Ray v Eastern Suburbs Motor Cycle Club Incorporated

The relief claimed 9Before turning in more detail to the facts of the case, something more should be said about the nature of the relief claimed. The plaintiffs seek judicial advice under s 63 of the Trustee Act 1925 (NSW) as to whether they would be justified in distributing the proceeds of sale of the Arcadia land to ESMCC Inc or whether they would be justified in distributing the proceeds of sale in some other way. They also seek a determination concerning the correct construction of the trust deed and, if the land was sold contrary to the terms of trust upon which it was held, that they be excused pursuant to s 85 of the Trustee Act for the breach of trust. 10ESMCC Inc has filed two cross-summonses. One seeks relief against the plaintiffs. The other seeks relief against the second to eighth defendants. Various declarations are sought in both cross-summonses to the effect that the proceeds of sale of the Arcadia land are held on trust for ESMCC Inc. In addition, Mr Meek SC, who appeared for the plaintiffs, indicated that, if the court concluded that ESMCC Inc was the successor to the Club, it would be desirable for the court to make a declaration to that effect. Neither Mr Hand nor Ms Glover, who appeared for ESMCC Inc, took issue with that proposition.

The Associations Incorporation Act 1984 11The Associations Incorporation Act 1984 (NSW) (the Act) (now replaced by the Associations Incorporation Act 2009) commenced on 27 May 1985 and, for the first time, it provided a simple mechanism for associations such as the Club to obtain the benefits of incorporation. 12Section 7(1) of the Act, provided: Subject to this Act, an association formed or carried on for any lawful object and consisting of not less than 5 members is eligible to be incorporated under this Act. 13Section 8 of the Act provided: (1) An association which is eligible to be incorporated under this Act may, by special resolution: (a) authorise a person (not being a person under 18 years of age) who is resident in the State to incorporate the association under this Act, (b) approve a statement of objects of the proposed incorporated association, and (c) approve rules of the proposed incorporated association which comply with section 11 or approve the adoption of the model rules as the rules of the proposed incorporated association. (2) For the purpose of forming themselves into an incorporated association, 5 or more persons together may, in respect of a proposed association which would be eligible to be incorporated under this Act: (a) authorise a person (not being a person under 18 years of age) who is resident in the State to incorporate the proposed association under this Act, (b) approve a statement of objects of the proposed incorporated association, (c) approve rules of the proposed incorporated association which comply with section 11 or approve the adoption of the model rules as the rules of the proposed incorporated association, and (d) nominate 2 or more of their number to be the first members of the committee of the proposed incorporated association. (3) A person authorised under subsection (1) or (2) to incorporate an association or proposed association may make application to the Commission for the incorporation of the association or proposed association under this Act and may perform all such acts and do all such things as may be necessary for securing the incorporation of the association or proposed association under this Act, notwithstanding, in the case of an association referred to in subsection (1), anything to the contrary in the rules, if any, of the association "Special resolution" was defined in s 5 of the Act to mean a resolution passed by a majority comprising three quarters of the members of the association at a general meeting of which not less than 21 days' written notice was given or, where that is not possible or practicable, a resolution that is passed in a manner specified by the Corporate Affairs Commission. 14Section 9 stated that the application under s 8 was to be in the prescribed form and set out the information that the application was to contain or which was to accompany the application. In particular, s 9(c) required the application to be accompanied by the proposed rules of the association or a statement that a resolution had been passed in accordance with s 8 adopting the model rules provided for in the Act. 15Section 10(1) of the Act provided: Subject to subsection (2), where an application is made in accordance with section 9, the Commission shall incorporate the association or proposed association under this Act by granting in respect of it a certificate of incorporation in an approved form. Sub-section (2) set out certain circumstances in which the Commission may refuse to incorporate an association. 16Section 15 dealt with the effect of incorporation. Relevantly, s 15(1) stated: On and from the date specified as the date of incorporation in a certificate of incorporation of an association granted under this Act (other than under section 14 (5)), but subject to this Act and the rules of the incorporated association: (a) in the case of a certificate granted under section 10, the persons who were the members of the association immediately before that date or, where the certificate is granted in respect of a proposed association as referred to in section 8 (2), the persons who under that subsection authorised incorporation of the proposed association, (b) ... ; or (c) ... together with any other persons who from time to time become members of the incorporated association (as from the time they become members), are an incorporated association by the name set out in the certificate, subject to any change of name effected by the issue of a new certificate of incorporation under section 14 (5). Sub-section (3) provided that schedule 2 of the Act had effect in relation to an incorporated association. 17Schedule 2 of the Act was amended by the Associations Incorporation (Amendment) Act 1992 (NSW). Clause (22) of schedule 1 of that amending Act inserted the following clause in schedule 2 of the Act: 2(1) On the incorporation of an association or other body (a) the assets of a former association of the incorporated association vest in the incorporated association without the need for any conveyance, transfer, assignment or assurance; (b) ... ... 18Clause (22) of schedule 1 of the amending Act also inserted the following definition of 'former association': "former association", in relation to an incorporated association, means (a) the association or other body corporate which was incorporated under this Act to form the incorporated association; or (b) ... and includes any or all the members of the former association as members; 19Clause (23) of schedule 1 of the amending Act also inserted a new schedule 3 in the Act dealing with savings and transitional provisions. Clause 6 of that schedule provided: The amendments to Schedule 2 made by Schedule 1 (22) of the amending Act apply to the incorporation of an association or other body under this Act whether before or after the commencement of those amendments. The effect of this clause was to give retrospective operation to the amendments made to schedule 2 of the Act.

20As I have said, the Club was formed in 1924. The original rules of the Club were handwritten and were adopted in 1932. The rules were replaced by an undated typed version some time in 1946. There is a third set of rules dated November 1982, although there is some suggestion in the evidence that those rules were not adopted. Both the 1946 and the 1982 rules provide for the election of life members and for the payment of membership fees by ordinary members. The 1946 rules do not deal with the distribution of the Club's assets on a dissolution of the Club. The later rules, on the other hand, provide (in rule 28) that: Upon dissolution of the Club, any money or property or assets that the Club may possess at the time of disolution [sic] shall be donated and passed on to the A.C.U. of N.S.W. or an organization of similar Constitution and affiliation to this Club. The reference to "A.C.U." was apparently a reference to the Auto Cycle Union, an entity which no longer exists. For reasons which will become apparent, nothing turns on the resolution of which rules apply. 21As at 1985, there were 35 life members. At the time these proceedings were commenced, 18 of those were identified and the subject of the representative order made by Hallen AsJ. 22From at least 1987, there were discussions at general meetings and executive committee meetings of the Club about incorporating the Club principally as a means of protecting individual members from liability should a participant be injured while taking part in an activity organised by the Club. Although there is no record of it, it appears that at some stage agreement was reached that the Club should be incorporated and it was noted in the unsigned minutes of an executive meeting on 10 August 1987 that "J. Ray [the first plaintiff] to tie up loose ends with the Club's incorporation". The Club never sought any legal advice or professional assistance in connection with its incorporation. 23Mr Ray did not take any steps to incorporate the Club. However, at a general meeting held on 8 June 1988, Mr Brian Greenfield, the third defendant, announced that he had lodged the paperwork with the Corporate Affairs Commission to incorporate the Club. That application had been lodged on 13 May 1988. The application was in the prescribed form. For reasons which are not explained, the application was expressed to be an application for the incorporation of a proposed association rather than the incorporation of a currently unincorporated association. The proposed name of the incorporated association was "Eastern Suburbs Motor Cycle Club Incorporated". In the application form, Mr Greenfield named five proposed committee members, including himself. The persons named by Mr Greenfield were not the then current members of the Club's executive committee. In the application lodged by Mr Greenfield he also named himself as the proposed public officer for ESMCC Inc and he stated that the association adopted the model rules. The Corporate Affairs Commission issued the certificate of incorporation of ESMCC Inc on 13 May 1988. 24Following the general meeting on 8 June 1988, members of the executive committee asked to see the documents that Mr Greenfield had lodged with the Corporate Affairs Commission. 25There was a further general meeting of the Club on 15 June 1988. At that meeting a unanimous resolution was passed in the following terms: That Brian Greenfield do what is necessary to register the Eastern Suburbs Motor Cycle Club Incorporated, with the current officials of the Club ( as elected at the AGM of 10/2/1988 at Randwick Literary Institute) with the Corperate [sic] Affairs Commission within the next two weeks, and that all paperwork to do with this action be tabled. ... and re-imburse all fees paid. 26On 14 July 1988, Mr Greenfield lodged a notice of change in membership of committee showing that the committee members who had previously been named by him had resigned and that the existing committee members of the Club had been elected on 29 June 1988 as committee members of ESMCC Inc. The form also showed that Mr Greenfield continued as ESMCC Inc's public officer. 27A receipt for the lodgment of the application for change of names of executive members was tabled at what was described as a "meeting of E.S.M.C.C." on 6 July 1988 and, subsequently, at a general meeting held on 26 October 1988, it was recorded that Mr Greenfield had been reimbursed in the sum of $260 for the money he had paid to incorporate ESMCC Inc. 28Following those events, the persons who were or had been members of the Club continued to act much as they had before. There were general meetings and executive committee meetings as had occurred previously and minutes of those meetings were generally kept in one form or another. The persons who had been elected office bearers of the Club at the meeting on 10 February 1988 and who were shown in the form lodged on 30 June 1988 as having been elected to the executive committee of ESMCC Inc on 29 June 1988 continued to act in those capacities. The persons who had been members of the Club were treated as members of ESMCC Inc. It appears that life members of the Club regarded themselves as and were treated as life members of ESMCC Inc. The membership book previously used by the Club was used to record the names of new members of ESMCC Inc. The meetings were generally described as meetings of "ESMCC". 29There was a meeting of the executive committee on 9 November 1988. It was agreed at that meeting that it was necessary to review the model rules for an association incorporated under the Act and for that reason it was agreed to postpone the annual general meeting that had been fixed for 7 December 1988. 30On 21 December 1988, what was described as a general meeting of ESMCC was held. The minutes of that meeting record: Grahame Simpson [who was the vice president] is sending to all members of the Executive copies of the Incorporated Associations Act and Regulations. According to Ms Terrie Simpson, who served as Treasurer from 1987 to 1988, the purpose of circulating those documents was so that members of the executive could familiarise themselves with the obligations and rules imposed on an incorporated association. 31An extraordinary general meeting was held on 1 March 1989. According to handwritten minutes of that meeting, it was resolved with 28 votes in favour, none against and one abstention to adopt the model rules. The minutes also record that it was resolved by 21 votes for and 8 against "that in the event of the club winding up the surplus assets are to be left to the Ryde MCC". Subsequently, on 29 March 1989, a notice was filed with the Corporate Affairs Commission amending the model rules in a number of respects. 32An annual general meeting was then held on 4 March 1989. At that meeting, new office bearers were elected. 33On 26 June 1989, an annual statement was lodged with the Corporate Affairs Commission for the financial year of ESMCC Inc ending 31 December 1988. Annexed to that document were the financial reports tabled before the annual general meeting on 4 March 1989. The annual statement records the assets and liabilities of ESMCC Inc included money held in two bank accounts which had previously been operated by the Club. It also identified the Arcadia land as an asset of ESMCC Inc and a copy of the Certificate of Title (still recording the plaintiffs as the registered proprietors) was attached. A number of subsequent annual returns, but not all, also identified the Arcadia land as an asset of ESMCC Inc. 34By 1987, the facilities on the Arcadia land had fallen into disrepair because dirt racing (as opposed to road racing) had become unpopular. However, in 1987, following the election of Mr Warren Wichman as president, members started actively to clean up the Arcadia land. According to Ms Simpson, there were many working bees at which 20 to 30 people would lend a hand. During 1987 and 1988, the inside of the toilet block was painted, rubbish was removed, an old shed was removed and blackberry bushes were poisoned. The costs associated with those works were paid for by ESMCC Inc. After the land had been cleared up ESMCC Inc began again to run trials at Arcadia and to rent the land to Classic Enthusiasts MCC twice a year. On 20 May 1990, ESMCC Inc hosted round 1 of the NSW State Trials Championship at Arcadia. In 1993, Classic Enthusiasts MCC assisted ESMCC Inc by laying a concrete slab on the Arcadia land and erecting a double garage and, on 25 July 1993, ESMCC Inc hosted a round of the NSW State Trials Championship at the Arcadia land. 35At some time following its incorporation, ESMCC Inc adopted an application for membership form. The form described ESMCC Inc as the oldest motorcycle club in Sydney which began in 1924. It also stated "The Club owns a 15 acre property, complete with short circuit (dirt) track, trials area and facilities". 36Tensions between members of the association developed between 1999 and 2001. As a result, only the president, secretary and treasurer attended general meetings and the association slowly lost ordinary members. At about that time, Mr Greenfield proposed that the Arcadia land be sold and that the proceeds of sale be split between remaining members. During the period from 2002 to 2007 there were many meetings at which that proposal was discussed and at which Mr Greenfield put forward various proposals for dividing the proceeds among existing members. 37On 26 April 2006, a resolution was put at an extraordinary meeting of ESMCC Inc to sell the Arcadia land and distribute the surplus to the 18 present members. That motion was declared invalid on the basis that the Act prevents club funds from being distributed to members whilst the club is an incorporated association. The minutes go on to record the following: General discussion on future of Arcadia, of the 18 present only 9 had a point of view ... Moved Rosenstrauss ... Seconded Wilson that Special Resolution be split into 2 parts ... part A that Clubs Incorp be cancelled .. part B that Club property be sold. Two motions put and not carried by the required 75% majority as required. 38On 26 September 2007, a motion was passed at the general meeting of ESMCC Inc to sell the Arcadia land. A moratorium was then placed on acceptance of new members until the sale was completed. 39Some time in March 2008, Mr Greenfield first raised the question whether ESMCC Inc had been properly incorporated and whether the original club continued to exist as an unincorporated association. The only persons who could have been regarded as members of the Club were persons who had been appointed life members prior to the incorporation of ESMCC Inc. Those persons were invited by Mr Greenfield to attend a meeting on 18 April 2008. A resolution was put at that meeting which was carried 7 votes to 4 to divide the proceeds of the sale of the Arcadia land between the life members. A motion was also passed to engage a solicitor to give advice in relation to the Arcadia land. 40On 24 September 2008, there was a general meeting of ESMCC Inc at which a resolution was passed directing the plaintiffs to sign a contract for the sale of the Arcadia land at an agreed price of $1,185,000. 41On 24 October 2008, what purported to be the first official meeting of the Club since 1988 was held. The members present purported to elect an executive committee. No further meetings of the Club have been held since then. 42The Arcadia land was sold on 28 November 2008 and the plaintiffs have held the proceeds of sale in trust since that time.

43In my opinion, at least from the time of the extraordinary general meeting held on 1 March 1989, when the members resolved to adopt the model rules, the Club ceased to exist as an unincorporated association and was replaced by ESMCC Inc. Any agreement that existed between the members of the Club to conduct their affairs as an unincorporated association was abandoned by that time. It is clear that from that time that the members thought that they were conducting the affairs of the association through one entity. There was only one executive committee and one set of elections for members of that committee from time to time. There was only one set of general meetings. There was only one membership book and the ordinary members paid only one lot of annual fees in respect of their membership. Only one entity maintained bank accounts. There was no attempt to draw a distinction between the activities of the Club and the activities of ESMCC Inc. It is equally clear that the entity through which those activities were carried on was ESMCC Inc. The members of the Club had intended to incorporate and, by requiring Mr Greenfield to change the members of the executive committee of the ESMCC Inc, they must have intended that ESMCC Inc would be the corporate vehicle through which they would continue to operate as a club. They adopted a new constitution and lodged annual returns consistently with the provisions of the Act. Existing members of the Club continued as members of ESMCC Inc. New members applied to become members of the incorporated association. The fact that the abbreviation "ESMCC" was often used to describe the continuing entity does not undermine these points. That description is equally appropriate as a description for the incorporated entity as it was for the unincorporated one. Taking those matters into account, in my opinion the members of the Club impliedly agreed that the Club would be dissolved and its activities would be taken over by ESMCC Inc. 44It appears that Mr Greenfield and others took the view that the beneficial interest in the Arcadia land did not vest in ESMCC Inc because no steps were taken by members of the Club to cause that to happen and cl 2(1) of schedule 2 to the Act did not have that effect. 45Section 8(1) of the Act set out the procedure by which an unincorporated association was entitled to become incorporated under the Act. It required that members of the association pass a special resolution which authorised a nominated person to incorporate the association, approves a statement of objects and approves rules for the association. On the other hand, s 8(2) set out the procedure for incorporating a new association. However, it is not necessary for an unincorporated association to have followed all the procedures under s 8(1) of the Act for it to have become incorporated under the Act. The facts may demonstrate that the members of an association intended to incorporate the association notwithstanding that they did not follow the procedures set out in s 8(1) and that is sufficient: Jobnet Employment Services Inc v Copeman [1999] NSWSC 848; (1999) 32 ACSR 554. 46In my opinion, Mr Greenfield intended to incorporate the Club when he incorporated ESMCC Inc. He used the same name, and, having incorporated ESMCC Inc, he announced to the general meeting of the Club held on 8 June 1988 that he had lodged the paperwork to incorporate the Club. It is true that the form lodged by Mr Greenfield suggested that he was incorporating a new association and the committee members nominated by Mr Greenfield were not the committee members of the Club. Why Mr Greenfield did what he did remains unexplained. It is possible that he saw it as a means of gaining control of the Club. However, whatever the position, when objection was taken to what he had done, Mr Greenfield did not assert that he had incorporated a new entity that would itself start to operate as a motor cycle club. Rather, he took steps required of him to ensure that the entity he had created became the association that had previously existed. Having regard to what happened, I do not think it could be said that the Club ceased to exist as soon as ESMCC Inc was incorporated. On the other hand, I do not think that it could be said that ESMCC Inc was ever intended to be anything other than the corporate vehicle through which the Club would continue to exist. 47Having regard to those conclusions, in my opinion, the Club was a "former association" of ESMCC Inc within the meaning of cl 1 of schedule 2. The definition of "former association" does not state that, in order to meet that description, the relevant association must be incorporated under s 8(1) of the Act. Rather, it simply says that the association must be incorporated under "this Act". By incorporating ESMCC Inc, Mr Greenfield was intending to create the corporate vehicle through which the Club would continue to exist. That corporate vehicle was incorporated under the Act. It follows that the Club was incorporated under the Act to become ESMCC Inc, although, for the reasons I have given, the functions of the Club were not transferred to ESMCC Inc immediately. 48Clause 2(1) of schedule 2 operated "[o]n the incorporation of an association". There may be a question of how that clause operates where an association was incorporated but the unincorporated association did not cease to exist immediately, as in this case. On one interpretation, the clause vested the assets of the former association in the incorporated entity on incorporation. An alternative interpretation is that the introductory words simply set out a precondition to the operation of the clause - that is, incorporation - but do not set out when those operative provisions took effect. Presumably, in that case, the clause would operate when the unincorporated entity ceased to exist. The issue would only arise in practice where an entity was incorporated under the Act with the intention that it would replace an unincorporated association but for some reason that did not occur. It is not necessary to resolve the issue in the present case. In this case ESMCC Inc did replace the Club. On either interpretation of cl 2(1), the effect of cl 2(1)(a) was to transfer the assets of the Club, including the beneficial interest in the Arcadia land, to ESMCC Inc. Whether that happened on the incorporation of ESMCC Inc or only when the Club ceased to exist does not matter.

49It follows that the plaintiffs are entitled to advice that they would be justified in distributing the proceeds of sale of the Arcadia to the first defendant and that there ought to be a declaration that the plaintiffs hold the proceeds of sale of the Arcadia land on trust for the first defendant. 50As I have said, Mr Meek SC also sought a broader declaration to the effect that ESMCC Inc was the successor to the Club, although no relief to that effect was sought in the summons. In my opinion, it is not appropriate to make a declaration in those terms. The orders that I propose to make are sufficient to dispose of the issues in the case. Having regard to the time that has passed, it is difficult to see that there would be any utility in making such a declaration. However, if there are practical consequences that would follow from making such a declaration, then whether the declaration should be made or not should only be determined in a context in which those practical consequences are in issue. 51So far as costs are concerned, the plaintiffs should be entitled to their costs from the amount held in trust on an indemnity basis. The first and eighth defendants costs should be paid from the amount held in trust on the ordinary basis. 52Consequently, the orders of the court are: (1)The court declares that the plaintiffs hold the proceeds of sale of the land comprised in Folio Identifier A/443290 (the Fund) on trust for the first defendant. (2)The plaintiffs would be justified in distributing the Fund to the first defendant. (3)The plaintiffs' costs assessed on an indemnity basis should be paid out of the Fund. (4)The first defendant's and the eighth defendant's costs assessed on the ordinary basis should be paid out of the Fund.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 September 2012