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The Uniform Benevolent and Community Crowdfunding Act

Preface note: [1]

1. Introduction

The Uniform Law Conference of Canada (“ULCC”) held its 102nd Annual Meeting from 10-13 August 2020. Because of Covid-19 restrictions the meeting was entirely virtual. On 12 August the Civil Section of the Conference unanimously adopted the English language version of the Uniform Benevolent and Community Crowdfunding Act (UBCCA).[2] This was a significant event, as I hope to show.

In 2011 the ULCC had promulgated the Uniform Informal Public Appeals Act (“UIPAA”). The two Acts cover the same subject matter to a large extent, so the question arises, why did the ULCC address the topic again so soon? I shall answer the question by first explaining the reason why the original Act was adopted and then giving the reasons why further consideration was thought necessary. The adoption of each Act was preceded by a report of a Working Group. Full disclosure: I was a member of both Working Groups.

2. Background to Public Appeals and the UIPAA

Public appeals are a regular occurrence and have been for centuries. Registered charities regularly conduct fundraising for their purposes. But persons often commence a spontaneous informal appeal to raise funds to help people in need. Perhaps a family has suffered a devastating fire and needs money to get back on its feet. Perhaps a child needs specialized medical treatment that is not available locally and will cost a lot of money that the family cannot afford. Or perhaps individuals have lost their investments not by their own fault, but through the defalcations of a trustee.[3] We are indeed blessed that in our society people are moved to take such actions for the benefit of others. Unfortunately, they typically have little understanding of the legal implications of what they are doing. This raises two problems. One is what to do when there is a surplus of funds. The other is that the fundraisers often fail to document their endeavours.

Surpluses are not much of a problem if the purposes are charitable. The fundraisers cannot return the excess funds to the donors, because they are typically given out and out for charity. But the court can approve a scheme under its cy-près power to apply the surplus to other, similar charitable purposes.

But that solution does not work for non-charitable objects, which include many of the objects of informal public appeals, including the ones mentioned above, are. Unless the fundraisers had made other arrangements, the money will have to be given back to the donors. If the fundraisers had given the matter some thought and had provided in their published materials that any surplus would be devoted to other specified purposes, the surplus could be dealt with in that way. But if they fail to do so the moneys have to be given back to the donors. The law does that by raising a resulting trust. In other words, it imposes a trust on the fundraisers to refund the surplus to the donors, who are the owners of the funds. That is what happened in the Abbott case already mentioned. This presented no problems in that case because the donors had made their donations by subscription.

But what if the donors (or some of them) are not known because they gave their money anonymously or failed to provide contact information? The law nonetheless  imposes a resulting trust. This is illustrated by the regrettable decision in Re Gillingham Bus Disaster Fund.[4] A bus ran into a column of marching cadets. Some were killed and others were injured. The mayors of three towns raised money to defray the funeral expenses of those killed, assist the injured boys, and to subscribe to worthy causes connected with the cadets. As it happened, most of the expenses were covered by the bus company’s insurer, so there was a significant surplus. The court rightly held that the moneys were not raised for a charitable purpose. The Crown claimed the surplus as bona vacantia, but the court held that the Crown was not entitled and to the extent that the surplus could not be returned to the donors because almost all had given anonymously, they were impressed with a resulting trust and should be paid into court. There the moneys sat for 35 years until they were eventually distributed ex gratia by the Crown to the survivors.[5] The decision was correct, but it was hardly a practical or a desirable solution, in part because the donors would never have expected to recover any part of the trust assets. It is one of those situations in respect of which Mr. Bumble, a character in Charles Dickens’ novel, Oliver Twist, would likely have said, “The law is a ass”.

The UIPAA was designed to address these issues. Its main features were these:

  • It did not apply to the fundraising activities of established bodies for their usual purposes.
  • It confirmed that money raised through a public appeal is held in trust for the object of the appeal.
  • Its scheme is default in nature and can be replaced by more specific documents and rules for different appeals.
  • It provides a mechanism for the disposition of small surpluses.
  • In a schedule, it included a model trust document that provided a default governance structure for the trust created by the appeal.

The ULCC also adopted a version of the Act that was adapted to Quebec civil law. Both versions of the Act can be found on the ULCC website.[6]

3. Developments After 2011

The UIPAA was developed at a time when public appeals were mostly local in scope, as the examples given above indicate. Such appeals are still made regularly. But since 2011, the machinery available to organizers has changed dramatically. Today organizers are able to launch their appeals on the internet and in the process they can attract mass funding in a way that was simply not possible before. This form of fundraising is referred to as “crowdfunding” and takes advantage of a number of internet platforms that facilitate fundraising for a variety of objects and purposes. One platform that is often used for this purpose is GoFundMe. In fact, today most fundraising for what formerly were locally-based appeals is conducted through such platforms.

The UIPAA was adopted only in Saskatchewan and that turned out to be a fortuitous action. The disastrous highway accident involving a bus carrying the Humboldt Broncos junior hockey team in 2018 killed 16 young hockey players and injured 13 others. An appeal with general objects was launched locally on GoFundMe and it raised approximately $15 million. Many questions were raised about how the moneys should be distributed. Thankfully the organizers and the court had all the tools they needed in the UIPAA to craft a distribution scheme that gained wide support among the victims and their families.[7] Had the Act not been in place, or had the accident occurred in another Canadian jurisdiction, it is likely that the matter would have been bogged down in the courts for many years.[8]

A more recent case in British Columbia presents similar problems. This is the case of  “Baby Lucy”. Lucy Van Doormaa was born earlier this year with an aggressive genetic disorder (Spinal Muscular Atrophy (SMA) Type 1). If left untreated, she was not likely to reach her second birthday. The condition attacks her motor neurons and reduces her ability to swallow, sit, crawl, and control her head and neck. The family began a fundraiser on GoFundMe in which they sought to raise $3 million to allow the now four-month old to get treatment through a very expensive drug that is not available in Canada. The family met the fundraising goal. But they had also entered Baby Lucy’s name in a worldwide lottery operated by AveXis (which is owned by the pharmaceutical company Norvartis). It offers managed access programs to provide treatments that are “investigational or unapproved” to eligible patients. The family never expected Lucy to be chosen, but she was. They are very grateful to all the people who donated to their GoFundMe campaign, but are not sure what they will do with, or whether they will need any of the money until Lucy receives treatment.[9] Clearly, there is the potential for a surplus that may have to be distributed and for that purpose the UIPAA or its replacement, the new UBCCA would provide the necessary machinery.

Cases such as the Humboldt tragedy, experience with the UIPAA, and the evolving fundraising environment prompted the ULCC to initiate a new project with the aim of studying the UIPAA and the need to update it.

4. The New Uniform Act

The Working Group felt that the UIPAA has worked well, but it recommended making revisions to it that will create a more effective vehicle in the newer fundraising environment. In consequence, a large portion of the UIPAA was carried forward into the UBCCA with little or no change. However, it was necessary to change the scope of the language in the Act and to add new terminology to take account of the new methods of fundraising. It is those changes that I wish to outline briefly below. But you should be aware that the UBCCA is a fully annotated Act that contains detailed commentary and explanatory notes. Since it is impossible to discuss the details of the new Act in detail in this blog, I recommend that readers consult the Act for further information.

As already noted, the title of the Act has been changed to reflect the new reality in which it will operate. But the new Act also adds or revises a number of definitions, such as “appeal organizer”, “governing authority”, and “intermediary”.

The UIPAA was directed almost exclusively to objects with a benevolent, philanthropic, or humanitarian flavour. Modern internet funding continues to be directed to such objects, but also embraces a much wider variety of objects, including, for example, investment opportunities, appeals that provide a benefit to donors, fundraising for political purposes, and the support of particular projects.

The Working Group believed that the UBCCA should retain the old focus. It sought to achieve this by expressly excluding objects that fall outside that focus. The new Act also does not apply to appeals for donations that are for the sole benefit of the organizer. Under trust law there cannot then be a trust, since the “trustee” and the “beneficiary” are one and the same person. Thus, such donations are regarded as gifts to the organizer. However, the Act makes one exception to this rule. When the organizer seeks to raise money for herself, but in fact show that the funds are to be used for a vulnerable beneficiary with special needs, that is, a person who is a minor, or who is otherwise legally incapable, the organizer can be a trustee and the Act will apply.

Since modern forms of fundraising may well involve organizers, donors, and appeal objects that are located in different jurisdictions, it became necessary to incorporate jurisdiction and choice of law rules in the UBCCA. The rules are detailed and I refer the reader to the Act for them.[10] However, the default rule is that when the enacting jurisdiction has the closest connection to the object of the appeal, it has an overriding interest in the application of its legislation to the fund that has been raised.

The UIPAA prohibited organizers from changing the terms of an appeal after it was launched. However, many internet platforms permit it and so the UBCCA also permits it, but only if: (a) if the change provides for the disposition of an unforeseen surplus; or (b) if the fundraising goal proves to be unrealistic and a new goal is provided. But the scheme for the disposition of the surplus must conform to the provisions of s. 10 of the Act, which deals with the disposition of surpluses, and the new scheme must be consistent with the spirit of the original appeal.

Some other features of the UBCCA include s. 24(1), which imposes a duty on the trustee/organizer to hold the fund in a separate trust account, so that it is not vulnerable to attachment by creditors or others. In connection with surpluses, the trust document or the terms of the appeal may provide for a scheme for the distribution a surplus. If the object of the appeal is charitable, the scheme can only provide for distribution of the surplus to another charitable object that is consistent with the spirit of the public appeal (s. 10(4)). This may require the organizer to obtain legal advice whether the original appeal or the proposed disposition of a surplus (or both) was for a charitable object. But if, in either case, the donation is made to a “qualified donee” within the meaning of the Income Tax Act (Canada), then for the purpose of the Act, it is deemed to be a charitable object (s. 1(3)).

As already indicated, an appeal may raise funds for charitable purposes or for non-charitable purposes. A trust for exclusively charitable purposes may last in perpetuity, but a trust for non-charitable purposes may not. However, when the purposes are non-charitable, the Act follows the UIPAA by making a significant change in this law. It provides in s. 7 that the permitted duration of the fund is 80 years, or such shorter period as is set out in the trust document. Any property remaining in the fund at the end of the period is surplus and must be disposed of in accordance with the surplus provisions of the Act.[11] Thus, s. 7 changes the common law, which generally holds that a trust for a non-charitable purpose is void. It also prevents application of the provision in perpetuities statutes that treats specific non-charitable purpose trusts as powers which must be exercised within a period of 21 years.[12] Section 7(4) also provides that the law of accumulations does not apply to a trust to which the Act applies.

Another important feature of the Act that is worth mentioning is the scheme-making power. As mentioned above, when the purposes of a charitable trust cannot, or can no longer, be performed, the court can adopt a scheme whereby the funds are devoted to purposes that are similar to the ones contained in the instrument creating the trust. The court does this under the so-called cy-près power. However, the court does not have such a power with respect to non-charitable purposes trusts. The UIPAA included one and it was carried forward into the UBCCA. Section 10 permits a trust document or the terms of an appeal to provide for a scheme to distribute any surplus if the scheme satisfies certain specified criteria. Section 10(4) confirms the existing law that a scheme to distribute a surplus in a fund with a charitable object must provide for distribution to only charitable objects. Section 10(5) then goes on to provide that a scheme to distribute a surplus in a fund with a non-charitable object may allow the surplus to be used for a charitable or a non-charitable object that is consistent with the spirit of the public appeal. Section 10 also recognizes that court approval may be required to distribute a surplus, but s. 10(6) specifically provides that court approval is not required for small surpluses of $20,000 if it is distributed to one or more qualified donees whose objects are consistent with the spirit of the public appeal.

As mentioned above, the Act contains much more than what I have summarized and I encourage everyone to study it to become familiar with its provisions.

5. Conclusion

Cases such as the Gillingham Bus Disaster case, the Humboldt tragedy and the Baby Lucy case, described above, demonstrate the need for legislation such as the UBCCA. I believe that its adoption is urgent, since crowdfunding has become a regular feature in our society. Fundraising for benevolent objects is desirable and should be encouraged. But it is accompanied by its own problems. To solve such problems without legislation such as the UBCCA is difficult, can cost a lot in terms of court time and legal and other expenses, and delay distribution of the funds raised for a long time. It is also productive of much strife among the parties. But with such legislation many of those problems can be avoided

One of the main reasons for writing this blog, therefore, is to urge all Canadian jurisdictions to enact the UBCCA without delay.

[1]    In writing this blog, I have relied heavily on the Final Report of Working Group that recommended the adoption of this Act. I wish to acknowledge my debt to Arthur Close, Q.C., who was the Chair of the Working Group and the principal author of the Final Report. I am also grateful to him for reading and commenting on an early draft of this blog.

[2]    The Act can be accessed at www.unilaw.ca. The Act is currently being translated into French for the benefit of those Canadian common law jurisdictions that operate in both official languages. Please be aware that minor amendments may have to be made to the English version of the Act in consequence of its translation. The ULCC also expects to be able to adopt a version of the Act that is compatible with the civil law of Quebec in 2021.

[3]    An example of the latter is Re Trusts of the Abbott Fund, [1900] 2 Ch. 326. A father had made adequate provision for his two deaf-mute daughters, but the trustee misappropriated the funds. Friends of the family then raised money from friends and neighbours for the benefit of the two women. After they died, the court held that the moneys were meant to be used only for their lives, so the amount remaining had to be returned to the donors by way of a resulting trust.

[4]    [1958] Ch. 300, affirmed sub nom, Bowman v. Official Solicitor, [1959] Ch. 62.

[5]    See the 4 December 1993 issue of the Guardian.

[6]    www.ulcc.ca.

[7]    I have previously written on the Humboldt Broncos appeal and resolution. See “Public Appeals”, http://welpartners.com/blog/2018/07/public-appeals/ and “Public Appeals – Update on the Humboldt Broncos Memorial Fund”. http://welpartners.com/blog/2018/08/public-appeals-update-on-the-humboldt-broncos-memorial-fund/.

[8]    See Johanna C.C. Caithness, “Legal Issues Associated with Informal Public Appeals and Crowdfunding” (2020), 39 E.T.P.J. 271 at 288.

[9]    See Kathryn Tindale, “Vancouver baby with rare genetic disorder randomly selected for treatment program”, https://www.citynews1130.com/2020/08/12/baby-lucy-treatment-program/.

[10]   See s. 3(4)-(7).

[11]   Sections 9-12.

[12]   See, e.g., Perpetuities Act, R.S.O. 1990, c. P.9, s. 16. This provision is excluded by s. 3(8).

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