Gibbons & Anor v Smith & Ors

A trust for a private members’ club may be valid even though its purposes are not exclusively charitable, where the members have enforceable contractual rights to use the trust property and are ascertainable from time to time. A recreational trust is charitable only if the statutory conditions for public benefit and social welfare are met. Restricting use to approved members prevents facilities from being available to the public at large.

A club may dissolve spontaneously where prolonged inactivity and the surrounding circumstances make dissolution the only reasonable inference. On dissolution, its property remains held for the members at the date of dissolution. In the absence of contrary rules, the net proceeds may be distributed equally among those members or their estates.

The claimants sought directions under CPR Part 64 concerning two adjacent plots held by trustees for a railway workers’ club. The club’s identity and governing documents were uncertain. A later deed purported to establish the Hollingwood Welfare Association as a charity and regulated membership, management and use of the land.

The club had ceased functioning, membership subscriptions had stopped, and the property was in poor condition. The defendants did not contest the claim. The principal issues were the identity and nature of the trust, whether the deed created a charitable trust, the effect of dissolution, the treatment of the land and sale proceeds, membership qualification, trustee accounting, possible relief from liability, and costs.

1. Trust. The two plots were held under one trust. From October 1997 the governing instrument was the Association Deed, notwithstanding continued use of the former club name.
2. Charitable status. Under section 1 of the Recreational Charities Act 1958, both the improvement-of-conditions requirement and one of the statutory alternatives in section 1(2)(b) had to be satisfied. The deed failed the public-at-large alternative because residents could use the facilities only after approval for membership. It therefore did not create a charitable trust. The court did not need to decide the separate issue concerning preferential membership classes.
3. Validity of the non-charitable trust. The trust nevertheless remained effective. Members had enforceable rights under the Association Deed and were ascertainable from time to time. The arrangement was therefore not an abstract or impersonal purpose trust. Perpetuity was not fatal because the members could amend the rules to provide for distribution of the assets.
4. Dissolution and property. Applying the approach in In re GKN Bolts & Nuts Ltd (Automotive Division) v Birmingham Works Sports and Social Club, prolonged inactivity may support spontaneous dissolution, although inactivity alone is insufficient. The only reasonable inference was that the club dissolved in March 2013. The land remained held for the members at that date and could not pass to a different association or to the local council. It was directed to be sold under section 50 of the Trustee Act 1925.
5. Distribution. Following In re GKN Bolts & Nuts Ltd (Automotive Division) v Birmingham Works Sports and Social Club, the net proceeds were to be divided equally among the members at dissolution, or their estates. A further scheme was required to determine disputed membership claims. Family Members were treated as individual members on the evidence available.
6. Outstanding matters and costs. The question whether the Plot 2 trustees should account, and the application under section 61 of the Trustee Act 1925, were adjourned. The claimants’ and Fourth Defendant’s costs were ordered to be paid from the sale proceeds as trust expenses, assessed on the indemnity basis under CPR rule 46.3.