by admin | Aug 31, 2017 | Charity & Not-for-Profit Law
On July 10, 2017, the Office of the Public Guardian and Trustee of Ontario (“PGT”) posted Proposal Number 17-MAG008 (the “Draft Amendments”), which contains draft amendments to Ontario Regulation 4/01 under the Charities Accounting Act (“CAA”). The Draft Amendments were open to public comment until August 29, 2017. The Draft Amendments propose to amend Ontario Regulation 4/01 to provide relief from the common law rule prohibiting the remuneration of directors of charitable corporations and persons related to them by outlining certain circumstances where charitable corporations would be authorized to pay directors and related persons for goods, services, or facilities. Previously, Ontario Regulation 4/01 did not address director remuneration. The Draft Amendments would not apply to directors of unincorporated associations or trustees of charitable trusts.
Currently, in order for directors of charitable corporations to receive remuneration in a capacity other than as a director, charitable corporations and their directors must obtain a consent order from the PGT under section 13 of the CAA. This process can be time intensive and generally requires the assistance of legal counsel. The Draft Amendments would simplify this process by dispensing with the need for a consent order in prescribed circumstances for charitable corporations. Under the Draft Amendments, directors would continue to be prohibited from receiving direct or indirect payment for services they provided in their capacity as directors or employees of the charitable corporation, for fundraising services, for selling goods or services for fundraising, or in connection to the purchase or sale of real property.
Before payments can be made to a corporate director or a related person, the charitable corporation would first need to meet a number of conditions set out in the Draft Amendments. For example, the amount paid must be reasonable considering the goods or services received; the amount must be paid with a view to the best interests of the charity; and the board must have (a) at least five voting directors for every director who is either receiving payment or connected to a person receiving payment, or (b) a minimum of four voting directors excluding such director.
The Draft Amendments, if enacted into law will ease the process for incorporated charities that want to rely upon their board members who can provide services in another capacity without the need for a consent order. As such, incorporated charities should continue to follow developments with respect to the Draft Amendments should they wish to be able to remunerate their directors in another capacity.
by admin | Aug 31, 2017 | Charity & Not-for-Profit Law
On June 9, 2017, The Ministry of National Revenue announced changes to the CRA Voluntary Disclosures Program (“VDP”) by publishing two documents outlining the proposed changes as of January 1, 2018, Draft Information Circular – IC00-1R6 – Voluntary Disclosures Program and Draft GST/HST Memorandum 16.5 – Voluntary Disclosures Program (collectively, the “Proposals”). The general purpose of the VDP is to provide taxpayers with an opportunity to voluntarily come forward and correct previous omissions in their dealings with the CRA in order to avoid penalties and prosecutions. The Proposals outline extensive proposed changes to the VDP aimed at preventing abuse of the system by sophisticated taxpayers, including those with offshore accounts in order to avoid detection by the CRA. The Proposals were open for public consultation for a period of 60 days from June 9, 2017 until August 8, 2017. While the VDP has application to non-profit organizations (“NPOs”), it only applies to registered charities in the limited context of employee source deductions and HST. As such the specifics of the Proposals will be of limited interest to registered charities.
In lieu of the VDP applying to registered charities other than in the above mentioned limited context, the CRA does provide for a process for charities that have been involved in matters of non-compliance to bring themselves back into compliance. This process is set out on the CRA webpage entitled, “Bringing Charities Back into Compliance” (the “CRA Guide”). The CRA Guide encourages registered charities that have been involved in unintentional or accidental matters of non-compliance to contact the Charities Directorate in writing, either on a general or no-name basis, or by telephone to correct errors made in the past. After contacting the CRA, charities may be required by CRA to correct the effects of past non-compliance, enter into a compliance agreement, or present a plan to demonstrate what action has been taken or what measures will be put into place to prevent future non-compliance. There is nothing, though, in the CRA Guide that promises a particular outcome as there is with the VDP.
Given the limited scope of the CRA Guide to assist charities wanting to come back into compliance compared to the VDP available for for-profits and NPOs (even with the changes outlined in the Proposals), it would be helpful to the charitable sector if the CRA Charities Directorate was to develop a practical voluntary disclosure program for registered charities similar in scope to the VDP. In this regard, in a letter addressed to the Charities Directorate dated August 8, 2017, the Charities and Not-for-Profit Law Section of the Canadian Bar Association recommended the development of a guidance dealing with voluntary disclosures by registered charities and that such guidance be addressed by the Charities Directorate of the CRA, as opposed to the Tax Services Offices under the VDP.
Until such guidance is available, charities that discover they are non-compliant should first seek advice from legal counsel under the protection of solicitor-client privilege with respect to the current CRA Guide to determine if and how best to make a disclosure to CRA, and what steps may be necessary to bring the charity back into compliance.
by admin | Aug 31, 2017 | Charity & Not-for-Profit Law
On June 12, 2017, the Canadian Radio-television and Telecommunications Commission (“CRTC”) issued an undertaking to a Mr. Halazon in his individual capacity under section 21 of Canada’s Anti-spam Legislation (“CASL”) as the former CEO of various bankrupted corporations.
The undertaking included a monetary payment of $10,000 by Mr. Halazon in his personal capacity under section 31 of CASL which imposes liability on officers and directors of corporations that “directed, authorized, assented to, acquiesced in or participated in the commission of the violation”, as it was alleged that he was personally liable for violations under CASL. Specifically, the CRTC alleged that the bankrupted corporations sent commercial electronic messages with a non-functioning unsubscribe mechanism, or unsubscribe requests were not met within the statutory timeframe under CASL.
The undertaking also included a requirement that Transformational Capital Corp. and its subsidiaries, which were also represented by Mr. Halazon, enter into a compliance program.
It is interesting to note that the undertaking resolves alleged liability for CEMs “from 2 July 2014 up to the date of undertaking”. That is, the undertaking included alleged non-compliance with CASL from the day after the coming into force of CASL. While no registered charities or not-for-profits, or their directors, have been publicly issued undertakings or been issued notices of violations under CASL, the imposition of personal liability under CASL is an important reminder that CASL includes personal liability for directors and officers. As such, registered charities and other not-for-profits, along with their boards, that may be sending commercial electronic messages should ensure they are familiar with the requirements of CASL in order to avoid exposure to possibility of personal liability.
by admin | Aug 31, 2017 | Intellectual Property Law
On June 28, 2017, the Supreme Court of Canada upheld a British Columbia court decision that ordered Google to remove website search results from its global search index. The case began when Equustek accused Datalink Technology Gateways (“Datalink”) of allegedly infringing Equustek’s trademarks and trade secrets to create similar competing products. Equustek obtained a number of court orders prohibiting Datalink from carrying on business. Datalink contravened the court orders and then fled the province, but continued business outside of Canada. Equustek, unable to enforce the court orders, requested that Google assist by blocking the websites that included the infringing intellectual property. Google agreed to do so, but only with respect to the Canadian version of the search engine. As a result, if an individual was searching on google.com, websites with Datalink’s products would still appear in the search results, but not if they were searching from google.ca. As such, Equustek requested that the court order Google to de-index the websites globally as opposed to only on the google.ca search engine.
At the Supreme Court of B.C. Equustek was awarded a broader interlocutory injunction restraining Google from including the infringing websites in search results worldwide. The B.C. Court of Appeal upheld the decision.
At the Supreme Court of Canada, the lower courts’ decisions were upheld along with the worldwide injunction restraining Google from displaying search results which included Datalink’s websites.
In its decision, the Supreme Court of Canada stated “the problem, in this case, is occurring online and globally. The internet has no borders; its natural habitat is global. The only way to ensure the interlocutory injunction [order] attained its objective was to have it apply where Google operates – globally”.
This decision provides charities and not-for-profits that own intellectual property with new tools to enforce their rights when infringers are transcending borders. Canadian intellectual property owners may now prevent a defendant located outside of Canada from offering infringing products and services online by applying for an order from the court requesting that search engines such as Google stop indexing the infringer’s websites in search results. This is a welcome decision for the charity and not-for-profit sector as it provides intellectual property owners who rely on the internet as their primary market with effective strategies for enforcing their rights.
by admin | Aug 31, 2017 | Charity & Not-for-Profit Law
On May 30, 2017, the Ontario Superior Court of Justice delivered its decision in Cricket Canada v Bilal Syed, whereby it partially allowed an application by Cricket Canada, a national sports organization incorporated under the CNCA, to set aside in part an arbitral award (the “Award”) that had ordered Cricket Canada to include specific provisions in its by-laws in order to implement the arbitrator’s decision.
The Award concerned a claim by a candidate for Cricket Canada’s board of directors who, after an unsuccessful bid for directorship, challenged the organization in arbitration before the Sport Dispute Resolution Centre of Canada (the “SDRCC”). Among other things, the claimant argued the election had not been carried out in accordance with Cricket Canada’s by-laws, and that the process had been compromised by discrimination and a lack of neutrality.
At the end of the proceeding, the arbitrator found no discrimination. However, he did find some “improprieties” in the election process. Specifically, the Award ordered Cricket Canada to amend its by-laws to include the following: i) that any person involved in selecting the members of the Nomination Committee be prohibited from running in the election; ii) that candidates who, as members of the board of a provincial sports organization, had voting rights to elect the board of Cricket Canada, must resign their position before the election; and iii) to prohibit the exchange of benefits for votes.
Cricket Canada brought an application before the Ontario Superior Court of Justice (“Court”) to challenge the portion of the Award instructing it to amend its by-laws. It alleged that, even though there was no formal arbitration agreement as required by Cricket Canada’s dispute resolution policy, the extent of the jurisdiction granted to the arbitrator was reflected in the provisions of the SDRCC Code, as well as in the party submissions in the arbitration. The Court agreed these documents did not grant the arbitrator the jurisdiction to order a change in the by-laws and policies of Cricket Canada because these were not part of the dispute. In the words of the Court: “[w]hile the Arbitrator could consider the by-laws as they affected [the claimant’s] candidacy, he had no jurisdiction to tell Cricket Canada that they should be changed.”
In the view of the Court, the aspects of the Award challenged by Cricket Canada were each a “core issue of internal governance” and outside the scope of authority of the arbitrator, who had been called to determine the procedural fairness of the election process and not the rules that governed that process, provided such rules were in compliance with the CNCA. Following previous decisions suggesting that, absent gross irregularities in the electoral process, a decision maker should not readily interfere with the internal governance of a corporation, the Court asserted that “[n]on-profit organizations […] should not be required to adhere rigorously to all of the technical requirements of corporate procedure for their meetings as long as the basic process is fair.” Finally, the Court concluded that introducing changes to Cricket Canada’s by-laws, policies and procedures was a matter for the members to decide after their own negotiations and consultations, and could not be imposed unilaterally by the arbitrator.
by admin | Aug 31, 2017 | Charity & Not-for-Profit Law
On July 5, 2017, in Polish Alliance Association of Toronto Limited v. The Polish Alliance of Canada, the Court of Appeal for Ontario (“the Court of Appeal”) dismissed an appeal by The Polish Alliance of Canada (“National”) and upheld the 2016 decision of the Superior Court of Justice in Polish Association of Toronto Limited v The Polish Alliance of Canada (“2016 Case”), which was previously reported on in our June 2017 Charity & NFP Law Update. In its decision, the Court of Appeal confirmed that all the members of Branch 1-7 (“Branch”) an unincorporated branch of the National, were entitled to leave the National and take with them the property used by the Branch, which was held in trust for the members of the Branch by a separate corporation, the Polish Association of Toronto Limited. In this regard, the Court of Appeal upheld the application of the common law rule known as the “clubman’s veto”, which, as explained by the Court in the 2016 Case “[…] provides that with the approval of 100% of the members of an unincorporated association, the members can leave the association and take the property of the association with them.”
On appeal, the National had argued that the trial court in the 2016 Case had erred in applying the clubman’s veto because the National was incorporated under the Ontario Corporations Act and therefore the clubman’s veto (which applies to unincorporated associations) does not apply.
In its reasons, the Court of Appeal stated that while the National is a corporation, the Branch is an unincorporated voluntary association which does not have any “statute that governs how the contractual relationship of all of the members of Branch 1-7 with each other is to be terminated.” In upholding the trial court decision, the Court of Appeal noted the following comments from the 2016 Case:
While the clubman’s veto, like any common law principle, can be displaced by a clear statute as was found to be the case of political parties in Ahenakew, there is nothing in the Corporations Act or any regulatory scheme that regulate this situation…Nothing in the Corporations Act deals with the problem of how trust beneficiaries whose interests are defined with reference to their membership in an unincorporated branch of an incorporated entity can leave with their property.
As mentioned in the previous article in our June 2017 Charity & NFP Law Update, given the uniqueness of the background facts involved in the above decisions, it is unclear whether a court would apply the clubman’s veto in future cases involving a not-for-profit corporation under different circumstances. Reference can be made to our previous article for details concerning the background facts and history in this regard. However, the Court of Appeal decision confirms the possibility that a branch of a corporation in an analogous fact situation might become so independent and separately identified that it might be entitled to leave the not-for-profit corporation and take its branch assets with them if the decision was approved unanimously by the branch members. In light of the above, charitable and not-for-profit corporations with branches may want to consider taking steps to ensure that the governing board of the corporation exercises a sufficient degree of control over its branches, both in practice and within the corporation’s governing documents.
