Reported Decision : (2002) 55 NSWLR 14 New South Wales Supreme Court CITATION : REDHEAD GRANGE INCORPORATED v BRETT DAVIDSON & 1 OR [2002] NSWSC 90 FILE NUMBER(S) : SC 5133/01 HEARING DATE(S) : 7 February 2002 Written submissions JUDGMENT DATE : 28 February 2002 PARTIES : Plaintiff: Redhead Grange Incorporated Defendant: Brett Davidson & Karen Davidson JUDGMENT OF : Brownie AJ at 1 COUNSEL : Plaintiff: JR Connors Defendant: GJ Graham SOLICITORS : Plaintiff: Harris Wheeler Defendant: Colin A Hogan & Co CATCHWORDS : Associations and clubs - rights, duties and liabilities of members - rights of members to resign. Associations and clubs - jurisdiction of courts - property rights and obligations DECISION : I make declarations in terms of paragraphs 1 and 2 of the Summons, and order the Defendants to pay the Plaintiff's costs. - 14 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BROWNIE AJ Thursday, 28 February 2002 5133/01 redhead grange incorPorated v BRETT DAVIDSON & KAREN DAVIDSON JUDGMENT 1 HIS HONOUR: The Defendants became members of the Plaintiff association, and purported to resign. The question to be decided is whether that resignation was effective. 2 The Plaintiff was incorporated in 1997 pursuant to terms of the Associations Incorporation Act 1984. It seems to have been called into existence in connection with the proposed subdivision of some land at Redhead, near Newcastle. That land was owned by FAI General Insurance Limited, and ultimately it was subdivided. Lot 68 in the subdivision became known as the "Leisure Club Lot". 3 The Defendants entered into a contract with FAI General Insurance Limited, whereby the latter sold to the Defendants Lot 56 in the subdivision. Special Condition 46 of the Contract was in the following terms:- "46 Membership of Redhead Grange Incorporated (a) The Purchaser acknowledges that upon registration of the transfer to it of the property, it will (by that fact) become a member of Redhead Grange Incorporated (the "Association") and be entitled to access to the Leisure Club Lot being Lot 68 in the Plan and the facilities including:- (i) tennis court; (ii) gymnasium; (iii) children's play area; (iv) The Winderhouse Hall; (v) gardens; and (vi) shaft enclosure (viewing only – no access is allowed). (b) The parties will adjust contributions payable in respect of the Leisure Club Lot in accordance with the Constitution of the Association on the basis of $213 per lot for the year current as at the date of completion. The amount of contributions shall be adjusted from the date of registration of the plan of subdivision up until June 30, of the following year, on a daily basis. The purchaser shall not be entitled to make any objection, requisition or claim for compensation or delay completion in relation to the payment or adjustment of the contributions referred to in this clause. (c) The Vendor discloses to the Purchaser the terms of the Constitution of Redhead Grange Incorporated ("the Constitution") which is annexed hereto and marked with the letter "R". The Purchaser shall not make any objection, requisition or claim in respect of the Constitution, or anything referred to in or arising out of the Constitution nor any changes to the Constitution which the Vendor, or any relevant authority shall deem necessary or desirable, (including incorporation of the Association under the Corporations Law) PROVIDED THAT the terms of any such alterations do not adversely affect the purchaser's interest in the lost to an extent which is not minor. ( d) If there is a dispute between the parties… [of a certain kind, it was to be resolved in a certain way]." 4 In due course the Defendants became the registered proprietors of Lot 56. Annexure "R" to the Contract was a copy of the Plaintiff's Constitution, which contained the following clauses or rules:- 1. Membership Qualifications (a) the members of the Association shall comprise two classes, namely:- (i) founding members; (ii) proprietors. (b) founding members shall be natural persons who authorise the incorporation of the Association on behalf of FAI General Insurance Company Limited. FAI General Insurance Company Limited may appoint other persons to act as founding members in place of any such person or persons. (c) proprietors shall be those persons who are from time to time registered as proprietors of an estate in fee simple of a Lot (other than lots 67 or the Leisure Club Lot, comprising lot 68), subject to rule 4(5). 2. Cessation of Membership A person ceases to be a member of the Association:- (a) if a founding member, upon FAI General Insurance Company Limited ceasing to be a proprietor of any lot in the Plan or if replaced by FAI General Insurance Company Limited; (b) being a proprietor, (i) until death or bankruptcy (or in the case of an individual) or in the case of a corporation until the company is dissolved or until such person ceasing to be the registered proprietor of a lot in the Plan. Where a proprietor ceases to be a member by death or bankruptcy the person entitled to be registered under the Real Property Act 1900 as a transferee of the estate of that proprietor shall be entitled to exercise the rights and must assume the obligations of the proprietor as a member. (ii) upon ceasing to be registered as a proprietor of an estate in fee simple of a Lot. 3. Membership Entitlements Not Transferable A right, privilege or obligation which a person has by reason of being a member of the Association: (a) is not capable of being transferred or transmitted to another person; and (b) terminates upon cessation of the person's membership. 4. Register of Members (1) The public officer of the Association shall establish and maintain a register of members of the Association specifying the name and address of each person who is a member of the Association together with the date on which the person became a member. (2) The register of members shall be kept at the principal place of administration of the Association and shall be open for inspection, free of charge, by any member of the Association at any reasonable hour. (3) Subject to Rule 4(5), registration as proprietor of an estate in fee simple pursuant to the Real property Act, 1900 of a lot shall be deemed to be an acceptance by the proprietor and the founding member respectively of the rules and objects of the Association, whether or not the notification in Rule 4(4) is made. (4) A proprietor shall, on becoming registered as proprietor of an estate in fee simple of a Lot within thirty (3) days furnish the public officer with official documentation from the Land Titles Office as to that proprietorship. (5) Despite any contrary rule, FAI General Insurance Company Limited within 30 days of a proprietor becoming registered as proprietor of a Lot, may advise the public officer that such person, who is otherwise the proprietor of a Lot, is not to be a member of the Association. That advice must be accompanied by:- (a) an acknowledgement by the proposed Non-Member Proprietor that it will not be entitled to access to the Leisure Club Lot whilst that person is a proprietor of a Lot, as a Non-Member Proprietor. (b) a release of any easement in favour of the Lot (and burdening the Leisure Club Lot) of which the proposed Non-Member Proprietor is, or is to become, proprietor. (c) an undertaking on behalf of FAI General Insurance Company Limited to pay the contributions which would otherwise be due by the proposed Non-Member Proprietor as a member of the Association. Upon receipt by the public officer of the advice, acknowledgement and undertaking referred to in this sub-rule, the proposed Non-Member Proprietor shall be and be deemed to be a Non-Member Proprietor, and shall not be a member of the Association. 5. Members' Liabilities A member of the Association shall only be liable to contribute towards the payment of the debts and liabilities of the Association or the cost, charges and expenses of the winding up of the Association in accordance with Part 18. 18. Contributions (1) No amounts shall be required to be paid to the Association for entrance fees or subscriptions, but there shall be levied against members from time to time, (but at least annually) the amounts determined by the Committee as being necessary to meet the actual and expected liabilities of the Association. (2) Subject to Rule18(8), the amounts to be levied shall be apportioned equally amongst the proprietors (regardless of the number of co-proprietors of a lot) on the basis of the number of lots owned by a proprietor as a proportion of the total number of lots in the Plan (including any re-subdivision of any lot) but excluding lots 67 and 68. (3) All amounts due in respect of contributions including interest to the Association shall constitute a Charge upon the lot held by the member and shall entitle the Association to lodge and maintain a caveat under the provisions of the Real Property Act, 1900. (4) In the event that any amount due in respect of contributions, including interest remains unpaid for a period of three (3) months from the date the same is due and payable, the member by virtue of these rules irrevocably nominates constitutes and appoints the Association the Attorney of the member to:- (a) execute a Charge in a form registrable under the provisions of the Real property Act, 1900; (b) register the Charge on the folios of the Register under the Real Property Act, 1990, evidencing the member's estate in the lot held by the member; and (c) produce or procure the production of the Certificate of Title to enable registration of the said Charge by the Registrar General. (5) A certificate from the public officer as to whether any contributions remain outstanding by a member shall be conclusive evidence as between a purchaser and/or mortgagee and the Association as to the payment or otherwise of contributions made by the Association as at the date of the certificate and if unpaid as to the date of the levy. (6) The Association shall, upon application made to it in writing by a proprietor or mortgagee of that estate or interest or by a person authorised in writing by such a proprietor or mortgagee of that estate or interest or by a person authorised in writing by such a proprietor or mortgagee and upon payment of a fee not greater than 50% of the fee prescribed under Section 109 of the Strata Schemes Management Act 1997, furnish to the applicant within seven (7) days of receipt, the certificate referred to in clause 18(5). (7) The liability of a member of the Association to contribute towards the payment of the debts and liabilities of the Association or the costs, charge and expenses of the winding up of the Association is limited to the amount, if any, unpaid by the member in respect of contributions payable by that member to the Association as required by this Rule. (8) Contributions otherwise payable by a person who is a Non-Member Proprietor, shall be payable by FAI General Insurance Company Limited, subject to rule 4(5). (9) The Association may charge interest on contributions due but unpaid at the maximum rate fixed by the Supreme Court Act and Rules. 30. Insurance (1) The Association shall effect and maintain insurance pursuant to Section 44 of the Act. 38 Surplus Property In the event of the winding up or the cancellation of the incorporation of the Association any surplus property of the Association shall vest in the Lake Macquarie Council. 39 Funds Not to go to Members Notwithstanding anything elsewhere in the Rules, the income and property of the Association, howsoever derived, shall be applied solely towards the promotion of the objects of the Association, and no portion thereof shall be paid or transferred, directly or indirectly to the members of the Association, or to any of them or to any person claiming through any of them provided that nothing herein contained shall prevent the payment in good faith of remuneration to any officers or servants of the Association or to any member of the Association in return for any services actually rendered to the Association or for goods supplied in the ordinary and usual way of business nor prevent the payment of interest at any commercial rate. 40 Access to Leisure Club Lot Facilities (1) The Financial Members of the Association shall be entitled to exclusive access to use the following Leisure Club Lot Facilities: (i) gymnasium (ii) tennis court; and (iii) childrens play area The Financial Members of the Association (and their invitees, but only in the company of a Financial member) shall have access to the above Leisure Club Lot Facilities from 7.00am to 9.00pm seven days a week, or otherwise as determined by the Association. The Committee shall determine:- (a) the issuing of access keys to members of the Association for the above Leisure Club Lot Facilities; and (b) the extent to which other parts of the Leisure Club Lot are available to members. Members of the Association must not behave (and must take all reasonable steps to ensure that their invitees do not) in a manner likely to interfere with the peaceful enjoyment of other members of the Association or the public lawfully using the Leisure Club Lot Facilities. (2) The building on the Leisure Club Lot known as The Winderhouse Hall is available for hire to members of the Association and members of the public. The Committee shall appoint such Manager as it so determines to regulate and control the letting and use of The Winderhouse Hall as provided in Rule 15. (3) Members of the Association and members of the public shall have access to the gardens and view the shaft enclosure situated on the Leisure Club Lot in the manner determined by the Committee. (4) Non-Member Proprietors are not entitled to access to the Leisure Club Lot. (5) The Committee and the Council shall jointly undertake an annual review of community use of The Winderhouse Hall and in particular review and report to the Committee on: (a) community access to The Winderhouse Hall; and (b) the fee structure for uses of The Winderhouse Hall. 41. Use of Leisure Club Lot and Leisure Club Lot Facilities Subject to rule 40, persons using the Leisure Club Lot and Leisure Club Lot Facilities must not: (a) create any noise on the Leisure Club Lot that is likely to interfere with the peaceful enjoyment of the Leisure Club Lot by members of the Association or the general public; (b) obstruct lawful use of the Leisure Club Lot or any of the Leisure Club Lot Facilities. (c) (i) damage any lawn, garden, tree, shrub, plant or flower being part of or situated on the Leisure Club Lot; or (ii) use for his or her own purposes as a garden any portion of the Leisure Club Lot. (d) allow any child of whom the member of the Association has control to play within the childs play area, tennis court or gymnasium unless accompanied by an adult exercising effective control. (e) deposit or throw on Leisure Club Lot any rubbish, dirt, dust or other material likely to interfere with the peaceful enjoyment of the members of the Association's lawful use of the Leisure Club Lot and Leisure Club Lot Facilities." 5 The Defendants contend that they were entitled to resign as members, because there was nothing in the constitution of the Plaintiff Association that prevents that conduct, and they rely upon the decisions in Finch v Oake [1896] 1 Ch 409 (cited with apparent approval by Windeyer J in Marks v The Commonwealth of Australia (1964) 111 CLR 549 at 571) and Elmawey v Adelaide Mosque Islamic Society of South Australia Inc, Supreme Court of South Australia, Williams J, 3 December 1997, not reported), at 9 to 10 in the Austlii print out. The Plaintiff contends that upon the proper construction of its constitution, resignation was effectively prevented. 6 I think it is established that, if the Rules of an Association do not make any provision to the contrary, a member might resign unilaterally, perhaps even by implication by not complying with his or her obligations as a member for a significant period: In re Sick and Funeral Association of St John's Sunday School, Golcar [1973] 1 Ch 51 at 61-63. 7 If the membership of an Association does not expose the member in question, or other members, or other people to possible adverse consequences, it is sometimes easy to infer from the terms of the constitution of the Association that there is no rule preventing a member from resigning, but if the cessation of membership might produce adverse consequences to others, then the proper construction of the rules might more easily lead to the conclusion that the rules do prevent, or inhibit resignation. This is, perhaps, no more than to say that it is necessary to construe the words of the constitution in their context. 8 Thus, in Field v Battye [1939] SASR 235, Murray CJ at 240-244 and Richards J at 245-248 found that the Rules in question there, properly construed, did prevent a member from resigning; and they came to this conclusion, in part, by considering what would be the consequences of resignation, and what was the deemed intention of those who drafted the Rules. 9 In the present case it seems to me that, upon the proper construction of the Plaintiff's constitution, a member who is a "proprietor" as described in Rule 1(c) has no right to resign. Rule 2(b)(i) is not drafted entirely felicitously, but when read in the context of the Rules generally, I think it should be taken to constitute a prohibition against resigning. Such a member can only cease to be a member upon death, bankruptcy, dissolution, or by ceasing to be the registered proprietor of a Lot. Rules 3, 4(5), 5, 18, 31 and 40-41 seem to me to point particularly in this direction: Proprietor members have rights that they may exercise, to the exclusion of others; the provision of the facilities to enable those rights to be exercised costs money; that money comes mostly from members, but also from the fees charged pursuant to Rule 31(1)(b); and the amounts due from members to the Plaintiff are secured by charges upon the land owned by the various members, which charges may be enforced by the Plaintiff: see Rule 18. 10 Next, the Defendants submitted that the Plaintiff, as a stranger to the contract between FAI General Insurance Ltd and the Defendants, could not enforce that contract. I do not accept that the principle invoked is applicable. Rather, the question now is whether, the Defendants having become members of the Plaintiff Association, they are entitled to resign. 11 The Defendants then submitted that the dispute was not justiciable, since it involved the internal affairs of a voluntary association. I do not think that this principle is applicable either: The Plaintiff has property, namely the Leisure Club lot, and the effect of the Plaintiff's constitution is to give to Proprietor members rights in relation to that lot. To fund this use of that lot, the constitution also imposes liabilities upon Proprietor members, and imposes charges over the property of the Proprietor members. The constitution was drafted so as to create legal relations between the Proprietor members, and between them and the Plaintiff. See generally Cameron v Masters (1934) 51CLR 358 at 370-371. 12 Finally, the Defendants relied upon an argument concerning the heritage value of the buildings on the Leisure Club lot, said to be the reason why the transaction was structured in the way described. I do not think that this circumstance is relevant to the issue to be decided. 13 I make declarations in terms of paragraphs 1 and 2 of the Summons, and order the Defendants to pay the Plaintiff's costs. Last Modified: 02/28/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.