Why It Matters That The Supreme Court Decision Reinforced The Existence Of Hidden Contracts In Charity/Nonprofit Governance

• Published date: 08 July 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Charities & Non-Profits , Corporate and Company Law, Corporate Governance, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Miller Thomson LLP
• Author: Mr David Tang

Covenants, which lawyers call contracts, lie at the heart of many of the world's religions. If we reflect on the Kendrick brothers' film, Courageous, contemporary North American culture is similarly attracted to the use of resolutions or covenants between not only God and the individual but between co-religionists.

What, then, has the Supreme Court of Canada recently said about the role of contracts in voluntary organizations, particularly religious ones?

Background and Facts

As we summarized previously, the Supreme Court had already considered in 2018 the possibility that if the relationship between a congregation member and a religious organization could be properly characterized as contractual, the courts would adjudicate disputes between them, even if the question involved religious matters.

The May 21, 2021, Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga (2021 SCC 22) ("Aga") decision rendered by the Supreme Court considered the assertion made by five former members of the congregation of the Ethiopian Orthodox Tewahedo Church of Canada, St. Mary Cathedral (the "Church") that there was a contract between them and the Church. They complained that the contract was breached due to the manner in which they were expelled from the congregation. Right at the heart of the dispute was theology, because they were expelled for investigating and making recommendations in support of an allegedly heretical movement within the Church and subsequently challenging the Archbishop's ruling that the movement was indeed heretical.

Perhaps the most compelling aspect of this assertion was the fact that the applicants' initial applications for membership in the congregation included a pledge to make monthly financial contributions to the Church, which they were able to show they had performed. These payments were said to be "consideration" (the concept of one party giving the other party something of value in exchange for contractual promises), one of the key ingredients in a contractual relationship.

The motions judge found there was no contract, but on appeal, as summarized previously, the Ontario Court of Appeal held that contractual relationships had been established based upon the Church's constitution and the by-laws taken together with the honored pledges of financial contribution. The Court of Appeal held that these documents formed the legal basis for the Church's obligation to follow certain procedural requirements. This was appealed by...