Foundation May Not Cut Ties with its Operating Charity

In Victoria Order of Nurses for Canada v. Greater Hamilton Wellness Foundation (decided 2011), Justice Beaudoin of the Ontario Superior Court of Justice held that the former fundraising entity of the Victorian Order of Nurses Hamilton-Wentworth Branch could not unilaterally change its letters patent so that it cut all ties with the successor of the Branch.

1. Facts

The Victorian Order of Nurses Hamilton-Wentworth Foundation was incorporated under Part III of the Ontario Corporations Act in 1981. According to its original letters patent, the foundation's objects were to receive and maintain a fund and apply the fund to such charitable or educational purposes related to patient and health care of the Victorian Order of Nurses Hamilton-Dundas Branch (the "VON Hamilton Branch") or its successor, or any other branch of the Victorian Order of Nurses in Ontario. It appears that the Victorian Order of Nurses - Ontario Branch ("VON Ontario"), a separate corporation, became the successor of the VON Hamilton Branch.

The foundation's letters patent provided that, on dissolution of the foundation, its remaining property should be distributed to VON Ontario. Finally, the letters patent provided that no person could be elected as a director of the foundation without the prior approval of the board of VON Ontario or its successor.

The foundation remained dormant until 1989. For approximately the next 20 years, the foundation exclusively raised money for VON programs and services and funded only VON programs and services.

In 2007, the Victorian Order of Nurses for Canada ("VON Canada"), a national registered charity since 1899 (of which VON Ontario was one of six regional corporations), notified the foundation and all branches that they would be required to sign association agreements to clarify their roles under VON Canada's national strategy. After that, the relationship between the foundation and the branch quickly deteriorated.

The foundation resisted signing the association agreement and sought to revitalize the defunct VON Hamilton Branch. The foundation next abruptly terminated its agreement with VON Ontario and withheld payment to VON Ontario of several hundred thousands of dollars in fees that were owed under the agreement. The foundation also vacated the office space that it had long shared with VON Ontario after hours and without notice, removing donor and other confidential information and issuing a demand for payment of annual rent of $86,000 from VON Ontario.

Finally, the foundation took steps to change its letters patent to enable the foundation to disburse funds to registered charities other than VON Canada. VON Canada then terminated the trade-mark agreement with the foundation (resulting in a change of the foundation's corporate name) and, together with VON Ontario, brought legal proceedings against the foundation seeking an order that the foundation's assets be transferred to VON Ontario to be held in trust and distributed in an orderly way to benefit programs provide by VON Ontario in Hamilton, in accordance with the original, unamended objects of the foundation.

2. Rulings

Justice Beaudoin of the Ontario Superior Court of Justice granted the order in favour of the applicants. His reasons may be summarized as follows:

● A charitable corporation holds its corporate assets beneficially to be used only and strictly in accordance with its charitable objects and owes a fiduciary duty to the public in general, which turns its money over for the charitable purposes it wishes to support.

● A charity's directors have fiduciary obligations in ensure that a charitable corporation's assets are applied in accordance with its corporate objects and the representations made to the public by the charity about how donations are sought and how they are to be used.

● Subsection 1(2) of the Charities Accounting Act ("Act") deems a charity to be a trustee and to hold its real and personal property as trust property for charitable purposes in accordance with the Act.

● The Act provides a mechanism which allows anyone, including beneficiaries of a deemed trust, to apply to court to enforce the deemed trust.

● The courts have an inherent jurisdiction to supervise charities and extremely broad powers under the Act to make any order the court thinks is just.

● Under the foundation's original letters patent, VON Ontario was the exclusive beneficiary of the corporate objects and the foundation's fundraising activities. The foundation did not have the right to disburse funds to any other entity.

● As well, the foundation had long advised the public in its fundraising and solicitation material that donations made to the foundation would be used for VON purposes and, historically, the foundation only funded VON entities. The annual financial statements of the foundation were consistent with this exclusive relationship.

● The letters patent gave VON Ontario veto power over who may be elected as a director of the foundation.

Justice Beaudoin held that the foundation could not apply its expanded (non-VON) objects to its corporate funds already on hand. Therefore, he ruled that corporate property held by the foundation as of the day (namely, December 15, 2009) that the foundation ceased to be a fundraiser for VON Ontario exclusively continued to be held beneficially for the foundation's original objects (to be disbursed solely to VON Canada). Likewise, all of the income from this property continued to be held in accordance with the foundation's original objects.

3. Key Observations

VON Canada demonstrates the importance of carefully stating the purposes of a charitable corporation in its constating documents (articles or letters patent). If the purposes relate to only one or a small number of specific beneficiaries and the parties conduct themselves accordingly (particularly in fundraising activities with public donors), the foundation will not be free to shuck off its beneficiary by a simple amendment of its purposes (or objects). A statutory deemed trust arises under the Act. Monies or other property raised under the former purposes (or objects) cannot be unilaterally redirected to a new and different beneficiary by simply amending the purposes clause of the articles (or letters patent).

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