Saturday, November 29, 2014

Re Mulgave School Foundation

If you make a large gift to a charity, you may have a specific purpose in mind, such as buying equipment for a hospital, building a new church, or funding scholarships in the Faculty of Engineering. Whatever you have in mind, consider whether you wish to make your gift to charity conditional on the funds being used for the specific purpose, or whether you want to give the charity some flexibility.

The advantage of making the gift conditional is that the charity will be required to use the gift for the purpose you have specified. The disadvantage is that the charity will lose flexibility in using the funds in accordance with its needs, which may change over time.

This point is illustrated by a Supreme Court of British Columbia decision, Re Mulgrave School Foundation, 2014 BCSC 1900.

Bjorn and Rochelle Moller, and Donald Kirkwood and Penny Levitt gave substantial gifts to the Mulgave School Foundation. When they made their contributions, the conditions of the gifs as set out in endowment letters were that the funds were to be used to create an endowment, and the income used for scholarships for students. The Foundation was set up to provide scholarships and bursaries as well as operating grants for the Mulgave School.

In 2011, after the gifts were made, the Mulgave School, the Mulgave School began a fundraising campaign to buy land and build a Seniors School. If the Mulgave School could use the funds given to them by the Mollers, Mr. Kirkwood, and Ms. Levitt to fund the new building, the Mulgave School would save an estimated $200,000 in borrowing costs.

The Mulgave School Foundation applied to court for an order permitting the Foundation to apply the donations to the construction of the new school. All four of the donors agreed to the order sought allowing the funds they had donated to be used for the construction.

The application was opposed by the Attorney General of British Columbia.

Mr. Justice Masuhara held that the Foundation could not use the funds for the construction of the Senior School. The Charitable Purposes Preservation Act requires a charity that is given funds for a “discrete purpose” use those funds for that purpose.

He considered section 3(4) of the Charitable Purposes Preservation Act, which provides that if a charity is unwilling or unable to use funds for the discrete purpose, the Court

may make whatever orders, including arrangements, it considers appropriate, including transferring the property to a new charity, so that the property is kept, administered and used to
(a)        advance the discrete purpose, or
(b)        advance another charitable purpose that the court considers is consistent with the discrete purpose.

Mr. Justice Masuhara also considered the common law doctrine of cy-pres, which allows the Court to apply donated funds in a different manner if the purpose for which they were provide is “impossible” or “impractical.”

In this case, there was no evidence that the Foundation was unwilling or unable to use the funds for an endowment to funds scholarships, nor that the original purpose was impossible or impractical.

Although the donors were in agreement with the proposal to use the funds they donated for the construction they had not retained any power to change the purpose of the donations. Once they donated the funds, they had no further control.

In dismissing the application, Mr. Justice Masuhara wrote:

[32]         Unfortunately, as laudable as the Foundation’s initiative and intent is, the petitioner has not met the necessary conditions to obtain the relief sought. 

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