Supreme Court New South Wales Medium Neutral Citation: Iscorp Investments Pty Ltd v Yohana [2011] NSWSC 1387 Hearing dates: 8 November 2011 Decision date: 11 November 2011 Jurisdiction: Equity Division Before: Rein J Decision: 1. Declare that any beneficial interest of the plaintiff in Lots 3 and 7 should be treated as exhausted by virtue of a liability to the defendant. 2. A similar declaration in respect of Lot 4 will be made on the expiry of 14 days if the plaintiff does not pay $224,349.81 within that time. 3. Mr Henrick Isaac, in addition to the plaintiff, ordered to pay the defendant's costs in relation to the statement of claim. 4. The plaintiff to pay the defendant's costs of the cross-claim. Catchwords: EQUITY - trustee's rights to indemnity for expenses incurred and rights to exoneration for liabilities incurred in respect of trust property - where the defendant holds the legal title to lots in a commercial building owed either solely by, or jointly with, the plaintiff - where the defendant, by way of cross-claim, seeks to be reimbursed or exonerated by the plaintiff for payments of expenses and mortgage repayments which are in excess of his appropriate share - whether an order for sale of the properties is necessary where the plaintiff's beneficial interest in the properties is clearly less than the amount to be paid to the defendant PRACTICE AND PROCEDURE - costs - whether the sole director and sole shareholder of the plaintiff company should be ordered, in addition to the plaintiff company, to pay the defendant's costs of the proceedings Legislation Cited: Civil Procedure Act 2005 (NSW) Trustee Act 1925 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 Knight v FP Special Assets Ltd (1992) 174 CLR 178 Timothy O'Brien Pty Ltd v Mistral Vision Pty Ltd (2004) 2 DCLR(NSW) 86 Texts Cited: J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) H A J Ford & W A Lee, Principles of the Law of Trusts, vol 2 Scott on Trusts, 4th ed (1988), vol 3A D Ong, Trusts Law in Australia, 3rd ed (2007) Category: Principal judgment Parties: Iscorp Investments Pty Ltd (plaintiff/cross-defendant) Youbert Yohana (defendant/cross-claimant) Representation: N Cotman SC; R Newton (defendant/cross-claimant) David Legal (defendant/cross-claimant) File Number(s): SC 2009/289992 Judgment 1These proceedings concern Lots 3, 4, 7 and 8 of a commercial building at Horsley Drive, Wetherill Park, which at various times have been owned by either the plaintiff, Iscorp Investments Pty Ltd ACN 100 517 708 ( "Iscorp" ), the defendant, Mr Youbert Yohana, and/or both of them. 2Mr Yohana operated a bridal wear business and a reception centre at the premises. 3The sole director and shareholder of Iscorp is a Mr Henrick Isaac who is a cousin of Mr Yohana. Mr Isaac has been suspended from practice as a solicitor but he did, for some time, act as Mr Yohana's solicitor and for some time the two of them had extensive commercial dealings which were outside those of the solicitor-client relationship. Mr Yohana became a guarantor of one of the loans obtained by Iscorp. 4In broad terms, it appears that Mr Yohana was willing, for commercial reasons, to make his property available to Iscorp to enable Iscorp to borrow money and that later, in order to avoid foreclosure by a lender, Iscorp agreed to transfer its property to Mr Yohana so he could refinance debts owed jointly by them to Australia and New Zealand Banking Group Ltd ( "ANZ" ). There was dispute about the terms on which the transfers and retransfers of lots came to be made and there was dispute about who should bear the costs of, and in relation to, the lots, including the mortgage repayments. There was also a dispute as to what were the costs relating to the lots and as to what income had been derived from them. 5This Court, by agreement of the parties, appointed a referee to provide a report and later a supplementary report. Mr Anthony Crestani of Furzer Crestani Services reported to the Court on 6 May 2011 and also provided a supplementary report dated 8 July 2011 . Both those reports were, by consent, adopted by the Court on 29 July 2011, and I shall refer to them collectively as "the Crestani reports" . 6The matter was, on 6 September 2011, fixed for hearing before me to commence on 8 November 2011 for four days. 7On 20 October 2011, Iscorp sought, by a notice of motion brought before Ward J, to vacate the hearing dates which application was refused. On 7 November 2011, Iscorp again sought to vacate the hearing which notice of motion came before me and I refused that application. In the course of that hearing I was informed that Iscorp could not afford to pay for legal representation and that its only assets are the assets or interests it claims in these proceedings. 8On 8 November 2011, the matter was called in and outside of court and there was no appearance for the plaintiff. Mr N Cotman SC appeared with Mr R Newton of counsel for Mr Yohana. Mr Newton informed the Court of a telephone call he had received from Mr Isaac on the morning of 8 November to the following effect: "I'm not coming today. Tell the judge I am discontinuing on everything. I am going to go bankrupt. I don't wish to look like a fool before the Court." Mr Newton then asked: "How do you propose a discontinue?" Mr Isaac replied with words to the effect: "Just tell the judge I am not coming to Court to contest the matter." Mr Newton then said: "I will inform the judge." 9By reason of the non-appearance of the plaintiff and the indications given by Mr Isaac that Iscorp would not be pressing its claims, I dismissed the statement of claim and made ancillary orders. Mr Yohana, however, seeks a determination in his favour of the cross-claim filed by him. Part of the relief sought in the cross-claim is declaratory relief and I therefore need to give consideration as to whether the relief sought should be granted. 10In considering Mr Yohana's cross-claim, I need to set out some facts principally from the Crestani reports to which I have referred, supplemented by some documentary material taken from the court books (volumes 1-11) prepared for the hearing and Mr Yohana's affidavit of 23 August 2010. I shall make a folder containing the Crestani reports together with the documents referred to below and the affidavit of Mr Yohana dated 23 August 2010 Exhibit A in the proceedings. Lot 3 11Lot 3 was purchased in 2003 for $410,000 by Iscorp and Mr Yohana as tenants-in-common in equal shares. Mr Yohana claims to have paid $250,000 towards the purchase price and most of the balance was met by a loan of $140,000 from Challenger Finance ( "Challenger" ) in their joint names. Mr Yohana paid $29,799.05 to reduce the debt owed to Challenger, and subsequently refinanced the loan himself. 12Iscorp had alleged, in its pleading, that Mr Yohana had agreed to pay all costs and expenses in respect of Lot 3 and pay Iscorp its losses and expenses in respect of Lot 3 (see pages 5 and 6 of the court book and paragraphs 16-24 of the statement of claim), and that was the reason he handed over an executed transfer of Iscorp's half-interest in Lot 3. 13Mr Yohana claims, in his affidavit of 23 August 2010, that in or about March 2007, Mr Isaac, on behalf of Iscorp, agreed to convey Iscorp's half-interest in return for Mr Yohana meeting any tax liabilities and outstanding expenses in relation to the lot (see paragraph 140 of Mr Yohana's affidavit and page 112 of the court book) 14The Crestani reports demonstrate that Mr Yohana's contribution to Lot 3 is $604,468.66 and Iscorp's contribution is $103,866.52. This includes $70,000 paid by Mr Yohana and $70,000 paid by Iscorp to Challenger. The shortfall in Iscorp's contribution is therefore $250,301.07. 15Mr Yohana said in his affidavit dated 23 August 2010 that he received the executed transfer but that he had not at that point registered the transfer: see paragraph 141 of his affidavit and page 112 of the court book. Lots 7 and 8 16Lots 7 and 8 were purchased by Mr Yohana prior to 22 November 2002. Mr Yohana deposes to having sold Lot 7 to Iscorp for $400,000 and that by reason of arrangements I am about to detail, Mr Yohana received $400,000 from Iscorp. 17Mr Yohana's evidence is that Iscorp wanted to purchase Lot 7 but was unable to borrow sufficient funds to fund the $400,000 purchase price. Mr Yohana says that he agreed to temporarily transfer Lot 8 to Iscorp so as to give it sufficient collateral to borrow $600,000 on the purchase of Lot 7. Mr Yohana says he wanted to borrow an amount of $100,000 and that it was agreed that Iscorp would lend him $100,000 and lend or give Mr Isaac $100,000 as well. On repayment by Mr Yohana of the $100,000 lent to him, Lot 8 was to be retransferred to Mr Yohana by Iscorp. 18La Trobe Capital and Mortgage Corporation Pty Ltd ( "La Trobe" ) lent Iscorp $600,000 (the amount stated to be the consideration for the sale by Mr Yohana to Iscorp: see page 152 of the court book), Mr Yohana received the $100,000 as a loan from Iscorp, and Mr Isaac received $100,000 from Iscorp. Mr Yohana received $400,000 for the purchase of Lot 7, notwithstanding the amount stated on the contract for sale. 19There is no dispute that Mr Yohana did repay the $100,000 and Lot 8 was eventually reconveyed to him. 20La Trobe was replaced as lender by ANZ. The loan from both La Trobe and ANZ was secured over Lots 7 and 8 and fell into arrears. Mr Yohana says he was required to make loan repayments under the guarantee he had given in support of the loan to Iscorp. 21Iscorp asserts that Mr Yohana and Mr Isaac agreed that Iscorp would transfer its interest in Lot 8 to Mr Yohana in consideration for Mr Yohana paying for Iscorp's equity in Lot 8 and reimbursing Iscorp for its losses and expenses in purchasing and keeping Lot 8 and its subsequent sale back. Iscorp's pleading referred to a document dated 7 August 2006 (see page 4 of the court book). The Iscorp pleading is very confusing. Mr Yohana deals with the document (a contract of sale) at paragraphs 59-65 of his affidavit dated 23 August 2010 (see page 99 of the court book). 22The Crestani reports reveal that no contributions were made by Iscorp in respect of Lot 8, other than a contribution assumed to have been made by Iscorp to the purchase price which assumption has not been supported by evidence: see page 661 of Exhibit A. 23The relative contributions by Mr Yohana and Iscorp for Lot 7 are summarised in Mr Crestani's second report (see page 661-662 of the court book), and tabulated in the defendant's submissions as $367,977.67 paid by Iscorp and a net benefit of $131,212 to Mr Yohana by his having received rent. However, Mr Yohana refinanced Lot 7 and had borrowed $680,000 from the Westpac Banking Corporation ( "Westpac" ) to pay out the ANZ loan and paid interest of $215,304.59, and other expenses of $31,516.53 and $156,500 which total $1,083,321.12, in contrast to the further contribution from Iscorp of $10,342.68. Thus the respective contributions are $952,109 from Mr Yohana and $378,320.35 from Iscorp. 24At page 369 of the court book is a copy of a deed in respect of Lot 7 made on 26 March 2008 by which Iscorp transfers to Mr Yohana its share in Lot 7 for a period of no more than 12 months and upon which Mr Yohana relies in support of his case. The Recitals to that deed are in the following terms: "The parties for the purpose of refinancing the loan from ANZ bank have agreed as follows: A. Iscorp to transfer its share at the property to Yohana for a period of no more than 12 months. B. Yohana to obtain a loan from Bank West and to discharge the existing loan to ANZ bank. C. [deleted] D. Yohana to transfer and return Iscorp's share in the property to Iscorp or to any party as Iscorp directs upon Iscorp obtaining a loan for lot 7 EQUAL TO 100% OF THE REFINANCE AMOUNT. E. The parties agree that Iscorp remain owner of the property despite transfer of its share to Yohana. This agreement has only been entered into to discharge the loans to ANZ bank. ISCORP IS TO PAY TO AN ACCOUNT NOMINATED BY YOHANA AN AMOUNT EQUAL TO THE INTEREST ON REFINANCE AMOUNT PLUS OUTGOINGS." Lot 4 25Iscorp and Yohana purchased Lot 4 for $410,000 as tenants-in-common in equal shares. There was a joint borrowing and a contribution by Iscorp of $1,974.13 and $95,679.33 by Mr Yohana. 26Mr Yohana asserts an agreement under which he would take a transfer of Iscorp's interest in Lots 4 and 7, that he would repay the debt on Lots 4 and 7, and on the basis that Iscorp would be responsible for half the repayment attributable to Lot 4 and the whole of the payments attributed to Lot 7. 27Mr Crestani has calculated contributions by Mr Yohana of $769,590.58 towards Lot 4 and of $320,000 by Iscorp. Mr Yohana claims that $224,349.82 is owing by Iscorp to him and that he has an equitable lien over Iscorp's half-share in Lot 4. Lot 4 was valued at $445,000 on 31 August 2010 (see page 229 of the court book). 28At page 365 of the court book is a deed dated 26 March 2008 in relation to Lot 4 upon which Mr Yohana relies in support of his case. It notes that Mr Yohana and Iscorp are joint owners of Lot 4 and that they are required to refinance the loan to ANZ. The Recitals provide: "The parties for the purpose of refinancing the loan from ANZ bank have agreed as follows: "A. Iscorp to transfer its share at the property to Yohana for a period of no more than 12 months. B. Yohana to obtain a loan from Bank West and to discharge the existing loan to ANZ bank. C. Yohana to provide guarantee and lot 4 and lot 8 as security to Iscorp to obtain finance for discharge of Iscorp's loan to ANZ bank in the sum of $600,000. D. Yohana to transfer and return Iscorp's share in the property to Iscorp or to any party as Iscorp directs upon Iscorp obtaining a loan for lot 4 EQUAL TO 50% OF THE REFINANCE AMOUNT. E. The parties agree that Iscorp remain half owner of the property despite transfer of its share to Yohana. This agreement has only been entered into to discharge the loans to ANZ bank. ISCORP IS TO PAY TO AN ACCOUNT NOMINATED BY YOHANA AN AMOUNT EQUAL TO HALF THE INTEREST ON THE REFINANCE AMOUNT." 29Iscorp claimed by its statement of claim that it is entitled to a retransfer to it of a 50% interest in Lot 4, an account, and the moving of an internal dividing wall. It claims a right to enjoy a separate portion of Lot 4. Determination in respect of the various lots Lot 8 30Lot 8 has been reconveyed to Mr Yohana and sold. On the basis of Mr Yohana's evidence, Iscorp has no rights in respect of this property or its proceeds and that is consistent with the reconveyance of Lot 8 to Mr Yohana in 2008. This is supported by the Crestani reports that no contribution has been made by Iscorp in respect of Lot 8. Lot 3 31Since Mr Yohana's evidence is not contradicted, there is an agreement for consideration for the transfer of an interest in land which, although itself not in writing, was accompanied by an executed transfer signed by the registered proprietor of the half-interest in the land. On this basis, Iscorp's beneficial interest was relinquished. Although on that basis there is no necessity to consider contributions due from Iscorp, I shall nevertheless detail the position in relation to Lot 3 since the position in respect of Lot 3 is similar to that of Lots 4 and 7 in terms of excess of liability over interest. Lots 4 and 7 32So far as Lot 4 is concerned, it seems clear that Iscorp intended to pass legal title to Mr Yohana in 2008 but to retain a beneficial interest in the property. Iscorp's right to the retransfer and return of its half-share in Lot 4 was dependent on Iscorp obtaining refinancing for a 50% share, which appears to be the $600,000 figure mentioned in Recital C as set out above. 33Given Iscorp's failure to obtain finance since 2008 and its difficulties before that time, the prospect of such a refinancing ever occurring are slim indeed. The refinancing was implicitly to occur by March 2009. Mr Yohana has moved to refinance with the Bank of Western Australia ( "Bankwest" ) the loan that was from ANZ which included security over Lot 7. 34Mr Yohana's case in respect of Lot 4 is that he is owed $224,349.82 as at July 2011. He asserts that for him to be required to return to Iscorp the half-share in Lot 4, Iscorp must pay its share of mortgage and other expenses on the property. 35The Lot 4 deed seeks to transfer the legal title in Iscorp's half-interest but not the beneficial title. The conditions for transfer back to Iscorp set out in the deed did not occur within the specified 12 months or after the expiration of the 12 months specified in the deed. 36Since the deed purports to maintain equal beneficial interest in the property and says nothing about any adjustment of obligations of payment for mortgage and expenses relating to the property that Mr Yohana incurred, I draw the inference that the intention was that they would be borne by Iscorp and Mr Yohana in the proportions of their interest in the property, ie equally. This could have been altered by specific agreement, but although Iscorp asserted such agreement, it has decided not to advance any case of that kind, and nothing was said on that topic in the deed. 37Similar considerations apply to the Lot 7 deed, except that Iscorp had 100% beneficial interest in this property. It follows that 100% of the costs associated with the property should be borne by the beneficial owner, namely Iscorp, rather than the legal owner, in the absence of it being established that different arrangements were agreed upon. 38In paragraphs 10-19 of the written submissions lodged on behalf of Mr Yohana, reference is made to a number of principles concerning a trustee's right to indemnity and exoneration and cases in which these principles have been enunciated: "10. A beneficiary will get no assistance from equity against his trustee in seeking to recover trust property unless he is prepared to defray the trustee's legitimate expenses: Hardoon v Belilios [1901] AC 118 (PC), especially at 125-127. 11. Likewise, a trustee who incurs expense at the instance of the beneficiary is entitled to be indemnified from the trust property and by the beneficiary. 12. Where loan monies are obtained on the security of co-owners and applied unequally for the benefit of the co-owners the equitable doctrine of exoneration applies so that the unequal benefit is thrown against the share of the co-owner receiving that benefit: Farrugia v Official receiver in Bankruptcy (1982) 43 ALR 700. 13. Where a trustee incurs expenses or becomes subject to a liability in performing trusts he has a right of indemnity out of the assets of the trust in respect of those expenses or liability: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; Chief Commissioner of Stamp Duties for NSW v Buckle (1998) 192 CLR 226 at 245. See also section 59(4) Trustee Act 1925. 14. The right of indemnity or exoneration is supported an equitable lien over the trust assets which confers a proprietary interest in the trust property in priority to the claims of the beneficiary: Octavo (supra at 367, 370); Buckle (supra at 246). 15. Ordinarily the trustee's proprietary interest is enforceable by judicial sale or the appointment of a receiver rather than foreclosure or sale out of court: The Melbourne Tramways Trust v The Melbourne Tramways and Omnibus Co Ltd (1887) 13 VLR 487 at 490; see also Trim Perfect Australia v Albrook Constructions [2006] NSWSC 153 per Austin J. 16. A trustee is entitled to retain possession of trust property until its indemnity is exercised : Octavo (supra at 369-370); Buckle (supra at 246); see also Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550 at [14]-[22]. 17. A trustee who has discharged a trust liability out of his own property is entitled to reimbursement out of the trust property and if he hasn't been reimbursed he is entitled to be exonerated from the trust property: Worrall v Harford (1802) 8 Ves Jun 4 at 8; 32 ER 250 at 252 per Lord Eldon cited with approval in Buckle at 245. 18. It is also well established that the trustee's right of indemnity extends to liabilities which are 'incurred' but not yet paid: Jennings v Mather [1901] 1 QB 108 (affirmed Jennings v Mather [1902] 1 KB 1; (1901) 85 LT 396; 50 WR 52); Octavo (supra at 371) per Stephen, Mason, Aickin and Wilson JJ. The underpinning rationale for this proposition is that until such times as Kennedy J observed in Jennings at 114, "...the accounts are made up he is entitled to a lien over all the assets of the estate." 19. Tobias JA (with whom Beazley and Macfarlan JJA agreed) observed in Agusta Pty Limited v Official Trustee in Bankruptcy (as trustee of estates of Feralla) [2009] NSWCA 129 at [18] that there is ample authority for the proposition that a trustee's right of indemnity arises when a relevant trust-related liability is incurred. His Honour went on to refer to the judgment of Derrington J in Xebec Pty Limited (in liq) v Enthe Pty Limited (1987) 18 ATR 893 in which reference was made to Octavo wherein it was noted that it was not in dispute that a trustee is entitled to indemnity in respect of any liability "which it might incur" in the performance of its duties and that it has a corresponding charge over the trust properties to support that indemnity." 39Mr Yohana does not contend that the transfer of Iscorp's interest in lots 4 and 7 were transfers of both the equitable as well as the legal interest. The submissions on behalf of Mr Yohana proceed on the basis that Mr Yohana was a trustee for Iscorp in relation to half the property in the case of Lot 4, and as to the whole of the property in the case of Lot 7, and no attention is given in the submissions of the defendant to the possibility that the trust was in effect a resulting trust. It appears that a trustee under a resulting trust or implied trust does have a right of indemnity and a right of exoneration in respect of expenses and liabilities properly incurred in connection with the trust and trust property (see the definition of "trustee" in s 5 and also s 59(4) of the Trustee Act 1925 (NSW); see also H A J Ford & W A Lee, Principles of the Law of Trusts, vol 2 at [21.125]). Thus the precise basis of the trust relationship does not matter. I accept that Mr Yohana is entitled to indemnity to the extent he has paid more than his appropriate share for the upkeep of the lots and their financing, and he is also entitled to exoneration in respect of liabilities he has to the lender in respect of Lots 4 and 7. Lot 3, if not already out of consideration for reasons mentioned earlier, would fall to be dealt with in the same fashion as Lots 4 and 7. 40I proceed on the basis that Mr Yohana is, as a trustee, entitled to be reimbursed for expenses or exonerated for liabilities incurred which should be borne equally by the beneficial owners in the case of assets owned equally, and as to 100% in the case of an asset in which Iscorp had the sole beneficial interest. 41The next limb in the defendant's submissions is that where the amount of indemnity or exoneration exceeds the value of half the property (in the case of Lot 4) or 100% of the property (in the case of Lot 7), and the beneficiary is not prepared to do equity by indemnifying the trustee, there is no reason in principle why the court should not permit the trustee to appropriate the entirety of the trust assets in partial satisfaction, particularly where the trust asset is jointly owned. It was conceded that normally in a case where the trustee has effectively a charge over the property of the beneficiary, the court would order a sale of the property. Since the sale would yield less than the claimed right of indemnity or exoneration, it is submitted by Mr Yohana that there is little point in forcing him to sell the property and incur additional costs. 42I summarise the amount at which the lots have been valued and the amount determined by Mr Crestani as in effect overpaid by Mr Yohana and requiring a contribution from Iscorp: Lot Contribution required from Iscorp Value of lot Iscorp's share 3 $250,301.07 $285,000 (see page 523 of the court book) 50% 4 $224,349.81 $445,000 (see page 530 of the court book) 50% 7 $952,109.12 $424,000 (see page 536 of the court book) 100% 43In relation to Lots 3 and 7 there is no realistic prospect of Iscorp holding any equity in these lots after deduction of the contributions required. In relation to Lot 4, after sales costs are taken into account, there is a limited prospect that Iscorp could have some equity in that lot. 44In Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226, the High Court (per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ) at [47] approved the following passage from Scott on Trusts , 4th ed (1988), vol 3A, s246: "Where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust, although the trustee is ordinarily personally liable to the third person on the contract, he is entitled to indemnity out of the trust estate. If he has discharged the liability out of his individual property, he is entitled to reimbursement; if he has not discharged it, he is entitled to apply the trust property in discharging it, that is, he is entitled to exoneration." The Court then said at [48] (footnotes omitted): "The entitlement of the beneficiaries in respect of the assets held by the trustee which constitutes the "property" to which the beneficiaries are entitled in equity is to be distinguished from the assets themselves. The entitlement of the beneficiaries is confined to so much of those assets as is available after the liabilities in question have been discharged or provision has been made for them. To the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not "trust assets" or "trust property" in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries." See also J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7 th ed (2006) at [2102], and I think that these passages provide support for the defendant's contention that sale of the lots ought not be required in the present circumstances. 45Provided the beneficiary's interest in the property is clearly less than the amount which must be paid by the beneficiary to obtain return of the legal title in the property (the categorisation of this process is not without its complications: see the helpful discussion of this in D Ong, Trusts Law in Australia, 3 rd ed (2007) at 448-452), there seems to be little point in requiring the sale of the property since: (1)it will not be of any assistance to the beneficiary; (2)it will force the trustee to expend money on the sale and reduce the value of the net interest in the property by the costs of sale; (3)the trustee already is registered on the title as the owner; and (4)the beneficiary has not propounded a contrary case and has not, by evidence, challenged the accuracy of the valuations obtained by the defendant nor the accuracy of the determination of Mr Crestani. 46I am therefore inclined to the view that it is appropriate to declare that any beneficial interest of Iscorp in any of Lots 3 and 7 should be treated as exhausted by virtue of a liability to Mr Yohana. In relation to Lot 4, I have give consideration to several alternative courses of action which I shall raise with counsel for Mr Yohana. Costs payable by Mr Isaac 47Mr Yohana seeks, in addition to order for costs against Iscorp, an order that Mr Isaac pay Mr Yohana's costs of defending these proceedings. Section 98(1) of the Civil Procedure Act 2005 (NSW) gives the court power to order a third party to pay costs (rule 42.3 of the Uniform Civil Procedure Rules 2005 (NSW)( "UCPR" ) which imposed a fetter on this power was repealed in May 2010). In Knight v FP Special Assets Ltd (1992) 174 CLR 178, it was indicated that there are three criteria to be met for a costs order against a non-party which are: (1)that the party to the proceedings and against whom a cost order is to be made is impecunious; (2)that the non-party has actively participated in the case; and (3)that the non-party has an interest in the subject matter of the proceedings. 48I note that when Mr Isaac sought leave to appear on behalf of Iscorp, Ward J required him to acknowledge that he might be personally liable for costs and in an affidavit filed 7 November 2011 purportedly in compliance with Rule 7.2 of the UCPR he also acknowledges this. Mr Isaac is the sole shareholder and sole director of Iscorp, and he indicated through counsel then appearing for Iscorp on Monday that the only assets Iscorp has are those which it is claiming in these proceedings. Justice Ward also directed that Mr Isaac was to pay 50% of the costs of the preparation of the court books. Mr Isaac also had given an undertaking along with Iscorp in respect of damages that might be suffered by Mr Yohana by reason of the injunction and undertakings given by Mr Yohana. 49In Timothy O'Brien Pty Ltd v Mistral Vision Pty Ltd (2004) 2 DCLR(NSW) 86, I said at [45]: "If a company that does not have the funds to embark upon litigation promotes a case which will, if successful, enure to the benefit of its director and sole shareholder, both as a shareholder and as employee, and thereby puts the other party to expense, I do not think it accords with the principles of justice that that director/shareholder should be permitted to leave the successful party with a worthless costs order." 50In the circumstances, I think it is clear that Mr Isaac is the directing mind behind the litigation and a person who, by virtue of his shareholding in Iscorp, would have benefited if Iscorp had been successful. I think it is appropriate that Mr Isaac, as well as Iscorp, be ordered to pay the costs of the defendant in respect of the statement of claim as agreed or assessed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 November 2011