Aug 2023 Charity & NFP Law Update
The Superior Court of Justice of Ontario has provided insight into situations in which members may bring an oppression remedy against the directors and senior management of a federal not-for-profit corporation. Under section 253 of the Canada Not-for-Profit Corporations Act (“CNCA”), oppressive behavior may include the exercise of the powers of the directors or officers of a corporation that unfairly disregards the interests of any shareholder, creditor, director, officer or member of the corporation. If the court is satisfied that such actions have occurred, the court may make an order to rectify such oppressive behaviour.
In the context of the case of ACTRA Performers’ Rights Society v Re:Sound, decided on June 14, 2023, the ACTRA Performers’ Rights Society (the “Plaintiff” and a federal not-for-profit corporation) brought an oppression claim against Re:Sound, another federal not-for-profit corporation of which the Plaintiff was a member. The Plaintiff also brought an oppression claim against three of Re:Sound’s directors and its senior management (the “Individual Defendants”), alleging (among other things) that Re:Sound was not fulfilling its mandate to implement, advocate for, and properly enforce tariffs set by the Copyright Board of Canada for performers and makers of sound recordings. The Individual Defendants brought a motion before the court asking that the claims against them be struck and to have the action against themselves dismissed.
The court considered whether there was no reasonable prospect of the Plaintiff’s claim succeeding at trial, assuming that all of the facts pleaded by the Plaintiff were true. To do so, the court looked at the Plaintiff’s statement of claim and considered whether the required elements of an oppression claim against officers and directors of a corporation were present, relying on the test from the Supreme Court of Canada’s decision in Wilson v Alharayeri (“Wilson”) which requires that:
- the alleged oppressive conduct can be attributed to the individual because they exercised or failed to exercise their powers so as to effect the oppressive conduct; and
- the imposition of an order against the individual director or officer (personal liability) is a fair way of dealing with the situation because:
- they obtained a personal benefit from their conduct,
- they increased their control of the corporation by their oppressive conduct,
- they breached a personal duty they have as directors,
- they misused a corporate power, and/or
- a remedy against the corporation would prejudice other security holders.
With regard to the claims against the three Individual Defendants who were directors of Re:Sound, the plaintiff alleged that these directors (who were all senior employees of major record labels in Canada) preferred the interests of their employers over the best interests of Re:Sound. The five Individual Defendants who were the senior management of Re:Sound were alleged by the Plaintiff to have adopted a new fee policy that furthered their own agenda to expand Re:Sound’s core mandate by providing lower fees to competitors of the members of Re:Sound and to have funded an IT system that would provide better service to these competitors rather than one that would facilitate the activities of the members of Re:Sound.
The Individual Defendants argued that they could not be held personally responsible for things that happened before they had any involvement with Re:Sound. Further, they argued that there were no specific claims attributable to an Individual Defendant of particular acts or omissions that resulted in oppression. However, the court indicated that at the current stage of the matter, it only needed to be satisfied that the oppression claim against the Individual Defendants was not doomed to fail. The court concluded that the allegations that the Individual Defendants were motivated by external interests that caused them to move Re:Sound away from its core mandate were sufficient to demonstrate that the factors from the test in Wilson were present.
Because the court found that the Plaintiff’s claims about oppression were sufficiently pleaded, it dismissed the Individual Defendants’ motion to strike claims against them. The court recognized that directors and officers of a corporation can be considerably inconvenienced and have significant costs when claims are made against them personally, so it went to some trouble to carefully scrutinize the claims made against the Individual Defendants. Nevertheless, the court ultimately concluded that the Individual Defendants did not need to have initiated or to have been the masterminds behind the alleged oppressive conduct to be implicated in it.
This case serves as an important reminder to directors and officers of not-for-profit corporations under the CNCA that they can be personally named in an oppression claim brought by a member of the corporation. Further, directors and officers may need to take steps to defend themselves in court, especially in situations similar to this case where the court refused to grant a motion to strike claims against the Individual Defendants. The case is also a reminder to members and certain other stakeholders of not-for-profit corporations of the remedies available under the CNCA when the leadership of a corporation strays from their duty to pursue the purpose of the corporation.