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IN THE MATTER BETWEEN:

RANDY NOLAN PEARSON:


CLAIMANT

and

PENINSULA CONSUMER SERVICES COOPERATIVE:


RESPONDENT

ARBITRATOR’S AWARD

______________________________________________________

This is an arbitration brought pursuant to the provisions of Section


208 of the Cooperative Association Act. By agreement, it has been
conducted pursuant to the procedure laid down by the British
Columbia International Commercial Arbitration Shorter Rules for
Domestic Arbitration.

AGREED TERMS OF REFERENCE:

(a) Was the election of the directors at the June 24, 2009 AGM
conducted contrary to the Peninsula Consumer Services Co-
operative Memorandum of Association?

(b) Was the election of directors conducted in bad faith?

(c) Was the election of the directors, including the election


process, and the actions of the Board of Directors, individual
directors, and senior management of the Cooperative
relative to the election process, conducted in a manner that
was oppressive to many co-operative members that were in
opposition to the board of directors and senior
management’s plans to have 8 acres of land re-zoned and
developed for a new store?

The terms of reference address the allegations made by the


Claimant, Mr. Pearson.
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In its written argument the Respondent erroneously states in Para.


8 of its submissions that Para. (a) of the terms of reference ended
on the words: Rule 81, or at all. Those limiting words do not
appear in the letter of submission, addressed to me and dated
December 31, 2009. I will accordingly proceed on the basis that I
have jurisdiction to determine whether ANY material provision of
the Memorandum and Articles of Association was infringed in a
substantial manner.

It should be noted that the Claimant, who obviously seeks to have


all the above questions answered in the affirmative, does not, in
the joint submission to arbitration, expressly seek a declaration
that the election of the three successful directors was void, nor
does he by those terms expressly seek consequential directions.
However, in the “Remedies Sought” in his Statement of Claim he
expressly asks me to deem the election of directors null and void
and for consequential directions. The Respondent, in its Statement
of Defence and in its written argument, does not take the position
that it is beyond the Arbitrator’s terms of reference to make a
declaration of invalidity if the evidence supports such a conclusion,
and, in opposing the Claimant’s claim for an order directing that
the directors’ remuneration be repaid, it does not argue that such a
direction would be beyond the Arbitrator’s jurisdiction, if the
evidence supports it. I am accordingly proceeding on the
assumption that I have the jurisdiction to give consequential
directions, but only if I find in favour of the Claimant on one or
more of the three issues raised.

The Respondent contends that I must not give the Claimant any
relief unless I find that there has been a “serious irregularity,”
affecting the outcome of the election. I agree, except that in my
opinion, once the evidence results in either of issues (a) and (b)
being answered in the affirmative, the burden shifts to the
Respondent to prove that the irregularities did NOT affect the
outcome of the election. In its written argument the Respondent
seeks to emphasize that none of the “irregularities” complained of
is serious, and it says that accordingly, the election should not be
declared void.
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At my initial meeting with the Claimant and counsel for the


Respondent Cooperative (hereafter called “the Respondent”) I
drew attention to the fact that if, at the conclusion of the arbitration,
I found that the allegations were proven the effect might be to
invalidate the election of the three directors, the validity of whose
election is challenged by the Claimant, and for that reason I
suggested that inquiries be made of them to determine whether
they wished to be named as respondents. Having heard nothing
further from them or the Respondent’s lawyers on that issue, I
assume that they and the Respondent will accept that their
election was invalid, if I answer all or any of the questions in the
affirmative, and that a new election must be held, with such
directions from me as may be necessary and appropriate. I also
note that one of the affidavits submitted herein by the Respondent
was sworn by one of those three directors. I therefore assume
that they are aware of this proceeding and do not seek intervenor
status.

It should be noted that my task is limited to making findings of law


and fact on the issues as raised. I repeat that the submission to
arbitration does not expressly raise the question whether a
declaration that the election of the successful candidates was valid
or invalid should be made, nor does it raise the issue of remedies.
The Claimant does, however, in his closing argument seek specific
remedies. This has apparently come as no surprise to the
Respondent. Accordingly I hold that if I find on the evidence
presented that the Claimant has made out a case, requiring any or
all of the terms of reference to be answered in the affirmative, I
have the jurisdiction to grant him an appropriate consequential
remedy.

In its written argument the Respondent states that the applicable


test is:

a. Was there a substantial irregularity;

b. Was that irregularity calculated to affect the outcome of the


election;
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c. If so, did the irregularities affect the outcome of the election?

Such a test would conform to what had been decided in the


leading British Columbia case on the general issue of corporate
governance and election of officers of a corporation: Leroux v.
Molgat 1985 B.C.L.R. 29. It concerned a corporation incorporated
under the Society Act, (a trade union) but I hold that there is no
difference in legal principle that would make the principles of
equity applied in that decision inapplicable to corporate
governance under the Cooperative Associations Act.

In Leroux, a decision of McLachlan J. (now Chief Justice of


Canada), it was held that an election will be set aside only if a
substantial irregularity, calculated to affect the result, is shown.

The Respondent takes the position that for any of these issues to
be resolved in favour of the Claimant the burden is upon him to
show a substantial irregularity if he relies on the Leroux
jurisprudence, which he seems to be doing, even though the
Terms of Reference do not explicitly raise the issue of
“irregularity.” I agree with the Respondent’s analysis of that
jurisprudence and draw attention to the decision in Anderson v.
Stewart (1921) 62 D.L.R. 98. where it was held that a combination
of minor irregularities does not by itself add up to a substantial
irregularity: An election will only be declared invalid on the basis of
an irregularity if that irregularity, standing by itself, in isolation from
all other alleged irregularities, is sufficiently serious to invalidate
the election.

Nevertheless I cannot overlook the language of the Terms of


Reference, which require me to look at any kind of breach of the
Memorandum of Association. Arguably a “substantial irregularity”
would constitute a breach of the Memorandum of Association, but
I believe that it is my duty to examine whether there was any such
breach even if the breach did not constitute an “irregularity.” I am
also required to answer the question of whether the election was
conducted in “bad faith,” whether or not there was an “irregularity,”
although anything done in “bad faith” is inevitably a “serious
irregularity.”
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Paragraph (c) seems to raise a wider issue, namely “oppression.”

PROCEDURE:

This arbitration has by agreement been conducted in accordance


with the Domestic Commercial Arbitration Shorter Rules, which
means that all the evidence has been submitted in the form of
affidavits, and none of the deponents was available for cross-
examination, nor have I been able to ask any witness to explain or
elaborate on her or his sworn evidence. Fortunately there appears
to be broad agreement on the facts, thus facilitating my task.
Where there has been a conflict I have done my best to resolve it
on what I have perceived to be the balance of probabilities.

Background Facts:

The Respondent was incorporated under the Cooperative


Associations Act. Its Memorandum of Association is called its
“Rules.” Rule 78 provides that the Respondent must have at least
3 and not more than 11 directors, as determined by ordinary
resolution of the members. At the time of its last annual general
meeting it had 9 directors, the terms of 3 of whom had come to an
end. Accordingly an election, now in dispute, was held to fill the
three vacancies by ordinary resolution.

The three incumbent directors, whose terms had come to an end,


all sought reelection, and were challenged by three candidates
that had a difference of opinion on the future policy or activities of
the Respondent. The incumbents were declared successful. I infer
from the evidence that the Claimant supported the three
unsuccessful challengers, and takes the position that the election
was not conducted in a manner that gave them a fair chance to
get elected in accordance with the applicable rules. He does not
dispute the incumbents’ eligibility to be re-elected if I find that their
election has been invalid and order a fresh election.

The incumbents intended to pursue a policy of commercial


development of the Respondent’s land and their opponents
favoured a policy of “conservation.” I pause here to say that there
was nothing dishonourable or improper in either policy, and I
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refrain from expressing any views on the merits of the policy


differences. That is not in issue before me, but the existence of the
policy differences helps throw light on the conduct of the election
campaign.

The Manager of the Respondent was Mr. Pat Fafard, hereafter


called “the Manager.” He had held that position for 29 years, and
he was also a shareholder. The Board, which included the
incumbent members, seeking re-election, was by Rule 77 of the
Memorandum of Association required to supervise his
management. Implicit in that requirement was an obligation to
restrain him from acting improperly, if improper conduct in the
execution of his duties came to the Board’s attention, and to
ensure that the Respondent’s legal obligations in respect of
elections were fulfilled.

Legal Principles

Section 74 of the Cooperative Association Act (hereafter called


“the Act”) requires that an association must provide in its rules for
the election or appointment of the directors other than the first
directors. The Memorandum of Association accordingly does
contain rules relating to the qualifications or disqualifications of
directors, as required by Section 79(2) of the Act, but none of the
statutory disqualifications has any relevance to the issues raised in
this arbitration, and the Claimant, at our preliminary meeting on
March 22, 2010, conceded that the elected directors were not
disqualified from running as candidates. His objection is solely to
the process by which they were elected. The Respondent, in its
Statement of Defence, does not allege that any of the three
unsuccessful candidates was disqualified from running.

Section 84 of the Act requires every director of an association to


act honestly and in good faith and to exercise the care, diligence
and skill that a reasonably prudent person would exercise in
comparable circumstances. The issue of corporate governance
has also been touched upon in a number of court decisions,
interpreting the common law, as it applies to statutory
corporations, which, in so far as relevant, must govern my
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disposition of the issues raised. Some of those cases are referred


to in this Award.

(a) Was the election conducted contrary to the Memorandum


of Association?

The duties of the directors were set out in Rule 77 of the


Memorandum of Association. The provisions of the Memorandum
of Association were subject to Section 84 of the Act, which
requires the directors, when exercising their powers and
performing their duties, to act honestly and in good faith and to
exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. All this is in
addition to any general rule of law or equity governing the duties of
directors of corporations, whatever the nature of a corporation or
the statute pursuant to which it was incorporated, except, of
course, to the extent that the governing statute provides otherwise.

Terms (a) and (b) of the Terms of Reference raise factual issues
that overlap. I will first review the evidence relating to all three
issues and then relate it to the three Terms of Reference.

(i) Early voting issue:

The Claimant says that members were improperly allowed to vote


before the commencement of the annual general meeting, that the
votes cast before the meeting commenced were null and void but
the ballots were mixed with those properly cast after the
commencement of the meeting. The Respondent does not
dispute the allegation that voting had occurred before the
commencement of the members’ meeting. See Paragraphs 45 to
48 of the Manager’s Affidavit. The decision to allow voting to take
place before the commencement of the meeting was made, not by
the Board of Directors, but by the President alone, according to his
own affidavit, Paragraph 7, in which he gave as a reason for
allowing early voting that it was to accommodate those members
who were “not able to stay for the entire Meeting, and might
otherwise be unable to vote due to the anticipated delay in the
start of the meeting and number of members present. ”
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This raises the question: why did they bother to come at all to the
premises where the meeting was to take place if they were not
able or willing to wait for the meeting to commence at the stated
time and why was there any delay in the start of the meeting?

The Memorandum of Association does not explicitly provide for the


time of commencement of voting. Rules 37 and 81, however, both
provide that the election of directors must take place at the annual
general meeting. Rule 37 provides that the order of business at
the annual general meeting (including the business of electing of
directors) shall be as determined by the directors to be
appropriate. There is no provision for the conduct of business
enumerated in Rule 37 before the commencement or after the
completion of the annual general meeting. All business must take
place at the meeting. Nor was there provision for the Chair of the
Board of Directors (Mr. Gaudet) to exercise any of the powers
conferred upon the Board of Directors, whether before or after the
commencement of the meeting.

Any business, including the business of voting, purporting to be


conducted before the meeting commenced was not business
conducted “at the annual general meeting,” for the simple reason
that until the meeting commenced there was no “annual general
meeting” at which any business of the corporation (including voting
for directors) could be done.

Mr. Gaudet, in his evidence, explains why he allowed members


present before the commencement of the meeting at 6.30 p.m. to
vote. The ballot boxes were in place, as were the employees of
the firm of chartered accountants who were ready to attend to the
voters. He obviously believed that it made good practical sense to
allow members who had already arrived the opportunity to cast
their votes and take off. The process was, arguably, more efficient
than waiting in a long queue. Nevertheless, it was illegal, because
the early votes were not cast “at the meeting” and they were cast
before the candidates had had an opportunity to exercise their
right to address the voters, which was done after the
commencement of the meeting and after the early votes had
already been cast.
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Mr. Gaudet’s decision to allow voting before the commencement of


the meeting was clearly unlawful, although made in good faith.

The Respondent takes the position that because the decision to


allow voting to commence early was announced to the members
present “at the start of the meeting” and because nobody objected,
the early voting was proper. Leaving aside the fact that all or
some of the voters who had voted early were probably gone by
then, the mere failure of those present at the start of the meeting
to object after the departure of those who had voted before the
start could not in law have had the effect of retrospectively
validating a transgression of the Memorandum of Association, the
early and invalid voting, nor could the members still present after
the commencement of the meeting have made a valid retroactive
decision (as they purported to do, according to the Minutes of the
Annual General Meeting, put in evidence by the Respondent) to
start the meeting before its appointed time, even if they had
expressly purported to do so before the voting commenced. The
“start of the meeting” was the time appointed for its start when it
had been called. It was not the time when the first of the members
arrived, before the appointed time.

No votes purporting to have been cast before the commencement


of the meeting had any legal validity. It is impossible to tell, on the
evidence before me, whose votes had been cast before the
commencement of the meeting or exactly how many had been so
cast. Different estimates were given by different witnesses. It is
clear that the number was a substantial portion of the total votes
cast, but there is no evidence of the actual number. One can only
speculate as to how many of the votes in both categories were
respectively cast before or after the meeting had commenced.

After the meeting had commenced the candidates addressed


those present, no doubt with the intention of swaying the voters,
but by then a number of members had already voted and it was
too late for them to change their minds.

The Claimant argues that the Respondent allowed early voting for
the express purpose of enabling those members who favoured the
incumbents to leave early. In my opinion that is mere speculation,
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but by allowing many members to start voting before the


commencement of the meeting and by counting their votes those
persons (directors and others) having responsibility for the conduct
of the election, allowed it to be conducted contrary to the
provisions of the Memorandum of Association.

The Respondent’s members still present during the meeting did


not have the power under the Memorandum of Association to ratify
retrospectively the early voting, as they purported to do. (See Ron
Gaudet’s affidavit, Para. 14.)

Unless there is evidence of the actual number of votes cast before


the commencement of the meeting it is impossible to determine
whether the candidates who were declared elected after the
counting of the aggregate number of votes had in effect obtained a
majority of the votes lawfully cast after the commencement of the
meeting. There is no such evidence. In his affidavit, the Manager
states, at Para. 43, that there were 578 members present at the
Annual General Meeting and that 556 ballots were cast, but he
does not say whether this number of 578 refers to those present at
the actual commencement of the meeting, or whether it includes
those members who had shown up early, voted and departed.

Accordingly the mixture of the valid and the invalid votes


constituted a serious irregularity that invalidated the election.

(ii) Rule 66: (a) Secret ballots issue:

Section 83 of the Respondent’s Memorandum of Association


expressly requires the election to be by secret ballot.

A ballot is not secret if it is open to view by a prospective voter


before counting commences, and while voting is still in progress,
even if the author of the ballot cannot be identified. The risk that a
voter, who sees which way previous voters have voted, may be
influenced by that knowledge is a public policy reason for requiring
ballots to be secret.

The Claimant alleges that the manner of casting of the ballots


resulted in the ballots not having been secret, inasmuch as there
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were no polling booths. He also alleges that during the course of


voting the ballot boxes filled up, and their contents were thrown
into other boxes. The Claimant has not presented evidence that he
or any other member had actually been able to see the voting
markings on other members’ ballots before casting her or his vote,
nor, however, do the Respondent’s witnesses expressly say that
the markings on the ballots were invisible. The Respondent’s
witness, Clark Lawrence, says that his briefcase was “beside or on
top of the box”. He does not go so far as to say that the markings
on the ballots were screened from public view. The Claimant’s
witness, Peter King, says that the contents of the ballot boxes
“were emptied into one of two large cardboard boxes that rested
on the floor beneath one of the registration desks.” Susan Stroud
makes a similar allegation.

Notwithstanding the above, none of the witnesses goes so far as


to allege that she or he was able to read any ballot or ascertain
how a voter had voted. Therefore I am unable to conclude from
the evidence presented that any voter was able to read any of the
overflow ballots. The Claimant has failed to prove that the ballots
were legible. The preponderance of the evidence does not
convince me that the secrecy of the ballots was violated.

(iii) Retention of ballots:

For the reasons set out below I find on the facts that the provisions
of Rule 66 (retention of ballots after voting) were complied with.
Rule 66 requires the secret ballots to be kept at the registered
office of the Association for at least 3 months after the election and
that during those 3 months the ballots be open to inspection by
any member. Implicit in that requirement is that the ballots be kept
secure and free from tampering so that they may be preserved for
inspection should any member of the Respondent see fit to
challenge the validity of the election within a reasonable time.
One possibility, no doubt foreseen in this Rule, was that, either
mistakenly or improperly, the announced result of the number of
votes cast in an election might be erroneous. A recount may be
necessary.
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The Claimant alleges that the ballots were kept in cardboard


boxes stored under tables without visible security and that the
nominating committee chairperson “initiated a motion to destroy
the ballots after thirty days.” He does not explicitly say either that
the motion was adopted or that it was given effect, and the
Respondent says that that has not been done. The Manager, in
his affidavit, swears that:

“There was a motion to destroy ballots, which in error was to be in


30 days, however , I advised Norgaard Neale Cameron not to do
so until this matter is resolved, and I am informed by them that this
has not occurred.”

I accept this evidence and find that the ballots have in fact not
been destroyed.

(iv) Role of the “nominating committee”

By a document (Tab f, attached to the Claimant’s Statement of


Claim) it was provided that a Nominating Committee of the Board
of Directors was to be appointed annually by the Board of
Directors, consisting of three or more members of the Board “and
the General Manager (ex officio)”. Its purposes are set out in the
document. One of its purported “terms of reference” is:

“to recruit candidates that … [are]… supportive of Cooperative


philosophy. This “philosophy” is not defined, but I infer that what
was intended was the policy subscribed to by the current Board of
Directors, in this case the contentious land use policy.

In its Statement of Defence the Respondent alleges in Paragraph


8 (g) that “The general manager is an ex-officio member of the
nominating committee, which is permitted under the Rules of the
Cooperative.” That is not correct. Rule 112 provides for the
appointment by the board of “committees consisting of the director
or directors that the board considers appropriate to exercise the
powers delegated by the board to them as authorized by the Act.”
There is no provision for appointing any person, such as the
Manager, who is not a director, to any committee.
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The creation of such a committee was not authorized either by the


Act or by the Memorandum of Association, even if its membership
were confined to directors. Rule 112 of the Memorandum of
Association authorizes the appointment by the Board of
committees “consisting of the director or directors that the board
considers appropriate to exercise the powers delegated by the
board to them as authorized by the Act.” Likewise, Section 76(2)
of the Act empowers the directors to “delegate any of their powers
to committees of the directors.” There is no provision for the
delegation of any of the Board of Directors’ or of an individual
director’s powers to the Manager. The existence of the Nominating
Committee, which included the Manager, even if its purpose were
valid, was therefore unlawful and so, a fortiori was the purported
inclusion of the Manager in the committee.

Although the purported “Terms of Reference” of the Committee do


not say so explicitly, their clear purpose is to weed out or at least
discourage any prospective candidates that are not “supportive of
Cooperative philosophy.”

I find that the existence and implementation of the terms of


reference of the “Nominating Committee” (even if the Manager
were excluded from membership) were oppressive to those
members of the Respondent who opposed the incumbent
directors’ policies. There is no provision in Part 14 of the
Memorandum of Association authorizing the creation of a
nominating committee, (even if its members were confined to
Directors), let alone a provision for the scrutiny and approval of
prospective candidates. All that is required (or authorized) is that
a member must be nominated at least 30 days prior to the annual
general meeting (Rule 82). No prospective candidate can be
“required to meet with the Nominating Committee” as directed by
this document.

The participation of the Manager in it and the terms of reference of


the “Nominating Committee for Board of Directors Terms of
Reference 2009,” besides being illegal, were oppressive to
candidate members who opposed the current board of directors’
and Manager’s policy in respect of the Respondent’s business.
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A notice to shareholders, announcing the 32nd annual membership


meeting, informs them of the intention of the Nomination
Committee “looking for” certain qualifications from “potential
nominees” including “solid business” etc. experience, and says
that “nominees must demonstrate a capacity to provide sound
advice on a broad range of company, industry and community
issues.” The clear implication is that no shareholder would be
allowed to run for election unless she or he satisfied the incumbent
directors and the Manager that she or he had the qualifications
that they sought and the philosophy that they espoused. Any
shareholders, not knowing their legal rights, and not subscribing to
the philosophy of the incumbent directors and Manager, would
have been discouraged from putting their names forward for
nomination.

None of this procedure was authorized by the Memorandum of


Association.

Every member of the Respondent was eligible to run, and no


prospective candidate should have been subjected to a
“screening,” let alone a “screening” in which the Manager
participated.

The very existence of this committee constituted improper


oppression of those members who opposed any of the
incumbents’ policies in respect of any issue, and it is possible that
other potential candidates were discouraged from running,
knowing of the position taken by the nominating committee, and
fearing that they would not pass the “screening” test. By itself it
resulted in the election being conducted contrary to the
Memorandum of Association by purporting to impose a
qualification on a candidate for election, not provided for in Section
79 and a procedure not provided for in Section 82 of the Articles of
Association.

It was a serious irregularity, resulting in itself in an illegal election.

(v) Improper delegation of duties and powers to the Manager


and Staff:
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There is no evidence that the Directors delegated any “duties” to


the Manager. There is, however, evidence that they delegated
powers to him, by appointing him, as stated above, to the
“nominating committee.” This committee purported to have the
power to “screen” candidates. Not only is there no provision in the
Memorandum of Association for the creation of such a committee
but there is also no provision for the Manager to participate in the
approval of prospective candidates. The effect of this irregularity
was aggravated by the action of the Manager, with the tacit
approval of the Board of Directors, in addressing the annual
general meeting of shareholders in support of the re-election of the
outgoing directors and in opposition to the other candidates.

This was also a serious irregularity.

There is, however, no evidence of improper delegation of duties to


the staff, other than the Manager.

(vi) The absence of written procedures:

There is no requirement in the Memorandum of Association for


written procedures.

Conclusion:

For the reasons set out above the election was conducted contrary
to the Memorandum of Association in several respects, creating
serious irregularities and casting upon the Respondent the burden
of showing that no such irregularity was calculated to affect the
result of the election: Leroux v. Molgat, cited supra. It has failed to
discharge that burden.

(b) Was the election of directors conducted in bad faith?

This question contains an implication, on the part of the Claimant,


that the election was not conducted in good faith. This is a serious
allegation. The onus is on him to present convincing evidence of
bad faith, either on the part of the successful candidates or on the
part of the Respondent’s management, with or without the
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connivance of any candidate, that such bad faith was calculated to


influence the members in casting their votes, and that it probably
did so. Applying Leroux v. Molgat, I hold that if the evidence
discloses such bad faith the burden is upon those seeking to
uphold the outcome of the election to prove that no members were
influenced by it in casting their votes or abstaining from voting.

In its Statement of Defence the Respondent states that it (the


Respondent) did not campaign for any candidate, and it has
presented convincing evidence to that effect. The Board of
Directors in charge of the Respondent’s business, did not, in their
formal capacity as a board of directors, overtly and collectively
campaign for or against any candidate, but I find that the
Respondent’s Manager, who reported to the Directors, and who
campaigned against candidates who ran against incumbent
directors, did display bad faith (as set out below), with the
knowledge of the Directors of the Respondent and that the
Respondent is tainted with his conduct. He overtly campaigned
against the candidates challenging the incumbents.

In his capacity as an employee of the Respondent the Manager


was expressly forbidden by Article 79(4)(e) from acting as a
director. He improperly acted as a director whenever he performed
activities that were normally the prerogative or duty of the
directors.

Particulars of alleged bad faith:

The evidence of alleged bad faith that I must consider was the
conduct of the Respondent’s general Manager, in his capacity as
Manager or de facto member of the Board of Directors, as set out
above, and, to the extent that such conduct constituted bad faith,
whether the directors of the Respondent permitted or condoned
his conduct.

The evidence of bad faith, resulting from the Manager’s conduct,


and condoned by the President in the presence of shareholders
who had come to vote, is clear and convincing, and I set it out
below.
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Background:

The Manager was both the general manager of the Respondent


and a shareholder. He thus had a dual personal interest in the
outcome of the election. He also had an important, respected and
influential position as the head of the management of the
Respondent. He favoured the position of the incumbent directors
on the issue of the rezoning, and he saw the contrary position
taken by their challengers as a threat to his interests, both as
manager and as shareholder.

One of the challengers had in the past been an employee of the


Respondent, working under the Manager. The evidence does not
reveal the reason for the termination of her employment or
whether there had been a dismissal or resignation.

Particulars of scurrilous and unlawful campaign tactics:

In an e-mail sent by the Manager from the office of the


Respondent to certain members of the Association, including the
incumbent directors, two days before the election date he strongly
urged members to vote for the incumbents, stating that it is “VERY
IMPORTANT that the three incumbents get re-elected” and that he
had “serious concerns about the motives of the other 3 nominees.”
That allegation has a clear implication that their motives were
ethically improper.

He stated that one of the candidates, David Lawson, had asked for
a copy of the membership list and that he, the Manager, had
refused to give it to him. He wrote: “We are also concerned about
the privacy of members, should Mr. Lawson be given access to the
membership list.” He does not explain why, nor does he say
whether he gave or denied copies of the membership list to Mr.
Lawson’s rivals. That refusal, of course, made it difficult or
impossible for Lawson to solicit the votes of shareholders not
known to him.

The Manager’s refusal to provide the candidate access to the list


of members on the spurious ground that he was concerned about
members’ privacy was plainly unlawful, and by itself constituted a
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serious irregularity, handicapping Mr. Lawson’s election campaign.


Sections 128 to 133 of the Act gave Mr. Lawson the right, not only
to inspect the membership list, but also to be provided by the
Association with a copy of that list on payment of a reasonable
charge.

The Manager goes on to state:

“The third candidate (Alicia Cormier) is a former employee whom I


know well. In my opinion Ms. Cormier does not have the skills or
experience to deal with the complex issues that regularly come
before the directors of our co-op and I am concerned about her
motive for running for the board. Rules respecting confidentiality of
personnel matters prevent me from saying more.”

This passage seriously questions the personal integrity of Ms


Cormier. It implies that there was something improper or
embarrassing in her past conduct as an employee, which he is not
at liberty to disclose, but which rendered her unfit to be elected.

The Manager swears that he sent this e-mail to 93 members,


including the 9 incumbent directors. He does not explain why he
selected these 93. It is reasonable to assume that many of the 93
members who had received the e-mail would have communicated
its contents to other members. It is impossible to know how many
of the members were influenced in their voting by the Manager’s
improper allegations against the challenging candidates. It is
reasonable to assume that they knew the Manager was a member
of the Nominating Committee, and that he therefore was in a
position to influence members strongly in their decision.

There is no evidence that the President or any other incumbents


dissociated themselves from the abovementioned actions of the
Manager, notwithstanding the fact that they were all fully aware of
it, having received copies of the defamatory e-mail.

Other alleged misconduct by the Manager and two of the


successful candidates:
19

The same e-mail invites the recipients to attend a meeting


immediately before casting their ballots where they would meet the
incumbent directors and be provided with “finger food and
appetizers”. Clearly the only purpose of his invitation and the
hospitality was to induce them to vote as he requested.

Conclusion on this issue:

There was nothing improper in law in the position taken by the


incumbent directors and by the Manager in promoting or pursuing
their plans for a rezoning, but, when it became evident that there
were candidates that opposed their plans, senior management
should have adopted a neutral position on that issue during the
election campaign and should not have engaged in personal and
defamatory attacks upon the challengers or in unlawful conduct,
such as denying a candidate access to the membership list.

In his affidavit the Manager swears that he sent copies of the e-


mail to all 9 directors. They were thus fully aware of his scurrilous
attack upon the opposing candidates and of his refusal to grant a
candidate access to the membership list, but there is no evidence
that they disowned his remarks or restrained his conduct.

There is no evidence that any of the incumbents or candidates


expressly condoned the Manager’s conduct but, in his affidavit, the
President admits that he knew of the e-mail, which the Manager
had sent to him as one of the recipients. The President, however,
took the position that it was “a private communication” between the
Manager and those members who received it, and for that reason
he refused to comment on it at the meeting when confronted with
it. In her affidavit Ms Cormier says that he refused to comment,
claiming that the issue was a matter between the Board and
management. He, in his affidavit, admits that he took that position,
but that was the wrong position to take. As President he should
not have condoned the Manager’s defamatory allegations in the e-
mail by refusing to comment on them and by taking the position
that it was a private matter between the Manager and the
recipients. He should have condemned the Manager’s defamatory
remarks or at the least, have dissociated himself and the Board of
Directors from those remarks. The e-mail, written by the Manager
20

from his office, as an employee of the Respondent, using the


Respondent’s e-mail, concerning a matter involving the
Respondent corporation for which he worked was not, as the
President avers in his affidavit, a “private matter.”

He should also have directed the Manager to make the


membership list available forthwith to the candidates who sought
it, after becoming aware of the manager’s refusal to do so.

It is impossible to speculate what the outcome of the election


might have been without the Manager’s personal attacks upon the
integrity of the challengers, which attacks were not disowned by
the board of directors, or without the Manager’s refusal to make
the membership list available to the challenging candidates.

The result might have been the same, but that is a matter of
speculation. He clearly hoped to influence members by these
attacks, and it is reasonable to conclude that he was successful, at
least with some of those who voted.

The facts alleged above of the Manager’s improper conduct, and


of the incumbent Directors’ failure to restrain it, notwithstanding
their statutory duty, pursuant to Section 76 of the Act to supervise
the management of the Respondent, thus exhibiting their approval
of it, and to some extent their participation in it, all resulted in the
election being conducted in bad faith and the result of the voting
being invalid. It was a serious irregularity.

I respectfully reject the Respondent’s submission that the


overwhelming actual support by the voters of the three successful
candidates is evidence that any irregularity could not and did not
affect the result. That submission requires me to conclude that the
Manager’s tactics on behalf of the successful candidates, with the
approval of at least some members of the incumbent board of
directors, did not and could not have had any effect upon the
outcome, notwithstanding that the actual outcome was precisely
what he had sought by his conduct in the first place. It also
requires me to conclude that if an unsuccessful candidate had had
access to the membership list and thus have been able to
campaign more effectively he would nevertheless not have won.
21

The answer to the second issue submitted for arbitration is that the
election of the directors was conducted in bad faith.

(c) Was the election of the board of directors, including the


election process, and the actions of the Board of Directors,
individual directors, and senior management of the Cooperative,
relative to the election process, conducted in a manner that was
oppressive to many Co-operative members that were in opposition
to the board of directors’ and senior management’s plans to have
8 acres of land rezoned and developed for a new grocery store?

To some extent this question is a repetition of the other two. By


reason of the facts found on the other two issues, including the
attacks upon the integrity of the three challengers and the
Manager’s active and overt opposition to their policy position I find
that the election was conducted in a manner that was oppressive
to those Respondent members who had a difference of opinion on
the land use issue from the incumbent board of directors, but it is
impossible to determine on the evidence whether there were
“many” members who were in opposition.

General Conclusion:

By reason of the findings of fact and conclusions of law made


above I answer the first two questions put to me in the affirmative
and find it unnecessary to answer the third. I hold that:

1) The election of directors at the June 24, 2009 Annual General


Meeting was conducted contrary to the Respondent’s
Memorandum of Association, in bad faith and in a manner that
was oppressive to those members that were in opposition to the
incumbent board’s and senior management’s land use plans.

2) Because of significant irregularities in the election of the


three successful candidates, their election was invalid, thus
creating three vacancies on the board, with effect from the date
of this award, but the provisions of Section 85 of the
Cooperative Associations Act, which reads: Every act of a
director is valid, despite any defect in the director’s
22

appointment, election or qualification, apply to all the acts of the


improperly elected directors after their election and before the
publication of this award.

3) There must accordingly be a new election, not later than 60


days from today, conducted in accordance with Rule 89(3) of
the Respondent’s Memorandum of Association, to fill the three
vacancies created by this award. I decline to appoint an
“independent electoral officer,” as requested by the Claimant,
because I do not believe I have the power to do so, and
because I do not believe that any person needs “oversee” the
election, except for the role heretofore played by the
Respondent’s accountants in handing ballots to voters,
accepting their ballots, counting the votes and announcing the
results. Each candidate or her or his agent may attend and
observe the counting of votes. No completed ballots must be
visible to anybody before counting commences.

4) Once the meeting at which the election takes place commences


no candidate or supporter shall have the right to address the
meeting until after the election results have been announced,
and no voting shall be allowed before the meeting commences.

5) The directors whose election has been declared invalid are


entitled to retain their remuneration as directors of the
Respondent Cooperative, earned until the publication of this
award because, notwithstanding the serious irregularities that
have occurred, there is no reason why they should not be paid
for the work that they have done for the Cooperative since their
election and until today.

6) The said directors are not disqualified from running again for
election by reason of my findings herein, provided they are
otherwise qualified, but they and all other persons are ineligible
for appointment to the Board in accordance with the procedure
provided for in Rule 89(1)(b) of the Memorandum of
Association.
23

7) No candidates shall be required to appear before or be


approved by any nominating committee in order to be eligible
for nomination for election.

8) No employee of the Respondent is permitted to participate in


the election campaign, whether in support of or in opposition to
any candidate.

9) The Respondent must forthwith pay the Claimant the sum of


$1,000.00 towards his costs of this arbitration, being his prepaid
share of the Arbitrator’s fees.

DATED at Victoria, B.C. this 26th day of May, 2010

Jakob S. de Villiers Q.C.


Arbitrator