The Church of Scientology in Sydney has been accused of holding a young Taiwanese woman hostage after she suffered a mental breakdown.

In March 2012, Alice Wu was hospitalised after she punched a window at the Church of Scientology's headquarters in Dundas, in Sydney's west.

Ms Wu badly damaged her right hand in the incident. Her family claims she was trying to escape the facility at the time.

The Church of Scientology denies the allegations, saying Ms Wu was not held captive or forced to do anything against her will.

Ms Wu was 20 and studying commerce when she signed Scientology's billion-year contract in late 2011, joining the elite Sea Organisation and moving from her home town of Taichung to Sydney.

Taiwan has become the major recruiting ground for the Church of Scientology in Australia, following a sharp decline in membership locally.

Two former insiders have told Lateline at least 50 per cent of Scientology's staff in Sydney are Taiwanese.

Lateline has obtained rare footage of life inside Scientology's Sydney headquarters. Filmed from a nearby park, it shows recruits being drilled in a military-like fashion, marching and saluting before heading off to work.

Teresa Wu, a family spokesperson, told Lateline that Ms Wu soon tired of her life in the Sea Organisation at Dundas and asked to leave.

"They put her into a place called the isolation room. She was still offered food but was locked in a room. It is an isolation room in the Sea Organisation," Teresa Wu said.

Scientology's lawyer Stuart Gibson denies the allegations on behalf of the group.

"She wasn't put in isolation, I think that is a derogatory term, she was actually in a sick bay."

No one from the Church of Scientology was available for interview, but in a statement claimed Ms Wu was suffering from the flu.

"When Ms Wu fell into a fever and was somewhat delusory, she cut her hand, a church staff member immediately called an ambulance so she could get to a hospital for treatment," the statement read.

But Teresa Wu disputes the Church of Scientology's account.

"It was just because she wanted to leave that she smashed the window," she told Lateline.

Alice Wu was transferred to hospital via ambulance, where she was eventually diagnosed with a mental illness.

The Church of Scientology's headquarters in Dundas, in Sydney's west. ( Lateline )

According to her medical records she told hospital staff she had been "held hostage by Scientology members". The Church of Scientology denies this allegation.

Mr Gibson told Lateline: "She was at Dundas first of all at her own volition and at all times she was free to leave."

While the Church of Scientology denies Ms Wu was placed in isolation, her brother Jack, suspicious of what was going on, recorded a phone conversation from Taiwan with a Scientology official in Sydney.

In the conversation, the official admits: "I was with her in the isolation room after she became unstable."

Lateline has been told the official in the phone conversation is Mei Tsu Lee, a former president of the Church of Scientology in Taiwan. Mei Tsu Lee was unavailable for interview.

In response to the allegations about Mei Tsu Lee, Mr Gibson said: "I don't know you'd have to take that up with her - the fact is she was in a sick bay, there is no isolation and there's never been isolation and to use that term is a derogatory term and it was nothing of the case."

But Scientology has a history of placing people in isolation.

Scientology's founder L Ron Hubbard created a policy called the 'introspection rundown' - a procedure designed to deal with mental breakdowns.

In the policy document, under the heading 'Isolation', it says: "With someone in a psychotic break, it is necessary to isolate the person for him to destimulate and to protect him and others from possible damage."

Hubbard described his policy as "a technical breakthrough which possibly ranks with the major discoveries of the Twentieth Century".

The policy was followed with tragic consequences in 1995. Lisa McPherson, a young Scientologist in Florida had a mental breakdown.

Instead of seeking psychiatric treatment, the Church of Scientology put her in isolation in a hotel room. She died 17 days later.

The Church of Scientology is opposed to psychiatry, labelling it "an industry of death".

The day before Lateline was due to interview Mr Gibson, the story of Ms Wu took a remarkable turn.

The ABC's managing director, Mark Scott, received an email from Ms Wu where she denied she was held against her will, or was treated badly or hurt herself trying to escape.

In the email Ms Wu wrote: "I do not give ABC, your reporter or any other media for that matter permission to publicise or use my unfortunate circumstances to your advantage or to vilify an organisation I freely support."

The statement is witnessed by a Taiwanese notary Yu-Lung Chen and dated February 14, three days after Lateline first raised the allegations with the Church of Scientology.

Yu-Lung Chen was unavailable to speak to Lateline.

Teresa Wu says two Scientologists took Alice to the notary's office to sign the statement.

Alice Wu's father Wu Chow-Shen is outraged.

"She has been unstable and she was not in a good state of mind," he told Lateline.

"She didn't have good judgment and can't tell right from wrong. I don't think it was right for her to sign the document. It should be annulled."

Wu Chow-Shen says he found out about the statement when a Scientology representative contacted him by phone.

"I had no idea at the start. I heard about it later when their lawyer called me and said an Australian program will be on air," he said.

"I just said I want like to live a peaceful life and don't want anything upsetting and I hung up. I was ignored in the past, and they only called me when a program was going to be aired in Australia."

Mr Gibson denies Alice Wu was lent on to sign a statement.

"We don't know one way or the other," the Scientology lawyer told Lateline.

"I mean, I am only going on my instructions. You may put that, but on my instructions that's just not the case."

In an email to Lateline, Scientology spokesperson Sei Broadhurst added: "Ms Wu has never been coerced or forced into anything by anyone from the Church."

Teresa Wu blames the Church of Scientology for the state of her cousin's health.

"Alice, a young lady who just turned 20, was supposed to enjoy the prime time of her life," she said.

"But the next 50 or 60 years of her life may have been destroyed. We are not a well-off family.

"We can't afford to have one family member to quit his job for her around-the-clock care."

A spokesperson from the Australian Federal Police has told Lateline they have investigated Alice Wu's case - but found there was insufficient evidence to support any charges in relation to people trafficking or breaches of the Migration Act.