Introduction
The recent Ontario Superior Court of Justice (the “Court”) decision in Birhane v. Medhanie Alem Eritrean Orthodox Tewahdo Church (“Birhane”) reflects the importance of organizations upholding their electoral procedural requirements as required by corporate law and governing documents. This case also highlights that directors will be held to a high standard as leaders of charities and not-for-profits and will be expected to ensure that the organization complies with its corporate procedural requirements.
In this case, directors were found not to have fulfilled their legal responsibilities by failing to hold an annual general meeting (an “AGM”) and election of directors as required by the governing legislation and the organization’s by-law. The Court ordered that the directors comply with these requirements.
Background
We will summarize the key facts and points of contention. The Church was incorporated under the Corporations Act (the “OCA”) in 1997, and received charitable status in 2000. Between 2000 and 2018, the Church usually held AGMs every year and elections of directors every three years. However, the last election of directors was held in 2016 and no AGM or election of directors was held in 2019. In July 2021, members of the Church petitioned for an AGM and an election to be held. The directors did not respond to this petition, even though a response was required within ten days according to their by-law. The chair of the directors later advised that a general meeting was held in November 2019 and that it was decided at that time to indefinitely extend the term of the directors. The Court disagreed, and concluded that the current three-year term of directors had not been extended by a valid vote of the Church members.
In November 2021, the directors of the Church announced that an AGM and an election would be held in December of 2021, but the AGM was cancelled two days prior to its scheduled date. Members of the Church (the “Applicants”) brought an application to the court against the directors of the Church (the “Respondents”), requesting an order to hold an AGM and an election of the directors. The Court ultimately allowed the application. The points raised by the Respondents and the Court’s analysis of each point are described below.
Analysis
The Applicants are members of a voluntary religious association, not the incorporated Church/Charity and not members of the Church as a corporation, and, as a result, the Ontario Not-for-Profit Corporations Act, (the “ONCA”) did not apply to the Church
The Court did not accept this argument. Not only was this position inconsistent with the Respondents’ earlier position, it was not supported by evidence. The charitable corporation was the only evident operating entity, and as such, the ONCA does apply to the Church. The ONCA, which replaced the OCA, mandates that the directors must hold an AGM within 15 months after the previous AGM, and the legislation permits court review or an election/appointment of a director as well as a court order for the AGM.
The court lacks jurisdiction due to the failure of the Applicants to establish an underlying legal right
This argument of the Respondents was premised on their allegation that the Applicants are only members of a voluntary association. As discussed above, this was not accepted. The Court confirmed that the Applicants have a legal right under the ONCA. The Respondents introduced two Supreme Court of Canada cases about voluntary religious organizations that deal with membership/disciplinary disputes which the Court distinguished from the Applicants’ case.
The Respondents relied on Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga, a decision discussed in our previous newsletter. The second case brought by the Respondents’ was Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v. Wall. In both decisions, the Supreme Court of Canada stated that the ability of a court to intervene on a matter considering a voluntary association’s compliance with its own procedures and the fairness of these procedures is dependent on the existence of a legal right, including private rights and statutory causes of actions. The Court distinguished Birhane from these two Supreme Court decisions. The Court in Birhane was not asked to review a decision on the basis of procedural fairness or to interject with the removal of members or disciplinary actions taken against them. More significantly, the application is in regard to an Ontario corporation and not a volunteer association, and there is sufficient case-law to support that relief can be granted against incorporated churches under corporate statutes.
The Applicants seek court intervention to determine non-justiciable matters
The application sought was premised on issues of corporate governance of an incorporated charity. The fact that the charity had religious purposes did not make the case non-justiciable. For reference, non-justiciable means not capable of being decided by legal principles or by a court of justice. While certain issues of governance compliance could be matters of religious dogma or the merits of a religious tenet and therefore should not be decided by a court, that was not the case here. It is interesting to note that the Court made a point of stating that Ontario and Canadian law are paramount to religious laws of the Church, as provided for in the by-laws.
Even if the Applicants had established legal rights and justiciable claims, the Applicants had not sought alternative remedies to court intervention
The Court quickly dismissed this argument. Not only was this point grounded on the Respondents’ stance that this disagreement is religious in nature, the Court did not accept that alternative remedies had to be tried prior to bringing the issue to court. Further, the Applicants had made multiple requests for an AGM and election before bringing the application.
Even if the Applicants had established legal rights and justiciable claims, the Respondents had satisfied their responsibilities as volunteer directors of the Church
The fact that the individual Respondents were volunteer directors, as is the case with most charities, does not excuse them of the duties imposed on them because of their position as directors.
Conclusion
The decision in Birhane is not surprising. The case underscores that it is important that the directors are aware of what is required by their organization’s governing documents and applicable statutes, and follow those required procedures. If an organization chooses not to do so, courts are willing to step in.
If you are unsure as to whether certain statutory obligations apply to your entity or you require assistance regarding by-law compliance, one of the Social Impact lawyers in Miller Thomson’s Social Impact Group would be pleased to assist.
