Directors and officers of federally incorporated charities and NFPs have both a statutory standard of care and common law fiduciary duty to act in good faith with a view to the best interests of the corporation. This duty at common law is illustrated in Bhadra v Chatterjee, where the Ontario Superior Court of Justice (the “Court”) considered a dispute between the board of directors (referred to as the “board of trustees”) of Toronto Kalibari, a NFP religious organization (“Kalibari”), over the amendment of by-laws upon their transition to the CNCA. This case is not the first instance that a trustee of Kalibari has filed a lawsuit against two of the Respondents. The first instance was in the case of Pal et al. v Chatterjee et al., reported in the March 2013 Charity Law Update.
In this case, Bhadra, a trustee of Kalibari (the “Applicant”), brought a motion seeking to stop three other trustees, Chatterjee, Dey and Ghosh (the “Respondents”), from calling a meeting of the board to vote on the proposed new by-laws. The Applicant further sought for the Court to redraft the by-laws or, in the alternative, to be granted leave to commence a derivative action.
At a meeting discussing the process of internal revision of Kalibari’s by-laws, a dispute arose between the Applicant and the Respondents. Subsequently, the board of trustees held a discussion about hiring a lawyer to revise Kalibari’s by-laws for the CNCA transition. Five of nine trustees voted in favour of retaining a lawyer, Mr. Box, to do the work. Two of the Respondents subsequently went by themselves to discuss the retainer with Mr. Box without first consulting with the remaining trustees on the work to be done.
The Court allowed the application, in part, “on the basis that the Respondents did not act in good faith in the manner in which they retained counsel to draft new corporate by-laws and invited corporate counsel to a meeting of the board […] without notice to the applicant”. In this regard, it stated that the “Respondents should have expected that the “minority” trustees would want an opportunity to liaise with the lawyer before the first draft was prepared.”
The Court stated that “the Respondents acted in bad faith and without the authority of the board when they retained Mr. Box and the by-laws drafted by him were drafted on behalf of the Respondents”. As such, the court prohibited the Respondents from holding a meeting to vote on the said by-laws. The Court ordered that all parties be returned to their previous positions, and that Kalibari retain new legal counsel, namely someone other than Mr. Box or two other lawyers that had been hotly debated by the trustees. This case serves as a reminder that, even where there is conflict between members of a board of directors, each director must uphold the statutory standard of care and the duty to always act in good faith with a view to the best interests of the corporation on which they serve, as they may be held personally liable for their actions.