United Kingdom Journals

Rolling Down the Information Highway in Search of Charitable Status

Andrew Ubaka Iwobi LL.B; Ph.D

Senior Lecturer, Swansea Law School

<a.iwobi@sihe.ac.uk>

Copyright (c) 1998 Andrew Ubaka Iwobi.
First Published in Web Journal of Current Legal Issues in association with Blackstone Press Ltd.

Summary

In the case of Vancouver Regional Freenet Association v Minister of National Revenue (1996) 137 DLR 4th 406, the Canadian Federal Court of Appeal was called upon to determine whether a non-profit society established with the object of offering the public free access to the Internet should be registered as a charity after the society's application for registration had been refused by the Minister.

The court decided (albeit with one stridently dissenting voice) that the society's purposes were sufficiently beneficial to the community for it to be granted charitable status. The two judgments delivered in this case provide a useful insight into the intricate legal issues which judges have to address when a case before them involves an organisation that is engaged in activities which have not previously been dealt with within the charitable sphere.

The primary importance of this case lies in the fact that it afforded the court the opportunity of exploring the extent to which the prevailing rules governing charitable status are capable of being adapted and extended in response to the social changes and rapid technological advances of the present age. Significantly, a similar agenda is currently being pursued in the United Kingdom by the Charity Commission which is in the initial stages of a comprehensive review of its Register of Charities. In conducting this review, the Commission proposes to "use, to the full extent [its] powers within the law to respond to changes in social circumstances [and] identify and recognise new charitable aims".

Contents

Introduction
The majority decision

1. Establishing the analogy
2. The non-charitable dimension of VRFA's activities

The dissenting judgment of Decary J.A

1. The analogy issue
2. The non-charitable use issue

Analysis of the judgments
Conclusion

Bibliography

Introduction

In a recent article, Peter Alldridge asserts that over the last decade, some of the most significant changes in the law have been wrought by advances in modern information technology (Alldridge 1997). The increasingly important role assumed by law in the realm of information technology is illustrated in a novel context by the Vancouver Regional FreeNet Association case In this case, the charitable status of an organisation providing free public access to the Internet was the subject of litigation.

The Vancouver Regional FreeNet Association (hereafter called VRFA although it has since been renamed the Vancouver Community Network Association) was a society incorporated under the Society Act of British Columbia RSBC 1979 c.390. The society's purposes, as expressed in its constitution included:

- developing and operating a free, publicly accessible computer utility;

- encouraging the broadest possible participation of information providers in making their information available on FreeNet.

- working towards the widest possible access to government and other information through FreeNet and other non-profit organisations such as libraries;

- educating and encouraging the public in the use of computer telecommunications and information retrieval; and

- researching ways of improving and expanding public access to electronic information and facilities.

VRFA was run by community volunteers as a non-profit organisation and its funds were derived mainly from membership fees and donations. Incorporation did not confer charitable status on VRFA so as to enable it to solicit public donations and enjoy fiscal privileges such as exemptions from capital gains and income taxes. To secure such privileges, it had to apply for registration as a charitable organisation under of the Income Tax Act 1952 RSC 1985 c.1 (5th supp). ss. 149(1) and 248(1). Its application was refused by the Minister of National Revenue (hereafter called the MNR) whereupon it appealed to the Court of Appeal under s.178 of the Act.

Shortly before this appeal was heard, Macdonald C.J.T.D had in Peinet v O'Brien (1995) 61 CPR 3rd 334, remarked that "the whole area of the Internet and its conventions [was] new to the court". The novelty of the Internet did not however deter the Court of Appeal from deliberating at length on VRFA's entitlement to charitable status. The lead judgment was given by Hugessen JA with Pratte JA concurring; while Decary JA delivered a dissenting judgment. Both judgments will be considered below.

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The majority decision

In his judgment Hugessen JA concentrated on two main issues, notably:

- whether VRFA's purposes were sufficiently analogous to the purposes set out in the preamble to the Charitable Uses Act 1601 (hereafter called the preamble); and

- whether the possible use of VRFA's system for non-charitable ends precluded it from being a charitable organisation.

1. Establishing the analogy

Hugessen JA like many judges before him, used as his starting point, the charitable purposes listed in the preamble although he considered it somewhat anomalous that judges still had to "apply that ancient law to the circumstances of life on the eve of the third millennium." He signified that purposes adjudged to be charitable were now subsumed within the four broad heads outlined by Lord MacNaghten in Commissioners for Special Income Tax v Pemsel [1891] AC 531. He then proceeded to deal with VRFA's application on the footing that it fell within Lord MacNaghten's fourth head which encompasses "other purposes beneficial to the community".

Native Communications Society of BC v MNR (1986) 86 DTC 6353 was cited by Hugessen JA as the leading Canadian authority on the operation of the fourth head. In this case, Stone JA endorsed the long standing principle that a purpose had to be within the spirit and intendment, if not the letter, of the preamble, to be charitable under this head.

With a view to establishing that VRFA's purposes fell within the spirit and intendment of the preamble, Hugessen JA adopted the traditional approach originally propounded by Lord Grant M.R in Morice v Bishop of Durham (1804) 9 Ves Jr 399. This approach dictated that the society would be considered charitable only if the court could discover an analogy between its purposes and the purposes set out in the preamble. In this connection, Hugessen JA laid great stress on the fact that VRFA's main object was to facilitate a free flow of information through providing the public with access to the information highway represented by the Internet. He observed that the preamble expressly mentioned the repair of bridges, ports, causeways and highways all of which were essential means of communication. He then signified that the Internet's information highway was also a means through which citizens can communicate with one another in the modern technological era. Insofar as VRFA's basic purpose was to provide access to this virtual highway, he considered this to be sufficiently analogous to the repair of highways etc. to bring it within the spirit and intendment of the preamble.

If he had chosen to do so, Hugessen JA might also have decided that VRFA's purposes fell within the spirit and of the Act by adopting the alternative approach espoused by Russell L.J in Incorporated Council for Law Reporting v A-G [1972] Ch 73. This approach which is particularly relevant in cases falling under the fourth head proceeds on the more flexible premise that a purpose which is demonstrably beneficial to the community and of general public utility will be deemed to be within the equity of the preamble unless there are good reasons for deciding otherwise. Hugessen JA regarded information as "the currency of modern life" and clearly assumed that VRFA's active involvement in promoting the free exchange of information was conducive to the public good. It would thus have been open to him to contend, in line with Russell L.J's reasoning, that a prima facie case existed for treating VRFA's purposes as coming within the spirit and intendment of the preamble. It is not too surprising that Hugessen JA did not consider his alternative approach, having already reached the same conclusion through invoking the highway analogy.

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2. The non-charitable dimension of VRFA's activities

The second key issue which Hugessen JA had to address emanated from the fact that VRFA, in providing a facility for transmitting information to the public, did not control the contents of such information. The judge accepted that this meant VRFA's system could be used for private or commercial activities or indeed misused for criminal or destructive purposes. This possibility that persons who gained access to the Internet via VRFA's computer network could utilise it for non-charitable ends indicated to the MNR that VRFA's purposes were not exclusively charitable and had prompted his refusal of charitable status. Hugessen JA disagreed with the MNR's decision and supported his position by arguing that:

"a real or imaginary bridge [which] at the time of the first Elizabeth was recognised as a public good [and hence included in the preamble] because it allowed inhabitants of a town or village to communicate with the outside world ... might also be used by highwaymen or absconding debtors. The nature of the traffic did not serve to dilute or diminish the great public good provided by the facility itself".

The other notable reason for the MNR's refusal to register VRFA was that there was no judicial precedent for according charitable status to computer networks. Hugessen JA robustly responded that there could hardly be a clearer indication for the court to provide such a precedent and duly obliged by declaring VRFA to be a charitable organisation.

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The dissenting judgment of Decary J.A

In his judgment, Decary JA covered much the same ground as the majority decision. Significantly, however, his reasoning and conclusions differed substantially from those of Hugessen JA both in relation to the appropriateness of the highway analogy and to the consequences flowing from the non-charitable uses to which VRFA's system could be put.

1. The analogy issue

Decary JA was at one with Hugessen JA in accepting that VRFA's entitlement to charitable status fell to be determined under the fourth head and depended on whether its purposes fell within the spirit and intendment of the preamble.

In pursuing this line of enquiry, Decary JA referred to the differing approaches adopted the case of Morice and the Incorporated Council of Law Reporting case. Russell LJ's approach in the latter case did not appeal to Decary JA. He insisted that that there was no Canadian authority for the principle that all purposes which in some way benefited the community were to be presumed to be charitable. He reinforced this by citing a host of English and Canadian cases which established that the mere provision of benefit to the community is not tantamount to a charitable purpose.

Turning to the traditional analogy-based approach favoured in Morice, Decary JA disagreed with Hugessen JA's view that VRFA's provision of access to the information highway was charitable because it was analogous to the repair of highways etc. Decary JA contended that the use of analogies was unwarranted and potentially misleading, not least because the information highway was a concept which compared only marginally with the purposes in the preamble. In his view, it was incumbent on the court "to rise above the constraints of analogy and rather than compare the extrinsic qualities of past charitable purposes with the subject before it, consider the essential charitable nature of the organization (sic) on appeal".

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2. The non-charitable use issue

Like Hugessen JA before him, Decary JA accepted that charity law was a moving subject and that the fourth head was not closed. Decary JA qualified this by drawing attention to Briarpatch Inc. v R (1996) 2 C.T.C 94 where Robertson JA commented that "the fourth category has been interpreted cautiously, if not narrowly by the courts". Decary JA was able to deduce from this that the fourth head was capable of extension only in the most meritorious of circumstances. Elaborating on this theme, he referred to his own judgment in Vancouver Society of Immigrant and Visible Minority Women v MNR (1996) 2 CTC 88. In this case, he had emphasised the court's aversion to granting charitable status where the language used was so vague as to accommodate non-charitable purposes or where the purposes were not sufficiently definite or specific to satisfy the court that the organisation would restrict its purposes to those recognised as charitable.

Relating the foregoing to the instant case, Decary JA acknowledged that the FreeNet movement was a visionary community based initiative and that many of VRFA's free information services (eg its health, news, weather reports etc.) were of great public utility. He nevertheless insisted that this did not suffice to qualify the society as charitable. His preferred approach was to analyse the nature and content of VRFA's services with a view to ascertaining whether the community virtues underlying its purposes were overshadowed by any countervailing non-charitable elements. In this connection, VRFA's primary purpose was to operate a free publicly accessible computer utility while its remaining purposes were essentially designed to encourage the proliferation of its services among computer users and the development of resources accessible on the FreeNet. In his view, the services which VRFA could offer pursuant to these purposes were not confined to those which a charity should be authorised to provide. Closely allied to this was the fact that VRFA did not appear to be in a position to control or impose limits on the types of services accessible to its users and could thus potentially provide a platform for the propagation of private interests. He concluded from this that VRFA's purposes were not exclusively charitable purposes and accordingly upheld the MNR's refusal to register it.

In reaching this conclusion, Decary JA did concede that the position may well have been different if VRFA's activities had been restricted to serving as a public access point to a restricted range of services of exclusively community interest. If such a restriction had been in place, this would arguably have rendered VRFA exclusively charitable in the legal sense thus justifying its registration as a charitable organisation.

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Analysis of the judgments

a. Suitability of the preamble as the basis for determining charitable status

The unmistakable differences in approach and emphasis in the these two judgments bear out Pettitt's assertion that it is indeed impossible to devise any simple, universal test for determining whether or not any purpose is charitable under the fourth head. (Pettitt 1997, p.240).

The absence of such a test poses particular problems in cases of first impression where the charitable status of a novel form of human activity is in issue. In such cases, a judge who wishes to follow the time-honoured judicial practice of determining charitable status by reference to the preamble must contend with the fact that the present age bears little resemblance to the first Elizabethan era when the preamble was enacted. That Hugessen JA was exercised by this dilemma is evident from the manner in which he began his judgment by commenting adversely on the fact that the courts still had to fall back on an obscure and not entirely consistent corner of English law. In his view, such ancient law was not well suited to the circumstances of the third millennium. Similar sentiments were expressed in Re Laidlaw Foundation (1984) 13 DLR (4th) 491, 524 where Southey J declared that it was "highly artificial and of no real value in deciding whether an object is charitable to pay lip service to the preamble to a statute passed in the reign of Elizabeth I". In response to the perceived problem, Hugessen JA suggested that some creative legislative intervention was needed in this area. Although a similar plea for legislative intervention has recently been made by Strayer JA in Human Life International in Canada Inc. v M.N.R (1998) Lexis Transcript, neither he nor Hugessen JA provided any insight into the form which this might take. By contrast, recent authoritative reports on the modern-day workings of the law of charities have concluded with good reason that the prevailing judicial practice which uses the preamble as the starting point is on balance preferable to the introduction of new statutory parameters for determining charitable status. (See e.g Home Office 1989 and Ontario Law Reform Commission 1996). If Hugessen JA had given the matter more thought, he may well have been less sanguine about proposing that the preamble should be dispensed with in favour of putting the legal meaning of charity on a modern legislative footing.

It seems, in any case, that Hugessen JA was overstating the argument for legislative intervention. Having obtained no statutory guidance from the Income Tax Act 1952 or any other contemporary legislation, he invoked the preamble as the basis for deciding VRFA's charitable status. Despite his reservations regarding the continued relevance of the preamble, his reliance on the highway analogy ensured that he had no difficulty in making the required connection between VRFA's ultra-modern purposes and the purposes set out in the preamble. It can be deduced from this that having recourse to the preamble does not necessarily impede the capacity of the law of charities to adapt to the needs of a constantly evolving society. This being the case, Hugessen JA might perhaps have been better advised to adopt a similar approach to that put forward by the United Kingdom Charity Commission in its recently published Framework Document on the Review of the Register of Charities (Charity Commission 1998). In this document, the Commission re-iterates that the preamble remains the touchstone for determining charitable purposes but has endeavoured to give contemporary relevance to the preamble by identifying a number of basic characteristics to be taken into account when dealing with an application for charitable status.

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b. Appropriateness of the highway analogy

Hugessen JA is not alone in perceiving an analogy between the information highway and real highways (see eg Waelde 1996). It may be argued in his favour that if the law has seen fit to confer legal personality on a notional entity such as a corporation, it is not unduly far-fetched for a judge to discover sufficiently close parallels between physical highways and the information highway to sustain such an analogy. It must not however be forgotten that Decary JA adopted a contrary position, arguing that the information highway compared only marginally with the purposes in the preamble and insisting the Hugessen analogy did not hold good.

It is hardly coincidental that Hugessen JA who manifestly favoured VRFA's claim to charitable status was quick to discover a suitable analogy; whereas Decary JA who was not persuaded that VRFA deserved charitable status was loathe to adopt this same analogy. What emerges from this is that analogy, like beauty, is very much in the eye of the beholder. While this may create an element of uncertainty especially in cases of first impression, it is arguable that it is useful to have this ample degree of judicial leeway in such a constantly evolving area as the law of charities.

The process of reasoning by analogy necessarily involves a subjective element and so Decary JA was well within his rights in choosing not to adopt the highway analogy. He went even further in rejecting the use of analogies as a basis for determining charitable status, declaring that it was incumbent on the court "to rise above the constraints of analogy". It will also be recalled that he equally rejected the alternative approach to the determination of charitable status put forward in the Incorporated Council of Law Reporting case, arguing that it was more appropriate in the circumstances for the court to concentrate on inquiring into the essential charitable nature of VRFA. This may be contrasted with the position favoured by the UK Charity Commission. In the face of the two conflicting approaches put forward by the English courts, the Commission has sought to take "a constructive approach in adapting the concept of charity to meeting the constantly evolving needs of society, remembering the need to find a sufficiently close analogy for any new charitable purpose" [emphasis added] (Charity Commission 1998). It might reasonably have been expected that having categorically repudiated the use of analogies as well as the alternative approach, Decary JA would have set out in the clearest possible terms his criteria for ascertaining the society's "essential charitable nature". His failure to do so renders his attitude to the use of analogies less than convincing.

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c. The non-charitable dimension of VRFA's activities

The other issue on which Hugessen and Decary JJA differed arose from the fact that the range of information which could be transmitted and received through VRFA's network was not limited to matters that were exclusively charitable. In his zeal to uphold VRFA's charitable status, Hugessen JA brushed this difficulty aside by arguing that just as repairing a real highway would be charitable even if some travellers used it for illegal purposes so also should VRFA's provision of free Internet access be deemed charitable though it might be used for non-charitable ends.

This equation of the illegal use of public highways with the non-charitable use of VRFA's system appears to be based on an incorrect premise and is not particularly apposite in the circumstances. If the need ever arose for the operators of a public highway to apply for charitable status, it is inconceivable that they would formulate the relevant purposes in terms which would encompass the commission of illegal activities by travellers. Accordingly if any such activities are in fact committed, the operators of the highway can justifiably claim that this was done in derogation from, rather than in furtherance of their purposes. To this extent, the judge is correct in his reasoning. This line of reasoning might had been equally relevant in the present connection if VRFA's purposes had been framed in language from which it could be deduced that its founders did not envisage that there would ever be a non-charitable dimension to its activities. As it happened, however, the society's purposes included (i) working towards the widest possible public access to government and other information and (ii) encouraging the broadest possible participation of information providers in making such information available on the community network. The inclusion of such wide-ranging purposes would seem to suggest that it was never contemplated that VRFA's network would operate purely as a medium for disseminating material of an exclusively charitable nature.

It is accordingly submitted is that despite the Hugessen J.A's best endeavours to obscure this fact, the manner in which these purposes were expressed lends credence to Decary J.A's view that VRFA was not exclusively charitable. In this connection, the Briarpatch case and the Vancouver Society of Immigrants case which were both referred to in Decary JA's judgment are quite instructive. In both cases, the Federal Court of Appeal refused to confer charitable status on organisations whose purposes were adjudged to consist of an admixture of the charitable and the non-charitable. If Hugessen JA had adverted his mind to these cases, he may well have come to the same conclusion as Decary JA.

Even if the requirement of exclusivity of purpose is construed benignly in the manner suggested by Dymond Surr. Ct J in Re Laidlaw's Foundation (1984) 13 DLR 4th 491, 497, this does not detract from the conclusion that VRFA was not exclusively charitable. This benignant construction assumes that where an organisation's purposes are not framed in exclusively charitable terms, extrinsic evidence is admissible to establish that the organisation is in fact operating exclusively within the charitable sphere. In the present case, there is no evidence that VRFA intended its operations to be so restricted. On the contrary, a combined reading of Decary J.A's judgment and the MNR's letter of refusal indicates that from the outset, a significant amount of the information relayed on the society's network consisted of discussions, advertisements and exchange of ideas on topics which were essentially non-charitable.

Notwithstanding Hugessen JA's failure to appreciate that VRFA's purposes were not exclusively charitable, Pratte JA concurred in his judgment without giving reasons for doing so. It is particularly disappointing that Pratte JA made no attempt to provide a more convincing response to the claim that VRFA's purposes were not exclusively charitable than the explanation put forward by Decary JA.

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Conclusion

If due weight is accorded to the requirement that charities must be exclusively charitable, this places the majority judgment of Hugessen and Pratte JJA on a shaky foundation. The contrary position adopted by Decary JA reflects the prevailing state of the law more accurately, even though it might be considered to be somewhat retrogressive by those who view the advent of the modern information technology revolution as a welcome development.

It must however be stressed, that Decary JA did not go as far as to hold that the provision of free public access to the Internet was irredeemably non-charitable. On the contrary, he reasoned that if VRFA's purposes had been framed in terms which confined it to the provision of information on matters adjudged to be charitable, he would conceivably have granted its application. A look at the position in the United Kingdom (where the criteria for the conferment of charitable status are more or less the same as in Canada) suggests that this reasoning is perfectly justified. This is because the UK Charity Commission has registered at least two Internet providers whose objects were expressed in the sort of restrictive language contemplated by Decary JA. These are the Doverdeal Internet Project and the Internet College.

In the circumstances, the most appropriate outcome in the present case would perhaps have been for the court (i) to decide that VRFA's purposes were not exclusively charitable and (ii) to direct the society to reformulate its purposes so as to eliminate the non-charitable dimension and then re-apply for registration as a charitable organisation.

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Bibliography

Alldridge, P (1997) 'Anoraks among all the Suits and Jeans: Computers, Law and Legal Academy' 2 Journal of Information Law and Technology. <http://elj.warwick.ac.uk/jilt/wip/97_2aldr/default.htm>

Charity Commission (1998) Framework for the Review of the Register of Charities <http://www.charity-commission.gov.uk/rorframe.htm>

Home Office (1989) Charities: A Framework for the Future (London, HMSO) Cm 694.

Ontario Law Reform Commission (1996) Report on the Law of Charities. <http://www.attorneygeneral.jus.gov.on.ca/olrc/charities/main.htm>

Pettitt, P (1997) Equity and the Law of Trusts 8th ed (London. Butterworth).

Waelde, C (1996) 'Law and the Information Superhighway by Henry Perritt (1996)' 3 Journal of Information Law and Technology. <http://elj.warwick.ac.uk/jilt/bookrev/3waelde/default.htm>

Note also that the full text of the VRFA case is reproduced on Vancouver Community Network's website. <http://www.vcn.bc.ca/vcn/charitable-status/full-text.html>