Ontario Court Reluctant to Intervene in Seminary Board Dispute

November 2019 Charity & NFP Law Update

The Ontario Superior Court of Justice released its decision on October 21, 2019 in Amin-Hussain v Yousuf, concerning a deadlock between four directors of the Madina Seminary (“Seminary”), a registered charity. The Applicants, two directors of the Seminary, sought to sell the Seminary’s property in Mississauga (the “Property”) to pay off significant debts owed by the Seminary, while the remaining two directors, the Respondents, would not provide consent. As the Seminary’s by-laws require the corporation to be managed by four directors, and require a majority of directors to conduct any business, including the sale of property, this resulted in a deadlock with two directors on each side. 

The Seminary purchased the Property in 2015 for $3,950,000, which was financed through a mortgage in the amount of $2,200,000, personally guaranteed by three of the directors. The Seminary had difficulties almost from the beginning in meeting its operating costs, paying its mortgage and repaying interest free loans. After many extensions, it defaulted on its mortgage and the mortgagee sought judgment and a writ of possession. The Seminary survived for a period on overdue interest-free loans with no plans to pay them back. In fact, one of the Applicants had, at times, mortgaged his own personal property to pay off Seminary loans. At a directors’ meeting on July 30, 2018, the directors discussed listing the Property, but the deadlock between them ultimately meant that the Property could not be sold. The Applicants therefore sought an order from the court to exercise its inherent jurisdiction and order that the Property be sold.

The court relied on the Supreme Court of Canada’s decision in Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v Wall (“Wall”), discussed in Church Law Bulletin No. 54, stating that “as a general rule, religious organizations cannot seek judicial review to solve disputes that may arise between them where there are concerns of procedural fairness.” Three exceptions to this rule outlined in Wall are (1) reviewing a state action; (2) reviewing matters of procedural fairness concerning a religious group’s adherence to its own procedures where legal rights are at stake; and (3) where the matter is justiciable. While the court noted that Wall concerned judicial review, and this case did not, it found that the principle from Wall that “interference in religious organizations and their decision-making process should be avoided” still applied in this case. In effect, the Applicants were asking the court to use its inherent jurisdiction to overturn the directors’ decision because of the unreasonableness of the Respondents’ position. The court refused to do so.

The court also found that it was inappropriate to intervene because the Seminary already had a governance structure in its by-laws and there was no procedural unfairness. Further, because the Applicants had asked the court to use its jurisdiction to force the Respondents to act according to the Applicants’ wishes, contrary to the Seminary’s by-laws, the court held that “such an order in and of itself may result in procedural unfairness.”

Finally, the court also stated that there was no reason to intervene when the Appellants had other “clear and well-established options” available, such as commencing an action with respect to the monies they had loaned to the Seminary; notifying the mortgagee that they had withdrawn their personal guarantee on the mortgage; campaigning to elect directors or members that would be supportive of the sale; or following the procedure in section 127.2 of the Corporations Act (Ontario) to remove directors not acting in the corporation’s best interests through a majority vote of the members. As such, the court dismissed the application, noting that the action commenced by the mortgagee, along with enforcement options available to other creditors, would likely compel the Respondents to either agree to the sale or find other ways to pay off the mortgage, loans, judgments, and other probable lawsuits.

This case is a reminder to all charities and not-for-profits, and not just religious organizations, of the importance of carefully crafted by-laws. As noted by the court, “[w]hen the by-laws of the Madina Seminary were drafted, perhaps it was not anticipated that the directors would ever disagree in the way they have. It is unfortunate that it was not thought prudent to allow for an uneven number of directors or set forth a procedure for when there is a tie vote.” As demonstrated in this case, where by-laws have been properly enacted, courts are reluctant to intervene in a charity’s internal matters, even where the result to the charity may be unfortunate.

Read the November 2019 Charity & NFP Law Update