Got a generous gift ... but can you use it?

Two very generous donors gave $250,000 and $861,217.50 to the Mulgrave School Foundation in 2008 to create an endowment supporting scholarships at Mulgrave School, a co-educational, independent, non-denominational school in West Vancouver. The Foundation, with the consent of the donors, decided that it would instead apply these gifts towards the construction of the School’s Senior School Building project. Applying the money in this way was going to save the School about $200,000 in interest.

However, there was a catch: when the donors gave their money to the Foundation, they placed two conditions on their gifts: the money had to be used to create an endowment; the endowment had to be used to support scholarships at the School.

The Foundation therefore asked the Supreme Court of British Columbia to alter the two conditions to provide the School access to the money for its building project. In April 2015, the Court held that funds donated to a School Foundation for a specific purpose cannot be used for a different purpose.

Although this is a Canadian decision, it reflects the law in Australia and serves as a timely reminder to schools to ensure that funds donated are used for the specific purpose the donor had in mind.

The Foundation argued that a Canadian statute allowed the Court to order that the gifts be used for another, consistent charitable purpose where the Foundation was unwilling or unable to use them for the stipulated purpose. This argument failed because there was no evidence that the Foundation was unwilling or unable to use the gifts for the stipulated purpose.

The Foundation also argued that the general law allowed the Court, where it was impossible or impracticable to carry out the stipulated purpose, to order that the gifts be used for a different purpose that was as close as possible to the stipulated purpose. This is often known as asking the Court to approve a cy-pres scheme, meaning one ‘as near as possible’ to the one that cannot be put into effect. However, the Court couldn’t find any evidence that it was impossible or impracticable for the Foundation to carry out the original purpose.

Would the Mulgrave Foundation have succeeded in Australia? It is most unlikely. As the NSW Supreme Court said over 20 years ago:

If one is given a gift for a certain purpose or on certain conditions, then if one accepts the gift one must comply with the conditions. If one does not like the conditions, one does not accept the gift [in the first place].

The cy-pres doctrine also applies in Australia.

This serves as a timely reminder to Schools and their Foundations and to charities generally to ensure that donations are used specifically for the purpose for which they were intended. If you would like to know more about these issues as well as practical ways of reducing the chances of being caught up in such a situation, please %90%D4%E7%DE%A8%CE%BD%E2%8Ag%A8%C9%BB%B1f%C0%D6%96%AAD.