Charities update

Suspension of a member and trustee

The recent decision Pritchard v Evans provides some valuable lessons on how to properly remove trustees and members from an organisation.  Mr Pritchard was a member of the Onehunga Workingmen’s Club, a registered society under the Friendly Societies and Credit Unions Act 1982.  He was elected a trustee of the club in 2011.  Mr Pritchard was suspended as a member of the Club over an incident where it was alleged he was rude to members of staff.

Initial reports of the incident were prepared by staff members and, in response, Mr Pritchard sent an explanation to the Club.  An inquiry committee was established and it invited Mr Pritchard to attend but he declined, claiming that he had not been informed of the allegations against him.  Unbeknownst to Mr Pritchard, the incident reports before the committee included a considerable number of allegations against him relating to previous incidents where he had been allegedly abusive to staff.  The committee ordered his suspension until 22 July 2013.  In May 2013 Mr Pritchard commenced judicial review proceedings to challenge that suspension. 

However, because he was still a trustee of the Club, Mr Pritchard was in a position of conflict in relation to the judicial review proceedings.  As a result, at a special general meeting the Club passed resolutions dismissing him as a trustee and also further suspending him until the High Court proceeding had been completed.  Mr Pritchard sought to challenge his suspension and  removal as a trustee.

Decision of the Court

The Court determined that the suspension of Mr Pritchard was unlawful because Mr Pritchard had not been made aware of the particulars of the additional serious allegations that he was facing.  The Club was obliged to abide by the rules of natural justice as they applied to the particular context. 

It was also found that, in the lead up to the special general meeting, there was no basis for a complaint that there was a failure to meet the rules of natural justice.  This was based on the nature of those types of meetings being “rough and tumble” (informal) and that, if matters of which Mr Pritchard was not aware were raised at the meeting, it could have been delayed to allow him an opportunity to properly respond.  He was also fairly informed of the meeting, the proposed resolution, and the reason for it.

The Court found that the resolution to remove Mr Pritchard was not ultra vires (outside the scope of the power).  The fact that Mr Pritchard was in a position of conflict in bringing proceedings against the Club while concurrently being a trustee was a sufficient basis for the passing of the resolution.

Ultimately, the decision of the Club suspending Mr Pritchard for six months and placing him on a six month good behaviour bond was found to be invalid.  However, it was considered that the removal of Mr Pritchard as a trustee was valid.  

Lessons from Pritchard v Evans

When dealing with the removal of a trustee, particularly in contentious circumstances, it is important to review the rules of the organisation in the first instance and follow the prescribed process strictly.  The decision to expel someone from a public organisation may be the subject of judicial review.  Where a person is at risk of expulsion from an organisation with a consequential risk of damage to their reputation, the courts will expect a high level of compliance with the principles of natural justice including:

• The need for an accused person to know the nature of the accusations against him or her.
• The need for decision-makers to disregard irrelevant considerations.
• The need for decision-makers to act impartially.

Charitable Trusts – is your trust fund sustainable?

In another recent decision, the Mabel Elizabeth James QSM Charitable Trust Board (the Trust) applied to the Court to place the Trust into liquidation pursuant to section 25 of the Charitable Trusts Act 1957 (the Act).  In 2013 the trustees elected to incorporate the Trust under the Act in order to facilitate an application to the Court to enable the Trust to be put into liquidation.  The grounds for the application were that the Trust’s fund had diminished and that the annual income was being exhausted by administration costs and professional fees.

Three things were sought in the application in respect of the Trust:

• That it be placed into liquidation.
• That a trustee of the Trust be appointed liquidator of the Trust.
• That the Trust transfer its surplus assets in equal proportions to three Christchurch based organisations. 

In determining whether the circumstances satisfied the “just and equitable” test in s 25(1) of the Act, the Court considered the following:

• The intention of the settlor to leave a lasting legacy.
• The expectations of past recipients.
• The economic viability in continuing to operate the Trust.
• The Trust deed.

The Court held that, after consideration of the factors listed above, it was just and equitable to liquidate the Trust. 

Lessons for the future

While it is noble to leave a legacy for charitable purposes, any person or organisation starting a perpetual trust (the settlor) must consider the on-going administration and other costs with managing a trust fund long-term.  The settlor must consider whether the charitable purpose will last the test of time, as well as whether the trust fund itself is sufficient to support the charitable purposes long-term.  If the sums involved are modest, it may be worthwhile making a one off donation to an existing charity.

If you would like further information please contact Jessica Middleton on 07 958 7436.