Re Underbank Country Club Inc (in liq)
[2006] VSC 93
•24 March 2006
Fand F
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 8730 of 2004
IN THE MATTER OF UNDERBANK COUNTRY CLUB INC. (IN LIQ)
| DENNIS ANTHONY TURNER (IN HIS CAPACITY AS LIQUIDATOR OF THE UNDERBANK COUNTRY CLUB INC.) | Plaintiff |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 April 2005; 20 July 2005 | |
DATE OF JUDGMENT: | 24 March 2006 | |
CASE MAY BE CITED AS: | In the matter of Underbank Country Club Inc. (in liq) | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 93 | |
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ASSOCIATIONS AND CLUBS – incorporated association holding land used for recreational purposes in a residential subdivision – voluntary winding up – application by liquidator for determination of persons to whom assets should be distributed – whether the membership of persons who failed to pay annual subscriptions for some years had “terminated” – Part VIII Division 1 of Associations Incorporation Act 1981 (Vic) – discretion of court in relation to the disposal of assets pursuant to s.33D of the Associations Incorporation Act 1981 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan, SC | Riordans |
| For Robert Joseph de Rosso | Mr S M Anderson | Sylvia Miller & Associates |
| For the Murphy group | Mr M G R Gronow | Slater & Gordon |
| For the Warners | Mr J P Warner (in person) |
HIS HONOUR:
By originating process filed 22 October 2004, Dennis Anthony Turner who is the liquidator of the Underbank Country Club Inc (in liq) (“Underbank”) sought, pursuant to s.511 of the Corporations Act 2001 (Cth), a determination of the question who are the persons amongst whom the property of Underbank should be distributed.[1] Underbank is an incorporated association under the Associations Incorporation Act 1981 (Vic) (“the Act”).[2]
[1]The summons also sought appropriate representative orders and such other orders or directions as were necessary or desirable in order for the liquidator to wind up Underbank.
[2]The application in this proceeding was made under s.511 of the Corporations Act as a consequence of the provisions contained in s.36D of the Act.
On 25 August 2003 Underbank passed resolutions to the following effect at a meeting of members:
·that Underbank be wound up voluntarily;[3]
·that Mr Turner be appointed liquidator for the purposes of the winding up;
·that the liquidator be authorised to make a distribution of Underbank’s property in accordance with its rules.[4]
[3]This was a special resolution.
[4]This was also a special resolution.
Underbank owned land (“the Underbank land”) forming part of a subdivisional estate (“the Underbank estate”) in Bacchus Marsh. In about March 2004 the liquidator sold the Underbank land and Underbank’s other assets (primarily plant and equipment). The sale proceeds, less expenses and other liabilities of Underbank, amount to approximately $1.35 million. These moneys represent the property of Underbank that the liquidator, after payment of costs and expenses, wishes to distribute to those found to be entitled.
The only resolution relating to Underbank’s property that was passed, as noted above, provided for its property to be distributed in accordance with its rules. The relevant rule was rule 34 which provided that, in the event of a winding up, the assets of the association should be disposed of in accordance with the provisions of the Act. Thus the resolution takes one to the rules and the rules take one back to the Act.
Section 33A(1) empowers an association, on or after the date on which it resolves to be wound up voluntarily, to pass a special resolution “relating to the distribution of assets … on that winding up”. Section 33B(1)(a) of the Act provides that, in the absence of such a resolution, the assets must, if the rules do not otherwise provide, be “divided amongst the members of the association in equal shares”.
There was no argument before the Court as to whether the special resolution authorising the liquidator to make a distribution of the property in accordance with the rules of the association was a resolution “relating to the distribution of assets” within the meaning of s.33A of the Act. The parties appear to have assumed that it was not. If that assumption be incorrect, the effect of the resolution would be that the distribution of the assets should proceed in accordance with the rules, and the relevant rule provides that the distribution is governed by the provisions of the Act. That could only take one back to the relevant provisions of the Act and, prima facie, to s.33B(1)(a) providing for division amongst the members in equal shares (even though that provision is posited on the absence of such a resolution). Alternatively, if the resolution in fact passed is not a resolution within the meaning of s.33A(1), it is clear that s.33B(1)(a) is applicable.
The foregoing observations must, in any event, be read subject to any other relevant sections of the Act, in particular s.33D which provides that “any person aggrieved by the operation of this Division[5] in relation to the assets of an incorporated association may apply to the Supreme Court which may make any orders relating to the disposal of the assets that it thinks fit.” The parties all accepted that the Court was empowered by this provision, on appropriate application and in its discretion, to order a distribution of the assets in a manner other than that contemplated by ss.33A and 33B.
[5]i.e. Division 1 dealing with voluntary winding up.
The proceeding first came before the Court on 29 October 2004 when orders were made that the liquidator place advertisements and have letters delivered to each residential address on the Underbank estate advising of the proceeding and giving contact details of the solicitors for the liquidator.
Appearances were subsequently filed by a number of interested persons. Robert Joseph de Rosso (“Mr de Rosso”) filed an appearance seeking to represent the persons who, according to the last Register of Members of Underbank (“the 2003 List of Members”), are the only members of Underbank. There are 39 persons on the 2003 List of Members. All of the other appearances were filed by persons who claimed to be members of Underbank but were not on the 2003 List of Members. A group of persons who had filed appearances were jointly represented (“the Murphy group”).[6] John Piers Warner (“Mr Warner”) appeared in person to represent himself and also spoke for his brothers Nicholas Philip and Philip John Warner (collectively “the Warners”)[7]. Other appearances were filed by persons who did not appear at the trial.[8]
[6]At trial Mr Gronow, counsel for the Murphy group, stated that he was representing 21 persons, namely: Joyce Amelia Mary Allen, Kenneth Briggs, Fabian Bucci, John Connell, Barry John Cook, Alastair Davie, Karen Lorraine Davie, John Joseph Kervin, John Anthony Knight, Mark Lee, Nancy Lee, David Gilchrist McBride, Rodney Allen McRae, Christopher Michael Murphy, Denis Leslie Murphy, Colin Prout, Heather May Prout, Gary Sunderland, Robyn Janice Sunderland, Maria Theresa Symes (for the estate of her late husband James Symes), and Margaret Rose Williams Mollett. I note that no appearance for Nancy Lee appears on the court file. Mr Gronow also stated that he was no longer appearing for four other persons who had filed appearances but who had subsequently advised their solicitors that they intended to take no further part in the proceedings. I note that one of these (Nellie Rose Anderson) has not filed a notice of discontinuance.
[7]It appears that the Warners claim an interest as beneficiaries of their parents’ estates.
[8]Kenneth Goodwin (self-represented) filed an appearance and then filed an affidavit on 2 February 2005. Ansell and Associate, Lawyers filed an appearance on behalf of one Sue Guys on 11 January 2005 and on 2 February 2005 the same firm filed a notice of discontinuance on behalf of David Guys – this must have been intended as a discontinuance on behalf of Sue Guys as David Guys had never entered an appearance.
The application came on for hearing on 27 April 2005 and, after the hearing of some evidence, was adjourned to enable any of the parties who so wished to file applications under s.33D of the Act. On 17 May, 18 May and 16 June 2005 interlocutory processes were filed on behalf of the Warners, the Murphy group and Mr de Rosso, respectively, making application under s.33D of the Act.
Background
It is necessary to set out something of the history and nature of Underbank.
Origin and facilities of Underbank
On 21 October 1976 an agreement in writing (“the development agreement”) was entered into between the Council of the Shire of Bacchus Marsh (“the Council”), Katranski Pty Ltd (the “subdivider” or “developer”) and certain other authorities and parties. The development agreement provided that the subdivider, who owned the Underbank estate within the Council’s municipal district, would prepare plans for streets, drains, a golf course, club rooms, service premises and other works, submit them to the Council and carry out construction in accordance with those plans. The golf course and other facilities were to be constructed on lots 79 and 86 and a restrictive covenant was to be placed over lot 86 such that it could only be used as a golf course and for open space recreational pursuits. Clause 23 of the development agreement provided that:
“The subdivider shall do all things necessary … for the purpose of incorporating a body corporate within 6 months from the date hereof, inter alia, to administer and operate the golf club and other facilities to be constructed … and the Memorandum and Articles of Incorporation of the body corporate shall, inter alia,
(a)restrict voting membership in the body corporate to persons owning any of the lots set out on pages 3, 4, 5 and 6 of the plans for Stage 2 and to such other lots in the full subdivision as the Council may hereafter approve and to the owner of any portion of all those pieces of land being the land comprised in Certificates of Title Volume 7933 Folio 170 and Volume 8168 Folio 591.”
On 21 April 1977 the Underbank Country Club (“the body corporate”) was incorporated as a company limited by guarantee under the Companies Act 1961. Eight persons as well as the developer were subscribers to the application and became members[9] of the body corporate and Alexander Katranski became the first Patron of the body corporate.
[9]None of the original subscribers appear to have been owners, other than the developer, but nothing would appear to turn on this.
On 13 July 1979 the developer transferred the Underbank land[10] to the body corporate, and the body corporate covenanted with the developer not to use or permit the use of part of the land, namely lot 86, for purposes other than as a golf course and for open space recreational pursuits. Club-rooms, a swimming pool, tennis courts, barbeque facilities, a restaurant, a bowling green and a nine-hole golf course had been constructed on the land. These comprised the facilities of Underbank which were available for use or hire by the members. The restaurant was let to a tenant.
[10]Described on the transfer as Lots 79 and 86 on Plan of subdivision number 120780, subsequently comprised in two titles being Volume 10037 folios 759 and 760.
In due course the subdivider entered into contracts for the sale of the various lots in the Underbank estate and it would seem that there was a condition in each of the contracts of sale of land[11] which provided that:
“16.The Purchaser agrees with the Vendor that upon becoming entitled to vacant possession of the land hereby sold the Purchaser (or if there be more than one Purchaser then one of the Purchasers) shall apply for full membership of Underbank Country Club.”
[11]A copy of the contract entered into by the developer Katranski Pty Ltd and Mr & Mrs Warner (parents of John Piers Warner) on 15 December 1980 is exhibited to his affidavit sworn 18 February 2005 as “JPW12”. Presumably the contracts of sale for the other lots were in similar terms.
It would seem that members of the body corporate who were owners of lots in the Underbank estate obtained control of the board of the body corporate in about March 1990 and then moved to restructure the body corporate as an incorporated association.
On 2 July 1990 application was made for the incorporation of an association under the name “Underbank Country Club Incorporated”. The statement of purposes accompanying the application for incorporation identified the usual purposes of a sporting, recreational and social club. Underbank was duly incorporated under the Act as an incorporated association on 8 August 1990 and Mr John Miles Warner was the first public officer. The rules of Underbank were the model rules as amended.
The only subsequent valid amendments to Underbank’s rules were the subject of a resolution on 24 October 1995 at a special general meeting. The minutes of the meeting show that the amendments were made “to accommodate the Club’s proposed Restricted Club Liquor Licence” and that, for that purpose, voting rights were extended from “Full Members only” to “Full and Resident Members”. It was common ground that the rules, as amended on 24 October 1995, were the applicable rules and that any subsequent purported amendments had not been passed in accordance with the Act.
The Rules
It is convenient, before returning to the history, to refer to Underbank’s statement of purposes and to the relevant provisions of the operative rules.[12] The purposes of Underbank were stated as being:
“(i) To administer the operations of the club and its members;
(ii)To administer and take care of the facilities available to the members.”
[12]See exhibit “DAT15” to the affidavit of Dennis Anthony Turner sworn 22 October 2004.
Underbank is referred to in the rules as “the Association”. Rule 2(1) contains the following relevant definitions:
“’Member’ means a full or resident[13] member of the Association.
‘The Estate’ means any part of the land more particularly described in Certificates of Title Volume 9121 Folio 517 and Volume 8168 Folio 951.”
[13]The words “or resident” were added when the rule was amended in 1995.
Rule 3(1) deals with “Grades of Membership”. It is unnecessary to refer to those aspects of the definition of a full member that are purely of historical significance. For present purposes a full member of Underbank is defined by rule 3(1)(i)(c) as a person who:
“beneficially owns a block on the estate, resides thereon and is approved by the Committee under [rule 3(3)].”
Rule 3(1)(ii) provides that associate members are those members specified as Resident and Junior members (who reside on the estate) and non-resident members and that these “classes still remain but are all subject to Committee approval“. Rule 3 goes on to provide as follows:
“(2)a natural person who is nominated and approved for membership as provided in these rules is eligible to be a member of the Association on payment of the entrance fee and annual subscription payable under these rules.
(3)a person who is not a member of the Association at the time of the incorporation of the Association … shall not be admitted to membership; -
(a) unless he is nominated …; and
(b)his admission as a member is approved by the Committee.”
[Rule 3(4), (5) and (6) deal with nomination and approval]
“(7)Upon a nomination being approved by the Committee the secretary shall ... notify the nominee in writing that he is approved for membership of the association and request payment within the period of 28 days after receipt of the notification of the sum payable under these rules as the entrance fee and the first year’s annual subscription.
(8)The secretary shall, upon payment of the amount referred to in sub-clause 7 within the period referred to in that sub-clause, enter the nominee’s name in the Register of Members kept by him, and upon the name being so entered, the nominee becomes a member of the association.
(9)A right, privilege, or obligation of a person by reason of his membership of the association:-
(a)is not capable of being transferred or transmitted to another person;
(b) terminates upon the cessation of his membership whether by death or resignation or otherwise.”
Rule 4 provides that the “exercise of any right to charge an entrance fee and/or an annual subscription can only be pursued with the acquiescence of a majority at a general meeting of the Association members” and it is noted in rule 4 that “no such fees exist at the date of application for incorporation as an association”. Rule 5 provides that the secretary shall keep and maintain a register of members in which shall be entered the full name, address and date of entry of the name of each member and the register shall be available for inspection by members at the address of the Public Officer.
Rule 6 deals with resignation and expulsion of members and provides so far as relevant:
“(1)A member of the Association who has paid all monies due and payable by him to the Association may resign from the Association by first giving one month’s notice in writing to the secretary of his intention to resign and upon the expiration of that period of notice the member shall cease to be a member.
Any member who ceases to own a block or blocks of land on the estate automatically ceases to be a member of Underbank Country Club Inc. This also applies to the associate members residing on the same blocks.
…
(3)Any member who temporarily ceased to reside on the estate but continues to own a block or blocks on the estate can retain his membership; there can only be one full member per block of land.”
Rule 7 goes on to deal with the procedure for expulsion of a member which involves a committee resolution, notice thereof to the member concerned, the opportunity for the member to be heard and the possibility of an appeal to the general meeting. Rule 8 deals with meetings of members including the annual general meeting. Rule 12 deals with proceedings at meetings and also deals with the entitlement of “members” to vote. It would seem clear enough that, although this is not expressly stated, a member who is entitled to vote is a member as defined by rule 2(1), namely “a full or resident member”.
Rule 18 provides that “a member is not entitled to vote … unless all monies due and payable by him to the Association have been paid other than the amount of the annual subscription payable in respect of the current financial year.”
Register of Members
As might be expected, the membership of Underbank fluctuated from year to year. At its peak there were around 100 members.
There is evidence before the Court of the several registers of members over the periods 1989 to 1996 and 1999 to 2003. For the period from 1996 to 1998 there are no registers of members in evidence. It will be convenient to refer to the various registers in evidence as “lists”. It is noted that the number of members after 1998 was substantially less than the number of members in and prior to 1996.
Twenty-five persons[14] who do not appear on the 2003 List of Members have filed appearances in this proceeding and are claiming that they are members of Underbank (“the unlisted claimants”).[15] Nine of the unlisted claimants do not claim to be full members, but to be associate members – this group includes two widows[16] of deceased full members, three children[17] of deceased full member or members, and four spouses[18] of other unlisted claimants. Of the nine claimants who say that they are associate members, eight of them claim a connection with a full member who was last listed on the list of members in 1995.[19]
[14]These comprise the 21 persons in the Murphy group, the 3 Warners and Kenneth Goodwin.
[15]Mr De Rosso has also filed an appearance. His membership is not questioned. He seeks to be appointed as representative of the 39 persons on the 2003 List of Members.
[16]Joyce Allen and Margaret Williams Mollett.
[17]John Piers Warner and his two brothers Philip and Nicholas.
[18]Alistair Davie, Nancy Lee, Colin Prout and Gary Sunderland. None of these four persons has filed an affidavit.
[19]The exception is Joyce Allen whose husband died in 1993, and his name last appears on a membership register in 1994 (i.e. after his death).
Of the sixteen unlisted claimants claiming full membership, nine were last listed on the list of members in 1995.[20] Two of this group were missing from the lists between 1995 and 1999, but reappeared on the list in 2000, apparently without any reapplication for membership being required or tendered, only to be dropped again in 2001[21] or 2002[22]. Another claimant in this group ceased active membership in 1992, and did reapply for membership in 2000 only to be dropped from the list of members in 2002[23]. A further three claimants in this group ceased to be listed in the period 1991-1992,[24] and there is one claimant[25] who does not appear on any list despite claiming to have joined Underbank in 1992.
[20]Kenneth Briggs, Fabian Bucci, Barry Cook, Kenneth Goodwin, Mark Lee, Mick Murphy, Dennis Murphy, Heather Prout and Robyn Sunderland.
[21]David McBride.
[22]John Knight.
[23]John Connell.
[24]John Kervin, Rodney McRae and James Symes (the last mentioned died after the winding up resolution and in fact it is his widow who is a claimant).
[25]Karen Davie.
As I have said, there are 39 persons on the 2003 List of Members. However, counsel for the Murphy group has challenged the membership of two persons on the 2003 List of Members. In that regard reliance is placed upon affidavits of Denis Murphy exhibiting title searches showing that neither Sandra Mitchell[26] nor Simon Amore[27] is the registered proprietor of the block of land upon which their respective memberships are alleged to be founded.
[26]The relevant exhibit shows Director of Housing as the registered proprietor of 33 Underbank Blvd, Bacchus Marsh.
[27]The relevant exhibit shows Kenneth McAlister as the registered proprietor of 12 Tulloch Court, Bacchus Marsh.
The 39 persons on the 2003 List of Members are all, or purport to be, full members. The reason that the 2003 List of Members only contains full members is that the person serving as the secretary and treasurer of Underbank at the relevant time (Ms Hawkey) only requested payment of membership subscriptions from full members[28] and the 2003 List of Members is thus a list of those full members who had paid their annual subscription.
[28]See paras 6(c) and (d) of the affidavit of Craig Peter Healy sworn 22 October 2004 deposing to information obtained from Ms Hawkey – no objection was made to the admissibility of this material.
Subscription fees and categories of membership
As I have said, the rules provided that there could be an annual membership fee, but noted that there was none payable at the time of incorporation. Apparently an annual subscription was first introduced by resolution at a general meeting of members held on 23 June 1993[29] and the subscription was “either $52 or 20 hours work.”[30]
[29]The minutes of the meeting are not in evidence but the notice of the meeting is, and the minutes of the annual general meeting of 31 August 1993 confirm that such a subscription had been introduced, as does correspondence from the secretary to members, that is also in evidence.
[30]Or 20 hours “voluntary assistance”.
In 1993 the committee of Underbank introduced a newsletter and in virtually every edition of this newsletter thereafter reference was made to the opportunity for residents of the Underbank estate to become members of Underbank. The October or November editions of the newsletters each year indicated times and dates when residents could come to the club rooms to join or rejoin and pay their annual subscription. Members of the committee would from time to time visit residents who were new to the Underbank estate and encourage them to become members of Underbank.
At the special general meeting held on 24 October 1995, a resolution was carried, so far as relevant, to the following effect:
“All Member[s] shall pay an Annual Membership Subscription of $60.
The Club will recognise volunteer work carried out during the subsequent year to a maximum of $60 in accordance with the Schedule Volunteer Work. The credit worked up during the year will be realised as a deduction to the next Annual Membership…”
At some stage the annual subscription was raised from $60 to $70. It would seem that this subscription was payable only by full members because, for example, the annual membership form for 1998-1999 referred to a second kind of “subscription”, namely, “Membership (club room and voting rights only) $15 annual”. The minutes of the annual general meeting held on 24 October 2000 record a resolution increasing the membership subscription from $70 to $75 and increasing the “Resident fee” (the word “fee” must be used as synonymous with “subscription”) from $15 to $25. The minutes of the annual general meeting held on 23 October 2001 record a resolution that the levels of “fees for members be maintained at: Full member $75 Associate member $25”. Finally, the minutes of the annual general meeting held on 24 September 2002 record a resolution increasing the associate member’s fee to the same level as a full member, namely $75.
To accommodate the voluntary work subscription option, volunteer working groups were organised to maintain the facilities on the Underbank land, and a number of members participated.
Initially only full members completed the annual subscription renewal form. From 1996 the form was redesigned to record information relating to associate members, i.e. memberships associated with the full member.
The evidence shows that, after the introduction of annual subscription fees and as part of the process of joining or renewing membership, each full member was given a key which enabled him or her to use the pool and tennis court facilities and that key was changed each year, prior to the summer season, to prevent non-members using the facilities. Although annual subscription payment was tied to the financial year, in practice renewals were more likely to occur at the start of summer when a member wanted a new key to use the facilities.
A letter sent by Underbank to a then member on 21 October 1993 referred to the recent introduction of the subscription fee and the fact that renewal forms (and payment) were due in by 30 September 1993. The letter went on to state that the cut off date for return of the forms had been extended to 31 October 1993, and that “after this date your membership will be deemed to have lapsed.” Again, a letter sent by Underbank to Mr Kenneth Goodwin in 1996 regarding his non-payment of annual subscriptions referred to subscriptions being payable by early December, presumably for the current financial year.
Decline of facilities and “lapsed” members
Due to a lengthy drought in the mid-1990s, Underbank was unable to obtain sufficient water to maintain the golf course and the lawn bowling green, and these facilities were allowed to degenerate to the point of being unusable. The income from the lease of the restaurant comprised the bulk of Underbank’s income during the 90s. In about 1998 the restaurant business was sold but the new lessee struggled financially and, towards the end, was regularly in arrears of rent. The lessee vacated the restaurant at the end of the year 2000 owing some three months’ rent. Attempts to re-let the restaurant were unsuccessful and without this source of income Underbank had great difficulty in meeting its annual operating expenses of $26,000. In addition, in the year 2000 the costs of public liability insurance rose from approximately $3,000 to $9,000 per annum.
Mr Warner deposed that, in 2002 or 2003, while walking his mother’s dog over the Underbank land, he observed that the golf course had not been maintained and was returning to a wild state, while rubbish was being dumped on it, and the grass on the bowling green had died. Mr Warner deposed that, around this time, the swimming pool appeared green or only partly full (or both). The loss of facilities appears, understandably, to have led to a number of members losing interest and ceasing active involvement in Underbank. A number of the members of the Murphy group had previously been actively involved in Underbank, paying subscriptions, performing voluntary work and attending meetings.
The evidence shows, or, at least, the only inference reasonably open is, that members who failed to pay their annual subscriptions, or to perform voluntary work as an alternative, were deleted from the list of members. The expulsion procedures under the rules were not utilised. The evidence suggests that typical membership renewal letters advised that non-payment of the subscription would result in the lapse of membership, although there is no evidence as to whether this was uniform practice. However it is clear that members were not advised when their membership was being treated as “lapsed” and were not advised when and if their names had been removed from the list of members.
The positions taken by the parties
I will briefly refer to the approach of each of the parties, or groups of parties, who appeared before the Court and their central submissions. Detailed submissions were made both in writing and orally by each of the parties and I have considered all of them.
Mr O’Bryan, SC, who appeared as counsel for the liquidator, submitted that the persons entitled to share in an equal distribution of Underbank’s property were the members at the time of the winding up resolution and that those members were the full members of Underbank and the resident members of Underbank, those in the latter category being the associate members who were at least 18 years old and residing with a full member. Mr O’Bryan submitted that, because the 2003 List of Members listed only full members, it was necessary to review earlier membership lists, in particular the 2001-2002 list, to determine who the members of Underbank were. The liquidator therefore proposed that there should be an equal distribution of the property of Underbank to the persons falling within the following two categories at the time of the winding up resolution:
(i)the full members on the 2003 List of Members, provided that they retained ownership of a lot on the Underbank estate; and
(ii)the resident members on the 2001-2002 list of members, provided that they remained residents of a block on the Underbank estate in 2002-2003.
Mr O’Bryan submitted that membership of Underbank was annual and had to be “renewed” annually. Mr O’Bryan said that the words “annual subscription” in rule 3(2) imported a requirement for annual renewal of membership and if that subscription was not paid the membership lapsed, even though there was no express provision to that effect. Mr O’Bryan submitted that the loss of membership for non-payment of subscriptions was covered by the words “or otherwise” in rule 3(9)(b).
Mr Anderson of counsel appeared on behalf of Mr de Rosso and sought to appear on behalf of all of the persons who were listed on the 2003 List of Members. Mr Anderson submitted that on a proper interpretation of the rules of Underbank, a “member” was any member within rule 3, whether a full member or an associate member, notwithstanding the definition of Member in rule 2(1) as meaning a “full or resident member”. The import of this submission would seem to be that “member” includes junior members (who reside on the estate) and non-resident members but nothing turns on this because it was not suggested by any party that there were any relevant[31] junior members (who resided on the estate) or any relevant[32] non-resident members. As will be seen, I do not agree with the submission that a member under the rules and hence within the meaning of the Act includes members other than full or resident members. Mr Anderson next submitted that any such member had to apply to renew his or her membership, or become a member, for the 2002-2003 year and either pay the annual subscription for that year or perform the requisite voluntary work. As a result, Mr Anderson submitted, there were on the evidence only 39 persons who satisfied these criteria, namely, the persons on the 2003 List of Members.
[31]i.e. junior members associated with an existing full member.
[32]i.e. non-resident members associated with an existing full member.
Mr Anderson submitted that persons who did not renew their membership or pay their subscription for the 2002-2003 year ceased to be members of Underbank, whether or not so notified by the committee and that rule 3(9)(b) recognised that membership might cease “by death or resignation or otherwise” (emphasis added). Mr Anderson submitted that the only cogent evidence of membership was that contained in the 2003 List of Members.
Mr Gronow of counsel who appeared for the Murphy group submitted that persons who were members of Underbank in the period up to 1995 remained members notwithstanding their subsequent failure to renew their membership and pay their annual subscription. Mr Gronow submitted that the persons in the Murphy group had all been members (or associated with members) and that all of them remained members because the rules provided no machinery for their removal other than expulsion and none of them had been expelled and that, otherwise, their membership had not terminated for any reason.
Mr Warner submitted that there was no basis for the cancellation of a person’s membership in Underbank simply for non-payment of membership subscriptions. He said that residents in the Underbank estate had contributed to the cost of Underbank and its facilities when they purchased their blocks of land. It would be an unacceptable and unreasonable consequence, he submitted, that failure to pay an annual subscription of a relatively small amount could lead to loss of an indirect interest in assets worth many thousands of dollars to each landowner. Mr Warner contended that the assets of Underbank should be divided equally amongst all the owners of relevant blocks of land.
Reasons
In my opinion it is clear that “member” within the rules of Underbank is any full or resident member in accordance with the definition in rule 2(1). By virtue of rule 3(1) and for present purposes, that means that a member is a person approved by the committee as a member who either owns a block on the estate (a full member) or is an adult resident of a block on the Underbank estate (a resident member).
Next, I note that, by virtue of rule 3(2) no person is eligible to be a member unless that person has paid the annual subscription[33] payable under the rules. This rule, it seems to me, relates only to the initial nomination and approval for membership so that a person is not eligible to be a member unless that person is nominated, approved by the committee, pays the entrance fee and pays the annual subscription (if any) payable at the time of seeking to become a member. Once the nominee becomes a member, by entry in the Register[34] there is no express provision in the rules requiring renewal of membership or making continuing membership dependent upon payment of subsequent annual subscriptions.
[33]References to payment of the annual subscription in the context of Underbank of course includes the performance of voluntary work as an alternative.
[34]See rule 3(8)
As I have noted, Mr O’Bryan submitted that the words “annual subscription” imported a requirement for annual renewal and it is no doubt arguable that no person can remain eligible to be a member or continue to be a member without paying such annual subscription. However, there are other indications that this argument is incorrect.
Firstly, annual renewal of membership is not a necessary concept under these rules because Underbank commenced without any provision for an annual subscription[35] and the charging of an annual subscription depended upon a resolution by the members (which might never have been passed or, if passed, might subsequently have been rescinded or terminated).
[35]See rule 4
Secondly, rule 18 expressly contemplates a situation where a member is in arrears of annual subscriptions for prior financial years and is, as a result, not entitled to vote. The rule assumes that such a member in arrears of payment of annual subscriptions nevertheless remains a member.
Finally, there is no express provision for the automatic cancellation of membership for non-payment of subscriptions, whereas there is provision for the automatic termination of membership in the case of a member ceasing to be an owner of a block on the estate[36] and for cessation of membership upon death or resignation.[37] In addition, there is a set of provisions expressly providing a procedure for expulsion of a member for any reason.[38]
[36]See rule 6(1)
[37]See rule 3(9)(b)
[38]See rule 7
I conclude, therefore, on the proper interpretation of the rules of Underbank, that non-payment of the annual subscription does not of itself have the effect of terminating membership. That conclusion, however, does not necessarily have the consequence that a person who ceases paying the annual subscription for a number of years remains a member.
In Re Sick & Funeral Society of St John’s Sunday School, Golcar[39] (“St John’s”), a society was formed in 1866 at a Sunday school to provide for sickness and death benefits for members and admittance to membership was confined to teachers or scholars of the school aged 30 years and under. The rules provided for weekly subscriptions and any member owing four weeks’ contribution was liable to be fined and ultimately excluded from all benefits. A member leaving the school could by paying a specified quarterly or weekly amount continue in the society. A member omitting to pay his subscription within a specified period was to be suspended, and thereafter had no claim for benefits. A meeting of members in 1966 resolved that the society should be wound up. There were surplus assets. Four members who had ceased to pay subscriptions in 1963 sought to pay all their arrears in 1967 claiming that they were still members. The question of interest for present purposes, to be decided by Megarry J, was who were the members as at the date of the resolution for winding up coming into effect. A question such as this depends in every case upon the construction of the rules of the particular association. However, the relevant part of the judgment of Megarry J is, I think, of general assistance when he said:[40]
“I should be very slow to accept that a member of a society may disregard all his obligations as a member for several years, and then, when it appears that there is some advantage in resuming his membership, assert that he is still a member because the correct procedure under the rules to terminate his membership has not been followed. The question, of course, is not one of expulsion, or of the society snatching at some trivial or shortlived breach of rules by a member to deny him membership: it is a question of a voluntary disregard of the obligations of membership over a continuous period of years. There must be many instances in clubs up and down the country in which this sort of thing happens. Yet if the contentions on behalf of the four members are right, either the society or the members concerned may, if it suits them, claim that the membership is still in being. Such members might find that the society is claiming many years’ arrears of a substantial subscription, or the members might, as here, suddenly reassert their membership when some advantage turns up.
I do not think that this can be right. … Finch v Oake [1896] 1 Ch 409 … established that a member of a society has the unilateral right, not dependent on acceptance by the society, to resign his membership at any time, even though the rules contain no provision as to resignation. … The essence of the matter seems to me to be whether the member has sufficiently manifested his decision to be a member no more. I cannot see why such a manifestation should not be by conduct instead of by words: the only question is whether the member’s decision has been adequately conveyed to the society by words or deeds. In short, in addition to resignation by words, I think there may be resignation by conduct; and I do not see why in a proper case a sufficiency of inertia should not constitute resignation by conduct. The point seems to lack authority, and so I must resolve it on principle.
I am not suggesting that the mere failure to pay weekly subscriptions for a few weeks or quarterly subscriptions for two or three quarters would suffice per se; but three years and more is another matter. No reasonable man is likely to feel any real doubt about the intentions of a member of a society who for over three years has failed to make his weekly or quarterly payments, and has put forward not a word to suggest that this was due to some mistake, or that he has done some acts showing an intention to continue a member. As I have indicated, among the many thousands of clubs and societies in the country there must be many cases of members whose membership has never been terminated in accordance with any provision in the rules, and yet who are regarded as still being members neither by themselves nor by the club or society. If their membership is said to have ‘lapsed’, that may be another way of describing a tacit resignation. However it is described, it seems right that there should be such a doctrine, so that neither the member nor the club or society should be able to claim against the other on the basis that what has long been dead de facto still lives de jure. A moribund membership ought not to be capable of resurrection.
In the circumstances of this case, I think the four members of the society ceased by tacit resignation to be members well before the end of 1966 … An alternative basis for reaching the same result is that the four members repudiated their contracts of membership by their prolonged breach of their most important duty of membership, and that the society accepted this repudiation by ceasing to treat them as members.”
[39][1973] 1 Ch 51
[40][1973] 1 Ch 51, 61-63
In Elmawey & ors v Adelaide Mosque Islamic Society of South Australia Inc[41], a case about disputed membership of an association, Williams J referred to loss of membership “by resignation or by a sufficient display of lack of interest as to amount to an abandonment of membership” and went on to say: [42]
“I do not regard a failure to ‘renew’ membership as being equivalent to resignation although a continuing failure to participate in the Society’s affairs may be evidence that the membership has become moribund.”
[41](Unreported, Supreme Court of South Australia, Williams J, 3 December 1997) BC96706406.
[42](Unreported, Supreme Court of South Australia, Williams J, 3 December 1997) BC96706406 at 12.
It was argued by Mr Gronow that the payment of an annual subscription was of less importance, and not integral, to membership of Underbank. This might be compared to the importance of the payment of subscriptions to a sick and funeral society as in St John’s where the whole purpose of the society was to provide financial support to members. I do not accept that argument. It seems to me that once the members of Underbank determined that it was necessary for the operation and maintenance of the facilities that it was providing to charge an annual subscription, it was and remained of fundamental importance that the members seeking to have the benefit of those facilities should pay the annual subscription in order to support the maintenance of the facilities and the financial viability of the association itself. I think that it lies ill in the mouth of a person who has failed to pay the annual subscription[43] for many years to suddenly claim that he or she is a member when financial advantage may be obtained thereby. It seems to me that an erstwhile member of Underbank who has failed to pay the annual subscription for many years is probably to be taken to have tacitly resigned or, as Megarry J suggests, to have repudiated the contract of membership. The repudiation will have been accepted by the deletion of the member from the list of members. Another way of looking at it is that, after many years of non-payment of subscription and/or general inactivity by a person, that person’s membership can be seen to have been abandoned.
[43]Or provide voluntary assistance
For present purposes, the starting point is that all persons on the 2003 List of Members, other than those who were not at the date of the winding up resolution owners of a block on the estate, are members of Underbank under its rules and for the purposes of s.33B(1)(a) of the Act.
The next relevant group of persons are the resident members on the 2001-2002 list of members. It would appear that none of these resident members had paid their annual subscription prior to the compiling of the 2003 List of Members but I do not think that the mere failure to pay that subscription amounts to a tacit resignation or a repudiation or abandonment of their membership. Accordingly, the resident members on the 2001-2002 list of members, provided that they remained resident on a block on the estate at the time of the resolution for winding up, are members of Underbank under its rules and for the purposes of s.33B(1)(a) of the Act.
It is next necessary to consider the position of the unlisted claimants. In my opinion, as a generality, any person who failed to pay all annual subscriptions from 1998 onwards, that is, neglected to pay any subscription at all for a period of at least five years prior to the resolution for winding up, was no longer a member of Underbank at the time of the resolution for winding up. The failure to pay the annual subscription for such a lengthy period leads, in my view, to the inevitable conclusion that the person was no longer a member of Underbank, if not as a result of resignation by conduct, then by abandonment, or as a result of a repudiation that was accepted by Underbank. Rule 3(9)(b) recognises, by use of the words “or otherwise”, that membership may cease in ways other than by death or resignation. I will hereafter compendiously refer to this conclusion by stating that the person’s membership had “terminated”.
In my opinion, the “questions arising in the winding up”[44] should be regarded by the Court in this case as the questions of general principle that arise concerning the classes of persons to whom Underbank’s property should be distributed and that this proceeding should not be treated as a vehicle for determining the rights of specific individuals. That is a matter for the liquidator to determine, in the first instance, in the light of the guidance provided by the Court. However, by way of illustration, the principles stated above may be tested in relation to the persons who were represented before the Court and in the light of the available evidence. I will first consider the various members of the Murphy group.
[44]See s.511(1)(a) of the Corporations Act 2001 (Cth)
Joyce Amelia Mary ALLEN. Mrs Allen’s husband applied to become a full member in 1991 and was accepted as a full member of Underbank. He was a member in 1993 but died on 3 November in that year. There is no evidence that Mrs Allen was ever a member of any kind. In principle a membership would of course cease upon death and not, without express provision, transmit to any other person. Rule 3(9)(b) confirms that membership ceases upon death and there is no rule providing for the automatic transmission of the membership of a deceased person to their spouse or any other person. Accordingly when Mr Allen died his membership ceased and as Mrs Allen was apparently never a member, she would appear to have no entitlement.
Kenneth BRIGGS. Mr Briggs became a member of the body corporate in 1989. Mr Briggs was listed on the list of members of Underbank for the years 1991 to 1994. Mr Briggs deposes that he “committed to” voluntary work in lieu of paying an annual subscription for the years 1994 to 1997. His affidavit does not make clear whether he performed such work but in any event there is no evidence that he paid an annual subscription or performed any voluntary work after 1997. Further, Mr Briggs is listed in January 1995 as a lapsed member.[45] Prima facie Mr Briggs’ membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
[45]See exhibit “JPW-16” to the affidavit of John Piers Warner sworn 17 May 2005.
Fabian BUCCI. Mr Bucci applied to become a full member of Underbank in October 1993 and paid the annual subscription for the years 1995 to 1997. There is no evidence that he paid an annual subscription or performed any voluntary work after 1997. Prima facie Mr Bucci’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
John CONNELL. Mr Connell applied to become a full member of Underbank and was accepted as a full member in 1992. He did nothing further until December 2000 when he made a fresh application for membership and paid the annual subscription, and he also completed a membership renewal form and paid the annual subscription in November 2001 for the year 2002. The evidence appears to show that Mr Connell was a member of Underbank and the evidence would not seem to justify an inference that he resigned or that otherwise his membership had terminated prior to August 2003.
Barry John COOK. Mr Cook’s name is found in lists of members of Underbank up to 1995. In November 1995 he completed the annual membership registration form and indicated that he would pay his subscription by performing voluntary work, which he did. Since 1996 Mr Cook did not participate in the affairs of Underbank and did not pay any further annual subscription. Prima facie Mr Cook’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
Alistair DAVIE and Karen Lorraine DAVIE. It would appear that Mrs Davie applied to become a full member in 1992. She deposes in her affidavit that “I have participated in working bees arranged by the Underbank committee but have not paid any membership fees”. However Mrs Davie is listed as a lapsed full member and Mr Davie as a lapsed resident member in January 1995.[46] Prima facie the Davies’ memberships had terminated and they should be regarded as no longer members of Underbank by August 2003.
[46]See exhibit “JPW-16” to the affidavit of John Piers Warner sworn 17 May 2005.
John Joseph KERVIN. Mr Kervin had been a member of the body corporate but made a further membership application in 1990 which appears to have been approved and his name appears on the list of members of Underbank of August 1991. He appears to have had some involvement thereafter but there is no evidence that he paid any annual subscriptions after 1991. Further, Mr Kervin is listed as a lapsed full member in January 1995. Prima facie Mr Kervin’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
John Anthony KNIGHT. The evidence indicates that Mr Knight was a full member of Underbank for a considerable time and that he paid his annual subscription for the year 2002. His name appears on the list of members for 2001-2002. The evidence would not seem to justify an inference that Mr Knight resigned or that his membership otherwise had terminated prior to August 2003.
Mark LEE and Nancy LEE. Mr Lee was a full member of Underbank from its inception and his name appears on the lists of members from 1991 to August 1995. Mr Lee deposes that he either paid the annual subscription or committed to voluntary work from 1995 to 1997. Mrs Lee is listed in January 1995 as a current resident member. In about 1998 Mr Lee ceased to be actively involved and did not pay any annual subscription or undertake any voluntary work. Prima facie the Lees’ memberships had terminated and they should be regarded as no longer members of Underbank by August 2003.
David Gilchrist MCBRIDE. Mr McBride was a full member of Underbank from its inception and appears on the lists of members from 1991 to 1995. He also deposes that he paid his annual subscriptions for the years 1996 and 1997 and 2000 and he is on the list of members for 2000-2001. The evidence would not seem to justify an inference that Mr McBride resigned or that his membership otherwise had terminated prior to August 2003.
Rodney Allen MCRAE. Mr McRae was a full member of Underbank from its inception and appears on the lists of members in 1991 and 1992. Mr McRae deposes that he did not pay any annual subscription to Underbank but performed many hours (at least 20 hours per annum) of voluntary work but does not specify the period over which that work was performed. However Mr McRae is listed in January 1995 as a lapsed full member.[47] Prima facie Mr McRae’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
[47]See exhibit “JPW-16” to the affidavit of John Piers Warner sworn 17 May 2005.
Christopher Michael MURPHY. Mr Christopher Murphy was a member of Underbank from its inception and, following the introduction of membership fees, elected to perform voluntary work. His name does not appear on any list of members after 1995. Mr Murphy deposes that he paid for a pool key from 1987 until the winding up of Underbank but I do not think that payment for a pool key in his case (or in the case of other persons who have mentioned the same matter) is evidence of itself, without more, of continuing membership of Underbank. Prima facie Mr Christopher Murphy’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
Denis Leslie MURPHY. Mr Denis Murphy was a full member of Underbank from its inception and appears on the lists of members from 1991 to 1995. In about 1996 he ceased to be actively involved and did not pay any annual subscriptions or undertake voluntary work. Prima facie Mr Denis Murphy’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
Heather May PROUT and Colin PROUT. Mrs Prout became a full member of Underbank in 1992 and was accepted as such and continued to be a member for some years. She last appears on the list of members for 1995 but her husband paid her annual subscription for the year 1997. There is no evidence of any activity, or of any subscription payment by either of the Prouts, after 1997. Prima facie their memberships had terminated and they should be regarded as no longer members Underbank by August 2003.
Robyn Janice SUNDERLAND and Gary SUNDERLAND. Mrs Sunderland applied to become a full member of Underbank in 1992 and was approved as such. She remained actively involved until 1994 or 1995 and thereafter neither of the Sunderlands had any involvement with Underbank. Prima facie their memberships had terminated and they should be regarded as no longer a member of Underbank by August 2003.
Marie Therese SYMES. Mrs Symes’ husband, James Symes appears on the Underbank list of members as a full member in August 1991 of Underbank but not thereafter. Mrs Symes deposes that her husband performed voluntary work “until the late 90s” but made no monetary payments. Mr Symes died on 2 December 2004. If he was a member at the date of his death his estate would have an entitlement but it is not clear on the evidence before the Court whether his membership had terminated or not by August 2003.
Margaret Rose Williams MOLLETT. Mrs Mollett’s husband, Laurence Wilfred Mollett, was a full member of Underbank from its inception and Mrs Mollettt was a resident member. Their membership apparently continued until at least 1995. Their names do not appear on the list of members of August 1995 or thereafter. Mr Mollett died on 4 October 2000 and accordingly his membership (if any) terminated. Mrs Mollett deposes that she “ought to have been nominated” as a full member after her husband’s death, but the fact is that she was not. However, Mrs Mollett claims to be entitled as a resident member. There is no evidence that Mrs Mollett was a resident member after 1995 or that she paid any of the subscriptions levied upon resident members from 1998 or 1999 onwards. Prima facie Mrs Mollett’s membership had terminated and she should be regarded as no longer a resident member of Underbank by August 2003.
I turn next to the Warners.
John Piers WARNER. Mr Warner’s father was a full member of Underbank but he died on 3 August 1997, leaving his widow (Mr Warner’s mother) as the owner of their block on the estate. Mr Warner’s mother did not become a full member but in any event she died on 7 May 2003. Mr John Piers Warner was not a member of Underbank , as defined by rule 2(1), in August 2003 and would therefore appear to have no entitlement as a member. Mr Warner’s brothers Nicholas Philip WARNER and Philip John WARNER are, on the evidence, in no better position.
Finally, there is a claim by Kenneth Lloyd GOODWIN. Mr Goodwin was a full member of Underbank in 1994 and paid his annual subscription. In the following year he failed to pay his subscription and received a letter warning him that his membership might lapse. He deposes that in December 1996 he paid the annual subscription for 1996-1997. He then deposes that “since 1996 I have received no further correspondence from [Underbank] … I state that I am still a current member … The fact that current fees have not been paid is due to [Underbank’s] failure to issue a notice to me.” Presumably it was the member’s responsibility to pay the annual subscription irrespective of whether he or she received a reminder notice. Prima facie Mr Goodwin’s membership had terminated and he should be regarded as no longer a member of Underbank by August 2003.
In summary, the operation of Division 1 of Part VIII of the Act is such that the assets of Underbank should be distributed equally between all of the following members:
1)The valid members of Underbank on the 2003 List of Members;
2)The resident members on the 2001-2002 list of members who were still resident on a block on the estate at the time of the winding up resolution;
3)Any full members not on the 2003 List of Members whose membership had not terminated[48] by the time of the winding up resolution;
4)Any resident adult members not on the 2003 List of Members and not on the 2001-2002 list of members whose membership had not terminated[49] by August 2003 and who were still resident on a block on the estate at the time of the winding up resolution.
[48]As defined in para [63] above.
[49]As defined in para [63] above.
Section 33D of the Act
I next consider the question whether the Court should exercise its discretion pursuant to s.33D of the Act, applications having been made in that regard by various persons aggrieved, to order a disposal of assets in a manner other than that provided by Division 1 of Part VIII of the Act.
Section 33D provides no guidance as to relevant criteria for the operation of the discretion. I think that one such criterion must be whether the operation of Division 1 has unjust and inequitable consequences that could not have been anticipated when making provision for an equal distribution among the members of the association.
In my opinion the operation of Division 1 in the present case has such unjust and inequitable consequences because of the amended definition of a member in Underbank’s rules. Member is defined to include both full and resident members. The consequence is that the more resident members there are listed in respect of a particular block on the Underbank estate the greater the share of the assets that will be distributed to those members. The amended definition of membership is not, to my mind, as important as the fundamental provision in the rules of Underbank that there can be only one full member per block and that full membership is dependent upon ownership of a block on the estate. Resident members are “associate” members. It seems to me that the appropriate distribution of the assets is one that provides an equal distribution in relation to each block on the estate where there was a member at the time of the winding up resolution. Multi-member blocks should “receive” no more than single member blocks and where there is more than one member per block those members should share equally the amount payable in respect of that block.
It would in my opinion be unjust and inequitable if the relative amount of the distribution were to be governed by the number of resident members on each block.
On the other hand, I am not persuaded by the submissions on behalf of the Murphy group that those persons in that group whose membership appears to me to have terminated[50] should have any order made in their favour pursuant to s.33D of the Act. Indeed, I would if necessary exercise the Court’s discretion under s.33D to exclude those persons from a distribution if (contrary to my view) they may still properly be regarded as members at the time of the resolution for winding up.
[50]As defined in para [63] above.
Further, I am not persuaded by the submissions on behalf of the Warners that the Court should order a distribution to any persons who were not members at all simply because they were owners of (or residents on) a block on the Underbank estate at the time of the resolution for winding up. Although the land could to some extent be used by all persons on the estate, the facilities were operated by Underbank for the benefit of its members and their subscriptions and voluntary work contributed to the maintenance of the land and its facilities. The essence of the scheme from its inception was that the entity owning the Underbank land (whether the body corporate or the incorporated association) was to be open for membership by owners of blocks on the estate and the land and facilities were available for the use of those members (or at their invitation). There is no basis for the contention that the land was held by Underbank on trust, express, implied or constructive, for all or any of the owners in the Underbank estate.[51]
[51]See s.33E of the Act.
Orders (including representative orders) will be made to reflect the above reasons and I invite the liquidator (after consulting with the other parties) to submit appropriate minutes.
As far as costs are concerned, in my opinion, and subject to any further submissions from the parties, the costs of all parties on a solicitor-client basis should be paid out of the assets of Underbank.
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