Debtor and creditor — Execution — Exigibility — Charitable corporation being wound up to satisfy tort claims — Corporation allegedly holding certain [page446] assets upon special purpose trust — All of corporation's assets exigible to answer legitimate claims, including assets held upon special purpose trust.

Trusts and trustees — Types of trust — Charitable — Charitable corporation — Exigibility of assets — Charitable corporation being wound up to satisfy tort claims — Corporation allegedly holding certain assets upon special purpose trust — All of corporation's assets exigible to answer legitimate claims, including assets held upon special purpose trust.

A teaching order of the Roman Catholic Church managed its Canadian temporal activities, including the operation of schools and orphanages, through a charitable corporation. A number of men claimed that they had been abused physically, emotionally and sexually by some of the brothers at an orphanage and brought actions for damages. In consequence, the order decided to wind up the corporation in order to make its assets available to compensate the victims. The assets of the corporation included valuable shares in two incorporated schools in British Columbia. Those schools argued that the corporation did not hold their shares beneficially, but in trust for the specific purposes of the schools and that, consequently, the assets of the schools were not part of the assets to be wound up and were not available to pay the victims. With leave of the Ontario court, the British Columbia schools began proceedings in that province to determine the ownership of their shares and whether they were held in trust for the specific purposes of those schools. The liquidator sought the advice and direction of the court in Ontario. The chambers judge held: (1) there is no doctrine of charitable immunity; hence, the corporation was not immune from tort liability; (2) the corporation's assets were exigible to pay the tort claims, except to the extent that they were held upon a special purpose trust in which case those assets could be used to compensate persons for wrongs done in the context of that trust only; and (3) the liquidator properly admitted liability to victims who proved their claims. The judge also ordered that nothing in his reasons or in the order was intended to affect the determination by the British Columbia court of the questions raised before it with respect to the ownership of the shares in the two schools. The liquidator and others appealed the exception to the exigibility holding and the provision in the order respecting the questions before the British Columbia court.

Held, the appeal should be allowed in part.

Per Feldman J.A., Abella J.A. concurring:

(1) The chambers judge erred in law and in policy in creating an exception to exigibility. The effect of the exception would be to create a "trust fund theory" of immunity, which the law has long since rejected and which undermines the principle that there is no doctrine of charitable immunity. The purpose of recognizing gifts to a charitable corporation as a special purpose trust is to require the property to be applied for the special purpose, and to permit the moneys to be applied cy-près if the corporation was misnamed or has ceased to exist. It was not to give immunity from exigibility while the property is in the hands of the charity, because a wrong done by or on behalf of the charity is done by or on behalf of all its objects without [page447] distinction. When a charitable corporation is wound up, it ceases to carry out its charitable purposes, including the obligation to use assets held in trust for any special purposes. Hence, all assets held by the corporation, whether as a special purpose trust or not, were exigible to pay the tort claims made against the corporation.

(2) The part of the order respecting the questions before the British Columbia court was unnecessary and should be struck out.

Per Doherty J.A. concurring: The exception to exigibility created by the chambers judge was not tenable in the context of a winding-up of a charitable corporation. When a charitable corporation is wound up, all of its charitable activities cease and all of its property should be made available to answer valid tort claims brought against the corporation.

Cases referred to

By Feldman J.A.
B. (P.A.) v. Curry (1997), 146 D.L.R. (4th) 72, 26 C.C.E.L. (2d)
161, 34 C.C.L.T. (2d) 241, [1997] 4 W.W.R. 431, 145 W.A.C. 93 sub
nom. B. (P.A.) v. Children's Foundation, 30 B.C.L.R. (3d) 1, 70
A.C.W.S. (3d) 196; affd 174 D.L.R. (4th) 45, [1999] 2 S.C.R. 534,
sub nom. Bazley v. Curry, 43 C.C.E.L. (2d) 1, 46 C.C.L.T. (2d) 1,
[1999] 8 W.W.R. 197, 203 W.A.C. 119, 62 B.C.L.R. (3d) 173, 241
N.R. 266, 88 A.C.W.S. (3d) 1267 -- consd
Benett v. Wyndham (1862), 4 De G.F.& J. 259, 45 E.R. 1183
-- consd
Bowman v. Secular Society, Ltd., [1917] A.C. 406 -- refd to
Buchanan Estate (Re) (1996), 11 E.T.R. (2d) 8, 61 A.C.W.S. (3d)
841 [affd 20 E.T.R. (2d) 100, 164 W.A.C. 55, 44 B.C.L.R. (2d)
283, 76 A.C.W.S. (3d) 464] -- refd to
Coopérants, Mutual Life Insurance Society (Liquidator of) v.
Dubois (1996), 133 D.L.R. (4th) 643, [1996] 1 S.C.R. 900, 39
C.B.R. (3d) 253, 196 N.R. 81, 62 A.C.W.S. (3d) 701 -- refd to
Donaldson v. Commissioners of Saint John General Public Hospital
(1890), 30 N.B.R. 279 -- consd
Duncan v. Findlater (1839), 6 Cl. & Fin. 894, 7 E.R. 934 -- consd
E. (S.M.) v. Christian Brothers of Ireland in Canada (1995), 136
Nfld. & P.E.I.R. 52, 59 A.C.W.S. (3d) 604 sub nom. E. (S.M.) v.
Newfoundland -- refd to
Feoffees of Heriot's Hospital v. Ross (1846), 12 Cl. & Fin. 507,
8 E.R. 1508 -- consd
Finger's Will Trusts (Re); Turner v. Ministry of Health, [1972] 1
Ch. 286, [1971] 3 All E.R. 1050 -- consd
Holliday v. St. Leonard's, Shoreditch (1861), 11 C.B. (N.S.) 192,
142 E.R. 769 -- consd
Jacobi v. Griffiths (1997), 27 C.C.E.L. (2d) 307, [1997] 5 W.W.R.
203, 145 W.A.C. 126, 31 B.C.L.R. (3d) 1, sub nom. T. (G.) v.
Griffiths, 70 A.C.W.S. (3d) 188 [affd 174 D.L.R. (4th) 71, [1999]
2 S.C.R. 570, 44 C.C.E.L. (2d) 169, 46 C.C.L.T. (2d) 49, 99
C.L.L.C. Para. 210-034, [1999] 9 W.W.R. 1, 203 W.A.C. 161, 63
B.C.L.R. (3d) 1, 241 N.R. 201, 88 A.C.W.S. (3d) 1266] -- refd to
Jellett v. Wilkie (1896), 26 S.C.R. 282 -- refd to
K. (W.) v. Pornbacher (1997), 27 C.C.E.L. (2d) 315, 34 C.C.L.T.
(2d) 174, [1998] 3 W.W.R. 149, 32 B.C.L.R. (3d) 360, 68
A.C.W.S. (3d) 569 -- refd to
[page448]

Kimniak v. Anderson, [1929] 2 D.L.R. 904, 63 O.L.R. 428, 35
O.W.N. 292 -- refd to
Lapointe v. Ontario (Public Trustee) (1993), 1 E.T.R. (2d) 203,
44 A.C.W.S. (3d) 187 sub. nom. St. Lawrence Estate v. Public
Trustee [supplementary reasons 7 E.T.R. (2d) 45 sub nom. R. v.
Lapointe] -- refd to
Lavere v. Smith's Falls Public Hospital (1915), 26 D.L.R. 346, 35
O.L.R. 98, 9 O.W.N. 260 -- consd
Liverpool and District Hospital For Diseases of the Heart v.
Attorney-General, [1981] 1 Ch. 193, [1981] 1 All E.R. 994 -- refd
to
McCaw v. United Church of Canada (1991), 82 D.L.R. (4th) 289, 37
C.C.E.L. 214, 91 C.L.L.C. Para.  14,035, 4 O.R. (3d) 481, 49
O.A.C. 389, 28 A.C.W.S. (3d) 1 -- refd to
Mersey Docks and Harbour Board Trustees v. Gibbs (1866), 11
H.L.C. 686, 11 E.R. 1500, [1861-73] All E.R. Rep. 397 -- consd
Meyers (Re); London Life Assn. v. St. George's Hospital, [1951] 1
All E.R. 538 -- refd to
Morgan's Will Trusts (Re); Lewarne v. Ministry of Health, [1950]
1 All E.R. 1097 -- refd to
Nyberg v. Provost Municipal Hospital Board, [1927] 1 D.L.R. 969,
[1927] S.C.R. 226 -- consd
Partington v. Cushing (1906), 1 E.L.R. 493 -- refd to
Pittman Estate v. Bain (1994), 112 D.L.R. (4th) 257, 19 C.C.L.T.
(2d) 1, 46 A.C.W.S. (3d) 573 [supplementary reasons 112 D.L.R.
(4th) 482, 48 A.C.W.S. (3d) 187] -- refd to
President and Directors of Georgetown College v. Hughes, 130 F.2d
810 (1942) -- consd
R. v. Church of Scientology of Toronto (1997), 116 C.C.C. (3d) 1,
7 C.R. (5th) 267, 42 C.R.R. (2d) 284, 33 O.R. (3d) 65, 99 O.A.C.
321, 34 W.C.B. (2d) 453 [leave to appeal to S.C.C. refused 122
C.C.C. (3d) vi, 51 C.R.R. (2d) 376n, 112 O.A.C. 397n, 227 N.R.
291n] -- refd to
Raybould v. Turner, [1900] 1 Ch. 199 -- consd
Re ARMS (Multiple Sclerosis Research) Ltd.; Alleyne v. Attorney
General, [1997] 2 All E.R. 679 -- consd
Stewart Estate (Re) (1999), 27 E.T.R. (2d) 92, 174 Nfld.
& P.E.I.R. 147, 88 A.C.W.S. (3d) 278 -- refd to
Tucker v. Mobile Infirmary Association, 68 So. 4 (1915) -- refd
to
Vernon's Will Trusts (Re); Lloyds Bank Ltd. v. Group 20 Hospital
Management Committee (Coventry), [1971] 3 All E.R. 1061n -- consd

Statutes referred to

Act to incorporate The Christian Brothers of Ireland in Canada,
S.C. 1962-63, c. 22
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
Winding-up and Restructuring Act, R.S.C. 1985, c. W-11
ss. 19, 21, 103

Authorities referred to

American Law Institute, Restatement of the Law of Trusts (2d), as adopted and promulgated at Washington, D.C., May 23, 1957 (St. Paul: American Law Institute Publishers, 1959) [page449]

Keeton, George Williams, and Lionel Astor Sheridan, The Law of
Trusts, 10th ed. (London: Professional Books Ltd, 1974)
Picarda, Hubert, The Law and Practice Relating to Charities
(London: Butterworths, 1977)
"The Quality of Mercy: 'Charitable Torts' And Their Continuing
Immunity," [1987] Harv. L. Rev. 1382
Tudor, Owen Davies, Tudor on Charities, 8th ed., Jean Warburton
and Debra Morris, eds. (London: Sweet & Maxwell, 1995)
Waters, D.W.M., "Comment: Charity -- Cy-Près -- Supervening
Impossibility" (1974), 52 Can. Bar Rev. 598
Waters, D.W.M., The Law of Trusts in Canada, 2nd ed. (Toronto:
Carswell, 1984)

APPEAL from a judgment of R.A. Blair J., 38 B.L.R. (2d) 286, 21 E.T.R. (2d) 93, 37 O.R. (3d) 367, 77 A.C.W.S. (3d) 902, holding that a charitable corporation was not immune from tort claims, but that part of its assets were not exigible.

   David R. Wingfield and M. Kate Stephenson, for Liquidator, Arthur Andersen.

   Douglas Garbig, representative counsel for abuse victims.

   Donald Burrage, for Attorney General of Newfoundland.

   Neil Finkelstein and Sandra Forbes, representative counsel for charitable objects.

   David E. Baird, Q.C., and John Terry, for Vancouver College Ltd.

   Tim Gilbert, for St. Thomas More Collegiate Ltd.

FELDMAN J.A. (ABELLA J.A. CONCURRING):—

Introduction

¶ 1 This is an appeal from the judgment of Blair J. of February 27, 1998, made in the context of the winding up of The Christian Brothers of Ireland in Canada ("CBIC") under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, pursuant to leave granted under s. 103, [FN1] by McMurtry C.J.O. on July 14, 1998.

[FN1]  103. Any person dissatisfied with an order or decision of the court or a single judge in any proceeding under this Act may,

(a)  if the question to be raised on the appeal involves future rights,

(b)  if the order or decision is likely to affect other cases of a similar nature in the winding-up proceedings, or

(c)  if the amount involved in the appeal exceeds five hundred dollars,

by leave of a judge of the court, or by leave of the court or a judge of the court to which the appeal lies, appeal therefrom.

¶ 2 The CBIC was incorporated in 1962 by Act of Parliament entitled An Act to Incorporate The Christian Brothers of Ireland in Canada, S.C. 1962-63, c. 22. The CBIC is the Canadian branch of the Congregation of Christian Brothers, a world-wide teaching order of the Catholic Church. Its activities included operating schools, educational institutions and orphanages in various parts of the country. The context of the winding-up application by the CBIC is the many claims made by boys and men who suffered abuse in the 60s, 70s and 80s at the hands of some of the Brothers at the Mount Cashel Orphanage in Newfoundland. As a result of the number of [page450] claims arising from the public exposure of these unspeakable events, the Brothers felt compelled to seek the wind-up of their temporal affairs in Canada with a view to making their assets available to compensate the victims. In his affidavit in support of the winding-up application, Brother Barry Lynch stated that the application was brought to "ensure that the maximum amount of the Corporation's assets . . . are employed compensating all of the claimants in a fair and expedited manner".

¶ 3 Blair J. was asked to decide whether, in law, the assets of a charity are available to compensate tort claimants, and if so, whether any particular assets of the CBIC are nevertheless protected and cannot be used to pay compensation to the Mount Cashel victims. Two schools operated by the CBIC in British Columbia constitute the most valuable assets potentially available to pay these claims. Blair J. confirmed that charities are not immune from liability to tort claimants who have suffered damage or injury at the hands of the charity. Whether the assets are held as a charitable trust or beneficially by a charity organized in corporate form, they are exigible to pay such claims. However, he went on to carve out an exception for property held on a "special purpose trust". He found that if the British Columbia schools are held by the CBIC as "special purpose trusts", then those assets could be used to compensate a claimant whose claim arose at those schools, but they cannot be used to pay tort victims abused at other CBIC institutions including Mount Cashel. For the reasons set out below, I agree that charities are not immune from liability to tort victims, but I do not agree that there is any exception for assets held on a special purpose trust.

Background of the Motion

¶ 4 The winding-up order was granted by Houlden J. on October 28, 1996. The effect of a winding-up order was stated as follows by the New Brunswick Supreme Court in Partington v. Cushing (1906), 1 E.L.R. 493 (N.B.S.C.) at p. 495, quoted with approval by the Supreme Court of Canada in Coopérants Mutual Life Insurance Society (Liquidator of) v. Dubois, [1996] 1 S.C.R. 900 at p. 914, 133 D.L.R. (4th) 643 [para. 32]:

¶ 5 Before any claims could be paid, the liquidator required the direction of the court on three issues. The first was the general issue of whether assets of a charity are available to pay creditors or whether they are immune on the basis that they are in effect held by the charity in trust to be used only for the charitable purposes of the charity. The second issue related specifically to the two most valuable properties administered by the Christian Brothers, two Catholic high schools in British Columbia, and whether these properties are beneficially owned by the corporation or whether they are held in trust and, if held in trust, whether that makes them unavailable for the victims of abuse at Mount Cashel. The third issue was whether the liquidator should admit liability to individual victim claimants and compromise claims for which the corporation may be liable. These issues were brought before the court on a motion by the liquidator for advice and directions.

¶ 6 A further order made by Houlden J. on July 18, 1997, provided for the appointment of representative counsel to speak on behalf of all the potential interests in the assets to ensure that all relevant arguments would be presented to the court for full consideration.

¶ 7 A very full record was developed for the motion dealing with the history of the Congregation of Christian Brothers, the incorporation of The Christian Brothers of Ireland in Canada, the history of its properties and assets, how the charity and these assets were administered, the holding of the shares of Vancouver College Limited and of St. Thomas More Collegiate, the events at Mount Cashel and the claims arising from those events, as well as the events leading up to the wind-up of the corporation. Blair J. noted that the facts were not in dispute, except in respect of the two British Columbia schools.

¶ 8 On November 14, 1997, Blair J. granted an order to the representatives of the two British Columbia schools for leave, as required under s. 21 of the Winding-up and Restructuring Act, [FN2] to commence proceedings in the Supreme Court of British Columbia. The purpose of those proceedings is to determine the ownership of the shares of each of the schools and whether they are held in trust for the specific purposes of those schools. In other words, the factual findings [page452] regarding ownership and any particular terms of ownership of those assets are to be determined not by the court exercising the winding-up jurisdiction, but by the superior court of the province where the properties are situated. There is no appeal from the order of November 14, 1997.

[FN2]  21. After a winding-up order is made in respect of a company, no suit, action or other proceeding shall be proceeded with or commenced against the company, except with the leave of the court and subject to such terms as the court imposes.

¶ 9 In the result, the Ontario court was not asked to make factual findings with respect to how the two British Columbia schools are held and then on that basis to determine whether those assets will form part of the liquidation and be available to pay the claims of the tort victims. Rather, the questions posed for the Ontario court were treated as general or generic questions, the answers to which could be applied by the liquidator to particular assets as required and based on the facts regarding each asset. On the other hand, it was clear that because the two major properties in issue are the two schools in British Columbia, the possible status of the ownership of those two schools formed the only backdrop or context for the answers to the questions. I will comment later in these reasons about the desirability of deciding issues such as these in a factual vacuum.

¶ 10 Vancouver College Limited is a Catholic private school in Vancouver. It is itself a registered charity under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). Since the incorporation of the school in 1927, the shares of the corporation have been held from time to time by four individual Brothers in trust for "the Christian Brothers of Ireland". The assets of the school are valued at approximately $31,500,000. The liquidator submits that the CBIC owns the shares of the college beneficially. The college submits that its shares are held by the individual Brothers in trust "for the purposes of operating Vancouver College as a Catholic independent school committed to the Congregation's mission to educate young people in British Columbia".

¶ 11 St. Thomas More Collegiate Ltd. is a Catholic high school in Burnaby, British Columbia. It is also a registered charity under the Income Tax Act. It was incorporated in 1962. There are three shares of the company, two of which are in the name of The Christian Brothers of Ireland in Canada, while the third is held by John Burnell as Trustee for The Christian Brothers of Ireland in Canada. Mr. Burnell is a teacher at the school but not a Brother. The assets of the school are valued at approximately $7,000,000. The original [page453] funding for the school was a gift from the Archdiocese of Vancouver under an agreement that the Brothers would administer the school. The liquidator submits that the CBIC is the beneficial owner of the shares of the company. The position of the school and of Mr. Burnell is that the shares are held in trust "for the charitable purpose of establishing and carrying on a Roman Catholic high school at 7450-12th Avenue, Burnaby, British Columbia".

¶ 12 Essentially, the position asserted by the two British Columbia schools is that their assets are not owned beneficially by the CBIC, but are held in trust for the specific purposes of their schools in British Columbia and therefore are not part of the assets to be wound up and are not to be used to pay the claims of the victims of the Christian Brothers at the Mount Cashel Orphanage in Newfoundland. At stake are the competing claims of the innocent victims of abuse in Newfoundland versus the innocent students and their Catholic communities in Vancouver and Burnaby, British Columbia. Without the assets of the two schools, CBIC has available approximately $4,000,000 to compensate victims, whose claims are estimated to reach $36,000,000.

¶ 13 The three specific questions were stated by the motions judge and answered in the following way:

¶ 14 Blair J. was at pains to assure the parties that the issues to be decided by the British Columbia court were not being decided by him, but that once those issues of ownership were decided, the order of the winding-up court would apply to determine in law the issue of the exigibility of the British Columbia properties and assets. Paragraph 5 of the Order was based on the Reasons for Judgment on this issue:

The Issues on Appeal

¶ 15 The liquidator, supported by representative counsel for the victims and by the Government of Newfoundland which also has some liability to the victims, raised two issues on appeal:

¶ 16 Representative counsel for the charitable objects did not file a Notice of Cross-Appeal, but in their written and oral submissions, challenged all of the findings of Blair J. in respect of the exigibility of assets of the charity, and submitted that any assets held in trust by the CBIC are not available to any tort claimants. These assets include all assets previously held in trust by the Congregation of Christian Brothers before incorporation, or by individual Brothers, and all assets held in trust by the corporation for its charitable objects. In the alternative, representative counsel for the charitable objects submitted that Blair J. was correct in limiting the exigibility [page455] of assets in a special purpose trust to tort claimants injured within the purposes of that trust.

¶ 17 The two British Columbia schools supported the decision of Blair J. in its entirety.

The Judgment Below

¶ 18 Blair J.'s analysis [FN3] began with the issue of general charitable immunity. In the mid-19th century, a doctrine had developed that a charity, or those who operate it, held its assets in trust for the objects of the charity and, therefore, such assets could not be used to pay damages for the actions of those who manage the fund. However, this doctrine was overruled in 1867 by the House of Lords in the case of Mersey Docks and Harbour Board Trustees v. Gibbs (1866), 11 E.R. 1500, [1861-73] All E.R. Rep. 397.

[FN3]  Reported at (1998), 37 O.R. (3d) 367 (Gen. Div.).

¶ 19 In Canada the charitable immunity theory was never adopted but was expressly rejected in Lavere v. Smith's Falls Public Hospital (1915), 35 O.L.R. 98, 26 D.L.R. 346 (C.A.), and Nyberg v. Provost Municipal Hospital Board, [1927] S.C.R. 226, [1927] 1 D.L.R. 969. Blair J. noted that that early rejection of the doctrine is consistent with recent case law in British Columbia and Ontario where charities have been held liable to tort victims: B (P.A.) v. Curry, [1997] 4 W.W.R. 431, 146 D.L.R. (4th) 72 (B.C.C.A.) (since affirmed, [1999] 2 S.C.R. 534, 174 D.L.R. (4th) 45, sub nom. Bazley v. Curry); T. (G.) v. Griffiths, [1997] 5 W.W.R. 203 (B.C.C.A.); K. (W.) v. Pornbacher (1997), 34 C.C.L.T. (2d) 174 (B.C.S.C.); McCaw v. United Church of Canada (1991), 4 O.R. (3d) 481, 82 D.L.R. (4th) 289 (C.A.); and to pay a large fine: R. v. Church of Scientology of Toronto (1997), 33 O.R. (3d) 65 (C.A.).

¶ 20 Having confirmed that the law in Canada is that a charity, whether it takes the form of a trust or a charitable corporation, is not immune from liability for the negligent acts of those who administer the charity, Blair J. turned to the second question and proceeded to consider whether any of the assets of the charity enjoyed immunity from exigibility depending on how the asset was held by the charity. He stated as a general principle that a charitable corporation does not hold its assets as trustee for its charitable purposes, but rather holds them beneficially as does any other corporation.

¶ 21 Blair J. then discussed how a charitable corporation must use its funds in the furtherance of its corporate objects because the [page456] position of a charitable corporation is analogous to that of a trustee in that respect. However, that does not preclude the use of the funds to compensate tort victims who were abused when the charitable objects were carried out in an uncharitable way. Blair J. noted how large and financially significant the charitable sector is today in our society and posed this question rhetorically in reference to charities: "Why, then, should such a large segment of society have its assets protected from answering for wrongs done in the course of the pursuit of these charitable purposes?" (p. 393) [para. 83]. He pointed out that such immunity has been rejected in Ontario in respect of criminal responsibility in the case of R. v. Church of Scientology, supra.

¶ 22 Blair J. also rejected as ill-founded, both legally and practically, the concept that a charity be required to maintain records of the sources and respective intended uses of donated funds. He concluded that he was satisfied on both a legal and policy basis that the funds donated to a charity to be used for its charitable purposes should be available to tort victims of abuse at the hands of those who were intended to be carrying out those purposes.

¶ 23 He then went on to address what he identified as the most problematic aspect of the issue, that is, the status of funds donated to the charitable corporation but earmarked or designated not for the general purposes of the corporation but for a specific purpose. He distinguished between gifts given in what is sometimes referred to as a precatory trust and those given as a specific charitable purpose trust.

¶ 24 A precatory trust is not a true trust, but rather an expression of the desire of the donor to have the funds used for a specific purpose without the creation of a true trust for the purpose. That desire is not binding on the corporation and such funds are beneficially owned by the corporation and not shielded from execution. Blair J. included in this category funds raised through general fundraising campaigns or even campaigns for a particular project of the corporation.

¶ 25 This is to be distinguished from the case where the three certainties of a trust are present: certainty of intention, certainty of subject-matter and certainty of objects (in this case charitable purposes), so that a charitable purpose trust is created. However, [page457] although trust property is not available to the personal creditors of a trustee, where the claim is for wrongs done by the trustee in the course of carrying out the charitable purposes, Blair J. concluded that the trust funds should be available for such claimants.

¶ 26 This conclusion is consistent with his preceding analysis that when funds are donated to the charity to be used only for its charitable purposes, those purposes must include the payment of legitimate claims of people abused in the course of the carrying out of those purposes.

¶ 27 However, Blair J. then went on to hold that in order to qualify as a claim payable out of the trust funds, the claim must relate to a wrong done only while the trustee was carrying out the specific purpose of the trust, and not to any of the other charitable objects of the corporation. That finding is key in this case, because it means that if the two British Columbia schools or their assets are held by the corporation as special purpose trusts, then the victims of abuse at the Mount Cashel Orphanage in Newfoundland or other schools cannot look to those properties to satisfy their claims.

Analysis

¶ 28 In my view, Blair J. was led into a fundamental error by the way in which the questions for the court were formulated. Once he had determined that there is no doctrine of charitable immunity in Canada, it became redundant to then analyze whether the assets are held in trust in order to determine if they are exigible to pay the claims of tort victims of the charity in the context of the winding-up of the charitable corporation. Because a charity is not immune from liability to those who have suffered wrong at its hands, either through its trustees, employees or other agents for whom the charity is responsible, the assets of the charity, be they beneficially owned or be they "trust funds", are available to respond to those liabilities. That has been the law of Canada for almost a century. It is neither necessary, nor logically probative, to examine each asset of the charity on an individual basis to determine its availability to be answerable for the debts of the charity on a wind-up, based on whether that asset is held in trust for one or more charitable purposes. To do so, is to reintroduce into our law the rejected doctrine of charitable immunity by resurrecting the equally rejected trust fund theory. [page458]

History of Charitable Immunity Doctrine

¶ 29 The traditional trust arose out of both the common law and equity. [FN4] The establishment of a trust required the three certainties: the intention of the settlor to create a trust (and therefore to appoint a trustee), the assets of the trust, and the beneficiaries or objects of the trust. Initially, the beneficiaries had to be persons who could enforce the trust. However, an exception was allowed whereby the objects could be charitable purposes, for which the Crown could enforce the trust on behalf of the public. The charitable purpose trust thereby allowed a settlor to leave money or other assets in trust to trustees obliged to hold and administer the assets for the designated charitable purposes. This type of trust attracted other legal advantages not available to private trusts. One was that the trust could vest beyond the perpetuity period, and another, that it could remain in existence forever, whereas private trusts could neither vest nor exist beyond the defined perpetuity period. The third advantage was that a charitable trust would not fail if the objects of the trust were uncertain, as long as the court could determine that the settlor had a general charitable intention. In that case the court has the power to devise a scheme to remove the uncertainty and give effect to the trust. Furthermore, if the charitable object becomes impracticable or impossible to carry out after the gift has vested in the charity, then the court again has the power to alter the charitable object and to apply the funds cy-près to another charitable object. In effect the court has supervisory power over the trust.

[FN4]  D.W.M. Waters, The Law of Trusts in Canada, 2nd ed. (1984), p. 503 et seq.

¶ 30 The concept, that the trust funds held by the trustees of a public charity will not be answerable for the tort liabilities incurred by actions taken by or on behalf of the charity, was formulated in three 19th century cases from the House of Lords: Feoffees of Heriot's Hospital v. Ross (1846), 12 Cl. & Fin. 507, 8 E.R. 1508, which followed Duncan v. Findlater (1839), 6 Cl. & Fin. 894, 7 E.R. 934, and Holliday v. St. Leonard's, Shoreditch (1861), 11 C.B. (N.S.) 192, 142 E.R. 769. [FN5] In Heriot's Hospital, a charity had been established for a home for fatherless boys, but the plaintiff Ross, who was fatherless and otherwise qualified, had been excluded from the home. As he was too old for admission by the time his case was determined, the only issue was whether he was entitled to damages from the trust funds used for the home. Lord Cottenham determined [page459] that this was not possible and following his earlier decision in Duncan, supra, articulated his reasons as follows (p. 1510):

[FN5]  In Duncan v. Findlater, supra, the plaintiff was injured and his son killed when their carriage struck a pile of rocks left negligently in the middle of a highway by repairmen working on the adjacent ditch. He sued for damages against the trustees charged with the maintenance of the highway. The trustees were appointed under an act which specified that they were to use the highway toll moneys for making, improving and repairing the highways, but "to no other purposes whatsoever" (p. 939). Lord Cottenham found that the workmen were not servants of the trustees and the trustees were not personally liable for the damage. Furthermore, there could be no resort to the trust funds because this was not the intention of the legislature in creating the trust. He stated:

       "It is impossible to suppose that the framers of this statute contemplated that any part of this fund would be appropriated for the purpose of affording compensation for any act of the persons who might be employed under the authority of the trustees. If the thing is done within the statute, it is clear that no compensation can be afforded for any damage sustained thereby, except so far as the statute itself has provided it; and this is clear on the legal presumption that the act creating damage being within the statute must be a lawful act. On the other hand, if the thing done is not within the statute, either from the party doing it having exceeded the powers conferred on him by the statute, or from the manner in which he has thought fit to perform the work, why should the public fund be liable to make good his private error or misconduct?"

       Similar facts led to an even broader expression of charitable immunity in Holliday v. St. Leonard's, Shoreditch, supra. Here, the trustees of the parish had instructed workmen to repair a street. The workmen negligently left a pile of paving stones in the middle of street, which the plaintiff's carriage promptly struck. The carriage overturned and the plaintiff was injured. Relying on Duncan v. Findlater, Erle C.J. held [p. 774] that "persons intrusted with the performance of a public duty, discharging it gratuitously, and themselves taking no personal share in the mode of its performance, are exempted from liability for the negligent acts of persons employed by them".

In a concurring judgment, Lord Campbell stated that if the trustees had done wrong, then they alone were personally responsible for the loss suffered.

¶ 31 To the extent that there had thereby developed a concept of charitable immunity in England, it was very shortlived. In Mersey Docks and Harbour Board Trustees v. Gibbs, supra, the Board was sued by the owners of a ship and its cargo, damaged when the ship got stuck in mud at the mouth of the harbour. The Board was held to be negligent, but the issue was whether the Board and the funds it collected and administered to operate the docks could be answerable to an action for negligence. The argument was that because the funds were held by the trustees in trust for the benefit of the public, they could not be used to compensate tort claimants against the Board. The House of Lords firmly rejected the concept of such immunity. In so doing Lord Westbury rejected Lord Cottenham's reasoning from the Duncan case as follows (pp. 412-13) [p. 1518 E.R.]:

¶ 32 Interestingly, an anomalous development occurred in the United States. There, the courts imported the doctrine of charitable immunity from England after 1866, unaware that it had already been overruled. They developed various theories to support the doctrine including: (a) the "trust fund" model which focused on the donor's intention that the funds be used for the charitable purposes only and not to pay tort claims; (b) the concept that respondeat superior did not apply to charities because they did not profit from their employees' work; (c) the doctrine that the beneficiaries of the charity could not sue for any damage because they assumed the risk of negligence; and (d) in order to ensure the continued viability of charities, public policy required that donors be assured that the money donated would be used only for the good works of the charity. [page461]

¶ 33 Because the immunity of charities conflicted with the general liability of others to answer for wrongs done, a number of exceptions developed to the immunity doctrine in different U.S. jurisdictions, including: (a) charities were liable to strangers but not to beneficiaries of the charity; (b) charities were liable for the negligence of managing officials but not of servants; (c) charities were liable if they had insurance but not otherwise; (d) charities could pay tort judgments from commercial funds or funds from paying beneficiaries but not from their charitable funds. [FN6]

[FN6]  "The Quality of Mercy: 'Charitable Torts' And Their Continuing Immunity," [1987] Harvard Law Review 1382 at 1384-85.

¶ 34 The inconsistent state of American law on charitable immunity was fully addressed in the important decision of the U.S. Court of Appeals for the District of Columbia, President and Directors of Georgetown College v. Hughes, 130 F.2d 810 (1942). The action was brought by a nurse against the hospital for injuries sustained from a swinging door. The negligence case was made out. Three judges of the court sustained the liability of the hospital on the basis that the nurse was a stranger to the charity. Rutledge J., speaking for the other three, upheld the verdict but on the ground that there was no sound basis in law or public policy for the maintenance of any doctrine of charitable immunity. He summarized his analysis in this way (pp. 824-25):

He concluded with the following observation, which is consistent with current thinking in Canada (p. 827):

¶ 35 Although the law on charitable immunity remains inconsistent in some U.S. states, the doctrine of charitable immunity has never been the law in Canada.

¶ 36 In Donaldson v. Commissioners of Saint John General Public Hospital (1890), 30 N.B.R. 279 (C.A.), an action was brought by a patient against a public charitable hospital for negligent care by the doctors and nurses. It was argued that the hospital could not be held liable because it was a charity. The majority firmly rejected this proposition after reviewing the state of the law in England including the fact that the Mersey Docks case had overruled the Heriot's Hospital and Duncan cases, and held that (pp. 299-300):

¶ 37 In Ontario, Riddell J.A. dispelled the "trust fund" theory of immunity in the 1915 case Lavere v. Smith's Falls Public Hospital, supra. There the hospital was held liable for the negligence of a nurse in the course of her duty. Riddell J.A. approved the conclusion of the majority of the Supreme Court of Alabama in Tucker v. Mobile Infirmary Association, 68 So. 4 (1915), that "a charitable hospital is in no higher position than any other corporation in respect of liability for the negligence of its servants, the 'charitable trusts' theory, though supported by a great weight of authority in the American Courts, being untenable" (p. 113). He concluded (p. 114):

¶ 38 In the 1927 Supreme Court of Canada decision in Nyberg v. Provost Municipal Hospital Board, supra, the court held, relying on the Mersey Docks decision of the House of Lords, that a public not-for-profit hospital is not free from liability for the negligence of its servants. The majority approved the observation of Mignault J. that the opposite contention was "hopeless" in light of the authority. As recently as 1994 in Pittman Estate v. Bain (1994), 112 D.L.R. (4th) 257 (Ont. Ct. (Gen. Div.)) at 351, Lang J. noted that the immunity doctrine was long defunct in Canadian law and expressed the sentiment that it should not be resurrected under another guise.

¶ 39 Most recently in Bazley v. Curry, supra, the Supreme Court reaffirmed that a charity enjoys no immunity from liability to its tort victims. The court approached the issue without relying on previous case law, but instead addressed the issue afresh, applying a principled analysis. The court considered and rejected the following three submissions made in favour of immunity at pp. 563-64 (para. 48): "(1) that it is unfair to fix liability without fault on non-profit organizations performing needed services on behalf of the general public; (2) that non-profit organizations are less able to control and supervise the conduct of their agents, many of whom are volunteers, which enhances the unfairness of imposing vicarious liability and diminishes its deterrent effect; and (3) that the practical [page464] effect of making non-profit organizations vicariously liable for the misconduct of their agents would be to make it difficult or impossible for such organizations to carry out their important work".

¶ 40 In rejecting these arguments, the court concluded that as between the innocent victim and the charity which had the opportunity to prevent the loss, fairness demands that the loss should be borne by the charity. The court doubted that the public social benefit from the existence and operation of charitable institutions justified leaving a victim without a remedy, in effect making the victim a significant and disproportionate contributor to that public benefit.

Conclusion on Charitable Immunity Doctrine

¶ 41 This review of the history of the issue of "charity immunity", whether charities enjoy immunity from liability to victims of torts perpetrated by or on behalf of the charity and for which the charity is in law responsible, leaves no doubt that there is not, nor was there ever in Canada, any such immunity. This was also the conclusion reached by Blair J. and his answer to the first question posed for the court.

¶ 42 However, the law goes much further. The courts in England and Canada have fully considered the issue of whether the fact that the charity trustees hold the charity's funds in trust, means that those funds are required to be used only directly for the charitable purposes for which they are held, and not indirectly to compensate tort victims for wrongs done in the operation of the charity. Our courts have firmly rejected the "trust fund theory" of immunity which had earlier been articulated by Lord Cottenham in the Duncan and Heriot's Hospital cases, supra.

¶ 43 In other words, the question of charitable immunity was not raised and resolved as a hollow issue addressing only whether judgment could be registered against a charitable corporation or Board of Trustees. The immunity issue addressed and decided that the funds of the charity, held by the board or by the corporation as the case may be, are available to satisfy the tort claims. The fact that they may be held as charitable trusts by the trustees, does not make those funds immune from execution.

Analysis of the Exigibility Issue

¶ 44 With respect to Blair J., in my view he erred by proceeding to answer the second question, whether the assets of a charity are [page465] exigible to satisfy tort claims, by analyzing that issue separately, embarking on a trust analysis of the way charities hold their assets. In my view, by so doing he simply re-addressed the same immunity issue by asking the question in a different manner.

¶ 45 Blair J. noted that trust funds are immune from execution to pay creditors of the trustee for debts or other obligations incurred by the trustee in the trustee's personal life: Kimniak v. Anderson (1929), 63 O.L.R. 428, [1929] 2 D.L.R. 904 (C.A.).

¶ 46 However, the essential reason why our courts rejected the "trust theory" analysis of charitable immunity -- i.e. immunity of the trust assets because they belonged beneficially to the charitable purposes and not to the trustee -- was because in those cases, tort liability was not incurred by trustees in their personal life, but rather in the administration of the trust, or by a servant or agent of the trust who was carrying out duties for the trust and under its auspices. In those circumstances where a tort was committed by or on behalf of or in the name of the charitable agency, our courts have recognized that the trust assets must answer for the wrong done: see for example Mersey Docks, Donaldson, Lavere and Nyberg, supra.

¶ 47 One question that has continued to vex the courts over the years is whether, in the particular case, the tort was committed by or on behalf of the charity and whether the charity should be held responsible in law for the acts of the person who caused the damage to the claimant, for example, where it is alleged that the wrongdoer was acting outside his or her authority. Again, in 1999 in the Curry case, the court first had to find that the charity was vicariously liable for the sexual abuse perpetrated by its employee on the victim. The court then went on to consider, on a policy basis, whether in spite of vicarious liability the charity should have immunity, and concluded that it should not.

¶ 48 What is the basis of the "trust fund theory" which suggests that the funds held by charities may not be available in law or equity to pay tort claimants against the charity? I discern that the theory emerges from three concepts, working either alone or together. The first is the intent of the donor, that when a donor gives money to a charity or to be used for charitable purposes, the intention is that it is to be held in trust and used for those purposes only, that is, for the good works carried out by the charity, and therefore it would be a breach of trust to use the funds to pay liabilities incurred in the [page466] course of carrying out those good works. The second is that charities originally took the form of charitable trusts where gifts were given to a trustee to be held for certain charitable purposes or objects. Because there was a trust, the trustee held the legal title to the trust assets but they were owned beneficially by the trust purposes. Therefore, a judgment obtained against the trustee could not be enforced against the assets because the trustee did not own them in his or her own right. The third is that if a trustee is held liable to an injured party, the trustee is not entitled to be reimbursed out of the trust funds if he or she was guilty of any wrongdoing. Therefore, neither is the victim entitled to obtain access to the funds by that route.

¶ 49 I am satisfied that each of these rationales for the trust theory was either expressly or impliedly rejected with the rejection of charitable immunity.

A. THE INTENTION OF THE DONOR

¶ 50 This issue was raised squarely in the Heriot's case as the rationale for denying the plaintiff any damages from the funds of the charity. Lord Cottenham, in the passage quoted earlier in paragraph 30, stated that it would be a "direct violation, in all cases, of the purposes of a trust" to allow the funds to be used for that purpose. He observed in support of his conclusion that no one who creates a trust fund provides that it can be used to recover damages from those who manage it. Although the intention of the donor was not specifically addressed, by rejecting the concept of charitable immunity, the court in Mersey Docks also necessarily rejected the notion that the donor's intention should govern, either as a matter of policy or of law. I agree with the statement of Blair J. (p. 393) [para. 80] that "the payment of properly established tort claims is as much a part of the conduct of the corporation's charitable calling as are the 'good works' aspect of its mandate".

¶ 51 In later discussions of the policy arguments for and against immunity, such as in Curry and in the U.S. cases, courts have considered seriously whether allowing the funds to be used for payment to tort victims would undermine charitable giving generally and discourage donors on a broad scale. Ultimately this fear is discounted, based on the increase in the size and number of charities operating within our societies today and because based on fairness, the need for compensation of the victims is recognized as paramount. [page467]

B. THE ISSUE OF SPLIT OWNERSHIP

¶ 52 Originally the trust developed where one person held property, but for the use of another. That obligation was enforced by the courts of equity. Out of this concept which applied in the strict sense only to land and not to personalty, [FN7] a trustee is said to hold the legal title to trust property, while the beneficial or equitable title belongs to the beneficiary. In effect, a trust is a relationship where the trustee owes duties to the beneficiary in respect of the trust property. In The Law of Trusts, 10th ed. (1974), by G.W. Keeton and L.A. Sheridan, the authors describe a trust as follows (p. 5):

[FN7]  D.W.M. Waters, Law of Trusts in Canada, 2nd ed. (1984), p. 12.

It is problematic to conceptualize charitable purposes as "owning" the equitable interest in trust property. In this context, whether or not the purposes can be said to "own" the equitable interest in trust property, that property is held by the trustees for use only for the charitable purposes and that obligation is enforced by the Attorney General through the courts. [FN8]

[FN8]  D.W.M. Waters, "Comment: Charity -- Cy-Prs -- Supervening Impossibility" (1974), 52 Can. Bar Rev. 598 (p. 602):

       "The object or purpose need not be a 'legal entity', in the sense of a legal or quasi-legal personality, in order to be vested with a beneficial interest in trust property. That bridge was crossed when courts of Chancery recognized the exceptional validity of trusts for charitable purposes, as opposed to the usual trust for persons. The Crown as parens patriae makes itself responsible for enforcing the obligations of charitable trustees. And there is never any question of the 'vesting of trust property in a mere purpose'."

¶ 53 It is the duality of ownership which compels the rule in debtor/creditor law that where a trustee is subject to a judgment obtained in respect of an act done in his or her personal capacity and not in connection with the administration of the trust, then the property held by the trustee not for him or herself but for the beneficiaries of the trust, is not answerable for the personal debts of the trustee: Jellett v. Wilkie (1896), 26 S.C.R. 282; Kimniak v. Anderson, supra.

¶ 54 In Mersey Docks, Lord Westbury specifically rejected the concept that because the property was held for the benefit of beneficiaries, it could not be reached by individuals who had suffered damage from the acts of trustees in carrying out their trust duties. He concluded that equity will not protect the property of beneficiaries from the consequences of the acts of their trustees where those acts are done in respect of the property committed to the care of the trustees, and where members of the public who deal with them have a right of action as a result. In his view this result was fair, because [page468] the beneficiaries would have the right to seek compensation from the trustees who have done wrong. In other words, the fact that the property was held in trust did not affect its exigibility for victims of acts of the trustees when the trustees were acting on behalf of the trust.

C. A TRUSTEE CAN ONLY BE REIMBURSED IF HE OR SHE DID NOT ACT WRONGFULLY

¶ 55 Counsel for the trust objects take the position that all assets of the charity are trust assets which are not exigible to pay tort claimants. They argue that a tort claimant cannot sue a charitable trust directly but only the trustee, and that the trustee may only seek indemnity from the trust assets if the trustee acted with due diligence and reasonably and was not personally at fault. The tort claimant, having successfully obtained judgment against the trustee, can only seek recovery from the trust assets if those same circumstances apply. This proposition is derived from two 19th century English Chancery cases: Raybould v. Turner, [1900] 1 Ch. 199, following Benett v. Wyndham (1862), 4 De G.F. & J. 259. Blair J. was concerned about the implications of this line of authority because there is some evidence of CBIC complicity and cover-up of the actions of certain of the perpetrators of the abuse at Mount Cashel.

¶ 56 In my view, the two Chancery decisions, which were made in the context of private and not charitable trusts, were never consistent with the authorities which established that there is no charitable immunity for torts perpetrated by or on behalf of a charity. First, I do not believe that those cases hold that no action lies against the trust but only the trustees. Technically, there is no entity to sue but the trustees. The issue is whether the judgment against the trustees is against them in their personal capacity or is it effective against the corpus of the trust. In Mersey Docks, the judgment obtained against the Board of Trustees, who were found responsible for the condition of the port which caused the damage, was explicitly said by the Law Lords to be recoverable from the funds held by the Board.

¶ 57 However, any doubt on the issue has been put to rest by the Curry decision, which defined the rule for determining when an employer, including a charity, will be held liable for the unauthorized, intentional wrongs perpetrated by an employee. The court held [page469] at p. 563, para. 46, that "the test . . . should focus on whether the employer's enterprise and empowerment of the employee materially increased the risk of . . . the harm" with a view to "the policy considerations that justify the imposition of vicarious liability -- fair and efficient compensation for wrong and deterrence". In my view it follows that the risk of harm and the policy of compensation will apply even more strongly if there is any suggestion that the wrongful acts of employees (or other agents) were in some way condoned or implicitly authorized by the charity. If the Attorney General on behalf of the charitable objects may seek compensation from the wrongdoers, that is a separate issue which does not affect the rights of the victims.

¶ 58 In this case, the issue of the CBIC's liability to the victims of abuse at the hands of individual brothers has been determined. In one action [FN9] the corporation admitted liability. In respect of the other claims, Blair J. ruled in answer to the third question posed, that the liquidator should admit the claims subject to proof. That ruling has not been appealed. He approved the position of the liquidator, standing in the shoes of the corporation, that liability should be admitted to claimants able to prove that they suffered physical, emotional or sexual assault or abuse by a Christian Brother at an institution managed or operated by the CBIC. Therefore, in this case there is vicarious liability of the CBIC for the abuse perpetrated by individual Christian Brothers.

[FN9]  E. (S.M.) v. Christian Brothers of Ireland in Canada (1995), 136 Nfld. & P.E.I.R. 52 (Nfld. S.C.).

The Exigibility of Specific Assets of CBIC

¶ 59 Blair J. approached the issue of exigibility of specific assets by analyzing how the assets of a charity are held and in particular, whether they are held in trust. For the reasons which I have already stated, this inquiry was redundant when the doctrine of no charitable immunity for trust assets had been established. Blair J.'s analysis followed these steps to the conclusion which he reached:

¶ 60 The critical conclusion is stated as follows (p. 400) [paras. 110, 111]:

No authority was cited for this conclusion. The judgment broke new ground by suggesting that tort claimants against the corporation assert their claims against specific properties or assets depending upon where, by whom or in what situation the tort occurred or the damage was suffered.

¶ 61 In my view this conclusion is wrong in law as well as policy. It undermines the rule that there is no charitable immunity from compensating tort victims, by requiring, before payment of any claim, an analysis of how each asset of the charity was acquired to determine whether that asset may be available to pay the particular victim. Examples of potential problems arising from the application of this principle are not difficult to conceive. They were alluded to by Blair J. in an earlier part of the reasons where he queried rhetorically (p. 394) [para. 86]:

¶ 62 Because in this case the potential "special purpose properties" are free-standing schools which may appear to be easily severable from the balance of the charity's assets, the concept of relating the tort to the property and having that property respond may appear to be a straightforward one. However, the result is more complex and difficult in the following examples. Example 1: there is a "special purpose trust" of a gift of funds to a hospital in trust, to be used to construct a cardiac care wing. Torts are committed in the surgical wing, and the hospital must be sold or mortgaged in order to pay the claims. In those circumstances, can the whole hospital be sold, arguably breaching the trust with respect to the cardiac care wing? Can the cardiac care wing be mortgaged and put in financial jeopardy to pay tort victims whose claims arose in another part of the hospital? Is a hospital to be viewed as an integrated facility for the purpose of determining within which special purpose property the tort was perpetrated, or as a collection of separate parts, assuming some parts were built with special purpose trust funds? [page472]

¶ 63 Example 2: assume a donation in trust was given to the CBIC to be used by the CBIC to establish and provide a music program in each of its schools. The money was used to equip a music room in each school. Abuse took place at one of the schools but not in the music room. The question then becomes, did the wrong have to be committed in the music room in order to make that room and its contents available to pay the claim?

¶ 64 The result reached below does not address how to determine what is to be considered as the specific charitable purpose when deciding whether the tort was committed within the framework of the purpose. Is it the charitable purpose itself, for example, providing education, or is it a particular project at a particular location, such as an entire school, or can it be a portion of a specific project, such as one room within the school? By defining "specific charitable purpose" in terms of any specific use of funds designated by a donor, the tort claimants seeking to maximize their recovery will always be pitted against the interests of those who wish to preserve as many of the assets of the charity intact as possible, who will argue the narrowest scope for the definition of the charitable purpose within which the wrong was perpetrated. As suggested by the music room and hospital wing examples, if different rooms within an educational institution or hospital are endowed in trust for the purpose of the room or wing, one could argue that because the wrong was not committed in that room or wing, therefore that asset is not exigible and should be preserved.

¶ 65 In its factum the liquidator refers to practical problems it will face associated with determining whether specific assets, including but not limited to the two British Columbia schools, are held by the CBIC on special purpose trusts.

¶ 66 In my view, the articulation of these problems demonstrates that the concept of attempting to relate the wrong done to the particular assets of the charity is fatally flawed, as well as being incompatible with the long-standing rule of charitable non-immunity.

¶ 67 The fundamental problem with the analysis and result reached below is that its logic is not reconcilable with the accepted rule that assets donated in trust for the general charitable purposes of a charity will be answerable to tort claims which may arise out of a particular operation of a charity. The effect is that if the tort arises [page473] within the context of one of the operations of the charity, then the trust funds donated to benefit all the purposes generally will go to pay that claim, with the result that the other trust purposes for which the funds were also donated will suffer, although the funds were supposed to be in trust for those purposes as well. This result is the accepted consequence of the no-immunity rule. There is no logical basis not to apply the same consequence when the funds were donated for only one of the charity's purposes or establishments.

¶ 68 I do not discern that an inconsistent application or result was ever intended by the House of Lords in Mersey Docks or by the courts that followed its authority. Those courts recognized that the public who were intended to benefit from the charity's operations would have to lose out when judgments were executed against property held in trust by the trustees of the public institution.

Modern Recognition of "A Special Purpose Trust"

¶ 69 For many years organized charities have taken the form of corporations incorporated to carry out charitable objects. It is generally accepted that charitable corporations receive and hold their assets beneficially as all corporations do. However, they are obliged to use those assets only to further the charitable purposes of the corporation. The position was well summarized by Slade J. in Liverpool and District Hospital For Diseases of the Heart v. Attorney-General, [1981] 1 Ch. 193 at 209 as follows:

¶ 70 He went on to support this conclusion in part by reference to the 1917 decision of the House of Lords in Bowman v. Secular [page474] Society, Ltd., [1917] A.C. 406, where it was held that a person who gives a gift to a corporation does not do so in trust for the objects of that corporation, even where the donor gave the gift with certain objects in mind.

¶ 71 Because of the trust-like obligations of the charitable corporation, it is accepted that the court maintains its supervisory scheme-making power whether a charity's legal form is as a charitable trust or a charitable corporation: Liverpool Hospital v. Attorney-General, supra, at 213. This is to continue to ensure that gifts made with charitable intent will not fail even if the object of the gift is unclear or uncertain, or if the gift is directed to a charitable corporation which is misnamed or the corporation no longer exists: Re Vernon's Will Trusts, [1971] 3 All E.R. 1061n (Ch. D.); Re Meyers, [1951] 1 All E.R. 538 (Ch. D.); Re Morgan's Will Trusts, [1950] 1 All E.R. 1097 (Ch. D.); Re Finger's Will Trusts, [1972] 1 Ch. 286; Re Buchanan Estate (1995), 11 E.T.R. (2d) 8 (B.C.S.C.). This power of the court is referred to as the cy-près doctrine. It is described in the Restatement of the Law of Trusts (2d), s. 399, as follows: [FN10]

[FN10]  Quoted with approval by Rutherford J. in Lapointe v. Ontario (Public Trustee) (1993), 1 E.T.R. (2d) 203 (Ont. Ct. (Gen. Div.)), from Picarda, The Law and Practice Relating to Charities (London: Butterworths, 1977), p. 219.

¶ 72 It was in the context of a testamentary gift to a charity which no longer existed under the same name that Buckley J. discussed the nature of gifts to an incorporated and an unincorporated charity in Re Vernon's Will Trusts, supra (p. 1064):

¶ 73 The issue of whether a gift was given "in trust" to an incorporated charity has arisen in those cases in the context of determining whether a testamentary gift can be saved which was left [page475] to charity but with problems of interpreting the true intent of the donor; specifically, whether a gift left to a named corporate or unincorporated charity which either no longer existed or which had changed its objects by the time the gift was to take effect, was intended as a gift to that corporation or charity or, alternatively, as a trust for the purposes of the corporation or charity. For example, in Re Finger's Will Trusts, supra, the testatrix left a share of the residue of her estate to the National Radium Commission, an unincorporated body which had ceased to exist, and to the National Council for Maternity and Child Welfare, an incorporated body which had also ceased to exist. The court viewed the situation in the following way (p. 294):

¶ 74 The public policy which the courts wish to implement is to save charitable gifts and to apply them as far as possible to the purposes intended by the donor: Lapointe v. Ontario, supra, at 208; Re Buchanan Estate, supra, at 15. To do that, the court can determine that a gift was intended as a trust, even though left to a corporate charity, in order to save the gift where the particular corporate charity is no longer available to receive the gift.

¶ 75 Another example where that law was applied is the case of Re ARMS (Multiple Sclerosis Research) Ltd., [1997] 2 All E.R. 679 (Ch. D.), which involved the winding-up of an incorporated charity. The issue for the court to determine was whether gifts which did not vest until after the charity was in liquidation still took effect, and therefore would be used in the liquidation for the payment of the debts of the charity, or whether the liquidation meant that there was initial impossibility and the court should propound a scheme. Neuberger J. held that a bequest to a company takes effect as long as the company is still in existence, whether in liquidation or not, so that even though the company was no longer carrying out its charitable purposes, the gift would not fail, unless it was given in trust. Presumably in that circumstance, the court would apply cy-près because the charitable purpose for which the gift was given in trust was no longer being carried out by the charity. The court rejected the [page476] argument that the situation was analogous to the cases where a gift was left as a special purpose trust but that purpose was no longer being carried on, that is, initial impossibility (p. 684): "It appears to me, however, that there is a clear difference between a gift to a specific company, which still exists, albeit that it is in liquidation, and a gift for a specific charitable purpose, where that purpose no longer exists." [FN11]

[FN11]  See also: Re Stewart Estate (1999), 174 Nfld. &P.E.I.R. 147 (P.E.I.S.C.T.D.).

¶ 76 The authors of Tudor on Charities, 8th ed. (1995), p. 159, have extrapolated from this law the proposition that a charitable company may hold particular property in trust for specific charitable purposes, distinct from its other property, and that "clearly to misapply such property would be a breach of trust". I agree with the authors of Tudor on Charities as to the obligations of the charity when it accepts such a gift, but with the following qualifications: (a) as long as the charity is in operation, and (b) subject to any cy-près order of the court, the charity would be obliged to use the funds for the purpose stipulated by the trust.

¶ 77 (a) Where a corporation is no longer in operation but is wound up, s. 19 of the Winding-up and Restructuring Act provides:

Therefore, where a corporate charity is wound up, the charity is obliged to stop carrying out its charitable purposes in order to allow the liquidator to proceed to wind up the charity.

¶ 78 (b) The trustees may be required to seek approval of the court to use the trust property for another purpose where the purpose originally stipulated has become impossible or impracticable to carry out. The second branch of the cy-près doctrine known as "supervening impossibility" (as opposed to "initial impossibility") applies where a particular object of a charity becomes impossible or impracticable to carry out after the gift for that purpose has vested in the charity. It is succinctly described by Waters in the following passage: [FN12]

[FN12]  Waters, "Comment", supra, note 8, at p. 599.

¶ 79 We do not know to what extent large charitable corporations accept donations to be held in perpetuity in trust for a particular purpose within their charitable objects, and thereby accept true trust obligations with respect to such donations. Some of the issues that would confront the corporation if it were prepared to accept a donation on such terms include: what would be involved in keeping separate accounts; how and to what extent other corporate funds could be used and applied to the operation of the trust property; the effect of the application of other funds from the charity to the purpose for its ongoing operation or for other purposes.

¶ 80 However, assuming that a corporate charity with multiple objects will accept gifts in trust for special purposes, the question that confronts this court is whether it would be a breach of trust for the charity, or the liquidator standing in the shoes of the charity, to allow such property to be used to satisfy tort claims which did not arise in connection with that property or the purpose for which that property was donated. Or, stated in the context of exigibility, does the fact that such property is held in trust for one charitable purpose of the corporation mean that if the corporation incurs a liability for a wrong done by the corporation but not in connection with that particular charitable object, then that property is not exigible because of the trust?

¶ 81 I am satisfied that the answer to both questions is no for the following reasons.

¶ 82 First, the concept of vicarious liability is that the entire corporation is responsible to the victim for the wrong which was done, although it may have been committed by only one person for whose actions that corporation is responsible. Judgment is obtained against the corporation. All of its assets are answerable for that judgment whether they are held beneficially or in trust for the charitable purposes of the corporation, including one or more of those purposes. [page478]

¶ 83 Second, there exists no law of liability which requires that the claims of a plaintiff be related to particular assets of a corporation. Nor is it a part of the defence to establish in relation to which of its objects the tort occurred. It would not be an issue in an action against the charitable corporation for the court to determine in connection with which asset or charitable purpose the wrong occurred. As I have tried to demonstrate by some of the examples, the answer could be very broad (the charitable purpose is a particular hospital) or very narrow (the charitable purpose was one room, or one bed in the hospital), depending on the interests of the parties.

¶ 84 Third, there is no valid policy objective to introduce into our law the concept of relating a wrong done by a charity to the operation or administration of a particular endeavour of the corporation in order to protect other assets of the charity from responding to legitimate tort victims of the charity. In this case, the potential result is that the assets of the charity available to satisfy the tort claims will fall woefully short. After the policy analysis recently carried out by the Supreme Court of Canada in the Curry case, McLachlin J. concluded at p. 566, para. 54: "The suggestion that the victim must remain remediless for the greater good smacks of crass and unsubstantiated utilitarianism. Indeed, it is far from clear to me that the 'net' good produced by non-profit institutions justifies the price placed on the individual victim, nor that this is a fair way for society to order its resources."

¶ 85 A major part of the concern traditionally asserted on behalf of charitable institutions is that donors will be reluctant to give if they believe that the donations will not be used for the good works of the charity but rather to pay tort claims. Whether or not this may be a more legitimate concern in recent years, where there have been several instances of large charities being held responsible for damage to large numbers of victims, both charities and their donors may see the special charitable purpose trust as a device to enable them to segregate the assets of the charity, and to try in that way to make it difficult for tort claimants to collect judgments from the assets of the charity. This would be contrary to the policy conclusion of Curry and the other decisions which rejected charitable immunity on the basis that fairness requires that the victim be compensated out of the assets of the charity. [page479]

¶ 86 Fourth, would not the directors of the charitable corporation find themselves in a hopeless conflict of interest, given their obligations as directors to act in the best interests of the entire charity including all of its objects, if in any proceeding with the victims they attempted to protect the assets of certain purposes at the expense of all of the other assets, perhaps including some which also were not related to the wrong which was perpetrated?

¶ 87 Fifth, the purpose of the reference in recent case law dealing with the disposition of certain charitable gifts, to the concept of a testator leaving a gift as a special purpose trust, is not to immunize such gifts from liability to victims of wrongdoing by the charity. It is to allow a court to apply the doctrine of cy-près to such a gift and, rather than have the gift fail ab initio, the court may propound a scheme for the funds to be used as closely as possible to the use the testator intended. However, if there is no problem of interpretation and such a gift becomes vested in the charity and used as directed, if the charity is then wound up, the charity can no longer carry out any of its purposes (s. 19 of the Winding-up and Restructuring Act) because it must cease its business except as required by the liquidator for the winding-up. In that case, all the purposes of the charity including the special purpose have become impossible for the charity to continue, except to pay the claims incurred by the charity while it was operating. [FN13] The court may be called on to propound a scheme, however, if there is a surplus: Liverpool and District Hospital for Diseases of the Heart v. Attorney-General, supra.

[FN13]  It would be facetious to argue that the winding-up itself makes the specific purpose impossible to carry out and that the assets, without the liabilities, should be applied cy-prs to allow the charitable purpose to be continued, free of the liabilities of the corporation. This would wholly undermine the winding-up process and its purpose.

¶ 88 One statement made by Slade J. in Liverpool requires comment as it appears to revert to the concept that property held in trust for charitable purposes is not exigible. He states at p. 205 that the "surplus" and the "property of a company" (under the Companies Act 1948, 11 &12 Geo. VI, c. 38) "will not . . . comprise assets of which the company at the date of its liquidation was merely a trustee (in the strict sense) for third parties or for charitable purposes, even though the legal title may have been vested in it". This statement was not considered in the context of the doctrine of no charitable immunity and the cases which hold that the assets of a charitable trust are answerable to tort claimants. Therefore, I do not read this statement as a contradiction of those long-established principles. [page480]

Summary of Conclusions with Respect to the Effect of a Special Purpose Trust

¶ 89 The purpose of the recognition by courts of the possibility that assets can be given to a charitable corporation as a special purpose trust is to allow the courts to propound a scheme for the gift, rather than have it fail if the corporation has been misnamed or no longer exists. It was not to give immunity from exigibility to such a gift in the hands of the charity.

¶ 90 A wrong done to a tort victim by or on behalf of the charity is done by or on behalf of all of its objects because the corporation is a single legal entity for the purpose of vicarious liability. The charitable objects are not severable as actors nor as separate legal units individually vicariously liable. Nor are the assets used in furtherance of particular objects referable to particular tortious conduct in any legally relevant way.

¶ 91 Because assets held for charitable purposes are not immune from execution on the "trust theory", assets held for one or more than one of the charitable purposes of the corporation are answerable for the obligation of the corporation as a whole to tort claimants, once that obligation is established.

¶ 92 To the extent that charitable corporations do accept donations in trust for one of their charitable purposes, as opposed to in the form of a precatory trust, or a non-trust agreement governing the conditions and use of the gift, the trust obliges the charity to use the donation only for the specific objects of the trust while the charity is operating, again subject to any court order that may be sought for cy-près if, while the charity itself continues to operate, that purpose or object becomes impossible or impracticable to continue. If the charity, while still operating, determined that it was in the best interests of the charity to use the assets held upon special purpose trust instead of other assets to pay tort claims, that might be a situation where the charity would seek the approval of the court for the scheme, if the consequence would be that the particular purpose would no longer be carried out by the charity.

¶ 93 When a corporation is wound up, the "business" of the corporation ceases except in so far as in the opinion of the liquidator is required for the beneficial winding-up. (s. 19 of the Winding-up and Restructuring Act). Where the corporation is a [page481] charity, this means that the charity ceases to carry out its charitable purposes. The obligation of the charity to use assets held in trust for one or more of the trust purposes also ceases as it may no longer carry on. If there is a surplus after the completion of the winding-up, then the assets can be applied cy-près to another charity with similar purposes.

Conclusion on the Exigibility Issue

¶ 94 For the purposes of this winding-up procedure, all assets of the CBIC, whether owned beneficially or in trust for one or more charitable purposes, are exigible and may be used by the liquidator to pay the claims of the tort victims.

¶ 95 However, the liquidator is free, in accordance with its obligations, to seek the advice and assistance of the court in respect of any particular asset where there remains an issue with respect to its ownership or exigibility.

The Jurisdiction Issue

¶ 96 The liquidator appeals from para. 5 of the Order of Blair J. which provides:

and from the portions of the Reasons for Judgment upon which that paragraph was based.

¶ 97 The liquidator's concern is the intent and extent of that paragraph and its effect on the findings of the court and on the balance of the order. The liquidator's position is that the rulings of the winding-up court are applicable and enforceable by the liquidator throughout Canada and are therefore binding in all jurisdictions and in respect of all assets. The winding-up court cannot limit the effect of its own decisions.

¶ 98 The question whether paragraph 5 of the Order was necessary, as the same statement was made in the Reasons for Judgment, or whether as a middle position, it should have been placed in the preamble to the Order, was considered in an Endorsement of Blair J. dated June 1, 1998. He determined that in substance it made no [page482] difference because the determination had already been made and included in the Reasons, but that on balance, the paragraph should go into the body of the Order.

¶ 99 In my view, Blair J.'s intent in paragraph 5 is clear. He made the Order under s. 21 of the Winding-up and Restructuring Act allowing representatives for the two British Columbia schools to bring petitions in the Supreme Court of British Columbia for the court to determine how their shares are held and the ownership of those shares for the purposes of the winding-up. Although there was a substantial record before the winding-up court on the history of the schools and of their shares, he noted that that record was incomplete. As the British Columbia court would have before it the complete record, its factual findings with respect to the issue before it would be based on that full record.

¶ 100 I am satisfied that Blair J.'s intent was to reassure those involved in the British Columbia proceedings that any statements about the history of the schools and their shareholdings in his reasons for judgment were not intended to be taken as determinative of the issues which were to be litigated in the British Columbia court. The reason I say reassure is because this would be the legal result, whether or not this statement was made by the judge in his reasons.

¶ 101 However, this statement in the Reasons and paragraph in the Order are not intended to have the effect of making any of the other findings or determinations in the Reasons and the Order any less binding. As an example, paragraph 1 of the Order provides:

This determination was made and has effect for all purposes within the liquidation, and is equally effective in respect of all assets of the corporation, wherever situated.

¶ 102 In my view, paragraph 5 as part of the Order is unnecessary and should be struck out. It is unclear who is ordered and directed in that paragraph. It would not be another court. However, the Reasons for Judgment, which seek to clarify that the British Columbia court [page483] is free to make its factual determinations regarding the ownership and shareholding of the two British Columbia schools, are a proper statement of the role of any specific finding of fact by Blair J. on those issues (p. 376) [paras. 17, 18]:

Conclusion

¶ 103 The issues faced by the liquidator in this winding-up procedure caused it to seek the direction of the court on broad questions with respect to the application of the assets of the charity to its obligations to tort victims. As well-meaning as this exercise may have been, in my view it is not a path upon which the court ought to be asked to embark. The role of a court is to pronounce on legal issues in the context of facts found based on evidence. That evidence and those facts form the framework within which the law is developed. The liquidator should seek the advice of the court only in respect of the particular assets about which there is a factual or legal issue or dispute, and present the facts to the court upon which the law is to be determined and applied.

Result

¶ 104 The appeal is allowed in part. Paragraph 2, Question 2, Answer 6 of the Order is struck out. The fact that any asset is held by the corporation in trust does not affect its exigibility in respect of the claims of the tort victims of the CBIC. Paragraph 5 of the Order is struck out but the Reasons for Judgment of Blair J. referred to in para. 102 above are approved.

¶ 105 DOHERTY J.A. (CONCURRING):— I agree with the reasons of Blair J. [ 37 O.R. (3d) 367] with one significant exception. After holding that property held by a charitable corporation by way of a [page484] charitable purposes trust may be exigible to answer tort claims, he added this important qualification [p. 400, para. 111]:

¶ 106 While the distinction drawn by Blair J. is an attractive one, I do not think it is tenable in the context of a winding-up of a charitable corporation. The winding-up process sounds the end of the charitable corporation. It ceases to carry on any and all of the charitable purposes it formerly served. Its obligation to use particular property to further specific charitable purposes must also terminate. A winding-up is a time for a final accounting. That accounting should look at the charitable corporation as a single whole entity and not as a number of separate pieces each with its own set of obligations and assets.

¶ 107 Blair J. correctly observed that the determination of the extent to which property held by a charitable corporation by way of a charitable purpose trust should be exigible to satisfy tort claims is ultimately a matter of equity (398-99). The practical and policy considerations effectively marshalled by my colleague, Feldman J.A. at paras. 61-66 and 84-85 satisfy me that, in the context of a winding-up, equity favours making all property held by the charitable corporation by way of charitable purpose trusts available to answer legitimate tort claims arising out of the corporation's pursuit of its charitable purposes.

¶ 108 I concur in the result reached by Feldman J.A.

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