A. INTRODUCTION
Public appeals for donations are commonplace
in today’s society. Often these appeals are made by registered
charities and other organizations, such as not-for-profits,
with the experience and organizational structure to allow
them to receive donations from a large number of donors.
However, many public appeals are made not by well-established
organizations, but by inexperienced or newly assembled groups
or individuals, often in response to a recent event or tragedy,
with the goal of quickly raising funds for a specific person
or purpose. Such appeals are often described as informal
or sporadic public appeals. These sorts of appeals and the
common legal issues that arise from them are the subject
of a recent consultation paper by a working group of the
Uniform Law Conference of Canada (ULCC).
The consultation paper can be accessed online at http://ulcc.weebly.com.
B. CONTEXT FOR CONSULTATION PAPER
Aside from the amount of organizational
experience, a key difference between an informal, sporadic
appeal and that of an established organization’s ongoing
fundraising efforts, is the law which applies to each situation.
Registered charities and not-for-profits operate within
an existing regulatory scheme and as such they should already
be familiar with their responsibilities to donors and to
their own purposes and objects with regards to fundraising
proceeds. Sporadic public appeals, on the other hand, are
often established very quickly in response to a recent occurrence,
by a single person or small group of people, and with little
or no knowledge of what legal obligations they may encounter
as a consequence of their benevolent undertaking. Often,
the circumstances giving rise to a sporadic or informal
appeal are highly emotional, and as such can lead to very
successful campaigns. These very positive results can unfortunately
lead to difficult or complicated legal scenarios, which
present unwanted and unexpected problems given the relative
lack of sophistication of the groups that commonly organize
these campaigns.
One such problem occurs where an informal
appeal generates more money than is required for its cause
or where another charity or government agency offers its
assistance, rendering the informally raised funds unnecessary.
In these cases the organizers of the appeal will have to
determine what to do with the surplus. Normally in an informal
appeal there is no plan in place or prior indication to
donors regarding how any surplus funds will be spent, as
a surplus of funds is often unanticipated. The choices that
would appear to be available to the organization are to
apply the funds to a different cause, or to return the money
to the donors. However, what may not be known is that both
of these alternatives amount to breaches of some of the
basic tenants of trust law.
Where funds are donated for a charitable
purpose, a trust results wherein those in charge of the
fund are treated as trustees. The trustees are bound to
distribute the funds in accordance with the terms of the
trust, for the benefit of the cause, purpose, or person
for which the funds were donated. As such, applying the
funds to a different purpose (including a refund to the
donor), would be a breach of the basic terms of the charitable
trust. This situation can be avoided where a trust is crafted
at the outset to allow the trustees some discretion in these
applications of the trust funds, but such is rarely the
case in an informal or sporadic appeal. An additional problem
with regards to issuing refunds to donors is that there
are often insufficient records of what was donated by whom,
and it is unlikely that receipts were issued, particularly
for smaller donations.
The question of what can be done with
surplus funds in these situations is answered in the 1958
English case Re Gillingham Bus Disaster Fund.
in which the court determined that the only way in which
the trustees could appropriately dispose of the surplus
was to keep the funds in a trust account, where they would
accumulate interest indefinitely, or deposit the funds into
the court The consultation paper recently produced by the
working group for the Uniform Law Conference of Canada
is aimed at avoiding such impractical results in these types
of situations. The draft legislation which is proposed by
the group, outlined below, is meant to confirm and clarify
the trust relationship that arises in the course of informal
public appeals, and the responsibilities of trustees and
the options available to them when they are faced with a
surplus of trust funds. The draft legislation also attempts
to expand upon the powers available to the court to direct
the distribution of surplus funds.
C. BACKGROUND AND HISTORY OF THE PROPOSAL
The project to develop
a Uniform Informal Public Appeals Act was added to
ULCC’s program in 2009 in recognition of problems with the
current law and the substantial amount of work already done
on this topic by the Law Reform Commission of British
Columbia (BCLRC).
In 1993, BCLRC published its report on informal public appeal
funds, much of which has been implemented in the ULCC working
group’s proposal.
The current version of the ULCC consultation
paper is the work of the working group only and has yet
to be adopted by the ULCC. The working group is currently
soliciting input from interested persons and groups. More
information is provided below, along with a link to the
consultation paper.
D. THE APPROACH TAKEN BY THE ULCC WORKING GROUP
Using the BCLRC report
as a jumping off point, the goal of the ULCC working group
was to create a proposal for uniform legislation that would
bring some certainty to this area of the law. The working
group developed the following set of principles to guide
their work:
·
Reform should be pursued
through a stand-alone Act dedicated to public appeal funds
rather than as an amendment to existing trustee legislation;
·
The application of the Proposed
Act should be narrow in scope so as to exclude the fund-raising
activities of established bodies for their usual purposes;
·
The Proposed Act should confirm
that the money raised through a public appeal is held in
trust for the objects of the appeal;
·
The Proposed Act should be
largely default in character and capable of being displaced
by more specific documents and rules created to govern the
appeal;
·
The Proposed Act should create
a power in the court to direct the application of surplus
funds raised for non-charitable objects;
·
The Proposed Act should provide
a mechanism for the disposition of small surpluses;
·
The Proposed Act should include,
as a schedule, a model trust document that would provide
a default governance structure for the trust created by
the appeal. Where a governance structure otherwise exists,
the model trust document would apply only to the extent
that it did not conflict with the existing structure.
E. KEY FEATURES OF THE PROPOSAL
The consultation paper
includes a copy of the Proposed Act, tentatively titled
the Uniform Informal Public Appeals Act (“the Proposed
Act”) Some key features of the proposed legislation
are discussed below.
1.
Scope of the Application
of the Act
One of the key features
of the draft legislation is a definition of “appeal”, which
is intended to limit the scope of activity to which the
Proposed Act would apply. It is intended that the Proposed
Act should apply to a broad range of fundraising and/or
soliciting activities that might be undertaken in a sporadic
or informal way to raise funds for a charitable purpose.
The definition of “appeal” in the Proposed Act is drafted
so as to exclude a message that is “communicated as part
of a permanent or continuing fundraising effort.” In that
way, it is intended that only sporadic or informal appeals
are included.
The application of
the Proposed Act is limited in two additional ways by section
2 of the draft legislation. Section 2 (2) states that the
Proposed Act does not apply to funds collected by a registered
charity as recognized by CRA, or by any other incorporated
body for the advancement of its usual objects. Section 2(1)
says that the Proposed Act only applies the extent that
its provisions do not conflict with certain documents which
might be in place to govern an appeal fund, such as a contract,
constitution, or trust instrument for example.
2.
Confirming the Creation and
Terms of a Trust
The Proposed Act confirms
that money collected for a fund through an appeal falling
within the scope of the Proposed Act is subject to a trust
for the benefit of the stated objects (ie. the person or
purpose for which the funds are being collected). The Proposed
Act dictates that the trustees are those who are responsible
for the management and disbursement of the collected funds.
This trust is deemed to be enforceable regardless of whether
the purpose is considered to be a charitable purpose.
The terms of the trust
are set out within the “Model Trust Document”, which is
included in the Proposed Act. While the appeal may have
its own trust document already in place, the Model Trust
Document will apply to the extent that it does not conflict
with that instrument. Where there is no other document,
the entirety of the Model Trust Document and all of its
terms will apply.
3.
Dealing with Surplus Funds
The following definition is provided
in the Proposed Act for “surplus funds”: “money or other
property remaining in a public appeal fund that ceases to
be needed or cannot be used for the object described in
the appeal.” When it comes to dealing with these funds,
the Proposed Act creates a mechanism which resembles an
expanded application of the cy pres doctrine, by
which a court can direct the distribution of the surplus
to other charitable purposes. The trustees will be bound
by the court’s instructions. The list of parties that may
apply to the court for an order for directions includes
trustees, donors, beneficiaries, the Attorney General, and
other persons with “sufficient interest” in the enforcement
of the trust.
The Proposed Act also provides alternatives
to relying on the power of the court to redirect surplus
funds to charitable purposes. First, in a case where the
amount of the surplus is $10,000 or less, and it would therefore
be uneconomical to bring an application before the court,
the trustees may distribute the surplus funds among charitable
bodies approved under the Proposed Act and its regulations
without the prior approval of the court. Second, where a
person has donated an amount of $100 or more, and the fund
is left with a surplus, section 6 of the Proposed Act sets
out how a gift can be refunded to the donor with certain
limitations, including the possibility that the refund will
be pro-rated.
4.
Accumulations
While it is already
well established that the law against perpetuities does
not apply to charitable trusts, such is not the case with
most other types of trust funds. The Proposed Act is intended
to regulate sporadic and informal appeals whether or not
the objects of the appeal are, by legal definition, “charitable.”
In order to protect non-charitable donor funds that are
solicited within the scope of the Proposed Act, section
7(1) stipulates a perpetuity period of 80 years, greatly
extending the normal 21 year period which applies in most
provinces.
F. NEXT STEPS FOR THE PROPOSAL
It is hoped that the recommendations
contained in the consultation paper, as they are manifested
within the draft legislation, will bring greater certainty
to the law applicable to informal public appeals and that
the greater powers afforded to the court under the Proposed
Act will prevent any future occurrences of a Gillingham
scenario in which surplus funds are rendered as useless
charitable gifts to be held in perpetuity with no objects.
As mentioned above, the working group is currently soliciting
feedback and input on the current consultation paper. The
deadline for responding to the current proposal was stated
as being September 7, 2010, but it appears that subsequent
submissions can continue to be made after that date for
a reasonable time. The preferred method of response is by
email to aclose@shaw.ca.
