Court Approval Required to Pay Directors Remuneration Earned in Another Capacity

Harold G. Fox Education Fund v. Ontario (Public Trustee), decided by Ontario High Court of Justice in 1989, is a leading decision on when a court will approve remuneration paid to a director of a charitable corporation who acts for the corporation in a capacity other than that of director.

1. Facts

Dr. Harold G. Fox was a leading Canadian intellectual property lawyer. While he was alive, he incorporated a charitable corporation under Part III of the Ontario Corporations Act called the Harold G. Fox Education Fund. Dr. Fox had been an honorary member of the Middle Temple in England and he hoped that the fund would be used to establish scholarships primarily for graduates in law from Ontario universities to study and work in England and secondarily for suitable members of the Middle Temple to study in the chambers of Ontario barristers.

Dr. Fox died in 1970 and his wife died in 1984. Upon her death, the fund was endowed by the estate with $3 million and its income was about $250,000 a year.

However, even before her death, Mrs. Fox's health was frail and the burden of looking after the fund fell to one of the other local trustees, Mr. Pepper. Since 1972, Mr. Pepper had been sporadically receiving remuneration from the fund, totalling $34,980 over 14 years. At that point, he applied to court for retroactive approval of the amounts he had been paid in the past and advance approval of the sum of $1,000 a month in anticipation of his future services to the fund.

The letters patent of the corporation included the following provision:

AND IT IS HEREBY FURTHER ORDAINED AND DELARED that the directors shall serve without remuneration, and no director shall, directly or indirectly, receive any profits from his position as such; reasonable expenses incurred by the director in the performance of his duty may be paid.

This provision (or one comparable) is compulsory for all charitable corporations incorporated or continued under the OCA. It is also commonplace for charitable corporation incorporated or continued under federal law.

2. Rulings

Justice Van Camp:

  • retroactively approved the past payments of remuneration to the director and also approved the prospective monthly payments of remuneration;
  • held that the restriction in the letters patent is only as to remuneration as a director;
  • further held that, in an application to court for approval before payment, the onus is on the applicant to show that the payment for services other than as a director is in the best interest of the corporation in light of the circumstances;
  • held that approval of the court should be made before payment;
  • held that there is no reason why a prospective allowance could not be made to a director for services in another capacity; and
  • found that the nature of the services provided, and to be provided, required a special administrator at a salary and that the corporation benefitted from the services beyond what was required of the individual as a director. Otherwise, it may have been impossible for the fund to continue and achieve its objectives.

3. Key Observations

The key principle of Harold G. Fox is that, while remuneration can be paid to a director who acts in another capacity for the corporation, the court must approve the payment in advance of it being made and be satisfied that the payment is reasonable and in the best interests of the corporation under the circumstances. Usually, it will be preferable to avoid the expense and uncertainty of a court application by simply having the individual step down from the board before he or she begins remunerative work for the charitable corporation. This deftly obviates the need for a court application.

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