COURT FILE NO.: CV-19-00625730000
DATE: 20210616
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MISSISSAUGA HUMANE SOCIETY
Applicant
– and –
LILY CHAN AND MARLENE LABOG
Respondents
Sean S. Carter and Heidi LeBlanc, for the Applicant
Stuart D. Reddington, for the Respondents
HEARD: MARCH 18, 2021
vella j.
reasons for decision
[1] This matter arises from a dispute between the current Board of Directors of the Mississauga Humane Society (“MHS”) and two former Directors, Lily Chan (“Chan”) and Marlene Labog (“Labog”), regarding whether the purported removal of Chan and Labog from the Board was lawful.
[2] The matter has a long juridical history. However, in the end, I ordered, on December 7, 2020, that the MHS’s application and Chan’s and Labog’s civil action (the “Brampton Action”) each proceed by way of applications to be heard together on the common issues. The Brampton Action is to be held in abeyance pending resolution of these proceedings. The two applications raise the same issues, and the evidence filed are common to both.
[3] Accordingly, the MHS prepared and filed a Fresh as Amended Notice of Application, court file number CV-19-00625730000, and Chan and Labog issued a Notice of Application, court file number CV-21-00658154-000 (collectively, the “applications”).
[4] The applications are brought under rr. 14.05(2) and 14.05(3)(d) and (h) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
ISSUES
[5] The main issues to be determined are as follows:
a) Were Albert Russell, Lori Russell, and Eva Prout properly elected as Directors of the MHS at the annual general meeting held on August 6, 2019?
b) Were Chan and Labog properly removed as Directors and members of the MHS at a special meeting held on April 25, 2019?
BACKGROUND AND CHRONOLOGY OF EVENTS
[6] The MHS is a not-for-profit corporation under the Ontario Corporations Act, R.S.O. 1990, c. C.38, with a head office located in Mississauga, Ontario. MHS is a registered charity, run entirely by volunteers, with the purpose of rescuing homeless dogs and cats and finding homes for these animals.
[7] Chan was one of the founders of MHS. She began volunteering for this organization in 1999, and served initially as Vice President and then as President and Director for many years until her purported removal from the Board in 2019.
[8] Labog was the Vice President and served as a member of the Board of Directors since 2017, until her purported removal from the Board in 2019.
[9] Albert Russell (“A. Russell”) is the current President and is a member of the Board of Directors for the MHS. He was elected to the Board on September 9, 2017.
[10] Eva Prout (“Prout”) is the current Vice President and Treasurer, and is a member of the Board of Directors, having been elected to the board on August 12, 2017.
[11] Lori Russell (“L. Russell”) is the current Secretary and is a member of the Board of Directors, having been elected to the Board on August 12, 2017.
[12] Janice Cox (“Cox”) was elected to the Board of Directors on April 6, 2019. She has apparently since resigned from the Board.
[13] Collectively, A. Russell, L. Russell, Prout, and Cox will be referred to as the “Remaining Directors”.
[14] Animosity amongst the Directors developed resulting in a divide between A. Russell, L. Russell, and Prout on the one hand (the “Russell Block”), and Chan and Labog on the other hand. Commencing in late 2017 and early 2018, the Russell Block conducted a financial review and informal audits of the MHS without the support of Chan and Labog. This began the rapid deterioration of the relationship between the two groups of Directors. It seems apparent that the Russell Block had concerns about Chan and Labog relating to accounting practices and access to records.
[15] The investigation continued throughout 2018 and early 2019. In 2018-2019, the Office of the Public Guardian and Trustee conducted an independent investigation at the request of the Russell Block. The Public Guardian and Trustee provided guidance to the MHS as to how it could bring itself into compliance with the applicable laws and regulations.
[16] A quorum of the Board is three. Therefore, for all intents and purposes, the Board requested the investigation.
[17] On April 6, 2019, the MHS held its annual general meeting (the “AGM”).
[18] Chan and Labog attended late and left the AGM before it was concluded.
[19] At the beginning of the AGM, the Board retired, as was the usual practice for this organization, and was purportedly subsequently re-elected by the members in attendance (who, as will be explained, comprised of the Directors only).
[20] The MHS’s position is that at the AGM the whole Board of Directors was re-elected. Further, A. Russell was elected as the new President, replacing Chan, Prout was appointed as the new Vice President and Treasurer, replacing Labog, and L. Russell was appointed Secretary. Cox was elected to the Board at this time as well.
[21] The Remaining Directors, without the support of Chan and Labog, continued their investigations into the financial affairs and governance of the MHS. The Remaining Directors determined, as a result of an audit report relating to the 2017 fiscal year that was received on December 14, 2018, that Chan and Labog were no longer worthy of being Directors and members of MHS. As a result, the Remaining Directors called a special meeting of the members on April 14, 2019, to be held on April 25, 2019 (the “Special Meeting”).
[22] Notice of the Special Meeting was provided to all members, including Chan and Labog, by email on April 14, 2019. Attached to that email was a draft resolution regarding the proposed removal of Chan and Labog as Directors of the MHS, which was to be voted on at the Special Meeting.
[23] The Special Meeting proceeded on April 25, 2019. All members (who under the by-laws are solely comprised of the Directors of MHS), including Chan and Labog, attended. At this Special Meeting, Chan and Labog were removed as Directors (and therefore members) of the MHS by a resolution that passed with a two thirds majority vote.
ANALYSIS
[24] Sitting on a Board of Directors is a privilege, not a right. The decision of a properly constituted Board, on proper notice to the targeted Directors, has the right to remove the targeted Directors before the term of their office. The removal must be done in accordance with the corporation’s applicable by-laws and procedures and in a manner that does not offend procedural fairness, natural justice, or public policy.
[25] Chan and Labog challenge the legal validity of their removal as Directors and members of the MHS. They submit that the manner of their removal was not in compliance with the by-laws of the MHS and that there were no Directors in place at the time that the Special Meeting was called. They also submit that that this non-compliance resulted in a breach of their procedural fairness and natural justice rights.
[26] Only Chan filed an affidavit in evidence. Labog did not.
[27] I reject Chan and Labog’s submissions for the following reasons.
The By-Laws of the MHS
[28] MHS’s original by-laws were passed in or around May 1999 (the “1999 by-laws”). Chan was a Director at the time these by-laws were passed.
[29] At a Board meeting held on September 9, 2017, amendments to the 1999 by-laws were passed. The amended by-laws were subsequently enacted on November 4, 2017 (the “September 2017 by-laws”). Chan was President and Labog was Vice President at the time the September 2017 by-laws were passed.
[30] On January 13, 2018, the Board enacted new by-laws which were approved by the Board at a meeting held on February 10, 2018 (the “January 2018 by-laws”). The January 2018 by-laws were in force at the AGM and Special Meeting and remained in force as of the hearing of the applications. There is no dispute that the January 2018 by-laws governed the MHS at the time of the AGM and subsequent Special Meeting. Chan was President and Labog was Vice President at the time of the passing and enactment of the January 2018 by-laws.
[31] The material provisions of the January 2018 by-laws are as follows:
3.04 Election and Term (of Directors)
(a) Subject to the provisions of this By-law, Directors shall be elected by the Members at an annual meeting.
(c) The whole Board shall retire at the annual meeting, at which the election of Directors is to be made but subject to the provisions of the By-laws, shall be eligible for re-election.
3.07 Removal (of Directors)
The Members may, by a resolution passed by a majority of the votes cast at a meeting of Members, of which notice specifying the intention to pass such resolution has been given, remove from office any Director or Directors and may elect a qualified individual(s) to fill the resulting vacancy for the remainder of the term of the Director or Directors so removed, failing which such a vacancy may be filled by the Board.
7.01 Qualifications of Members
Pursuant to the articles, there shall be one (1) class of Members in the Society. The first Directors of the Society shall constitute its first Members. Membership in the Society shall thereafter be available only to Directors of the Society who shall automatically become Members of the Society upon being elected or appointed as Directors.
7.03 Termination of Membership
Membership in the Society is terminated when:
(b) the Member ceases to be a Director of the Society;
(c) the Member is removed in accordance with Section 7.04;
7.04 Removal (of Members)
A Member may be expelled as a Member of the Society if at the special meeting of the Members, a resolution is passed to remove the Member by at least a two thirds (2/3) of the votes cast at the special meeting of Members.
8.06 Notice of Meetings
Notice of the time and place of a meeting of Members shall be provided in the manner provided in Section 9.01 of this By-law in writing not less than ten (10) days before the meeting of the Members is to take place.
Notice of a meeting of Members at which special business is to be transacted shall state the nature of that business in sufficient detail to permit the Member to form a reasoned judgment on the business and provide the text of any resolution or By-law to be submitted to the meeting. Notice of a meeting of Members must remind Members that they have the right to vote by proxy.
8.15 Show of Hands
Subject to the Act and this By-law, except where a ballot is demanded, voting on any question proposed for consideration at a meeting of Members shall be by show of hands, and a declaration by the chair of the meeting as to whether or not the question or motion has been carried and an entry to that effect in the minutes of the meeting shall, in the absence of evidence to the contrary, be evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the motion.
[32] Section 9.01 of the January 2018 by-laws permits delivery of the notice required in s. 8.06 by way of email and provides that such communications are deemed to have been given when transmitted, so long as there is no subsequent error notification.
[33] Chan complains in her affidavit that A. Russell formed a voting block with the other Directors to vote against everything she and Labog raised. She seems to suggest that because the Russell Block voted against her, this constitutes misconduct. There is no basis in the evidence to support her position that the Russell Block acted in bad faith, for self-serving purposes, or otherwise in a manner that was against the best interests of the MHS. Rather, the evidence demonstrates that they were acting in what they believed to be in the best interests of the MHS as they are obliged to do as fiduciaries: London Humane Society (Re), 2010 ONSC 5775, 77 B.L.R. (4th) 119, at paras. 18-20.
The Election of the Remaining Directors at the AGM
[34] The real complaint by Chan and Labog is that when all of the Directors resigned at the beginning of the AGM for purposes of holding the elections, they automatically lost their status as members and therefore there was no one left to re-elect them as Directors. Therefore, they reason, the Remaining Directors were not holding office after the AGM, had lost their status as members, and did not have power to hold the impugned Special Meeting at which Chan and Labog were removed.
[35] By extension of this argument, Cox’s election was a nullity, according to Chan and Labog, since there were no members to elect her to the Board.
[36] As stated, MHS is a small not-for-profit corporation comprised entirely of volunteers. Any funds raised go to the mission of the MHS which is to rescue neglected dogs and cats, place them in foster homes, and then eventually adopt them out to permanent homes.
[37] Under the MHS’s governing January 2018 by-laws, the Directors are also the exclusive members of the corporation. In other words, there are the same number of members as there are Directors. Therefore, when the members exercise their vote to elect the Board of Directors, they are in effect voting for themselves.
[38] While this process may seem strange, it is a reality for many small not-for-profit corporations. Chan and Labog were well aware of this membership structure and election process, and Chan played a role in developing the structure in 1999 as a founding member, Director, and officer.
[39] At the time of the AGM, there were five Board members (with six being the maximum number permitted under the January 2018 by-laws). All five Board members, including Chan and Labog attended. At the conclusion of the AGM, Cox was elected as the sixth member of the Board.
[40] Pursuant to s. 3.04(c) of the January 2018 by-laws, the full Board resigned at the beginning of the AGM. The result of the resignation was that the Directors put on their member hats for the purposes of carrying out the election of the new Board of Directors.
[41] However, in their factum, Chan and Labog state: “Section 3.04(c) of the By-law states that all directors must retire at an annual meeting. At the April 6, 2019 meeting, all directors retired. At that moment in the April 6, 2019 meeting, based on the foregoing sections [of the By-law], there are thus no members and no directors of MHS.” Their argument is that once the Directors resigned, they lost their status as members such that there were, in effect, no members of MHS remaining.
[42] If Chan and Labog’s theory were to be accepted, then for all practical purposes, the MHS would have been without a Board of Directors and members since April 6, 2019, the date of the AGM. Under this theory, Chan and Labog would also have lost their Director status on April 6, 2019. Yet they ask this court to reinstate Director status on the further theory that the Remaining Directors had no authority to call or conduct the Special Meeting and no Members to vote on the proposed resolution. Therefore, any resolution passed at the Special Meeting, notably the resolution removing Chan and Labog, is null and void.
[43] This interpretation of the January 2018 by-laws, while perhaps a correct literal interpretation, makes no practical sense. Under s. 3.04(c) of the January 2018 by-laws, the Directors must resign at the outset of the AGM. However, upon their resignation, their status as members also technically ceased. By further operation of the January 2018 by-laws, membership depends upon a person’s election as a Director. Therefore, under Chan and Labog’s interpretation of the January 2018 by-laws, upon retirement of the Board, there would be no members left to re-elect the Directors.
[44] In these types of situations, the court will resort to the principal of business efficacy and adopt an interpretation of the by-laws that will avoid commercial absurdity. Towards this end, the court will adopt an interpretation of the by-laws that allow the corporation to continue to function with a membership and Board of Directors, without which it cannot operate. As stated by Wilton-Siegel J. in Polar Multi-Strategy Master Fund v. The Stars Group Inc., 2018 ONSC 4397, at para. 19, in considering an interpretation of corporate by-laws: “Significantly, a court should strive to avoid an interpretation that produces an absurdity, a commercially unreasonable result or a result which is unworkable”.
[45] In Lee v. Lee’s Benevolent Association of Ontario, [2004] O.J. No. 6232 (S.C.), the court held that, provided that the basic process is fair, a non-profit corporation will not be required to rigorously abide by all of the technical requirements of its by-laws. In this case, a board election process for a non-profit organization was challenged for technical non-compliance with the relevant by-law. In dismissing this claim, Nordheimer J., as he then was, stated at para. 12:
Non-profit organizations such as the Association should not be required to adhere rigorously to all of the technical requirements of corporate procedure for their meetings as long as the basic process is fair. Nor should the court be too quick to grant relief in such circumstances that may only serve to encourage a disgruntled member of such an organization to seek such relief. Absent some demonstrated evidence that any irregularities went to the heart of the electoral process or lead to a result which does not reflect the wishes of the majority, the court should be loathe to interfere in the internal workings of such groups.
For a similar result to Lee, regarding technical non-compliance, see Dhaliwal v. Singh, 2020 ONSC 6116.
[46] Chan and Labog argue that the failings they have identified amount to more than mere irregularities and that ss. 3 and 7 of the January 2018 by-laws should be declared void. If this court were to do this, the MHS would be left without any functioning Board of Directors or members and would be effectively defunct.
[47] The MHS could not have intended that the AGM be run in such a manner as would prevent the election or re-election of a Board of Directors as a result of the temporary retirement of the Board (and the consequent loss of all of the members of the corporation in perpetuity). Rather, this appears to be an inadvertent gap in the January 2018 by-laws whereupon for the duration of the AGM, there must be members to elect the next slate of Directors. No such complaint was made by any of the Directors, including Chan and Labog, about this anomaly until after this dispute and litigation was started. All the Directors, including Chan and Labog, continued to discharge their respective roles as Directors following the AGM. Furthermore, this general process appears to have been in place since the MHS passed its first set of by-laws with consecutive Boards being elected or re-elected following their retirement at the annual general meetings.
[48] The January 2018 by-laws imply that the retired Directors must maintain their status as the members of MHS for the balance of the AGM to allow for the prescribed election of the next Board of Directors. This is the only interpretation that makes practical sense and avoids commercial absurdity within the context of the MHS.
[49] Accordingly, I find that the five Directors – A. Russell, L. Russell, Prout, Chan, and Labog – were re-elected at the AGM, and that Cox was elected as a new Director at that AGM, in accordance with the process set out by the January 2018 by-laws. As such, the Remaining Directors had the authority to call the Special Meeting, and had the standing, as members, to vote to remove Chan and Labog at that meeting.
The Removal of Chan and Labog from the Board of Directors
[50] The second main argument of Chan and Labog is that they were not given proper notice of the purpose of the Special Meeting; namely, to consider a motion to remove them as Directors. As a result of the alleged failure by the Remaining Directors to comply with the requirements of the January 2018 by-laws for calling a Special Meeting, Chan and Labog say that they were not afforded procedural fairness and natural justice. Therefore, the court ought to strike the resolution removing them, and reinstate them as Directors of MHS.
[51] They rely on the following passage from Donald J. Bourgeois, Charities and Not-for-Profit Administration and Governance Handbook, 2nd ed. (Markham: LexisNexis Canada, 2009), at p. 183:
Natural justice is a common law development that is intended to protect the procedural rights of persons. Although it is more usually considered in the context of administrative law, the basic premises of natural justice have been applied by the courts to domestic forms and the relationship between members and organizations. Natural justice includes several elements. First, the person whose rights are to be affected should receive notice of the hearing, if any. Second, the notice should set out the grounds or reasons for the proposed change, termination or suspension. Third, the person whose rights are to be affected should have the opportunity to make submissions. Fourth, the decision maker or tribunal should, if not unbiased, have an open mind.
[52] Chan and Labog argue that the notice sent to them and the other members regarding the Special Meeting failed to set out the grounds or reasons for the proposed motion to remove them as Directors, contrary to s. 8.06 of the January 2018 by-laws. Therefore, they claim that they did not have the opportunity to make meaningful submissions at the Special Meeting.
[53] An email sent to all members, including Chan and Labog, provided notice of this Special Meeting. Attached to the email was a proposed draft resolution to remove Chan and Labog as Directors. However, neither the email nor the notice set out the reasons behind the proposal to remove them as Directors.
[54] Chan admitted that she received the notice on April 14, 2019 (the requisite ten days before the Special Meeting), with attachments including the draft resolution removing her and Labog. She also admitted that when she attended the Special Meeting on April 29, 2019, that she was already aware that the purpose of the meeting was to remove her and Labog as Directors.
[55] Furthermore, it is acknowledged that all members attended the Special Meeting. Therefore, the quorum requirements were fulfilled.
[56] Chan admitted under cross-examination that the motion to remove her and Labog as Directors passed with a vote of four to two.
[57] Chan and Labog also made the argument that at least two of the members in attendance at the Special Meeting were not eligible to be members of the MHS. They say that there was a requirement that candidates serve a two-year volunteer term before their election to the Board. They level these allegations primarily at A. Russell and Prout. However, the evidence shows that A. Russell and Prout likely completed a mandatory two-year volunteer term before their respective elections to the Board. Their argument seems to be premised on the fact that Chan did not have a signed volunteer application form or a volunteer waiver form, and, therefore, they were not “official” volunteers for the purposes of this eligibility requirement.
[58] A review of the by-laws that were in effect at the time of the election of A. Russell and Prout as Directors reveals that there was not a requirement that volunteers must first fill out volunteer forms to have their volunteer work recognized. Accordingly, Chan’s argument is premised, at best, on a technicality.
[59] On cross examination, Chan admitted that she did not collect volunteer forms for every volunteer and, ultimately, was only able to produce two signed volunteer application forms and six signed volunteer waiver forms from all the years the MHS has operated.
[60] I am satisfied on the evidentiary record that A. Russell and Prout fulfilled the mandatory two-year volunteer eligibility requirement before their respective election as Directors. As an aside, it should be noted that it was Chan who nominated A. Russell, and also supported Prout, in their respective elections for a position on the Board. It makes no sense that Chan, who was president of the MHS at the time, would have knowingly put forward, or supported, a candidate for the Board who did not meet the eligibility requirements for that nomination. Chan and Labog only raised this issue after the fall out amongst the Directors.
[61] Further, and in any event, s. 292 of the Corporations Act provides that:
Validity of acts of directors, etc.
292 The acts of a director or of an officer are valid despite any defect that may afterwards be discovered in his or her appointment or qualification.
[62] There is no suggestion in the evidence that Chan and Labog were unaware of the reasons for their removal from the Board or of the motion to remove them. There is also no evidence in the record suggesting that Chan and Labog asked for the motion to be tabled or for a request to adjourn the meeting so that they could make submissions in response to the motion.
[63] Chan also admits that she and Labog attended at the Special Meeting but did not make any submissions. Rather she appears to have been dismissive of this motion and had already threatened litigation if she and Labog were removed as Directors. Chan does not allege in her affidavit that she did not have adequate notice of the reasons for her proposed removal or that she was deprived of the opportunity to make meaningful submissions against the motion.
[64] Furthermore, Chan’s affidavit contains inadmissible hearsay evidence with respect to controversial allegations she makes against A. Russell’s conduct and good faith discharge of his duties as a Director of the MHS. I am not attaching any weight to this hearsay evidence: see Beach v. Toronto Real Estate Board, 2010 ONSC 30001; 621316 Ontario Inc. v. Kellam, 2014 ONSC 242, at para. 14.
[65] Of significance, Labog did not file an affidavit in these proceedings setting out her evidence. There is no direct evidence from her as to whether she believes that she was deprived of natural justice or procedural fairness, and if so how. In the absence of such evidence, I must draw an adverse inference against Labog on this critical issue.
[66] The court will take a purposive approach in making this assessment, recognizing that the requirements of procedural fairness and natural justice will vary depending upon the facts of the case. The steps taken by a decision-making body against an aggrieved party that may be sufficient to discharge these fundamental tenets in one case, may be insufficient in another.
[67] For the reasons stated, I find that the election of the Board of Directors at the AGM and the process resulting in the resolution to remove Chan and Labog at the Special Meeting were in substantial compliance with the January 2018 by-laws, reflected the will of the majority of the members, and did not result in any breach of procedural fairness or natural justice to Chan and Labog.
[68] I am also satisfied on the evidence that Chan may still possess some property that belongs to the MHS.
CONCLUSION
[69] The fresh as amended application brought by MHS is granted, and the application brought by Chan and Labog is dismissed.
[70] The declarations sought by MHS in its Fresh as Amended Notice of Application, including an order directing Chan to forthwith return any property belonging to the MHS that she may still have, are granted.
[71] MHS and Chan and Labog are to exchange cost outlines within five days from the release of these reasons, if they have not already done so. MHS will then deliver its costs submissions and cost outline within ten days from the release of this decision. Chan and Labog will then have ten further days to deliver their responding costs submissions and cost outline. The respective costs submissions shall not exceed three pages, double spaced.
Justice S. Vella
Released: June 16, 2021
COURT FILE NO.: CV-19-00625730000
DATE: 20210616
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MISSISSAUGA HUMANE SOCIETY
Applicant
– and –
LILY CHAN AND MARLENE LABOG
Respondents
REASONS FOR JUDGMENT
Vella J.
Released: June 16, 2021