Re Recher

• Facts:

◦ Re Recher is significant for the development of the contract holding theory, which aimed to clarify how property can be held by members of unincorporated associations (UAs).

◦ The case built upon the legal challenges arising from cases like Leahy v A-G for New South Wales where unincorporated associations faced difficulties in holding property due to the beneficiary principle and lack of identifiable beneficiaries.

◦ The issue at hand was the transfer of property to an unincorporated association, and whether the property was held on trust or through a contractual relationship between the members.

• Outcome:

◦ The case established that the property held by an unincorporated association is governed by a contract between its members, rather than a trust.

◦ In this model, the contract binds the members, restricting them from treating the association’s property as their own and requiring that it be used for the association’s purposes.

◦ This "contract holding theory" makes the association itself a legal entity that operates based on the contractual obligations of its members.

◦ Variation or dissolution of the contract: If members wish to change the terms of the contract or dissolve it, they are free to do so, but only after a mutual agreement. Once the contract is dissolved, the property can be divided among the members.

• Impact and Analysis:

◦ Contract Holding Theory:

▪ The contract holding theory has become the current stance post-Leahy, suggesting that property transfers to UAs are contractual in nature, rather than being held in trust.

▪ Under this theory, the association’s property is subject to the contractual agreement between the members, preventing them from treating it as their personal property. This resolves some of the issues raised by the beneficiary principle because the association’s purpose is guided by the terms of the contract, not the interests of individual beneficiaries.

◦ Variation or Dissolution of Contract:

▪ The ruling emphasised that it is within the members' rights to change or dissolve the contract that governs the property, meaning that the association's property can be redistributed or repurposed upon mutual agreement of the members.

◦ Brightman J’s Judgment Issue:

▪ Brightman J's approach in the case was criticised for treating donations to an unincorporated association as outright transfers, rather than as transfers on trust.

▪ The problem with this view is that outright transfers allow the recipient (such as a treasurer) to use the property as they see fit, which could lead to situations where individual members, such as a treasurer, could misuse or divert the property for personal gain.

▪ This creates potential for misuse since there is no enforceable obligation to use the property strictly for the association’s purposes, unlike a trust where the beneficiary principle would typically restrict how the property is used.

• Key Takeaway:

◦ Re Recher represents a shift in the legal treatment of property transferred to unincorporated associations, favouring the contract holding theory over the trust theory.

◦ This case allows property to be controlled by the contractual relationship of members, thus sidestepping the problems of trust law while providing a flexible way for members to manage and change the terms of property use.

◦ However, it also exposes potential weaknesses in protecting the property from individual misuse, as it treats the property as belonging to the members based on their contract, rather than being held in trust for specific purposes.

◦ As such, the contract holding theory helps resolve many issues raised in previous cases involving unincorporated associations, but it also creates room for further concerns about enforcement and accountability among members.