Despite Viscount Cave’s comments in Jones v The South-West
Lancashire Coal Owners’ Association Ltd [1927] 11TC790 (see
BIM24110) that the return of a surplus
need not be in proportion to the contributions, the weight of
judicial authority shows that there must be a reasonable
relationship between the amount a person contributes and the amount
distributable to them.
There is no requirement that the surplus or part thereof must
go back to the contributors as and when the surplus arises. The
requirement is that on a winding up the surplus goes back to the
contributors. Lord Wilberforce made this point in the case of
Fletcher v ITC (1972 AC 414) (see
BIM24235) when he said:
It may not be an essential condition of mutuality that contributions to the fund and rights in it should be equal; but if mutuality is to have any meaning there must be a reasonable relationship, contemplated or in result, between what a member contributes and what, with due allowance for interim benefits of enjoyment, he may expect or be entitled to draw from the funds: between his liabilities and his rights.
There is no need to work out the exact amount due to all
contributors, both current and past. You may accept that an entity
satisfies this condition if the return of contributions only takes
into account current contributors and those who ceased to be
contributors within the last five years.
The proportion returned to each contributor (current and
past) must bear a reasonable relationship to the
contributor’s (or former contributor’s) contribution to
the surplus. But where the trader offers a variety of goods or
services to contributors with different profit margins, a return
that simply reflects the amount spent by each trader may not
reflect their contribution to the surplus. A contributor who
purchased fewer services but at a higher margin may make an equal
or greater contribution than a contributor who made greater volume
of purchases at a lower margin. Each case will therefore need to be
approached from the viewpoint of the facts that relate to the
nature of the transactions that the entity conducts with its own
members.
