On August 4, 2016, the Ontario Superior Court of Justice released it decision with respect to the Jacobs v Ontario Medical Association (“Jacobs”) case. This case is an interesting reminder to not-for-profit corporations of the Court’s willingness to intervene on procedural or substantive issues involving members’ meetings to enable governance process to proceed in a proper and timely fashion. The case also shows the importance that proxy forms must be carefully drafted in a clear, balance and fair manner, so that it is helpful to members and proxyholders in their consideration of how to cast their votes at the meeting. The Court is also willing to intervene if a proxy would likely compromise the fair conduct of a meeting.
This case involves a governance dispute between the Ontario Medical Association (“OMA”) and some of its members. The matters in dispute in this case were in relation to the conduct of a general members’ meeting of approximately 42,000 OMA members to ratify or reject a Physician Services Agreement (“PSA”) with the Ministry of Health and Long Term Care. The PSA sets out physicians’ fees to be paid by the Ontario Government. The meeting was schedule to be held on August 14, 2016.
The Court disagreed with the Applicant members’ submission that notice of the members’ meeting contravened OMA’ by-laws. The Court also refused the Applicant members’ request to obtain a membership list that would include information about members’ phone numbers including cellular phone numbers because the OMA has no obligation to provide such information. A membership list containing appropriate membership information (names, addresses and email addresses) had already been provided by the OMA. The Court also refused to appoint a neutral chair to preside over the meeting because a strong case for court intervention had not been made.
However, the Court ordered the proxy form circulated for the meeting be revised because it was “unhelpful, unclear, unbalanced, and unfair” and “is a catalyst for a governance meltdown at the upcoming general meeting.” The proxy would likely compromise the fair conduct of the meeting.
The proxy was problematic because it contained one restriction that would compel the proxyholder to vote for or against one of three resolutions (being the resolution to ratify the PSA) that members were asked to vote on at the meeting, and the proxy form contained a highlighted recommendation to vote “For” this resolution. There was no restriction or recommendation for the other two resolutions. The Court found that it was “unfair and confusing if not somewhat sneaky … to make no recommendation about the other matters and to leave it to the member to make instructions about these matters” in light of the following facts:
(a) the proxyholder has been empowered by the proxy “to vote in accordance with the following direction (or if no directions have been given, as the proxyholder sees fit)”;
(b) the notes to the proxy indicate that: “if such a direction is not made in respect of any matter and you have not appointed a person other than the persons whose names are printed herein, this proxy will be voted as recommended by OMA Management”; and “this proxy confers discretionary authority in respect of … amendments to matters identified in the Notice of Meeting or other matters that may properly come before the meeting.”
As such, the Court held that it would have been “far fairer” for the proxy to either (a) provide no instructions and no recommendations for the three resolutions to be debated at the meeting; or (b) to provide instructions but no recommendations for the three resolutions to be debated at the meeting.
The Court therefore ordered the proxy be revised by deleting the highlighted recommendation on how to vote on the PSA resolution, providing “for” and “against” options for all three resolutions, adding two directions to make it clear that a vote on one resolution does not preclude a vote on any of the other resolutions; and revising the language so that the proxyholders “are voting on matters of policy and not purporting to make findings of fact, findings of law, or findings of mixed fact and law, which are matters better addressed by a court.”
The Court held that it has jurisdiction to vitiate a proxy (that does not allow a meeting to be fairly conducted) and ordered it be revised pursuant to section 297 the Ontario Corporations Act, which empowers the court to order a members’ meeting and/or section 332 of the Act which provides a process by which members can force a corporation and/or its directors or officers to comply with their obligations under the Act.
The Court explained that “the proxy system is a fundament instrument of shareholder or member participation in the affairs of a corporation, be it a business corporation a not-for-profit organization, a non-governmental organization, or an association like the OMA that plays an extremely important role in civil society.” Further, the Court stated that “the proxy system is particularly important in the immediate case where the exercise of the members…will affect the entire population of Ontario.”
The Court acknowledged that its jurisdiction to intervene to supervise the governance of an association is governed by the Corporations Act. However, the jurisdiction is to be exercised cautiously and that courts are highly reluctant to intervene unless a strong case for intervention is demonstrated. Quoting from an earlier case, the Court stated that the “court’s role is to decide issues of a procedural or substantive nature which need to be determined to enable the process to proceed in a proper and timely fashion, but otherwise to remain apart from the battle.”