Académique Documents
Professionnel Documents
Culture Documents
Prof. Ge Yunsong
Visiting Prof. Karla Simon
with the assistance of
Visiting Prof. Leon Irish
Beijing
2005/2006 Academic Year
ii
TABLE OF CONTENTS
Chapter 1
1.1
1.2
1.3
20
1.4
31
1.5
37
1.6
71
1.7
77
Chapter 2
87
2.1
88
2.2
89
2.3
90
2.4
95
2.5
104
2.6
Discussion examples
108
2.7
Discussion questions
111
Chapter 3
111
3.1
111
iii
3.2
3.3
3.4
3.5
113
117
121
150
Chapter 4
151
4.1
151
4.1.1
151
4.1.2
154
4.1.3
155
4.2
159
4.3
174
4.3.1
174
4.3.2
181
4.4
181
4.5
184
Chapter 5
185
5.1
Introduction
185
5.2
186
5.2.1
186
5.2.2
188
Southwood v. A.G.
192
5.2.3
iv
5.3
5.2.4
192
5.2.5
198
5.2.6
205
5.2.7
206
Economic Activities
209
5.3.1
209
5.3.2
210
5.3.3
Discussion Questions
214
Chapter 6
215
6.1
NPO Accounting
215
217
Audits of NPOs
218
6.2.1
219
6.2.2
6.2
Corporations Act
6.3
221
223
Chapter 7
224
7.1
224
224
7.1.2
225
7.1.3
226
7.1.4
7.2.
7.3
7.4
228
233
235
235
7.2.1
235
7.2.2
236
7.2.3
237
7.2.4
Discussion questions
242
242
7.3.1
244
Discussion Questions.
246
vi
1.1
1.2
1.3
20
1.4
31
1.5
37
1.6
71
1.7
77
(1) Everyone has the right to freedom of peaceful assembly and association.
(2) No one may be compelled to belong to an association.
Article 2
1. Each State Party to the present Covenant undertakes to respect and to
ensure to all individuals within its territory and subject to its jurisdiction the
rights recognized in the present Covenant, without distinction of any kind,
such as race, colour, sex, language, religion, political or other opinion,
national or social origin, property, birth or other status.
2. Where not already provided for by existing legislative or other measures,
each State Party to the present Covenant undertakes to take the necessary
steps, in accordance with its constitutional processes and with the provisions
of the present Covenant, to adopt such legislative or other measures as may
be necessary to give effect to the rights recognized in the present Covenant.
3. Each State Party to the present Covenant undertakes:
(a) To ensure that any person whose rights or freedoms as herein recognized
are violated shall have an effective remedy, notwithstanding that the violation
has been committed by persons acting in an official capacity;
(b) To ensure that any person claiming such a remedy shall have his right
thereto determined by competent judicial, administrative or legislative
authorities, or by any other competent authority provided for by the legal
system of the State, and to develop the possibilities of judicial remedy;
(c) To ensure that the competent authorities shall enforce such remedies when
granted.
Article 19
1. Everyone shall have the right to hold opinions without interference.
2. Everyone shall have the right to freedom of expression; this right shall include
freedom to seek, receive and impart information and ideas of all kinds, regardless of
frontiers, either orally, in writing or in print, in the form of art, or through any other
media of his choice.
3. The exercise of the rights provided for in paragraph 2 of this article carries with it
special duties and responsibilities. It may therefore be subject to certain restrictions,
but these shall only be such as are provided by law and are necessary:
(a) For respect of the rights or reputations of others;
(b) For the protection of national security or of public order (ordre public), or of
public health or morals.
Article 21
The right of peaceful assembly shall be recognized. No restrictions may be placed on
the exercise of this right other than those imposed in conformity with the law and
which are necessary in a democratic society in the interests of national security or
public safety, public order (ordre public), the protection of public health or morals or
the protection of the rights and freedoms of others.
Article 22
1. Everyone shall have the right to freedom of association with others, including the
right to form and join trade unions for the protection of his interests.
2. No restrictions may be placed on the exercise of this right other than those which
are prescribed by law and which are necessary in a democratic society in the interests
of national security or public safety, public order (ordre public), the protection of
public health or morals or the protection of the rights and freedoms of others. This
article shall not prevent the imposition of lawful restrictions on members of the
armed forces and of the police in their exercise of this right.
1.2
30 January 1998
[Decision of the Grand Chamber]
PROCEDURE
The case was referred to the Court by the European Commission of
Human Rights ("the Commission") on 28 October 1996, . . . It
originated in an application (no. 19392/92) against the Republic of
Turkey lodged with the Commission under Article 25 by a political
party, the United Communist Party of Turkey ("the TBKP"), and two
Turkish nationals, Mr Nihat Sargin and Mr Nabi Yagci, on 7 January
1992.
AS TO THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
7. The United Communist Party of Turkey ("the TBKP"), the first applicant,
was a political party that was dissolved by the Constitutional Court (see
paragraph 10 below). Mr Nihat Sargin and Mr Nabi Yagci, the second and
third applicants, were respectively Chairman and General Secretary of the
TBKP. They live in Istanbul.
8. The TBKP was formed on 4 June 1990. On the same day, its constitution
and programme were submitted to the office of Principal State Counsel at the
Court of Cassation for assessment of their compatibility with the Constitution
and Law no. 2820 on the regulation of political parties ("Law no. 2820" see
paragraph 12 below).
A. The application to have the TBKP dissolved
The Constitutional Court firstly rejected the submission that the TBKP
maintained that one social class, the proletariat, was superior to the others.
Referring to the partys constitution, modern works on Marxist ideology and
contemporary political ideas, it held that the TBKP satisfied the requirements
of democracy, which was based on political pluralism, universal suffrage and
freedom to take part in politics.
The court also rejected the argument, based on section 96(2) of Law no. 2820,
that no political party might claim to be the successor to a party that had
previously been dissolved. In its view, it was entirely natural and consistent
with the concept of democracy for a political party to claim the cultural
heritage of past movements and currents of political thought. The TBKP had
accordingly not infringed the provision relied on by reason only of its
intention of drawing on the experience and achievements of Marxist
institutions.
The Constitutional Court went on to hold that the mere fact that a political
party included in its name a word prohibited by section 96(3) of Law no. 2820,
as the TBKP had done in the present case, sufficed to trigger the application of
that provision and consequently to entail the dissolution of the party
concerned.
As to the allegation that the TBKPs constitution and programme contained
statements likely to undermine the territorial integrity of the State and the
unity of the nation, the Constitutional Court noted, inter alia, that those
documents referred to two nations: the Kurdish nation and the Turkish
nation. But it could not be accepted that there were two nations within the
Republic of Turkey, whose citizens, whatever their ethnic origin, had Turkish
nationality. In reality the proposals in the party constitution covering support
for non-Turkish languages and cultures were intended to create minorities, to
the detriment of the unity of the Turkish nation.
Reiterating that self-determination and regional autonomy were prohibited
by the Constitution, the Constitutional Court said that the State was unitary,
the country indivisible and that there was only one nation. It considered that
national unity was achieved through the integration of communities and
individuals who, irrespective of their ethnic origin and on an equal footing,
formed the nation and founded the State. In Turkey there were no
"minorities" or "national minorities", other than those referred to in the Treaty
of Lausanne and the friendship treaty between Turkey and Bulgaria, and
there were no constitutional or legislative provisions allowing distinctions to
be made between citizens. Like all nationals of foreign descent, nationals of
Kurdish origin could express their identity, but the Constitution and the law
precluded them from forming a nation or a minority distinct from the Turkish
nation. Consequently, objectives which, like those of the TBKP, encouraged
separatism and the division of the Turkish nation were unacceptable and
justified dissolving the party concerned.
Constitution and the laws of the land. He shall also monitor its
activities.
Political parties may be dissolved by the Constitutional Court, on
application by Principal State Counsel.
Founding members and managers, at whatever level, of political
parties which have been permanently dissolved may not become
founding members, managers or financial controllers of any new
political party, nor shall a new party be formed if a majority of its
members previously belonged to a party which has been dissolved..."
B. Law no. 2820 on the regulation of political parties
12. The relevant provisions of Law no. 2820 on the regulation of political
parties read as follows:
Section 78
"Political parties
(a) shall not aim, strive or incite third parties to change: the republican
form of the Turkish State; the ... provisions concerning the absolute
integrity of the Turkish States territory, the absolute unity of its nation,
its official language, its flag or its national anthem; ... the principle that
sovereignty resides unconditionally and unreservedly in the Turkish
nation; ... the provision that sovereign power cannot be transferred to
an individual, a group or a social class...;
jeopardise the existence of the Turkish State and Republic, abolish
fundamental rights and freedoms, introduce discrimination on
grounds of language, race, colour, religion or membership of a
religious sect, or establish, by any means, a system of government
based on any such notion or concept
...
(c) shall not aim to defend or establish the domination of one social
class over the other social classes or the domination of a community or
the setting up of any form of dictatorship; they shall not carry on
activities in pursuit of such aims..."
Section 80
"Political parties shall aim to change the principle of the unitary State
on which the Turkish Republic is founded, nor carry on activities in
pursuit of such an aim."
Section 81
10
11
24. The Court considers that the wording of Article 11 provides an initial
indication as to whether political parties may rely on that provision. It notes
that although Article 11 refers to "freedom of association with others,
including the right to form trade unions", the conjunction "including"
clearly shows that trade unions are but one example among others of the form
in which the right to freedom of association may be exercised. It is therefore
not possible to conclude, as the Government did, that by referring to trade
unions for reasons related mainly to issues that were current at the time
those who drafted the Convention intended to exclude political parties from
the scope of Article 11.
25. However, even more persuasive than the wording of Article 11, in the
Courts view, is the fact that political parties are a form of association essential
to the proper functioning of democracy. In view of the importance of
democracy in the Convention system (see paragraph 45 below), there can be
no doubt that political parties come within the scope of Article 11.
26. As to the Governments allegation that the TBKP had called Turkeys
constitutional order into question and the inferences that were to be drawn
from that fact, it should be said at the outset that at this stage the Court does
not have to decide whether that allegation is true or whether it could be
sustained solely on the basis of the constitution and programme of the party
concerned. The Court refers in this connection to its observations concerning
the necessity of the impugned interference (see paragraphs 42-47 below).
27. The Court notes on the other hand that an association, including a
political party, is not excluded from the protection afforded by the
Convention simply because its activities are regarded by the national
authorities as undermining the constitutional structures of the State and
calling for the imposition of restrictions. As the Court has said in the past,
while it is in principle open to the national authorities to take such action as
they consider necessary to respect the rule of law or to give effect to
constitutional rights, they must do so in a manner which is compatible with
their obligations under the Convention and subject to review by the
Convention institutions (see the Open Door and Dublin Well Woman
v. Ireland judgment of 29 October 1992, Series A no. 246-A, p. 29, 69).
28. The Preamble to the Convention refers to the "common heritage of
political traditions, ideals, freedom and the rule of law" (see paragraph 45
below), of which national constitutions are in fact often the first embodiment.
Through its system of collective enforcement of the rights it establishes (see
the Loizidou v. Turkey (Preliminary Objections) judgment of 23 March 1995,
Series A no. 310, p. 26, 70), the Convention reinforces, in accordance with
the principle of subsidiarity, the protection afforded at national level, but
never limits it (Article 60 of the Convention).
12
29. The Court points out, moreover, that Article 1 requires the States Parties
to "secure to everyone within their jurisdiction the rights and freedoms
defined in Section 1 of th[e] Convention". That provision, together with
Articles 14, 2 to 13 and 63, demarcates the scope of the Convention ratione
personae, materiae and loci (see the Ireland v. the United Kingdom judgment of
18 January 1978, Series A no. 25, p. 90, 238). It makes no distinction as to the
type of rule or measure concerned and does not exclude any part of the
member States jurisdiction from scrutiny under the Convention. It is,
therefore, with respect to their jurisdiction as a whole which is often
exercised in the first place through the Constitution that the States Parties
are called on to show compliance with the Convention.
30. The political and institutional organisation of the member States must
accordingly respect the rights and principles enshrined in the Convention. It
matters little in this context whether the provisions in issue are constitutional
(see, for example, the Gitonas and Others v. Greece judgment of 1 July 1997,
Reports of Judgments and Decisions 1997-V) or merely legislative (see, for
example, the Mathieu-Mohin and Clerfayt v. Belgium judgment of 2 March
1987, Series A no. 113). From the moment that such provisions are the means
by which the State concerned exercises its jurisdiction, they are subject to
review under the Convention.
31. Moreover, it may on occasion prove difficult, even artificial, in
proceedings before the Court, to attempt to distinguish between what forms
part of a States institutional structures and what relates to fundamental rights
in the strict sense. That is particularly true of an order for dissolution of the
kind in issue in the present case. In view of the role played by political parties
(see paragraph 25 above), such measures affect both freedom of association
and, consequently, democracy in the State concerned.
32. It does not, however, follow that the authorities of a State in which an
association, through its activities, jeopardises that States institutions are
deprived of the right to protect those institutions. In this connection, the
Court points out that it has previously held that some compromise between
the requirements of defending democratic society and individual rights is
inherent in the system of the Convention (see, mutatis mutandis, the Klass and
Others v. Germany of 6 September 1978, Series A no. 28, p. 28, 59). For there
to be a compromise of that sort any intervention by the authorities must be in
accordance with paragraph 2 of Article 11, which the Court considers below
(see paragraphs 37 et seq.). Only when that review is complete will the Court
be in a position to decide, in the light of all the circumstances of the case,
whether Article 17 of the Convention should be applied.
13
33. Before the Commission the Government also submitted, in the alternative,
that while Article 11 guaranteed freedom to form an association, it did not on
that account prevent one from being dissolved.
The Commission took the view that freedom of association not only
concerned the right to form a political party but also guaranteed the right of
such a party, once formed, to carry on its political activities freely.
The Court reiterates that the Convention is intended to guarantee rights that
are not theoretical or illusory, but practical and effective (see, among other
authorities, the Artico v. Italy judgment of 13 May 1980, Series A no. 37, p. 16,
33, and the Loizidou judgment cited above, p. 27, 72). The right
guaranteed by Article 11 would be largely theoretical and illusory if it were
limited to the founding of an association, since the national authorities could
immediately disband the association without having to comply with the
Convention. It follows that the protection afforded by Article 11 lasts for an
associations entire life and that dissolution of an association by a countrys
authorities must accordingly satisfy the requirements of paragraph 2 of that
provision (see paragraphs 35-47 below).
34. In conclusion Article 11 is applicable to the facts of the case.
B. Compliance with Article 11
1. Whether there has been an interference . . . .
36. Like the Commission, the Court concludes that there has been an
interference with that right in respect of all three applicants, having regard (in
the case of Mr Sargin and Mr Yagci) to their role as founders and leaders of
the party and to the ban which prevented them from discharging similar
responsibilities in any other political grouping (see paragraph 10 above).
2. Whether the interference was justified
Such an interference will constitute a breach of Article 11 unless it was
"prescribed by law", pursued one or more legitimate aims under
paragraph 2 and was "necessary in a democratic society" for the
achievement of those aims.
(a) "Prescribed by law"
38. It was common ground that the interference was "prescribed by law", as
the measures ordered by the Constitutional Court were based on Articles 2, 3
1, 6, 10 1 and 14 1, and former Article 68 of the Constitution and
sections 78, 81 and 96(3) of Law no. 2820 on the regulation of political parties
(see paragraphs 11-12 above).
14
15
16
foundations of a democratic society and one of the basic conditions for its
progress and each individuals self-fulfilment (see, among other authorities,
the Vogt judgment cited above, p. 25, 52), whereas in the Mathieu-Mohin
and Clerfayt judgment cited above, it noted the prime importance of Article 3
of Protocol No. 1, which enshrines a characteristic principle of an effective
political democracy (p. 22, 47).
46. Consequently, the exceptions set out in Article 11 are, where political
parties are concerned, to be construed strictly; only convincing and
compelling reasons can justify restrictions on such parties freedom of
association. In determining whether a necessity within the meaning of Article
11 2 exists, the Contracting States possess only a limited margin of
appreciation, which goes hand in hand with rigorous European supervision
embracing both the law and the decisions applying it, including those given
by independent courts. The Court has already held that such scrutiny was
necessary in a case concerning a Member of Parliament who had been
convicted of proffering insults (see the Castells judgment cited above, pp. 2223, 42); such scrutiny is all the more necessary where an entire political
party is dissolved and its leaders banned from carrying on any similar activity
in the future.
47. When the Court carries out its scrutiny, its task is not to substitute its own
view for that of the relevant national authorities but rather to review under
Article 11 the decisions they delivered in the exercise of their discretion. This
does not mean that it has to confine itself to ascertaining whether the
respondent State exercised its discretion reasonably, carefully and in good
faith; it must look at the interference complained of in the light of the case as a
whole and determine whether it was "proportionate to the legitimate aim
pursued" and whether the reasons adduced by the national authorities to
justify it are "relevant and sufficient". In so doing, the Court has to satisfy
itself that the national authorities applied standards which were in conformity
with the principles embodied in Article 11 and, moreover, that they based
their decisions on an acceptable assessment of the relevant facts (see, mutatis
mutandis, the Jersild v. Denmark judgment of 23 September 1994, Series A no.
298, p. 26, 31).
(ii) Application of the principles to the present case
Submissions of those appearing before the Court [omitted]
(b) The Courts assessment
51. The Court notes at the outset that the TBKP was dissolved even before it
had been able to start its activities and that the dissolution was therefore
ordered solely on the basis of the TBKPs constitution and programme, which
however as is for that matter apparent from the Constitutional Courts
decision contain nothing to suggest that they did not reflect the partys true
17
objectives and its leaders true intentions (see paragraph 58 below). Like the
national authorities, the Court will therefore take those documents as a basis
for assessing whether the interference in question was necessary.
52. It is to be noted further that in support of his application for a dissolution
order, Principal State Counsel at the Court of Cassation made four
submissions. Two of these were rejected by the Constitutional Court: the
claim that the TBKP intended to maintain that the proletariat was superior to
the other social classes and the argument that it was contrary to section 96(2)
of Law no. 2820 for it to claim to be the successor to a political party that had
previously been dissolved the Turkish Workers Party (see paragraph 9
above).
The Court can therefore confine its review to the other two grounds, which
were upheld by the Constitutional Court.
53. In the first of these it was alleged that the TBKP had included the word
"communist" in its name, contrary to section 96(3) of Law no. 2820 (see
paragraph 12 above). The Constitutional Court held, in particular, that that
provision prohibited the formation of political parties on a purely formal
ground: the mere fact of using a name proscribed in that section sufficed to
trigger its application and consequently to entail the dissolution of any
political party that, like the TBKP, had contravened it (see paragraph 10
above).
54. The Court considers that a political partys choice of name cannot in
principle justify a measure as drastic as dissolution, in the absence of other
relevant and sufficient circumstances.
In this connection, it must be noted, firstly, that on 12 April 1991 the
provisions of the Criminal Code making it a criminal offence to carry on
political activities inspired, in particular, by communist ideology were
repealed by Law no. 3713 on the prevention of terrorism. The Court also
attaches much weight to the Constitutional Courts finding that the TBKP was
not seeking, in spite of its name, to establish the domination of one social class
over the others, and that, on the contrary, it satisfied the requirements of
democracy, including political pluralism, universal suffrage and freedom to
take part in politics (see paragraph 10 above). In that respect, the TBKP was
clearly different from the German Communist Party, which was dissolved on
17 August 1956 by the German Constitutional Court (see the Commissions
decision cited above in the German Communist Party case).
[Ed.] In its judgment banning the former Communist Party (KPD) (BVerfGE 5,p. 85), the
Federal Constitutional Court held that not only the 'tactics of conflict' employed by the former
KPD but also the different phases of the process leading to attainment of its final objective of
'socialist rule' [sozialistische Herrschaft], namely proletarian revolution by peaceful or violent
18
19
freely, if they agree not to resort to violence in any form in order to resolve the
problem and if they are able to take part in politics with their own national
identity."
57. The Court considers one of the principal characteristics of democracy to
be the possibility it offers of resolving a countrys problems through dialogue,
without recourse to violence, even when they are irksome. Democracy thrives
on freedom of expression. From that point of view, there can be no
justification for hindering a political group solely because it seeks to debate in
public the situation of part of the States population and to take part in the
nations political life in order to find, according to democratic rules, solutions
capable of satisfying everyone concerned. To judge by its programme, that
was indeed the TBKPs objective in this area. That distinguishes the present
case from those referred to by the Government (see paragraph 49 above).
58. Admittedly, it cannot be ruled out that a partys political programme may
conceal objectives and intentions different from the ones it proclaims. To
verify that it does not, the content of the programme must be compared with
the partys actions and the positions it defends. In the present case, the TBKPs
programme could hardly have been belied by any practical action it took,
since it was dissolved immediately after being formed and accordingly did
not even have time to take any action. It was thus penalised for conduct
relating solely to the exercise of freedom of expression.
59. The Court is also prepared to take into account the background of cases
before it, in particular the difficulties associated with the fight against
terrorism (see, among other authorities, the Ireland v. the United Kingdom
judgment cited above, pp. 9 et seq., 11 et seq., and the Aksoy v. Turkey
judgment of 18 December 1996, Reports 1996-VI, p. ..., 70 and 84). In the
present case, however, it finds no evidence to enable it to conclude, in the
absence of any activity by the TBKP, that the party bore any responsibility for
the problems which terrorism poses in Turkey. . . .
61. Regard being had to all the above, a measure as drastic as the immediate
and permanent dissolution of the TBKP, ordered before its activities had even
started and coupled with a ban barring its leaders from discharging any other
political responsibility, is disproportionate to the aim pursued and
consequently unnecessary in a democratic society. It follows that the measure
infringed Article 11 of the Convention.
20
10 July 1998
AS TO THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
7. The applicants all live at Florina, in northern Greece, on the border of the
Former Yugoslav Republic of Macedonia.
8. On 18 April 1990 the applicants, who claim to be of "Macedonian" ethnic
origin and to have a "Macedonian national consciousness", decided together
with forty-nine other people to form a non-profit-making association
(somatio) called "Home of Macedonian Civilisation" (Stegi Makedonikou
Politismou). The associations headquarters were to be at Florina. According
to clause 2 of its memorandum of association, the associations objects were
"(a) the cultural, intellectual and artistic development of its members and of
the inhabitants of Florina in general and the fostering of a spirit of
cooperation, solidarity and love between them; (b) cultural decentralisation
and the preservation of intellectual and artistic endeavours and traditions and
of the civilisations monuments and, more generally, the promotion and
development of [their] folk culture; and (c) the protection of the regions
natural and cultural environment".
A. The proceedings in the Florina Court of First Instance
9. On 12 June 1990 the applicants, who constituted the provisional
management committee of the association, lodged an application under
Article 79 of the Civil Code with the Florina Court of First Instance for
registration of their association under the name of "Home of Macedonian
Civilisation".
10. On 9 August 1990 the court, having heard the applicants, refused their
application on the following grounds:
"It is apparent from the documents lodged by the applicants and from the
information which the Court may take into consideration of its own motion
that recognition of the association under this same name has already been
sought, in an application on 19 January 1990 which was dismissed by this
Court on 19 March 1990... Now that the words [the defence of national
independence] that constituted the ground on which the aforementioned
application was dismissed as being contrary to law have been deleted, a fresh
application has been made for recognition of the association in question. Some
of the founder members of the association who are on the provisional
management committee have engaged in promoting the idea that there is a
Macedonian minority in Greece (see, for example, the newspapers Makhitis,
Ellinikos Voras, Nea and Stokhos of 28 June 1990, 24 June 1990, 18 June 1990
21
and 28 June 1990 respectively); these newspapers strengthen the Court all the
more in its previous opinion as none of the applicants has so far cast any
doubt on the matters set out in these newspapers , namely that they
travelled to Copenhagen on 9 June 1990 and took part in the Conference on
Security and Co-operation in Europe (CSCE), where they maintained that
there was a Macedonian minority in Greece and even congratulated Professor
Ataov, a Turk, who read out a text containing provocative and unacceptable
allegations against Greece. One of the members of the provisional
management committee, Mr Constantinos Gotsis, refused, in the course of
proceedings in the Florina Court of First Instance against the publisher of the
newspaper Stokhos, to accept that he was Greek Besides, sixteen founder
members of the above-mentioned association reportedly contributed money
so that Christos Sidiropoulos and Stavros Anastassiadis could go to
Copenhagen to defend their ideas On the basis of the foregoing
circumstances, which have been proved, the Court considers that the true
object of the aforementioned association is not the one indicated in clause 2 of
the memorandum of association but the promotion of the idea that there is a
Macedonian minority in Greece, which is contrary to the countrys national
interest and consequently contrary to law.
B. The proceedings in the Salonika Court of Appeal
11. On 7 September 1990 the applicants appealed against that judgment to the
Salonika Court of Appeal. After hearing the applicants, that court dismissed
their appeal on the following grounds:
III. In view of the strong public interest at stake, the court, when examining
the grounds of an application being heard under the special procedure, as in
the present case, may and indeed must take into consideration, of its own
motion, matters over and above the evidence submitted to the court by the
parties in particular, real events and situations reported in publications
(books, magazines, newspapers, etc.) accessible to any interested person and
this notwithstanding the ordinary rules on the burden of proof. On the basis
of the well-known facts set out below, whose validity the Court does not
doubt, the Court accepts the following in relation to the case: [a long list of
historical interpretation as well as political discussion tending to show that
being Macedonian is inconsistent with being Greek.]
The aim is to create a Macedonian Question with international
ramifications. The parties applying for recognition of the above association
are the enablers in this operation. This, in combination with the name of the
proposed association and with the whole content of its memorandum of
association, renders at least dubious the associations aims, which according
to the founder members seemingly lawful statement in clause 2 of the
memorandum of association, consist in the cultural, intellectual and artistic
advancement of its members, cultural decentralisation, etc. This assessment is
22
23
13. In a judgment of 16 May 1994 the Court of Cassation upheld the Court of
Appeals judgment. It considered that the grounds of appeal were vague and
unfounded. It pointed out that under the special procedure for granting
recognition to associations, the inquisitorial system allowed the court to take
into account, of its own motion, matters which had not been mentioned by the
parties and that the court was not bound by the parties evidence and
assertions. The Court of Appeal had accepted the truth of certain
circumstances in reliance on the content of the associations memorandum of
association and on matters that were common knowledge and supported by
documents such as the press articles; and there had not, moreover, been any
distortion of the content of the memorandum of association. . . .
ii. extracts from the press articles on which the greek courts relied . . . .
14. Article in the 5 February 1991 issue of the Ethnos newspaper:
Skopje: Skopje has made use of three Greeks one of them a public
employee who made allegations of repression against the Greek
Government to a representative of the American embassy visiting villages in
in Florina. . . .
Sidiropoulos is a forestry official employed by the Greek State. These and
other Greeks belonging to an association called Home of Macedonian
Civilisation are controlled by Vasil Tuvorkovsky, a member of the central
committee of Yugoslavias Presidential Council and a frequent visitor to
Greece, where he stays in a mobile home in Halkidiki.
15. Article in the 17 March 1991 issue of the Ellinikos Voras newspaper: . . .
The application to be heard tomorrow in the Salonika Court of Appeal for
registration of the Home of Macedonian Civilisation will in fact set in motion
a provocation of the Greek system of justice which was planned abroad as far
back as 1989. The aim is to trap Greece into a series of legal refusals which
will then be used against Greece by Skopje in the European Court of Human
Rights and the Committee of Ministers at the Council of Europe in
Strasbourg. The plot is satanic because if the Greek courts accept the
application by the leader of the Aegean Macedonians, Greece will be
legalising a Trojan horse sent by Skopje to trap unwitting bilingual Greek
Macedonians and deliver them into the claws of foreigners and of
propaganda inspired from abroad.
The Slavic plot which is to be submitted tomorrow in Salonika to
unsuspecting appeal court judges is part of a directive released by
independence activists in Australia two years ago, in 1989, following their
first appearance on the international stage at the Council of Europe in
Strasbourg. At the time Macedonian professors Michael Radin and Chris
24
Popov, who are Australian citizens, released a plan of action entitled The
road to Macedonian human rights on behalf of the Salonika section. The
report was written in English and printed abroad and its title mentions that it
is a publication of Christos Sidiropouloss secret phantom organisation in
Salonika. It contains 55 pages; page 38 contains the following revelations:
The following scenario is a convincing way of lawfully challenging the
denial of Macedonians rights by the Greek State. Macedonians from Aegean
Macedonia could, for instance, set up an association for popular dances with
the name Macedonian Folklore Association. The association will
undoubtedly be forbidden by the laws mentioned above, which prohibit
establishing groups on the ground of nationality. Provided that all appeals to
the lower courts are turned down, the case will go through the Greek judicial
system until it reaches the countrys highest court, the Court of Cassation. The
refusal of an appeal at that level will mean that all domestic legal remedies
have been exhausted. One of the conditions for submission of a case to the
Convention for the Protection of Human Rights will thus have been fulfilled.
Within six months of the Supreme Courts decision an application can be
submitted on the ground that the right to freedom of peaceful assembly and
association has been violated, with the result that the Court of Human Rights,
or the Committee of Ministers of the Council of Europe, will deliver a decision
against Greece.
III. RELEVANT DOMESTIC LAW
A. Constitution
16. Article 4 1 of the Constitution provides:
"All Greeks shall be equal before the law."
17. Article 12 1 of the Constitution provides:
"All Greeks shall be entitled to form non-profit-making unions and
associations, in accordance with the law, which may not, however, make the
exercise of this right subject to prior authorisation."
B. Civil Code
18. The Civil Code contains the following provisions concerning non-profitmaking associations:
Article 78
Associations
25
Article 79
Application for the registration of an association
"In order to have an association registered, its founders or its management
committee must lodge an application with the Court of First Instance. The
application must be accompanied by the document establishing the
association, a list of the names of the members of the management committee
and the memorandum of association dated and signed by the committees
members."
Article 80
Memorandum of association
"To be valid, the memorandum of association must specify (a) the object,
name and headquarters of the association; (b) the conditions of admission,
withdrawal and expulsion of its members, together with their rights and
obligations; "
Article 81
Decision to register an association
"The Court of First Instance shall allow the application if it is satisfied that
all the legal requirements have been complied with"
Article 105
Dissolution of an association
"The Court of First Instance shall order the dissolution of an association
(c) if the association pursues aims different from those laid down in its
memorandum of association or if its object or its functioning prove to be
contrary to law, morality or public policy."
C. Code of Civil Procedure
19. The non-contentious procedure (ekoussia dikeodossia) followed by the
courts when they examine, among other things, applications to register an
association is governed by the following provisions:
26
Article 744
"The court may of its own motion order any measure which might lead to
the establishment of relevant facts, even if these are not mentioned in the
parties submissions"
27
31. The Court considers, as the applicants and the Commission did, that the
Greek courts refusal to register the applicants association amounts to an
interference by the authorities with the applicants exercise of their right to
freedom of association; the refusal deprived the applicants of any possibility
of jointly or individually pursuing the aims they had laid down in the
associations memorandum of association and of thus exercising the right in
question. This interference was not denied by the
Greek Government.
B. Justification for the interference
32. Such an interference will contravene Article 11 unless it was "prescribed
by law", pursued one or more of the legitimate aims under paragraph 2 and
was "necessary in a democratic society" for achieving them.
1. "Prescribed by law" . . . .
36. The Court considers that the interference was "prescribed by law", as
Articles 79 to 81 of the Civil Code allowed the courts to refuse an application
to register an association where they found that the validity of its
memorandum of association was open to question. More especially, the Court
notes like the Government that an associations aim, as set out in its
memorandum of association, must be the one really pursued by it and not be
contrary to law, morality or public policy; Article 105 of the Civil Code,
moreover, provides for the dissolution of an association already constituted
where it proves to be pursuing an aim different from the one laid down in its
memorandum of association (see paragraph 18 above).
2. Legitimate aim
37. The Government submitted that the interference in question pursued
several aims: the maintenance of national security, the prevention of disorder
and the upholding of Greeces cultural traditions and historical and cultural
symbols.
38. The Court is not persuaded that the last of those aims may constitute one
of the "legitimate aims" referred to in Article 11 2. Exceptions to freedom of
expression must be narrowly interpreted, such that the enumeration of them
is strictly exhaustive and the definition of them necessarily restrictive.
39. The Court notes nevertheless that the Salonika Court of Appeal based its
decision on the conviction that the applicants intended to dispute the Greek
identity of Macedonia and its inhabitants and undermine Greeces territorial
integrity. Having regard to the situation prevailing in the Balkans at the time
and to the political friction between Greece and the FYROM (see paragraph 42
28
below), the Court accepts that the interference in issue was intended to
protect national security and prevent disorder.
3. "Necessary in a democratic society"
40. The Court points out that the right to form an association is an inherent
part of the right set forth in Article 11, even if that Article only makes express
reference to the right to form trade unions. That citizens should be able to
form a legal entity in order to act collectively in a field of mutual interest is
one of the most important aspects of the right to freedom of association,
without which that right would be deprived of any meaning. The way in
which national legislation enshrines this freedom and its practical application
by the authorities reveal the state of democracy in the country concerned.
Certainly States have a right to satisfy themselves that an associations aim
and activities are in conformity with the rules laid down in legislation, but
they must do so in a manner compatible with their obligations under the
Convention and subject to review by the Convention institutions.
Consequently, the exceptions set out in Article 11 are to be construed strictly;
only convincing and compelling reasons can justify restrictions on freedom of
association. In determining whether a necessity within the meaning of Article
11 2 exists, the States have only a limited margin of appreciation, which goes
hand in hand with rigorous European supervision embracing both the law
and the decisions applying it, including those given by independent courts.
When the Court carries out its scrutiny, its task is not to substitute its own
view for that of the relevant national authorities but rather to review under
Article 11 the decisions they delivered in the exercise of their discretion. This
does not mean that it has to confine itself to ascertaining whether the
respondent State exercised its discretion reasonably, carefully and in good
faith; it must look at the interference complained of in the light of the case as a
whole and determine whether it was "proportionate to the legitimate aim
pursued" and whether the reasons adduced by the national authorities to
justify it are "relevant and sufficient". In so doing, the Court has to satisfy
itself that the national authorities applied standards which were in conformity
with the principles embodied in Article 11 and, moreover, that they based
their decisions on an acceptable assessment of the relevant facts (see, the
United Communist Party of Turkey and Others judgment, 46 and 47). . . . .
44. The Court notes, in the first place, that the aims of the association called
"Home of Macedonian Civilisation", as set out in its memorandum of
association, were exclusively to preserve and develop the traditions and folk
culture of the Florina region (see paragraph 8 above). Such aims appear to the
Court to be perfectly clear and legitimate; the inhabitants of a region in a
country are entitled to form associations in order to promote the regions
special characteristics, for historical as well as economic reasons. Even
29
supposing that the founders of an association like the one in the instant case
assert a minority consciousness, the Document of the Copenhagen Meeting of
the Conference on the Human Dimension of the CSCE (Section IV) of 29 June
1990 and the Charter of Paris for a New Europe of 21 November 1990 which
Greece has signed allow them to form associations to protect their cultural
and spiritual heritage. In the second place, in justifying its refusal of the
application for registration, the Salonika Court of Appeal decided that it had
"good reasons to believe that the purpose of using the term Macedonian
[was] to dispute the Greek identity of Macedonia and its inhabitants by
indirect and therefore underhand means, and discern[ed] in it an intention on
the part of the founders to undermine Greeces territorial integrity".
In reaching that decision, the Court of Appeal, of its own motion, took into
consideration as evidence material which the applicants maintained they had
not been able to challenge during the proceedings as it had not been placed in
the case file.
45. The Court reiterates that the taking of evidence is governed primarily by
the rules of domestic law and that it is in principle for the national courts to
assess the evidence before them (see, among many other authorities, the Sadi
v. France judgment of 20 September 1993, Series A no. 261-C, p. 56, 43).
However, careful study of the press articles in question (see paragraphs 14
and 15 above), which had a decisive influence on the outcome of the
proceedings, shows that they reported matters some of which were
unconnected with the applicants and drew inferences derived from a
subjective assessment by the authors of the articles. Relying on those articles
and having regard to the political dispute that then dominated relations
between Greece and the FYROM (the latter of which had not yet even
proclaimed its independence at the material time), the national courts held
that the applicants and the association they wished to found represented a
danger to Greeces territorial integrity.
That statement, however, was based on a mere suspicion as to the true
intentions of the associations founders and the activities it might have
engaged in once it had begun to function.
The Court also takes into account in this context the fact that Greek law does
not lay down a system of preventive review for setting up non-profit-making
associations. Article 12 of the Constitution provides that the forming of
associations cannot be made subject to prior authorisation (see paragraph 17
above); Article 81 of the Civil Code allows the courts merely to review
lawfulness and not to review desirability (see paragraph 18 above).
46. In the United Communist Party of Turkey and Others judgment cited
above (p. , 58) the Court held that it could not rule out that a political
30
partys programme might conceal objectives and intentions different from the
ones it proclaimed. To verify that it did not, the content of the programme
had to be compared with the partys actions and the positions it defended.
Similarly, in the instant case the Court does not rule out that, once founded,
the association might, under cover of the aims mentioned in its memorandum
of association, have engaged in activities incompatible with those aims. Such
a possibility, which the national courts saw as a certainty, could hardly have
been belied by any practical action as, having never existed, the association
did not have time to take any action. If the possibility had become a reality,
the authorities would not have been powerless; under Article 105 of the Civil
Code, the Court of First Instance could order that the association should be
dissolved if it subsequently pursued an aim different from the one laid down
in its memorandum of association or if its functioning proved to be contrary
to law, morality or public policy (see paragraph 18 above).
47. In the light of the foregoing, the Court concludes that the refusal to
register the applicants association was disproportionate to the objectives
pursued. That being so, there has been a violation of Article 11.
1.4
31
32
33
34
protection of Articles 10 and 11 of the Convention (see, among other authorities, the
United Communist Party of Turkey and Others judgment cited above, pp. 20-21,
42-43).
38. In the instant case, it must firstly be noted that in its judgment of 14 July 1993,
the reasons given by the Constitutional Court for ordering ZDEPs dissolution
were that the partys programme tended to undermine the territorial integrity of the
State and the unity of the nation, while violating the Constitution and sections 78(a)
and 81(a) and (b) of the Law on the regulation of political parties. In the
Constitutional Courts view, the programme was based on the assumption that there
was a separate Kurdish people in Turkey with its own culture and language. The
Kurds were presented in the programme as an oppressed people whose democratic
rights were being completely ignored. ZDEP had called for a right to selfdetermination for the Kurds and supported their right to wage a war of
independence. Its stance was similar to that of terrorist organisations and
constituted in itself an incitement to insurrection. That justified making an order for
its dissolution (see paragraph 14 above).
In addition, the Constitutional Court found that, by advocating the abolition of the
government Religious Affairs Department in its programme (on the ground that
religious affairs should be under the control of the religious institutions themselves),
ZDEP had undermined the principle of secularism. The Constitutional Court
therefore held that there had been a breach of section 89 of the Law on the regulation
of political parties.
39. In the light of these factors, the Court must consider the content of the passages
in issue and determine whether it justified ZDEPs dissolution.
With regard to the first issue the Court reiterates that when it carries out its
scrutiny, its task is not to substitute its own view for that of the relevant national
authorities but rather to review under Article 11 the decisions they delivered in the
exercise of their discretion. In so doing, the Court has in particular to satisfy itself
that the national authorities based their decisions on an acceptable assessment of the
relevant facts (see, mutatis mutandis, the Socialist Party and Others judgment cited
above, p. 1256, 44).
40. Having analysed ZDEPs programme, the Court finds nothing in it that can be
considered a call for the use of violence, an uprising or any other form of rejection of
democratic principles. That, in the Courts view is an essential factor to be taken into
consideration (see, mutatis mutandis, Okuolu v. Turkey [GC], no. 24246/94, 48, 8
July 1999, unreported). On the contrary, the need to abide by democratic rules when
implementing the proposed political project was stressed in the programme. Among
other things, it says that ZDEP proposes the creation of a democratic assembly of
representatives of the people elected by universal suffrage and favours a peaceful
and democratic solution to the Kurdish problem, subject to the strict application of
international instruments such as the Helsinki Final Act, the European Convention
on Human Rights and the Universal Declaration of Human Rights (see paragraph 8
above).
According to the Government, however, ZDEP openly supported the armed
struggle by declaring in a statement leaving no room for doubt that ZDEP
supports the just and legitimate struggle of the peoples for independence and
freedom. It stands by them in this struggle.
35
While the Court considers that that phrase did represent a statement of intent by
ZDEP to make certain political demands, it finds nothing in it that would incite
people to use violence or break the rules of democracy. In that respect, the passage
concerned is virtually indistinguishable from passages to be found in the
programmes of certain bodies that are politically active in other member States of the
Council of Europe.
41. The Constitutional Court also criticised ZDEP for having distinguished two
nations in its programme the Kurds and the Turks and for having referred to the
existence of minorities and to their right to self-determination, to the detriment of the
unity of the Turkish nation and the territorial integrity of the Turkish State.
The Court notes that, taken together, the passages in issue present a political project
whose aim is in essence the establishment in accordance with democratic rules of
a social order encompassing the Turkish and Kurdish peoples. It is stated
elsewhere in the programme that [t]he Freedom and Democracy Party is
campaigning for the voluntary unification of the Kurdish and Turkish peoples, who
participated in the foundation of the country. It is true that in its programme
ZDEP also refers to the right to self-determination of the national or religious
minorities; however, taken in context, those words do not encourage people to seek
separation from Turkey but are intended instead to emphasise that the proposed
political project must be underpinned by the freely given, democratically expressed,
consent of the Kurds.
In the Courts view, the fact that such a political project is considered incompatible
with the current principles and structures of the Turkish State does not mean that it
infringes democratic rules. It is of the essence of democracy to allow diverse political
projects to be proposed and debated, even those that call into question the way a
State is currently organised, provided that they do not harm democracy itself (see the
Socialist Party and Others judgment cited above, p. 1257, 47). The same applies,
too, to ZDEPs proposals for the abolition of the Religious Affairs Department.
42. Admittedly, it cannot be ruled out that the passages concerned may conceal a
different political design from the publicly proclaimed one. However, given the
absence of any concrete acts suggesting otherwise, there is no reason to cast doubts
on the genuineness of ZDEPs programme. ZDEP was therefore penalised solely
for exercising its freedom of expression.
43. The Court must now determine whether, in the light of the above
considerations, ZDEPs dissolution can be considered to have been necessary in a
democratic society, that is to say whether it met a pressing social need and was
proportionate to the legitimate aim pursued (see the Socialist Party and Others
judgment cited above, p. 1258, 49).
44. In view of the essential role played by political parties in the proper functioning
of democracy (see the United Communist Party of Turkey and Others judgment cited
above, p. 17, 25), the exceptions set out in Article 11 are, where political parties are
concerned, to be construed strictly; only convincing and compelling reasons can
justify restrictions on such parties freedom of association. In determining whether a
necessity within the meaning of Article 11 2 exists, the Contracting States have only
a limited margin of appreciation, which goes hand in hand with rigorous European
supervision embracing both the law and the decisions applying it, including those
given by independent courts (ibid., p. 22, 46).
36
Further, the Court has previously held that one of the principal characteristics of
democracy is the possibility it offers of resolving a countrys problems through
dialogue, without recourse to violence, even when they are irksome. Democracy
thrives on freedom of expression. From that point of view, there can be no
justification for hindering a political group solely because it seeks to debate in public
the situation of part of the States population and to take part in the nations political
life in order to find, according to democratic rules, solutions capable of satisfying
everyone concerned (see the Socialist Party and Others judgment cited above,
p. 1256, 45).
45. In the instant case, the Court notes that the interference in issue was radical:
ZDEP was definitively dissolved with immediate effect, its assets were liquidated
and transferred ipso jure to the Treasury and its leaders were banned from carrying
on certain similar political activities. Such drastic measures may be taken only in the
most serious cases.
46. The Court has already noted that the relevant passages in ZDEPs
programme, though voicing criticism and demands, do not in its view call into
question the need to comply with the principles and rules of democracy.
The Court takes into account the background of cases before it, in particular the
difficulties associated with the fight against terrorism (see, among other authorities,
the United Communist Party of Turkey and Others
judgment cited above, p. 27, 59). In that connection, the Government have affirmed
that ZDEP bears a share of the responsibility for the problems caused by terrorism
in Turkey (see paragraph 35 above). The Government nonetheless fail to explain how
that could be so as ZDEP scarcely had time to take any significant action. It was
formed on 19 October 1992, the first application for it to be dissolved was made on 29
January 1993 and it was dissolved, initially at a meeting of its founding members on
30 April 1993 and then by the Constitutional Court on 14 July 1993. Any danger there
may have been could have come only from ZDEPs programme, but there, too, the
Government have not established in any convincing manner how, despite their
declared attachment to democracy and peaceful solutions, the passages in issue in
ZDEPs programme could be regarded as having exacerbated terrorism in Turkey. .
..
48. In conclusion, ZDEPs dissolution was disproportionate to the aim pursued
and consequently unnecessary in a democratic society. It follows that there has been
a violation of Article 11 of the Convention.
1.5
JUDGMENT
(Grand Chamber)
STRASBOURG
13 February 2003
PROCEDURE
37
38
predicted that Refah might obtain 67% of the votes in the general election to
be held roughly four years later. . . .
B. Proceedings in the Constitutional Court
1. Principal State Counsels submissions
12. On 21 May 1997 Principal State Counsel at the Court of Cassation
applied to the Turkish Constitutional Court to have Refah dissolved on the
grounds that it was a centre (mihrak) of activities contrary to the principles
of secularism. . . .
4. The Constitutional Courts judgments
22. In a judgment of 9 January 1998, which it delivered following
proceedings on preliminary issues it had instituted of its own motion as the
court dealing with the merits, the Constitutional Court ruled that, regard
being had to Article 69 6 of the Constitution, the second paragraph of
section 103 of the Law on the regulation of political parties was
unconstitutional and declared it null and void. Article 69 6, taken together
with section 101(d) of the same Law, provided that for a political party to be
considered a centre of activities contrary to the fundamental principles of
the Republic its members had to have been convicted of criminal offences.
According to the Constitutional Court, that legal restriction did not cover all
cases where the principles of the Republic had been flouted. It pointed out,
among other observations, that after the repeal of Article 163 of the Criminal
Code activities contrary to the principle of secularism no longer attracted
criminal penalties.
23. On 16 January 1998 the Constitutional Court dissolved Refah on the
ground that it had become a centre of activities contrary to the principle of
secularism. It based its decision on sections 101(b) and 103(1) of Law no. 2820
on the regulation of political parties. It also noted the transfer of Refahs assets
to the Treasury as an automatic consequence of dissolution, in accordance
with section 107 of Law no. 2820. . . .
26. The Constitutional Court held that the following evidence proved that
Refah had become a centre of activities contrary to the principle of secularism
(see paragraphs 27-39 below):
27. Refahs chairman, Mr Necmettin Erbakan, had encouraged the wearing
of Islamic headscarves in public and educational establishments. On 10
October 1993, at the partys Fourth Ordinary General Meeting, he had said:
... when we were in government, for four years, the notorious Article 163 of
the Persecution Code was never applied against any child in the country. In
39
our time there was never any question of hostility to the wearing of
headscarves ...
In his speech of 14 December 1995 before the general election he had said:
... [university] chancellors are going to retreat before the headscarf when
Refah comes to power.
But manifesting ones religion in such a manner amounted to exerting
pressure on persons who did not follow that practice and created
discrimination on the ground of religion or beliefs. That finding was
supported by various rulings of the Constitutional Court and the Supreme
Administrative Court and by the case-law of the European Commission of
Human Rights on applications nos. 16278/90 and 18783/91 concerning the
wearing of headscarves at universities.
28. The plurality of legal systems proposed by Mr Necmettin Erbakan was
nothing to do with the freedom to enter into contracts as Refah claimed, but
was an attempt to establish a distinction between citizens on the ground of
their religion and beliefs and was aimed at the installation of a theocratic
regime. On 23 March 1993 Mr Erbakan had made the following speech to the
National Assembly:
... you shall live in a manner compatible with your beliefs. We want
despotism to be abolished. There must be several legal systems. The citizen
must be able to choose for himself which legal system is most appropriate for
him, within a framework of general principles. Moreover, that has always
been the case throughout our history. In our history there have been various
religious movements. Everyone lived according to the legal rules of his own
organisation, and so everyone lived in peace. Why, then, should I be obliged
to live according to anothers rules? ... The right to choose ones own legal
system is an integral part of the freedom of religion.
In addition, Mr Necmettin Erbakan had spoken as follows on 10 October
1993 at a Refah party conference:
... we shall guarantee all human rights. We shall guarantee to everyone the
right to live as he sees fit and to choose the legal system he prefers. We shall
free the administration from centralism. The State which you have installed is
a repressive State, not a State at the peoples service. You do not allow the
freedom to choose ones code of law. When we are in power a Muslim will be
able to get married before the mufti, if he wishes, and a Christian will be able
to marry in church, if he prefers.
29. The plurality of legal systems advocated by Mr Necmettin Erbakan in his
speeches had its origin in the practice introduced in the first years of Islam by
40
the Medina Agreement, which had given the Jewish and polytheist
communities the right to live according to their own legal systems, not
according to Islamic law. On the basis of the Medina Agreement some
Islamist thinkers and politicians had proposed a model of peaceful social coexistence under which each religious group would be free to choose its own
legal system. Since the foundation of the Nizam Party in 1970 (dissolved by a
judgment of 2 May 1971) Mr Necmettin Erbakan had been seeking to replace
the single legal system with a plurality of legal systems.
30. The Constitutional Court further observed that in a plurality of legal
systems, as proposed by Refah, society would have to be divided into several
religious movements; each individual would have to choose the movement to
which he wished to belong and would thus be subjected to the rights and
obligations prescribed by the religion of his community. The Constitutional
Court pointed out that such a system, whose origins lay in the history of Islam
as a political regime, was inimical to the consciousness of allegiance to a
nation having legislative and judicial unity. It would naturally impair judicial
unity since each religious movement would set up its own courts and the
ordinary courts would be obliged to apply the law according to the religion of
those appearing before them, thus obliging the latter to reveal their beliefs. It
would also undermine legislative and judicial unity, the preconditions for
secularism and the consciousness of nationhood, given that each religious
movement would be empowered to decree what legal rules should be
applicable to its members.
31. In addition, Mr Necmettin Erbakan had made a speech on 13 April 1994
to the Refah group in Parliament in which he had advocated setting up a
theocratic regime, if necessary through force:
The second important point is this: Refah will come to power and a just
[social] order [adil dozen] will be established. The question we must ask
ourselves is whether this change will be violent or peaceful; whether it will
entail bloodshed. I would have preferred not to have to use those terms, but
in the face of all that, in the face of terrorism, and so that everyone can see the
true situation clearly, I feel obliged to do so. Today Turkey must take a
decision. The Welfare Party will establish a just order, that is certain. [But]
will the transition be peaceful or violent; will it be achieved harmoniously or
by bloodshed? The sixty million [citizens] must make up their minds on that
point.
32. The reception given by Mr Necmettin Erbakan at the Prime Ministers
residence to the leaders of various religious movements, who had attended in
vestments denoting their religious allegiance, unambiguously evidenced
Refahs chairmans support for these religious groups vis--vis public opinion.
41
33. In a public speech in April 1994 Mr evki Ylmaz, MP for the province of
Rize, had issued a clear call to wage a jihad and had argued for the
introduction of Islamic law, making the following declaration:
We shall certainly call to account those who turn their backs on the precepts
of the Koran and those who deprive Allahs Messenger of his jurisdiction in
their country.
In another public speech, also in April 1994, Mr evki Ylmaz had said:
In the hereafter you will be summoned with the leaders you have chosen in
this life. ... Have you considered to what extent the Koran is applied in this
country? I have done the sums. Only 39% [of the rules] in the Koran are
applied in this country. Six thousand five hundred verses have been quietly
forgotten ... You found a Koranic school, you build a hostel, you pay for a
childs education, you teach, you preach. ... None of that is part of the chapter
on jihad but of that on the amel-i salih [peacetime activities]. Jihad is the name
given to the quest for power for the advent of justice, for the propagation of
justice and for glorification of Allahs Word. Allah did not see that task as an
abstract political concept; he made it a requirement for warriors [cahudi].
What does that mean? That jihad must be waged by an army! The
commander is identified ... The condition to be met before prayer [namaz] is
the Islamisation of power. Allah says that, before mosques, it is the path of
power which must be Muslim ... It is not erecting vaulted ceilings in the
places of prayer which will lead you to Paradise. For Allah does not ask
whether you have built up vaulted ceilings in this country. He will not ask
that. He will ask you if you have reached a sufficient level ... today, if Muslims
have a hundred liras, they must give thirty to the Koranic schools, to train our
children, girls and boys, and sixty must be given to the political
establishments which open the road to power. Allah asked all His prophets to
fight for power. You cannot name a single member of a religious movement
who does not fight for power. I tell you, if I had as many heads as I have hairs
on my head, even if each of those heads were to be torn from my shoulders
for following the way of the Koran, I would not abandon my cause ... The
question Allah will ask you is this: Why, in the time of the blasphemous
regime, did you not work for the construction of an Islamic State? Erbakan
and his friends want to bring Islam to this country in the form of a political
party. The prosecutor understood that clearly. If we could understand that as
he did, the problem would be solved. Even Abraham the Jew has realised that
in this country the symbol of Islam is Refah. He who incites the Muslim
community [cemaat] to take up arms before political power is in Muslim
hands is a fool, or a traitor doing the bidding of others. For none of the
prophets authorised war before the capture of State power. ... Muslims are
intelligent. They do not reveal how they intend to beat their enemy. The
general staff gives orders and the soldiers obey. If the general staff reveals its
plan, it is up to the commanders of the Muslim community to make a new
42
plan. Our mission is not to talk, but to apply the war plan, as soldiers in the
army ...
Criminal proceedings had been brought against Mr evki Ylmaz. Although
his antipathy to secularism was well-known, Refah had adopted him as a
candidate in local-government elections. After he had been elected mayor of
Rize, Refah had made sure that he was elected as an MP in the Turkish Grand
National Assembly.
34. In a public speech on 14 March 1993 and a television interview first
recorded in 1992 and rebroadcast on 24 November 1996, Mr Hasan Hseyin
Ceylan, Refah MP for the province of Ankara, had encouraged discrimination
between believers and non-believers and had predicted that if the supporters
of applying sharia came to power they would annihilate non-believers:
Our homeland belongs to us, but not the regime, dear brothers. The regime
and Kemalism belong to others. ... Turkey will be destroyed, gentlemen.
People say: Could Turkey become like Algeria? Just as, in Algeria, we got 81%
[of the votes], here too we will reach 81%, we will not remain on 20%. Do not
waste your energy on us I am speaking here to you, to those ... of the
imperialist West, the colonising West, the wild West, to those who, in order to
unite with the rest of the world, become the enemies of honour and modesty,
those who lower themselves to the level of dogs, of puppies, in order to
imitate the West, to the extent of putting dogs between the legs of Muslim
women it is to you I speak when I say: Do not waste your energy on us, you
will die at the hands of the people of Krkkale.
... the army says: We can accept it if youre a supporter of the PKK, but a
supporter of sharia, never. Well you wont solve the problem with that
attitude. If you want the solution, its sharia.
Refah had ensured that Mr Ceylan was elected as an MP and its local
branches had played videotapes of this speech and the interview.
35. Refahs vice-chairman, Mr Ahmet Tekdal, in a speech he made in 1993
while on pilgrimage in Saudi Arabia which was shown by a Turkish
television station, had said that he advocated installing a regime based on
sharia:
In countries which have a parliamentary regime, if the people are not
sufficiently aware, if they do not work hard enough to bring about the advent
of hak nizami [a just order or Gods order], two calamities lie ahead. The first
calamity is the renegades they will have to face. They will be tyrannised by
them and will eventually disappear. The second calamity is that they will not
be able to give a satisfactory account of themselves to Allah, as they will not
have worked to establish hak nizami. And so they will likewise perish.
43
44
39. On the basis of the evidence adduced on 7 July 1997 by Principal State
Counsels Office, the Constitutional Court held that the following further
evidence confirmed that Refah was a centre of activities contrary to the
principle of secularism:
In a public speech on 7 May 1996 Mr Necmettin Erbakan had emphasised
the importance of television as an instrument of propaganda in the holy war
being waged in order to establish Islamic order:
... A State without television is not a State. If today, with your leadership,
you wished to create a State, if you wanted to set up a television station, you
would not even be able to broadcast for more than twenty-four hours. Do you
believe it is as easy as that to create a State? Thats what I told them ten years
ago. I remember it now. Because today people who have beliefs, an audience
and a certain vision of the world, have a television station of their own,
thanks be to God. It is a great event.
Conscience, the fact that the television [channel] has the same conscience in
all its programmes, and that the whole is harmonious, is very important. A
cause cannot be fought for without [the support of] television. Besides, today
we can say that television plays the role of artillery or an air force in the jihad,
that is the war for domination of the people ... it would be unthinkable to send
a soldier to occupy a hill before those forces had shelled or bombed it. That is
why the jihad of today cannot be waged without television. So, for something
so vital, sacrifices must be made. What difference does it make if we sacrifice
money? Death is close to all of us. When everything is dark, after death, if you
want something to show you the way, that something is the money you give
today, with conviction, for Kanal 7. It was to remind you of that that I shared
my memories with you.
... That is why, from now on, with that conviction, we will truly make every
sacrifice, until it hurts. May those who contribute, with conviction, to the
supremacy of Hakk [Allah] be happy. May Allah bless you all, and may He
grant Kanal 7 even more success. Greetings.
By a decree of 13 January 1997 the cabinet (in which the Refah members
formed a majority) had reorganised working hours in public establishments
to make allowances for fasting during Ramadan. The Supreme
Administrative Court had annulled this decree on the ground that it
undermined the principle of secularism.
40. The Constitutional Court observed that it had taken into consideration
international human-rights protection instruments, including the Convention.
It also referred to the restrictions authorised by the second paragraph of
Article 11 and Article 17 of the Convention. It pointed out in that context that
Refahs leaders and members were using democratic rights and freedoms
45
with a view to replacing the democratic order with a system based on sharia.
The Constitutional Court observed:
Democracy is the antithesis of sharia. [The] principle [of secularism], which
is a sign of civic responsibility, was the impetus which enabled the Turkish
Republic to move on from Ummah [mmet the Muslim religious
community] to the nation. With adherence to the principle of secularism,
values based on reason and science replaced dogmatic values. ... Persons of
different beliefs, desiring to live together, were encouraged to do so by the
States egalitarian attitude towards them. ... Secularism accelerated civilisation
by preventing religion from replacing scientific thought in the States
activities. It creates a vast environment of civic responsibility and freedom.
The philosophy of modernisation of Turkey is based on a humanist ideal,
namely living in a more human way. Under a secular regime religion, which
is a specific social institution, can have no authority over the constitution and
governance of the State. ... Conferring on the State the right to supervise and
oversee religious matters cannot be regarded as interference contrary to the
requirements of democratic society. ... Secularism, which is also the
instrument of the transition to democracy, is the philosophical essence of life
in Turkey. Within a secular State religious feelings simply cannot be
associated with politics, public affairs and legislative provisions. Those are
not matters to which religious requirements and thought apply, only scientific
data, with consideration for the needs of individuals and societies.
The Constitutional Court held that where a political party pursued activities
aimed at bringing the democratic order to an end and used its freedom of
expression to issue calls to action to achieve that aim, the Constitution and
supranational human-rights protection rules authorised its dissolution.
41. The Constitutional Court observed that the public statements of Refahs
leaders, namely those of Mr Necmettin Erbakan, Mr evket Kazan and Mr
Ahmet Tekdal, had directly engaged Refahs responsibility with regard to the
constitutionality of its activities. It further observed that the public statements
made by MPs Mr evki Ylmaz, Mr Hasan Hseyin Ceylan and Mr brahim
Halil elik, and by the mayor of Kayseri, Mr kr Karatepe, had likewise
engaged the partys responsibility since it had not reacted to them in any way
or sought to distance itself from them, or at least not before the
commencement of the dissolution proceedings. . . .
II. RELEVANT DOMESTIC LAW
A. The Constitution
45. The relevant provisions of the Constitution read as follows:
Article 2
46
47
Article 4
No amendment may be made or proposed to the provisions of Article 1 of
the Constitution providing that the State shall be a republic, the provisions of
Article 2 concerning the characteristics of the Republic or the provisions of
Article 3.
Article 6
Sovereignty resides unconditionally and unreservedly in the nation. ...
Sovereign power shall not under any circumstances be delegated to an
individual, a group or a social class. ...
Article 10 1
All individuals shall be equal before the law without any distinction based
on language, race, colour, sex, political opinion, philosophical beliefs, religion,
membership of a religious sect or other similar grounds.
Article 14 1
None of the rights and freedoms referred to in the Constitution shall be
exercised with a view to undermining the territorial integrity of the State and
the unity of the nation, jeopardising the existence of the Turkish State or
Republic, abolishing fundamental rights and freedoms, placing the control of
the State in the hands of a single individual or group, ensuring the
domination of one social class over other social classes, introducing
discrimination on the grounds of language, race, religion or membership of a
religious organisation, or establishing by any other means a State political
system based on such concepts and opinions.
Article 24 4
No one may exploit or abuse religion, religious feelings or things held
sacred by religion in any manner whatsoever with a view to causing the
social, economic, political or legal order of the State to be based on religious
precepts, even if only in part, or for the purpose of securing political or
personal interest or influence thereby.
Article 68 4
The constitutions, rule books and activities of political parties shall not be
incompatible with the independence of the State, the integrity of State
territory and of the nation, human rights, the principles of equality and the
48
49
Where the Council of the Presidency of the Grand National Assembly notes
that a member of Parliament, without valid authorisation or excuse, has
failed, for a total of five days in one month, to take part in the work of the
Assembly, that member shall forfeit the status of member where by majority
vote the plenary Assembly so decides.
The term of office of a member of Parliament whose words and deeds have,
according to the Constitutional Courts judgment, led to the dissolution of his
party, shall end on the date when that judgment is published in the Official
Gazette. The Presidency of the Grand National Assembly shall enforce that
part of the judgment and inform the plenary Assembly accordingly.
B. Law no. 2820 on the regulation of political parties
46. The relevant provisions of Law no. 2820 read as follows:
Section 78
Political parties
... shall not aim or strive to or incite third parties to
...
jeopardise the existence of the Turkish State and Republic, abolish
fundamental rights and freedoms, introduce discrimination on grounds of
language, race, colour, religion or membership of a religious sect, or establish,
by any means, a system of government based on any such notion or concept.
...
Section 90(1)
The constitution, programme and activities of political parties shall not
contravene the Constitution or this Law.
Section 101
The Constitutional Court shall dissolve a political party
...
(b) where its general meeting, central office or executive committee ... takes a
decision, issues a circular or makes a statement ... contrary to the provisions of
Chapter 4 of this Law [This chapter (from section 78 to section 97), which
concerns restrictions on the activities of political parties, provides, inter alia,
50
that such activities may not be conducted to the detriment of the democratic
constitutional order (including the sovereignty of the people and free
elections), the nature of the nation State (including national independence,
national unity and the principle of equality), and the secular nature of the
State (including observance of the reforms carried out by Atatrk, the
prohibition on exploiting religious feelings and the prohibition on religious
demonstrations organised by political parties)], or where the chairman, vicechairman or general secretary makes any written or oral statement contrary to
those provisions.
...
(d) Where acts contrary to the provisions of Chapter 4 of this Law have been
committed by organs, authorities or councils other than those mentioned in
sub-paragraph (b), State Counsel shall, within two years of the act concerned,
require the party in writing to disband those organs and/or authorities
and/or councils. State Counsel shall order the permanent exclusion from the
party of those members who have been convicted for committing acts or
making statements which contravene the provisions of Part 4.
State counsel shall institute proceedings for the dissolution of any political
party which fails to comply with the instructions in his letter within thirty
days of its service. If, within thirty days of service of State Counsels
application, the organs, authorities or councils concerned have been
disbanded by the party, and the member or members in question have been
permanently excluded, the dissolution proceedings shall lapse. If not, the
Constitutional Court shall consider the case on the basis of the file and shall
adjudicate after hearing, if necessary, the oral submissions of State Counsel,
the representatives of the political party and all those capable of providing
information about the case ...
Section 103
Where it is found that a political party has become a centre of activities
contrary to the provisions of sections 78 to 88 ... of the present Law, the party
shall be dissolved by the Constitutional Court.
Section 107(1)
All the assets of political parties dissolved by order of the Constitutional
Court shall be transferred to the Treasury.
47. Paragraph 2 of section 103, which the Constitutional Court declared
unconstitutional on 9 January 1998, prescribed the use of the procedure laid
down in section 101(d) for determination of the question whether a political
party had become a centre of anti-constitutional activities.
51
52
53
61. It remains to be determined whether the applicants must have been aware
of the possibility of a direct application of the Constitution in their case and
could thus have foreseen the risks they ran through their partys anti-secular
activities or through their refusal to distance themselves from that type of
activity, without the procedure laid down by section 103(2) of the Law on the
regulation of political parties being followed.
In order to be able to answer that question, the Court must first consider the
relevant particularities of the legal background against which the facts of the
case took place, as set out in the judgment of the Turkish Constitutional Court
and not contested by the parties. The Turkish Constitution cannot be
amended by ordinary legislation and takes precedence over statute law; a
conflict between the Constitutions provisions and those of ordinary
legislation is resolved in the Constitutions favour. In addition, the
Constitutional Court has the power and the duty to review the
constitutionality of legislation. Where in a particular case there is a
discrepancy between the provisions of the applicable statute law and those of
the Constitution, as happened in the instant case, the Constitutional Court is
clearly required to give precedence to the provisions of the Constitution,
disregarding the unconstitutional provisions of the relevant legislation.
54
62. The Court next takes into account the applicants status as the persons to
whom the relevant legal instruments were addressed. Refah was a large
political party which had legal advisers conversant with constitutional law
and the rules governing political parties. Mr Necmettin Erbakan, Mr evket
Kazan and Mr Ahmet Tekdal were also experienced politicians. As members
of the Turkish parliament they had taken part in parliamentary discussions
and procedures concerning the amendments to the Constitution, during
which the Constitutional Courts power to rule that a party had become a
centre of anti-constitutional activities and the discrepancy between the new
text of the Constitution and Law no. 2820 were mentioned. In addition, Mr
evket Kazan and Mr Ahmet Tekdal were lawyers by profession (see
paragraphs 10-11 above).
63. That being so, the Court considers that the applicants were reasonably
able to foresee that they ran the risk of proceedings to dissolve Refah if the
partys leaders and members engaged in anti-secular activities, and that the
fact that the steps laid down in section 103(2) of Law no. 2820 were not taken,
having become inapplicable as a result of the 1991 changes to the Criminal
Codes provisions on anti-secular activities, could not prevent
implementation of the dissolution procedure required by the Turkish
Constitution.
64. Consequently, the interference was prescribed by law.
2. Legitimate aim . . . .
67. The Court considers that the applicants have not adduced sufficient evidence to
establish that Refah was dissolved for reasons other than those cited by the
Constitutional Court. Taking into account the importance of the principle of
secularism for the democratic system in Turkey, it considers that Refahs dissolution
pursued several of the legitimate aims listed in Article 11, namely protection of
national security and public safety, prevention of disorder or crime and protection of
the rights and freedoms of others.
55
56
Shalom Ve Tsedek v. France [GC], no. 27417/95, 84, ECHR 2000-VII) and that
it requires the State to ensure mutual tolerance between opposing groups (see,
mutatis mutandis, Metropolitan Church of Bessarabia and Others v. Moldova, no.
45701/99, 123, ECHR 2001-XII).
92. The Courts established case-law confirms this function of the State. It
has held that in a democratic society the State may limit the freedom to
manifest a religion, for example by wearing an Islamic headscarf, if the
exercise of that freedom clashes with the aim of protecting the rights and
freedoms of others, public order and public safety (see Dahlab v. Switzerland
(dec.), no. 42393/98, ECHR 2001-V).
While freedom of religion is in the first place a matter of individual
conscience, it also implies freedom to manifest ones religion alone and in
private or in community with others, in public and within the circle of those
whose faith one shares. Article 9 lists a number of forms which manifestation
of a religion or belief may take, namely worship, teaching, practice and
observance. Nevertheless, it does not protect every act motivated or
influenced by a religion or belief (see Kala v. Turkey, judgment of 1 July 1997,
Reports 1997-IV, p. 1209, 27).
The obligation for a teacher to observe normal working hours which, he
asserts, clash with his attendance at prayers, may be compatible with the
freedom of religion (see X v. the United Kingdom, no. 8160/78, Commission
decision of 12 March 1981, Decisions and Reports (DR) 22, p. 27), as may the
obligation requiring a motorcyclist to wear a crash helmet, which in his view
is incompatible with his religious duties (see X v. the United Kingdom, no.
7992/77, Commission decision of 12 July 1978, DR 14, p. 234).
93. In applying the above principles to Turkey the Convention institutions
have expressed the view that the principle of secularism is certainly one of the
fundamental principles of the State which are in harmony with the rule of law
and respect for human rights and democracy. An attitude which fails to
respect that principle will not necessarily be accepted as being covered by the
freedom to manifest ones religion and will not enjoy the protection of Article
9 of the Convention (see the opinion of the Commission, expressed in its
report of 27 February 1996, in Kala, cited above, p. 1215, 44, and, mutatis
mutandis, p. 1209, 27-31).
94. In order to perform its role as the neutral and impartial organiser of the
exercise of religious beliefs, the State may decide to impose on its serving or
future civil servants, who will be required to wield a portion of its sovereign
power, the duty to refrain from taking part in the Islamic fundamentalist
movement, whose goal and plan of action is to bring about the pre-eminence
of religious rules (see, mutatis mutandis, Yanasik v. Turkey, no. 14524/89,
57
Commission decision of 6 January 1993, DR 74, p. 14, and Kala, cited above,
p. 1209, 28).
95. In a country like Turkey, where the great majority of the population
belong to a particular religion, measures taken in universities to prevent
certain fundamentalist religious movements from exerting pressure on
students who do not practise that religion or on those who belong to another
religion may be justified under Article 9 2 of the Convention. In that context,
secular universities may regulate manifestation of the rites and symbols of the
said religion by imposing restrictions as to the place and manner of such
manifestation with the aim of ensuring peaceful co-existence between
students of various faiths and thus protecting public order and the beliefs of
others (see Karaduman v. Turkey, no. 16278/90, Commission decision of 3 May
1993, DR 74, p. 93).
() The possibility of imposing restrictions, and rigorous European
supervision
96. The freedoms guaranteed by Article 11, and by Articles 9 and 10 of the
Convention, cannot deprive the authorities of a State in which an association,
through its activities, jeopardises that States institutions, of the right to
protect those institutions. In this connection, the Court points out that it has
previously held that some compromise between the requirements of
defending democratic society and individual rights is inherent in the
Convention system. . . .
98. On that point, the Court considers that a political party may promote a
change in the law or the legal and constitutional structures of the State on two
conditions: firstly, the means used to that end must be legal and democratic;
secondly, the change proposed must itself be compatible with fundamental
democratic principles. It necessarily follows that a political party whose
leaders incite to violence or put forward a policy which fails to respect
democracy or which is aimed at the destruction of democracy and the flouting
of the rights and freedoms recognised in a democracy cannot lay claim to the
Conventions protection against penalties imposed on those grounds (see
Yazar and Others v. Turkey, nos. 22723/93, 22724/93 and 22725/93, 49, ECHR
2002-II, and, mutatis mutandis, the following judgments: Stankov and the United
Macedonian Organisation Ilinden v. Bulgaria, nos. 29221/95 and 29225/95, 97,
ECHR 2001-IX, and Socialist Party and Others v. Turkey, judgment of 25 May
1998, Reports 1998-III, pp. 1256-57, 46-47).
99. The possibility cannot be excluded that a political party, in pleading the
rights enshrined in Article 11 and also in Articles 9 and 10 of the Convention,
might attempt to derive therefrom the right to conduct what amounts in
practice to activities intended to destroy the rights or freedoms set forth in the
Convention and thus bring about the destruction of democracy (see
58
59
does not, the content of the programme must be compared with the actions of
the partys leaders and the positions they defend. Taken together, these acts
and stances may be relevant in proceedings for the dissolution of a political
party, provided that as a whole they disclose its aims and intentions (see
United Communist Party of Turkey and Others, cited above, p. 27, 58, and
Socialist Party and Others, cited above, pp. 1257-58, 48).
() The appropriate timing for dissolution
102. In addition, the Court considers that a State cannot be required to wait,
before intervening, until a political party has seized power and begun to take
concrete steps to implement a policy incompatible with the standards of the
Convention and democracy, even though the danger of that policy for
democracy is sufficiently established and imminent. The Court accepts that
where the presence of such a danger has been established by the national
courts, after detailed scrutiny subjected to rigorous European supervision, a
State may reasonably forestall the execution of such a policy, which is
incompatible with the Conventions provisions, before an attempt is made to
implement it through concrete steps that might prejudice civil peace and the
countrys democratic regime (see the Chambers judgment, 81). . . .
() Overall examination
104. In the light of the above considerations, the Courts overall examination
of the question whether the dissolution of a political party on account of a risk
of democratic principles being undermined met a pressing social need (see,
for example, Socialist Party and Others, cited above, p. 1258, 49) must
concentrate on the following points: (i) whether there was plausible evidence
that the risk to democracy, supposing it had been proved to exist, was
sufficiently imminent; (ii) whether the acts and speeches of the leaders and
members of the political party concerned were imputable to the party as a
whole; and (iii) whether the acts and speeches imputable to the political party
formed a whole which gave a clear picture of a model of society conceived
and advocated by the party which was incompatible with the concept of a
democratic society.
105. The overall examination of the above points that the Court must
conduct also has to take account of the historical context in which the
dissolution of the party concerned took place and the general interest in
preserving the principle of secularism in that context in the country concerned
to ensure the proper functioning of democratic society (see, mutatis
mutandis, Petersen, cited above).
(ii) Application of the above principles to the present case
60
106. The Court will devote the first part of its examination to the question
whether Refahs dissolution and the secondary penalties imposed on the
other applicants met a pressing social need. It will then determine, if the
case arises, whether those penalties were proportionate to the legitimate
aims pursued.
() Pressing social need
The appropriate timing for dissolution
107. The Court will first determine whether Refah could have presented a
threat to the democratic regime at the time when it was dissolved.
It observes in that connection that Refah was founded in 1983, took part in a
number of general and local election campaigns and obtained approximately
22% of the votes in the 1995 general election, which gave it 158 seats in the
Grand National Assembly (out of a total of 450 at the material time). After
sharing power in a coalition government, Refah obtained about 35% of the
votes in the local elections of November 1996. According to an opinion poll
carried out in January 1997, if a general election had been held at that time
Refah would have received 38% of the votes. According to the forecasts of the
same opinion poll, Refah could have obtained 67% of the votes in the general
election likely to be held about four years later (see paragraph 11 above).
Notwithstanding the uncertain nature of some opinion polls, those figures
bear witness to a considerable rise in Refahs influence as a political party and
its chances of coming to power alone.
108. The Court accordingly considers that at the time of its dissolution Refah
had the real potential to seize political power without being restricted by the
compromises inherent in a coalition. If Refah had proposed a programme
contrary to democratic principles, its monopoly of political power would have
enabled it to establish the model of society envisaged in that programme.
109. As regards the applicants argument that Refah was punished for
speeches by its members made several years before its dissolution, the Court
considers that the Turkish courts, when reviewing the constitutionality of
Refahs acts, could legitimately take into consideration the progression over
time of the real risk that the partys activities represented for the principles of
democracy. The same applies to the review of Refahs compliance with the
principles set forth in the Convention.
Firstly, the programme and policies of a political party may become clear
through the accumulation of acts and speeches by its members over a
relatively long period. Secondly, the party concerned may, over the years,
increase its chances of gaining political power and implementing its policies.
61
110. While it can be considered, in the present case, that Refahs policies
were dangerous for the rights and freedoms guaranteed by the Convention,
the real chances that Refah would implement its programme after gaining
power made that danger more tangible and more immediate. That being the
case, the Court cannot criticise the national courts for not acting earlier, at the
risk of intervening prematurely and before the danger concerned had taken
shape and become real. Nor can it criticise them for not waiting, at the risk of
putting the political regime and civil peace in jeopardy, for Refah to seize
power and swing into action, for example by tabling bills in Parliament, in
order to implement its plans.
In short, the Court considers that in electing to intervene at the time when
they did in the present case the national authorities did not go beyond the
margin of appreciation left to them under the Convention.
Imputability to Refah of the acts and speeches of its members
111. The parties before the Court agreed that neither in its constitution nor
in the coalition programme it had negotiated with another political party, the
True Path Party (Doru Yol Partisi), had Refah proposed altering Turkeys
constitutional settlement in a way that would be contrary to the fundamental
principles of democracy. Refah was dissolved on the basis of the statements
made and stances adopted by its chairman and some of its members.
112. Those statements and stances were made or adopted, according to the
Constitutional Court, by seven of Refahs leading figures, namely its
chairman, Mr Necmettin Erbakan, its two vice-chairmen, Mr evket Kazan
and Mr Ahmet Tekdal, three Refah members of Turkeys Grand National
Assembly, Mr evki Ylmaz, Mr Hasan Hseyin Ceylan and Mr brahim Halil
elik, and the mayor of the city of Konya, Mr Recai Karatepe, elected on a
Refah ticket.
113. The Court considers that the statements and acts of Mr Necmettin
Erbakan, in his capacity as chairman of Refah or as the Prime Minister elected
on account of his position as the leader of his party, could incontestably be
attributed to Refah. The role of a chairman, who is frequently a partys
emblematic figure, is different in that respect from that of a simple member.
Remarks on politically sensitive subjects or positions taken up by the
chairman of a party are perceived by political institutions and by public
opinion as acts reflecting the partys views, rather than his personal opinions,
unless he declares that this is not the case. The Court observes on that point
that Mr Erbakan never made it clear that his statements and stances did not
reflect Refahs policy or that he was only expressing his personal opinion.
114. The Court considers that the speeches and stances of Refahs vicechairmen could be treated in the same way as those of its chairman. Save
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63
relations of the Muslim community within the context of this plurality of legal
systems; and (iii) the arguments based on the references made by Refah
members to the possibility of recourse to force as a political method. The
Court must therefore limit its examination to those three groups of arguments
cited by the Constitutional Court.
(a) The plan to set up a plurality of legal systems
117. The Court notes . . . two declarations by the applicant Mr Necmettin
Erbakan, Refahs chairman, on 23 March 1993 in Parliament and on 10
October 1993 at a Refah party conference (see paragraph 28 above). . . . [I]t
takes the view that these two speeches could be regarded as reflecting one of
the policies which formed part of Refahs programme, even though the
partys constitution said nothing on the subject.
118. With regard to the applicants argument that when Refah was in power
it had never taken any concrete steps to implement the idea behind this
proposal, the Court considers that it would not have been realistic to wait
until Refah was in a position to include such objectives in the coalition
programme it had negotiated with a political party of the centre-right. It
merely notes that a plurality of legal systems was a policy which formed part
of Refahs programme.
119. The Court sees no reason to depart from the Chambers conclusion that
a plurality of legal systems, as proposed by Refah, cannot be considered to be
compatible with the Convention system. In its judgment, the Chamber gave
the following reasoning:
70. ... the Court considers that Refahs proposal that there should be a
plurality of legal systems would introduce into all legal relationships a
distinction between individuals grounded on religion, would categorise
everyone according to his religious beliefs and would allow him rights and
freedoms not as an individual but according to his allegiance to a religious
movement.
The Court takes the view that such a societal model cannot be considered
compatible with the Convention system, for two reasons.
Firstly, it would do away with the States role as the guarantor of individual
rights and freedoms and the impartial organiser of the practice of the various
beliefs and religions in a democratic society, since it would oblige individuals
to obey, not rules laid down by the State in the exercise of its abovementioned functions, but static rules of law imposed by the religion
concerned. But the State has a positive obligation to ensure that everyone
within its jurisdiction enjoys in full, and without being able to waive them,
64
the rights and freedoms guaranteed by the Convention (see, mutatis mutandis,
Airey v. Ireland, judgment of 9 October 1979, Series A no. 32, p. 14, 25).
Secondly, such a system would undeniably infringe the principle of nondiscrimination between individuals as regards their enjoyment of public
freedoms, which is one of the fundamental principles of democracy. A
difference in treatment between individuals in all fields of public and private
law according to their religion or beliefs manifestly cannot be justified under
the Convention, and more particularly Article 14 thereof, which prohibits
discrimination. Such a difference in treatment cannot maintain a fair balance
between, on the one hand, the claims of certain religious groups who wish to
be governed by their own rules and on the other the interest of society as a
whole, which must be based on peace and on tolerance between the various
religions and beliefs (see, mutatis mutandis, the judgment of 23 July 1968 in the
Belgian linguistic case, Series A no. 6, pp. 33-35, 9 and 10, and Abdulaziz,
Cabales and Balkandali v. the United Kingdom, judgment of 28 May 1985, Series
A no. 94, pp. 35-36, 72).
(b) Sharia
120. The Court observes in the first place that the intention to set up a
regime based on sharia was explicitly portended in the following remarks
cited by the Constitutional Court, which had been made by certain members
of Refah, all of whom were MPs:
In a television interview broadcast on 24 November 1996 Mr Hasan
Hseyin Ceylan, Refah MP for the province of Ankara, said that sharia was
the solution for the country (see paragraph 34 above);
On 8 May 1997 Mr brahim Halil elik, Refah MP for the province of
anlurfa, said: I will fight to the end to introduce sharia (see paragraph 37
above);
In April 1994 Mr evki Ylmaz, Refah MP for the province of Rize, urged
believers to call to account those who turn their backs on the precepts of the
Koran and those who deprive Allahs Messenger of his jurisdiction in their
country and asserted: Only 39% [of the rules] in the Koran are applied in
this country. . . .
121. The Court further notes the following remarks by Refahs chairman and
vice-chairman, on their desire to set up a just order or order of justice or
Gods order, which the Constitutional Court took into consideration:
On 13 April 1994 Mr Necmettin Erbakan said: Refah will come to power
and a just order [adil dozen] will be established (see paragraph 31 above), and
65
66
124. The Court must not lose sight of the fact that in the past political
movements based on religious fundamentalism have been able to seize
political power in certain States and have had the opportunity to set up the
model of society which they had in mind. It considers that, in accordance with
the Conventions provisions, each Contracting State may oppose such
political movements in the light of its historical experience.
125. The Court further observes that there was already an Islamic theocratic
regime under Ottoman law. When the former theocratic regime was
dismantled and the republican regime was being set up, Turkey opted for a
form of secularism which confined Islam and other religions to the sphere of
private religious practice. Mindful of the importance for survival of the
democratic regime of ensuring respect for the principle of secularism in
Turkey, the Court considers that the Constitutional Court was justified in
holding that Refahs policy of establishing sharia was incompatible with
democracy (see paragraph 40 above).
(c) Sharia and its relationship with the plurality of legal systems
proposed by Refah
126. The Court will next examine the applicants argument that the Chamber
contradicted itself in holding that Refah supported introducing both a
plurality of legal systems and sharia simultaneously.
It takes note of the Constitutional Courts considerations concerning the part
played by a plurality of legal systems in the application of sharia in the
history of Islamic law. These showed that sharia is a system of law applicable
to relations between Muslims themselves and between Muslims and the
adherents of other faiths. In order to enable the communities owing allegiance
to other religions to live in a society dominated by sharia, a plurality of legal
systems had also been introduced by the Islamic theocratic regime during the
Ottoman Empire, before the Republic was founded.
127. The Court is not required to express an opinion in the abstract on the
advantages and disadvantages of a plurality of legal systems. It notes, for the
purposes of the present case, that as the Constitutional Court observed
Refahs policy was to apply some of sharias private-law rules to a large part
of the population in Turkey (namely Muslims), within the framework of a
plurality of legal systems. Such a policy goes beyond the freedom of
individuals to observe the precepts of their religion, for example by
organising religious wedding ceremonies before or after a civil marriage (a
common practice in Turkey) and according religious marriage the effect of a
civil marriage (see, mutatis mutandis, Serif v. Greece, no. 38178/97, 50, ECHR
1999-IX). This Refah policy falls outside the private sphere to which Turkish
law confines religion and suffers from the same contradictions with the
Convention system as the introduction of sharia (see paragraph 125 above).
67
128. Pursuing that line of reasoning, the Court rejects the applicants
argument that prohibiting a plurality of private-law systems in the name of
the special role of secularism in Turkey amounted to establishing
discrimination against Muslims who wished to live their private lives in
accordance with the precepts of their religion.
It reiterates that freedom of religion, including the freedom to manifest ones
religion by worship and observance, is primarily a matter of individual
conscience, and stresses that the sphere of individual conscience is quite
different from the field of private law, which concerns the organisation and
functioning of society as a whole.
It has not been disputed before the Court that in Turkey everyone can
observe in his private life the requirements of his religion. On the other hand,
Turkey, like any other Contracting Party, may legitimately prevent the
application within its jurisdiction of private-law rules of religious inspiration
prejudicial to public order and the values of democracy for Convention
purposes (such as rules permitting discrimination based on the gender of the
parties concerned, as in polygamy and privileges for the male sex in matters
of divorce and succession). The freedom to enter into contracts cannot
encroach upon the States role as the neutral and impartial organiser of the
exercise of religions, faiths and beliefs (see paragraphs 91-92 above).
(d) The possibility of recourse to force
129. The Court takes into consideration under this heading the following
remarks cited by the Constitutional Court and made by:
Mr Necmettin Erbakan, on 13 April 1994, on the question whether power
would be gained by violence or by peaceful means (whether the change
would involve bloodshed or not see paragraph 31 above);
Mr evki Ylmaz, in April 1994, concerning his interpretation of jihad and
the possibility for Muslims of arming themselves after coming to power (see
paragraph 33 above);
Mr Hasan Hseyin Ceylan, on 14 March 1993, who insulted and
threatened the supporters of a regime on the Western model (see
paragraph 34 above);
Mr kr Karatepe, who, in his speech on 10 December 1996, advised
believers to keep alive the rancour and hatred they felt in their hearts (see
paragraph 36 above); and
Mr brahim Halil elik, on 8 May 1997, who said he wanted blood to flow
to prevent the closure of the theological colleges (see paragraph 37 above).
68
The Court also takes into account the visit by Mr evket Kazan, who was
then the Minister of Justice, to a member of his party charged with incitement
to hatred based on religious discrimination (see paragraph 38 above).
130. The Court considers that, whatever meaning is ascribed to the term
jihad used in most of the speeches mentioned above (whose primary
meaning is holy war and the struggle to be waged until the total domination
of Islam in society is achieved), there was ambiguity in the terminology used
to refer to the method to be employed to gain political power. In all of these
speeches the possibility was mentioned of resorting legitimately to force in
order to overcome various obstacles Refah expected to meet in the political
route by which it intended to gain and retain power.
131. Furthermore, the Court endorses the following finding of the Chamber:
74. ...
While it is true that [Refahs] leaders did not, in government documents, call
for the use of force and violence as a political weapon, they did not take
prompt practical steps to distance themselves from those members of [Refah]
who had publicly referred with approval to the possibility of using force
against politicians who opposed them. Consequently, Refahs leaders did not
dispel the ambiguity of these statements about the possibility of having
recourse to violent methods in order to gain power and retain it (see, mutatis
mutandis, Zana v. Turkey, judgment of 25 November 1997, Reports 1997-VII, p.
2549, 58).
Overall examination of pressing social need
132. In making an overall assessment of the points it has just listed above in
connection with its examination of the question whether there was a pressing
social need for the interference in issue in the present case, the Court finds
that the acts and speeches of Refahs members and leaders cited by the
Constitutional Court were imputable to the whole of the party, that those acts
and speeches revealed Refahs long-term policy of setting up a regime based
on sharia within the framework of a plurality of legal systems and that Refah
did not exclude recourse to force in order to implement its policy and keep
the system it envisaged in place. In view of the fact that these plans were
incompatible with the concept of a democratic society and that the real
opportunities Refah had to put them into practice made the danger to
democracy more tangible and more immediate, the penalty imposed on the
applicants by the Constitutional Court, even in the context of the restricted
margin of appreciation left to Contracting States, may reasonably be
considered to have met a pressing social need.
() Proportionality of the measure complained of
69
133. After considering the parties arguments, the Court sees no good reason
to depart from the following considerations in the Chambers judgment:
82. ... The Court has previously held that the dissolution of a political party
accompanied by a temporary ban prohibiting its leaders from exercising
political responsibilities was a drastic measure and that measures of such
severity might be applied only in the most serious cases (see the previously
cited Socialist Party and Others v. Turkey judgment, p. 1258, 51). In the present
case it has just found that the interference in question met a pressing social
need. It should also be noted that after [Refahs] dissolution only five of its
MPs (including the applicants) temporarily forfeited their parliamentary
office and their role as leaders of a political party. The 152 remaining MPs
continued to sit in Parliament and pursued their political careers normally. ...
The Court considers in that connection that the nature and severity of the
interference are also factors to be taken into account when assessing its
proportionality (see, for example, Srek v. Turkey (no. 1) [GC], no. 26682/95,
64, ECHR 1999-IV).
134. The Court also notes that the pecuniary damage alleged by the
applicants was made up largely of a loss of earnings and is speculative in
nature. In view of the low value of Refahs assets, their transfer to the
Treasury can have no bearing on the proportionality of the interference in
issue. Moreover, the Court observes that the prohibition barring three of the
applicants, Mr Necmettin Erbakan, Mr evket Kazan and Mr Ahmet Tekdal,
from engaging in certain types of political activity for a period of five years
was temporary, and that, through their speeches and the stances they adopted
in their capacity as the chairman and vice-chairmen of the party, they bear the
main responsibility for Refahs dissolution.
It follows that the interference in issue in the present case cannot be regarded
as disproportionate in relation to the aims pursued.
4. The Courts conclusion regarding Article 11 of the Convention
135. Consequently, following a rigorous review to verify that there were
convincing and compelling reasons justifying Refahs dissolution and the
temporary forfeiture of certain political rights imposed on the other
applicants, the Court considers that those interferences met a pressing social
need and were proportionate to the aims pursued. It follows that Refahs
dissolution may be regarded as necessary in a democratic society within the
meaning of Article 11 2.
Accordingly, there has been no violation of Article 11 of the Convention.
Note: The victory of the Justice and Development Party (AKP) in the election
on November 3rd 2002 (when it won 363 of the 550 seats) marked the first
70
time for 15 years that one party had held an absolute majority in Turkeys
parliament. The party is a descendant of the Islamist Virtue Party, closed
down June 2001 by the constitutional court. In Virtues place, two parties
formed: the Prosperity Party (see below) and the AKP, led by Recep Tayip
Erdogan, a popular former Welfare Party mayor of Istanbul from 1994 to
1998. Mr Erdogan claims that his new party is not ideologically Islamist. This
new moderation, combined with widespread disgust at the political habits of
the other established players, contributed to the AKPs overwhelming victory
in the 2002 election. However, Mr Erdogans Islamic past has caused him
problems. In 1999, he served four months in jail for reciting an allegedly proIslamist poem, and in 2002, the constitutional court ruled that this conviction
disqualified him from being a founding member of a political party or
running for parliament. In July 2002, the high election board confirmed that
he was banned from standing in the election. Consequently, although Mr
Erdogan remained the AKPs leader behind the scenes, Abdullah Gul, an
economist and former disciple of Necmettin Erbakan, the founder of the
Islamist political movement, was named prime minister in mid-November.
However, by March 2003, the AKP-dominated parliament had successfully
voted to amend the constitution to allow Mr Edogan to be elected to
parliament, and thus to become prime minister (Mr Gul subsequently became
foreign minister).
After the February 1998 closure of the Welfare Party and Necmettin Erbakan's
exclusion from official participation in politics for five years, the Islamists
regrouped to form the Virtue Party (Fazilet). In June 2001 the party followed
its predecessor by being closed down by the constitutional court. In its place,
two successor parties were established: the Prosperity Party (SP), nominally
led by Recai Kutan, but in fact controlled by Mr Erbakan from behind the
scenes, and the Justice and Development Party (AKP) (see above). But, in a
sign that Islamism is not the political threat the army claims, AKPs victory in
the November 2002 election followed from its distancing itself from its
Islamist roots, while the SP managed only 2.5% of the vote, well down from
Virtues 15.4% in 1999. [Economist Intelligence Unit, April 2003.]
1.6
At the dawn of the 20th Century, the Imperial Powers of Western Europe had
by treaty and conquest completely asserted sovereign control over nearly all
71
of Africa. Each of these Powers had to work out the most appropriate
approach to the task of governing its colonies. The French tried both the
policy of assimilation, which sought to very closely influence the colonial
subjects and suffuse them with all the appurtenances of French language and
culture, virtually turning them into African Frenchmen; and the rival policy of
association which prescribed that the French colonial authorities should not
seek to transform the colonial subjects but merely to co-exist or associate
with them while pursuing the serious business of the colonial enterprise.
The British approach notably in its colonies on the West Coast of Africa was quite coherent, the policy was styled indirect rule. It was akin to the policy
of association and required that the colonial peoples continued to be ruled by
their indigenous rulers who now became subject to the supervisory
jurisdiction of British colonial officers. This system was not merely designed
to respect and accommodate the usages and institutions of the colonial
peoples. It was informed by a pragmatic consideration: that of keeping the
cost of administration low, as fewer British administrative officers were
required. In the 1920s, for instance, His Majestys Government paid a fresh
Oxbridge graduate in the colonial service a salary two and half times more
than any employer in Britain could offer. For the ambitious and adventurous
young Briton, service in the dominions beyond the seas was very
rewarding.1
One important consequence of the indirect rule system was that although the
principles of English common law were introduced, native law and customs
were allowed to continue to regulate the lives of the colonial peoples. Except
for Muslim law which was defined as part of customary law - these rules of
customary law were unwritten, as they served societies that were largely or
wholly illiterate. They were diverse, as they varied from one community to
the other. They derived legitimacy from the fact that they were accepted in
particular communities as binding. They also had a dynamic character in that
some of the rules changed from time to time, especially as novel situations
arose, mainly due to external forces.
As the colonial enterprise was rationalized, in part, as a civilizing mission, it
was provided for in statutes that the enforceability of the rules of native
customary law shall be subject to three tests, to wit: they must not be
repugnant to natural justice, equity and good conscience; they must not be
incompatible with any local statutory enactment, and they must not be
contrary to public policy. The first test empowered the British colonial judges,
and the indigenous but Western educated judges who have taken over from
For instance, an officer who had his entire career in the colony of Nigeria, Sir Rex Niven, reported that
after leaving Oxford in 1920 No one would employ me in the United Kingdom at a salary above 200 a
year. He accepted an offer from the Colonial Office to go and serve in Nigeria, at the entry point salary
of 500 a year. See Rex Niven, Nigerian Kaleidoscope: Memoirs of a Colonial Servant (London: C. Hurst &
Company, 1982) pp. vii
72
G. Ezejiofor, Sources of Nigerian Law in C. O. Okonkwo (ed.), Introduction to Nigerian Law, (London:
Sweet & Maxwell, 1980) p.43
3 The Criminal Code, which was introduced into Nigeria in 1916, had been drafted by the British jurist,
Sir James Fitzstephen, as a restatement of the English common law on crimes. The intention was to enact
it into law as a codification of criminal law in England but it was never so enacted. It was however
enacted into law in the Australian state of Queensland and in the then colony of Nigeria. In 1961, the
legislature of the largely Muslim Northern Nigeria repealed it in the region and replaced it with a code
that reflects the ethos of a Muslim community. It is still in force in the states of Southern Nigeria.
4 Abolition of the Osu System Law 1956 (Eastern Nigeria).
2
73
74
land. Age groups are often given responsibilities for the execution of certain
tasks, including public works. Especially in recent times, these groups have
been volunteering to levy their members and thereby raise funds for the
provision of various modern amenities required by the community but not
provided by the state. In the context of a new order in which increasing
urbanization and emigration has eroded the old cohesion found in the
pristine Igbo community, this form of participation in community
development has given age groups a new legitimacy and, perhaps,
encouraged old excesses.
In Agbai v. Okogbue8 the plaintiff (Okogbue) and the defendants (Agbai and
others) all hailed from the Igbo village of Amankalu Alayi but lived in the city
of Aba. They were all grouped into the same age group. The age group was
promptly inaugurated and the defendants became the leaders of the Aba
Branch of the age group. The plaintiff was invited to the inauguration and
asked to register as a member. The group also undertook to build a health
center for the village and, for that purpose, proceeded to impose a levy on its
members. On the ground of his religious persuasion, the plaintiff refused to
join the group, and not being a member of the group he refused to pay the
levy imposed by the group. . The plaintiff was however not opposed to the
imposition of levies on members of the community for development projects;
he established this by showing that he had in the past contributed to such
projects. The defendants, relying on a customary practice of seizing the goods
of anyone who fails to pay a debt owed the community, impounded the
plaintiffs sewing machine. He then sued for the return of his sewing machine,
for loss of use and for general damages.
Mr. Justice Nwokedi, who read the lead judgment, with which all other
justices on the panel agreed, drew a distinction between, on the one hand,
grouping the members of a community into age groups and, on the other
hand, the joining of an age group. He took judicial notice of the fact (as he was
entitled to under the Evidence Act) that grouping youngmen [sic] into age
group[s] is a well known custom throughout Igbo communities. It is no more
than a manner of dating or showing the age of the group in a society where
age matters a lot and the art of writing had not been acquired. The age groups
are named for the purpose of identification.9 He went on to state One does
not automatically become a member of the association because he [sic] was so
grouped. One was not under compulsion to join the age group association
under which he was grouped as he [sic] had the option to join any other age
group of his [sic] liking.10 He then observed that the substance of the
plaintiffs case was that he did not belong to the age group, on religious
Op. cit.
ibid. 413 The other justices who made up the Supreme Court panel for the case were Karibi-Whyte,
Kawu, Wali and Akpata. The case was instituted at the Magistrates Court in Aba. By way of appeals, it
went through the High Court and the Court of Appeal before getting to the Supreme Court.
10 ibid. 415
8
9
75
grounds, and that the defendants were trying to induct him into the group by
force.
In giving judgment in favor of the plaintiff, he held that Much as one would
welcome development projects in the community, there must be caution to
ensure that the fundamental rights of a citizen are not trampled upon by
popular enthusiasm. These rights have been enshrined in a legislation, that is,
the Constitution, which enjoys superiority over local custom.11 In concurring
with the lead judgment, another justice of the Court, Mr. Justice KaribiWhyte, explained as follows: the concept of Age-grade per se, does not offend
the provisions of the Constitution. On the other hand the idea of the
automatic membership is an infringement of the freedom of association
which is the fundamental right of the individual .12
This interesting decision deserves to be set in the context of the larger issue.
The African society needs to ensure that its culture does not become static. It
need not hold on to the ways of old, if such ways are now seen to be
inadequate or undesirable. It need not be unnecessarily protective of its own.
It need not be ashamed to adopt or adapt new ways from elsewhere. It needs
to ensure that old usages that have some merit are transformed by new rules
and made more serviceable for the present. Justice Nwokedi apparently
considered that the courts could contribute to this by a creative exercise of the
power to apply the repugnancy test in determining the enforceability of a
customary law rule. As he stated in his judgment:
Customary laws are formulated from time immemorial. As our
society advances, they are more removed from its pristine social
ecology. They meet situations which were inconceivable at the time
they took root. The doctrine of repugnancy in my view affords the
courts the opportunity for fine-tuning customary laws to meet changed
social conditions where necessary, more especially as there is no forum
for repealing or amending customary laws. I do not intend to be
understood as holding that the Courts are there to enact customary
laws. When however customary law is confronted by a novel situation,
the courts have to consider its application under existing social
environment13
Progress depends on the introduction and acceptance of new ideas. New
ideas can only emerge if the social milieu permits individuals to do things in
ways different from the ways of their fathers. The African society continues to
ibid.
ibid. 428
13 ibid. 417 Indeed, Mr. Justice Osborne, a colonial chief justice of Nigeria had rightly observed in the old
case of Lewis v. Bankole (1908) 1 NLR 81 at 100-101:One of the most striking features of West African
native custom is its flexibility; it appears to have been always subject to motives of expediency, and it
shows unquestionable adaptability to altered circumstances without entirely losing its character.
11
12
76
77
1992 was the year that a number of gay, lesbian, and bisexual
descendants of the Irish immigrants joined together with other supporters
to form the respondent organization, GLIB, to march in the parade as a
way to express pride in their Irish heritage as openly gay, lesbian, and
bisexual individuals, to demonstrate that there are such men and women
among those so descended, and to express their solidarity with like
individuals who sought to march in New York's St. Patrick's Day Parade.
Id., at B3; App. 51. Although the Council denied GLIB's application to
take part in the 1992 parade, GLIB obtained a state court order to
include its contingent, which marched "uneventfully" among that year's
10,000 participants and 750,000 spectators. App. to Pet. for Cert. B3,
and n. 4.
In 1993, after the Council had again refused to admit GLIB to the
upcoming parade, the organization and some of its members filed this
suit against the Council, the individual petitioner John J. "Wacko"
Hurley, and the City of Boston, alleging violations of the State and
Federal Constitutions and of the state public accommodations law,
which prohibits "any distinction, discrimination or restriction on account
of . . . sexual orientation . . . relative to the admission of any person to,
or treatment in any place of public accommodation, resort or
amusement." Mass. Gen. Laws 272:98. After finding that "[f]or at least
the past 47 years, the Parade has traveled the same basic route along the
public streets of South Boston, providing entertainment, amusement, and
recreation to participants and spectators alike," App. to Pet. for Cert. B5B6, the state trial court ruled that the parade fell within the statutory
definition of a public accommodation, which includes "any place . . .
which is open to and accepts or solicits the patronage of the general
public and, without limiting the generality of this definition, whether or
not it be . . . (6) a boardwalk or other public highway [or] . . . (8) a place
of public amusement, recreation, sport, exercise or entertainment," Mass.
Gen. Laws 272:92A. The court found that the Council had no written
criteria and employed no particular procedures for admission, voted on
new applications in batches, had occasionally admitted groups who
simply showed up at the parade without having submitted an application,
and did "not generally inquire into the specific messages or views of
each applicant." App. to Pet. for Cert. B8-B9. The court consequently
rejected the Council's contention that the parade was "private" (in the
sense of being exclusive), holding instead that "the lack of genuine
selectivity in choosing participants and sponsors demonstrates that the
Parade is a public event." Id., at B6. It found the parade to be "eclectic,"
containing a wide variety of "patriotic, commercial, political, moral,
artistic, religious, athletic, public service, trade union, and eleemosynary
themes," as well as conflicting messages. Id., at B24. While noting that
the Council had indeed excluded the Ku Klux Klan and ROAR (an
antibusing group), id., at B7, it attributed little significance to these facts,
concluding ultimately that "[t]he only common theme among the
participants and sponsors is their public involvement in the Parade," id.,
at B24.
The court rejected the Council's assertion that the exclusion of "groups
with sexual themes merely formalized [the fact] that the Parade
expresses traditional religious and social values," id., at B3, and found
the Council's "final position [to be] that GLIB would be excluded
because of its values and its message, i.e., its members' sexual
orientation," id., at B4, n. 5, citing Tr. of Closing Arg. 43, 51-52 (Nov.
23, 1993). This position, in the court's view, was not only violative of
the public accommodations law but "paradoxical" as well, since "a
proper celebration of St. Patrick's and Evacuation Day requires diversity
78
and inclusiveness." App. to Pet. for Cert. B24. The court rejected the
notion that GLIB's admission would trample on the Council's First
Amendment rights since the court understood that constitutional
protection of any interest in expressive association would "requir[e]
focus on a specific message, theme, or group" absent from the parade.
Ibid. "Given the [Council's] lack of selectivity in choosing participants
and failure to circumscribe the marchers' message," the court found it
"impossible to discern any specific expressive purpose entitling the
Parade to protection under the First Amendment." Id., at B25. It
concluded that the parade is "not an exercise of [the Council's]
constitutionally protected right of expressive association," but instead
"an open recreational event that is subject to the public accommodations
law." Id., at B27.
The court held that because the statute did not mandate inclusion of
GLIB but only prohibited discrimination based on sexual orientation,
any infringement on the Council's right to expressive association was
only "incidental" and "no greater than necessary to accomplish the
statute's legitimate purpose" of eradicating discrimination. Id., at B25,
citing Roberts v. United States Jaycees, 468 U.S. 609, 628-629 (1984).
Accordingly, it ruled that "GLIB is entitled to participate in the Parade
on the same terms and conditions as other participants." Id., at B27. [n.1]
The Supreme Judicial Court of Massachusetts affirmed, seeing nothing
clearly erroneous in the trial judge's findings that GLIB was excluded
from the parade based on the sexual orientation of its members, that it
was impossible to detect an expressive purpose in the parade, that there
was no state action, and that the parade was a public accommodation
within the meaning of 272:92A. Irish American Gay, Lesbian and
Bisexual Group of Boston v. Boston, 418 Mass. 238, 242-248, 636N. E.
2d 1293, 1295-1298 (1994). [n.2] Turning to petitioners' First Amendment
claim that application of the public accommodations law to the parade
violated their freedom of speech (as distinguished from their right to
expressive association, raised in the trial court), the court's majority held
that it need not decide on the particular First Amendment theory
involved "because, as the [trial] judge found, it is `impossible to discern
any specific expressive purpose entitling the parade to protection under
the First Amendment.' " Id., at 249, 636 N. E. 2d, at 1299 (footnote
omitted). The defendants had thus failed at the trial level "to demonstrate
that the parade truly was an exercise of . . . First Amendment rights," id.,
at 250, 636 N. E. 2d, at 1299, citing Clark v. Community for Creative
Non Violence, 468 U.S. 288, 293, n. 5 (1984), and on appeal nothing
indicated to the majority of the Supreme Judicial Court that the trial
judge's assessment of the evidence on this point was clearly erroneous,
ibid. The court rejected petitioners' further challenge to the law as
overbroad, holding that it does not, on its face, regulate speech, does not
let public officials examine the content of speech, and would not be
interpreted as reaching speech. Id., at 251-252, 636 N. E. 2d, at 1300.
Finally, the court rejected the challenge that the public accommodations
law was unconstitutionally vague, holding that this case did not present
an issue of speech and that the law gave persons of ordinary intelligence
a reasonable opportunity to know what was prohibited. Id., at 252, 636
N. E. 2d, at 1300-1301.
Justice Nolan dissented. In his view, the Council "does not need a
narrow or distinct theme or message in its parade for it to be protected
under the First Amendment." Id., at 256, 636 N. E. 2d, at 1303. First, he
wrote, even if the parade had no message at all, GLIB's particular
message could not be forced upon it. Id., at 257, 636 N. E. 2d, at 1303,
79
citing Wooley v. Maynard, 430 U.S. 705, 717 (1977) (state requirement
to display "Live Free or Die" on license plates violates First
Amendment). Second, according to Justice Nolan, the trial judge clearly
erred in finding the parade devoid of expressive purpose. Ibid. He would
have held that the Council, like any expressive association, cannot be
barred from excluding applicants who do not share the views the Council
wishes to advance. Id., at 257-259, 636 N. E. 2d, at 1303-1304, citing
Roberts v. United States Jaycees, 468 U.S. 609 (1984). Under either a
pure speech or associational theory, the State's purpose of eliminating
discrimination on the basis of sexual orientation, according to the
dissent, could be achieved by more narrowly drawn means, such as
ordering admission of individuals regardless of sexual preference,
without taking the further step of prohibiting the Council from editing
the views expressed in their parade. Id., at 256, 258, 636 N. E. 2d, at
1302, 1304. In Justice Nolan's opinion, because GLIB's message was
separable from the status of its members, such a narrower order would
accommodate the State's interest without the likelihood of infringing on
the Council's First Amendment rights. Finally, he found clear error in the
trial judge's equation of exclusion on the basis of GLIB's message with
exclusion on the basis of its members' sexual orientation. To the dissent
this appeared false in the light of "overwhelming evidence" that the
Council objected to GLIB on account of its message and a dearth of
testimony or documentation indicating that sexual orientation was the
bar to admission. Id., at 260, 636 N. E. 2d, at 1304. The dissent
accordingly concluded that the Council had not even violated the State's
public accommodations law.
We granted certiorari to determine whether the requirement to admit a
parade contingent expressing a message not of the private organizers'
own choosing violates the First Amendment. 513 U. S. ___ (1995). We
hold that it does and reverse.
* * * * *
If there were no reason for a group of people to march from here to there
except to reach a destination, they could make the trip without
expressing any message beyond the fact of the march itself. Some people
might call such a procession a parade, but it would not be much of one.
Real "[p]arades are public dramas of social relations, and in them
performers define who can be a social actor and what subjects and ideas
are available for communication and consideration." S. Davis, Parades
and Power: Street Theatre in Nineteenth Century Philadelphia 6 (1986).
Hence, we use the word "parade" to indicate marchers who are making
some sort of collective point, not just to each other but to bystanders
along the way. Indeed a parade's dependence on watchers is so extreme
that nowadays, as with Bishop Berkeley's celebrated tree, "if a parade or
demonstration receives no media coverage, it may as well not have
happened." Id., at 171. Parades are thus a form of expression, not just
motion, and the inherent expressiveness of marching to make a point
explains our cases involving protest marches. In Gregory v. Chicago,
394 U.S. 111, 112 (1969), for example, petitioners had taken part in a
procession to express their grievances to the city government, and we
held that such a "march, if peaceful and orderly, falls well within the
sphere of conduct protected by the First Amendment." Similarly, in
Edwards v. South Carolina, 372 U.S. 229, 235 (1963), where petitioners
had joined in a march of protest and pride, carrying placards and singing
The Star Spangled Banner, we held that the activities "reflect an exercise
of these basic constitutional rights in their most pristine and classic
form." Accord, Shuttlesworth v. Birmingham, 394 U.S. 147, 152 (1969).
80
81
seeks to communicate its ideas as part of the existing parade, rather than
staging one of its own.
The Massachusetts public accommodations law under which respondents
brought suit has a venerable history. At common law, innkeepers,
smiths, and others who "made profession of a public employment," were
prohibited from refusing, without good reason, to serve a customer. Lane
v. Cotton, 12 Mod. 472, 484-485, 88 Eng. Rep. 1458, 1464-1465 (K.B.
1701) (Holt, C. J.); see Bell v. Maryland, 378 U.S. 226, 298, n. 17
(1964) (Goldberg, J., concurring); Lombard v. Louisiana, 373 U.S. 267,
277 (1963) (Douglas, J., concurring). As one of the 19th century English
judges put it, the rule was that "[t]he innkeeper is not to select his
guests[;] [h]e has no right to say to one, you shall come into my inn, and
to another you shall not, as every one coming and conducting himself in
a proper manner has a right to be received; and for this purpose
innkeepers are a sort of public servants." Rex v. Ivens, 7 Car. & P. 213,
219, 173 Eng. Rep. 94, 96 (N.P. 1835); M. Konvitz & T. Leskes, A
Century of Civil Rights 160 (1961).
After the Civil War, the Commonwealth of Massachusetts was the first
State to codify this principle to ensure access to public accommodations
regardless of race. See Act Forbidding Unjust Discrimination on
Account of Color or Race, 1865 Mass. Acts, ch. 277 (May 16, 1865);
Konvitz & Leskes, supra, at 155-56; L.G. Lerman & A. Sanderson,
Discrimination in Access to Public Places: A Survey of State and
Federal Public Accommodations Laws, 7 N. Y. U. Rev. L. & Soc.
Change 215, 238 (1978); F. Fox, Discrimination and Antidiscrimination
in Massachusetts Law, 44 B. U. L. Rev. 30, 58 (1964). In prohibiting
discrimination "in any licensed inn, in any public place of amusement,
public conveyance or public meeting," 1865 Mass. Acts, ch. 277, 1, the
original statute already expanded upon the common law, which had not
conferred any right of access to places of public amusement, Lerman &
Anderson, supra, at 248. As with many public accommodations statutes
across the Nation, the legislature continued to broaden the scope of
legislation, to the point that the law today prohibits discrimination on the
basis of "race, color, religious creed, national origin, sex, sexual
orientation . . ., deafness, blindness or any physical or mental disability
or ancestry" in "the admission of any person to, or treatment in any place
of public accommodation, resort or amusement." Mass. Gen. Laws
272:98. Provisions like these are well within the State's usual power to
enact when a legislature has reason to believe that a given group is the
target of discrimination, and they do not, as a general matter, violate the
First or Fourteenth Amendments. See, e.g., New York State Club Assn.,
Inc. v. City of New York, 487 U.S. 1, 11-16 (1988); Roberts v. United
States Jaycees, 468 U.S. 609, 624-626 (1984); Heart of Atlanta Motel,
Inc. v. United States, 379 U.S. 241, 258-262 (1964). Nor is this statute
unusual in any obvious way, since it does not, on its face, target speech
or discriminate on the basis of its content, the focal point of its
prohibition being rather on the act of discriminating against individuals
in the provision of publicly available goods, privileges, and services on
the proscribed grounds.
In the case before us, however, the Massachusetts law has been applied
in a peculiar way. Its enforcement does not address any dispute about the
participation of openly gay, lesbian, or bisexual individuals in various
units admitted to the parade. The petitioners disclaim any intent to
exclude homosexuals as such, and no individual member of GLIB claims
to have been excluded from parading as a member of any group that the
Council has approved to march. Instead, the disagreement goes to the
82
admission of GLIB as its own parade unit carrying its own banner. See
App. to Pet. for Cert. B26-B27, and n. 28. Since every participating unit
affects the message conveyed by the private organizers, the state courts'
application of the statute produced an order essentially requiring
petitioners to alter the expressive content of their parade. Although the
state courts spoke of the parade as a place of public accommodation, see,
e.g., 418 Mass., at 247-248, 636 N. E. 2d, at 1297-1298, once the
expressive character of both the parade and the marching GLIB
contingent is understood, it becomes apparent that the state courts'
application of the statute had the effect of declaring the sponsors' speech
itself to be the public accommodation. Under this approach any
contingent of protected individuals with a message would have the right
to participate in petitioners' speech, so that the communication produced
by the private organizers would be shaped by all those protected by the
law who wished to join in with some expressive demonstration of their
own. But this use of the State's power violates the fundamental rule of
protection under the First Amendment, that a speaker has the autonomy
to choose the content of his own message.
"Since all speech inherently involves choices of what to say and what to
leave unsaid," Pacific Gas & Electric Co. v. Public Utilities Comm'n of
Cal., 475 U.S. 1, 11 (1986) (plurality opinion) (emphasis in original),
one important manifestation of the principle of free speech is that one
who chooses to speak may also decide "what not to say," id., at 16.
Although the State may at times "prescribe what shall be orthodox in
commercial advertising" by requiring the dissemination of "purely
factual and uncontroversial information," Zauderer v. Office of
Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 651
(1985); see Pittsburgh Press Co. v. Pittsburgh Comm'n on Human
Relations, 413 U.S. 376, 386-387 (1973), outside that context it may not
compel affirmance of a belief with which the speaker disagrees, see
Barnette, 319 U. S., at 642. Indeed this general rule, that the speaker has
the right to tailor the speech, applies not only to expressions of value,
opinion, or endorsement, but equally to statements of fact the speaker
would rather avoid, McIntyre v. Ohio Elections Comm'n, 514 U. S. ___,
___ (1995) (slip op., at 6-7); Riley v. National Federation of Blind of
N.C., Inc., 487 U.S. 781, 797-798 (1988), subject, perhaps, to the
permissive law of defamation, New York Times, 376 U.S. 254; Gertz v.
Robert Welch, Inc., 418 U.S. 323, 347-349 (1974); Hustler Magazine,
Inc. v. Falwell, 485 U.S. 46 (1988). Nor is the rule's benefit restricted to
the press, being enjoyed by business corporations generally and by
ordinary people engaged in unsophisticated expression as well as by
professional publishers. Its point is simply the point of all speech
protection, which is to shield just those choices of content that in
someone's eyes are misguided, or even hurtful. See Brandenburg v.
Ohio, 395 U.S. 444 (1969); Terminiello v. Chicago, 337 U.S. 1 (1949).
Petitioners' claim to the benefit of this principle of autonomy to control
one's own speech is as sound as the South Boston parade is expressive.
Rather like a composer, the Council selects the expressive units of the
parade from potential participants, and though the score may not produce
a particularized message, each contingent's expression in the Council's
eyes comports with what merits celebration on that day. Even if this
view gives the Council credit for a more considered judgment than it
actively made, the Council clearly decided to exclude a message it did
not like from the communication it chose to make, and that is enough to
invoke its right as a private speaker to shape its expression by speaking
on one subject while remaining silent on another. The message it
disfavored is not difficult to identify. Although GLIB's point (like the
83
84
85
86
the speakers or handbillers stand." Id., at 87. Also, in Pacific Gas &
Electric, supra, at 12, we noted that PruneYard did not involve "any
concern that access to this area might affect the shopping center owner's
exercise of his own right to speak: the owner did not even allege that he
objected to the content of the pamphlets . . . ." The principle of speaker's
autonomy was simply not threatened in that case.
New York State Club Association is also instructive by the contrast it
provides. There, we turned back a facial challenge to a state
antidiscrimination statute on the assumption that the expressive
associational character of a dining club with over 400 members could be
sufficiently attenuated to permit application of the law even to such a
private organization, but we also recognized that the State did not
prohibit exclusion of those whose views were at odds with positions
espoused by the general club memberships. 487 U. S., at 13; see also
Roberts, 468 U. S., at 627. In other words, although the association
provided public benefits to which a State could ensure equal access, it
was also engaged in expressive activity; compelled access to the benefit,
which was upheld, did not trespass on the organization's message itself.
If we were to analyze this case strictly along those lines, GLIB would
lose. Assuming the parade to be large enough and a source of benefits
(apart from its expression) that would generally justify a mandated
access provision, GLIB could nonetheless be refused admission as an
expressive contingent with its own message just as readily as a private
club could exclude an applicant whose manifest views were at odds with
a position taken by the club's existing members.
Our holding today rests not on any particular view about the Council's
message but on the Nation's commitment to protect freedom of speech.
Disapproval of a private speaker's statement does not legitimize use of
the Commonwealth's power to compel the speaker to alter the message
by including one more acceptable to others. Accordingly, the judgment
of the Supreme Judicial Court is reversed and the case remanded for
proceedings not inconsistent with this opinion.
It is so ordered.
88
2.2
89
2.3
90
2.4
95
2.5
104
2.6
Discussion examples
108
2.7
Discussion questions
111
87
88
89
other corporate law authorizing formation under this chapter of the type D
corporation.
Sec. 404. Approvals and consents.
(a) Every certificate of incorporation which includes among its purposes the
formation of a trade or business association shall have endorsed thereon or
annexed thereto the consent of the attorney-general.
(b) Every certificate of incorporation which includes among its purposes the
care of destitute, delinquent, abandoned, neglected or dependent children;
the establishment or operation of a day care center for children; the
establishment or operation of day care development programs . . . shall have
endorsed thereon or annexed thereto the approval of the commissioner of
social services.
(c) Every certificate of incorporation which includes among the purposes of
the corporation, the establishment, maintenance and operation of a hospital
service or a health service or a medical expense indemnity plan or a dental
expense indemnity plan as permitted in article forty-three of the insurance
law, shall have endorsed thereon or annexed thereto the approval of the
superintendent of insurance and the commissioner of health.
(d) Every certificate of incorporation which includes a purpose for which a
corporation might be chartered by the regents of the university of the State of
New York shall have endorsed thereon or annexed thereto the consent of the
commissioner of education.
(e) Every certificate of incorporation of a cemetery corporation, except those
within the exclusionary provisions of section 1503 (Cemetery corporations)
shall have endorsed thereon or annexed thereto the approval of the cemetery
board.
2.3
Article 2
Associations referred to in these Regulations mean the nonprofit-making social organizations composed of Chinese citizens on their
voluntariness to perform activities in accordance with the articles of
association for the realization of the common desires of their members.
90
91
Chapter II Jurisdiction
National associations shall be registered and administered by the
Article 7
registration and administration of the State Council; local associations shall be
registered and administered by registration and administration organs of the
peoples governments in places where they are located. The Trans-administrativedistrict associations shall be registered and administered by the registration and
administration organs of their common peoples governments at the next higher level
over the administrative districts these associations straddle.
Article 10
The establishment of an association shall meet the following
requirements:
(1) possession of more than 50 individual members or 30 unit
members; a total of more than 50 members are required if an
association consists of both individual and unit members.
(2) possession of standardized name and corresponding organizational
structure;
(3) possession of fixed domicile;
(4) possession of full-time staff suitable for its business activities;
(5) possession of lawful assets and sources of funding, the national
association shall have an business fund of more than 100,000 yuan
while a local association and a trans-administration-district association
more than 30,000 yuan;
(6) possession of the ability to bear civil liabilities independently .
The name of an association shall be in conformity with the with the provisions
of the laws and regulations, and shall not breach shall social ethics and
morality. The name of an association shall correspond with its business
scopes, location of members and areas of activities and shall precisely reflect
its characteristics. National associations that wish to may head their names
with such words as China, National or Chinese.
92
Article 11
In applying for the preparations for the establishment of an
association, the sponsor shall submit to the registration and administration
organ the following documents:
(1) an application letter for the preparations;
(2) the approval documents of the competent business unit;
(3) the capital verification report and the certificate for the use right of
site;
(4) the basic facts and identification paper of the sponsor and the
proposed responsible person;
(5) the draft articles of association.
The registration and administration organs shall make decisions
Article 12
of approval or disapproval of the preparations for the establishment within 60
days after the receipt of all valid documents specified in Article 11 of there
Regulations; if the application for preparations is not approved, the
registration and administration organ shall give reasons to the sponsor.
Article 13
The registration and administration organs shall not approve
the preparations under any of the following circumstances:
(1) there are evidences to indicate that the purposes and business
scopes of the association being applied for preparations are not in
conformity with the provisions of Article 4 of these Regulations;
(2) there is no need for the establishment of an association as there
already exists an association whose business scopes is either identical
or similar to that of the proposed association in the same
administrative area;
(3) the sponsor and the proposed responsible person are still or were
once under the criminal penalty of the deprivation of the political
rights, or are not in possession of full capabilities for civil conducts;
(4) fraud and falsification are resorted to in applying for preparations;
(5) other circumstances prohibited by laws and administrative
regulations.
An association whose establishment is under preparations shall
Article 14
convene a members assembly or a members congress within 6 months after
the date of approval of the application for preparations to adopt its articles of
association, and create its executive, responsible persons and the legal
representative, and shall apply for establishment registration to the
registration and administration organ. No activities other than those directly
related to the preparations may be performed during the preparatory period.
The articles of association of an association shall contain the
Article 15
following items:
93
94
Article 19
An established association that intends to establish a branch or
representative office shall, upon the review and consent of the competent
business unit, submit to the registration and administration organ for
registration with such documents as the name, business scopes, domicile and
the primary responsible person of the branch or representative office.
The branch or representative office of an association is an integral component
thereof, and as such, it shall not be qualified as a legal person, it shall, according to
the purpose and within the business scopes specified in the articles of association of
the association to which it is affiliated, perform activities, recruit members within the
scope of authorities by the association. The branch of association shall not establish
its own sub-branch.
95
the tax and other benefits they receive.14 Fourth, Japanese law frequently
inhibits the autonomy of the not-for-profit organizations it governs, and it can
be applied to the disadvantage of groups that seek to maintain their
independence from state control. All of this makes it difficult for independent
groups to grow large in Japan and for large groups to remain independent.
This hinders the development of a strong civil society and the existence of
dissenting voices within it.
B. Sources of Japanese Law
Before turning to the specifics of the legal and regulatory framework for civil
society organizations in Japan, it is important to place Japanese law in comparative
context. Two points need to be made here. First, Japanese law is in the tradition of
the civil law, and not the common law, but the latter has had some influence on legal
developments (e.g., the creation of the trust form for charities under Article 66 of the
Trust Law). Second, Japanese law has a long tradition of incorporating foreign
influences, beginning with Chinese law, continuing in the Meiji period with French
and German law (the latter of which influenced the Civil Code of 1896), and later, in
the Occupation, with the influence of American law. However, Japanese borrowing
from other legal traditions has often been self-conscious and adaptive.
C. Regulating the Not-for-Profit Sector in General
The legal framework for voluntary and not-for-profit activity encompasses a
variety of different laws, governing different aspects of the interaction between notfor-profit organizations15 and the state. These include the legal rules governing the
creation and operations of not-for-profit organizations as well as the legal rules
governing access to benefits provided by the state, such as tax exemption and tax
deductibility of donations. There are also laws dealing with direct state support,
through public sector transfers.16 In addition, there may be laws governing volunteer
activity, an increasing area of state concern around the world. In general the
Japanese legal framework encompasses all of the types of laws that govern not-forprofit organizations. This chapter deals mainly with the laws affecting formation
and oversight of such organizations, their access to tax benefits, and the regulations
affecting state support and government contracts.
An important caveat is that there have been many policies promoting certain aspects of civil
societyneighborhood associations, social welfare legal persons, volunteering, and recently,
and to a smaller extent, internationally-oriented development NGOs. See Pekkanen 1999,
2001c, 2002, and Forthcoming; Pickert, 2001; Kage, Unpublished; Reimann, 2001.
15 Although much of the general literature in this field refers to all types of not-for-profit
organizations as NPOs or NGOs (nongovernmental organizations), in this chapter we reserve
the term NPO for the special type of not-for-profit organizations formed under the 1998
NPO Law. . . .
16 All of these laws are important if the state is going to be able to take advantage of working
cooperatively with the NPO sector. See Simon and Irish1998, Symposium issue of IJNL 2001..
14
96
17 Under Japan's Civil Code system, only 26,089 groups gained legal status as nonprofit Public
Interest Legal Persons (PILPs) versus the 1,140,000 American not-for-profit organizations
formed as legal entities.
97
Associatio
n shadan
houjin
zaidan
houjin
Social
Welfare
Corporati
on
shakai
fukushi
houjin
Education
al
Corporati
on
Religious
Corporati
on
shyuukyou
houjin
Medical
Corporati
on
18
Num
ber of
existi
ng
entitie
s
Permissio 11,867
n kyoka
Civil
Associations with the
Code,
objective of worship, religion,
Article
charity, education, arts and
34 (1897)
Compete
nt
Governm
ent
Agency
Civil
Foundations with the
Code,
objective of worship, religion,
Article
charity, education, arts and
34 (1897)
Compete
nt
Governm
ent
Agency
Permissio 12,
n kyoka
814
Social
Welfare
Business
Law,
Article 22
(1951)
Ministry
of Health
and
Welfare
Approval 13,307
ninka
Minister
of
Educatio
n
Approval 11,765
ninka
Minister
of
Educatio
n
Certificat
ion
ninshou
Ministry
of Health
and
Welfare
Approval 14,048
ninka
Foundatio
n
Permittin
g
Standard
Private
School
Law,
Article 3
(1949)
Religious
Corporati
on Law,
Article 4
(1951)
Medical
Law,
Article 39
(1950)
Corporations established
under the law with the
objective of social welfare
businesses
Corporations established
under the law for the purpose
of establishing a private
school
Corporations having the
purpose of evangelizing,
conducting religious rites,
and educating and nurturing
believers
Associations or foundations
whose objectives are to
establish a hospital or clinic
183,89
4
98
Public
Charitable
Trust
Trust
Law,
Article 66
(1923
applied
1977)
Approved
Communi
ty-Based
Organizati
on
Special
Nonprofit
Activities
Legal
Person
NPO
houjin
Local
Autonom
y Law
260 (2)
(1991)
Special
Nonprofi
t
Activities
Promotio
n Law
(1998)
Organizations formed by
residents of a community
Minister
of
competen
t
governm
ent
agency
Mayor or
town or
village
headpers
on
Economic
Planning
Agency
Permissio 433
n kyoka
Notificati
on
todokede
841
Certificat
ion
ninshou
1012
Public Interest Legal Persons Organized Under Article 34 of the Civil Code
In the Civil Code Public Interest Legal Persons (PILPs) include two
different types of organization Incorporated Associations and Incorporated
Foundations; this division reflects the typical civil law division of entities into
those with members (associations) and those that own property (foundations).
Incorporated Associations or shadan houjin are authorized by Article 34 of the
Civil Code, which provides for associations with the objective of worship,
religion, charity, education, arts and crafts, and other activities for public
interest, and not for profit. Associations are formed by members, but once
formed, they obtain legal status apart from their members and regardless of
changes in the size of the membership. Once registered, an association
operates under a Charter of Association and is governed by the general
assembly of all group members (shain soukai). The members may and usually
do elect a board of directors to oversee the day-to-day activities of the
organization.
99
100
Notification
Todokede
Registration
Touroku
101
102
First, the number of applicants for NPO status was initially quite low.
It was not until early August 1999 that the number of applicants topped 1000.
Expectations for an initial rush had been much higher. For example,
Kanagawa prefecture had set up 7 windows for an onslaught of NPO
applicants; yet by December 18th 1999, there had only been 8 applications.20
The rate of applications, however, almost doubled from winter to spring 1999.
This reflected the wait-and-see approach of many groups, especially the
established ones.21 Changing legal status takes some time and effort. For
example, it would require the undoubtedly salutary but tedious task of
transferring titles and contracts from the name of the organizations leader to
the name to the newly incorporated organization. Moreover, as in other cases
where the rules of the game are changed, it requires time for actors to adjust
to altered incentives (see also the chapter by Pekkanen this volume).
As familiarity with the law has grown, however, thousands of
organizations have been able to gain legal status. By April 2001, 4626 groups
had applied for and 3933 had been granted NPO Legal Person status.
However, a survey of the 1,034 groups granted NPO legal person status by
November 1999 (to which 463 responded) found only 5.2 percent satisfied
with the law. Although legal status itself was an important achievement for
them, the vast majority of these groups (84%) caomplained about the lack of
tax benefits available. They wanted income tax exemption and taxdeductibility for contributions made to them. They received only the latter, as
discussed below in the section dealing with Taxation. This trend in thinking
appears to have continued among the more recent applicants, but there is
only anecdotal evidence for that conclusion.
Second, implementation of the NPO law was intitially seen as an
opportunity for continued administrative intervention in the activities of
NPOs. Despite the laws being written to strictly limit bureaucratic discretion,
it appears that the practice of administrative guidance (applicable to PILPs)
was, at least intitially still being applied to some NPO applicants.22 Contrary
to the intent of the law, bureaucrats are conferring actively with most of the
applicant organizations before the application is filed. While this often may
spring from a sincere attempt to help the organization complete the
paperwork accurately, it is nonetheless a violation of the spirit of the law and
looks a lot like a screening process.
Cs nyusureta 22. December 25, 1998. P.2. Mainichi Shimbun on December 6, 1998, notes
that although 3000 groups had been expected within the year, only 52 applied on the first
day.
20
Noting this phenomenon, Nihon Keizai Shimbun of November 29, 1998 gives the example
of a Tokyo group involved in development work in Bangladesh which says that although
legal status is necessary for the group, they still have decided to wait and see how the law
works in practice.
21
Mainichi Shimbun December 6, 1998. The piece also notes that despite the laws provisions,
bureaucrats feel they still must scrutinize the groups out of a sense of responsibility should
the group later misbehave. For a description of the administrative guidance system, see
infra under the discussion of regulation of PILPs.
22
103
Third, some requirements of the law seem to have been applied too loosely at
the outset of the laws implementation. This resulted in a low number of rejected
applicants (only 2 as of August 1999 -- both essentially trade organizations, which
were rejected because they limited membership to those in the trade). The law
required that the reasons for rejection be explicitly stated and the applicant group
could re-apply by taking the objections into account. This process, with its explicit
publication of information, was envisioned specifically to avoid the uncertainties of
administrative guidance and screening and to give prospective applicants a sense
of what might be expected of them in a more objective system. By April 2001, about
500 organizations had been denied NPO status, and that is giving new applicant
organizations better information about how to meet the requirements. At this stage,
however, it is still premature to judge whether the NPO Law will achieve the goals of
its drafters.
2.5
23 This reflects the general bias the Japanese state has for promoting small local grassroots
groups and inhibiting the autonomous development of large not-for-profits. See Pekkanen
2000a, 2000b, 2000d, 2001a, and especially 2002, and Forthcoming.
104
105
It is the opinion of this court that the statutes (R. C. 1702.01 to 1702.58)
give the Secretary of State discretion in determining which articles of
incorporation he will accept.
Although homosexual acts between consenting adults are no longer
statutory offenses since the new Criminal Code came into effect, there is
still reason for denying the writ. We agree with the Secretary of State
that the promotion of homosexuality as a valid life style is contrary to
the public policy of the state.
Writ denied.
CONCUR: HERBERT, J., concurring in judgment.
I concur in the judgment, but disagree with the language in the opinion
which suggests that unfettered discretion reposes in the Secretary of
State. Furthermore, it should be pointed out that a major weakness in
the dissent lies in its conclusion that an absence of statutory law always
establishes the presence of a definitive public policy.
P. BROWN, J., concurs in the foregoing concurring opinion.
DISSENTS: STERN, J., dissenting.
As I read the majority opinion, it is henceforth unlawful in this state for
any group of persons to attempt, in any fashion, to persuade the public
that homosexuality represents a valid, alternative life style. n1 Because I
believe this position to have no basis in law, I dissent.
The majority is factually inaccurate in stating that respondent's decision
was based upon public policy grounds. In his final brief, filed on
November 5, 1973, in this court, the Secretary of State explained:
"Respondent did state, when giving a reason for not accepting and filing
relator's articles of incorporation, that they appear to be contrary to
public policy. This does not mean, however, that the Secretary of State is
attempting to dictate what is contrary to public policy. The use of that term was
merely another way of saying that relator's purpose clause could logically be
interpreted as encouraging the commission of unlawful acts (as established by
the Legislature)." (Emphasis added.)
Specifically, according to respondent, he is concerned with relators'
potential violations of R. C. 2905.44, which prohibited sodomy, and R. C.
2905.30, which prohibited the solicitation of acts of sex perversion.
It is clear, at least to me, that as of January 1, 1974, when Amended
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107
108
should also be considered. The issues are framed by seeking the answer to the
following question: what would the optimal legislation on establishment look like?
Example 1
109
Example 6
Citizen associations and foundations are obligated to submit an application for entry
into the Register of the primary court within 30 days from the day the deed of
foundation is enacted.
Article 44, Law on Citizen Associations and Foundations, Macedonia, June 1998
Example 7
Public organizations and their associations shall not be registered if: (1) the
submitted Charter or activities of separate persons or a group of persons
during the process of establishing the public organization reveal that its
objectives or activities are contrary to the Constitution, the present Law and
other laws of the Republic of Latvia, conventions or international treaties
ratified by the Republic of Latvia; (2) their name, abbreviation or symbols
coincide with or are similar to the name, abbreviation or symbols of public
organizations and their associations whose operation has been terminated by
law, the decision of the Supreme Council of the Republic of Latvia or a court
ruling; (3) they use communist or national socialist symbols of the occupation
period in Latvia or the state symbols of the USSR or the LSSR.
Article 13, Law on Public Organizations and their Associations, Latvia, 1992
Example 8
110
Example 10
The Israeli Law of Amutot, 5740-1980, provides in art. 6: Should the Registrar refuse
to register an Amuta, the founders may appeal before the District Court within thirty
days of receiving notice of the refusal. The same article provides that an amuta can
appeal a demand by the Registrar that the amuta change its name.
Example 11
The new Law of Associations and Foundations of Yemen provides that applications
should be submitted to the Ministry of Pensions and Social Affairs, either the
centralized ministry or a branch office. Article 9 of the law gives the Ministry one
month to process an application. [I]f this period terminates and the processing has
not been completed, then the application shall be deemed to have been accepted by
force of law and the Ministry or its relevant office...should undertake that
registration in the register set up for this and...publicize this in any official
newspaper.
2.7
Discussion Questions
111
3.2
113
117
121
150
3.3
3.4
3.5
111
112
inquiry hearinge and examinynge thereof set downe suche Orders Judgments
and Decrees, as the saide Landes Tenementes Rents Annuities Profits Goods
Chattels Money and Stockes of Money may be duelie and faithfullie
imployed, to and for suche of the charitable uses and intents before rehearsed
respectivelie, for whiche they were given limitted assigned or appointed by
the Donors and Founders thereof: whiche Orders Judgements and Decrees,
not being contrarie or repugnante to the Orders Statutes or Decrees of the
Donors or Founders, shall by the Authoritie of this presente Parliamente
stand firme and good accordinge to the tenor and purporte thereof, and
shalbe executed accordinglie, untill the same shalbe undon or altered by the
Lorde Chauncellor of Englande or Lorde Keeper or the Greate Seale of
Englande, or the Chauncellor of the Countie Palatine of Lancaster,
respectivelie within their severall Jurisdiccions, upon complainte by any
partie grieved, to be made to them. . . . And be it further enacted, That . . .
the saide Lorde Chancellor or Lorde Keeper, or the saide Chancellor of the
Duchie may, accordinge to their saide severall Jurisdiccions, by suche course
as to their wisedomes shall seeme meeteste, the circumstances of the case
considered, proceede to the examinacion hearinge and determynynge thereof;
and upon hearinge thereof shall and may adnull dymynishe alter or enlarge
the saide Orders Judgements and Decrees of the saide Commyssioners, or any
fower or more of them, as to either of them, in their saide severall
Jurisdiccions, shalbe thoughte to stande withe Equitie and good Conscience,
accordinge to the true intente and meaninge of the Donors and Fownders
thereof; and shall and may taxe and awarde good Costes of Suite by their
discrecions againste such persons as they shall fynde to complaine unto them,
without juste and sufficient cause, of the Orders Judgments and Decrees
before mencioned.
3.2
113
the subject matter and the general principles, which can then be applied in
interpreting the law.
The above preamble is based in part on the Hungarian law on PBOs (1997).
While it is appropriate to include language in a preamble to a PBO law that
encourages partnerships between the government and PBOs, it would not
generally be appropriate to mandate by law that governments form
partnerships with PBOs.
CHAPTER I: GENERAL DEFINTIONS
Article 1:
A Public Benefit Activity is any lawful activity that supports or promotes public
benefit by supporting or promoting one or more of the following:
(a)
(b)
Amateur athletics,
Arts,
(c)
(d)
Assistance to refugees,
(e)
Charity,
(f)
(g)
(h)
Culture,
(i)
(j)
(k)
(l)
Democracy,
Ecology or the protection of environment,
Education, training, and enlightenment,
Elimination of discrimination based on race, ethnicity, religion,
or any other legally proscribed form of discrimination,
Elimination of poverty,
Health or physical well-being,
Historical preservation,
Humanitarian or disaster relief,
Medical care,
Protection of children, youth, and disadvantaged individuals,
Protection or care of injured or vulnerable animals,
Relieving the burdens of government,
Religion,
Science,
Social cohesion,
Social or economic development,
Social welfare,
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
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The above list contains virtually all of the Public Benefit Activities recognized in one or more
countries in Central and Eastern Europe, but no list can be comprehensive. The list may be
too extensive for any particular country. What is most needed is that the list be interpreted
and applied to promote activities that are beneficial to the public. Any list of Public Benefit
Activities, of course, should reflect the needs, values, and traditions of the country in
question. Further, no list of Public Benefit Activities should be closed, for the needs and
values of any society change and evolve. See Art. 1(z). Finally, it is important to note that
indicators of whether an organization will or will not qualify for Public Benefit Organization
(PBO) status are provided by Art. 2.4 and 2.5.
Article 2:
2.1
(b)
(c)
The Model Provisions presume that NPOs are defined in and registered under other laws,
and that those other laws include a prohibition on the distribution of profits. Most typically,
NPOs will be either foundations or associations. It is possible, though, for countries to define
other types of persons as NPOs (e.g., institutes, not-for-profit corporations). There is no need
to exclude any particular kind of NPO from the possibility of qualifying as a PBO.
115
a whole and considering all facts and circumstances, indicate that the
NPO is organized and operated principally to engage in Public Benefit
Activities.
2.4
Note that this factor constitutes a significant limitation on what constitutes a PBO.
This factor means that it is not sufficient for an organization to engage in a Public
Benefit Activity as listed in Article 1. It should also provide significant benefits,
either to the public at large or to a targeted group under the conditions specified
above. Thus by combining this article with Article 1 (x), for example, the Public
Benefit Commission should determine that an organization that promotes economic
development only in a prosperous area would not qualify as a PBO. One that
promoted economic development in a disadvantaged region of a country, however, or
even in a whole country if the entire population can be deemed disadvantaged,
would be eligible for PBO status.
That the NPO provides significant goods and services at or below cost;
All other factors indicating that the NPO is organized and operated
principally to engage in Public Benefit Activities.
Factors to be taken into account in determining that an NPO is not organized
and operated to engage principally in Public Benefit Activities
generally include:
That the NPO targets a closed or otherwise limited class of
beneficiaries, particularly one that includes persons affiliated in
some way with the organization or its staff;
That the nature and extent of the NPOs economic activities indicate
that the NPO is not merely advancing its not-for-profit purposes
but is instead organized and operated principally for a
commercial purpose;
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The purpose of this factor is to ensure that what is essentially a commercial business
not be afforded the protection of PBO status. If the economic activities advance the
public benefit purposes of the NPO, however, they should not be deemed a negative
factor. See Article 13 and the accompanying note.
That the NPO regularly engages in the sale of goods or services at a
price above cost; and
Selling goods and services in substantial amounts at prices that exceed cost is often an
indicator that an NPO is in reality a commercial business.
That the NPO provides unreasonable compensation or other special
benefits to its employees or other persons affiliated with the
organization.
The terms reasonable or unreasonable, or their functional equivalent, are often
defined in other laws. For example, in a specific country unreasonable
compensation might mean compensation that is more than 30% above the average
compensation paid in that country to people who have similar jobs.
3.3
....
2 Charitable Purposes
Current position
46. For a body to be a charity in law, it must meet two conditions:
a) it must have exclusively charitable purposes and
b) it must be for the public benefit.
For a purpose to be charitable under current law, it must fall under one of
four "heads" - the relief of poverty, the advancement of education, the
advancement of religion, or a general catch-all category "other purposes
beneficial to the community". New purposes under the fourth category are
developed by the courts in the common law by analogy to the first three
purposes.
Draft Bill changes
117
47. Clause 2(2) of the draft Bill defines twelve charitable purposes:
a) the first three existing purposes:
i. the prevention or relief of poverty;
ii. the advancement of education;
iii. the advancement of religion;
b) eight new purposes to be set out in statute but already
recognised in case law:
i. the advancement of health;
ii. the advancement of citizenship or community
development;
iii. the advancement of the arts, heritage or science;
iv. the advancement of amateur sport;
v. the advancement of human rights, conflict resolution or
reconciliation;
vi. the advancement of environmental protection or
improvement;
vii. the relief of those in need, by reason of youth, age, illhealth, disability, financial hardship or other disadvantage;
viii. the advancement of animal welfare;
c) any other purposes recognised as charitable purposes under
existing charity law or any purposes analogous to the defined
purposes. . . .
50. A number of organisations regretted the failure to include a definition of
religion in the draft Bill. Others pointed out difficulties with the present
definition and its requirement of worship of a deity, leading to the anomaly that
some organisations already registered under the head of the advancement of
religion, for example Buddhism, do not meet the current legal definition.
Concerns were also raised that the present definition is not compliant with
human rights obligations. Religions Working Together pointed to a lack of clarity
in Charity Commission guidance on the charitable status of religious
organisations. Evidence from the Rev and Mrs M Braybrooke said that this "may
be prejudicial to newer religious groups or to Jainism which do not speak of a
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119
120
3.4
Registered charities have told the Canadian Revenue Authority (CRA) that they
require more information relating to the criteria applied and the process involved
for attaining registered status. . . . The purpose of the guidelines is to provide
basic information about the requirement and to clarify the meaning of the term
public benefit as we understand and apply it when we make determinations of
charitable status under the ITA.
Table of Contents
Introduction
24
http://www.cra-arc.gc.ca/tax/charities/consultations/publicbenefit-e.html.
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122
determining what constitutes a charity. However, applying the common law test
for public benefit under the current regime remains a challenge. Courts, as well
as legal commentators, have noted the lack of clarity and certainty, as well as the
difficulties inherent in the application of the rules relating to public benefit. The
Ontario Law Reform Commission (OLRC), in its comprehensive review of the
law of charities published in 1996, commented on the confusion in the case law
over the meaning and significance of the public benefit aspect of the common-law
test.3 The report notes that the same words are used in the context of each of the
three elements of the test for charity: determining charitable purpose;
determining whether the purpose is of practical utility (the benefit test); and
determining those who will benefit from the purpose.4
On the international front, there have been a number of reviews of the definition
of charity undertaken in recent years. Most of these propose some version of a
legislated definition of charity, often reflecting the common-law approach, but
typically, with a greater emphasis on public benefit.5 In the jurisdictions where
reviews have been completed, some have: enacted legislation (e.g., South Africa);
tabled draft legislation for consultation, (e.g., Australia, the U.K., and Scotland)6;
or indicated that legislation would be forthcoming (New Zealand).
In Canada, important initiatives have recently been undertaken to improve the
legislative and regulatory environment in which the charitable sector operates at
the federal level. A joint-policy exploration process with sector representatives
the Joint Regulatory Table (JRT)was mandated to look into a number of areas
for improvement in the regulatory environment and issued its report in March of
2003.7 In the 2004 Budget Speech, the Government outlined an agenda for
continued reform of the federal regulation of charities. The agenda included
measures that directly respond to the JRT recommendations for improving the
legislative and regulatory environment within which the charitable sector
operates. One of the many initiatives involves the provision of more accessible
information regarding Canada Revenue Agency (CRA) policies, as well as
decisions and regulatory requirements pertaining to registered charities.8
Within this climate of regulatory reform in Canada and internationally, and
where the concept of public benefit is being factored in as the cornerstone of the
definition of charity in other jurisdictions,9 it is important to understand what we
mean in theory and practice. The following document is put forth as draft
guidance on the issue of public benefit.
1.0 About this publication
This publication clarifies the meaning of the term public benefit as we
understand and apply it when we make determinations of charitable status under
the ITA. For an organization to be considered charitable at law, it must be
established for public benefit.
Although these guidelines are primarily concerned with the application of the
test for public benefit during the registration process, it is important to keep in
mind that an organization must be established for the benefit of the public at all
times for it to be considered a charity.
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124
125
The first part of the test generally requires that a tangible benefit be
conferred, directly or indirectly. (More recently, and in the
Canadian context, this requirement has also been described as an
objectively measurable and socially useful benefit.20)
The second part of the test requires that the benefit have a public
character, that is, be directed to the public or a sufficient section of
the public.
The benefit aspect of the test concerns whether the charitable purpose under
consideration is directed towards achieving a universal good that is not harmful
to the publica socially useful endeavour. The public aspect involves an
examination of who, and to what extent, constitutes the public. This notion of
public benefit has also been called the public character of charity, in that it
seeks the welfare of the public; it is not concerned with the conferment of
private advantage.21
The two parts are interrelated. Whether or not a particular group of the public
comprises a sufficient segment of the public will depend on, and may change
according to, the charitable purpose being conferred.22
The subsequent sections of these guidelines set out some background to the twopronged tests for public benefit and outline the main criteria considered by the
CRA examiners when applying the tests. The meaning and application of the first
testthe test for benefitis set out in s. 3.1. A similar approach follows in s. 3. 2
in respect of the second arm of the testthe test for who constitutes the public.
3.1 How we Determine 'Benefit'
Assessing whether an applicant organization has sufficiently established that it is
of benefit to the community at large (i.e., that it is a socially useful undertaking) is
a difficult task, particularly when a novel or different type of organization is
being proposed. In such cases, the CRA will only register an organization if these
new or novel purposes are both charitable at law and directed to the public
benefit. Though difficult, however, the benefit test is generally more simply
met than demonstrating a new charitable purpose. Organizations are often found
to be of benefit to the community, but not charitable, for a number of reasons.23
Factors affecting the extent to which proof of benefit is required include: the
nature of the proposed charitable purpose and the category it falls under; the
social and economic conditions of the time; the extent to which the benefit may be
quantified; the existence of any harmful impact of the undertaking; and the
relationship between the purpose and the intended beneficiaries.
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127
contains information that suggests otherwise30 or raises issues that require further
clarification, the examiners may require proof of benefit before registering the
organization as a charity.31
To sum up, proving benefit under the public benefit test, is effectively only
required in the following instances:
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129
Needs assessment studies by academics, government bodies, or nonprofit organizations that document the existence of the need being
addressed.
130
131
education and the fourth categories. In the case of the first category of charity,
relief of poverty, the target beneficiary group has historically been narrowly
limited.54
Determining what constitutes the public or whether there is a sufficient public as
opposed to private aspect to the undertaking proposed is a difficult task. The law
is unclear about how and under what circumstances we may arrive at a
conclusion that this aspect of the test has been met. However, various rules have
developed in the case law over the years, and these provide some general
guidance on how we can determine who may be eligible to benefit in relation to
all categories of charity. We discuss some of these rules in the following sections
with a particular focus on our interpretation and application.
3.2.1 What constitutes a sufficient segment of the community?
A key part of the process of determining charitable status involves a
consideration of the question of who will be benefiting. Although most
organizations applying to be registered as charitable under the ITA will be
offering services or programs aimed at the public at large, there are others that
will be set up for the purposes of providing services or programs directed at or
serving specific groups or classes of people (e.g. womens shelters, organizations
addressing people affected with a particular disease, or refugee settlement
services directed at a specific racial or ethnic group). Under what circumstances
will the CRA consider such groups a sufficient segment of the community?
It is difficult to describe, with any precision, what constitutes a sufficient segment
of the community. Moreover, this notion of sufficiency seems to imply large
enough numbers of beneficiaries whereas, in fact, the number of those benefiting
is not a major consideration. Each case must be determined on its merits. Certain
general rules / guidelines have emerged in case law, on which examiners rely
when faced with the issue of having to determine if a particular group constitutes
a sufficient segment of the community.
These general rules include:
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133
museum) will likely fail the public benefit test and disentitle the applicant from
being registered as charitable.58 At the other end of the continuum are the
organizations whose restrictions are directly linked, or part of the charitable
purpose, which will be considered acceptable. An example of this latter scenario
would be an organization set up to assist women with ovarian cancer or one set
up to assist men with prostate cancer. Those organizations, whose purposes fall
between these two extremes, must demonstrate why their proposed restriction on
who will directly benefit from the purposes is necessary in relation to the
charitable purpose proposed.
When dealing with an applicant that proposes to restrict the benefits to a certain
segment of the community, or focus the service delivery on a specific group but
be open to the public, examiners will generally consider one or more of the
following factors to varying degrees of importance (depending on the
circumstances) when they determine if the restriction is justifiable:
Evidence supporting a need for separate services for men and women
for rehabilitation centres for substance abuse will be sufficient to
support a restriction in favour of separate rehabilitation facilities.
An organization that provides settlement services for refugeesbut is
134
Some members groups may be charitable if the purpose for which they
are established is the relief of poverty.61
Other member groups that are charitable include organizations that
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136
individuals must either arise directly through pursuit of the charitys purposes
(e.g., relief of poverty), or be incidental to the pursuit of those purposes (e.g., as in
the case of programs pursued by community economic development
organizations), by providing inducements to attract needed social and
community services to a distressed region.63 The private benefit is only acceptable
as a minor and incidental by-product of the charitable purpose.
Differentiating between public and private benefit is difficult. There is no
quantitative test for measuring private benefit against the greater benefit to the
community at large.
Some of the factors considered include:
The degree to which the private benefits further the charitable purpose
Actions by the charity, which result in private benefits to individuals or
business corporations, should be ones that otherwise further the
charitable purpose and not promote a collateral purpose.64 For example, in
community economic development matters, there is often a tension
between promotion of industry and commerce (which is charitable) on the
one hand, and promotion and support of private businesses, on the
other.65
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138
Charity in its legal sense comprises four principal divisions: trusts for the relief of
poverty; trusts for the advancement of education; trusts for the advancement of
religion; and trusts for other purposes beneficial to the community not falling
under any of the preceding heads.71
Although the classification approach to determining charitable purpose is
generally of assistance to the process, there are still problems. In particular, the
language used to describe the classes is far from clear, particularly as it relates to
the fourth category, the interpretation of which has been the subject of substantial
litigation.
It is these four categories of charitable purposes, together with the preamble, that
serve as starting points for a determination of charity at common law. Courts
typically consider first whether the organizations purposes can fall within one or
more of the specific categories and, if not, whether the purposes can reasonably
fall within the general category typically referred to as the fourth head. The
classification approach was first explicitly approved of by the Supreme Court of
Canada in Guaranty Trust Co. of Canada v. Minister of National Revenue72 and
confirmed in the more recent Supreme Court decision in Vancouver Society.73
Appendix B Case Law Reference
Public Benefit
We have noted in the preamble to these guidelines that problems associated with
the application of the test for public benefit in the context of the definition of
charity are not insignificant. Varying calls for clarification and/or modernization
of the definition of charity have come from judges, legal commentators, and
members of the charitable sector alike. Criticisms of the current law include: lack
of reasonable precision;74 confusing framework and confusion generally;75 lack of
clarity and guidance;76 difficulties in articulating how the law of charities is to
keep moving;77 and inconsistency in decision-making.78
It is within this context that we put forth these policy guidelines and, in so doing,
we have articulated the manner and foundation upon which we apply the test for
public benefit. Within the text, we have referred to the case law that is the
foundation for our interpretive guidance. In this appendix we set out some key
quotes from some of the leading cases and legal texts that we have relied on to
formulate these guidelines. This appendix is divided into the following
categories:
Case law and authoritative texts relied on for the general application of
the test.
Case law and authoritative texts relied on for our interpretation and
application of the test for benefit.
Cases relied on for our interpretation and application for the test for
the meaning of public.
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Generally
For a general source on the requirement of public benefit, the case of Verge v.
Somerville is often cited.79
Verge v. Somerville, [1924] A.C. 496 at 499
To ascertain whether a gift constitutes a valid and charitable trust so as to escape
being void on the ground against perpetuity, a first inquiry must be whether it is
public whether it is for the benefit of the community or of an appreciably
important class of the community. The inhabitants of a parish or town, or any
particular class of such inhabitants, may, for instance, be the objects of such a gift,
but private individuals, or a fluctuating body of private individuals, cannot.
[Emphasis added]
Statements regarding the confusion surrounding the language used for the
overarching public benefit test and the fourth head of charity:
Vancouver Society of Immigrant and Visible Minority Women v. M.N.R., [1999] 1
S.C.R. 10.
This language of benefit of the community is unfortunate because it creates
confusion with the fourth head of charity under the Pemsel scheme -- trusts for
other purposes beneficial to the community. Nonetheless, this other notion of
public benefit is different and reflects the general concern that [t]he essential
attribute of a charitable activity is that it seeks the welfare of the public; it is not
concerned with the conferment of private advantage: Waters, supra at 550.
And as further illustrated by the Court,
[t]he difference between the Pemsel classification and this additional notion of
being for the benefit of the community is perhaps best understood in the
following terms. The requirement of being for the benefit of the community is a
necessary, but not a sufficient, condition for a finding of charity at common law.
If it is not present, then the purpose cannot be charitable. However, even if it is
present the court must still ask whether the purpose in question has what
Professor Waters calls, at p. 550, the generic character of charity. This character
is discerned by perceiving an analogy with those purposes already found to be
charitable at common law, and which are classified for convenience in Pemsel.
The difference is also often one of focus: the four heads of charity concern what is
being provided while the for the benefit of the community requirement more
often centres on who is the recipient.
Evidentiary requirements to establish public benefit.
McGovern v. A.G., [1982] 2 W.L.R. 222 at 234.
Save in the case of gifts to classes of poor persons, a trust must always be shown
to promote a public benefit of a nature recognized by the courts as being such, if
it is to qualify as being charitable. The question whether a purpose will or may
operate for the public benefit is to be answered by a court forming an opinion on
the evidence before it: see National Anti-Vivisection Society v IRC [1948] AC 31, 44,
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141
fourth category.82
As is also noted in the OLRC report, the benefit segment of the public benefit
test is used to facilitate consideration of the practical utilitythe benefitof the
project.83 In the case of charitable purposes falling under the fourth head of
charity, however, the practical utility of the project is intertwined with its
charitable purpose as that category is defined in terms of trusts for the benefit of
the community.
Tangible Benefit
The requirement that the benefit be generally tangible stems from the need to
have a benefit that is recognizable, and capable of being proved,84 although there
is authority for the acceptance of benefits that are intangible providing certain
conditions are met.85 There may be circumstances, though limited in number,
where intangible benefits have been determined acceptablespecifically if such
benefits would be regarded as valuable by the common understanding of
enlightened opinion.86
National Anti-Vivisection Society v. I.R.C., [1948] A.C. 31
I think that the whole tendency of the concept of the fourth head is towards
tangible and objective benefits and at least that approval by the common
understanding of enlightened opinion for the time being is necessary before an
intangible benefit can be taken to constitute a sufficient benefit to the community
to justify admission of the object into the fourth class.
This test was applied and rejected on the facts of the case in the determination of
charitable status for the Church of Scientology by the U.K. Charity Commission.
Application for Registration as a Charity by the Church of Scientology (England and
Wales)
Decision of the Charity Commissioners made on November 17th, 1999.
The Commissioners considered the test in respect of an intangible benefit to mean
a common consensus of opinion amongst people who were fair minded and free
from prejudice or bias.
Variation of Benefit over time
National Anti-Vivisection Society v. I.R.C., [1948] A.C. 31.
Again [charitable] trusts may, as economic ideas and conditions and ideas of
social service change, cease to be regarded as being for the benefit of the
community, and trusts for the advancement of learning or education may fail to
secure a place for charities, if it is seen that the learning or education is not of
public value.87
Vancouver Society of Immigrant and Visible Minority Women v. M.N.R., [1999] 1 SCR
10.
In the absence of legislative reform providing guidelines, the best way in which
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benefit test.
Limiting the beneficiaries to a class within a class may preclude
recognition of the purpose as charitable. This concern relates back
to the Baddeley decision, in which the House of Lords considered
whether trusts were charitable when they were established for the
benefit of residents of two counties who were "in the opinion of
such leaders members or likely to become members of the
Methodist Church and of insufficient means otherwise to enjoy the
advantages...".
IRC v Baddeley, [1955] A.C. 572, per Viscount Simonds.
This brings me to another aspect of the case, which was argued at great length
and, to me at least, presents the most difficult of the many difficult problems in
this branch of the law. Suppose that...the trust would be a valid charitable trust if
the beneficiaries were the community at large or a section of the community
defined by some geographical limits, is it the less a valid trust if it is confined to
members or potential members of a particular church within a limited
geographical area? . But confine its use to a selected number of persons,
however numerous and important: it is then clearly not a charity.....I should, in
the present case, conclude that a trust cannot qualify as a charity within the
fourth class in Pemsel's case if the beneficiaries are a class of persons not only
confined to a particular area but selected from within it by reference to a
particular creed.
There are, however, a number of cases that hold charitable trusts, bequests, and
organizations that primarily benefit some subcategory of the public.
1 Although this is the case for the vast majority of charities, there are a few
organizations that derive their charitable status from the ITA, such as Registered
National Arts Services Organizations (RNASOS). As well, there are other
organizations deemed to be charities under other legislation, such as the
Canadian Race Relations Foundation, which has been created through its own act
of Parliament.
2 Verge v. Somerville, [1924] A.C. 496 at 499 (P.C.) [hereinafter Verge v. Somerville ].
3 Ontario Law Reform Commission, Report on the Law of Charities (Toronto: OLRC
1996) at 176 [hereinafter OLRC Report]. See also the reasons of the majority
judgment of Iacobucci, J., in Vancouver Society of Immigrant and Visible Minority
Women v. M.N.R., [1999] 1 S.C.R. 10 at para. 147ff, Iacobucci J. [hereinafter
Vancouver Society]. See also Vancouver Society, ibid. at para 37, Gonthier J.
4 OLRC Report, ibid. at 166.
5 See in particular, the review completed in the UK by the Strategy Unit, Cabinet
Office, Private Action, Public Benefit, A Review of Charities and the Wider Not-forProfit Sector, September 2002, online: Cabinet Office <http://www.cabinetoffice.gov.uk/innovation>. Acknowledging that the current law is confusing,
unclear, and outdated, the report calls for a legislated definition of charity
145
146
discussion on page 7.
14 Umbrella groups or facilitator organizations and some self-help organizations
may be considered charitable if they otherwise meet the requirements under the
ITA and the common law. See the discussion on self-help groups below.
15 For information on political activities see CRA, Summary Policy CPS-022,
Political Activities (25 October 2002), online: CRA <http://www.craarc.gc.ca/tax/charities/policy/csp/csp-p02-e.html>.
16 The distinction is aptly drawn in Vancouver Society, supra note 3 at para. 148.
See Appendix B, Case Law Reference for the case quotation.
17 The draft guidelines are to be released for consultation in November, 2004.
18 At common law, charitable trusts for the benefit of poor relations and poor
employees have been upheld, where in all other categories, such beneficiaries
would not pass the public benefit test. This anomalous group of cases, however,
has been the subject of much criticism and is generally considered to be a
reflection of the social and economic conditions of their time. Whether or not such
cases would survive the scrutiny of the court today is questionable.
19 But see the discussion on public benefit in the OLRC Report, supra note 3 at 183,
where the variation in standard is questioned: These observations confirm rather
than deny, the existence of a single standard. The appearance of variation is only
an appearance.
20 Vancouver Society, supra note 3 at para. 42, Gonthier J.
21 D. Waters, The Law of Trusts in Canada, 2nd ed. (Toronto: Carswell, 1984) at 550.
22 I cannot accept the principle submitted by the respondents that a section of
the public sufficient to support a valid trust in one category must as a matter of
law be sufficient to support a trust in another category. I think that difficulties are
apt to arise if one seeks to consider the class apart from the particular nature of
the charitable purpose. They are, in my opinion, interdependent. I.R.C. v.
Baddeley, [1955] A.C. 572 at 615, per Lord Somervell of Harrow [hereinafter
Baddeley].
23 See for example Vancouver Society, supra note 3, where an immigrant and
visible minority womens society was found to be of benefit to the public but not
charitable.
24 National Anti-Vivisection Society v. I.R.C., [1948] A.C. 31 at 42: The test of
benefit to the community goes through the whole of Lord Macnaghtons
classification, though as regards the first three heads, it may be prima facie
assumed unless the contrary appears. [hereinafter National Anti-Vivisection
Society].
25 Ibid. at 43.
26 Ibid.
27 Ibid.
28 See Everywomans Health Centre v. M.N.R., [1992] 2 F.C. 52 at 60, Decarie, J.,
finding that the womens health center provided a public benefit, stated,
hospitals prima facie qualify as charities at common law on the basis that the
provision of medical care for the sick is accepted as conferring a public benefit.
147
148
43 I.R.C. v. Oldham Training and Enterprise Council, [1996] B.T.C. 539 [hereinafter
Oldham Training].
44 See generally CRA, Summary Policy CP-C03, Community Economic
Development (CED) (25 October 2002), online: <http://www.craarc.gc.ca/tax/charities/policy/csp/csp-c03-e.html>
45 See National Anti-Vivisection Society, supra note 23 at 42, where the House of
Lords weighed the relative value of the material and direct benefits of vivisection
against the moral benefit (indirect and intangible) assumed to flow from the work
of the anti-vivisectionists.
46 Ibid.
47 Re Strakosch, [1949] 1 Ch. 529.
48 U.K., Charity Commissioners, Report of the Charity Commissioners 1983, at
para.18.
49 See the draft consultation document on the decision-making process for an
overview of the CRAs approach to novel purposes generally.
50 Re Hummeltenberg, [1923] 1 Ch. 237 at 242 [hereinafter Hummeltenberg]. Cited
with approval in National Anti-Vivisection Society, supra note 23 at 44.
51 Vancouver Society, supra note 3 at para. 182.
52 Ibid. at para. 183.
53 Verge v. Sommerville, supra note 2 at 499, per Lord Wrenbury.
54 Note that many have called for the abolition of these anomalies. See for
example the OLRC Report, supra note 3 at 190, where the authors recommend that
a provision be enacted which excludes these charities from the currently available
tax privileges.
55 Verge and Sommerville, supra note 2.
56 Davies v. Perpetual Trustee Company, [1959] A.C. 439 at 456 [hereinafter Davies];
Baddeley, supra note 21 at 615, per Lord Somervell. See Appendix B, Case Law
Reference for the case quotations.
57 Oppenheim v. Tobacco Securities Trust Co Ltd., [1951] A.C. 297 at 306 [hereinafter
Oppenheim].
58 Baddeley,supra note 21 at 534, per Viscount Simonds.
59 See the discussion in Canada Trust Co. v. Ontario (Human Rights Commission)
(1990), 38 E.T.R. 1 at 38, Tarnopolsky J.
60 This issue is more fully discussed in CRA, Policy Statement CPS-016,
Distinction between self-help and members groups (7 September 2000), online:
CRA <http://www.cra-arc.gc.ca/tax/charities/policy/cps/cps-016-e.html>.
61 Re Clarks Trust (1875), 1 Ch. D. 497.
62 See CRA, Policy Statement CPS-016, Distinction between self-help and
members groups (7 September 2000), supra note 59.
63 See CRA, Registered Charities: Community Economic Development Programs, RC4143 (23 December 1999), online: CRA <http://www.craarc.gc.ca/E/pub/tg/rc4143/README.html>.
149
3.5
Two states in the United States South Carolina and West Virginia
established charity commissions to oversee charities, taking over powers
150
generally exercised by the secretary of state and the attorney general. They
later repealed the legislation. Why do you suppose they did, given the
favorable discussion of the commission idea in other countries besides
England and Wales (e.g., Scotland, Australia, New Zealand)?
Chapter 4 -- GOVERNANCE
4.1
151
4.1.1
151
4.1.2
154
4.1.3
155
4.2
159
4.3
174
4.3.1
174
4.3.2
181
4.4
181
4.5
184
151
(1) one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented;
(2) legal counsel, public accountants or other persons as to matters the director
reasonably believes are within the person's professional or expert competence;
(3) a committee of the board of which the director is not a member, as to
matters within its jurisdiction, if the director reasonably believes the
committee merits confidence; or
(4) in the case of religious corporations, religious authorities and ministers,
priests, rabbis or other persons whose position or duties in the religious
organization the director believes justify reliance and confidence and whom
the director believes to be reliable and competent in the matters presented.
(c) A director is not acting in good faith if the director has knowledge concerning the
matter in question that makes reliance otherwise permitted by subsection (b)
unwarranted.
(d) A director is not liable to the corporation, any member, or any other person for any
action taken or not taken as a director, if the director acted in compliance with this
section.
(e) A director shall not be deemed to be a trustee with respect to the corporation or
with respect to any property held or administered by the corporation, including
without limit, property that may be subject to restrictions imposed by the donor or
transferor of such property.
Section 8.31. Director Conflict of Interest.
(a) A conflict of interest transaction is a transaction with the corporation in which a
director of the corporation has a direct or indirect interest. A conflict of interest
transaction is not voidable or the basis for imposing liability on the director if the
transaction was fair at the time it was entered into or is approved as provided in
subsections (b) or (c).
(b) A transaction in which a director of a public benefit or religious corporation has a
conflict of interest may be approved:
(1) in advance by the vote of the board of directors or a committee of the
board if:
(i) the material facts of the transaction and the director's interest are
disclosed or known to the board or committee of the board; and
(ii) the directors approving the transaction in good faith reasonably
believe that the transaction is fair to the corporation; or
(2) before or after it is consummated by obtaining approval of the:
152
153
4.1.2 Joint Committee on the Draft Charities Bill, First Report, Parliament
of the United Kingdom (3 September 2004)
7 Trustees
Current position
252. The role of charity trustee is a voluntary one. The general, or default, rule is that
a trustee should not receive any financial benefit from acting as a trustee. A trustee is
not only barred from being remunerated for acting as a trustee; but the default rule is
that he or she cannot be paid for goods or services rendered to a charity. There must
be specific authority in a charity's governing instrument or permission from the
Charity Commission before a trustee can be paid. The Commission will only
authorise payment where there is a clear benefit to the charity and the amount paid
is reasonable.[275] A trustee is, however, entitled to be reimbursed from charity
funds for expenses properly incurred in carrying out his or her duties.
253. Individuals can become personally liable when acting as a charity trustee in two
ways. First, they can become liable for breach of trust, i.e. for acting in contravention
of the duties imposed on them as trustees. Secondly, they can become subject to third
party liabilities such as breach of contract.
254. The duty of care imposed on trustees is generally to act with such skill and care
as is reasonable in the circumstances. Trustees who act reasonably and prudently and
have primary regard to the interests of the charity are highly unlikely to incur
personal liability for breach of trust. As a long stop, the court has power under
section 61 of the Trustee Act 1925 to relieve a trustee from liability who is technically
in breach of trust but who has acted honestly and reasonably. Trustee indemnity
insurance against liability for breach of trust can only be purchased by a charity if
there is explicit power in the charity's governing instrument or the Charity
Commission gives permission as it amounts to a personal benefit for a trustee. Whilst
the Charity Commission has recently made obtaining permission easier, it is still a
process which has to be gone through.[276]
255. Charity trustees can purchase insurance in the usual way to protect themselves
from liability to third parties. Charities which have more than occasional dealings
with third parties often adopt the structure of a company to limit liability.
Draft Bill changes
256. Clause 27 of the Bill will allow trustees to be remunerated for providing goods
and services to a charity if four conditions are satisfied:
a) First, the amount of the remuneration must be reasonable and be set out in
a written agreement.
b) Secondly, the trustees must be satisfied that it is in the best interests of the
charity for that trustee to provide the relevant services and at that cost.
c) Thirdly, if more than one trustee is being remunerated, such trustees must
be in a minority.
d) Fourthly, the governing instrument must not contain an express
prohibition against the relevant trustee being paid.
In addition, by new section 73B, before entering into any remuneration agreement
the trustees must have had regard to any guidance issued by the Charity
154
Commission and exercise the statutory duty of care in section 1(1) of the Trustee Act
2000.
257. Clause 28 provides that a trustee who would be entitled to remuneration under
an agreement is disqualified from taking part in any decision made by the trustees in
relation to that agreement. If a trustee does take part in a decision about his own
remuneration he is made liable to a criminal penalty and can also be directed by the
Charity Commission to repay any such remuneration.
258. The Charity Commission will have power to relieve trustees from personal
liability for breach of trust by clause 29. The power applies to a trustee who has acted
honestly and reasonably and ought fairly to be excused. The Charity Commission is,
in effect, given the power of the court under section 61 of the 1925 Act.
4.1.3
155
156
the previous year, explaining that the construction was delayed because the
site was adjacent to the Smallidge property and she did not want to "rock
the boat" in her negotiations to purchase the land. She justified the
purchase by stating that she wanted the land to remain in "friendly hands."
The board took no formal action with respect to Harris's purchase.
[8] In December of 1988, Harris's son filed an application with the
Mt. Desert Planning Board to subdivide part of the Gilpin property into five
house lots to be named Bushwood. The plan was approved in June of 1991.
The board of directors of the Club took no action to oppose the subdivision.
A group of the Club's directors, however, formed a separate organization to
oppose the subdivision, contending that it violated local zoning ordinances.
The effort to oppose the subdivision did not succeed. Eventually the board
became divided over development. In 1989, however, the board agreed that
it "would not adopt any position" on Harris's son's pending subdivision
application. Harris was asked for and gave her resignation in 1990. In
1991, the Club voted to challenge the Bushwood subdivision. The challenge,
however, was not successful. See Northeast Harbor Golf Club, Inc. v. Town
of
Mount Desert, 618 A.2d 225 (Me. 1992). The Club commenced this suit
against Harris, on May 23, 1991, alleging that by purchasing the Gilpin and
Smallidge properties she usurped an opportunity that belonged to the Club.
[9] The Superior Court initially concluded that Harris had not
usurped a corporate opportunity because it found that the Club was not in
the business of purchasing property and lacked the financial ability to do so.
The Club appealed, and we adopted the American Law Institute's (ALI)
definition of taking a corporate opportunity, vacated the judgment, and
remanded the case to the Superior Court for trial of the facts pursuant to the
ALI definition. See Northeast Harbor Golf Club, Inc. v. Harris, 661 A.2d
1146, 1150-52 (Me. 1995). After remand, the Superior Court found that
Harris had usurped a corporate opportunity and that the Club's claim was
not barred by the statute of limitations. The court entered a judgment for
the Club, imposed a constructive trust on the property owned by Harris, and
ordered Harris to convey the properties to the Club on payment of the
purchase price and interest and taxes. These appeals by Harris and the Club
followed.
I. APPEAL BY HARRIS
A. Corporate Opportunity
[10] Harris concedes that, because she learned of the opportunity
to purchase the Gilpin property in her capacity as president of the Club, her
purchase of that property in 1979 constituted the taking of a corporate
opportunity. See Principles of Corporate Governance 5.05(b)(1)(A)
(American Law Institute, May 13, 1992). She disputes liability, relying on
the statute of limitations and laches. Harris contends that because she
learned of the availability of the Smallidge property independent of her
position as an officer of the Club, and because the purchase of that land was
157
not closely related to the Club's business, that there was no usurpation of a
corporate opportunity. In reviewing the decision of the Superior Court, we
defer to the historical factual findings of the court, but the determination of
whether an opportunity is a "corporate opportunity" is a question of law that
we review de novo. See generally State v. O'Connor, 681 A.2d 475, 476 (Me.
1996).
[11] Even if the opportunity to engage in a business activity, in
which the officer or director becomes involved, is not learned of through
her connection to the business of the corporation, nevertheless, such an
opportunity may be considered a corporate opportunity if the officer or
director knows it "is closely related to a business in which the corporation
is engaged or expects to engage." Principles of Corporate Governance
5.50(b)(2).{4}
[12] "The central feature of the ALI test is the strict requirement of
full disclosure prior to taking advantage of any corporate opportunity."
Northeast Harbor Golf Club, 661 A.2d at 1151. This feature was designed to
prevent individual directors and officers from substituting their own
judgment for that of the corporation when determining whether it would be
in the corporate interest, or whether the corporation is financially or
otherwise able to take advantage of an opportunity. See Ostrowski v. Avery,
703 A.2d 117, 126 (Conn. 1997) (citing Note, When Opportunity Knocks: An
Analysis of the Brudney & Clark and ALI Principles of Corporate Governance
Proposals for Deciding Corporate Opportunity Claims, 28 Corp. Prac.
Commentator 507, 516 (1987)). Doubt about the financial capacity of a
corporation to pursue an opportunity may affect the incentive of a director
or officer to solve corporate financing problems, and evidence regarding the
corporation's financial status is often controlled by the usurping corporate
director or officer. See Victor Brudney & Robert Charles Clark, A New Look
at Corporate Opportunities, 94 Harv. L. Rev. 998, 1020-22 (1981). The ALI
approach recognizes the danger in allowing an individual director or officer
to determine whether a corporation has the ability to take an opportunity,
and accordingly disclosure to the corporation is required.
[13] Full disclosure is likewise important to prevent individual
directors and officers from using their own unfettered judgment to
determine whether the business opportunity is related to the corporation's
business, such that it would be in the corporate interest to take advantage of
that opportunity. "The appropriate method to determine whether or not a
corporate opportunity exists is to let the corporation decide at the time the
opportunity is presented." 3 Fletcher Cyc. Corp. 861.10, p. 285 (1994).
This rule protects individual directors and officers because after disclosing
the potential opportunity to the corporation, they can pursue their own
business ventures free from the possibility of a lawsuit. If there is doubt as
to whether a business opportunity is closely related to the business of the
corporation, that doubt must be resolved in favor of the corporation so that
the officer or director will have a strong incentive to disclose any business
opportunity even remotely related to the business of the corporation.
158
4.2
159
case and will, in addition, resolve the remaining issues which went to full
trial. All of these matters have been fully briefed and argued and proposed
findings of fact have been submitted, all of which the Court has carefully
considered. The record consists of 1,169 pages of transcript and 137 exhibits.
The two principal contentions in the complaint are that the defendant
trustees conspired to enrich themselves and certain financial institutions with
which they were affiliated by favoring those institutions in financial dealings
with the Hospital, and that they breached their fiduciary duties of care and
loyalty in the management of Sibley's funds. The defendant financial
institutions are said to have joined in the alleged conspiracy and to have
knowingly benefited from the alleged breaches of duty. The Hospital is
named as a nominal defendant for the purpose of facilitating relief.
I. Corporate History.
. . . The Lucy Webb Hayes National Training School for Deaconesses and
Missionaries was established in 1891 by the Methodist Women's Home
Missionary Society for the purpose, in part, of providing health care services
to the poor of the Washington area. The School was incorporated under the
laws of the District of Columbia as a charitable, benevolent and educational
institution by instrument dated August 8, 1894. During the following year,
the School built the Sibley Memorial Hospital on North Capitol Street to
facilitate its charitable work.
Over the years, operation of the Hospital has become the School's principal
concern, so that the two institutions have been referred to synonymously by
all parties and will be so treated in this Opinion. As increasing demands were
made upon Sibley's facilities, the Hospital was renovated several times.
Finally, in the mid-1950's, it was decided to move the Hospital to a new
location on Loughboro Road in Northwest Washington. The nearby
Hahnemann Hospital, another Methodist charity, was merged with Sibley in
1956 in anticipation of this move. The new Sibley Memorial Hospital was
dedicated on June 17, 1962.
In 1960, shortly after ground was broken for the new building, the
Sibley Board of Trustees revised the corporate by-laws in preparation for an
expected increase in the volume and complexity of Hospital business
following the move. Under the new by-laws, the Board was to consist of from
25 to 35 trustees, who were to meet at least twice each year. Between such
meetings, an Executive Committee was to represent the Board, and was
authorized, inter alia, to open checking and savings accounts, approve the
Hospital budget, renew mortgages, and enter into contracts. A Finance
Committee was created to review the budget and to report regularly on the
amount of cash available for investment. Management of those investments
160
161
162
163
Committee voted instead for renewal. The cash flow would have put
operations on a tight basis and the trustees had in mind that available money
might well be needed for the renovation of certain property owned by Sibley.
The terms of this loan were entirely fair to Sibley at all times. There is
no indication that the Board could have received better terms elsewhere or
that it failed diligently to seek an optimum arrangement at the time of the
original loan. The renewal in 1969 also appears to have been a reasonable,
good-faith business decision. There is no indication that either
decision was motivated by a desire to benefit the banks involved at the
Hospital's expense.
The idea of employing an investment service was raised by Mr. Jones at the
meeting of Sibley's Investment Committee. It was decided that Mr. Ferris, a
member of that committee, should present a proposal from Ferris & Co., of
which Mr. Ferris was Chairman of the Board and principal stockholder, for
the provision of continuing investment advisory services to Sibley. Mr. Ferris
presented such a proposal on April 12, 1971, and the committee voted to
recommend approval. Mr. Ferris urged and may have voted in favor of that
recommendation at an informal session of the Investment Committee, but
thereafter he resigned from the Investment Committee to avoid further
possible conflicts of interest. For a short time he then served as Acting
Treasurer over the objection of some trustees. Upon formal approval by the
Hospital's counsel and the Executive Committee, of which Ferris was not a
member, Sibley entered into the "Investment Advisory Agreement" with
Ferris & Co., which written contract is still in effect today. Plaintiffs concede,
and the Court finds, that Ferris & Co.'s fee for investment service was fair
and equitable.
Plaintiffs concede that Ferris & Co. did a good job, although shifts in market
prices resulted in some losses in the account which, incidentally, would not
have occurred if the Hospital had kept the money in certificates of deposit. No
conspiratorial inference can be drawn from this course of dealing.
Thus, plaintiffs have not established a conspiracy between the named trustees
and the named financial institutions or between the members of each group.
There is no proof that the financial institutions ever had any contact between
themselves relating to the handling of Sibley's business, its apportionment or
even its existence. The trustees as a group were not shown to have solicited
business for any particular bank or savings and loan association, and, indeed,
it appears that most of the Sibley business done with these interlocking
institutions was initiated by Hospital officers without the advance knowledge
or direction of the trustees. Mr. George Ferris did solicit business for his firm,
but only after he was asked to advise on the handling of certain Hospital
investments. The contract made with Ferris & Co. was approved by
164
counsel for the Hospital and by the Executive Committee of the Board,
including several of the defendant trustees, in the full realization that Ferris'
recommendations would diminish attractive bank accounts maintained by the
Hospital in several of the defendant financial institutions.
There being no proof of any express agreement, written or oral, relating to
the placing or division of Hospital business, the conspiracy claim depends
upon showing parallel conduct sufficient to bring the facts within such cases
as Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S.
537, 74 S. Ct. 257, 98 L. Ed. 273 (1954); and Interstate Circuit, Inc. v. United
States, 306 U.S. 208, 59 S. Ct. 467, 83 L. Ed. 610 (1939). Here also the factual
showing is wholly deficient. Credible testimony of the trustees and
representatives of the financial institutions flatly denies conspiracy. Beyond
this, there is no cognizable pattern of dealing, no discussion, no complaint of
deviation from a course of agreed conduct, in fact nothing from which a
conspiracy between the defendants can be implied beyond the simple fact that
the Hospital did considerable business with the financial institutions that had
some interlocking ties to its Board of Trustees. This is not enough, and the
conspiracy claim failed for lack of proof.
III. Breach of Duty.
Plaintiffs' second contention is that, even if the facts do not establish a
conspiracy, they do reveal serious breaches of duty on the part of the
defendant trustees and the knowing acceptance of benefits from those
breaches by the defendant banks and savings and loan associations.
165
A. The Trustees.
Basically, the trustees are charged with mismanagement, nonmanagement
and self-dealing. The applicable law is unsettled. The charitable corporation
is a relatively new legal entity which does not fit neatly into the established
common law categories of corporation and trust. As the discussion below
indicates, however, the modern trend is to apply corporate rather than trust
principles in determining the liability of the directors of charitable
corporations, because their functions are virtually indistinguishable from
those of their "pure" corporate counterparts.
1. Mismanagement.
Both trustees and corporate directors are liable for losses occasioned by
their negligent mismanagement of investments. However, the degree of
care required appears to differ in many jurisdictions. A trustee is uniformly
held to a high standard of care and will be held liable for simple negligence,
while a director must often have committed "gross negligence" or otherwise
be guilty of more than mere mistakes of judgment. 1 Hornstein, Corporation
Law and Practice 446 (1959); Ballantine, Corporations 63(a) (rev. ed. 1946);
Bishop, "Sitting Ducks and Decoy Ducks: New Trends in the Indemnification
of Corporate Directors and Officers," 77 Yale L.J. 1078, 1101 (1968). See also
Mann v.Commonwealth Bond Corp., 27 F. Supp. 315, 320 (S.D.N.Y. 1938).
This distinction may amount to little more than a recognition of the fact
that corporate directors have many areas of responsibility, while the
traditional trustee is often charged only with the management of the trust
funds and can therefore be expected to devote more time and expertise to that
task.
Since the board members of most large charitable corporations fall within the
corporate rather than the trust model, being charged with the operation of
ongoing businesses, it has been said that they should only be held to the less
stringent corporate standard of care. Beard v. Achenbach Mem. Hospital
Ass'n, 170 F.2d 859, 862 (10th Cir. 1948); Cary & Bright, The Law and the Lore
of Endowment Funds: Report to the Ford Foundation 58-61 (1969). More
specifically, directors of charitable corporations are required to exercise
ordinary and reasonable care in the performance of their duties, exhibiting
honesty and good faith. Beard v. Achenbach Mem. Hospital Ass'n, supra, at
862.
2. Nonmanagement
Plaintiffs allege that the individual defendants failed to supervise the
management of Hospital investments or even to attend meetings of the
committees charged with such supervision. Trustees are particularly
166
vulnerable to such a charge, because they not only have an affirmative duty to
"maximize the trust income by prudent investment," Blankenship v. Boyle,
329 F. Supp. 1089, 1096 (D.D.C. 1971), but they may not delegate that duty,
even to a committee of their fellow trustees. Restatement (Second) of Trusts
171, at 375 (1959).
A corporate director, on the other hand, may delegate his investment
responsibility to fellow directors, corporate officers, or even outsiders, but
he must continue to exercise general supervision over the activities of
his delegates. See, e.g., Model Bus. Corp. Act Ann. 38 (1960), as amended
(Supp. 1966). Once again, the rule for charitable corporations is closer to the
traditional corporate rule: directors should at least be permitted to delegate
investment decisions to a committee of board members, so long as all
directors assume the responsibility for supervising such committees by
periodically scrutinizing their work. Restatement (Second) of Trusts 379,
comment b (1959); Cary & Bright, supra, at 61-65.
Total abdication of the supervisory role, however, is improper even under
traditional corporate principles. A director who fails to acquire the
information necessary to supervise investment policy or consistently fails
even to attend the meetings at which such policies are considered has violated
his fiduciary duty to the corporation. 3 Fletcher Cyc. Corp.
(Perm.Ed.Rev.1965) 1091 (1965). While a director is, of course, permitted to
rely upon the expertise of those to whom he has delegated investment
responsibility, such reliance is a tool for interpreting the delegate's reports,
not an excuse for dispensing with or ignoring such reports. See Heit v. Bixby,
276 F. Supp. 217, 231 (E.D.Mo.1967). A director whose failure to supervise
permits negligent mismanagement by others to go unchecked has committed
an independent wrong against the corporation; he is not merely an accessory
under an attenuated theory of respondeat superior or constructive notice. 3
Fletcher Cyc. Corp. (Perm.Ed.Rev.1965) 1065 et seq. Cf. DePinto v.
Provident Security Life Ins. Co., 374 F.2d 37 (9th Cir.), cert. denied, 389 U.S.
822, 88 S. Ct. 48, 19 L. Ed. 2d 74 (1967).
3. Self-dealing
Under District of Columbia Law, neither trustees nor corporate directors are
absolutely barred from placing funds under their control into a bank having
an interlocking directorship with their own institution. In both cases,
however, such transactions will be subjected to the closest scrutiny to
determine whether or not the duty of loyalty has been violated. Blankenship
v. Boyle, 145 U.S.App.D.C. 111, 447 F.2d 1280 (1971); Mayflower Hotel
Stockholders Protective Committee v. Mayflower Hotel Corp., 89
U.S.App.D.C. 171, 193 F.2d 666 (1951).
167
168
Section 2.
Any governing board member having a duality of interest or possible conflict
of interest on any matter shall not vote or use his personal influence on the
matter, and he shall not be counted in determining the quorum for the
meeting, even where permitted by law. The minutes of the meeting shall
reflect that a disclosure was made, the abstention from voting, and the
quorum situation.
Section 3.
The foregoing requirements shall not be construed as preventing the
governing board member from briefly stating his position in the matter, nor
from answering pertinent questions of other board members since his
knowledge may be of great assistance.
Section 4.
Any new member of the board will be advised of this policy upon entering on
the duties of his office.
Having surveyed the authorities as outlined above and weighed the briefs,
arguments and evidence submitted by counsel, the Court holds that a director
or so-called trustee of a charitable hospital organized under the Non-Profit
Corporation Act of the District of Columbia (D.C.Code 29-1001 et seq.)
is in default of his fiduciary duty to manage the fiscal and investment affairs
of the hospital if it has been shown by a preponderance of the evidence that:
(1) while assigned to a particular committee of the Board having general
financial or investment responsibility under the by-laws of the corporation, he
has failed to use due diligence in supervising the actions of those officers,
employees or outside experts to whom the responsibility for making day-today financial or investment decisions has been delegated; or
(2) he knowingly permitted the hospital to enter into a business transaction
with himself or with any corporation, partnership or association in which he
then had a substantial interest or held a position as trustee, director, general
manager or principal officer without having previously informed the persons
charged with approving that transaction of his interest or position and of any
significant reasons, unknown to or not fully appreciated by such persons,
why the transaction might not be in the best interests of the hospital; or
(3) except as required by the preceding paragraph, he actively participated
in or voted in favor of a decision by the Board or any committee or
169
170
171
Ct. 587, 88 L. Ed. 754 (1944); Swift & Co. v. United States, 276 U.S. 311, 326,
48 S. Ct. 311, 72 L. Ed. 587 (1928). Where voluntary action has been taken in
good faith to minimize such recurrence, even though under the pressure of
litigation, this is a factor which the Court can take into account in
formulating relief. United States v. Oregon Medical Society, 343 U.S. 326, 334,
72 S. Ct. 690, 96 L. Ed. 978 (1952); Walling v. Youngerman-Reynolds
Hardwood Co., 325 U.S. 419, 421, 65 S. Ct. 1242, 89 L. Ed. 1705 (1945).
In attempting to balance the equities under the circumstances shown by the
record, there are a number of factors which lead the Court to feel that
intervention by injunction should be limited. See United States v. W. T. Grant
Co., 345 U.S. 629, 632-633, 73 S. Ct. 894, 97 L. Ed. 1303 (1953). First, the
defendant trustees in this case constitute but a small minority of the full
Sibley Board. Yet, in several respects, the responsibility for past failures
adequately to supervise the handling of Hospital funds rests equally on all
Board members. Second, it is clear that the practices criticized by
plaintiffs have, to a considerable extent, been corrected and that the
employees and trustees who were principally responsible for lax handling of
funds have died or have been dismissed. Third, there is no indication that
any of the named trustees were involved in fraudulent practices or profited
personally by lapses in proper fiscal supervision, and, indeed, the overall
operation of the Hospital in terms of low costs, efficient services and quality
patient care has been superior. Finally, this case is in a sense one of first
impression, since it brings into judicial focus for the first time in this
jurisdiction the nature and scope of trustee obligations in a non-profit, nonmember charitable institution incorporated under D.C.Code 29-1001 et seq.
The Court is well aware that it must take proper steps to insure a clean
break between the past and the future. Personnel changes and a recent
greater awareness of past laxity are encouraging, as is the addition of Article
XXVIII to the Hospital's by-laws, but good intentions expressed post-litem
must be accompanied by concrete action. Accordingly, it is desirable to
require by injunction that the appropriate committees and officers of the
Hospital present to the full Board a written policy statement governing
investments and the use of idle cash in the Hospital's bank accounts and other
funds, and establish a procedure for the periodic reexamination of existing
investments and other financial arrangements to insure compliance with
Board policies. No existing financial relationships should be continued unless
consistent with established policy and found by disinterested members of the
Board to be in the Hospital's best interests. In addition, each trustee should
fully disclose his affiliation with banks, savings and loan associations and
investment firms now doing business with the Hospital.
Removal of the defendant trustees from the Sibley Board would be unduly
harsh, and this will not be ordered. These trustees are now completing long
years of service and they will soon become less active in the day-to-day affairs
172
of the Hospital because of age or illness. It would unduly disrupt the affairs
of the Hospital abruptly to terminate their relationship with that institution.
Others must soon take over their roles in carrying forward the Hospital's
affairs, and it is therefore unnecessary to interfere by order of removal or
disqualification with a transition that is necessarily already taking place due
to other immutable factors.
The management of a non-profit charitable hospital imposes a severe
obligation upon its trustees. A hospital such as Sibley is not closely
regulated by any public authority, it has no responsibility to file financial
reports, and its Board is self-perpetuating. The interests of its patients are
funneled primarily through large group insurers who pay the patients' bills,
and the patients lack meaningful participation in the Hospital's affairs. It is
obvious that, in due course, new trustees must come to the Board of this
Hospital, some of whom will be affiliated with banks, savings and loan
associations and other financial institutions. The tendency of representatives
of such institutions is often to seek business in return for advice and
assistance rendered as trustees. It must be made absolutely clear that Board
membership carries no right to preferential treatment in the placement or
handling of the Hospital's investments and business accounts. The Hospital
would be well advised to restrict membership on its Board to the
representatives of financial institutions which have no substantial business
relationship with the Hospital. The best way to avoid potential conflicts of
interest and to be assured of objective advice is to avoid the possibility of
such conflicts at the time new trustees are selected.
As an additional safeguard, the Court will require that each newly-elected
trustee read this Opinion and the attached Order. Compliance with this
requirement must appear in a document signed by the new trustee or in the
minutes of the Sibley Board. In view of the circumstances disclosed by the
record it will be desirable, in addition, to require public disclosure which
will further insure that the Board's recently-avowed good intentions are
faithfully carried out. To this end, the Court will direct that prior to each
meeting of the full Board the members of the Board shall receive, at least one
week in advance, a formal written statement prepared by the Hospital's
Treasurer or Comptroller disclosing in detail the full extent of all business
done by the Hospital since the last Board meeting with any bank, savings and
loan association, investment service or other financial institution with which
any trustee or officer of the Hospital is affiliated as a trustee, director,
principal officer, partner, general manager or substantial shareholder.
Moreover, all such dealings shall be summarized by the Hospital's auditors in
their annual audit and a copy of the annual audit shall be made available on
request for inspection by any patient of the Hospital at the Hospital's offices
during business hours. Such arrangements should continue for a period of
five years.
173
For the reasons set forth in its Memorandum and Order of November 30,
1973, and at various pretrial hearings, the Court declines to award damages
incident to the injunctive and declaratory relief appropriate under Rule
23(b)(2) of the Federal Rules of Civil Procedure or to reconsider the denial of
certification under Rule 23(b)(1) and (3). No accounting will be ordered, and
all other relief requested by plaintiffs is denied. Since plaintiffs do not press
their claim for attorneys' fees at this time, the Court will postpone action on
that issue until such time as it is raised and briefed by the parties.
4.3
174
corpus. Competition for admissionto Kamehameha Schools is intense, with about ten
applications for each slot.
The will directs that trustees be chosen by justices of the "Supreme Court," which at
the time of the princess' death meant the Supreme Court of the Kingdom of Hawaii.
But Supreme Court justices continued to make the selections when Hawaii was a
republic, territory and state ... until late last year. It was then that four of the five
justices, bowing to public pressure, agreed not to participate in future trustee
selections. The one dissenter has suggested privately that he has authority to make
future selections "as a majority of one." In past years, the justices did not hesitate to
decide cases involving the trustees they selected. But earlier this year, the justices
agreed to recuse themselves in such matters.
HIGHLY COMPENSATED TRUSTEES. KS/BE trustees have paid themselves annual
fees averaging about $900,000 each. They argue that this has been within the
compensation cap set by mechanical application of Hawaii's statutory fee provision.
But the nation's preeminent authority on trust law has called this formula "practically
incomprehensible ... an awful statute." Among other problems, it does not define
"revenue," "income" and "general profits." As a result, it is not clear in what
circumstances net income as opposed to gross income is to be used, or to what extent
capital losses are to be offset against capital gains.
These ambiguities take on greater meaning when you consider a few numbers.
During the three-year period currently under review by a court-appointed master,
the trustees experienced losses and loss reserves totaling $241 million. This exceeded
investment income from all sources, including Goldman Sachs. Plus, annual
management and general expenses rose from $42 million to $52 million to $61
million. According to the master, the total return for this three-year period was
minus 1.0% .
Due to a dramatic, last-minute floor vote on the floor of the state House of
Representatives, the 1998 Legislature replaced the statutory fee formula with a
simple requirement that trustee compensation always be "reasonable under the
circumstances." The bill had been bottled up in the House Judiciary Committee
(whose chair has for years received a $4,000 monthly retainer from KS/BE), and was
actively fought by the Speaker of the House (who recently received a $132,000
consulting fee on a KS/BE land transaction).
POLITICAL CONNECTIONS. One of the current trustees was Speaker of the state
House of Representatives at the time of his appointment in 1984 and for several years
thereafter. Another had been President of the state Senate just prior to being
appointed a trustee. A third had just been chairman of the state Judicial Selection
Commission, and a fourth was a physical education teacher turned state Department
of Education administrator who recently had served as chairperson of the sitting
Governor's re-election committee on the island of Maui. The fifth trustee, Oswald
Stender, is sometimes called the accidental trustee. Unlike the other four, he is not
politically active and was not the first choice of any justice. Stender emerged as a
compromise candidate only when the justices reached a stalemate over other
candidates, one of whom was generally regarded at that time as a political "king
maker." Stender is the only trustee with CEO-like credentials.
Cynics sometimes point out that members of the Judicial Selection Commission are
selected by the Speaker of the House, President of the Senate and Chief Justice of the
Supreme Court ... and that KS/BE trustees in recent years have included a Speaker of
175
the House, President of the Senate and Chief Justice of the Supreme Court. The
Governor also selects Commission members, and the most recent trustee is the best
friend and political confidant of the Governor.
The law firm of another recent Judicial Selection Commission chairman has received
$15 million in fees from KS/BE since his tenure on the Commission, and the law firm
of a former Governor received millions in fees soon after he left office in 1995.
Unsuccessful candidates for justice of the state Supreme Court have described being
quizzed by members of the Judicial Selection Commission about who they might be
inclined to name as a KS/BE trustee. These candidates concluded that no one gets
appointed to the high court in Hawaii unless they answer this question "correctly."
On August 9, 1997, the Honolulu Star Bulletin published Broken Trust, a newspaper
article written by four prominent members of the native Hawaiian community (a
senior federal district court judge, retired state appellate court judge, former
principal of Kamehameha Schools, and head trustee of the Queen Liliuokalani Trust)
and a University of Hawaii law professor. This 6,400 word essay triggered a public
outcry for reform and prompted an investigation by the state Attorney General. The
resulting media coverage rivaled what might have been given to the declaration of
World War III.
GOVERNANCE OF KAMEHAMEHA SCHOOLS. Four months later, a courtappointed fact finder submitted a scathing report on the trustees' management of the
Kamehameha Schools. Focused primarily on the so-called Lead Trustee for
Education, the report painted a picture of insensitivity, favoritism, incompetence and
vindictiveness. According to the fact finder, this trustee frequently would
countermand decisions of the school's president and principals, and tell teachers and
staff that they were incompetent and uncaring. At one point in time, she commanded
that nothing in writing leave the campus until it had been approved by her, causing
months-long delays in simple communications.
She had the student body president pulled out of class and ushered by a principal to
her downtown office for a closed door meeting after hearing that this student was
planning to write a letter supportive of the school's president. Among other thinly
disguised threats was "reassurance" that she wouldn't dream of calling
administrators at Princeton (where he had been offered a scholarship) to tell them
that he was a "rabble-rouser." As he left the two-hour session, his stomach was
"wrenched with pain." Later this student leader wrote that the session was
intimidating and terrifying, and that he felt trapped: "[I] could not get up, at any
time, and leave her office that day, though I wished I could have."
When one of this trustee's confidants wanted a particular child admitted to
Kamehameha Schools, a red dot would appear on that applicant's file. Staff had been
instructed to admit red- dot applicants, regardless of qualifications. On at least one
such occasion, the party asking for special treatment reportedly was the Supreme
Court justice who had pushed hard for her appointment as a trustee, and who now
contends that he can select future KS/BE trustees "as a majority of one."
According to the fact finder, these and other ways in which the lead trustee for
education and the people around her "usurped," "undermined" and "subverted" the
powers of the president and his staff left the school in "turmoil" and "disarray."
Other trustees pleaded ignorance, but the fact finder would have none of that: "The
Fact Finder finds that ... the other four trustees ... knew or should have known that
176
the Lead Trustee was engaged in actions that were detrimental to the Kamehameha
School .... It is inconceivable to the Fact Finder that her fellow Trustees acting in
concert could not find out what the Lead Trustee was doing on campus. Though the
alarms were being sounded by the actions of one of the Trustees, the others either
ignored it, or failed to grasp the consequences of it."
A few months later, a Western Association of Schools and Colleges (WASC)
accreditation team was harsh in its assessment of the trustees, calling the governance
of the school "dysfunctional."
A master appointed by the probate court to review the trustees' accounts also has
been critical of the trustees' conduct: "Currently, there is no policy to guide the
Trustees on expending its resources .... Such a policy is fundamental to the
development of a strategic plan for investments and educational expenditures."
One of many "flawed" actions identified by the master related to the trustees'
termination of long-standing outreach programs in order to build new campuses on
neighbor islands. Their premise was that all planned programs, both old and new,
had to fit within that year's direct educational expenditure budget of $55 million. But
the trust at that time had an accumulated income balance of $316 million, and even
taking into account the cost of running new campuses, unspent accumulated income
was projected to reach $1.5 billion in just ten years.
The trustees announced the plan to build new campuses just three days after
publication of Broken Trust. This timing troubled the master: "Your master is unable
to determine the reasons why GoForward [the expansion plan] was announced in
such a hurried manner with limited involvement of key personnel and educational
expertise .... your master is not satisfied that critical and fundamental planning
considerations have been adequately analyzed .... both professional staff and key
management employees at the Kamehameha School (sic), as well as key management
personnel at the trust estate, were unaware of the many key details of the GoForward
initiative until it was publicly announced by the Trustees. This understandably
resulted in misunderstanding, confusion, loss of confidence, and a decline in
morale."
"Curiously" (the master's word), the financial model for estimating the operating and
capital costs of the proposed neighbor island campuses was not developed until one
year after critical decisions had been made.
The master addressed many other aspects of the trustees' management of estate
assets. In a report filed with the probate court three months ago, he noted numerous
serious and repeated breaches of trust. A sampling follows.
TRANSFER OF INCOME TO CORPUS. Despite will language directing the trustees
to expend income each year, and a Hawaii Supreme Court opinion and probate court
order indicating that all income be spent in the year earned or in accordance with an
approved plan, the trustees surreptitiously moved $350 million on the books from
the income account to the corpus account. The funds themselves were invested in
highly illiquid growth-oriented investments rather than spent on the school as
required by the will.
This diversion of funds was not noted in minutes of trustee meetings or disclosed in
notes to the financial statements. The master was concerned by what appeared to be
an element of deceit and attempt to blame others: "The contention in the Trustees'
Response that the reclassification of accumulated income to corpus was not
177
deceptive because the information necessary to figure out how much income had
been accumulated was always available for past masters to uncover is outrageous. To
blame past masters for failing to discern the Trustees' concealment ... is ... a
diversionary attempt .... [R]esponsibility for their malfeasance should not be laid at
the doorstep of past masters ....The fact that the trustees cloaked their decision to
reclassify income to corpus as being confidential and privileged' speaks volumes
regarding the forthrightness of their action."
Trustee efforts to minimize the issue's significance by pointing out that the amounts
easily can be transferred back to the income account, have not satisfied the master:
"The inability of the Trustees to comprehend the gravity of their failure to properly
account for and expend accumulated income betrays a lack of sensitivity to one of
their most fundamental duties as trustees."
INVESTMENT PRACTICES. According to the master, investment decisions have
been ad hoc, based more on "relationships" than financial analysis; due diligence
work often has not been done ... or done but ignored; and completed investments
have not been properly monitored and measured against appropriate benchmarks. In
numerous ways, the estate's financial statements have been misleading.
As recently as earlier this year, the trustees were reporting the fair market value of
trust assets at about $2 billion even though the assessed value of estate land on the
island of Oahu alone totals nearly $5 billion and the estate's stake in Goldman Sachs
is generally believed to be worth up to $3 billion. Critics have suggested that
attempts to minimize the size of the trust estate are related to trustee contentions that
$70 million is not an inappropriately small amount to expend on the school each
year.
Several months ago, a court-ordered study by Arthur Andersen confirmed the
master's findings: "In virtually all areas of investment and management decisionmaking by the trustees, the Andersen Report notes a lack of appropriate investment
planning. Even more problematic, the Andersen Report observes that even to the
extent that there may be a semblance of an investment plan, there is a weak
commitment to abide by the plan."
LEAD TRUSTEES AND ACCOUNTABILITY. The master was especially critical of
the trustees' insistence upon a so-called lead trustee management system in which
each trustee acts as a CEO. According to the master, "efforts to identify a comparable
management structure within any major business organization of note turned up
nothing." The master noted that the trustees effectively hired themselves to manage
this unusually complex organization without first developing job descriptions,
minimum qualifications or procedures for reviewing job performance.
Compensation studies commissioned by the trustees were then cited by them as
proof of the reasonableness of their fees. But each compensation consultant basically
was asked little more than how much CEOs of billion-dollar businesses usually get
paid. None of these reports even considered the qualifications or performance of
these particular individuals.
FAILURE TO PROPERLY ACCOUNT. In addition to normal disclosure
requirements, the will directs that the trustees annually file with the court "an
inventory of the property in their hands and how invested." Interestingly, the will
also directs the trustees to publish this information in a newspaper for public review.
This has simply been ignored. According to the Attorney General, "The trustees have
178
not only failed to account as required by the Will and by law, but have intentionally
concealed the accounts and the true condition of the Estate from the Court and the
beneficiaries."
The quality and quantity of available financial information about KS/BE is
amazingly limited. Even the court-appointed master compared his attempts to get
information from these trustees to trying to get it from the CIA. The usually mild
mannered master was "outraged" by the trustees' "specious rationale" for not
properly disclosing vital information. He called their excuses "so pathetic as to
border on the ludicrous."
When the trustees described the master's preliminary report as "a product of flawed
analysis, largely attributable to a failure of communication between the Estate staff
and the Master's accountant," the master stood by his reference to "the CIA" and
called the trustees' explanation "a gross mis-characterization:" "[T]he trustees are
inclined to disclose financial information only when and to the extent that it serves
their own purposes."
CONFLICTS OF INTEREST AND PRIVATE INUREMENT. According to the
Attorney General, "the trustees have at all times failed even to comprehend the
concept, meaning, or existence of a conflict of interest between themselves and the
beneficiaries."
The master's report details instances of co-investing and other troubling situations,
such as the time one trustee "recused" himself as a trustee just long enough to
negotiate a large land purchase from KS/BE, and the trustees' use of trust funds to
lobby against enactment of federal intermediate sanctions law. The master felt that
this last matter would have been a serious breach even if the trustees had used their
own money since it definitely worked against the best interests of the trust: "Your
master finds that [these efforts were] predominantly directed at preserving the
historical procedure for determining compensation of the trustees under state
statutory law and minimizing the potentially adverse impact that the intermediate
sanctions law would have on their continued ability to receive compensation in
accordance with and at the levels permitted under state law."
The $1 million or so that went into fighting enactment of this salutary legislation, and
millions more, went to the law firm of the former Governor who had appointed all
five of the current Supreme Court justices and key members of the Judicial Selection
Commission.
The trustees (except for Stender) accepted free golf club memberships worth up to
$40,000 from KS/BE leaseholders around the time leases were being renegotiated,
and one of the trustees is alleged to have pocketed substantial director fees from a
company in which the estate held a large block of stock. Another trustee used estate
personnel to perform valuable personal services and accepted trips in private jets to
events such as the Super Bowl and Olympics from vendors around the time of major
purchases by KS/BE. Yet another trustee is alleged to have engaged in a kickback
scheme with his brother-in-law and the estate. One of the trustees instructed KS/BE
personnel to surreptitiously and illegally pay off the campaign debts of several state
senators.
When the Attorney General accidentally discovered that one of these senators had
used a KS/BE credit card in strip bars and Las Vegas casinos, the trustees response
was to offset the $21,000 debt against a "retroactive bonus" so the senator would not
179
have to personally repay the estate for his unauthorized use of the card. (Though
lacking a clear job description, this particular senator had for many years been on the
KS/BE payroll.)
INVESTIGATIONS AND PETITIONS FOR REMOVAL. The KS/BE trustees are
currently being investigated by the Internal Revenue Service and state Attorney
General. They also are the subjects of two grand jury criminal investigations, one
conducted by the U.S. Attorney in Hawaii, the other by the state Attorney General,
plus an inquiry by the state Campaign Spending Commission. The probate court has
not yet approved trustee accounts for any year since fiscal 1993 and so the courtappointed master also is actively involved in KS/BE affairs. Two of the trustees have
asked a state circuit court to remove a third (the one who had been lead trustee for
the school). That trial started on the 9th of November and is projected to last four to
six months.
The Attorney General's petition to permanently remove all five trustees has been set
for trial in late 1999, is not expected to start until sometime in the year 2000. Her
petition for temporary removal was taken under advisement by the probate judge on
October 2, 1998. The probate court's failure to act on this petition is not easily
explained since the court has had scathing reports from fact finders for many months
and the applicable law is quite clear.
The Master has documented numerous profound breaches of trust that violate the
fundamental purpose of the trust, the law, and numerous court orders. When the
Master sets forth a prima facie case of breach, the trustees have the burden of
proving that there is no breach. Monting v. Leong Kau, 7 Haw. 486 (1888); Nawahi v.
Trust Co., 31 Haw. 958, 973 (1931); and Estate of Baker, 34 Haw. 263, 267-268 (1937).
Attorney General's Response to Master's Consolidated Report.
There also is clear precedent in Hawaii and elsewhere for the removal of trustees on
an expedited basis. In Estate of Holt [33 Haw. 352, 362 (1935)], for example, the court
did not even wait for a formal petition since it was evident from the master's report
that the trustee "was not sufficiently careful and diligent in the performance of his
duties to meet the requirements of good stewardship." The probate court is supposed
to do what is in the best interests of the beneficiaries, even if the removed trustees
have done their best. In Holt, for example, the court affirmed the expedited, prepetition removal even though nothing in the record reflected adversely on the ousted
trustee's honesty or integrity.
WILL THEY BE REMOVED? In response to highly critical reports of fact finders and
outside consultants, the trustees have promised much in the way of reform, but have
yet to produced anything of significance. Their words express a desire to cooperate
with the various investigations, but their actions seem designed to stall for as long as
possible.
Among other on-going questionable expenditures, the trustees reportedly are paying
nearly $100,000 of trust funds each month to a law firm that the Attorney General
believes is working for "the protection and benefit of the individual trustees and not
the Estate or its beneficiaries." Total cost of the many investigations, inquiries and
related court battles, is estimated to have exceeded $5 million ... and an end is not yet
in sight.
For many years whenever the subject was KS/BE, Hawaii's judges and justices opted
not to make waves ... choosing simply to "look the other way." Some people think
180
this has not changed and is the reason for the probate court's inaction. Many of them
are convinced that these trustees will never be removed.
Others think it is perfectly understandable that a probate judge would approach this
matter with caution or even trepidation. After all, she has been asked to fire
politically powerful people who were appointed by justices of the Supreme Court.
Plus, the job of naming a person or persons to run this historic and emotionally
charged institution would fall squarely into her lap. Just imagine if that person or
those persons were to perform poorly.
EVERYONE IS WATCHING. The judiciary's handling of this matter arguably will
establish the direction of justice in Hawaii for years to come. A concerned public is
watching closely, as are scores of concerned political insiders.
4.3.2
(Excerpt from a report in 1999) The IRS has signed-off on a $20.1 million agreement
between the Attorney General of Hawaii and the former trustees of Hawaiis
wealthiest charity. The trust, commonly known as the Bishop Estate, has a total
worth estimated between $6 billion and $10 billion. The bulk of the funds of the
agreement, $15 million, will go to the Kamehameha Schools that suffered under both
the corrupt practices of the trustees, and their apparent complete lack of oversight of
the trusts funds. Though paid as a result of actions of the trustees, the money will
come from the Federal Insurance Company, the trusts insurer, and ironically,
includes $4 million dollars to reimburse the trustees for the legal fees they incurred
personally while denying allegations of wrongdoing. The remainder, $1.3 will go to
Hawaiis Attorney General to cover legal expenses.
The state had initially sought over $200 million dollars in damages in compensation,
but the settlement agreed to, barely more than a tenth that amount, was seen as the
most expedient way to end the matter and in the best interests of the children who
had lost the most under the policies of the former trustees.
4.4
181
182
183
4.5
184
Introduction
185
5.2
186
5.2.1
186
5.2.2
188
5.2.3
Southwood v. A.G.
192
5.2.4
192
5.2.5
198
5.2.6
205
5.2.7
206
5.3
Economic Activities
209
5.3.1
209
5.3.3
210
5.3.3
Discussion Questions
214
5.1.
INTRODUCTION
The laws affecting NPOs should clearly permit them to engage in all
lawful activities that are permitted for individuals and for-profit entities. For
example, section 3.01(a) of the Revised Model Nonprofit Corporation Act
(RMNCA) provides that, Every corporation incorporated under this Act hs
the purpose of engaging in any lawful activity unless a more limited purpose
is set forth in the articles of incorporation. The law should further provide
that all powers available to for-profit legal entities should be available to any
NPO, including the power to sue or be sued in its own name.
The laws should also allow any NPO to engage in a public benefit
activity. But it should be clear that becoming a PBO, which would subject the
NPO to greater burdens commensurate with the greater benefits it receives,
should be voluntary. See OSI Guidelines, Section 6.1(b). In some cases it may
be permissible for state law to requ9re an NPO that has predominantly or
185
exclusively public benefit purposes to be a PBO so that it will come under the
more burdensome regulatory regime of the state law applicable to PBOs. For
example, section 17.7(2) of the RMNCA requires any corporation that
qualifies as a tax exempt public charity under federal tax laws (I.R.C.
501(c)(3)) be classified as a public benefit organization for state law purposes.
Can you think of circumstances other than those just mentioned when it
would be appropriate to require an NPO to qualify for PBO status?
Why would an organization not want to be a PBO?
5.2
5.2.1 Civil Law v. Common Law. Contrary to suggestions to the contrary, there is
no clear dichotomy between civil law and common law jurisdictions on the matter of
whether public benefit organizations may engage in political activities. In South
Africa, for instance, there is no restriction on political activities of NPOs.
In Germany the following rules apply:
Like most civil law countries, Germany has two types of not-for-profit
organizations that may generally engage in what the common law refers to as
charity. These are the association (Verein), referred to in the undesgesetzbuch
(BGB) 1; 21 ff, and the foundation (Stiftung), referred to in BGB 1; 80 ff. It is
also possible to register not-for-profit organizations in the GmbH (limited
liability) or AG (stock company) corporate forms, but there is no need to go
into those details for purposes of this short synopsis.
Although the law is very complex with regard to the administration of the
typical registered association or foundation in Germany, the specific
treatment of political activities can be found only in two places in German
law. There are restrictions in the civil law regarding associations and there
are restrictions in the tax law regarding all corporate bodies that are involved
in charitable and public benefit activities.
The civil law restrictions set out in the Association Law (Vereinsgesetz) are
really quite limited and apply only to registered associations with a
significant number or foreign persons as members or leaders. The tax law
restrictions are more interesting, because they apply to all corporate
organizations that engage in public benefit activities. Here the situation is a
bit complex when one compares it with common law jurisdictions, because
the general tax (fiscal) law (Abgabenordnung or AO) refers to charitable
(mildtaetige), public benefit (gemeinnuetzige), and religious (kirchliche)
purposes, and defines each of them with a list of permitted purposes.
186
These do receive greater tax benefits, e.g., a higher limit on deductible donations.
187
188
A charity may not take part in an illegal activity or a partisan political activity.
A partisan political activity is one that involves direct or indirect support of,
or opposition to, any political party or candidate for public office.
When a political party or candidate for public office supports a policy that is
also supported by a charity, the charity is not prevented from promoting this
policy. However, a charity in this situation must not directly or indirectly
support the political party or candidate for public office. This means that a
charity may make the public aware of its position on an issue provided:
it does not explicitly connect its views to any political party or candidate
for public office;
the issue is connected to its purposes;
its views are based on a well-reasoned position;
public awareness campaigns do not become the charity's primary activity.
In addition, a charity in this situation is also subject to the restrictions this
guidance places on non-partisan political activity, public awareness
campaigns and communications with an elected representative or public
official.
Finally, a charity may provide information to its supporters or the public on
how all the Members of Parliament or the legislature of a province, territory
or municipal council voted on an issue connected with the charity's purpose.
However, a charity must not single out the voting pattern on an issue of any
one elected representative or political party.
6.2 What are political activities?
A charity may take part in political activities if they are non-partisan and
connected and subordinate to the charity's purposes.
We presume an activity to be political if a charity:
explicitly communicates a call to political action (i.e., encourages the
public to contact an elected representative or public official and urges
them to retain, oppose, or change the law, policy, or decision of any
level of government in Canada or a foreign country);
explicitly communicates to the public that the law, policy, or decision of
any level of government in Canada or a foreign country should be
retained (if the retention of the law, policy or decision is being
reconsidered by a government), opposed, or changed; or
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190
191
A.C.W.S.J,
192
193
194
195
196
1) Fundraising
Although AA has been incorporated as a separate entity, the effect of
this division has been to separate funds received based on whether an
official donation receipt is [*18] requested, rather than to remove the
activities which are not charitable from those of the registered charity.
The fundraising campaigns for the Charity are printed on AA's
letterhead. The content of this fundraising activity is designed to
persuade the public to adopt a particular viewpoint and/or resist
change to existing legislation. This is evidenced in the fundraising
campaigns entitled "Morgentaler", "SIRCH", "All Lives", and "RU-486".
The fundraising documents state: "To help simplify our accounting
procedures, please make your donation payable to "Alliance". This
enables officials to deposit funds to the credit of either organization. In
addition, AA has been allowed to give a choice to donors as to whether
they receive an official income tax receipt or not. [There were also
other problems with what AA was doing, which are not included here.
The legal analysis then proceeded as follows]
Thus purposes aimed at promoting or advocating a change in the law
or in its administration, or a change in public policy, is not regarded as
charitable. The underlying reason for refusing to treat a political object as
charitable was articulated by Lord Parker of Waddington in
Bowman v. Secular Society, Ltd. :
Moreover, some courts have not regarded as charitable activities that promote
or advocate maintenance of the present law. As Vaisey J. stated in Re
Hopkinson , [1949] 1 All E.R. 346 (Ch. D.), at p. 350: "Political
propaganda masquerading . . . as education is not education within the
Statute of Elizabeth. . . . In other words, it is not charitable". See In re
Koeppler Will Trusts , [1984] Ch. 243, at pp. 260-61, reversed on other grounds
[1986] 1 Ch. 423 (C.A.). See also D.W.M. Waters, Law of Trust in Canada , 2nd
ed. (Toronto: Carswell, 1984), at p. 566. The learned author opined in this
same connection that "there is little doubt that, if the genuine and sole object
is to enlighten the public on the theories and concepts of political belief in
general, this is educational".
On the other hand, a trust to enforce existing law has been held to be
charitable: Inland Revenue Commissioners v. City of Glasgow Police
Association, [1953] A.C. 380 (H.L.). In determining that certain objects of the
Amnesty International Trust were invalid for advocating an alteration of the
law or policy, Slade J. distinguished the decision of the Supreme Court of
Massachusetts in Jackson v. Phillips (1867), 96 Mass. 539, which upheld a
197
trust for the abolition of slavery, and where Gray J. expressed the opinion at
p. 567 that to "deliver men from bondage which the law regards as contrary to
natural right, humanity, justice and sound policy, is surely not less charitable
than to lessen the sufferings of animals".
In McGovern , supra , Slade J. made clear that his categorization
of "political purposes" was not intended to be exhaustive. In Positive
Action Against Pornography , this Court, building on that case,
expressed the view that certain purposes not falling within it were
nevertheless political in a legal sense. More recently, in Human Life
International of Canada, Inc. v. M.N.R. , this Court explicitly held that the
"advocacy of opinions on various important social issues" was a "political
activity" and therefore not charitable in the context of that case.
5.2.5 BRANCH MINISTRIES AND DAN LITTLE, PASTOR, v. CHARLES
O. ROSSOTTI, COMMISSIONER, INTERNAL REVENUE SERVICE, DC
Cir, 2000
BUCKLEY, Senior Judge: Four days before the 1992 presidential
election, Branch Ministries, a tax-exempt church, placed full-page
advertisements in two newspapers in which it urged Christians not to vote
for then-presidential candidate Bill Clinton because of his positions on certain
moral issues. The Internal Revenue Service concluded that the placement of
the advertisements violated the statutory restrictions on organizations exempt
from taxation and, for the first time in its history, it revoked a bona fide
church's tax-exempt status because of its involvement in politics. Branch
Ministries and its pastor, Dan Little, challenge the revocation on the grounds
that (1) the Service acted beyond its statutory authority, (2) the revocation
violated its right to the free exercise of religion guaranteed by the First
Amendment and the Religious Freedom Restoration Act, and (3) it was the
victim of selective prosecution in violation of the Fifth Amendment. Because
these objections are without merit, we affirm the district court's grant of
summary judgment to the Service.
I. BACKGROUND
A. Taxation of Churches
The Internal Revenue Code ("Code") exempts certain organizations from
taxation, including those organized and operated for religious purposes,
provided that they do not engage in certain activities, including involvement
in "any political campaign on behalf of (or in opposition to) any candidate
for public office." 26 U.S.C. 501(a), (c)(3) (1994). Contributions to such
organizations are also deductible from the donating taxpayer's taxable
income. Id. 170(a). Although most organizations seeking tax-exempt status
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are required to apply to the Internal Revenue Service ("IRS" or "Service") for
an advance determination that they meet the requirements of 501(c)(3), id.
508(a), a church may simply hold itself out as tax exempt and receive the
benefits of that status without applying for advance recognition from the IRS.
Id. 508(c)(1)(A).
The IRS maintains a periodically updated "Publication No. 78," in which it
lists all organizations that have received a ruling or determination letter
confirming the deductibility of contributions made to them. See Rev. Proc.
82-39, 1982-1 C.B. 759, 2.01, 2.03. Thus, a listing in that publication will
provide donors with advance assurance that their contributions will be
deductible under section 170(a). If a listed organization has subsequently had
its tax-exempt status revoked, contributions that are made to it by a donor
who is unaware of the change in status will generally be treated as
deductible if made on or before the date that the revocation is publicly
announced. Id. 3.01. Donors to a church that has not received an advance
determination of its tax-exempt status may also deduct their contributions;
but in the event of an audit, the taxpayer will bear the burden of establishing
that the church meets the requirements of section 501(c)(3). See generally id.
3.04; Rev. Proc. 80-24, 1980-1 C.B. 658, 6 (discussing taxpayers' obligations
in seeking a ruling or determination letter). . . .
B. Factual and Procedural History
Branch Ministries, Inc. operates the Church at Pierce Creek ("Church"), a
Christian church located in Binghamton, New York. In 1983, the Church
requested and received a letter from the IRS recognizing its tax-exempt status.
On October 30, 1992, four days before the presidential election, the Church
placed full-page advertisements in USA Today and the Washington Times.
Each bore the headline "Christians Beware" and asserted that then-Governor
Clinton's positions concerning abortion, homosexuality, and the distribution
of condoms to teenagers in schools violated Biblical precepts. The following
appeared at the bottom of each advertisement:
This advertisement was co-sponsored by the Church at Pierce Creek,
Daniel J. Little, Senior Pastor, and by churches and concerned
Christians nationwide. Tax-deductible donations for this
advertisement gladly accepted. Make donations to: The Church at
Pierce Creek. [mailing address].
The advertisements did not go unnoticed. They produced hundreds of
contributions to the Church from across the country and were mentioned in a
New York Times article and an Anthony Lewis column which stated that the
sponsors of the advertisement had almost certainly violated the Internal
Revenue Code. Peter Applebome, Religious Right Intensifies Campaign for
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Bush, N.Y. Times, Oct. 31, 1992, at A1; Anthony Lewis, Tax Exempt Politics?,
N.Y. Times, Dec. 1, 1992, atA15.
The advertisements also came to the attention of the Regional Commissioner
of the IRS, who notified the Church on November 20, 1992 that he had
authorized a church tax inquiry based on "a reasonable belief ... that you may
not be tax-exempt or that you may be liable for tax" due to political activities
and expenditures. Letter from Cornelius J. Coleman, IRS Regional
Commissioner, to The Church at Pierce Creek (Nov. 20, 1992), reprinted in
App. at Tab 5, Ex. F.
The Church denied that it had engaged in any prohibited political activity and
declined to provide the IRS with certain information the Service had
requested. On February 11, 1993, the IRS informed the Church that it was
beginning a church tax examination. Following two unproductive meetings
between the parties, the IRS revoked the Church's 501(c)(3) tax-exempt
status on January 19, 1995, citing the newspaper advertisements as prohibited
intervention in a political campaign.
The Church and Pastor Little (collectively, "Church") commenced this lawsuit
soon thereafter. This had the effect of suspending the revocation of the
Church's tax exemption until the district court entered its judgment in this
case. See 26 U.S.C. 7428(c). The Church challenged the revocation of its
tax-exempt status, alleging that the IRS had no authority to revoke its tax
exemption, that the revocation violated its right to free speech
and to freely exercise its religion under the First Amendment and the
Religious Freedom Restoration Act of 1993, 42 U.S.C. 2000bb (1994)
("RFRA"), and that the IRS engaged in selective prosecution in violation of the
Equal Protection Clause of the Fifth Amendment. After allowing discovery
on the Church's selective prosecution claim, Branch Ministries, Inc. v.
Richardson, 970 F. Supp. 11 (D.D.C. 1997), the district court granted summary
judgment in favor of the IRS. Branch Ministries, Inc. v. Rossotti, 40 F. Supp.
2d 15 (D.D.C. 1999).
The Church filed a timely appeal, and we have jurisdiction pursuant to 28
U.S.C. 1291. We review summary judgment decisions de novo, see Everett v.
United States, 332 U.S. App. D.C. 458, 158 F.3d 1364, 1367 (D.C. Cir. 1998),
cert. denied, 526 U.S. 1132, 143 L. Ed. 2d 1010, 119 S. Ct. 1807 (1999), and
will affirm only if there is no genuine issue as to any material fact and the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
II. ANALYSIS . . . .
A. The Statutory Authority of the IRS . . . .
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Section 501(a) states that "an organization described in subsection (c) ... shall
be exempt from taxation . . . ." Id. 501(a). Those described in subsection (c)
include corporations . . . organized and operated exclusively for religious ...
purposes . . . which do not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of
(or in opposition to) any candidate for public office. Id. 501(c)(3). Similarly,
170(c) allows taxpayers to deduct from their taxable income donations made
to a corporation organized and operated exclusively for religious
purposes . . . which is not disqualified for tax exemption under 501(c)(3) by
reason of attempting to . . . intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office. Id. 170(c)(2)(B), (D).
The Code, in short, specifically states that organizations that fail to
comply with the restrictions set forth in 501(c) are not qualified to
receive the tax exemption that it provides. Having satisfied ourselves that the
IRS had the statutory authority to revoke the Church's tax-exempt status, we
now turn to the free exercise challenges.
B. First Amendment Claims and the RFRA
The Church claims that the revocation of its exemption violated its right to
freely exercise its religion under both the First Amendment and the RFRA. To
sustain its claim under either the Constitution or the statute, the Church must
first establish that its free exercise right has been substantially burdened. See
Jimmy Swaggart Ministries v. Board of Equalization, 493 U.S. 378, 384-85, 107
L. Ed. 2d 796, 110 S. Ct. 688 (1990) ("Our cases have established that the free
exercise inquiry asks whether government has placed a substantial burden on
the observation of a central religious belief or practice and, if so, whether a
compelling governmental interest justifies the burden.") (internal quotation
marks and brackets omitted); 42 U.S.C. 2000bb-1(a), (b) ("Government shall
not substantially burden a person's exercise of religion" in the absence of a
compelling government interest that is furthered by the least restrictive
means.). We conclude that the Church has failed to meet this test.
The Church asserts, first, that a revocation would threaten its existence.
See Affidavit of Dan Little dated July 31, 1995 at P 22, reprinted in App. at
Tab 8 ("The Church at Pierce Creek will have to close due to the revocation of
its tax exempt status, and the inability of congregants to deduct their
contributions from their taxes."). The Church maintains that a loss of
its tax-exempt status will not only make its members reluctant to contribute
the funds essential to its survival, but may obligate the Church itself to pay
taxes.
The Church appears to assume that the withdrawal of a conditional privilege
for failure to meet the condition is in itself an unconstitutional burden on its
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free exercise right. This is true, however, only if the receipt of the privilege
(in this case the tax exemption) is conditioned upon conduct proscribed by a
religious faith, or . . . denied . . . because of conduct mandated by religious
belief, thereby putting substantial pressure on an adherent to modify his
behavior and to violate his beliefs.
Jimmy Swaggart Ministries, 493 U.S. at 391-92 (internal quotation marks and
citation omitted). Although its advertisements reflected its religious
convictions on certain questions of morality, the Church does not maintain
that a withdrawal from electoral politics would violate its beliefs. The sole
effect of the loss of the tax exemption will be to decrease the amount of money
available to the Church for its religious practices. The Supreme Court has
declared, however, that such a burden "is not constitutionally significant." Id.
at 391; see also Hernandez v. Commissioner, 490 U.S. 680, 700, 104 L. Ed. 2d
766, 109 S. Ct. 2136 (1989) (the "contention that an incrementally larger tax
burden interferes with religious activities . . . knows no limitation").
In actual fact, even this burden is overstated. Because of the unique
treatment churches receive under the Internal Revenue Code, the impact of
the revocation is likely to be more symbolic than substantial. As the IRS
confirmed at oral argument, if the Church does not intervene in future
political campaigns, it may hold itself out as a 501(c)(3) organization and
receive all the benefits of that status. All that will have been lost, in that
event, is the advance assurance of deductibility in the event a donor should be
audited. See 26 U.S.C. 508(c)(1)(A); Rev. Proc. 82-39 2.03. Contributions
will remain tax deductible as long as donors are able to establish that the
Church meets the requirements of 501(c)(3).
Nor does the revocation necessarily make the Church liable for the payment
of taxes. As the IRS explicitly represented in its brief and reiterated at
oral argument, the revocation of the exemption does not convert bona fide
donations into income taxable to the Church. See 26 U.S.C. 102 ("Gross
income does not include the value of property acquired by gift . . . .").
Furthermore, we know of no authority, and counsel provided none, to
prevent the Church from reapplying for a prospective determination of its
tax-exempt status and regaining the advance assurance of deductibility-provided, of course, that it renounces future involvement in political
campaigns.
We also reject the Church's argument that it is substantially burdened
because it has no alternate means by which to communicate its sentiments
about candidates for public office. In Regan v. Taxation With Representation,
461 U.S. 540, 552-53, 76 L. Ed. 2d 129, 103 S. Ct. 1997 (1983) (Blackmun, J.,
concurring), three members of the Supreme Court stated that the availability
of such an alternate means of communication is essential to the
constitutionality of 501(c)(3)'s restrictions on lobbying. The Court
202
203
Because the Church has failed to demonstrate that its free exercise rights
have been substantially burdened, we do not reach its arguments that
501(c)(3) does not serve a compelling government interest or, if it is indeed
compelling, that revocation of its tax exemption was not the least restrictive
means of furthering that interest.
Nor does the Church succeed in its claim that the IRS has violated its First
Amendment free speech rights by engaging in viewpoint discrimination.
The restrictions imposed by 501(c)(3) are viewpoint neutral; they
prohibit intervention in favor of all candidates for public office by
all tax-exempt organizations, regardless of candidate, party, or viewpoint. Cf.
Regan, 461 U.S. at 550-51 (upholding denial of tax deduction for lobbying
activities, in spite of allowance of such deduction for veteran's groups).
C. Selective Prosecution (Fifth Amendment)
The Church alleges that the IRS violated the Equal Protection Clause of the
Fifth Amendment by engaging in selective prosecution. In support of its
claim, the Church has submitted several hundred pages of newspaper
excerpts reporting political campaign activities in, or by the pastors of, other
churches that have retained their tax-exempt status. These include reports of
explicit endorsements of Democratic candidates by clergymen as well as
many instances in which favored candidates have been invited to address
congregations from the pulpit. The Church complains that despite this
widespread and widely reported involvement by other churches in political
campaigns, it is the only one to have ever had its tax-exempt status revoked
for engaging in political activity. It attributes this alleged discrimination to
the Service's political bias.
To establish selective prosecution, the Church must "prove that (1)
[it] was singled out for prosecution from among others similarly situated and
(2) that [the] prosecution was improperly motivated, i.e., based on race,
religion or another arbitrary classification." United States v. Washington, 227
U.S. App. D.C. 184, 705 F.2d 489, 494 (D.C. Cir. 1983). This burden is a
demanding one because "in the absence of clear evidence to the contrary,
courts presume that [government prosecutors] have properly discharged their
official duties." United States v. Armstrong, 517 U.S. 456, 464, 134 L. Ed. 2d
687, 116 S. Ct. 1480 (1996) (internal quotation marks and citation omitted).
At oral argument, counsel for the IRS conceded that if some of the
church-sponsored political activities cited by the Church were accurately
reported, they were in violation of 501(c)(3) and could have resulted in
the revocation of those churches' tax-exempt status. But even if the Service
could have revoked their tax exemptions, the Church has failed to establish
selective prosecution because it has failed to demonstrate that it was similarly
situated to any of those other churches. None of the reported activities
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205
5.2.7
Summary
1. The Charity Commissioners have concluded that the promotion of human
rights is a charitable purpose. This guidance explains the basis of that
conclusion and looks at the various ways in which a charity can promote
human rights. In looking at this question, the Commissioners have also
concluded that the rule that organisations set up for political purposes cannot
be charitable is consistent with the Human Rights Act 1998. . . .
3. The sorts of activities that are encompassed within the charitable object of
promoting human rights include:
promoting the enforcement of human rights legislation in individual cases;
promoting the sound administration of human rights law;
the relief of need among the victims of human rights abuse;
education and research;
moral improvement and raising awareness of human rights and human
rights issues;
cultivating a public sentiment in favour of human rights. . . .
The promotion of human rights as a charitable purpose
7. There is a perception in some quarters that organisations set up with
purposes involving the promotion of human rights are likely to be denied
recognition as charities on the grounds that their purposes are 'political'.(1)
However, the incorporation into domestic law of many of the rights and
freedoms guaranteed under the European Convention for the Protection of
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207
(e) to engage in political activities which are ancillary and incidental to a good
charitable purpose. . . .
Political activities
40. There is an important distinction in charity law between political purposes
and political activities undertaken in furtherance of a charitable purpose. To
promote human rights by seeking a change in the law, or a shift in
government policy, or a reversal of a government decision is a political, rather
than a charitable, purpose. In the Amnesty case,(44) political purposes were
said to include:
(a) procuring
changes in the law of this country;(45)
changes in the law of a foreign country;
a reversal of government policy or of particular decisions of
government authorities in this country;
a reversal of government policy or of particular decisions of
government authorities in a foreign country;
(b) furthering the interests of a particular political party.(46)
41. It was said in the Amnesty case that the problem with political purposes is
that, first, the Court will ordinarily not be in a position, as a matter of
evidence, to judge whether the proposed change will or will not be for the
public benefit. Second, even if the evidence is sufficient to enable the court to
form the opinion that a change in the law is desirable, it must still decide the
case on the principle that the law is right as it stands. To do otherwise would
usurp the functions of the legislature.(47) In Annex A to this paper we set out
our reasons for thinking that the rule denying charitable status to
organisations with political purposes is consistent with the Convention rights
set out in the Human Rights Act. In Annex B, we explain why we think that
purposes with an overtly political content are bound to fall foul of that rule.
42. If a purpose necessarily involves a change in the law or government policy
of another country, that purpose is political and not charitable. . . .
43. By contrast, if a body's purposes are exclusively charitable, the mere fact
that the trustees are given incidental powers to employ political means does
not jeopardise its claim to charitable status.(48) What is important for
charitable status is that political means should not be the dominant method
by which the organisation will pursue its apparently charitable objects.(49)
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5.3
5.3.1
Economic Activities
Some countries prohibit NPOs or certain kinds of NPOs from engaging in economic
activities, especially if they do so in a commercialmanner. That means that they
must conduct such activities, if at all, through a subsidiary. The following include
some examples:
Example 1
An association shall be prohibited from engaging in commercial activities.
Article 10, Law on Associations, Lithuania, 1996
Example 2
Citizen associations and foundations may not perform economic activities.
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5.3.2
9 Trading
Current position
333. There are, currently, three main types of trading by charities:
a) Primary purpose trading - i.e., trading in the course of actually carrying out the
primary purpose of the charity: for example, charging for admission to an exhibition
by a charitable art gallery;
b) Ancillary trading - i.e., trading linked to and carried out at the same time as
carrying out the primary purpose of a charity: for example, sales from a bar run by a
theatre charity for members of the audience;
c) Non-primary purpose trading - i.e., trading with the sole or main aim of raising
funds: for example, some charity shops or charity mail order catalogues.
334. In regard to (i) primary purpose trading and (ii) ancillary trading, charities both
210
have the power to trade and are exempt from income tax on any profits from trading.
335. In regard to (iii) non-primary purpose trading, the situation is more complex. If
the income from this type of trading is small or incidental - i.e., 5,000 or less than
25% of the charity's total income (up to a maximum of 50,000) - then the charity
both has the power to trade and is exempt from income tax on trading profits.
However, a charity can get around this restriction by setting up a separate trading
company to carry on trading; the trading company can then transfer its profits back to
the charity under the Gift Aid scheme, so that no tax is paid on them. There are some
disadvantages to doing this: mainly that it results in additional paperwork.
Draft Bill changes
336. The draft Bill leaves the current position unchanged. The Strategy Unit,
however, recommended that charity law should be changed:
"to allow charities to undertake all trading within the charity, without the need for a
trading company. The power to undertake trade would be subject to a specific
statutory duty of care"
337. The Government rejected this recommendation. They said:
"Conducting trading activities within the tax exempt structure of charities would
offend the principle of a level playing field with private sector businesses". . . .
In favour of allowing charities to trade within the charity
339. Most of the evidence we received on this question supported reinstating the
Strategy Unit recommendation to allow charities to trade within the charity, subject to
a duty of care. The major advantage of allowing charities to trade within the charity,
we were told, would be to relieve them of the significant bureaucratic burden of
having to set up a trading company to trade. ACEVO told us:
"The current necessity to establish trading subsidiaries places a considerable burden
on charities [It] involves considerable costs, including professional advice and fees,
additional financial transaction, compliance costs and staff transferrals. These are of
particular significance to smaller charities.
"Managing trading subsidiaries demands double accounting procedures with respect
to VAT, management accounts, and tax returns. This makes allocating costs and
apportioning charity reliefs complex and problematic.
"To avoid tax charges, subsidiaries must donate their entire taxable profit to the
parent charity, making it difficult and expensive to build up working capital."
340. We received evidence from the National Coalmining Museum (a charity)
illustrating the problem. The Museum runs conferences and a shop with a turnover
exceeding 50,000. It therefore has established a separate trading company to run the
shop and the conference facilities. The same staff must be apportioned between the
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charity and the trading company. The Museum buys 20 loaves of bread but has to
keep two order books to record them. A record must be kept if a sandwich is
exchanged between the trading company and the charity. Running the trading
company costs the charity about 30,000 extra in staff time.
341. The Charity Commission, in written evidence, told us they too supported the
recommendation to extend the right of charities to trade . . . :
Against allowing charities to trade within charity
343. We sought evidence from the Federation of Small Businesses about whether the
proposals in the draft Bill would lead to unfair competition by charities against small
businesses. Mr Alambritis told us of:
"the impact on the smaller businesses next door, especially where there was a
common element as to what they sold. [Charities running] coffee bars are the classic
example, greetings cards is another one, crockery another. We have no objection to
the charitable status, to the fund raising; the only objection we have is to the business
rate tax break. That is the one element that small businesses are concerned about.
They would have no objection to the charity shop being next door provided the tax
system was relevant to all because they do see them as fairly aggressive commercial
institutions."
344. We also received a submission from the Charity Advisory Trust, who were
opposed to extending the power of charities to trade. They said:
"The Charities Advisory Trust's 'Charity Trading: a statistical analysis' shows that
trading income rarely produces significant income for charities. There is evidence that
there have been quite substantial losses through trading. Figures for 1995 - 2000
(incl.) show trading income as a proportion of income for the top 200 charities, by
income, was on average less than one quarter of a%. 10% of charities made losses
"The device of the wholly owned trading company has much merit. It isolates the
trading activity so it is easier to see if it is profitable or loss-making. Investment
(subsidy) in trading is easier to identify
"It would be regressive to return to this situation. Our experience in analysing charity
trading accounts is that when charities trade without using a separate trading
company, costs are not fully apportioned to the trading activity, so that the profit
levels are artificially enhanced the arms-length trading company ha[s] given charity
funds greater protection".[367]
345. The Minister also told us that she did not support the proposal to extend
charitable trading:
"Because the recommendation was to allow charities to not just trade to their
charitable purpose but to create a completely different kind of trading. I envisage the
risk that you could have within a charity someone who created some way of fundraising for the charity, the small bar in the village hall, who then started running a
212
chain of pubs, and that would be quite possible, and that could raise money which
went to charities. They could benefit from tax relief in terms of non domestic rates,
they could benefit from all the other tax reliefs we do not think that you could be
able to form an enormous company with all the tax benefits that would have which
could compete in the high street, which had charitable character. If you want your
profits to give to charity you could covenant them to charity and get the tax breaks in
that way and that would be the right way to do it". . . .
Rebuttal
347. In response to the Government's objection that tax-exempt trade would lead to
unfair competition with private business, CFDG and others told us that allowing
charities to trade within the charity would give them no tax advantage that they did
not already enjoy.
"the reality is that charities that want to trade already do so through a trading
company and avoid tax by transferring profits to the charity. It is unlikely that the
competition to small businesses would increase if charities were allowed to trade
through the charity".
348. CFDG and ACEVO also sent us evidence addressing a number of other
objections commonly made to further powers of trading by charities. These objections
were:
a) That trading might lead to increased risk to charity assets and exposure of trustees
of unincorporated charities to greater personal liability. CFDG argued that, if charities
followed the duty of care in the Strategy Unit recommendation, then risky forms of
trading would be carried out through a trading company and charity assets would be
protected.
b) That boards of charities lack trustees with the commercial acumen required for
trading. CFDG pointed out that this objection would apply to trade as currently
carried on though a trading company, since the same people would be running the
trading company.
c) That some charities might develop trading to such an extent that it became their
dominant activity, thereby bringing their charitable status into question and possibly
damaging public confidence in charities. ACEVO argued that there was nothing to
stop this happening currently as a result of trading through a trading company. . . .
Conclusion
349. This issue is the only major point on which the draft Bill does not follow the
Strategy Unit's proposals. Whatever recommendation this Committee makes, it is
likely to be a key matter for debate in both Houses when the real Bill is brought
forward. . . .
351. . . .[ L]ike the Minister, we are conscious that changing the rules on trading
within the charity might encourage charities to increase their trading activity
213
significantly. This would carry a number of risks. Firstly there could be loss of focus
on the charitable activity as unrelated trading activities increased. Secondly, where
that trade proved unsuccessful or even disastrous, with consequent loss of charitable
funds donated by the public (which would not be insulated against those losses), there
could be serious public disquiet. Another risk is that to justify increased unrelated
trade, the boards of charities could become unbalanced. There would also be the risk
that the more trading charities carried out, the greater the number of trading ventures
that would fail or be subject to scandal, which would also damage the charity brand.
The Charity Commission might wish to strengthen or issue guidance on procedures
for charities engaged on non-primary purpose commercial activity to disclose fully
what proportion of their income and expenditure relates to the costs of the
commercial activity.
352. We consider, however, that the other evidence we have received suggests that
there would be clear advantages to allowing charities to trade more extensively within
the charity - in particular, the savings smaller charities will make through avoiding
the administrative costs of having to run a trading company. We do not see that the
Government's stated objection to further powers of charitable trading - unfair tax
advantages to charities compared to private business - has been borne out.
353. On balance, we consider that further powers to trade are desirable provided there
remains some limit to them. That limit should be higher than the existing limit of
50,000 a year.
354. The Committee recommends that the draft Bill should be amended to allow
charities to trade within the charity and enjoy tax exemption on trading income
up to the point where income from trading equals 25% (or 5,000 if the greater)
of the charity's total turnover, but this should be subject to an overall limit
higher than the current 50,000 and the Government should consult on the level
at which that overall limit should be set.
5.3.3
Discussion Questions
214
6.2
NPO Accounting
215
217
Audits of NPOs
218
6.2.1
219
6.2.2
6.3
221
223
The standards on NPOs are the 21st of the standards that have been
developed, and thus are called FER 21 in German. A working group to
26 For a very detailed statement regarding accounting for PBOs, see Charity Commission,
Accounting and Reporting for Charities: Standard of Recommended Practice (SORP) (2000) at
http://www.charity-commission.gov.uk/publications/pdfs/sorptext.pdf.
215
India. In India the private organization AccountAid India has not itself
promulgated any accounting standards, but it has developed a website that
provides considerable information as well as a listserve that provides users
with timely updates on accounting issues for Indian NPOs. Some of the
issues that are important in other countries are addressed on the site. For
example, one part of the site refers to the accounting standards developed by
the Swedish International Development Agency that are applicable to their
donees/contractors in India. It addresses, among other issues, how an NPO
216
should account for revolving credit accounts if the NPO makes micro-credit
loans. See www.accountaid.net.
6.1.1 Charity Commission Standard of Recommended Practice (2005)
217
6.2
Financial Audits.
218
The task of the auditor is to verify the fitting nature of activities run by non-profit
organizations and the suitability of persons running such organizations. These issues
should be decided in accordance with the following principles:
Activities do not infringe upon existing laws, particularly the Law of Non-Profit
Organizations.
Proper management, fiscal responsibility, fairness and honesty.
Activities must be directed towards realizing the goals of the organization.
219
The auditor will submit a report at least once a year but preferably once a quarter.
The report should be written accurately and clearly and should be divided into three
sections:
Section I General information on the organization and its sphere of activities and
how it works to achieve its goals.
Section II - Description and analysis of the organizations current state of affairs and
a presentation of conclusions.
In this section, results of the audit are presented according to the following topics:
Salary levels of employees, in particular those holding management
positions.
Decision-making process and implementation.
Issuing of contracts and tenders and their implementation.
Management of the organizations assets.
Bookkeeping.
Management of funds.
Financial obligations and liens.
Economic situation of the organization and use of its financial resources.
Correction of defects revealed in the past.
Additional topics related to the organizations activities.
Section III
1. Summary of the findings and recommendations and a report on whether defects
revealed in previous reports were corrected.
2. Recommendation for a General Assembly meeting to approve the financial report
and specification of conditions for approval.
3. The auditors report and financial reports are to be discussed at the General
Assembly meeting and submitted to the Registrars office.
Yours sincerely,
Amiram Bogot, adv.
Registrar of Non-Profit Organizations
220
6.2.2
Background
The Canada Corporations Act does not require
disclosure of corporate financial records. It
requires not-for-profit corporations to keep
detailed accounts and to have their accounts
audited, but it leaves disclosure largely to the
discretion of the organization.
Framework proposal
Require that not-for-profit corporations make
corporate financial statements available to
members, directors, officers, and the Director
A central goal of the proposed Act is to increase
transparency and accountability within the sector.
One of the most effective methods of attaining these
goals is to require that corporations disclose their
financial dealings to their members and to the people
who run the organization. Reflecting this, the
proposal contains provisions compelling
organizations to make their financial records available
to members, directors, officers and the Director.
Under this proposal, directors and officers of the
corporation would have the right to view the financial
statements so that they can properly manage or
supervise the management of the corporation.
Members would be given access to the statements so
that they might be able to monitor the financial
situation of the corporation between annual meetings,
and make sure that the funds of the corporation are
used to pursue the objectives of the corporation.
To prevent requests for copies of the financial
statements from becoming a financial burden on the
corporation, members would be required to pay for
copies requested at any time before the notice of the
annual general meeting is sent out by the corporation.
The fee charged by the corporation would have to be
fair and reflect only the actual cost to the corporation
of copying the documents.
To balance the need for accountability and
221
Option
Allow corporations to decide whether or not to
disclose their financial statements to members
This option would allow each organization to
decide whether or not members should have
regular access to the financial records of the
corporation. Organizations that place an
emphasis on transparency and accountability
would be free to provide open access, perhaps
access beyond that anticipated in the framework.
Other organizations that place a greater emphasis
on the need for privacy would be free to limit
access to the records.
This follows the basic goals of the framework
permissiveness and flexibility. Each organization
would be allowed to make the decision for itself
222
6.3
223
Chapter 7 TAXATION
7.1
7.1.1
224
7.1.2
225
7.1.3
226
228
7.1.4
7.2.
7.3
7.4
224
233
235
235
7.2.1
235
7.2.2
236
7.2.3
237
7.2.4
Discussion questions
242
242
7.3.1
244
Discussion Questions.
246
7.1.
224
NPOs in countries around the world, for the tax laws do not ordinarily
include such items in the definition of income.27 For example, Section 102 of
the Internal Revenue Code of the United States excludes gifts from income
with respect to all taxpayers. The theory is that the donor has already been
taxed on the item, and to include it in the income of the donee would subject
it to double taxation.28
8.1.2 Tax exemption for passive investment income. In most countries PBOs
are not subject to tax on passive investment income i.e., interest,
dividends, rents, royalties, and gains from the sale of capital assets. Issues
arise as to what is passive (e.g., when does the percentage of ownership of a
business ownership confer sufficient ability to control management to convert
it into an active trade or business?). In many countries, the passive income of
NPOs that are not PBOs is taxed.
7.1.2 Polish Science Foundation Case
Section 17(1)(4) of the Corporate Income Tax of Poland subjected foundations
to tax on income that is not expended for their statutory purposes. The
Foundation for the Advancement of Polish Science and Arts, which had been
established and endowed generously by the Polish government, invested the
bulk of its funds in shares of stock and government bonds. It spent income
from these investments to support scientific research and investment and
support projects that benefited Polish science and art. The Fiscal Supervision
Inspector found that the investments in stocks and bonds did not constitute
expenditures to support the objects of the Foundation and imposed tax on all
income so spent. The position of the tax authorities was upheld, first, by the
Warsaw Fiscal Chamber and then by the Chief Administrative Court (twice).
On an extraordinary appeal to the Supreme Court, that Court ruled 7-0 for the
taxpayer on 13 March 2002. By the time of this decision the value of the
asserted tax plus interest was PLN 160,000,000, which was more than US$ 40
million.
The Supreme Court of Poland observed that the Foundation had a duty to
preserve its endowment. This duty was a minimal standard under the laws
applicable to member states of the European Union. Polish laws should be
interpreted to ensure consistency with laws of the EU. There was no
requirement under Polish law that all income be expended immediately.
Like other gifts, donations, and subsidies received by religious, charitable, or educational
institutions, grants are ordinarily not treated as being subject to tax. Some grants may look
like contracts or even be in the form of a contract, but the proceeds of such a contract will
generally not be taxed so long as the NPO is receiving funds to provide goods or services to
third parties. If the contract is one to render goods or services to the contractor, however, the
proceeds of that contract may properly be treated as income from a business activity.
28
It is clear, of course, that if the donation to a PBO is also given a tax preference, there is a
double tax benefit exclusion for the donee and a deduction or credit for the donor.
27
225
226
227
228
1.
General Principle
It is now confirmed that the exemption of NPOs from commercial taxes remains
a general principle, and their liability the exception.29 In order to guarantee the
principle of equality before tax and avoid distortion of competition, NPOs
engaging in business activities are liable for commercial taxes i.e., VAT,
professional tax and company tax. The criteria established by the doctrine des
uvres (fiscal instruction of May 27, 1977) in order to determine the social
utility, and therefore whether an NPO is tax exempt, is repealed. New criteria
have been established.
Furthermore, according to the instruction of February 19, NPOs performing
economic activities will be exempt from VAT and professional tax when:
The turnover of the organization engaging in the delivery of goods, the sale
of goods to be consumed on the premises of an establishment, or lodging
activities, is less than FF 500,000 per year.
2.
Yes
NPO liable for commercial taxes
STEP 2
29
30
Yes
229
Go to step 3
STEP 3
Yes
Profits are not distributed either directly or indirectly, but used for
the statutory purposes of the NPO.
Since the last two points are self-explanatory, the only issue is when the
management of the NPO is considered to be on a voluntary basis.
Prior to the latest ministerial instruction, it was required that directors not be
remunerated.31 However, it is now accepted that they may receive 75% of the
minimum wage (SMIC)32 as compensation for work performed in the NPO,
in-kind contributions, bonuses and reimbursement of unverified expenses.33
Payment of rent at market rate for property used by the NPO or the payment
of a reasonable salary to a relative of the director who is employed in the
NPO are not to be considered as grounds for disqualification of the NPO.34
Organismes sans but lucratif, critres dapprciation de la non-lucrativit, nouvelles
rgles , Edition Francis Lefvre, FR 46-98, p. 7.
32 SMIC (Salaire Minimum Interprofessionnel de Croissance) is the minimum monthly salary
an employee should receive. The SMIC is established by the government.
33 Undated document by the tax authorities addressed to the Interministerial Delegation to
Social Innovation and Social Economy published in Edition Francis Lefvre, FR 24-99, p. 3.
34 Ministry of Economy and Finance, Nouveau rgime fiscal des NPOs, Coll. Guide pratiques, La
Documentation Franaise, Paris, 1999, p. 21.
31
230
The product
231
The public
The price
The price established for the provision of a good or service must be:
Significantly lower than the market price (commercial taxes paid by
business entities must be subtracted in order to compare the
prices);41
Sanctioned by public authorities; or
Variable, depending on the situation of the public.
2.3.4.
Publicity
39Nouveau
232
233
234
Discussions Questions
What do you think about the French and South African rules for
taxation of commercial activities as opposed to the rules in the
US?
Should investment income be taxed when received by NPOs that
are not PBOs notwithstanding the non-distribution constraint?
In the United States, the tax law defines an organization for which the
charitable contribution deduction is available as -a corporation, trust, community chest, fund or foundation
created or organized in the United States . . . ;
organized and operated exclusively for religious, charitable,
scientific, literary or educational purposes . . .
no part of the net earnings of which inures to the benefit of
any private shareholder or individual; and
which is not disqualified for tax exemption under section
501(c)(3) by reason of attempting to influence legislation,
235
236
237
Istvan Csoka
A summary of the Act CCXVI of 1996 on the use of a specified portion of personal
income tax according
to the designation of the taxpayer (as amended by the Act CCXIX of 1997)
The Act CXVII of 1995 on Personal Income Tax grants private individuals the right to
designate, in a statement, the use of a specified portion of their tax paid for the
taxable year. For the purpose of the Act CXXVI of 1996, tax paid is the amount which
is left after deductions have been taken from the amount due on the consolidated tax
base in the individual's tax return or in the employer's account, if made in lieu of a
tax return. It is required that the private individual has paid his tax prior to the
deadline for submitting tax returns and has not been allowed to defer payment or
received a postponement of payment beyond September 30th in the year of the
designation statement.
1. Extent of the 'Specified Amount
The 1996 version of the Act on the Use of a Specified Portion of Personal Income Tax
According to the Designation of the Taxpayer limited the possible designation to one
percent of the tax paid. The change in the system for church financing has initiated
the 1997 amendment. According to the law in force, private individuals may "offer"
one percent of their personal income tax to the civil sector and an additional one
percent to churches. Each of the two amounts must be at least HUF 100.
If an individual has designated the above-mentioned specified amount(s), and the
transfer has already occurred, the amount cannot be modified later on as a result of
either a revision by tax authorities, or a self-revision by the individual. If one of these
revisions finds that the tax amount due on the consolidated tax base is lower than the
amount on the tax return, the individual must pay the difference between the
specified amount and the actual amount which will be designated, only if this
amount is at least HUF 1000 and has been transferred to the beneficiary.
2 Beneficiaries / Beneficiary Organizations
The Act recognizes two categories of potential beneficiaries. Certain organizations of
the civil non-profit sector belong to the first, while churches and advance
(earmarked) budgetary purposes belong to the second. The Act determines the
requirements of the beneficiary status differently for the two categories. Taxpayers
are permitted to designate only one beneficiary for each category for any tax year.
2.1. Beneficiaries in the first category:
a. Civil society organizations, with the exception of political parties and interest
groups for employers and employees, which were established on the basis of the Act
II of 1989 on Freedom of Association and foundations fulfilling the following
requirements constitute one "component" of this category. They must be registered
by the court at least three years prior to the first day of the year in which the
designation statement was made and they must effectively pursue a public benefit
activity as defined by the Act on Public Benefit Organizations and set forth in their
founding documents for at least one year before the first day of the year in which the
designation statement was made.
b. Public foundations pursuing public benefit activities also belong to this category.
238
These organizations have additional criteria with which they must comply. These
provisions require that these organizations:
- have their headquarters in Hungary;
- operate for the interests of the domestic population, or of ethnic
Hungarians living outside the country;
- declare that they do not pursue direct political activity, their
organizations are independent of political parties and do not provide
them with financial support (in addition, they must amend their
founding documents accordingly; direct political activity includes
political party activity and the nomination of candidates for the
Parliamentary elections and the elections at county, or Metropolitan
level);
- declare that they do not have public debts due and registered by the
Customs -and Excise Guard, the social security administration, or
state tax authorities;
- obtain a certificate, issued within the previous 30 days, from the local
government tax authorities confirming that they have no registered
public debts due;
- declare that they effectively pursue a public benefit activity as
defined by the Act on Public Benefit Organizations, in accordance
with their founding documents, uninterruptedly for a period of not
less than one year prior to the year of the designation statements, in
compliance with all legal provisions relating thereto.
If an organization has registered public debts due, it still can be beneficiary, provided
that it complies with all the other requirements. In addition, it must inform the tax
authorities to use the amounts transferred by the designation statements to pay its
public debts and provide the names of the organizations to whom the debts is owed
and the order of paying the debts.
c. Certain national public collections and other cultural institutions (e.g. the
Hungarian National Museum, the Hungarian State Opera, the Hungarian National
Gallery, the National Theatre, the National Archives), the Hungarian Academy of
Sciences, the Central Fund for Technological Development, the National Scientific
Research Fund, the Child and Youth program, the Higher Education Development
Program, the separate state financial fund, theaters, public collections, institutions of
public education which had received an individual subsidy from a local. government
or from the central budget in any of the three years prior to the first day of the year in
which the designation statement takes place, the building program of the new
National Theatre also belong to the first category.
All the organizations in this category must publish a record detailing the way in
which the transferred funds were spent through October 31st of the year following
the year of the transfer.
2.2. Beneficiaries in the second category:
a. Any church, religious denomination or religious community established under the
Act IV of 1990 on Freedom of Conscience, Religion and Churches (hereinafter
churches), belongs to the second category if they were registered by the court before
239
the first day of the year in which the designation statement was. However, an
organizational unit or institution of a church cannot be a beneficiary.
b. Any advanced or earmarked purpose defined by Parliament in its chapter in the
Act on (State) Budget relating to the year of the designation statement also belongs to
this category.
The Office for Taxation and Financial Control provides the beneficiaries in this
second category with "so-called" technical numbers. For an advanced budgetary
purpose, this is an ex officio obligation of the president of the Office. Churches may
obtain technical numbers based on their application and the certification of their
registration.
3. Invalid Designations
The following instances are examples of an invalid designation statement
enumerated by the Act:
a. The private individual has designated the one percent of his tax
paid to two or more beneficiaries, or the designated one percent is
below HUF 100.
b. Both of the two beneficiaries belong either to the first, or to the
second category of organizations.
c. The designation statement contains incorrect or illegible tax (or
technical) number, or no number at all, except, if the church or
earmarked budgetary purpose can be identified without it.
d. The designation, the envelope, or their filing/forwarding does not
comply with the prescribed rules.
e. The beneficiary of the first category does not fulfill the requirements
as instructed by the Office, or does not fulfill its obligation relating to
statements and information.
4. Designation Procedure
An individual taxpayer may make designation statement(s) on a form which can be
obtained at the Office for Taxation and Financial Control or on a sheet of paper of the
same size and the appropriate information on it. The tax number, or in case of
organizations belonging to the second category of beneficiaries, the technical number
of the beneficiary must be indicated on the form in every case. The indication of the
name of the beneficiary is not mandatory. Taxpayers must put the completed
designation form(s) into a postal standard size envelope, seal it and write their name,
address and tax identification code on the envelope. They must place the envelope
containing the designation statement(s) in their tax return package. In the event that
the personal income tax is reported by the employer in stead of an individual tax
return, the individual must give the designation statement in the envelope to the
employer no later than March 25th of the year following the taxable year. In the latter
case, individuals must sign the sealed side of the envelope. The employer gives a
receipt about the delivery of the envelope. The employer is not privy to the content
of the statement. He must send the intact envelope, together with other information,
to the competent tax authority in accordance with the rules governing the employees
tax account in lieu of the individual tax return.
5. Obligations of Tax Authorities
240
241
Minister of Financial Affairs publishes a report on the second category, detailing the
number of designation statements and the amount due to each of the beneficiaries as
of September 15th of that year.
5.4. Control
The funds transferred to the beneficiaries in the first category are considered
budgetary support of such a nature, that tax authorities are entitled to control the
appropriate use of such funds for public purpose activities. If the funds are not used
for public purposes, tax authorities can adopt a resolution which can require the
funds that be repaid.
7.2.4
Discussion Questions
Which treatment of tax benefits for donations seems best for the taxpayer?
For the charity? For the fisc?
Should tax benefits be available to non-itemizers in the US? If so, how would
you correct the system to provide for that?
242
243
any input VAT on supplies that are related to exempt outputs falls
on the NGO that provides the outputs.
If the economic activities of an NGO are below the annual threshold
that requires registration as a taxable person, the NGO is said to
be excluded from or not covered by the VAT system.
An excluded NGO may often voluntarily choose to be a VAT taxable
person in order to get into the VAT system.
If a supply is exempt from VAT, no VAT can be charged or collected
by the seller and, absent some special provision, no refund, credit,
or deduction can be claimed by the seller on any of the input VAT
related to the exempt supply that has been sold.
Conversely, a purchaser of an exempt supply pays no VAT to
acquire it and thus has nothing with respect to which to claim a
refund, credit, or deduction if that supply is used in connection
with a supply that is sold in a vatable transaction.
The burden of output VAT falls on any NGO that provides non-exempt
supplies gratuitously, rather than on the beneficiary that receives
those supplies.
A supplier that transfers vatable supplies gratuitously must pay output
VAT on the market value of those supplies, but can claim a refund,
deduction, or credit for any related input VAT.
If the sale of a supply is zero-rated, no VAT is charged or collected
by the seller, but the seller can claim a refund, credit, or deduction
on any input VAT related to the supplies that have been sold.
Under an export credit VAT system, which is the most common sort,
no VAT is charged or collected on supplies that are exported, but a
full credit can be claimed by the seller/exporter on any input VAT
related to those supplies.
When vatable supplies are imported, the purchaser, in addition to any
customs duty that is applicable, must pay VAT on the higher of the
price or market value of the imported supply.
Although exemptions from regular VAT or import VAT generally
apply with respect to particular kinds of supplies (e.g., books,
humanitarian assistance), sometimes they are also limited to the
purchase or sale of such supplies by a particular kind of person,
such as an NGO.
7.3.1 Discussion Questions.
1. Under what circumstances and why would an NGO that is not
required to register as a VAT taxable person want to do so voluntarily?
2. Under what circumstances and why would an NGO that provides
exempt supplies, either gratuitously or for a price, advocate the repeal
of the exemption for those supplies?
244
it is provision of goods, works and services effected by noncommercial organizations for healthcare, education, science,
culture and sports institutions;
it is provision of goods, works and services effected by noncommercial organizations for social security and protection of
children or low income elderly;
it is provision of services effected by healthcare, education, science,
culture and sports institutions;
it is provision of services effected by educational organizations
engaging in satisfaction of spiritual needs; [or]
4. More generally, although European countries oppose exemptions for input
VAT because they distort competition, they allow exemptions for some
outputs. Why the difference?
245
7.4
246