Vaughan Community Health Centre Corporation v. Annibale, 2015 ONSC 2559

CITATION: Vaughan Community Health Centre Corporation v. Annibale, 2015 ONSC 2559

NEWMARKET COURT FILE NO.: CV-14-1200-52-00

DATE: 20150417

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

VAUGHAN COMMUNITY HEALTH CENTRE CORPORATION

Applicant (Moving Party)

– and –

QUINTO ANNIBALE, SAM CICCOLINI, ROBERT COLELLI, MICHAEL DEGASPERIS and DR. ROBERT MAGGISANO

Respondents (Responding Party)

Albert G. Formosa/Faren H. Bogach, for the Applicant (Moving Party)

Craig T. Lockwood, for the Respondents (Responding Party)

HEARD: March 20, 2015

REASONS FOR DECISION

DiTOMASO J.

THE APPLICATION

[1] The Applicant, Vaughan Community Health Centre Corporation (the Applicant) makes this application for:

(a) a declaration that the Respondents’ resolution to:

(i) remove Tony Carella, Sandra Yeung Racco and Alan Shefman as Directors of the Applicant effective immediately;

(ii) amend the Applicant’s by-laws so as to exclude the following from membership in the Applicant or from being a Director of the Applicant: “members of Vaughan City Council, Provincial Parliament and Parliament, candidates for such offices and immediate family members of any of the foregoing”; and

(iii) amend the Applicant’s by-laws to reduce the number of Directors from 14 to 10 (collectively the “Resolution”); and

(b) any meeting of the members of the Applicant held to pass the Resolution are contrary to the Applicant’s by-laws and are inconsistent with the Corporations Act, R.S.O. 1990, c. C.38 (the “Act”);

[2] The Respondents sought by Resolution to remove certain Directors of the Applicant alleging conflict of interest and to amend the Applicant’s by-laws. Such Resolution is opposed by the Board of Directors of the Applicant.

OVERVIEW

[3] The factual matters giving rise to this application are not seriously contested. The factual context can be taken from the affidavit of Dr. Aslam Daud sworn September 17, 2014 contained in the Application Record of the moving party.

[4] The Applicant was incorporated on August 17, 2006 by Letters Patent under the Corporations Act. The Applicant is also a registered charity.

[5] In or about 2006, at least three non-share corporations were incorporated for the purpose of facilitating the development of health care in Vaughan, Ontario (“Vaughan”). The non-share corporations included the Applicant and non-share corporation named “Vaughan Health Campus of Care” (the “Campus Corporation”).

[6] The Applicant is mandated, as set out in its Letters Patent, to provide primary health care, social programs and health promotion services to residents in Vaughan and not to “further the objectives of the Campus Corporation” as set out in the affidavit of Robert Colelli sworn January 30, 2015. The Applicant focuses on priority populations with barriers accessing health care.

[7] The Applicant is governed by its by-laws. By-law No. 1, provides for the governance of the Applicant, including the qualifications and number of Directors, elections and removal of Directors, conflicts of interest, amending by-laws and procedures for meetings.

[8] Pursuant to Article 3.01(a) of By-law No. 1, the membership of the Applicant is comprised of voting ex officio members and non-voting ex officio members. The voting ex officio members of the Applicant are the Directors of the Campus Corporation (“Voting Members”). The non-voting ex officio members include the Directors of the Applicant and members of the Community Advisory Council.

[9] There are 15 Directors of the Applicant’s Board. Of those 15 individuals, 14 are elected voting Directors. The remaining Director is an ex officio voting Director appointed by the Board of Directors of the Campus Corporation. This position is currently occupied by the Respondent Robert Colelli.

[10] The Respondents are the five Voting Members of the Applicant, who are also the five Directors of the Campus Corporation.

[11] Three of the Applicant’s Directors are the City of Vaughan Municipal Councillors namely, Tony Carella, Sandra Yeung Racco, and Alan Shefman (“Councillor Directors”). The Councillor Directors were recruited and elected by two of the Respondents, being two of three incorporating Directors of the Applicant.

Members Conduct Governance Review of the Applicant

[12] In August 2013, the Voting Members advised the Board that they would be conducting an independent review of the governance practices of the Applicant. The Voting Members retained Michael Watts of Osler, Hoskin and Harcourt LLP (“Watts’) to undertake this governance review. Watts was retained by the Voting Members without consultation with the Applicant’s Board of Directors and without any instructions from the Board.

[13] On July 31, 2014, at a Board meeting scheduled upon the request of the Voting Members, Watts delivered a draft report (“the draft report”) to the Board and the Voting Members. In the draft report, Watts made a number of recommendations including that the councillor Directors resign due to an alleged conflict of interest as a result of their positions as municipal councillors.

[14] Among other things, the draft report failed to acknowledge that the councillor Directors have been Directors on the Applicant’s board for seven years and had been elected as such by the Voting Members on three occasions. The councillor Directors were amongst the first elected, Directors of the board in 2007, and were re-elected in 2010 and re-elected in 2013.

[15] There was no mention or explanation of any decisions which were made that would justify the recommendation that the councillor Directors resign.

[16] Despite being advised that the Directors would have “ample opportunity” to respond to the draft report, the Board informing the Voting Members that intended to respond by early September 2014, on August 8, 2014, Watts expressed his intention to finalize the draft report by August 20, 2014.

[17] The Board delivered a response to the draft report on August 19, 2014 (“the response”).

[18] The Applicant submits the response set out the manner in which the draft report was flawed.

[19] Watts advised that he was revising the draft report but that the response did not change any of the recommendations of the draft report. Although the draft report was revised, the revised version was never finalized.

Voting Members Requisition a Special Members’ Meeting

[20] On August 26, 2014, the Voting Members wrote to the Board requisitioning a special members’ meeting to consider the Resolution.

[21] The Voting Members did not provide the councillor Directors with the specific reasons why the councillor Directors ought to be removed so that the councillor Directors would have an opportunity to respond, as required under By-law No. 1.

Board Considers and Rejects the Requisition

[22] On September 3, 2014, the Board held a meeting to consider the Requisition. Pursuant to Article 4.02(c) of By-law No. 1, the Board passed a motion to reject the Requisition because it did not meet the qualifications as set out in Article 4.02(b).

[23] On September 5, 2014, the Board advised the Voting Members that they had considered and rejected the Requisition due to its failure to comply with by-law No. 1.

Members Call a Special Members’ Meeting for September 18, 2014

[24] On September 8, 2014, the Voting Members advised the Board that they had determined to call a Special Members’ meeting for September 18, 2014 and provided the Board with a Notice of General Meeting of the Members.

[25] On September 11, 2014 the Board wrote to the Voting Members advising that the purposes of the voting member-called meeting were inconsistent with the Corporations Act and improper under By-law No. 1. The Board asked the Voting Members to confirm by September 12, 2014 at 5:00 p.m. that the Voting Members would not be proceeding with the Special Meeting as called. No response was received by 5:00 p.m. on September 12, 2014.

Applicant was Granted an Interim and Interlocutory Injunction

[26] On September 18, 2014, the Applicant successfully brought a motion to enjoin the Voting Members from passing the Resolution or any part thereof, pending the outcome of this application.

[27] Douglas J. held that the Resolution was not within the purview of the Voting Members and was inconsistent with the Corporations Act and the Applicant’s By-law No. 1. Further, Douglas J. found that the resolution was generated by the Voting Members and, therefore, contrary to s.129(1) of the Corporations Act. Regarding the removal of Directors, Douglas J. held that the Resolution represented a departure from the procedure for the removal of Directors as set out in the Applicant’s by-law No. 1.

THE ISSUE

[28] The sole issue before this court is whether the Applicant should be granted the declaratory relief sought restraining the Voting Members from considering and voting upon the proposed Resolution to remove Directors of the Applicant and to amend the Applicant’s by-laws.

POSITION OF THE PARTIES

Position of the Applicant

[29] The Applicant submits that the Declaration should be granted because the Resolution is unlawful. The Resolution does not follow the proper process as set out in the Applicant’s by-laws with respect to the removal of Directors and does not abide by the duty to provide the councillor Directors with the opportunity to respond to the allegations against them. It is submitted that the Resolution does not provide the reason for the proposed removal, which precludes the councillor Directors from responding to any allegations against them. The Applicant submits that only Directors, and not the Respondents, can initiate by-law changes and amendments in accordance with the Applicant’s by-laws and the Corporations Act.

[30] The Applicant submits that the Resolution sought to be passed by the Voting Members is both inconsistent with the Corporations Act and improper in relation to the Applicant’s By-law No. 1.

[31] Lastly, it is submitted that the Resolution is unlawful and not with the purview of the Voting Members’ role in the Applicant and therefore the Voting Members should not be allowed to requisition a meeting in connection with the Resolution. The Applicant submits that the application should be granted.

Position of the Respondents

[32] The Respondents submit that the proposed Resolutions unequivocally fall “within the purview of the Voting Members’ role” and are therefore permissible. It is submitted that the Voting Members are entitled to pass the Resolution in question and the Applicant cannot interfere with the Voting Members’ right to meet and pass valid resolutions. The conduct of the conflicted Directors falls squarely within the “conflict of interest” definitions contemplated by the by-laws which entitle the Voting Members to exercise their right to pass a Director removal Resolution. The Respondents submit that they are equally entitled to pass the proposed Resolution to amend the Applicant’s by-laws to exclude from membership in the Applicant or from being a Director of the Applicant certain individuals and to amend the Applicant’s by-laws to reduce the number of Directors from 14 to 10. The Respondents submit that the application be dismissed.

ANALYSIS

[33] In determining the issue of whether the Applicant is entitled to the declaratory relief it seeks, the starting point is an examination of the governance structure of the Applicant.

[34] The Applicant is governed by its by-laws. By-law No. 1 was approved by the Board and the Voting Members of the Applicant on November 23, 2010. By-law No. 1 provides for the governance of the Applicant.[^1]

[35] Pursuant to Article 3.01(a) the membership of the corporation consists of two categories of ex officio members (i) non-voting ex officio members and (ii) and voting ex officio members.

[36] Article 3.01(b) provides that no member of the corporation shall be an Excluded Person.

[37] The definition of an Excluded Person can be found in the definitions and interpretation section of By-law No. 1 at Article 1.01(l).

Board Composition

[38] An individual is eligible to be a Director of the Applicant if he or she meets the criteria set out in Article 5.03 of By-law No. 1 and is not an “Excluded Person” as set out in Article 3.01(b). City councillors are not included in the definition of “Excluded Person”.

[39] In accordance with Articles 5.04(b) and 5.05(a) of By-law No. 1 each Director is elected up to a three year term of office for up to a total of nine consecutive years.

[40] There are 15 Director positions on the Applicant’s Board. Of those 15 individuals, 14 are elected voting Directors. The remaining Directors and ex officio voting Director appointed by the Board of Directors of the Campus Corporation. This position is currently occupied by the Respondent Robert Colelli.

[41] The Voting Members have always elected Directors proposed by the process adopted by the Board.

[42] The Councillor Directors are City of Vaughan municipal electors who were first elected as Directors in 2007. The Councillor Directors were recruited to and elected by, among others, two of the Respondents Michael DeGasperis and Quinto Annibale, being two of the three incorporating Directors of the Applicant.

Removal of Directors

[43] By-law No. 1 includes a process for removing Directors. Article 5.06(b) provides that the office of an elected Director may be vacated by a Resolution of the members on the following grounds: (a) absenteeism; or (b) failure to comply with the Corporations Act, or the Applicant’s By-laws, rules, regulations, policies and procedures, including without limitation, the confidentiality, conflict of interest and standard of care provisions contained in By-law No. 1.

[44] The standard of care provisions are provided at Article 5.08.

[45] The termination of office of a Director as set out in Article 5.06(b)(ii) on the grounds of conflict of interest is linked to Article 5.09. Article 5.09(j) provides:

If a Director believes that any other Director is in a Conflict of Interest position with respect to any contract, transaction, matter or decision, the Director shall have his concern recorded in the minutes, and the Director with the alleged Conflict of Interest shall have the right to address the Board with respect to the allegation. Thereafter, at the request of the Director who recorded the initial concern, the Board, after the Director alleged to have a Conflict of Interest has absented himself from the room, shall vote on whether the Director alleged to have a Conflict of Interest is, in the opinion of the Board, in a Conflict of Interest. If the Board finds the person in a Conflict of Interest, that interested Director shall absent himself during any subsequent discussion or voting process relating to or pertaining to the conflict. The question of whether or not a Director has a Conflict of Interest shall be determined by a simple majority of the Board and shall be final.

Conflict of Interest

[46] Article 5.09 of By-law No. 1 includes detailed procedures and disclosure requirements in the event a Director has or is alleged to have a conflict of interest or a potential conflict of interest. Further, Conflict of Interest is defined in Article 1.01(i) as including, without limitation, (i) Pecuniary or Financial Interest; (ii) Undue Influence; (iii) Adverse Interest when the individual is a party to a claim, application or proceeding against the Applicant; and (iv) Personal Relationship that may be received to be inconsistent with the Applicant.

Amending By-laws

[47] Article 13.01 of By-Law No. 1 provides that the Board may pass or amend the by-laws of the Applicant.

[48] Under Article 13.04 of By-law No. 1, amendments to the by-laws must be first passed by the Board and then presented for approval by the Voting Members who may approve, reject or amend them.

Calling Special Meetings & Members Meetings

[49] Article 4.02(b) of By-law No. 1 allows the Voting Members to requisition the Directors of the Applicant to call a special meeting of the members “for any purpose connected with the affairs of the Corporation that is properly within the purview of the Members’ role in the Corporation and that is not inconsistent with the Corporations Act.”

[50] Article 4.02(c) provides that if the Board, acting in its sole discretion, determines that a Voting Members’ requisition of a special meeting of the members meets the qualifications outlined in 4.02(b), the Board shall call and hold such a meeting.

The Resolution

[51] Section 97 of the Courts of Justice Act provides that the court may make binding declarations of right.

[52] In this case, the critical issue is whether the Resolution sought to be passed by the Voting Members is both inconsistent with the Corporations Act and improper in relation to the Applicant’s By-law No. 1. The Applicant submits that the Resolution is not within the purview of the Voting Members’ role and that the Resolution sought is both inconsistent with the Corporations Act and improper in relation to the Applicant’s By-law No. 1. The Respondents take a contrary view. The Respondents submit that the Resolution is lawful and is entirely within the purview of the Voting Members’ role and that this Application for declaratory relief ought to be dismissed.

[53] The proposed Resolution is comprised of two parts: (a) amendments to the By-law; and (b) the removal of the Councillor Directors.

Are the Voting Members authorized to unilaterally make or amend by-laws?

[54] The answer to this question is no.

[55] The Applicant is a non-share capital corporation governed by the Corporations Act.

[56] The Resolution proposed by the Voting Members seeks to amend the Applicant’s By-law No. 1.

[57] Under s.129(1) of the Corporations Act, the ability to pass by-laws rests solely with the Directors of the Applicant. Under s.129(3) of the Corporations Act, the members can, at a general meeting or an annual meeting, confirm, reject, amend or otherwise deal with any by-law passed by the directors and submitted to the meeting for confirmation.[^2]

[58] Article 13.01 of By-law No. 1 is very much similar to s.129 of the Corporations Act as the Board may, by a majority vote, pass or amend the by-laws of the corporation from time to time. By-law No. 1 at Article 13.04 mirrors the language of the Corporations Act s.129(3) as follows:

13.04 Approval by Members

(b) the Voting Members at the annual meeting or the Special General Meeting may approve the By-Laws as presented or reject or amend them.

[59] I find that the Voting Members do not have any authority to make or unilaterally amend the Applicant’s By-laws as proposed in the Resolution. This finding is confirmed by the wording of both s.129(1)(3) of the Corporations Act and Article 13.04(b) of By-law No. 1.

[60] Further, that portion of the Resolution to reduce the size of the Board is not an amendment that the Voting Members are able to propose. Section 284 of the Corporations Act provides:

285(1) A corporation may by special resolution increase or decrease the number of its directors.

[61] Section 1 of the Corporations Act defines Special Resolution as “a Resolution passed by the Directors and confirmed with or without variation by at least two-thirds of the votes cast at a general meeting of the shareholders or members of the corporation duly called for that purpose, or, in lieu of such confirmation, by the consent in writing of all the shareholders or members entitled to vote at such meeting.”

[62] The definition of “Special Resolution” in the Corporations Act clearly means a resolution passed by the directors and confirmed with or without variation by at least two-thirds of the votes cast at a general meeting of the shareholders or members of the corporation duly called for that purpose. It is the Board of Directors and not the Voting Members who are able to propose an amendment in respect of the By-law where it relates to increasing or decreasing the number of directors by Special Resolution. It is not within the purview of the members’ role that such an amendment be proposed by them.

[63] I find that the Voting Members do not have any authority to make or unilaterally amend by the proposed Resolution By-law No. 1. I find the Resolution is inconsistent with both the provisions of the Corporations Act and By-law No. 1 in this regard.

Must the Voting Members comply with By-law No. 1 when removing Directors?

[64] The answer to this question is yes.

[65] Under s.67 of the Corporations Act, the letters patent, the supplementary letters patent or the by-laws of a corporation may provide for the removal of directors by members.[^3]

[66] Article 5.06(b) of the Applicant’s By-law No. 1 permits the Voting Members to remove a director from office in two situations, namely, due to absenteeism, or if a director has failed to comply with the Corporations Act, or the Applicant’s By-laws, rules, regulations, policies and procedures, including without limitation, the confidentiality, conflict of interest and standard of care provisions contained in By-law No. 1 [see Article 5.06(b)(i)(ii)].

[67] Pursuant to Article 3.01(a)(i) of the Applicant’s By-law No. 1, the Directors are also ex officio members. If the Directors are removed from office, they are no longer members of the Applicant. Members also have a right to have the opportunity to respond to the alleged breaches that may result in their removal from the membership in accordance with the principles of natural justice.[^4]

[68] Pursuant to Article 5.09(j) of the Applicant’s By-law No. 1 an opportunity must be provided for a Director (who is also a member) to respond to the Board with regards to concerns about an alleged conflict of interest. This same opportunity should be provided in circumstances where the members are attempting to remove a Director pursuant to Article 5.06(b) of the Applicant’s By-law No. 1.

[69] It is submitted by the Applicant that Article 5.09(j) provides a complete code as to the process to remove Directors for conflict of interest. It is argued that in order to remove a Director the proper process must be followed. The question of whether or not a Director has a conflict of interest shall be determined by a simple majority of the Board and shall be final. That decision has not been made by the Board in our case.

[70] Further, under Article 5.09(j), an opportunity must be provided for a Director (who is also a member) to respond to the Board with regards to concerns about an alleged conflict of interest. The same opportunity should be provided in circumstances where the members are attempting to remove a Director pursuant to Article 5.06(b) of By-law No. 1.

[71] The Resolution has not identified any breach of Article 5.06(b) of the By-law No. 1 to justify the removal of the Councillor Directors. In the Response delivered by the Board, the Board was of the view that there were no per se conflict of the type suggested in the draft report.

[72] Further, the affidavit of Robert Colelli sworn January 30, 2015 filed in the Responding Application Record contained broad allegations insufficient to support conflicts of interest being alleged. Further, I find there are no particulars provided with respect to these allegations in the Resolution and the bald statements in the Colelli affidavit do not provide any substantive allegations for the Councillor Directors to respond.

[73] For these reasons, I find the Resolution is not within the purview of the Voting Members’ role and is inconsistent with the Corporations Act and the By-laws and therefore does not comply with ss.295 and 296 and Article 4.02(b) of By-law No. 1. As such, the Voting Members are not permitted to require the Board to call a meeting of the members to pass the Resolution.

[74] Under s.295(1) of the Corporations Act, voting members of a non-share capital corporation may request the Directors to call a meeting of the members “for any purpose connected with the affairs of the corporation that is not inconsistent with this Act.”

[75] Similarly, Article 4.02(b) of the Applicant’s By-Law No. 1 provides that the Voting Members may requisition the Directors of the Applicant to call a meeting of the members “for any purpose connected with the affairs of the Corporation that is properly within the purview of the Members’ role in the Corporation and that is not inconsistent with the Corporations Act.

[76] Under s.296(1)(a) of the Corporations Act, the voting members may requisition the directors to give to the members notice of “any resolution that may properly be moved” and is intended to be moved at the requisitioned meeting.

[77] Under Article 4.02(c) of By-law No. 1, the Board shall call and hold the requisitioned meeting if it determines, in its sole discretion, that the requisition meets the qualifications set out in Article 4.02(b).

[78] Once again, these provisions of the Corporations Act when read together with Article 4.02 of the By-law regarding Special Meetings set out a process for the Chair of the Board to call a Special Meeting of the corporation where the requisition of the Voting Members in the present case is properly within the purview of the members’ role in the corporation and that is not inconsistent with the Act.

[79] I find that the proposed Resolution is not lawful and is not within the purview of the Voting Members’ role in the Applicant. The proposed Resolution is inconsistent with the provisions of the Act and the By-law that deals with the removal of Directors.

[80] On the facts and circumstances of this case in viewed in light of both the statutory and by-law framework for governance, I find that the Declaration sought should be granted because the Resolution is unlawful. The Resolution does not follow the proper process as set out in the Applicant’s By-laws to remove Directors, to amend the By-laws to exclude membership in the Applicant or from being a Director in the Applicant and to amend the By-laws to reduce the number of Directors from 14 to 10.

[81] Counsel for the Respondents submits that during the period of the interim injunction, there were a number of independent acts on the part of the alleged conflicted Directors that gave further support to the argument that they were in conflict of interest. With respect, I disagree. The process and the By-law was adhered to as evidenced by the Minutes of the relevant Board Meeting.

[82] As previously found, the Resolution is unlawful, not within the purview of the Voting Members’ role in the Applicant and therefore the Voting Members are not allowed to requisition a meeting in connection with the Resolution.

DISPOSITION

[83] For the foregoing reasons, the application is granted. In accordance with the relief sought by the Applicant, there shall be a Declaration that the Respondents’ Resolution currently proposed for the Applicant’s members’ Special Meeting to:

(a) remove Tony Carella, Sandra Yeung Racco and Alan Shefman as Directors of the Applicant effective immediately;

(b) amend the Applicant’s by-laws so as to exclude the following from membership in the Applicant or from being a Director of the Applicant: “members of Vaughan City Council, Provincial Parliament and Parliament, candidates for such offices and immediate family members of any of the foregoing”; and

(c) amend the Applicant’s by-laws to reduce the number of Directors from 14 to 10 (collectively the “Resolution”).

is contrary to the Applicant’s By-law and is inconsistent with the Ontario Corporations Act, R.S.O. 1990 c.C.38.

[84] Further, the Respondents are prohibited from passing the Resolution or any part of the Resolution at any meeting of the members of the Applicant.

[85] As agreed, costs are to be determined by way of written submissions. Both written submissions are to be exchanged between the parties and delivered to my Judicial Assistant at Barrie within the next 14 days. Written submissions shall consist of a one page concise Summary together with a Costs Outline, Draft Bill of Costs and any supporting legal authorities.

DiTOMASO J.

Released: April 17, 2015

[^1]: Affidavit of Dr. Aslam Daud sworn September 17, 2014, the Application Record, Tab 2 Exhibit B p. 14 [^2]: Corporations Act, s.129(1)(3); Smith v. Toronto Police Association, 2008 ONCA 5, at paras. 45 - 46 [^3]: Corporations Act R.S.O. 1990, c.C.38, s.67 [^4]: Senez v. Montreal Real Estate Board, 1980 CanLII 222 (SCC), [1980] 2 S.C.R. 555 at paras. 51 - 59