Resolving deadlocks in Societies and Charities
Dealing with Deadlocks
At a mediation I was involved in some years ago, a mediator observed that those who go to Court should be seeing a psychiatrist rather than a lawyer. That is doubly true where society deadlocks cannot be resolved, especially in view of the deficiencies of the Incorporated Societies Act 1908 (see Porima v Te Kauhanganui o Waikato Inc [2001] 1 NZLR 472, [80] and [84]). Such deadlocks usually occur in meetings or in elections.
Deadlocks in Committee and General Meetings
Subject to any contrary constitutional provisions, a chairperson has a normal vote as a member (a “deliberative vote”) and no further or “casting” vote (see Turner v Pickering [1976] 1 NZLR 129 at 134 and a number of UK decisions, three involving one Council are cited below).
As noted in R v Bradford Metropolitan City Council ex p Wilson [1989] 3 All ER 140 (Divisional Court) at 151 (and see 147-148), the “… purpose of granting a casting vote to chairmen of local authorities cannot have been to enable them to preserve the status quo, because any motion will lapse if there is no majority for it . . . Unless the tie is broken, decisions cannot be made. That is essential if the administrative measures necessary for the proper conduct of local government are to be passed.” The wisdom of that decision was reflected in the 2004 amendment to the Local Government Act 2002 (which, as first enacted, was intended to remove the casting vote of the chairperson of local authority meetings), with Clause 24, Schedule 7, now confirming that although there is no casting vote (unless the Act so provides) “the standing orders of the local authority [may] expressly provide otherwise.”
A chairperson’s normal, deliberative vote should generally be exercised when other members are casting their votes. However, a chairperson who has not exercised a deliberative vote when other members are voting may cast his or her deliberative vote once a tied vote is apparent. Convention suggests to me that any permitted casting vote should normally be exercised in favour of no change (the “status quo”), on the principle that change should occur only where the majority favours such a course. However, according to R v Bradford Metropolitan City Council ex p Corris [1989] 3 All ER 156 (CA) at 160 (and also see 161) “A person who has a second or casting vote is clearly under a duty to exercise it honestly and in accordance with what he believes to be the best interests of those who may be affected by the vote. Subject to this, however, . . . the person presiding at a meeting is fully entitled to use his vote as he thinks fit.”
Where the votes are equal, if the chairperson has no casting vote or refuses to exercise any casting vote he or she may have, then the consensus of authority is that if there is a tie (an equal number of votes for and against a motion) the motion is deemed to have been defeated (R v Bradford Metropolitan City Council ex p Wilson [1989] 3 All ER 140 (Divisional Court) at 151).
Deadlocks in Elections
A more difficult arises where an election for those in governance roles in a society or trust is tied. Again, the constitutional documents may provide an answer, but are commonly silent on this important issue (an omission good draftspeople should avoid). The only relevant New Zealand decision of which I am aware, Antunovich v Dalmatinsko Kulturno Drustvo Inc [2001] NZAR 229 at [26], emphasised the relevant rights inherent in an election:
… One is the right of all members to vote for the elected officers of the Society … with … the expectation that valid votes will be counted and elected offices occupied by those who attract majority support. The other is the right of the nominee receiving the most votes to hold the office concerned. Both rights arise by necessary implication from the Rules as they would in any organisation which operated on a democratic basis.
In that case some votes not completed according to the committee’s instructions were not counted in the election, but the Court held that where a voter’s intentions were clear the vote should be counted, resulting in a tied election. The Court noted (at [44]) that “… Whatever the philosophical differences which divide its members, it is for the Society itself, in accordance with its Rules, to resolve them. The means by which they do that is by voting for those who most closely represent their view of where the best interests of the organisation lie. …” It therefore ordered that a fresh election be held, and a supplementary unreported judgment (CP398-SWOO, 5 December 2000) concluded that those voting should be members at the time of the fresh election rather than those eligible at the time of the tied election.
I assume the fresh election resolved the deadlock in the Dalmatinsko Kulturno Drustvo Inc case. In the absence of any statutory guidance (the current Incorporated Societies Bill does not propose anything that might assist), what advice should be given where an election vote is tied? There seem to be various options which a Court might or might not approve (subject, obviously, to the provisions of the society’s constitution):
- Based on the Dalmatinsko judgment, a decision to hold a fresh election is likely to be approved,
- If candidates agree on how to resolve the deadlock (one stands aside, tossing a coin, etc), especially with the approval of a resolution of a general meeting, I doubt that a Court would intervene unless there were other issues of concern,
- A resolution of a General Meeting resolving the deadlock might be upheld upon the basis that such a resolution is a decision of the society binding on its members, and
- In extreme cases, if there is a significant deadlock or impasse a society may be wound up if that is “just and equitable” under section 25(e), Incorporated Societies Act 1908, or s 25(1) Charitable Trusts Act 1957.
Closing observations
- As indicated, an entity’s constitution may contain provisions to break deadlocks. Good drafting practice suggests that this is highly desirable.
- If there is a close contest between factions, changing the constitution may be difficult.
- Section 184(2) of the Electoral Act 1993 provides that where there is a tie in an election “the Electoral Commission must determine by lot which candidate shall be elected,” but, curiously, there is no such provision in the Local Electoral Act 2001.
For specific advice the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.