Unincorporated Associations – Liability of Members, Officers and Trustees
An unincorporated members’ club cannot sue or be sued, nor can it hold property, in its own name. Accordingly, where an outsider seeks to bring legal action in respect of an unincorporated association, an important question arises as to who is actually liable.
It should be noted that instances of members or officers becoming personally liable for debts incurred by an unincorporated club are relatively rare. This is often because third parties are reluctant to pursue individuals, or are uncertain as to the likely legal outcome. Where action is taken, it is commonly brought against the chairman and secretary in the first instance. Such proceedings can be extremely distressing for the officers concerned.
This is a confusing area of law and, due to the limited amount of case law, it is difficult to be definitive as to the outcome of any particular action. The uncertainty surrounding potential liability frequently adds to the anxiety experienced by members and officers. Club members often hold one of two conflicting views: either that they bear no liability at all, or that they face unlimited liability.
As a general rule, a member’s liability is limited to the amount of their subscription, as it is not ordinarily intended that a member should incur liability beyond the subscriptions payable under the club’s rules. However, where a member or officer is found to be personally liable for a debt, that liability is usually unlimited.
Value Added Tax (VAT)
Anything required to be done for VAT purposes is the joint and several liability of:
(VAT (General) Regulations 1985, SI 1985/886, regulation 10).
The employer is liable for the payment of National Insurance contributions and, where wages or salaries are paid, for income tax under PAYE. The employer will usually be the persons who actually engage the employee, for example the committee or an officer responsible for employees, although in some circumstances the employer may be all the members.
PAYE should be operated on all wages paid to staff and officers, including cash payments made to players for playing or winning a game.
The treasurer of an association is responsible for carrying out all acts necessary in relation to the corporation tax affairs of the association. Where corporation tax is unpaid, HM Revenue & Customs may recover the outstanding sum from the treasurer personally. In such circumstances, the treasurer is entitled to retain association funds in their possession to satisfy the liability and to be indemnified by the association.
A club should determine clearly which individual or group of individuals is the employer, as significant duties and liabilities attach to that role. Any member becoming involved in the employment of staff should ensure that they have an appropriate right of indemnity from the other members and from the club’s assets.
Given the potential liabilities that may arise, corporate status should be considered before significant numbers of staff are employed.
In addition to obligations under employment law, PAYE and National Insurance, the employer has duties in relation to the health, safety and welfare of employees. Failure to make adequate provision for employee safety may result not only in civil claims for damages but also in criminal liability.
Where it is sought to sue a club in contract, proceedings must be brought against the individuals who entered into or authorised the contract. Any officer or committee member who gave or authorised an order for goods or services may be sued. Although such individuals may have acted as agents for the club, the club itself is not a legal entity and cannot act as a principal or contracting party.
A member’s liability is usually limited to the amount of their subscription, unless it can be shown that the members authorised or subsequently ratified the contract. For example, where the rules of the club specifically provide that goods may be ordered on credit, each member may become personally liable. Members may also be liable where they ratify transactions entered into on their behalf without authority.
Contracts, undertakings, leases and agreements containing wording such as “joint and several” should not be signed. Such terms would make each signatory personally liable for the payment and performance of the contract for its full duration. In the event of the club’s failure, liability would fall on each individual who accepted the obligation, placing their personal assets at risk.
Property
Trustees are normally the proper defendants in relation to the club’s premises. Trustees of an unincorporated club do not have the same powers, duties or obligations as trustees of a charity. They are usually empowered to invest the club’s funds, and legal title to the club’s property and assets is typically vested in them in trust for the members.
For liabilities incurred in the course of their duties, trustees generally have a lien over the property. However, unless the rules provide otherwise, trustees are not entitled to an indemnity from the club’s members, and individual members are under no legal or equitable obligation to indemnify them.
Individual members or groups of members may also become liable where a court finds that they owed a separate duty of care to third parties. For example, committee members of a football club have been held personally liable where a stand collapsed and injured a spectator. Similarly, a member with specific responsibilities may be held liable where they have been negligent in performing their duties.
Libel and Slander
An unincorporated members’ club cannot be sued for defamation. Redress must instead be sought personally against the officer, member or employee responsible. Members will only be liable for defamatory statements where they have expressly or implicitly authorised publication.
Expulsion of Members
Disputes frequently arise in connection with the termination or expulsion of members. Actions for reinstatement, damages or defamation are usually brought against the committee. In rare cases, individual members have been held liable through class or representative actions.
Surplus Assets
After payment of all debts, any surplus assets are usually dealt with in accordance with the club’s rules, which commonly provide for equal distribution among members.
Deficits
No statutory liquidation procedures exist for unincorporated clubs, and they cannot be voluntarily wound up under the Insolvency Act. As the club is not a separate legal entity, it cannot become insolvent in its own right. Liability for debts varies depending on the nature of the claim, making it difficult to reach any organised arrangement with creditors.
In practice, the club’s assets are often applied as far as possible towards its debts, after which the club may cease to operate without further formal process. Brewers and other trade suppliers commonly accept the commercial risk of dealing with members’ clubs and do not usually pursue individuals. Where creditors do take action, recoveries are often uneven, with those exerting the most pressure receiving payment, and normal principles of priority frequently ignored.
Where a club is solvent but foresees future difficulties, incorporation should be considered at an early stage. Once incorporated, the club can take advantage of the voluntary and compulsory insolvency procedures available to corporate bodies.
Two recurring themes arise when considering the liability of members, officers and trustees: the constitution of the club and insurance.
The standard of drafting of rules for unincorporated clubs varies widely and is often poor. In an effort to save legal costs, rules are frequently drafted without full appreciation of their legal consequences, and some clubs operate without any written rules at all. Clubs should ensure that their rules address issues such as indemnities, powers of the committee as employer, and procedures for expulsion and termination of membership. Rules should not contain provisions accepting member liability for goods ordered on credit.
A club’s rules constitute a contract between its members. Where there is no provision for amendment, a new constitution or rulebook may be unenforceable against members who voted against it.
Where possible, clubs should insure against risks faced by officers, members and trustees. While third-party and employers’ liability insurance may be compulsory, policies are often issued in the names of committee members or officers. It is therefore essential to ensure that any member incurring liability can claim under the policy, and that appropriate member-to-member indemnities are included. Many policies exclude claims brought by one member against another unless specifically provided for.
In the long term, the most effective and economical form of protection may be the incorporation of the club as a company limited by guarantee or as a registered society. Incorporation creates a body corporate with the capacity to sue and be sued in its own name.
This remains a complex area of law. Where issues arise, clubs should obtain specific advice from appropriately qualified professional legal advisers.