BC Court of Appeal Reverses Decision Ordering Return of Charitable Gift
May 2020 Charity & NFP Law Update
Published on May 28, 2020

By Esther S.J. Oh

The British Columbia Court of Appeal (“BCCA”) released its decision in Doukhobor Heritage Retreat Society #1999 v Vancouver Foundation on March 10, 2020, in which it considered an appeal from a lower court decision concerning the return of a gift from one charity to another. As discussed in the February 2019 Charity & NFP Law Update, Doukhobor Heritage Retreat Society #1999 (the “Society”) had transferred $175,000 to the Vancouver Foundation (the “Foundation”) in 2001. The letter enclosing the cheque (“Transfer Letter”) stipulated that the capital was to be “held permanently by Vancouver Foundation and invested in accordance with the provisions of the Vancouver Foundation Act”, the incorporating statute for the Foundation (“VFA”). The Transfer Letter also required that the income of the Fund was to be disbursed to the Society in quarterly installments in order to support the Society’s charitable programs as described in the Transfer Letter.

The Society requested the return of the Fund when, as a result of an economic downturn, it became apparent that the return on investment from the Fund (and other funds intended to support the same charitable programs) would be insufficient to cover the cost of operating the Society’s charitable program. The Foundation refused on the basis that it was unable to do so, given the Society’s earlier direction in the Transfer Letter that the Foundation was to hold the Funds “permanently.” The lower court found that the Fund was not a gift made to the Foundation, but instead was a transfer that reflected a situation described in s.17 of the VFA, which provides that a charity may “entrust” funds to the Foundation so that the Foundation may manage and invest the said charity’s fund. The lower court had also indicated that s. 11(1) of VFA states that “[f]or the purpose of giving effect to the objects of the foundation, the board must carry out the directions of donors if definite directions in writing are given,” and that this required the Foundation to return the Fund in accordance with the latest written direction received from the Society.

On appeal, the Foundation argued that the lower court erred in its interpretation of the VFA by failing to give effect to the language of s. 11 in the context of the statute as a whole, as well as the terms of the Fund, and principles of the law of trusts and gifts. The Society argued that since the capital and accrued interest in the Fund had already been returned to the Society and the Fund was closed, the appeal was moot. The Society also argued that the lower court did not err in its interpretation of the VFA.

On the issue of mootness, the BCCA found that a tangible and concrete dispute remained between the Society and the Foundation, and therefore the issues in the case were not moot.

In addressing the lower court’s finding that the Fund was not a gift or donation, the BCCA found that the donation of the capital to the Foundation was a gift that created a charitable purpose trust. In reviewing s. 11(1) of the VFA concerning the Foundation’s obligation to follow directions of donors, the BCCA found that “directions from donors” required to be followed by the Foundation were those made at the time that the gift was transferred. The BCCA stated that properly construed, s. 11(1) of the VFA did not oblige the Foundation to follow directions to alter or revoke the terms of a donation after the gift is complete.

Finally, in considering the principles of the law of trusts, the BCCA stated that a donor “can only retain the power to change the terms of a gift or trust, or to give directions as to the further use of the funds that are gifted …by reserving the right to do so at the time the gift is made”. As the Society had not done this, the BCCA found that a gift had been made, and set aside the lower court’s order requiring that the Foundation return the Fund to the Society.

This decision underscores the importance of clearly documenting the terms intended to apply to transfers of charitable property in an appropriate agreement, in order to avoid potential misunderstandings and disputes between the parties. In this regard, it is interesting to note that the BCCA reminded readers that “the general principle is that a person who has made a gift cannot retract it, nor dictate to the trustee how the property is to be used. A donor who has made a gift cannot qualify, retract or alter the terms of the gift after it is complete.”
 

Read the May 2020 Charity & NFP Law Update