BC Court Overturns Purported Removal of Directors of BC Society

by Dev User | Apr 29, 2021 | Uncategorized

April 2021 Charity & NFP Law Update

The Supreme Court of British Columbia released its decision in Brown v Brousseau on February 2, 2021, in which it considered a dispute between two groups of directors of the Burns Bog Conservation Society (the “Society”). The dispute involved, among other things, disagreement on the validity of the purported removal of certain directors by a minority of the board. In this regard, the Society’s board had nine directors split into two factions, with five directors on one side (the “Majority Directors”) and four directors on the other (the “Minority Directors”). A dispute between the Majority Directors and Minority Directors began when, after receiving allegations of employee bullying and harassment against Ms. Olson (one of the Minority Directors), the Majority Directors voted to remove Ms. Olson from her position as executive director and limit her responsibilities as president. The Minority Directors voted against Ms. Olson’s removal. At a subsequent meeting, the Majority Directors also voted to remove Ms. Von Kish, another Minority Director, from her role as secretary.

One day prior to a board meeting scheduled for June 25, 2020, Ms. Von Kish emailed the board with notice of a motion to remove all of the Majority Directors (the “Removal Motion”). The June 25 board meeting then proceeded according to the meeting agenda, (which did not include the Removal Motion). However, during the meeting Ms. Von Kish raised the Removal Motion during a vote on a separate agenda item. Ms. Von Kish then purported to take minutes of the board meeting (despite having been removed from her role as secretary), which minutes indicated that the Removal Motion was approved. The Minority Directors then took steps to invalidate previous motions approved by the Majority Directors, remove the Society’s accountant, replacing her with Ms. Von Kish, file a notice of change to remove the Majority Directors from the BC Registries records, change the Society’s bank account signatories, and redirect the Society’s mail. This dispute resulted in the Society’s bank accounts being frozen and its mail being held by Canada Post, which prevented the Society from paying rent, staff salaries, and meeting other financial obligations.

The Majority Directors argued that they did not vote on or approve the Removal Motion. In its analysis, the court found subsection 50(1) of the British Columbia Societies Act provides that directors can only be removed by way of a special resolution, or in accordance with a society’s by-laws, which was not done. The court further found that the Society’s by-laws provided that the Society had adopted Robert’s Rule of Order Newly Revised, 11th ed (“Robert’s Rules”) as its rules of order. In accordance with Robert’s Rules, the court found that “directors were only entitled to disrupt the order of business set out in that agenda with a two-thirds vote of the directors”, and that “Ms. Von Kish simply took it upon herself to raise the Removal Motion at various random times during the meeting.” In summary, the court held that there had not been a vote in favour of the Removal Motion in contravention of the Societies Act and the Society’s by-laws. Further, even if a vote had been held validly, any such vote was not validly held in accordance with Robert’s Rules.

The court then referred to section 105 of the Societies Act, which allows courts to remedy an “omission, defect, error or irregularity in the conduct of the activities or internal affairs of a society” that results in a contravention of the Act, the society acting contrary to its purposes, non-compliance with the by-laws of the society or other problematic scenarios listed in the Act. Relying on previous case law, the court found that intervention was warranted where “significant irregularities” existed and it was “unrealistic” to suggest “that there was any real possibility that any disagreements could be worked out informally or by some internal process”. The court found that the Removal Motion caused a significant irregularity by depriving the Majority Directors of their “legitimate right” to properly govern the Society, which in turn resulted in significant disruptions to the affairs of the society. Given the animosity between both factions of directors, the court found it appropriate to intervene, making 16 separate orders and declarations, including declaring that the Removal Motion was invalid and reinstating the Majority Directors. The court ordered that the Minority Directors cease and desist from holding themselves out as the sole directors of the Society and cease and desist from stating that the Majority Directors have been removed from the board. The court also ordered the Society to hold its annual general meeting within 60 days from the date of the decision in order to elect a new board of directors.

This case serves as a reminder to charities and not-for-profits that the board of directors governs an organization by majority vote in accordance with the organization’s by-law and governing legislation, and a minority faction of directors cannot do so. While courts may be reluctant to interfere in the internal affairs of an organization, where the actions of a minority faction of the board causes significant disruption in the operations of the organization contrary to its by-law and governing legislation, the courts will exercise their jurisdiction to take remedial action.

Read the April 2021 Charity & NFP Law Update

Ontario Superior Court Reluctant to Interfere in Sikh Temple Membership Dispute

by Dev User | Apr 29, 2021 | Uncategorized

April 2021 Charity & NFP Law Update

Ontario’s Superior Court ruled that even a technical irregularity in following its by-laws should not invalidate the decision of a religious organization to make decisions about its membership. Affirming recent jurisprudence, Dhaliwal v Singh, is an October 7, 2020 judgment that upheld a Supreme Court of Canada precedent that courts should not interfere in questions of membership in a religious organization except where there is an underlying legal dispute to decide. The applicant was a director of a non-profit organization, Nanaksar Satsang Sabha of Ontario (“Nanaksar”), that operated a Sikh temple in Brampton. After his membership was terminated and he was removed as a director due to allegations of misappropriating funds, the applicant sued for court intervention to declare his removal invalid and to have both his membership and directorship reinstated. The court dismissed the application.

Nanaksar had three directors: the applicant, Lakhvir Dhaliwal; a respondent, Gurmeet Singh; and Gurmukh Hunjan, a third director, and Nanaksar’s president — initially a respondent in this case (but died March 3, 2020). According to the respondents, who had surveillance footage, Dhaliwal pocketed donation money without their consent on four occasions in January and February, 2019. The respondents sent the applicant a letter on May 12, 2019, advising him that, pursuant to Nanaksar’s by-laws, they were removing his membership and office as Treasurer, requesting that he return keys, documents and property. The letter noted that Dhaliwal could make written submissions and had 15 days before the final decision. Dhaliwal contended that he was authorized to pocket the donation to pay some debts of Nanaksar by Hunjan; the respondents denied any such authorization was given. Dhaliwal sent a response letter, stating they had “no authority” to terminate his membership or remove him as Treasurer. He refused to return anything. Dhaliwal did not attend a May 27^th, 2019 meeting, where a resolution was passed terminating his membership, and a second resolution passed replacing him as a director. Under Nanaksar’s by-laws, to be a director required membership.

Dhaliwal argued “that Hunjan and Singh, illegitimately and wrongfully terminated the applicant’s membership, acted in bad faith and contrary to the principles of natural justice, procedural fairness, and good governance.” According to Dhaliwal’s reading of Nanaksar’s by-laws, the respondents failed to provide him with proper — seven days’ — notice of the May 27^th meeting, as they only sent him a text message on May 22^nd, five days prior. He also submitted evidence of instructions he received from Hunjan relevant to the four occasions on which he pocketed the donation money. Further, a failure to call an Annual General Meeting since 2015 precluded the election of directors, Dhaliwal argued.

The respondents argued that they complied with Nanaksar’s by-laws. They also argued that “Questions of membership in religious or voluntary associations are outside the jurisdiction of” the court. They also stated that the video footage “speaks for itself.”

Justice Thomas A. Bielby did not decide on the question of whether Dhaliwal was or was not misappropriating donations. Rather, the judgment focused on the issue of whether the respondents acted within their authority when they terminated Dhaliwal’s membership. Reviewing the Corporations Act, sections 127.2(1) and 129(1), Bielby J considered the statute “a vehicle by which members can make a change” and for directors “to pass by-laws, to regulate the qualifications of membership, and the ability to suspend and terminate memberships.” Citing Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v Wall, 2018 SCC 26, Bielby J adopted as part of his reasons that courts will not intervene in decisions of membership in a religious organization “ ‘save where it is necessary to resolve underlying legal dispute’ (para. 39).” From what was presented, Bielby J considered that the respondents had evidence on which to base their decision, stating they “were in a better position to judge than this court and the court should be reluctant to interfere.” Nanaksar’s by-laws set out the mechanism and procedure by which the board could terminate membership. While the notice of the May 27^th meeting may have “lacked formality” according to Bielby J, “the court ought not to interfere in breaches said to be technical in nature.” The procedure set out in Nanaksar’s by-laws was “effectively, met.” Ruling that the respondents were within their authority to terminate Dhaliwal’s membership, Bielby J further concluded that, by operation of the by-laws, his “appointment as a director was automatically vacated”.

Read the April 2021 Charity & NFP Law Update

Federal Court Confirms CRA’s Discretion Regarding ATIP Requests

by Dev User | Apr 29, 2021 | Uncategorized

April 2021 Charity & NFP Law Update

The decision of the Federal Court in 3412229 Canada Inc. v. Canada (Revenue Agency), released on December 16, 2020, provides a review of Access to Information and Privacy requests (or “ATIP requests”) made under the federal Access to Information Act (“ATIA”), the exemptions that the CRA may rely on and the discretion CRA may exercise in redacting or withholding information in response to an ATIP request. This case is relevant to charities and not-for-profits seeking to access information held by the CRA by way of an ATIP request submitted in the course of an audit.

In 3412229 Canada Inc. v. Canada (Revenue Agency), the applicants were a group of closely held numbered companies that had been the subject of a CRA audit in relation to their offshore investments. During and following the audit, the applicants made a number of ATIP requests pursuant to the ATIA and, in response, the CRA disclosed a large number of the requested documents to the applicants, while also claiming various exemptions over some of the documents and information disclosed.

After numerous complaints to the Office of the Information Commissioner and judicial proceedings challenging the CRA’s disclosure decisions, with mixed success, the applicants gained access to the previously withheld information under the evidentiary disclosure regime available in civil and tax litigation proceedings. However, the applicants also sought judicial review challenging the CRA’s decisions to exempt various documents and information from disclosure in response to the various ATIP requests and sought an order directing the CRA to conduct further investigation of its records to obtain additional documentation.

Of note to charities and not-for-profits, the CRA had relied on section 16(1)(b) of the ATIA, which states:

16 (1) The head of a government institution may refuse to disclose any record requested under this Part that contains

(b) information relating to investigative techniques or plans for specific lawful investigations;

In this regard, the applicants acknowledged the CRA’s discretionary ability to exempt records containing information relating to “investigative techniques or plans for specific lawful investigations”, but argued that the CRA’s reliance on this section to exempt “virtually all” records flowing from an audit was contrary to the ATIA because, as established by the Supreme Court of Canada precedent in R v. Jarvis, 2002 SCC 73, there is a distinction between an “audit”, which seeks to impose tax liability, and an “investigation”, which seeks to impose penal liability. As such, the applicants argued that the discretion of the CRA to withhold disclosure of documents and information pursuant to section 16(1)(b) of the ATIA would not be applicable in the case of an audit, only in the case of an investigation.

The Court rejected the applicant’s argument and agreed with the CRA, pointing to subsection 16(4) of the ATIA, which defines the term “investigation” as including an investigation that “pertains to the administration or enforcement of an Act of Parliament”. Since a tax audit pertains to the administration and enforcement of the ITA, which is federal legislation, the Court concluded that a tax audit is caught by the definition of “investigation” and, therefore, the CRA can rely on the exemption in section 16(1)(b) of the ATIA to redact information related to either audit techniques used by the CRA to identify taxpayers or guide its auditors in applying a specific ITA provision or a risk assessment tool used to evaluate and manage the risks of an ongoing audit.

The Court found that the CRA had reasonably exercised its discretion to withhold the information by considering that the negative consequences of disclosure would outweigh the public interest in disclosing the information. The CRA had a legitimate interest in protecting the investigative techniques that could be used in future audits, as well as the risk assessment tool being used for a specific ongoing audit.

In dismissing the application for judicial review, the Court also considered the mandatory prohibitions against disclosure in subsection 24(1) and Schedule II of the ATIA, which make reference to section 241 of the ITA, pursuant to which the CRA is not permitted to disclose third-party taxpayer information. The Court agreed with the CRA and, supported by the precedent of the Supreme Court of Canada in Slattery (Trustee of) v. Slattery, [1993] 3 SCR 430, found that subsection 24(1) of the ATIA provides a mandatory exemption that reflects “the importance of ensuring respect for a taxpayer’s privacy interests” and “[o]nly in exceptional situations does the privacy interest give way to the interest of the state”.

Read the April 2021 Charity & NFP Law Update

CRA News

by Dev User | Apr 29, 2021 | Uncategorized

April 2021 Charity & NFP Law Update