Remedying a procedurally unlawful change to society rules

Procedurally unlawful changes to society rules

Because most society rule changes are proposed by society committees or the processes for change are administered by the committee or officers (such as the secretary and chairman) this article is, in part, related to my last article (Relationship between Society Committees and General Meetings) exploring the relationship between society committees and general meetings.

Society constitutions are not infrequently changed contrary to the procedural requirements in existing constitutions. Common types of procedural irregularity that arise are failures to comply with some condition precedent to a valid alteration, such as:

  • Failure to give some or all society members notice of the meeting where the change is to be considered,
  • Giving an inadequate period of notice to members of the meeting,
  • The form of notice given to members being incorrect,
  • The alteration being passed other than in accordance with the procedure laid down in the rules (such as taking the vote when a quorum was not present, allowing the wrong people to vote, and having an inadequate majority),
  • The alteration being adopted by a body not authorised by the rules to do so (for instance, by the executive rather than a general meeting of members or by some voting method not authorised under the rules), and
  • Possibly, changing a rule which is entrenched (but see my article, Third Party Approval to Change Constitutions).

Does registration cure any procedural defects?

The instinctive response of most lawyers is likely to be that a constitutional change is ineffective if the preceding change process is unlawful. However, under, Incorporated Societies Act 1908, registration of the alteration is “… conclusive evidence that all conditions precedent” to the alteration and registration have been fulfilled (but the Charitable Trusts Act 1957 has no equivalent provision), suggesting that registration may cure any procedural defects. It has been held that section 21(3) does not validate alterations to the rules of a society which have not been regularly made, and that the Court is entitled to look beyond the registration of an alteration to see whether it has been validly adopted by the society. Where, for instance, when an amendment was passed when the society had no members to pass it the amendment was not recognised as valid (Re Stratford Poultry and Winter Show Association Inc (in liq) [1960] NZLR 704, but to the contrary Bouzaid v Horowhenua Indoor Bowls Centre Inc [1964] NZLR 187).

Section 21(3A) (inserted in response to the Bouzaid decision) indicates that the High Court may look beyond the registration to see whether an alteration should be treated as having been validly adopted, providing that:

Notwithstanding anything in subsection (3) of this section, the High Court, on an application made to it by any member of the society, may in its discretion, if it is satisfied that any such condition as aforesaid has not been duly fulfilled, declare the alteration to be void in whole or in part, and order that the registration be cancelled in whole or in part, and may by the order give such directions and make such provisions as seem just in the circumstances of the case. On the delivery to the Registrar of a sealed copy of the Court’s order he shall forthwith amend the register accordingly.

Under the subsection, even after registration of the alteration, a member may challenge the alteration upon the basis that it has not been duly made because a condition precedent to making the alteration has not been fulfilled, and the High Court has a discretion whether or not to make the necessary order to correct the position. Examples of the use of the subsection show that it has been used to set aside a registered change to rules where the alteration was passed by an insufficient majority (Pap v Hungarian Society (Auckland) Inc (High Court, Auckland M 1616/93, 13 December 1993) and where the changed replacement rules resulted in a society having no members (Murray v The Hearing Association Hastings Branch (Incorporated), High Court, Napier CP 28/99, 15 March 2000).

Section 21(3A) provides a legal remedy for an irregularity, and, while the Charitable Trusts Act has no provision equivalent to section 21(3A), an application could be made for judicial review of an unlawfully adopted rule change. In either case, a remedy may be refused because the High Court has a discretion whether or not to declare an irregular alteration void in whole or in part. Seeking High Court assistance would almost always be disproportionately expensive and involve months of delay.

A pragmatic solution?

Once the irregularity is identified I believe that a society’s membership might retrospectively approve the alteration to a society’s rules. If retrospective approval is approved by a more than the required majority under the relevant rule (and especially if overwhelmingly so, indicating a proportionately high level of membership approval) then in my opinion the High Court would be unlikely to grant a remedy if an unlawfully irregular rule alteration was challenged in High Court proceedings.

Best practice

While a society may escape having a rule change declared invalid because some condition precedent to a valid rule change has not been met, the better course is not to allow any problem to arise in the first place. When rule changes are being processed, careful consideration must be given to all the procedural requirements; such as the form and period of notice required to be given to members under the rules, the quorum for the meeting at which the proposed change is considered, the mode of voting, and the requisite majority required for a rule change.

After a rule change is approved, the change should be promptly registered with the Registrar of Incorporated Societies under section 21, Incorporated Societies Act, or section 23, Charitable Trusts Act (the section says within a month), and, if the society is a charity registered with the Charities Board, the Board should be notified under section 40, Charities Act 2005.

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.