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Unincorporated Associations (2.2) - Coggle Diagram
Unincorporated Associations (2.2)
What is an unincorporated association
The often-cited difinition in Burrell:
'...two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will.
Can exist for any purpose including charitable purposes, altruistic purposes or simply to benefit the members
May be an inward-turning association - for the benefit of the members - or an outward-turning association - for the benefit for 3rd parties or other purposes
Problems with property holding
An association is likely to have property that the members can use, people often make donations or gifts to unincorporated associations, but unincorporated associations lack legal personality
We must know his the property is owned, and what happens on dissolution of the UA; there are challenges of leaving gifts/legacies in wills for these association; also, gifts/legacies must comply with the beneficiary principle and perpetuity rules
For some years, some thought that property for the purposes of an unincorporated association was a valid type of purpose trust, but this has since been rejected. So, the courts have had to provide aternative solutions
The options
Sometimes the transferor will have identified the way in which property should be held, but in many cases this doesn't happen. The court will therefore need to determine how the property is held.
Often question asked:
did the transferor intend to benefit the members themselves or for the property to be used for specific purposes
Gifts/trusts for present members
Property either an outright gift to members or held on trust for the members
The members own the property as joint tenants (Neville Estates v Madden [1962]
Advantages:
beneficiary principle is satisfied
perpetuity rules satisfied (property belongs to the members
allows us to avoid the issues with purpose trusts
Disadvantages:
New members do not acquire an interest
The members are free to do whatever they like with their interest, so they can leave and take their share with them, or they could use the property for any purpose, not necessarily for the purposes of the association
[As such, this option is unlikely to fulfill the testator's intention]
Trusts for present/future members
Property held on trust for the current members, and any new members also get a share
Advantages:
beneficiary rule satisfied
complies with perpetuity rules (125 years wait and see period)
avoids issues with purpose trusts
Disadvantages:
As with option 1, the members are free to do whatever they like with their interests so:
They could leave the association and take their shares with them. Or they could use the property for any purpose
[As such, this option is unlikely to fulfill the testator's intention]
3) Contract holding theory (CHT)
The
most likely construction
and the court's favoured approach
This construction avoids the issues with purpose trusts and instead takes us to the realm of contract law
The property may be held on bare trust by an officer of the organisation for the members, subject to the contractual rights and responsibilities of the members
Bare trust: trustee has no discretion as to how to manage the property, must follow the instructions of the beneficiary
A modified version of a joint tenancy: the members are not free to do as they wish with the property
If they leave the association, they cannot take their interest with them and if a member dies their estate cannot claim the property
Re Recher's Trusts
[1972]:
Could it be a bequest to the London and Provincial Anti-Vivisection Society (an outward-turning unincorporated association) be valid?
'.. it seems to me that the gift takes effect in favour of the existing members of the association as an accretion to the funds which are the subject-matter of the contract which such members have made inter se. And so falls to be dealt with in precisely the same way as the funds which the members themselves have subscribed. So, in the case of a legacy. In the absence of words which purport to impose a trust, the legacy is a gift to the members beneficially, not as joint tenants or as tenants in common so as to entitle each member to an immediate distributive share, but as an accretion to the funds which are the subject-matter of the contract which the members have made inter se'
Bringhtman J is clear that it does not matter whether association is inward-turning or outward-turning for the purposes of the contract holding theory (and criticises this distinction)
The legacy could have been a valid gift to the members, to be held as an accretion to the funds which are the subject matter of the contract that binds the members together had the society still been in existence
Risks with contract holding theory (CHT):
Risks with drafting:
For this construction to apply, it must be
that the transferor did not intend for the property to be held on trust
for the purpose of the association, or as a gift to present members, or on a trust for present and future members
Careful drafting is crucial - it must be made clear that the
property is to be treated as an accretion to the fund
and to be
held subject to the association's contract
Risk the transferor's intentions will not be carried out:
For CHT to apply, the members
must be free to change the rules
of the contract that binds them, so the property can be used for a new purpose or distributed between members (without this, there's risks the perpetuity rules will be infringed)
See
Re Grant's Will Trusts
[1980]
So, the property could be used for an altogether new purpose or the members may change the rules so they can share the property between them (particularly risky with small UAs)
4) Trust for purposes
Charitable trusts
Possible to create a charitable trust for the purposes of the association if:
The trust is for a
charitable purpose
(as defined by the Charities Act 2011)
The
public benefit test
is satisfied
Note: the purposes of the trust must be exclusively charitable
If there's a rule in the association's contract that states the members share the property between them on dissolution, then the purpose will not be exclusively charitable and there will be no option of a charitable trust (
Neville Estates v Madden
[1962] Cross J)
Trusts for purposes -
Re Denley's
Trusts
May be possible for the property to be held on a valid non-charitable purpose trust, provided it falls under the
Re Denley
principles
Requirements:
Purpose must
benefit individuals
(directly or indirectly)
The individuals must be
ascertainable
(suggests the association must be inward-facing-for the benefit of the members)
The purpose must
not be too abstract or impersonal
Testator must intend to leave property on trust
for the purposes of the association, not for the members
Superadded direction in
Lipinski
may be important - there is a need to specify the use of the property
Perpetuity rules
must be complied with (common law perpetuity period)
This could be a good option to ensure the testator's wishes are fulfilled
Re Denley
principles applied in the UA context in
Re Lipinski's Will Trust
[1976]
Facts: Testator left money in his will to be used solely in the work of constructing the new buildings of the association and/or improvements to said buildings
Did the superadded direction (direction as to the specific use of property) mean this was an invalid purpose trust?
Held:
Although expressed as a purpose trust, Oliver J suggests that as there was an ascertainable individuals who benefitted from the purpose, it was valid: 'There would seem to be to be... a clear distinction between a case where a purpose is prescribed which is clearly intended for the benefit of ascertained or ascertainable beneficiaries... and the case where no beneficiary at all is intended...' (246)
The decision in
Re Denley
was followed because 'it seems... to accord both with authority and with common sense' (248)
Problems with
Re Denley
Has been criticized in
Re Grant's Trust
(though note that case has been criticised too)
Is a first instance decision, involving an inter vivos trust and did not involve UAs
Judges have been reluctant to follow
Denley
Re Denley
has been followed in
Re Linpinski,
a case involving an unincorporated association, but
Lipinski
itself is problematic...
Problems with
Lipinkski
First instance decision
Unclear judgement: unclear whether Oliver J is applying the
Re Denley
principles or the contract-holding theory. He suggests it does not matter 0 but it does matter for several reasons including the fact that how the property is held determines what happens to the property on dissolution
Dissolution of unincorporated associations
An incorporated association may be dissolved:
1 - By
court order
2 - By a members
vote
to dissolve
3 - If membership falls
below two
(you cannot associate with yourself)
We need to know who owns the property on dissolution of the UA - warning (the case law is complicated)
Options 1 & 2
(gifts to members/trust for present future members)
Dissolution has no effect on the gift/trust
Option 3
(charitable trust)
The
cy-près
doctrine takes effect
In other cases, there are 3 options to consider, and how the property was held during the lifetime of the association will determine which option will apply
Resulting trust for the transferors of property/residuary estate
Bona vacantia
to the Crown
Contractual entitlement
Resulting trust
Remember: a resulting trust arises ont he failure of an express trust
So: if a trust is for non-charitable purposes under the
Re Denley
principles, upon dissolution of the UA a resulting trust will arise for the transferor of the property
Bona vacantia
No one has a claim to the property, so it is considered ownerless and goes to the Crown
Surplus assets of a UA may be considered ownerless only when it is impossible to identify the original tranferor of the property - this is very rare
Note: in the assessment, we will be considered with what should happen to the testator's property upon the UA's dissolution, so we will know who has transferred the property
Contractual entitlement:
If the contract holding theory (CHT) applies, and the property is held for the members subject to the rules of the contract, then upon dissolution:
If the contract contains a clause or rule that specifies what should happen to the property on the dissolution, then that rule should followed
If the contract does not contain such a rule/clause, then the property will be distributed equally between members at the time of dissolution (the applicable Equitable maxim is: Equity is equality)
2 main authorities:
1 -
Re Buck's Constabulary Widows' and Orphans' Fund Friendly Society (No.2)
[1979]
2 -
Hanchett-Stamford v AG
[2008
Re West Sussex
[1971]:
Facts: The funds comprised of several different sources: 1) member subscriptions; 2) receipts from raffles and sweepstakes; 3) money from collection boxes; 4) donations and legacies. Who owned the surplus assets on dissolution?
Held: Goff J held that funds from sources 1-3 were ownerless. But 4 were to be held on resulting trusts. He suggested that property can only be shared between members on dissolution when the association is an inward-turning organisation, for the benefit of the members, so he could not apply here for an outward-turning organisation
Problems:
Goff J does not mention any trusts during the lifetime of the association. He claims the assets were at the free disposal of the members during the lifetime of the association - this is inconsistent with the finding of a resulting trust which arises when an express trust fails
The point about outward turning associations is inconsistent with comments in
Re Bucks,
and in
Hatchett-Stamford
the surplus assets could have been shared between members on dissolution where the UA was outward-turning
Take home message:
Re West Sussex
is very unlikely to apply - weight of authority - follow
Bucks and Hatchett-Stamford