Legal fees and Canadian charities

April 16, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Canadian Charity Law, Ethics and Canadian Charities

There have come to light a couple of instances of large expenditures by Canadian charities on legal fees.  Canadian registered charities are allowed to spend funds on legal fees.  In some cases, say for example a legal clinic, such expenditures may be considered charitable.  In other cases they are administrative - ie. part of the normal cost of running a charity.  In this note I cite a couple of examples of very large legal fees.

CBC in an article entitled “Beaverbrook Foundation faces money woes” talks about the costs of a UK charity that lost its legal battle with a Canadian art gallery, although presumbably the Canadian charity also had significant costs.  http://www.cbc.ca/arts/story/2010/03/18/nb-beaverbrook-foundation-audit-problems-1214.html

“The Beaverbrook U.K. Foundation may have to sell some of its assets to pay mounting legal bills stemming from its seven-year dispute with Fredericton’s art gallery, an audit has revealed.  The August 2009 report, which was filed with the U.K. Charities Commission last summer but was made public this week, is part of the Beaverbrook Foundation’s most recent annual report.

The report said the foundation spent more than $3 million Cdn in 2007-08 but brought in only $450,000. The foundation has been in a legal battle for seven years with Fredericton’s Beaverbrook Art Gallery over ownership of 133 works of art.  Auditors say they have doubts about the British foundation’s ability to continue its operations. The foundation borrowed more money in 2009, bringing its total loans to $10 million Cdn to pay the huge legal bills in the dispute with the Fredericton-based art gallery.

The auditors say those debts create “significant doubt” about the charity’s ability to continue operating. The auditors also say the foundation may have to sell assets to repay the loans.”

In another story the interim ED of Rights and Democracy spent quite a bit over a two month period:  Here are a few paragraphs from the Globe and Mail article located at:
http://www.theglobeandmail.com/news/politics/interim-rights-democracy-chief-spent-380000-in-two-months/article1535561/?cmpid=rss1

“The interim president who headed troubled agency Rights & Democracy for two months spent almost $400,000 of taxpayers’ money hiring lawyers, private investigators and consultants in an internal battle between board members and staff, according to his successor.

Jacques Gauthier, the Toronto lawyer who headed the agency for just over two months, spent the money on an internal inquiry and efforts to fire three senior managers, and now is accused of using public money to further a factional dispute inside the federally funded arm’s-length agency.

...
Mr. Gauthier spent $237,000 for legal work from two separate law firms, Ogilvy Renault and Borden Ladner Gervais. He hired a public-relations firm that has billed about $10,000, Mr. Latulippe said. An accounting firm, Deloitte, was paid $68,000 to look into how the agency’s money was spent. And the private investigation firm SIRCO was paid $66,261.”


On a different point the Globe noted “Mr. Gauthier also defended the hiring of a board ally, Marco Navarro-Genie, for a brief period at $325 a day, totalling just under $3,000. Mr. Gauthier said he assisted when he took over as president, and paying directors for assistance was a regular practice at the agency.”  With all these funds being spent on legal fees has anyone told the directors that in Ontario directors who sit on charity boards generally cannot receive any compensation - only reimbursement of reasonable out of pocket expenses. 

 

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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