1. Introduction
Fletcher’s Field Limited v The Ontario Rugger Union[1] raises the issue of the validity of a non-charitable purpose trust. Such cases do not come before the courts on a regular basis, so this blog may serve as a timely review of the law.
2. Facts
In 1966, the Ontario Rugger Union (‘ORU’) purchased six Fields in Markham Ontario for the playing of rugby by the six Clubs in the ORU with the intent that each club had the use a particular Field. The ORU and the Clubs decided that ORU should hold the title to the Fields, since the Clubs were unincorporated and could not hold title in their own names. The agreement between ORU and the Clubs specified that ORU would hold the Fields in trust for the Clubs.
Fletcher’s Fields Limited (‘FFL’) was incorporated in 1970 to operate athletic facilities, promote interest in athletic games, hold matches and competitions, and perform other related services. In 1971, FFL, ORU, and the Clubs entered into an agreement under which the fields would be conveyed to FFL. The agreement acknowledged that ORU held the fields in trust for itself and the Clubs for the purpose of playing rugby. In 1972, FFL filed a declaration on title which acknowledged that it held the Fields in trust for the purpose of playing and promoting rugby in the Toronto area. In 1979, FFL filed Articles of amendment which stated that it would carry on its affairs without purpose of gain for its shareholders, that there would be no distributions among the shareholders, and that the property, profits, and any accretions to the corporation had to be used to promote its objects. Since then, FFL has been operating as a not-for-profit corporation, and filed tax returns as a non-profit organization. Its shareholders are the ORU and the six Clubs, all of which also operate without profit.
FFL was run by volunteers and more recently also by two full-contract employees as well as part-time staff. However, FFL ran into financial difficulties and, for that reason, in 2022, it sold the Fields to the City of Markham on condition that it could lease the Fields free of charge until the fall of 2024. Also in 2021, for tax reasons, FFL and the Clubs made a significant donation to the Canadian Rugby Foundation, a not-for-profit corporation that operates cooperatively with Rugby Canada, the national governing body for rugby in Canada.
FFL believed that it acted as trustee of the Fields to promote rugby but in 2022 it brought this application for the opinion, advice, or direction of the court on certain questions arising out of the sale of the fields and the distribution of the proceeds
3. Analysis and Judgment
Justice Penny first considered whether there was a trust of the Fields by considering whether the three certainties – intention, subject matter, and objects – were satisfied. His Honour concluded that the 1966 agreement, as well as the 1971 conveyance agreement and the 1972 declaration of trust, clearly signified an intention to create a trust, and that the subject matter – the Fields – was clear. But it could be argued that the objects were unclear.
However, his Honour concluded that the 1966 agreement established a specific non-charitable purpose trust with ORU as trustee for the purpose of promoting the game of rugby, and this trust was continued with FFL as trustee. The trust was clearly non-charitable since it did not have an eleemosynary purpose. Hence the benefits the law accords to charitable trusts did not apply to it. Moreover, the promotion of sport is not a charitable purpose.[2]
In the past, apart from certain ‘exceptional and anomalous’ cases,[3] non-charitable purpose trusts were considered to be invalid because: (1) there were no persons to enforce them; (2) they tended to violate the rule against perpetuities; and (3) their purposes are typically too vague to be carried out. However, more recently the law has recognized that non-charitable purpose trusts can be valid. Section 16(1) of the Perpetuities Act[4] provides in part:
A trust for a specific non-charitable purpose that creates no enforceable equitable interest in a specific person shall be construed as a power to appoint the income or capital, … and … the trust is valid so long as and to the extent that it is exercised … within a period of twenty-one years …
Subsection (2) provides that if the income or capital of a non-charitable purpose trust is not fully expended within the 21 years, the person or persons who would have been entitled to the property if the trust had been invalid from the outset, are entitled to the unexpended income or capital.
Justice Penny noted the requirement that the trust be ‘specific’ means that the trust must at least have a general object. He held that the declaration of trust and the provisions of FFL’s letters patent satisfied this requirement. Moreover, the history of the acquisition of the Fields shows that the parties intended to create a non-charitable purpose trust and not a trust for individuals, since the Clubs were not intended to have a beneficial interest in the Fields. The fact that they benefited indirectly from the acquisition of the property did not make them the objects of the trust. For a similar case in which employees were entitled to use and enjoy a sports ground that a corporation conveyed to trustees in trust for the recreation and practice of sports by its employees, see Re Denley’s Trust Deed.[5] The court held the trust to be a valid non-charitable purpose trust.
As far as the rule that there must be someone to enforce the trust is concerned, his Honour rightly held that it was satisfied since the members of the ORU, although not direct beneficiaries of the trust were identifiable, and they had a sufficient interest in the matter to give them standing to enforce the trust.[6]
The effect of s 16(2) was that at the end of the twenty-one years the property reverts to the person otherwise entitled to it. That would have been ORU, but it sold the Fields to FFL. Thus, the property reverts to FFL. However, since it has sold the Fields to the City of Markham, its reason for existence has become effete. Although its articles of amendment prohibited distribution of funds by dividend, it did not prevent distribution of assets upon dissolution, and therefore, under s 22(3) of the Business Corporations Act,[7] upon dissolution, FFL is required to distribute the remaining net proceeds from the sale of the Fields in equal amounts to its shareholders, who were all not-for profit corporations, since their shares were equal, and FFL had only one class of shares.
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[1] 2023 ONSC 373.
[2] See A.Y.S.A. Amateur Youth Soccer Association v Canada (Revenue Agency), 2007 SCC 42.
[3] The quoted term was introduced by Roxburgh J in Re Astor’s Settlement Trusts [1952] 1 Ch 534 at 541 to refer to cases in which courts held trusts for the maintenance of certain animals, sepulchral monuments, and specified graves, as well as the furtherance of fox hunting, and other esoteric purposes to be valid.
[4] RSO 1990, c P.9. Other Canadian perpetuities statutes contain a similar provision.
[5] [1969] 1 Ch 373.
[6] For a more detailed discussion of non-charitable purpose trusts, see Oosterhoff on Trusts, 9th ed by Albert H Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters, 2019, chapter 8.
[7] RSO 1990, c B.16.
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Written by: Albert Oosterhoff
Posted on: May 10, 2023
Categories: Commentary
1. Introduction
Fletcher’s Field Limited v The Ontario Rugger Union[1] raises the issue of the validity of a non-charitable purpose trust. Such cases do not come before the courts on a regular basis, so this blog may serve as a timely review of the law.
2. Facts
In 1966, the Ontario Rugger Union (‘ORU’) purchased six Fields in Markham Ontario for the playing of rugby by the six Clubs in the ORU with the intent that each club had the use a particular Field. The ORU and the Clubs decided that ORU should hold the title to the Fields, since the Clubs were unincorporated and could not hold title in their own names. The agreement between ORU and the Clubs specified that ORU would hold the Fields in trust for the Clubs.
Fletcher’s Fields Limited (‘FFL’) was incorporated in 1970 to operate athletic facilities, promote interest in athletic games, hold matches and competitions, and perform other related services. In 1971, FFL, ORU, and the Clubs entered into an agreement under which the fields would be conveyed to FFL. The agreement acknowledged that ORU held the fields in trust for itself and the Clubs for the purpose of playing rugby. In 1972, FFL filed a declaration on title which acknowledged that it held the Fields in trust for the purpose of playing and promoting rugby in the Toronto area. In 1979, FFL filed Articles of amendment which stated that it would carry on its affairs without purpose of gain for its shareholders, that there would be no distributions among the shareholders, and that the property, profits, and any accretions to the corporation had to be used to promote its objects. Since then, FFL has been operating as a not-for-profit corporation, and filed tax returns as a non-profit organization. Its shareholders are the ORU and the six Clubs, all of which also operate without profit.
FFL was run by volunteers and more recently also by two full-contract employees as well as part-time staff. However, FFL ran into financial difficulties and, for that reason, in 2022, it sold the Fields to the City of Markham on condition that it could lease the Fields free of charge until the fall of 2024. Also in 2021, for tax reasons, FFL and the Clubs made a significant donation to the Canadian Rugby Foundation, a not-for-profit corporation that operates cooperatively with Rugby Canada, the national governing body for rugby in Canada.
FFL believed that it acted as trustee of the Fields to promote rugby but in 2022 it brought this application for the opinion, advice, or direction of the court on certain questions arising out of the sale of the fields and the distribution of the proceeds
3. Analysis and Judgment
Justice Penny first considered whether there was a trust of the Fields by considering whether the three certainties – intention, subject matter, and objects – were satisfied. His Honour concluded that the 1966 agreement, as well as the 1971 conveyance agreement and the 1972 declaration of trust, clearly signified an intention to create a trust, and that the subject matter – the Fields – was clear. But it could be argued that the objects were unclear.
However, his Honour concluded that the 1966 agreement established a specific non-charitable purpose trust with ORU as trustee for the purpose of promoting the game of rugby, and this trust was continued with FFL as trustee. The trust was clearly non-charitable since it did not have an eleemosynary purpose. Hence the benefits the law accords to charitable trusts did not apply to it. Moreover, the promotion of sport is not a charitable purpose.[2]
In the past, apart from certain ‘exceptional and anomalous’ cases,[3] non-charitable purpose trusts were considered to be invalid because: (1) there were no persons to enforce them; (2) they tended to violate the rule against perpetuities; and (3) their purposes are typically too vague to be carried out. However, more recently the law has recognized that non-charitable purpose trusts can be valid. Section 16(1) of the Perpetuities Act[4] provides in part:
A trust for a specific non-charitable purpose that creates no enforceable equitable interest in a specific person shall be construed as a power to appoint the income or capital, … and … the trust is valid so long as and to the extent that it is exercised … within a period of twenty-one years …
Subsection (2) provides that if the income or capital of a non-charitable purpose trust is not fully expended within the 21 years, the person or persons who would have been entitled to the property if the trust had been invalid from the outset, are entitled to the unexpended income or capital.
Justice Penny noted the requirement that the trust be ‘specific’ means that the trust must at least have a general object. He held that the declaration of trust and the provisions of FFL’s letters patent satisfied this requirement. Moreover, the history of the acquisition of the Fields shows that the parties intended to create a non-charitable purpose trust and not a trust for individuals, since the Clubs were not intended to have a beneficial interest in the Fields. The fact that they benefited indirectly from the acquisition of the property did not make them the objects of the trust. For a similar case in which employees were entitled to use and enjoy a sports ground that a corporation conveyed to trustees in trust for the recreation and practice of sports by its employees, see Re Denley’s Trust Deed.[5] The court held the trust to be a valid non-charitable purpose trust.
As far as the rule that there must be someone to enforce the trust is concerned, his Honour rightly held that it was satisfied since the members of the ORU, although not direct beneficiaries of the trust were identifiable, and they had a sufficient interest in the matter to give them standing to enforce the trust.[6]
The effect of s 16(2) was that at the end of the twenty-one years the property reverts to the person otherwise entitled to it. That would have been ORU, but it sold the Fields to FFL. Thus, the property reverts to FFL. However, since it has sold the Fields to the City of Markham, its reason for existence has become effete. Although its articles of amendment prohibited distribution of funds by dividend, it did not prevent distribution of assets upon dissolution, and therefore, under s 22(3) of the Business Corporations Act,[7] upon dissolution, FFL is required to distribute the remaining net proceeds from the sale of the Fields in equal amounts to its shareholders, who were all not-for profit corporations, since their shares were equal, and FFL had only one class of shares.
—
[1] 2023 ONSC 373.
[2] See A.Y.S.A. Amateur Youth Soccer Association v Canada (Revenue Agency), 2007 SCC 42.
[3] The quoted term was introduced by Roxburgh J in Re Astor’s Settlement Trusts [1952] 1 Ch 534 at 541 to refer to cases in which courts held trusts for the maintenance of certain animals, sepulchral monuments, and specified graves, as well as the furtherance of fox hunting, and other esoteric purposes to be valid.
[4] RSO 1990, c P.9. Other Canadian perpetuities statutes contain a similar provision.
[5] [1969] 1 Ch 373.
[6] For a more detailed discussion of non-charitable purpose trusts, see Oosterhoff on Trusts, 9th ed by Albert H Oosterhoff, Robert Chambers, and Mitchell McInnes (Toronto: Thomson Reuters, 2019, chapter 8.
[7] RSO 1990, c B.16.
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