They Made a Mistake

What societies and charitable trusts should do when mistakes are alleged or identified was discussed in We Made a Mistake.  This article looks at the reverse side of that discussion. Despite the best of intentions (but sometimes with malice aforethought) entity governance or management often falls short of what is legally required, but the institution may be unwilling or unable to address its alleged shortcomings – perhaps because the allegations are considered to be unjustified, seem insurmountable, arise from lack of organisational skills, or are consequent on personal greed.

The skills and abilities of those who govern, manage, or benefit from community entities are very varied.  However, as I observed in the previous article, people involved in societies and charitable trusts can get very emotional and passionate about perceived problems.  Many such community entities attract some who are lonely, lack social skills, or are vulnerable in some way, and many of these people have plenty of time to devote to making life miserable for those who control an organisation.

Much of what I said in the last article is relevant to the advice that needs to be given to those who allege mistakes by others in the governance or administration of a society or charitable trust.  The first priority is to ascertain the facts and how they may be proved and consider those facts having regard to the entity’s constitution and relevant legislation (particularly, if the entity is incorporated, the statute under which it is incorporated).  Once this is done there are a number of options to consider:

  1. Writing to the organisation’s governing body outlining the nature and details of alleged mistake or problem. That may invite investigation of the allegations or propose one or more of the following actions. The tone of that initial letter needs careful thought, as an aggressive approach is likely to create a defensive reaction, while a conciliatory approach which proposes workable and non-threatening solutions may resolve the problem.
  2. Where the client is facing or has been subject to disciplinary processes, careful consideration needs to be given to whether proper procedures have been followed as laid down in the entity’s rules and in compliance with the principles of natural justice (noting in particular, that, no matter how dreadful the behaviour of a member, societies have no power to discipline or expel member unless the rules confer express power to discipline or expel (see, for instance, Dawkins vAntrobus (1881) 17 Ch D 615 at 620 (CA) and Hunt v Border Fancy Canary Club of NZ (Inc) (2000) 8 NZCLC 262,140, para [20]).
  3. A meeting with the governing body may help resolve the issues, and the possibility of having some independent person chair or facilitate that meeting should be considered.
  4. If the entity makes constitutional provision for the lodging of complaints, consideration should be given to whether such provisions apply and, if so, to formulating an appropriate complaint.
  5. Where apparent misappropriation of funds has been identified, a complaint may be made to the Police and/or to any funding agencies.
  6. If:
  • Failure to follow the constitution is alleged, the committee of a society may be called to account by the calling of a special general meeting,
  • A society’s committee has acted improperly, consideration can be given to seeking to seeking to replace the committee,
  • A statutory decision-making power has been exercised (conferred by or under the constitution or other instrument of incorporation or the rules or bylaws of a body corporate, or involving the rights, powers, privileges, immunities, duties, or liabilities of any person – section 3, Judicature Amendment Act 1972) in a procedurally improper way, illegally, or irrationally, application may be made to the High Court for judicial review,
  • Application may also be made to the High Court under the Trustee Act to replace a trust’s trustees, and
  • The entity is a registered charity, any irregularities in governance or failures to honour the charitable purposes of the entity may be susceptible to investigation under the Charities Act 2005 following a complaint to the Charities Commission.

Where the entity is a trust the options are more limited, usually to the last three options above.

7.   If the status quo requires preservation, consideration can be given to seeking injunctive relief from a Court to prevent actions being taken which may be irreversible or damaging.

I believe lawyers need to be mindful of the fact that most community organisations are governed and managed by people who generally have the best of intentions (even if they may lack the necessary skills), and that aggravating disputes is generally not in the interests of the client. Problems caused by poor communication, misunderstandings, and inadequate skills will seldom be resolved by sending aggressive letters to those involved, although it may become apparent that the problems have got beyond the stage where reason and commonsense may prevail.

I note, again, the High Court decision in Porima v Te Kauhanganui o Waikato Inc [2001] 1 NZLR 472, paras [77]–[85]confirming that the “law has some ability to address crisis situations, as and when they arise,” “has an inherent jurisdiction . . . to preserve assets or resolve deadlock situations,” and may “intervene where there has been an error of law through the breach of the rules of a society.”  This establishes that the Courts can and will act to correct mistakes and to prevent damage flowing from such mistakes.

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.