Canada: Court Exercises Power to Monitor and Regulate Charities after Directors Fail to Fulfill Fiduciary Duties

A. INTRODUCTION

In the recently reported case of Ontario Society for the Prevention of Cruelty to Animals v. Toronto Humane Society, the Ontario Superior Court of Justice, in denying a motion to vary a settlement order, affirmed that directors of charitable organizations have fiduciary duties towards the charity and the public who support it. The court also emphasized its power to monitor and regulate charities. The court's power includes jurisdiction over the management of charitable property which provides the court with broad authority, including the authority to order the destruction of charitable property and to bring the matter back before the court, on the court's initiative, if the order is not followed.

B. THE FACTS

The Ontario Society for the Prevention of Cruelty to Animals (OSPCA) is incorporated pursuant to a special act, now known as the Ontario Society for the Prevention of Cruelty to Animals Act. The object of the OSPCA is to facilitate and provide for the prevention of cruelty to animals and their protection and relief therefrom. The OSPCA has the ability to enforce standards of animal care on its affiliates.

The Toronto Humane Society (the THS), a not-for profit corporation, is an affiliate of the OSCPA that operates an animal shelter and veterinary hospital in Toronto, Ontario.

The OSPCA and the THS have a history of litigation regarding the governance and mismanagement of the THS. This litigation culminated in a settlement order that was approved on April 1, 2010 (the Settlement Order). The purpose of the settlement was to restructure the THS to improve its governance and management. The settlement included a number of orders, one of which mandated that the THS turn over all animals in its possession to the OSPCA during its restructuring period.

Shortly after the Settlement Order was approved, the THS brought forth a motion to vary the Settlement Order to permit it to keep a dog named Bandit. In 2004, Bandit, a pit bull that had attacked and significantly injured a young child, was subject to a destruction order that was subsequently stayed (also in 2004) pending appeal by the THS. The appeal remained pending at the time the motion to vary the Settlement Order was considered.

In the period between the granting of the stay and the hearing regarding the motion to vary the Settlement Order, the THS failed to comply with a term of the destruction order that had not been stayed (to muzzle Bandit) which resulted in three more attacks. Further, the THS contravened the Settlement Order, which required the THS to turn Bandit, along with all other animals in its possession, over to the OSPCA.

C. THE DECISION

In the opinion of the court the THS had not brought an appeal forward with respect to the destruction order for Bandit as the stay suited its purposes: to avoid the destruction of Bandit. The court stated,

[f]or a charitable organization, such as the THS, to appeal a court destruction order, sit on its hands for years after obtaining a stay, continue to harbour an animal which then proceeds to bite three more people and, to top it off, fails to control the dog on THS premises in the manner mandated by a court order, is nothing less than scandalous.

The THS' motion was denied. The court ordered that either the THS destroy Bandit, or that the THS file a notice of abandonment of its appeal and turn Bandit over to the OSPCA to destroy the dog. The court gave the THS one day to decide what course of action to take, and if Bandit remained in the possession or control of the THS after the deadline, the court stated that it would reconvene a further hearing on its own motion pursuant to the court's broad jurisdiction to supervise charities.

D. THE LESSON

This case affirms that directors of charities have significant ongoing fiduciary duties towards the charity, and the public who support it, to carry out the organization's charitable purpose. These duties include the duty to act with a reasonable degree of prudence and diligence, to act in good faith, to act with honesty and loyalty and to avoid conflicts of interest.

Further, this case is notable for outlining the vast common law powers of the courts to supervise the carrying out of directors' fiduciary duties and to monitor, direct and control the use of the organization's charitable property. The power of the courts to ensure charitable purposes are met can include the authority to order the destruction of charitable property and to bring the matter back before the court, on the court's initiative, if the order is not followed.

As a result, directors are reminded of their duties to govern charities, and apply charitable property, in accordance with the organizations charitable purpose. If directors fail to fulfill their duties, the court may exercise its supervisory role by interfering in the governance of the organization.

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