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Friday, January 06, 2017

Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc

Pages … Nonprofit Structure and Governance cases Skip to end of banner Go to start of banner Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc Skip to end of metadata Created by Anne Overell, last modified on Jan 06, 2010 Go to start of metadata Islamic Council of South Australia Inc & Ors v Australian Federation of Islamic Councils Inc [2009] NSWSC 211 (Supreme Court of New South Wales, 16 February 2009) The plaintiffs in this case are Islamic councils in the states of South Australia (ICSA), Queensland (ICQ) and New South Wales (MCNSW). The defendant Federation (AFIC) is an umbrella body of Islamic associations in Australia, constituted as a federation of nine Islamic societies. AFIC operates a number of Islamic educational institutions and has assets of $25 million. The dispute in this case centred on the status of the ICQ and MCNSW, and their ability to participate in the affairs of AFIC. AFIC contended that the ICQ had been suspended from membership of AFIC, and there had been previous proceedings between AFIC and MCNSW as to its membership of AFIC, which was in effect suspended. In addition, AFIC had refused to call a Federal Council Meeting following requests from the plaintiffs and others to do so, so that the membership issues could be resolved. AFIC's affairs are governed by three bodies: 1. the Federal Congress which is comprised of members of the Executive Committee and two delegates from each state council. The powers of the Congress include to 'adjudicate in all matters of controversy' between the Federal Council, the Executive Committee and state councils; 2. the Federal Council which comprises four members of the Executive Committee and the President or Chairman of each state council. The powers of the Council include 'to determine the time, place and agenda of the meetings of the Federal Congress' and to act for the Congress between its meetings; 3. the Executive Committee which is responsible for the day to day running of AFIC and is subject to the 'control and scrutiny of both the Federal Congress and Federal Council'. The convening of meetings of the Federal Council is governed by clauses 40 to 42 of its constitution. In particular, these clauses state that: 41. Subject to this Constitution, a Council meeting shall be called by the Secretary of the Federation as directed by the Federal Executive Committee or upon written requests from four (4) or more State Councils. 42. Notice of Federal Council together with its Agenda shall be given by the Secretary of the Federation to the members of the Council at least (4) weeks prior to the date of such meeting. Requests for a meeting were received from six state councils (Western Australia, New South Wales (i.e. MCNSW), Victoria, South Australia (i.e. the ICSA), the Northern Territory, and Queensland (i.e. the ICQ)) between 3 November 2008 and 18 December 2008. However, no meeting was convened and no reason was given for refusal. The issues before the court were: 1. Whether upon the proper construction of the constitution and in the events which had happened, there had been validly written requests from four or more State Councils for the calling of a meeting of the Federal Council. This, in turn, involved a number of subsidiary issues relating to the alleged requests made by some of the State Councils; 2. If so, whether AFIC's failure to convene such a meeting was justiciable; and 3. If so, whether relief should nonetheless be declined as a matter of discretion. The requests for a meeting from South Australia and the Northern Territory were uncontroversial. The other requests were in dispute. Brereton J considered that the request from NSW was valid, despite there being some dispute as to the standing of the MCNSW to make such a request because of existing membership issues. All these requests were by letter. The request from Victoria was in an email. Was this a written request within clause 41 of the constitution? Brereton J found that it was. The purpose of requiring that notices and the like be in writing is usually at least twofold. One is to ensure that there is a formal act, so that doubt does not attend the intent of the party giving the notice. A second is often to avoid later disputation by ensuring that there is a permanent record of the notice. That said, the concept of "writing" is concerned with the form in which words are used, and not the surface on which they are written. The fundamental distinction is between the written word and the spoken word. While "writing" often contemplates writing on paper, it is nonetheless writing and not speech, if written in invisible ink. It is nonetheless writing, if written in the sky by an aircraft engaging in skywriting. To my mind, it is nonetheless writing, if it appears on a computer screen, as a result of the entry of data into a computer.' Therefore, the Victorian request was in writing. The next issue was as to whether this request was 'signed'. Clause 41 did not explicitly require a signature, though other clauses in the constitution did. His Honour said that 'in any event, a typed name (as distinct from a holograph) can be a signature, and has been held to be so in many cases relating to the Statute of Frauds'. The final issue relating to the Victorian email was whether in fact it was a 'request' for a meeting. His Honour held that it was not, but rather, by its wording, an expression of a wish or hope for such a meeting. Therefore, the Victorian email was not a valid request for a meeting under clause 41. The request from Western Australia had purportedly been withdrawn on 15 December 2008. Was this a valid request? His Honour found that it was, and this meant that as at 25 November 2008, AFIC was in receipt of four valid requests for a meeting from Western Australia, South Australia, New South Wales and the Northern Territory. The purported withdrawal on 15 December did not affect the binding obligation of AFIC to hold the meeting that crystallised on 25 November 2008. As to the request from ICQ, Brereton J held that is was also valid, so that even if one of the other requests was not valid, there were still four requests in operation. This was despite the purported suspension of the Queensland council from membership of AFIC. His Honour found that there was no power to suspend membership in this way. Therefore, there were at least four valid requests for a meeting within the constitution. Was the failure to convene the meeting justiciable? Courts do not generally intervene in the internal affairs of voluntary associations, whether unincorporated or incorporated: Cameron v Hogan [1934] HCA 24. For a court to intervene there must be some interference with property rights or interests, some breach of contract, or some threat to livelihood or reputation involved. This case was not one of interference with members' property rights or interests, nor was it one of threat to livelihood or reputation. The question was whether there was any right in contract. AFIC is incorporated as an association in Tasmania. In that state, the Associations Incorporation Act 1964 does not import contractual relations into the relationship between members and an association, as happens in most other states. The question then becomes one of construction of the constitution. Was it intended to create contractual relations between members and the association? In Cameron v Hogan, the High Court did not find any such contract, but allowed that there could be enforceable legal relations created in an association's constitution if there was a clear enough intent. The case law since Cameron v Hogan has been more inclined to find evidence of contractual intent in association constitutions, but this is by no means a certainty: Plenty v Seventh Day Adventist Church of Port Pirie [2009] SASC 10. His Honour could not find any real contractual intent in the constitution of AFIC, particularly because of its mainly religious character and the provision of internal dispute resolution mechanisms. However, AFIC had previously been involved in an amount of litigation in which it had never claimed to be immune from the courts' rulings. Brereton J held that it was 'just too late for it to do so now'. Therefore, by conduct, there was an intent that the Constitution created a legally binding and enforceable contract between AFIC and its member institutions. That being so, the matter before the court was justiciable. Was relief available to the plaintiffs? This was a matter of discretion for the court. AFIC argued that there should be no relief because of the internal nature of the dispute. His Honour was unpersuaded and relief was not to be declined on discretionary grounds. Therefore, the court ordered that the Federal Council should convene a meeeting by 17 February 2009. This case may be viewed at: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2009/211.html No labels ========================== Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211 (16 February 2009) [AustLII] Supreme Court of New South Wales Decisions [Index] [Search] [Download] [Help] Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211 (16 February 2009) Last Updated: 30 March 2009 NEW SOUTH WALES SUPREME COURT CITATION: Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211 JURISDICTION: Equity Division Expedition List FILE NUMBER(S): 6274/08 HEARING DATE(S): 13 February 2009 EX TEMPORE DATE: 16 February 2009 PARTIES: Islamic Council of South Australia Inc (first plaintiff) Islamic Council of Queensland Inc (second plaintiff) Muslim Council of New South Wales Inc (third plaintiff) Australian Federation of Islamic Councils Inc (defendant) JUDGMENT OF: Brereton J LOWER COURT JURISDICTION: Not Applicable LOWER COURT FILE NUMBER(S): Not Applicable LOWER COURT JUDICIAL OFFICER: Not Applicable COUNSEL: Mr M R Pesman (plaintiffs) Mr A P Cheshire (defendant) SOLICITORS: Carters Law Firm (plaintiffs) Goldrick Farrell Mullan (defendant) CATCHWORDS: VOLUNTARY ASSOCIATIONS - Declaration and injunction sought requiring calling of meeting pursuant to requisition of member - Organisations – whether preconditions satisfied - whether requests to call meeting validly made - whether request via email “in writing” - held that requests validly made – held that email is writing – whether dispute justiciable - whether constitution of organisation constitutes a legally binding and enforceable contract – where Constitution had been treated by parties as binding in earlier litigation –held that organisation’s constitution is legally binding and enforceable – whether relief should be refused on discretionary grounds LEGISLATION CITED: (NSW) Associations Incorporation Act 1984 s 11(2) (NSW) Limitation Act 1969 s 54(4) CATEGORY: Principal judgment CASES CITED: B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647 Brambles Holdings Ltd v Bathurst Industry Council [2001] NSWCA 61, (2001) 53 NSWLR 153 Cameron v Hogan [1934] HCA 24; (1934) 51 CLR 358 Carter v NSW Netball Association [2004] NSWSC 737 Coleman v Liberal Party of the Australia (NSW Division) (No 2) [2007] NSWSC 736, (2007) 212 FLR 271 Dixon v Esperance Bay Turf Club Inc [2002] WASC 110 Exceptional Sunrise Pty Ltd v Jones [2008] QSC 190 Field v NSW Greyhound Breeders, Owners & Trainers Association [1972] 2 NSWLR 948 Goodwin v VVMC Club Australia (NSW Chapter) [2008] NSWSC 154 Green v Page [1957] TASStRp 9; [1957] Tas SR 66 Howard Smith & Co v Varawa [1907] HCA 38; (1907) 5 CLR 68 Islamic Council of NSW v Australian Federation of Islamic Councils [2000] NSWSC 115 Kovacic v Australian Karting Association (Qld) Inc [2008] QSC 344 McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470, (2002) 191 ALR 759 McGuren v Simpson [2004] NSWSC 35 Millar v Houghton Table Tennis & Sports Club Inc [2003] SASC 1 Plenty v Seventh-Day Adventists Church of Port Pirie [2009] SASC 10 Rose v Boxing New South Wales Inc [2007] NSWSC 20 Rush v WA Amateur Football League (Inc)[2007] WASCA 190 Rush v WA Amateur Football League(Inc) [2001] WASC 154 Scandrett v Dowling (Women's Ordination case) (1992) 27 NSWLR 483 South Norseman Gold Mines v MacDonald [1937] SAStRp 13; [1937] SASR 53 TEXTS CITED: DECISION: Declaration that AFIC has been bound to call a meeting of the Federal Council since 25 November 2008. Order that AFIC convene meeting. Order that Defendant pay Plaintiff’s costs. JUDGMENT: IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Monday 16 February 2009 6274/08 Islamic Council of South Australia Inc & ors v Australian Federation of Islamic Councils Inc JUDGMENT (ex tempore) 1 HIS HONOUR: The defendant, which I shall call “AFIC”, is an umbrella association of Islamic associations in each of Australia’s States and territories. Under its Constitution, AFIC is a federation of local Islamic societies, who upon admission to AFIC also become members of their local State Council, of which there are nine, one for each of the eight States and Territories of Australia, and one for Christmas Island. The objects and purposes of AFIC are set out in the Preamble to its Constitution, and in clause 7. In broad terms, AFIC is to further and promote Islamic ideals and the interests of Muslims. Some flavour is given to this by the Preamble, which is as follows: We, the Muslims of Australia, in our desire to order our lives according to the Holy Qur’an and the Sunnah and in order to promote religious, social and cultural welfare of the Muslims throughout Australia, humbly relying on the blessings of Almighty Allah (God), having formed local Islamic societies and in 1964 the Australian Federation of Islamic Societies have further agreed to establish State Councils of Islamic societies in the States and Territories of Australia and now join together to form the Australian Federation of Islamic Councils thereby replacing the Australian Federation of Islamic Societies. 2 AFIC operates a number of Islamic educational institutions, and has assets of some $25 million. It undoubtedly plays an important role in the Islamic community in Australia, and in the lives of Australian Muslims. 3 The plaintiffs, which I shall call respectively “ ICSA ”, “ICQ” and “MCNSW”, are each State Councils, in South Australia, Queensland and New South Wales respectively. There is a dispute as to the present status of ICQ and MCNSW and, in particular, as to their ability to participate in the affairs of AFIC. AFIC contends that ICQ is suspended from membership of AFIC. In proceedings 5452 of 2008 in this Court, between MCNSW and AFIC, MCNSW seek declarations that certain local Islamic Societies in New South Wales are entitled to membership of AFIC, and therefore of MCNSW. AFIC contends that by reason of an agreement entered into in connection with earlier proceedings which relate to the same dispute, MCNSW is not entitled to do anything other than in the ordinary course of business pending the resolution of that dispute. A Statement of Claim was filed in those proceedings on 10 February 2009. There is no realistic prospect of those proceedings being heard prior to the end of April 2009, when the next meeting of the Federal Congress – the supreme governing body of AFIC – is to be held. 4 The present dispute concerns a refusal on the part of AFIC to call a Federal Council Meeting following alleged requests from the plaintiffs and others to do so. The plaintiffs contend that it is at least possible that a Federal Council meeting could resolve the dispute as to the membership of MCNSW prior to the next Federal Congress meeting, and without the time and expense involved in ongoing litigation, but that despite the requisite number of requests to convene a meeting from State Councils, AFIC nonetheless refuses to convene a meeting of the Federal Council. 5 AFIC’s affairs are governed by three organs. Ultimate control of AFIC vests in the Federal Congress (Rule 8). The Federal Congress is comprised of members of the Executive Committee and delegates from each State Council – being the Chairman of each State Council (or his nominee), and one representative of each local association which is a member of the State Council (Rules 11 and 12). The powers of the Federal Congress relevantly include to “adjudicate on all matters of controversy” between Federal Council, Executive Committee and the State Councils, or between State Councils and their member societies (Rule 13(e)). In addition, the Federal Congress elects most of the members of the Executive Committee (Rules 17 and 32). It does not appear to be controversial that AFIC must convene a Federal Congress no later than 30 April 2009. 6 The next organ in the hierarchy is the Federal Council, which comprises four members of Executive Committee and the President or Chairman of each State Council (Rule 14). The powers of the Federal Council relevantly include to “determine the time, place and agenda of the Meetings of the Federal Congress” (Rule 15(b)), and “to act for and exercise all the functions of the Congress between its meetings in all matters provided always that such actions or decisions might be ratified or reversed by the Congress” (Rule 15(c)). 7 The third organ in the hierarchy is the Executive Committee, which is responsible for the day-to-day running of AFIC. It is specifically subject to the “control and scrutiny of both the Federal Congress and Federal Council” (Rule 19). 8 The convening of meetings of the Federal Council is governed by clauses 40 to 42 of the Constitution. 41. Subject to this Constitution, a Council meeting shall be called by the Secretary of the Federation as directed by the Federal Executive Committee or upon written requests from four (4) or more State Councils. 42. Notice of Federal Council together with its Agenda shall be given by the Secretary of the Federation to the members of the Council at least (4) weeks prior to the date of such meeting. 9 AFIC has received requests from the following State Councils, which are said to be requests pursuant to Rule 41: first, the Islamic Council of Western Australia on 3 November 2008; secondly, MCNSW on 20 November 2008; thirdly, the Islamic Council of Victoria on 23 November 2008; fourthly, ICSA on 24 November 2008; fifthly, the Islamic Council of Northern Territory on 25 November 2008; and sixthly, ICQ on 18 December 2008. The only response from AFIC in relation to those requests was a letter dated 12 November 2008 – that is to say after receipt of the request from the Islamic Council of Western Australia, but before all the others – to all of the State Councils, signed by the Secretary of AFIC and indicating that a Federal Council meeting would be scheduled “as soon as possible”. However, no such meeting has been convened and AFIC has proffered no explanation to the State Councils as to why no meeting has been convened. On 15 December 2008, the Islamic Council of Western Australia withdrew its request for the convening of a Federal Council meeting. 10 The plaintiffs contend that by reason of the combination of clauses 13(e) and 15(c), it is at least possible that a Federal Council meeting could resolve the dispute about the New South Wales membership, both prior to the Federal Congress meeting, and without the time and expense of ongoing litigation. The plaintiffs further contend that even absent those requests, AFIC is wrongly resisting convening a Federal Council meeting –because of timing issues arising from the 30 April 2009 deadline for the Federal Congress meeting, the effect of which is that in order for there to be a meeting of the Federal Congress by 30 April, notice of such meeting must be given by 19 March (as rule 37(1) requires six weeks notice); as the Federal Council determines the time, place and agenda of the Federal Congress (rule 15(b)) notice of its meeting must therefore be given by 19 February 2009 (as rule 42 requires four weeks notice of Federal Council meetings). On the other hand, AFIC submits that the issues raised by the proceedings are not justiciable; secondly, that the Court does not have jurisdiction, or if it does, as a matter of discretion ought decline relief, since the matter about which complaint is made can be resolved at a general meeting of members; and thirdly, that there are not four valid requests validly made by four Councils. 11 The issues for resolution are: · First, whether upon the proper construction of the Constitution and in the events which have happened, there have been validly written requests from four or more State Councils for the calling of a meeting of the Federal Council. This, in turn, involves a number of subsidiary issues relating to the alleged requests made by some of the State Councils; · Secondly, if so, whether AFIC’s failure to convene such a meeting is justiciable; and · Thirdly, if so, whether relief should nonetheless be declined as a matter of discretion. 12 I turn first to consider whether there have been valid written requests from four or more State Councils. The requests made by South Australia and the Northern Territory are uncontroversial; it is accepted they were valid requests for the purposes of Clause 41. The contentious request first made was that made by Western Australia on 3 November 2008. It is not in issue that it was initially, a valid request, but a question arises as to whether it has continuing relevance because of its purported withdrawal. It is convenient to defer dealing with that question until the other requests, made prior to the date of its withdrawal, have been resolved. 13 The next controversial request was that made by MCNSW on 20 November 2008. On 25 September 2008, MCNSW instituted proceedings 4883 of 2008 against AFIC, claiming a declaration that a notice of meeting for a replacement AGM to be held on 28 September 2008 was invalid, void and of no effect, and unable to be acted upon or to be implemented by AFIC, and an order that AFIC be restrained from holding or conducting that meeting. On 22 October 2008, MCNSW and AFIC entered into an agreement by which MCNSW agreed to call and hold a general meeting on 23 November 2008 under the control of a neutral Chair acceptable to AFIC for the purpose of new elections, but that if any body prior to 31 October 2008 commenced court proceedings challenging or seeking declarations as to membership of MCNSW, the convening of that general meeting would be deferred until final resolution of any such proceedings. Paragraph 7 of this agreement provided that MCNSW would not take any action, expend any funds, or deal with any asset prior to the occurrence of the general meeting, adding “For the avoidance of doubt this paragraph does not prevent MCNSW commencing the proceedings contemplated in 2 above”. Prior to 31 October 2008, MCNSW instituted proceedings 5452 of 2008 in this Court against AFIC, claiming declarations as to the membership of MCNSW and thus triggering a deferral of the general meeting referred to in the agreement. 14 AFIC contends that for MCNSW to requisition a meeting of the Federal Council is contrary to this agreement, because to do so it is not in the ordinary course of MCNSW’s business and is inconsistent with the intent of the agreement that any dispute as to MCNSW membership be resolved by court proceedings. However, it is not apparent why the exercise by MCNSW of a right given to it by the Constitution of AFIC to requisition a meeting of the Federal Council is other than in the ordinary course of MCNSW’s business. A fundamental part of MCNSW’s business appears to be representing the interests of New South Wales Islamic Associations in AFIC and in the governance of AFIC. Requisitioning a meeting of the Federal Council is an aspect of doing just that. I do not accept that to do so is other than in the ordinary course of MCNSW’s business. 15 This conclusion is supported by the “for the avoidance of doubt” clause in paragraph 7 of the agreement. Those words are used in circumstances where it is accepted that the head provision covers the situation, but it is recognised that there might be a faint argument that it does not and therefore what is intended already to be covered is made more explicit than otherwise. It is implicit from the use of those words that the head sentence of paragraph 7 did not prevent MCNSW from commencing proceedings and seeking declarations as to its membership. If that is not outside of the ordinary course of MCNSW’s business, then it is impossible to see how requisitioning a Federal Council meeting would be outside the ordinary course of its business. 16 Accordingly, MCNSW was entitled to requisition a meeting under clause 41. There is no other objection to the validity of its requisition. In my judgment, its requisition was a valid one. 17 The next contentious request is that of Victoria, made on 23 November 2008. Unlike the other requests, it was contained in an email communication. Relevantly, it was in the following terms: In our discussions you may recall our desire to have a Fed Council meeting. I thought it was important to send an email confirming that we are awaiting the announcement of a Fed Council meeting at AFIC’s earliest convenience. I realise as you mentioned a lot is happening at the moment. Nevertheless, a Council meeting would help the Councils understand the ‘state of play’ in many areas. This is particularly because we are due to have a meeting anyhow. I now know the Council’s situation in NSW is deteriorating. However, the ICV really hopes we can resolve this issue without AFIC being seen as flexing its muscle excessively. I think a Council meeting at the very least will allow you to consider the wishes of Council members on key matters. I hope we can fit a Council meeting in before the end of the year A A Ramzi 18 The first subsidiary issue is whether, for the purposes of clause 41, a request made by email is a “written request”. In Exceptional Sunrise v Jones [2008] QSC 190, de Jersey CJ considered whether a contractual provision that provided that the buyer was entitled to waive the benefit of a special condition and that if the buyer waived the benefit of that condition the date for settlement would be 30 days after the seller received “written notice” of the waiver, was triggered by an email communication, in the context that another clause of the contract provided that notices under the contract must be in writing (but also provided that notices were effectively given if sent to the other party’s facsimile number). Ultimately, however, his Honour said (at [30]): It has been unnecessary for me to deal with the submission that the communication of the ‘waiver’ by email was, because that medium was used, ineffectual. (The submission did I feel gain strength from the requirement in special condition 3.6 that ‘written notice of the waiver’ be given, and the absence in cl 10.4, of any reference to email communication.) 19 In McGuren v Simpson [2004] NSWSC 35, Harrison AsJ, considering whether there had been a written acknowledgment for the purposes of Limitation Act s 54(4), concluded that an acknowledgment contained in an email was for that purpose a written communication. At [20], her Honour said: However, in Lockheed-Arabia v Owen [1993] 3 All ER 641, Mann LJ held that a photocopy constituted “writing” for the purposes of the Acts Interpretation Act 1978 (UK). Importantly at [814] Mann LJ stated that in reaching this finding “an ongoing statute ought to be read to accommodate technological change”. Similarly in Wilkens v Iowa Insurance Commissioner (1990) 457 NW 2d 1 (US), the court found that a requirement to keep a written record of an insurance contract was satisfied by an insurer keeping written records on its computer system. The Law Commission for England and Wales in its paper entitled “Electronic Commerce: Formal requirements in Commercial Transactions – Advice from the Law Commission” has also reached a view that is consistent with that expressed in Wilkens, that being that a document which can be printed and stored is “in writing”: see S Christensen, “Moving the Statute of Frauds to the Digital Age” (2003) 77(7) ALJ 416. 20 The purpose of requiring that notices and the like be in writing is usually at least twofold. One is to ensure that there is a formal act, so that doubt does not attend the intent of the party giving the notice. A second is often to avoid later disputation by ensuring that there is a permanent record of the notice. That said, the concept of “writing” is concerned with the form in which words are used, and not the surface on which they are written. The fundamental distinction is between the written word and the spoken word. While “writing” often contemplates writing on paper, it is nonetheless writing and not speech, if written in invisible ink. It is nonetheless writing, if written in the sky by an aircraft engaging in skywriting. To my mind, it is nonetheless writing, if it appears on a computer screen, as a result of the entry of data into a computer. 21 For those reasons, and the reasons given by Harrison AsJ, I am satisfied that for the purposes of clause 41 a written request includes a request made by email. 22 It was also argued that in order for there to be a written request within clause 41 the request had to be signed. Clause 41 of the Constitution does not explicitly require that a request be signed. In this respect, it is to be distinguished from clause 34(2)(b), which makes provision for convening of special meetings of the Federal Congress “upon receipt of written request setting forth the object of such a meeting and signed by the Chairman-President of at l least four (4) State Councils for and on behalf of their respective Councils ... “. In any event, a typed name (as distinct from a holograph) can be a signature, and has been held to be so in many cases relating to the Statute of Frauds. The distinction between the two provisions of the Constitution to which I have referred warrants the conclusion that so long as the request was from a State Council, it did not have to be formally signed; but if it were necessary that it be formally signed, the word “Ramzi” was subscribed to the email with the intent of authenticating the communications, and constitutes a signature notwithstanding that it appears in typewritten and not handwritten form. 23 Next, it was argued that a request ought to specify the business of the meeting to be convened. I reject this submission. Again, in distinction to clause 34(2)(b), clause 41 contains no such explicit requirement. It may be that State Councils would desire to convene a Federal Council meeting without having any special business in mind, just for the purpose of monitoring the affairs of the Association from time to time. But even if some reference to the business to be conducted is required, it would be sufficient, in the absence of a provision such as 34(2)(b), that one of the requests specify the business to be conducted, as that would enable an agenda of the meeting to be determined. Here, more than one did so, so that there is no difficulty in formulating an agenda identifying the business of the proposed meeting. 24 The final subsidiary issue concerning the Victorian request is the submission that it was not a request under clause 41 at all, but merely expression of a wish or desire or hope that a meeting be convened. There is a difference between expressing a hope or desire that a meeting be called, and a formal requisition that such a meeting be called under clause 41. The email contains no specific reference to clause 41. It contains no use of the word “request”, but merely asserts that, after having received AFIC’s letter of 12 November, “we are awaiting” the announcement of a Federal Council meeting. It proceeds to recognise some of the asserted difficulties about convening a meeting, which is inconsistent with the communication being a formal request under clause 41: such difficulties would be entirely irrelevant if the communication was intended to be a formal requisition. 25 I do not think that this email was intended to be an exercise of the power conferred by clause 41 to requisition a meeting of the Federal Council. Accordingly, I conclude that the Victorian request was not an effective request for the purposes of clause 41. 26 I return then to the Western Australian request and its purported withdrawal on 15 September 2008. In South Norseman Gold Mines v Macdonald [1937] SAStRp 13; [1937] SASR 53, the secretary of the company received a requisition calling upon the directors to convene an extraordinary general meeting of the company signed by four persons, admitted to be shareholders representing at least one-tenth of the issued capital of the company. Subsequently, the company received a further letter from one of the requisitionists to the effect he desired to withdraw from the requisition and did not require the meeting to be called. The effect of that withdrawal was that the remaining requisitionists held less than one-tenth of the issued capital, so that if the withdrawal was effective there would be no obligation to convene the meeting. The Supreme Court of South Australia (Reed AJ) held that the lodging of a requisition calling for a general meeting signed by shareholders having necessary voting power and number of shares was the sole condition for bringing into existence the duty of the directors to call a general meeting, and the subsequent withdrawal by one of the requisitionists did not affect the rights of the remaining requisitionists to have the meeting convened. His Honour said (at 58): It seems to me that the lodging of a requisition, signed by shareholders carrying the necessary voting power and number of shares, is the sole condition, as it were, for bringing into existence the duty of the directors to call a meeting. The actions which one of the requisitionists subsequently takes after the lodging of the requisition cannot affect the rights which the remaining requisitionists may have. That seems to me to be intended by reason of the provision of sub-sec 3, which confers the right to call a meeting on requisitionists who hold more than one-half of the total voting rights of all of them. I cannot see how I can escape from this conclusion in view of those words, which really carry more weight than the other parts of the section in arriving at a construction of it. 27 At the time of the withdrawal on 15 December 2008, and since 25 November 2008, AFIC was in receipt of valid requests from Western Australia on 3 November, New South Wales on 20 November, South Australia on 24 November, and Northern Territory on 25 November. On 25 November, therefore, AFIC became obliged to convene a meeting of the Federal Council. In my view, and consistent with South Norseman, that obligation crystallised on 25 November and was unaffected by any subsequent withdrawal of any one or more of the requisitionists. It is not necessary to consider what would have been the position if the request of Western Australia were withdrawn before a total of four requests had accumulated. I accept, without deciding, that the position might have been different in that situation; but once the obligation to convene a meeting was triggered by the accumulation of four valid requests, it persisted. Accordingly, AFIC became bound on 25 November to convene a meeting of the Federal Council, and that obligation was unaffected by the purported subsequent withdrawal of Western Australia’s request. 28 The final controversial request is that of Queensland. In view of the decision to which I have come in respect of the other requests – so that there were in any event four – it is strictly unnecessary to consider the Queensland request, since the obligation to convene a meeting had already crystallised before that request was made on 18 December 2008; but it may be relevant to the exercise of discretion and it may be relevant if I be incorrect about the standing of MCNSW, or about the effect of Western Australia’s purported withdrawal. 29 Queensland’s request of 18 December 2008 included, inter alia: “I also request that one of the most urgent matters concerning my Council is the lifting of suspension of ICQ and I request that this matter be placed on the agenda of the Federal Council meeting”. I am unable to accept that that manifests an acceptance or acknowledgment by ICQ that it was validly and effectively suspended from exercising the rights of a State Council under AFIC’s Constitution. No provision in the Constitution authorises suspension of a State Council. I am unable to see how, in those circumstances, Queensland could be deprived of its right to request that a Federal Council meeting be called, under clause 41. Accordingly, in my view, Queensland’s request was a valid one for the purposes of clause 41. 30 As the result is that AFIC was obliged under clause 41 to convene a Federal Council meeting it is strictly unnecessary to consider the alternative basis advanced by the plaintiffs, that a meeting had to be called in any event because of the deadline of 30 April for a Federal Congress meeting. I am, however, unconvinced that a meeting of the Federal Council is an essential prerequisite for a Federal Congress meeting. Clause 35 of the Constitution seems to contemplate that the Executive Committee may determine the time and place of a Federal Council meeting. It is true that there is no specific reference in clause 35 to fixing the agenda, a function which is given to Federal Council under clause 15((b), but if the Executive Committee is entitled to fix a time and place of a Federal Congress meeting, then in my view a power to settle the agenda must be implicit. I would therefore have been unconvinced that the mere circumstance that there was an impending Federal Congress was sufficient to justify the relief claimed by the plaintiffs. 31 I turn then to the second main issue, which is that of justiciability. Courts do not as a matter of course intervene in the affairs of voluntary associations, unincorporated or incorporated (Cameron v Hogan [1934] HCA 24; (1934) 51 CLR 358, 378). In order that a court be persuaded to intervene, a plaintiff must establish some interference with its property rights or interests, or some breach of contract, or some threat to its livelihood or reputation [Field v NSW Greyhound Breeders, Owners & Trainers Association [1972] 2 NSWLR 948, (1986) 43 SR; Carter v NSW Netball Association [2004] NSWSC 737; Rose v Boxing New South Wales Inc [2007] NSWSC 20, [59]; Kovacic v Australian Karting Association (Qld) Inc [2008] QSC 344 [26]. 32 In the present case there is no question of interference with proprietary rights or interests, nor as to injury to livelihood or reputation. As the claims for relief necessarily include a mandatory order to convene a meeting and are not limited merely to a claim for declaratory relief, the Court’s plenary power to grant declaratory relief, to which reference was made in Rose (at [55]-[56]), is insufficient to avail the plaintiff in this case. The crucial question then is whether the plaintiffs can establish a right in contract, which in turn depends on finding a clear intent contractually to be bound by the Constitution. 33 Although in respect of associations incorporated under the (NSW) Associations Incorporation Act such claims are now facilitated by s 11(2), which provides that the rules of an incorporated association are binding on the association and members, so that there is a deemed contract between all of the members and the association on the terms of the rules [McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470; [2002] 191 ALR 759, [103]-[109]; Rose v Boxing New South Wales Inc, [57]; Goodwin v VVMC Club Australia (NSW Chapter) [2008], NSWSC 154, [30]-[38]], there is no equivalent provision in the Tasmanian Act under which AFIC is incorporated. 34 The position is also to be contrasted with that which applied in Millar v Houghton Table Tennis & Sports Club Inc [2003] SASC 1, where the South Australian Act provided that the rules bound the association and all its members. Although, in Millar, Besanko J said (at [109]) that the fact of incorporation may be sufficient of itself to lead to the conclusion that the rules had legal effect, I agree with Wilson J in the Supreme Court of Queensland in Kovacic that the mere fact of incorporation under such a statute, absent ANY such provision AS s 11 in the New South Wales Act, is insufficient of itself to make the internal affairs of a voluntary association –even an incorporated one – justiciable [see Kovacic, [27]-[28]]. Besanko J’s observations in Millar were made in the context of an Act which included a provision similar to s 11 in the New South Wales Act. 35 Absent the equivalent of such a provision, the question is whether the Constitution was intended to constitute a legally binding and enforceable contract between the various members and the Association. No such intent could be found by the High Court in Cameron v Hogan in respect of the Victorian branch of the Australian Labor Party, even though that party no doubt held considerable property, played an important role in the affairs of the nation, and enforced provisions of its Constitution by expelling members (including the subject of that case, the then Premier of the State of Victoria). In Cameron v Hogan it was said that the Court would only find such a contract if a clear intent to create legally enforceable contractual relations was apparent. In Rose v Boxing New South Wales Inc, I found that independently of s 11(2) there was such an intention. I drew this conclusion from the inclusion amongst the objects of the Association of one “to inflict fines and penalties by way of suspension, expulsion or otherwise for any breach of the rules and/or regulations of the Association”, as illustrating an intent that the Constitution be enforceable against its members. As has been pointed out by Mr Cheshire for AFIC, that conclusion was unnecessary to the decision, as Boxing NSW was incorporated under the New South Wales Act, so that there was a deemed contract in any event. On reflection, both in the light of Cameron v Hogan and other cases to which I shall come, I doubt now whether the reference to suspension, fines, expulsion and other penalties for breach of the Constitution or rules would be sufficient to warrant inference of a contractual intent, in the absence of some such provision of such as s 11(2). 36 In Rush v WA Amateur Football League [2001] WASC 154, Templeman J found it seriously arguable that there was contractual intent where members of the League had completed an application form by which, inter alia, they undertook to abide by the Constitution and by-laws of the League. That is a rather stronger case, because of the express undertaking to be bound, but since his Honour’s decision and some intervening steps, the matter proceeded to the Western Australian Court of Appeal ([2007] WASCA 190) Pullin JA, with whom Wheeler and Buss JJA agreed, concluded that there was no such contractual intent. Pullin JA said (at [35]-[37]) [35] The circumstances here were that the respondent was an incorporated body concerned with the running of amateur football. Neither the players nor the officials do what they do for any financial reward. The appellant, in applying for registration to play football, was obliged to sign a statutory declaration that he was an amateur, was not playing football for pecuniary gain, and was not in receipt of any promise or inducement of gain. The application form advised the appellant that no player should be permitted to take part in any match under the control of the council unless he was an amateur. The application for registration was also signed by the Secretary of the Bayswater club, stating that the secretary had stressed the importance of the appellant being an amateur. The by-laws provided for the imposition of fines to be paid by players or officials in certain circumstances, but the only sanction for non-payment of a fine was that the player was disqualified from playing football and an official disqualified from acting in any capacity during the period of non-payment (cl 9.4). The by-laws established in-house tribunals to resolve disputes. [36] Those circumstances must have suggested to the appellant and the respondent at the time the appellant applied for registration that the resolution of any disagreements which might arise between the respondent and the appellant would not involve litigation in the courts. As a result, it seems reasonable to conclude that when Commissioner Odes said, at the conclusion of [52], that there was a ‘consensual relationship’ between the parties, he meant to indicate that, although there had been mutual promises, there was no intention to create contractual relations. There was no attempt made by the appellant to contend that, because the form of relief was declaratory in nature, this should have justified the intervention of the court, which would have in turn raised arguments of the kind which were dealt with in Plenty v SDA Church (supra). [37] In the particular circumstances of this case, in the absence of any property, income or reputational interests, this Court has no jurisdiction to decide issues arising out of the consensual but non-contractual relationship between the parties. The appellant did not submit that Cameron v Hogan could be ignored because it was decided in 1934. Wootten J came perilously close to saying this in McKinnon v Grogan [1974] 1 NSWLR 295. Intermediate courts have no authority to ignore a binding High Court decision on the basis that it might be thought to be out of touch with the times. In any event, this case shows that Cameron v Hogan is not out of touch with the times. The case ran for five days before Commissioner Odes, involved another action which had to be settled, involved three interlocutory injunction applications and then this appeal to the Court of Appeal. The dispute has involved the time of seven Judges. There has been an absurd amount of time, money and valuable court resources consumed in resolving a dispute which has no effect on property, income or reputation and which is about whether the appellant could play footy or give up some of his leisure hours to coach or help with administration for no financial reward. 37 In Dixon v Esperance Bay Turf Club Inc [2002] WASC 110, Roberts-Smith J observed that the Western Australian Act contained no provision making the rules binding, and on this basis his Honour distinguished the first instance decision of Templeton J in Rush holding that no contractual intent was established (at [112]). 38 In Scandrett v Dowling (1992) 27 NSWLR 483, the Court of Appeal held that, although the Constitution of the Anglican Church was incorporated in a schedule to an Act of the State Parliament, it had effect only as a consensual compact which was not binding on the parties at law, except insofar as the Act made it binding, which was limited to “in respect of the property” of the Church. 39 More recently, indeed only days ago, in Plenty v Seventh-Day Adventists Church of Port Pirie [2009] SASC 10, it was concluded, despite earlier decisions in related litigation to the contrary, that no contractual intent was to be found in the disciplinary provisions of the church manual of the Seventh-Day Adventist Church. 40 Since Cameron v Hogan, statutory recognition of political parties has brought about a change in the attitude of courts to intervention in their affairs which are regarded as justiciable at least to the extent that declaratory relief may be granted [see, for example, Coleman v Liberal Party of the Australia (NSW Divn) (No 2) [2007] NSWSC 736] but Scandrett v Dowling and the recent decision in Plenty v Seventh-Day Adventist Church show that there has been no such change in the area of church affairs. The rule is, therefore, still as stated in Cameron v Hogan. In the joint judgment, Rich, Dixon, Evatt and McTiernan JJ (at [370]-[371]): There are, however reasons which justify the statement that, at common law as well as in equity, no actionable breach of contract was committed by an unauthorized resolution expelling a member of a voluntary association, or by the failure on the part of its officers to observe the rules regulating its affairs, unless the members enjoyed under them some civil right of a proprietary nature. As a generalization it expresses the result produced by the application of a number of independent legal principles: it is not in itself the enunciation of explanation of a rule or rules of the common law. One reason which must contribute in a great degree to produce the result is the general character of the voluntary associations which are likely to be formed without property and without giving to their members any civil right of a proprietary nature. They are for the most part bodies of persons who have combined to further some common end or interest, which is social, sporting, political, scientific, religious, artistic or humanitarian in character, or otherwise stands apart from private gain and material advantage. Such associations are established upon a consensual basis, but, unless there were some clear positive indication that the members contemplated the creation of legal relations inter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract. 41 In the present case, it was contended that the requisite clear intention should be inferred from a number of circumstances, including that AFIC was a national peak body with substantial membership and assets. These matters I think are entirely equivocal: the same might have been said of the Australian Labor Party in the 1930s or the Anglican Church in the 1990s. The Anglican Church certainly held extensive property, much more extensive than that in question here. The circumstance that AFIC’s purposes are largely of a religious character tends to finding against a binding contractual relationship, as distinct from a consensual compact of the kind referred to in Scandrett v Dowling. 42 The circumstances that there are some limited powers of enforcement or discipline conferred by the Constitution do not show an intention that the Constitution be enforceable in the ordinary courts, as distinct from internally. Indeed, the Constitution in clause 60 provides internal mechanisms of mediation, resolution by AFIC itself and Islamic Arbitration, which suggests that “rights” under the Constitution were to be enforced internally and not in the ordinary courts; cf the decision of the Western Australian Court of Appeal in Rush. 43 But for one matter, I would have been unable to find sufficient indicia of a clear contractual intent in the AFIC Constitution. However, it is well established that post-contractual conduct is admissible on the question of contractual intent (as distinct from construction) [Howard Smith v Varawa [1907] HCA 38; (1907) 5 CLR 68, 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647, 668, 669, 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147, 9,149, 9,154-9,156; Brambles Holdings Ltd v Bathurst Industry Council [2001] NSWCA 61 [25] [2001] NSWCA 61; 53 NSWLR 153, 164]. 44 In 2000, the Islamic Council of New South Wales brought proceedings against AFIC which were heard and decided by Hodgson CJ in Eq, as his Honour then was, who said, [[2000] NSWSC 115, [95]]: As mentioned earlier, ICNSW is a member of AFIC, which is incorporated under the Associations Incorporation Act of Tasmania. There appears to be no provision in that Act about the binding effect of rules on the members of an association; but I will proceed on the assumption that members are at least contractually bound by those rules. 45 That observation may ultimately have been obiter because his Honour concluded (at [101]) that the act of the AFIC Executive Council in purportedly setting up an interim body to control the affairs of ICNSW was ineffectual under the rules of ICNSW, and so was not effectual to remove the office bearers of ICNSW. But his Honour did add (at [102]): However, ICNSW is contractually bound by the rules of AFIC, and those rules authorised intervention; and, as I have found, the plaintiffs have not shown that the circumstances of this case did not justify intervention. On the assumption that intervention was justified, ICNSW was contractually bound to submit to intervention, in any way consistent with its own rules; so that for example, if AFIC had required ICNSW to call a meeting of members, it would have been contractually bound to do so, and if it had failed to do this, AFIC could have sought specific performance of that obligation. 46 It does not appear to have been suggested at that time that AFIC or ICNSW, which I take to be the predecessor of MCNSW, was not contractually bound by AFIC’s Constitution. 47 In proceedings in this Court 2880 of 2008 – Patel v Sali – AFIC was the tenth defendant. Albeit without admission of liability, declarations were made by consent on 24 July 2008 that all steps be taken or business conducted or purported to be taken or conducted by the Federal Congress, Federal Council or Executive Committee or any body purporting to be any of them between 17 May and 23 May 2008 were invalid and of no effect. A further declaration was made as to the Constitution of AFIC’s Executive Committee. It is quite plain that by those consent orders, albeit without admission of liability, it was intended to enter into and give effect to binding legal obligations. 48 In 2006 there were proceedings in the Federal Court of Australia Victorian District Registry for the appointment of a receiver to AFIC. These proceedings are of less significance, because it must be possible for the Court to appoint a receiver even to an unincorporated association that holds property, quite apart from any question of whether its internal affairs are justiciable. But in proceeding 4883 of 2008 in this Court, to which reference has already been made, between MCNSW and AFIC, the agreement of 22 October 2008 – which plainly related to the internal affairs of AFIC – was also plainly intended to establish and give effect to legal obligations. 49 It would be astounding if AFIC, believing its affairs were immune from review in the ordinary courts, had not in any of this litigation up to this point taken the Cameron v Hogan point. In my view, it is just too late for it to do so now. It failure to do so at any prior time manifests or evidences, albeit it post contractually, the existence of an intent that the Constitution constitutes a legally binding and enforceable contract between AFIC and its member institutions. 50 On that basis, I conclude that AFIC’s affairs are justiciable. Given the importance which it plays in Islamic affairs and the lives of the Australian Muslims, that is a conclusion which I reach without regret. 51 That then leaves for consideration the third major issue, which is the question of discretionary withholding of relief. AFIC submits that relief should be declined on the basis that the issue relates to an irregularity of procedure or an internal matter, which could be resolved by Federal Congress – for which purpose it referred to Dixon v Esperance Bay [2002] WASC 10; Millar v Houghton Table Tennis & Sports Club Inc [2003] SASC 1. In the first of those judgments, Roberts-Smith J referred to what was said by Burbury CJ in Green v Page [1957] TASStRp 9; [1957] Tas SR 66 (at 77): Nor would the court have jurisdiction to entertain the present action if the issues between the parties merely involved questions of irregularities in internal management which could be resolved by a general meeting of the members. In the case of irregularities in procedure laid down by the rules of an organisation for convening meetings and in conducting meetings the court refuses to interfere at the instance of individual members of the organisation. This is in accordance with the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461. The basis of the rule was explained by the Court of Appeal in Cotter v National Union of Seamen [1929] 2 Ch 58, Romer J (as he then was) said: In my opinion, if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally, which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes. 52 Those observations of Romer J in fact make clear that the rule does not apply in the present case. The import of what his Lordship said is that if the majority does something intra vires but irregularly, the Court will not intervene because the majority could bring about the same result by convening a meeting to ratify the irregularity. No question or intra vires but irregular act arises here. The majority of AFIC could not, within power but irregularly, refuse to convene a meeting of the Federal Council in circumstances where four State Councils requested such a meeting. 53 It was also submitted that the purpose of the meeting to be called was to resolve the MCNSW membership dispute, which could be resolved by Federal Congress in any event. However, while that may be the ultimate purpose of convening a meeting, the real issue in this litigation is not the ultimate purpose of the meeting to be convened, but the failure to convene a meeting when duly requisitioned by State Councils. That the ultimate purpose of the requisitionists might be achieved otherwise does not detract from their entitlement to have a meeting convened. 54 It was further submitted that there would be no utility in convening a meeting because there would still be dispute and debate as to who would be entitled to vote at any such meeting and that it was unclear that Federal Council would in fact be able to resolve the dispute as to the New South Wales membership. I am prepared to accept that whether Federal Council can exercise the power of resolving disputes between itself and a State Council is capable of dispute. It is clear enough that the peak organ, the Federal Congress, is authorised to resolve disputes between Federal Council and Executive Committee on the one hand and State Councils on the other. The general delegation of powers to Federal Council does not necessarily carry with it power to determine disputes between itself and State Councils. But it seems to me that the Federal Council could meet and make decisions as to its attitude to proceedings 5452 of 2008, including whether they should be defended, albeit subject to ultimate ratification or reversal by Federal Congress. 55 It has troubled me that the purpose of the proposed meeting might be to achieve, extra-curially, the result which at least one of the plaintiffs, MCNSW, has sought from the Court in proceedings 5452 of 2008 – namely, resolution in its failure of the dispute as to membership of MCNSW. But I accept that the calling of a meeting of Federal Council is not necessarily a cynical exercise of obtaining by force of numbers what MCNSW concurrently seeking in a court of law. Several State Councils, not just MCNSW, seek a meeting the outcome of which might inform or resolve the position of AFIC in the litigation which it faces, and which might result in that litigation being avoided and the associated costs incurred. By analogy, it would not be impermissible for minority directors in a corporation to convene a meeting of the Board of Directors to discuss the corporation’s attitude to their pending oppression suit and to consider whether the suit should be defended, or conceded, or settled – although questions of conflict of interest might impact on the ability of the minority to participate in some of the decision making. 56 Ultimately, therefore, I am unpersuaded there is sufficient reason to decline relief on discretionary grounds. 57 My conclusions are as follows. 58 First, by 25 November 2008 and a fortiori by 18 December, there had been valid written requests for four or more State Councils for the calling of a Federal Council meeting. The obligation to convene a meeting was thereupon triggered, and not affected by the subsequent withdrawal of one of those requests. 59 Secondly, AFIC’s failure to convene a meeting pursuant to those requests is justiciable, AFIC’s conduct in multiple earlier lawsuits being strong evidence that there was an intent that the Constitution be a legally enforceable contract, and not merely a consensual non-binding compact. Thirdly, there is insufficient reason to decline the relief sought on discretionary grounds. 60 My orders are: (1) Declare that upon the true construction of the Constitution of AFIC and in the events which have happened, AFIC is and has since 25 November 2008 been bound to call a meeting of the Federal Council pursuant to clause 41 of its Constitution. (2) Order that AFIC convene a meeting of its Federal Council by 17 February 2009. (3) Order that the defendant pay the plaintiff’s costs. (4) Reserve liberty to the parties to apply in the event of any difficulty arising. ********** LAST UPDATED: 27 March 2009 =========================== Malek Fahd Islamic School Limited and Minister for Education and Training [2016] AATA 1087 (23 December 2016) Last Updated: 4 January 2017 Malek Fahd Islamic School Limited and Minister for Education and Training [2016] AATA 1087 (23 December 2016) Division GENERAL DIVISION File Number(s) 2016/1753 Re Malek Fahd Islamic School Limited APPLICANT And Minister for Education and Training RESPONDENT DECISION Tribunal Deputy President Bernard J McCabe Date 23 December 2016 Place Sydney The decision under review is affirmed. .......................[sgd]................................ Deputy President Bernard J McCabe CATCHWORDS EDUCATION FUNDING – approved authority – where approval revoked – whether requirements for commonwealth funding under the act satisfied – whether not for profit – whether fit and proper person – where commonwealth financial assistance used for inappropriate expenditure – uncommercial transactions – where efforts to rectify made – where continued non-compliance with the act inevitable – decision under review affirmed. LEGISLATION Australian Education Act 2013 (Cth) ss 3, 75, 77, 78, 81, 130 Australian Education Regulation 2013 (Cth) regs 26, 28, 29, 30 Education Act 1990 (NSW) sch 3 REASONS FOR DECISION Deputy President Bernard J McCabe 23 December 2016 1.Commonwealth financial assistance for schools is made available pursuant to the Australian Education Act 2013. Funding is channelled through the relevant state or territory. Money is ultimately paid to approved authorities that conduct schools. In the public schooling system, the approved authority is the relevant state or territory. In a private school, the approved authority is the body corporate which conducts the school. A body corporate must satisfy the requirements of the Act if it is to become and remain an approved authority. 2.The Malek Fahd Islamic School (‘MFISL’) is – or has been – an approved authority under the Act. It operates a private school across several campuses in Sydney. On 8 February 2016, a delegate of the Commonwealth Minister for Education and Training revoked the approval of MFISL. The delegate was satisfied MFISL did not satisfy the requirements in ss 75 and 78 of the Act. Those requirements are directed towards ensuring the approved authority conducts the school on a not-for-profit basis, deals with financial assistance it receives in accordance with the law, and is a ‘fit and proper person’. 3.MFISL acknowledges there were problems in its governance and accountability arrangements in the past. MFISL says it has addressed those issues. It has a new board, new managers and new processes. It says it is now able to meet most if not all of the requirements imposed by the Act, or will be able to do so within a reasonable time frame. It has asked the Tribunal to reconsider the decision to cancel the school’s approval under the Act. 4.The decision under review has been stayed while the Tribunal goes about its work. If the revocation decision stands, MFISL will no longer be eligible to receive financial assistance from the commonwealth. That means the school it operates may be forced to close. 5.The Minister acknowledges substantial improvements have been made at MFISL. There is some dispute over whether the new arrangements have gone far enough, or are as effective as MFISL says. But the Minister says MFISL remains saddled with bad deals struck by previous managers in any event. Those deals prevent MFISL from complying with the Act regardless of the recent improvements. 6.The evidence suggests MFISL is a good school which provides quality education. It appears to enjoy support in the community. It has the loyalty of its students and staff. But the reviewable decision is not directly concerned with the quality of the education provided by the school. The requirements in ss 75 and 78 of the Act are concerned with accountability. The Act implicitly assumes that even a good school will not remain good for very long if the financial assistance provided by the Commonwealth is not managed by the approved authority as intended. MFISL is accepting public monies, and those monies must be managed and applied in accordance with the Act. 7.I am not satisfied MFISL is able to satisfy the requirements in the Act, or that it will be able to do so within the foreseeable future. The decision under review must therefore be affirmed. I explain my reasons below. THE HISTORY OF MFISL AND ITS RELATIONSHIPS The establishment and funding of MFISL 8.MFISL was incorporated in 1989. It is a company limited by guarantee. The company’s constitution says the company was established with the object of providing ‘for general, liberal, scientific, cultural, artistic, religious education...’ (see exhibit two [ST221] at cl 4.2(b)). (The constitution identifies additional objectives, and it has been amended on a number of occasions, but this particular objective has remained constant.) 9.MFISL established a co-educational school which now operates over three campuses in Sydney’s west in: Greenacre, Hoxton Park and Beaumont Hills. It currently enrols over 2500 students in classes ranging from Kindergarten to year 12. It also employs a large number of staff. 10.Between 2012 and 2015, MFISL received in excess of $76 million in financial assistance from the Commonwealth. In 2016, it had received nearly $13 million by the time of the hearing. (The Minister estimated in late 2015 that MFISL would be paid around $19 million in four instalments in 2016: transcript at p 5. It is likely a similar amount would be paid in 2017 if MFISL were to remain an approved authority.) MFISL had other income, to be sure: it received money from the state of New South Wales and it also received tuition income paid by parents. But the Commonwealth was the largest source of funding to MFISL. The Minister estimated financial assistance from the Commonwealth accounted for about two-thirds of MFISL’s income in 2014-2015. MFISL’s links to the Australian Federation of Islamic Councils, Inc 11.The Australian Federation of Islamic Councils Inc (‘ AFIC ’), a community group, was instrumental in the incorporation of MFISL. Prior to March 2016, AFIC appointed directors to the board of MFISL. The chairman and deputy chairman of the board of MFISL were nominees of AFIC . Key officers of MFISL were also subject to approval by AFIC . MFISL’s constitution included a requirement that it obtain approval from AFIC before leasing, transferring, mortgaging or disposing of MFISL’s property. After amendments in 2009, the company’s constitution also required AFIC ’s written approval of any board resolution:[1] ◦Approving the annual budget or changes to the budget; ◦Proposing a capital works program; ◦Authorising borrowings; ◦Approving asset purchases or disposals where the asset was valued in excess of $50,000; and, ◦Authorising the company to enter into any contract of more than two years’ duration or where the total value involved exceeded $50,000. 12.MFISL was, in effect, a creature of AFIC and that entity’s office-holders prior to March 2016. MFISL was under their control. The potential for a conflict of interest in those circumstances seems obvious enough. The school was a big business. Millions of dollars flowed through its accounts. MFISL was vulnerable if insiders preferred their own interests of the interests of AFIC . MFISL now suggests that is exactly what occurred. It alleges AFIC and some of the officeholders failed in their various duties to MFISL. 13.New management was installed at MFISL in March 2016. The new regime says it has removed the conflicted officers and cut constitutional links with AFIC . It has instituted new procedures. It has brought in external consultants who have advised on how it might regularise its internal arrangements and external dealings. Importantly, MFISL has also commenced proceedings in the Supreme Court of New South Wales against AFIC seeking repayment of funds, damages and the release from a number of other obligations. Those proceedings were commenced after the date of the reviewable decision. I will have more to say about the proceedings in due course. 14.While there is a long history of problematic dealings, the evidence in these proceedings focused on the period following 1 January 2014 when the current legislation came into force. Evidence of dealings before that date is only relevant for present purposes to the extent those dealings continued to have an effect after 1 January 2014. I will return to the detail of those dealings shortly. But first I will explain the operation of the approval regime in the legislation. THE APPROVAL REGIME 15.The basic requirements for approval are set out in s 75 of the Act. They remain relevant to the analysis because s 81(1) says the Minister may vary or revoke an existing approval if he is satisfied ‘the approved authority does not comply, is not complying, or has not complied, with section 75, 77 or 78’. The first substantive requirement in s 75 is easily satisfied in this case: MFISL is a body corporate. It also appears to be financially viable, and it has the permission under the laws of New South Wales to operate. But there are two further substantive requirements which raise issues, namely:◦The not for profit requirement in sub-section (3), which requires that the person must ‘not conduct for profit any school in relation to which the application is made’. In forming a view on this question, the decision-maker must have regard to the opinion of the state minister,[2] any matter prescribed in the Australian Education Regulations 2013,[3] and ‘any other matters the Minister considers relevant’;[4] and ◦The fit and proper person requirement in sub-section (5), which requires that the person is ‘fit and proper to be an approved authority’. In forming a view on this question, the decision-maker must consider whether the authority ‘has complied, or is complying, with laws...relating to the provision of school education’,[5] and any other matter the Minister considers relevant.[6] 16.I will discuss the not for profit requirement and the fit and proper person requirement below. Before I do that, however, I should also mention the operation of s 78. Section 78 sets out a number of requirements that approved authorities must satisfy if they are to receive ongoing funding. Sub-section (2)(a) requires that the approved authority ‘deals, in accordance with the regulations, with financial assistance that is payable’ under the Act. (The financial assistance in question here is provided under Division 2 or 5 of Part 3 of the Act.) Sub-section (2)(b) requires that the authority adopt monitoring arrangements mandated under the regulations to ensure compliance. Sub-section (3) provides the authority must ‘distribute all financial assistance received in accordance with Division 2 or 5 of Part 3, or from a State or Territory, in accordance with a needs-based funding arrangement that complies with any requirements prescribed by the regulations’. (There is also a requirement to comply with any implementation plans, but that does not concern us here.) 17.The reference to a ‘needs-based funding arrangement’ is important. The expression is found in s 3, which sets out the objects of the Act. The use of that expression underlines the requirement in s 75 that the approved authority not be operated on a ‘for profit’ basis. Which brings me back to s 75(3). The not for profit requirement 18.The expression ‘not for profit’ is not defined in the Act. The expression is commonly used in relation to companies and other associations operated for charitable, scientific, educational, religious or community purposes. But to say an organisation is ‘not for profit’ says little enough about the way the business of that organisation is run. While many of these organisations merely aim to avoid insolvency or generate a modest surplus, some ‘not for profit’ organisations run businesses that generate substantial profits. The key quality of a ‘not for profit’ entity in the law of corporations and associations is that the entity does not distribute profits to its members in the form of dividends. The expression ‘not for profit’ is, in that sense, a misnomer. But the expression may have a broader meaning in the present context. 19.There is no suggestion MFISL has ever formally declared and paid a dividend to its membership. Its constitution would not permit it to do so. But that is not the end of the story, even if the expression ‘not for profit’ has the same limited meaning it has when used in other contexts. The Minister says, in effect, that MFISL has paid – and continues to pay, or is liable to pay on an ongoing basis – what tax lawyers would call ‘deemed dividends’. 20.When considering whether an entity ‘does not conduct for profit’ a school, the decision-maker must also consider the matters referred to in ss 75(6) and 130. The first of those matters is the opinion of the state minister. The state minister’s view can be gleaned from a declaration incorporated into s 33 of sch 3 of the Education Act 1990 (NSW). The state minister declared that MFISL at Greenacre was operated for profit from 1 January 2010 through 31 July 2012. 21.The declaration has never been revoked. While the period covered by the declaration predates the period in question in these proceedings, there is no evidence that the state minister has changed his or her view. I should add I am not persuaded it would make any difference to the outcome of the case if the state minister now expressed a different view given all the circumstances. 22.The next step is to have regard to the Regulations. Regulation 26 sets out a number of matters that must be taken into account when the decision-maker is considering whether the approved authority under the Act is conducting a school ‘for profit’. I do not understand there to be any dispute that the company has been recognised as having ‘not for profit’ status under the taxation laws (see reg 26(a)). MFISL’s constitution also refers to its not for profit status: see, for example, exhibit two [ST221] at cl 4.1(a); see also reg 26(d). 23.The requirements in sub-sections (b) and (c) of reg 26 are more of a problem. Sub-section (b) requires the decision-maker to undertake a two-part enquiry. In the first part, he or she must consider whether the approved entity has financial policies and practices in place. The decision-maker must also have regard to the quality of those policies and practices. 24.There was criticism of the policies and practices in place in MFISL before the change of management in March 2016. Many of the problems were identified in an audit report prepared by McGrath Nicol, a firm of accountants, in 2011: exhibit two [ST214]. A further audit report was commissioned from Deloitte in 2015 which identified a range of shortcomings, including the payment of above-market rent on properties owned by AFIC (exhibit one at pp 62ff and 693ff) and contracts for services that were paid for but never provided (exhibit one at pp 63-65).[7] MFISL’s own report in 2016, prepared by Grant Thornton, confirmed there were significant issues: exhibit one at pp 926-981. There is little doubt that financial assistance provided by the Commonwealth was being diverted from educational purposes into private hands while this state of affairs persisted. The applicant accepts that is so: indeed, its belief that others enriched themselves at its expense provides the basis for its proceedings in the Supreme Court. 25.The reports make for worrying reading. But MFISL says new financial policies have now been implemented and new practices have been adopted under the guidance of the revamped board and consultants. They have moved to end (or at least suspend) many of the insider deals, and they have commenced legal action against AFIC to retrieve the situation. 26.A number of current policies were reproduced in the witness statement of Miriam Silva, the chair of MFISL: exhibit six. Mr Geoff Dornan, another new director, discussed MFISL’s progress towards devising and implementing a wide range of policies and practices in his statement (exhibit nine). He pointed out there were 22 policies touching on financial matters prepared by KPMG at the direction of the previous board but they were only now being implemented. He said MFISL had also appointed a compliance officer and was in the process of seeking a new principal and a business manager. He also said procurement policies had been revamped. Both of the witnesses spoke of the qualities of the new directors and the new personnel. 27.Questions remain over the adequacy and quality of those policies and practices. The Minister questions whether enough has been done. The Minister accepts the new board members are individuals of integrity who are genuinely committed to the welfare of students, educational purposes more generally, and the need to comply with the legislation – although the Minister remains concerned that the new board members may not be up to the task, which may be less of a reflection on the directors than it is on the scale of the challenge they face. For now it is enough to note MFISL has made substantial progress towards compliance with the requirement to adopt appropriate financial policies and practices. I also accept the evidence of Ms Silva and Mr Dornan that the new management of MFISL is working diligently to make the organisation compliant with the legislation. 28.Sub-section (c) in reg 26 requires careful attention. The Minister suggests this provision is an insuperable obstacle to the applicant’s case. The provision requires that the decision-maker consider: whether money derived from or relating to a school in relation to which the person has applied to be the approved authority, block grant authority or non-government representative body: (i) has been applied for the purposes of the school or for the purposes of the functions of the authority or body; or (ii) has been distributed (whether directly or indirectly) to an owner of the authority or body, or any other person; 29.The reference in the second limb to direct or indirect distributions of money clearly picks up the concept of the deemed dividend. But the first limb of the enquiry expands the concept still further and requires an evaluation of transactions and their purpose. On that approach, an entity might be said to be conducted for profit if it spends money on improper or extraneous purposes, or if it engages in uncommercial transactions in relation to proper purposes. In each case, it will be necessary to examine the purposes of expenditure and determine whether the expenditure was appropriate for a school, or whether the expenditure was really intended to generate benefits for someone else that are inconsistent with the needs-based funding regime contemplated in the Act. The scale of the expenditure on extraneous purposes might also be relevant; a few small uncommercial transactions are unlikely to change the character of the enterprise, whereas larger transactions or a pattern of uncommercial transactions are more of an issue. 30.I note reg 29(2) sets out a non-exhaustive list of what would be considered to be expenditures ‘for the purpose of providing school education’. The list refers to:(a) salaries and other expenses relating to staff at the school, including expenses related to the professional development of the staff; (b) developing materials related to the school's curriculum; (c) general operating expenses of the school; (d) maintaining the school's land and buildings; (e) purchasing capital equipment for the school; (f) for a school whose capacity to contribute percentage is 0%--purchasing land and buildings; (g) in any case--administrative costs associated with the authority's compliance with the Act and this regulation. 31.While sub-reg 29(1) refers to s 78, the list in reg 29(2) provides a convenient reference point for the assessment required under reg 26. 32.I have already mentioned that MFISL and the Minister agree the company has, in the past, entered into inappropriate relationships with insiders and others that led to the diversion of MFISL resources. That concession, which I accept, is enough to trigger the discretion to revoke or vary the approval of the approved authority under s 81 of the Act because the approved authority has not complied with s 75 in the past (that is, relevantly, after 1 January 2014). But the Minister says the applicant remains non-compliant, and cannot become compliant in the foreseeable future. 33.The Minister’s argument relies in particular on a series of property transactions between MFISL and AFIC that were entered into some time ago, and which continue to have effect – albeit that MFISL is now challenging those transactions in the Supreme Court proceedings. I will describe the transactions below. In doing so I will rely in particular on the allegations contained in MFISL’s statement of claim in the Supreme Court proceedings. That description is, as I understand it, uncontentious as between the parties. 34.The story begins with the Greenacre property. MFISL originally leased the Greenacre premises from AFIC in 1990. MFISL made substantial improvements to the campus at its own expense under the terms of that lease. In its statement of claim in the Supreme Court proceedings, MFISL says it spent $11m on buildings to be used in the primary and high school operations before the lease concluded in 2000. MFISL also alleges it paid rent in excess of the agreed amount under the original lease. MFISL had the option to renew the lease on the same relatively favourable terms but did not do so. Instead, MFISL agreed to a new arrangement in 2000 which involved the payment of much higher rent. MFISL says the increase in rent was intended to provide the cash AFIC needed to facilitate the purchase of another property in Condell Park. The Condell Park property was said to be acquired for the purpose of building another campus. AFIC purchased that property for $7.1m in 2000. MFISL agreed to advance an unsecured, interest-free loan to AFIC in the amount of $1.42m to pay for the deposit and GST on the property. The loan was not properly documented and there was no time fixed for repayment. MFISL also agreed to guarantee a separate loan to AFIC in the amount of $6.39m. 35.The Condell Park property was sold in 2003 for $10.35m. The property was never used as a campus. AFIC did not share the proceeds of the sale which MFISL had effectively funded. It did not reduce the rent on the Greenacre property or repay the $1.42m loan. 36. AFIC then purchased the campus in Hoxton Park in 2008. Once again, it turned to MFISL to fund the purchase. MFISL agreed in March 2008 to increase the yearly amount of rent it was paying on the Greenacre property to $1.3m to provide the means to fund the purchase. It also agreed to pay 5 years rent on the Greenacre property in advance to AFIC . 37.The parties agree the rent being paid on the Greenacre property was substantially in excess of the market rent payable during that period. MFISL also lost the use of the funds it paid to AFIC in advance. But it got worse. MFISL agreed to pay $500,000 in yearly rent on the Hoxton Park property without a proper valuation being presented, and without (at least initially) a formal lease. In October 2008, MFISL agreed to pay five years of rent on Hoxton Park in advance. 38.Subsequently, in May 2009, AFIC and MFISL agreed to a new lease on the Greenacre property. The commencement of the lease was backdated to 1 January 2008 and it was expressed to be for a term of 25 years with an option for a second term of 25 years. The yearly rent was set at $1.3m but was subject to CPI increases and market reviews. It is unclear how that initial rental figure was calculated: MFISL now says it was excessive. But in June 2009, AFIC obtained a valuation that suggested the market rent was much higher. The valuation estimated the correct rent was $1.5m from November 2004. MFISL agreed in June 2009 that it would pay the higher amount effective from 1 January 2004, and made a back-payment to AFIC of around $2.8m in July 2009. A variation in the lease on the property was executed in August 2009. MFISL says the rent exceeds the true market value; it is certainly not justified with reference to the unimproved value of the property. 39.MFISL also entered into a lease with respect to the Hoxton Park property in May 2009. The lease was for a term of 25 years with a yearly rental of $500,000 (subject to CPI increases and annual reviews). The term was backdated to 1 January 2008, even though the property was not formally acquired by AFIC until 16 June 2008. MFISL now says there was no valuation offered to justify the rent. MFISL subsequently expended $9.8m on improving the Hoxton Park property between 2008 and 2015. 40. AFIC entered into a further arrangement with MFISL to fund the acquisition of the Beaumont Hills campus in December 2010. The purchase price was $9.2m. MFISL agreed to pay annual rent of $920,000, and to pay AFIC in a lump sum 10 years in advance. That money was paid in January 2011. MFISL has subsequently expended around $4.4m on improvements to the property. 41.In addition to the property transactions, AFIC also charged MFISL for services. MFISL paid $2.2m in April 2010 in respect of services that AFIC claimed to have provided since 1989. AFIC and MFISL subsequently entered into a service agreement in January 2011 which required MFISL to pay AFIC a significant amount in respect of a range of services it provided. MFISL says the agreement was terminated a year later and AFIC was supposed to refund the monies it had been paid. MFISL says it has not received a refund. 42.If I accept the applicant’s account of these transactions in the statement of claim – and I have no reason to reject it, given that it appears to be consistent with the various reports from external consultants that were included in the evidence – there is little doubt that MFISL was making distributions to AFIC over a long period. It is also clear the distributions continued during the period relevant to my review. Those distributions were indirect, in that they were provided to AFIC in the form of inflated rents that were paid in advance and in respect of services allegedly provided by AFIC . The expenditures that improved the value of AFIC properties also amounted to an indirect distribution of MFISL funds; the payments in respect of services supposedly provided by AFIC can be characterised in the same way. 43.It also seems likely that MFISL funds were applied otherwise than for the purposes of the school, and not in connection with the function of the approved authority. While schools commonly pay rent on properties they use for educational purposes, the payment of inflated rents or advance payments without any proper basis is not acceptable. Advancing uncommercial loans to a parent entity is also impermissible. The funds expended in these transactions were not applied for MFISL. They were applied for the benefit of AFIC , or someone else. 44.In all the circumstances, I am satisfied MFISL was conducting a school ‘for profit’ within the meaning of that expression in s 75(3). The fact profits were being distributed to or applied for the benefit of AFIC weighs heavily in favour of that conclusion. The acknowledged shortcomings in the financial policies and practices that were evident at the time also point to that conclusion. The opinion of the state minister points to that conclusion as well notwithstanding MFISL’s ‘not for profit’ status under the law and the limitations in its constitution. 45.MFISL commenced proceedings in the Supreme Court of New South Wales on 19 September 2016. It says those proceedings are a game changer, at least insofar as the Minister’s decision is concerned. MFISL has sought:◦A declaration that AFIC held an interest in the Condell Park property on trust for MFISL, a declaration that the net sale proceeds are held on trust and a declaration that the net proceeds of the sale and interest are payable to MFISL; ◦Judgment in respect of the $1.4m loan and equitable damages for the breach of duty that resulted in the loan advance; ◦A declaration that AFIC holds an interest in the Hoxton Park property on trust for MFISL, and rescission of the lease to MFISL; ◦Damages for the breach of fiduciary duty that led to the excessive rent and the advance payment of rent in respect of the Greenacre property; ◦A declaration that the advance payment of rent in respect of the Hoxton Park property is held in trust for MFISL, and orders requiring that the amount (together with equitable damages) be paid to MFISL; ◦A declaration that the back-payment of rent on the Greenacre property in 2009 is trust property that should be repaid together with interest and equitable damages; ◦A declaration that the 2010 payment to AFIC in respect of services provided was held on trust, and orders that the amount be repaid together with interest and equitable compensation; and ◦A declaration that the Beaumont Hills property is held on trust for MFISL, rescission of the lease and orders that the advance payment of rent be refunded along with equitable compensation for the breach of fiduciary obligation. 46.In the meantime, MFISL says it has stopped making any payments to AFIC with respect to its commitments. It acknowledges its liabilities under the various commitments continue to accrue in an accounting sense unless and until they are effectively set aside by the Court. MFISL also accepts there is a degree of uncertainty over the outcome, even if one accepts it has a strong case, and that it will take some time to conclude the proceedings in any event. But I was told the commencement of the proceedings makes for a conclusive break from the past. 47.MFISL says that even if I am satisfied the organisation was being conducted for profit until comparatively recently, it is not presently being conducted on that basis. MFISL acknowledges it may find itself back in a situation where its funds are effectively being diverted if the Supreme Court proceedings are unsuccessful and it is required to make good on its obligations to AFIC . But that is an issue for another day, I was told. I was encouraged to conclude the organisation was not currently being conducted for profit. MFISL sought to reinforce that claim by referring to the improvements in its policies and practices which were described by Mr Dornan and Ms Silva. So long as the payments were not being made and the policies and practices were substantially compliant, the Minister – or this Tribunal standing in the Minister’s shoes – should not revoke MFISL’s approval under the Act. I was told any shortcomings could be addressed through the imposition of conditions. 48.The Minister disagrees that events occurring since mid-2016 have changed everything. Ms Williams, counsel for the Minister, said there were still doubts over the quality of the policies and practices of MFISL. She also said the commencement of the Supreme Court proceedings was not as significant as MFISL argues because the proceedings may be unsuccessful. But there are two other problems because:◦Liabilities continue to accrue while the proceedings are on foot – and the fact MFISL must make provision for those liabilities in its accounts means those funds are still being applied within the meaning of reg 26(c)(i), even if they are not distributed within the meaning of reg 26(C)(ii); ◦The proceedings do not adequately address the problems with the Greenacre lease. 49.The Minister acknowledges the Supreme Court proceedings are potentially meritorious. I agree they have some prospects of success, although it would be impractical and inappropriate to go beyond that preliminary assessment. There is more force in the Minister’s next contention: I think funds are in fact being applied at the point when the liability accrues but before anything is paid. But the Minister’s last point is even more powerful. 50.I agree the prayer for relief in the Supreme Court proceedings does not adequately address the problems with the Greenacre lease. Even if the proceedings are ultimately successful, the Greenacre lease will remain in place for the balance of the 25-year term. The statement of claim does not dispute that the obligation to pay the inflated rental due under that lease will continue into the future, even if MFISL succeeds in recovering earlier payments. That means MFISL’s funds will continued to be applied otherwise than for the purposes of the school, and they will continue to be distributed (if indirectly) to AFIC . The current moratorium on payments – if that is how it is properly characterised – can only be temporary. While there might be more room for doubt over the other payments and obligations that are subject to challenge, I am satisfied the liability to make payments under the Greenacre lease leads to the application of funds. But even if I am wrong in that conclusion, I am satisfied it is a matter that is properly to be taken into account pursuant to s 75(6)(d) of the Act. It is undesirable that the school should be accruing significant liabilities in this way. Those liabilities hang over its head and threaten its viability if things do not go well in court. 51.Mr Coleman SC, counsel for MFISL, suggested the statement of claim might yet be amended to enlarge the claim in a way that might address the Minister’s concerns about the Greenacre lease. I suppose it is also possible AFIC might make concessions. But none of that has occurred as yet. I must make my decision with reference to the material in front of me. Even if I accept the financial policies and procedures are substantially compliant – in other words, if I accept the evidence of Mr Dornan and Ms Silva at its highest – the totality of the material before me suggests MFISL is still being conducted for profit, and that it will continue to be conducted for profit into the foreseeable future. The fit and proper person requirement 52.I turn next to the ‘fit and proper person’ requirement. I have already explained s 75(6) says I must take into account whether the entity seeking approval ‘has complied, or is complying with laws...relating to the provision of school education’ together with any other matter the Minister considers relevant. 53.I have already set out an extract from reg 29(2) which identified the sort of purposes for which recurrent funding might legitimately be expended. I have also found that, on MFISL’s case, it has expended monies for impermissible purposes prior to the change of management in 2016. Given my conclusions about the ongoing obligations under the terms of the Greenacre lease, it follows I am satisfied MFISL continues to pay out monies for impermissible purposes. That must count against a finding that MFISL is a fit and proper person. 54.There are other regulations which are relevant to my enquiry under s 75(5) – most obviously reg 28. That provision directs attention to the entity’s internal structures, processes and personnel. I have already mentioned the evidence of Mr Dornan and Ms Silva in particular, although I also heard evidence from Mr Bennett, a non-executive director. I was also provided with information about the other directors. 55.Ms Williams acknowledged the current directors of MFISL were individuals of integrity. I accept they are individually and collectively competent. I note:◦Ms Silva has extensive experience in the management of schools. (Indeed, there was some question over whether she could devote the time to MFISL given her involvement with schools elsewhere. In her oral evidence, she offered assurances about her commitment to MFISL, which I accept.) While aspects of her evidence about the detail of property valuations (transcript at pp 34-36) were challenged (transcript at pp 32-33), she presented as a calm, well-intentioned professional with a commitment to ethical and effective management. ◦Mr Martyn Bawden is an experienced educator who has taught in public schools since 1976; he was a school principal for approximately 15 years: exhibit 15. ◦Mr Geoff Dornan has extensive experience in school management and accounting. He holds an MBA and has served on the board of the Association of School Business Administrators: exhibit 10. He was challenged in cross-examination over the detail of MFISL’s accounting procedures (specifically, the requirement in the Regulations that dictates how an entity accounts separately for all Commonwealth monies: transcript at pp 42-44) and in relation to details of the valuation of the campuses (transcript at pp 44-50), but those questions do not cause me to doubt his expertise or diligence. ◦Dr John Bennett is an adjunct professor in the School of Education at the University of New South Wales and a former chief executive of the Office of the Board of Studies in New South Wales. He holds a doctorate and masters’ degrees in education: exhibit 12. ◦Mr Jim McDowell is a legal practitioner and corporate executive with extensive experience in management. He is chancellor of the University of South Australia and Chairman of the Australian Nuclear Science and Technology Organisation: exhibit 13. ◦Mr Rodin Genoff is an experienced consultant and director with an interest in cultural diversity and business development: exhibit 16. 56.These board members were appointed after the previous board resigned in early 2016. 57.Regulation 28(1)(b) also requires that I consider the governance arrangements, including the ‘arrangements for managing and supervising the provision of education at the school’ and ‘arrangements to ensure compliance with the laws...relating to the provision of education’. While there were certainly issues with the governance of MFISL, I am not aware of any evidence suggesting there is a serious problem with the provision of education within the school. I note the inspection report of the Board of Studies, Teaching and Educational Standards of NSW dated 18 August 2015 concluded the school was mostly compliant with the relevant standards. The report concluded the school should be re-accredited albeit that the author recorded concerns over governance issues. I was provided with evidence about the school’s policies and procedures in Ms Silva’s statement, and Mr Dornan discussed some of the improvements that were made in the course of his evidence. I am satisfied the board has those matters in hand. I also accept the board has taken genuine steps to ensure compliance with the law, although question marks remain over compliance with detailed requirements over accounting for monies provided by the Commonwealth, and some other matters. 58.Regulation 28(2) requires that I consider the governance arrangements with particular reference to arrangements for the entity to receive independent and professional advice on its obligations. I do not understand there to be any suggestion that the board is disinclined to seek advice appropriately. 59.I am not aware of any other matters that are relevant to my deliberations, although I should mention one further issue. I do not accept I will be assisted by evidence from the student body or the community. There was some suggestion at the outset of the hearing that the school captain or perhaps teachers from the school would be made available to provide evidence. I do not doubt the passion and commitment of teachers and students to the school, and I am aware of the implications of this case for their future. But their evidence is not relevant to a dispute over governance and accountability, and the ability of the entity to comply with the Act. I did note students from the school attended the hearing in any event. I understand many of them were enrolled in a legal studies class. They were respectful and well-behaved, and it was entirely appropriate that they attend the public aspects of the hearing.[8] 60.While I am satisfied MFISL is likely to meet the expectations in reg 28, my findings about the ongoing liability to make payments that are inconsistent with the requirements under the legislation makes it difficult for me to be satisfied MFISL is now a fit and proper person within the meaning of s 75(5) of the Act. Other considerations relevant to approval 61.The Minister has also expressed doubt over MFISL’s compliance with s 78. Section 78 sets out the ongoing funding requirements for approved authorities. Section 78(2)(a) requires that the approved authority ‘deals, in accordance with the regulations, with financial assistance’, while s 78(2)(b) requires that the authority comply with the regulations directed to monitoring compliance. Section 78(3) goes on to require that the approved authority distribute financial assistance it receives ‘in accordance with a needs-based funding arrangement that complies with any requirements prescribed by the regulations...’. 62.The findings I have already made about MFISL’s performance under the old regime suggest MFISL did not deal with financial assistance in accordance with the regulations. Its distribution of financial assistance was also at odds with the concept of a ‘needs-based funding arrangement’ because funds provided by the Commonwealth were not made available to meet the needs of students as contemplated in the Act. The ongoing commitment to the Greenacre lease confirms MFISL will remain unable to comply with ss 78(2)(a) and 78(3). 63.Ms Williams asked Ms Silva and Mr Dornan a number of questions about the adequacy of policies and procedures and monitoring arrangements. While they were challenged on some of the detail of that evidence, I was not satisfied the shortcomings that were identified were such that MFISL was not substantially compliant with its obligations under s 78(2)(b) at present. Even if I accept the applicant was not fully compliant with s 78(2)(b) as the Minister argued, it is likely the instances of non-compliance could and would be addressed by the board within a reasonable timeframe. CONCLUSION 64.I have concluded MFISL was not compliant with s 75 in the past because it was, prior to March 2016, being conducted for profit. I have also concluded it was not a fit and proper person prior to that point, and that the organisation was not compliant with its obligations under s 78. It follows the discretion in s 81 to revoke or vary the approval has been enlivened. 65.Since the change in management in March 2016, I am satisfied many things have changed, or are changing. The change in personnel and the introduction of new policies and practices suggest the organisation is making progress towards the goal of being considered fit and proper. It is also more likely to be capable of satisfying its obligations under s 78. If the internal governance arrangements and the policies and practices were the only issue, I would not be inclined to revoke the approval – although I would require the ongoing approval to be subject to conditions that would reassure the Minister, the school community and the wider public that MFISL was complying with its obligations. 66.But while changes have been made, some things have stayed the same. I refer in particular to the ongoing burden of the uncommercial arrangements with AFIC . I have explored the historical entanglements between MFISL and AFIC which have resulted in significant amounts being diverted from the coffers of MFISL to AFIC , and perhaps to others. MFISL says the flow of payments has stopped and it has commenced legal proceedings. At a minimum, it says I should accept the organisation is not being conducted for profit now, whatever the outcome of the Supreme Court proceedings, so the decision under review should be set aside and funding should be allowed to resume pending further developments. 67.That is dangerous ground. Even if MFISL is not currently paying out on its obligations to AFIC , it must make some sort of provision for them in its accounts, if only to avoid a suggestion of insolvency. If it is doing that, I think it is still applying money otherwise than for the purposes of the school, even if it is not distributing those funds pending the outcome of the litigation. Further, the litigation does not address the ongoing obligations under the long-term Greenacre lease. It is unclear how the uncommercial aspects of that arrangement will be wholly undone by the litigation even if the proceedings are eventually concluded in MFISL’s favour. Those findings make it clear that, at a minimum, MFISL continues to be operated for profit. 68.While I have the power to vary an approval and make it subject to conditions under s 81(2), I do not think that power extends far enough to permit me to effectively waive significant ongoing non-compliance. That would be inconsistent with the whole purpose of the legislation. That is what I am being asked to do, especially in relation to the uncommercial aspects of the Greenacre lease. Even if it could be argued approval might be given on condition that:◦MFISL diligently pursued the litigation out of separate funds (because financial assistance provided by the Commonwealth should not be expended on litigation); ◦the payments to AFIC remain suspended pending the outcome of the litigation and further review; and ◦any further shortcomings in the policies and procedures and governance arrangements were addressed; there is no plan for dealing with the ongoing implications of the Greenacre lease. Financial assistance provided by the Commonwealth will continue to leak from MFISL to AFIC . In those circumstances, the only appropriate course is to affirm the decision under review. 69.That is a hard outcome for MFISL, and for the students and community it serves. But the ultimate responsibility must be laid at the door of the previous management of MFISL. I certify that the preceding 69 (sixty-nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe ......................[sgd]................................. Associate Dated: 23 December 2016 Date(s) of hearing: 28-29 September 2016 Counsel for the Applicant: Mr I Coleman SC Solicitors for the Applicant: Mitry Lawyers Counsel for the Respondent: Ms K Williams Solicitors for the Respondent: HWL Ebsworth [1] See cl 12 of MFISL’s constitution reproduced in exhibit 1 at pp 90-91 (T10). [2] Australian Education Act 2013 (Cth) s 75(6)(a). [3] Australian Education Act 2013 (Cth) s 130(2)(b). [4] Australian Education Act 2013 (Cth) s 75(6)(d). [5] Australian Education Act 2013 (Cth) s 75(6)(c). [6] Australian Education Act 2013 (Cth) s 75(6)(d); see also Australian Education Regulation 2013 (Cth) regs 28-30. [7] See also pp 120-130 (T12 – AFIC services agreement); 244-350 (T15 – Casifarm services agreement); 468-472 (T18 – AFIC termination of service agreement); 473-564 (T19-20 – Agrim Garana service and contract invoices); 771-780 (T31 – accountant service contract); and 805 (T33 – Letter from ASIC re liability for accounting services). [8] Parts of the hearing were conducted in private and confidentiality orders were made.

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