LRC paper probes legal personality of non-profits

The Law Reform Commission has published a consultation paper on the liability of clubs, societies, and other unincorporated associations, and is seeking views on the matter.

The paper forms part of the Law Reform Commission’s Fifth Programme of Law Reform and examines civil and criminal liability – including matters of regulatory compliance and enforcement – connected with non-profit, unincorporated associations such as clubs and societies.

The paper raises important questions as to how regulators and individuals can enforce legal obligations and, if necessary, sue unincorporated associations.

It also explores the potential legal consequences – including personal liability – for individuals involved in non-profit unincorporated associations.

Non-profit associations 

The term 'unincorporated association' is used to describe voluntary non-profit associations that pursue one, or more, stated non-commercial lawful purposes.

As of June 2021, there were 19,410 unincorporated associations in Ireland – including 2,684 charities. 

Irish law does not currently regard these bodies as having a legal personality that is separate and distinct from its members.

Because they are not recognized as legal entities, separate and distinct from their members, they cannot sue or be sued.

They lack the capacity to enter into contractual relationships – including employment contracts.

Individual members cannot sue an unincorporated association, on the basis that one cannot sue oneself. In addition, they cannot hold property in their own name, and such assets are generally held by trustees for the benefit of unincorporated associations and/or their members.

While there are advantages for many clubs and societies in choosing to operate as unincorporated associations, there are also significant risks, the LRC points out.

Wrongdoing

Members are exposed to personal liability for the wrongdoing of others, even in cases where they played no active part.

This position was clearly established by the Supreme Court in 2017 in the  Hickey v McGowan  case, in which the plaintiff alleged that he had been sexually abused between 1968 and 1972 by a member of an unincorporated association called the Marist Order of Religious Brothers. In Hickey v McGowan , Judge O'Donnell noted the need for reform.

The Supreme Court held that, while the plaintiff was entitled to seek and obtain judgment against individuals who were members of the order between 1968 and 1972 by finding such members to be vicariously liable for the actions or behavior of other members of the order at that time , he could not obtain judgment against the order itself.

For litigants in such situations, identifying who is, or was, a member of an unincorporated association at a particular time can be difficult, and that is one of the many barriers that face persons who wish to deal with, or litigate against, unincorporated associations in Ireland.

The lack of capacity of unincorporated associations to enter into contractual relationships may cause significant difficulties for members in the event of claims or disputes with employees or contactors who are hired to provide services on behalf of an unincorporated association.

Members may find that they are contractually bound, rather than the association. This situation is equally unsatisfactory for third parties trying to contract with unincorporated associations, because it may be unclear who is liable for breaches of contract.

A contractor would have to be certain that the person who signed the contract had authority to bind the entire membership. While suppliers and contractors may believe that they are contracting with a club, that is not the legal reality.

In Irish law, unincorporated associations cannot own property. Instead, legal title to property must be held by trustees, for and on behalf of an unincorporated association.

This may pose difficulties in accessing association funds and assets to meet liabilities, and may mean that assets held by an unincorporated association are beyond the reach of plaintiffs, prosecutors, and regulators.

In relation to statutory compliance, there is an absence of clarity concerning unincorporated associations: legislation ostensibly applies to unincorporated associations, but it does not specify how, in practical terms, laws designed for individuals and corporate entities apply to an association that is, legally speaking , the sum of its members, and which has no separate legal existence.

Liability

Further, legislation does not specify exactly how an unincorporated association is to be held liable – whether liability is imposed on an unincorporated association, on all its members, or the member responsible.

In the area of ​​criminal and regulatory enforcement, little consideration has been given to adapting the law to expressly include unincorporated associations, and to set out how fines will be met, the LRC points out.

It may be desirable to provide for the criminal responsibility of unincorporated associations, as distinct from their members, in certain circumstances – for example, in health, safety, and welfare-at-work law. Rules relating to criminal procedure are also underdeveloped in Ireland in relation to unincorporated associations.

Mindful of the important role of unincorporated bodies in Irish society – including in education, sport, health, social services, and emergency relief – the Law Reform Commission says it seeks to achieve a well-balanced approach, and to avoid creating a chilling effect in terms of continuing voluntary participation in clubs and associations that operate in the interest of society.

Regulatory burdens

The Law Reform Commission believes that the existing company limited-by-guarantee (CLG) mechanism, provided for by the  Companies Act 2014 , can be used to protect members of unincorporated associations and third parties that deal with them.

A CLG does not have share capital, and gives the protection of limited liability and the advantages of separate legal personality, which means that such bodies can own assets without the use of trustees, can enter contracts, and can sue and be sued, without the exposure of individual members to personal liability.

For smaller, more informal unincorporated bodies involved in low-risk activities, incorporation is often seen as unnecessary and a drain on resources.

However, for larger bodies that own assets, enter contracts and operate with employees or volunteers to the extent that they resemble employees, the CLG is an available and sensible solution to address many of the problems of un-incorporation, the LRC believes.

However, the commission acknowledges that there are costs and regulatory burdens associated with incorporation as a CLG and has, therefore, considered other means of achieving protection.

Law Reform proposals

The Law Reform Commission has presented three broad models:

• Model 1:  legislate to create a 'non-profit registered association', by which separate legal personality could be gained by registration,
• Model 2 : confer separate legal personality on unincorporated associations that fulfill specified criteria, and
• Model 3 : do not confer separate legal personality on unincorporated associations, but specify how they are to be held liable in contract, tort, and for offences, with a series of focused reforms that do not alter their current legal status.

Access property

Regardless of the legal form, the use of trusts to hold funds and assets for and on behalf of an unincorporated association can have the legal effect of putting those funds and assets beyond the reach of plaintiffs, prosecutors and regulators.

This is problematic from the perspectives of both members of unincorporated associations and third parties dealing with unincorporated associations.

The Law Reform Commission is seeking views on the issues, by Wednesday, 15 March 2023, by email at  UnincorporatedAssociations@lawreform.ie