Limits on Recourse for Donors Once a Gift is Made - LawNow Magazine

Limits on Recourse for Donors Once a Gift is Made

Not for Profit Law ColumnIt is an under-appreciated nuance of Canadian charity law that s. 92(7) of our Constitution actually gives the provinces the bulk of regulatory authority over charities. Provincial governments often don’t exercise their jurisdiction in this area, so the federal government’s Canada Revenue Agency (CRA) – which grants tax privileges to charitable groups – has become in many instances the default regulator.

However, though the CRA can and does exercise lots of oversight under the guise of federal powers over taxation matters, its ability to delve into the day-to-day operations of charities is limited.  One province, Ontario, has a longstanding and significant regulatory structure to monitor and enforce appropriate use of charitable property.  British Columbia has recently become more active in its regulation of this area.

In provinces without an office dealing with such matters, the Attorney-General retains an inherent  jurisdiction over charitable property.  This allows a provincial Attorney General to initiate court proceedings where charitable property needs to be protected.

Ontario’s Office of the Public Guardian and Trustee (OPGT) is mandated under the Charities Accounting Act (CAA) to administer an annual reporting requirement and with various sanctions and remedies where charities misuse or misappropriate charitable property.  One of its CAA powers is to investigate a charity’s finances.

A recent case, Fass v. CAMH, highlights the OPGT’s role and the limitations in that role.  The case is being appealed to the Ontario Court of Appeal.  At issue was an attempt by a donor, who had made a large gift to the Centre For Addiction and Mental Health (CAMH), to trigger an investigation by the OPGT into how the institution had used the proceeds of the donation.  The gift had, pursuant to a written agreement, been subject to certain conditions, which the donor suggested that CAMH had not fulfilled.  The parties disputed how closely the charity had abided by the terms of the agreement.

At common law a gift must be a voluntary transfer of property for which conditions on the use of a gift at the time it is donated.  For example, scholarship funds may be the donor receives no “consideration” (i.e., does not get anything of value in return).  A donor can, however, set certain established with a requirement that a prize be awarded to the student with the highest marks in a particular academic program.

Sometimes, however, scholarship funds or similar gifts are based on conditions that run afoul of human rights legislation, such as when they are awarded on the basis of racial characteristics.  In those circumstances, a court may find the condition to be contrary to public policy, and the terms of the scholarship may be changed.

Of course, many conditions do not trigger human rights concerns.  In such cases, options for enforcing or overturning terms attached to a gift are much more limited.  Sometimes where the conditions of a gift are not being followed, the threat or initiation of litigation can prompt a change in behaviour in an organization that has received a gift.

In the United States these matters are more apt to be litigated, and famously, in one American case, the heirs of the donors brought suit and got a large institution to redirect use of the resources in a way more in keeping with the original intention of the gift.  In 2002, the heirs of the A&P Grocery fortune sued Princeton University over alleged misuse of a donation endowing graduate education for students preparing for government careers.  The matter was settled out of court, but the heirs got at least part of what they were seeking with respect to use of the gift.

Some donors bring court proceedings asking for return of a gift where a condition has not been met.  But circumstances where a gift will be ordered returned owing to problems with a condition are uncommon.

In Fass v. CAMH, rather than seeking return of the gift or asking the courts to compel a change in the organization’s behaviour, the donor made an application for an order to have the OPGT directed to investigate use of the donation and publicly report on its findings.  One section of the CAA provides for a judge to make an order for an investigation where he or she believes it is in the public interest.

Morgan, J. in Fass v. CAMH found that in the circumstances of the gift in question an order for an investigation would not be in the public interest.  He noted that the concerns of applicant went beyond financial management, and had to do with how the funding was used.  He further noted the potential disruption and cost of any investigation, and that the Order being sought was driven more by the complainant’s personal interest than by that of the public.   The Order was denied.

The Appeal raises two key questions:

1) whether the public interest is served by an investigation even if the applicant’s private interests are also served; and

2) whether a charity can be investigated for its proper use of charitable property with respect to a specific charitable purpose designated by a donor or only for its proper use with respect to the organization’s stated charitable purpose(s).

Given the popularity of donor agreements when large gifts are made, the outcome of the appeal will be closely watched.

Authors:

Peter Broder
Peter Broder is Policy Analyst and General Counsel at The Muttart Foundation in Edmonton, Alberta. The views expressed do not necessarily reflect those of the Foundation.
 


A Publication of CPLEA