Smith v. The Toronto Police Association, 2008 ONCA 5
CITATION: Smith v. The Toronto Police Association, 2008 ONCA 5
DATE: 20080109
DOCKET: C46785
COURT OF APPEAL FOR ONTARIO
O’CONNOR A.C.J.O., GILLESE and WATT JJ.A.
BETWEEN:
STEPHEN SMITH, ROD LAWRENCE, DALE CARTER and DAVID DEVINEY
Applicants (Respondents)
and
THE TORONTO POLICE ASSOCIATION
Respondent (Appellant)
Counsel: R. Rueter and G. Temelini for the appellant T. Curry and D. Varah for the respondents
Heard: November 19, 2007
On appeal from the judgment of Justice Romain Pitt of the Superior Court of Justice, dated February 27, 2007, with reasons reported at [2007] O.J. No. 746.
O’CONNOR A.C.J.O.:
OVERVIEW
[1] In 1991, the members of the Toronto Police Association (“TPA”) adopted the Legal Assistance Plan to provide financial assistance to members of the Association who incurred job-related legal expenses. The Plan was to be administered by the Legal Assistance Plan Board (the “Plan Board”).
[2] On January 25, 2007, the Board of Directors of the TPA (the “TPA Board”) passed a resolution purporting to dissolve the Plan Board (the “Resolution”).
[3] By order dated February 27, 2007, the application judge declared that the TPA Board did not have the authority to dissolve the Plan Board and that the Resolution was, therefore, of no force or effect.
[4] In addition, the application judge ordered the TPA Board to return the files and materials it had taken from the Plan Board after passing the Resolution, and he restrained the TPA Board from “using such files or material for any purpose whatsoever.”
[5] The TPA appeals both orders.
[6] I agree with the application judge that the Resolution was of no force and effect. However, with respect, I conclude that the application judge erred in making that portion of the order that restrained the TPA Board from using the files and materials of the Plan Board for any purpose whatsoever.
BACKGROUND
[7] The TPA is a corporation without share capital created by letters patent issued June 28, 1944 pursuant to the Companies Act, R.S.O. 1937, c. 251. The letters patent state that the purposes of the TPA are, among other things: to promote the mutual interests of the members of (what is now) the Toronto Police Service; to act as a collective bargaining agency; and to provide financial assistance in accordance with the by-laws of the Corporation.
[8] The letters patent give the TPA Board the power to pass by-laws and regulations. In particular, para. 4 provides:
- The directors may, from time to time, make by-laws and regulations, not contrary to law or any provision of the Letters Patent, Supplementary Letters Patent, if any, or the Companies Act, and, from time to time, amend, vary or repeal the same respecting: …
(d) the control, management and conduct of the affairs of the corporation.
[9] Pursuant to para. 5 of the letters patent, members of the TPA must approve by-laws and regulations. Absent such approval, by-laws and regulations enacted or amended by the directors are only effective until the next annual meeting of members.[^1]
[10] Over the years, the TPA has enacted by-laws and regulations covering a wide range of matters relating to the organization and management of its affairs and to the provision of certain benefits and programs to its members. The by-laws and regulations are found in a document entitled, “Constitution and By-laws, Rules and Regulations”. Collectively, these documents are often referred to by the members as “the Constitution”, and I will use that term.
[11] The Constitution includes those matters normally found in the organizing by-laws of non-share capital corporations such as the requirements for membership, the roles and responsibilities of the officers and committees, the procedure for calling meetings of members and directors, and the process by which members may be disciplined. The Constitution also includes seven regulations each dealing with discrete areas of the TPA’s activities.
[12] It appears that the TPA has treated all of the documents found in the Constitution, including the regulations, as being constitutional in nature – in the sense that approval of the members was obtained when the provisions were first enacted and subsequently amended.
[13] In June 1991, the members of the TPA, at a general meeting, adopted the Legal Assistance Plan, which is now Regulation 7 in the Constitution. Over the years, the Plan has been changed and expanded, but its essential purpose and scope have remained the same.
[14] The purpose of the Plan is to provide financial assistance to members who incur legal expenses in criminal or civil proceedings relating to the performance of their duties. The Plan is funded by special assessments from the members.
[15] Regulation 7 provides that the Plan shall be governed by a Plan Board which consists of five members selected by the Chief Stewards and Stewards every two years. The Plan Board is responsible for carrying out the purpose and intent of the Plan.
[16] Section 10.1.1 of the Constitution sets out the Constitution’s amending process. It provides:
Any general meeting [of members] may amend, repeal or re-enact the Constitution and By-laws and the Regulations attached hereto by a two-thirds majority.… [Emphasis added.]
[17] In addition, s. 10.1.1 goes on to set out additional specific requirements for the amendment of Regulation 7.
In addition, in order to amend Regulation [7],[^2] the proposed amendment must first have been approved by the Board of Administrators of the Financial Assistance for Legal Services Plan & Fund and the Board of Directors in accordance with Regulation 7. [Emphasis added.]
[18] The notations at the bottom of each page of Regulation 7 indicate that there have been amendments or additions to the Regulation on five occasions. In each instance, the amendment or addition was “adopted” or “approved” at either a special general or general meeting – clearly referring to a meeting of the members.
[19] During the latter part of 2006, a dispute arose between the TPA Board and the Plan Board. The affidavits before the application judge paint a picture of conflicting positions as to the roles of the two boards as well as difficulties in communications between them.
[20] For reasons that I discuss below, I do not find it necessary to examine or resolve the issues that underlie those disagreements. It is sufficient to note that, on January 25, 2007, as a result of the disagreements, the TPA Board passed the Resolution that is the subject of the first ground of this appeal. The Resolution reads in part as follows:
RESOLUTIONS OF THE DIRECTORS
OF
TORONTO POLICE ASSOCIATION
WHEREAS the Board of Directors has determined in the circumstances that the Legal Assistance Plan Board be dissolved and the duties of the Legal Assistance Plan Board be assumed on a temporary basis by the Board of Directors of the Toronto Police Association.
BE IT RESOLVED THAT:
Effective today’s date, the Legal Assistance Plan Board be and the same is hereby dissolved.
Effective today’s date, all duties and responsibilities of the Legal Assistance Plan Board be performed by the Board of Directors of the Toronto Police Association.
The Board of Directors of the Toronto Police Association shall perform the said duties and responsibilities which had been performed by the Legal Assistance Plan Board until such time as the provisions of Regulation No. 7 can be reviewed and amended at a general meeting of the Toronto Police Association and a new Legal Assistance Plan Board be appointed/elected pursuant to a revised Regulation No. 7.
[21] After passing the Resolution, the TPA Board took possession of the Plan Board’s offices and documents. The TPA Board fixed February 27, 2007, as the date for the election of the new Plan Board.
[22] On February 5, 2007, the respondents, members of the Plan Board, brought an application seeking an order setting aside the Resolution and a declaration that the TPA Board exceeded its authority in passing the Resolution.
[23] The matter was heard on February 23, 2007. In a decision released February 27, 2007, the application judge declared the Resolution ultra vires and ordered that it be set aside. He also issued a mandatory order requiring the TPA Board to return the files and other materials of the Plan Board and restraining the TPA Board “from using such files or material for any purpose whatsoever”.
[24] The parties informed this court that the TPA Board has returned the files and materials to the Plan Board. However, the appellant challenges the remaining portion of the mandatory order which restrains the TPA Board from using the files and materials for any purpose whatsoever.
[25] The parties also informed this court that pursuant to Regulation 7, new members of the Plan Board were appointed on February 27, 2007.
ISSUES
[26] The appellant raises three grounds of appeal:
(a) Did the application judge err in finding that the TPA Board lacked the authority to pass the Resolution?
(b) Did the application judge err in ordering that the TPA Board be restrained from using the files and materials taken from the Plan Board for any purpose whatsoever?
(c) Did the application judge err in failing to provide the appellant with an opportunity to conduct cross-examinations on the affidavits filed by the respondent?
ANALYSIS
The Validity of the Resolution
[27] The appellant argues that the TPA Board has the authority to pass the Resolution dissolving the Plan Board. The appellant submits there are two sources for this authority.
[28] First, the appellant relies on the general authority of a Board of Directors to manage the affairs of a non-share capital corporation found in s. 283(1) of the Corporations Act. The appellant also relies on s. 3.2.9 of the TPA Constitution which authorizes the TPA Board to exercise any power that may be exercised by the TPA so long as it is not a power that must be exercised by the members at a general meeting.
[29] The appellant goes on to argue that Regulation 7 is “a sort of internal ordinance, subordinate to the Constitution and By-laws”. As such, the appellant argues that the TPA Board has the authority to amend Regulation 7 without member approval. Finally, the appellant argues that in passing the Resolution the TPA Board was exercising its authority to remove for good cause members from what is, in effect, a committee of the board, and that a court should not interfere with the good faith exercise of the directors’ “business judgment”.
[30] I do not accept these arguments. In my view, the appellant’s arguments misconstrue the legal status of Regulation 7 and the resulting need for approval by members of any amendments.
[31] I am satisfied that Regulation 7 has the same legal status and effect as a by-law. Although the Corporations Act does not refer to the enactment of regulations, the letters patent do. Paragraphs 4 and 5 of the letters patent, which set out the authority of the TPA Board in relation to making by-laws, use the terms “by-law” and “regulation” interchangeably.
[32] Paragraph 4 gives the TPA Board the authority to make by-laws and regulations, and, from time to time, to amend, vary and repeal the same with respect to an enumerated list of subjects.
[33] Paragraph 5 of the letters patent provides that a by-law or regulation passed by the directors has force only until, at the latest, the next annual meeting of members. If a by-law or regulation is not confirmed by the members by that point in time, it ceases to have force.
[34] Thus, it is clear from the letters patent of the TPA that the process and authority to enact or amend both regulations and by-laws is exactly the same.
[35] Consistent with the intention of the letters patent, the TPA has always dealt with Regulation 7 in the same manner as it would deal with a by-law. Thus, in 1991, when the regulation was first introduced, it was adopted by the members at a general meeting. As well, on the five occasions when Regulation 7 has been amended or expanded, the changes have been approved or adopted by the members.
[36] There is nothing in the Constitution to suggest that regulations, and in particular Regulation 7, have a different legal status than a by-law. On the contrary, throughout the TPA Constitution, as in the letters patent, the terms regulation and by-law are used to describe actions having the same legal status.
[37] I turn now to the Resolution. It seems clear that in passing the Resolution, the TPA Board purported to amend Regulation 7. The Resolution sought to dissolve the Plan Board and to have the TPA Board assume the duties and responsibilities of the Plan Board.
[38] Paragraph 5 of Regulation 7 creates the Plan Board and sets out the manner in which its members are to be appointed. Paragraph 5 also provides that the Plan is to be governed by the Plan Board. Other provisions in Regulation 7 detail extensively how the Plan Board should carry out its responsibilities. The effect of the Resolution, if valid, would be to repeal or amend substantial portions of Regulation 7.
[39] In my view, the TPA Board did not have the authority to amend Regulation 7.
[40] Section 10.1.1 of the Constitution specifically addresses how Regulation 7 can be amended (para. 18, supra). It sets out three requirements: approval by the Plan Board, approval by the TPA Board, and approval by a majority vote of two-thirds of the members. Section 10.1.1 does not permit amendments to Regulation 7 solely by a resolution of the TPA Board. Nor, does it provide that a resolution of the TPA Board amending Regulation 7 would be effective pending the two other approvals.
[41] In my view, the specific language of s. 10.1.1 of the Constitution leads to the conclusion that an amendment to Regulation 7 is not effective until all three approvals have been obtained. As neither the Plan Board nor the members approved the Resolution, the TPA Board’s attempt to dissolve the Plan Board by means of the Resolution was of no force or effect.
[42] Even if one were to leave s. 10.1.1 aside, I do not accept the appellant’s arguments that s. 283(1) of the Corporations Act or s. 3.2.9 of the TPA Constitution provide the necessary authority for the TPA Board to amend Regulation 7.
[43] Section 283(1) is a general statement of the powers of the board of directors of a non-share capital corporation. It reads, “[t]he affairs of every corporation shall be managed by a board of directors howsoever designated.”
[44] Section 283(1) does not address how the Board may exercise those powers and, in particular, it does not speak of the requirements for enacting or amending by-laws of a corporation.
[45] Section 129 of the Corporations Act specifically addresses the authority of a board of directors to pass and amend by-laws. Section 129(1) confers on the board of directors the power to pass by-laws relating to various enumerated matters, including by-laws to regulate the conduct of the affairs of the corporation.
[46] Section 129(2) contemplates that by-laws passed under subsection (1), or any amendment of an existing by-law, are to be approved by the members of the corporation. Section 129(2) provides that a by-law or an amendment to a by-law passed by a board of directors is effective “only until the next annual meeting of the members unless confirmed thereat.” Thus, the Corporations Act requires members’ approval for by-laws or amendments to by-laws.
[47] Given my conclusion that Regulation 7 has the legal status of a by-law of the TPA, I am of the view that the TPA Board’s authority to amend Regulation 7 must be exercised in accordance with Section 129 of the Corporations Act.
[48] The question that then arises is: why was the Resolution not effective pursuant to s. 129(2) of the Corporations Act pending member approval at, or before the next annual meeting of the TPA?
[49] The problem is that the TPA Board did not pass an amendment to Regulation 7 that would require members’ approval pursuant to s. 129(2). On the contrary, para. 3 of the Resolution provided that the TPA Board would exercise the powers of the Plan Board until “Regulation 7 could be reviewed and amended” and a new Plan Board “appointed/elected pursuant to a revised Regulation No. 7.” The wording of the Resolution makes it clear that the TPA Board did not intend to seek members’ approval of the Resolution. Rather, the Resolution contemplated only that members would be asked to approve a yet to be developed set of amendments to Regulation 7. Nowhere in the record is it suggested that the TPA Board would be seeking members’ approval of the Resolution itself.
[50] Thus, I am satisfied that the TPA Board was not acting pursuant to the authority conferred by Section 129 of the Corporations Act when it passed the Resolution. The TPA Board intended to dissolve the Plan Board by its own Resolution – and with nothing more. That being the case, I do not think that the TPA Board can now find authority for the Resolution in s. 129(2).
[51] In reaching this conclusion, I also note that since paras. 4 and 5 of the letters patent mirror s. 129(1) and (2) of the Corporations Act, the same analysis applies to the appellant’s argument that the TPA Board was acting pursuant to the letters patent. In other words, the letters patent do not authorize the TPA Board to pass the Resolution.
[52] Next, I address the appellant’s argument that the Board’s authority to pass the Resolution can be found in s. 3.2.9 of the Constitution. This argument also fails. Section 3.2.9 authorizes the TPA Board to exercise any powers that may be exercised by the TPA and that are not “required to be exercised or done by the [TPA] at General Meetings of members.” As pointed out above, I am satisfied that the power to amend Regulation 7 is a power that must be exercised at a general meeting of the members. Thus, s. 3.2.9 does not assist the appellant.
[53] Finally, I do not accept the appellant’s argument that the Resolution simply removed some members from one of the TPA’s committees. The Resolution did not seek to remove members from the Plan Board, it sought to dissolve the Plan Board as an entity within the TPA. As I have said above, the Plan Board was created by Regulation 7 – in effect a by-law of the TPA – and as such, the TPA Board did not have the authority to amend that Regulation by a resolution without member approval.
[54] In the result, therefore, I agree with the application judge that the TPA Board did not have the authority to enact the Resolution.
[55] I would also note that the determination of whether the TPA Board had the authority to pass the Resolution depends entirely on undisputed facts and questions of law. The motives of the directors and the merits of the underlying dispute that gave rise to the Resolution are irrelevant.
The Mandatory Order
[56] Paragraph 4 of the order below reads as follows:
- THIS COURT FURTHER ORDERS that the TPA Board return forthwith the files and other material of the Plan Board appropriated by the TPA Board on or about January 26, 2007 to the Plan Board and is restrained from using such files or material for any purposes whatsoever.
[57] The parties informed this court that the TPA Board has returned the files and materials to the Plan Board. Thus, the only part of para. 4 still in issue is the direction restraining the TPA Board from making any use of such files and material.
[58] I would strike this part of the order for the following reasons.
[59] First, the respondents did not seek this order in their application, nor does it appear to have been part of the argument in the proceeding below.
[60] In addition, the Plan Board does not own the files or materials in issue. The Plan Board is not a legal entity; and in fact it is not a party to these proceedings. The respondents are individuals who, at the time the files and materials were seized, were members of the Plan Board. They have no personal interest or proprietary rights to the information contained in the files or materials that were seized from the Plan Board.
[61] Moreover, the TPA Board has the ultimate responsibility for managing the affairs of the TPA. Without knowing specifically what information is contained in the files or materials at issue, it is difficult to envision the basis upon which the TPA Board could be restrained from having access to such information “for any purpose whatsoever”. Even assuming that there is some basis to restrain the TPA Board from accessing certain specific information, there is nothing in the record to support making any such order. Clearly, there is nothing in the record to support making an order of the breadth of para. 4.
[62] In the result, I am satisfied that the portion of para. 4 restraining the TPA Board from using the files or materials of the Plan Board for any purpose whatsoever must be set aside.
The Procedural Issue
[63] The appellant argues that the application judge erred in proceeding to hear argument without first permitting cross-examinations on the affidavit material filed before him.
[64] I see no merit to this argument. The appellant did not ask the application judge to adjourn the hearing of the application to permit cross-examination. Nor did the appellant argue that there were material facts in dispute.
[65] In his reasons released on February 27, 2007, the application judge addressed the issue of proceeding on the record before him without cross-examinations. He said the following:
[4] Unfortunately, there is some urgency expressed by both parties to have the issue resolved prior to February 27, 2007, the date fixed by the respondent for elections to the Plan Board.
[5] It is my view, and I believe the parties agree that the resolution of this issue must proceed without passing judgment on the propriety or impropriety of the conduct that [led] to the passing of the January 25, 2007 resolution, for the reasons that:
(a) The proceedings is by way of application in circumstances in which it is fair to say the parties implicitly acknowledge that there are no material facts in dispute.
(b) In these particular circumstances whether the TPA Board had the jurisdiction to pass the impugned January 25, 2007 resolution does not depend on the motivation of the Directors of the TPA Board. [Emphasis in original.]
[66] I agree. I am satisfied that there were no material facts in dispute that were relevant to the issues which were before the application judge.
DISPOSITION
[67] For the reasons above, I would allow the appeal in part by striking the last clause of para. 4 of the order below. In all other respects, I would dismiss the appeal.
[68] There has been mixed success on this appeal. I would make no order as to costs.
RELEASED: “DOC” “JAN 09 2008”
“D. O’Connor A.C.J.O.”
“I agree E.E. Gillese J.A.”
“I agree David Watt J.A.”
[^1]: Paragraphs 4 and 5 of the letters patent are similar to s. 129(1) and (2) of the Corporations Act, R.S.O. 1990, c. C.38 which apply to corporations without share capital such as the TPA. One difference is that, unlike the letters patent, s. 129(2) does not refer to the enactment of regulations.
[^2]: Section 10.1.1 refers to Regulation 9. The parties agree that that reference is to what is now Regulation 7, that being the regulation relating to financial assistance pursuant to the Legal Services Plan and fund.