- Hanchett-Stamford v Attorney-General

The applicable Rules

The first issue, as to which the Liquidator seeks a declaration or a direction from the Court, is the applicable Rules to be applied. It seems to me that it is not necessary to make a declaration as to that matter, where there is a degree of uncertainty in the factual position, and a direction will sufficiently protect the Liquidators in this regard. As Mr Stack points out in submissions, several matters support a finding, preferred by the Liquidator, that the 2005 Rules apply, although a finding that the 2008 Rules apply could also be made on the basis that it is unlikely that they would have been provided to a member unless they had taken effect. Here, as Mr Stack points out, there is little relevant difference between those two versions of the Rules, because the provisions which would be relevant to a distribution to members are the same or substantially the same in both those versions of the Rules.
On balance, it seems to me that I should order that the Liquidator is justified in proceeding on the basis that the 2005 Rules apply, while recognising a possibility that the 2008 Rules had later been adopted. It seems to me that that view is preferable, where the 2005 Rules were held in the relevant documents relating to the Fund and, second, there is no evidence in respect of the 2008 Rules that they were approved by the necessary meeting of members which would be necessary to bring them into effect, although I recognise that the same might arguably be said in respect of the 2005 Rules. In any event, it seems to me that a direction that the Liquidator is justified in proceeding on that basis can be made, where it is plainly more likely that the 2005 or 2008 Rules applied, given the evidence as to the quantum of benefits paid to which I referred above, and it is marginally more probable that the 2005 rather than the 2008 Rules for the reasons noted above.

Which members and former members should receive a distribution for the Fund

The second and more complex issue as to which the Liquidator seeks a declaration or direction is directed to which members or former members of the Fund are entitled to share in a distribution of the balance of the Fund. The Liquidator formulates that question as whether the Fund was "dissolved" on 1 July 2012, or whether he would be justified in proceeding on the basis that the Fund was "dissolved" on that date. For reasons that I will explain below, it seems to me to be preferable to approach the question on a somewhat different basis.
Mr Stack makes comprehensive and helpful submissions which draw attention to relevant English case law and to Australian case law which refers to it. He draws attention to the decision in Re William Denby and Sons Ltd Sick and Benevolent Fund [1971] 1 WLR 973 ("Denby"), where Brightman J addressed the question when it could be said that a fund was "dissolved" including by informal means. In that case, there were initially some 300 members of the relevant fund, and about 170 of them left a company's employment as a result of industrial difficulties, although at least 124 members continued in employment. His Honour there noted that there were several circumstances in which a fund could potentially be "dissolved" and identified such circumstance as being "where the substratum upon which the society or fund was founded has gone." His Honour there found that the fund had not been dissolved, where at least 124 members of the fund remained in employment and his Honour noted the likelihood that the employer would there employ new staff so that the number of the members of the fund would ultimately be replenished. That finding is plainly distinguishable from the facts in respect of the Fund in issue here, although I recognise this is a question of degree. Here, a substantially larger proportion of members of the Fund were made redundant, and the reduction in membership of the Fund was plainly permanent in character, by reason of the replacement of the previous machines and the redundancies consequential upon in the introduction of the replacement machine.
In a second decision, Re GKN Bolts and Nuts Ltd [1982] 1WLR 774 ("GKN"), Sir Robert Megarry VC considered that decision, in a case where a club had essentially ceased its activities over a period of time. Megarry VC also referred (at 776) to the need for the Court to adopt a "broad" approach to a problem of this character and observed that: "The Courts have to be ready to allow the general concepts of reasonableness, fairness and common sense to be given more than their usual weight when confronted by claims to the contrary which appear to be based on the strict interpretation and strict application of the letter of the rules."
Megarry VC also recognised that it was possible for a club to be "dissolved spontaneously" although he doubted that mere inactivity was enough to bring about that result, and he questioned the use of the concept of cessation of the "substratum" in that context. It seems to me that the result in that case is of limited assistance here, where it is plain enough that the Fund did not cease its activities, although it significantly narrowed both the number of employees for whose benefit those activities were conducted and the scope of those activities. Here, to the extent that it could be said that the Fund was "dissolved", that is likely to arise from the radical change in the scope of its activities, rather than from a cessation of those activities of the kind contemplated in GKN.
Mr Stack also draws attention to the decision in Hanchett-Stamford v Attorney-General [2008] EWHC 330; [2009] Ch 173 where Lewison J referred to Denby and GKN and also undertook an analysis of the circumstances in which members are subject to contractual restrictions which prevent their claiming their proportionate share of the assets of an unincorporated association. His Lordship there observed (at [47]) that: "The thread that runs through all these cases is that the property of an unincorporated association is the property of its members, but that they are contractually precluded from severing their share except in accordance with the rules of the association; and that, on dissolution, those who are members at that time are entitled to the assets free from any such contractual restrictions."
I recognise that this observation is directed, as are several earlier cases, to identifying the point at which the dissolution of the Fund occurs, but it does not seem to me to exclude the possibility that, at some earlier point, there may be so radical a change in the activities of a fund or the scale or scope of its membership as to free the members from a contractual restriction on their claiming entitlements in the fund.
As Mr Stack points out, these English cases were referred to without disapproval by Ward CJ in Eq (as the President then was) in Hickey v Attorney General of the State of New South Wales [2021] NSWSC 772 (at [34]ff).
Turning now to the position which might be adopted in respect of the identification of the date on which the Fund was "dissolved", Mr Stack identified the factors which supported and did not support each of the possible dates of dissolution. If it were necessary to determine the date on which the Fund was dissolved, I would likely here find that it was a date after 1 July 2012 since the Fund continued its activities, although on a limited scale, well after the point at which the employer company and then the Fund's member committee decided to wind up the Fund and that it should be run in caretaker mode from 1 July 2012. As the Liquidator fairly recognises and as Mr Stack points out in submissions, the process of winding up of the Fund then continued over a significant period, during which the Fund engaged in continuing activities of a smaller scale and for the benefit of a smaller number of members.
However, it seems to me here preferable not to determine this application by seeking to identify a single date of "dissolution" of the Fund but instead to ask the question, at what point were members of the Fund freed of any limitation that would prevent them requiring that they be paid their proper share the assets of the Fund, however that share may be calculated? It seems to me that, having regard to the contractual basis of the Fund and the radical changes which affected its operation in mid-2012, and also taking into account the matters of fairness to which Sir Robert Megarry referred in GKN, a change which brought about the exclusion of 73% of the Funds members was so significant that those members who were excluded were no longer restricted from claiming their proper share of the assets of the Fund, whether by an implied term or otherwise. Conversely, the administrators of the Fund and its remaining members could not, from the point of exclusion of those many members, point to any implied term which would have the unreasonable consequence that remaining members of the Fund obtained a windfall gain by appropriating, albeit not through their own actions, the product of the contributions made by the 73% of the excluded members of the Fund in earlier years. To the extent that a term was identified which had that consequence, it seems to me that it would be so unreasonable that it could not be implied into the Rules of the Fund.
In the particular circumstances, whether or not the redundancy of such a large proportion of the members of the Fund could properly be characterised as giving rise to a "dissolution" of the Fund, it brought about so radical a redistribution of the assets of the Fund that remaining members were no longer bound by any implied agreement not to claim their proper share of the Fund's assets, as at the date immediately prior to that redundancy taking effect.
I should therefore give a direction that the Liquidator would be justified in proceeding on the basis that members of the Fund immediately prior to the redundancies which took place in May 2012 were entitled to claim their proper share of the assets of the Fund. That result is consistent with the view expressed by Ms Conneely in her second affidavit, to which I referred above. I do not consider that it is inconsistent with provisions in the Rules which indicate when a member's membership of the Fund ceases, which do not address his or her entitlement to a distribution from the Fund in the unusual situation, arising here, the some 73% of members of the Fund ceased to be members at the same time, as a result of their redundancy.

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (2)