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The Perils of Inadequately Documented Affiliations

In Asian Outreach Canada v. Hutchinson (a 1999 decision), the Ontario Superior Court of Justice declined to issue interlocutory injunctions against the former and current affiliates of a foreign religious organization. The case demonstrates the perils of operating through affiliates unless the relationship is adequately documented.

1. Facts

Asian Outreach International ("AOI") was a Hong Kong-based charity that acted as a coordinating body and provided a leadership role in advancing the work of Asian Outreach, a term which refers to a group of religious charities and their supporters in 27 countries that co-operate in organizing and funding Christian missionary activities in Asia.

Asian Outreach Canada ("AOC") was incorporated under the federal law of Canada in 1973 and was a registered charity for Canadian tax purposes. Asian Outreach International Canada ("AOIC") was incorporated under provincial law in 1989 and had applied for registered charity status in Canada.

In September 1998, AOI purported to terminate the mandate or privilege of AOC to transact any business in the name of Asian Outreach. The apparent reason for the purported termination was that AOC's funding to AOI had declined precipitously from $214,000 in 1996 to just $18,000 in 1998 (a decline of 92%).

AOI then purported to appoint AOIC as its representative in Canada and appointed as its executive director Reverend Hutchinson, who had previously been employed by AOI.

AOC commenced an action against AOI, AOIC and Reverend Hutchinson, seeking various types of pre-trial injunctive relief including orders prohibiting them from using the words "Asian Outreach" in their corporate names and passing themselves off as the Canadian office of Asian Outreach, and requiring the defendant to pay over to AOC any donations that they received.

AOI and AOIC countered, seeking injunctions to prevent AOC from passing itself off as the representative in Canada of AOI or Asian Outreach, using the words "Asian Outreach" in its corporate name, using the AO logo and directing public attention to its services through the use of various trade-marks in a manner likely to cause confusion in Canada between AOC's services and those of AOI or AOIC.

2. Rulings

Justice Cullity of the Ontario Superior Court of Justice found that AOC's case for an injunction with respect to the use of the name "Asian Outreach" was not strong.

With respect to the claims of AOI, there was uncertainty with respect to the various entities that made up Asian Outreach. This made it difficult, before trial, to determine whether AOI had the right to license the constituent national bodies to use the trade-mark or trade name "Asian Outreach" or the logo, and whether these trade-marks, names and logos were to be regarded as owned in common by all members of Asian Outreach or by each national member within its own territory.

Under the circumstances, he declined to issue any of the injunctions requested by any party. He stated that donors must be free to choose the entity that is to apply their donations to the religious objects that they wish to support, and that it would not be a proper exercise of his discretion to give one side or the other the advantage it was seeking while the matter proceeded to trial.

It was imperative that prospective donors not be misled so as to confuse AOC with AOI or AOIC, and vice versa, while the proceedings were pending. Therefore, the termination of the association or affiliation between AOC and AOI must be made clear to those from whom funds are solicited or whose support is otherwise sought.

3. Key Observations

The key lesson from this decision is that the international organization, AOI, needed to carefully register its ownership of the relevant trade-marks (including the name "Asian Outreach" and the logo for "AO" in Canada) before establishing a relationship with a stand-alone corporation incorporated in Canada.

Furthermore, AOI needed to develop and require AOC to enter into a written affiliation agreement and a trade-mark licence for the name and logo. Clear termination rights (whether for cause or for convenience, or both) would have been included in the affiliation agreement and related trade-mark licence. Also, the affiliation agreement could have established parameters for raising funds for Asian Outreach in Canada and the payment of those funds (net of expenses) by AOC to AOI. The agreement should have included provisions for periodic financial reporting and audit rights to ensure that donations were not diverted from AOI.

Had AOI taken these steps, it might well have had a different result on its application for an interlocutory injunction. As it was, it could not ask the court to fill in the gaps in documenting its relationship with its former Canadian affiliate, AOC.

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