Unincorporated association problem

I am stuck on a problem which involves a large donation to an unincorporated association.

John dies and leaves in his will £2million to a UA on the proviso that the money is used for cultivating flowers and for building a statue. A month after this donation the purpose for which the donation is made remains unfulfilled and the members of the society decide that they should wind up the association and distribute the money equally.

I have to advise on how this money will be held by the UA and how it is to be distributed upon the winding up.

If the contractual method were to be used then I can see how the money will be held by the UI. And as a result money would be distributed in accordance with the rules of the society which members are bound by. However the money was left ''on the proviso'' that the purpose was fullfilled and so looking to the intention of the donor can I assume that the court would not use this interpretation?

Alternatively then the problem is that if it is held on trust (under Denley) surely it will fail for perpetuity?

So would I say that the trust is void? The trust reverts to John or that the contractual approach will be taken and as a result the money can be divided by Society?

Any help or discussion would be appreciated.

Reply 1

jacketpotato

I think you are basically right, but you might slightly be overcomplicating it.

If the money is held according to contract under the rules of the society, then the rules of the society will govern. The "proviso" would in effect be merely a statement of intent without being legally enforceable.

If its a trust, it looks like a private purpose trust which is void so the money would be held for John's estate under a resulting trust.

You could possibly save this as a trust under Re Denley. In Re Denley it was decided that the trust was not a private purpose trust at all, instead it was a trust for the members of the society. Again, the proviso would drop out and become unenforceable.

Reply 2

jc453

Thanks for your reply, I think I am overcomplicating it a lot and getting very confused.

I'm torn between these 2 methods mainly because of the perpetuity part in the scenario - I'm trying to use Denley to show that members of the UA are beneficiary's, thus circumventing the beneficiary principle. However the problem still remains of perpetuity because although the statue can be built, the cultivation of the flowers appears to go on forever. However could I use S3 Perpetuities and accumulation act this would use the ''wait and see'' principle which then when the UA is wound up will be shown not to have vested at too remote a time? I'm hoping this will make the trust valid. I could then go on to see how the property will be divided which seems fairly straightforward.

Secondly I could use the contractual method which is a gift outright as you have said which will not be void in perpetuity. The problem I have with this is that the intention of the donor was clearly to fulfill the purposes.

I am unsure whether I can use the P&A act in this way for an UA... everything I read seems to fit in with the circumstances I am given which is leading me to read the same sections of each textbook over and over whilst making no progress haha.

Reply 3

jacketpotato

It is important to carefully distinguish between Re Denley trusts on the one hand and true private purpose trusts on the other. Under a trusts law analysis there are two ways to look at this. One is a trust in favour of the UA which was made for the purpose of flowers/statute (Re Denley). The more traditional interpretation would be to see it as a trust for the upkeep of flowers/statutes which was made to benefit the UA.

The order matters. You cannot have a trust which has a private purpose as its object. What you can have is a trust in favour of individuals which has an underlying purpose. For example, I could declare a trust in favour of my nephew. I declare this trust because I want to pay for his university education. In reality, this is just a trust in favour of my nephew: once the money is paid it becomes his and he can use it however he likes. The bit about education is merely a statement of intent and is not binding.

This is what happens in a Re Denley-type trust. Re Denley trusts are not purpose trusts. They are simply trusts in favour of a specified group of individuals. Don't be fooled by use of the word "purpose" here: this isn't a purpose trust, it is simply the reason why the settlor created the trust and that is not binding. It is the same as the trust in favour of my nephew. The trustees - i.e. the committee members which control the bank account - may use the money in favour of the members of the UA and do not have to use it on flowers or statutes. The "purpose" is not relevant and it is not enforceable, a better word might be "motivation": once the trust is constituted the settlor's "motivation" is not relevant.

Purpose trusts are something quite different. If you see the "flowers/statutes" bit as being the most important, then the flowers/statutes are what was intended and the fact that it was intended to benefit the members of the UA is secondary. This kind of purpose trust would fail for lack of certainty of objects.

I think you should analyse all the different possibilities and explain what the consequences are. Then think about which possibility is more likely: is this a purpose trust intended to benefit the members of the UA, or a trust in favour of the members of the UA intended to be used for a particular purpose? In each case, only the underlined bit is important the second bit is secondary and effectively drops out.

Reply 4

mja

Original post by jacketpotato

This is what happens in a Re Denley-type trust. Re Denley trusts are not purpose trusts. They are simply trusts in favour of a specified group of individuals. Don't be fooled by use of the word "purpose" here: this isn't a purpose trust, it is simply the reason why the settlor created the trust and that is not binding. It is the same as the trust in favour of my nephew. The trustees - i.e. the committee members which control the bank account - may use the money in favour of the members of the UA and do not have to use it on flowers or statutes. The "purpose" is not relevant and it is not enforceable, a better word might be "motivation": once the trust is constituted the settlor's "motivation" is not relevant.

This is an interesting analysis of Re Denley. Clearly it could work like Re Bowes or Re Osoba, as a trust for individuals with a superadded and non-binding direction as to the donor's intent.

But I'm not at all clear from what Goff J actually says in Re Denley that that is what he meant at all. An alternative reading of Re Denley, arguably more in accordance with the judgment given, although fitting less well with the orthodox proprietary account of the trust, is that private purpose trusts for the benefit of individuals who have standing to enforce them are valid.

Reply 5

jacketpotato

I do agree that Re Denley is a problematic case and what I said is probably simplifying it. It isn't a straightforward judgment.

I think the problem with your analysis is that Goff J applied the test for certainty of objects set out in IRC v Broadway Cottages (now overruled by McPhail v Doulton). If Goff J was really recognising private purpose, then there would be no need to apply a certainty of objects test since the trust would have no objects. The other problem is that Re Denley is a High Court case. It couldn't overrule House of Lords case law on certainty of objects and would have been overruled again by the HoL in McPhail v Doulton.

I would also question how a private purpose trust in favour of individuals would work. What would happen if the beneficiaries wanted to use the trust money for the different purpose - presumably this would be a breach of trust by the trustees but the purpose would be unenforceable as it would be ratified? What would happen if the beneficiaries exercised their rights under Saunders v Vautier? I think it would only really work if you have a Quistclose trust situation.

By the way, Alasdair Hudson has some excellent short podcasts on certainty of objects and UAs on his website. Definitely worth googling for them.

Reply 6

Forum User

Original post by jacketpotato

I do agree that Re Denley is a problematic case and what I said is probably simplifying it. It isn't a straightforward judgment.

Vinelott J in re Grant's Will Trusts clearly saw re Denley as an ordinary trust situation than some new class of trust, and so if all the beneficiaries acted together they could defeat the settlor's intent using the rule in Saunders v Vautier.

There are some textbooks and the odd journal article that suggest re Denley is a 'special kind' of trust to which the rule in Saunders v Vautier doesn't apply. For example Moffat (first book I had to hand) says "In re Denley in our view there was no question of the employers having any right to call for the trust property, even if they all agreed on this". That seems to me like the most natural reading of what Goff J wrote in his judgment, of course that doesn't mean it will be followed.

On the facts of re Denley now it might simply be decided as a valid charitable trust? There was a proviso that non-employees could also use the sports-ground so it would pass the public benefit test.

Reply 7

ao24

So I'm actually answering a question that is similar and I must say I find it rather tricky. In my answer plan I stated that Cross J in Neville Estates identified a number ways of holding money:

1. Gifts to present members as joint tenants or tenants in common
2.Gifts to existing members subject to their contractual abilites
3.held upon trust for or applied for the purposes of the association as a quasi-corporate entity

Is there any other method missing?

Is the gift going to be valid on the contractual basis or trust basis seeing that the contractual basis seems to be the preferred case?

In addition, what cases did you use to distinguish your facts and why? I always have problems with answering problem questions.

Reply 8

jc453

I cannot use a trust analysis as it fails for perpetuity. I also decided against using a joint tennants/ tennants in common because that would frustrate the purpose immediately upon the transfer of the property (because each member could immediately sever his share).

My conclusion was to see the transfer as an accretion to the funds held in relation of the clubs constitution. As a result the society is well within its rights to share the capital amongst themselves. I forgot to mention that John is a former president of the society and have tried to argue that as a result he has the general purposes of the society as his intention for the donation. This appears to be the only way to prevent the transfer being void as an abstract purpose trust.

Thanks to everyone who commented on this post, it's much appreciated.

Reply 9

akafudge

Hello JC, I was wondering how you finally concluded this and what was the 'correct' interpretation of the facts. I am asking as I am doing an assignment, with similar circumstances, and i am getting very confused as to which way I should go.

Cheers

Reply 10

earlgrey77

just to add on 2 cases : re racher and re horley town fc :smile:

Reply 11

al5636

please if anyone could explain to me a little, i cant get my head around this.
any comments, much appreciated.

gifts to unincorporated associations, eg a sportsclub can be construed in 4 diff ways right.
1. as a ReDenley trusts assuming ascertainable individuals can derive a tangible benefit.

2. the 3 possibilities under Neville Estates v Madden
a) gift to members
b) gift for purposes , but fails if its not a charity orn no individual beneficiaries
c) contract holding.

are these the only 4 possibilities where funds and property ( say £100000 build a new club, £2000 in account from subscriptions, £ 5000 money raised for a new pitch) can be held by Unincorporated associations. if yes then i there still a problem with the rules against perpetuity.
is it right to say that Re Denley could apply but it can still fail under perpetuity rules, and on dissolution what happens to money paid in subscriptions and money generally spent by visitors/ non members collected in bank accounts.

(edited 10 years ago)

Reply 12

akafudge

The important aspect here is not to confuse Denley as a 4th limb in Neville Estates.

Neville Estates [1962] is authority in respect of how gifts are made to unincorporated associations.

Denley [1969] was a case that saved a trust from failure by 'reinterpreting' the trust as a trust for the benefit of individuals.

Therefore, the first thing to do in any question regarding dissolution of unincorporated non-charitable associations where there is a trust involved is to decide if the trust is valid. If so, you can go on to discuss how the property is held using Neville Estates and others as a means to conclude an argument.

Don't forget that a Denley style trust must not offend the beneficiary principle or perpetuity rules specifically, inalienability of capital etc.

I hope I have that right :-)

(edited 10 years ago)

Reply 13

oma_ben

this is brilliant.
please consider a scenario where no purpose was stated for the use of the money awarded in a will and is just an outright gift to an unincorporated association. Do you follow the Re Denley principle only or do you attempt to validate the gift with the contract holding theory, gift on trust for members and or a gift to members as joint tenants.

Reply 14

oma_ben

Original post by jacketpotato

please consider a scenario where no purpose was stated for the use of the money awarded in a will and is just an outright gift to an unincorporated association. Do you follow the Re Denley principle only or do you attempt to validate the gift with the contract holding theory, gift on trust for members and or a gift to members as joint tenants.

Reply 15

Allcry

The money in a charity is always designated for charitable purposes. And is not for the benefit of the trustees. If you wind up the money must be forwarded on to other charities.Another problem was that the money was not a general gift. And would certainly not be used for any purpose it was designated for.Charities run into problems of cash flow when people designate funds for a charitable effort.However they will be liable to anyone.