Confirm with the company constitutional documents when removing a director

Discussion:*Sikh Cultural Society of Metropolitan Windsor et al v Kooner et al *(2011, Ont SC) is relevant for highlighting the significance of an organization’s bylaws as well as the process for organizing board meetings.

Courts will generally refrain from getting involved in the internal disputes of organizations that are governed by internal rules and procedures unless the organization has acted outside its authority or in a way that is not in keeping with the fundamental principles of fairness. In this case, the court intervened on the basis of fairness to reinstate executive committee members of a not-for-profit organization, because they had been removed outside of the process as prescribed by the not-for-profit’s by-laws.

The organization was required under by law to conduct an annual general meeting to address certain matters regarding membership, but failed to do so, and as a result, the committee members were unable to appeal against their planned removal from the committee.

Article XIII of the organization’s Constitution indicates, the Executive Committee may remove from the membership an individual whose activities or actions may be considered detrimental to the interests of well-being of the Society, the Sikh community in Windsor or the Sikh community in Canada. The removed individual shall have the right of appeal against such removal before the general body of the Society in its next regularly scheduled meeting provided a notice of intention to appeal in writing is filed with the Secretary of the Executive Committee within thirty (30) days of the receipt of notice of removal. After such a hearing, the membership may recommend that the Executive Committee reinstate the applicant in membership and the Executive Committee may do so.Background:

Background:

• The Sikh Cultural Society of Metropolitan Windsor (the society) is a not-for-profit company incorporated in 1972 pursuant to the predecessor legislation of the Corporations Act, 1990. Â When it was created, the Society created a Constitution that was in full force and effect when the events giving rise to the lawsuit occurred.
• The applicants were the society, and the members of the new executive committee (NEC) who were acclaimed in the constitutionally required election held in December 2009. The membership list in effect at that time (the 155 person list) was valid.
• The respondents were some members of the former executive committee (FEC) and others whose membership was terminated or suspended by the NEC.
• The NEC both added and expelled some members, leading to a total of 301 members.
• The FEC started looking into ways to expel the NEC and elect a different executive committee. A lawyer consulted by the FEC asked the NEC to produce an up-to-date membership list. The NEC produced a list (the 301 person List). The FEC used another list (the 248 person List) for the purpose of a successful non-confidence motion.
• The new executive committee that was voted into power following the non-confidence vote purported to take physical control of the Society.
• On a motion by the applicants, the non-confidence motion was held to be void and of no effect, and an interim injunction was granted restraining the respondents from going within 1,000 metres of the Society building and ordering them to give the applicants unfettered access to the premises and records. The applicants brought an application for a declaration as to who were the bona fide members of the Society entitled to vote in the 2011 elections and for an order continuing the interim injunction.

Issues:

• Issue regarding the valid membership list membership and the right to vote at the non-confidence motion is the central issue to be determined by this court
• Does the court have jurisdiction to determine who were bona fide members of the Society?

Rule: The Corporations Act:

• S. 124(1) of the Corporations Act provides that admission to membership may be by resolution of the board of directors unless there are provisions in the Constitution or other governing documents of the corporation that require another step.
• S. 129 of the Corporations Act sets out the nature of the by-laws that can be enacted by the board of directors of a corporation affecting membership and other matters dealing with the conduct of the business of the organization.
• S. 298(1) of the Corporations Act provides that any by-law or resolution signed by all the directors of a corporation is as valid and effective as if passed at a meeting of the directors duly called, constituted and held for that purpose.
• S. 309(1) If the name of a person is, without sufficient cause, entered in or omitted from the minutes of proceedings mentioned in section 299 or from the documents or registers mentioned in sections 41 and 300, or if default is made or unnecessary delay takes place in entering therein the fact of any person having ceased to be a shareholder or member of the corporation, the person or shareholder or member aggrieved, or any shareholder or member of the corporation, or the corporation itself, may apply to the court for an order that the minutes, documents or registers be rectified, and the court may dismiss such application or make an order for the rectification of the minutes, documents or registers, and may direct the corporation to compensate the party aggrieved for any damage the party has sustained
• Therefore, notwithstanding the ability of the board of directors to make admission to membership/by-law decisions, the court has the jurisdiction to determine who are bona fide members of an organization. The real issue is whether or not the court should exercise this jurisdiction.
• The courts are reluctant to become involved in the internal disputes of organizations that are governed by internal rules and procedures unless the organization has acted outside its authority or in a way that is not in keeping with the fundamental principles of fairness (Deol v Grewal; Sukul v Canada Hindu Satsangh Organization)

Analysis:

• The 301 person list was compiled in accordance with Article XI of the Constitution of the Society (which indicated that members were those who submitted applications and paid a membership fee), and ss. 129 and 298 of the Corporations Act. The NEC met on numerous occasions for the purpose of reviewing and approving memberships and confirming the decision on membership. There was no evidence provided to establish that the NEC did not act in accordance with the Constitution or the Corporations Act in reviewing and approving the members on the 301 person list. There is no application pursuant to s. 309 of the Corporations Act to allege any error in the membership list.
• But in making the 301 list, a number of members were expelled by the NEC. Article XIII of the Constitution indicates, the Executive Committee may remove from the membership an individual whose activities or actions may be considered detrimental to the interests of well-being of the Society, the Sikh community in Windsor or the Sikh community in Canada. The removed individual shall have the right of appeal against such removal before the general body of the Society in its next regularly scheduled meeting provided a notice of intention to appeal in writing is filed with the Secretary of the Executive Committee within thirty (30) days of the receipt of notice of removal. After such a hearing, the membership may recommend that the Executive Committee reinstate the applicant in membership and the Executive Committee may do so. By giving notice of the alleged misconduct and setting a hearing date, and subsequently sending notices of termination, the NEC followed the procedure set out in Article XIII of the Constitution The opportunity, however, for the termination to be reviewed and reversed by the membership at an annual general meeting has not been provided even though the terminated members gave written notice of their intention to appeal. The principles of fairness require that these persons be reinstated to membership.

Conclusion:

• Court able to determine membership of society. Expelled members were reinstated on grounds of fairness.
• Injunction continued to date after election of members of exec committee at next general meeting.