#2540 - Unincorporated Associations - Trusts and Equity

Unincorporated Associations

Cts reluctant to allow trusts to operate outside the accepted ‘gifts of imperfect obligation’ (Re Endacott) but they have been asked to consider how gifts to a group of people should be interpreted. The policy underlying the anomalous exceptions is to encourage community benevolence. If a gift to a small community club is not charitable then it may fail, defeating the intention of the donor and the policy of community benevolence. These small groups often take the form of unincorporated associations.

‘Unincorporated associations’: According to Lawton LJ in Conservative Central Office v Burrell [1982], there must be two or more members bound together for one or more common purpose, mutual rights and duties between the members, and rules governing who controls the association and how its funds are used; the members must be able to join and leave the association at will. These groups are not covered by the Companies Act 1996. Hence they have no legal personality, existing in their own right, and cannot own property.

How are the assets of an unincorporated association held?

Gifts to, and trusts for, unincorporated associations are problematic because they are not legal persons and so cannot themselves hold assets. What happens to any surplus funds depends on how the money was held when the association was in existence.

• Re Recher’s WT [1972]; There are four accepted ways that the gift of property to an unincorporated association can be interpreted as being held:

1. An outright gift to the members to hold as JTs or Ts in C. Any member can sever.

2. A gift on trust for the association’s purpose – void under the beneficiary principle and potentially for perpetuity, unless the association is charitable.

3. A trust for the members and future members of the association. Must be limited to the perpetuity period.

4. An outright gift to the members as JTs subject to their own contractual obligations. Gift to existing members as an accretion to their funds and dealt with by the association’s rules - *contract holding theory*.

Issue: Dissolution of unincorporated associations - When an unincorporated association dissolves, problems arise as to the ownership of any surplus funds. On one view at least, this is a matter of an automatic resulting trust, but the case law provides no one consistent answer.

• Re William Denby Sick and Benevolent Fund [1971]; Brightman J identified four methods of dissolution: (i) voluntary dissolution by the members; (ii) an event leading to automatic dissolution; (iii) ‘permanent loss of substratum’ and (iv) winding up by the court.

NB. ‘A cataleptic trance may look like death without being death’: Megarry V-C (Re GKN Sports and Social Club [1982]).

The four methods of holding property: If the surplus money is held by the members or the treasurer (on trust for the members) then it goes to the members on dissolution. Normally given in equal proportions unless the association rules say differently. The right to the money is not based on contributions, it depends on membership.

However, sometimes it is not possible to say that a contributor gave money to the members. Perhaps he did not want to benefit them. For example, if the society is outward looking (i.e. purpose not meant to benefit the members, e.g. political society). Or if the settlor gave his money for a very specific purpose his purpose would be negated if the members held fund. In such a case an analysis of how the money could be held is necessary:

1. An outright gift – Older cases take this approach. Each member of the association takes the property as an outright gift and hold as JTs or Ts in C. This interpretation is possible depending on the nature of the property but in Re Grant’s WT [1980] Vinelott J thought that this interpretation would be uncommon without clear evidence of settlor’s intention.

   • Finding the settlor’s intention – If the members are JTs then each member holds the entire interest amongst themselves equally. Should one of the JTs sever their interest then they can take their share of the property as an absolute gift. If the gift is given as Ts in C each member takes their share as an absolute gift immediately (Cocks v. Manners (1871)). If there is ambiguity in the gift then the cts will look at the nature of the property to infer an intention.

E.g.1. A gift of 300 to a gardening club with 30 members. It is perfectly possible that each member could take 10 each. So they can be either JTs or Ts in C as the property is capable of severance.

E.g.2. A gift of an acre of land to a gardening club with 30 members. It is possible, but unlikely, that the donor intended each member to take 1/30^th of the land for their own. Unlikely the property was intended as an outright gift.

2. A trust for the purpose of the association – This would fail ab initio as a purpose trust as it is neither charitable or within the anomalous exceptions, so there would be a resulting trust back to the donor immediately. The courts have tried to make the distinction between the interpretation of the bequest as a gift to the members and for a purpose. If the members can do what they want with the property and it can be held individually then it is likely to be construed as a gift.

• Leahy v. AG for New South Wales [1959]; If the members cannot do what they want with the property then it is likely to be a trust for a purpose and void.

3. A trust for the members and future members - This is a possible interpretation in which the current members will hold the property on trust for themselves and future members subject to the trust complying with the rules of perpetuity. The relevant rule on perpetuity here will be the remoteness of vesting. The unincorporated association can exist for more than 80 years so it is important to ensure the property will vest in all possible Bs within that period (Leahy).

Difficulties with this interpretation:

• May be difficult to ascertain the Bs as the membership will fluctuate to a great extent over this period. What would happen to members who left the club?

• How would the shares be allocated between members who have just joined and those who are members for the whole perpetuity period?

4. A gift for the members subject to their contractual obligations – The idea is that since property cannot vest in the association itself (since it lacks legal personality) ownership of the association’s assets vests in the members for the time being, but not simply as absolute beneficial joint tenants; rather, their ownership is circumscribed by their contract inter se (as represented by the rules and constitution of the association) which obliges them, while the association continues in existence, to apply the assets only in the manner prescribed by the rules.

It is essential, under the ‘contract holding’ interpretation, that the membership may vote to change the rules and, if they so wish, divide the assets among themselves (Re Grant’s Will Trusts); otherwise the gift will fail on grounds of perpetuity.

• Re Grant’s WT [1980]; The gift was to a local Labour party committee. The rules of the party meant that the local party were not in control of their own internal rules, or able to decide what happened to funds should the local party cease to exist. The court held that the gift could not be a gift to the members subject to their rules as they were not in control of their own finances.

The contract holding theory was favoured in:

• Re Recher’s Will Trusts [1972];

• Re Lipinksi’s Will Trusts [1976]; A gift for the sole use of a building and its maintenance within the powers of the association. It was presumed that this gift was absolute.

• Re Horley Town FC [2006];

• Hanchett-Stamford v A-G [2008];

Advantages – The contractual analysis is the most popular interpretation for courts as it raises no problems with perpetuities. This is because the property vests immediately in the members and as it is not a trust the rule on alienability does not apply.

Disadvantages - However, this interpretation will not aid a settlor who wants to ensure that the ‘purpose’ of the settlement is carried out. As they are in charge of their own financial arrangements should they agree to use the gift for a different purpose, or divide the property up and take absolutely, the settlor cannot prevent this. The ‘purpose’ is merely the motive for the settlement.

NB. All of these means of holding association property as subject to bono vacantia, i.e. if the donor is untraceable the fund will go to the state.

Alternatively could go for the Re Denley approach. This is controversial because no-one knows if this created a new category of trusts.

Or could use Millett’s Quistclose explanation – donor gives legal title to the treasurer but the donor intended the treasurer should hold on trust for him, subject to a power to spend money on something specific.

How should the surplus assets be distributed upon dissolution?

The case law reveals three possible ways in which surplus funds of an unincorporated association may be owned or distributed upon dissolution.

(i) Automatic resulting trust

If the association’s funds are held on trust for its members or purposes before dissolution, then according to one view, when it is dissolved the surplus assets should be held on (automatic) resulting trust for those who have contributed to the funds, in proportion to their contributions. This solution was adopted in: Re Printers and Transferrers Trade Protection Society [1899] and Re Lead Co’s Workmen’s Fund Society [1904] (distribution amongst current members in proportion to...