The Applicant, the Malek Fahd Islamic School Limited (the School), was founded in 1989 by the Australian Federation of Islamic Councils Inc (AFIC) as an Islamic school in western Sydney, with the aim of providing a quality, Islamic-focused private education to children from low socio-economic backgrounds.
The School relies heavily on funding from the Commonwealth and State governments. For example, in 2014 and 2015, it received amounts in excess of $11 million from the NSW government.
From 1989 to 2016 the School's Board was controlled by AFIC. During that time, the School and AFIC had a number of property and financial arrangements, some of which attracted scrutiny from the Commonwealth and State governments as to whether the School was operating as a not for-profit entity, which it must do as a condition of receipt of funding.
In a decision dated 1 June 2017, which was confirmed on review on 13 July 2017, the Respondent decided, relying on 6 bases, to recommend to the Minister, that as in the 2014 and 2015 calendar years the School operated 'for profit' the Minister should make a 'non-compliance' declaration with respect to the School. The decision also had conditions for future funding and required repayment of the funding the School had received during 2014 and 2015. The School now seeks review of the decision.
Meanwhile, following a change in its governance in 2016, the School undertook a review of various leases, loans and other contracts between the School and AFIC. As a result, the School concluded that its former Board members had caused the School to enter into various transactions with AFIC in breach of duties they owed the School as directors. On 20 July 2016, the School sent a letter of demand to AFIC, requiring AFIC repay to the School amounts totalling approximately $13.8 million. When AFIC did not comply with the demand, the School commenced proceedings against AFIC in the NSW Supreme Court. Those proceedings were heard by Ball J in November 2017 and his Honour delivered judgment on 12 December 2017: Malek Fahd Islamic School Ltd v The Australian Federation of Islamic Councils Inc [2017] NSWSC 1712 (the Supreme Court proceedings).
[2]
Relevant legislation
Part 7, Division 3 (ss 83A - 83L) of the Education Act 1990 (NSW) (the Act) deals with the provision of financial assistance by the NSW Government to non-government schools. These provisions were inserted into the Act in 2014 by the Education Amendment (Not-for-profit Non-Government School Funding) Act 2014.
Section 83B of the Act provides for financial and other assistance for non-government school children. It allows the Minister to provide financial assistance or other assistance, or both, in respect of non-government school children.
Section 83C of the Act provides that financial assistance is not be provided to schools that operate for profit. It provides:
83C Financial assistance not to be provided to schools that operate for profit
(1) The Minister must not provide financial assistance (whether under this Division or otherwise) to or for the benefit of a school that operates for profit.
(2) A school operates for profit (without limiting the circumstances in which it does so) if the Minister is satisfied that:
(a) any part of its proprietor's assets (in so far as they relate to the school) or its proprietor's income (in so far as it arises from the operation of the school) is used for any purpose other than for the operation of the school, or
(b) any payment is made by the school to a related entity or other person or body:
(i) for property, goods or services at more than reasonable market value, or
(ii) for property, goods or services that are not required for the operation of the school, or
(iii) for property, goods or services that is in any other way unreasonable in the circumstances having regard to the fact that financial assistance is provided to or for the benefit of the school by the Minister, or
(c) any payment is made by the school to a person in connection with the person's activities as a member of the governing body of the school unless it is in reimbursement for a payment made by the person in connection with the operation of the school.
(3) The regulations may specify whether or not a school operates for profit because of any particular use of assets or income, any particular payment in relation to the school or any other matter. Any such regulation has effect despite anything to the contrary in subsection (2).
(4) The Minister is not obliged to terminate the provision of financial assistance because of this section if, following an investigation under this Division, the Minister is satisfied that:
(a) termination of financial assistance is not justified because of the minor nature of the relevant conduct, or
(b) more appropriate action can be taken under section 83E.
Section 21A of the Act (which has been repealed, but which applies to the 'for profit' determinations made in respect of the 2014 calendar year: see Schedule 3, cl 30 of the Act) provided as follows:
21A Financial assistance not to be paid to non-government schools operating for profit
(1) Financial assistance under section 21 may not be paid (whether by way of per capita grant or otherwise) to or for the benefit of a non-government school that operates for profit
(2) A non-government school is taken to operate for profit if any part of its proprietor's assets (in so far as they relate to the school) or income (in so far as it arises from the running of the school) is paid to any other person
(3) Despite subsection (2), a non-government school is not taken to operate for profit just because of.
(a) any payment that its proprietor makes to a person in connection with the person's activities as a member of the governing body of the school, being a payment made by way of an honorarium or as reimbursement for out-of-pocket expenses, or
(b) any payment that its proprietor makes to a student of the school in connection with any prize, scholarship or other activity as a student of the school, or
(c) any payment that its proprietor makes to a person in connection with the provision, at no more than reasonable market value, of property, goods or services required in relation to the running of the school, or
(d) any payment that its proprietor makes to a related organisation that does not operate for profit, within the meaning of this section, in connection with the provision of property, goods or services required in relation to the running of the school
(4) If the Minister is of the opinion that a non-government school receiving financial assistance under section 21 may be operating for profit, the Minister may, by order in writing, require its proprietor to furnish the Minister with information concerning any contracts or other arrangements entered into by the proprietor for the provision of property, goods or services in relation to the running of the school.
Section 83D of the Act empowers the Minister to declare that a school is operating or has operated for profit. It provides:
83D Declaration that school operating for profit
(1) The Minister may declare that a school operates for profit or has operated for profit during a specified previous period, or both (a "for profit declaration")
(2) The Minister may make a for profit declaration only if the Advisory Committee recommends that the declaration be made because the school operates for profit or has so operated for profit (as the case requires)
(3) A for profit declaration in respect of a school is conclusive evidence that the school operates for profit or has so operated for profit (as the case requires)
(4) The Minister may revoke a for profit declaration at any time, and is to do so if the Advisory Committee advises the Minister, or the Minister is satisfied, that the school no longer operates for profit
(5) A for profit declaration may specify a period to which it applies that is wholly or partly before the declaration is made (including before the commencement of this section)
(6) The Minister's obligation under this Division not to provide financial assistance to or for the benefit of a school that operates for profit applies, whether or not a for profit declaration has been made
Section 83E of the Act allows the Minister to suspend, reduce or impose conditions upon the payment of financial assistance to a school that is non-compliant. It provides:
83E Financial assistance to schools may be suspended, reduced or made subject to conditions
(1) The Minister may suspend, reduce or impose conditions on the provision of financial assistance (whether under this Division or otherwise) to or for the benefit of a school that is a non-compliant school
(2) A school is a non-compliant school if the Minister is satisfied that:
(a) the school or the proprietor of the school has failed to provide reasonable assistance in relation to the conduct of any investigation of the school or proprietor under this Division, or
(b) the school or the proprietor of the school has failed to comply with a direction of the Minister given under this Division to the school or proprietor, or
(c) it is a non-compliant school because of any other circumstances set out in the regulations.
(3) A school is also a non-compliant school if the school operates for profit, or has operated for profit, but following an investigation under this Division, the Minister is satisfied that
(a) termination of financial assistance to the school is not justified because of the minor nature of the relevant conduct, or
(b) more appropriate action can be taken in respect of the school under this section
(4) If a school ceases to be a non-compliant school, the school is not entitled to any payment that was not made because it was a non-compliant school
Section 83F of the Act allows the Minister to make a declaration that a non-government school is non-compliant on the recommendation of the Non-Government Schools Not-For-Profit Advisory Committee (Advisory Committee). It provides:
83F Declaration that school non-compliant
(1) The Minister may declare that a school is a non-compliant school (a "non-compliance declaration")
(2) The Minister may make a non-compliance declaration only if the Advisory Committee recommends that the declaration be made because the school is a non-compliant school.
(3) Any such recommendation of the Advisory Committee may include a recommendation on any consequent suspension or reduction of, or imposition of conditions on, the provision of financial assistance
(4) A non-compliance declaration in respect of a school is conclusive evidence that it is a non-compliant school and that grounds exist for the Minister to suspend, reduce or impose conditions on the provision of financial assistance in respect of the school
(5) The Minister may revoke a non-compliance declaration at any time, and is to do so if the Advisory Committee advises the Minister, or the Minister is satisfied, that the school is no longer a non-compliant school
(6) The Minister's power under this Division to suspend, reduce or impose conditions on the provision of financial assistance to or for the benefit of a non-compliant school applies, whether or not a non-compliance declaration has been made and whether or not the suspension, reduction or imposition is recommended by the Advisory Committee
Section 83G of the Act requires the Minister to give notice of the recommendation of the Advisory Committee relating to the for profit or non-compliance declarations and deals with the administrative review process of the same. It provides:
83G Notice of recommendation of Advisory Committee relating to for profit declarations and administrative review by Tribunal
The Minister is not to make a for profit declaration or a non compliance declaration in respect of a school unless the Minister has given written notice to the school and to the proprietor of the school setting out the relevant recommendation of the Advisory Committee and unless
(a) 30 days have elapsed since the notice was given and no application has been made to the Tribunal for administrative review of the recommendation, or
(b) the Tribunal has determined an application for administrative review (made within those 30 days) of the recommendation and the Minister has considered any contrary recommendation of the Tribunal and the reasons for it, or
(c) any such application for administrative review of the recommendation has been withdrawn
Section 83H of the Act empowers the Minister to carry out investigations if it is suspected that the School is operating for profit, or may be non-compliant.
Section 83J of the Act empowers the Minister to recover amounts of any financial assistance provided to or for the benefit of the school where it was provided during a period when the school operated for profit or was non-compliant. It provides:
83J Recovery of amounts from schools
(1) The Minister may recover the amount of any financial assistance provided by the Minister to or for the benefit of a school (whether under this Division or otherwise) if the financial assistance was provided in respect of a period when the school operated for profit or was a non compliant school
(2) Any amount of costs under section 83I(3) that is not paid by a school or the proprietor of a school may be recovered by the Minister as if it were financial assistance provided under this Division to the school when the school was a non-compliant school
(3) The Minister may recover an amount under this section
(a) as a debt in a court of competent jurisdiction, or
(b) by reducing future amounts of financial assistance payable by the Minister to or for the benefit of the school concerned, or both
(4) A school, the proprietor of a school and any system of non-government schools to which an amount recoverable under this section (or part of the amount) was paid are jointly and severally liable for repayment of the amount.
[3]
The application for review
Section 107(1)(e2) of the Act provides that an application may be made to this Tribunal for administrative review under the Administrative Decisions Review Act 1997 (NSW) (ADR Act) of a recommendation of the Advisory Committee under Division 3 of Part 7 of the Act that the Minister make a for profit declaration or a non-compliance declaration in respect of a school (including a recommendation on any consequent suspension or reduction of, or imposition of conditions on, the provision of financial assistance).
On an application for review of a recommendation, the Tribunal may confirm the recommendation or make a different recommendation to the Minister concerning the subject matter of the application: s 108(1)(a) and s 108(1)(b) of the Act. There is no power to remit the decision to the decision-maker (cf ss 63 and 65 of the ADR Act).
The Internal Review was made pursuant to s 53 of the ADR Act. An application may be made to the Tribunal for review of a decision once the internal review has been finalized: s 55 of the ADR Act.
The School seeks review both of determinations made by the Advisory Committee in a decision dated 1 June 2017, which were confirmed on review on 13 July 2017, that in the 2014 and 2015 calendar years the School operated 'for profit' within the meaning of s 21A (now repealed) and s 83C of the Act, and of the recommendation made to the Minister that 'non-compliance' declarations be made pursuant to ss 83E(3) and 83F of the Act. The School also seeks review of other recommendations made in the decision under review, and these are discussed separately.
At the hearing, evidence was given by Dr John Bennett, Chair of the Board of the School from April 2016, Mr Aiyub Ahmed, Deputy Principal of the School since 2012, and Ms Elizabeth Crouch AM, Chairperson of the Advisory Committee. In addition to their oral evidence, each had provided affidavits, which they adopted in their evidence. The parties also provided detailed submissions articulating their respective positions.
[4]
Issues for the Tribunal
The Tribunal is to make its own decision and there is no presumption that the Respondent's decision is correct: McDonald v Director-General of Social Security [1984] FCA 57. The question for determination by the Tribunal in an administrative review is whether the decision under review was the correct or preferable one on the material before the Tribunal: Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577at 589.
Simply put, the issues for the Tribunal in this matter are:
Did the School operate other than on a not for-profit basis during the 2014 and 2015 calendar years?
If so, what are the appropriate recommendations arising out of the School's failure to comply with its not for-profit obligations?
Overall, there was little dispute as to the facts. Where there were factual disputes, those matters are specifically mentioned.
[5]
Did the School operate other than on a not for-profit basis during the 2014 and 2015 calendar years?
Six findings were made by the Advisory Committee that the School had operated for profit in the 2014 and 2015 calendar years, which may be summarised as follows:
Payments to Agim Garana that were not required in relation to the running of the School and/or were above reasonable market value (Garana Payments) 2014 $217,813.52
2015 $194,480.00
Payments to Amjad Mehboob through Casifarm Pty Ltd that were not required in relation to the running of the School and/or were above reasonable market value (Mehboob Payments) 2014 $188,265.00
2015 $148,080.00
Payments made to AFIC in connection with the lease of the school site at 405 Waterloo Road, Greenacre NSW 2190 which was leased at above reasonable market value (Greenacre Rent Payments) 2014 $500,000.00
2015 $1,500 000.00
Payment made to AFIC in connection with the lease of the school site at 20-36 Mungerie Road, Beaumont Hills NSW 2155 which was leased at above reasonable market value (Beaumont Hills Rent Payments) 2014 $61,380.80
The School, in extending an interest free loan from the School to AFIC with no repayment date (and failing to call on that debt), utilised assets for a purpose other than the operation of the School (AFIC Loan Payments) 2015 $1,420,000.00
Payments made to Board members that were not in connection with the recipients' activities as a member of the governing body of the School (Board Member Payments) 2014 $5,438.30
[6]
The Applicant challenges each of the findings. In summary, the Applicant submitted that there was no basis, or alternatively there is no longer any basis, for the 'for profit' findings in respect of the Greenacre Rent Payments, the Beaumont Hills Rent Payments, the AFIC Loan Payments, the Garana Payments and the Mehboob Payments.
In respect of the remaining matter, Board Member Payments, the School claimed there was evidence which justifies all but $2,200 of the payments made to Board Members in the 2014 calendar year. Therefore, it was submitted, there should be only one 'for profit' finding - in respect of the Board Member Payments, in the amount of $2,200 in the 2014 calendar year.
The Applicant noted that the judgment in the Supreme Court proceedings was handed down after the decisions by the Advisory Committee and the Internal Reviewer, and, consequently, the findings and Orders were not the subject of any consideration by the original decision-maker nor in the course of the internal review. The Applicant submitted that the Tribunal is required to take into account the findings and orders made in the Supreme Court proceedings in relation to the Greenacre Rent Payments, the Beaumont Hills Rent Payments and the AFIC Loan Payments in deciding what is the correct or preferable decision: see Shi v Migration Agents Registration Authority (2008) 235 CLR286 (Shi).
It is a long-stablished principle enunciated in Drake v Minister for Immigration and Ethnic Affairs 1979) 24 ALR 577 (Drake), at [589] per Bowen CJ and Deane J that:
The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him. The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal.
It is then not a matter of whether the Advisory Committee made the correct or preferable decision on the material before it, but whether that decision was the correct or preferable one on the material before the Tribunal. Consequently, the lengthy cross examination of Ms Crouch about the decision-making process adopted by the Advisory Committee in relation to the School did not advance consideration of the matter before me.
In Shi, at [99], Hayne and Heydon JJ discussed when departure from the general principle outlined in Drake would be appropriate:
Once it is accepted that the Tribunal is not confined to the record before the primary decision-maker, it follows that, unless there is some statutory basis for confining that further material to such as would bear upon circumstances as they existed at the time of the initial decision, the material before the Tribunal will include information about conduct and events that occurred after the decision under review. If there is any such statutory limitation, it would be found in the legislation which empowered the primary decision-maker to act ….
Kirby J was of a similar view, at [44]:
Sometimes, it may be inherent in the nature of a particular decision that review of that decision is confined to identified past events. If, for example, under federal legislation, a pension is payable at fortnightly rests, by reference to particular qualifications that may themselves alter over time, a "review" of an administrative "decision" to grant or refuse such a pension, by reference to statutory qualifications, may necessarily be limited to the facts at the particular time of the decision.
In Shi the Court found that nothing in the provisions of the Migration Act fixed a particular time as the point at which a migration agent's fitness to provide immigration assistance was to be assessed. This is in contrast to some legislation - eg those in relation to pension entitlements, in which the critical statutory question is whether a criterion was or was not met at a particular date, such as the date of cancellation of entitlements. The Court held that the Administrative Appeals Tribunal therefore was to review a decision made under s 303 of the Migration Act according to the state of affairs as they existed at the time the Tribunal makes its decision.
Kirby J also made observations at [48] in relation to the legislative requirements in that matter where there was to be consideration of a number of matters (eg whether a person "becomes bankrupt", or "is a person of integrity"), each of which is expressed in the present tense. In those circumstances, the language in the relevant section of the Migration Act clearly contemplated the possibility that circumstances may change between an initial decision and a subsequent decision of the review Tribunal.
Section 83C of the Act is also couched in the present tense, namely that the Minister must not provide financial assistance to a school that operates for profit. The former s 21A of the Act was in similar terms. It seems to me though that those sections provide a simple exhortation to the Minister about the circumstances in which a school is to be precluded from funding with respect to a given year. Importantly, s 83D and 83E, in permitting the Minister to declare that a school has operated for profit, anticipates that a finding may be made on the basis of conduct in the past.
The present matter is somewhat analogous to the circumstances of the examples provided by the High Court. The payment of funding to a non-government school is made on an annual basis, subject to the condition that the school should not operate or, (having regard to s 83D), have operated, on a for-profit basis. That is a question of fact. A review of the decision to determine eligibility for funding on a year-by-year basis, is, in my view, limited to the facts at the particular time of the decision, in accordance with the outcome from the example discussed by the High Court.
With this in mind, each of the "for profit" findings is discussed below.
[7]
The Greenacre Rent Payments
The Advisory Committee determined that rent payments made by the School to AFIC under the terms of the lease of the Greenacre property were above reasonable market value having regard to, inter alia, the various rental valuations undertaken in relation to the Greenacre property since 2012. Therefore, the Advisory Committee determined that, in 2014, the payments did not comply with s 21A(3)(c) of the Act, because the payments were not payments in connection with the provision of property in relation to the running of the school "at no more than reasonable market value".
The School did not challenge the Advisory Committee's findings that the rent payable under the lease of the Greenacre Property - a total of $2 million - had been above market value.
However, the School submitted that, as a result of the orders made in the Supreme Court proceedings, it is no longer the case that the rent payable under the lease of the Greenacre property is above reasonable market value, and, furthermore, AFIC has repaid to the School any rent that the School paid in the 2014 and 2015 calendar years that was above reasonable market value.
AFIC was ordered to refund to the School the difference between the rent paid on the Greenacre property since 2013, and the rent that would have been paid since 2013 if the rent had been set at the current market rent (on an unimproved basis). AFIC was also ordered to vary the lease of the Greenacre property to make it clear that any rent review under the lease is to be determined as market rent on an unimproved basis.
The Applicant submitted that the orders of the Supreme Court in respect of the lease of the Greenacre property have retrospective effect. As a result of those orders, the rent to be paid for the 2014 and 2015 calendar years, and which was in fact paid, was adjusted to current market rent on an unimproved basis ("market rent"). The amount of rent above the market rent initially paid by the Applicant in the 2014 and 2015 calendar years was refunded to the Applicant. Therefore, the rent paid by the School in respect of the Greenacre property in the 2014 and 2015 calendar years was, in actual fact, it submitted, the market rent.
There was no dispute that the orders of the Supreme Court have been implemented. However, the Respondent submitted, and I agree, that does not mean that the rent payments made by the School under the terms of the lease of the Greenacre property satisfied former s 21A(3)(c) (for 2014) or s 83C(2)(b)(i) (for 2015) of the Act. That is, subsequent rectification does not mean that the School did not operate for profit in the 2014 and 2015 calendar years with respect to the Greenacre property. The Applicant did not challenge the Advisory Committee's findings that the payment of $2 million in rent was above market value, only that, as a result of the orders made in the Supreme Court proceedings, it is no longer the case that the rent payable under the lease of the Greenacre property is above reasonable market value. It does not alter the fact that above market rent was paid, during 2014 and 2015, contrary to s 21A(3)(c) (for 2014) or s 83C(2)(b)(i) (for 2015).
The "for profit" finding in respect of the Greenacre Rent Payments is confirmed.
[8]
The Beaumont Hills Rent Payments
The Advisory Committee determined that payments made to AFIC in connection with the lease of the Beaumont Hills property, which totalled $61,380.80 for the period 1 January 2014 to 31 December 2014, were above reasonable market value.
The Applicant claimed that the payment was made by the School in error. As detailed in the Advisory Committee's reasons for decision, in 2011 the School was invoiced for 7 years' rent payable under the lease of the Beaumont Hills property, totalling $10,281,015.40, which included an increase in the rent of 3% per year. However, in 2014, AFIC issued the School with an invoice for $61,630.80 for "2012 Beaumont Hills rental CPI" and "2013 Beaumont Hills rental CPI". The School paid this invoice in full on 23 May 2014. On the basis of these facts, the Advisory Committee determined that the payment of $61,630.80 contravened s 21A of the Act.
Once again, the School did not challenge the findings that the amount of $61,630.80 paid in respect of the lease of the Beaumont Hills Property had been above market value.
The School submitted that this finding should be set aside in light of the orders made in the Supreme Court proceedings, pursuant to which AFIC was ordered to transfer the ownership of the Beaumont Hills property to the School for consideration of $1.00. That order has since been implemented by the parties and the School is now the registered proprietor of the Beaumont Hills Property, which was valued at $12,204,000 as at January 2011 (for land only) and at $20,340,000 as at October 2017 (for land only). Payments made to AFIC by the School to 'acquire' ownership of the Beaumont Hills property totalled $10,342,646 20 (comprised of the amounts of $10,281,015.40 paid in 2011 and $61,630.80 paid in 2011). Ultimately, following the Supreme Court proceedings, it appears, the School acquired the Beaumont Hills property from AFIC for less than its market value.
Therefore, it was submitted by the School, the Tribunal should find that the payment of $61,630.80 made by the School in the 2014 calendar year did not contravene s 21A of the Act, on the basis that the payment comprised part of the consideration ultimately paid to AFIC by the School to acquire ownership of the Beaumont Hills property.
I agree with the Respondent's submission that the payments were in fact made in respect of rent payable under the lease. It cannot be said, as the Applicant submitted, that the payments made in 2011 and 2014 were to "acquire" ownership of the Beaumont Hills property, nor that monies were paid "in error"; the property was not 'acquired' as a consequence of those payments, but following the Supreme Court Orders.
The School did not dispute that the payments made in 2014 were above reasonable market value.
The "for profit" finding with respect to the Beaumont Hills Rent Payment is confirmed.
[9]
The AFIC Loan Payments
The Advisory Committee found that the School loaned AFIC the sum of $1.42 million some time prior to 2009, as an interest free loan that was repayable on demand. The Advisory Committee found that the ongoing loan in the period 1 January 2015 to 31 December 2015 was a use of the School's assets for purposes other than the running of the School, within the meaning of s 83C(2)(a) of the Act.
The Applicant submitted that this finding must be re-considered in light of the Supreme Court proceedings, in which Ball J made the following findings in respect of the AFIC Loan:
The AFIC Loan of $1.42 million was comprised of the sum of $710,000 which the School advanced to AFIC to purchase another property for use by the School and the sum of $710,000 which was the GST refund that AFIC had received in respect of the GST paid on the purchase of that property. Subsequently, AFIC made the decision to recognise the sum of $1.42 million as a loan from the School to AFIC.
The School sued AFIC to recover interest on the loan from the time it was advanced in about 2001, as a claim for equitable compensation for breach of fiduciary duty.
The Court held that interest would not be payable on the $710,000 component of the loan, which relates to the refund of GST, on the basis that that sum of money was "a benefit that AFIC chose, for whatever reason, to confer on [the School] in the form of a loan".
The Court held that interest would be payable on the other $710,000 component of the loan that the School advanced to AFIC, but that such a claim was statute-barred because the breach of duty by the directors of the School occurred in 2001 when the loan was advanced on interest free terms, which was more than 6 years prior to the commencement of the proceedings.
However, the Court ordered that the $1.42 million loan be repaid by AFIC, and that interest on that amount be payable on and from 20 July 2016 (being the date that the School demanded repayment of the loan). The Court's orders in respect of the AFIC Loan have since been implemented, with AFIC paying to the School the balance of the loan funds, plus interest, on 23 April 2018.
It was submitted that, given the findings of the Supreme Court and the Orders made, the Tribunal should set aside the Advisory Committee's finding that in extending an interest free loan to AFIC (in the amount of $1,420,000 in the 2015 calendar year), with no repayment date, (and failing to call on the debt), the School utilised assets for a purpose other than the operation of the School.
The Respondent submitted, and I agree, that subsequent repayment of the loan following the Supreme Court Orders does not exonerate the School from the fact that it facilitated an interest free loan to AFIC. In fact, Ball J specifically found that the decision of the School's board to provide AFIC with a loan on such terms was not in the School's interests.
In the alternative, the Applicant submitted, that if the Tribunal did not set aside the 'for profit' finding in respect of the AFIC Loan Payments, the Tribunal should conclude that the conduct on the part of the School in respect of the AFIC Loan is of a "minor nature" within the meaning of ss 83C(4)(a) and 83E(3)(a) of the Act.
I have found that repayment of the loan following the Court's Order does not negate the conduct of the School in facilitating the loan for a purpose that was not in the School's interest. The School noted that it has been repaid the principal of the loan, in the amount of $1.42 million and claimed that all that the School has lost is the interest due to it on the sum of $710,000 payable for the 2014 and 2015 calendar years. In its submissions the School conceded that it had lost the use of the money in 2015. I do not accept that the conduct is properly characterised as being of a "minor nature".
The "for profit" finding in respect of the AFIC Loan Payments is confirmed.
[10]
The Garana Payments
In 2013, Agim Garana was appointed as the Business Manager/Bursar of the School for a 5-year period. His employment as Business Manager was terminated in October 2015.
The Advisory Committee determined that payments made to Mr Garana, which totalled $217,813.52 during 2014 and $194,480.00 in 2015, were not required in relation to the running of the School and/or were above reasonable market value.
As to whether Mr Garana's services were required in relation to the running of the School, the School relied on Dr Bennett's evidence that his services were "plainly required" for the running of the School, given the number of students (1800 at the time) and the fact that it operated three campuses. In Dr Bennett's experience, a private school of the size of the School would "always" employ a Business Manager/Bursar, in particular to manage the school's finances and the collection of school fees. Further, it was submitted that the necessity to employ a Business Manager/Bursar is highlighted by the fact that the School has continued to employ a Business Manager/Bursar after Mr Garana left his position in October 2015. While the Respondent contended the assertion that the School would always employ, and has since employed, a Business Manager/Bursar was irrelevant, I do not agree. More relevant though to the question of whether the work was required in relation to the running of the School, is what duties were undertaken by Mr Garana.
Mr Ahmed gave evidence that, as the Business Manager/Bursar, Mr Garana's duties included:
Overseeing the School's finances and approving expenditures;
Managing the School's financial accounts and budgets, including audits;
Engaging and corresponding with the School's solicitors;
Implementing an internal control system for cash handling at the Uniform Shop, Canteen and for excursions,
Interviewing and hiring teachers, administration staff and maintenance staff;
Negotiating and finalising teachers' contracts;
Supervising and managing staff members in administration, maintenance, accounts, and IT, across the three campuses; and
Collecting outstanding debts from parents
It was unclear to me how Mr Ahmed would have such a detailed knowledge of Mr Garana's responsibilities, given his role as Deputy Principal heading up, since 2004, the HSIE Department of the School. While he said in his affidavit that he had "various interactions" with Mr Garana, this does not explain his purported detailed knowledge of the work undertaken. I accept though that on most days he had the opportunity to observe, Mr Garana's daily attendance at the school from 0900 to 1700, as he and Mr Garana were based in the same building with adjacent offices. In cross examination he conceded that he did not know what Mr Garana did on a daily basis, but did know that Mr Garana did some accounting activities because he was a qualified accountant. Relevantly, it appeared to me, he said the School had no other accountant. He would have discussions with Mr Garana about the appointment of new staff, as Mr Garana would have to approve the salary packages. He recalled discussions about the Uniform Shop. He regarded Mr Garana as having made a "great contribution" to the School as Business Manager, but I place little weight on this observation.
The Respondent pointed out that Mr Garana's invoices did not record the "specific details of work performed" by him for the School. However, as far as I could see there was no contention that Mr Garana did not provide the services for which he had been contracted. Certainly, there was no evidence that he did not perform the role for which he was contracted. I accept that the duties/tasks performed by Mr Garana were services for the running or operation of the School.
As to whether the payments to Mr Garana were unreasonable, the Respondent had made a number of observations in its preliminary findings, which in turn had relied on the findings in the report from Deloittes dated 6 October 2015 and the report of Grant Thornton dated 5 July 2016. In particular, it appears that Mr Garana was paid GST for his services in circumstances where, according to his contract of employment, he was engaged as an employee, and hence not entitled to GST. On the other hand, if Mr Garana was employed as a contractor, he would not have been entitled to the payment of annual leave, as he had claimed and was paid. Clearly, he was not entitled to both GST and annual leave. In that respect, at least, there was an overpayment to Mr Garana. It appears that the GST claimed by Mr Garana in 2014 and 2015 totalled $37,481.52, and the annual leave entitlements claimed by Mr Garana in 2014 and 2015 totalled $29,920. To that extent, the payments made to him, in respect of either GST or annual leave, were unreasonable.
As to whether other payments made to Mr Garana were at "no more than reasonable market value", the School relied on the 2016 Association of School Bursars and Administrators (ABSA) salary survey which indicates that the average salary for the Business Manager/Bursar as at 2016 was $221,000 for a similar-sized school. Also, the School pays its current Business Manager/Bursar a salary of $250,000 per annum. I accept that payments of $217,813.52 during 2014 and $194,480.00 in 2015 (less $37,481.52 for GST), were not unreasonable, in the absence of evidence that the work was not in fact performed.
Therefore I find that the remuneration paid to Mr Garana in the relevant period was not above market value or otherwise unreasonable (other than as to the payment of GST or annual leave). However, the finding in relation to that matter, in itself, constitutes a finding of the School having operated 'for profit' with respect to Mr Garana, having paid him either GST or annual leave to which he was not entitled.
[11]
The Mehboob Payments
Amjad Mehboob was engaged by the School through his company Casifarm Pty Ltd (Casifarm) to provide procurement, maintenance and project management services to the School in the period 2013 to 2015. At the time, the School was undertaking a number of construction projects at its campuses. Amounts totalling $188,265 were paid to Casifarm during 2014, and $148,080 during 2015. The Advisory Committee found that the payments to Casifarm were not required in relation to the running of the School and/or were above reasonable market value.
It was submitted by the Applicant that the Tribunal should find that the Mehboob payments were reasonably required in relation to the running of the School on the basis that Mr Mehboob was employed as the School's Procurement/Maintenance Manager during the 2014 and 2015 calendar years and that at the time of Mr Mehboob's employment, the School was undertaking a number of building and construction projects across its three campuses.
The Report of Grant Thornton dated 4 March 2016 commissioned by the School referred, at 10.4.3, to Mr Mehboob (through Casifarm)
having been engaged to provide capital project management services through the AFIC service (sic) agreement, whereby (sic) there was insufficient evidence to determine the exact nature of the services, and whether payment was above market value.
Amongst the thousands of pages which comprised the s 58 documents, the AFIC services agreement dated 29 August 2009 consisted of an extremely brief agreement (comprising 3 pages including cover and execution pages) about the provision of services by AFIC to the School in the most general terms. There was nothing about Mr Mehboob, nor his company, nor anything about the provision of procurement, maintenance and project management services to the School at all. (Mr Mehboob appears to have witnessed the signature of the School's Authorised Officer).
In fact, there was a later service contract between the School and Carisfarm, which, according to the Grant Thornton report of 5 July 2016, the company was engaged from 1 January 2013 @$75 plus GST per hour, which, equated to $156,000 for a 40 hour week, plus superannuation (although it is unclear how GST and superannuation would both be payable). If either GST or superannuation (at, say, 10%) was payable under the contract the total would be approximately $171,600.
Mr Ahmed gave evidence that Mr Mehboob's duties included;
Hiring and managing labourers;
Supervising construction of the Hoxton Park campus,
Supervising construction of the Beaumont Hills campus,
Negotiating cleaning contracts for all 3 campuses, purchasing cleaning supplies, and ensuring compliance with the cleaning contracts,
Negotiating security contracts for all 3 campuses and ensuring compliance,
Ordering school furniture, copiers, and other fittings and equipment as required;
Meeting and working with builders and tradespeople to fit out new buildings, and visiting campuses for job inspections, and
Maintenance of all campuses, including painting, tiling, gardening and landscaping, rubbish removal, electrical, door handling, plumbing, and obtaining quotes from tradespeople.
These types of building, maintenance and cleaning tasks, it was claimed, are routinely required to be performed at schools. Indeed, the School now employs a Facilities Manager on a contract of $125,000 per annum to perform such tasks.
According to Mr Ahmed, he saw Mr Mehboob at work almost daily between about 1000 and 1730. Although there were 3 campuses, Mr Mehboob attended at the same campus as Mr Ahmed either in the morning or in the afternoon, sharing an office with Mr Garana. Mr Ahmed observed that during 2014 and 2015 the School was undertaking major construction works. He thought Mr Mehboob was the ideal person to be engaged as the Projects Manager because he had a long history with the School, including having been the School's architect.
The School submitted that the Tribunal should find that the employment of Mr Mehboob as the School's Procurement/Maintenance manager during the 2014 and 2015 calendar years was reasonably required for the running of the School.
I could locate no evidence that suggested the duties of Procurement/Maintenance manager were not required by the School during the relevant period. I accept that the School was undertaking a number of building and construction projects across its three campuses at the time, and Mr Ahmed's evidence that Mr Mehboob worked full time during the relevant period, carrying out various building, maintenance and cleaning duties that are routinely required to be performed at schools. It is unsurprising that the School subsequently employed a Facilities Manager on a contract of $125,000 per annum.
Indeed, the preliminary findings of the Advisory Committee did not appear to address whether the work was required or if the work was done. I accept the role of School's Procurement/Maintenance manager during the 2014 and 2015 calendar years was reasonably required for the running of the School.
Further, the School submitted that the Tribunal should also find that the amounts paid to Mr Mehboob through his company Casifarm were not above market value. As noted above, these amounts totalled $188,265 in 2014 and $148,080 in 2015. The Applicant relied on a comparison, that in late 2016, after Mr Mehboob left, the School employed a Facilities Manager on a salary package of $125,000 per annum and that the School is currently seeking to employ a Project Manager, and has allowed for a salary package for that role of up to $170,000 per annum - in total, $295,000 for the two roles. These comparisons do not necessarily assist in ascertaining the market value of the services provided by Mr Mehboob in the 2014 and 2015 calendar years, but do serve to show that, only 4 years on, the growing School now requires the services of both a Facilities Manager and a Project Manager. I accept that it is likely that in 2014 and 2015 the services of Procurement/Maintenance manager was entirely reasonable and that payments to Mr Mehboob/Casifarm of $188,265 during 2014, and $148,080 were only marginally higher than what was subsequently paid to a person performing only some of the duties, and short of what is now to be paid to the 2 people who have taken over what was formerly the combined role.
[12]
The Board Member Payments
In respect of the Board Member Payments, the Advisory Committee found that the following payments, totalling $5,438.30, were made to members of the School's Board during 2014 which did not comply with s 21A of the Act:
a payment of $1,772.50 made to Hafez Kassem on 1 May 2014 in circumstances where he sought reimbursement for expenses of $1,460.52 with supporting documentation;
a payment of $1,670.95 made to Abdul Kader Chafie on 3 April 2014 in circumstances where he sought reimbursement for $400 for "Attendance of meeting" without supporting documentation; and
a payment of $1,994.85 made to Abdul Kader Chafie on 23 June 2014 in circumstances where he sought reimbursement for $400 for "Attendance of meeting & Review" without supporting documentation.
The Respondent contended though that it had relied only on these matters raised in the Advisory Committee's preliminary findings as ones which the Advisory Committee considered it had strong evidence of payment.
Section 21A(3)(a) provided that a non-government school is not taken to operate at a profit just because of any payment that its proprietor makes in connection with a person's activities as a member of the governing body of the school, being a payment made by way of an honorarium or as reimbursement for out-of-pocket expenses.
According to Dr Bennett, In February 2018, the School's then Business Manager, Ben Marsh, performed a reconciliation of the Board's expenses for the 2014 and 2015 calendar years. That reconciliation found that the School held supporting documentation for all expenses claimed by Board Members for the 2014 and 2015 calendar years except for three petty cash reimbursement claims totalling $2,200, which were recorded in the Board expenses account as follows: $1,000 claimed on 8 February 2014; $400 claimed on 28 March 2014; and $800 claimed on 23 July 2014. The Respondent was critical of the reconciliation as being 'unverified', but there was no cross-examination of Dr Bennett in relation to the reconciliation.
In light of the reconciliation of the Board expenses, the School accepted that it held no supporting documents for amounts totalling $2,200 paid out by the School in the 2014 calendar year as purported Board expenses. It was also submitted by the School that, it does not follow that those amounts were not properly paid out by the School to reimburse Board members for expenses properly incurred; rather, that the School's records are inadequate to establish that fact. I do not accept this contention. The Applicant simply cannot have it both ways - it relies on Mr Marsh's reconciliation to explain some of the Board payments which were of concern to the Advisory Committee, but where Mr Marsh was unable to find supporting material, asks the Tribunal to assume that the payments were legitimate nonetheless. The Applicant also relied on the fact that the members of the Board as at 2014 no longer have any association with the School, but this is an irrelevant consideration.
It was also contended on the Applicant's behalf that in reaching a view that the conduct was of a "minor nature" within the meaning of ss 83C(4)(a) and 83E(3)(a) of the Act I should take into account that the breach occurred under the previous management of the School and the management of the School has since been overhauled to improve the School's governance. The characterisation of the breach is an issue, however, which in my view, is independent of who is now running the School.
I accept that, given that the amount in issue is $2,200, it is open to the Tribunal, as was submitted, to conclude that the conduct on the part of the School in respect of the Board Member Payments is of a "minor nature" within the meaning of ss 83C(4)(a) and 83E(3)(a) of the Act.
I accept that the breach with respect to Board Member Payments was of a "minor nature" within the meaning of s 83E(3) of the Act, and should be disregarded.
[13]
Conclusion as to whether the School operated 'for profit' during 2014 and 2015
In summary therefore, I find that payments were made:
In the 2014-2015 calendar years in the amount of $2,000,000 in connection with the lease of the school site at Greenacre, which was leased at above reasonable market value;
payments were made in the 2014 calendar year in the amount of $61,380.80 in connection with the lease of the school site at Beaumont Hills, which was leased at above reasonable market value;
the School, in extending an interest free loan from MFIS to AFIC in the 2015 calendar year in the amount of $1,420,000 with no repayment date, and failing to call on that debt, utilised assets for a purpose other than the operation of the School;
payments to Mr Garana for GST were for a purpose other than the operation of the School
payments made to Mr Mehboob/Casifarm for sick leave and vehicle expenses were for a purpose other than the operation of the School
an amount of $2,200 paid to Board members is of a "minor nature" within the meaning of ss 83C(4)(a) and 83E(3)(a) of the Act.
In summary, therefore, the result of the above findings remains that the School operated for profit during the 2014 and 2015 years.
[14]
What are the appropriate recommendations arising out of the School's failure to comply with its not for-profit obligations?
In light of its findings that the School operated for profit in the 2014 and 2015 calendar years, the Advisory Committee made the following recommendations to the Minister (which were confirmed on internal review):
1. All financial assistance to the School be suspended until the School provides evidence to the Minister that satisfies the Minister that the School:
1. has received payment from AFIC for all funds loaned by the School to AFIC and that the loan agreement, in whatever form, is terminated, and
2. is released from all ongoing financial support provided to AFIC that is beyond reasonable market value, whether by way of direct payment or guarantee, for property, goods or services that are required for the operation of the School; and
3. is released from all ongoing financial liability to AFIC that is beyond reasonable market value, whether by way of direct payment or guarantee, for property, goods or services that are required for the operation of the School;
4. has renegotiated, executed and registered the leases of properties owned or controlled by AFIC at a rental that is reasonable market value for the unimproved value of the land,
5. has established and implemented governance arrangements to the satisfaction of the NSW Education Standards Authority;
6. has established and implemented governance arrangements to ensure that no part of its proprietor's assets (so far as they relate to the School) or its proprietor's income (in so far as it arises from the operation of the School) is used for any purpose other than for the operation of the School; and
7. has established and implemented governance arrangements that ensure that all payments by the School are only for property, goods or services required for the operation of the School and at no more than reasonable market value.
1. the amount of $11,065,583.69 paid to the School by the NSW Department of Education in 2014 and 2015 be repaid (following the lifting of the suspension from the financial assistance which would otherwise be payable to the School) by reducing the amount that would otherwise be payable to the School by 50% until the amount is fully recovered.
2. if the suspension from financial assistance is not removed by 1 March 2020, regardless of whether or not the conditions on the suspension are subsequently met, the amount of $11,065,583.69 previously paid to the School in 2014 and 2015 be repaid by the School in full prior to the resumption of financial assistance.
The Respondent did not appear to take issue with the significant reforms which the School has undertaken, which are discussed below, and, it appears, the reforms were necessary to obtain ongoing funding, and may have been implemented to the Respondent's satisfaction. Similarly, it may also be that, as a result of the Supreme Court Orders which post-dated the original decision and the decision under review, some of the recommendations noted at paragraph 92(1)(a)-(g) above may be no longer applicable.
The relevant provisions of Part 7, Division 3 of the Act are set out above. Subsection 83C(1) (and the former s 21A) provides that the Minister must not provide financial assistance to or for the benefit of a school that operates for profit. The Respondent's position was that the whole of the funding for 2104 and 2015 should be repaid because both the former s 21A(1) and, currently, s 83C(1) of the Act impose a duty on the Minister not to provide financial assistance "to or for the benefit of a [non-government] school that operates for profit".
Section 83C(4) provides, though, that the Minister is not obliged to terminate the provision of financial assistance to a school because of s 83C if, following an investigation, the Minister is satisfied that termination of financial assistance is not justified because of the minor nature of the relevant conduct. The Minister is also not obliged to terminate the provision of financial assistance if, following an investigation, more appropriate action can be taken under s 83E of the Act.
Section 83E(1) allows the Minister to apply, in limited circumstances, what was described in the Second Reading Speech of the Education Amendment (Not-for-Profit Non-Government School Funding) Bill 2014 (NSW) (15 October 2014) (the Second Reading Speech) as 'graduated responses'. Section 83E(1) confers wide powers on the Minister as to the actions to be taken where a school has received financial assistance during a period that the school is non-compliant - funding may be suspended, reduced or conditions imposed on the provision of financial assistance to or for the benefit of a non-compliant school. The School submitted that no recommendations should be made to suspend, reduce or impose conditions on the provision of financial assistance to the School, firstly, on the basis that any misappropriation of the assets or income of the School on 'for profit' activities was of a minor nature. I have found that that multiple activities caused the School to have operated on a 'for profit' basis during 2014 and 2015 and that, overall, the 'for profit' activities were not of a minor nature.
The Advisory Committee's recommendation was to suspend financial assistance on conditions, and to reduce the amount of assistance otherwise payable until the School repaid the amount of financial assistance paid in the 2014 and 2015 calendar years, on the basis that "more appropriate action" could be taken under ss 83E(2) and 83F. The Applicant submitted that the Tribunal, standing in the shoes of the Advisory Committee, has equally wide discretion as to the recommendations to make to the Minister in circumstances where the Tribunal is satisfied that a school has received financial assistance during a period that it is non-compliant.
I observe that, because s 83E(4)provides that, if a school ceases to be non-compliant, the school is not entitled to any payment that was not made because it was a non-compliant school, it is clear to me that subsequent rectification does not alter the position that there is a general expectation that funds paid to a school while it was non-compliant will be repayable.
The Applicant submitted that, in the absence of a finding that the transgressions were only minor in nature, the amount to be repaid should be limited to the amount found by the Tribunal to have been spent on 'for profit' activities. The obligation not to provide financial assistance to or for the benefit of a school that operates for profit, the Respondent submitted, is not predicated on the extent to which a school operates for profit. I agree with the Respondent's submission that, as the School has been found to have been operating for profit, the Minister has a positive obligation not to provide financial assistance to it at all.
The Tribunal, the School submitted, should "maintain balance" between the orders it makes and the purpose for which the powers have been conferred by the Act. "In plain English [proportionality] means 'You must not use a steam hammer to crack a nut, if a nut cracker would do'.": in R v Goldstein [1983] 1 WLR 151 at 155; [1983] 1 All ER 434 per Lord Diplock at 436; see also Abernethy v Deitz (1996) 39 NSWLR 701 and Minister for Urban Affairs and Planning v Rosemount Estates Pty Lid (1996) 91 LGERA 31.
Similarly, it was also submitted by the Applicant that requiring the School to repay of the whole of the funding it was paid by the State in the 2014 and 2015 calendar years would be entirely "disproportionate". The Respondent submitted, and I agree, that to require the School to repay only that amount of financial assistance that was used for profit, would provide little, if any, incentive to schools not to engage in for profit activity; the central objective of the funding provisions of the Act is to ensure that schools must only utilise their resources to further their educational aims.
In the Second Reading Speech an 'important principle' was said to be that if a school was found to have operated for profit, it is reasonable that it should repay the public finds received while the school was in breach of funding conditions. There is a community expectation that public funding provided during a period when a school was later found to be ineligible for funding will be recovered and returned to the taxpayers.
The Minister may recover any financial assistance provided by the Minister to or for the benefit of a school if the financial assistance was provided in respect of a period when the school operated for profit or was a non-compliant school: s83J(1). That amount may be recovered as a debt, or by reducing future amounts of financial assistance payable by the Minister to or for the benefit of the school concerned, or both: s 83J(3). Section 83J of the Act, the Applicant contended, makes it clear that the Minister has a discretion whether or not, and to what extent, to recover financial assistance previously paid to a school where a school is found to have been operating for profit or was a non-compliant school. The Applicant contended that, as s 83J of the Act confers an express power to recover amounts of financial assistance previously paid to a school, s 83C(1) should not be interpreted as impliedly imposing an obligation on the Minister to recover those amounts or, further, conferring on the Minister the power to do so: see for example, Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7.
I regard s 83J as indicating the manner in which the previously paid financial assistance is able to be recovered, namely as a debt or by the reduction of future funding; this is not inconsistent with the 83J(1) that the Minister may recover the financial assistance. To suggest this section, in itself provides a discretion whether or not to recover the financial assistance paid while operating 'for profit' would be inconsistent with the direct terms of s 83C that funding must not be provided in those circumstances.
I was referred by the Respondent to the principle in Auckland Harbour Board v The King [1924] AC 318 at 326 (Auckland Harbour Board), as applied by the High Court as being "entrenched in our Constitution by ss.81 and 83", that "no money can be taken out of the consolidated Fund into which the revenues of the State have been paid, except under a distinct authorisation from Parliament itself: Brown v West (1990) 169 CLR 195 at 205 and Pape v Commissioner of Taxation (2009) 238 CLR 1 at [59] (per French CJ). As such, expenditure is limited to that particular purpose, and any payment made without authority is ultra vires: Brown v West at 208-209 and Combet v Commonwealth (2005) 224 CLR 494 at [232]-[236] (Kirby J). Similarly, in Hashish v Minister for Education of Queensland [1998] 2 Qd R 18, to which the Respondent referred, McPherson JA applied the principle in Auckland Harbour Board in that the relevant Minister had a duty not to apply funds that have been appropriated by Parliament to education for any purpose(s) not authorised by the relevant state Act. For the purpose of exercising his statutory powers to conduct schools, the Minister needed access to the consolidated funds of Queensland, which are available only as a result of Parliamentary appropriation. The issue in that matter was the purposes for which appropriated funds may be applied by the Minister. In considering the question of whether a payment made is within the limits of the statutory authority, his Honour concluded that the result in Auckland Harbour Board (namely, that a payment out of consolidated funds without Parliamentary authority is illegal and ultra vires, and so may be recovered by the government) would follow if, after funds have been validly appropriated, the money was then applied to a purpose not authorised by statute (at 28).
On the basis of the principle in Auckland Harbour Board, and in the particular statutory context, it follows that, insofar as State funding is provided to a school that operates for profit (i.e. in that applies any income for profit), then the funding to that School is made without Parliamentary authority, and, as such, may be recovered by the government, by the means outlined in s 83J.
It was also submitted by the Applicant that having to pay the whole amount back to the government would likely have very significant negative consequences for the School and its students. Dr Bennett gave evidence that, by his calculations, the recommendation which proposes a cut to the School's funding would need to be funded by a 45% increase in fees. Having said that, he noted that the School proposed to increase the number of students. It proposed to upgrade its IT and undertake further building work at two of the campuses at a cost of $7.5 million, although according to the draft profit and loss statement for 2018 the anticipated surplus for 2018 was just over $1 million.
I accept that repayment of more than $11 million may cause some hardship to the present students of the School if fees must be increased. Having said that though, it is clear that the School, in the relevant years, had the benefit of the use of the funds, which, it appears, were at least partially used for the School's expansion. Had those activities been apparent at the time, the School would have been precluded from receiving government funding altogether and, hence, recovery would not have been required: s 83C of the Act.
Much was also made by the School of its governance reforms. Between 1989 and 2016 the School's Board was controlled by AFIC, which had the power to appoint Board members and to approve all Board decisions relating to the School's budget, capital works, borrowings, asset purchases and contractual relations. In March 2016, the School's governance was significantly reformed and the School adopted a new Constitution. All of the then Board members resigned, except for the principal, and were replaced by independent Board Members. The School is now run by an independent Board. AFIC, it was submitted, no longer has any involvement in the governance of the School whatsoever. Certainly, the 2016 Constitution provides that all members of the Board must be independent of AFIC in all respects. The Respondent did not appear to take issue with the significant reforms which the School has undertaken, and it appears, the reforms were necessary to secure ongoing funding. Similarly, as I have discussed, it may also be the case that as a result of the Supreme Court Orders, some of the recommendations noted at paragraph 92(1)(a)-(g) above are no longer applicable. However, the Respondent did not make any concession in this regard and my attention was not specifically brought to the current funding arrangements in terms of ongoing conditions that may apply with respect to current compliance. As the Tribunal is precluded from remitting the matter to the Respondent, for more abundant caution then, I repeat the recommendations made by the Advisory Committee, namely:
1. All financial assistance to the School be suspended until the School provides evidence to the Minister that satisfies the Minister that the School:
1. has received payment from AFIC for all funds loaned by the School to AFIC and that the loan agreement, in whatever form, is terminated, and
2. is released from all ongoing financial support provided to AFIC that is beyond reasonable market value, whether by way of direct payment or guarantee, for property, goods or services that are required for the operation of the School; and
3. is released from all ongoing financial liability to AFIC that is beyond reasonable market value, whether by way of direct payment or guarantee, for property, goods or services that are required for the operation of the School;
4. has renegotiated, executed and registered the leases of properties owned or controlled by AFIC at a rental that is reasonable market value for the unimproved value of the land,
5. has established and implemented governance arrangements to the satisfaction of the NSW Education Standards Authority;
6. has established and implemented governance arrangements to ensure that no part of its proprietor's assets (so far as they relate to the School) or its proprietor's income (in so far as it arises from the operation of the School) is used for any purpose other than for the operation of the School; and
7. has established and implemented governance arrangements that ensure that all payments by the School are only for property, goods or services required for the operation of the School and at no more than reasonable market value.
1. the amount of $11,065,583.69 paid to the School by the NSW Department of Education in 2014 and 2015 be repaid (following the lifting of the suspension from the financial assistance which would otherwise be payable to the School) by reducing the amount that would otherwise be payable to the School by 50% until the amount is fully recovered.
2. if the suspension from financial assistance is not removed by 1 March 2020, regardless of whether or not the conditions on the suspension are subsequently met, the amount of $11,065,583.69 previously paid to the School in 2014 and 2015 be repaid by the School in full prior to the resumption of financial assistance.
Having regard to all the evidence, the correct and preferable decision is to recommend to the NSW Minister for Education that the decision under review be confirmed in accordance with s 108 of the Act.
[15]
Decision
1. In accordance with s 108 of the Education Act 1990 the decision under review is confirmed.
[16]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 September 2019
Parties
Applicant/Plaintiff:
Malek Fahd Islamic School Limited
Respondent/Defendant:
Non-Government Schools Not-For-Profit Advisory Committee, NSW Department of Education
Legislation Cited (3)
Education Amendment (Not-for-profit Non-Government School Funding) Act 2014(NSW)
The Respondent referred, in particular, to payments having been made in 2014 in the nature of sick leave to which Mr Mehboob was not entitled under the service contract, and payments made in 2015 for vehicle expenses to which, it said, Casifarm was not entitled. The Applicant did not deny these assertions, and to the extent that these payments were inappropriately made, this satisfies a finding that, in this respect, the School operated 'for profit'. The Advisory Committee's Preliminary Findings did not quantify those payments, however the Applicant accepted that payments appear to total $3,960. As to the payments for vehicle use in 2015, the Advisory Committee's preliminary findings state the amount was $7,500, and the Applicant did not appear to take issue with amount.
For these reasons, the Advisory Committee's findings in respect of the Mehboob Payments are varied, other than as to $3,960 in 2014 and $7,500 in 2015. To the extent that payment for sick leave and payment for vehicle expenses were inappropriately made, this satisfies a finding that, in this respect, the School operated 'for profit' during 2014 and 2015 with respect to the Mehboob payments. The effect is that this ground is still made out, although on a lesser basis than the Respondent had contended.