Property / Real Estate

Constitutionally Correct?

A recent High Court decision demonstrates the dangers of not adhering to the rules of the constitution of an incorporated society.

"Do not interfere with anything in the Constitution. That must be maintained, for it is the only safeguard of our liberties."

So said Abraham Lincoln way back in the 1800s. And it really sets the tone for why we need constitutions to provide rules and guidelines in various situations, including for incorporated societies. A recent High Court decision, Sanders v Hepatitis C Support Group (NZ) Incorporated demonstrates the dangers of not adhering to the rules of the constitution of a such a Society.

A member of the Society applied for judicial review on grounds including:

  • Failure by the president to bring amendments to the Society's rules to the Committee prior to the AGM;
  • At a committee meeting prior to the AGM, he had been assured that eligibility to stand for office and vote would not depend on prior payment of a subscription. He attended on that basis;
  • That in breach of the rules the independent chairperson of the AGM ruled the applicant and others who had not paid their subscriptions were ineligible to vote or stand for office. The applicant claimed this was in breach of his right to natural justice and his legitimate expectation;
  • That the chairperson allowed others to vote on the grounds that they had paid the subscription, and by implication were members.

In reaching its decision, the High Court reviewed the rules concerning membership and the right to vote and found the decisions made at the AGM were not in accordance with the rules. As a result, all decisions taken at the AGM were invalid, and a further AGM was required at the Society's cost.

There are important lessons to be learned from this case. The constitution and rules of a Society are binding and must be strictly followed. Rules must be carefully interpreted. A Society can be liable for costs (including expensive litigation on occasion) associated with remedying issues arising as a result of non-compliance or incorrect interpretation. While on a much smaller scale than the American Constitution, a Society's rules are still primarily there to protect the members and ensure compliance with the law and the purposes of the Society in general. They should not be taken lightly.

Ian McCombe

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The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.

 

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