Feb 2019 Charity & NFP Law Update
On January 17, 2019, the Supreme Court of British Columbia released its decision in Doukhobor Heritage Retreat Society #1999 v Vancouver Foundation, which involved a dispute between two Canadian registered charities: Doukhobor Heritage Retreat Society #1999 (the “Society”) and the Vancouver Foundation (the “Foundation”), a community foundation and a corporation established by special act, being the Vancouver Foundation Act (the “VFA”).
The main issue in the dispute involved $175,000 donated in 2001 by Mr. Markin to the Society for the purpose of generating investment income for specific charitable programs involving the support of the Whatshan Lake Retreat and related camps and seminars of the Society (“Charitable Program”). The $175,000 gift from Mr. Markin was transferred by the Society to the Foundation by cheque to establish a “permanent open fund” known as the “Allan T. Markin Benevolent Fund” (the “Fund”). 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 Transfer Letter also required that the income generated was to be disbursed on the Society’s Charitable Program. The dispute focused on whether the Fund could be returned to the Society in the context of the provisions of the VFA which governed the Foundation, notwithstanding the requirement that the Fund be “held permanently” by the Foundation as set out in the Transfer Letter.
The economic downturn that occurred several years after the transfer of the Fund to the Foundation resulted in the investment income becoming insufficient to support the Charitable Program the Fund was established to support. As a result, the Society requested the return of the Fund from the Foundation in order to use the funds in another matter that would better support the Charitable Program. The Foundation refused to return the Fund to the Society 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 Society argued that the Fund was a non-charitable purpose trust and was therefore voidable under the BC Perpetuity Act, which provides that a court may void the disposition of a non-charitable trust if, in the opinion of the court, doing so would be closer to the intention of the creator of the trust. The court disagreed with the Society and found that the Fund met the test to be considered a charitable purpose trust and, as such, the court held that the Fund was not voidable under the BC Perpetuity Act.
The Society also argued that the Foundation’s governing statute, the VFA, required the Foundation to carry out the directions of donors (in this case the Society) in accordance with subsection 11(1) of the VFA, which states, “For 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” (emphasis added). In response, the Foundation counter-argued that the Society was only capable of giving direction provided at the time of the transfer of the Fund, i.e. before relinquishing its ownership completely over the Fund to the Foundation.
However, the court held that any subsequent directions provided by the Society, including the instruction to return the Funds, must also be followed by the Foundation under subsection 11(1) of the VFA. The court noted that the Fund was not a gift made to the Foundation, but instead was a transfer that reflected a situation described in section 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 funds. In addition, the court found that the meaning of the word “permanent” in the Transfer Letter was intended to ensure that the capital would never be encroached upon, but not that the Fund would remain with the Foundation “for all time.”
This decision is very fact specific and therefore is limited to its particular facts. However, the case does underscore the importance of reviewing and complying with applicable governing legislation and transfer documentation (in this case, the VFA, the private legislation which governed the Foundation, as well as the Transfer Letter) when a registered charity makes a gift or a transfer of charitable property to another charity such as a community foundation. Registered charities would also be prudent to clearly document the terms intended to apply to any transfers of charitable property in an appropriate agreement, in order to avoid potential misunderstandings and disputes between the parties, as had occurred in this case.