Re GKN Sports Club [1982] 1 WLR 774

Facts

• The GKN Sports Club was an unincorporated association established for the recreational benefit of employees of Guest, Keen, and Nettlefolds Ltd.
• Club members paid subscriptions, and club funds were used for its activities.
• The club’s governing rules did not specify how to distribute surplus funds upon dissolution.
• Upon closure of the club, a substantial surplus remained, leading to a dispute regarding its distribution.
• The claimants contended that the surplus should be distributed among the members at closure, reflecting their contributions.
• The defendants argued that the surplus should revert to the company, considering its financial support and the club’s intended benefit for employees.

Issues

1. How should surplus funds of an unincorporated club be divided upon dissolution in the absence of specific rules in the governing documents?
2. Whether the surplus funds should be distributed to the members or revert to the supporting company.
3. The relevance and application of contract and trust law principles in determining the proper recipients of surplus assets when an unincorporated association is wound up.

Decision

• The court determined that the surplus funds should be distributed to the club’s members at the time of dissolution.
• It was held that the members, having contributed through subscriptions and participation, held a contractual right to the surplus upon closure.
• The court rejected the argument that the surplus should return to the company, as the rules did not provide for this and the primary purpose was member benefit.
• The judgment established that, unless the governing documents specify otherwise, surplus assets of an unincorporated association should be divided among existing members based on their contractual relationship.

Legal Principles

• Unincorporated associations are governed by a mixture of contract and trust principles, primarily determined by their constitution or rules.
• In the absence of express provision for distribution, courts will consider the intentions of the members and contributions made.
• Surplus assets on dissolution are generally distributed to current members unless a trust can be identified or the rules dictate otherwise.
• Clear, detailed rules are essential for unincorporated groups to avoid disputes over surplus assets.

Conclusion

Re GKN Sports Club [1982] 1 WLR 774 clarified that, upon dissolution of an unincorporated association, surplus assets are to be distributed to current members according to contract principles and in light of the group’s purpose, unless the governing documents provide a different mechanism. This decision remains a key reference for the winding up of unincorporated groups and the application of contract and trust law principles to residual assets.