurisdiction to make a finding with respect to a voluntary association's adherence to its internal procedures, the Court of Appeal relied on Wall, confirming its jurisdiction to review the decision of a voluntary association only where the claimant has an underlying legal right that it seeks to have vindicated. Where a legal right exists, the courts can consider an association's adherence to its own procedures and, in certain circumstances, the fairness of those procedures if the court determines that these matters are justiciable.
The Court of Appeal concluded that the written constitution and by-laws of a voluntary association constitute a contract setting out the rights and obligations of members and the organization. The Court of Appeal also found, in the Members' favor, that the Church and Members had formed a contract. They specifically found that through the Members' respective applications and monthly contributions that the Members had entered into a mutual agreement to be a part of the congregation and abide by the governing rules. Accordingly, the Court of Appeal overturned the ruling of the lower court.
The Church subsequently sought leave to appeal to the Supreme Court of Canada, which was granted on June 18, 2020. The Supreme Court of Canada will hear the parties' submissions on December 9, 2020.
What Charities that are Corporations Should Learn from Aga
The ruling in Aga reminds voluntary associations that their governing documents form the basis of a contract between the organization and its membership. Governing documents include documents such as written constitutions, letters patent, supplementary letters patent, articles of incorporation, articles of amendment, articles of continuance and by-laws. Aga also reminds voluntary associations that where they fail to follow the rules and procedures set out in their governing documents, they risk judicial review (and overturn) of those decisions by the court.
Registered charities in Canada, like the Church, are often established as non-share capital corporations. In addition to their governing documents, corporations are also required to comply with the statutory obligations under their incorporating statute, which include enacting by-laws that meet the minimum statutory standards set out in that statute. Aga reminds charities and not-for-profit voluntary associations that they must adhere to the procedures set out in their by-laws and other governing documents.
As leave to appeal to the Supreme Court of Canada has been granted, the Aga decision may be changed. That said, we think that the Aga decision serves as a reminder for voluntary associations to review their governing documents to ensure that the procedures set out in such documents are what are actually followed by the organization in practice.
If such a review highlights, for instance, more onerous rules than what the organization intends to follow realistically, then the organization should take steps to amend their governing documents before a dispute arises. Any such amendment should be done following the existing rules for amendment generally set out in a corporation's governing documents.
Concluding Thoughts
Busy voluntary associations do not often prioritize housekeeping matters like reviewing and potentially amending governing documents. However, the importance of having governing documents that set out clear, practical and realistic governance protocols cannot be understated. By ensuring that its governing documents reflect what an organization will actually do when a dispute arises, an organization can avoid the time and expense of a lawsuit that challenges its adherence to its own rules.
Miller Thomson LLP's Social Impact group would be pleased to help membership-based charitable and not-for-profit voluntary associations navigate their legal obligations and adopt best practices. The Social Impact group will also be closely following the Church's appeal to the Supreme Court of Canada and will provide updates in this newsletter.
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.
