Non-Profit Society Liable for Damages After Failing to Respond to Civil Claim
Mar 2022 Charity & NFP Law Update
Published on March 31 2022

By Jacqueline M. Demczur and Esther S.J. Oh
   
 

A decision from the Supreme Court of British Columbia, Port Alberni Shelter Society v Literacy Alberni Society, confirms that the board of directors for a not-for-profit society cannot absolve itself from responsibility by claiming that defending a lawsuit was the responsibility of the organization’s executive director. The judgment, delivered on February 15, 2022, involved two not-for-profit societies, their boards and executive directors, and defamation claims which ultimately resulted in hundreds of thousands of dollars being awarded in damages against one of the not-for-profits and its executive director.

The Port Alberni Shelter Society (“PASS”) is a not-for-profit society with charitable status that provides emergency housing and long-term housing, and the Literacy Alberni Society (“LAS”) is a not-for-profit society with charitable status which provides educational and literacy resources to the Port Alberni community. Through his position as the Executive Director of LAS, Mr. Hughes “with the expressed support of the Literacy Alberni Society” engaged in a defamatory campaign against PASS, Mr. Douglas, the Community Engagement and Special Project Coordinator of PASS, and Mr. Hewitt, the Executive Director of PASS, (collectively, the “Plaintiffs”). Mr. Hughes asserted that the Plaintiffs mismanaged public funds in the operation of PASS, enriched themselves with public funds through corruption, and created homelessness, among other accusations.

After sending a cease and desist letter which received no response, the Plaintiffs filed a notice of civil claim on November 23, 2020 against Mr. Hughes and LAS, although neither responded. A default judgment order was awarded to the Plaintiffs on April 19, 2021 which the Plaintiffs emailed to Mr. Hughes and LAS but, again, received no response. The matter came before the courts again in July 2021 for an assessment of damages. Mr. Hughes briefly attended court for the damages assessment, although the presiding judge, Justice Matthews, noted that she was uncertain whether Mr. Hughes was representing LAS when he attended in court. Ultimately, Justice Matthews awarded damages against Mr. Hughes and LAS on a joint and several basis for approximately $330,000. In addition, Mr. Hughes was found personally liable for punitive damages in the amount of $15,000, for which LAS was vicariously liable. In her comments, Justice Matthews noted, the seriousness of LAS’s decision to not defend the claim.

[162] …Literacy Alberni chose not to defend the claim in the context of very serious defamation claims based on the conduct of its Executive Director who related his role as the executive director of Literacy Alberni to the defamatory conduct and sent some of the communications from his Literacy Alberni email address that included his name and his title in the body of the message. The chair of the Literacy Alberni board of directors endorsed Mr. Hughes’ campaign by commenting on the petition in a manner that indicated support.

[163] The Literacy Alberni Society did not respond to the cease and desist letter and took no steps to distance itself from its Executive Director with regards to the Campaign.

[164] Given the overlap between the communities that PASS and the Literacy Alberni Society serve and that they both interact with some of the same governmental and non-governmental organizations, the Literacy Alberni Society has decided, or allowed itself to participate in the campaign through its Executive Director.

[165] Literacy Alberni Society is vicariously liable for the acts of Mr. Hughes. Literacy Alberni Society is jointly and severally liable for all of the damages except punitive damages.

Following this decision, LAS sought an order from the court that the default judgment order and the damages assessment order be set aside against it and that it be granted leave to file a response to the civil claim “on the basis that allowing the orders to stand [would] constitute a miscarriage of justice.” LAS pled that the board of directors relied on Mr. Hughes, as executive director of the organization, to respond to the court claim, admitting that, in hindsight, their trust in him was “misplaced.”

However, the court noted that “LAS concedes that it was aware of the issuance of the cease and desist letter and were properly served with the plaintiff’s notice of civil claim.” LAS also conceded that it received notice that a default judgment had been taken against it. The chair of the board of LAS said that after receiving the cease and desist letter, he spoke with Mr. Hughes and received an assurance that Mr. Hughes would retain a lawyer and LAS would not be implicated. However, the court noted that “[t]here is no evidence that LAS’ board of directors instructed Mr. Hughes to retain counsel to enter a defence on LAS’ behalf at any time.” Further, there was no evidence of follow up actions taken by the board to confirm whether Mr. Hughes was, in fact, dealing with the matter.

The court did “have some sympathy for the fact that LAS’ board is comprised of volunteers seeking to assist in the governance of a non-profit society” but the court indicated that this does not “eliminate the duty of members of the board to take steps to ensure that LAS’ interests are protected.” The court states that the LAS’ board’s failure to file a response to the plaintiff’s notice of civil claim and defend the LAS’ interests constituted a willful failure in that regard. As the court found no basis to assert that it would be a miscarriage of justice to allow the default judgement order and the damages assessment order to stand against LAS, the court dismissed LAS’ application to have those orders set aside.

This case serves as a reminder that the board of directors of registered charities or not-for-profits are obligated to manage or supervise their management. While the board can delegate certain day to day responsibilities to senior management and staff, they are ultimately responsible for the actions (or inactions) of the charity or not-for-profit, including failing to defend the lawsuits in which the charity is a named party.

   
 

Read the March 2022 Charity & NFP Law Update