The Cape Breton University Student's Union ("CBUSU") attempted to defederate from the Canadian Federation of Students ("CFS") through a March 2008 referendum without complying with CFS Bylaws; the referendum was held to be invalid and CBUSU was ordered to pay outstanding fees from the date of the referendum.

[2015] O.J. No. 3633

2015 ONSC 4093

Ontario Superior Court of Justice

R. Beaudoin J.

July 10, 2015

The CFS claimed that the referendum was not valid because it failed to comply with applicable CFS bylaws that were binding upon the CBUSU. The CFS sought a declaration that the vote was invalid, that CBUSU continued to be a full member of the CFS, and an order for payment of unpaid membership fees owed by CBUSU.

The CBUSU argued that it had complied with the bylaws which required notice of the referendum and a petition, but they argued that there was no requirement that the petition be sent to the CFS.

The court held that the referendum was not valid. The CFS, as a Canadian corporation without share capital incorporated under Part 2 of the Canada Corporations Act, was subject to established jurisprudence to the effect that a non-share capital corporation has membership rules and rules about federating and defederating from it, which are enforceable against members of organizations of student associations when members seek to circumvent the membership rules.

The Ontario courts previously found that when a dispute arises regarding a local student association membership in the CSF, the bylaws will govern the dispute and determine the terms of any referendum which may be held or termination of membership that has been granted.

Thus, the CBUSU was regulated by the bylaws inforce at the time. The relationship between a corporation without share capital and its members is a contractual one. Bylaw 1 provided that a written application for full membership submitted by an eligible local student association would be considered as a binding contract to accept the rights and responsibilities of full membership in the CFS.

Contracts are to be interpreted in “practical and common sense” way such that there is harmony with the commercial context. S.3 of the bylaw stipulated that the authority to initiate a referendum to defederate with the CFS was given to individual members through submission of a petition to the CFS national executive, with such petition signed by not less than 10 percent of the individual members of the CFS in the member local association calling for the referendum. The CBUSU had purported to give notice in August 2007, but that notice was not accompanied by a petition signed by at least 10 percent of its individual members. Reading s.3 and s.6 of the bylaws together, the existence of a valid petition initiating a vote to defederate is a precondition to scheduling and providing notice of a defederation under s.6. The notice of the vote to defederate is of no value without the petition. There was no valid petition in existence at the time that the notice was provided and therefore the notice was invalid. The fact that a petition was later sent did not change the fact that the petition is an essential component initiating the process, and a six month period of notice can only be calculated from the date of the petition. The petition was delivered late on October 1, 2007, precluding a referendum in March 2008. S.6 required that the notice including the petition had to be delivered by registered mail to the head office of CFS no less than six months prior to the defederating vote.

Even though the CBUSU purported to comply with its own internal elections procedures, there was evidence that important sections of the Elections Act were ignored. The referendum was scheduled by the executive of the CBUSU, whereas all elections were to be scheduled by the elections committee. The Act also required that a letter of intent be presented before a referendum proceeded but no such letter was ever produced.

In addition, the chief returning officer destroyed all of the ballots and failed to retain any campaign materials, and therefore the fairness of the process could not be demonstrated. The court also rejected CBUSU’s argument that the vote fairly reflected the wishes of the students even if it did not comply with CFS’s bylaws. Although the case of Moet v. University of Saskatchewan Student’s Union, 2006 SKQB 462 stands for the proposition that courts should hesitate to intervene with the will of an electorate, there is a proviso that where there is non-compliance with election rules impacting the ultimate result, courts may depart from this general principle. Here there was “almost no compliance” with CFS bylaws.

With regard to outstanding fees, the court acknowledged that CBUSU had not remitted the applicable outstanding CFS fees before the referendum and therefore was not in compliance with s.6(g) of Bylaw 1. CBUSU attempted to argue that CFS should have expressly notified them of the requirement to remit outstanding membership fees not less than six weeks prior to the referendum, and that the failure to do so represented a waiver of the CFS’s rights.

Waiver can only be found where evidence demonstrates that the party waiving their right had knowledge of the rights and an unequivocal and conscious intention to waive them. Here, CFS did not waive the requirement for outstanding fees to be remitted prior to the referendum. CFS expressed in writing that it did not waive any of its rights under the bylaws.

The CFS insisted on the observance of the bylaws and often communicated this through its correspondence. There was also no bad faith on the part of CFS. It relied upon the contractual obligations set out in the bylaws to govern the relationship between the parties. The Ontario Courts have held that an alleged duty of good faith in the performance of a contract can be used to alter the express terms of the contract. The duty of good faith is typically employed by the courts to ensure that the objectives of an agreement are realized.

The court suggested that if there had been bad faith in this case, it would be on the part of CBUSU’s Executive that had a positive responsibility to support the objectives of the CFS and to abide by all provisions of the bylaws. The intensity of the Executive's plan to defederate from the CFS during their particular term of office was prioritized over delaying the vote by a few months to ensure compliance with CFS bylaws.

The court found that since the March 2008 vote was invalid, the CBUSU continued as a full member of the CFS to the date of judgment.

Damages were awarded to the CFS for unpaid membership fees in the amount of $293,159.13. The parties were asked to make submissions on costs, keeping in mind that the costs of the litigation would be borne by the post-secondary students at the institution, who already have significant costs associated with tuition and schooling.