A. INTRODUCTION
The long-awaited Charitable Purposes Preservation Act
(the "CPP Act") was proclaimed in force by British
Columbia's provincial government on March 8, 2007.1
The CPP Act, originally introduced in October 2004, is intended
to address uncertainty surrounding the protection of donations
that have been given for a specific charitable purpose, and
seeks to prevent such donations from being used for objects
other than those intended by the donor. This Charity Law
Bulletin will review the background of the CPP Act, summarize
its content, and provide a brief commentary on its significance
for charitable organizations in British Columbia and the rest
of Canada.
B. BACKGROUND TO THE CHARITABLE PURPOSES PRESERVATION
ACT
The CPP Act was first introduced as the B.C. Legislature's
response to the legal confusion that arose following a saga
of cases involving the Christian Brothers of Ireland in Canada
("Christian Brothers"). These cases sparked concern
over the lack of protection provided to special purpose charitable
property when the charity responsible for the property is
subject to the financial claim of a third party.
The cases were the subject of previous Charity Law Bulletins
(No. 32 and No. 243
) and were also discussed in a two-part article entitled Donor
Restricted Charitable Gifts: A Practical Overview Revisited.4
In general, the cases concern the Christian Brothers, a worldwide
Roman Catholic teaching order that operated a number of schools
and orphanages throughout Canada. The Christian Brothers were
found guilty of criminal charges and held liable for civil
damages relating to sexual, physical and emotional abuse that
had been carried out by its members at the Mount Cashel School,
a facility owned and operated by the Christian Brothers in
St. John's, Newfoundland. The claims for damages against the
Christian Brothers far exceeded their general corporate assets
and totalled an estimated $67 million.
Being incapable of fulfilling these claims, the Christian
Brothers made application to be wound up, and in July of 1997,
the liquidator asked the court for advice and direction on
legal questions relating to whether certain charitable assets
could be used to satisfy tort claims. Specifically at issue
was the question of whether two of the Christian Brother's
schools (which were located in B.C.) were assets that could
satisfy these claims. The schools had been established by
Christian Brothers through donations and were purportedly
held in trust by them for the purpose of Catholic education.
The Ontario Court of Appeal held that all assets of a charity,
whether they are owned beneficially by a charity or they are
held by the charity pursuant to a special purpose charitable
trust, are available to satisfy claims by tort victims upon
the winding-up of the charity - even if the basis for the
claims has no relationship to the property in question.5
The Supreme Court of Canada denied leave to appeal in this
decision, allowing the law to remain in what many viewed as
an unsatisfactory state. This left charities with great concern
over their inability to protect their charitable trust property
from possible creditors.
The Christian Brothers decision undermined one of
the primary means by which charities raise monies from donors:
special purpose charitable trusts. Special purpose charitable
trusts can include endowment funds, scholarship funds, building
funds, 10-year gifts under the Income Tax Act, donor
advised funds placed with community foundations and testamentary
gifts where the testator imposes restrictions on the use of
funds. The principal attraction in making these types of gifts
is the donor's ability to ensure that his or her gift is used
for a certain purpose. However, the decision in Christian
Brothers jeopardized this donor input by placing special
purpose property at risk of being used towards the entirely
different purpose of satisfying a charity's liabilities, even
where they are unrelated to the special purpose charitable
trust.
The decision also generated much concern among legal commentators,
as reflected in a 2003 report by the British Columbia Law
Institute Committee on the Modernization of the Trustee
Act's, entitled "Creditor Access to the Assets of
a Purpose Trust" (the "Report").6
The Report described the Christian Brothers decision
as a "serious distortion of the law of trusts" and
challenged its legal correctness. It also explored the potential
undesirable results of the decision and recommended that legislative
intervention was necessary to prevent the Christian Brothers
decision from becoming part of Canadian law.
B.C. was the first province in Canada to legislatively respond
to the concern over the Christian Brothers decision.
Its response was the CPP Act which, as stated, finally came
into force on March 8, 2007.
C. CONTENT OF THE CHARITABLE PURPOSES PRESERVATION ACT
The CPP Act has not changed or replaced the B.C. common law
of trusts. Instead, its effect is to provide additional protection
where donors intend to provide a gift for a specific charitable
purpose. To receive this protection, a gift must qualify under
the CPP Act as "discrete purpose charitable property".
To qualify, the donated property in question must be:
If property donated to a charity meets these requirements,
the charity will have no beneficial interest in the property
and it will be protected from any seizure or attachment to
satisfy a debt or liability of the charity, except those debts
or liabilities incurred by the charity in "advancing,
or in attempting or purporting to advance, the discrete purpose
for the property".8
The CPP Act also imposes obligations on charities holding
discrete purpose charitable property. Such property will only
retain its character as discrete purpose charitable property
if and for so long as the charity keeps, uses, and administers
the property in accordance with the intention of the donor
and exclusively for the advancement of the discrete purpose.9
In addition, the charity must keep, administer, and use the
discrete purpose property separately from all other property.
This requires charities to maintain records quantifying the
property and identifying its discrete purpose. The CPP Act
also clarifies that although discrete purpose charitable property
must be administered separately, decisions respecting that
property can be made at the same time as decisions respecting
other property of the charity.10
Under the CPP Act, charities are also obligated to comply
with any relevant court orders concerning the discrete purpose
charitable property. The Act confers broad authority on the
courts in relation to discrete purpose charitable property.
If a charity holding discrete purpose charitable property
is unwilling or unable to meet its obligations under the CPP
Act, the court may make whatever orders it considers appropriate,
including transferring the property to a new charity.11
Where the recipient charity goes into bankruptcy or is the
subject of a winding-up order and the trustee in bankruptcy,
liquidator, or receiver cannot fulfil their obligations or
find another charity to do so, the court, must make such arrangements.12
In making such an order, a court may require the new charity
to advance the same discrete purpose as applied to the former
charity, but the legislation also allows the court to designate
another charitable purpose that it considers to be consistent
with the original discrete purpose.13
Where discrete purpose charitable property is transferred
by court order to another charity, the new charity will be
subject to the same obligations imposed on the former charity
in relation to its use of the discrete purpose property.14 The
new charity will also be required to pay from the transferred
property any debts or liabilities arising from the "actual,
attempted or purported advancement by the former charity of
the discrete purpose that applied to that property before
the order."15 These debts are to be paid in full if possible,
or rateably otherwise.16
The CPP Act applies to all discrete purpose charitable property,
whether it was donated before or after the coming into force
of the CPP Act.17 Thus, all donations made in the past (in B.C.)
that fulfil the CPP Act's definition of discrete purpose charitable
property will be protected.
D. COMMENTARY ON THE CHARITABLE PURPOSES PRESERVATION ACT
The CPP Act directly addresses the concerns that arose following
the Christian Brothers decision. It provides both donors
and charities with some assurance that special purpose charitable
property will be protected from claims against the charity
that are unrelated to the special purpose charitable property.
However, the CPP Act also creates some potential uncertainties.
In this regard, while it is clear that this Act applies in
B.C., it is not clear whether the CPP Act will apply to donors
or charities involving situations that do not take place solely
within the B.C. jurisdiction. This is because the CPP Act's
definition of both "charity" and "donor"
make no reference to a method for determining when a charity
or donor will be found within the geographic jurisdiction
for the application of the CPP Act. This could leave charities
and donors in an uncertain position concerning whether interprovincial
donations involving special purpose gifts will be protected
under the CPP Act. For example, if a charitable organization
operating in B.C. accepts discrete purpose charitable property
from a B.C. resident, but the head office and bank account
of the charity is located in Ontario, will the CPP Act apply
to that gift?
There is also concern that the treatment of discrete purpose
charitable property in the CPP Act may be overly broad. Section
2(1) of the CPP Act provides that a gift of discrete purpose
charitable property can be brought within the Act "whether
or not the property is stated to be given in trust."
Additionally, s. 3(2) applies the law of trusts in B.C. to
all discrete purpose charitable property, including (presumably)
that which was gifted in a way other than by trust. In noting
that the wording in this portion of the CPP Act is extremely
broad, Professor Donovan Waters has suggested that the wording
of the CPP Act may result in the law of trusts applying to
non-trust gifts, such as a conditional or determinable gift.18
Features of trust law, like the courts' administrative and
cy-pres scheme-making powers, could then be applied
to these gifts, regardless of the reality that they are not
trusts.
Conversely, despite this broad wording, some special purpose
charitable gifts which deserve protection may not fit within
the CPP Act's definition of "discrete property."
For example, because property must be gifted for a specified
charitable purpose from the outset, gifts such as donor advised
funds, which involve the donor periodically providing advice
concerning what general or special purpose will be furthered
with the gift, will potentially fall outside the CPP Act's
protection. Further, if the donor fails to express his/her
intention that the property be kept and administered separately,
or if the charity does not hold and administer the property
separately, the CPP Act may not recognize the property as
protected, or may recognize that it is protected but transfer
it to another charity. This can place a substantial burden
on charities and donors.
E. CONCLUDING COMMENT
The CPP Act attempts to address the concerns raised by the
Christian Brothers decision and provide some measure
of certainty to donors and charities by ensuring that donations
given for a specific charitable purpose will be preserved
exclusively for that purpose. Charities across Canada should
be aware of the CPP Act, as its application may extend to
charities located outside British Columbia but who fundraise
within the province. Charities should determine if any gifts
that have been made to them in the past may qualify as discrete
purpose charitable property. Further, these charities should
also familiarize themselves with the CPP Act's criteria and
the potential weaknesses that were discussed above so that
they may work with future donors, specifically those that
express the desire to gift property for a certain purpose
in B.C., and ensure that future gifts are protected.
As a final note, while the CPP Act has its limitations, it
is encouraging to see that the B.C. legislature has taken
steps to attempt to rectify the concerns and problems created
by the Christian Brothers decision. Other jurisdictions
in Canada may now want to consider whether they wish to emulate
B.C. in this regard, introducing their own legislative remedies
to the consequences of the Christian Brothers decision.
1 Charitable Purposes Preservation Act,
S.B.C. 2004, c. 59 ["CPP Act"]. The full text of
the CPP Act is available at http://www.leg.bc.ca/37th5th/3rd_read/gov63-3.htm.
2 Terrance S. Carter, "Supreme Court's Refusal
to Grant Leave to Appeal in Christian Brother Case Prejudices
Charities" in Charity Law Bulletin No. 3 (26 March
2001), available at www.charitylaw.ca.
3 Terrance S. Carter and R. Johanna Blom, "Update
on Christian Brothers" in Charity Law Bulletin No.
24 (30 September 2003), available at www.charitylaw.ca.
4 Terrance S. Carter. "Donor-Restricted Charitable
Gifts: A Practical Overview Revisited II, Parts I and II."
The Philanthropist Vol. 18, No. 1 & 2. (2003).
5 (Re) Christian Brothers of Ireland in Canada
(2000), 47 O.R. (3d) 674 (C.A.), rev'g (1998), 37 O.R.
(3d) 367, application for leave to appeal to the Supreme Court
of Canada dismissed 16 November 2000 [Christian Brothers].
6 The report is available at http://www.bcli.org/pages/projects/trustee/CreditorPurpose.pdf.
7 Supra note 1, s. 2.
8 Supra note 1, s. 2(4).
9 Ibid., s. 3(1).
10 Ibid., s. 2(2).
11 Ibid., s. 3(3), (4).
12 Ibid., s. 4(1).
13 Ibid., s. 4(1)(b).
14 Ibid., s. 3(5), 4(2).
15 Ibid.
16 Ibid.
17 Ibid., s. 6.
18 See Donovan Waters, "Special Purpose Charitable Trusts:
Protection in B.C. and Beyond" (Paper presented to the
Ontario Bar Association and the Continuing Legal Committee
of the Canadian Bar Association, May 2005) [unpublished] at
27.
