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April 2020 Charity & NFP Law Update Ontario Court Decision Provides Reminder to Carefully Follow By-laws The Ontario Superior Court of Justice released its decision in Hellenic Congress of Quebec v Canadian Hellenic Congress on April 14, 2020, in which it considered an application from le Congrès Hellénique du Québec (“CHQ”) against the Canadian Hellenic Congress (“CHC”), a national not-for-profit umbrella organization comprised of provincial bodies, including CHQ. In 2016, CHC had continued under the Canada Not-for-Profit Corporations Act (“CNCA”) and passed a new constitution (the “2016 Constitution”) to supersede its previous constitution (the “1999 Constitution”). CHQ alleged that the 2016 Constitution was not passed in accordance with the 1999 Constitution and was therefore invalid, and sought that the 1999 Constitution remain in effect; that an election of members held in 2016 be nullified; and that CHC’s formation of a new “Quebec Regional Council” (“QRC”) was invalid. In enacting the 2016 Constitution, CHC acknowledged that it had not strictly complied with the 1999 Constitution, but that it was not invalid, in part, because it had followed the “Rules of Procedure for the Convention” passed by CHC in 1993 (the “1993 Rules of Procedure”); the National Council was authorized to amend the Constitution; and the ratification of the 2016 Constitution addressed the procedural defects. However, the court found that the 1993 Rules of Procedure did not alter the process for amending the constitution, because the procedure for doing so was explicitly outlined in section 19 of the 1999 Constitution. It found that the 1993 Rules of Procedure derogated from the terms of the 1999 Constitution and had not been passed in accordance with section 19 therein. Further, the 1993 Rules of Procedure had not been incorporated into the 1999 Constitution, and those amendments would have had to comply with section 19 of the Constitution. Similarly, the court found that a resolution passed in 2012 that delegated authority to the National Council to amend the Constitution had also derogated from section 19 of the 1999 Constitution, and was therefore also invalid. Further, the court found that a “special meeting” held to approve the 2016 Constitution was not validly held. The 1999 Constitution required amendments be passed by the National Assembly (CHC’s “supreme PAGE 10 OF 20 April 2020 www.carters.ca www.charitylaw.ca governing body”, comprised of provincial and local organizations represented by delegates), but instead, the National Council (which functioned as CHC’s Board of Directors) had “passed” the 2016 Constitution. Further, an annual convention of delegates, rather than a “special meeting”, was also required to be held to approve the proposed amendments. As well, the court found that quorum for the “special meeting” in question in accordance with the 1999 Constitution had not been met. Accordingly, the court found that the 2016 Constitution was not properly approved at the “special meeting.” Further, it found that ratification was also provided for under the 1999 Constitution, and that CHC could not rely on the ratification procedures in the 2016 Constitution to ratify the 2016 Constitution. With regard to QRC, because CHQ had failed to pay its membership fees since 2012, CHC had believed that CHQ had ceased to be a member, and created QRC to take the CHQ’s place. However, the court had found that under the 1999 Constitution, CHQ was not a member but rather a “provincial organization,” and that membership privileges could not be suspended or revoked for failure to pay fees. Further, the court found that, where no provincial organization exists in a particular province, the 1999 Constitution permits CHC’s National Council to create a “regional board” to function as an interim provincial organization until a provincial organization is established. However, as CHQ continued to exist as a provincial organization, the court found that the National Council had no authority to create a QRC as a regional board. Finally, with regard to the election held at the 2016 Convention (the “2016 Election”), the court found that the election had been called in accordance with the requirements under the 1999 Convention, and that it had therefore been validly called and held. In providing relief to CHQ, the court found that because the 2016 Constitution was drafted to comply with the CNCA and was filed with Industry Canada as CHC’s by-laws, it would be “problematic” to declare the 2016 Constitution invalid. Rather, it declared specific provisions of the 2016 Constitution impacting CHQ’s rights to be suspended, or declared to have no force or effect until properly amended in accordance with section 19 of the 1999 Constitution. As the court found no authority to dissolve QRC, it limited its relief in this regard to a declaration that QRC was created improperly and without authority. This case is a helpful reminder that charities and not-for-profits are required to carefully follow their bylaws, particularly where derogating from them may affect the rights of third parties. Where any provisions set out in the by-laws are not followed, then the resulting acts taken by a charity or NFP may be declared invalid. Read the April 2020 Charity & NFP Law Update Direction and Control: Current Regime and Alternatives
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