How Common are Societies and Charitable Trusts
The vast majority of New Zealanders must belong to at least one community organisation, and many will belong to a dozen or more in their lifetime. Few would not have contact with such entities. At the most basic level are home and school committees and sports, cultural and social clubs, and few can escape involvement in such organisations whether as children or parents.
Many of those entities are unincorporated (how many one can never know), but those incorporated under the Incorporated Societies Act 1908 (according to the introductory notes to the Incorporated Societies Bill 2021) are around 24,000, and there are probably around 20,000 charitable trusts and societies incorporated under the Charitable Trusts Act 1957.
That means that there are about 100 New Zealand adults and children for every incorporated community organisation. If you take all the unincorporated societies and clubs the figures would be different. Whether I’m right or wrong, what the figures demonstrate is that such societies, clubs, associations and organisations are an important part of the fabric of our communities, facilitating much of our social, cultural, sporting, and religious life. Without such organisations many things we take for granted could not and would not happen.
Given the importance of societies, it is noteworthy that the legislative framework for incorporation is legally somewhat archaic, with one statute dating back to 1908 (with a reform Bill introduced to Parliament in March 2021) and the other to 1957. Lawyers are far more likely to be familiar with trusts and the law on charities, but the drafting of a charitable society’s rules or a charitable trust deed requires skills not covered at law school. It is regrettable that lawyers advising most societies are most unlikely to have received any academic education about how such entities are incorporated, what should be included in their constitutional documents, or some of the problems that they can create.
The Importance of Rules
If an entity is unincorporated it does not have to produce a set of rules, so it commonly has no rules. Common reactions to suggestions that rules be produced include “there’s no need to be formal,” “we’d never get everyone to agree on what should be in them,” “we just here to play a game/sing together/lobby for X/submit against Y” or whatever, “it would cost too much to get a lawyer involved,” etc. All of that may be true, but the resulting problems if they arise can cause an awful lot of grief, stress, anger and cost:
- Where the unincorporated society has no rules at all (such as the golf club in Millar v Smith [1953] NZLR 1049) it will be difficult to determine what is right or wrong if (when?) there is a disagreement between members.
- If an unincorporated society has rules, can anyone prove how they were adopted, can it be proved that new members have agreed to accept those rules, how can such rules be amended, and to what extent are the rules binding on members?
- Even if there are rules, how comprehensive and well-written are they, and if they are not will a court be asked to imply what is or should be obvious to make good the omission? In the Australian case of Grogan v McKinnon [1973] 2 NSWLR 290 a candidate for election sought and was refused access to the register of members by the committee. Even though the rules did not require the keeping of a membership register the Court decided such a register should be kept and that it was necessary for a candidate for office to have access to those records to enable him to stand for election.
- The status of members of an unincorporated society is often uncertain.
- Because the relationship between members of an unincorporated society is frequently ill-defined, there are often doubts as to members’ rights and obligations, how they are admitted, how they may be disciplined or expelled, and how they can resign.
If a society is to be incorporated, whether under the Incorporated Societies Act 1908 or Charitable Trusts Act 1957 (the Incorporated Societies Act Bill 2021 proposes to transfer such societies into the regime under the new Incorporated Societies Act), it must have rules (discussed in other articles).
Whether or not incorporated, a society’s rules form the basis of membership of a society, if they are inadequate a Court may imply necessary provisions. When a new society is formed those people forming it will usually agree on the rules. Courts have generally accepted that such rules as there are create a contractual relationship between members and the society. That is something of a legal fiction, and if the society is charitable it exists for charitable public purposes and not for the benefit of members, so the charitable purposes may well take precedence over the rules, with any contractual rights enjoyed by members being interpreted having regard to the charitable character of the society.
Those joining after the rules are first adopted are deemed to have accepted the rules, whatever those rules may be (see John v Rees [1969] 2 All ER 274 at 298) and whether or not they have inspected them.
Just as detailed rules are important for societies, so too are they for charitable trusts, but in the nature of such trusts it is more likely that proper attention will be given to drafting a proper trust deed.
Avoiding problems over rules
While engaging a lawyer to draft a society’s rules or a charity’s Trust Deed may be expensive, having a well-drafted set of rules will avoid many problems and arguments over the years. Where a society is incorporated the new Incorporated Societies Act will require the inclusion in a constitution of many provisions that would be found in very few incorporated society constitutions drafted before the enactment of the new Incorporated Societies Act (see Overview of Proposed New Incorporated Societies Act and Guide to Societies – New Incorporated Societies Act .
For specific advice the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.