Christian Brothers schooled over asset stripping
The legal obstacles to shielding rich Catholic schools from abuse payouts are multiplying.
The head of the Christian Brothers, Gerard Brady, tuned into court proceedings on Thursday morning to see yet another hole blown in a scheme to stop victims of sex abuse at the hands of the order receiving their full entitlements.
Supreme Court of New South Wales Justice Scott Nixon gave the Christian Brothers a moratorium on payment of claims but, following negotiations between the order's lawyers, Gilbert + Tobin, and lawyers for hundreds of abuse victims that stretched late into Wednesday night, that moratorium is riddled with exemptions.
Chief among those is leaving open the possibility that victims, who the order estimates are owed at least $774 million, can claim against a pool of assets that includes some of Australia's top private schools.
That does not represent an existential threat to those schools. It is more likely the difference between a new wellness centre at Melbourne's St Kevin's or a new building at Ben Fordham's and Greg Sheridan's alma mater, St Pius X on Sydney's North Shore, and the diversion of operating surpluses (or the leveraging of landholdings) to pay victims.
As Rampart has reported, the Christian Brothers have been asset-stripped, with about $800 million of land shuffled from the order to a new entity, Edmund Rice Education Australia, since 2013.
Ben Butler
But last week attempts to wind-down the Christian Brothers via a scheme of arrangement – spearheaded by KPMG insolvency veteran George Georges – ran into legal trouble that has thrown into doubt the very effectiveness of the two-decade asset-stripping scheme.
The Brothers agreed on Friday last week to come up with a source of funds to meet judgment in a case brought by two Victorian victims, and Thursday's NSW court order opened the door for hundreds of other claimants to do the same.
Brother Brady also tuned in via videolink in time to see counsel for the Commonwealth, Sera Mirzabegian SC, take aim at an affidavit he swore on Wednesday setting out just how hundreds of millions of dollars in land were transferred from his order to EREA for almost nothing.[[The Commonwealth has an interest because it funds a separate National Redress Scheme, paying victims and then billing the order. If the order can't pay, the taxpayer could be left on the hook.]]
"We do have concerns about whether assets will be made fully available as part of this scheme, and whether all assets that could reasonably be used to compensate survivors will be included in the proposed scheme," Mirzabegian told the court.
She said the Commonwealth was concerned about whether the transfers from the order to EREA were "proper and appropriate".
"It would be obviously very disturbing and concerning if arrangements were made to shield assets or limit institutional liability," she said.
"The second affidavit from Brother Brady that was served late last night seeks to shed some light on those transfers, but in our respectful submission, what is abundantly clear from that evidence is that it unfortunately raises more questions than it answers, and there appear to be discrepancies in the records concerning the value of land transferred to EREA by the Christian Brothers."
Nothing is certain in litigation, but there are three crucial bits of paper that explain why lawyers for EREA will be doing well if they can keep the assets – some of which EREA got for as little as a dollar apiece – out of the hands of the brothers' victims.
They are the Victorian Legal Identity of Defendants (Organisational Child Abuse) Act, the Commonwealth Corporations Act and EREA's own constitution. Both pieces of legislation are guns that can pierce the corporate veil separating the Chistian Brothers from EREA and the constitution is the bullet waiting to be fired.
The existing constitution, which came into force in 2023, has already been used by lawyers for abuse victims to argue that EREA is closely-enough related to the Christian Brothers to be substituted for the order under the Legal Identity Act.
But Rampart can reveal that the previous constitution, which was in force when the asset transfers actually happened, shows an even tighter connection.
The Victorian law, which is broadly mirrored in most other Australian jurisdictions, was designed to nullify the Ellis defence previously used by the Catholic Church to defeat sex abuse cases in court.
This defence, adopted in the mid 2000s when Corrs Chambers Westgarth was the church's retained law firm and George Pell was Archbishop of Sydney, relies on the fact that the church and most of its religious orders can't be sued because they don't have an independent legal existence.
The Legal Identity Act says that non-government organisations instead have to nominate an "associated trust" that they "control" to be the defendant in their place.
Unfortunately for EREA, the definition of "control" in the legislation is very broad. It includes the direct or indirect power to appoint or remove the trustees of the trust, as well as the direct or indirect "power to determine the outcome of any other decisions about the trust's operations".
In the Supreme Court of Victoria on Friday, lawyers for two victims of sex abuse by the Christian Brothers pointed to clause 14.1 in the EREA constitution, adopted in 2023, which gives the leader of the order the power to appoint members of EREA's governing council. They argued it was plain that this gave the Christian Brothers the level of control required under the Act for EREA to sub in as defendant.
Justice Stephen O'Meara declined to make the substitution without hearing from EREA, and the case returns to court in Melbourne next week.
In the meantime, victim advocate and Ownership Matters boss Dean Paatsch has used Freedom of Information laws to obtain an earlier version of the EREA constitution. It covers late 2012 to mid-2021, which happens to cover a period during which school land was transferred to EREA and the Gillard government's Royal Commission into Institutional Responses to Child Sexual Abuse held its hearings.
Under this constitution the head of the Christian Brothers had several additional powers.
These included a veto over changes to sections of the constitution itself and, through the council he appointed, the ability to control executive appointments and even remove school principals.
EREA was also allowed to pay "money for support of retired Christian Brothers" (there are estimated to be about 160 brothers still alive, of which nine are convicted sex offenders).
If it turns out that none of this assists victims in getting their hands on the $2.3 billion in total assets held by EREA, they have a fall-back mechanism through the Corporations Act.
If EREA qualifies as a related party and the land transfers contributed to the various Christian Brothers entities becoming insolvent, section 588FH of the Corporations Act enables a liquidator to void the transactions.
That EREA might be on the hook was acknowledged by counsel for the Christian Brothers, David Sulan SC, on Thursday morning in Sydney.
He told Justice Nixon the proposed scheme of arrangement would "preserve all rights that may have accrued in relation to transactions, including with respect to EREA" and involve "consideration of potential actions in relation to those matters".
