Court File and Parties

Court File No.: CV-22-00676523-00ES Date: 2023-01-16 Superior Court of Justice - Ontario

Re: FLETCHER’S FIELDS LIMITED and FLETCHER’S FIELDS LIMITED in its capacity as Trustee of the shareholders of Fletcher’s Fields Limited, Applicants And: THE ONTARIO RUGGER UNION, MARKHAM IRISH CANADIAN RUGBY CLUB, TORONTO SCOTTISH RUGBY FOOTBALL CLUB, TORONTO SARACENS RUGBY FOOTBALL CLUB, THE NOMADS RUGBY FOOTBALL CLUB OF TORONTO, and AURORA BARBARIANS RUGBY FOOTBALL CLUB INC., Respondents

Before: Penny J.

Counsel: Josh Hanet and Alexandra Psellas, appearing as counsel for the Applicants Counsel not specified for the Respondents

Heard: July 6, 2022

Judgment

Overview

[1] On July 6, 2022, I granted the application of Fletcher’s Fields Limited (FFL) for certain relief, and issued an order, with reasons to follow. These are the reasons.

[2] FFL is an Ontario corporation incorporated in 1970 by letters patent under the Corporations Act as a private company with share capital. FFL has been operating, however, as a not-for-profit organization dedicated to the promotion and development of the sport of rugby in the Toronto area since its inception.

[3] FFL’s only material asset was six rugby playing fields located in Markham, Ontario (the “Fields”). After struggling to meet its financial commitments for several years, FFL decided to sell the Fields to the City of Markham in September 2021.

[4] FFL believes it was acting as trustee of the Fields for the purpose of promoting the sport of rugby. FFL has, accordingly, brought this application seeking the opinion, advice or direction of this court on several questions arising out of the sale of the Fields and the distribution of the proceeds.

[5] The respondents are rugby clubs which are the shareholders of FFL and which have been the users of the Fields since the 1960s. They are represented by counsel and support the relief sought, although they did not actively participate in the hearing.

Background

[6] The Fields were purchased by the Ontario Rugger Union (the “ORU”) in the early 1960s. There were six rugger (the modern term is rugby) clubs in the ORU. The Clubs were each intended to use one of the six pitches as their own. However, the ORU and the Clubs determined that the ORU should hold title to the Fields since the Clubs were not incorporated and could not legally hold title of their own.

[7] Under the terms of a 1966 agreement between the ORU and the six Clubs, it was agreed that the ORU would own the Fields in trust for the Clubs. Each Club was to have the sole right to use the pitch assigned to it for the purpose of playing rugger, without payment to ORU.

[8] FFL was incorporated in 1970. Its objects included operating athletic facilities and promoting interest in athletic games, recreation and sports; holding matches and competitions and offering prizes, awards and distinctions; buying and selling equipment required by the participants; and, using the facilities for public and other gatherings and meetings, exhibitions, picnics and tournaments.

[9] In March 1971, FFL, the ORU, and the Clubs executed a conveyance agreement conveying the Fields from the ORU to FFL. The conveyance agreement acknowledged that the ORU held title to the Fields in trust for itself and the Clubs for the purpose of playing rugby. The conveyance agreement also expressed the desire of the parties that the Fields should continue to be used for the playing of rugby and for social events connected with rugby.

[10] In 1972, FFL registered a declaration of trust with the Toronto Registry Office, acknowledging that it owned the Fields in trust for the primary purpose of playing and promoting rugby in the Toronto area.

[11] In 1979, FFL filed Articles of Amendment providing that: the affairs of FFL would be carried on without the purpose of gain for its shareholders; there should be no distributions among the shareholders by way of dividend or bonus, etc.; and, any property of the Corporation, and profits or other accretions to the Corporation, must be used to promote its objects.

[12] Since at least the 1979 amendments (if not since its inception), FFL has been operated as a not-for-profit corporation and filed tax returns as a non-profit organization. The remaining shareholders of FFL are the ORU and five rugby clubs: Toronto Saracens Rugby Football Club, Toronto Scottish Rugby Football Club, Nomads Rugby Football Club of Toronto, Markham Irish Canadian Rugby Club, and Aurora Barbarians Rugby Football Club Inc. Each shareholder operates as a not-for-profit corporation.

[13] Since its creation, FFL has been primarily run by volunteers. Since 2008, however FFL has relied on two full-time contract employees from April to October, and seasonal and part-time staff, for operations. The cost of these employees as well as the aging infrastructure of the Fields resulted in financial difficulties for FFL over the past several years.

[14] FFL decided to explore a sale of the Fields as the best means of continuing to serve the rugby community in Toronto. The Fields were appraised at $16,820,000 in January 2020 and were ultimately sold to the City of Markham in September 2021 for $21,500,000. One of the conditions of sale is that FFL is permitted to lease the Fields at no cost until October 31, 2024.

[15] In November 2021, FFL and the Clubs donated $11,650,000 of the sale proceeds to the Canadian Rugby Foundation (“CRF”), which is a not-for-profit corporation that operates cooperatively with Rugby Canada, the national governing body for rugby in Canada. FFL and the Clubs made the donation to CRF prior to FFL’s tax year end of November 30, 2021 on the advice of its auditors, as the donation was required in the same year of the sale closing for tax purposes.

Analysis

Were the Fields Held in Trust?

[16] In order to establish a trust, three elements must be present: (1) certainty of intention, (2) certainty of subject matter, and (3) certainty of objects.

[17] Both the 1966 ORU agreement with the Clubs and the 1971 FFL conveyance agreement and declaration of trust signify an intention to create a trust with the Fields as its subject matter. The 1966 agreement stated that the ORU held the Fields in trust for the parties to use for the purpose of playing rugby. In the declaration of trust, FFL acknowledged it was the owner “of the lands and premises set forth and described in the Schedule annexed hereto in trust pursuant to the terms of” the conveyance agreement.

[18] However, the 1966 agreement and the declaration of trust are arguably unclear as to the objects of the trust. This is why FFL has sought the opinion, advice and direction of the court.

[19] I agree with FFL that that the 1966 agreement established a specific, non-charitable purpose trust, with ORU as trustee, for the purpose of promoting the game of rugby. This trust was continued with FFL as trustee by the 1971 conveyance agreement and the 1972 declaration of trust.

[20] A purpose trust can be for either a charitable or non-charitable purpose. A common feature of charitable and non-charitable purpose trusts is that the trust exists to advance a purpose rather than directly benefit specific persons.

[21] The promotion of sport (including rugby) is not a charitable purpose. However, non-charitable purpose trusts have been recognized in Canada, provided they meet the three-part test for the formation of a trust, do not violate the rule against perpetuities and there is a person with standing to enforce the trust. In Ontario, a non-charitable purpose trust is saved from the rule against perpetuities by s. 16 of the Perpetuities Act, provided that it is a “specific non-charitable purpose that creates no enforceable equitable interest in a specific person”.

[22] The requirement that the trust be “specific” requires at least that the trust have a general object. The certainty of objects for the non-charitable purpose trust in this case can be found in the declaration of trust, which clearly states that FFL owns the fields in trust pursuant to the terms of the conveyance agreement. The purpose of the trust is for playing rugby and social events connected with rugby. This purpose is further established by objects set out in FFL’s Letters Patent, which include: to operate athletic facilities, promote interest in sports, arrange matches and contributions, and promote an interest in athletic games, recreation and sports.

[23] A purpose trust is also consistent with the history of the acquisition of the Fields. The intention since the early 1960s was to create a central location for the ORU and the Clubs to promote and play rugby in Ontario. The parties to the 1971 conveyance did not intend that the Clubs hold any legal or beneficial title to the Fields themselves. While the Clubs indirectly benefited from the use of the Fields, this does not preclude the existence of a purpose trust: Angus v. Port Hope (Municipality), 2016 ONSC 4343 at para. 103. The mere fact that individual persons benefit indirectly from the operation of a trust does not automatically make them the intended object of the trust. The settlor’s intended object, as revealed by the language in the trust agreement, is what governs: Peace Hills Trust Co. v Canada Deposit Insurance Corp, 2007 ABQB 364 at para. 42. The intention of the parties creating this trust was to promote and play the sport of rugby. The Clubs are merely the means for individuals, acting together, to do this.

[24] Another historical objection to non-charitable purpose trusts is the lack of a beneficiary to enforce the obligation upon the trustee. However, the modern-day trend is to be flexible when deciding whether non-charitable purpose trusts are valid. Instead of prohibiting non-charitable purpose trusts, the legal rules try to ensure that the intention of the creator of the trust is carried out and that the trustee is able to perform in compliance with that intention. Here, there were parties with sufficient standing to enforce the trust – the members of the ORU and the shareholders of the FFL. They are identifiable in the agreements and, although they are not direct beneficiaries of the trust, they have a sufficient interest that they would have standing to enforce its objects.

[25] This is, in my view, sufficient to deal with the first issue of whether there is a valid trust. I find that FFL held the Fields as trustee for a purpose trust which was the promotion and playing of the sport of rugby.

Entitlement to Proceeds As Owner of the Fields

[26] The operation of s. 16(2) of the Perpetuities Act requires that, after 21 years, the trust subject matter reverts to the person who would have been entitled to receive the trust property had the trust been invalid from the time of its creation. The ORU held title to the Fields at the time the trust was first formed by the 1966 agreement. Under s. 16(2), after 21 years the Fields would have reverted to the ORU. However, the ORU conveyed its interest in the Fields to FFL in 1971. After 21 years, the Fields reverted to FFL, as title holder at that time. In fact, FFL has for the past several years filed T2 Tax Returns as a corporation, not T3 Tax Returns as a trust.

[27] FFL is unambiguously entitled to the proceeds of the sale of the Fields.

Distribution of Proceeds

[28] With the Fields being sold and now owned and managed by the City of Markham, FFL’s reason for existence is essentially spent.

[29] Section 22(3) of Ontario’s Business Corporations Act provides that where a corporation has only one class of shares, the rights of all shareholders are equal and include the right to receive the remaining property of the corporation upon dissolution. The right of shareholders to receive distribution upon liquidation constitutes a return of share capital, not a dividend.

[30] While FFL’s Articles of Amendment prohibit distribution of funds by dividend, there is no language in its Articles of Amendment or Letters Patent providing for distribution of assets upon dissolution.

[31] In the absence of express provision, the shares of a corporation are presumed to be equal and all shareholders are entitled to share equally in the surplus assets remaining after payment to creditors. It is not necessary for the corporation’s articles to set out the right of shareholders to receive remaining property of the corporation upon dissolution: OBCA, s. 22(5).

[32] Thus, upon dissolution, FFL is obliged and is entitled to distribute the remaining net proceeds from the sale of the Fields to its shareholders (which are all not-for-profit corporations) as a return of share capital.

Penny J. Date: January 16, 2023