Appeal Decision Analysis

 

The Important Clarity the Appeal Decision Brings

 

The Court of Appeal’s decision affirms and does not change a statutory structure that uniquely protects MPGC’s assets and, in fact, guarantees that MPGC’s assets will never be diverted from MPGC’s purpose of operating and supporting a public cemetery operation in perpetuity. It is simply legally impossible for the board of MPGC to act inconsistently with its mandate by disposing of its assets in the manner that the FTPC have suggested.

In particular:

1. Unlike the kind of private business corporation to which Friends of Toronto Public Cemeteries (FTPC) seeks to compare MPGC, MPGC’s structure is not vulnerable to being hijacked by private interests unconstrained by obligations to further MPGC’s statutory purpose. It has no stakeholders analogous to shareholders empowered to fundamentally change MPGC’s corporate status or to divert assets from its corporate purpose;


2. MPGC’s fiduciary duties as directors of the corporation constrain any decision that the directors might make that could undermine MPGC’s corporate purpose. These duties do not permit MPGC’s directors to make any decisions that are not solely motivated by MPGC’s best interests, which are defined exclusively by MPGC’s statutory mandate;


3. Finally, as a rare statutory corporation, MPGC is subject to the ultra vires¹ doctrine. In addition to being protected by the MPGC board’s fiduciary duties², MPGC’s statutory objects provide ironclad legal protection for the assets of MPGC. Legally, the board of MPGC cannot orchestrate anything outside its mandate such as disposing of its assets in the manner that FTPC has suggested. Practically speaking, it would be impossible to close any improper transaction as any purchaser of assets would require representations, warranties, certificates and legal opinions that MPGC’s statutory mandate would prevent it, or any counsel acting for it, from ever giving.

MPGC’s assets and public mandate are safe. The legal constraints binding the current board of MPGC are absolute. The approach to governance contended for by FTPC would undermine those constraints. If some kind of direct public control over MPGC were instituted, there is a very real risk that its affairs could be subject to the priorities of different interest groups that may, from time to time, assume control of it.

The foregoing reveals the fallacy behind FTPC’s position. Either they want to preserve the assets of MPGC to protect its purposes or they are advocating some wider agenda for the use of its assets. If they just want to protect its purposes, they are offering a solution to a non-existent problem, since the existing legal structure protects MPGC’s purposes as well as any structure could possibly do.

 

1. The Court of Appeal Decision

In summary, in its decision released on May 5, 2020, the Court of Appeal ruled as follows in relation to MPGC’s statutory character and its governance structure:

1. The 1871 Act, which incorporated MPGC, impliedly repealed the governance provisions of the 1826 and 1849 Acts. The Court concluded that the Legislature intended to change the governance of MPGC to a corporation with perpetual succession being achieved through the enactment of by-laws rather than through an election. As a result, the 1849 trustee selection process was no longer applicable to the Trust once it was incorporated;


2. MPGC’s visitation centre and funeral home operations were not incompatible with its statutory objects because they were ancillary to its object of operating a “general burying ground” as those objects are to be interpreted now; and


3. MPGC is not a charitable purpose trust and is as a result not subject to investigation under the Charities Accounting Act. The Court observed that the trust created by the legislation governing MPGC is a statutory trust, and as a result is not subject to the prerequisites of trust law, under which any “trust” of which MPGC was trustee would fail unless its purposes were charitable. There is no evidence of a legislative intention to constitute MPGC as a charitable purpose trust, and there is no reason to do so given the comprehensive regulatory scheme governing MPGC. Moreover, MPGC’s purposes are not charitable. It provides a service in exchange for a fee on a non-profit basis, but it does not do so for a charitable purpose.

 

2. Pertaining to MPGC as a “Trust”

It is noteworthy that the Court of Appeal in its reasons discusses MPGC as a statutory trust having MPGC as its trustee. More than once, the Court emphasises the parties’ concession that MPGC is a trust. The Court of Appeal’s disposition of the appeal on the charitable purpose issue, however, has important implications for what it means to say that MPGC is a “trust.” As the Court of Appeal observed, statutory trusts are entirely creatures of statute, such they are not required to satisfy the three certainties of trust law³.

Given this, it is important to bear in mind that MPGC is a sui generis⁴ entity that the Legislature has described as a “trust.” At common law, MPGC is not, and could never be, a trust because it has no beneficiaries and, as the Court of Appeal has found, is not a charitable purpose trust, such that the exception to the certainty of objects requirement of trust law would be unavailable to MPGC.

3. The Obligations of MPGC’s Directors

FTPC propagates fears that the directors of MPGC are unconstrained by public oversight, and as such could transfer the assets of MPGC at will or seek to wind up and dissolve it. There are three fundamental structural, legal, and equitable reasons why it is impossible for the directors to accomplish what this small group of detractors would like the public to believe:

1. First, at the structural level, while MPGC is a corporation, it is a very specific kind of corporation. FTPC seems to be concerned that since MPGC is a corporation, it is subject to the risk that is members could cause it to wind up and distribute any assets to themselves. It is true that in an ordinary business corporation, that members or shareholders, in their capacity as such, owe no fiduciary duties to the corporation and can exercise their voting rights as an incident of their right of property, authorising actions that would be a breach of fiduciary duty if done by directors. This principle, however, does not apply to MPGC, since it is not a corporation having shareholder-members. Its directors in their capacity as such are the corporation. There is no decision-making body other than the directors with the power to make decisions on behalf of the corporation. Decisions affecting the corporation can only be made by directors who, unlike shareholders, have fiduciary duties to the corporation.


2. This is the second reason why the directors could never cause the property of the corporation to be diverted from its objects. Even in the case of business corporations, directors’ fiduciary duties at common law are owed to the corporation as a body. They are required at all times to act honestly, in good faith, and in the best interests of the corporation. The best interests of the corporation are much broader than the interests of shareholders. This can, in appropriate cases, even permit the directors to act against the interests of a controlling shareholder. The focus in the Canadian case law on the best interests of the corporation as the exclusive duty of the directors is even stronger in the case of a statutory corporation having defined objects, as is the case with MPGC.


3. Which gives rise to the third reason why the concerns of FTPC are unfounded. As a statutory corporation, the directors simply do not have the capacity to deal with the assets of the corporation in a way that is inconsistent with its objects. A statutory corporation created for a public purpose has only those powers which are expressly or impliedly granted to it by statute. Any action beyond those powers would be ultra vires the corporation. The directors therefore simply do not have the power to engage in any large scale sale of MPGC’s assets or to divert any assets of MPGC to uses other than those within its statutory mandate to operate cemeteries and to undertake activities ancillary to that mandate. In addition to being legally impossible, it is practically impossible because no purchaser of MPGC’s assets would ever enter into a transaction on that kind of scale without assurances (in the form of certificates and legal opinions) that the directors had the power to authorise it. That assurance could never in practice be given because any such transaction would be ultra vires the corporation’s powers.

The malicious fear intended by the FTPC’s reference to subsection 132(5) of the Corporations Act is similarly unfounded and depends on a misapprehension of that section. That section provides that surplus assets existing after the dissolution of a corporation will be distributed to the “members” of the corporation in the absence of a by-law providing otherwise.

1. MPGC, however, could only dissolve after a resolution to wind it up. The directors could never, consistently with the corporation’s mandate to operate a public burying ground in perpetuity, ever resolve to wind up the corporation. Any such resolution—if motivated by a desire to appropriate MPGC’s assets—would be ultra vires their powers and as a result inoperative.
   
   
2. Additionally, MPGC’s Corporate By-laws include a provision which speaks specifically to the subject of dissolution. Section 2.8 of the By-laws provides that upon dissolution the property, assets go to the municipality where a particular cemetery resides. The by-law provides that the assets and property will continue to be employed in the public interest of the communities as a whole, not private interests.

Put simply, FTPC’s concerns misapprehend the status of MPGC as a statutory corporation. The assets of MPGC are just as safe in the hands of the directors of MPGC as they would be under a board of trustees governed by public oversight. Indeed, they may well be safer since the legal constraints binding the current board of MPGC are absolute. If, however, some kind of direct public control over MPGC were instituted, there is a very real risk that its affairs could be subject to the priorities of different interest groups that may from time to time assume control of it.

---

¹  Ultra Vires (definition)

Invalid excess of authority or power exercised by an entity. Since the powers exercised by any officer of an organisation are limited by the constituting or vesting instrument, any act outside those limitations is ultra vires and may be challenged in the courts. This rule is applicable to all powers, express or implied, created by a contract or statute.

²   Fiduciary duty (definition)

A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property. Also called fiduciary obligation.

³   Three Certainties of Trust Law

To be deemed a trust, the trust instrument must show Certainty of Intention; Certainty of Subject Matter; and Certainty of Objects.

⁴  Sui generis (definition)

A term which means of its own kind/genus. It is something that is unique in its characteristics.