Carters Mobile Friendly Websites
Oct 2018 Charity & NFP Law Update
Carters is pleased to announce that the following websites are now mobile friendly: www.carters.ca, www.charitylaw.ca, www.churchlaw.ca, and www.antiterrorismlaw.ca.
Initial Order Involving the Humboldt Broncos’ Crowdfunding Campaign
Oct 2018 Charity & NFP Law Update
On August 15, 2018, the Saskatchewan Court of Queen’s Bench released an “Initial Order” in the application by the Humboldt Broncos Memorial Fund Inc. (“HBMFI”) in accordance with Saskatchewan’s The Informal Public Appeals Act (“IPAA”) and the Canada Not-for-profit Corporations Act (“CNCA”). The Initial Order dealt with the allocation of over fourteen million dollars raised through the GoFundMe online crowdfunding campaign (the “Campaign”), net of fees and other deductions, for the benefit of the victims of the accident of April 6, 2018 involving twenty-nine individuals, including members of the Humboldt Broncos junior hockey team, team coaches, team staff, the bus driver and other individuals associated with the team.
Saskatchewan was the only province in Canada to follow the recommendations of the Uniform Law Conference of Canada to enact legislation comparable to its Uniform Informal Public Appeals Act (“Uniform IPAA”). Therefore, the proceedings involving the HBMFI and the Campaign, which the Court stated constitutes a “public appeal” within the meaning the IPAA, are an important precedent. The Uniform IPAA defines “informal public appeals” as:
…any message, disseminated by whatever means, requesting donations from the public generally or from a section of the public in order to fulfill a personal purpose or a purpose of private or social utility, whether the donations are made in the form of a sum of money, including sums derived from a sale, the provision of a service, or a lottery, contest, entertainment or other event, or in the form of movable or immovable property.
The Initial Order included various declarations under the IPAA, including a declaration that the funds from the Campaign are subject to a “trust” within the meaning of the IPAA, that the object of the Campaign, as expressed in the GoFundMe platform, are the “object of the trust”, and that HBMFI is the trustee within the meaning of the IPAA. Because there is no trust document in regard to the trust and such document is not required under the IPAA, the Court also made a declaration that the Initial Order is the “governing authority” of the trust, consistent with clause 2(1)(c) of the IPAA.
The Initial Order further authorized and directed the investment of the funds from the Campaign in high interest savings accounts managed by a named financial services firm at no cost to HBMFI, the interim distribution of no more than ten percent of the funds to the twenty-nine affected individuals and their families, the appointment of an advisory committee, three information resource persons and legal counsel to HBMFI, as well as a declaration that a contractual indemnity in favour of certain named individuals is valid and enforceable under section 151 of the CNCA. The advisory committee was ordered to use its reasonable best efforts to submit its report on the proposed distribution of the funds on or before the hearing to be held on November 15, 2018.
Although no other province has comparable legislation, and the IPAA, as well as the Uniform IPAA, do not apply to qualified donees as defined under the Income Tax Act (Canada), registered charities relying on supporter-driven crowdfunding campaigns should consider the directions set out in this Initial Order in updating their own fundraising policies and any fundraising agreements they may be negotiating with third parties involving crowdfunding campaigns. Charities and not-for-profits in other parts of Canada will also want to monitor whether other provinces adopt comparable legislation to that currently in place in Saskatchewan in the coming years.
CRA Releases Draft Guidance on Charities and Public Policy Advocacy
Oct 2018 Charity & NFP Law Update
On October 2, 2018, the Canada Revenue Agency (CRA) released for public consultation its draft guidance Charities and public policy advocacy (the “Draft Guidance”). The Draft Guidance follows the release of the draft legislative proposals announced by the Department of Finance on September 14, 2018 (“Draft Proposal”) for governing the public policy advocacy activities of charities, as discussed in last month’s Charity & NFP Law Bulletin No. 428, with additional comments provided in a submission by the Canadian Bar Association’s Charity and Not-for-Profit Law Section. As well, the Draft Guidance and the Draft Proposal follow last year’s Report of the Consultation Panel on the Political Activities of Charities published on May 4, 2017 (the “Consultation Report”), as discussed in Charity & NFP Law Bulletin No. 403. It is expected that the Draft Guidance will replace CRA’s Policy Statement CPS-022, Political activities, which currently interprets the Income Tax Act (“ITA”) provisions requiring charities to devote “substantially all” of their resources to charitable activities as an expenditure limit of 10% on political activities by charities.
For the balance of this Bulletin, please see Charity & NFP Law Bulletin No. 432.
Mowat Centre Report on Governance
Oct 2018 Charity & NFP Law Update
On September 27, 2018, the Mowat Centre released its report, Peering Into the Future: Reimagining Governance in the Non-Profit Sector (the “Report”), discussing the state of governance in the not-for-profit sector. The Mowat Centre is an independent public policy think tank located at the Munk School of Global Affairs and Public Policy at the University of Toronto.
The Report states that “Governance is one of the most challenging and complex issues in the non-profit sector”. Noting the limited but varied federal and provincial legislative and regulatory requirements for not-for-profit governance, the Report emphasizes that there is no “one size fits all” model of governance. In addition, not-for-profits are challenged by an increasingly complex operational environment, such as lack of diversity and constituent representation on boards, increasing demands from governments and funders, a greater focus on collaboration, transparency and sharing in the context of network-based models of organizing and cross-sectoral partnerships, changing trends regarding technology, engagement of volunteers, and a new generation of leaders.
One of the problems, as articulated by the Report, is that boards think that they have to do everything related to governance when some functions are either not really governance matters or could be handled by or shared with other bodies in the organization. For example, certain tasks such as fundraising, which may unduly burden board members, should be separated from the board through the creation of fundraising committees or councils. The key matters that the board must focus on are: overseeing and evaluating the performance of the organization, acting in accordance with their fiduciary duty, ensuring financial stability, and ensuring compliance and accountability. However additional responsibilities such as fundraising and advocacy do not need to be the responsibility of the board.
The Report also highlights how emerging technologies are challenging traditional notions of governance to the extent that the manner in which not-for-profits engage with their constituents and address complex social problems may be affected by new digital technologies. This may include the use of technology to engage with beneficiaries and stakeholders in a more meaningful and direct way or decentralizing certain board functions with non-board members in order to increase the organization’s response to social issues, which would result in more effective organizations. Some steps outlined in the Report to achieve this “future-oriented” model of governance include encouraging the exploration of governance approaches that are impact-driven rather than organization-specific, promoting governance through mentorship, and testing new governance models.
Ontario Superior Court of Justice Dismisses Oppression Claim Against Charity
Oct 2018 Charity & NFP Law Update
On September 17, 2018, the Ontario Superior Court of Justice released its decision in The Campaign for the Inclusion of People who are Deaf and Hard of Hearing v Canadian Hearing Society, 2018 ONSC 5445. The court dismissed the application claiming oppression for purposes of section 253 of the Canada Not-for-profit Corporations Act (the “CNCA”) brought by the Campaign for the Inclusion of People who are Deaf and Hard of Hearing (the “Campaign”) (which the court stated had been apparently constituted for the sole purpose of bringing this application) against the Canadian Hearing Society (the “CHS”), a charity incorporated under the CNCA. The court also ordered a stay of the applications claiming oppression by the CHS board brought by two former members of the CHS, pending arbitration pursuant to the CHS bylaws.
The claims were sparked by changes that the CHS had made in 2016 with respect to its membership policy and bylaws. These changes effectively excluded from membership any current and former employees or contractors of CHS, including their families, among others, and eliminated all references to lifetime members.
With regard to the claim by the Campaign, the issue was whether a “non-member of a not-for-profit corporation purporting to represent members or former members is a ‘proper person’ for the purposes of section 250(e) of the [CNCA].” Section 253(1) of the CNCA requires that an oppression claim be brought by application of a complainant, which is defined in section 250(e) as including “any other person who, in the discretion of a court, is a proper person to make an application under this Part.”
The court, in holding that the Campaign was not a proper person to bring a claim for oppression, provided three reasons for its decision. First, the Campaign could not establish that it had reasonable expectations in its own right and which had been frustrated or infringed by the actions of the CHS board. Since the Campaign had never been a member of CHS nor applied for membership, it did not have a private right that entitled it to assert a claim of oppression. Second, because the individual applicants had brought their own applications asserting the frustration of their personal rights and reasonable expectations as members of CHS, it was not necessary to grant the Campaign status as a complainant to assert the same claims of oppression. Third, the court found that there was no evidence that the Campaign was representative of the various members that it purported to represent or that the Campaign had authority to represent the former members of CHS. As such, the court dismissed the Campaign’s application on grounds that the Campaign had no standing as a complainant under section 250(e) of the CNCA.
Regarding the individual applicants’ claims of oppression against the CHS board, the court deferred to the bylaws of CHS, which required that membership disputes be arbitrated, and found that there was “no necessary connection between the existence of a statutory remedy [in this case, oppression] and the proper tribunal for the resolution of any claims asserted in respect of that remedy”, meaning that the claim for oppression could properly be brought up in arbitration. In response to the individual applicants’ argument that allowing a corporation governed by the CNCA to enact an arbitration provision would deprive the court of its inherent jurisdiction with regard to the administration of charities, the court stated that:
The Individual Applicants overstate the role of the courts in respect of charities. Courts have an equitable or inherent jurisdiction to intervene if charitable funds are misapplied by trustees of a fund or by directors of a corporation. However, I do not think that such jurisdiction extends to matters of corporate governance such as membership in a corporation. Such matters are governed by the [CNCA], including remedies provided thereunder, and the well-established principles of corporate law. There is no need, and no room, for an additional and overriding inherent jurisdiction of the courts to address disputes regarding corporate governance of a not-for-profit corporation.
The court accordingly made an order staying the individual applicants’ application against the CHS board, pending arbitration.
This case affirms that standing as a complainant for the purposes of section 253 of the CNCA will not be granted unless the applicant can establish its reasonable expectations with regard to its rights vis-a-vis the corporation. Further, even where an applicant is found to have standing as a complainant for the purposes of section 253 of the CNCA, courts may defer to the dispute resolution mechanisms in the bylaws of the corporation. As such, carefully drafted bylaws may assist charities and not-for-profit corporations in avoiding expensive court proceedings to deal with internal member disputes.