THE "ETHICS " IN STATE AID TO RELIGIOUS SCHOOLS

DOGS invite readers to consider the following excerpts from a recent court case in the New South Wales Supreme Court,

Yeshiva Properties No 1 Pty Ltd v Lubavitch Mazal Pty Ltd [2003NSWSC 615 (8 July 2003 ). This case involved the repayment of a loan made a group of corporations owning properties in the Eastern Suburbs of Sydney which are primarily used for the purposes of operating religious schools and a synagogue. According to the finding, the defendant was under the effective practical control of Rabbi Joseph Gutnick. The plaintiff was represented by his brother in law, Rabbi Feldman.

Rabbi Gutnick was seeking repayment of the loan made to the plaintiff, an amount of some $24,000,000. The following are direct excerpts from the finding of Chief Justice Young in Equity.

" It must be noted that the particular loans made by the Bank which made up the $24,000,000 were deliberately kept in separate existence. Thus particular loans, amount to $4,400,000 which were included in the loans assigned to the defendant were loans which attracted interest subsidies from the State Government with its program of assisting schools with capital works. The parties made contact with the Department of Schools Education and cleared with the Department that the subsidies would continue to be payable.

What occurred in practice for some time after December 1994 until February 1996 was that the plaintiffs paid the defendant interest on its loan and collected the subsidy from the Government including subsidy in respect of back interest due to the Bank. The defendant donated the amount received back to the plaintiffs..."

The plaintiff wished the matter to be settled according to Jewish law in a rabbinic court Tel Aviv, and claimed that Joseph Gutnick had made a "gift" of the money. Therefore he should not expect to be repaid or be able to sell the properties over which he had a mortgage.

Chief Justice Young thought otherwise. DOGS reproduces the following without comment:

" ..I was concerned about the interest subsidy matter. Interest subsidy is paid by the State Government for genuine relief to schools who construct particular capital works. The arrangement between the parties which preserved the subsidy and the deliberate structure of the transaction that Rabbi Gutnick would donate all interest received other than that which was in reality being paid by the Government, does not sit well with ethics.

However, the fact that the transaction was deliberately structured to preserve the loans bearing subsidies and for other reasons beneficial to the parties, makes it less probable that the whole documented transaction was negated by "the oral agreement and religious covenant with God that we both had made" and " to our mutual religious covenant as to behaviour"

Finally, the fact that Rabbi Gutnick had to borrow  the money to pay out the bank tells against the underlying transaction being a gift.

Indeed, if Rabbi Feldman's position was accepted literally, no Jewish person could ever lend money to a Jewish charity at interest or indeed seek back his or her capital if to do so might imperil the charity. On the other hand, those administering the charity would be able to do so without accountability on the basis that they could never be forced to pay debts owing to members of the Jewish community. Indeed Rabbi Gutnick made this point..if Rabbi Feldman was right, every Jewish person would be scared whenever they lent money to a Jewish charitable organisation"