Apr 2018 Charity & NFP Law Update
On March 8, 2018, the Ontario Superior Court of Justice released its decision in Barton v Kingston Flying Club, concerning a claim arising from a loan made to a registered charity, the Kingston Flying Club (“Club”), by its past president (“President”), as well as for the value of other benefits provided to the President by the Club in exchange for his services over the years. While not explicitly stated in the decision, it appears that the President was an officer and employee of the Club, but not a director.
The President claimed that he had loaned money to the Club by personally paying fees that it owed to a contractor for installation work, which he classified as a demand loan. He also claimed the value of 14 months’ rent for storage of his aircraft, which he indicated the Club agreed to provide for three years given his past contributions of time and materials. In response, the Club argued that its debt to the President should be set off against the hangar rental fees that he owed, as well as the value of the personal credit card points that he earned in making past purchases for the Club. Since the value of these items exceeded the monies owed to the President, the Club sought the dismissal of the President’s claim. Interestingly, the Club also argued that, as a charity, the Charities Accounting Act (Ontario) (“CAA”) prohibited directors, officers and employees of registered charities from receiving a benefit, and therefore, the President, as an officer and an employee, was not entitled at law to free hangar rent or to retain the credit card points for his personal use.
The court found that the President made a demand loan to the Club, and that the hangar rent and credit card points were not connected to the said loan but were only put forward by the Club as legal set-offs against the debt owed to the President. However, as legal set-offs, the court indicated that they were subject to the two-year limitation period under the Limitations Act, which the Club had not complied with. As a result, the court allowed the President’s full claim. The court’s decision did not address the Club’s argument that the CAA prohibited the President from being entitled to benefits, save and except to indicate that “there is no such provision in the Act preventing a benefit being extended.”
The case is a good reminder of the importance for charities to always ensure there is proper loan documentation in place so that the terms of any loans are clearly understood by all of the parties to the transactions and in order to avoid any future disputes over such loans. This case also shows the importance of charities being aware of limitation periods when making claims for legal set-offs.