Fairness in Incorporated Societies: New options for ‘prejudiced’ members

The Incorporated Societies Act 2022 (the “New Act”) provides the first significant overhaul to the way New Zealand’s incorporated societies operate in more than a century. Among its many innovations is Subpart 3, which relates to ‘prejudiced members’. This subpart introduces a statutory mechanism through which members or former members who think they have been treated in a prejudicial manner can seek court intervention.

What was the old law?
Under the 1908 Act, there was no equivalent statutory remedy for members who felt they were being or had been treated in an unfair or prejudicial manner. If a member believed they had been wronged, their avenues for justice generally included asserting that the society had breached its constitution or, if that failed, escalating matters to judicial review.

What is the new law?
Section 141 of the New Act introduces the statutory ground that any member or former member of a society can apply to the court for an order if they believe that, in their capacity as a member or former member, they have been or are likely to be oppressed, unfairly discriminated, or unfairly prejudiced by the way the society’s operations or affairs are conducted.

A member or former member could make an application to the court at any point where they feel prejudiced by the society. Although case law has not yet developed on this, likely examples of situations where this may arise include:

• A member is purposefully excluded from participation in democratic decision-making;
• A society acts in breach of its constitution in a way that harms a member; and/or
• The majority of members uses their power to unfairly disadvantage minority groups within the membership.
• pay compensation to a member or former member;
• regulate future conduct of the society;
• appoint a receiver of the society or put the society into liquidation; or
• amend the society’s constitution.

What can the court do?
While this is a new area of law, we expect that the threshold for what the courts will consider as prejudicing a member will be high. This is especially because the New Act requires societies to have mechanisms for dealing with disputes between members, officers, and the society, so it is likely that the courts not be concerned with simple or trivial disagreements. It remains to be seen the factors the courts will consider when deciding whether intervention is needed.

If the court finds that a society has acted in a way that has prejudiced a member, they are granted broad discretion to impose a remedy. These may include orders to:

• pay compensation to a member or former member;
• regulate future conduct of the society;
• appoint a receiver of the society or put the society into liquidation; or
• amend the society’s constitution.

These powers are open‑ended, and the court may ultimately make any order it considers just and equitable.

We’re keeping an eye on how these new options work in practice
While we wait to see how this law will be applied in practice, it is clearly aimed at providing effective remedies for aggrieved members when serious issues arise. It must be noted that this new statutory remedy sits alongside the New Act’s requirement for a society to have an internal dispute resolution process. It appears that a member would not need to file an internal complaint before applying to the court as a ‘prejudiced member,’ creating a direct avenue if they believe that relief is required.

MoranLaw’s not-for-profit team are keeping a close eye on how these new prejudiced member provisions will be interpreted, and we know they will raise questions for both societies and their members in the meantime. If you’re unsure whether these new options for prejudiced members might apply to your situation or you just want to understand your rights or obligations better under the New Act, get in touch with the team at MoranLaw.