A. INTRODUCTION
In an unreported decision released on September 27, 2011,
the Ontario Superior Court of Justice confirmed that charitable property raised
for the benefit of a particular charitable purpose cannot be unilaterally
applied for a different charitable purpose by simply amending its objects
through supplementary letters patent. In the case of Victoria Order of
Nurses for Canada v. Greater Hamilton Wellness Foundation,
the applicants, the Victorian Order of Nurses for Canada (“VON Canada”) and its
Ontario branch (“VON Ontario”), were successful in obtaining a court order
finding that the Greater Hamilton Wellness Foundation (the “Foundation”) was in
breach of its fiduciary and trust obligations to VON and that as a result, the
assets and income of the Foundation as of December 15, 2009, were to be transferred
in trust to VON Ontario in accordance with the Foundation’s original charitable
purposes. Due to the applicants’ complaints of misapplication of charitable
funds under the Charities Accounting Act (“CAA”), the Public Guardian and Trustee (“PGT”) participated in the
proceedings to protect the public’s interest, and supported VON Canada and VON
Ontario’s position.
While the Court’s conclusion is not at all surprising, given
the facts of the case, the decision serves as a helpful reminder to charities that
charitable property raised for the benefit of a particular charitable purpose must
be applied to that purpose. Otherwise the charity will need to obtain court approval
in order to change the purpose through a cy-près order, or in Ontario,
the consent of the PGT on a non-contested basis under section 13 of the CAA. In
addition, the case also provides useful guidance concerning the interpretation
of a charity’s purposes as set out in its corporate objects.
B. THE FACTS: CONFLICT BETWEEN THE CHARITY AND ITS PARALLEL FOUNDATION
For the sake of brevity, the following is a selective overview
and timeline of the major issues pursuant to which relief was sought in the VON
decision.
VON Canada is a registered charity that delivers
healthcare-related programs and services through six regional corporations, one
of which is VON Ontario. Prior to being replaced by VON Ontario, the local
Hamilton-Wentworth branch (“VON Hamilton”) of VON provided healthcare-related services
and programs to the Hamilton area. The predecessor to the Foundation, the
Victorian Order of Nurses Hamilton-Wentworth Foundation, which subsequently
changed its name to the Victorian Order of Nurses Hamilton Foundation, was
formed in December 1981 as a parallel foundation to fundraise for VON Hamilton.
In this regard, one of the Foundation’s corporate objects contained in its letters
patent was as follows:
3. (a) To receive and maintain a fund or
funds and to apply from time to time all or part thereof and the income
therefrom for such charitable or educational purposes related to patient and
health care, of the Victorian Order of Nurses Hamilton-Dundas Branch or its
successor or any other Branch of the Victoria Order of Nurses in Ontario,
which, in the discretion of its Directors, needs assistance.
In addition, the letters patent also stated that on
dissolution or wind-up the remaining property of the Foundation was to be
transferred to VON purposes in Ontario among other possible recipients and that
individuals elected to the board of directors required the approval of VON
Hamilton. For approximately 20 years until December 15, 2009, the Foundation
exclusively conducted its fundraising communications to the public on the basis
that funds raised from the public were to be used only for VON programs and
services.
In the late 1990s VON Canada restructured its national
operations pursuant to its “National Vision Achievement Strategy” (“NVAS”),
resulting in VON Hamilton ceasing its operations and the newly created VON
Ontario assuming the operational activities of VON Hamilton.
The Foundation alleged that the applicants used the
restructuring of VON Canada as an opportunity to engage in an alleged “money
grab” of funds held by the Foundation and to remove funds from local control. In
turn, the Foundation responded by: refusing to amend its by-laws to clarify its
role as a public foundation to fundraise for VON entities as required by
agreements entered into between the parties; attempting to resurrect the former
VON Hamilton branch and populating its board with individuals from its own
board; moving out of the building it shared with VON Ontario and removing
confidential and donor information in the process; repudiating agreements
between the parties; and imposing stricter funding requirements on VON Ontario
that were inconsistent with its own funding policy and past practices.
Eventually there was a complete breakdown in the
relationship between the Foundation and VON leading to the Foundation unilaterally
applying for Supplemental letters patent to expand its corporate objects. The supplementary
letters patent, which the Court notes were approved by the PGT in error, now
allowed the Foundation to use its property to fund any “other charitable
organizations in Ontario registered under the Income Tax Act”. In
December 2009, the Foundation renamed itself the Greater Hamilton Wellness
Foundation after VON Canada had revoked the ability of the Foundation to use
the name and intellectual property of VON pursuant to a trade-mark license.
C. THE DECISION
The following is an overview of the
Court’s answer to the various issues raised in the VON decision.
1. Did VON Ontario have Standing to Request Relief?
A preliminary issue that Justice Beaudoin had to address
was whether VON Ontario and VON Canada had standing to seek the relief that
they requested. The court held that both parties had standing based on ss. 6(1)
and 10(1) of the CAA. As described in previous Charity Law Updates, s.
6(1) of the CAA sections permit an individual to complain regarding the manner
in which a person or organization has raised or disbursed funds solicited from
the public. More importantly, however, s. 10(1) of the CAA permits any two or
more persons to allege a breach of trust created for a charitable purpose or to
seek the direction of the court concerning the administration of a trust for a
charitable purpose and to invoke the court’s supervisory powers to make an
order to carry out a trust created for a charitable purpose. Given that VON
Canada and VON Ontario met the requirement of “any two or more persons”, there
was no issue of standing.
2. Is VON Hamilton beneficially entitled to the
Foundation's assets held at December 15, 2009 and income attributable thereto?
While VON Canada and VON Ontario
supported their position with various arguments, the court concluded that their
claims to an equitable entitlement in the Foundation’s assets could be dealt
with on the basis of the interpretation of the Foundation’s original objects
alone. In this regard, while Justice Beaudoin provides a well reasoned
summary of the law with respect to charitable corporations, the court’s
guidance concerning the interpretation of corporate objects is instructive.
a) Approach to Interpreting the Objects in Letters
Patent
To interpret the Foundation’s corporate objects as set
out in the Foundation’s original letters patent, the court applied the rules of
construction and the modern approach to interpretation. The rules of
construction are a set of rules that courts have developed for interpreting
documents, such as adhering to the grammatical and ordinary sense of the words used
in the letters patent, unless that would lead to an absurdity, or some
repugnance or inconsistency with the rest of the letters patent. The modern approach to interpretation provides that the interpretation of a
written document “is the meaning that a reasonable person, having all the background
knowledge that would reasonably have been available to the parties in the
situation in which they were at the time the document was executed.”
The court stated that the modern principles of
construction required it to have regard for “the background, the context of the
document and the circumstances of the parties, and to consider whether, against
that background and in that context, to give the words a particular or
restricted meaning would lead to an apparently unreasonable and unfair result.” In addition, if there was any ambiguity in the letters patent, all of the
surrounding circumstances including the conduct of the parties after the
incorporation of the Foundation would be admissible to reach the true meaning
of the objects.
b) Application of Approach to Interpretation
As stated above, one of the Foundation’s original
corporate objects was that the Foundation was to:
To receive and maintain a fund or funds
and to apply from time to time all or part thereof and the income therefrom for
such charitable or education purposes related to patient and health care, of
the Victorian Order of Nurses Hamilton-Dundas Branch or its successor or any
other Branch of the Victorian Order of Nurses in Ontario, which, in the
discretion of its Directors, needs assistance.
VON Ontario argued that this clause required the
Foundation to distribute its assets and income up to December 15, 2009 to VON
Hamilton or its successor, for its charitable or educational purposes related
to patient and health care, or for any other VON branch that the Foundation
considered to be in need of assistance. The Foundation argued that its corporate property was held for particular
purposes consistent with those of VON (i.e., charitable or educational purposes
related to patient and health care), and that there was no obligation for it to
exclusively make distributions to VON entities as long as it disbursed its
funds pursuant to those particular objects in the Hamilton area.
Based on the ordinary and grammatical meaning of the above
object clause, the court found there was no intention between the parties to
authorize the Foundation to distribute its funds to any entity whose purposes
were consistent with certain purposes of VON. If such was the case, then the
clause would have simply provided for the particular VON objects and there
would have been no need to refer to VON. By way of comparison, as a separate
freestanding reason as to why it agreed with the applicants, the court noted
the explicitly broad scope of the dissolution clause in the original letters
patent. The dissolution clause provided that property remaining upon
dissolution would be distributed to “Victorian Order of Nurses’ purposes in
Ontario or to other organizations which carry on their work solely in the
Province of Ontario for charitable and educational purposes related to patient
and health care.”
A third clause in the original letters patent that
constituted another freestanding reason to favour the applicants’ position was
the veto therein which granted VON Hamilton a veto over whom may be elected as
a director of Foundation. This clause provided that, “[n]o person shall be
elected as a director unless his or her election has the prior approval
(expressed as a resolution) of the Board of Management of the Victorian Order
of Nurses Hamilton-Dundas Branch or its provider.” Although the court noted
that there may be an issue regarding the legal validity of the veto, it
nonetheless considered the clause to be indicative of the parties’ intention
that VON Hamilton control the Foundation’s board.
While it is arguable that the court’s analysis of these three
clauses should have been sufficient to settle the issue of whether VON Hamilton
was the beneficially entitled to the corporate property of the Foundation, the Court
provided a list of ten additional reasons that supported the applicants’
position. These reasons were not organized in a manner that strictly reflected
the approach to interpretation that the court set out. For example, two
freestanding reasons that favoured the applicant’s position were that the
original name of the Foundation had included “Victorian Order of Nurses” and that
the Foundation’s initial source of the funding was provided by VON Hamilton.
In addition, the Foundation’s fundraising and solicitation
materials had made “voluminous representations” to the public that its funds
would be used for VON programs. Second, VON Hamilton and the Foundation developed a Statement of Operating
Principles in the late 1990s that was described in the former’s by-law. The
by-law stated that, “[a]s outlined in the Statement of Operating Principles
adopted between the Branch and the Foundation, the Foundation exists to provide
resources to the corporation to assist it in meeting its mission, vision and
other obligations to the community as established by the Branch Board of
Directors.”
Other reasons the court listed in support of the
applicants’ position included the Foundation’s history of exclusively funding
VON entities, as well as the financial statements and annual information
returns of the Foundation which indicated that VON Hamilton was the exclusive
beneficiary of its efforts. Additionally, there was also the close relationship between the Foundation and
VON Hamilton, as indicated by their shared office space, the active
participation of VON Hamilton representatives in Foundation board meetings, and
the presentation of VON Hamilton’s budget and the making of the Foundation’s
funding decisions at the same Foundation board meeting.
In sum, Justice Beaudoin held that VON Hamilton was
beneficially entitled to the Foundation’s corporate property. As successor to
VON Hamilton, VON Ontario inherited that beneficial entitlement.
c) Building - Gift and Resulting Trust
In addition to the corporate property, VON Ontario argued
that a building that VON Hamilton had gifted to the Foundation should revert
back to the former based on the doctrines of resulting trust and conditional
gifts.
VON Hamilton had gifted a building to the Foundation for
nominal consideration, subject to the satisfaction of two conditions, as part
of the restructuring of VON Canada under the NVAS. The first condition was a
condition precedent that the Foundation had to enact a new by-law, subject to
the approval of VON Canada. The second condition was a condition subsequent
that VON Hamilton would be able to continue to occupy the building rent-free.According
to the law on conditional gifts, a condition precedent must be performed before
the gift takes effect. A condition subsequent must continue to be performed
after the gift takes effect, and if the condition subsequent is no longer met,
then the gift is brought to an end. Both conditions were breached by the Foundation. Although the Foundation had
enacted a new by-law, it had refused to re-align the by-law to meet the new VON
Canada guidelines, and thus breached the first condition. The second condition
was breached because the Foundation demanded that VON Ontario pay rent for the
building. Accordingly, the gift of the building was brought to an end and the building
reverted to VON Hamilton.
VON Ontario also argued that the building was subject to
a resulting trust. A resulting trust arises when title to property is
registered in one party’s name, but because that party is a fiduciary or gave
no value for the property, it is under an obligation to return it to the
original title owner. The first party has an obligation to show that a gift was intended by the
original title owner, otherwise there is a presumption that a resulting trust
was intended. The court noted no admissible evidence was tendered by the Foundation to
establish that a gift was made. The court also noted that VON Hamilton gave the
property to the Foundation in exchange for the latter’s agreement to amend its
by-laws and to permit VON Hamilton to occupy the building rent- free. Accordingly, a resulting trust was created in favour of VON Hamilton.
3. Has the Foundation breached its fiduciary and/or trust obligations
to VON Hamilton and, if so, what is the appropriate remedy?
The Foundation made several arguments that it had not
breached its fiduciary and/or trust obligations to VON Hamilton. All of these
arguments were rejected by the court. In particular, the Foundation defended expanding
its corporate objects in order to allow the Foundation to provide funds to
non-VON entities on the basis that it was necessary to clarify that it was
indeed authorized to make distributions to non-VON entities. In rejecting this argument, the court accepted the PGT’s submission that “it
must have become impossible or impractical for an incorporated charity to carry
out the originally intended objects for it to amend its objects with a
significant departure from their original intent.” Based on that submission, the court stated that no significance could be
attached to the approval by the PGT of the supplemental letters patent in error
and that the approval did not confer authority on the Foundation that it itself
did not possess.
In addition, the court was not persuaded by the
Foundation’s concerns about the threatened amendments proposed to its letters
patent by VON Canada posed to its fiduciary responsibilities. In fact, the
court found such arguments “somewhat ironic” and stated that the Foundation had
an unfounded belief that its funds were being misused to pay VON Canada’s
overhead and restructuring costs and that its directors “manufactured a
breakdown of the relationship” between the Foundation and VON. By engaging in the drastic remedy of self-help,
which the Court noted is rarely approved, and by removing its assets from the
reach of VON, the Court held that the Foundation breached its fiduciary
responsibilities to VON Hamilton and, importantly, to its historic donors.
The Court ultimately granted, amongst other relief, the
applicants’ desired relief for the corporate property of the Foundation as of
December 16, 2009, or approximately $1,470,670.60, to be transferred to VON
Ontario in trust. The Court also ordered that the Foundation transfer its donor
list as it existed as of December 15, 2009 to VON Ontario.
D. COMMENTS AND CONCLUSION
What is interesting in the VON decision is that the court
states at paragraph 71 that, “I will decide if the directors of the Foundation
are in breach of their fiduciary responsibilities, and, if so, the appropriate
remedy.” However, as discussed above, the court’s conclusions concerning the
breach of fiduciary responsibility is only with respect to the corporate
respondent and not the directors, which was surprising.
Notwithstanding this fact, the VON decision is a useful
reminder to both the directors of charitable corporations and the corporations
themselves that they have a fiduciary duty to their historic donors to apply
the charitable property of the charitable corporation in a manner consistent
with the charitable purposes set out in its corporate objects at the time that
the gifts were made. In this regard, the court stated that, “There was no basis
upon which the Foundation could apply its expanded objects to its corporate
funds already on hand. In the result, corporate property held by the Foundation
as of December 15, 2009 continues to be held beneficially for the Foundation’s
original objects together with all of the income therefrom.”
As noted by the court, where a charity has concerns
related to its charitable assets, in particular, the ability for those
charitable assets to be utilized in accordance with their original purpose, the
assistance of the PGT and remedies under the CAA should be sought as opposed to
resorting to “self-help” remedies.