Sept 2022 Charity & NFP Law Update
Donors do not necessarily have the right to direct the way in which their donations to donor advised funds are spent by charities. This was the Ontario Superior Court of Justice’s ruling in The Joseph Lebovic Charitable Foundation v Jewish Foundation of Greater Toronto on July 11, 2022, in which the court considered a claim by a donor that it be able to direct the allocation of funds donated to a donor advised fund held by a charity. The court ruled against the Joseph Lebovic Charitable Foundation (“JLCF”), finding that it could not direct the way in which the Jewish Foundation of Greater Toronto (“Jewish Foundation”) made grants from the donor advised fund that the JLCF has established with the Jewish Foundation.
JLCF was established by Joseph Lebovic, who used JLCF as a vehicle to make donations to the Jewish Foundation through a donor advised fund named the Joseph Lebovic Charitable Fund (“Lebovic Fund”). When he passed away in May of 2021, his brother – Wolf Lebovic – assumed control of the JLCF and the Lebovic Fund on a de facto basis as executor of Joseph’s estate, as Joseph had not nominated a successor for either.
During his life, Joseph provided advice to the Jewish Foundation on how it should spend the money that JLCF donated to the Lebovic Fund. It is the Jewish Foundation’s policy that while donors are free to make such recommendations on how monies in any donor advised fund within the Jewish Foundation are to be granted, and even though such recommendations are usually accepted, the Jewish Foundation is under no obligation to follow such recommendations.
In March of 2022, JLCF was advised by the Jewish Foundation that a small portion of the funding that JLCF had provided to the Lebovic Fund would be spent in a manner contrary to Wolf Lebovic’s requests. JLCF brought a motion to prevent this from occurring. They sought that the entire Lebovic Fund be either secured by way of having them paid into court under rule 45.02 of the Rules of Civil Procedure (Rules), or that an interlocutory injunction restrict the distribution from the Lebovic Fund until this action could be considered by the court.
To be entitled to relief under rule 45.02, a claimant must establish “(a) that its claim is to a right in a specific fund; (b) that there is a serious issue to be tried as to its claim to the fund (a serious prospect of ultimate success); and (c) that the balance of convenience favours granting the order.” The Jewish Foundation argued that the JLCF’s Lebovic Fund was not a “specific fund” within the meaning of rule 45.02, and could not be secured as such. However, this was rejected by the court as the fund was found to be readily identifiable and that the Rules do “not require the legal right to the specific fund to be a proprietary right”.
However, the court found that JLCF’s complaint lacked grounds to provide for either of the remedies sought. The tests for both relief under rule 45.02, as well as for an interlocutory injunction, required that there be a “serious issue to be tried”. JLCF conceded that there was no agreement that the Jewish Foundation was required to spend the donated money in the Lebovic Fund as per their recommendations. This reflects the law that, unless restrictions are imposed at the time of making the gift, the donor is not able to later direct how any charitable gifts are spent by the charity to whom they are made, and the court cannot order the Jewish Foundation to make any particular distribution from a donor advised fund such as the Lebovic Fund.
JLCF then argued that the Jewish Foundation must consider their recommendations on distributions from the Lebovic Fund in good faith. The court rejected this and raised the point that even if it were true that the Jewish Foundation must consider these recommendations, there was no evidence of bad faith in the Jewish Foundation’s rejection of JLCF’s recommendations. As such, there was no serious issue to be tried.
Furthermore, the court found that there would be no irreparable harm if the injunction was not granted, and that this did not favour the granting of relief on the balance of convenience. For these reasons, JLCF’s motion was dismissed with costs fixed at $135,000.
This case is a helpful reminder that, without any prior agreement setting out specific restrictions that attach to a gift such as limiting future grants to be made to a named charity(ies), type of charity or other restricted charitable use, donors “divest themselves of all power and control over the property and transfer such control to the donee” by gifting property to a charity. Where donors have specific restrictions that they wish to impose on a gift, it is important to enter into a properly worded agreement between the charity and donor at the outset setting out these restrictions in detail concerning the charity’s use of the gifted property.