Ontario Superior Court of Justice (Toronto Region)
Civil Endorsement Form (Rule 59.02(2)(c)(i))
Before: Justice Akazaki
Court File Numbers: CV-23-00700592-0000; CV-23-00701944-0000
Title of Proceeding:
Islamic Food and Nutrition Council of Canada
Plaintiff(s)
-v-
Islamic Food and Nutrition Council of America
Defendant(s)
Case Management
Case Management: Yes
If so, by whom: No
Participants and Counsel
| Party | Counsel | E-mail Address | Phone # | Participant (Y/N) |
|---|---|---|---|---|
| IFANCC | Stephanie Voudouris, I. Jamie Arabi | svoudouris@cassels.com, jarabi@cassels.com | 416-860-6617, 416-350-6922 | Y, Y |
| IFANCA | Danny Urquhart, Sahil Kesar | durquhart@ovcounsel.com, sahil.kesar@blakes.com | 236-268-8711, 416-863-2450 | Y, Y |
Hearing Details
Date Heard: January 9, 2025
Nature of Hearing (Rule 59.02(2)(c)(iv)):
Motion
Format of Hearing (Rule 59.02(2)(c)(iv)):
In Person
Relief Requested
Declarations regarding the classes and voting rights of the membership of a Canadian not-for-profit corporation.
Disposition
A declaration that there are two classes of membership, with the U.S. entity being the sole voting member, shall issue. The application by the Canadian company is hereby dismissed. Costs reserved for 30 days, as set out below. If no request is made to determine costs in that time period, there shall be no costs of the proceedings.
Costs
On an indemnity basis, fixed at $[amount] are payable by [party] to [party] [when].
Brief Reasons
Overview and Issue
[1] At issue in these competing applications is the voting membership composition of a not-for-profit corporation originally registered under Part III of the Ontario Corporations Act, R.S.O. 1990, c. C.38, and continued under the federal Canada Not-for-profit Corporations Act, S.C. 2009, c. 23. If the federal articles of continuance prevail, there is one membership class in which the U.S. parent is reduced to a minority vote. If the federal articles are invalid and the 2015 by-law of the provincial corporation remains in force, the company is a subsidiary of the U.S. entity because it is the only voting member.
[2] Islamic Food and Nutrition Council of America is an organization certifying Halal food products since 1986. Until the early 2000s, it performed these certification services in Canada as well as in the U.S. Under pressure from international buyers to have Canadian exports certified by a Canadian organization, it mandated three Canadian delegates to incorporate Islamic Food and Nutrition Council of Canada under the Ontario statute. By operation of the Corporations Act, s. 121, the incorporators were the original members. (Members are to non-profits what shareholders are to business corporations with share capital. They do not manage the company but elect the board and control the fundamental constitution of the company.) All of this was organized informally in 2007 without the use of lawyers, as many non-profit organizations tend to operate.
[3] In 2015, at its AGM in Chicago, the U.S. “parent” put forward a more formal structure and drew up a comprehensive by-law, By-Law 2015-1, to serve as the Canadian company’s constitution. It provided for two tiers of membership: voting Corporate Members and non-voting Director Members. The existing board of the Canadian company passed the new by-law and appointed the U.S. entity as the Corporate Member and the existing directors as the Director Members. By a separate resolution, the newly appointed members passed a resolution confirming the directors’ resolution passing the by-law. The clear object of these steps was to ensure the Canadian satellite remained governable by granting the U.S. parent ultimate authority over the composition of the board.
[4] All these steps reorganizing the membership took place on December 20, 2015, by the simple signing of documents. There were no minutes recording any debate or deliberations. All stakeholders signed off on the changes to the Canadian company. There is no evidence of any dissent in the aftermath.
[5] In this litigation, the Canadian company now submit that the signatories were duped. Given their obligations to review the documents before signing them, I found this submission objectively unfounded. The creation of two classes of members, one voting and one non-voting, was clear and not buried. Moreover, corporate acts based on signed documents cannot be picked over years afterward, absent more conclusive and serious proof of fraud or deception. There was no such evidence here.
[6] In 2020, the Canadian company’s board decided to continue under the federal statute and took steps to obtain the approval of the Ontario Companies Branch to transfer its incorporation to the equivalent federal ministry. The actual board resolution, dated September 1, 2020, stated that the company be “registered federally in Canada in addition to Ontario registration.” For the purposes of these proceedings, I need not determine whether that was even permitted under the federal statute. Muzaffar Ahmad, the director tasked to complete this process, obtained the approval and filed Articles of Continuance with Corporations Canada on May 18, 2021. In section 6 of the articles, Mr. Ahmad stated that the corporation was authorized to establish one class of members, with each member being entitled to vote. This amended the membership structure back to the pre-2015 governance model.
[7] There was no evidence that Mr. Ahmad provided the Articles of Continuance to Mr. Chaudry at the time it was filed, or that there were any corporate resolutions reflecting the change of the membership structure from the 2015 by-law. The change effectively diluted the voting control of the U.S. parent from full to a minority. It was a change that only became apparent, once the U.S. entity tried to assert control and found the articles of continuance had been changed so that the Canadian entity was no longer a subsidiary.
[8] On November 18, 2022, the board members disagreed over the Canadian company’s management of its internet domain and database and over the contractual relations with the U.S. company. The disagreement was split between the two Canadian directors and Mr. Chaudry. This prompted a dispute spilling over to 2023 over the control of the company when the Canadian company proposed a draft by-law that would constate the U.S. entity’s loss of voting control. The U.S. entity, through Mr. Chaudry, asserted its position as the sole voting member. There ensued a corporate battle over the passage of new by-laws. Hence, the competing lawsuits that came before me for hearing.
[9] The Canadian company, as directed by the Canadian directors constituting a majority of the board, asks the court to declare that it has only one class of members, each of whom has the right to vote, and that the current members are the two Canadian directors and the U.S. company, as represented by Mr. Chaudry. The U.S. company seeks a declaration that the 2015 by-laws continue in force, and that it remains the sole voting member.
[10] In support of its position, the Canadian company advanced three principal contentions at the hearing. First, pursuant to s. 286, the certificate is conclusive proof of its contents for the purpose of any court proceeding. Second, the 2015 by-laws were passed by subterfuge at the meeting in Chicago without proper procedural steps to allow the three Canadian members to fully comprehend that the by-law would disenfranchise them as voting members. Third, the resolution to obtain the federal registration, including Mr. Chaudry’s concurrence, sufficed to change the membership constitution back to what it was before 2015. The fact that AGM minutes show Mr. Chaudry’s participation as an equal voter constituted assent or estoppel against objection to the federal articles.
[11] The U.S. entity contends that Mr. Chaudry only became aware of the stipulation in the federal articles for one class of membership after a new by-law for the federal company was tabled in 2023. Mr. Chaudry, on behalf of the U.S. entity, opposed the draft by-law. In response to the Canadian company’s points, he argues s. 286 is only proof of the document registered with the federal agency and cannot be effective if it fundamentally changed the corporate structure from what it was from 2015 to 2021. The 2015 by-law was properly passed, and the Canadian members at the time all signed off on it. The informality of minute-taking only reflected the fact the practice of a voluntary organization of food safety scientists and not corporate secretaries.
[12] There were no stated objections to the unanimously passed 2015 by-law until the exchange of writs and factums in this case. Procedurally, s. 298 of the Ontario statute recognized the resolution signed by the members to adopt the 2015 by-law. There was no procedural defect in its coming into force. Until 2021, when Mr. Ahmad unilaterally made the change when he filed the federal articles, the topic had never come up. In such circumstances, the court must be reluctant to enter a forensic intervention into the internal affairs of a non-profit organization: Lewis v. Niagara Regional Native Centre, 2024 ONSC 5196, at para. 44. From 2015 forward, all stakeholders knew the Canadian entity was de jure the subsidiary of the U.S. parent that had been all along in practice. There had been no need for a Canadian certification agency until the international Halal buyers stated their reluctance to recognize the certification of Canadian food products by a U.S. entity. The Canadian incorporation was not a spontaneous or independent occurrence.
[13] The fact that the meeting minutes after 2021 are ambiguous as to whether Mr. Choudry participated as the representative of a single-tier member or of the sole voting member in a two-tier structure are of no moment. Both counsel pointed to the informalities of the minutes and the general manner of proceeding during the time when everything was done by consensus. The Canadian entity submitted evidence from the corporate lawyers as proof that the U.S. entity acknowledged the change in membership classes. In my view, the lawyers’ after-the-fact opinions about inferences to be drawn from informal corporate practices is of little help in deciding conclusively whether there are one or two classes of membership.
[14] The issue boils down to the legality of the change in the 2021 federal registration.
Legality of the 2021 Change in Membership Classes
[15] Subsection 211(2) of the federal statute states that a corporation continued under it can amend its articles without so stating them in the articles of continuation, if such amendments are permitted for a company originally incorporated under the statute. This, in turn, requires the court to review s. 197(1) for amendment of articles that change articles or by-laws affecting the fundamentals of the company. That provision requires a special resolution of members. Several clauses in clauses (a) through (n) could apply to the merger of the two classes, but clause (f) seems to apply squarely to elevating the rights of a class from non-voting to voting, and demotion of a single voting member to a minority member:
(f) change the designation of any class or group of members or add, change or remove any rights and conditions of any such class or group;
[16] There was no special resolution of members. The U.S. entity was the only voting member at the time of the submission of the articles of continuation, and it did not know about the change before it was made. The directors’ resolution that included Mr. Chaudry did not count as a resolution of members, even if one stretched his involvement to that of a representative role on behalf of the U.S. company, because the resolution did not mention anything about changing the classes of voting members. Mr. Ahmad had no right to alter that provision in the 2015 by-law, pursuant to s. 211(2). The 2015 by-law therefore still governs the membership composition of the Canadian corporation.
[17] This is the logical legal outcome, and the court need not decide whether Mr. Ahmad was acting in good faith when he submitted the articles of continuation. To the extent these articles included a change of the membership classes without a special resolution of the sole voting member at the time, the amendment was ultra vires, i.e., beyond the authority of the company or of any director. Because the amendment of the classes of membership was invalid, there are currently two classes of membership, of which the U.S. entity is the sole voting member. A declaration should ensue to this effect.
Costs
[18] Despite the litigation, the outcome is essentially that the Canadian company remains a subsidiary of the American one, meaning the parties are privies of each other. Had the 2021 amendment of the membership classes stood up, there could have been an adversity of interest that resulted in costs consequences between partially independent companies. Because the companies are not adverse in interest, I question whether a costs award is appropriate.
[19] If the parties cannot agree on the disposition of costs, counsel may arrange for a brief conference with me to explain why the U.S. entity should be entitled to costs of the applications. If no such request is made within 30 days hereof, the result will be that there are no costs of the proceedings.
Date of Endorsement: January 16, 2025
Signature of Judge/Associate Judge