A notable feature of many charities is the passion people bring to their governance, management and support. However, this passion can be misguided.


Passion for charitable purposes

There is no doubt in my mind that a charity will only be effective in advancing its charitable purposes if it is governed by people who have a genuine interest in and passion for the charitable purposes of the charity. That governance passion will be reflected in the choices those in governance make when appointing managers (or doing the management themselves), and also in those who are attracted to support the charity with donations or their time.

That passion for the charitable purposes can be misplaced:

  • The charitable purposes set out in the charity’s constitution (a deed or declaration of trust, or the rules of a charitable society) are paramount, and need to be interpreted and understood objectively, and ultimately interpretation may require a court decision. The same rigour is required when considering more mundane machinery provisions in the constitution, such as how the constitution is amended and how those in governance are appointed or elected.
  • Personal agendas can distort perceptions and the way a charity operates – the subjective (passionate) views of those involved can distort the objective (dispassionate) reality.

Case in point

The recent High Court decision in Solomon-Rehe v Hokotehi Moriori Trust [2015] NZHC 46 is an illustration of what occurs when the issues are not considered objectively.  As the first paragraphs of the judgment point out, “Hokotehi” is the Moriori term for unity, but the trustees were anything but united.  That disunity resulted in the Court replacing all trustees with interim independent trustees mandated to resolve constitutional issues and to arrange a new election of trustees.  A number of inter-twined issues underlay that decision:

  1. The Trust Deed required amendments to the Trust Deed to be effected by a Hui of voting members with provision for postal votes. In 2010 a proposed amendment was put only to a postal vote of members. The Court concluded that the amendment was of no legal effect as the Deed required that a Hui be held, whether or not (as would usually be the case) a postal vote was also held.
  2.  The trustees arguing for the validity of the 2010 amendment submitted that the Court, in its discretion, should still uphold the amendment on the basis that it had been made with reasonable and sufficient compliance with the spirit and intent of the Deed. The Court declined to do so under either its inherent jurisdiction or section 64, Trustee Act 1956.
  3. The Deed provided that votes in trustee elections could be case “by postal ballot or attendance at the Annual Hui or Hui a Moriori,” but in 2012 only a postal vote was held. The Court declined to interpret the clause disjunctively to allow an election to be conducted exclusively by postal vote.
  4. The Court also concluded that, even if validly conducted, the defendant trustees’ purported cancellation of a 2012 trustee election was not justified as they had no power to cancel the election on the grounds of what they perceived to be electoral irregularities.
  5.  The Court concluded that the trustees’ failure to hold the elections as required “exposed the Trust to the risk of a suspension of its recognition as an iwi mandated organisation” under the Maori Fisheries Act 2004, and that this “constitutes a serious breach of the trustees’ duties,” and, further, that, once the number of trustees fell below the minimum prescribed in the Deed, the trustees’ power to act was confined to holding elections and thereby increasing their numbers and for no other purpose.
  6. The Court noted that it “has both a statutory and an inherent power to remove and appoint trustees,” and that “there is an impasse between the two factions of trustees such that a state of severe trustee dysfunction has maintained for some time,” and also that the terms of all the persons currently purporting to act as trustees (except for the person unlawfully elected in 2012) had expired. This required the appointment of interim independent trustees.

When passions need to be cooled (and how)

This article was introduced with the observation that charities tend to be governed, managed and supported by passionate people, but that this passion can be misplaced. In my experience, passions and emotions can become so intense that the ability to be objective and analytical is lost.  The longer those passions remain unbridled, the more difficult the problems become as people’s positions become entrenched, personal relationships become toxic, and emotions run high.  In the end that may be good for lawyers but bad (and costly) for the charity and the trustees.

There are a number of options to remedy the problems (some may need to be combined):

  • Engage an independent person with relevant experience and expertise to review what is happening, to report and to recommend remedial action,
  • Assistance may be available through national organisations or a complaint may be made to Charities Services,
  • The issues may be susceptible to mediation or some other alternative method of dispute resolution,
  • If any of the issues have any legal flavour (as was clearly the case with the Hokotehi Moriori Trust), seek an analysis and opinion from an independent lawyer with relevant expertise, or
  • If all else fails, seek Court assistance (recognising the significant costs involved, the delays inherent in Court processes, and the risk that those at fault may be held personally liable for costs). 
This is one of a series of articles on societies and charitable trusts. 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.