May 2019 Charity & NFP Law Update
On May 14, 2019, the Supreme Court of British Columbia released its judgment in Chouman v. Omar Al-Farooq Islamic Society. The respondents, which operate the Masjid Omar Al-Farooq Vancouver Mosque (the “Mosque”), included three organizations governed by the BC Societies Act, namely, the Omar Al-Farooq Islamic Society, the Othman Bin Affan Islamic Society and the Omar Al-Farooq Islamic Foundation, a registered charitable corporation, (together, the “Societies”), as well as five individuals purporting to act on behalf of the Societies. The petitioners, Abdul Quadir Chouman and Ahmed Mohamoud, sought various remedies against the respondents for terminating their membership and directorship in the Societies, alleging oppressive and unfairly prejudicial behaviour within the meaning of section 102 of the Societies Act.
The petitioners argued that two of the individual respondents, who were directors, members and moderators of the Societies (the “Ibrahims”), attempted to gain control of the Societies by removing the petitioners as directors and members. The petitioners alleged that on February 12, 2018, the Ibrahims, knowing that Mr. Chouman was in hospital and Mr. Mohamoud was out of the country, called a membership meeting but did not comply with the applicable notice requirements in the by-laws for the Societies. While each of the Societies had its own by-law, given their similarities, the court treated the by-laws as one in its reasons. The membership meeting was adjourned due to lack of quorum, but the petitioners were not notified of the adjourned meeting date. At a subsequent meeting held on March 18, 2019, which Mr. Mohamoud attended in person and Mr. Chouman attended by proxy, resolutions were adopted removing the petitioners as members and directors of the Societies. The Ibrahims were only able to obtain a voting majority by rejecting the signed proxy given by Mr. Chouman appointing Mr. Mohamoud to speak and vote on his behalf, on the basis that a typographical error regarding the date of the meeting disqualified the proxy.
While it is beyond the scope of this article to fully describe all of the disagreements between the petitioners and the Ibrahims, the petitioners alleged that after removing the petitioners as directors and members, the Ibrahims began to transfer the assets of the Societies and that Abdusalam Ibrahim was using the Societies’ funds to pay for his personal legal fees. The petitioners alleged that Abdusalam breached his fiduciary duty of loyalty and good faith to the Societies, which he owed to the Societies as a director, and that by removing the petitioners as directors and members of the Societies, the Ibrahims acted solely in their own interests and not in the interest of the Societies.
In response, while the Ibrahims acknowledged that there were technical breaches of applicable corporate law requirements, they argued that in the context of small societies “mere failure to adhere to technical formalities does not justify the imposition of the oppression remedy.”
In finding that the respondents’ conduct amounted to oppression and unfairly prejudicial and/or illegal conduct towards the petitioners, the court stated that the respondents could not excuse their failure to follow the Societies’ by-laws by calling their behavior a mere failure to adhere to technical formalities. In granting all of the remedies sought by the petitioners, including their reinstatement as members and directors of the Societies and requiring the respondents to produce an accounting of the Societies’ financing within seven days of the date of the court order in relation to the Societies’ funds, assets and expenditures, the court noted that subsection 102(2) of the BC Societies Act grants the court broad remedial powers.
This case serves as an important reminder to charities and other not-for-profit corporations that it is essential to comply with corporate law requirements outlined in the general operating by-law of an organization, and to do so in a reasonable and fair manner. Otherwise, decisions made at a meeting of members or directors can be subject to legal challenge and are vulnerable to being overturned.