Property Rights of Members of an Unincorporated Branch
In its 1978 split decision in Polish Veterans Second Corps v. Army, Navy & Air Force Veterans in Canada, a majority in the Ontario Court of Appeal recognized and gave effect to the property rights of members of an unincorporated local unit of a national, non-charitable organization.
1. Background
The Army, Navy & Air Force Veterans in Canada was an ex-service national parent organization incorporated under a Special Act of Parliament. It had the power to create or charter local branches or units, many of which had been created across Canada.
In 1961, a group of Polish veterans formed an unincorporated association (Unit 350) that was later granted a charter as a local unit of the national organization. In 1963, Unit 350 purchased club premises in Toronto, title to which was taken in the name of trustees. Later, title was transferred from the trustees to the national organization.
The national organization and Unit 350 had a stormy history. In 1974, the national organization cancelled the charter of Unit 350, which at the time of cancellation had 176 members.
In 1974, before the cancellation of Unit 350's charter, which the members anticipated, a group of members incorporated a new corporation (Newco1), the purpose of which was to replace Unit 350 if the national organization cancelled its charter (including to protect the property of Unit 350's members). Ultimately, 98 members of Unit 350 signed the resolution to approve the incorporation of Newco1, and 103 members of Unit 350 applied to become members of Newco1. Only two or three members of Unit 350 refused to sign the resolution.
The solicitor for the national association acknowledged that Newco1 was entitled to have the property conveyed to it and submitted a draft deed for approval.
However, a minority faction of the members of Unit 350 formed a separate corporation (Newco2) and requested that Unit 350's cancelled charter be reissued to Newco2.
2. Rulings
The Ontario Court of Appeal ruled that Newco1 was entitled to Unit 350's property. There were three separate sets of reasons. The two majority judges, Justices Blair and Wilson, wrote separate judgments which differed on several critical points. Justice Dubin dissented and would have denied the transfer of property to Newco1.
Both majority judges agreed that Newco2 had no claim to the property of Unit 350. There was no continuity in fact between Unit 350 and Newco2.
According to Justice Blair, Unit 350 pre-existed the charter from the national organization and it survived the cancellation of its charter. Unit 350 could carry on after the cancellation, holding meetings and transferring its operations and property to its members (or, in this case, Newco1). Unless the constitution or rules governing the branch provide otherwise, the rule is that legal title to common property is vested in the members of the unincorporated branch for the time being. However, a majority of members may dispose of property without unanimous approval where provided by the constitution and rules. A member's interest in the branch property continues only so long as he remains a member. Therefore, only members in good standing at the time of dissolution are entitled to shares in the assets.
It appears that Justice Blair determined that the by-laws of Unit 350 allowed a majority of members to decide all matters and that a majority of members approved the transfer of property from Unit 350 to Newco1, in which all members of Unit 350 were able to participate so that no member of Unit 350 was deprived of his property rights.
Madam Justice Wilson found that it was artificial to treat Unit 350 as still governed by the constitution and by-laws of the parent national organization after Unit 350 had been expelled. Nor did she find any authority in the by-laws that would overcome the rule that a unanimous vote of the members of an unincorporated body is required for a fundamental change in the constitution or any alienation of its property.
According to Justice Wilson, the cancellation of the charter effected an involuntary dissolution of Unit 350. She considered it iniquitous if the Polish veterans had to suffer the disintegration of their fellowship and the liquidation of their club premises, not because of any disunity in their own ranks, but because of the arbitrary actions of the national organization. She considered it sufficient to meet the requirement of unanimity that adequate notice was given to each member to enable him to vote and that the unanimity need only be among those who exercised their franchise. The votes of those who abstained or chose not to participate could be disregarded. She considered that this less stringent requirement is particularly appropriate where the unincorporated body is a social club, no change in the purpose of the body is contemplated and the only property involved is the club premises.
3. Key Observations
Clearly, the court struggled to find a legal way to keep the members of Unit 350 together, despite being disaffiliated by the national organization. The formation of Newco1, membership of which was open to all former members of Unit 350, together with the transfer of the club's premises to Newco1 achieved this result. Justice Blair generously extended the by-laws to Unit 350 beyond cancellation of the charter and interpreted them to allow majority rule on the disposition of property. Justice Wilson softened the unanimity requirement from 100% approval by all members to no disapproval by any member and found that this less strict requirement was met on the facts.
Had there been one or more dissenters out of Unit 350's 176 total membership, the clubman's veto would have prevented a conventional transfer of the unincorporated body's property to Newco1. However, Newco1, comprised of most of Unit 350's members, could have purchased the property. The proceeds of disposition could have been distributed to all the members of Unit 350 in accordance with their entitlements. Members of Newco1 could have used the cash distributions received to pay for their memberships in Newco1.