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F.A.C.T.Net does not sell documents, it only lends them according to the terms of your library cardholder agreement with F.A.C.T.Net, Inc. ===================================================================== Queen's Bench of Alberta\Calgary 95893\Page.00001 IN THE COURT OF QUEE~'S BENCH OF kLBERTA JUDICIkL DIS~RICT OF CkLGAKY ~ETWEEN: CHURCH OF SCIENTOLOGY MISSION OF EDMONTON, CHURCH OF SCIENTOLOGY MISSION OF CALGkRY, and CHURCH OF SCIE~TOLOGY MISSION OF OLD STRATHCONA Plaintiffs - and - EVELYN HAMDON, LES JACKMAN, LORNk LEVETT, BETTY McCOY, BKENDON MOORE, WILLIAM REID, NEIL TAYLOR and DAVID WALLkCE Defendants MEMORANDUM OF LkW OF THE DEFENDANTS LES JACKMAN, LORNA LEVETT, BETTY McCOY, BRENDON MOORE, WILLIAM REID, NEIL TAYLOR and DAVID WALLACE Walsh Young Barristers and Solicitors 1500 Guinness House 727 - 7th ~venue S.W. Calgary, klberta T2P OZ8 Queen's Bench of Alberta\Calgary 95893\Page.00002 Index Page No. 1. Origin of Scientology ....................... 1 2. Philosophy and Theory of Scientology ......... 4 3. Organization of Scientalogy.................. 17 4. Religious Characteristics ................... 19 5. Commercial Characteristics .................. 30 a) Income and Expenses/Accounting Procedures .............................. 30 b) Auditing and Training Fees .............. 36 c) Sales Techniques/Business Tromotion/ Sales Commissions ....................... 42 d) Franchise Fees .......................... 43 e) Publishing .............................. 45 6. Income to L. Ron Hubbard .................... 47 7. Recruitment Techniques ...................... 50 8. E-Meter ..................................... 56 1 9. The Effect of Processing and Auditing ....... 72 10. Coersion of Members ......................... 82 ~ ' a) Security Checks ... ..~................ .... 82 b) Intensive Auditing/Physical Detention ............................... 84 c) Internal Discipline ..................... 86 d) Refunds ................................. 87 e) Disconnection fxom Family and Society ................................. 87 Queen's Bench of Alberta\Calgary 95893\Page.00003 -2- 11. Harrassment, Intidimat~on and Coersion of Critics .........................-....-... 91 a) "Fair Game" Law ......................... 91 b) Black PR ................... ............. 100 c) Malicious Criminal Prosecution .......... 108 d) Covert Activites ... ..................-. 112 e) Infiltration of Government .............. 114 f) Proj?ensi.ty to engage Cri.tics in Litigation .............................. 122 1 Canada ............~...........--..-. 122 A. British Columbia ................. 122 B. Alberta ...............-........-- 129 C. Ontaric .....................-.... 133 2. United States .....................-. 138 A. Suits Against Governments, Governrrlent Agencies and Officials, and E1ected Kepresentatives ...... 138 B. Actions Against lrivate Individuals Or Organizations ................. 156 3. 16t3 A. Actions Against Governments, Government Officials and Agencies, and Elected Representatives ...... 169 B. Actions kgainst Private Individuals or Organizations ...........-.-... 174 4. Australia ..................-.-...-.. i77 A. kctions kg~inst Governments, Government Officials and kgencies, an~ Eiected Re~resentatives ....... 177 Queen's Bench of Alberta\Calgary 95893\Page.00004 -3- 5. kctions Against Particclar Critics ... 182 ii. Paulette Cooper - "The Scandal of Scientology" ................... 182 B. Vosper - "The ~ind Benders" ....... 182 C. Kaufman - "Inside Scientology" .... 184 D. Malko - "Scientology: The New Religion" ......................... 185 Z. McLean Fa~ily ..................... F. iorna Levett ...................... i2. Reforms ...................................... 190 13. Need for Public Disclosure ................... 193 14. Action Against Scientology ................... 196 a) Inquiries into Scientology and its Practices ............................ 196 1. Australia ............................ 196 2. New Zealand ................... ....... 200 3. Canada ............................... 202 4. South Africa ................... ...... 207 5. Great Britain ........................ 210 b) Denial of Entry .......................... 211 c) Mis-laSelling and mis-branding actions against the E-Fleter ...................... 212 d) Denial for ~ax kdvantage ................. 212 e) Fraud Charges - Criminal and Civil ....... 212 Queen's Bench of Alberta\Calgary 95893\Page.00005 CASE AUTHORITIES i. Founding Church of Scientoloq_y v. United States, 412 F.2d 1197 (1969), U.S. Court of Claims. 2. i-Iubbard v. Vosper [1972] 1 All E. K. , Court of kppeal. Founding Church of Scientology of Washington, D.C. v.United St~t~~s 409 F.2d 1146 (1969), U.S.C.A., District of Columbia Circuit. 4. Church of Scientology of California v. The Commissioner of Customs and Excise unreported d Et C i S i On of The Value Ad d ed Tax Tribunal, November 29, 1977. - 5. Re Taams and College of Physicians and Surgeons, i3.C., 79 D.L.R. 3d 377 (1977), B.C.S.C.. 6. R. v. Registl: ar General, Ex parte Segerdal, [1970] 1 Q.B. 430, Eng. Divisional Ct.. 7. R. v. Reg i s t r ar General, Ex parte S eg e rd al [1970] 2 Q.B. 697, Court of Appeal. 8. Church of Scientology of California et al v. Kaufman et al [1973] R.P.C. 635I Chancery Division 9. Missouri Church of Scientology v. State Tax Commission of Missouri et al, unreported decision of the Supreme Court of Missouri, dated De cember 19, 1977. 10. Church of Scil'ntology of I'linnesota v. Department of Health, Education and PJelfare, 341 F. Supp. 563 (1971), U. S. D. C., D. Piinneso ta , (mis branding action). 11. C~iurch of ScientologY of California v. Kichardson 437 F. 2d 214 (197ij, U.S.C.k., (action again c: t 'ood and Dr~g Administration :or refusing entry of E-~eter due to ~isbranding). Queen's Bench of Alberta\Calgary 95893\Page.00006 12. Libelant v. An krticle of Gevice ... "Hubbard ~lectrometer" or "~usSard E-Meter" Etc.,_Founding Church of Scientology Et kl, unreported decision of U.S.D.C., July 30, 1971. kllard v. Church of Scientology of California, 129 Col. Rptr. 797, U.S.C.A. Malj~c~ous prosecution action brought by kllard, fo~me~ senior management officer for Church of Scientology. lt. Church of Scientology of California v. Green, 354 F, Supp. 800 (1973), U.S-.D.C.. i5. Church of Scientology of California v. The World Federation for Fi~ental Health, Inc. Supreme Court of British Columbia, kction No. C781910. 16. Church of Scientology of California v. United States Department of Justice, 410 F.Supp. 1297 (i97~), U.S.D.C. 17. In Re Search T4arrant Dated July 4, 1977, 572 F.2d 321 (1977), U.S.C.k. i8. Church of Scientology of California v. Simon, 460 F.Supp. 56 (1978), U.S.D.C. 19. Church of Scientology of California v. Cazares, 455 F.Supp. 420 (197S), U.S.D.C. 20. Church of Scientology of California, et al v. Dell Publishing Co. Inc. and George Malko, 362 F.Supp. 767 (1973), U.S.D.C. 21. Founding Church of Scientology of ~z'ashington, D.C. v Verlag et al, 536 F.2d 429 (1976), U.S.C.A. 22. Founding Church of Scientology of Washington D.C. _v~ American Medical Association et al, 377 N.E. 2d 158 (1978), Appellate Court of Illinois. 23. Church of Scientology of California v. Adams, Pulitzer PuSlishi.ng Co., Inc. et oi, 584 F.2d 893 (1978), U.S.C.A. ~l~i~-~L_v. Sr;creter;i of 5=ott. yror Iic~e ~:fairs jl~69] 2 CH. i:9, Eng. Cour~ o: ~p~eal Queen's Bench of Alberta\Calgary 95893\Page.00007 -3- 15. Ch~ of _S ci en tology of California v. jonnso n-Smith , [1972] 1 All E.FC. 378, QueeniS Bench. 26. Van Duyn v. The Hone Off j~ ce , [1~74] 3 kll E.R. 178, Chancery Division. ~7. Hubbard Association of Scientologists Internati. onal v. Anderson and Just, [1971] V.R. 7~S, Supreme Court of Victoria. 21. Hubbard Association ~ of 5cientolo9ists International v. Anderson and Just, [1~72] V.R. 340 HuSbard A~;sociation_ of Scientologists International_ v. Anderson and Just, [1972] V.R. 340. No. 2. 30. Hu bbard_ __ kS SO C i a t i On of S c i en tolog is ts International v. The Attorney General for the State of Victoria, [1976] V.R. 119, Supreme Court of Victoria, F'ull Court. OFFICIAL GOVERNMENT REPORTS 1. Enquiry into the Practice and Effects of Scientology, Great Britain, Report by Sir John G. Foster, K.B.E., Q.C., M.P., December 21, 1971 (cited as "Foster Report"). 2. Report of the Commission of Inquiry into Scientology for 1972, Repu blic of South Africa (cited as "South Africa Report"). 3. Report of the Board of Inquiry into Scientology, Victoria 1965 (ci~ed as "Anderson Report"). 4 . Re po r t of ~~the Committee on t~7.e Healing Arts, Ontario 1970. 5. Sectarian Hea:lers and Hypnothera~y - A Study for tne Conmitte_of ti~~Healing Arts, 1970. o. Repcrt of t~e Con~ission o: In~uiry, Hujb~rd Sci~ntoloay Or~anization in :;ew ~ealand,1~6~. Queen's Bench of Alberta\Calgary 95893\Page.00008 ~CTIO~:S fiEFERKED TO Queen's Bench of Alberta\Calgary 95893\Page.00009 1. ORIGIN OF SCIEMTOLOGY ' i) Foster Report, pp.21-23: 58. Before describing the organization, the finances, and the theories and practices, of Scien tology , it is necessary to say something abut their genesis. This lies exclusively with Mr . Hubbard , who is rightly described by Scientologists as their Founder . Mr . Hubbard is an American citizen, born in Nebraska in 1911 and raised in the State of Montanna. He is a man of many parts: at different times in his career he has earned his living as an explorer, a film producer, a United States Nava.l Officer, and a prolific writer of science fiction. His academic career is a little obscure: it seems that he attended the George Wash i ng ton Un ivers i ty in 1932 but left without graduating. He later rectified this omission by acquiring the degree of Doctor of Philosophy from the Sequoia University, Southern California, but the Anderson Board reported that this institution was not accred i ted with the appropriate U.S. Ed uca tional Authorities, and I have not seen this finding denied by the Sc i en tol og y le ad e r s h ip .He al so holds the degree of Doctor of Scientology which again according to the Anderson Board, he conferred on himself. * * ' 59. Mr. Hubbard :began to develop Dianetics in about 1948 and developed Sc i en tol ogy from it after about 1952. With very few exceptions, every book, pamphlet, article, journal and policy document printed, duplicated, distributed or published by Scientologists which I have seen bears Mr. Hubbard's name either as sole author or as the owner of the copyright. He is by common consent, a man of forceful personality, which comes through in his writings. Queen's Bench of Alberta\Calgary 95893\Page.00010 -2- 60. It is, as I understand it, not in dispute that Mr. Hubbard was the absolute ruler of Scientology at all events until :L 9 6 6 : all its theories, practices and policies stem from him, and he had t.otal de facto control over the organization. Between 1958 and 1968 (when the Home Office declared him as an undesirable alien and refused him further admission to Britain) he d irected Sc ien tol o ~y from its he ad q ua r te rs at Saint Hill Manor , East Grinstead, Sussex. Since then he appears to have transferred his He ad q u ar te r s to the high seas, spending most of his time on board one or other of the six vessels operated by the "Sea Org", cruising under the Panamanian flat. 61. In the course of answering one of my question- naires, the Scientology leadership told me that " in 1966 L. Ron Hubbard resigned from the active running of Scientology org an i 2 a t ions " . While th i s assertion is supported by the fact that Mr. Hubbard 's resignation as a director from a number of Scientology companies is recorded on their files at the Companies Register, a number of recent policy documents are less consistent with it. ii) Founding Church of Scientology v. United States, 412 F.2d 1197 (1969), U.S. Court of Claims, per Collins, J., at p.l198: Scientology is derived from the thoughts and writings of one L. Ron Hubbard . Its origin was an article written by Hubbard in the May 1950 issue of ASTOUNDING SCIENCE FICTION magazine, describing a new "science" c~lled Dianetics. Dianetics, the creation of Hubbard, was offered primarily as a psychotherapeutic technique Queen's Bench of Alberta\Calgary 95893\Page.00011 and was not presented as a religious discipline. Like its successor, Scientology, Dianetics employed a Hubbard E-Meter in its practice. In 1952 Hubbard began to focus his attention and his ene rgies upon Scien tology . He fo und ed the plaintiff organization and completely don;.inated every aspect of its affairs during the relev ant period . At the same time he continued to direct the growth and affairs of Scientology organizations throughout the world. iii) Hubbard v. Vosper [19723 1 All E.R., Court of Appeal per Lord Denning, M.R., at p.l025: Scien tology" is a word invented by Mr. iiubbard himself. He has invented a lot of other words too which he has set out in a Dictionary of Scien tology ; He defines it in this way: 'SCIENTOLOGY: An applied religious philosophy dealing with the study of knowledge, which, through the Gn~ 1 application of its tec hnol ogy can bring about j desirable changes in the conditions of life.' J ' In addition to the dictionary, he has written many books about this philosophy or cult. They also include "Axioms and Logics', 'Introduction to Scientology Ethics', 'Scientology 8-80', 'Scientology 8-8008', and 'Scientology - A History of Man'. All of them contain a large number of his invented words . They cannot be understood by anyone who is not versed in the cult. In ad3ition, Mr . Hubbard has written numerous bulletins and letters which have been circulated to members of the cult. These give many descriptions of ths workings of Scientology. Queen's Bench of Alberta\Calgary 95893\Page.00012 -4- 2. PHILOSOPHY AND THEORY OF SCIENTOLOGY i) From the written answer of the Minister of Health the Right Honourable Kenneth Robinson, Q.C., M.P., in answer to a Parliamentary Question, July 25, 1968, at pp.l-2 (presently the subject of litigation: Church of Scientology of California v. Minister of Health and Social Security Scientology has been defined in different terms at different times . Issue No . 13 of " The Auditor" (the scientology periodical) defined it as "Applied philosophy; the study of knowledge in its ful1est sense; a highly workable technology for changing co nditions; the largest "mental health" organization in the world".1 The basic premise of scientology is t_hat, recorded on the subconscious mind , are unhappy memories which distort the conscious personality. These are termed "engrams". The "engram" has been described as "an experience containing pain, unconsciousness and a real or fancied threat to survival. An engram is to a greatGr or lesser degree unavailable to the conscious awareness an~ its content has command value at the ~eactive level". Engrams are recorded from the day of conception: many consist of feelings of guilt arising from misunderstanding of discussions between the mother and someone else, ~r a pain inflicted as a result of the mother's activities in the pre-birth period. The damage caused by engrams to the development of personality can, it is thought, be removed by "auditing" or "process~ng". A "process" is a mental exercise designed to delete aberration from the human mind and to improve the pe r f o rm an c e of the mind's innate faculties. " P roce s s i n9 " is co nd uc ted by sc i en tolog is ts who are called " ~ ud i tor s " wh il e the i nd i v id u al u nd e r9 o i n9 processing i s Queen's Bench of Alberta\Calgary 95893\Page.00013 called a "preclear". The techniques of auditing have varied, but essentially they are designed to release the "preclear's" engrams and to allow him to realize his full potential as an ind iv id ual , at which point he is sa id to reach the state of "clear". The ultimate objective is to achieve the status of "operating thetan" (OT). According to the Anderson Report the " thetan" is " the word given to the awareness of awareness unit, the life source, the personality and the beingness of homo sapiens" ; and an "o perating thetan" has control over matter, energy, space, time, life and form. The techniques of "auditing" or "processi.ng" are mostly of a repetitive nature, involving repeated questioning of the " precle ar " sometimes overmany hund red s of hours on many topics. In many sess ions , use is made of an " E -me te r " , an electrical instrument which records , by the movement of a needle on a dial, the passage of an electric charge be twe en two electrodes. The "preclear" holds the electrodes while his "a~uditor" asks him questions and watches the movement of the needle as he answers. ii) Founding Church of Scientology of Washington, D.C. v. united States 409 F.2d 1146 (1969), U.S.C.A., District of Columbia Circuit, per J. Skelly Wright, Circuit Judge, at pp.l151-1152: Appellant in this case, claimants to the seized naterials, are ind iv id ual and corporate ad herents to the movement known as Scientology. The mov~3ment apparently rests almost entirely upon the writings of one man, L. Ron Hubbard, an American who maintained the headquarters of the movement in England at the time this action was brought. In the early 1950's, Hubbard wrote tracts elucidating what he called "Dianetics." 16 Queen's Bench of Alberta\Calgary 95893\Page.00014 -6- Dianetics is a theory of the mind which sets out many of the therapeutic techniques now used by Sc ientolog i. sts , incl ud ing techniques attacked by the Government in this case as false healing. The basic theory of Dianetics is that man possesses both a reactive mind and an analytic mind. The analytic mind is a superior computer, incapable of error, to which can be attributed none of the human misjudgments which create social problems and much indi.vidual suffering. These are traceable rather to the reactive mind, which is made up of "engrams," or patterns imprinted on the nervous system in moments of pain, stress or unconsciousness. These imprinted patterns may be triggered by stimuli associated with the original imprinting, and may then produce unconscious or conditional behaviour - which is harmful or irrational.17 Dianetics is not presented as a simple description of the mind, but as a practical science which can cure many of the ills of man. It terms the ordinary person, encumbered by the "enyrams" of his reactive mind, as a "preclear", by analogy to a computer from which previously programmed instructions have not been erased. Th e goal of Dianetics is to make persons "clear," thus freeing the rational and infallible analytical mind. The benefitc; this will bring are set out in considerable and a1l ur i ng detail. A1l mentald i so rd e rs are said to be caused by "engr ams , " as are all psychsomatic disorders, and that concept is broadly defined.18 A process of working toward "clear" is described as\ "a uditing." This process was explicitly characterized as "ther apy" in Hubbard "s bes t-sel1ing book DIANETICS: The I.iodern Science of Mental Health (1950). The process involves conversation with an "auditor" who would lead the subject or "preclear" along his "time track , " discoverin9 and exposin9 Queen's Bench of Alberta\Calgary 95893\Page.00015 "engra ~s" along the way. Though auditing is represen ted prinarily as a method of improving the spiritual condition of man, rather explicit benefits to bodily health are promised as well. Hubbard has asserted that arthritis, dermatitis, asthma, some coronary difficulties, eye trouble, bursitis, ulcers and sinusitis are psychosomatic and can be cured , and further t:hat tuberculosis is " perpetuated by II 19 engrams. A few years after the appearance of Dianetics, Hubbard began to set forth the broader theories of Scientology. Dianetics was explicitly endorsed as part of Scientology, "that branch * * * that covers Mental Anatomy."20 Testimony by Scientology adherents at the trial made clear that they continue to uphold the theories of Dianetics, though they feel that there may have been some errors in early formulations. With Scientology came much of the overlay which lends color to the characterization of the .movement as a religious one. Hubbard has cl a imed kinship be tween his theories and those espoused by Eastern rel ig ions , especially Hi nd ui sm and Buddhism.21 He argues that man is essentially a free and immortal spirit (a " th e ta n " in Sc i e n tolog ic al te rm inol og y ) 2 2 which merely inhabits the "mest body" ("mest" is an acronym of the words matter, energy, space, time).23 Man is said to be characterized by the qualities of "beingness," "h avingness ," and "doingness."24 The philosophical theory was developed that the world is l^onstructed on the relationships of " Af f i n i ty , " " Re al i ty " and " Commun i c a t i on , " wh i ch taken together are denominated "the ARC Triange."25 16. DIANETICS: THE EVOLUTION OF A SCIENCE (1958) (a work which apparently appeared in kSTOU1'jDING SCIENCE FICTIO~ magazine in 1950 - see A BRIEF BIOGK~PHY OF L. RON HUBBARD 8 (author not given, 1959); DIANETICS: Queen's Bench of Alberta\Calgary 95893\Page.00016 -8- THE MODERN SCIENCE OF MENTAL HEALTH (1950); SCIENCE OF S URVI VA L : PREDICTION OF HUMAN BEHAVIOUR (1951). In this and succeeding footnotes, where author is not given, the author is L. Ron Hubbard. 17. An exposition of the "fund amentals of Dianetics" of relative clarity and brevity is to be found in the publisher's introduction to SCIENCE OF SURVIVALI supra Note 16, at i-viii. 18. DIANETICS: THE MODERN SCIENCE OF MENTAL HEALTH, supra Note 16, at 91-108. 19. Id. at 92-93. In a later work, Hubbard brought cancer . within the scope of t r e a tm e n t by " a u d i t_ i n g . " See SCIENTOLOGY: A HISTORY OF MAN 21 (4th ed. 1961). 20. See SC I E NCE OF S URVI VA L , supra Note 16, at 1 n.l (apparently a footnote inserted into a later printing of this pre-Scientology book). 21. Se e , e . g . , L. RO~;I HUBBARD' S PA~3 ' s , BOOK 111 14-20 (1956). 22. See SCIENTOLOGY: THE FUNDAMENTALS OF THOUGHT 32 (1956). 23. See SCIENTOLOGY 8-8008 at 13-19 (3d ed. 1956). 24. See SCIENTOLOGY: THE FUNDE~ENTALS OF THOUGHT, supra Note 22, at 16. 25. See SCIENTOLOGY 8-8008, supra Note 23, at 20-44. Queen's Bench of Alberta\Calgary 95893\Page.00017 This s umm a r y of the theory of S c i e n t ol og y was app r o v ed and cited by IIJordbye, J., in Church of Scientology of I3innesota et ~1 v. Department of Health, Education and Welfare et al, 341 F. Supp. 563 (1971), U.S.D.C. at pp.564-5; by the United States Co ur t of apF'e al per Carter, J. , in Church of Scientology of California v. Richardson, 437 F.2d 214 (1971), U.S.C.A., at p.216, footnote 1; and by Levet, J., in Church of Scientology of California, Inc. v. Green, 354 F. Supp . 800 (1973), U.S.D.C., at p.801, footnote 1. iii) Founding Church of Scientology v. United States, 412 F.2d 1197 (1969), U.S. Court of Claims, per Collins, J., at p.l198:, Plaintiff is a District of Colunbia corporation organized in 1955 with its purpose, as stated in the Certificate of In(:orporation , "[t]o act as a parent church for the propagation of the religious faith known as 'Scientology,' and to act as a Church for the religious worship of that Faith . " The beliefs of Scientology center around the spirit or "thetan," which is said to reside within the physical body of every human being . Scien tologis ts believethat the spirit is immorta:L and that it receives a new body upon the death of the body in which it resides. They also believe that in the course of its various lives the spiritis inhi.bited by "detrimental aSerrations," or "engrams," whiclh result from misdeeds or unpleasant experiences. The objective of Scientology is to counteract this burden through "processing , " also called "auditing." This oSjective which is the principal practice of Scientology, attempts to make the person being audited, called a "preclear,"aware Queen's Bench of Alberta\Calgary 95893\Page.00018 of these aberrations and engrams and thus reduce the burdens and inhibitions affecting his spirit. Processing is performed by ministers of the plaintiff, or persons studying to become ministers, and is done in individual sessions with an auditor processing a single preclear th rough the use of a Hubbard Electro-Meter or " E-Me ter . " The E-Meter is an instr ument which indicates changes in electrical resistance in the preclear's body, and changes in such resistance are viewed as an index of the activity of the spirit. iv) K. v. Reg is trar General, Ex parte S eg erd al et al [1970] 2 Q.B. 697, Eng. C.A., per Winn, L.J., at p.708: With a mind so pre-conditioned, I feel that one does tend to think, when referred to the philosophy of this i particular body, that their Thetans, which seem to be i the most important creatures or beings in their world - their ideological world - are really very much the same as the demons of the Greeks, who came into the body at birth or on some other occasion when the owner of the body was a little careless to protect himself from their invasion, and thereafter lived in the body for many years but could only be exorcised by prdcesses similar to those which are recommended hereunder the name of "auditing": although auditing, 1 I gather, is rather for the cure and instruction of j the spoilt Thetan in order to remove the Engrams. But I just as the Egyptians and the Buddhists think all the time of the transmigrating souls, so it seems to me, just superficial1y ex amining the doctrines of this particular body, that they are concerned far more with the tran sn igration and ed uca t ion and develo~ment of Thetans than they are with God, in any shape or form, Queen's Bench of Alberta\Calgary 95893\Page.00019 - 11 - or any concept of a divine, s up e r h um an , al 1- pow e r f u 1 and controlling entity. v) Church of Scientology of California v. The Commissioner of Customs and Excise (U.K.), unreported decision of The Value Added Tax Tribunal, November 29, 1977, at p.6-7: Courses at Saint Hill Manor fell into two main groups, training courses and 'a uditin9' courses. A person desiring to take a course or courses at Saint Hill Manor is first assessed for suitability and directed to the course considered to be most suitable for him or her. For training courses a check sheet prepared and approved by Mr. Hubbard is provided which sets out the matters to be learnt and which also contains exhortations and instructions to the person supervising the course. The person taking a training course reads books written in the main by Mr. Hubbard and listens to tape re co rd i ng s mad e by h im. (We understand that there are nearly 2,000 different tapes - made by Mr. Hubbard containing his teachings of which 1,200 are available at Saint Hill Manor , each one taking approximately one hour to play.) The person taking the course is assisted by a supervisor present while he or she is working. In 'auditing' courses a supervisor (termed the Auditor) listens to the person taking the course (termed the Pre-clear) having directed certain predete rmined questions to him or her, the aim being to guide the person taking the course ' to think himself or herself and to achieve spiritual awareness ' . The process of auditing is a Queen's Bench of Alberta\Calgary 95893\Page.00020 fundamental practice of Scientology and is often described as ' pas toral counselling' . It can involve the use by the supervisor of an instrument termed an 'E-Meter', a modern adaption of the Wheat.stone Bridge designed to measure physical responses to mental stimuli. An 'E -Me te r ' is said to reveal 'engrams' in t.he person taking the course, an 'engram' being said to be 'a mental image picture which is a recording of a time of physical pain and unconsciousness' which must be 'cleared' to enable the ind iv id ual to become free from all psychoses, neuroses, compulsios and repressions. and at pp.22-24: Miss Browne, the Senior Chief Inspector for the Ministry of Ed ucation and Science, was called as an expert on school E'ducation but, having had 14 years experience of t.eaching at Lo nd on and Ox ford Universities, was asked to comment also on the University education aspect. She drew a distinction between the dogmatic or didactic approach to study of scientology adopted at Saint Hill Manor and the academic approval to s t ud i e s ad opt edat Un ive rs i t ie s where students have access to a wide range of backg rou nd information concerning their subjects, and are expected to use and develop their critical faculties. Final1y Dr. Hill, the Professor of Econ omics at the Universit.y of East Anglia, stated that Scien tology consisted of a number of dogmatic assertions mad e by Hubbard unsupported by Queen's Bench of Alberta\Calgary 95893\Page.00021 reasoning or reasoned analysis. As a result the reasoning upon which such assertions were based was incapable of study or logical criticism, and no research on such assertions or reasoning could take place or was conducted at Saint Hill Ilanor. Moreover he regarded resea:rch as a necessary ingredient of education at a University. Finally he stated that, in his view, Scientology was not acceptable or suitable for inclusion in a University course. * * * For this latter purpose we accept the evidence of Dr Thomas and Miss Browne that we should take account of the extent to which students at Saint Hill Manor and such Universities respectively are encouragec! and required to extend their reading and to exercise their critical faculties. In our view, only ~f the teaching at Saint Hill Manor is comparable i.n depth to the teaching of the same or such other similar subject at Universities in the United Kingdom can it be sa id that the former provides 'education of a kind prov ided by a University' . In coming tosuch conclusion we are irejecting most of the expert evidence given for the Appellant Company. We do so because we consider that such experts laid undue stress on the modern teaching me th od s employed at Saint Hill Manor , such as tapes and tape reco rd er s , and gave insufficient weight to the content of the subject taught and the intellectual level of the teaching and study required to make what was taught comparable to University education. Scientology is not taught as such at any Universi~y in the United Kingdom, and there is no evidence that it is studied at any such University as part of a wider course. But it can be described as the rel i9 ious philosophy of Mr. Hubbard and therefore, in our view, we must compare the training courses ~t Saint Hill Queen's Bench of Alberta\Calgary 95893\Page.00022 Manor with University courses in theology and philoso- phy, in relation to the teachings of man. So, do the training courses at Saint ~ill Manor go into the reli- gious philosophy of Mr. Hubbard in the same depth (as we use that expression) as such parts of the Univer- sity courses in theology and philosophy? In this re- gard we take the view that they do not. The teachings of Mr. Hubbard consist of a number of authoritarian assertions un s uppor te d by log ical reasoning . These consist of the 'dogmas' of Scientology. The reasoning b e h i nd the ' dogmas ' is not. propo und ed , explained or explored as the dogmas of a religious faith are pro- pounded, explained and explored in a theology or phil- osophy course at a University, or a religious Found- ation such as Carr~pion Hall at Ox ford . The training courses at Saint Hill Manor consi.st of the transmis- sion of Mr. Hubbar-d's religious and philosophical as- sertions to the students through the medium of tapes mad e by Mr . Hubbard andbooks written by him. The staff at Saint Hill Manor are instructed to transmit Mr. Hubbard's teachings and not to interpose their own views or interpre t:ations. They do not interpret the subj ect taught or interpose their own personalities, views and explanations in which University lecturers are encouraged and ex pec ted to do. The students at Saint Hill Manor confine their studies there to teach- ings of Mr. Hubbard, and are not expected to exercise or develop their critical faculties in relation there- to. As a result Scientology is not , in our view, taught at Saint Hill Manor in the same depth as the religious or philosophical teachings of an individual such as, for example, the te ac h i ng of De s c ar te s is studied and taught at a University. kccordingly we take the view that the training courses do not fall withln the relevant exe~ption from tax. Queen's Bench of Alberta\Calgary 95893\Page.00023 vi) Re Taams and College of Physicians and Surgeons, B.C., 79 D.L.R. 3d 377 (1977), B.C.S.C.. The reported decision concerns an appeal by Dr . Taams, a Scien tologist, from a decision of the College of Physicians and Surgeons suspending Dr. Taams for, inter alia, "utiliz[ing] methods of treatment which are not recognized by medical science and which are not founded upon responsible medical experience or research." The decision of the College was affirmed. In reviewing the decision of the discipline committee of the College, the Court state as follows, per McDonald, J., at pp.388-6: The first passage in the report lof the discipline Commi t tee of the Col1eg e] objected to as revealing bias against scien tology , refers to a text, ex. 43, entitled "Scientology 0-8". The report, dealing first with the introductory section, states: "This section of the volume and passages elsewhere in the v ol um e and other vol um e s , displays an arrog ance that cannot be accepted in any dedicated seeker of the truth. It is clearly written by a small-ninded person and is addressed to the small-minded." That is not an unfair assessment. Certainly, the arrogant pretensions of the book would offend an intelligent reader. Farther on, the report mentions ex. 44, the text "Dianetics: The Original Thesis" . The Committee says: "lt is very difficult to find anything in the early part of this volume to lure one on to further reading. It seems to be addressed to persons who have a tendency to become involved in science fiction, mysticism or any fad philosophy." r/- Queen's Bench of Alberta\Calgary 95893\Page.00024 That is not an unfair comment. The report contains this passage: "Whilst quotations from the text submitted as exhibits do not give a full rou nd ed picture of Dianetics or Scientology, they are quite sufficient for all the purposes of this inquiry in that they indicate an enm i ty toward s the med ical profession and the psychiatric specialty in particular and claim the ability to heal not only psychiatric but also physical disabilities. In making our assessment of the ev id ence s ubm itted to us by both sides and in particular the evidence of Dr . Taams , the teachings set forth in these publications are certainly most relevant. The conduct of and the explanations given - by this practising psychiatrist who ad heres to the creeds of Scientology and Dianetics must be judged in the shadow of the philosophy and views of Hubbard." In my opinion, those are valid statements. Queen's Bench of Alberta\Calgary 95893\Page.00025 3 ORGANIZATION OF SCIENTOLOGY liffidavit of FBI Special Ag e n t Robert Tittle, July 1977, in support of a search warrant to search for and seize documents in Scientology offices in h'ashington, D.C. and Los Angeles, at p.3: The Founding Church of Scientology was established in the early 1950's by L. Ron Hubbard who remainsthe highest official of the Church. The Church is organized into two main divisions: the "sea Organization" and the "Guardian' s Office." The Sea organization (so-called because it was originally Sased on ships at sea) has its headquarters in Clearwater, Florida. Its main function is to adminster the d ay - to-d ay operations of the various churches and missions in the United States and abroad; The Guardian's Office, on the other hand, is charged with the overall protection of Scientology -- safe- g u a rd i ngof the e nv i r o nm e n t within wh i c h the Church exists. The chief officer of the Guardian's Office is Mary Sue Hubbard, L. Ron Hubbard's wife. The "Guardian Office World-Wide" is located in East Grinstead, Sussex, England, and exercises overall supervision over subsid iary Guard ian offices located elsewhere about the world. It is headed by Jane Kember, the "Guardian World Wide." [See Appendix I.] It is divided into five bureaus -- Information, Public Relations, Legal, Finance and Social Coordination. The United States subsidiary of the Guardian's Office is located at Fifield Manor, 5930 Franklin Avenue Hollywood, California, and is heaaed by Henning Heldt. It in turn exercises supervision over all the local Guardian Offices throughout the Unjted States. [See kppendix Il.] The Deputy Guardian for Information handles all intelligence matters, including covert Queen's Bench of Alberta\Calgary 95893\Page.00026 operations to acquire government documents critical of Scientology, covert ope~ations to discredit and remove from positions of power all persons whom the Church considers to be its en emies ; and internal security with the Church itself. ii) Re Taams and College of Physicians and Surgeons, B.C. 79 D.L.R. 3d 377 (1977), B.C.S.C., per McDonald, J., at p.381: The Church of Scientology was founded by L. Ron HuSbard. Ac cord ing to Dr. Taams, he is now about 63 years of age and , from a ship, the "Apo1lo" , still plays a Fart in the direction of the world-wide organization. - iii) see also footnote 1, p.431 in Fou nd i n g Church of Scientology of Washinp_t~on~D. C. v. Verlag , 536 F.2d 429 (1976), U.S.C.A. (referred to at 10 f.2.B.(ii)) Queen's Bench of Alberta\Calgary 95893\Page.00027 4. RELIGIOUS CHARACTERISTICS i) R. v. Registrar - General, Ex parte Segerdal, [1970] 1 Q.B. 430, Eng. Divisional Ct.. Action by Church of Scientology of California against Registrar General for his refusal to accept Scientology buildings as places of meetin9 for religious worship. Registration would have had tax advantages for Church. The Court stated the following, per Lord Ashworth at pp.444-5: "Section 2 refers not merely to worship but to religious worship, and while it is perhaps difficult to think of worship as being other than religious worship, the incl~sion of the word religious involves the requirement that there must be some religion with which the worship is associated. The relevance of this point in the present case is that it is a matter of controversy whether Scientology is a religion at all. In the booklet " Scien tology and the Bible" there is on the third page the following: "Scientology is a religion in the oldest sense of the word, a study of wisdom. Scientology is a study of man as a spirit, in his relationship to life and the physical universe." " I t is non -d en om i na t i onal . By that is meant that Scientology is open to people of all religious beliefs and in no way tries to persu ade a person from his religion, but assists him to better understand that he is a spiritual being." Notwithstanding the first four words of this quotation, I find it very difficult indeed to ex=ract Queen's Bench of Alberta\Calgary 95893\Page.00028 - 20 - from the remainder anything to justify them. The idea presented in my mind by the quoted wo rd s is of an organisation serving as a meeting point or clearing house for persons of all religious beliefs, through which people may better appreciate their spiritual character. While Scientology may be wholly admirable, I find it difficult to reach the conclusion that it is a religion. Dealing for the moment only with the service so described , I can find nothing whatever to i.ndicate that it is a service of religious worship. I appreciate fully the point made by Mr. Hogg that forms of worship vary enormously and that worship may take place without there being any set form of liturgy. But when a form of service is presc~ibed, as it is in the booklet, one would at least expect that if it is a service or religious worship there would Se some indication to that effect and some opportunity prov id ed for wor s h ip , either in the form of spoken words or a silent meditation, and I can find none." ii) R. v. Registrar - General, Ex parte Segerdal L1970 ] 2 Q.B. 697, Court of Appeal per Lord Denning, M.R., at p.707: "Turning to the creed of Church of Scientology, I must say that it seems to me to be more a philosophy of the existence of man or of life, rather than a religion.. Religious worship means reverence or veneration of God or of a Supreme Being. I do not find any such reverence or veneration in the creed of this church, or, indeed, in the affi~avit of Se9 e rd al . There is considerable stress on thp spirit of man . The Queen's Bench of Alberta\Calgary 95893\Page.00029 adherents of this philosophy believe that man's spirit is everlasting and moves from one human frame to another; but still, so far as I can see, it is the spirit of man and not of God. When I look through the ceremonies and the affidavits, I am left with the feeling that there is nothing in it of reverence for God or a deity, but simply instruction in philosophy. There may be belief in a spirit of man, but there is no belief in a spirit of God. This is borne out by the opening words of the book of ceremonies: It says, at p.7: "In a Scientology Church Service we do not use i prayers, attitudes of piety, or threats of damnation. S We use the facts, the truths, the understandings that \O have been discovered in the science of Scientology." i That seems to me to express the real attitude of this group. When Mr. Segerdal in his affidavit uses the word "prayer" he does not use it in its proper sense, that is, intercession to God. When the creed uses the word "God" (as it does in two places) it does not use it in any religious sense. There is no thing which carries with it any idea of reverence or veneration of God. The "sample sermon" has no word of God in it at all. It says that man has a body, mind and spirit. It emphasises man and not God. It seems to me that God does not come into their scheme of things at all. iii) Church of Scientology of California et al v. Kaufman et al [1973] R.P.C. 635r Chancery Division per Goff, j~l at p.648: In the end, however, it seems to me that the essence of the defendants' case here is that Scientology is Queen's Bench of Alberta\Calgary 95893\Page.00030 - 22 - not a religion, and unless they can prove that - and the onus is clearly on them - they cannot succeed in my judgment. I very much doubt whether it is, and I respectfully share the doubts expressed by Ashworth, J. in Regina v. Reg i s trar General, Ex parte Seg e rd al [1970] 1 Q.B. 430 at 444, where he said: "I find it difficult to reach the conclusion that it is a religion", and by Lord Denning in the same case on appeal [1970] 1 Q.B. 697 at 707, and particularly where he says: "I must say that it seems to me to be more philosophy of the existence of man or of life rather than a religion". iv) From the written answer of the Minister of Health (U.K.) in answer to a Parliamentary Question on July 25, 1968, at p.3 (presently the subject of litigation: Church of Scientology of California v. Ilinister of Health and Social Security (U.K.): "As the Church of Scientology of California (one of their many titles) the scientologists claim to be a religion, have 9iven some of their staff clerical titles such as "chaplain" and have set up a "chapel" on the grounds of Saint Hill Manor, East Grinstead. A pamphlet recently sent to Members of Parliament set out the "creed" and "ceremonies" of the "church of scien tol ogy" and described auditors and auditing as "ministers" and "the confessional.". The "E-meter" was said to be used in " the exact technology of Scientology Confessional and Pastoral counselling". The Anderson Report in a chapter on scientology ~nd ~eligion, states "There was no basis (in V~ctoria) for the ass umption of such titles; there adopt j~on , and Queen's Bench of Alberta\Calgary 95893\Page.00031 - 23 - also the wearing of clerical garb merely indicated their compliance with directions from Hubbard to assume such poses to help gain entry into hospitals and other places where no one would dare to hinder or oppose a man of God". The Board of Inquiry also drew attention to an (undated) pamphlet issued by the s c ie n tolog is ts wh i. ch stated that " the H.A.S.I. is non-religious - it does not demand any belief or faith and is not in conflict with faith." v) Founding Church of Scientology of Washington, D.C. v. United States, 409 F.2d 1146 (1969), U.S.C.A. District of Columbia Circuit, per Skelly Wright, J., at p.l152~ " On the more mu nd ane level, early in the career of Scientology Hubbard's followers at least those in the United States began to constitute themselves i.nto formal religious bodies. The Founding Church of Scientology of Washington, D.C., one of the appellants, was incorporated in the District of Columbia in 1955. A formal creed was promulgated and was made part of the Articles of Incorporation. From the literature of the movement in evidence at trial, it appears that the move toward formal religious organization distrubed some adherents of Scientology, who seem to have regarded it as an attempt to provide a legal cloak for the movement' s activities. But Hubbard d e f e nd ed the church mov eme n t , d i s a vow i ng mysticism or s upe rna t.ural i sm , but po i n t i ng out the kinship of his ideas with those of the Vedas and other Eastern religious doctrines."26 26. For Hubbard's account of this dispute see L. RO1~ HUBBARD'S PAB's, BOOK III, supra Note 21, at 14-20. Queen's Bench of Alberta\Calgary 95893\Page.00032 - 24 - vi) Missouri Church of Scientology v. State Tax Commission of Missouri et al, unreported decision of the Supreme Court of Missouri, dated December 19, 1977, per Bloom, J., at pp.lO-12: Unlike Koplar, the Conunission here made the following finds as to credibility of the witness: "We find the testimony of the Reverend Frederick M. Kock generally not to be credible and worthy of belief in particular in respect to his description a nd categorization of the activities of the organization, its alleged rel i9 ious se rvices , its financial structurse and the nature of the so- ca1l ed donations which are made to the organization. The Commis$ion finds that there is no sufficient credible evidence presented by the appellant to satisfy the burden placed upon one claiming e x emp t i o n from taxation . " The Comm i s s i o n then concluded "that with lack of credibility found by this Commission in the testimony of the witness Rock and the lack of corroboration by an independent authority on contemporary religions that the property owner has not satisfied the burden placed on him." While the Commission findings are not insulated from review, the court must "give due weight to the opportunity of the agency to observe the witnesses." The Commission had ample opportunity of the agency to observe the d eme ano r as well as the word s of the witness and make a determination of cr edibility from its point of va~tage. It recognized testimonial inconsistencies and those things petitioner failed to estaSlish, finding that " appe 1lant has some of the trappings and accouterments of an organized religion, it appears to be more an applied philosophy which has a certain religious connotation, but ~hich falls short of being devoted to the worship of a Suprene Beina." Queen's Bench of Alberta\Calgary 95893\Page.00033 -25- The Commission could properly consider the financial interest of the witness in the outcome of the proceeding and the absence of corroborating testimony.6 Giving due weight to the opportunity of the Commission to observe the witness and the factors noted we find nothing sufficient to disturb its finding that the witness was not credible. 6. However, this picture was clouded by admitted atypical features. For example, Iiev. Rock testified members of the Church of Scientology can actively practice and belong to other religious faiths Catholic priests and Jewish rabbis belong and actively pursue the worship of the Church of Scientology); the churc~ raises its funds by accepting "donations" for counselling services to memSers and non-members alike for which a fixed schedule sets the charges, in either service or cash, however about ten percent of the counselling sessions are gratuitous; the church has no structured seminary but offers courses in which the student sets his learning pace and at the end of which he may be ordained as a minister; theirs is an applied religious philosophy teaching methodology and th~ church keeps no formal membership rolls. * No income or expense statements were in troduced and the sources of income and use of funds were ambiguous at best. Queen's Bench of Alberta\Calgary 95893\Page.00034 - 26 - vii) Income Tax Act, Canada Section llO(1)a of the Income tax Act provides, in part: "110(1)a For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted from his income for the year such of the following amounts as are applicable: (a) the aggregate of gifts made by the taxpayer in the year (and in the i mm ed i a t e 1 y p r e c e d i n g year, to the e x te n t of the amount thereof that was not deductible under this Act in computing the taxaSle income of the taxpayer for that immediately preceding year) to (i) registered charity" A "registered charity" is a charity registered pursuant to section 149 of the Act. The qualifications of a charity for tax registration purposes is defined by the CCH, Canadian Tax Reports, at paragraph 21,956, as follows: " Editorial Comment: Qualification as a charity for tax purposes. - For a corporation or trust to qualify as a charitable foundation it must be constituted and ope.rated excl usively for "charitable purposes" . Similarly, a charitable organization is an organization all the resources of which are devoted to "charitable activities". The common law meaning of "charitable" as laid down in Commissioners of Income Tax v. Pemsel, [1891] A.C. 531 and I.R.C. v. Glasgow .Police Athletic kssociation, [1953] 1 All E.R. 747, is that the work must be aimed at: Queen's Bench of Alberta\Calgary 95893\Page.00035 - 27 - (a) the relief of poverty; (S) the advancement of religion; (c) the advancement of education; or (d) the advancement of other purposes beneficial to the community. This meaning of "charitable" is accepted for tax purposes by Revenue Canada. We have been advised by the Chief of the Charitable and Non-Profit Organizations Section of the Department of National Revenue, Taxation , by letters dated April 29, and June 14, 1977, that the Church of Scientology, or missions thereof, are not registered as charities under the Income ~ax Act. viii) Customs Act, Canada Mr. Brisco, M.P., inquired of the Minister of National Revenue by Parliamentary Question dated June 27, 1975, ~ whether the Church of Scientology had been investigated by the said Department. By written response dated July 2, 1975, the said Minister replied as follows: Customs and Excise On December 30, 1970, the Department's Customs Tariff Division ruled that the Church of Scientology was entitled to import good s free of duty under tariff item 69605-1. Tariff item 69605-1 prov ides for the importation of nurnerous products when for the use of any society or institution incorporated or established solely for religious, educational, scientific and certain other purposes. In 1974 the matter was reviewed and on December 19, 1974 a ruling was issued which withdrew the privileges of tariff item 69605-1 inasmuch as the Church of Scien tolo9y was not considered to be solely a ~eligious institution. Queen's Bench of Alberta\Calgary 95893\Page.00036 - 28 - ix) Foster Report, pp.57-8: 112. Although more than one "Church of Scientology" was incorporated in the United States in the 1950's, it is clear that no serious attempt was made to present Scientology as a religion until after the publication of the Anderson Report. In that context, the HCO Policy Letter of 12th March 1966, which i appears at paragraph 68 above, may also be instructive, especially its penultimate paragraph:- ~1 "Of course anything is a religion that treats the human spirit. And also parliaments don't attack religions. But that isn't our real reason - it's been a long hard task to make a good corporate structure in - the UK and Commonwealth so the assets could be transferred." Since that time, there has been abundant evidence of a shift in the presentation of Scientology by its leadership towards a religious image. For example, a booklet entitled "The Character of Scientology"l first published in 1968, depicts a choirboy on its front cover and describes Scien tology as an applied "reli9ious" philo sophy , processing as a "religious" tec.hnology , audit. ors as "Sci. entology Ministers", a ud i t i ng as " Con f e s s ion al s " , and so on. Ag a in "Scien tology and the Bi ble" was first published in 1967. 113. Professor LIe e [Ontario Report on the Healing Arts] appears to have come to the same conclusion.- "Evaluation of the richt of Scientology to cla im exemp=ion as a rr;ay Se ;r.ade on th~ same criteria as those a~plied to Christian Science, with this C~s=inztion. C~ristizn Science lea~ers have r; E-ver c 1' nj~ca;IY t~~t j.: bett.~~ to be a relici~n ;h~n ~ healjnc ilractice. Cnr j~stian Science took a r~ligious forr;l Scjentolo~~' Queen's Bench of Alberta\Calgary 95893\Page.00037 - 29 - took on a religious form after it suffered severe setbacks as a "science of mental health". 114. Some people may also find it novel to discover a religion which recruits new members by the methods of salesmanship and a "free personality test" described in paragraphs 129 to 134 below (none of which mention that the subject is being recruited into a religion), requires its adherents to sign a contract containing exemption clauses of the type quoted in paragraphs 135 below, and charges the members professional fees in the range of 4 to 5 per hour for indoctrination in its mysteries. Ag a in , Mr . Hubbard 's views on promotion and affluence, quoted in paragraph 185 Selow, may not accord with everyone's ideas of religious zeal. x) South Africa Report, at pp.204-5: (f) To sum up: The above is not an exhaustive study of Mr. Hubbard's often abstruse philosophy of Scientology which may be construed as religious in so far as it deals with man as a spiritual being but an attempt to indicate its main trend and the bearing it has on Scientology practice. The Commission was impressed by the fact that few practising scientologists even those who have attained the higher grades have any profound knowledge of Scientology as a body of thought. The stress is on its technology, i.e. on the way it works rather than on the foundations on which it rests. This being so, the larger issues are often lost sight of and the field is narrowed down to individual achievement and the ex pansion and survival of Scientology at all cos~s. (see also pp.215-17). Queen's Bench of Alberta\Calgary 95893\Page.00038 - 30 - 5. COMMERCIAL CBAR4CTERISTICS a) Total Income and Expenses/Accounting Procedures i) Founding Church of Scientology v. United States, 412 F.2d 1197, (1969) U.S. Court of Claims , per Co1lins, J., at F-1199: Duxing the ppyiod in iss ue , more than 90 percent of plaintiff' s income was received from the sales of processing and training se rv i ces , i ncl ud ing sales of E-Meters . Ad d i t i onal income was realized from the sales of ex aminations and tests, tapes, and books, from minimal donations , and from various other sources. Plaintiff's gross receipts were $102,604 fo~ the fiscal year ending June 30, 1956; $179,491 for the fiscal year ending June 30, 1958; and $247,674 for the fiscal year ending June 30, 1959. ii) Foster Report, pp.36 -37: The accounts of the U.K. companies show the following sources and amount of income ~in pounds sterling]:- year to year to 1.1.65-5.4.66 5.4.67 5.4.68 Training and processing less refunds .. .. 279,418 418,326 973,239 Gross profits from salss of books, meters and sundry merchandise .. 23,046 28,662 66,341 Other ,, .. .. 6,184 10,289 36,438 Total Income .. .. 308,648 457,277 1,076,0i8 On any view, Scientology in the United Kingdom during this ~e~iod was a big, and fast e~panding, Susiness. Queen's Bench of Alberta\Calgary 95893\Page.00039 Expenses Further, the item which in the previous year has been called "Printing, stationery and su ndry office expenses 23,606" has now become " Printing , stationery and sundry office expenses and Central Administration" and has leapt to 141,085, while "Legal and professional charges - 12,527" has become "Legal and professional and Consultancy" at no less than 175,479. The total of these new and increased items is 582,834. iii) Church of Scientology of California v. The Commissioners of Customs and Excise U.K., unreported decision of the Value Ad d ed Tax Tr i b un al , November 29, 1977, at p.3: Call figures in pounds sterlingl During the period of virtually a year from the 2 9 th December 1972 down to the 3rd January 1974 ('the period of the 1973 Accounts') the amounts received and receivable by the UK Branch of the Appellant Company as 'Contributions from Me~ber Scientologists for Pa s tor al Counse1l i ng and Training less Re f und s ' to ts.1l ed 484,225 and for ' Books , Me ter s and Su nd ry Merchandise' totalled 44,242. at pp.14-15: Balance Sheet. The book value of the assets of the UK Branch apearing therein is 974,751, and there is added thereto the accumulated debit balance on the F~eceipts and Expenditures Account of 139,529 to make a total of 1,114,280. Nr. M.J. Greenberg, an Ame~ican Certified Public Accountant who has been for so~e years concerned with the finances and taxation liaSilities of the Appellant Queen's Bench of Alberta\Calgary 95893\Page.00040 - 32 - Company in the United States of America, was called as a witness and commented on the financial position of the Appellant Company in 1973. * * * He indicated ... that the Appellant Company (excluding UK Branch and all other Scientology associations) had an annual income in the region of 15 million US dollars. at p.26-27: Having regard to the foregoing, and on the basis of the 1973 Accounts and the Accounts of the UK Branch of the Appellant Company for previous years and for 1974, we are firmly of the opinion that the Appellant Company and its UK Branch fixed the fees for courses at Saint Hill Manor to produce in 1973 a sufficient income to cover both the costs of providing such courses and other matters. In our opinion such other matters included the dissemination of the religious philosophy of Scientology amongst members and others, and the establishment and support of Scientology establishments and missions such as the missions in London and Plymouth. In our opinion such othe~ matters also included, through the 'cost. of technical services', a proportion of the upkeep of the 'Flagship Apollo' upon which Mr. Hubbard and other highly qua~ified Scientologists resided, and the creation of reserve funds for, or with a view to, the expansion of Scientology organizations. Less than one third of the 257 emp loyees of the 'LiK Branch appear to have been directly concerned with the courses at Saint Hil~ ~anor and the giving of such courses. Queen's Bench of Alberta\Calgary 95893\Page.00041 - 33 - ~nd at p.30: Applying the foregoing considerations we have no nes~tation in holding that the Appellant Company by its UK Branch in the United Kingdom was carxying on a Susiness t h ro ug ho u t the period of the 1973 Accounts. It was a limited liability corporation, and had registered under the Companies Act 1948 as carrying on a business in Great Britain. It received during that period sums amounting to 625,648 as 'donations' and 'contributions' from member Scientologists, only part of which will have been or will ultimately be applied in paying for courses. It paid a ten per cent comm i s s ion to the Field Se rv ice Ministers and Volunteer Ministexs who obtained such 'donations' and 'contributions'. It budgeted for a surplus from the' payments made for, or with a view to, the taking of training and aud iting courses in ord er to meet the expenses of its other activities. In the 'auditing' courses the UK Branch was completing with trained and partly-trained psychologists and psychiatrists who operated professionally. The UK Branch kept books of account and a file for each member Scientologist, and employed staff to manage Saint Hill Manor efficiently and in a reasonably business-like way. It prepared and filed accounts and dealt wit.h large sums of cash both in sterliny and other currencies. In our - opinion, the foregoing are sufficient hall-marks of a business or commercial activity to compel us to hold that the Appellant Company~ during the period of 1973 kccounts, was carrying on a 'business' for tax purposes. That 'business' was, in our view, the propagation of Scientology. Queen's Bench of Alberta\Calgary 95893\Page.00042 - 34 - iv) South Africa Report, p.157: 10.1 At least six sources of income are available to those associated with the practice of Scientology: (a) The charges levied for processing. (b) Royalties derived from the books and publications written to publicize Scientology. (c) Monies received from the sale of E-Meters and books. (d) Monies received from the sale of tapes. (e) Profits from Congresses. (f) Cash penalties or fines. [see Foster Report, p.159, and Church of Scientology of California v. Kaufman, reference: 9(vi).] and at p.166-7: Once a week the total income for that week is deposited i n to the ' Ma i n Ac co un t ' . The fol low i ng accounts are operated by every branch of the Church: 1) Main Account Queen's Bench of Alberta\Calgary 95893\Page.00043 - 35 - 2) Disbursement Account j) Salary Account 4) Reserve Payment Account 5) Hubbard Communications Office Division Account 6) Public Executive Secretary Account 7) Building Fund Account 8) General Liability Account 9) LRH Goodwill Account The Johannesburg Church, the administrativehead- quarters of the Church of South Africa, had two additional accounts: a) The Administrative Account. This is thetithe fund referred to previously and is held in trust by the Church in the United Kingdom. b) Guardian Reserve Fund. Queen's Bench of Alberta\Calgary 95893\Page.00044 - 36 - b) Auditing and Training Fees i) Founding Church of Scientology v. United States, 412 F.2d 1197 (1969), U.S. Co ur t of Cl a ims , per Collins, J., at pp.l198-99: Persons coming to plaintiff for processing were usually required to sign a contract fo~ a stated amount of auditin9. The normal contract covered 25 hours of processing at a rate of $20 per hour. Other blocks of processing were available, and the per-hour fee was sl i g h tlylower for larger amo un ts . In addition to processing, another department of plaintiff offered various courses or t~aining programs, and such instruction was also performed under contract for comparable fees. Most students enrolled in these courses were studying to become auditors and/or ministers of Scientology. Applicants were often required to contract for processing at the s tand a rd fee before be i ng al 1 ow ed to enroll as students. ii) Founding Church of Scientology of Washington D.C. v. United States, 409 F.2d 1146 (1969), U.S.C.A., per Skelly Wright, J., at pp.l152-3: From the evidence developed at trial, it appears that a major activity of the Founding Church and its affiliated org an i z a t i ons in the District. of Col umb ia is providing "a uditin9," at substantial fees (at the time of trial $500 for a 25-hour course), to persons interest in Sc i en tol ogy . The affiliated Ac a3 emy of Scientology is engaged in training auditors. Auditors are paid directly by the Church. There is no member- ship in the Church as such; persons are accepted for auditing on the basis of their interest in Scientology Queen's Bench of Alberta\Calgary 95893\Page.00045 - 37 - ( and p r e s um abl y their ab i 1 i ty topay for its bene- fits). iii) Church of Scientology of California v. The Co~missioners of Customs and Excise, unreported decision of the Value Ad d ed Tax Tr i b unal , November 29, 1977, at pp . 4-7 [all figures in pounds sterling]: During the period of the 1973 Accounts the sum of 484,225 was the amount brought into the accounts of the UK Branch for courses in Scientology at Saint Hill Manor a fore sa id given during the period of the 1973 Accounts. Some thirty or so courses were available at Saint Hill Manor during such period. Such courses and the amounts chargeable for them respectively were as follows: Course Cost 1. Anatomy of the Human Mind 20 2. Hubbard Apprentice Scientology 5 - 3. Extension 15 4. Hubbard Qualified Scientologist 40 5. Basic Grammar 15 6. Student Hat 50 7. Professional Word Clearer 125 8. Ministerial 50 9. Hubbard Standard Dianetics 125 10. Academy Levels O-IV 200 11. Saint Hill Special Briefing 275 12. Dianetics C/S 50 13. Class IV C/S 1C0 14. Class VI C/S 165 15. Dianetic Internship 40 16. kcademy Internship 100 17. Expanded Dianetics 300 iE. Life Repair Drug Rundown 23. kRC Straightwire ~1 Dianetics ) 150 per 25 hours i2. Grade O, Grade I, Grade II, Grade III, Grade IV ) i3. Expanded G~ades O-IV ~.:orc~ Ciearing i~;ethod I Queen's Bench of Alberta\Calgary 95893\Page.00046 - 38 - 25. Expanded Dianetics 225 per 25 hours 26. Integrity Processing 150 per 12 1/2 hour 27. Power Processing 420 28. Solo Course 275 29. Clearing Course 335 30 OT Sections 1,250 31. Review Auditing 8 per hour 32. Cramming 4 per day Persons bec oming interested in Scientology are encouraged to learn about it and to progress as Scien tologists by taking such courses and, if unable immediately to attend for a course or courses, are encouraged to make payments which may be in round sums and which can later be applied wholly or in part by way of payment for a course. Such payments are sometimes termed 'donations' and sometimes contributions' and courses are sometimes termed 'services'. The courses and their contents are arr an9 ed to enable a person to progress through them from an elementary i n trod u c t i on to Sc i en tol ogy(the Student Ha t Course ) to te chn i c al perfection (on completion of a Class XII Course not available at Saint Hill Manor) . A1l courses are what might be termed 'Scientology-oriented'; *t* During the period of the assessment there were some 257 full-time employees of the Appellant Company at its UK Branch, some 67 of whom lived at Saint Hill ~anor and some 23 of whom were 'Faculty staff' Queen's Bench of Alberta\Calgary 95893\Page.00047 - 39 - jirectly connected with the courses taken thereat. Employees were not paid large salaries but had the advantage of themselves taking courses at reduced rates or receiving training in the higher grade courses as part of the staff training to which we shall have to refer later. ~he provisions of the Scientology training and auditing courses at Saint Hill Manor constituted the principal activity of the UK Branch of the Appellant Company during the relevant period. (i) Cost of Technical Service 285,016 First, we refer to item (i), the 'Cost of Technical Services'. This was the total of amounts fixed by an organization termed 'Flag' for courses given to members of the staff of the UK Branch to make them better and more able Scientologists . Prior to and during 1973 a number of individuals highly versed in Scientology were based and resided on a ship called the 'Flagship Apollo' which flew the Panamanisn flag. These individuals constituted the organization 'Flag' and gave advanced Scientology training and auditing courses. In the period of the 1973 Accounts some 40 or so of the staff of the UK Branch took such courses under one or more of the fol low i ng he ad s namely (a) kdvanced Technical Training (b) Advanced Administration Tr a i n i ng (c) Special Co unse1l i ng and (d) Direct Assistance. Howeve~, in the Accounts there was included under 'Expendi=ures' a sum of 285,016 in respect of courses taken Sy staff of the UK B~anch, of ~ihich about 91,641 was referaj:e to the period of =he Queen's Bench of Alberta\Calgary 95893\Page.00048 - 40 - 1973 Ac co un ts and about 193, 355 to previous years. The sum of 285,016 related to courses taken by 72 members of the staff of the UK Branch, of whom 9 or 10 had taken courses aboard the " Flag sh ip Apollo' at a total cost of 37,000 approximately, and the remainder had taken courses in England supe rv i sed by 2 or 3 members of Flag who came to England for the purpose. In the case of the 9 or 10 who took their courses aboard the Flagship Apollo, the UK Branch also paid their travelling expenses and subsistence expenses whilst on the ship and these sums are included in the 47,959 for 'Travelling and Motor Expenses' in the General Division Expenditures. iv) Re Taams and College of Physicians and Surgeons, B.C., 79 D.L.R. 3d. 377 (1977), B. C. S. C., per McDonald , L., at p.381~ The appellant carried on in a way that must have been unique. For in addition to pract.ising psychiatry, he e ng ag ed , as an aud i to r , in administering scientology and dianetics under authority granted by the Church of Scientology. The appellant spent, mostly in the years 197a, 1975 and 1976, approximately $10,000 in donations to that church and fees for lectures and courses in which he learned its theories and oStained certificates of qualification. and at pp.382-3: i-le told her that befoire she could be provided with dianetics she would have to withdraw through a ~eriod of approximately six weeks from her use of drugs and alcohol. Ai tho ug h s u f fer i ng severe symptoms, she accomplishej that withdratral. Through Queen's Bench of Alberta\Calgary 95893\Page.00049 the period she saw Dr. Taams about once a week. Administration of dianetics commenced September 16, 1974. *++ Prior to that date, and in the early course of tre a tment , she was given s c i en tol ogy texts to re ad . The processing took place in Dr. Taams' office daily, five mornings weekly. On the first morning Mrs. Prinz was informed that the cost would be $35 per hour, not $30 as she expected on the basis of infornation from her friend. *** After about four weeks the appellant informed Mrs. Prinz that there were problems in the dianetic treatments and that he wanted her to attend the Mission of Sc i e n tol ogy in Vancouver to ob ta in their r e c omm end a t i o n s . Dianetics treatment was thus interrupted for a time. On Sunday morning, October 20, 1974, Mrs. Prinz, and her husband, met Dr. Taams at his office. There is a dispute over what occurred. But the result was that, commencing October 21st, and on the same daily basis as before, Mrs. Prinz und erwen t a month's course of scientology treatment. ~hen it was concluded she was presented with a bill for $1,750. and at p.384: Quite early in his attendances on the doctor, this man Queen's Bench of Alberta\Calgary 95893\Page.00050 - 42 - was given texts on scien tolo9y and dianetics and instructed to read them. He was also told that he would have to pay for that kind of treatment himself. ks to what the cost would amount to, Dr. Taams could only say that scientology would be sold in blocks 12 1/2 hours for a fee of $500 per block and the total cost might run to $1,500 or even $1,800. The reported decision is an appeal from the decision of the Co1l e9 e of Physicians and Su rg eon s to discipline Dr. Taams for, inter alia, "utilizling] methods of treatment which are not recognized by medical science and which are not founded upon responsible medical expense or research." Dr. Taam's appeal was dismissed. c) Sales Techniques/Business Promotion/Sales Commissions. i) Foster Report: 126. Direct salesmanship is encouraged by the payment of a commission of 10 per cent to 15 per cent (which can be taken in cash or in the form of processin9) to auditors and students who succeeded in enrolling new students. As in other organisations who`yj use direct selling techniques for their products, there is intense competition between salesmen, whose status in the organisation, as well as their earnings from it, is measured by the value of their sales. ii) Church of Scientology of California v. Th~ Commissioners of Customs and Excise, unreported decision of the Value Added T~x Tribunal, November 29, i977, at pp.7-8: In connection ~ith the courses Field Service Ministers and Volunteer Ministers of Scientology seek to ~ersuade members of the puhlic to ta:y\e an interest in Scientology bY going on a course or courses at S~int Queen's Bench of Alberta\Calgary 95893\Page.00051 - 43 - Hill Manor. During the period of the 1973 Accounts Ministers were entitled to a ten per cent commission on the amount of payments received by the U.K. Branch as a result of their efforts, which commissions were often applied by the Ministers in paying for furthex courses for themselves. During the period of the 1973 kccounts commissions averaged 49.50 [sterling pounds] per Minister and were regarded as reimbursement of the expenses of travelling, te lephone , postage and the like expenses incurred in obtaining the donations ox contributions. (see also p.30 of decision, cited at d) Franchise Fees 3: i) Foster Report, p.7 128. There are also franchise holders, originally~ defined as "A professional auditor, with classifica- tion to Level III or over, who practices Scientology full or part-time for remuneration, who conducts i processing and training privately or to groups, whose understanding and experience of Scientology is sufficiently broad for him to be publicized to others as a stable terminal, who has signed a Franchise Ag reemen t , who receives Bulletins, Policy Le tte r s , advice, advertising, technical information , se rvices and administrative data from HCO WW, and who , in return for same, maintains regularly a weekly report and a weekly payment. of ten per cent of his gross income to HCO WW". ~owadays, although the commercial arrangements remain the same, the wording has altered: franchises are now granted by the "Mother Church" to "Missions" by means of a "Charter":- " This Char ter gives official authority to the individual who receives it to conduct a ~;ission in t~e area specified. I= does not ccnfe~ ~ny li~biiity on the ~other ~hurch ~~t it does conf~~ u~On the indivi~;lal a ri~~t to practice ~ianetl~S Queen's Bench of Alberta\Calgary 95893\Page.00052 - 44 - and Scientology in his area. This right is granted by the Mother Church by virtue of authority given it by L. Ron Hubbard, sole owner of the materials and copyrights of Dianetics and Scientology. Th e right is dependent upon usage, regular remittance of tithes, and the continued good standing of the grantee." ii) Founding Church of Scientology v. United States, 412 F.2d 1197 (1969), U.S. Court of Claims, per Collins, J., at p.l199: " On March 29, 1957, plaintiff adopted a compensation scheme (known as the "proportional plan") whereby Hubbard was paid in lieu of salary, 10 per cent of the - gross income of plaintiff . Other Sc i e n tol og y congregations, franchises and organizations also paid Hubbard a portion of their gross income, usually 10 per cent". at at p.1201; "Moreover, in addition to all the foregoing, Hubbard received a percenta9e (usually 10 per cent) of the gross income of affiliated Scientology organizations." *** "Durin9 the years in issue these other percentages, fees, and commissions , so far as the record shows, were apparently received or receivable by Hubbard for Queen's Bench of Alberta\Calgary 95893\Page.00053 - 45 - his personal use. Such an arrangement suggest.s a franchise network for private profit . +** iii) Church of Scientology of California v. The Conmissioners of Customs and Excise, U.K. an unreported decision of the Value Added Tax Tribunal, November 29, 1977, at p.9: In the Accounts of the UK Branch for the period of the 1973 Accounts the to tal of the amounts received and receivable entered under 'Receipts' is 528,910, consisting of the sums of 484,225 and 44,242 already mentioned and donations gifts) of 443. But a sum of 263,738 has been deducted from 'Expenditures" for 'Contributions from Organizations and Missions' . This sum is the total amount received during the period by the UK Branch from Scientology organizations other than the Appellant Company by way of 'tit.hes', that is to say, annual payments calculated as a percentage of their incomes regarded as made for 'research work'. We were told that, when in 1968 the UK Br anch was under attack and got into financial difficulties, Mr. Hubbard 'diverted' to the UK Branch tithes which othe rwise would have been paid to the Appellant Company in California, but that 1973 was the last year in which such payments were made to the UK Branch. [all figures in pounds sterling] e) Publishing i) Founding Church of Scientology of Washington, D.C. v. United States, 409 F.2d 1146 (1969), U.S.C.A. per Skelly ~Zright, J., at page.l153: The Scientology movement in the District of Columbia also gffers the entire range of Scientology puSlica- Queen's Bench of Alberta\Calgary 95893\Page.00054 - 46 - tions for sale. Ov er the years this literature has grown into a formidable corpus. HubSard's two early books on Dianetics are sold , along with later treatises developing Scientolo9y. A large number of pamphlets and tracts supplements the hardcover books. The movement has a monthly magazine, kBILITY, which at the time of trial had published over 100 numbers. In addition, "L. Ron Hubbard's Professional Auditors' Bul1e t. ins," numbering at least. 80 at the time of trial, are collected and puSlished in pamphlets. ii) Church of Scientology of California v. The Comnissioners of ;Customs and Excise, U.K. an unreported decision of the Value Added Tax Tribunal, November 29, 1977, at p.ll: The 'Dissemination expenses' [54,271 sterling po und s for 1973] were, in the main, the costs of printing a monthly journal called 'The Auditor' and promotional literature designed to encourage persons attracted to Scientology to practice it and take training and auditing courses and to keep in touch with persons who had taken courses. The substantial amount for 'Postage and Carriage' includes the costs of the distribution of magazines, journals and literature. Queen's Bench of Alberta\Calgary 95893\Page.00055 - 47 - 6 INCOME TO L. RON HUBBARD i) Founding Church of Scientology v. United States, 412 ~.2d 1197 (1969) U.S. Court of Claims , perr Collins, J., at p.l198 and p.l199: " This is a suit to recover Federal income taxes and assessed interest paid by plaintiff to defendant for the fiscal year end ed June 30, 1956. De fend an t has counterclaimed for taxes assessed but unpa id for the fiscal years ended June 30, 1956, June 30, 1958, and June 30, 1959. The central issue presented is whether plaintiff is entit:led to an exemption from Federal income taxation. The pertinent statute is section 501(c) (3) of the Internal Revenue Code of 1954, which i ncl ud e s among those o rg an i z a t ions exempt from taxation a corporation "organized and operated' exclusively for religious * * * or education purposes, * * * no part of the net earnings of which inures to the benefit of any private shareholder or individual * * * tl It is our opinion that the plaintiff has failed to prove that no part of the corporation's net earnings inured to the benefit of private i nd iv id uals , and plaintiff is not entitled to recover. The court finds it unnecessary to decide whether plaintiff is a religious or educational organization as alleged, since, regardless of its character, plaintiff has not met the statutory conditions for exemption from income taxation. and at pp.1999-1202: In addition, Hubbard received xoyalties on his Queen's Bench of Alberta\Calgary 95893\Page.00056 - q8 - numerous Scientology books , as well as lecture fees and other incidental income. *** h`e scrutinize the facts of the instant case in light of these pr i nc iple s . Ac cord ing to the tr i al cornmissioner's findings, L. Ron Hubbard received over $108, 000 from the plaintiff and related Sc i e n tol og y sources during the 4 -ye ar period June 1955 through june 1959. This figure represents $77,460 in fees, commissions, royalties, and compensation for services, plus $13,538 in payment for expenses incurred in connection with his se rvices , as well as a total of $17,586 in reimbursement for expenditures made in plaintiff's behalf , in repayment of loans made to plaintiff and the New York organization, and as a loan from plaintiff to Hubbard. As the coinmissioner found, and we agree, the precise nature of the loans and reinSursed expe nditures does not appear in the record. Nor do we find any explanation for most of the expenses paid. The portion of the $77,460 actually paid by plaintiff amounted to app rox i m a t e 1 y $6,000 in 1955-56, more than $11,550 in 1956-57, approximately $18,000 in 1957-58, and over $22,000 in 1958-59. Hubbard also had the use of an automobile at plaintiff's expense. During plaintiff's taxable years ending in 1958 and 1959, the organization provided and maintained a personal residence for Hubbard and his family. ~ioreover, in addition to all the foregoing, Hcbbard received a percentage (usually 10 percent) of thG gross income of affiliated Sc~entology organiz~tions. Queen's Bench of Alberta\Calgary 95893\Page.00057 - 49 - For purposes of deciding this case, we do not consider the income accruing to Hubbard from the affiliated congregations and organizations as coming from plaintiff. However, under the circumstances here, the fact that Hubbard had income fron such closely xelated sources indicates that Hubbard's compensation from plaintiff was not for full-time service. During the years in issue these other percentages, fees, and commissions , so far as the record shows , were apparently received or receivable by Hubbard for his personal use. Such an arrangement suggests a franchise network for pr i va t.e profit and , in turn , casts doubt upon the pro pr i e ty of the payments by plaintiff to Hubbard and the members of his family . The fact that Hubbard was the recipient of income f~om plaintiff in the form of royalties and commissionS likewise occasions an inference of personal gain. **+ In March of 1957, Hubbard began to receive 10 percent of plaintiff's gross income. Although the organization's gross receipts in fiscal year 1957-58 were less than in fiscal year 1956-57, Hubbard's income pattern is still one of growth. Moreover, the record supports the conclusion that plaintiff and Scientology generally have consistently grown since the years in issue, while Hubbard, or his communica- tion centre in En9land , has continued to receive a percentage of the income of plaintiff and affiliated organizations. i~~hen, with this general background, we consider that Hubbard , the dominant figure in Scien tologl' 1 and his wife were two memSers of pl a i n t i f ~ ' s 3 -m a n board of Queen's Bench of Alberta\Calgary 95893\Page.00058 - 5O - trustees during the relevant period , it i.s not inappropriate to require plaintiff to justify the payments made to Hubbard and his family in the nature of loans, reimbursements for expenditures in plaintiff's behalf, for expenses, and other purposes. ~ot only can these payments, in the absence of explanation, be properly attributable to the individuals asinc ome , but the logical inference can be drawn that these payments were disguised and unjustified distributions of plaintiff's earnings. *** What emerges from these facts is the inference that the Hubbard family was entitled to make ready personal use of the corporate earnings. ii) see also Church of Scientology of California v. Conmissioners _of Customs and Excise (U.K.) unreported decision of the Value added Tax Tribunal, November 29, 1977, at p.26 (for reference see Sa(iii)). 7. RECRUITMENT TECHNIQUES i) Foster Report, p.63: 12O. The recruitment of new Scientology is carried on in a number of ways, such as advertising by hand bills, follow-up letters , and directed face- to- face salesmanship. at pp.73-78: 129. The usual procedure when a potential preclear first presents himself to the Scientology organisntions with a view to enrolmen~ is to encouraye ~im to te~e a "free personality test" called tne " 0x fo rd Capac i ty ~h i s test has been Queen's Bench of Alberta\Calgary 95893\Page.00059 investigated by a Working Party of the British Psychological Socie ty , the leading scientific body in this field in the United Kingdom, incorporated by Royal Charter in 1965. The Working Party was composed of a clinical psychologist, a consultant in psychological selection, and a university lecturer in psychology, all members of the Society's Council and distinguished experts in their field. Each of them too the test at one or other of the Scientology shops in London and Edinburgh. 130. The Tests consists of 200 written questions, to be .answered "yes", "no" or "uncertain" (this may not be easy to do when the question, like question 152, is in the form "Do you rarely express your grievances?"). - The members of the Working Party answered the questions in different, but pre-dete rmined , ra nd om fashion (see below) which could not produce results of any significance; in fact, they should all have come out pretty average in all personality traits . The subsequent experience of one member of the Working Party follows in his own words:- " In this particular case the inven to ry was deliberately responded to in a fashion designed to produce an unpredictable result. As each question was read the answer space was completed for the following question without reference to the conent of either question. On any known inventory this procedure should pr od u ce a 'flat' profile, with few scores departing significantly from the mean. When the profile chart was presented on the second visit it showed extremely low scores on three traits; all save one or two were below the 'desirability' band. (The imprecision is due to Queen's Bench of Alberta\Calgary 95893\Page.00060 - 52 - the fact that, try as he might, the 'client' was not pe rmi tted to bring away the profile sheet) . The staff member who had scored the inventory e x po und ed the extreme scores with some urgency . He avoided questions on the meaning of the scales, d i smis s i ng as irrelevant the trait wo rd s at top and bot tom; yet he invested the points on the scale with immense importance , almost of a charismatic nature. His pattern continually referred to the ~ i n ad eq uac i e s wh j~ ch the graph revealed one point became 'failed purpose' and another 'loss' , al t h o u 9 h these t e rm s were never explained. He attempted to confirm his diagnosis of these points on the graph by such leading questions as " Do you often fail to achieve what you set out to do"? and "Do you have difficulty making friends?" Affirmative answers to these questions (which were given re adily) were , somehow, to be explained by the low scores and the interpretation put on them. In general it was patent that this person had no notion what the test was, how it was designed , what is measured or what the scores meant. He had been trained to produce this ill-formed commentary which, to a gullible anxious person, might sound genuinely insightful. In fact he was pointing out to an unknown member of the public 'i n ad eq ua te ' facts of his personality shown up by an instrument which he did not understand. **~ Queen's Bench of Alberta\Calgary 95893\Page.00061 - 53 - Taking the procedure as a whole, one is forced to the conclusion that the Oxford Capacity Analysis is not a genuine personality test; certainly the results as presented bear no relation to any known m e th od s of assessing personality or of scaling test scores. The booklet itself might produce genuine scores but these are not the scores presented on the profile. The legend ' prod uc ed and edited by the Staff of the Hubbard Association of Scientologists International' which appears on the cover is totally inappropriate to a personality measure such an instr ument is not edited' , it is. developed through painstaking research. The validity of the OCA booklet itself is therefore in doubt. No reputable psychologist would accept the procedure of pulling people off the street with a leaflet, giving them a 'personality test' and reporting back in terms that show the people to be 'inadequate', 'unacceptable' or in need of 'urgent' attention. In a clinical setting a therapist would only discuss a patient's inadequacies with him with the grea test of circ umspection and support, and even then only after sufficient contact for the therapist-patient relationship to have been built up. To report back a man's inadequacies to him in an automatic, impersonal fashion is unthinkable in responsible professional practice. To do so is potentially harmful. It is especially likely to be harmful to the nervous introspective people who would be attracted by the leaflet in the first place. The prime aim of the procedure seems to be to convince these people of their need for the cor~ective Queen's Bench of Alberta\Calgary 95893\Page.00062 - 54 - coures run by the Scientology organizations." 13 2. A similar exercise was c a r r i ed out i nd epe nd- ently by Dr. David Delvin, who reported the outcome in World Medicine~17~~ Again, I quote.- "l settled down to the 'pe~sonality test'. This consisted of 200 questions of the type nuch favoured by women's magazines (Are you considered warm-hearted by your friends? Do you enjoy activities of your own choosing? Are you likely to be jealous? Do you bite your fingernails?) Eventually, a young man took my answers away for " processing" . When he returned, he was waving an impressive-looking piece of graph paper, around which were printed figures, symbols, and various bits of McLuhanistic jargon. Across the paper was drawn a line that looked some thing like the Boat Race course. This, the young man told me, was my personality curve. The young man airily drew a ring round the area of Putney, and said that this represented "other people". A similar ring in the region of Barnes Bridge indicated "myself" , while another drawn round Mortlake Brewery apparently represented On the basis of all this, the young man gave me a 20 minute personality analysis, which mainly consisted of porentous-sounding pseudo- scientific neologisms. ("You've got quite a bit of agitY and you're modera=ely dispersed, but we can help you to standard tech.") He seemed a bit Queen's Bench of Alberta\Calgary 95893\Page.00063 - 55 - vague about what these words actually meant. At the end, he said to me impressively, "So you see, it's all very scientific - thanks to the fact that our founder is a man of science himself". "Oh yes, very scientific indeed," I said. I had n' t the heart to tell him that his super- scientific system had failed to detect the fact that I had marj~ed the "don't know" column aga.inst all 200 questions in the test." Queen's Bench of Alberta\Calgary 95893\Page.00064 - 56 - 8. E-METER i) Foster Report, pp.82-3: The central practice of Scientology is what is called "processing". In essence this is a procedure carried on by an "auditor" on a pre-clear, who stand in a relationship to each other closely analogous to that of therapist and patient, in that the aim of the pre-clear is to improve himself, and that of the auditor is expressed to be to help him in achieving this aim. Processing takes place in formal sessions, whose beginning and end are explicity announted by thc auditor. In most of these sessions, no other persons are present. An important adjunct, however, in whick Scientology poses much faith, is an instrument called an " E-Me ter " , which is an aSbreviation for " el ec tr o- psychometer". Viewed from the point of view of conventional physics, this instrument is a sensitive device for measuring the resistance (normally quantified in units called " ohms " ) of an electrical cond uc ted to current being passed th ro ug h it. Work i ng on the principle of the well-known Wheatstone Bridge, it. contains some batteries and a transistorised circuit, togethex with a galvanometer whose reading furnishes an indication of the resistance of any co nd u c tor connected between two external electrodes which a~e attached to the i n s tr ume n t . Certain knobs on the instrument may be ad j usted so as to vary its calibration, range and sensitivity. Queen's Bench of Alberta\Calgary 95893\Page.00065 - 57 - 139. During an auditing session, the pre-clear holds the two electrodes, one in each hand, and the auditor observes and records the movements of the meter needle. As a matter of physics, what is being observed is the electrical resistance, and any changes in that resist ance , interposed between the two electrodes, and this will depend on a variety of factors such as the area of contact, the quantity and salinity of any sweat exuded by the pre-clear's palms, the force of his grip, and any variations in the electrical resistance of his skin or the rest of his body . Such instruments and their limitations are well-known in conventional psychology: they are closely related to the so-cal1ed "lie-detec tor" or " polygraPh" which had a certain vogue in the United States of America at one time , but is 9oing out of fashion there as its limitations are becoming be t te r known and the early claims made for its efficiency are being refuted. 14 0. In Scientology, how ev er , what is cla imed to be registered by the E-meter is not mere electrical resistance, but "the amount of charge represented by a mental image picture" "The meter tells you what the pre-clear's mind is doing when the pre-clear is made to think of something This current is influenced by the mental masses, pictures, circuits and machinery. When the unclear pc thinks of something these mental items shift and this registers on the meter" "The E-i-ieter is never wrong. It sees all; it knows all. It tells evGrything". Queen's Bench of Alberta\Calgary 95893\Page.00066 - 58 - ii) Founding Church of Scientology of Washington, D.C. v. i;i~ited S tates r 409 F.2d 1146 (1969 ) , U.S.C.k. , ( Ac t i on for false or misleading labe1ling) , per Shelly Wright, J., at pp.l153-1154: The Hubbard Electrometer, or E-meter, plays an essential, or at least important, part in the process of auditing. The E-meter is a skin galvanometer, similar to those used in giving lie detector tests. The subject or "preclear" holds in his hands two tin soup cans, which are linked to the electrical apparatus. k needle on the apparatus registers changes in the electrical resistance of the subject's skin. The auditor asks questions of the subject, and the movement of the needle is apparently used as a check of the emotional reaction to the questions.' Accord ing to complex rules and proc ed ures set out in Scientology' publications, the auditor can interpret the movements of the needle after certainprescribed questions are asked, and use them in diagnosing the mental and spiritual co ndition of the subject. The E-meters are sold for about $125, and are advertised in Scientology publications available at the Distribution Center adjoining the Church. *+* The Government has culled from the vast literature of Scientology a large number of statements which assert or imply that "en9r ams" or the "reactive mind" cause various co nd i t ions , mos tly those normally con s id er ed mental or psychosomatic disorders, but also including diseases or conditions which stan~ard medicai opinion would rega~d as o~ganic. Further statements have been Queen's Bench of Alberta\Calgary 95893\Page.00067 - 59 - :ound asserting that auditing or processing, in clearing away the "engrams , " can cure or alleviate these conditions. And finally statements have been i n trod uced i nd ica t i ng that the E-me ter is essential to, or at least useful in, auditing or processing. On this basis, the Government claims to have shown that the E-meter is a "device" within the meaning of the kct , in that it is "inte nd ed * * * for use in the diagnosis, cure, mitigation, treatment, or prevention of disease * * *." The Government put on a series of expert witnesses. First, physicists and engineers testified concerning the E-meter itself. ~hey found it to be a crude skin galvanometer, of reasonably craftsmanlike design and - construction, though with cer tain serious defects if neant to be used as a research tool for meaning fully measuring electrical skin resistance. Next, a series of doctors and medical researchers and a psychiatrist testified that, within their expert knowledge, there was no use for such an instrument. in the d iag no s i s or tre a tmen t of any disease or mental disorder. They were asked about the specific diseases or conditions claimed in the Scientology literature to be susceptible of a1l eviation through audi. tin9, and unanimously agreed that none of these could be treated or helped in any way through any known use of the E-meter.28 28. One Government witness, a psychophysiologist and neurophysiologist , did. testify that there is a connection be twe en i ncl ud i ng mental or Queen's Bench of Alberta\Calgary 95893\Page.00068 - 60 - ernotional stimuli, and skin resistance. He stated : "~he good skin resistance devices have been used as a research tool and only very occasionally as a clinical tool to try to discover areas of emotional conflict within an individual who is characterized by a neurotic ailment if that is the correct word to use here." However , the witness did not consider the E-meter a " good skin resistance device" because its needle reacted to such irrelevant factors as the tightness with which the subject held the soup cans. and at pp.l158-9: The facts of the case before us differ materially from those in the cases just reviewed. The alleged "labeling" here is not a single re adily digestible book , or a collection of pamphlets obviousiy promotional in nature, but rather a vast array of the often obscure literature of Scien tol ogy . This li terature was, accord i ng to the ev id ence at trial , all offered for sale at the Distribution Center, Inc., a corporation affiliated with the Founding Church, which had its book store next to the Guidance Center at which Scientology auditing services were provided. A small proportion of this literature deals directly with the E-meter itself. Two books, apparently intended for Scientology auditors rather than the general public, describe the nature and work i ng s of Queen's Bench of Alberta\Calgary 95893\Page.00069 the E-meter, and at the same time give some guidance as to its use in the auditing process.38 ~ithin these Sooks can be found statements to the effect that the E-i~leter is an essential aid to proper auditing. 38. SANBORN , THE HUBBkRD ELECTROMETER (1959); L.R. HUBBARD, E METER ESSENTIkLS 1961. Among the literature of Scientology before the court there are found a few advertisements, apparently direc ted at the general public, which make direct appeals for customers (or converts, if the appellants' version is to be accepted). These advertisements are found in copies of the monthly Scien tology magazine AB ILITY. Their representations concerning the auditing process appear to be general come-ons, designed to bring in the curious or the gullible.40 By far the greatest bulk of the material alleged to be "false labeling" of the E-meter consists of the general literature of Scien tology , which presents in an integrated manner the theory sketched earlier concerning the h um a n mind , the sources of various sorts of unh appiness , personality disorder and psychosomatic complain ts , and the way in which the process of auditing can alleviate these ills. Within this literature is to be found only the most occasional passing reference to the E-meter; more often than not, the meter is not even mentioned in these general works. kmong these are the in trod uc t- ory works describing Scien tology , and it is presumably these works, if any, which are pressed upon curious members of the public in any effort which might be m ad e to pronote the sale of S c i~e n tol og y services. It is within this general li=erature that the Queen's Bench of Alberta\Calgary 95893\Page.00070 - 62 - Government has found the passages which, in isolation, stand out most dramatically as fraudulent healing claims. For instance, in perhaps the most obscure and impenetrable of the books, Hubbard's SCIENTOLOGY: A HISTORY OF MAN (4th ed . 1961 ) , occurs the damag ing : sentence: "Cancer has been eradicated by auditing out conception and mitosis." ..i 40. See, e.g., ABILITY, No. 58, at 5: "Plagued by illness? 'We'll make you able to have good health. Get processed by the finest capable auditors in the world tod ay . Every aud i tor a D.D. One-week intensive. Three-weeks intensive. Weekend group intensives. Personally coached and monitoredby L. Ron Hubbard, Founder. Come to Registrar, 1812- 19th Street, N.W. Washington 9, D.C.I ii) Church of Scientology of I*linnesota v. Department of Health, Education and Welfare, 341 F. Supp. 563 (1971), U.S.D.C., D. Minnesota, (misbranding action), per Nordbye, J., at p.564: It may be noted that the galvanometers in question in this proceeding were manufactured in the United Kingdom and imported into the United States, but E-meters are now manufactured in this country and apparently are available to the adherents of thG Church of Scien tology . An ex amination of the literature distributed by these plaintiffs in connection with the teachings of Dianetics and the Church of Scientology discloses that it sets forth numerous statements contradictory to the laSels offixed to the E-me te rs , to wit, " No ti n te nd ed or effective for the diagnosis, treatment or prevention of any disease." Queen's Bench of Alberta\Calgary 95893\Page.00071 - 63 - It appears from the showing here that L.Ron Hubbard, at one time at least, maintained his he ad q u ar te rs in Zngland, and according to the recital of facts in Founding Church of Scientology v. United States, 133 U.S.App.D.C. 229, 409 F. 2d 1146, he first developed certain te ach i ng s in the early 1950 's wh i. ch called "Dianetics". These teachings are significant in this case since many of the therapeutic techniques in Dianetics are now found in the teachings of the Church of Scientology. and at pp.565-6: The relationship of Dianetics to Sci. en tology and the use of the E-meter in each is repeatedly emphasized in - the literature and advertising sent out by Hubbard through the local Church of Scientology. *** On page 14 of Exhibit 131, in discussing "auditing" generally appears the following: "Paralysis, anxiety, stomachs, arthritis and many ills and aberrations have been relieved by auditing them. An E-Meter shows them up and makes them confess their misdeeds." In Exhibit 132, the E-Meter essentials are listed beginning with the sentence; "There is no known way to clear anyone without using a meter." Queen's Bench of Alberta\Calgary 95893\Page.00072 - 64 - Exhibit 170, a pamphlet sent through the mails from the local Church of Scientology in 1970, outlines the services available in Dianetics training in Elinneapolis , and then lists a few of the uses of auditing as follows: "~o increase IQ " To help cure any bodys problem that is not purely physical in nature or cause such as helping mothers -- give easier birth and faster recovery after birth " To speed recovery and healing after operations and accidents i *t* p' "Almost any human situation containing pain and misemotion should be handled by auditing. Auditing is d" the answer to human disability and travail. It can i , a.i make life worth living. Auditing is not a limited action. There is no limit_ to what good auditing can do." and at p.567 The plaintiffs assert that the only use of the E-meter is in connection with the religious ceremony called "a uditin9" and that the Church of Scien tol ogy in its religious ceremony does not in any way relate to the alleviation of any disease or ailment, mental or physical, but that the E-meter is used in a religious r i te s im il ar to the o r th od ox con f e s s ion wh i ch is fo rmal i 2ed in some of the churches wh ich ad here to many ypligious creeds. ;ilthou9h the E-meter j~s used Queen's Bench of Alberta\Calgary 95893\Page.00073 - 65 - in auditing in Dianetics, it seems cleax that the literature distributed by the Church teaches primarily that higher skill and longer experience are demanded in successfully auditing a person with the E-meter in the Church of Scientology. Moreover, it seems reasonably clear upon the entire showing herein that the principal purpose of auditing in the Church with the E-meter is to delve more effectively into the mental and physical stresses of the ind ivid ual audited, resulting in the person audited ultimately becoming a "clear" and thus free from any pschosomatic or similar ailments of the human body. In commenting upon the purposes of Scientology and the progress being made in its various fields of activity, Mr. Hubbard distributed many circulars. That: inconsistencies and seeming contr adictions appear in the field of Dianetics and the purposes of Scientology 1 is evident. Granted that the claims for Dianetics in the cure and alleviation of disease and various ailments with the ' aid of the E-meter are emphasized more frequen tly in literature distributed by these plaintiffs than that which is circulated in the field of Scientolo9y. It may be argued that the Church with the use of the E-me te r inScientology assumes to enter the field of psychiatry and psychology with the limit.ed claim of the mental improvement of the person audited . However, it is unmistakably clear from the record that with the E-me te r the Ch u rc h of Sc i e n to lo9y contends that one of the primary purposes of auditing in the Church is to improve the health of the person audited. Queen's Bench of Alberta\Calgary 95893\Page.00074 - 66 - For instance, in Exhibit 118, in commenting upon Scientology in the chapter entitled "Science Processing," appears the following: "Scientology, used by the trained and untrained person, improves the health, intelligence, ability, behavior, skill and appearance of people. *** " It is emp~loyed by an AUDITOR (A Sc ientology practitioner) upon individuals or small or large groups of people in their presence. The Auditor makes these people, at their choice, do various exercises, and these exercises (processes) bring about changes for the better in intelligence, behaviour and general i competence." [1] Th i s Co urt in passing upon defendants' motion does not assume to find or determine the actual effects of the use of the E-meter in auditing in the ceremony of the Church. That is, the question of the truth or the falsity of the claims made by the Church in the process of auditing in the Church of Scientology is not herein determined and is not before the. Court for determination. The Court merely finds that the E-meter as used in the auditing ceremony is an instrument which is used by the Church for certain diagnostic and therapeutic purposes in improving the health of the person audited, usually after Dianetic auditing, and therefore the machine and the use thereof come within the scope of Section 352(f) (1), 21 U.S.C. , and f i nd s that the machines t.ransported from the United Kingdom to this country and seized by the defendants do not bear adequate instructions for their use. Queen's Bench of Alberta\Calgary 95893\Page.00075 - 67 - It is to no purpose to urge, as plaintiffs do, that other religious sects in their practices make certain therapeutic claims for the use of ce r ta in med al s , ar t i fac ts , s ymbols , wa ters , etc. , in the alleviation and even cure of certain human ailments, and therefore because these religious sects are in no way molested by the Government in these teachings and the results thereof, the Church of Scientology should be accorded the same rel ig ious freedom . Whe the r or no t other religious institutions violate the Food and Drug Act is immaterial in this proceed ing . A rel ig ious institution is not immune from the provisions of the Food and Dr ug Ac t. Th i s fact is recognized in the Founding Church case where the court observed that the exercise of religious freedom does not incl ude the freedom to violate the Federal Act now und er- conside ration. The literature adopted by the~~ plaintiffs contains an ab und ance of cl a ims of - diagnostic and therapeutic values, particularly in the neurotic and psychotic field in the use of the E-meter in auditing in the Church of Scientology , and i admittedly there are no instructions for the use of this machine by way of any labeling thereof. ~I iv) Church of Scientology of California v. Richardson 437 F. 2d 214 ( 19 71 ) , U . S . C . A. , (action ag a ins t Food and Drug Administration for refusing entry of E-meter due to misbranding), per Carter, J., at p.216: The " Hubbard E-me te r " is an instrument that is a1l eg ed ly essential to the practice of Sc ientolgy . The E-meter is manufactured in the United Kingdom and is, in fact, a simple skin galvanometer that crudely measures changes in electrical resistance in the human bod y . The Food and Dr u 9 Ad m i n i s t r a t i o n refused to ~llow the importation of E-meters because they were deemed to be "devices" that appeared to be Queen's Bench of Alberta\Calgary 95893\Page.00076 - 68 - "misbranded" in that they did not bear adequate instructions for use. The refusal was based ,' inter alia, on a successful condemnation action against certain E-meters in the Dis trict Court for the District of Columbia [United States v. An Article of Device . . . E-Meter (D.C.Civ.No. DC1-1963 (1967))1. and at p. 217 In determining that the E-meters appeared to be misbranded , ~ the Secretary could consider: (a) appe1l an t ' s literature that contains d i ag no s t i c and therapeutic claims for the E-meter; (b) appellant' s admission that the devices are ineffective for any medical therapeutic purpose; (c) the absence of instructions for use on the labeling of the devices; and (d) the pr ior adj ud ication by the D.C. Di str ict Court that the E-meters were in fact misbranded devices. In view of this evidence, the district court concl ud ed that appellant had failed to establish any arbitrary or capricious action by the Secretary. We think that the Hubbard E-me ter is akin to the dev~ce in issue in Drown v. United States (9 Cir. 1952) 198 F.2d 999. In Drown, this court held: : "While the instruments may be harmless in themselves, --7 their danger 1 ies in the po s s i b il i ty t.hat ' ignorant and gullible persons are likely to rely upon them instead of seeking professional advice for conditions they are represented to relieve or prevent' . " [198 F.2d at 1006]. I~ Queen's Bench of Alberta\Calgary 95893\Page.00077 - 69 - In this sense , appellant' s E-meters cannot be considered harmless and, therefore, the Act's branding provisions are applicable. and at p. 218: 2. First Amendment Violations 15] Appellant con te nd s that, in maki ng the dete rmination of "misbra nding , " the court must have considered and ev al ua ted Sc i en tology ' s rel ig io us literature in violation of its First Amendment rights. The district court found that the appellant had conceded that the E-meter devices were ineffective for any medical or therapeutic purposes. Appellant asserts that the devices are used solely as confessional a id in Sc ien tology , and that the detention of the devices by the Government unlawfully interferes with appellant's religious freedom. In Founding Chuxch, supra, the D.C. Circuit held that the court could not constitutionally evaluate the truth or falsity of the medical claims made in Scientology 's "religious" literature , citing United States v. Ballard (1944) 332 U.S. 78, 64 S.Ct. 882, 88 L.Ed. 1148. The statute in issue there was 21 U.S.C. S 334(A), which provides that a device is misbranded if its "labeling" bears false or misleading claims. ; The court reversed the decree of condemnation on the ground that " some of that literature was at least prima facie religious doctrine, and that the jury, as it was instructed, could have found against the E-meter by finding false statements in 'labeling' which was at the same time religious doctrine." 409 F.2d at 1164. The court specifically reserved, Queen's Bench of Alberta\Calgary 95893\Page.00078 - 70 - h owev er , the issue of whether a "drug or device used in a rel ig ion is subject to co nd emna t ion as 'misbranded' if its labeling is found to lack * * * adequate directions for use [21 U.S.C. 6 352(f)]." 409 F.2d at 1162. ~n determining the E-meter's inte nd ed use, the court could validly consider the appe1lant.' s publications that discuss the device'