Feb 2023 Charity & NFP Law Update
On January 16, 2023, the Ontario Superior Court of Justice provided reasons for an application, Fletcher’s Fields Limited v. The Ontario Rugger Union, heard in July 2022. This case dealt with the sale of property by the plaintiff, Fletcher’s Field Limited (“FFL”). While FFL had been incorporated under the Corporations Act (Ontario) in 1970 as a private for-profit company, it operated as a not-for-profit dedicated to the promotion and development of the sport of rugby in the Greater Toronto Area.
FFL owned six rugby playing fields in Markham, Ontario (“Fields”), but decided to sell them to the City of Markham in September 2021 due to financial difficulties. FFL brought an application seeking the opinion, advice or direction of the court regarding the sale and distribution of the proceeds of the sale of the Fields.
As background, the Fields were originally purchased by the Ontario Rugger Union (“ORU”) in the early 1960s. At the time of the purchase there were six rugby clubs in the ORU (“Clubs”). In a subsequent 1966 agreement between the ORU and the Clubs, it was agreed that the ORU would own the Fields in trust for the Clubs and each Club would have the right to use its assigned pitch to play rugby without payment to the ORU.
FFL was later incorporated in 1970 with corporate objects that included operating athletic facilities and promoting interest in athletic games, recreation and sports and related objects that involved the promotion of sports. ORU and the five remaining Clubs are the current shareholders of FFL and the respondents in this application.
In March 1971, FFL, the ORU and the Clubs entered into an agreement to convey the Fields from the ORU to FFL. This agreement acknowledged that the ORU held title to the Fields in trust for the Clubs for the purpose of playing rugby and that the Fields should continue to be used for the playing of rugby and for social events connected with rugby. A declaration of trust to this effect was also registered by FFL on title to the Fields in 1972.
In 1979, FFL filed articles of amendment providing that its affairs would be carried on without the purpose of gain for its shareholders, there should be no distributions among the shareholders by way of dividend or bonus, and any property, profits or other accretions to FFL must be used to promote its objects. There was no dissolution clause, though, in either FFL’s letters patent or articles of amendment.
Given its financial difficulties, FFL explored the option of selling the Fields as the best means of continuing to serve the rugby community in Toronto. The Fields were sold by FFL to the City of Markham in September 2021 for $21,500,000. In November 2021, FFL and the Clubs donated $11,650,000 of the sale proceeds to the Canadian Rugby Foundation to establish endowment funds related to rugby. FFL brought this application to seek the court’s opinion, advice or direction on questions related to the Fields’ sale and distribution of the remaining sale proceeds. The first question raised by FFL in the application was: were the fields held in trust? The court noted that, in order to establish a trust, three elements must be present: (1) certainty of intention, (2) certainty of subject matter, and (3) certainty of objects based on well established case law principles.
The court found that FFL held the Fields as trustee for a specific, non-charitable purpose trust, with the trust’s purpose being the promotion and playing of the sport of rugby in accordance with the 1971 conveyance agreement and the 1972 declaration of trust. In so doing, the court noted that a purpose trust can be charitable or non-charitable, with the common feature of the two being the advancement of a purpose, as opposed to directly benefitting specific people.
While noting that the promotion of sport itself (i.e. rugby) is not a charitable purpose, the court found that FFL held the Fields as trustee because the three-part trust test had been met, there was no violation of the rules against perpetuities and at least one person had standing to enforce the trust. On the last point, the court found that while the ORU and the remaining Clubs were not the trust’s direct beneficiaries, they had sufficient interest to enforce the trust’s purpose.
The court then examined the distribution of the remaining sale proceeds, noting that FFL’s reason for existence has now come to an end given the Fields’ sale. While FFL’s articles of amendment prohibit distribution of funds by dividend, the court found there was no language in its constating documents addressing asset distribution on dissolution. Accordingly, the court stated that, upon dissolution, FFL is required to equally distribute the remaining net proceeds from the Fields’ sale to its shareholders, namely ORU and the five remaining Clubs, in accordance with the Ontario Business Corporations Act.
This case shows the willingness of the courts to protect the spirit and intent of the intended purpose of a trust, including one which is non-charitable in nature and has been established for the purpose of promoting the game of rugby as in this situation. Although not explicitly addressed by the court, it is reasonable to assume, although not known, that the trust’s purpose will “attach to” all of the proceeds FFL received from the sale of the Fields and as such, the trust’s purpose will be furthered through the expenditure of the said proceeds. This would include the above-mentioned donation made by FFL to the Canadian Rugby Foundation, as well as the sale proceeds that will be distributed to the ORU and the Clubs upon FFL’s dissolution.