Unincorporated Associations – Liability of Members, Officers and Trustees
An unincorporated members’ club cannot sue nor be sued, or hold property in its own name. Accordingly, when an outsider is trying to sue an unincorporated association an important question is, who is actually liable? It must be pointed out that instances of members and officers becoming liable for debts incurred by an unincorporated club are rare, this being due either to the fact that third parties are reluctant to sue individual members and officers, or are unsure of the legal outcome of their actions. Where action is brought it is usually against the chairman and secretary in the first instance, the action can be extremely distressing for the club officers involved.
This is a confusing area of the law and because of the lack of case law it is difficult to be definitive on the outcome of any action brought. The distress felt by members and officers is often compounded by this uncertainty and attempts to determine what their actual liability is. Club members tend to have two conflicting views of the position, either they believe they are not liable for any debt, or that they have unlimited liability. As a general rule a member’s liability is limited to the amount of the subscription because when he joins a club he does not intend to incur any liability beyond his subscriptions payable under the rules. However, if a member or officer is found liable for a debt his liability is usually unlimited.
Value Added Tax – Anything required to be done for VAT purposes is the joint and several liability of first, every member holding office as president, chairman, treasurer, secretary or any similar officer or in default, secondly, every member holding office as a member of a committee, and in default, thirdly, every member – VAT (General Regulations 1985, no 886, reg 10).
PAYE and National Insurance – The employer will be liable for payment of national insurance contributions and, if he pays the wages or salary, for income tax under PAYE. The employer will often be the persons who actually engage the employee, for example, the committee, or an officer responsible for employees although the employer may be all the members. PAYE should be operated on all wages paid to staff and officers including cash payment to players for playing and winning a game.
Corporation Tax – The treasurer of an association is responsible for doing all the acts which are necessary in relation to the corporation tax liability of an association. If an association does not pay their tax, H M Revenue & Customs can recover the outstanding sum from the treasurer but he is entitled to retain association funds in his hands to satisfy the tax and to be indemnified by the association.
Employment of Staff
A club should determine which of the members is the actual employer because considerable duties and liabilities attach to that position. Any member who is about to become involved in the employment of staff should make sure he has the right of indemnity from other members and the assets of the club. In view of the potential liabilities which can arise, corporate status should be considered before significant numbers of staff are taken on.
In addition to the provisions of employment law, PAYE and National Insurance the employer has other duties in relation to the health, safety and welfare of the employees. Failure to make provision for an employee’s safety will not only result in a potential action for damages by the employee but it is also a criminal offence.
Where it is sought to sue a club in contract, the action must be brought against the individuals who entered into or authorised the contract. Any officer or member of committee may be sued who gave or authorised an order for goods or services, because although he acted as agent for the club, the club is not a legal entity and is unable to act as a principal or contracting party.
A member’s liability is usually limited to the amount of his subscription, unless it can be shown that the members authorised or ratified the contract, for example, the rules of the club may specifically provide that goods are to be ordered on credit in which case each member may be personally liable. Members will also be liable if they subsequently ratify transactions which have been entered into on their behalf without authority.
Contracts, undertakings, leases and agreements containing such words as ‘joint and several’ should not be signed. Such words would make each person accepting the obligation personally liable for the payment and performance of the contract during its whole period. In the event of the failure of the club the liability would fall on each individual accepting the obligation putting his personal assets at risk.
Property – Trustees are normally the proper defendant in relation to the clubs’ premises. Trustees of an unincorporated club do not have the same powers, duties or obligations as the trustee of a charity. Trustees of an unincorporated club are usually empowered to invest the clubs’ funds and in them is also vested the property and assets of the club in trust for the members. For any liability incurred in the course of their duties the trustees have a lien on the property but unless the rules provide they are not entitled to an indemnity from the club’s members. An individual member is not under any legal or equitable obligation to indemnify the trustees.
Individual members or a group of members may become liable for the loss arising from the state of the club’s premises if the court finds they were under a separate duty of care to outsiders. For example it was held that the committee of a football club were held personally liable when a stand collapsed and injured a spectator. An individual member with specific responsibilities may also be held liable to an outsider if he was negligent in the performance of his duties.
Libel and Slander – An unincorporated members’ club cannot be sued, and redress has to be sought individually and personally against the officer, member or employee concerned. The members will only be liable for a defamatory statement if they have expressly or implicitly authorised its publication.
Expulsion of Members – A common area of conflict for members’ clubs concerns the wrongful termination of membership or expulsion of a member. An injunction for reinstatement and action for damages or defamation will usually be made against the committee. In rare cases individual members have become liable through a class or representative action.
On Winding Up
Surplus Assets – Where after paying all debts there are surplus assets the rules of the club usually direct that the surplus is paid equally to members.
Deficits – No statutory liquidation procedures exist and an unincorporated club cannot be voluntarily wound up under the Insolvency Act. As the club is not a separate legal entity it cannot become insolvent and as the person liable for debts incurred varies according to the action brought, it is difficult to come to an organised voluntary arrangement with creditors. It appears that the best scenario is that the club’s assets are used to pay debts as far as possible and the club is allowed to quietly fade out of existence with the outstanding creditors not bringing legal action against officers and members. Brewers and other trade suppliers normally accept the business risk of dealing with members clubs and do not take action against individuals. Where creditors do pursue it becomes a free for all. Those who pressure the most receive some payment and in practice the normal rules of preference are ignored. If a club is solvent but foresees problems in the future it is advisable to incorporate now. When and if problems do arise the incorporated club can then take advantage of the voluntary and compulsory Insolvency Act provisions for liquidating a company.
Two related themes recur when the liability of members, officers and trustees are considered, firstly the constitution of the club and secondly insurance. The standard of drafting of rules for unincorporated clubs is variable and frequently poor. To save legal fees rules are often cobbled together by members without full knowledge of all the legal ramifications, occasionally a club will have no written rules. In consideration of the law in relation to third part liability a club should ensure it has rules to cover such issues as indemnity, powers of the committee as employer, rules on the expulsion and termination of membership. It should not have a clause accepting liability for the members for goods ordered on credit. The rules of a club is a contract between the members, if there is not a clause on how the rules may be changed a new constitution or rulebook may be unenforceable against members who voted against it.
Where possible a club should insure against the risks faced by officers, members and trustees. Third party and employers’ liability insurance may be compulsory, but as the insurance policy will be issued to the committee or individual officers it is important to ensure that any member incurring liability to an outsider can claim on the policy, it should contain a member to member indemnity. It is also necessary to ensure that the policy contains a special provision that all members of the public, unfortunately many policies do not have such a clause and claims made by a member against other members of the club are excluded.
In the long term the most effective and cheapest form of additional insurance may be the incorporation of the club as a company limited by guarantee or as an industrial and provident society. The club would then become a body corporate with the ability to sue and be sued in its own name.
This is a confusing area of the law and should an issue arise a club needs to obtain specific advise from its professional legal advisors.