When it matters – personal delivery is best

The Bangladesh Islamic Centre of NSW Inc (BIC) is an incorporated association. It is a religious and communication organisation for Muslims of Bangladeshi background in NSW that owns and operates a mosque in Sefton. Dr Raashed and Mr Mondal, both life members, brought proceedings against the BIC.

They argued that the Executive Council, in governing and conducting the BIC’s affairs, was committing breaches of its Constitution and the Associations Incorporation Act 2009 (NSW) warranting the appointment of a receiver and manager.

The attempted coup leading to expulsion

In November 2015 and October 2016, Dr Raashed sent letters to the Executive Council requesting the BIC’s financial records. The requests were not granted. On 12 February 2017, a supposed “Special General Meeting by Requisition” was called, which Dr Raashed and Mr Mondal attended. This meeting resolved to redevelop the Sefton mosque site and expel the current Executive Council. During March and April 2017, further letters were sent to the “Ex-Executive Council” requesting the BIC’s books and records. On 3 May 2017, the BIC obtained an order in the Supreme Court restraining the purported new Executive Council from making decisions. On 15 July 2017, 13 people submitted new membership applications to the BIC in the form of a bulk application paid for by Mr Mondal. On 16 July 2017, the Executive Council met and resolved to commence disciplinary action against Dr Raashed and Mr Mondal and to send out letters expelling them from life membership. On 11 August, with no appeal forthcoming, they were expelled from the BIC.

Were Dr Raashed and Mr Mondal validly expelled?

Dr Raashed and Mr Mondal argued that they were both life members of the BIC because they never received the expulsion letters. The BIC argued that the letters had been posted to them but that they had chosen to ignore them.

The Court said there is a presumption of delivery in the BIC’s Constitution and in section 76 of the Interpretation Act 1987 (NSW), but it is rebuttable. Although the resolution to write and post letters was recorded in the minutes of the Executive Council and the BIC maintained the letters were posted and receipts were kept, the Court found that the evidence was “sufficient to raise doubt” that Dr Raashed and Mr Mondal received the letters. Given their confrontational approach in the interlocutory proceedings and during the trial, their confrontational attitude in cross-examination and the history of their involvement in the BIC and being at odds with the Executive Council, had they received the letters:

… they would have made some argument about them… it is unlikely in my view that they would not have taken issue with them. It is much more likely that they would have retaliated in some public or positive way had they received the letters… Their indignation would not have been passive or hidden from view.

Consequently, the Court found that the resolution to expel Dr Raashed and Mr Mondal had no effect because the letters had not been served on them. Therefore, both were still life members of the BIC.

Were membership applications and renewals capricious?

Dr Raashed and Mr Mondal argued that the BIC acted “capriciously” and “contrary to its obligations” under the Constitution relating to membership applications, renewals and notice of these. The BIC accepted a limited number of membership applications. Of those membership applications refused, some received letters of rejection whilst others did not.

The Court said these letters were simply a way of holding the outcome of the applicants’ membership in “abeyance”. Since the time for finalising applications had come and gone by the time of the trial, all of the letters purporting to reject applications were “of no effect or utility”. Those individuals who were members were still members and those individuals who were not members were still not members. It was open to each of the applicants to apply for membership to the BIC when applications for membership reopened. The circumstances were not sufficient to amount to any capricious or arbitrary “rejection” of applications.

The moral of this story is that important documents should be hand delivered!

Was the BIC financially mismanaged?

Dr Raashed and Mr Mondal argued that the BIC had been financially mismanaged on two grounds. Firstly, its financial statements had omitted two significant debts it owed. Secondly, it had not taken out public liability insurance.

The Court found that these financial issues were not “symptomatic” of any greater ongoing financial problems with the Executive Council. By the time of the trial, the BIC had appointed independent auditors to prepare its future financial statements and had taken out public liability insurance, thereby rectifying any perceived financial mismanagement.

Was the appointment of a receiver and manager warranted?

The Court held that there was no basis for appointing a receiver and manager. The conduct of the Executive Council did not “seriously prejudice” the BIC.

What does this mean for not-for-profits?

• Procedural fairness: It was unnecessary for the Court to determine whether the expulsion letters, which did not specify the precise grounds for expulsion, were valid. However, the Court noted that such letters should identify the precise grounds for expulsion “to give the recipient the opportunity to know what case they are facing”. Ideally, such letters “should fairly and expressly outline what behaviour consists of persistent conduct warranting expulsion”.
• Membership: Not-for-profits, like the BIC, have discretion as to whom they may choose to admit (and reject) as a member. The only requirement is that the governing body genuinely attempts to deal with each of the membership applications.
• Financial management: Although the Court held that there was no ongoing financial mismanagement, it did say what, “in an ideal world”, the BIC should have done. It would have been “prudent”, “desirable” and “best practice” for the BIC to record the debts in its financial statements and take out public liability insurance. Take note not-for-profits!
• Receivership: Courts will be slow to appoint a receiver and manager to conduct the affairs of an incorporated association (and a not-for-profit more generally). This is particularly so where the matters complained of have been rectified or no longer exist at the date of trial. 

For more information please contact Rt%99%E4%B9%9AC%93%A5%B8%B5%88, R%83%99%E0%B1%9EC%95%9B%BF%B5%D7%D8%97 or Rz%A7%E1%B5%A6%8Bm%85m%9E%C9%DC%D8%95.

If you would like to subscribe to our not-for-profit newsletter, click here.