Metropolitan Petar v Mitreski  NSWSC 16 (Supreme Court of New South Wales, Brereton J, 3 February 2012)
This hearing was to settle a number of issues relating to the affairs of the Macedonian Orthodox parish of St Petka in Sydney. The litigation arose from a dispute about who controlled the property and affairs of the parish -– was it the church hierarchy, represented by the bishop, Metropolitan Petar; or was it the local church itself, constituted as an incorporated association?
The case had a long history of bitter litigation, and several issues were still to be decided. His Honour outlined the relevant parts of the previous litigation. The proceedings of which this hearing was a part were commenced in 1997 by the presiding Metropolitan (bishop) of the Macedonian Orthodox Diocese of Australia and New Zealand, Metropolitan Petar. The bishop was the first plaintiff, and the original parish priest, Father Mitrev, was the second plaintiff. There were nine defendants. The first five defendants were members of the parish executive, the sixth defendant was the Macedonian Orthodox Community Church of St Petka Inc, the seventh and eighth defendants were two subsequent parish priests (Father Despotoski and Father Dzeparovski), and the ninth defendant was the Attorney-General of New South Wales, in his capacity as overseer of charitable trusts.
The Macedonian Orthodox Church is an Episcopal church (i.e. ruled by bishops) and hence hierarchical. The diocesan bishop appoints the priests, and has overall control of his diocese. However, parishes are administered by parish councils, elected by a parish assembly, which consists of all adult parishioners. All members of the parish council take an oath to uphold church law. Day-to-day management of the parish is delegated to a parish committee, of which the priest is an ex officio member.
The Macedonian Orthodox parish of St Petka (the parish) was set up as an unincorporated association in October 1977. In the same month, ownership of church property was transferred to trustees of the association, and later the trustees acquired other properties. The parish was incorporated under the Associations Incorporation Act 1984 (NSW). Under that Act, the assets held by an unincorporated association vest in the replacement incorporated association automatically.
For reasons unknown, the parish had a constitution which differed from the usual mode of management of a Macedonian Orthodox parish. Its constitution provided that its priests were to be appointed by a parish executive, not by the bishop. Father Mitrev was appointed as parish priest by Bishop Petar in 1996, and at first the divergence in rules relating to priestly appointment had no effect. However, in 1997, a faction emerged in the Macedonian Orthodox community in Australia which opposed Bishop Petar. This faction included the parish of St Petka. The dispute escalated through 1997, and came to a head when Father Mitrev complied with diocesan rules to forward moneys raised from baptisms, weddings and funerals at the parish of St Petka to the bishop. In July 1997, the parish committee purported to dismiss Father Mitrev, and to employ Father Dzeparovski, and later Father Despotoski, as parish priests. Neither appointment was sanctioned by Bishop Petar, and both priests were subsequently defrocked.
In earlier proceedings (Metropolitan Petar v Mitreski  NSWSC 262), the primary issue was whether the parish held the property vested in it absolutely, or as trustee for the purposes of the Macedonian Orthodox Church, or otherwise on trust. The property held by the parish was divided into two parts: Schedule A property, used for church purposes; and non-Schedule A property, which included investment property. Hamilton J found that the parish held the Schedule A property on trust (as had its predecessor unincorporated association) and that the trust was a valid charitable trust. There was no determination of the status of the non-Schedule A property.
Hamilton J did not specify the particular terms of the trust in which the Schedule A property was held, but he did make clear that:
- when property was held upon charitable trust for an organised church, the property must be used in accordance with the doctrines, rituals and practices laid down by the church hierarchy;
- in a hierarchical church, there was a strong presumption in favour of the property being held for the national church, not the local parish, and this presumption was not affected by the fact that the local parish had bought the property without the financial assistance of the national body;
- when, in Australia, a group of persons of ethnic origin proclaim that they are members of an overseas church with an identical name, there is an assumption that they are members of the overseas body, or that the canon law and discipline of their church is identical to that of the overseas body.
Subsequent litigation dealt with alleged breaches of trust: Metropolitan Petar v Mitreski  NSWSC 106. The question was whether any of the breaches of trust were also breaches of fundamental terms in church law.
The alleged breaches of trust were:
- (a) preventing the Diocesan Bishop from conducting services in the Church Building;
- (b) preventing a priest appointed by the Diocesan Bishop as parish priest of the St Petka Parish from conducting religious services in the Church Building;
- (c) preventing a priest, who was licensed by the Diocesan Bishop to conduct religious services in the Church Building, from doing so;
- (d) excluding the priest appointed by the Diocesan Bishop as a parish priest of the St Petka Parish from the executive committee of the body responsible for the administration of the St Petka Parish;
- (e) employing a priest not appointed by the Diocesan Bishop to act as the parish priest of the St Petka Parish;
- (f) employing a priest under valid ecclesiastical discipline in accordance with Church Law to act as the parish priest of St Petka Parish;
- (g) requiring or permitting a priest to conduct religious services upon the Church Land when: — (i) that priest has not been authorised by the Diocesan Bishop to do so; or (ii) that priest is under valid ecclesiastical discipline in accordance with Church Law.
- (h) any or all of: — (i) closing the Church Building; (ii) removing the Holy Objects from the Church Building; (iii) installing Holy Objects; (iv) reinstalling Holy Objects; (v) carrying out of building works in and upon the Church Building without the authority and blessing of the Diocesan Bishop.
- (i) refusing or failing to accept applications for membership from believers in the doctrines of the Macedonian Orthodox Church who have satisfied the criteria for eligibility specified in the Constitution, the Diocesan Statute and the By-Laws;
- (j) failing to remit to the Diocesan Bishop the contribution from the income of the parish as specified in the Diocesan Statute.
Young CJ in Equity held that the terms of the relevant trust did not justify the exclusion of the bishop from the parish church, or the employment of any priest not authorised by the bishop, nor the closing, alteration or addition to the church building, or its ornaments, without the bishop’s approval. Thus, (a), (b), (c) and (e) were fundamental terms of the trust. Young CJ had doubts about alleged breaches (d), (i) and (j), although he found that they were breaches of church law.
In this case, His Honour dealt with the remaining questions. These were:
- whether the property of the parish, other than Schedule A property, was held on trust;
- whether there were any breaches of trust established, especially in relation to those breaches found by Young CJ to be terms of the trust;
- whether there were any defences to breaches of trust that might be established;
- whether the individuals involved (the five committee members and Father Despotoski) were liable as accessories to any breach of trust that might be established (action against Father Dzeparovski was discontinued);
- what relief (if any) should be given to the plaintiffs.
Property held by the parish
Was all the property held by the parish part of the same trust as had been identified by Hamilton J in the earlier litigation? Or was the non-Schedule A property held by the parish free of trust? Hamilton J had identified the Schedule A property as the church land, the child care centre operated by the parish on adjacent land, and three pre-incorporation investment properties. Any other property was not dealt with. In this case, His Honour identified other pre-incorporation property (holy objects such as icons and candles, ancillary property and other funds, including donations) as subject to the same trust. Further property was acquired after incorporation of the parish as an association, including more holy objects, ancillary property and funds, as well as three further investment properties. His Honour designated this property as post-incorporation property. Was this also trust property?
His Honour held that all post-incorporation property was trust property. He advanced three reasons:
- the association was the successor to the unincorporated association;
- the pre-incorporation property vested in the association after incorporation; and
- there was no segregation of trust and non-trust assets, income, expenditure or activities: it was all trust property, and all the same trust property.
Breaches of trust
His Honour considered the earlier decision of Young CJ in Equity, and held that breaches (a), (b), and (c) were established and were continuing on the facts. The bishop had been barred from the church (at least when accompanied by Father Mitrev), as had the properly appointed parish priest, and this was a continuing situation. Moreover, the replacement priests had not been appointed by the bishop, so breach (e) was established. Breach (h) was also established but had not been pursued in this hearing.
In relation to breaches (d), (i) and (j) as to which Young CJ had expressed doubts of their fundamental nature, His Honour agreed that they were all breaches of church law. He held that breaches (d) and (h) were not fundamental. Breach (i), however, was a breach which was a fundamental breach of trust which was continuing. On this point His Honour said:
To exclude from membership a significant number of believing Macedonian Orthodox Christians within the parish is to exclude a portion of those who were intended to be able to use the Church. If a significant number of believing Macedonian Orthodox Christians within the parish are excluded from the body entitled to use the church under the trust, the trust property is not being used for the Macedonian Orthodox Church or religion, but for a schismatic purpose, representing a diversion from the authorised purpose. Accordingly, this is not just a requirement of church law, but a term of the trust. While the Association says that eligibility for membership is determined by its constitution, and that applications for membership must comply with the requirements prescribed by or under its constitution, it is open to the executive council under Article 8(1) to alter the form of application. Breach (i) is established, is a breach of trust, and is continuing.
Thus, there were substantial breaches of trust established. His Honour also identified pecuniary breaches (see below).
Some of the claims relating to payments to Father Dzeparovski were statute-barred under section 48(a) of the Limitation Act 1968 (NSW).
Section 85 of the Trustee Act 1925 (NSW) relates to excusable breaches of trust. These are permitted, provided the trustee has acted honestly and reasonably. Relief under section 85 does not amount to approval of the breach. Relief was sought in relation to payments made to Fathers Dzeparovski and Despotoski. His Honour recognised that the committee members were all volunteers, who were not sophisticated. Their English was limited, and they spoke Macedonian at all material times. They were unversed in the law of trusts. Moreover, the trust did not suffer because of the employment of the two priests -– they generated more income for the trust than their remuneration took from it. However, His Honour said:
...I accept that they honestly believed that the Association was beneficially entitled to its property and did not hold it on trust; and that the parish property was Association property and not trust property. That was a not unreasonable position, as until the decision of Hamilton J, there was doubt as to the trust status of the Association's property. I further find ...that the Association's decision to employ Fr Dzeparovski and later Fr Despotoski was actuated by a perceived need, consequent on the expulsion of Fr Mitrev, to have a priest in the church to perform priestly duties in order to fulfil the main function of the church and administer the sacraments to parishioners. In itself, this is neither dishonest nor unreasonable. But it is affected by two features. The first is that the Association by its officers also knew that such a course would be opposed to the will of the Bishop. This was in circumstances where, but a few months earlier, those officers had sworn a solemn oath of office by which they undertook...to uphold the constitution of the church, the diocesan statute and the by-laws.... The second is that it is a fundamental proposition of the Macedonian Orthodox faith, that if not known to the Committee Members who had sworn to uphold church law should have been known to them, that it is the Bishop who administers sacraments, albeit via the medium of a duly appointed priest as his agent; the corollary of which is that a priest who has not been duly appointed by the Bishop cannot validly administer the sacraments and from the Church's perspective achieves nothing. Accordingly, the Association was paying these priests remuneration for performing a role that, in the eyes of the Church, achieved absolutely no purpose.... I cannot reconcile the conduct of the Committee members, having sworn an oath of allegiance to church law, in engaging and remunerating the two priests without the Bishop’s approval, to achieve no useful purpose, with what would commonly be regarded as honest behaviour.... Resort to the provision of the Association’s constitution, in the face of the oath of office, savours of the type of unconscionable insistence on strict legal right on which equity has always frowned.
Thus, His Honour found that there should be no relief under section 85 of the Trustee Act from liability of the parish for the pecuniary breaches which had been established.
Liability as accessories
The plaintiffs made a claim of ‘knowing receipt’ of trust moneys (as remuneration) against Father Despotovski (as a ‘third party’ to the Association’s breach). This claim was made under what is known as ‘the first limb in Barnes v Addy’. Liability under the first limb of Barnes v Addy depends on the third party having notice, actual or constructive, that the funds received were trust moneys. Knowledge of circumstances that would put a reasonable person ‘on inquiry’ is enough to find the third party liable. His Honour found that Father Despotovski had the requisite notice. However, His Honour held that as Father Despotovski had given value for his remuneration, and his activities, though not sanctioned by the church hierarchy, resulted in increased revenue for the trust, he should not be liable to account to the trust for the moneys received.
As to liability of the committee members as third parties to the Association’s breaches, His Honour stated that there was no authority in relation to the Barnes v Addy case which would make the committee members liable to account to the trust. Were there any other grounds for liability established? His Honour held (following on from the discussion in the High Court decision in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) HCA 22 at  to ) that third parties to a trust can still be liable for breach of trust if they knowingly induce or procure a breach of trust. This form of liability does not depend on receipt of trust funds. His Honour said:
For substantially the same reasons that found my conclusion that, for the purposes of s 85, the Association did not act honestly and reasonably, I am compelled to conclude that the Committee Members were conscious of those elements of the engagement of the two priests that made their participation transgress ordinary standards of honest behaviour. They knew, or at the least ought to have known, that what they were doing involved repudiation of a recently sworn undertaking to uphold church law, and yet would achieve no religious purpose in the eye of the Church for want of the Bishop's approval. While I accept that considerable doubt attended whether the Association would be held to be a trustee, about which minds could reasonably differ, until Hamilton J's judgment, and that the Committee Members did not understand the niceties of church law, I cannot accept that it accorded with ordinary standards of honest behaviour for them to repudiate their recent oath of office.
Therefore, each of the committee members was found to be liable as an accessory of the parish Association to account to the trust for the moneys paid as remuneration to Fathers Dzeparovski (except for the portions statute-barred) and Despotovski while those committee members remained in office.
His Honour gave the following equitable relief to the plaintiffs, which reinforces the Episcopalian nature of the Macedonian Orthodox Church, and supports Metropolitan Petar’s position as bishop:
(1) a declaration that all the property of the Association other than the litigation funds (some moneys separately identified as being to fund the defendants’ case) are held as trustee on the trust declared by Hamilton J;
(2) declarations to the effect that the Association has, in breach of trust: (a) excluded the diocesan Bishop, (b) excluded the parish priest appointed by the Bishop, (c) prevented a priest licensed by the Bishop to conduct services in the church from doing so, (d) employed priests not appointed by the Bishop, and (e) failed to accept applications for membership from believers in the doctrines of the Macedonian Orthodox Church who have satisfied the criteria for membership specified in the 1994 Church constitution, the diocesan statute and the by-laws;
(3) an injunction that has the effect of compelling the Association to comply with the rules of Macedonian Orthodox Church as they apply to parishes of the Macedonian Orthodox Church in respect of not excluding or impeding the Bishop, not excluding or impeding Fr Mitrev, and admitting into membership those who meet the requirements of church law for membership of a parish assembly;
(4) an order that the Association account to the trust for the moneys paid to Fr Dzeparovski and Fr Despotoski, except for those paid prior to November 1997 in respect of which the claim is statute-barred;
(5) an order that each of the Committee Members accounts to the trust for the moneys paid to Fr Dzeparovski and Fr Despotoski while that Committee Member remained in office, except for those paid prior to November 1997 in respect of which the claim is statute-barred.
Overall, His Honour found for the plaintiffs in almost all issues in the case:
- All the parish property was trust property (a charitable trust for religious purposes);
- There were substantial breaches of this trust by the parish association;
- Defences were not available (except where the action was statute-barred);
- Personal liability to account to the trust was established for the committee members.
The case may be viewed at: http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=156679
Implications of this case
This litigation has been ongoing since 1997, with multiple court hearings. Costs have run into the hundreds of thousands of dollars. There is still a pending appeal in relation to some aspects of the case. The case seems an educative example of how an incorporated association can fall into the trap of engaging in escalating conflict instead of resolving differences early in order to re-focus on the purposes for which it was established. There were some attempts to mediate this dispute but unfortunately those efforts failed.
The case is also important for its finding that the Association’s committee members were liable as third parties for the Association’s breaches of trust. Under the law of equity and trusts, third parties can be liable for procuring someone with trust or fiduciary obligations to breach those obligations; or for knowingly assisting breaches of trust or fiduciary duty; or for receiving trust property with notice of the trust. The court in this case was particularly concerned that the committee members went against their oath of office to appoint and pay priests, against the authority of the bishop and the church – which His Honour viewed as dishonest. For this reason, the court ordered them to compensate the church for the amount of remuneration paid to the priests. The committee members were found liable even though the priests were excused.