A Guide to Member Discipline & Dispute Resolution in NSW Associations

Introduction

Internal disputes can disrupt an incorporated association’s operations and threaten its governance, making effective conflict management essential. For board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee, the process is governed by the association’s constitution and the Associations Incorporation Act 2009 (NSW) (‘Associations Act‘).

This article explains the procedures for member discipline and dispute resolution. It covers the steps from internal processes, such as mediation and arbitration, to the final resort of court action, including potential winding-up orders or the appointment of a receiver.

Interactive Tool: Check Your Next Step for Member Discipline & Disputes

The Legal Framework

The Constitution as a Legally Binding Contract

An incorporated association’s constitution is the primary legal document governing its internal affairs. Under Section 26 of the Associations Act, the constitution functions as a legally binding contract between the association and its members. In essence, this framework establishes the rights and obligations that all parties must follow.

This contractual relationship forms the legal basis for managing internal disputes. For board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee, this document provides the essential rules for governance and conflict resolution. 

Furthermore, it outlines the agreed-upon procedures for handling disagreements and disciplinary matters.

Key Constitutional Requirements for Dispute Resolution

The Associations Act requires that an association’s constitution address several key matters to ensure proper governance. Schedule 1 of the Associations Act mandates the inclusion of specific mechanisms for managing member conduct and resolving conflicts. As a result, these provisions are critical for maintaining order and fairness within the organisation.

Essential constitutional components for dispute resolution include:

• General meetings: Procedures for calling and conducting general meetings, including rules for notifying members and establishing a quorum, are necessary for making binding decisions on disputes and appeals.
• Disciplining of members: The constitution must set out the formal procedure for taking disciplinary action against a member. It must also include a mechanism for members to appeal any disciplinary measures taken against them.
• Internal disputes: A clear process must be defined for resolving internal NFP disputes that arise between members in their capacity as members, or between a member and the association itself.
• The committee: The constitution must detail the committee’s composition, functions, election process, and terms of office for its members, which is foundational to its authority in dispute matters.

The Process to Discipline or Expel a Member

Committee Resolutions & Formal Notification Requirements

For an incorporated association in NSW, the process for disciplinary action begins when a complaint is made to the committee. Under clause 7 of the model constitution, found in Schedule 3 of the Associations Incorporation Regulation 2022 (NSW) (‘Associations Regulation‘), a complaint can be lodged if a member has failed to comply with the constitution or has acted in a way that is prejudicial to the association’s interests.

Once a complaint is received, the committee must follow a formal procedure. This process is critical for board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee to manage correctly. The steps include:

• Serving notice: The committee must serve a notice of the complaint on the member in question.
• Allowing submissions: The member must be given at least 14 days from the date of service to make submissions to the committee regarding the complaint.
• Committee consideration: The committee is required to consider any submissions made by the member before deciding.

If, after this process, the committee is satisfied that the complaint is proven and warrants action, it may pass a resolution to expel the member or suspend their membership. 

Following this resolution, the secretary has a duty under clause 7(5) of the model constitution to provide the member with a written notice within seven days. This notice must detail the action taken, the committee’s reasons, and the member’s right to appeal.

The Right of Appeal & General Meeting Votes

A member facing disciplinary action has a right of appeal under clause 8 of the model constitution. To initiate this process, the member must lodge a notice of appeal with the association’s secretary within seven days of being served with the committee’s decision.

Upon receiving a notice of appeal, the committee is obligated to convene a general meeting within 28 days. This meeting is held specifically to address the appeal, and the procedure is structured to ensure a fair hearing as follows:

• The disciplined member is provided an opportunity to present their case, either orally or in writing.
• The committee is also provided the opportunity to state its case and reasons for the disciplinary action.
• The members present at the meeting then vote by secret ballot on whether to confirm or revoke the committee’s resolution.

The outcome of the appeal is determined by a simple majority of votes cast by the members present. This voting process ensures that the final decision rests with the broader membership of the association.

Procedural Fairness & Natural Justice Requirements

Provision of Proper Notice & Fair Hearings

When an association takes disciplinary action against a member, it must ensure the process adheres to the principles of natural justice, also known as procedural fairness. This is a fundamental requirement to ensure any decision made is legally sound. 

Therefore, board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee must embed these principles in their procedures.

A critical component of natural justice is providing the member with proper notice. To achieve this, the association must ensure the following steps are taken:

• Clearly informing the member of the specific grounds for the proposed disciplinary action against them; and
• Providing the member with a fair and reasonable opportunity to be heard, allowing them to present their case and respond to the allegations.

The Necessity for an Unbiased Decision Maker

Decisions regarding disciplinary action must be made by an unbiased party. This means that the individuals responsible for the decision, typically the committee, should be impartial and free from any pre-judgment or personal interest in the outcome of the matter.

Failing to provide natural justice can have serious consequences for the association. If a member can show that they were not given proper notice, a fair hearing, or that the decision-maker was biased, the following outcomes may occur:

• Any disciplinary action taken against the member could be overturned by a court; and
• The association could be left liable for the member’s legal costs.

Pathways for the Resolution of Internal Disputes

Mandatory Mediation through a Community Justice Centre

Before resorting to court action, an incorporated association must follow the dispute resolution procedures outlined in its constitution. It is essential to adhere to these internal mechanisms first for key stakeholders of NSW incorporated associations considering restructuring into a company limited by guarantee, including:

• board members;
• founders;
• executives; and
• legal or governance professionals.

If an association’s constitution does not contain a specific process, the model constitution set out in Schedule 3 of the Associations Regulation applies. Under clause 9 of the model constitution, specific conflicts must first be referred to a Community Justice Centre for mediation, including any dispute:

• between members in their capacity as members; or
• between a member and the association.

In summary, this step is a mandatory prerequisite before further action can be taken.

Progression to Arbitration for Unresolved Conflicts

If mediation at a Community Justice Centre does not resolve the internal dispute within three months of the referral, the matter must proceed to the next stage. Specifically, clause 9(2) of the model constitution requires that the unresolved dispute be referred to arbitration.

This formal arbitration process is governed by the Commercial Arbitration Act 2010 (NSW) (‘Commercial Arbitration Act‘), as specified in clause 9(3) of the model constitution. As a result, this structured pathway ensures that all internal avenues for resolution are exhausted before any party considers initiating legal proceedings in court.

Supreme Court Intervention & Case Study Analysis

Court Orders for Winding Up or Receivership

When internal dispute resolution fails, the NSW Supreme Court can intervene as a final resort. For board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee, it is important to know that a member, creditor, or the association itself can apply for a court order to wind up the association.

Under Section 63 of the Associations Act, the Supreme Court may issue a winding-up order on several grounds, including if the association has:

• Conducted its affairs to provide pecuniary gain to its members;
• Engaged in activities inconsistent with its objects;
• Acted in a way that is unfair or unjust to its members; or
• Operated in the interests of the committee rather than in accordance with its objects.

As an alternative to winding up, the court may appoint a receiver to manage the association’s affairs and resolve the dispute. This option aims to preserve the organisation, as a court-appointed receiver can be given specific powers to manage the conflict. These powers may include the authority to:

• Administer and supervise an election;
• Call and hold a general meeting;
• Determine which members are eligible to vote; and
• Approve or reject new membership nominations.

Case Study of Sengthong v Lao Buddhist Society of NSW Incorporated

The case of Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 (‘Sengthong v Lao Buddhist Society‘) demonstrates how the NSW Supreme Court may intervene to resolve a severe internal dispute. The conflict began with a contentious election that led to two rival factions claiming to be the legitimate management committee, which ultimately resulted in paralysing the association’s governance.

When the matter reached the Supreme Court, an application was made to wind up the society. However, the court decided against this, determining that dissolving the organisation would disrupt important community and religious activities. 

Moreover winding up would have displaced monastic residents and deprived members of their temple.

Instead of issuing a winding-up order, the court appointed a receiver to resolve the dispute. The receiver was granted specific powers to address the conflict, including determining membership eligibility and conducting a court-supervised election for a new management committee. 

As a final point, this case highlights the court’s preference for remedies that preserve an association’s purpose and assets where possible.

Conclusion

Effectively managing a member dispute requires strict adherence to the procedures in your association’s constitution, from internal resolution pathways to potential court intervention. For board members, founders, executives, and legal or governance professionals of NSW incorporated associations considering restructuring into a company limited by guarantee, following these steps and ensuring procedural fairness is essential to resolving conflict while protecting the organisation.

If your NFP incorporated association is facing a complex member dispute that requires legal guidance, contact the experienced not-for-profit lawyers at LawBridge. Our Legal Team provides trusted expertise to help you handle the case correctly and protect your organisation’s interests.

Frequently Asked Questions