INTRODUCTION
On June 15, 2008, the British Columbia
Court of Appeal (“BCCA”) released its decision in Struchen
v. Burrard Yacht Club(“Decision”). The issue before
the court was whether Burrard Yacht Club’s (“Yacht Club”
or “Club”) disciplinary process provided the degree of fairness
required by law. The Court ruled that at a minimum, individuals
in the context of a voluntary association who are facing
discipline are entitled to the opportunity to be heard by
an unbiased decision maker. This Charity Law Bulletin
explains the implications of the Decision with regard to
discipline procedures of clubs and other not-for-profit
organizations, including charities.
B.
BACKGROUND: YACHT CLUB DECISION
Mr. McLachlan was a long-standing member
of the Yacht Club. During his membership, the Club was required
to relocate. As part of that relocation and to protect
the Club from future dislocation, the Club incorporated
Trident Foreshore (“Trident”) for the purposes of acquiring
land. To supplement the Trident lands, the Club entered
into a lease with a neighbour. The terms of the lease with
the neighbour caused Mr. McLachlan to have concerns about
the long-term security of the Yacht Club.
Each member of the Club was sold shares
in Trident. Each shareholder was entitled to only one vote,
no matter how many shares were held. After Trident was
incorporated, the Club began purchasing shares from the
individual shareholders and eventually acquired the majority
of the shares. Mr. McLachlan opposed the Club’s ability
to vote more than once. The Club then passed a special
resolution authorizing the sale of shares to certain members.
The transfer included an agreement by the individual obtaining
the shares that they would grant a proxy in favour of the
Club and that the Club had the option of repurchasing the
shares. Nine of the 14 directors were obtaining shares
in the transaction, which Mr. McLachlan argued was a conflict
of interest. He suggested that there was no quorum for the
vote and that the transaction was a sham.
Ultimately, these corporate governance
issues arising from the change in ownership rules resulted
in certain Club members (including Mr. McLachlan) bringing
separate legal proceedings before the Supreme Court of British
Columbia, which ultimately ruled in favour of the Yacht
Club and an order for costs were made against Mr. McLachlan.
Eventually, the legal dispute over the
changes in ownership of Trident and the bitterness caused
by the differing views of the best way to secure the Yacht
Club’s future, led to the expulsion of Mr. McLachlan from
membership, as described below. In response, Mr. McLachlan
launched a petition (the British Columbia equivalent of
an application under Ontario civil procedure) in the British
Columbia Supreme Court (“BCSC”), seeking to set aside his
expulsion from the Club and be reinstated as a member of
the Club. Ultimately, the BCSC declined to order the Yacht
Club to reinstate Mr. McLachlan as a member of the Club.
Subsequently, Mr. McLachlan appealed the BCSC’s decision
to the BCCA. The decision of the BCCA with respect to the
matters outlined in the petition is explained later in this
Bulletin. However, it is important to first understand
what happened with regard to the discipline of Mr. McLachlan.
C.
THE YACHT CLUB'S DISCIPLINE PROCEDURE
The process leading to Mr. McLachlan’s
discipline and expulsion started with a petition to the
directors of the Yacht Club by the members asking for disciplinary
procedures against certain members (including Mr. McLachlan)
who had initiated legal proceedings against Trident Foreshore.
The directors instigated an investigative committee to decide
if members who had contested the Trident Foreshore share
issue had violated the Club’s bylaws. Upon receipt of the
Committee’s report, the board of directors of the Club sent
a letter to Mr. McLachlan that outlined his alleged misconduct
and required his presence at a meeting to determine his
possible suspension or expulsion. The investigative committee
made enquiries, but did not receive input, oral or written,
from any of the members that the board ultimately disciplined.
The committee’s report concluded that Mr. McLachlan and
two other members had conducted themselves “in a manner
which most seriously and injuriously affected the well being
of individual members and threatened the very survival of
the Yacht Club”.
Once the board had received the report, it proceeded with
charges and notified the affected members of a meeting for
the purpose of considering their possible suspension or
expulsion.
The Club’s discipline procedure was set
out in its bylaws. Members who were liable to suspension
or expulsion would be entitled to attend and be given notice
of a meeting at which the directors would decide the extent
of the appropriate discipline. Affected members would also
be permitted to provide any explanations regarding the alleged
misconduct. Expelled members would have recourse to an
appeal option to the membership of the Yacht Club that would
require the support of 75 percent of the active members
of the Club.
According to the minutes record, the
members who were subject to the discipline proceeding were
given an opportunity to respond to the charges and did so.
Ultimately, the board of directors decided to expel Mr.
McLachlan, who then exercised his right of appeal to the
membership of the Yacht Club but was unsuccessful.
D.
STANDARD OF PROCEDURAL FAIRNESS: CLUBS, ASSOCIATIONS,
AND NOT-FOR-PROFIT CONTEXT
In addressing the question of whether
Mr. McLachlan was afforded the proper degree of procedural
fairness to which he was entitled as a member of the Yacht
Club, the BCCA cited Lakeside Colony of Hutterian Brethren
v. Hofer.
In that case, the court observed that the three basic requirements
of natural justice that applies to membership in a voluntary
association are: notice, opportunity to make representation,
and an unbiased tribunal. The BCCA ruled that the letter
from the board of directors, which states “ … the Board
has determined that [you have engaged in misconduct]
contrary to Club Bylaw 10(3) […]”
can only be read as a conclusion that the various behaviours
set out were committed by Mr. McLachlan. The BCCA decided
that a reasonable person would consider that the letter
amounted to a predetermination of the factual issues. Mr.
McLachlan was entitled to appear before a Board that had
not made conclusions before hearing from him as to whether
he had committed certain acts or not. The BCCA allowed
the appeal and reinstated Mr. McLachlan’s membership in
the Yacht Club.
The BCCA asserted that the question of
prejudging a matter is an aspect of the general principle
that a body should not proceed where there is a reasonable
apprehension of bias. The test for reasonable apprehension
of bias was set out in Committee for Justice and Liberty
v. National Energy Board.
In that case, Justice de Grandpre stated [at pp. 394-95]:
