A recent decision of the Supreme Court of British Columbia under the Societies Act (the “Act”) reminds directors to follow closely the bylaws of their society when calling members’ meetings during the COVID-19 pandemic and provides useful guidance to societies when handling membership applications. In Farrish v. Delta Hospice Society, 2020 BCSC 968, the court set aside a notice of extraordinary general meeting and cancelled the meeting of the society members, just three days before the meeting was to take place.
The court held that the bylaws of the Delta Hospice Society and the Electronic Attendance at Corporate Meetings (COVID-19) Order (the “Ministerial Order”) (PDF) did not authorize voting by mail, the directors’ chosen method of voting for the upcoming meeting in response to the COVID-19 pandemic. The court also found that the directors had breached their fiduciary duties by improperly denying membership to certain persons who held viewpoints contrary to their own.
Background of the Decision
Delta Hospice Society operates a hospice and provides compassionate care and support to persons in their last stages of life. After medical assistance in dying (“MAID”) became lawful in Canada in 2016, the society’s members were split over whether the society should offer MAID to its patients. At the 2019 annual general meeting, members elected a board opposed to MAID. In the subsequent months both camps engaged in membership drives to strengthen their respective positions within the society. The board expeditiously admitted persons who supported its anti-MAID position, but delayed and later rejected the applications of over 300 persons whom it had identified as being in favour of MAID. In May of 2020, the board then called an extraordinary general meeting for the middle of June for members to vote on proposed amendments to the constitution and bylaws of the society, which would have enshrined the rejection of MAID in the society’s constating documents. Since the general meeting was to be held during the COVID-19 pandemic the board decided that members would first participate in the meeting by phone and the vote on the proposed amendments would occur by mail-in ballot. The court was asked to determine two issues on an urgent basis: (1) Whether the vote by mail-in ballot was permitted; and (2) whether the directors improperly refused to admit applicants as members of the society on the basis that they supported MAID.
When are Societies Permitted to Hold Member Votes by Mail-in Ballots?
The Act gives societies broad flexibility to adopt different voting methods, such as indirect or delegate voting and voting by mail or other forms of communications, including by electronic means (see s. 84(5)). These voting methods must be authorized in the bylaws. The bylaws of the Delta Hospice Society did not provide for mail-in ballots, only for voting by show of hands at the general meeting. The court rejected the society’s argument that the bylaws did not “prohibit” mail-in ballots. Unless the Act or the bylaws permitted a specific voting method, the directors did not have authority to adopt such a method.
The COVID-19 Ministerial Order “says nothing” about Mail-in Voting at Meetings
Moreover, the court held that the society could not rely on the Ministerial Order in support of mail-in voting. Put into effect in April 2020, the order is intended to assist societies and other corporations with holding meetings during the COVID-19 pandemic. It permits members and directors to participate and vote in meetings by telephone “or another communications medium” even where a society’s bylaws do not provide for such methods. The Ministerial Order will remain in force for at least 45 days after the current state of emergency has ended (see the COVID-19 Related Measures Act and for more information about the Ministerial Order, please see also our earlier bulletin Electronic Meetings now Generally Available to BC Companies, Societies and Cooperatives ).
In the court’s view, the Ministerial Order did not authorize the board to use mail-in ballots. Societies must look to the Act and their bylaws for what methods of voting “at the meeting” are available since Ministerial Order “says nothing in respect of the means of voting” at the meeting. With respect to mail-in ballots, the court’s finding appears to be fully supported by the language of the Ministerial Order. In particular, the Delta Hospice Society’s proposed method of voting by mail, would have taken place after the extra-ordinary meeting, and not “at the meeting” itself.
However, the court’s finding (which was given as part of oral reasons due to the urgency of the matter) that the order is silent with respect to the means of voting at a general meeting appears to be at odds with the language of the order. It says that “[d]espite anything in a [bylaw], a person who is entitled to participate in, including vote at, a … meeting may do so by telephone or other communications medium” [emphases added]. Additionally, subsection 3(3) of the Ministerial Order states that notice of the meeting must “provide instructions for attending at or participating in the meeting by the communications medium, including, if applicable, instructions for how to vote at the meeting” [emphasis added]. These provisions suggest that voting by telephone or by another communications medium at the meeting, even if the bylaws do not permit such methods, would be allowed under the Ministerial Order.
No Membership Criteria, No Discretion
In the second part of its decision, the court found that the board of the Delta Hospice Society had breached their fiduciary duties by granting membership to applicants who held anti-MAID views while denying admission to those who did not. The bylaws of the Delta Hospice Society provided that “[a] person may apply to the directors for membership in the society and on acceptance by the directors is a member” and did not refer to any other membership criteria. This type of provision can be found in the bylaws of many British Columbia societies. Historically, under this “open” basis of admission, anyone who applied and paid the appropriate application fee would be granted membership in the Delta Hospice Society. The court affirmed that, unless the society bylaws set out criteria for membership, directors do not have the discretion to deny membership on some other basis determined by the board.
The bylaws of the Delta Hospice Society also provided that “every member must uphold the Constitution and comply with the Bylaws” - another provision common to the bylaws of many societies. The court held that this type of provision cannot be used to pre-screen applicants “for anticipatory breach” of the bylaws once the person became a member and to deny membership on that basis. Finally, the court found that, even if the directors had discretion with respect to selecting members, they acted with an improper purpose and in bad faith by trying to manipulate the composition of members for the purposes of the upcoming vote. Accordingly, the court ordered the society to rectify its register of members to include all the applicants whose applications the board rejected.
Take-Aways from Farrish
The Farrish decision is a helpful reminder of the following key principles:
- If the society bylaws or the Act allow for only certain voting methods at general meetings, then societies cannot use different methods, even in extraordinary circumstances.
- If the society bylaws provide for the admission of members on an open basis with no other requirements, then directors have no discretion to establish additional requirements.
- Directors must exercise any discretion in good faith, in the best interests of their society and for a proper purpose and not in a manipulative manner.
If you have questions about the Farrish decision, need advice about holding members’ meetings during COVID-19, or would like to amend your bylaws to add membership criteria, please feel free to contact Dierk Ullrich, Corry Clark, Stephen Hsia, or another member of our Corporate/Comercial team, Litigation team, or Estate Planning team, and Charities team in our Vancouver and Surrey offices.
The information contained in this bulletin is current as at July 28th, 2020. The Farrish decision is under appeal and this bulletin may not reflect the latest legal developments. Please check the Fasken Knowledge Centre for further updates and commentary with respect to the Farrish decision.