Returning Funds to Donor: Doukhobor Heritage Retreat Society #1999 v. Vancouver Foundation

8 février 2019 | Sarah Fitzpatrick

( Disponible en anglais seulement )

In the case Doukhobor Heritage Retreat Society #1999 v. Vancouver Foundation, the British Columbia Supreme Court considered whether a permanent fund established by a charity, the Doukhobor Heritage Retreat Society #1999 (the “Society”), at the Vancouver Foundation, a community foundation, could be returned to the Society.

The Society operates the Whatshan Lake Retreat. The Society received sizeable donations from Allan Markin that were to be invested and earn income that would support the Retreat. In 1999, the first donation of $100,000 was invested in a fund with the Community Foundation of the South Okanagan. In 2001, Mr. Markin donated a further $175,000 to the Society in trust. The Society used that donation to establish a “permanent open fund” with the Vancouver Foundation where the capital was to be held permanently and invested in accordance with the provisions of the Vancouver Foundation Act. The income from the fund was to be disbursed each year to the Society to be used for supporting the Retreat and its associated programs. If the Society was no longer in existence, the income was to be distributed to another charity for the relief of poverty.

As interest rates have fallen over time, the funds were no longer generating enough income to support the Retreat. With the consent of Mr. Markin, the Society wanted to take back the funds and use them to invest in a water project that would generate revenue to support the Retreat. In 2017, the Society was successful in obtaining an order from the British Columbia Supreme Court that entitled the Society to have the fund held with the Community Foundation of South Okanagan returned. The Society also sought the return of the fund invested with the Vancouver Foundation. The Foundation refused to return the fund to the Society on the basis that the fund was a charitable purpose trust to be held permanently by the Foundation.

The Court considered whether the Vancouver Foundation fund could be returned to the Society on the basis of the following arguments:

  • the fund was a non-charitable purpose trust voidable under the Perpetuity Act; and
  • the Foundation was obliged to return the capital to the Society by the terms of the fund agreement and the Vancouver Foundation Act.

Non-Charitable Purpose Trust

In order to qualify as a charitable purpose trust, a trust must be established for a purpose that is recognized as charitable at law. If instead the trust is established for a non-charitable purpose, the trust cannot be created for perpetual duration pursuant to the Perpetuity Act (British Columbia). In the 2017 decision that considered the Community Foundation of South Okanagan fund, the Court found that the fund was a non-charitable purpose trust and, as a result, voidable and returnable to the Society.

In this case, the Court found that the fund held at the Vancouver Foundation was a charitable purpose trust on the basis of the following facts:

  • the terms of the agreement setting up the fund required the income from the fund to be paid to the Society to be used for charitable purposes only;
  • the Vancouver Foundation Act grants the Foundation the power to hold and disburse funds for charitable purposes only;
  • the Vancouver Foundation Act explicitly states that the rule against perpetuities “does not apply to donations of the character indicated in this Act”.

As the fund was a charitable purpose trust and not a non-charitable purpose trust, it was not voidable under the Perpetuity Act.

The Fund Agreement and Vancouver Foundation Act

The Court considered whether the Society was entitled to have the fund returned due to the agreement between the Society and the Foundation establishing the fund and the Vancouver Foundation Act.

The Vancouver Foundation Act sets out the rules that govern the Vancouver Foundation and gives it the powers it has to operate. The Act states that “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.” The Society took the position that, having given directions in writing to the Foundation to return the capital of the fund, the board of the Foundation was required to carry out those directions.

The Foundation argued that it was only required to follow the directions at the time a gift is made to it. After a gift is made, the donor has relinquished ownership over the gifted property and can no longer direct how that property is used. The Foundation further argued that it would be inconsistent with the terms of the fund agreement, which said the fund was to be held permanently by the Foundation, to permit the Society to direct that the fund is to be returned to it.

The Court however noted that this scenario is different than where an individual donor is making a donation to a charity. Here, the Society entrusted funds to the Foundation to be managed and invested by the Foundation. The Court further noted that the word “permanent” in the agreement did not mean that the fund had to remain with the Foundation for all time. The word “permanent” meant that the Foundation could not use the capital of the fund and its fees had to come from the income. In addition, the Court compared the wording in the Vancouver Foundation Act with similar wording about following donor’s directions from statutes establishing other community foundations. In those statutes, the community foundations were required to follow the directions that donors gave “at the time of donation”. The Vancouver Foundation Act, though, did not restrict when directions can be given.

The Court found that it was within the Foundation’s charitable purposes to return the fund to the Society to be used for the purpose of generating income to sustain Retreat and that, under the terms of the Vancouver Foundation Act, the Foundation was obliged to return the fund to the Society.

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This decision appears to come to a different conclusion than other cases about how a charity must hold donations that have been given to it on a charitable purpose trust and the influence a donor can have on the terms of a fund. For example, in Mulgrave School Foundation, Re, the Court confirmed that once a charitable purpose trust is established by a donor making a gift to a charity for a specific charitable purpose, the donor relinquishes any right to that donation and the charity must hold the donation pursuant to the terms of the trust. Unless otherwise provided in the agreement setting up the trust, the terms of the trust can only be changed in limited circumstances by court order, whether or not a donor agrees to the change.

The facts, however, in this decision are different from a typical donation scenario. The arrangement between the Society and the Foundation was more along the lines of establishing an investment fund that would generate income for a specific charitable activity of the Society. As the donor was also a charity, it is also required to carry on activities for charitable purposes. The Court also references, without elaborating, that the Society was in breach of its own trust obligations to Mr. Markin when it established the fund with the Foundation. Finally, the terms of the Vancouver Foundation Act itself played a significant role.

It is important for charities to understand the rights of a donor and to have clearly articulated donation or fund agreements. If your charity has any questions about this decision or its donation or fund agreements, Miller Thomson’s Social Impact Group would be happy to assist.

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