A. INTRODUCTION
On December 8, 2011, the Ontario Superior
Court of Justice released its decision in Sikh Cultural Society v. Kooner (“Sikh
Cultural Society”). The decision concerns two factions in competition with each other over the
leadership of a religious not-for-profit corporation. As with many internal
conflicts involving not-for-profit corporations that are dragged into court,
the leadership of the faction in power was under scrutiny, as was the list of
members. This decision is notable in that it stresses the importance of
maintaining adequate recordkeeping for the purpose of establishing the validity
of memberships.
As illustrated in this case, it is
important to be able to determine the number of valid memberships for the
purpose of the processes set out in the Corporations Act (e.g. requisitioning a
meeting of members) and, if applicable, the constitution of a corporation (e.g.
calling a non-confidence vote). Adequate recordkeeping facilitates a
straightforward determination of valid memberships. As well, it can be relied
upon as evidence when faced with litigation concerning the validity of
memberships. It is also a requirement under the Corporations Act for a
register of members to be maintained by a not-for-profit corporation.
B. SUMMARY OF THE FACTS
The Sikh Cultural Society decision
revolved around two factions that were competing for the leadership of a
religious and cultural centre for the Windsor and Essex County Sikh community
(“the Society”). According to Article V of the Society’s Constitution, the
Society was to be governed by seven individuals on an Executive Committee, who
were to be elected every two years for a two year term.
One of the factions involved in the
dispute was the former Executive Committee (“FEC”) of the Society. For reasons
unexplained in the decision, the members of the FEC had not run in the most
recently called election in 2009, yet challenged the power of the New Executive
Committee (“NEC”). The FEC also supported the creation of a new chief executive
officer-like position that was not provided for in the Constitution, which
would be known as the “Jathedar”. The Jathedar would be an appointee that would
hold office for life, could appoint a successor, and would not be accountable
to the Executive Committee or the membership for any decisions made regarding
the properties owned by the Society. Members of the FEC were the respondents in
this application.
The second faction was the NEC, the members
of which were acclaimed in the most recently called election in 2009. Members
of the NEC were the applicants in this application.
The conflict between these factions
appears to have begun when, contrary to the established practice of the
Society, the keys for the centre, the official seal, letterhead, minute books,
official correspondence, used and unused receipt books, cheque books and
outstanding applications for membership were not turned over to the NEC (who
had recently been elected as the Executive Committee) at the Society’s year end
in December, 2009.
The NEC commenced an application
requesting that the FEC transfer control of the Society to the NEC in January,
2010. R.S.J. Ducharme ordered on an interim basis that the NEC were the proper
signing authorities on the Society’s bank accounts and all donations were to be
deposited into the Society’s accounts. Although the FEC eventually turned over
the books and records to the NEC in February, 2010, the NEC alleged that the
FEC continued to accept donations and sign official Society charitable donation
receipts up until the end of February, 2010.
In early 2010, the FEC began organizing a
non-confidence vote, pursuant to Article XI of the Society’s Constitution,
which could be used to replace the NEC. In order to hold the non-confidence
vote, the FEC requested an updated list of members from the NEC. However, the
factions disagreed about the number of members due to inadequate recordkeeping
by the FEC and steps taken by the NEC to remediate the Society’s past practice
of not addressing new membership applications in a timely manner. At the time
that the NEC was elected, it appears that the FEC had not processed all of the
pending membership applications, as was required by the Society’s Constitution.
When the NEC was acclaimed, it approved these pending membership applications.
Accordingly, the FEC disputed the validity of these approved memberships.
The issue of the number of members was
also complicated by the NEC’s termination of the membership of 20 members in
August, 2010. The NEC had given these members written notice of a hearing date
for disciplinary action, but none of the members showed up for the hearing or
provided a response in writing. The NEC subsequently terminated their
membership. Although the Constitution provides that such a decision can be
appealed to the membership at the next annual general meeting, no such meeting
had been held since the termination of the memberships.
Shortly after the termination of
memberships, the FEC held a meeting called for the purpose of conducting the
non-confidence motion. The FEC requested that the NEC provide it with a list of
members (“NEC’s post-election list”). However, the list of members used for
the purpose of voting in the non-confidence vote, was not that prepared by the
NEC, but was a list that was prepared by the FEC that included more members
than that which were on the membership list immediately prior to the election
(“FEC’s post-election list”). In other words, it appears that the number of
members increased even though the FEC lacked the power to approve new
memberships. Although the non-confidence motion was successful, the NEC
proceeded to take control of the Society and resolved to freeze the granting of
new memberships in August, 2010.
C. THE DECISION
1. The Membership List
An interesting aspect of this case is
that the FEC argued that the Court should determine the validity of memberships
by having a referee determine who the bona fide members were based on
documentary and other evidence. The referee would have the authority “to make
such inquiries as are required to determine whether a putative bona fide member meets or could meet the bona fide member status criteria as
established by the court on the proper interpretation and application of the
Constitution and applicable legislation governing the Society.” In contrast, the NEC
argued that the Court interpret and apply the provisions of the Society’s
Constitution and the Corporations Act (Ontario).
The Court chose to use the NEC’s approach
to determine the validity of the memberships. It appears that the Court’s
censure of the FEC’s poor recordkeeping and failure to address pending
membership applications in a timely fashion played a significant role in the
Court’s determination of memberships. The Court noted that the FEC’s inadequate
and in some cases, non-existent, recordkeeping contributed the difficulties in
ascertaining the members.
It should be noted that the court
refused to accept the FEC’s documentation to support the FEC’s post-election
list on the basis that the originals of documents were never produced for the
Court. A ledger was produced which appeared to be, in the Court’s own words,
“the result of a “cut and paste” exercise”. Without any reasonable explanation,
the Court reasonably inferred that the ledger was a reconstruction of the
original ledger. The Court also found it suspect that such a high number of
photocopied membership applications were apparently obtained from potential
members and submitted to the Court for the purpose of determining the
membership. It was difficult to believe that all of the potential members alleged by FEC
with pending membership applications would keep a photocopy of their
application.
The Court ultimately decided that the
NEC’s post-election list, which adhered to the criteria for membership under
the Society’s Constitution, was a valid list. After its election, the NEC was
the only body entitled to approve new membership applications, and therefore it
was within its right to so approve the pending applications that the FEC failed
to process during its term in office. With regards to the membership freeze,
the Court found that the resolution by the NEC to implement a membership freeze
was validly passed and that the NEC had valid reasons for doing so (e.g. to
avoid violence between the parties). However, the Court also found a pre-election list of members compiled by the
FEC was also a valid list, as this particular list referred to memberships that
were approved by the FEC while it was still in office. Therefore, any person
whose name was on the NEC’s post-election list or the FEC’s pre-election list
were members entitled to vote.
2. Expelled Members Must be Reinstated
The Court held that the members, whose
memberships were terminated in August, 2010 by the NEC, must be reinstated as
members and given the opportunity for their termination to be reviewed and
reversed at an annual general meeting. In this regard, the court found that
principles of fairness would require that these individuals be reinstated in
order to vote in the elections and to be nominated or positions in the Society.
In addition, the Society’s Constitution also permitted these individuals to
seek reinstatement as members and they had given written notice that they wished
to do so.
3. No Non-Confidence Motion
The Court declined to order a
non-confidence motion because an election would be the most effective mechanism
of oust undesired members of the NEC, if such was actually the case, and
legitimize the leadership of the elected candidates.
D. CONCLUSION
This decision illustrates the importance
of not-for-profit corporations maintaining adequate records, particularly in
relation to members. In the face of internal conflict, records facilitate the
determination of who is a member, as well as acts as evidence when attempting
to establish the list of members. The ability to ascertain the membership of a
not-for-corporation is underrated in relation to the day-to-day operations.
However, as illustrated in the Sikh Cultural Society decision, as well as in
other similar cases that have been recently litigated, the membership list
determines which individuals may participate in key decision-making, such as
determining the identity of the individuals who will govern the not-for-profit
corporation.
