On July 5, 2017, in Polish Alliance Association of Toronto Limited v. The Polish Alliance of Canada, the Court of Appeal for Ontario (“the Court of Appeal”) dismissed an appeal by The Polish Alliance of Canada (“National”) and upheld the 2016 decision of the Superior Court of Justice in Polish Association of Toronto Limited v The Polish Alliance of Canada (“2016 Case”), which was previously reported on in our June 2017 Charity & NFP Law Update. In its decision, the Court of Appeal confirmed that all the members of Branch 1-7 (“Branch”) an unincorporated branch of the National, were entitled to leave the National and take with them the property used by the Branch, which was held in trust for the members of the Branch by a separate corporation, the Polish Association of Toronto Limited. In this regard, the Court of Appeal upheld the application of the common law rule known as the “clubman’s veto”, which, as explained by the Court in the 2016 Case “[…] provides that with the approval of 100% of the members of an unincorporated association, the members can leave the association and take the property of the association with them.”
On appeal, the National had argued that the trial court in the 2016 Case had erred in applying the clubman’s veto because the National was incorporated under the Ontario Corporations Act and therefore the clubman’s veto (which applies to unincorporated associations) does not apply.
In its reasons, the Court of Appeal stated that while the National is a corporation, the Branch is an unincorporated voluntary association which does not have any “statute that governs how the contractual relationship of all of the members of Branch 1-7 with each other is to be terminated.” In upholding the trial court decision, the Court of Appeal noted the following comments from the 2016 Case:
While the clubman’s veto, like any common law principle, can be displaced by a clear statute as was found to be the case of political parties in Ahenakew, there is nothing in the Corporations Act or any regulatory scheme that regulate this situation…Nothing in the Corporations Act deals with the problem of how trust beneficiaries whose interests are defined with reference to their membership in an unincorporated branch of an incorporated entity can leave with their property.
As mentioned in the previous article in our June 2017 Charity & NFP Law Update, given the uniqueness of the background facts involved in the above decisions, it is unclear whether a court would apply the clubman’s veto in future cases involving a not-for-profit corporation under different circumstances. Reference can be made to our previous article for details concerning the background facts and history in this regard. However, the Court of Appeal decision confirms the possibility that a branch of a corporation in an analogous fact situation might become so independent and separately identified that it might be entitled to leave the not-for-profit corporation and take its branch assets with them if the decision was approved unanimously by the branch members. In light of the above, charitable and not-for-profit corporations with branches may want to consider taking steps to ensure that the governing board of the corporation exercises a sufficient degree of control over its branches, both in practice and within the corporation’s governing documents.