Divisional Court Upholds Order for Election of Common Board by De Facto Members
January 2021 Charity & NFP Law Update
Published on January 28, 2021

By Esther S.J. Oh

An Ontario Divisional Court ruling dismissed an appeal of a decision recognizing that the members of one not-for-profit were de facto members of another charity. On January 6, 2021, the Divisional Court in Bose v Bangiya Parishad Toronto (the “Appeal”) dismissed the appeal of an August 26, 2019 Superior Court decision on two applications that awarded costs (the “Applications”). The Applications, discussed in the October 2019 Charity & NFP Law Update, concerned a dispute that arose in 2016 between the Prabasi Bengal Cultural Association, which organized cultural events for members of the Bengali community (“Cultural Organization”), and the Bangiya Parishad Toronto (“Religious Corporation”), which are both not-for-profit corporations incorporated under the Corporations Act (Ontario).

For several decades, the two organizations had a common board of directors and issued consolidated financial statements. The Religious Corporation owned the community centre — the Tagore Centre — from which both organizations have carried out their programs over the years. The Cultural Organization was properly organized under its incorporating statute and held membership elections. In contrast, the Religious Corporation was never properly organized from a corporate law perspective. The board of directors of the Cultural Organization functioned as the board of directors for both corporations, and members of the Cultural Organization were always treated as members of the Religious Corporation, even though the by-laws of the Cultural Organization did not mention the Religious Corporation.

When the dispute arose, a minority of the Religious Corporation’s board took action to nullify the election of that board and purported to form a new board of directors for the Religious Corporation (the “New Board”). The New Board then began to govern the Religious Corporation independently of the Cultural Organization and took steps to change the locks of the Tagore Centre so the Cultural Organization members could no longer access it. The Applications were brought by the Cultural Organization: (1) To regain access to the Tagore Centre (“Lease Application”); and (2) To resolve the issue of who were the lawful directors of the Religious Corporation are (“Governance Application”). The Applications judge ordered: (1) That the Religious Corporation must deliver the keys for the Tagore Centre to the Cultural Organization; and (2) That an election be held for a new common board of directors within 30 days where the paid-up members of the Cultural Organization would be entitled to vote. The Applications judge also awarded costs of $20,000 in favour of the applicants in the Lease Application and $35,000 to the applicants in favour of the Governance Application.

The Religious Corporation appealed the orders and also argued that the costs were excessive. The Divisional Court noted that it was not possible to call a meeting of the members of the Religious Corporation, because the Religious Corporation had not taken the formal steps necessary to enact its own by-laws or admit its own members. However, the Divisional Court recognized that this does not mean that the Religious Corporation did not have members, as the Religious Corporation had treated the members of the Cultural Organization as its members for decades, and the members of the Cultural Organization had regarded themselves as members of the Religious Corporation. In this regard, the Divisional Court recognized that the Religious Corporation’s members, were the paid-up members of the Cultural Organization and s. 297 of the Corporations Act (Ontario) gave the Application Judge the authority to have those members hold a meeting to determine whom they wished to run their organizations, as the most practical and democratic option.

As mentioned earlier in this summary, the Divisional Court upheld the findings in the Applications. This decision illustrates what can happen when factions within a not-for-profit corporation attempt to take over control of the board of directors in a manner that is prejudicial to the rights of its members. This case also affirms the importance of complying with basic corporate law requirements (including adoption of an appropriate by-law and complying with by-law provisions).

Read the January 2021 Charity & NFP Law Update