Ontario Court Follows Wall in Unincorporated Association Decision
June 2020 Charity & NFP Law Update
Published on June 25, 2020

By Ryan M. Prendergast

The Ontario Superior Court of Justice released its decision in a well-publicised case, Karahalios v Conservative Party of Canada, on May 20, 2020. While the crux of this case revolves around the disqualification of Mr. Jim Karahalios from the federal Conservative Party’s leadership contest as a result of allegedly making racist comments, in arriving at its decision, the court considered its jurisdiction to intervene in the affairs of unincorporated associations. In doing so, it referenced and upheld the Supreme Court of Canada’s decision in Highwood Congregation of Jehovah’s Witness (Judicial Committee) v Wall (“Wall”), discussed in Church Law Bulletin No. 54.

Mr. Karahalios had been a candidate in the Conservative Party’s upcoming leadership contest. A complaint had been filed against him with the Conservative Party’s Chief Returning Officer (“CRO”) for allegedly making Islamophobic remarks. After an investigation by the CRO, a decision was made to impose a reporting obligation and financial penalty on Mr. Karahalios. He appealed the CRO’s decision to the Dispute Resolution Appeal Committee (“DRAC”), and the DRAC subsequently disqualified him entirely from the leadership contest.

Mr. Karahalios then brought the matter to court, seeking to have his disqualification set aside. As a private unincorporated association, the Conservative Party argued, in part, that the court did not have the jurisdiction to review the decision. In this regard, the court noted that, in order for it to have jurisdiction to intervene in private unincorporated associations’ affairs, a legal right founded in tort, contract, restitution, or statute must be at stake.

The court indicated that it did not have the jurisdiction to review the substantive merits of a private unincorporated association’s decision, and that its role in reviewing the decision was “very much circumscribed.” It stated that written constitutions or by-laws of unincorporated associations constituted a “contractual relationship setting out the rights and obligations of the unincorporated association and its members.” The court therefore had jurisdiction to review decisions and procedures as a matter of contractual interpretation, and to enforce the contractual rights between the association and it members, as well as between the members themselves. However, this jurisdiction is limited to where “a significant private law right or interest is involved,” and is further limited to whether the association’s decision was carried out in accordance with the contractual terms and with the principles of natural justice (i.e. procedural fairness) rather than a review of the merits of the association’s conduct or decision.

Although the Conservative Party argued that its governing documents contained a provision stating that the Conservative Party’s decisions were final and binding without appeal (i.e. a “finality clause”), the court retained a “limited jurisdiction to review the procedural integrity of the association’s action,” and that notwithstanding the finality clause, the court had jurisdiction to determine whether the Conservative Party acted in accordance with its rules, the principles of natural justice, and whether the decision was bona fide. In this regard, the court indicated that the Conservative Party’s argument “would lead to the absurd conclusion that unincorporated associations governed by contract are beyond the rule of law and the court’s normative contract law jurisdiction and access to the courts would be ousted,” and that Wall did not support “that patently unfair and unjust interpretation of a contract or of the law that governs associations operating in the private sector.” The court therefore found the Conservative Party’s decision was subject to private law review.

As a matter of contractual interpretation, the court ultimately found that the DRAC did not have the authority to disqualify Mr. Karahalios, but that the CRO had the authority to make its ruling to impose a reporting obligation and financial penalty on Mr. Karahalios. It therefore set aside the DRAC’s decision, reinstated Mr. Karahalios, and ordered the CRO’s decision to be restored.

This decision upholds the Wall decision, and is a helpful reminder of the limited jurisdiction that courts have to review decisions and actions taken by unincorporated associations. However, despite this limited jurisdiction, it is clear that unincorporated associations must abide by their governing documents and act in a procedurally fair manner, and further that the court may have jurisdiction over matters even where a finality clause exists.

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Read the June 2020 Charity & NFP Law Update