Khoury v Khoury (No 2)

Catchwords: ORDERS – form of orders to give effect to principal judgment – declaration of trust – declaration of liens – declaration in respect of liability for joint loan – declarations relating to capital gains tax liabilities
COSTS – where plaintiff successful on primary issue – where mixed success on other issues – defendant to pay 50% of plaintiff’s costs

Legislation Cited: Trustee Act 1925 (NSW), s 71

Cases Cited: Khoury v Khoury [2025] NSWSC 760

Category: Consequential orders

Parties: Jason Khoury (Plaintiff)
Karisa Lee Khoury (Defendant)

Representation: Counsel:
N Kulkarni (Plaintiff)
AL Connolly (Defendant)
Solicitors:
Lane and O’Rourke (Plaintiff)
Muscat Law (Defendant)
Minter Ellison (Interested Party - Westpac Banking Corporation)

File Number(s): 2024/279596

Publication restriction: None

JUDGMENT

1. On 17 July 2025, I delivered a judgment in this matter in which I concluded that the defendant, Ms Karisa Khoury, holds a property known as 162 Holt Road, Taren Point on trust for the plaintiff, Mr Jason Khoury, her brother-in-law: see Khoury v Khoury [2025] NSWSC 760 (principal judgment). The trust arose from an arrangement between Jason and Karisa’s late husband and Jason’s brother, Tony Khoury, by which Jason and Tony agreed that they would build duplex houses on land owned by Tony using a loan of $730,000 (the Joint Loan) borrowed from Westpac Banking Corporation (Westpac) and that Jason would own what became 162 Holt Road and Tony would own what became 162A Holt Road. On the conclusions I reached, as between Jason and Tony, Jason was to be responsible for repaying interest and principal in respect of $630,000 of the Joint Loan and Tony would be responsible for paying the balance. That division of the loan arose in circumstances where the two brothers agreed that they would contribute equally to the costs of the project of building the two duplex houses and Tony had contributed the land on which the two houses were built, which he had bought in June 2002 for $457,000 plus legal costs and stamp duty.

2. At the time of delivering my reasons for judgment, I indicated that I would receive further submissions from the parties on the form of orders that should be made and the question of costs in light of the conclusions I had reached, with the intention that any outstanding issues be dealt with on the papers. This judgment deals with those outstanding issues. It assumes familiarity with my earlier judgment and uses the same abbreviations as used in that judgment.

The orders

Declarations concerning the trust

3. It is common ground that the Court should make declarations concerning the existence and the nature of the trust.

4. Jason proposes the following declarations:

“1. Declare that, on and from 16 June 2013, the late Tony Khoury held the part of the land contained in folio identifier 119/9230 comprising the land now contained in folio identifier 1/1256529 (162 Holt Road) on constructive trust for the plaintiff.

2. Declare that the defendant, in her capacity as administrator of the Estate, holds 162 Holt Road on the constructive trust referred to in order 1.”

5. Karisa, on the other hand, proposes the following declaration:

“1 The Court declares that, by virtue of an arrangement between the plaintiff and the late Tony Khoury, who died on 26 December 2023:

a. the defendant, who is the administrator of the deceased estate of Tony Khoury, holds Lot 1 in Deposited Plan 1256529, being the property situated at 162 Holt Road, Taren Point (“162 Holt Road”), on trust for the plaintiff pursuant to a trust that arose on 16 June 2013;”

6. Of the alternatives, I prefer the order proposed by Karisa. It is unnecessary to make a declaration concerning the historical position (as proposed in order 1 of those proposed by Jason). In addition, as Karisa points out, she may not always hold the property as administrator. The order proposed by her deals with that possibility.

Declarations concerning the Joint Loan

7. Both parties agree that the Court should make a declaration concerning their liability as between themselves in relation to the Joint Loan. Both also agree that consistently with my judgment, as between themselves, Jason is liable for 86.3% of the loan and Karisa is liable for 13.7%. Both also agree that each should indemnify the other for any amount the other pays to Westpac above their respective share, that that indemnity should be secured by a lien over Jason’s interest in 162 Holt Road in the case of his indemnity and a lien over 162A Holt Road in the case of Karisa’s indemnity. Each also agrees that neither party should be entitled to withdraw any money from the Joint Loan or increase the principal of the Joint Loan owed at the date the orders are made.

8. There are minor differences in the orders proposed by the parties. Karisa’s proposed declaration seeks to make an adjustment in the event that one or other of them has not paid his or her share at the time judgment was delivered on 17 July 2025. However, there is no evidence that any such adjustment needs to be made, and if it does need to be made it can be dealt with in accordance with the indemnities that each is required by these orders to give to the other. Jason’s proposed declarations do not specifically deal with the indemnities. It seems to me appropriate that they do so. In addition, Jason’s proposed declaration records that the declaration is made in relation to Karisa in her capacity as administrator of Tony’s estate. However, I do not think that is necessary. The declaration I propose to make reflects these points.

9. In the principal judgment, I concluded that the parties should bear equally any capital gains tax and stamp duty payable as a consequence of the creation of the trust in favour of Jason over what became 162 Holt Road. The capital gains tax arises from the fact that by the creation of the trust (which I found occurred on 16 June 2013), Tony disposed of a half interest in the property owned by him at the time to Jason. Stamp duty is payable by Jason on the creation of the trust because it involves the acquisition of the beneficial ownership of that part of the land that became 162 Holt Road. I reached the conclusion that those costs should be shared equally because the arrangement between Jason and Tony was that they should share the costs of the project equally and those costs should be seen as part of the costs of the project.

10. When 162A Holt Road is sold, Karisa will also be liable to pay capital gains tax on the increase in value of the Property between the date it was purchased by Tony (and rented out by him) and a date corresponding to the date that the land that became 162A Holt Road became Tony and Karisa’s principal place of residence. Again, I concluded that consistently with the arrangement between Jason and Tony that each contribute equally to the project, that liability should be shared equally. That was because in assessing the parties’ respective contributions, Tony’s contribution was valued at cost and not by reference to the Property’s value at the time the trust came into existence. As a result, Jason has received the benefit of the capital gain between the date the Property was purchased and the date the trust came into existence. It would be inequitable for Jason not to bear 50% of the capital gains tax in those circumstances.

11. The parties accept that it follows from my principal judgment that the Court should make orders requiring Karisa to indemnify Jason in respect of half of his liability to pay stamp duty and that Jason should indemnify Karisa in respect of half her liabilities to pay capital gains tax. The only substantive issue between them is whether those liabilities should be the subject of the liens over 162A Holt Road in respect of stamp duty and 162 Holt Road in respect of capital gains tax. Karisa submits that they should. Jason disputes that contention.

12. I accept Jason’s submissions on this issue. As Jason points out in his submissions, the reason for imposing liens in respect of the Joint Loan is that the liens relate to a debt which is secured against both properties. If Westpac chose to enforce its mortgage against one property, it is reasonable that the “owner” of that property should have a lien over the other property (or, in the case of 162 Holt Road, Jason’s interest in that property) in respect of the indemnity to the extent of that owner’s right under the indemnity. On the other hand, the other payments in effect represent adjustments between Jason and Tony (now Karisa) to ensure that each contributed equally to the project consistently with the arrangements reached between Jason and Tony. It was not part of that arrangement that those adjustments be secured by a lien.

13. Again, there are slight differences in the wording of the orders proposed by the parties dealing with capital gains tax and stamp duty. The orders proposed by Karisa are drafted more broadly to cover “any capital gains tax payable as a result of or in connection with the duplex project carried out on Lot 119 in Deposited Plan 9230 by the plaintiff and Tony Khoury”. Apart from the two types of capital gains tax I have referred to, there was no suggestion that any other capital gains tax was payable “as a result of … the duplex project”. The words proposed by Karisa introduce a degree of unnecessary uncertainty into the orders. The orders proposed by Jason seek to identify the periods over which the capital gains tax is to be calculated. In my opinion, with one qualification that is not appropriate. It is possible that the Australian Taxation Office will calculate capital gains tax over a different period from the one anticipated by the parties. If it does, Jason should be liable for 50% of that tax.

14. The qualification relates to any capital gains tax payable on the sale of 162A Holt Road. It is conceivable that, following these proceedings, Karisa could choose to rent 162A Holt Road out. Plainly, if that happened, Jason should not be liable for any capital gains tax flowing from that decision. As a result, it is necessary to specify some period in relation to 162A Holt Road. The period I have chosen in the orders is the period from 10 June 2002 to 17 July 2025. There can be no issue about those dates. The first date is the date on which the Property was bought. Capital gains tax could not be referable to a period before then. The second date is the date of my principal judgment. There is no question that 162A Holt Road was Tony and Karisa’s principal place of residence at least up until that date. The orders I propose to make reflect these conclusions.

Orders relating to 162 Holt Road

15. Jason seeks the following orders:

“7. Order that, within 30 days of the date of these orders, the defendant is to do all things necessary to transfer 162 Holt Road to the plaintiff.

8. Order that simultaneously with the transfer referred to in Order 4 [scil 7]:

(i) the plaintiff is to discharge the Plaintiff’s Share of the Joint Loan; and

(ii) the defendant is to discharge the Defendant’s Share of the Joint Loan [a reference to the loan of $730,000].”

16. Those orders cannot be made. Three loans owed to Westpac are secured against 162 and 162A Holt Road, including the Joint Loan. No orders could be made which would affect Westpac without its consent. Nor should the Court make orders that require a party to take steps which were not contemplated by the arrangements between Jason and Tony and that that party may not be in a position to take. There is no evidence before the Court that the parties are in a position to discharge the Joint Loan. It is not clear what steps Karisa could take to transfer 162 Holt Road to Jason when it is the subject of mortgages securing three loans owed to Westpac. They are matters that can only be addressed by agreement between the parties and Westpac.

17. Karisa proposes various orders relating to 162 Holt Road. They fall into two categories. First, she proposes orders setting out the circumstances in which she would be required to transfer the legal ownership of 162 Holt Road to Jason, which would be if either:

“i. the plaintiff becomes able to take on sole liability for the Plaintiff’s Loan Obligations [a reference to 86.3% of the Joint Loan] so that the liability is no longer secured against 162A Holt Road; or

ii. the liability to the lender for the Plaintiff’s Loan Obligations is fully discharged.”

18. However, these proposed orders do not take account of the fact that Karisa’s loan obligations are also secured against 162 Holt Road. The orders cannot be made without Westpac’s consent, at least in proceedings to which Westpac is not a party.

19. Secondly, Karisa’s proposed orders deal with the indemnity given by Jason in respect of capital gains tax in the event that 162 Holt Road is sold before the amount of those liabilities are determined either because Karisa has exercised a power of sale in respect of the property because Jason has defaulted on his indemnity obligations or because the property is sold at Jason’s request in accordance with another order proposed by Karisa.

20. It is not appropriate to make those orders. They wrongly assume that Jason’s liability to indemnify Karisa against half of the capital gains tax for which she is liable are secured by a lien over 162 Holt Road.

21. As a result of Tony’s death and the falling out between the respective families, the parties find themselves in a difficult position. However, it is not for the Court to seek to resolve that difficult position by making orders that go beyond the rights recognised by the Court. The parties themselves in consultation with Westpac will need to find a solution to the predicament in which they find themselves. There may be a variety of possibilities. It is neither practical nor appropriate for the Court to make orders that seek to cater for all those possibilities.

22. I accept, however, that if the parties are able to reach an agreement, it may be appropriate for the Court to make supplementary orders to give effect to that agreement insofar as it relates to the orders that are made.

23. Accordingly, it is appropriate to give the parties liberty to apply in respect of the implementation of the orders made by the Court.

Costs

24. In relation to costs, Karisa proposes that there be no order as to costs with the intention that each party pay his or her own costs. On the other hand, Jason proposes that Karisa pay his costs on the ordinary basis up to 29 May 2025 and on an indemnity basis from 30 May 2025.

25. In support of the order he seeks, Jason submits that he has enjoyed success in the proceedings because the Court has recognised his interest in 162 Holt Road, which was largely resisted by Karisa. In support of an order for indemnity costs from 29 May 2025, Jason relies on an offer of compromise dated 1 May 2025 which largely (but not completely) reflects the final orders proposed by Jason.

26. I do not accept the cost orders proposed by Jason. In my opinion, it is appropriate to order that Karisa pay 50% of Jason’s costs.

27. One difficulty with the orders originally sought by Jason in his amended statement of claim is that he sought orders that 162 Holt Road be transferred to him without addressing how that could be achieved absent an agreement with Westpac. Jason proposed the same order in his offer of compromise. But again, how that was to be achieved was not addressed satisfactorily. To deal with the order for transfer, Jason appears to offer to consent to an order being made under s 71 of the Trustee Act 1925 (NSW) vesting 162 Holt Road in him subject to the Westpac mortgage. But that is not a matter within Jason’s control and would depend on separate proceedings to which presumably Westpac would need to be joined. Moreover, the offer of compromise said nothing about capital gains tax arising on the sale of 162A Holt Road. For those reasons alone, no cost consequences can follow from Karisa’s failure to accept that offer.

28. So far as costs generally are concerned, while it is true that neither party has enjoyed complete success, Jason has ultimately succeeded in his substantive claim. The question whether Jason had an interest in 162 Holt Road was undoubtedly the most significant issue raised by his amended statement of claim. By her defence, Karisa asserted that Jason had no interest in 162 Holt Road. She appeared to maintain that position up until the third day of the hearing when, in cross-examination, she accepted that Jason did have an agreement with Tony of the kind contended for by Jason, and that Jason was entitled to 162 Holt Road subject to meeting certain preconditions relating to capital gains tax and the discharge of the Joint Loan.

29. However, it could not be said that Jason has been completely successful in the proceedings. Jason sought an order that Karisa transfer 162 Holt Road to him. Karisa has been successful in resisting that order. Related to that success, the Court has accepted that she should be indemnified against 50% of her capital gains tax liabilities and that she should be protected in relation to any failure by Jason to pay his share of the Joint Loan. It is true that during the hearing Jason accepted orally that he should provide an indemnity to Karisa in respect of those amounts. However, Jason’s amended statement of claim was silent on capital gains tax and stamp duty, and again it was only late in the proceedings that Jason made concessions on those issues. Consequently, a fair characterisation of what has happened is that Karisa has been successful on some issues that are consequent on her failure on the principal issue of whether Jason had an equitable interest in 162 Holt Road. It seems to me that the most appropriate order in all the circumstances is that Karisa pay 50% of Jason’s costs.

30. Accordingly, the orders of the Court are:

(1) Declare that, by virtue of an arrangement between the plaintiff and the late Tony Khoury, who died on 26 December 2023, the defendant, who is the administrator of the deceased estate of Tony Khoury, holds Lot 1 in Deposited Plan 1256529, being the property situated at 162 Holt Road, Taren Point (162 Holt Road), on trust for the plaintiff pursuant to a trust that arose on 16 June 2013.

(2) Declare that, in respect of the loan owed to Westpac Banking Corporation and represented by the loan accounts numbered 21-2154 and 59-3293 (Joint Loan), as between the plaintiff and the defendant:

(a) the plaintiff is liable for 86.3% of the Joint Loan (Plaintiff’s Loan Obligations); and

(b) the defendant is liable for 13.7% of the Joint Loan (Defendant’s Loan Obligations).

(3) Declare that the plaintiff must indemnify the defendant for any and all of the Plaintiff’s Loan Obligations that are discharged by the defendant.

(4) Declare that the defendant must indemnify the plaintiff for any and all of the Defendant’s Loan Obligations that are discharged by the plaintiff.

(5) Declare that the defendant has a lien over the plaintiff’s interest in 162 Holt Road to secure the plaintiff’s obligations under the indemnity referred to in order (3).

(6) Declare that the plaintiff has a lien over the defendant’s interest in Lot 2 in Deposited Plan 1256529, being the property situated at 162A Holt Road, Taren Point (162A Holt Road) to secure the defendant’s obligations under the indemnity referred to in order (4).

(7) Order that the plaintiff and the defendant are not to draw any money from the Joint Loan or increase the principal of the Joint Loan owed as at the date of these orders.

(8) Declare that the plaintiff must indemnify the defendant in respect of 50% of any capital gains tax payable by the defendant, in her capacity as administrator of the estate of the late Tony Khoury, on:

(a) the disposition in favour of the plaintiff of any interest in the property that is now 162 Holt Road; and (b) any disposition of 162A Holt Road or an interest in that property to the extent that that tax is payable in respect of an increase in the value of the property of which 162A Holt Road formed part between 10 June 2002 and 17 July 2025.

(8A) Declare that the defendant in her capacity as administrator of the estate of the late Tony Khoury must indemnify the plaintiff in respect of 50% of any stamp duty payable by the plaintiff in respect of the disposition by the late Tony Khoury in favour of the plaintiff of any interest in the property that is now 162 Holt Road.

(9) Order that the defendant pay 50% of the plaintiff’s costs.

(10) Liberty to apply in respect of the implementation of these orders.

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Amendments

15 October 2025

Additional declaration (8A) added to coversheet and [30]