A Club with Personality – changes in the wind?

The position today:

The majority of clubs and associations  are run as unincorporated associations.  These are simply formed by way of a constitution or agreement between its members for whatever purpose is required (whether they be sporting, community based or otherwise).  As the law currently stands, an unincorporated association does not have any legal status beyond that of a collection of members - it does not have its own separate legal personality, in contrast to a limited company. 

Whilst there are some benefits to the current position (such as relative informality, simplicity and privacy) there are a number of recognised drawbacks.  An unincorporated association cannot enter into contracts in its own right.  This has implications where employees are taken on, contracts have to be entered into with third parties or where the organisation is involved in pursuing or defending litigation, as the association itself cannot be party to these.  What can normally happen is that a member will act ostensibly on behalf of the organisation in each of these scenarios but that member may potentially be personally liable for the obligations of the organisation.

When it comes to owning heritable property, the same issues arise.  As an unincorporated association cannot hold property in its own name, it is required to be held by some or all of the office bearers on trust for the members.  If the composition or structure of the organisation’s committee alters, this can lead to additional conveyancing and therefore cost. 

Often viewed as the biggest drawback of the lack of legal personality is the liability that could potentially attach to office bearers or members if, for example, a third party has a successful claim against the organisation for an injury as a result of an accident on their property.  There is also the question as to what happens in the situation where a member is injured – as the organisation is essentially a group of members of which that member is a principal, he could not sue as he would essentially be raising an action against himself.

This culminates with the issue as to who is ultimately liable to a third party in say, a discrimination claim by an employee of the club where the compensation was in excess of the club’s means?

In reality, many clubs and organisations often carry on regardless and enter into contracts or arrangements without full consideration of their legal status and capacity to do so.

Proposals for the future:

In an effort to determine if there is any way to redress these issues the Scottish Law Commission (“SLC”) issued a discussion paper in December 2008 on the possible options should it be decided that unincorporated associations are given some sort of legal personality.

The SLC have been canvassing views on whether clubs and associations themselves would find it beneficial if they were recognised as an entity which existed separately from that of its members and have been taking views on how an organisation would qualify for that status.  Should this be granted automatically if certain criteria are met?  If this is the preferred option, what should the relevant criteria then be?  Options which have been mooted are turnover or asset value of the organisation.  As separate personality may not be suitable or desirous for all organisations the SLC query whether there would have to be an opt out system in place.

An alternative that is proposed is an opt-in system whereby an organisation would have to opt to have its own personality possibly by making such a statement in its constitutional documents or by registering on a public register.  The latter of these has the benefit of allowing third parties to check its status and therefore assess the risk or otherwise of dealing with the organisation.  The downside is the cost of administering such a register.

What seems to be clear, and recognised by the SLC, is that whatever option is ultimately chosen has to be simple.  Burdensome compliance and reporting obligations are unattractive to the types of organisations for which any proposed new vehicle is supposed to be benefiting.  There are already various alternative options available to organisations willing to take on this burden.  The consultation process ended on 6 March 2009 and we now await the SLC’s recommendations.  Once the SLC have considered the responses to the consultation paper they will prepare a report and, if thought suitable, a draft Bill for consideration by the Scottish Ministers.  This is expected to be around autumn 2009.

Scott Wyper