Court Intervenes When Sole Officer of Voluntary Associations Breaches Trust
Sept 2021 Charity & NFP Law Update
Published on September 29, 2021

By Ryan M. Prendergast

   
 

The case of Hofer v Hofer et al., decided by the Court of Queen’s Bench of Manitoba, provides an example of when the court will intervene in the affairs of a voluntary association. The decision, delivered on August 3, 2021, considered, among other things, if the court had jurisdiction to adjudicate the alleged breach of trust by the voluntary association’s sole officer and trustee.

The Rainbow Colony of Hutterian Brethren (“Rainbow”) was a voluntary association operating a large mixed farm through several corporations. For many years it had been operated and directed by Cornelius Hofer Senior (the “Father”) with the assistance of one of his sons, Rodney Hofer (the “Respondent”). After the Father passed away in 2018, the Respondent was the sole officer and trustee of Rainbow, the voluntary association, and the only one in control of Rainbow’s members’ income as trustee. Through a series of events, the Respondent made financial and business decisions which put his personal interests before the interests of other members and beneficiaries of Rainbow. Two other sons, Cornelius Hofer Junior and Gerald Hofer (the “Applicant Brothers”), who disagreed with the Respondent’s actions, were eventually excluded from membership in Rainbow. The Applicant Brothers then brought an application to the court alleging that the Respondent engaged in conduct that amounted to a breach of trust.

The Respondent submitted that the court had no jurisdiction to adjudicate the matters raised by the Applicant Brothers, because Rainbow is a voluntary association, relying on the decision of the Supreme Court of Canada (“SCC”) in Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v Wall (“Wall”), discussed in Church Law Bulletin No. 54. In Wall, the SCC held that there are limits to the court’s authority to review decisions of voluntary associations. The SCC noted that judicial review is reserved for state action, there is no free-standing right to procedural fairness, and that even where judicial review is available, the court can consider only those issues that are justiciable. The Respondent claimed that the SCC decisions in Wall, Lakeside Colony of Hutterian Brethren v Hofer (“Lakeside”), and Aga v Ethiopian Orthodox Tewahedo Church of Canada (“Aga”) applied to this case.

The court, however, asked whether this case involved a mere breach of a Rainbow custom, or if it was instead a violation of a legal right sufficiently important to warrant judicial intervention. The circumstances in Wall, Lakeside and Aga were distinguishable from the circumstances which occurred at Rainbow. The court found that this case was about legal rights affected by the Respondent’s administration of a trust and related property. Additionally, the court concluded that even if the analysis from Wall, Lakeside, and Aga applied, it would have found the legal rights of the Applicant Brothers to be sufficiently important to warrant court intervention and justiciable. Since the case was about allegations of breach of trust by a trustee, the court had jurisdiction to decide the case. The court ultimately concluded that the Respondent was in a conflict of interest and that he failed to place the interests of beneficiaries above his own.

Charities and not-for-profits that organize as unincorporated associations should take note of this case, which demonstrates that certain conflicts between members may rise to the level where a court finds judicial intervention is warranted for violation of a legal right. For example, where an officer of the association is in the position of a trustee of property for the association as a whole and breaches that trust, judicial intervention may be justified. Especially where an individual’s legal rights are at risk, the court may find it necessary to intervene.

   
 

Read the September 2021 Charity & NFP Law Update