Canada: "Armchair Rule" Used By Court To Determine Whether Gift Was An Endowment Or Expendable

Last Updated: June 2 2017
Article by Terrance S. Carter

In The Paul Sugar Palliative Support Foundation v. Creighton Estate, the Supreme Court of British Columbia was called on to interpret an unclear testamentary gift to determine whether the gift was intended to be a capital endowment to be held and invested with only the income to be expendable, or whether the full amount of the capital of the gift was intended to be expendable. While this case was only an oral decision with limited precedential value because of a lack of facts and no reference to case law, it will be of interest to charities and their legal counsel who may be called upon to determine whether a testamentary gift constitutes an endowment or is expendable.

The last will of the testator provided for a gift to the Vancouver Foundation ("VF") "to be added to the capital of the Paul Sugar Palliative Support Foundation" (the "PSPSF"). The PSPSF is currently a registered charity and, according to the PSPSF website, the Vancouver Foundation manages PSPSF's funds. Complicating matters was the fact that the testator, while he was alive, had established the PSPSF as a "permanent fund" through an inter vivos deed of gift to the VF (the "Deed of Gift"), but which fund had not been actualised before the testator died because the minimum monetary threshold had not been reached. The terms of the PSPSF stated that the VF was to "hold the capital of the fund permanently, and...invest and administer it in accordance with the provisions of the Vancouver Foundation Act".

To aid in its interpretation of the will, the court relied upon the "armchair rule", which it explained was the rule where "the court has to endeavour to place itself in the position of the testator at the time when the last will was made, and give due weight to the circumstances" when called upon to interpret an unclear provision in the will in question. While the court gave no reference to case law as authority for this rule, the "armchair rule" was originally set out in Boyes v Cook ((1880) 14 Ch D 53), where the High Court of Justice of England and Wales originally stated that "[the court] may place [itself], so to speak, in the testator's arm-chair, and consider the circumstances by which he was surrounded when he made his will to assist [it] in arriving at his intention", and was more clearly articulated in Re Burke, a 1959 Ontario Court of Appeal decision. Utilizing this rule and based on the testator's previous gifts to the V, as well as the understanding of the lawyer who drafted the will (who was also the executor of the will), the court found that the testator had apparently intended that the gift be given to the PSPSF without limitations, and that the term "capital" was not intended to limit how the gift was to be used. The court held that, despite the gift's initial appearance to be an endowment based upon the wording of the last will of the testator as well as the wording of the Deed of Gift that had been referenced in the will, the testator had not intended that the capital of the testamentary gift be held and invested as an endowment. The balance of the decision dealt with the question of costs of the court application.

This decision underscores the importance of ensuring that testamentary charitable gifts are carefully drafted to ensure that they accurately reflect what the testator actually intends. Otherwise, the estate or the charity may be forced to make an expensive and potentially contentious court application for a judicial interpretation, which might include applying the "armchair rule" in order to determine what the testator had really intended, sometimes with surprising results, as with this decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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