A. INTRODUCTION
In Innovative Gifting Inc. v. House
of the Good Shepherd, [2010] O.J. No. 2210, released
May 18, 2010, the Ontario Superior Court of Justice dismissed
four applications brought by Innovative Gifting Inc. (the
“Applicant”) against four charitable organizations and their
senior officers to enforce its written standard form of
agreement and obtain payment for fundraising services rendered
to the respondent charities. In the agreements at issue,
the Applicant had agreed to secure donations of cash and
shares for House of the Good Shepherd, Agape Life Center
Church and Ministries, Greater Works Ministry and Furry
World Rescue Mission in exchange for a fixed percentage
of the donations provided to those charities. Three of
the four Respondents brought counter-applications seeking
the return of funds previously paid to the Applicant under
the fundraising agreements. The Respondents contended that
the Applicant had made material and fraudulent misrepresentations
about the nature of the donations, the legality of the gift-giving
program and the fees to be charged.
B.
FACTS
The undisputed evidence provided by the
Respondents showed that the Applicant had represented that
it would raise donations for the charities in the form of
cash and shares and that the shares would have a value of
at least four times the value of the cash raised. In addition,
the Applicant advertised that a Swiss philanthropist would
match a Canadian donor’s cash gift with a gift of shares
valued at approximately 6 to 8 times the cash donated.
The donor would then receive a tax credit based on the aggregate
value of the cash and shares. The Applicant’s representations
proved false, the promised shares were worthless or never
provided; the Applicant requested that the Respondents provide
fictitious tax receipts for shares that were never donated;
and the donors were not entitled to the tax credits promised
by the Applicant.
The Applicant also represented that its
fundraising agreements and initiatives were legal and in
compliance with Canadian tax laws. The Applicant maintained
that its agreements with the Respondents can and should
be enforced. Pursuant to the agreements, the Applicant
was entitled to be paid a commission of 10-18% of the aggregate
donated amount, including cash and shares. However, if
no shares were donated, the Applicant was to be paid an
amount equal to 90% of the cash donation. Since the Respondents
did not in fact receive any valuable shares, the Respondents
were invoiced for 90% of the value of the cash donations
received.
C.
DECISION
The Court found that the Applicant’s
standard form of agreement was vague, uncertain and filled
with inherent inconsistencies. Therefore, the fee provisions
of the agreement could not be enforced.
The Court then addressed whether the Applicant was nevertheless
entitled to be paid something for the services that it had
rendered to the charities. The Respondents argued that
the agreements should be rescinded or declared void or voidable
on public policy grounds.
The Court concluded that the remedy of
rescission was available in the circumstances. The Court
found that the Applicant had made material misrepresentations
to the Respondents about the nature and legality of its
gift-giving scheme; the aim of the Applicant’s scheme was
to “claw back to itself” nearly all of the cash donated
to the Respondents; and the agreements were not fully executed
by the Applicant, as the Applicant failed to provide the
promised shares.
Further, the Court held that, in any
event, the agreements were voidable by the Respondents as
being contrary to public policy, because the Applicant’s
interpretation of the agreements required the Respondents
to pay to the Applicant 90% of the monies raised for charitable
purposes. The Court found that the agreements were in violation
of section 149.1 of the Income Tax Act, because the
fees charged did not allow the Respondents to meet the 80/20
disbursement quota which was required of registered charities
at the time. The Court noted that registered charities were
required to disburse at least 80% of the total amount for
which official tax receipts were issued in the previous
year for charitable purposes and fundraising is not considered
a charitable activity.
The Court also noted that the agreements were “repugnant
on the ground that they are against public policy because
monies raised for charitable purposes do not go to the intended
beneficiaries.”
Further, the Court found that the Applicant’s
scheme was clearly fraudulent , and concluded the Applicant
should not be allowed to profit from its fraud. The Court
held that no fees were payable to the Applicant and that
any fees previously paid to the Applicant should be returned
to the Respondents.
D.
CLAIMS AGAINST SENIOR OFFICERS
The Court concluded that there was no
basis for any claim against the senior officers of the Respondents
in their individual capacity. The Applicant’s evidence established
no wrongdoing by the individual respondents and they were
acting entirely within the scope of their employment as
senior officers of the charities.
E.
CONCLUSION
As shown in Innovative Gifting Inc.
v. House of the Good Shepherd, fundraising agreements
providing for exorbitant fees or commissions may be found
unenforceable by the courts. The agreements in the current
case were considered voidable based upon breach of public
policy due to the extremely high commission demanded by
the Applicant. This result follows the conclusion in The
Aids Society for Children (Ontario), 105 A.C.W.S. (3rd) 1044 (see Charity Law Bulletin
No. 9, available at: http://www.carters.ca/pub/bulletin/
charity/2001/chylb09.htm).
