An Introduction to Private Members Clubs
A private members club is social organisation that has been prepared for the purpose of carrying out one or more of a combination of social, recreational, and sporting activities that also restrict access to the general public. The club typically has shared values that bind its members together and its terms and regulations will usually reflect this. The intended exclusivity of the group is what makes the private members club stand out from other social organisations, such as public clubs, societies, and associations .
The exclusive nature of private members clubs does not necessarily need to be membership based. The purpose for which the club is formed will determine the extent to which exclusivity is required and maintained. Furthermore, private members clubs can be registered for charitable, and charitable-licensed purposes, as well as non-charitable purposes.
Essential Legal Aspects
When establishing a private members club there are a number of legal requirements with which the club must comply. In addition to the documentation such as the Memorandum and Articles of Association or Incorporation, a club operating as a company limited by guarantee or a community benefit society must incorporate.
Licensing
The normal licensing rules apply to clubs with regard to alcohol. That means that if you are operating in England and Wales or Northern Ireland you will need a premises licence. The temporary event notice may be appropriate for a small number of events through the year. Only certain categories of club may apply for an alcohol licence and the type of club will determine what will be allowed on the licensing application.
Registration
The above licensing regime may not apply to clubs which do not offer alcohol to its members and where alcohol is not the predominant function. To assess if your club is exempt from these provisions consider the sale of alcohol and the nature of the club’s activities. If the club as a whole is not a centre of social activity (as opposed to just one or two regular activities) and does not have a bar, and there are regular activities (not just bingo) other than drinking for the social code test then this is a real, not a sham, social club. Whilst registration may not be required under those circumstances, it is advantageous to be registered with one of the two registration bodies. These are: the Register of Clubs in Northern Ireland, or the Registrar of Friendly Societies. To register with the Register of Club (Northern Ireland under the Registration of Clubs (Northern Ireland) Order 1996 the club must also have been established for at least 10 years. To register with the Register of Friendly Societies in England and Wales (under the Friendly Societies Act 1975) you merely need to register and submit a fee. There are advantages to registering under a number of legislation as it can help when dealing with various public agencies.
Rules and Regulations for Members
Membership rules and regulations are important for any private members club, as they set out the rights and obligations of members (and the club). Membership rules and regulations should include the following:
Clubs should not be afraid to be tough on those who do not pay their membership fees on time. A club can terminate a member’s membership and re-allocate their place to another candidate without giving any explanation.
However, this may lead to some legal issues. The recent case of Brearley -v- Vanucci highlights the potential pitfalls of being too laissez-faire when it comes to such matters. Here, a golf club terminated an individual’s membership and reallocated his place to another member. The individual (a former footballer) claimed a breach of contract had occurred. In summary, the relevant points were as follows:
In the light of the above case, it is therefore crucial that when terminating somebody’s membership, the club follows the right process and ideally sets out the procedure in the membership rules.
Club Licensing and Alcohol Law
The legal obligations surrounding alcohol licensing for private members clubs are not straightforward. Licensing is governed by the Licensing Act 2003 (the "2003 Act") which came into force on 7 February 2005.
Some private members clubs are exempt from licensing under both the Licensing Act and guidance issued by the Home Office, however many others will need to obtain a licence.
The definition of a private members club is rather complex as the Licensing Act does not define this term. The High Court considered this in the case of R (on the application of Mooney) v Licensing Justices [2006] EWHC 3223 (Admin), where it recognised that there was no comprehensive working definition of a ‘true private members club’. The court decided that the club needed a constitution setting out its purpose, membership requirements and those eligible for membership. It also needed to be not for profit and have fewer than 500 members. These guidelines take account of the fact that many clubs are exclusive to people with a particular characteristic, for example having particular skills, ethnicity or profession.
As a minimum, private members clubs seeking a licence must apply for a Club Premises Certificate (as opposed to a Premises Licence). Applicants must demonstrate that they are a qualifying club in accordance with the criteria set out above. Clubs then need to demonstrate that they are not-for-profit and that their primary purpose is to provide their members with services or facilities. Associations of persons with a particular characteristic do not qualify, nor do those operating largely as tax avoidance vehicles.
The application process is carried out in the same way as that for a Premises License, with application forms submitted to the local authority. These applications must include the following: a description of the premises to be licensed; plans fees; plans drafted to scale showing significant features; the date on which the application will be given to the licensing authority; the conditions which the applicant proposes should apply to the grant; an operating schedule; and the number of the existing licence association or club (if applicable).
The application must also contain the name of the applicant or, if the applicant is a body corporate, a partnership or any other association of people, the name of one individual aged over 18, who is authorised to sign the application and to be associated with the licensing activities of the club. Details of the relevant qualifying club registration details must be provided.
Any objections to the grant of the application must be made by way of an Written Representation. Representations must be made by a relevant authority, neighbourhood or environmental association or by an interested person (for example, a local resident). A relevant authority will generally be a responsible authority under the Licensing Act. Once a club’s application for a certificate is accepted, the applicant must notify the local police via the Club Activities Notification Procedure, using Form 696.
Any club which serves alcohol on club premises for a period exceeding 72 hours in any three month period is required to make an annual Fitness Check Notification and will be subject to a £20 fee per year. It is also possible for clubs to apply to be registered as ‘community premises’, which would exempt them from a mandatory condition that prevents them from supplying large quantities of alcohol to members and guests in a pre-ordered form. However, significant local interest in the supply of alcohol in this manner may undermine the suitability for registration.
Even when a club has received a Club Premises Certificate, they must also observe certain conditions. These apply in most circumstances and where they don’t it will be at the discretion of the licensing authority. Clubs must ensure that no alcohol is supplied to guests who are not properly signed in by a member. They can only sell small amounts of alcohol to guests in any three-month period (no more than 5% of total sales value). Underage guests may not be allowed to enter the club. Clubs are also required to keep and maintain an incident book, recording every incident that arises in or about the club, including instances of underage sales and violent incidents.
For clubs who have already been granted a Licence under the Licensing Act it is important to remember that the licensing regime changed in 2005 and any existing club licenses were converted to Club Premises Certificates.
Employment and Data Protection Regulation
Like any form of employment, a private members club must comply with English employment law when it recruits staff. Key requirements include issuing a written statement of the main particulars of employment; issuing a payslip each month; and complying with the law on unfair dismissal, statutory sick pay, maternity leave and pay, and working time rights. Clubs should also take care to ensure that staff are appropriately trained in hospitality if the club is open to members of the general public.
The Data Protection Act 1998 (DPA) also applies to private members clubs . Members personal data must be processed in accordance with the data protection principles set out in the DPA. The club will be required to notify the Information Commissioner under the DPA unless an exemption applies. This requirement includes taking steps to protect the privacy of members when sending out newsletters. To comply with data protection regulations, clubs should ensure that they keep a complete and up-to-date database of members, with the necessary information on how members would like to receive communications from the club.
Dispute Resolution in Private Members Clubs
Disputes in Clubs – don’t be left hanging
Almost without exception disputes within private members clubs involve the rules or bye-laws of the club in the first instance and almost all disputes, as well as procedures for their resolution, arise under some form of rule or bye-law.
In turn, the club’s legal documents, i.e. the rules or bye-laws, will have been drafted against the legal background of the time. For example, many clubs were founded decades, if not centuries ago and club law has changed significantly since that time. Rules and bye-laws, the variations between them, and their validity and application will all be determinate of the outcome of any dispute.
Alongside the rule book there will, or ought to be, a procedure for resolving disputes, whether that is by an internal process such as a panel, or appeal panel, or some form of external resolution such as a mediation or arbitration procedure (and occasionally litigation). The question of whether there is a procedure and/or which procedure(s) are available will also usually be determined by the club’s rules or bye-laws, unless expressly added or amended thereafter through the appropriate clubs’ procedures.
Aside from the rules and bye-laws there may well be handbooks or other literature setting out how clubs operate. The latter may include the expectations of members, those of the club and rules around special interests or privileges on offer. They may also detail guidelines and rules for any particular facilities or services provided by the club, for example golf rules, catering rules and etiquette, dress codes, etc… and often are those of interest to members most.
Again, disputes can be brought by both clubs and members and focus, for example, upon discrimination, harassment, accusations of impropriety or other matters which result in one party making allegations against another, or one party considering a course of action to deal with the fallout of a member’s behaviour of misconduct or other decision of a club and its officials.
Procedures may be contained in handbooks and addendums to the rules or bye-laws, or otherwise arise in the manner of appeals from decisions made by club officials or committees. It is important to also remember that both clubs and members have a right to appeal, and clubs may have a duty (in order to comply with their own procedural rules) to permit appeals and/or involve their governing authorities in the process.
If there is no rule, bye-law, handbook, or otherwise document detailing what happens in the event of a dispute, then the question is where do you turn to find the answer? Are statutory procedures set down in legislation a possibility? Or are there any authority or governing body juristic systems in place that may be looked to? If not, can you take the matter to court or tribunal in the event of a dispute. If the answer to all of these is no, then what do you do? It is also important to remember that some rules, bye-laws or procedures may be invalid where they contravene statute, whether in their drafting, application or otherwise.
There is no one-size-fits-all, but in the face of such uncertainty consideration needs to be given to the procedures you want available and how the rules, bye-laws and constitutions are to be drafted to prevent disputes from occurring, and to properly wash the hands of those in charge should a dispute arise.
Local Laws and Clubs
In addition to all of the provincial and federal laws and regulations which apply to all businesses, municipal by-laws can have a significant impact on the operation of private members clubs. Manitoba is a patchwork of local government jurisdictions with each municipality being able to pass by-laws within their areas of jurisdiction. For example, by-laws can impact such issues as noise, parking, development, licensing, taxation (e.g. business taxes versus property taxes), animal control, health and safety and licensing. Such by-laws are not uniform throughout Manitoba. Municipalities can impose more onerous requirements upon clubs than are imposed by provincial or federal laws. For those reasons alone it is very important for new and existing private members clubs to know who their local municipal government is, what powers they have and what by-laws may apply to the club. The obligations imposed on clubs by the local municipalities can be set out in the Municipalities Act, The Municipal By-law Enforcement Act, The Planning Act, Zoning By-law or other by-law such as the Dangerous Dog By-law. Meetings with city officials and legal counsel will help the club determine how and what local law will impact the club. It is important to remember that local municipal by-laws are not permanent in nature and can be affected by changes in local municipal council, board members and initiatives. The impact of the local by-laws should be considered by the club on an ongoing basis in order to anticipate problems and make appropriate responses as required.
The Future of Club Law
As we look to the future, several legal trends are emerging that could have a significant impact on private members clubs in the years to come.
One of the major drivers of change is the increasing impact of data protection legislation. The General Data Protection Regulation (GDPR) came into force in May 2018 and applies automatically in every EU member state. It has meant a significant overhaul of the way our clients handle personal data and special categories of personal data, such as health information. Organisations that do not comply with GDPR face fines of €20 million or 4% of worldwide annual turnover.
Businesses should not assume that compliance is a one-off task because there are wide-ranging penalties for failing to comply with or report data breaches affecting personal data. The Information Commissioner’s Office (ICO) has considerable powers to investigate businesses and impose fines. One of our clients, a well-known company, fell victim to a data breach in 2017, which required a response including an ICO notification. It remains to be seen whether or not they will receive a substantial fine in due course.
The requirement for GDPR compliance is coupled with the introduction of ongoing database management which some believe will discourage people from joining privates clubs. For instance, members moving address can no longer simply tell the club by email or letter. The new regulations require all clubs to maintain a double entry record of every member’s personal data. This is time-consuming and expensive, especially for clubs with growing membership numbers .
Another area of legal change is litigation. The introduction of the small claims track limit in the County Court from 31 July 2017 saw the level set at £10,000. To make a small claim, potential litigants need to consider aggregation to exceed the limit, which means they are more likely to incur a higher level of legal costs than covering the small claim alone.
Failure to comply with the GDPR may also lead to wider litigation. There has been a significant increase in, and growth of, representative actions in the UK courts. We expect that this trend will continue with GDPR. One specific potential use will be to bring representative actions on behalf of a group of individuals where there has been a personal data breach, such as when a hacker obtains personal data by accessing an online football betting account.
Finally, changes in insolvency legislation mean that clubs may find it harder to recover money owed to them. The thresholds for winding-up insolvent companies and bankrupts in England and Wales have not changed since 2006, leading to the Government amending the rules in December 2018. This meant it is now possible to wind-up companies that owe more than £750. In addition, the amount which can be paid as a distribution to unsecured creditors when a bankrupt is discharged has fallen from £600 to £500. Our lawyers’ experience is that the number of personal insolvency cases we see may increase slightly over the next few years, and it is likely that this will also include greater numbers of IPJCs succumbing to this trend.
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