Judgment of Mr. Justice Clarke delivered the 8th April, 2014.
1. Introduction
1.1 What is a club? What keeps it alive and when can it be said, as a matter of law, to come to an end? These are the fundamental questions which arise on this appeal. The case concerns the Roadstone Sports & Social Club ("the Club"). The Club has been in existence since 1957. It would, I think, be fair to say that the Club has been in declining fortunes of late, although the extent of any decline is open to question. However, it owns an important asset at Kingswood, Clondalkin, Co. Dublin. The Club has a number of categories of membership. Because of their particular relevance to the issues which have now arisen, it is necessary to note that there are, amongst other classes, both “ordinary” members and “associate” members Ordinary members must be current staff of what is described in its rules (“the Rules”) as the "Roadstone Group" and which is now in substance CRH plc. The position of associate members is a little more complex and will need to be addressed further. However, the class of associate members includes persons who were formerly ordinary members but who have since ceased to work for the Roadstone Group.
1.2. There is no doubt that the Rules are somewhat confusing. It will again be necessary to look at some of the Rules, which are relevant to the dispute which has now arisen, in due course. However, some things are clear. The Rules do not make express provision for the way in which the Club can be dissolved although there is some mention of the distribution of its assets on dissolution. The Rules do provide for a committee with a chair, twelve ordinary members and three associate members. One of the underlying problems which the Club has faced has been a decline in the number of ordinary members, although there remain quite a significant number of associate members.
1.3 Be all that as it may, a meeting of the ordinary members of the Club resolved that the Club should be dissolved and authorised the plaintiffs/respondents (“the Trustee Representatives”), who are some of the trustees of the Club, to bring proceedings in that regard in the High Court. The precise form of resolution passed at a general meeting and the terms on which it was, thereby, decided to seek dissolution will need to be considered in due course. So also will be the fact that it was only the ordinary members who were deemed entitled to vote on the question of dissolution. However, the relevant proceedings were ultimately brought and came on for hearing before Hogan J., who made a series of orders which, in substance, provided for the Club’s principal asset to be sold, the Club to be dissolved and the proceeds of sale distributed amongst the members in accordance with a resolution passed by the committee of the Club ("the Committee") on the 14th December, 2012.
1.4 The defendants/appellants (“the Trustee Opponents”) are also trustees of the Club but opposed the course of action suggested. They have appealed to this Court against the judgment and order of Hogan J. In order to understand the issues which arise on this appeal, it is necessary to say a little more about the underlying facts and to identify the basis on which Hogan J. decided the matter in the High Court.
2. The Background Facts
2.1. The Club was established in 1957 for the benefit of the employees of the Roadstone Group. Initially, it was a small social club limited to the employees of that group. However, following the growth of the parent company, membership correspondingly grew in the decades that followed. As the Club's activities grew, a new category of membership, being associate membership, was created to facilitate non-employees of the group. When the Roadstone Group established a new administrative headquarters on the Belgard Road in Dublin, it gave the Club 30 acres of land and also built a prefabricated clubhouse. In 1991, the Club moved to its present location in Kingswood. The Club now owns approximately 18 acres of land where it maintains conference facilities, a large function hall, a bar/restaurant, a soccer pitch, basketball facilities/indoor soccer pitch and snooker tables. It also has a pitch and putt course.
2.2 As already noted, the Rules are relevant to the dispute and, therefore, it is necessary to set out some of these in full. Rule 1 states:
“The Club shall be styled and known as “ROADSTONE GROUP SPORTS CLUB” and Membership shall be open to all persons in the employment of the Roadstone Group."
The objective of the Club is set out in Rule 2. This provides:
“The object of the Club shall be to promote, supervise and encourage sporting and social activity on behalf of it's Member's."(sic)
Rule 4 (b) provides for the composition of the club’s Committee of Management:
“The Committee of Management shall consist of 16 members which shall be elected by the body of the general meeting.
As follows:
Chair-man, 12 Members and 3 Associate Members which shall include Treasurer, Secretary and 3 Committee Auditors.”
The various types of membership are dealt with in Rule 6:
“The Club shall consist of:
(a) ORDINARY MEMBERS Employees of the Roadstone Group
(b) LIFE MEMBERS Conferred by General Meeting only to Members of outstanding service to the Club
(c) HONORARY MEMBERS Employee members upon retiring from Company Service
(d) TEMPORARY MEMBERS Employees in temporary employment with the Roadstone Group
(e) ASSOCIATE MEMBERS Persons in active participation of sporting and social facilities upon the formation of the Roadstone Group Sports and Social Club”
Rules 18 and 19 deal with the entitlements of the various membership classes in the following terms:-
“Rule 18
TEMPORARY MEMBERS Are entitled to all the facilities of the Club, except a vote at General Meeting.
HONORARY MEMBERS
ASSOCIATE MEMBERS
Rule 19:
Honorary and temporary members would not be entitled to hold office unless it is specifically provided for in the rules. They would not be entitled to vote as a member or claim a share in the club property upon it’s (sic) dissolution.”
2.3 In 1992, an Extraordinary General Meeting was called and as a result Rule 37 was purportedly introduced to deal with any remaining monies of the club following dissolution. It appears that only 16 members were present at this general meeting and the rule change was passed by a majority of those in attendance. Rule 37 provides:
“In the event of The Club being disbanded and the premises being subsequently sold all monies left after all debts are paid will be donated to charity.”
A separate challenge to the validity of Rule 37 also arises in these proceedings and on this appeal.
2.4 Rule 29 may also be of relevance to the matters before this Court. It states:
“The Club may, in General Meeting pass a resolution authorising the Committee to borrow money and to give such security as is necessary. All Members of the Club whether voting or not, would be deemed to have assented to the resolution as if they had been present and had voted in favour of it.”
2.5 Due to redundancies and relocation of the activities of the Roadstone Group, the number of ordinary members declined significantly from the early 1990s onwards. Associate membership suffered a less substantial decline in the corresponding period. This naturally had a consequential effect on a number of the Club’s activities. Many were initially downsized before ceasing altogether. Some continue to take place on a regular basis. Many of the Club's facilities are now frequently rented out to non-members rather than being used by the members themselves. Various recruitment drives, amongst other initiatives, were attempted to boost membership and participation in the 1990s and the early 2000s. However, these efforts at best slowed the fall-off in membership numbers. In 1973, the Club had 843 ordinary members, 350 associate members and 43 honorary members. However, by 2008, when a decision was made to close membership, these figures had dropped to 118 ordinary members, 310 associate members, 2 honorary and 2 life members. As of the end of 2010, the Club had 349 associate members, 53 ordinary members, one honorary member and two life members. It is said that few, if any, of the remaining ordinary members now make use of the Club's facilities.
2.6 The financial position of the Club has also been adversely affected to a certain extent. Takings in the Club’s bar have declined from 2002, necessitating the redundancy of some staff and the reduction of hours and pay of other staff. It is now said that the bar’s continued existence is dependent on a subvention of around €20,000 per annum. The Club’s main source of income, in addition to subscriptions from members, is from the hiring out of various club facilities. Although revenue from individual facilities has fluctuated, there was a general trend of increasing income from all of these facilities combined between 2002 and 2009. These figures have decreased in more recent years. The Club was required to sell 2 acres of land to a local authority in 2004 and received €1,000,000 in return. These monies were used to discharge the Club’s then debt with the remaining funds being placed in a savings account. Monies from this account have been used to cover any losses sustained by the Club in recent years.
2.7 Eventually, the Committee came to the conclusion that the Club had no future and that the only option was to wind-up the Club. The Committee were also of the opinion that members should benefit to a certain extent from the remaining proceeds of the Club after all liabilities had been discharged. However, Rule 37 mandated that all such proceeds would have to go to charity. An Extraordinary General Meeting was called for the 16th July, 2009, to discuss proposals. At this meeting the following resolution was approved by a majority (45 votes in favour, 4 opposed) of those deemed entitled to vote (this did not include associate members):
“(1) To approve the decision of the Club’s Committee on the 22nd day of April 2009 to apply to the High Court for the following orders:-
(a) An Order that the Club is dissolved, as due to the fall off in full members and participation the underlying stratum of the club no longer exists;
(b) An Order declaring Rule 37 a nullity and therefore never validly incorporated into the Club’s Rules;
(c) An Order that following the sale of the Club’s assets and the payment of any debts or liabilities, the surplus will be divided on the basis of 20% to Our Lady’s Hospital in Harold’s Cross, 40% to full members and 40% to associate members.
(2) (a) To approve the decision taken by the Committee on the 22nd day of April 2009 that in the event that the above Orders are granted by the High Court, each member’s entitlement to participate in the distribution of the assets as set out in resolution 1(c) above will be calculated pro rata with the number of calendar years continuous membership during the 25 year period commencing the 1st January 1984 and ending 1st December 2008.
(b) For the avoidance of doubt, resolution 1(c) applies only to persons who were members of the Club, whether full or associate, on the 31st December 2008.
(c) For the purpose of resolution 1(c) a person who was an associate member on the 31st December 2008 but prior to becoming an associate member had been a full member, shall for the purposes of the division of surplus funds be treated as having been a full member on the 31st December 2008, PROVIDED that person became an associate member not earlier than 1st January 2004 (in which event such person such be an associate member for the purposes of the distribution of surplus funds under clause 1(c)).
(d) Life members shall be treated as full members for the purposes of resolution 1(c).”
2.8 On that basis these proceedings were commenced.
2.9 The Trustee Opponents contested the proceedings. They were of the opinion that the Club, although reduced in size, remained viable and was an important social and sporting outlet for employees of the Roadstone Group and others in the local community. The High Court was not prepared to make orders in the form of the original resolution to which reference has been made. Instead, following the delivery of the High Court judgment, the matter was adjourned and Hogan J. requested that a formal resolution be adopted by the Committee, resolving both to dissolve the club in compliance with the directions of the High Court and further resolving that any remaining monies should be distributed equally among ordinary, associate and life members. This resolution was adopted by the Committee on the 14th December, 2012. It will be necessary to return to this resolution in due course.
3. The Judgment in the High Court
3.1. The judgment of the High Court was delivered on the 10th October, 2012 (Dunne & Ors -v- Mahon & Anor [2012] IEHC 412). Having set out the underlying facts and matters of dispute, Hogan J. first turned to the issue as to whether an order should be made dissolving the club pursuant to the court’s inherent jurisdiction. He described the English and Irish authorities on the point as “sub-stratum cases”, where the organisations involved in the relevant proceedings had collapsed. In his view, this was not such a case. At para. 17 of his judgment, he observed:-
“The Club is currently viable and it possesses the lands and facilities which are apt and suitable to enable the original aims and objects of the Club to be fulfilled. While it is true that the viability of the Club was hotly contested in the course of the hearing, I am not presently convinced that the future of the Club is necessarily as doubtful as the plaintiffs seem to think.”
He was, therefore, of the opinion that there was no justification for making orders pursuant to the court’s inherent jurisdiction for the winding-up of the Club on the basis of failure of sub-stratum.
3.2 Hogan J. then turned to the question of whether the will of a majority of the members was a sufficient basis to invoke the jurisdiction of the High Court to wind-up the Club. It was, in the trial judge's view, first necessary to determine whether the rules of a club can be changed by a majority of the members, even if the rules of the club concerned do not so provide. After noting the conflicting views expressed in the authorities, Hogan J. held at para. 24:
“For my part I take the view that, absent an express agreement to the contrary in a club's rules, it is unrealistic to expect or assume that an individual member can have the right to block each and every proposed change through the exercise of an individual power of veto. An implied power to amend through majority vote must generally be assumed, as otherwise the association would lack the necessary flexibility to enable it to adapt to the challenges of modern society.”
The trial judge was, therefore, of the opinion that he had jurisdiction to imply a term to the effect that the Rules can, in principle, be amended by simple majority vote. Hogan J. was strengthened in his opinion that such a right existed in the present case by virtue of the right to dissociation, a corollary of the right to association, guaranteed by Article 40.6.1.iii of the Constitution. However, it was noted that any power to amend the rules was not an unrestricted power for the majority to amend the rules as they wished. An analogy was drawn to s. 205 of the Companies Act 1963 which protects minority shareholders of a company in certain circumstances.
3.3 Next, the trial judge referred to the validity of Rule 37, which mandated that all remaining net proceeds on dissolution be donated to charity. The effect of the Rule was held to be to deprive a member of a right personal to him or her and to be such as would significantly alter the nature of the club to the prejudice of individual members. Hogan J. concluded that this amounted to an “impermissible rule change”, and thus Rule 37 was held to be invalid. Hogan J. ultimately concluded that he had no option but to give effect to the wishes of the majority, as expressed by them in the resolution of the 16th July, 2009, to dissolve the Club.
3.4 The matter was adjourned on that date and Hogan J. later requested that a formal resolution be adopted by the Committee. The substance of the resolution thereafter adopted was to the effect that the club be dissolved in compliance the Court's directions and that any remaining monies should be distributed equally among ordinary, associate and life members. This resolution was adopted on the 14th December, 2012, and an Order to the effect that the Club be dissolved on those terms was made on the 20th December, 2012, and perfected on the 15th January, 2013.
3.5 Against that background, it is necessary to address the issues which arose on appeal.
4. The Issues on the Appeal
4.1. It is important to record that there was a reasonable degree of agreement between counsel at the hearing of the appeal. The positions which had been adopted in the written submissions, doubtless, assisted in that process. Before, therefore, going on to specify the issues which remain in dispute, it is, perhaps, appropriate to start by identifying the issues on which there was agreement.
4.2. First, both counsel agreed, while accepting that it was ultimately a matter for the Court, that the trial judge was wrong to imply a term into the Rules such as would have allowed the Rules to be amended and the Club to be dissolved by simple majority. The Trustee Opponents submitted that, in the absence of an express rule governing the issue, a rule change required the consent of all the members, as a member is taken to have declared his submission to the rules in place at the time when he or she first became a member. The Trustee Opponents argued that a term to the effect that the Club could be dissolved by simple majority vote was not so obvious as would merit its implication nor was it safe to assume that it was within the intentions of the members when they joined. Such a term was also said to be unnecessary for the operation of the contract of membership and should not be implied. On the other side, the Trustee Representatives agreed that the rules of a club constitute a common contract between all its members and that, in the absence of an express rule permitting rule change, none may seek to change that contract without agreement of all others. They, therefore, also submitted that there is no implied authority to amend the rules of a club or resolve for its dissolution by simple majority.
4.3. Next, counsel agreed that, at the level of principle, there is a jurisdiction for the Court to dissolve, or declare as having been dissolved, an unincorporated body such as a club either because there had been a fundamental disappearance of the substratum or basis for the club’s existence in the first place, or on foot of what was identified in the authorities, to which reference will need to be made, as an inherent equitable jurisdiction on the part of the Court to dissolve in circumstances where it was just and equitable so to do.
4.4. As noted earlier, the trial judge had rejected the case made on behalf of the Trustee Representatives which suggested that the substratum of the Club had disappeared. The Trustee Representatives had served a notice to vary in that regard. Thus, one of the issues which arose on the appeal (and, perhaps, the issue which logically comes first) was as to whether there was any basis on which this Court could properly reverse that decision of the trial judge. In that context, as has already been noted, both sides agreed that, at the level of principle, a club can be dissolved in those circumstances. Thus there was no question as to jurisdiction. The dispute was as to whether it was appropriate to regard this club as being either dissolved or as being required to be dissolved, on that basis. The specific issue relates to whether there is any proper basis for disturbing the trial judge's finding that it was not appropriate to so regard.
4.5. Second, there was a question of whether, assuming that the substratum argument failed, there was a basis for suggesting that the Court should exercise its jurisdiction to dissolve the Club on just and equitable grounds. Again, as pointed out, there was no dispute over whether such a jurisdiction existed. There were, however, issues between the parties as to the proper legal approach or test to be applied in considering whether it was just and equitable to dissolve. There were also questions as to the facts which could be relied on in order for the Court to consider whether the just and equitable jurisdiction should be exercised and in particular whether there were sufficient facts, which either went unchallenged in the High Court or were the subject of findings of fact by the trial judge, to enable the Court to make an adjudication under that heading.
4.6. In the context of the exercise of the just and equitable jurisdiction of the Court, it is important to note that, by virtue of the fact that the trial judge took the view that the Rules could, by implication, be amended by a simple majority and that, thus, a situation could be arrived at where such a majority could require a dissolution, the question of the exercise of the undoubted just and equitable jurisdiction to dissolve was not determined in the High Court. This Court was, therefore, left with the problematic situation where it was being invited to consider whether or not that jurisdiction should be exercised in circumstances where the High Court had not reached any conclusion on that issue, and had not, therefore, made any findings of fact specific to the exercise of that jurisdiction. On the other hand, there were undoubtedly facts established in evidence before the High Court which either went unchallenged or were determined by the trial judge. It was argued on behalf of the Trustee Representatives that it would be possible for this Court, on the basis of such facts, to reach its own conclusion as to whether it was appropriate that the just and equitable jurisdiction to dissolve be exercised.
4.7 There was also the discrete issue concerning the status of Rule 37. As noted, the trial judge held that it was an “impermissible rule change” to introduce that rule and that it was, therefore, of no effect. That specific issue, which clearly would be of crucial importance in the context of the dissolution now sought and also has the potential to be of relevance in any future question of dissolution in the event that the Court does not now consider dissolution to be established or appropriate, also requires to be resolved. Counsel for the Trustee Opponents, while accepting that Rule 37 was not passed by a unanimous vote of all members, nonetheless contended that the Trustee Representatives (and the majority who voted in favour of the relevant resolutions) were now estopped from arguing that Rule 37 did not form part of the Rules.
4.8 There were also a number of subsidiary issues which arose at the hearing and which were, at least on one view, of importance in considering the fundamental issues which I have just identified. The first set of issues concern the precise status of the associate members, both in relation to the resolution to seek dissolution from the High Court and also concerning the weight, if any, to be attached to the views of the associate members in respect of dissolution. Similarly, there is a question as to the extent to which active membership or use of the Club by associate members is to be taken into account in the context of determining whether it can be said that the Club has truly ceased to exist or, in the context of the argument over whether it is just and equitable to dissolve the Club, whether it is likely to cease to exist in the near future. Against that background, it is appropriate to start by saying something about the nature of a club.
5. The Nature of a Club
5.1 It is clear that the principal legal basis for the existence of a club is a contract between all of the members for the time being (see Walsh v Butler [1997] 2 ILRM 81; Conservative and Unionist Central Office v Burrell [1982] 1 WLR 522). As an unincorporated association of individuals, a club has no separate legal personality (Sandymount and Merrion Residents Association v An Bord Pleanala & ors [2013] IESC 51; Feeney v. McManus [1937] I.R. 23). However, that is not to say that a club does not have some form of legal existence. So long as the contract between its members stays in being, then it can reasonably be said that a club continues to exist.
5.2 In addition, it must be recalled that the Courts of Chancery did, historically, have a jurisdiction to wind up all forms of unincorporated bodies (Keys v Boulter (No. 2) [1972] 1 W.L.R. 642; In Re Lead Company's Workmen's Fund Society [1904] 2 Ch 196). That jurisdiction appears to have applied equally to partnerships established for business purposes, other forms of non-business associations and what might today be called pure clubs established for, for example, social or sporting purposes. It is, perhaps, hardly surprising that, prior to the enactment of the Partnership Act 1890, much of the litigation concerned partnerships rather than "pure" clubs or other non-business associations. Precisely because partnerships were about making profit and acquiring assets, it is unsurprising that disputes concerning partnerships appeared before the courts on a much more frequent basis than disputes involving unincorporated associations which did not have business at their heart. It is, of course, also the case that since 1890 disputes in relation to partnerships are now dealt with under statute although it should also be recorded that many of the provisions of the Partnership Act 1890 amounted to a codification of the existing judge made legal principles.
5.3 Be that as it may, it follows that the courts have a type of jurisdiction over unincorporated bodies which gives a form of quasi recognition to the existence of those bodies even though they do not enjoy separate legal personality.
5.4 As the primary legal basis for the existence of a club is a mutual contract between all of the members for the time being, it follows that the nature of the legal status of a club and actions taken by its members in the context of their membership of the club requires an analysis of that contract. The contract will, of course, ordinarily be found in the rules.
5.5 It has often been said that the modern approach to the construction of all documents which have an effect on legal rights and obligations is to analyse the text of the document but in its proper context by reference to the so called factual matrix within which the document was produced. It seems to me that this "text in context" approach applies across the board to all documents designed to affect legal relations. However, part of the "context" in which the "text" is to be viewed is the nature of the document itself. As was pointed out by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1981] 1 W.L.R. 896, we do not, for example, expect mistakes to have been made in carefully drafted contracts. Likewise, we expect statutes to mean what they appear to say. On the other hand, there is authority for the proposition that the rules of a club should not be approached with the same degree of rigour. In In re GKN Bolts & Nuts Ltd Sports and Social Club [1982] 1 W.L.R. 774 at p. 776, Megarry V.-C. observed:
“In such cases, the court usually has to take a broad sword to the problems, and eschew an unduly meticulous examination of the rules and resolutions. I am not, of course, saying that these should be ignored; but usually there is a considerable degree of informality in the conduct of the affairs of such clubs, and I think that the courts have to be ready to allow 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 any strict interpretation and rigid application of the letter of the rules. In other words, allowance must be made for some play in the joints.”
5.6 It is not that the underlying principle is different. Rather it is that the context of a carefully drafted legal contract between two major corporations entered into after detailed negotiations is very different from the context of the relatively informal rules adopted by a members club to govern their business.
5.7 While a club is, therefore, in one sense, no more than a set of interlocking mutual contractual relations between its members, it does have a form of existence which goes beyond that and which is subject to the jurisdiction of the courts. Also, those contractual terms or rules need to be viewed against the background that they are not to be found in a carefully drafted legal document but rather represent the view of the members of the club as to the rules by which they are to be bound. Against that backdrop, it is appropriate to turn briefly to this Court's assessment as to whether counsel for both parties to this appeal were correct in disagreeing with the trial judge's view that a term should be implied into the Rules permitting amendment by simple majority.
6. Can the rules be amended by simple majority?
6.1 The trial judge reviewed a series of English cases which, as he pointed out, are not necessarily reconcilable. Cases such as Harrington v. Sendall [1902] 1 Ch. 921 and Re Tobacco Trade Benevolent Association [1958] 3 All E.R. 353, suggest that, in the words of Harman J. in the latter case, an unincorporated body "cannot alter its rules by its own motion except possibly with the concurrence of every member of the body". However, Lord Denning in Abbatt v. Treasury Solicitor [1969] 1 W.L.R. 1575, expressed the view that "it was implied that the members could, on notice, by a simple majority and general meeting, amend or alter the rules". However, as the trial judge pointed out, Cross L.J. in the same case, while agreeing with the result, took that view because of acquiescence. The third member of the Court of Appeal did not express a view other than agreeing with the result.
6.2. The trial judge also referred to cases such as Re Lead Co. Workmen's Funds Society [1904] 2 Ch 196, and Keys v. Boulter (No. 2) [1972] 1 W.L.R. 642, where it was determined that there was a jurisdiction to dissolve or treat as having been dissolved an unincorporated society even though there was not unanimity. It will be necessary to return to some of that later case law in due course. However, it seems to me that that line of authority is more properly seen as part of the jurisprudence relating to the inherent jurisdiction of the Court to dissolve on just and equitable grounds or because of the disappearance of the substratum of the association concerned rather than as providing authority for the proposition that a club can, in the absence of a contrary provision in its rules, be taken to have an implied authority to amend the rules by simple majority.
6.3 The starting point of any analysis has to be that, prima facie, the rules, representing as they do a contract between all of the members, cannot be altered except by agreement of all those members or in accordance with a specific provision in the rules allowing for such amendment. That is the position which applies in respect of any ordinary contract. A multi-party commercial arrangement cannot be altered without the agreement of all parties affected. The fact that it might make sense that a majority (or perhaps a large majority) could change the contract does not mean that such is legally possible unless the parties have agreed to an amendment mechanism. When people join a club they are committing both their efforts (whether great or small) and their resources (whether great or small) to the club on the basis of the rules as they then exist. They are entitled to have those rules applied and not to have the rules changed without their agreement (or in accordance with an amendment procedure which is to be found in the rules and to which they must be taken to have signed up by joining a club with such an amendment procedure).
6.4 Even if it might be taken to be prudent for any club to have an amendment procedure, it does not seem to me to follow that a court should imply one if it is not to be found in the rules. In the context of established errors in contracts, it is clear that a court can, in accordance with the "text in context" method of interpretation, properly interpret a contract in a way which acknowledges an obvious error but only where it is equally obvious as to what should have been in the contract concerned had the relevant error not taken place (Moorview Developments & ors v. First Active plc & ors [2010] IEHC 275). It seems to me that an analogy applies in respect of implied terms. Where the term which is sought to be implied arises because of the fact that the contract might be said to have been in error in omitting to deal with a particular question, it will only be possible to imply a term if it is not only the case that it is obvious that the issue should have been dealt with but, equally importantly, if it is obvious as to the way in which it would have been dealt with if it had been thought of. The absence, for example, of a time within which a contractual obligation is to be met can be dealt with by implying a term that the obligation in question be met within a reasonable time. If the obligation is not met, then it will fall to the Court to assess whether a reasonable time had elapsed. But even if it seems obvious that the parties should have dealt with a particular issue (which they have omitted to do), if there are a series of different ways in which that issue could have been dealt with, how can a court, at least in many cases, choose one of them as being the obvious way in which the parties would have dealt with the issue had they thought of it and thus imply such a term into the contract?
6.5 It may well be prudent to include an amending provision in the rules of any club. However, there are very many models for amending provisions. Many clubs require a qualified majority for example. Where there are different classes of membership, the rules may well deal with who is to have the right to vote on an amendment and who or what group may exercise a veto. It might well be prudent to include a restriction on amendments of a particular type which could have the effect of interfering in a disproportionate way with the position of certain members or classes of members. All of these are issues to be addressed by those formulating the rules of a club in the first place. If a club does not have any provision for amendment, how is a court to decide which model of amendment ought be implied?
6.6 I must, therefore, respectfully disagree with the suggestion made in "The Dissolution of Unincorporated Non-Profit Associations" (1928) 41 Harv. Law Review 898, which was cited by the trial judge and which suggests that a reasonable interpretation of silence in the rules of an association is to infer "that majority rule is tacitly agreed upon". Why should it necessarily be majority rule on all questions and why, in particular, simple majority rule? These questions are even more difficult when there are different categories of members. On what basis is it to be implied, as the trial judge found, that certain types of amendments are, by implication, to be capable of being adopted by simple majority but others not? It seems to me that the form of implication which is implicit in the trial judge's ruling involves not just the identification of a properly implied term but, in truth, a writing or rewriting of the rules concerned.
6.7 I agree, therefore, with both counsel, on that basis, that it is inappropriate to imply into the Rules the power to amend by simple majority. While it is true, as the trial judge pointed out citing National Union of Railwaymen v. Sullivan [1947] I.R. 77, that freedom of association is recognised under the Constitution and while it is also true that the corollary right to disassociate is constitutionally protected, I do not see that the right to disassociate carries with it, even on the part of a majority, a right to have the relevant unincorporated association dissolved. True it is that members have a stake in any club or organisation and, in particular, have a financial stake in an organisation which owns valuable assets. But their primary stake, indirectly held, in those assets is to have the assets concerned used in furtherance of the purposes of the association or club concerned. It is to that that they committed when joining the body. The mere fact that they no longer wish those assets to be deployed in that way does not, of itself, give them a right to deprive others (even a minority) of their entitlement to have those resources applied for the common purpose for which the resources were allocated in the first place.
6.8 The primary solution to a party's right to disassociate is fulfilled simply by their resignation from the body concerned. Of course, there may be cases, such as Education Co. of Ireland v. Fitzpatrick (No. 2) [1961] I.R. 345, where the consequences of not being or not remaining a member of an association may be such as lead to the conclusion that a person is being coerced to join or remain in the association concerned. To the extent that it might be said that, in suggesting that a person can resign from a club, such a person might, thereby, be deprived of what would otherwise be their interest in the club's assets, it can also, and with greater force, be said that the only reason why such a person has an interest in those assets in the first place is because that person joined an organisation which was committed to the use of those assets for a specified purpose. If that purpose is no longer capable of being fulfilled then, for reasons which I will shortly address, there is ample jurisdiction to have the Court intervene. However, if, albeit only with the support of a minority of its existing members, the club or association remains both financially viable and capable of fulfilling its purpose, then it seems to me that there is no infringement of the right to disassociate by indicating that it can be achieved at the price of giving up one's interest in the club or association concerned and allowing a minority who wish to carry on with its activities to use the resources which were designed to that end for that purpose. On that basis, it does not seem to me that there is any implied entitlement on the part of a simple majority either to alter the rules of a club or to require its dissolution in the absence of express rules providing for such alteration or dissolution.
6.9 Against that backdrop, it is, therefore, necessary to turn to the first substantive issue which is as to whether it is appropriate to find in favour of Trustee Representatives on the issue raised in their notice to vary and, thus, reverse the finding of the trial judge that the substratum of this club continues to exist, it being accepted that a finding that the substratum has ceased to exist can justify dissolution.
7. Had the Substratum ceased to exist?
7.1 While there is only limited Irish authority on the point, counsel for both sides accepted, as pointed out earlier, that the Court has a jurisdiction to dissolve a club (or indeed to determine that a club has already been dissolved) if the fundamental basis or substratum of its existence has disappeared. This jurisdiction, insofar as it exists in England and Wales, is addressed in detail in the decision of Brightman J. in Re William Denby & Sons Limited Sick and Benevolent Fund [1971] 1 W.L.R. 973. This case concerned a sick and benevolent fund which had become inactive. The fund had been operated without complaint in variance to its own rules for a number of years, but the primary cause of the fund’s inactivity was the departure from the relevant company of 176 of the then 300 members in October 1963 following an industrial dispute. It was then considered impracticable by those operating the fund to continue the fund and no further subscriptions were collected. However, payments to those in receipt of benefits at the date of departure in October 1963 continued to be paid until April 1964. The fund was thereafter inactive for over four years before proceedings were brought as to whether the fund was distributable and, if so, on what terms.
7.2 Brightman J. outlined at p. 979 a number of cases where the surplus assets of various associations were distributed to their members. Brightman J. considered these cases to be examples of associations, in effect, being treated as having been dissolved on the basis of “loss of substratum”. Although the phrase “loss of substratum” was not used in any of those cases, he believed “loss of substratum” was the “true principle” and “basis on which those cases proceeded” (The phrase “loss of substratum” was taken from the judgment of Warrington J. in In Re Lead Company's Workmen's Fund Society).
7.3 In that context it is appropriate to look at some of those earlier cases. In Tierney v. Tough [1914] 1 Ch. 142, a society had been formed to provide sickness and other benefits for canal boatmen. However, the passing of the National Insurance Act 1911 meant there was no purpose to be served by prolonging the existence of the society. In re Customs & Excise Officers' Mutual Guarantee Fund [1917] 2 Ch. 18, the requirement for fidelity bonds for customs and excise officers was abolished and this obviated the need for a fidelity bond guarantee fund. In one of the few Irish cases, Feeney and Shannon v. MacManus [1937] I.R. 23, the General Post Office (Dublin) Dining Club which functioned in the building, ceased to operate following the destruction of the building on the 26th April, 1916. Finally, in Re St. Andrew’s Allotment Association [1969] 1 W.L.R. 229, the association concerned became inactive and the relevant allotments were later sold. Applying those authorities to the case before him, Brightman J. concluded that the sick and benevolent fund had not been dissolved or terminated. His reasoning is set out at p. 981:
“It appears to me quite impossible to contend that the substratum on which the fund was founded disappeared on October 30, 1963, or that it then became impracticable to operate the fund. The membership was still substantial and was likely to increase as the company rebuilt its labour force…. The substratum of a society or fund does not disappear because the officers misinterpret the rules and think that the society or fund cannot be continued. Nor does the substratum go because the officers decide on their own, without exercising any power given to them by the rules, that they will cease to operate the society or fund and will close it down. Nothing turns on the fact that the works council was not available to carry out the functions assigned to it by the rules. The works council had ceased to function in 1953 and the fund operated for ten years successfully in its absence.”
7.4 This judgment is reviewed in Brian Green, “The Dissolution of Unincorporated Associations” (1980) Modern Law Review 626, as part of a much broader review of circumstances permitting dissolution. In this piece, the author opines that “Brightman J.’s characterisation of 'loss of substratum' seems little more than a rather unnecessary, and perhaps restrictive, re-labelling of what in other circumstances is simply referred to as contractual frustration”. The author agrees that the authorities cited by Brightman J. in Re William Denby, except the St. Andrew's Allotment case, are examples of contractual frustration/loss of substratum.
7.5 This issue was again canvassed in In re GKN Bolts & Nuts Ltd Sports and Social Club [1982] 1 W.L.R. 774, which concerned a sports and social club. The club owned a sports ground, but following the dissolution of the club’s football team, the grounds fell largely into disuse. On some occasions, the grounds were hired out but this ceased in 1975. Some rooms in the premises of the company with which the club was associated were also used for club activities. However, their stock of drinks was also sold in 1975 to meet the club’s debts. So, by 1975, the club had ceased to operate any activities for its members. Later that year, a general meeting was called to discuss a proposal to sell the sports grounds and a unanimous decision was made by those present to dispose of the grounds. That sale fell through. However, the lands were later sold in 1978. The distribution of the proceeds of that sale resulted in proceedings before Megarry V.-C.
7.6 The Vice-Chancellor held that the question before him was whether there had been a spontaneous dissolution of the club in the circumstances, there having been no unanimous agreement to dissolve. On this issue, he observed at p. 779:
“As a matter of principle I would hold that it is perfectly possible for a club to be dissolved spontaneously. I do not think that mere inactivity is enough: a club may do little or nothing for a long period, and yet continue in existence. A cataleptic trance may look like death without being death. But inactivity may be so prolonged or so circumstanced that the only reasonable inference is that the club has become dissolved.”
Returning to this point at p. 780, he stated:
“Mere inactivity is equivocal: suspended animation may be continued life, not death; and the mere cessation of function that was mentioned in the Abbatt case would not, I think, suffice per se. But inactivity coupled with other circumstances may demonstrate that all concerned regard the society as having ceased to have any purpose or function, and so as no longer existing. I think that short inactivity coupled with strong circumstances, or long inactivity coupled with weaker circumstances may equally suffice. The question is whether, put together, the facts carry sufficient conviction that the society is at an end and not merely dormant.”
Megarry V.-C was of the opinion that such an approach was supported by the decisions in Abbatt v. Treasury Solicitor and Re William Denby. However, he was reluctant to use either of the terms “contractual frustration” or “loss of substratum”. In the circumstances of that particular case, the judge ruled that the various positive acts up to and in 1975 and the cessation of club activities by that point amounted to a “systemic dismantling of the club and its activities”, rendering it incapable of meeting its objects. This was said to amount to a “spontaneous dissolution”.
7.7 While there may be some debate about the correct term to use and the extent to which the jurisdiction is largely analogous to the doctrine of frustration of contract, it seems clear that the real issue which arises, where it is asserted that a club has been or should be dissolved on a basis which I will call, for convenience, "loss of substratum", is as to whether there has been, in practice, a disappearance of the activities of the club or association and/or an inability or impracticality in carrying out the objects for which the club or association was formed.
7.8 Therefore, in one sense, an analysis of whether that test is met on the facts of this case requires that an answer be given to a more fundamental question which is as to the purpose of this club and, in that context, what should properly be regarded as the Club's activities.
7.9 There is no doubt that the object of the Club is to promote sporting and social activity on behalf of its members (see Rule 2). But who are the members for that purpose? Is it just the ordinary members who are employees of the Roadstone Group? Does it include the other forms of members most particularly the associate members? While it is true that Rule 1 states that "membership shall be open to all persons in the employment of The Roadstone Group", it must also be acknowledged that the Rules allow for associate members. It seems to me that to ignore the status of those associate members in the context of considering the purpose of the Club (and, in particular, whether that purpose can be said to still exist) is unreal. For the reasons already analysed, a certain practical approach needs to be taken to construing the rules of a club. It is not a statute produced by skilled parliamentary draftsmen or a contract arrived at after careful consideration by lawyers on both sides. A club which charges the same subscription to associate members and, except for certain voting rights, confers the same practical benefits on them, seems to me to be a club whose purpose can properly be said to include the fostering of social and sporting links involving the associate members as well as the ordinary members. For that reason, it seems to me that the argument based on the fact that very few, if any, ordinary members continued to use the Club on a regular basis, is one which misses the point.
7.10 Rule 2 refers to the object of the Club being to promote, supervise and encourage sporting and social activity on behalf of "it's (sic) Member's (sic)". Given that the same Rules allow for a range of categories of membership, it is hard to see how it can reasonably be said that the only persons whose sporting and social activities are to be considered are those ordinary members who are employees of the Roadstone Group. While the primary focus of the Rules is on those ordinary members, it does not seem to me that it is the sole focus of the Club's legitimate activities in accordance with its Rules. An assessment of whether the Club's purpose has ceased to exist must, therefore, consider that aspect of its purpose which involves providing facilities and support for categories of members other than ordinary members.
7.11 Next, it is necessary to consider the argument put forward which suggested that much of the activity of the Club involved letting out its facilities to third parties. It is important to emphasise that a club which has attractive facilities is more than entitled to rent out those facilities to interested third parties. Many clubs supplement their income in this way. Provided that it cannot be said that the proper activity of the club has, in substance, been entirely or substantially replaced by such renting out, then it seems to me that the fact that the club concerned may find it commercially sensible to exploit underused facilities in such a commercial way is neither here nor there. If the members find that their facilities can be maintained by their being rented out some of the time and, thus, that those facilities remain available for the members' use the rest of the time, then this is an entirely sensible way for a club to carry on its activities and fulfil its purpose. The fact that members may be prepared to give up on their ability to use their facilities at certain times to secure income which allows those facilities to be maintained for their use at other times is, in my view, in conformity with an ordinary and normal use of club facilities. It should be said that a point might be reached where the balance of the use of a club's facilities had so overwhelmingly tipped in favour of same being rented out rather than used by the members, that the question of whether the relevant club was truly continuing to be used for its proper purpose (being the availability of the facilities for its members) might well arise.
7.12 However, having regard to my view that use by associate members is a form of use contemplated by the Rules and, thus, an activity inconsistent with the Club being regarded as moribund, and having regard to the scale of commercial use identified in the evidence, I am satisfied that the facts in this case fall a long way short of the kind of situation which I have just postulated where commercial use has so overborne use by members as to leave the relevant club virtually moribund.
7.13 Furthermore, in assessing whether it can be said that the substratum of this club has disappeared, some regard must be had to the fact membership has been closed since 2008. Even to the extent that some additional material weight can be attached to the activity of ordinary members as opposed to associate members, any assessment of the activity of ordinary members needs to take into account the fact that no new ordinary members have been admitted because of the closure of membership. A club which just cannot recruit members may well ultimately find that its substratum has disappeared. A club which, for whatever reason (and even if that reason be entirely understandable) decides to close membership, cannot really argue that its substratum has disappeared by virtue of the lack of use of its facilities by a membership which has been fixed in time and not open to continuing renewal.
7.14 In that context, it is appropriate to recall the views expressed by Brightman J. in William Denby and Sons, already cited, to the effect that a decision to cease activities which is not made in accordance with a power in the rules of the club so to do carries no weight in considering that the substratum has in fact disappeared.
7.15 The facts on which the trial judge reached his conclusion that the substratum of this club has not disappeared were, in my view, facts which he was more than entitled to find on the evidence. For the reasons already analysed, the consideration given by the trial judge to the commercial letting out of the Club's facilities on occasion was not misplaced. The trial judge was entitled to conclude that such activity allowed the Club to continue in being for the benefit of its true purpose, being the enjoyment of its facilities by its members (including associate members) for the purposes of promoting social and sporting activities.
7.16 On the basis of the findings of fact of the trial judge, I am satisfied that this case falls a long way short of one where it can be said that the substratum has disappeared. I would, therefore, dismiss the appeal brought by the Trustee Representatives on their notice to vary in that regard. Having found that there was no implied term to allow dissolution by majority decision and having upheld the trial judge's decision that it cannot be said that the substratum of the Club had disappeared, it follows that the remaining issue concerning dissolution turns on the potential exercise by the Court of its power to dissolve a club on just and equitable grounds. I turn first to the basis of that jurisdiction and the criteria which should be applied.
8. The just and equitable jurisdiction
8.1 The existence of an inherent jurisdiction in a court to dissolve a club or association on the basis that it is “just and equitable” so to do is uncontested by the parties. The first reported case where this jurisdiction was in fact exercised was Re Lead Company's Workmen's Fund Society. In that case, a society was established for the benefit of workmen in a particular company to provide subsistence in times of sickness and old age. However, the company from which the workmen came had ceased to trade. Although the society still retained substantial assets, these assets would have naturally diminished over time as no new members could be admitted and existing members would eventually cease to make contributions. As a result, there would be little or no funds remaining for younger members of the society on retirement. A large, but not unanimous, majority voted for the society’s dissolution, even though the rules of the society did not make provision for such an event. On coming before Warrington J., he ruled, at p. 204, that the Court has an inherent jurisdiction to grant a dissolution, and would exercise that jurisdiction in that case:
“…it seems to me that where you have, as you have in the present case, funds which belong to a number of persons who have individually certain interests therein regulated either by a trust deed, or, as in the present case, by a body of rules, and especially where, as in the present case, you find those funds are vested in trustees for the members of that society, then I think the Court has jurisdiction to interpose. If it finds that the interests of those to whom the funds belong cannot be carried into effect mode et forma as they have at other times determined amongst themselves they shall be divided, then I think the Court has power to interpose and say that justice cannot be done by allowing these rules to go on as they have gone on hitherto, because if that is allowed certain members of the society will get benefits to which, as between themselves and the other members, they were never entitled, and the only way in which justice can be administered on equitable principles will be to endeavour to do the best one can to give to each member of the society that interest in the funds to which he is justly entitled, and that can only be done by winding up the society.”
8.2 Blake v Smither (1906) 22 T.L.R. 698 concerned an application to wind up a friendly society in circumstances where a simple majority of members (14-13) had voted for the dissolution of the society and its expenditure had exceeded receipts for some years. Subsequent to the vote, the society’s committee met and decided to continue to run the society. There remained considerable monies and other parties had since expressed their willingness to become members. As a matter of principle, Kekewich J. ruled that “the Court ought not to interfere unless there was a practical impossibility of the society continuing”. He distinguished the decision in Re Lead Company's Workmen's Fund Society on that basis that “in that case there was an overwhelming majority in favour of dissolution, and …[Warrington J.] thought that unless he interfered justice could not be done.” Having held that there was no such practical impossibility in the case before him, he declined to exercise his jurisdiction to wind up the society.
8.3 This jurisdiction was again exercised in Keys v Boulter (No. 2), where the court was faced with a situation where the amalgamation of two trade unions had failed. Representative parties of the original constituent unions sought to dissolve the amalgamated union and return the now combined assets to the original unions. However, the rules of the amalgamated union only provided for distribution of the funds among all the members on dissolution. Having referred to Re Lead Company's Workmen's Fund Society, Megarry J. concluded at p. 644:
“it seems to me that it is possible to infer from what [Warrington J.] said that there is a principle conferring jurisdiction which is applicable not merely to unregistered friendly societies, but also to any body of any kind for which no appropriate machinery exists for securing its proper winding up. Certainly I consider that the inherent jurisdiction of the court ought to extend thus far, and I think it does.”
It should be noted that the application in that case was made on consent and no objection seems to have been taken by any member to the proposed course of action.
8.4 I am satisfied that both counsel were correct in identifying that the jurisdiction described in those English cases also applies in Ireland. The Court has, as Megarry J. suggested in Keys v. Boulter, a jurisdiction to dissolve an unincorporated association or club where no appropriate machinery exists for securing its proper winding up.
8.5 In passing I should comment on the distinction between the "loss of substratum" jurisdiction and that based on it being just and equitable to dissolve. There may be some overlap. However, the former is concerned with clubs or associations which have already, as a matter of substance, ceased to exist. Indeed, some of the reported cases were really about when, rather than whether, the body concerned became moribund for that question of timing was relevant to distribution issues. In such cases the Court makes a declaration that the relevant body has ceased to exist as a matter of substance either at a specified date in the past or as of the date of trial. Dissolution and consequential orders follow. The just and equitable jurisdiction is concerned with bodies which continue, at least to an extent, to exist in substance.
8.6 It is, therefore, also necessary to consider the circumstances in which it will, ordinarily, be appropriate for a court to exercise that jurisdiction. Perhaps the first, and most important, point to make is to reiterate that persons who join a club or association commit themselves to its objects and its rules. No one is required to remain a member of the club if they do not wish to. The mere fact that a majority might wish the club to dissolve does not seem to me, therefore, to provide a sufficient basis, without more, for the exercise of the Court's jurisdiction. If there is a sufficient minority willing to continue with the club and if there is some reality to the club being able to continue to fulfill its function with such a minority, then there will always be a strong case to suggest that the club be allowed to continue in existence. At the level of principle such a minority are entitled to be heard to say that the club's purpose can continue to be achieved and that those who do not wish to be associated with the achievement of that purpose in the future can, if they wish, resign or retire. The majority have no necessary right to prevent a minority who wish to and are able to continue with the club from so doing.
8.7 What more then is required in order for the Court to exercise its jurisdiction? It is important to start by emphasizing that the jurisdiction is a broad based one. It is, therefore, impossible to give an exhaustive list as to the sort or circumstances in which it might be appropriate for the Court to consider exercising its power to dissolve on just and equitable grounds. It is also important to emphasise that unincorporated clubs and associations can have many forms and exist for many purposes. Many sports and social clubs have, of course, facilities which are necessary for the promotion of their objects. Sporting grounds and clubhouses may facilitate the attainment of the objects of such clubs. Other unincorporated associations are designed to promote particular ends be they political (whether with a capital or small p) or otherwise. Such organisations may not require significant assets and may provide little more than an appropriate vehicle for those of like mind to pursue their aims. Many other examples could be given.
8.8 It follows that the sort of circumstances which might make it just and equitable to dissolve an unincorporated association can vary enormously. The situation of a sporting club which happens to own a very valuable asset may be very different from the circumstances of a small local organisation, set up to pursue a particular objective in (say) the environmental field, which has little or no assets. It also seems to me that the authorities to which reference has been made do place some reliance on the views of an overwhelming majority of the members. That is an issue which it will be necessary to address both at the level of principle and on the facts of this case. However, it is important to emphasise that those authorities do not suggest that a majority (or even an overwhelming majority), has a right, as such, to require an unincorporated association to be dissolved (in the absence of a specific rule to that effect) but rather suggest that the existence of an overwhelming majority in favour of dissolution may be a factor to which weight needs to be attached in the exercise of the Court's jurisdiction to consider whether it is just and equitable to dissolve.
8.9 While, therefore, it does not seem to me that a mere majority favouring such a course of action could justify dissolution, (in the absence of the club's rules providing for dissolution in such circumstances) nonetheless it may be that, in circumstances where an overwhelming majority favour dissolution, a court will have to give serious consideration to treating it as just to give effect to the views of that majority. While it is true that a viable minority wishing to continue with the activities of a club may well be entitled to their chance to use the club's facilities and assets for that purpose, nonetheless there may be circumstances where such a large number of those who have a stake in the club no longer wish that the club's activities should continue, that the balance of justice tips in favour of dissolution. It is not possible (in the absence of a specific rule providing for dissolution) to specify any particular percentage. A court would have to take into account all necessary factors including the efforts made to ascertain the views of all members and, where relevant, the separate views of different categories of membership. All that can be said, in my view, is that a court can, in considering where the justice of the case lies, take into account a view in favour of a dissolution, held by an overwhelming majority of members, in reaching an ultimate conclusion.
8.10 Next, a case where there was little or no chance of the club being able to continue in existence for any appreciable period of time would give rise to a very powerful argument in favour of dissolution. A club which is doomed to extinction does not have to be kept artificially alive until its substratum finally disappears when that result is all but inevitable within a relatively short timeframe.
8.11 Of course, there may be a connection between these two factors. The real prospect for survival of a club in circumstances where an overwhelming majority of its members wish for its dissolution may be highly questionable. Thus, two questions which a court will frequently have to ask on a dissolution application will be as to whether there is a sufficient majority favouring dissolution (including the confidence which the Court can have that the views of all categories of membership have been properly ascertained) and the realistic prospects for survival of the club, both at a financial level and insofar as the purposes of the club remain capable of being achieved.
8.12 One further factor which I think is worth noting, which may justify the exercise of the Court's jurisdiction to dissolve, arises out of any abuse of power within the club. It should be emphasised that no such factor is argued to arise in this case. However, an abuse by a majority, or a powerful organ established by the rules of the club, of its position as a result of which it might be said to act to the detriment of a minority, or those not possessing the power in question, might well justify dissolution. Just as a significant and viable minority, who wish to continue with the objects and purpose of the club, are entitled to a reasonable opportunity so to do, so also are a minority entitled to be allowed to play their part in the furtherance of the objects of the club without impermissible interference by a majority which exercises its power contrary to what might be called the spirit or the intent of the rules as to how the affairs of the club were to be conducted.
8.13 Turning to the facts of these proceedings, the real case made on behalf of the Trustee Representatives both in the High Court and in this Court was to suggest both that there was an overwhelming majority in favour of dissolution and, perhaps in part because of that fact, that there was no future for the Club and that, thus, it would be just and equitable to have it dissolved. I am satisfied that it would be just and equitable to dissolve the Club if such a situation could be said to exist. I did not understand counsel for the Trustee Opponents to argue to the contrary. The real issue which lay between the parties under this heading was as to whether such findings could be made on the facts which either went unchallenged before the High Court or as were decided by the trial judge in circumstances where, because the trial judge took a different approach to the overall question, the issue of the exercise of the relevant jurisdiction was not determined in the Court below. It is, therefore, necessary to address the question of whether it can be said that the Club is doomed to failure which is, of course, connected to the numbers favouring dissolution. As noted earlier these are, in practice, two connected questions. Can the Club survive financially and can the Club's objects continue to be fulfilled? I propose dealing with each of those questions in turn although recognising that there is a connection between them.
9 Can the Club survive financially?
9.1 One of the considerations which clearly motivated the Committee in forming the view that the Club had no prospect of survival was the fact that the Club has incurred losses for some period of time. In that context there was a debate at the hearing of this appeal as to the extent to which the Court should have regard to the undoubted fact that, in calculating those losses, a significant amount of depreciation was, in accordance with proper accounting practice, included as a deduction in calculating those losses. It is, of course, the case that depreciation does not represent a cash cost. Depreciation is a means of spreading the cost of capital investment over an appropriate period. In the long run there can be no doubt but that depreciation has to be considered in relation to the viability of any organisation. If a company’s business requires plant and machinery, then such plant and machinery will need to be renewed from time to time. Likewise, some provision for the renewal of a club's facilities will need to be made if a club is to continue. To ignore depreciation entirely would, therefore, be inappropriate. On the other hand, it must be acknowledged that, as a matter of practicality, as opposed to a matter of accounting, any organisation, whether business oriented or otherwise, does not immediately incur the cash cost of any such depreciation. Provided that it be realistic that a renewal of facilities, sufficient to allow the activities and purpose of a club to continue to be fulfilled, can be achieved, it follows that depreciation need not be fully accounted for in the short term.
9.2 In addition, it is clear that the Club retains a significant cash surplus being the balance remaining of the sums obtained when land was disposed of to the local authority. While that sum has reduced over the years, it is also important to note that a significant part of its recent depletion has resulted from expenditure on or connected with this litigation. It does not seem to me that such expenditure should be given significant weight in assessing whether it is just and equitable to dissolve the club. If it were not, prior to these proceedings being commenced or contemplated, appropriate to dissolve the Club, then it would be inequitable that the Club would be dissolved (unless there were absolutely no alternatives) because, contrary to that view, monies were expended on litigation designed to achieve what would, in those circumstances, be determined to be an unjustified end. It is necessary to make two observations on the last comment. First, it is important to emphasise that nothing in this judgment should be taken as being in any way critical of the bona fide attitude adopted by the Committee and by the Trustee Representatives in seeking to have the Club dissolved. I have no doubt that they formed a genuine view that the Club had no real prospect of survival. Indeed, it is true to say, as counsel urged, that any court would have to place some material weight on their views in that regard for they are the persons who have been charged over the years with attempting to preserve and, indeed, revive the Club.
9.3 Second, it is important to emphasise that a situation might arise where, notwithstanding expenditure on litigation being a primary cause of impecuniosity, a club might nonetheless have to be dissolved for there might just be no way in which it could conceivably survive.
9.4 However, so far as the financial aspect of the Club is concerned, it still retains significant reserves which can allow it to meet its cash requirements for some time to come. In the context of a situation where membership has been closed for some years, it seems to me that it is impossible to conclude that there is no realistic prospect of the Club being revived within a timeframe during which it can readily survive on its existing cash reserves. It is in that context that the depreciation issue seems to me to be particularly relevant. There does not appear to be any immediate need to renew facilities. Over the next number of years, therefore, all that the Club needs to do to survive is to be able to meet any cash shortfall from its reserves. On that basis it seems clear that the Club can survive for quite a number of years yet. In those circumstances, there is at least a realistic prospect that, with membership reopened, its fortunes can be revived to such an extent that it can continue to fulfill its principal objects.
9.5 It also needs to be taken into account that the Club has a very valuable asset. If there were something of an improvement in its fortunes which gave a real prospect of viability in the future, then there is no reason in principle why, on the security of that valuable asset, some borrowings could not be entered into to cover any financial shortfall on a cash flow basis pending any revival of its fortunes being reflected in its cash balances. Likewise, any desirable and necessary investment in its facilities could be met in that way.
9.6 All of that is not to suggest that there is anything remotely resembling a guarantee that the Club can survive financially. Its recent difficulties are genuine and may not be capable of being reversed. However, for the reasons already addressed, a risk that it may not be able to survive falls a long way short of meeting the test for it being just and equitable that it be dissolved. Those who wish to promote its continued survival, even if they be a minority, are entitled to have the resources of the Club deployed in an attempt so to do provided that there is some realistic prospect of survival being achieved. The reason for that approach, as has been pointed out, is that the Club's resources are there for the purposes of the Club. If there is a reasonable prospect of those purposes being capable of being continued, then the resources should be applied in that direction. In conclusion, on the financial side, I am not, therefore, satisfied that it has been established to anything like the necessary degree of likelihood that the Club has no prospect of surviving financially such as would justify it being just and equitable on that basis to dissolve it. However, the Club is not just about its finances. It obviously must also be capable of achieving its purposes. I, therefore, turn to that question.
10 Can the Club continue to achieve its purpose?
10.1 For the reasons already analysed, I am satisfied that the achievement of the purpose of the Club, being the promotion of sporting and social activity amongst employees of the Roadstone Group, must be taken, because of their status in the Rules, to include the promotion of like activities amongst associate members. The Trustee Representatives place particular reliance on the fact that it does not appear that any ordinary members (who must, of course, in accordance with the Rules be current employees of the Roadstone Group) are making use of the Club's facilities. However, actual use does not seem to me to be necessarily decisive. Persons may be happy to subscribe to a club (by paying their annual subscription) on the basis that its facilities may occasionally be available to them when they wish to use them. Provided that it be financially viable and provided that sufficient persons continue to subscribe, then use is not necessarily determinative of the continued fulfillment of a club's purpose.
10.2 In addition, the current situation needs to be viewed against the background of recent uncertainty as to the Club's future and the closure of membership to which reference has already been made. Insofar as it is undoubtedly legitimate to pay particular attention to continued ordinary membership (because of the way in which the objects of the Club are described in its Rules), I am not satisfied that it has been established that the point has yet been reached where, even on the basis of the decline in ordinary membership and the apparent lack of use of facilities by those ordinary members, the purpose of the club can be said to have disappeared. That is so because there are still ordinary members willing to subscribe and there might well have been more but for the uncertainty over the Club's future and closure of membership. It is also so because some not insignificant weight needs to be attached to the continued activities of the associate members who are recognised as a category of members in the Rules and whose continued membership in significant numbers and use of the club also needs to be considered.
10.3 In passing, it should be noted that the precise position of associate membership appears to be somewhat complex. The Rules, as cited earlier, clearly contemplate that former ordinary members can become associate members on ceasing to be employed by the Roadstone Group. That factor is, in itself, material to considering the objects of the Club. Clearly what was in contemplation was that those who had enjoyed ordinary membership should not be shut out simply by retirement or resignation. However, it also appears that other persons were, for historical reasons, permitted to join as associate members (even if not always in strict compliance with the Rules) and it is not now suggested that there could be any basis for questioning the validity of the status of those associate members. They have, by paying the appropriate subscription and engaging in the activities of the Club, placed reliance on their status and all would, undoubtedly, be estopped from denying that status at this stage. The use by such members of the Club's facilities is, therefore, or at least must be taken to be, in accordance with and in furtherance of the objects of the Club. The continued use of the Club's facilities for the benefit of those members must also be taken into account in assessing the extent to which it can be properly be said that the Club can continue to fulfill its objects.
10.4 I am not, therefore, satisfied that the Trustee Representatives presented sufficient evidence before the High Court which would have allowed the High Court judge, even if he accepted all of that evidence, to have concluded that the time had yet been reached where the Club could, by reason of disinterest on the part of its members or lack of interest in joining on the part of those who might be potential members, no longer be capable of fulfilling its purpose. While this Court's task in that regard has been made somewhat more difficult by the absence of findings of fact, I am nonetheless satisfied that it is possible to determine, on the basis of those facts which went unchallenged in the High Court or those facts which were found by the trial judge, that it has not been established that there is a sufficient lack of interest in or use of the Club to justify a finding that it will no longer, in relatively early course, be able to fulfill its purpose.
10.5 Having concluded that there was insufficient evidence on which the High Court could have determined that this club was doomed to failure either for financial reasons or because its purpose and objects could no longer be fulfilled, it remains only to consider the weight to be attached to the admittedly large majority of ordinary members who resolved that the Club should be dissolved.
11. The Role of a Majority in a Dissolution
11.1 As already pointed out, a club's rules can provide for dissolution in whatever circumstances the rules determine. In such a case, provided the relevant rules are complied with, a majority, in whatever way same is to be determined in accordance with the rules, will suffice. However, I am now concerned with the separate question of the weight which a court should attach to the majority views of the members of a club in the exercise of its just and equitable jurisdiction to dissolve. For the reasons already analysed, I am not satisfied that a majority as such is sufficient to warrant the Court's exercise of its jurisdiction. A minority which is capable of continuing in a viable way with the activities of a club are entitled to have the club's resources committed to that continuance. However, an overwhelming majority favouring dissolution might lead the Court to an alternative conclusion. It is in that context that the vote of the members of the general meeting which led to these proceedings needs to be assessed. On one view, there was an overwhelming majority. Of the ordinary members present and voting, 45 voted in favour and 4 voted against. If that were the only consideration, then it might have provided a powerful argument in favour of dissolution. However, it seems to me that those figures need to be seen in context.
11.2 First, at the relevant time, even considering ordinary members alone, those present represented only about one half of the ordinary members. It is important, for these purposes, to distinguish between a formal vote of the club in accordance with its rules (when those entitled to vote are determined by the rules), and an assessment of the views of the membership which a court exercising an equitable jurisdiction may need to take into account. In my view, if it were desired to persuade the Court to exercise its jurisdiction to dissolve on the basis that an overwhelming majority of the members favoured such a course of action, then a more inclusive means of assessing the views of members would be required to be adopted including, for example, allowing views to be expressed by post or in some other way that gave a greater knowledge of the views of the membership as a whole.
11.3 In addition, it does seem to me that some weight needs to be attached to the fact that the terms on which the High Court ultimately ordered that there be dissolution were not the same terms as were supported by the large majority of those ordinary members who attended at the relevant general meeting. The scheme for the distribution of the Club's net assets after dissolution changed radically. The new scheme was never voted on by any group of members (even ordinary members attending and voting). It cannot necessarily be assumed that all of those ordinary members who supported the resolution at the general meeting would also have supported the alternative model, on which the High Court acted, which was only resolved on by the Committee.
11.4 Furthermore, and importantly, I am satisfied that the views of the associate members would need to be taken into account precisely because the Rules confer a status on those members. It is true that associate members cannot vote at a general meeting. However, the question of whether an overwhelming majority of members favour dissolution is not, in accordance with the Rules, a matter to be decided at a general meeting. Rather, what the Court needs to assess is the actual views of the members rather than the result of a vote taken by the members in accordance with the Rules. In that context, I am satisfied that the views of associate members, while attracting less weight than the views of the ordinary members because of the way in which those respective categories of membership are dealt with in the Rules, would nonetheless have to be taken into account.
11.5 In passing, it should be noted that there was some debate at the hearing of this appeal as to the effect of Rule 19, which has already been cited. Rule 19 refers to the fact that honorary and temporary members are not entitled to hold office and that they "would not be entitled to vote as a member or claim a share in the club property" on dissolution. That Rule is somewhat ambiguous. Given that the Rule relates to honorary and temporary members but not associate members, it was suggested by the Trustee Opponents that the Rule implied that associate members would be entitled to vote on the question of dissolution. However, it seems to me that the better construction to place on the Rule (given that there is no provision at all in the Rules for dissolution) is one which excludes an entitlement on the part of honorary and temporary members to vote at all (it being clear that associate members can vote on some issues such as the election of associate member representatives on the Committee) and that honorary and temporary members should not, in the event of dissolution, be entitled to any share in the Club's property (but that, by implication, associate members would be entitled to so share). How that Rule fits in with Rule 37 (to which I will shortly turn) is a matter for another day.
11.6 As pointed out earlier, the Club's Rules are, in many respects, ambiguous. Such Rules should not be construed on an over legalistic basis. However, it seems to me that the construction which I have sought to place on Rule 19 provides the greatest harmony in the overall construction of the Club's Rules. On that basis, the Rules do not provide for any type of vote in respect of dissolution although the Rules do make provision as to who may benefit as a result of a dissolution. Given that the Rules do not make any provision for a vote on dissolution, the Court, in the exercise of its equitable jurisdiction, can take into account, in whatever way may be considered best suited to ascertaining the relevant views, the position of all members in deciding whether it is just and equitable to dissolve.
11.6 If, therefore, at some stage in the future, it is sought to be asserted that the equitable jurisdiction of the Court must be exercised to dissolve the Club, it seems to me that it would be necessary to adopt an inclusive means of ascertaining the views of all of the members so that the Court could assess the situation with the fullest possible information. The views of all categories of members would need to be addressed in that context.
11.7 Finally, it is necessary to address the question of Rule 37.
12. Rule 37
12.1 As noted earlier, Rule 37 was adopted by a general meeting and changed the rules so as to require that any surplus remaining on the dissolution of the Club would be "donated to charity". As also noted earlier, the Rules do not, in fact, provide a mechanism for amendment. It is on that basis that a question mark hangs over the validity of Rule 37. On the one hand, it could be said that the rules of a club cannot be amended, in the absence of a specific rule providing for a mechanism to that end, without the agreement of all members. It does not appear that all of the members agreed to the inclusion of Rule 37 at the relevant time. However, on the other hand, it was suggested by counsel for the Trustee Opponents that the Club had operated for a significant period of time as if Rule 37 were part of the Rules such that many of the existing members had joined the Club at a time when its rule book included that rule. On that basis it was argued that the entire membership had acquiesced in a situation where the Rules were taken to have been amended. On the basis of that argument, it was suggested that any members holding a different view were now estopped from arguing that Rule 37 no longer formed part of the Rules.
12.2 The reason why the rules of a club can not, in the absence of a specific amending mechanism being provided for in the rules, be amended without the agreement of all members is because the rules are essentially a contract between all of those members. However, if parties to a contract permit the contract to be implemented over a prolonged period of time on a basis other than in strict compliance with the contractual terms so that parties act in reliance on the contract being in that charged form, then a situation may be reached where any party to such a contract may be estopped from denying that the contract has so changed. The fact that a party to a multi-party agreement could have objected to the contract being changed above its head does not mean that a party can stand by and allow the implementation of the contract on different terms for a prolonged period (where the other parties rely on the purported change) and then be heard to say, retrospectively, that the contract should not have progressed on the amended basis in the first place.
12.3 Finlay P., in Smith v Ireland & Ors [1983] I.L.R.M. 300, was satisfied that a passage from Crabb v. Arun District Council [1975] 3 All ER 868 represented an accurate statement of the law in this jurisdiction. In the relevant passage from Crabb, Denning M.R. outlined the circumstances in which an equitable estoppel might arise at p. 871:
“Short of an actual promise, if he, by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights knowing or intending that the other will act on that belief and he does so act, that again will raise an equity in favour of the other, and it is for a court of equity to say in what way the equity may be satisfied.”
12.4 If a rule change is put in place in circumstances where there might be a legitimate legal argument to the effect that the rule change is not permissible (either because no rule change is permissible without unanimity or because the specific provisions of the rules allowing for rule change have not been properly complied with), then any aggrieved party is entitled to seek to have the rule change declared invalid. However, if parties acquiesce in allowing the club to continue as if the amendment had validly taken place, then a point will be reached where all parties will be estopped from denying the validity of the rule change concerned. This will particularly be so where parties have changed their position on the basis of the rule change. Anyone who joins a club on the basis of a particular set of rules appearing (without challenge) to be the rules of the club is entitled to assume that their contract is in accordance with those terms. Those parties who join after the impugned rule change have clearly signed up to the club in the form given effect by the rule as amended and have placed reliance on the rules thus appearing to have been amended. But equally all members who were part of the club prior to the impugned rule change will have allowed new members to join on the basis of that altered position and cannot, equally, for that reason, be heard to deny the validity of the new rule.
12.5 While I am satisfied, therefore, that, when originally adopted, there may well have been very serious questions over the validity of Rule 37, I am equally satisfied that the time has long since passed when it was open to any party to challenge its continuing validity. I am, therefore, satisfied that Rule 37 forms part of the Rules. What effect that may have in practice in the event of a dissolution is a matter which would need to be considered at a later stage. A question may at least arise as to how Rule 37 could be put into effect given that no specific charitable purpose is mentioned nor is any mechanism for determining what charitable purposes are to benefit specified. However, that is an issue for another day.
13. Conclusions
13.1 For the reasons set out in this judgment, I am, therefore, satisfied that the trial judge was incorrect to imply a term that the Rules could be amended by simple majority and the Club, thus, be dissolved by a simple resolution of a majority of the ordinary members.
13.2 I am, however, satisfied that the trial judge was correct in determining that the substratum of this Club continues to exist and that it would not, therefore, be appropriate to regard the Club as having been dissolved or to dissolve the Club on that basis.
13.3 I am also satisfied that it has not been established that the circumstances which would make it just and equitable to dissolve this Club exist at present.
13.4 Furthermore, I am satisfied that Rule 37 is and remains part of the Rules although, for the reasons set out earlier, I offer no comment on what the legal consequences of that finding may be for the future.
13.5 Finally, I offer some guidance as to the interpretation of some of the more contentious aspects of the Rules which may provide some assistance to all concerned into the future. In particular, I express the view that, if there is to be any future application to dissolve the Club on just and equitable grounds, it would be necessary for the Court to have regard to whether it had been established that an overwhelming majority of all of the members (whose views would need to be canvassed on an inclusive basis) including associate members, favoured such a course of action. Likewise, the Court would need to consider whether it was clear that the Club's financial position and its potential to continue to fulfill its objects was such that it was doomed to failure within such a relatively short period of time as would not afford any realistic opportunity to allow the Club to continue.
13.6 It follows that, in my view, the appeal must be allowed and the declarations and orders sought in these proceedings be refused. Likewise, the issues raised on the notice to vary must be dismissed.
