As common as dirt

The vast majority of New Zealanders must belong to at least one community organisation, and many will belong to a dozen or more in their lifetime.  Few would not have contact with such entities.  At the most basic level are Home and School Committees and sports, cultural and social clubs, and few can escape involvement in such organisations whether as children or parents.

Many are unincorporated (how many one can never know), but those incorporated by statute is recorded:

  • Societies incorporated under the Incorporated Societies Act 1908 at 30 June 2009 stood at 22,681 (down from 23,482 at 30 June 1999), and
  • Charitable trusts and societies incorporated under the Charitable Trusts Act 1957 at 30 June 2009 stood at 18,794 (up from 10,249 at 30 June 1999 – the increase in incorporated charitable entities was almost certainly caused by charities incorporating when they were in the process of registering with the Charities Commission).

(By way of comparison, at 30 June 2009, there were 520,777 New Zealand companies, 1,499 overseas companies, 297 industrial and provident societies, 166 friendly societies, 38 credit unions, and 19 building societies.)

That means that there are about 110 in the population for every incorporated community organisation.  If you take all the unincorporated societies and clubs the ratio is perhaps closer to 50:1.  Whether I’m right or wrong, what the figures demonstrate is that, if not “as common as dirt,” such societies, clubs, associations and organisations are an important part of the fabric of our communities, facilitating much of our social, cultural, sporting, and religious life.  Without some such organisational model many things we take for granted could not happen.

Given the importance of societies, it is noteworthy that the legislative framework for incorporation is legally somewhat archaic, with one statute dating back to 1908 and the other to 1957.  Lawyers are far more likely to be familiar with trusts and the law on charities, but the drafting of a charitable society’s rules or a charitable trust deed requires skills not normally picked up at law school.  However, it is also regrettable that lawyers advising most societies are most unlikely to have received any academic education about how such entities are incorporated, what should be included in their constitutional documents, or some of the problems
that they can create.

I intend in these articles to discuss issues that can and do arise relating to societies and charitable trusts, and in the next few articles in particular to discuss some fundamental issues relating to rules and incorporation.  My intention is to inform, but also to provoke thought because the issues are real and affect much of what we do in our local communities.

The Importance of Rules

If an entity is unincorporated it does not have to produce a set of rules to enable it to get registered, so it commonly has no rules.  Common reactions to suggestions that rules be produced include “there’s no need to be formal,” “we’d never get everyone to agree on what should be in them,” “we just here to play a game/sing together/lobby for X/submit against Y” or whatever, “it would cost too much to get a lawyer involved,” etc.  All of that may be true, but the resulting problems if they arise can cause an awful lot of grief, stress, anger and cost:

  • Where the unincorporated society has no rules at all (such as the golf club in Millar v Smith [1953] NZLR 1049) it will be difficult to determine what is right or wrong if (when?) there is a disagreement between members.
  • If the unincorporated society has rules, can anyone prove how they were adopted, can it be proved that new members have agreed to accept those rules, how can such rules be amended, and to what extent are the rules binding on members?
  • Even if there are rules, how comprehensive and well-written are they, and if not will a court be asked to imply what is or should be obvious to make good the omission?  In the Australian case of Grogan v McKinnon [1973] 2 NSWLR 290 a candidate for election sought and was refused access to the register of members by the committee.  Even though the rules did not require the keeping of a membership register the Court decided such a register should be kept and that it was necessary for a candidate for office to have access to those records to enable him to stand for election.
  • The status of members of an unincorporated society is often uncertain.
  • Because the relationship between members of an unincorporated society is frequently ill-defined, there are often doubts as to members’ rights and obligations, how they are admitted, how they may be disciplined or expelled, and how they can resign.

If a society is to be incorporated, whether under the Incorporated Societies Act 1908 or Charitable Trusts Act 1957, it must have rules; something I’ll discuss further in the next article.

Whether or not incorporated, a society’s rules form the basis of membership of a society, and, as discussed, if they are inadequate a court may imply necessary provisions.  When a new society is formed those people forming it will agree on the rules.  Courts have generally accepted that such rules as there are create a contractual relationship between members and the society.  That is something of a legal fiction, and if the society is charitable it exists for charitable public purposes and not for the benefit of members, so the charitable purposes may well take precedence over the rules, with any contractual rights enjoyed by members being interpreted having regard to the charitable character of the society.

Those joining after the rules are first adopted are deemed to have accepted the rules, whatever those rules may be (see John v Rees [1969] 2 All ER 274 at 298) and whether or not they’ve inspected them.

Just as detailed rules are important for societies, so too are they for charitable trusts, but in the nature of such trusts it is more likely that proper attention will be given to drafting a proper trust deed.

My next article will discuss what a set of society rules should include.

Any readers who would like to pose questions for me to answer in these articles are welcome to contact me and I will endeavour to respond to such questions in future articles.

 

This is one of a series of articles on societies and charitable trusts (originally published in the NZ Lawyer magazine) by Mark von Dadelszen, a Hastings lawyer and author of Law of Societies, 3rd Edition, 2013. If any reader has examples of issues that have arisen or questions about societies or charitable trusts that might be a suitable subject for one of these articles please contact Mark at mark.vondadelszen@bvond.co.nz.