UNIFORM LAW CONFERENCE OF CANADA
EXTRACTS FROM THE REPORT
OF THE WORKING GROUP ON A
Uniform Informal Public Appeals Act
Informal Public Appeals - the Issues
Appeals to the public for donations are a feature of everyday life. Appeals that occur on a regular basis are usually conducted by registered charities and other organizations having the benefit of experienced fundraisers and professional advice. But spontaneous appeals occur frequently as well, especially after a disaster like a fire or a flood. They may follow publication of a news item about a family or individual in some sort of distress. Campaigns on behalf of individual children requiring specialized medical treatment elsewhere have also become familiar examples of this kind of fundraising.
Unlike the regular campaigns of established fundraising organizations, spontaneous appeals are often begun by a single person or a small group. Rarely is an organization or foundation created at the beginning to manage the fund. The fundraisers simply issue a message asking for donations and, frequently, open a bank account to hold the fund. The help of the press and the electronic media may be enlisted to publicize the appeal. The emergency that gives rise to the appeal may have substantial emotional impact, and the generosity of the public's response is sometimes astonishing. The amount donated may go well beyond what is required to meet the original need. Sometimes the appeal turns out to have been unnecessary, because the need is met through governmental or other sources. Substantial amounts may already have been collected, however. Occasionally the opposite situation arises. Too little may be raised to be of any use at all.
In either case, the fundraisers may be left with money on their hands. This does not cause any difficulty if the terms of the appeal indicate clearly how any surplus or unused funds will be handled, and if donations are made with that understanding. But in the heat of the moment, the fundraisers may not have thought of the possibility of a surplus or unusable donations.
At first glance, the courses of action open to the fundraisers appear to be straightforward. Either give the money back, turn it over to an equally worthy cause, or retain it for similar emergencies in the future. But all of these seemingly self-evident alternatives are rife with legal pitfalls.
If the purpose of the fund falls within the legal definition of “charity,” returning the contributions to those who gave them would probably amount to a breach of trust. It would also be legally incorrect for the fundraisers to turn over the unused funds to an equally worthy cause without the permission of the court. People who issue spontaneous appeals for donations out of public-spiritedness or humanitarianism rarely appreciate the complexities of the law of charity. In an emergency, there is little or no time to get legal advice on the subject.
If the purpose of the fund is not legally charitable, the surplus may have to be returned to the donors. Chances are, however, that the fundraisers will encounter difficulty with this. Many of the donations are likely to be anonymous, since collections are often made door-to-door or on the street. In this setting, donors' names and amounts given are not usually recorded. Some portion of a non-charitable fund is almost sure to be unreturnable for reasons like these. Moreover, even if the donors can be identified, if the amounts of the individual donations are small the cost of processing refunds may well exceed the amount available for distribution.
What does the law say must be done with the unreturnable portion in a case where the donors are entitled to get their donations back? The answer is surprising. Nothing can be done with it except to let it accumulate interest indefinitely or else pay it into court. This was confirmed in 1958 in the notorious English case Re Gillingham Bus Disaster Fund. The law is clearly unsatisfactory with regard to surpluses or unusable balances in informally created public appeal funds.
A second difficulty in relation to public appeal funds was noted by of the British Columbia Law Reform Commission in a Report submitted in 1993. Their creation is seldom well
As with most other legal relationships, there is less room for disputes and misunderstandings in connection with a trust if the rights, powers, and duties involved are spelled out clearly in a written document. Trustees of a public appeal fund should be encouraged to enter into such a document. It is to their benefit to assume administrative powers that other trustees normally have, and to establish procedures for retirement and the appointment of new trustees. It is also to their benefit to put in place the kinds of limitations on trustee liability that are commonly found in modern trust documents. The fact that the trustees of a public appeal fund may have little or no background in trust administration makes an explicit trust document all the more important. A trust document is more likely to be signed by trustees of public appeal funds if a workable standard form in plain language is available.
The uniform legislation proposed by the Working Group is designed to address both of these difficulties.
Features of the Proposed UIPAA
The main features of the Act are described below in broad outline only
A starting point in assessing the scope of the Act is its core concept - the “public appeal” which is broadly defined to include a variety of communications for the purpose of soliciting donations. The definition is immediately narrowed by excluding “a message communicated as part of a fundraising effort carried out on a permanent or continuing basis” Thus, for the purposes of the Act “public appeal” is confined to sporadic, informal appeals.
The application of the Act is further narrowed by two additional provisions. One states that the Act does not apply to a fund raised by a body that is registered with the Canada Revenue Agency as a charitable organization or other qualified donee. The reference to CRA registration constitutes a bright line test that will clarify the applicability of the Act in many otherwise problematic cases.
The other provision that limits the application of the Act states that it is displaced by a number of more specific features of a governing authority or the terms of the appeal that may conflict with the Act.
The Act confirms that a public appeal fund is subject to a trust for the benefit of the object for which it is raised and is enforceable whether or not the object is charitable. The persons who direct the management and disbursement of a public appeal fund are its trustees and a savings institution in which the fund is deposited is not a trustee. Persons entitled to enforce the trust include a trustee, donor, beneficiary, the Attorney General and any person having a “sufficient interest” in enforcement.
Terms of the Trust
The Act confirms the role of a formal trust document. It also refers to the model trust document [MTD] in the Schedule to the Act as one that trustees may wish to adopt. The approach of the Working Group is that the MTD should, as far as possible, be kept short and simple by confining its contents to information concerning the background and objects of the appeal. Trustee powers and duties, that might otherwise be included in a specially drafted trust document, are set out in Parts 4 and 5 of the proposed Act.
“Surplus” is defined to mean money or other property remaining in a public appeal fund that ceases to be needed or cannot be used for the object described in the appeal. To avoid a Gillingham outcome the Act sets out several measures. First, it stipulates that where a surplus occurs there is no resulting trust in favour of a donor. Second the principle of cy pres is extended to trusts for non-charitable objects. The Act permits a distribution of a surplus whether or not the appeal that led to the surplus was charitable. If the appeal that led to the surplus was charitable, a distribution of surplus may be made for a charitable object only. If the appeal was for a non-charitable object the a distribution of surplus may be made for a charitable object or for another non-charitable object that is consistent with the spirit of the original appeal.
Any person entitled to enforce the trust may apply to the court for a distribution of a surplus. But an application to court may be unnecessarily expensive and cumbersome if the surplus is small. For this reason, if the surplus is below some threshold amount, the Act permits the trustees, without court approval, to distribute the it among one or more registered charities or other qualified donees having objects similar in spirit to the original appeal. The value of the threshold suggested in the Act is $20,000.
If the appeal was for a charitable object the donor has no claim to a refund if there should be a surplus. If, however, the appeal was for a non-charitable object other considerations may apply. Since donors are often motivated to give only for the specific purpose of the campaign, a person who has made a substantial donation should be able to obtain a refund if the donation will not be used for that purpose. The Act allows such a donor to claim a refund, or call for a reapplication, of a pro-rated share of the surplus. The right to a refund arises only with a donation valued at $500 or more and only where the donor had, at the time of the donation, made a written request for a refund in the event there should be a surplus. In the rare case of a donation of real property that is no longer needed or can not be used for the object of the appeal the donor may be entitled to its return.
In some provinces the law, based on an English statute of 1800, limits the time during which a fund is permitted to accumulate (the “rule against accumulations”). While the rule against accumulations has no application to charitable trusts, In those provinces where the rule is in force the permitted accumulation period (in most cases, 21 years) may be too short to allow the objects of the public appeal fund that is made for non-charitable objects to be fully realized. For this reason, the Act stipulates a much longer permitted period of duration for non-charitable funds (80 years) and the application of the old rule against accumulations is abrogated with respect to them.
Trustee Powers and Duties
Part 4 of the Act sets out an array of provisions that would most likely be found in a well-drafted trust instrument created expressly for most informal public appeals. They include powers of the trustees in relation to:
1. further appeals and donations,
2. payments from the fund,
3. investing and otherwise dealing with the fund
4. the use of nominees and professional advisors
5. transfer of the fund to another body with similar objects including one formed by the trustees
The provisions also address the discretion of the trustees in administering the fund; the ability of the trustees to act by majority; and the retirement and appointment of trustees.
Part 5 of the Act places a duty on trustees in the form of a requirement that at least once each year the trustees consider whether any money remaining in the fund is needed or can be used for its objects. If not, it is surplus and must be dealt with accordingly.
The Model Trust Document
The model trust declaration set out in a schedule the Act is designed to assist trustees in documenting the most important features of the public appeal. The objects of the appeal and the reasons for its creation are left sufficiently open-ended to permit the model to be adapted to the circumstances of the particular case. It also permits the trustees to deal expressly with the disposition of a surplus should one arise. The MTD provides examples to assist fundraisers in adapting it to their appeal without legal assistance.
A common thread that links almost all public appeal funds is that the person or persons who spearhead the appeal will open an account in a bank (or similar deposit-taking institution). Particulars of the account may often be widely publicized through the media with the public urged to donate directly through a deposit. Since banks play a pivotal role in relation to public appeal funds the Working Group hopes that the development of uniform legislation on public appeals funds will stimulate banks to examine their own role in this area. A particular aspect of this is the use of the Model Trust Document. There will be many cases where the leaders of a public appeal seek to open an account but do not appear to have prepared any documentation in relation to the appeal. Their attention should be drawn to the MTD and they should be urged to complete it or develop a governing document more closely tailored to their needs.