The Cy-Pres Application: A Potential Tool to Assist Non-Profits

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Clark Wilson supports charities, in our firm culture and as a main practice area. With so many of our non-profit clients encountering disruptions due to the impact of COVID-19, we are here to find innovative and practical ways to assist.

Due to the COVID-19 pandemic, many charities may be in financial distress despite sitting on large amounts of “restricted” funds. These funds may be inaccessible to relieve a charity’s economic difficulties if the funds were gifted to the charity on terms that require the funds may only be spent and invested on certain items or for certain purposes. Depending on the charity’s circumstances, its administrators may not have discretion to spend these funds in different ways or may not be able to alter the restrictive terms in the document governing the gift (which may be a will, trust deed, donation agreement, or some other instrument). In such circumstances, the administrators’ only recourse may be to apply to Court for exercise of its cy-pres jurisdiction.

The doctrine of cy-pres refers to the Court’s jurisdiction to alter trust terms where the charitable purposes of the trust have become impossible or impractical to fulfill. This situation most often occurs where a donor makes a gift to a charity that includes certain restrictions on how the funds can be used and at some point the circumstances change so as to make the purpose of the gift – as stated in the will or trust documents – impossible or impractical to carry out. For example, what if a donor grants a portion of their estate to a charity in their will, but before the funds are transferred, the charity ceases to exist and there are no provisions for what to do in the alternative. The trustee will have to apply to the Court, and if the Court finds that it has cy-pres jurisdiction, it will alter the provisions of the trust to carry out the original intentions of the donor as closely as possible.

The trustee has to convince the Court that the purposes of the trust are either “impossible” or “impractical” to carry out for the Court to exercise its cy-pres jurisdiction. It is not enough for the purposes to be inconvenient to carry out. Two cases from recent years illustrate how the Court may or may not grant cy-pres relief.

In Re Vancouver Opera Foundation, 2015 BCSC 390, the Vancouver Opera Foundation (the “VOF”), a BC society and registered charity set up to benefit the Vancouver Opera, faced certain difficulties in its administration and applied to Court for cy-pres relief to change the funding provisions in its constating documents. The VOF’s constitution established three different funds, but restricted the VOF’s ability to encroach on the funds or to use them as security for loans. Under the VOF’s constitution, these terms were unalterable by the VOF itself (note that this would not be the case today, as a society can no longer have unalterable provisions in its constitution). The VOF’s banking arrangements required it to maintain a minimum of $500,000 in one of the funds, so it had to place many of its donations in this fund. While the donations were unrestricted initially, they became restricted once they entered the fund. The VOF wished to merge the funds together and remove its restrictions to encroach on the funds and use them for security.

The Court dismissed the application. The VOF cited numerous cases where the Court had altered similar provisions to allow charities to merge funds, encroach on capital, and use funds to secure loans. The Court differentiated those cases as they involved charities that faced the loss of their charitable status due to an inability to administer their trusts properly unless the court altered their terms, the terms in those cases were not expressly unalterable, they were set up by individuals whose intentions could be discerned, and they dealt with single funds. The VOF, on the other hand, was not in any immediate financial difficulty, the terms were expressly unalterable, there was no discernible intention for the funds to be spent for a more general purpose, and there were multiple funds. The Court found that the VOF had not established that its charitable purposes were impossible or impractical to carry out on the existing trust terms, but were only inconvenient, and would not apply cy-pres.

In Sidney and North Saanich Memorial Park Society v. British Columbia (Attorney General), 2016 BCSC 589, the trustee did not face the same problems in seeking cy-pres relief to alter the terms of a charitable purpose trust (the “Trust”) as the VOF did in the previous case. The Trust was established for the benefit of members of the electoral district of Saanich “for community, cultural, athletic and recreational purposes”. The Trust owned certain property in Sidney, and the terms stated that if any portion of the lands were expropriated, the trustee must use the proceeds from the expropriation to buy new land and hold the balance of the proceeds in trust for the maintenance and improvement of the lands. The expropriation funds were not designated for any other purpose. When some of the original lands were expropriated, the Society acquired new lands as required. Later on, the Society also constructed a new community center on the original lands. The cost of acquiring and maintaining the new lands was significantly less than the cost of building and maintaining the new community center, and without further funding, the community center would fall into disrepair.

The Sidney and North Saanich Memorial Park Society, as the trustee of the Trust, eventually applied for cy-pres relief to amend various provisions of the trust documents. One alteration the Society sought was to allow the expropriation funds to be spent on all of the Trust’s property. The Court noted that the original settlor of the Trust would not have foreseen the relative financial difficulty of maintaining the old lands as opposed to the cost of acquiring new lands, and decided that the intention to use the lands for community, cultural, athletic, and recreational purposes would be impossible or impractical to carry out without altering the trust terms. The Court granted the cy-pres application and amended the terms of the Trust so that the expropriation funds could be used on all of the Trust’s property.

There are several lessons in these cases that charities should note. The Trust in Sidney and North Saanich Memorial Park Society fell in line with the cases that the VOF cited in Re Vancouver Opera Foundation. That is, the settlor had an easily discernible intention with regards to its charitable purpose as set out in the trust documents, the terms were not expressly unalterable, the Trust involved a single fund, and the consequence of not amending the trust terms would mean that the charitable purposes of the Trust would be impossible to carry out. Also, while the VOF’s funds were earmarked for specific purposes, the Trust’s purposes were phrased generally and allowed for more flexibility in administering the Trust.

Charities looking to free up restricted funds should pay strict attention to the wording in the applicable agreement or instrument and determine whether their current circumstances make it impossible or impractical, and not just inconvenient, to carry out the original purposes of the gift.

For any further inquiries, please contact Raman Johal.

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