L7 The Beneficiary Principle (2): Unincorporated Associations Flashcards
Notes
An unincorporated association is an organization that arises when two or more people come together for a particular purpose, but decide not to use a formal structure like a company. Most clubs, societies, groups and some syndicates are unincorporated, as are most vulnerable organizations.
- Definition of an unincorporated association
Conservative and Unionist Central Office v Burrell [1982] 1 WLR 522
A. Conceptual issues with property held for unincorporated associations
• Lord Justice Lawton said ‘unincorporated association [means] two or more persons bound up together for one or more common purposes, not being business purposes, by mutual undertakings, each having mutual duties and obligations, in an organization which has rules which identify in whom control of it and its funds rests and upon what terms and which can be joined or left at will’.
• The essential elements are that there exist members of the association; that there is a contract binding them inter se; that they have a common purpose which is not business; and that there must have been a moment in time when a number of persons came together to form the association.
- Analytical problems associated with the application of the beneficiary principle for trusts to non-charitable unincorporated associations
Unlike a company, an unincorporated association has no legal personality. This gives rise to two questions: first, how is property that is transferred to non-charitable associations held; and secondly, does the expressed intention of a settlor that the association should spend the gift for a particular purpose have any legal effect?
- The traditional view
The transfer was taken to be a void purpose trust.
**Leahy v A-G for New South Wales [1959] AC 457
• Australian and English trust law case involving a charitable trust.
• The proceeding concerned the validity of a gift to an unincorporated body, concluding that gifts in trust ‘cannot be made to a purpose or to an object’ except for charitable circumstances.
• Facts
o The HC of Australia held that the trust was valid. The claimant appealed to the Privy Council. The Privy Council found that the trust was not valid as unincorporated associations are unable to accept gifts or bequests, unless they carry out a charitable cause.
• Advice – Viscount Simonds stated that the trust failed for reason:
1. The trust was expressed as being made to the order of nuns, rather than to any specified individuals.
2. The terms of the trust being for the order of nuns would have been that the trust would be for the benefit of the people who would become nuns some time in the future. This offended the perpetuity rule.
3. It could not have been intended that ‘immediate possession’ of the rights of the beneficiaries could have been taken by all the nuns in the order over small homestead on a sheep farm.
- Alternative modes of interpretation
Since non-charitable unincorporated associations exist and people do transfer to them money and other gifts of property, it is unsurprising that alternative modes of interpretation have been advanced in order to save such transfers.
(a) A gift to the members of the association at the time the transfer is made
to be held by them as joint tenants.
**Neville Estates v Madden [1962] Ch 832 at 849 per Cross J
The difficulty with this approach is that it is frequently difficult to construe a transfer in this way, particularly if the settlor has expressed a wish that the money be spent for specific purposes
• Restrictions on dealing with property.
• Though generally speaking an association which is supported by its members for the purpose of providing benefits for themselves will not be a charity, this principle cannot apply with full force in the case of trusts for religious purposes.
• Facts
o Land was sold subject to the consent of the Charity Commissioners, who refused their consent. The land had been bough for a synagogue and upon trust for the members of the synagogue as a quasi-corporate entity and part of the money for it had been raised at a time when the synagogue was not a mixed charity.
o The purchaser sued for specific performance on the footing that the trusts were not charitable or that the land was exempt from the jurisdiction of the Charity Commissioners by virtue of the Charitable Trusts Act 1853.
• Held
o The trust was charitable even though it was for the benefit of the members of the synagogue from time to time; as some money had been subscribed for the purchase of the land at a time when the trust was not a mixed charity the jurisdiction of the Charity Commissioners was not excluded and accordingly the contract of sale could not be enforced.
**Re Recher’s Trusts [1972] Ch 526
• Concerns the beneficiary principle, and unincorporated associations.
• Facts
o The testator’s Will gave some of the residual estate to ‘the London and Provincial Anti-Vivisection Society’. But this had wound up and amalgamated in the National Anti-Vivisection Society. Neither were charities. She died some years later.
• Held
o Brightman J held that the gifts had failed. They could not be construed as one to the new National Society, only the previous one. If it had still existed, it would have been a gift to the members beneficially, subject to their association contract. Yet because it had ended, there was no outright gift to the members. He asked whether the gift would have been valid if the unincorporated association had indeed existed at all at the time. The rules of the associations did not purport to create any trusts.
Brightman J held that the assets of the society were owned by the members in accordance with the rules. ‘there is no private trust or trust for charitable purposes or other trust to hinder the process.
**Re Lipinski’s Will Trusts [1976] Ch 235
- See above –
- A case of a gift to an unincorporated association. There, the testator bequeathed his residuary estate to trustees in trust as to one-half for the Hull Judeans (Maccabi). At first sight, this would appear to be a gift to an unincorporated association to be applied for its (non-charitable) purposes.
- However, the gifts to unincorporated associations are normally upheld as gifts to the members rather than invalidated as purpose trusts.
*Re Grant’s Will Trusts [1980] 1 WLR 360
• Concerns the policy of the beneficiary principle and unincorporated associations.
• Facts
o A bequest was given ‘to the Labour Party Property Committee for the benefit of the Chertsey Headquarters…’ Its rules which bound the members, could be altered by a non-member: the National Executive Committee of the Labour Party. This meant that unlike a normal association, the members could not unanimously agree to waive the rule and divide the property between themselves.
• Held
o Vinelott J held that the estate was to be kept intact as endowment capital on trust for the Labour Party’s purposes, and therefore was void for infringing the beneficiary principle and the rule against inalienability. Referring to Re Denley’s he continued:
♣ ‘that case…falls altogether outside the categories of gifts to unincorporated association and purpose trusts.’
(c) Transfer subject to a mandate
** Conservative and Unionist Central Office v Burrell [1982] 1 WLR 522
Note, however, that an agency cannot be created on death and thus this approach cannot be applied to a testamentary gift made to a non-charitable association.
• Summary – Association; political central office; whether unincorporated association.
• Facts
o The Central Office of the Conservative Party was assessed to corporation tax on its income for five years, on the ground that it was an unincorporated association and so within Income and Corporation Taxes Act 1970.
• Held
o Dismissing the Crown’s appeal, that the Central Office was not an unincorporated association, since there was no mutual understanding among all members of the party, no mutual rights and obligations, and no rules governing control.
For a summary of these approaches, see:
*Re Horley Town FC [2006] EWHC 2386
• Summary
o Trusts of land; gifts; unincorporated associations; land gifted as permanent ground for football club.
• Facts
o The claimant trustees T sought the directions of the court concerning the basis on which they held the assets vested in them as trustees of Horley Town Football Club. The club was an unincorporated association.
o In 1948 the president of the club had settle land on trust to secure a permanent ground for the club. Notwithstanding the use of the word ‘permanent’, the trust deed defined a perpetuity period. The deed was supplemental to a conveyance of land to the original trustees on trust for sale with power to postpone the sale. Until about 1990 the members of the club comprised a clearly defined narrow class under the club rules. Then the membership was extended to include temporary and associate members. The land was sold and the proceeds used by the trustees to acquire another site and construct a club house and ancillary facilities.
o Questions arose as to the validity of the underlying trust and, on the assumption that the trust was valid.
• Held
o 1. The deed should be construed as a gift to the club members for the time being. Construed in that way perpetuity was not a problem because the gift to the members was not contingent
o 2. The beneficial interest was in the current full members, and not the temporary or associate members and was held on bare trust for them.
Notes
B. Dissolution of Unincorporated Associations
• An unincorporated association is not a legal person, and with the exception of trade unions, cannot be the owner of property or the subject of legal rights and duties.
• Charitable purposes: assets of unincorporated associations may be held upon charitable trusts (for example, a society for the relief of the poor). A charitable trust is valid even though it is a purpose trust; the usual rules of certainty of objects do not apply; it may continue forever; and it enjoys a number of tax privileges.
• Non-charitable purposes: Generally speaking, trusts for the promotion of non-charitable purposes are void. Hence, gifts to non-charitable unincorporated associations will fail if construed as purpose trusts. But such a result may be avoided if it is possible to regard the gift as in favour of the members, such adoption may be adopted even when the donor has expressly stated that his gift is for particular non-charitable purposes.
- The problem of terminating unincorporated associations
When an association is wound up, how is the property which is held connected to its purposes to be distributed: among the existing members, to identified persons only according to the association’s constitution, or to the Crown?
- The different methods of distribution
(A) Bona vacantia
*Re West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund
Trusts [1971] Ch 1
• Concerns the policy of the beneficiary principle and unincorporated associations.
• Facts
o A fund was set up to pay allowances to widows and dependents of deceased members of the West Sussex Constabulary. The members resolved to wind up the fund, and money was left over. Money had come from (1) the members themselves (2) from raffles, sweepstakes (3) collecting boxes (4) donations and legacies.
• Held
o Goff J held that all money was bona vacantia, except for the donations and legacies which were a resulting trust. He rejected that the members could claim a share of the property on the basis that the contract gave them any such right.
o Regarding the different sources he said (1) because the members’ contract governed their contributions and gave them no claim to any residue, it was bona vacantia, (2) the raffles and sweepstakes contract also gave the participants no right to the leftovers, and this that money was also now bona vacantia (3) collection box money was also bona vacantia because those people paid money out and out, with no intention for it to be returned in the event of a fund’s dissolution. But (4) those who left donations or legacies could be regarded as having intended money should be retained only so long as the fund operated. So anything left over would be resulting trust.
o The distribution of property between the members was only possible where the group existed for the benefit of the members.
Hanchett-Stamford v Attorney General [2008] EWHC 330
• Concerns the destination of property that is held by unincorporated associations when they wind up. The High Court applied the view that money is held according to the terms of the association contract while the association exists, and when the association ends any surplus funds go to the member of the association.
• Facts
o The Performing and Captive Animals Defence League was founded as an unincorporated association in 1914, with the purpose of banning animals performing. It was decided the league had no charitable status in 1949, because it was meant to change the law.
o Mr and Mrs Hanchett joined as life members in the mid 1960s, he died in 2006 and she was the sole surviving member of the society. She decided to wind up and give the money to an active animal charity, seeking a declaration that the work and objects of the league were charitable under the Charities Act 2006 and appointed herself and her solicitor as trustees of the fund, or just take the money herself.
• Held
o Lewison J held the society was not charitable. However, he held that on her husband’s death the league ceased to exist, the rules ceased to bind her, and she was absolutely entitled to the assets as the sole surviving member. He held there was no need, in fact to invoke a new form of co-ownership. The donor transfers property to the members beneficially, but the property is received by the members as group property, as an accretion to an association’s funds. This means its use is to be governed by contract. That removes the risk that members decide to sever their share.
(B) Resulting trust for contributors
Re Printers and Transferrers Amalgamated Trades Protection Society [1989] 2 Ch. 184
• Summary –
o Trade Union, dissolution, unexpected funds, resulting trust.
• Facts
o A society was registered under the Trade Union Acts to raise funds by means of weekly contributions to defend and support its members in obtaining and maintaining reasonable remuneration for their labour. There were two classes of members –and each class contributed different amounts. No provision was made by the rules for the distribution of the funds of the society on a dissolution.
o When dissolution arose, the question was how should the sums be distributed.
• Held
o The court distinguished Cunnack v Edwards, on the point that there was a resulting trust in favour of those who had subscribed to the fund, and that the money was now divisible amongst the existing members at the time of the dissolution, in proportion to the amount contributed by each member to the funds of the society irrespective of fines, or payments made to members in accordance with the rules.
Re Hobourn Aero Components Ltd’s Air Raid Distress Fund [1946] Ch. 86
• Facts
o During the war from 1940-44 collections were made weekly from the employees of a company operating three munition factories, at first informally, and later by agreed deduction from their weekly wages, toward a war emergency fund. The moneys were for some time entirely expended on comforts or money payments for servicemen abroad or on leave etc.
o After Sep 1940, it was decided to use the collected funds also to relieve cases of employees who had suffered damage and distress from air raids. Claims were only entertained from persons who had contributed to the fund, but no means test was imposed on any applicant. The fund having been closed, a summons was taken out for the determination of the question whether the surplus moneys were subject to a valid charitable trust –
• Held
o 1. That all the objects of the fund were charitable, but
o 2. There was no general purpose shown, as the beneficiaries did not constitute a section of the community, but only a fluctuating body of private individuals, whose relationship to the company which employed them was purely personal. The contributors were therefore entitled to a return of a due proportion of their contributions, but must bring into hotchpot any moneys or value they had already received.
