Australian Islamic Society of Bosnia Herzegovina Incorporated v Muhamed Kumalic

[2023] NSWSC 1505

Supreme Court

New South Wales

Medium Neutral Citation:

Australian Islamic Society of Bosnia Herzegovina Incorporated v Muhamed Kumalic [2023] NSWSC 1505

Hearing dates:

30 November 2023

Date of orders:

30 November 2023

Decision date:

30 November 2023

Jurisdiction:

Equity

Before:

Kunc J

Decision:

Vesting order made in favour of successor incorporated association

Catchwords:

CHURCHES AND RELIGIOUS ASSOCIATIONS — Church property and trusts — Authority to deal with — Vesting of property from original trustees to incorporated association

Legislation Cited:

Associations Incorporation Act 1984 (NSW)

Charitable Collections Act 1934 (NSW)

Trustee Act 1925 (NSW)

Cases Cited:

Church of the Foursquare Gospel (Australia) Ltd, the v New Hope Church Swansea Inc. [2019] NSWSC 519

Category:

Principal judgment

Parties:

Australian Islamic Society of Bosnia Herzegovina Incorporated (plaintiff)
Muhamed Kumalic (first defendant)
Abaz Talic (second defendant)
Majro Muhov (third defendant)

Representation:

Counsel: S Philips (plaintiff)

Solicitors: Cordoba Legal (plaintiff)

File Number(s):

2022/169283

EX TEMPORE JUDGMENT (REVISED)

Summary

1. These proceedings concern a common issue among faith based groups. While some denominations in New South Wales have the benefit of specific legislation creating statutory trustees to hold property, others at least began with what, in law, were trustees holding land and other property for the benefit of the congregation as an unincorporated body. Members of the congregation would donate funds to acquire the property for a place of worship, school, community centre, or such like, which would then be purchased by some of the congregants as trustees.

2. That is what occurred in this case. In the late 1970s and early 1980s a group of Bosnian Muslims came together as the Islamic Society Hurstville (ISH). Properties were purchased in the names of members of ISH.

3. For the reasons which follow, the Court is satisfied that ISH became the plaintiff Society by incorporation under the Associations Incorporation Act 1984 (NSW) (the Act). By amended statement of claim filed on 19 May 2023, the Society seeks relief to perfect its registration as the registered proprietor of a property at Smithfield (Smithfield Property) and two adjacent properties at Penshurst (Penshurst Properties) originally purchased for the benefit of ISH. Orders to effect that result will be made.

4. Mr S Philips of Counsel appeared for the Society. I gratefully acknowledge the assistance I have received from both his full written submissions and thorough presentation of the evidence. For reasons I will next explain, there was no appearance for the defendants.

The defendants

5. The defendants are the surviving joint registered proprietors of the properties in issue. The first defendant is Mr M Kumalic, to whom I shall refer as such.

6. The second and third defendants are Mr A Talic and Mr H Muhovic, respectively. I shall refer to them as the Submitting Defendants. As that description suggests, they filed submitting appearances and were not represented at today's hearing.

7. In addition, after these proceedings were commenced, the Submitting Defendants entered into a Deed of Settlement and Release with the Society dated 21 February 2023. The Deed includes:

“2.    RECITALS

2.1   The Association is a registered Association and Charity.

2.2   In or around November 1986, the Association purchased a property at XX Bourke Street, Smithfield NSW 2000 being the whole of the land in Folio Identifier 3/X/XXXXX (Smithfield Property) for $82,000.00. The purchase price was paid for by the Association.

2.3   Title in the Smithfield Property was registered in the names the Muhammad Kumalic (Kumalic), Talic and others, as joint tenants. The only surviving joint tenants are Kumalic and Talic.

2.4   Talic admits that he holds his respective interest in the Smithfield Property on trust for the Association.

2.5   In or around late 1986 or early 1987, the Association purchased two properties at X-X Forest Road, Penshurst NSW 2222 being the whole of the land in Folio Identifiers 2/XXXXX and 3/XXXXX (Penshurst Properties).

2.6   Title in the Penshurst Properties was registered in the names of Kumalic, Muhovic and others, as joint tenants. The only surviving joint tenants are Kumalic and Muhovic.

2.7   Muhovic admits that he holds his respective interest in the Penshurst Properties on trust for the Association.

2.8   On 14 June 2022, the Association commenced proceedings in the Supreme Court of NSW against the Kumalic, Talic and Muhovic by filing a Summons in proceedings 2022/00169283 (the Proceedings) seeking declarations that the Smithfield Property and Penshurst Properties are held on trust for the Association by Kumalic, Talic and Muhovic.

2.9   On 19 August 2022, the Association filed a Statement of Claim.

2.10   On 16 September 2022, Talic and Muhovic filed a joint Defence admitting they hold their respective interests in the Smithfield Property and Penshurst Properties on trust for the Association.

2.11   On 13 October 2022, Kumalic filed a Defence disputing that he holds his respective interests in the Smithfield and Penshurst Properties on trust for the Association. Rather, Kumalic states that he holds his respective interests in the Smithfield and Penshurst Properties on trust for the Islamic Society, Hurstville.

2.12   Without admissions, and in order to avoid the inconvenience and risks associated with the litigation, the Parties have agreed to resolve !he dispute on the terms of this Deed.

2.13   This Deed reflects the final terms of the Parties' resolution. to which they agree to be bound.

2.14   The recitals expressed above form part of this Deed.

…

4.   SETTLEMENT …

4.1   The Parties have agreed as follows:

…

D.   The Association:

i.   Indemnifies Talic and Muhovic for any capital gains tax ("CGT") payable in respect of the acquisition of the Smithfield Property and the Penshurst Properties, this Deed and the transfer referred to in Clause 4.1B;

ii.   Indemnifies Talic and Muhovic for any Stamp Duty payable in respect of the acquisition of the Smithfield Property and the Penshurst Properties, this Deed and the transfer referred to in Clause 4.18;

iii.   Indemnifies Ta!ic and Muhovic for any reasonable costs and expenses properly incurred by Talic and Muhovic in fulfilling their obligations as trustees:

iv.   Indemnifies Talic and Muhovic for any costs, expenses. liabilities, penalties, interest and fines incurred (both present and future) incurred in the administration of the Trust or incurred by reason of the Smithfield Property and the Penshurst Properties being purchased in the respective shares held by Talic and Muhovic; and

v.   Agrees for, the Smithfield Property and the Penshurst Properties to be charged for the liabilities in Clause 4D(i) - 4D(lv) above until all liabilities are paid by the Association, with such charge to be in the from which is annexed to this Deed and registered against the titles of the Smithfield Property and the Penshurst Properties simultaneously with registration of the transfer referred to in Clause 4.1B(c).

E.   Talic and Muhovic acknowledge that, for the purposes of paying any contingent liabilities that may arise as a result of the transfer referred to in Clause 4.1B. It may be necessary for the Association to encumber the Smithfield Property and/or the Penshurst Properties. In the event this is required, the Association will seek the consent of Talic and Muhovic which consent shall not be unreasonably withheld.”

8. As the Deed records, Mr Kumalic has adopted a position different to that of the Submitting Defendants. This appears from these paragraphs of his defence which he filed to an earlier iteration of the Society's pleading, in which Mr Kumalic essentially admitted the Society's contentions subject to these matters:

“7   In response to paragraph 7 of the SOC the first defendant plead (sic) that:

a.   "Islamic Society, Hurstville" and the plaintiff are two different organizations

…

51   In response to paragraph 51 of the SOC the first defendant plead (sic) that:

a.   He does not dispute holding interests in the Smithfield Property and the First and Second Penshurst Properties on trust for “Islamic Society, Hurstville"

b.   He is indemnified or exonerated out of the property of the Trust for any liabilities that he incurs in this capacity as a trustee

c.   He has not been provided with adequate security to effect the transfer or sale of the trust properties for any liabilities he may incur for Capital Gains Tax as a trustee or for legal costs incurred in discharging his duty

d.   He will transfer the trust properties once actual liabilities are paid and adequate security is provided for contingent liabilities, including Capital Gains Tax as a trustee and legal costs incurred in discharging his duties, new trustees appointed with an aim to secure properties; and

e.   Otherwise deny that he has any obligation to transfer the trust properties until such time as actual liabilities are paid and adequate security is provided for contingent liabilities.

…

57   In respect to the whole SOC, the first defendants plead (sic) that:

a.   He has never asserted that he has a beneficial interest in the trust properties;

b.   He is an appointed trustee by "Islamic Society, Hurstville" to protect properties for Bosnian community;

c.   Denies that he has any obligation to transfer the trust properties until such time as actual liabilities are paid and adequate security is provided for contingent liabilities; and

d.   Provided actual liabilities are paid (including the costs of these proceedings) and adequate security for contingent liabilities in the form of either a registered charge over the lrust properties or funds paid into trust a proffered, he agrees to transfer his respective interests in the trust properties to the "Islamic Society, Hurstville" or any other Bosnian Islamic Community in Sydney with condition of appointment of a trust with the names of all surviving trustees with addition of two more respected members of Bosnian community.”

Today’s hearing

9. Mr Philips informed me, and I accept, that Mr Kumalic has played no part in these proceedings other than to file his defence. While his defence is verified, he has never been legally represented and has filed no evidence or submissions. I am satisfied, including as a result of emails sent by my associate, that everything has been done to ensure Mr Kumalic was aware of today's hearing. He was called outside the Court, but he did not appear either personally or by a legal representative.

10. Entirely correctly in my respectful view, Mr Philips conducted today's hearing by reference to two matters:

1. Given Mr Kumalic's defence, the Society had to prove that it was the legal successor in title to the assets of ISH, which assets included the subject properties; and

2. Insofar as all other relevant matters were not in contest, the Society still had to prove that there was a proper basis for the making of the declarations and consequential relief which it sought.

11. Given the submitting appearances and Mr Kumalic's non-appearance, an issue arose as to the need for a contradictor. Mr Philips drew my attention to the decision of Bell P (as the Chief Justice then was, and sitting at first instance) in Church of the Foursquare Gospel (Australia) Ltd v New Hope Church Swansea Inc. [2019] NSWSC 519. His Honour said:

“16   In Zetting v Müller [2017] NSWSC 659 (Zetting v Müller) at [13], Parker J noted, by reference to [19-115]–[19-125] of J.D. Heydon, M.J. Leeming, P.G. Turner, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (6th ed., 2015), that there was room for debate as to whether what appeared to be described by Lord Dunedin in Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 as a requirement, viz. the securing of a proper contradictor, was an essential pre-condition to the making of a declaration or was simply a matter going to discretion. Parker J went on to note that:

“…it is not necessary for me to enter into this debate in the present case. In Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378, the Full Federal Court had to consider whether it was open to the Court to make a declaration of contravention of the Trade Practices Act 1974 (Cth) in circumstances where the defendant did not oppose that course. The Court held at [30] that the requirement of a proper contradictor was satisfied. This was because when the proceedings had been commenced the defendant had an interest in resisting the relief sought by the ACCC, including the declaratory relief. By the end of the case, the defendant had dropped its opposition to the declaratory relief sought by the ACCC, but this was a matter which went to discretion, not jurisdiction.”

17   In my opinion, although Foursquare did not play any active role in the hearing of the Cross-Claim – it neither filed any written submissions in opposition to it nor, as I have noted above, did it participate in the hearing – because the evidence filed in support of the Cross-Claim was in substance responsive to that which had been filed by Foursquare in support of its claim, issue was more than adequately joined, and the matter did not fall to be determined in a complete evidentiary vacuum. Just as in Zetting v Müller where the defendant chose ultimately not to contest the plaintiff’s claim, here the decision by Foursquare not to contest the Cross-Claim by New Hope, having originally advanced a case and filed extensive evidence entirely inconsistent with it, means that the Court can have a degree of confidence in making the declarations sought, subject of course to satisfying itself as to the existence of a proper basis for the making of such declarations.”

12. To the extent that it is necessary for me to express a view, it is that the presence of a proper contradictor goes to the Court’s discretion to make a declaration, rather than being an essential pre-condition. However, the case at bar presents a somewhat similar situation to that which the Chief Justice addressed in [17] of his reasons.

13. The Society has filed fulsome evidence both to prove the basis of its entitlement to the relief which it seeks, but also especially to demonstrate that it is, in layman’s terms, the “same organisation as ISH” or, as an old system conveyancer might put it on a question of good root of title, the successor in title to ISH’s assets, including the Smithfield Property and the Penshurst Properties. This extra evidentiary impetus provided by the Society having to meet Mr Kumalic’s limited defence gives the Court an additional “degree of confidence”, respectfully to adopt the Chief Justice’s expression, in making the declarations sought.

Facts

14. The Society relied on several affidavits of members and officers, and more than 300 pages of records going back to the 1980’s. In relation to each necessary finding which follows, there are a number of documents which support each such finding. I shall refer only to the most telling where necessary.

15. The Court finds:

1. ISH was in operation as an unincorporated association from at least the 1980’s. The evidence included the certificate of registration for “Islamic Society Hurstville” under the Charitable Collections Act 1934 (NSW) dated 23 May 1985.

2. At all material times, Mr Kumalic and Mr Talic held the legal interest in the Smithfield Property on trust for ISH. The 1986 transfer for that property records them and the other three now deceased registered proprietors as “trustees”. Quite apart from Mr Kumalic’s admission that he holds the Smithfield Property on trust for ISH, the evidence includes a 1985 formal deed of appointment of trustees for ISH (including, in that case, Mr Muhovic, but not Mr Kumalic) in relation to another property. As what might informally be called similar fact evidence, this deed fortifies the Court in concluding that the various congregants purchasing properties around this time were doing so for the benefit of ISH.

3. At all material times, Mr Kumalic and Mr Muhovic held the legal interest in the Penshurst Properties on trust for ISH. Both the 1987 contract for sale and the transfer for the Penshurst Properties record them, and the other three now deceased registered proprietors, as “trustees for the Islamic Society, Hurstville”.

4. ISH later became known as “Bosnian Cultural Grouth (sic) Centre, Australian-Bosnia and Herzegovina Islamic Society ‘Gazi Husrev Beg’”. In December 2012, Mr Azim Campara, a founding congregant, made a statutory declaration before a solicitor in relation to the transfer of another property. Mr Campara has since died. He stated in that statutory declaration:

“1.   I am a member of the executive committee of the Australian Islamic Society of Bosnia Herzegovina Incorporated ("the association") and have been a member of the association’s executive committee since the association was incorporated In about 2005, annexed hereto and marked "A" is a copy of the association's certificate of incorporation and fair trading letter of director general.

2.   The association has changed its name on a number of occasions, the association has been known by the following names:

a)   Bosnian Islamic Society Of NSW Incorporated

b)   Bosnian Cultural Grouth Centre, Australian - Bosnian And Herzegovina Islamic Society "Gazi Husrev Beg” Incorporated.

c)   Islamic Society Hurstville, prior to incorporation.

d)   Australian Islamic Society Of Bosnia Herzegovina Incorporated.

3.   The above names all describe the same association of which I have been a member since about 1975.

4.   Prior to its incorporation in 2005 the association was known as the Islamic Society of Hurstville

5.   In about 1985 I was voted as the president of the association and remained in that office until about 1995, since then I have occupied various positions on the committee of the association.”

5. On 30 September 2005, ISH, then known as “Bosnian Cultural Grouth Centre, Australian-Bosnia and Herzegovina Islamic Society ‘Gazi Husrev Beg’” was incorporated as “Bosnian Cultural Grouth Centre, Australian-Bosnia and Herzegovina Islamic Society ‘Gazi Husrev Beg’” Inc. under the Act. Both the application for incorporation and the certificate of incorporation as an association were in evidence before me.

6. Department of Fair Trading records established that since its incorporation the Society has had these name changes at the times indicated:

“BOSNIAN CULTURAL GROUTH CENTRE, AUSTRALIAN· BOSNIA AND HERCEGOVINA ISLAMIC SOCIETY "GAZI HUSREV BEG" INCORPORATED 30/09/2005

BOSNIAN ISLAM SOCIETY OF NSW INCORPORATED 10/09/2009

BOSNIAN CULTURAL GROUTH CENTRE, AUSTRALIAN - BOSNIA AND HERCEGOVINA ISLAMIC SOCIETY "GAZI HUSREV BEG" INCORPORATED 10/09/2009

BOSNIAN ISLAMIC SOCIETY OF N.S.W. INCORPORATED 13/11/2009

AUSTRALIAN ISLAM SOCIETY OF BOSNIA HERZEGOVINA INCORPORATED 13/11/2009”

7. Both the Smithfield Property and the Penshurst Properties have continued to be used by the Society for its exclusive use and benefit since the incorporation of the Society. The continuity of use and ostensible practical ownership are amply demonstrated by rates, utility and valuation notices in evidence. They continued to be addressed by the relevant bodies or instrumentalities to ISH as the owner of those properties (including the subject properties) until well after the date of incorporation of the Society.

Relief

16. By reason of the facts set out above, the Court finds as follows.

17. Section 2 of Schedule 2 of the Act includes:

Transfer of assets and liabilities etc

(1)    On the incorporation of an association or other body under this Act, the following provisions have effect:

(a)    the assets of a former association of the incorporated association vest in the incorporated association without the need for any conveyance, transfer, assignment or assurance,

(b)    the rights and liabilities of a former association of the incorporated association become the rights and liabilities of the incorporated association,

(c)    all proceedings relating to the assets, rights and liabilities of a former association of the incorporated association commenced before the incorporation by or against the former association and pending immediately before the incorporation are taken to be proceedings pending by or against the incorporated association,

(d)    any act, matter or thing done or omitted to be done in relation to the assets, rights and liabilities of a former association of the incorporated association before the incorporation by, to or in respect of the former association is (to the extent to which that act, matter or thing has any force or effect) taken to have been done or omitted by, to or in respect of the incorporated association,

(e)    a reference in an instrument or in any document of any kind to a former association of the incorporated association is, subject to the regulations, to be read as, or as including, a reference to the incorporated association.

(2)    Assets which vest in an incorporated association by virtue of this clause are not to be dealt with contrary to the provisions of any trust affecting the assets immediately before the incorporation of the association or other body under this Act, being provisions as to the purposes for which the assets may or are required to be applied. …

18. The Smithfield Property and the Penshurst Properties were beneficially owned by ISH. Upon incorporation under the Act, by reason of s 2 of sch 2, that beneficial ownership vested in the Society as it is now known. The omission of the transfer of legal ownership of those properties falls within s 2(1)(d). The defendants held their respective legal interests in the Smithfield Property and the Penshurst Properties on trust for ISH. They therefore now hold those interests on trust for the Society and subject to the Society’s right as beneficial owner to call for the legal title (subject to appropriate indemnification of the trustees). Again by reason of s 2 of sch 2 of the Act, the Society is entitled to declarations recognising that beneficial ownership.

19. Section 71 of the Trustee Act 1925 (NSW) (TA) includes:

71 Vesting orders

(1)    The Court may make an order in this Act called a vesting order, which shall have effect as provided in section 78.

(2)    A vesting order may be made in any of the following cases, namely—

….

(i)    where a trustee neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property according to the direction of the person absolutely entitled to the same for twenty-eight days next after a request in writing has been made to the trustee by the person so entitled, …

20. Requests for the purposes of s 71(2)(i) of the TA were sent to the defendants in relation to the subject properties on 24 February 2022. By reason of the findings made in [18] above, the defendants were the trustees of those properties for the purposes of that sub-section of the TA. The requests have not been complied with and the Society is therefore entitled to vesting orders under s 71.

21. The final matter I need to refer to in relation to relief is the question of indemnification of Mr Kumalic for any liabilities that he may have properly incurred or will incur as a trustee of the subject properties. During the course of argument, I indicated to Mr Philips that if the Court was otherwise disposed to grant the relief sought, it would require undertakings to the effect of the indemnities which the Society has agreed to give the Submitting Defendants under the Deed (see [7] above). Mr Philips did not wish to be heard against that requirement.

22. In the course of the short adjournment before I delivered these reasons, Mr Philips prepared short minutes of order which included an undertaking, substantially to the same effect as clauses 4.1D and E of the Deed. Such minor differences as there are between that undertaking and the terms of the Deed primarily reflect the fact that, unlike the Submitting Defendants, Mr Kumalic has not retained legal representation, has not incurred legal costs, and has otherwise not taken part in these proceedings beyond filing a defence.

Conclusion

23. For these reasons, the Court upon the Plaintiff giving the undertaking noted below, makes the following declarations and orders:

1. A declaration that the First and Second Defendants hold their interest in the Property at XX Bourke Street, Smithfield NSW 2164 being all of the lands in folio identifier: 3/X/XXXXX (Smithfield Property) on trust for the Plaintiff.

2. A declaration that the First and Third Defendants hold their interest in the Property at XXX Forest Road, Penshurst NSW 2222 being all of the lands in folio identifier: 2/XXXXX (First Penshurst Property) on trust for the Plaintiff.

3. A declaration that the First and Third Defendants hold their interest in the Property at XXX Forest Road, Penshurst NSW 2222 being all of the lands in folio identifier: 3/XXXXX (Second Penshurst Property) on trust for the Plaintiff.

4. An order pursuant to section 71 of the Trustee Act 1925 (NSW), that title in the Smithfield Property, the First Penshurst Property and the Second Penshurst Property (the Properties) vest in the Plaintiff forthwith.

5. Order that if the First Defendant’s consent is sought pursuant to paragraph (v) of the undertaking set out below, the First Defendant is not to withhold his consent unreasonably.

6. There be no order as to the costs of the proceedings (with the intent that each party bear its own costs).

7. An order that the parties have liberty to apply with respect to any matter arising in relation to the working out of these orders.

8. Order that these orders be entered forthwith.

Undertaking by the Plaintiff

9. The Court notes that the Plaintiff, through its counsel, undertakes to the Court and the First Defendant (Kumalic) that the Plaintiff hereby:

1. Indemnifies Kumalic for any capital gains tax (CGT) payable in respect of the acquisition of the Properties (and any transfer of the legal title in those properties to the Plaintiff) (Transfer);

2. Indemnifies Kumalic for any Stamp Duty payable in respect of the acquisition of the Properties, and the Transfer;

3. Indemnifies Kumalic for any reasonable costs and expenses properly incurred by Kumalic in fulfilling his obligations as trustee;

4. Indemnifies Kumalic for any costs, expenses, liabilities, penalties, interest and fines incurred (both present and future) reasonably incurred in the administration of the Trust or reasonably incurred by reason of the Properties being purchased in the respective share held by Kumalic, subject to such costs, expenses and liabilities being substantiated and limited to a total of $5,000 excluding GST, or as this Court may otherwise order; and

5. Agrees for the Properties to be charged for the liabilities in (i) – (iv) above until all liabilities are paid by the Plaintiff, with such charge to be in the form which is Annexure A to these Orders and registered against the titles of the Properties simultaneously with registration of the Transfer or of these orders, subject to an acknowledgement that, for the purposes of paying any contingent liabilities that may arise as a result of the Transfer or the registration of these orders, it may be necessary for the Plaintiff to encumber the Properties, in which event the Plaintiff will seek the consent of Kumalic to withdraw the charge

**********

Decision last updated: 05 December 2023