Author: ChrisRam

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The problem of unincorporated associations

Introduction
Last Monday, August 29, I indicated in a letter to SN captioned ‘Nothing illegal about unincorporated bodies operating by the rules’ that I would be reviewing in today’s column the court’s decision in the case brought by the Secretary of the Berbice Cricket Board against the Guyana Cricket Board. The Chief Justice gave the parties short shrift on the grounds that all the parties were legal non-entities and that the court was not the proper forum or avenue for any relief or redress involving the Guyana Cricket Board or any of its three county boards which make up its membership. In my letter I expressed the need to dispel the myth or fear created by Mr Claude Raphael who had attributed to the Chief Justice a statement that the boards were illegal. I am glad to say that the Chief Justice at no point in his judgment described the boards as illegal as claimed by Mr Raphael.

Judgement
Having said that, it is necessary to state that there was in substance as much jurisprudence and law as there were policy and politics in the judgment. Maybe given the continuing saga of the rival boards and factions that have been fighting for control of cricket in Guyana, the Chief Justice was left with no choice but to tell the parties that they have no place in the court-house. But the judgment went beyond issues of locus and into discussions on what were described as matters “of national and general public interest.” For a jurist that is a slippery slope and on page 9, for example, the Chief Justice ventured that because there exists a Ministry of Culture, Youth and Sport responsible for sports in general, “the State has assumed executive responsibility for the welfare, promotion and proper administration of sports in Guyana.”

What the Chief Justice found was that the members of the Guyana Cricket Board were themselves unincorporated entities and therefore incapable of suing and being sued in their own names. Flowing from the non-legal status of the GCB the Chief Justice ruled that the court could not recognise the election of office bearers within that association. He noted that the position would have been different if the membership of the GCB had comprised of persons. In the view of the Chief Justice it “is difficult to see how those member associations could have sent delegates to vote at the GCB elections since their members were not persons but rather legally non-existent persons.”

In the circumstances the Chief Justice noted that while a legislative structure for the administration is desirable there is need for the intervention of the Minister of Sport to “impose his executive will in the national interest.” That solution appears to have been music to the ears of the President who within two days of the judgment moved to impose executive management of cricket in Guyana. This should be contrasted with the reactions in relation to recommendations coming out of the courts on constitutionally important issues such as the television case in Linden or the payment of damages to the teen who was tortured at the Leonora Police Station.

Unincorporated associations
Now what really is the position of unincorporated associations whether in Guyana and in other common law countries? This question was extensively considered in a report done by the Scottish Law Commission from which this column has extensively drawn. This column’s interest in the topic is a recognition of the large number of unincorporated entities in Guyana with two principal characteristics:

(i) as the name suggests, the association is not a body corporate which is incorporated under the Companies Acts or otherwise;

(ii) the association exists for a purpose other than the making of profit for its members, thus distinguishing it from a partnership or joint venture.

Because of these characteristics, unincorporated entities, together with charities are sometimes collectively referred to as the “Third Sector.” Unlike companies, statutory bodies and friendly societies, the law relating to unincorporated associations rests upon common law with the most striking feature being the absence of legal personality accorded to associations and clubs which do not choose to establish themselves as companies or as some other form of incorporated body.

Set out below are the principal problems encountered by unincorporated associations and which persons connected with these bodies need to familiarize themselves:

They have no capacity to enter into contracts. Contractual responsibilities must be undertaken by individual office-bearers or, possibly individual association members.

This restriction extends beyond contracts with third parties but also to contract with one of its own members. They cannot be held liable for wrongful acts committed by their representatives while acting on behalf of the association. Liability rests upon the individual personally responsible for the loss sustained, but it is not clear whether liability – possibly beyond the value of the association’s funds – also rests upon office-bearers or the whole association membership.

A member cannot sue for damages for injury sustained as a consequence of a wrongful act committed by an office-bearer or fellow member while acting on behalf of the association. This, it has repeatedly been asserted, would be tantamount to the injured member suing himself.

They cannot own property. Title must instead be taken in the name of individual members or office-bearers as trustees, necessitating further transfers when such members or office-bearers die or cease to participate in the association’s activities.

This does not however make them illegal. Indeed many laws proceed upon the (strictly false) assumption that an unincorporated association has some form of existence in law. The Companies Act for example requires foreign unincorporated entities seeking to do business in Guyana to register as an external company. The Corporation Tax Act, the Income tax Act, the National Insurance Act and employment legislation all deal with these associations as if they were legal persons.

Absence of recommendations
One of my disappointments in the ruling by the Chief Justice was the absence of any recommendations on addressing the unsatisfactory state on unincorporated associations. Admittedly the boards which had been before him had their attorneys to advise them but could the Chief Justice not have suggested how the vacuum in the law relating to unincorporated associations should be addressed? Or is it that he does not believe that the Third Sector is a matter of national interest and as Mr Claude Raphael demonstrated, the CJ’s ruling has been misunderstood and/or miscommunicated by members of the community. What makes it more unfortunate is that this was not the first time that the cricket boards were coming before the courts. Was cricket of any less national interest then that the court did not feel compelled to make the kind of sweeping recommendation that it made in the current case? While it is true that cricket should not have been thrown into this legal vacuum without any lifeline, the same acknowledgment should have been given to the boards which continue to play an important role in the national sport.

In venturing as it did on policy and executive matters the court gave the government complete latitude in deciding on how long it will control cricket, the terms of reference of whatever body is considered appropriate and the inclusion or exclusion of identified interested parties. Having given its decision in the matter would the court be concerned with the consequences of its decision or has it washed its hands of the matter? The landscape in Guyana is occupied by many temporary bodies, notably GuySuCo’s interim Board which the Minister of Agriculture has assessed as incapable of managing the corporation’s most important asset, and the various extended local government bodies which – for whatever reason – are not doing an impressive job.

Guyana law provides various legal forms, including incorporation by way of an Act of Parliament, that might not have been inappropriate in the case of cricket and perhaps other national sports bodies. Then there is the Companies Act under which even one person can incorporate a company, which should be contrasted with the Friendly Societies Act which requires a minimum of seven persons. What reduces the efficacy of the Companies Act in terms of the not-for-profit organization is that the form of company most appropriate for such organizations – the company limited by guarantee – was abolished when the 1991 Act came into force in 1995, and which despite pleas from the Third Sector has not been substituted. This column can do no better than repeat the call not only for the restoration of the company limited by guarantee, but also for a Charities Act. It is instructive that the England and Wales Cricket Board is incorporated as a company limited by guarantee. The partnership form is inappropriate unless the partnership is a for profit arrangement. Of course, the partnership is, like the unincorporated association, without a legal personality of its own but must register under the Business Name (Registrations) Act.

Conclusion
The cricket boards would need to consult on regularizing their own legal status and that of their members. Whatever they do, however, it is clear that the law relating to unincorporated associations generally is not satisfactory and the various arms of the state should join in bringing forward recommendations so as not to leave the law in its present state. An obvious solution is to confer legal personality on unincorporated associations under defined circumstances. What are these conditions? Here is a wrapped-up recommendation which I have copied from the Scots.
The main conditions for attribution of separate legal personality should be that a body has adopted a constitutive document which includes the following matters:

(a) the name of the body;
(b) the purpose for which it exists;
(c) the criteria for membership;
(d) procedures for election or appointment of those managing the body (including office-bearers, if any);
(e) powers and duties of office-bearers (if any);
(f) distribution of the assets of the body in the event of dissolution; and
(g) procedure for amendment of the constitutive

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Nothing illegal about unincorporated bodies operating by the rules

Mr. Claude Raphael writing in yesterday’s Sunday Stabroek `Government should be supported in its proposal re GCB’ as `Former Chairman Snr. Selection (cricket) Panel’ has written in support of President Jagdeo’s intervention in the on-going saga of cricket maladministration in Guyana. In so doing Mr. Raphael makes a number of sweeping statements including pronouncements attributed to Chief Justice (ag.) Ian Chang in a decision the latter handed down in the internecine Cricket Board dispute which came before him.

The status of unincorporated entities is far from the straightforward “non-entity” that Mr. Raphael says the Chief Justice deemed them, let alone being illegal, which is far from the case. In this coming Sunday’s Business Page I will review the court’s decision but for now I think it useful that we dispel the myth or fear created by Mr. Raphael’s letter that all those unincorporated entities which have been operating and doing excellent work in Guyana are somehow illegal.

Whilst there are certain juridical limitations imposed on unincorporated entities, once the directors or the management committee members, by whatever name called, are operating within the constitution or by-laws of their organization and the general laws of the country such as noise nuisance, taxation etc., there is nothing illegal about them. They need not fear the police coming after them, or being sued in a civil matter. Let me make a brief comparison: minors also have similar juridical incapacities but illegal they surely are not.

Finally, I wonder the extent to which Mr. Raphael may have been a directly interested party in the court matter and even more pointedly whether the cricket club(s) to which he belongs, or entities on which he would have served in a senior capacity for many years, were “illegal” unincorporated entities.

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Surge

Introduction
Two very important pieces of legislation to which the Jagdeo administration had committed itself are now before Special Select Committees of the National Assembly working feverishly overtime to ensure that this legislation is passed before the Ninth Parliament comes to an end. The two are the Access to Information Bill 2011 and the Telecommunications Bill 2010. A third issue being addressed by a Select Committee is one dealing with campaign financing introduced by AFC prime ministerial candidate Sheila Holder, although it is reportedly receiving little support from the PPP/C which with the resources of the state at its disposal seems to have little interest in such esoteric matters.

In today’s column I will consider the Access to Information Bill and begin a review of the Telecommunications Bill which I believe has a number of implications even beyond the development of the telecommunications sector and by extension the rest of Guyana. When these two Bills emerge from their respective select committees they will not have had the full benefit of the parliamentary opposition because it opposed the deferment of the recess by the government, which is determined to ensure that the two bills are passed and assented to by President Jagdeo before he leaves office.

Access to information and campaign financing were two of the areas on which US President Carter might have thought he had had some kind of commitment from President Jagdeo when he left Guyana in 2003. Indeed President Carter, whose Center had spent years and millions of dollars on the now forgotten National Development Strategy, in his parting press statement on August 19, 2004 – a full seven years ago – noted that he had offered his Center’s technical and financial resources to the Government of Guyana in developing access to information and political campaign financing legislation.

Access to Information
Last Friday I appeared before the Special Select Committee on the Access to Information Bill to which I had earlier made a written submission. Based on some research on similar legislation particularly that closer to home I am convinced that our Bill serves no purpose other than to say we have access to information legislation. The whole structure of the Bill is wrong: only one of seven directors is to be appointed on the recommendation of the Leader of the Opposition; the control of information is in the hands of a single political appointee; there is no provision for an oversight mechanism; the only effective complaint mechanism is the High Court; the information czar is allowed a period of thirty days of receipt of a request merely to acknowledge it and sixty days to advise the applicant if the request is approved or denied. On top of these the Bill provides for so many exemptions that I would be surprised if it will ever be used by more than a dozen or so persons annually.

Systemic problems
As I reflected on my past experiences with select committees there are at least five problems that struck me concerning the formulation of legislation in Guyana. The first is the adversarial nature our parliamentary culture which extends to the select committees. This culture places persons and citizens in rival camps and the camp becomes more important than the contribution or the message. This would mean that if a submission comes from Clive Thomas or a Christopher Ram it must be rejected since that is considered as yielding in to the “opposition.”

The second which derives partly from the first is that a Bill is either a government Bill or an opposition Bill. If the Bill comes from the opposition, as sometimes happens, the government members of the select committee feel compelled to oppose it. If it is a government Bill, the government members likewise are compelled to support it – even if it or any part of it offends their principles or their intellect. For example there are several pieces of legislation that have passed through select committees and the National Assembly which seem to be unconstitutional. I cannot accept that an Anil Nandlall or a Raphael Trotman who are on the Access to Information Select Committee would not be aware of such instances, and possibly in respect of the Access to Information Bill they are considering. I would, under normal circumstances, expect them to say to the Chairperson: “We cannot support such or such a clause and if the weight of the majority still goes against our knowledge and principles we will produce a minority report.”

The third is the system we have adopted in preparing for legislation. In the Westminster model, governments intending to introduce important pieces of legislation would issue a Green Paper, which is a statement by the government on a particular topic setting out propositions to the nation for discussion. My information is that that used to be done here but we have thrown away the baby with the bath water and by the time a Bill is presented it is the party’s Bill and the party line must be followed. That hardly results in good policy or legislation.

The fourth problem appeared ironic in the context of the ATI Bill. One of the principles recommended by the International NGO Article 19, is that meetings of governing bodies – which should obviously include the National Assembly and its committees – must be open to the public. When I pointed this principle out on Friday, Ms Gail Teixeira, acting Chairperson of the Select Committee, with a straight face sought to inform me that the National Assembly recently voted to keep such meetings private. Perhaps the irony of her statement and the occasion escaped the country’s governance czar.

The fifth and final one is that we still have legislation that is premised on the fundamental assumption that “we” will always be in power. The PPP/C it seems has not learnt from the PNCR’s lesson that your own rod whips you hardest. The constitution that they passed when they enjoyed the fruits of power is now their biggest obstacle to preventing the excesses of their successor. The time may come when the PPP/C in opposition may need information. Then they will know how flawed, lopsided and undemocratic the present draft of the Access to Information Bill really is.

Telecommunications Bill
This Bill has as much importance to foreign investment, technology and development as the Access to Information Bill has to freedom of speech, democracy and governance. But with the opposition parties no longer taking part in any parliamentary activities the government is once again likely to push this Bill through the National Assembly. Whatever may be the government’s intention in bringing the Bill at this late stage, it must also be counting on receiving much public support; one of the Bill’s effects is the end of the monopoly which GT&T has enjoyed for twenty years under an agreement its parent company entered into with the Hoyte administration.

The Bill is a huge piece of legislation extending to ninety-five clauses. Yet perhaps the most important effect is included or addressed only by implication and that is GT&T’s monopoly over key segments of the telecommunications sector.

This monopoly goes back to 1991 when it was granted to ATN as an inducement to have them buy an 80% stake in the then Guyana Telecommunications Corporation. Monopolies are of course “utterly void” under our Civil Law Act, which is second only to the country’s constitution in terms of legal significance. (That Act saw the country breaking away from Roman-Dutch law and adopting, with a few exceptions, the civil law of England.) Yet, the matter is not so simple and GT&T will naturally seek to protect what they consider their rights.

The Explanatory Memorandum to the Bill states that it “provides for an open, liberalised and competitive telecommunication sector that will be attractive to new market entrants and investors, while preserving the activities of the current sector participants.” I doubt whether GT&T is likely to share that view not only because it impliedly loses its monopoly, but also because it gives favoured treatment to some of the President’s friends..

The Explanatory Memorandum goes on to state that it seeks to “creat[e] a competitive environment for telecommunications [which] is expected to result in greater choice, better quality of service and lower prices for consumers. To further national and regional social and economic development, the Bill also specifically addresses the expansion of telecommunications networks and services into unserved and underserved areas through the institution of a new universal access/universal services programme.”

It also states that along with consequential amendments to the Public Utilities Commission Act 1999 which has also been introduced in the National Assembly and regulations expected to be published once the Bill is assented to, the country will have a clear, harmonized framework and a level playing field for the sector that is lacking in the current laws.” It expects that these would bring us in line with “other countries in the world, including most Caribbean countries”.

The authors are confident that the legal framework inherent in the Bill will provide for transparency and non-discrimination in the issuance and monitoring of licences and authorisations to use the spectrum; seamless interconnection and access between and among telecommunications networks and services; and price regulation where required to ensure competition and protect consumers.

Next week I will examine the extent to which these objectives are reflected in the Bill and consider the implications – legal and otherwise – of the state’s attempt to remove unilaterally the right of the company to have its exclusive licence extended.

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Assent for Bill came 628 days after passage in National Assembly

On Wednesday we collected from the Office of the President the most recent batch of Official Gazettes. Included among these was a Legal Supplement to the Official Gazette dated October 12, 2010 and containing the Forest Act # 6 of 2009.

The Bill for that Act was passed on January 22, 2009 and assented to by the President on October 12, 2010 – 628 days after the passage in the National Assembly. Under the constitution the President has twenty-one days to assent to bills.

Not only does the President continue to show contempt for the country’s constitution which he has taken an oath to uphold, but it seems that he and his Minister of Legal Affairs and Attorney General are comfortable backdating of the Official Gazette, arguably the country’s most important legal publication.

One must wonder whether such questionable conduct and delay was Vaitarna related or is the result of some persuasion from Norway.

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Guyana in a housing bubble – not really (but maybe)

Introduction
I ended last week’s column by suggesting that the commercial banks – which account for 58% of the mortgage lending by financial institutions – have both the liquidity and the reserves to withstand any significant reduction in house prices and consequential foreclosures. I believe that the position is different with the non-bank mortgage lenders which would include the insurance companies and more significantly the New Building Society which by definition is heavily invested in the housing sector.

The NBS accounts for 31% of the assets of the non-bank financial institutions and has some 51% of its own assets in mortgage loans, by far the most exposed institution in the sub-sector. Part one of this column two weeks ago noted that the commercial banks have been gaining market share in the mortgage market mainly at the expense of the NBS.

Over the five year period 2006 to 2010 NBS increased its mortgage loans from 6,299 to 8,197, an increase of 30% over the period, or an average of 380 new mortgages per annum. It is at least surprising that the NBS which offers very competitive lending rates could only increase its annual number of mortgage loans by less than 10% of the number of houselots allocated by the government. This probably points to a situation of allottees not being able to build for several years, if at all.

In part two last week, I noted that the PPP/C 2006 elections manifesto had stated a figure of some 70,000 house lots having been allocated across the country since 1992. The annual budget speeches since then have revealed that since 2007 the government has spent over twenty billion dollars on development of these communities. One would therefore have expected the country’s sole housing and loan institution to have done much better during the house lots boom. Whether NBS’s failure to cash in on the boom is a weakness or serendipitous is debatable, but it would still be the most exposed entity in case of a bubble in the housing market.

NBS and speculators
The average balance on the mortgage loans outstanding by the NBS has increased from $2.28 million at December 31, 2006 to $2.64 million at December 31, 2010, though about 50 % of the number of its loans is for less than $2 million. Unless there is a serious loss of income by borrowers there should be no major difficulties in servicing those debts, even if there is a fall in house prices. But that would not be the whole story.

The NBS has seen its lending limits increased significantly over the past few years and if the notes to the 2010 audited financial statements are correct, it has been engaging in some adventurous lending which could have serious consequences involving $313 million.

Except for this, NBS is protected because the overwhelming majority of its homes are owner-occupied. In such circumstances, regardless of the state of the housing market there should be no problem once homeowners can service their debts whether from their own resources or from remittances. NBS’s conservative lending policy will also work in its favour since the policy is structured to ensure that the institution does not lose, even in a forced sale.

That then leaves us with the property developers who build with a view to sell down the road. This is the group normally most at risk since they build now with a view to sell later. In a deteriorating market this is bad for the developer. Experience has shown however that in many instances this is a group and an activity that is characterised by money-laundering and they do not mind waiting a few years to dry-clean their money.

In summary, therefore, there are many reasons why at this stage lenders need not be overly concerned about a housing bubble. The banks are not disproportionately exposed and have sufficient reserves and liquidity to cushion any problems in the housing market. Of the non-bank financial institutions the one with the biggest exposure is the NBS but it too ought to be able to withstand any decline in the market.

And many of the property developers have characteristics of their own that allow them to act in their own special way – outside of the normal rules of economics and even the law.

One million per house lot
This does not mean that a housing glut will be problem-free. It could bring an important sector of the economy to a halt and cause ripple effects on the construction industry, the wood sector and distributive trade, lending and government revenues.

For lenders, if demand for homes dries up lending will also decline and the institutions may be even more reluctant to take in deposits. Even a modest decline can have wide ripple effects.

But there are other issues we need to consider in the housing policy. Whatever its faults, the PNC did have some excellent housing projects and decades after their establishment, Meadow Brook Gardens and South Ruimveldt are pleasant communities with decent amenities.

By contrast the Stabroek News editorial of July 7, 2011 may have only just overstated the position when it said that under the current housing policy a large expanse of bush crisscrossed with mud dams earns the accolade housing scheme.

Yet the government reported that in 2009 it spent some $1.5 billion to develop six new sites to provide 1,504 new houselots – or one million per house lot in low-income settlement schemes. It just makes no sense other than to those spending and those benefiting from such expenditure.

Basic facilities
And what do these areas have to show for such generous spending? Whether a community is low income or top range, it needs places for the children to play and adults to exercise and socialise, schools to teach and learn, post offices for the elderly, temples mosques and churches for worshippers and good roads, electricity, water and sewerage for all.

They need roads in and out, wide enough for traffic not today but twenty years hence. The residents need jobs conveniently located or accessible to where they live. One of the ironies that are being confronted by the ever expanding number of commercial banks is that the person living in Diamond still finds it more convenient to do their banking in Georgetown than at the Diamond branch for the simple reason that s/he works in Georgetown.

In many areas where house lots have been sold basic sanitation facilities would be considered luxuries. The Guyana Population Census 2002 reported over one half of the country’s households still use pit latrines and that the proportion of households using the modern method of water closet linked to sewer line has declined! Surely after sixty years we should have extended the sewer system beyond Georgetown.

Spending spree
The other major problem associated with the housing policy is corruption, wastage and extravagance. Budget speeches show that over twenty billion dollars have been expended on housing schemes since 2007. Not surprisingly, the house lot policy does not seem unrelated to electioneering. For example in 2006, the year of the last general elections, $795 million was spent on developing infrastructure for 9,000 houselots “in areas such as Zeelugt North and Sophia.” The budget speech announced us that “similar work was undertaken on 4,700 houselots under the Low Income Housing Project in areas such as Westminster, Belle West, Plantation Glasgow, Cummings Lodge and Sophia.” No value was given. And then the same paragraph states that “nearly $251 million was spent on providing house lots in areas such as Vigilance South, Amelia’s Ward, Vryheid’s Lust and Block II Enterprise.”

In 2010, one year before the next general election, the nation was told that 6,331 house lots were allocated and some $9P.6 billion dollars was spent (average $1.5 million), against an original budget figure of $2.8 billion. What is interesting is that many of the communities benefiting from the 2006 spending such as Belle West, Westminster and Sophia are again part of the loot. As if that is not enough, some $3.6 billion has been allocated to the housing sector in 2011 and some 7,500 houselots are earmarked for allocation.

If there is a problem on the expenditure side, the income side is no different. I am reliably informed by one of the recent on-the-spot purchasers of a house lot that receipts for the sale of land are issued by the Central Housing and Planning Authority (CHPA), a statutory body.

Appendix T of the National Estimates for 2011 showing an abstract of revenue and expenditure of this body indicates that almost the entire income of the CHPA for 2010 comes from the central government – $150 million as a subsidy and $7.5 billion as a capital grant. If indeed 6,331 house lots were allocated in 2010 then even if the average sale price is $300,000 (some lots are sold for more than $1.2 million) the revenue should be over $1.8 billion. Something is missing.

Conclusion
Over the course of the last three weeks I have had my closest look at what constitutes the country’s housing policy. Prior to 2006 the house lots given out by the government should have far exceeded the unmet needs of the entire population with many to spare.

Further allocations since then would have exacerbated the situation.

It is therefore necessary for a survey to be done to ascertain the number of house lots across the regions that have still not developed into houses.

It would be useful too for a value-for-money audit – or better still a forensic audit – of the housing programme and expenditure to be carried out. Housing is a major public policy/social/basic needs issue with important long-term implications. It requires coordination with and can contribute significantly to several other sectors. It should not be left entirely to an overenthusiastic individual who cannot remember a payment of $4 billion.

While the lending institutions do not face any immediate risks of and from a bubble, an extra bit of caution in their lending programme could be very useful.

For those seeking a home, the advice might soon be to buy rather than build.

As the supply of homes increases relative to demand, cost may very well exceed market price. Buyers welcome that.

Corrections
I apologise for two errors in last week’s column which are regretted but which did not affect the thrust of the article.

The last sentence under ‘Self-Help’ should have read: And as we have said this does not take in the number of private houses built by individuals on privately acquired lands.

The second was in respect of the dimensions of the lots being offered by private developers.

In the first sentence of the second paragraph under the heading ‘Friendly domestic capitalists’ these were stated as 50 yards by 100 yards instead of feet in both cases.