28-10-2011

Personal liability of club committee members highlighted

Members of the governing bodies of clubs and other unincorporated associations should take note of a recent court decision confirming that a committee member of a rugby club could be liable to pay a club liability of £147,000 personally, or be made bankrupt.

A rugby club operated as an unincorporated association. Its governing body was called the ‘management committee’. One of the committee members, Mr Davies, was also the club’s president.

The club treasurer signed a contract with a firm of builders agreeing to pay a fixed sum for work to be carried out at the club, and also to pay for any additional work agreed during the contract. Mr Davies witnessed the signature. The club paid the fixed sum, but the builders also claimed £147,000 for agreed additional work, which the club did not pay.

The builders served a written request for the money (‘a statutory demand’) on Mr Davies personally for the full £147,000. If a statutory demand is not satisfied, the creditor is entitled to make the debtor bankrupt. He argued that he was not personally liable for the debt, so the demand should be set aside.

On appeal, the court said that he was liable to pay. Members of the governing body of an unincorporated association are personally liable for any payment due under a contract entered into on the club’s behalf if the governing body has authority under the rules of the club to enter into it and the club fails to pay. In the absence of evidence to the contrary, the court inferred that the treasurer had been acting on the committee’s authority when he signed the contract, so all the members were potentially liable.

Even worse for Mr Davies, legally the committee members were ‘jointly and severally’ liable. That meant the builder could start bankruptcy (or any other) legal action against any one of them for the full amount. It would then be up to that committee member to recover their share from the others – but that was of no concern to the builders.

Recommendation

  • Take legal advice before accepting office as a member of the committee or other governing body of an unincorporated association, to reduce the risk of being taken to court for payment of the association’s debts.
  • Ensure that fellow committee members are aware of their potential personal liability before an unincorporated association enters into a significant contract or carries out any activity that could create a legal liability – for example, for personal injury - if things go wrong.