Professor Peter Luxton in his paper 1 considered the judgement of Re Horley Town Football Club, in context of the changes in membership rules and the effect such changes had on the entitlement of members to beneficial interests. The case is an example of the contract-holding theory, which applies to allow dispositions to unincorporated associations on the principle that such dispositions are for the present members of the association subject to any contractual rights and duties that they have inter se. Professor Luxton considered that the contract-holding theory trumps even in the face of changed rules of membership (in Re Horley) and generally trumps in such and similar dispositions.
This essay analyses whether this viewpoint is correct at present time and that whether it is true that contract-holding trumps other methods by which dispositions can be allowed to unincorporated associations. Examples can be seen in purpose trusts.
The essay argues that it is correct to say that the contract-holding theory has the greatest acceptance as is evident from recent caselaw as well as commentary.
Gifts to unincorporated associations, the property and assets of unincorporated associations pose difficult problems because an unincorporated association is not a legal person in itself. The difficulties that are involved in such cases was also expressed by Viscount Simonds in Leahy v Attorney General for New South Wales, 2 where he asked the question as to what it meant when it is said that the gift is made to the individuals comprising the community and the words are added ‘it is given to them for the benefit of the community’? 3 This is indicative of the problems that are posed in trust and equity in case of dispositions made to an unincorporated association. These problems magnify when the association is a non-charitable one. The basic problem comes from the fact that not being a legal entity in itself, the association cannot be said to hold the property in its own name and for the purposes of such association.
In Neville Estates Ltd v Madden, 4 Cross J had held that a gift to an unincorporated association has or can have three effects. First, the gift can be seen as a gift to all members of the association so that they hold it as joint tenants and can ask for the severance of the share at any time irrespective of continuance of membership. Second, there may be contractual rights and liabilities as between all the members so that the gift is seen as subject to these contracts. In such a case, the members will not hold the gift as joint tenants and can never ask for the severance of the same. In such a situation, the assets will devolve upon the remaining members on the death or resignation of a member. Third, in cases where the association is a charitable association, the gift may be held in trust for such an association and will not be at the disposal of the members at all. The second, that is the contract-holding theory application is generally seen to be the most appropriate for the purpose of continuity of an association. These are then the most relevant processes by which gifts to unincorporated associations can take effect. However, as Professor Luxton says, contract- holding theory trumps all.
In Eastbourne Town Radio Cars Association v Customs and Excise Commissioners, 5 it was observed that an unincorporated association is not a legal entity. Rather it is a number of legal persons having mutual rights and duties in accordance with the rules which constitute the contract as per which they have agreed to be associated. Accordingly the property of the association is held on trust for the individual members. He added that if the purport of the gift is the creation of the trust, and if the present beneficiaries are the beneficiaries of the trust then the words are meaningless. Moreover, if the gift is made for some other persons or purpose then the gift would become void under the rule of perpetuity. Ultimately then the gift can only be for the benefit of the present beneficiaries and only in that form can the gift be a valid one.
It is important to note that for an association to be considered as an unincorporated association, it is necessary that the members of the association be subject to mutually enforceable obligations. 6 Thus the contract-holding theory can only be applied where there is an identifiable membership, and the members are capable of being beneficial owners subject to the rules of membership. 7 It cannot be applied in any other situation.
The basing of the validity of the dispositions to an unincorporated association in contractual principles goes to resolving much of the problems associated with such dispositions, in particular, the rule of perpetuity. In that context, the contract-holding becomes a sound mechanism for construing the existing members’ entitlements as flowing from their contractual rights and subject to their contractual duties. Thus, members will be typically prevented from severing their shares, which will ultimately devolve upon the last surviving member, unless the members decide to wind up the association before that time. This is important because this allows the continuity of the association to the last surviving member. at which time, the entire property devolves on the surviving member.
Joan Warburton argues that a trust for the members for the time being is acceptable from the conveyancing point of view and also from the members’ point of view. She says this satisfies the principle of certainty of beneficiaries as the beneficiaries can be ascertained at any time. Moreover, this satisfies the rule against perpetuity as the members are free to dispose off the property. 8 Thus, from this point of view there are decided advantages of applying this theory and this is the reason for the greater acceptance of the theory in case law as well.
Perhaps that is the reason why James Brown says that the contract-holding theory has become the preferred and most convenient way, in which to construe the holding of assets by unincorporated associations generally, as opposed to other approaches in the last 40 or so years. 9 The fact that contract-holding theory has come to occupy a primary place in dispositions of property to unincorporated associations, is the reason why Professor Luxton says that the theory is trumps.
The application of the contract-holding theory stems from the concept of inter se contracts as between the members of the unincorporated association. This is the reason why this theory is applied to only consider the interest of the present members to the extent that such interest is subject to the contract. As soon as the member dies or resigns from his membership, the contractual rights and liabilities of membership come to an end and the interest of the member ceases to exist in the assets or property of the association. Therefore, the interest, as long as the contract is effective, that is till the time the member does not die or resign, cannot be severed. The individual member cannot demand such a severance. On death or resignation, the interest devolves on the remaining members. Ultimately, the interest devolves on the last surviving member absolutely. This is unless the members decide to wind up the association, in which case, the interest will be distributed equally amongst all present members. These are the norms or jurisprudence that has been developed by the courts over a period of time. The courts have had regard to difficulties that are posed by dispositions to unincorporated associations. The courts have had regard to the rule of Bona Vocantia and have decided time and again that the property of the unincorporated association does not devolve upon the Crown when only one member of the association remains (thus bringing the association to an end). The courts have had regard to other methods of disposition, for instance, purpose trusts
and found these methods as wanting in cases of unincorporated associations. 10 Ultimately, the doctrine of contract-holding has been found to be the most appropriate in dealing with dispositions to unincorporated associations.
It is important to remember that the contract-holding theory provides that any assets that an unincorporated association may have, for instance money in bank accounts are held nominally by the club’s officers on trust for the club membership along with the club in a form of joint tenancy. 11 In other words, the chairman or the treasurer of the association will hold the assets nominally. Not only that, the membership terms of the association, which may be contained in the Constitution of the association or any other rules, serve as contracts between members inter se. These contracts contain two important conditions. First, an individual member undertakes not to claim his individual equitable share to the assets of the association. Secondly, the member undertakes that upon his death or resignation, the club’s assets will remain with the club and the interest of the individual member who has left will now devolve upon the remaining members. 12 The purpose behind the application of this doctrine is to allow the continuity of the association till such time as the members decide to wind it up. There is of course the possibility of a situation in which only one member may be left in the club, which will raise questions about the interest in the club assets.
In Re Bucks Constabulary Widows and Orphans Fund Friendly Society (No 2), 13 the Court held that the members of unincorporated associations had contractual rights rather than equitable rights. When a member died or resigned from the association, he ceased to have any interest in the assets of the unincorporated association because the contract came to an end. Hence, as there were no equitable ownership rights in the assets of the association, the interest ceased at the point of end of membership. Moreover, it was held that when only one member remained in the association, it would end because as the rights were founded on contract, there would be no contract or rights as there was no other party left to enforce it. At such time, instead of the assets or property going to the Crown by way of Bona Vocantia, the property would devolve on the remaining member.
The problem of surplus assets could not be resolved by the Court of Appeal in Cunnack v Edwards, 14 relating to the surplus assets of the trust that remained after the members and the annuitants had died, in which the court held that the surplus had become bona vocantia. The reason being that the contributing members had not made contributions as trust but rather had contracted with the society for providing for their widows in case of the contributor’s death. To the extent of the contract, the interest was devolved upon the members.
In Re Buck’s Constabulary Widows’ and Orphans’ Fund Friendly Society, 15 it was held that the surplus was neither a resulting trust nor a bona vocantia. The general viewpoint is that the contributions and assets are held in trust for the benefit of the members subject to any contract between them, which may be in the Constitution or rules. Therefore, the surplus assets are to be decided as between the remaining members on the date of dissolution.
In Abbatt v Treasury Solicitor, 17 the court observed:
It is an implied term of the contract of membership of a members’ club that an individual member is precluded from obtaining the realisation and distribution of the club property so long as the club functions. But once the club ceases to function the reason for this disappears and the right of the existing members must I think crystallise once and for all.
In recent times, the judgement of Hanchett-Stamford v HM Attorney General and Dr William Johnston Jordan, 18 has answered some important questions related to property holding in unincorporated associations. The solution given in the case further cements the perception that the contract-holding theory is predominant solution in unincorporated associations.
The Hanchett-Stamford case involved an unincorporated association that had been established for the purpose of changing the law for preventing cruelty against animals. By 2006, only two members of the association had survived and in 2006 after Mr Hanchett- Stamford’s death only one member remained, his wife Mrs Hanchett-Stamford. The association had considerable assets at this time. The question was whether the association was a charity or not. It was decided that it was not a charity but an unincorporated association, therefore all its assets devolved on the last surviving member of the association. 19 Interestingly, the judgment also justifies itself on the basis of the First Protocol of the European Convention of Human Rights, Article 1, which provides that no person is to be deprived of his possessions except in the public interest and subject to the conditions provided for by law. In this context, Mr Justice Lewison has observed that it is difficult to see what public interest is served by the appropriation by the state of the surviving member’s share in the association’s assets.
In Re Recher’s Will’s Trusts 20 the testatrix left some of her residuary estate to an unincorporated association, which at the time had ceased to exist by itself and had amalgamated with another association. The court held that as the association had ceased to exist at that date and no mutual contractual obligations remained between any members, the gift could not be construed in favour of the dissolved association and nor could it be said to be a gift to the new amalgamated association. 21 Again, contractual basis of members’ interest in the property of the unincorporated associate is seen in the case.
An important case in recent times is In Re Horley Town Football Club; Hunt v McLaren, 22 in which the President of the Horley Town Football Club, settled some land by deed on trust ‘to secure a permanent sports ground for the Club’ in 1946. The High Court held that the deed should be construed as a gift to the Club, as a ‘contract-holding gift to the Club and its members for the time being’. Further, it was held that a gift to or in trust for an unincorporated association might take effect as a gift to the existing members, not as joint tenants but subject to their respective contractual rights and liabilities towards each other as members of the association. In this event, it then held that each member could not sever his share and it would accrue to the other members on his death or resignation. 23 In this case, Collins J considered that even the fact that the rules changed in 2000 and allowed associate membership to independently constituted clubs, to the point of giving them voting rights, was not enough to defeat the contract-holding theory. 24 This case as mentioned earlier became the subject matter of the paper written by Professor Luxton in which he said that the contract- holding theory trumps. As is clear in this case, even the changed rules in Club membership were not allowed to beat the operation of contract-holding theory.
In Re Lipinski’s Will Trusts 25 Oliver J held that a gift made by the donor in memory of his late wife for the purpose of ‘constructing the new buildings for the association and/or improvements to the said buildings’ was given absolutely to the association, the members of which were only subject to the inter se contracts and thus they could use it for any purpose and need not use it for the purpose mentioned in the deed.
Davies et al contend that the emphasis on the contract holding theory has has a beneficial impact on the explanation of how property can be held for the benefit of an unincorporated association whilst giving effect to the donor’s intentions. Again, as Davies et al point out the contract-holding theory is useful in circumventing the problems associated with disposition to non-charitable unincorporated associations.
In Re Bucks Constabulary Widows’ and Orphans’ Funds Friendly Society (No 2), 27 Walton J had observed that he found it pertinent that all unincorporated associations were founded in contract. More importantly, the members were in implied contractual obligations that were inter se governed by the rules of the society. Where there was no rule to the contrary, the member would cease to have any interest in the property of the association when he ceased to be a member of the association.
The application of the contract-holding cases in recent case law and the judicial attitude in giving predominance to the doctrine in cases of unincorporated associations gives support to Professor Luxton’s argument that contract-holding theory trumps other methods of disposition of association’s property. There are decided advantages in the application of this doctrine. First, it allows unincorporated associations to continue in existence even after some members may die or choose to leave it. Second, it makes it possible to gift property to the members of the association for their use and the fact that the beneficiaries are clearly ascertainable helps. Thirdly, by making the disposition bound in inter se contracts, the rights and liabilities of the members are restricted to contract. This also means that they cannot demand the severance of their interest in the property. At the same time because the members are allowed to wind up the association, and divide the property equally as between themselves (or as the contract may allow), the rule against perpetuity is not violated. Moreover, the members are the present members therefore the rule against perpetuity is enforced.
Considering these points in favour of the contract-holding theory, it is no surprise that courts have had recourse to this approach for the purpose of giving effect to the intention of testators and donors. By applying this approach, courts have been able to give effect to such intentions in case of unincorporated associations which pose different problems as is evident from the Leahy case.
In conclusion, it can be said that the contract-holding theory is now considered to be the most dominant approach in the context of dispositions to unincorporated associations. In this, Professor Luxton’s paper is still relevant in 2016.
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