Turf tussle erupts in charity over fiduciary duty*
The Ontario Superior Court of Justice has released its decision in Victoria Order of Nurses for Canada v. Greater Hamilton Wellness Foundation, a case in which a parallel foundation sought to expend its assets contrary to its objects by refusing to use them to support the organization for which it had been established.
As one would expect, the court refused to permit such an obvious breach of fiduciary duty.
The applicant, VON Canada, is a charity that carries out a healthcare mission across Canada. Until 2003, it operated through a structure of provincial organizations and local branches (all of which were separate charitable corporations). This proved to be unwieldy so the provincial organizations and local branches were consolidated into a limited number of regional VON charities in the early part of the current century.
In 1981, the Victorian Order of Nurses Hamilton Wentworth Foundation was formed as a parallel organization to support the work of the Hamilton branch. Both its object and its dissolution clauses limited it to the support of Ontario VON branches or their successors. In 2003 the foundation negotiated but did not sign a memorandum of intent whereby it would continue to support VON programming that would be carried out by VON Canada, with the Hamilton branch to be dissolved as a separate corporation. Even though unsigned, the memo of intent was implemented and abided by until 2008.
In 2008 VON Canada asked all foundations to sign an association agreement. The chair of the Hamilton Wentworth Foundation (who was also a VON Canada board member) objected vigorously to this agreement and began to take steps to renew the existence of a separate Hamilton branch. Although the chair did not acknowledge that her approach presented a conflict, she did eventually resign from the board of VON Canada.
In 2009 the Hamilton Wentworth Foundation decided that it wished to fund charitable activities not carried out by VON Canada and introduced stringent new requirements, resulting in some VON Canada funding requests being refused. The foundation also applied for supplementary letters patent permitting it to grant to any Ontario charity.
Faced with the above, VON Canada applied to the court and obtained an interim injunction preventing the Hamilton Wentworth Foundation from identifying itself as a VON related entity and freezing the foundation’s assets.
The court has now also given its final decision on the merits. It confirmed that VON Canada clearly has status to complain, both at common law and under the Charities Accounting Act (Ontario) and that the Hamilton Wentworth Foundation’s directors are trustees. The court confirmed that the objects of the foundation, both on their words and in the totality of the circumstances, only permitted the foundation to support VON Hamilton and its successors.
The refusal of the foundation to support (financially and in various other ways) VON Hamilton’s successor was a breach of fiduciary duty on the part of the foundation (and by implication its directors). As a result, the court ordered the foundation to transfer all of its assets to the successor of VON Hamilton immediately.
The legal result is exactly as one would expect. What is perhaps more interesting is the factual background. The foundation’s extraordinary (on the face of the decision) tenaciousness might have been better devoted to supporting charitable works rather than litigation that ultimately resulted in a finding of fiduciary breach. It will be interesting to see what the costs consequences of this litigation are.
*This article was originally published in (2011) 31:29 Lawyers Weekly 10.