Supreme Court New South Wales Medium Neutral Citation: Morris v Hannagan [2011] NSWSC 1684 Hearing dates: 20 December 2011 Decision date: 20 December 2011 Jurisdiction: Equity Division - Duty List Before: Rein J Decision: Relief sought by the plaintiff granted Catchwords: EXECUTORS AND ADMINISTRATORS - Rights, powers and duties - Powers of some or only one of several executors as to sale, mortgage or lease of real estate - Purchase by one executor and third beneficiary opposed by other executor and fourth beneficiary - Co-executor's offer not better than offer of third party - Other co-executor can proceed with sale to third party Legislation Cited: Conveyancing Act 1919 (NSW) Category: Interlocutory applications Parties: Megan Lorna Morris (plaintiff) Ross Brian Hannagan (defendant) Representation: R Kako (plaintiff) G M McGrath (defendant) P D Williams, Whitehead Cooper Williams (plaintiff) P Tocchini, Staunton & Thompson (defendant) File Number(s): SC 2011/403524 ex tempore Judgment 1The plaintiff, Megan Morris, and the defendant, Ross Hannagan, are the executors of the estate of their late mother. They and their siblings, David and Kimberley, (as I shall refer to them for convenience), are beneficiaries under the will. The principal assets of the estate are two blocks of land, Lots 109 and 110, at North Curl Curl. The executors have attempted to sell the two blocks together but the combined lots were passed in at auction. Buyers have now been found for Lot 110. A Mr and Mrs Luciano are willing to enter into a contract of sale for that lot with the executors for $850,000 ( "the Luciano Contract" ). The plaintiff wishes to enter into that contract and the defendant does not. The plaintiff is supported by David, and the defendant by Kimberley. The reason that the defendant does not want the contract for sale to the Lucianos to be entered into is that he and Kimberley want both lots to be sold to Kimberley and her husband, Kurt. For some time Ross has wanted to buy both blocks and, until recently, was seeking time to arrange finance to enable him to buy both lots. 2Very recently, Kimberley and Kurt were able to obtain a conditional offer of finance from the Bank of Queensland. During yesterday afternoon's hearing, the offer was said to be unconditional (see Exhibit 3). Ross lives on Lot 110. The plaintiff wishes to enter into the Luciano Contract which must be exchanged by 5.00 pm today if that sale is to proceed. She does not want to accept the offer of Kimberley and Kurt - which I will refer to as the "Kimberley Offer" - which is also effectively made on behalf of Ross because he is to acknowledge on page 2 of Exhibit 2 that the property, if purchased, will be held as to 25% on behalf of Ross. The plaintiff does not want to accept the Kimberley Offer because it is not a straightforward offer to buy both lots at a price better than the market price; at best it is an offer to pay slightly over half of the price at which a valuation by Chesterton was obtained by the defendant (see the affidavit of Ross Hannagan dated 19 December 2011). Chesterton's valuation has valued the two lots as sold in line, i.e., $1,560,000. The Kimberley Offer takes into account Kimberley and Ross' share in the estate effectively to fund the balance of the purchase price. The draft "Kimberley Contract" refers to an agreed price of $1,560,000 and by clause 19 adjusts that down to a price of $674,603 (see Exhibit 2). 3The defendant submits that the Kimberley Offer is attractive to the estate because: (1) It is an offer to buy both lots at the one time; (2) It leaves demolition and asbestos removal and drainage costs required for Lots 109-110 to the account of Kimberley and Kurt; (3) It will not involve any agent's fees; and (4) It will bring about a speedy determination of the estate's administration and avoid the estate having to wait out a period whilst Lot 109 is marketed. 4The plaintiff's position is that even treating the $1,570,397 (the Kimberley Offer was increased by $10,397 yesterday), as the offer, it is not only not better than the offer from the Lucianos, but is worse. Given that Ross is involved in the Kimberley Contract, there is also an issue of an effective dealing by an executor, and the plaintiff submits that any offer should be one obviously better than the offer received from the third party. I think it is a situation where having regard to Ross' involvement in the Kimberley purchase, there should be a clear benefit to the estate in going with that offer rather than the Luciano offer. 5The plaintiff accepts that the $850,000 offered by the Lucianos involves conditions; the principal condition is demolition of the house on both lots and removal of asbestos. There is an estimated cost of $34,000 for this, (see Annexure J to the plaintiff's affidavit of 13 December 2011), and there are some other costs including $1,500 for council fees and a fence at $4,650 that would be required to divide Lot 110 and Lot 109 if sold separately (see the affidavit of Mr Ross Hannagan of 19 December 2011). 6The plaintiff, through her counsel Ms R Kako, is prepared to treat the Luciano offer for Lot 110 as one effectively for $800,000 excluding selling costs. Ms Kako submits that the offer for the two properties should be at least $1.6 million since the two lots are very similar in value and once demolition for the sale of Lot 110 is completed, there will be no demolition then required for Lot 109. Some drainage work will be required for Lot 109 but it is not extensive and it has been estimated at approximately $10,000 (see Exhibit B to the affidavit of Mr Hannagan dated 19 December 2011). 7Mr G M McGrath of counsel, who appears for the defendant, has put the defendant's case as being based on an offer better than valuation. Ms Kako says that the Kimberley Offer ought be better than the Luciano offer, not better than the Chesterton valuation. I agree with Ms Kako's submission that the Kimberley Offer is not better than the Luciano offer and appears to be worse, even assuming it to be an offer of $1,570,397. Further, I think that the Chesterton valuation by deducting selling costs and including holding charges has reduced the value of the properties in a way that does not permit an appropriate comparison with the offer from the Lucianos. The deduction of selling costs from the valuation is effectively all to the benefit of Kimberley, Kurt and Ross. As Ms Kako says, the Chesterton valuation does value Lot 110 at $850,000 excluding demolition costs, and that is what the Lucianos have offered. The plaintiff had obtained a valuation earlier in the year which valued both lots at $1.7 million: see Annexure C to the plaintiff's affidavit of 13 December 2011. 8I am not satisfied that the Kimberley Offer to buy both lots is at a price which makes it equal to the Lucianos' offer for Lot 110 and I am satisfied that it is not better. That is sufficient, in my view, to lead to a disposition of the matter favourable to the plaintiff who seeks an order pursuant to s 153(4) of the Conveyancing Act 1919 (NSW) but in addition, I agree with the plaintiff's concern about the form of the Kimberley Offer. It is not an offer to buy the two lots at $1,570,397. It is an offer constructed to deal with interests under the estate. I was informed yesterday that there are stamp duty considerations that may be at play. That may be so but in my view, the executor ought be concerned about entering into a contract for sale of property that reduces the contract price in the manner proposed. 9There are two other matters that I should mention; one is that the Luciano offer was one that has been around since 11 November (see paragraph 23 of the plaintiff's affidavit of 13 December 2011). The defendant has come up with the Kimberley Offer in the last few days. As I have noted, the Kimberley Offer does not have Ross as a purchaser. The plaintiff has had to deal with the consideration of the Kimberley Offer on very short notice and some concern was expressed about the ability of Kimberley and Kurt to complete the contract. When the conditional nature of the offer was raised, a faxed letter was subsequently produced from the Bank of Queensland saying that the offer was unconditional, as I mentioned earlier. That letter is signed by a Mr Drew Johnson who describes himself as "owner/manager". The plaintiff raises concerns about the authority of Mr Johnson to bind the Bank of Queensland, (and the circumstances do seem somewhat unusual), but I do not need to decide the point. Another aspect of that offer from the Bank of Queensland is that it is for an amount of $1 million which is far more than the $674,000 that the Kimberley Offer makes effectively for Lot 110. 10I raised the potentially onerous condition of the Luciano Contract in special condition 12, which requires the physical area of Lot 110 on transfer to be no less than 455 square metres, making allowance for one half of the width of the dividing fence. This was a condition which, if not met, would entitle the Lucianos to rescind. After I had raised that with Ms Kako, instructions were obtained and there were further discussions between the solicitor for the plaintiff and the solicitors for the Lucianos. I was informed that the purchasers are willing to amend condition 12 to reduce the square metreage that must be provided to 449 square metres. The valuers have referred to the square metreage as 455 square metres and there is nothing to suggest that that is incorrect, but the adjustment of the clause reduces the risk to the estate. 11I accept that it is desirable for the estate to sell both lots together if possible, but not if that yields a lower figure, and I agree with Ms Kako's submission that the price for Lot 110 of $800,000 (i.e. after deduction of demolition and remediation costs) provides a very good guide to a total price for both lots of at least $1.6 million. This accords with the evidence of real estate agents of an informal nature (see Exhibit D to the plaintiff's affidavit of 13 December 2011), and accords also with the Chesterton valuation of each lot individually. 12In my view, the relief sought by the plaintiff should be granted. ********** 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: 15 February 2012