On May 20, 2016, the B.C. Court of Appeal upheld a claim for specific performance by Habitat for Humanity Canada (“Habitat”) pursuant to an affiliation agreement in an appeal of the decision of the B.C. Supreme Court by Hearts and Hands for Homes Society (“HHHS”).
The case involved a dispute between Habitat as a national umbrella organization and HHHS as one of Habitat’s affiliate members. As a Habitat affiliate, HHHS is also required to enter into an affiliation agreement with Habitat. The agreement gives affiliates a non-exclusive sublicense to use the intellectual property associated with the “Habitat for Humanity” marks, to solicit donations, and to carry out the charitable activities to provide affordable housing to individuals in need in Canada.
The dispute arose as a result of HHHS’s non-compliance with the requirements under the affiliation agreement, which led to Habitat invoking the disaffiliation process set out in Habitat’s disaffiliation policies. Upon completion of all six stages of the disaffiliation process, Habitat determined that HHHS did not bring itself into compliance with the affiliation requirements, disaffiliated HHHS, and proceeded to enforce the provision of the affiliation agreement to require the net assets of HHHS be transferred to Habitat.
We reported in our JulyAugust 2015 Charity & NFP Law Update regarding the decision of the lower court released on July 8, 2015. On appeal, the BCCA dismissed all grounds of the appeal and upheld the specific performance as granted by the trial judge, declaring that the net assets of HHHS are assets of Habitat.
Many umbrella organizations utilize a similar structure whereby affiliates or chapters are required to comply with certain requirements or standards, non-compliance with which would lead to disaffiliation. For these organizations, a few lessons can be learned from this case in structuring such a relationship:
First, this case shows the willingness of the courts to uphold reasonable provisions set out in an affiliation agreement entered into between charities.
Second, it is important for parties to comply with the process set out in their policies and agreements. Both courts in this case agreed that their role was not to conduct a judicial review of the reasonableness of Habitat’s decision to disaffiliate HHHS, but to determine whether Habitat complied with the process in its own disaffiliation policy.
Third, when structuring the mechanism for the disaffiliation process, it is important to consider the purpose of such a process and the fairness of the process. It is interesting to note that the Court of Appeal “agree[d] with the judge’s comments … that the disaffiliation policy is designed to benefit affiliates experiencing difficulty as it offers a defined path to remain in or return to good standing. The aim is to keep the affiliate in the Habitat family. The policy should be interpreted with this goal in mind.”
Fourth, before entering into an affiliation agreement, affiliates should be given an opportunity to provide input or feedback to the terms of the agreement. In this case, the court found that HHHS did not provide any input although an opportunity was given by Habitat.
Fifth, it is helpful for parties to confirm in the affiliation agreement and constating documents their respective purposes and how they align with each other. In this case, the court held that HHHS did not have a “distinct charitable purpose from that of Habitat.” Instead, HHHS’s charitable purpose was substantially the same as that of Habitat and the affiliation agreement states that the affiliate’s purpose is consistent with the purpose of Habitat.