Law of Associations

1. Law of Associations WELCOME. AN INTRODUCTION TO THE SUBJECT • Topics – Overview of the material covered • Textbooks • Assessment – Assignments and Final Examination • Topic 1 - Unincorporated Non-Profit Associations

2. Law of Associations TOPIC 1 - UNINCORPORATED NON-PROFIT ASSOCIATIONS Nature of unincorporated non‑profit associations • Unincorporated non-profit associations are not legal entities and are in reality nothing more than the aggregate of all its members at a particular time: see Watson v J & AG Johnson Limited(1936) 55 CLR 63 where Starke J described (at 68) a particular unincorporated non-profit association, in the following way: “It appears that the ... Club is what is known as a members' club. Its rules provide that the property and effects of the club shall be vested in three trustees in trust for the members for the time being, and that all concerns of the club except such as are in the hands of the trustees shall be managed and controlled by its committee. The club is not a juristic entity: it is not even a partnership it is simply a voluntary association of a number of persons for the purpose of affording its members and their friends facilities for social intercourse and recreation, and the usual privileges, advantages and accommodation of a club. The property acquired for or arising from the conduct of the club, though vested in trustees, belongs to the general body of members. The interest, however, of each member in the general assets of the club exists only during membership. and is not transmissible: it is a right of admission to and enjoyment of the club while it continues (Wertheimer, Law Relating to Clubs, 5th ed. (1935), pp 1, 22).”

3. The lack of legal entity status causes a number of problems for unincorporated associations in areas such as ownership of property, liability of committee members, the conduct of legal proceedings, members’ rights, gifts to the association, and the dissolution of the association.

4. Nature of unincorporated non‑profit associations (continued) • Kibby v Santiniketan Park Association Inc[1998] VSC 148 at para s 41-50: • An association has of course no separate or distinct existence apart from its members. It is a voluntary combination of persons with some object or purpose in common (see Amos v. Brunton (1897) 18 NSWR (Eq) 184, 186-7). If the association "has" assets, they belong, subject to the rules, to the members for the time being (see Doust v Attorney-General (1904) 4 SR (NSW) 577, 583). The rules do not necessarily constitute an enforceable contract between the members (Cameron v Hogan [1934] HCA 24; (1934) 51 CLR 358) but compare In re Sick and Funeral Society [1973] 1 Ch 51, 59-60 per Megarry J). • In Watson & J v A.G. Johnson Ltd [1936] HCA 73; (1936) 55 CLR 63, Latham CJ said, speaking specifically of clubs (at p.67): "The club in question is what is known as a members' club and it accordingly has no juristic existence apart from its members. What is called a profit of the club really consists of moneys paid by members into a common fund and remaining unexpended in the fund. A club is, as Griffith C.J. said in Bohemians Club v. Acting Federal Commissioner of Taxation, `a voluntary association of persons who agree to maintain for their common personal benefit, and not for profit, an establishment the expenses of which are to be defrayed' by contributions made by these persons.” and Starke J said (at p.68): "It appears that the Loxton Club is what is known as a members' club. Its rules provide that the property and effects of the club shall be vested in three trustees in trust for the members for the time being, and that all concerns of the club except such as are in the hands of the trustees shall be managed and controlled by its committee. The club is not a juristic entity: it is not even a partnership, it is simply a voluntary association of a number of persons for the purpose of affording its members and their friends facilities for social intercourse and recreation, and the usual privileges, advantages and accommodation of a club. The property acquired for or arising from the conduct of the club, though vested in trustees, belongs to the general body of members. The interest, however, of each member in the general assets of the club exists only during membership, and is not transmissible: it is a right of admission to and enjoyment of the club while it continues (Wertheimer, Law Relating to Clubs 5th ed. (1935), pp.1, 22).”

5. In Re Thackrah [1939] 2 All ER 4,6, Bennett J said: "Before one can find an association, there must be some rules either written or oral, by which those who are supposed to be members of it are tied together. I think that they would probably be written rules. There must be some constitution". An unincorporated society has been referred to as a "group of people defined and bound together by rules and called by a distinctive name" (see In re Price [1943] 1 Ch 422, 428 per Cohen J referring to a speech of Lord Buckmaster in Macaulay v O'Donnell). • Gifts to unincorporated non-profit associations must either be for present or future members beneficially or for purposes with the association, otherwise it will fail because they are not legal entities. Two examples are: • Bacon v. Pianta [1966] HCA 44; (1966) 114 CLR 634 • Re James Alexander Bacon [1989] FCA at para 22 and following:

6. In Bacon v. Pianta [1966] HCA 44; (1966) 114 CLR 634, the testator gave, devised and bequeathed the whole of his testamentary expenses to the The Communist Party of Australia for its ‘sole use and benefit’. • The gift failed. The High Court held that a gift to an unincorporated association is valid if it operates as one to the individual members at the time of the bequest. Yet in this instance, the gift was for both present and future members, it would still fail because it was not within the perpetuity period, and if it was a trust for a purpose, it fails unless it is charitable. The High Court found it was a non-charitable purpose trust. • In Re James Alexander Bacon [1989] FCA, the Full Federal Court noted an inconsistency in the approach taken by the High Court since Bacon v Pianta: Since Bacon v. Pianta was decided, the doctrines it re-affirmed have been received less than enthusiastically: see for example K. Fletcher's "Non Profit Associations" at pp 158 et seq. In Re Goodson (1971) VR 801, where the High Court decision appeared to be directly relevant, it was ignored and the Court held a gift for the "general purposes" of an unincorporated non-charitable body to be good. It was construed, it appears, as an "absolute gift to the members of the institution at the date of the testratix's death albeit as persons contractually bound inter se by its constitution and rules to apply the same for the general purposes of the institution": see p 813. Dr Fletcher also refers to Public Trustee (NSW) v. A.G. (NSW) (unreported, 11 December 1984, noted in (1985) ACLD. 215) where a gift "to the ALP Election Fund Canberra ... for the general purposes thereof" was upheld.

7. In Conservative and Unionist Central Office v Burrell [1980] 3 All ER 42, it was argued that there are six characteristics which are either essential or normal characteristics of an non-profit association . These are, it was argued: • there must be members of the association; • there must be a contract binding the members among themselves; • there will normally be some constitutional arrangement for meetings of members and for the appointment of committees and officers; • a member will normally be free to join or leave the association at will; • the association will normally continue in existence independently of any change that may occur in the composition of the association; and • there must as a matter of history have been a moment in time when a number of persons combined or banded together to form the association. Although points 3, 4 and 5 were not put forward as essential characteristics, the judge, Vinelott J, agreed at page 58 that points 1, 2 and 6 were essential characteristics of unincorporated associations whereby a Court would likely exercise jurisdiction in the event of a legal dispute involving members.

8. Constitution of unincorporated non-profit associations Deal with matters such as membership, management, objects and purposes. In addition, procedures for the alteration of the constitution or rules are often set out in the document as well. The procedure to be followed in relation to changing the rules or the constitution where the procedure has not been particularised seems to be that in such circumstances a majority decision will suffice: See Master Grocers’ Association of Victoria v Northern District Grocers’ Co-op Limited[1983] 1 VR 195.

9. The association’s rules and their effect • There is a general assumption that members of unincorporated non-profit associations do not intend to be contractually bound by the association’s rules. The courts assume that there are no legal obligations between members unless the rules actually make it clear that there are. This means that in most situations members cannot maintain a court action alleging a breach of the rules. • This assumption was affirmed in Australia by the High Court in Cameron v Hogan(1934) 51 CLR 358. • This case concerned an expulsion from the Australian Labor Party, an unincorporated non-profit association. The expelled member sued for damages for breach of contract, and also claimed an injunction so as to restrain the association from expelling him. It was claimed that the expulsion was not in accordance with the rules. However, in order to obtain a remedy, the member had to establish that the rules of membership of the Labor Party amounted to a contract. The High Court, after examining the nature of such an association, concluded that the rules did not have contractual force. The court questioned whether, in the absence of some right of a proprietary nature, a member has a contractual right under the association’s rules to complain when ‘unjustifiably excluded’ from the association. Their Honours thought that, due to the general character of such associations, a member has no such right. It was held (at 371) that, if a member of such an association complains of failure to observe the rules by the committee, then the member must show that the rules conferred upon them:

10. “a contractual right to the performance of the particular duty upon which he insists ... [as] such associations are established upon a consensual basis but, unless there were some clear positive indication that the members contemplated the creation of legal relations inter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract”.

11. In such circumstances there can be no recovery from either the committee or the members for a breach of contract. However, the court stated that, if the effected member asserts rights arising out of membership and these assertions are ignored, then those ignoring the member may be liable in tort. • A number of subsequent cases have attempted to distinguish the decision in Cameron’s case. For example, inMcKinnon v Grogan[1974] 1 NSWLR 295 per Wotton J at 297.

12. Courts intervention in internal management of unincorporated non-profit associations • There is a general presumption that courts will not interfere in the management of an unincorporated non-profit association: See Redhead Grange Inc. v Brett Davidson [2002] NSWSC 90 at para 5 to 11. • However that presumption will not apply when: • The rules are regarded as legally binding because the parties intended to create legal relations: see Cameron’s case at 370-371 • proprietary rights are involved; • Principles of justice apply: Mitchell v Royal NSW Canine Council Ltd [2001] NSWCA 162 at paras 34-39 • principles of public policy apply, such as where an association’s rules purport to oust the jurisdiction of the court or where there has been a denial of procedural fairness: Plenty & Plenty v Seventh-Day Adventists Church of Port Pirie [2003] SASC 68 at paras 30-39. • There has been a denial of the ‘right to work’: Nagel v Fielden [1966] 1 ALL ER 689 • There has been insistence on an unreasonable restraint of trade: Buckley v Tutty (1971) 125 CLR 353

13. Principles of justice apply: Mitchell v Royal NSW Canine Council Ltd [2001] NSWCA 162 at paras 34-39. Facts • Mitchell, the appellant was a member and director of the Royal NSW Canine Council. The Council charged the Mitchell with a single offence of ‘misconduct’ as defined by its articles of association. The misconduct was said to arise from false statements Mitchell made in various campaigns she conducted for election as a director of the respondent. A Committee of Inquiry, appointed by the respondent to hear the charge, found the appellant guilty. By way of penalty, the Committee of Inquiry required the appellant to retract, in writing, the statements she had made. The retraction was to be in terms specified by the Committee and made by the April issue of the respondent's journal, otherwise the appellant was to pay a fine of $2,500.

14. Courts intervention in internal management of unincorporated non-profit associations (cont….) Mitchell v Royal NSW Canine Council Ltd continued… Held per Ipp AJA, Mason P and Stein JA agreeing: • The jurisdictional basis of the exercise of the court's discretionary power to intervene in the affairs of voluntary tribunals has long been recognised. The discretion will more readily be exercised where (as in the present case) a person's livelihood substantially depends upon membership of the association. • Despite the long-standing recognition of the court's power to intervene, there is no unanimity as to its source and it has been explained on varying grounds. • Generally, the power is ordinarily regarded to be derived from consensual arrangements or contracts between the members of the association concerned: see Scandrett v Dowling (1992) 27 NSWLR 483 at 504 to 505 and at 507 per Mahoney JA. Once it is established that a decision is in breach of the arrangements or contract between the parties, a provision that the decision is final will not prevent the court from intervening. • It has further been held that, in certain circumstances, the court has power to intervene, irrespective of the terms of any contract that may be applicable.

15. Courts intervention in internal management of unincorporated non-profit associations (cont….) • Australian Football League, Shane Maguire, Brian Le Brocq & David Shilbury v Carlton Football Club Ltd & Gregory Donald Williams [1997] VSC 33; Tadgell JA (at 552) observed: "I do not think it is satisfactory to regard a tribunal's obligation to act, for example, honestly and in good faith, as depending on any implication of a contractual term ... it goes against the grain to say that an obligation to act honestly and in good faith should be a matter of implication of a term of ... a contract .... The law does not countenance the establishment or the existence of any body for the purpose of its acting dishonestly or without good faith. Rather than implying a term that a body will act honestly and in good faith the law axiomatically assumes that that will be done: the body has no option that depends on the presence or absence of an implied term. At least, therefore, the legal obligation of a body to act honestly and in good faith goes hand in hand with an obligation to accord procedural fairness, but it may go further. The courts ought, I should think, in cases where they assume jurisdiction to interfere with decisions of domestic tribunals at all, to treat the power which any domestic tribunal may exercise as exercised defectively unless exercised honestly and in good faith." • In the course of his extensive discussion of the topic, Tadgell JA said (at 550): "Statutes aside, the courts have been disposed to interfere in a limited way with decisions of private or domestic tribunals in order to protect private rights that have been adjudged to deserve protection, including rights in property. The concept of property has been broadly interpreted for this purpose and, in cases within that category, I believe that there is no decision of a private or domestic tribunal with which the courts will refuse to interfere if interference be considered necessary for the attainment of justice".

16. Courts intervention in internal management of unincorporated non-profit associations (cont….) Australian Football League, Shane Maguire, Brian Le Brocq & David Shilbury v Carlton Football Club Ltd & Gregory Donald Williams(cont…) The approach of Hayne JA in the same case was not dissimilar to that of Tadgell JA. His Honour said at 568: "Rule 27.1(d) of the AFL Rules and Regulations provides that `the decision of the Tribunal should be final and binding'. In my view that provision does not prevent a player suing for breach of contract if enforcement of the Tribunal's decision would constitute such a breach. Likewise, it is not effective to preclude the court applying a general principle of law (if that is its proper characterisation) that enforcement will be restrained of decisions of domestic tribunals that are `absurd' or `unreasonable' (Dickason v Edwards [1910] HCA 7; (1910) 10 CLR 243 at 254 per O'Connor J) or are decisions that `no reasonable man could come to' (Dickason at 254 per O'Connor J) or are decisions contrary to `fundamental principles of common justice' (Dickason at 255 per O'Connor J) or are decisions `at which no reasonable man could honestly arrive' (Dickason at 258 per Isaacs J) or are decisions for which there is `no evidence' (Lee v Showmen's Guild of Great Britain [1952] 2 QB 329 at 340 per Somervell LJ) or are decisions affected by `Wednesbury unreasonableness' (Associated Provincial Picture Houses Limited v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223). (I need not and do not choose between these various expressions)."

17. Courts intervention in internal management of unincorporated non-profit associations (cont….) • principles of public policy apply, such as where an association’s rules purport to oust the jurisdiction of the court or where there has been a denial of procedural fairness: Plenty & Plenty v Seventh-Day Adventists Church of Port Pirie [2003] SASC 68 at paras 30-39: Facts The plaintiffs, who were husband and wife, commenced proceedings against the church as a result of being disfellowshipped from the church. They sought a declaration that they were denied natural justice in the course of the proceedings which led to their disfellowshipping and that the disfellowshipping was null and void. Held: (per Duggan J) In my view, the assertion in the present case of injury to reputation is of particular relevance. In Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 578 the following passage appears in the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ: "It has long been accepted that reputation is an interest attracting the protection of the rules of natural justice”

18. Courts intervention in internal management of unincorporated non-profit associations (cont….) Plenty & Plenty v Seventh-Day Adventists Church of Port Pirie [2003] SASC 68 at paras 30-39: Duggan J (continued): ‘In determining whether, in a particular case, the rules of natural justice will be applied by the courts it is appropriate to bear in mind the further remarks in the joint judgment in Ainsworth's case (576): ”It is now clear that a duty of procedural fairness arises, if at all, because the power involved is one which may 'destroy, defeat or prejudice a person's rights, interests or legitimate expectations' (Annetts v McCann [1990] HCA 57; (1990) 170 CLR 596 at p 598, per Mason CJ, Deane and McHugh JJ.)”

19. Courts intervention in internal management of unincorporated non-profit associations (cont….) • There has been a denial of the ‘right to work’: Nagel v Fielden [1966] 1 ALL ER 689 Facts The plaintiff had trained racehorses for many years. The stewards of the Jockey Club had a monopoly of control over horse racing on the flat in Great Britain. In accordance with an unwritten practice of refusing a licence to a woman as a trainer, they refused the appellant of a trainer’s licence, although they had granted such licenses to her staff. Held (Lord Denning MR, Danckwerts and Salmon L.JJ) There was a right to work at one’s trade or profession without being arbitrarily and unreasonably excluded by anyone having the governance of it…the alleged practice of the stewards was against public policy.

20. Courts intervention in internal management of unincorporated non-profit associations (cont….) • There has been insistence on an unreasonable restraint of trade: Buckley v Tutty (1971) 125 CLR 353 Facts The plaintiff was a professional footballer and a member of the NSW Rugby Football League. The rules of League required members to be registered before competing. A player whose name was on a ‘retain list’ was in effect tied to his club, whether or not he continued to play for them, and could not play for another club without the consent of his own club. A player placed on a ‘transfer list’ could transfer to another club, provided he paid a transfer fee. It was agreed between NSW, QLD, NZ and England that a player could not play for another club until he obtained clearance from his current club. The plaintiff sought a declaration against the League and the club that the retain and transfer rules were not binding upon him on the ground that they were an unreasonable restraint of trade. Held (Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ) The doctrine of restraint of trade is not limited to any category of skilled profession, but applies to employment generally, and in playing football for reward, albeit part-time, the plaintiff was engaged in employment within the doctrine.

21. Contracts and unincorporated non-profit associations • An unincorporated non-profit association is not a legal entity in its own right, it therefore has no capacity to enter into a binding contract. Any contract purportedly made on behalf of such an association will have to be made with all the members or with an agent or trustee acting within their authority on behalf of the members or the committee in order to be enforceable. • As a usual rule members of an association are not liable for contracts made on their behalf: Freeman v McManus[1958] VR 15. Facts: The court had to decide whether an unincorporated political association was capable of taking a lease or tenancy of land. The political organisation had a fluctuating membership and the members had no proprietary interest in the assets of the association. Thus the committee could not bind its members into contractual relations with a third party. Held: (O’Bryan J at 24) …the fact that the members of a society have entrusted its affairs and management to a committee does not give the committee authority to make contracts binding upon the members, especially in a case where the members have no interest in the society’s funds.

22. The position with respect to committee members is different. Where such committee members acting within their authority have entered into a contract purportedly on behalf of the association, they will be personally liable to the party that they made the contract with. Bradley Egg Farm v Clifford[1943] 2 All ER 378. Facts: A poultry farmer had his poultry tested by an ‘employee’ of the Lancashire Utility Poultry Society, which was formed to provide various technical services to its members. The test was conducted negligently, and the poultry farmer’s poultry had to be destroyed. The farmer wanted to sue the ‘employer’, the committee of the association, for breach of contract. Held: (Scott LJ at 386) The law, therefore has to choose from the various persons associated together under the umbrella of the society’s name, those most concerned in the function of making contracts, those associated persons who were most directly concerned and to discard those who were, for any reason, least directly concerned. In the later category stand the mere members who, under the society’s rules, have no liability beyond their annual 7s 6d membership subscription, and have no right to participate, now or in a winding up, in the funds of the society. But the body of the members want to see the purposes of the society implemented, almost in the same way as in the case of charity; and they appoint an executive council to carry out those purposes. Making a contract … is essentially a function which cannot be performed without somebody accepting personal responsibility to perform the contract and pay the money.

23. However the position with respect to the liability of the committee members is not totally straightforward. This is particularly so where the members of a committee enter into a contract which is intended to last beyond that committee’s term of office. In such cases it has been held that the committee in force at the time the contract was entered into could not be regarded as undertaking personal liability for a long period of time in respect of that contract. Carlton Cricket & Football Social Club v Joseph[1970] VR 487. Facts: A document purporting to give rights to occupy land over a long period was entered into between a company and an unincorporated association. Fitzroy Football Club, an unincorporated association purported to agree to play football matches on sports grounds owned by the plaintiff for 21 years. The agreement was executed by two officers of the association , ‘duly authorised by the members’, but on express terms with the association itself. The plaintiff alleged that after the agreement was made, the president and secretary of the unincorporated association negotiated with a third party, the St Kilda Cricket Club, to play matches on St. Kilda’s sports ground. The main issue was whether there was a contract between between the plaintiff and Fitzroy Football Club. Held: The company purported to enter into contractual relations with an association as it was constituted from time to time and not with actual members of the association at the time the document was signed. Since there was no legal entity in existence, there could be no contract.

24. The rules of an association may provide that the members of the committee shall be indemnified against any personal liability, or such an indemnity may be given in respect of a particular transaction: see Ex parte Goddard: Re Falvey(1946) 46 SR (NSW) 289. • Other issues in making the committee of an unincorporated non-profit association liable were illustrated inPeckham v Moore [1975] 1 NSWLR 353. Facts: Peckham was engaged to play football with Canterbury Rugby League Football club for three years. He played for two years and was injured in his third year whilst training and went on worker’s compensation. P’s first claim against the club failed (since there was no legal entity to sue). His second action was against all members of committee at the time he agreed to play for the club in his first year. The committee were elected annually, so a different committee existed to the one in his first year. At first instance he won, but he failed upon appeal. Held: (Hutley JA relying upon Bradley Egg Farm v Clifford found that the club membership was not the employer, but rather the club committee was the employer. Which committee was liable? (at 363) Once he is put on the payroll by that committee for a given year, that committee becomes his employer for that year and it is to that committee that he must look if he wishes to enforce his rights as a workman.

25. Peckham v Moore [1975] 1 NSWLR 353 continued… • It was found that P had sued the wrong committee, and have sued the committee (in his third year) when he inured himself. • Hutley J also found that whatever committee would be found liable, those committee members could be indemnified out of the associations funds. NB: The approach taken by the court differs from that in Bradley Egg Farm v Clifford where it was held the committee members where personally liable.

26. Liability in Tort • The liability of members of an unincorporated non-profit association in respect of tortious claims is determined by general principles of law: seeBaker v Jones[1954] 2 All ER 553. • Membership of the association or the committee does not of itself create any special duty of care, however cases seem to suggest that it will be the committee members who will be liable in respect of tortious claims. See Smith v Yarnold[1969] 2 NSWR 410. • As with the position in respect to contracts it is unclear whether committee members have a right of indemnity out of the association’s funds. • It has been held that there is no duty of care owed by one member of an unincorporated association to another if that is the only relationship between them. See Hrybynyuk v Mazur [2004] NSW CA 374 at paras 8-16