Are Rules Binding?

A client’s question

In 2010 I was redrafting the rules of a community organisation and I was startled to be asked some questions by its chairman that made me realise how uninformed the general public are about society Rules.  The questioner was well-educated and experienced in business and community organisations, so being asked for clarification was even more of a surprise.  The questions I was asked and my answers (somewhat expanded for this article) are set out below.

How binding are the rules of the constitution?

The rules in a society constitution are binding on the society’s officers and committee members, and also on the society’s members.  Failure to follow the rules is the major cause of grief in societies and the major driver of the disputes I advise on.  Judges can be very unforgiving when rules are flouted, especially by those whose duty it is to govern an organisation.  A critical element of good governance is observance of the constitution, no matter how inconvenient that may occasionally be.  Charities Services can also be expected to be vigilant in ensuring that the requirements charities’ rules or trust deeds are followed scrupulously, and they can investigate charities (whether or not registered under the Charities Act) either on receipt of a complaint or as a result of a random review process.

How strictly should the constitution be followed?

In one word, strictly!

Can common sense prevail over the constitution?

Absolutely not.  Certainly a constitution should be a “common sense” document capable of being readily understood by a society’s members, but what is “common sense” needs to be an organisational decision reflected in the constitution; not one left to the changing whims and prejudices of different individuals.

What are the implications of not following our constitution?

See my first answer.  The “good mate” theory of governance is fine while all involved are “good mates,” but the first thing most people do when there is any disagreement is to look at the rules, and if the rules have not been properly followed the officers and committee are very vulnerable to criticism from the membership and, if it gets that far, from a Court or the Charities Board in the case of a charity.

Who monitors that we do in fact follow the constitution?

Primarily, the members if they have reason to check (or simply know the rules), and when things go wrong or someone is dissatisfied with the decisions of the governing committee or board of an organisation they usually look at the constitution.  If the society is a charity, Charities Services should act on complaints that rules are not followed.  In 2010 I was advising a charity about a complaint made to the (then) Charities Commission.  The officers of that charity found the initial letter from the Commission scary, and were intimidated (I understand that the template the Commission used in that case was relatively mild!).  Theoretically, the Registrar of Incorporated Societies may investigate, but in fact seldom gets involved.  Finally, of course, members and the Attorney-General (in the case of charities) can resort to the Courts.  

Are documented variations to a constitution permitted and if so to what extent?

Yes, but they have to be properly altered in accordance with the provisions of the constitution and, if the entity is registered, be registered.  Section 23 of the Incorporated Societies Act 1908 provides that they must be registered with the Registrar of Incorporated Societies before they can be treated as being effective (legal).  The Charitable Trusts Act 1957 has no provision equivalent to s23.  Where the entity is also registered with Charities Services the changes must be registered with Charities Services.

How much the constitution may be changed is a more difficult question to answer, but a good rule of thumb is that the changes should not radically change the purposes of the entity.

My answers to the question “Are Rules Binding”

My responses to this question put to me in 2010 were rather blunt, and the reasons for my bluntness were based on the fundamental importance of an entity’s rules:

  • The rules are the basis of membership of a society, creating a legal, contractual relationship between members and a society,
  • The rules of a society bind not only a society’s original members but also all subsequent members even if they never bother to look at them (John v Rees [1969] 2 All ER 274 at 298),
  • Where the entity is charitable the charitable purposes must be honoured and protected, and
  • The Courts accept that decisions made by entities incorporated under the Incorporated Societies Act or Charitable Trusts Act are decisions capable of judicial review.

If any organisation has rules, they have to be regarded as binding on everyone involved.  If not, the result can only be uncertainty and, even, anarchy.  Failure to observe and follow the rules may produce work for lawyers, but it is destructive for the community organisation and unpleasant for its members. 

 For specific advice relating to the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.

This is one of a series of articles on societies and charitable trusts by Mark von Dadelszen, a lawyer and author of Members’ Meetings, 3nd Edition, 2012, and Law of Societies, 3nd Edition, 2013 (both texts being in the course of editing for 4th editions to be published after the new Incorporated Societies Act is enacted).