By: Victoria Prince
As COVID-19 has swept across Canada and shutdown countless sectors of the economy, member associations have had a wide range of issues to consider. First and foremost, of course, is the health of employees and members. That concern, coupled with the emergency measures put in place around public gatherings, has caused many associations to rethink how to hold their annual meetings. Member meetings, for example, are often connected to a larger in person event at a third party venue.
This article will address how to deal with contracts, like those with third party vendors, that no longer work during the pandemic and how to deal with holding director and member meetings when they cannot be in person.
Contracts: Suspension, Frustration, Amendment or Termination
As a result of COVID-19, many associations were left with third party venue contracts for events that would involve many attendees and the realization that those events could no longer go ahead (and the venues themselves faced many challenges of their own). Other contracts may also have been affected, more generally.
At common law, contracting parties are required to perform their obligations, unless the situation falls under a few narrow exceptions. One of those exceptions is if the contract has an express force majeure provision, which delays or excuses performance of specific obligations in certain circumstances. For many associations, the question of whether a force majeure clause in a relevant contract covers pandemics is an open question. To rely on a force majeure clause in light of COVID-19, the pandemic must constitute a force majeure event (as defined under the contract), that is unanticipated and unforeseeable, and makes performance of certain contractual obligations impossible.
Occasionally the force majeure clause may not have been drafted in a way that captures the pandemic or there may not be a force majeure clause at all. In that case, associations may be able to seek relief from contractual performance under the doctrine of frustration. The test for frustration requires a supervening event for which the parties made no provision in the contract, which renders performance of the contract radically different from that which was undertaken. If a contract is shown to be frustrated (i.e. performance of the contract is impossible), the contract is at an end and both parties are discharged from further performance. In Ontario, the Frustrated Contracts Act will apply if a contract is found to be frustrated.
Associations should also consider the termination and amendment provisions in their relevant contracts to assess whether any contractual relationships should be ended or revised to reflect new business realities under COVID-19.
Keep in mind that new contracts will now often need to be entered into using electronic signatures since signatories will be off-site and physically distancing. Associations should determine which documents can be executed digitally and which must still contain physical signatures. Very few documents in Ontario require “wet” signatures, but it is best to check, and the specific document you are dealing with may have requirements as well.
In person meetings may be impossible, impracticable or against health protocols at this time. Instead, associations should consider virtual board meetings (if they have not already). Temporary emergency legislation in Ontario allows board meetings to be held by telephone, electronic, or other communication methods if all persons participating in the meeting can communicate with each other simultaneously and instantaneously, and this emergency legislation overrides any provision in the letters patent or by-laws to the contrary. Therefore, Ontario-incorporated associations do not need to amend their by-laws in order to hold virtual meetings. Federal associations may also hold meetings by electronic means, subject to the by-laws and with the consent of all directors.
There are also ways to conduct board business without holding meetings at all. Instead of passing resolutions at board meetings, written resolutions may be used as long as all of the directors sign them. The board may also delegate authority to a smaller committee of directors known as an executive committee, which can conduct business more efficiently than a larger board. During the pandemic, it is important for directors to ensure they have correctly determined when a board decision is required and conducted appropriate due diligence before coming to a decision.
Directors must also plan the annual meeting of members (“AGM”). Until larger gatherings of individuals are permitted, the options to hold an AGM are by telephone (or virtually) or by resolutions in writing (if the membership is small enough to make this practical).
Similar to the rules for board meetings, Ontario emergency legislation allows member meetings to be held by telephone or virtually despite any provisions in the association’s governing documents, while the by-laws of federal associations must permit an AGM to be held by telephonic or virtual means. Therefore, a federally-incorporated association may need to revise their by-laws before holding a telephone or virtual AGM.
Another option is to postpone the association’s AGM. For Ontario-incorporated associations, the AGM can be delayed for up to 90 days or potentially 120 days after the last day of the declared emergency in Ontario, and the requirement in the Corporations Act (Ontario) that financial statements for the fiscal period ended no more than 6 months before the annual meeting be laid before the members at such meeting has been delayed as well. Federally, associations can apply to Corporations Canada to extend the time for calling their AGM, although the application must be submitted at least 30 business days before sending the notice calling the meeting. It is also worth noting that the incumbent directors will remain in office during the extended time period until the AGM occurs.
In sum, there are options to address contracts and meetings that have been affected by COVID-19. One of the results of COVID-19 is that it has hastened the pace of electronic and virtual change, and this could have a silver lining. Entering into contracts remotely and meeting virtually may ultimately broaden the reach of member associations and lead to new opportunities.
Katherine Carre, Benjamin Fenech and Victoria Prince are lawyers at Borden Ladner Gervais LLP, and are members of the firm’s Charities and Not-for-Profit Law Group. They were pleased to be able to assist many not-for-profit organizations deal with the challenges they are facing at this time. You can reach them at [email protected], [email protected] or [email protected]. BLG has a series of resources on the COVID-19 crisis that can be found at https://www.blg.com/en/insights/covid-19.