BIM24788 | Meaning of trade: mutual trading and members clubs: mutual associations: specific activities: bulk buying groups - two relationships

A person trading with a body of which they are a member and which acts as principal has two distinct relationships with that body:

• there is the buyer-seller (or similar) relationship as regards their trading transactions with the body, and

• a member-society (or similar) relationship as regards their right to a division of the society’s distributable surplus.

Any surplus arising to the body from buyer-seller transactions where it acts as principal are profits earned by the body itself. They do not represent the surplus of members’ funds not required for the realisation of the joint purpose. Such transactions are not mutual trading.

This follows from Lord Normand’s remarks in the English & Scottish Joint Co-operative Wholesale Societies Ltd v The Commissioners of Agricultural Income Tax, Assam [1948] 19 AC 405 (see BIM24786).

‘…there was a dual relationship between the appellant and its members…a mutual creditor debtor relationship and…a buyer/seller relationship…’

Rather than there being a common fund to which the members contributed and in which they participated. Lord Normand went on to say:

‘The principles of the Styles (see BIM24035) case cannot apply to a body which grows produce on its land or manufactures goods in its own factories…and sells its goods to its members exclusively.’