BACKGROUND:
On February 27, 1998, the Ontario Court of Justice (General Division) released its decision in the matter of the "winding up" of the Christian Brothers of Ireland in Canada ("CBIC"). The decision dealt with a number of issues which are of far-reaching significance to charitable and not-for-profit organizations.
The facts of the case are as follows. The Congregation of Christian Brothers is a world-wide religious order involved in teaching and in the operation of orphanages. It conducts its temporal affairs in Canada via the corporate entity of the CBIC.
The Mount Cashel Orphanage located in St. John's, Newfoundland was operated by CBIC. A Commission of Enquiry, as well as various criminal and civil proceedings, found that approximately 90 young boys suffered sexual, physical and emotional abuse at this orphanage.
Damage claims, settled and pending, arising from this abuse approximated $36 million. The CBIC, having general corporate assets of only $4 million but with trust assets in excess of the amount of the claims, filed an application pursuant to the Winding Up and Restructuring Act, R.S.C. 1985, c.W-11 (as amended) for the winding up of the corporation.
ISSUES:
The issues determined by the Court included the following:
1. Is CBIC immune from liability to persons with damage claims by virtue of its charitable objects?
2. If not, what assets of CBIC may be seized to satisfy judgements against the corporation?
CHARITABLE IMMUNITY:
The Court emphatically rejected the argument that a charitable corporation is immune from liability for claims by damage claimants. While recognizing that the doctrine of charitable immunity had a short lived tenure in England last century and that it is still accepted in certain states in the U.S., the Court held that the doctrine "has long been defunct in Canadian law".
CBIC was therefore not immune to tort claims by virtue of its charitable status.
SEIZURE OF ASSETS:
The Court's rejection of the doctrine of charitable immunity was a rejection of the argument that all of the assets of a charitable corporation are immune from damage claims. This raised the following question: Which assets held by charitable corporations are subject to seizure and which are not?
The court considered the following three "types" of assets:
i. Assets held in trust for charitable purposes;
ii. Assets owned beneficially by charitable corporations;
iii. Assets earmarked by donors for specific charitable purposes.
The Court held that all of these assets are subject to seizure by damage claimants with the proviso that assets held in trust by charitable corporations can be seized only if the damages for which compensation is being sought arose in relation to the particular charitable trust in question.
CBIC was therefore barred from claiming that property that it held in trust was automatically exempt from seizure.
SIGNIFICANCE:
The significance of the Christian Brothers decision ostensibly flows from the fact that it constitutes a qualification to the long standing common law prohibition on the seizure of assets held in trust for charitable purposes. It has long been settled law that such assets are not subject to seizure. The Christian Brothers holding, however, allows such assets to be seized in certain circumstances, i.e. where there is a correlation between the damages suffered and the particular charitable trust in question.
Directors of charitable corporations can therefore no longer assume that trust property is necessarily insulated from damage suits.
The importance of the Christian Brothers decision, however, transcends the matter of tort liability. When considering the different categories of assets held by charities, the court ruled that there is a general presumption that charitable corporations do not receive assets and gifts in a trust-like capacity. The court held that:
In law, the presumption is to the contrary. That is, the assets of the corporation are presumed to be received by it beneficially and for its absolute use - albeit in accordance with the objects of the corporation, as required by corporate law - unless there is some evidence to give rise to the creation of a trust.
A trust, the Court ruled, will be created when the formal requirements of trust law are met:
The arrangement must be characterized by "the three certainties" - which are considered essential to the creation of a trust - namely, certainty of intention, certainty of subject-matter, and certainty of objects.
The legal implications of the court requiring that these formalities be in place to create a trust and its presumption that charities receive gifts and assets beneficially are momentous.
First, it means that many donor restricted gifts that do not comply with the requirements of "the three certainties" may not in fact be trust funds. In such circumstances, the board may be able to legally employ the gift in any way that it deems appropriate to pursue its charitable objects - even if the restrictions were imposed in good faith by the donor.
Second, while this could be welcome news for those charities that feel unduly constrained by restrictions imposed by donors, it could also prove to be problematic for charities such as community foundations which rely upon and encourage donor restricted charitable gifts. This will likely be the case if the Christian Brothers decision renders an erosion of confidence by donors who have in the past donated funds on the assumption that their gifts constituted binding donor restricted special purpose charitable trusts.
Third, legal counsel acting for donors will need to exercise greater diligence in ensuring that "the three certainties" are unambiguously articulated in the document creating the gift. Failure to do so could constitute the basis of a negligence claim for failing to take due care in ensuring that the gift was capable of effectively restricting the board of the recipient charity.
It should be noted that leave to appeal has been requested. It is therefore premature at this point to determine what the final impact of the case will be. It is possible that the holding will be overruled; and even if it is upheld, it could be limited to its narrow fact scenario, i.e. the seizure of assets by tort victims. The preceding comments should therefore be construed as being subject to the outcome of the appeal.