Rectification of the Register of Members

In Wasauksing First Nation v. Wasauksing Lands Inc., the Ontario Court of Appeal refused to allow rectification of the register of members of a not-for-profit corporation so that all of the members of a First Nation were members of the corporation.

1. Facts

Wasauksing First Nation is a native community on Parry Island in Georgian Bay. In the 1960s, WFN decided to lease part of its land as cottage lots for the purpose of earning revenues for its members. Because the Indian Act (Canada) prohibits Indian bands from alienating land except to the Crown, in 1971 WFN incorporated Wasausink Lands Inc. as a non-share capital corporation under the Ontario Corporations Act to lease the lots and collect and manage the rents.

In 1994 and 1995, the governance of the corporation was formally separated from that of the First Nation. After control of the band council changed, a dispute ensued about who controlled the corporation. The elected band council contended that the members of the First Nation are also members of the corporation, and the chief and council of the WFN are the rightful directors. However, the incumbent directors contended that the members and directors of the corporation must be determined in accordance with the letters patent and by-laws of the corporation and the Corporations Act. The band council brought proceedings for a declaration that the elected chief and council were the corporation's directors, that the members of the WFN also comprised the members of the corporation and an order to rectify the corporation's register of members and register of directors accordingly.

2. Rulings

(a) Trial

Justice Blair concluded that the members of the corporation were the original incorporators, as modified by the 1994-95 reorganization, and that the directors were those elected as part of that reorganization. He also found that the corporation was not formed with the intention that all members of the First Nation would be members of the corporation, nor that WFN itself would be a member, that the corporation had a limited rather than a universal membership, that the original directors were still in place at the time of the 1994-95 reorganization and that that reorganization was itself initiated by the band council and properly carried out. Accordingly, Justice Blair rejected the application of rectification under the Act to install the band council in control of the corporation.

(b) Appeal

The band council appealed the trial judge's ruling to the Ontario Court of Appeal. However, the Court of Appeal affirmed the ruling of the trial judge on all points and, therefore, dismissed the appeal.

As to the membership, the court examined the letters patent and found that none of the corporation's constating records expressly provided for universal membership and, therefore, its register of members made no provision to the effect that all members of the WFN were members of the corporation. Likewise, the letters patent provided that the original incorporators were the first directors of the corporation and made no provision for persons becoming directors of the corporation by virtue of their office or position with the WFN, as is permissible under the Act. The court found no legal basis upon which to conclude that the elected chief and band council members also automatically enjoyed status as directors of the corporation.

The court also rejected the argument that members of the WFN were also members of the corporation by virtue of their subjective belief that they were members. Among other reasons, the court stated that the level of understanding among members of the WFN concerning the corporation's governance framework was uneven, inconsistent and unclear.

With respect to the application for rectification under the Act, the court applied the general equitable principles of rectification to the facts. Therefore, the court may exercise its discretionary power to order rectification. However, the discretion is not to be exercised lightly but only were it is demonstrated that, by mistake, a written document does not accord with or accurately reflect the agreements or arrangements intended by the parties. Likewise, rectification under the Act is intended to permit the correction of unintended or inadvertent clerical errors or mistakes in the completion of corporate records and registers. It is not intended to serve as a tool to resolve complex corporate disputes or to effect fundamental changes that intrude on established internal corporate affairs.

The same legal regimes apply to aboriginals and non-aboriginals alike.

3. Key Observations

Wasauksing is an important case affirming the autonomy of the parties in forming the constating documents of their corporation. The choices made in structuring the membership and composition of the board of directors will be respected by the courts and cannot be overturned without compelling evidence that the constating documents do not reflect the actual intentions of the parties at the time of incorporation.

Wasauksing is also important in establishing certainty and stability in the governance of corporations of all types (including non-share capital corporation). Control of the corporation must be determined by a strict application of the corporation's constating documents and governing statute, and cannot be overturned by the introduction of extraneous evidence and governance norms.