Australia's biggest Islamic school has lost a federal court appeal to hold onto its government funding.
There is uncertainty surrounding the future of Australia's largest Islamic school after the Federal Court threw out an appeal by The Malek Fahd Islamic School to hold onto its government funding.
Malek Fahd in Sydney on Tuesday lost a crucial bid to maintain its federal funding after appealing over an earlier decision by the Administrative Appeals Tribunal.
The tribunal found the school - which operates three campuses across Sydney's southwest - was being run for profit in breach of education funding laws.
The court battle hinged on lease arrangements at the school's Greenacre campus.
The school properties had been owned by the Australian Federation of Islamic Councils, which improperly used inflated rents and other charges to make money from the school.
A new school board was installed in 2016 and took steps to terminate a range of inappropriate arrangements AFIC had saddled it with.
One problem the board could not immediately solve was the lease of its Greenacre campus.
"The difficulties were twofold. First, the rent payable to AFIC under it exceeded a fair market rent," Justice Nye Perram said in a decision published on Tuesday.
"Secondly, the applicant could not simply terminate the lease, however improperly it had been procured by AFIC, because it continued to need the Greenacre premises to conduct the school."
Justice Perram said the school "did its best" to stop paying rent to AFIC but the lease remained on foot and rent continued to accrue.
He found the appeal must be dismissed with costs.
"I have found there to be no error of law discernible in the tribunal's reasons and making a finding that future rent owed by the applicant to AFIC in relation to Greenacre will be at a market rate would be inconsistent with findings made by the tribunal," Justice Perram said.
"The appropriate course is for the applicant to make a fresh application to the minister."
Justice Debra Mortimer found there were "errors of law" in the tribunal's construction and application of the relevant act, indicating she would set aside its decision and allow an appeal.
But Justice Michael Wigney agreed with Justice Perram that the appeal must be dismissed.
Responding to the decision, Education Minister Simon Birmingham said the federal government would not tolerate the misuse of taxpayer funding for schools.
"I urge Malek Fahd's management to clearly outline their plans to give their school community certainty for the future," Senator Birmingham said in a statement.