by Jacinthe Boudreau and Beryl Meng
Though courts have intervened in the affairs of not-for-profit corporations to ensure compliance with corporate statutes and by-laws, courts generally do not intervene in the affairs of voluntary associations which are not corporations.
In a unanimous judgment, Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga, 2021 SCC 22 (“Ethiopian Orthodox”), the Supreme Court of Canada has set out principles for courts to determine if they have jurisdiction to intervene in the affairs of voluntary associations. In essence, the court’s jurisdiction to intervene only exists if there is a legal right to be vindicated. To give examples, the Supreme Court refers to rights in property, contract, tort, unjust enrichment as well as statutory causes of action.
In particular, there cannot be a contract between members of a voluntary association unless there is an intention to enter into a legally binding relationship. This requirement may often be found to be missing.
This is an “objective” test. To determine whether there is an objective intention to create legal relations, the court is required to assess whether a reasonable person would conclude that the parties intended “to be subject to adjudication as to the performance of their commitments or imposition of remedies such as damages or specific performance” (Ethiopian Orthodox, at para 22). In cases where it is found that there is a contract, to address the fact that voluntary associations are not legal entities which can sue or be sued, courts have held that there is a “web of contracts” between each member of the association.
In Ethiopian Orthodox, the Supreme Court of Canada restored the judgment of the motions judge dismissing the actions of members who had been expelled from a church congregation. The members had sought a declaration that their expulsion was null and void and argued that the congregation had violated the rules of natural justice and had failed to comply with its own by-laws and constitution. The congregation was not incorporated.
The issue for courts to resolve is whether a plaintiff is seeking the vindication of a legal right. The Supreme Court held that natural justice (or in another words, procedural fairness) does not give rise to a “legal right”. It is only relevant if a “legal right” has been violated.
The issue in Ethiopian Orthodox was whether the members had a contractual right to oppose their expulsion. To become a member of the congregation, one was required to submit a completed membership application form. The congregation had a constitution and by-laws governing disciplinary measures. The Supreme Court disagreed with the decision of the Court of Appeal which held that where voluntary associations have written constitutions and by-laws, these constitute a contract upon acceptance of a member’s application.
The Supreme Court held that the fact that an unincorporated association, has a constitution and by-laws without more, does not give rise to a finding that there was a contract between the members of the association. The determination as to whether there is a contract, must be decided on the basis of contract law principles (ie. an offer accepted with the intention of creating a legal relationship and supported by consideration).
Justice Rowe writing for the Court in Ethiopian Orthodox stressed that though associations have rules and a governing body to apply these rules, “these are practical measures by which to pursue shared goals”. They do not give rise in and of themselves to contractual relations among the individuals who joined an association. To illustrate this, Justice Rowe explained that members of local hockey leagues or bible study groups, do not enter into enforceable contractual obligations because they have joined a group with rules which members are expected to follow.
Justice Rowe noted as well that there are many informal agreements in everyday life which do not result in a contract. They include, for example, mutual undertakings between friends or between members of a household. The critical distinction between “informal social activities” and “an association with legal significance” is the intention to form a contract. Absent this, there is no legal enforcement.
Though facts will vary from case to case with respect to whether there can be a finding of an objective intention to create a legal relationship, Justice Rowe made two general observations.
He commented that an objective intention to create legal relations is more likely to exist where property or employment is at stake. In those instances, a reasonable observer would likely understand that the parties intended that the agreement would be enforceable. This was the case in the Hofer v. Hofer, [1970] S.C.R. 958, where the parties’ agreement provided for the right to live in the colony and the right to be supported by it. This led to the finding that the parties intended for the agreement to be legally binding. This was also the case in Lakeside Colony of Hutterian Brethren v. Hofer, [1992] 3 S.C.R. 165, where the Plaintiff’s contractual rights to remain in the colony were at issue. Both these cases pertain to religious communities.
Justice Rowe’s second observation was that it may be more difficult to establish an intention to create legal relations in a religious context. The Court stressed that it is important to distinguish between religious obligations/commitments and legal ones. Justice Rowe referred to cases where members of religious communities were seeking redress for their expulsion. In Zebroski v. Jehovah’s Witnesses, 1988 ABCA 256, the Alberta Court of Appeal found that labour and other contributions to the church provided by the members were purely voluntary and did not provide the member with a property interest. The Court upheld the dismissal of the claim.
Likewise in Pinke v. Bornhold (1904), 8 O.L.R. 575 (H.C.J.), it was held that donations by a member of a church were voluntary and did not give him a right to seek redress against his expulsion. In Ethiopian Orthodox, Justice Rowe stressed that though courts can find that members of religious associations have legal rights, they “should not be too quick to characterize religious commitments as legally binding”.
In Ethiopian Orthodox, the Supreme Court found that there was nothing to support a finding of an objective intention to make an offer nor an objective intention to accept an offer. Members of religious associations may undertake religious obligations without undertaking legal obligations.
A number of decisions have considered and applied the principles of Ethiopian Orthodox. Though Ethiopian Orthodox pertains to an entity which was not incorporated, these principles have since been applied in the context of not-for-profit corporations. These common law principles will apply to corporations where matters are not addressed by statutes.
In Varjacic v. Radoja, 2021 ONSC 5822, a decision which did not pertain to a corporation, Justice Sheard of the Ontario Superior Court held that the court had jurisdiction to intervene as the legal right to be vindicated was a property right. In particular, the matter pertained to the association’s main asset which was a property where the association’s activities were held and which had been purchased in part with money contributions from the founding members and others who joined the association. The court made a number of orders pertaining to the membership of the association, its annual general meeting, and ordered that the property could not be transferred until after the conclusion of the annual general meeting and the election of a new executive board.
In Barsoum v. Eastern Canada Diocese of Ethiopian Orthodox Tewahedo Church et al, 2021 ONSC 6347, Justice Akbarali ruled that a member and director of the corporation could maintain an action for unjust enrichment and breach of contract pertaining to services he provided to the corporation.
Some authors, in the past, have stated that bylaws and constituting documents of not-for-profit corporations, give rise to contractual obligations between members and the corporations. In light of Ethiopian Orthodox, these views are likely to change. In Chinook Park-Kelvin Grove-Eagle Ridge Community Association v. Minor Hockey Association of Calgary, 2021 ABQB 532, Justice Gates of the Court of Queen’s Bench of Alberta, applying the principles from Ethiopian Orthodox, stated that he was not inclined to find that there was a legally enforceable contract between a hockey player (a member of the corporation) and his community hockey association which was a society incorporated under the Alberta Societies Act. This statement was obiter (ie. it is not binding and does not constitute a precedent for future cases).
In another Alberta decision Hon v. Liao, 2022 ABQB 43, Justice Leonard applied the principles from Ethiopian Orthodox to decide that there was a contract between members and a society incorporated under the Societies Act. These Alberta examples are certainly an indication that the principles of Ethiopian Orthodox will be applied in matters involving not-for-profit corporations. If so, courts in addition to ruling on any remedy available under statutes pertaining to corporations, will proceed to determine if a “reasonable person” would conclude that the corporation and its members intended to enter into a binding legal relationship.
Take Aways
- Members of associations which are not incorporated, may not have any judicial recourse when their membership rights are infringed by a decision maker within the association;
- Courts will intervene where it is found that a reasonable person would understand that the members of the association intended that the rules of the association be legally enforceable;
- An objective intention to form legal relations is more likely to be found where property or employment is at stake and less likely to exist in religious context (unless property rights or employment issues are at stake);
- It remains to be seen to what extent the principles set out in Ethiopian Orthodox will be applied to not-for-profit corporations, in addition to any statutory remedy.
