CITATION: Sandhu v. Singh and Sikh Heritage Centre, 2022 ONSC 1604
DIVISIONAL COURT FILE NO.: DC-21-36
DATE: 2022-03-18
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Heeney, Backhouse, Gibson JJ.
BETWEEN:
SURINDER SINGH SANDHU
Appellant
– and –
MOHINDER SINGH and SIKH HERITAGE CENTRE
Respondents
Amandeep Sidhu, Counsel for the Appellant
Bernie Romano and Jordan Nussbaum, Counsel for the Respondent, Mohinder Singh
Christine Jonathan, Counsel for the Respondent, Sikh Heritage Centre
HEARD: By Videoconference at Brampton on March 10, 2022
REASONS FOR JUDGMENT
The judgment of the court was delivered by:
GIBSON J.:
Overview
[1] This case concerns a dispute regarding the directorship of the Sikh Heritage Centre (“SHC”), which operates a Gurdwara (Sikh temple) in Brampton, Ontario.
[2] The appellant Surinder Singh Sandhu (“Sandhu”) appeals the judgment of Fragomeni J. (“the Application Judge”) dated December 16, 2020, dismissing his application seeking a ruling that Sandhu was a director of the SHC and that the respondent Mohinder Singh (“Mohinder”) was in a conflict of interest when he purchased the property at 11730 Airport Road, Brampton, Ontario, adjacent to the SHC.
[3] The appellant appeals the dismissal and seeks the same orders originally pursued in the Application. In his Notice of Appeal, the appellant alleges ten different grounds of appeal based on errors of fact, and mixed fact and law. In his Factum and in his oral submissions on the hearing, the appellant significantly narrows the alleged errors to three main points: that the Application Judge ignored evidence in determining the identities of directors of the SHC and thus erred in finding that the appellant was not a director; that, due to this, the Application Judge erred in finding the appellant did not have standing to bring the Application without leave of the court; and that the Application Judge erred in finding that the respondent Mohinder was not in a conflict of interest when he purchased a property adjoining the land owned by the Respondent SHC.
[4] These reasons explain why we consider the appeal to be without merit, and why it will be dismissed.
Background
Creation and Operation of the Sikh Heritage Centre (SHC)
[5] The SHC was initially incorporated on May 10, 1999, under Ontario’s Business Corporations Act, R.S.O. 1990, c. B.16, for the purpose of operating a Gurdwara. There were seven founding members, who by 2001 were all shareholders and directors:
Mohinder Singh (Respondent/President); Surinder Sandhu (now the Appellant);
Sherdaljit Dhillon (Secretary);
Ajit Singh Bawa (Treasurer);
Satinderjit Kaur Mangat;
Malkiat Singh Pabla; and
Pipal Singh Sandhu.
[6] SHC purchased its location of 11796 Airport Road in Brampton on May 20, 1999. The respondent Mohinder put $135,000 towards the purchase, more than any other director.
[7] By 2001, SHC realized they needed to incorporate as a non-profit under the Corporations Act, R.S.O. 1990, c. C.38. As part of this process, on June 21, 2001, all directors surrendered their shares for cancellation. The Letters Patent of Continuation, dated August 3, 2001, fixed the new number of directors at three: Mohinder, Dhillon, and Bawa.
[8] The appellant asserts that, as part of this continuation, there was an express agreement that all seven founding members would continue as members and directors of SHC. It was only once litigation began, he submits, that the parties found out there were technically only three directors. Further, the appellant claims the evidentiary record shows that Sandhu, Mohinder, and Bawa believed the seven founders were all still directors, and that notices of any directors’ meetings were given to all seven. However, SHC never officially increased the number of directors from three to seven.
Mohinder Purchases the Adjoining Property
[9] On January 24, 2004, the respondent Mohinder purchased 11730 Airport Road, the adjoining property to SHC. Before purchasing the property, Mohinder had advised SHC and its congregants of his interest in purchasing the property, and no one objected or raised concerns.
[10] At a SHC meeting on February 29, 2004, Dhillon made congratulating Mohinder on the purchase an agenda item. The agenda read: “How can it be transferred/used. By renting it.” SHC then entered into a Lease Agreement with Mohinder to rent the property. The only written lease that we were directed to by counsel was an Agreement to Lease dated March 28, 2009, which is found in the Exhibit book at pg. A124. It provided for rent of $5,000 per month plus utilities. However, all parties agree that there was an informal verbal agreement, which required SHC to pay monthly rent equivalent to the mortgage payments. These were substantially less than $5,000 per month, and according to the rent ledger filed there were many months where no rent was paid at all.
[11] In an Affidavit, Dhillon stated that Mohinder also had SHC pay expenses related to the adjoining property, such as insurance, repair, and capital and redevelopment costs. A title search of the property shows that Mohinder first took out a mortgage for $243,000. Then on June 1, 2004, the mortgage was replaced with a new mortgage in the amount of $371,250. The appellant states that the difference between the two mortgages of $127,500 was never disclosed nor paid to the SHC. In contrast, SHC says there is no evidence that they paid extra expenses. They say that the SHC was only ever a tenant, not the owner, of the property. Moreover, the rent paid to Mohinder was always less than the actual mortgage payment, and was less than the rent that SHC charged to a subtenant.
Appellant’s Involvement in SHC
[12] The appellant was a founding member of SHC and surrendered his shares with other directors in 2001. The respondent Mohinder points out, and the appellant agrees, that in about 2005, the appellant moved to Nepean, Ontario, and ceased being actively involved in SHC. The appellant states he still considered himself a director after his move. He became involved again after Dhillon was found stealing in 2018.
Theft by Dhillon
[13] Between July and September 2018, Dhillon was observed stealing money while counting SHC’s weekly donations. The appellant has filed ten videos showing this alleged theft.
[14] SHC did not report this theft to the police, as it wanted to give Dhillon an opportunity to resign. A SHC Board of Directors meeting was scheduled for January 27, 2019, and formal notices of the meeting were sent to current and former directors. At this meeting, the Board of Directors accepted Dhillon’s letter of resignation, and Partap Singh Dhinota replaced him as a director.
By-law Number 2
[15] Following the thefts by Dhillon, SHC revised the by-law governing their operations. The resulting By-law Number 2 was approved and adopted at a meeting on February 20, 2020. The elements of the by-law are set out in the Application Judge’s Endorsement at para. 43.
Summary of Findings by the Application Judge
[16] In dismissing the Application, the Application Judge made the following conclusions and findings of fact in his Endorsement:
• Dhillon’s conduct in the videos accurately depicts the theft alleged and his resignation was made voluntarily. In those circumstances, he cannot be reinstated as a director (paras. 21-22)
• The appellant’s position as a shareholder/director ceased when each of the original shareholders surrendered their shares for cancellation (para. 32)
• Relying on the jurisprudence of Rexdale Singh Sabha Religious Centre v. Chattha, 2006 39456 (Ont. C.A.), at para. 5, and Deol v. Grewal, 2008 44699 (Ont. S.C.), at para. 7, the directors are those set out in the Letters Patent. Therefore, SHC has three directors: Mohinder, Bawa, and Dhinuta (paras. 28-29 and 32)
• The appellant had no standing to proceed with a common law derivative action, as he was not a shareholder, member, or creditor of SHC as required by s. 332 of the Corporations Act (paras. 33 and 37)
• Relying on Pobega v. Bajona-Fox, 2008 38363 (Ont. S.C.), at paras. 9 and 14, the appellant could not proceed with the application if he had no standing, unless he sought leave of the court. He did not do so (paras. 35-37).
• It is not necessary to appoint an independent third party to normalize the structure of the SHC. Given By-law Number 2, the SHC is now maintaining the necessary and appropriate documents, accounting records, and registers (paras. 38 and 45).
• The Respondent Mohinder’s purchase of the adjoining property was “totally transparent” (para. 25).
• The Respondent Mohinder was not in a conflict of interest respecting the adjoining property (para. 53).
• The Respondent Mohinder was the legal and beneficial owner of the adjoining property. The evidence does not support a finding that he was a bare trustee on behalf of SHC (para. 54).
Issues
[17] In his Factum, the appellant outlines two key issues on the appeal:
Did the Application Judge err in identifying who were the directors of the SHC, and in finding that Sandhu did not have standing to bring the Application; and,
Did the Application Judge err in finding that Mohinder was not in a conflict of interest when he purchased a property adjacent to the property owned by the SHC?
[18] At the commencement of his oral submissions on the hearing, counsel for the appellant acknowledged that if his argument failed on the first issue, then the second issue would become moot due to the appellant’s lack of standing.
Court’s Jurisdiction
[19] The Divisional Court has jurisdiction to hear this appeal under s. 19(1)(a) of the Courts of Justice Act, R.S.O. 1990, c. C-43 (CJA), as this is a final order of a judge from the Superior Court of Justice. Further, s. 329 of the Corporations Act states that an appeal lies to the Divisional Court of any order made under that Act.
[20] In his Notice of Appeal, the appellant pleaded s. 6(1)(b) of the CJA, which is an appeal to the Court of Appeal of Ontario. The appellant has since changed proposed appeal routes. The Court of Appeal granted the appellant an extension of time to perfect the appeal by the Order of Benotto J.A. dated February 19, 2021.
Standard of Review
[21] The standard of review applicable in this case is palpable and overriding error for questions of fact, and correctness for questions of law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. When an incorrect and extricable legal principle is applied to the evidence, then the standard is correctness. If the legal principle is not extricable, then the standard is palpable and overriding error.
Analysis
Issue # 1: Identity of Directors and Standing of Appellant
[22] This was the central issue argued on this appeal. The appellant was one of the seven directors of the original corporation, incorporated in May 1999 pursuant to the Ontario Business Corporations Act. The appellant’s position as a shareholder/director ceased when each of the original shareholders surrendered their shares for cancellation and SHC was thereafter continued as a not-for-profit corporation pursuant to the Letters Patent of Continuation dated August 3, 2001, and pursuant to the Corporations Act.
[23] Pursuant to the decisions in Deol v. Grewal, 2008 44699 (ONSC) and Rexdale Singh Sabha Religious Centre v. Chattha, [2006] 39456 (ONCA), the appellant is neither a director, shareholder nor member of SHC as he was not named as an applicant on the Letters Patent of Continuation.
[24] As the jurisprudence in Ontario has established, when dealing with s. 332 of the Corporations Act leave of the court is necessary in order to protect corporations from derivative actions started by inappropriate parties. The appellant did not adduce evidence to show that he was a shareholder, member or creditor of SHC as required by s.332 of the Corporations Act.
[25] There are currently three directors. The appellant is not one of them.
[26] The appellant submits that the additional four “directors” attended meetings of the new corporation. But, the evidence indicates, so did many other people. The SHC sought input from many members of the temple.
[27] The Letters Patent are clear on their face. There were only three directors listed. The appellant submits that this arose from inadvertence. He requests on Order to correct this nunc pro tunc.
[28] Counsel for the appellant submitted that there is no clear evidence regarding this, and that perhaps the Application Judge should have ordered the matter to go to trial (notwithstanding that this was not requested of him).
[29] This is an argument built on quicksand. Section 284(1) of the Corporations Act provides as follows:
284 (1) The persons named as first directors in the Act or instrument creating the corporation are the directors of the corporation until replaced by the same number of others duly elected or appointed in their stead.
[30] The Act makes clear that the first directors are those who signed the application that created the corporation. The appellant is not one of them. Only one director has since been duly elected or appointed to replace a director. That is Partap Singh Dhinota, not the appellant. It follows that the appellant is not a director. This is a matter of law. The personal belief of the appellant is not relevant. Simply believing that one is a director does not make one so.
[31] Furthermore, there is no basis in law or in fact to accede to the appellant’s request to alter the number of directors nunc pro tunc. Section 285(1) of the Act governs changes to the number of directors. It provides as follows:
285 (1) A corporation may by special resolution increase or decrease the number of its directors.
[32] No special resolution has been passed changing the number of directors from three to seven.
[33] The situation before the court is analogous to Rexdale Singh Sabha Religious Centre v. Chattha, 2006 39456 (ON CA), 2006 CarswellOnt 7413, [2006] O.J. No. 4698 (C.A.), upon which the Application Judge relied. It also involved a dispute as to who the directors of the non-profit corporation were. The Court of Appeal ruled as follows, at paras. 3 – 5:
The Corporations Act, R.S.O. 1990, c. C.38 provides that upon incorporation, each applicant becomes a director and member of the corporation. The Act provides that persons may be admitted to membership thereafter by resolution of the Board of Directors.
No proper procedure was ever taken to change the members of these corporations in accordance with the Act. There was a total failure to comply with the Act. We cannot agree with the application judge’s conclusion that four of the five directors of Rexdale can be taken to have approved the creation of the list of the members.
It remains that the proper directors and members of the three corporations are the applicants for the letters patent of each corporation.
[34] In the case at bar, we are similarly of the view that the proper directors and members of SHC are the three applicants for the Letters Patent of the corporation, subject only to the one approved change where Sherdaljit Dhillon was replaced by Partap Singh Dhinota. It follows that the appellant is not, at law, a director.
[35] Since he is not a director, nor is he a shareholder, member or creditor as required by s. 332 of the Act, the appellant has no standing to proceed with a common law derivative action without leave of the court. The appellant did not seek leave of the court. The Application Judge did not make a palpable and overriding error in so finding.
[36] Faced with the reality of what the Letters Patent say, and the legal implications that flow therefrom as a result of the provisions of the Act referred to above, the appellant advanced the argument that a mistake had been made, and that the Letters Patent were in error in naming only three applicants. He therefore sought the remedy of rectification, to correct this error.
[37] However, the remedy of rectification was not pleaded in this proceeding, so it need not be considered. In any event, there is a heavy burden on a party seeking rectification. Rectification is not available to correct erroneous assumptions or beliefs: see Council of the Wasauksing First Nation v. Wasausink Lands Inc., 2004 15484 (ON CA) at para. 81. The erroneous assumption here is the appellant’s belief that he was one of seven directors.
[38] There is no merit to the appellant’s argument on the first issue. As his counsel indicated in his oral submissions on the hearing of this appeal, this probably renders the balance of his arguments moot. In any event, there is also no merit to the second issue argued. It is based merely on bald assertions.
Issue # 2: Conflict of Interest
[39] The appellant acknowledges that the respondent Mohinder purchased the property, on the understanding that it could be used by SHC, because SHC did not have the money to purchase it themselves. Further, SHC decided at a meeting that it would rent the property from Mohinder. However, the appellant submits, the Application Judge ignored the evidence that the respondent Mohinder remortgaged the property and made SHC pay for the maintenance and improvements of the property.
[40] It is not disputed that the rental agreement stipulated that SHC would pay rent equivalent to the mortgage payments. The appellant alleges that respondent Mohinder did not disclose to SHC that the lease would include paying for the higher subsequent mortgage after he remortgaged the property in 2004.
[41] The appellant further alleges that the Application Judge ignored evidence that SHC paid for additional expenses because such evidence came largely from Dhillon. The appellant submits that the Application Judge’s focus on Dhillon’s thefts caused him to view the evidence in a “distorted lens” and perhaps made him find Dhillon not credible.
[42] The second major argument made by the appellant is that the Application Judge erred in law by not considering the standard fiduciary duties of a director of a charity. As a result, the appellant submits that the Application Judge did not apply the correct legal test in determining if Mohinder was in a conflict of interest. The correct approach would have identified the standard fiduciary duties and applied the relevant facts to that standard.
[43] The appellant argues that the respondent Mohinder did not provide the necessary full disclosure, as required in Canadian Aero Service Ltd. v. O’Malley, 1973 23 (SCC), [1974] S.C.R. 592, at para. 24. Further, the appellant suggests that the respondent Mohinder was engaged in self-dealing, which breached his fiduciary duty as a director.
[44] There is no merit in any of these arguments.
[45] First, it should be noted that the SHC is not a charity. It is not governed by the legislation governing charities. SHC is a not-for-profit corporation incorporated pursuant to the Corporations Act.
[46] The determination of no conflict of interest was a finding of fact by the Application Judge. There is no evidence apparent to undermine this finding of fact.
[47] The appellant ignores the evidence that the congregation congratulated the respondent Mohinder on the purchase and that, following the meeting, SHC signed a tenancy agreement with the respondent Mohinder. The purchase had been an agenda item for the meeting. The appellant was at this meeting.
[48] There is no evidence of SHC paying anything beyond basic tenant expenses to Mohinder. There is also no evidence of any profits made by him.
[49] Both respondents also argue that a conflict of interest is allowed when full disclosure is made in advance of the conflict and is properly approved by shareholders or members. Both cite Canadian Aero Service Ltd. v. O’Malley, 1973 23 (SCC), [1974] S.C.R. 592, at para. 24, and Barry Reiter’s Directors Duties of Canada, 3rd ed. (Toronto: CCH Canadian Ltd., 2006), as authority for this exception.
[50] This exception applies here, as the respondent Mohinder made it clear to SHC, in advance, that he wanted to purchase the property.
[51] The respondents submit, and we agree, that the appellant’s complaint of conflict of interest some 16 years after the purchase is simply not credible.
[52] The Application Judge found at para. 54 of his reasons that the evidentiary record did not support a finding that the respondent Mohinder was a bare trustee. The appellant has not provided any evidence that would call this finding into question.
[53] The evidence indeed supports the view that the respondent Mohinder actually financially supported the centre to a great degree, and that, as the Application Judge found, the purchase was transparent. The congregation of SHC congratulated the respondent Mohinder on his purchase of the subject property and overwhelmingly supported him. There was a tenancy agreement. Payments were accounted for as rents by SHC.
[54] SHC knew that Mohinder was going to buy the adjacent property, and that he had completed the purchase. There is no evidence that he profited. In fact, SHC made profits from its sublease.
[55] SHC did not support the appellant. The SHC supported Mohinder’s position in the Application and it agreed that Mohinder was the legal and beneficial owner of the subject property. SHC did not agree that Mohinder acted in a conflict of interest.
Conclusion
[56] As explained above, the appellant has no standing to proceed with a common law derivative action without leave of the court. The appellant did not seek leave of the court. The Application Judge did not make a palpable and overriding error in so finding.
[57] This Application was therefore hollow from the outset. The issue of standing is a threshold issue. The appellant had to show that he had proper standing to bring the Application before he could seek or obtain the relief sought. He did not have legal standing. The appellant attempted to bring a derivative action but failed to seek or obtain leave of the court as he was required to do.
[58] The appellant did not plead or seek an equitable remedy. There is no basis for the claim of rectification.
[59] There is no basis to find that the respondent Mohinder was in a conflict of interest concerning his purchase of the property adjacent to the respondent SHC.
[60] We find no palpable and overriding error in the factual findings of the Application Judge. There was no error of law.
[61] Finally, that the Application Judge did not refer to all the matters raised by the appellant does not mean that he failed to take them into consideration to the extent that he considered these issues to be relevant: Papp v. Stokes, 2018 ONSC 1598 at para. 28 (Div. Ct.) There was no need for the Application Judge to discuss each element of a legal test for various causes of action that could not be satisfied given his findings. Failing to do so does not constitute an error of law. There is no need for a trial, motion or application judge to respond to every argument raised by the parties, to recite all the evidence or to articulate all the relevant inferences or principles of law: Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP, 2017 ONCA 544 at para. 354.
[62] There is no basis to grant the appeal.
Order
[63] The appeal is dismissed.
Costs
[64] Costs of the appeal are awarded to each of the respondents Mohinder and SHC in the agreed upon amount of $12,500 all inclusive.
Heeney J.
Backhouse J.
Gibson J.
Released: March 18, 2022
CITATION: Sandhu v. Singh and Sikh Heritage Centre, 2022 ONSC 1604
DIVISIONAL COURT FILE NO.: DC-21-36
DATE: 2022-03-18
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Heeney, Backhouse, Gibson JJ.
BETWEEN:
SURINDER SINGH SANDHU
Appellant
– and –
MOHINDER SINGH and SIKH HERITAGE CENTRE
Respondents
REASONS FOR JUDGMENT
Released: March 18, 2022