Northline Inline Skating Club Incorporated v Baysport Incorporated
[2024] NZHC 1045
•1 May 2024
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2023-488-29
[2024] NZHC 1045
UNDER the Incorporated Societies Act 1908 and the Declaratory Judgments Act 1908 IN THE MATTER
of an application under s 21(3A) of the Incorporated Societies Act 1908 and s 3 of the Declaratory Judgments Act 1908
BETWEEN
NORTHLAND INLINE SKATING CLUB INCORPORATED and KERIKERI JUDO CLUB INCORPORATED
Plaintiffs
AND
BAYSPORT INCORPORATED
Defendant
Hearing: 11 December 2023 Appearances:
M Nicholls for the Plaintiffs R Mark for the Defendant
Judgment:
1 May 2024
JUDGMENT OF BECROFT J
This judgment was delivered by me on 1 May 2024 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Martin Nicholls Ltd, Kerikeri R Mark, Kerikeri
NORTHLAND INLINE SKATING CLUB INC & ANOR v BAYSPORT INC [2023] NZHC 1045 [1 May 2024]
What is this case about?
[1] BaySport Incorporated (BaySport) is an umbrella organisation which operates a multi-sports hub in the Bay of Islands.
[2] In 1999, BaySport was incorporated under the Incorporated Societies Act 1908 (the Act). Specifically, it oversees a large complex in Waipapa, near Kerikeri, which contains a multipurpose indoor stadium, and which includes a “dojo1”. There is also a sports field used for football and a pavilion. I understand that it was the first hub with this operating model anywhere in New Zealand.
[3]BaySport was incorporated with three “founding members”: 2
(a)Northland Inline Skating Club;
(b)Kerikeri Association Football Club; and
(c)Kerikeri Basketball Association.
[4] Kerikeri Basketball is no longer operating, leaving just two remaining founding members.
[5] It is also asserted, but very much disputed by the plaintiffs, that currently there are also four “full member” clubs:
(a)Kerikeri Tennis Club Incorporated;
(b)Kerikeri Badminton Club (unincorporated);
(c)Kerikeri Judo Club Incorporated; and
(d)Waipapa Rotary Club.
1 A school or hall where karate, judo, or other martial arts are taught and practiced.
2 In the interests of readability, I will usually refer to the parties in this judgment just by the name of their sport. Hence, the plaintiffs when individually referred to are called Inline Skating and Judo. Similarly for the other clubs, incorporated or otherwise.
[6] For at least the last 20 years BaySport seems to have operated successfully. As is the way with many New Zealand incorporated societies, it has relied on good faith between its members and much voluntary effort. Although not all procedural and management “i’s” have been dotted and “t’s” crossed over the years, by and large it has operated according to its rules with annual general meetings (AGMs) and the election of a committee and officers etc. Generally, it has apparently worked well.
[7] However, there is now internal division and disagreement. Matters came to a head at BaySport’s 2022 AGM when a new set of rules were adopted and subsequently registered. One of the founding members, Northland Inline Skating believes that some of the votes cast in favour of the new rules were made by entities that had no legal entitlement to vote. In particular, it is said that Kerikeri Badminton, as it is unincorporated, cannot be a full member. It is also argued that Waipapa Rotary cannot be a full member.
[8] The plaintiffs are also of the view that the character and spirit of BaySport’s 2009 Rules (which made small amendments to the original 1999 Rules), and which gave protection to the founding members recognising their particular interests, are not reflected in the new 2022 Rules.
[9] Northland Inline Skating is so concerned that it has brought this action, joined by Kerikeri Judo, as plaintiffs. The plaintiffs want the new 2022 Rules quashed.
[10] There are no dispute resolution procedures set out in the 1999 Rules. Sadly, mediation has not been undertaken. In my view, that would have been a very constructive way forward. The Court is now left to make a decision that will inevitably cause distress to at least one side of the dispute.
[11] In approaching this decision, I recognise that all those involved appear to be decent and responsible community members committed to the advancement of sport and recreation within the Bay of Islands area. They all share a deep love of their own sport, are loyal to BaySport, and want the organisational model to succeed.
What exactly do the plaintiffs want?
[12]There are four causes of action.
First cause of action: a determination under s 21(3A) of the Incorporated Societies Act 1908
[13]Section 21(3A) of the Act provides as follows:3
21 Alteration of rules
…
(3A) Notwithstanding anything in subsection (3), the Supreme Court, on an application made to it by any member of the society, may in its discretion, if it is satisfied that any such condition as aforesaid has not been duly fulfilled, declare the alteration to be void in whole or in part, and order that the registration be cancelled in whole or in part, and may by the order give such directions and make such provisions as seem just in the circumstances of the case. On the delivery to the Registrar of a sealed copy of the court’s order he or she shall forthwith amend the register accordingly.
…
[14]Pursuant to s 21(3A) of the Act the plaintiffs seek:
(a)a declaration that the replacement of the 2009 Rules with the 2022 Rules was ultra vires and void;
(b)a declaration that the registration of the 2022 Rules is cancelled in whole;
(c)a declaration that the current properly constituted management committee of BaySport is that which was established and governed by the 2009 Rules;
3 I understand that all parties accept that despite the new Incorporated Societies Act 2022 coming into force on 5 October 2023, which was after these proceedings were filed but before this hearing, the Incorporated Societies Act 1908 still governs this dispute. That is because, pursuant to sch 1 of the 2022 Act, an existing incorporated society (such as BaySport) continues to be subject to the 1908 Act until it reregisters as a society under the 2022 Act (or until the transition date defined in cl 2 of sch 1)—neither of which has occurred in this case. This decision proceeds on the basis that the 1908 Act applies in all respects.
(d)a declaration that there are currently only two founding members of BaySport, Northland Inline Skating Club and Kerikeri Association Football Club, and only one full member being Kerikeri Judo; and
(e)costs.
Second cause of action: a declaration under s 3 of the Declaratory Judgments Act 1908
[15]Section 3 of the Declaratory Judgments Act 1908 provides:
3 Declaratory orders on originating summons
Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute, or any regulation made by the Governor-General in Council under statutory authority, or any bylaw made by a local authority, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or
Where any person claims to have acquired any right under any such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof,—
such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.
[16] The plaintiffs seek the same declarations as for the first cause of action, except for a declaration that the registration of the 2022 Rules be cancelled. They also seek costs under this cause of action.
Third cause of action: breach of contract
[17]The plaintiffs seek:
(a)an order that BaySport has breached its own rules;
(b)an order that the 2009 Rules are the properly constituted rules of BaySport;
(c)an order that the Committee elected under the 2009 Rules is the properly constituted management committee of BaySport;
(d)an order that pursuant to the 2009 Rules, there are currently two founding members of BaySport, and one full member of BaySport (as above at [14](d));
(e)an order prohibiting the 2022 Rules Committee holding itself out as the properly constituted committee of BaySport; and
(f)costs.
Fourth cause of action: institutional constructive trust
[18]The plaintiffs seek:
(a)a declaration that an institutional constructive trust has arisen by operation of law to protect the plaintiffs’ claims and interests in the BaySport stadium and dojo;
(b)an inquiry into the plaintiffs’ share of the institutional constructive trust that has arisen;
(c)an order that the first plaintiff has a long-term security of tenure to use the BaySport stadium and that the second plaintiff has a long-term security tenure to use the dojo;
(d)an order that the first plaintiff has reasonable control over who can use the BaySport stadium and that the second plaintiff has exclusive control over who can use the dojo; and
(e)costs.
[19] It is agreed that the case effectively stands or falls on the first cause of action, although the fourth will require separate consideration. It is also agreed that there are essentially two issues.
Issues
[20] The first issue to determine is who were the full members of BaySport and who was entitled to vote at the contested 2022 AGM?
[21] The second issue is whether the change in the rules is of such a character that the interests of the founding members are no longer adequately protected, and for that reason that new rules should be cancelled.
[22] Before I address each issue, I set out a helpful agreed chronology, and a list of issues which are not in dispute.
Agreed chronology
DATE
EVENT
DESCRIPTION
1999
Incorporation
Incorporation of BaySport. 1999 Rules govern BaySport.
1999 to
2000
Pavilion built
Pavilion is built above existing changing rooms by the founding members of BaySport (Kerikeri Association Football Club, Northland Inline Skating Club and Kerikeri Basketball Association).
2002/2004
Stadium
Stage one of the complex is completed tothe extent that Northland Inline Skating and Kerikeri Basketball can start to use it. They both base their clubs at the stadium.
2003
Judo
In 2003, the Kerikeri Judo Club becomes an associate member of BaySport.
2004
Tennis
In 2004, Kerikeri Tennis Club becomes an associate member of BaySport.
2007
Tennis
Kerikeri Tennis Club relocates its club to Harmony Lane, Waipapa.
2008/2009
Judo
Kerikeri Judo Club relocates its club to the Baysport dojo.
2008/2010
2009 Rules
On 11 May 2009, the 1999 Rules are validly replaced by the 2009 Rules.
2017
2009 Rules
In February 2017, BaySport validly alters the 2009 Rules.
2017
Kerikeri Basketball Association
Kerikeri Basketball Association stops using the stadium. [I understand the club effectively ceases to operate from this time].
2019
2009 Rules
In August 2019, BaySport validly alters the 2009 Rules.
11/04/2022
AGM
At the BaySport 2022 AGM, a vote is held on motion to replace the 2009 Rules with 2022 Rules.
What is not in dispute?
[23] It is accepted that the 2022 AGM was governed by the 2009 Rules. Accordingly, it is accepted that whether those who voted were full members (and thereby had entitlement to vote) is to be determined under the 2009 Rules.
[24] It is also accepted that all the procedural steps in r 10 of the BaySport constitution dealing with the alteration of the 2009 Rules have been complied with. The relevant timeframes and notice requirements were all met. For the purposes of this case, there are no procedural or technical difficulties regarding the calling or operation of the meeting where the disputed decisions were made.
First issue: Who were the members of BaySport entitled to vote at the 2022 AGM?
[25] This is the central issue. The starting point must be the 2009 Rules. There are four categories of membership provided for in r 3. It is only the first two categories that are relevant—“founding members” and “full members,” as defined below. That is because it is only the “founding members” and the “full members” who can vote. Establishing who falls within these two definitions will then determine if the voting at the relevant meeting that changed the rules was in conformity with the relevant rules:
3Membership
3.1Categories: There shall be the following categories of membership:
(a)Founding Members
(i)Three financial club members of the Kerikeri Football Club Incorporated (KKFC) who have been delegated by that club at the time of incorporation and as replaced by KKFC from time to time.
(ii)Three financial club members of the Northland Inline Skating Club Incorporated (NISC) who have been delegated by that club at the time of incorporation and as replaced by NISC from time to time.
(iii)Three financial club members of Kerikeri Basketball Association (KBBA) who have been delegated by that club at the time of incorporation and as replaced by KBBA from time to time.
(b)Full Members
Full members shall be financial club members of such other clubs in the greater Bay of Islands’ area as are approved in writing by the Committee. There shall be a maximum of four full members. Each full member will have a maximum of two financial club members who have been delegated by their club and as are replaced by their club from time to time.
(c)Associate Members
Associate Members shall be members of such other clubs in the greater Bay of Islands area as are approved in writing by the Committee.
(d)Honorary Members
Honorary Members shall be such other members as are approved in writing by the Committee.
[26] There are also rules as to admission to membership (compliance with prescribed forms etc) and termination of membership.
[27] The first observation to make is that the drafting of the first two membership categories is far from clear and contains an inherent tension. That tension is between whether the members are clubs or whether they are the duly appointed delegates of those clubs.
[28] Mr Mark’s contention for BaySport, is that the rules are configured so that it is the individual members of clubs who are the members, rather than the clubs themselves. On the other hand, Mr Nicholls argues that the better interpretation is that
the members are clubs, and the individuals are simply the representatives and voting “voice” for each of the member clubs.
[29] Support for Mr Mark’s view is certainly found in the way the founding members are defined, which specifically refers to there being three duly appointed financial club members from each of the three named clubs. That equates to nine “founding members.” Similar wording is used to describe (c) Associate Members and
(d) Honorary Members.
[30] However, when the definition of “full members” is analysed, the issue becomes much less clear. The first sentence seems clear enough on its own. It refers to full members being “financial club members of such other clubs as approved in writing by the Committee”. That points to “full members” being individuals. But the second and third sentences cause real difficulty. The second sentence restricts full members to a maximum of four. That sentence seems to imply that the four full members are clubs because having only four people as full members would seem unnecessarily small. The last sentence makes that clear by specifying that each full member will have a maximum of two financial club members delegated by their club—which clearly points to the “full members” being clubs. So, “full members” are either four individual clubs (each represented by two of their members), or four individual persons, or possibly, eight individual people.
[31] The remaining rules do not provide assistance. There are some rules that suggest members are individuals—such as the first two rules regarding termination of membership. Others, such as the subscription rules, clearly suggest that members are clubs.
[32]Also, for instance, r 8.4(c) headed “Procedure”, specifies:
… Each founding member having three financial club members has one vote for each financial club member being a total of three votes for each founding member. The three founding members have a total of nine votes.
That clearly contemplates that the three founding members are clubs.
[33] Frankly it is very hard to discern any clear meaning in the rules. Both suggested interpretations are possible.
[34] With respect to the drafters, these rules rather read like a standard template for an incorporated society having individual members, but with amendments awkwardly inserted to address the particular situation here, where it was probably intended the founding and full members are clubs. As is now clear, that is a difficult drafting exercise. This perhaps accounts for what might be called the inconsistencies, if not incoherence, in the 2009 Rules.
[35] In my view, the better approach is to interpret “founding members” and “full members” (which are the only two definitions that require a ruling in this case), as being clubs.
[36] Certainly, this is totally consistent with the practice of BaySport and all the surrounding documentation—especially the minutes of the AGM and committee meetings.
[37] For instance, the annual subscription is levied on members—that is individual clubs—I understand at approximately $400 per annum. Also, the founding members were all described as “clubs” rather than individuals at the 2010 AGM,4 and for most of the many years of AGM minutes I was referred to.
[38] BaySports’ honorary solicitor, who drafted the 2009 Rules, is very clear in his affidavit that the founding members were clubs; and by inference the new category of “full members” created by the 2009 Rules, also applies to clubs.5
[39] After consideration of both the rules (as a whole) and the practice of BaySport, I respectfully reject Mr Mark’s submission that “founding” and “full” membership was and is for individual people. In my view, Mr Nicholls is correct that the “founding” and “full” members were and are to be regarded as clubs.
4 See affidavit of Mieke Ward affirmed 16 November 2023 at [28].
5 I note that the materials before me do not make plain who drafted the 1999 Rules. However, for the purpose of this decision, that detail is immaterial.
Which clubs are “founding members”?
[40] In the light of my conclusions so far, and given that Kerikeri Basketball is no longer in existence, there is no doubt that both Northland Inline Skating and Kerikeri Association Football are the only still existing “founding member” clubs. They are each represented by three delegated members of their club, and each delegate is entitled to one vote each, making three votes per club, and six votes in total for the remaining founding members.
Which clubs were “full members”?
[41] Mr Nicholls’ strong submission is that the only proper and lawful “full member” of BaySport is the Kerikeri Judo Club. He conceded that perhaps the Kerikeri Tennis Club might be considered a full member. But he argues that the Badminton and Rotary Clubs are clearly not members under the 2009 Rules.
[42]Here, the lack of BaySport paperwork creates real difficulty.
[43] BaySport has not maintained a register of members which every incorporated society is required to keep by virtue of s 22 of the Incorporated Societies Act. Neither, under r 3.1(b) of BaySport’s constitution, is there any record of any full members having been approved in writing by the Committee nor any record of any full member even having applied for membership using the prescribed form. All this is perhaps not unusual given the informal way many voluntary clubs are run. But it means that years later, the sorts of arguments arising here are very difficult to resolve.
[44] Affidavits by members of the various founding clubs and alleged full member clubs were provided to the Court. Clearly the key individuals from all the clubs have different perspectives.
[45] The best insights come from the documentary records. What is clear from the minutes of every AGM is that the full members have consistently been described as the Badminton, Tennis, Judo and Rotary clubs. This is not convenient for the plaintiffs’ argument, but it is a consistent thread running through all the paperwork.
[46] For instance, the AGM of 12 April 2010 correctly records the three founding members, and records the full members as being Judo, Badminton and Tennis. I accept they were previously associate members under the 1999 Rules. With the adoption of the new rules, they all became full members. This is the overwhelming inference from the documentary records. The 2010 minutes also record a motion being tabled that the Waipapa Rotary Club be invited to be a full member of BaySport. There appears to be no documentation recording whether Rotary accepted the invitation.
[47] However, the 11 April 2011 minutes note, “Rotary should be shown as a full member”. Those minutes also record the 2010 minutes as being a true and correct record of that year’s AGM. The subsequent AGM minutes and Committee minutes seem generally to confirm that those four clubs were consistently recognised and treated as full members.
[48] In the 2009 minutes the six clubs, then members of BaySport, are noted as including Basketball, Football, Judo, Badminton, Tennis, and Inline Skating. There is no differentiation between the founding members and what were then, under the 1999 Rules, “Associate Members”. But the “membership” assumptions are clear enough. Rotary is not mentioned in the list but there is nothing decisive in that. Rotary is mentioned in the 2010 paperwork.
[49] In other words, at least since 2010, all the existing paperwork clearly records that Badminton, Rotary, Tennis and Judo are all full members. The operation of BaySport has clearly proceeded on this assumption. I am satisfied that they were treated as full members, acted as full members, and took a role as full members from that time on.
[50] In one sense the Judo club, one of the plaintiffs (claiming to be the only full member), is in no better position, at least in terms of the paperwork, to assert that it is a full member and the other three are not.
[51] It is also worth noting that the 2010 minutes were confirmed as true and correct, by virtue of a motion proposed by a representative of Inline Skating and seconded by a member of Kerikeri Judo. As far as I can see, at no stage, until the dispute, have the
plaintiffs ever protested or raised a problem regarding the full membership status of Tennis, Badminton and Rotary. It hardly sits well, 13 years later, for those two clubs to now maintain that Judo is the only legitimate full member—especially since they have respectively moved and seconded a motion approving the AGM minutes which recorded as full members the very clubs they now claim were never members in the first place.
[52] Even if there were irregularities in the appointment of full members, and even if there was uncertainty about the status of full members, given the passage of time, I conclude it is simply now too late to resolve, let alone undo, matters. The conduct and course of BaySport dealings over the last ten years have effectively confirmed the four full members. It would be quite wrong, in my view, for the Court to interfere and unwind the position. And, as I conclude later, it is not a situation where Badminton and Rotary were legally precluded from being members.
[53] And I cannot ignore the paperwork irregularities as to membership. For the Court to interfere with the membership and workings of BaySport now, well over a decade after those irregularities, would also be highly artificial and selective. As far as I can see, although this was not pressed by Mr Mark for the defendants, there could also be paperwork problems with Judo’s membership, and it would be most unfair to take a technical approach with some of the clubs and not others.
[54] I have not overlooked Mr Nicholls’ argument that Judo is in a clearly better position to claim full membership status than the other three because it has contributed so much more financially (in its case to the Judo facility). I note that no exact records were produced to show how much Judo had contributed, but it was said in argument it might have been as much as $400,000. That is disputed by BaySport. BaySport does not take issue with the effort Judo put in, but it says that BaySport was the umbrella organisation through which the funding was applied. Judo was certainly involved, but BaySport is adamant that Judo did not separately provide $400,000 in its own right.
[55] I cannot resolve that argument on the paperwork and financial records before me. On the face of it, they may demonstrate the Judo club’s entitlement to full membership. However, equally, that does not preclude the others as being full members even though they may not have put in nearly as much effort or resources.
[56] Tennis has always operated somewhat separately and maintained control of its own facilities. It has also contributed significant financial amounts to the tennis courts etc. I see no reason why it should be precluded from full membership.
[57] Even Badminton has provided poles and nets which can be used when badminton is played. They retain control over that equipment. I deal shortly with the argument that, as they are an unincorporated entity, they cannot be a full member.
[58] Rotary similarly has contributed towards BaySport and made donations totalling $3,320 since 2013.
[59] The records of donations, sponsorship, and other funding contributions from 2000 to 2012, provided on a BaySport funding spreadsheet, does not record Judo contributing separately at all. The total amount of funding raised during that period was $1.75 million, which was derived from many different sources.
[60] In conclusion on this point, I am clear on the balance of probabilities, and beyond, that the 2009 Rules contemplate “full members” being clubs. And that since 2010, the four full members of BaySport have been Judo, Tennis, Badminton and Rotary.
Is the Badminton club precluded from membership because it is unincorporated?
[61] Mr Nicholls’ firm argument is that because the Badminton club is unincorporated, it simply cannot be a member of BaySport. He argues that because it is unincorporated, the club is not a person, and it is legally precluded from membership irrespective of what the paperwork says.
[62] I accept Mr Nicholls’ submission that an unincorporated club is not a legal entity, and could not be a contracting party, could not sue or be sued, and in most cases could not own property.
[63] But Mr Nicholls’ argument goes further and proceeds on the basis that lack of incorporation also prevents such a club signing, as one of 15 members of a club, an application to become incorporated. In this respect he notes that any application for incorporation of a club or society must be signed by not less than 15 members. This is set out in s 7 of the Incorporated Societies Act. Section 7(2) applies to the signature of an individual person and s 7(3) applies to a body corporate. In his view, by implication, the intent of the Act is that it is only individual people or incorporated bodies that can be members who apply for incorporation. Further, s 31 provides that in calculating the number of subscribers to an application for incorporation, every corporate body that is a subscriber shall be taken as the equivalent of three members. Therefore, the application process, so argues Mr Nicholls, is clearly restricted to incorporated, not unincorporated bodies.
[64] Support for Mr Nicholls’ argument comes from the response provided by the Registrar of incorporated societies in response to a query from a representative of Northland Inline Skating, Mr Schollum. In February 2023, Mr Schollum submitted an online query asking whether an unincorporated society could be a member of an incorporated society. A representative replied saying, “Any group with 15 or more members can apply to become an incorporated society … Both individuals and corporate bodies can make up this number.” The response goes on to detail that corporate bodies include incorporated societies, companies, charitable trusts, and councils. However, “an unincorporated body cannot be a member of an incorporated society.”
[65] I can see that for reasons of clarity, identification of subscribers and estimating the number of subscribers that the application process is more straightforward if the members who apply for incorporation are individual people or incorporated bodies. And clearly the Registrar is of the view that members who subscribe to an application must be either individual persons or incorporated bodies. I read the Registrar’s response as being directed to the issue of who can apply to become an incorporated
society—compared to the issue of who can be a member of a society that has already been incorporated.
[66] The subsequent membership of a previously incorporated society is quite a different situation. That is prescribed in the rules of each incorporated society. Indeed, s 6 of the Act specifies that the rules of a society, amongst other things, shall provide for “the modes in which persons become members of the society”. I can see nothing in the Act which restricts membership to either individuals or incorporated bodies. The closest provision which supports Mr Nicholls’ argument, although, as I understand it, he did not refer to it, is s 29 of the Act which provides:
29 Corporate body may become member of society
Any corporate body, whether incorporated under this Act or in any other manner, may be a member of a society incorporated under this Act, unless the purposes for which the society is established are ultra vires of the said corporate body.
[67] I do not read that section as preventing membership by unincorporated clubs, even by implication. Something clearer would be necessary. Section 29 simply and explicitly provides for membership by corporate bodies, but with restrictions. I do not consider it can be used as a basis for concluding unincorporated bodies cannot be members.
[68] In my view the Legislation Act 2019 puts the matter beyond doubt. In s 13 terms used in all legislation are defined. “Person” is defined as including “a corporation sole, a body corporate, and an unincorporated body”.
[69] That definition can be sensibly and decisively applied to s 6 of the Incorporated Societies Act, referred to above, which requires the manner by which “persons” are to become members to be included in a society’s rules. Such persons therefore include unincorporated societies—such as Kerikeri Badminton in this case.
[70] Having reached that conclusion, it is next necessary to say that the Rules themselves make no stipulation limiting membership to clubs that are incorporated. They relevantly refer only to a club being a member. As is well known, clubs may be incorporated or unincorporated. There are probably hundreds, if not thousands, of clubs operating in New Zealand which are unincorporated. The incorporation process,
even for a club with membership and rules, is either simply too burdensome or they never get around to it or they think it is unnecessary to do so.
[71] Therefore, Badminton, in the general sense, is a club even though it is unincorporated. As was observed by the Court of Appeal in Cometa United Corp v Canterbury Regional Council:6
Unincorporated bodies range from loosely to highly organised groupings. At one end of the spectrum are groups of people who have come together in an ad hoc way … at the other end of the spectrum are bodies which are long- lived, have officers, governance arrangements and employees just as corporate entities do, and operate and present themselves to the public as established, independent organisations.
[72] Affidavit evidence from the Badminton club is silent as to the club’s degree of organisational sophistication. However, I infer that it is organised enough to be able to provide two representatives to BaySport and can pay the annual club membership fee.
[73] I immediately accept it would be clearer and simpler if the Badminton club was incorporated. But I do not accept there is any necessity for it to be incorporated. I see no reason why it cannot apply to be a full member. This is very much at the discretion of the Committee. The Committee would be aware of the issues surrounding lack of incorporation, and that a club such as Badminton would doubtless operate in a reasonably informal way.
[74] In this local, provincial environment, where the emphasis is on promoting sport and recreational development, an unduly technical approach need not be taken. In any case, since 2010, Badminton has in all respects operated and acted as a full member, with the payment of subscription fees and membership of committees etc. All the BaySport documentation has reflected this.
[75] As I have already noted, BaySport was incorporated as a single entity umbrella organisation to allow the operation of a multi-sport hub. It is reasonable to assume that one of the purposes for establishing it in the first place would have been to create
6 Cometa United Corp v Canterbury Regional Council [2007] NZCA 560, (2007) 14 ELRNZ 20.
one overall organisation to which both incorporated and unincorporated bodies could join. BaySport’s incorporation would eliminate the need for other much smaller and more informal clubs, such as I understand Badminton to be, to themselves go through the relatively complex process of incorporation. As a matter of practical reality, those sporting and recreational activities that use, and would want to use the hub in the future, will not always be incorporated. In my view, it would be for the Committee to decide if an unincorporated body qualifies for full membership. And in the case of Badminton, through its conduct and dealings, BaySport can be taken as having decided exactly that.
[76] In short, there is no legal or practical reason, because of its unincorporated status, to preclude Badminton from full membership.
Is Rotary precluded from full membership?
[77] As I understand it, Rotary uses the BaySport facilities for its weekly meetings and has done so for over a decade. It has also made significant donations and contributions to the upkeep, maintenance, and development of the BaySport facilities.
[78] Mr Nicholls’ first argument is that as a service club, Rotary’s own rules prevent it from becoming a full member of any entity to which it makes donation—as it has done here. In other words, the assertion was that Rotary’s own rules precluded it from benefitting from its own donations.
[79] With respect to this aspect of Mr Nicholls’ argument, whether Rotary wishes to apply to become a full member is surely a matter for Rotary to decide, in the context of its own rules. It is not for this Court to interfere in Rotary’s decisions as to which entity it might or might not chose to join. This is especially so as I have not heard any argument from Rotary on the point.
[80] The second aspect of Mr Nicholls’ argument on this issue presents more difficulties. He maintains that given the aims and objectives of BaySport’s rules, (the promotion of sport, recreation and leisure) the “character’ of Rotary as a “service” club precludes it from full membership.
[81] The first thing to say is that the rules, themselves, do not specify that a full member must be a club that is “promoting sport, recreation, or leisure activities”— those are simply the objects of BaySport itself. However, it is more likely that clubs with those objects will be interested in becoming full members and will be accepted as full members by the Committee.
[82] Self-evidently, Rotary is not a sporting body. Neither is it primarily devoted towards recreational purposes, although in the widest sense this may be one of its indirect benefits for members. And to say Rotary promotes “leisure activities” might provoke allegations of defamation. Rotary is well-known to be a service club. I accept that Rotary would not seem to easily fit within the purposes for which BaySport exists.
[83] Nevertheless, in my view, it is for the Committee to decide who should be full members. That is what the rules lay out. The nature of the activities/objects of the proposed full members are not specified. Presumably, they would usually be activities including sport, recreation, or leisure. But they need not be confined to that. Here, the Committee, obviously with full knowledge about Rotary, has decided to allow Rotary to be a full member. It has acted and conducted itself as a full member since 2010. There is no reason to go behind the decision of the Committee. Its status as a full member has been recorded at numerous AGM’s and Committee meetings. And now is not the time to unwind that decision. As is well known Courts will not lightly interfere with the business of incorporated societies.
[84] There was one matter that might give some support to Mr Nicholls’ argument, although I note that it was not raised by counsel and I have not heard argument about it. That concerns the effect of r 6.2 as to the election of officers. That part provides:
… The office of the President shall be rotated amongst the founding and full member clubs so that each of the sporting codes shall have a member holding the office of President in rotation. Only those sporting codes whose member is not President shall be eligible to be a Vice President. In each year the President and Vice Presidents shall be members from separate sporting codes.
(Emphasis added)
[85] The implication is that the full member clubs will be those representing sporting codes—and on that basis Rotary certainly does not qualify. This, however, is the only mention in the rules, and only indirectly, of the possible limitations as to full
membership. I would be reluctant to take that reference as prohibiting membership by clubs other than sporting bodies. Certainly, that may be the general intention, but committees must be given freedom in the absence of specific limitations, to appoint as full members those entities which the committee consider can play a worthwhile part.
Conclusion as to full membership
[86] I conclude that Tennis, Judo, Badminton and Rotary are all full members of BaySport and have been for over a decade. I repeat my observation that the rules are unsatisfactory on this point. So is the paperwork BaySport is required to maintain. That said, I accept Mr Mark’s explanation that BaySport and its Committee had to learn “on the hoof” a method of operation that would work for it and all members. I bear in mind it was New Zealand’s first ever multi-sport hub. Not surprisingly, its documentation and procedures are not as clear as they might have been with the benefit of hindsight.
[87] However, the only inference from BaySport’s operation in the last 12 years is that the four full members must be Tennis, Badminton, Judo and Rotary. Badminton as an unincorporated entity can be, and has been, approved by the Committee, and at the AGMs, as a member. That is also true of Rotary, even though it is plainly not an entity furthering the development of any particular sporting code or recreational or leisure activity.
[88] I also observe that there had been no issues raised with this state of affairs for 12 years. It is only now after the 2009 Rules have been changed and the plaintiffs feel that they have been disadvantaged, that these technical retrospective arguments have been raised as to full membership status. And while this is not raised by counsel, there is something akin to an estoppel argument here. The plaintiffs have participated in BaySport’s operation where the four full members I describe have been clearly accepted, including by the plaintiffs, and played a full part in BaySport’s operation. It is simply too late now to undo what a course of dealings has established over 12 years.
[89] It follows, therefore, that the four full members were entitled to vote at the AGM and there was no irregularity in that respect justifying an order or declaration that the 2022 Rules must be declared void. There is, however, the remaining argument that the character and nature of the rules have been so changed to the detriment of Northland Inline Skating as a founding member, that the amendments cannot stand. I now turn to that issue.
Issue 2: Were the rules changed so that the founding members lost their protection and their special character so that the amendments cannot stand?
[90] The starting point is to understand the way BaySport was originally structured in its original 1999 Rules and to understand the purpose of the later 2009 Rules.
[91] It does not seem to be in dispute that Northland Inline Skating, Kerikeri Football and Kerikeri Basketball all put enormous energy and effort into the establishment of BaySport and particularly the facilities. It seems that Northland Inline Skating put in more effort and made more voluntary contributions than the others (although the evidence is not beyond doubt on this point).
[92] The best summary of the positions is set out in the minutes of a meeting of BaySport held on 14 April 2008. Those minutes record consideration of the new constitution and also include several paragraphs that clearly and correctly represented the position and were to be included in the minutes.
BaySport was originally set up with three founding members, being Kerikeri Association Football Club, Northland Inline Skating Club and Kerikeri Basketball Association. Each of those Clubs put forward five financial members being the minimum required under the Incorporated Societies Act.
In addition there were associate members who were required to be approved in writing by the Committee, and honorary members also to be approved in writing by the Committee. The founding members wanted to make sure that BaySport could not be controlled by other Clubs who may take over BaySport and lead it in a direction which was not accepted by the original founding Clubs. This was to recognise the input and financial contribution by those Clubs in setting BaySport up to begin with.
The proposed rules reduce the members from each of the founding Clubs from five members to three members. The proposed rules also introduce a new category of member, being a full member. To preserve the founding members’ ability to control the Club there are to be no more than four full members who are to have a maximum of two financial members each. This would mean founding members have a total of nine votes and full members have a total of eight votes.
Associate members and honorary members have been retained. The ability for associate members to vote will need to be removed. Clause 8.4(c) needs to be amended to provide “Founding and full members shall be the only members entitled to vote”.
It has been proposed that clause 7.1 be amended to provide for bi monthly meetings rather than monthly meetings. This is not to stop monthly meetings being held if required.
Clause 8.1 has been amended to provide that the general meeting be held within 16 weeks of the end of the Society’s financial year rather than 12.
[93] All this is consistent with the affidavit evidence from BaySport’s honorary solicitor, set out in his affidavit:
[5] The intention was that if BaySport was threatened with a hostile takeover, the three founding clubs were able to use their votes to protect BaySport. The intention was that the founding members could protect the asset which was a result of the involvement of those three founding clubs.
[6] That situation changed over time as Basketball fell away and it was clear that new members, such as Tennis, which had put in a massive amount of time, capital and work, needed to have a say as well. This was partly what prompted the constitution review.
[7] However it was never intended that a single founding member could not be outvoted if another founding member sided with the other voting clubs. The constitution was drafted so that founding members could not be outvoted if they voted together. If there was a split in the founding members, then a founding member could be outvoted. Founding members would have 9 votes and full members would have 8 votes. If say, a founding member voted with all the full members, then they would have 11 votes and the remaining founding members would have 6 votes.
[94] This was all largely contained in the 2009 Rules, which relevantly provided at r 8.4 about dealing with meetings of members:
(a)66% of members present personally at a generally meeting of members shall form a quorum. There must be a quorum present at the start of, and throughout the meeting.
(b)The President, and in his or her absence, the Vice President, shall be chairperson of a general meeting. In the absence of both the President and Vice President, the meeting shall elect a chairperson for that meeting.
(c)Founding and full members shall be the only members entitled to vote. Voting shall be on the voices unless a show of hands or a poll is called for. The chairperson shall have a second or casting vote in addition to his or her deliberative vote.
Each founding member having three financial club members has one vote for each financial club member being a total of three votes for each founding member. The three founding members have a total of nine votes.
Each full member having two financial club members has one vote for each financial club member being a total of two votes for each full member. The four full members have a total of eight votes.
Associate members shall not be entitled to vote.
The rules have been structured on the basis that founding members cannot be out voted by other members.
(d)Resolutions passed at any general meeting shall be conclusive and binding on all members of the Society whether present at the meeting or not.
[95] It is immediately obvious that if all the three founding members voted together, their votes would always constitute a majority and would carry the day. It is worth noting, however, that it would need all the three founding members to vote together.
[96] In 2017, the Basketball Association ceased to exist. Self-evidently, from that time on, the remaining two founding members with six votes between them could be outvoted by the eight votes of the four full members. That apparently caused no concern, or at least no concern that led to any request for changes by the plaintiffs.
[97] The problem asserted by the plaintiffs is that the 2022 Rule changes cement the two founding members as being Northland Inline Skating Club and Kerikeri Association Football Club. Full members are those clubs that reside or regularly meet at the BaySport facilities and are accepted into full membership by the Committee. There is no longer the limit of four full members. Each full member has two votes. Therefore, the reality of the situation that emerged in 2017 is now clear in the 2022 Rules: the full members can easily outvote the founding members, even when the founding members vote together.
[98] It is worth noting that in the voting for the rule change, the two surviving founding members were split. They did not vote together. Kerikeri Football voted in favour of the rule changes.
[99] I can readily understand Northland Inline Skating’s angst, now over 20 years on from the establishment of BaySport, that its “protected” or founding member influence is much reduced. No longer could the remaining two founding members, if they voted together, prevent what might be called, rather dramatically I cannot help but observe, “a hostile takeover”.
[100] Not surprisingly, Northland Inline Skating is very concerned, especially since it asserts it put major amounts of money and effort into the establishment of BaySport. It also asserts it has always been given, effectively, “preferential” treatment. The same is also so for the Judo Club.
[101] One of the difficulties in this hearing is that there is no way to quantify the alleged separate financial contributions made by Northland Inline Skating. In fact, BaySport has provided evidence negating any separate contributions having been made. All the funding, grants and donations were made through and under the umbrella of BaySport and there appear to be no records specifying exactly what, if any, separate amounts were provided by Northland Inline Skating.
[102] It is a somewhat harsh reality to accept, but time has moved on. One founding member has ceased to exist. The remaining founding members simply do not have the level of influence they once had. The clock cannot be “turned back”.
[103] The writing is even more on the wall because Kerikeri Football is apparently relocating and will be cutting ties with BaySport. That would just leave one founding member—with even less potential influence.
[104] That said, I have sympathy for Northland Inline Skating. Another inline skating club, known as I understand it as The Falcons, has recently been formed. I do not know why and cannot comment about that club’s origins although there are clearly some disagreement/problems behind the scenes. Understandably, Northland Inline Skating feels concerned that it will have to share the facility. Indeed, I understand that there may have been some exploratory written questions raised by another party, which Northland Inline Skating says it has heard about, as to whether its founding member status could be terminated. I have no information about that. I observe that although such a step is a matter for BaySport, history can hardly be erased, and it would be disrespectful to Inline Skating and totally inconsistent with the way all the parties conducted themselves at the hearing. Also, I should record that assurances were given from those present in the courtroom observing the proceedings that this would never happen.
[105] Northland Inline Skating is now operating in a different environment than it once did. Time has moved on and in furtherance of its objects, BaySport has sought to broaden and widen its membership.
[106] There is nothing in these circumstances that would justify the Court’s interference. I cannot make any direction that Northland Inline Skating’s historical contribution and interest be protected. However, this Court can indicate that Northland Inline Skating’s pivotal role in the establishment of the sports hub should always be carefully considered by BaySport, and the Committee should act in a way that respects the founding and ongoing contributions made by Northland Inline Skating. My recording of this should be of some comfort to Inline Skating.
[107] In short, I understand the heartfelt concerns and anxiety by Northland Inline Skating but there is no basis for this Court to interfere with the decision of the AGM and, as I have explained, it does not fundamentally alter the situation that has been in existence since 2017.
Conclusion as to the causes of action
[108]Given my findings thus far, the causes of action can now be addressed.
First cause of action: declaration under the Incorporated Societies Act 1908
[109] The replacement of the 2009 Rules with the 2022 Rules was not ultra vires nor void. Full members who voted on the proposal were entitled to do so. The registration of the 2022 Rules should not be cancelled.
[110] There are two (remaining) founding members of BaySport being Northland Inline Skating Club and Kerikeri Association Football Club. There are four full members being Kerikeri Judo Club, Kerikeri Tennis Club, Kerikeri Badminton Club, and the Waipapa Rotary Club.
Second cause of action: determination under the Declaratory Judgments Act 1908
[111] On that basis, no declaration under the Declaratory Judgments Act, as sought by the plaintiffs, is justified. In any case, most of the issues were to do with the actions
taken under the 2009 Rules rather than an interpretation of those rules themselves. However, to the extent that an interpretation exercise was required by the Court, the conclusions I have reached as to the meaning of the rules preclude the issuing of any declaratory judgment.
Third cause of action: breach of contract
[112] There has been no breach of the 2009 Rules and neither did they create a form of contractual obligation to protect the particular and unique status of Northland Inline Skating.
Fourth cause of action: institutional constructive trust
[113] The short answer to this point is that BaySport leases the land and all the facilities on it from the Far North District Council. The Far North District Council own the land and the facilities. I agree with Mr Mark that in this case the concept of an institutional constructive trust cannot exist and to that extent it is misconceived. An institutional constructive trust arises where it would be unconscionable for a defendant to deny a plaintiff an equitable interest in the relevant property because of a previous understanding that was either subjectively agreed between the parties or deemed by the law to have been appropriate in the circumstances. The reality is that BaySport does not own the property.
[114] In any case there is insufficient evidence before the Court to quantify the contributions made by each of the plaintiffs, particularly Northland Inline Skating, or the intention behind those contributions. Accordingly, on the evidence before me it would be a difficult, if not impossible task, to discern what property would form the subject-matter of an alleged constructive trust. And the nature of the documentary record, or lack thereof, would undermine the ability of the Court to determine what the subjective intention of the parties was in having individual clubs make contributions to BaySport. In short, the evidence before the Court would not enable me to make findings on this issue, even if BaySport owned all the relevant property.
[115] As I have indicated, I agree that as a founding member, Northland Inline Skating should be entitled to long-term, if not perpetual, security of tenure to use the BaySport stadium and for the Judo Club to use the dojo. However, these cannot be absolute rights and must be subject to the changing time. As was indicated during argument, this may mean reasonable sharing of the facilities.
[116] The reality is that the plaintiffs have voluntarily been a part of this organisational structure. The extent to which that structure may disadvantage their interests is a matter for the clubs’ representatives to resolve.
Final remarks
[117] All the applications, while responsibly and earnestly brought by the plaintiffs, must fail.
[118] As to costs, I indicated at the close of the hearing that I was of the view that costs should lie where they fall. On reflection, I maintain this view.
[119] The 2009 Rules are not an exemplar of their kind. They have opened the door to some of the arguments that have been raised by the plaintiffs. I make no criticism of anyone involved. As I say, all those involved appear to be good, sincere, and decent community members doing their best for the development of sport and recreation within the Bay of Islands.
[120] Legally, at least, I hope there is now clarity. I observe that the 2022 Rules address most of the issues that were in dispute here. They are clearer than the 2009 Rules and obviously are based on the concept that it is clubs that are members of BaySport, each with its own defined representation.
[121] At the start of this judgment, I said mediation would have been preferable.7 I hope, instead, that this judgment may now pave the way for a mediated development of principles that will appropriately recognise Northland Inline Skating and Kerikeri Judo Club’s historical efforts, including their financial contribution to BaySport.
[122] Finally, I observe while the redress sought by the plaintiffs is denied, this judgment should not be seen as “winning or losing.” Rather, it is clarification which provides a basis for the future promotion of “sport, recreation, and leisure” within the wider Bay of Islands. This is in everyone’s interests.
Becroft J
7 I note that under the new 2022 Act, every new and reregistered society is required to make provision for dispute resolution procedures in its constitution— see s 26(1)(j). Schedule 2 of the new Act sets out “Optional dispute resolution procedures” which a society may choose to include in its constitution rather than craft its own procedure. Either way, it would seem that immediate resort to the High Court, as has happened here, will no longer be possible, without first undergoing dispute resolution processes.
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