Moffa v Starr

Supreme Court of South Australia
(Civil: Application)
MOFFA v STARR
[2023] SASC 2
Judgment of the Honourable Justice Blue
REAL PROPERTY - GENERAL PRINCIPLES - INCIDENTS OF ESTATES AND INTERESTS IN LAND
Application, in the course of an estate proceeding, for directions to the administrator pendente lite of the estate of Michele Moffa deceased to take steps to sell two properties at Norwood in which the estate holds a moiety (one half undivided) interest together with the second respondent.
In the estate proceeding, the issue is whether a will made by Michele on 25 November 2016 is valid or alternatively whether a will made by Michele on 24 November 2003 (the 2003 Will) is valid. Under the 2003 Will, the estate is effectively left in equal shares to Michele’s four daughters. Under the 2016 will, the estate is effectively left in equal shares to Michele’s five children (including the second respondent) and five sets of grandchildren.
Held:
1An order should be made directing the administrator to take steps to sell the Edward Street property (at [69]).
2An order should not be made directing the administrator to take steps to sell the Stephen Street property (at [79]).

Inheritance (Family Provision) Act 1972 (SA); Law of Property Act 1936 (SA) s 70, s 71, referred to.
Henderson v Executor Trustee Australia Ltd [2005] SASC 477, considered.

MOFFA v STARR
[2023] SASC 2
Civil

BLUE J: This is an application in the course of an estate proceeding for directions to the administrator pendente lite of the estate (the Estate) of Michele Moffa deceased (Michele) to take steps to sell two properties at Norwood in which the Estate holds a moiety (one half undivided) interest together with the second respondent Andrew Moffa (Andrew).
In the estate proceeding, which was instituted by claim in May 2018 (the action), the applicant Andrew Moffa in his capacity as the remaining person named as executor in the 2016 Will propounds a will made by Michele on 25 November 2016 (the 2016 Will) and seeks probate of it. By cross action filed in the proceeding (the cross action), the first respondent Rosa Starr (Rosa) and the fourth respondent Marina Wood (Marina) propound a will made by Michele on 24 November 2003 (the 2003 Will) and seek probate of it.
Michele died on 1 August 2017. He had five children: Andrew, Rosa, Marina, Lisa Walsh (Lisa) and Michelle Thomson (Michelle).
In August 2018 an order was made by consent in the proceeding appointing Alfio Macolino as administrator pendente lite.
In April and August 2022 the fifth respondent, Michelle, filed interlocutory applications seeking directions that Mr Macolino take steps to sell the two Norwood properties. The application is opposed by Andrew (in his capacity as a beneficiary rather than named executor under the 2016 Will). The application is supported by the third respondent, Lisa, and by the tenth and eleventh respondents, Kate Thomson (Kate) and Samuel Thomson (Samuel). The other respondent beneficiaries do not take a position in relation to the application.
Background
By the 2003 Will, Michele appointed Marina, and in default Lisa, as sole executor and trustee of the Will. He gave $1,000 to Andrew and the residue of his estate to his trustee on trust for his surviving daughters Rosa, Michelle, Lisa and Marina.
By the 2016 Will, Michele appointed Andrew and Michele’s solicitor Nicola Minicozzi as executors and trustees of the Will with the determination of Mr Minicozzi to prevail in the event of disagreement. He gave the residue of his estate to his trustee on trust to divide into ten equal parts and:
·give a one tenth part each to his children Rosa, Andrew, Lisa and Marina;
·give a one tenth part each to the children of Rosa, Andrew, Lisa and Marina;
·hold a one tenth part upon a testamentary trust set out in clause 6 of the Will (Michelle’s Trust Fund); and
·hold a one tenth part upon a testamentary trust set out in clause 7 of the Will (Michelle’s Children’s Trust Fund).
The testamentary trust set out in clause 6 is a trust to pay during Michelle’s lifetime the whole or part of the income or capital of the fund for the benefit of Michelle or her children, their trusts or companies and ultimately for Michelle’s children who are or attain the age of 21 years after her death. The testamentary trust set out in clause 7 is a trust on commensurate terms for Michelle’s children.
In August 2017 Michele died. Each of his children had children of their own. Andrew’s children Angela, Sophia and Isabella are the sixth to eighth respondents. Lisa’s child Riley is the ninth respondent. Michelle’s children Kate and Samuel are the tenth and eleventh respondents. Marina’s children Mitchell, Chad and Blake are the twelfth to fourteenth respondents. Rosa’s children Adam and Emma are the fifteenth and sixteenth respondents.
At the date of his death, Michele owned an interest in five properties in metropolitan Adelaide. He owned his principal residence at Highbury; a property at Paradise; a half interest in another property at Paradise; a half interest in a property in Edward Street Norwood (jointly with Andrew); and a half interest in a property in Stephen Street Norwood (jointly with Andrew).
The Edward Street property contains three dwellings (a main dwelling and two flats at the rear), separately rented to different tenants. It was purchased by Michele and Andrew in January 1983.
The Stephen Street property is a vacant allotment. It was purchased by Michele and Andrew in February 1998.
Michele also owned one quarter of the units in the Adelaide Democratic Unit Trust (the Unit Trust) (the other three quarters being owned by Andrew) and was owed $248,463 by the Unit Trust. As at 30 June 2020 the Unit Trust owned two commercial properties in Hutt Street and one commercial property in Market Street Adelaide.
Michele also held $445,557 in Westpac bank accounts.
In May 2018 Mr Minicozzi instituted the action.
In June 2018 Rosa and Marina instituted the cross action by filing a defence and counterclaim.
In August 2018 Mr Macolino was appointed administrator pendente lite by a Master in this proceeding. The administrator was given power to get in all and any of the assets and pay the testamentary expenses and debts of the Estate and was otherwise to retain and invest money and assets coming into his hands as administrator and hold them until further order.
In April 2019 an order was made in the proceeding giving leave to Mr Minicozzi to renounce probate under the 2016 Will and substituting Andrew for Mr Minicozzi as applicant in the action.
In August 2020 Mr Macolino sold one of the Paradise properties. In December 2020 he sold the Highbury residence. In April 2021 he sold the other Paradise property.
In September 2021 Mr Macolino provided a report to the beneficiaries of the Estate. He reported that the assets of the Estate then comprised:
·$1,993,741 in cash;
·the investment (unit and beneficiary account) in the Unit Trust valued in September 2021 by Pitcher Partners at $1,277,427 (based on real estate valuations of the three properties by M3 Property in June 2021); and
·the half interests in the Edward Street and Stephen Street properties valued at $1,087,500 based on valuations by M3 Property in April 2021.
The net assets of the Estate, after liabilities, were estimated at $4,194,493.
On 8 April 2022 Michelle by her litigation guardian Pamela McEwin filed an interlocutory application seeking directions that Mr Macolino sell the two Norwood properties and, if Andrew were to refuse to join in a sale, that Mr Macolino apply under section 70 of the Law of Property Act 1936 (SA) (the Property Act) for an order for sale.
The application was listed for argument on 22 June 2022 but, at the request of the parties, this was vacated and it was relisted for 8 August 2022.
On 3 August 2022 Michelle by her litigation guardian Pamela McEwin filed an interlocutory application seeking essentially the same orders as sought in the 8 April 2022 application.
At the request of the parties, the argument listed for 8 August 2022 was vacated. The argument was relisted but ultimately adjourned pending a mediation of the substantive proceeding between all parties.
In September 2022 M3 Property provided an updated valuation of the Edward Street property at $2.5 million and the Stephen Street property at $900,000 (in each case the Estate having a half interest implicitly valued at $1.25 million and $450,000 respectively).
In October 2022 the mediation was unsuccessful and the argument was relisted, ultimately for 19 December 2022.
Evidence
Michelle tendered three affidavits affirmed by Ms McEwin on 8 April 2022, 23 June 2022 and 8 November 2022. Those affidavits largely exhibited documents, most of which are referred to above. In the third affidavit, Ms McEwin also deposed to a conversation with Christos Dimitrak, a licensed land agent.
Michelle tendered an affidavit sworn by Mr Macolino on 22 November 2022 which exhibited two media articles that referred to a Domain report entitled “House Price Report – September 2022” (the Domain Report) and a CoreLogic report entitled “RP Data Daily Home Value Index: Monthly Values” dated 31 October 2022 respectively (each of which were also exhibited).
Andrew tendered an affidavit sworn by him on 5 August 2022, excluding paragraph 32. He also tendered two affidavits sworn by his solicitor David Starke on 12 August 2022 and 17 November 2022 that exhibited a letter from Mr Macolino’s solicitors dated 11 August 2022 and an email from Mr Macolino’s solicitors dated 1 November 2021 respectively.
Michelle called Mr Dimitrak to give oral evidence. His real estate office is located in the eastern suburbs of Adelaide. He tends to specialise in the sale and development of residential properties. He gave evidence that the Adelaide property market experienced a boom at the beginning of this decade due to extremely low interest rates fixed by the Reserve Bank of Australia. In May 2022 the Reserve Bank started to increase interest rates and it has now made eight successive monthly increases in interest rates.
Mr Dimitrak gave evidence that these increases in interest rates resulted in lowered buyer interest in properties, reflected in lower attendances at auctions and making property more difficult to sell. He expressed the opinion that property prices have generally fallen in Adelaide since May/June 2022. He expressed the opinion that the price for which the Edward Street and Stephen Street properties would have sold if sold six months ago would have been up to five per cent higher than if sold today.
Mr Dimitrak expressed the opinion that property prices in Adelaide will continue to fall in the future. He expressed the opinion that the price for which the Edward Street and Stephen Street properties would be likely to sell if sold in six months time would be approximately seven per cent lower than if sold today.
The Domain Report (exhibited to Mr Macolino’s affidavit sworn on 22 November 2022) was put to Mr Dimitrak in cross-examination. That report shows that the median house price in the Adelaide metropolitan area for the quarter ended September 2022 was $795,093 compared to that for the June 2022 quarter of $790,100, entailing an increase of 0.6 per cent. It showed median unit prices in the Adelaide metropolitan area for those quarters entailing an increase of 2.5 per cent.
Mr Dimitrak explained that the source data for such reports is Lands Titles Office data, which is derived from documents lodged at settlement of a contract of sale. He said that such settlements are often three months after entry into the contract and hence there is a natural lag between price movements in the market and their showing up in such data. He said that the sales data for the September quarter in the report may well have emanated from contracts entered into in May or June. Accordingly, he expressed the opinion that this data is not inconsistent with his evidence that prices in the market began to fall in mid 2022.
Mr Dimitrak’s evidence in this respect is confirmed by another CoreLogic report entitled “Quarterly Auction Market Review September Quarter 2022”, which shows auction clearance rates in Adelaide falling from 83.4 per cent in the September 2021 quarter to 75 per cent in the June 2022 quarter to 67.7 per cent in the September 2022 quarter.
The evidence establishes that the present position in relation to the Edwards Street property is as follows. Unit 1 was the subject of a fixed term tenancy until 14 December 2022 and is now the subject of a periodic tenancy at a rental of $730 per fortnight. Unit 2 is the subject of a periodic tenancy at a rental of $680 per fortnight. Unit 3 is the subject of a fixed term tenancy expiring in April 2023 at a rental of $700 per fortnight. The Estate’s share of expenses (such as rates and taxes, insurance, maintenance and agent’s fees) total $18,642. The property generates a surplus of $9,660 per annum.
The present position in relation to the Stephen Street property is as follows. It is vacant. Annual outgoings totalling $3,789 are being incurred.
The present position is that the proceeding has now been listed for trial in May 2023. If the sale of the properties is to await the hearing and determination of the proceeding, it is likely that the properties will need to be retained for a substantial time. In addition, some parties have foreshadowed an intention to commence proceedings under the Inheritance (Family Provision) Act 1972 (SA) and such proceedings cannot be commenced until probate has been granted, which will not occur until after judgment is delivered. If sale of the properties is deferred until the hearing and determination of such proceedings, it is likely to be deferred for a period of years.
Mr Macolino produced an expert report by Ben Brazier of Pitcher Partners concerning potential capital gains tax payable on a sale or disposal of the Edward Street and Stephen Street properties.
In relation to the Edward Street property, Mr Brazier said that it is a pre-CGT asset because it was purchased before the introduction of capital gains tax which took effect on 20 September 1985. He said that, if significant capital works had been undertaken after 20 September 1985, that might have jeopardised the pre‑CGT status of the property. He observed that development approval was granted in March 1984 for construction of the two flats at the rear of the property and development approval was granted in August 1984 for renovations to the original dwelling at the front of the property. He expressed the opinion that it is likely that those works were completed before September 1985 and hence the property retained its pre-CGT status.
Mr Brazier said that a pre-CGT asset of an estate is prima facie subject to capital gains tax in the hands of the estate based on any capital gain between the date of death and the date of disposal if it is not disposed of within two years of the date of death of the deceased. The Estate’s interest in the Edward Street property was not disposed of by August 2019, being the second anniversary of the death of Michele. However, the Commissioner of Taxation has a discretion to extend the two year period. The Commissioner has done so in several other cases, taking into account the facts of each case and factors including a challenge to the will or the complexity of the estate delaying completion of its administration. Mr Brazier expressed the opinion that there are reasonable grounds in the present case for the Commissioner exercising the discretion favourably, although of course it is not possible to predict with certainty the exercise of a discretion. Accordingly, Mr Brazier expressed the opinion that it is likely that, if the property is sold in the immediate future, no capital gains tax would be payable.
Mr Brazier said that, if the Commissioner were to exercise the discretion unfavourably, the likely capital gains tax payable by the Estate would be $48,138 on the assumptions that the property was worth $937,500 in August 2017 when Michele died, the property is sold for $2.5 million based on the most recent valuation by M3 Property and other income of the Estate is of the order of $10,000.
In relation to the Stephen Street property, Mr Brazier said that it is a post-CGT asset because it was purchased after the introduction of capital gains tax which took effect on 20 September 1985. Mr Brazier proceeded on the basis that the intention of the purchasers was to hold the property in the long term as an investment rather than develop it and sell the developed property, based on the fact that they held it without development for 19 years prior to the death of Michele.
Mr Brazier expressed the opinion that capital gains tax would be payable by the Estate if the Stephen Street property were sold or if the Estate’s half interest were sold to Andrew. He expressed the opinion that the amount of the capital gains tax payable by the Estate would be $44,808 on the assumptions that it was purchased for $311,000 (although on-costs such as stamp duty or improvement costs would increase the cost base and hence reduce the tax payable), the property is sold for $900,000 based on the most recent valuation by M3 Property and other income of the Estate is of the order of $10,000.
Mr Brazier expressed the opinion that, if the Estate’s half interest in the property were distributed in specie to Andrew, no capital gains tax would be payable by the Estate. However, Andrew would become liable to pay capital gains tax upon any sale of the entire property as if he had purchased the entire property in 1998, thereby in effect inheriting the potential capital gains tax liability that the Estate would have borne if it had sold its interest at that future time.
Analysis
The Court appointed Mr Macolino as administrator pendente lite and defined his powers. There is no doubt that the Court has power to give directions to Mr Macolino. Andrew does not contend otherwise.
The order sought by Michelle is expressed in terms of directions to Mr Macolino to take steps to sell the two Norwood properties and, if Andrew in his capacity as a co-owner declines to join in a sale, to seek an order for sale under section 70 of the Property Act. I observe that technically a direction could be given that Mr Macolino take steps to best realise the Estate’s interest in the two properties. However, in practice, it would be impossible to sell the Estate’s moiety interest in either property to a third party purchaser for a realistic price. Realistically, the only way in which the Estate’s interest in each property could be best realised would either be by a sale of the entire property (pursuant to an order made under section 70 of the Property Act or with the concurrence of Andrew) or by a sale of the Estate’s interest in the property to Andrew.
In Henderson v Executor Trustee Australia Ltd[1] the Full Court addressed the role of an administrator pendente lite. Phyllis Rondahl owned 8.5 per cent of the issued shares in Coopers Brewery Limited (Coopers) at the date of her death. She made a will in 1992 leaving her shares to five nephews and nieces, one of whom was Mrs Henderson. She made a will in 1993 leaving her shares solely to Mrs Henderson. A proceeding was instituted challenging the validity of the 1993 will. An administrator pendente lite was appointed.
[1] [2005] SASC 477.
A meeting of shareholders of Coopers was called to consider a resolution to amend its articles of Association to remove certain pre-emptive rights given to Lion Nathan in relation to Coopers shares. Mrs Henderson wanted the administrator to vote against the resolution. The four other nieces and nephews wanted the administrator to vote in favour of the resolution. The administrator had not been granted on his appointment power to vote in relation to the Coopers shares. He sought the grant of such power, indicating that if granted he proposed to vote against the resolution. Perry J refused the application. Mrs Henderson appealed. The Full Court (Sulan J dissenting) dismissed the appeal.

Debelle J (with whom Anderson J agreed) said:
There is a distinction between a receiver and a receiver and manager. The latter has the power to manage the property in respect of which he has been appointed. An administrator, like a court‑appointed receiver, is a caretaker of the assets until the persons entitled to them are ascertained. … It is true that a receiver appointed by the court is a caretaker. However, when considering the duty to preserve the assets, in this case the shares held by the estate, it is necessary to consider all the relevant facts. … in this case the potential beneficiaries have different views whether the best interests of shareholders are served by accepting the Lion Nathan bid or rejecting it. In other words, there is no rule of thumb of universal application which governs the powers and duties of an administrator which can be applied by the court when called upon to give directions to the administrator. Plainly, each case will depend upon its own individual facts and circumstances.
There is not, in my view, any prescribed role for an administrator pendente lite. The role of such an administrator will vary according to the circumstances in which he is appointed and the purpose for which he is appointed. ... Those limited grants of administration include the appointment of an administrator pendente lite. In Williams, Mortimer & Sunnucks, Executors Administrators & Probate (18th ed) at paras 24 – 49 the object of appointing an administrator is explained in these terms:
The object of such a grant is to ensure that the estate of the deceased is managed and preserved for the benefit of those found to be entitled thereto.
The duty of an administrator pendente lite is, therefore, to get in the assets of the estate and manage and preserve them for the benefit of those found to be entitled to those assets.
Although an administrator is not a trustee, the duty to manage and preserve the assets for the benefit of those found to be entitled to them is similar to that aspect of a trustee’s duty which requires the trustee to act impartially as between the beneficiaries. An administrator like a trustee, therefore, cannot prefer the interests of one class of beneficiaries over another. The administrator is able to manage and deal with the assets of the estate where the potential beneficiaries agree and the court gives directions to do so. However, where the potential beneficiaries cannot agree and the course of conduct proposed by the administrator might adversely affect one or more of those beneficiaries, the court will, as a general rule, give directions which will preserve the status quo.
… There will be cases where it is plain that the interests of all potential beneficiaries are the same and the only issue is who those beneficiaries will be. In that case the court may readily be able to give directions to realise the asset at its highest value. In other cases, and this is one, the beneficiaries will have differing views as to how particular assets of the estate will best be administered. In that case, unless the beneficiaries consent, the court may not be in a position to direct the sale at the highest possible value.[2]
[2] At [43]-[45], [48]. (Footnotes omitted).
The evidence of Mr Dimitrak clearly proves that the Edwards Street and Stephen Street properties were appreciating in value up to May 2022, fuelled by the strong Adelaide property market fuelled in turn by extremely low interest rates. His evidence also clearly proves that since then there has been a downturn in the market, triggered by increasing interest rates. The market has not only plateaued but has fallen and is expected to fall further in the future.
Under either the 2003 Will or the 2016 Will, subject only to the power of appropriation of an asset, the testator’s expectation was that all of the five real estate property interests (together with the unit in the Unit Trust) would be sold and converted into cash; the cash would then be divided into a number of equal portions, and each portion would then be distributed to each beneficiary entitled to it. The difference between the 2003 Will and the 2016 Will is that, under the former, the cash was to be divided into four equal portions and distributed between the four daughters of Michele; whereas under the latter the cash was to be divided into ten equal portions and distributed between the five children of Michele and five sets of grandchildren of Michele (with the super-added testamentary trusts).
Three of the five real estate properties have already been sold and converted into cash by consent during the 2021 financial year. Sale of the Edward Street and Stephen Street properties was not urgent while the market was rising but prima facie that changed once it was appreciated that the market had plateaued and was about to fall significantly.
Andrew contends that Mr Macolino has not seen the need to sell the two properties and his role as administrator should not be usurped. Andrew refers to the letter sent by Mr Macolino’s solicitor on 11 August 2022, which included statements that the “two Norwood properties are located in a suburb where Mr Macolino believes property will remain in high demand” and “Mr Macolino therefore has not seen the need to agitate for the sale of the two Norwood properties”.
However, the position has changed markedly since mid 2022. Mr Macolino explained in submissions to the Court that, while the market was rising, he saw no need to take steps to sell the properties or seek directions, but that was always subject to review if conditions changed. Now that it appears that the market has plateaued and is falling, if Michelle had not sought directions by the Court, he would in any event have needed to consider whether, in light of changed conditions, he should now be doing so. Mr Macolino also makes it clear in his submissions to the Court on this application that he adopts a neutral position and is not opposed to directions being given to him by the Court as sought by Michelle. Accordingly, it cannot be said that Mr Macolino’s role would be usurped if he were given directions to take steps to realise the Estate’s interest in the properties.
Andrew contends that the directions to take steps to sell are being sought only by Michelle, who has what he submits is something less than one tenth of an interest under the 2016 Will. For present purposes, Michelle’s standing to seek the directions should not be diminished below one tenth because her interest is the subject of a testamentary trust: collectively the interest is of the same dollar value as the interest of the other nine beneficiaries under the 2016 Will. It is significant that Michelle’s application is supported by Riley and Kate, who collectively are entitled to another one tenth interest under the 2016 Will under a testamentary trust, and also by Lisa who is entitled to a one tenth interest in her own right under the 2016 Will. It is also significant that Michelle’s application is not opposed by any other beneficiary aside from Andrew.
At this stage, it is not known whether probate will be granted in respect of the 2016 Will or the 2003 Will. If probate is granted under the 2003 Will, Michelle and Lisa between them would be entitled to two quarters of the Estate and Andrew would have no relevant entitlement.
Andrew points to the fact that, if directions are given that Mr Macolino take steps to sell the properties, he would need to seek an order under section 70 of the Property Act in the absence of Andrew joining in a sale (and Andrew states that he would not willingly join in a sale). Section 70 provides:
70—Sale on application of certain proportion of parties interested
On any application for partition, if the party or parties interested individually or collectively, to the extent of one moiety or upwards in the property, request the court to direct a sale of the property and a distribution of the proceeds, instead of a division of the property between or among the parties interested, the court shall, unless it sees good reason to the contrary, direct a sale of the property accordingly, and shall give all necessary or proper consequential directions.
Section 70 effectively creates a presumption that, on application by an owner of a half interest (or more) in land, the Court should direct a sale of the property unless it sees good reason to the contrary. If Michelle’s application is successful, directions as sought are given to Mr Macolino and he seeks an order under section 70, it will be a question for another Judge to determine whether such an order should be made. However, given the presumption contained within section 70, Andrew has not on this application identified good reason why an order should not be made under section 70.
It is true that an application under section 70 will involve some time and expense to the Estate if Andrew does not join in a sale or does not offer to purchase the relevant property for its market value. However, if Andrew unsuccessfully opposes an order, ordinarily it may be expected that an order for costs would be made against him. Time and costs involved are a factor to be taken into account in determining whether to give the directions sought by Michelle but are not in themselves fatal to the directions being given.
Andrew also points out that, under section 71 of the Property Act, if an application for an order for sale under section 70 is made, he would be entitled to give an undertaking to purchase the Estate’s share of the relevant property for its market value. That is no reason not to give the directions sought by Michelle because it would be in the interests of the Estate for Andrew to buy its share for market value.
Andrew contends that the position is analogous to that in Henderson. However, in Henderson the issue was not whether the Coopers shares should be sold but rather how the voting rights associated with them should be exercised in relation to voting on the amendment resolution at the general meeting. In addition, there was objective evidence (referred to in the reasons for judgment of Perry J and Debelle J) pointing in opposite directions as to whether it was in the best interests of the estate to vote in favour of or against the resolution.
In the present case, the only objective evidence adduced is the evidence of Mr Dimitrak that Adelaide property is now experiencing a falling market. Objectively assessed, it is in the best interests of all of the beneficiaries of the Estate that the properties be sold and converted into cash. Andrew does not adduce any contrary evidence. Although he expressed the belief in his affidavit on 5 August 2022 that “there is little risk that the value of the [Edward Street] property will decline from its present value”, that belief was not supported by any evidence or other basis and, importantly, was four months out of date at the time of the hearing in any event.
It is necessary ultimately to address the two properties separately.
Edward Street property
The Edward Street property is presently generating a surplus of $9,660 per annum. This is relatively insignificant compared to potential capital gains and capital losses. In particular, it is insignificant compared to the potential capital loss that is likely to be suffered if sale of the property is delayed.
The Edward Street property was acquired in 1983 before the introduction of capital gains tax. Capital gains tax may, depending on the exercise of the Commissioner of Taxation’s disrection, be payable by the Estate in respect of the difference between the net price obtained on the sale and the market value of the property on the date of Michele’s death (August 2017). Delaying a sale of the property will not avoid any obligation to pay capital gains tax. In this respect, the Estate has already born capital gains tax on the sale of the two Paradise properties.
The Estate’s interest in the Edward Street property was valued in September 2022 at $1.25 million. That value is so high that, if probate is granted in respect of the 2016 Will, the Estate’s interest in the property could not be appropriated to Andrew in satisfaction of his one tenth interest. Andrew does not suggest otherwise.
In relation to the Edward Street property, it is appropriate to give the directions sought by Michelle.
This conclusion is only reinforced by a consideration of the capital gains tax implications. If the property is sold in the immediate future, there are good prospects that the Commissioner of Taxation would exercise the discretion to extend the two year period, resulting in no capital gains tax liability being incurred on the sale of the property. If a sale of the property is deferred until the final determination of proceedings affecting the Estate, which may be a matter of years, the prospects of a favourable exercise of the discretion must be substantially reduced.
Stephen Street property
In relation to the Stephen Street property, there are differences compared to the position in respect of the Edward Street property.
First, because it is a vacant property, it incurs outgoings without any commensurate income. Andrew offers to undertake to bear the Estate’s share of the outgoings with retrospective effect. This negates the outgoings disadvantage to the Estate of retaining the property. However, the major disadvantage to the Estate of retaining the property is not the outgoings but the potential reduction in the sale price of the property when sold due to a falling market.
Secondly, the Stephen Street property was purchased in 1998 after the introduction of capital gains tax. Subject to one qualification referred to below, the Estate will be liable to pay capital gains tax on the capital gain realised being the difference between the sale price and the cost price. However, again subject to the qualification referred to below, capital gains tax will be payable whenever the property is sold and deferring the sale would not avoid liability to the tax.
Thirdly, the market value of the Stephen Street property is much less than that of the Edward Street property. In approximate terms, it is about 10 per cent of the value of the net assets of the Estate. This has three consequences.
First, the amount of the potential monetary loss to the Estate as a result of the sale of the Stephen Street property being deferred during a falling market is much less than the potential monetary loss as a result of the sale of the Edward Street property being deferred.
Secondly, if probate is ultimately granted in respect of the 2016 Will, Andrew would be entitled to 10 per cent of the value of the net assets of the Estate, being approximately equal to the value of the Estate’s interest in the Stephen Street property. Andrew contends that the order sought by Michelle would deprive him of the opportunity to appropriate the Estate’s interest in the Stephen Street property to himself in satisfaction of his entitlement under the 2016 Will if probate is granted in respect of that Will.
I inquired whether Andrew is prepared to undertake to so act in that event. Andrew has given an undertaking to that effect to the Court. Because Andrew would be both the executor/trustee and the recipient of the property, it would be necessary for either all other beneficiaries to consent to the transaction or for directions of the Court to be obtained in effect approving the transaction. It is not therefore possible to be certain that such a transaction would occur in this hypothetical event. However, the prospect of such a transaction occurring is a relevant factor to be taken into account.
Thirdly, if probate is ultimately granted in respect of the 2016 Will and the Stephen Street property were transferred to Andrew by way of a distribution in specie, the Estate would not be liable to capital gains tax on the transfer of the property. This would not necessarily translate to a direct saving by the Estate of the amount of the capital gains tax that would have been payable on a sale of the property because Andrew is likely to wish to have his liability for capital gains tax taken into account in determining the value ascribed to the in specie transfer. However, as his capital gains tax liability would be deferred, it is likely that he would agree to a discount for that purpose. If probate is granted in respect of the 2016 Will, there is therefore the prospect of a saving to the Estate in terms of capital gains tax.
Weighing up the relevant considerations, an order should not be made that the Administrator take steps to sell the Stephen Street property.
Conclusion
An order should be made that the Administrator take steps to sell the Edward Street property but not the Stephen Street property.
The orders sought by Michelle in respect of the Edward Street property are (leaving aside costs) as follows:
1 The administrator pendente lite Alfio Macolino (“the administrator”) of the estate of Michele Moffa deceased (“the estate”) is directed to:
(a)    take steps on behalf of the estate to sell the whole of the land comprised in Certificate of Title Register Book Volume 5106 Folio 124 being the property situate at 42 Edward Street, Norwood 5067 (“the Edward Street property”) in which the estate holds one undivided second part and the second respondent Andrew Moffa holds the other undivided second part.
(b) if the second respondent declines or refuses to join in the sale of the Edward Street property, institute and prosecute on behalf of the estate a further proceeding (or further application) in this Court for an order under section 70 of the Law of Property Act 1936 that the property be sold on such terms and conditions as the Court considers appropriate.
2 The administrator be indemnified by the estate in undertaking the actions set out in paragraph 1 and further:
(a)    the administrator is permitted to pay any disbursements arising under paragraph 1 from the funds of the estate (including, but not limited to, court fees, counsel fees and real estate agent fees);
(b)    the administrator is permitted to use the funds of the estate to pay his legal costs arising under paragraph 1 as and when incurred;
(c)    to the extent that any adverse costs order is made in the proceeding referred to in paragraph 1(b), the administrator is permitted to use the funds of the estate to meet any such costs liability;
(d)    the administrator shall be permitted to charge his standard hourly rate for work undertaking the actions set out in paragraph 1 and shall be permitted to retain O’Loughlins Lawyers as his solicitors at their standard hourly rates for advice and representation for their work in undertaking the actions set out in paragraph 1.
3Subject to any further or other order made by this Court in the proceeding (or application) set out in paragraph 1(b), the second respondent shall be permitted to purchase the Edward Street property, notwithstanding that he is named as an executor under a will (which is the subject of a dispute in this proceeding) made by Michele Moffa dated 25 November 2016.
4The Administrator be granted leave to file cross relief in the foreshadowed application for sale of the Edward Street property under Section 70 of the Law of Property Act 1936 by way of interlocutory application in the within Probate action (“the Cross action”).
5The Cross action be dealt with by the Trial Judge in the substantive action.
6      Liberty to apply for further orders, advice or direction.
Andrew contends that, if an order is to be made directing the administrator to take steps to sell the Edward Street property (which he opposes), orders 4 and 5 should not be made and the proceeding referred to in order 1(b) should be instituted as an independent proceeding. Andrew also queries the need for order 2(d) given that orders have already been made relating to the administrator’s remuneration by the Master in August 2018. As the administrator has an interest in these questions, I will hear the parties in relation to them before making final orders. I will also hear the parties concerning costs.

[2023] SASC 2

19 January 2023