As we all know, the “beneficiary principle” holds that no trust may arise in favour of a beneficiary who lacks legal personality. There are, however, ways by which money may be held for private purposes. One such method is an application under the Perpetuities Act for an Order converting the failed trust into a power of appointment. Another way is through what the law terms an “unincorporated association”. Under the latter, the law recognizes that a contract exists between the members of the association and that a fiduciary obligation arises in respect of a person that holds property for the association and its members. When the association disbands, its contract governs what happens to the property. It’s a nice doctrine that straddles the law of trusts and the law of organizations.

In Polish Assn. of Toronto Ltd. v. Polish Alliance of Canada, 2017 ONCA 574 (Ont. C.A.), a dispute arose between the an incorporated parent organization and an unincorporated affiliate. The unincorporated association voted to leave the larger organization and take its property with it. Where the contract between the members is unclear, unanimity is required. Thus, in Wawrzyniak v. Jagiellicz (1988), 64 O.R. (2d) 81(Ont. H.C.J.), it was held:

Voluntary organizations have a life of their own determined by their charter and constitution and practice. If they acquire property it is theirs according to their own rules. If they give that property to a corporation without unanimity the corporation will ordinarily hold it in trust for the voluntary organization. The members of the association may come and go. Individuals may join and continue until death or they may resign or they may seek to form a new group. The departure of individual members, the formation of a new group, the creation of a new bond of association, having nothing to do with the legal integrity of the original voluntary association unless its constitutional instruments say so. The property of the voluntary association continues to be the property of the members from time to time of the association.

At trial, the Hon. Justice F.L. Myers agreed and held that the conditions for disaffiliation were met and the Court of Appeal agreed.

This case teaches us two lessons. First, and most specifically, the unanimity rule remains good law in Ontario. Second, the law of trusts responds creatively to anomalous situations based on policy. At the end of the day we want the law to support people coming together informally for some purpose and without the need for formalities. In the case of unincorporated associations, it is the fiduciary principle that ultimately grounds the approach that our law takes.

Have a nice day,

David