Malek Fahd Islamic School Limited v Australian Federation of Islamic Councils Inc

This is a costs application by a successful defendant in proceedings commenced by the first plaintiff, to which the second plaintiff was added on the first return date of the summons. The dispute has its origin in a struggle for control of a school in Sydney’s western suburbs conducted by the first plaintiff. The defendant does not seek costs against either plaintiff – although they could hardly resist such an order – but seeks to invoke the court’s discretion for an order that the plaintiffs’ solicitors pay its costs on an indemnity basis. It contends that the plaintiffs’ solicitors had no authority from the first plaintiff to commence the proceedings.

The application is troubling partly because Mr Kassem, the president of the defendant, deliberately failed to comply with orders of this court made early in the evening on 30 October 2015. If he had obeyed those orders, it is possible that the proceedings may have taken on a different complexion. They may not have continued in any substantial way and the need for this application may not have arisen. To make matters worse, I found Mr Kassem to be an unreliable and unsatisfactory witness, whose evidence before me was patently dissembling.

There are other features of the case that cause me disquiet:

The central event in the narrative occurred in this court on a Friday night in the Duty Judge’s court. Shortly before 7pm on 30 October 2015 Stevenson J made orders that up to and including 5pm on 2 November:

Mr Garana, the first plaintiff’s school bursar and one of its directors, had not been joined as the second plaintiff at that stage. At 7.03pm, Mr Goldrick, the plaintiffs’ solicitor, telephoned Mr Garana to inform him of the court orders. Mr Garana was with Ms Abbas, another director. They were attending a meeting of the executive committee of the defendant by teleconference at which it was proposed that Mr Garana, Ms Abbas and a Mr Kumalic be removed from the school board. Ms Abbas gave the following unchallenged evidence:

Mr Garana gave evidence to the same effect:

Mr Goldrick, who was on speaker phone, but not with Ms Abbas and Mr Garana, corroborated Ms Abbas’ description of the events. He heard her tell the meeting of the court orders a number of times. She kept repeating it and shouting it about six times continually. She called out to Mr Kassem personally and directly. She also called out a couple of other names as well.

I accept the evidence of Ms Abbas, Mr Goldrick and Mr Garana on this issue and prefer it to that of Mr Kassem. Ms Abbas and Mr Goldrick were impressive and reliable witnesses. And I was confident that Mr Garana’s evidence, at least on this issue, should also be accepted without hesitation. The meeting may have been rowdy and the teleconference may have made things difficult, but Ms Abbas struck me as a composed, mature, intelligent and principled woman. I am sure she was determined to convey the news of the court order. And I am certain she did so successfully.

Mr Kassem on the other hand was wholly unpersuasive, particularly on this issue. He insisted implausibly that he did not hear Ms Abbas and did not know what she was talking about. He was alone and isolated in making this assertion. No one else among Mr Kassem’s factional supporters came forward to suggest that they could not hear Ms Abbas. In responding to questions on this issue, and generally in relation to compliance with the court orders made on 30 October, Mr Kassem was argumentative, defensive, evasive and insistent. His explanations were implausible. I thought they were calculated to conceal rather than to reveal the truth.

Mr Kassem went so far as to say that he did not hear one word of what Ms Abbas said to the meeting – not ‘court’, not ‘order’, not ‘Supreme Court’, not even his own name. He said she was ‘shouting and screaming’ but he was chairman of the meeting and he did not ask her why, or what she was seeking to convey. I formed the view that he did not want to know. He was not interested. He was determined to push through the resolution for removal.

The minutes of the meeting, which were approved by Mr Kassem, record that Ms Abbas was present at the meeting and that she rejected the motion for the removal of directors from the school board. Mr Kassem’s position seemed to be that he knew that she was opposed to the motion but was unaware that she informed the meeting of this court’s orders prohibiting the removal of directors from the school board. I am quite satisfied as a matter of fact that he well understood the gist of what Ms Abbas conveyed to the meeting. I am equally satisfied that his evidence on this issue was untruthful.

Mr Kassem’s evidence only became less plausible as he was asked about the next few hours after the meeting. In addition to the statements addressed to him at the meeting by Ms Abbas, he received multiple written notices of the court orders. Yet he denied any knowledge of their receipt at the times recorded on those communications. The notices were as follows:

Mr Kassem carried two mobile telephones. He had them with him at the meeting. He used them for telephoning and text messaging and sent and received most of his email communications on them. I am satisfied that he was adept at their use; that he used them frequently; and that there is no doubt that he received the text and email communications set out above at about the times they were sent. His phones were set up with the usual alert that instantaneously notified him of the receipt of a text message. His position was, for what it is worth, that he did not become aware of the orders of the court until 10pm that night. I regard this evidence as fanciful. His answers during cross-examination on this issue were unsatisfactory and implausible. And his demeanor suggested that he was not telling the truth. As he was gently probed about the unlikelihood of his contention, he became more defensive, increasingly non-responsive and more aggressive.

The meeting apparently ended at 7.10pm. Article 7.3 of the school’s constitution stipulated that the removal of a director would only become effective upon written notification from the defendant to the person concerned. Mr Kassem professed to be familiar with the constitution. He annexed to his first affidavit three letters dated 30 October 2015 which he had signed as president of the defendant. The letters were addressed to each of Mr Garana, Ms Abbas and Mr Kumalic and notified them that the executive committee of the defendant had resolved to withdraw their membership and directorship of the first plaintiff ‘effective 7.10pm Friday 30 October 2015’. Mr Kassem’s affidavit did not reveal when he sent the letters and tended to imply that he had done so on the night of the meeting. However, it was apparent during his cross examination on this issue that he sent the letters on Sunday evening 1 November 2015.

Mr Kassem’s unsatisfactory and evasive evidence on this issue may be explicable because he knew that the despatch of the letters was in breach of the court orders made on 30 October. Even on his own evidence, he was aware of those orders late on the Friday night. The resolutions of 30 October and the written notifications on 1 November also appear to have been in contravention of clause 2.2 of a memorandum of understanding between the first plaintiff and the defendant that had been agreed in October 2012. That memorandum had been signed by Mr Kassem in his capacity as president of the defendant. His response to the suggestion that he knew his actions were in contravention of the memorandum of understanding was spluttering and wholly unconvincing. Some of it was incoherent and untranscribable. He denied that he thought he could ignore the memorandum but contended that it ‘didn’t come to my mind this one’ and that it had not been approved by the defendant. I should observe that there was no corroborative evidence to support Mr Kassem’s contention that the memorandum had not been approved by the defendant.

Mr Kassem took other steps that were in breach of the court orders and apparently in breach of the memorandum of understanding. On the Friday night, after the meeting – when he said he was too busy to look at his emails and did not see the texts and emails advising him of the court orders – he arranged for the completion, signing, scanning and despatch of a notice to the Australian Securities and Investment Commission. The notice informed ASIC that Mr Garana, Ms Abbas, Mr Kumalic and a Mr Khalil ceased to be office holders of the first plaintiff on 30 October. This exercise required him to be on his telephone and using his email, including to one of his associates Mohammad Al-Khaled. I am amply satisfied, even beyond reasonable doubt if it were necessary so to find, that Mr Kassem ignored the court orders knowingly and contumaciously.

I will make findings shortly about the authority of the solicitors to commence the proceedings and about the reasonableness of Mr Goldrick’s conduct in having done so, but Mr Kassem’s deliberate disobedience of the court orders made on 30 October 2015, exacerbated by his untruthful evidence before me, gives rise to a threshold question – namely whether I should hear the defendant or refuse any relief to it, whatever my findings on those matters. In one respect, the question is one of legal principle. In another, it is part of the mix of discretionary factors of which I should take account.

The general principle, including its apparently absolute nature subject to limited exceptions, was stated in Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd [2015] NSWCA 241 at [17]:

The general principle’s underlying policy consideration was explained many years ago in Hadkinson v Hadkinson [1952] P 285 at 288 by Romer LJ (Somervell LJ concurring):

In Permewan Wright Consolidated Pty Ltd v Attorney-General (NSW) (1978) 35 NSWLR 365, the absolute nature of the general principle subject to certain limited exceptions, received the emphatic support of Hutley JA at 369, with whom Mahoney JA agreed at 374. But other judges have not always been so certain: In Kayserian Nominees (No 1) Pty Ltd v J R Garner Pty Ltd [2008] NSWSC 1011 at [3], Brereton J explained:

For my part, I doubt whether there is any binding absolute rule subject only to limited exceptions – especially where what is in issue is a costs application. Much will always depend on the nature of the application and the seriousness of the disobedience, including whether it has impeded the interests of justice. But a costs application involves the exercise of the overlapping statutory discretionary that section 98 of the Civil Procedure Act imposes. I share a natural reluctance to refuse to hear a party, especially on a costs application, unless such a course is compelled by ‘grave considerations of public policy’: Hadkinson v Hadkinson per Denning LJ at 298. In this case, I am prepared to hear the defendant but that will not be enough to salvage its application.

Before continuing, I should make some further observations about the application of the general principle set out in Chamberlain. The first is that it would appear not to be a condition precedent to its application in an appropriate case that there be a finding of criminal contempt or that there be formal proceedings for punishment for contempt. The authorities do not support such an approach: Foster v Australian Competition Consumer Commission [2014] FCA 240 at [19]. Second, absent a prosecution for punishment for contempt, it is not necessary that the contempt be proved beyond reasonable doubt. Proof according to the civil standard is sufficient, although the requirement for a higher degree of satisfaction stipulated in Briginshaw v Briginshaw (1938) 60 CLR 336 is essential: Whitham v Holloway (1995) 183 CLR 525 at 548 per McHugh J. See also Pang v Bydana Holdings Pty Ltd [2011] NSWCA 69 at [72]-[85]; Ronowska v Kus (No 2) [2012] NSWSC 817 at [1]-[4] and Pisano v Dandris [2015] NSWSC 1219 at [21].

An additional question is whether any significance attaches to the fact that the underlying premise of the defendant’s costs application is that the proceedings were a ‘nullity’ of some sort – because their commencement was unauthorized. The issue is whether that should make a difference; whether the defendant should nonetheless be entitled to its costs from solicitors who proceeded without authority, despite its failure to comply with the court orders.

I do not think, as a matter of principle, that the nature of the defendant’s application in this case makes any difference. That is because, although proceedings issued without a valid retainer are often said to be a nullity, it seems clear that this does not make them void ab initio but rather liable to dismissal: Rinfort Pty Ltd v Arianna Holdings Pty Ltd [2016] NSWSC 251 at [23] to [41] (Black J). Such proceedings may be validated by leave granted to bring a derivative action pursuant to sections 236 and 237 of the Corporations Act or by later ratification: McHugh v Eastern Star Gas Ltd [2012] NSWCA 169 at [48] and Multitec FBM (Asia Pacific) Pty Ltd v Han (2008) 69 ACSR 106 at [29]. In addition, an absence of a valid retainer may possibly be cured pursuant to section 1322(4) of the Corporations Act. This was contemplated in Gusdote Pty Ltd v Ashley (2011) 277 ALR 579 at [142] and Nece Pty Ltd v Ritek Inc (1997) 24 ASCR 38). The breadth of that provision and the absence of any implied limitation on the availability of the power are significant: Weinstock v Beck (2013) 251 CLR 396 at 419 per Hayne, Crennan and Kiefel JJ.

For those reasons, the defendant’s entitlement to costs from the plaintiffs’ solicitors falls to be determined by reference to all the usual relevant discretionary considerations, including in particular the failure of the defendant to comply with the court orders made on 30 October. There is no automatic right to costs simply because it may be found that the commencement of the proceedings was unauthorized. The applicable principles were summarised in Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147 at [47]-[52] as follows:

It seemed obvious by the end of the hearing that the proceedings had been commenced without authority. Counsel for the solicitors sensibly conceded that any argument for actual authority, implied actual authority or agency of necessity could not be sustained. The evidence tended to indicate that when Mr Goldrick acted on Mr Garana’s instructions and caused the proceedings to be commenced early on the evening of Friday 30 October, only Mr Garana, Ms Abbas and possibly Mr Kumalic, supported the taking of this step by the first plaintiff. Those three directors did not represent a majority on the board and could not make decisions, even informal decisions, on behalf of the company. Mr Khalil, who appears to have been briefly in the same camp, had apparently tendered his resignation on the day before. Although his position had not been finalized, he was, it seems, not interested in participating. His position was somewhat ambiguous.

Mr Goldrick was unaware of this. He thought that Mr Garana was part of the majority on the board, which, to his knowledge, was split four/three. I have concluded that in the circumstances, Mr Goldrick acted reasonably and honestly. There was a subsisting professional relationship between him and Mr Garana, who regularly instructed him on matters relating to the affairs of the school. As I have mentioned, Mr Garana was not just a director but also held an executive office as the school’s bursar. It was natural to receive instructions from him. For his part, Mr Garana described Mr Goldrick as ‘pedantic’ – a characteristic which can be helpful in the conduct of a solicitor’s practice. I formed my own view that Mr Goldrick was professionally careful.

There had been several urgent calls from Mr Garana to Mr Goldrick on 30 October preceding the giving of instructions. Around midday, Mr Kassem had come to the school with some supporters and had caused a disturbance. The police were called, eventually resulting in Mr Kassem’s departure. He was not happy however and threatened to take legal action ‘to get control of the school again’. This was all relayed to Mr Goldrick by Mr Garana. When he called again in the later afternoon, he informed Mr Goldrick that he had Ms Abbas, Mr Kumalic and Mr Khalil with him. He told Mr Goldrick that Mr Kassem had called a meeting of the executive committee of the defendant for 7pm that night and that he expected that an attempt would be made to remove them from the school board.

Mr Goldrick was alive to the necessity for the commencement of legal proceedings by the first plaintiff to be properly authorized. I accept that Mr Goldrick said to Mr Garana, words to the following effect:

I also accept that Mr Goldrick’s recollection of Mr Garana’s response was to this effect:

At 5.33 pm, Mr Garana sent an email to Mr Goldrick, which was copied to Ms Abbas and a Mr Mehboob, stating ‘As per our discussions, I would like to request you to obtain an injunction on tonight’s meeting at AFIC’. The reference to ‘our discussions’ clearly referred to Mr Goldrick’s request for confirmation from the school board and written instructions. Ms Abbas was the acting chairman of the school board and it was natural that she be copied in to this email. I accept that Mr Goldrick’s state of mind at that time was as follows:

Mr Garana was challenged in cross examination about whether he had the consent or approval of Mr Kumalic and Mr Khalil and about the correctness of his assertion that he told Mr Goldrick that he had their approval. He was vulnerable on the first issue, particularly given the absence of any corroboration from Mr Kumalic and Mr Khalil, who were not called by any party. They do not appear to have been present with Mr Garana. At best he spoke to them on the telephone but they were not ‘with him’ in the sense conveyed to Mr Goldrick. I do not think it safe to act on Mr Garana’a evidence on this particular issue.

Generally however, Mr Garana’s evidence was satisfactory and credible. His account of events concerning Mr Kumalic and Mr Khalil received some support from Ms Abbas but her evidence on this issue was not persuasive either. She said that it was her ‘understanding’ that when we were speaking to Mr Goldrick ‘he [Mr Garana] was speaking to those two on the other phone as well’. She also said ‘so many things were happening at the same time’. I am afraid I found that Ms Abbas was not convincing on this issue, which was obviously a sensitive matter for her and Mr Garana. In addition to the fact that her account in the witness box differed from that set out in her affidavit, she had been copied in to a letter from Mr Khalil to Mr Kassem tendering his resignation from the school board on 29 October. There was some suggestion that Mr Khalil had re-considered his position but no reliable evidence to support such a contention. He did not attend the meeting of the executive committee of the defendant at which Ms Abbas informed those present of the court orders. I think that it is unlikely at that time that he was prepared to support a decision to authorise the commencement of proceedings by the school against the defendant.

As to Mr Goldrick, it was not suggested that he had any knowledge of the apparent resignation of Mr Khalil. He was however challenged on his recollection that Mr Garana told him that Mr Kumalic and Mr Khalil were ‘with him’ when he and Mr Garana spoke on the telephone. Mr Goldrick gave me the firm impression that, at the time, he had no reason to doubt that Mr Garana had the support of the majority of the board. He also gave me the firm impression that he would not have caused the proceedings to be commenced without that belief and without written instructions confirming that belief. Mr Goldrick was a witness of truth and I accept his evidence.

I should add that I do not think the criticism of the form of Mr Garana’s email providing instructions to Mr Goldrick was justified. It was reasonable to interpret it as conforming to Mr Goldrick’s requirements. And it was reasonable for Mr Goldrick to act on the basis of it. There was nothing sinister in the fact that it was not copied to Mr Kumalic and Mr Khalil. Mr Goldrick certainly did not think so at the time. He was concerned to ensure that he was properly authorised but was not on notice of any absence of authority. As Bryson J said in Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447 at [10]:

The proceedings collapsed once the court orders were ignored and the three directors removed. When the matter returned to court on Monday 2 November, there was a perceived risk for the first plaintiff – given the failure to comply with the court orders and the removal of the three directors. Mr Garana was therefore added as a second plaintiff and the proceedings were adjourned to 4 November. On 4 November, as counsel left court, a challenge to the retainer of the plaintiffs’ solicitors was notified. It was announced in court the next morning 5 November. When that occurred, the second plaintiff sought to be released from his undertaking as to damages and counsel and solicitors for the plaintiffs applied for leave to withdraw from the proceedings. Lindsay J stood those matters over to 6 November and immediately discharged the original orders that had been continued.

On 6 November, Lindsay J granted leave to Mr Garana to discontinue the proceedings insofar as they were brought in his name and granted leave to the plaintiffs’ solicitors to file a notice of ceasing to act. His Honour then made an order in the following terms: ‘In the absence of any person appearing, or likely to appear for the first plaintiff, order that the proceedings brought in the name of the first plaintiff be dismissed’. It was all over.

Ultimately, there are good reasons why the defendant should be refused the costs which it seeks for the plaintiffs’ solicitors, notwithstanding that there is no opportunity for it to purge its contempt or to set aside the orders made on 30 October. The court orders were ignored, indeed flouted. When that occurred, the damage was done and could not be cured. Three directors were removed from the school board contrary to the orders of the court. That led inexorably to the proceedings being dismissed or discontinued, except as to costs. Once those directors were removed, Mr Kassem’s supporters controlled the first plaintiff. Absent a derivative action, there was no one representing the first plaintiff who was able to authorise the continuation of the proceedings. A derivative action was not open. And Mr Garana, who had been added as the second plaintiff on 2 November, was understandably unwilling to continue the proceedings alone and expose himself personally to the risk of an adverse costs order. By 2 November, the court’s orders were overtaken by events and expired. The gate was shut, which I suspect, is precisely what Mr Kassem intended to achieve.

Mr Kassem’s contumelious conduct has already been rewarded. I should not further sanction that conduct by allowing the defendant any costs, let alone against the plaintiffs’ solicitors, who behaved reasonably in difficult circumstances. I therefore dismiss the defendant’s amended notice of motion with costs.