A recent decision of the BC Supreme Court may set a precedent that rules and other documents incorporated by bylaw may be enforced as bylaws, when certain circumstances are met. It is also one of the first reported cases to establish oppression under the new Societies Act.
In Dauphinee v. White Rock Harbour Board, 2018 BCSC 1286, an employee and member of the White Rock Harbour Board (the “Petitioner”) brought an oppression proceeding for a failure of the Board to enforce its “rules”: subordinate quasi-bylaws passed by members at a general meeting. The Petitioner was successful, with the Court finding that the Board’s failure to enforce the rules on the basis that the directors found them unfair and potentially problematic when read with the operating agreement between the Board and White Rock to be oppressive conduct to the Petitioner.
The rules that were in issue were passed at a general meeting some time prior to the dispute. At issue was whether the Petitioner could jump the waitlist for a coveted powerboat spot, by trading in his sailboat spot; the rules allowed this, and it had been a prior practice, but the Board believed it to be unfair to members of the public who had waited for a spot to be available. An individual cannot become a member of the society without having a slip, and the Board apparently took issue with that.
The members — all those individuals who already have slips — had previously not passed amendments to the rule which allowed queue-jumping. The Board decided against following its rules and the within petition was commenced.
The decision appears correct — if the rules are passed by special resolution pursuant to the mechanism set out in the bylaws and are filed with the registry as bylaws, they are binding on the society and the directors cannot decide to ignore them. The Petitioner had a number of avenues, including remedying irregularities (s.105 of the Societies Act) to force compliance with the bylaws; or asking the court to declare the conduct of the Board and its directors was oppressive or unfairly prejudicial towards him (s.102 of the Societies Act).
Though reported cases have commented on the scope of the new Societies Act oppression remedy, only two have applied it to date: this case, and Dalpadado v. North Bend Land Society, 2018 BCSC 835. In Dalpadado, the Court confirmed that scope of the oppression remedy language was similar enough to corporate statutes to use corporate caselaw as a guide, and applied a two part test from corporate case law, with certain modifications (at paras 93-108, summarized in White Rock Harbour Board at paras 45 to 50). The Court in Dalpadado did not find conduct rose to the level of oppression.
However, in White Rock Harbour Board, the Court found oppression occurred. The Court found the Petitioner had a reasonable expectation the rules would be implemented; and that the conduct of disregarding a valid rule in the circumstances was oppressive and unfairly prejudicial. The Court stated:
 I agree with Mr. Dauphinee, and I find, that it is oppressive and unfairly prejudicial … for the Harbour Board to refuse to implement a validly adopted rule in order to effect what it expected it could not do through the proper procedure – that is, propose that rule 16 be abolished or amended at an annual or special general meeting. The minutes show that the current Harbour Board executive thought it could “operate within the boundaries of [its] Rules and Bylaws” and that it “would be completely within the authority of the Executive” to do so, but instead chose not to implement rule 16 because it thought it was unfair and because it did not think a motion to abolish or amend the rule would pass at an annual or special general meeting. I find that it is just and equitable for Mr. Dauphinee to seek to enforce a rule that I have found is validly created.
The Court ordered the Board comply with its rules, and as the Court found the rules were validly passed, the holding was a lock from that point on.
From a litigation perspective, it is interesting to consider whether a proceeding to remedy irregularities would have had the same effect (s.105 of the Act). Historically, a failure to enforce bylaws would be an irregularity, which has a lower threshold than proving the conduct is unfairly prejudicial to the specific member, with the focus on the affairs of the society rather than the harm to the individual. It is likely that it would have had the same result, as non-compliance with bylaws (and a rule passed by special resolution) would be an irregularity; and the Court could grant a remedy within its power (ordering compliance and assigning the power boat slip). This may have been less evidence heavy, but both would have accomplished the same result in the circumstances.
What about a “Special Resolution”?
A key phrase is missing from the decision: “special resolution”. No analysis is given to whether or not the problem rule, when passed, was done so with a three-quarter majority vote. There is no discussion in the reasons on what threshold was used to pass the rules — whether it was simple majority or special resolution (required by the Act to make changes to bylaws). One would think that if it was simple majority, the rules would not be binding. I assume counsel explored this issue and either came to a mutual decision on the validity of the original rule, or the minutes of the initial meeting showed the appropriate threshold (three-quarters of the voting membership) to pass such a rule.
What about the filing date of the bylaw alterations?
Under the former Society Act and the new Societies Act, bylaw alterations are only effective on the later of the filing of the bylaw alteration with the Corporate Registry or the date specified in the Special Resolution (Old Act, s. 23; New Act, s.17(3)). There is no analysis on whether or not the rules were filed as part of a bylaw, or are merely incorporated by reference. I assume they were filed or this issue was missed. If missed or unfiled, the case has limited value as a precedent — how can the rules have force of bylaw where a bylaw is only valid when registered?
Photo by Kamil Porembiński, under a Creative Commons license. No changes have been made to this image.