Malek Fahd Islamic School to be paid $10 million, given property by founder

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Malek Fahd Islamic School will be paid $10 million and get a property worth about $12 million as it continues to sue its founder, the Australian Federation of Islamic Councils (AFIC) in a Sydney court.

On Thursday, AFIC agreed in the NSW Supreme Court to transfer money and property to Malek Fahd a year after the school began litigation seeking $45 million in damages.

Malek Fahd alleges AFIC breached its fiduciary duty and engaged in "unconscionable conduct" by forcing the school to pay inflated rent, including years of rent in advance, to keep the organisation afloat over a number of years.

The school says the organisation treated it as a "servant", bought property using funds which belonged to Malek Fahd, then charged the school "extortionate" rent for the same properties.

This led to government funding being withdrawn because authorities believed the school was operating for profit.

AFIC says it bought the land using its own money, apart from a $1.4 million loan given by Malek Fahd, and it was entitled to charge the rent.

The organisation's barrister, Michael Elliott SC, said AFIC may have had a "misunderstanding" of its obligations but there was "no controversy" that renting was in the school's interest.

"It is simply wrong to characterise those payments, in my client's hands, as the school's funds. They're not," he said.

"Loan monies and rent monies in our hands are ours, and if we want to buy property we can."

Justice Michael Ball made an order on Thursday for AFIC to hand over $10 million to reimburse rent, the $1.4 million loan and payments for services.

Malek Fahd will also be transferred ownership of its $12 million Beaumont Hills campus in Sydney's north-west, which opened in 2011 and caters to more than 300 students.

In agreeing to transfer the money and property, which represent about half the damages the school is seeking, AFIC made no admissions.

The court heard further details of the "unrelenting control" AFIC exercised over Malek Fahd until March 2016, when the school appointed a new board and adopted a new constitution.

In 2006, the Weekend Australian published details of a report written by forensic accountants Worrells, which argued there was a diversion of profit from the school to AFIC, which would concern governments.

This advice - labelled "prescient" by Malek Fahd's barrister Kelly Rees SC - led to "upheaval" at AFIC. Some members were expelled, others became injured when they tried to occupy AFIC's office, and ultimately new officers were elected.

However, Ms Rees said this created new problems when both the dumped and newly-elected AFIC members tried to access the rent being paid by Malek Fahd.

Those on the way out tried to freeze AFIC's bank accounts so the rent could not be paid, while those on the way in resolved to physically drive to Malek Fahd and collect the rent cheques by hand.

"The revenue provided to AFIC by Malek Fahd was a very important source of income," Ms Rees said.

The hearing continues.

This story Malek Fahd Islamic School to be paid $10 million, given property by founder first appeared on The Sydney Morning Herald.