Federal Court judge Debra Mortimer found Mr Melhem had failed to properly discharge his duties as leader of the union after it took a series of large payments used to artificially inflate the union's membership numbers by 730.
"I find that Mr Melhem did not exercise his powers and discharge his duties in good faith in what he believed to be the best interests of the AWU,"she said.
The court heard the AWU sent out invoices totalling $488,007 for fake union memberships and services that were not provided.
"[T]he evidence establishes there was conscious and deliberate conduct by Mr Melhem in seeking out and facilitating the recruitment of new members to the AWU outside the process set out in the AWU Rules,and the payments of significant sums of money for those recruitments,which amounts generally bore little if any correlation to the membership rates set by the AWU Rules,"Judge Mortimer said.
"For reasons that remain unexplained,almost all of the payments were attributed to services which were not provided or were provided in a limited way. All this conduct,in my opinion,was not inadvertent,or negligent,or careless;it was deliberate."
The judgement represents a win for the Coalition government's Registered Organisations Commission,which took legal action against Mr Melhem and the union. The court issued the civil penalties totalling $20,590 in finding Mr Melhem had breached provisions in the Fair Work Registered Organisations Act.
The decision is likely to reignite the Victorian state opposition's calls for the upper house MP to stand down as chair of a parliamentary committee.
The court heard that Cleanevent Australia made payments to the union totalling $40,000 between 2010 and 2013 for membership contributions for 164 workers"in circumstances where the Cleanevent employees were not members of the AWU pursuant to the AWU’s rules".