#15708 - Unicorporated Associataions - Trusts and Equity

GIFTS TO UNINCORPORATED ASSOCIATIONS

Introduction:

People frequently want to may payments to clubs and associations, whether by way of membership fee (‘subscription’), gift, bequest, or purchase (e.g. of a raffle ticket). It’s not as straightforward as it seems, because for payment to be made, the payee must be capable of receiving it, i.e. of owning the money given. The law says that people can own property, but that organisations can’t, unless they’re “incorporated” [i.e. they lack legal personality]

• Trading companies are generally incorporated, and so are some clubs, so payment to these can be validly made.

• But many clubs are unincorporated, so can’t own property, so no payments can be made to them.

Judges have, however, developed a practice of regarding apparent payments to unincorporated clubs as some other, valid, kind of disposition having an effect similar to the abortive direct payment. There have been two principle approaches:

• Purported gift to the club may be read as a trust for the club’s purposes

  • E.g. some of the payments in Re West Sussex Constab’s Widows were treated in this way. This doesn’t involve treating this gift, in turn, as a gift to club’s members beneficially, although that further step was taken in Re Lipinski.

  • A trust to promote a charitable purpose is valid without more, so a purported gift to a club with charitable objects will unproblematically be valid as a trust for those objects.

  • A trust to promote a non-charitable purpose is valid if there are people benefited by, or perhaps otherwise interested in, its performance (Re Denley’s)

  • Most club members will be benefited by the performance of a trust for their club’s purposes, and surely all will be interested in the performance of such a trust

  • Therefore, gifts read as trusts for the purposes will normally be valid (e.g. West Sussex Constabulary)

• Or, purported gift to a non-charitable club may be read as a gift to its members (whether directly, or via a trust of which they are the beneficiaries)

  • A gift to the members in their personal capacity would be technically unproblematic, but it wouldn’t be a close surrogate for the purported gift to the club

  • So, to achieve a better surrogate, the gift is taken as being to the members “on behalf of the club”

  • Between the members of the club, there’ll be a contract (express or implied): the club’s rules, which will, expressly or impliedly, govern the use which members can make of any money they own on club’s behalf – essentially requiring them to spend it only on club’s purposes.

  • So income regarded in this way will be owned by the members, but caught by this contractual obligation (Re Recher’s)

  • This approach is often referred to as ‘the contractual analysis’. Cases using it include Re West Sussex Constab, Re Sick and Funeral Soc, Re Buckinghamshire Constabulary, Hanchett-Stamford

Sometimes judges have no choice between the two approaches. A contract obliging me to make a payment ‘to the club’ can usually be read only as requiring a payment under the contractual analysis:

• E.g. buying a 1 raffle ticket – this is a contract for the ticket. I must give 1 absolutely – that’s my contractual obligation in buying a ticket. Settling 1 on trust for the club’s purposes won’t be good enough. That 1 then goes to the club and is caught by their rules.

• The same goes for members’ subscriptions.

But where donations have been voluntarily made – inter vivos or by will – the donor can choose the terms on which to make payment, so both approaches, in principle, are viable:

• Although note that the purpose trust approach is ‘doubtfully plausible’ for money placed in a collecting box – the small sum involved and the anonymity of the donor make it more realistic to see him as paying the money absolutely, i.e. under the contractual analysis. The essence of this point is taken, but its implications not fully absorbed, in Re West Sussex constab.

What about where the donor has expressly chosen neither, but has purported to make a payment to the club? Should use the analysis that “most closely reflects the failed intended disposition”

Under the purpose trust approach, there’s a trust obligation to spend the money on the club’s purposes, The money doesn’t belong to the members in any sense, and they can’t claim it for themselves or otherwise change the purposes on which it’ll be spent from those purposes regarded as designated by the donor (which will be club’s existing purposes).

Under the contractual analysis, however, the money belongs to the members. What stops them taking it home as their own property is the relevant club rule? Since this is a contract made amongst themselves, they can change its terms or terminate it by mutual consent, which would then enable them to spend the money as they wish.

This is the main difference tween the two approaches. [cf Lipinski where judge didn’t notice the approaches were different, and treated them as the same]

Is the purpose trust approach the more faithful one to donor’s intentions, since it sticks more firmly to original club’s purposes? Perhaps not: the donor sought to make a gift to the club; it is “strongly arguable that in doing so he meant the members to settle the use of the money thereafter”. Which is more like the contractual approach.

• In practice, a judge who has to to use the contractual analysis regarding part of a club’s income (esp. members’ subscriptions) may well choose to use it for the rest, for simplicity.

  • E.g. see Re Buckinghamshire constab, but cf West Sussex

• He’s also “likely to be swayed by the relative attractiveness of the results that the rival analyses would throw up in the circumstances that have emerged: often, upon the club’s dissolution”

If a gift is treated as made on a purpose trust, failure of that purpose will (unless giver has provided otherwise) generate a resulting trust, requiring that the surviving amount be repaid to the giver. Where the gift was small, or anonymous, or made some time previously by someone not since connected with the club, effecting such a repayment will be difficult.

But if a gift’s treated as made under contractual analysis, on the club’s dissolution it’ll go in equal shares to the members at the time of the dissolution, unless they agree otherwise. This will normally be easy to effectuate, esp. in comparison with a resulting trust solution. In that case, it will “be expedient to have adopted the contractual analysis in the first place”

EFFECT OF THE GIFT

D+V: identify 5 methods of property-holding relating to unincorporated associations:

• Charitable trust (but only if there’s a recognised charitable purpose; and note that if the association has a rule that on dissolution, the property will be divided between the members, this negates the charitable purpose)

• Non-charitable purpose trust

• For members at the time of the transfer

• On trust for present and future members

• For members subject to their existing contractual rights

Unincorporated associations were once considered to be an exception to general principle that non-charitable purpose trusts are void, but this exception was rejected by PC in Leahy

Leahy v AG for NSW [1959]

Facts: a testator left property to be held on trust for an order of nuns, which was an unincorporated association.

Privy Council (per Viscount Simonds): this was a trust for the non-charitable purposes of the order, held to be void:

• In law, a gift to a non-incorporated association is simply a gift to its members at the date of the gift, as joint tenants or tenants in common (hence the ‘prudent conveyancer’ provides that receipt by the proper officer – e.g. treasurer – will be sufficient).

• What is meant, then, when a gift is made to individuals comprising the community ‘for the benefit of the community’?

  • If it’s a gift to individuals, each is entitled to his distributive share (unless they’ve bound themselves by the rules of the society that say money shall go to some other purpose).

  • So, what is added by the words ‘for the benefit of the community’, then? If the intention is that they import a trust, who are the beneficiaries?

    • If the beneficiaries are present members, then the words add nothing, because the money was going to them anyway.

    • If some other purpose is intended, the gift must be void, because this is uncertain and leads to a perpetuity.

• The question, then, is whether even if this is an absolute gift to the individual members, this is invalid because it is in the nature of an endowment, and tends to a perpetuity, or invalid for another reason.

• Prima facie, a gift to a voluntary association for the general purposes of the association is an absolute gift, a good gift. This is because it can be upheld “as a gift to the individual members”, even though given for general purposes.

• The words ‘for the general purposes of the association’ can’t import a trust, because there are no beneficiaries, and you need beneficiaries unless the purposes are charitable.

• In this case, then, is this a gift to the individual members of the Order at the date of the testator’s death so they can dispose of it as they see fit? No, because he intended to create a trust, rather than a gift (and a trust for the purposes of a non-charitable body must fail)

  • He described it as a trust. Not determinative in itself, but, at the least, this is not in the form of a gift to the members.

  • Members of the Order were spread out over the world. It’s not easy to see testator as having intended an immediate beneficial gift to each and every one of these

  • Also note the subject-matter of the gift – a...