Proposed BC Societies Act could invite litigation against non-profits
We believe that BC’s incorporated societies – community development organizations, church groups, secular groups, community organizations, hunting groups, and, yes, environmental organizations such as West Coast Environmental Law Association – collectively make for a stronger British Columbia. That is why we’re outraged by a BC Government proposal that could be used by anyone who has a bone to pick with a society to drag it before the courts. If you’re concerned too, click here to send an email.
The BC Government is proposing a major re-write of the Society Act, to be named Societies Act – the legislation which governs approximately 27,000 non-profit organizations incorporated in British Columbia – and is inviting public comments until October 15th. While much of the proposed Societies Act seems unobjectionable, there are several provisions that concern us.
Court oversight of societies
In general, the proposed Societies Act seems to believe that the courts are a preferred tool to oversee societies. That’s disturbing, given that a great many – probably the majority – of BC’s societies are run by volunteers, on very limited budgets, without experience with the law or the resources to hire lawyers.
The most alarming of the proposed changes is the provision entitled “Complaints by Public” (s. 99), which allows any person “whom the court considers to be an appropriate person” to seek an order from the BC Supreme Court that a society is acting unlawfully or is “carrying on activities that are detrimental to the public interest.” The court is empowered to make a wide range of orders against the Society under this provision.
While we believe that it is likely that the courts will seek to interpret this section narrowly – recognizing that there are many competing views of what is in the public interest, and the courts should not be choosing between them – the mere fact that a society could find itself in court having to explain why a critic is not an “appropriate person” under this section, and possibly having to justify its actions to the court, will be extremely intimidating to many societies. And this type of action would waste valuable time and resources that could be better put towards the work of the society.
The government White Paper argues that the risk of this type of abuse will be low because “the court effectively controls the process,” but this argument fails to recognize that the act of forcing a society to appear before the court (and at least consider hiring a lawyer to do so) itself is a major part of the problem – even if the court is, in the end, deferential to the society’s choices about how it manages itself (as we expect). The section invites harassment of societies by any deep-pocketed and litigious opponents (mini-SLAPP suits, in effect).
In support of the provision, the government’s White Paper cites a general expectation that societies “will act in the public interest.” In fact, neither the current or proposed version of the Society Act supports such an expectation, stating that a Society may be incorporated, like other corporations, for “any lawful purpose or purposes” (although not for “carrying on a business for profit”). Of course, many societies are incorporated for “public interest” purposes, but even then each has their own understanding of what that means.
The White Paper also argues that “so many [Societies] are supported by public funding or monies solicited from the public,” but provides no information about what proportion of societies receive public funding (a very low percentage) or significant donations from the public (we suspect still a relatively small, but larger percentage).
In both of these statements, and elsewhere in the White Paper, the government seems to be confusing charities (which are federally regulated and required to act for charitable purposes) with societies (which can be run for just about any legal purpose). Registered charities unlike other societies or groups, can provide tax receipts for the donations they receive, but can only act for specific charitable purposes.
The Government’s commentary on this proposed court process acknowledges that it is unprecedented; there is no equivalent power for the courts to examine the legality of the operations of business corporations, or other types of incorporated society. Although business corporations can and do enter into contracts to receive public funds, only societies are singled out are singled out for this exceptional court scrutiny.
We presume that this extraordinary provision, as well as expanded powers for the government to investigate societies, is the result of the Portland Hotel Society (PHS) controversy – the Board of which resigned after two audits determined that it had misused public funds. With respect, very, very few Societies have anywhere close to the budget, or the amount of public funding, that PHS has, and nor have there been many other examples of misuse of public funds by societies. The PHS situation suggests a need for better oversight of government grants rather than a new and unprecedented court process. [Updated 24 Sept]
In addition, the proposed Societies Act imports a number of provisions from the Business Corporations Act, giving the courts oversight over a Society, including:
- An action by a member of the society or other “interested person” where the Society’s actions are considered to be “oppressive to one or more interested persons.” (s.98) The concept of oppressive actions is borrowed from business corporations, where shareholders can complain to court of unfair action that prevents them from participating fully in the profits or other benefits of being a shareholder.
- A provision allowing a Director or Member or another appropriate person to, with the permission of the court, to bring or defend a “derivative” legal action on behalf of the Society. (s. 100)
- A power of a member, director or other “appropriate person” to apply to court to for a court order to prevent a contravention of the Society’s bylaws (s. 101).
- Allowing a person who is entitled to a Society record (ie. minutes, financial statements, etc.) to apply to court (after first seeking the document from the Registrar of Societies) for that record. As noted below, the types of records that the Society must potentially make publicly available has been expanded.
Unlike section 99, these sections seem clearer as to who should be allowed to bring these actions, limiting the potential for actions by individuals not connected to the society.
Nonetheless, these provisions raise important questions of whether and how these concepts should apply to societies, which are typically small, with very limited resources. Rules which effectively require societies to be able to retain expensive lawyers could deter many from incorporating societies. We would recommend that these judicial remedies, if they are kept, should be available only against societies with larger budgets, with the resources to participate fully in the judicial process.
In addition, these rules were developed for corporations where owning shares translates into an ownership interest and where the range of social goals typically considered may be considerably narrower than is the case for a society. We question whether these types of provisions are appropriate for the vast majority of societies. And if they are, the proposed Societies Act should provide some guidance on how they apply.
Other features of the Proposed Societies Act
Some other features of the proposed Societies Act that may be of interest to British Columbians who wish to comment on the White Paper include:
- Member-funded Societies (Part 12, Div. 1) – The Act allows a society to designate themselves a “member-funded society” in its bylaws, in which case its bylaws must state that the society is “funded primarily by its members to carry on activities for the benefit of its members…” Such societies are limited in their ability to solicit or receive public donations or government funding, but also do not have to disclose their financial statements to the public, or report on the remuneration of their directors and employees.
- Records disclosure (ss. 19-27) – The proposed Act would require each society to keep copies of many key documents. Directors generally have an automatic right to inspect and obtain copies of those documents. Members will also generally have such a right, unless the bylaws of the Society restrict access to those documents. A Society’s bylaws will determine whether the society has any obligation to make documents available to the general public, except for an obligation (which exists in the current Society Act as well) to provide a copy of a society’s financial statements on request.
- Remuneration Disclosure (s. 35) – The proposed Act requires the financial statements of a society to disclose any remuneration paid to the society’s Directors and the salary of the top 10 employees or contractors if they exceed a minimum amount (which the White Paper suggests might be $75,000). This requirement does not apply to “Member-funded societies” (although it is not clear why members of such societies are less concerned with remuneration than the members of other societies).
- Adult directors (s. 43) – The proposed Societies Act would make it illegal for anyone under 18 years of age to be a director. Although recognizing that this “may be problematic for some societies, especially those that have a youthful membership”, the White Paper maintains that the potential liability of a director makes it inappropriate for a young person to be a director.
- Remuneration of directors (s. 45) – The proposed Act would make it illegal to pay remuneration to directors (in their role as directors) unless a society’s by-laws explicitly allow for it.
- Investigation of Societies (s. 210) – As the White Paper points out, section 210 of the proposed Societies Act is not all that different from the current section 84, which also provides for an investigation of a society. However, unlike the current Act, the proposed Act allows the Minister to order an investigation of a society at any time, and without limiting the grounds on which an investigation can be initiated. The proposed section also expressly links that investigation to possible dissolution of a society (an exceptional power that also does exist under the current Act).
This is not intended to be a comprehensive list of changes proposed or of interesting provisions of the proposed Act. Nor do we wish to suggest that they are all inherently bad ideas. However, collectively these provisions suggest an intention to regulate all societies with a heavy hand that seems to have arisen from a single, if notable, instance of society mismanagement. We question whether the government has made the case that the proposed changes would even have prevented that particular situation, much less that there is a widespread problem that needs to be addressed. As well, we do not see any evidence that the negative consequences of this increased regulation for smaller societies and for British Columbia as a whole have been considered.
The government, in drafting its white paper, seems to be focused on the Portland Hotel Society controversy, and with the need to appear to be taking decisive action to address those events. We agree that accountability and transparency are good things, and that the provincial government should itself be vigilant about how it spends taxpayers’ money. However, parts of the proposed Societies Act take matters in a different direction altogether by placing the interpretation of “public interest” before the courts. Our view is that the public interest is served by having a lively and healthy civil society, and that over-regulating societies can harm that public goal. In particular, we are encouraging the provincial government to abandon proposals to make it easy for societies to be taken to court to argue about dueling visions of the public interest. It appears to us that the drafting of this proposed Societies Act has been unduly influenced by the extraordinary singular event of the Portland Hotel Society controversy. Legislation driven by exceptional events and the perceived need to appear to be doing something can sometimes be unnecessarily blunt and reactive, and can cause more public harm than benefit. [Updated 24 Sept]
By Andrew Gage, Staff Lawyer
[Update 24 September 2014: After I wrote the above post, I became aware that the basic idea of s. 99 had been proposed by the government in a 2011 Discussion Paper (at pp. 22-23), pre-dating the Portland Hotel Society controversy. Consequently, it appears that the proposed provision is not a response to that issue. Which raises the question - what problem, exactly, is this unprecedented provision intended to resolve?]