B.C. non-profit societies should take care: there is a new court challenge available to their members.
Under the province’s new Societies Act, which came into effect late last year, one or more members can apply to court for relief on the grounds that the activities or internal affairs of the society, or the powers of the society’s directors, are being exercised in a manner that is perceived to be oppressive or unfairly prejudicial.
The potential relief under the oppression remedy enables the court to make very intrusive remedies, including orders removing or appointing new directors, ordering compensation, appointing an investigator or receiver manager and varying or setting aside resolutions or transactions.
The oppression remedy is a statutory remedy that was first introduced some time ago in the profit-making corporate world. It has slowly been making its way into the non-profit realm.
In 2011, it was extended to societies incorporated federally under the Canada Not-for-profit Corporations Act.Before the new Societies Actcame into force, the oppression remedy was available to societies incorporated in B.C. only if a winding-up order was sought. There are now no such limitations under the new act.
The oppression remedy is rooted in business law and is grounded on the principle that a shareholder’s individual rights and economic interests should be protected from the unfair acts or omissions of a corporation.
It remains to be seen how well the underlying rationale of the oppression remedy fits in the non-profit realm, particularly for non-profits that have a charitable or greater-good purpose. Unlike in the Canada Not-for-profit Corporations Act, there is also no “faith-based defence” and, as such, faith-based non-profits facing this new court challenge will have to rely on good advocacy that caters to their unique situation.
Having acted in oppression proceedings under the Canada-Not-for-profit Corporations Act,our best tip for societies looking to avoid an oppression challenge is to ensure that their fundamental tenets – as expressed in their constitution and bylaws – are clear and current. This is because the starting point for the court’s analysis of an oppression claim is to place the impugned conduct in the context of these fundamental tenets.
The court will also focus on whether the member complaining has reasonable expectations.
In determining reasonable expectations, the court will look not only to the fundamental tenets of the society, but also to any relevant policy, general practice and the nature of the association.
It is important that societies ensure reasonable expectations are communicated in the appropriate manner.
For instance, depending on the issues, expectations should be plainly delineated in the bylaws or policies, such as a membership and discipline policy. The privileges and burdens of members must be clearly set out. Rules for procedural fairness, which can withstand court challenges, should be in place. The powers of senior managers, officers and committees should be clear.
Societies should be proactive in seeking advice and determining how best to spell out the reasonable expectations for their members.
This can be done as societies meet the November 28, 2018, deadline to file their transition application, which involves filing a constitution and bylaw which accords with the new act. •
Karen Zimmer is a partner at Alexander Holburn. Her practice is focused on complex litigation matters involving corporate and society clients.