Restrictions on Donors' Options After Completing a Gift

A frequently overlooked aspect of Canadian charity law is the subtle provision in our Constitution, section 92(7), which grants the provinces the primary regulatory power over charities. However, provincial governments often choose not to actively exercise their jurisdiction in this realm, resulting in the federal government's Canada Revenue Agency (CRA) assuming the role of de facto regulator in numerous cases. The CRA, responsible for granting tax privileges to charitable organizations, has effectively become the default regulatory authority in this domain.

Nevertheless, while the Canada Revenue Agency (CRA) does exert substantial oversight within the realm of federal taxation, its authority to intervene in the day-to-day operations of charities is restricted. In contrast, the province of Ontario has established a robust and longstanding regulatory framework to monitor and enforce the proper utilization of charitable assets. Additionally, British Columbia has recently shown increased engagement in regulating this particular domain.

In provinces where there is no dedicated office responsible for such matters, the Attorney General maintains an inherent jurisdiction concerning charitable property. This grants the provincial Attorney General the authority to initiate legal proceedings when it becomes necessary to safeguard charitable assets.

Under the Charities Accounting Act (CAA), Ontario's Office of the Public Guardian and Trustee (OPGT) is entrusted with the responsibility of administering a yearly reporting obligation for charities. Additionally, the OPGT is equipped with a range of sanctions and remedies to address situations where charitable organizations misuse or misappropriate charitable assets. One of the powers granted to the OPGT under the CAA is the authority to conduct investigations into a charity's financial affairs.

A notable case, Fass v. CAMH, sheds light on the role of the Office of the Public Guardian and Trustee (OPGT) and the limitations associated with that role. The case underwent an appeal process in the Ontario Court of Appeal. It revolved around the efforts of a donor, who had made a substantial contribution to the Centre For Addiction and Mental Health (CAMH), to initiate an investigation by the OPGT into the utilization of the donation funds by the institution. The donation had been subject to specific conditions outlined in a written agreement, which the donor alleged CAMH had failed to fulfill. The parties involved disputed the extent to which the charity had adhered to the terms stipulated in the agreement.

Under common law, a gift is defined as a voluntary transfer of property without any conditions on its use at the time of donation. For instance, in the case of scholarship funds, the donor does not receive any form of "consideration" or value in return. However, a donor retains the ability to establish specific criteria, including the requirement to award a prize to the student who achieves the highest marks in a particular academic program.

Occasionally, scholarship funds or other similar gifts may involve conditions that violate human rights legislation, such as when they are awarded based on racial characteristics. In such cases, a court may deem the condition to be in conflict with public policy, leading to a modification of the scholarship's terms.

Certainly, numerous conditions attached to gifts do not raise human rights concerns. In such instances, the avenues available for enforcing or altering the terms of a gift are considerably restricted. However, there are occasions when non-compliance with the conditions of a gift can be addressed through the potential or initiation of legal action, which can compel an organization that has received the gift to modify its behavior.

In the United States, it is more common for such matters to be addressed and resolved through litigation. Notably, in one American case, the heirs of the donors filed a lawsuit and successfully compelled a prominent institution to reallocate the resources in accordance with the original intent of the gift. In 2002, the heirs of the A&P Grocery fortune initiated legal action against Princeton University, alleging the improper use of a donation designated for funding graduate education for students pursuing government careers. Although the case was settled out of court, the heirs achieved at least partial success in terms of redirecting the utilization of the gift.

Occasionally, donors resort to legal action to reclaim a gift when a condition attached to it remains unfulfilled. However, situations in which a gift is required to be returned due to issues with the condition are rare.

In the case of Fass v. CAMH, instead of pursuing the return of the gift or requesting the courts to enforce a modification in the organization's conduct, the donor opted to file an application seeking an order to direct the Office of the Public Guardian and Trustee (OPGT) to investigate the utilization of the donation and publish a report on its findings. A specific section of the Charities Accounting Act allows a judge to issue an order for an investigation if they deem it to be in the public interest.

In his ruling on Fass v. CAMH, Judge Morgan determined that an order for an investigation would not be in the public interest, given the particular circumstances surrounding the gift in question. The concerns raised by the applicant extended beyond mere financial management and encompassed the utilization of the funds. Judge Morgan also recognized the possible disruptions and costs that could arise from carrying out an investigation. Additionally, it was observed that the request for the Order stemmed primarily from the complainant's personal interests rather than the interests of the public. Consequently, the Order was ultimately denied.

Two pivotal questions were brought forth by the Appeal:

1) Whether an investigation serves the public interest, even if it also fulfills the applicant's private interests.

2) Whether a charitable organization can be scrutinized for the appropriate utilization of charitable assets pertaining to a specific charitable purpose designated by a donor, or solely for the organization's stated charitable purpose(s).

The close scrutiny from various stakeholders was expected due to the widespread adoption of donor agreements in the context of substantial donations, making this appeal a highly anticipated and closely monitored event.

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