Ensuring that the new Societies Act (B.C.) does not have you headed to the Courtroom

Now is the perfect time for societies incorporated in British Columbia to consider how to avoid a new kind of court challenge that members can now bring under section 102 of the Societies Act, S.B.C. 2015, c. 18, which came into force on November 28, 2016. This remedy, known as the oppression remedy, enables one or more members to apply to court for relief on the grounds that the activities or internal affairs of the society, or the powers of the society’s directors, are being exercised in a manner that is perceived to be oppressive or unfairly prejudicial.  Conduct which is legal can nonetheless be challenged in court on the basis that it disregards the interests of, or unfairly treats, one or more of its members.

The oppression remedy has played a significant role in setting the standards of conduct expected of those who control, direct and manage for-profit corporations.  Before the new Act, the oppression remedy was only available to B.C. societies if a winding up order was being pursued.[1]  Under the new Act, our courts can now make a variety of orders to remedy or bring an end to conduct found to be oppressive or unfairly prejudicial.  Such orders include: directing or prohibiting specific acts; removing or appointing new directors; directing a party to compensate an aggrieved member; appointing a receiver manager; appointing an investigator; varying or setting aside resolutions; and setting aside transactions.

Not surprisingly, this new provision has been controversial.  Before this section came into force, the B.C. Ministry of Finance’s Societies Act White Paper acknowledged that some of the stakeholders providing input on the draft legislation expressed serious concerns about whether the oppression remedy fits in the not-for-profit context, particularly “given that oppression is a remedy designed to protect minority interests which do not arise in a one member / one vote context.”

In 2011, societies incorporated federally experienced a similar expansion of the oppression remedy with the introduction of section 253 of the Canada Not-for-Profit Corporations Act, S.C. 2009, c. 23. We have been involved in responding to and resolving such legal challenges.

Being alive to the intricacies of this new expanded remedy can assist those governing societies to avoid, or better position themselves for, an oppression challenge.

A starting point for the analysis of oppression and unfairly prejudicial claims in the not-for-profit realm is to place the impugned conduct in the context of the fundamental tenets of the society as expressed in its constitution and bylaws.  The court recognizes that when an individual joins a society, he or she accepts these governing instruments and agrees to be bound by them. He or she further accepts that the society’s bylaws can be changed by the majority of its members entitled to vote, and that if he or she disagrees with such changes then the member can always resign: Senez v. Montreal Real Estate Board, [1980] 2 S.C.R. 555.

In addition to being guided by these fundamental tenets, the court will focus on whether the member complaining has reasonable expectations.  Reasonable expectations is the court’s primary focus in an oppression proceeding.  The test the court applies in both a for-profit and not-for-profit oppression proceeding is: (1) does the evidence support the reasonable expectation asserted by the claimant? (2) does the evidence establish that such reasonable expectations were violated by the conduct falling within the terms “oppression” or unfair prejudice”: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69.  The court will consider various factors in determining whether a reasonable expectation exists, including of course the constitution and bylaws, but also: the society’s policies; general practice; the nature of the association; the relationship between parties; past practices; steps the claimant could have taken to protect him or herself; representations and agreements; and of course, fairness.

Hence, ensuring that the society’s purpose is clearly and accurately stated in its constitution and that its bylaws are carefully drafted to cater to the society’s specific needs will greatly assist in deterring or opposing oppression challenges.  This point should be considered as societies meet the November 2018 deadline to file their Transition Application required by the new Act, which involves filing a constitution and bylaws which accords with the new Act.  The new Act applies to a society even if it has yet to file the Transition Application.

A society should do what it can to ensure that members have reasonable expectations regarding how controversial decisions will be made.  A lawyer can assist you in ensuring that reasonable expectations are solidified in the appropriate way.  For instance, depending on the issues, expectations can be solidified in the bylaws or membership or discipline policy.

[1] See for example Wang v. British Columbia Medical Assn., 2010 BCCA 43