Will the New Canada Not-for-profit Corporations Act limit foreign activities by Canadian charities?

November 30, 2009 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: New corporate non-profit acts

I am not even going to try to answer this issue.  I tried before to deal with Subsection 16(3) and got the answer wrong.  I am excerpting a piece from a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, who is a partner at McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray to answer the question.

“V.  FAQ
Q1: Is the New Act Effective to Abolish the Ultra Vires Doctrine?  Answer: Yes.

Subsection 16(3) of the New Act provides that:

A corporation has the capacity to carry on its activities, conduct its affairs and exercise its powers in a jurisdiction outside Canada to the extent that the laws of that jurisdiction permit.
Some have seen this provision as problematic for those federal NFP corporations operating in foreign countries.

However, the concern appears to be groundless.  Section 16 of the CNCA is identical to s. 15 of the CBCA.  Sections 15 and 16 of the Business Corporations Act (Ontario) (the “OBCA”) are to the same affect.  As well, s. 15 of the Saskatchewan Non-profit Corporations Act, 1995 (the “Saskatchewan Act”) is substantively to the same effect.  While the provision is new for federal NFP corporations, the same provision has existed for many years in the CBCA and all of the federal, provincial and territorial statutes modelled on the CBCA nary a hint of a problem.

The Dickerson Committee clearly intended to abolish the ultra vires doctrine through what ultimately became s. 15 of the CBCA.  Professor Peter Cumming (as he then was) intended the same in his 1973 Proposals for a New Not-for-profit Corporations Law for Canada.  Section 15 of the CBCA, and its OBCA counterpart, were considered by the Supreme Court of Canada in Communities Economic Development Fund v. Canadian Pickles Corp.,  where Iacobucci J., writing for a unanimous court, held that the ultra vires doctrine had been abolished by s. 15 for corporations that incorporate under the CBCA (and by ss. 15 and 16 for corporations that incorporate under the OBCA).  There was no suggestion in Canadian Pickles that s. 15(3) of the CBCA qualifies the abolition of the ultra vires doctrine in any way, keeping the doctrine alive for business or activities conducted outside of Canada or automatically transforming all corporate acts that breach a foreign law into an ultra vires act under domestic law.

The simple purpose of s. 16(3) is to codify cases such as Bonanza Creek Gold Mining Co. v. R.  In Bonanza Creek, the Judicial Committee of the Privy Council stated that, in the absence of express legislative restrictions, a provincially-incorporated corporation may accept powers and rights conferred on it by authorities outside of its incorporation jurisdiction.  Laws of a host foreign jurisdiction can always limit the powers exercisable in that jurisdiction by a federal, provincial or territorial corporation.  Extrapolating Bonanza Creek, a CBCA corporation or a CNCA corporation should be able to accept powers and rights conferred on it by authorities outside of Canada in the absence of express legislative restrictions to the contrary.

Even on a plain reading, s. 16(3) is enabling, not disabling.  It contains a positive statement of the corporation’s capacity to operate outside of Canada.  It does not in any way negate the capacity conferred by s. 16(1), which the Supreme Court has held to be sufficient to abrogate the ultra vires doctrine.  Despite s. 16(1) of the New Act, it is possible for a host foreign law to prohibit or restrict a federal NFP corporation from operating within the host jurisdiction.  Canadian corporate capacity cannot trump the application of foreign law.

By the same token, the ultra vires doctrine is purely a function of the domestic law that governs a corporation.  Foreign law can make a corporate act illegal but not ultra vires.

In any event, s. 17(3) of the New Act also has potential application.  It reinforces that the legislative intent of the New Act is enabling - specifically that a mere contravention of the New Act does not result in a declaration of invalidity.  The CBCA formulation for abolition of the ultra vires doctrine has withstood judicial scrutiny at the highest level.  It would have been counterproductive to undermine this certainty by tinkering with the legislative formulation for abolishing the ultra vires doctrine in the New Act.”

Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

mark@blumbergs.ca
416.361.1982
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