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Singapore – The Legal Effect Of Resolutions Passed By Unincorporated Associations.

27 February, 2015

Introduction

 
Sports clubs and country clubs, unlike incorporated associations, are not legal entities. As such the powers of their boards and management committees are often not as clearly defined. In Freddie Koh Sin Chong v Singapore Swimming Club [2014] SGHC 276, the High Court considered the legal effect of resolutions passed by the committee of an unincorporated association and whether such resolutions have contractual force between the members of the association themselves.

 
The present action arose out of a defamation suit commenced against the Plaintiff management committee member of an unincorporated club. Relying on a resolution previously passed by the management committee, the Plaintiff claimed that he was entitled to be indemnified by the club for all damages and litigation costs incurred by him in defending the suit. However, the Court found that the resolution did not have contractual force, and thus did not grant the Plaintiff an irrevocable right to be indemnified by the club.

 
This judgment provides guidance as to the legal nature of an unincorporated club, as well as how such an association or management committee may go about creating binding legal obligations.

 
Brief Facts

 
The Plaintiff was a management committee (“MC”) member of the Singapore Swimming Club (the “Club”). In 2009, the Plaintiff was sued for defamation by four members of the MC (“Suit 33”) due to two statements made by him at separate MC meetings, which were subsequently published on the Club’s notice boards. The Court of Appeal in Suit 33 held that the Plaintiff was liable for defamation, and that he had acted with malice in making the defamatory statements.

 
The MC had earlier passed a resolution (the “Indemnity Resolution”) that the Club would assume all and any liability in the defence of any awards against any member of the management committee incurred as a result of the discharge of duties or responsibilities to the Club.

 
Soon after the Court of Appeal decision in Suit 33, an Extraordinary General Meeting was called, at which certain new resolutions were passed (the “EOGM Resolutions”), essentially seeking to override the Indemnity Resolution. The EOGM Resolutions stated, inter alia, that:

 
(i) The Club seeks return from the Plaintiff of all monies paid by the Club relating to Suit 33, including legal costs and expenses; and

 
(ii) No Club funds would be authorised to pay for the legal costs, expenses, or damages arising from Suit 33.

 
The Club ceased to pay any further sums following the EOGM. Relying on the Indemnity Resolution, the Plaintiff applied to Court seeking indemnity for all costs and expenses relating to Suit 33 incurred after the EOGM Resolutions. In turn, the Club counterclaimed for the sums already paid by the Club in respect of the legal costs for Suit 33.

 
Holding Of The High Court

 
The High Court dismissed the Plaintiff’s claim on the ground that the Indemity Resolution did not have contractual force between the Plaintiff and the Club so as to entitle the Plaintiff to be indemnified by the Club for legal costs and damages. However, the High Court also determined that the Club could not recover payments it had already made through its own private act by passing the EOGM Resolution.

 
Legal effect Of The Indemnity Resolution

 
The Club is an unincorporated association, and is thus a creature of contract governed by the Club’s Rules. Given the private nature of the contract between the members, the power exercised by the committee of an unincorporated association is a delegated power.

 
As such, the Court considered the authorities on the issue of what is the legal effect of resoultions passed by committees of unincorporated associations, and distilled the following principles:

 
(i) Resolutions are formal decisions made by an entity;

 
(ii) Resolutions do not have legal effect in and of themselves;

 

a. A resolution is not a contract as between the members of the entity or between the entity and third parties;


b. A resolution may however be binding as between the members if the constitutional documents of the entity or a statutory provision provides it to be so;


c. Legal rights and obligations may be independently created if the entity acts pursuant to the resolution and enters into legally binding transactions; and


(iii) Resolutions, unlike a contract, may be rescinded or amended at any time.

 
On the facts, the High Court was of the view that the Indemnity Resolution did not have contractual force between the Plaintiff and the Club so as to entitle the Plaintiff to an irrevocable right to be indemnified by the Club for the legal costs and damages. Rather, the Indemnity Resolution was a statement of Club’s intent to defend its officers against legal proceedings for acts committed in their capacity as office bearers.

 
Therefore, the Plaintiff’s claim for indemnity against the Club was rejected.

 
Legal Effect Of The EOGM Resolutions

 
The Court held that the EOGM Resolutions did not automatically entitle the Club to recover the sums already paid with regard to Suit 33. The Club had paid the Plaintiff’s legal costs voluntarily and, as a matter of principle and policy, could not simply change its mind by passing the EOGM Resolutions. The Club had to establish a distinct cause of action at law which permitted the recovery of the sums already paid to the Plaintiff.

 
On this point, the High Court considered and dismissed the Club’s argument that it had paid the Plaintiff’s liabilities under a mistake and was entitled to restitution of the sums it paid under the law of unjust enrichment. The Court also dismissed the argument that the Indemnity Resolution was voidable due to mistake or breach of fiduciary duty. Therefore, the Court dismissed the Club’s counterclaim as well.

 
Concluding Words

 
The High Court’s decision bears a significant impact on the issue of resolutions passed by unincorporated associations. It sets out a clear set of principles to be applied in determining the legal effect of such resolutions.

 
Management committees of such associations should be aware of when their resolutions and decisions are legally binding and when they are only statements of policy. In doing so, they should be familiar with the the constitution or rules of the association, and whether such provisions grant any legal force to their resolutions. They should also know when resolutions must be followed up with separate transactions or agreements in order to create binding obligations.

 

Rajah & Tann

 

 

For further information, please contact:

 

Lionel Tay, Partner, Rajah & Tann
[email protected]

 
Cindy Seah, Partner, Rajah & Tann
[email protected]

 
Wendy Low, Partner, Rajah & Tann
[email protected]

 
Luo QingHui, Partner, Rajah & Tann
[email protected]

 
Rajah & Tann Corporate/M&A Practice Profile in Singapore 

 

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