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The International Relief Fund for the Afflicted and Needy is fighting in court that it was classified as a ‘terrorist group.’J.P. MOCZULSKI/The Globe and Mail

The Federal Court of Appeal has rebuked Ottawa after it tried to crack down on a former charity with alleged links to Hamas, even in the face of a clear legal contradiction.

The federal government was hoping to battle out a court case on Tuesday with IRFAN-Canada, an organization that it deregistered as a charity in 2011, and listed as a terrorist entity last month. However, a federal lawyer was forced to acknowledge that the government's current position could lead to a situation in which IRFAN would regain its charitable status, while still being listed as a terrorist entity.

Justice Marc Noël called Ottawa's position "extraordinary," while IRFAN's lawyer said it was symptomatic of the "absurdity" of the government's handling of the matter.

In a hearing in Ottawa, IRFAN lawyer Yavar Hameed called on the Federal Court of Appeal to adjourn a planned appeal of the charity's 2011 deregistration, to allow him to focus on the upcoming challenge of the terrorist listing. Mr. Hameed argued that the debate over IRFAN's charitable status was irrelevant as long as the organization was listed as a terrorist entity, which prevents it from having any activity in Canada.

"We would be coming into that match with our hands tied behind our back," Mr. Hameed told the panel of three judges.

A federal lawyer countered that the court should immediately hear the matter of IRFAN's status as a charity. The government was hoping to get the court to confirm that IRFAN does not have the ability to issue tax receipts in Canada. "That is the question before the court today," said federal lawyer Rosemary Fincham.

However, the federal government's position was quickly challenged by the judges of the Federal Court of Appeal.

"Could this court, as of the day of the judgment, qualify a terrorist organization as a charity?" Justice Noël asked, stating that such a move would be "problematic."

Justice Wyman Webb added: "So you are saying it is the position of the Crown that they can both be a registered charity and a terrorist organization, at the same time? That is the Crown's position?"

Ms. Fincham, acting on behalf of the Minister of National Revenue, eventually agreed with the court's assessment. "It is our position, your honour," she said.

Justice Noël was visibly taken aback. "It is an extraordinary position," he said. "I say that with respect, it is an extraordinary position."

After a brief recess, the court ruled against the government, stating it was adjourning the hearing on IRFAN's registration as a charity and allowing the organization to fight its listing as a terrorist entity.

Mr. Hameed said he will be asking the Minister of Public Safety to reconsider the listing of IRFAN as a terrorist entity, and get ready for a possible appeal of the decision at the Federal Court. He said Ottawa's case against IRFAN remains vague, and was particularly critical of Ottawa's argument that the organization had supported the widows and orphans of Hamas militants.

"Is the government of Canada taking the position that within a conflict zone, one should be looking to discern who are the needy orphans vs the ones tainted by Hamas?" Mr. Hameed said.

He condemned the terrorist listing coming out shortly before the appeal of the registration decision, stating it "underscores the absurdity of the entire process."

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