Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc (No 2)
[2020] VSC 136
•24 March 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2015 000050
| IMAM ALI ISLAMIC CENTRE (Reg No 983405) | Plaintiff |
| v | |
| IMAM ALI ISLAMIC CENTRE INC (A0035337R) | Defendant |
S CI 2015 01299
| ALI DIRANI AND ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| IMAM ALI ISLAMIC CENTRE INC (A0035337R) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 October 2019 |
DATE OF JUDGMENT: | 24 March 2020 |
CASE MAY BE CITED AS: | Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 136 |
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COSTS — Non-party costs — Defendant incorporated association insolvent — Plaintiff applied for costs against two non-parties previously parties to the proceedings — Whether non-parties ‘real parties’ to litigation — Role and interest of non-parties in litigation — Informal interest in property the subject of litigation — Role and interest insufficient to enliven the cost discretion — Application dismissed — Knight v FP Special Assets Ltd (1992) 174 CLR 178 — Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348 — Supreme Court Act 1986 (Vic) s 24(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr RG Craig and Ms RM Burd | Holding Redlich |
| For the Non-Parties | Ms MJ O’Sullivan | Russell Kennedy |
HER HONOUR:
On 31 July 2018, the Court delivered reasons determining the substantive issues in these two related proceedings (‘trial reasons’).[1] The two proceedings concerned the ownership of a property at 92–104 Lowson Street, Fawkner (‘the property’), and membership of the incorporated association that holds title to the property, Imam Ali Islamic Centre Inc (A0035337R) (‘IAIC Australia’).
[1]Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc [2018] VSC 413 (‘trial reasons’).
In the first proceeding (‘the trust proceeding’), the plaintiff, Imam Ali Islamic Centre (Reg No 983405) (‘IAIC Canada’), claimed that IAIC Australia held the property on trust for its benefit. This was denied by IAIC Australia, however the Court declared the existence of a constructive trust to the benefit of IAIC Canada.
In the second proceeding (‘the membership proceeding’), three individual plaintiffs, Mr Ali Dirani, Mr Said El-Khishin and Mr Souhail Fneich, sought declarations that they were the current members of IAIC Australia and that the second and third defendants in that proceeding, Mr Ali Al Bakiry (‘Mr Sami’) and Mr Ahmad Yatim were not. It was also asserted that Mr Dirani was the Mutawalli (president) of IAIC Australia, and that Mr Sami and Mr Yatim had engaged in oppressive conduct. IAIC Australia, Mr Sami and Mr Yatim brought a counterclaim seeking declarations that they, and a number of their family members, were members of IAIC Australia, and that Mr Dirani, Mr El-Khishin and Mr Fneich were not. They also claimed that Mr Sami was the Mutawalli. Ultimately, the Court determined that the only current member of IAIC Australia was Mr Dirani, and orders were made removing Mr Sami and Mr Yatim as parties to the membership proceeding. Additionally, neither Mr Dirani nor Mr Sami were declared Mutawalli.
The issues are now how costs should fall and whether Imam Ali Islamic Centre Melbourne (‘IAIC Melbourne’) should be appointed to replace IAIC Australia as trustee of the property.[2] For consistency, the same terminology is adopted as was used in the trial reasons; that is, ‘the plaintiffs’ refers to IAIC Canada, Mr Dirani, Mr El-Khishin and Mr Fneich. Where necessary, IAIC Australia, Mr Sami and Mr Yatim are together described as ‘the defendants’, albeit Mr Sami and Mr Yatim are no longer parties to the membership proceeding. IAIC Australia is unrepresented and made no submissions on the issue of costs and the appointment of a new trustee.
[2]The plaintiffs in both proceedings initially also sought orders for IAIC Australia to be wound up and that a new entity be substituted as trustee. However, in orders of 5 August 2019 the Court noted in other matters that it had determined not to hear the application for winding up at the same time as the application for costs.
The Court has determined that although a costs order should be made against IAIC Australia, orders should not be made against Mr Sami and Mr Yatim as non-parties. In addition, it was determined that IAIC Melbourne should not be appointed as the new trustee of the property.
The evidence
The plaintiffs rely upon two affidavits of Mr Howard Rapke, a partner of Holding Redlich, an affidavit of Mr Dirani, and an affidavit of Ms Anne Stevens, a director of IAIC Canada.[3] Mr Sami and Mr Yatim, as well as the plaintiffs, rely upon the Court’s findings in the trial reasons. The factual background to the proceedings is set out in the trial reasons, however, it is necessary to set out a summary for the purpose of determining the costs of the proceedings.
[3]Plaintiffs, affidavit of Howard Roger Rapke sworn 26 March 2019 (‘first Rapke affidavit’); plaintiffs, second affidavit of Howard Rapke sworn 18 October 2019 (‘second Rapke affidavit’); plaintiffs, affidavit of Anne Stevens sworn 26 March 2019 (‘Stevens affidavit’); plaintiffs, affidavit of Ali Dirani sworn 26 March 2019 (‘Dirani affidavit’).
Until his death on 6 January 2013, Dr Al Bakiry, Mr Sami’s late father, was the president and Mutawalli of IAIC Australia. Subsequent to Dr Al Bakiry’s death, a dispute between the plaintiffs and defendants arose concerning the management and control of IAIC Australia. A minute of meeting of an annual general meeting of IAIC Australia organised by Mr Sami dated 29 July 2013 notes that it was resolved that ‘the administrative committee will continue to seek and act on legal advice’. Purported members listed at the meeting include Mr Sami and Mr Yatim.
The membership proceeding was commenced in the Magistrates’ Court on 16 April 2014 and later transferred to this Court. The defendants filed a counterclaim on 31 October 2014.
The plaintiffs were initially represented by JD Poloni & Co. In or about January 2015, they retained Holding Redlich in the membership proceeding. Mr Rapke deposes that a written costs agreement was sent to the plaintiffs on 7 January 2015.
The trust proceeding was commenced on 16 February 2015. An issue that arose in that proceeding was the discovery of ‘forged application forms’ originally provided by Mr Sami to the lawyers acting for the defendants, Russell Kennedy, in October 2013.
In a letter to Consumer Affairs Victoria dated 5 December 2015, Russell Kennedy advised that it acted for the members and committee of IAIC Australia.
The proceedings were heard over 19 days in February to May 2017. On the first day of trial, in response to a question from counsel for the defendants, counsel for the plaintiffs informed the Court that the plaintiffs were not pursuing five of the six pleaded grounds of oppressive conduct. In addition to the chief claims and counterclaims of the parties, the Court addressed two ancillary issues, being: (a) the ability of Mr Al-Ali, a founding director of IAIC Canada, to give evidence; and (b) the legal existence of IAIC Canada. The hearing was adjourned twice on account of the late discovery of bundles of documents. The first instance was related to a witness of the plaintiffs, while the second involved a witness of the defendants.
On 24 March 2017, with only two days of the hearing remaining, Holding Redlich wrote to Russell Kennedy regarding the late discovery of certain documents and the conduct of the litigation by the defendants. Regarding the latter, the correspondence stated:
It is clear from the evidence that is before the Court that neither Ali Sami nor Ahmad Yatim … are validly appointed members or office holders of IAIC Australia.
Notwithstanding, Messrs Sami and Yatim have caused both proceedings to be defended and conducted by IAIC Australia without any lawful authority. As a consequence, our client will be seeking personal costs orders against those who have purported to defend or conduct the litigation in the name of IAIC Australia.
After the Court delivered the trial reasons on 31 July 2018, Holding Redlich and Russell Kennedy exchanged correspondence. A letter of Holding Redlich dated 9 August 2018 refers to a possible insurance claim made by IAIC Australia in late 2016 or early 2017 in relation to a fire at the property. Clarification was sought as to whether a claim was made on behalf of IAIC Australia and what happened to any insurance monies paid.
On 15 March 2019, Holding Redlich contacted Consumer Affairs Victoria and was advised that the last annual statements and financial reports lodged by IAIC Australia were those ending 30 June 2013. The balance sheet for that financial year identifies land and buildings valued at $507,551. Mr Dirani deposes that that reference is to the property, as ‘it is the only land and buildings owned by IAIC Australia’. Among other things, the balance sheet also identifies three accounts with the ‘National Bank’, current cash assets totalling $30,354, income of $68,036 and accumulated losses of $37,970. The total association members’ fund is recorded as $547,164.
Mr Dirani deposes that, as at March 2019, a Westpac bank account in the name of Imam Ali Islamic Centre Inc had a balance of $72.83. He refers to three other bank accounts of IAIC Australia held with National Australia Bank, but states that he does not have access to them. Those accounts have the same account numbers as those identified in IAIC Australia’s financial report ending 30 June 2013. A subpoena was served on National Australia Bank on 5 April 2019 seeking copies of all bank statements for any account held by IAIC Australia from 1 July 2018. The National Australia Bank did not produce any documents in answer to the subpoena.
On 18 March 2019, Holding Redlich wrote to Russell Kennedy seeking all financial statements and/or reports of IAIC Australia prepared since the 30 June 2013 financial report, and all bank statements for any account held by IAIC Australia since 1 June 2018. Russell Kennedy responded by email on 21 March 2019, questioning on whose behalf Holding Redlich’s demands were made, before referring to veiled threats and high-handed demands of unidentified parties.
The plaintiffs are said to have incurred $770,909 and $709,239 in costs in the trust proceeding and membership proceeding respectively. As well as professional fees, these figures include disbursements and counsel’s fees. No detail was provided as to the basis of the quantum of Holding Redlich’s fees.
Applicable principles
Costs are at the discretion of the Court, unless as otherwise provided by an Act or by the rules of the Court.[4] The central principle is to make an order that is fair and just between the parties.[5] Ordinarily, costs follow the event such that a successful party is awarded costs in their favour.[6] Success may be in the action or on particular issues.[7]
[4]Supreme Court Act 1986 (Vic) s 24.
[5]Earnshaw v Loy (No 2) [1959] VR 252, 253 (Sholl J).
[6]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[7]Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, 624–5 (McHugh J).
In accordance with r 63.15 of the Supreme Court (General Civil Procedure) Rules 2015, unless the Court orders otherwise, a party who discontinues or withdraws part of a proceeding shall pay the costs of the party to whom the discontinuance or withdrawal relates to at the time of the discontinuance or withdrawal. The applicable principles were summarised by Derham AsJ in Soteriadis v Nillumbik Shire Council.[8] While the rule does not give rise to a presumption, it creates a starting point.[9]
[8][2015] VSC 363.
[9]Ibid [12].
A costs order against an unsuccessful litigant ‘aims to provide the successful party with some level of indemnity for the legal costs the successful party would not have incurred had it not been necessary to uphold his or her rights in court’.[10] According to the indemnity rule, the ‘party ordered to pay the other party’s costs is obliged to pay only those costs which the other party is legally obliged to pay to his or her solicitor’.[11] As the Court of Appeal stated in Shaw v Yarranova Pty Ltd (‘Shaw v Yarranova’):
Where the party against whom the costs order has been made seeks to displace the rule, it is necessary to prove that under no circumstances does the client have any liability to pay costs to his or her solicitors.[12]
In this regard, recovery of costs is permitted even though a third party may have indemnified the successful party or paid part of their costs.[13]
[10]Shaw v Yarranova Pty Ltd [2011] VSCA 55, [8] (Redlich and Mandie JJA) (‘Shaw v Yarranova’). See also Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555, 561 [22] and 563 [33] (Kiefel CJ, Bell, Keane and Gordon JJ).
[11]Mainieri v Cirillo (2014) 47 VR 127, 144 [43] (Nettle AP, Hansen and Santamaria JJA).
[12]Shaw v Yarranova (n 10) [20].
[13]Ibid [22].
The scope of Court’s statutory jurisdiction to award costs extends to making orders against non-parties.[14] While such power should be approached with caution, the Court’s discretion to exercise the jurisdiction has been described as ‘wide’ and ‘untrammelled’.[15] That is, the categories of cases in which the discretion may be exercised are never closed.[16] The Court’s discretion, however, must be exercised judicially and in accordance with general legal principles regarding the law of costs.[17]
[14]Bischof v Adams [1992] 2 VR 198, 201 (Gobbo J); Burns Philp & Co v Bhagat [1993] 1 VR 203, 210–23 (Brooking J).
[15]Bischof v Adams (n 14) 203.
[16]Re Bonlac Foods (2001) 37 ACSR 457, 463 (Warren J); Yu v Cao [2015] NSWCA 276, [137] (McColl JA, Sackville AJA and Adamson J agreeing).
[17]Knight v FP Special Assets Ltd (1992) 174 CLR 178, 192 (Mason CJ and Deane J) (‘Knight’); Wentworth v Wentworth (1999) 46 NSWLR 300, 310 (Santow J); Carter v Caason Investments Pty Ltd (2016) 341 ALR 154, 156–7 (Weinberg, Ferguson and Kaye JJA).
In Knight v FP Special Assets Ltd (‘Knight’), the High Court recognised a ‘general category’ of cases in which an order for costs should be made against a non-party.[18] Regarding this category, the informing principle is that:
If a party to litigation is liable to pay the costs of the successful party but is unable because of insolvency to do so, justice may require the costs to be paid by a non-party if it can be shown that the non-party played an active part in conducting the litigation and stood to benefit from a successful outcome.[19]
[18]Knight (n 17) 192–3 (Mason CJ and Deane J).
[19]Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348, [66] (Maxwell P, McLeish JA and Keogh AJA) (‘Gdanski’).
The Court of Appeal identified the applicable approach in Gdanski v Palms Court Management Pty Ltd (‘Gdanski’),[20] as determining first whether the discretion was enlivened, and second, whether the discretion should be exercised. The first question, described as a ‘threshold issue’, surrounds identifying whether the non-party may be considered the ‘real party’ in ‘critical or important’ respects.[21] Pertinent in this regard are the twin requirements that ‘the non-party have an active role in the litigation and an interest in its subject matter’.[22] Unless the non-party can be properly characterised as the real party, no question of the ‘interests of justice’ or of ‘exceptional circumstances’ arises.[23] When assessing the role and interest of the non-party, of significance is any connection between the non-party and the nominal party where that connection is material to the question of costs.[24]
[20]Ibid.
[21]Ibid [69] and [75].
[22]Ibid [69].
[23]Ibid [70].
[24]Ibid [90]. See also, Bischof v Adams (n 14) 205; Marriage of Millea and Duke (1994) 122 FLR 449, 453 (Murray J); EBG v KPZ [2019] VSC 630, [40] (Derham AsJ).
In relation to the role of the non-party, it is recognised that certain nominal parties, such as companies and incorporated associations,[25] are required to act through natural persons. Consequently, that non-parties such as directors or solicitors take an active role in litigation may be unsurprising.[26] Of relevance may be whether the non-party was acting consistently with their representative role.[27]
[25]Australian Bight Infrastructure Pty Ltd v Haagmans (2010) 106 SASR 59 (‘Australian Bight v Haagmans’).
[26]Gdanski (n 19) [73].
[27]Ibid [43], [73]–[75].
As to the interest of the non-party in the litigation, a direct financial interest is not necessarily required.[28] Rather, a broader approach is adopted whereby the ‘fruits of success in the litigation’ either belong to the non-party or are ‘substantially within’ her or his gift.[29]
[28]Ballantyne Suites Pty Ltd v Ballantyne Chambers Pty Ltd (in liq) (No 2) [2014] VSC 147, [16] (Hargrave J) (‘Ballantyne’).
[29]Ibid. See also IPEX ITG Pty Ltd (in liq) v State of Victoria [2011] VSCA 134 [13]–[20] (Macaulay AJA, Tate JA agreeing); Re Foster; Ex parte Foster v Duus (1994) 49 FCR 309; Oz B & S Pty Ltd v Elders Pty Ltd (1993) 117 ALR 128; Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757; Tinda Creek v Baulkham Hills [1998] NSWLEC 296; Australian Bight v Haagmans (n 25).
Two cases concerning costs orders sought against the leaders of an incorporated association and company underscore how fact-specific the relevant enquiry is. In Australian Bight Infrastructure Pty Ltd v Haagmans (‘Australian Bight v Haagmans’),[30] the plaintiff was an environmental association which unsuccessfully challenged the validity of certain aquaculture leases and a licence held by the defendant. The defendant then sought costs against the president and chairman of the association, who was not a party to the proceeding. Bleby J dismissed the application for costs. His Honour determined that the president was not the real party or driving force to the litigation. Relevant in this regard was:
[30]Australian Bight v Haagmans (n 25).
(a) The mere fact that the president took an active role in giving instructions for the litigation was neutral. As the chair of the relevant meetings, he did not put forward or vote on any proposal when any relevant decisions about the litigation were made.
(b) Decisions about the commencement and conduct of the proceeding were made on the best advice available at the time.
(c) The committee believed that it could finance the litigation from its own resources. A guarantee provided by the president was the only feasible way that security for costs could be provided and it kept the proceeding alive.
(d) Although the president also had a licence, the association was not a mere front for his commercial interests.
(e) Although the president was expressing environmental concerns, it could not be said that he had a substantial and relevant interest in the subject of the litigation.[31]
[31]Ibid 67–70 [44]–[57].
In contrast, in Tinda Creek Spiritual & Environment Centre v Baulkham Hills Shire Council (‘Tinda Creek Spiritual & Environment Centre’), Sheahan J did order costs against the director of a public company which was incorporated as a church.[32] His Honour found:
[32](1998) 100 LGERA 432 (‘Tinda Creek Spiritual & Environment Centre’).
(a) The non-party played an extremely active part in the conduct of the litigation. The other directors had almost no knowledge of, or commitment to, any of the director’s litigious activities.
(b) Although the non-party did not have a financial interest, ‘financial interests cannot possibly be the sole test’.[33] In the circumstances, as a full-time environmental activist, the non-party had a substantial and relevant interest in the matter.
[33]Ibid 442.
(c) The plaintiff’s record-keeping and attention to corporate governance facilities was admitted to be poor.
(d) The director was playing a leading role beyond that of a public officer. There was no evidence of his reporting back to any of the other members or purported members of the company, and while there was no hard evidence or fraud, there was an abundance of corporate irregularities.
(e) In essence, virtually everything revolved around the director personally. He had exclusive control of the plaintiff’s financial management, and exerted control of the sources and disbursements of its funds. His conduct in almost all respects lacked any ‘representative character’, he was in effect the litigant, and erected the plaintiff to stand in front of him.[34]
[34]Ibid 442–9.
(f) The fact that the non-party is the real party, or effective litigant, standing behind an insolvent party, ‘opens the door to exercising a judicial discretion to make a non-party costs order but does not require it’.[35] The second question surrounds whether it is in the interests of justice for the discretion to be exercised. On this issue, of relevance may be factors such as a failure to warn that a non-party costs order may be sought;[36] failure to seek an order for security for costs; and improper conduct of the non-party.[37]
[35]Ballantyne (n 28) [5].
[36]Ralena v Victorian Civil and Administrative Tribunal (No 3) [2007] VSC 12, [13] (Kaye J).
[37]Gdanski (n 19) [90]; Carter v Caason Investments Pty Ltd (n 17) 157 [13].
(g) The relevance of improper conduct was discussed in Gdanski.[38] In considering Vestris v Cashman,[39] the Court of Appeal in Gdanski noted that it is only where the discretion is enlivened that improper conduct might become a relevant factor. The Court of Appeal referred to Heath v Greenacre Business Park Pty Ltd[40] as an example of such a process. There, the discretion to award a non-party costs order was enlivened because the director caused the company to defend a proceeding and issue a cross-claim. He had also taken over the conduct of the proceeding when the company’s solicitors withdrew, and had a direct financial interest in the success of the cross-claim. In the exercise of the discretion, of significance was the unreasonableness of maintaining the proceeding after a particular date. The Court of Appeal went on, however, to note that a shortcoming in professional conduct, such as allegations of conflict of interest, ‘might shed light on the threshold question’ as to whether the non-party could be characterised as the ‘real party’ to the litigation.[41]
(h) On the issue of notice, although failure to give notice to a non-party may be relevant, it is not a decisive consideration.[42]
(i) Of final note are costs principles applicable to trusts. The ordinary position is that a ‘trustee is entitled as of a right of indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred’.[43] However, the costs of the trustee are unlikely to be indemnified where the trustee is attempting to repudiate the trust; that is, where the trustee is acting for its own benefit rather than for the trust.[44]
[38]Gdanski (n 19) [90].
[39](1998) 72 SASR 449.
[40][2016] NSWCA 34.
[41]Gdanski (n 19) [92].
[42]Australasian Academy of Natural Medicine Pty Ltd v Walters (2003) 85 SASR 36; Popeye Bidco Pty Ltd (rec and mgr apptd) v Intermediate Capital Asia Pacific 2008 GP Ltd (No 3) [2018] FCA 1597; Tsui v Westpac Banking Corporation [2002] 2 Qd R 335, 341–2 (Mackenzie J, Williams JA and Chesterman J agreeing).
[43]Re Cambronero; Cambronero v Palma [2019] VSC 838, [40] (McMillan J), citing GE Dal Pont, Equity and Trusts in Australia (Thomas Reuters, 7th ed, 2019) 682–3 [23–135]; Turner v Hancock (1882) 20 Ch D 303; Re Beddoe; Downs v Cottam [1893] 1 Ch 547.
[44]GE Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) [10.4].
Plaintiffs’ submissions
The plaintiffs did not address the issue of costs for each proceeding separately, as their emphasis was that the proceedings are interconnected. That is, as identified in the trial reasons,[45] it was necessary to determine who the members of IAIC Australia were in order to ascertain who was the directing mind and will of the association at the time of incorporation and, on that issue, the plaintiffs succeeded.
[45]Trial reasons (n 1) [464].
The plaintiffs seek costs against Mr Sami and Mr Yatim on a standard basis. They claim that costs should follow the event, that Mr Sami and Mr Yatim were the ‘real parties’ to the litigation, and that the interests of justice require that Mr Sami and Mr Yatim pay any costs order awarded in favour of the plaintiffs. Should they fail in this regard, they seek an order that IAIC Australia pay the plaintiffs’ costs of the proceedings.
The plaintiffs accept that a successful party can only recover costs for which it is liable. However, they assert that there is a well-established basis for recovery of costs even where a third-party has indemnified or paid the costs on behalf of another party.[46] As such, the fact that the plaintiffs’ legal bill is ultimately being paid by IAIC Canada does not bar recovery.[47]
[46]On this point, the plaintiffs cited GE Dal Pont (n 44) [7.16]; Shaw v Yarranova (n 10) [27]; Coshott v Burke (No 2) [2018] FCAFC 81, [89]–[90] (Logan, Kerr and Farrell JJ).
[47]Shaw v Yarranova (n 10); Coshott v Burke (n 46).
In relation to whether the plaintiffs were successful in the proceeding, the plaintiffs describe the outcome of the litigation as ‘overwhelmingly’ in their favour and submit they were successful in relation to the first, third and fourth of the following four principal questions for determination:
(a) whether the property was held on trust for IAIC Canada;
(b) whether Mr Dirani, Mr El-Khishin and Mr Fneich were founding members of IAIC Australia, and if so, whether they remained current members;
(c) whether Mr Sami and Mr Yatim, and their family members, were members of IAIC Australia; and
(d) whether Mr Sami or Mr Yatim were Mutawalli or president of IAIC Australia.
In relation to a non-party costs orders, the plaintiffs submit that IAIC Australia is not in a position to pay any costs order made against it. Moreover, Mr Sami and Mr Yatim have refused to produce any more recent financial information. The plaintiffs submit that Mr Sami and Mr Yatim are the real parties to the litigation as they were directly involved in, and had an interest in, the outcome of both proceedings. They held themselves out as validly appointed members and officers of IAIC Australia and assumed a position as the directing mind and will of the association. In this regard:
(a) from July 2013, the purported committee of IAIC Australia was seeking legal advice;
(b) by December 2013, lawyers for Mr Sami as Mutawalli and the purported members of IAIC Australia wrote to Consumer Affairs Victoria;
(c) Mr Sami gave instructions on behalf of IAIC Australia and swore affidavits of documents in both proceedings in his capacity as president;
(d) Mr Sami and Mr Yatim created the forged application forms and the notices of minutes of meeting concerning Mr Sami’s purported appointment as Mutawalli. Moreover, Mr Yatim gave evidence that he purportedly unilaterally changed the amended rules to provide for Mr Sami’s appointment as Mutawalli.[48]
[48]Trial reasons (n 1) [251], [279].
As to the requisite interest, the plaintiffs emphasise that, had Mr Sami and Mr Yatim been successful in their defence in the trust proceeding and counterclaim in the membership proceeding, they would have been declared members of IAIC Australia, had effective control of property of significant value, and Mr Sami and his family could have returned to living at the property. In relation to the latter point, they submit that the following evidence is said to be of relevance:
(a) of Muna Al Bakiry (‘Muna’), the eldest daughter of Dr Al Bakiry, that her family had to sell the house in Greenvale because they could no longer afford the mortgage repayments and the family hoped to move back into the property; and
(b) of Mr Sami, that it was his intention, following his father’s death, to spend at least some of his family’s time living at the property.
In relation to whether it is in the interests of justice for a non-party costs order to be made, the plaintiffs traversed three main themes. First, they asserted that Mr Sami and Mr Yatim held themselves out on the basis of forged documents, and it was only in response to a notice to admit that Mr Sami admitted that the signatures on the forged application forms were not those of Dr Al Bakiry. On this point, the plaintiffs relied on Ballantyne Suites Pty Ltd v Ballantyne Chambers (in liq) (No 2) (‘Ballantyne’) and submitted that a non-party costs order can be made irrespective of whether the person had knowledge of the fraud.[49]
[49]Ballantyne (n 28) [42]–[43].
In Ballantyne, the relevant non-parties were the directors of the plaintiff. The plaintiff asserted, among other things, that, prior to the defendant going into liquidation, it had been appointed to replace the defendant as trustee of a unit trust, and that the units of the trust had been transferred to the trustees of two discretionary trusts. The defendant and its liquidator contended that the transfers were invalid on account of fraudulent backdating of documents by the father of the non-parties, who was also the original unit holder of the unit trusts. The defendant succeeded, and the trial judge awarded costs against the non-parties. Upon appeal, the non-parties asserted that exceptional circumstances were not established on grounds that included that they had no knowledge of their father’s fraud. The Court of Appeal dismissed the appeal, stating that the non-parties had construed ‘exceptional circumstances’ too narrowly. Other features of the case meant that such a finding was open to the trial judge, including the father’s previous convictions for serious fraud, the lack of consideration given for the transfer and the context of insolvency. Further, the pleading of the defendant particularised the basis of the defence, and it was implausible that the non-parties did not know the risk that they were running.
Similarly, in North South Construction Services Pty Ltd v Construction Pacific Management Pty Ltd (‘North South Construction Services’),[50] costs were awarded against a non-party director. The director had attempted to support the plaintiff company’s case with ‘bogus’ documents. After it became apparent during the hearing that the documents were likely to be false, he embarked upon an explanation, but counsel ultimately ceased to rely upon them. Bryson J viewed the circumstances as an abuse of process.
[50][2002] NSWSC 286 (‘North South Construction Services’).
Secondly, Mr Sami and Mr Yatim are said to have prosecuted a case that was predicated on factual assumptions they knew they could not make good. It was dependent upon:
(a) contested application forms asserted to be signed by Dr Al Bakiry, though in the circumstances Mr Sami and Mr Yatim could not, and did not, know that he did. In this regard, the plaintiffs noted the deficiencies in the evidence provided by a number of the witnesses;
(b) documents that were forged, being both sets of membership application forms;
(c) documents that could not have been genuine, including a notice of meeting dated 7 January 2013 and documents lodged with Consumer Affairs, including a minute of meeting dated 28 January 2013; and
(d) evidence that could not establish the membership of IAIC Australia for which Mr Sami and Mr Yatim (via IAIC Australia) contended.
It was also the case that none of the witnesses called by IAIC Australia were able to give evidence as to the events that gave rise to the trust.
Ultimately, the plaintiffs submitted that Mr Sami and Mr Yatim could not satisfy cl 5.2 of IAIC Australia’s rules, and Mr Sami caused IAIC Australia to defend the proceeding without actually ascertaining a first-hand version from the individuals determined to be founding members of IAIC Australia.[51]
[51]Citing trial reasons (n 1) [327].
Thirdly, the plaintiffs state that Mr Sami and Mr Yatim were on notice that the plaintiffs would seek costs orders against them personally and, up until recently, they were parties to the membership proceeding. The plaintiffs gave notice once it became clear upon the evidence that Mr Sami and Mr Yatim could not make out their case as to membership.
In circumstances where: Mr Sami and Mr Yatim did not have valid authority to conduct the litigation; they caused IAIC Australia to unsuccessfully defend the proceeding; they could not adduce evidence concerning the critical events or issues in dispute in the trust proceeding and they could not prove that the applicants were validly appointed, the plaintiffs submit that they must have known of the risks associated with pursuing the litigation on behalf of IAIC Australia. That IAIC Canada may have been aware of the extent of IAIC Australia’s assets is not relevant in a context where IAIC Canada was forced to litigate to establish its entitlement.
Finally, according to the plaintiffs, the trustee’s indemnity is of little assistance because IAIC Australia was acting contrary to its role as trustee.
Submissions on behalf of Mr Sami and Mr Yatim
Mr Sami and Mr Yatim assert that, on the question of costs, the Court should consider the proceedings separately. In relation to the membership proceeding, they submit that three threshold points need to be addressed. First, as there is evidence that Mr Dirani and Mr El-Khishin do not have liability for costs of the proceeding, the indemnity principle precludes an award of costs in their favour.[52] On this point, reliance is placed on the evidence of Mr Dirani and Mr El-Khishin that IAIC Canada had paid the legal bills of Joseph Poloni and Holding Redlich. Secondly, the oppression claims brought against Mr Sami and Mr Yatim were discontinued in part on the first day of trial. They submit that pursuant to r 63.15 of the Supreme Court (General Civil Procedure) Rules 2015, Mr Sami and Mr Yatim are entitled to an order that the plaintiffs in the membership proceeding pay their costs. The discontinued claims are said to be not insubstantial, prosecuted from July 2014 until the start of trial in February 2017, and it was ultimately determined that they were never open to be made.
[52]Citing GE Dal Pont, (n 44) [7.10].
Thirdly, Mr Sami and Mr Yatim are no longer defendants in the membership proceeding. Not only are costs being sought against non-parties, but persons whom the Court found were not proper or necessary parties to the proceeding.[53]
[53]Trial reasons (n 1) [682].
In relation to costs following the event, Mr Sami and Mr Yatim submit that the success of the plaintiffs in the membership proceeding was limited. It was determined that the only current member of IAIC Australia was Mr Dirani, and the membership of Mr El-Khishin and Mr Fneich was rejected, as was the proposition that Mr Dirani was Mutawalli. Failure of the counterclaim does not justify a non-party costs order in circumstances where the Court identified widespread non-compliance with the rules of the association.
In relation to awarding costs against non-parties, Mr Sami and Mr Yatim contend that they did not have an interest in the property. Mr Yatim never resided there and Mr Sami had no personal interest. If Mr Sami had any ‘control’ over the property, it is said that this was by reason of being an office-bearer of the registered proprietor. There was no legal entitlement to reside at the property. Even if Mr Sami had a desire to return to the property and continue to run the organisation that his father had grown, Mr Sami and Mr Yatim submit that this is insufficient to open the Knight ‘gateway’.
Mr Sami and Mr Yatim also submit that there is insufficient causal connection between their actions and the costs incurred. The plaintiffs in the membership proceeding would have needed a proper contradictor to obtain the declarations that they sought, and, as such, would have incurred at least some of the costs in any event.[54]
[54]PW Young, Declaratory Orders (Butterworths, 2nd ed, 1984) [210]; Russian Commercial & Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438, 448 (Lord Dunedin); Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, 437–8 (Gibbs J).
Distinct from many of the authorities, the plaintiffs’ application has been made against non-parties who were formally defendants. They were not the initiating party in the proceedings, save and except for the counterclaim, which was proper to bring in the circumstances. Further, Consumer Affairs Victoria recognised Mr Sami and Mr Yatim as being office-bearers.
Mr Sami and Mr Yatim also contend that the letter of purported notice was sent after the second last day of evidence and is suggestive of hindsight. If all other things were equal, which is not conceded, any entitlement to costs against a non-party typically commences only from the date of notice.[55] Regarding the conduct of the non-parties, it was not asserted that Mr Sami or Mr Yatim forged the documents, and it was not established that Mr Sami and Mr Yatim held themselves out as office-bearers knowing the documents to be false. Rather, they were upfront about the ‘re-created’ membership application forms and the matter was raised and explained at trial.
[55]GE Dal Pont (n 44) [22.26].
In relation to the trust proceeding, Mr Sami and Mr Yatim submit that they were never parties and that notice of a personal costs order was only given during trial. Further, IAIC Canada would have known that if it were successful in the trust proceeding, the property was the only asset that could be liquidated, yet it proceeded with the litigation. Mr Sami and Mr Yatim also assert that although the Court determined that a trust existed, this finding was based upon matters which pre-dated either Mr Sami or Mr Yatim’s involvement in IAIC Australia, in circumstances where the provision of the purchase monies was on the basis that the benefactor remain anonymous. Moreover, the Court found against IAIC Canada on a number of issues, and, as the relief sought was declarations, a contradictor was always needed and the incursion of legal costs was inevitable.
Consideration
The trust proceeding and membership proceeding are inextricably linked. The issue of IAIC Australia’s membership informed how its intention was to be identified in the trust proceeding and witnesses in the two proceedings overlapped. As such, an overall approach to the costs across the two proceedings is appropriate. Nevertheless, such an approach must be informed by principles that are applicable to the trust proceeding and membership proceeding individually, rather than simply generalising specific issues, such as the role and interest of Mr Sami and Mr Yatim, for example, across the two proceedings. Accordingly, each issue will be considered with respect to both proceedings, before an overall assessment is made across the two proceedings.
The key issues to be resolved are:
(a) whether the indemnity principle applies;
(b) whether costs follow the event in the two proceedings;
(i) how the discontinued claims should be addressed;
(c) whether a non-party costs order should be made against Mr Sami and/or Mr Yatim;
(i) whether IAIC Australia is insolvent;
(ii) in regard to each of Mr Sami and Mr Yatim, whether the discretion is enlivened and whether it is in the interests of justice for the discretion to be exercised; and
(d) how costs should fall overall.
Does the indemnity principle apply to the parties?
It was not in dispute that the indemnity principle applies to the two parties in the trust proceeding. As such, while a costs agreement between IAIC Canada and Holding Redlich has not been adduced, the presumption of a retainer is not displaced.[56]
[56]See, eg, Shaw v Yarranova (n 10) [19].
In the membership proceeding, Mr Sami and Mr Yatim argued that the indemnity principle precluded Mr Dirani and Mr El-Khishin from recovering costs. That is, there was evidence that IAIC Canada was paying the costs of Joseph Poloni and Holding Redlich rather than Mr Dirani and Mr El-Khishin. However, according to Shaw v Yarranova, it is necessary for Mr Sami and Mr Yatim to demonstrate that under no circumstances did Mr Dirani and Mr El-Khishin have any liability to pay costs to their solicitors. This was not established on the evidence. Indeed, Mr El-Khishin gave evidence that he was not indemnified by IAIC Canada.
Should costs follow the event in the proceedings?
The ordinary rule is that costs follow the event. In the trust proceeding, IAIC Canada was successful in its principal claim that the property was held on constructive trust. Although it was unsuccessful in respect of a number of alternative grounds, the factual basis for the trusts was complex and concerned events taking place many years ago. As such, IAIC Canada should not be penalised for being unsuccessful in this regard. In relation to the ancillary issues, while IAIC Canada was, somewhat confusingly, unsuccessful in arguing that one of its witnesses, a key individual concerning the provision of purchases funds for the property, was not competent to give evidence, it was successful in its video-link application.
In the membership proceeding, the plaintiffs successfully argued that Mr Dirani was a current member of IAIC Australia. However, they failed in their assertions that Mr El-Khishin and Mr Fneich were members and that Mr Dirani was Mutawalli. The counterclaim of the defendants failed in its entirety. Further, a key evidentiary issue was the expert report of Dr Holland, which the defendants were unsuccessful in their attempt to have excluded. On balance, on account of the recognition of Mr Dirani as the only current member of IAIC Australia, the plaintiffs were slightly more successful in the proceeding.
That being said, of relevance are the following three points. First, as submitted by Mr Sami and Mr Yatim, the plaintiffs in the membership proceeding did not press the pleaded grounds of oppression. It was not until the first day of trial that the claims were discontinued. Those claims included issues and evidence that were not otherwise covered in the membership proceeding, such as whether Mr Sami operated a truck-cleaning business at the property and access to the property after June 2014. In this regard, the differences between the oppression claims pleaded in the second further amended statement of claim and the third further amended statement of claim are significant. Notably, the latter claim no longer brought claims against Mr Yatim personally.
As summarised in Soteriadis v Nillumbik Shire Council, in accordance with r 63.15 of the Supreme Court (General Civil Procedure) Rules 2015, the defendants’ costs shall be paid by the plaintiffs concerning the discontinued claims.[57] The plaintiffs bear the burden to show that a contrary order should be made. The plaintiffs did not make submissions to this effect. In oral submissions, it was stated that the claims were discontinued upon advice because they could not be made good. Consequently, IAIC Australia as the remaining defendant is entitled to its costs to the time of discontinuance. The question arises as to whether Mr Sami and Mr Yatim, as non-parties to the membership proceeding, should also be awarded their costs associated with the discontinued claim.[58] Submissions were not made on this specific point. In circumstances where IAIC Australia, Mr Sami and Mr Yatim were jointly represented in the proceeding, it is assumed that any award of costs in IAIC Australia’s favour may be off-set against any order for non-party costs made against Mr Sami and Mr Yatim.
[57]Soteriadis v Nillumbik Shire Council (n 8).
[58]As to the applicable principles on this point, see Gorman & Kelly Commercial Real Estate v Peluso (No 2) [2017] VSC 481.
Secondly, the remaining oppressive conduct claim concerned conduct of Mr Sami, rather than of IAIC Australia, and the relief sought did not require orders to be directed toward him. As such, the claim ultimately appeared incorrectly framed and formed the grounds for the removal of Mr Sami and Mr Yatim as parties to the membership proceeding.[59]
[59]Trial reasons (n 1) [682].
Thirdly, as the Court emphasised in the trial reasons, the substantial legal turmoil surrounding IAIC Australia stemmed from the consistent lack of procedural compliance in its affairs.[60] The proceedings that eventuated relied upon incomplete records and extensive witness evidence. These difficulties were compounded by the fact that many of the relevant events occurred years ago and spanned lengthy periods of time. Much of the complexity of the case, if not the proceedings themselves, could have been avoided had IAIC Australia maintained proper records. During their involvement with IAIC Australia, both the plaintiffs and Mr Sami and Mr Yatim contributed to these issues. Accordingly, particularly insofar as the membership and Mutawalli of IAIC Australia were disputed in the membership proceeding, this weighs in favour of an order that costs should lie where they fall.
[60]Ibid [683].
Further, the trial was adjourned twice on account of late discovery. Unsurprisingly, this was not pressed by either the plaintiffs or Mr Sami and Mr Yatim as they were each at fault on one of the two occasions.
Accordingly, in regard to the two proceedings, the Court’s view is that IAIC Australia should pay IAIC Canada’s costs in the trust proceeding. However, in the membership proceeding, having regard to the second and third points referred to above, the plaintiffs should be awarded only 50 per cent of their costs and those costs should be off-set by the costs of the remaining defendant, IAIC Australia, of and incidental to the discontinued oppression claims.
Having regard to the two proceedings overall, the issues and trial were relatively equally split across the trust proceeding and membership proceeding. As such, attributing 50 per cent to each, before discounting the membership proceeding, IAIC Australia is liable to pay 75 per cent of the plaintiffs’ costs, subject to the discount due to the discontinued oppression claims.
Should a non-party costs order be made against Mr Sami and/or Mr Yatim?
The next issue requiring consideration is the solvency or otherwise of IAIC Australia. IAIC Australia is the only defendant in the trust proceeding and the only remaining defendant in the membership proceeding. As set out, it is liable to pay a proportion of the costs to the plaintiffs. Insofar as the plaintiffs seek non-party costs orders against Mr Sami and Mr Yatim, in accordance with the general category of cases identified in Knight, it is necessary to first determine whether IAIC Australia is insolvent.
Is IAIC Australia insolvent?
The evidence concerning the current financial status of IAIC Australia is limited. The records for the financial year ending June 2013 indicate that the property and a quantity of cash were the association’s chief assets.
The property is held to the benefit of IAIC Canada. While IAIC Australia currently has certain rights and obligations as trustee, those do not extend to a right of indemnity from the assets of the trust in relation to the costs of the trust proceeding. In defending that proceeding, IAIC Australia was denying the existence of the trust. Similarly, in defending the membership proceeding, IAIC Australia was not acting as trustee. Consequently, in order to satisfy any costs orders against it, assets beyond the property must be considered.
The evidence of Mr Yatim described the income of IAIC Australia as coming from donations, ‘the Arabic school’, and government grants, and he stated that the association was ‘minus all the time’. The last financial statements registered with Consumer Affairs show that, while IAIC Australia carried over a loss from the previous financial year, in 2013 it also had $30,354 cash in bank accounts. At least since 1 July 2018, it appears that those bank accounts have not existed. Further, the Westpac bank account in the name of IAIC Australia, of which Mr Dirani is familiar, has a balance of $73.83. While reference has been made in correspondence to insurance monies, it is unclear whether such funds were ever paid.
Aside from the Westpac bank account, and Mr Yatim’s evidence, the picture of IAIC Australia’s financial status since 2013 is uncertain. This is reflected in the submissions of counsel for the plaintiffs at a directions hearing on 13 June 2019 referring to an application by Mr Dirani to have IAIC Australia ‘wound up on the just and equitable ground and a liquidator appointed who might more fully and comprehensively be able to investigate the financial position of the association’.
On the other hand, the Court recognises that Mr Sami and Mr Yatim, as purported office-bearers of IAIC Australia between 2013 and 2018, are the individuals best placed to adduce evidence surrounding the association’s financial status during that period. They have not done so, and instead a ground upon which their submissions rely is that the plaintiffs, in bringing the action, should have known of IAIC Australia’s limited funds.
On balance, and given the lack of evidence adduced by Mr Sami and Mr Yatim, the Court infers that IAIC Australia is insolvent.
Should a costs order be made against Mr Sami?
Was Mr Sami a ‘real party’ to the proceedings?
In order to enliven the discretion to award costs against Mr Sami, it is first necessary to identify whether he was a ‘real party’ to the litigation. In turn, this requires consideration of his role in the conduct of the litigation and his interest in the proceedings.
At the outset, it is of some assistance to recognise that Mr Sami’s role in the two proceedings can be viewed from three perspectives. First, the evidence discloses that he acted upon the assumption that he was the Mutawalli of IAIC Australia. In this capacity he gave instructions and swore affidavits in both proceedings. While his status as Mutawalli proved incorrect, as he and Mr Yatim submit, it is not asserted that he knowingly held himself out as the leader of IAIC Australia in a false capacity. Rather, the Court expressly found that although Dr Al Bakiry intended his son to become Mutawalli, this did not eventuate in accordance with the rules of IAIC Australia.[61]
[61]Trial reasons (n 1) [618], [653].
Secondly, Mr Sami assumed that he was a member of IAIC Australia. In this respect, his position in the membership proceeding aligned with that of the other purported members of IAIC Australia.
Thirdly, until the Court made orders on 31 July 2018, Mr Sami was a named defendant in the membership proceeding. As a named defendant, he participated in the proceeding up until that date with the knowledge that he could ultimately be exposed to a costs order personally.
In the trust proceeding, Mr Sami’s role in giving instructions and affirming affidavits appears consistent with his assumption that he was the new Mutawalli of IAIC Australia. As such, it is unsurprising that he actively participated in the proceeding. The document asserted to be minutes of the annual general meeting of IAIC Australia discloses that it was resolved to seek and act upon legal advice and IAIC Australia engaged the services of Russell Kennedy.
The plaintiffs have not submitted that Mr Sami funded IAIC Australia’s litigation personally. While it may perhaps be inferred that the association would have encountered difficulties in this regard, the prospect that it drew upon donations from the community should not be eliminated.
Of significance, however, beyond the minute of meeting dated 29 July 2013, Mr Sami has not pointed to evidence that he kept the IAIC Australia committee, as it was purported to exist, informed of the progress of the litigation or that further resolutions were made surrounding the direction of the litigation. The lack of such evidence suggests that Mr Sami went beyond the role of the representative of IAIC Australia for the purposes of the litigation.
However, the Court is not satisfied that Mr Sami had the requisite interest in the trust proceeding. It cannot be said that ‘the fruits of success’ in the trust proceeding were substantially within his gift. If the defence in the trust proceeding had been successful, the entire interest in the property was that of IAIC Australia’s. While the plaintiffs assert that Mr Sami did have an interest, in that success in both proceedings would have led to effective control over the property, as Mutawalli he would have been limited by the rules of IAIC Australia and the Associations Incorporation Reform Act 2012 (‘AIR Act’). The latter, for example, provides that unless expressly provided for in the AIR Act or rules of the association, membership must not be taken to confer on any person any right, title or interest (whether legal or equitable) in the property of the association.[62]
[62]Associations Incorporation Reform Act 2012 (Vic) s 52 (‘AIR Act’).
The evidence as to the informal living arrangement at the property is limited. Dr Al Bakiry and his family appeared to live at a home on the property from 1995 to 2012, save for a twelve-month period when a visiting cleric resided there. In 2012, a property was purchased in Greenvale, and Mr Sami gave evidence that he and his family lived between the two properties — living mostly at Greenvale but one to two days at the property. After Dr Al Bakiry’s death, the Greenvale property had to be sold as the family could not pay the mortgage payments. Muna’s evidence was that the family planned to move back to the property. Mr Sami also agreed that the plan was to spend at least some time there, although this would again be combined with living at another property. It is also not clear how Mr Sami’s purported informal interest in the property sits alongside the suggestion he was seeking to sell the property in late 2013.[63]
[63]Trial reasons (n 1) [345].
The informal rights that Mr Sami, as purported Mutawalli, may have had to the property are not a sufficient interest for the purposes of a non-party costs order. The evidence is that the family was living between two houses prior to Dr Al Bakiry’s death and had previously had to relocate on account of a visiting cleric. Although it can be accepted that, in the context of an inability to finance the Greenvale property, moving to the property would have been an immediately viable option, Mr Sami’s evidence as to locating a second property can also be accepted. Moreover, it appears that he took steps to sell the property in late 2013. In such circumstances, it cannot be concluded that the informal interest in the property was materially significant in relation to Mr Sami’s connection with the proceeding.
Further, it is not apparent how any connection of Mr Sami to the proceeding was material to the question of costs. The trust proceeding was factually complex, relying upon limited documents and extensive evidence of witnesses. It is likely that much of this evidence would have had to come before the Court regardless of whether IAIC Australia actively defended the proceeding. Moreover, in circumstances where the community raised the initial funds for the deposit to purchase the property,[64] and the alleged trust interest was not recorded in financial accounts,[65] it was appropriate for the proceeding to be defended.
[64]Ibid [44].
[65]Ibid [212].
Accordingly, Mr Sami was not a ‘real party’ to the trust proceeding in critical or important respects.
In the membership proceeding, Mr Sami was again involved in the proceeding by purportedly providing instructions and filing affidavits on behalf of IAIC Australia. Again, as he assumed that he was the Mutawalli of IAIC Australia, it is not surprising that he had an active role in the litigation. The lack of evidence of consultation with the committee, however, is suggestive of Mr Sami going beyond a representative role.
The plaintiffs rely upon the specific conduct of Mr Sami in creating the forged application forms and the existence of the duplicate notices of minutes of meeting as indicating his control and intimacy with the proceeding.[66] However, those documents appear to have been created before the membership proceeding was on foot and explanations were provided surrounding their existence. Further, to the extent that the suggestion is that they were used to establish Mr Sami’s control as purported Mutawalli of IAIC Australia, they were only part of the circumstantial evidence adduced in this regard.
[66]Ibid [297], [251].
Mr Sami had a personal interest in the membership proceeding in that the counterclaim of IAIC Australia asserted that he was both a member of the association and its Mutawalli. Significantly, Mr Sami was also a named defendant in the membership proceeding concerning the claims of oppressive conduct, and, up until the point that he was removed as a party, would have known that he was exposed to an adverse costs order.
Insofar as Mr Sami had effective control over the membership proceeding by acting as Mutawalli without apparent remit to the purported committee, and was a named party, he was a real party to the proceeding. However, the following two points ought be noted in this regard. First, the basis of Mr Sami’s most significant interest in the proceeding, being a named party, was the incorrect framing of the plaintiffs’ oppression claim. Mr Sami was removed from the membership proceeding as the relief sought by the plaintiffs was not directed toward him, and as such, he was not a proper or necessary party.[67] Even if Mr Sami’s personal connection in this regard was material to the question of costs, it was only brought about by the conduct of the plaintiffs, which would be a factor weighing heavily against the plaintiffs in the exercise of discretion.
[67]Ibid [683].
Secondly, it is not apparent how Mr Sami’s involvement in the membership proceeding was material to the question of costs. This is in circumstances where:
(a) there was a consistent lack of procedural compliance in the affairs of IAIC Australia;
(b) circumstantial evidence supported a succession plan by Dr Al Bakiry that involved Mr Sami becoming Mutawalli;
(c) the minutes of annual general meetings of IAIC Australia for the years 2009 to 2012 recorded that those present included Dr Al Bakiry, Mr Sami and Mr Yatim; and
(d) the contested application forms were in existence and it is not asserted that Mr Sami knew that they were forged.
Accordingly, it was appropriate for IAIC Australia to defend the proceeding and it is likely that the Court would have had to consider a similar breadth of evidence even if IAIC Australia had not issued a counterclaim.
Although in Tinda Creek Spiritual & Environment Centre, a lack of procedural compliance was a factor that weighed against the non-party, the circumstances here are distinct. At various times, the plaintiffs in the membership proceeding and Mr Sami and Mr Yatim were all involved in the administration of IAIC Australia and, as such, all contributed to the lack of procedural compliance. Further, IAIC Australia was functioning as an association that benefited the broader Islamic community in Melbourne. In Tinda Creek Spiritual & Environment Centre, the company was, in effect, a shell through which the non-party pursued litigation that aligned with his personal interests.
Overall, Mr Sami actively controlled the proceedings based upon his assumed authority as Mutawalli. While the Court has not been taken to evidence that he personally funded IAIC Australia’s litigation, the lack of evidence of his ongoing consultation with the purported committee of IAIC Australia suggests that he was controlling the litigation in his personal rather than representative capacity. The Court is not satisfied that the personal interests Mr Sami had in the proceedings, namely maintaining his membership and purported position as Mutawalli, as well as the informal benefits that flowed from those positions, were significant enough to enliven the Knight discretion. As a named defendant, Mr Sami’s most significant interests were defending the substantive claim against him and avoiding an adverse costs order. However, it is not apparent how these interests, combined with his effective control over the proceedings, were material to the question of costs. The Court accepts that in the circumstances it was appropriate for IAIC Australia to defend the proceedings and issue the counterclaim, and even if such steps had not been taken, much of the same evidence would have had to be considered. IAIC Australia was not a ‘straw-man’ used to pursue Mr Sami’s personal interests. Rather, it was an association serving the broader community which became involved in legal turmoil on account of a consistent lack of procedural compliance. This meant that it was necessary for all of the factual and legal issues to be explored and resolved.
Is it in the interests of justice to award a costs order against Mr Sami?
Given the preceding conclusions, it is unnecessary to answer this question. If it were applicable, however, the Court would not have exercised the discretion against Mr Sami.
As Mr Sami and Mr Yatim submit, notice of a non-party costs order in the trust proceeding was only given with two days remaining in the hearing. To an extent, this is balanced by Mr Sami and Mr Yatim being named as parties in the membership proceeding. On one view, it may be reasonable to conclude that Mr Sami and Mr Yatim would have been aware of the risk of a global costs order being made across the two proceedings. Alternatively, the Court’s reasons indicate that the basis of Mr Sami and Mr Yatim being joined as parties to the membership proceeding was the oppressive conduct claims. It may have been within the contemplation of Mr Sami and Mr Yatim that while they were named as parties, the issue of oppressive conduct could have been discretely addressed in any costs order. In the Court’s view, the issue of notice is of little assistance in determining whether the discretion should be exercised.
Beyond notice, the plaintiffs’ submissions relied upon two further aspects of the case: first, the conduct of Mr Sami with reference to forged application forms and contested application forms; and second, the assertion that Mr Sami maintained claims that were untenable. In relation to the former, while it is regrettable that Mr Sami reconstructed the forged application forms, he provided an explanation for the creation of the documents. Regarding the contested application forms, as Mr Sami and Mr Yatim submit, it is not asserted that they knew that Dr Al Bakiry’s signatures were forged.
While the plaintiffs point to Ballantyne and North South Construction Services as cases where costs were awarded against a non-party in the context of fabricated documents, those cases differ from the current circumstances in material respects. In Ballantyne, the Court of Appeal looked to features of the case beyond the non-parties’ lack of knowledge of fraud to uphold the finding of exceptional circumstances. In effect, the prosecution of the non-parties turned upon the word of their father, who had previously been convicted of fraud, being accepted,[68] in circumstances where the relevant property was transferred upon the father’s insolvency and there was no consideration for the transfer. Here, while the authenticity of the contested application forms was a significant issue, those forms existed within a matrix of circumstantial evidence, some of which leant in favour of the defendants’ case. In North South Construction Services, the false documents formed a crucial part of the case and the non-party had knowledge that they were false. Here, although the Court was invited to consider: a purported ‘willingness’ of Mr Sami to ‘pass off’ documents as bearing his father’s signature when the true position was otherwise; a strong motivating factor for forgery; and a willingness of members of the defendants to ‘prepare documents and portray matters in a fashion contrary to reality’,[69] such matters were not discussed or relied upon in the analysis of the membership proceeding.
[68]Ballantyne (n 49) [24].
[69]Trial reasons [598], [600]–[601].
In relation to the assertion that Mr Sami maintained claims that were untenable, it is evident that, beyond the contested application forms, reliance was placed upon financial statements,[70] minutes of annual general meeting,[71] and the oral evidence of a number of witnesses. The latter, while supporting the conclusion that Dr Al Bakiry intended the applicants to become IAIC Australia members, provided only limited assistance in identifying how the contested application forms came into existence. However, such difficulties need to be viewed in the context of the membership proceeding as a whole. The case of the plaintiffs in the membership proceeding, for example, also relied upon the Court accepting oral evidence as to the existence of a ‘trustee committee’ and addressing inconsistent contemporaneous documents,[72] as well as contending with non-compliance with the rules of IAIC Australia.[73] As such, reconciling inconsistent oral and documentary evidence was something that plagued the case of both the plaintiffs and the defendants. Further, the defendants’ case succeeded in relation to the membership of Mr El-Khishin and Mr Fneich,[74] and Mr Dirani’s status as purported Mutawalli. Overall, the Court does not accept that the claims of the defendants were ‘untenable’.
[70]Ibid [536].
[71]Ibid [602].
[72]Ibid [528]–[533].
[73]Ibid [657]–[660].
[74]Ibid [641]. Mr Sami and Mr Yatim did not expressly address whether Mr Fneich ceased to be a member. Rather, the Court relied upon their submissions asserting that Mr Fneich was never a member to conclude that his membership had ceased.
Finally, it is of some relevance that the plaintiffs brought a claim against IAIC Australia in circumstances where, at the very least, Mr Dirani would have had some awareness of the reliance of the association upon donations and grants as income. Moreover, the costs incurred by the plaintiffs across both proceedings are substantial in quantum with little or no detail provided as to their calculation.
Accordingly, it is not in the interests of justice for an award of costs to be made against Mr Sami. While in certain respects, particularly regarding the membership proceeding, his conduct was regrettable, and a question mark remains over the forged signatures on the contested application forms, the defence and counterclaim pursued upon Mr Sami’s instructions were not as contrived or otherwise as risk-laden as the plaintiffs appear to suggest. Rather, the case encountered certain difficulties that were also reflected in that of the plaintiffs.
Should a costs order be made against Mr Yatim?
As with Mr Sami, it is necessary for the Court to consider whether Mr Yatim was a ‘real party’ to the proceedings in the sense that he had an active role and interest in their outcome. In substance, Mr Yatim appeared to act as Public Officer for IAIC Australia from around 2007.[75] However, he was never formally appointed as a member.[76]
[75]Ibid [246].
[76]Ibid [556].
In relation to the trust proceeding, Mr Yatim’s connection appears less than that of Mr Sami. While the minute of meeting dated 29 July 2013 noting the resolution of the administrative committee to continue to seek and act upon legal advice identifies Mr Yatim as being present, he did not file affidavits or appear to provide instructions on behalf of IAIC Australia. Further, he did not have a requisite interest in the outcome of the trust proceeding. Had the defence in that proceeding succeeded, the entire interest in the property would have been held by IAIC Australia. Even if Mr Yatim were declared a Public Officer in the membership proceeding, any control that he had over the property would have been subject to the rules of IAIC Australia and the AIR Act.
The plaintiffs point to Mr Yatim’s involvement in the proceedings, specifically regarding the creation of the forged application forms and the minutes of meeting.[77] Regarding the former, Mr Yatim’s oral evidence suggests that he may have provided Mr Sami with some assistance, however it does not go so far as to establish effective control over the proceedings. Similarly, while Mr Yatim’s involvement in the creation of the minutes of meeting and his attempt to unilaterally change the amended rules indicate a lack of procedural compliance with the rules of IAIC Australia, they do not establish that Mr Yatim had a significant role in initiating or controlling IAIC Australia’s litigation.
[77]Ibid [251], [297].
Regarding the membership proceeding, Mr Yatim’s exact role and involvement is uncertain. Again, he did not appear to swear documents either personally or as the purported Public Officer of IAIC Australia. While it may be inferred that as a named party he had some involvement in the membership proceeding, the Court is unable to determine the extent of his involvement as a representative, or personally. Mr Yatim’s interest in the membership proceeding extended to declaring his position as a member and Public Officer of IAIC Australia, defending the substantive claims brought against him, and avoiding costs as a named party. Again, the latter interests only appeared to come about on an incorrect basis.
Even if Mr Yatim could be considered to have a relevant role and interest in the membership proceeding as a named defendant, the Court is not satisfied that his involvement was material to the question of costs. Much of the same material would have been traversed in the plaintiffs’ seeking the declarations that they did. As such, the Court is not satisfied that Mr Yatim was a ‘real party’ to the proceedings. Insofar as this conclusion may be incorrect, for the same reasons discussed with respect to Mr Sami, it is not in the interests of justice for a non-party costs order to be made against Mr Yatim. His evidence regarding the forged application forms and change to the amended rules is not indicative of bad faith so much as a misunderstanding of the importance of procedural compliance.
Conclusions
In summary, the Court will order findings in relation to the costs of the proceedings as follows:
(a) IAIC Australia pay 75 per cent of the costs of the plaintiffs in both proceedings, subject to a discount for the costs due to the discontinued oppression claims, such costs to be taxed on the standard basis in default of agreement; and
(b) the plaintiffs’ applications for a non-party costs orders against Mr Sami and Mr Yatim be dismissed.
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SCHEDULE OF PARTIES
S CI 2015 01299
| ALI DIRANI | First Plaintiff/ First Defendant by Counterclaim |
| -and- | |
| SAID EL-KHISHIN | Second Plaintiff/ Second Defendant by Counterclaim |
| -and- | |
| SOUHAIL FNEICH | Third Plaintiff/ Third Defendant by Counterclaim |
| v | |
| IMAM ALI ISLAMIC CENTRE INC (A0035337R) | Defendant/ Plaintiff by Counterclaim |
0
22
0