Occasionally, non-share capital corporations find
themselves in the perilous position of not clearly knowing who the directors of
the corporation are. These circumstances can be problematic for a host of
reasons. There are two significant reasons, however, why it is important for
non-share capital corporations to clearly know the identity of the directors of
i) While volunteer service as a director on the board
of a charity or non-profit organization is a worthwhile endeavour, those who
choose to act as directors are exposed to personal liability through a matrix
of common law and various provincial and federal statutes; and
ii) Determining by an action or application to the
courts who the directors of a corporation are can be an expensive and lengthy
As such, both the executive management (if applicable) and
the board of directors of non-share capital corporations should always clearly be
aware of who is on the board, and whether or not those individuals were validly
elected to the board in accordance with the corporation’s general operating
by-law and incorporating statute. In this regard, considerable expense can be
Two recently released Ontario Superior Court of Justice
decisions involve declarations being sought from the court concerning the
identity of the proper directors of non-share capital corporations. This Charity
Law Bulletin summarizes the decisions of Nigerians in Diaspora Organization
Canada (NIDO) v. Peter Ozemoyah and Saskatchewan WTF Tae Kwon Do
Association Inc., v. WTF Tae Kwon Do Association of Canada, and highlights
the lessons that can be learned from these decisions.
B. SUMMARY OF DECISIONS
1. Nigerians in Diaspora Organization Canada (NIDO) v. Peter
On August 15, 2011, the Ontario Superior Court of Justice
released its decision in Nigerians in Diaspora Organization Canada (NIDO) v.
The plaintiff, Nigerians in Diaspora Organization Canada (“NIDO”), a federally
incorporated non-share capital corporation under letters patent dated July 9,
2004, sought summary judgment concerning whether the issue of whether the
defendants were validly elected as the directors of NIDO was a valid issue for
By way of background, the membership requirements
contained in the general operating by-laws of NIDO limited membership to those interested
in furthering the objects of the corporation and those whose application for
membership into the corporation was approved by the board. The court found that
no members were ever admitted into the corporation, and as such, the only
members of the corporation were the original incorporators on the application
for letters patent.
However, in 2005 certain individuals called a meeting of
NIDO and purported to elect an entirely separate board, the defendants,
resulting in the filing of conflicting annual reports with Industry Canada.
In this regard, the defendants argued that the intention
behind the incorporation of NIDO was that it was to operate under NIDO Americas
Inc., a corporate umbrella organization for various NIDO organizations, and was
to be the corporate vehicle through which the purposes of NIDO Americas Inc.
would be fulfilled in Canada. As such, the defendants noted the fact that a
director of NIDO Americas Inc. paid half of the legal expenses in the
incorporation of NIDO. The circumstances in the decision only arose as a result
of the original incorporators refusing to surrender the corporation to NIDO
Nonetheless, the court found that the election and
composition of the board is governed by the Canada Corporations Act,
under which NIDO was incorporated, and the general operating by-laws of the
corporation. In this regard, the court adopted the approach of Justice Lederer
in the decision of Warriors of the Cross Asian Church v. Masih,
wherein the court found an error that went to the very heart of an election and
as a consequence ordered a winding-up of the corporation in that matter.
As the error in this case pertained to the qualification
of the individuals who purported to vote in the defendant board or directors, the
court found that there was no genuine issue for trial with respect to the
identity of the directors of NIDO, as the only directors could be the original
incorporators. However, it should be noted that the resignation of one of the
original incorporators, for which there was evidence, and the appointment of
his successor, for which there was no evidence, meant that the court could only
determine that two of the original incorporators were the valid directors of
2. WTF Tae Kwon Do Association Inc., v. WTF Tae
Kwon Do Association of Canada
On August 30, 2011, the Ontario Superior Court of Justice
released its decision in Saskatchewan WTF Tae Kwon Do Association Inc., v.
WTF Tae Kwon Do Association of Canada.
In Saskatchewan WTF Tae Kwon Do Association Inc., the court similarly
grappled with an application wherein the applicant, TKD Saskatchewan, a
corporate member of TKD Canada, sought declaratory relief, which included that
the current board of directors of TKD Canada did not have legal authority to
act for TKD Canada, as well as interlocutory and permanent injunction
restraining TKD Canada from holding any further directors or members meetings.
The application was brought under section 106 of the Canada
Corporations Act, which grants the court with the power to order a meeting
of members on the application of any director or any member who would be
entitled to vote at the meeting.
Similar to NIDO, TKD Canada also incorporated federally
under the Canada Corporations Act in 1981. TKC Canada receives the
majority of its funding through Sport Canada under the Ministry of Canadian
Heritage. In 2004, TKD Canada adopted a new by-law, which was never properly
filed with Industry Canada. In 2010, a further new by-law was adopted which was
properly filed with Industry Canada, as well as Sport Canada who required certain
changes in the 2010 by-law in order for TKD Canada to continue to receive funding.
However, it was later discovered that since the 2004 by-law was never the
proper by-law of the corporation, the by-law in force at the time of its
passing was the 1981 by-law. As a result, the applicants launched their
application seeking to set aside the business conducted at various meetings
The court concluded that the matter was not proper for an
application, and should be converted to a trial given certain credibility
issues related to some of the affidavit evidence, as well as the facts in
In addition, given the fact that a representative from
Sport Canada indicated to the court that Sport Canada could not confirm that
funding would be continued were a new board to be elected, the court concluded
that the matters relating to the corporate governance and operations of TKD
Canada, as well as the potential impact on its funding, could not be decided
via an application.
C. RECOMMENDATIONS AND CONCLUSION
While these lower court decisions are
relatively minor in importance in terms of their precedential value, they
illustrate to non-share capital corporations the importance of complying with the
corporation’s incorporating statute, general operating by-laws and the
requirements of any other stakeholders to the corporation, such as providers of
funding, in establishing and following an electoral process for directors.
Otherwise, duelling sets of directors may wind up in court as occurred in the
above examples concerning the identity of the validly elected directors.
In addition, as indicated in previous Charity
Law Bulletins, directors can face exposure to personal liability under
various statutes, including the Income Tax Act and Excise Tax Act for employee remittances, or under the Charities Accounting Act in
Ontario for breach of trust.
As such, while generally the court will
not interfere with the election of directors absent some evidence that irregularities
led to the infringement of the rights or privileges of any party, non-share
capital corporations should generally adhere as much as possible to the
dictates of corporate law. Therefore, where there is uncertainty concerning who
the directors of the corporation are or the proper procedures for their
election, reference should be made to the governing documents of the corporation,
such as the letters patent and general operating by-law for guidance. A legal
audit of the corporation’s constating documents could be of assistance in this