The courts in Cunnack v Edwards and Re West Sussex adopted the notion that members contributed to the society on a contractual basis, but decided on the facts that such contributions were taken by the Crown as bona vacantia. In more recent cases, the courts have decided that subsisting members of the association are entitled to participate in the distribution of the society’s funds. Their contributions were made as an accretion to the funds of the association by reference to the contract made inter se in accordance with the rules of the society. The members control the association subject to the constitution of the society. Equally, the subsisting members alone ought to be entitled to the surplus funds on a dissolution, in the absence of any agreement between members to the contrary. In Re Sick and Funeral Society of St John’s Sunday School, Golcar, the court decided that since the rules of the society differentiated between the two categories of members, the distribution of the assets to the subsisting members would likewise be conducted on the basis of this inequality. Subject to this qualification, all the subsisting members were treated alike.
Re Sick and Funeral Society of St John’s Sunday School, Golcar [1973] Ch 51, HC
Facts
In 1866, a society was formed at a Sunday school to provide for sickness and death benefits for its members. Teachers and children were entitled to join and subscriptions were based on a sliding scale according to age, those under 13 paying half of one old penny per week (rule 9) and those over 12 paying one old penny. The benefits for those paying the full subscription were twice those of the smaller subscribers (rules 12 and 14).
On 12 December 1966, a meeting unanimously decided to wind up the Society as from 31 Decem- ber. No further subscriptions were paid. There was some £4,000 of surplus assets.
Before the assets were distributed among the current members, four ex-members, who had been excluded from membership for failure to pay subscriptions since 1963 (rules 9 and 17), claimed to pay up their arrears and to participate. A further meeting was held in September 1968 in which it was again resolved to wind up the Society and to distribute the assets among the persons who were members on 31 December 1966 and the personal representatives of such members who had subsequently died.
Held
The distribution would be made with full shares for full members and half shares for the children. The ex-members were excluded:
Megarry J: [After reviewing the authorities which the learned judge concluded was in a state of confusion, he continued:] It seems to me, with all respect, that much of the difficulty arises from confusing property with contract. A resulting trust is essentially a property concept: any property that a man does not effectually dispose of remains his own. If, then, there is a true resulting trust in respect of an unexpended balance of payments made to some club or association, there will be a resulting trust in respect of that unexpended balance, and the beneficiaries under that trust will be those who made the payments. If any are dead, the trusts will be for their
estates; death does not deprive a man of his beneficial interest. Yet, in what I may call ‘the resulting trust cases’, the beneficiaries who were held to be entitled were the members living at the time of the dissolution to the exclusion of those who had died or otherwise ceased to be members. If, then, there was any resulting trust, it must be a trust modified in some way, perhaps by some unexplained implied term, that distinguishes between the quick and the dead. It cannot be merely an ordinary resulting trust.
On the other hand, membership of a club or association is primarily a matter of contract. The members make their payments, and in return they become entitled to the benefits of membership in accordance with the rules.
The sums they pay cease to be their individual property, and so cease to be subject to any concept of resulting trust. Instead, they become the property, through the trustees of the club or association, of all the members for the time being, including themselves. A member who, by death or otherwise, ceases to be a member thereby ceases to be the part
owner of any of the club’s property: those who remain continue owners. If, then, dissolution ensues, there must be a division of the property of the club or association among those alone who are owners of that property, to the exclusion of former members [emphasis added].
On the footing that the rules of a club or association form the basis of the contract between all the members, I
must look at the rules of the society to see whether they indicate any basis other than that of equality. It seems to me
that they do. Those aged from five to 12 years old pay contributions at half the rate (rule 9), and correspondingly their allowances (rule 12) and death benefit (rule 14) are also paid at half the rate. Where the rules have written into them the basis of inequality this ought also to be applied to the surplus property of the society [emphasis added].
The court came to a similar conclusion (ie, excluding any claim of the Crown as bona vacantia) in Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society (No 2).
Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society (No 2)
[1979] 1 WLR 936, HC Facts
The objects of a friendly society included the relief of widows and orphans of deceased members of Bucks Constabulary. In April 1968, the Bucks Constabulary was amalgamated with others to form the Thames Valley Constabulary. The question in issue concerned whether the assets should be distributed among the subsisting members on the date of dissolution, or whether they would pass to the Crown as bona vacantia.
Held
The fund belonged to the subsisting members on the date of dissolution and they took the fund in equal shares (per capita):
Walton J: Now, in the present case, I am dealing with a society which was registered under the Friendly Societies Act 1896. This does not have any effect at all on the unincorporated nature of the society. The fact is made very explicit by the provisions of s 49(1) of the 1896 Act which reads as follows:
All property belonging to a registered society, whether acquired before or after the society is registered, shall vest in the trustees for the time being of the society, for the use and benefit of the society and the members thereof, and of all persons claiming through the members according to the rules of the society. There can be no doubt, therefore, that in the present case the whole of the property of the society is vested in the trustees for the use and benefit of the society and the members thereof and of all persons claiming through the members according to the rules of the society. Members paid a contribution in exchange for which in the event of their deaths their widows and children would receive various benefits. There is indeed no rule which says what is to happen to surplus assets of the society on a dissolution. But in view of s 49(1) there is no need. The assets must continue to be held, the society having been dissolved, and the widows and orphans being out of the way, simply for the use and benefit of the members of the society, albeit they will all now be former members.
Before I turn to a consideration of the authorities, it is I think pertinent to observe that all unincorporated societies
rest in contract to this extent, that there is an implied contract between all of the members inter se governed by the rules of the society. In default of any rule to the contrary, and it will seldom if ever be that there is such a rule, when a
member ceases to be a member of the association he ipso facto ceases to have any interest in its funds. Once again, so far as friendly societies are concerned, this is made very clear by s 49(1), that it is the members, the
present members, who, alone, have any right in the assets. As membership always ceases on death, past members or the estates of deceased members therefore have no interest in the assets. Further, unless expressly so provided by the rules, unincorporated societies are not really tontine societies, intended to provide benefits for the longest liver of the members. Therefore, although it is difficult to say in any given case precisely when a society becomes moribund, it is quite clear that if a society is reduced to a single member neither he, still less his personal representatives on his behalf, can say he is or was the society and therefore entitled solely to its fund. It may be that it will be sufficient for the society’s continued existence if there are two members, but if there is only one the society as such must cease to exist. There is no association, since one can hardly associate with oneself or enjoy one’s own society. And so indeed the assets have become ownerless [emphasis added].
Finally, there comes a case which gives me great concern, Re West Sussex Constabulary’s Widows, Children and
Benevolent (1930) Fund Trusts [1971] Ch 1. The case is indeed easily distinguishable from the present case in that
what was there under consideration was a simple unincorporated association and not a friendly society, so that the provisions of s 49(1) of the 1896 Act do not apply. Otherwise the facts in that case present remarkable parallels to the facts in the present case.
[The learned judge, after referring to Goff J’s judgment in Re West Sussex Constabulary Fund, continued:] It will be observed that the first reason given by the judge for his decision is that he could not accept the principle of the members’ clubs as applicable. This is a very interesting reason, because it is flatly contrary to the successful argument of Mr Ingle Joyce who appeared for the Attorney General in the case. Goff J purported to follow
Cunnack v Edwards. If all that Goff J meant was that the purposes of the fund before him were totally different
from those of a members’ club then of course one must agree, but if he meant to imply that there was some totally different principle of law applicable one must ask why that should be. His second reason is that in all the cases where the surviving members had taken, the organisation existed for the benefit of the members for the time being exclusively. This may be so, so far as actual decisions go, but what is the principle? Why are the members not in control, complete control, save as to any existing contractual rights, of the assets belonging to their organisation? One could understand the position being different if valid trusts had been declared of the assets in favour of third parties, for example charities, but that this was emphatically not the case was demon- strated by the fact that Goff J recognised that the members could have altered the rules prior to dissolution and put the assets into their own pockets. If there was no obstacle to their doing this, it shows in my judgment quite clearly that the money was theirs all the time. Finally, he purports to follow Cunnack v Edwards and it will be seen from the analysis which I have already made of that case that it was extremely special in its facts, resting on a curious provision of the 1829 Act which is no longer applicable. As I have already indicated, in the light of s 49(1) of the 1896 Act the case before Goff J is readily distinguishable, but I regret that, quite apart from that, I am wholly
unable to square it with the relevant principles of law applicable [emphasis added].
The conclusion therefore is that, as on dissolution there were members of the society here in question in existence, its assets are held on trust for such members to the total exclusion of any claim on behalf of the Crown. The remaining question under this head which falls now to be argued is, of course, whether they are simply held per capita, or, as suggested in some of the cases, in proportion to the contributions made by each. That being the case, prima facie there can be no doubt at all but that the distribution is on the basis of equality, because, as between a number of people contractually interested in a fund, there is no other method of distribution if no other method is provided by the terms of the contract.
The courts apply similar principles as above in respect of the surplus funds on the winding up of pension schemes. The terms of the scheme are required to be construed and are treated as of paramount importance. The contractual basis of creating rights under the scheme is treated as highly relevant to, but not conclusive of, the question whether the resulting trust ought to be imposed. Thus, in Davis v Richards and Wallington Industries Ltd, the court decided that in respect of a pension fund surplus, the employer’s contributions were subject to a resulting trust, but the employees’ contributions were payable to the Crown as bona vacantia.