by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
On April 29, 2019, the Alberta Court of Appeal (the “Court”) released its decision in PT v Alberta, upholding the Court of Queen’s Bench of Alberta’s dismissal on June 27, 2018, of two interim injunction applications in relation to a constitutional challenge with respect to the Alberta School Act (the “Act”). Specifically, the appellants, who consist of parents, private schools (including faith-based schools), and school boards, sought a stay of the “notification limitation provisions” (“NLP”) as well as the “attestation requirement provisions” (“ARP”) in the Act, which, if such a stay was granted with respect to the ARP, would prohibit the Minister of Education from defunding or de-accrediting schools for non-compliance with the Act.
By way of context, the Act was amended by Bill 10 in 2015, and then by Bill 24 in 2017, to empower voluntary student organizations with a focus on vulnerable minorities such as LGBTQ+ students. Specifically, enhanced protections were introduced in Bill 24, such as the NLP, which prohibits exposing a student’s involvement in ‘gay-straight alliances’ and ‘queer-straight alliances’ (“GSAs”) to their parents or peers under section 16.1 of the Act. Further, the ARP under section 45.1 of the Act requires private schools, which in Alberta must submit annual declarations to the Minister in order to receive funding and accreditation, to attest their compliance with the Act when making such declarations. The appellants argued that compliance with such provisions was contrary to their constitutional rights under the Canadian Charter of Rights and Freedoms – namely the right to freedom, expression and association (section 2) as well as the right to life, liberty and security of a person (section 7). Accordingly, the appellants raised a constitutional challenge, together with applications for an interim injunction to delay the legal effects of Bill 24 until the constitutional challenge was decided. Both applications of interim injunctions were denied in the Court of Queen’s Bench by the chambers judge (the “Judge”).
The Court held that the Judge had not erred in declining to grant an injunction regarding the NLP, as the Judge had reasonably found that the appellants did not establish irreparable harm (which is one component of a three-part test for granting injunctions) due to a failure to provide “credible evidence to prove that sexually explicit material has been disseminated in a GSA.” Further, the Court found the Judge had reasonably concluded that the benefits of GSAs, which were shown to “result in positive effects for the LGBTQ+ and other students”, constituted the “presumed good of the legislation” and, accordingly, the Court declined to interfere with such decision.
The majority of the Court also found that the Judge had not erred in declining to grant injunctive relief with respect to the ARP. The majority recognized that the appellants had demonstrated “that there is now a real and non-speculative risk that at least some appellant schools will lose funding” due to a Ministerial Order stating that funding for 2019-2020 would be withheld in the event that a school did not comply with said ARP. However, the majority also found the evidence demonstrating the benefits of the GSAs with respect to “protecting the safety and privacy interests of individual children” to be “more compelling than the new evidence of schools’ termination of funding for non-compliance with the legislation.” As such, the Court also declined to interfere with the Judge’s decision on this issue.
Although the dismissal of appeals with respect to these injunctions may not be a welcome decision to many faith-based schools in Alberta and parents of students at these schools, the Court clarified that its decision does not affect the main action itself, i.e. the constitutional validity question with respect to the Act. As such, faith-based schools should continue to monitor the developments in this case, which has been expedited by the Court.
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by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
On May 14, 2019, the Supreme Court of British Columbia released its judgment in Chouman v. Omar Al-Farooq Islamic Society. The respondents, which operate the Masjid Omar Al-Farooq Vancouver Mosque (the “Mosque”), included three organizations governed by the BC Societies Act, namely, the Omar Al-Farooq Islamic Society, the Othman Bin Affan Islamic Society and the Omar Al-Farooq Islamic Foundation, a registered charitable corporation, (together, the “Societies”), as well as five individuals purporting to act on behalf of the Societies. The petitioners, Abdul Quadir Chouman and Ahmed Mohamoud, sought various remedies against the respondents for terminating their membership and directorship in the Societies, alleging oppressive and unfairly prejudicial behaviour within the meaning of section 102 of the Societies Act.
The petitioners argued that two of the individual respondents, who were directors, members and moderators of the Societies (the “Ibrahims”), attempted to gain control of the Societies by removing the petitioners as directors and members. The petitioners alleged that on February 12, 2018, the Ibrahims, knowing that Mr. Chouman was in hospital and Mr. Mohamoud was out of the country, called a membership meeting but did not comply with the applicable notice requirements in the by-laws for the Societies. While each of the Societies had its own by-law, given their similarities, the court treated the by-laws as one in its reasons. The membership meeting was adjourned due to lack of quorum, but the petitioners were not notified of the adjourned meeting date. At a subsequent meeting held on March 18, 2019, which Mr. Mohamoud attended in person and Mr. Chouman attended by proxy, resolutions were adopted removing the petitioners as members and directors of the Societies. The Ibrahims were only able to obtain a voting majority by rejecting the signed proxy given by Mr. Chouman appointing Mr. Mohamoud to speak and vote on his behalf, on the basis that a typographical error regarding the date of the meeting disqualified the proxy.
While it is beyond the scope of this article to fully describe all of the disagreements between the petitioners and the Ibrahims, the petitioners alleged that after removing the petitioners as directors and members, the Ibrahims began to transfer the assets of the Societies and that Abdusalam Ibrahim was using the Societies’ funds to pay for his personal legal fees. The petitioners alleged that Abdusalam breached his fiduciary duty of loyalty and good faith to the Societies, which he owed to the Societies as a director, and that by removing the petitioners as directors and members of the Societies, the Ibrahims acted solely in their own interests and not in the interest of the Societies.
In response, while the Ibrahims acknowledged that there were technical breaches of applicable corporate law requirements, they argued that in the context of small societies “mere failure to adhere to technical formalities does not justify the imposition of the oppression remedy.”
In finding that the respondents’ conduct amounted to oppression and unfairly prejudicial and/or illegal conduct towards the petitioners, the court stated that the respondents could not excuse their failure to follow the Societies’ by-laws by calling their behavior a mere failure to adhere to technical formalities. In granting all of the remedies sought by the petitioners, including their reinstatement as members and directors of the Societies and requiring the respondents to produce an accounting of the Societies’ financing within seven days of the date of the court order in relation to the Societies’ funds, assets and expenditures, the court noted that subsection 102(2) of the BC Societies Act grants the court broad remedial powers.
This case serves as an important reminder to charities and other not-for-profit corporations that it is essential to comply with corporate law requirements outlined in the general operating by-law of an organization, and to do so in a reasonable and fair manner. Otherwise, decisions made at a meeting of members or directors can be subject to legal challenge and are vulnerable to being overturned.
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by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
The topic of donor advised funds (“DAFs”) has generated a considerable amount of attention in the past few years, receiving both praise as well as criticism. While some of this criticism may warrant further review and consideration, many of the concerns regarding DAFs, particularly here in Canada, are either unfounded or exaggerated.
The following paper was presented at the 2019 CBA Charity Law Symposium in Toronto on May 6, 2019, and addresses the history, development and current extent of DAFs; identifies the various parties involved in DAFs today; reviews and examine the key legal aspects of establishing and functionally operating DAFs; provides an overview of the current issues associated with these funds; as well as equips the reader with some practical advice when advising clients, whether charity recipients or donors, on the establishment of DAFs and their ongoing operation.
For the balance of the paper, click here.
Read the May 2019 Charity & NFP Law Update
by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
On April 16, 2019, the Federal Court of Appeal (“FCA”) released its decision in Canada (AG) v Heffel Gallery Limited, an appeal of a judicial review decision concerning gifts of cultural property.
As discussed in the August 2018 Charity and NFP Law Update, the lower court considered the Canadian Cultural Property Export Review Board’s (“Board”) interpretation of “outstanding significance” and “national importance” under paragraph 11(1)(b) of the Cultural Property Export and Import Act (“Act”). By way of background, this case involved an application by Heffel Gallery Limited (“Heffel Gallery”), an art auction house, to the Board for an export permit to ship a painting to London, UK. The Board denied the application on grounds that the painting did not meet the export permit requirements under section 11 of the Act, as it was of “outstanding significance” and “national importance,” pursuant to subsections 11(1) and (3).
Heffel Gallery brought an application for judicial review to the Federal Court of Canada, which declared the Board’s decision as unreasonable because the national importance test was met by works “of such a degree of national importance that its loss to Canada would significantly diminish the national heritage” through a “direct connection to Canada.” This decision was significant to charities, as the test for outstanding significance and national importance is the same criteria used to determine whether an item that is donated to a registered charity is a donation of cultural property, and therefore receiptable under the Income Tax Act (“ITA”).
On appeal of the Federal Court of Canada decision, the FCA first outlined the Board’s interpretation of “outstanding significance”, indicating that it considered, among other things, the number of works by the artist in Canada, the general importance of the artist, and the opportunities to view and study the artist’s work in Canada. It also outlined the Board’s interpretation of “national importance”, indicating that the Board considered whether the loss of the work would diminish Canada’s “national heritage” and that it concluded that a work could be of national importance “even if the object or the creator has no direct connection with Canadian history or Canada.”
The FCA then considered whether the Board’s interpretation of paragraph 11(1)(b) of the Act was reasonable. In this regard, the FCA looked to the composition of the Board, the specific wording in paragraph 11(1)(b), as well as subsection 4(2) of the Act, which allows the Governor in Council to include objects or classes of objects in the Canadian Cultural Property Export Control List “regardless of their places of origin.” Having found the Board’s interpretation of paragraph 11(1)(b) to be reasonable, the FCA then considered whether the Board’s determination that the artwork was of national importance was reasonable. It examined the criteria considered by the Board and found the Board’s decision to be reasonable, as it fell “within a range of possible, acceptable outcomes which are defensible in respect of the facts and the law.”
The FCA stated that the court’s standard of review in this case was “reasonableness”, and that courts are required to abide by the principle of deference. It held that the lower court was required to defer to the Board, as the Board was the administrative decision maker and “[held] the ‘upper hand’ with regard to the interpretation of its home statute.” Rather than approaching the Board’s decision with deference, the FCA found that the lower court had adopted its interpretation and measured it against that of the Board, and deemed the Board’s interpretation to be unreasonable for not conforming to the court’s interpretation. The FCA therefore overturned the lower court’s ruling and held that it had erred in its conclusion that the Board’s interpretation was unreasonable for being overly broad.
The FCA’s decision comes on the heels of amendments to the ITA proposed in Budget 2019, discussed in Charity & NFP Law Bulletin No. 443. On the one hand, the FCA’s decision and affirmation that “national importance” need not require a direct connection to Canada means that the national importance test will continue to apply to exports of cultural property under the Act. On the other hand, Budget 2019 will remove the “national importance” requirement for the enhanced tax incentives for donations of cultural property under the ITA. These Budget 2019 provisions were included in Bill C-97, Budget Implementation Act, 2019, No. 1, which most recently passed second reading and was referred to Committee on April 30, 2019. If passed, works that are not directly connected to Canada may still qualify as gifts of cultural property under the ITA.
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by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
On May 21, 2019, Innovation, Science and Economic Development Canada Minister Navdeep Bains announced the Government of Canada’s intention to make significant changes to Canada’s privacy regime. Launching Canada’s new Digital Charter (“Digital Charter”), Minister Bains advised that the Digital Charter is intended to lay the foundation for modernizing privacy rules in Canada, rebuilding Canadians’ trust and providing a framework for future governance of the digital landscape. As part of the launch of the Digital Charter, Minister Bains also announced plans to modernize the Personal Information Protection and Electronic Documents Act, Canada’s private sector privacy legislation, which will in part implement the principles of the Digital Charter and contribute to their achievement.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 449.
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by Dev User | May 30, 2019 | Uncategorized
May 2019 Charity & NFP Law Update
Update on the ONCA
The website of the Ministry of Government and Consumer Services is still indicating that the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”) is targeting to be in force in early 2020. Once the ONCA is in force, the ONCA will automatically apply to all non-share capital corporations incorporated under Part III of the Ontario Corporations Act (“OCA”). Although it is optional for corporations to undertake a transition process within three years of the in force date to amend their governing documents to comply with the rules in the ONCA, it is generally prudent for corporations to undertake the transition process in order to avoid uncertainty of their documents by: (a) filing articles of amendment to amend provisions in their letters patent or supplementary letters patent; and (b) adopting a new ONCA compliant by-law.
For corporations that have simple governance structures (such as where the directors and the members are the same persons, or where the membership is very small), it is possible for them to start preparing for the transition process closer to the in force date, or even during the three-year transition period. However, for corporations that have complex governance structures, multiple classes of members, or unusual governance processes, it would be prudent for them start early in the preparation to ensure that there is sufficient time to finalize the transition documents and obtain membership approval.
By way of background, since the ONCA received Royal Assent on October 25, 2010, the Ontario charitable and not-for-profit sector has patiently waited for it to be proclaimed into force. After various delays and amendments to the ONCA, the Government of Ontario’s most recent indication, as reported in the January 2018 Charity & NFP Law Update, was that it is targeting proclamation in early 2020, and that further details will be provided by the Ministry of Government and Consumer Services closer to the coming-into-force date.
When the ONCA is in force, it will automatically apply to all Part III OCA corporations. Corporations may undertake an optional transition process to bring their governing documents to comply with the rules in the ONCA. If no transition process is taken, any provisions in their letters patent, supplementary letters patent, by-laws, or special resolutions that are inconsistent with the ONCA will be deemed at the end of three years to be amended to comply with the ONCA. The problem with this deeming approach is that it will be difficult to determine which provisions are deemed to be amended and in what way. In order to avoid the deeming uncertainty from arising, it would be beneficial to take the optional transition steps.
BC Public Benefit Companies Introduced through Bill M 209
In May 2018, a private member’s Bill M 216, Business Corporations Amendment Act, 2018 (“Bill M 216”) was introduced and passed second reading in British Columbia, that sought to create a new category of corporations known as “benefit companies” through amendments to the BC Business Corporations Act. Bill M 216 died on the order paper when the BC Legislature prorogued in January 2019. However, the bill was quickly reintroduced in April 2019 as Bill M 209, Business Corporations Amendments Act (No. 2), 2019 (“Bill M 209”) with some minor amendments. Bill M 209 received Royal Assent on May 16, 2019 and will come into force by regulation of the Lieutenant Governor in Council.
Bill M 209 will amend the BC Business Corporations Act by inserting a new Part 2.3 to introduce “benefit companies” as a new category of corporations. As outlined in the August 2018 Charity & NFP Law Update, benefit companies are companies that pursue social and environmental goals, rather than just profit. They must include a “benefit statement” in their articles indicating that “this company is a benefit company and, as such, is committed to conducting its business in a responsible and sustainable manner and promoting one or more public benefits”. Bill M 209 defines “public benefit” to mean “a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of (a) a class of persons, other than shareholders of the company in their capacity as shareholders, or a class of communities or organizations, or (b) the environment, including air, land, water, flora and fauna, and animal, fish and plant habitats.” Benefit companies must also include a provision in their articles that specifies the specific public benefits they will promote, and sets out commitments to conduct their business in a “responsible and sustainable manner” and to promote their specified public benefits. A BC company may become a benefit company by special resolution of its shareholders to alter its notice of articles to include the benefit statement. Similarly, when ceasing to be a benefit company, a special resolution of its shareholders will be required.
While Bill M 209 contains the same general key features as the previous Bill M 216, some amendments have been made to those provisions. For example Bill M 209 no longer contains the proposal to require a company to change its name to include “Benefit Company” or “B.Co.” upon becoming a benefit company.
Once in force, BC will be the first jurisdiction in Canada to provide a legal framework for benefit companies to pursue social and environmental goals, rather than just profit. As a form of social innovation, benefit companies will allow for mission-focused companies in BC to focus on their social missions, while simultaneously growing their capital by providing investors with certainty about the mandate of the company.
Read the May 2019 Charity & NFP Law Update
