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First Nations continue to increase their use of corporate entities to conduct their commercial activities.  The band structure, as defined under the Indian Act, is not designed to conduct commercial activities and, more particularly, not designed to offer protection from liability.  The corporate structures available to First Nations’ business ventures are those available to all business enterprises and include the structures considered in this paper: trusts, partnerships and corporations.  The friction between indigenous law, and current corporate statutes and corporate common law, creates challenges for many First Nations.  The issue needs to be addressed – but that is the topic for another paper.  The purpose of this paper is to focus on some of the more recent common law decisions and statutory developments that are relevant to First Nations’ businesses in British Columbia.

i.        Caselaw Update

A.        TRUSTS

Bare trusts and discretionary trusts are both commonly used by First Nations in commercial enterprises.  Often there will be more than one trustee holding property in trust for a band (as defined under the Indian Act), or some variation thereof.

The British Columbia Supreme Court considered grounds for removal of a trustee under the Trustee Act in two recent decisions – both of which resulted in decisions of the Court relying upon its inherent jurisdiction to remove the trustee instead of the statutory power to do so.

            1.         Section 86, Trustee Act

The 2009 decision in Wilson v. Heathcote [1] involved a co-trustee’s application for direction of the British Columbia Supreme Court under section 86 of the Trustee Act [2] and the removal and replacement of the other co-trustee.  The facts of the case arose in the context of a will, however section 86 is not limited to trustees of estate property.  Section 86 gives broad discretion to a Court to give “…opinion, advice or direction of the court on a question respecting the management or administration of the trust property or the assets of a testator or intestate.”   Cohen J. found that the relationship of the co-trustees was essentially in a deadlock as to how to administer the estate and that the dysfunctional relationship between the trustees made it necessary for the Court to intervene.  One trustee took the position that he would not meet with the other unless his legal counsel was present, while the other took the position that he would not meet unless they were alone.

Cohen J. summarized  the inherent jurisdiction of a court to remove a co-trustee when there is relationship breakdown as follows:

…the Court may intervene to remove a trustee in circumstances where the relationship between trustees has deteriorated to such an extent that the proper and efficient administration of the trust is improbable, thus making removal necessary and expedient to protect the interests of the beneficiaries. [3]

Cohen J. considered the deadlock between the co-trustees and concluded:

Moreover, I am satisfied that it is highly improbable that the nature of the issues in dispute between the trustees could be resolved by one or more applications under s. 86 of the Trustee Act.  In the result, I find that Wilson has established on the whole of the evidence that the Court should exercise its inherent jurisdiction and order the removal of Heathcote as trustee. [4]

            2.         Section 30, Trustee Act

Levi-Bandel v. Hunter Talesiesin Estate [5] is a 2011 decision of the British Columbia Supreme Court that also involved the removal of a co-trustee in the context of a will.  Here again one co-trustee applied for the removal of the second co-trustee under section 30 of the Trustee Act. Section 30 states:

Removal of trustees on application

30  A trustee or receiver appointed by any court may be removed and a trustee, trustees or receiver substituted in place of him or her, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

Butler J. refused to allow the application on the basis that section 30 of the Trustee Act did not authorize the removal of a trustee on application of a co-trustee because section 30 requires application by a beneficiary.  Instead Butler J. exercised the inherent jurisdiction of the Court and granted the order sought to remove the one co-trustee.  As with section 86, section 30 is not limited to the context of wills.  Butler J. relied in part on the consideration of the Court’s inherent jurisdiction to remove a trustee in McKay v. Howlett, 2003 BCCA 555, which referred to Mardesic v. Vukovich Estate (1988), 20 B.C.L. R. (2d) 170 (S.C.), where Finch J. stated [emphasis added]:

Apart from this statutory power there is also, in my view, an inherent power in the court to remove and replace trustees.  In his text o the Law of Trusts in Canada, 2nd ed. (1984), Professor D.W.M. Waters says at p. 682:

Private trusts, that is inter vivos and testamentary trusts, seldom include an express power to remove a trustee.  For long the courts have been prepared under their inherent jurisdiction to remove a trustee as part of the process of administering the trust, and settlors are normally content to rely upon an appeal to the court should the need of removal arise. [6]

The inaction of one co- trustee in Levi-Bandel caused almost two years of delay in finalizing and distributing the estate property and there was support from the 12 residuary beneficiaries for the removal of the co-trustee.  Butler J. relied on Conroy v. Stokes, [1954] 4 D.L.R. 12 (B.C.C.A.) for the authority that the “main test for removal of a trustee is the welfare of the beneficiaries” [7]  and stated as his conclusion:

… where the administration of an estate has been brought to a standstill by the inability of the co-executrixes to care out their duties, it is imperative that the court act to resolve the stalemate for the benefit of the beneficiaries.  Given all of the circumstances in this case, the removal of Ms. McKeen as executrix and trustee is necessary and expedient to protect the interest of the beneficiaries. [8]

            3.         Registration under Land Title Act

The 2009 decision of the British Columbia Court of Appeal in Watters Estate v. British Columbia (New Westminster Land Title District, Registrar),[9] has implications for the practice of individuals holding fee simple land in bare trust, including Chiefs and Councillors holding non-reserve land in bare trust.

In Watters Estate, two separate appeals were heard together.  In both cases, the applicants had became legal owners of fee simple land as a result of transmission.  The land obtained by the applicants was subject to all of the same interests held by the deceased.  At the time of death, both deceased held land under bare trust agreements.  Neither trust agreement was registered in the Land Title Office.  The trust agreement specified the deceased was obligated to transfer the land at the request of the beneficiaries, and specified the deceased would not to deal with the property without the written direction of the beneficiaries.    

Section 260 of the Land Title Act requires a person who has obtained title to land by cause of transmission to register his or her interest in the land prior to dealing with that land.  Before the land title Registrar can register that interest, he must first satisfy himself that the applicant holds  good, safe-holding and marketable title (“GSHMT”).  Levine J.A. found that the applicants did not obtain GSHMT upon transmission: they did not have “safe-holding” because they were obligated to transfer title to the beneficiaries upon demand; and they did not have “marketable” title because they had agreed not to deal with the property without written direction from the beneficiaries and if a purchaser knew about the terms of the bare trust, he could not be forced to complete a transaction  without resolution of those trust requirements.

Because the applicants did not hold GSHMT, they were required to register the trust and their interest using section 180 of the Land Title Act.  Levine J.A. clearly acknowledges that the registration of trusts remains voluntary.  However, his comments suggest that applicants wishing to register any interest in the Land Title Office that requires the Registrar to establish GSHMT as a pre-condition, need to register the trust under section 180.  The sections listed by Levine J.A. as requiring GSHMT as a pre-condition are:  section 169 [registration of title for the first time], section 187 [registration of transfers] and section 197 [registration of charges].  Levine J.A. stated:

26        The respondents ask this question:  if a trustee’s legal title to property is not GSHMT, then how may a trustee ever register the legal title to trust property, as an endorsement on the title under s. 180 cannot establish GSHMT?

27        This question illustrates the confusion between a trustee’s legal title and GSHMT, which are different legal concepts having different legal meanings.

28        The answer to the question is that where, as in this case, the trustee applying for registration cannot establish GSHMT as is required for registration under any of ss. 169, 187, 197 and 260, the trustee may apply to register in accordance with the provisions of s. 180.  Section 180 does not require the Registrar to be satisfied that the application has GSHMT.  Registration of a trust under s. 180 is not mandatory – a personal representative, trustee, or beneficiary may choose not to register at all.  However, where an application is made for the registration of a trust interest, and the application cannot establish GSHMT, s. 180  provides the procedure for registration. [10]

Shortly after the Watters Estate decision, the BC Supreme Court mentions the same in Soo v. Law [11].  In Soo, the Court considered an application under the Land Title Act to cancel a certificate of pending litigation.  Bruce J. summarized a portion of the plaintiff’s argument whereby the plaintiff relied on the Watters Estate decision as follows:

36     Lastly, the plaintiff argues that even if the CPL is removed, the defendant will be unable to complete the sale to the third party. Where the legal owner of property holds part of the property in trust for another, the registrar under the Land Title Act has a duty to ensure all beneficial owners have agreed to the transfer: Watters Estate v. British Columbia (New Westminster Land Title District, Registrar), 2009 BCCA 192 at para. 21. Because the registrar cannot be satisfied the defendant has good, safe holding and marketable title to the property, the transfer will not be able to complete.

However, the annotation under section 180 of The Continuing Legal Education Society of British Columbia, Land Title Practice Manual [12] is more accurate than the plaintiff’s position in Soo.  The Land Title Practice Manual states:

Other Dispositions by Trustee May Require Consent of Beneficiaries

The following guidelines apply:

(1)        Trusts:  The consent of beneficiaries of a trust to the sale of property will be necessary only if the trust instrument expressly requires their consent.  Even if the trust instrument requires their consent, they do not all have to execute the transfer instrument, although all should provide their consent in writing.

This annotation is consistent with the actual provision of the Land Title Act, which states at section 180(7) [emphasis added]:

180(7)  If an endorsement has been made in the register under subsection (2) or (3), an instrument purporting to transfer, mortgage or otherwise deal with the land must not be registered unless

(a) expressly authorized by law or by the instrument creating or declaring the trust, or

(b) an order has been obtained from the Supreme Court construing the instrument as authorizing the transfer, mortgage or other dealing, or ordering and directing the transfer, mortgage or other dealing, and a certified copy of the order has been filed with the registrar.

B.        PARTNERSHIPS

First Nations commonly use limited partnerships, and sometimes limited liability partnerships, to conduct commercial activities.  The unique combination of liability protection and tax treatment of partners offered by these types of partnerships make these structures attractive to First Nations in the same way they attract other business owners.

            1.         Governance Issues

In Naramalta Development Corp. v. Therapy General Partner Ltd. [13] (“Naramalta 1”) the British Columbia Supreme Court considered a summary application regarding a struggle over the control of the Therapy Vineyards in the Okanagan Valley.  John McBean formed the Naramalta Estate Limited Partnership (the “LP”) in 2005 and over time, he successfully attracted or oversaw the solicitation of more than 120 limited partners.

Naramalta Development Corp. (“NDC”) was the general partner of the LP.  NDC was, in turn, majority owned by a company called Omnex International Corporation.  Mr. McBean’s family trust owned Omnex.  Mr. McBean was the sole director and officer of both NDC and Omnex, and thus the controlling mind of both companies.

In early 2008, some of the limited partners, lead for the most part by Mr. Connors, developed concern over the management abilities of NDC as general partner.  On May 23, 2008, the Connors group sent a circular and form of proxy out to the limited partners, notifying them of three resolutions to be considered at a partners’ meeting, which had already been scheduled for May 29, 2008.  Those resolutions were to amend the limited partnership agreement, remove NDC as the general partner, and appoint a new general partner.  On May 27, 2008, Mr. McBean emailed the partners, asserting that he had not received the circular directly and purporting to cancel the May 29 meeting.  The Connors group proceeded to contact as many limited partners as possible and informed them that they intended to proceed with the meeting in any event.

The meeting was held on May 29, 2008 and a quorum was declared.  Mr. McBean attended but did not indicate that he was waiving his right to notice.  The votes to amend the limited partnership agreement, remove NDC as general partner and appoint a new general partner were held and purportedly passed with the requisite approvals.

On June 12, 2008 a receiver was appointed.  The receiver called a meeting of the partners shortly thereafter and the May 29 resolutions were ratified by the partners on July 21, 2008.

Mr. McBean refused to accept the result and made a summary application for (among other things) a declaration as to who should be the general partner.  The Connors group applied for a declaration that the newly appointed general partner was the rightful general partner.

Under the terms of the limited partnership agreement, a minimum of 14 days notice was required for any partner meeting.  The agreement also specified a process for removal of the general partner.  The Court found that the Connors group had indeed, failed to follow the requisite steps and meet the requisite deadlines[14].

However, these mistakes were not fatal.  The Court considered various common law authorities in company law on the consequences of corporate mistakes and issued declarations that the resolutions passed at the May 29meeting were approved and effective, and that the resolutions were duly ratified at the subsequent meeting of July 21, 2008.  Rice J. stated:

100     The plaintiffs complain that the Partnership should not be permitted to ratify, and thereby legitimize, illegal resolutions. That is certainly true when the error is substantive and serious. However, in this case there is no complaint regarding the process vis-à-vis notice of the ratification meeting on July 21, 2008, of the information provided, and of the business to be considered at it (ie the resolutions voted on at the invalid May 29, 2008 meeting), and I find that the resolutions were duly ratified and took effect July, 21, 2008.

101     Mr. McBean attended both the meeting May 29, 2008 and July 21, 2008. He admits that he said nothing at either meeting to the effect that he waived the formalities. That, I am afraid is not very often the test applied. The authorities are fairly and consistently strict in requiring attendance at the meeting and some positive objection. Silence is interpreted to be acquiescence. There must be some positive act of protest to avoid waiver of the errors and illegality of the meeting.

102     I find that Mr. McBean by his conduct at the meetings in both May and July 2008 waived any invalidity of both the meeting of May 29 and the meeting of July 21, 2008. [15]

            2.         Fiduciary Duties and Trust Relationship of General Partners to Limited Partners.

Several months later the same parties completed the trial hearing in Naramalta Development Corp. v. Therapy General Partner Ltd. [16] (“Naramalta 2”).  Kelleher J. considered (among other things) the issue of whether NDC, as general partner, breached its fiduciary obligations to the limited partners by entering into a particular management fee agreement with Omnex.

The facts were as follows:

    • NDC agreed to pay Omnex management fees of up to $120,000 per year.
    • The management fee agreement was for both parties by Mr. McBean, then later amended in writing and again signed for both parties by Mr. McBean.
    • The general manager, an individual named Mr. Ansems, was paid only $80,000 per year for essentially the same duties as required under the management fee agreement.
    • Mr. McBean failed to disclose the management fee agreement to the limited partners until after the court action commenced.
    • The management fee payments were inconsistent with the financial statements provided to potential investors, which projected the general partner expenses to be $12,000 per year.
    • The LP partnership agreement specifically provided that the general partner would not qualify for profit participation until after each limited partner had received a 130% return on its investment.

Kelleher J. set out the law governing the fiduciary obligation of general partners to limited partners.  He relied, in part, on the Supreme Court of Canada finding in Molochan v. Omega Oil and Gas Ltd., as adopted by the BC Supreme Court in King v. On-Stream Natural Gas Management Inc.  Kelleher J. stated:

66        … It is clear from Molochan v. Omega Oil and Gas Ltd., [1998] 1 S.C.R. 348 that a general partner is a trustee and owes a fiduciary obligation to its limited partners (para. 34).

67        The reasoning in Molochan was applied by Mr. Justice Shaw of this court in King v. On-Stream Natural Gas Management Inc. [1993] B.C.J. No. 1302 (S.C.).  I adopt his conclusion from para. 28:

On reviewing the provisions in the Partnership Act relating to limited partnerships, I can find nothing which either expressly or by necessary implication says that a general partner in a limited partnership is under any lesser duty than a partner in an ordinary partnership with respect to partnership property. Considering the fact that a general partner in a limited partnership has the sole right to manage the business of the partnership and the limited partners are precluded from taking part in management, this, in my opinion, is a compelling reason why a general partner should be under at least the same duty as a partner in an ordinary partnership holding partnership property.

68     Shaw J. went on to elaborate on the nature of the fiduciary duty owed by a general partner (at para. 29, quoting from Molchan):

For these purposes I assume the highest status of the general partner, namely, that of a trustee holding the properties of the partnership on behalf of all other partners. [17]

Kelleher J. found that “the Management Fee Agreement is entirely inconsistent with NDC’s duty to the limited partners” [18] and found that the LP was entitled to reimbursement by NDC for the total amount paid out in management fees.

            3.         Nature of LLPs

The British Columbia Partnership Act was amended back in 2005 to allow for any person to form a limited liability partnership (“LLP”).  Even though the provisions have been in effect for some time, there have been few cases since then to consider the relevant statutory decisions.  The recent 2011 decision of the British Columbia Supreme Court in Fasken Martineau DuMoulin LLP v. British Columbia (Human Rights Tribunal) [19] is a decision addressing the application of human rights legislation to a law firm’s requirement for mandatory retirement.  However, in the course of the consideration, Bruce J. distinguishes the nature of an LLP from other forms of partnerships and makes the following statement in obiter, which is one of the first statements from the British Columbia judiciary on the nature of a limited liability partnership under the British Columbia Partnership Act:

60     Although somewhat less significant, it is also noteworthy that Fasken is a limited liability partnership. There are three types of partnerships defined by the Partnership Act. A general partnership preserves entirely the principle that there is no distinction between the firm and the individual partners regarding the debts and obligations of the partnership. By s. 11 of the Partnership Act, every partner in a firm is personally liable, jointly with all other partners, for the debts and obligations of the partnership that were incurred while they were partners. A limited partnership is one that permits some partners, who contribute capital to the firm, to have limited personal liability for the debts and obligations of the partnership: s. 57 of the Partnership Act. A limited liability partnership, as defined in Part 6 of the Act, significantly erodes the common law concept of partnership as merely a collective of partners without a separate identity. Pursuant to s. 104 of the Act, a partner is not personally liable for a partnership obligation merely because they are a partner in the firm, except if the obligation arises from the “partner’s own negligent or wrongful act or omission” or the negligent or wrongful act or omission of another partner if he either “knew of the act or omission” or “did not take the actions that a reasonable person would take to prevent it.” Section 105 of the Act treats the partners of a limited liability partnership in the same manner as directors of a corporation regarding partnership debts. In particular, partners are personally liable for a partnership obligation in the same manner as directors of a corporation would be in respect of a corporate debt.

61     In my view, these sections of the Partnership Act accord a special status to a limited liability partnership that is more reflective of a corporate entity than a partnership from the common law perspective. While our legislation does not expressly grant a limited liability partnership legal status as a separate entity from the partners, (as in the United Kingdom), its provisions significantly erode the common law principle that the rights and liabilities of the partnership are the rights and liabilities of the individual partners. This special status was recognized by our Court of Appeal in Asset Engineering LP v. Forest & Marine Financial Limited Partnership, 2009 BCCA 319. While the Court of Appeal held that a limited partnership has no separate identity from its partners, Newbury J.A. quotes with approval a passage from Lindley & Banks on Partnership, at para. 15 of the Court’s judgment:

Counsel for AE was not able to refer us to any authority for the proposition that a limited partnership is a legal entity, as opposed to “the relationship which subsists between persons carrying on business”, as stated at s. 2 of the Partnership Act. The authorities I have located clearly point away from the notion that a limited partnership is a legal entity. Halsbury’s Laws of England (4th ed., 1994), for example, states that “A limited partnership, like an ordinary partnership, is not a legal entity.” (Vol. 35, at 136). In R.C. Banks, Lindley & Banks on Partnership (18th ed., 2002), the author states that “A limited partnership is not a legal entity like a limited company or a limited liability partnership but a form of partnership with a number of special characteristics introduced by the Limited Partnerships Act, 1907.” (At 847.)

[Emphasis added.] [20]

C.        CORPORATIONS

            1.         Oppression remedy

Section 227 of the British Columbia Business Corporations Act sets out the oppression remedy. Subsection 227(2)(a) states in part:

(2) A shareholder may apply to the court for an order under this section on the ground

(a) that the affairs of the company are being or have been conducted, or that the powers of the directors are being or have been exercised, in a manner oppressive to one or more of the shareholders, including the applicant…

The British Columbia Court of Appeal considered the oppression remedy in the 2010 decision of Stahlke v. Stanfield. [21]  There, the articles of two BC corporations expressly prohibited non-voting shareholders from receiving notice of, attending or voting at shareholders’ meetings.  At trial the petitioning shareholders sought to establish that the corporate governance and directors’ conduct was such that it gave rise to an oppression remedy.  Specifically, the petitioners submitted that the directors failure to meet in formal meetings, keep proper minutes and, in effect, properly manage the corporation, was oppressive.  In addition, they asserted that the failure of the directors to respond directly to the shareholders’ concerns was also oppressive.  The director had refused to meet with the petitioning shareholders and, instead, had responded to their particular concerns by way of a letter to all shareholders.

At trial Leask J. relied on the test for oppression outlined in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, a case considering a similar statutory oppression remedy under the Canada Business Corporations Act.  That test in BCE Inc. was:  (1) Does the evidence support the reasonable expectation asserted by the claimant? and (2) Does the evidence establish that such reasonable expectation was violated by conduct falling within the terms “oppression” or “unfair prejudice” of a relevant interest? [22]  Leask J. considered section 140 of the Business Corporations Act, which expressly permits directors to pass resolutions without a formal meeting, and accepted the respondents evidence that the refusal to meet and the reply to all shareholders was reasonable in the circumstances where the director felt the petitioners sought to usurp control from him.  Leask J. found that the applicants had failed to establish any oppressive or unfair act or omission by the directors based on the corporate governance allegations.

The Court of Appeal upheld the trial finding and, with express reference to the fact that the Articles of the company expressly excluded the shareholders from attending a shareholders’ meeting, stated:

43     The appellants also contest the judge’s findings that the model of corporate governance adopted by the boards of directors was not so lacking as to thwart their reasonable expectations and amount to oppression, and they complain of Mr. Stanfield’s lack of response, as they characterize it, to their letters of concern. They say they were entitled to more, and to more accurate information from him.

44     Again some of the appellants’ difficulty on this submission is the nature of the participation in the company for which they contracted. The Articles of the company permit the form of directors’ actions of which they complain, and expressly exclude the appellants from the right to attend a shareholders’ meeting. Further, as the judge observed, the complaint of the appellants is not as to a particular decision, but generally as to the lack of accurate information provided to them and, as I understand their submissions, the exaggerated and hyper-optimistic statements made from time to time to them by Mr. Stanfield.

45     I see no basis on which to interfere with the judge’s conclusions on the question of the model of corporate governance adopted. Nor do I see a basis on which to interfere with the judge’s conclusion that in the circumstances understood by Mr. Stanfield, his response to the appellant’s requests for information, which was to reply to all shareholders, was reasonable. Again, there was a body of evidence supporting the petitioners on this case, but the judge weighed that evidence and accepted the respondents’ version, which he was entitled to do. [23]

            2.         Piercing the Corporate Veil

                        (a)        Cardinal v. Tribal Chief’s Ventures Inc.

In Cardinal v. Tribal Chief’s Ventures Inc. [24] the Alberta Court of Queen’s Bench considered an appeal of a summary judgement dismissing the claim of Maisie Cardinal against Tribal Chief’s Ventures Inc.  Ms. Cardinal argued that the Court should pierce the corporate veil of a First Nation education foundation that received funding from its tribal council, and find that the tribal council was properly a co-defendant in an action for wrongful dismissal.

Tribal Chiefs Education Foundation (the “Education Foundation”) was incorporated as a federal corporation and Ms. Cardinal was an employee.  The tribal council was also incorporated as a separate federal corporation under the name Tribal Chiefs Ventures Inc.  The tribal council was incorporated in order to receive funding from Indian and Northern Affairs Canada, and it distributed some of that funding to the Education Foundation.

Ms. Cardinal argued that the controlling mind of Tribal Chiefs Ventures Inc. was the same controlling mind of Education Foundation, and that the Education Foundation was a “mere puppet” of the tribal council.  Lee J. considered the fact that the only connection between the tribal council and the Education Foundation was a relationship of funding and applied the general rule that a corporation is a distinct legal entity and that only in rare circumstances should the corporate veil be lifted.  Lee J. stated:

34        The distinct legal personality of a corporation is a fundamental principle of our legal system, absent evidence that the incorporated entity is a mere shell, a sham, a puppet, or created for fraudulent or improper purposes.  Lifting the corporate veil is a concept reserved to situations where the result would otherwise be “too flagrantly opposed to justice, convenience or the interests of the Revenue”:  Kosmopoulos v. Constitution Ins. Co Of Canada, [1987] 1 S.C.R. 2 at paragraph 12.  These  basic legal principles apply equally in employment cases.

35        The evidence in this case is that the Foundation is a separately incorporated entity with a separate board of directors, separate employees, separate contracts, and separate banking arrangements. The only connection between Tribal Chief’s Ventures Inc. and the Foundation is that one provides funding to the other. If that were sufficient to justify lifting the corporate veil the concept would cease to have any meaningful relevance. Every foundation or society that accepts government or other funds for its operations would thereby become a “puppet” of the funder and would lose its status as a distinct legal personality. [25]

The Court upheld the Master’s decision, found that the only proper defendant was the Education Foundation and dismissed the claim against the tribal council.

                        (b)        Naramalta 2

In Naramalta 2 (previously discussed above) the BC Supreme Court also refused to pierce the corporate veil.  The defendants counterclaimed and argued that Mr. McBean should be found personally liable for several of the claims against Omnex.  Kelleher J. considered a decision of the British Columbia Court of Appeal that focused on the need for a finding of fraud or improper conduct in order to pierce the corporate veil, as well as a previous decision of the BC Supreme Court that involved circumstances where the corporation was created for the purpose of shielding directors from liability.  Kelleher J. found that neither circumstances were present in the facts at bar and stated:

111     Therapy relies on the British Columbia Court of Appeal’s decision in B.G. Preeco 1 (Pacific Coast) Ltd. v. Bon Street Holdings Ltd. (1989), 37 B.C.L.R. (2d) 258 (C.A.). In that case, Mr. Justice Seaton, speaking for a unanimous court, stated, at p. 268:

The cases in which the corporate veil is pierced on the ground of “fraud or improper conduct” deal with instances where a corporation is used to effect a purpose or commit an act which the shareholder could not effect or commit.

113      As the B.C. Court of Appeal points out in Preeco, lifting or piercing the corporate veil is not permitted simply to achieve fairness (at p. 266). The conduct must fit specifically within the criteria to permit the court to look behind a corporate form.

114     The defendants do not allege fraud. Moreover, this is not “improper conduct” by Mr. McBean within the meaning of the cases. This is not, for example, a case where Mr. McBean is under a personal duty or obligation which he sought to avoid through the use of a corporation. The limited partners all entered into contracts with the general partner, NDC.

115     This is not a case where a corporation was created for the purpose of shielding the directors from personal liability. The circumstances here are unlike those in Tracy (Representative ad litem of) v. Instaloans Financial Solution Centres (B.C.) Ltd., 2008 BCSC 669, cited by Therapy. There is no evidence that Omnex was created for the purpose of allowing Mr. McBean to receive the proceeds from breaches of trust. Omnex existed before the Limited Partnership was created.

116     For these reasons, I conclude this is not a case for piercing the corporate veil.

ii.       Statutory developments

A.        CANADA NOT-FOR-PROFIT CORPORATIONS ACT

On October 17, 2011, the Canada Not-For-Profit Corporations Act (the “NFP Act”) came into force. The NFP Act replaces Part II of the Canada Corporations Act (“CCA”) for the incorporation of associations, charities and any other federal not-for-profit corporations.  The NFP Act is the first substantive change to Canada’s not-for-profit legislation since 1917.  The goals of the NFP Act have been described as the promotion of accountability, transparency and modern corporate governance for the not-for-profit sector. Many of its provisions have been modelled on the Canada Business Corporations Act.

The NFP Act is comprehensive legislation containing detailed provisions governing federal not-for-profits and is a significant change to the minimal provisions of Part II of the CCA.  The NFP Act has close to 300 provisions and is highly prescriptive.   This paper only seeks to highlight what we consider three of the main areas of change that may be of interest to First Nations considering incorporating a federal not-for profit corporation.  First Nations currently using a federal not-for-profit incorporated under Part II of the CCA should also be aware that they must transition to the NFP Act by October 14, 2014.

1.         Financial Reporting

The NFP Act sets out comprehensive financial reporting requirements based on a corporation’s category as a “soliciting” or “non-soliciting” corporation and the corporation’s gross annual revenue. A soliciting corporation is defined as a corporation that receives $10,000 per year or more in donations from the public, donations from another soliciting corporation, or government grants. A soliciting corporation with revenues over $50,000 must have audited financial statements.  In addition, all soliciting corporations are required to file their financial statements with Corporations Canada.

All corporations are required to send a copy of required financial information to members in advance of annual members meetings unless the by-laws of the corporation allow the corporation to give notice to the members that the financial information is available for viewing at its registered office in advance of the meeting.

2.         Members’ Rights

The NFP Act provides members with enhanced rights.  A member has the right to submit notice of any matter (subject to some exceptions) the member proposes to raise at an annual meeting and the corporation must include the member’s proposal in the notice of meeting sent to members.  In addition, members who hold at least 5% of the voting rights may require the directors to call a meeting of members.  The NFP Act also provides for an oppression remedy and a derivative action that mirror provisions in the Canada Business Corporations Act.

3.         Members’ Meetings

The NFP Act provides flexibility for members’ meetings.  Meetings of members may be held by telephone or electronic means and written resolutions in lieu of meetings are permitted. In addition, a corporation’s bylaws may provide that members may vote at a meeting by proxy, mailed-in ballots, or telephonic, electronic or other communication facility.

The NFP Act may provide a model for amendments to British Columbia’s Society Act. British Columbia launched a review of the Society Act (BC) in 2009 to modernize and update the statute.  The British Columbia Ministry of Finance is currently seeking comments by April 30, 2012 regarding its proposal to amend the Society Act.

iii.       Conclusion

Lawyers acting for First Nations in their business activities should be aware of current corporate caselaw and legislative developments.  The above summarizes the recent developments over the past approximately two year period that we found most relevant to First Nations businesses in British Columbia.  We hope this paper will be of assistance to both legal practitioners and their clients as they continue to work together creating business structures for First Nations.

[1]  2009 BCSC 554.

[2] Trustee Act, R.S.B.C. 1996, c. 464.

[3] Wilson v. Heathcote at para. 75.

[4] Supra at para. 87.

[5] Levi-Bandel v. Hunter Talesiesin Estate 2011 BCSC 247.

[6] Supra at para. 15.

[7] Supra at para. 19.

[8] Supra at para. 29.

[9] 2009 BCCA 192.

[10] Watters Estate at paras. 26-28.

[11] 2009 BCSC 1041.

[12] Wendi J. Mackay et al., Land Title Practice Manual, looseleaf (consulted on March 3, 3012), 3rd ed (British Columbia : CLEBC, 2007), vol. 1 at para. 11.92.

[13] 2010 BCSC 590.

[14] Naramalta 1 at para 94.

[15] Naramalta 1 at paras. 100-102.

[16] 2012 BCSC 191.

[17] Naramalta 2 at paras. 66-68.

[18] Supra at para. 70.

[19] 2011 BCSC 713.

[20] Supra at paras. 60 and 61.

[21] 2010 BCCA 603.

[22] 2008 SCC 69 at paragraphs 68, 72, 89 95.

[23] Stahlke v. Stanfield at paras. 43-45.

[24] 2010 ABQB 25. 

[25]Supra at paras. 34 and 35.