Alberta Court Finds Society’s By-law Invalid due to Inadequate Approval 

November 2019 Charity & NFP Law Update

The Court of Queen’s Bench of Alberta released its decision in The Canadian Islamic Trust Foundation v The Muslim Community of Edmonton Mosque and Muslim House on November 13, 2019. The case involved a legal challenge to the valid adoption of the by-law for The Muslim Community of Edmonton Mosque and Muslim House (the “Society”), which was purported to have been adopted by the members at a membership meeting held on March 9, 2014 (“2014 By-law”). In this regard, the Canadian Islamic Trust Foundation (the “Foundation”), a founding organization of the Society with the right to approve amendments to the Society’s by-law (as set out in the Society’s prior existing by-law from 1997), together with individuals associated with the Society, sought a declaration from the court invalidating the 2014 By-law.

The Foundation alleged that there were irregularities in the process to obtain membership approval over the 2014 By-law, including invalid status of the members who had voted to approve the 2014 By-law, as well as alleged irregularities in the process used to call the membership meeting to approve the 2014 By-law. These arguments were unsuccessful, as the court found the Foundation had failed to introduce the necessary evidence to support those arguments. The Foundation also alleged that the 2014 By-law was invalid on the basis that the Foundation’s approval was not provided (as required by its previous by-law from 1997). In this regard, there was no dispute between the parties that the Society’s previous by-laws adopted in 1987 and 1997 were validly enacted.

In response, the Society argued that the Foundation’s approval had been provided by claiming that the Foundation’s approval was granted by an individual named Mr. G. Nabi Chaudhary, who had purported to provide written approval of the 2014 By-law on behalf of the Foundation and on behalf of another organization that had no approval rights of the Society’s by-law. However, the court found that the Society failed to introduce evidence confirming that Mr. Chaudhary had the valid authority to approve the Society’s 2014 By-law on behalf of the Foundation, as the Society failed to demonstrate that Mr. Chaudhary had an official position at the Foundation, and failed to provide information outlining the basis on which Mr. Chaudhary had the valid authority to act as the Foundation’s representative (e.g. that the Foundation had delegated its approval power to him). As a side comment, the court found that the written approval signed by Mr. Chaudhary approving the 2014 By-law lacked the wording confirming the Foundation’s approval over the substantive changes reflected in the 2014 By-law. Instead, the written approval contained wording purporting to approve the “processes” followed by the Society to approve the 2014 By-law, which were irrelevant insofar as the Foundation’s approval of the 2014 By-law was concerned. The court also noted earlier email correspondence was introduced into the evidence which demonstrated the Society’s own belief that the Foundation had not approved the 2014 By-law (contrary to the position taken by the Society before the court).

When adopting new by-laws and by-law amendments, it is essential that charities and not-for-profits fully comply with all requirements set out in their existing by-law, including the requirement to obtain the approval of an external organization over proposed by-law changes, where applicable. All steps taken to comply with the requirements to adopt a new by-law amendment should be carefully documented within the corporate records, in the event of future questions or legal challenge. Failure to comply with one aspect of the by-law approval requirements can invalidate the entire by-law on the basis that all appropriate requirements were not met, as occurred in this case.

Read the November 2019 Charity & NFP Law Update