Parent Incorporated Societies and their Branches

Structuring the relationship of parent and branch societies

The Incorporated Societies Amendment Act 1920 (the only substantive change in the 114 year
life of the 1908 statute) established a very rudimentary statutory framework for the
incorporation and operation of a “parent” society’s branches, and that Amendment Act
provided for the incorporation of a branch of a parent society where the branch had at least 15
members (Incorporated Societies Amendment Act 1920, s 2; Incorporated Societies
Amendment Act 1930, s 2. The history of this statutory provision for branches to be
incorporated is referred to in the Court of Appeal judgment in Federated Farmers of
New Zealand Inc v Federated Farmers of New Zealand (Northland Province) Inc [2005] NZCA
165 at [85]–[89]).

The first three editions of my text, Law of Societies, discussed some of the problems
associated with the 1920 Amendment Act, and the third edition suggested that “Given the
problems in incorporating branches under the Incorporated Societies Amendment Act 1920, a
structure not relying on the Act may be preferable as that avoids the problems inherent in
relying on an inadequate statutory framework.” The Law Commission stated in its 2013 Report
on the Incorporated Societies Act reform (Law Commission A New Act for Incorporated
Societies (NZLC R129, 2013) at 5, [4.33]–[4.50], and Recommendations 8–12) that:

Currently, the Incorporated Societies Amendment Act 1920 allows parent societies to
incorporate a number of branch societies, and the members of the branches are automatically
members of the parent society. We consider that these provisions are confusing and
unnecessary. Societies can establish a parent and branch structure utilising the normal society
model of incorporation. They may use contracts and the provisions of their constitutions to
control the relationship between them.

Consistent with that statement, there is now no provision for the creation of new branch
societies in the Incorporated Societies Act 2022, and practical methods of establishing a type
of federal structure are discussed below. To address the issue of existing incorporated branch
societies, the Law Commission recommended that “A grandparenting provision should be
included in the statute and provide that branches incorporated under the Incorporated
Societies Amendment Act 1920 will be described as societies from the commencement of the
new Act, but ss 6 and 7 of the Incorporated Societies Amendment Act 1920 will continue to
apply to each former branch and its parent society as if the Amendment Act had not been
repealed.” As recommended by the Law Commission, branch societies incorporated prior to
commencement of Clause 17, Schedule 1 to the Incorporated Societies Act 2022 continue to
exist under a “grandparenting” provision in the Act 2022 (Incorporated Societies Act 2022, Sch
1, Pt 2, cl 15), noting that this Clause may be brought into effect on a date appointed by Order
in Council under s. 2(2) of the Act or otherwise on the “transition date” of 1 December 2025):

17 Incorporated branches and groups of branches
(1) This clause applies to a branch or group of branches of a society that, immediately
before the commencement of this clause, was incorporated under the Incorporated
Societies Amendment Act 1920.
(2) Sections 6 and 7 of the Incorporated Societies Amendment Act 1920 continue to apply to
the branch or group of branches and to the parent society with all necessary
modifications for the purposes of this Act as if those provisions were still in force.
(3) However, subclause (2) ceases to apply if the Registrar receives a notice, in the manner
prescribed by the regulations, for the purposes of this subclause from both—
(a) the parent society; and

(b) the branch or group.
(4) In this clause, parent society means the society in respect of which the branch or group
of branches was incorporated under the Incorporated Societies Amendment Act 1920.

While new branches of incorporated societies can no longer be incorporated, the following
information may be of assistance where branches continue to exist under the new statute:

• The consent of the parent body and of the majority of members of the branch was
  required before a branch society could originally have been incorporated
  (Incorporated Societies Amendment Act 1920, ss 2 and 3), and
• A branch society incorporated under the 1908 Act continues to enjoy the benefits of
  incorporation (Incorporated Societies Amendment Act 1920, ss 4 and 5), while the
  members of each branch are members of, and remain subject to the constitution of,
  the parent incorporated society (Incorporated Societies Amendment Act 1920, ss 6
  and 7).

With reference to that last bullet-point it is important to note that the members of branch
societies formed after 6 April 2022 are no longer members of the “parent society” by virtue of
any statutory provision equivalent to s.7, Incorporated Societies Amendment Act 1920, which
provided that “… every member of a local branch shall be deemed to be a member of the
society and liable to all the obligations of membership.” The lack of that legislative provision
means that societies considering new parent and branch structures now need to consider
whether or not members of branches must or may also be members of the parent society,
bearing in mind the requirement that the consent of every member to such membership (of the
parent society and of the branch society) must be obtained under s. 76(1) of the Incorporated
Societies Act 2022.

A “parent” society can seek to maintain a degree of control by requiring that a branch, as a
condition of the parent-branch relationship, include in its constitution a provision that any
change to the branch’s rules requires the prior approval of the parent, and that, if such
approval is not sought or given, the parent society may be empowered to terminate the
relationship if the branch society’s constitution is altered without the required “parental”
consent.

Essentially, any parent-branch structure (whether previously incorporated prior to the
Incorporated Societies Act 2022 coming into effect or contractual in nature) tends in practice to
be characterised by the “parent” body seeking or appearing to dictate or dominate, and this is
frequently the source of tension and disputes. In practice, the relationship of branch societies
and their parent body (whether under the previous Incorporated Societies Amendment Act
1920 or otherwise) almost inevitably gives rise to tensions between the exercise of “parental”
powers and the wish of the branches to exercise autonomous powers, as illustrated in Court
decisions relating to Federated Farmers between 1998 and 2006.

While the Federated Farmers litigation is now of less potential relevance following enactment
of the 2022 statute, it still applies to “grandparented” branches, and has some lessons for
societal federations under the 2022 Act. Following the adoption of a new constitution by
Federated Farmers nationally, one of two dissenting branches declined to pay national
capitation fees at the level set by the national body which then sued the branch. The 1998
Federated Farmers of New Zealand Inc v Federated Farmers New Zealand (Northland
Province) Inc decision confirmed that branch societies themselves are autonomous, the Court
stating (Federated Farmers of New Zealand Inc v Federated Farmers New Zealand (Northland
Province) Inc [1998] DCR 1044 at 1055) that:

… [T]he consequence of incorporation as a separate legal entity is that, in the absence of a
contract which limits its independence and subject to the controls and constraints inherent in
its own constitution and in the general provisions of the 1908 Act, an incorporated branch is
under no legal obligation to its parent society.

The quoted extract from that judgment will apply to new parent-branch societies formed under
the 2022 statute. This Federated Farmers District Court decision also articulated a number of
other informative principles that still have relevance following enactment of the 2022 Act:

• As confirmed by the Court of Appeal in Federated Farmers of New Zealand Inc v
Federated Farmers of New Zealand (Northland Province) Inc [2005] NZCA 165 at
[93]–[95], the object of the Incorporated Societies Amendment Act 1920 was to enable
incorporated branches to become separate and independent legal entities, and it
enabled branches to hold funds and property in their own right, and under the 2022 Act’s
regime what are effectively branch societies by some contractual arrangements will
continue to be separate autonomous legal entities.

• As confirmed by the Court of Appeal in Federated Farmers of New Zealand Inc v
Federated Farmers of New Zealand (Northland Province) Inc [2005] NZCA 165 at
[91]–[95], the 1920 Act did not make incorporated branches subservient, subordinate or
accountable to the similarly incorporated parent body, nor did it require them to pay
membership levies to the parent body or to agree to future changes to the rules of the
parent body. Under the 2022 Act, in the absence of a membership contract by which a
branch is a member of the parent body, an incorporated branch is not in any relevant
legal sense part of the parent body.

• Members of branches incorporated under the Incorporated Societies Amendment Act
1920 were (and, now, remain) automatically members of the parent body (Incorporated
Societies Amendment Act 1920, s 7), creating a dual membership situation (described
as an “interlocking relationship” by the Court of Appeal in Federated Farmers of New
Zealand Inc v Federated Farmers of New Zealand (Northland Province) Inc [2005]
NZCA 165 at [95], but noting that to maintain membership of the parent body the branch
society member had to comply with the rules of the parent body ([99]–[101]).

• By rules constituting an interrelationship or by contract, parent and branch societies may
create legally binding obligations (see Temple v Hawke’s Bay Football Association
[1970] NZLR 862 and as discussed by the Court of Appeal in Federated Farmers of New
Zealand Inc v Federated Farmers of New Zealand (Northland Province) Inc [2005]
NZCA 165 at [94].), but these will not be readily implied. Such obligations might, for
instance, require branches to adopt rules prescribed from time to time by the parent
body and to pay membership levies to the parent body. It should be noted that there
remains some doubt as to whether a society can entrench its rules and fetter the rights
of its members to amend its constitution. If a branch was obliged by rule or contract to
adopt rules prescribed by the parent society this would appear to be contrary to the
statutory right of the branch society to alter the branch rules under section 30(1) of the
Incorporated Societies Act 2022, and also contrary to the decision in Bath v Singh [ 2012]
NZAR 50. The 2005 Court of Appeal Federated Farmers decision at [96] noted that
there was no obligation in that case (statutory or contractual) that, after incorporation, a
branch was obliged to maintain rules consistent with the parent body.

• Nothing in the 1920 Amendment Act assisted when separately incorporated parent and
branch societies ceased to co-exist peacefully, and the 2022 statute does not address
incorporated parent and branch society relationships, let alone disputes.

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