Executive Summary: Key Legal and Evidentiary Issues

• Considered whether Liao’s use of Hakka funds to pay legal fees during the 2020 election challenge constituted a breach of fiduciary duty.

• Determined if the Freedom to Care Act insulated Liao from liability for her actions as president.

• Assessed whether the termination of Liao’s and her husband’s memberships complied with fair process requirements.

• Evaluated Liao’s entitlement to damages for mental anguish and suffering following her expulsion.

• Addressed whether Hakka’s claim for damages was an abuse of process or had already been decided.

• Decided on the appropriate remedies, including damages, reinstatement, and cost awards.

Background and facts of the case

This case concerns internal disputes within the Hakka Tsung Tsin Association of Edmonton, a voluntary association registered under the Societies Act, RSA 2000, c S-14. Liao Demei served as president from 2018 to 2020. At the end of her term, Liao conducted an election in 2020, in which she was again elected president. Several members believed the 2020 election was not conducted in accordance with the association’s bylaws, which required the election of the Executive and Supervisory Boards, who would then select the president. Legal counsel advised that a new election should be conducted, but Liao did not do so.

Members Tham Fatt (“Hon”) and Hung Phuc Hon Ly (“Ly”) filed an Originating Application challenging the validity of the 2020 election and seeking to prevent the use of Hakka’s funds for legal fees incurred in the challenge or, alternatively, an order that Liao indemnify Hakka for any amounts expended. Liao retained Queck & Associates to defend both herself and Hakka, and between March 2021 and January 13, 2022, Queck billed $17,585.48, which was paid from Hakka’s funds.

The court in Hon v Liao, 2022 ABQB 43, found the 2020 election invalid because it was a direct election of the president rather than an election of the boards, as required by the bylaws. Liao was prohibited from holding herself out as president, and a new election was ordered. In March 2022, a new election was held, and Hon was elected president.

Hakka subsequently filed a Statement of Claim alleging, among other things, that Liao removed and retained Hakka property and made inappropriate payments as president. On April 2, 2022, the Executive Board voted to revoke the memberships of Liao and her husband, but no notice was provided to Liao in advance, and she was not given an opportunity to be heard. A letter was sent to Liao on June 6, 2022, informing her that her membership had been revoked. There was no evidence her husband’s membership was revoked.

Policy terms and relevant clauses

The association’s bylaws required that a member who violates any bylaws and damages the association’s reputation may have their membership revoked by majority vote at an Executive Board meeting. The bylaws also required that members pay dues as determined by the boards. Section 17(2) of the Societies Act provides that the funds and property of the society shall be used for its legitimate objects and in accordance with its bylaws. Section 21 of the Societies Act states that no member is liable for a debt or liability of the society in their individual capacity. The Freedom to Care Act, SA 2021, c F-25.4, was also considered, particularly section 3, which limits liability for volunteers except in cases of wilful, reckless, or grossly negligent conduct.

Legal issues and court’s analysis

The court first addressed whether the issue of Liao’s obligation with respect to the Queck legal fees had already been decided. It found that liability to indemnify Hakka for the legal fees paid to Queck was specifically not addressed in the 2020 election challenge and remained a live issue. Hakka’s claim in this action was for damages for breach of Liao’s common law duty of care and fiduciary duty as president in an amount equal to the legal fees paid.

On the question of breach of duty, the court found that Liao breached her duty of loyalty to Hakka by retaining Queck to defend both herself and Hakka in the 2020 election challenge, as there was a conflict of interest between her interests and those of the association. The court was not satisfied that Liao was authorized to retain Queck as she did, and there was no evidence the issue was raised or addressed by either board. However, the court found that Hakka did have some interest in resolving the 2020 election challenge and was not prepared to award damages equal to the full amount of legal fees. Instead, the court awarded $10,000 in damages to Hakka for Liao’s breach of fiduciary duty.

Regarding the Freedom to Care Act, the court concluded that Liao’s actions were not insulated from liability because she was not acting within the scope of her responsibilities as president when she breached her duty of loyalty. Even if she was, her actions were either deliberately done in the face of a conflict of interest or reckless, which would remove the statutory protection.

On the issue of membership termination, the court found that Hakka did not follow fair procedure in terminating Liao’s membership, as she was not given notice or an opportunity to be heard. The court set aside the termination and ordered that Liao be reinstated as a member upon payment of the required membership fees. No finding was made regarding her husband’s membership, as he was not a plaintiff by counterclaim.

Liao’s claim for reimbursement of $3,500 in costs enforced against her after the election challenge was dismissed, as was her claim for $15,000 in general damages for mental anguish and suffering. The court was not convinced that the termination of her membership caused her mental anguish, given the public nature of the election dispute and her actions in the 2020 election.

Outcome

Hakka was awarded $10,000 in damages for Liao’s breach of fiduciary duty as president. The termination of Liao’s Hakka membership was set aside, and she was ordered to be reinstated as a member upon payment of required dues. No order was made with respect to her husband’s membership. Liao’s applications for reimbursement of $3,500 in costs and for damages for mental anguish and suffering were dismissed. Each party was ordered to bear their own costs. The amount awarded in favor of Hakka was $10,000.