Why it Matters – the proposed sale of B.C. Binning House

 

I recently spent several hours poring through the “Reasons for Judgment” issued by Justice Shelley Fitzpatrick of the BC Supreme Court in considering whether or not The Land Conservancy would be permitted to sell one of its protected properties – B.C. Binning House in West Vancouver – in order to pay off some of its debts.  While this was not the most captivating read (I wouldn’t recommend it if you are having trouble staying awake), it did address a number of very important issues relating to the future of TLC and its properties, and it has implications for the entire land trust movement in BC and across Canada, as well as for much of the charitable sector.  For the many people who care about TLC and about conservation, it’s important to understand what is really going on and what the Judge had to say.

 

1.        Background

First, a bit of background, to provide some context.  For the past few years, TLC has been experiencing serious financial challenges.  It was stretched to the limit, and not bringing in enough revenue to meet its ongoing needs and commitments.  It became clear to all of us at TLC that we needed to make some bold shifts in operations and refocus our fundraising activities.

In response, TLC’s Management began a methodical and strategic reorganization.  We began making severe cutbacks in staffing and operations in order to reduce expenditures as far as practicable, and were implementing new plans to significantly increase revenues.  These plans, to be successful at the level required, needed to be broad in scope and far-reaching, and were designed to put TLC on a more stable financial foundation.  But they were not a “quick fix”.  As is usually the case in such circumstances, they would have required some up-front investment to implement them (about $1.4 million over 3 years), and would have taken a few years to come to full realization.  While there could never, of course, be absolute guarantees, we (as management) believed that this was the only realistic path forward that would both fully protect all the sites we were responsible for and would give us the best chance to revitalize and stabilize the organization.

It was certainly a juggling act to keep the organization going throughout this time, made even more difficult by the persistent and continuous attacks – both in the media and otherwise – by those who did not appreciate or fully understand what we trying to accomplish, and there is no doubt that it was stressful for all concerned.

However, during the late winter and spring of 2012, TLC’s Board of Directors decided that they no longer wanted to continue with the approach being taken by the organization’s management.  They wanted a quicker and more dramatic change, and appeared to be prepared to sacrifice some of the organization’s property responsibilities and change the organization’s mandate to achieve it.  Over the next few months they engineered a series of moves that would result in the removal of virtually all of TLC’s management and staff, with just a handful of administrative staff retained (none with the experience or expertise to continue effective operations or, more importantly, with the ability to raise significant additional revenues).

While I understood that they were well-intentioned, and I acknowledge the Board’s right to determine the direction for the organization, I believed then (and I continue to believe) that the Board’s actions were ill-advised and that their new approach would have very little chance of achieving their objectives.  I believed that their approach was an abandonment of what so many people had been working so hard and for so many years to bring about; it was a betrayal of what TLC was all about.  And, most sadly of all, I believed then – and I still do – that the actions they took were not necessary; there were better approaches available.

 

2.       Restructuring/Legal Process

At its AGM in the fall of 2012, the Board told TLC members that it was going through a “restructuring” process and would have a new operational plan in place as soon as possible.  They turned to financial institutions, lawyers and outside consultants for advice, but no restructuring plan emerged.  A year later, in October 2013, the Board petitioned the Supreme Court of British Columbia for protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA), arguing that “only a court supervised restructuring process will provide the outcomes it has been working towards.”  Creditor protection was granted by the court until November, to give TLC time to get a restructuring plan in place.  A court Monitor – the accounting firm Wolrige Mahon LLP – was appointed to oversee and assist the process.  In November, TLC returned to the court without a plan in place and asked for more time, which was granted, until January 2014.  In January, TLC returned again (still without a plan) and was granted more time, until April of this year.

As part of this CCAA process, TLC was given permission to borrow up to $1.85 million to fund its restructuring work, and to keep itself going in the interim.  In a rather shocking move, the Court allowed TLC to put up a number of its (supposedly protected) conservation properties as collateral for this loan.  It’s hard to understand how this was permissible.  Allowing protected properties to be used as collateral for a loan (for other purposes, as this is) appears, in itself, to be in contradiction of the Charitable Purposes Preservation Act.  It’s certainly in contravention of TLC’s own By-Laws.

By December the first $0.5 million was already spent on the legal and financial work, and the process had barely started.  Since then, the amount spent has, at least, doubled.  Days and days of court time, even more research time, thousands of pages of affidavits – all prepared by lawyers and their staff, and charged at hundreds of dollars per hour – adds up quickly.

During this time, TLC has also moved to put a number of its protected properties up for sale.  It is highly questionable whether this is either ethical or legal.  The Charitable Purposes Preservation Act requires that properties donated to a charity, or acquired (even in part) with donated funds, must retain the purposes for which they were donated (in TLC’s case, the purposes are:  conservation in perpetuity and appropriate public access).  They cannot be sold off to raise revenue, or to settle other debts, but can only be disposed of by transferring them to other organizations or entities with similar purposes, which will retain the charitable purpose of the donation.

So, when TLC received an offer of $1.6 million from a private individual for B.C. Binning House, it caused quite a fuss.  With the Monitor’s approval (which was required), TLC asked the court for permission to sell the property.  This caused the Attorney General of BC, the Municipality of West Vancouver (where the house is located), the University of British Columbia (see below) and several heritage groups and individuals to object.  Binning House had been donated to TLC (by the estate of Jessie Binning, widow of renowned Canadian artist B.C. Binning, who designed and built the house) specifically for the purposes of conservation and provision of public access to the property.  (For more details on Binning House and its significance, please see here).

This specific item overtook the court’s attention to the broader issue of TLC’s restructuring and its creditor protection.  However, it did enable the court to focus on one of the most significant elements that will, no doubt, be at the core of TLC’s upcoming restructuring plan – the desire to sell its protected properties to pay off its debt.

 

 3.     Judgment Decisions and Potential Outcomes

The first skirmish arose as a result of UBC’s intervention that the Binning House property was inappropriately transferred to TLC, and that the executors of Binning’s will should have sold the house and given the funds to UBC.  This emanated from the specific way that Binning’s will was worded.  However, it was a matter that was really resolved years ago, at the time of the donation – UBC was informed of the donation but opted not to challenge it.  To raise it now seemed (to me at least) to be simply opportunistic and an attempt by UBC to get its hands on some cash – it had nothing to do with protecting this important heritage resource.  We should expect better from UBC.

After many hours of hearings, Justice Fitzpatrick determined that the donation of Binning House to TLC was appropriate, done properly and was in keeping with the wishes of the donor as expressed in the will.  She assessed costs for this portion of the process against UBC.

The Judge then turned her attention to the issue of the proposed sale of the property to a private individual.  In assessing whether or not this would be permissible, she first had to determine whether or not the provisions of the CPPA were applicable to this property.  TLC claimed, with a range of arguments, that they were not – that they did not have a “trust” responsibility – and they should be allowed to sell the property.  Justice Fitzpatrick, however, disagreed with all of TLC’s arguments, and concluded that the CPPA constraints on the sale or disposition of the property were, indeed, valid and must be considered.

This was (or should be) a tremendous relief for everyone who cares about conservation and the protection of our heritage (cultural or natural), and particularly for land trusts.  It was equally as important for any charity that takes on a trust responsibility when it accepts donations.  This decision reinforced the integrity of the system.  It means that when a donor makes a gift in order to achieve a specific purpose, they can be assured that the purpose of their gift will be retained over time.  This is the foundation of the term “trust” in land trusts (and in many other charities).

However – and this is a very big “however” – Justice Fitzpatrick also focused on another provision of the CPPA which does not bode as well.  The Act allows that if the charity is no longer “willing or able” to continue to uphold the trust responsibilities, the court can make whatever orders it deems appropriate to continue to meet the specific trust responsibilities or “advance another charitable purpose that the court considers is consistent”.  That is, the court may change the purposes for which the gift was given and, in so doing, change the trust responsibility that the charity holds – meaning they could, potentially, do other things with the property, including selling it for other purposes.  Although common law would require that the “other charitable purpose” be as close as possible to the original purpose, in this particular case it is a loophole big enough to drive a moving truck through.

The Judge has concluded that TLC did not try hard enough to find another entity that will continue to uphold the trust responsibilities for Binning House – that is, one that will work toward conservation in perpetuity and provision of appropriate public access.  She has ordered that TLC try harder to find such an entity before she would entertain any requests for a market sale.  It is unclear what conditions (or costs) would be acceptable to her in approving such a transfer (remember, because TLC is currently working under CCAA creditor protection, the court must approve its actions, including sales/transfers of property).  She has, however, left open the possibility that TLC could return and try again if they are unsuccessful in finding an appropriate alternative.

 

4.        What’s Next

So, after all this legal deliberation, after the expenditure of well over $1 million on lawyers, accountants and court costs, where are we now?  Essentially, back at the beginning.  The law stands as it was written – no surprise there.  The Charity (TLC) has to live up to its trust responsibilities – again, no surprise.  But TLC’s debt is considerably higher and its ability to continue as a viable land trust is seriously jeopardized and, accordingly, all of TLC’s properties are now at greater risk than they were before.

If we are to see B.C. Binning House protected as it should be, those of us who care about the site will need to step forward and find a solution – and it will most likely need to be a creative solution.  The same can be said for Abkhazi Garden, Ross Bay Villa, Kogawa House and many other properties that TLC is no longer willing or able to look after.  Unfortunately, I fear that TLC no longer has the in-house expertise to accomplish this.

It is heartening to see the District of West Vancouver step forward to be a part of the solution for Binning House.  The local volunteer group that has championed the house in recent weeks can also play a big part.  There are also organizations such as the newly-formed National Trust for Land and Culture who are intimately familiar with the house, and have the expertise and framework to put such a solution together, and who are willing to help.  Even Mr. Wall, the prospective purchaser of the site, could continue to play a significant role in the protection of this important Canadian heritage, should he wish to – there will still be a significant need for financial resources, which will have to be found.  I continue to believe that if everyone involved can put aside their baggage, we can find a solution – to Binning as well as the other properties.

 

Addendum (March 25, 2014)

Since this article was written, TLC has returned to the court with proposals to sell additional properties.  First was a proposal to sell Keating Farm Estate (in Duncan).  This sale was approved by the Court.  And now there is a pending hearing regarding the proposed sale of a portion of Abkhazi Garden in Victoria and the Eagle Bluff property near Oliver.  I will provide more information and commentary on these proposals soon.